One of the best and busiest journalists covering the restaurant industry is Jonathan Maze at Restaurant Business and NRN. His reporting is straightforward, but he also uses "X" (formerly Twitter) to share personal opinions that might not appear in his published articles.
Since X is a public forum, I can cut and paste the text of his posts. You will find some recent Maze musings in the comments section of this post.
On X Jonathan is: @jonathanmaze
3 comments:
Maze says:
Why do brands like Chick-fil-A, Culver's, In-N-Out, Raising Cane's, etc. outperform the big, publicly traded companies?
John Weiss, senior advisor with the investment banking firm Harrison Co., noted a few reasons at the Restaurant Finance conference:
They "manage for the next generation, not the next quarter" and "focus on the lifetime value of a customer" and don't spend too much effort on operationally complex limited-time offers. They take care of employees who do a better job in the restaurants, giving customers a better experience that drives sales over the long term.
The large public companies "focus on cutting costs to improve margins" and have high turnover. Their operations suffer, customers have a bad experience, and sales and margins decline.
The private companies have long-tenured CEOs, which leads to consistency in operations. Public company CEO turnover "is more of a problem than hourly turnover."
Wendy's has had four CEOs in three years.
The private brands don't use kiosks and focus on hospitality. Public company franchises use kiosks aggressively. (I'll also add that some of the big public companies, notably McDonald's and Taco Bell, are aggressively going after drive-thru AI).
"At McDonald's, it seems as if they've almost abandoned cashiers. You're forced to use the kiosks. Those kiosks don't smile."
Some of the private companies also don't do delivery, notably In-N-Out. Raising Cane's also doesn't have formal arrangements with delivery providers.
While delivery provides incremental sales, "some of those public companies that have sold their souls to and outsourced their business models for third-party delivery companies are learning to regret it. Wingstop may be an example. Those third-party delivery companies really don't care about your brand image."
I agree with a lot of this. I do believe that brands have made a deal with the devil on third-party delivery, especially for franchisees. And by the end of next year almost none of your McDonald's orders will be taken by a person, given that the company plans to implement drive-thru AI.
Those fast-growth chains don't make these types of compromises. You have a better experience when you visit them, and so they're worth the money you spend. So they're thriving.
The following is about Jonathan's attendance at the Restaurant Finance and Development Conference sponsored by Franchise Times magazine. I've never attended this conference but I think it is primarily attended by large mega- franchisees who operate hundreds of locations of multiple brands and their advisors. I don't think it's about individual franchisees with five stores.
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Maze says:
I've had about a dozen conversations with a variety of people this afternoon at the Restaurant Finance and Development Conference in Vegas today. They represent franchisees, PE firms, lenders, consultants, etc. They did not paint a positive picture about the environment for fast-food franchises.
Here's what they're saying:
* The lending environment is brutal. It's difficult for franchisees in a lot of brands to get financing, even some historically strong brands. But many franchisees took out loans 5-6 years ago and it is now coming due. That is a crucial factor in the wave of recent bankruptcy filings. I spoke with one lender who said that legacy fast-food franchises are too difficult right now, and emerging chains are too hit or miss.
* Many franchisees are as a result turning to merchant cash advance loans, which are awful. I spoke with an attorney who tells his franchisee clients that he'll fire them as clients if they do that. "Just shut your doors now." Use of advance financing has taken off this year. I had not seen it in restaurant bankruptcies before last year at all.
* There is a sense that the fast-food market will likely remain weak for some time, which is something I've said for a while. There are a lot of things working against the business right now: Consumer pressure because of inflation, weak population growth, soaring use of GLP-1 medications, etc. Unless something happens to stir consumer spending in a way we can't see right now, the environment for fast-food franchises will remain difficult for some time.
I've come to this event almost every year it's been held for the past two decades. Bleakest I've seen it since the Great Recession.
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