Same Store Sales Trends

Sales Continue to Improve as Capacity Trends Higher

• Almost half of all $1B+ chain locations now enjoy 100% dining capacity as restrictions continue to ease over time.
• According to Darden, those restaurants that had some level of dining capacity (50% system average) for the entire quarter (recently reported) generated weekly sales which were 80% of last year’s levels.
• It is notable that changing COVID levels have not impacted market demand according to Darden, reflecting consumer resiliency.
• Contact RR for how to purchase a spreadsheet of state exposure by chain.

• The latest available government data shows foodservice sales steadily gaining ground on grocery stores as dine-in capacity continues to trend higher across the country.

• Notably, the CPI for QSR exceeded the CPI for food at home in August for the first time since March as drive-thrus enjoy greater price inelasticity post-lockdown.

Promotional Composition

Promotional Price Points are Ramping Higher

• Average value promotional price point increased for both QSR & FSR.
• More chains (especially FSR) are offering free delivery (25% of the $1B+ Chains in September offered free delivery versus 9% last month).
• Menu innovation picked-up in the QSR hamburger segment.

Economic Outlook

Economy Doing Well with 2nd Stimulus Coming

• Notably, Darden recently reported that the stimulus fall-off has not impacted weekly sales which have steadily improved across its system.
• In any case, expectations for a sharp ramp-up in sequential growth for the GDPNow model reflects continued expectations for increasing growth in both real personal consumption expenditure and real gross private domestic investment.
• Consumer confidence increased sharply in September to its highest level since March.
• Negotiations for a 2nd round of government stimulus benefits are still in the works although timing and content is uncertain.

Key Cost Trends & Forecasts

Commodity Prices Continue to Ramp-up

• The BLS Foodstuffs Index continues to rebound (+5.2% in September) with pork, chicken wings & potatoes at LTM highs while ground beef prices continue to fall to another LTM low ($1.35/lb.)
• Block cheese prices remain volatile (+14.1% & approaching recent highs).

• Labor trends are stabilizing.

Franchisee EBITDA Valuations

Supply Expected to Ramp-Up

• QSR valuations are holding steady with strong demand for Sonic and pizza chain deals (Papa John’s, Domino’s, Pizza Hut & Little Caesars).
• Notably, an Applebee’s franchisee portfolio was reported to have traded close to the real estate value.
• Lending market remains conservative.
• Notably, more sellers and franchisors have surfaced asking for valuations, indicating there will be a strong supply of sellers coming to market in the next 6 months.

Stock Performance

RR Index Slightly Out-Performs in a Down Month

• The RR Index slightly out-performed the S&P 500 in an otherwise down month as investors continue to favor QSR. There was some rotation out of recent high flyers (Papa John’s & Wingstop) as investors locked in profits.

Marcus & Millichap Cap Rates

Spreads Shrink Between Cap Rates & 10 Yr.