Don't Just Eat Gourmet Food, Invest In The Industry

Includes: CHEF, MIDD, RRGB
by: Dr. Harold Goldmeier


The gourmet food industry is driven by celebrities and "foodies." They give impetus and traction to a growing worldwide industry supported by devotees with growing disposable income.

Opportunities abound to invest in start-ups and mature businesses selling exotic foods and spices, high-end appliances, and publicly traded fine dining and gourmet restaurants.

Invest in what you like. Consider developing nations with great middle class fundamentals. Everywhere it seems people can afford kitchen envy and celebrity meals.

"Gourmet," "fine dining" and "high end" are commixed for self-aggrandizement, but it is a growth industry worth examining for investment opportunities.

Celebrity chefs are a new genre of "stars" promoted by a plethora of publishing outlets, web sites and TV shows for "foodies." Stardom comes with new social norms. Food is entertainment and big business, of which gourmet food is more than a niche.

Gourmet describes haute cuisine. The culinary arts are individualized and unique, and preparation is aesthetically inspiring art in presentation. Companies use "gourmet" when products are perceived ever so slightly better than the rest. Gourmet burgers are served at quick service restaurants perceived to be a class above McDonald's. There is a commixture of terms "fine dining," "high-end" and "gourmet," but for investors it is a class that offers opportunities.

Home gourmet cookware, appliance companies and exotic food and spice suppliers abound thanks to globalization. Growth of disposable income adds to the traction. The middle class celebrates meals in Michelin-starred restaurants, and is able to afford kitchen envy.

Conglomerates are gobbling up gourmet companies including confections and coffees. Nestle (OTCPK:NSRGY) wants high-end chocolates complementing its luxury line of coffee by searching the globe for an acquisition. Strauss Group, Israel's second largest in food and beverages, owns Max Brenner. It is a retail brand of exceptionally fine chocolates with chocolate restaurants and retail outlets worldwide. Max Brenner describes its chocolates as all about "sensuality and indulgence." An Israel start-up company, European Coffee Society, sells bioorganic coffee beans from roasters selling to Michelin starred restaurants throughout Europe. Gourmet brands in the portfolios of conglomerates usually remain freestanding brands.

Publicly traded companies in the restaurant business are acquiring fine dining establishments. Nickey Friedman points out, "The core strength for Del Frisco (NASDQ: DFRG) is coming from its fine-dining steak restaurants…," and the same is true of others with high-end restaurants in their portfolios.

Red Robin (NASDAQ:RRGB) is a casual, family friendly hospitality chain, employing "gourmet" to aggrandize its image. Hardly on par with Wolfgang Puck's Spago, Red Robin remains an investment opportunity worth examining.

Red Robin Gourmet Burgers trades at nearly $75 per share from a high of $86. RRBG sales top $1b annually, up over 4%. Income is up nearly 14% with a market cap exceeding $1.07b. Prestigious funds T. Rowe Price, Lord Abbett and Oppenheimer hold between 2.55% and 4.68% stakes. A new half-pound Black Angus Burger sells for $12.99 and up, raising guest checks and same store sales.

Their mission is "serving an imaginative selection of high quality gourmet burgers in a family-friendly atmosphere." The attraction is "our Gourmet Burgers and Bottomless Steak Fries and to enjoy our cocktails, non-alcoholic beverages, and other concoctions created by our Masterful Mixologists."

The fine dining overseas market is catching up to mature economies. Smergers, an online investment bank for small and medium enterprises, sees potential in India. It boasts a rising middle class with increasing disposable income, an expanding working population, urbanization, and private equity interest. India has the fewest people eating out per month. Singapore, Thailand and China have the most people patronizing restaurants, with the U.S. trailing. "Even a small increase in this number (in India) provides a huge market opportunity." If you like Indian food, investigate the investment possibilities. Hedge by finding private equity and venture capital firms investing in India restaurants and food exporters.

An article about Chef's Warehouse (NASDAQ: CHEF) on Seeking Alpha a year ago caught my interest. Then the author was bullish and long on CHEF. Its market cap was $485m, and now is $474m. The company "focuses on high-end independent restaurants (and) country clubs and some catering businesses." CHEF is a small distributor up against giant Sysco (NYSE: SYY), but with a strong business model. The company distributes 23,000 products it warehouses to more than 17,000 customers. CHEF sells specialty seafood and meats, foie gras and pate, gourmet chocolates, coffees and teas, sherry vinegar glaze, plum bitters, and organic brown rice syrup, for example.

CHEF topped $29 per share in January 2014. It is now on the low side near $19. Sales of $720m grew in the last 12 months by 40%, income is up $17%, but most importantly, customers increased by 7% over the first quarter in 2013.

Finally, in the chef appliance business take a peek at Middleby Corp (NASDQ: MIDD). It added Viking Range to its extensive collection of brands. MIDD opened in 1997 at $10 a share. It sells for $250 after touching $306 per share. It is about to split 3-for-1. Motley Fool calls it a stock of the millennium. "Middleby posted a 10-year earnings-per-share-growth rate that hovers above 30%...investors should fill up their plates," and this is a stock to never sell.

Dr. Seuss loved gourmet food. His books educate children from a young age to the wonders of gourmet food, and contribute to the efflorescing industry. His devotees are producing tasties like Lorax Cake Pops, Truffula Tree Cupcakes, Cat in the Hat Smoothies served with Green Eggs and Ham. There is Tomato and Cheese Hats, Star Belly Sneech Pancakes, Who-roast beast with Who-hash, Turtle Ice Cream Pie, Gourmet Hop on Popcorn, and the ever favorite, One Fish, Two Fish, Red Fish, Blue Fish, washed down with Pink Yink Ink Drink.

Finally, caution to investors: the gourmet food industry is more than a fad. It is an industry for long-term investment, rather than quick dollar turns. Sixty percent of restaurants fail in a few short years. Angels usually privately fund restaurants more dedicated to the culinary arts. Advice from a good accounting firm with experience in this end of the business will be invaluable.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.