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ETF & Stocks to Play Upbeat Momentum in U.S. Restaurant Industry

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U.S. restaurant businesses thrived in 2023 after an impressive turnaround in 2022. Sales at U.S. restaurants were not impacted much despite severe inflationary pressure. The momentum is likely to continue in 2024.

Restaurant sales increased for the 11th successive month in January. The Department of Commerce's latest report indicates sustained growth, with sales at U.S. bars and restaurants reaching $95.1 billion in January, marking a 0.7% increase from December.

Year over year, spending on restaurants and bars rose by an encouraging 6.3% in January. In contrary, consumer spending in non-restaurant retail sectors dropped 1.1% in January, marking the third decline in the last four months.

In total during the last 11 months, eating and drinking place sales rose 9.0% on a seasonally adjusted basis. That was well above the modest 0.8% gain in non-restaurant retail sectors during the same period. A robust labor market boosts consumer spending, especially in discretionary sectors like dining out.

Solid Labor Market to Fuel Restaurant Industry in 2024

With a strong economic forecast and sound finances at home, restaurant sales are poised for further growth. Job growth in the national economy maintained its solid momentum as the calendar turned to 2024. Employers added nearly 700k jobs in December and January, the biggest two-month increase in nearly a year.

January marked the 37th consecutive month of job growth, a period during which the national economy added more than 15.1 million jobs. Even when adjusted for menu price inflation, sales in eating and drinking establishments rose by 4.3% over the past 11 months. In fact, U.S. restaurant industry itself is projected to add 200k jobs in 2024.

Sales Forecast for 2024

Restaurants sales are forecast to exceed $1.1 trillion in sales this year, marking a new milestone for the industry that will employ over 15.7 million people in the United States by the end of 2024, per NRA.

Digital Innovation as a Catalyst

Restaurant operators are increasingly focusing on digital innovation as a key driver of sales growth. This includes leveraging technology to enhance business processes, staffing, floor plans, and customer engagement strategies.

Expanding Off-Premise Sales

The industry has been experiencing a surge in off-premise sales, encompassing delivery, takeout, drive-thru, catering, meal kits, and other off-site options such as kiosks and food trucks. With more than 60% of restaurant foods consumed off-premise, this trend is expected to continue, with off-premise sales projected to contribute to approximately 80% of industry growth by 2025, per NRA.

ETF & Stocks in Focus

Against this backdrop, investors can buy the below-mentioned ETF and stocks to tap the rising momentum of the U.S. restaurant industry.

ETF in Focus

AdvisorShares Restaurant ETF (EATZ - Free Report)

The AdvisorShares Restaurant ETF is an actively managed exchange-traded fund that seeks to achieve its investment objective by investing at least 80% of its net assets in securities of companies that derive at least 50% of their net revenue from the restaurant business.

Arcos (6.64%), Carrols Restaurants (6.48%) and Domino’s Pizza (5.94%) are the top three holdings of the fund. The expense ratio of the fund is 1.01% (read: 4 ETF Areas to Play Despite Soft January Retail Sales).

Stocks in Focus

Carrols Restaurant Group (TAST - Free Report) ) – Zacks Rank #1 (Strong Buy)

Carrols Restaurant Group is the largest BURGER KING franchisee in the United States. The stock has an upbeat VGM (Value-Growth-Momentum) score of “A.”

Wingstop (WING - Free Report) – Zacks Rank #2 (Buy)

Wingstop Inc. franchises and operates restaurants. The Company's operating segment consists of Franchise segment and Company segment. The stock has a moderate VGM score of “C.”

Cracker Barrel Old Country Store (CBRL - Free Report) – Zacks Rank #2

Cracker Barrel Old Country Store, is engaged in the ownership and operation of full-service restaurants with a restaurant and a retail store in the same unit. The stock has a moderate VGM score of “C.”

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