Nation's Restaurant News On the Go Newsletter #47

Chilly weather and lukewarm earnings

Hey readers,

Managing editor Leigh Anne Zinsmeister here.?

After one last late-October weekend with temperatures in the 80s, New York City has well and truly descended into winter weather (we seem to have skipped fall — it’s in the 30s as I type, and I heard rumors of a snowy Halloween from some colleagues).?

Despite the weather, my colleagues and I are neck-deep in analyzing restaurants’ summer performances. No joke, we listened to 16 earnings calls in two days alone this week, in addition to the two-to-four we generally average per day over the last couple weeks.. My colleague Alicia Kelso shared some optimism and predictions a couple weeks ago, and now we’re at the point in the season when we can pinpoint some trends and try to figure out where the industry goes from here.?

As expected, Q3 generally saw some strong sales for restaurants, largely driven by ongoing menu price increases as traffic continues to fall off. Still, at restaurants like Chipotle, the price increase (its fourth in two years) didn’t deter consumers, as traffic bucked industry trends and transactions rose 4% with trends continuing into October. Likewise, Texas Roadhouse continued its 11-year streak of traffic growth, even though Placer.ai data show full-service restaurants overall experienced a 5% decline in September.?

There’s a lot to unpack this quarter, from menu trims at BJ’s to McDonald’s decision to prioritize traditional restaurant formats to Taco Bell’s incredible 11% jump in systemwide sales — and there are still many calls to go. So stay tuned, and, more importantly — stay warm.

What Chipotle and Texas Roadhouse have in common

Any way you slice it, traffic numbers industrywide are … not great right now. Consider data from Guest XM by Black Box Intelligence, for instance, showing that comp traffic in September was down 3.3% – the weakest month in over a year and continuing a negative trend that began in July. In August, traffic was down by about 2%. ??

What’s driving restaurant customers away (seemingly) all of a sudden? More than two in three RMS respondents made that very clear – higher prices. Though menu prices have begun to cool compared to last year, inflation weariness seems to have taken a firm hold.

That said, customers at Chipotle and Texas Roadhouse are anything but fatigued. Both companies reported third quarter earnings this week. Both companies raised prices during the quarter, and for Chipotle, the fourth increase in two years.

Both companies experienced remarkable traffic gains – over 4%.

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McDonald’s will continue to prioritize traditional restaurants over to-go models

Off-premises has always been a big chunk of business at the drive-thru heavy Golden Arches. But that business has become more holistic and significantly more robust throughout the past several years, as it has at most chains. During McDonald’s Q3 earnings call Monday morning, executives noted that digital sales in its top six markets are now above 40%, buoyed by 57 million 90-day active loyalty members. ?

That said, do not expect the company’s newish, digital-forward, to-go restaurant model to become the dominant prototype in McDonald’s massive real estate portfolio. For those unfamiliar, McDonald’s opened a test restaurant late last year in Fort Worth, Texas, with a mobile-order-ahead lane for customers who want to skip the traditional drive-thru lane and pick up their order via a conveyor system.

The restaurant also includes an in-store pickup shelf, self-order kiosks,?and a designated indoor area and parking spaces for delivery drivers and curbside order pickup.?According to a company spokesperson, the nearly 3,200-square-foot model is 26% smaller than an average traditional U.S. restaurant, which is certainly appealing given persistent inflationary pressures and limited real estate availability hindering accelerated development.

You’d think the confluence of rising digital sales and rising costs would be enough to inspire the company to put more eggs in the to-go-format basket, particularly as the company gets back to net unit growth. But that doesn’t seem to be the case as reiterated by CEO Chris Kempczinski during Monday’s earnings call.

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Taco Bell drives a strong quarter for Yum Brands

Yum Brands showed no signs of slowing down in the third quarter, with 10% system sales growth driven by 6% same-store sales growth and 6% unit growth. The company set a third quarter record for unit development, with 1,130 gross new restaurant openings. Digital sales jumped by more than 20% year-over-year and also set a record, exceeding $7 billion.

Taco Bell U.S. was one of the major highlights from the quarter, with domestic system sales up by 11% driven by 8% same-store sales growth and 3% unit growth.

“The Taco Bell team leveraged its magic formula that encompasses a balanced set of strategies, including brand buzz, unparalleled value, más occasions, and digital initiatives to grow transactions during the quarter,” Yum CEO David Gibbs said during Wednesday morning’s earnings call.

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BJ’s Restaurants trims menu and updates staff scripting

BJ’s Restaurants Inc. has reduced its menu by 15% in the third quarter and provided new scripting for waiters as it works to maintain traffic, company executives said Thursday.

Huntington Beach, Calif.-based BJ’s, which reported earnings Thursday for the third quarter ended Oct. 3, said same-store sales increased 0.4% in the quarter.

“In the third quarter, to enhance our already high service and hospitality standards, we rolled out new server scripts as well as an updated mystery shopper program focused on consistently delivering gracious hospitality to our guests,” said Greg Levin, BJ’s CEO, in an earnings call.

“As a result of these recent programs,” Levin said, “we have increased hospitality scores year-over-year on our guest surveys. Additionally, our hourly and management staffing levels continue to improve year-over-year as we narrow the gap to pre-COVID levels. In fact, our hourly team member retention rate in September matched our pre-COVID level illustrating our improving operating environment.”

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November's MenuMasters Spotlight launches with Chef Deborah VanTrece, Owner, VanTrece Hospitality

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