WEBVTT - First-Time Home Purchases Keep Rising, Mohtashami Says

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<v Speaker 1>P and L Podcast. I'm Pim Fox. Along with my

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<v Speaker 1>co host Lisa Abramowitz. Each day we bring you the

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<v Speaker 1>most important, noteworthy, and useful interviews for you and your money,

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<v Speaker 1>the Bloomberg P and L Podcast on iTunes, SoundCloud and

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<v Speaker 1>at Bloomberg dot com. Earlier today, we found out that

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<v Speaker 1>sales have previously owned US homes climbed for the fifth

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<v Speaker 1>time in six months, to the highest level since two

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<v Speaker 1>thousand and seven. At the same time, we're seeing thirty

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<v Speaker 1>year mortgage rates starting to rise and some weakness emerging

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<v Speaker 1>in place like Miami and New York City. So what's

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<v Speaker 1>ahead for the home market. I want to bring in

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<v Speaker 1>Logan Modashami, Senior loan officer at AMC Lending Group, to

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<v Speaker 1>get up some broader perspective. Logan, when you look forward,

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<v Speaker 1>at what point will these higher mortgage rates start to

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<v Speaker 1>impede the progress in the housing market. So as of

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<v Speaker 1>this year, we've seen higher rates maybe uh slow down

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<v Speaker 1>the rate of growth, but as of now, nothing has

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<v Speaker 1>has changed the demand curve. I think what what people

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<v Speaker 1>missed sometimes is that in the ten year yeal sold

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<v Speaker 1>off just basically the same amount and last year existing

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<v Speaker 1>home sales for the cycle high with inventory at psycho lows,

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<v Speaker 1>and today's report we just hit another psychle high with

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<v Speaker 1>inventory low at demand is still rising, but overall demand

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<v Speaker 1>is still very socked because our demographic still in this

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<v Speaker 1>country or more for renting than it is for home buys.

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<v Speaker 1>Can you speak a little bit about today's report about

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<v Speaker 1>January existing home sales, they were up about three three

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<v Speaker 1>and a half percent. The selling rate is stronger than

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<v Speaker 1>the consensus estimates. They are looking for five point five

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<v Speaker 1>five million. But I thought even even more interesting is

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<v Speaker 1>this comparison where single family sales are up two and

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<v Speaker 1>a half percent, condos up eight percent. Uh, and um,

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<v Speaker 1>I'm wondering whether you could speak to those uh, those numbers.

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<v Speaker 1>Here's here's the thing, existing homesales. If you if you

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<v Speaker 1>listen to housing people, they tell you that existing home

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<v Speaker 1>sales can't grow because inventory is too over. That's not great.

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<v Speaker 1>But the biggest buyers homes in America to their millennials.

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<v Speaker 1>So first time homebuyers are growing, and naturally condos would

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<v Speaker 1>be one avenue that they would be buying, especially single women.

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<v Speaker 1>Single women buy homes twice the rate of the single men.

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<v Speaker 1>So if we get more and more first time home buyers,

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<v Speaker 1>you should see more and more first time home sales

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<v Speaker 1>being predicated to either the condo or the smaller single

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<v Speaker 1>family and residents. You said that we've seen. You mentioned

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<v Speaker 1>the cycle highs in home sales, and you see prices

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<v Speaker 1>generally rising at least on average, at least when you

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<v Speaker 1>look at the US across the board. But there are

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<v Speaker 1>some specific signs of weakness we've been looking at, for example,

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<v Speaker 1>the rental market UH for condos in New York City, Miami,

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<v Speaker 1>also Toronto. There's a lot of concern that prices are

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<v Speaker 1>getting ahead of themselves. Do you think that those fears,

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<v Speaker 1>those specific kind of location specific fears are unfounded or

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<v Speaker 1>do you think that these could be UH sore spots

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<v Speaker 1>in the U. I would tell you that real home

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<v Speaker 1>prices are nowhere close to where they were once you

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<v Speaker 1>adjust home prices to inflation, we're nowhere close to the

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<v Speaker 1>housing bubble peaks. So do you take real home prices

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<v Speaker 1>with real wages growing and interest rates this slow. This

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<v Speaker 1>is a factor why home mind is still continuing to go.

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<v Speaker 1>I think people make the mistakes of using nominal home

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<v Speaker 1>prices and real wages when they should be looking at

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<v Speaker 1>real wages and real home prices. And this is why

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<v Speaker 1>national home sales can still grow even though nominal prices

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<v Speaker 1>are still at high Now, we do have certain spots

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<v Speaker 1>the luxury market in New York in the home building broom,

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<v Speaker 1>in terms of multi family growth has cooled down. It's

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<v Speaker 1>it's actually negative in so that rate of growth has

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<v Speaker 1>cooled down. They're going to have more supply come on

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<v Speaker 1>the market. The demographics for a rent in a few

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<v Speaker 1>years is going to turn to home mind, So there's

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<v Speaker 1>gonna be a natural dislocation of supply and demand coming

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<v Speaker 1>it soon. But I don't see a major concern because,

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<v Speaker 1>for example, the home buyers we have now and the

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<v Speaker 1>best in the cycles, the best I've ever seen, and

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<v Speaker 1>they can afford to buy homes. But housing inflation is

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<v Speaker 1>a real issue, and it impacts the marginal home buyer

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<v Speaker 1>who's gonna renter, who doesn't have the income or liquid

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<v Speaker 1>assets to purchase at home, and that's been the case

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<v Speaker 1>for twenty years now. The housing bubble f facilitated some

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<v Speaker 1>of that demand with exotic debt structures. We don't have

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<v Speaker 1>that anymore, so this is one of the reasons why

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<v Speaker 1>we don't see low FCO score Americans buy homes anymore,

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<v Speaker 1>which I don't think it's ever going to come back

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<v Speaker 1>because they don't have the capacity to buy home. So

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<v Speaker 1>the how the inflation story is real, but it's not

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<v Speaker 1>as bad as the nominal headlines show. Logan. I wonder

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<v Speaker 1>if there's an element that we may be missing having

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<v Speaker 1>to do with people who are self employed, because you

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<v Speaker 1>want to claim right as little income as possible if

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<v Speaker 1>you're self employed, but then that bumps up against the

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<v Speaker 1>actual very strict guidelines when it comes to filling out

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<v Speaker 1>the application for a mortgage. I'm wondering if you could

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<v Speaker 1>speak a little bit about that changing demographic in terms

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<v Speaker 1>of the workplace and how that plays out in the

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<v Speaker 1>home market. Well, self employed Americans, I believe we're less

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<v Speaker 1>than fifteen million UM, so the ones that are really

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<v Speaker 1>doing good you know right now you really only needed

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<v Speaker 1>one year tax or trying to show the income um.

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<v Speaker 1>But in general, yet the stated income loan was designed

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<v Speaker 1>to allow self employed people to buy homes that had

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<v Speaker 1>the cash a little but show its little as possible

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<v Speaker 1>on their on their tax returns. So you know, you

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<v Speaker 1>can make a valid case that some home buyers could

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<v Speaker 1>be buying homes but they just don't want to pay

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<v Speaker 1>the taxes. But then again, I just I don't think

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<v Speaker 1>it's scale that's big enough to really move the markets,

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<v Speaker 1>because some of the really successful self employed people still

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<v Speaker 1>have still can show enough income to buy homes. And

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<v Speaker 1>being a lender here in southern California for thirty years,

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<v Speaker 1>we've had many, many many of our clients or self

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<v Speaker 1>employed people, so that is a factor into it. But

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<v Speaker 1>I think it's very hard pressed to ever bring back

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<v Speaker 1>stated income loans under the Consumer Financial Protection because guidelines

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<v Speaker 1>or showing income. So look, and there was a story

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<v Speaker 1>on the Bloomberg this morning talking about why Trump's immigration

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<v Speaker 1>crackdown could cause a dent in US home prices. Do

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<v Speaker 1>you believe that no, because we're that would it's just

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<v Speaker 1>not enough scale. Housing is a home practice or function

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<v Speaker 1>of inventory. Inventory in the last twenty years have only

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<v Speaker 1>been about six months. From two thousand six to two

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<v Speaker 1>thousand eleven. That was the housing bubble pent up uh

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<v Speaker 1>staifth demand, and then the burst happened. Outside of that.

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<v Speaker 1>You know, it's very hard for US as a country

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<v Speaker 1>to get over six months inventories because I think it's

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<v Speaker 1>harder to move up so in scale four and buyers

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<v Speaker 1>out of six million homes or under three thousand UH

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<v Speaker 1>in certain cities where you have educated borners coming in

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<v Speaker 1>and working, I just don't think there's enough for them

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<v Speaker 1>to touch the entire general housing market in America. I

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<v Speaker 1>want to thank you very much for spending time with us.

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<v Speaker 1>Logan Matahni is the senior loan officer at a MC

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<v Speaker 1>lending group. It is expensive out there. Valuations of industrial

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<v Speaker 1>companies are so high that it may be thwarting any

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<v Speaker 1>merger or acquisition strategy. Here to tell us more as

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<v Speaker 1>Joel Levington. He is our senior credit analyst for Bloomberg Intelligence,

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<v Speaker 1>and he joins us now, great to have you with us.

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<v Speaker 1>As always, Joel tell us a little bit about the

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<v Speaker 1>new report, Spin the Wheel, Make a Deal. Prices high

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<v Speaker 1>in cap goods I'm just telling you that does not rhyme.

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<v Speaker 1>But I guess credit analysts you don't have to rhyme

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<v Speaker 1>at all. But go ahead, tell us spin the wheel,

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<v Speaker 1>make a deal. Well, you should have got when strike

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<v Speaker 1>op pose buy backs are in vogue. Very good, all right,

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<v Speaker 1>you get that gold full mark star. Um. So what's

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<v Speaker 1>the situation and what kind of companies are we talking about?

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<v Speaker 1>G E. Danna, Her, Honeywell, Caterpillar and so on. Yes,

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<v Speaker 1>we're talking about your your manufacturing sector, in part because

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<v Speaker 1>of what's happened with that with Donald Trump becoming president,

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<v Speaker 1>there has been a huge run uh stock prices in

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<v Speaker 1>the industrial sector to the point where multiples for acquisitions

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<v Speaker 1>are at the highest that that we can find on

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<v Speaker 1>the terminal, about thirteen point seven times. And the basic

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<v Speaker 1>math tells you that, at least from the credit perspective,

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<v Speaker 1>it's dilutive to leverage leverage averages about two times. So

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<v Speaker 1>if you're buying at thirteen point seven with debt financing,

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<v Speaker 1>which is what the averages are, it's weaker for credit

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<v Speaker 1>to go that route then to go to share a

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<v Speaker 1>purchase route. All right, Joel, I am looking at you

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<v Speaker 1>in a whole new light. Now you look like a

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<v Speaker 1>different person. You're I always knew of you as a

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<v Speaker 1>credit analyst trying to you know, keep companies truded their

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<v Speaker 1>uh corporate corporate credit structure. And yet here you are

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<v Speaker 1>advocating for companies to buy back their shares. How does

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<v Speaker 1>this work? Because aren't credit guys against this. Isn't that

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<v Speaker 1>sort of a uh diluting of potential profits to pay

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<v Speaker 1>back uh their debt? I mean, isn't this a problem?

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<v Speaker 1>This has been going on a long time, right well,

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<v Speaker 1>knowing how you looked at me before, um um, please

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<v Speaker 1>that you're looking at me in a different light right now.

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<v Speaker 1>But but what I would say is that it really

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<v Speaker 1>is a case of what's less worse. With relatively cheap

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<v Speaker 1>financing still out there, there are very very few companies

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<v Speaker 1>in the industrial sector that are looking to lower leverage.

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<v Speaker 1>So it becomes what's a game of what is less

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<v Speaker 1>punitive the share purchase, the share purchase route, or the

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<v Speaker 1>acquisition route, And it tends to be the share purchase

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<v Speaker 1>route would make more sense or the less worse case

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<v Speaker 1>for bottle holders. Could we just go through a little

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<v Speaker 1>of the detail because I want to see that. Okay,

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<v Speaker 1>you're talking about the valuation of a company. So let's

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<v Speaker 1>just do an imaginary scenario right where you've got maybe

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<v Speaker 1>Honeywell or Ge. They want to go out and buy

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<v Speaker 1>a company, and the valuation is as you say, thirteen

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<v Speaker 1>point seven, could we just say fourteen, so fourteen times

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<v Speaker 1>and um, then they're deciding, well, maybe we shouldn't buy

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<v Speaker 1>the company, Maybe we should give this money back to

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<v Speaker 1>shareholders in the form of an increased dividend or buy

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<v Speaker 1>back shares. Buying a company, they've got to do some

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<v Speaker 1>analysis that says that the internal rate of return for

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<v Speaker 1>doing such is going to be better than whatever the

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<v Speaker 1>alternative is. Correct at your absolutely right, pim and there

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<v Speaker 1>are there are a few cases. Uh. An example might

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<v Speaker 1>be Emerson Electrics purchase of pent Air's valves and control business,

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<v Speaker 1>where they've identify ten percent of sales as cost saves.

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<v Speaker 1>So that's a very unique case in our in our area.

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<v Speaker 1>But I do think that valves and control area is

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<v Speaker 1>a a is a place where you can see a

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<v Speaker 1>lot more consolidation happened. It's also one where try and

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<v Speaker 1>had pushed pent Air to look to as a as

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<v Speaker 1>being a consolidator before they wound up selling out that

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<v Speaker 1>was Nelson Peltz's a tryan now, okay, But so just

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<v Speaker 1>let's take this one one step further. What is connected

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<v Speaker 1>to the compensation of chief executives at major corporations? Well,

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<v Speaker 1>you know, that's a very case by case. I was

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<v Speaker 1>going to venture to say the stock price. The stock

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<v Speaker 1>price is always one, and if you buy back shares,

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<v Speaker 1>what happens typically to the stock price. Well that that

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<v Speaker 1>isn't necessarily going to be raised the stock price. But

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<v Speaker 1>what I would say is that a lot are and

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<v Speaker 1>stated on EPs growth, and you can get more bang

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<v Speaker 1>for your buck as a CFO or CEO re purchasing

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<v Speaker 1>your shares to increase your EPs as opposed to doing

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<v Speaker 1>the buy backs excuse me, as opposed to doing acquisitions

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<v Speaker 1>because acquisition multiples are so high makes the EPs look good.

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<v Speaker 1>Exactly as we talk, I'm thinking about those private equity

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<v Speaker 1>companies Apollo, Blackstone, Carlyle. They've been collecting, amassing nearly a

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<v Speaker 1>trillion dollars of dry powder on their books of money

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<v Speaker 1>that they're looking to spend on something on companies. Ostensibly. Uh,

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<v Speaker 1>does this mean that it's going to be very challenging

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<v Speaker 1>for them to spend this? I mean this sort of

0:12:39.800 --> 0:12:42.560
<v Speaker 1>raises a question of how effectively they can deploy that.

0:12:43.160 --> 0:12:46.280
<v Speaker 1>It certainly does, and it certainly dictates what sectors that

0:12:46.280 --> 0:12:49.439
<v Speaker 1>they could participate in. In industrials where you're looking at

0:12:49.800 --> 0:12:53.480
<v Speaker 1>GDP growth plus or minus a percentage for your typical business,

0:12:53.920 --> 0:12:58.079
<v Speaker 1>if you're leveraged, if you're buying something at fourteen times UH,

0:12:58.200 --> 0:13:00.880
<v Speaker 1>if you're doing a recap of a company, maybe you

0:13:00.880 --> 0:13:03.480
<v Speaker 1>can leverage it six or seven times, which means that

0:13:03.520 --> 0:13:06.280
<v Speaker 1>your equity component is gonna be another seven or eight times.

0:13:06.760 --> 0:13:08.920
<v Speaker 1>And the basic math says like that's not really going

0:13:08.960 --> 0:13:11.720
<v Speaker 1>to work for good returns. And so a sector like

0:13:11.800 --> 0:13:14.559
<v Speaker 1>mind where the growth is low tells you that that's

0:13:14.600 --> 0:13:16.640
<v Speaker 1>not a place that they can go. Maybe something like

0:13:16.720 --> 0:13:20.040
<v Speaker 1>tech or healthcare, where the growth rates are higher, they

0:13:20.040 --> 0:13:22.280
<v Speaker 1>would be able to get a better return over time.

0:13:22.720 --> 0:13:26.480
<v Speaker 1>So you don't expect any private equity involvement in the

0:13:26.520 --> 0:13:29.640
<v Speaker 1>industrial space for a while. Well, you can never say never,

0:13:29.800 --> 0:13:31.600
<v Speaker 1>but if you're trying to make the math work, it

0:13:31.600 --> 0:13:33.440
<v Speaker 1>would be very hard to do it at these levels.

0:13:34.520 --> 0:13:37.319
<v Speaker 1>Thanks very much for telling us all about this, Joel Levington.

0:13:37.400 --> 0:13:40.640
<v Speaker 1>Here's our senior credit analyst Bloomberg Intelligence really gives you

0:13:40.679 --> 0:13:42.880
<v Speaker 1>a different perspective on what's going on, doesn't it. Well.

0:13:42.920 --> 0:13:45.280
<v Speaker 1>It also makes me understand a little bit better why

0:13:45.280 --> 0:13:47.960
<v Speaker 1>there have been so many shared buy backs, even companies

0:13:48.000 --> 0:13:51.000
<v Speaker 1>that do raise debt to lock in low interest rates

0:13:51.000 --> 0:13:52.520
<v Speaker 1>for a longer period of time and then use that

0:13:52.559 --> 0:13:54.560
<v Speaker 1>to buy back shares. You know. The original this sort

0:13:54.559 --> 0:13:57.319
<v Speaker 1>of knee jerk reaction is this is sort of making

0:13:57.320 --> 0:14:01.280
<v Speaker 1>a bad situation for the credit investors. But perhaps this

0:14:01.400 --> 0:14:04.960
<v Speaker 1>is the lesser of a number of evils. Very interesting,

0:14:05.000 --> 0:14:06.480
<v Speaker 1>Thank you so much to it will be keeping a

0:14:06.559 --> 0:14:19.080
<v Speaker 1>track of that. P and L is brought to you

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<v Speaker 1>Custom shirts made Smarter. So what's cooking across some America?

0:15:00.560 --> 0:15:03.640
<v Speaker 1>At McDonald's. Well, it might be a chocolate e mint

0:15:03.720 --> 0:15:07.960
<v Speaker 1>it maybe some increases or eggs. Indeed, I was going

0:15:08.000 --> 0:15:09.880
<v Speaker 1>to go to the drinks thing, because the big thing

0:15:09.880 --> 0:15:14.000
<v Speaker 1>about McDonald's, which just reported its results, is that it

0:15:14.160 --> 0:15:17.880
<v Speaker 1>is going to promote drinks by lowering the cost. And

0:15:17.920 --> 0:15:19.960
<v Speaker 1>here to tell us more, as Leslie Patton, our consumer

0:15:20.000 --> 0:15:23.040
<v Speaker 1>reporter for Bloomberg News, here to tell us all about

0:15:23.080 --> 0:15:26.640
<v Speaker 1>Mickey D's. All right, so Leslie, tell us about what

0:15:26.680 --> 0:15:29.760
<v Speaker 1>the company's doing, why they're doing it, and do you

0:15:29.800 --> 0:15:34.360
<v Speaker 1>think it's gonna work. So McDonald's, starting in April, they're

0:15:34.360 --> 0:15:37.680
<v Speaker 1>going to be promoting dollar sodas any size and then

0:15:37.720 --> 0:15:41.920
<v Speaker 1>two dollars small Mick cafe drinks UM across the US.

0:15:42.000 --> 0:15:44.400
<v Speaker 1>This is the first time they've done this on a

0:15:44.480 --> 0:15:47.120
<v Speaker 1>national basis. They've done it here and there regionally, so

0:15:47.240 --> 0:15:49.440
<v Speaker 1>you may have seen it at your local McDonald's. Especially

0:15:49.480 --> 0:15:51.840
<v Speaker 1>the dollar SODA's I think is a pretty popular thing.

0:15:52.280 --> 0:15:54.320
<v Speaker 1>But I think they're just trying to get more people

0:15:54.360 --> 0:15:57.360
<v Speaker 1>in the door, maybe during some of those off hours,

0:15:57.400 --> 0:15:59.560
<v Speaker 1>like in the afternoon when you need a coffee pick

0:15:59.640 --> 0:16:02.280
<v Speaker 1>me up, um, you can get one for only two

0:16:02.280 --> 0:16:05.680
<v Speaker 1>bucks at McDonald's and then also it may be a

0:16:05.840 --> 0:16:09.280
<v Speaker 1>sign that some of the food deflation that we've seen

0:16:09.280 --> 0:16:11.840
<v Speaker 1>in the past couple of years maybe starting to wear

0:16:11.880 --> 0:16:14.400
<v Speaker 1>off a little bit, especially kind of in the back

0:16:14.400 --> 0:16:16.960
<v Speaker 1>half of this year. So McDonald's is going to promote

0:16:17.040 --> 0:16:19.800
<v Speaker 1>drinks instead of food to kind of help the bottom

0:16:19.800 --> 0:16:21.920
<v Speaker 1>line a little bit. Okay, So that's interesting that you

0:16:21.960 --> 0:16:24.120
<v Speaker 1>say that, because when I read this, I thought to myself,

0:16:24.160 --> 0:16:27.520
<v Speaker 1>you know, everyone's talking about inflation and the reflationary trade,

0:16:27.520 --> 0:16:30.720
<v Speaker 1>and then you hear about McDonald's cutting their prices, and

0:16:30.800 --> 0:16:34.560
<v Speaker 1>that kind of speaks to an opposite narrative, but you're

0:16:34.600 --> 0:16:37.880
<v Speaker 1>saying it fits in. It just sort of shows how

0:16:37.920 --> 0:16:39.640
<v Speaker 1>they're trying to get an edge in a place where

0:16:39.680 --> 0:16:43.200
<v Speaker 1>to be less affected by inflation. Is that correct? Yeah,

0:16:43.280 --> 0:16:45.280
<v Speaker 1>that's right. You know, it's a little nuanced because they're

0:16:45.320 --> 0:16:48.480
<v Speaker 1>doing drinks instead of food this time, because drinks are

0:16:48.520 --> 0:16:51.240
<v Speaker 1>super high margin for restaurants. They're one of the highest

0:16:51.240 --> 0:16:54.480
<v Speaker 1>margin things on the menu, much higher than food. So

0:16:54.560 --> 0:16:58.119
<v Speaker 1>it makes sense that they would be promoting the beverages

0:16:58.240 --> 0:17:01.040
<v Speaker 1>in a time when maybe we're starting to see food

0:17:01.360 --> 0:17:03.920
<v Speaker 1>inflation tick up a little bit. So does the fact

0:17:03.920 --> 0:17:07.320
<v Speaker 1>that McDonald's is taking this step mean that the boost

0:17:07.320 --> 0:17:10.240
<v Speaker 1>that they got from introducing All Day Breakfast is wearing off.

0:17:11.560 --> 0:17:13.360
<v Speaker 1>You know. I think we saw that a little bit

0:17:13.400 --> 0:17:17.359
<v Speaker 1>when they reported uh fourth quarter earnings that was a

0:17:17.359 --> 0:17:19.520
<v Speaker 1>little bit of a concern, a little bit of slowdown

0:17:19.640 --> 0:17:23.320
<v Speaker 1>in the US comps. So perhaps some of that hype

0:17:23.320 --> 0:17:25.639
<v Speaker 1>around All Day Breakfast is wearing off and they're going

0:17:25.720 --> 0:17:28.359
<v Speaker 1>to have to find something a little bit new, something,

0:17:28.680 --> 0:17:32.120
<v Speaker 1>something exciting to keep customers coming in. I wondering if

0:17:32.119 --> 0:17:35.080
<v Speaker 1>you could describe for us the state of the strategic

0:17:35.240 --> 0:17:39.720
<v Speaker 1>plan as it relates to the franchises and also the

0:17:39.760 --> 0:17:46.240
<v Speaker 1>operations in China. Um. Sure so so for the franchises

0:17:46.440 --> 0:17:50.080
<v Speaker 1>UM here in the US. I know McDonald's and globally

0:17:50.160 --> 0:17:53.879
<v Speaker 1>McDonald's has been selling off their company owned stores, moving

0:17:53.880 --> 0:17:56.280
<v Speaker 1>to that asset light models what they like to call

0:17:56.359 --> 0:17:59.160
<v Speaker 1>it in the industry. So that's something we're seeing more

0:17:59.200 --> 0:18:01.600
<v Speaker 1>and more of, and mc donalds is continuing on that path.

0:18:02.119 --> 0:18:04.399
<v Speaker 1>Other restaurants are doing the same thing. So really no

0:18:04.560 --> 0:18:07.720
<v Speaker 1>surprise there, UM nothing super new. I don't think we've

0:18:07.720 --> 0:18:09.680
<v Speaker 1>heard too much about that lately. And then the same

0:18:09.720 --> 0:18:12.719
<v Speaker 1>with China and some of its other Asian businesses selling

0:18:12.760 --> 0:18:16.560
<v Speaker 1>off the rights to own and manage those stores is

0:18:16.600 --> 0:18:19.000
<v Speaker 1>something they've been working on for a while now too.

0:18:19.280 --> 0:18:22.359
<v Speaker 1>So how much can we glean about the broader restaurant

0:18:22.400 --> 0:18:26.080
<v Speaker 1>industry or sort of lower cost restaurant industry from McDonald's results.

0:18:26.080 --> 0:18:28.439
<v Speaker 1>We've been hearing about the sort of restaurant recession and

0:18:29.000 --> 0:18:31.320
<v Speaker 1>uh seeing some of the bad results that have come

0:18:31.760 --> 0:18:35.800
<v Speaker 1>out of places like Chipotle, UH and others. Does McDonald's

0:18:35.800 --> 0:18:38.400
<v Speaker 1>serve as a sort of harbinger of things to come

0:18:38.440 --> 0:18:42.520
<v Speaker 1>for others or is it really an idiosyncratic story. You know,

0:18:42.640 --> 0:18:44.680
<v Speaker 1>it's a it's a little hard to say. I think

0:18:44.920 --> 0:18:47.520
<v Speaker 1>in general you could take McDonald's and say, yes, this

0:18:47.600 --> 0:18:50.199
<v Speaker 1>applies to the rest of the industry. The rest of

0:18:50.240 --> 0:18:53.160
<v Speaker 1>the industry is seeing what McDonald's is seeing in terms

0:18:53.240 --> 0:18:56.520
<v Speaker 1>of maybe food inflation is going to start um picking

0:18:56.560 --> 0:18:58.440
<v Speaker 1>back up, or we're going to see some food inflation

0:18:58.640 --> 0:19:00.720
<v Speaker 1>in the back half of the team. But at the

0:19:00.760 --> 0:19:04.960
<v Speaker 1>same time, McDonald's is very much its own beast. It's

0:19:05.160 --> 0:19:09.959
<v Speaker 1>um you know, it's known for fast food, convenience value,

0:19:10.040 --> 0:19:12.280
<v Speaker 1>that sort of thing. So if we if we try

0:19:12.280 --> 0:19:15.119
<v Speaker 1>to take that to like a Panera or Chipotle or

0:19:15.160 --> 0:19:20.520
<v Speaker 1>the casual dining industry and may not necessarily translate exactly

0:19:20.800 --> 0:19:23.040
<v Speaker 1>um as to what's going on at this at the

0:19:23.160 --> 0:19:25.879
<v Speaker 1>staff food company. Let's see who they want who do

0:19:25.880 --> 0:19:28.159
<v Speaker 1>they really want to take take some share from? I mean,

0:19:28.200 --> 0:19:30.560
<v Speaker 1>for example, when you cut the cost of some of

0:19:30.600 --> 0:19:35.840
<v Speaker 1>these sugary drinks, particularly coffee based, that means that Starbucks

0:19:35.960 --> 0:19:39.119
<v Speaker 1>might be losing some sales or Am I wrong? No,

0:19:39.320 --> 0:19:42.159
<v Speaker 1>it's possible. I think probably there's a little bit of

0:19:42.160 --> 0:19:44.960
<v Speaker 1>customer overlaps there, But for the most part, I think

0:19:45.160 --> 0:19:48.720
<v Speaker 1>McDonald's and Starbucks probably have some different customers. Maybe they

0:19:48.720 --> 0:19:51.480
<v Speaker 1>could steal a little share from dunkin Donuts. That's maybe

0:19:51.520 --> 0:19:54.400
<v Speaker 1>who they have a little more overlap withst in terms

0:19:54.480 --> 0:19:57.800
<v Speaker 1>of the coffees and beverages that sort of thing. Um.

0:19:57.800 --> 0:20:00.840
<v Speaker 1>But really, I mean McDonald's and the rest of the industry,

0:20:00.880 --> 0:20:02.960
<v Speaker 1>they're just happy to take share from whoever they can,

0:20:03.040 --> 0:20:05.879
<v Speaker 1>from from the mom and pop coffee shop, from the

0:20:05.880 --> 0:20:09.919
<v Speaker 1>regional player, to from from anyone. Leslie Patton, thank you

0:20:10.000 --> 0:20:12.720
<v Speaker 1>so much. Really a fascinating look at sort of how

0:20:12.880 --> 0:20:16.679
<v Speaker 1>some of the restaurant companies are dealing with inflation in

0:20:16.720 --> 0:20:24.960
<v Speaker 1>some areas but perhaps not others. Thanks for listening to

0:20:24.960 --> 0:20:27.960
<v Speaker 1>the Bloomberg P and L Podcast. You can subscribe and

0:20:28.040 --> 0:20:33.040
<v Speaker 1>listen to interviews at iTunes, SoundCloud, or whatever podcast platform

0:20:33.200 --> 0:20:35.919
<v Speaker 1>you prefer. I'm pim Fox. I'm out there on Twitter

0:20:36.040 --> 0:20:39.760
<v Speaker 1>at pim Fox. I'm out there on Twitter at Lisa Abramo.

0:20:39.840 --> 0:20:42.439
<v Speaker 1>It's one before the podcast. You can always catch us

0:20:42.560 --> 0:20:53.399
<v Speaker 1>worldwide on Bloomberg Radio. P and L is brought to

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