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‘Golden Years’ Ahead for Casual-Dining Chains, Jefferies Analyst Says

Higher levels of growth in market share, same-store sales and units expected through 2024, Andy Barish notes.

Photo Courtesy of Piman Khrutmuang.

Casual-dining chains, as they emerge from the pandemic, are poised for “golden years” of growth in market share, same-store sales and units now through 2024, a Jefferies equities analyst said in a note Monday.

Andy Barish, a managing director at the global investment banking firm, wrote that “starting later this year and through 2024, according to our analysis, the chain casual-dining industry could be setting up for some ‘golden years’ of growth and share gains with higher levels of SSS and unit growth vs recent history.”

Barish noted that the Jefferies research team, for the first time in about 20 years, saw the medium-term growth opportunities through 2024 were “unfolding positively for casual dining as the capacity reduction in ’20 was significant.”

Barish noted that full-service restaurants lost about $94 billion in sales during the pandemic and limited-service restaurants lost about $19 billion. The declines were especially deep for independent full-service restaurants, he said.

In March, foodservice research firm Datassential said its Firefly database indicated more than 10% of U.S. restaurants and food trucks closed permanently during the COVID-19 pandemic.

“With the pandemic forcing a significant number of restaurant closures, we analyzed the most recent capacity data and explore categories and brands most likely to be positively/ negatively impacted by the altered landscape,” Barish said. “We believe full-service chains are poised to see several years of growth tailwinds,” which could more than offset near-term choppiness in sales.

Among public restaurant companies for which Jefferies provides analyst coverage, Barish said those most likely impacted positively, especially through increasing market share, were in the varied-menu category, which saw a 14.7% decline in total units and a 35.6% decline in year-over-year sales during the pandemic.

He cited such companies as Dallas-based Brinker International Inc., parent to Chili’s Grill & Bar and Maggiano’s Little Italy, and Tampa, Fla.-based Bloomin’ Brands Inc., parent to Outback Steakhouse, Carrabba’s Italian Grill and other concepts. Barish also noted opportunities for Austin, Texas-based Chuy’s Holdings Inc., the Tex-Mex concept.

Jefferies analyst data indicated less of a positive tailwind in limited service, Barish said.

“Limited-service capacity was certainly less impacted (although a bit more than we initially expected),” he said. “We think limited-service chains will get back to ’19 levels quicker than full service and surpass ’19 levels by ’22 or ’23.”

Of the shuttered restaurants in limited service, the fewest closures were in the chicken segment, Barish said, which saw sales flat to up as much as 9%. That provides more of a potential headwind for brands like Dallas-based Wingstop Inc., he said.

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