Highlights from Marketing Spend Report

• The public restaurant chains actually increased their 2020 marketing spend by +1.5% to $5B. A decline in traditional TV ad spend was partially offset by an increase in more cost-effective digital marketing.
• QSR’s +10% increase reflected both an increase in ad spend as a % of sales & growth in system-wide sales.

• FSR’s -19% decline reflected both a decrease in ad spend as a % of sales & a fall-off in system-wide sales.
• Many sit-down chains suspended TV ads consistent with seating capacity limitations.

• Digital marketing spend exceeded traditional ad spend for the first time in 2020 as lockdowns encouraged consumers to spend even more time online.

• Google’s marketing revenue composition is a good proxy for the industry.
• We can see from the charts below that, while search ads continue to represent the lion’s share of digital ad spend, video ad spend is growing the fastest. This reflects that video media consumption is rapidly shifting from TV networks to platforms like YouTube.

Food Service Sales Pop in March

• Food service sales popped +35% y/y in March with grocery sales down -12% y/y according to government data.
• This is consistent with the findings of our recent Trafficast publication in which RR’s Intent to Eat Out Index (our survey of 1,500 consumers’ plans to eat-out over the next month) increased +28.5%, representing an easy y/y compare but also the strongest absolute results ever.

Chick-fil-A Continues to Amaze

• Even in a terrible year, Chick-fil-A was able to drive an outrageously high AUV even higher.
• Just remember this is done during a 6 day workweek!

Jack in the Box Executive Summary

Jack’s traditional burger/chicken menu is known for variety, innovation and a taco distinction (addressing cravings throughout the day & munchies at night) with 4 strong dayparts, including late-night which benefits from 24/7 drive-thru access. Although this is a regional system with almost 70% of its stores located in California & Texas, the brand enjoys leading QSR hamburger share in 8 of its 10 major markets. Brand positioning benefits from an improvement in its value equation with price point offers spanning $1, $3 & up. Notably, discounting is kept to LTOs as opposed to core products. New product news sharply ramped-up from ~1/2 of the segment average during 2019 to ~2x the segment average in 2020 and its chicken upgrade improved the quality, thickness and flavor of its new Cluck sandwich & all-white meat crispy strips. The chain is also enjoying success with sales of its lower priced snacks and sides which appeal to value seekers while also driving incremental add-on sales from its more premium customers (without causing trade-down). Notably, its 4Q20 average check increased +26% y/y, reflecting more items per order, a higher premium mix and a doubling of its app & delivery sales. Fortunately, the chain’s CMO role finally has been filled by an exec with experience as KFC’s chief digital officer. Jack’s going forward sales should continue to benefit from: strong direction from a new senior management team; the chain’s improved value/upsell equation; menu innovation strength; operational improvements (including faster speeds at the drive-thru); and its drive-thru model which works so well post-lockdown (particularly in California). All-the-same, it is important to note that the brand is challenged to compete around price value given the high labor and real estate costs associated with its West Coast orientation. To this point, its EBITDAR margin has declined 3 out of the last 4 years since its 2016 peak despite a system high AUV. Will Jack be able to maintain its value orientation after a return to normal reduces the number of items per check? In conclusion, while Jack has strengthened its very important value positioning, it must be prepared for a return to normal when margin support will require high tickets without the luxury of a high item count, and this may require a continued move towards increasing its premium mix without alienating its core value-oriented customers.

Chili’s Executive Summary

Chili’s positioning as the 3rd largest casual player by sales: digital, tech-forward; strong everyday value with good value for the money; great place to hang-out with family & friends; and a great bar atmosphere. Young families represent Chili’s primary target and corporate reports: the highest value scores across the category; plans to continue to incent through direct & digital as opposed to LTOs; and that its value mix increased post-lockdown. Chili’s is confident that few of its competitors can match its value offers (margin friendly 3 for $10, $25 meal for 2, $8 lunch specials & its popular $5 Margarita of the month) on a consistent basis. The menu strategy is to keep away from operationally complex LTO driven news, instead highlighting its craveable, core menu items (inspired by Texas) at a compelling value (reflecting quality & ample portions as opposed to low price points). To this end, the brand seeks to maximize preference for its core ½ lb. Big Mouth Burgers, Texas-sized ribs & sizzling fajitas in order to simplify operations and improve service times. A significant post-lockdown reduction in traditional media spend was replaced with cost-effective digital marketing (including a big online video focus) which helps better target a younger demo while also providing a better tie-in with its digital order platform and loyalty program. Digital media effectiveness (1-to-1 marketing) is fueled by consumer insight gleaned from: 8MM member loyalty & 2.6MM email databases; tabletop devices; app orders; and the integration of DoorDash into its POS system and e-commerce platform. Post-lockdown comp declines were softened by strong off-premise growth, an emphasis on value (3 for $10 & $5 Margaritas) and the addition of virtual brand (It’s Just Wings). Recent segment outperformance also reflects: an improved guest experience driven by investments in the quality & consistency of its products; loyalty program; and a simpler operational model. All-the-same, Chili’s unit level financial performance would certainly benefit from a higher check (pressured by its strong value emphasis) and an AUV more in-line with the segment average (maybe the virtual brands can help here). In conclusion, while Chili’s is moving in the right direction by distinguishing itself in a crowded FSR space with value and digital (i.e. the Domino’s of FSR), it must accompany this with higher AUVs and lower costs (digital access labor productivity & cost-effective digital marketing could help here) in order to translate this positioning into a winning long-term formula.