It’s Not in Your Head, Restaurants Are Closing Earlier

Key Takeaways:

• Chain and independent restaurants have, by and large, reduced their operating hours. 
• There’s significant variation across companies, cities, and even zip codes within cities. 
• While the data is a buzzkill, it’ll likely benefit some top stocks in the space.  

First, two outliers that stand out. Big, though not massive like McDonald’s (MCD), fast-food chains that have expanded their operating hours. 

Source: Google Finance

Wendy’s (WEN) is open 21.2 more hours per week now than it was in 2019. Jack in the Box (JACK) comes in a not-so-close second at 2.4 hours more per week versus 2019.

While they don’t make the Trackstar top five among restaurant stocks, they’ve both caught investors’ attention over the last week. Search interest in JACK exploded 440% higher, while it popped 46% for Wendy’s.

Both companies recently reported Q3 earnings. JACK beat analyst expectations on sales but missed on profits. WEN did the opposite, hitting expectations on profits but not sales. 

You gotta think the decision to expand operating hours has something to do with this: 

Source: Datassential Firefly

If everybody else is closing early, why not stay open longer and later to fill the gap competitors in your market have created? 

Be that late-night option. Buck the trend. 

The trend being:

• Nationwide, restaurants of all types are open an average of 6.4 fewer hours per week compared to 2019. That’s a 7.5% drop. 
• Leading the pack are casual sit-down and independent restaurants, open 8.9 and 7.5 fewer hours per week, respectively. 

While Wendy’s leads in expanding its schedule, Denny’s (DENN) reduced its hours the most, by 30.1 hours per week. Texas Roadhouse (TXRH) comes in second at 21.2 fewer hours, followed by IHOP, which Dine Brands Global (DIN) owns, at 17.7 fewer hours. 

As usual, location matters. 

Alaska was the only state that had an increase in hours (+2.7 per week). 

Washington, D.C., posted the steepest decline (-12.5), followed by: 

• Vermont (-11.3) 
• Maine (-9.8) 
• New York (-9.5) 
• Connecticut (-9.2) 

The fine-grain data out of New York City lends credence to the thesis that Manhattan is in trouble. Restaurants in some of Manhattan’s coolest neighborhoods – Chelsea, the Meatpacking District, and the East Village – reduced hours by nearly 20 per week, trouncing the statewide average. 

Similar, though not as dramatic, story in Los Angeles. In the zip code that covers the heart of Hollywood, restaurants trimmed 8.4 hours off of their schedules. Key San Francisco neighborhoods saw similar declines. 

Chicago’s River North neighborhood topped the list, cutting 20.2 hours. 

The Bottom Line: When we walk around Los Angeles and San Francisco, restaurants and bars remain packed. We get similar reports from friends in New York and D.C. So maybe it’s less about urban demise and more about our original thesis, restaurants getting lean amid aforementioned economic issues and a labor shortage. 

Consider Starbucks. Like many big chains, it continues to open new stores. It’s just going smaller-format, with more focus on grab and go. While the company has you there, it’s nickel-and-diming you on customizable options to help bolster check size. 

To this end, an analysis of restaurant menus nationwide shows that the fastest-growing menu categories are flavors, sauces, spices, and cheese. Because they’re options restaurants can charge to customize, adding to your total bill. 

This also follows Starbucks’ lead. Pretty crazy how a coffee chain takes a lead role in dictating the game for the larger restaurant industry. This is one reason it’s one of our favorite stocks for long-term investors.

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