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3 Restaurant Stocks to Win Big From Booming Delivery Sales

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For quite some time, restaurants bore the brunt of either stagnant or declining traffic at their physical store outlets. Foot traffic at retail stores mostly suffered due to the shift to e-commerce. Lest we forget, former Starbucks Corporation (SBUX - Free Report) CEO and now a presidential candidate Howard Schultz had cautioned of this transformation in December 2016. And that prediction, rather unfortunately, has come true for major brick-and-mortar retailers including restaurants.

But several restaurants are now taking steps to adapt to the change. They are using digital ordering and delivery systems, sometimes in collaboration with third-party delivery partners, to reach customers and rejuvenate sales.

NDP Group, a global information and research company, added that while restaurant sales have remained more or less flat over the past five years, delivery sales went up 20%. During the period, NDP estimated that there were 1.75 billion delivery orders, representing about $16.9 billion in sales. NDP Group senior vice president Warren Solochek chipped in and said that “restaurants need delivery in today's environment in order to gain and maintain share. It has become a consumer expectation.” In fact, the delivery business helps restaurants to expand their operations while not having to provide waiters and waitresses or table space to customers.

Starbucks, McDonald's Corporation (MCD - Free Report) and Chipotle Mexican Grill, Inc. (CMG - Free Report) are some of the largest and well-known restaurants, which are currently poised to see an uptick in sales banking on solid incremental delivery sales. Let’s have a look –

Starbucks

Starbucks was concerned about its huge exposure to China, thanks to the trade-related issues between two of the world’s largest economies. To top it, saturation fears in the U.S. market also gave it nightmares.

However, comparable store sales both in China and the United States went up in the last reported quarter and it was all because of Starbucks’ new delivery initiatives. While in China the company partnered with Alibaba Group Holding Limited’s (BABA - Free Report) delivery service Ele.me, in the United States, the maker of specialty coffee partnered with Uber Eats.

Starbucks, currently, has a Zacks Rank #2 (Buy). In the past 60 days, Starbucks has seen 14 earnings estimates move north, while none moved south for the current year. The Zacks Consensus Estimate for earnings has risen 3% in the same period. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.


The company’s expected earnings growth rate for the current year is 12.4%, more than the Retail - Restaurants industry’s projected gain of 1.8%. The company has outperformed the broader industry in a year’s time (+25.5% vs +16.8%).


McDonald's

Like Starbucks, McDonald’s has been using a delivery system especially in the Asia-Pacific region for the last 20 years. China, currently, is its most developed delivery market. McDonald’s top brass added that “it took us almost 20 years to grow our annual delivery business in the Middle East and Asia to $1 billion. Over the past two years, delivery has become a $3 billion business for both McDonald's company and franchised restaurants globally.”

Its management noted that the delivery market has also grown in double digits in the mature U.S., France, and UK markets.

Needless to say that McDonald’s comparable store sales growth jumped 4.4% last quarter powered by new delivery initiatives. McDonald’s currently has a Zacks Rank #3 (Hold). The company’s expected earnings growth rate for the current year is 3.3%, more than the Retail – Restaurants industry’s projected gain of 1.8%. The company has outperformed the broader industry in the past year (+19.1% vs +16.9%).

 


Chipotle

Chipotle offered Free Delivery Bowls for college bowl games in the fourth quarter of 2018. Customers use the Chipotle app to order food. The app uses DoorDash as its exclusive partner.

Notably, delivery sales increased a remarkable 13-fold over the prior year in the fourth quarter. CFO Jack Hartung further added that revenues from delivery sales were higher than restaurant sales during the said quarter.

Chipotle, currently, has a Zacks Rank #3. In the past 60 days, Chipotle has seen 11 earnings estimates move north, while three moved south for the current year. The Zacks Consensus Estimate for earnings has risen 2.2% in the same period.


The company’s expected earnings growth rate for the current quarter is 35.8%, in contrast to the Retail – Restaurants industry’s projected decline of 8.9%. The company has outperformed the broader industry in a year’s time (+92.6% vs +16.9%).

 


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