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All right, We're back here on another episode of the
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Restaurant Report, and today is going to be a fun
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one because I've got Michael Halen with my great friends
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over here at Bloomberg coming in as one of the
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top analysts in the industry. Michael, how are you.
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I'm doing well. How are you, Paul?
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It's been good. I think a lot's happening in the
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space right now, more so Newswise, which we're going to
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be covering some stuff on Starbucks. We're going to hit
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shakeshack today, talk about the healthy category and also take
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a look at where money is going in the space.
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So everybody stick around, we'll be right back. All right,
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I'm back here with Michael coming in from Bloemberg Intelligence.
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Is it intelligence or do you guys have a different
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category with all the analysts we talked to some of
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the other guys and it's Bloomberg Intelligence.
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Yeah, that's what we call the department.
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But that's our research department, Compasses, equities, corporates, you name.
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It's all into that umbrella.
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So when you look at Michael, you're covering the space
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right now. Talk to me, first of all, what is
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your beat? Are you covering all publicly traded where they're
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going in terms of trends, cycles, how their revenues are doing.
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Give me kind of the one to one.
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Yeah, we cover seventeen of the largest publicly traded restaurant companies,
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US Foods and Cisco, and we're analyzing those companies individually,
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trying to project out earnings over the next couple of years,
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and writing research on how we think their business is
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going to go moving forward. And then you know, we
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also do a good bit of industry level research, so
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we talk a lot about trends and sales and margins
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and all that kind of stuff.
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Well, we got to talk about AI because this is
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something that we're seeing a lot of integration into major brands,
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including the supply chain as well, and the potential future
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here for the restaurant industry. When you're on the street
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right now, is is this a big deal in the
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restaurant industry yet or is it still kind of arms
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length of people trying to discover what's going on.
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You know, I don't think it's a big deal just
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yet because I don't think we've seen all the benefits.
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We've seen some benefits, I believe, you know, there's been
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a lot of work on big data, which is I
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guess was AI before it was called AI, right, And
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there was a lot of initiatives in terms of.
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Theoretical versus actual.
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Food programs as well as labor programs and sales projecting algorithms, right,
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and those are being improved by AI machine learning right now.
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And so that's the benefit i'd say we're seeing right
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now moving forward, though we expect much bigger benefits. You know,
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one that's probably really close to benefiting a company at
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Chipotle's HR program, right, because that's going to free up
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the managers to do a lot less interviewing, It's gonna
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it's going to free up a lot more of their
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time to touch the guests and make sure that the
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restaurants are running smoothly and and and focus on their
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day to day, which they personally they'd rather be focused on, right.
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And so that that's one that that should help Chipotle
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pretty soon. And then you know, we have stuff that's
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you know, still quite expensive and more down the line,
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but has you know definitely are are very interesting, right.
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And so sticking with Chipotle because they're on the bleeding edge,
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you know, they have the second make line, the automated
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second make line that's underneath the counter for to go orders,
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and uh, they're testing that and in quite a quite
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a few stores. You know, they tried the automated chip fryers.
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Those those didn't seem to work out as well. But
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the autocado the machine that cuts course appeals avocados for
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the guacamole, seems to be working pretty well. That's also
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being tested in a lot of stores. You know, places
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like Jack in the Box. They have these AI fryars
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and these automated drink machines that they're working on. But
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right now, all that technology is pretty expensive, right and
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so you know, as that technology costs decline and as
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minimum wages continue to rise, eventually they'll be an ROI
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on those things and they'll be more ubiquitous in the
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restaurant industry, but not so much right now.
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Well, okay, so you mentioned Chippotle. We got to go
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there for a second because obviously briannkel he jumps over
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to Starbucks. We'll talk about that in a second. But
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boat Rice got about right taking over the lead there
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looks like it's going to be a you know, a
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permanent position. What do you think about the management team
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right now, are you consistent with most of what the
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industry is saying is that this is a good cycle
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for Chipotle's team to kind of lead through this next phase.
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Yeah, I think so.
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You know, we we thought Scott boat right was the
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right man for the job. We were happy to see
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that he got the full time tag. They they dropped
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the interim tag on them, and you know, we we
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think that was the right move. They also, you know,
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last year they kind of quietly gave senior management team
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members pretty big raises and extended their contracts. And you know,
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I think part of that was fear that Brian Nicchol
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could try to poach them poach yeah, right, And so yeah,
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Brian Nichol seems to be a popular guy.
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A lot of people want to go work with him.
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So so yeah, by keeping that senior management team uh intact,
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I think was one hundred percent the right move. When
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you have a company that's going, you know, doing so
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well and outperforming for so long, you don't want to
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upset the apple cart, right, and so yeah.
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We think we think it was it was the right
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to keeping.
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A guy the ship on the rails. Well, the good
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thing there if you look at Chipotle, they've continued to
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experiment with new stuff, and I think that, to your point,
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is what they've done with some of their AI automation
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with HR. We just saw that story last week we
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report on it. But the interesting thing to me is
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that usually showcases that the brand has an appetite for
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some things like that that can be very you know,
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forward thinking. So good stuff for Chipotle. I think in general,
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they're probably one of the leaders out there in the market.
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Let's jump over to Starbucks for a second. I'll bring
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up the story Starbucks laid off eleven hundred corporate workers. Now,
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of course, this is Brian Nickel, the CEO, and this
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is six point nine percent of the non retail staff.
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That's a significant number there. So first of all, why
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did he do it? And does this change anything on
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the Starbucks forefront? What's your opinion?
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No, this is pretty unexpected from where I sit. You know,
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when when Brian Nichol took the job, he took over
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for a management team that struggled mightily, tried a lot
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of different tactics, didn't have a lot of discipline, you know,
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And one of the things that we right off the
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bat was that he was going to bring in accountability,
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a culture of accountability and transparency, right and if for
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people that weren't pulling their weight, you know, they should
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be worried. And he started with the senior management team. There,
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there was some changes right away at the top of
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the organization, and now it's making it, you know, down
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a little bit further into the other members of the
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corporate staff. But listen, this is a team that's been
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underperforming for quite some time, right, and so you know,
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these big organizations, it's easy for employees to get lost, right.
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And you know, you were joking around before we started this,
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but you know, you know, maybe they were influenced by
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the Dosee team try to run the operations a little
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bit more industry, right, And you know, I think I think,
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you know, he he wants change, He wants his people
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in there, like any good CEO does, especially with one
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like him, with his track record, he'll be able to
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attract employees, uh easily.
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So yeah, no surprise from where we said.
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Well, listen, we've seen the industry blue and brands let
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go seventeen percent of their support center workforce just last week.
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Denny's also said earlier in the month that it had
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undertaken some corporate layoffs. Then we saw Dine Brands terminated
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about nine percent of its corporate workforce. So this seems
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to be a consistent theme that's going throughout the industry.
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Do you think we're going to see more throughout twenty
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twenty five?
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Well, I would say what the common thread between those
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four companies has been seam source of sales underperformed. It's
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pretty vast underperformance last year, right, And so you know
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when you have chains that were putting up negative seam
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source sales, you know the revenue bas is shrinking. You know,
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this is not uncommon, right, And so I don't think so.
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I think I've heard. I think we've heard most of
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the announcements this year, because if you're going to do this,
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you want to do it earlier in the year so
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you get that benefit, you know, sooner, right in terms
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of lower SG and A. So I think we've heard
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most of the announcements for this year. I don't think
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that the companies that are performing really well are looking
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to cut headcount at the moment, right. It's the companies
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that had a really rough twenty twenty four that are
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looking to do this.
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Yeah, I want to bring up a story. You mentioned
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same store sales, and of course when you bring up
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that terminology, you cannot go without mentioning this right here,
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which is Chili's thirty one point four percent same store
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sales increase in Q two. What in the world was
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going on here at Chili's that would cause this kind
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of thing? Have you seen anything in terms of your
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research that has indicated this kind of growth for Chili's.
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Well, we didn't protect thirty percent. I'll tell you that
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nobody has, I mean the most. And I didn't know
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we were going to talk about this. Did you just notice
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my head?
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I just sell that, so I say, I got to
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bring it up. So yeah, I mean it's been incredible.
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I mean forever it's been the Dominoes turnaround, right like
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our pizza stinks, We're sorry, will make it better. And
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you know they did like a ten percent, and now
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Chile's now is compon thirty percent over a six and
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a half last year, which.
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Is crazy, something I've never seen.
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I don't know if it's ever happened for a mature,
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established brand of this size that's been around this long.
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Absolutely incredible. Kevin Hawkman and his team has done a
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phenomenal job. And it's a similar playbook. Uh you know
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that Brian Nicols is looking to execute in Starbucks. Right,
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It's like nail the operations, right. They right off the bat,
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they simplified the menu, right. They actually took discounts away,
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you know, because because constant discounting is basically just telling
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your your customers that the fluid rights on the menu, yep, right,
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And so they removed the discounts, which you know was
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a bold move to do last year in the midst
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of a you know, restaurant.
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Recession, casual dining sector.
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Yeah, yeah, one hund so and and shrinking the menu
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and bringing backbusters and putting more labor into the stores,
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getting that experience, right, nailing that experience, and then from
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there really pressing the gas on the marketing side. And
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their their marketing team is the best in the business.
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I mean, they're absolutely crushing it on social media, through TikTok,
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through their TV advertising. They have ads ads, you know,
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taking shots at QSR and and and the high prices
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that qs are.
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They're doing really well right on TikTok.
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You know, they're changing the menu based based on some
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of the things that they're their customers are doing on
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TikTok and they're paying attention.
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It's very reactive.
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Yeah, very reactive. Brand, somewhat nimble, seems to be somewhat nimble.
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Do you think this is all leadership driven or do
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you feel like maybe there is a new wave of
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talent starting to make their way into these brands right
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now and we're starting to see the results of this.
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Well. Good leaders bring good talent with them.
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Kevin Hockman brought in George Felix and Jesse Johnson and
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many of the people he had worked with in the
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past at Young Brands and.
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Taco Bell as well.
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So no, he's brought some great talent in there with him,
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and this is a brand that people used to love
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exactly right, And I think that's what you know. I
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got a chance to sit down with Kevin a couple
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of weeks ago, and he said he was like, this
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was a great brand once apon of time, you know,
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and I just saw that there was a lot of
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potential here. And I told him I loved your brand
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twenty years ago, and then about ten years ago, my
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son loved your brand when he was little and he'd
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always want to go there. And I was like, oh, man,
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I don't know to chilies, you know, but it's changed
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over the last three years. They've leaned pretty hard into
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the stuff that's made Chilies great, you know, the differentiation,
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the different menu than the other casual dining competitors, really
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leaning more into that Southwestern cuisine. And yeah, man, it's
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been an incredible, incredible result.
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Yeah.
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I think they also because this is something that my
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wife brought up not too long I said, Honey, we
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got to go to a Chili's. It was after I
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saw these numbers. I haven't been to one in at
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least three years, and I went in for the first
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time in a long time. And first of all, the
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one thing I noticed, more so than anything, was their
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customer service had really elevated, and the greet was better,
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the service speed was better, the check back was better.
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They made sure all the entrees were right, and they
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then they asked if we liked them, and I was like, Okay,
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this is a different kind of experience at a casual
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dining restaurant, so I kind of see maybe this has
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started to seep down into their operations. Which is cool
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to see a brand like Chili's which is obviously. I mean,
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this is kind of these kind of numbers and performance
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pretty amazing.
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There's just a lot of low hanging through right like
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that the operations twenty years ago, this was Chili's right
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and now they're exactly getting back getting back to that,
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which is great to see.
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This episode is brought to you in part by Gusto,
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com use our link down below to get started. See
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00:15:50.919 --> 00:15:54.320
you there. We got to hit on Shakeshack. They're opening
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up their kitchen innovation lab. This is coming up in
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Atlanta this year, so it's going to test whip meant layout.
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So I'm kind of interested to see if they've got
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maybe a new layout planned. But also they're going to
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improve on processes and optimizations. I don't know where shakeshack
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would really I mean, because their speed is pretty good
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inside the restaurant itself. But it's good to see an
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innovation lab starting, you know, in a major brand like Shakeshak.
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Anything that you think this will do in terms of
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improving what Shakeshak is bringing to market.
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You're bringing up all of the companies we're most excited
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about this shift. So this has been this has been fun, Paul.
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So there is some low hanging fruit here as well.
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And so when Shakeshak was created, it was created by
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the Union Square Hospitality Group, and it really has a
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fine dining type set up in the sure not how
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you should be running a fast, casual, quick service burger joint.
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And so there needs to be work done on the
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kitchen layout. And what what new CEO Rob Lynch has
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talked about is he wants a line that you know,
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starts on one end of the restaurant and ends at
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at the at the drive through window, right. And so
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they want to they want to improve their speed of
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service in the in the kitchen, uh, And then that's
321
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going to tie in pretty closely to the drive through, right.
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Rob Lynch is a big believer in the drive through.
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But wait times have been you know, pretty poor, and
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it makes sense, right when you're making food to orders
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drive through is going to be slow, right, and so
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they're going to have to make some some changes to their.
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Drive through processes.
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But he's a big believer on it, and so although
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it hasn't been very incremental just yet, you know, he
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believes that that this is going to be a huge
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driver for this company. And you know, these are the
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two areas that that innovation kitchen is going to focus on.
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First, well, if.
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They get into a scenario where they can reduce some
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of the build out costs, because that that will open
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up maybe some real estate opportunities for them, which I
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think we'll expand maybe give some venue to expand the
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brand itself. And if you look at where they are
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right now in terms of their growth and what they
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could bring to the market. Back to your point is
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drive through seems to be one of the growing sectors
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for Shakescheck and it's a very good competitive edge for
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them if they can actually speed it up. So that
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will be a big one for Lynch if he pulls
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it off. I'm going to look at this one in
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a few months and see if it's actually had some
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kind of impact on drifting. We get new shake checks
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down here, in Florida where am we finally got one
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out very close to our studio here and with your
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drive through not too long ago, and exactly the same
351
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problem is that made to order you know, spends that
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drive through time up to around seven to nine minutes,
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and that is just unfortunately too long for most consumers.
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Yeah, yeah, yeah, And it's you know, listen, the dining
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room and the drive through the they work good together
356
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in terms of easing pressure on one versus the other, right,
357
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and maybe the opposite for Shakeshack.
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So whereas us are you know, people use the dining
359
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room only when the drive through line is too long.
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Well maybe at Shakeshack it's the opposite.
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If the dining room's too busy, I'll use the drive
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through lean right, But they can use pressure on the
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other channel, which is nice to have.
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They've done a good job, I think with the design
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of their restaurants too. In general, most of the news stores,
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you know, they all kind of have unique footprints. I'm
367
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intrigued to see what Lynch comes up with because of
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00:19:35.440 --> 00:19:39.119
his background and how he can you know, increase throughput,
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because I like this whole idea around the line really
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maximizing what drive through speed could be. But with that
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that's probably going to open up and they mentioned it
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in the article, is going to open up a lot
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of opportunity in terms of a kitchen equipment, which could
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really get intriguing if they implement some of this new
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advanced you know tech that seems to be coming in
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from the kitchen industr in terms of you know, back
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of house stuff, so a lot of low hanging back
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to your point, a lot of low hanging fruit. Let's
379
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get into the healthy eating category, all right, So this
380
00:20:11.599 --> 00:20:15.279
has been a category that has been winning for years,
381
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you know, I'd say easily the last decade protein bar
382
00:20:19.599 --> 00:20:23.359
courses talking about this. But I'm more intrigued with your
383
00:20:23.400 --> 00:20:29.000
opinion on, first of all, how and if healthy can
384
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truly maintain its current market position or do you feel
385
00:20:33.680 --> 00:20:35.279
like we're going to start to see a little bit
386
00:20:35.279 --> 00:20:39.200
of a shift, because if you look at shakesheck covet
387
00:20:39.240 --> 00:20:42.000
to a certain extent, I would say a little bit
388
00:20:42.039 --> 00:20:45.759
more healthy, but still very you know, very decadent in
389
00:20:45.799 --> 00:20:48.279
the sense that you really get really great food there.
390
00:20:49.079 --> 00:20:52.279
Do you think healthy as maybe run its course or
391
00:20:52.319 --> 00:20:55.000
do you feel like it's still got an opportunity.
392
00:20:54.440 --> 00:20:58.200
Here now it still has an opportunity because gen Z
393
00:20:58.359 --> 00:20:58.759
loves it.
394
00:20:59.000 --> 00:20:59.160
Right.
395
00:20:59.240 --> 00:21:02.680
Gen Z is is you know, it's a small, uh
396
00:21:03.039 --> 00:21:06.799
demographic cohort, but they are the trendsetters right now. And
397
00:21:07.279 --> 00:21:09.680
chains that are attracting large numbers of gen Z seem
398
00:21:09.720 --> 00:21:13.720
to be outperformed. They are outperforming so and they a
399
00:21:13.720 --> 00:21:16.200
lot of them want you know.
400
00:21:16.200 --> 00:21:16.920
Healthier food.
401
00:21:17.000 --> 00:21:19.759
Right, it's going to continue to do better on the coasts.
402
00:21:19.839 --> 00:21:22.480
I think Middle America is going to take longer, I think,
403
00:21:22.480 --> 00:21:26.240
to adopt some of these healthier eating habits, but not
404
00:21:26.480 --> 00:21:28.119
we We think this is here to stay.
405
00:21:29.119 --> 00:21:32.119
You mentioned u gen Z and the healthy eater and
406
00:21:32.279 --> 00:21:36.160
eat healthier eating habits, and then I look at you know,
407
00:21:36.240 --> 00:21:41.079
some of the categories that are big, you know, really
408
00:21:41.119 --> 00:21:43.599
big market share for a lot of these casual dining
409
00:21:43.640 --> 00:21:46.839
which has been you know, the liquor business and the
410
00:21:46.839 --> 00:21:50.240
beverage business. Now you're talking or we hear more and
411
00:21:50.359 --> 00:21:54.000
more of gen Z is going to where uh you know,
412
00:21:54.039 --> 00:21:58.079
the mocktail concept. Do you think that's going to split
413
00:21:58.240 --> 00:22:02.079
up or start to adjust product mix and some of
414
00:22:02.119 --> 00:22:04.880
those day parts for some of these casual dining chains.
415
00:22:05.200 --> 00:22:08.559
Since we're seeing some of that healthiness, maybe seep into
416
00:22:08.559 --> 00:22:09.319
other brands.
417
00:22:10.799 --> 00:22:15.359
Uh yeah, Texas Roadhouse just announced a mocktail program, right,
418
00:22:15.440 --> 00:22:18.000
so this is this is here and and and I
419
00:22:18.000 --> 00:22:22.240
don't think the the push you know, the lower alcohol
420
00:22:22.279 --> 00:22:24.920
consumption is just gen Z, right, because a lot of
421
00:22:25.359 --> 00:22:29.160
go across Yeah, a lot of gen Z members are
422
00:22:29.400 --> 00:22:30.720
are you too young to drink?
423
00:22:30.759 --> 00:22:31.160
Anyway?
424
00:22:31.319 --> 00:22:34.880
But you know, when I was at you know, you
425
00:22:34.880 --> 00:22:36.640
know these restaurant conferences.
426
00:22:36.200 --> 00:22:37.680
People really like to get after it.
427
00:22:37.880 --> 00:22:41.359
And I wasn't drinking at the last ICR conference, and
428
00:22:41.559 --> 00:22:43.559
there was a lot of people that I know that
429
00:22:43.640 --> 00:22:46.400
I'm friendly with or friends with that were not drinking.
430
00:22:46.440 --> 00:22:49.319
They were all partaking in dry January. So this is
431
00:22:50.000 --> 00:22:54.559
you know, very much a headwind for full service dining
432
00:22:54.640 --> 00:23:00.119
establishments casual dining, right, And so the mocktail program is smart.
433
00:23:00.200 --> 00:23:03.599
You can offset some of that loss with some fancy,
434
00:23:03.640 --> 00:23:05.960
expensive non alcoholic drinks.
435
00:23:06.039 --> 00:23:06.720
Yeah, there you go.
436
00:23:06.880 --> 00:23:08.599
Well, I think, you know, if it's hitting the right
437
00:23:09.759 --> 00:23:13.480
vein in terms of how some consumers are kind of
438
00:23:13.519 --> 00:23:15.640
going in on this. Typically you see those kind of
439
00:23:15.640 --> 00:23:18.079
things or you know, the calorie counters in the beginning
440
00:23:18.599 --> 00:23:22.200
always you know, kind of resolution based. But it's starting
441
00:23:22.200 --> 00:23:24.759
to last and it seems though the people we've talked to,
442
00:23:24.880 --> 00:23:28.279
the strategies are working in terms of creating a lot
443
00:23:28.400 --> 00:23:33.319
more unique menu offerings, doing like energy infused stuff in
444
00:23:33.400 --> 00:23:36.200
some of the categories. Now we're starting to see some
445
00:23:36.279 --> 00:23:40.440
more savory elements, so it's getting very creative, which I
446
00:23:40.440 --> 00:23:43.720
think could blend into a new opportunity there. Back to
447
00:23:43.759 --> 00:23:47.039
your point on healthy eating that will be interesting to watch.
448
00:23:47.960 --> 00:23:51.400
I want to talk about funding because this is a
449
00:23:51.440 --> 00:23:56.279
story that surprised me that came across Nation's Restaurant News
450
00:23:56.920 --> 00:23:59.359
and Just Salad, which for those of you listening in,
451
00:23:59.440 --> 00:24:01.960
this is a I would say a medium sized chain,
452
00:24:02.720 --> 00:24:05.119
not a massive chain, but they drew in about two
453
00:24:05.160 --> 00:24:07.799
hundred million in funding on a round that was multi
454
00:24:07.920 --> 00:24:12.000
lad here. But the bigger question to me, Michael, is
455
00:24:12.799 --> 00:24:15.599
when you look at where the market is right now
456
00:24:15.640 --> 00:24:20.920
on these medium sized regional chains and or maybe some
457
00:24:20.960 --> 00:24:23.440
of these chains like a Chipotle, or not a Chipotle,
458
00:24:23.480 --> 00:24:27.240
but like a Chili's or some of the other emerging
459
00:24:27.319 --> 00:24:31.599
casual dining concepts that could be going out after cash,
460
00:24:31.599 --> 00:24:33.359
do you think this is something that is kind of
461
00:24:33.400 --> 00:24:36.240
a one offer. Do you feel like there's more money
462
00:24:36.279 --> 00:24:38.039
opening up to the market right now.
463
00:24:38.839 --> 00:24:43.000
We think there's more money opening up backup restaurant finance.
464
00:24:43.119 --> 00:24:45.160
In November, a lot of the bankers that we know
465
00:24:45.240 --> 00:24:50.559
had become more bullish about twenty twenty five versus twenty
466
00:24:50.599 --> 00:24:53.000
twenty four. There's a lot of pent up demand for deals.
467
00:24:53.000 --> 00:24:55.440
Twenty twenty four. Obviously, we're in that restaurant recession. It
468
00:24:55.480 --> 00:25:00.319
was a tough year for valuations and deals, and you know.
469
00:25:00.519 --> 00:25:02.400
Buyers and sellers had to get really creative.
470
00:25:02.519 --> 00:25:05.440
But things that seem to be opening up, and you know,
471
00:25:05.599 --> 00:25:08.359
seam store sales have improved. I know they've been kind
472
00:25:08.359 --> 00:25:10.960
of bumpy, especially here in February with some of the weather,
473
00:25:11.079 --> 00:25:16.200
but they have improved since before the election. And then
474
00:25:16.240 --> 00:25:18.079
I think we have some really you know, I know,
475
00:25:18.119 --> 00:25:21.680
we have some easy uh saame sort of sales comps
476
00:25:21.720 --> 00:25:24.519
to lap and so you know, top lines should be
477
00:25:24.559 --> 00:25:27.559
getting better here. We have asset prices near all time highs,
478
00:25:27.559 --> 00:25:30.799
which should boosts you know, middle and upper income consumer spending,
479
00:25:30.880 --> 00:25:33.559
and so, you know, I think there's a brighter outlook
480
00:25:33.640 --> 00:25:36.119
right now, and we'd expect a lot more deals to
481
00:25:36.160 --> 00:25:37.440
get done this year than last year.
482
00:25:37.480 --> 00:25:37.880
For sure.
483
00:25:38.279 --> 00:25:41.559
What are you looking at for twenty twenty five that
484
00:25:42.000 --> 00:25:45.200
you guys, when you're researching all these brands and you
485
00:25:45.279 --> 00:25:49.359
see these opportunities that seem to be starting to bud
486
00:25:49.799 --> 00:25:52.480
for some of these chains, do you think we're going
487
00:25:52.519 --> 00:25:55.039
to see some more breakouts like what we saw with
488
00:25:55.200 --> 00:25:58.400
Chili's in twenty twenty five for some other brands.
489
00:25:58.880 --> 00:26:01.400
Well, you know, we wrote in our year ahead out
490
00:26:01.400 --> 00:26:05.359
look was that, you know, we're really where we're seeing
491
00:26:05.400 --> 00:26:09.839
a lot of movement and success is with like just
492
00:26:10.039 --> 00:26:13.359
nailing the operations and then marketing right. And so that
493
00:26:13.799 --> 00:26:16.519
what we've seen Chili's do and and continue to do,
494
00:26:16.599 --> 00:26:19.799
and actually now the same store sales are accelerating. There's
495
00:26:19.880 --> 00:26:23.319
some companies that have management changes that we think can
496
00:26:23.839 --> 00:26:27.599
use a similar playbook to boost their same source sales.
497
00:26:27.640 --> 00:26:30.160
And we've talked about all but one.
498
00:26:30.279 --> 00:26:33.640
We talked about Starbucks, we talked about Shake Shack, we
499
00:26:33.720 --> 00:26:36.680
talked about and then it was uh.
500
00:26:37.200 --> 00:26:39.079
Cracker Barrel. Cracker Barrel is the other one.
501
00:26:39.160 --> 00:26:41.400
We think Cracker Barrel has a pretty they have a
502
00:26:41.440 --> 00:26:44.599
new ceou. We think she's doing a phenomenal job. We
503
00:26:44.640 --> 00:26:48.160
think she has a great plan for boosting you know,
504
00:26:48.240 --> 00:26:51.359
same source of sales and traffic going forward. And uh,
505
00:26:51.400 --> 00:26:54.440
that's another company we think has a pretty good opportunity.
506
00:26:54.480 --> 00:26:57.400
Do you think that demographic has shifted for Cracker Barrel
507
00:26:57.519 --> 00:27:01.519
some or or is it just there maybe their approach
508
00:27:01.640 --> 00:27:05.039
toward their own business itself of just remodeling it to
509
00:27:05.079 --> 00:27:08.640
where it's going to get better in terms of performance. Yeah.
510
00:27:08.960 --> 00:27:13.319
So the food, you know, the food innovation, you know,
511
00:27:14.000 --> 00:27:15.960
is going to be a big one this year to
512
00:27:16.000 --> 00:27:16.799
help draw in.
513
00:27:18.839 --> 00:27:20.359
You know, draw in customers.
514
00:27:20.359 --> 00:27:24.119
But it's really it's the same thing starting with the operations, right,
515
00:27:24.119 --> 00:27:27.440
It's like getting nailing the service, getting the experience right,
516
00:27:28.359 --> 00:27:31.279
you know, and then it's menu innovation. So now when
517
00:27:31.319 --> 00:27:33.160
we bring in a customer, they're not going to have
518
00:27:33.200 --> 00:27:35.319
a bad experience and they're going to want to come back, right,
519
00:27:35.400 --> 00:27:38.279
And so they've nailed those. Now they're going to market
520
00:27:38.400 --> 00:27:39.319
more aggressively.
521
00:27:39.640 --> 00:27:39.799
Right.
522
00:27:39.799 --> 00:27:44.000
They're doing some stuff on TikTok as well. They're doing
523
00:27:44.039 --> 00:27:47.519
more advertising during NASCAR and Bravo, which has a huge
524
00:27:47.519 --> 00:27:52.119
overlap between CDR customers and Bravo watchers.
525
00:27:52.240 --> 00:27:52.440
Right.
526
00:27:52.519 --> 00:27:57.400
And so now they're they're you know, advertising around more
527
00:27:57.680 --> 00:28:03.119
relevant modern food. It's you know, their typical Southern like
528
00:28:03.200 --> 00:28:06.839
classics with a twist, right, and and and then the
529
00:28:06.880 --> 00:28:09.519
remodels will be next year. The remodels are are a
530
00:28:09.559 --> 00:28:12.680
big part of drawing in the gen Z customers. Right,
531
00:28:12.720 --> 00:28:19.200
They're gonna have a brighter, brighter tones in terms of paint,
532
00:28:19.240 --> 00:28:21.319
They're gonna have more lighting in the stores, and they
533
00:28:21.319 --> 00:28:23.880
think that will help attract the younger generations.
534
00:28:23.960 --> 00:28:25.799
Yeah, that's what I'm a little bit more excited about
535
00:28:25.920 --> 00:28:29.920
is to see a new design theme kind of brought
536
00:28:29.960 --> 00:28:33.200
forward to because we are seeing quite a few brands
537
00:28:33.240 --> 00:28:36.839
that that have done some fairly successful remakes over the
538
00:28:36.880 --> 00:28:39.000
last few years in terms of just what they've done
539
00:28:39.039 --> 00:28:43.119
from a design standpoint. So Cracker Barrel, of course, has
540
00:28:43.160 --> 00:28:46.640
been a long standing brand that kind of lives in
541
00:28:46.680 --> 00:28:50.160
that theme, you know, of very southern roots, and I
542
00:28:50.200 --> 00:28:53.359
get it. So it'll be interesting considered.
543
00:28:53.400 --> 00:28:56.279
It was interesting. Sorry, yeah, it was interesting.
544
00:28:56.319 --> 00:28:59.640
It's a it's an old country store theme, so they
545
00:28:59.759 --> 00:29:03.160
thought and for the longest time they were right that
546
00:29:03.240 --> 00:29:05.599
they didn't have to do a full remodel of the
547
00:29:05.599 --> 00:29:08.240
stores because it's in an old country store, right, And
548
00:29:08.279 --> 00:29:11.279
it was a great you know, point of emphasis for
549
00:29:11.359 --> 00:29:13.519
investors going back ten years ago. It is like this
550
00:29:13.599 --> 00:29:15.680
company spends way less on cap X and then they
551
00:29:15.680 --> 00:29:17.519
can use that cash to buy back shares and pay
552
00:29:17.519 --> 00:29:18.000
a dividend.
553
00:29:18.079 --> 00:29:20.759
Right, And but it caught up to them, right.
554
00:29:20.839 --> 00:29:25.759
The younger generations want.
555
00:29:24.079 --> 00:29:26.759
You know, they're more discerning and then they almost what
556
00:29:26.880 --> 00:29:27.240
they want.
557
00:29:27.880 --> 00:29:31.960
Yeah, yeah, so always do for sure. Michael has been
558
00:29:31.960 --> 00:29:34.000
good catching up with you. I love to do the
559
00:29:34.079 --> 00:29:37.400
rundown on where some of these are. Each quarter we
560
00:29:37.440 --> 00:29:41.240
try to look at what's happening in the performance. Obviously
561
00:29:41.240 --> 00:29:43.319
we're ending up here in Q one and getting ready
562
00:29:43.319 --> 00:29:45.480
to in March. Uh So this will be a good
563
00:29:45.519 --> 00:29:46.960
one because we'll get a chance to see some new
564
00:29:47.000 --> 00:29:49.759
earnings come in hopefully soon and see how some of
565
00:29:49.799 --> 00:29:51.880
these brands are doing. So we'll definitely get you back
566
00:29:51.920 --> 00:29:53.519
on the show. But thanks for coming in today. I
567
00:29:53.559 --> 00:29:54.599
appreciate it.
568
00:29:54.680 --> 00:29:55.880
Sure think you.
569
00:29:55.839 --> 00:29:59.119
Bet are you guys? If you're not, you know, subscribe
570
00:29:59.160 --> 00:30:00.799
to the channel. Make sure do that. Of course you
571
00:30:00.839 --> 00:30:03.720
can catch Michael Haling over on Bloomberg and learn a
572
00:30:03.720 --> 00:30:06.200
little bit more about what their analysis is. But all
573
00:30:06.200 --> 00:30:08.279
you have to do is jump over to sav Fm.
574
00:30:08.319 --> 00:30:10.599
You'll find us over there and all of our podcasts.
575
00:30:11.160 --> 00:30:15.119
Also check out the YouTube channel, which is approaching two
576
00:30:15.160 --> 00:30:16.519
hundred thousand subscribers.
577
00:30:16.519 --> 00:30:16.839
That's right.
578
00:30:16.880 --> 00:30:18.759
It's because of you guys, so make sure and comment
579
00:30:18.799 --> 00:30:20.759
down below. Give us a like or two if you
580
00:30:20.799 --> 00:30:22.920
are watching the video version of this. If you're in
581
00:30:22.960 --> 00:30:25.359
the audio version, just give us a start and we'll
582
00:30:25.400 --> 00:30:27.359
catch you next time right here on the restaurant Report
1
00:00:00.120 --> 00:00:02.520
All right, We're back here on another episode of the
2
00:00:02.560 --> 00:00:04.719
Restaurant Report, and today is going to be a fun
3
00:00:04.719 --> 00:00:06.799
one because I've got Michael Halen with my great friends
4
00:00:06.839 --> 00:00:09.519
over here at Bloomberg coming in as one of the
5
00:00:09.519 --> 00:00:11.759
top analysts in the industry. Michael, how are you.
6
00:00:12.640 --> 00:00:14.240
I'm doing well. How are you, Paul?
7
00:00:14.599 --> 00:00:16.960
It's been good. I think a lot's happening in the
8
00:00:17.000 --> 00:00:20.839
space right now, more so Newswise, which we're going to
9
00:00:20.879 --> 00:00:22.839
be covering some stuff on Starbucks. We're going to hit
10
00:00:22.839 --> 00:00:26.920
shakeshack today, talk about the healthy category and also take
11
00:00:26.960 --> 00:00:30.280
a look at where money is going in the space.
12
00:00:30.359 --> 00:00:42.280
So everybody stick around, we'll be right back. All right,
13
00:00:42.320 --> 00:00:45.159
I'm back here with Michael coming in from Bloemberg Intelligence.
14
00:00:45.280 --> 00:00:47.719
Is it intelligence or do you guys have a different
15
00:00:47.759 --> 00:00:50.159
category with all the analysts we talked to some of
16
00:00:50.159 --> 00:00:52.079
the other guys and it's Bloomberg Intelligence.
17
00:00:52.679 --> 00:00:54.200
Yeah, that's what we call the department.
18
00:00:54.240 --> 00:01:00.280
But that's our research department, Compasses, equities, corporates, you name.
19
00:01:00.320 --> 00:01:01.840
It's all into that umbrella.
20
00:01:01.920 --> 00:01:04.439
So when you look at Michael, you're covering the space
21
00:01:04.519 --> 00:01:06.760
right now. Talk to me, first of all, what is
22
00:01:06.799 --> 00:01:10.560
your beat? Are you covering all publicly traded where they're
23
00:01:10.640 --> 00:01:14.920
going in terms of trends, cycles, how their revenues are doing.
24
00:01:15.040 --> 00:01:16.560
Give me kind of the one to one.
25
00:01:17.359 --> 00:01:22.120
Yeah, we cover seventeen of the largest publicly traded restaurant companies,
26
00:01:22.239 --> 00:01:26.640
US Foods and Cisco, and we're analyzing those companies individually,
27
00:01:27.519 --> 00:01:29.920
trying to project out earnings over the next couple of years,
28
00:01:29.959 --> 00:01:33.400
and writing research on how we think their business is
29
00:01:33.439 --> 00:01:36.840
going to go moving forward. And then you know, we
30
00:01:36.879 --> 00:01:39.359
also do a good bit of industry level research, so
31
00:01:39.400 --> 00:01:43.480
we talk a lot about trends and sales and margins
32
00:01:43.560 --> 00:01:45.079
and all that kind of stuff.
33
00:01:45.879 --> 00:01:47.879
Well, we got to talk about AI because this is
34
00:01:47.920 --> 00:01:51.319
something that we're seeing a lot of integration into major brands,
35
00:01:51.319 --> 00:01:55.680
including the supply chain as well, and the potential future
36
00:01:55.719 --> 00:01:59.079
here for the restaurant industry. When you're on the street
37
00:01:59.200 --> 00:02:01.359
right now, is is this a big deal in the
38
00:02:01.400 --> 00:02:05.920
restaurant industry yet or is it still kind of arms
39
00:02:06.040 --> 00:02:08.520
length of people trying to discover what's going on.
40
00:02:09.719 --> 00:02:12.000
You know, I don't think it's a big deal just
41
00:02:12.199 --> 00:02:15.000
yet because I don't think we've seen all the benefits.
42
00:02:15.039 --> 00:02:18.400
We've seen some benefits, I believe, you know, there's been
43
00:02:18.400 --> 00:02:20.639
a lot of work on big data, which is I
44
00:02:20.639 --> 00:02:23.599
guess was AI before it was called AI, right, And
45
00:02:23.639 --> 00:02:25.520
there was a lot of initiatives in terms of.
46
00:02:27.120 --> 00:02:29.080
Theoretical versus actual.
47
00:02:28.719 --> 00:02:37.120
Food programs as well as labor programs and sales projecting algorithms, right,
48
00:02:37.120 --> 00:02:39.919
and those are being improved by AI machine learning right now.
49
00:02:39.960 --> 00:02:43.360
And so that's the benefit i'd say we're seeing right
50
00:02:43.400 --> 00:02:47.280
now moving forward, though we expect much bigger benefits. You know,
51
00:02:48.479 --> 00:02:52.319
one that's probably really close to benefiting a company at
52
00:02:52.360 --> 00:02:56.960
Chipotle's HR program, right, because that's going to free up
53
00:02:57.000 --> 00:03:00.719
the managers to do a lot less interviewing, It's gonna
54
00:03:00.919 --> 00:03:02.520
it's going to free up a lot more of their
55
00:03:02.599 --> 00:03:06.120
time to touch the guests and make sure that the
56
00:03:06.159 --> 00:03:09.199
restaurants are running smoothly and and and focus on their
57
00:03:09.280 --> 00:03:13.360
day to day, which they personally they'd rather be focused on, right.
58
00:03:13.439 --> 00:03:16.599
And so that that's one that that should help Chipotle
59
00:03:16.719 --> 00:03:19.400
pretty soon. And then you know, we have stuff that's
60
00:03:19.520 --> 00:03:22.759
you know, still quite expensive and more down the line,
61
00:03:22.800 --> 00:03:27.520
but has you know definitely are are very interesting, right.
62
00:03:27.560 --> 00:03:31.439
And so sticking with Chipotle because they're on the bleeding edge,
63
00:03:31.639 --> 00:03:34.680
you know, they have the second make line, the automated
64
00:03:34.800 --> 00:03:38.319
second make line that's underneath the counter for to go orders,
65
00:03:38.400 --> 00:03:41.639
and uh, they're testing that and in quite a quite
66
00:03:41.680 --> 00:03:46.960
a few stores. You know, they tried the automated chip fryers.
67
00:03:47.039 --> 00:03:49.479
Those those didn't seem to work out as well. But
68
00:03:49.520 --> 00:03:55.199
the autocado the machine that cuts course appeals avocados for
69
00:03:55.280 --> 00:03:57.759
the guacamole, seems to be working pretty well. That's also
70
00:03:57.840 --> 00:04:00.960
being tested in a lot of stores. You know, places
71
00:04:00.960 --> 00:04:04.960
like Jack in the Box. They have these AI fryars
72
00:04:05.039 --> 00:04:07.919
and these automated drink machines that they're working on. But
73
00:04:08.000 --> 00:04:11.120
right now, all that technology is pretty expensive, right and
74
00:04:11.159 --> 00:04:15.280
so you know, as that technology costs decline and as
75
00:04:15.439 --> 00:04:18.560
minimum wages continue to rise, eventually they'll be an ROI
76
00:04:18.720 --> 00:04:21.319
on those things and they'll be more ubiquitous in the
77
00:04:21.319 --> 00:04:23.399
restaurant industry, but not so much right now.
78
00:04:23.639 --> 00:04:25.680
Well, okay, so you mentioned Chippotle. We got to go
79
00:04:25.720 --> 00:04:28.680
there for a second because obviously briannkel he jumps over
80
00:04:28.759 --> 00:04:30.639
to Starbucks. We'll talk about that in a second. But
81
00:04:31.600 --> 00:04:34.680
boat Rice got about right taking over the lead there
82
00:04:34.920 --> 00:04:36.839
looks like it's going to be a you know, a
83
00:04:36.879 --> 00:04:39.920
permanent position. What do you think about the management team
84
00:04:40.000 --> 00:04:43.360
right now, are you consistent with most of what the
85
00:04:43.399 --> 00:04:45.480
industry is saying is that this is a good cycle
86
00:04:45.600 --> 00:04:48.959
for Chipotle's team to kind of lead through this next phase.
87
00:04:50.439 --> 00:04:51.160
Yeah, I think so.
88
00:04:51.480 --> 00:04:54.680
You know, we we thought Scott boat right was the
89
00:04:54.759 --> 00:04:56.680
right man for the job. We were happy to see
90
00:04:56.720 --> 00:05:00.480
that he got the full time tag. They they dropped
91
00:05:00.480 --> 00:05:03.879
the interim tag on them, and you know, we we
92
00:05:03.959 --> 00:05:05.959
think that was the right move. They also, you know,
93
00:05:06.120 --> 00:05:09.839
last year they kind of quietly gave senior management team
94
00:05:10.160 --> 00:05:14.279
members pretty big raises and extended their contracts. And you know,
95
00:05:14.279 --> 00:05:16.040
I think part of that was fear that Brian Nicchol
96
00:05:16.079 --> 00:05:21.480
could try to poach them poach yeah, right, And so yeah,
97
00:05:21.879 --> 00:05:23.560
Brian Nichol seems to be a popular guy.
98
00:05:23.600 --> 00:05:25.040
A lot of people want to go work with him.
99
00:05:25.519 --> 00:05:31.279
So so yeah, by keeping that senior management team uh intact,
100
00:05:31.319 --> 00:05:33.319
I think was one hundred percent the right move. When
101
00:05:33.360 --> 00:05:35.879
you have a company that's going, you know, doing so
102
00:05:36.079 --> 00:05:39.360
well and outperforming for so long, you don't want to
103
00:05:39.439 --> 00:05:42.639
upset the apple cart, right, and so yeah.
104
00:05:42.480 --> 00:05:44.040
We think we think it was it was the right
105
00:05:44.199 --> 00:05:44.800
to keeping.
106
00:05:44.600 --> 00:05:47.160
A guy the ship on the rails. Well, the good
107
00:05:47.199 --> 00:05:49.959
thing there if you look at Chipotle, they've continued to
108
00:05:50.000 --> 00:05:52.720
experiment with new stuff, and I think that, to your point,
109
00:05:53.480 --> 00:05:56.680
is what they've done with some of their AI automation
110
00:05:56.879 --> 00:05:59.600
with HR. We just saw that story last week we
111
00:05:59.720 --> 00:06:02.240
report on it. But the interesting thing to me is
112
00:06:02.279 --> 00:06:06.839
that usually showcases that the brand has an appetite for
113
00:06:07.319 --> 00:06:09.720
some things like that that can be very you know,
114
00:06:09.879 --> 00:06:13.279
forward thinking. So good stuff for Chipotle. I think in general,
115
00:06:13.360 --> 00:06:15.399
they're probably one of the leaders out there in the market.
116
00:06:15.480 --> 00:06:18.720
Let's jump over to Starbucks for a second. I'll bring
117
00:06:18.839 --> 00:06:22.439
up the story Starbucks laid off eleven hundred corporate workers. Now,
118
00:06:22.519 --> 00:06:26.040
of course, this is Brian Nickel, the CEO, and this
119
00:06:26.199 --> 00:06:30.160
is six point nine percent of the non retail staff.
120
00:06:30.839 --> 00:06:35.160
That's a significant number there. So first of all, why
121
00:06:35.160 --> 00:06:39.439
did he do it? And does this change anything on
122
00:06:39.480 --> 00:06:41.600
the Starbucks forefront? What's your opinion?
123
00:06:43.839 --> 00:06:47.079
No, this is pretty unexpected from where I sit. You know,
124
00:06:47.160 --> 00:06:50.759
when when Brian Nichol took the job, he took over
125
00:06:50.839 --> 00:06:54.439
for a management team that struggled mightily, tried a lot
126
00:06:54.439 --> 00:06:58.519
of different tactics, didn't have a lot of discipline, you know,
127
00:06:58.560 --> 00:07:00.800
And one of the things that we right off the
128
00:07:00.839 --> 00:07:02.879
bat was that he was going to bring in accountability,
129
00:07:03.399 --> 00:07:07.399
a culture of accountability and transparency, right and if for
130
00:07:07.519 --> 00:07:10.519
people that weren't pulling their weight, you know, they should
131
00:07:10.600 --> 00:07:14.000
be worried. And he started with the senior management team. There,
132
00:07:14.120 --> 00:07:16.360
there was some changes right away at the top of
133
00:07:16.399 --> 00:07:19.759
the organization, and now it's making it, you know, down
134
00:07:19.800 --> 00:07:22.800
a little bit further into the other members of the
135
00:07:22.800 --> 00:07:25.800
corporate staff. But listen, this is a team that's been
136
00:07:25.879 --> 00:07:30.560
underperforming for quite some time, right, and so you know,
137
00:07:30.720 --> 00:07:35.319
these big organizations, it's easy for employees to get lost, right.
138
00:07:35.399 --> 00:07:38.199
And you know, you were joking around before we started this,
139
00:07:38.319 --> 00:07:40.720
but you know, you know, maybe they were influenced by
140
00:07:40.759 --> 00:07:44.079
the Dosee team try to run the operations a little
141
00:07:44.079 --> 00:07:49.199
bit more industry, right, And you know, I think I think,
142
00:07:49.319 --> 00:07:52.360
you know, he he wants change, He wants his people
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in there, like any good CEO does, especially with one
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like him, with his track record, he'll be able to
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attract employees, uh easily.
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So yeah, no surprise from where we said.
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Well, listen, we've seen the industry blue and brands let
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go seventeen percent of their support center workforce just last week.
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Denny's also said earlier in the month that it had
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undertaken some corporate layoffs. Then we saw Dine Brands terminated
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about nine percent of its corporate workforce. So this seems
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to be a consistent theme that's going throughout the industry.
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Do you think we're going to see more throughout twenty
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twenty five?
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Well, I would say what the common thread between those
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four companies has been seam source of sales underperformed. It's
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pretty vast underperformance last year, right, And so you know
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when you have chains that were putting up negative seam
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source sales, you know the revenue bas is shrinking. You know,
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this is not uncommon, right, And so I don't think so.
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I think I've heard. I think we've heard most of
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the announcements this year, because if you're going to do this,
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you want to do it earlier in the year so
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you get that benefit, you know, sooner, right in terms
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of lower SG and A. So I think we've heard
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most of the announcements for this year. I don't think
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that the companies that are performing really well are looking
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to cut headcount at the moment, right. It's the companies
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that had a really rough twenty twenty four that are
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looking to do this.
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Yeah, I want to bring up a story. You mentioned
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same store sales, and of course when you bring up
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that terminology, you cannot go without mentioning this right here,
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which is Chili's thirty one point four percent same store
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sales increase in Q two. What in the world was
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going on here at Chili's that would cause this kind
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of thing? Have you seen anything in terms of your
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research that has indicated this kind of growth for Chili's.
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Well, we didn't protect thirty percent. I'll tell you that
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nobody has, I mean the most. And I didn't know
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we were going to talk about this. Did you just notice
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my head?
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I just sell that, so I say, I got to
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bring it up. So yeah, I mean it's been incredible.
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I mean forever it's been the Dominoes turnaround, right like
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our pizza stinks, We're sorry, will make it better. And
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you know they did like a ten percent, and now
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Chile's now is compon thirty percent over a six and
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a half last year, which.
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Is crazy, something I've never seen.
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I don't know if it's ever happened for a mature,
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established brand of this size that's been around this long.
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Absolutely incredible. Kevin Hawkman and his team has done a
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phenomenal job. And it's a similar playbook. Uh you know
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that Brian Nicols is looking to execute in Starbucks. Right,
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It's like nail the operations, right. They right off the bat,
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they simplified the menu, right. They actually took discounts away,
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you know, because because constant discounting is basically just telling
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your your customers that the fluid rights on the menu, yep, right,
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And so they removed the discounts, which you know was
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a bold move to do last year in the midst
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of a you know, restaurant.
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Recession, casual dining sector.
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Yeah, yeah, one hund so and and shrinking the menu
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and bringing backbusters and putting more labor into the stores,
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getting that experience, right, nailing that experience, and then from
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there really pressing the gas on the marketing side. And
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their their marketing team is the best in the business.
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I mean, they're absolutely crushing it on social media, through TikTok,
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through their TV advertising. They have ads ads, you know,
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taking shots at QSR and and and the high prices
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that qs are.
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They're doing really well right on TikTok.
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You know, they're changing the menu based based on some
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of the things that they're their customers are doing on
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TikTok and they're paying attention.
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It's very reactive.
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Yeah, very reactive. Brand, somewhat nimble, seems to be somewhat nimble.
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Do you think this is all leadership driven or do
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you feel like maybe there is a new wave of
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talent starting to make their way into these brands right
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now and we're starting to see the results of this.
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Well. Good leaders bring good talent with them.
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Kevin Hockman brought in George Felix and Jesse Johnson and
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many of the people he had worked with in the
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past at Young Brands and.
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Taco Bell as well.
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So no, he's brought some great talent in there with him,
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and this is a brand that people used to love
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exactly right, And I think that's what you know. I
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got a chance to sit down with Kevin a couple
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of weeks ago, and he said he was like, this
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was a great brand once apon of time, you know,
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and I just saw that there was a lot of
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potential here. And I told him I loved your brand
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twenty years ago, and then about ten years ago, my
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son loved your brand when he was little and he'd
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always want to go there. And I was like, oh, man,
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I don't know to chilies, you know, but it's changed
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over the last three years. They've leaned pretty hard into
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the stuff that's made Chilies great, you know, the differentiation,
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the different menu than the other casual dining competitors, really
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leaning more into that Southwestern cuisine. And yeah, man, it's
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been an incredible, incredible result.
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Yeah.
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I think they also because this is something that my
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wife brought up not too long I said, Honey, we
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got to go to a Chili's. It was after I
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saw these numbers. I haven't been to one in at
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least three years, and I went in for the first
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time in a long time. And first of all, the
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one thing I noticed, more so than anything, was their
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customer service had really elevated, and the greet was better,
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the service speed was better, the check back was better.
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They made sure all the entrees were right, and they
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then they asked if we liked them, and I was like, Okay,
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this is a different kind of experience at a casual
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dining restaurant, so I kind of see maybe this has
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started to seep down into their operations. Which is cool
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to see a brand like Chili's which is obviously. I mean,
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this is kind of these kind of numbers and performance
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pretty amazing.
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There's just a lot of low hanging through right like
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that the operations twenty years ago, this was Chili's right
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and now they're exactly getting back getting back to that,
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which is great to see.
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This episode is brought to you in part by Gusto,
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you there. We got to hit on Shakeshack. They're opening
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up their kitchen innovation lab. This is coming up in
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Atlanta this year, so it's going to test whip meant layout.
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So I'm kind of interested to see if they've got
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maybe a new layout planned. But also they're going to
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improve on processes and optimizations. I don't know where shakeshack
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would really I mean, because their speed is pretty good
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inside the restaurant itself. But it's good to see an
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innovation lab starting, you know, in a major brand like Shakeshak.
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Anything that you think this will do in terms of
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improving what Shakeshak is bringing to market.
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You're bringing up all of the companies we're most excited
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about this shift. So this has been this has been fun, Paul.
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So there is some low hanging fruit here as well.
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And so when Shakeshak was created, it was created by
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the Union Square Hospitality Group, and it really has a
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fine dining type set up in the sure not how
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you should be running a fast, casual, quick service burger joint.
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And so there needs to be work done on the
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kitchen layout. And what what new CEO Rob Lynch has
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talked about is he wants a line that you know,
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starts on one end of the restaurant and ends at
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at the at the drive through window, right. And so
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they want to they want to improve their speed of
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service in the in the kitchen, uh, And then that's
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going to tie in pretty closely to the drive through, right.
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Rob Lynch is a big believer in the drive through.
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But wait times have been you know, pretty poor, and
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it makes sense, right when you're making food to orders
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drive through is going to be slow, right, and so
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they're going to have to make some some changes to their.
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Drive through processes.
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But he's a big believer on it, and so although
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it hasn't been very incremental just yet, you know, he
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believes that that this is going to be a huge
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driver for this company. And you know, these are the
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two areas that that innovation kitchen is going to focus on.
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First, well, if.
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They get into a scenario where they can reduce some
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of the build out costs, because that that will open
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up maybe some real estate opportunities for them, which I
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think we'll expand maybe give some venue to expand the
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brand itself. And if you look at where they are
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right now in terms of their growth and what they
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could bring to the market. Back to your point is
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drive through seems to be one of the growing sectors
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for Shakescheck and it's a very good competitive edge for
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them if they can actually speed it up. So that
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will be a big one for Lynch if he pulls
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it off. I'm going to look at this one in
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a few months and see if it's actually had some
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kind of impact on drifting. We get new shake checks
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down here, in Florida where am we finally got one
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out very close to our studio here and with your
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drive through not too long ago, and exactly the same
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problem is that made to order you know, spends that
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drive through time up to around seven to nine minutes,
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and that is just unfortunately too long for most consumers.
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Yeah, yeah, yeah, And it's you know, listen, the dining
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room and the drive through the they work good together
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in terms of easing pressure on one versus the other, right,
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and maybe the opposite for Shakeshack.
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So whereas us are you know, people use the dining
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room only when the drive through line is too long.
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Well maybe at Shakeshack it's the opposite.
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If the dining room's too busy, I'll use the drive
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through lean right, But they can use pressure on the
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other channel, which is nice to have.
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They've done a good job, I think with the design
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of their restaurants too. In general, most of the news stores,
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you know, they all kind of have unique footprints. I'm
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intrigued to see what Lynch comes up with because of
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his background and how he can you know, increase throughput,
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because I like this whole idea around the line really
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maximizing what drive through speed could be. But with that
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that's probably going to open up and they mentioned it
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in the article, is going to open up a lot
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of opportunity in terms of a kitchen equipment, which could
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really get intriguing if they implement some of this new
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advanced you know tech that seems to be coming in
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from the kitchen industr in terms of you know, back
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of house stuff, so a lot of low hanging back
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to your point, a lot of low hanging fruit. Let's
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get into the healthy eating category, all right, So this
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has been a category that has been winning for years,
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you know, I'd say easily the last decade protein bar
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courses talking about this. But I'm more intrigued with your
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opinion on, first of all, how and if healthy can
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truly maintain its current market position or do you feel
385
00:20:33.680 --> 00:20:35.279
like we're going to start to see a little bit
386
00:20:35.279 --> 00:20:39.200
of a shift, because if you look at shakesheck covet
387
00:20:39.240 --> 00:20:42.000
to a certain extent, I would say a little bit
388
00:20:42.039 --> 00:20:45.759
more healthy, but still very you know, very decadent in
389
00:20:45.799 --> 00:20:48.279
the sense that you really get really great food there.
390
00:20:49.079 --> 00:20:52.279
Do you think healthy as maybe run its course or
391
00:20:52.319 --> 00:20:55.000
do you feel like it's still got an opportunity.
392
00:20:54.440 --> 00:20:58.200
Here now it still has an opportunity because gen Z
393
00:20:58.359 --> 00:20:58.759
loves it.
394
00:20:59.000 --> 00:20:59.160
Right.
395
00:20:59.240 --> 00:21:02.680
Gen Z is is you know, it's a small, uh
396
00:21:03.039 --> 00:21:06.799
demographic cohort, but they are the trendsetters right now. And
397
00:21:07.279 --> 00:21:09.680
chains that are attracting large numbers of gen Z seem
398
00:21:09.720 --> 00:21:13.720
to be outperformed. They are outperforming so and they a
399
00:21:13.720 --> 00:21:16.200
lot of them want you know.
400
00:21:16.200 --> 00:21:16.920
Healthier food.
401
00:21:17.000 --> 00:21:19.759
Right, it's going to continue to do better on the coasts.
402
00:21:19.839 --> 00:21:22.480
I think Middle America is going to take longer, I think,
403
00:21:22.480 --> 00:21:26.240
to adopt some of these healthier eating habits, but not
404
00:21:26.480 --> 00:21:28.119
we We think this is here to stay.
405
00:21:29.119 --> 00:21:32.119
You mentioned u gen Z and the healthy eater and
406
00:21:32.279 --> 00:21:36.160
eat healthier eating habits, and then I look at you know,
407
00:21:36.240 --> 00:21:41.079
some of the categories that are big, you know, really
408
00:21:41.119 --> 00:21:43.599
big market share for a lot of these casual dining
409
00:21:43.640 --> 00:21:46.839
which has been you know, the liquor business and the
410
00:21:46.839 --> 00:21:50.240
beverage business. Now you're talking or we hear more and
411
00:21:50.359 --> 00:21:54.000
more of gen Z is going to where uh you know,
412
00:21:54.039 --> 00:21:58.079
the mocktail concept. Do you think that's going to split
413
00:21:58.240 --> 00:22:02.079
up or start to adjust product mix and some of
414
00:22:02.119 --> 00:22:04.880
those day parts for some of these casual dining chains.
415
00:22:05.200 --> 00:22:08.559
Since we're seeing some of that healthiness, maybe seep into
416
00:22:08.559 --> 00:22:09.319
other brands.
417
00:22:10.799 --> 00:22:15.359
Uh yeah, Texas Roadhouse just announced a mocktail program, right,
418
00:22:15.440 --> 00:22:18.000
so this is this is here and and and I
419
00:22:18.000 --> 00:22:22.240
don't think the the push you know, the lower alcohol
420
00:22:22.279 --> 00:22:24.920
consumption is just gen Z, right, because a lot of
421
00:22:25.359 --> 00:22:29.160
go across Yeah, a lot of gen Z members are
422
00:22:29.400 --> 00:22:30.720
are you too young to drink?
423
00:22:30.759 --> 00:22:31.160
Anyway?
424
00:22:31.319 --> 00:22:34.880
But you know, when I was at you know, you
425
00:22:34.880 --> 00:22:36.640
know these restaurant conferences.
426
00:22:36.200 --> 00:22:37.680
People really like to get after it.
427
00:22:37.880 --> 00:22:41.359
And I wasn't drinking at the last ICR conference, and
428
00:22:41.559 --> 00:22:43.559
there was a lot of people that I know that
429
00:22:43.640 --> 00:22:46.400
I'm friendly with or friends with that were not drinking.
430
00:22:46.440 --> 00:22:49.319
They were all partaking in dry January. So this is
431
00:22:50.000 --> 00:22:54.559
you know, very much a headwind for full service dining
432
00:22:54.640 --> 00:23:00.119
establishments casual dining, right, And so the mocktail program is smart.
433
00:23:00.200 --> 00:23:03.599
You can offset some of that loss with some fancy,
434
00:23:03.640 --> 00:23:05.960
expensive non alcoholic drinks.
435
00:23:06.039 --> 00:23:06.720
Yeah, there you go.
436
00:23:06.880 --> 00:23:08.599
Well, I think, you know, if it's hitting the right
437
00:23:09.759 --> 00:23:13.480
vein in terms of how some consumers are kind of
438
00:23:13.519 --> 00:23:15.640
going in on this. Typically you see those kind of
439
00:23:15.640 --> 00:23:18.079
things or you know, the calorie counters in the beginning
440
00:23:18.599 --> 00:23:22.200
always you know, kind of resolution based. But it's starting
441
00:23:22.200 --> 00:23:24.759
to last and it seems though the people we've talked to,
442
00:23:24.880 --> 00:23:28.279
the strategies are working in terms of creating a lot
443
00:23:28.400 --> 00:23:33.319
more unique menu offerings, doing like energy infused stuff in
444
00:23:33.400 --> 00:23:36.200
some of the categories. Now we're starting to see some
445
00:23:36.279 --> 00:23:40.440
more savory elements, so it's getting very creative, which I
446
00:23:40.440 --> 00:23:43.720
think could blend into a new opportunity there. Back to
447
00:23:43.759 --> 00:23:47.039
your point on healthy eating that will be interesting to watch.
448
00:23:47.960 --> 00:23:51.400
I want to talk about funding because this is a
449
00:23:51.440 --> 00:23:56.279
story that surprised me that came across Nation's Restaurant News
450
00:23:56.920 --> 00:23:59.359
and Just Salad, which for those of you listening in,
451
00:23:59.440 --> 00:24:01.960
this is a I would say a medium sized chain,
452
00:24:02.720 --> 00:24:05.119
not a massive chain, but they drew in about two
453
00:24:05.160 --> 00:24:07.799
hundred million in funding on a round that was multi
454
00:24:07.920 --> 00:24:12.000
lad here. But the bigger question to me, Michael, is
455
00:24:12.799 --> 00:24:15.599
when you look at where the market is right now
456
00:24:15.640 --> 00:24:20.920
on these medium sized regional chains and or maybe some
457
00:24:20.960 --> 00:24:23.440
of these chains like a Chipotle, or not a Chipotle,
458
00:24:23.480 --> 00:24:27.240
but like a Chili's or some of the other emerging
459
00:24:27.319 --> 00:24:31.599
casual dining concepts that could be going out after cash,
460
00:24:31.599 --> 00:24:33.359
do you think this is something that is kind of
461
00:24:33.400 --> 00:24:36.240
a one offer. Do you feel like there's more money
462
00:24:36.279 --> 00:24:38.039
opening up to the market right now.
463
00:24:38.839 --> 00:24:43.000
We think there's more money opening up backup restaurant finance.
464
00:24:43.119 --> 00:24:45.160
In November, a lot of the bankers that we know
465
00:24:45.240 --> 00:24:50.559
had become more bullish about twenty twenty five versus twenty
466
00:24:50.599 --> 00:24:53.000
twenty four. There's a lot of pent up demand for deals.
467
00:24:53.000 --> 00:24:55.440
Twenty twenty four. Obviously, we're in that restaurant recession. It
468
00:24:55.480 --> 00:25:00.319
was a tough year for valuations and deals, and you know.
469
00:25:00.519 --> 00:25:02.400
Buyers and sellers had to get really creative.
470
00:25:02.519 --> 00:25:05.440
But things that seem to be opening up, and you know,
471
00:25:05.599 --> 00:25:08.359
seam store sales have improved. I know they've been kind
472
00:25:08.359 --> 00:25:10.960
of bumpy, especially here in February with some of the weather,
473
00:25:11.079 --> 00:25:16.200
but they have improved since before the election. And then
474
00:25:16.240 --> 00:25:18.079
I think we have some really you know, I know,
475
00:25:18.119 --> 00:25:21.680
we have some easy uh saame sort of sales comps
476
00:25:21.720 --> 00:25:24.519
to lap and so you know, top lines should be
477
00:25:24.559 --> 00:25:27.559
getting better here. We have asset prices near all time highs,
478
00:25:27.559 --> 00:25:30.799
which should boosts you know, middle and upper income consumer spending,
479
00:25:30.880 --> 00:25:33.559
and so, you know, I think there's a brighter outlook
480
00:25:33.640 --> 00:25:36.119
right now, and we'd expect a lot more deals to
481
00:25:36.160 --> 00:25:37.440
get done this year than last year.
482
00:25:37.480 --> 00:25:37.880
For sure.
483
00:25:38.279 --> 00:25:41.559
What are you looking at for twenty twenty five that
484
00:25:42.000 --> 00:25:45.200
you guys, when you're researching all these brands and you
485
00:25:45.279 --> 00:25:49.359
see these opportunities that seem to be starting to bud
486
00:25:49.799 --> 00:25:52.480
for some of these chains, do you think we're going
487
00:25:52.519 --> 00:25:55.039
to see some more breakouts like what we saw with
488
00:25:55.200 --> 00:25:58.400
Chili's in twenty twenty five for some other brands.
489
00:25:58.880 --> 00:26:01.400
Well, you know, we wrote in our year ahead out
490
00:26:01.400 --> 00:26:05.359
look was that, you know, we're really where we're seeing
491
00:26:05.400 --> 00:26:09.839
a lot of movement and success is with like just
492
00:26:10.039 --> 00:26:13.359
nailing the operations and then marketing right. And so that
493
00:26:13.799 --> 00:26:16.519
what we've seen Chili's do and and continue to do,
494
00:26:16.599 --> 00:26:19.799
and actually now the same store sales are accelerating. There's
495
00:26:19.880 --> 00:26:23.319
some companies that have management changes that we think can
496
00:26:23.839 --> 00:26:27.599
use a similar playbook to boost their same source sales.
497
00:26:27.640 --> 00:26:30.160
And we've talked about all but one.
498
00:26:30.279 --> 00:26:33.640
We talked about Starbucks, we talked about Shake Shack, we
499
00:26:33.720 --> 00:26:36.680
talked about and then it was uh.
500
00:26:37.200 --> 00:26:39.079
Cracker Barrel. Cracker Barrel is the other one.
501
00:26:39.160 --> 00:26:41.400
We think Cracker Barrel has a pretty they have a
502
00:26:41.440 --> 00:26:44.599
new ceou. We think she's doing a phenomenal job. We
503
00:26:44.640 --> 00:26:48.160
think she has a great plan for boosting you know,
504
00:26:48.240 --> 00:26:51.359
same source of sales and traffic going forward. And uh,
505
00:26:51.400 --> 00:26:54.440
that's another company we think has a pretty good opportunity.
506
00:26:54.480 --> 00:26:57.400
Do you think that demographic has shifted for Cracker Barrel
507
00:26:57.519 --> 00:27:01.519
some or or is it just there maybe their approach
508
00:27:01.640 --> 00:27:05.039
toward their own business itself of just remodeling it to
509
00:27:05.079 --> 00:27:08.640
where it's going to get better in terms of performance. Yeah.
510
00:27:08.960 --> 00:27:13.319
So the food, you know, the food innovation, you know,
511
00:27:14.000 --> 00:27:15.960
is going to be a big one this year to
512
00:27:16.000 --> 00:27:16.799
help draw in.
513
00:27:18.839 --> 00:27:20.359
You know, draw in customers.
514
00:27:20.359 --> 00:27:24.119
But it's really it's the same thing starting with the operations, right,
515
00:27:24.119 --> 00:27:27.440
It's like getting nailing the service, getting the experience right,
516
00:27:28.359 --> 00:27:31.279
you know, and then it's menu innovation. So now when
517
00:27:31.319 --> 00:27:33.160
we bring in a customer, they're not going to have
518
00:27:33.200 --> 00:27:35.319
a bad experience and they're going to want to come back, right,
519
00:27:35.400 --> 00:27:38.279
And so they've nailed those. Now they're going to market
520
00:27:38.400 --> 00:27:39.319
more aggressively.
521
00:27:39.640 --> 00:27:39.799
Right.
522
00:27:39.799 --> 00:27:44.000
They're doing some stuff on TikTok as well. They're doing
523
00:27:44.039 --> 00:27:47.519
more advertising during NASCAR and Bravo, which has a huge
524
00:27:47.519 --> 00:27:52.119
overlap between CDR customers and Bravo watchers.
525
00:27:52.240 --> 00:27:52.440
Right.
526
00:27:52.519 --> 00:27:57.400
And so now they're they're you know, advertising around more
527
00:27:57.680 --> 00:28:03.119
relevant modern food. It's you know, their typical Southern like
528
00:28:03.200 --> 00:28:06.839
classics with a twist, right, and and and then the
529
00:28:06.880 --> 00:28:09.519
remodels will be next year. The remodels are are a
530
00:28:09.559 --> 00:28:12.680
big part of drawing in the gen Z customers. Right,
531
00:28:12.720 --> 00:28:19.200
They're gonna have a brighter, brighter tones in terms of paint,
532
00:28:19.240 --> 00:28:21.319
They're gonna have more lighting in the stores, and they
533
00:28:21.319 --> 00:28:23.880
think that will help attract the younger generations.
534
00:28:23.960 --> 00:28:25.799
Yeah, that's what I'm a little bit more excited about
535
00:28:25.920 --> 00:28:29.920
is to see a new design theme kind of brought
536
00:28:29.960 --> 00:28:33.200
forward to because we are seeing quite a few brands
537
00:28:33.240 --> 00:28:36.839
that that have done some fairly successful remakes over the
538
00:28:36.880 --> 00:28:39.000
last few years in terms of just what they've done
539
00:28:39.039 --> 00:28:43.119
from a design standpoint. So Cracker Barrel, of course, has
540
00:28:43.160 --> 00:28:46.640
been a long standing brand that kind of lives in
541
00:28:46.680 --> 00:28:50.160
that theme, you know, of very southern roots, and I
542
00:28:50.200 --> 00:28:53.359
get it. So it'll be interesting considered.
543
00:28:53.400 --> 00:28:56.279
It was interesting. Sorry, yeah, it was interesting.
544
00:28:56.319 --> 00:28:59.640
It's a it's an old country store theme, so they
545
00:28:59.759 --> 00:29:03.160
thought and for the longest time they were right that
546
00:29:03.240 --> 00:29:05.599
they didn't have to do a full remodel of the
547
00:29:05.599 --> 00:29:08.240
stores because it's in an old country store, right, And
548
00:29:08.279 --> 00:29:11.279
it was a great you know, point of emphasis for
549
00:29:11.359 --> 00:29:13.519
investors going back ten years ago. It is like this
550
00:29:13.599 --> 00:29:15.680
company spends way less on cap X and then they
551
00:29:15.680 --> 00:29:17.519
can use that cash to buy back shares and pay
552
00:29:17.519 --> 00:29:18.000
a dividend.
553
00:29:18.079 --> 00:29:20.759
Right, And but it caught up to them, right.
554
00:29:20.839 --> 00:29:25.759
The younger generations want.
555
00:29:24.079 --> 00:29:26.759
You know, they're more discerning and then they almost what
556
00:29:26.880 --> 00:29:27.240
they want.
557
00:29:27.880 --> 00:29:31.960
Yeah, yeah, so always do for sure. Michael has been
558
00:29:31.960 --> 00:29:34.000
good catching up with you. I love to do the
559
00:29:34.079 --> 00:29:37.400
rundown on where some of these are. Each quarter we
560
00:29:37.440 --> 00:29:41.240
try to look at what's happening in the performance. Obviously
561
00:29:41.240 --> 00:29:43.319
we're ending up here in Q one and getting ready
562
00:29:43.319 --> 00:29:45.480
to in March. Uh So this will be a good
563
00:29:45.519 --> 00:29:46.960
one because we'll get a chance to see some new
564
00:29:47.000 --> 00:29:49.759
earnings come in hopefully soon and see how some of
565
00:29:49.799 --> 00:29:51.880
these brands are doing. So we'll definitely get you back
566
00:29:51.920 --> 00:29:53.519
on the show. But thanks for coming in today. I
567
00:29:53.559 --> 00:29:54.599
appreciate it.
568
00:29:54.680 --> 00:29:55.880
Sure think you.
569
00:29:55.839 --> 00:29:59.119
Bet are you guys? If you're not, you know, subscribe
570
00:29:59.160 --> 00:30:00.799
to the channel. Make sure do that. Of course you
571
00:30:00.839 --> 00:30:03.720
can catch Michael Haling over on Bloomberg and learn a
572
00:30:03.720 --> 00:30:06.200
little bit more about what their analysis is. But all
573
00:30:06.200 --> 00:30:08.279
you have to do is jump over to sav Fm.
574
00:30:08.319 --> 00:30:10.599
You'll find us over there and all of our podcasts.
575
00:30:11.160 --> 00:30:15.119
Also check out the YouTube channel, which is approaching two
576
00:30:15.160 --> 00:30:16.519
hundred thousand subscribers.
577
00:30:16.519 --> 00:30:16.839
That's right.
578
00:30:16.880 --> 00:30:18.759
It's because of you guys, so make sure and comment
579
00:30:18.799 --> 00:30:20.759
down below. Give us a like or two if you
580
00:30:20.799 --> 00:30:22.920
are watching the video version of this. If you're in
581
00:30:22.960 --> 00:30:25.359
the audio version, just give us a start and we'll
582
00:30:25.400 --> 00:30:27.359
catch you next time right here on the restaurant Report
