CMG Reorganization
We have seen in various linked-in posts and confirmed by a source at the company that CMG has fired a number of employees last week at the corporate offices.
I'm not surprised to see restaurant companies laying off people, especially in Casual Dining. Even MCD in April said in a memo that the layoffs are intended to make McDonald's more efficient, but the CEO is also expecting a recession in the USA. A post on Layoff.com says that about 60 Chipotle people were let go, which represents 5% of the Restaurant Support center staff.
One post says "a lot of PMs, devs, QAs, mostly senior and higher paid. Some entire app dev teams folded. Many people with 4+ years with the new HQ in SoCal. Now 3 day hybrid is 4 day RTO for survivors." Another post said "Confirmed! After years of blood, sweat, and tears shed for this company's success and I was let go "virtually" by a heartless exec. It was over in 5 minutes. Just 2 weeks ago, it was Hoopla about a great quarter and much success. Earlier this year regular staff only got 80% of their bonuses while Exec leaders, ESPECIALLY CEO, got 100%. They're claiming to trim the fat and invest to grow the business, but they have billions in the bank and no debt. Stock is the darling of wall street. The little guys always get hurt."
There can be a number of reasons for the layoff's at CMG, but given the strength of the 1Q23 numbers and guidance for the balance of 2023 it seems inconsistent with that strength. So, why is CMG laying off people? The company has not put out a press release talking about the layoff and if business is softening that would be a significant departure from the CEO comments on the 1Q23 earnings call talking about the strength of the Chipotle consumer:
"higher-income consumer continued to come, and arguably came at a little bit faster pace from a frequency standpoint. And then we did see some, I would call it, recovery in the lower-income consumer, still not all the way back to where it was, call it, a year ago, but an improvement from where it was over the last six months. So, we've seen nice improvements across all of our income cohorts, and we continue to see great strength in the higher income."
New Breakfast items at BK
But it’s also an important move in the chain’s effort to build unit volumes and profitability. If Burger King is going to close the gap with its competitors, it must get the morning right.
According to Restaurant Business, Burger King will begin testing its new Smoky Maple Chicken Biscuit in Kansas City and Orlando-Daytona Beach on Monday. On BK's morning menu, the new sandwich joins two others, the standard Chicken Biscuit and the Smoky Maple Chicken Croissan'wich. The Smoky Maple Chicken Biscuit consists of warm buttermilk biscuits topped with breaded white meat chicken with a smoky maple glaze. Until the end of August, it will be accessible while supplies last. The recent expansion of Burger King's chicken menu includes the arrival of Spicy Chicken Fries in March and a new line of BK Royal Crispy Chicken Sandwiches introduced last year. When the chicken sandwich wars peaked in 2021, sales of the chain's former premium chicken sandwich struggled to gain customer traction. For Burger King's rival, Wendy's, breakfast has proven to be a popular mealtime.
Since launching its morning menu in 2020, Wendy's has experienced increased sales as customers resume their pre-pandemic routines. Although the Miami-based fast food chain, Burger King, offers more conventional breakfast options, such as sandwiches with eggs, bacon, and sausage, chicken is currently the star of the morning menu. Burger King had the lowest average unit volume among the "big three" burger chains—McDonald's, Wendy's, and—in 2022, at less than $1.45 million. The morning daypart typically accounts for about 15% of Burger King sales, that is about 50% of what McDonald's sells in the morning. A typical Burger King generates less than a quarter of the morning sales of a typical McDonald's in terms of dollars, taking their unit volumes into account. Even a simple 50% increase in morning sales, which would still fall short of McDonald's levels, might add $100,000 to each store's annual earnings. In contrast, Wendy's started serving breakfast in 2020 and saw a quick increase in morning sales, reaching 10%. After years of attempting to nail the morning, Taco Bell seems to be hitting its stride.
Sector Performance
On the heels of a difficult April and likely May sales/traffic trends Casual Dining is starting to underperform, but the lagging Revenue and Earnings revisions trends have not caught up the names suggesting more downside. Two name that currently stand out a good shorts are DRI and RRGB. In the Foodservice segment USFD outperformance is notable.
