Restaurant Finance Monitor
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Every time we have a quarter pounder with cheese, greatly improved after the change to fresh beef, we appreciate the value (for the price) that McDonald’s provides. Whether it’s just the sandwich (plus any drink, including coffee, for $1) or a combo meal, it is pretty tough on the competition, QSR, fast casual, or full service. The latest wrinkle: the second sandwich (of anything on the menu) only costs $1.00.  I paid a total of just under $10.00, including NY tax, for two quarter pounders with cheese and two cups of coffee. The franchisees don’t love it because the profit margin squeeze can offset the traffic increase, but, no pun intended, “that’s life in the fast lane”. The effect of what we’ll call this extreme value proposition, goes beyond just the QSR burger purveyors. If I’ve got a family of four to feed, I can do it at McDonald’s for about $20.00, including tax, with no tip, with predictably reliable service. I may or may not get all that at the various QSR choices for the same price. If I want to go all the way upscale, I can have a good meal, and a dining “experience” at Olive Garden or BJ’s, but that will cost me closer to $50.00 at a minimum with tax and tip, and that $30.00 or more  incremental expense is meaningful to me. My family has to eat every day, and the expense adds up. So…..the competitive situation for operators is not getting any easier.


We hear that hardly any of the major restaurant chains are currently aggressively advertising delivery options. Aside from the pizza chains who have always provided delivery, McDonald’s, Chipotle, and Wingstop seem to be the most prominent chains that are currently pushing delivery. McDonald’s has the operating scale and the marketing dollars to do about anything they set their mind to. They can also afford to adjust their direction if that’s what the situation calls for.  Wingstop, with most of their sales consumed outside their four walls and selling a product that travels especially well, is appropriately extending every effort to build an in-house fulfillment system, at the same time learning from their use of third party delivery agents. Chipotle, with their second “make line” has become uniquely well situated to build their mobile app, pickup, and delivery capability. It seems like many restaurant companies, after living through the effect on profit margins, may be stepping back to let the dust settle. While some public companies have talked about a large portion of delivery sales being incremental, we’ve expressed our doubts. It seems pretty obvious to us that if a family consumes a meal delivered from a particular restaurant tonight, they are very unlikely to dine at that restaurant in the next few days, certainly not tomorrow night. It seems to us that most multi-unit operators, franchised or not, would probably be well served to do what they can to provide delivery in house. It’s something of a different business, to be sure, but The Brand must be protected, hopefully with the profit margin and return on investment maintained.


The crisis continues. It is not getting any easier to hire qualified help, and the price of that help continues upward. In addition to increased fringe benefits, companies are providing increasing flexible hourly schedules. We heard today that “next day pay” is being provided by one creative company, whereby half of what you earned will be paid tomorrow, in cash we suppose. If this proves to be a meaningful appeal to hourly workers, it would indicate to us how little discretionary cash people have in “the strongest economy of all time”. Call it anecdotal, but it doesn’t seem to us that the labor expense line, as a percentage of sales, is coming down any time soon.

Roger Lipton