The Miracle Stock Lost In the Restaurant Apocalypse

Hilary Kramer

Hilary Kramer is an investment analyst and portfolio manager with 30 years of experience on Wall Street.

We’ve been bracing for weeks to gauge the impact of the COVID-19 outbreak on the way we eat. 

The numbers are finally coming in, and the National Restaurant Association is indicating 3 million jobs have been cut from its members’ payrolls since March 1. At least half of all establishments will lay off more people as April drags on.

A lot of those workers can pivot to delivery and drive-through roles, but those who focused on people eating inside the restaurant are out of luck. Two out of every three jobs lost to the virus so far have been in the leisure and hospitality industry, effectively wiping out all progress over the last two years.

Those people are capable and resourceful. As long as unemployment benefits keep stretching with the quarantine period, they’ll get back to work. 

For now, however, nobody in the industry is getting hired. This isn’t like a single restaurant or even a chain shutting down. Depending on where you live, everyone will be looking for the same jobs when the lights come back on.

It’s a near-universal reset for the national industry. And because restaurants have been booming, it’s transforming the way a lot of us eat.

This is part of the new America emerging on the other side of this pandemic. I’ll be talking about this in more depth on my radio show. I hope you’ll be listening. (Click here for recorded episodes and local stations.)

More careers will be created than destroyed in the transition. The process will unlock far more wealth than we’ve seen evaporate over the past six weeks.

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The breadbasket of tomorrow starts with the foundation of the household economy: three meals a day. Within that fixed framework, we are free to eat what we want, within the limits of our budget, taste and diet.

Every meal we ate in restaurants took our business away from other eateries. There was a ceiling on how much money they all collectively could make. 

And now that the restaurant dining rooms are collectively shut down due to the coronavirus pandemic, a lot more of us are eating at home, one way or another. Many aren’t eating restaurant food at all anymore, not even for carry-out orders.

Home cooking has been sidelined recently. As overall restaurant spending has soared 23% over the last four years, the share of U.S. food consumption at home dropped.

Again, this is classic home economics. A new investment idea only is worth pursuing when a new pattern emerges, which is what I see occurring now.

It takes about 21 days to create a new habit or break an old one. That’s roughly how long millions of Americans are spending in the house potentially learning how great it is to cook their own food.

A lot of people in my circles are baking. A return to people baking at home is a good thing. 

Yeast is actually in short supply. 

When the restaurants come back, some families will be so eager to get out that they’ll be first in line to ask for a table. But others will not.

Sales throughout the restaurant industry are going to reset at a lower level and work their way back up. While that’s going on, there will simply be too many restaurants fighting over every meal.

The winners will be the ones that offer a celebration experience that’s hard to replicate at home. I’m thinking of chains like Texas Roadhouse Inc. (NASDAQ:TXRH) and Cheesecake Factory Inc. (NASDAQ:CAKE) here. 

These are long-term favorites. They’ll bounce back faster than rivals and stronger than ever, while weaker chains like Shake Shack Inc. (NYSE:SHAK) could recede.

The most special things about any hamburger are taste and convenience. It doesn’t get any more convenient than food delivered straight to your door. As long as it comes out of the same kitchen, it’s going to taste exactly the same.

SHAK had a hard time making the leap to delivery. With so many New Yorkers unwilling or unable to leave home for any reason, takeout isn’t booming either.

Some restaurateurs have realized that if the dining room isn’t special, there’s zero business reason to set all those tables or bring the food in from the kitchen. All they need is a cook, a customer and a way to bring them together.

We’ll see “virtual” restaurants once the virus recedes. Most of the food preparation happens remotely and then the meal moves toward you, where any final touches happen before eating.

It’s a packaged food model. The restaurant becomes a small-scale food factory, leveraging its supply chain and in-house knowledge of cuisine to feed more people.

In theory, a smart restaurateur can feed more people than ever once the hard limit on table space goes away. Either way, eliminating tables cuts overhead, boosts efficiency and maintains profit margins.

Ultimately, this gives companies like Blue Apron Holdings Inc. (NYSE:APRN) a new lease on life. APRN ships meals around the country for home assembly. It is the ultimate virtual restaurant.

When brick-and-mortar restaurants were everywhere, competition was fierce and there wasn’t a lot of reason for diners to order an APRN meal instead of local takeout.

But now, those diners are trapped at home and, for some, the only local kitchen that is still open is the one at home. If I were APRN, I’d reach out to all of those laid-off cooks and put their recipes in a new line of boxes.

The ingredients are packed to match a restaurant plate. You eat the same food assembled from the same recipe. 

The cooks win. Their inspiration can feed more people. The diner wins. We get most of the convenience and all of the quality, maybe even at a slightly better price.

The conventional restaurant goes away. It is a bold new world when APRN, once considered dead money, is up 88% year to date and nearly every other restaurant stock is down.

This is the kind of investment logic my next wave of GameChangers winners will capture. We’re always hunting the trends of tomorrow. This is one.

My IPO Edge will of course be there in the early stages. I’m itching for a delivery stock at the right price. We’ll get it soon.

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