Fast-Food Chains In For Job-Loss Pain
03 Juin 2009 - 10:37PM
Dow Jones News
Continuing job losses spell bad news for the entire restaurant
industry, as consumers become more reluctant to spend, but some
analysts say fast-food chains may be in for an extra helping of
pain.
More so than sit-down eateries, fast-food restaurants cater to
customers steeped in routine, whether they're picking up an Egg
McMuffin at McDonald's Corp. (MCD) for breakfast on the way to work
or downing a Burger King Holdings Corp. (BKC) Whopper sandwich
during a lunch break. As those customers lose jobs, routines are
shucked as those once reliable diners stay at home.
"There's a lot of folks that had a pattern of driving to the
office, factory or plant who aren't doing that anymore," said
Morgan Keegan & Co. analyst Robert Derrington.
Job losses are slowing, with Wednesday's Automatic Data
Processing and Macroeconomic Advisers reporting the private sector
shed 532,000 jobs in May, fewer than economists had expected.
That's still over half-a-million people no longer making their
commutes, creating a dreary employment picture and one factor
restraining shares of fast-food chains this year.
Burger King and Wendy's/Arby's Group Inc. (WEN) are two of the
worst-performing chains among restaurant companies so far this
year, with shares down 29.6% and 18%, respectively. Both companies
are struggling as they lose market share to category leader
McDonald's, whose shares have lost a modest 2.2% so far this
year.
The fast-food chains' share-price performance comes as their
casual-dining counterparts are rallying, many off multi-year
lows.
Operators of full-service restaurants, which include Brinker
International Inc. (EAT) and DineEquity Inc. (DIN), felt the sting
of job losses first, as consumers pared back higher-priced meals.
Now that sales and traffic in their dining category have
stabilized, fast-food is beginning to suffer, seeing its first
quarterly traffic decline since 2003.
Fast-food operators are responding with value, with Burger King
most recently starting to promote value items more heavily several
months earlier than anticipated.
"In their defense, they have more robust value and dollar menus,
which could protect them in this environment," Telsey Advisory
Group restaurant analyst Tom Forte said.
Some investors, though, have grown jittery that steep
discounting will eat into profits due to lower sales.
-By Paul Ziobro, Dow Jones Newswires; 201-938-2046;
paul.ziobro@dowjones.com