Three Themes from ICR Day One
Much of the public restaurant industry gathered in Orlando for the 2018 ICR Conference to catch up in the New Year.
There wasn’t a whole lot of big news coming out of the public companies. The biggest news was Dave and Busters pre-release of their numbers during the event—a 5.1% comp decline that sent stocks down dramatically.
But there were some big themes that will shape 2018 for public restaurants.
Of course, taxes were top of mind for everyone. Most companies announced that they would see a nice benefit. Companies on the lower end of the consumer spectrum were especially excited about the prospect of a stronger consumer.
Del Taco CFO Steve Brake looked to the new immediate deductibility of many improvements as a big boost.
“The combo of a lower tax rate and the immediate deductibility of certain purchases, that will free up meaningful cash that will go toward new stores, equipment and share buybacks,” said Brake.
Ruth’s Chris CEO Mike O’Donnell said he thinks a healthy consumer will be willing to spend the expected $50 a month for the average consumer in restaurants. As for the real impact on company tax rates, most haven’t done the math yet. But Dunkin CFO Kate Jepson said that anything less than the current 39% tax burden will be good.
“It’s a little premature to say where we’ll be at, but obviously 21% is better than 39%,” said Jepson.
While nobody said the O-word outright on day one, the specter of oversupply showed up in a handful of company announcements.
Guy Constant, CFO at Red Robin took a little jab at his peers, noting the “almost a perfect inverse correlation between price per action and traffic,” said Constant. “Of course, the logical response to declining traffic is build new restaurants.”
According to a research note from Jefferies analyst Andy Barish, 11 brands have already announced that they would lower their unit growth.
Jack in the Box made that 12, it’s looking to do about 25 restaurants, down sharply from the 65 it previously guided to. Bojangles guided to a slowdown as well, citing a focus on building up the brand’s franchise pipeline.
Other brands, like Chuy’s, guided to a wide range in which they can move depending on sales and traffic counts.
“Were looking at our own sales and customer counts, that’s why it’s such wide spread from eight to 12 restaurants. If we see counts increase, we’ll move that up, if we see it slow, we’ll bring it down,” said CEO Steve Hislop.
Bar Experience and Social
Every brand is either pushing convenience or attempting to elevate the experience “something to get consumers off the couch.”
Ruth’s Chris has been pushing an elevated bar experience and it’s been working so far to drive spending to higher-margin drinks and keep traffic coming during happy hours. The brand thinks a good happy hour experience will convert bar customers to diners later in the evening or on another occasion.
And two smaller brands put the social atmosphere at the center of the brand. STK One Group Hospitality calls it “vibe dining” and puts a DJ in every location of STK.
“STK is a real nighttime experience,” said CEO Manny Hilaro. “It’s as much about going out and having a good time [as dining].”
In preliminary fourth-quarter results, the brand saw 9.5% same-store sales growth. Hilaro projected a $6.1 million revenue target for a new standalone location in Austin that sits in the company range of 5,000 to 7,000 square feet.
Vapiano, a German-based company, looks to do the same sans the DJ.
The concept puts fresh ingredients, a highly customizable menu from various in-store stations and social seating at the forefront. And by virtue of a RFID card that customers pay off as they leave, it’s a mobile experience that isn’t slowed by ongoing payments.
CEO Jochen Halfmann likened it to an Italian piazza.
“It’s hectic, it's loud, its an experience,” said Halfmann.
He said the differentiators make for a lot of group dining that skews 70% female. And of course, where there’s women, men will follow.
“People say we’re the Tinder of the restaurant world,” said Halfmann, describing how the large, shared tables keep people talking—and flirting.
Beyond these themes, it looks like more of the same for the industry, flat sales and traffic growth overall with winners accelerating growth, QSR pushing value and share being traded between brands and categories.
Take a look at some big themes from day two of the ICR Conference.