US Economy has a Large Slice of Pizza
Stop the presses!!
Some shock news just in.
After taking one almighty pounding for the last two months the restaurants and cafes of the United States are back, open once more and guess what? They have started to witness an upside on the sales front.
June 2020 saw the second-straight month of growth in restaurant sales totalling $47.4 billion, which comes after the record low in April 2020 of just $30 million.
This is a welcome, but it is on the back of the realisation that, according to the National Restaurant Association (NRA), in March and April 2020 US restaurants missed out on an expected $116 billion in revenue due to the coronavirus-induced lockdown. May 2020 saw some improvement in matters with $39.5 billion worth of sales but these June figures are healthier still. The impact of Covid-19 has been pronounced, nevertheless, with a total shortfall for restaurants and food service sales across America for the last four months amounting to as much as $145 billion in lost sales according to the NRA.
By June, States had started to reopen and with that there came a semblance of normality for town and cities across America. And nothing is more normal for Americans than eating out. That said the June figures couldn’t hide the more ominous data that year-on-year food sales have dropped more than 25 per cent, and that that figure was heading south even before we heard of Covid-19.
Two factors have helped this latest move back to profitability for restaurants and diners. The furloughed masses are returning to work. More slowly, and maybe in less numbers than before, but still they’re coming back. And, although across the States there has been a worrying spike in new coronavirus cases in recent weeks there seems no desire from the White House down for a return to the kind of lockdown we have seen before. Both of these factors spell relief for the retail food sector.
The US food sector desperately needs that confidence to grow. But there is alongside this a growing certainty that the complete shutdown of all business activity is not going to happen in the same way it did just a few months ago. For a start the country just can’t afford it.
Restaurants and diners are trying to do their bit to rebuild public confidence by having people maintain social distance in seating arrangements in dining establishments. Adequate measures are being employed for the safety of customers and dinners, whether eating in or taking out. And the latter has become just as important to those establishments as the number of seated diners in the United States, which, in any event, is down 64.1per cent this year as of July from the same period in 2019.
During the lockdown many restaurants responded by converting their business into drive through only. Many also ramped up their already strong online presence and made takeaway services a priority. All this was necessary to keep sales coming in and businesses running. The food service sector also benefited from $41.87 billion of the Paycheck Protection Program. This was the fifth-highest amount across all sectors, according to the Small Business Administration.
Recent job figures in the food sector have also seen signs of improvement. Restaurants, diners and bars all added approximately 1.5 million jobs in June 2020. Yet when that figure is seasonally adjusted it totals around 9.2 million jobs, which is still 24 per cent fewer jobs than the sector had this time last year, according to the Bureau of Labor Statistics.
But the lockdown proved a good time for some in the food sector.
Dominos Pizza is a US based pizza delivery company with a huge international presence, over 15,900 locations in more than 85 markets. For companies like Dominos Pizza the lockdown has proved to have all sorts of unforeseen benefits for its business model. The company’s expected earnings growth rate for the current financial year is around 27 per cent. Not bad for a pizza business.
Potbelly Corporation, which serves customers throughout the United States in its establishments offering to customers: sandwiches, salads, soups, chili, chips, cookies, ice cream and smoothies. Now according to analysts that company’s expected earnings growth rate for the current financial year is well over 100 per cent. Not surprisingly Potbelly shares have gained 5.2 per cent in the past 30 days.
Similarly there’s Dine Brands Global. It operates franchise restaurants offering casual food and drinks at dining establishments. The company’s expected earnings growth rate for next year is again well over 100 per cent.
My business interests extend to the food sector in the United States. These latest figures are signs of improvement; they are still tentative; but they give hope to many for the future of the sector. They also reveal once more that for every downside there is an upside somewhere for someone and the three companies listed above have all had very good lockdowns.
This only confirms what I know, and what I tell clients of Mount Bonnell Advisors, namely, the USA is too big and too diverse to ever see all economic activity cease. And if that is the case in the worst economic crisis we have seen for some time then think what business possibilities there are when, like American restaurants, the US economy starts to return to something approaching normal.
