NOTE: All of the data used in this article is available to the public in mandatory annual reports which can be accessed at http://www.sec.gov/ free of charge. The data used was taken from audited year end financial statements. This article is NOT aimed at predicting the stock prices for any of the companies mentioned. In fact, the stock prices are not relevant to the discussion.
Base Year Most people will remember the year 2008 as a very poor year from an economic standpoint. By year end, the stock market was in free fall and mortgage banks were struggling to remain solvent. The bad economy had a major impact on the presidential election. We are using 2008 as our base year for comparison.
Three Restaurant Companies - Four Year Record The most recent year end reports for Chipotle, Darden and McDonald's show earnings per share results have improved over the 2008 results. Chipotle has shown the greatest % increase in earnings per share with a 271% rise. McDonald's had a solid 42% gain. Darden, which has acquired several chains in recent years, had a gain of 20%.
Several factors impact the results and it is important to put the data in context. Maybe the most dominant issue is the meal service style. Americans, in reaction to the rough economic conditions, made fewer visits to full service, casual dining establishments. For those households where the dollars spent in dinner houses declined, a shift to fast casual and QSR concepts helped fuel growth.
We don't have enough information to evaluate the success of Darden's acquisition strategy. Surely, they paid less for locations acquired than they would have before the economic decline. Former competitors are now part of the Darden group of concepts. The dividend paid to shareholders has increased to $2.00. Clearly, Darden feels most comfortable operating in the dinner house segment. Rather than targeting fast concept chains, they have acquired other full service concepts.
Chipotle pays no dividend. They continue to grow along with the entire fast casual segment. Americans now are willing to pay a bit more for perceived quality. They continue to spend a large part of their meals away from home dollar in restaurants which offer low to moderate check averages.
McDonald's has seized this opportunity to capture more revenue from sales of menu items with a higher perceived quality. Patrons now have many options from the popular value menu to the higher end wraps, angus burgers, and the improved cafe and smoothie drinks. While on vacation in the Canadian Maritimes, my daughter ordered a McLobster - a very good lobster roll.
All restaurant companies are wrestling with the options to determine the best strategy for employee health care insurance. Our industry has always relied on large pools of part-time workers earning entry-level wages. I'm sure many independent owners will look for answers by following the lead set by major chains. It will be interesting to observe how well each of these 3 companies handle the changes ahead of us with regard to labor costs.
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