Restaurants employing differentiated concepts that appeal to insulated demographic sectors with tighter levels of employment are outperforming their peers, says Phillip Juhan, CFA, an analyst at BMO Capital Markets.
“We believe there is this dichotomy that exists within the restaurant space, and it’s really a result of real stratification in the labor markets. So there is this labor divide in the U.S., and on one side, you have this group of younger, less-educated, less-skilled, blue-collar workers who tend to earn less that continue to suffer from high levels of unemployment. And on the other side of the labor divide you have an older — and by older I mean 35-plus — more-skilled, more-educated, white-collar worker who tends to earn more that’s enjoying relatively robust levels of employment,” Juhan said. “I think that backdrop really sort of gives you a sense as to why the winners are winning and why the losers are losing.”
Juhan has an “outperform” on Panera Bread Co. (PNRA), a fast casual dining company targeting the more financially secure demographic. Moreover, PNRA has pricing power, and its stock valuation has increased by 20% since early February, Juhan says.
“Panera fits well into our industry thesis, that we’ve described a couple of times here now, with high-quality products, broad appeal, specific appeal to higher-income households and frankly, a lot of levers to pull to continue to drive the top line,” Juhan said. “Panera can continue to accelerate capacity growth and leverage recent/ongoing investments in their loyalty program, increased advertising and catering infrastructure.”
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