What Is Your Restaurant Stock Doing to Grow?

Restaurants go to great lengths to develop repeat customers. They create special deals. They commission catchy jingles. Anything to convince customers that they absolutely cannot live without their baby-back, baby-back, baby-back ribs. With barbecue sauce.   

The game for mature players such as Darden's (NYSE: DRI  ) Red Lobster and Olive Garden and Brinker's (NYSE: EAT  ) Chili's and Maggiano's brands is to lure customers back to the same location time and time again. Same-store sales is a key metric for the industry -- possibly the most important one. If same-store sales increase, so does the love from investors.

This place never gets old
The industry standard for same-store sales in U.S. casual dining hovered around 0.1% in 2010, but ideally anything from 2% to 4% growth would be considered pretty strong. Take a look at these companies' numbers for the most recent quarter, compared with the same quarter last year.

Company

Same-Store Sales, Q1 2011

Same-Store Sales, Q1 2010

Darden 0.9% 1.3%
Brinker 0.1% (4.2)%
Cheesecake Factory (Nasdaq: CAKE  ) 1.6% 2.8%
Panera Bread (Nasdaq: PNRA  ) 3.3%  10%

Source: 2011 company press releases.

Only Panera met the target range in the last quarter, while Cheesecake Factory fell a bit short. So if you're invested in one of these restaurants, you're probably wondering what kind of strategy or gimmick they'll launch in an effort to improve. What's the difference between a strategy and a gimmick, you ask? A strategy would produce results for the long term, and a gimmick only for the short term, if at all.

That's a great idea!
For example, in the first week of March, Cheesecake Factory added five "Skinny-Style" cocktails to its menu. The notion of shaving a few calories off your drink doesn't necessarily jibe with the restaurant's mammoth-sized portions, but perhaps it will persuade a few customers to make repeat visits.

Another example is DineEquity's (NYSE: DIN  ) "Girls Night Out" initiative. The company used its Applebee's Facebook fan page to poll women about the frequency of their weekly get-togethers with friends. Apparently, there's a void in women's social lives, and Applebee's has stepped up to fill it. Women can send Girls Night Out Facebook invitations to their friends and can even enter a Girls Night Out photo contest to win a $50 gift card … to Applebee's.

Take a look at what fellow Fool Alyce Lomax has to say about Panera's nonprofit initiative. The company currently operates three "pay what you want" stores in the United States that help feed the needy and raise money for charitable work. The stores are so successful that Panera plans to open a new one every three months. The initiative makes a positive difference in communities and helps establish Panera as a feel-good brand that customers will keep coming back to.

But will it work?
As investors, we must evaluate each of these initiatives: Are they gimmicks or strategies? Regardless of your conclusion, these moves are easy to keep tabs on with press releases and ad campaigns. The difficulty is in determining whether the initiative will make a difference in same-store-sales growth.

Can you point to any winning gimmicks or strategies? Let us know in the comments section below.

Fool contributor Aimee Duffy doesn't own shares of the companies mentioned in this article.  Motley Fool newsletter services have recommended buying shares of Panera Bread. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (0) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1503754, ~/Articles/ArticleHandler.aspx, 10/21/2014 3:14:23 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement