Some restaurant franchises are good investments. After years of predictions, kitchen robots have finally arrived. Research study says delivery by restaurants will experience strong growth in the years ahead. The Krystal chain finds it cheaper to destroy than remodel. These stories and a whole lot more This Week in Foodservice.
Which franchises represent the best investments? Forbes commissioned FRANdata to find out. Using a five-part formula – system sustainability, system demand, value for investment, franchisor support and franchisor stability – FRANdata examined 3,300 active franchising programs covering a variety of industries. Perhaps surprisingly, at least to some people, restaurant franchises did extremely well. Restaurant companies represented 6 of the 10 top high-investment franchises and 5 of the top 10 medium-investment franchises. No restaurant franchises were in the top 10 low investment (less than $50,000) group.
Here are the restaurant companies that scored well among high investment franchises (greater than $500,000): Freddy’s Frozen Custard & Steakburgers (first overall), Culvers (second), Firehouse Subs (fourth), Steak N Shake (fifth), Panera Bread (seventh) and Zaxby’s (ninth). Restaurants were also well represented in medium-investment franchises ($150,000 to $500,000): Marco’s Pizza (fifth), Jimmy John’s (seventh), Tropical Smoothie Café (eighth), Domino’s Pizza (ninth), and Penn Station Subs (tenth).
Unfortunately, restaurants were also well presented among the worst franchises. In the high-investment group, God Father’s Pizza topped the list, making it the worst investment choice in this demographic. It was followed by Gatti’s Pizza, Z Pizza, Baja Fresh, and Chili’s. Ranking as the worst among medium-investment franchises were Blimpie, Steak Escape, Taco Del Mar, Quizno’s, Red Mango, Chee Burger Chee Burger, and Great Steak. Only one restaurant company fell into the worst low-investment group but it was number one: Donut Connection.
It is important to keep in mind that this is a formula. Change the formula and the rankings can change significantly.
Economic News This Week
- Initial-jobless claims totaled 218,000, a decline of 3,000 for the week ending June 16. The 4-week moving average totaled 221,000, a decline of 4,000.
- May existing home sales declined 0.4 percent to a seasonally adjusted rate of 5.43 million. Home sales have fallen 3 consecutive months on a year-over-year basis and are 3.0 percent less than a year ago for the first 5 months of 2018. A spokesman for the National Association of Realtors expressed surprise that existing home sales were not more robust given the overall health of the economy but did say the low number of houses on the market was a factor and rising interest rates were negatively impacting first-time buyers.
- May privately owned housing starts increased 5.0 percent compared to April on a seasonally adjusted annual rate. Starts were up 20 percent compared to May 2017. Housing starts for single-family homes rose 3.9 percent from April. Building permits issued for privately owned housing units dropped 4.6 percent in May vs. April on a seasonally adjusted annual basis but increased 8.0 percent over May last year. Single-family permits issued fell 2.2 percent from April.
- The Conference Board’s Leading Economic Index rose 0.2 percent in May after rising 0.4 percent in April and 0.4 percent in March. A Conference Board spokesperson said the increase indicates continuing economic growth but that it is unlikely growth will accelerate.
- The Philadelphia Federal Reserve’s June Manufacturing Business Outlook Survey showed continued growth but at a significantly slower rate than in previous months. The Index fell to 19.9 in June from 34.4 in May. (Any level greater than zero indicates increasing activity.) The New Orders Index fell sharply to 17.9 in June from 40.6 in May. The Shipments Index rose to 28.7 in June from 25.8 May. The Unfilled Orders Index was negative at minus 2.7. The Number of Employees Index was virtually unchanged at 30.2 vs. 30.4 while the Average Employee Work Week Index retreated from 34.4 but stayed well positive at 24.2.
Foodservice News This Week
- The robots are coming! Correction: they’re here. A front-page story in the Wall Street Journal reports that CaliBurger is installing Flipppy, an automated burger flipping and grill cleaning machine. Wendy’s uses highly automated dishwashers and self-cleaning ovens. Arby’s uses ovens that automatically transition to a holding cabinets after cooking. And, a group of chains is installing self-ordering kiosks to eliminate cashiers. Accelerating the trend is one of the tightest labor markets a lot of operators have ever experienced. The Labor Department said the hospitality industry had 844,000 jobs in April.
- Chowbotics received $11 million in funding led by Foundry Group and Techstars. Foundry Group’s past investments include Fitbit, Makerbot, FormLabs, Sphero, and Occipital. Techstars has invested in more than 1,400 companies including Twilio, Uber, SendGrid, Digital Ocean, ClassPass, and Sphero. Chowbotics manufactures a salad-making robot.
- Restaurant food delivery could capture 10 percent of the foodservice marketby 2030. A UBS research report titled “Is the Kitchen Dead?” says this would translate to $365 billion, up from $35 billion today. The report says Millennials are three times more likely to order food for delivery. Robots and drones will drive down costs and make it cheaper to order delivery meals than it is to cook at home.
- Krystal takes a drastic approach to remodeling. The 364-unit restaurant chain plans to do tear down locations and rebuild an entirely different store from the ground up. Krystal’s CEO says the outdated design offered a big dining room but now 70 percent of chain’s business comes from the drive-thru. As a result, the chain will go to market with a smaller footprint with bright and open with kitchens designed to serve big drive-thru traffic. In the next 4 years, Krystal expects to rebuild 50 to 60 of its corporate stores and franchisees will rebuild 30 to 40 of their units.
- Meet Social Monk Asian Kitchen, The Cheesecake Factory’s new fast-casual concept. The operation will open this fall in the Thousand Oaks suburb of Los Angeles but it will not serve cheesecake. The company says the Pan-Asian restaurant will have a modern urban feel.
- Hardee’s and Carl’s Jr. to separate brands. Carl’s Jr. will retain the chain’s“West Coast cool, bold, aggressive, impossible to ignore, famous for disruptive advertising” approach while Hardee’s will remain “authentic and proud” and will stress a menu that’s “down home food done right.” Hardee’s gets a new store design featuring a patriotic small town America appearance and expects to have 10 stores redone by the end of the year.
- TGI Fridays replaced or improved half of the restaurant dining chain’s menu items. The chain has rolled out new items for 30 percent of the menu and improved 20 percent. The company expects to have revised the entire menu by the end of this year. Friday’s chief marketing officer says TGIF is stepping away from casual dining and returning to its roots as a singles bar.
- Starbucks will close 150 U.S. locations. According to an article in the Wall Street Journal, this is triple the average number of closings in past years. As reported two weeks ago, Starbucks was drawing fire from analysts for having too many stores.
- Tim Hortons has a multiyear plan to expand and modernize its Canadian distribution operation. The C$100 million investment includes the construction of two new warehouses, one in Alberta and one in British Columbia.
- Corporate Stirrings: Carlisle, owner of Wendelta, announced the purchase of the Wendco Group. Wendco owns 46 Wendy’s in Alabama and Florida. Wendelta owns and operates 150 Wendy’s restaurants in Alabama, Arkansas, Florida, Louisiana, Mississippi and Texas. Native Foods Café, a 13-unit fast-casual vegan chain has been purchased by the private equity fund of Millstone Capital Advisers.
- Growth Chains: The Japanese chain Ramen Nagi opened its first U.S. store in Palo Alto, Calif., with a second unit scheduled to open in San Jose. Dunkin’ Donuts will open 20 stores in the Chicago area this year. Dunkin’s CEO said that the chain could double the number of locations in the Western U.S. Darden will open as many as 50 restaurants this year spread among their various brands.
- Comparable Store Sales Reports: Darden (Bahama Breeze up 0.6 percent, Capital Grille up 2.6 percent, Cheddar’s Scratch Kitchen down 4.7 percent, Edie V’s up 3.6 percent, Longhorn Steakhouse up 2.4 percent, Olive Garden up 2.4 percent, Season’s 52 up 0.4 percent and Yard House up 1.4 percent.
For details and same-store sales of other chains, please click here for the Green Sheet.