The food industry is big business, and foodies are driving explosive growth. How can investors tap into the food industry and capitalize on these trends?
The U.S. culinary scene is booming, with top chefs on par with celebrities, and diners who get to eat fresh, delicious, and locally grown food no matter where they live.
Many of the hippest restaurants are in big cities, like the always-popular Momofuku Noodle Bar in New York, Parson’s Chicken & Fish in Chicago, or Zazie in San Francisco, but even smaller cities like Asheville, North Carolina and Portland, Oregon are heavy into the food scene.
The restaurant industry is big business. The National Restaurant Association forecast restaurant-industry sales in 2016 to reach $783 billion, the seventh consecutive year of real growth. The top three food trends for 2016 are locally sourced meats and seafood, chef-driven, fast-casual concepts, and locally grown produce, they said.
Many critically acclaimed restaurants are privately held, but that hasn’t stopped publicly traded restaurant holding companies from stepping up to the plate and offering higher-quality food to keep their customer base satiated. An example of this was the evolution of the “better hamburger,” with chains like Red Robin (RRGB), The Habit (HABT), and Shake Shack (SHAK) becoming popular with diners and investors at the expense of stalwarts like McDonald’s (MCD). But dining trends can be fickle, and investors may have gotten a little indigestion, as all four are off of their highs. HABT and SHAK are below their IPO prices. Figure 1 shows an index of these four stocks.
FIGURE 1: THE HAMBURGER INDEX.
To create a custom index of stocks like this, add the + sign between ticker symbols in the symbol box on the thinkorswim® Charts tab. For example, this chart was created with the following symbols: RRGB+HABT+SHAK+MCD. Data source: CBOE. Chart source: the TD Ameritrade thinkorswim® platform. For illustrative purposes only. Past performance does not guarantee future results.
Part of the trend among burger-focused stocks might have to do with a shift in consumer preferences. Beef consumption is declining in the U.S., as noted in food trade publication Global Meat News. More Americans are eating poultry instead.
“Better chicken” could be the next food trend for restaurants, according to a restaurant industry insight report from Duff & Phelps. They note that privately held Chick-fil-A surpassed Kentucky Fried Chicken, part of Yum! Brands (YUM), as the top chicken fast-food chain in 2013 despite KFC having more than twice as many U.S. stores. Duff & Phelps says Chick-fil-A serves up a hand-breaded, breast-shaped fried chicken sandwich versus the heavily processed chicken patties its competitors serve.
Duff & Phelps notes Chick-fil-A’s success is being studied closely, with Shake Shack testing out a better chicken sandwich, for instance. Duff & Phelps also said that several of the “better-chicken” chains in the U.S., such as Wingstop (WING), saw more locations opening up.
“While not all of these chicken chains offer chicken sandwiches, they do show that the demand for better chicken is heating up,” they said.
Investors who want to gain exposure to trends in food can look to futures contracts to add meat and bread to a portfolio. Although there are no chicken futures, investors can look to the CME Group’s live cattle and lean hogs futures markets for a protein component.
More liquid futures markets include the CME Group’s grain futures. Wheat is the main ingredient in bread, of course. Just as important are corn, soybeans, and soybean meal and oil, which make up livestock feed, to plump up those cattle and hogs for dinner. Figure 2 displays wheat (/ZW) and corn (/ZC) futures over the last year. Corn futures are shown as purple candlesticks.
FIGURE 2: WHEAT AND CORN FUTURES RALLY.
Grains futures rallied through June, helped by a weaker dollar. Data source: CME. Chart source: the TD Ameritrade thinkorswim® platform. For illustrative purposes only. Past performance does not guarantee future results.
The premier derivatives trading platform thinkorswim®, free technical studies, and 24/7 support and free educational resources.
for thinkMoney ®
Financial Communications Society 2016
for Ticker Tape
Content Marketing Awards 2016
Inclusion of specific security names in this commentary does not constitute a recommendation from TD Ameritrade to buy, sell or hold.
Futures and futures options trading is speculative, and is not suitable for all investors. Please read the Risk Disclosure for Futures and Options prior to trading futures products.
Futures and futures options trading services provided by TD Ameritrade Futures & Forex LLC. Futures trading privileges subject to review and approval. Not all clients will qualify.
All investing involves risks, including loss of principal.
Market volatility, volume, and system availability may delay account access and trade executions.
Past performance of a security or strategy does not guarantee future results or success.
Options are not suitable for all investors as the special risks inherent to options trading may expose investors to potentially rapid and substantial losses. Options trading subject to TD Ameritrade review and approval. Please read Characteristics and Risks of Standardized Options before investing in options.
Supporting documentation for any claims, comparisons, statistics, or other technical data will be supplied upon request.
The information is not intended to be investment advice or construed as a recommendation or endorsement of any particular investment or investment strategy, and is for illustrative purposes only. Be sure to understand all risks involved with each strategy, including commission costs, before attempting to place any trade. Clients must consider all relevant risk factors, including their own personal financial situations, before trading.
This is not an offer or solicitation in any jurisdiction where we are not authorized to do business or where such offer or solicitation would be contrary to the local laws and regulations of that jurisdiction, including, but not limited to persons residing in Australia, Canada, Hong Kong, Japan, Saudi Arabia, Singapore, UK, and the countries of the European Union.
TD Ameritrade, Inc., member FINRA/SIPC. TD Ameritrade is a trademark jointly owned by TD Ameritrade IP Company, Inc. and The Toronto-Dominion Bank. © 2019 TD Ameritrade.