RR Dashboard: Aug 2021

Sep 2, 2021 | Dashboard

Same Store Sales Trends

2Q Results Surpassed 2019 & Are Now Moderating

2Q:21 comps increased +37.9% y/y for the $1B+ Chains and +12.8% on a 2 yr. stacked basis as all segments of the industry have fully recovered.

However, RR’s Intent to Eat Out Index (RR’s survey of consumers’ plans to eat-out over the next month) suggests that 3Q21 comp trends are moderating, reflecting flat disposable income (less government assistance) coupled with significantly higher menu and gas prices.

Total food service sales are following prices higher, with a particularly notable ramp-up in grocery store prices.

Stock Performance

First Positive Month for the RR Index Since April

The RR $1B+ Chain Index posted its first positive month since April as FSR gains offset a slight QSR decline.
In any case, the industry has enjoyed very strong YTD results.

Promotional Composition

QSR Continues to Diminish its Value Focus

QSR value mix declined another 7% in August (representing a new low) while the average promotional price point increased +1.9% y/y.

The FSR value mix continues to trend higher and is being driven by an increase in other value offers (primarily new loyalty member rewards) which more than off-set fewer specific price point value promotions.
In any case, the average promotional price point was down -9.0% y/y during August.

Economic Outlook

GDP Forecast Lowered as Consumer Outlook Weakens

3Q GDP forecast was lowered to +3.7% from +6.3% last month as the outlook for consumers weakens.
Press reports indicate that as many as 750,000 renters are at risk of eviction with 2.5MM – 3.5MM behind on rent (with $12B – $17B owed to landlords).
Consumer confidence pulled back sharply in August after steady YTD gains through July.
Gas prices have increased for 9 consecutive months and are now +45% higher than last August which further squeezes disposable income.
A moderating 10 year reflects mounting economic challenges.

Key Cost Trends & Forecasts

Material Food Inflation & Labor Shortages

While job openings continue to ramp-up as sales volumes surge, labor shortages are restricting 2H21 comp growth prospects.

Franchisee EBITDA Valuations

More Franchisee Consolidation Expected in 2022

According to Alan Gallup National Franchise Sales – “Consolidation is expected to continue in 2022 as strong and quality operators prosper by reduced competition and the economy, while weaker operators who have postponed the inevitable challenges of poor operations and poor capitalization, will be under siege by creditors and franchisors.”

Marcus & Millichap Cap Rates

Cap Rates Follow 10 Year Down

Cap rates declined to their lowest level since February on average transaction volume, following the 10 year lower.
The average QSR rate was 5.2% compared to 6.3% for FSR.

← Taco Bell Burger King →

Email Sign-up

What is the Federal Government’s Job?

A couple of weeks ago we conducted a thought experiment in which the government became a nonprofit, and this week we propose another thought experiment in which the government becomes a public corporation. We suggest that this could provide very useful input into the debt ceiling debate.

The Importance of the Balance Sheet in Financial Analysis

While most investors are focused on sales growth & margins, they would be well served to further consider the strength of a company’s balance sheet. We look at BlackRock’s financial condition as an illustrative point.

The Importance of Free Cash Flow in Financial Analysis

Cash represents the lifeblood of all business enterprises which is why it is important to analyze free cash flow which we define as operating cash flow minus capex, dividends, and stock buybacks. We illustrate DoorDash as an example of why cash flow analysis is so important.

Lessons From Tucker Carlson

There are many theories about why Fox booted Tucker Carlson, but it may be a very simple reason which can instruct everyone involved in the consumer retail segment.

It is Imperative that Climate Change Regs Incorporate Economic Reality

This week we spotlight efforts by international agencies to lower the earth’s temperature by imposing onerous regulations on energy producers. We suggest it will be better to: begin a process of implementing continuous improvements designed to support both economic & climate progress; and use international organizations to share tech & best practices as opposed to providing them with regulatory powers best left to individual nation-states.

Part 3 – It’s Nice for the US to Save the Climate, But What About the Rest of the World?

In our last 2 posts, we outlined the probability that the UN’s push to lower the world’s temperature by -2 degrees Celsius could drive significant U.S. energy price hikes & shortages. How is this going to help as Asia ramps up the use of coal? Can humans lower the earth’s temperature anyhow?

Part 2: Who is Left to Make Investments in Fossil Fuels & Clean Energy?

There is not a lot of incentive for profit-seeking companies to invest in demonized fossil fuels or in clean energy projects lacking ROI. This points to substantially higher energy prices and supply shortages that will have a profound economic impact.