As commodity costs continue to impact the restaurant sector, there is an increased desire to gain incremental day-part occasions to substitute for the core business that may have waned during the recession, says Matthew J. DiFrisco, a Director and Senior Analyst for Lazard Capital Markets.
“So I think people are continuing to evolve. The sector has gotten a little bit more mature, and they’ve looked toward incremental day parts or the incremental occasion that they’re traditionally not necessarily known for,” he said.
DiFrisco recommends Starbucks Corporation (SBUX) because of alternative growth channels that the company is focusing on, such as licensing opportunities, internationally and domestically. Also, coffee as a commodity will help secure earnings growth at Starbucks and probably put it above a 20% outlook beginning in FY13 for multiple years, he says.
“So they’re looking to manage the brand, I think, much more based off of returns rather than just driving the top-line growth, and they’re being very prudent on how they deploy their own capital. You’re seeing margins reflect that,” DiFrisco said.
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