NoBull Posts
Traffic as a Gauge of Consumer Strength
Investors should be struggling to decide whether the economy is entering a recession, consistent with the base case for McDonald’s 2023 business plan. However, judging by the market’s recent performance, it appears that investors are already celebrating a soft landing. But before drawing that conclusion, we need better insight into retail traffic trends which, at first blush, have been depressingly negative.
Why are Builders Focused on Developing Multi-Family Apartments?
While traditional homeownership has long been a staple of the US economy, shrinking household size & long-term economic pressures are changing housing preferences. This trend has important implications for the future spending patterns of consumers who are less likely to be house poor.
Flat to Modest Rent Growth is Expected for 2023
It appears that more Americans are moving back in with family or roommates (or delaying striking out on their own) after a prolonged period of skyrocketing rent growth aggravated by broad-based inflation, according to ApartmentList.com. Now rents are falling fast.
Have Delivery Fees Taken a Bite Out of Restaurant Industry Sales?
Delivery fees are not cheap & can represent multiples of the menu item price. Although there is an argument to be made that delivery marketplaces can expand a restaurant’s marketing reach, there is a price to be paid in terms of industry sales cannibalization
Lockdowns Tipped the Balance of Power to Employees in Low-Cost Cities
Why has consumer spending held up so well during a period of huge and punishing inflation? As it turns out, the long-term impact of the covid lockdowns was most notable for the lowest income demo who saw their hourly wages increase the most relative to all other earners. While this momentum is slowing, this development continues to have important implications for inflation prospects and the start of the 4Q22 corporate earnings season.
What’s up with Egg Prices?
How does a -3% decline in table-egg production translate into December’s 2x+ egg price increase? That’s a good question for someone…
Could Retail Traffic Declines be Attributed to Excess Mortality Rates?
Traffic declines across the board in both restaurants and grocery stores suggest fewer people eating. The shocking statistic is that 2021 life insurance payouts were much higher for group plans typically associated with young, healthy corporate employees relative to individual policyholders.
Farmers Need More of the Profit Pie to Fund Needed Capacity Increases
The farmer’s share of a $1 food purchase has been steadily decreasing to just 14.5% of the total, according to USDA data. This provides a compelling clue about why food production has been strained, and correspondingly, why food cost inflation is out of control.
Did Investors Forget about December’s Bomb Cyclone?
December’s preliminary retail sales release spooked investors who smell a recession. Normally, this would be a boost to stocks because of expectations that the Fed might start to adopt a more dovish stance. However, this represents the first time that investors have finally come to believe that Powell & company intend to keep interest rates inflated, even if hell freezes over.
The Middle Class is Losing Share Post-Covid
A strong middle class is critical to a healthy economy as this cohort spends a larger portion of their income (relative to the rich) on goods & services that drive growth.
RR Posts
Dashboard: Capital Markets
Bullish investors’ sentiment towards restaurant stocks during January reflects an outlook for continued consumer resiliency and moderating costs. Notably, this seems somewhat contrary to McDonald’s base case for a mild to moderate recession this year.
New Unit Investment
New Unit Investment Report provides average building cost estimate details (excluding land) for the $1B+ Chains in addition to new store ROI, franchisor incentives, franchise fees and new prototypes.
Dunkin’ Donuts 2023
Dunkin’s famous coffee, donuts & munchkins are legendary in core Northeast markets and the Dunkin’ way (get in, get out & get on your way) is consistent with its famous “America runs on Dunkin'” tagline. Dunkin’ is progressing in its strategy to execute a more upscale repositioning, allowing the chain to tap into the purchasing power of a new, younger clientele to layer onto a stream of sales from the brand’s core base of middle America.
KFC 2023
KFC is a leader in traditional hand-breaded, bone-in Southern fried chicken with considerable brand equity around its Original Recipe seasoning and Extra Crispy option. While KFC’s efforts to improve its relevancy are bearing fruit, the chain must currently deal with material inflationary pressures around chicken prices that are stressing core customers.
Jersey Mike’s 2023
Jersey Mike’s is well positioned to continue its outperformance given a reasonably healthy economy by leveraging its core equities around off-premise, a compelling quality/service positioning, a brand commitment to give back to its customers as well as its communities and effective digital/loyalty marketing efforts.
Pizza Hut 2023
Pizza Hut enjoys substantial scale and strong brand equity as the 2nd largest national player in the $1B+ chain pizza segment by domestic system sales.
Dashboard: Unit Level
After a ruinous 2022 in terms of food cost inflation, moderating 2023 inflationary prospects will still leave food input costs at extremely elevated levels. Fortunately, moderating labor costs suggest that restaurants will not have to pass along as much pricing in 2023 to restore margins. Also, it is notable that restaurant sales benefit from more discipline in terms of price increases relative to the grocery stores.
Dashboard: Capital Markets
While 2022 was a bad year for restaurant stocks, 2023 could be much better as long as the labor market holds together.
Remodel 2022
Remodel data and analysis on 50+ national chains, including: (1) remodel progress/system condition; (2) investment costs; (3) post remodel sales increases; (4) franchisor remodel incentives; and (5) program scope.
Carl’s Jr. 2022
While Carl’s Jr. is building upon its positioning as a purveyor of tasty burgers, the chain remains challenged to meet the growing demand for value in a tough economic environment given elevated operating costs associated with its West Coast orientation.
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