1Q23 results from the major public retail chains painted a picture of low-income consumers struggling with inflation, higher interest rates and lower Snap payments & tax refunds. Consumer stress is also evident by theft rate increases.
While Wendy’s has done well to magnify its significant menu prowess sufficient to generate a respectable +18% cumulative U.S. comp growth from 2019 – 2022, the chain must continue to work to translate its QSR+ positioning into increased frequency from a higher income demo sufficient to drive a higher check and store level profits.
IHOP is well positioned as the largest player in the $1B+ family chain segment with 30% market share and the largest marketing budget in the segment. The chain is well known for: an unexpected twist on “all things breakfast, any time of the day”; world famous pancakes; flavored syrups; and the never empty coffee pot
While McDonald’s is well positioned for the long-term with solid execution around sound fundamentals, the current macro environment may prompt its core value-oriented customers to demand more deals and concessions than the system is prepared for.
Strong Sales & Lower Commodity Prices Bolster 1Q Margins
It looks like we may get the promised “soft landing” for the restaurant industry as employed consumers continue to have some money to spend while restaurant operators are poised to enjoy some well-deserved margin relief.
While Jack has done a great job of reviving an iconic West Coast brand in a crowded field, it remains to be seen how the chain’s value equation will fare over the medium-term given a turbulent macro environment amplified through a problematic California lens.
While Chili’s has been able to distinguish itself in a crowded FSR space with an attractive Tex-Mex menu, fun experience, leading value and digital strength, the chain’s immediate challenge is to survive the onslaught of economic pressures on its value oriented customer base.
As lower inflation (relative to grocery stores) has provided an important tailwind for restaurant industry sales since 2022 (as it provides consumers with a greater reason to eat-out relative to home cooking), it is important to monitor this gap going forward.
A check-up on restaurant stock performance through March 2023 reveals a favorable industry outlook.
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