In a new report, KeyBanc analyst Chris O’Cull takes a look at the impact that Millennials will have on the restaurant business in coming years. According to KeyBanc, Millennials will make up 26 percent of the peak spending population in the US by 2020, well more than the 20 percent of the peak spending population that is currently made up of Boomers.
This shift in customer base will likely have a major impact on the restaurant business, and KeyBanc breaks the big public names in the industry into five life cycle groups.
1. Emerging Group
These companies currently have less than 50 units, but have demonstrated success at existing units. In addition, they are actively expanding their business by at least 20 percent annually but are currently experiencing earnings losses due to that expansion. Emerging names include Zoe’s Kitchen Inc ZOES 0.87%, Habit Restaurants Inc HABT 0.34% and Kona Grill Inc KONA 6.82%.
2. Youth Group
These names are expanding but still less than 50 percent penetrated with neutral to positive cash flow. Investors should focus on new unit sales, margins and consistency. Youth names include Papa John’s Int’l, Inc. PZZA 1.43%, Bojangles Inc BOJA 2.97% and Wingstop Inc WING 1.59%.
3. Growing Pains/Critical Period
This segment of the industry might be the most interesting of all. KeyBanc describes these names as companies with surprise reductions in growth rate because of new store productivity, with weak traffic, with average unit volume (AUV) growth less than same restaurant sales (SRS) growth, and with added balance sheet leverage to placate troubled shareholders. Names in this group include Panera Bread Co PNRA 0.15%, Chipotle Mexican Grill, Inc. CMG 0.84% and Red Robin Gourmet Burgers, Inc. RRGB 5.26%.
4. Youth 2.0
This is the group that the critical period restaurants are striving…
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