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Speaker 3: Let's take another look at consumer products, but look at
Speaker 3: it at the lens of restaurants and restaurant valuations, kind
Speaker 3: of the haves and have nots. Michael Hanlin, Bloomberg Intelligence
Speaker 3: Senior restaurant and food service analyst, joins us now fresh
Speaker 3: out of a recent report. So I asked Diana this
Speaker 3: this like, who's the winner in the consumer staples? And
Speaker 3: she was like ooh, And it took her a while
Speaker 3: to get there because it's really rough.
Speaker 4: Same question to you. Who are the winners in the
Speaker 4: restaurant biz.
Speaker 5: Two of the names that we really like this year
Speaker 5: at Cracker Barrel and Shake Shack.
Speaker 1: They Crackerbail.
Speaker 4: I still got to go many the goals.
Speaker 1: They hired new CEOs last year.
Speaker 5: They're really focusing on improving the operations first and then
Speaker 5: the marketing there, and so we're really excited about some
Speaker 5: of the changes and some of the early results. You know,
Speaker 5: both of them we expect to outperform pretty significantly on
Speaker 5: the top line this year.
Speaker 1: Well, the cracker barrel.
Speaker 5: I mean, I know my way around a cracker bar
Speaker 5: I know where every little nud nick is in every store.
Speaker 1: Every store is the same. And then of course the
Speaker 1: same order the Country Boy breakfast.
Speaker 4: But what'sn't that am It's not like.
Speaker 5: The country Boy breakfast with the country ham, Okay, and
Speaker 5: you get biscuits and gravy.
Speaker 1: It's a whole thing.
Speaker 4: It's a whole thing.
Speaker 1: It's a whole thing. Unbuttoned yourself and sit right down. Yeah,
Speaker 1: what are they changing here? What is it? Because that's
Speaker 1: kind of what they are. It seems like their DNA
Speaker 1: is kind of that type of stuff.
Speaker 2: Yeah.
Speaker 5: So so one of the first things they did was
Speaker 5: focus their menu, right. There was a lot of items
Speaker 5: on there that were not selling very good and also
Speaker 5: bogging down the kitchen. That has made the experience better
Speaker 5: for the employees.
Speaker 1: Employee turnover has plummeted.
Speaker 5: It was down, you know, high teens year over year
Speaker 5: in the last quarter. So that saves them a lot
Speaker 5: of money on training and things of that nature provid
Speaker 5: you know, as the longer your employees stay, obviously, the
Speaker 5: better experience your customers get and then people come back.
Speaker 5: They're also touching up the stores. They're going to remodel
Speaker 5: the stores. Lighting and paint are some are some of
Speaker 5: the things that they're going to do across all the stores.
Speaker 1: Some of the stores need more work. They'll do the
Speaker 1: floors as well.
Speaker 5: That's something they're starting to do. And then they're ramping
Speaker 5: up the marketing. So now that the operations are running well,
Speaker 5: they're doing more social media marketing TikTok.
Speaker 1: There.
Speaker 5: They they just had their first NASCAR race and the
Speaker 5: Cracker Barrow four hundred down in Tennessee, right Crystal, And
Speaker 5: they're advertising on live sports as well as Bravo.
Speaker 1: There's huge overlap.
Speaker 5: Between casual dining fans and Bravo watchers and so yes,
Speaker 5: I did not see that coming.
Speaker 3: So on the other hand, what are some of the
Speaker 3: companies that aren't doing so well?
Speaker 5: Oh yeah, so, you know some of the legacy casual
Speaker 5: dining brands. Casual dining in general is having somewhat of
Speaker 5: a renaissance. This year's casual Chili's is the one they've
Speaker 5: Chilies is rocking it absolutely, and Applebee's is not. So
Speaker 5: you got you got your preferences confused right now? Backwards,
Speaker 5: I'd say, so, yeah, dining brands which owns Applebee's and Ihop.
Speaker 5: They're having a real, real hard time resonating with younger
Speaker 5: consumers and haven't been able to bring those consumers into
Speaker 5: the brand. They also have a large number of low
Speaker 5: income consumers that visit those brands, and so that's really
Speaker 5: hurting their hurting their results. And then blooming brands out
Speaker 5: back steakhouses their biggest change. They've they've same type of situation.
Speaker 5: They've struggled to bring in younger consumers into the brands,
Speaker 5: and their pricing.
Speaker 1: Got way ahead of itself.
Speaker 5: So if you compare them to Texas Roadhouse, it's a
Speaker 5: way more expensive experience and yet maybe not a better product,
Speaker 5: not a better experience for the consumer, definitely not better service.
Speaker 5: Your coverage is a great reflection of the consumer.
Speaker 1: What are your takeaways? How is the consumer out there?
Speaker 1: What are the restaurants telling you?
Speaker 5: They're doing all right? They're doing all right. Last year
Speaker 5: was a restaurant session. This year results are better and
Speaker 5: we expect them to get better in the second half.
Speaker 5: You know, first quarter there was some consternation, but it
Speaker 5: was a lot of bad weather. There's a bad flu season.
Speaker 5: There was some pullback by low and middle income consumers
Speaker 5: in March, but they seem to have rebound. Results have
Speaker 5: been pretty strong thus far, and the economic indicators that
Speaker 5: we watch are starting to get a little bit better.
Speaker 4: So unvalued appropriately for the conditions right now.
Speaker 5: Well, you know me personally, I don't look at historical
Speaker 5: valuations because the market cycles change so much.
Speaker 1: I'm looking at it on a.
Speaker 5: Relative basis, right, and so to what relative to the
Speaker 5: peer group? Okay, yeah, and so I seem and so
Speaker 5: it depends on the name, right, It definitely depends on
Speaker 5: the name. But you know, I think restaurants are set
Speaker 5: up for a nice strong second half. We also have
Speaker 5: are going to have that tailwind of tax cuts, and
Speaker 5: so I think just getting that, having that be the
Speaker 5: narrative versus tariffs and war and whatever else, I think
Speaker 5: it's going to help shift consumer sentiment and spending.
Speaker 1: Just the quick service restaurants, which otherwise is fast food.
Speaker 1: How are they doing?
Speaker 5: Fast food is struggling? Number one, they're lapping harder comparisons
Speaker 5: from last year. Number two, they have more exposure to
Speaker 5: low income consumers, which continue to be hurt by the
Speaker 5: inflation that we've seen, right.
Speaker 1: And number three, they've overbuilt.
Speaker 5: So since since the pandemic, full service chains, casual dying
Speaker 5: chains kind of pulled back on their development.
Speaker 1: They closed stores. Fast food has.
Speaker 5: Just been full steam ahead of opening stores, so supplying
Speaker 5: demand has gotten out of whack.
Speaker 4: All right, Michael, thanks a lot. Really appreciate really good stuff.
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