- Pfizer announced on Monday that clinical trials revealed that its vaccine helped prevent COVID-19.
- The news serves as a “light at the end of the tunnel” of sorts for the restaurant industry, according to Edward Jones analyst Brian Yarbrough.
- Colder weather and surges in COVID-19 cases will create risks for restaurants this winter.
- However, the vaccine, election outcome, and likely stimulus package are reasons for longer-term optimism.
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The restaurant industry just got some good news after a rough year.
On Monday, pharmaceutical company Pfizer announced its vaccine helped prevent COVID-19 in the final stage of clinical trials. The news sent markets soaring, as people celebrated the possibility of a wider rollout.
Restaurants were among the biggest winners, especially sit-down, casual dining chains. Ruth’s Chris’ shares were up more than 25%, Olive Garden’s parent company Darden surged more than 18%, and Applebee’s and IHOP’s parent Dine Brands’ shares shot up more than 16% on Monday.
“I think the restaurant industry is in a great position, if things return to normal next year,” Edward Jones’ analyst Brian Yarbrough told Business Insider on Monday. “I think they all win.”
Restaurants needed the good news, Yarbrough said. Colder weather has made it more difficult for people to eat outside, effectively ending one of the safer options for restaurants to recapture customers. As people start socialising inside more, it also contributes to COVID spikes â€” which can necessitate stricter safety precautions, such as shutting down indoor dining altogether.
It’s a brutal combination of factors that could force hundreds of thousands of restaurants out of business in the coming months. However, with the vaccine serving as the “light at the end of the tunnel,” Yarbrough said, it will be easier for restaurants to secure loans and stay in business through a difficult winter.
“If you’re a restaurant owner and you’ve just lived through, probably, the worst six months of your career â€” no matter how long you’ve owned a restaurant â€” it really begs the question: Should I keep doing this?” Yarbrough said. “So I think it gives some hope.”
There are other new reasons for restaurants to hold out through the rough winter
As Americans begin looking ahead to 2021, there are significant positive shifts even as the near future looks dire for restaurants.
UBS wrote in a note on Sunday that the restaurant industry’s recovery “largely stagnated” in October, as sales gains continue to decelerate. Short-term risks include COVID-19 case spikes and colder weather.
On the other hand, the election outcome and likely stimulus package provide reasons for long-term optimism, in addition to Pfizer’s vaccine news.
President-elect Joe Biden’s plans to raise the minimum wage to $US15 per hour, as well as hike corporate taxes, are two of the biggest potential drags on the restaurant industry, according to Yarbrough. However, with a Republican-controlled Senate, it will be difficult for Democrats to pass higher taxes and new regulation.
“Post-election implications were generally viewed favourably, w/ less concern for significant min. wage increases & higher corp. tax rates, while COVID spikes and stimulus scenarios are now the focus,” UBS analyst Dennis Geiger wrote.
Meanwhile, it seems very likely that the government will pass another stimulus package in the coming months. Goldman Sachs said on Saturday that the government is likely to pass $US1 trillion in fiscal stimulus, either before Biden’s inauguration or early in his presidency.
A new stimulus package could provide a jolt of momentum, helping struggling restaurants hang on through the winter. Retailers and restaurants have said that the first round of personal stimulus checks helped boost sales earlier this year.