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For more details regarding any of the following highlights, please refer to the relevant postings over the past two weeks, which are sorted by date on the portal.
  • Trends in Casual Dining:
  • According to a report by real estate research firm Reis, U.S. store closings and cutbacks turned the second quarter into the worst one for strip mall owners in 30 years. Strip malls saw average vacancies spike 0.5% to 8.2%, a level not seen since 1995. To date, we have not seen a corresponding reduction in capacity at casual dining restaurants – posted July 21. Helping to alleviate some of these capacity issues is Bennigan’s and Steak & Ale's recent filing for Chapter 7 bankruptcy protection, which resulted in the immediate closure of about 200 restaurants. Although all casual dining operators will benefit from this reduced capacity, Brinker’s Chili’s restaurants should be the biggest beneficiary as Bennigan’s was a direct competitor within the bar and grill segment and there is much overlap within their biggest markets – posted July 30.
  • Current NPD data suggest that despite the gloomy economic situation, casual dining posted a 1% increase in traffic this quarter. Customer deal traffic was up 6% while non-deal traffic was down slightly and discounting and combo meal visits accounted for half of casual dining growth this quarter supported by promotions from major chains and increased visits with kids. Additionally, the bar and grill category posted the largest gains this quarter – posted July 25.
  • Eye on operating leases – CMG, CAKE and PFCB will all face higher operating leases going forward. Their high unit growth strategies have likely pushed their respective management teams to compromise their real estate standards, leading to less favorable terms. For reference, as of their most recent 10-Ks, JBX, DRI and EAT are all subject to operating lease obligations that decline each year – posted July 24.
  • Commodity Highlights:
  • America’s Chicken Crisis - Two chicken processors reported, and for the first 9 months of fiscal 2008, Tyson’s chicken segment and Pilgrim’s Pride have collectively lost $263 million. This trend can’t continue. Pilgrim’s Pride has cut back on chicken production to increase prices, but reductions have not yet been enough to cover costs. Management said that chicken prices need to increase over 60% just for the company to breakeven, which means chicken prices are inevitably going higher. The company also said that it is taking steps to shorten the duration of its fixed price sales contracts, which will force restaurant operators to float more of their key commodity exposures – posted July 29.
  • BWLD has been a clear beneficiary of these lower chicken prices as it has seen a significant decline in chicken wing prices. The marketplace for chicken processors remains volatile, which is not good news for the restaurant industry – posted July 31.
  • Both Pilgrim’s Pride and Tyson’s said that consumers have not yet felt the effect of higher grain prices. Those comments combined with Kraft saying that its prices are moving to “unchartered territory” as it, too, is facing higher costs across the board means prices are moving higher in the grocery channel, which can only help restaurant operators – posted July 28 and 29.
  • Bloomberg reported that wheat from Australia, forecasted to be the world’s third largest wheat exporter this year (behind the U.S. and Canada) should return to the global market in 2008 after two years of drought, which should help to ease prices – posted July 29.
  • Risk remains for corn as corn plant roots are shallow due to flood conditions earlier in the year and are currently more vulnerable to dry weather conditions. This year's crop is pollinating later than normal which puts it in harm’s way for hotter/dryer August conditions. The lateness of the growth could potentially expose the roots to frost. The same situation holds true for soy – posted July 24.
Restaurant Base Exposure to Bennigan's Most Penetrated States—% of Respective U.S. Restaurants
BWLD's Quarterly Chicken Wing Prices