The top theme for us in the restaurant space is Flight quality, and some of the top names are seeing some incremental negative headlines this week. We have made several changes to the Hedgeye Restaurants position monitor at the beginning of the year. Inflationary pressures are well known, and this pervasive impact on the restaurant industry might not get much reprieve in 1H 2022. Labor wages and supply are a central theme for the industry, and it requires extraordinary moves by companies to attract a quality labor supply. Only a few companies have the financial means to step up and take care of their employees and be long-term beneficiaries. As a result, we don't see any upside to the current sales and earnings estimates in Casual Dining, and that can be extended to MCD, SBUX, and CMG.
STAFFING ISSUES ARE NOT NEW
MCD is a LONG
If you had listened to the call, you would have heard Keith, and I talk about the staffing issues for the past six months. The question I'm trying to understand is it getting worse? McDonald's has now publically quantifies the impact saying that its franchisees have cut operational hours in response to a lack of employees at a number of its U.S. locations because of coronavirus staffing shortages by 10%. Did this contribute to the restaurant industry data showing a dip in sales at the end of December? Chris Kempczinski, the MCD CEO, says adjusting during these times is one of many priorities for the company's growth and well-being.
SBUX UNITIZATION IS GAINING STEAM
SBUX is a LONG
Starbucks has staffing issues, but it also has other cultural issues to grapple with. Starbucks Corporation is on a path to be hearing a lot about unions this year, with organized labor efforts expanding to new parts of the U.S. The latest developments are that most employees at a store in downtown Cleveland signed cards to be represented by Workers United, workers at a store in Tallahassee, Florida, filed for a union election, and Starbucks staff are voting on unionization at three more stores in New York. The union fight has even gone to the company's heart, with workers at two stores in Seattle exploring the option. The degree that costs accelerate significantly is another issue, but the company can certainly cover the costs.
YUM CHINA
New Product news in China
YUMC is increasingly tapping into regional Chinese cuisines and adding traditional local dishes to its menu to penetrate the Chinese market. Last year, KFC launched 12 regionally inspired menu items across dayparts and introduced regional menu items to meet the diversified needs of Chinese consumers. Over 1M bowls of hot, dry noodles were sold within the first week of launch in September 2021 nationwide, becoming KFC's best performing LTO breakfast item in the past three years. "China prides itself on having rich and diverse food scenes. Almost every city has its food specialties, particularly when it comes to breakfast," said Joey Wat, CEO of Yum China. "Launching regional menu items is part of our strategy to relentlessly pursue food innovation, which helps us respond to fast-changing consumer demands and keep up with the latest trends."
