McDonald’s reaps the benefit of all day breakfasts and table service

February 9, 2016

McDonald's signature rangeEven though we’re only into its second month, 2016 been rather a good year for Steve Easterbrook, McDonald’s chief executive. His football team, Watford, is enjoying its best season in years and much the same can be said for the US fast-food giant.

The company surprised analysts with its latest quarterly results last week, with sales up 5.7pc in the US – nearly twice as much as had been predicted. Global sales are up by 5pc.

It has taken a Briton – albeit one steeped in McDonald’s corporate culture – to revive the most American of institutions, which was in danger of being left behind by rather nimbler competitors in the fast food industry.

From introducing all-day breakfasts throughout the US to testing waiter service at some of its outlets, including in the UK, Easterbrook has overhauled how the company operates at a bewildering pace.

The chain was in something of a mess when Easterbrook took over as chief executive in March 2015. Last August, for the first time in more than 45 years, McDonald’s announced that it was closing more outlets than it was opening.

European sales had dropped by 1.4pc, between 2008-14. In the US, the decline was 3.3pc and in Asia, the Middle East and Africa, once considered a growth region, a rather frightening 9.9pc.

It was not just the dire figures which suggested that McDonald’s was in need of a cultural shift. The company was facing competition from not only its traditional rivals, such as Burger King and Wendy’s, but also from hipper new competitors entering the market, such as Honest, Byron, Five Guys and Shake Shack.

It was pretty clear that the golden arches had lost their sparkle. Within weeks of taking over the reins, Easterbrook appeared on CBS’s This Morning television progamme in the US to signal that the 60-year-old company was in for a radical overhaul.

“We really want to assert McDonald’s as a modern burger company. To do that you have to make meaningful changes in the business,” he said. “The pace of change outside McDonald’s has been a little quicker than the pace of change within. You act your way to success, you can’t talk your way to success.”

For once, this was not empty corporate-speak. All-day breakfasts were tested in San Diego in April, and within months were available at all the company’s 16,000 US restaurants. This has brought back customers who might have gone elsewhere and even tempted in newcomers.

Other changes have seen the introduction of a “McPick menu” where US customers can have two items for only $2, despite the wafer-thin profit margin the deal provides.

The range of burgers has also been increased to include Pico Guacamole and Buffalo Bacon, and diners are now being allowed to customise their burgers. McDonald’s has also launched its first loyalty programme for people who register their details, offering, for example, a free cup of coffee for every five bought at one of its restaurants.

Easterbrook has also done something to improve McDonald’s corporate image, announcing a 10pc pay rise for the 90,000 people who work in outlets directly owned by the company in the US. This has taken their hourly minimum wage to $9.90 an hour – increasing to more than $10 this year – considerably higher than the legal minimum of $7.95.

The one caveat, however, was that the pay rise was limited to those staff who work for the 10pc of restaurants which are owned by the company rather than franchisees. Even the white packaging is being ditched after more than a decade. Instead, food now comes in brown paper bags which, in theory, are seen as more environmentally friendly.

According to a company spokesman, the change is “consistent with our vision to be a modern and progressive burger company” –a phrase now something of a corporate mantra.

“One of the things Easterbrook has done is create a sense of urgency in the the McDonald’s business culture,” said Mark Kalinowski, a restaurant analyst at Nomura in New York. “When the company started trialling the all-day breakfast in San Diego county in April, it only took until October before it went nationwide.

“He doesn’t want to waste time, he operates on speed to market and saw it was clearly something customers wanted.

“For McDonald’s, that is rather quick. Although it can be innovative, the company is traditionally slow- moving. I think it’s a reflection on its sheer size.” Even though Easterbrook has spent much of his career with McDonald’s, having joined in 1993, he also spent time with the rather more upmarket Wagamama and Pizza Express chains. He returned to McDonald’s in 2013 as chief brand officer, having held previous roles including its head of Europe.

“Most of the presidents and chief executives at McDonald’s we have seen have been promoted from within. Having somebody with an outside perspective is exactly what the company needed” said Darren Tristano, president of Technomic, a Chicago-based company specialising in the food industry.

Tristano believes that Easterbrook’s strategy has been shrewd. “He has aggressively marketed the all-day breakfast, which has put McDonald’s back at the top of the mind of consumers.

“The price point appeals to lower and middle-income consumers who are looking for something which is less expensive than the dinner menu. This has helped McDonald’s get back some of the market share which it had been losing to rivals.”

McDonald’s has also been helped by the rehabilitation of the egg in the mind of the consumer, Tristano added.

“If you go back a few years, eggs were seen as high-cholesterol. Now they are seen as high-protein and eggs are a key part of breakfast.

“The sales growth on a year over year basis is over a few years of weak sales performance, so the numbers are good but we should expect to see sustainable growth and especially year over year, fourth quarter 2016 would signal McDonald’s is officially back.

“McDonald’s appears to be listening to their customers and staying more true to their brand under Easterbrook.”

The consensus appears to that Easterbrook has enabled McDonald’s to regain its mojo. “He has brought a sense of strategic clarity, said John Quelch, professor of marketing at Harvard Business School.

“There is a tendency when a company gets into trouble to sling products at the wall and see what sticks. All that does is adds complexity. If you reach a point when you can’t explain to an employee or a franchisee what the point of a product is, then how can you expect them to explain that to a customer?

“The bench strength of McDonald’s is enormously good. It is no surprise that they were able to find somebody like him to step up,” added Quelch.


Can McDonald’s Keep Its Mojo After the All-Day-Breakfast Hype Fades?

February 8, 2016
by Christine Birkner
Adweek
January 28, 2016, 11:49 AM EST
http://www.adweek.com/news/advertising-branding/can-mcdonalds-keep-its-mojo-after-all-day-breakfast-hype-fades-169241
Consumers are lovin’ McDonald’s all-day breakfast, to the tune of surging sales for the brand, but how long can the party last?

The effort, which included a social media-themed ad campaign by Leo Burnett, launched to much fanfare in October and so far has helped reverse the fast-food chain’s sagging fortunes. This week, McDonald’s announced that its fourth quarter comparable U.S. sales increased 5.7 percent due, in large part, to the launch of all-day breakfast.

According to research firm NPD Group, the percentage of McDonald’s customers who ordered breakfast at the chain grew from 39 percent prior to the launch to 47 percent afterward. And over the past two years, breakfast has been the strongest growth segment for QSR brands overall, with sales rising in the 3 percent to 4 percent range.

“Taco Bell and Subway entered the breakfast market, and there have been a lot of specialty innovations that have driven morning meal growth. Everyone wants to take advantage of that opportunity because it’s such a huge part of market share,” said Bonnie Riggs, restaurant industry analyst at NPD.

McDonald’s president and CEO Steve Easterbrook, who took the helm in March 2015, has executed a turnaround plan for the company that includes a simpler menu and faster service. In May, the chain pared down menu items to speed up order times. The brand’s focus on value, in the form of offerings such as its McPick 2 menu, which allows customers to choose two menu items (McChicken sandwich, double cheeseburger, small fries or mozzarella sticks) for $2, also was credited for increased sales in this week’s earnings call.

The fast-food chain’s vision in the U.S. is “to become a modern and progressive burger and breakfast restaurant focused on our food, the customer experience and value,” a McDonald’s spokeswoman said. “Simplifying our menu and operations procedure has made things easier for our customers and our crew and helped contribute to the rise in earnings.”

Will the momentum continue?

But after consecutive sales declines, McDonald’s latest results actually aren’t much to celebrate, says Darren Tristano, president of restaurant industry research firm Technomic. (The company’s U.S. sales rose for the first time in two years in October.)

“Strong results after a few years of sales declines can still be considered a rebound. They haven’t gotten back to where they were three years ago,” he said. “They’ve done a nice job with all-day breakfast, and aggressively advertised it, but all-day breakfast isn’t new. Jack in the Box, White Castle, other brands are rolling it out. [McDonald’s] out-performed the market in the recent session, but they’ve recently struggled to keep up, so it’ll be good to watch.”

On Jan. 7, McDonald’s U.S. restaurants also launched new packaging, with a sleeker, simpler design than previous iterations. Paul Pendola, foodservice analyst at Mintel, gave the change mixed reviews. “Saying they’re going to be a contemporary, modern burger place is too vague, and it doesn’t communicate to consumers what it is that makes them different, unique or better,” he said. “They could communicate that on the packaging. It’s super simple and lovely, but there’s no messaging on it about what makes them better or unique.”

Tristano was optimistic about McDonald’s fortunes, overall. “They’re focusing on the millennials with breakfast, the lower-income groups with value, and they’re innovating with some of the regional burgers they’re offering,” he said. “As long as they continue to focus on fundamentals and not over-complicate things on the menu level, they’ll have some momentum.”


McDonald’s need for speed: Inside CEO Steve Easterbrook’s bold strategy to transform the fast-food giant

February 8, 2016

Hollie Shaw
Financial Post
January 29, 2016 4:13 PM ET
http://business.financialpost.com/news/retail-marketing/mcdonalds-need-for-speed-inside-ceo-steve-easterbrooks-bold-strategy-to-transform-the-fast-food-giant

 

 Justin Sullivan/Getty ImagesSteve Easterbrook was behind the counter at one of North America’s first two standalone McCafé restaurants, watching intently as line cooks prepared Egg McMuffins over a sizzling grill.

The CEO of McDonald’s Corp. was clearly pleased: Unlike the years-long struggle in its U.S. unit, the Canadian division of McDonald’s has performed well in the past seven years, tripling its coffee sales, and this country remains one of the fast-food giant’s top-performing global markets.

“I’m just like a sponge, I am learning,” Easterbrook said. “More than anything, I am just soaking up what is going on so that I can then share it as I move around the world.”

The Financial Post spoke with Easterbrook during a recent top-secret visit to the bowels of one of Toronto’s busiest office towers, his second visit to Canada in six months, for a tour with Canada division president John Betts of the new café concept, now open at two new downtown restaurants.

Almost a year into his tenure as CEO of the world’s largest restaurant chain, the British-born Easterbrook, 48, is now known for his ruthless commitment to simplifying processes and speeding up service.

“What I set out to do very early on is to acknowledge at a global level that this is a turnaround situation,” Easterbrook said. “We are not necessarily looking to be ahead of the trend, but we should absolutely be in lockstep with where consumers were at, and universally we weren’t,” despite the restaurant’s endurance in markets such as Canada, the U.K. and Australia.

The McCafé is a departure from a regular McDonald’s, bright and airy with abundant white tile and modern fixtures as opposed to the cozy functionality of its revamped Canadian restaurants. But its menu is the real standout: It serves the iconic Egg McMuffin sandwich and other breakfast items all day long, as well as baked goods, a range of trendy non-McDonald’s salads such as kale and brussels sprouts with mixed veggies, and sandwiches on artisanal bread.

On the January day Easterbrook visited, the newly opened outlet had hit a record that morning, serving 280 people in an hour, a fact not lost on a CEO with a keen desire to expedite traffic inside its restaurants. Though the bulk of his career has been spent at McDonald’s, Easterbrook trained as an accountant at Price Waterhouse after university and joined the restaurant chain in 1993 as a financial reporting manager. But he said spending time outside the company as CEO of smaller British restaurant chains between 2011 and 2013 gave him a fresh perspective on the broader industry.

“The one thing I recognized, more than anything, was the speed with which they moved,” he said of his tenure at PizzaExpress and Wagamama before returning to McDonald’s in 2013 as global chief brand officer.

“I was determined when I rejoined the company that I never wanted our size and scale to be a barrier to speed. The world is moving at an ever-faster pace. The world is not waiting for us to catch up. The world is just going to get on with it.”

Easterbrook remained mum on whether all-day breakfast, a key driver behind the company’s standout U.S. earnings this week, might eventually be brought to Canada, or whether standalone McCafés, a clear rival to Starbucks and Tim Hortons in Canada, will get introduced elsewhere in the world.

“It is not just about whether the idea is transferable,” he said. “You have to understand the context behind the idea before you start to imagine where you think it could work in the other markets.”

But making bold moves — albeit well-informed ones; all-day Egg McMuffins had been a request of U.S. consumers for years — appeals to Easterbrook’s action-oriented sensibilities for the global organization.

“Today, everyone else is more nimble (than McDonald’s is) because they are smaller,” said Darren Tristano, president of the Chicago-based food industry research firm Technomic.

“Getting to be more nimble allows McDonald’s to become more competitive. Put it this way: We had heard about all-day breakfast for years — you might not even say that it was (Easterbrook’s) idea — but he made it happen.”

That drive for speed and efficiency was evident in Easterbrook’s move to reconfigure the company’s structure and combine its five top markets of Canada, France, Germany, U.K. and Australia into one unit to more readily share best practices. The prior structure had the company’s country divisions organized by geographic region, which made sense when the company was in a period of rapid global expansion decades ago, but worked less well for a more mature company.

“I wanted to challenge the legacy structure we had globally, to leverage the experience of the market leaders and move quicker to seize the opportunities ahead of us,” Easterbrook said. “We had never, I felt, maximized the learnings that the (top countries) could have gained from each other.”

Robert Carter, executive director at market research firm NPD Group Canada, said the strategy makes particular sense given that overall global restaurant industry growth is slowing down.

“Really, the only market that is experiencing a lot of growth is China, so in that kind of environment, you really need to be stealing share from your competitive set and you have to be much quicker to adapt to changes,” Carter said. “McDonald’s has been traditionally viewed as a slow-turning machine in terms of renovations and getting new items out. Throw in the competitive threat coming from the fast casual market, it just makes sense that one of the first things you would do is how do we make things happen quicker.”

As such, Easterbrook seems to be intent on smart, productive growth rather than growth at all costs. He has closed underperforming outlets around the world and simplified the menu by paring it back rather than continuing with an all-things-to-all-people strategy, introducing a broad range of new items to try to draw in customers seeking healthier or ethnic fare.

“Customers are relying on us for convenience and consistency, and what we were actually finding was it was getting more complicated for our customers than they cared for and more complicated for our teams to deliver,” Easterbrook said.

“That is where someone has to make some brave calls. You never want to take something away because you think that it is going to hurt, but actually the net benefit is that the operation got smaller, and the customer experience becomes a lot easier to navigate. Lives are complicated. Going to McDonald’s shouldn’t be. People’s lives are hectic and they come to us for a break.”

His decisions have paid off. After a multi-year slump and seven straight quarters of declining same-store sales in its biggest market of the United States, same-store volume has now grown for the past two fiscal periods. In fourth quarter results released last Monday, same-store sales jumped 5.7 per cent at the company’s U.S. restaurants, more than double the analyst forecast of 2.7 per cent, and U.S. operating income surged 30 per cent. Operating income in its international lead markets, including Canada, rose eight per cent excluding currency impact.

Investors are also regaining faith in the company, sending McDonald’s shares up 30 per cent in a period in which the Dow Jones industrial average has dropped nine per cent.

“I would like to get certainly four quarters of growth under my belt before we would consider moving out of the turnaround phase to the next two phases,” Easterbrook said of his progress, describing the next steps as a “strengthening” phase and a “leading” phase.

“We should have an expectation of ourselves to get there, to a true leadership position,” he added. “I’m careful not to forward-promise…I much prefer to act now, talk later. It’s one of my personal mantras. But I have extremely high expectations for the business and for the brand.”


How McDonald’s Easterbrook can maintain momentum

February 4, 2016
Joe Cahill
Crains
January 27, 2016
http://www.chicagobusiness.com/article/20160127/BLOGS10/160129896/how-mcdonalds-easterbrook-can-maintain-momentum

McDonalds-all-day-breakfast-win-for-CEO-Easterbook.jpgAll-day sales of Egg McMuffins did more than reverse a three-year slump at McDonald’s: It has inspired confidence in CEO Steve Easterbrook and buys time for the new chief to lock in the elements of a long-term growth strategy.

Last fall, Easterbrook answered the prayers of many customers who had yearned for years to buy breakfast after McDonald’s long-standing 10:30 a.m. cutoff. This week, McDonald’s credited all-day breakfast for the lion’s share of a 5.7 percent rise in fourth-quarter sales at U.S. locations open more than a year. The quarterly increase, outstripping even the expectations of McDonald’s executives, was the second in a row and a sign that McDonald’s is finally moving in the right direction under Easterbrook, who replaced Don Thompson in March.

A pair of quarterly sales gains doesn’t mean Easterbrook has put McDonald’s on track for long-term sustainable growth. But together with some other recent moves, it shows he understands the challenges facing McDonald’s and will move aggressively to meet them.

If Easterbrook still has a long way to go, all-day breakfast gives him a bit more time to get there. He’ll enjoy a grace period of three more quarters, as extended breakfast hours continue to generate sales increases over periods that predate the change. That cushion will disappear in the fourth quarter, when McDonald’s will lap a quarter with all-day breakfast for the first time. “That will be the telling moment,” says Darren Tristano, president of restaurant consulting firm Technomic in Chicago.

During the next three quarters, Easterbrook must build on the success of all-day breakfast, which is bringing in new customers and others who hadn’t visited McDonald’s in years. Now he needs to turn them into regulars. Strong store traffic is essential to the long-term health of any fast-food chain. Guest counts at McDonald’s declined again for the full year of 2015, but turned upward in the fourth quarter.

Customer traffic will keep rising if Easterbrook gives people more reasons to keep coming back after the novelty of afternoon Egg McMuffins wears off. That requires steady progress in three key areas:

Service. Service slowed as McDonald’s menu grew more complex in recent years. Drive-in speeds lagged those of key rivals. Easterbrook has begun to address the problem by expanding on a menu-decluttering effort launched by Thompson. “Simplifying the process is what people want nowadays, and they’re finally addressing that,” says analyst R.J. Hottovy of Morningstar in Chicago.

On McDonald’s earnings call with Wall Street analysts on Jan. 25, Easterbrook said customer feedback shows improvement in “food quality, order accuracy, speed and friendliness.” But all-day breakfast adds a new layer of complexity, potentially undermining service speed and accuracy.

Ruthless purging of slow-selling items will be essential to keep restaurants running smoothly. Restaurant efficiency also could benefit from new technologies that allow customers to order via kiosks and mobile devices. McDonald’s is testing these systems in the U.S. but hasn’t set a date for national rollout.

Value. McDonald’s is still searching for a successor to the Dollar Menu, the low-price offering that drove its last turnaround, in the mid-to-late 2000s. The company badly needs a compelling deal for budget-conscious customers who faded away during the last recession and its aftermath. Always a bulwark of McDonald’s business, lower-income families matter even more today as affluent consumers migrate to fast-casual chains like Panera. “Value-conscious” consumers now represent about 25 percent of McDonald’s customer base, Easterbrook told analysts on the earnings call.

Early this month, McDonald’s began a six-week test of “McPick2,”which offers two menu items for $2. Easterbrook said initial response has been favorable and acknowledged the need to settle on a permanent value proposition this year.

“Value still has to be at the core of their menu,” Tristano says, noting most of McDonald’s rivals offer a low-price combo. “It’s what a lot of their customers want, and if they can’t get it they’ll go elsewhere.”

Listening. McDonald’s boffo launch of all-day breakfast shows what happens when a company listens to customers. For years, McDonald’s rejected customer pleas to extend breakfast service beyond late morning, citing insurmountable operational hurdles. Easterbrook pulled it off in a matter of months, a clear sign his efforts to winnow bureaucracy and accelerate decision-making based on market feedback are bearing fruit. “That shows the company is much more nimble now than it was before,” Hottovy says.

A streamlined management structure established last summer has “sharpened our focus,” and “removed distractions to speed up decisions and increase our ability to move winning strategies quickly across markets,” Easterbrook told analysts.

Of course, faster product rollouts won’t help if customers don’t like them. McDonald’s has struggled for years to cook up menu innovations that click with consumers. Remember, the Egg McMuffin isn’t a breakthrough innovation but a proven winner that McDonald’s made more available.

Acknowledging that all-day breakfast demand will “settle down” from its initial euphoria, Easterbrook said McDonald’s has more initiatives in the pipeline for 2016. We’ll see if he can come up with a hit new product—the true test of whether McDonald’s has developed an ear for customers’ ever-changing preferences.

“As long as they’re listening to the customer and giving them what they want, instead of trying to force something on the customers, they can be successful,” Tristano says.


This is what happens when McDonald’s listens to its customers

February 2, 2016
By Roberto A. Ferdman
Washington Post
January 25, 2016
https://www.washingtonpost.com/news/wonk/wp/2016/01/25/the-incredible-power-of-the-egg-mcmuffin/
It’s no secret that McDonald’s has been struggling. At a time when specialization is increasingly important in the food business, the brand has opted for breadth, offering everything under the moon: hamburgers, salads, yogurt parfaits and fancy chicken wraps. And it hasn’t worked. In fact, that’s putting it mildly.Each time McDonald’s has announced how much money it’s making, the company has been forced to share an embarrassing truth: Americans are eating less and less of its hamburgers, chicken nuggets and French fries. The routine became so consistently depressing that McDonald’s decided to quit sharing monthly performance data altogether in March.

But all of that seems to be changing: For the first time in a long time, McDonald’s is thrilled to tell everyone how it’s doing.

On Monday, McDonald’s said that same-store sales (those open for at least 13 months) increased by 5.7 percent in the last three months of 2015, more than twice what analysts had expected. The hefty jump is the largest the company has reported in almost four years.

The news comes on the heels of a major concession by the fast-food chain, which is no coincidence. For years, adoring fans pleaded with McDonald’s to extend its breakfast menu beyond the current 10:30 a.m. cutoff. For nearly as long, the fast-food behemoth shrugged off the ask, saying it doesn’t have the capacity to make breakfast and everything else at the same time. But this October, McDonald’s finally gave in, agreeing to offer Egg McMuffins and other breakfast fare from open to close. And the reaction has been overwhelmingly positive.

“All-day breakfast was clearly the primary driver of the quarter,” McDonald’s Chief Executive Officer Steve Easterbrook told investors in a conference call following the company’s earnings announcement. “We knew it would be.”

In some ways, the immediate success of all-day breakfast is a reminder of one of McDonald’s biggest follies: its inability to see itself what for what it is. Rather than embrace what its fans adore it for most — a place that serves hamburgers, French fries, chicken nuggets, and yes, an exceedingly popular breakfast menu — McDonald’s tried to become something other than itself, expanding its menu, largely with salads, wraps and other healthier but also more expensive fare, to mimic new competitors.

The Chipotles and Shake Shacks of the fast-food world have managed to sell pricier food, at least in part, because of their association with meaningful trends in the food world that prioritize good food over cheap food. But it’s a much harder pitch at cheap burger chains, which people visit for a respite from their (hopefully) healthier dietary regimen, rather than a reminder that they could be eating something better. It’s no coincidence that fast-food chain Sonic has flourished by accepting what it is, while McDonald’s has struggled by doing just the opposite.

The chain’s re-energized business can also be seen as a testament to the enduring popularity of the Egg McMuffin, arguably the most iconic breakfast sandwich in the world. The affordable egg sandwich, which was first served in the early 1970s, caught on so quickly that it helped popularize the entire breakfast sandwich category. But it hasn’t been replaced. Today, demand for it is such that the chain buys more than 2 billion eggs per year in the United States alone, or almost 5 percent of all eggs produced in the country.

“It’s one of the oldest items they’ve had on their menu, and it’s still one of the most popular,” said Darren Tristano, who is the president of Technomic, a food industry market research firm. “Selling it all daylong was a no-brainer.”

Since Easterbook became McDonald’s CEO last March, he has shown that he’s willing to not only listen to but also heed requests from the fast-food chain’s customers. The introduction of all-day breakfast is perhaps the best example, but during his short stint, he has already also shortened the McDonald’s menu and announced plans to switch to cage-free eggs and antibiotic-free chicken in the United States, among other things.

Tristano reminds that it’s too early to tell whether the most encouraging earnings in years is a sign of things to come. The real test will be what happens in the rest of 2016, and beyond. The excitement around all-day breakfast, and Egg McMuffins specifically, might not last, which even Easterbrook admitted to investors this morning. But the move has set an important precedent.

“I think listening to the customer is going to the most important rule McDonald’s has to follow,” said Tristano. “As long as they’re doing that, they should be fine, because the customer usually has the answer.”

When markets opened Monday, McDonald’s shares were up 3 percent on the news, but finished the day up less than 1 percent. Despite the company’s recent struggles, its stock is at a near all-time high.


Fogo Sizzles in IPO

July 1, 2015

NB_13HALLCOSER_5_19746449Karen Robinson-Jacobs
Copyright 2015 The Dallas Morning News. All Rights Reserved.
http://www.dallasnews.com/business/restaurants-hotels/20150619-dallas-fogo-de-chao-restaurant-sizzles-in-wall-street-debut.ece

Wall Street’s hunger for new restaurant stocks pushed another North Texas brand beyond its initial public offering price.

Dallas-based Fogo de Chão Inc., a Brazilian-themed full-service restaurant chain, debuted Friday on the Nasdaq after pricing late Thursday at $20 a share. The initial price was above the earlier stated range of $16 to $18 a share.

The stock closed at $25.75, up nearly 30 percent.

Fogo de Chão is the second North Texas restaurant chain to go public in a week. Last Friday, stock in Dallas-based Wingstop soared in that company’s first trading day, gaining 61 percent from the initial offering price of $19 a share. Before that pricing, the high end of that company’s range was $14.

Fogo chief executive Larry Johnson thinks consumers are drawn to his chain because of the value proposition, the ability to have an affordable “white tablecloth experience.” That in turn “resonates with investors,” he said as the stock price continued its day-one climb.

Johnson said he thinks investors will take note of the brand’s growing popularity and acceptance by different age groups.

The company’s 26 U.S. locations, which range in size from about 7,500 square feet to 10,000 square feet, bring in about $8 million each annually on average.

‘Concept travels well’

The company expects the store count to grow by at least 10 percent each year, with Fogo eventually launching at least 100 U.S. locations. Johnson offered no timetable for the full buildout.

“We are comfortable that the concept travels well,” he said of the chain’s popularity in different markets across the country. “When you put all that together, I’m confident investors are going to get the story and are going to reward us for our performance.”

No new locations are planned for North Texas this year, but next year Fogo plans to appeal to carnivores in Uptown, which already is home to several popular steakhouses including Morton’s and Perry’s Steakhouse & Grille.

The company, which is owned by affiliates of Thomas H. Lee Partners, sold 4.41 million shares in the IPO. Lee Partners retains control of the company.

Fogo de Chão, which came to the U.S. in 1996, is the latest restaurant chain to whet Wall Street’s appetite.

PrivCo, which provides financial data on privately held companies, listed four restaurant IPOs this year, each of which posted a significant first-day pop. Each one – Shake Shack, Bojangles, Wingstop and Fogo – was priced at about $20 a share.

Burger joint Shake Shack closed at about $46 during its market bow, and jumped to more than $92 in May.

Fast casual

Many investors are trying to find the next Chipotle. The Mexican-themed fast-casual chain went public in 2006 at $22 a share and closed the first day at $44 a share. The stock closed Friday at $614.22.

Unlike most of those chains, Fogo de Chão is a full-service restaurant, rather than fast food or the current industry darling, fast casual.

Johnson noted that his chain’s average sales per location are much higher than those for a fast-casual concept.

The flip side, noted Sam Hamadeh, founder and chief executive of PrivCo, is that expenses are higher at a large full-service restaurant.

“That’s something [for investors] to keep in mind,” he said. “That’s a very expensive operation. That could be a problem at the first sign of a slowdown.”

Darren Tristano, executive vice president of Chicago-based Technomic Inc., a restaurant research firm, thinks the success of fast-casual IPOs is helping fuel growth of other restaurant stocks.

“Fast-casual restaurant chains continue to dominate growth,” said Tristano. “Technomic’s forecast five-year compound growth for fast casual is greater than 10 percent. As analysts and consumer investors look toward continued patronage and success of fast-casual restaurant brands, IPOs have been and are likely to continue to be strong going forward. This success will likely positively impact other major restaurant brands with IPOs.”


Sale Could Provide the Boost Frisch’s Has Been Searching For

June 12, 2015

http://www.bizjournals.com/cincinnati/news/2015/05/22/sale-could-provide-the-boost-frischs-has-been.html

bigboyface-750xx1739-2331-0-258Andy Brownfield
© 2015 American City Business Journals, Inc. All rights reserved.
Family-style restaurants like Cincinnati-based Frisch’s Restaurants Inc., which announced a planned sale to a private equity fund Friday, have been in decline for years. But an industry watcher says that segment is starting to turn around.

Chains like Frisch’s (NYSE: FRS) have been losing customers for 15 years to everything from fast casual concepts to fine dining to the growing a.m. eateries segment – restaurants like First Watch that stay open only for breakfast and lunch – Darren Tristano, executive vice president at Chicago food industry research firm Technomic, told me.

“Overall this segment has seen competition across the board,” he said. “Older consumers who are more traditional and grew up with these brands have shifted to other types of restaurants and aged out of spending. Younger consumers have seen the brands they grew up with, the fast casuals, become more of a preferred destination.”

That’s not to say it’s all bad news for the family-style restaurant segment. It has been growing as of late.

“The lower-middle income groups have been helped by improved employment, lower gas prices and higher disposable income,” Tristano said. “Because of that, this segment has done a little bit better.”

The segment grew 3 percent last year, up from no growth the previous year. However, that still pales in comparison to the 10 percent growth seen by the fast casual segment.

That slow growth or lack thereof put Frisch’s in a pickle, as outlined in the Courier’s Feb. 6 cover story.

In 2012, Frisch’s agreed to sell its 29 Golden Corral franchise restaurants in Cincinnati and six other cities to NRD Holdings LLC, which was led by Aziz Hashim. Golden Corral corporate exercised its right of refusal and purchased the restaurants itself. Hashim’s NRD Partners is set up to acquire Frisch’s for $175 million, or $34 per share, if shareholders approve the acquisition.

“At that point in time, the board started to say, ‘Where do we go from here in terms of creating shareholder value?'” recalled Mark Lanning, Frisch’s chief financial officer. “The board looked at various alternatives and finally looked upon the sale of the company. That process had been ongoing.”

The acquisition could be the shot in the arm Frisch’s needs, at least in terms of profitability. Private equity firms don’t try to revive brands but come in and try to make them profitable at the headquarters and corporate levels as well as more effective in advertising, Tristano said.

“When we look at Big Boy, it’s a very iconic brand,” he said. “It has strong opportunity to not only remain but increase relevance. I think with the right plan and right people, if they’re willing to invest into the brand to grow it, they could be on track.”


Follow

Get every new post delivered to your Inbox.

Join 169 other followers