Between Q1 and Q2, consumer-oriented hedge funds have had ample food for thought, with a number of compelling CPG, QSR, and foodservice plays attracting buy-side investment at a time when real wages are accelerating and U.S. consumer sentiment indices have reached a bullish high of 97.7 in mid-May.

With Manitowoc Foodservice restructuring and rebranding as Welbilt, and with rivals Middleby and Illinois Tool Works continuing to enjoy double-digit EBITDA margins, investor attention is turning to the fast-food, fast-casual, and QSR capital replacement cycle. As a result of store refreshes at Arby’s, Bojangles, KFC, and Taco Bell — which include interior refurbishments as well as full kitchen renovations — demand for new fryers, conveyor ovens, and ice machines is picking up.  At the same time, with WBT guiding flat to 2% on growth and with 25% of WBT shares in the hands of activists, the onus is on management to execute, a topic that Coleman’s Consumer Sector Research team explored on a Hosted Events call in April with the CEO of a $1 billion competitor to WBT, Middleby, and ITW. 

In parallel, with $3.5 billion snacking giant Snyder’s-Lance facing headwinds as it builds out its better-for-you food empire, Coleman’s Hosted Events team also explored the unexpected departure of CEO Carl Lee Jr., higher-than-expected input costs, and marketing challenges around LNCE’s Pop Secret product during a call in early May with a retired ConAgra executive. Despite these challenges, LNCE’s efforts to reinvigorate the snacking category and build off of its #1 market share position in pretzels, crackers, and kettle-cooked chips appear likely to pay off over the remainder of 2017 and into next year. As snacking habits change and as portion control, gluten elimination, and sodium/glucose reduction play a more important part of the consumer calculus, LNCE is angling to be top of mind and front of store. Rivals Frito Lay and Amplify are also jockeying for market share, and it remains to be seen which player will be able to moat off their food franchises with the right direct store delivery (DSD) retail activation strategy.

The industry’s ongoing DSD transformation was also a topic of Hosted Events conversation in mid-May with the Regional Vice President at UniPro Foodservice, the largest private foodservice distribution cooperative in the U.S. comprising over 650 food and non-food distributing companies with a collective sales volume of over $60B.  During this call, we discussed the recent 52 week highs on U.S. Foods shares, speculation regarding a possible do-over on the SYY-USFD merger given the more amenable Republican FTC, and competition from Performance Food Group (PFGC).

Turning to the mass market segment, Coleman’s Consumer Sector Research team also held a Hosted Event in late May on McDonald’s same-store sales surge featuring a newly-recruited Philadelphia-area MCD franchisee. McDonald’s CEO Steve Easterbrook recently cited a “sense of urgency across the business as we take actions to retain existing customers, regain lapsed customers and convert casual customers to committed customers,” and many on the buy side have been looking for additional data points around McDonald’s ongoing revitalization efforts.

Earlier in the month, we also hosted a Starbucks update with a former SBUX Director of National Accounts looking at the social media darling otherwise known as the Unicorn Frappuccino, Kevin Johnson’s management succession from Howard Schultz, new menu items, and the performance of key suggestive selling/personalized marketing initiatives at Starbucks.

Finally, for the benefit of our EMEA clients and for global investors looking at the post-Brexit inflation picture in the UK, Coleman’s Hosted Events team held a conference call with the former CEO of The Restaurant Group PLC, one of the UK’s leading pub, steakhouse, and food concession operators. At a time when RTN’s rivals Whitbread, Greene King, SSP Group, and Wetherspoon all seeing higher wage bills, property taxes, food inflation, and an apprentice levy, each of the publicly traded operators has met with consumer backlash against higher prices. Nevertheless, post-Brexit UK dinner patrons and pubgoers are still eating out in full force. Comparable sales in the country’s leased and tenanted pubs, bars, and restaurants were up 1.7% percent in February according to the Coffer Peach Business Tracker, which has registered a like-for-like sales increase over eight of the last nine months. While Wetherspoon’s imposes a controversial price hike on its popular burger and drink deal — which now costs £7.40 — rival Whitbread continues trading with momentum as innovative brands with flair and value-oriented coffee shops continue to resonate.

All in all, it remains an exciting time for CPG, QSR, and foodservice investors, with considerable gains to be had from understanding the food chain, working with the cycle, and avoiding certain red herrings and hot potatoes.