A restaurant-themed exchange traded funds to capture consumers’ changing preferences and the increased popularity of spending on experiences, like dining out.
On the recent webcast, How Your Portfolio Could Bite Into Consumer Spending, Michael Cronan, President of BITE ETF, explained that the consumer discretionary sector is characterized by businesses that are most sensitive to economic cycles, including hotels, restaurants and other leisure facilities, media production and consumer services. Consumer staples, on the other hand, include businesses that are less sensitive to economic cycles, including manufacturers and distributors of food, beverages and tobacco and producers of non-durable goods and personal products.
However, Cronan argued that the line between consumer staples and consumer discretionary is often blurred when looking at the restaurant business.
“While restaurants fall int eh consumer discretionary sector, the bottom line is simple – people need to eat and they have endless choices on how to satisfy the need,” Cronan said.
Over the past 150 years, historical trends also revealed that American consumers are shifting their eating habits away from home meals toward restaurants. According to the United States Healthful Food Council data, spending on food at home fell to about 50% in 2014 from 90% in 1904, while spending on food away from home rose to 50% in 2014 from 10% in 1904. For the first time ever in March 2015, Americans spent more eating out at restaurants and bars than they did on groceries.
Related: Lower Food Costs May Boost Restaurant ETF This Earnings Season
In a survey of advisors who attended the webcast, 44% indicated they eat out once or twice per week, 35% said they eat out three to four times a week, and 11% eat out five to six times per week.
This year has been a great year for the restaurant business as well, with the Chain Store Guide (CSG) Restaurant Spending Index increasing to an all-time high of 110.2 this past June.
Looking at U.S. consumers, the improved jobs market, with unemployment rates below 5%, could open more opportunities to increase consumption growth as those generating disposable income are more apt spend on discretionary options.
[related_stories]Further supporting Americans’ income, oil prices have declined about 50% since 2014, and spending on gas has dramatically decreased – AAA recently stated that gasoline prices are now at a 12-year low. The lower energy prices can also help businesses keep costs associated with transportation and operations down as well.
“Consequently, around $100 billion in disposable income has been freed up for spending in the consumer discretionary sector,” Cronan said. “With 9 in 10 consumers saying they enjoy going to restaurants, a portion of that newly freed discretionary income will likely go to eating out.”
Cronan also believes that low interest rates could help contribute to franchise openings – fast casual franchises finished with an 11% annual growth within the U.S. Moreover, the boom in fast casual diners is fulfilling an unmet need in the market by providing healthy choices in relaxed environment. Looking ahead, the U.S. is expected to generate $48.8 billion in new food service sales between 2015 and 2020.
Related: 21 Consumer Discretionary ETFs for Economy Growth
Restaurants have also upped their game to capture their share of discretionary spending, increasing the number of touch points they have with consumers through new technologies, using technology as a marketing tool and decreasing big budget ads with more one-to-one promos through mobile applications.
ETF investors who have an optimistic outlook for the restaurant segment can get targeted exposure to the sector through the Restaurant ETF (NasdaqGM: BITE), which includes exposure to many eateries, with top components including Arcos Dorados Holdings (NYSE: ARCO) 3.0%, Dave & Busters (NasdaqGS: PLAY) 2.9%, El Pollo Loco (NasdaqGS: LOCO) 2.9% and Dominos Pizza (NYSE: DPZ) 2.6%.
Financial advisors who are interested in learning more about the consumer services industry can watch the webcast here on demand.