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