El Pollo Loco hopes to revive traffic with new menu items. / Photo courtesy of El Pollo Loco
The first three months of 2023 were a decidedly mixed experience for public restaurant companies and suppliers. Many noted that inflation had eased faster than expected, but the companies were split on whether that was a positive or negative. At least one cited evidence of customers starting to trade down, despite the moderation in pricing.
One discernible trend was an intensified effort to turn customers’ heads with new menu items, and limited-time promotional products in particular.
Here’s a roundup of what was reported for the January-through-March period by several smaller-cap operations and a few companies that support them.
El Pollo Loco: “Damn that rain”
The grilled-chicken chain eked out an 0.8% systemwide gain in same-store sales during the first quarter, blaming the sluggishness on the torrential rains that hit California during the period.
CEO Laurance Roberts said the bad weather likely shaved comp sales by 2 to 4 percentage points. He contended that the chain is particularly vulnerable to rainy-day downturns because of its clientele’s dependence on outdoor work like roofing, painting houses or landscaping. When it rains, they don’t work, so they’re not likely to pop in for lunch, Roberts said.
“On a rainy day, we’ll see somewhere around a 6- to 8-percentage-points drop in sales relative to a non-rainy day,” the CEO said. “We don’t look at cold days versus warm days. It’s strictly rain days versus non-rain days.”
Officials noted that franchise stores were particularly stung by dropping traffic, with their comps dipping 1% while company units generated a 3.8% increase. The corporate stores benefitted from a 6.2% rise in check averages, which countered a 2.4% slide in guest counts.
Roberts revealed that El Pollo Loco is testing a number of possible menu additions, from snacks to stuffed quesadillas, beverages and hardshell tacos. A new and potentially easier-to-navigate menu board is also being tried.
The brand is also continuing to assess whether it should permanently add beef items.
Chuy’s: 8% comp gain on a 6.2% traffic rise
Guest counts at the Chuy’s Tex-Mex casual-dining chain rose 6.2% during the first quarter in large part because of limited-time product promotions, according to executives. The items included veggie enchiladas and a taco made with Hatch peppers, all part of what the 99-unit chain markets as an ever-changing Chuy’s Knock Out menu.
The Q2 version, featuring grilled-grouper tacos and chicken enchiladas spiced with a creamy green chili sauce, is already in stores. The Q1 iteration generated about 2. 5% of sales, lifting systemwide same-store sales by 8%, chain officials said.
One Group Hospitality: Sales growth slows amid some trading down
Same-store sales growth slowed to 1.6% in the first quarter across the diversified company’s portfolio, which includes the upscale steak brand STK and the polished casual Kona Grill seafood operation. Executives harped instead on the gains they made in boosting margins. Restaurant-level operating profits topped 22.1% of sales for STK and 8.1% for Kona.
The officials acknowledged that Kona’s customers seem to be trading down on weeknights. “You do see a shift, not to less items, but perhaps people going more to what we call lighter fare,” said One Group CEO Manny Hilario. “We did see a little bit of people changing from maybe main entrees to sandwiches and other stuff.”
At STK, in contrast, the chain ran out of Wagyu beef before a limited-time promotion of the pricey option had concluded.
Weekend business remains robust for both brands, Hilario said. Indeed, the company’s top sales priority is capturing the full potential of the 6:30 to 8:30 stretches of Friday and Saturday night.
Sysco: Inflation is easing, but so is traffic
Despite a traffic slowdown for its U.S. restaurant customers during March, Sysco Corp. finished its third quarter with a 6.1% increase in case shipments, which inflation translated into a 10.4% domestic sales gain, the distribution giant said.
The company confirmed what many restaurant companies noted in posting their first quarter results: Food inflation eased much faster than expected during the period, a development Sysco characterized as a challenge for the supplier near-term. Ditto for the traffic slowdown many of its domestic customers are reporting, executives said.
They pegged food inflation for the quarter ended April 1 at 4.1%, a marked deceleration from the 8.3% clocked during Sysco’s second quarter.
Marriott: Looks like travel’s back
The lodging giant’s first-quarter results make a strong case that domestic travel, a key business driver for restaurants, is close to where it was pre-pandemic.
North American bookings from individual leisure and business travelers topped 2019 levels for the first time since the crisis erupted, the company revealed.
Revenues from group and convention business, meanwhile, soared 26% for the markets, as did revenue per available room, or RevPAR. The average occupancy rates for Marriott properties rose by 8 percentage points during the quarter, to 66%.
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