The quick-serve restaurant stocks have been facing some pressure points of late, thanks in part to the inflation-driven rush to make food at home. Indeed, discount retailers and low-cost grocers have thrived in this climate. And though many of the restaurant plays have done a fairly reasonable job of navigating through cost increases, it certainly seems like consumers are so sick and tired of getting pinched by everyone. They’ve had enough and they’re avoiding even the tastiest fast-food joints, including the incredibly convenient (and pretty cheap) pizza delivery top dogs.
Have consumers lost their taste for quick and easy eats? Probably not. It’s just inflation that’s weighing heavily. And though it’ll take many quarters to “get used” to these horrid higher prices, I do think that the entire restaurant industry is ready to pull back on the price hikes a bit, perhaps with a few cuts (or limited-time promos) in the cards.
Whether we’re on the cusp of deflation in fast food remains to be seen. Regardless, consumers want value, and they seem slated to get just that as restaurant companies look to find cost savings elsewhere. Indeed, you can’t just pass higher prices onto the consumer anymore without resistance or even backlash. They’re getting fatigued, and they clearly aren’t afraid to let their wallets do the talking.
Why pizza stocks over other restaurant plays?
Undoubtedly, food delivery has made it possible for consumers to get whatever type of food they want in record time. Ordering pizza is no longer the top option. Still, how many times have you ordered food only to have it arrive lukewarm and soggy?
Indeed, the delivery driver may be partially to blame for soggy and cold food. But perhaps the nature of the food being delivered may also bear some of the blame. When it comes to pizza, though, they tend to arrive at your door as they come fresh out of the oven. Further, pizzas tend to be incredibly cheap to feed families of three or more.
In any case, here is one of the most intriguing pizza plays that may be worth investing in before the industry’s tides turn and yields begin to retreat.
Pizza Pizza Royalty
When it comes to value, it’s tough to top Pizza Pizza Royalty (TSX: PZA), or Pizza 73, as it’s known in Alberta. Its pizza price lock-in commercial is a humourous jab at inflation and its impact on everyday food items, and it appears to be hitting a spot with consumers who want value and convenience together. I think the marketing campaign has been working. Though the stock has been correcting of late, down around 11% from 52-week highs.
I’d argue the dip is more than buyable, given the value proposition in the homegrown pizza play. With a juicy 6.86% yield and a good amount of longer-term momentum in shares, PZA ought to be atop your watchlist as consumers look to stick with the market’s best value offerings. Though the pizza may not be best-in-class, I think its offering and shares are competitively priced enough to continue thriving from here.
The Foolish bottom line
If you love royalties, PZA shares are more than worth pursuing right here while they are dipping a bit. The value proposition, impressive delivery capacity, and “fresh factor” should keep orders coming in hot.
