Welcome to Chopping It Up.
I'm your host, Mike Halon Seen, a restaurant and food service analyst at Bloomberg Intelligence. Today we're joined by my friend Alan Hickock, senior advisor at BCG.
Thanks for doing this, Alan, Thank you for the invite.
For those of you that don't know Alan, he's he's got an extensive background in restaurants and food and and he's a great resource for me. He's very opinionated, So I think this is gonna make for a great episode.
Why don't you start out by telling.
The audience a bit about your professional background and what you do at BCG.
Well, I'm a I'm a career consumer guy and i've been My power alley is restaurants and food. I've spent over thirty years in the industry. Much of my background and my participation is on the capital market side of the restaurant industry, with deep investment banking experience. I spent a bit of time as an equity research analysts a long time ago. I have operating expenses. I ran a couple of chains and now I'm among other things, I'm a senior advisor at Boston Consulting Group and if you're
not familiar with PCG. We're big where the global leader in business strategy. We have enormous amount of muscle. Our revenues are north well north at ten billion, so we're big globally, and we're very deep in restaurants and food. We've worked with the majority of the top twenty five. I've actually the majority of the top fifty brands in the restaurant industries, so we're well versed on what's topical and top of mind.
Good stuff. Thanks for that. Let's just jump right in here.
Our GLP one's going to change the restaurant industry as we know it?
Probably not, although there's there's there's a lot of question and and the caveat I would just throw out up front is that the long term impact is still kind of unknown because the studies to date, and we're you know, we are a data driven company, but the studies to date are limited to short term insights and kind of small sample sizes. So I'm destroying that out there because we will learn. But you know, GLP what really came to my attention not as a user, maybe a should.
But.
As I started to see you know, investment, well, there is going to be an impact on brands and operators and in and investors from an investment perspective. And starting a couple of months ago, I started to see published research reports from from analysts, you know, speculating on you know, perhaps investors should think about lightening their positions in certain types of companies.
And I'm gonna I'm.
Gonna use Krispy Krean just because it's such an easy target, you know, donuts and how does that work with weight loss? And and you know, you know, the research was suggesting, well, you should lighten up because with g l P there is going to be of you know, an impact on these type of companies as the demand for their products goes down. I think that's way overblown, and I'll give
you some data to support that. Now. G LP drugs are driving shifts and consumer behavior which impacts you know you're thinking or you know for a QSR and consumer demand, and as the penetration of g LP drugs grow, that
will affect calorie consumption. But it's quite small. Quite frankly, you know, the best data that we've seen say that you know, you know, at you know, full penetry of the sort of total addressable market you know, it might be ten percent of Americans and that's by you know, the year twenty thirty versus you know, maybe one percent, you know, one and a half percent or so using them today. And the reason for that is and these scenarios are based on patient adoption of the drug, but
there are a couple of natural governors on adoption. Number one is right now, it's an injectable drug, and there's a number of them out there, but they're injectable. Number two, they're expensive, you know, and I don't know what the current pricing is, but I would say, you know, last I saw you know, over one thousand dollars you know, per per month. So it's expensive. And insuring companies have something to say about this because in many cases they're
asked to pay for them, and that that's appropriate. If if it's you know, like a type two diabetes situation or you know, a customer that has obesity markers and this is you know necessary. But if it's you know, cosmetic or this is maybe the right word, but vanity use to just simply lose weight. That's where I think it is going to be a little less sticky. So where does it influence you know, consumer's behavior. Well, it
has a disproportionate influence on snacks versus meals. So what we've seen is that the drug reduces snacking and in particular sweetened salty packaged foods, but not so much on poultry and red meat because they're immune to changing dietary preferences. But you know, sodas and sugary drinks are affected. But in many cases that's offset by the availability of you know,
lower calorie and diet options. So the the impact is over indexes on well, consumer occasions, over index on meals and they under index and snacking occasions.
That's just number one.
And still when you think about the you know, the restaurant industry, I mean, what's really drives you know, fast food demand in particular, it's convenience, tastes, social connections. The use of these drugs at this kind of penetration level is really not going to have I don't think much impact.
And in particular with QSR, which you know, in many cases is a lower broadly speaking of lower income demographic that has the lowest adoption rate of these drugs today, and the drug cost is going to likely be prohibitive, you know, at least in the short to short to medium term and when you think about adoption, Okay, so sort of you know, limited, moderate, or mass over this you know seven year period that we're looking at up
to twenty thirty. You know, the limited adoption is maybe twelve million users and mass adoption of thirty six which would be about ten percent of the population. But interestingly, even at ten percent adoption ten percent of the population, the estimate of total caloric consumption reduction is less than two percent.
Yeah. Yeah, yeah, we did that math.
So you know, so what we'd like to say is like, you know, McDonald's can't figure out how to re engineer a smaller burger two and a half, you know, decrease the size of the burgers two and a half percent by twenty thirty. I mean, I think just because of inflation, they've been shrinking as it is. So yeah, that's that's an interesting point. I still have some more questions too.
You know, is there some sort of a new bias in this right in East coast bias or a bias for people on the coast right where people can afford this, and we see people that we know that are on this drug, and we think this is gonna you know, so the investment community thinks this is going to be a massive issue, when maybe people in Middle America may not care as much.
Oh well absolutely, I mean again, it's you know, the the the use, adoption and just simple you know, wherewithal to take these drugs, at least right now is greatly influenced by income and wealth. Now that now, that could
that that could change. You know, if insurers or employer coverage increases and they're you know, there are compounding pharmacies that are creating their own formulations and they're you know, aiming for around you know, two hundred a month in a pill form versus a thousand plus and an injectable product,
so that there is potential for greater adoption. I've changed the pill or other low cost forms, but at least right now, no, But yeah, you know, if you think about you know, higher wealthier demographic areas, yeah, absolutely, there's going to be more chatter about it, There's going to be more use. And but again, you know, broadly speaking for America at large, I have a hard time believing
there's going to be widespread adoption. You know, more than you know, the sort of ten percent that we're predicting right.
Now, I was gonna say that I'd have to imagine that a risk to this thesis would be side effects. Right if over time people start experiencing, you know, some side of some unwanted side effects that that that this would you know, impact adoption of this drug, right.
Well, I agree with that, especially since we have just concluded a very interesting national adoption of brand new drugs and we're finding out that these are not riskless and there's already you know, sort of anecdotal you know, discussions about side effects for the way laws of drugs. So but again that falls into that opening caveat that I had, which is, you know, we just simply have limited data right now in terms of you know, how this is
all going to work and limited data sets. But absolutely the potential for meaningful side effects is going to be a big part of that calculus.
Yeah, I know what, And you and your team did a great report that that you shared with me, so thanks for that. But what I found really interesting was that you know, to your point, you mentioned that there's a lot less snacking and that there's a lot less alcohol consumption, right, and I understand that these drugs work
very quickly, right. But you know, if anyone with a weight problem just stop snacking and stop drinking alcohol, I feel like you can make massive progress and maintain that progress over time if you keep those habits.
Right. Yeah, and and and that's a you know, an important point because the largest negative calorie impact in terms of consumption, you know, for the folks that are using these drugs as some snacks alcohol products with sugar, and in those general categories well snacks, alcohol, alcohol, you know, cookies, you know, confections, you know, the the change in consumption
is like sixty to sixty five percent negative. But if you look at and this intuitively, this you'll I mean this is true, but intuitively you'll understand it if you look at the categories like fruits and vegetables, poultry and fish, those increase fruits and vegetables is like plus forty percent.
In poultry and fishes plus twenty percent. So I mean that makes sense because you're you know, you're actually thinking and acting on you know, tactics to eat healthier and lose weight, so you know, off, you know, so poultry and red meat, I don't think that there's going to be a significant impact on demand yes, there will be
on sugar and snack options. But in the restaurant industry, once again, you know, it's it's more about meals and snacks, and so does we have options with diet And you know there will probably be a lingering hangover with carbs because they're just painted as being the enemy by a lot of folks. It doesn't the impact across food categories is widely dispersed, which makes sense.
Okay, cool, So so your customers aren't going to be adding GLP penetration to their site selection models anytime soon's I was.
Like, I don't think so, all right, I could.
We'll find some other things you know in that location location location idea other than GOP adoption.
Yeah cool, all right, so you did?
You We're on a panel about generative AI at at r f DC. You know, chat EPT and these large language models have really shined a light on AI, probably made most Americans aware that AI existed, right. You know, I tell people that I know that I've been relying on research from a from an AI, a machine learning company since twenty sixteen, and people's minds are blown.
You know.
McDonald's investor Day, their management talked about how AI will be used to support their gms and their hourly workers. It's going to be the backbone for their their customer facing software where and right now, there's a lot of hype about generative AI. So I'm not completely versed on generative AI. I'm sure a lot of people that are listening in aren't. So can you talk a bit about it and what you think it's.
Going to do for the restaurant industry.
Yeah, well, well, first of all, there is a distinction between AI and gen AI, which we'll talk about briefly at a high level. But I think that my advice to operators and brands when it comes to this is buckle up because it's coming and it's gonna you know,
it could come pretty it could come pretty fast. And why because there are some great tool sets available here for operators and they make sense and it's you know, it's just sort of next gen technology that you know will be an integrated part of your you know, tech stack. But it's coming because it works. And the first waves started a few years ago. And this is AI, not jen Ai, because jen a jen Ai is new, but it start started a few years ago as a response
to changes in consumer behavior. And so you know, restaurant brands have made investments and you know, commercial use cases sort of usually top line oriented like third party delivery, and you know, thinking about ways to improve your marketing and in many cases changed the nature of interactions with customers. And and and especially when you think about the pressures that restaurant brands are experience seeing today, which is, as
we all know, well above average and not normal. To protect the unit level economics, it's probably smart to build on the foundations established in the first way the data platforms and point point the activity and point some of the investment more towards operations focused use cases like things you know that can you know, directly impact profitability, like you know, just through a couple of inventory optimation, optimization,
you know, and things like that. You know, where we know that there are going to be significant use cases that can can affect profitability. Now, there there's a lot of glamour and myth, you know when people talk about ai and jen ai and and you've seen it, and you know the popular press cheese we're not even going
to need humans anymore. Well, that's not going to happen, but it is going to have an impact on you know, you know, the company's human capital, as there is increasingly a shift in focus from transactional activities to strategic you know, sort of knowing the what to knowing the how, and most workforces are under skilled and.
The how and how.
I think the consensus and how this you know, gets rolled out and adopted. Obviously it's going to the big brands first, right, I mean, this is big right now, it's big brand sandbox because it's expensive, and I mean and the idea that well, it's expensive in it. And
I think there's sort of four common myths. And one is, you know, there's an illusion of instant savings, you know, and this promise of efficiency gains, you know, is attractive, but organizations are often not ready because they don't they don't have their digital capabilities up to snuff.
Yeah.
And then the second myth is, you know, it's related to the confusion between AI and gen Ai. Most a I use cases are still going to be traditional and it's it's it's great for you know, you know, customer sentiment analysis and some you know, rudimentary operational considerations, but but only some are well suited for jen Ai to you know, have a material impact like supply chain optimization
from demand you know, more sophisticated demand forecasts. And then a third kind of myth that we're going to find out is a myth is and we know this is true because it's happened in just about every other category of tech that you know has been rolled out all of the big vendors. And if you think about you know, Microsoft, Google, and you know sales Force, they are all busily word get an investing on their out of the box solutions, and so there's going to be a partner to pick.
You know, do you pick the right partner? Well, this it almost goes back to like when we were rolling out you know, point of sale systems. Did you pick the right partner or did you invent it yourself? You know, inventing it yourself didn't work out so well. But the vendors provide invaluable resources in backbone backbone and capabilities, but there's almost always a level of customization that's that's needed.
And then the other bald fact is this is tech and there's a constant question, constant question about whether the solutions that are being proposed today or enabled today will still be advantaged. You know, in the future and the future like when in the future, Well, let's let's start with you know, six months, you know, not five years, you know, so because it's it's going to be moving
very very quickly. And again, you know, the the real game changer is is the impact it's going to have on your human capital and how you integrate it and
use it to impact profit productivity. And that the obviously, the the ability to make significant impacts there is all over the map, depending on a the sophistication of the company and b, you know, resources and don't know how too many operators that wake up with the warnings said, cheese, you know, you know what our problem is, we have too many resources that I don't hear that very.
Yeah, yeah, it's interesting.
I mean, you know, marketing obviously is one I think is interesting. Customer service obviously it could improve. One thing I saw on the list which I found interesting was store design. And I think one of the first companies that I recall hearing that had sensors and would track everywhere people will go in the store, Waskava. So I thought that was pretty interesting when I read that as a potential, you know, I put a potential, you know, use for generative AI.
But another one's loyalty.
It seems like every company I cover is in the process of upgrading their loyalty program right now.
So what motivating this with loyalty?
Yeah, yeah, Well we've been talking about loyalty for how many decades now, and you know, I mean quite frankly, if if you go back in time and at BCG, we've done an enormous amount of research on this because when it works, it could be magic. And we gave it. We gave a talk about this at r f DC. You know, boy, I'm want to say, almost ten years ago on loyalty, and the punchline at the time was most loyalty programs do not create value for the enterprise.
And the reason was because they were very simple, and they were points based and they were earning burn learn and in some ways you know the way I described it as you know, they were very efficient aggregators of discounts, but in terms of really having you know, really driving the business, you know, in most cases they didn't. But today is different. You know, loyalty today is no longer optional. You know, you have to It's critical if you want to be really competitive, you have to you have to
be in the loyalty game. And I mean loyalty creates a points currency with redemption, with redemption options that can help protect economics by actually avoiding inefficient discounting, you know, rather than you just give it to everybody just because you came in and you spent a butt.
Well that was the problem with Tim Morton's right when they launched it. They gave discounts to people that were going to come anyway.
Right exactly. And so if to active evate, to activate a program today, you know, there's three areas. There's in restaurant, there's your digital channels, and then there's targeted messaging you know, slash personalization and and and and it and the other thing. It has to be simple and easy to understand so you can incentivize incremental customery behaviors. Otherwise it's it's really
easy to get lost. And but where where I think And if you look at if you we do a massive restaurant survey every year, if you when you look at what consumers say about loyalty, the bottom line is earning points is still number one, but guests are increasingly value personalized and other benefits. So you know, what do they really like. They like points for purchase, they like bonus cash back, they like member sales and promotions you know that are targeted, targeted just for them. You know what,
don't they care so much about exclusive events? You know?
Interesting? Think what about uh like what about like a great table?
You know, like stuff like that, Because I've heard of some some chains that will, uh you know, try to have kind of a loyalty program that rewards people with like the best table in the restaurant. They'll let them try things before there you know, that are coming to the menu before they're.
Available for everybody else to.
Your point, events, But but those don't seem to be uh drivers for for.
You know, most customers.
Perhaps is the best way I can answer that, because is that best table is at a concierge level service, very few concern consumers care about that? Is it a personalized reward if you put it in that bucket? Well, actually, you know about about a fifth of the consumers care about that a lot. Okay, so it sort of depends.
But so I guess it all comes back down to personalization. Right.
So that's what it sounds like to me from your answer that these chains are realized that their previous systems aren't doing a good enough job of personalizing their offers for their their loyalty customers.
Yeah, but you still have to be in the game, you know, because it's loyalty is increasingly the hook into the rest of the enterprise digital the rest of your digital ecosystem. So, for example, nearly sixty percent this is a quorean for a survey of loyalty program members use the brand's mobile app, versus five percent for non loyalty Wow members. Wow that that that that's kind of a game changer.
Well, that's why everybody's offering free free stuff to join the program, right.
To sign up, yep, and and so okay, well that's cool. That's a cool little factoid. Somewhat Well, here's the sow. If if you order from the restaurant app versus just you know, ordering at the window or the drive through or or a third party, if it's forty eight percent of the orders are linked to the loyalty account, and what else do consumers say? Oh, well, it's faster to order, I knew, you know, they saved my address and my payment, The accuracy is better, My favorite orders are saved in
the app. So it's just you know, vastly easier because again, I mean you've you've used a ton of these apps yourself, and you're one click away from disaster, right, So you know, it's it's you know, going forward, it's it's kind of a big deal. And they're evolving and and right across the industry all categories, you know, all of retail, and they're delivering more personalized experience and they're you know, they're
you know, keeping their hooks into the consumers. And again, the the first generation of loyalty was earn and burn, right, I mean, I mean remember when you went to subway. You know, you got stamps, you put them in your little card and fill up your card to get a sub and that went on for decades. And then the second generation is building you know, engagement, and you know the leaders in that are you know, Chick fil A
and in the restaurant industry and and Starbucks. And then the the trends with momentum are our personalized experiences and uh and you know there has been a barrimenting with subscription services, you know, just to you know, you know, to to pick one, but also you know, loyalty member exclusive features that you're going to get that others aren't going to get just because you're on the app and you're in the in the in the loyalty. Yeah.
We saw that with Chipole Right, Like there's certain menu items like case ideas and stuff like that where you can only get them through the app. Right, try to create create a little buzz and some incentive to sign out brand.
Yeah. And well, and it even goes beyond that because now they have branded apparel. No, I don't think that this is going to be I don't think that they're going to arm wrestle branded apparel for brutal bowls. But you know, it's just it's just something else that's out there. And you know, and then Panera did quite well with their My Panera you know coffee subscription. Oh yeah, and they got they went from zero like four hundred excuse me, for forty million members like Lickety's flow.
So it's a perfect item, right, It's addictive, it's it's a ritual. It's a perfect item to sell on a subscription. It's fantastic.
Yeah. And and then the you know, the top performing programs, you know, you you do ben fit from increased average check size as well, so you keep them, you get them coming more, and they spend more and and you know, that's that's a that's a pretty good.
Plus.
It's a high that coffee is a high margin item too, so you can afford the subscription on it.
So there there's there is a lot of chatter about the subscription plans and we're we're we are seeing more and more efforts in that. But it's also probably worth pointing out that subscription programs are not new. You know, Taco Bill had one, yeh, Taco Lovers Pass. You know, it's a you know, it's a flat fee for a month. I don't remember how much it was, and you can get a taco per day free. Well, obviously you're not gonna do that if you're going to go and you're
going to get you're not stepping in for one tackle. Yeah, and Subway had they had a for a short period of time. You know, they're foot long Pass again for a monthly fee and you could get fifty percent off one foot long sub per day. But those those are gone now, all.
Right, cool, let's change gears. How much pricing do you think restaurant chains are going to be taking next year?
Well, for many too much. How's that?
I probably wanted to listen, you know me, I'm as barished as anybody right now. So you know, you know you're not going to get any push back here.
Yeah, I think, Look, I again, we have unprecedented pressure on the P and L top to bottom, right, every every line item and so, and to just keep that in perspective, I'll give you a couple of rules of thumb or historical historical you know ideas. We've been in a low inflation environment for what the past thirty years more.
Well, we had some we we had the last commodity bull was the early two thousands, all right, so that was the last time, but.
It was short. Historically is very short.
So commodity bulls typically the last seventeen years on average, just one lasted from the Russian blow up in the late nineties was like ninety eight or so, and then into into the Great Recession, so we had about a decade. But yeah, very abbreviated historically.
Yeah, So, I mean, but if you had to pick a number, or if I had to pick a number, you don't have to, I would pick you know, like two percent of you know, inflation is just sort of right around that for an extensive period of time up until just recently. And so given that backdrop, what was an acceptable rate of pricing, you know, price increases that
you could take, you know, without impacting customer traffic. And if I had to, I would say, you know that would you know generally bounce somewhere in a pretty narrow range of three to five percent?
Yeah, and Change did it, and Change did it strategically, not the way they're doing it strategically now down to the d m A. But they were doing it strategically by market. I remember Cracker Barrel in like twenty fifteen or so did a a pricing program where they were raising prices in the Mid Atlantic, but they kept them static in the South right, And so they were kind of doing it by region, right, So they might have raised it five in the mid mid Atlantic, but maybe one in the South right right.
And that that actually, you know, you know, goes back to your point about you know, are there changes in behavior depending upon you know, household income and things like that, And the answer is yes, and so yeah, you know, you try and be as strategic as you can, but the bottom line is that you know, three to five percent was the annual and maybe maybe it took two steps to get there. You know, if you roll your menus every six months or so, yeah each time, Yeah,
yeah you did it. But but the annuals, you know, sort of top acceptable number for most brands is I would say five percent, maybe maybe six percent. But uh but then you know, you know, COVID hits and inflation hits,
and what are we going to do. We have to protect our march and especially you know the book be trading companies, but not not just them, I mean, you know, independent operators, private operators, you know, still want to make money too, So so pricing started to you know, ramp up, you know, very significantly and immediately, and so and I was I was giving a talk about this at an industry conference. It was in two yeah, it was in twenty twenty, so it was in the fall of twenty twenty.
And one of the guys that was on my panel said, look, if you haven't already raised your pricing by at least ten percent, your a dope. And I'm paraphrasing, but that was they good message, and.
This is a great message. It was dead on.
Well, I well, I you know, I kind of violently disagree with that. And but you know, early on, you know that, you know, operators were in bolden because they actually took these outsized price increases that in some cases were several times higher than what was historically acceptable, and it seemed to stick. Yeah, and so and but then the cost pressures weren't alleviated, and they kept going up,
so they tried to do it again and again. And I think that basically we have reached reached the point where we already know that many brands have taken they've hit the price button too hot, and they're seeing softness in traffic.
And a lot yeah for a couple of years now, man.
Yeah, right, And you know, and if you look at you know, the publicly traded companies and you read you know, the you know, you listen to the conference calls and read the transcripts, and I had listened to them all, and there's so much chatter about you know, margin recovery, and we need to, you know, we need to take a little more outsize pricing, you know, because we have
to we're trying to get our margins back. Well maybe you don't actually well, I mean you do, but maybe that's not the smart thing to do because you might be in a and probably are at a situation where you're going to have you know, your your margins are simply going to be less than they were in optimal every day uh, you know, in an optimal everyday environment. And the most important thing is to keep your customers, because if you don't keep your traffic, you're not gonna
have to worry about your margins. Yeah, because your your parking lots are going to empty out. You're going to go broak.
Well in this business, right, the top line.
If you want to expand your margins, the best way to do is by expanding that top line, right.
And you know it's really hard to expand margins when your top line is Yeah, And.
I think that's what we're that's what we could be looking at for especially the first half of next year, right. I mean, traffic's been atrocious. We got some tough comparisons. But you know, I don't want I don't want to bring too much doom and gloom to this podcast.
Well, no, I I don't have a lot of doom and gloom quite frankly, I think you know it's it's gonna be tough sledding and there's a lot to work through. But you know, we've been through this before and but you're not going to be you know, brands simply don't have the ability to price their way out of trouble. I mean, consumer can't accommodate it even if they wanted to.
And it doesn't impact all brands, all brands the same way at the same time, because you know, consumer favorites are impacted a little bit less because even if it costs a little bit more and it's on the high side of happiness, consumers don't they don't eliminate their favorite things first, so you know where where the brand lies on that scale of favorites if you want to call it that, we'll have a has direct implications for pricing.
But the bottom line is these you know, six to eight percent and then ten percent and then another six percent. That's over. Yeah, unless you want to see your you know, traffic, it destroyed for sure.
For sure. I couldn't agree more. What are your thoughts on the IPO market? Man?
Are some you know, are we seeing some companies going public too soon since the passage of the Jobs Act? You know, I guess a decade ago or so, well.
I have worked on an extraordinary number of IPOs over a thirty year period, so I have more than a passing familiarity with this. So I don't have an answer to your question that is confined to, you know, the last six months or twelve months, because I don't think that, I mean, I don't believe that the behavior of companies that approached the public markets has really changed that much in any industry. And so could could one say, well, you know, some of these companies, look, they went out
too early in it, they should have just waited. Well, that's always true, And there's a couple of dynamics there. Number one, why do you go public? Well, you know, a really good reason is to raise capital that you and redeploy into operating assets and grow your business. And it can be in the public market can be a very very efficient way to make that happen. In fact, it's the only way if you want to build a big company, because you can't borrow your way to greatness.
So that's attractive and it's and that's not going to change. Now, are you ready to be public? That that's a that's a company specific question with the company specific answer, And and I would also say that in addition to just you know, having access to capital. I've I've seen and I've been involved in many, many cases where you know, in hindsight, the IPOs was sort of it was more of a goal line than a tactic, and I finally made it. I'm public, you know, and actually it's not
the goal line. You're still on your own twenty Okay, you still have a lot of field to cover here. And then you know, third, there's always been this fantasy that Okay, we think we can I think we can get out there and get a decent print and it'll work, and we'll do the little IPO. Now, we'll just raise a little capital because we need a capital just to get a little bit bigger, and then in eighteen months we'll do the we'll do the big boy, big boy
public Equality Offering and raise a lot more capital. And so they had that you know, two stage idea that
doesn't always work so well. And because you know, quite frequently that initial i PO that they contemplate because they think they're going to do a little one, then the big one later, well it's too small, Yeah, it's not enough capital or they're not ready and they're not ready for the both the expense and pressure of being a public company, and so they fail and then when they fail, now you're really in Now you're really in a world of hurt because you know, your access to capital is
you know, vanishes, and and we have so many I mean, I don't want to pick on anybody in particular, but let's just take a fake meat company as an example where there's just a massive amount of hype and hyperbole and it's supported by contract research. It says, you know,
consumers are you know this this much. I'll just make up some thirty percent of consumers spending on you know, protein is going to be on on you know, I'll just call it fake products, you know, or plant based And so they access to public marcacy, raised a lot of capital, there's a lot of hype. You know, the stock goes up. But then after they get out into the field and they're competing in the wild and consumers get over trial because there is a lot of trial.
But you know, the going from trial to sort of permanent adoption is not guaranteed. And so you know, you know, several of these plant based protein companies all of a sudden, you know they're out there and then about eighteen months later and their sales fall off a cliff, and there's you know, and so you know you have a stock
that goes from you know, eighty to two. Well in one case that one of the two dollars stocks is you know for sure will declare b K. So you know that that's a long winded, you know, answer to your question. Are some of these companies going out too soon? Yes, I mean, but that's always been yeah, and it's not only the restaurant industry, and not because yeah, and not because it's fraudulent. I mean, I think you know, there's just there's a lot of hope. Yeah, they're just not ready now.
You know what I find interesting is I wonder how many companies look at Shakeshack and Shakeshack's CEO, Randy Grudy, gave a lot of credit to their success in the first couple of years after the I PO to all of the press they got.
From the I p O.
And I feel like one of the companies that I peoed over the last couple of years, I don't know if it was Dutch Bros.
Or somebody mentioned the.
Fact that, you know, they thought the IPO could kind of supercharge their growth.
So I just find that that interesting.
I wonder if that's in the in the calculus for some of these high growth restaurant chains.
Well, I think it's in the in the calculus of all the things that we actually really like and really worry about. I think that's you know, down the list. Yeah, that's an added bonus, you know, when you're shake shack, you know, early on and it's brand new and everybody wants to try it, and it's got a lot of buzz. I mean, the IPO helped that. They were in the media all the time, you know. I remember when Krispy
Kreme first, you know, hit the public markets. I had at our investor conference in New York, and and all they did was show a video of you know, from a helicopter and here's our opening here, and it's just you know, lines of cards, you know, clogging up the freeway and here's you know, And so they used it for that, and it you know, created a lot of buzz and a lot of awareness, and they capitalized on it,
you know, early on. But there are just as many examples of where you know, the entering the public markets and all the press around it helped up front, but then at the end of the day when you have to rely on the merits of your own brand. Some again, like some of the plant based companies that have been out there just to pick on them. They can't they can't hold on to their they can't hold on to their consumers.
Yeah, it's Krispy Kreme, one of my favorite company visits ever. Twenty twelve ish, I visited them. I don't know how many blueberry glazed donuts. I had, donut milkshakes. They were handing me coffees.
It was. I was eating donuts right off of the off of the off of the line.
It was.
It was fantastic man.
All right, last question for your thoughts on a potential sandwich monopoly.
Wow, you're referring to Subway obviously, Yes, sir, I think that is just one of the more amusing things I've heard and read about recently. So let me understand this. The suggestion is that Subway has a new home with Rourke and somehow this is going to create a monopoly or a monopoly like situation.
Yes, so rur could just charge everybody like thirty dollars for a turkey sandwich, now.
Right, Yeah, that's where I was going. So well, Number one, I don't think that we have any shortage of sandwich offerings anywhere in America, any town, any place. Number one. So I don't know where the monopoly comes from. But if the idea is that subway finds a new home and they wake up the next day and say, wow, we have monopolistic powers. So here's a new deal. Every all Ham sandwiches from this point forward our twenty five dollars because we can charge whatever we want. We have
a monopoly. Okay, what do you think is going to happen to the sale of Ham sandwiches a subway?
They're done.
I can tell you there aren't going to be any I think that the premise is silly.
Our tax dollars at work.
Man, Yeah, let's protect you know, find us. There's got to be something else you can protect us from. But a sandwich monopoly is not. It should not be high on the list. No, definitely not, because it's a fantasy.
I guess they're bored. They don't have enough work to do.
Yeah, but if we see twenty five dollars Ham sandwiches, man, you can call me proved me.
Well, all right, good stuff man, Thanks again for doing this. You're great man. I really when I send out some research or like a reminder to listen to one of my podcasts and I get an email back from you, it usually usually makes my day.
Man.
So thanks for doing this. Thanks for being a friend.
Man. I appreciate the invite and hope you found that helpful. And that too controversial I tried.
To Yeah, you did a good job man. You know in our personal discussions you're a lot more controversial. But no, that was great, So thanks again. Thanks to the audience for listening in. If you like the podcast, thanks all. Yeah, yeah, for sure. If you like the podcast, please share it with your colleagues and be on the lookout for another episode in early January.
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