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On Thursday, Bernstein released a report examining the effects of deglobalization on the US restaurant industry, with a focus on the challenges faced by major chains. The analysis pointed out that US restaurants, particularly larger chains, are heavily reliant on international markets for growth. With over 2.2 restaurants per 1,000 people, the United States is one of the countries with the highest number of restaurants per capita globally. However, the recent trend of closures among the top 10 chains, totaling approximately 2,000 since 2019, indicates a potential saturation in the domestic market. Consequently, these brands have shifted their growth strategies towards international expansion. For deeper insights into the restaurant industry's dynamics and comprehensive financial analysis, InvestingPro offers detailed research reports covering over 1,400 US stocks, including major restaurant chains.
Deglobalization threatens to disrupt this growth trajectory through potential regulatory constraints and boycotts in foreign markets. The report identifies McDonald's (NYSE:MCD), Yum! Brands (NYSE:YUM), Starbucks (NASDAQ:SBUX), Restaurant Brands International (NYSE:QSR), and Domino's Pizza (NYSE:DPZ) as the most vulnerable, due to their significant international presence and association with American consumerism. Looking at Yum! Brands specifically, InvestingPro data shows the company maintains strong fundamentals with a 6.68% revenue growth over the last twelve months and a healthy current ratio of 1.47, though its stock has recently taken a 9.91% hit over the past week. The analysis also suggests that deglobalization may lead to permanent tariffs and a decrease in tourism and immigration, both of which could adversely affect domestic demand, particularly among low-income consumers.
The report further highlights the possible inflationary impacts of deglobalization on the restaurant industry. While most food costs in the restaurant supply chain are relatively localized, certain items like avocados and coffee beans, as well as paper, packaging, and equipment costs, could see price increases due to higher tariffs. Additionally, the labor market, which is composed of roughly 30% immigrants, may also be affected by global mobility restrictions. This could lead to increased costs for restaurants, which may struggle to pass these expenses on to consumers without compromising their profit margins. Despite these challenges, Yum! Brands has demonstrated resilience with a gross profit margin of 47.48% and has maintained dividend payments for 22 consecutive years, according to InvestingPro data, which offers 8 additional key insights about the company's financial health.
Franchised business models, according to the report, are expected to be more resilient to cost base fluctuations, posing greater risks to companies like Chipotle Mexican Grill (NYSE:CMG), Darden Restaurants (NYSE:DRI), Starbucks, and Cava. However, these brands' superior margins and employment propositions could potentially allow them to outperform smaller or independent restaurants in a deglobalized environment. This resilience is reflected in Yum! Brands' financial metrics, with the company maintaining a market capitalization of $40.51 billion and earning a "GOOD" overall financial health score from InvestingPro's comprehensive analysis framework.
In other recent news, Yum! Brands has been the focus of various analyst assessments and corporate developments. Piper Sandler's analyst, Brian Mullan, raised the company's stock price target to $150, citing significant success in Taco Bell's U.S. market and a recovery in same-store sales internationally. Meanwhile, TD Cowen maintained a Hold rating on Yum! Brands, with a price target of $164, highlighting the company's asset-light business model and international exposure as strategic advantages. In a notable leadership update, Yum! Brands announced that CEO David Gibbs plans to retire in the first quarter of 2026, prompting the board to initiate a succession planning process. Gibbs, who has been with the company for 36 years, has overseen significant digital sales growth and global expansion during his tenure. Under his leadership, digital sales exceeded $30 billion, and the company's global presence expanded to over 61,000 restaurant units. Additionally, Yum! Brands has introduced a new KFC spin-off concept named Saucy, which aims to rival competitors like Raising Cane's. These recent developments highlight Yum! Brands' ongoing strategic initiatives and leadership transitions.
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