July 15, 2025 • 43 mins
The restaurant industry could post a 1-2% same-store sales increase for 2025, BI’s senior restaurant and foodservice analyst Michael Halen tells Bloomberg’s restaurants reporter Daniela Sirtori. In this episode of the Choppin’ It Up podcast, Halen and Sirtori discuss BI’s views on 2H same-store sales and margins. They also talk about what economic indicators and more discerning consumers mean for top-line growth, as well as BI’s outlook for several companies, including Chipotle, Cracker Barrel, McDonald’s and Starbucks.
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Episode Transcript
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Speaker 1 (00:13):
Welcome to Chopping it Up. I'm your host, Mike Hamllon,
the senior Restaurant and food Service analyst at Bloomberg Intelligence.
Our research and that at BES five hundred analysts around
the globe can be found exclusively on the Bloomberg terminal.
If you enjoy the pod, I'd love it if you
could leave us a review on Apple or Spotify. Today
we're doing things a little bit different. Daniellis to Tori,
(00:33):
the phenomenal Bloomberg reporter covering restaurants, is going to interview
me about our mid year outlook. Welcome back to the pod, Daniella.
Speaker 2 (00:42):
Thank you so much for having me. Mike. It's always
fun to talk to you, and you always help me
understand the industry much better. And I'm excited to just
pepper you with questions you did today. I hope you're ready.
Speaker 1 (00:54):
I'm always ready. Let's do it.
Speaker 2 (00:57):
So I actually wanted to start by asking you a
little bit to look back. I mean, the beginning of
the year was kind of interesting, right, I mean, we
had the bad weather and we had all the you know,
news about tariffs and whatever that was going to mean.
So can you kind of bring us up to speed
about you know, what the what this first part of
(01:18):
the year has been like for the restaurant industry.
Speaker 1 (01:22):
Yeah, you know, we came into the year looking for
a better year in terms of restaurant sales, and I'm
not so sure about what's going to happen to inflation
in the second half in margins, and we're kind of
in the you know, our view hasn't changed, you know,
there have been headwinds in the first quarter. To your point,
the first quarter sales increased for most of our chains.
(01:45):
But to your point, weather was bad. It was cold,
and then it was snowy, and it was a record
flu season, right, and then we had the taraf freakout.
And what's interesting is that that twer freakout happened right
aroun around when all our companies were reporting their first
quarter earnings, and most of the companies we cover used
(02:07):
it as an opportunity to cut their guidance just due
to quote unquote uncertainty. But then when we got the
data for April and May, there really was not much
of an impact on restaurants spending. Right, people have to eat,
you know, I know people with on the on the
East Coast in New York people with personal accounts and
(02:28):
pretty big four to one k's were really upset at
the time, and maybe they cut back their visits to
Ruth Chris or some other high end restaurant. But most
Americans don't have stocks investments in stocks and could care
less about you know, the historyonics around and around the tariff.
So restaurant spending continued kind of unabated, and from the
(02:52):
data we get from black Box Intelligence, it was pretty solid,
and it seems ourselves were up about ninety bases points
in the first half of the year, considering that had
ones we've had, we think that that's a pretty good number.
In the second half, we continue to lap last year's
week results, so especially in the summer. I mean, we're
lapping very weak results here in July and August, and
(03:14):
you know, and and economic data is looking better. It's not,
you know, great, but the stuff that we look at
is getting better. So credit card balances, credit card delinquencies,
auto loan delinquencies are kind of the increases there are moderating,
so we're seeing a rate of change improvement. We're seeing
much better small business confidence. We have some issues with
(03:38):
the consumer confidence numbers, but those are are starting to
poke their heads back up, and so savings rates are
increasing again for the first time since you know, stimmy
checks were cut to the American public after the pandemic,
and so, you know, I think things are are still
looking pretty good in the second half. It's not going
to go gangbusters because low inc consumers continue to be
(04:02):
hampered by all the inflation that we've seen over the
last four years. But restaurant business is doing okay.
Speaker 2 (04:09):
It is definitely an interesting time. And to your point,
you know, when it came to the freak out around
the tariffs, it seems like the sales started to rebound
sort of in April, right as oh, the rhetoric was happening.
And I struggled to explain that for a little bit,
but it seems like you, you know, you have a
(04:29):
good explanation there, So like just for a second, let's
dig that a little bit more into that. You know,
why do you think that, you know, despite all the rhetoric,
you know, things have held up relatively decently.
Speaker 1 (04:41):
Yeah, well, you know who's done better. It's really been
the casual dining chains. And then part of that is
better operations and marketing and just the fact that Chile's
is putting up thirty percent comps and lifting the entire
segment mathematically. But I think there was some pent up demand,
right because of those reasons I outlined of of why
(05:02):
that first quarter was so bad. I think there was
some desire for people to get out and get back
into restaurants, and I think that's part of what we've seen.
You know, we've also seen quick service underperform, you know,
and that is a big part of that really is
the exposure to low income consumers. But it's also a
(05:24):
couple other things. You know. Number one, pricing, right, Like,
people are not happy with the value they're getting at
quick service restaurants, and so part of that where they
are is because they were able to raise prices all
the way back in twenty twenty. Casual dining really wasn't
able to do that until like late twenty twenty one, right,
So they had a year and a half head start
of being able to raise prices for the quick service cheam.
(05:46):
So they're pricing kind of got ahead of itself before
anyone else because they were raising prices in twenty twenty
because they were the only game in town and they could, right,
and so that's part of it. Also, development of quick
service restaurants has not slowed since the pandemic, and so
there's a lot more quick service restaurants than there were
(06:08):
five years ago, and so there's a kind of a
supply and demand and balance, whereas casual dinings doing a
little better this year because you know, a lot there
hasn't been much development at all, and a lot of chains,
in fact, I've been closing stores, and so their supply
and demand is more in balance and we're seeing better
(06:31):
results because of it.
Speaker 2 (06:33):
How about fine dining, because I think that's one of
the interesting things that we've noticed, right. I Mean, when
you look at like the black Box data, it seems
like casual dining, which is sort of in the middle,
seems to be doing pretty well. But both the lower
end in terms of quick service and then fine dining
and the upper end don't seem to be doing great.
So I'm just curious what you make of that, and
(06:55):
does that mean anything right about this how Americans are
thinking about dining out, or just like what it takes
to get them in the door in this type of
economic environment.
Speaker 1 (07:05):
Yeah, find them. I thing is interesting because you know,
we thought that they could outperform last year in a
bad year because wealthy and consumers are less impacted by inflation.
But you also have to remember the big part of
their business is B to B right. But it's been
a really difficult two years for fine dining. A big
(07:27):
part of that is after the pandemic, people had stimmy checks.
People weren't spending money, right, So people that didn't lose
their jobs and were able to work from home had
a lot of money that they were accumulating while they
were sitting at home and unable to go out. And
so when they did go out in twenty twenty one,
in twenty twenty two, they they spent a lot of money.
(07:50):
They were you know, a lot of what we were
hearing was that they were buying the most expensive bottles
of wine on the menu, even though service was struggling.
You know, they were going out quite a bit. And
so this has been like a two year hangover now
from that spending. It's hard for me to really pinpoint
(08:11):
exactly what's going on there. You know, I think last
year part of it was everyone was trading down a
little bit, even hiringcome consumers because prices had gone so
up so much. So fast, but they're still continuing to
be soft this year, and so it's hard for me
to say I have the data from black Box, but
(08:32):
you know, my companies outside of Darden really don't have
any exposure to that business. So unfortunately, I can't give
you too much color there.
Speaker 2 (08:41):
Yeah, it's a tricky segment. But I wanted to go
back a little bit to sort of your expectations for
the second half of the year. Right, it seems like
generally speaking, you know, you're fairly positive on what's to come.
Give me, you know, the summary of what your expectations
are for the second half of the year and sort
(09:02):
of the top three reasons that are that are anchoring that.
Speaker 1 (09:07):
Okay, So yeah, we had said throughout the you know,
that we expect the result to be better than last year.
I think I'm looking at like a one to two
percent same star sales increase for the industry. So, like
I said, not gangbusters, but better than the zero point
two percent increase that we saw last year. And that
was all fueled by quick Service, because all the other
(09:30):
sub segments did poorly, especially casual dining, which was awful
last year. So yeah, we we think the year is
going to accelerate. The sasses are going to accelerate through
the year. You know, first of all, like I said,
is really that lapping that comp that we comp from
last year. UH, casual dining will benefit from that the most.
(09:51):
I don't think they're gonna exceed the three percent that
they did in the first half of this year. I
think that's going to moderate. And part of that is
same So our sales are going to moderate at Brinker
and the comps are going to get tougher as the
year goes on. And that segment's also booyed buy you know,
(10:11):
pent up demand not only from the first quarter but
all of last year. You know, people really cut back
on dining out because that's typically what we see in
a recession, and we had a restaurant recession last year.
Is like people cut back and they trade down to
cheaper options, and they traded out of casual dining into
quick service. And you know, as we've seen in the
(10:33):
employment data, people still have jobs, so they have money.
And now that that value gap has shrunk between quick
service and casual dining, people are are looking to go
out to these full service restaurants and enjoy a meal
out and so still good at casual dining. We think
they'll continue to outperform again. This is a very unique
(10:53):
situation in like a slower economy, but that's what we see.
And then quick service, which has been weak, we think
can get better. Part of that is a big part
of that is going to be McDonald's. McDonald's has easier
comps throughout the year. They're finally passed the e coli
(11:14):
issues of late last year. They're put out a lot
of food new food items this year, chicken strips and
the mcraps and all that good stuff. And so as
they start to lap easier comps, you know that'll be helped.
We think low income consumers and middle income consumer spending
(11:35):
should get a boost in the second half. Right, we
just passed the big beautiful bill, and so I think
just the narrative switching from all the tariffs, which isn't
fully behind us if you work on Wall Street, but
it's largely behind us, and now shifting to more talk
and thoughts about cutting tax taxes for seniors and overtime
(11:58):
and on overtime pay as as well as tipped workers.
So all of those are good things for restaurants spending
and so we think that will buoy restaurants sentiment and
spending into the in the second half and especially next
year when people receive their tax refunds.
Speaker 2 (12:16):
Yeah, that's interesting that you wrote up the Big Beautiful Bill,
because I want to talk you something about the narrative
around it, right, And a lot of the coverage that
even Bloomberg has done has sort of highlighted how a
lot of the benefits are more for higher income earners.
You know, that they will get more of a boost,
and you know, with some cuts to you know, programs
(12:36):
like SNAP and Medicaid and everything that would seem to
that would hurt lower income consumers more or at least
sort of the sentiment around it. So I'm just curious
how you're thinking about that narrative, you know, whether it's
real or perceived. People are probably hearing in the news
that the bill kind of benefits more higher income earners.
(13:00):
Does that mean for lower income earners in the sense
of their willingness to go out and spend places like restaurants?
Speaker 1 (13:08):
Yeah, well, well, in terms of that specifically, restaurants aren't
you know, take accepting EBT payments and SNAP payments for
the most part, and so that's going to have a
larger impact at grocery. Right. So the way we're looking
at is that, you know, restaurant employees are largely a
tipped segment of the population right over time, those are
(13:29):
just ones where we're super focused because those are people
that need the help. They're the people that have have
really struggled from the increases in inflation, and so at
the very low end, yes, that that's going to hurt them,
you know, pulling back on the snap benefits is definitely
going to hurt them. But those aren't people that necessarily
spending a lot of money at restaurants, and so, you know,
(13:52):
from in our industry, we don't think that's as much
of an issue. And you know, I'm not attacks and list,
so I can't really dig into the you know, into
the weeds there, and I'd rather not get into the
politics of it, you know, but you know, think I
think overall generally it's it's a good thing for restaurants
(14:13):
and consumer.
Speaker 2 (14:14):
Sentiment got it. So yeah, because I guess that's ultimately
the question. It's sometimes it's less about details and more
about how people feel about them. And so you think
that net net basically the sentiment that's coming out of
the Big Beautiful Bill is going to be one of
people feeling more comfortable spending in places like restaurants.
Speaker 1 (14:35):
Yeah. And then one other thing that that you know,
we had heard from a couple of our companies that
you know that that during the tariff negotiations, there was
there also concern about deportations right in the United States
around that same time, and so some of our companies
did see some pullback with their Hispanic customers. Wingstop was
(14:57):
one that specifically mentioned it, but the there's also some
package for companies that mentioned it. So we're curious to
hear what wink Stuff has to say in the second
quarter and what other consumer companies are saying about about
that moving forward. You know, I'd imagine it seems like
it's less of a headline in the news now, and
(15:18):
I'd imagine there's less concerns.
Speaker 2 (15:20):
You know.
Speaker 1 (15:20):
I think I saw something where Obama actually deported more
people than Trump, So I think the narrative could be
shifting there. But that's something that we're curious about too.
Speaker 2 (15:32):
That is definitely a big just question mark, right, you know,
for the industry. Because the other thing is the Big
Beautiful bill did give more money for immigration enforcements, so
it is going to be interesting what that means in
terms of both the workforce and also just customers, like
how they feel about going out and getting in line
(15:54):
of the drive through if that's the case. But we
don't know how that's going out playouts, So I guess, well,
have to have another conversation without They said another point.
So interesting that you bring up McDonald's in particular. Of
course they are such a big name and almost like
barometer I guess about, you know, the restaurant industry, but
(16:14):
also just the American consumer. And as you mentioned, yes,
they've launched you know, they had their Minecraft meal which
seems to have helped them, crispy strip strips, the snack
wrap that just came back to much fanfare. Do you
think that's going to work to solve the issues that
they've had over the past you know, a few months,
few a few quarters.
Speaker 1 (16:36):
Yeah, it's going to help, you know, like I said,
putting the the e Coli stuff behind them, And they
said they exited the first quarter without any impact to
their business. You know, that's that's a real positive. And
their comps got worse as the year went on last year,
and so you know that in and of itself is
going to make things easier for them, and then you
(16:56):
pile on the impact of some of the these new items.
You know, we'll see if they can give them a
sustained lift. You know, there's not a doubt in my
mind that they gave McDonald's a lift in the second quarter, right.
They would really prefer to see an impact continue, right,
and to take some share in the in the chicken market,
(17:18):
the fast growing chicken market in the United States. So
how much of a bump and will it, you know,
they get and will it last through year end? I
don't really know just yet. You know, I've heard the
reviews are kind of mixed on the chicken, you know,
not maybe not as good as the selects is what
I'm hearing. But you know, it kind of remains to
(17:41):
be seen. But we're we're confident in McDonald's and that
stock has done really well this year, you know, And
a big part of it is because it's seen as
a defensive name. It's actually included in some consumer staples
ETFs because you know, when times are tough, McDonald's tends
to outperform because you know, they can all for price
points center just lower than everybody else. And so you know,
(18:03):
when McDonald's is on their game, they really make it
tough for all of the other quick service burger competitors
like Jack in the Box struggling mightily and Wendy's.
Speaker 2 (18:12):
Yeah, and a big part of the equation right now
and has been, especially since the downturn sort of started
last year, is a question of value, right, and that
is something that McDonald seems to have struggled with or
the past few quarters, just that perception of people thinking
that he was too expensive. So you know, when you
have these new products, something like a snack wrap, which
I believe is starting to you know, the starting price
(18:33):
is something like two ninety nine or something like, how
much does that help that perception of value? Like is
McDonald's actually making headway in changing that perception that you
know people had that the big mag is like eighteen bucks,
even though we only we know that was only like
one rest stop in New Jersey or something like that.
Speaker 1 (18:52):
Yeah, yeah, No, I think it's very important. And McDonald's
knows what they're doing right, Like, they're very good. They've
had their shoes. But everyone, you know, especially with equal
I in pricing last year, everyone got ahead of themselves
with pricing. You know, we think that having items on
the menu at that very accessible two ninety nine price
(19:14):
point is extremely important, especially now since they've made some
changes to the to the value menu, right, and so
you need you know, it's about a third of their business.
Is a third of their transactions, I should say, are
by low income consumers. So when you have items on
the menu that are accessible to them, that's very important
(19:35):
to driving your business. Yeah, so I think it's a
great move. I think it's it's a necessary move. I
think that should pay dividends for them. You know, everybody's
kind of implementing a Barbelle strategy where you're, you know,
try to get the low income consumer in with these
attractive price points, up sell them if you can. But
(19:56):
then also you need some premium items to sell to
your upper middle and higher income consumers.
Speaker 2 (20:03):
So continuing you know, this idea of value. Now talking
more a little bit more about casual dining. Of course,
we know that part of the reason that they're performing
right now, or that segment is up performing right now,
is the lap right, just the comparison to to last year.
But let's leave that aside and talk a little bit
perhaps more about the fundamentals of that business. You know,
(20:25):
you did mention things like operations. Of course, Chili's has
been the big turnaround story, but do you do you
see that casual Dining has actually fundamentally stepped up its game,
right that they're not they're not they're not winning just
because they're being compared to weak results last year. And
if you do give me a couple of examples of
how that has played out.
Speaker 1 (20:47):
Yeah, you know, there's a lot of chains that are
trying to follow that brinker in Chili's blueprint, right, and
that all started with improved operations, you know, so we're
seeing a lot of emphasis on that. This is like
the basic nuts and bolts, the basic blocking and tackling
of the restaurant industry. But amazingly, uh, sometimes it tends
(21:11):
to fall by the wayside, but when you come out
of a really difficult year like they had last year,
it really forces chains to to sharpen sharpen up a
little bit. And so yeah, we've seen it, and you know,
some management changes have helped the right. So Brenker, obviously
that new management team under Kevin Hawkman have been amazing,
(21:32):
but we're also seeing that at Cracker Bow Crocker Brows
results are improving pretty significantly, and we think there's still
significant upside via improvements of operations and marketing and implementing
strategic pricing. And you know, Texas Roadhouse, they've been now
performing for god knows how long. It's amazing, but nobody's
(21:54):
had better and the public chains that we cover, nobody
except for maybe Wingstop has stronger six year same source sales,
So absolutely incredible. And how they how do they do it?
They do it with great operations and they do it
with a great price point, so their value is seen
as very strong. So there their food costs are a
(22:16):
lot higher than their competitors because they're giving a lot
more food on the plate, but a more discerning customer
that we've seen for the last couple of years notices that,
and so when they do spend their money, they're going
to somewhere where they know they're going to get a
great experience. And so Texas Roadhouse hasn't missed the beat
cheesecake factory. That company has always been very good with
(22:37):
operations and their same source sales where uh, you know, didn't.
They didn't knock the cover off the ball in the
first quarter, but they outperformed all the quick service chains
we cover, right, And so you know, with that kind
of pent up demand and better operations and prices that
have gone up a lot since the pandemic, but not
as much as some of their lower price piers, they're
(22:59):
looking and more attractive right now.
Speaker 2 (23:01):
So does that I mean, that suggests to me that
Americans are, you know, cautious, but they're not necessarily super
strapped when it comes to their budgets. It's just that
when they're choosing to go out and spend money, because
you know, when you go to a casual dining chain
you do have a higher average check than going to
fast food. They just want to really make sure it's
worth it, you know. Is is that sort of how
(23:23):
you're reading the situation.
Speaker 1 (23:25):
One hundred percent? One hundred percent, They're they're not looking
to waste their money, you know, because it does hurt,
right if I go out with my son and I
spend whatever I spend between to us seventy dollars and
it's a bad experience, you know, that hurts. You know,
five six years ago, that experience was probably half the cost.
So you know, people are and it's up and down
(23:47):
the economic spectrum. People are being more discerning and they
want to make sure they're having a good experience when
they go out. And you know, I like it because
we're seeing a wider spread between habs and have not
And to me, it really is more of a stock
picking market last year and this year. Then it's been
in a very long time.
Speaker 2 (24:07):
So let's talk a little bit about one segment that
we haven't really brought up, which is fast casual, right,
I mean, they had been out performing for quite a bit.
They're still very you know, standout change so far. Like Cava,
you know that keep just kind of define gravity. I know,
every time I get on with the CEO, I'm like,
what what are you? What is it that you're doing?
Like why is this working out better for you than
(24:30):
for other people? But at the same time, we've had
stories that have started to sort of shift a little bit,
like Chipotle, right, I mean, their their first quarter wasn't
as good as expected after a really you know, long
streak of very good results. So let's talk a little
bit about fasual fast casual rit large and then yeah,
what's up with Chipotle.
Speaker 1 (24:51):
Yeah. So, first of all, Chipotle, right, had a management change,
and it was kind of concerning that. On the first
quarter call, they talked about operational issues, considering CEO Scott
boat right, who I supported as as a as a
hire there. You know, he was a former chief operating
officer and he's been on the job now about a year,
(25:12):
and for them to be talking about dirty restaurants and
poor hospitality is kind of concerning. That being said, I
think they kind of uh sambagged this second quarter. They
were like they were the first restaurant company to report,
and so they really slashed their guidance and they kind
of pushed people towards a negative three in the second quarter,
which is a pretty easy I think it you know,
(25:35):
sets them up to beat that nicely in the second quarter.
But right they're seeing some slippage here, and as the
largest fast casual in the United States, that definitely provides opportunity.
Part of slippage could also be Kava. Right. I don't
cover Kava yet, it's something that we're working on, but
(25:56):
it sure seems like Kava is taking a bite us
then out of out of their business because it's you know,
obviously similar business model Mediterranean is viewed as healthy. They're
doing a good job of attracting the younger consumers, which
you know, tend to spend a lot on mom and
dad's credit card and not really worry too much about it,
(26:19):
and so uh, Kava seems to be taking some of
that share from them. It just seems like there's a
lot of shifts in right now in terms of market share.
You know, Wingstop had an amazing year last year, but
their sam source sales are gonna rise at a much much,
much much lower rate here uh this year, so we're
(26:42):
gonna see some significant slowing, not on the development side,
but on seam source sales. And then you look at
like Shakeshack, who you know, we think is setting up
to have a great year, you know, coming into the
year with Cracker Barrel and shake Shack, we are a
two favorite names. So far, so good. They both rallied
one hundred percent since they're April lows, you know, and
(27:03):
I think they both have good opportunities in improving operations,
improving marketing, getting people in the door, providing them with
a good experience, and convincing them to come back. So
uh yeah, i'd say, overall fast casual kind of seems
like this market share battle. And so as as Chipotle
(27:23):
they continue to struggle, it'll continue to create opportunities for
their competitors.
Speaker 2 (27:28):
So what do you think are the odds that Chapote
they will get it together?
Speaker 1 (27:32):
Right?
Speaker 2 (27:32):
Because they have been doing well, you know before sort
of this downturn the degree it's yeah, and it seems
like they know what the issues are. So do you
think that they'll they'll catch up? Do you think that
they'll you know, fix those problems quickly enough?
Speaker 1 (27:50):
I think odds are they will. So this year, odds
were that they were gonna sae sor shells were going
to rise at a much slower pace. You know, people
didn't think they were going to decline, but the street
had expected a deceleration in top line and it was
because last year they absolutely crushed it, right, and they've
crushed it every year basically since twenty twenty. So, you know,
(28:15):
if I'm a betting man, which I am, and obviously
in my position, right, like, Chipotle has a great management team, right,
they were able to keep their executives. They made a
smart move after Brian Nickel left and gave their executive
team a lot more money and extended their contracts and
gave them reason to stay. And you know, these are
the people that helped make Chipotle great over the last
(28:39):
you know, decade, the post E Coli era under Brian Nickel,
and so you know, you'd have to make you'd have
to side with, I think, with that management team and
their ability to kind of turn it around.
Speaker 2 (28:54):
Yeah, I know, that's really interesting, and I think it's
just a good reminder too that as I don't know,
fuzzy or as gray, sometimes the economic backdrop is right.
Because there's a lot of good things happening, there's also
a lot of uncertainty. It does seem like brands have
a lot of things that they can do right now
to actually make sure that they get customers in the door,
(29:17):
which you know, I mean Kava for example. You mentioned
that is one of the companies you're looking to pick
up now. I think they put a lot of emphasis
on that, or at least that's how the CEO talks
about it. You know, they instead of moving toward environment
in which there's not a lot of room in the
dining not a lot of space in the dining room,
for example, they're like investing more and making sure that
(29:37):
the people who do want to take the break half
that type of space. I you know, I think they're
investing in operations. I've talked to them sometimes about my
own experiences at the Chicago Cava, which always seems to
be busy and takes a while, and they're like, we're
working on it. So it is interesting. But at the
same time, they're quite small compared to Chipotle, so I
(29:59):
do under you know, just like in their ability to
take share. There's just not that many stores around the country.
But but you know, speaking of a sort of tool.
Speaker 1 (30:10):
One, i'd like to add one thing there. Yeah, I
don't please. Like I said, I don't cover it yet,
but I have heard that in terms of you know,
outside of their like mid Atlantic and Northeast stronghold, that
that operations and speed of service has been an issue.
Speaker 2 (30:27):
It's one of the things that I you know, as
I mentioned, like I talked, when I talked to Bert
schelm on the CEO. I think I've asked him a
bunch of times, and he knows that he knows the
restaurant that I go to because I actually met him
there when they opened it. And he's like, we're working
on it, and they're they're they're doing all sorts of
changes in terms of labor deployment, and they're testing some
stuff related to AI to check I think how quickly
(30:50):
the ingredients are gutted depleted, so people don't, you know.
So they're doing a lot of stuff there. But you know,
I'd be curious to definitely talk to them more more
about what's going on there.
Speaker 1 (31:00):
Yeah, well, it's hard when you're growing interesting, right, It's hard,
you know. I'd like, I'm interested in hearing about what
percentage of new gms at new stores that come have
experience and have come from another store, right, because if
the higher keep that percentage, the better you can keep
the culture, the better the operations and new restaurants will be.
Speaker 2 (31:22):
Right, And it probably is tricky when you're entering a
whole new market, like for example, I think when they
entered Chicago. When they came into Chicago last year, it
was her first store here, so you have to hire
externally pretty much. So it is it is quite interesting.
But I guess another company that obviously has a lot
to work on and is working on a lot of
(31:43):
things is Starbucks. So yeah, just tell me tell me
how you're thinking about Starbucks. You know, it's been uh,
you know, the CEO, Brian Nickel, of course, moved officially
started September ninth of last year, So in a couple
of months he's going to be his his one year anniversary.
At this stage, how are you thinking about the turnaround
in terms of what he's done so far and what's
(32:05):
left on.
Speaker 1 (32:06):
His to do list? You know, I would say he's
making the right moves here in the United States. I
I also would say that it's probably take it's taking
a little bit longer than I thought, and definitely a
little bit longer than the street thought. But you know,
to me, you know, I think concentrating on the on
(32:27):
the price and the value I think is very smart.
Definitely price definitely got ahead of itself at Starbucks. Improving
the operations, you know, to me, is so crazy how
they didn't have a proper queue for the mobile app
and in store orders and absolute head scratcher. You know.
So a lot of these moves are taking time, probably
(32:49):
taking more time than we thought. But this is a very,
very large company, and as I like to say, he
can't turn around an aircraft carrier on a dime. But
I say, I'd say, what's interesting now is I think
the street is becoming more negative on Starbucks. To me,
I don't think that's the I don't think that's the
(33:11):
right way to look at it, you know. I think
if anyone can turn it around, it's Brian Nickel. They
still have a massive footprint, and yeah, there's some competition
from places like Dutch bro Dutch Bros. And Seven Brew,
but that's like such a fraction they you know, they
they have a fraction of the stores of Starbucks. And
(33:31):
so Starbucks is an amazing brand. I don't I don't
think it's dead here in America.
Speaker 2 (33:36):
You know.
Speaker 1 (33:36):
My bigger concerns are, you know, a what's gonna happen
internationally that's going to be a tougher lift in general.
I know they're you know, Middle East in some countries
with large Muslim populations, including Malaysia, are doing better this
year because last year we're so they were the sales
were so abysmal, right, but they're coming back this year,
(33:58):
but they're still not where they were a couple of
years ago. So they have that issue. They have all
of the low price competition in China, that's an issue.
Obviously they're looking to sell part of that business. We'll
see how much they decide to sell. You know, so
international is more complicated. It's gonna be more difficult, and
it's not Brian Nickel doesn't have a ton of experience
(34:21):
on the international side. That being said, you know, his
job as CEO is to hire really good people and
motivate them to do a good job. And you know,
so I think he's made some of the right moves
in terms of the people running their international business, right
and we'll see how long that takes. But that's gonna
be a tougher lift. And then the other concern is tariffs, right,
(34:43):
like what happens if Brazil, you know, with the Brazil
tariffs and what kind of impact is that going to
have on Starbucks? As well as the fact that you know,
I keep saying we're in a commodity bull market and
so coffee prices have gone up quite significantly over the
last year and you know they can continue for quite
(35:03):
some time. So there's some headwinds for.
Speaker 2 (35:08):
Sure, there fun times for Brian and his team. I
guess last question about Starbucks how long does he get
because as you mentioned, it seems like the street has
been turning a little bit more negative. But at the
same time as you were saying, this is going to
be a long, probably long road, So you know, how
(35:28):
long a leash does he get?
Speaker 1 (35:30):
Listen, I would give him, you know, obviously it would
depend on I don't know what's going on behind closed
doors and things of that nature. But in terms of
who they hired to turn that thing around, I couldn't
think of someone better. So to me, he deserves an
extremely long leash. There's nobody I would I would have
picked ahead of him.
Speaker 2 (35:51):
Makes sense. I mean, I hear that a lot. That's
kind of like what I what I hear when I
talk to people as well. A couple more questions, perhaps
a little bit broader about the industry. So, oh, Maha
thing right, make America healthy again. There's been a lot
of conversation more around packaged food companies, I guess because
so much of the conversation so far has been oh,
(36:13):
one hand, fragmented, you know, very based on like state
legislation of movements, and then you know, very focused on
things like dies and stuff like that. But how are
you thinking about Maha and what he means for the
restaurant industry.
Speaker 1 (36:27):
Yeah, I'm not. I don't think it's going to be
that much of an issue because a lot of the
things that MAHA are doing or just kind of catching
up to standards that we have that they have in
Europe and Canada, right, and so my international companies figure
out how to how to do it in these other countries. Right.
So I think it's going to be a bigger lift
for the food service companies that are making the sauces
(36:51):
and you know, things of that nature. So I'm not
too worried about MAHA. I would say GLP ones are
probably still more of a concern in the restaurant space,
you know. I you know, as they become cheaper, eventually
they'll come out with a pill form and they'll be
(37:11):
you know, more common, and so obviously that causes some
concern for companies that sell unhealthy food, you know, think
the Burger QSRs and stuff like that. But still, I mean,
I even the estimates on the really high side don't
(37:33):
make me too worried. I mean, I think it's going
to cut into alcohol sales. You know, alcohol has been
declining now for some time as well, though, because young,
younger generations are not really as interested in it, you know.
And then we've also seen, you know, the legalization of
cannabis kind of hurt alcohol sales a bit too as well.
(37:53):
So yeah, I would say fatty foods and alcohol sales
are two things that they're looking at. But you know,
over time, portion sizes with inflation just continue to shrink,
and so you know, we're gonna see more of that.
Unfortunately for people like me that have a big appetite that.
Speaker 2 (38:13):
It's such an interesting dynamic, right because on the one side,
portion sizes keep getting smaller, But then we go back
to the start, to this example of Texas Roadhouse of
them putting more food on the plate or at least
a generous portion, and then they're doing well. So it's
almost like as a restaurant, you're just kind of looking
(38:34):
at what's my bet here? Is it that people are
gonna eat it less so I'm gonna go that route?
Or is it that Americans buy and large are actually
one want bigger portions, because I mean you can kind
of have both on one menu, but it does seem
like at some point you kind of have to pick
a strategy.
Speaker 1 (38:52):
Yeah, yeah, yeah, well I think it's it's you know,
having some flexibility on your menu. You know, She's Cake
Factory is known for their for their big, big portions,
you know, and they but they dabbled in that skinny
delicious menu for a while. You know, who knows, maybe
those menus will kind of kind of come back, but
it's it kind of it's going to vary by chain,
(39:14):
I think, and it's gonna, you know, it's going to
be important to maintain you know, your brand feel and
what you know, what it means. And if it's Cheesecake
Factory providing really big portions, you know, by them shrinking
the size is not going to help, you know, in
(39:34):
a place like Chili's. Honestly, I'd have to imagine there's
not a large percentage of their customer base that GLP ones, right,
And so yeah, me staying true to who you are
I think is going to be critical. You know, I
don't think McDonald's should be, you know, creating this massive
like make your own salad menu or anything of that nature,
(39:58):
getting rid of apple pies and the ice cream. But
you know, well we'll see it's gonna it's gonna be interesting.
But I think chains need to need to stay true
to what they are.
Speaker 2 (40:11):
Yeah, I think that's something that for example, Brian Nichol
has talked a lot about as he takes over to Starbucks.
It's just like, what is it that people really liked
about this company and how can we really amp it up?
So much going on in the restaurant space keeping both
of us quite busy, But I've asked you a bunch
of questions. I just wanted to close just by asking
you if there's anything else that is top of mind
(40:34):
for you, or you know, anything that you found. I
don't all surprising unexpected about how things have gone this
year so far.
Speaker 1 (40:40):
Oh well, yeah, I probably the tariff thing was really interesting,
I pro you know, looking back, I wish I put
more weight on it. But I think the restaurants are
in a good place. I think they're in a better
place than most because you know, food is sourced locally.
(41:02):
Even for these international chains, food is sourced locally. They
all have individual supply chains in the countries where they operate,
don't have a ton of exposure to tariffs, and so
you know, whatever it pans out to be, you know,
just weighted average of fifteen to twenty percent, whatever it
might be, you know, customers are going to see that
in retail, but they're not going to see it at restaurants.
(41:24):
And you know, people still have jobs and still have
our time, are pressed for time, and still have to
eat and often want to eat out because they're pressed
for time, and so, you know, I think they were
kind of the restaurant's stocks were thrown out. You know,
the baby was thrown out with the bath water back
in April, and you know, I think that's why we've
(41:44):
seen the restaurant chains outperform now outperformed the S and
P since. So yeah, I mean that whole situation was
probably the most surprising. There was also some interesting things
happening in early April where there was like de risking
and some of the worst the change with the worst
(42:06):
same soour sales and margin compression were up the most
on some days because everyone was short them and getting squeezed.
And on the same day, you know, the rock stars
like Brinker were down big, and so that was like
a really interesting, exciting period. I don't know if I
could take you know, the stress of it on an
annual basis, but that was a really really cool, interesting
(42:31):
time to be working in the markets. And then the
restaurant base for sure.
Speaker 2 (42:35):
Definitely, so there's a lot to keep tabs on. So
I will keep bugging you with questions and then hopefully we'll.
Speaker 1 (42:42):
Do this again. Oh hell yeah, you're amazing. Thanks for
doing this. We'll definitely do this again. And I just
want to thank the audience for tuning in. If you
like to learn more about Diana's work, you can visit
her on LinkedIn. Right, you have a pretty big test
presence any other.
Speaker 2 (43:00):
Yeah, I always post all my stories on LinkedIn, so
feel free to add me and leave comments. I love
it when people tell me what they think about what's
happening in the restaurant space. It often generates a lot
of questions, and then I go ask the companies.
Speaker 1 (43:14):
So you do a great job. Everyone from the second
all of my friends in the restaurant industry met you,
they were very impressed. So keep up the good work. Audiences. Ow,
you got it an audience. If you liked the discussion,
please share it with your friends and colleagues. Check back
soon for an interview with Clay Dover, the CEO of
(43:35):
Velvet Taco,
Welcome to Chopping it Up. I'm your host, Mike Hamllon,
the senior Restaurant and food Service analyst at Bloomberg Intelligence.
Our research and that at BES five hundred analysts around
the globe can be found exclusively on the Bloomberg terminal.
If you enjoy the pod, I'd love it if you
could leave us a review on Apple or Spotify. Today
we're doing things a little bit different. Daniellis to Tori,
(00:33):
the phenomenal Bloomberg reporter covering restaurants, is going to interview
me about our mid year outlook. Welcome back to the pod, Daniella.
Speaker 2 (00:42):
Thank you so much for having me. Mike. It's always
fun to talk to you, and you always help me
understand the industry much better. And I'm excited to just
pepper you with questions you did today. I hope you're ready.
Speaker 1 (00:54):
I'm always ready. Let's do it.
Speaker 2 (00:57):
So I actually wanted to start by asking you a
little bit to look back. I mean, the beginning of
the year was kind of interesting, right, I mean, we
had the bad weather and we had all the you know,
news about tariffs and whatever that was going to mean.
So can you kind of bring us up to speed
about you know, what the what this first part of
(01:18):
the year has been like for the restaurant industry.
Speaker 1 (01:22):
Yeah, you know, we came into the year looking for
a better year in terms of restaurant sales, and I'm
not so sure about what's going to happen to inflation
in the second half in margins, and we're kind of
in the you know, our view hasn't changed, you know,
there have been headwinds in the first quarter. To your point,
the first quarter sales increased for most of our chains.
(01:45):
But to your point, weather was bad. It was cold,
and then it was snowy, and it was a record
flu season, right, and then we had the taraf freakout.
And what's interesting is that that twer freakout happened right
aroun around when all our companies were reporting their first
quarter earnings, and most of the companies we cover used
(02:07):
it as an opportunity to cut their guidance just due
to quote unquote uncertainty. But then when we got the
data for April and May, there really was not much
of an impact on restaurants spending. Right, people have to eat,
you know, I know people with on the on the
East Coast in New York people with personal accounts and
(02:28):
pretty big four to one k's were really upset at
the time, and maybe they cut back their visits to
Ruth Chris or some other high end restaurant. But most
Americans don't have stocks investments in stocks and could care
less about you know, the historyonics around and around the tariff.
So restaurant spending continued kind of unabated, and from the
(02:52):
data we get from black Box Intelligence, it was pretty solid,
and it seems ourselves were up about ninety bases points
in the first half of the year, considering that had
ones we've had, we think that that's a pretty good number.
In the second half, we continue to lap last year's
week results, so especially in the summer. I mean, we're
lapping very weak results here in July and August, and
(03:14):
you know, and and economic data is looking better. It's not,
you know, great, but the stuff that we look at
is getting better. So credit card balances, credit card delinquencies,
auto loan delinquencies are kind of the increases there are moderating,
so we're seeing a rate of change improvement. We're seeing
much better small business confidence. We have some issues with
(03:38):
the consumer confidence numbers, but those are are starting to
poke their heads back up, and so savings rates are
increasing again for the first time since you know, stimmy
checks were cut to the American public after the pandemic,
and so, you know, I think things are are still
looking pretty good in the second half. It's not going
to go gangbusters because low inc consumers continue to be
(04:02):
hampered by all the inflation that we've seen over the
last four years. But restaurant business is doing okay.
Speaker 2 (04:09):
It is definitely an interesting time. And to your point,
you know, when it came to the freak out around
the tariffs, it seems like the sales started to rebound
sort of in April, right as oh, the rhetoric was happening.
And I struggled to explain that for a little bit,
but it seems like you, you know, you have a
(04:29):
good explanation there, So like just for a second, let's
dig that a little bit more into that. You know,
why do you think that, you know, despite all the rhetoric,
you know, things have held up relatively decently.
Speaker 1 (04:41):
Yeah, well, you know who's done better. It's really been
the casual dining chains. And then part of that is
better operations and marketing and just the fact that Chile's
is putting up thirty percent comps and lifting the entire
segment mathematically. But I think there was some pent up demand,
right because of those reasons I outlined of of why
(05:02):
that first quarter was so bad. I think there was
some desire for people to get out and get back
into restaurants, and I think that's part of what we've seen.
You know, we've also seen quick service underperform, you know,
and that is a big part of that really is
the exposure to low income consumers. But it's also a
(05:24):
couple other things. You know. Number one, pricing, right, Like,
people are not happy with the value they're getting at
quick service restaurants, and so part of that where they
are is because they were able to raise prices all
the way back in twenty twenty. Casual dining really wasn't
able to do that until like late twenty twenty one, right,
So they had a year and a half head start
of being able to raise prices for the quick service cheam.
(05:46):
So they're pricing kind of got ahead of itself before
anyone else because they were raising prices in twenty twenty
because they were the only game in town and they could, right,
and so that's part of it. Also, development of quick
service restaurants has not slowed since the pandemic, and so
there's a lot more quick service restaurants than there were
(06:08):
five years ago, and so there's a kind of a
supply and demand and balance, whereas casual dinings doing a
little better this year because you know, a lot there
hasn't been much development at all, and a lot of chains,
in fact, I've been closing stores, and so their supply
and demand is more in balance and we're seeing better
(06:31):
results because of it.
Speaker 2 (06:33):
How about fine dining, because I think that's one of
the interesting things that we've noticed, right. I Mean, when
you look at like the black Box data, it seems
like casual dining, which is sort of in the middle,
seems to be doing pretty well. But both the lower
end in terms of quick service and then fine dining
and the upper end don't seem to be doing great.
So I'm just curious what you make of that, and
(06:55):
does that mean anything right about this how Americans are
thinking about dining out, or just like what it takes
to get them in the door in this type of
economic environment.
Speaker 1 (07:05):
Yeah, find them. I thing is interesting because you know,
we thought that they could outperform last year in a
bad year because wealthy and consumers are less impacted by inflation.
But you also have to remember the big part of
their business is B to B right. But it's been
a really difficult two years for fine dining. A big
(07:27):
part of that is after the pandemic, people had stimmy checks.
People weren't spending money, right, So people that didn't lose
their jobs and were able to work from home had
a lot of money that they were accumulating while they
were sitting at home and unable to go out. And
so when they did go out in twenty twenty one,
in twenty twenty two, they they spent a lot of money.
(07:50):
They were you know, a lot of what we were
hearing was that they were buying the most expensive bottles
of wine on the menu, even though service was struggling.
You know, they were going out quite a bit. And
so this has been like a two year hangover now
from that spending. It's hard for me to really pinpoint
(08:11):
exactly what's going on there. You know, I think last
year part of it was everyone was trading down a
little bit, even hiringcome consumers because prices had gone so
up so much. So fast, but they're still continuing to
be soft this year, and so it's hard for me
to say I have the data from black Box, but
(08:32):
you know, my companies outside of Darden really don't have
any exposure to that business. So unfortunately, I can't give
you too much color there.
Speaker 2 (08:41):
Yeah, it's a tricky segment. But I wanted to go
back a little bit to sort of your expectations for
the second half of the year. Right, it seems like
generally speaking, you know, you're fairly positive on what's to come.
Give me, you know, the summary of what your expectations
are for the second half of the year and sort
(09:02):
of the top three reasons that are that are anchoring that.
Speaker 1 (09:07):
Okay, So yeah, we had said throughout the you know,
that we expect the result to be better than last year.
I think I'm looking at like a one to two
percent same star sales increase for the industry. So, like
I said, not gangbusters, but better than the zero point
two percent increase that we saw last year. And that
was all fueled by quick Service, because all the other
(09:30):
sub segments did poorly, especially casual dining, which was awful
last year. So yeah, we we think the year is
going to accelerate. The sasses are going to accelerate through
the year. You know, first of all, like I said,
is really that lapping that comp that we comp from
last year. UH, casual dining will benefit from that the most.
(09:51):
I don't think they're gonna exceed the three percent that
they did in the first half of this year. I
think that's going to moderate. And part of that is
same So our sales are going to moderate at Brinker
and the comps are going to get tougher as the
year goes on. And that segment's also booyed buy you know,
(10:11):
pent up demand not only from the first quarter but
all of last year. You know, people really cut back
on dining out because that's typically what we see in
a recession, and we had a restaurant recession last year.
Is like people cut back and they trade down to
cheaper options, and they traded out of casual dining into
quick service. And you know, as we've seen in the
(10:33):
employment data, people still have jobs, so they have money.
And now that that value gap has shrunk between quick
service and casual dining, people are are looking to go
out to these full service restaurants and enjoy a meal
out and so still good at casual dining. We think
they'll continue to outperform again. This is a very unique
(10:53):
situation in like a slower economy, but that's what we see.
And then quick service, which has been weak, we think
can get better. Part of that is a big part
of that is going to be McDonald's. McDonald's has easier
comps throughout the year. They're finally passed the e coli
(11:14):
issues of late last year. They're put out a lot
of food new food items this year, chicken strips and
the mcraps and all that good stuff. And so as
they start to lap easier comps, you know that'll be helped.
We think low income consumers and middle income consumer spending
(11:35):
should get a boost in the second half. Right, we
just passed the big beautiful bill, and so I think
just the narrative switching from all the tariffs, which isn't
fully behind us if you work on Wall Street, but
it's largely behind us, and now shifting to more talk
and thoughts about cutting tax taxes for seniors and overtime
(11:58):
and on overtime pay as as well as tipped workers.
So all of those are good things for restaurants spending
and so we think that will buoy restaurants sentiment and
spending into the in the second half and especially next
year when people receive their tax refunds.
Speaker 2 (12:16):
Yeah, that's interesting that you wrote up the Big Beautiful Bill,
because I want to talk you something about the narrative
around it, right, And a lot of the coverage that
even Bloomberg has done has sort of highlighted how a
lot of the benefits are more for higher income earners.
You know, that they will get more of a boost,
and you know, with some cuts to you know, programs
(12:36):
like SNAP and Medicaid and everything that would seem to
that would hurt lower income consumers more or at least
sort of the sentiment around it. So I'm just curious
how you're thinking about that narrative, you know, whether it's
real or perceived. People are probably hearing in the news
that the bill kind of benefits more higher income earners.
(13:00):
Does that mean for lower income earners in the sense
of their willingness to go out and spend places like restaurants?
Speaker 1 (13:08):
Yeah, well, well, in terms of that specifically, restaurants aren't
you know, take accepting EBT payments and SNAP payments for
the most part, and so that's going to have a
larger impact at grocery. Right. So the way we're looking
at is that, you know, restaurant employees are largely a
tipped segment of the population right over time, those are
(13:29):
just ones where we're super focused because those are people
that need the help. They're the people that have have
really struggled from the increases in inflation, and so at
the very low end, yes, that that's going to hurt them,
you know, pulling back on the snap benefits is definitely
going to hurt them. But those aren't people that necessarily
spending a lot of money at restaurants, and so, you know,
(13:52):
from in our industry, we don't think that's as much
of an issue. And you know, I'm not attacks and list,
so I can't really dig into the you know, into
the weeds there, and I'd rather not get into the
politics of it, you know, but you know, think I
think overall generally it's it's a good thing for restaurants
(14:13):
and consumer.
Speaker 2 (14:14):
Sentiment got it. So yeah, because I guess that's ultimately
the question. It's sometimes it's less about details and more
about how people feel about them. And so you think
that net net basically the sentiment that's coming out of
the Big Beautiful Bill is going to be one of
people feeling more comfortable spending in places like restaurants.
Speaker 1 (14:35):
Yeah. And then one other thing that that you know,
we had heard from a couple of our companies that
you know that that during the tariff negotiations, there was
there also concern about deportations right in the United States
around that same time, and so some of our companies
did see some pullback with their Hispanic customers. Wingstop was
(14:57):
one that specifically mentioned it, but the there's also some
package for companies that mentioned it. So we're curious to
hear what wink Stuff has to say in the second
quarter and what other consumer companies are saying about about
that moving forward. You know, I'd imagine it seems like
it's less of a headline in the news now, and
(15:18):
I'd imagine there's less concerns.
Speaker 2 (15:20):
You know.
Speaker 1 (15:20):
I think I saw something where Obama actually deported more
people than Trump, So I think the narrative could be
shifting there. But that's something that we're curious about too.
Speaker 2 (15:32):
That is definitely a big just question mark, right, you know,
for the industry. Because the other thing is the Big
Beautiful bill did give more money for immigration enforcements, so
it is going to be interesting what that means in
terms of both the workforce and also just customers, like
how they feel about going out and getting in line
(15:54):
of the drive through if that's the case. But we
don't know how that's going out playouts, So I guess, well,
have to have another conversation without They said another point.
So interesting that you bring up McDonald's in particular. Of
course they are such a big name and almost like
barometer I guess about, you know, the restaurant industry, but
(16:14):
also just the American consumer. And as you mentioned, yes,
they've launched you know, they had their Minecraft meal which
seems to have helped them, crispy strip strips, the snack
wrap that just came back to much fanfare. Do you
think that's going to work to solve the issues that
they've had over the past you know, a few months,
few a few quarters.
Speaker 1 (16:36):
Yeah, it's going to help, you know, like I said,
putting the the e Coli stuff behind them, And they
said they exited the first quarter without any impact to
their business. You know, that's that's a real positive. And
their comps got worse as the year went on last year,
and so you know that in and of itself is
going to make things easier for them, and then you
(16:56):
pile on the impact of some of the these new items.
You know, we'll see if they can give them a
sustained lift. You know, there's not a doubt in my
mind that they gave McDonald's a lift in the second quarter, right.
They would really prefer to see an impact continue, right,
and to take some share in the in the chicken market,
(17:18):
the fast growing chicken market in the United States. So
how much of a bump and will it, you know,
they get and will it last through year end? I
don't really know just yet. You know, I've heard the
reviews are kind of mixed on the chicken, you know,
not maybe not as good as the selects is what
I'm hearing. But you know, it kind of remains to
(17:41):
be seen. But we're we're confident in McDonald's and that
stock has done really well this year, you know, And
a big part of it is because it's seen as
a defensive name. It's actually included in some consumer staples
ETFs because you know, when times are tough, McDonald's tends
to outperform because you know, they can all for price
points center just lower than everybody else. And so you know,
(18:03):
when McDonald's is on their game, they really make it
tough for all of the other quick service burger competitors
like Jack in the Box struggling mightily and Wendy's.
Speaker 2 (18:12):
Yeah, and a big part of the equation right now
and has been, especially since the downturn sort of started
last year, is a question of value, right, and that
is something that McDonald seems to have struggled with or
the past few quarters, just that perception of people thinking
that he was too expensive. So you know, when you
have these new products, something like a snack wrap, which
I believe is starting to you know, the starting price
(18:33):
is something like two ninety nine or something like, how
much does that help that perception of value? Like is
McDonald's actually making headway in changing that perception that you
know people had that the big mag is like eighteen bucks,
even though we only we know that was only like
one rest stop in New Jersey or something like that.
Speaker 1 (18:52):
Yeah, yeah, No, I think it's very important. And McDonald's
knows what they're doing right, Like, they're very good. They've
had their shoes. But everyone, you know, especially with equal
I in pricing last year, everyone got ahead of themselves
with pricing. You know, we think that having items on
the menu at that very accessible two ninety nine price
(19:14):
point is extremely important, especially now since they've made some
changes to the to the value menu, right, and so
you need you know, it's about a third of their business.
Is a third of their transactions, I should say, are
by low income consumers. So when you have items on
the menu that are accessible to them, that's very important
(19:35):
to driving your business. Yeah, so I think it's a
great move. I think it's it's a necessary move. I
think that should pay dividends for them. You know, everybody's
kind of implementing a Barbelle strategy where you're, you know,
try to get the low income consumer in with these
attractive price points, up sell them if you can. But
(19:56):
then also you need some premium items to sell to
your upper middle and higher income consumers.
Speaker 2 (20:03):
So continuing you know, this idea of value. Now talking
more a little bit more about casual dining. Of course,
we know that part of the reason that they're performing
right now, or that segment is up performing right now,
is the lap right, just the comparison to to last year.
But let's leave that aside and talk a little bit
perhaps more about the fundamentals of that business. You know,
(20:25):
you did mention things like operations. Of course, Chili's has
been the big turnaround story, but do you do you
see that casual Dining has actually fundamentally stepped up its game,
right that they're not they're not they're not winning just
because they're being compared to weak results last year. And
if you do give me a couple of examples of
how that has played out.
Speaker 1 (20:47):
Yeah, you know, there's a lot of chains that are
trying to follow that brinker in Chili's blueprint, right, and
that all started with improved operations, you know, so we're
seeing a lot of emphasis on that. This is like
the basic nuts and bolts, the basic blocking and tackling
of the restaurant industry. But amazingly, uh, sometimes it tends
(21:11):
to fall by the wayside, but when you come out
of a really difficult year like they had last year,
it really forces chains to to sharpen sharpen up a
little bit. And so yeah, we've seen it, and you know,
some management changes have helped the right. So Brenker, obviously
that new management team under Kevin Hawkman have been amazing,
(21:32):
but we're also seeing that at Cracker Bow Crocker Brows
results are improving pretty significantly, and we think there's still
significant upside via improvements of operations and marketing and implementing
strategic pricing. And you know, Texas Roadhouse, they've been now
performing for god knows how long. It's amazing, but nobody's
(21:54):
had better and the public chains that we cover, nobody
except for maybe Wingstop has stronger six year same source sales,
So absolutely incredible. And how they how do they do it?
They do it with great operations and they do it
with a great price point, so their value is seen
as very strong. So there their food costs are a
(22:16):
lot higher than their competitors because they're giving a lot
more food on the plate, but a more discerning customer
that we've seen for the last couple of years notices that,
and so when they do spend their money, they're going
to somewhere where they know they're going to get a
great experience. And so Texas Roadhouse hasn't missed the beat
cheesecake factory. That company has always been very good with
(22:37):
operations and their same source sales where uh, you know, didn't.
They didn't knock the cover off the ball in the
first quarter, but they outperformed all the quick service chains
we cover, right, And so you know, with that kind
of pent up demand and better operations and prices that
have gone up a lot since the pandemic, but not
as much as some of their lower price piers, they're
(22:59):
looking and more attractive right now.
Speaker 2 (23:01):
So does that I mean, that suggests to me that
Americans are, you know, cautious, but they're not necessarily super
strapped when it comes to their budgets. It's just that
when they're choosing to go out and spend money, because
you know, when you go to a casual dining chain
you do have a higher average check than going to
fast food. They just want to really make sure it's
worth it, you know. Is is that sort of how
(23:23):
you're reading the situation.
Speaker 1 (23:25):
One hundred percent? One hundred percent, They're they're not looking
to waste their money, you know, because it does hurt,
right if I go out with my son and I
spend whatever I spend between to us seventy dollars and
it's a bad experience, you know, that hurts. You know,
five six years ago, that experience was probably half the cost.
So you know, people are and it's up and down
(23:47):
the economic spectrum. People are being more discerning and they
want to make sure they're having a good experience when
they go out. And you know, I like it because
we're seeing a wider spread between habs and have not
And to me, it really is more of a stock
picking market last year and this year. Then it's been
in a very long time.
Speaker 2 (24:07):
So let's talk a little bit about one segment that
we haven't really brought up, which is fast casual, right,
I mean, they had been out performing for quite a bit.
They're still very you know, standout change so far. Like Cava,
you know that keep just kind of define gravity. I know,
every time I get on with the CEO, I'm like,
what what are you? What is it that you're doing?
Like why is this working out better for you than
(24:30):
for other people? But at the same time, we've had
stories that have started to sort of shift a little bit,
like Chipotle, right, I mean, their their first quarter wasn't
as good as expected after a really you know, long
streak of very good results. So let's talk a little
bit about fasual fast casual rit large and then yeah,
what's up with Chipotle.
Speaker 1 (24:51):
Yeah. So, first of all, Chipotle, right, had a management change,
and it was kind of concerning that. On the first
quarter call, they talked about operational issues, considering CEO Scott
boat right, who I supported as as a as a
hire there. You know, he was a former chief operating
officer and he's been on the job now about a year,
(25:12):
and for them to be talking about dirty restaurants and
poor hospitality is kind of concerning. That being said, I
think they kind of uh sambagged this second quarter. They
were like they were the first restaurant company to report,
and so they really slashed their guidance and they kind
of pushed people towards a negative three in the second quarter,
which is a pretty easy I think it you know,
(25:35):
sets them up to beat that nicely in the second quarter.
But right they're seeing some slippage here, and as the
largest fast casual in the United States, that definitely provides opportunity.
Part of slippage could also be Kava. Right. I don't
cover Kava yet, it's something that we're working on, but
(25:56):
it sure seems like Kava is taking a bite us
then out of out of their business because it's you know,
obviously similar business model Mediterranean is viewed as healthy. They're
doing a good job of attracting the younger consumers, which
you know, tend to spend a lot on mom and
dad's credit card and not really worry too much about it,
(26:19):
and so uh, Kava seems to be taking some of
that share from them. It just seems like there's a
lot of shifts in right now in terms of market share.
You know, Wingstop had an amazing year last year, but
their sam source sales are gonna rise at a much much,
much much lower rate here uh this year, so we're
(26:42):
gonna see some significant slowing, not on the development side,
but on seam source sales. And then you look at
like Shakeshack, who you know, we think is setting up
to have a great year, you know, coming into the
year with Cracker Barrel and shake Shack, we are a
two favorite names. So far, so good. They both rallied
one hundred percent since they're April lows, you know, and
(27:03):
I think they both have good opportunities in improving operations,
improving marketing, getting people in the door, providing them with
a good experience, and convincing them to come back. So
uh yeah, i'd say, overall fast casual kind of seems
like this market share battle. And so as as Chipotle
(27:23):
they continue to struggle, it'll continue to create opportunities for
their competitors.
Speaker 2 (27:28):
So what do you think are the odds that Chapote
they will get it together?
Speaker 1 (27:32):
Right?
Speaker 2 (27:32):
Because they have been doing well, you know before sort
of this downturn the degree it's yeah, and it seems
like they know what the issues are. So do you
think that they'll they'll catch up? Do you think that
they'll you know, fix those problems quickly enough?
Speaker 1 (27:50):
I think odds are they will. So this year, odds
were that they were gonna sae sor shells were going
to rise at a much slower pace. You know, people
didn't think they were going to decline, but the street
had expected a deceleration in top line and it was
because last year they absolutely crushed it, right, and they've
crushed it every year basically since twenty twenty. So, you know,
(28:15):
if I'm a betting man, which I am, and obviously
in my position, right, like, Chipotle has a great management team, right,
they were able to keep their executives. They made a
smart move after Brian Nickel left and gave their executive
team a lot more money and extended their contracts and
gave them reason to stay. And you know, these are
the people that helped make Chipotle great over the last
(28:39):
you know, decade, the post E Coli era under Brian Nickel,
and so you know, you'd have to make you'd have
to side with, I think, with that management team and
their ability to kind of turn it around.
Speaker 2 (28:54):
Yeah, I know, that's really interesting, and I think it's
just a good reminder too that as I don't know,
fuzzy or as gray, sometimes the economic backdrop is right.
Because there's a lot of good things happening, there's also
a lot of uncertainty. It does seem like brands have
a lot of things that they can do right now
to actually make sure that they get customers in the door,
(29:17):
which you know, I mean Kava for example. You mentioned
that is one of the companies you're looking to pick
up now. I think they put a lot of emphasis
on that, or at least that's how the CEO talks
about it. You know, they instead of moving toward environment
in which there's not a lot of room in the
dining not a lot of space in the dining room,
for example, they're like investing more and making sure that
(29:37):
the people who do want to take the break half
that type of space. I you know, I think they're
investing in operations. I've talked to them sometimes about my
own experiences at the Chicago Cava, which always seems to
be busy and takes a while, and they're like, we're
working on it. So it is interesting. But at the
same time, they're quite small compared to Chipotle, so I
(29:59):
do under you know, just like in their ability to
take share. There's just not that many stores around the country.
But but you know, speaking of a sort of tool.
Speaker 1 (30:10):
One, i'd like to add one thing there. Yeah, I
don't please. Like I said, I don't cover it yet,
but I have heard that in terms of you know,
outside of their like mid Atlantic and Northeast stronghold, that
that operations and speed of service has been an issue.
Speaker 2 (30:27):
It's one of the things that I you know, as
I mentioned, like I talked, when I talked to Bert
schelm on the CEO. I think I've asked him a
bunch of times, and he knows that he knows the
restaurant that I go to because I actually met him
there when they opened it. And he's like, we're working
on it, and they're they're they're doing all sorts of
changes in terms of labor deployment, and they're testing some
stuff related to AI to check I think how quickly
(30:50):
the ingredients are gutted depleted, so people don't, you know.
So they're doing a lot of stuff there. But you know,
I'd be curious to definitely talk to them more more
about what's going on there.
Speaker 1 (31:00):
Yeah, well, it's hard when you're growing interesting, right, It's hard,
you know. I'd like, I'm interested in hearing about what
percentage of new gms at new stores that come have
experience and have come from another store, right, because if
the higher keep that percentage, the better you can keep
the culture, the better the operations and new restaurants will be.
Speaker 2 (31:22):
Right, And it probably is tricky when you're entering a
whole new market, like for example, I think when they
entered Chicago. When they came into Chicago last year, it
was her first store here, so you have to hire
externally pretty much. So it is it is quite interesting.
But I guess another company that obviously has a lot
to work on and is working on a lot of
(31:43):
things is Starbucks. So yeah, just tell me tell me
how you're thinking about Starbucks. You know, it's been uh,
you know, the CEO, Brian Nickel, of course, moved officially
started September ninth of last year, So in a couple
of months he's going to be his his one year anniversary.
At this stage, how are you thinking about the turnaround
in terms of what he's done so far and what's
(32:05):
left on.
Speaker 1 (32:06):
His to do list? You know, I would say he's
making the right moves here in the United States. I
I also would say that it's probably take it's taking
a little bit longer than I thought, and definitely a
little bit longer than the street thought. But you know,
to me, you know, I think concentrating on the on
(32:27):
the price and the value I think is very smart.
Definitely price definitely got ahead of itself at Starbucks. Improving
the operations, you know, to me, is so crazy how
they didn't have a proper queue for the mobile app
and in store orders and absolute head scratcher. You know.
So a lot of these moves are taking time, probably
(32:49):
taking more time than we thought. But this is a very,
very large company, and as I like to say, he
can't turn around an aircraft carrier on a dime. But
I say, I'd say, what's interesting now is I think
the street is becoming more negative on Starbucks. To me,
I don't think that's the I don't think that's the
(33:11):
right way to look at it, you know. I think
if anyone can turn it around, it's Brian Nickel. They
still have a massive footprint, and yeah, there's some competition
from places like Dutch bro Dutch Bros. And Seven Brew,
but that's like such a fraction they you know, they
they have a fraction of the stores of Starbucks. And
(33:31):
so Starbucks is an amazing brand. I don't I don't
think it's dead here in America.
Speaker 2 (33:36):
You know.
Speaker 1 (33:36):
My bigger concerns are, you know, a what's gonna happen
internationally that's going to be a tougher lift in general.
I know they're you know, Middle East in some countries
with large Muslim populations, including Malaysia, are doing better this
year because last year we're so they were the sales
were so abysmal, right, but they're coming back this year,
(33:58):
but they're still not where they were a couple of
years ago. So they have that issue. They have all
of the low price competition in China, that's an issue.
Obviously they're looking to sell part of that business. We'll
see how much they decide to sell. You know, so
international is more complicated. It's gonna be more difficult, and
it's not Brian Nickel doesn't have a ton of experience
(34:21):
on the international side. That being said, you know, his
job as CEO is to hire really good people and
motivate them to do a good job. And you know,
so I think he's made some of the right moves
in terms of the people running their international business, right
and we'll see how long that takes. But that's gonna
be a tougher lift. And then the other concern is tariffs, right,
(34:43):
like what happens if Brazil, you know, with the Brazil
tariffs and what kind of impact is that going to
have on Starbucks? As well as the fact that you know,
I keep saying we're in a commodity bull market and
so coffee prices have gone up quite significantly over the
last year and you know they can continue for quite
(35:03):
some time. So there's some headwinds for.
Speaker 2 (35:08):
Sure, there fun times for Brian and his team. I
guess last question about Starbucks how long does he get
because as you mentioned, it seems like the street has
been turning a little bit more negative. But at the
same time as you were saying, this is going to
be a long, probably long road, So you know, how
(35:28):
long a leash does he get?
Speaker 1 (35:30):
Listen, I would give him, you know, obviously it would
depend on I don't know what's going on behind closed
doors and things of that nature. But in terms of
who they hired to turn that thing around, I couldn't
think of someone better. So to me, he deserves an
extremely long leash. There's nobody I would I would have
picked ahead of him.
Speaker 2 (35:51):
Makes sense. I mean, I hear that a lot. That's
kind of like what I what I hear when I
talk to people as well. A couple more questions, perhaps
a little bit broader about the industry. So, oh, Maha
thing right, make America healthy again. There's been a lot
of conversation more around packaged food companies, I guess because
so much of the conversation so far has been oh,
(36:13):
one hand, fragmented, you know, very based on like state
legislation of movements, and then you know, very focused on
things like dies and stuff like that. But how are
you thinking about Maha and what he means for the
restaurant industry.
Speaker 1 (36:27):
Yeah, I'm not. I don't think it's going to be
that much of an issue because a lot of the
things that MAHA are doing or just kind of catching
up to standards that we have that they have in
Europe and Canada, right, and so my international companies figure
out how to how to do it in these other countries. Right.
So I think it's going to be a bigger lift
for the food service companies that are making the sauces
(36:51):
and you know, things of that nature. So I'm not
too worried about MAHA. I would say GLP ones are
probably still more of a concern in the restaurant space,
you know. I you know, as they become cheaper, eventually
they'll come out with a pill form and they'll be
(37:11):
you know, more common, and so obviously that causes some
concern for companies that sell unhealthy food, you know, think
the Burger QSRs and stuff like that. But still, I mean,
I even the estimates on the really high side don't
(37:33):
make me too worried. I mean, I think it's going
to cut into alcohol sales. You know, alcohol has been
declining now for some time as well, though, because young,
younger generations are not really as interested in it, you know.
And then we've also seen, you know, the legalization of
cannabis kind of hurt alcohol sales a bit too as well.
(37:53):
So yeah, I would say fatty foods and alcohol sales
are two things that they're looking at. But you know,
over time, portion sizes with inflation just continue to shrink,
and so you know, we're gonna see more of that.
Unfortunately for people like me that have a big appetite that.
Speaker 2 (38:13):
It's such an interesting dynamic, right because on the one side,
portion sizes keep getting smaller, But then we go back
to the start, to this example of Texas Roadhouse of
them putting more food on the plate or at least
a generous portion, and then they're doing well. So it's
almost like as a restaurant, you're just kind of looking
(38:34):
at what's my bet here? Is it that people are
gonna eat it less so I'm gonna go that route?
Or is it that Americans buy and large are actually
one want bigger portions, because I mean you can kind
of have both on one menu, but it does seem
like at some point you kind of have to pick
a strategy.
Speaker 1 (38:52):
Yeah, yeah, yeah, well I think it's it's you know,
having some flexibility on your menu. You know, She's Cake
Factory is known for their for their big, big portions,
you know, and they but they dabbled in that skinny
delicious menu for a while. You know, who knows, maybe
those menus will kind of kind of come back, but
it's it kind of it's going to vary by chain,
(39:14):
I think, and it's gonna, you know, it's going to
be important to maintain you know, your brand feel and
what you know, what it means. And if it's Cheesecake
Factory providing really big portions, you know, by them shrinking
the size is not going to help, you know, in
(39:34):
a place like Chili's. Honestly, I'd have to imagine there's
not a large percentage of their customer base that GLP ones, right,
And so yeah, me staying true to who you are
I think is going to be critical. You know, I
don't think McDonald's should be, you know, creating this massive
like make your own salad menu or anything of that nature,
(39:58):
getting rid of apple pies and the ice cream. But
you know, well we'll see it's gonna it's gonna be interesting.
But I think chains need to need to stay true
to what they are.
Speaker 2 (40:11):
Yeah, I think that's something that for example, Brian Nichol
has talked a lot about as he takes over to Starbucks.
It's just like, what is it that people really liked
about this company and how can we really amp it up?
So much going on in the restaurant space keeping both
of us quite busy, But I've asked you a bunch
of questions. I just wanted to close just by asking
you if there's anything else that is top of mind
(40:34):
for you, or you know, anything that you found. I
don't all surprising unexpected about how things have gone this
year so far.
Speaker 1 (40:40):
Oh well, yeah, I probably the tariff thing was really interesting,
I pro you know, looking back, I wish I put
more weight on it. But I think the restaurants are
in a good place. I think they're in a better
place than most because you know, food is sourced locally.
(41:02):
Even for these international chains, food is sourced locally. They
all have individual supply chains in the countries where they operate,
don't have a ton of exposure to tariffs, and so
you know, whatever it pans out to be, you know,
just weighted average of fifteen to twenty percent, whatever it
might be, you know, customers are going to see that
in retail, but they're not going to see it at restaurants.
(41:24):
And you know, people still have jobs and still have
our time, are pressed for time, and still have to
eat and often want to eat out because they're pressed
for time, and so, you know, I think they were
kind of the restaurant's stocks were thrown out. You know,
the baby was thrown out with the bath water back
in April, and you know, I think that's why we've
(41:44):
seen the restaurant chains outperform now outperformed the S and
P since. So yeah, I mean that whole situation was
probably the most surprising. There was also some interesting things
happening in early April where there was like de risking
and some of the worst the change with the worst
(42:06):
same soour sales and margin compression were up the most
on some days because everyone was short them and getting squeezed.
And on the same day, you know, the rock stars
like Brinker were down big, and so that was like
a really interesting, exciting period. I don't know if I
could take you know, the stress of it on an
annual basis, but that was a really really cool, interesting
(42:31):
time to be working in the markets. And then the
restaurant base for sure.
Speaker 2 (42:35):
Definitely, so there's a lot to keep tabs on. So
I will keep bugging you with questions and then hopefully we'll.
Speaker 1 (42:42):
Do this again. Oh hell yeah, you're amazing. Thanks for
doing this. We'll definitely do this again. And I just
want to thank the audience for tuning in. If you
like to learn more about Diana's work, you can visit
her on LinkedIn. Right, you have a pretty big test
presence any other.
Speaker 2 (43:00):
Yeah, I always post all my stories on LinkedIn, so
feel free to add me and leave comments. I love
it when people tell me what they think about what's
happening in the restaurant space. It often generates a lot
of questions, and then I go ask the companies.
Speaker 1 (43:14):
So you do a great job. Everyone from the second
all of my friends in the restaurant industry met you,
they were very impressed. So keep up the good work. Audiences. Ow,
you got it an audience. If you liked the discussion,
please share it with your friends and colleagues. Check back
soon for an interview with Clay Dover, the CEO of
(43:35):
Velvet Taco,
Host
Michael Halen
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If you've ever wanted to know about champagne, satanism, the Stonewall Uprising, chaos theory, LSD, El Nino, true crime and Rosa Parks, then look no further. Josh and Chuck have you covered.
The Joe Rogan Experience
The official podcast of comedian Joe Rogan.
Dateline NBC
Current and classic episodes, featuring compelling true-crime mysteries, powerful documentaries and in-depth investigations. Special Summer Offer: Exclusively on Apple Podcasts, try our Dateline Premium subscription completely free for one month! With Dateline Premium, you get every episode ad-free plus exclusive bonus content.