What happened: Restaurant companies’ share prices continued taking a beating on March 12, following a rout sparked by fear of a global economic slowdown because of the COVID-19 pandemic.
Why this matters: It shows that investors believe the pandemic will keep great numbers of people from going to restaurants – a scenario that could put many restaurateurs out of business.
The global slowdown is expected to accelerate as government travel bans and large event cancellations become more numerous. Tourists and attendees at large events drive the restaurant sector.
BC Restaurant & Food Services Association CEO Ian Tostenson spoke with Business in Vancouver, however, and he was not as downbeat as many investors are with the sector.
He said that the share-price slides are “trending with the market,” and that even if people self-isolate, and take health officials’ advice to socially distance themselves from other people as much as possible, there will be demand for restaurant meals as not everyone will start cooking their own meals.
“A big part of the market will go, ‘What? Cooking?” Tostenson said. “You’ll see a continued increase, and I think a dramatic increase of people saying, ‘You know what? I’m not going out but I’m not going to sacrifice my favourite restaurant food.’ They’ll order through third party delivery services. That sector is going crazy and it will go more crazy now.”
Investors, however, appear to believe otherwise as B.C.-based restaurant chains have been hammered.
Shares in Richmond-based Keg Royalties Income Fund (TSX:KEG.UN), which generates royalties from more than 100 Keg restaurants, were down 15.53% on March 12. That fifth straight day of declines was steeper than the previous day’s 10.27% sell-off.
The fund is now down 47.78% from its 52-week high of $17.81.
The Richmond-based Boston Pizza Royalties Income Fund (TSX:BPF) closed down 19.14% on March 12, and is down 54.65% from its $18.71 52-week high.
Fast food restaurants were also not spared. The North Vancouver-based A&W Revenue Royalties Income Fund (TSX:AW.UN) was down 10.18% on the day, and 42.79% from its $47.65 52-week high.
Tostenson said that he liked the federal government's move on March 11 to provide Employment Insurance to workers without any wait time, as had previously been the case. That move particularly helps restaurant workers because many are paid hourly and have no right to pay when they are sick and do not work.
The Canadian government's $1 billion plan also provides that businesses experiencing a downturn due to the virus will be eligible for employee income support for up to 76 weeks. Normally, Canada's work-share program provides compensation to struggling employers for up to half that length of time. The program allows companies to keep workers employed and paid even if worker hours are reduced.
Provinces and territories will receive $500 million for critical health system needs, such as access to testing and enhanced monitoring. Federal public health measures – including enhanced surveillance, increased testing and support for First Nations and Inuit communities – will also receive $100 million, in addition to the initial $50 million that has already been committed.
– includes a file from Hayley Woodin
