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3 Stocks to Make the Most of a Rebounding Restaurant Industry
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Despite a challenging macroeconomic environment, the restaurant industry demonstrated a level of stability that allows the companies to go back to its respective pre-Covid practices. The industry has shown resilience and adaptability by implementing digital solutions, expanding delivery and takeout options and optimizing operations.
The companies have increased their investments to seek better methods for offering convenience, value addition and enhanced guest experience. Restaurant operators are also focused on new restaurant openings, menu innovation, outdoor dining options, to-go alcohol offerings and reimagining initiatives.
The fact that companies have resorted to strategic pricing actions, using a more data-driven approach (to mitigate the impact of inflationary pressures), are adding to the positives. The initiative not only helps companies predict demand and manage inventory levels but also paves a path for optimal menu pricing, product development and marketing strategies based on sales data and customer feedback.
Restaurant Sales Gains
According to preliminary data from the U.S. Census Bureau, the restaurant & bars industry registered total sales of $88.1 billion (on a seasonally-adjusted basis) in April 2023 compared with the previous month’s $87.6 billion. It was encouraging to note that the sales figure inched up 0.6% sequentially.
Solid sales, courtesy of a rise in average check, is said to have driven the momentum in May. Per the report, US Quick-Service Restaurant sales (in May) is said to have increased 3.7% year over year compared with a 5.7% growth reported in the previous quarter. Average check increases during the month increased 5.5% year over year compared with the 7.7% growth reported in the previous month. The industry is said to have witnessing year-over-year growth in delivery (14.6%) and dine-in traffic (20%).
What’s Driving the Industry?
Restaurant operators are emphasizing on customer engagement as it provides a direct link with the respective companies’ business outcomes such as profit margins, share price and ROI. Improved turnover correlates with more consistent retail environments, the removal of expenditures associated with new hires (and training) and quantifiable gains in productivity, service speed and partner customer experience ratings.
Majority of the restaurant operators have scratched the surface of their respective digital position and implemented advanced tools like automation and AI to drive personalization, loyalty and frequency.
The fact that restaurant operators are constantly enhancing their omnichannel guest experience through loyalty program and other initiatives makes it an initiative placed in the right direction.
Reversion toward the traditional industry standard staffing model have led to a decline in false waits and extended wait times. Per the NRA, the foodservice industry is likely to add 500,000 new jobs in 2023, bringing the employment count to 15.5 million. The industry is projected to add an average of nearly 150,000 jobs a year, bringing the total staffing levels to 16.5 million by 2030.
Road Ahead
Although macroeconomic challenges like dealing with staffing impediments and commodity cycles persist, we believe that the idea of creating a seamless, integrated and uniform experience across all channels and customer touchpoints will likely play a major role in enhancing guest satisfaction and creating a sticky and frequent customer behavior. With input costs gradually normalizing, we expect to see stronger dining rooms, takeout and delivery businesses in the upcoming periods. According to the NRA, the food industry is anticipated to hit sales of $997 billion in 2023 (compared with $898 billion in 2022) buoyed by pent up consumer demand and high menu prices.
Investing in the retail sector seems profitable now. It is worth noting that the Zacks Retail – Restaurants industry is currently in the top 17% (Zacks Industry Rank #42) out of 251 Zacks industries.
Here, we have highlighted three stocks that are likely to witness earnings growth in 2023 buoyed by robust sales-building initiatives.
3 Restaurant Stocks to Watch Out For
Given the backdrop, here are three restaurant stocks that are likely to move higher in 2023. With the help of the Zacks Stock Screener, we have zeroed in on stocks that carry a Zacks Rank #1 (Strong Buy) or 2 (Buy). These companies have witnessed a sharp rise in the past three months. You can see the complete list of today’s Zacks #1 Rank stocks here.
Image Source: Zacks Investment Research
Chipotle Mexican Grill, Inc. (CMG - Free Report) , together with its subsidiaries, operates quick-casual and fresh Mexican food restaurant chains. Chipotle is leaving no stone unturned to make digital ordering more appealing to customers and efficient for restaurants. The company redesigned and simplified the online ordering site, enabled online payment for catering and collaborated with several well-known third-party providers for delivery. To boost convenience in the digital ordering platform, the company initiated features such as unlimited customization, contactless delivery and group ordering. The rewards program is another initiative that has been benefiting CMG. The company is focused on robotics-based autonomous vehicles for delivery, which will likely enhance the customer experience in the upcoming periods.
Chipotle currently flaunts a Zacks Rank #1 and has gained 29.8% in the past three months compared with the industry’s 8.2% growth. For 2023, the Zacks Consensus Estimate for CMG’s financial-year sales and earnings per share (EPS) suggests an increase of 14% and 33.9%, respectively, from the year-ago period’s levels.
Shake Shack Inc. (SHAK - Free Report) is a New York-based fast food hamburger restaurant chain. Shake Shack has been investing in digital transformation and is crucial to the company’s growth. During first-quarter fiscal 2023, digital sales contributed 36% to shack sales. The company has been making more investments in digitization to sustain its digital guest enhancement strategies in the near term. The company’s digital retention continues to remain strong. Improvement in average weekly sales also bodes well. SHAK intends to focus on rolling out new and tighter prototypes for drive-through, optimize the size of the Shack-box and standardize kitchen designs to improve its economic model and drive growth.
Shake Shack currently carries a Zacks Rank #2 and has gained 22.8% in the past three months. For 2023, the Zacks Consensus Estimate for SHAK’s financial-year sales and EPS suggests an increase of 21.4% and 148.4%, respectively, from the year-ago period’s levels.
McDonald's Corporation (MCD - Free Report) owns and operates a chain of quick-service restaurants, globally. The company is focusing on digital initiatives, marketing campaigns and menu innovation to drive growth. McDonald’s believes that the strengthening of the core menu, solid marketing and improved pricing are likely to pave the way for additional growth in the upcoming periods. McDonald’s is gaining from its robust loyalty program. It has already introduced the loyalty program in more than 50 markets, including the United States, Germany, Canada, the U.K., Australia and France. MCD reported accelerated digital engagement across the markets. It witnessed more frequent visits and incremental sales on the back of tailored loyalty messages, a strong lineup of mobile app offers and content offerings. During the first quarter of 2023, digital sales (from top six markets) rose 30% year over year to $7.5 billion. Given a rise in digital adoption, the company is optimistic and anticipates the initiatives to drive sales and average checks in the upcoming periods.
McDonald's currently carries a Zacks Rank #2 and has gained 8.6% in the past three months. For 2023, the Zacks Consensus Estimate for MCD’s financial-year sales and EPS suggests growth of 7.7% and 9.3%, respectively, from the year-ago period’s levels.
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3 Stocks to Make the Most of a Rebounding Restaurant Industry
Despite a challenging macroeconomic environment, the restaurant industry demonstrated a level of stability that allows the companies to go back to its respective pre-Covid practices. The industry has shown resilience and adaptability by implementing digital solutions, expanding delivery and takeout options and optimizing operations.
The companies have increased their investments to seek better methods for offering convenience, value addition and enhanced guest experience. Restaurant operators are also focused on new restaurant openings, menu innovation, outdoor dining options, to-go alcohol offerings and reimagining initiatives.
The fact that companies have resorted to strategic pricing actions, using a more data-driven approach (to mitigate the impact of inflationary pressures), are adding to the positives. The initiative not only helps companies predict demand and manage inventory levels but also paves a path for optimal menu pricing, product development and marketing strategies based on sales data and customer feedback.
Restaurant Sales Gains
According to preliminary data from the U.S. Census Bureau, the restaurant & bars industry registered total sales of $88.1 billion (on a seasonally-adjusted basis) in April 2023 compared with the previous month’s $87.6 billion. It was encouraging to note that the sales figure inched up 0.6% sequentially.
Solid sales, courtesy of a rise in average check, is said to have driven the momentum in May. Per the report, US Quick-Service Restaurant sales (in May) is said to have increased 3.7% year over year compared with a 5.7% growth reported in the previous quarter. Average check increases during the month increased 5.5% year over year compared with the 7.7% growth reported in the previous month. The industry is said to have witnessing year-over-year growth in delivery (14.6%) and dine-in traffic (20%).
What’s Driving the Industry?
Restaurant operators are emphasizing on customer engagement as it provides a direct link with the respective companies’ business outcomes such as profit margins, share price and ROI. Improved turnover correlates with more consistent retail environments, the removal of expenditures associated with new hires (and training) and quantifiable gains in productivity, service speed and partner customer experience ratings.
Majority of the restaurant operators have scratched the surface of their respective digital position and implemented advanced tools like automation and AI to drive personalization, loyalty and frequency.
The fact that restaurant operators are constantly enhancing their omnichannel guest experience through loyalty program and other initiatives makes it an initiative placed in the right direction.
Reversion toward the traditional industry standard staffing model have led to a decline in false waits and extended wait times. Per the NRA, the foodservice industry is likely to add 500,000 new jobs in 2023, bringing the employment count to 15.5 million. The industry is projected to add an average of nearly 150,000 jobs a year, bringing the total staffing levels to 16.5 million by 2030.
Road Ahead
Although macroeconomic challenges like dealing with staffing impediments and commodity cycles persist, we believe that the idea of creating a seamless, integrated and uniform experience across all channels and customer touchpoints will likely play a major role in enhancing guest satisfaction and creating a sticky and frequent customer behavior. With input costs gradually normalizing, we expect to see stronger dining rooms, takeout and delivery businesses in the upcoming periods. According to the NRA, the food industry is anticipated to hit sales of $997 billion in 2023 (compared with $898 billion in 2022) buoyed by pent up consumer demand and high menu prices.
Investing in the retail sector seems profitable now. It is worth noting that the Zacks Retail – Restaurants industry is currently in the top 17% (Zacks Industry Rank #42) out of 251 Zacks industries.
Here, we have highlighted three stocks that are likely to witness earnings growth in 2023 buoyed by robust sales-building initiatives.
3 Restaurant Stocks to Watch Out For
Given the backdrop, here are three restaurant stocks that are likely to move higher in 2023. With the help of the Zacks Stock Screener, we have zeroed in on stocks that carry a Zacks Rank #1 (Strong Buy) or 2 (Buy). These companies have witnessed a sharp rise in the past three months. You can see the complete list of today’s Zacks #1 Rank stocks here.
Image Source: Zacks Investment Research
Chipotle Mexican Grill, Inc. (CMG - Free Report) , together with its subsidiaries, operates quick-casual and fresh Mexican food restaurant chains. Chipotle is leaving no stone unturned to make digital ordering more appealing to customers and efficient for restaurants. The company redesigned and simplified the online ordering site, enabled online payment for catering and collaborated with several well-known third-party providers for delivery. To boost convenience in the digital ordering platform, the company initiated features such as unlimited customization, contactless delivery and group ordering. The rewards program is another initiative that has been benefiting CMG. The company is focused on robotics-based autonomous vehicles for delivery, which will likely enhance the customer experience in the upcoming periods.
Chipotle currently flaunts a Zacks Rank #1 and has gained 29.8% in the past three months compared with the industry’s 8.2% growth. For 2023, the Zacks Consensus Estimate for CMG’s financial-year sales and earnings per share (EPS) suggests an increase of 14% and 33.9%, respectively, from the year-ago period’s levels.
Shake Shack Inc. (SHAK - Free Report) is a New York-based fast food hamburger restaurant chain. Shake Shack has been investing in digital transformation and is crucial to the company’s growth. During first-quarter fiscal 2023, digital sales contributed 36% to shack sales. The company has been making more investments in digitization to sustain its digital guest enhancement strategies in the near term. The company’s digital retention continues to remain strong. Improvement in average weekly sales also bodes well. SHAK intends to focus on rolling out new and tighter prototypes for drive-through, optimize the size of the Shack-box and standardize kitchen designs to improve its economic model and drive growth.
Shake Shack currently carries a Zacks Rank #2 and has gained 22.8% in the past three months. For 2023, the Zacks Consensus Estimate for SHAK’s financial-year sales and EPS suggests an increase of 21.4% and 148.4%, respectively, from the year-ago period’s levels.
McDonald's Corporation (MCD - Free Report) owns and operates a chain of quick-service restaurants, globally. The company is focusing on digital initiatives, marketing campaigns and menu innovation to drive growth. McDonald’s believes that the strengthening of the core menu, solid marketing and improved pricing are likely to pave the way for additional growth in the upcoming periods. McDonald’s is gaining from its robust loyalty program. It has already introduced the loyalty program in more than 50 markets, including the United States, Germany, Canada, the U.K., Australia and France. MCD reported accelerated digital engagement across the markets. It witnessed more frequent visits and incremental sales on the back of tailored loyalty messages, a strong lineup of mobile app offers and content offerings. During the first quarter of 2023, digital sales (from top six markets) rose 30% year over year to $7.5 billion. Given a rise in digital adoption, the company is optimistic and anticipates the initiatives to drive sales and average checks in the upcoming periods.
McDonald's currently carries a Zacks Rank #2 and has gained 8.6% in the past three months. For 2023, the Zacks Consensus Estimate for MCD’s financial-year sales and EPS suggests growth of 7.7% and 9.3%, respectively, from the year-ago period’s levels.