Restaurants
Pre-IPO Black Book (FWRG)
We will be presenting our pre-IPO Black Book on First Watch on Monday, September 27, at 12:30 PM ET.
First Watch Restaurant Group Inc. (FWRG) said it plans to raise $175 million by offering 9.5 million shares at a price range of $17 to $20. First Watch is a daytime restaurant concept serving made-to-order breakfast, brunch, and lunch using fresh ingredients. The original First Watch opened in 1983 in Pacific Grove, California. Founder John Sullivan and his colleague Kenneth L. Pendery, Jr. set out to create a place of their own based upon their shared vision of what a neighborhood cafe should be. Long before "farm to table" became a culinary mantra, First Watch incorporated fresh, quality ingredients into elevated executions of classic dishes.
First Watch Restaurant Group would command a fully diluted market value of $1.1 billion at the midpoint of the proposed range. First Watch is a daytime restaurant concept that serves made-to-order breakfast, brunch, and lunch. As of June 2021, it had 423 restaurants across 28 states, 335 of which were company-owned and 88 operated by its franchisees. In the FY20 and the 1H21, it opened 42 and 18 system-wide restaurants, respectively, and it recorded same-restaurant sales growth of 16% in the 2Q21. First Watch Restaurant Group had $490 million in revenue for the 12 months ended June 30, 2021. It plans to list on the Nasdaq under the symbol FWRG.
Square error (TOST)
Square had issues with its system on Saturday morning. Tipped employees at coffee shops, restaurants, and other small shop workers lost out on tips due to the issues. The tipping screen disappeared for some while for others, and the whole system became unresponsive. Many reported the issues lasted for a few hours. They also reported that customer service was unresponsive. Square said, "For about three hours on Saturday, September 18, our systems experienced an issue that prevented some sellers from being able to sign into their accounts to accept tips." Toast sales teams will be sure to contrast their customer service with Square's customers. We hosted a pre-IPO Black Book on Toast detailing the competitive landscape and Toast's advantages in the restaurant industry.
Subway menu reset (MCD)
Subway launched its Eat Fresh Refresh initiative in mid-July. Subway made more than 20 changes to core items. The company also launched a new marketing campaign featuring several athlete endorsers. In the initial launch week, Subway had its best weekly AUV in more than eight years. In August, the chain saw its best sales month since 2013. Domestic sales in August grew more than 4% compared to August 2019. The top-performing quartile of restaurants consisting of more than 5,000 restaurants saw a 33% increase in sales. The top three quartiles averaged nearly a 14% increase. Subway has been a shared donor for several years. It is the largest restaurant chain in the U.S. by several restaurants. A better-performing Subway increases the competitive intensity for several restaurants.
DRI is a SHORT
Darden Restaurants (DRI): reported 1Q22 GAAP EPS of $1.76 beats by $0.12. Revenue of $2.31B (+51.0% Y/Y) beats by $70M. Same-restaurant sales of +47.5% vs. consensus of +44%. Full-year outlook: Total sales of ~$9.4 to $9.6 billion vs. consensus of $9.41B; same-restaurant sales vs. fiscal 2021 of 27% to 30%; approximately 35 to 40 new restaurant openings; EBITDA between $1.54 to $1.60 billion; effective tax rate of 13% to 14% and Diluted net earnings per share from continuing operations of $7.25 to $7.60 vs. consensus of $7.44. DRI also declares a $1.10/share quarterly dividend, in line with the previous, giving it a yield of 2.93%. Additionally, Darden's board authorized the company to repurchase an additional $750 million of its outstanding common stock. This brings the total remaining repurchase authorization to approximately $1 billion. We would use the strength in the name to short the stock.
KFC Going All-In on Fake
YUM is a LONG
Kevin Hochman, the U.S. president of KFC, has revealed plans to organize the fast-food chain's iconic Kentucky Fried Chicken. And it comes as demand for plant-based meat options continues to soar, with Hochman saying KFC plans to recreate the taste 'as close as we can.' 'Our plan is to try to replicate that Kentucky Fried Chicken as close as we can, obviously without using the animal. A lot of that is about how the chicken cuts and tears and the mouthfeel. The gold standard is the chicken tenderloin or chicken strip', Hochman told Bloomberg. And, the firm plans to replicate chicken tenderloin with muscle fibers to achieve the tear of the real thing.
Moreover, Hochman revealed he eats plant-based burgers at home because they're 'as good as their meat counterparts. KFC is yet to confirm when customers will be able to taste its new iterations. However, it comes at a time where the plant-based meat market is expected to skyrocket – soaring past $162 billion within the next decade, according to a new report. Hochman backed this and said the company believes the market will continue to grow 'over time. However, he said he doesn't think it'll ever be the majority market. 'It's never going to replace animal protein,' he added. Additionally, the brand has worked alongside vegan meat giant Beyond Meat to trial plant-based nuggets in California, U.S.
Consumer Staples
Pea milk funding round (OTLY)
Ripple Foods raised $60M to fund its expansion in a Series E round. The company declined to disclose the valuation but said it was significantly higher than the previous rounds. Ripple Foods makes a variety of pea-based dairy products. In addition, the company plans to explore new categories such as soft-serve ice cream. Bloomberg Intelligence projects the alternative dairy market could nearly triple to $62B by 2030. According to recent SPINS reports, Ripple's 20% growth has outpaced the category's 6% growth.
The appeal of (yellow) pea drinks is the higher protein content compared to other plant-based milk. We expect oat milk to overtake almond milk as the #1 plant-based milk, but that will take several years. The average American diet consumes a fraction of the peas that the British diet does, and oat milk dominates in the U.K.
Older women most likely to avoid on-premise due to COVID-19
22% of respondents in a CGA survey said they were going out to eat and drink less frequently than before the pandemic. Two-thirds of these respondents said it was due to the delta variant. Of the people who reported less frequent on-premise visits, 64% were women, and 61% were over 55 years old. Consumers aged 35-54 accounted for 23% of the less frequent visitor, and 21-34-year-olds were 16%. The difference between states is not as significant. In California, 39% of respondents said they stay home due to COVID-19 concerns compared to 31% of Floridians. In Florida, 28% of respondents said they would be more likely to go out if patrons had to show proof of vaccination compared to 41% of Californians. Seven states have rolled out apps that indicate vaccination status, while 22 states have banned those types of apps.
Planet Oat's growth (STKL)
Planet Oat reports that it is the market share leader in oat milk's grocery/mass channel. Planet Oat, which HP Hood owns, reports a household penetration of 3%. According to Nielsen, oat milk sales over the past two years are up 1,200%. Oat milk sales in the first half of 2021 were $316.4M. Nielsen estimated the plant-based milk category overall to be $2.2B. Planet Oat believes oat milk's ability to mix well with coffee was a significant driver of its growth to date. Planet Oat said it invested $30M to promote its brand and plans to increase that by 10-20% next year. Planet Oat also got more trials by being the official oat milk supplier to Dunkin'. Planet Oat also sought broad distribution with retailers with diverse income ranges like Safeway, Albertsons, and New York City bodegas. As a result, planet Oat is generally priced $1-2 less than some competitors like Oatly. In addition, planet Oat is planning to expand into coffee creamers and frozen desserts. Planet Oat's V.P. of marketing said, "We are excited about going deeper in each category in 2022 and 2023 with a variety of other innovations.
Oatly is Starbucks' branded oat milk supplier, SunOpta is the private label supplier, and Oatly has difficulty increasing its capacity. SunOpta is also the supplier to Planet Oat.
