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April 13, 2020 | Equity Research
Take Away's From Trends In Small-
Transaction and Business
Business Call
Services
Restaurants May Be Seeing Temporary Bottom Restaurants
Grocery remains strong, aggregate retail down low double-digits
Internet
Summary Viewpoint; We recently hosted a conference call with
software with the research group at Womply, a software company that
serves over 450,000 small/mid-sized businesses (SMB). While the
overall data shows, as expected, that SMB revenues dropped in the
back half of March there appear to be some signs of stabilization
and/or minor bounce backs in some of the harder hit industries such as
restaurants. Grocery, as expected saw a spike in March and appears to
be seeing another mini-spike in early April. As well, overall retail
(which encompasses a large amount of subsectors) is down low-double
digits, not as bad as we would have envisioned.
Restaurants down sharply but may be seeing stabilization
and/or slight improvement. Data indicates that on a year over year
basis the worst data point so far was a 68% decline the 3 rd weekend of
March. Since then it appears as if the year over year declines have
stabilized and that the data would seem to point to a slight sequential
rebound through early April, though volumes are still down in the mid-
50% range. Mid-size restaurants are faring better than large and small
locations at this time.
Grocery remains the bright spot and is seeing another mini-
wave of buying. Mid-march, grocery saw growth that peaked at over
100% with a 10-14 day time frame that was up in the range of 60%-
70% before pulling back as we exited the month. That being said,
after pulling back to just 15% growth at the end of March the data so
far in April points to a re-acceleration that got as high as 40% in the
first week. Timothy Willi
Senior Analyst|314-875-2044
Overall retail is not as bad as we feared, thought it covers a lot
timothy.willi@wellsfargo.com
of sub-sectors with winners and losers at the extremes. In total,
Robert Hammel
retail appears to be down mid-single digits since mid-March with a low
Associate Analyst|314-875-2053
point of -16% towards the end of March but strong positive data points
robert.hammel@wellsfargo.com
at the beginning of April before going negative again. Department
stores and men’s apparel are some of the weaker categories while Charles Nabhan
sporting goods, vitamin/health and hobby/hardware have been flat to Associate Analyst|443-263-6578
up with sporting good showing growth in excess of 50% since mid- charles.j.nabhan@wellsfargo.com
march. Jon Tower, CFA
Senior Analyst|617-603-4207
We think all Meal Delivery players have increased their jon.tower@wellsfargo.com
bargaining power and importance in the food delivery value Brian Fitzgerald
chain during the Coronavirus Pandemic. Only ~4% of US Restaurant Senior Analyst|212-214-5095
Food was ordered through online order and delivery (as of 2018), and brian.fitzgerald@wellsfargo.com
the pandemic may very well weed out independent restaurants that Robert J. Coolbrith
lacked strong delivery and takeaway channels. By our estimates, eat- Senior Analyst|628-629-7567
in sales comprise 87% of sales of US Independent Restaurants versus
robert.coolbrith@wellsfargo. com
9% of sales for Chain Restaurants as of 2018, suggesting that we could
Omar Dessouky, CFA
see a wave of permanent business closures among non-deliverers and
Associate Analyst|212-214-5176
a significant increase in the mix of restaurants using the delivery
omar.dessouky@wellsfargo.com
channel in the US.
Please see page 6 for rating definitions, important disclosures and
required analyst certifications. All estimates/forecasts are as of 04/13/20
unless otherwise stated. 04/13/20 20:21:16 ET
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in its research reports. As a result, investors should be aware that the firm may
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investment decision.
Transaction and Business Services / Restaurants / Internet Equity Research
Discussion
We hosted a conference call with the co-heads of data research at Womply, a software company that
works with ~450,000 SMB’s and sees their business volumes and revenue performance, providing some
interesting insights into what is happening with the SMB market, on an almost real-time basis. As
expected, the aggregate data is sharply negative. As expected, travel-related, restaurants and certain
parts of retail are down very sharply though areas such as grocery, health and select pockets of retail
However, with data now being recorded through early April, there may be some incrementally positive or
“less negative” trends emerging.
Restaurants—Taking a hard hit but possibly putting in a near-term bottom
As expected, restaurants are one of the hardest hit industries by the virus, with Womply’s data
suggesting: (1) Revenues are down ~48% yr/yr on average at tracked restaurants since March 11th,
with a trough (down 68%) reached on 3/22 and trends appearing to have stabilized at down ~50-60%
since late March (Exhibit 1); (2) Medium-sized restaurants ($10k-$75k/week in revenue) appear to be
performing better than larger (>$75k/week in revenue) and smaller locations ($1-$10k/week in revs) with
Womply offering that the move to local eating backed by celebrity sponsorship has helped the medium-
sized concepts most; (3) As of 4/4/20, restaurants are seeing a 36% closure rate (meaning no revenue
for at least 3 consecutive days per tracked info), with the worst hit cuisines being diners, steak houses
and Chinese food.
Exhibit 1. Womply’s data suggests restaurant revenue troughed at down 68% yr/yr on 3/22
and has since “stabilized at down 50-60% (left). Meanwhile, data also suggests the restaurant
closure rate hit a high of 36% on April 4th (right) which we think is likely to trek higher.
Local Restaurant Revenue - Yr/Yr Change Local Restaurant Closure Rate
80.0% 40% 36%
34%
33%
60.0% 35% 31%
30%
28%
40.0% 30%
25%
23%
20.0% 25% 21%
18%
0.0% 20% 16%
(20.0)% 15% 11%
(40.0)% 10% 6%
3%
(60.0)% 5% 1% 1%
2%
0% 0% 0% 0%
(80.0)% 0%
1/2/20 1/9/20 1/16/20 1/23/20 1/30/20 2/6/20 2/13/20 2/20/20 2/27/20 3/5/20 3/12/20 3/19/20 3/26/20 4/2/20 3/1/20 3/3/20 3/5/20 3/7/20 3/9/20 3/11/20 3/13/20 3/15/20 3/17/20 3/19/20 3/21/20 3/23/20 3/25/20 3/27/20 3/29/20 3/31/20 4/2/20 4/4/20
Source for both charts: Womply and Wells Fargo Securities, LLC.
Grocery—Seeing another mini-spike?
While it is well documented that grocery saw a surge in mid-March as the impact of the virus and
quarantining went into effect the volumes began to taper off in late March. However, in the last 7-10 days
grocery volumes began to re-accelerate, possibly reflecting the depletion of groceries from earlier surge
purchases in mid-March or additional states beginning to implement “shelter-in-place” policies.
2 | Wells Fargo Securities, LLC
Take Away's From Trends In Small-Business Call Equity Research
Exhibit 2. Grocery Sales. Based on data from Womply after a strong surge and pullback it
appears that spending began to see a mini-spike in early April.
Source: Womply and Wells Fargo Securities, LLC.
Overall Retail—Not as bad as feared…but outliers on both sides
In our opinion, the data point that was somewhat of a surprise was the aggregate retail spending
numbers, which have shown that spending was down in the ballpark of ~10% from mid-March. Frankly
we would have thought that this aggregate number would have been much worse given the shock to the
economy that we have seen. Given the size of this category and the vast number of sub-sectors that are
captured in this data there are some outliers on both ends of the spectrum. Department stores and men’s
stores were down 88% and 68%, respectively. On the flip side, sporting goods stores have consistently
been up over 50% (and often much higher) since mid-March with vitamin/supplement stores relatively flat
and hobby/hardware stores up 20%. The bottom line take away for us is that while areas such as
restaurants/bars and mall-based retailing our definitely seeing sharp declines it appears that based upon
the aggregate retail data in exhibit #3 that not all spending categories are in a free-fall.
Exhibit 3. Retail Spending has not contracted as much as we would have feared with a bit more
volatility in recent weeks but the average since mid-March being a decline of ~10%.
80%
67%
60%
40%
30%
20% 19%
14% 15% 13% 12% 11%
9% 9%
5% 7% 6%
0% 0% 2% 2% 1%
-6% -4%
-10%
-16%
-20%
10-Feb 15-Feb 20-Feb 25-Feb 1-Mar 6-Mar 11-Mar 16-Mar 21-Mar 26-Mar 31-Mar
Source: Womply and Wells Fargo Securities, LLC
Wells Fargo Securities, LLC | 3
Transaction and Business Services / Restaurants / Internet Equity Research
Social Distancing and Lock Down Underscores the Growing Importance of Meal Delivery
As of 4/8, closure rates for Restaurants were 36% and Quick Serve Food & Beverage was 23% (Exhibit 4
and 5). Significant business closures per Womply: 89% of Health & Beauty, 74% of Arts & Entertainment,
and 66% of Bars & Lounges. Pet Services are only 6% closed, followed by Auto Services at 9% and Food
and Beverage shops at 12%. Note – a business was designated as “closed” if it didn’t process a single
transaction for three straight days starting on March 1. If, after that three day period, the business
processed a transaction, they are no longer considered closed and we back-update previous dates to
represent that business as being “open”. Importantly, restaurants and other businesses that
shifted to processing 100% of their transactions via third party delivery apps (like UBER,
Doordash, Grubhub, etc.) would also show as being “closed” by this metric.
Exhibit 4. 36% of Restaurants (non-QSR, and likely “Full Service”) in Womply’s data set had
closed due to measures ordered to reduce the spread of the Coronavirus
Source: Womply and Wells Fargo Securities, LLC.
Exhibit 5. 23% of Quick Serve Food & Beverage Businesses in Womply’s data set had closed
due to measures ordered to reduce the spread of the Coronavirus
Source: Womply and Wells Fargo Securities, LLC.
We think Food delivery players with an early lead in the QSRs segment of the restaurant industry (i.e.
UBER, DoorDash) will have higher activity and thus maintain a slight advantage in terms of revenue
growth and the ability to employ delivery personnel. However, we think all Meal Delivery players have
increased their bargaining power and importance in the food delivery value chain during the Coronavirus
Pandemic. Only ~4% of US Restaurant Food was ordered through online order and delivery (as of
2018E) (Exhibit 6), and the pandemic may very well weed out independent restaurants that lacked strong
delivery and takeaway channels. By our estimates, eat-in sales comprise 87% of sales of US Independent
Restaurants versus 9% of sales for Chain Restaurants as of 2018 (Exhibit 7), suggesting that we could see
a wave of permanent business closures among non-deliverers and a significant increase in the mix of
restaurants using the delivery channel in the US.
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Take Away's From Trends In Small-Business Call Equity Research
Exhibit 6. Only ~4% of US Restaurant Food was ordered online
order and delivery (as of 2018E)
Exhibit 7. Eat-in sales comprise 87% of US Independent Restaurant Sales versus 9% of sales
for Chain restaurants (mostly quick serve); Independent Restaurants that heavily use GRUB,
UBER, and other Meal Delivery services are more likely to retain customers and revenues than
Eat-In focused restaurants, thereby remaining solvent through the Coronavirus pandemic.
Wells Fargo Securities, LLC | 5
Transaction and Business Services / Restaurants / Internet Equity Research
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