Why McDonald’s success sets off economic alarm bells
Welcome to Buy/Sell/Hold, Marker’s weekly newsletter that’s 100% business intelligence and 0% investment advice. Each week, our writers Steve LeVine and Rob Walker make sense of the most important developments in business right now — and give them a Buy for clever moves or positive trends, a Sell for mistakes or missed opportunities, or a Hold if they’re noteworthy but too early to call.
🍟 Fast casual’s domination is over 🍟
The Buy/Sell/Hold Analysis
If you’re looking to find somebody who is optimistic about the future, you might want to ask a McDonald’s franchisee. According to the latest survey of that group by Kalinowski Equity Research, they’re more upbeat than they have been in over a decade. The caveat is that they’re optimistic about the future of McDonald’s.
And Mickey D’s, which saw Q3 U.S. sales rise 5% and shares rise over 16% for the year, isn’t alone. Domino’s, Papa John’s, and Wingstop all recently announced same-store sales up by double digits in the third quarter of 2020, the Wall Street Journal reports, even as independent restaurants have gotten creamed.
This is quite a reversal. As recently as a year ago, it was the fast-food chains that still seemed to be scrambling, trying to keep up with the bougier “fast-casual” boom (the decade’s “most important food trend”). Led by the likes of Chipotle and Shake Shack, these chains leveraged healthier options, superior ingredients, and quasi-cosmopolitan flair to woo consumers who would pay a little bit more to feel a little less guilty. In part, fast-casual was a corrective to decades of fast-food dominance — and an informal indicator of good economic times.
But now it’s Chipotle and Shake Shack that are scrambling, or rather, fast-tracking the least farm-to-table flex yet: the drive-thru. Shake Shack will open its first drive-thru in 2021 along with at least eight new walk-up windows, and Chipotle, which opened its 100th drive-thru in July, plans on opening another 80 to 100 “Chipotlanes” a year from now. Starbucks, struggling with the disappearance of crucial office-worker customers, is also pivoting to drive-thrus as its more fast-foody rival Dunkin’, after an early-pandemic dip in sales, has seen its market value soar.
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Other fast-casual chains are borrowing fast-food ideas, too — like soup, salad, and sandwich chain Panera’s recent introduction of pizza, the king of delivery menu items, or Pret A Manger, which has amped up its food delivery operations and is trying to lure customers with unlimited coffee subscriptions.
By now it’s clear that the fast-foodization of the restaurant industry is more than just a fleeting pandemic response. In fact, it can be taken as an informal economic indicator of its own — a wager on hard times remaining hard, even after the virus becomes more manageable. While the Commerce Department’s latest GDP number will be spun as signaling a V-shaped recovery, unemployment numbers remain bleak, spending has slowed, and consumer confidence is slipping.
No offense to the Golden Arches, but that bright future for McDonald’s, it turns out, isn’t particularly great news for the rest of us.
Verdict: Sell
— Rob Walker
⚡ Lightning Round ⚡
⚡ TikTok’s partnership with Shopify isn’t breaking new ground — which may be exactly what it needs. On Tuesday, the social video network announced its TikTok for Business ad platform was being added to the Shopify dashboard, making it easier for Shopify’s merchants to create campaigns on TikTok. According to Modern Retail, this partnership — similar to ones Shopify has with Snapchat, Facebook, and Pinterest — may signal to digital advertisers that despite TikTok’s geopolitical strife and leadership turnover, it is a substantial social media rival that will survive its tumultuous year. And, just like every other big social platform, it’s also eagerly seeking new sources of ad revenue. Hold.
⚡ The mass remote work migration is real, and it could end the supremacy of coastal hubs. On Thursday, Upwork published a report based on a survey of 20,000 Americans that claims 14 million –23 million U.S. households intend to relocate as a result of working remotely, with 20.6% of those planning to move currently living in a major city. If companies are expecting an easy transition back to the office post-vaccine, they may want to start planning on digital holiday parties well past this December. Meanwhile, companies with NYC and SF headquarters should expect to see talent disperse to more livable tech hubs like Austin and Salt Lake City. Buy.
⚡ Google is paying Apple through the nose for search engine exclusivity, but the government may turn off the spigot. A Justice Department antitrust lawsuit filed last week against Google targeted, in part, the tech giant’s payments to Apple for making it the default search engine on products like iPhones — payments which, according to the New York Times, total an estimated $8 billion to $12 billion per year (14% to 21% of Apple’s annual profits). Meanwhile, with Google entering a potentially long, ugly legal battle, the Financial Times reports that Apple is stepping up development of its own search engine alternative — the kick in the pants it needs to finally build a viable rival. Hold.
⚡ Even with our costumes stuck in the back of the closet, Halloween candy sales are up this year. Given the difficulty of trick-or-treating in the pandemic, even the candy companies expected a slump. But American consumers apparently still want their candy binge — and bought 8.6% more Halloween candy than last year, according to data cited by the National Confectioners’ Association. Either parents are stocking up to dole out the candy at home this year, or we’re all getting a little too comfortable in our sweatpants. Buy.
📈 The Number: $50.3 billion
The amount retail investors deposited for a chance to win shares in a lottery tied to the IPO of Big Hit, the parent company of K-pop group BTS.
In the last few years, K-pop has grown into a bonafide international phenomenon, and the boy band BTS is arguably the genre’s biggest act. Big Hit Entertainment, the agency behind BTS, went public on October 15 in what would be South Korea’s largest initial public offering in three years. The IPO was heavily oversubscribed by retail and institutional investors, thanks largely to excitement from BTS stans, causing its share price to jump by more than 130% soon after it debuted on the market.
However, all that excitement was short-lived, as institutional investors quickly began selling off their shares, causing the stock to plummet over the next few days. Savvier investors might have spotted weaknesses that K-pop fans didn’t: While Big Hit Entertainment is behind the world’s most popular K-pop group, it is also entirely dependent on them, with almost 90% of its sales coming from BTS. What’s more, the members of BTS may soon have put their music careers on hold to join South Korea’s two years of mandatory military service. Big Hit has been searching but has so far been unable to add another group to its roster with star power.
Institutional investors who cashed out at the top of the market are laughing all the way to the bank. But while fans who excitedly bought into Big Hit’s IPO might be disappointed with the stock’s performance, the K-pop standom seems to be preoccupied with other things at the moment — like fighting QAnon.
— Kaushik Viswanath, Senior Editor, Marker
📖 Longread of the Week: An inside look at the strange, addictive, and lucrative stock market for politics, where traders bet big on who will win the White House.
🔎 Marker’s New Fixation 🔎
Sitting posture is always important — so says my chiropractor — but never as much as it is now, when our commute consists of traveling from the desk to the couch. If you’re looking to take some stress off your tailbone, you can mess around with standing desks and desk bikes, or: the Scorpion, a $3,299 “computer cockpit” that screams Dark Ages-meets-James Bond-villain. The Scorpion is a six-foot-eight, 265-pound carbon steel chair that looks, well, like a giant electronic scorpion, with a computer monitor resting on the end of the tail hanging over its seat. It can be positioned at six different angles that allow you to recline, lie down, or sit up straight as you Zoom, play video games, fill in spreadsheets, or take a catnap. It’s an all-in-one workstation straight out of The Matrix built for pro-gamers and coders with cash to burn, but after seven months of balancing my laptop on a stack of books, I can see the appeal of taking out a line of credit to buy a scary metal fainting couch.
— Jean-Luc Bouchard, Senior Editor, Marker
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