Must-know: Why restaurants are so important to investors (Part 1 of 11)
Let’s get something to eat
Eating is the most essential activity of our everyday lives. With less time and a limited ability to prepare food at home, we look to food prepared outside the home. Whether it’s breakfast, lunch, or dinner, the options abound. So how much do people spend on food? According to the USDA, Economic Research Service, the food-away-from-home (or FAFH) category amounted to 42% of household expenditure in 2012.
In the above chart, limited-service restaurants have the largest market share, at 55%. Full-service restaurants have a market share of 44%. Bars and taverns have a market share of 1%. The total estimated “restaurants and bar” segment sales are $431 billion for 2014, according to Technomic.
Technomic also estimates $209 billion in sales for the “beyond restaurants and bar” segment over the same period. The “beyond restaurants and bar” segment includes retail hosts, travel and leisure, business and industry, education, healthcare, and all other subsegments.
Different types of restaurants
There are many types of restaurants, each offering a unique experience. All restaurants fall under two broad categories:
- Full-service restaurants
- Limited-service restaurants
Limited-service restaurants include fast food and fast-casual formats. Some well-known restaurants under this segment are McDonald’s (MCD), Panera Bread (PNRA), and Chipotle Mexican Grill (CMG). Full-service restaurants include casual dining and family dining formats. Common names in this segment include IHOP and Applebee’s, both under the umbrella of DineEquity (DIN).
In this series, we’ll look at each of these formats and some of the major companies, like McDonald’s (MCD), Yum! Brands (YUM), and Darden Restaurants (DRI). We’ll also analyze the industry’s business models, which investors should know.
You can gain exposure to the restaurant industry through the exchange-traded funds PowerShares Dynamic Leisure and Entertainment (PEJ) and PowerShares Dynamic Food & Beverage (PBJ), or through individual stocks like McDonald’s (MCD), The Cheesecake Factory Incorporated (CAKE), and Chipotle Mexican Grill (CMG).
Browse this series on Market Realist:
- Part 2 - Overview: Assessing the restaurant industry business model
- Part 3 - Key restaurant industry formats: The fast food business
- Part 4 - Key restaurant industry formats: The casual dining business
- Consumer Discretionary
- Personal Finance - Lifestyle