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Burger King (BKC) Dollar DoubleCheeseburger Kerfluffle
The Burger King (BKC) $1 double cheeseburger offer is underway, generating all of the high risk that we noted in our September 28 2009 SA article.
The BKC National Franchise Association launched its second legal action of the year, asserting on November 10 that BKC can't set maximum prices. It's earlier 2009 action noted that soda marketing funds will be retained by BKC to pay for more marketing contrary to agreements.
The analytics of the double cheeseburger issue, of course is can BKC generate enough incremental sales and customers to offset the discount and product mix cannibalization occurring, in addition to paying for the incremental media. And can this lift the sales trend?
This BKC burger focus is underway while competing new burger introductions are present via McDonald's, Wendy's, Carl's, Hardees and even the casual dining operators such as Chili's (EAT), Ruby Tuesday (RT), and others
Promotions involving big discounts and big portions of the restaurant product mix often need a 5-10% traffic and sales increase just to get back to gross profit breakeven, let alone to offset incremental restaurant variable expense and incremental media.
The double cheeseburger is not a new menu item, but rather one that has some generic identity and value. As the Carrols CEO (TAST, publicly traded franchisee with BK units) noted on November 2, its a price play.
But we note another issue. BKC's Dollar Double Cheeseburger is apparently the major focus until February 2010, when the new XT Burger rolls out. That implies BKC is essentially naked with just a price play until then.
Early notes from Carrols and other anecdotes point to improvement in the traffic and sales trend versus prior year. Carrols welcomed the change in marketing focus, and expected to make money from the offering. But is that enough to get true sales lift for the company, which is 90% franchised, until February? Franchisees generally have a weaker store level cash flow structure than the company (they pay royalties) and generally have a higher cost of capital.
More »John A. Gordon
Chain Restaurant Earnings and Economics Experts
www.pacificmanagementconsultinggroup.com
Takeaways from McDonald's (MCD) Investor Day
- MCD's current media spending mix included 72% broadcast (down), and 12% digital (up). It is increasing its value oriented messaging next year.
MCD will be pressed to keep US same store sales positive--October was down .1%, and its an emotionally sensitive metric. But these results overall show alot of size, scale and focus advantages.Disclosure: No stock positions.
Some Chain Restaurants Gaining Sales Traction
Chili's New Menu Test Underway
Chili's has redone its menu face and is featuring its burgers, ribs and fajitas heritage, while adding the triple dipper menu (preset items, $9.99). It's also featuring $4.99 Margaritas and happy hour begins at 300P in many units, as well.
The new items added are mostly lower than $10 and speak to a more lunch time, snack, sandwich focus:
4 new entree salads: Caribbean, Asian Noodle, BBQ Chicken, Chicken Caesar for $8.79 (most) to $11.29 (shrimp, salmon)
4 new sandwiches/wraps: Turkey, Carne Adada , BBQ Pulled Pork, Chicken Wrap: for $6.99 to $7.99
5 new taco items: chicken, shrimp, pulled pork, ground beef and combination, for about $8.99.
Store management indicated that while it was a test, the tacos and sandwiches were selling well and had largely favorable reaction.
While we haven't seen all of the menu items, the percentage gross profit shouldn't be bad.
We all know it will take some promotional muscle to establish these new items in the marketplace. The market is so crowded, and messages get lost quickly. For
example, Macaroni Grill (former EAT, now privately held) began broadcast featuring its almost totally redone menu recently.
The valuation is still cheap and has a run of upgrades since November, 2008.
Current year EPS estimate is $1.31, about a 13 multiple. We'll see how earnings go tomorrow. I've been in four Chili's in the last month and they look about steady to me.
Disclosure: no positions
High Stakes Burger King Remodel Still Work In Progress
Starved for Comps: Important Burger King Promo in October
The Burger King $1 doublecheeseburger campaign starts nationally on October 19. For Burger King, its high stakes. For the QSR sector, its a way to detect whether the $1 value focus will actually payoff.
In its August 25th earnings call, CEO John Chidsey indicated they were happy with the early $1 double results in about 40 markets. Earlier this year, Burger king and its franchisees failed twice to come to agreement to promote it, and these must be test markets or company markets.
Burger King noted the $1 double promotion narrowed the traffic losses it was realizing earlier, and market profitability outperformed the assumed gross profit dilution. The VP of Strategy said it was a superior sandwich at an exceptional value. And, they declined to provide actual traffic gains in these markets.
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