The restaurant industry is a part of the consumer discretionary sector as classified by Global Industry Classification Standard (or GICS). Consumer discretionary stocks such as those held by the ETF Consumer Discretionary Select Sector SPDR (XLY) consists of nonessential goods and services such as retail businesses, autos, and hotels.
This sector does well when the economy is expanding and does poorly when the economy is contracting. In other words, it’s cyclical. GDP (or gross domestic product), which is the value of goods and services produced in the United States, indicates the health of the economy. It’s a good place to start understanding how macroeconomic trends affect the food services or restaurant industry.
The Bureau of Economic Analysis reported a GDP growth of 5% in the third quarter compared to a growth of 4.6% in the second quarter. The Wall Street Journal’s economists’ survey estimated it to be 4.3%.
The US economy went into recession between December 2007 and June 2009, which led to a dip in GDP, as we can see in the above chart. During recessionary stages, people tend to spend less on nonessential items such as dining out and instead prefer cooking meals at home. So grocery sales for retailers such as Wal-Mart (WMT), Costco (COST), and Kroger (KR) aren’t affected as much during a downturn as restaurant stocks are for companies such as Yum! Brands (YUM), McDonald’s (MCD), and Darden Restaurants (DRI).
Retail trade sales
The U.S. Department of Commerce: Census Bureau reports retail trade sales data, which include food services and drinking places, and grocery sales data. Given the strength in the economy, let’s look next at these indicators in more detail.