Restaurants are in a Hedgeye "Quad Three" environment with growth slowing as inflation is accelerating giving a market narrative of stagnation/stagflation. As we look to 1H22 where the market narrative will likely turn to "deflation," we are adjusting our longs and shorts ahead of that shift. As such we are adding MCD, SBUX, WING, and YUM to the LONG list and removing DASH, TOST, and TKWY-NL from the long list. All of this will manifest itself in a very challenging top-line environment in 2Q22. We go over all of our thoughts in an upcoming Restaurant Themes Call focused on the following themes.
Last week we took DASH off the long list. It's starting to feel like 2018 all over again when GRUB was spending aggressively against the "upstart" DASH for delivery market share in the US. In 2022 will have a significant increase in spending around its global grocery initiative. Instant Groceries where urban-dwelling consumers buy food and other essentials and can get them delivered in 15 minutes or less continue to be a big business. One of the biggest, GoPuff, raised $1.5 billion with a valuation of up to $40 billion. From the TechCrunch reporting, the funding is being structured as a "Series X" convertible note from Guggenheim Partners. The speculation is now that GoPuff will most likely IPO in 2022. All of this will increase pressure on DASH spending plans. On top of that DoorDash is doubling down on its first-party DashMart initiative, creating an entirely new class of W2 labor that goes against its part-time gig model. Under vertically integrating, DoorDash doesn't have to worry about take rates from third-party restaurants or grocers– it is the merchant of record. By hiring its own bikers through its new DashCorps subsidiary, it can better control the working conditions and minimum wages that have previously left its Dashers out in the cold. This change in the business model is a net negative. The changes in Europe's labor laws are another incremental negative for growth internationally. The same holds true for Just Eat Takeaway - the purchase of GRUB in the USA will be a drag on the financial performance for the balance of 2022.
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