Market Overview

Are Restaurants In Trouble? Gadfly's Shelly Banjo Thinks So

Are Restaurants In Trouble? Gadfly's Shelly Banjo Thinks So

Gadfly's Shelly Banjo is very blunt in her take on the restaurant sector. Investors should expect to see continued pain as the group continues to report its third-quarter earnings.

According to Banjo, sales growth at North American restaurants during the second quarter happened to be the slowest since 2009, and there are several reasons to support the observation. Most notably, restaurants are hiking their menu prices making it more expensive to go out to eat, while at the same, grocery prices continue to decline.

Excluding the 2008 recession, the last time the spread between eating at home versus eating out this wide was in 1981.

Related Link: All Day Breakfast Should Continue To Be The Focus For McDonald's In Q4

Meanwhile, millennials cut back restaurant trips in 2015 by 20 percent, and the lunch-time crowd — which makes up one third of all restaurant traffic — is taking advantage of grocery prices to pack their own lunch.

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

Needless to say, restaurants are seeing margin pressures due to the slower sales, rising costs and changing trends.

Banjo further noted that while the trend of eating out less is showing signs of continued momentum, restaurant chains are popping up at a rate that is faster than the U.S. population growth. Ironically, this is occurring while public and major private restaurants are declining bankruptcy at the highest levels seen since 2011.

Relevant ETFs

  • Consumer Discretionary SPDR (ETF) (NYSE: XLY), up 1.47 percent year-to-date.
  • PowerShares Dynamic Food & Beverage(ETF) (NYSE: PBJ), up 0.34 percent year-to-date.
  • PowerShares Dyn Leisure & Entert. (ETF) (NYSE: PEJ), up 0.05 percent year-to-date.
  • PowerShares S&P SmllCp Cnsmr Disny Ptfo (NASDAQ: PSCD), up 2.16 percent year-to-date.

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