Del Frisco's forges ahead on expansion plans despite significant traffic declines

Dive Brief:

Del Frisco’s Q4 results included a significant decline in traffic to the tune of 2.6% at its Double Eagle Brand and 7.6% at its Del Frisco’s Grille brand. Its recently acquired Barteca brands, bartaco and Barcelona Wine Bar, remained relatively flat on traffic, according to an earnings release. Same-store sales overall were up 0.1%.
Despite the guest count decline, Del Frisco’s still plans to rapidly grow its new brands. The company plans to expand the bartaco footprint from the current 19 locations to about 30 by the end of 2020, and into a national player with as many as 300 units in the long term, according to Skift Table. The company also plans to open up to three new Barcelona Wine Bars this year.
During the company’s earnings call, CEO Norman Abdallah said he is encouraged by the performance of these two brands and their potential to boost the Double Eagle and Del Frisco’s Grille performances.

Dive Insight:

Abdallah recognized the need to generate higher guest counts and said that strategy will include a focus on new customers. But that may not be enough to appease investors, who have been pressuring the company to explore strategic alternatives since December. Those same investors even called the Barteca acquisition a mistake, so chances are they don’t have much patience for such lackluster results.

However, Abdallah’s statements suggest he's still he confident that the purchase will help with growth and protect the company through an economic downturn. Indeed, the intensely competitive and saturated restaurant landscape is running out of growth opportunities, and M&A activity remains one of the few exceptions. Aaron Allen, founder and chief strategist of Aaron Allen & Associates, recently told Restaurant Dive that his firm expects M&A activity to ramp up in 2019, as it has in the last two years.

But much of that activity comes without the same level of pressure from activist investors. However, Del Frisco’s does seem to be deliberate with its strategy early on in the game — not all of its growth has been net growth, for example. The company has been and will continue to close underperforming restaurants, and Abdallah told analysts these closures will help optimize the company’s portfolio and set it up for future expansion.

Traffic erosion is an issue across the entire restaurant industry. One way brands are attempting to stop the hemorrhaging is by clearly differentiating themselves. This perhaps explains why Del Frisco’s is committed to maintaining Barteca brands’ uniqueness, such as its local food and chef-created menus.

Despite scaling back on its original opening plans for 2019, Abdallah remains optimistic that the company is moving in the right direction. On the earnings call, for example, he noted that three of its brands — Double Eagle, Barcelona and bartaco — are generating strong unit-level performances in a variety of markets, which is the right foundation needed to kickstart growth. If that doesn’t work, the company continues to consider a possible sale or other strategic alternatives. The bigger question, then, continues to be how much patience the company's investors are willing to exert.