Borrowing from McDonald's playbook, challengers win for now
This hasn’t been McDonald’s best year. The Oak Brook, Illinois-based burger giant reported disappointing same-store sales growth in the second quarter, and then in July those sales declined in every major part of the world except for Latin America.
That included a 0.1 percent decline in the United States. It was the company’s worst global performance since 2003.
McDonald’s has blamed most of the results on the sluggish economy, but that answer is too simplistic: Other quick-service restaurants reported sales growth, usually better than analysts expected. Competition may finally be eating at McDonald’s big lead in the QSR burger race.
Much of the new threat is coming from Burger King, which is suddenly relevant again thanks to remodels and a bunch of innovative menu options.
The Miami-based chain reported 4.4 percent comparable store sales growth in the second quarter, and its biggest franchisee, Syracuse, New York-based Carrols Restaurant Group, reported 8.8 percent growth.
There is a finite amount of restaurant sales, and when one grows another must struggle. For years, McDonald’s was able to lap its rivals because it remodeled stores and added new products while other chains were too busy fighting franchisees and discounting.
Now those rivals, including Burger King and Wendy’s, are taking pages out of the Golden Arches’ playbook, and it’s having an effect on McDonald’s sales.
Whether these sales trends last remains to be seen, but for now, at least, the challengers have the upper hand.
Burden shifts to new CEO at Quiznos
Quiznos decided to change CEOs, after all. In July, the Denver-based sub chain tapped Stuart Mathis, former CEO at San Diego-based UPS Stores, to replace Greg MacDonald. Quiznos also named former Red Robin Chief Marketing Officer Susan Lintonsmith to be the CMO.
We figured MacDonald was on a short leash the day Avenue Capital took control of the controversial sub chain back in January, and then named former Church’s and Friendly’s CEO Harsha Agadi to be its chairman. The company needs to increase royalties and food sales so it can pay off the $600 million in debt it still has, and so franchisees stop closing—the chain was down to fewer than 2,400 stores in the United States in December, down from 2,772 the year before and from nearly 5,000 at its peak in 2006.
Franchisees had been pushing for management changes, and thus applauded the move. But now the pressure to perform that was on MacDonald has been transferred to Mathis.
No go for CKE’s IPO
CKE’s quick march back to Wall Street has been put off. The Carpinteria, California-based owner of Hardee’s and Carl’s Jr. filed to go public in May, just two years after Apollo Management took the company private for just under $700 million.
CKE was all set to go public on August 10. But on the night before, the company called the IPO off, blaming “market conditions” for the decision.
The likely culprit: too many restaurant IPOs. CKE’s offering was to come at the end of a string, including one by Outback Steakhouse owner Bloomin’ Brands earlier that week. CKE ultimately decided it would be better off waiting.
Chicken prices clip Buffalo Wild
Chicken wing prices are stinging Buffalo Wild Wings again. A year ago, the Minneapolis-based chain of chicken-wing restaurants paid $1.16 a pound for wings. Now the company is paying nearly $2, and it doesn’t see an end in sight.
Such is life for a company that relies heavily on a single product. Bone-in wings represent 20 percent of the company’s sales, so a 70-percent hike in the cost of them is a big deal. Wings are rising in cost largely because of cuts in production by farmers following the previous year’s lows, and because of high feed costs.
Ruby’s boss won’t go empty-handed
Sandy Beall will get a lot more than a gold watch when he retires from Ruby Tuesday later this year. Beall, who founded the Maryville, Tennessee-based chain 40 years ago, said in June he plans to step down. When his company ultimately finds his replacement, Beall will get a “severance payment” equal to two years salary, or $2.2 million. He’ll also be eligible for his CEO bonus this year and next year.
Beall receives his payment assuming he stays as CEO through the end of November and doesn’t voluntarily leave the company. Ruby Tuesday, which has struggled with weak sales for years, has yet to name Beall’s replacement. But it did name two new people to the board: Einstein Noah Restaurant Group CEO Jeff O’Neill and former P.F. Chang’s CEO Lane Cardwell.