Bullish investors’ sentiment towards restaurant stocks during January reflects an outlook for continued consumer resiliency and moderating costs. Notably, this seems somewhat contrary to McDonald’s base case for a mild to moderate recession this year.
New Unit Investment Report provides average building cost estimate details (excluding land) for the $1B+ Chains in addition to new store ROI, franchisor incentives, franchise fees and new prototypes.
Dunkin’s famous coffee, donuts & munchkins are legendary in core Northeast markets and the Dunkin’ way (get in, get out & get on your way) is consistent with its famous “America runs on Dunkin'” tagline. Dunkin’ is progressing in its strategy to execute a more upscale repositioning, allowing the chain to tap into the purchasing power of a new, younger clientele to layer onto a stream of sales from the brand’s core base of middle America.
KFC is a leader in traditional hand-breaded, bone-in Southern fried chicken with considerable brand equity around its Original Recipe seasoning and Extra Crispy option. While KFC’s efforts to improve its relevancy are bearing fruit, the chain must currently deal with material inflationary pressures around chicken prices that are stressing core customers.
Jersey Mike’s is well positioned to continue its outperformance given a reasonably healthy economy by leveraging its core equities around off-premise, a compelling quality/service positioning, a brand commitment to give back to its customers as well as its communities and effective digital/loyalty marketing efforts.
Pizza Hut enjoys substantial scale and strong brand equity as the 2nd largest national player in the $1B+ chain pizza segment by domestic system sales.
After a ruinous 2022 in terms of food cost inflation, moderating 2023 inflationary prospects will still leave food input costs at extremely elevated levels. Fortunately, moderating labor costs suggest that restaurants will not have to pass along as much pricing in 2023 to restore margins. Also, it is notable that restaurant sales benefit from more discipline in terms of price increases relative to the grocery stores.
While 2022 was a bad year for restaurant stocks, 2023 could be much better as long as the labor market holds together.
Remodel data and analysis on 50+ national chains, including: (1) remodel progress/system condition; (2) investment costs; (3) post remodel sales increases; (4) franchisor remodel incentives; and (5) program scope.
While Carl’s Jr. is building upon its positioning as a purveyor of tasty burgers, the chain remains challenged to meet the growing demand for value in a tough economic environment given elevated operating costs associated with its West Coast orientation.