The Habit Burger Grill is exploring value-based menu offerings as it works to bolster sales, which for the first time in 54 consecutive quarters slipped into the negative comparisons, the company said Wednesday.
For the third quarter ended Sept. 26, Habit’s net income fell 48.4 percent to $397,000, or $0.02 a share, from $769,000, or $0.0 4 a share, in the same period last year. Revenue was up 17.7 percent to $84.6 million from $71.9 million in the prior-year quarter.
Shares of Irvine, Calif.-based parent The Habit Restaurants Inc. plummeted on the news, down more than 25 percent in midday trading Thursday.
Russ Bendel, Habit’s president and CEO, said the brand is being squeezed by promotional activity from quick-service restaurants on one side and casual dining on the other in a generally “challenging” restaurant market.
Historically, Bendel said, “We have taken about 25 percent of our customers from traditional QSR and about 30 percent of our customers … have come from the lower price points of casual dining.”
But with both segments offering value promotions, Bendel said Habit was unable to maintain its more than 13-year streak of positive same-stores sales in the third quarter ended Sept. 26.
“We did not achieve a 55th consecutive quarter of positive comparable restaurant sales, falling just shy at a decrease of 0.2 percent for the quarter,” he said. That 0.2 percent decline at company-operated restaurants include a 1 percent decrease in transactions partially offset by a 0.8 percent increase in average transaction amount, the company said.
“We feel confident in our ability to navigate this choppy restaurant operating environment, which is focusing heavily on discounted price promotions,” Bendel added. “Some of the areas we are exploring include bringing new value offerings to the menu without discounting our core products of our brand.”
Bendel said the promotional activity, which began in January 2015, has accelerated.
“We're seeing as many or more QSR players battling up very aggressive offers mostly focused around combo meals underneath the $5 price point,” he said. “In addition to that, casual dining — that bar-grill category of casual dining or the lower price points of casual dining — has even further accelerated their use of electronic media and have some very compelling offers out there that are that have affected our traffic.”
He said Habit is using broadcast radio media in select markets, revisiting its rate of new store growth and continuing to increase the number of drive-thru locations.
While drive-thru restaurants cost more to build, Bendel said, their returns tend to be higher than in those restaurants without drive-thrus.
“This year about 30 percent of our sites were drive-thrus,” Bendel said. “Next year, 50 percent we believe will be drive-thrus and we'd like to increase the pace slightly going forward.” In the future, he estimated half of Habit’s stores would include drive-thrus.
Also, to build off-premise dining, Habit will be launching its ninth food truck in year’s final quarter.
“We believe these are great vehicles for brand awareness as well as catering and are excited to have our 10th truck in production for Northern California,” he said.
Habit, which was founded in Santa Barbara, Calif., in 1969, has more than 195 restaurants in 11 states.
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