WEBVTT - Fast Food Lost Its Value, Convenience Advantages 0:00:22.600 --> 0:00:23.720 Welcome to Chopping It Up. 0:00:23.920 --> 0:00:26.119 I'm your host, Mike Hamlon, the senior restaurant and food 0:00:26.120 --> 0:00:29.680 Service analyst at Bloomberg Intelligence. Our Research and that a 0:00:29.720 --> 0:00:32.280 bi's five hundred analysts around the globe can be found 0:00:32.280 --> 0:00:36.360 exclusively on the Bloomberg terminal. Today, we're joined by Tom Wagner, 0:00:36.479 --> 0:00:41.000 founder and partner at Restaurant Insight Monitor. The company is 0:00:41.000 --> 0:00:45.800 a research restaurant research platform that tracks attitudinal and visitation 0:00:46.040 --> 0:00:50.080 trends for over forty national brands across segments. 0:00:50.159 --> 0:00:53.080 Thanks for doing this, Tom, Well, thanks for having me. Mike. 0:00:53.600 --> 0:00:56.160 You're famous man. I just read about you in Greg 0:00:56.200 --> 0:00:57.560 Creed's book Red Marketing. 0:00:59.160 --> 0:01:01.640 Yeah. Greg and I I worked together for many, many years. 0:01:01.800 --> 0:01:04.760 He was my direct boss when he was chief marketing 0:01:04.760 --> 0:01:08.440 officer of Taco Bell and we had a blast together 0:01:08.680 --> 0:01:12.040 and we made a lot of money. The company really 0:01:12.040 --> 0:01:13.480 did well under Greg's leadership. 0:01:14.280 --> 0:01:17.640 Yeah, he's a cool guy. What roles did you fill. 0:01:17.959 --> 0:01:20.320 Over my Well, I was there twenty four years, So 0:01:20.959 --> 0:01:24.760 it started in finance, financial planning, capital planning. I worked 0:01:24.800 --> 0:01:28.000 in development for a while, then I got into marketing research, 0:01:28.520 --> 0:01:33.560 then ultimately built the entire sales analysis function within the 0:01:33.560 --> 0:01:37.959 company and that led into ultimately taking over consumer insights, 0:01:38.760 --> 0:01:41.520 and that I took over that position, I want to say, 0:01:41.560 --> 0:01:44.360 in two thousand and one, and I was VP of 0:01:44.400 --> 0:01:50.960 Insights there for and brand planning for thirteen years. It 0:01:51.080 --> 0:01:54.720 was quite a ride. Taco Bell is a super fun company. 0:01:55.120 --> 0:01:59.160 You know, the culture there was very empowering and we 0:01:59.240 --> 0:02:01.880 broke a lot of rules in the restaurant space and 0:02:02.000 --> 0:02:02.960 had a blast doing it. 0:02:03.640 --> 0:02:04.920 Yeah, it sounds like fun. 0:02:05.000 --> 0:02:05.200 Man. 0:02:05.640 --> 0:02:07.800 What are you most proud of during your ten tenure? 0:02:08.960 --> 0:02:11.280 I think a lot of the strap planning work that 0:02:11.360 --> 0:02:17.720 I did and really as we became very consumer focused 0:02:17.720 --> 0:02:21.320 as an organization, And probably the thing I'm most proud 0:02:21.320 --> 0:02:24.919 of there was really the team I built and really 0:02:24.960 --> 0:02:29.080 being able to move the company towards a needs based 0:02:29.880 --> 0:02:34.119 marketing approach. So we really stratified the whole industry into 0:02:34.120 --> 0:02:37.440 specific need states, you know, things like price value or 0:02:37.480 --> 0:02:41.040 abundant value or you know, a big taste something like 0:02:41.040 --> 0:02:43.960 a Dorito's Locos tacos and things like that. And by 0:02:44.080 --> 0:02:47.760 stratifying the consumer need states, it really enabled us to 0:02:48.720 --> 0:02:51.840 do a lot of deep ideation within each need state, 0:02:52.240 --> 0:02:55.720 which led to, you know, some pretty big innovations that 0:02:55.840 --> 0:02:59.000 really delivered against specific consumer needs, and it really we 0:02:59.080 --> 0:03:02.000 effectively drove actions ten years in a row, with the 0:03:02.040 --> 0:03:06.200 exception of a e Coali event and a a class 0:03:06.240 --> 0:03:09.880 action lawsuit which ended up being completely dismissed. 0:03:10.520 --> 0:03:14.080 Yeah, Taco Bells still rolling, Man, tell me a bit 0:03:14.120 --> 0:03:16.040 about what you're doing at Restaurant Insight Monitor. 0:03:17.040 --> 0:03:20.160 So we started this. We started planning about a year 0:03:20.160 --> 0:03:24.040 and a half ago, and we really we noticed that 0:03:24.240 --> 0:03:28.000 even though there was a lot of marketing research firms 0:03:28.040 --> 0:03:31.760 out there, based on our expertise, we didn't think there 0:03:31.840 --> 0:03:36.120 was much integration between really what are the consumers needs 0:03:36.520 --> 0:03:39.520 really around economic duress. You know, we were we were 0:03:39.520 --> 0:03:42.600 coming out of COVID and we started seeing inflation, and 0:03:42.680 --> 0:03:44.960 we thought, you know, there's a there's a big opportunity 0:03:45.000 --> 0:03:50.000 here to take almost like the University of Michigan consumer sentiment, 0:03:50.360 --> 0:03:54.360 you know, that level of understanding and then bridge that 0:03:54.560 --> 0:03:57.880 with consumer attitude and visitation. Because I've been around a 0:03:57.880 --> 0:04:01.520 long time and we've been through peereriods of inflation and recession, 0:04:02.080 --> 0:04:04.880 and I've seen exactly what happens in the restaurant industry 0:04:05.360 --> 0:04:07.480 and by brand, we've seen it. So we thought it 0:04:07.520 --> 0:04:10.600 was a good opportunity to put this platform together. I 0:04:10.600 --> 0:04:14.200 have two partners, Lynda Ashbrook and maher Minawala. We all 0:04:14.200 --> 0:04:17.839 worked together at Taco Bell and then between the three 0:04:17.839 --> 0:04:20.839 of us, we have over one hundred years of restaurant 0:04:20.920 --> 0:04:23.880 analytic and research experience just amongst the three of us. 0:04:24.480 --> 0:04:27.960 So we got together and built this platform and it's 0:04:27.960 --> 0:04:29.960 going really well so far. We've really uncovered a lot 0:04:29.960 --> 0:04:31.679 of interesting insight for a lot of brands. 0:04:33.000 --> 0:04:33.279 Great. 0:04:33.320 --> 0:04:35.479 So, the restaurant industry sure feels like it's in a 0:04:35.520 --> 0:04:36.479 recession this year. 0:04:36.920 --> 0:04:41.120 Your thoughts, Uh, Yeah, Like we talk about recession as 0:04:41.120 --> 0:04:44.760 a country, like the most anticipated recession that hasn't happened, 0:04:45.160 --> 0:04:48.400 But in reality, we've had a rolling recession, right Like 0:04:48.440 --> 0:04:52.080 you know, whether it's energy or transportation or package goods 0:04:52.200 --> 0:04:54.320 or you know, a lot of things have moved around. 0:04:54.440 --> 0:04:58.480 During COVID. Of course, we consumers were buying products like crazy. 0:04:58.920 --> 0:05:01.560 You know, the manufacturing side of our economy was booming 0:05:02.279 --> 0:05:04.680 and the service side was dead. And then once we 0:05:04.720 --> 0:05:07.480 opened up, the service side took off and the manufacturing 0:05:07.520 --> 0:05:10.880 side decline. But if you look at the restaurant industry 0:05:10.880 --> 0:05:14.760 in general, we are in a recession. Transactions are down 0:05:15.400 --> 0:05:18.960 about twenty percent over the last four years. So that 0:05:19.120 --> 0:05:21.880 sure sounds like a recession to me, right, So you know, 0:05:22.000 --> 0:05:25.600 try to disconnect it from the broader you know, recession 0:05:25.640 --> 0:05:28.720 for the country. We are in a restaurant recession, there's 0:05:28.720 --> 0:05:32.480 no doubt. And even within fast casual and QSR and 0:05:32.680 --> 0:05:36.839 casual dining, you know, traffic is down, you know, two 0:05:36.839 --> 0:05:40.120 to four percent every year and just getting smaller. So 0:05:40.200 --> 0:05:44.560 that's that's a trend you cannot ignore, right, we are 0:05:44.760 --> 0:05:47.200 trying to ignore it. And everybody's taken a lot of 0:05:47.200 --> 0:05:49.200 price and we can talk about why they've been able 0:05:49.240 --> 0:05:50.640 to do that and why it's going to be much 0:05:50.640 --> 0:05:57.279 more difficult, but really we are shrinking as a industry 0:05:57.440 --> 0:05:58.800 in terms of number of visits. 0:06:01.040 --> 0:06:04.200 So QSR traffics down a lot the last three years. 0:06:04.200 --> 0:06:06.359 And you know, based on the commentary from the companies 0:06:06.360 --> 0:06:09.680 we cover, you know linked low income consumers are the 0:06:09.720 --> 0:06:13.680 biggest issue, right And so is it just the cumulative 0:06:13.760 --> 0:06:17.400 effective inflation that you mentioned on that cohort. 0:06:17.000 --> 0:06:20.120 Or are there some deeper issues in QSR? 0:06:21.120 --> 0:06:26.360 Well, think about you know where you're eating options are, right, 0:06:26.440 --> 0:06:28.840 So there's kind of a hierarchy in terms of cost. 0:06:29.240 --> 0:06:31.120 The cheapest way to eat is to eat at home, 0:06:31.279 --> 0:06:35.280 So that's grocery, all right. The next level is quick 0:06:35.320 --> 0:06:38.680 service restaurants or fast food, and then above that is 0:06:38.720 --> 0:06:42.760 fast casual, and then you get into casual dining and 0:06:42.800 --> 0:06:47.039 then really fine dining things like that. But fast food 0:06:48.200 --> 0:06:52.800 accounts for about fifty percent of all restaurant revenues. Of 0:06:53.000 --> 0:06:57.040 all restaurants, about half of all revenue is generated by 0:06:57.080 --> 0:07:01.359 fast food, and almost three orders of all visits to 0:07:01.440 --> 0:07:05.560 restaurants are to fast food restaurants. So fast food is 0:07:05.600 --> 0:07:09.560 this huge segment, and they became that big for two 0:07:09.680 --> 0:07:15.640 primary reasons, for value and convenience. Those are the primary 0:07:15.720 --> 0:07:20.040 need states that fast food fulfills. You either don't have 0:07:20.080 --> 0:07:23.760 the money or you don't have the time. So as 0:07:23.800 --> 0:07:26.520 the industry grew and ballooned in all these different chains, 0:07:26.520 --> 0:07:29.080 you know, starting way back when with an W and McDonald's, 0:07:29.080 --> 0:07:30.800 and you know even Taco Bell back in starting in 0:07:30.840 --> 0:07:34.600 nineteen sixty two, then burg King and all of these chains, 0:07:34.920 --> 0:07:38.000 they were fulfilling either a value or a convenience need. 0:07:39.280 --> 0:07:41.920 So if you look what's going on now is because 0:07:41.920 --> 0:07:44.680 of all the inflation that has taken place over the 0:07:44.760 --> 0:07:49.320 last several years, restaurants. Fast food restaurants, they have a 0:07:49.360 --> 0:07:51.840 lot of labor and they had a lot of ingredient 0:07:51.920 --> 0:07:55.040 inputs that were inflating at a very high rate. Right, 0:07:55.080 --> 0:07:58.080 we come out of COVID and there wasn't enough labor, 0:07:58.600 --> 0:08:03.640 so labor at restaurants and hotels, so hospitality labor got 0:08:03.760 --> 0:08:07.360 very expensive. And the what did the companies do, Well, 0:08:07.360 --> 0:08:10.640 they just raised price. Right, their input costs or their 0:08:10.680 --> 0:08:13.360 food costs or way up as well, so they raised 0:08:13.720 --> 0:08:16.679 raised price even more. So here you have this fast 0:08:16.680 --> 0:08:20.880 food industry, raised tons of price and yes, transactions were 0:08:20.920 --> 0:08:24.600 down some, but they were making more money. You know, 0:08:24.600 --> 0:08:28.240 they were able to basically take those price increases with impunity. 0:08:28.800 --> 0:08:32.920 Why because consumers were not price sensitive. We come out 0:08:32.920 --> 0:08:36.480 of COVID, nobody cared. People had lots of money, right, 0:08:36.559 --> 0:08:40.800 you know, five trillion dollars of stimulus money pays down 0:08:40.840 --> 0:08:44.280 credit cards, people put it in the bank. They couldn't 0:08:44.320 --> 0:08:47.280 spend it on you know, things to do, so they 0:08:47.280 --> 0:08:50.000 bought everything on Amazon, or they bought houses. But they 0:08:50.040 --> 0:08:53.160 had a lot of excess savings and resources, so they 0:08:53.200 --> 0:08:55.480 didn't care when people came out of COVID. They just 0:08:55.520 --> 0:08:57.679 wanted to do what they wanted to do, and if 0:08:57.720 --> 0:09:01.080 restaurants were a lot more expensive. Sobit I have the 0:09:01.120 --> 0:09:03.440 money either on my credit card, you know the capacity 0:09:03.480 --> 0:09:05.120 of my credit card, or have the money in the bank. 0:09:05.440 --> 0:09:07.880 Well that's no longer the case. If you look at 0:09:07.920 --> 0:09:10.240 what's happened the COVID money has been depleted for the 0:09:10.280 --> 0:09:13.560 most part, and credit card debt is at an all 0:09:13.600 --> 0:09:17.920 time high. It's like almost one point two trillion dollars 0:09:18.280 --> 0:09:23.120 of credit card debt in this country. And so they've 0:09:23.120 --> 0:09:26.480 had to cut back and it really hit us January 0:09:26.480 --> 0:09:29.160 of this year, all of a sudden, you started seeing, 0:09:29.800 --> 0:09:31.679 you know, businesses were, you know, people are starting to 0:09:31.679 --> 0:09:34.360 put up negative same store sales growth, which means their 0:09:34.360 --> 0:09:38.480 transaction growth was significantly lower because everybody still were taking price. 0:09:39.400 --> 0:09:43.439 So it was a in reality, people just ran out 0:09:43.480 --> 0:09:46.800 of money and so they were forced to, you know, 0:09:46.840 --> 0:09:50.760 make cutbacks. And by the way, restaurants are the number 0:09:50.760 --> 0:09:54.720 one way consumers cut back. If they're cutting back, it's 0:09:54.800 --> 0:09:56.679 restaurants spending the number one way. 0:09:57.280 --> 0:10:00.400 Yeah. Yeah, you shared that survey data that you did. 0:10:00.240 --> 0:10:02.960 With me, and so some of our clients will be 0:10:03.000 --> 0:10:06.360 familiar with the with the fact that you know, seventy 0:10:06.400 --> 0:10:10.520 four percent of financially concerned customers cut back at restaurants, right, 0:10:10.679 --> 0:10:13.240 So that's why we've called it the canary and the 0:10:13.240 --> 0:10:17.560 coal mine for for quite some some time. Man, Yes, yes, 0:10:18.160 --> 0:10:20.480 And you know you're talking about value a bit here 0:10:20.520 --> 0:10:24.320 with QSR. You know, would you say that that, you know, 0:10:24.400 --> 0:10:27.720 Fast Casual now is kind of got a bigger lead 0:10:27.760 --> 0:10:30.760 now in terms of value for the money on QSRs. 0:10:31.040 --> 0:10:36.200 Well, it's interesting if both value and affordability. So the 0:10:36.280 --> 0:10:39.320 way we ask the question, we start with affordability, right, 0:10:39.400 --> 0:10:41.079 and we use a you know, we use a scale 0:10:41.160 --> 0:10:45.520 like a traditional research scale. But affordability has been declining 0:10:45.760 --> 0:10:51.400 across Fast Casual and QSR since January, so it's been 0:10:51.440 --> 0:10:54.400 going down and it's even affordabilities lower in Q three 0:10:54.440 --> 0:10:57.080 than it was in Q two across almost every brand, 0:10:57.440 --> 0:10:59.400 I mean even big brands that are doing fairly well, 0:11:00.040 --> 0:11:03.160 their affordability and value for the money scores are continuing 0:11:03.200 --> 0:11:07.319 to deteriorate. But as it released to Fast Casual versus QSR, 0:11:08.360 --> 0:11:10.760 you have to think about why people were going to QSR. 0:11:11.200 --> 0:11:15.280 People are going to QSR again for value inconvenience, and 0:11:15.600 --> 0:11:19.600 QSR is no longer of very good value. I mean, 0:11:19.720 --> 0:11:22.040 you know, not to pick on McDonald's, but you know 0:11:22.240 --> 0:11:26.400 a basic you know, big mac combo meal. It's like, 0:11:26.520 --> 0:11:31.199 you know, between twelve and fourteen dollars. That's a lot. 0:11:31.559 --> 0:11:36.800 And the real issue is the cost of sales. The 0:11:36.840 --> 0:11:41.240 average cost of sales across fast food restaurants today is 0:11:41.520 --> 0:11:44.120 somewhere in the neighborhood of you know, twenty three to 0:11:44.160 --> 0:11:48.160 twenty seven percent, which means if I'm a consumer and 0:11:48.240 --> 0:11:51.200 I go and spend a dollar at a fast food restaurant, 0:11:51.360 --> 0:11:54.880 I'm only getting about twenty five cents worth of food. Right, 0:11:54.880 --> 0:11:57.520 And I remember I was going to fast food. I 0:11:57.640 --> 0:12:00.760 built it into my routine because I got a lot 0:12:00.760 --> 0:12:02.920 of food for the money. Right. It may not as 0:12:02.960 --> 0:12:06.120 been as good as fast casual or casual dining, but 0:12:06.160 --> 0:12:09.240 it was a lot cheaper and it was a lot faster. Right. Well, 0:12:09.280 --> 0:12:12.160 it's not very cheap anymore. So if you think about 0:12:12.200 --> 0:12:15.120 fast casual, it might be a little bit more expensive 0:12:15.160 --> 0:12:17.240 in terms of price point, and by the way, that's 0:12:17.280 --> 0:12:19.640 not always the case, but it might be a little 0:12:19.679 --> 0:12:22.640 higher in terms of price point. But consumers will say, 0:12:22.640 --> 0:12:25.280 they do the math. It's what you get for what 0:12:25.400 --> 0:12:27.880 you pay. So while it might cost just a little 0:12:27.880 --> 0:12:31.280 bit more, their perception of quality is much higher in 0:12:31.400 --> 0:12:36.040 fast casual, and the service experience is generally better fast casual. 0:12:36.120 --> 0:12:38.240 So again, what you get for what you pay. And 0:12:38.280 --> 0:12:40.520 now all of a sudden, fast food no longer has 0:12:40.559 --> 0:12:44.520 an advantage over a fast casual, right, So there's that 0:12:44.640 --> 0:12:48.640 value dynamic. Now let's think about something else. Let's talk 0:12:48.679 --> 0:12:53.040 about the convenience side of things. The number one asset 0:12:53.200 --> 0:12:57.280 that fast food restaurants typically have is a drive through. 0:12:58.280 --> 0:13:02.479 Drive through is the ultimate in America culture, where everybody's 0:13:02.480 --> 0:13:05.280 in their car driving around, going to work, you know, 0:13:05.559 --> 0:13:09.760 driving on vacation, doing errands. Having a drive through was 0:13:09.800 --> 0:13:13.000 a very important asset still is still is an important asset. 0:13:13.520 --> 0:13:18.760 But now people have mobile apps and mobile apps. You know, 0:13:18.840 --> 0:13:21.320 you can order from any restaurant and they will bring 0:13:21.360 --> 0:13:24.000 the food to you. So if you think about like 0:13:24.040 --> 0:13:28.319 this perfect storm of you know, post COVID, now a 0:13:28.320 --> 0:13:30.600 lot of people are still working from their homes, they 0:13:30.640 --> 0:13:33.680 are not driving as many miles, So all of a sudden, 0:13:33.720 --> 0:13:37.160 you have, you know, the mobile device. That secular trend 0:13:37.200 --> 0:13:42.520 of mobile is kind of in some ways neutralizing the 0:13:42.600 --> 0:13:47.560 advantage that traditional fast food restaurants had over fast casual. 0:13:48.520 --> 0:13:52.320 It makes sense, and you can access value through those 0:13:52.360 --> 0:13:53.360 mobile apps as well. 0:13:54.360 --> 0:13:57.160 Yeah, so drive through traffic's been down pretty big, right. 0:13:58.559 --> 0:14:01.560 Yeah. If you look at a New Management Solutions RMS, 0:14:01.960 --> 0:14:05.280 they publish a newsletter and they're their data is showing 0:14:05.320 --> 0:14:10.240 that within QSR that drive through traffic is down double 0:14:10.240 --> 0:14:14.560 digits this year and double digits last year. So the 0:14:15.080 --> 0:14:17.320 even though traffic is down, you know, call it two 0:14:17.360 --> 0:14:20.080 to three percent in fast food right now, they're drive 0:14:20.120 --> 0:14:23.000 through traffics down ten. So if you're a if you're 0:14:23.040 --> 0:14:26.200 a fast food concept and you're writing a strat plan 0:14:26.760 --> 0:14:30.080 for a fast food company, and you show that you 0:14:30.120 --> 0:14:35.000 are materially losing value and you're losing business in the 0:14:35.080 --> 0:14:39.480 drive through, which I then interpret as we're losing our 0:14:39.640 --> 0:14:43.800 convenience advantage, value and convenience. That's not a good trend 0:14:44.000 --> 0:14:45.280 for that that segment. 0:14:45.920 --> 0:14:46.120 Yeah. 0:14:46.120 --> 0:14:47.800 And a couple of things that spoke out both in 0:14:47.840 --> 0:14:50.000 the survey you sent to me and then also when 0:14:50.040 --> 0:14:53.000 we spoke is that you know, gen Z is less 0:14:53.160 --> 0:14:56.680 interested in cars, and car culture used to be such 0:14:56.720 --> 0:15:00.240 a bigger part of American culture, but you know, not 0:15:00.280 --> 0:15:01.320 really the case anymore. 0:15:02.080 --> 0:15:03.880 Yeah, that's right. I mean, I don't know about you, 0:15:03.920 --> 0:15:06.640 but I got my driver's license the day I turned sixteen. 0:15:06.920 --> 0:15:10.000 I mean the day I turned sixteen. It was like 0:15:10.200 --> 0:15:13.160 that was the right of passage, right, that was your 0:15:13.520 --> 0:15:16.080 you know, your venue to freedom and independence. It was 0:15:16.120 --> 0:15:18.960 a driver's license. And you know, that's it. You're out 0:15:18.960 --> 0:15:21.160 the door, and you know, all right, mom and dad, 0:15:21.200 --> 0:15:23.800 I'll see you when I get home whenever. Right, And 0:15:23.880 --> 0:15:28.440 so that was a really important you know, link to 0:15:28.840 --> 0:15:33.000 our social interactions, right cars, and then of course eating 0:15:33.040 --> 0:15:35.160 as well, it always is. Eating has always been part 0:15:35.200 --> 0:15:39.720 of you know, how we socialize as humans. But but 0:15:39.840 --> 0:15:42.960 if you're if you're a Gen Z and even millennials 0:15:42.960 --> 0:15:46.040 to some extent, many were not in a big hurry 0:15:46.080 --> 0:15:49.360 to get their driver's license. And look at with with 0:15:49.720 --> 0:15:51.600 you know, the Internet, which didn't exist when I was 0:15:51.640 --> 0:15:54.760 a kid, but you know social media platforms that that 0:15:54.840 --> 0:15:56.880 you get a lot of interaction there, you get a 0:15:56.920 --> 0:16:00.440 lot of self worth there, things that were not important. 0:16:00.480 --> 0:16:03.040 One the extras and the Boomers were really young, but 0:16:03.360 --> 0:16:06.360 the Millennials and the Gen zs, it really is about 0:16:06.720 --> 0:16:10.680 social media and being an influencer and creating content. You 0:16:10.680 --> 0:16:13.080 don't really need a car. Right, If you don't need 0:16:13.080 --> 0:16:14.840 a car, then you're not using to drive through. So 0:16:15.440 --> 0:16:19.520 generationally it is also not a good trend for the 0:16:19.680 --> 0:16:24.520 fast food segment overall. It really helps, i said, neutralize 0:16:24.600 --> 0:16:28.280 the advantage that fast food had over fast casual. And 0:16:28.360 --> 0:16:31.000 if you look at some of the really popular brands 0:16:31.160 --> 0:16:34.800 with gen Z right now and millennials, they're the Chipotles, 0:16:35.520 --> 0:16:40.360 they are the wingstops, raising cane Zaxby's brands like that 0:16:40.800 --> 0:16:44.800 which are doing very well, and even Starbucks to some extent, 0:16:45.000 --> 0:16:46.920 and we could talk about that a little bit later, 0:16:47.600 --> 0:16:50.680 but they also have a relatively younger consumer base, very 0:16:50.680 --> 0:16:53.880 close to Taco Bells actually, but not as young as 0:16:53.960 --> 0:16:56.920 Chipotle does. But they have a young consumer base. And 0:16:57.040 --> 0:17:01.160 again think about the historically how wrong the Starbucks mobile 0:17:01.160 --> 0:17:04.360 app is and their ability to bring in younger users, 0:17:04.480 --> 0:17:06.119 especially over the last several years. 0:17:06.400 --> 0:17:09.720 Yeah, it's interesting. Interesting, man, It's like the pandemic, give 0:17:09.760 --> 0:17:10.480 it and then. 0:17:10.640 --> 0:17:13.480 Take it away for QSR because right, because it's like 0:17:13.520 --> 0:17:15.359 if you had to drive through, you were still you 0:17:15.400 --> 0:17:18.400 were you killed it coming out of the pandemic, right, 0:17:18.400 --> 0:17:20.639 But then at the same time, a lot of these 0:17:20.720 --> 0:17:25.600 consumers were taught to use the apps and order online 0:17:25.760 --> 0:17:27.919 and just have the food delivered to them. And so 0:17:28.520 --> 0:17:31.280 you know, that advantage just gone away pretty quick, man. 0:17:31.520 --> 0:17:34.360 You got this industry moves fast man, Right. 0:17:34.560 --> 0:17:37.160 You know there's a there's an old adage or insight. 0:17:37.960 --> 0:17:42.560 Actually it was from the former chairman of PEPSI used 0:17:42.560 --> 0:17:46.400 to say this a lot. He'd say, average is awful. Right. 0:17:46.520 --> 0:17:49.080 Average is awful not only because it doesn't push you 0:17:49.119 --> 0:17:52.520 to attain high levels, but in the world of consumer insights, 0:17:53.119 --> 0:17:56.960 average is awful because it hides what's really going on. Right. 0:17:57.080 --> 0:18:01.280 So if you look at the publicly traded restaurant concepts 0:18:01.320 --> 0:18:04.880 out there over the last few years, they're killing it, right, 0:18:04.880 --> 0:18:08.360 they're killing it. Yeah, traffic's been down, but their revenues 0:18:08.359 --> 0:18:12.120 are hitting all time highs. Their unit level economics are unbelievable. 0:18:12.560 --> 0:18:16.600 Their franchisees for most of the major chains, we're making 0:18:16.640 --> 0:18:19.160 more money than they've ever made. Right. They got their 0:18:19.160 --> 0:18:22.400 financing at historically low rates, so they could lever up 0:18:22.520 --> 0:18:27.000 like crazy and expand, right, and the average performance out 0:18:27.000 --> 0:18:29.960 there is hiding what's really going on. And what I 0:18:30.040 --> 0:18:33.840 mean by that is we're seeing earnings per share those 0:18:33.880 --> 0:18:37.440 things moving up, margins going up. But that's all being 0:18:37.560 --> 0:18:43.000 masked because consumers were not price sensitive. They were artificially 0:18:43.400 --> 0:18:46.840 demand was artificially high given the price level of what's 0:18:46.880 --> 0:18:50.160 going out there. Now we're starting to see a reality 0:18:50.200 --> 0:18:53.240 of it, especially starting in January of twenty twenty four, 0:18:53.880 --> 0:18:59.240 traffic going down. Companies posting very very low digit single 0:18:59.280 --> 0:19:02.360 same store saying or negative same store sales, which means 0:19:02.400 --> 0:19:06.440 their traffic is meaningfully lower. The need to start pushing 0:19:06.480 --> 0:19:10.400 on you know, value, you know, and we're seeing that obviously, right, 0:19:10.440 --> 0:19:12.919 you know McDonald's doing their five dollars meal deals. We 0:19:12.920 --> 0:19:15.520 can talk about you know, my outlook on that, because 0:19:15.520 --> 0:19:19.399 I'm kind of bearish on it actually, But you know, 0:19:19.520 --> 0:19:23.240 this is really the pivot point twenty twenty four. You know, 0:19:23.320 --> 0:19:27.960 all the things that were masked in twenty twenty really 0:19:28.520 --> 0:19:31.840 twenty one, twenty two, and twenty three are really now 0:19:31.880 --> 0:19:34.680 coming to a pivot point in twenty twenty four. And 0:19:34.720 --> 0:19:38.040 I believe in twenty twenty five will be a difficult 0:19:38.119 --> 0:19:40.640 year in the restaurant space for many brands. 0:19:41.160 --> 0:19:44.159 Okay, so why don't you talk about McDonald's, right, like 0:19:44.200 --> 0:19:47.399 the five dollars meal deals. It seems like they're trying 0:19:47.400 --> 0:19:50.960 to re establish their position on value. They've always, you know, 0:19:51.119 --> 0:19:54.720 been a great provider of value due to their scale. 0:19:55.359 --> 0:19:57.680 You know, what's your view on the five dollars meal 0:19:57.720 --> 0:20:00.359 deal and just your view on McDonald's. 0:20:01.080 --> 0:20:04.479 Sure, well, the five dollars meal deal is, you know, 0:20:04.520 --> 0:20:07.639 I don't know exactly how they chose the specifics. I 0:20:07.680 --> 0:20:10.520 know this much, Right, in order to reduce the break 0:20:10.600 --> 0:20:15.160 even associated with offering a discounted product, right, they had 0:20:15.200 --> 0:20:18.520 to include items that are not super high mix sales mix. 0:20:18.720 --> 0:20:20.359 In other words, the big Max not in there. At a 0:20:20.440 --> 0:20:22.880 quarter pine of with cheese isn't in there. Their most 0:20:22.880 --> 0:20:26.680 popular chicken sandwiches are not in there. So it's kind 0:20:26.720 --> 0:20:31.480 of a it's a it's more like a nod to 0:20:31.600 --> 0:20:34.960 value as opposed to really resolving the value problem that 0:20:35.040 --> 0:20:39.520 McDonald's has. McDonald's has a significant value for the money problem. 0:20:39.720 --> 0:20:44.359 Significant Like, they took a lot of pricing and again 0:20:45.440 --> 0:20:48.320 they made a ton of money. But now what's happening 0:20:48.400 --> 0:20:51.960 is their visitation is going down. So doing a five 0:20:52.000 --> 0:20:56.280 dollars meal deal is to me a you know, it's 0:20:56.359 --> 0:20:58.040 what they want to do and what they need to 0:20:58.040 --> 0:21:00.760 do are two different things. They want to for value 0:21:00.880 --> 0:21:04.159 but not have any impact of margins. But that's not 0:21:04.200 --> 0:21:06.080 what they need to do. What they need to do 0:21:06.400 --> 0:21:09.280 is give more food for the money their cost of sales. 0:21:09.320 --> 0:21:12.360 And again I don't know the specifics for that brand. Again, 0:21:12.440 --> 0:21:14.320 McDonald's a great brand. I'm not in any way taking 0:21:14.320 --> 0:21:16.960 away the profitability or the you know how big an 0:21:17.000 --> 0:21:21.120 Americana it is, but their cost of sales is too low. 0:21:21.720 --> 0:21:25.080 Consumers want more food for the money, right, So the 0:21:25.119 --> 0:21:29.960 five dollars meal deal is a nod now our insight platform, 0:21:30.560 --> 0:21:36.920 we saw that in Q two that McDonald's three month reach, 0:21:37.160 --> 0:21:39.879 so the percent of consumers that have been in McDonald's 0:21:39.880 --> 0:21:43.000 in the past three months, we saw that go up 0:21:43.840 --> 0:21:50.240 in Q Q. Yeah, Q two versus Q two year 0:21:50.240 --> 0:21:52.359 ago just a little bit, but now we're seeing it 0:21:52.440 --> 0:21:55.920 lower than prior year, right, And we're looking at their 0:21:55.960 --> 0:21:58.919 affordability and value for the money scores and they have 0:21:59.040 --> 0:22:02.199 not materially changed that five dollars meal deal did not 0:22:02.400 --> 0:22:08.240 materially change consumer's net perceptions of affordability or value for McDonald's, right. 0:22:08.280 --> 0:22:11.080 So that brings me to the next point, which is 0:22:11.200 --> 0:22:15.040 how else do brands offer value out there? And that 0:22:15.200 --> 0:22:18.360 is really through their mobile app. So you can if 0:22:18.359 --> 0:22:20.520 you download the McDonald's mobile app, you can get some 0:22:20.560 --> 0:22:22.960 pretty decent deals on it. Right, you buy a six 0:22:23.000 --> 0:22:25.800 piece McNugget, you get one free. All right, Yeah, it's 0:22:25.840 --> 0:22:29.000 you know, it's five and a quarter, but you get 0:22:29.000 --> 0:22:30.919 twelve for five and a quarter, So that's that's not 0:22:30.960 --> 0:22:35.960 a bad deal. Right. Here's the problem. McDonald's largest age 0:22:35.960 --> 0:22:41.120 cohort is over forty five, and by the way and growing, 0:22:41.760 --> 0:22:44.320 the percentage of past month McDonald users that are over 0:22:44.359 --> 0:22:48.320 forty five is significantly higher than the percentage of their 0:22:48.520 --> 0:22:51.440 past month users that are under forty five. So let 0:22:51.440 --> 0:22:55.480 me translate, McDonald's is more about gen X and boomers 0:22:56.600 --> 0:23:00.320 than they are about Gen Z and millennials. Right, and 0:23:00.400 --> 0:23:05.280 guess who uses mobile apps? Gen Z and millennials at 0:23:05.280 --> 0:23:11.159 a significantly higher rate than Gen X and boomers significantly higher. 0:23:11.680 --> 0:23:17.399 So McDonald's largest cohort is gen X and boomers. Right. 0:23:17.960 --> 0:23:21.720 They aren't really getting access to value to the mobile 0:23:21.720 --> 0:23:25.359 app because they don't use it as much. So again, 0:23:25.600 --> 0:23:28.480 I think what McDonald's is going to need to do 0:23:28.920 --> 0:23:32.359 is they're going to have to make a material investment 0:23:33.240 --> 0:23:36.600 in their cost of sales in order to legitimately bring 0:23:36.640 --> 0:23:42.240