Shrinking gap between cost of food eaten at home and away is a boon for restaurant stocks

Posted May 19, 2017 12:23 pm by Comments

A shrinking gap between the price of food consumer away from home and food consumed at home is a positive for restaurant stocks, which suffered last year from slowing customer traffic. That’s the view of Lynne Collier, analyst at Canaccord Genuity in a note Friday. The narrowing of the gap has been driven by a drop in deflation in meat, dairy, fruits and produce, with meat accounting for the biggest share of the food at home index in monthly consumer price inflation data at 23%. Meat prices have fallen 3% from a year ago. “The y/y change in the Producer Price Index intermediate food demand index is a strong leading indicator of grocer prices and suggests that this gap will continue to narrow this year, which we believe will be an incremental positive for the restaurant industry,” said Collier. She added that USDA forecasts are for grocer prices to shift to flat to up 1% in 2017 from their current deflationary level, suggesting inflation will return in the latter half of the year. Shares of Brinker International have fallen 16% in 2017 so far, while the S&P 500 has gained 5%.

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