FOLLOW THE MONEY – 9/15/25
Jobs, jobs, jobs: The most recent Bureau of Labor Statistics’ revision of 911,000 jobs (over 50%) in the 12 months ending March 2025, was followed by an additional negative 258,000 revision in April and May, typical annually within the last ten years. Especially since almost all the jobs are government provided, and many of the reported jobs are part time, these adjustments confirmed what restaurateurs have known for some time. The consumer is strung out with record credit card debt carrying a 25% interest rate, new home purchases burdened by mortgages still over 6% and much more. Even with two or more jobs per family, the frequency of dining out has been reduced, as well as the average ticket. Since consumer dining expenditures are so flexible, sales trends within the restaurant industry have always been a great “anecdotal” measure, even a leading indicator of the general economy. A few of the 400 PHDs working at the Fed, after reading some quarterly restaurant conference call transcripts, would look smart next to colleagues waiting for rear view statistical compilations. This latest job revision virtually ensures that Jerome Powell’s Federal Reserve will provide a more accommodative monetary environment starting in September. Bond prices have started to firm in anticipation, bringing rates down, but incremental inflation (which never did get to the 2% objective) becomes more likely. Donald Trump and Scott Bessent will get their way, will term it “too little too late”, and President Trump has already pushed the “greatest recovery ever” out a year or more, when the trillions of new capex start to take effect. This looks like the stagflation of the 1970s to us.
IPOs, while higher this year throughout the equity market have been few and far between within the restaurant industry. Considering that restaurant traffic/sales trends and operating margins continue to be under pressure, there is no reason to expect a more receptive IPO environment any time soon. Since investment bankers need to stay busy, merger/acquisition/spinoff activity is likely to be a focus. Trust the bankers to help you “diversify”, even creating a “platform” that will efficiently manage a handful of brands. Publicly held Darden and privately owned Inspire Brands are admirable examples of this approach, both of which are large enough to afford purchase of substantial brands that can grow further. This activity includes Darden’s purchase of Ruth’s Chris and Chuy’s and Inspire Brands buying Dunkin’, Sonic, Buffalo Wild Wings and Jimmy John’s. Within the public space, much smaller brands are often purchased.
Reflecting on our four decades following closely the public space: very few companies have been successful running multiple brands or earning above average valuations. We have watched a long list of public companies stumble with secondary brands, starting with Sister’s Chicken and Biscuits (out of Wendy’s) in the early 1980’s, Flakey Jake’s in the late 1980s (out of Sea Galley Stores), Buffets buying Ryan’s Family Steakhouse in 2006, Ruth’s Chris buying and then selling Cameron Mitchell Restaurants in 2008 and 2014, and many more headlined by Cracker Barrel exiting Punch Bowl Social during COVID, after purchasing majority control in 2019. Along the way also were Wendy’s with Baja Fresh, Hardee’s with Roy Rogers, Bob Evans with Mimi’s Café, Jack in the Box with Qdoba and now Del Taco, Dine Brands with Fuzzy Tacos, Rave and Pie Five and many more
As of the moment In the public domain, only Darden stands apart, with almost all their major brands consistently doing well. Less successful has been Restaurant Brands, having survived several years of turmoil at Tim Horton’s, working hard to re-ignite Burger King and maintain momentum at Popeye’s. Dine Brands is challenged at both IHOP and Applebee’s. Bloomin Brands is selling at under 5x EBITDA as they work to re-invent Outback Steakhouse and Carabba’s (as Brinker has done with Chili’s, still working on Maggiano’s). Jack in the Box has their hands full with two brands. Cheesecake Factory has a handful of brands, but their fortune still revolves around “the Cake”. Dave & Buster’s made an apparently logical acquisition of Main Event, but success of the combination has yet to be demonstrated.
On the other hand, the biggest long-term winners have been single concept companies such as Wingstop, Chipotle, Domino’s, Starbucks & Texas Roadhouse (Bubba’s is too small to matter). More recent winners have been CAVA, Dutch Bros and Kura Sushi. Single concept companies are simpler for analysts, and they have most often produced the operating results. Since there are other single concept companies whose stocks have not caught fire, for one reason or another (such as BJ’s, Portillo’s, First Watch, El Poll Loco & Red Robin) running a single concept can be considered helpful but obviously not sufficient.
We conclude that corporate “simplification” will likely be a strategic focus, greatly encouraged by the creative investment bankers. At the same time, we urge multi-branded companies to engage a “star” to lead each brand within this challenging industry. Nothing less will do. Share the support functions but there is no substitute for premier leadership at the operating level. I advise my corporate friends to ensure your Company “walks” the operating “talk” to the investment community.
Roger Lipton
