Restaurant Sales May Hit $660 Billion and More News
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In today's Media Mix, a look at San Francisco's Bi-Rite Market, plus what's really causing food prices to rise
The Daily Meal brings you the biggest news from the food world.
What's Causing Food Price to Rise: When comparing food prices between March 2011 and January 2012, the New England Complex Systems Institute argued that financial speculation and ethanol conversion, not supply and demand, explained food prices. [TIME]
'Iron Chef' Helps Japan: While China may have the larger economy, Japan has Iron Chef, which promoters hope will help foster U.S.-Japan relations. [LA Times]
Restaurant Sales May Hit $660 Billion: The National Restaurant Association predicts that the 980,000 restaurants in America will collectively earn more than $660 billion in sales next year. That's a 3.8 percent increase. [Columbian]
Behind Bi-Rite: The San Francisco market (and legendary ice cream shop) is now one of the must-see stops in town. Here's the history, and the philosophy, of the market. [SF Chronicle]
5 Inventory mistakes your restaurant might be making
Restaurant inventory mistakes are, more often than not, inevitable. Sure, good managers understand the importance of controlling food and waste costs, but with the volume of operational issues they face every day, staying on top of inventory can become overwhelming. It&rsquos an unfortunate side-effect of restaurant managers lacking the necessary support.
However, there&rsquos good news. Advances in mobile-optimized inventory software are finally giving managers the tools they need to take inventory more efficiently and with fewer errors.
But in order to write a prescription&ndash let&rsquos diagnose the problem. Here are the top five inventory mistakes that restaurant managers don&rsquot need to be making any more!
Inefficient and Inaccurate Counting Processes
Inventory isn&rsquot exactly a well-loved task among managers. It&rsquos time consuming, dull and chains managers to the back of house.
Counting inventory keeps managers from performing other duties, like hiring and developing staff, or putting in face time with customers. But many restaurants today still expect their managers to conduct regular inventory counts using outdated methods. The result may be that they don&rsquot do the inventory counts as much as they should &hellip or at all.
The Fix: Rotating Strategic Spot Checks
&ldquoIdeally, managers should only have to conduct a full inventory check once a week,&rdquo says Nathan Pickerill, Principal Solutions Architect for HotSchedules. &ldquoOn a daily basis, they can simply conduct rotating &lsquospot checks&rsquo on top sellers, perishables and the most expensive items.
This ensures that you don&rsquot run out of a customer-favorite and take a hit in sales. An inventory management system with automated ordering updates based on actual performance and configurable spot count rules focuses their time and attention on critical areas, reducing inaccurate orders, food waste and lost sales.
Many restaurant managers are experienced professionals. So, they have a gut instinct about how much inventory to order for an average shift.
&ldquoThe problem is there are few &lsquoaverage shifts,&rsquo&rdquo Pickerill says. &ldquoA myriad of factors can derail the best-laid gut instinct planning, from weather to traffic to construction.&rdquo
The Fix: Intelligent Sales Forecasts
Today&rsquos managers need systems with configurable business rules and data integrations to drive actionable insights that improve the accuracy of ordering, counting, receiving and more. This is the most powerful way to deliver consistency, lower costs and hit your numbers.
Insufficient Knowledge of Menu and Recipe Costs
Food- and profit-wasting errors can throw your inventory management and food costs out of whack.
&ldquoSay one of your line cooks regularly puts three extra slices of corned beef on a Reuben sandwich,&rdquo Pickerill says. &ldquoThat&rsquos going to negatively impact your inventory and your revenue over time.&rdquo
The Fix: Menu Modeling and Precise Recipes
Every dish in your restaurant has a recipe and every recipe has a cost. Intelligent inventory management systems give you the ability to conduct menu modeling for analysis of cost and profitability by various ingredients, quantities, and vendor sources. As a result, ordering based on recipes will be much more accurate, waste easier to reduce, and costs easier to control.
Poor Tracking and Waste Reduction
According to the Natural Resources Defense Council, restaurants in the U.S. waste almost 43 billion pounds of food per year.
What&rsquos more &hellip the National Restaurant Association reports only 47% of restaurants track food waste, leading to lost revenue, higher operating costs, and a larger environmental footprint.
Course Correction: Smarter Forecasting, Proactive Reporting, and Intelligent Workflows
Ordering the right amount of food is the first step to reducing the cost of food waste. Advanced technologies can improve inventory management with three critical capabilities:
- Smart forecasts consider all relevant factors, including business rules, and internal and external data.
- Proactive reporting sends alerts that offer the best solutions based on all available data.
- Intelligent workflows connect tasks, teams, processes, and data to provide actionable insights that remove the guesswork.
Together, these functions help restaurants forecast sales and guide managers through the preparation, thawing, and completion of orders.
Decentralized Vendor Management
Managers typically juggle invoices from a wide variety of vendors. This &ldquosystem&rdquo of eats up valuable time from managers&rsquo schedules and creates a huge risk for invoicing and payment errors.
The Fix: Integrate Your System with Broad Line Suppliers
Instead of hunting down paper invoices or reconciling invoices in multiple vendor portals, consider an inventory management solution that integrates your food and produce distributors with your financial vendors. This integrates invoices from all vendors and streamlines the data into the system for easy corporate visibility &mdash making the process less prone to error easier on the managers.
Restaurant closures on the rise
Many large cities and states have already issued their own mandates to close restaurants and bars. While some establishments may still operate as takeaway or delivery businesses, the drastic measures are being taken because many people have continued to flock to these venues, despite warnings.
“The industry supports the efforts of the local, state, and federal governments to slow the spread of the coronavirus, and are making every effort to pivot business models to focus on delivery, drive-thru and carry out," Marvin Irby, National Restaurant Association interim president and CEO, told TODAY Food.
Food Coronavirus closings: Which states have closed restaurants and bars?
Though most workers recognize the severity of COVID-19, people across all parts of the industry — from restaurateurs to chefs and dishwashers — are growing increasingly worried as their livelihoods face unchartered territory.
“There are more than 1 million restaurants in the United States, employing 15.6 million people. More than 70% of these restaurants are small businesses that support their local communities," said Irby. "These local restaurants run on razor-thin pre-tax margins, and they are facing an unprecedented cash flow crisis."
Hundreds, if not thousands, of restaurants may be closed until the pandemic is under control, and while many will be able to reopen, it's likely that many more will never recover.
Government officials in states, including California, Maryland, New York, New Jersey, Connecticut, Kentucky, Michigan, Illinois, Ohio, Massachusetts and Washington, have all put restrictions on establishments where food is served or venues where large groups gather in order to curb the spread of the virus. Many of the restrictions will remain in place at least until the end of March.
Coronavirus-related restaurant and bar industry job losses totaled 5.5 million in April
The number of job losses skyrocketed by 20.5 million in April, increasing the national unemployment rate to 14.7%, the largest monthly jump ever recorded, the U.S. Labor Department said Friday.
Putting the blame squarely on the coronavirus pandemic, the data from the Bureau of Labor Statistics, or BLS, indicated that the leisure and hospitality industry was particularly hard hit. Employment in that sector plummeted by 7.7 million in April, with almost three quarters of that decrease specifically in restaurants and bars, which accounted for 5.5 million of the job losses.
Because government-mandated shutdowns of restaurant dining rooms occurred mostly in March, April was the first full month to reflect the job devastation nationally. It was a sharp contrast to February, when the nation’s unemployment rate was only 3.5%.
For the week ending May 2 alone, more than 3.2 million Americans filed for unemployment benefits, a decline of 677,000 from the previous week's revised level of 3.8 million, the Labor Department said Thursday. But the 33 million seeking benefits over the seven-week period in March and April was reportedly more than all the jobs created since the Great Recession.
Labor Secretary Eugene Scalia said in a statement that Friday's BLS report reflected “the massive impact that measures to contain the coronavirus have had on the American workforce.”
He called the employment situation “exceptionally fluid,” noting that the data released Friday reflects neither the additional layoffs that occurred in late April and early May, nor the employees beginning to return to work in some states.
“We also know that, by reopening safely, we have the capacity to avoid permanent job losses for the overwhelming percent of Americans who, the report shows, currently view their job loss as temporary,” he said.
For restaurants, however, the ability to rehire workers is likely to be hampered by the gradual return of dine-in business, as many states take a phased approach. In states where restrictions are being lifted, most are limiting dine-in capacity to allow for social distancing, forcing many employers to take a gradual approach to rehiring.
Some workers are reluctant to come back to work because they are making more on unemployment, or they are concerned about contracting the virus.
And with the coronavirus death toll continuing to climb, the potential for another shutdown period remains a threat to job security for those who are able to return to work.
Restaurants also face the additional burden of an economy upended. With job losses come cuts in consumer discretionary spending, like dining out.
Fiona O’Donnell, director of market research firm Mintel, said in a statement that consumer confidence is likely to contract sharply this year.
“As the economic implications of COVID-19 unfold, Americans are simultaneously dealing with not only immediate concerns around physical health and lifestyle changes but also longer-term concerns about their financial health,” she said. “Fewer Americans working means less spending and a focus on the necessities. … The usual sectors like dining out, travel, out-of-home entertainment and others that support personal indulgence have largely already been eliminated and consumers have learned that they can do without.”
Responding to the job report, the Independent Restaurant Coalition on Friday reiterated its call for a $120 billion stabilization fund to help the nation’s 500,000 independent restaurants, which the group contends were the first to close and will be the last to reopen.
“A quarter of the people who lost their jobs last month worked in a restaurant, yet we’ve seen nothing from Congress that will help ensure these people will have jobs to return to when this crisis ends or that will save an industry that contributes $1 trillion to our economy,” the IRC said in a statement.
Congress is reportedly preparing to debate another round of relief funding to follow the $660 billion pledged for the Paycheck Protection Program, or PPP, forgivable loans. The IRC said changes to the PPP program are needed, but those fixes are still “an eight-week Band-Aid for an 18-month problem.”
Citing Small Business Administration data, the IRC said only 8.9% of PPP loans went to the food services and accommodations industries, though restaurants have suffered the worst job losses.
Meanwhile, 80% of independent restaurant operators in lockdown cities were not certain they could reopen after the pandemic ends, according to an IRC survey with the James Beard Foundation in mid-April.
Restaurants are struggling, even closing down for good.
Mom and pop restaurants aren't the only ones taking a hard hit in sales. In fact, many restaurant chains are also struggling to keep up, some closing a significant number of their locations, and even having to face the detrimental reality of closing down for good. Some of those chains include Red Robin, Potbelly, and even TGI Friday's. Over 600 locations of famous chain restaurants have been reported to close, and the number continues to climb.
Looking at data from the NRA, it seems many of the restaurant workers affected by COVID-19 came from some of the states that actually have experienced the most outbreaks. These affected restaurants in states include Florida, Texas, California, and New York.
At the moment, 76% of restaurants are reopened, most of them offering takeout and delivery services. Out of the restaurants that are temporarily closed, 25% of them have rehired some of their staff and plan on reopening soon. Of course, that's if the cities don't experience another outbreak and cause restaurants to shut down again.
So as your favorite restaurants open up, consider prioritizing them in your weekly meal planning. Support local restaurants and businesses, and if you have favorite chains that you also love, consider supporting them as well. Every type of restaurant business is struggling at the moment. Unless you're McDonald's, of course.
What New Restaurant Tipping Regulations Could Mean for the Industry
Will technology help create a more equal playing field?
Running background right now to a host of issues, from the increasingly difficult task to hire workers to deciphering the Restaurant Revitalization Fund, is the fate of the tip credit rule.
The Department of Labor delayed the effective date for its Tip Regulations Under the Fair Labor Standards Act until April 30 “in order to allow the Department the opportunity to review issues of law, policy, and fact raised by the 2020 Tip final rule before it takes effect.”
The DOL, in the same announcement, said other parts of the rule will have to wait longer—at least until December 31. It expects to withdraw and repurpose the parts of the Final tip rule addressing civil money penalties, willful violations, and the “managers or supervisors” language contained in the provision about employer retention of tips. So, for certain, none of those provisions will be included in the April change.
According to the DOL, “after considerable review,” several portions of the controversial 2020 Tip final rule implementing the 2018 Consolidated Appropriations Act will go into effect.
A prohibition on employers, including supervisors and managers, keeping tips received by workers, regardless of whether the employer takes a tip credit. This prohibition establishes significant protections for tipped employees, the DOL said.
The ability of an employer that does not take a tip credit to include non-tipped workers, such as cooks and dishwashers, in nontraditional tip-sharing agreements and, by doing so, boost their earnings.
The DOL proposed to extend further the effective date of three portions of the 2020 Tip final rule to December 31 (as noted). They are two portions that address the assessment of civil money penalties and the portion of the final rule that addresses the application of the FLSA tip credit to tipped employees who perform both tipped and non-tipped duties (dual jobs, for instance).
“Tipped workers are among those hardest hit amid the pandemic, and the Wage and Hour Division has made protecting these essential frontline workers a priority,” Wage and Hour Division Deputy Administrator Jessica Looman said in a statement “The proposals we announced today ensure that we consider all of the circumstances in today’s rapidly changing workplace. These essential workers deserve our careful and thoughtful consideration as we craft and implement rules that affect their well-being.”
For background, former President Donald Trump’s administration issued a final rule amending the Fair Labor Standards Act’s requirements for tipped workers, which was scheduled to take hold March 1. President Joe Biden asked to freeze proposed and pending regulations to give new leaders time to review pending changes. This is where the April 30 push comes in.
Under the current FLSA, restaurants and other hospitality employers may be eligible to take a tip credit. In other words, they can pay tipped workers less than standard minimum wage as long as workers’ tips make up the difference.
The Raise the Wage Act, which did not make it into the recent relief fund, proposed an increase of the federal minimum rate from $7.25 to $15 an hour over the next five years, starting at $9.50. But it also hiked the tipped wage from $2.13 to $4.95 and called to eliminate a separate minimum wage for tipped workers.
This raised concern with the National Restaurant Association, which said tipped servers make between $19–$25 per hour under the current tipped credit model, suggesting cutting it would actually hurt, not help workers. Federal law requires employees earn at least the federal minimum wage, or the higher state or local number in 28 states and 55 municipalities. Again, if the combination of the base wage and earned tips does not total the required minimum wage, the employer must pay the tipped employee more to make up the difference.
If the Raise the Wage Act went through as proposed, the Association said, restaurants would simply terminate tipping, raise prices to cover higher wages, and move to an hourly wage-only system. The result being tipped employees would end up earning less in the long run.
No state has eliminated the tip credit in more than two decades. Recent attempts in Chicago, Maryland, Washington, D.C., Michigan, Virginia, New Mexico, and Maine all failed.
What’s center to the current debate is the prior administration’s rule, which codified DOL guidance eliminating the “80/20 rule.” This allowed restaurants to take a tip credit only for workers who spent no more than 20 percent of their time on non-tipped duties.
The rule would more broadly allow employers to take a tip credit when tipped employees perform related duties, like rolling silverware, either during, just before, or a “reasonable time” after tipped duties.
An issue taken here by some has been “the reasonable time” definition. Heidi Shierholz, a scholar at the Economic Policy Institute and former chief economist at the Labor Department under President Obama, told The Hill, "'Reasonable time’ is not defined, and its ambiguity will make it difficult to enforce, providing employers an immense loophole and leaving workers behind.” She predicted the change could cost tipped workers a collective $700 million a year, and shift more jobs from non-tipped to tipped.
In another slice of the debate, back in December, Saru Jayaraman, executive director of One Fair Wage, a national nonprofit organization representing subminimum wage workers, said nearly 10 million tipped and other service workers lost their jobs since March. The majority of which, she added, were unable to access unemployment benefits through their states due to the fact they earned the subminimum wage for tipped workers. It remains $2.13 an hour at the federal level and $5 or less in nearly 40 states.
On January 19, eight states and the District of Columbia filed a lawsuit challenging the new rule. The suit claimed such a move would lower wages for tipped workers (as the Association suggested). It added the DOL didn’t adequately identify and weigh the costs and benefits of eliminating the 80/20 rule. In turn, the DOL arbitrarily eliminated it in violation of the Administrative Procedures Act.
As always, the conversation varies state by state. Some markets already require employers to pay tipped employees a minimum cash wage that is greater than that required by the FLSA. Others prohibit tip credits altogether.
When the rule was first announced, the Association praised the regulations as “a victory for the restaurant industry and its workers.” Meanwhile, labor advocates said they feared employers could manipulate the system by increasing back-house wages at the expense of front-house staff, and blur the lines between tipped and non-tipped work—forcing front-house employees to complete the latter while still getting paid at the $2.13 federal minimum tipped wage (in tip credit states) plus a percentage of the tip pool. This could also reduce the need for certain non-tipped positions, creating a situation that employees and labor advocates may view as unfair.
However, cutting-edge labor management technology can be used to mitigate the dispute by creating a more equal playing field, says Mark Heymann, co-founder/CEO of UniFocus.
Heymann chatted with FSR about the rule, the possibilities, and where restaurants can go from here.
The new proposed restaurant tipping regulations will now receive a final ruling from the U.S. Department of Labor on April 30. If they are passed, how will they impact the restaurant industry landscape?
There are several major changes that could come into effect. Employers will be prohibited from keeping tips earned by workers and sharing them with managers and supervisors, which is considered a win for common front-house and back-house employees. They can also establish non-traditional tipping pools that share tips with back-house employees (line cooks, dishwashers, janitorial, etc.) who typically earn less than servers, giving restaurants a way to spread more income equality across their staff without raising labor costs. And then there’s the elimination of the “80/20” rule, which mandated that employees earning a tipped minimum wage ($2.13) could only spend 20 percent of their shift performing non-tipped tasks—such as cleaning the restaurant, washing dishes or prepping food. Now, employers only need to abide by vague guidelines that allow servers to perform non-tipped tasks for “a reasonable time” during their shifts.
Those within the industry have disagreed about if these new regulations truly benefit both sides of the equation. Who will benefit more—employers or employees?
Well, employers certainly have the upper hand. It’s primarily an issue of fairness. Although the non-traditional gratuity pools are intended to raise wages for back-house staff members, it gives restaurants a way to do so at the expense of the server. When more staff members are added to the tip pool, everyone’s bottom lines are reduced. The extra $100 on the dishwasher’s paycheck is coming ostensibly out of the server’s pocket, not the restaurant’s labor spend. Meanwhile, in addition to seeing their paychecks decline, servers could also potentially be required to perform tasks without getting paid at the fair market rate. It’s estimated that the lack of an 80/20 rule could cost restaurant employees a combined $700 million annually.
So how can advanced technology solve the issue? Is there a way it can create an equal playing field for all parties involved?
Yes, that’s exactly it—a more equal playing field. The use of advanced technology like automated time and attendance systems will enable restaurants to still treat their employees fairly while capitalizing on the new regulations. An automated time and attendance system allows employees to adjust their wage designation during their shift based on the tasks they are performing. So, if a waiter spends two hours of his shift in the kitchen preparing food, the system will change his wage to a predetermined non-tipped wage for that time. Then, when he returns to the floor, he’s back at the tipped wage rate for the rest of his shift. The employee is compensated for the tasks performed, while the restaurant leverages cross-utilization to enhance efficiency without increasing labor costs. Technology can also be utilized to create fairer tip pools by adjusting the impact (skills needed) of certain jobs to the overall customer experience equation. Once this structure is established, the distribution process will be simplified, and everyone will transparently understand how final pay was determined.
How does workforce optimization come into the fold? Can that also play a role in establishing fairness?
From a workforce optimization standpoint, advanced technology will give restaurants the power to integrate flexible scheduling and shift durations into their non-traditional gratuity pools—a key for navigating peaks-and-valleys volatility. With flexible scheduling, they can create staffing structures that maximize profit margins during peaks in demand and minimize labor cost losses from the valleys. Employers can also utilize an advanced analytics system that leverages artificial intelligence to generate actionable data insights on future demand swings. Those insights will in turn enable them to integrate the right balance of tipped and non-tipped tasks, acting as a clear pathway for providing quality customer service at lower operational costs.
Are there any other important elements of the new regulations that should be considered?
A key element will be maintaining positive staff morale through a tip distribution process that is perceived to be fair and even-handed. If any party believes they are not being fairly treated or compensated, the potential ripple effects on a restaurant’s bottom line could be significant. The same can be said for clear, fair treatment of the entire team. Upon implementing the new regulations, restaurants should ensure team meetings are held and their organizational approach is understood by all. Employee engagement should be frequently monitored until the “dust” settles.
Biden touts $28.6B restaurant relief program, orders tacos
WASHINGTON — Setting foot in a restaurant for his first time as president, Joe Biden made a Cinco de Mayo taco and enchilada run to highlight his administration’s $28.6 billion program to help eateries that lost business because of the coronavirus pandemic.
The president went to Taqueria Las Gemelas in Washington on Wednesday and ordered lunch. The restaurant, owned in part by Mexican immigrants, was a beneficiary of a pilot version of the restaurant relief program. It went from 55 employees to seven during the pandemic, though it was able to rehire some workers through the Paycheck Protection Program that predates the Biden administration.
“When the COVID-19 pandemic struck, our nation’s restaurants were some of the first and the worst hit,” Biden said in remarks Wednesday, the anniversary of Mexico’s victory over French forces at the Battle of Puebla, on May 5, 1862.
The president stressed that restaurants have historically been one of the first rungs on the economic ladder, a chance to move upward that was undermined by the virus.
“For 1 in 3 Americans, a restaurant provided their first job,” he said at the White House. “This industry provided more opportunity for minority managers than any other industry in America. This is an industry where the staff feels like family and often is family.”
The White House said that 186,200 restaurants, bars and other eligible businesses had applied for the program over its first two days of accepting applications. More than half of the applicants are owned by women, veterans or people from historically disadvantaged backgrounds. The aid for eateries was part of the Biden administration’s broader $1.9 trillion coronavirus relief package.
The coronavirus outbreak was especially brutal for restaurants. America lost nearly 2,700 dining establishments through last summer, according to the Labor Department. About 1.8 million food service jobs also have been lost, though the sector has been gradually regaining jobs since last May.
Researchers at the not-for-profit Opportunity Insights found that consumer spending at hotels and restaurants plunged more than 60% in April 2020 compared with the start of that year. Spending is still down 4.5% compared with before the pandemic.
Under the Biden relief program, which started accepting applications on Monday, restaurants and bars can qualify for grants equal to their pandemic-related revenue losses, with a cap of $10 million per business and $5 million per location.
The program has set aside $9.5 billion for the smallest restaurants and bars, and a third of the applications were filed by businesses with annual pre-pandemic revenues of less than $500,000. For the program’s first 21 days, applications from women, veterans and socially and economically disadvantaged people will have priority for being reviewed and funded.
Chain Restaurants Are Seeing Hundreds Of Closures Nationwide As An Effect Of The COVID-19 Pandemic
The restaurant industry was one of the hardest hit by the COVID-19 pandemic as social distancing regulations closed down dining rooms and bars. Now, as many locations are beginning the reopening process, we're beginning to see the toll those closures have taken not only on local restaurants, but also on national chains and their franchisees.
Many outlets have taken a look at these closings, the first of which was Business Insider, which reported that nine major chains have closed 600 of their locations permanently. This includes some of the closings&mdashor feared closings&mdashthat have been previously reported, like TGI Friday's saying 20 percent of its restaurants may never re-open post-coronavirus, and others we didn't previously know of, like CFRA Holdings reportedly filing for bankruptcy and closing 49 of its IHOP franchises (though IHOP declined to comment or confirm these closures to Business Insider "citing CFRA's ongoing court proceedings").
The parent company of restaurants Brio Italian Mediterranean and Bravo Fresh Italian filed for Chapter 11 bankruptcy protection and closed 71 restaurants, according to Restaurant Business Online. Business Insider pointed out that 15 Denny's locations owned by one franchisee had closed.
"Due to the severe financial environment caused by the COVID-19 pandemic, our franchisee in this area has regrettably decided to close these locations," a Denny's representative said in a statement to BI: "Denny's has been working with its franchise owners to assist in helping them through this crisis, but the final decision to close is in the hands of each franchise business owner and their particular circumstances."
Souplantation, also known as Sweet Tomatoes, closed all of its almost 100 locations early this month.
Additionally, Ruby Tuesday reportedly shuttered almost 150 of its locations, and founder and managing partner of Ruby Tuesday owner NRD Capital Aziz Hashim told Restaurant Business Online that the current crisis has accelerated these types of closures and that the total number is yet to be determined.
In April, the National Restaurant Association said that the restaurant industry expects to lose $80 billion in sales by the end of that month and up to $240 billion by the end of 2020. When these numbers were estimated, four in 10 restaurants across the country were closed at that time. And as Hashim pointed out, many landlords have been understanding to restaurants as social distancing closed their dining rooms, but as the months go on, he worries their patience will wear thin, causing more locations across the industry to close.
&ldquoStarting in the third quarter, patience will wear out,&rdquo Hashim said. &ldquoThere&rsquos going to be a blood bath.&rdquo You can see a full breakdown of the closures here.
3 Red-Hot Restaurant Stocks That Should Continue to Rally
MCD – The COVID-19 crisis has shifted the restaurant industry’s landscape. The digital platforms and curb-side delivery options adopted during the pandemic are expected to continue being one of the industry’s key strengths after the pandemic. While this transition has already bolstered the growth of established restaurant operators McDonald’s (MCD), Yum! Brands (YUM), and Restaurant Brands International (QSR), the increasing resumption of patrons’ physical visits to restaurants, thanks to a speedy and effective vaccination drive, we think should drive their growth further and sustain their stocks’ continued rally. Read on.By Samiksha Agarwal
It is undeniable that the COVID-19 pandemic introduced new challenges to restaurants as consumer fears and social distancing mandates brought restaurants to their knees. But the restaurant industry came back swinging, with curb-side delivery and drive-thru facilities that played a big role in saving many. In fact, as mega-restaurant chains continue to invest heavily in digital channels, they should continue generating sales growth.
Furthermore, after being confined at home for almost a year in compliance with lockdown mandates, people are expected to heartily embrace dining out again now that a mass vaccination drive is in full swing and appears to be effective. Indeed, the global market for full-service restaurants is expected to grow at a 4.7% CAGR over the next six years to hit $1.7 trillion in 2027.
The recovery from the pandemic and the expected economic growth this year have driven a rally in restaurant stocks McDonald’s Corporation ( MCD ), Yum! Brands, Inc. ( YUM ), and Restaurant Brands International Inc. ( QSR ). Given that these companies are supercharging their advertising and digital platforms, we believe they are uniquely positioned to soar further.
McDonald’s Corporation (MCD)
MCD franchises McDonald’s restaurants in the United States and internationally. It is one of the world’s leading food service brands with more than 36,000 restaurants in more than 100 countries. Its widely popular Happy Meals are a hit with its customers with families.
In April, MCD collaborated with 21st century global pop icon BTS. The superstar band’s signature order includes a variety of eats, such as 10-piece Chicken McNuggets, medium fries, medium Coke and for the first time ever in the U.S., sweet chili and Cajun dipping sauces inspired by popular recipes from McDonald’s South Korea. The BTS meal will be available globally in nearly 50 markets and should attract youngsters.
Also in April, MCD implemented new Global Brand Standards, voicing its commitment to fostering a safe, respectful and inclusive workplace. Its aim is to create an environment that furthers employees’ physical and psychological safety. The move should make its employees feel more comfortable, safe and welcomed, which should ultimately lead to brand loyalty and improved service.
MCD’s revenue increased 8.7% year-over-year to $5.12 billion in the first quarter, ended March 31, while its operating income grew 34.7% from its year-ago value to $2.28 billion. The company reported $1.54 billion in new income, representing a 38.8% increase year-over-year. Its EPS came in at $2.05, as compared to its $1.47 year-ago value.
A $2.08 consensus EPS estimate for the current quarter, ending June 30, represents a 215.2% improvement year-over-year. The $22.4 billion consensus revenue estimate for the current year represents a 16.6% increase from the same period last year. The stock has gained 30.8% over the past year.
MCD’s POWR Ratings reflect this promising outlook. The company has an overall A rating, which translates to Strong Buy in our proprietary ratings system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
MCD is also rated an A in Quality, and a B in Growth and Stability. Within the B-rated Restaurants industry, it is ranked #4 of 45 stocks.
To see additional POWR Ratings for Momentum, Sentiment and Value for MCD, Click here .
Yum! Brands, Inc. (YUM)
Formerly known as TRICON Global Restaurants, Inc., YUM operates primarily through the restaurant brands KFC, Pizza Hut and Taco Bell, which are global leaders in the chicken, pizza and Mexican-style food categories, respectively. The company’s family of brands also includes The Habit Burger Grill, a fast-casual restaurant.
Last month, YUM declared that it plans to decrease its greenhouse gas (GHG) emissions 46% by 2030 in partnership with its franchisees and members throughout the supply chain to create a healthier future for its customers, communities and the environment. In addition, the company also pledged to achieve net-zero emissions by 2050.
In March, YUM acquired Tictuk Technologies, a leading Israeli omnichannel ordering and marketing platform company. It has so far successfully deployed Tictuk’s platform in approximately 900 KFC, Pizza Hut and Taco Bell restaurants in 35 countries outside of the United States. This addition to YUM’s technology portfolio should facilitate the company’s ability to offer more ways for consumers globally to access and order food by using one of the world’s most popular social media and conversational platforms.
In the first quarter, ended March 31, YUM’s total revenue increased 18.3% year-over-year to $1.49 billion. The company’s operating profit increased 117% to $543 million, while its net income increased 312.5% from its year-ago value to $326 million. Its EPS came in at $1.07, representing a 296.3% increase year-over-year.
Analysts expect YUM’s revenue for the quarter ending June 30, 2021 to be $1.47 billion, representing 23.1% year-over-year growth. The company’s EPS is likely to increase 16.6% for its fiscal year 2021. YUM has gained 41.5% over the past year.
It is no surprise that YUM has an overall B rating, which equates to Buy in our POWR Ratings system. It has an A grade for Quality, and a B grade for Sentiment. Within the B-rated Restaurants industry it is ranked #10.
In total, we rate YUM on eight different levels. Beyond what we’ve stated above, we have also given YUM grades for Momentum, Growth, Value and Stability. Get all the YUM ratings here .
Restaurant Brands International Inc. (QSR)
QSR is one of the world’s largest quick service restaurant companies. It owns three of the world’s most prominent and iconic quick service restaurant brands: Tim Hortons (TH), Burger King (BK), and Popeyes (PLK). The company owned or franchised 4,949 TH restaurants, 18,625 BK restaurants, and 3,451 PLK restaurants in approximately 100 countries worldwide and U.S. territories as of December 31, 2020.
In March, QSR’s Popeyes brand along with Jubilant Foodworks Limited unveiled plans to develop and open hundreds of Popeyes restaurants across India, Bangladesh, Nepal and Bhutan in the coming years. The launch of its iconic Louisiana-style chicken to a new population that already loves bold flavors should help it increase its r sales significantly.
During the first quarter, ended March 31, QSR’s revenue increased 2.4% year-over-year to $1.26 billion, while its adjusted EBITDA grew 9.1% from its year-ago value to $480 million. The company reported $270 million in net income, representing a 22.7% increase year-over-year. Its EPS came in at .58, compared to its .48 year-ago value.
QSR is expected to see 14% revenue growth for 2021 and 7.4% for 2022. Its EPS is estimated to increase 31.5% year-over-year to $2.67 for the current year. Over the past year, QSR’s stock has gained 33.7%
QSR’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our POWR Ratings system. It has a B grade for Quality and Stability. Among the 45 stocks in the B-rated Restaurants industry it is ranked #20.
Click here to see the additional POWR Ratings for QSR (Growth, Value, Momentum and Sentiment).
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MCD shares were trading at $234.03 per share on Tuesday afternoon, down $3.08 (-1.30%). Year-to-date, MCD has gained 9.74%, versus a 11.09% rise in the benchmark S&P 500 index during the same period.
Robert Earl says he’s out to save independent restaurants
After 48 years of brainstorming restaurant concepts to catch emerging trends, Robert Earl thinks he’s hit on The Big One—bigger than eatertainment, the wave he helped to foster and then rode with Planet Hollywood and Hard Rock Café. Possibly even bigger than fast casual, where he’s set his marker with the Earl of Sandwich chain. It’s just a matter of time, he’s wagering, until every independent restaurant supplements its brick and mortar operation with at least two invented brands that produce delivery-only meals from the same kitchen, under names chosen to come up higher in web or app searches.
Earl is developing a business separate from his extensive restaurant holdings to provide independents with ready-made choices. The first of his VACs, or virtual additional concepts, is Tyga Bites, a brand specializing in baked nuggets of all-natural chicken dusted with spicing and served with dipping sauces, all prepared to the specifications of the rap star Tyga. Earl, whose past business associates have included the likes of Arnold Schwarzenegger and Bruce Willis, plans to develop a stable of other VACs, each focused on popular menu items and affiliated with a celebrity.
Restaurants that have a relationship with Grubhub can opt to offer Tyga Bites without paying a royalty to Earl and Tyga. Instead, Earl says, he and Tyga will take their cut from the commissions paid to Grubhub for every order that’s delivered by the service. “The only additional cost to the restaurant is the cost of your opening inventory, which will run about $1,000 to $1,500,” says Earl. Those figures included packaging imprinted with Tyga Bites brand cues.
The fee structure may be unorthodox, but Virtual Dining Concepts will otherwise function as a conventional franchisor, according to Earl. It provides the recipes, the training and the marketing support. The quality of execution will be checked by monitoring what’s said about the brand and its products on social media, Earl explains.
“At an absolute minimum, every sales dollar will yield you 35%—minimum—that you keep,” Earl says, after apologizing for lapsing into what he termed his sales mode, an apparent occupational hazard for the entrepreneur. “This is the answer for the future of restaurants.”
He’s far less bullish about ghost kitchens, the other avenue many operators are taking to expand their sales and market reach without investing in additional brick and mortar. The kitchens—essentially multi-kitchen complexes where a variety of concepts have a back-of-house staff produce meals for delivery and takeout—may eliminate the usual construction costs, Earl agrees. But, “if you go into a cloud kitchen, you’re creating a separate labor force, a separate rent base, a separate utility bill,” he counters. “If you do something out of your existing restaurant, all three of those costs are at zero.”
He adds that virtual dining concepts aren’t a novelty anymore. “There are about 15,000 virtual brands already in the U.S.A., and they are all individual brands,” he says, referring to the ventures that are invented by the big third-party delivery services after they notice users of their apps are frequently searching for a particular menu item—banh mi, say—that isn’t readily available in their area. The services typically approach a local independent operator about preparing and selling the product for delivery under a different name to exploit the unmet demand. The invented brand typically incorporates the name of the product—maybe Banh Mi by Me, in this instance--so the concept will appear as a top option in searches for the item.
In most instances, says Earl, customers of the virtual concept don’t know the food is coming from a brick-and-mortar “day business” that offers a much different menu. Nor are customers of the mother ship aware that, say, their favorite pizzeria may have a side business selling ban mis.
And, asserts Earl, they wouldn’t care in any place. “The only thing that really matters to you is how quickly the food is going to get to you, and how good it is,” he says.
Earl is no stranger to virtual concepts, though his VDC business is still in the ramp-up stage, with locations currently in 30 markets and a target of 500 locations by the end of August. He already has a number of virtual brands that are affiliated with his brick-and-mortar restaurants, which include Buca di Beppo, Bertucci’s, Brio Bravo and Bravo Cucina. “They’re doing quite well,” he says.
He also has a standing celebrity affiliation through his collaboration with TV star and chef Guy Fieri, a chicken sandwich brand called Chicken Guy.
His culinary partner in VDC is Eric Greenspan, the Los Angeles chef who defeated Bobby Flay on “Iron Chef America” and has appeared as a frequent guest on a slew of cooking and food shows. He’s also developed a number of virtual brands at the incubator kitchen he runs.
A celebrity connection will be crucial to VDC because it will set the company’s virtual ventures apart. “If I’m good at anything, I’m good at celebritizing a business,” he says.
The involvement of stars such as Sylvester Stallone and Demi Moore was instrumental to the success of Planet Hollywood, a pioneer of the eatertainment segment that took the industry by storm in the 1980s and ‘90s. Earl himself is no stranger to show business. He is the host of a show on the Cooking Channel called “Robert Earl’s Be My Guest,” and his namesake father was a well-known entertainer in the United Kingdom.
Earl stresses that the launch of VDC does not mean he’s giving up on brick and mortar restaurants. Indeed, he says he’s likely to add more conventional hospitality brands to the fold of Earl Enterprises as the pandemic nudges more operators to sell their concepts. “I am your ultimate deal junky,” he comments.
Many past associates would give an amen to that assessment. He’s owned Planet Hollywood several times, founding the brand in 1991 and twice buying it out of bankruptcy. He bought 45 units of the Brio and Bravo Italian chains for under $30 million, saying it would be “the deal of the century” if it weren’t for the unforeseen impact of the COVID crisis.
He bought the 58-unit Bertucci’s full-service chain for $20 million.
The launch of VDC is “more important than the things I’ve done before,” because “I can really help the independent,” Earl says.
“For the last two years, I’ve been watching a bit of a slow demise of the restaurant industry,” he says in a British accent right out of Masterpiece Theatre. “There’s been excess supply of restaurants that is largely the result of repurposing of bad retail locations.” Virtual concepts, he explains, minimize the risks of a bad siting. “All your risking is your opening inventory,” he emphasizes.
He won’t reveal what his next celebrity-affiliated virtual concept might be but notes the limited delivery options available to consumers who appreciate high-quality antipasta and Italian bread.
“There are over 350,000 independent restaurants in this country. Every one of them over a period of a few years will be creating virtual brands,” he predicts. “And I’d like to give them the choices.”