Market Overview

More Americans Brown-Bagging It, Putting The Squeeze On Food Stocks

More Americans Brown-Bagging It, Putting The Squeeze On Food Stocks

Here's an interesting headwind that McDonald's Corporation (NYSE: MCD) and other fast-food restaurants have to deal with: more Americans are bringing homemade lunches to work and cooking dinner at home.

McDonald's CEO Steve Easterbrook didn't directly acknowledge this new trend when he hosted a conference call on Monday to discuss the company's second quarter results. He did, however, say there is a "broader level of uncertainty" in the market, which has resulted in a "fairly well-documented consumer slowdown."

McDonald's reported a 1.8 percent gain in its U.S. same-store sales, which comprises restaurants open at least 13 months. Starbucks Corporation (NASDAQ: SBUX) and Dunkin' Brands Group, Inc. (NASDAQ: DNKN) also reported slowing traffic growth, which may signal that consumers are not only eating out less often but also cutting back on trips to the coffee stores.

A McDonald's breakfast consisting of a McMuffin, milk and orange juice is around $5.38. The same meal, if duplicated at home with items purchased at a grocery store such as Wal-Mart (NYSE: WMT) could cost just $1.65.

Related Link: The Skinny On Getting Your Whole Life In Shape, From Budgeting To Belly Fat

The same can be said for a daily trip to the coffee shop. Starbucks sells Keurig (NASDAQ: GMCR) pods for less than $1 a unit which saves the consumer at least a $1 a day -- and even more for heavy coffee drinkers.

It's no secret that preparing food at home is cheaper than eating out. Naturally, should this trend grow, it will place additional pressure on restaurant operators. The pressure restaurants face would be even greater if the U.S. economy falls into a recession, an outlook that Stifel's restaurant analyst Paul Westra explored in a research note earlier this week.

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Nov 2020WedbushMaintainsNeutral
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Nov 2020BMO CapitalMaintainsMarket Perform

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