Ignore for a minute the four chains that did really well last quarter, notably Chili’s, Taco Bell and Texas Roadhouse along with names like Domino’s or BJ’s Restaurants. As a whole, it was a remarkably mediocre second quarter in the restaurant business.
Consider this. On average, casual-dining restaurant chains outperformed both fast-casual brands and quick-service restaurants when it comes to same-store sales, a key metric closely watched by Wall Street and annoying finance journalists.
Same-store sales on average increased 0.8% as casual-dining chains, which on its own isn’t spectacular but was a lot better than the 0.86% decline at fast-casual restaurants and the 0.6% decline at quick-serves.
But remove Chili’s from the equation, and it looks a lot different. Casual-dining chains averaged a 1% decline.
Indeed, it appears that the quarter was an equal-opportunity problem, at least when we look at the median same-store sales figure, which calculates the midway point and diminishes the influence of outliers. Median same-store sales for both full-service and limited-service restaurants declined 0.6%.
Anyway, that’s just a thought as we consider the winners and losers from the second quarter, at least among those publicly-traded restaurant chains that have reported earnings thus far.
Winner: Chili’s
See above.
Loser: Fast-casual’s invincibility
Fast-casual chain same-store sales had the lowest average of any sector. Chipotle is now answering questions about whether its sales were of its own making or whether it has something wrong. Cava lost some of its post-IPO sheen. Sweetgreen is laying off workers.
To some extent, the sector is just dealing with tough comparisons. Fast-casual chain sales held even as other sectors struggled over the past two years. But now they’re joining the pity party.
Winner: Potbelly
Raise your hand if you thought that the fast-casual chain that would perform the best last quarter was the Chicago-based sandwich concept. But apparently, the chain found the right combination of value and premium offerings to keep customers interested.
It’s particularly notable given the sandwich sector’s overall problems right now, as just about every chain not named Jersey Mike’s has stagnated.
Loser: The One Group
In 2019, The One Group, owner of the upscale steak concept STK, bought Kona Grill out of bankruptcy.
That hasn’t quite worked out. Kona Grill has reported five straight quarters of double-digit-negative same-store sales, and seven straight negative quarters overall. Its flagship steak concept is on a nine-quarter run of negative same-store sales. At some point these chains have to benefit from easy comparisons, right? Right?
Winner: Applebee’s
We would be remiss if we ignored the quarter Applebee’s just reported. Like Chili’s, the chain brought back an old value favorite, in this case its 2-for-$25 promotion. The result was stronger sales and an upgraded outlook on the balance of the year.
Traditional casual-dining chains are winning largely on value, and this is a key example.
Loser: Conventional industry wisdom
This is a low-traffic restaurant environment. Fast-food chains are supposed to win in an environment like this.
McDonald’s reported one of the stronger quarters in the sector, and its earnings call was in effect a warning to the industry that this low-traffic environment will continue. Consumers are broadly rejecting the fast-food business because they don’t believe that it provides the value they want. And they’re flocking to chains like Applebee’s and Chili’s that they think do.
That is the opposite of what conventional wisdom says.
Winner: Odds-defying brands
In that sense, we’ll end by talking about the big winners from the fast-food world: Dutch Bros (6.1% same-store sales) Taco Bell (4%) and Domino’s (3.4%). None can come close to the curve-breaking numbers Chili’s just reported. But each of them has maintained strong performance in the face of a difficult environment.