Same Store Sales Trends

Comp Prospects Looking Up

• Strong April comp prospects reflect that RR’s Intent to Eat Out Index (our survey of 1,500 consumers’ plans to eat-out over the next month) increased +17.4% y/y in March, representing the largest monthly increase and 2nd highest absolute score since survey inception.

• Further, an overlap over last year’s lockdown period will provide a favorable y/y comparison, especially for FSR with LongHorn and Olive Garden reporting +23.2% & +5.7% respectively for the week ended 3/21/21.

• Grocery share of total foodservice sales was at 48.9% pre-lockdown (4Q19), increased to a high of 60.1% during 2Q20 before moderating somewhat to 54.3% during 4Q20. An eventual return to normal share levels could help restore restaurant traffic.
• The 4Q19 +2.3% CPI price gap for food-away-from-home (vs. food-at-home or groceries) tapered-off to nearly flat by 4Q20 as grocery stores initially were able to increase prices because of consumer concerns about eating-out.
• Subsequently, QSR prices grew at 2x the pace of Food at Home during Jan & Feb 2021 as industry players capitalized on government checks and increasing mobility which, in turn, fuels restaurant traffic.

Stock Performance

FSR Stock Momentum Builds

• The RR Index continues to benefit from strong FSR gains (+8.5%) which reflects an improving dine-in outlook combined with prospects that sit-down chains will retain a significant amount of new found off-premise sales.

Promotional Composition

Value Strategies Set the Tone

• A -6.9% y/y decline in the QSR value mix (to an LTM low) combined with a +6.6% increase in the average promotional price point (reflecting fewer $4 & under offers) explains the previously discussed 2021 QSR CPI gap.
• A -18.5% reduction in the average FSR promotional price (lowest level since 8/18) was partially offset by a -4.8% reduction in the FSR promotional value mix (to the lowest level since 8/19).
• Going forward promotional price point averages should decline significantly y/y as chains overlap a prevalence of bundled family lockdown deals.

Economic Outlook

Bullish Sentiment Bodes Well for Economy

• +6% GDPNow 1Q:21 forecast reflects the highest consumer confidence reading in a year and the lowest post-lockdown unemployment rate.
• Discretionary spending should also benefit from the distribution of $335B in direct 3rd round stimulus payments between 3/12 – 4/1.
• Fortunately, the Paycheck Protection Program (PPP) application deadline was extended from 3/31 to 5/31 (~$94B remains available).
• Interest rates continue to rise with the 10-year treasury increasing from 1.45% on 3/1/21 to 1.73% as of 4/5/21 (compared to a low of 0.52% 8/4/20).

Key Cost Trends & Forecasts

Inflation Could Impact COGS & Development Costs

• The March BLS Foodstuffs index jumped +40% y/y on top of +23.4% in February (+24% YTD 3/21) and represents the highest level since 7/14.
• Commodity costs extending last month’s highs include: wings (all time high); corn (8-year high); pork (3-year high); coffee (3-year high); and chicken (LTM high).
• 2021 PPI forecast was raised for eggs, chicken, beef & pork, but lowered for vegetables in March.
• Rapidly rising corn prices could impact feeding costs for livestock which could translate into even higher meat prices.
• Sharply higher lumber prices (+18% in 2020 & +56% YTD 2/21) could pressure new store construction costs.

Franchisee EBITDA Valuations

FSR Valuation Outlook Rebounds Sharply

• FSR franchisee valuation outlook rebounded sharply into bullish territory while QSR maintains a positive bias.

Marcus & Millichap Cap Rates

Cap Rates Trend Higher with Interest Rates

• Notably, March transaction volume increased +23% y/y.