UPDATE: Domino's, Taco Bell and Starbucks are doing this right
By Ciara Linnane, MarketWatch
Other restaurant chains are being left in the dust, Stifel research suggests
Domino's Pizza, Taco Bell and Starbucks have all succeeded in changing their menus, service, messaging, store design and technology to meet changes in consumer behavior brought about by younger diners, leaving rivals in the dust.
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.(WEN)and Domino's(DPZ) , as well as value restaurants, such as Texas Roadhouse Inc. (TXRH)and Olive Garden parent Darden Restaurants Inc.(DRI) , the Stifel analysts wrote in a research 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 [earnings] expectations are reset to a more reasonable level."
The note explores the effect on the sector of a 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)