Domino's, Taco Bell and Starbucks are doing this right
By Ciara Linnane, MarketWatch
Changing tastes and behavior are leaving some traditional restaurants in the dust
Domino's Pizza Inc., Taco Bell and Starbucks Corp. have all succeeded in changing their menu, service, messaging, store design and technology to meet the changing behavior of younger diners, outpacing rivals who are fast being left behind.
That's one conclusion of a new report from Stifel on the restaurant industry that takes a cautious view of the sector and advises investors to be selective in picking winners.
"Complicating this dynamic is an oversupply of restaurants inadequately addressing the shift in consumer preferences and resorting to aggressive discounting and cost-cutting to delay the inevitable,". analysts led by Chris O'Cull wrote in a note. "We expect many of these restaurants will close during the next few years as leases come up for renewal."
Investors should overweight stocks of what Stifel calls "compounding franchise growth companies," such as Yum Brands Inc. (YUM), Wendy's Co.(DPZ)(WEN) and Domino's (DPZ), as well as consumer value restaurants, such as Texas Roadhouse Inc. (TXRH) and Olive Garden parent Darden Restaurants Inc.(DRI), analysts led by Chris O'Cull wrote in a note. Certain stocks the analysts rate at hold, such as Wingstop Inc. (WING), Starbucks (SBUX) and Chipotle Mexican Grill Inc. (CMG), are attractive "and could become more interesting if EPS expectations are reset to a more reasonable level."
The note explores the affect on the sector of the current generational change, that has baby boomers exiting their peak spending years and being replaced by millennials. The analysts concede that it's difficult to identify and understand generational shifts and important not to paint an entire generation with the same brush.
Read also: How a $1 price hike scared Olive Garden customers away (http://www.marketwatch.com/story/at-olive-garden-all-it-took-to-hurt-sales-was-a-1-price-hike-on-a-popular-meal-2017-09-26)