MCD's Visits Decline & SBUX Repositions Its Store Base

SPEAKER_1 (0:00)

Welcome back to Next Trend Investing. It's my pleasure to welcome in our next guest. That's RJ. Hottovy. He is the Head of Analytical Research at Placer AI. And RJ., I wanna discuss some restaurant trends you guys are watching as gas prices and yields sort of dominate the macro discussion. I'm curious what your data suggests that that impact might be on these different restaurant categories.

R.J. Hottovy (0:27)

Yeah, it's really the question to be asking about the restaurant industry because we have seen something of a bifurcation taking place on the high end. Fine dining continues to be the one of the best performing categories across the restaurant space. Whereas QSR, Fast Casual and Casual Dining are a bit more mixed. We are seeing particularly that middle income consumer based on trade area, make some decisions and a lot of times shifting that restaurant purchase to maybe a value grocer, maybe it's going to a superstore like a Walmart, maybe it's a warehouse close. We've definitely seen a shift away from food, away from home to food at home. That said, there are some names in the category that are doing well. We've seen names like Cava and Chipotle and the Fast Casual site continue to do well. Most of the coffee players are holding up okay. That's a one trade off consumers are not going to make right now.

It's been an interesting time and it has been, I think, a challenging year for most restaurant companies, but there are some stories here that are worth following.

SPEAKER_1 (1:19)

One of the things that we watched happen in the last several years is price pressures really ratcheted up sort of the quick service and vast casual prices on the menu, maybe quicker than they did at maybe the Chili's and the Applebee's of the world, the Olive Garden's. It was almost like the Chipotle's and the Cava's got kind of lost in their price. They were almost the same price in some ways as a trip to maybe one of those little bit slightly elevated experiences. And we saw the companies like Chili's, for example, start to take advantage of that. Have we started to see quick service restaurants separate themselves again where they're kind of positioned as that value option? Or is it tough as their input costs remain elevated? And of course, you know, maybe filling up the gas tank makes going to the drive-through a little bit less attractive.

R.J. Hottovy (2:12)

Yeah, I think it's more the latter. We've certainly seen pressure under the quick service space the last several months and it does line up pretty nicely with the elevated gas prices. So there are some indications that lower middle income consumer may be sacrificing that quick service restaurant visit. And you point out exactly right, too, that input costs, labor, food, a lot of this is weighing on the overall restaurant sector and they've had to raise prices. And I think that psychologically that has an impact on the average consumer of those chains. So I think that is something we've seen that that restaurant consumer, that patron is going elsewhere. Now we did see a little bit of a recovery in August. A lot of the QSR names got more promotional or more deals, but there is a pretty clear linkage that gas prices have impacted the overall QSR sector and visitations in that category.

SPEAKER_1 (2:57)

Let's talk a couple of names in particular. McDonald's has been, from a stock price performance standpoint, really struggling. Does the data and the trends you're watching with McDonald's align with that move in the sense that they're truly struggling fundamentally, or is there potential opportunities there?

R.J. Hottovy (3:15)

Our data suggests that they have been seeing same store visit declines for the past several months. Some of that at the early part was lapping at successful promotion a year ago. But we generally have seen through much of the summer that visitation trends have been down year over year. I do think a lot of that is increased competition with other food retail channels. I think that's where we're starting to see substitution.

McDonald's consumers may be sacrificing that trip and going to an Aldi or a Trader Joe's, or one of the other value formats that are out there. I think that has been a critical area that the companies focus on. Now, that's said with their next plan, focused on remodels and AI technology and increased emphasis on chicken. These could be positives. I do think that they potentially set up a catalyst, but that's probably a little bit more elongated is when you take time to implement these things. That's probably more of a 2027 catalyst.