Latest / Choppin’ It Up by Bloomberg Intelligence / US Consumer Response to Menu Pricing Madness

Transcript

US Consumer Response to Menu Pricing Madness · Choppin’ It Up by Bloomberg Intelligence

• 0:00
  Speaker 1: Welcome to Chopping It Up Episode four. I'm your host,
• 0:04
  Speaker 1: Michael Halen, the senior Restaurant and food Service analyst at
• 0:07
  Speaker 1: Bloomberg Intelligence. So it's my pleasure to introduce today's guest,
• 0:11
  Speaker 1: Mike Lucianoff. Mike is a data scientist, entrepreneur, and now
• 0:15
  Speaker 1: CEO of Extra P three sixty, a decision intelligence company.
• 0:19
  Speaker 1: Thanks for joining me, Mike, Michael, thanks for having me.
• 0:22
  Speaker 1: It's good to be here. For those of you that
• 0:24
  Speaker 1: don't know Mike, Uh, you know, he's he's uh, one
• 0:28
  Speaker 1: of the smartest people I know in the restaurant industry,
• 0:30
  Speaker 1: and it's somebody I lean on, uh in terms of
• 0:33
  Speaker 1: trying to figure out what's going on in the market.
• 0:35
  Speaker 1: So I'm excited to have him here. So, you know,
• 0:38
  Speaker 1: before we get into it, why don't you talk a
• 0:40
  Speaker 1: little bit about your new venture, Extra P three sixty,
• 0:43
  Speaker 1: uh and kind of explain to us how it's different
• 0:45
  Speaker 1: than what you've done in the past. Sure, yeah, no, thanks. Um.
• 0:51
  Speaker 1: You know, as you know, I've been in in the
• 0:53
  Speaker 1: business of turning data into insights and decisions for the
• 1:00
  Speaker 1: decades now, um, and you know, there's a lot there's
• 1:04
  Speaker 1: a lot of new analytics companies that are coming out
• 1:06
  Speaker 1: and so forth UM and b I companies. And I
• 1:09
  Speaker 1: think is this as this huge tidal wave of new
• 1:13
  Speaker 1: data started to surge into the end of the industry,
• 1:16
  Speaker 1: there's more and more people who don't know what to
• 1:19
  Speaker 1: do with it UM, and it could be a tremendous
• 1:22
  Speaker 1: asset UM. But really the a lot of the traditional
• 1:26
  Speaker 1: players are just saying, oh, you'll put it in a
• 1:28
  Speaker 1: data lake and you know, view it this way. And
• 1:31
  Speaker 1: more often than not, the enormous sound of data, even
• 1:35
  Speaker 1: when they get access to it, is just creating more,
• 1:39
  Speaker 1: you know, confusion. So there's just too much information and
• 1:43
  Speaker 1: not knowing what's what's the information is actually UH worth
• 1:47
  Speaker 1: paying attention to UM, And throughout my career, I've always
• 1:52
  Speaker 1: been trying to come up with what's that final what's
• 1:55
  Speaker 1: that solution, what's the answer? UH? And through actually three
• 2:00
  Speaker 1: ext really our our mission is to focus on that,
• 2:03
  Speaker 1: on that final on that final decision. How do we
• 2:07
  Speaker 1: take the data and the methodologies and help business leaders
• 2:12
  Speaker 1: UH to distill it down into probabilistic outcomes. UM. You know,
• 2:17
  Speaker 1: the kind of work that I've done with pricing and
• 2:19
  Speaker 1: with promotional work and so forth. It wasn't just hey,
• 2:22
  Speaker 1: this is what you should do, but it's hey, if
• 2:25
  Speaker 1: you do this, then the probability of this happening to
• 2:28
  Speaker 1: your sales and traffic and profit is this. And most
• 2:33
  Speaker 1: of those tools were inward looking for the analysts that
• 2:37
  Speaker 1: were supporting the businesses that I that I had been
• 2:40
  Speaker 1: founded or partnered in UM and and now we're doing it.
• 2:45
  Speaker 1: We still have the services, but we're trying to make
• 2:48
  Speaker 1: it more tools that are directly in support of those customers.
• 2:53
  Speaker 1: Because we're taking this approach, we're also able to not
• 2:56
  Speaker 1: just incorporate things like the point of sale and all
• 3:00
  Speaker 1: the inside data, but we've taken a lot of a
• 3:04
  Speaker 1: lot of time and effort to really start getting into
• 3:07
  Speaker 1: new types of data sets UM mobile UH mobile tracking data,
• 3:13
  Speaker 1: UM macro economic data sets, all localized so that you
• 3:18
  Speaker 1: can start to have UM forward looking leading indicators at
• 3:22
  Speaker 1: a very local level to understand what's coming down the pipe,
• 3:26
  Speaker 1: what's in the what's in the UH you know, what's
• 3:29
  Speaker 1: in the front window of you know, not in the
• 3:31
  Speaker 1: rear view mirror. So that's that's what we're in. What's
• 3:34
  Speaker 1: that's what we're building, and that's what we just recently
• 3:36
  Speaker 1: launched very cool. Um So, let's you know, dive in
• 3:42
  Speaker 1: here a little bit in terms of of of pricing
• 3:45
  Speaker 1: because you know, from where I sit, I think it's
• 3:47
  Speaker 1: it's going to be very important to second half performance.
• 3:51
  Speaker 1: And some of the companies that we cover, you know,
• 3:53
  Speaker 1: have been the ones that have been you know, um,
• 3:57
  Speaker 1: you know, more conservative on pricing, uh in an attempt
• 4:00
  Speaker 1: to gain share, seemed to have outperformed some of their
• 4:03
  Speaker 1: peers in the second half, in the second quarter, and
• 4:06
  Speaker 1: um so I think it's critical, but you know, to
• 4:10
  Speaker 1: get some insight into what is going to happen the
• 4:12
  Speaker 1: second half and next year. So, um, let's kind of
• 4:15
  Speaker 1: start with the third party delivery uh uh aggregators, Right, So,
• 4:21
  Speaker 1: consumers seem to generally accept higher menu prices for their
• 4:25
  Speaker 1: door to ash or their Uber Eats orders. You know,
• 4:28
  Speaker 1: is it because there's a little there's very little overlap
• 4:30
  Speaker 1: between the third party delivery customer and the dining room
• 4:34
  Speaker 1: patron or do delivery customers accept that convenience is costly
• 4:39
  Speaker 1: or is there something else to it? And is this
• 4:41
  Speaker 1: the right strategy for the industry? Yeah, I think I
• 4:45
  Speaker 1: think it's a little a little bit of both. Yeah,
• 4:47
  Speaker 1: I think that there was a time when restaurant floors
• 4:49
  Speaker 1: would say, you know, if you're not in my dining
• 4:52
  Speaker 1: room and you're not connecting directly with my uh you know,
• 4:56
  Speaker 1: with my service staff, then it can't possibly be worth
• 4:59
  Speaker 1: as much as it is, you know when you come
• 5:00
  Speaker 1: into the restaurant. So you know, they never thought that
• 5:03
  Speaker 1: they could charge more for it to show up at
• 5:05
  Speaker 1: somebody's doorstep, you know, and in their living room. UM.
• 5:09
  Speaker 1: And I think that what we've been seeing, not just
• 5:11
  Speaker 1: through some some survey work and some research and also
• 5:15
  Speaker 1: the price elasticities have really been showing that um, for
• 5:21
  Speaker 1: the most part, you know, consumers are much more accepting
• 5:24
  Speaker 1: of the higher prices. UM. I think part of it
• 5:27
  Speaker 1: is because of that convenience. The people who don't want
• 5:30
  Speaker 1: to pay for that convenience. It might be the same customer,
• 5:33
  Speaker 1: but it might be a very different occasion. Uh. You know,
• 5:36
  Speaker 1: if they just want to sit back and have the
• 5:38
  Speaker 1: food come to them in their living room, they're willing
• 5:42
  Speaker 1: to pay more for that convenience. So, you know, so
• 5:45
  Speaker 1: I think it is it is a combination now that
• 5:47
  Speaker 1: can be very different from one from one trade area
• 5:51
  Speaker 1: to the next. All these restaurants are not built in
• 5:53
  Speaker 1: the same in the same area. So when you talk
• 5:57
  Speaker 1: about some restaurants, some restaurant change not increasing the prices
• 6:02
  Speaker 1: as much and others increasing by a lot. UH, well,
• 6:07
  Speaker 1: it may very well be about how they did it.
• 6:10
  Speaker 1: Maybe some of them are more regionally focused, maybe some
• 6:14
  Speaker 1: were more strategic in understanding what their trade areas UM
• 6:19
  Speaker 1: trade area dynamics were UM. But really inflation is is
• 6:24
  Speaker 1: both of is both as a ceiling UH and a
• 6:28
  Speaker 1: floor in pricing right now, because if you don't if
• 6:33
  Speaker 1: you don't maintain a certain level of pricing, if you
• 6:35
  Speaker 1: just said, hey, I'm gonna stop increasing my prices, well,
• 6:37
  Speaker 1: first of all, the economics of your business they're going
• 6:40
  Speaker 1: to start to really take a toll, even even by
• 6:44
  Speaker 1: getting more gaining more share. UM. You know the way
• 6:49
  Speaker 1: that the UH cost of labor and cost of UH
• 6:54
  Speaker 1: you know, running a restaurant in general is just is
• 6:57
  Speaker 1: going up as as quickly as UM as the inflation. Right,
• 7:02
  Speaker 1: So you've got to do something. The question is do
• 7:05
  Speaker 1: you keep paced or do you come in a little
• 7:07
  Speaker 1: bit lower or do you come in a little bit higher. UM.
• 7:12
  Speaker 1: I would say that up until UM probably as you're
• 7:17
  Speaker 1: saying around second quarter and the first quarter into second
• 7:20
  Speaker 1: quarter this year, it was pretty easy for restaurants to say,
• 7:25
  Speaker 1: I'm jumping on the bandwagon. That's what cp I was. Uh,
• 7:29
  Speaker 1: that's what flewd away from home is, is what my
• 7:31
  Speaker 1: competitors are doing. You know, jack the prices up x
• 7:35
  Speaker 1: ray and it's gonna be okay. Um, that's not necessarily
• 7:41
  Speaker 1: what we're starting to see, you know, come you know
• 7:43
  Speaker 1: second and and and you know what I expect to
• 7:46
  Speaker 1: see in the third quarter. And it's not universal. You know,
• 7:49
  Speaker 1: it's when you really dissect it by uh, consumer segments,
• 7:53
  Speaker 1: when you dissected by types of trade areas and and geography. Uh,
• 7:58
  Speaker 1: it's very very different from from one uh, from one
• 8:01
  Speaker 1: area the next. That that's uh, that's interesting and so
• 8:07
  Speaker 1: um you know, you know, I guess, I guess what
• 8:10
  Speaker 1: you're getting at. It's very important to manage price, product
• 8:14
  Speaker 1: and promotions locally. Um, you know, I guess what what
• 8:19
  Speaker 1: areas of the country they seem more strength, um, you know,
• 8:23
  Speaker 1: versus others. But it's it's it's funny because even you know,
• 8:30
  Speaker 1: in the past, when we've seen cp I escalating, we've
• 8:35
  Speaker 1: seen it going at a similar pace and a and
• 8:37
  Speaker 1: a similar um in a similar cadence across the country. UM.
• 8:45
  Speaker 1: And really what we've seen over the course of the
• 8:48
  Speaker 1: past eighteen months is that it really hit UM the
• 8:54
  Speaker 1: coasts UH harder and faster. So you know, if you
• 8:59
  Speaker 1: are in San Francisco or Los Angeles, UM, then you
• 9:03
  Speaker 1: saw a big spike in um IN in food away
• 9:09
  Speaker 1: from home CPI earlier. UH, if you're in Florida, while
• 9:13
  Speaker 1: the rest of the country was experiencing you know, close
• 9:17
  Speaker 1: to double digit food away from home inflation for up
• 9:21
  Speaker 1: until really December some you know, some areas in in Florida,
• 9:27
  Speaker 1: So markets in Florida we're only experiencing about two So
• 9:31
  Speaker 1: there was this crazy dichotomy UH that you know, not
• 9:38
  Speaker 1: everybody was managing particularly well because they didn't necessarily have
• 9:42
  Speaker 1: called you know, that sort of priced tearing structure to
• 9:44
  Speaker 1: be able to manage their stores um in in such
• 9:49
  Speaker 1: a targeted way. But what was interesting is that come
• 9:55
  Speaker 1: the second half of this year, that the second half
• 9:58
  Speaker 1: is here become second po order. We started to see
• 10:02
  Speaker 1: inflation rates flip flop. So you go into UM, you
• 10:09
  Speaker 1: go into uh northern California, San Francisco area, and they
• 10:16
  Speaker 1: might just be around I think the last meeting was
• 10:19
  Speaker 1: around six, where Tampa Bay was around eleven. So when
• 10:25
  Speaker 1: you think about this sort of floor and ceiling and
• 10:30
  Speaker 1: there a lot of the areas I think that we're
• 10:33
  Speaker 1: called it ahead of the curve the floor are also
• 10:36
  Speaker 1: starting to see a little bit more weakness and the
• 10:39
  Speaker 1: lowest end of the consumer. But you might not notice
• 10:42
  Speaker 1: it as much because some of them also have a
• 10:44
  Speaker 1: very yeah, a lot a lot more density of the
• 10:47
  Speaker 1: high income consumer. Right, so it might not be as
• 10:49
  Speaker 1: noticeably yet, but it's but it's coming. Um yeah. And
• 10:54
  Speaker 1: then you know, interestingly, just the very big price increases
• 10:58
  Speaker 1: across the across the more so in places like you know,
• 11:02
  Speaker 1: the Midwest and and um, you know in Tampa in
• 11:06
  Speaker 1: in the last couple of um, in the last couple
• 11:10
  Speaker 1: of of CPR reports, it sounds like some of those
• 11:13
  Speaker 1: areas are playing a little catch up. I gotta follow
• 11:16
  Speaker 1: up on the c p I. UM, you know, the
• 11:20
  Speaker 1: food away from home and and versus food at home
• 11:23
  Speaker 1: inflation has been very different, right. Package food companies have
• 11:26
  Speaker 1: been more aggressive with their price increases, I guess other
• 11:29
  Speaker 1: other than the fact that you know they can because
• 11:32
  Speaker 1: it's a cheaper overall dining experience. What what do you
• 11:35
  Speaker 1: think is behind the more aggressive price increases at the
• 11:38
  Speaker 1: grocery store? Uh? Yeah, I mean I think I think
• 11:45
  Speaker 1: you're right. It's it's a staple UM. You know, it's
• 11:49
  Speaker 1: harder to it, so it's naturally less elastic. Where are
• 11:55
  Speaker 1: people going to go? And there they've always been. Grocery
• 11:59
  Speaker 1: has always been much more UH cost based, then demand
• 12:03
  Speaker 1: based restaurants would be, you know, a little bit more
• 12:06
  Speaker 1: focused on what's the consumer willing to pay, whereas grocery
• 12:09
  Speaker 1: stores have always been about well, what's it cost when
• 12:11
  Speaker 1: it comes in my back door? And if they're not
• 12:14
  Speaker 1: making their their multiples, then you know, then the business
• 12:18
  Speaker 1: that doesn't work. So, you know, as long as the UM,
• 12:24
  Speaker 1: as long as the producer price industries keep going up,
• 12:27
  Speaker 1: then the grocery store CP I know, food at home
• 12:32
  Speaker 1: UH price index is going to continue to go up.
• 12:35
  Speaker 1: I think what's interesting about that is that, you know,
• 12:37
  Speaker 1: in the past, we've seen that when UM, when the
• 12:43
  Speaker 1: gap between food at home and food away from home
• 12:47
  Speaker 1: inflation starts to spread, the lowest income UH consumers would
• 12:52
  Speaker 1: drop out of qs R at the low end, lowest
• 12:56
  Speaker 1: in qs ARE and into grocery. But now we're seeing
• 12:59
  Speaker 1: grocery increasing faster than uh, faster than than QS are
• 13:04
  Speaker 1: by by a pretty large margin. Um. So now we're
• 13:09
  Speaker 1: still seeing the lowest end consumer dropping out because what's
• 13:14
  Speaker 1: happening is that even though the spread isn't there like
• 13:16
  Speaker 1: what like it once was, Um, it's just taking a
• 13:20
  Speaker 1: complete it's just taking a toll on their total spending capacity.
• 13:25
  Speaker 1: It's really floated the consumer for the better part of
• 13:28
  Speaker 1: this year. Was this huge savings bubble that happened during COVID,
• 13:33
  Speaker 1: And when you look at people's savings rates and how
• 13:36
  Speaker 1: that's been just so quickly diminishing from the beginning of
• 13:41
  Speaker 1: this year through the middle of this year. Um, it's
• 13:45
  Speaker 1: it's drastic. And now we're back down below pre COVID
• 13:48
  Speaker 1: levels in terms of uh, you know, individual savings rates, um,
• 13:54
  Speaker 1: which I think is why you know, as you were
• 13:56
  Speaker 1: mentioning uh in another conversation, people are starting to more
• 14:00
  Speaker 1: on credit now too, Right, Yeah, for sure, and we'll
• 14:04
  Speaker 1: we'll get into that a little bit later in the pod.
• 14:07
  Speaker 1: But um, you know, can you also talk a little
• 14:11
  Speaker 1: bit about dynamic pricing systems, right like the days of
• 14:13
  Speaker 1: menu pricing based on competitor benchmarking and food costs multipliers
• 14:18
  Speaker 1: have passed us by. Um, can you talk a little
• 14:22
  Speaker 1: bit about how dynamic pricing systems are going to change
• 14:24
  Speaker 1: the game for restaurants and how long will it take
• 14:27
  Speaker 1: the industry to to get there? Yeah, you know, it's
• 14:32
  Speaker 1: it's funny, you know, even the word dynamic pricing, you know,
• 14:37
  Speaker 1: would make restauranturs shutter. And I think, yeah, I get
• 14:43
  Speaker 1: it right because they hear and then they envision, you know,
• 14:46
  Speaker 1: the prices on their menu changing every minute like a
• 14:49
  Speaker 1: stock kicker. Yeah, and and yeah, I think I think
• 14:54
  Speaker 1: some of that is probably, you know, because some of
• 14:57
  Speaker 1: the technologists were a little bit over ambitious about, you know,
• 14:59
  Speaker 1: how how a dynamic system might roll out, like you know,
• 15:03
  Speaker 1: an airline airline pricing or something like that. Um. I
• 15:08
  Speaker 1: think I think it's if you take it on on
• 15:11
  Speaker 1: a spectrum though, you need to think about, well, what's
• 15:15
  Speaker 1: the static pricing that the industry has been used to
• 15:17
  Speaker 1: where they look at pricing once a year, once over
• 15:22
  Speaker 1: eighteen months. Now because of inflation, so many companies have
• 15:25
  Speaker 1: been forced to look at it, uh, quarterly. I think
• 15:29
  Speaker 1: a lot of a lot of companies are going to
• 15:31
  Speaker 1: more of a quarterly look at it. But a lot
• 15:34
  Speaker 1: of the systems that they have in place just make
• 15:37
  Speaker 1: it really difficult for them to be able to implement
• 15:40
  Speaker 1: even a new price change on a new even on
• 15:44
  Speaker 1: some of the digital menu boards that are out there.
• 15:46
  Speaker 1: It's just not a simple task for them to update
• 15:49
  Speaker 1: all of their prices across the multi unit chain. UH.
• 15:53
  Speaker 1: In what's now all um multi channel, right, You've got
• 15:58
  Speaker 1: multiple channels at the same staurant. UH, And there's there's
• 16:02
  Speaker 1: just this there's this complexity to it. So so I
• 16:05
  Speaker 1: think that you know, if if you think of dynamic
• 16:09
  Speaker 1: pricing on sort of a spectrum and sort of redefined
• 16:12
  Speaker 1: as well, what's dynamic, right and what's static? And static
• 16:16
  Speaker 1: would be the traditional way of to take a look
• 16:19
  Speaker 1: at pricing, you know, infrequently and update it with all
• 16:24
  Speaker 1: of your manual way and dynamic could be all the
• 16:28
  Speaker 1: way over to the extreme. But I think that that
• 16:30
  Speaker 1: works are very very few restaurants in between. There are
• 16:34
  Speaker 1: things like, well, how do I how do I get
• 16:37
  Speaker 1: more efficient about being able to UM change my merchandising? Right?
• 16:42
  Speaker 1: Wheybe it's the center panel of the digital menu. Maybe
• 16:45
  Speaker 1: it's a printabal insert h inside of a menu instead
• 16:50
  Speaker 1: of the you know, for full service instead of having
• 16:53
  Speaker 1: to uh yeah, the manager prince every evening, instead of
• 16:58
  Speaker 1: having all the all the prices having to go to
• 17:01
  Speaker 1: be professionally printed. Maybe it's um, you know, drink menus
• 17:06
  Speaker 1: on you know an iPad or some sort of a
• 17:09
  Speaker 1: digital presenter. Um, it's it's a whole different I think
• 17:14
  Speaker 1: host of ways of figuring out how to become more
• 17:17
  Speaker 1: efficient and being able to get the products, the bundling,
• 17:24
  Speaker 1: the merchandizing and the prices out there, uh in a
• 17:28
  Speaker 1: much more uh in a much more efficient and faster way.
• 17:32
  Speaker 1: Um that moves with the temple with the business, not
• 17:35
  Speaker 1: just the tempo of what a lot of restaurantoris wishes
• 17:38
  Speaker 1: the business would be. Sure, Um, and you know we've
• 17:44
  Speaker 1: seen aggressive price increases in in the QSR industry for
• 17:48
  Speaker 1: the last three years, full service for the last two.
• 17:51
  Speaker 1: How much do you think US consumers can take? That
• 17:59
  Speaker 1: is the question that yael Um. You know, I when
• 18:05
  Speaker 1: you look at um, yeah, real income, you know, real
• 18:12
  Speaker 1: real wages versus um versus inflation to right, that starts
• 18:20
  Speaker 1: to tell you the real story about where the disconnect
• 18:23
  Speaker 1: is gonna be. So you take the real wages and
• 18:25
  Speaker 1: then you take the savings rates um. And then and
• 18:29
  Speaker 1: and again you've got to get really local, right because look,
• 18:33
  Speaker 1: there's a lot of people who did really really well
• 18:39
  Speaker 1: through COVID, as you know, a trillion dollars hit the
• 18:44
  Speaker 1: capital markets, and even with the market correction that's going
• 18:47
  Speaker 1: on now, it's still above where it was pre COVID
• 18:55
  Speaker 1: something like that. So you know, so there's still a
• 18:57
  Speaker 1: wealth effect going on in the highest achalon um. Now
• 19:02
  Speaker 1: with mortgage rates uh creeping up, you know, that's something
• 19:06
  Speaker 1: that you know, we'll start to affect higher reschlant and
• 19:10
  Speaker 1: middle income folks um. But monetary policy, these things, those
• 19:16
  Speaker 1: are real lagging indicate or you know real is it
• 19:19
  Speaker 1: a real lab right, we're experiencing, you know, stuff that
• 19:22
  Speaker 1: the Fed did eighteen months ago. You know, the stuff
• 19:26
  Speaker 1: that that they did two months ago is really going
• 19:30
  Speaker 1: to be felt significantly until next year. This sort of
• 19:36
  Speaker 1: peaked to the you know, peake to not so peak
• 19:38
  Speaker 1: inflation that we're feeling. It didn't really feel like a
• 19:42
  Speaker 1: big tick down, did it. But yeah, there was a
• 19:45
  Speaker 1: little bit of celebration over over eight and a half
• 19:48
  Speaker 1: percent unbelievable, right right, right, And and so you know,
• 19:52
  Speaker 1: and so the crowds applaud. You know, it was a
• 19:54
  Speaker 1: little shocking, but um, but you know it's it's um,
• 20:05
  Speaker 1: it's gonna you know, it continues. They hit different different
• 20:08
  Speaker 1: income levels and different demographics much differently, and those those
• 20:12
  Speaker 1: lagging indicators, Um, that is really monetary policy. It's gonna
• 20:18
  Speaker 1: take a while, and you know we see it basically
• 20:21
  Speaker 1: trying to slow down the economy. But still we see
• 20:23
  Speaker 1: five hundred thousand jobs being created last last week. That's
• 20:27
  Speaker 1: not slow right, So so when when is the feederm
• 20:32
  Speaker 1: gonna be able to get ahold of real inflation and
• 20:35
  Speaker 1: inflation expectations. What we're seeing in the tip down from
• 20:42
  Speaker 1: uh from June is energy prices, right. That was you know,
• 20:46
  Speaker 1: things really shot up in March when uh, you know,
• 20:51
  Speaker 1: when things got you know crazy in Ukraine and you
• 20:55
  Speaker 1: know other energy uh supply chains snarled, uh, and then
• 21:01
  Speaker 1: there was just a huge expectation of recession, right, so
• 21:05
  Speaker 1: everything shopped through the roof. So what we're saying now
• 21:08
  Speaker 1: is just, uh, it's just energy prices coming down. That's
• 21:11
  Speaker 1: bringing things slightly more moderated. But what's going to happen
• 21:15
  Speaker 1: in another month, you know, going into the winter, when
• 21:20
  Speaker 1: you know Putin decides to shut off all the natural
• 21:22
  Speaker 1: gas to Europe? Yeah, is that a risk? Is it
• 21:26
  Speaker 1: going to happen? It's a risk for sure. If it
• 21:28
  Speaker 1: does happen, what's gonna happen in natural gas? And what's
• 21:31
  Speaker 1: happened to do to the consumers in the Northeast and
• 21:35
  Speaker 1: the north um, and a lot of it depends on
• 21:38
  Speaker 1: what the you know, how how how cold the winter
• 21:41
  Speaker 1: is gonna be, right as heating heating a home could
• 21:45
  Speaker 1: be very Uh, is going to cost a lot much much,
• 21:50
  Speaker 1: much more than it did a year ago, especially up
• 21:53
  Speaker 1: there and me especially your main that's for sure. Yeah, yeah,
• 21:59
  Speaker 1: I mean the Feds really, you know, we've talked about
• 22:01
  Speaker 1: this in the past, but the Feds really put itself
• 22:04
  Speaker 1: into a box here right last year, they could have
• 22:06
  Speaker 1: gotten away with increasing rates, um, you know, without having
• 22:12
  Speaker 1: too much impact on consumer spending. Instead, they decided to
• 22:16
  Speaker 1: blow some bubbles. And now, uh, they're kind of putting
• 22:19
  Speaker 1: box right because that they're they're forced to almost cause
• 22:22
  Speaker 1: a recession to to slow down the inflation that we're seeing. Um. Yeah,
• 22:29
  Speaker 1: it's it's it's I mean, it's frankly, it's it's worrisome,
• 22:32
  Speaker 1: right because you know, looking at the delay from last
• 22:36
  Speaker 1: year that was not good judgment, you know, and now
• 22:40
  Speaker 1: looking at the increases like, okay, yes you have to
• 22:44
  Speaker 1: do something, got it right, understood, We've got to Um.
• 22:49
  Speaker 1: But are we gonna look back on it and say,
• 22:52
  Speaker 1: you know, all right, yeah, we won't know until it's
• 22:57
  Speaker 1: over right. Um. The idea of a soft landing, um,
• 23:04
  Speaker 1: I don't. I don't know how that happens, you know,
• 23:06
  Speaker 1: with with also getting if you want to get inflation
• 23:09
  Speaker 1: under control. Yeah, I don't know how there's a soft
• 23:13
  Speaker 1: landing at this point because the time for gradual uh increases,
• 23:18
  Speaker 1: it's sort of it's sort of over even the market things.
• 23:21
  Speaker 1: You know. I seem to think last week that the
• 23:23
  Speaker 1: FED was about to stop increasing, but I think they
• 23:26
  Speaker 1: read that wrong. But you're right. I mean, the seventy
• 23:28
  Speaker 1: five basis points is an admission that they were behind
• 23:31
  Speaker 1: the curve, right, So, um, you know, so I think
• 23:34
  Speaker 1: you're right on that. So, you know, I think we
• 23:36
  Speaker 1: touched on this a little bit. But you know, a
• 23:38
  Speaker 1: big common theme for the second quarter earnings calls was
• 23:42
  Speaker 1: the pullback and low income consumer spending. Young brands, McDonald's
• 23:46
  Speaker 1: and some of the other companies recover, are starting to
• 23:48
  Speaker 1: see some cracks. You know what what is your data
• 23:51
  Speaker 1: telling you? Yeah, now we we started seeing it, you know,
• 23:56
  Speaker 1: going back to UH mid or at least spring um
• 24:03
  Speaker 1: and and and it's getting and it's getting worse UM
• 24:09
  Speaker 1: and particularly one of the one of the things that
• 24:12
  Speaker 1: we've been analyzing is um UH is looking at trade
• 24:18
  Speaker 1: areas where people are more dependent on gas and energy
• 24:23
  Speaker 1: prices and so forth. Right, so understanding okay, you know
• 24:26
  Speaker 1: by bye, by trade area and even by by brand,
• 24:30
  Speaker 1: you know, how far are people commuting to work? UM
• 24:35
  Speaker 1: what uh? What are there? UM? What's your disposable income?
• 24:41
  Speaker 1: And how much is the energy homage their energy use
• 24:44
  Speaker 1: as a portion of the disposable income. And by using
• 24:49
  Speaker 1: those kinds of metrics, you can really just see it's
• 24:51
  Speaker 1: just like a big signal flare, you know, popping off
• 24:55
  Speaker 1: the map UM showing you know where these where these
• 25:00
  Speaker 1: pockets are and they're not necessarily limited to you know,
• 25:04
  Speaker 1: a particular region in the country. You know, they're they're
• 25:08
  Speaker 1: within pockets of you know, lower income UM and longer
• 25:12
  Speaker 1: commutes around you know, a lot of different municipalities from
• 25:18
  Speaker 1: so forth. I think for people who are who are
• 25:21
  Speaker 1: in jobs maybe who can work from home. It might
• 25:24
  Speaker 1: be less right now, but there's gonna be a compounding factor, right,
• 25:28
  Speaker 1: because there's a there's a like with gas prices, um,
• 25:34
  Speaker 1: the real consumer impact happens six to eight weeks after
• 25:38
  Speaker 1: they make the purchase, because most gas purchases are done
• 25:41
  Speaker 1: on credit, so gas prices go up um. Six eight weeks,
• 25:48
  Speaker 1: you know, is when people are actually paying you know,
• 25:50
  Speaker 1: paying the bills for it um. And you know that
• 25:55
  Speaker 1: starts to starts to perpetuate. Now, now, what also happened
• 26:00
  Speaker 1: a lot of you know a lot of particularly the south,
• 26:04
  Speaker 1: southwest and southeast with these massive heat waves where people
• 26:08
  Speaker 1: had to just pump up the um the the air conditioning,
• 26:14
  Speaker 1: and they're gonna they're gonna get a shock when the
• 26:17
  Speaker 1: when the electric bell comes in because electric prices are
• 26:21
  Speaker 1: are up, you know, depending on again what municipality live
• 26:25
  Speaker 1: and so forth. But we're seeing some you know, some
• 26:28
  Speaker 1: areas with you know, increases in electricity. Wow. Uh yeah.
• 26:36
  Speaker 1: And to your point, I just recently read that two
• 26:38
  Speaker 1: thirty million or so new credit card accounts are opened
• 26:41
  Speaker 1: in April the June, and it was the most in
• 26:44
  Speaker 1: two thousand and eight. So this is a pretty scary
• 26:46
  Speaker 1: way to deal with inflation in a rising great environment. Yeah,
• 26:52
  Speaker 1: there's there's also the rise of the the whole pay
• 26:55
  Speaker 1: for it later thing, And I'm sure you say some
• 26:59
  Speaker 1: of that, which it seems like it could uh it
• 27:04
  Speaker 1: could be another bubble waiting to burst, Yeah for sure. Um.
• 27:12
  Speaker 1: So this is uh something I found interesting on the calls. Um,
• 27:16
  Speaker 1: you know, some of the companies I cover mentioned that
• 27:18
  Speaker 1: slowing sales were attributable to a return to seasonality, right,
• 27:22
  Speaker 1: so they're going back to a decline during the summer months.
• 27:26
  Speaker 1: I thought it was an interesting take. I thought some
• 27:28
  Speaker 1: companies had um had a decent take on it. I
• 27:32
  Speaker 1: thought for others maybe it was just a convenient excuse.
• 27:36
  Speaker 1: I mean, do you have any thoughts on that? And
• 27:38
  Speaker 1: and what do you seeing in your data? U? Yeah,
• 27:44
  Speaker 1: I guess. I guess it depends on the brand. I mean, like,
• 27:46
  Speaker 1: you know, it's it's a seasonal industry, so there could
• 27:48
  Speaker 1: be seasonal, but you know, a national brand talking about
• 27:51
  Speaker 1: you know, uniformly seasonal you know, bad summer traffic would
• 27:56
  Speaker 1: seem yeah, a little hard to believe. Uh. Um, Yeah,
• 28:01
  Speaker 1: I think that you know, we're still seeing a trend
• 28:05
  Speaker 1: um even though there's a lot you know, there's a
• 28:08
  Speaker 1: lot bigger return to international travel for vacationing. But some
• 28:13
  Speaker 1: of this, you know, I guess, I guess it's not
• 28:16
  Speaker 1: consumer to a staycation. But there's a lot more domestic
• 28:19
  Speaker 1: travel vacations this summer than there would have been pre
• 28:22
  Speaker 1: covid um. And where they're vacationing, also there's probably restaurants, right,
• 28:27
  Speaker 1: So so the demand is shifting a lot, right, So
• 28:32
  Speaker 1: you know, part of the I think part of the question,
• 28:35
  Speaker 1: and I think you know it's a bit it's a
• 28:37
  Speaker 1: really big question for a lot of these brands is
• 28:41
  Speaker 1: you know, when you build your brand, did you build
• 28:44
  Speaker 1: it all around trade areas that were UM business oriented
• 28:51
  Speaker 1: and retail shopping oriented or did you build it more
• 28:54
  Speaker 1: around um, you know, residential right, And because you know,
• 29:01
  Speaker 1: you get to some more remote areas that used to
• 29:04
  Speaker 1: not have anybody there huge demand for restaurants and the
• 29:07
  Speaker 1: restaurants can't keep up. But then you get into the
• 29:10
  Speaker 1: old city centers that had a business park that you
• 29:15
  Speaker 1: know they've got the return to office, but it's you know,
• 29:18
  Speaker 1: three days a week on average, and you know, it's
• 29:22
  Speaker 1: a completely different demand picture, and people have changed some
• 29:26
  Speaker 1: of their some of their eating habits. You know, they're
• 29:29
  Speaker 1: not going out necessarily for the you know, for the
• 29:32
  Speaker 1: big you know company luncheons and you know, the group
• 29:35
  Speaker 1: dining and that kind of thing. Is that that that
• 29:38
  Speaker 1: thing hasn't really come back the way a lot of
• 29:41
  Speaker 1: other things have. Yeah, and it's interesting what it's done
• 29:45
  Speaker 1: to the site selection, um you know for these companies.
• 29:48
  Speaker 1: I mean, you know, Shake Shock, you know, and you
• 29:51
  Speaker 1: did some great work on their site selection process for
• 29:54
  Speaker 1: me in the past. But um you know, it was
• 29:57
  Speaker 1: all of their openings were in New York and Austin,
• 30:00
  Speaker 1: in l A and all of these metropolitan centers. And
• 30:03
  Speaker 1: then you know, in their last earnings call release they
• 30:07
  Speaker 1: mentioned they opened in some town in Missouri I had
• 30:10
  Speaker 1: never heard of, and up in Minnesota in these like
• 30:13
  Speaker 1: suburban areas. So so it's really cause issues, I think
• 30:18
  Speaker 1: for companies that are trying to expand pretty rapidly. Yeah,
• 30:23
  Speaker 1: and I look, I think it's a big question to
• 30:26
  Speaker 1: you know, I think that the um I don't think
• 30:30
  Speaker 1: there's really much question that you know, this some portion
• 30:35
  Speaker 1: of remote working stays right, there's no going back to
• 30:41
  Speaker 1: you know, five days in the office. So um so
• 30:45
  Speaker 1: there's a lot of so so I think the the
• 30:48
  Speaker 1: restaurants that were really dependent on that kind of traffic,
• 30:53
  Speaker 1: there's a big question. So do they ever you know,
• 30:55
  Speaker 1: do they ever get that at that business staff? Um?
• 31:00
  Speaker 1: The one that I think time will tell is, you know,
• 31:03
  Speaker 1: there was a migration by a lot of people during
• 31:08
  Speaker 1: COVID out of city centers probably and back to suburbs
• 31:12
  Speaker 1: and back to rural Um does that does that stead right?
• 31:17
  Speaker 1: Or do people start to come back into city centers
• 31:21
  Speaker 1: because you know the threat of the pandemic is eased
• 31:24
  Speaker 1: and you know they missed out that that type of life. Yeah,
• 31:30
  Speaker 1: that's that's that's a mystery that will will solve over time.
• 31:34
  Speaker 1: But it'll be interesting for sure. Um. So you know,
• 31:39
  Speaker 1: I think we touched on a little bit. But but um,
• 31:41
  Speaker 1: I guess how our middle inn middle income and high
• 31:44
  Speaker 1: income consumers holding up? And and where do you see
• 31:47
  Speaker 1: that going in the second half? Yeah, I think I
• 31:51
  Speaker 1: think so so far it seems pretty pretty resilient. You know,
• 31:56
  Speaker 1: certainly at the at the high end um middle income.
• 32:00
  Speaker 1: I think regionally, you know you're starting to see some
• 32:05
  Speaker 1: uh some some weakness, but no no capitulation yet. Um.
• 32:11
  Speaker 1: But I think that, you know, to your point about
• 32:13
  Speaker 1: more credit cards being opened up, on average, we've seen
• 32:18
  Speaker 1: savings rate diminish, right, and you know, and I was
• 32:22
  Speaker 1: seeing more people going to credit and so forth. So
• 32:25
  Speaker 1: you you got that middle income to her. Um. You know,
• 32:29
  Speaker 1: they may still be you know, they may still have
• 32:33
  Speaker 1: some pretty decent savings you know. UM, I need to
• 32:38
  Speaker 1: look a little bit deeper into that. But there's a
• 32:41
  Speaker 1: lot of reasons why, you know, why they're gonna they're
• 32:43
  Speaker 1: gonna be able to fare a little bit, you know,
• 32:46
  Speaker 1: a little bit further into whatever kind of you know,
• 32:49
  Speaker 1: weakness we end up having. Uh. And what the timing
• 32:52
  Speaker 1: of it is, um, But the the defense is going
• 32:55
  Speaker 1: to be pretty pervasive, right, They're going to get on
• 32:59
  Speaker 1: top of the flat and the only way to do
• 33:01
  Speaker 1: it is to yeah, stop out some economic growth. Um.
• 33:08
  Speaker 1: And eventually that's going to hurt people who are you know,
• 33:11
  Speaker 1: homeowners paying mortgages and you know have um, I have
• 33:17
  Speaker 1: have credit cards, you know. And I don't think it's
• 33:21
  Speaker 1: I don't think it's having a big effect yet. UM.
• 33:25
  Speaker 1: But I think that if energy prices have another spike
• 33:28
  Speaker 1: going into winter. Um. And of course interest rates are
• 33:33
  Speaker 1: already going to be high. I think that that could
• 33:36
  Speaker 1: really uh, we're gonna start seeing some weakness there. I
• 33:40
  Speaker 1: would expect, you know, by the end of the year. Yeah,
• 33:43
  Speaker 1: it's unfortunate. Um and you know, uh, well we're hearing
• 33:47
  Speaker 1: a lot and I keep bringing up earnings calls. Man,
• 33:49
  Speaker 1: but it's been it's been my life for the list
• 33:52
  Speaker 1: three weeks. Um. But we're actually starting to see some discounting. Um.
• 33:59
  Speaker 1: You know, it's been very very benign for for several
• 34:03
  Speaker 1: years now, m KFC, Pizza, Hutton and Shake Shock where
• 34:07
  Speaker 1: some of the names uh that that have announced discounts
• 34:10
  Speaker 1: here in the third quarter, and there was more talk
• 34:13
  Speaker 1: about value menus than I've heard for for a long time.
• 34:17
  Speaker 1: So I know when we talked earlier this summer, you're
• 34:20
  Speaker 1: kind of uh you mentioned that the deal wars we're
• 34:23
  Speaker 1: gonna begin begin sometime uh this year. How do you
• 34:26
  Speaker 1: think the second half plays out and what does that
• 34:29
  Speaker 1: do to third party delivery? Yeah, no, it's look, it's
• 34:35
  Speaker 1: it's it's gonna make it's gonna make a comeback, you know,
• 34:38
  Speaker 1: because you know we're already seeing you know, as we said,
• 34:43
  Speaker 1: you know, the people who want to deal the most,
• 34:46
  Speaker 1: you know, are the people who are dropping out of
• 34:48
  Speaker 1: the experience, right, so how are you going to get
• 34:51
  Speaker 1: them back? The hope is that, I mean, the hope
• 34:56
  Speaker 1: for the for the strength of the industry is that
• 34:59
  Speaker 1: they're smarter about than they have been in years past.
• 35:02
  Speaker 1: It's there's so many ways to be more targeted than
• 35:06
  Speaker 1: there ever has been before. Um so. So, so you
• 35:11
  Speaker 1: you don't have to say, you know, I'm back to
• 35:15
  Speaker 1: you know, text dollar, you know, menu special everywhere all
• 35:20
  Speaker 1: the time. Um yeah, that's easy. And I'll probably drive
• 35:25
  Speaker 1: traffic and I'll probably gain share for the for the
• 35:27
  Speaker 1: biggest um for the biggest brands. Um but it's probably
• 35:33
  Speaker 1: not going to be the one that the smaller brands
• 35:35
  Speaker 1: you're gonna want to are gonna follow down because they
• 35:39
  Speaker 1: can't compete at that at that scale. Um So. But
• 35:43
  Speaker 1: it's it's it's going to come back. The question is
• 35:45
  Speaker 1: whether it comes back smarter or just as dumb as
• 35:48
  Speaker 1: it has in the past. Maybe not dumb, maybe not dumb,
• 35:54
  Speaker 1: but he is the wrong word. But but as you know,
• 35:57
  Speaker 1: as just you know, blanket, uh you know, blanket and untargeted,
• 36:04
  Speaker 1: you know, and as as it has in the past,
• 36:06
  Speaker 1: I guess would be a better way okay, alright, cool man.
• 36:10
  Speaker 1: I think that's that's a great place to wrap it up.
• 36:13
  Speaker 1: I want to thank you for having me on. Every
• 36:15
  Speaker 1: time I speak to you, I I learned something, so
• 36:18
  Speaker 1: I'm sure there's a lot uh here for our listeners
• 36:21
  Speaker 1: to um pick up on it and using their business