Restaurant Stocks: Global Insights

• Restaurant Stocks Leaders by Category: Here’s another fascinating proof point that casual dining is ripe for M&A and consolidation. Every other foodservice category has a clear market share leader with one exception – casual dining. While the average market cap share by category is 79%, the casual dining leader share is 43%. In developed markets like the U.S., large chains have mostly reached the limits of organic growth, which means acquisitions are one of the best ways to continue to add market share and value. For private equity, the steady growth of the restaurant industry combined with the remarkable valuations assigned to the most innovative players makes foodservice an attractive space. As more and more investors become active in the industry, they’re relying on experts to help find and evaluate targets as well as create roadmaps to exit that mitigate risk and maximize value. Indeed, many of the most successful practitioners in M&A recommend bringing in advisors with industry-specific expertise during the due diligence phase.

• Restaurant Stocks by Market Capitalization Classification: The restaurant industry overall grows at approximately the rate of population, GDP, and share of consumer discretionary spend. While the growth of the industry overall is relatively predictable, there’s almost nowhere in the world where someone isn’t gaining market share at someone else’s expense.  And while many shareholders only pay attention to major stocks, in the last year, foodservice Micro-Caps trading in the U.S. have grown at a median of 7.5%–51% faster than Small Cap Stocks. Mid Cap restaurant stocks have grown by a median 7.2% year-over-year and large caps were at a 6.3% growth rate. For companies of all sizes, corporate intelligence for where things are headed and how to harness both headwinds and tailwinds for improved future performance pays off in terms of growth and valuation.

European Restaurant Stocks

• Contract Foodservice Stocks: Some of the largest foodservice companies in the world are those that many consumers wouldn’t recognize the brand names of. Compass, Aramark, and Sodexo are all leading contract foodservice operators which service airports, hospitals, stadiums, and arenas around the world. In the London Stock Exchange, for instance, contract foodservice reaches $49b in enterprise value — more than half of the EV of all publicly traded restaurants in the country. Oftentimes, this is an overlooked segment when determining the total addressable market for an investment or expansion opportunity.

• Revenue Growth Stagnates for European Restaurant Stocks: Revenue is forecasted to stagnate among public European restaurants in 2019 — the median growth based on analysts’ consensus is projected at 0%. That said, top-quartile performers are expected to grow by at least 7.7% showing that there are winners even in a challenging market. Some of this growth is coming from acquisitions: this is the case, for instance, of The Restaurant Group after the 2018 acquisition of Wagama; and some comes from alternative formats (like meal kit company Marley Spoon). Intelligence about markets serves as a better radar, helping to see further and identify growth paths with more clarity and context.

• Compass Group and Sodexo Lead European Stocks: The combined market capitalization of European publicly traded hospitality companies totals $86b, and three-quarters of that figure is commanded by just five companies. Knowing how and where best to place CAPEX dollars to ensure the dominance of your brand and secure your territories (and market share) requires solid plans around strategic capital allocations.

Emerging Markets Restaurant Stocks

• Asia Pacific Restaurant Stocks: Publicly traded restaurants in some Asian Pacific emerging markets including Thailand, the Philippines, China, and Indonesia are expected to reach double-digit growth medians in 2019. China, India, and others in the region have some of the lowest chain restaurant penetration levels in the world. These markets pose an opportunity for foodservice brands willing to invest in strategic plans that will secure a successful cross-border expansion. Asian stocks have reached revenue growth rates of a median higher than 10% in Thailand, Philippines, China, and Indonesia as of 2019.

Restaurant Delivery Stocks

• Publicly traded delivery companies growing faster than restaurants: While the $3.5 trillion global restaurant industry is relatively predictable in terms of growth (it mirrors that of population, inflation, and driven by share of discretionary spend) there have been major shifts in where consumer dollars are being spent. Off-premise consumption is one of these areas, with delivery aggregators growing much faster than restaurants. Among publicly traded companies, delivery providers — like Grubhub, Just Eat, Delivery Hero, and Takeaway.com — are experiencing revenue growth of at least 4x the pace of restaurants (considering their median). For as much as we forecasted where delivery would be today (years ago), the next few years will further accelerate the widening performance gap between the haves and the have nots — those who are looking to and investing in the future compared to those clinging stubbornly to the past.

• Grubhub Stock: Food delivery aggregators have highlighted the potential success — and value — of new technologies that modernize the foodservice industry. Grubhub’s enterprise value has increased by 170% between 2014 and 2018, more than three times the increase experienced by the seven largest publicly traded foodservice companies in the U.S.

• Just Eat Stock: The success of food delivery aggregators is a worldwide phenomenon. Among European publicly traded companies, U.K.-based Just Eat saw its enterprise value (EV) double between 2014 and 2018, more than 6x the growth experienced by the eight European foodservice companies with the largest market caps. Other delivery companies with later IPO dates have taken different paths: while the enterprise value of Dutch company Takeaway.com has grown by 140%, Germany’s Delivery Hero has maintained a constant value, in fact losing 2% EV in its first year as a public company.

Billions Fleeing Public Markets

Since January of 2017, nearly $15b worth of public restaurant stocks in the U.S. delisted, as nine companies left public exchanges for private hands. While the total value and number of global IPOs are increasing, fewer U.S. foodservice companies are going public. The pains of going public these days can be avoided while still gaining funding, as there are trillions in private equity capital ready to be invested in global markets.

Relevant Insights to Restaurant Stocks