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Is 2012 the year of the restaurant?

At last week’s ICR XChange, the largest restaurant and retail investment conference, both restaurant chain executives and securities analysts were bullish on the year ahead — so much so that Nicole Miller Regan of PiperJaffray called 2012 “The Year of the Restaurant.”

With 25 restaurant chains presenting and about 2,000 attendees, from investment bankers to private-equity or hedge funds, the ICR XChange quickly is becoming the go-to conference of the year, and one that sets the tone for the restaurant sector on Wall Street.

Held in Miami, Jan. 10-12, the conference was presented by New York-based corporate communications firm ICR Inc.

“Looking forward, we view 2012 as the beginning of a cycle we are calling, ‘The Year of the Restaurant,’ whereby we believe a series of favorable trends will create opportunity for investors to realize outperformance,” Miller Regan said in a report ahead of the conference.

In Miller Regan’s estimation, certain restaurant chains will benefit from:
• Consumers continuing to spend dollars away from home
• A more balanced supply-demand unit equation
• Ongoing investment in technology
• Supplemental sales opportunities, including licensing and retail offerings

See more of Miller Regan’s predictions; story continues below

The largest themes from restaurant executives included a return to unit growth after recession-driven stagnation, continued focus on providing value to consumers, and finding the best way to increase menu prices to offset rising costs, especially from commodities.

Smashburger, the 140-unit better-burger chain, said it will execute about a 1.5-percent price increase at some point before July, but will keep the increases slight — “a dime on drinks, some price on salads,” chief executive David Prokupek said. He noted that the chain will do everything to maintain the $4.99 signature price on its burger.

“With unemployment still so high, we don’t know where the [average] check can really go,” he said, “so we’ll focus price increases on the edges [of the menu.]”

Both Boloco, a 17-unit burrito chain in Boston, and Krispy Kreme Doughnuts, the Winston-Salem, N.C.-based, 678-unit chain in the midst of a turnaround, said growth was on the agenda for 2012 and beyond.

Boloco is planning to add six new locations, a 35-percent growth rate, mainly in the East, where chief financial officer Patrick Renna said Chipotle isn’t actively growing. The chain expects to build between three and five locations each year, and says it can grow to 50 units with current funding. To get to 150 units by 2017, Boloco would seek more equity.

At Krispy Kreme — a chain that grew quickly in the 1990s and then shuttered locations beginning in 2004 — domestic unit growth is back on the agenda for the first time in years. Looking to first improve unit-level economics through increased revenue from additional menu items and daypart options, as well as cut costs through labor efficiencies, Krispy Kreme said it is looking to hit between 400 and 500 U.S. units in five years.

Hear Jefferies & Co. equities analyst Andy Barish’s industry forecast for 2012; story continues below will be airing exclusive video interviews from the ICR XChange, including looks at Caribou Coffee, Denny’s, Smashburger and others.

Contact Sarah Lockyer at [email protected].
Follow her on Twitter: @slockyerNRN

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