If hindsight is 20/20, here’s how we did on last year’s picks
Some execs we chose to watch last year indeed made the news, but for different reasons than we thought. Some brands we predicted would soar did just that—one because of Doritos and another because of people’s dirty laundry.
We put our prognostication skills to the test every January with our 20 to Watch list, and every year we do OK. We get some right, we get some wrong, and a few we wonder what on earth we were thinking.
But last year, our 20 to Watch list turned out to be prophetic—even if the companies, people and trends we said we’d watch didn’t quite turn out the way we thought they would.
Consider this: Last year, we named Jim Greco to our list. The former Bruegger’s CEO had taken the top job at the pizza chain Sbarro, just emerging from bankruptcy. We felt Greco had a real shot to turn Sbarro around, given the way he turned around Bruegger’s.
Alas, Greco and Sbarro did make news, but only because Greco left Sbarro in March, after 14 months on the job, proving that restaurant executives frequently operate within short time frames.
In addition, the year proved to be interesting for Famous Dave’s and its CEO, John Gilbert. The Minneapolis-based barbecue chain struggled with weak sales last year, but its stock price more than doubled thanks to the presence of activist investors from Blue Clay Capital, a Minneapolis hedge fund. By the end of November, Famous Dave’s reached a deal with the fund, putting Blue Clay Managing Director Adam Wright on the company’s board of directors.
Another company we watched was Yum Brands in China, amid some concerns about the economy in that country, and the Louisville-based chain’s over-reliance on its Chinese operations for profits. That issue came into full effect in 2013, when a scare over the use of antibiotics in chicken, followed by another batch of Bird Flu, resulted in a steep decline in sales for Yum’s moneymaking KFC China division. Those sales still have not recovered, but investors, at least, seem to believe that they will.
Speaking of Yum Brands, we also paid close attention to its Taco Bell brand, which had another strong year in 2013, thanks to its introduction of Doritos Locos Tacos. Taco Bell has sold more than $1 billion worth of the tacos, and its Cantina Bell menu has also brought in customers looking for higher-end Mexican meals. Now the chain is looking to get into breakfast, and it’s increasing its franchising efforts as it seeks to make inroads into lower-population markets.
We also hit a home run by saying operators faced uncertain times in 2013. (OK, maybe that’s pitching to our own batter.) Times were uncertain. Winter sales were weak. They recovered in the spring, but then fell again in the summer as consumers still were recovering from a de-facto tax increase in January, when Congress eliminated the 2 percent payroll tax break they’d enjoyed for two years. That uncertainty continued into fall, but now appears to have been replaced by more confidence in the recovery.
Healthcare turned out to be a major issue in 2013. Companies began preparing for the Affordable Care Act, although the government gave them a one-year break from possible penalties. The act in particular affects the restaurant industry, which employs a large number of lower-paid workers. But as the year went on, the industry’s fear of Obamacare has subsided, even if many franchise owners strongly dislike the act. Incidentally, the act hasn’t stopped them from hiring: Restaurants, and franchises, have been among the leaders in private-sector hiring all year long.
The act did provide a boon to healthcare franchises, however, which continued to grow and increase in number throughout 2013.
We did quite well with a couple of other prognostications. We noted that Greg Flynn’s Apple American Group was poised to become the largest restaurant franchisee in the country. It did, and became the first U.S. restaurant franchisee to surpass the $1 billion mark.
We predicted that aging concepts would continue remodeling and rebranding and refranchising, and they did. The most notable examples have been Wendy’s and Burger King, each of which sold off units to franchisees and then pushed dramatic remodeling of their store bases.
Likewise, franchise expos continued their comeback from a brutal recession. Despite the presence of social media, like Facebook and Twitter, as well as video conferencing, expos again proved that face-to-face meetings remain vital in the franchise sales business.
A few companies we decided to watch proved to do fine. Massage Envy, coming off of its acquisition by Roark Capital, has continued to perform well under the Atlanta-based private equity group. Just last month the company inked its 1,200th franchise deal. Tide Dry Cleaners, an emerging 24-hour dry cleaning brand owned by Procter & Gamble, has continued to add locations and sign new franchisees. And Sylvan Learning’s move into mobile learning has been on the leading edge of a trend toward the use of mobile technology to make franchises more flexible and portable.
And celebrity endorsements in the franchise sector continued unabated. In November, Gene Simmons spoke at our Restaurant Finance & Development Conference in part about his Rock & Brews concept. And several franchises lured celebrities to become franchisees in 2013.
Wingstop, meanwhile, continued to grow in 2013 under CEO Charlie Morrison, despite record chicken-wing prices last January and February. The chain added new units and grew traffic this year. It has had 10 straight years of same-store sales growth.
But not all of last year’s 20 to Watch list proved prophetic. We feared a bacon shortage last year, and in the end that didn’t quite come to pass. There were no bacon riots in 2013 and, though prices increased, from our viewpoint bacon was still a common item on restaurant menus.
Thank god we were wrong on that one.