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Coming Back To Earth: The Outback
Steakhouse Airship Bloomin' Onion 1.

One clue to the end of the bull market in the late 1990s, was a general underperformance in the value of restaurant stocks. As the quote from April 1998 reveals (see Additional References below for the full entry), the action proved to be a valuable indicator of the  bear market that hit in 2000. As we explained at the time, restaurants are important bull market institutions. Why spend $40 or $50 for a meal, you can make at home for $10? The main reason is that people feel good. They want to be out on the town showing off their fancy cars, clothes and jewelry and filling their bellies with fine food and drink. In a bear market, it makes no sense. The message of April 1998 applies to the “empty seats” now turning up at casual restaurant chains. Here again, it heralds the end an "economic uptrend that has supported” the fantastic success of the restaurant industry through the tail end of the bull market in small stocks and the countertrend rally in main indexes.

April 1998, The Elliott Wave Theorist
Munching on Evidence of a Grand Supercycle Peak
When people feel good, they like to get out, be seen, eat well and drink socially. This makes restaurants a focal point for the expression of a bull market mood. In our town, chain restaurants now seem to spring up a row at a time, which led us to dig up the following highlights in the history of the restaurant industry. Data show that the urge to eat out has been synonymous with the urge to buy stock for the duration of the Grand Supercycle bull market. The first true restaurant was the Grande Taverne de Londres, which was established in Paris around 1782, approximately the year that we believe Supercycle I began. Delmonico’s, the first American restaurant, was established during the final leg of Supercycle I. Between its establishment and the stock top of 1835, the Delmonico brothers and two other proprietors became the first to “operate multiple restaurants which functioned as a complex organism the use of the same name, almost duplicate menus, and similar genetic consistencies to create clones,” according to the book, From Boarding House to Bistro. Through the middle of the 19th Century, restaurants became more common, but the choppy stock market conditions were reflected in a high failure rate. Of the 497 different addresses in New York City from 1850 to 1860 only 11, or 2%, were open under the same proprietor in both years. True chains appeared after the Civil War, as Supercycle (III) began its steady advance. In 1875, in the middle of wave (III), the Harvey House restaurants, which ultimately grew to a highly standardized family of 50 restaurants, revolutionized the industry. “Like the Delmonicos, Fred Harvey was at the right spot at the right time,” records America Eats Out, a history of the restaurant business. “[His] effect was immediate, populist, and spread through the entire country, [setting] the course of culinary history.” In the bull market of the 1920s, cafeterias, speakeasies and White Castle hamburger joints spread rapidly across the country. Howard Johnson, Marriott Corp. and countless other “white box” hamburger stands tapped into the mass appeal that White Castle had uncovered. The next “revolution” was called “fast food,” which From Boarding House to Bistro dates to 1949, the exact year of the start of Supercycle wave (V) in inflation-adjusted stock prices, when the McDonald brothers established a walk-up hamburger stand. In many ways, “McDonald’s story was a re-enactment of the [White Castle system] in the 1920s.” In 1954, as the “third of the third wave” entered its acceleration phase, Ray Kroc bought the franchise rights, capturing what may be America’s No.1 brand name by introducing speed, efficiency and mass marketing to the industry. McDonald’s capped off a decade of rapid growth with the first major offering of a restaurant stock in 1965, a few months before the wave III peak.

Through the first 200 years of the bull market, the relatively fragmented and faddish nature of the industry kept most eateries out of the stock market. McDonald’s still makes up almost 80% of the S&P restaurant index because it remains one of just four well-established restaurant-chain stocks. Appropriately, however, in this final leg of the advance, the public has assumed much of the risk that is inherent in catering literally to tastes. In the current bull market, the number of restaurant stock offerings has mushroomed into the 100s, financing an unprecedented boom in restaurant industry growth. Almost 45% of the money spent on food now is spent in restaurants. In some multi-purpose establishments, dining has been upgraded to a full-sensory experience known as “eatertainment.” At the Rainforest Café, patrons are treated to an “environmentally conscious ‘family adventure’ featuring live tropical birds, simulated nature sounds, waterfalls, aromatic scents and a gift shop retail area.” Planet Hollywood packages its fare around the aura of celebrities from movies, sports and music. Both are publicly traded.

The stock market is an advance-warning device, so it is of interest that the stocks of these two companies have fallen substantially. In fact, it’s hard to find a restaurant stock that is still participating in the bull market. Even McDonald’s is struggling to regain “it’s golden touch.” Over the last two years, McDonald’s shares have been flat versus a 70% gain in the S&P. Suddenly, “the company that once seemed a half-step ahead of pop culture” cannot even “construct an appealing new lunch sandwich.” Our view is that McDonald’s and the restaurant business are powerful reflections of a positive social mood. The quantity, diversity and increasing complexity of restaurants reflect the same aspects of the bull market. The inability of their stock prices to match the bull market hints of a coming retrenchment in the industry. That, in turn, portends an end to the economic uptrend that has supported their success.