By Waylon Cunningham
(Reuters) – Sweeping deportations pledged by President-elect Donald Trump could pose an economic shock for the restaurant industry in ways that echo the pandemic: pricier menus, rising wages, and shuttered storefronts, economists and some restaurateurs worry.
But Wall Street is wagering that Trump’s tough talk is a bluff ahead of a more limited crackdown that won’t uproot the restaurant industry’s immigrant-heavy workforce.
The industry is one of the most reliant on workers in the country illegally, making it a test case for whether Trump will fulfill completely his campaign promises.
“I see little risk of them deporting people that are working at jobs in restaurants or anywhere else in the food industry,” says Dan Ahrens, chief operating officer and portfolio manager of AdvisorShares. Ahrens said he believes Trump’s administration will focus on immigrant criminals, with talk of broader deportations amounting to political rhetoric.
Thomson Reuters (NYSE:TRI)’ index of restaurant and bar stocks has steadily risen more than 5% since the election, outpacing the S&P 500. In the last year, while lagging the S&P, restaurant stocks have risen nearly 10%, buoyed by rising prices sectorwide even as consumers are eating out less.
Gary Bradshaw, portfolio manager at Hodges Capital Management, said he remains bullish on restaurants with growing sales revenue and store numbers, like Chipotle (NYSE:CMG), McDonald’s (NYSE:MCD) and Texas Roadhouse (NASDAQ:TXRH). On the prospect of deportations, he said, “My guess is the bark is a lot louder than the bite, but hey, nobody knows. So I don’t spend a whole lot of time thinking about it.”
Jake Dollarhide, chief executive of Longbow Asset Management, said he doesn’t make investment decisions on hypothetical policy. “We didn’t sell our energy stocks the day Joe Biden took office,” he said. He said he believed stock market highs and the “propensity of Americans to spend” would continue to drive restaurant stocks up. “The perception of grocery inflation — whether real or not real — benefits restaurants,” he added.
Trump has said that the initial focus of deportations will be on criminals in the U.S. illegally, but that the net will eventually widen to all immigrants in the country illegally.
“I think you have to do it,” he told NBC last weekend. Around 1-in-12 of the country’s 10 million restaurant workers were living in the United States illegally in 2022, according to Pew Research Center estimates from this summer which have not previously been published.
“Restaurants will be a hard-hit sector,” if Trump lives up to his promises on deportations, said Marcus Noland, an economist with the Peterson Institute for International Economics. Not only will they have to contend with their own higher labor costs, Noland said, but they’ll also have to pay more for food because of disruptions upstream in agriculture.
“You saw this during the pandemic when many restaurants had restricted hours, smaller menus and worse service,” he said.
PIIE estimated prices in the service sector would rise 1.7% if the Trump administration deported 1.3 million workers, or to rise 11% if the administration fulfilled its commitment of deporting all working immigrants in the country illegally, which the Pew Center estimates at 8.3 million.
“We’re already dealing with a huge labor shortage of food workers,” said Jacob Monty, an immigration and employment lawyer who advises chain restaurants. “If you add more enforcement, it’s going to only get harder to find workers to staff restaurants.”
Diners are already reeling from sticker shock, and Kelsey Erickson Streufert, the Texas Restaurant Association’s chief policy liaison, said restaurateurs in the state are concerned that a “tipping point” has been reached for raising prices. “Customers are only going to pay so much for a hamburger,” she said.