- Goldman Sachs issues its 2017 outlook on the restaurant sector. Some key trends that GS thinks need to be watched are posted below.
-
Consumer spending: Health care and energy costs are creating headwinds to spending. The GS discretionary cash flow model shows a drop to a 3.9% pace from 4.4%.
-
Wages: "Higher minimum wages as a result of legislation continues to remain a headwind for the industry, with an additional 18 states implementing minimum wage increases that took effect 12/31/16 of 1/1/17. We estimate this will add an additional 70bps of YoY pressure to the average national minimum wage."
-
Wallet market share: Some benefits for the sector are seen from wallet share gains, although the at-home spending category needs to be watched closely.
-
Segment shifts: We expect full service chains to continue lagging the industry by 4-5% (consistent with the past three years). We view fast food more favorably, with convenience/value mitigating secular headwinds (only a 2%-3% headwind vs industry), and we also prefer companies with exogenous sales drivers like to-go or delivery.
-
Unit growth/inflation: Inflation is expected to increase the cost of adding units and act as an ongoing headwind to returns on maintenance capex/remodel spending.
- Related ETF: MENU.
- Related stocks: MCD, YUM, WEN, JACK, SONC, QSR, DRI, DNKN, CBRL, TXRH, CAKE, BWLD, PFGC, EAT, DIN.