What Does Retail Trade Data Say About The Restaurant Industry?



Retail trade data

In the last part of this series, we saw that gross domestic product, or GDP, was better than expected during 3Q14. This should also reflect in business, especially retail trade. The U.S. Census Bureau releases monthly retail trade data on food services and drinking places. It collects the data from retailers that provide their sales and inventory dollar value at the end of the month.

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Food and drinking sales rise

Food services and drinking places—including restaurants—and grocery store sales data are two sub components of the retail trade data. They’re more relevant for investors focusing on the food industry. Restaurant stocks—like Chipotle Mexican Grill (CMG)—are included in the Consumer Discretionary Select Sector SPDR (XLY). XLY holds ~4% of McDonald’s (MCD).

Food and drinking places’ sales grew 11.3% in January 2015—compared to 4.6% in the same month in 2013. Grocery store sales grew 3.1%—compared to 2.7% in the same month in 2013. As we can see in the above chart, the food and drinking places’ sales grew more than grocery stores year-over-year, or YoY, since February 2014.

So, food services and drinking sales are more volatile than the grocery store sales. The sales took a harder hit during the recession, as we see in the above chart.

Mitigating risk

Between 1945 and 2009, the US experienced 11 business cycles—according to the National Bureau of Economic Research. To soften the negative impact during recessionary cycles, restaurants may consider entering grocery channel development. Starbucks (SBUX), Dunkin’ Donuts (DNKN), Taco Bell—under the umbrella of Yum! Brands (YUM), and Burger King (BKW) already did this by selling coffee and branded products through grocery chains.

There are two indicators for retail sales—the ICSC-Goldman Store Sales Index and the Johnson Redbook Retail Sales Index. In the next part of this series, we’ll discuss how the indicators performed.


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