The global restaurant industry is expected to witness a annualized growth rate of 7.2% over the next three years. Consequently, global restaurant revenue can increase from almost $2.5 trillion in 2011 to $3.5 trillion in 2016. Therefore, the companies in this sector are adopting various strategies to attract customers. Three companies are adopting a strategy to re-image their restaurants to enhance customer experience, which should drive sales. Let’s discuss them in detail.
Expansion plans in South African market to gain momentum in revenue
Burger King Worldwide (BKW, Financial) has been re-imaging its restaurants since 2011. It has observed a 15% surge in sales of re-imaged restaurants, because of its improved ambiance. The company’s goal is re-imaging 40% of its restaurants by the end of 2015. In the past, it remodeled 1120 restaurants in the U.S. and Canada, which comprises 19% of the company’s restaurants. With the new look, Canada and the U.S sales are expected to increase by 10%-15%.
With a growing middle class and large fast food market in South Africa, worth $1.9 billion, the company opened its first restaurant in Cape Town last year. Sales we so encouraging that the company plans to open 12 new restaurants by the end of 2014 in South Africa. Therefore, the company expects unit growth of 5% from 2013 to 2015.
Due to the above strategies, analysts expect Burger King’s EPS to grow from $0.69 in 2013, followed by $0.84 in 2014.
Restaurants that plans to establish international footprint for growth
Over the past two years, Wendy’s (WEN, Financial) has been investing in its image activation strategy to re-image its restaurants globally. Re-imaged restaurants witnessed 20% more revenue, as compared to previous revenue with their traditional outlook. It re-imaged around 200 restaurants in 2013, followed by its plans for 800 restaurants in 2014. For this, it will invest $500 million over the next three years, out of which it already invested $145 million in 2013.
The company’s strong ongoing cash flows will finance this ongoing program. Its new re-imaged restaurants should derive incremental sales. The consensus of Analyst estimate that revenue in the current fiscal year should be around 2.06 billion and can increase to $2.11 billion in fiscal 20-15.
The company’s international restaurants consist of barely 7% of its total units. Wendy's is continuously looking to expand its footprint internationally. It initiated its international operations plans by in 2012 when its opened 24 restaurants, and it plans to open more than 700 restaurants outside the U.S. by the end of 2016
Shifting towards company-owned business, rather than franchisees
To enhance the customer experience, Brinker International (EAT, Financial) has re-imaged 375 company-owned restaurants in the last two years under the brand Chili's Grill & Bar. Further, it plans to re-image the remaining 445 restaurants by the end of 2014. For this, it will remodel approximately 70 restaurants per quarter. Brinker will invest approximately $200 million in this remodeling process. By doing this, it is expecting to increase customer footfall in its restaurants, which could increase remodeled restaurants’ sales by over 3%.
Over the past 20 years, Canadian customers developed preference towards Brinker’s Chili's Grill & Bar. These restaurants are franchised restaurants. Now, the company is moving from franchisees to company-owned restaurants. Last year, it acquired many franchised restaurants in Alberta, Canada, from its franchising partner Speedy Creek. With Speedy Creek’s proven positive results, Brinker will continue to operate the restaurants in a similar fashion. These franchised restaurants generate approximately $35 million of revenue annually. Instead of receiving only royalty fees, this whole amount will now contribute to the company's revenue.
Brinker's 97% of the restaurants operate under the brand name Chili's Grill & Bar. Adopting various strategies under this brand will enhance the total revenue of the company to a large extent. Its total revenue is expected to increase from $2.8 billion in 2012 to $2.9 billion in 2014.
Conclusion
Restaurant remodeling leads to enhanced customer experience, which in turn increases the company’s revenue. All the above companies are adopting image activation strategies for increasing their revenue. Each company will look different in the coming years, which should enhance long-term growth. In addition, each company is expanding to enlarge its footprint. Looking at their strategies, I recommend a buy for all three stocks.
