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The Next Big Short: Restaurant Chains
UBS' Andy Lees reminds all those who forgot the carnage in restaurant stocks in the spring/summer of 2008 when oil hit $150, crushing food margins and causing patron visits to plunge due to the $5 gas prices, that the next carnage (once the market starts trading back with some fundamentals) will be in... restaurant stocks.
FTI consulting suggests that it is not just the emerging market countries being squeezed by food inflation, but also a lot of the smaller US food chains. Last year restaurant chains such as Uno Chicago Grill pizza, Fuddruckers and Charlie Brown’s Steakhouse filed for bankruptcy. A lot of the smaller food chains apparently have large debt servicing costs and with cash flow being squeezed by higher input prices they are struggling to keep up payments. Larger companies with strong finances are not falling under these pressures. Sbarro Inc has been in standstill agreements with its lenders which prevent them from pushing the company into bankruptcy since the beginning of the year. It missed a debt target at the end of 2010 and an interest payment in February. It is just one of a handful of restaurant companies that S&P has on its watch list with ratings of CCC. Others on the list include El Pollo Loco 400 store Mexican restaurant chain, and Perkins and Marie Callender. Going into bankruptcy allows leases to be broken.
For all Wall Streeters who are sick of raping the middle class this is great news: soon one and all will be able to leave the shackles of the Bloomberg terminal behind and take over that defaulted lease on the resataurant down the block, getting the whole "I want to run a bar-restaurant" thing out of their system.
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Starbucks to be included?
How u can traslate coffee prices to whole world without employment...
Starbucks is a BIG SELL.
but robotrader said it was up 4% yesterday
the girl also said oil was crashing, the gold/silver rally was over, egypt would be off the front pages (after it initially happened) in two weeks, the consumer was back, don't fight the fed, fight the fed, the top was in, the top was way off into the future, jpm didn't have a silver short, jpm had a silver short, that he was retired, that he was employed etc etc ...
late. and.. a hat tip to dollarcollapse.com is warranted.
+10.
yeah but his mom is hot. no disrespect.
STARBUCKS ~~ one of the things i have never understood. i'm old enough to remember when there was NO STARBUCKS & a full meal deal @ WENDY'S was $1.99. ......... the first time i saw a STARBUCKS & saw the prices i gasped ! I said to my daughter, "who on earth would hand over a five dollar bill for a damn cup of coffee !! you can buy a whole lunch for that money ! " ......... is it me ? am i the one so out of step with reality when it comes to prices ? (& no, that's not an invitation to junk me ! )
I'm a fan :)
I even have the merchandise!!
I'M COOL AND YOU'RE NOT!!
SUDDEN DEBT ....... l.o.l. ......... You are cool .
barring 'taste' from the discussion, if you drink coffee 2 times a day, with free 'refills,' a cup of coffee comes out to 75 cents...
nevermind the free 5 dollar sugar-free-vanilla-venti-frappa-machiatto-no-skim-chai-latte drinks you get every 15 coffees purchased...
I sure do like those sugar-free-vanilla-venti-frappa-machiatto-no-skim-chai-latte's! :)
Speaking from experience, it depends on what you're getting. Regular coffee is pretty sane - ~$2.00 (+/- $0.50 for size), and is in-line with the competition. Start getting into milk-based drinks (which is what you were looking at) that are infinitely more involved, and the price begins to climb, rapidly. At that level, you're right, you're not getting a drink, you're getting a meal. Because it is a meal - some of those drinks crush the 1,000 calorie barrier with ease.
I'm not a shareholder or employee. I just think it serves to educate a bit on this topic so you can at least make a fair comparison.
Lynny, a fiver will still get you a large regular, corn muffin and cruller at Dunkin' !
+10 and the coffee is damn good too.
WTF? DD coffee is good? Panera has good light roast. DD is dishwater.
Plus the coffee tastes like shit, don't forget that part. Hell, I've never understoond the "fancy coffee" thing, anyways.
I agree - I remember coffee for $0.25 a cup with free refills - usually the coffee was burnt/bad, but did the kick/trick.
Still, how does anyone justify a $5 cup for a fancy named coffee with fancy cream in it?
The soccer moms used to love to walk around with the cups all morning long - a status symbol a coupla years ago.
Too bad, a couple of years ago someone could have written "StarBuckese for Dummies", translated all those sizes (Grande versus large) and styles/flavors and maybe made a buck - now, its probably too late and no one cares if you speak StarBuckese or not.
SBUX, is like saks. Caters to the "wealth effect" class. Will be last to go.
Think down markets, and small or independent coffee chains/shops.
As usual, you took the words right out of my mouth. Bigger than the wealth effect, SBUX doesn't face the same kinds of headwinds other establishments have. The buy-in price is insanely low ($1.50ish for a cup of coffee) and they're a substitutable good for alcohol. I don't doubt you'll see the product mix change and with it some margin compression, but in real terms it's the prettiest horse at the glue factory.
Just my two cents but perhaps it's something in the middle that will crater.
When you look at other people's shopping carts you see that the poor and uneducated buy cheap unhealthy crap because they don't know how to cook and it's cheap. The wealthy buy fresh food (some of it cheaper than the crap) because they understand nutrition and can cook, and usually aren't as obese.
The very bottom of the barrel will still buy at restaurants at the bottom, IMHO, often because they don't know how to cook and the prices are still low (Carl Jr. etc). I think the middle will die when the middle income earners stay at home and eat frozen vegetables and hamburger helper.
Depends on what it is... the pre-processed, pre-made stuff is sometimes much cheaper than you can prepare the meal yourself... I mean, who didn't back the truck up on McDonald's $.29 cheeseburger days? $1 McDoubles?
Just depends though... frozen meats/chicken are cheap (sams has 6lbs of pre-trimmed chicken for ~$11)... they also make 16" pizzas (cheese/peperoni) for $6.50... $5.00 cooked chickens...
Just depends on what you're getting...
I think it would be more accurate to say people will consume at these places because they're too lazy to do the work themselves and because they're generally addicted to consumption and their benefactors haven't pulled them from the teet. They buy a lot of the products because they're simply not conscientious consumers... whether its advertising, product labeling, placement on the rack... you name it.
[PS, the rich don't cook a damn thing... dunno who you're trying to fool... unless you have a housewife who likes to cook or a nanny/cook].
I use the word rich to describe a LOT of people who don't know they're rich and still complain. Living in Latin America here and it makes it clear for me that at home (Canada for me) there are a lot of spoiled rotten people who don't know how good it is.
No stats to back this up, but just based on observation, there is always a line of people at Starbucks waiting to get a coffee (at least in my neck of the woods). They also recently starting paying out a decent dividend. I don't think Starbucks is in trouble at all...doesn't mean the stock can't go down, but the business seems perfectly fine.
Starbucks also HUGE internationally. You can't believe how ubiquitous Starbucks is. All over Europe and Asia. Status in Asia and Pacific zone. Important meeting place. So, despite price vs/ Wendy's, it has a brand that resonates beyond its drinking product.
Round Table Pizza chain also recently declared bankruptcy.
Employment? Who needs to be employed? Everyone on SNAP programs works well.
Just out today that BS survery about job hiring! LMAO!!!! Employers are optimistic?! Really?
Does anyone know Robert Half? Try 85% of CEO's say there is ZERO job growth!
http://fiatsfire.blogspot.com/2011/03/cfos-reveal-second-quarter-hiring-...
shorts are like Charlie Brown trying to kick the football held by Lucy. When will you shorties learn that the market structure is stacked against you. You will be right, but lose money anyway.
Bye Bye Quiznos; Subway now has more outlets than MacDs
Agreed. Price point wrong. It's hard to dress up a bologna sandwich to ten clams a pop.
...Jersey Mike's still has the best meatball sub, bar none.
Resturants that accept SNAP will do well.
This.
NOBODY TOUCHES KFC!!!
Shoot the Fried Chicken¡¡¡¡:)
Shotgun¡¡fire¡
Saw it first posted here on ZH and just about pissed my pants:
www.youtube.com/watch?v=ethugA-VVk4
Interesting re-set, hard to argue with the man. Although after seeing our Secretary of State on CSPAN, looks like I may be going long YUM instead
That's great, in a market where there isn't any government intervention.
I'm not shorting SHIT in this "market".
i'm sorry, why not go right to the people shot thru the heart -- Dominos Pizza?
how much is a pizza going to cost when it costs ten bucks to deliver it?
and how many people who love Dominos have that kind of money?
Have you seen DPZ's financial statements? They are in debt over $1 billion. Looks like GM's balance sheet before the bankrupcy.
anyone got symbols on any of the tips?
http://finance.yahoo.com/, 'cuz good thinking on Dominoz
Starbucks...
Coffee
http://www.finviz.com/futures_charts.ashx?t=KC&p=w1
.....
Anyone who shorts any stocks in this QE environment is a fool.
Yep. Until we all capitulate and go all in and QEXXIV is cancelled and it's lights out.
Like I said before, you make the most money in a Ponzi scheme right before the end when the last hard nosed denier finally gets pissed off at all the "idiots" making money, and buys in.
BTW - whoever creates the CAPTCHA questions at the bottom of these pages is very, very bad at math. And also bad at computers, since the correct answer often won't even fit in the box.
LOL, yeah, some lookup table is out of synch... that or it's designed to test determination.
that's restaurant math
CMG down 3% premarket.
just an observation but my wife, the tike and i only go to upscale restaurants when we have a coupon, for lack of better word. last time at fleming's steakhouse noticed not a single bottle of wine (admittedly a snapshot in time) at any of the tables. many sharing a glass of red. and the pizza dive we go to on friday's is jammed. habits are changing(ed).
Last time I went to Flemings (for V-day), I had a $200 gift certificate, so your theory proves correct at least with me.
When it comes to restaurants though, I've still not yet seen frugality become the dominant theme. Seems like restaurants in the Northeast are still crowded, and aren't the rolling tumbleweed environment we expect has occurred yet. Could be 99 weeks of UE checks, or that Americans still haven't truly learned yet...but that's just what I observe.
Good thing those Fridays(esque) establishments have all that garage sale shit hanging on the walls, if they need fast cash they can bring it down off the hooks and start Craigslisting it.
I've always fancied a rowing skiff...
"the next carnage (once the market starts trading back with some fundamentals) will be in... restaurant stocks"
Presumably that wouldn't be good for Open Table (OPEN).
im not sure if they all closed out, but here in australia starbucks went down in a steaming pile. maybe theres 1 or 2 stores left but arounbd 50 closed doors.
oh and here we dont get refills, you pay for ea cup and its still $5 a cup.
t the local mall, the no brand coffee shop that opened in the empty husk of starbucks isnt doing any better either. but then welfare central aint the place to open a coffee shop
If I recall correctly, Starbucks did close 700 stores around a year or so ago.
starbucks caffe verona still $10.95/lb ground. not a bad price.
In celebration, EAT (Brinker Intl) hits a 52 week high.
I have refused to purchase steaks at most of the chain restaurants... simply put, they're terrible... they went from being a medioce decent value to being shoe leather and a terrible value... If you want a good steak around here, it's gonna cost $20 or more at a restaurant. Further, I try and avoid these places if possible without the use of a coupon... not remotely what I consider to be a good value.
Ca Gov Brown is dismantling the municipal redevelopment agencies. If you're a national restaurant chain, you better be in California. This is important because cities (such as mine) use redevelopment funds to subsidize new business, and that means restaurant chains. Without new growth the stocks of these companies can turn on a dime. And while the chain may be viable the property they are sitting on often is not, much like being a vendor in a bankrupt mall.
the restaurant business is a perfect seedbed for corruption, since there are no I0 accounting measures, other than industry standards for losses. In the old days vendor kickbacks were the norm. In places where they grow pot, microbreweries and restaurants are used to launder drug money. Who checks the traffic? Just throw the money in the till, and run up some phony receipts?
Not sure how many of these corporate franchisees have resorted to that, but it must be a few anyway. And the municipal governments dont' really care as long as they get their tax receipts, so the cops aren't looking either, wink wink nod nod. then you can throw the Mexican cartels into the mix.
its not simply that business isn't good, or that food prices are going higher, its a lot of other things. there's also the analyst noting with some chains that earnings are acheived primarly though financial engineering? how does a restaurant chain turn into a hedge fund?
Hope the electrical usage matches the receipts :)
among many other auditing tricks...
Agreed. It's a dirty business and getting worse, not just for laundering. The norm in the east was to skim 25% off sales and simply not report it, plus sales tax that often runs 11% in tourist/urban areas. Try competing with that if you are honest.
Burning 3 dollars of gas to get to a 6 dollar meal at lunch is just not gonna motivate me to go out and eat.
Especially as I drive past the three gas stations, and I see the price of a gallon rising by the day.
The premise of this story in on the mark.
+1. Habits will be changing and rickshaw franchises will be the new biz come 2012.
no starbucks for me, went into the new one in beijing a while back. they wouldn't even let me chain up my bicycle in front of this store. the yelled at me in chinese. WTF are you saying. went into the mcD's in beijing, up scale shopping area, gross. course the restaurants have live animals and fish they will kill any one of them, you think you would like to eat. i live on Bloks. i do know how to cook a few entrees, but don't trust any restaurants, cept Masu's.
"A lot of the smaller food chains apparently have large debt servicing costs"
Apparently??? If these are publicly traded stocks, the debt servicing costs should be easy to find.
In the past restaurant stocks have proven to be good shorts....made a few bucks on Krispy, Boston Market, and a few others. But, in this market after getting killed on a few shorts last year I wouldn't short anything obvious. You will be targeted and squeezed...ultimately you'll be right but you'll be dead right.
Things are different today....this market is not being driven by individual investors bidding up of Krispy Kreme to some dumb valuation. If you short any larger cap stocks you are going up against trading programs backed by deep pockets.
If you feel compelled to short some stocks, I would look at smaller cap stocks that are off the radar...just my 2 cents worth.
I need dollar meal.
I've owned YUM for over a decade and it's a mercury surfboard warlock assisin ninja stock. I'll own it till the day I die; and I'm going to be around for awile longer because I never eat at TB, KFC or PH....lol.