Highlights from RR’s Unit & Sales Report

• While 2020 was perhaps the industry’s worse year ever, there were definitely winners and losers mixed-in the overall results.
• To this end, relative $1B+ chain outperformance reflected the clear benefit of scale – helping the national brands to pivot around tech, access and marketing in ways which the smaller players were not able to replicate.

• In any case, the sit-down model was most dramatically impacted.
• QSR performed much better because of superior positioning around off-premise (particularly drive-thru).
• All-the-same, it is notable that not even QSR as a whole emerged unscathed in 2020 despite a significant post-lockdown market share gain.

Report Detail

• Surprisingly, gross development continued during 2020 despite all the odds. This largely reflected the ability of certain QSR chains to leverage their post-lockdown competitive advantages into new development.

• Also surprisingly, 2020 closure rates for the $1B+ chains where much more manageable than expected because of QSR strength and because of government assistance for FSR.

Wendy’s – RR’s Executive Summary

Wendy’s “Quality is our Recipe” brand positioning stresses a commitment to fresh, never frozen, North American beef in the form of square, cooked-to-order burgers that are juicier, hotter and made with more melted cheese. The brand’s freshness positioning is also reinforced by the: use of smaller birds which make its chicken fillets more tender & juicy; daily produce prep; mayo on its burgers; and greenhouse grown tomatoes. Further, it’s premium positioning benefits from: high-end toppings (applewood smoked bacon, asiago cheese & high-end salad toppings); spicy flavor profiles; and bakery styled buns that “hold the whole thing”. Notably, Wendy’s Premium Made to Crave lineup has helped drive a 10% incremental increase in sales, its chicken upgrades are helping in the chicken sandwich wars and its breakfast launch helps fill an obvious hole. The brand’s menu strategy is to: reinforce its hamburger quality leadership; raise consumer expectations with its chicken products; leverage its equity in bacon (Baconator); drive unique visits through salads & beverages; innovate with on-trend (spicy) flavors; and offer a multi-faceted approach to price/value. While value is addressed with $4/$5 bundles deals as opposed to low-priced/discounted a la carte offers, the brand must also keep things interesting for guests looking to spend under $4 (for the time being) without offering deals that would cannibalize higher-end sales. Marketing is supported by the brand’s social media prowess which helps target younger, digital savvy consumers. Also, Wendy’s high-ticket digital sales mix is ramping-up and is well supported by the recent launch of its loyalty program. Despite strong sales results so far in 2021, it bears noting that Wendy’s faces some stiff long-term competition from better burger players and those chains with well-established higher-end chicken positioning (think Chick-fil-A & Popeyes). In conclusion, while Wendy’s has done well to magnify its significant menu prowess, 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 higher sales.

Domino’s – RR’s Executive Summary

Domino’s is very well situated as the largest US pizza chain (36% delivery share & 15% carryout share) with a 40% domestic share among the top 4 players. Brand positioning emphasizes: leading-edge, digital ordering convenience/speed and seamless payments; a 100% contactless delivery model; and its long running $5.99 and $7.99 price point deals which are centric to their everyday value positioning. The chain’s impressive 75% digital sale mix drives higher group checks including more high margin add-on sales enabled by its broad menu (specialty chicken, wings, stuffed cheesy bread, salads & desserts). Its 27MM member Piece of the Pie Rewards loyalty program drives frequency with marketing customization and discounts (every 7th pie free). The brand’s marketing ideas are designed to start with an innovation that makes the pizza experience more magical (think Disney), consistent with its role as an e-comm business. Notably, Domino’s IT and marketing scale represents a key advantage relative to smaller industry players who represent the bulk of Domino’s competition and source of market share gains. As faster delivery times are correlated with higher frequency, the brand seeks to reinforce its reputation as a delivery leader by promoting tech solutions to speed/improve delivery (like GPS tracking, expansion of its AnyWare order platforms & automated delivery cars). Its “fortressing” market fill-in strategy improves delivery speeds (by 2 minutes) and plans to transfer orders to delivery drivers in the parking lot should further improve speed. Domino’s scale also facilitates: its value leadership around its long-running deals (price certainty) at $5.99 and $7.99; and one of the most cost-effective delivery options in the industry with a delivery fee which is far more affordable than DSP alternatives. In any case, as labor costs continue to rise and the challenge of hiring drivers increases (with the rise of DSPs), the incentive to drive carryout sales increases (particularly in high-cost markets). Relatively high margin carryout is key for Domino’s as it offers customers a less expensive option (without delivery charges & tips) which is better suited to a weaker, post-lockdown economy. To this end, the chain is challenged is to restore sales from lapsed carryout customers who have been reticent to enter the store post-lockdown (which explains the launch of carside delivery). In conclusion, while it is our opinion that Domino’s is doing a great job in strategy and execution, its competitive bar remains extremely high and a continued comp outperformance is challenged by difficult y/y compares and a return to normal which naturally diminishes the demand for contactless delivery.

Special Order Reports

Little Caesars – RR’s Executive Summary

Little Caesars enjoys simple, effective brand positioning around HOT-N-READY speed & convenience, the lowest price points in the pizza segment and quality (as the only chain to make dough in-house). It’s HOT-N-READY access model means no waiting for an in-store pick-up of $5+ large cheese or pepperoni pizzas kept in inventory. Online orders for other products (Reserve-N-Ready) are available for pick-up from the store’s unique Pizza Portal. Access further benefits from a new DoorDash delivery service started at the beginning of 2020. Notably, the brand’s predominant carry-out service model provides a significant labor cost advantage relative to its national delivery competitors and helps facilitate low price points in a price sensitive market. While LC enjoys a relatively healthy post-lockdown positioning (because of its strong price value & great carryout access), its comps have been underperforming the pizza segment for some time because of its orientation towards a lower income demo and because of slower digital order progress. This chain’s inability to raise prices for its core $5+ HOT-N-READY Classic large (which drives the majority of sales) represents a challenge not only to COGs, but to its ability to offset post-lockdown traffic declines with mix improvements. To this end, a system worst EBITDAR margin reflects AUV & COGs underperformance. In conclusion, while Little Caesars maybe the best at carryout, it is challenged with the need to translate it’s fun menu and marketing into higher price points sufficient to increase unit level profits.