Restaurants Latest Thoughts on COVID-19 Impacts & Risks

Sector sentiment remains positive, with sales trends in the US continuing to improve sequentially, states & restaurants reopening, and low rates supportive of valuation upside.

01 Jun 2020

As daily COVID-19 cases continue to decline, dining reservations in the US are recovering

Source: UBS Evidence Lab, OpenTable, John Hopkins University

This line chart illustrates the number of dining reservations and the number of daily COVID cases from 20 February 2020 through 14 May 2020.

Sector momentum continues with encouraging sales & reopen trends

Weekly industry updates & conversations highlight improving trends and optimism in outlook. Our franchisee channel checks suggest several quick service restaurants (QSR) brands continue to show comp improvement and are now closer to flat, while some casual diners where dining rooms have reopened are better than the down 20% we anticipated given capacity constraints. Our discussions this week with several of the QSR multinationals highlight: US recovery optimism, still lagging breakfast sales, and staggered international reopenings (with strong initial demand). Competition is an increasing point of focus for franchisees, as reopened small chains & independents could challenge momentum, even as ~25% of restaurant capacity may never reopen (per OpenTable). Focus over the next couple of weeks remains on casual dining reopen performance & capacity, QSR competition as smaller chains & independents open, and impacts from other spending alternatives. UBS Evidence Lab US Consumer Receipt Transaction Monitor data (4MM+ monthly receipts) highlights restaurant categories beginning to return to more normal trends recently, with QSR burgers better holding on to gains than other categories. We also highlight a new dataset, the UBS Evidence Lab Local Business Activity Monitor, which helps quantify the extent of restaurant recovery as the economy reopens

Investor optimism remains as favorable trends can support further upside

Discussions with investors this week highlight further optimism as recovery trends continue and reopen developments support a still positive narrative. Sector sentiment remains positive, with sales trends continuing to improve sequentially, states & restaurants reopening, and low rates supportive of valuation upside. Investor concerns & perceived risks include: decelerating trends (stimulus abatement, increased competition, etc.), lagging day parts (breakfast, late night), second wave impact, and int'l exposure.

Large chain franchisee sentiment positive; Competition a bigger focus

Conversations with franchisees highlight positive sentiment and an optimistic outlook, generally at least through July. Sales trends largely continue to improve across QSR brands, while stimulus / unemployment checks remain a tailwind for now. We heard comments for the first time this week that competition reopening is having a modest impact on larger brands in select states. Other challenges include supply chain shortages and higher costs on select commodities. QSR dining reopen interest generally remains low.

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