Restaurants

The latest National Association of Restaurant survey showed a sharp slowdown in activity, with same store sales contracting for the first time in years. This is not an aberration. Despite rising real disposable incomes, consumers are pulling in their horns, as evidenced by the rising personal savings rate (shown inverted). The implication is slowing revenue growth for the restaurant industry at a time when wage growth is running hot. This was the motivating factor behind our downgrade to underweight late last year. The silver lining in this dark cloud is that consumers are likely to allocate dollars not spent dining out to the retail food store industry. That is supportive of grocery store pricing power. The chart shows that retail food stocks generally trend inversely with restaurant stocks. We are overweight the former and underweight the latter. The ticker symbols for the stocks in the S&P retail food stores and S&P restaurants are: KR, WFM, and MCD, SBUX, YUM, CMG, DRI, respectively. bca.uses_in_2016_02_10_002_c1 bca.uses_in_2016_02_10_002_c1