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12Nov2013

Wendy’s And The Trouble With QSR

BY JONATHAN MAZE

Wendy’s this morning reported that its same-store sales grew 3.2 percent, a number that easily bested reports from its primary competitors Burger King and McDonald’s and continued the Ohio-based chain’s generally positive performance of late.

But the company’s stock is down 13 percent today. Investors had been expecting more, perhaps much more—according to Sara Senatore, analyst at Bernstein Research, there were “whispered” numbers in the 5-percent range. Consensus Wall Street expectations had the company’s comps up 3.9 percent.

This is why you should keep your expectations of the QSR sector low right now.

We’ve spoken with a number of Wendy’s operators in recent days. All of them had been optimistic, because the company’s sales had been solid, thanks mostly to the company’s Pretzel Bacon Cheeseburger and the heavy marketing behind it. In addition, it’s a premium product, and franchisees love premium products—especially after they’ve spent years selling nothing but discounted products.

Yet these operators also understand the environment in which they’re working, and they know this: The market for the traditional quick-serve burger chains is surprisingly difficult at the moment, which makes a 3.2-percent comp sales increase in the QSR sector pretty good. We say “surprisingly,” because in theory that sector should be doing well. People have less money this year, and when people have less money they go looking for cheaper dining options. No sector is cheaper than QSR, at least among restaurants.

And though none of the chains have reported brutal comps along the lines of some casual dining names, these QSRs are literally flooding the market with advertisements of their various products. We recently likened the environment to “trench warfare,” where the competitors fight really hard to gain only a tiny bit of ground.

“We’re working awfully hard for it,” one Burger King franchisee told me once, speaking of his company’s own, slightly positive same-store sales growth.

Traditional QSRs have lots of issues. Primarily among them: income among lower-income diners has taken a real hit this year, after Congress returned the payroll tax to 6.2 percent, from the 4.2 percent it had been the previous two years.

Consider it this way: for a family with an income of under $50,000—which represents a large section of QSR diners—that cut removed $1,000 from their annual take-home pay. That’s $19.23 a week—or, roughly the amount of money a family of four would need to eat out at a fast food restaurant once a week.

View original article here.

  • 12 Nov, 2013
  • rbuchanan
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