Consumer Confidence – Where Consumer Confidence Numbers Are Telling Us To Invest
A few weeks ago I spent a good deal talking about consumer confidence numbers. If you recall, there are three different consumer confidence studies out there…
All three were different…
Yet amazingly, they all have one thing in common… confidence numbers are improving.
Regardless of which study you look at, over the last 12 months, consumer confidence numbers are moving higher. Up and to the right if you will.
As a result, the freewheeling spending by consumers, while not back with a bang, is picking up speed. Right now, consumers are more willing to spend disposable income on higher end products, travel, vacations, and even food.
The willingness to open up the wallet is improving… and that’s important for our economy. It’s also great news for stocks…
As a matter of fact, I’ve already discussed a number of different ways to profit from this trend. I’ve suggested you look at areas where consumers have cut back. Identify industries where consumers put away their wallets during the recession.
Those are the same industries where spending is now picking up speed.
The first area to come to mind is vacation service providers… think of airlines, casinos, and hotels.
I also highlighted the recent surge in car and truck purchases. The automotive companies are seeing product sales pick up steam too.
If you put your mind to it, I’m sure you can uncover a few more…
As you put on your thinking cap, let me share one of the most obvious areas… Fast Casual Restaurants.
Now bear with me for a moment… I’m not talking high end steakhouses or fancy French restaurants sporting 5 star ratings. Nope. I’m talking about the everyday swing by for a sit down meal that many Americans enjoy.
Take a look at the weeknight spot to grab a beer, a meal, or enjoy the moment.
This is one of the first areas many Americans cut back on when times were tight. Dinners out were put on the back burner. People started cooking at home… Making dinner at home became the new American pastime.
Now the trend is starting to reverse.
With consumer confidence rising, many are clearly feeling confident about their jobs once again. Spending money is no longer shunned. And while it’s not like the old days, the money flow is starting once again.
So who’s going to benefit from this trend?
Numerous companies will see their performance improve, but one restaurant I like is Chili’s! They are owned by a company called Brinker International (EAT). Don’t you just love their ticker symbol!?!
Chili’s has over 1,300 locations across the country. I’m willing to bet you’ve eaten at one… or have at least heard about them.
Now, what’s interesting about Brinker is how they reacted to the economic downturn. They realized customer visits and revenue would fall. So they started working proactively on cutting back expenses.
But they did things a little differently.
Instead of switching to cheaper products or lower quality food, they set out to streamline operations.
They did studies in kitchen efficiency. They looked at how long it takes to prepare certain meals. Who actually needs to do what… and how much time it takes. They installed new kitchen appliances to eliminate some of the hands on cooking. As a result, they were able to cut back on the number of cooks needed in the kitchen.
The remaining cooks can now focus on other food prep activities.
Brinker was also able to streamline service. They re-created how food and drinks are delivered to customers. And, as a result, they eliminated table bussers.
By stripping back just one layer of people and consolidating their job activities, Brinker eliminated a time delay waiters had experienced. As a result, a bottleneck was eliminated, allowing food and drink to reach your table much faster!
Despite all the streamlining, things are still tight at Brinker.
Last quarter customer traffic was down 7.1%. It’s not what you want to see, but they made the best of that traffic. Same store sales fell only 4.9%. So, despite fewer customers, they were able to keep revenue from falling too far.
Now here’s the upside.
Remember, customers are once again starting to eat out. Chains like Chili’s will soon begin seeing an increase in customer traffic and spending. Customer numbers will only grow as the economy improves. And once that happens, you’re going to see revenues jump as well.
Best of all, the cost cutting Brinker did during the downturn will stick, so costs will remain low and profits will skyrocket.
These are the types of investment you want to jump into before consumer spending spikes… once financial numbers start improving significantly, the stock is sure to take off. If you’re looking for a great way to play the improving consumer confidence numbers, take a close look at the fast casual restaurants. You’re sure to grab some big gains there!
Category: Stocks
