In recent years, I've reviewed several sectors within the U.S. consumer goods industry. Here, I’ll provide a brief summary of my current research, acknowledging potential limitations in my understanding. I welcome any insights or corrections and hope these perspectives will continually be refined or challenged to foster antifragility, avoiding the mindset of "if all you have is a hammer, everything looks like a nail."
The focus here is mainly on two sectors: dining and energy drinks. The core reason for delving into these sectors is the structural growth opportunities they present. Through research, we aim to understand shifting consumer demands to fairly value companies within these industries.
Dining:
In previous articles on our public account, we discussed how "Why Do Top-performing Stocks Frequently Emerge From The U.S. Restaurant Industry?" with some companies reaching market valuations in the hundreds of billions of dollars. If we look at YTD in 2024, several companies have seen stock price gains of 50-200%, such as SG and CAVA. Putting aside other influencing factors, here we aim to understand the fundamental reasons behind this growth.
U.S. food spending is mainly divided into two categories: FAFH (Food Away from Home) and FAH (Food at Home), which accounted for 56% and 44%, respectively, in 2022. The proportion of food consumed away from home has steadily increased over time, starting from just 16.7% in 1929. The driving forces behind this shift include: (1) demand-side improvements, such as increased consumer spending power due to economic growth; and (2) supply-side changes, especially with the rise of LSR (limited-service restaurants, commonly known as fast food, as opposed to FSR, or full-service restaurants, which offer more service, higher ticket sizes, tipping, and less chain proliferation). This first wave of structural change in the U.S. dining industry has brought efficiency and chain proliferation, replacing food trucks and independent establishments that could not meet standards for hygiene, speed, or taste. Consumers have gained new dining options that are faster, tastier, and sometimes even cheaper, gradually replacing a portion of food-at-home demand.
In the past, the rapid growth of the LSR (limited-service restaurant) chain industry greatly benefited from this structural shift. However, future LSR chain restaurants may struggle to achieve the same rapid industry-wide growth driven by these factors. Each person typically eats around 1,095 times a year (3 meals * 365 days), and as the proportion of FAFH (Food Away from Home) and LSR dining reaches a certain level, it may gradually plateau. Recent years have shown this increase stabilizing at a very slow pace, with the final balance depending on factors like at-home meal costs and family structures, which we can explore further.
As a result, we are more likely to find opportunities stemming from shifts in competitive dynamics among restaurant categories. This could involve identifying companies that have proven their management capabilities (restaurants are relatively fragile businesses, requiring strong initial operational management due to low entry barriers, making them vulnerable to competition, but those that survive demonstrate enhanced antifragility) and appeal in taste (which influences repeat visits).
In recent years, we’ve observed new consumer demands, and LSR has split into fast-casual and QSR (quick-service restaurants), which was explained in a previous article.
Currently, categories like burgers, pizza, sandwiches, and fried chicken—generally higher in calories—make up nearly 70% of chain QSR. Taking burgers as an example, they still account for roughly 30% of revenue, though the proportion of chain burger outlets has dropped from 28.2% in 2000 to 22.1% in 2020. We have made a rough estimate that about 90% of Americans now eat fast food an average of four times per week (excluding coffee). If we look solely at QSR, the average frequency is approximately 3.3 times per week—a high ratio. Specifically, for QSR burgers, Americans average about 1.5 times per week.
Therefore, it’s not surprising to see fast-casual restaurant numbers increase from 2% to 9%. With such high-frequency QSR consumption, it’s reasonable that consumers are seeking variety, opting for lower-calorie options, and paying more attention to the dining environment. Some are even willing to pay a premium for these enhanced experiences.
We believe that the demand for healthier dining options (low-calorie, nutritionally balanced, more vegetables) will continue to gain market share. As shown in the chart, the proportion of salad, Mexican, and Mediterranean restaurants has steadily increased, although their store ratios remain low. Currently, these healthier categories likely account for only about 10% of revenue, while the combined share of higher-calorie categories has been declining (with the exception of chicken, which has other structural changes not detailed here). We estimate that by 2037, the sales for healthy dining categories could potentially increase by 4-5x, making up at least 20% of LSR, compared to today’s burger (30%), bakery (14%), chicken (12%), and pizza (10%) shares—this seems a reasonable assumption.
Additionally, considering McDonald's peak from 2003-2007, when it reached 20,000 locations and nearly 50% market share (with the top four QSR brands holding 90% share at that time), we see that market concentration has gradually declined. Since the financial crisis, McDonald's has reduced its store count to around 13,000, and overall market concentration now sits at just over 60%. This trend suggests ample room for more brands, beyond early movers like Chipotle, in the future healthy dining market, which could grow to $150-200 billion.
*source：cava Prospectus
When reviewing LLY, we observed that the adult obesity rate (BMI ≥ 30) in the U.S. had reached 60% by 2023. Additionally, our concurrent research on sugar-free energy drinks and activewear further supports this major trend. As noted in The Consumer Society, people today follow new societal rules where time and the body are no longer as free as in primitive societies; instead, they’re traded for money and social status. Consequently, controlling diet and increasing exercise have become “luxuries” of the era and even privileges for some, who are willing and able to pay premiums for related products.
In our initial research, we viewed this category as more challenging due to higher operational complexity, perishability of fresh vegetables, absence of frozen foods, and the added complexity of processing raw ingredients. Priced above $10, it’s considerably more expensive than QSR, where one can fill up for around $5. However, with high inflation, we’re noticing a trend where the value proposition of both QSR and full-service restaurants is declining, potentially accelerating growth in the healthy dining category, as same-store sales (SSS) continually surpass expectations. A McDonald’s combo meal has reached $8-10 (compared to $6-8 pre-inflation), reducing its relative affordability. Meanwhile, a Chipotle combo now averages around $15 (up from about $12 pre-inflation). For those with spending power, why not allocate more of their budget to Chipotle, Cava, or Sweetgreen? Full-service restaurants offer even less value, with dishes starting at $15 plus a 15-20% tip. McDonald’s and similar brands are also responding to the competition by introducing $5 meal deals to win back customers.
*source：doordash，The prices on the menu depend on the region and whether you buy it on-site or take-out.
Under this long-term assumption, we’ve identified some excellent companies, such as Chipotle. First, Mexican cuisine has long been ingrained in the American consumer’s mindset; its tangy and spicy flavors leave a lasting impression, and the variety of sauces caters to diverse taste preferences. Several Mexican restaurant chains were established in the 1990s or even the 1960s, showing the longstanding presence of this cuisine. Second, the limited scale economies in dining mean that strong operational management is critical. Given the particularities of this category and comparing it to competitors like Qdoba and Del Taco, Chipotle has demonstrated higher barriers to entry. Its Average Unit Volume (AUV) has consistently outperformed the industry since it entered the market in 2000, with a clear market positioning. Chipotle has high margins, a self-owned model, and strong control over operations. Its restaurant-level margin is an impressive 27%, compared to about 17% for competitors (partly due to its higher AUV) and around 20% for other company-owned QSRs with similar AUVs.
Chipotle has set a solid standard for emerging healthy dining brands, which may help new brands follow its model and accelerate growth. However, realistically, establishing new restaurant locations and cultivating consumer taste preferences takes time. While the category has substantial potential, the speed of realization remains to be tested, and reasonable pricing will be crucial.
Energy Drinks:
The same logic applies to energy drinks.
When Munger discussed the investment logic for Coca-Cola, he noted that people need to consume around 64 ounces of water daily, and he believed that beverages would increasingly occupy a significant portion of this intake. Based on our calculations, the current average daily intake of various bottled beverages in the U.S. is around 8 ounces per person (approximately 240 ml), which is only about 1/8 of the total recommended intake. Historically, this segment has seen consistent growth, and there may still be room for further penetration in the future.
Among these, energy drinks make up a very small share, comprising only 2.8% of the total ready-to-drink (RTD) soft drink volume, with a value share of about 11%. Currently, the average consumer drinks only about 0.8 bottles of 8 oz energy drinks per month. We believe there is a potential for at least 2-3x growth in the long term. Observing the trends in the chart, we see a steady decline in the share of juices and sodas, while energy replenishment categories (coffee, energy drinks, and sports drinks) and bottled water are on the rise. This suggests significant room for further market penetration in the energy drink sector.
The driving forces behind this trend include consumers’ increasing emphasis on time and health. Ingredients like taurine and caffeine (often with higher concentrations than a cup of coffee) add an addictive element, providing immediate positive feedback (such as enhanced athletic performance and alertness), which encourages frequent repurchase. Additionally, energy drinks are generally priced between $2.5 and $4, mostly purchased in-store, offering better value and effectiveness compared to alternatives like freshly brewed coffee.
*source：doordash，Different channels have different prices, and there may be promotions offline
However, looking at the soda category's sub-segments, the volume share of sugar-free soda has fluctuated, recently rising back to around 31%. The specific reasons for this trend are unclear, so we won’t speculate for now.
In terms of the specific structure within energy drinks, reduced-sugar options now account for 47% of units sold, compared to just 15% in 2009, showing a steady increase over time.
Under these structural changes, in addition to established players like Monster and Red Bull, there are also new opportunities for emerging brands such as Celsius and Alani Nu. These newcomers offer a variety of flavors, enjoyable taste, and sugar-free options, bringing new growth to the energy drink industry and even attracting consumers who previously didn’t drink energy drinks, especially targeting younger demographics. Celsius, for instance, which has a distribution agreement with Pepsi, has already captured a 23% share in the sugar-free segment, surpassing Red Bull, and currently holds around a 10% share in the overall energy drink market.
We believe Celsius has the potential to expand its market share by 1.5-2x over the long term, although this growth will likely take time to fully materialize. Early in the year, Celsius’s market share surged after widespread channel distribution, driving its stock price upwards. However, recent months have seen a slowdown in sales growth due to various factors, including macroeconomic conditions. Additionally, this slowdown highlights the strong “Pavlovian effect” advantage that Monster and Red Bull possess. Since most energy drink purchases happen offline, the dominance of these two brands on shelves makes it difficult to shift the established consumer mindset.
For Celsius, this will be a challenging battle, yet it has made significant inroads, with its products now widely available across the U.S. Celsius has already captured a 30% share among the young generation and has surpassed Red Bull in the sugar-free energy drink segment. Many smaller, lesser-known brands without strong distribution are likely to be absorbed by the top three brands. With shelf presence, brand recognition, and consumer mindshare, Celsius stands a fair chance of capturing additional share over time. Continued monitoring will be necessary, especially with respect to pricing strategies.
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