The Legacy Companies Announces the Acquisition of Admiral Craft Equipment Corporation AUG

Greenfield World Trade, Inc. d/b/a The Legacy Companies (“Legacy”), a leading consumer products and commercial food service equipment provider, today announced that it has closed upon its acquisition of Admiral Craft Equipment Corp. of Jericho, New York. The terms of the transaction were not disclosed. Admiral Craft is a leading manufacturer and distributor of equipment, smallwares, and supplies to the commercial foodservice industry since 1952. Admiral Craft brands such as AdCraft, Black Diamond, Grista, Lunar Ice, and U-Star are sold by authorized restaurant equipment dealers throughout North America. Admiral Craft is well known in the industry for its competitive pricing, superior customer service, prompt shipment, and an exceptional fill rate. Neal Asbury, Legacy’s President stated, “We are incredibly pleased to welcome Admiral Craft into The Legacy Companies. The Admiral Craft acquisition is strategically important to us as it enhances and strengthens our position in the commercial foodservice market. Admiral Craft’s product offering is complementary to our existing businesses with the potential to further expand key account relationships and capitalize on cross-selling opportunities. With this acquisition, we are further enabled to align our efforts to provide best in class practices and products to the ever-changing foodservice industry.” Commenting on the transaction, Rick Powers, CEO of Admiral Craft, stated, “We are excited to join a global leader that provides a solid foundation for our continued growth. The Legacy Companies offers us the opportunity to leverage complementary product offerings, enter new markets, and enhance customer relationships. I believe Legacy’s stewardship and complementary businesses will be beneficial to both the customers and employees of Admiral Craft. Joining forces with Legacy will allow our combined team the opportunity to use their decades of experience and industry knowledge to better serve customers in the foodservice and hospitality markets.” Advisors Kramer Levin Naftalis & Frankel LLP (New York, NY) acted as legal advisors for The Legacy Companies. Fox Swibel Levin & Carroll, LLP (Chicago, IL) acted as legal advisors to Admiral Craft Equipment Corp. – Source: Greenfield World Trade.

SFGATE food reporter Madeline Wells says so long and thanks for nothing to McDonald’s plant-based offering . . . .

McDonald’s Discontinued its Fake Meat Burger the McPlant. Good Riddance.

In this photo illustration, a McDonald’s McPlant Beyond Meat burger is displayed with french fries at a McDonald’s restaurant on Feb. 14, 2022, in San Rafael, Calif.

Last week, McDonald’s confirmed to CNBC that its U.S. test of the McPlant burger has ended. Yes, that means the fast food corporation’s first ever meatless burger is no more, absent any announcement of a nationwide launch.

This news may be disappointing news to some fans of the burger, but as a mostly vegetarian, I say good riddance.

When I tried the McPlant burger back in February, when it first launched in Bay Area restaurants, I declared it a McNope. The Beyond Meat patty made with peas, rice and potatoes was lacking in flavor, and its presentation conjured the words “floppy,” “soggy” and “gloopy.” I concluded that I would only eat it under dire circumstances. So I can’t say I’m too sad to see it go. But it is a little disappointing to see how little interest Americans seem to have in eating plant-based burgers.

J.P. Morgan analyst Ken Goldman told CNBC that McDonald’s employees claimed the burger wasn’t selling very well. According to analysis from BTIG, restaurants in the Bay Area were only selling 20 McPlant sandwiches per day, and stores in more rural areas of the country were only selling three to five burgers per day. That’s a far cry from their expectation of 40 to 60.

Bon Appetit had all sorts of compelling theories as to why the McPlant failed, including that vegans and vegetarians are too environmentally conscious to spend their money at a morally bereft corporation like McDonald’s. The McPlant also was cooked on the same grill as regular beef patties, making it not technically vegetarian, and with cheese and mayonnaise, it definitely wasn’t vegan.

And finally, there’s some indication that carnivores are more likely to dismiss fake meat burgers as gross and “woke” than to be converted to the plant-based side.

While all of this sounds plausible, my theory is this: No vegetarian in their right mind would choose McDonald’s over Taco Bell, the plant-based haven where beans can be substituted in any item. I don’t eat fast food often, but when I do, it’s the best bet.

If you were to give me a choice between a floppy McDonald’s fake meat patty that imitates beef, a thing that I have never eaten in my whole life and grosses me out, and a cheesy Crunchwrap Supreme with beans, a protein I know and love, I’ll choose the Crunchwrap every time. – Source: SFGATE.

Although the menus at Atomic Wings, Famous Toastery, and Beef O’Bradys have little in common, their leaders are facing the same conundrum: How to raise prices to offset rising food costs without losing customers . .  . .

How 3 Fast Casuals are Handling Increased Food Cost

Although the menus at Atomic Wings, Famous Toastery, and Beef O’Bradys have little in common, their leaders are facing the same conundrum: How to raise prices to offset rising food costs without losing customers.

Food-away-from-home prices, for example, were up about 7% over 2021 and will climb another 3 to 4% in 2023, according to the USDA. It’s a topic Atomic Wings CEO Zak Omar knows too well.

“Food costs have increased across the board,” he told FastCasual in an email interview. “At one point, the cost of wings had risen over 100%. Now, the cost of tenders has risen 100%. Oil prices have increased the most, with the cost being up 200%. The cost of potatoes has also risen about 65%, with the cost of packaged goods increasing by over 50%.”

To cover his bottom line, Omar has raised menu prices but has also found ways to innovate the menu to focus on less-expensive items.

“We introduced a bigger, juicier, and crispier thigh wing this year, which provides customers with a dark meat option while also offsetting some of the high costs that are associated with traditional wings,” he said. “The launch of this product has gone incredibly well.”

Famous Toastery CEO Robert Maynard is facing similar issues, reporting he’s paying 33% and 18% more for eggs and bacon, respectively.

“Everything across the board has gone up, even if it’s not the food item itself; delivery and surcharges have gone up, too,” the founder of the nearly 30-unit chain based in Charlotte told Fast Casual in an email interview.

Chris Elliot, CEO of Florida-based Beef O Brady’s, which has 140 locations, told Fast Casual in an email interview that the costs of beef, chicken, fries, paper and packaged goods were up between 5% and 15%.

“Our overall cost of goods remains flat due to menu price increases and favorable wing prices,” said Elliot, who hopes to avoid cutting any specific menu items by pushing lower-priced items when possible.

“We brought back Dubliner per customer request and lower COGs, and the chop steak is new to the August menu and has great COGs,” Elliot said.

Gauging customer reaction

Although customers say they understand that food costs are up everywhere, they are eating out less frequently. Visits to QSRs, representing 82% of total restaurant traffic, declined 2% during this year’s Q2 compared to last year’s quarter, according to NPD Group. Fast casual restaurant traffic was down 1% as well.

“Consumers continue to deal with rising inflation and higher prices,” David Portalatin, food industry adviser of The NPD Group, said in a press release. “We see three ways to respond to higher menu prices. They trade down to lower-priced items, cut back on the number of items ordered or reduce restaurant visits altogether.”

None of those options bode well for Omar, Elliot, or Maynard, however, and Portalatin advised that operators find differentiating value.

“Quality and value become a critical differentiator when consumers spend on a restaurant meal in these challenging times, ” he said.

It’s a strategy that Elliot is already on top of, launching a “2 for $25” menu in June and increasing daily specials.

Maynard is also balancing price increases with adding value.

“We’re going through a menu revamp right now,” he told FastCasual. “We’ve been cautious about raising menu prices but you have to monitor on a daily basis. We’re trying to be creative in what we do — we know where the margins are, and it’s better to sell more batter than chicken salads.”

Also, the chain used to focus primarily on breakfast, which is often more expensive than lunch but is changing that as well.

“We’ve done so well with lunch, so we’re making tweaks to the amount we sell,” Maynard said. “It’s one of the ways to keep pricing down.

Although Maynard hates to raise prices, he called it “inevitable,” saying the good news was that there has never been a better time to raise prices because it won’t be questioned.

The bad news: “People will draw the line at some point,” he said. “You have to take it in strides and have empathy.”  — Source: Fast Casual.

The chain aims to source half of the dairy used to make its pizza cheese from farms in the program by 2025 . . . .

Pizza Hut and Darty Farmers of America to Launch Sustainability Project

Pizza Hut and its parent company Yum Brands are partnering with Dairy Farmers of America (DFA) to launch a sustainability initiative aimed to help participating farmers reduce their greenhouse gas emissions.

The initiative will allow the DFA and dairy suppliers to engage in annual farm-level greenhouse gas and energy footprinting. The project will use the Farmers Assuring Responsible Management and Environmental Stewardship evaluation, which estimates farm-level emissions and energy intensity using a scientific peer-reviewed model.

Once enrolled in the program, farms will receive an SCiO cup, a lab-grade matter analyzer that will allow farmers to evaluate their cows’ feed to provide precise nutrition and produce milk more efficiently. Pizza Hut said this will create less waste and reduce greenhouse gas emissions.

Additionally, the farms will be able to apply for funds to implement other sustainability efforts, including feed management enhancements and energy-efficient lighting, and recruit DFA members.

By 2025, Pizza Hut plans to source 50% of the dairy used to make its pizza cheese from farms enrolled in the program, the company said in a statement, noting that its commitment to high-quality cheese will remain a priority.

“With this sustainability initiative, we’re able to utilize technology along with our dairy partners in a way that helps the environment while still delivering the iconic taste that pizza lovers have come to expect from our offerings,” said Penny Shaheen, head of food innovation and technology at Pizza Hut.

The project is a part of a larger strategy among all parties to reach long-term sustainability goals. Yum Brands and Pizza Hut aim to decrease their greenhouse gas emissions by 46% by 2030 and achieve net-zero emissions by 2050, while DFA looks to reduce emissions across its supply chain by 30% by 2030. Source: Restaurant Business.

McDonald’s will re-Open some Restaurants in Ukraine

McDonald’s said on Thursday that it will reopen its restaurants in Ukraine, telling employees in a system message that it would begin a phased reopening of its locations in Kyiv and western Ukraine after consultation with officials, suppliers, and security specialists there.

Yet it is uncertain how many locations the company plans to reopen in the country or when. McDonald’s operated 109 restaurants in Ukraine, which have been closed since Russia’s invasion of the country in February.

“After extensive consultation and discussion with Ukrainian officials, suppliers, and security specialists, and in consideration of our employees’ request to return to work, we have decided to institute a phased plan to reopen some restaurants in Kyiv and western Ukraine, where other businesses have safely reopened,” Paul Pomroy, SVP of McDonald’s International Operated Markets, said in the message.

He said the company would begin working with suppliers over the next few months to get products to restaurants, make the locations ready to serve customers, and bring restaurant teams back on site. The company also said it would implement improved safety procedures.

McDonald’s temporarily closed its restaurants after the Russian invasion. It also closed its 850 Russian restaurants, eventually making that closure permanent. Those locations have been sold to its Siberian operator.

The company has been paying its approximately 10,000 workers there since the closure and has funded relief efforts through Ronald McDonald House Charities. Yet, in his message, Pomroy noted that workers in Ukraine “have expressed a strong desire to return to work and see our restaurants in Ukraine reopen.”

He said that doing so would represent a return to normal for a country beleaguered by months of war. It could also help restart the local economy.

“The belief that this would support a small but important sense of normalcy has grown stronger,” Pomroy said. “And Ukrainian officials have advised that businesses resuming operations will support the local economy and the Ukrainian people.” – Source: Restaurant Business.

Dutch Bros accelerates development with plans to open 130+ stores by end of the year . . . .

The newly public coffee chain continues to weather the macroeconomic storm as same-store sales declined by 3.3%

Dutch Bros Coffee — which went public for the first time last fall — is optimistic about its development pipeline, despite external inflationary pressures that are affecting the entire restaurant industry. The Oregon-based coffee chain’s same-store sales declined 3.3% for the second quarter ended June 30, 2022, but on the flip side of that, the company just opened its 600th shop and said it is on track to open 130 more by the end of the year.

CEO Joth Ricci told Nation’s Restaurant News that the company is well on its way to achieving founders’ Travis and Dane Boersma’s goal of 800 stores opening by the end of 2023.

“It all started with a good plan,” Ricci said. “[…] We were very diligent with what type of systems we needed to build, monitor, and analyze, to make sure that our class of stores that we built would perform at a level of our expectations. And actually, we probably have surpassed everything that we had a vision for at that time.”

The mixed quarterly results were particularly impacted by disappointing performance in the West Coast market, driven by skyrocketing gas prices. Ricci said that if you take out certain markets on the West Coast out, their same-store sales would be down only 1%. Like many of its industry colleagues, Dutch Bros has taken a 3% price increase to offset these macroeconomic challenges. But that does not mean that the company will continue down this path:

“We listen to the customers first,” Ricci said. “Our founder always said, ‘never give people a reason not to come.’ And so I think we’ve taken the moderate approach, and have shared in some of the consumer pain by taking on quite a bit, financially. […] We’ve done that in the effort to maintain the long-term relationship with our customer, and never put our team members in a position where they’re having to explain a very difficult situation to the customer.”

The sales momentum Dutch Bros did gain in Q2 2022 was driven by cold beverage sales, which comprise 80% of the company’s sales mix, especially within the Freeze frozen coffee category.

“We have been a cold drink business for a long time and have always indexed much higher than the rest of the industry,” Ricci said. “Our customers love to customize these drinks, and our iced classic drinks (like lattes and mochas) are also a big category for us.”

Dutch Bros Coffee reported a 44% increase in revenue to $186.4 million in the second quarter of 2022 compared to $129.2 million in the same period of 2021. The company’s net income was at a loss of $(1.8) million as compared to a net income of $11.9 million in the same quarter last year. Dutch Bros opened 31 shops across nine states last quarter, bringing the total systemwide store count to 603. – Source: NRN.
First Watch Continues to Set Itself Apart

The Breakfast Brand is Leaning into Innovation and Holding Tight to Value. Customers are Responding. 

When First Watch went public last fall, CEO Chris Tomasso’s message to Wall Street was one the brand had circulated for years, only from a quieter forum. “Nobody is doing what we’re doing at scale.” It’s a point he reiterated Tuesday during First Watch’s Q2 call with investors. The chain closed the period, which ended June 26, with 449 locations (350 corporate run and 99 franchise owned). Yet it’s still running like a single-unit chef-driven restaurant, Tomasso said. Vegetables roasted in-house. Muffins baked. Fresh squeezed juice. “It’s built deeply into our DNA,” he said.

These operating values anchored First Watch’s green space as it raised $170 million and began trading in late September. More recently, though, Tomasso said they’ve enabled the brand to do something few competitors have across the industry’s current recovery stretch. Firstly, First Watch drove Q2 same-store traffic of 8.1 percent, year-over-year. The figure is actually 7.4 percent higher than three years ago. Tomasso said the result was “significant” given First Watch had returned to positive traffic (compared to pre-COVID levels) in Q2 of 2021. So it’s building off a rebound lap. Moreover, traffic improved sequentially quarter-over-quarter versus 2019. The chain’s average weekly traffic held consistent throughout Q2. In June, it was 4.2 percent higher than a year ago. For context, visits to full-service restaurants overall fell 4 percent in June, year-over-year, according to mobile location analytics platform Placer.ai.

And pulling back further, First Watch’s traffic averaged about 1.4 percent growth in the six years leading up to the pandemic. It plunged 29 percent as in-store business clamped, but, to Tomasso’s note, returned quickly and has stayed elevated since.

As a company, First Watch produced 28 consecutive quarters of same-restaurant sales growth from fiscal 2013 to 2019, and positive annual comparable traffic growth from fiscal 2014 to 2019.

It breaks down as follows:

Annual company-owned same-store sales growth and traffic

2015

Same-store sales: 6.5 percent

Traffic: 1.2 percent

2016

Same-store sales: 6.9 percent

Traffic: 0.5 percent

2017

Same-store sales: 7.9 percent

Traffic: 1.6 percent

2018

Same-store sales: 6.9 percent

Traffic: 2.7 percent

2019

Same-store sales: 5.6 percent

Traffic: 1.6 percent

“Our performance clearly distinguishes us from most others in casual dining and the restaurant industry as a whole,” Tomasso said of Q2.

The fact First Watch generated traffic during a calendar where the opposite is far closer to the norm for restaurants (despite robust top-line growth, even brands like McDonald’s have seen transaction declines in recent quarters), is proof, Tomasso said, First Watch’s differentiators are insulating it through the storm. But there’s another point to note, he adds. While the broad value equation has tensed in retail, he believes First Watch’s proposition only improved.

Per federal data released Wednesday, menu price inflation was up 7.6 percent, year-over-year, in July. Full-service restaurants came in 8.9 percent higher, while limited service was 7.2 percent. Grocers outpaced again at 13.15 percent.

First Watch has treaded lightly on price since costs began to rear. It didn’t take any in 2021, deciding instead to court traffic. First Watch in July raised prices by 3.9 percent and will run at just under 8 percent in the back half of the year. Tomasso said he doesn’t expect any negative impact. “This is one where we feel like we can take this price, do what we’ve done in the years past, which takes it to offset the inflation that we’re seeing, and then hopefully that subsides a little bit and we’re in a good place,” he said.

First Watch is historically cautious not because of the company’s pricing power, Tomasso added or perceived lack thereof. He’d simply rather reserve price and highlight value.

First Watch’s increases thus far have come below the rate of food away from home and grocery inflation. The chain’s per-person average, all things factored in, lists at just over $15. Tomasso said the expectation now is much of the food inflation First Watch experienced has peaked, and the brand projects costs to normalize moving forward. If so, he likes First Watch’s position relative to the industry and among the consideration set for customers, recession or not.

“We believe this approach resulted in increased market share over the past year and in prior volatile periods,” Tomasso said. “We did not see any negative traffic impact from our last price increase nor have we seen what I believe to be an early indicator of pricing resistance, check management by the consumer. In fact, customers are electing to spend more in our restaurants.”

Overall beverage incidence is up at First Watch and PPA has exceeded expected levels when you consider pricing, he noted.

This fits into a broader conversation. In the economic downturn of 2008–2010, Tomasso said First Watch observed families trade out pricier full-service gatherings for occasions like brunch and breakfast. Customers didn’t give up dining out; they reshuffled its nature of it.

For instance, guests turned from grabbing a steak dinner on Friday night to getting together for brunch on the weekend, Tomasso explained. “And spend a lot less and have the same kind of social engagement, but do it during the day,” he said.

In a descriptor often used by Starbucks founder Howard Schultz, Tomasso called First Watch “an affordable luxury” that customers make room for when wallets tighten. Brunch/breakfast is not an occasion easy to recreate at home, especially with creativity. This notion isn’t a new one, but it is something First Watch has evolved toward in recent years.

“Going back to my time here in 2008, 2009, and 2010, I think in times like this, it’s when the consumers demand quality, consistency,” he said. “If they are going to reduce the number of times they go out to eat, they want to make sure they get it right. And all the steps that we took coming out of COVID to communicate that quality and that consistency, whether it was the fact that we didn’t take anything off of our menu when we returned or the conservative approach to pricing or some of the improvements that we’ve made and some of … the culinary additions that we’ve had, really we think will carry us through that.”

First Watch started to accelerate the rollout of alcohol in 2020. It jumped overall beverage incidence by 230 basis points out of the gate and hit 244 stores by June 2021.

The offering is now live in more than 75 percent of First Watch’s system, with a clear path to reaching “our desired penetration” by year’s end, Tomasso said. Alongside, First Watch continues to expand its fresh juice options, which hiked from 3 to 15 percent mix.

Alcohol, however, is still an entry-level platform for First Watch. The brand has yet to innovate around it.

When First Watch launched alcohol in stores where it was served in dining rooms, it represented just under 4 percent of the mix. Now, it’s roughly 6.5 percent. The brand is in the process of purchasing licenses to spread out.

But overall, First Watch is building a chain that promises experience as much as fuel, Tomasso said. And that’s going to appeal to all demographics.

“Again, we feel like our pricing relative is conservative, but as we look at the qualitative metrics too, our NPS scores are solid, our value scores are solid, and obviously the biggest indicator of that is traffic,” he said. “So, with those three things, plus others that we look at, that’s why we feel like we’ve actually improved our value proposition.”

A telling example, CFO Mel Hope shared, was when First Watch included Crab Cake Benedicts in its spring menu launch.

Hope said it was simultaneously one of First Watch’s most popular LTOs, and yet also one of its priciest. “Customers consumed it to the point where we [sourced] every bit of crab we could find,” he said. “So frankly, we have a customer who seems to see value in a lot of our items, even when we take the price up.”

Growth, KDS, and other happenings

First Watch’s Q2 systemwide sales bumped 20 percent to $231.2 million from $192.6 million this time a year ago. Revenue lifted 19.8 percent to $184.5 million (from $154 million) and same-store sales grew 13.4 percent. Comps are 30.2 percent up relative to Q2 2019.

The chain opened nine locations—five companies and four franchises—across seven states and expects to bring 30–35 corporate and eight to 13 franchisee-owned units to market for the full fiscal year.

The restaurant-level operating profit margin was 18.2 percent in Q2 versus 22.5 percent in the prior-year measure, thanks to inflationary challenges. F&B costs as a percentage of restaurant sales rose to 24.9 percent in the period, which is higher than Q1’s 23.1 percent. First Watch experienced inflation of 17.7 percent in commodity cost. Building on Tomasso’s comment, Hope suggested this would be the high watermark for the year.

He added dining room recovery versus 2019 grew to 93 percent for the quarter and weekly off-premises sales volumes “remained consistent” even as four-wall traffic continued its recovery.

Soaring costs or not, First Watch won’t take its foot off the innovation pedal. Its most recent seasonal offering featured the Barbacoa Quesadilla Benedict—two barbacoa quesadillas prepared quesabirria-style, topped with poached cage-free eggs and covered with Vera Cruz hollandaise, ranchero sauce, and scallions. First Watch served it with seasoned black beans and housemade pico de gallo.

Tomasso said the product performed “far better” than already high expectations and aligned with culinary trends seen throughout the independent restaurant industry. “What’s more special here is that this menu item was identified and tested close to a year and a half ago, highlighting our ability to identify early trends and [roll out] seamlessly throughout a fast-growing system,” he said. “This is a unique competitive advantage that’s been refined over decades.”

On the employee front, Tomasso said First Watch’s hourly staffing levels are roughly 93 percent of what they were previously. Manager figures have “improved slightly” and currently stand at 2.8 managers per location.

Whether First Watch ever gets all the way back or what that means for the industry going forward is hard to pin down. But the chain will work on efficiencies as that settles. First Watch’s KDS rollout is ahead of schedule, Tomasso said, and has helped the brand serve additional demand, particularly during peak hours. The goal is at least half of the locations by year’s end. At Q2 exit, KDS was active in 114 restaurants. It’s upped to more than 200 since. Ticket times and accuracy improved.

“We still have relatively low brand awareness yet impressive guest satisfaction scores, creating an ideal opportunity as we move forward,” Tomasso said. “Consumers are still discovering us and we’re in a great position in our brand lifecycle as we grow toward our long-term potential of 2,200 restaurants in the U.S.”  — Source: NRN.

Applebee’s-IHOP parent Dine views price as a market-share advantage

Franchisees are aware of opportunities in a volatile environment, executives say

Ron Ruggless | Aug 09, 2022

Dine Brands Global Inc., the parent to casual-dining Applebee’s Neighborhood Grill + Bar and family-dining IHOP, has been cautious on price increases, seeing it as a competitive advantage to increasing market share, executives said Tuesday.

The Glendale, the Calif.-based company, which released earnings for the second quarter ended June 30, said its franchisees have raised prices to accommodate inflation in commodities and labor.

Related: Dine Brands Global, Inc. announces relocation of California Restaurant Support Center to Pasadena

“Across all inputs,” said John Peyton, Dine Brands CEO, on an earnings call, our restaurant brands experience a 22% rise in commodity costs during the second quarter, but Dine’s P&L was not materially impacted because of our asset-light model.” For the second half of the fiscal year, he said Applebee’s expected commodity inflation to ease, with low teens forecast for Applebee’s and mid-teens for IHOP.

John Cywinski, president of Applebee’s, said the brand’s franchisees have raised prices by about 7% over the second quarter of 2021.

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“Pricing does not occur in a vacuum in the restaurant industry,” Cywinski told analysts, “and our franchisees remain fully aware of the market share opportunity this current environment represents.”

He noted the United States has about 210,000 casual-dining restaurants and noted “about 85% of these are low-volume, independently owned restaurants with a challenged business model. Because of their very small scale, it often surprises folks at the Top 10 casual-dining brands only account for about 4% of total CDR restaurants.”

Applebee’s, with 1,570 units, has an advantage in size, Cywinski added.

“When it comes to pricing strategy, our savvy and sophisticated franchisees understand this very delicate balance between restaurant profitability and guest affordability,” he said. “Brands and franchisees with scale and strong culture who have earned the trust of their guests throughout COVID and have demonstrated the ability to be both innovative and nimble will win big over the long haul. I genuinely believe this remains an increasingly leverageable point of difference for the Applebee’s brand moving forward.”

Applebee’s made the strategic decision earlier in August to expand menu items from the virtual Cosmic Wings brand to Applebee’s core menu, Cywinski said.

“Broadening the availability of popular products like Cheetos Wings, Cheetos Cheese Bites, and waffle fries to 100% of our guests will allow us to fully leverage this opportunity in terms of product awareness and velocity,” he said, adding that the virtual brand will remain available in the majority of Applebee’s markets.

IHOP’s virtual brands, Thrilled Cheese and Super Mega Dilla, are in more than 1,000 restaurants, said Jay Johns, president of the family-dining division.

“Our strategy is to continue the growth of these virtual brand partnerships as we see incremental revenue and profits at participating restaurants,” said Johns.

While April and May were strong for both Applebee’s and IHOP, Peyton said the brands saw a “modest decline in traffic” in June amid consumer inflation and gasoline price pressures. However, he noted that tailwinds appear favorable in the second half of the year.

For the second quarter ended June 30, Dine Brand’s net income slipped to $24 million, or $1.45 a share, from $29.4 million, or $1.69 a share, in the same period a year ago. Revenues for the second quarter were $237.8 million compared to $233.6 million for the prior-year period.

Applebee’s year-over-year comparable same-store sales increased 1.8% for the second quarter. Off-premises sales accounted for 25.6% of the brand’s sales mix, representing average weekly sales of about $13,900.

IHOP’s year-over-year comparable same-store sales increased 3.6% for the second quarter. Off-premises sales accounted for 21.3% of the sales mix, representing average weekly sales of about $8,300. Of that 21.3%, about 12.9% percentage points were delivery and 8.4% were takeout, Johns said.

Wendy’s scales back planned Reef delivery units

Delivery-only operator looks at fewer single-brand units and encounters permitting difficulties, CEO Todd Penegor says on Q2 earnings call

Ron Ruggless | Aug 10, 2022

A reduction in the number of planned delivery-only Reef Technology units led The Wendy’s Co. to reduce its growth plans through 2025, executives said Wednesday.

The Dublin, Ohio-based burger brand, which released earnings for the second quarter ended July 3, has scaled down its plans announced last August for 700 Reef delivery kitchens over five years in the United States, Canada, and the United Kingdom.

development commitment,” said Todd Penegor, on a second-quarter earnings call. “We now anticipate that Reef will open approximately 100 to 150 Wendy’s delivery kitchen locations by the end of 2025 with the majority operating internationally in Canada and the U.K., where sales volumes have continued to meet our expectations.”

Penegor said the reduction was “due to a change in Reef’s growth strategy, which includes a shift to operating multiple brands from its locations and some recent challenges with opening Wendy’s delivery kitchens in certain locations in the U.S.,” which he cited as permitting difficulties.

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Because of the Reef development reduction, Penegor said 2022 net unit growth will be 3% to 4%.

“We will continue to test and learn with Reef with a focus on densely populated, high0potential markets,” he said. “We remain committed to expanding access to our great brand and will continue to be a leader in innovative non-traditional concepts alongside many franchisees across the globe.”

Gunther Plosch, Wendy’s chief financial officer, said the company ended the second quarter with about 70 Reef units and expected to end the year with about 65.

Reef issued a statement, saying, “Wendy’s has been an early adopter of the Reef model and one of the most forward-thinking of our partners. We are excited to continue innovating together with a focus on doubling down internationally, where we’ve seen very strong economics in our current partnership.

“As Reef continues to focus on profitable growth,” the company said, “we are committed to increasing productivity and efficiency by delivering multiple brands from every kitchen in our ecosystem. When deploying our multi-brand model, we have already seen the average sales per kitchen double over the last year.”

Plosch said Wendy’s commodity inflation was about 19% in the second quarter and labor inflation was 12%. The company plans to take a 2% price increase in the third quarter, but he added that previous price increases did not appear to impact flow-through.

Plosch said the guidance for the year called for 15% inflation in commodities. About 90% of the brand’s commodities are under contract, he added.

Penegor noted that Wendy’s “value will continue to be important,” but it has seen promotions like the $5 Biggie Bag lead to some trade-up in menu purchases.

“We’re really seeing our premium and value hangs in there quite nicely,” he said, “And importantly we held our traffic share with the under $75,000 consumer in the second quarter.”

The company had success with its Strawberry Frosty and Strawberry Salad limited-time items and expects breakfast to get a boost in mid-August with the introduction of French Toast Sticks.

Penegor said break-even for breakfast sales was about $2,000 per week per restaurant, and average sales in the first quarter were $2,500 and in the second quarter $2,700. All but five restaurants have opted into the breakfast daypart.

The company has announced plans to advertise the breakfast daypart with a $16 million spent in the United States and Canada.

“We look to capture our fair share of the massive QSR breakfast business,” Penegor added. Breakfast was introduced systemwide in March 2020.

For the second quarter ended July 3, Wendy’s net income was $48.2 million, or 22 cents a share, down from $65.7 million, or 29 cents a share, in the same period last year. The decrease in net income included higher interest expenses as a result of the company’s debt raise completed in the first quarter of 2022.

Wendy’s revenues rose to $537.8 million from $493.3 million in the prior-year quarter. The company said the increase was primarily driven by higher sales at owned restaurants driven by the favorable impact of the acquisition of 93 franchise-operated restaurants in Florida during the fourth quarter and higher same-store sales.

Same-store sales in the quarter were up 3.7% systemwide, with an increase of 2.3% in the United States and 15.2% internationally.

Wendy’s, founded in 1969, has about 7,000 restaurants worldwide.

Update Aug. 20, 2022: This story has been updated with Reef company comments.

MTY Food Group to Buy Famous Dave’s Parent for $200M . . .

MTY Food Group announced Tuesday a $200 million deal to acquire Famous Dave’s parent BBQ Holdings. 

BBQ Holdings has expanded to nine casual and fast-casual restaurants through a series of M&A moves in recent years. The portfolio now includes Famous Dave’s, Village Inn, Granite City, Bakers Square, Real Urban BBQ, Tahoe Joe’s, Barrio Queen, Craft Republic Bar & Grill, and Champps Kitchen + Bar. The company operates more than 200 franchised and 100 corporately owned locations in 37 states, Canada, and United Arab Emirates.

Canada-based MTY Food Group, one of the largest franchisors in the North American restaurant industry, oversees more than 80 casual-dining, fast-casual, and quick-service concepts across Canada, the U.S., and around the world. All of those restaurants combine for about 6,660 locations. Some of the more notable brands in the portfolio include Baja Fresh, TCBY, Blimpie, Coldstone, Pinkberry, Papa Murphy’s, and Sweetfrog.

“This transaction represents another key acquisition for MTY as we further scale and enhance our existing U.S. portfolio through the addition of nine unique brands. The transaction combines highly complementary businesses, including BBQ Holdings’ exciting casual and fast casual brands,” MTY CEO Eric Lefebvre said in a statement. “BBQ Holdings’ restaurants are well established within each of their respective markets with a strong network of franchise partners, well-run corporate-owned locations, and a best-in-class management team. We are excited about the prospects of adding BBQ Holdings’ brands to the MTY family and we look forward to welcoming Jeff Crivello and his team and their franchise partners.”

When the purchase closes, MTY will have roughly 7,000 units, including more than 3,900 in the U.S. System sales are expected to exceed $3.78 billion, representing a 23 percent increase. Also, the mix of U.S. sales will grow from 58 percent to 66 percent. Casual dining and fast casual will represent 43 percent of sales, up from the current 29 percent.

“We are thrilled to partner with MTY and its talented team of restaurant operators,” BBQ Holdings CEO Jeff Crivello said in a statement. “Over the past four years we have significantly grown revenue and our restaurant portfolio while building a world-class team of entrepreneurs. We look forward to continuing the execution of our three pillars of growth, which we believe align very closely with MTY’s vision.  With more than 80 brands, MTY brings vast buying power and a team of industry leaders who will provide additional support to our franchise partners. As our founder Dave Anderson says, we strive to deliver famous experiences with our ‘yes is the answer, what’s the question’ hospitality.”

MTY is purchasing all of BBQ Holdings’ outstanding stock for $17.25 per share. When the transaction closes in Q4, BBQ Holdings will be de-listed from Nasdaq and the company will become a privately held subsidiary under MTY.

The transaction has been unanimously approved by the board of directors of MTY and has the unanimous support of the BBQ Holdings board of directors. National Bank Financial Inc. is acting as sole financial advisor to MTY and Morrison & Foerster LLP is acting as its legal advisor. Kroll, LLC is acting as financial advisor to BBQ Holdings, and Dentons Sirote PC and Lathrop GPM LLP are acting as its legal advisors. – Source: FSR.

Denny’s to Lift Keke’s Breakfast Café into Unprecedented Growth

Before Denny’s announced its $82.5 million acquisition of Keke’s Breakfast Café, it spoke with nearly a dozen of its own franchisees about the move, and all of them responded with curiosity.

“Most said that they would be interested in opening,” CFO Robert Verostek said during the company’s Q2 earnings call. “Not one said, ‘What are you doing?’ Everyone said, ‘We get why you would do that, and we’re not afraid of that at all.’”

Keke’s operators share that optimism, and don’t view the transaction as a “big corporate entity kind of trying to gobble them up,” Verostek said. Instead, the franchisees view it as the ultimate unlock for future growth, using Denny’s infrastructure to improve training, site selection, and buying power.

The concept has 52 restaurants in Florida, 44 of which are franchise restaurants owned by 19 operators. Keke’s earned an AUV of $1.9 million in 2021, up from $1.6 million before the pandemic, and unit-level margins range from the high teens to the low 20s. The emerging company grew same-store sales by 18 percent year-over-year in 2021, and 12 percent through May year-to-date. The most impressive stat, arguably, is the company didn’t close any restaurants in the past two years.

While Denny’s is known as a family-dining breakfast concept, Keke’s is part of the quickly growing a.m. eatery segment, meaning they attract different customers and fit in separate trade areas. Last year, Denny’s saw dine-in account for 77 percent of sales, followed by 13 percent delivery and 10 percent carryout. For Keke’s, it was 85 percent dine-in, 10 percent delivery, and 5 percent carry-out. Also, Keke’s average entrée price is roughly 20 percent higher than Denny’s. The company is frequently used by millennials and Gen Z families with household incomes above $75,000.

Verostek estimated Keke’s opened four to six units on average in recent years. The brand did so from 2016 to 2021 and doubled its unit count from 26 to 52. The chain achieved that growth without soliciting new operators, but that will change. Denny’s plan is to take a more sophisticated approach and accelerate the annual pace. That will happen with existing franchisees from both brands and operators outside the system.

“I think there is a little bit of digestion,” said Verostek, in regard to when development may ramp up. “We’re still learning them. We don’t want to upset them in any way, shape, or form. They’re great as they are. We just want to take that greatness and share it with more people. So we’ll need to digest and understand truly how to grow them, but I’m not telling you it’s going to take two years either. I think you will see a stepped-up rate of growth in 2023. I just don’t think that that will be the peak growth either. I think that will continue to accelerate through 2024 and beyond also.”

Denny’s first announced the acquisition in early May, and also revealed industry veteran Kelli Valade was taking over as CEO. The $82.5 million price tag represents an EBITDA multiple of roughly 12x. Organizationally speaking, Keke’s and Denny’s will operate with independent leadership teams and drive individual strategies, products, and marketing.

“It’s got a cult-like following,” Valade said. “It’s really exciting. The AUVs are exciting and have a strong business model. So we’ve got something really special, and the goal will be to continue to really maintain and enhance what is special about them, but there’s a lot of excitement and we’ve got a great plan in place to go forward.”

Denny’s Implemented a $6.99 Endless Breakfast Promotion. 

Meanwhile, Denny’s U.S. same-store sales increased 2.5 percent in Q2 year-over-year, fueled by a 10 percent growth in average check. The rise in average check comprised 3.5 percent carryover pricing from 2021, more than 3 percent pricing taken this year, and 3 percent product mix benefits. The brand’s comps lifted 1.8 percent against pre-pandemic comparisons.

Average weekly sales per restaurant were $35.7 million ($1.9 million annualized AUV), an improvement from the first quarter. Of that number, off-premises mixed about 18 percent, and virtual brands The Burger Den and The Metldown accounted for approximately 2.5 percent of sales. The Burger Den is active in more than 1,100 domestic locations. The Meltdown is in nearly 900 stores and will add more third-party delivery partners after being exclusive to DoorDash.

The chain’s biggest priority is returning to 24/7. A little more than 50 percent of the U.S. system has returned to full hours, which isn’t much better than where Denny’s was in early 2022. Units that are 24/7 consistently outperform other locations by mid-teen-digit comp sales relative to 2019. The biggest barrier is staffing, and the company is working with its franchise association to introduce incentives and labor retention initiatives.

About 83 percent of U.S. stores are operating at least 18 hours per day. These locations are running with 80-85 percent staffing or missing about seven to 10 employees.

“There’s an urgent plan,” Valade said. “We’ve even got it down to the kinds of numbers we will want to see per week, per month. This is not over several quarters, but yet a lot of urgencies and a lot of focus between us and those franchisees right now. So it’s urgent and I think doable. I think they are tired of looking at the same situation and the inflationary pressures. They all feel that, and they want those solutions that we’ve now got.”

In light of inflation, Denny’s recently launched its Summer Slamcation Value Promotion, including Endless Breakfast and its $6.99 Super Slam combo (bacon, eggs, hash browns, and pancakes). Because of those offerings, value incidence rose 3 percent in the second quarter, and Denny’s is seeing traffic benefits that more than offset the costs.

The company is likely to phase out its $2, $4, $6, $8 value menu, which helped the brand through the Great Recession and was brought back during pandemic times. That’s not to say Denny’s isn’t going more deeply into value, Verostek said; it’s just that the definition of value is different than it was a decade ago.

“I think that the idea of value may be changing right?” the CFO said. “You pay for what you get. And so a $2 price point may have served the purpose a decade ago. I’m not saying that that value is now a $15 plate. This will be price-point oriented. But I think we may have moved beyond that. It doesn’t mean that we don’t have a significant pipeline of ways to offer value into our system right now.”

Denny’s finished Q2 with 1,631 stores systemwide, with 1,477 in the U.S. New kitchen equipment has been installed at approximately 50 percent of U.S. locations, and that rollout should be mostly done by the end of 2022. The chain’s new cloud-based tech platform is in beta test and should be substantially launched in domestic outlets by the end of 2023. – Source: FSR.