This Week on The Street

by Steven Josovitz

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This Week on The Street

Atlanta Restaurant Real Estate

This Week on The Street  (A more or less regular compilation of news, factoids and observations.

September 11, 2014

by Harold V. Shumacher

The recent death of Chick Fil A founder Truett Cathy provides several lessons about the foodservice industry. First, his rags to riches tale is not an unusual one in this industry. More often than not, people who’ve had similar success started from scratch, had tough challenges as kids and adults and, yet, managed to overcome.

Why? A lot of it can be attributed to innate desire and talent but we’d also contend that the foodservice industry is still among the most egalitarian in the country. The barriers to entry are not as steep as in manufacturing or construction. You have a broad base of customers-or as my Israeli uncle once said “this is a good business, people always have to eat.” Finally, it’s constantly evolving and customers are always looking for the next great product.

Chick Fil A’s success also speaks volumes to the changing patterns of consumers. In the go-go 1990’s and through the mid 2000’s growth chased rooftops. Grocery anchored and power centers cropped up throughout suburban America each with a number of outparcel opportunities. Soon every suburb across America had the mandatory, or so it seemed, Longhorn, Red Lobster, Chili’s, Olive Garden, etc. etc.

Today these concepts are known as legacy restaurants and, as a category, are showing slow growth and flat sales surpassed by fast casual eateries like Panera, Chipotle, bagel concepts, sandwich concepts etc.

Quietly lurking in the background-Chick Fil A. Consider this, Chick Fil A, now sells more chicken than any competitor in the country and still has stores in about half the states. The company has reached $5 billion in sales and anticipates doubling that number by 2030. Average store volumes are at or above $4 mm, in six days, with no alcohol sales, easily surpassing many of these so called legacy operations.

That doesn’t bode well if you’re in the casual dining category as smaller, more nimble, and frankly more interesting restaurants continue to grow at near record pace. Don’t be surprised to see a continuing downsizing of these type restaurants.

Finally, Mr. Cathy proved that you can run a company based on moral principles, provided you had business acumen. Whether you agree with he, and his family doesn’t really matter as millions and millions of customers appreciated his approach to life. His presence will be missed in Atlanta but the company should continue to perform well.

If you need further proof of this phenomenon a

new study conducted by New York-based brand and customer loyalty and engagement consultancy, Brand Keys (brandkeys.com) has shown that demographics and associated core values of generational cohorts explain critical factors initiating failure of fast food brands to increase same-store sales and profits and driving the success (and concomitant increase in visitation – and profits) of fast-casual brands.

The 3,000-consumer study examined attitudes and behaviors of 1,000 consumers in each of three generational cohorts – Baby Boomers, Gen X, and Millennials – regarding fast food and fast-casual restaurants. The sample was drawn and balanced from the 9 U.S. Census regions and examined major National brands.

If you have any doubts as regards the difficulties fast food brands have been having over the recent couple of years, you only have to look at recently reported same-store sales of the big guys, McDonald’s, Burger King, and Taco Bell, to see the shift that’s taking place. The declines reported by the big three correlate very highly with the downward loyalty shifts reported in the January 2014 Customer Loyalty Engagement Index, with fast food brands losing loyalty. And as loyalty is a leading-indicator of profitability, it isn’t surprising that fast food visitation and associated profitability is down too.

Recent Transactions for The Shumacher Group, Inc. include

 

Sale of Bruster’s, Due West Road, Marietta

▪                Lease for Figo, Marietta Street, Atlanta

▪                Lease for Verizon, Mall of GA, Peachtree Corners, Peachtree City

▪                Sale of Crossroads, Dallas

Sale of Dominick’s, Roswell

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