Speaker 1: Welcome back to another episode of the Restaurant Report. My
Speaker 1: name is Paul Baron. I'll be your host today. We're
Speaker 1: going to really break into some of the industry news
Speaker 1: today that I think you guys are going to be
Speaker 1: interested in when it comes to trends and how consumers
Speaker 1: are going to be facing possibly a downturn in the
Speaker 1: restaurant industry, and there's a lot happening. I'll do a
Speaker 1: whole slew of screen shares for you guys today. So
Speaker 1: if you are listening to the audio version of this
Speaker 1: podcast over on Spotify or on Apple Podcast, make sure
Speaker 1: and jump over to the YouTube channel, and of course
Speaker 1: just search saver Fm. You'll find us there, and of
Speaker 1: course you'll get a chance to see.
Speaker 2: The full visuals.
Speaker 1: So let's get right into it today. All right, let's
Speaker 1: break into a couple of points I want to add in,
Speaker 1: and one of the things I want to jump into
Speaker 1: is this right here, stocks tumbling Wall Street of course
Speaker 1: gets a little bit of an AI way up call.
Speaker 1: This is the longest streak of a less than two
Speaker 1: percent decline since two thousand and seven, so a pretty
Speaker 1: significant time in terms of the you know, the markets
Speaker 1: in general for US to get almost twenty years without
Speaker 1: a greater than two percent decline, So this is a
Speaker 1: pretty big deal. I've been talking with a lot of
Speaker 1: people in the industry, and I'll zoom in on this
Speaker 1: right here. Sell off in most of this has been
Speaker 1: in big tech, and when you look at big tech
Speaker 1: as being the kind of the focus of where the
Speaker 1: industry has been faced with. When I say industry meaning
Speaker 1: the just where investing is going, obviously AI has been
Speaker 1: one of the biggest areas of that. So sell off
Speaker 1: in big tech sent the S and P five hundred
Speaker 1: down to its worst day since December twenty twenty two,
Speaker 1: ending the best stretch without a two percent drop since
Speaker 1: the start of the global financial crisis. So losses were
Speaker 1: also pronounced in then, as Tek one hundred tumbled over
Speaker 1: three point five percent, alphabet Google slid five. We also
Speaker 1: saw Tesla miss numbers which was pretty big, including the
Speaker 1: Robotaxi delay by Elon, which spurred a twelve percent stock plunge.
Speaker 1: I think that's kind of be expected with what Elon
Speaker 1: does out there in the market, for sure. The other
Speaker 1: thing that plays into this, I think when you look
Speaker 1: at just where the industry, meaning the restaurant industry is going.
Speaker 1: The key here is is that if the stock market
Speaker 1: starts to see a full regression, typically that is going
Speaker 1: to be in the high net worth individuals that usually
Speaker 1: drives into consumables, and restaurant industry typically is on the
Speaker 1: front edge of consumables. One of the things that I'm
Speaker 1: watching all the time is what other things are happening
Speaker 1: out there right now? One table restaurant brand filed for
Speaker 1: Chapter eleven bankruptcy protection. And I think when you look
Speaker 1: at remember this is the company a pair of company
Speaker 1: of Tens and Takaya. This is a problem right here, guys,
Speaker 1: because remember tender Greens at one times, at one time
Speaker 1: was probably the number one fast casual sector restaurant out there.
Speaker 1: And I think when you look at what's happening right
Speaker 1: now with one table, this represents a shift in upscale
Speaker 1: dining reduction. And I think that's the key here is
Speaker 1: we see more and more pressure from not only high
Speaker 1: interest rates you know, the FED higher for longer, and
Speaker 1: also the CPI. And when you look at where inflation
Speaker 1: is right now, even though it has started to regress
Speaker 1: down to around three percent, the biggest problem is the
Speaker 1: lagging effect on the economy. And I think this is
Speaker 1: the thing that a lot of people do not really
Speaker 1: look at when it comes to the restaurant industry. This
Speaker 1: is one of the nice to haves, the entertainment layer
Speaker 1: of expenditures for most consumers. Credit card debt, now it's
Speaker 1: high credit card failures or excuse me, lack of being
Speaker 1: able to make payments, one of its highest mortgage demand
Speaker 1: lowest ever. We're seeing all the indicators that are really
Speaker 1: pushing the market into a bad position. And here's the
Speaker 1: thing when you look at what could be happening here
Speaker 1: on the restaurant industry. This is a good example, and
Speaker 1: I'll kind of showcase what restaurant Dive focused on right here.
Speaker 1: And I thought this was kind of interesting. Both brands
Speaker 1: never saw their sales volume recover, never came back. Tender
Speaker 1: Greens average in a volume falling from three point four
Speaker 1: million in twenty nineteen to two point nine million twenty
Speaker 1: twenty three, so a big drop in terms of overall sales.
Speaker 1: AUV slid from three four to two one in twenty
Speaker 1: twenty three. So now that's even more cause for ARM
Speaker 1: and of course falling sales four wall profits. This is
Speaker 1: inside the restaurant now from sixteen percent of Tender Greens
Speaker 1: and thirteen percent to Coyo, both before the pandemic now
Speaker 1: present a level of nine to four and one point respectively.
Speaker 1: These are horrendous numbers. And this is the concern I
Speaker 1: have right now is I believe that we have been
Speaker 1: in a recession for quite some time. This is just
Speaker 1: the validation point that we continue to see. And I'm
Speaker 1: going to show you some data on sentiment, consumer sentiment
Speaker 1: around some of our brands that get into this a
Speaker 1: little bit further. The other thing I want to hit
Speaker 1: on is this right here is Chipotle had an eight
Speaker 1: percent boost in traffic, their ltos increase, their labor deployment,
Speaker 1: boosted Chipotle's transactions and throughput in Q two, driving increase
Speaker 1: in safe store sales of eleven point one percent. I
Speaker 1: don't think that's the whole story here. I think right
Speaker 1: now Chipotle has been able to ride on the cotails
Speaker 1: of digital and what it's been able to do over
Speaker 1: the last several years. This has started to change and
Speaker 1: I want to showcase something for you guys that is
Speaker 1: pretty significant. One is this right here, and this is
Speaker 1: a problem because Chapottle has been really tagged hard by
Speaker 1: the consumer and the guests that basically say, hey, everybody
Speaker 1: notices the portion sizes have started to reduce. They are
Speaker 1: trying to focus on portion sizes as some of their
Speaker 1: outlier restaurants to address this. And remember these are huge
Speaker 1: Internet complaints and this is something that I think a
Speaker 1: lot of people don't necessarily understand, is the impact of
Speaker 1: sentiment on these brands. In fact, if you follow the
Speaker 1: sentiment trail on our RPI, which is our Restaurant Power Index,
Speaker 1: you start to see a lot of the problems paint
Speaker 1: out before the market actually sees it. Let me give
Speaker 1: you an example of this. We're going to go over
Speaker 1: here to the RPI, and of course, if you guys
Speaker 1: are not checking out the Restaurant Power indecks, just go
Speaker 1: over to savor dot fm and you can learn a
Speaker 1: little bit more about it. But it is something that
Speaker 1: we've built and it continues to be I think one
Speaker 1: of the most powerful tools out there and being able
Speaker 1: to track down what's happening with the industry. Chipotle will
Speaker 1: jump to them real quickly. And this is coming in
Speaker 1: from the June numbers twenty twenty four. We'll have the
Speaker 1: July numbers finished up here in a moment, so we'll
Speaker 1: have another record. What I can tell you is Chipotle
Speaker 1: has continued their slide, but this is a huge slide
Speaker 1: from seventy eight. Let me zoom in on that for
Speaker 1: you guys. This is probably one of the most I
Speaker 1: think concerning areas that I continue to see is just
Speaker 1: the amount of consumer sentiment that is falling off. Now remember, yes,
Speaker 1: Chipotle has been one that has gone. This is the
Speaker 1: overall market sentiment for fast casual from a seventy eight
Speaker 1: down to seventy two. Here's Chipotle started the year to
Speaker 1: sixty seven, came back up, and then right here back
Speaker 1: up to sixty seven, and then have just continued for
Speaker 1: a double dip in the last two months. And July
Speaker 1: shows a number again that is not consistent with growth,
Speaker 1: meaning we're going to see continued downtrend here, I think
Speaker 1: for for Chipotle, and if you look at some of
Speaker 1: the other you know, fast casuals, we'll go into a handful.
Speaker 1: Here's Cava, which has been face somewhat pacing with the
Speaker 1: overall sentiment of the market, but now starting to dip
Speaker 1: slightly under and then kind of right where market is
Speaker 1: trending right now, and they are of course one of
Speaker 1: the top you know, fast casuals out there. This is
Speaker 1: some of the categories that we track right now. If
Speaker 1: you guys want to learn a lot more about this,
Speaker 1: you can, of course again just go over and check
Speaker 1: savor dot fm and you'll learn how you can get
Speaker 1: into this. I want to go on to one other thing,
Speaker 1: and this is one of the concerns I continue to see,
Speaker 1: and that is this kind of stuff right here, the
Speaker 1: pizza category is absolutely getting murdered. Mod announces a new owner.
Speaker 1: They're trying to stave off bankruptcy. This of course came
Speaker 1: in from CNN. But the point being is Mod has
Speaker 1: been a brand that we have been looking at for
Speaker 1: the last several years. I don't know what happened here.
Speaker 1: This brand was flying and was doing so well, and
Speaker 1: then all of a sudden last year we started seeing signals,
Speaker 1: at least on consumer sentiment that just absolutely destroyed what
Speaker 1: we had been expecting from the industry. And I think
Speaker 1: this is one of those things that you and I know,
Speaker 1: Scott and Ali, I've met them, we've done interviews with
Speaker 1: them before. I think this is I don't know if
Speaker 1: they took their eye off the ball, tried to grow
Speaker 1: too fast, funding got to be a problem, couldn't penetrate
Speaker 1: markets in terms of competition with other fast casuals. Maybe
Speaker 1: it was just a too fast, too soon kind of scenario,
Speaker 1: and obviously COVID kind of delayed.
Speaker 2: A lot of that.
Speaker 1: But man, the team over at MOD have absolutely just
Speaker 1: been getting destroyed, and of course Beth Scott she departed
Speaker 1: from MOD all of that began. We saw the entire
Speaker 1: executive team pretty much gutted by this acquisition by Elite
Speaker 1: Restaurant Group, which was earlier this month. So I think
Speaker 1: this is a problem. It's going to be a big
Speaker 1: comeback story if MOD can recover from this. It does
Speaker 1: put a huge black eye back in the pizza fast
Speaker 1: casual category, which I believe is still one of the
Speaker 1: most struggling categories in fast casual even though the entire
Speaker 1: fast casual sector right now is in trouble, and this
Speaker 1: is a problem I think that may not get alleviated
Speaker 1: for any time to come. And there's many reasons why.
Speaker 1: I think it is all lagging indicators from an economic
Speaker 1: position that we study constantly over on our finance channel,
Speaker 1: which if you guys have never checked that out. Go
Speaker 1: over to Paul Baron Network on YouTube. You'll find us there.
Speaker 1: We just hit four hundred and fifty thousand subscribers. It
Speaker 1: is blowing up with there. We cover a lot of
Speaker 1: crypto topics, but we also get into a lot of
Speaker 1: macroeconomics and a lot of study of that. The other
Speaker 1: thing that is kind of interesting is a consolidation. Consolidation
Speaker 1: continues to be one of the things that I'm looking at. Darden,
Speaker 1: of course buying Chewies for more than six hundred million.
Speaker 1: This is a big deal because I think with Darden,
Speaker 1: you know, one of the things you have to look
Speaker 1: at is the potential for casual dining to possibly reposition
Speaker 1: in the market. QSR is struggling. Fast casual is struggling.
Speaker 1: Casual dining has been struggling. Fine dining, I think is
Speaker 1: about to get hit for the first time with high
Speaker 1: income and high net worth individuals maybe pulling back. Luxury
Speaker 1: goods have already started to decline. A handful of things
Speaker 1: that are are already pushing into this area. If you
Speaker 1: look at the dive brief from Restaurant Dive on this deal.
Speaker 1: Let me share my screen to you guys. The interesting
Speaker 1: point right here is it's one hundred and one unit.
Speaker 1: You know, it's full service text max Change. But they
Speaker 1: bought this at about thirty seven to fifty a share.
Speaker 1: This was a pretty good deal, all cash transaction worth
Speaker 1: the enterprise value of about six hundred and five million.
Speaker 1: I mean you think about that basically at six million
Speaker 1: dollars a store and not bad, you know when you
Speaker 1: look at the opportunity here of what this category could be.
Speaker 1: Remember this is a second transaction. Darden is pulled off
Speaker 1: the other one. They bought Ruth Chris Ruth Chris Hospitality
Speaker 1: Group seven or fifteen million, and you guys know, I
Speaker 1: mean this is Long Corner Olive Garden Steakhouse and then
Speaker 1: Yardhouse in Bahama, Brieze.
Speaker 2: Listen.
Speaker 1: The bigger picture here is this consolidation. Consolidation continues to
Speaker 1: be I think one of the key factors here. But
Speaker 1: here is another factor that I think a lot of
Speaker 1: people are not following when it comes to just where
Speaker 1: these these brands are going. And I'm going to share
Speaker 1: a trading view chart and we do this all the
Speaker 1: time on our shows. I'm on the weekly right now,
Speaker 1: and what I'm looking at right now is Diagio. This
Speaker 1: is Diagio, one of the biggest brands out there in
Speaker 1: the alcoholic section. But you can kind of see alcohol brands.
Speaker 1: You can kind of see this massive fall off on
Speaker 1: the weekly really since what we saw back in December
Speaker 1: of twenty twenty one, which was its high, and now
Speaker 1: we started to see a complete adjustment with negative downtrends
Speaker 1: continuing on a sentiment side. But I want to go
Speaker 1: over and look at Chipotle. This is Chipotle, which has
Speaker 1: been on a tear for gosh almost five six years,
Speaker 1: absolutely just killing it in terms of stock price. Look
Speaker 1: at this growth right here. Let me give you a
Speaker 1: kind of just an insight. This was in March of
Speaker 1: twenty twenty. Remember that that's the called the Chipotle or
Speaker 1: excuse me, the COVID dip. And up here to the high.
Speaker 1: That is a five hundred and forty eight percent gain,
Speaker 1: five and forty eight percent gain from March twenty through
Speaker 1: June twenty twenty four. Here's the difference. Just in the
Speaker 1: last month, we have seen a correction here from the
Speaker 1: high down to here of almost thirty percent. Does this
Speaker 1: mean that Chapote starts its decline going back into possibly
Speaker 1: you know the twenty five to thirty dollars stock range.
Speaker 1: This is huge for where Chipotle will be. McDonald's also
Speaker 1: kind of going sideways a little bit, but still on
Speaker 1: the uptrend. I think they have an opportunity here to
Speaker 1: continue to perform Wendy's sideways. Not seeing a lot of
Speaker 1: attraction here sentiment wise, also kind of the same thing.
Speaker 1: Not a lot of traction in terms of consumers. And
Speaker 1: if you look at Darden, it's been pretty much uptrend
Speaker 1: from here, even though they've had a little bit of
Speaker 1: a downtrend here recently. This may be a play here.
Speaker 1: I'm watching this one very closely for sure. Here's Starbucks.
Speaker 1: This one right here worries me because I think star
Speaker 1: Bucks continues to be challenged by what's happening with the industry,
Speaker 1: and they are also falling into the same problem in
Speaker 1: terms of how the consumer interfaces with the restaurant industry,
Speaker 1: and that is high noworth individuals and people who have
Speaker 1: expendable income. And the biggest problem right here is jen
Speaker 1: Z and also jen A. They have yet to be
Speaker 1: able to connect to that kind of consumer, and I
Speaker 1: think this is a problem going forward. I'm going to
Speaker 1: play a clip for you right now. That is the
Speaker 1: Starbucks CEO talking about this very thing, Jim.
Speaker 3: When we look at the biggest loser today, it's going
Speaker 3: to be Starbucks. It's among the worst performers in the
Speaker 3: S and P. Five hundred. It's one of the bigger
Speaker 3: guidance because I've seen in a long time. I checked
Speaker 3: with all the major both public and private companies that
Speaker 3: are in a similar business to you, and no one
Speaker 3: saw a three percent decline in comm stores because of weather,
Speaker 3: and none of them saw a negative number except for you.
Speaker 4: We have not been able to communicate to them the
Speaker 4: value that we provide. What we're doing for that is
Speaker 4: we are making it attractive for them to come back into.
Speaker 2: The Stopbucks app and join it. On the app.
Speaker 4: What you will see is you will see value that
Speaker 4: they haven't seen.
Speaker 2: There are drops that are going to happen every Monday.
Speaker 4: There are bundles that we're putting in place that are
Speaker 4: attractive for.
Speaker 2: Them, for example, a beverage and a drink at a
Speaker 2: certain price.
Speaker 4: What you're seeing there is the effort we're making in
Speaker 4: order to ensure that our occasional customers get to see.
Speaker 2: The value that we provide.
Speaker 3: A loyal customer ly program go from thirty four point
Speaker 3: three to thirty two point thirty two point eight in
Speaker 3: link quarter. I mean those people are not occasional. Those
Speaker 3: people are hardcore. Not the occasional, but the hardcore drop off.
Speaker 4: It's at the tail of the laynty program, particularly those
Speaker 4: that are you know, in the ninety day active as
Speaker 4: we call it, the folks that didn't come back. They
Speaker 4: again are very similar to the occasional customers. We have
Speaker 4: an action plan in place right now to communicate directly
Speaker 4: with them.
Speaker 2: If you look at some of the metrics that.
Speaker 3: We have done, and Tim Wharton said you were not
Speaker 3: holding share, sir, I regard them as being seminal companies
Speaker 3: that are just as good when it comes to McDonald
Speaker 3: says you are losing share.
Speaker 4: The thing we didn't do enough off is really attack
Speaker 4: the occasional customer with delivering and communicating value to them
Speaker 4: in a more aggressive manner. That's what the plan we
Speaker 4: have does.
Speaker 3: Is it not time to pause, sir, and figure out
Speaker 3: what's really going wrong and spend a deep dive and
Speaker 3: making it so that this decline in comp store numbers
Speaker 3: does not continue because it is perilous to the actual
Speaker 3: existential existence of Starbucks.
Speaker 1: All right, So as you can see, I mean, they
Speaker 1: don't really have a plan in place, and I think
Speaker 1: this is the problem. The loyalty system continues to fall,
Speaker 1: and we've continued to see potentially a issue I think
Speaker 1: with maybe the ability for them to truly connect to
Speaker 1: the next generation consumer. I think that is the bigger
Speaker 1: problem that lies in Starbucks' situation right now. So a
Speaker 1: lot really pushing forward here, and I was talking about
Speaker 1: Diagio just a minute ago. Obviously we've seen the downturn here.
Speaker 1: One of the things that concerns me here if you
Speaker 1: look at the brands that are available here. Let me
Speaker 1: share this screen with you guys, and the brands that
Speaker 1: are available here, Tanger Ray Againnis, Johnny Walker, Smeirnoff, Bailey's, Buchanans, Sirock,
Speaker 1: Don Julio, Kettle, I, Crown Royal, Captain Morgan. You can
Speaker 1: see this is the core of what I call the
Speaker 1: everyday man's liquor cabinet. And for this to see continue
Speaker 1: downturn and for us to see a huge downturn in
Speaker 1: where the industry is going around just overall beverage sales,
Speaker 1: especially in the situation with whiskey, American whiskey. This is
Speaker 1: a concerning problem because America Whiskey, I think, is the
Speaker 1: bell weather of how all of this plays forward. And
Speaker 1: if you look at just some of the things here
Speaker 1: in terms of the data, this iswsr's recently published analysis,
Speaker 1: and this is the global industry alcohol sales decline in
Speaker 1: twenty twenty three for the first time in nearly three decades,
Speaker 1: and they're continuing to face a soft market in twenty
Speaker 1: twenty four. And recent data coming in on this right
Speaker 1: now is that twenty twenty four could be a bigger
Speaker 1: decline this year than even what we've seen in twenty
Speaker 1: twenty three. All of that being said, this aligns with
Speaker 1: one of the most profitable centers in a restaurant and
Speaker 1: that of course is the bar business. So I want
Speaker 1: you guys to think about that and really understand what
Speaker 1: this means. The other thing that you have to consider
Speaker 1: is where is the customer going If they're not going
Speaker 1: to restaurants anymore, what is the angle that could be
Speaker 1: playing in here. Well, one that you have to consider
Speaker 1: is what's happening in the sea store category. Look at
Speaker 1: this crazy stuff. Seastorees now seeing higher loyalty retention than
Speaker 1: QSRs quick serve restaurants fast food. They sign up new
Speaker 1: members much more slowly than QSR, but they are getting
Speaker 1: higher loyalty retention. So it's just a matter of time,
Speaker 1: people before we start to see the C store kind
Speaker 1: of move in. Look at here, I'm going to show
Speaker 1: you some of the data hear from restaurant dive. Great
Speaker 1: side by the way they do a good job. Seastore's
Speaker 1: upper half of loyalty Transactions Share see at least eighty
Speaker 1: percent of their members returning eighty that's right, I said,
Speaker 1: eight zero percent of their members returning.
Speaker 2: Every mind.
Speaker 1: According this is twenty twenty four loyalty report that rose
Speaker 1: to eighty five percent for retailers in the ninetieth percentile
Speaker 1: and above. By comparison, in the ninetieth percentile and above
Speaker 1: ninetieth percentile, Transactions Share saw sixty two percent of their
Speaker 1: loyalty memory in the QSR sector, So a big, big problem.
Speaker 1: And then you look further into this other convenience store
Speaker 1: significantly trail both restaurant types when it came to acquiring
Speaker 1: new members, but top performing QSR loyalty programs brought in
Speaker 1: an average one hundred and ten new members. This to
Speaker 1: me is not good. You bring in a lot of
Speaker 1: new people, but you're not able to retain them. The
Speaker 1: competition is very strong in the restaurant industry and much
Speaker 1: more broad than what we see in the QSR space,
Speaker 1: or at least in the C store space, I mean,
Speaker 1: and when you look at that and where this may
Speaker 1: be leaning, is a lot less occasions going into QSR
Speaker 1: and fast casual which could be coming to a problem
Speaker 1: near you in the restaurant industry. So anyway, hopefully guys,
Speaker 1: this will give you a little bit of more insight
Speaker 1: to what is happening on the industry. We'll try to
Speaker 1: do more of the restaurant reports to give you rundowns.
Speaker 1: I don't know if you like the charting or if
Speaker 1: you like some of the stock analysis on this, but
Speaker 1: let me know if you're in the comments right now,
Speaker 1: this drops some comments down below. We love to get
Speaker 1: your feedback there. And of course, if you're over on
Speaker 1: the podcast, make sure and subscribe give us five stars,
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Speaker 1: will catch you next week right here on the restaurant
Speaker 1: report