Where Do Restaurant Stocks Stand In A World Dominated By Amazon?

Amazon.com, Inc. (NASDAQ: AMZN)’s takeover bid for Whole Foods Market, Inc. (NASDAQ: WFM) sent grocery stocks tumbling, but it could be bad news for restaurant stocks as well. Following news of the Whole Foods buyout, a number of analysts discussed the potential for a pricing war in the grocery space that could trigger deflation in food prices.

That deflation may make life more difficult for restaurant stocks as well, Bernstein analyst Sara Senatore wrote on Thursday. When food prices are low, consumers see more value in eating at home. Restaurants will likely try to combat the convenience of stay-at-home dining by focusing on their own convenience offerings, Senatore said.

Investors should look for restaurants to roll out more delivery and to-go promotions in the near future.

However, investors shouldn’t expect an all-out grocery pricing war to spill over into the restaurant business.

“We think restaurant prices are generally marked against center-of-the-plate items (proteins), which have largely been dictated by commodity/farm prices over time (despite continued grocery share gains on the part of more efficient Supercenters/Warehouse Clubs,” Senatore wrote.

Related Link: 4 Big Takeaways From Chipotle's Updated Guidance

As convenience and value take center stage in the food industry, she says advertising, technology, mobile/digital ordering, and brand loyalty will play an even more important role for restaurant stocks.

Despite the impact the Amazon deal could have on restaurant investors, Bernstein maintains an Outperform rating on the following stocks:

• Yum! Brands, Inc. (NYSE: YUM)
• McDonald’s Corporation (NYSE: MCD)
• Starbucks Corporation (NASDAQ: SBUX)
• Panera Bread Co (NASDAQ: PNRA)
• Chipotle Mexican Grill, Inc. (NYSE: CMG)

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