MTY Food Group is having a tough time getting customers to its restaurant chains.
That is according to the brand operator’s CEO, Eric Lefebvre, who was trying to explain the company’s difficult second quarter, when MTY’s brands’ collective same-store sales declined 2.1%.
He seemed to suggest that his company’s chains, including brands like Papa Murphy’s, Pinkberry, Wetzel’s Pretzels, Famous Dave’s, Cold Stone Creamery and many others, are struggling more than others to lure diners.
“It’s hard to say that the consumer is not consuming because they are going to restaurants,” Lefebvre told analysts, according to a transcript on the financial services site AlphaSense. “The consumers are out there, but they’re certainly a little bit more difficult to attract to our stores at the moment.”
MTY, which is based in Canada and owns dozens of mostly franchised brands, is retreating even further from store operations. The company said it is closing 68 corporate restaurants, the bulk of them—45 to 50—Papa Murphy’s locations. Many of these locations are restaurants the brand had taken over from franchisees two years ago.
“We came to the conclusion that these markets are probably not appropriate for Papa Murphy’s at this time, and we chose to close a lot of these stores in these locations,” Lefebvre said.
The remaining stores are with MTY’s other restaurant chains. The company said that it expects to close the shops over the next six to nine months. Lefebvre said that MTY could also close or sell other shops.
“We’ve been slowly but gradually disposing of some stores where it makes sense for us,” he said. “So it’s not a fire sale. But we’re in the process where we can reduce the corporate store portfolio.”
Still, for Papa Murphy’s the closures represent a continued pullback, something that the chain has struggled with for years. The brand has closed a third of its locations since 2016, when it peaked at more than 1,500 restaurants.
Papa Murphy’s more recently has struggled to compete in a tough market for pizza, as more brands push heavy discounts to lure tight-fisted consumers and others that have shifted spending to third-party aggregators.
Without Papa Murphy’s, MTY’s same-store sales would have been “relatively flat in the U.S.” last quarter. “In the pizza space, it’s extremely competitive in the U.S., and we see that brand suffering a little bit more than the others,” Lefebvre said. “We run different promotions and we see there is very little loyalty at the moment. The consumer will go where the pizza is cheapest at any time.”
The other segments are not as bad, he said, but demand “is a little bit choppier.” But gas prices might be having an impact.
“Hopefully that’s a short-term pressure and then the market is going to go back to normal after,” Lefebvre said. “But that does take away consumer discretionary dollars out of the restaurant space because it’s going into the gas tank.”
Food inflation is also creating problems for MTY’s franchisee base. He said that labor is “no longer a significant pressure point.” But he did complain about rent for operators being “too expensive for my taste,” albeit not rising at an abnormally high rate because of long-term contracts.
Food, on the other hand, is “certainly a problem at the moment, especially with the cost of proteins.”
“You look at chicken or beef, it’s gotten a lot more expensive,” Lefebvre said. “The availability of some of our products—for example, our ribs—is a little bit more challenging, and the cost is going up.
“There’s a few bright spots here and there, but for the most part it’s challenging. So we’re trying to help our franchisees with different menu items, with different promotions, to alleviate that part of the problem.”
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