Several public restaurant brands joined some of the nation’s largest companies to discuss their plans for expanding sales and unit counts at the recent Robert W. Baird & Co. 2013 Growth Stock Conference in Chicago.
Strategies varied from brand to brand, including enhanced focus on menu, marketing, guest service or international expansion.
Here's a breakdown of what some major players in the industry — Darden Restaurants Inc., Yum! Brands Inc., Dunkin’ Brands Group Inc., Buffalo Wild Wings Inc. and Chipotle Mexican Grill Inc. — revealed during the conference.
Darden: Opportunity in specialty brands
While Darden’s three flagship brands — Red Lobster, Olive Garden and LongHorn Steakhouse — would speak to the value-conscious consumer more aggressively over the next several quarters, a growing portion of the company’s sales and unit expansion would come from its Specialty Restaurant Group, said chief executive Clarence Otis.
Restaurants in that division include The Capital Grille, Bahama Breeze, Seasons 52, Eddie V’s and Yard House, which Darden acquired last July.
“We know there is a fairly significant percentage of consumers that we’re just not going to capture with any serious frequency with our three large casual-dining brands,” Otis said. “These, for the most part, are higher-end consumers and, to some degree, younger consumers. The Specialty Restaurant Group is designed to capture these consumers, and we have to do it with a multiplicity of brands, because by definition those consumer categories are small enough that you’re never going to have a 500- or 600-unit restaurant chain.”
He noted that Yard House in particular would be an important growth vehicle for Darden’s specialty portfolio, as it is a well-established concept, but with just 44 locations it still has a long runway for growth.
“Yard House actually helps both ends of that equation inside the Specialty Restaurant Group,” Otis said. “It’s mature enough that it can fund its own growth, but it does have significant unit growth ahead of it. So we felt like it was a good fit for that business, and that scale makes the Specialty Restaurant Group even more significant for Darden.”
With Yard House, the specialty portfolio produces more than $1 billion of annual sales and is growing at about 20 percent annually, Otis said. That puts the group on par with LongHorn, which rings up $1.2 billion in annual sales and grows at about 10 percent a year.
Yum: An eye on India
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For the balance of 2013, Yum! Brands Inc. would focus on shoring up its once high-flying China division, as that system recovers from negative publicity surrounding the country’s supply of chicken and fears of avian flu, both of which hurt sales at KFC, said Steve Schmitt, vice president of investor relations.
But the Louisville, Ky.-based operator or franchisor of Taco Bell, KFC and Pizza Hut has several growth stories to tell, Schmitt said, including its India division.
Yum created a separate division for India last year, envisioning the same kind of rapid growth for the China division, and while China has often been cited as the model for Yum’s expansion in India, Schmitt noted a few differences.
Major profit growth is still several quarters away for the division, as Yum focuses on unit growth and system sales growth in India, Schmitt said. Same-store sales declined 3 percent in the first quarter in India, “but that should improve significantly,” he noted.
He added that India’s first 1,000 restaurants would be spread more evenly among KFC, Pizza Hut and Taco Bell, unlike China, where KFC is by far the dominant brand, Pizza Hut is steadily growing and there are no Taco Bells.
“Because of the growth opportunity we see [in India], we don’t want to cut the growth short for any of these brands,” Schmitt said. “We love the way KFC is positioned in India, and we like how the casual-dining Pizza Hut brand is positioned but have some work to do yet on delivery. But if there’s one market where we’d bet on Taco Bell succeeding internationally, it’s India. With the form of our products, the spiciness of our food and our vegetarian offerings, we really believe we can grow four brands in India in a significant way.”
He added that the innovation on Taco Bell’s domestic menu — especially Doritos Locos Tacos — has driven much of Yum’s recent profit success in the United States.
Dunkin': Filling in 'white space'
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Canton, Mass.-based Dunkin’ Brands identified plenty of “white space” for unit growth during its presentation at the Baird Growth Stock Conference, both for Dunkin’ Donuts domestically and for Baskin-Robbins internationally.
Chief executive Nigel Travis noted that 90 percent of Dunkin’ Donuts’ unit growth is coming from existing franchisees, who are aligned with the franchisor’s plan to gradually expand contiguously from markets that they take the time to establish. He also said Dunkin’ Donuts is far from building out its core East Coast market, even as investors keep an eye toward the brand’s expansion to California slated for 2015.
“Everyone thinks about going west, but we could build 3,000 stores east of the Mississippi,” Travis said. “We could build a bunch of stores in Charlotte, N.C., or Orlando. We had another investor conference in Miami, and everyone there complained about a lack of Dunkin’ Donuts.”
The decision to move all of Dunkin’ Donuts’ advertising to national campaigns in 2010 would pave the way for all new unit growth in new domestic markets, chief financial officer Paul Carbone said. “When we open our first restaurant in California in 2015, the markets there will have seen advertising on TV for five years before there are any assets in the ground,” he said. “Compare that to Las Vegas: We opened Las Vegas in 2005, and the first time they saw ads on TV was 2010.”
Travis added that Dunkin’ Donuts could soon ramp up international growth, as the franchisor plans to streamline the international supply chain and move from “low-GDP” markets where it is more established into more mainstream markets like Germany, the United Kingdom and Russia.
“In all those other low-average-weekly-sales markets, the franchisees were very profitable even when their [revenue] numbers were low, but we didn’t get the return we needed because the royalty flows from the top line,” Travis said. “So we’re very focused on filling that white space with those high-GDP markets.”
Buffalo Wild Wings: Sales drivers in full swing
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The Minneapolis-based purveyor of wings, beer and sports currently has about 900 casual-dining restaurants in the United States and a handful of units in Canada, and the brand envisions as many as 1,700 locations in North America, chief financial officer Mary Twinem said.
But in addition to unit growth, the brand also has several sales-driving initiatives, including a new prototype, a new wing pricing structure, an upcoming signature craft beer and its “Guest Experience” business model.
Buffalo Wild Wings currently is on track to build about 60 company-owned locations and 45 franchised restaurants in 2013, which would account for a unit-growth rate between 11 percent and 12 percent, said Jeff Sorum, vice president and corporate controller.
“As we get closer to that 1,700 [store count], somewhere in the range of 1,400 to 1,500 units, that cadence will probably slow,” he said. “As you fill out those last few trade areas they’re a little more difficult to penetrate. You typically have to wait for somebody to vacate a spot.”
As domestic expansion starts to level off, Buffalo Wild Wings naturally would look toward international growth, Sorum said. “We’ve signed deals in the Middle East for Saudi Arabia and the U.A.E., and the first of those units will be opening this year,” he said. “We have three different partners in Mexico who will open units by the end of the year. And we’ve had very exciting visits to Southeast Asia: Taiwan, Vietnam, Malaysia, Singapore, South Korea, just to name a few.”
Chipotle: Focusing on marketing, menu
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Chipotle Mexican Grill detailed several plans for 2011, including a previously announced rollout of an improved margarita and the test in California of a premium tofu-based vegetarian protein called Sofritas.
The Denver-based brand of more than 1,400 restaurants also will increase its marketing this year and accentuate the fast-casual chain’s preparation and actual cooking of burrito ingredients in its stores, founder and co-chief executive Steve Ells said.
Chief financial officer Jack Hartung added that the 48 restaurants Chipotle opened in the first quarter of 2013 was the highest total of new units in a first quarter the company has ever achieved. The company’s guidance was for 165 to 180 new stores for fiscal 2013.
“We’re well on our way to having a level-opening year,” Hartung said. “That’s really important from an operations standpoint because the hiring, training and opening of new restaurants — we feel our teams can do a much better job at this pace.”
Chipotle has even more restaurants in its pipeline than its opening guidance, Hartung added, though it is too early to tell if a lack of sufficient real estate sites or people in certain trade areas limits that upside.
Ells added that the company’s fast-casual Asian restaurant ShopHouse has no shortage of quality real estate or capable managers once that single-unit concept opens more locations this year, including another outlet in the District of Columbia and two units in Los Angeles. The general managers slated to run the ShopHouse stores in California are Restaurateur-level managers at Chipotle.
“ShopHouse has a lot of potential,” Ells said. “In so many ways is exactly the same as Chipotle: the same attention to raw ingredients that we buy, attention to classical cooking techniques, preparing food in an open kitchen in front of the customer, and serving them in an interactive format to give them exactly what they want. … It’s about showing that maybe Chipotle was successful because of this new-fast-food system we invented.”
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