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Fast Casual Executive Summit Panel Recap

RJ Hottovy
Oct 14, 2022
Fast Casual Executive Summit Panel Recap

Earlier this week, we had the opportunity to lead a panel discussion on restaurant growth strategies at the Fast Casual Executive Summit in Indianapolis. We couldn’t have asked for a better group of panelists to speak with – Dale Goss (Senior Vice President of Real Estate for Raising Cane’s Chicken Fingers), Jason Morgan (CEO of Original ChopShop), and Jami Bond (Vice President of Franchise Development for Goodcents) – as each represented brands that span a wide range of growth strategies, operating regions, and ownership discussions. Below, we’ve summarized our takeaways from the event.

  • Focus is the cornerstone of any growth strategy. Focus was a key theme throughout the discussion on growth strategies, with Goss noting that Raising Cane’s would not have been able to grow its annual average unit sales to $5.2M (well ahead of industry averages between $1.0-$1.5M) without keeping a concentrated menu that allows them to quickly and efficiently satisfy customers. To this end, we looked at trailing-twelve-month (TTM) visits (including "short visits" like takeaway and drive-thru) for some of the leading brands in the QSR space (below). Raising Cane’s leads the category with almost 172 visits per square foot over the past twelve months, ahead of Chick-fil-A (166), Sonic (163), and McDonald’s (121). In our view, Raising Cane’s focus has been a big reason behind the company being one of the fastest growing operators in the category (starting 2022 with 600 company-owned locations and plans to add another 100 in 2022).

  • Challenges of taking restaurant brands to new markets. Expanding beyond its initial market is one of the most difficult things that a restaurant operator can do, and each of the panelists emphasized the importance of a chain not spreading itself too thin as it expands into new markets. Jason Morgan noted that most restaurant operators don’t appropriately model the time it takes for a new store to mature as it enters a new market. Visitation data varies widely based on concept, category, region, and market conditions, but Placer.ai data indicates that a restaurant opened in a new market tends to see 70%-85% of the visits in its first year that a mature store in an established market sees. When asked about the right number of locations to enter a market with to not spread your brand too thin, Morgan said at least 2-4 locations.
  • Working with franchisees to develop growth strategies. Unlike Raising Cane’s and Original ChopShop, Goodcents is a largely franchised concept, which offers its own set of challenges when implementing a growth strategy. Bond discussed that while operational expertise and financial health were obviously important in building a franchised business, the day-to-day relationship with these franchisees was equally important. Goodcents has more than 80 locations opened today across the Midwest (a mid-to-high teens increase compared to pre-pandemic levels) which wouldn't be possible without strong franchisee relationships.
  • Competition for sites remains fierce. Almost every member of the panel mentioned that they are seeing increased competition for sites, which has benefitted commercial property owners (as Morgan pointed out, "The one business that wasn’t hurt by the pandemic was landlords."). When asked about their outlook for the restaurant real estate market, each panelist noted that they were looking for greater availability of real estate in 2023, but that availability was likely contingent on additional industry closures. Creativity was also a theme here, as Goss mentioned that Raising Cane’s is evaluating some of the store closures we’ve seen from CVS and Walgreens as potential sites for new locations.
  • Real estate market tips. We previously looked at the changing balance between landlord and tenants in the restaurant space, noting that rent abatement and deferred rent concessions given to operators during the pandemic have largely gone away, with many leases being negotiated at or about 2019 levels. The panel confirmed these trends, and also noted other that exclusivity clauses are becoming more prevalent and that construction delays are resulting in more lease commencement date/dead rent issues (where operators end paying rent before a new location is open).

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RJ Hottovy

Head of Analytical Research, Placer.ai

R.J. Hottovy, CFA has covered the restaurant, retail, and e-commerce sectors for nearly 20 years as an equity analyst and strategist for Morningstar, William Blair & Co., and Deutsche Bank.

R.J. also brings a wealth of experience with early-stage investments as an investment committee member for the IrishAngels / Vitalize venture capital group. Over the past three years, he has advised over 50 foodservice and foodservice tech companies on more than $200 million in early-stage capital raises and M&A transactions.

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