Hey McDonald's Corporation (NYSE:MCD) and Yum! Brands, Inc. (NYSE:YUM), the reason you're struggling isn't likely the reason you think. Yes, McDonald's, you have logistics problems, and Yum! Brands [purveyor of Pizza Hut, KFC, and Taco Bell], offering an alternative to burgers to a burger-lovin' world doesn't always make life easy. That's not your biggest hurdle, however. You're biggest hurdle is much more nuanced, admittedly a little obscure, and multiple in number. Winning and keeping market share can be done though. As proof that it can be done, one only has to look at Giggles N Hugs Inc. (OTCMKTS:GIGL), which is actually growing by giving kids AND parents what both of them REALLY want.
In an informal survey performed by parenting-trials website www.dad-camp.com in September of this year, parents opined about what they wanted/needed from a kid-friendly restaurant. Price and speed didn't make the list, even though the entire fast-food industry was and still is built for the primary purpose of serving up cheap food in a hurry... a mindset put into motion by McDonald's years ago. The biggest concerns of parents who dared to drag their kids to an eatery were (1) a patient, understanding staff, (2) a menu with a choice, (3) kid-sized accoutrements, and (4) entertainment.
To be fair, your typical McDonald's or Yum! Brands believes they're kid-friendly, in the sense that a kid can get a variety of burgers, fried chicken, Mexican food, or pizza. And, the box most kid-meals come in are covered with puzzles and games that could technically qualify as "entertainment." Some McDonald's and Wendys Co. (NASDAQ:WEN) restaurants even have a jungle-gym to climb on. That's not the choice and entertainment parents are talking about, however, particularly on the menu front, but also on the entertainment front.
See, the trend of rising expectations on the entertainment and selection front has intersected with another trend.... healthier eating. In another poll recently taken by the National Restaurant Association, it was found that 72% of consumers are more likely to visit a restaurant that offers distinctly healthy options, and 64% are more apt to visit a restaurant that offers locally-grown food.
For perspective, a McDonald's cheeseburger, small fries, milk, and apple slices (your typical Happy Meal) packs a whopping 645 calories. A Yum! Brands KFC kids meal consisting of a Chicken Little sandwich, macaroni and cheese, a Capri Sun drink, and a side of apple sauce served up 570 calories. Compared to a suggested daily intake of between 1200 and 1400 calories for 4 to 8 year olds and only 1600 to 1800 calories per day for 9 to 13 year olds, the problem becomes clear in a hurry. The healthier-eating trend is growing fast, driven by concerned parents who are now realizing in earnest the downside of processed and packaged foods. They're steering their kids clear of it altogether, choosing organic where feasible, and ideally, choosing locally-grown.
It's a trend that flies right in the face of your typical operation at a Wendy's or McDonald's restaurant, but plays right into the hand of your typical Giggles N Hugs locale.
What's Giggles N Hugs? Think Chuck E Cheese, but with more stimulating play areas and a much, much healthier menu. While pizza is available at Giggles N Hugs, it's not the typical grease-laden, fat-filled pizza you'll find at many of America's favorite pizzerias like Pizza Hut or Chuck E Cheese. Among its favorite pizzas are the veggie pizza and the gourmet pizza, topped with goat cheese, sun-dried tomatoes, and eggplant. It's not the kind of thing most kids would eat at home, but somehow children find a different palate in the right environment.
It isn't a household name, except perhaps in the Los Angeles area where the fast-growing chain operates three stores. More are on the way, though; the organization would like to open a couple dozen more by 2018, and at the same time widen its product to include branded sales of clothing and food. It's this impending growth and capitalization on a trend towards healthier lifestyles that has made GIGL such a compelling investment.
And the proof of the proverbial pudding is in on top of the pizza crust, so to speak. Giggles N Hugs Inc. reported its third quarter revenue. Sales were up 49% on a year-over-year basis, reaching $913,000 versus $615,000 in the third quarter of 2013. Sales were up considerably on a sequential basis too, from Q2's top line of $822,000. That growth alone confirms the premise has been well-received by patrons, who continue to come back as more newcomers step in. Likewise, that growth bodes well for the company's planned expansion efforts.
As of right now there are only three Giggles N Hugs locales, all in malls in the Los Angeles area. More are planned, however. The company aims to have 25 units in place by 2018, which would put the organization on pace to be generate $40 million or so per year within the next four years. That's a lot of revenue relative to the market cap of $9.1 million, and with the first three units more than proving the concept is marketable, it's tough to imagine the company not living up to that potential.
For more on Giggles N Hugs Inc., visit the SCN research page here.
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