On the Margin
ICR Jonathan Maze

Among growth chains, lots of optimism

Blog: As larger concepts struggle, growth chains take some share

Time was, not all that long ago, the “private day” at the annual ICR investors conference was the forgotten part of the three-day event. Relatively few investors attended, choosing instead to use it as a travel day.

That certainly wasn’t the case Monday, when investors crowded the room, standing three rows deep in the back, to get a look at concepts like Blaze Pizza and Bobby’s Burger Palace, the latter of which was founded by the celebrity chef Bobby Flay.

These concepts not only got investors’ attention, they presented a far rosier picture of the restaurant operating environment than many of the public companies scheduled to attend later.

First Watch, the rapidly growing breakfast-and-lunch chain, told attendees that same-store sales increased 3.7 percent in 2016, and that unit volumes were $1.35 million — although it is open only through lunch.

Punch Bowl Social, the eight-unit “eatertainment” concept,” boasted that it is ramping up growth this year, and that it is a sought-after concept by developers eager for its traffic-generating, 25,000-square-foot boxes.

The high-tech stir-fry chain Honeygrow told attendees of its 2-to-1 sales-to-investment ratio. And Blaze Pizza boasted of high unit volumes, saying that its new location in the Disney Springs shopping, dining and entertainment complex is “arguably the busiest pizza restaurant on the planet. 

“There’s a big disruption going on in the pizza space,” Blaze Pizza co-founder Rick Wetzel told attendees. “The category is stale. There are 75,000 pizzerias in the country, half are dominated by big players with factory-style conveyor belt pizzas and the other is independents with long service times and pizza by the slice.”

Three fast-casual pizza chains presented at the conference, including MOD Pizza and &pizza. All of them are the beneficiaries of major deals from investors. All of them gave a strong picture of demand for their own offerings.

The relative optimism on the first day stood in contrast to the meager reports so far from the public chains. Papa Murphy’s Holdings Inc., for instance, reported a 7.8-percent decline in same-store sales in the fourth quarter, when CEO Ken Calwell resigned.

Denny’s Corp., meanwhile, reported a slower-than-expected, 0.5-percent increase in same-store sales in the fourth quarter. Denny’s CEO John Miller warned of an environment that “will most likely remain challenged for the foreseeable future.”

To be sure, Del Frisco’s Restaurant Group Inc. reported better-than-expected, 0.8-percent same-store sales growth in the fourth quarter. And Del Taco Restaurants Inc. reported 5.5-percent growth in the fourth quarter that was notably impressive, given the relative weakness in the industry last year. 

And growth chains are naturally more optimistic than their older, more mature brethren because they’re newer, hotter and adding units more eagerly.

That said, the contrast in views between the two demonstrate that these growth chains are taking share in a restaurant industry that isn’t getting much benefit from growing demand.

That should continue, as long as investors keep pushing to hear the growth chains’ stories.

Jonathan Maze, Nation’s Restaurant News senior financial editor, does not directly own stock or interest in a restaurant company.

Contact Jonathan Maze at [email protected]

Follow him on Twitter: @jonathanmaze

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