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All right, let's get to Adobe worst performing snack on the SMP down almost fourteen percent week sales outlook for the current quarter. That's the key, and it's all about worries now about AI startups being a big threat to the company. So let's get more here with Brody Ford. He joins us. He covers tech for Bloomberg. So what happened?
What happened yees last year? If you asked investors who's gonna benefit from AI in twenty twenty four, they'd say Microsoft and Adobe. But after last night, it might be just Microsoft for now, right, because Adobe has invested massively in new AI features to improve a lot of processes in Photoshop, Illustrator, other programs, but we're not seeing a revenue uplift yet. Right, Investors expected that these new features would drive a lot more financials in the new year,
and we're just not seeing that. Yet, and they are not keen to weight at this point.
I mean, was that reasonable for investors to think that the revenues would be coming in at this point because I feel like they've just developed these new products, like, you know, give them a minute.
Yeah, I mean, I think management's been pretty consistent in saying, right now, we're pricing for adoption. We're trying to just get more users. But I just think it's not quick enough for investors, especially when there's this sense that many other AI startups out there are not moving so conservatively. Right, they're going to create tools like you all saw open AI's new Sora, which allows you to generate video right.
Something like that gave investors a lot of anxiety because they said, whoa are people even going to need to pay for Adobe's tools if this becomes mainstream? So that's where a lot of this anxiety is stemming from.
So also, don't they need people like me to not use it for free and come in and pay for stuff? How are they going to, like, aside from the AI conversation, how are they going to make me, who wouldn't know Adobe if it hit me in the face, come in and start to pay for some things.
Yeah.
So, I mean their primary user base is the kind of creators graphic design studios. Right, they are increasingly trying to break into people like you and me who might need to every so often, like you know, edit the margins on a photo or recolor something. And so they've.
Invested Kate Middleton. I mean, it's the whole thing, right, exactly, exactly.
Yeah, if they had a more unscrupulous marketing department, I'm sure they would have leaned into.
Oh my god, yeah, don't do what she did services.
If she had had Adobe Firefly, that never would have happened.
That's pretty funny.
Yeah.
So, yes, I mean they have invested more trying to get average users using their stuff. That was a big cornerstone. I don't know if you all remember they tried to buy this company, Figma, for twenty billion dollars. That was part of that planned acquisition that, Hey, this company has been good at putting these complicated tools on the web, making it simple, making it so that average people can use them. We've had trouble with that. Let's just buy them.
That's an interesting idea, but I guess I want to get your take on the bigger picture here. So in the long term, AI, do we really need Adobe software? I mean, is this the tail of a buggy whit manufacturer grasping it the last straw when the whole technology has moved on.
Yeah, And there was this rare, candid moment on an earnings call last night where they kind of had this argument a little bit, right, some of these Wall Street analysts said, we understand that in the near term people will need Adobe's tools to edit the video, edit the photo. In the long term, are you going to get displaced entirely? Management pretty much said that you will always need something to you know, you're not going to generate a whole
video just with a prompt and publish out there. I think the quote the CEO use was the next Oppenheimer. It's not going to be created with a prompt. But it's an open question right as the decades go on the current format of Adobe's tools, which is, you know, these kind of heavyweight applications on the desktop, think about like Photoshop, video editing, picture editing. Will these formats really still exist once you can generate so much more media with a prompt?
But you know, I also I have two schools a thought on that, like one. People who want to do that. They want to do that, like they're creative people that enjoy it. They don't want to just put in the word flower and like get a picture. Right, However, do they have tools where you can put in the word flower and create a picture? Like are they working towards that?
Oh?
Yeah, I mean that's that.
Is they're in it like they're in it. Yeah yeah.
I mean the Adobe has present the entire last year working quickly because other AI startups did this first, to make these kind of tools where you can type in you know, yeah, like four journalists sitting around a radio booth and he generates the image.
Pretty well, don't do that. You need us because we are unique and awesome. Okay, go ahead, Sorry, No.
To your point, do creatives like it? It gives them some anxiety, no doubt, but like I mean, they need to get paid, right, and at the end of the day, if the bosses are saying that, hey, this is a pretty good tool, we're going to be able to create things faster. The incentives are all there. I mean, I don't think the idea that people are anxious because a I might replace their jobs could reduce the adoption of it. I don't think that will be really a prohibitor here.
I mean, that's so interesting though, because ever since this generative AI mania came about, the whole question is what's this going to do to jobs? And a lot of the response has always been it'll always be people working
in conjunction with AI. But the thing that makes me think about your Oppenheimer comment that the that was made on the call, I think that's a very telling comment because that Academy award went to the one person, not the one person in Hollywood, a prominent person in Hollywood who champions the old school way of doing things, shooting
things just on film. And so that kind of leads me down this path that thinking, yeah, the Adobe software might stick around for a while, but it might just become very niche or something for a very specified sort of area of use, whereas the rest of the world is just going to move on with doing things with a couple of prompts totally.
And the big question is like, will companies reinvest right because these are labor saving technologies. Will it be that, hey, I'm able to do more with each person so we can expand the scope of what we do, or are we going to do what we currently do work wise with less people and just save a bunch of money and employ less. And I think we're deluding ourselves if we don't think that companies are just going to cut labor, at least some of them will.
Yeah, what else are you looking at?
Like?
What else is driking is built in your boat right now?
I mean, I think think a really big one is how soon we are able just to generate these videos with prompts?
Right?
I mean this demo we saw from open Ai was such a kind of extreme example of this technology, And the big question is is this really ready for prime time or is this one of these demos that you show that isn't actually going to be in our hands for a couple of years.
Yeah.
I guess that's always the question though, And it's like we're leaving the hyper we're lapping up the hype, any example of how cool this could possibly be. But this is the question for all companies. You know, you've got to start putting real money behind it. And sometimes it just like doesn't work very well, or there's tweaks in the machine that makes you think, like I don't like this response.
It looks well, I mean, and I'm sure you also have the controversy of Google's equivalent of the image generation. It had a lot of backlash in recent weeks because it would, you know, if you typed in a certain historical element. You know, some of these tools are made to, you know, emphasize diversity, and some folks there was some backlash to that and historical contacts, contacts or maybe it
wouldn't be accurate. And so there is a lot of people very closely scrutinizing the outputs of these machines, right, I mean, there's no precise way to make everybody happy with these Yeah, I.
Guess it's a lot of programming needs to keep happening, and it's a question of whether the money will still be there from companies to pay for it.
Yeah.
Well, Brodie, thanks lot, You're awesome. I love having you on. Your depth of knowledge is great. Brody Ford coming in their Bloomberg Tech and you're looking at Adobe where to go had it and it went away. It's down about seventeen percent. Yeah, it's real, down around seventeen percent. Fourteen Thank you. How to buy back though as well? It's like, hey, guys, stick around, stick around. We know we're not delivering what you want right now, but please stick around for that.
I mean, I do think your point is taken, Jen that like everyone seems to say, you will use AI, but you need humans to help it. It's not maybe going to be as binary as maybe we thought a couple of years ago.
You need humans. But maybe to Brodie's point, you don't need all those humans, right, just a couple of humans.
But which is why you need people like us to want to diversify into you know, photoshop to do that, Like my dad does that, Like he takes photographs, he likes it, and they need tools around in it. Like you need those people to kind of pay for that stuff that is irrespective of AI. But is that really going to move the needle then for a company like Adobe.
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Apparently Boeing is now advising airlines to check the cockpit seats on sevent eighty seven Dreamliner jets after a seat mishap likely pushed a pilot into the controls, calling a sudden, terrifying plunge on a flight to New Zealand this week. The flight attendant was serving a meal, and therefore all of this it happening. George Ferguson Bloomberg Intelligence Senior Aerospace, Defense and Airlines analyst joins us, Now, I mean this feels like, okay, yeah, it was a mess.
Up, big deal.
I'm sorry to catch up.
Big deal or no.
No, I don't think it's a big deal. I mean, if you were on the flight, obviously it was a big deal. And so we hope everybody's safe and okay after that. But you know, the seventy seven has been operating for a lot of years. Now, this is the first of this incident I've heard of. It sounds like there might not have been a safety device in place that allowed the seat to be adjusted, and so my guess is Boeing, out of abundance of caution, has pushed
out to the fleet. You know, hey, make sure that this plastic cover, whatever safety piece is in place, and you don't adjust the seat by mistake. But again, I think it's not a major issue right now, there's definitely a heightened amount of awareness around anything that happens in a Boeing airplane.
I think it's a little bit of that.
I take your point that it's not a major issue in terms of this particular type of jetliner. But I do wonder about what the rita cross is going to be for the average consumer, because they're not short of news from Boeing that they've seeming to have one mishap after another, and I wonder if consumers are really going to be able to make the distinction between this jetliner versus that jetliner.
Yeah, agreed, I mean I've seen, you know, a lot of press on every little thing that happens on any Boeing jet right now. I think, you know clearly it's getting a lot of clicks, and so the media is going after pretty pretty hard. I think at this point, where still still in this situation, where as the problems with the Max fade, I think some of the demand for these stories should fade. I don't think most people are going to the airport worried about what airplane they're flying.
I talk to a lot of people, you know about where they're flying and what they're flying all the time. I'm an aerospace geek, so I'm still hearing people that aren't in aerospace say, hey, you know, yesterday I knew I flew a Max. But they're still getting on the airplane. So I think, you know, we're not at that point yet where people are sort of rejecting flying Boeing products, and that's a positive for Boeing.
Obviously.
I think Jen for like a hot minute, maybe it was on Priceline, you could search the type of aircraft after I think the panel blue off and stuff, and you could search your aircraft.
You couldn't.
That's got to be totally a function of consumer demand.
Yeah, yeah, I wonder how many people actually cared or looked at it. To George's point, George, in the meantime, we learned a lot about the airline industry this week. There was a conference I think was JP Morgan right then airlines, particularly Southwest, was warning of in essence, some slowing demand. What are the order books like for Boeing, Like, how are they navigating that with their customers?
So, I mean the order books are really you know, the backlog is very strong for Boeing and so like on the seven thirty seven, five six years worth of backlog on that airplane. That's why it's so disappointing when you know one of their major customers like Southwest, comes out and says, you know, we've been told by Boeing, we're not gonna be able to get this many jets,
all the jets we wanted this year. There's a lot of work to be done for Boeing and that's part of their recovery story is increasing build rates, which is going to boost their profits, boost their cash flow. A lot of folks were looking for that to happen this year. When someone like Southwest comes out and says we're not gonna get all the airplanes this year, that means we're kind of set back another year. But that you know, they need to start to build that backlog and keep
those customers happy so they don't go away. The longer the delays happen, the more risk there is the customers haven't out in their contract and can walk away from from their orders. But the backlogs are very strong for the seven thirty seven and the seven eighty seven. It's major competitors, the A three fifty, the seven eighty seven has a larger backlog than the A three fifty bid
in service a long time. Airlines love it so right now, backlogs are very strong about they just have to start building airplane as well.
Looking at the Boeing stock year today, it's the second worst performer in the S and P five hundred, I mean, when is the stock story going to start to turn around?
You know?
I mean that's always hard to say. I think you need obviously some level of sentiment to change for people to be excited about this. You know, I personally think that this purchase of Spirit Aerosystems that's been floated, I personally think getting that done could put a bottom under the problems Boeing's having in their manufacturing process. And getting that bottom underneath, I think, you know that this quality story that's going to be key, I think to keeping investors happy.
All right, George, really appreciate it. Thanks so much for happing on with us. George Ferguson Bloomberg Intelligence, senior Aerospace, Defense and airlines analysts.
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The University of Michigan sentiment, as John Tiger was just reporting, falling just a bit, let's get more data on it with Joanne Chu, University of Michigan Surveys of Consumer Director. She's breaking it down right now. Okay, So, Joanne, what happened here?
Essentially not a whole lot. Consumer sentiment has been remarkably stable over the last three months. We've had very little movement since January, and that's following the enormous gains that happened in November and December, December, November and January. So not a whole lot of change. Consumers don't really perceive any sort of clear developments in the economy. Possibly more importantly,
inflation expectations also remarkably stable. Consumers still expect inflation to slow down, both in the year ahead as well as the long term.
You know, we've been talking so much on this program about where investors are expecting the FED to go. Can you dig in a little bit to what you think consumers read it on what what interest rate re cuts are coming. I mean, do they feel confident? Are they a little bit more enthusiastic than investors are?
Perhaps consummers are expecting broadly speaking, they are expecting interest rates to come down over the next year. And you know, that was a pretty sharp change in consumer views or consumer expectations over interest rates over the last three to six months. So even though most consumers really aren't paying that close attention to developments and financial markets, more more broadly, they do expect the interest rates that they face to
come down. We don't really know much about what they're thinking in terms of timing, but every month there is an increasing number who expect interest rates to soften.
I mean, do we read anything from the fact that things are just slowing over time? Like, is this sort of the tightening that we've been waiting for and the consumer sentiment a bit lighter so they just buy and spend less, Like, is this kind of what we've been waiting for for the last year and a half. It's possible, but it's the part of the thing.
Is that, excuse me, part of the reason that consumers are not really moving a whole lot in the sentiment is that there's a good chunk of consumers who are thinking about the election ahead, and you and a lot of consumers are telling us spontaneously that the trajectory of the economy very much depends on the result of November's election. So I think there are people who are just reserving
judgment right now. Whether that's going to affect their spending, it's a little bit hard to say, because I think you know, even even though they're reserving judgment, you know that they they're they're still expecting.
Two possible outcomes.
And uh, and you know what we'll see as in the months ahead as it comes into focus, if that starts to move sentiment one way or the other.
I noticed that in your data you do pull Republicans versus Democrats versus independence on how they're feeling. So is there any interesting change there this month?
I would say it's a little early to say, because you know, at the preliminary reading, we don't want to draw too many conclud out of small samples.
You're divided into three different parties.
What I will say is that this general stability that we're seeing, we see that across party as well. So the the enormous gains in sentiment that we saw in November to January, and then the stability between January and March.
All three of the both of those.
Patterns are visible across Republican's Independence as well as Democrats.
Interesting. Hey, Joan, we love it. Thank you for the incident analysis. It really helps us as we get through all the data. Here to insue of University of Michigan.
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All right, let's get the take on a market here. My daughter's making animal sounds. Sit down, don't stand on the chair. All right, looking at a market here where we're training a little bit heavy. Yes, it's options expiration, triple witching, volumes super high. But you know, I'm trying to understand if we're gonna be looking for bad news or good news and what the reaction function is for stocks. So Dana Dioria is co CIO of Investment and she
joins us. Now, Dana, what are we waiting for at this point, like you need to be selling into this. Do you buy whatever?
Dip?
But what do we do? Yeah, it's a great question, you know, I think, well, we've been buying. There's been there's been plenty of buying going on in this market. I think actually, I think, you know, what we're seeing now is of course the market slowly but surely getting to where it's hard to understand why we maybe didn't start there, right, you know, the market contending with it's probably not six right, cuts we're past that question, is
is it even three? At this point? All all sql right, not knowing what we know now, And you know, if that's the case, you know, I guess the question becomes, does it finally start hurting some of these growthier stocks where in in spite of the fact they have you know, longer dated cash flows. We know, traditional would say that higher for longer, you know, should be more painful for them if they're self funded, they're really not feeling that pain.
I think, you know, it's kind of more in small caps is an interesting place to be thinking about their more interest rate sensitive you know, does higher for longer how does that impact them? But there's pros and cons there. You know, my take is actually to keep tilting a little bit into that space, especially if you can wait it out. They may be interest rate sensitive, but if inflation comes back, you know, small value in particular tends
to outperform inflation. So there's push and pull in this market. But I think the overall theme is, Wow, maybe we're not going to get these these rate cuts we were hoping for.
I mean, can you.
Talk a little bit about your views on the of the balance of risks for the Fed? I mean, do they have a lot to lose by waiting a lot to lose by moving too quickly.
I think they have more to lose by moving too quickly. You know, their mandate is employment and inflation, and really both of those are signaling the same thing that it's not time to cut right. So we have PPI coming in a little higher than we wanted core, you know, inflation a little higher. Obviously, these are not extremes. We're not seeing a bounce back or something in inflation yet,
but we are seeing stickiness to inflation. And you know, the history suggests inflation does kind of come in waves. We've seen a lot of macro analysts talk about that you know. So the FED of course is well versed in that, so they're probably worried about that. They're also looking at these employment reports. Unemployment ticks up a little bit, but you know, initial job those claims look great, right,
The employment picture looks pretty sound. So if your mandate is employment inflation, both of those signals are saying why are we cutting? Right now? I will say, look on the other side, well, one other signal saying why are we cutting, of course, is the stock market itself. It's not like, you know, we're feeling a lot of pain there. We're certainly not small you know, areas of the market,
but not the market overall. I will say, you know, if there's you said, pros and cons right the other side of it for the FED, if there is some and I don't think this is the decisional part, but we do have a federal debt that's climbing dramatically. We do have cost of you know, maintaining that debt. The higher the interest rates, of course, and the more that debt rolls over, the worse it is. So you know, to the extent that impacts on the FED, that is in the mix.
So if we're dealing with all of this, is it a commodity situation that you need to be playing right now? I'm just looking at month to date the S and P Energy Index is up almost seven percent, whereas you have WTI also with a nice move a month to date up a little over three percent. It's a little softer today, but you know, copper it eleven month high. Like if we're in for a period of yep, we're
gonna get stickier prices. We're not sure where the reaction function is from the FED, it's gonna push off rate hikes just by the commodity sectors.
The hot right, there's definitely a camp who would say yes to that, and especially too if you think inflation might be stickier. Of course, there's a whole you know, school that says that that's a place to be to tackle inflation. I don't know if I come in really in that camp, not to say one way or the other. Obviously, demand there's several variables that are an impact on that, and energy of course very dominant in that sector. But I guess you know, from the standpoint of just what
am I trying to protect against? You know, the commodity sector is pretty volatile. If it's inflation I'm trying to protect against. You know, tips is probably a better place to be if I'm specifically looking there, and if i'm inequities, and as I mentioned, small value in particular, you know, I can go there and I have a reason to productive capacity, right to earn returns over time there versus maybe just you know, betting on a commodity, betting on
a price increase because of supply demand issues. So my personal preference is more along those lines. It's not to say you shouldn't be in commodities, but I don't put a big stake in the allocation there.
So just one last question for you. Getting into the second half of the year presidential election campaign coming up, there could be highly partisan activities going on around there. What should equity investors be looking out for.
Yeah, under statement of the year right, definitely, Well, we'll see some partisan ship. You're you're I'm with you one hundred percent. Look, I think you know, there's a there's a lot of academic evidence, a lot of empirical research that says you can draw a good correlation between who's in power, whether it's presidency, Senate, you know, House, all sorts of every think of the matrix of which which in power for each of those, it's all been looked at.
It's really not definitive which you know, configuration is better for markets. Obviously if it was, you'd have that party really singing that those those phrases. But so so I don't from that perspective, I don't think there's a lot
of information content. But I think you nailed it. It's the volatility, right, It's the fact that the market ball and actually you're seeing vix you know, futures in VIX reflect this a bit that around October, all of a sudden, you know, a spike in volatility is probably coming for
the market. So I think you're absolutely right. I think expect kind of bumping us the election season and as we all know too, globally there's a lot of elections going on this year, so overall that could be you know, not just in the S and P five hundred and US indexes, but globally as well.
All right, Dana, thanks a lot, really appreciated Dana Dioria, co Cio of Investment joining us there. But the interesting thing is if you played volatility or election volatiler or geopolitical risk it hasn't paid off like you had a brief momentary thing in twenty sixteen with Brexit. But the hedging like window of making money just gets smaller and smaller with these things.
I know.
So if that's your move, then you've got to think of another strategy, because I'm looking at the VIX right now and it's at a pretty low level.
Yeah, And if anything, everyone's buying calls to play the upside or selling calls, not necessarily hedging their bets when it comes to puts.
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I think they do have share marks. Shakes still at McDonald's. I'm not gonna you know, don't don't quote me on that.
Tucker, but I must get well at least, you know, for Saint Patrick's Day's the seventeenth.
Yeah, I mean I feel like that's that's okay. I mean, do you want to know the calorie count for that or you're good.
I actually did check the calorie count for the large. It's eight hundred cowaries. You imach, that's something one drink.
That is a something breakfast and lunch right there.
Combine that with a big mac large fries just set for a week.
Yeah.
Oh, they can have reduced fat ice cream though, so that's something. But that's only if you can order it because apparently there was an outage. They experience a system outage. It appears to have or did in the Asia Pacific region and spread to other markets globally, leaving customers unable to order at its stores. It's huge, so we have to get more on this on the stock you just
down by about a four tens one percent. Michael Halem, Bloomberg Intelligence Senior restaurant and food service analyst joins us, Now, what happened here?
Nice segue by the way.
Thank you, you know, I mean, I do this for a living, but you know it's a hit or miss for me.
It's fifty to fifty.
Can't all be winners, I guess, but that was a good one. Yeah, So I'm not really sure how many stores in how many countries were affected so far from what I could cobble together, it look like a couple dozen countries, and it wasn't. All of the stores in the countries had this digital outage, so people couldn't order and pay with their mobile apps, right, and they had trouble ordering ahead on.
I mean, I can make fun of it, but that happened to Starbucks, like freak out.
So you know it's fair because you're addicted to the caffeine and Starbucks, you're not addicted to the Big Mac.
Right, Well, think of the people who are addicted to the Big macau exactly be hurt.
Yeah, think of the people who want that eight hundred dollars dollars eight hundred calorie share mark shake would be a really expensive shake if that was the case. How is McDonald's doing so?
Yeah, So what I guess what I was getting at is it's going to be negligible that the impact on their earnings, you know, basis you know, it'll be we're talking about like a few basis points maybe impact to the global same star sales for the quarter. But McDonald's is doing really well overall. Last quarter, they started to talk a little bit more about the low income consumer and how they're kind of pulling back on their spending, visiting less often, ordering more off of the dollar menu
and things of that nature. But overall the company is doing really well. They are they are having some issues in the Middle East, however.
Yeah, can you talk us through that. It looks like the CFO and now it's something At a recent conference.
Yeah, and they mentioned that same Star sales in the for their international and developed markets are going to be lower than expected, lower than consensus, lower than they were last quarter. And so I think most of the street had thought that initial impact of you know, some of the things that happened with their franchise and perceived support of Israel over Hamas hurt sales in the region, and I think a lot of investors thought that would kind
of roll off after fourth quarter. But it looks like it's going to impact their results for longer than expected. I mean, it could last throughout the year. McDonald's does have exposure to Egypt and Jordan too, countries that are geographically very close to the conflict, so that's going to impact their results as well, you know, and it could be a few quarters for this for this you know, impact to kind of to roll off. What I'm hearing
is it is improving. Things are improving not only with the American chains but also locally, but it's going to take time.
So I'm looking at the stock just this week, in the last two day is down by about five percent. Do you feel like that's accurately reflected now on the stock price and valuation or is there just a little bit more downside? Is that ego or is it actual Middle East issues? Or he's kind of laughing at me, and.
I don't know.
Well, I've worked for Bloomberg Intelligence. Am I allowed to tell you what's priced in, what's what's not priced in? I mean, listen on the on the valuation, it's interesting. We're in an interesting spot for restaurants right now. So the stocks have done.
Really well.
Over the last like six months or so. I think we've we've passed the toughest year over year comparisons in January and February, so the year over year compares are getting easier throughout the rest of the year. On one hand, but on the other hand, you have a weakening consumer, especially the low end, middle income consumer, right and so it's tough to say. I mean, you can make the argument the entire space is overvalued, right, so maybe that
five percent correction, maybe that's not enough. It's very difficult to say. Like I said, we're a point now where where it's going to be really really interesting. And I think what's gonna happen is we're going to see a
bigger divergence between the winners and the losers. You know, companies that are doing really well, companies like Chipotle, McDonald's that have been able to draw in some of the higher income consumers, I think are going to continue to outperform some of these other chains that haven't been able to do that to the same extent, like a Wendy's
or a cracker Barrel. So it feels like it's getting back to a stock pickers markets market for restaurant stocks, which is great, which I love, you know, so we'll see it is a it is a business where you have to compare I think, uh, you know these restaurant chains where they were versus their peers, and McDonald's gets a premium valuation, but it also has outperformed.
You know.
I would love to go back to this point you're making about like consumer spending and getting which chains are getting the wealthier customers. I mean, because we definitely saw a trend of casual dining moving to fast casual, fast casual moving to quick service, and so where are we now on that is with inflation pressures easing, is that kind of unlocking a little bit.
We're still seeing this case shaped recovery. We're seeing you know that that's what we're seeing. So we're seeing the high end consumers. We think they're going to start spending again this year. Full service, I'm sorry, fine dining, they've had they had the toughest comparisons. Last year, Fine dining did absolutely terrible. People visited less and they spent less.
They've bought less expensive wine, things of that nature. Now, with asset prices going up, we think that high end consumer is going to come back and spend a lot more. So we're going to see I think we're going to see fine dining recover and probably outperform a lot of the other sub segments of the restaurant industry. And I think casual dining is probably going to get pinched the hardest.
You know, it's a similar lower and middle income consumer to fast food, but fast food is cheaper and fast casual is cheaper, so I think people are are going to go and spend their money where they think they get better value for that dollar, right, And and casual dining, you know that full service, full service experience, you're going to pay a tip. You're more likely to buy drinks, aaptizers, desserts, So the bill ends up being a lot higher than it would at the fasts.
Like fine dining now forget it, Like regular dining is now fine dining, right, Like three hundred dollars for three people?
Can I point out an achilles heel? I think from the suburban perspective for McDonald's, the drive in where everybody goes. You don't go into the you go through your car. I go on my mailbox in my car to get the mail. That's a disaster. You pull up, you order, you pay, and then you go to pick up your food, and consistently they tell you have to go park and someone will bring your food out to you later. That's not fast food, and it's annoying because it's too much.
They can't do it.
Maybe I'm a staffed understand that's in the restaurant A lot of the restaurants, so that that's such a pet peeve. Every time I go, and I haven't been a long time, I say to myself, I'm never going back to McDonald's.
And that's why they're pushing you to order ahead. They want you to order ahead, and they have the geo fencing so you can order ahead on your mobil ap. Once you pull on the lot, they're alerted that you're on premises. You park in the spot, you hang out, you look at your phone, look at Instagram for a couple of minutes, and then they bring out your food.
Yeah, it's totally described what Tucker does.
For sure that instagramming is like.
A few minutes.
Let you go though.
But then to that point, what are their margins like? Because input costs and inflationary costs and then you have labor costs, and I'm wondering they can't really pass it on. What are their margins looking like?
Well, the franchises are getting squeezed, There's no doubt about it. I mean, the beauty of being a franchise or like McDonald's is their margins are fantastic because you know, they're really a marketing company, right Like they're helping their franchisees market, you know, market the brand and the food so yeah, but franchises are getting squeezed, there's no about it. This year, commodity prices are going to be commodity price increases are
going to be less than what we've seen. But chains are very, very wary about raising prices anymore because you've seen traffic decline a lot over the last three years, and it's been in response to much much higher prices.
Michael, great stuff, really great to have you, super interesting conversation Michael Hale and Bloomberg Intelligence senior restaurant and food service analysts. But then you would think Jen that, like the people who don't want to go out to eat anymore or don't want to go to casual like, do they then trade down? And is there a new customer that's going to be coming in on a more consistent basis as things get harder.
I don't know.
I don't know.
And the thing is, I do always wonder about the low income consumer because if that spending starts tailing off, what does that say about consumer spending for the rest of the economy. I'm good seventy percent of the economy.
There's a really great article on the Bloomberg that talks about how auto debt, for example, and credit card debt has really been rising, and that people might be getting paid more, but it's the debt part. It is really squeezing everyone. I encourage everyone to read it. It was really eye opening to me.
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