Great Buys and Companies to Avoid in the Restaurant Industry
COVID-19 has infected a mind-boggling 185 countries so far. Even the remote Himalayan Kingdom of Bhutan is reporting cases.
Heck, the micro-state of San Marino has the highest infection and death rate in the world … at 10,492 cases and 1,032 deaths per 1 million population. Given the country is completely surrounded by Italy — and its total population is only 33,475 souls — this statistic comes as no surprise.
And Antarctica is the only continent that’s still virus-free … although the virus did come pretty darn close.
The Greg Mortimer — a cruise ship that was headed for Antarctica and South Georgia Island — has been languishing off the coast of Uruguay since the beginning of April. Of the 217 passengers and crew, 128 have tested positive for the virus … almost 60% of those on board!
Last week, we saw how the pandemic is impacting travel, most notably with airlines and cruise ships.
In addition to the travel industry, the service industry will take a huge hit. Restaurants could see even more devastation to their bottom lines.
John Gordon of San Diego, Calif.-based Pacific Management Consulting Group noted …
“Brands without drive-thrus … must have a longer in-house interaction and might be thus perceived by guests as ‘more risky’.”
That’s why eat-in establishments could be money pits right now …
Companies like Darden Restaurants (NYSE: DRI) which owns Olive Garden and LongHorn Steakhouse …
Cracker Barrel (Nasdaq: CBRL) …
Denny’s (Nasdaq: DENN) …
Brinker International (NYSE: EAT) which owns Chili’s and Maggiano’s Little Italy …
Dine Brands Global (NYSE: DIN) which owns IHOP and Applebee’s …
And Red Robin (Nasdaq: RRGB), which dropped a stunning 89% in under a month.
But certain eateries were built to outlast COVID-19 — and thrive when the all-clear is sounded.
One of them is Chipotle Mexican Grill (NYSE: CMG), which overcame a different health scare: The food-borne E. coli outbreaks that ravaged the company a couple of years ago.
Chipotle’s turnaround has been a thing of beauty, spinning off eight consecutive quarters of accelerating sales growth after former Taco Bell exec Brian Niccol was tapped as the new CEO. Under his leadership, Chipotle’s operating efficiency is up, while also staying true to its “food with integrity” mantra.
From embracing third-party delivery apps to rolling out its drive-thru, Chipotlanes, the cult favorite is nicely positioned to cash in on the new normal.
Burger giant McDonald’s (NYSE: MCD) has also executed a stunning turnaround to its reputation. While it’s still a haven for cheap sustenance, it’s now serving premium sandwiches, salads and beverages to more health-minded folk.
It’s already a well-oiled machine on the drive-thru front. Plus, it positioned itself for today’s “new reality” by embracing delivery apps early on.
Of course, it would be a travesty not to repeat my recommendation of delivery specialist Domino’s Pizza (NYSE: DPZ). It was, after all, specializing in takeout and delivery long before those two revenue streams were the only cards the industry had to play.
Plus, it’s one of the first players to adopt “contact-less” delivery, where the delivery person will place your ordered food in a safe spot at your address, which is a genius idea during this pandemic.
And, as the industry shifts to digital mode, Domino’s already has 70% of its business coming in that way. People are going to be eating a lot of pizza in the next few weeks, and Domino’s is there to meet the demand.
And get this … Domino’s is one of the rare stocks that is actually trading higher in 2020. The company is up 21.36% YTD, while the S&P 500 is down over 14%.
Other players that should do well are Dunkin’ Brands (Nasdaq: DNKN), and Starbucks (Nasdaq: SBUX) … not to mention delivery companies like Grubhub (NYSE: GRUB), Uber (NYSE: UBER) Eats and Lyft (Nasdaq: LYFT).
All the best,
Sean
