Restaurants US Restaurants: Latest Thoughts on COVID-19 Impacts & Risks

UBS Evidence Lab refreshed its weekly survey (this wave conducted from 5/18/-5/20) with a sample of 1,000 respondents across the US to track and understand how restaurants spending and visits are changing in response to COVID-19.

26 May 2020

This bar graph breaks down the percentage of survey responses to the question whether their visits to bars and restaurants will increase, stay the same, decrease, or no intention.

Sales trends, reopens & UBS Evidence Lab data support positive narrative

Industry  data  points  and  conversations with management teams  &  franchisees  highlight  continued optimism and a positive sector recovery narrative. Sequential improvement in weekly  sales  trends,  positive  dining  room  reopen  takeaways,  and  more  upcoming  state/restaurant  reopening  news  should  support  further  sector  upside.  UBS  Evidence  Lab  survey  data  conducted  from  5/18-5/20  indicates  encouraging  restaurant  order  frequency  trends,  with  respondent  intending  to  increase  orders,  deliveries,  and  visits  to  restaurant/bars.  We  highlight:  23%  of  respondents  that  intend  to  increase  order  frequency  next  week  (up  from  18%  end  of  April),  and  18%  of  respondents  intend  to  increase visits to restaurants/bars next week (~doubling since the beginning of April). But despite  the  positive  data  points,  we  believe  visibility  remains  limited  into  the  trajectory  of  the  recovery  from  here  given  benefits  from  the  stimulus,  diminished  competition,  and  a  general lack of other spending options; all of which could become less beneficial & limit continued  recovery  gains  over  the  coming  months.  Key  points  of  focus  in  the  coming  weeks include casual dining reopen performance & capacity, quick service restaurants (QSR) gains if competition begins to reopen, and impacts from macro & various other spending pressures & alternatives.

Investor optimism continues, but risk/reward less compelling currently

Discussions with investors highlight cautiously optimistic sector recovery expectations, with more  positive  developments/news  likely  over  the  near-term.  We  believe  investors  are  modeling  continued  improvement  from  current  levels  and  mostly  above  sell-side Consensus estimates; QSR segment comps are generally expected to be positive by 3Q, while  casual  dining  trends  are  likely  to  be  limited  by  capacity  constraints  (down  ~20-25%  comps  expected  as  a  plateau  for  many  CDs  in  coming  quarters.

Franchisees highlight continued sales recovery & cautiously optimistic outlook

Conversations with franchisees suggest ongoing optimism, with sales trends continuing to improve  sequentially  across  QSR  segments.  Cautious  optimism  is  still  the  general  sentiment  looking  ahead  over  the  next  several  months,  with  concern  around  the  sustainability  of  recent  recovery  momentum.  Franchisees  continue  to  highlight:  good  performance   from   family   bundle   value   offerings;   menu   simplification   benefits   (operations,  labor);  and  just  limited  supply  concerns,  with  out  of  stock  issues  generally  very  temporary  (few  hours,  half  day,  etc.).  On  value,  franchisees  appear  mixed,  with  several  expecting  a  notable  value  push,  while  others  appear  more  resistant  to  a  big  value emphasis, given: i) strength of average ticket currently, ii) stimulus & other spending benefits, and iii) unwillingness given balance sheet & P&L pressures

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