Report Announcements

Papa John’s

Papa John’s

Papa John’s is executing around a solid strategy of restoring its upscale positioning which, while working for now, may need to be tweaked towards value depending on the economy.

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Unit Economics

Unit Economics

• While AUV’s continue to benefit from the closure of underperforming stores over the last 2 years, significant 2022 sales headwinds reflect the need to pass along higher prices to consumers with less disposable income.
• The average 2021 unit-level EBITDAR margin for the $1B+ chains rebounded to just under the 2019 level as higher COGS were more than off-set by lower labor and operating costs, both of which benefitted from significant sales leverage.

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Domino’s extended record of sales outperformance is now threatened by a necessary move away from its core equities in the form of price certain value and fast delivery while it pivots towards carryout and higher prices.

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While Wendy’s has done well to magnify its significant menu prowess sufficient to generate a respectable +14% cumulative U.S. comp growth from 2019 – 2021, 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 in-line comp performance.

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• Subway is the largest sub sandwich chain by far with an ad budget larger by multiples than the other sub chains.
• Notably, a +29% comp rebound in 2021 followed a -20% 2020 decline and 2021 digital sales are triple 2019 levels, supported by its FreshBuzz App and loyalty program.
• Subway’s well-conceived upscale Refresh must now pivot to value if the system is to endure an economic downturn that is disproportionately afflicting its lower income core demo.

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Insights: 1Q Same Store Sales

• 1Q22 same store sales for the $1B+ Chains increased +6.1% (+14.7% 3-yr stack) on slowing momentum (relative to +11.5% during 4Q21) with 7 of 30 chains reporting negative sales (compared to just 1 in 4Q21).
• With food-away-from-home CPI up +6.7% during the quarter, it is easy to see that comp growth is primarily attributable to menu price increases as opposed to traffic.

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While McDonald’s is currently well positioned with solid execution around very sound fundamentals, its core value oriented customers are caught in an inflationary spiral which may require a sacrificial pivot towards price value from this iconic brand which has worked so hard to earn America’s trust over the many decades.

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Unit & Systemwide Sales Growth

• 2021 gross unit development rate of +2.6% for the $1B+ Chains was in-line with 2019 and is expected to grow +3.1% in 2022 despite headwinds.
• 2021 closure rates for the $1B+ chains improved from 2020’s elevated levels, but net unit growth was below the overall industry.
• Systemwide sales for the $1B+ Chains increased +15.7% during 2021 (+9.9% 2-year stacked basis) compared to +32.8% (+14.9% 2-year stacked basis) for the total restaurant industry and total restaurant industry market share for the $1B+ Chains has steadily declined to the lowest level in 19 years.

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Marketing Spend

Total 2021 net marketing spend for the $1B+ Chain restaurants increased +8.9% y/y (+2.8% 2-yr. stack) to $6.9B, reflecting the benefit of +15.7% systemwide sales growth (+9.9% 2-yr. stack) somewhat off-set by lower net marketing spend as a percent of sales (continuing a longer-term trend in which marketing spend has declined from 3.1% in 2017 to 2.6% in 2021). Notably, total net restaurant marketing spend as a % of total domestic spend across all industries has declined from 3.2% in 2017 to 2.5% in 2021 as the chains appear less impressed with marketing ROI compared to other industries.

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Jimmy Johns

While Jimmy John’s has taken important steps to improve its relevancy, a sustained sales rebound for the chain would certainly benefit from a return of office workers and an increase in the availability of affordable delivery drivers sufficient to support the chain’s “freaky fast” core equity that distinguishes in a crowded field.

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