Investing in restaurants can be difficult. Consumer tastes change all the time. A restaurant that was booming one year has trouble filling tables the next. Many companies try to circumvent these issues by collecting a stable of different brands to hedge these fickle interests. Bloomin Brand [NASDAQ: BLMN] is no different.
This company has four concepts: Bonefish Grill, Carrabba’s Italian Grill, Fleming’s Prime Steakhouse, and Outback Steakhouse.
Fleming’s is a more upscale steakhouse. The average bill is $83 per person. In comparison, Outback and Carrabba’s are $23 while Bonefish Grill is $27.
Some of its locations are franchised but most are company-owned. Bloomin [NASDAQ: BLMN]has been trying to expand its operations by rolling out delivery since 2017.
Most of Bloomin’ Brands’ operations are in the United States, but it does have locations in Brazil and Hong Kong. International expansion is a core part of the brand’s development plan.
The restaurant business has some common risks. One of the biggest is the risk of contaminated foods and food-borne illnesses.
Employment laws can also come to weigh on the profitability of a company like Bloomin [NASDAQ: BLMN].
Most of the people who work at the company are waiters and food prep assistants these positions are not known for being the highest paying. An increase in minimum wage could influence Bloomin Brands cost of labor. In addition, food costs may come into play.
Competition is also fierce in the restaurant business. Aside from consumer preferences, restaurants compete over the finding the right personnel and selecting real estate.
Technology can be an issue too. Remote ordering and social media can combine to form a seamless experience that many consumers enjoy and then there is the format.
Food trucks, cafes in retail locations, modern food halls, and “eatertainment” establishments are popping up everywhere.
Restaurants need to keep up-too-date or risk losing their competitive edge.
There is also the risk that people don’t bother to eat out. Food delivery services and eating in can erode restaurant traffic. Plus, like many restaurants, Bloomin Brands has to face seasonality as well.
To counter this, BLMN has been trying to use targeted marketing to get customers in the door and loyalty programs to get them to stay.
The company has also been trying to get its visitors to provide feedback more frequently in the hopes that it will stimulate business and keeping prices as low as possible.
Bloomin is offering some strategies like call ahead seating and emphasizing off-premises opportunities, like delivery.
The later is important. According to Bloomin Brands, roughly 46% of customers from the Boomer Generation get delivery at least once a month while some 29% of millennials order out once a week at minimum.
At first glance, Bloomin Brands doesn’t look bad. It is trading in a 52-week price range of $17.08-$25.00. It has a one-year target estimate of $22.80 and pays a 1.95% dividend yield.
Those numbers may make for an okay investment, if they come true. The company also seems to be priced low for its industry.
That said, there are some reasons to be concerned about what will happen next for the company.
In March 2019, BLMN announced a new CEO. Liz Smith, who had served in the role since 2009, moved over to become chair of the board while CFO David Deno stepped up too the helm.
“Our brands portfolio is in a strong position to accelerate growth,” explained Smith, “and I have every confidence that under Dave’s leadership we will realize continued success.” Deno has been with Bloomin since 2012, coming over from Best Buy.
Before that, he held different executive positions with Yum Brands [NYSE: YUM] as well as Burger King and others. Deno takes the wheel April 1, 2019 and he has a five-year contract for the role.
Some people also say that Bloomin Brands could be a “value trap.” They cite the fact that Outback Steakhouse, which is the company’s primary holding, isn’t attracting many new customers. Its growth in traffic has been marginal.
People just are not as into “blooming onions” as they once were.
Within cities, more and more people are exploring new venues that are popping up as neighborhoods go through revitalization efforts big chain restaurants don’t really figure in.
Even in less urban areas, the consumer zeitgeist is more independent and less brand-focused than it used to be. For Blooomin to compete, it will have to boost the cool factor and promote tech-heavy efforts that appeal to the consumers who eat out most.
There are several reasons to be encouraged about Bloomin Brands.
Its portfolio might be a little stodgy, but some people love a tried-and-true dining option, especially when it comes with call-ahead ordering, a strong visual social media strategy, and delivery options.
The real question is whether the new CEO is going to be the right choice to lead Bloomin into a world that includes those options when his background doesn’t reflect experience with those efforts.
For those investors who believe in Deno, BLMN is priced low and has room for growth. For those who are less confident, investing in this stock may not be a good fit.