Here's How to Play the Casual Dining Death Spiral

America is on another health kick…

The Food Marketing Institute’s 2015 report of U.S. grocery shopper trends indicates that more than 35% of surveyed consumers sought out food with labels that include the following descriptors: whole grains, low sodium, low sugar, and no trans-fat.

So it’s no shock when that casual dining restaurants and more traditional dining options are dropping like flies. Consumers are no longer gorging on all-you-can eat fried appetizer samplers. Now there are simply too many restaurant chains—and not enough eager customers to keep them all in the black.

“The U.S. is having one of its biggest restaurant shakeouts in years, as an oversupply of eateries and new rivals offering prepared meals to go claim what is expected to be a growing number of casualties,” The Wall Street Journal reports.

More than a handful of chains have already filed for bankruptcy this year. And it’s not just the smaller operations that are circling the drain. The Journal reminds us that Ruby Tuesday is closing 100 restaurants this year, while Bob Evans Farms and Famous Dave’s continue to shutter locations.

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Looking for answers? Blame those damn millennials…

Millennials are a driving force behind America’s new food culture. The Trend Research Institute notes that millennials want more diverse cuisine as well as fast-food service for quality ingredients. And what really stings these greasy chain restaurants is that millennials are also dining out 50 times less per year than everyone else.

But I have to ask…

If America’s young foodies are getting pickier by the day, then why the hell does the Bad Pizza Bull still have legs?

Shares of Domino’s Pizza (NYSE:DPZ) jumped more than 5% yesterday to new all-time highs after spanking third quarter earnings expectations. While casual dining chains are languishing, the pizza delivery business is going berserk.

Domino’s opened more than 300 stores in the third quarter alone. The pizza franchise pulled in $567 million in revenue—beating expectations by more than $20 million. Same-store sales grew by nearly 7%.

The problems that have plagued other restaurants certainly aren’t hurting Domino’s. Which leads us to the big question…

If consumers really are seeking out more diverse and healthy food options, how are these old-school junk food delivery services thriving and experiencing steady growth?

The truth is that consumers say they want organic and healthier foods. But in the real world, folks gravitate to the most convenient and low-hassle option. No matter what.

Last year, we talked about Domino’s new emoji ordering capabilities. While more traditional restaurant chains are filing for bankruptcy, the masses are now able to sit at home tweeting their emoji orders and eating ninth-rate pizza.

Sure, we say we’re going to eat healthy. But when I can press a button on my phone and have a hot meal delivered to my door in 20 minutes, you can probably guess what’s going to happen next…

The greasy pizza rally isn’t going to die anytime soon. We’ve played these pizza stocks for double-digit gains before. Now the market is giving us another shot at ringing the cash register.

You don’t have to eat the pizza. Just order up a few shares and watch the gains roll in…

Sincerely,

Greg Guenthner
for The Daily Reckoning

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