The coronavirus pandemic has impacted the restaurant industry on a global scale, starting from job cuts to temporary shutdowns. Moreover, decline in traffic on account of the coronavirus-induced crisis has been hampering business.
However, with increased focus on off-premise business along with necessary changes in business model, the industry on a whole has shown some resilience. Moreover, restaurateurs are focusing on third-party delivery channels, digital innovation, mobile ordering, rollout of self-service kiosks and loyalty programs to drive growth during the current scenario. Despite the pandemic, it is worth noting that the Retail – Restaurants industry is currently at the top 26% (with the rank of 65) out of 251 Zacks industries.
Off-Premise Business Model a Driving Factor
Although majority dining rooms have been reopened with safety protocols, dine-in restaurant revenues are still very low in comparison to the pre-pandemic levels. In such a scenario, restaurateurs are surviving by focusing more on off-premise business operations.
Moreover, under this business model, companies have not only altered their menu items but have also partnered with delivery channels like DoorDash, Grubhub, Postmates and Uber Eats, to boost sales. Notably, services like delivery, takeout, drive-thru, catering, meal kits, and off-site options such as kiosks and food trucks are the major growth drivers in the current scenario.
Robust Digital Efforts to Boost Off-Premises Sales
As implementation of the latest technology can drive off-premises sales, many companies are investing heavily on digital initiatives to improve reliability and customer services.
Notably, features like online food tracking, touchscreen ordering, LED menu boards and frictionless payment options, in terms of drive-thru technology, are being worked upon to boost customer confidence and drive sales.
Also, restaurant operators are focusing on driverless delivery systems to augment sales. This is expected to bring down expenses substantially and ensure safety amid the pandemic.
After laying off emlpoyees in the month of March and April, the restaurant operators are now focusing on hiring employees to drive growth. According to preliminary data from the Bureau of Labor Statistics, the industry has added 1.5 million jobs in June on a seasonally-adjusted basis. In May as well, the industry added 1.5 jobs. This hints at recovery in the industry.
4 Solid Picks
With the help of the Zacks Stock Screener, we have zeroed in on four restaurants stocks, which carry a Zacks Rank #1 (Strong Buy) or 2 (Buy). These companies are also ahead of others in the digital game and have witnessed a sharp rise in the past three to six months. You can see the complete list of today’s Zacks #1 Rank stocks here.
Papa John’s International, Inc. PZZA operates and franchises pizza delivery and carryout restaurants in the United States and other specific international markets. Shares of the company have gained 31.9% in the past three months compared with the industry’s 11.7% growth. Notably, the company benefitted from its robust delivery system. The Zacks Consensus Estimate for its 2020 earnings has been revised 9.5% upward in the past 60 days.
Meanwhile, the Zacks Rank #1 company continues to invest in direct customer delivery. In March 2020, Papa John’s re-engineered its ordering and delivery process with the launch of no-contact delivery.
Chipotle Mexican Grill, Inc. CMG together with its subsidiaries operates quick-casual and fresh Mexican food restaurant chains. Shares of the Zacks Rank #2 company have gained 44.4% in the past three months. The Zacks Consensus Estimate for its 2020 earnings has been revised 23.9% upward in the past 60 days.
The company has been aggressively trying to make digital ordering more appealing to customers and more efficient for restaurants in order to drive digital sales and retain customers amid the coronavirus crisis. In first-quarter 2020, digital sales soared 81% year over year to $372 million and accounted for 26.3% of sales.
Cracker Barrel Old Country Store, Inc. CBRL is engaged in the ownership and operation of full-service restaurants, with a restaurant and a retail store in the same unit. Shares of the Zacks Rank #2 company have gained 29.4% in the past three months.
Cracker Barrel continues to focus on off-premise initiatives, such as curbside delivery, third-party delivery and family meal baskets. It also continues to invest in technology initiatives to enhance guests experience.
Jack in the Box Inc. JACK is a restaurant company that operates and franchises through Jack in the Box quick-service restaurants. Shares of the Zacks Rank #2 company have gained 45.3% in the past three months, courtesy of a robust delivery system. The Zacks Consensus Estimate for its 2020 earnings has been revised 6.2% upward in the past 60 days.
Jack in the Box is also increasingly focusing on delivery channels, which is a growing area for the industry. Given the high demand for this service, the company has undertaken third-party delivery channels to bolster transactions and sales.
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