Quick Service Restaurants Suffer Higher Pricing Pressure After Relying on Price Slashing During the Recession: an Expert Restaurants Analyst Discusses Which Segments and Companies Are Expected to Maintain the Most Pricing Power

Wall Street Transcript

67 WALL STREET, New York - March 14, 2013 - The Wall Street Transcript has just published its Restaurants, Food and Drinks Report offering a timely review of the sector to serious investors and industry executives. This special feature contains expert industry commentary through in-depth interviews with public company CEOs and Equity Analysts. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

Topics covered: Shift Toward Healthier Food Options - Emerging Market Expansion - Focus on Brand Equity - Store Sales Growth Trends - Cautious Consumer Spending

Companies include: McDonald's Corp. (MCD), Yum! Brands Inc. (YUM), Starbucks Corp. (SBUX), Buffalo Wild Wings Inc. (BWLD), Brinker International Inc. (EAT), Red Robin Gourmet Burgers Inc. (RRGB), Panera Bread Co. (PNRA), Chipotle Mexican Grill, Inc. (CMG), Bob Evans Farms Inc. (BOBE), Cracker Barrel Old Country Sto (CBRL) and many more.

In the following excerpt from the Restaurants, Food and Drinks Report, an expert analyst discusses the outlook for the sector for investors:

TWST: Among the different dining segments of QSR, fast casual, etc., do you see any of these being particular winners or losers in the market?

Mr. Anderson: I think fast casual will continue to be a winning category. In addition to having the ability to have higher-quality food at a lower price, people do perceive them as having a halo effect with higher healthiness standards than their peers. Panera (PNRA), as an example, was the first nationwide chain to offer calorie counts on its menu boards. Chipotle (CMG) is a mixed bag there, but you have the flexibility to have lower calorie options. To tell you the truth, I don't know if there's so much a loser in this segment, because I think as the economy continues to gain a little bit of momentum all will continue to do so.

One of the areas I am concerned about is some of the fast food names. I think McDonald's (MCD) has been under a lot of pressure lately, because I think they started to rely maybe a little bit too heavily on the Dollar Menu, and I think that was one reason why the company lost market share in the late 1990s and early 2000s. In particular, Yum! Brands, which has the Taco Bell brand, is really taking the mantle from McDonald's to become the product innovator in the segment. They announced they are coming out with the second installment of the Doritos Locos Tacos (Cool Ranch) that will be introduced nationwide on March 7.

TWST: From a stock-picking perspective, what are your favorite names in the space?

Mr. Anderson: I use a five-screen criteria to look at my names. Those are positive same-restaurant sales, the ability to put through menu price increases without losing traffic, market share gains, efficiencies that are done to improve margins at the restaurant level, and a strong balance sheet and free cash flow. Once I take it through those five screens, I look for names that will have a 15% upside potential in the next 12 months, and conversely I do the same 15% downside for names that do not meet it.

Since the beginning of the year, one of my favorite names has been...

For more of this interview and many others visit the Wall Street Transcript - a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs, portfolio managers and research analysts. This special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

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