News that privately held German-owned JAB will pay $7.5 billion to add Panera Bread Co. (:PNRAN/A) to its food basket, including Krispy Kreme, Peet’s Coffee and other assets, had heads reeling on Wall Street Wednesday.
The price tag, a mind-blowing 41 times projected earnings for 2017 represents the largest ever price paid for a U.S. restaurant chain. It’s not too far removed from the $12.6 billion 3G Capital, majority owner of Restaurant Brands International Inc. (NYSE: QSR) paid for Canada’s Tim Hortons in 2014.
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Above Average Growth
Despite the premium price paid, JAB is getting above-average growth with Panera. Among innovations being rolled out by the chain, digital ordering, payment kiosks, delivery service and a new line of no-sugar-added beverages.
Same store sales were up 5.3% in the first 3 months of 2017 as a result. As Black Box Intelligence reports that’s impressive when compared with the average 2.7% drop across the industry as a whole to the end of February.
The Fast Food Hits Keep Coming
The Panera sale follows the fast-food merger of Burger King, owned by Restaurant Brands International Inc., and Popeye’s for a paltry $1.8 billion in February. As noted above, RBI also owns Tim Hortons.
In fact, RBI currently has more than 20,000 stores worldwide. This includes 15,000 Burger King locations, 4,500 Tim Hortons stores and soon – 2,600 Popeye’s outlets. By comparison, fast-food giant, Yum Brands Inc. (NYSE:YUMC), which owns Taco Bell, Pizza Hut and KFC has more than 40,000 stores worldwide.
All Part Of A Restaurant Explosion
Restaurants, especially the fast food and fast casual variety are doing well with publicly traded restaurants up more than 7 percent so far this year. With the S&P 500 up 5.5%, fast food looks like a winner.
This is not, however, the whole story. Digging a little deeper reveals that there are both winners and losers in fast food. According to NRN, there is a 125% difference in performance between the strongest performer, Buffalo Wild Wings Franchisee Diversified Restaurant Holdings Inc. (TSX:SAUCD) and the worst, Ignite Restaurant Group Inc. Stock not found IRG.
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The Ups And Downs
At the company level, McDonald’s Corp. (NYSE:MCDC), Bloomin’ Brands Inc. (NASDAQ:BLMNC), Darden Restaurants Inc. (NYSE:DRIC) and Domino’s Pizza Inc. (NYSE:DPZC) have all seen stocks go up 6% or more this year.
Smaller companies including Kona Grill Inc. (NASDAQ:KONAB), Luby’s Inc. (NYSE:LUBD), Famous Dave’s of America Inc. (NASDAQ:DAVEC) and Fiesta Restaurant Group Inc. (NASDAQ:FRGIC) have performed more poorly.
In terms of restaurant type, limited-service has won out with investors over table service. This reflects the reality that, for now at least, consumers want to get their food and leave as opposed to dining in.