FWRG - First Watch Restaurant: The Price For Maintaining Pricing
2024-07-03 05:15:01 ET
Summary
- Some restaurants refuse to enter promotional environments, maintaining profitability through differentiation strategies and menu rotations.
- First Watch, a daytime concept restaurant, faces a drop in traffic due to not entering promotional environments, focusing on perceived value and menu items to attract guests.
- Valuation of First Watch using multiples and DCF models suggests a target price lower than the current stock price, recommending a "Hold" for the company.
Context
In an industry where clear paradigms based on standards that seek to satisfy new needs of consumers (affectionately called 'guests' by restaurants) prevail, some operators run 'against the wind', as Bob Seger said, and refuse to give in to exogenous pressures. In this context, we have First Watch ( FWRG ) and other names in the industry that refuse to enter promotional environments in a scenario where invitations are increasingly focused on value promotions.
There is no shortage of reasons for a restaurant to refuse to enter promotional environments (since in general the profitability of the entire sector is harmed as a chain reaction), but we can mention some specific reasons and link to some specific examples that I am analyzing in the industry.
The first group is made up of companies that see the behavioral change of guests as something temporary and have a matrix of adjustable and dynamic fixed costs, capable of maintaining profitability similar to the previous one, even with a lower SSS. Generally, guests in this first categorization are less elastic in relation to price increases in general. Here you will find some restaurants that have well-defined differentiation strategies, capable of maintaining a satisfactory level of non-occasional customers. Additionally, some fine dining restaurants are included here....
First Watch Restaurant: The Price For Maintaining Pricing