Restaurant Shake-Up Favors Nimble Players

We all know we are overstored in this country and over-restauranted. There are tons of players -- so many that the competition got too hard. Now they collapse. That Uno might miss a payment, that Bennigan's and Steak & Ale are going away, that Bakers Square and Village Inn have filed for bankruptcy: All say the industry is in big trouble.

But ask yourself, if you are Darden (DRI - commentary - Cramer's Take), do you think this is a good or bad development? If you are Yum! Brands (YUM - commentary - Cramer's Take), do you think that this, at last, is your time? How about McDonald's (MCD - commentary - Cramer's Take)? Room to go more upscale, perhaps?

We read all of these horrible articles every day about restaurants, and yet we see that the stocks of Yum! and Darden hang in great, particularly the first, which gave hideous guidance and yet is now higher than it was before it told people commodity costs were hurting it. McDonald's? How many stocks just hit their 52-week high?

Think about it: Yum!'s Pizza Hut is the direct winner of a Uno's crushing. Steak & Ale and Bennigan's compete formidably with Darden's Red Lobster, Olive Garden and its new casual steak division. These companies will be huge winners from the coming shakeout. McDonald's just wins if there are fewer places to go, and there are certainly going to be fewer.

Just as we know that it takes the market forever to recognize that there could be a long-term positive in these closings -- look at how Best Buy (BBY - commentary - Cramer's Take) has foundered while we wait for the inevitable collapse of Circuit City (CC - commentary - Cramer's Take) -- we have to recognize that this is an industry going into a rationalization.

How compelling can rationalizations be? Five years ago, the U.S. steel industry had a dozen players killing each other. Over the next five years, one company after another shut down or pulled back or was acquired and downsized. What happened to the biggest and best, the one with the most financial flexibility in that period? U.S. Steel (X - commentary - Cramer's Take) went from $8 to $180. While it has pulled back recently, anyone who missed this golden age of steel did so because he looked only at the gloom of what happened to the losers, and not the success of what was happening to the winners.

I will learn more from McDonald's today, as the company's fabulous CEO is my guest on "Mad Money" on the half hour. But I expect Darden and Yum! to be substantially higher 18 months from now as the rationalization occurs. (I am not even including the success of Panera Bread (PNRA - commentary - Cramer's Take) as a mid-place in the game, the so-called fast casual.) It will be gut-wrenching while it happens. But it will make you a huge amount of money when it is through.

Random musings: Speaking of rationalization, have you noticed that CVS (CVS - commentary - Cramer's Take) didn't go down on the Longs (LDG - commentary - Cramer's Take) buy? That's because this industry is coming down to Walgreens (WAG - commentary - Cramer's Take) and CVS, because, again, the overexpansion in the business killed the marginal players, like the ones that now comprise Rite-Aid (RAD - commentary - Cramer's Take), which I believe will not be able to survive in its current form over the next year. Another sign of positive consolidation.

At the time of publication, Cramer was long McDonald's and Walgreen.

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