Marketplace - Private equity’s appetite for restaurants

Episode Date: November 20, 2024

Blackstone just bought a majority stake in Jersey Mike’s, a sub shop with 3,000 locations. Surprised? Don’t be. Since the pandemic started, private equity has been gobbling up restaurants, especially fast-casual ones. But struggling chains and sit-down establishments can also be attractive investments. We’ll chew on why. Also in this episode: Homebuilders are cautiously optimistic and central banks around the globe are nervous about a flare-up of inflation.

Hey, if you're listening to this, I will assume you're at least interested in money, understanding the economy and finances as well. Some of us now want to get the next generation interested as well. Check out Million Bazillion, Marketplace's award-winning kids podcast that breaks down money to help dollars make more sense. Tune into Million Bazillion wherever you find your favorite podcasts. A whole new season is out now. Million Bazillion is presented in partnership with Greenlight, the debit card and money

app for kids and teens. Greenlight helps kids and teens learn to earn safe, spend wisely, and invest. When you sign up for a Greenlight account at greenlight.com slash million. On the program today, housing, robo taxis, and hey, what does this button do? From American public media, this is Marketplace. ["Tuesday to Day"] In Los Angeles, I'm Kyle Rizdall. It is Tuesday to Day.

This one is the 19th of November. Good as always to have you along, everybody. There is, amid all the hubbub over who's in and who's out of which cabinet appointment, there is some actual economic news with which to familiarize you. And for us today, we have chosen a housing. And it's a mixed bag, TBH.

The Census Bureau informed us today that housing starts slid about 3% in October from a month earlier, mostly due to those hurricanes in the Southeast. Before you can start a house, of course, you've got to have a permit to start a house, and those permits were down nearly 8% over a year earlier. On the glass half full side of things, though, homebuilders are apparently feeling a bit more glass half full side of things though, home builders are apparently feeling a bit more, you know, glass half full-ish. The National Association of Home Builders

says its confidence index has been up three months in a row now. Add all that to the well-reported realities of not enough houses, many of which are really expensive, and mortgage rates going back up again. And what you get is Marketplace's Matt Levin reporting that there is still a whole lot of uncertainty in the new home market for both builders and buyers. The Federal Reserve's recent rate cuts have helped Portland, Oregon home builder Justin Wood.

The construction loans he takes out from banks to build townhomes and cottages are cheaper. We are directly tied to the Fed funds, right? So when they come down three quarters of a point, we come down three quarters of a point. You know, it's difference of a few thousand dollars of interest over the course of a year. Nat. The problem for Wood and the entire home building industry is that the mortgage market is tied to interest rates on longer term government debt. And as those rates have gone up the past two months, he's had to keep spending thousands of dollars offering interest rate buy downs and other incentives for new home buyers. Rob Dietz, National Association of Home Builders Economist Rob Dietz at the National Association

of Home Builders says the industry broadly expects mortgage rates to settle down in 2025 and for the pace of new construction to pick up. Ironically, though, that means demand for some key housing materials is rising right now. Dan Dunmoyer, Construction Worker Wages Just a few months ago, the typical price of lumber was around $380, $390 per thousand board feet.

Right now it's up to $440. So that's a notable uptick. Construction worker wages have also gone up this year. Dan Dunmoyer at the California Building Industry Association says he's concerned about how the new administration's immigration policies may push labor costs even higher. People saying, well, I have my green card. I'm able to be here. I just don't want to deal with the hassle.

Maybe part of my family doesn't have it. So I'm just gonna go back to where I come from. About one in every four construction workers in the U.S. is an immigrant. I'm Matt Levin for Marketplace. Wall Street on this Tuesday, tech did fine, otherwise unremarkable. We'll have the details when we do the numbers.

The corporate news of the day comes to us from the land of cold cuts and condiments. The private equity firm Blackstone says it's bought a majority stake in the sandwich chain. Jersey Mike's, the latest in a string of private equity deals in the food service industry since the beginning of the pandemic. Marketplace's Kristin Schwab has more on what's behind those investments in a sector really known for fickle trends and small profit margins. Lyle Ornstein When private equity firms are looking for restaurants to put their money into, they come to people like Tim Powell, a consultant

at Food Service IP. He says he looks for familiar restaurant concepts with a unique touch, like a pizza place he scouted in Chicago. Tim Powell It had such a loyal customer base and had old wood paneling and just sort of the lighting that reminded you of like a 60s steakhouse. These mom and pop places can be good bets for investors, but so can bigger businesses with thousands of locations. Say a chain that has good brand equity, but it may not be operating at full efficiency. SONIA DARA GILLESPIE Investors are looking for room to grow. Maybe the restaurant could expand

abroad or bottle its sauces and sell them at big box stores, all with the goal of becoming profitable enough to go public. Now, that is the story of private equity investing in success. SEAN DUNLOP On the other hand, you see some of these deals with really battered full service brands. Sean Dunlop, an analyst at Morningstar, says struggling businesses, they can be lucrative acquisitions too. And in that case, you're typically looking for hard assets that you can sell. Like property. This has become a bigger piece of private equity investments as more restaurants file

for bankruptcy. Now, you'd think this, the failure rate of restaurants, would be enough to scare private equity away. But Andrew Charles, an analyst at TD Cowan, says the industry hasn't actually seen a lot of disruption. In other words, there's no Amazon of food. I mean, the good news is that people have to eat, they have to eat three times a day. And when they eat out, they increasingly choose fast casual restaurants like Panera or Chipotle, which sparks more investment in fast casual.

The restaurant industry is increasingly going towards a model of food as fuel. Which is maybe why we eat everything out of bowls these days. I'm Kristin Schwab for Marketplace. Oil and gas executive Chris Wright, as President-elect Trump's pick to lead the Department of Energy. The announcement comes as the Biden administration is racing to finalize last-minute grants and loans for its clean energy project. Gene Gabolos is the founder and CEO of a biofuel company called World Energy, and he is hoping to be on the receiving end of some of those loans to help his company produce more sustainable

aviation fuel. SAF is the shorthand there. He and I first spoke about the business of SAF earlier this year as part of our series, Breaking Ground. Mr. Gaboulos, welcome back to the program, sir. Good to have you on. It's good to be here. So as you think about the next four years

in the space in which your company operates, how you feeling? Well, how am I feeling? I am feeling ready to be surprised by things going differently than everyone says. Go on. Well, I'm thinking back to 2016 and it was a very similar situation.

Republicans controlled House, Senate, and the presidency. And a lot of folks in my world were pretty concerned. And it turns out that in the subsequent four years, things went very differently than we would have imagined. And there was a lot of growth in clean energy during Trump 1, and I expect a lot of growth in clean energy in Trump two. You know when we talked, however many months ago it was, one of the things that we talked about was how government investment in sort of kick-starting

sustainable aviation fuel and large parts of what your business does, government intervention was critical. I don't know whether the president-elect will repeal the Inflation Reduction Act and all of the other clean energy provisions or whether he'll claw some money back. What's your level of concern about that? Well, look, there's a lot of speculation about what will happen, and I don't know more than anyone else knows. But I do know that once you really peel back the layers on a lot of this public investment

in clean energy, what you end up having is economic growth. It's got to be seen in the context of global economic competition. And so both public and private investment in clean energy, I fully expect, will continue. Now, will we have some big headlines about things that change? Of course we will. But on balance, I think we're gonna continue to see ongoing investment.

You will, I'm sure, be spending substantially more time in Washington with your lobbyist associates, yes? I am heading there tomorrow morning. All right, so what are you going to do tomorrow? I mean, without naming names, what are you going to do? Who are you going to talk to? Well, look, it's early days. We're just getting nominees.

Have a lot of people to meet for the first time. What we do is not a partisan issue. There's no Republican or Democratic climate. The work we end up doing has actually more growth in red states than in blue states. So this is not as much a red state, blue state thing as many people make it out to be. Well, you're right to point out that Republican and conservative states have gotten a healthy chunk of the infrastructure and clean energy investment that President Biden and the Congress put into place.

But are you really saying that it's not a political issue? Well, I think it's very much a political issue during election cycles. But you know, the way people govern is often somewhat different than the way they're running for office. So yeah, of course there are tons of politics wrapped up in this. And what one day is presented as a clean energy technology, the next day it might be an agricultural economic support technology, but it's the same technology with different slants depending on where the national priorities are.

Last thing, and then I'll let you go, Mr. Wallace. I'm sure you've seen the news that the president-elect is named Chris Wright, who's a straight-up fossil fuels guy to be his secretary of energy. Is he on your call list somewhere? Well, he certainly will be. He's just finding his way around and we're gonna have to just find our way around him, but yeah, certainly will be.

World Energy is company Gene Gaboulis is the CEO. Mr. Gaboulis, thanks for your time, sir. I do appreciate it. It's great to be here, thanks. Coming up. We go through these moments where companies want to take all the buttons away and then put all the buttons back. Make up your minds, people. But first, let's do the numbers.

Dow Industrial is off 120 points today. Three-tenths percent closed at 43,268. The Nasdaq increased about 195 points, one percent, 18,987. S&P 500 gained 23, four-%. 59.16 there. The Department of Justice asked the judge to force Google to sell off its Chrome Internet browser. That's according to Bloomberg, the DOJ sued parent company Alphabet to curb what it claims is a monopoly on the search engine and browser market Alphabet. Nonetheless, elevated 1.6% today. Elsewhere in big tech, Apple ticked up about a tenth percent. Meta climbed 1 and 2 tenths percent. We heard from

Kristin Schwab about the rise of private equity in fast casual restaurants. Chipotle slimmed 1 tenth of 1 percent. Red Ramen Gourmet Burgers slid 6 tenths percent. You're listening to Marketplace. Understanding personal finance can feel like an impossible task, but it doesn't have to be that way. I'm Janelia Espinal, and on Financially Inclined, I'll guide you through simple money lessons that will change your financial future. Learn about credit scores, how to avoid scams, and why you need a savings account. Plus, we explore the brain science behind FOMO and what you can do to make smarter money

decisions. Listen to Financially Inclined wherever you get your podcasts. behind FOMO and what you can do to make smarter money decisions. Listen to Financially Inclined wherever you get your podcasts. This is Marketplace. I'm Kai Rizdahl. Inflation is now globally almost where central bankers want it to be. Almost, but not entirely. Central bankers in Australia and Russia and India have all said that they're worried about it ticking back up.

Canada reported its consumer price index this morning, 2% on the nose, just a tad hotter than people had been expecting. The UK reports October inflation tomorrow. They, by the way, call it the consumer prices index over there because there's more than one price. It is supposed to come in somewhere north of the 2.6% September reading that they had. Marketplace's Henry Epp explains why, despite the progress, central bankers are feeling a bit cautious about the inflation path ahead.

While the world's inflation picture is not terrible, there are problems that could push prices up. Some are on the supply side, says Jonathan Wellburn, a senior researcher at Rand. Either that's coming through energy pressures, pressures from potential conflict scenarios. Take the wars going on in Ukraine and in the Middle East, which could flare up in ways that disrupt energy supplies and agricultural commodities.

There's a global price for energy. You know, a lot of food commodities also globally traded, wheat, rice, corn, soybeans. Bill Emmons is a lecturer at Washington University in St. Louis. There's also the potential for the incoming Trump administration to impose tariffs, which could set off trade wars. That would make some items more expensive in the U.S. And, Emmons says, it could also boost the value of the dollar and weaken other countries' currencies. So as their currencies depreciate versus the dollar, then items that they import that are dollar-denominated, like oil, other foodstuffs, would become more expensive.

So potential trade wars, actual wars, and, oh yeah, the increasing frequency of weather disasters linked to climate change, says Christian Teoh at the University at Buffalo. The efforts actually to rebuild after these disasters happen actually will increase. And then that will increase costs. So while central bankers have good reasons to be wary, Anne Owen at Hamilton College says they're also concerned about their reputations. They're particularly cautious right now because of the recent history where they underestimated inflation and they don't want to make that same mistake again. Declaring victory over inflation only to have it rear its head again, she says, it's not a great look.

I'm Henry Epp for Marketplace. Tesla has been much in the news here the past month or two, thanks in very large part to the politics of its CEO. But it's still a car company that's got to sell cars. And one key differentiator that Tesla's trying to capitalize on is its full self-driving technology, FSD in the vernacular. Over in China, the world's biggest car market for what it's worth. Tesla says it aims to offer that FSD early next year. The company has floated the idea, in fact, of deploying full self-driving first in taxis in China.

But as Marketplace's Jennifer Pak reports, after having road tested, as it were, some robo taxis made by Chinese farms, there could be some fierce competition. There are 16 cities in China testing robot taxis. The self-driving vehicles are mainly confined to a small suburban area in each city, and they usually come with a human driver for safety. Wuhan is the first to allow mostly unmanned robot taxis to operate in a bigger area, including a part of its downtown. To get there, news assistant Charles Zhang and I had to take a taxi driven by a human.

How's it going? Oh, thank you. Hey. What did the taxi driver say? He said that he would never get in an autonomous vehicle. Why? He didn't want to risk his life. China's government actively promotes

the autonomous vehicle industry, but it hasn't published data on safety incidents involving self-driving cars. Eventually, we find a human driver who is willing to test a robot taxi with us. Xiao Weiguo has been driving regular cabs for 14 years. He got into a robot taxi with me and Zhang. It's run by tech giant Baidu. Safety is our top priority. Baidu has the biggest fleet of robot taxis in Wuhan, about 400 cars.

That's a tiny number compared to the tens of thousands of taxis and rideshare cars with drivers in the city. Still, Xiao Weiguo says driverless cabs could threaten his livelihood one day. Once lots of robot taxis go on the market, people like me will lose our jobs. But Ling Zhijun, a rideshare driver from Beijing, is more optimistic about his future. He thinks the layout of Beijing, with lots of narrow streets, filled with bikes and people zigzagging, could limit the role of robot taxis. Mingzhe Jun says the driverless cars seem to stop

every time a pedestrian comes in front. Robot taxis would not be able to drive in the center of Beijing. They would get stuck in the alleys. But Beijing runs an advanced pilot on the city's outskirts to help driverless cars navigate better, by equipping roads and traffic lights with cameras and sensors too, so they can talk to the autonomous vehicles. And this has some safety benefits, says Andrew Stokols, an MIT lecturer on urban planning. Like say there's an 18-wheeler truck blocking a robot taxi's view of an intersection.

If the cameras on the intersection see the traffic's oncoming, say, around that obstruction, they'd be able to alert the car earlier as it's approaching the intersection and it would be able to slow down or brake more smoothly. What isn't smooth? The ordering process for a robot taxi in China. It can take 30 minutes and a number of platforms to get one. Plus, there are designated pickup points that are sometimes few and far between. But once we're inside the driverless robot taxi, it's kind of exciting. And when cabbie Xiao Weiguo got into a robot taxi with us back in Wuhan,

he was excited too and called his friend on the phone. Look, he said, the robot taxi is going pretty fast, even a bit above the speed limit. But then we slowed down once we hit more traffic. And Xiao Weiguo wasn't too impressed with the robot taxi's road skills. See, the car just stopped. If this was during morning rush hour, and it stopped like this,

that would cause a traffic jam. We arrived at our destination 37 minutes later, and paid $5. But without Baidu's deep discounts, the trip would have cost $14. That's a lot more than what Xiao Weiguo's taxi would charge. Plus... The robot taxi doesn't change lanes very smoothly, so it can make passengers feel sick. But he says self-driving technology keeps improving. He just hopes he can get to keep

driving his regular cab until he retires in a few more years. In Wuhan, I'm Jennifer Pak for Marketplace. Once upon a time, your phone probably had buttons on it, right? Actual physical buttons, like 10 of them or more. Your oven had a physical dial. Your car, think about the radio and the air conditioning and the heating buttons for days. And then along came touch screens and digital controls and a lot of those buttons went out the proverbial window.

Now though, they might be making a comeback. Physical controls are reappearing on washing machines and steering wheels. Even Apple, a brand built on a minimalist design ethic, added two new buttons to the iPhone 16. So what is driving that change and what can buttons and interface that honestly sails under the radar for most of us? What can they tell us about how we interact with the world? My name is Rachel Plotnick.

I'm an associate professor of cinema and media studies at Indiana University Bloomington, and I'm the author of Power Button, A History of Pleasure, Panic, and the politics of pushing. I never expected to become an expert on buttons. Initially, I started looking at television remotes, and I thought a lot of power dynamics happened around that. Who gets to hold the remote? Who gets to decide what to watch? But that led me to this bigger topic of how buttons are connected to so many issues in

our society in terms of communication, pick up your phone and push a button to call someone or to text them. In terms of commerce, you know, think about what you do on Amazon. And I actually think there's a tremendous learning curve that comes along with pushing buttons. They seem, on the one hand, very obvious, but I think the learning comes from kind of,

if I push this thing, do I know what to expect when I push it? I mean imagine if you were sitting in a DJ's booth or you were in the cockpit of an airplane or something sure they're just buttons but if you don't know which one to push at which particular moment you could get yourself in a lot of trouble. And so while it does seem like a very simplistic interface I think we could make the argument that buttons can be incredibly complex depending on the situation. There was a moment when I thought we might be doing away

with the concept of the button, and that was one of the earliest impulses I had to research this topic. It was around 2009. Shortly after Apple iPhones were becoming really popular, I saw a lot of headlines in the news about the quote-unquote death of the button. But I do see this kind of cyclical effect, I think, in terms of design, where we go through these moments where companies want to take all the buttons away and then put all the

buttons back. Certainly we've seen that with smartphones, you know, with the move toward touch screens and away from many physical buttons on our devices. But then buttons are often that kind of go-to interface that give us that feeling of agency and control that have a lot of tactile feedback. And so I would be hard pressed to use a button pun to really imagine this kind of total disappearance

of push buttons. And I think we've seen that with a lot of these technologies where they thought this is the end of buttons as we know it. You know, the Microsoft Connect is going to replace the controller. We're going to see VR headsets replace our phones. But personally, I'm not really convinced that that shift is ever going to take place in a totalizing kind of way. Behind every button, there are all these social choices, and it's not just about the technology

itself, it's also about who made the decision for the button to work in that particular way, and what can that tell us about society? Because usually a button is just a stand-in for somebody's labor or certain kinds of organizational processes or certain social decisions. And I think it's really, really important to kind of probe those connections. Rachel Plotnick, an assistant professor at Indiana University Bloomington and an expert, obviously, on all things buttons. Bloomington and an expert, obviously, on all things buttons. This final note on the way out today in which one hates to say I told you so, but, well,

you know. There was a slew of retail earnings reports today generally making plenty of money those retailers are because consumers are still in a spending mood. But on its earnings call this morning, the chief financial officer at Lowe's said that the tariffs President-elect Trump has promised, and this is a quote, certainly would add to product costs. Remember who pays the tariffs, peeps. Our digital and on-demand team includes Carrie Barber,

Jordan Mangy, Dylan Mietinen, Janet Nguyen, Olga Oxman, Ellen Rolfus, Virginia K. Smith, and Tony Wagner. Francesca Levy is the executive director of digital and on-demand. And I'm Kai Rizdal. We will see you tomorrow, everybody.