Observers have characterized restaurants’ meltdown this spring in grim terms, with more than a few reading glimmers of a recession in the downturn. Yet the black cloud theory is undercut by the contrary performances of some sectors and a number of individual operations. There’s a near consensus that pizza delivery chains and independents have been spared, but those aren’t the only players who’ve continued to prosper while even direct competitors have wheezed.
Here’s a roundup drawn from recent financial reports of the operations that have artfully dodged the downturn, and how they did it. The key determinants we used were same-store sales, and the traffic component in particular.
Shake Shack: 4.5% comp rise
Wall Street punished the fast-casual upstart for posting a “mere” 4.5% rise in what the brand calls same-Shack sales, noting analysts’ expectation of a 4.8% increase. Oh, poor lambs.
They might have lost the big story in the details. As CEO Randy Garutti put it, “If you're only looking at the strength of our same-Shack sales, you'd be missing the real story of our industry-leading AUVs [average unit volumes, currently around $3.6 million] and Shack-level operating margins [of 30%].”
Translation: A store-level profit of more than $1 million.
Garutti revealed that new products are a big reason for the segment-leading performance. The Chicken Shack, a sandwich introduced earlier in the year, already accounts for 8.4% of sales and ranks as the burger chain’s third-best selling product, he explained.
Shake Shack’s newest limited-time offer is the Bacon Cheddar Shack, “the best performing LTO we've run since we launched the LTO program last year,” Garutti said. He also noted that the item boosts checks with its $6.89 price.
Bad Daddy’s: 3.6% comp rise
If you’ve not yet heard of Bad Daddy’s, listen up. It’s the new growth vehicle of Good Times Restaurants, operator of a small namesake fast-casual burger chain. At a time when every casual chain wishes it was in the fast-casual market, GTR has decided casual dining is the place to be. It’s betting much of its growth capital on the burgers-and-brews concept.
The numbers explain why. GTR has opened five Bad Daddy’s so far this year. The units have averaged $48,000 per week in sales, which annualizes to just under $2.5 million, without the critical mass that delivers brand awareness. In the chain’s core market of North Carolina, units are averaging $2.6 million.
Second-quarter sales for units open at least a year rose 3.6%, so it’s not all honeymoon business. And comps have remained positive in July with a 3.3% rise, according to management.
Execs point out that the unit economics are good because Big Daddy’s current prototype is smaller than the shell of most grill-and-bar concepts.
Texas Roadhouse: 4.5% comp rise
Investors weren’t happy with the cowboy chain’s same-store sales at company-run units for the second quarter, noting that the figure marked a slowdown from preceding periods. But few casual competitors have come close to an increase of that scale.
What’s more, execs note that 2.9% of the increase came from a rise in traffic, and that margins were expanded to 19.2%. And that’s with a smattering of stores in Texas’ depressed oil belt.
Papa John’s: 4.8% comp rise
One of the leading theories for other sectors’ traffic falloff is a reluctance of some consumers to leave the house amid social unrest and serial news reports of terrorist attacks. The rationale is also cited as the reason for pizza delivery chains’ continued strong performance.
Papa John’s is one of those brands, but it offers a host of other reasons for its gains, from new products to sports-related promotions and new technology that simplifies order placement.
Domino’s: 9.7% comp rise
Virtually all of the delivery specialist’s domestic same-store jump—the highest we’ve seen thus far among public restaurant companies—is attributed by the franchisor to an increase in orders. Indeed, tickets were relatively flat, said CEO Patrick Doyle.
He attributes the growth to two things: execution of the basics, and investment in the concept, be it in the form of adopting tech or splurging on a splendid franchisee convention in Las Vegas.