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John Gordon - December 2021



Restaurants: What Will 2022 Bring?

by John A. Gordon, Principal and Founder, Pacific Management Consulting Group

New Year Sales Forecasts….

Being that time of year, all the corporations and research houses are ginning up their 2022 Forecasts. We won’t see the first peek of the public companies 2022 until the ICR Conference coming up in Orlando in January (I’ll be there as usual) but Technomic and Datassential have their forecast just out. I just beat Technomic to print by a few hours, as I had an investor call the same day they published. Here is my US sales growth (not SSS) 2022 forecast, in detail:

2022 US Restaurants Total Sales Forecast vs. 2021 Base

Component Value New Units +1.5 % Price+5.5 % Mix +5.0% Traffic -2.0% Industry Capability/Contraction  -2.0%      WEIGHTED TOTAL+8.0%

In 2022, I’m very sure 2021 will be the best base. By that point, 2019 will be too dated and 2020 will always be flawed as the Pandemic Year. Note that I have broken out a new factor, industry capability/contraction. This is what we see every day with restaurants losing staff, money left on the table, and demand not being fulfilled. This will be a key variable under our control…if we do something it will be better.  FYI, Technomic’s projected 2022 US sales increase is 10.4% on a 2019 base.<1> We both agree that price will be the major mover. It will be very interesting to watch price and traffic. Investors are still confused about what mix is and think it is a bad thing.

Restaurant Career Ladders: Missed Opportunities

The December 4 Wall Street Journal ran an article detailing how hard it was to recruit and retain assistant managers.<2> Think Your Job’s Tough--Try Being the Assistant Manager! The article detailed the exploits of two female senior hourly employees, one in an independent casual dining operation, one in a Panera franchisee unit, that were eventually promoted to store assistant manager positions through hard work and being on the spot. Their enthusiasm eroded over the years as they never learned any “managing skills” as they saw it and were just gloried hourly employees that worked any number of hours, apparently on salary. They both left restaurants as they saw too many years slipping by, and not making lateral moves either.

I don’t remember this from my many years ago years as Assistant Manager and GM. There was training, delegation, and a sense of career track at least to GM was clear. And I don’t see this problem everywhere, in every brand. But where this does happen, it tears down the whole industry.

Is a Subway Solution in the Cards?

On November 23, Dr. Peter Buck, the co-founder of Subway died. Buck, a nuclear physicist, gave a young Fred DeLuca a $1,000 loan in 1965 to open a sub shop modeled on Amato’s, the still operating New England sub shop franchisor. Subway grew units, as we all knew, too much. Buck was the 50.1% owner, and after DeLuca’s death, remained in control. There was a tie of sorts between him and Fred’s widow, who had no restaurant experience, and Subway entered a difficult period, losing thousands of stores in the US and AUVs falling.

M&A interest in the brand was present earlier; it was reported by franchisees that Fred said he wasn’t interested in selling. After his death, both the New York Post and Restaurant Business reported that Restaurant Brands conducted some due diligence but ultimately passed. After Buck’s death, New York Post reporter Josh Kosman published that any potential sale of Subway was now complicated by Buck’s escrow and that one of the Subway royalty entities had a decline of $200 million year over year. <3>

RBI has moved on and made a nice acquisition in FireHouse. YUM has 4 brands. Inspire has a sandwich brand. Could Jollibee be interested if Subway US was broken away from Subway international? In any case, the Buck heirs and DeLuca’s will want maximum value. The problem is the quality of the franchisee base and earnings potential has declined over time due to long ago missteps. This bears further watching.

About the author: John A. Gordon is a long-time restaurant industry veteran with 45 plus years in operations, corporate financial planning, and analysis and the last 20 years via his founded firm, Pacific Management Consulting Group. He works complex operations and financial analysis projects as well as strategy assessment reviews for clients. He wishes all a Merry Christmas and Happy Holidays period and can be reached throughout at 858 874-6626, email, jgordon@pacificmanagementconsultinggroup.com.

<2>  WSJ, December 4 2021.  https://wsj.com: articles : think-your-job’s rough?-try being-the assistant-manager--11638594003

<3>   Probably the US entity and referring to 2020 versus 2019.

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