The COVID-19 pandemic posed a number of challenges for the restaurant industry—including closures that stemmed from sheltering-in-place guidelines, prolonged labor shortages, and supply chain delays.
In 2020, the industry's total sales were $240 billion less than the National Restaurant Association had predicted before the pandemic's onset, and the industry's recovery wasn't immediate.
By mid-2021, the restaurants and accommodations sector had a record 1.7 million job openings. More than a third—40%—of operators said they weren't running at full capacity for indoor on-premises dining, and 90% reported they'd faced higher food costs.
More recently, however, restaurants' performance has been more promising.
Earlier this year, the National Restaurant Association forecasted the restaurant and food service industry would experience continued growth in 2024, with sales anticipated to exceed $1 trillion for the first time in history.
In a second-quarter report on the restaurant sector, global investment bank Harris Williams noted that, despite the pandemic's impact on the industry, M&A activity had actually remained surprisingly resilient in recent years, lessening only slightly since its 2021 peak.
With market conditions improving and a more standard operating environment now in effect, the bank said it anticipates seeing an increased deal flow in the restaurant industry in 2024—and beyond.
Investment Endeavors in the Sector
A number of food service companies have drawn interest from investors this year.
The Colony Group, a wealth and business management company founded in 1986[EB1], and advisory firm Hood River Capital Management purchased shares of CAVA Group, Inc., for instance—which operates the Cava Mediterranean restaurant brand, encompassing more than 300 fast-casual eateries in 24 states and Washington, D.C.
In the fiscal second quarter of 2024, CAVA's revenue rose 35.2% year-over-year to $231.4 million, and the chain opened 18 new locations.
Hood River Capital Management raised its shares of CAVA Group by 5%,[EB2], to a total of 656,870[EB3], according to Nasdaq data. The Colony Group increased its holdings by a whopping 645% and owned 313,446 shares.
Global value-oriented and event-driven hedge fund Armistice Capital also upped its stake in the company, increasing its shares by more than 422%; it currently holds 42,096 shares [EB4] of CAVA Group.
Armistice Capital also invested in another fast-casual chain, Shake Shack, this year. In the most recently reported business quarter, the hedge fund added more than 236,000 [EB5] shares, bringing its total to 579,904 shares, according to Fintel.
Shake Shack, which originated as a hot dog cart in New York City's Madison Square Park, serves premium burgers, crinkle-cut fries, shakes, and frozen custard—"elevated versions of American classics using only the best ingredients," according to the chain[EB6]. Shake Shack now has more than 530 locations in the U.S., London, Hong Kong, Shanghai, and Singapore.
As of June 30, asset manager Geode Capital Management had also purchased shares of the chain—35,966, bringing its total to 849,760, according to Nasdaq—and Wasatch Advisors [EB7] had increased its holdings by approximately 42%. Its purchase of 170,851 shares resulted in the investment firm owning 580,027[EB8].
Recent 13D/G and 13F form filings, Fintel says, indicate Shake Shack has 600 institutional owners and shareholders that hold a total of 42,365,553 shares.
Some of the company's largest shareholders include asset and investment management firm BlackRock Inc., which has expanded its amount of shares from 5,805,318 [EB9] to 5,944,165, and Vanguard Group, which has 4,374,541[EB10] shares.
Investments in a Similar Industry
In addition to restaurants, institutional investors and hedge funds have also focused on a number of entertainment entities in 2024—such as PENN Entertainment, a $3 billion company that operates sports content, gambling, and other businesses, ranging from racetracks to casinos.
According to Fintel, in August, Armistice Capital reported a 91.94% increase in its ownership of PENN. The fund's 13F-HR form stated it owned 2,643,060 shares of the company, which, as of June 30, were valued at $51,156,426.
Fintel also said Armistice Capital's investment in PENN was one of its largest portfolio allocation increases during the most recent business quarter. With more than 2 million shares, 0.6% of the hedge fund's portfolio is reportedly now comprised of the company's stock.
PENN currently operates 43 properties in 20 states under brands such as Hollywood Casino, Ameristar, and Boomtown. The company has diversified its holdings, according to Fintel, to include entities such as video gaming terminal operations and a sports betting platform.
Some of the corporation's largest investors [EB11] include BlackRock Inc., which holds 13,009,868 shares, and Vanguard Group Inc., which owns 16,496,265.
BlackRock and Armistice Capital have also invested in another entertainment company that includes a racing component, Churchill Downs Incorporated.
The parent company of Churchill Downs began with just one racetrack in Louisville, Kentucky, which has hosted the famed Kentucky Derby[EB12] since 1875. Churchill Downs Incorporated is now a publicly traded company that also owns casinos in cities such as New Orleans and Miami Gardens, Florida; an online wagering company; and other organizations.
Armistice Capital has grown its holdings of Churchill Downs by more than 4%[EB13]; Armistice currently owns 124,254 shares. BlackRock has added 1,331,695 shares of the company—an approximately 22% increase from its previous holdings.
