At Black Box Intelligence we benchmark performance for 300+ restaurant brands in multiple data sources including reported sales, workforce, guest satisfaction and consumer behavior. We have been tracking and benchmarking performance in the restaurant industry for 25 years.
At our company we prohibit trading in public restaurant stocks because of our access to our clients most sensitive data. I’m not a sell side analyst or a buyer. I am a restaurateur and researcher with lots of data and experience in the industry.
Although the sky is falling now and none of us know how bad or how long this havoc will continue impacting our lives, businesses, investments or the restaurant business, I do know this…
Buy Low and Sell High (Even in Restaurants)
I cannot buy or suggest what stocks you should buy, as we never disclose brand data in the financial and workforce data set that includes most of the public restaurant companies as well as many private companies. I am also not minimizing the pain being felt by restaurateurs today and in the near future.
I’m sharing 10 reasons why I suggest now is the time to buy restaurant stocks, beyond the obvious point that stocks are cheap, many at historically low PE’s.
- Restaurants will come back from this just as we did after 9/11 and the last financial crash. Restaurants are typically the first in and the first out of economic change.
- The industry has been overbuilt and this will pave the way for strong brands to gain share from the weaker brands. In our data we see a 7-8% gap in the top sales and traffic performance from the bottom quartile brands. That gap has continued to grow.
- Many of these companies have strong economics, good leadership and know how to manage their way through a crisis. They are taking action now to protect their employees, customers and investors for the long term.
- Nobody knows the bottom of the sales declines, but we have seen after every natural disaster or financial downturn the business comes back fairly quickly and even quicker for the best brands.
- Restaurants are the cornerstone of our communities. Not all segments will recover equally. Tourist dependent businesses will be slower to recover, but they will. Just as we experienced during and after 9/11, we are all gripped with fear in the midst of the crisis. We know it will be followed by a need for freedom from solitude leading to dining out and gathering with friends and family as the cure.
- Restaurant operators have been leveraging new technology to become more productive which will help the best to recover, not just in sales, but in profitability.
- In the digital world we live in, restaurant operators can respond to their customers’ feedback quickly and directly. We see the companies that utilize that data consistently building their sales and traffic. In this recovery the use of transparent guest feedback will be key. We already see companies ramping up their sanitation practices and communicating continuously, as the customers post coronavirus concerns.
- Restaurant brands have been making the shift to a higher mix in off-premise sales. Their actions to pivot out of dine in to to go and delivery overnight is impressive. During this time of limiting human contact many will offset the dine-in loss with delivery. The natural shift of delivery and to-go had already begun and we see in our data this is leading to new customer acquisition opportunities. This will accelerate it.
- While going global has helped so many brands find new markets for growth, it now hurts many as they are losing business in multiple countries. However, the demand for American brands will not go away and I believe they will get a recovery bump in those markets like here in the US. The US restaurant industry is the leader in the global restaurant industry.
- Can you imagine never eating out or ordering in again? The American consumer is conditioned to dine in and gather with friends at restaurants or have it delivered at home or work. Said in a different way, are we going to cook or prepare every meal at home? Younger consumers, not as likely to be impacted by the virus, are not going to sit home long.
This leads me to suggest the same irrational herd currently selling low on so many great brands will eventually be back but buying high. The consumer hasn’t changed their mind about eating for the rest of their life, this year or even a few weeks. It’s a big market with a complimentary demographic shift that supports long term fundamentals for the restaurant industry.
I’m not suggesting buying every restaurant stock out there, but if I could, I would buy the best brands.
As I can’t, I’m planning to order in tonight, and get delivery tomorrow night. My kitchen has never been used this much! I suggest you consider investing in some great deals for the long haul, order food in, have it delivered and buy a gift card to support your favorite brands. Restaurants are not going away in our lives.
BTW- isn’t this driving us all to drink? Can I get it delivered? Probably now.
Faith be with you,
Chairman & Co-Founder, Black Box Intelligence