How McDonalds will screw Labour. $MCD, $WEN, $BKW, $YUM, $DNKN, $KKD #QSR

Union activists are making a noisy splashy push to unionize food service workers at Quick Service Restaurants. (QSR) The claim is wages are too low. Correct; the work does not pay very well. The further claim is big quick service restaurants can afford to pay big bucks. Disputable; but also way off the point.

Quick service restaurants are factories deployed close to consumers. Factories need materials, labour and capital equipment. As the cost of labour increases, the cost of capital becomes more attractive. We are in a low-interest rate high wage environment. Capital will trump.

QSR has grown by adding locations, expanding hours and growing the menu. Growth was never driven by labours input. As long as it stayed cheap, it stayed in. When labour gets too expensive it will be factored out.

Don’t believe me? Look at any factory environment which has increasingly turned to robotics to improve productivity. Labour has not kept up. So sad so sorry. In many extreme cases factories left and went off shore.

Labour understands one model and one model only. Organize and then leverage your power at the negotiating table. They have never understood competition and probably never will. They are  fighting yesterdays battles.

Right now technology is working over time to replace disgruntled low productivity workers.

The labour issues may become the silver lining for many quick service restaurants seeking the next thing.

Moral of the story. Stay in school, acquire skills, develop a positive can do attitude and add value. The world is Darwinian and will eventually weed out the inadequate.

In the mean time if I was running Quick Service Restaurants I would be worried about the nutritional quality of my offering. Health consciousness is growing stronger every day.

George Gutowski writes from a caveat emptor perspective.

Wendy’s Non Food Refresh Gamble. Deep Value? $WEN $MCD $YUM


Image via Wikipedia

Wendy’s Company (Nasdaq:WEN) reported Q4 and year end numbers announcing same store increases and all time highs for average unit volume. Investors many be pondering is this a deep value play a la Warren Buffett. Lets go through some of the upcards.

Wendy’s is the third largest Quick Service Restaurant (QSR) chain behind McDonald’s (NYSE:MCD) and Yum Brands (NYSE:YUM).  Both McDonald’s and Yum Brands are very expansion focused. Wendy’s needs to do something to get back into the game. A refresh has been long anticipated. Despite this being an earnings announcement Wendy’s President and Chief Executive Officer Emil Brolick took the opportunity to remind investors that the program is expected to earn 15%. Currently the new Image Activation costs between $750,000 to $850,000. The Wendy’s system has 6,594 stores. You can do the math. Management is quick to point out they are still value engineering the concept.

Emil Broderick also reminded investors that they intended on using their balance sheet and cash flow to pay for the program. Investors are only too aware of the huge $1.3 billion dollar loan that continues to hang around their neck.

They only plan to spend $80 million on new restaurants and remodels.  Not enough to make a difference. So its back to the basics. Food and value. Sure customers like to hang in a nice place. But until customers have compelling value propositions Wendy’s will not have a reliable driver.

Can this company become a deep value proposition? The following will have to be lining up.

  1. Compelling menu’s  that bring back customers and generate good margins.
  2. Decreased debt load releasing cash flow for investor friendly strategies.
  3. Fast paced expansion plans increasing store count. Many markets have been surrendered.

Investors will have to monitor managements heavy lifting and look for well priced entry points. Deep value investments look ugly when purchased.  McDonald’s and Yum look way prettier than Wendy’s.

George Gutowski writes from a caveat emptor perspective.




Starbucks Sneaky Bagel Service $SBUX #starbucks #QSR

Cream cheese on a bagel.

Image via Wikipedia

Starbucks Corporation (Nasdaq:SBUX) is so cool right? So I slip in this morning for a quick Grande [Pikes Peak if you must know] and I decide on a toasted bagel with cream cheese. To go. I’m going to munch in my car and hope for no accidents. Been working for years. I drink my coffee black in part because I am not that complicated. I open the bag to find one toasted bagel, one plastic knife encased in more plastic and two microscopic servings of cream cheese in those individual packs just like jam at a dinner. Except I’m driving a car and this does not meet my needs for immediate nutrition. Trying to be green I am not impressed with the plastic which I must now responsibly re-cycle.

To the VP finance today this was high margin because they did not have to spend labour hours for a barista to spread cream cheese on a bagel. Although you have to question the costs of each packet versus restaurant sized tubs.

To the VP marketing you have a disappointed customer. I expected the food to be ready to eat. I was not aware that I was to be part of the kitchen staff. At your prices I do not expect to spread cream cheese on  a my bagel.

When will customer experience disappointments intersect and overwhelm margins which are not sustainable. Deep strategic issues for Starbucks. I’m still OK with Pikes Peak but not the bagels. Starbucks you are vulnerable. Soon you may have a bagel protest. 

George Gutowski writes from a caveat emptor perspective. This was personal but then it became business. I hold not positions in stocks mentioned in this post. I have no plans to initiate new positions within the next 72 hours.