• by Steve Ellwanger , February 17, 2021

The distribution of federal stimulus aid could generate “massive” growth of personal consumption expenditures, particularly among consumers on the lower end of the financial ladder, according to investment banking firm Cowen Inc.

Citing “an already healthy and accelerating U.S. consumer,” Cowen predicted “underappreciated benefits to middle- and lower-income consumers” and their potential impact on specific consumer products/services in a report released today.

Key stimulus drivers include $1,400 in direct payments expected next month and monthly payments to families with children starting in July. The latter will go to individuals with annual household income below $75,000 and joint filers under $150,000.

“While the long-term, broader effects of this fiscal policy on inflation, interest rates currencies and taxes are unclear, the low-end consumer will receive a tremendous boost in 2021,” Cowen noted.

With more discretionary income from stimulus, sales of tobacco should rise, given that usage—per federal government data—is 21.4% for people with household income under $35,000, and just 7.1% for those who make $100,000 or more.

Beer is a mixed case, based on a Cowen consumer survey showing that among beer drinkers with household income under $50,000, Bud Light is the #1 brand, yet the more premium brand Corona is #2.

Cowen expressed optimism for athletic-goods marketers like Dick’s Sporting Goods, Foot Locker and Nike, as home workouts have increased during the pandemic. For example, the three-month average for Dick’s website traffic increased 30% through December—compared to 40% last June after the first round of federal stimulus.

In a survey of 2,500 U.S. adults last month, Cowen asked respondents to rate their comfort levels about returning to various business and other establishments on a scale of 1-10—with 1 being “very unsafe” and 10 “completely safe.”

At the top of the list were retail stores (6.1) followed by restaurants/bars (5.3), schools (5.3), churches (5.1), gyms (4.5) and concert venues (4.3). By way of comparison, last June the figure for retail stores was 5.7 and 5.0 for restaurants/bars.

While further stimulus “would undoubtedly be a positive for the restaurant industry as it increases consumers’ discretionary income,” the results won’t be felt equally.

Cowen is bullish on chains like Chipotle, Domino's, Jack in the Box and Starbucks given their operational structure, among other factors.

Among franchisees of public restaurant companies, “the vast majority will not benefit from the second round of PPP given the requirement for a sales decline of 25% and the requirement for having fewer than 300 employees,” says the report.

“Further, we do not expect any benefit from the $25B grant package, which was passed on February 10, given that it excludes restaurants with 20 or more locations, that are franchises, or that are owned by a publicly traded company.”

With indoor dining restricted to 25% of occupancy having resumed in the past few days, independent restaurants in cities like New York see little end in sight to their struggle.

According to a survey released today by the NYC Hospitality Alliance, 92% of more than 400 respondents could not afford to pay their December rent. That compares with 83% last July.

“While the reopening of highly regulated indoor dining is welcome news, we need to safely increase occupancy to 50% as soon as possible—and we urgently need robust and comprehensive financial relief from the federal government,” said NYC Hospital Alliance executive director Andrew Rigie.

Meanwhile, the National Restaurant Association opposes Raise the Wage Act legislation that would increase the federal minimum wage to $15 per hour from the current $7.25.

“Our industry runs on a 3%-5% pre-tax profit margin in a good year. During a pandemic is not the time to impose a triple-digit increase in labor costs,” the NRA said on Jan. 26. “Far too many restaurants will respond by laying off even more workers or closing their doors for good.”

When legislation to raise the federal minimum wage from $7.25 to $15 over five years was proposed in March of 2019—a full year before the pandemic began—the NRA opposed it.

“Raising the federal minimum wage is harmful to both business and employees,” the NRA said at the time.

“A dramatic rise in labor costs could force restaurant owners and operators to raise menu prices, cut back on current employees’ hours, and/or eliminate positions.”

Last week, the National Grocers Association said it opposes increasing the federal minimum wage to $15 per hour because it would “harm small businesses and reduce food access in disadvantaged communities.”

According to the NGA, because independent supermarkets and wholesalers employ approximately 944,200 workers, “more than doubling the current hourly rate is impractical for a large portion of NGA’s members.”