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GLP-1 Drugs May Motivate Restaurant Menu Changes · Choppin’ It Up by Bloomberg Intelligence

0:21
Speaker 1: Welcome to Chopping It Up.
0:22
Speaker 2: I'm your host, Mike Hallon, the senior restaurant and food
0:25
Speaker 2: service analyst at Bloomberg Intelligence. Today we're joined by my
0:29
Speaker 2: colleague Daniella. Sir Tory Courtina, Bloomberg's restaurant's reporter. Thanks for
0:33
Speaker 2: doing us.
0:35
Speaker 3: Yeah, I know, anytime. Happy to be here.
0:38
Speaker 1: Yeah.
0:38
Speaker 2: So, you know, we've talked a few times about productivity
0:43
Speaker 2: and efficiency. They become pretty popular topics with all the
0:46
Speaker 2: inflation we've seen over the past couple of years, and
0:49
Speaker 2: you've done some good work around the topic.
0:51
Speaker 1: Can you talk about Popeyes first?
0:54
Speaker 4: Yeah?
0:54
Speaker 3: No, thanks Mike.
0:55
Speaker 4: I think you know, if we get into this, not
0:57
Speaker 4: to make a Taylor Swift reference, but it does seem
1:00
Speaker 4: like restaurants and are sort of in their productivity era.
1:03
Speaker 4: I guess you can't say they were at eras without
1:05
Speaker 4: talking about Taylor Slift. But AnyWho, you know, you you
1:08
Speaker 4: tracked so well, you know the trajectory of restaurants during
1:11
Speaker 4: the pandemic and just how they were struggling to basically
1:13
Speaker 4: survive the labor issues and inflation and everything that we saw,
1:17
Speaker 4: and it really seems that a lot of them that
1:20
Speaker 4: you know, I had a difficult time during the pandemic,
1:23
Speaker 4: are turning their attention to that idea of productivity and
1:26
Speaker 4: efficiency and how do we just keep people coming back?
1:29
Speaker 4: And so I had the chance to you know, visit
1:32
Speaker 4: Popeye's other Miami headquarters and my.
1:35
Speaker 2: Favorite, my favorite restaurant, QSR restaurant by the way for
1:39
Speaker 2: eating not oh really in terms of stock recommendations, it
1:42
Speaker 2: was my It was my favorite stock back in the day,
1:46
Speaker 2: like twenty thirteen through like twenty sixteen or so, and
1:49
Speaker 2: it did pretty well.
1:50
Speaker 1: But yeah, I'm a big fan of Popeye's.
1:52
Speaker 3: Checking out, big fan of Popeyees.
1:54
Speaker 1: Yeah, I was there last weekend when my sonets fans no.
1:56
Speaker 4: Way, I do remember dragging my husband to try the
1:59
Speaker 4: you know, fried chicken sandwich and that came out. But
2:02
Speaker 4: you know, that's a perfect place to start, because really,
2:04
Speaker 4: I mean for most of us, you know, unless you
2:07
Speaker 4: lived in certain parts of the US, Popeyes entered into
2:09
Speaker 4: our consciousness with the fried chicken sandwich. And of course
2:12
Speaker 4: it was a big success for them. I mean they
2:15
Speaker 4: brought up, brought in a lot of customers that previously
2:18
Speaker 4: did not go to Popeyes, right, A lot of people
2:20
Speaker 4: tried it. It was viral on the internet. But they
2:23
Speaker 4: realized at some point that a lot.
2:25
Speaker 3: Of those people just were not coming back.
2:28
Speaker 4: So you know, they started sort of scratching their heads
2:31
Speaker 4: and trying to figure out what was going on. And
2:32
Speaker 4: so earlier this year they came out with a plan
2:35
Speaker 4: to just try to crack that, and so I was
2:38
Speaker 4: very happy to get sort of like an insight look
2:41
Speaker 4: into the plan. I went down to the Miami headquarters
2:43
Speaker 4: and really one of the main things that they're doing
2:46
Speaker 4: is just ripping up the kitchens, and so.
2:49
Speaker 3: I talked to you Sammy C.
2:50
Speaker 4: Dicky, who is the president of Popeye's North America, and
2:53
Speaker 4: one of the things that he said is like, look,
2:54
Speaker 4: we realized that our service just wasn't We needed to
2:58
Speaker 4: be right. You know, people were saying that the orders
3:01
Speaker 4: weren't coming out perfect, that we were taking a little
3:03
Speaker 4: bit longer. And also a lot of people just had
3:05
Speaker 4: never seen a Popeyes.
3:07
Speaker 3: That was another big part.
3:09
Speaker 4: And so, you know, if you do want people to
3:11
Speaker 4: think of you as an option, as a daily option,
3:13
Speaker 4: like it seems like you do MIC with your son,
3:16
Speaker 4: people need to see locations. You know, you can't have
3:19
Speaker 4: people driving out of their way ten to twelve minutes
3:21
Speaker 4: to try a QSR restaurant. And so one of the
3:25
Speaker 4: cool things that they're trying to do is figure out how.
3:28
Speaker 3: To make the kitchens more efficient.
3:29
Speaker 4: And so if you want, I can get more into that,
3:31
Speaker 4: but I don't know how deep you want to hear
3:33
Speaker 4: about that.
3:33
Speaker 2: Yeah, No, I want to hear about it because it's
3:35
Speaker 2: important and it's good. It's interesting because you know, there's
3:39
Speaker 2: a lot of attention being paid at Burger King US
3:42
Speaker 2: for restaurant brands, right, but right now the biggest growth
3:45
Speaker 2: engine in terms of net units is Popeyes, right, And
3:50
Speaker 2: so they finally talked a bit about it on this
3:53
Speaker 2: last call about improving the operations have Popeyes, but they
3:56
Speaker 2: haven't delved too deeply into it. So this is a
3:59
Speaker 2: big reason when I got here. I love talking about Popeyes,
4:02
Speaker 2: and you have the inside scoop.
4:04
Speaker 4: I have the inside information this time around. Yeah. So
4:07
Speaker 4: basically one other things that they realize is that, for example,
4:10
Speaker 4: their kitchens just were not arranged in a way that
4:12
Speaker 4: they really flowed to the drive through and just sort
4:15
Speaker 4: of to the handoff points. So you know, when they started,
4:18
Speaker 4: you know, with a chicken sandwich, they just kind of
4:20
Speaker 4: put the station wherever it fit. And really that's no
4:23
Speaker 4: way to really handle making one of your best selling products, right,
4:28
Speaker 4: And so it starts there. It starts with just making
4:31
Speaker 4: kitchens such as flow better so that when team members
4:34
Speaker 4: are assembling the orders, it's just much easier to put
4:36
Speaker 4: them together, and then they just sort of flow to
4:38
Speaker 4: the drive through, flow to your hands, you know when
4:40
Speaker 4: you're in your car or at the counter, and they're
4:43
Speaker 4: really looking at a lot of little details. Right. So
4:46
Speaker 4: when I went there, there was this kind of kitchen
4:49
Speaker 4: set up with these five modules that are all sequentially
4:52
Speaker 4: arranged that basically every station has a kind of stuff
4:55
Speaker 4: that you would actually need to put together one of
4:56
Speaker 4: the orders, and they're implementing things is like you know
5:01
Speaker 4: sticker printers. You know, if you go to McDonald's, if
5:03
Speaker 4: you go to Starbucks, those are pretty common. I mean
5:05
Speaker 4: on your carpet at Starbucks, you have the sticker that
5:08
Speaker 4: has your name, it has your order, and so that
5:10
Speaker 4: way the baristas can easily see it. Popeye's was not
5:13
Speaker 4: doing that, and so you know, the folks in the
5:17
Speaker 4: kitchen had to like manually check against a paper receipt
5:20
Speaker 4: whether your order was correct. All that stuff just slows
5:23
Speaker 4: it down and yeah, and so they're also making sure
5:27
Speaker 4: that like once that order is correct, you know, you
5:29
Speaker 4: get to a landing zone where they actually check stuff,
5:31
Speaker 4: and then they actually do the whole bumping process. You know,
5:34
Speaker 4: they hit that button that says order ready and you're
5:37
Speaker 4: alerted to it. And again, this is stuff that's pretty
5:39
Speaker 4: common at places like McDonald's and even Burger King. But
5:43
Speaker 4: you know, I think it's underscores how we started this
5:45
Speaker 4: conversation with this idea of Okay, this is the productivity
5:48
Speaker 4: and sort of like efficiency era for a lot of
5:50
Speaker 4: places that perhaps in the past it was like okay,
5:53
Speaker 4: but we're fine, you know, you know, the sandwiches are
5:57
Speaker 4: selling and the kitchens are fine, so why should we
6:00
Speaker 4: them up? And now restaurants like Popeyes are really looking
6:02
Speaker 4: at it and like, okay, we really need to be
6:05
Speaker 4: efficient in how we do this.
6:07
Speaker 2: Yeah, and it's probably more important for them than anybody
6:10
Speaker 2: to get that kind of like basic blocking and tackling right,
6:14
Speaker 2: because it's chicken's tough. You know, there's typically a lot
6:18
Speaker 2: more waste at a chicken chain. You know, it takes
6:22
Speaker 2: fifteen minutes to fry a new batch. When you run
6:24
Speaker 2: run out right, and so a lot of times are
6:26
Speaker 2: making too much and there's food waste, and it just
6:30
Speaker 2: makes it a trickier operation than heating up burger. So
6:34
Speaker 2: I think getting that blocking and tackling is going to
6:36
Speaker 2: be really important for them.
6:38
Speaker 3: But that's one of the things.
6:39
Speaker 4: And so for example, one of the processes that they
6:43
Speaker 4: are also trying to improve is how they is the batter.
6:47
Speaker 4: You know, you know, the way that Tammy explained it
6:49
Speaker 4: to me is like, okay, you have to make this batter.
6:52
Speaker 4: You have to chill water in ice, and then someone
6:56
Speaker 4: will have to take the temperature by hand until it
6:58
Speaker 4: got to the perfect and then they would have to
7:01
Speaker 4: mix it and they would have to constantly steer it
7:04
Speaker 4: so it would clumb, so it wouldn't clump, and then
7:07
Speaker 4: you know, they would actually be able to batter the chicken.
7:10
Speaker 4: And so they just came up with a machine that
7:12
Speaker 4: doesn't right. And so there's just like all these things
7:16
Speaker 4: that if you realize if you have a labor model,
7:19
Speaker 4: a business model that's more labor heavy, labor reliant in
7:22
Speaker 4: a time of you know, still tight labor market, it's
7:26
Speaker 4: just tougher and so just kind of automating some of
7:29
Speaker 4: that stuff, and it's streamlining how you do it? I
7:32
Speaker 4: think you said it, Mike. Actually for my story, like
7:35
Speaker 4: operations is not sexy, but it matters a lot.
7:38
Speaker 1: Yeah, for sure, no doubt.
7:40
Speaker 2: And so you know, talking about streamlining operations, you know,
7:43
Speaker 2: we were talking about Starbucks. They've been investing heavily to
7:48
Speaker 2: improve their throughput, speed of service, and just basically make
7:51
Speaker 2: the baristas and the other employees jobs easier. So I
7:55
Speaker 2: was swamped with the earnings last week, but you made
7:57
Speaker 2: it to their investor day in New York.
7:59
Speaker 1: How are they progressing?
8:01
Speaker 4: I did? I did, so, you know, just to kind
8:04
Speaker 4: of put it a little bit in context, it's a
8:06
Speaker 4: similar story to poplize in the sense that you know,
8:09
Speaker 4: Starbucks had that big slump when the pandemic started, but
8:12
Speaker 4: then you know they've really recovered pretty quickly, Like their
8:14
Speaker 4: demand is pretty strong, but because of everything in the pandemic,
8:18
Speaker 4: they just didn't adapt quickly enough, especially to that like
8:21
Speaker 4: just massive shift to online orders. I mean, Starbucks has
8:24
Speaker 4: always had a bunch of online orders, they were pioneers
8:26
Speaker 4: in that space, but it just like really searched in
8:28
Speaker 4: a way that made everything more complicated for baristas and
8:31
Speaker 4: so about a year ago they announced sort of the
8:35
Speaker 4: first iteration of the plan that they implemented to just
8:40
Speaker 4: basically help stores run better. You know, they are rolling
8:44
Speaker 4: out stuff like new cold foam blenders.
8:48
Speaker 3: Cold foam is a super super popular topic.
8:50
Speaker 4: If you've ever been to Starbucks lately, you see people
8:52
Speaker 4: with their you know, walking out with their beverages and
8:54
Speaker 4: there's like the cold foam on top.
8:57
Speaker 3: But previously that you have to make it.
9:00
Speaker 4: I got full size blender and that competes with preppuccinos, right,
9:04
Speaker 4: so it just made it harder. And so that's some
9:07
Speaker 4: of the stuff they're doing. They're also rolling out something
9:11
Speaker 4: that's basically a thirty second verse French press machine. Basically
9:16
Speaker 4: it makes coffee in thirty seconds instead of having to
9:19
Speaker 4: make a bunch of you know, batches in the like
9:22
Speaker 4: large rewers type stuff, and that generated a lot of waste.
9:27
Speaker 4: And another big thing that they unveiled is basically a
9:30
Speaker 4: new setup to bring together all the elements to make
9:33
Speaker 4: cold drinks. Cold drinks account for like seventy five percent
9:37
Speaker 4: of Starbucks orders, unbelievably, and so that also was meant to.
9:41
Speaker 3: Help with that.
9:42
Speaker 4: So the first two parts, right, the blender and the
9:46
Speaker 4: vertica are the the coff Flover Vertica, which is the
9:49
Speaker 4: thirty second coffee machine, are the ones that are the
9:51
Speaker 4: most advanced. They're also relatively speaking, easier to implement. I mean,
9:56
Speaker 4: it's a machine at a store versus you know, the
9:59
Speaker 4: side iron system, which is what they call the new setup.
10:02
Speaker 4: Is that it's a new setup, so you have to
10:04
Speaker 4: you know, retrofit stores and everything. What what I found interesting
10:08
Speaker 4: about the latest update that they gave, you know, during
10:12
Speaker 4: their what they called Reinvention of Data was on November second,
10:16
Speaker 4: was that it seemed like investors were focusing a lot
10:20
Speaker 4: on the siren system. It was like, that's the big thing,
10:23
Speaker 4: that's what we should be focusing on. But they really
10:25
Speaker 4: sort of broadened it out a little bit more and
10:29
Speaker 4: they talked about just other things that they have been
10:32
Speaker 4: doing to make the stores easier to run, like, for example,
10:36
Speaker 4: capping the number of delivery orders.
10:38
Speaker 2: Well, we don't like to hear that. We don't like
10:39
Speaker 2: to hear anybody capping orders.
10:42
Speaker 3: So why is that? Okay?
10:44
Speaker 4: Yeah, I now I had get to interview with you,
10:45
Speaker 4: Like what right.
10:46
Speaker 2: You got to you got to hit those same store
10:48
Speaker 2: sales targets right, like you shouldn't you should you know,
10:50
Speaker 2: I'd rather see you improve your operations more quickly than
10:55
Speaker 2: turned down then you know, orders, especially it those online
10:58
Speaker 2: orders so usually pretty pretty good in size, you know.
11:01
Speaker 2: But I think I just quickly make a point. You know,
11:03
Speaker 2: both of these companies have seen big jumps in average
11:06
Speaker 2: unit volume SAAM source sales over the last four or
11:08
Speaker 2: five years. And this is part of the reason why
11:10
Speaker 2: they need to do these overhauls, is because the boxes
11:13
Speaker 2: weren't built to support these levels of sales.
11:15
Speaker 1: But please keep.
11:16
Speaker 4: Going, no, no, no, exactly, But I mean you make
11:18
Speaker 4: a really good point about those miss sales, right because
11:22
Speaker 4: at the end of the day, that's the point of
11:24
Speaker 4: all of this, you know, it's not just like, oh,
11:25
Speaker 4: we're going to be the best run Starbucks are pod
11:28
Speaker 4: byas is just if we can serve people faster, then
11:32
Speaker 4: people won't see along line and walk away. And so
11:34
Speaker 4: it's just that idea of capturing you know, those those
11:38
Speaker 4: additional sales. And so in this latest update, one of
11:42
Speaker 4: the one of the things that sort of cut my eyes,
11:45
Speaker 4: it's just them trying to almost like redirect investors to
11:48
Speaker 4: this idea of all the other stuff they're doing, like
11:50
Speaker 4: it's not just about the Seren system, which is hard
11:53
Speaker 4: to implement because it's probably only going into news stores.
11:58
Speaker 4: And I think it's about forty percent of the system
12:00
Speaker 4: is going to have it by like twenty twenty six. Right,
12:01
Speaker 4: That's that's lower than a lot of people thought. But
12:04
Speaker 4: so they announced these other ideas of Okay, we're gonna
12:07
Speaker 4: just run our stores better. We're gonna open stores that
12:10
Speaker 4: are more specific to the purpose that we want them
12:14
Speaker 4: to have.
12:15
Speaker 1: Yeah. Yeah, all that's good stuff, and I like that that.
12:19
Speaker 2: I liked some of those things that you picked up
12:21
Speaker 2: on because it wasn't necessarily my biggest focus. I think
12:25
Speaker 2: my biggest focus was that they lowered their long term
12:28
Speaker 2: targets without admitting they lowered their long term targets, and
12:32
Speaker 2: like no one, everyone gave them a pass on it.
12:35
Speaker 2: Everybody loved Starbucks, apparently because they made a lot of
12:37
Speaker 2: money I guess over the years investing in it.
12:40
Speaker 1: But yeah, that was curious. I mean, that was interesting
12:43
Speaker 1: during their Yeah, I mean.
12:45
Speaker 2: During the investor day back in late twenty twenty one,
12:48
Speaker 2: I guess about two years ago. Now, I found it
12:50
Speaker 2: really curious that I'm sorry, not two years ago. It
12:55
Speaker 2: was last year.
12:56
Speaker 4: I know what time now, I know it flies.
13:00
Speaker 1: So they taught they raised.
13:02
Speaker 2: Their long term targets, you know, and just EPA, it
13:05
Speaker 2: was like five to ten. They increased revenue guidance to
13:09
Speaker 2: five to ten, or central sales from five to ten,
13:12
Speaker 2: operating come ten to fifteen percent growth a year, and
13:15
Speaker 2: then fifteen to twenty percent EPs growth, which we wrote
13:18
Speaker 2: at the time was like, why are you doing this
13:20
Speaker 2: to the CEO as he's coming in. Usually CEOs like
13:23
Speaker 2: to come in and cut all the targets to keep
13:26
Speaker 2: Wall Street off his back for like.
13:27
Speaker 1: A year, you know.
13:29
Speaker 2: Yeah, and then now a year later they cut it
13:32
Speaker 2: to like they didn't cut it totally, but they cut
13:34
Speaker 2: the top end off, right, So it's like now it's
13:36
Speaker 2: like five percent SAMSAR sales and ten percent.
13:41
Speaker 3: Yeah revenue growth.
13:42
Speaker 1: Plus yes growth. Yeah. So that was where most of
13:44
Speaker 1: my focus was.
13:46
Speaker 4: Yeah, that's a very good point and sort of the
13:49
Speaker 4: what I heard, right, you know, when I was talking
13:52
Speaker 4: to investors and analysts ahead of this, is that just
13:55
Speaker 4: echoing what you were saying. A lot of people thought
13:58
Speaker 4: that the targets were just too to begin with, right,
14:02
Speaker 4: the way I was talking to an analyst and the
14:04
Speaker 4: way that she explained it was the consumer environment has
14:07
Speaker 4: definitely become more worried, to put it that way, since
14:10
Speaker 4: last September when they first set those goals. But it's
14:14
Speaker 4: hard to say that it's not a sort of specific
14:16
Speaker 4: thing when they were the ones that promised those lofty goals, right,
14:20
Speaker 4: and so it was sort of that thing of Starbucks
14:23
Speaker 4: doesn't have a problem with its brand. People are still
14:24
Speaker 4: buying it, but at the same time, in an environment
14:27
Speaker 4: like this, you might need to be a little more
14:29
Speaker 4: careful about the type of targets you have. And it
14:32
Speaker 4: was a little bit, you know, when they announced earnings
14:35
Speaker 4: and then they caught that same store soals guidance from
14:38
Speaker 4: seven to nine percent, so five to seven the stock
14:42
Speaker 4: was going up, right, and that doesn't really happen that often.
14:46
Speaker 4: And sort of the explanation that I got is that
14:49
Speaker 4: they didn't cut the profitability targets, and it seemed to
14:53
Speaker 4: be reassuring for investors that even with slower same store
14:57
Speaker 4: sales growth, they could still reach that EPs growth target
15:01
Speaker 4: through other things like, for example, that three billion dollar
15:06
Speaker 4: just cost saving program. I think he would have been
15:08
Speaker 4: a lot worse and not as reassuring if they had
15:11
Speaker 4: also caught the profit guidance the guidance, So is that
15:16
Speaker 4: is that kind of how you were also seeing it?
15:18
Speaker 2: Yeah, I guess, you know, as long as they kept
15:20
Speaker 2: the bottom line, the bottom end of that that guidance,
15:23
Speaker 2: that seemed to play kid investors off of a very
15:25
Speaker 2: strong quarter, right, So you know, the calendar second quarter
15:30
Speaker 2: result was pretty weak. We saw a pretty significant slowdown
15:33
Speaker 2: in the four year same source of sales trend, and
15:35
Speaker 2: so management didn't really address that. And but but like sequentially,
15:40
Speaker 2: this was a reacceleration of the same.
15:42
Speaker 1: Source of sales.
15:42
Speaker 2: So I felt that the quarter was so strong and
15:46
Speaker 2: that they kept the low end of the long term guidance.
15:49
Speaker 2: I think that seemed to play CAID investors, and they
15:51
Speaker 2: kind of gave them a pass because for those reasons
15:53
Speaker 2: that you said, they're long term targets, which I'm gonna
15:57
Speaker 2: pat myself on the back because we wrote this coming
15:59
Speaker 2: out of the Investor a year ago. It's like, these
16:01
Speaker 2: targets don't include any slow down the consumer, so they
16:03
Speaker 2: don't make any sense to me. So you know, even
16:06
Speaker 2: a broken clock is right twice twice a day.
16:08
Speaker 3: There we go.
16:09
Speaker 4: Yeah, that's got we got excellent point.
16:11
Speaker 2: We had that one, right, So so we'll see, so,
16:14
Speaker 2: you know, we'll see going forward. Obviously, this is a
16:17
Speaker 2: super popular name that everybody likes to talk about very
16:20
Speaker 2: very very Yeah, everybody loves their talk, loves their coffee,
16:26
Speaker 2: and so you know, you also mentioned to me that
16:29
Speaker 2: they hyped up their position as a provider of small
16:31
Speaker 2: indulgences amid a slowing economy, So would they have.
16:35
Speaker 4: To say, yeah, So I think this just like it's
16:38
Speaker 4: a really good example of these theme that we've seen
16:41
Speaker 4: more broadly, people are caughting back on just big expenses,
16:45
Speaker 4: like for example, appliances, right, I mean, part of it
16:49
Speaker 4: is just a bunch of us, but appliance is during COVID,
16:51
Speaker 4: how many more washers do you need? And then also
16:54
Speaker 4: just that idea of you know, wallets are pressured, but
16:57
Speaker 4: at the same time, people are still willing to splurge
17:01
Speaker 4: on what we have called small intelligences. Right. So you
17:05
Speaker 4: know a lot of the beverage companies are doing great,
17:07
Speaker 4: right that that doesn't really cost you that much. People
17:11
Speaker 4: are also traveling, right, so they have this idea of like, well,
17:14
Speaker 4: I mean, I might as well spend on something that
17:17
Speaker 4: I really enjoy and especially with international travel, like we've seen,
17:20
Speaker 4: you know, a fair bid of strength there, and then
17:23
Speaker 4: we have something like Starbucks. So Mike, something that has
17:26
Speaker 4: really caught my attention, and then I'll bring it back
17:28
Speaker 4: to sort of like the financial is. You know, I'm
17:31
Speaker 4: a millennial, and for for a long time, the type
17:35
Speaker 4: of narrative that I heard, particular un millennials was well,
17:38
Speaker 4: if you, you know, stop cheating avocado toast and buying Starbucks,
17:42
Speaker 4: you would be able to save up for a down
17:43
Speaker 4: payment on a house. Right. That was ridiculous. That was
17:46
Speaker 4: a big narrative, Like, that's ridiculous.
17:49
Speaker 1: It's like those people that tell you know, you could say, well, yeah,
17:52
Speaker 1: I forget, but don't get me started.
17:54
Speaker 4: There we go. But that was a big narrative around
17:56
Speaker 4: sort of like the way that millennials went around the economy.
18:00
Speaker 4: Most more recently, I have seen you know, posts on
18:02
Speaker 4: social media that are like, well, even if you spend
18:05
Speaker 4: seven dollars a day on your coffee X many days
18:08
Speaker 4: a year, that still only amounts to I don't know,
18:11
Speaker 4: one thousand dollars, that's still not enough for a down
18:13
Speaker 4: payment on a house.
18:14
Speaker 3: So just buy the coffee, you know.
18:16
Speaker 4: So this idea of indulging, you know, those small indulgences,
18:19
Speaker 4: and so just to bring it back to like specific
18:21
Speaker 4: Starbucks results, one of the reasons why they're same store
18:25
Speaker 4: sales were fairly strong this quarter was more people buying
18:29
Speaker 4: more stuff, you know, and so that sort of like
18:32
Speaker 4: underscores that idea. And actually their chief marketing officer, Brady Brewer,
18:37
Speaker 4: which excellent name for the job, by the way, said
18:40
Speaker 4: this during the investor day. He was like, people are
18:42
Speaker 4: just not calling back. I mean, they're adding more stuff,
18:44
Speaker 4: and you know, you're at this wonky term in the
18:48
Speaker 4: restaurant industry, the idea of food attached, right, basically just
18:50
Speaker 4: people adding food to their orders. Also a record reporter,
18:53
Speaker 4: you know, people are going to Starbucks for their drinks
18:56
Speaker 4: and they're also adding sandwiches, crosshounds, whatever it is, holding
19:00
Speaker 4: some of the like seasonal items that they have. So
19:02
Speaker 4: it's just like a really good example of this kind
19:06
Speaker 4: of trend that we seem to be seeing in the
19:07
Speaker 4: consumer space of yes, let's cut back on those like
19:10
Speaker 4: big outlay expenses, but then also I'm going to get
19:14
Speaker 4: my cold phone and my cold crew.
19:16
Speaker 3: You know.
19:17
Speaker 1: Yeah.
19:18
Speaker 2: They credited their pretty solid performance throughout the Great Financial
19:23
Speaker 2: Crisis to you know, the same sort of of a trend.
19:27
Speaker 2: I think it also helps them that they sell an
19:31
Speaker 2: addictive product, right, and their addictive product has more caffeine
19:34
Speaker 2: in it than anybody else's. And so if you really
19:37
Speaker 2: got to get a lot of work done, you're still
19:39
Speaker 2: going to get your Starbucks coffee in the morning.
19:41
Speaker 4: And it's such a routine product, right. I think that's
19:44
Speaker 4: just something that's so interesting about the coffee business is
19:49
Speaker 4: you know, you if you have a habit of I'm
19:52
Speaker 4: going to leave my house, I'm gonna stop by Starbucks
19:54
Speaker 4: and then go to the office or whatever it is,
19:56
Speaker 4: it's just so hard to cut out. It's just something
19:58
Speaker 4: that you do every single day. I mean, it's not
20:01
Speaker 4: like other pockets of the restaurant industry where we have
20:03
Speaker 4: seen some weakness that are just more kind of like,
20:07
Speaker 4: oh maybe I'll go out to celebrate something or you know,
20:10
Speaker 4: I don't know if I have time for that, you know,
20:11
Speaker 4: sit down meal. But it does raise an interesting point
20:16
Speaker 4: that actually, like you know, another Wall Street person brought
20:20
Speaker 4: up to me, which is what happens to these sort
20:23
Speaker 4: of routine based businesses. If, for example, we have a
20:26
Speaker 4: dip in employment, right, Like, you know, employment has been
20:29
Speaker 4: so strong, is really the only way that we can
20:31
Speaker 4: go here is down?
20:32
Speaker 3: Perhaps, I don't know.
20:34
Speaker 4: So it's kind of interesting to think also about sort
20:36
Speaker 4: of those second order effects of where the consumer's going
20:40
Speaker 4: and what that means, not not necessarily because people have
20:43
Speaker 4: less money, but because their routines aren't disrupted. So we'll see,
20:46
Speaker 4: we'll see. I mean, I think that'll be interesting to
20:47
Speaker 4: keep an eye on for the AAR ahead.
20:51
Speaker 1: Yeah, for sure.
20:52
Speaker 2: You know, we've seen a lot of other QSRs kind
20:54
Speaker 2: of slow. People aren't giving up the coffee yet, but
20:57
Speaker 2: some of the other you know, quick service restaurants recovers,
21:00
Speaker 2: you've seen some some slowing and the sales and there's
21:03
Speaker 2: been a lot of concern about future sales for those QSR.
21:08
Speaker 1: Names due to the g LP ones. And a nice article.
21:14
Speaker 2: Yeah, you set me up nicely for that one, you said,
21:18
Speaker 2: you know, you wrote a good article today about you know,
21:21
Speaker 2: what companies with CEOs are saying about ozempic and how
21:25
Speaker 2: it's going to impact eating habits moving forward. So what
21:28
Speaker 2: are these CEOs saying about this quote unquote miracle drug.
21:33
Speaker 3: Yeah, there we go.
21:33
Speaker 4: So, first of all, quick plug for the Bloomberg Health
21:36
Speaker 4: team if you really want to, you know, be up
21:38
Speaker 4: to date to just what's happening there from the scientific perspective.
21:41
Speaker 3: They're doing a great job with their.
21:43
Speaker 4: Reporting, including a approval recently for yet another one of
21:49
Speaker 4: these drugs.
21:50
Speaker 3: But basically, you know, during earning season and.
21:53
Speaker 4: As I've had access to restaurant executives, I was just
21:55
Speaker 4: trying to ask them like how they're thinking about it
21:57
Speaker 4: and how they're thinking about the impact on their businesses,
22:00
Speaker 4: and they seem pretty confident that it's going to be okay.
22:04
Speaker 4: You know that they are going to hold up just
22:06
Speaker 4: fine for a couple of different reasons. And so if
22:09
Speaker 4: you talk to the likes of Cava and Chipotle that
22:12
Speaker 4: tend to have what you would call like healthier meals,
22:15
Speaker 4: you know, stuff that they sort of talk about more
22:18
Speaker 4: as real food, right, like you can see the rice
22:21
Speaker 4: and the beans and the you know salad.
22:24
Speaker 1: Yeah, you can eat healthy at those places if you
22:27
Speaker 1: want to, for sure.
22:28
Speaker 4: Exactly, It's like you can make those choices of more
22:29
Speaker 4: like more wholesome food. The idea that they have brought
22:32
Speaker 4: up is, well, we think that the people who are
22:36
Speaker 4: on this golp ones are already more conscious about their health, right,
22:40
Speaker 4: Like they're actively trying to lose weight, and they are
22:43
Speaker 4: probably also actively thinking more about what kind of food
22:46
Speaker 4: they're eating. And so Cava and Chipole both said that
22:50
Speaker 4: they think that those people, because they're being more just
22:52
Speaker 4: sort of discriminating about what about their health, they're probably
22:55
Speaker 4: going to go for their types of meals kind of
22:58
Speaker 4: no matter how littly.
23:00
Speaker 3: I did ask, you know.
23:01
Speaker 4: The Chipota CFO but I was like, well, but like,
23:04
Speaker 4: you know, if these drugs do suppress appetite, like what
23:06
Speaker 4: are you going to do about your portion sizes?
23:08
Speaker 3: And his answer was like, you know, our consumers are already.
23:11
Speaker 4: Pretty savvy about that type of stuff, Like some people
23:13
Speaker 4: buy the balls with the intention of eating them into seedtings,
23:16
Speaker 4: not one. So you know that that's the type of
23:18
Speaker 4: stuff that they're saying. And then you have other restaurants
23:22
Speaker 4: that do serve more indulgent food like so, for example,
23:24
Speaker 4: I talked to Freddy's Frozen Custard and Steak Burgers. I
23:27
Speaker 4: talked to their CEO.
23:29
Speaker 1: I'm sorry, Christal, Yeah, I had him on the podcast.
23:32
Speaker 4: Yes, yeah, you know, he's he was. He was really interesting.
23:35
Speaker 4: I did ask him if most people think his name
23:37
Speaker 4: is Freddy, and he said yes.
23:40
Speaker 3: But AnyWho.
23:41
Speaker 4: Uh So, what Chris was saying was that, you know,
23:45
Speaker 4: they have an opportunity in chicken. He's like, you know,
23:48
Speaker 4: one of the things that we can look at as
23:50
Speaker 4: part of just like our general menu review, is just
23:53
Speaker 4: improving our chicken offerings. You know, chicken is perceived to
23:57
Speaker 4: be healthier than beef. And also it's just as we
24:00
Speaker 4: talked about with Popeyes, it's just very popular. I mean,
24:03
Speaker 4: Americans are eating more and more chicken. And he mentioned like, well,
24:06
Speaker 4: I mean, you know, you might look up and some
24:07
Speaker 4: they actually see a salad on our menu for example.
24:10
Speaker 4: The other part of what he was saying, which was
24:13
Speaker 4: also sort of echoed by Darden a couple of months
24:16
Speaker 4: ago when they reported earnings, was this idea that people
24:20
Speaker 4: are not going to want to miss out on dining
24:23
Speaker 4: out with friends and family, Like they're not going to
24:25
Speaker 4: want to cut out the experience part of dining out,
24:29
Speaker 4: the part that isn't just need to get sustenance now.
24:33
Speaker 3: And so that's also an important sort.
24:35
Speaker 4: Of like hypothesis that they have, and Darden also you know,
24:40
Speaker 4: emphasized that they've done a lot of work across their properties,
24:44
Speaker 4: you know, Alive Garden and all of those two just
24:47
Speaker 4: have more options for people, you know, so people can
24:49
Speaker 4: pick something healthier if they want. That means that, like,
24:53
Speaker 4: what what do you think about that? Because it seems
24:55
Speaker 4: like these are very different reasons. And I mean it
24:58
Speaker 4: seems like the scientific community think that these drugs are
25:01
Speaker 4: a real breakthrough and that they do suppress appetite for
25:04
Speaker 4: all sorts of foods. So really big questions still up
25:08
Speaker 4: in the air.
25:10
Speaker 2: Yeah, I have my I have my doubts that it's
25:13
Speaker 2: going to make a major impact to the restaurant industry.
25:15
Speaker 2: You know, some of the reports are out out there
25:18
Speaker 2: or they're saying, you know, there could be a seven
25:20
Speaker 2: or a ten percent, maybe at twelve percent decline in
25:23
Speaker 2: calorie consumption by twenty thirty five. I mean, like, are
25:27
Speaker 2: you telling me McDonald's can't figure out how to decrease
25:30
Speaker 2: the size of their burgers ten percent by twenty thirty five,
25:33
Speaker 2: I think.
25:34
Speaker 3: Not smaller.
25:35
Speaker 1: Come on, I'm sorry.
25:38
Speaker 2: Sorry to break it to you, but with all the inflation,
25:40
Speaker 2: I think we're in the early stages of.
25:42
Speaker 1: A commodity bull market.
25:43
Speaker 2: So I think inflation is not going anywhere for anywhere
25:45
Speaker 2: for a long time, so burgers are probably gonna shrink.
25:48
Speaker 1: As it is.
25:49
Speaker 4: That's that's a really good point. A lot of structural
25:51
Speaker 4: reasons behind that.
25:52
Speaker 2: Yeah, And I don't I don't, you know. I think
25:55
Speaker 2: what should be more of a concern would be the
25:57
Speaker 2: quick service names, because I have read that people that
26:00
Speaker 2: are on these medications do not want to eat greasy
26:03
Speaker 2: and fatty food. So I would say it would probably
26:06
Speaker 2: be a little bit more of a concern for places
26:08
Speaker 2: like that. But I'd also make the argument that most
26:11
Speaker 2: people don't really care, like does everybody care about their weight?
26:17
Speaker 1: Like does everybody?
26:19
Speaker 2: Is everybody willing to take a drug to cut their weight,
26:23
Speaker 2: like to stay skinny? Like you know, I get it
26:26
Speaker 2: for health reasons, you know. And one thing we've been
26:28
Speaker 2: saying is like right now, this is this is and
26:31
Speaker 2: then near term this does nothing to McDonald's because there
26:33
Speaker 2: their customers can't afford to go on these medications if
26:37
Speaker 2: it's off prescription.
26:39
Speaker 4: I think you're bringing up like a great point about
26:41
Speaker 4: all your knowns about this, you know what I mean,
26:44
Speaker 4: And like those are the big questions that have to
26:46
Speaker 4: be solved to even try to determine what the impact
26:49
Speaker 4: is going to be, you know, and to your point,
26:52
Speaker 4: you know, I have also, you know, read this idea
26:54
Speaker 4: about you know, cutting out sort of like junk foods
26:56
Speaker 4: and stuff like that. But even then, another point that
27:00
Speaker 4: has come up is that that might hurt more sort
27:02
Speaker 4: of the individual dining occasion, like just going to drive
27:06
Speaker 4: through for lunch or something like that, unless sort of
27:08
Speaker 4: the group. You know.
27:11
Speaker 2: Oh, I agree wholeheartedly, wholeheartedly. I mean, we saw that
27:14
Speaker 2: coming out of the pandemic. There's that's where people go
27:17
Speaker 2: to meet friends and family and is restaurants, right, That's
27:21
Speaker 2: where you're going to go when you want to like
27:23
Speaker 2: do business, when you want to see friends, whatever it
27:26
Speaker 2: might be, celebrate an anniversary or a birthday.
27:30
Speaker 1: Where do you go?
27:30
Speaker 2: You go to the restaurant. So those dining occasions are
27:33
Speaker 2: not going anywhere. And uh yeah, for me, I think
27:36
Speaker 2: there's just too many question marks about GLP ones right now,
27:39
Speaker 2: and I think this is a long term thing. And
27:41
Speaker 2: so I think investors, you know, should not be making
27:45
Speaker 2: their investment decisions in restaurants based on you know, pie
27:49
Speaker 2: and the sky estimates of ozempic and other GLP ones.
27:52
Speaker 4: So I'll just I'll just keep it at that there
27:53
Speaker 4: something else like last sort of points on this was,
27:57
Speaker 4: you know, chrispy Kreme did take a big hit. I
28:00
Speaker 4: think it was not too long ago because of a
28:04
Speaker 4: downgrade that wasn't about the impact, it was about the uncertainty,
28:09
Speaker 4: you know. So the argument that was made with that
28:12
Speaker 4: downgrade to the price target was the idea that it
28:16
Speaker 4: would be better if we knew already, so that way
28:18
Speaker 4: we can factor it into estimates and growth targets.
28:22
Speaker 3: So it's just another way to see it.
28:24
Speaker 4: You know. My job here is not to say who's
28:26
Speaker 4: right on who's wrong. It's just it's another one of
28:28
Speaker 4: the things that has come up, you know, because you're
28:30
Speaker 4: talking about the potential impact based on estimates, and then
28:33
Speaker 4: there's people who are looking at it. It's like, well,
28:35
Speaker 4: but the uncertainties matter, So what do you think.
28:38
Speaker 2: I think there is a bias by most of analysts
28:45
Speaker 2: and investors, and it's this New York, you know, pretty
28:52
Speaker 2: wealthy bubble that these people live in, and I don't
28:56
Speaker 2: think they know or or really analyze how people and
29:00
Speaker 2: the rest of the country live.
29:04
Speaker 1: Yeah, it's it's very different. Listen. We're blessed.
29:06
Speaker 2: We work for a great company and we make the money,
29:08
Speaker 2: and you know, and we live in this bubble, but
29:12
Speaker 2: the large majority of this country, you know, lives a
29:17
Speaker 2: very different way.
29:18
Speaker 1: So I have a have a story.
29:20
Speaker 2: So years ago, when I was covering restaurants at Sadodi
29:25
Speaker 2: prior to coming here, every time Domino's did a limited
29:30
Speaker 2: time offer, they'd send us a pizza and they sent
29:34
Speaker 2: me this like chicken bacon Carbonora pizza and like, I
29:37
Speaker 2: called up the IR director to thank her, and I
29:40
Speaker 2: was like, now, this is really good.
29:42
Speaker 1: Thank you, I appreciate it.
29:43
Speaker 2: And she's like, believe it or not, it's healthier than
29:46
Speaker 2: most of the the pizzas, than the average pizza we sell.
29:49
Speaker 2: I was like, oh really, She's like yeah, but don't
29:52
Speaker 2: tell anybody that.
29:53
Speaker 1: I'm like, why because because people won't buy it.
29:57
Speaker 3: That's fascinating.
29:58
Speaker 2: People live very and very differently than we do here
30:03
Speaker 2: in the you know, and in other on the coasts
30:05
Speaker 2: and in major metropolitan areas.
30:07
Speaker 1: And I think I think I see it. It's not
30:11
Speaker 1: I think I do.
30:12
Speaker 2: See it all the time with the investor bases of
30:13
Speaker 2: a lot of these companies that they're not they don't
30:15
Speaker 2: put themselves in the shoes of everyday Americans.
30:20
Speaker 3: In Middle America the overall consumer.
30:22
Speaker 4: And you know that's again like another one of those
30:24
Speaker 4: big things that we have to figure out, like why
30:26
Speaker 4: are they use such patterns for this? Who has access
30:29
Speaker 4: to this? How long can they stay on it? Based
30:31
Speaker 4: on their insurance? And so maybe the executives that I've
30:36
Speaker 4: been talking to who are saying that they think they'll
30:38
Speaker 4: be okay, all right, maybe they'll be right right, and
30:41
Speaker 4: so we'll we'll see. But I think you make a
30:44
Speaker 4: very good point about just the perspective that we have
30:47
Speaker 4: and you know, we got to get out to more
30:50
Speaker 4: drive throughs. That's that's what America, how America consumes. That's
30:53
Speaker 4: my take away from this conversation.
30:57
Speaker 2: Yeah, I don't think they're going away anytime soon, that's
31:00
Speaker 2: for sure. Well thanks again, this was awesome. Where can
31:04
Speaker 2: the audience find you on social media?
31:06
Speaker 4: So I am on Twitter at Danny Underscore LSC and
31:11
Speaker 4: then add me on LinkedIn. I'm on LinkedIn all the time,
31:13
Speaker 4: and I'm always looking to hear from people in the
31:16
Speaker 4: restaurant space.
31:18
Speaker 3: Tell me your thoughts, tell.
31:19
Speaker 4: Me our secrets. That's mostly what I want to hear.
31:21
Speaker 4: But if you want to don't want to say that
31:23
Speaker 4: still reach out and I do want to hear about
31:25
Speaker 4: just what you think is going on in the restaurant space.
31:28
Speaker 2: So thank you all right, good stuff, and thanks to
31:30
Speaker 2: the audience for tuning in. If you liked the episode,
31:32
Speaker 2: please share with your friends and colleagues. Check back next week.
31:36
Speaker 2: I'll be interviewing Red Robin CEO GJ.
31:38
Speaker 1: Hart