While everyone is focused on CPI, we have been looking at 2Q23 restaurant results & we like what we see. Most of the restaurant chains have reported 2Q results (please see the posts below) & things are looking up in our opinion. To this end, please note the following 5 significant trends:
- There is good evidence that a return to a true post-covid normal is well underway as consumers adopt their 2019 dining preferences. This includes a rebound in both breakfast & late-night sales as people adjust back to their old routines. Also, customers are no longer ordering for large groups that are hunkered down at home as more people get back on the road, helping traffic to finally show signs of stabilizing. Finally, we note that the pizza chains continue to struggle as the sales bubble for this covid food of choice deflates to normal levels (with the big chains at least holding on to their gains), consistent with Papa John’s report of increased pricing sensitivity among its third party delivery customers (in other words, even DoorDash customers are beginning to normalize).
- Food costs are deflating & labor costs are moderating while the chains hold on to their menu price increases. This is very good news for store margins.
- Lean times over the last 3 years have lit a fire under management teams who generally have excelled at improving what was under their control. This has led to refined marketing strategies & operational improvements which are poised to drive sales growth and cost efficiency.
- Operators are finally able to staff back up to appropriate levels, thus further improving operations, service, and throughput potential. This is a huge plus for this hospitality sector.
- Digital initiatives accelerated by the covid scare are gaining real traction, thus providing substantial benefits. Improving access, convenience & customization are driving higher checks. 1-to-1 marketing allows the brands to move away from mass discounting margin squeezes and lessens the need for expensive mass-market TV advertising. Finally, digital order platforms improve order accuracy and allow operators to further improve service by re-assigning labor from order taking to customer interface.
In conclusion, it has taken the better part of 3 years for the economy to recover from the covid lockdowns/scare – let’s not do that again!