Wednesday, May 2, 2012

Making sense of a big week

After the restaurant developments of Monday and Tuesday, some gumption had to be mustered to view the news wires this morning. What other jaw-droppers might an intrepid industry-watcher find? If there was any way of tabulating the biggest news week, this might be the topper for 2012. And maybe 2011.

The import has been less about the announcements per se, though they’ve been blockbusters, and more about what they suggest for the future. The purchase of P.F. Chang’s for $1.1 billion, for instance, has already sparked speculation about what chain might next be in the scopes of private equity’s elephant gun. At that level of spending, certainly all the mid-to-big restaurant companies are feasible wall trophies. Are we about to see yet another hunting spree?

Less discussed has been the potential impact for the fast-casual sector. Pei Wei Asian Diner, the Chang’s chain’s little sister, was an early pacesetter in that fast-growing, high-sales sector. But its noodles have wilted as of late.

One component of the rejuvenation effort has been the development of a Pei Wei variation pitted directly against Chipotle Mexican Grill’s new ShopHouse Southeast Asian concept. PE companies have little patience for tests and experiments, and even less for investments with delayed paybacks. If the fast-casual Asian sector heats up, you know Chang’s will likely channel more of its attention and resources to the upstart brand, setting up a dandy brawl with Chipotle.

The same dynamic might come into play at the high end of casual dining, where Darden is claiming considerable ground with Seasons 52. Chang’s has a potential challenger in True Food Kitchen, another upstart that promises freshness, flavor and health.

Meanwhile, private-equity firms aren’t the only shoppers perusing restaurant concepts.  Buffalo Wild Wings, which had ample cash on hand through the Great Recession, has revealed that it might use a bushel or two to buy another brand. The chain has been a model of how a brand should grow and evolve. Might it apply the magic to another contender?

The targets likely won’t be Joe’s Crab Shack or Brick House Tavern. Their parent, Ignite Restaurant Group, has filed for an initial public offering, proving that PE companies or strategic buyers aren’t the only source of capital these days. With Outback going back to the public equity market, there’s no doubt that Wall Street is paying attention to restaurant issues. With Chipotle trading above $400 a share and McDonald’s flirting with $100, how could it not?

Finally, there was the announcement this week of a new president for Yum Brands—ironically the holdout in the changing of the guard at the giant fast-food chains. McDonald’s, Burger King and Wendy’s have all seen a new CEO come or go in recent times. Not so with Yum’s Taco Bell, KFC or Pizza Hut.

Instead, Yum is giving all of them a new boss. You have to wonder how the PE firms are viewing that news.

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