Speaker 1: 0:00

Welcome to another edition of Give an Ovation, the restaurant guest experience podcast, where I talk to industry experts to get their strategies and tactics you can use to create a five-star guest experience. This podcast is sponsored by Ovation, an operations and guest recovery platform for multi-unit restaurants that gives all the answers without annoying guests with all the questions. Learn more at OvationUpcom. And today we have a gentleman who has been on the speaking circuit. He knows this industry. In fact he is paid to know this industry Michael Halen, the Senior Restaurant and Food Service Analyst for Bloomberg Intelligence and the host of Bloomberg Intelligence's restaurant podcast, Chopping it Up. What's up, Mr Mike? How are you? I'm doing well, man. How are you? You know it's a beautiful day. It took me 90 minutes to drive, 20 minutes because of all the snow here in Utah. Finally, but for the skiers, come to Utah. Slopes are open, snow's draining, so anyway, free refills.

Speaker 2: 0:57

The snow's fantastic man. The snow out there is beautiful.

Speaker 1: 1:00

I wish it wasn't snow. I wish it was sunshine, but hey, what are you going to do? Can't win them all. I've seen you speak, and obviously we talk a lot about the guest experience in this podcast, but I'd love to dive in a little bit more into your research. First of all, for those people who don't understand, what does the senior restaurant and food service analyst do? What's your typical day like?

Speaker 2: 1:23

Oh, man, a lot of reading, some playing around in Excel researching 17 publicly traded restaurant chains, from McDonald's to Shake Shack, you name it. The bigger the better. And then I also cover Cisco and US Foods, and so I'm constantly reading their publicly available documents, I'm tuning into their earnings calls, going to conferences and asking them questions and trying to project their earnings over the next couple of years and making recommendations, but kind of not about whether or not you should buy their stocks. So, yeah, man, I follow this industry as close as anybody. I'm blessed because I love the industry. There's great people in it.

Speaker 2: 2:02

Who has had the most tumultuous last few years? Yeah, I think that award probably goes to Dine Brands. Bloomin' Brands has had a really rough 2024, but they've actually been able to expand their margins post-pandemic, I would say. Dine Brands. A lot of Applebee's stores have been closed over the last four years or so. There was even more IHOP closures than they had expected last year and out of all the companies I cover, Dimebrands seems to be struggling the most resonating with customers. They tried to bring people back into the fold with aggressive value last year and as the year went on it seemed to resonate less and less. So they're probably struggling the most. What should I be?

Speaker 1: 2:48

thinking about in terms of value McDonald's came out with the $5 meals. Is value still top of mind for people? Is that still where we should be looking at as restaurants it?

Speaker 2: 2:58

is. But I think you need to look at it as what you get for what you pay. It's not just the price, right? How's the service? How much food are you getting for that price? All of that factors in man, and we've seen some really interesting stuff. Wingstop and Texas Roadhouse have absolutely crushed it Texas Roadhouse for quite some time and a big reason in our opinion is how much food they give you on the plate. Both of those companies are spending a lot more money on COGS than all the other companies I cover. The companies I cover spend about 29% on food costs and those companies are 32% and 33% range. Yeah, so people recognize it. We have more discerning customers right now because they're a little strapped for cash and they're recognizing what they get for what they pay at those two chains and they're visiting more frequently. Right, if you're dining out less, you don't want to take a risk, man, you want to go and get that good experience.

Speaker 2: 3:56

You don't have money to burn.

Speaker 1: 3:58

I tell people all the time that there's the convenience factor, which is does my expectations exceed the effort to have the experience? And that's about all about convenience. So when I go to Texas Roadhouse, I know that I'm going to walk out of there with leftovers. I'm impressed, by the way, anyone who doesn't walk out of there with leftovers. But I know I'm going to walk out of there with leftovers and I know that I'm going to get a whole other to-go container of rolls. By the way. Here's a good hack, mike you take those Texas Roadhouse rolls, you bring them home, you get the honey butter, you leave them on the counter. All right, you ready for this. Next morning you wake up, cut them in half and you do French toast. You dip them in eggs and you cook them on French toast and cook them like French toast and then you use the honey butter on top of that French toast and it is an amazing breakfast.

Speaker 2: 4:46

Texas Roadhouse French toast. That's fantastic. So if they ever expand into breakfast which I don't see anytime soon, that's that'll be a bestseller right there.

Speaker 1: 4:54

Yeah, I mean, if you're doing eight million dollars, not even doing lunch, then yeah, why? I mean, the Texas Roadhouse is around me, they don't do lunch. I don't know if that's like a universal thing or not.

Speaker 2: 5:04

No, they don't. Most of them don't. I mean that's wild, they don't need to. They don't because they don't need to.

Speaker 1: 5:09

Well, thinking about this because you have your Texas Roadhouse, where I think people know that that's a brand that people are looking at and they're like it's growing, it's doing good things. Why, what is it about?

Speaker 2: 5:28

There are operators through and through, and they always have been. They have that entrepreneurial culture where their GMs basically buy into the business for a percentage of the operating profits Right, and they're all in man. Right, and they do a great job of connecting locally to the community and they provide a great like I said, a lot of food, a great experience. People love the line dancing and man, it's kind of experiential in that reason too, which is obviously was super hot prior to the pandemic and is making a nice comeback over the last couple of years. So, yeah, man, for all those reasons, they just keep knocking the cover off the ball, but it's really about running great restaurants.

Speaker 1: 6:08

Yeah, the operations piece of it, because that's kind of the next level, because the first level is convenience but the next level is consistency. And I know right before we were talking about what do you think the most important aspect of guest experience? And you said the operations, which I think is really interesting.

Speaker 2: 6:23

Talk to me about that companies I cover all these large publicly traded companies and because they're seeing success with chains that are improving their operations. It's funny my friend, fred LaFranc, has said love Fred, fred is the man. But he said I hate when companies say we got to get back to basics, because why would you ever stop doing the basics? We're seeing that though. We're seeing some management teams come in really try to pare the menu down right to make it easier in the back of the house. Make sure they're supporting their staff by scheduling enough people right in the front and the back of the house. Right and focusing their menu and their advertising on their core equities right, emphasizing on their core equities. Right.

Speaker 2: 7:15

And also there's technology as well, right, server handhelds, tablets. To say that you can kind of pay and go all that kind of stuff to make the employees lives easier right, but they're making their employees lives easier. They're giving a better experience to the guests and then they can ramp up the marketing and get people in the door and they have good experience and then they come back and then you generate a lot of cashflow and then you can remodel your stores more often or spend more money on R&M and it just kind of creates this virtuous cycle that Texas Roadhouse has been in for a long time. Yes, for sure.

Speaker 1: 7:46

And I think that's such a interesting concept though, because this whole concept of back to the basics it's like, well, yeah, but if you strip away all the technology, what are you doing? And what you're trying to do is provide the same food the same way to that customer and make sure they have a similar experience every time, because, like you said, people want to know what they're doing with their money, and so, if they're eating out less, they want to make sure that they know that they're getting exactly what they're paying for, and which is why that consistency is key. We just can't emphasize that enough, and obviously, being in the feedback space, we see that that a lot of times, these online reviews will pop up. I've been here 11 times and it was great, but things have just gone downhill and nothing's really changed. It just happened to be that that evening it was a bad shift, someone had a bad evening, whatever it was, and we need to remember that you're only as good as your last experience.

Speaker 2: 8:45

That's for sure, man. And, like I said, people are a little strapped for cash and they don't want to have those bad experiences right. They want to make sure that when they do eat out it's a great occasion. So, yeah, to your point, consistency is absolutely paramount in this business.

Speaker 1: 9:02

So what are some other trends that we should be looking into? What are some things that we should be concerned about this year? Looking at, just paying attention to.

Speaker 2: 9:10

Sure, I guess I'll start with the top line. People that read my research have complained for the last year and a half that I was kind of depressing, but in my defense I was right about 2024. So we're seeing a little bit of better economic data here in the fourth quarter. Also, sales post-selection seem to improve a little bit, based on Black Box intelligence data which we use. And then you have asset prices at all-time highs. So people with a 401k, with homes, people that own crypto, are invested in the S&P 500, in the stock market, nasdaq, whatever it might be, are feeling pretty good. And since we're lapping that really weak result of 2024, a restaurant recession, in my opinion the comparisons are easier and so for that reason we should do better.

Speaker 2: 9:58

I'm not a raging bull, because low-income consumers are still kind of crimped by inflation.

Speaker 2: 10:06

It's cumulative and it's been four years of inflation, five years of price hikes on the QSR side, which I don't think is helping them right now. Yeah, and that kind of leads us to probably our bigger concern, and it's really the inflation side. We could see three and a half or more percent CPI in the second half of the year, pretty far away from the Fed's 2% target. I don't think we're going to go back to 5%, 6%, 7% and 8% anytime soon, but in our opinion, inflation isn't going away. I think it continues to crimp restaurant profits and in our opinion, we're going to continue to see a wide divergence between the winners and losers. We've seen it so far Now in a big way, man, you look at places like Chili's driving a 30% comp in the fourth quarter with 20% traffic right, and then you have other chains that are negative in the quarter. So we expect to see that, and that all follows from what I said earlier about these more discerning customers that really, really want to have a good experience when they go out.

Speaker 1: 11:08

So what do we do, as the boot of inflation is not going to get off our throat anytime soon? How do we respond to that? As restaurants, there's only so much you could charge for a burrito.

Speaker 2: 11:18

I think it's really about that experience piece right. I think it's number one making sure your operations are nailed. Whatever you need to do, pair the menu, refocus your menu, make sure you have enough labor on the floor, right, because you need to drive traffic. That's the best way to combat inflation is driving that top line, driving operating leverage through your model right, and maybe you can squeak out a little bit of margin expansion and operating profit dollars despite the inflation. So that's it, man. It's running great restaurants. It's kind of nailing the marketing piece. I mentioned Chili's and this was their playbook. Man, 30% is insane. They lapped a six and a half percent comp the year prior, so it wasn't like they were negative or something the year before. And they nailed the operations. They actually cut back on discounting because they knew they were giving their customers a much better experience with much better food. They focused their menu and then they started turning on the marketing and now they're running. Man, they're running, they have a great marketing team and they're crushing it.

Speaker 1: 12:26

I think Chili's can have another 30% growth year if they get more of those chips that are like combined together, those like super chips with four or five, that get like fried together and then when you dip it it's like if they just had a bowl of those super chips. I think that alone that alone, I think has a chance of going 30% comps.

Speaker 2: 12:48

Well, listen, maybe they monitor TikTok really closely for trends of their customers. Man, Maybe you should get on there and start asking for it. You might get it.

Speaker 1: 12:56

Yeah, well, I think that that's the thing is like listening to your customers.

Speaker 1: 13:00

I think it's so important to understand what's going on, but also following people like you to understand what are the big players doing and how can we learn from them.

Speaker 1: 13:10

And not that, hey, mcdonald's did a $5 meal, like we need to as well. But I will tell you, when I go to McDonald's with I got four kids and a wife, and when the six of us go to McDonald's and I'm walking out of there paying 65 bucks, I'm thinking that's a lot of money for McDonald's, yeah, man. And all of a sudden, if I could use the $5 menu and I'm coming in there more often because I want the Play Place what I've been doing because when the $5 meal wasn't there is we'd eat at home and then we'd go to McDonald's for ice cream and let them play at the play place. Right, but in order to get people there more often, increase that traffic, get them coming back, make sure it's consistent. I think all these things are the core principles of running a great restaurant and I think that what you're sharing here and the writing that you're doing even though might not be so optimistic, but it's realistic right, yeah, man, I got to keep it real.

Speaker 2: 14:07

Mcdonald's is an interesting one, man. The E coli definitely hurt. Oh yeah, hurt their fourth quarter. But they shared some good news on their fourth quarter earnings call the other day.

Speaker 1: 14:19

So the other day, wasn't it? I heard it was like the super early morning news on their fourth quarter earnings. Call the other day.

Speaker 2: 14:25

So the other day wasn't it the? I heard it was like the super early morning, not day. Yeah, the day after the Superbowl they had me up real early, man, but it's okay. But at least they had good news to share. December traffic went positive, which was a positive surprise. They expect the E coli impact to completely fade by the beginning of the second quarter. So once we see that happen, then you're going to see them start to push harder on marketing. You're going to see snack wraps and chicken strips return and they're going to be marketing around that. You may see more famous meals, because those have done so well, as well as the adult happy meals.

Speaker 1: 14:57

Famous meals Like is there going to be a Mike meal?

Speaker 2: 15:06

Are they going to do one for you? No, no, not anytime soon. But you know what? I did a TV interview on the day of earnings and they asked me about Trump's impact on McDonald's. I'm like I don't think there's been an impact. But then I thought about it. I was like maybe they should have a Trump meal. You know a Trump famous meal. You might piss off half of the country, but it might also be a successful promotion?

Speaker 1: 15:21

I don't know if they want to touch it.

Speaker 2: 15:22

77 million people would like it but you know, well, that's awesome.

Speaker 1: 15:27

Well, mike, I know you post a lot, you share a lot. How do people find you?

Speaker 2: 15:31

Oh yeah, so Mike Halen on LinkedIn, Twitter as well. We'd post a little bit there, but more so on Twitter. Mhalen1atbloombergnet is my email address If you're interested in our research list. I send out reminders about our Chopping it Up podcast and I send out industry level research once or twice a month. Those are your best bet.

Speaker 1: 15:52

Awesome, and, oh yeah, I forgot. Last question, though, mike. Who is someone that we should be following? Who's someone that deserves an ovation? Oh, restaurant Chain, or an individual. Someone that we should be following, that's besides you. Obviously, everyone needs to follow Mike, but who's someone else that we should be?

Speaker 2: 16:08

following. Well, we mentioned Fred LaFranc. Everybody in the restaurant should be following close attention to Fred LaFranc, not just to his ideas, but to his fashion oh my God, yeah, he's a fashion plate. Ideas, but to his fashion. Oh my God, yeah, he's a fashion plate. His sport coats match the glasses. Fred's the man. Love that guy. In my space I'm going to give a shout out and ovation to my guy, greg Frankfurt. I've had him on my podcast a few times. We're in the same business. I love chopping it up with him talking about restaurant stocks and the management teams and just industry stuff. So I'll give my guy Greg an ovation. Awesome, love it.

Speaker 1: 16:46

Well, Mike, for chopping it up with me here on Give an Ovation. Today's ovation goes to you. Thank you so much for joining us on Give an Ovation. Thanks for having me. Thanks for joining us today. If you like this episode, leave us a review on Apple Podcasts or your favorite place to listen. We're all about feedback here. Again, this episode was sponsored by Ovation, a two-question, SMS-based actionable guest feedback platform built for multi-unit restaurants. If you'd like to learn how we can help you measure and create a better guest experience, visit us at OvationUpcom.