The State of the Restaurant Industry
The restaurant industry was arguably one of the hardest hit sectors during the COVID pandemic. Thankfully this sector is starting to see a recovery as most parts of the country emerge from lockdowns and restrictions. What Are We Seeing in The Casual Dining Sector? Nick Setyan Managing Director, Restaurants Equity Research at Wedbush Securities indicates that we are seeing levels above pre-COVID levels in some casual dining establishments. The increased levels of folks being vaccinated is certainly helping. With many cities easing or eliminating indoor dining restrictions, those who are fully vaccinated can generally dine without masks or other restrictions. This will help restaurants as they seek to receive lost ground from the depths of the pandemic. Setyan cites the ability of many consumers to spend as another reason the casual dining sector will do well this year. He says, “The stimulus, while transitory, is pushing up wage growth, with wages now above pre-COVID levels and rising.” Consumers are eager to dine out and many have the money to spend to do so. Setyan adds, “Home prices are at record levels, and rising. Stock prices are at record levels. Households are not only earning more, but they feel and in many cases are wealthier than pre-COVID.” He says, “We’re seeing broad wealth creation across the country. Homes in places that usually don’t see home price appreciation, places like Western Pennsylvania, upstate NY, Cleveland and Detroit, are seeing significant price appreciation.” All of this adds up to consumers with the desire to dine out and the money to do so. Both are positives for the casual dining sector. The Catalysts Driving the Restaurant Industry In addition to consumers having more money to spend, there are other factors that are driving the resurgence and growth of the restaurant industry. Setyan cites the growth of off-premises dining as a key factor that will continue to drive the casual dining sector forward. He says, “Casual dining off-premises sales were about 10% of store volumes pre-COVID. It is increasingly likely that they will stabilize at levels two-times pre-COVID levels even as dining rooms return to 100% capacity.” Setyan says, “Technology has played a big role in enabling and facilitating the growth of off-premises dining. Paying via app, mobile orders, the rise of delivery options and other factors have all contributed to the growth of this facet of restaurant service.” He adds that the trial of off-premises services like carry out and delivery by consumers during the pandemic has helped consumers develop a greater appreciation for the quality and value of casual dining over that of fast casual or quick service restaurants. This should continue even into the post-COVID era as consumers realize the quality and value offered by off-premises dining from the casual restaurant sector. Setyan cites one other factor that will have a positive impact on the sector. “The supply of restaurants is about 10% lower than before COVID, particularly in and around urban areas like Chicago, Boston, New York City and others. This benefits larger chains, allowing them to gain share.” Opportunities in Restaurant Stocks Setyan feels there are a number of restaurant stocks in the casual dining space that could do well in 2021 in the wake of the recovery from COVID. He singled out Darden Restaurants as a company who is poised to excel in 2021. He cited Darden chains Olive Garden and Longhorn as examples of restaurants whose costs have remained low and who have seen increased revenues above 2019 levels at this stage with the return of diners to the restaurants. Consumers are eager to get back out and eat at their favorite restaurants. This creates many opportunities for those establishments that offer great food and an appealing dining experience, both in-person and off-premises. The shares of these types of restaurant groups may present an opportunity for investors as the country emerges from COVID. Looking to build a financial plan based on your goals while considering market trends and risk factors? Click here to check out our approach to Wealth Management. Disclosure These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable — we cannot assure the accuracy or completeness of these materials. The information presented is not intended to constitute an investment recommendation for, or advice to, any specific person. The information presented here is not specific to any individual’s personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances. The information in these materials may change at any time and without notice.
Understanding Policy: Introduction Bipartisan Bills Targeting Big Tech
Big tech firms such as Apple, Amazon, Google and Facebook wield a lot of power and influence over commerce and politics in the U.S. As these firms have continued to grow, their influence has done nothing but increase. At the same time. The enforcement of antitrust laws in the U.S. has become a bit lax in the opinion of many experts. It is against this backdrop that Congress is proposing wide sweeping legislation to limit the power and influence of the biggest tech companies. What Inspired These Bills and Who Are They Targeting? These bills have been inspired by the desire of many in Congress to step up the government’s antitrust enforcement against the biggest of the big companies. There is a feeling by many in Congress that big tech companies have gained too much power and influence over the business and political scene in the U.S. President Biden may have surprised some by naming Lina Khan as the chair of the FTC. Ms. Khan is considered to be a progressive critic of big tech companies. She is widely seen as someone who will work to try to limit the power of big tech companies. Overview of the 5 Bills and How They Can Affect Big Tech These five bills would provide the DOJ and the FTC with the ability to designate a tech company as a covered platform as discussed below. Together these bills would restrict the anti-competitive practices of the largest tech firms such as Apple, Amazon, Google and Facebook. Ending Platform Monopolies Act This proposed legislation is aimed at big tech companies. Covered platforms could be forced to split their businesses in two or more separate entities and/or do away with some of their private label products. Some question whether this legislation is about consumer protection or about punishing big tech companies at the expense of other companies in the industry. American Choice and Innovation Online Act This bill would prohibit big tech platforms from engaging in conduct that places their own products at an advantage or those of another platform at a competitive disadvantage. It also prohibits any sort of discrimination against similarly situated business users. Platform Competition and Opportunity Act This legislation would prohibit acquisitions by covered technology platforms unless the platform can demonstrate that the acquisition does not compete with the covered platform, it doesn’t represent potential competition, the acquisition won’t enhance the covered platform’s market share or allow it to maintain its market position. Augmenting Compatibility and Competition by Enabling Service Switching (ACCESS) Act This legislation would require covered platforms to maintain interfaces that would facilitate the portability of user data should the user decide to utilize a competing platform. Merger Filing Fee Modernization Act This bill would create a tiered fee structure for companies filing pre-merger notifications. The fees would better reflect the size of the proposed transactions. Firms engaged in smaller mergers would pay less while the fees for larger mergers would be much higher. Big tech firms and their lobbyists are fighting back. Google and Apple have made arguments to lawmakers that these bills should at least be delayed. Some have speculated that Microsoft has lobbied to be excluded from these bills, though a congressional leader has denied that any firm has been exempted. Though these bills have been approved by a House subcommittee, they still need full Congressional and Senate approval. There is some vocal Republican opposition due to objections to increased regulation. If these bills do pass as is or in some modified format, it could have implications on the share price of a number of big tech stocks and firms that support their efforts. Stay tuned as there is more to come here. Looking to build a financial plan based on your goals while considering market trends and risk factors? Click here to check out our approach to Wealth Management. Disclosure These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable — we cannot assure the accuracy or completeness of these materials. The information presented is not intended to constitute an investment recommendation for, or advice to, any specific person. The information presented here is not specific to any individual’s personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances. The information in these materials may change at any time and without notice.
Semiconductor Chip Shortages
There has been a lot in the news lately about chip shortages impacting a number of industries. The auto industry has been prominently mentioned, but this shortage impacts a number of industries beyond autos. Chips are used in many different types of products across the entire spectrum of industries both here in the U.S. and globally. Why is This Shortage Occurring? Beyond automobiles, chips are a key component in smart phones, home appliances and many other consumer and industrial products. Matt Bryson, Wedbush Equity Analyst, says, “Shortages are due in large part to COVID and supply chain management issues.” An example is the impact of the drought in Taiwan, where about two-thirds of the world’s supply of semiconductors are manufactured. The drought has limited the ability to make the chips as the manufacturing process requires a large amount of water. Industries the Shortage Is Impacting Bryson says, “Automobiles are a small portion of the chip industry, but inventory reductions at the beginning of COVID combined with a snapback in auto demand has created a severe shortage in this space. The impact has been magnified by the relatively high price of autos compared to the limited dollar value of the chips used in most vehicles.” He adds, “The shortage in autos is being exacerbated by the increased need for chips as vehicles are becoming more computerized.” An example of the impact on the auto industry is illustrated by the recent pause in manufacturing by a Hyundai plant in Alabama due to a shortage of chips. (1) Beyond the automobile industry, Bryson cites a number of industries where the impact is being felt, including: Gaming console makers are facing a major crunch. Demand took off due to both new product launches as well as increased consumer behavior due to COVID. While supply constraints around AMD parts is a factor, Nintendo’s struggle with supply chain constraints illustrates the issues gaming manufacturers are having sourcing commodity chips that are impacting the rest of the supply chain. Gaming console makers are facing a major crunch. Demand took off due to both new product launches as well as increased consumer behavior due to COVID. While supply constraints around AMD parts is a factor, Nintendo’s struggle with supply chain constraints illustrates the issues gaming manufacturers are having sourcing commodity chips that are impacting the rest of the supply chain. Consumer requirements for PCs to support changing work, education and recreational needs (due to COVID) have created a spike in demand in this segment. Manufacturers are still struggling to meet demand due to shortages across a wide range of chips. Handsets, the demand for smartphones hasn’t lifted as significant as in other areas, the shift to 5G has increased the semiconductor content within handsets considerably, also creating an additional area of demand that is taxing the ability of foundries to produce. Bryson says, “The fact that Apple has publicly indicated that supply chain constraints will affect its ability to ship certain products is perhaps the best indication of how severe these constraints are given Apple’s superior supply chain management capabilities.” Bryson adds, “The impact of lower supply is lifting production costs, but in many cases the impact is limited with the exception of products with significant memory requirements (DRAM and NAND). However, the resulting scarcity of supply, in the auto industry for example, is creating a sellers’ market allowing manufacturers/distributors to charge premium pricing and lifting consumer costs.” Biden Administration’s Response to the Shortages The Biden Administration’s infrastructure package contains funding for domestic semiconductor manufacturing, as well as significant technology enhancements including a broad expansion of broadband availability. The Senate recently passed a large science and technology bill that includes $52 billion in funding for the U.S. semiconductor industry as well as funding for other related scientific initiatives. (2) Semiconductor giant Intel has put forth a plan to spend $20 billion to build new factories that could help address the chip shortage both in the U.S. and globally. While their CEO has indicated that much of this added production would remain in-house, they would also be working to supply customers such as Apple and Qualcomm, among others. (3) Investors will want to monitor the chip supply situation both in terms of end-user companies impacted by supply issues, and for the impact on chip suppliers. Hyundai Plant in Alabama Pauses Manufacturing Due to Car Chip Shortage Semiconductor Chip Shortage Funding Frontier China Competition Act Intel CEO Fast Tracks Turnaround Bid with 20 Billion Investment Plan Looking to build a financial plan based on your goals while considering market trends and risk factors? Click here to check out our approach to Wealth Management. Disclosure These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable — we cannot assure the accuracy or completeness of these materials. The information presented is not intended to constitute an investment recommendation for, or advice to, any specific person. The information presented here is not specific to any individual’s personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances. The information in these materials may change at any time and without notice.