As employment levels rise and discretionary incomes increase, Americans are hitting the restaurant scene with greater frequency. However, the majority of people still want value prices and diverse menu choices, as well as healthier food options. The best operators in the casual dining segment stick with a consistent operating theme and build off of a niche customer base. So, which chains are leading in the current marketplace?
The Tennessee-based chain of dual-purpose outlets has been winning customers over to its old-fashioned cooking and antique-style retail stores since 1969. While total revenues have been fairly flat over the past five years, the company’s profitability has been slowly improving, due to better inventory management and small annual menu price increases. In addition, Cracker Barrel has been trying to improve efficiency to fend off the hostile actions of major shareholder Biglari Holdings, which has been trying to gain control of the company’s board for a number of years.
In FY2013, Cracker Barrel has delivered pretty solid results, with increases in revenues and operating income of 4.6% and 11.5%, respectively, versus the prior-year period. The company’s sales growth was paced by a 3.1% gain in comparable store sales, with gains in both the restaurant and retail segments. Despite a continuation of commodity cost inflation, Cracker Barrel was able to offset cost increases with slightly higher menu prices and greater productivity from its restaurant staff.
Cracker Barrel has historically positioned its restaurants on well-trafficked highways for travelers who are looking for a decent, home-cooked meal. The company has also successfully integrated its restaurant/retail combination, with its retail stores averaging $411 in sales per square foot that rivals some of the nation’s best malls. Looking ahead, Cracker Barrel will be looking to expand its store model into off-highway markets that have large traveling populations, like tourist destinations. With 12 new stores slated to open in 2013, this old-fashioned operator looks positioned for continued success.
The Florida-based restaurant chain returned to the public markets last fall after a six-year hiatus. Bloomin’ Brands is the operator of a diverse group of restaurant chains, including Outback Steakhouse, Carabba’s Italian Grill, Bonefish Grill, and Fleming’s. With 975 restaurants, though, the Australian-inspired Outback Steakhouse concept is the company’s primary focus.
In FY2012, Bloomin’ Brands reported much improved financial results, with increases in revenues and adjusted operating income of 3.8% and 20.1%, respectively, compared to the prior year. The company’s sales benefited from an additional 28 restaurants in operation, as well as rising comparable store sales across its restaurant concepts. Bloomin’ Brands’ Outback and Carabba units also gained from expanded hours into the busy weekday lunch timeslots.
Even after 25 years, customers continue to gravitate toward Outback’s steaks, appetizers, and Australian theme. However, management has wisely diversified into other concepts, just in case fickle customers decide to change their love for a beef-heavy menu. Based on current expectations, though, Bloomin’ Brands is expecting a further 5% increase in sales in 2013 as the company opens an additional 45 to 55 restaurants system-wide. This diversified operator looks ready for the future.
Buffalo Wild Wings
Founded in 1982 on Ohio State University’s campus, Buffalo Wild Wings has taken chicken wings to the next level, with almost 900 restaurants in the U.S. and Canada. The company’s goal is to create a neighborhood gathering spot for watching television events with an open layout, full bar, and a phalanx of flat screen TVs. Buffalo Wild Wings has also tied itself closely to the nation’s sports leagues, including its recent licensing deal with the NCAA for exclusive marketing tied to March Madness.
In FY2012, Buffalo Wild Wings continued its solid revenue growth, although its profitability was somewhat hamstrung by a 63% rise in the average price of chicken wings. For the year, the company reported increases in revenues and operating income of 34.4% and 13.5%, respectively, versus the prior year. Buffalo Wild Wings’ restaurants remained as popular as ever, with a strong 6.6% increase in comparable store sales. Looking ahead, management is forecasting another year of growth in 2013 as the company opens 100 additional restaurants on its way to an eventual target of 1,700 domestic stores.
The bottom line
With thousands of casual dining options to choose from, diners generally choose establishments with great customer service and a theme that they can resonate with. These three chains have built loyal followings to their value-priced menus over the past decade and belong on every investor’s watchlist.
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