Why Panera Is Our Top Restaurant Pick
The market isn't giving the narrow-moat restuarant enough credit for its ability adapt to evolving consumer expectations over the next several years.
Heading into 2017, we believe the key question on most restaurant investors' minds is whether the industry will reach an inflection point with respect to sales trends. 2016 was a difficult year for most restaurant operators, with comparable traffic trends declining much of the year. It's difficult to pin the industry weakness on one factor, with elevated rent and healthcare costs, the wide gap between the food at home (grocery store) and food away from home (restaurant) CPI spread (which stands at its widest point since the early 1980s), and uneven pre-election consumer sentiment trends all probably playing a role. However, we believe an overlooked aspect of recent industry trends is many restaurant chains' slow reaction to evolving consumer expectations regarding value, convenience, health, and technology.
We believe those players that have adapted their business models for these changing demands are best positioned to outperform industry traffic trends in the coming year, and we think it would be a mistake for investors to write off these companies amid concerns about lingering industry trends. In particular, we don't believe the market is giving narrow-moat
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