Morning Brew Daily - High-Income Shoppers Flock to Walmart & Jersey Mike’s $8B Bet to Take On Subway

Episode Date: November 20, 2024

Episode 457: Neal and Toby recap Walmart’s latest earnings report that shows the retail giant is in a very healthy spot heading into the holiday season. Then, private equity firm Blackstone acquired a majority stake in Jersey Mike’s Subs that could make the sandwich chain the new sandwich leader. Next, Jaguar reveals a brand new set of logos and designs, signaling its move to ultra-luxury in the electric vehicle segment. Is this the right move? Meanwhile, Northwestern unveils a brand new stadium project that could put professional sports stadiums to shame. Lastly, the biggest headlines to close out your day. Booyah! Download the Yahoo! Finance App (on the Play and App store) for real-time alerts on news and insights tailored to your portfolio and stock watchlists. Subscribe to Morning Brew Daily for more of the news you need to start your day. Share the show with a friend, and leave us a review on your favorite podcast app. Get your Morning Brew Book of Crosswords HERE: shop.morningbrew.com Listen to Morning Brew Daily Here: https://link.chtbl.com/MBD Watch Morning Brew Daily Here: https://www.youtube.com/@MorningBrewDailyShow Learn more about your ad choices. Visit megaphone.fm/adchoices

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pwc.com slash U.S. slash brew AI. That's pwc.com slash us slash brew AI. Good morning brew daily show. I'm Neil Fryman. And I'm Toby Howell. Today, Jaguar hits the reset button with a completely new identity, but can it save the iconic

carmaker from obscurity? Ben, Jersey mics just got bought out by private equity, and I hope Danny DeVito gets his bag. It's Wednesday, November 20th. Let's ride. Breaking news out of the music world, there is a new record holder for the fastest song to reach one billion streams on Spotify. The soaring retro duet Die with a Smile by Bruno Mars and Lady Gaga reach the mark after just 96 days.

Toby, how many of those have you accounted for? Neil, I might be losing my fastball. I might have to hang up the mic because I have never in my life heard that song even for a second. You know what's worse? I have never even heard the second fastest song to reach a billion. streams either. That is 7 by Juncuk and Lato. But then finally, three, four, and five are

Flowers by Marley Cyrus, especially by Sabrina Carpenter, and stay by Kidleroi. But I apologize to Bruno and to Lady Gaga because I have just been sleeping on your game. Never heard this song before. The song is incredible. I know you just listened to ten seconds just to see if you had heard it and you were like, nope,

nothing. But definitely listen to it. You're going to listen nonstop like I have. It's a really, really good song. Now a word from our sponsor, Yahoo! Neil, did I ever tell you the story of the first stock I ever bought? For as much as we hang out, surprised it never came up. It was Sherwin Williams, the paint company. It was winter at the time, and I thought that buying a paint company before it was time for spring of renovations was a good idea.

Okay, I follow logic. The only issue was, I was a bit of a stock market newbie, so instead of buying 10 shares, I fat fingered it and bought 100 shares at the time that translated to about $40,000. I did not have $40,000 to invest, Neil. Wait, so you bought it on margin? Somehow I bought it on margin and immediately got a notification from my brokerage saying, like, hey, you do not have the funds for this. I don't know, it was all a little bit murky and I panicked sold most of it right away. But the moral of this story is the place to mess around and test new ideas is on Yahoo Finance,

not in your brokerage account. Yahoo Finance has real-time market data so you can construct a portfolio and a watch list without putting real money on the line, much more responsible than college Toby. To avoid mistakes like Tobe's, head to Yahoofinance.com to play around with their portfolio feature. That's Yahoo!finance.com. Own it all. Pay off your home, travel for life, drive a Ferrari. In celebration of the world premiere of the Monopoly Big Board Buckslot Machine by Aristocrat Gaming,

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America just had a divisive election, but if there's one thing that unites everyone in our country, it's that we buy stuff from Walmart. Yesterday, the United States' biggest retailer announced a mammoth third quarter and raised its guidance for Q4, the key holiday shopping season. Shares gained about 3% to hit a new all-time high. They're up more than

63% this year compared to the S&P 500's 25% gain. What's working? Everything. US comparable sales grew 5.3%, crushing expectations of 3.7%. In e-commerce, Walmart is looking like the spitting image of Amazon with online sales up 22%. E-commerce now accounts for 18% of Walmart's total sales. Plus, people are buying not just things for their day-to-day needs, but also those want to have items. After declining for 11 straight quarters, sales of general merchandise, which doesn't include grocery, have increased for the second quarter in a row.

You know, Walmart is looking like Saquan Barkley in the open field ahead of the holiday shopping season. It's got ahead of steam and looking to run some people over. And you know who's driving most of the growth is rich people, the 1% households making over $100,000 a year or more, accounted for 75% of the market share game. that Walmart has made, and this has been a concerted effort by Walmart dating back to 2019 to refresh their items, refresh their stores, to go after wealthier shoppers who might be trading down for more value. They released this premium food brand that we had talked about previously on the show called Better Goods that has things like oat, milk, non-dairy ice cream, and cardamomom

jam and curry chicken empanadas. And that's just one part of their strategy to go after those wealthier shoppers who account now for the second biggest cohort of all shoppers at Walmart. And interestingly enough, that households making $100,000 a year are typically Amazon's bread and butter competitor. So you mentioned Amazon. Walmart is infringing. They're stepping on their turf because Walmart has created this really strong online operation

that is almost rivaling Walmart at this point. You can now buy online. You can pick up at thousands of the stores. They have this program called Walmart Plus, where you get same-day grocery delivery. so they really are trying to take business away from Walmart because Amazon. Sorry, yeah, take business away from Amazon because it has been this big push and poll fight. Walmart's online sales, I've grew 22% in the United States in the last quarter. So it's clearly got its site set on the biggest e-com player as well.

So what could slow Walmart's role? Because it really is on a role, very Saquan Barkley-esque. Well, tariffs, right? President-elect Trump has pledged to enact sweeping tariffs up to. 20% across the board, up to 60% on China. That will impact retailers among the worst of any industry. Walmart CFO came out yesterday and said, look, we are not going to be immune to tariffs. We never want to raise prices. But if tariffs do come down the pipeline, it will probably cause prices to go up for consumers. So the biggest retailer in the United States, making this warning,

it's probably insulated better than other retailers like Target or smaller ones. But it issuing that warning saying consumer prices may go up if these tariffs do come to pass, and that is certainly going to send a shiver up the spine of a bunch of other retailers as well. But as you mentioned, Walmart is actually decently situated to weather tariffs. About two-thirds of its products are actually sourced within the United States. And remember, a lot of Walmart's business actually comes from its grocery division when you're not getting, it's not supplying its groceries from China. that is all source more locally.

So that is one thing that can, 60% of its revenue came from the grocery category last year. So potentially it's a little bit more insulated. And one thing that Walmart CFO has said is that their general merchandising products typically have a little bit of a higher markup than grocery. So they have some wiggle room there. If they wanted to choose to not pass on those cost of customers, they could just eat into their own margin a little bit. So they do have some kind of slack to play with, even though that these tariffs are

something that they have to kind of broadly say like, hey, prices might go up, but they are trying to say, we'll do everything we can not to pass those prices on to consumers where possible. Private equity giant Blackstone took a break from rolling up companies to focus on rolls and hoagies, taking a majority stake in Jersey mics yesterday that values the sandwich chain at around $8 billion, including debt, onions, and extra olive oil and vinegar. Jersey Mikes is the second largest sandwich company in the U.S. buy sales following just Subway, but it didn't start out that way. Back in 1975, Mike's founder, Peter Cancro, opted to skip college and instead borrowed $125,000 at 17 years old with the help of his high school football coach to buy the

sandwich shop he had grown up working at. Fast forward to today, and Jersey Mike's has more than 3,000 locations, but Cancrow and Blackstone think they can reach 10,000 locations eventually. The deal also makes Cancrow one of the 500 richest people in the world with a net worth of $7 billion. so not bad for the 17-year-old. Now Jersey Mike's locations make about $1.4 million per unit more than double that of its rival Subway. So it looks like Blackstone's got themselves a winner. It looks like it. I mean, if I'm Subway, I am sweating.

Subway has 37,000 locations, so a lot more than Jersey Mike's. But as you just mentioned, they don't make nearly as much on a per store basis. Jersey Mike's system sales have boomed an average of 24% over the past five years. The industry average for rivals like Jimmy Johns, Firehouse subs, is 5.2%. So whatever Jersey Mike's secret sauces, and maybe we can get into why it's been so successful, is really leading to tremendous growth. And then getting bought by Blackstone, which has $220 billion, can absolute put a jet fuel on your growth. And they can get to 10,000 locations worldwide from just 3,000 now.

So I do just want to compare Jersey Mikes in Subway once again. Jersey Mikes is selling for $8 billion with 3,000 locations. Subway sold for $9.6 billion with 37,000 locations. So Subway had 12 times more locations, but only sold for about 20% higher value. So clearly, franchisee success, the fact that Jersey Mikes is making $1.3 million per unit is more important than the overall unit count here when you're looking at private equity evaluations. And I think Jersey Mike's had a very successful marketing strategy. People who are in our area and are watching TV might know that Danny DeVito, the actor who is a Jersey native, was hired

in 2022 to be the company's spokesman. And he does a great job on those commercials. So a huge win for the Jersey Shore. I think Jersey Mike's, or his name is not Jersey Mike's, is now probably the second most famous person out of the Jersey Shore after Bruce Springsteen. And this has been just a, a great business success story. I'm sure they will study what Peter Cancrow did from buying this chain at 17 years old with a loan from his football coach to grow it into an $8 billion sub-behemath. I thought you're going to say Snooky was the most second most or the most popular name from Jersey Shore, but you know, Bruce Springsteen works too. The car brand Jaguar is making headlines for dropping a colorful and confusing new ad to announce its refreshed brand.

The only issue is, as many have pointed out, there's no one. cars in it. Instead, a group of models dressed in futuristic get-ups and eye-popping makeup kind of wiggle around to some techno-industrial beat in a sci-fi-looking landscape. There's an elevator involved. It's a whole thing. But Jaguar is hoping it is the start of a long road back to relevance for the once iconic British brand that has been relegated to a footnote of the modern car industry. Jaguar sold fewer than 67,000 cars globally last year, and less than 8,000 in the U.S. down 80% since 2017. So it made the bold choice to switch things up,

introducing new minimalist logos and emblems to replace the well-known growling cat badge. It also dropped a mismatch of new slogans like delete ordinary, live vivid, and copy nothing to try and paint a picture that this ain't your Bond Villains Jaguar anymore. And the lead up to this rebrand, Jaguar Cold Models, which its CEO said had close to zero profitability,

until it was producing just one vehicle, the F-PACE SUV. But now it is replacing everything gas-powered and launching three new high-end EVs instead. So they are really starting over from scratch here, Neil. Yeah, this is not a rebrand. This is a refresh. They're starting over from a clean sheet. They want you to forget everything you knew

or thought you knew about Jaguar, maybe didn't even know, and adopt their new mentality, their new brand of a modern high-end EV company, and they are clearly moving up market here. So for the past few decades, Jaguar has been competing with, BMW and Mercedes. So upper middle class, upper class, but not that, that luxury level.

They want to compete against the Porsche and Bentley's of the world. And it's fascinating that they just don't sell any cars. They stop production for multiple years. They're just producing this one SUV that they're going to stop producing next year. And then completely restart anew in 2026 with just three EV models, a Kootch, a GT coupe, a sedan and a utility vehicle. We don't know whether that's going to be an SUV or not. So they're just going very slim down. They're not going to try to sell a lot of cars at all and just hope to increase the price point

and sell to more affluent customers. One thing exec said about this new image is that they expect to retain just 15% of their existing customers. So that is pretty insane. There is no real plan B here. They're going all in on plan A. They're going all in on luxury EVs. From the ad perspective, though,

a lot of people are saying this is a bit of a head scratcher because if the goal is to sell cars and you show an ad with dancing models, it's going to be hard to maybe sell those cars. So that was not a very controversial take, but Jaguar said like, hey, we're trying to break away from the traditional old money aesthetic of Jaguar to this new, brand new, colorful, bold. I mean, it's like a word salad of phrases that they put out in association with this ad. They said 800 people have worked on this rebrand. And the guy who led it joke that we have not. not been sniffing the white stuff. So really trying to drive up press, really trying to go bold with this. We'll see what the cars actually look like. You were deep in social media about this rebrand.

What was the general reaction? The general reaction was like if you are trying to reintroduce yourself to the world, like you shouldn't do it with some esoteric high level concept. Like you need to just show like, hey, we are still the brand that makes these high quality cars that you guys have used to know us by. So people are saying that they may have just gone too far down the like conceptual path. But this is just the start of the rebrand, so maybe they're obviously going to unveil some cars later. Actually, they are unveiling their first

car at Art Basel this year in early December, so I guess circle your calendar there if you want to see what their team that was sniffing white stuff came up with. Up next, Northwestern is rethinking what a college football stadium can look like. Today we helped a

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One size absolutely does not fit all. Get a quote or find an agent today at thehart.com slash small business. It's time to refresh your yard during spring backyard days at the Home Depot. Get low prices guaranteed on propane grills, starting at $179, like the next grill three-burner gas grill, or get $50 off a select Weber Spirit grill, and bring big flavor to your backyard. Then set the scene with Hampton Bay string lights that bring it all together.

Shop spring backyard days for seven days at the Home Depot. Now through May 6th, Exclusion supplies to homedipo.com slash price match for details. You don't typically associate Northwestern University with college football innovation, but that was before Monday when it revealed the blueprints for a, a new stadium that could literally change the game. Ryan Field, the same name as the old stadium that's on the demolition block, will cost $850 million, making it the most expensive college football stadium ever built. It is the brainchild of the Ryan family, Northwestern's biggest donors,

who will finance the majority of the project with the school chipping in a little. So what's so different about this stadium, you know, besides the NFL level price tag? Well, it's kind of a stadium for ants with a capacity. of 35,000 people. It'll be the smallest stadium in the Big Ten and SEC and has fewer seats than almost any major college venue. That's all about giving the fans who do come an experience that's better than TV. For instance, its vertical cantilever design means that the worst seat in Ryan Field is 100 feet closer to the field than the most expensive seat at Michigan's big house, which has that classic bowl structure. Toby, one of the Ryan's sons, Pat Jr.,

compared existing stadiums to driving a Model T. and that his family was building something for, quote, the world you're moving into. Do you think they're going to accomplish that? Yeah, I mean, it is a bold move to reduce your stadium capacity by 30%. One thing that they did say, though, is that the overall footprint of the property is actually going to be 78% larger,

and that is because they constructed about 200,000 square feet of just shops and, you know, lounge areas and places where you can hang out around the stadium. Because what they observed when they were trying to set out to build this field is that upper bowl seats are just really not that popular. Yes, they are cheaper, but you don't have a great view of the game. So what they found was that people kind of migrate down to hang out because they want to be part of the game day atmosphere, but they want to be closer to the action. So they usually go down to the lower bowl or just hang out near

the concessions area. So they're like, what if we just got rid of that entire upper section, which is the most expensive to build, the lease revenue, and just gave people more places to hang out. So you can see the thought process here of going this smaller, more, you know, fan forward experience. So I think it's a pretty good idea. And another major consideration was monetization and revenue maximization, which are very business terms. So that's the way you have to think in the NCAA now with it becoming more of a, you know, quasi-professional sport. The previous stadium had no, none of those luxury boxes, premium seating, clubhouses, where you really can charge people a lot of money, so they just weren't making that much money. But to make, you have to make

money as a college athletics department now. It's not even a question because coming through the pipeline is a major NCAA settlement that would allow, or that would allow schools to pay athletes directly. That's House First NCAA. It's in the settlement phase right now. If that comes through the pipe, then Northwestern might be on the hook for essentially a $20 million payroll. They need to make money from these stadiums. So what they're going to do is how many college home football games are there in out of 365 games, six days of the year, six or seven. So they created this stadium to not just host football games, but to host high school championships and to host all of these other sort of events, concerts as well, to really monetize a stadium in a way

that they hadn't before. One thing that you did mention is that a lot of the revenue does come from those premium seats, and around 10% of the seats in this venue will be higher-priced premium areas. but those fans will cover 40 to 50% of the revenue each game. So it really is, they're hoping and praying that these higher revenue seats do cover the rest of the kind of the cost of the stadium. And then one thing that was interesting, the typical old Ryan Field had 47,000 seats, but it had one section of premium seeding. This year, the Wildcats played their first four games in a 12,000 seat temporary stadium. but their athletic director said that they actually made more revenue per game in the 12,000 seat arena because of these premium areas than the 47,000 seat arena.

So I can't say enough how much it is important that you have these premium sections because it drives so much revenue. It's less fun, though. It is less fun, unless you have the money to buy the premium. Right, well, what happened with Intuit Dome and Steve Ballmer for the Clippers? I think he did not. He reduced the amount of club seating to create a more fan experience. Then again, he's got more money than God. doesn't really need to, you know, drive revenue maximization like Northwestern with that huge

payroll bill looming. Let's sprint to the finish with some top news headlines. President Elect Trump continued his hiring spree to fill out his administration yesterday. He nominated Cantor Fitzgerald CEO Howard Lutnik, the co-chair of his transition committee to lead the Commerce Department, which is focused on expanding U.S. economic growth and boosting domestic industries. Lutnik was one of those people aiming for the position of Treasury Secretary, so this drops his name out of that bitter contest. Trump also nominated Linda McMahon, the other transition co-chair, and former CEO of W.W.E. as education secretary. And he selected the celebrity TV host, Dr. Oz, to head up the Centers for Medicare and Medicaid. Yeah,

Letnick was aiming for Treasury Secretary, but getting Commerce Secretary is probably a good compromise because you still have a role in promoting economic growth. Dr. Oz might have the most impactful role, though, because he will oversee programs that account for a quarter of the federal budget and also provide health care to around one and two Americans. So he has a big influence over this next administration. And then Lyndon McMahon is interesting, too, because she's been pretty vocal about the fact that higher education has been kind of failing the workforce. So she's been advocating for jobs to require less degrees and then also increased access to technical education, more career-focused education. three vastly different profiles, but three people that Trump kind of thinks are coming from the outside and can help, you know, change things up in Washington. SpaceX's Starship, the biggest rocket ever created, soared on its sixth test flight yesterday, proving that practice makes perfect or at least less explosions. While the super heavy booster managed to avoid going up in flames this time,

its attempt to recreate the chopstick catch it pulled off last launch didn't go to plan with mission conditions forcing a splashdown in the Gulf of Mexico instead. It did, however, succeed in transporting its payload into suborbit. A single banana made the trip and completed the important objective of the test flight, which was reuniting an engine in space for the first time. So all in all, a pretty successful mission sans the chopsticks test. Yeah, but that was the biggest part. I mean, we all wanted to see the chopsticks, right?

We were watching, and when they said, oh, we're not going to do the catch. That was pretty disappointing. But yes, those are the sixth flight of Starship. It seems to be improving every single time. And there were certainly political overtones there as well. President-elect Trump was in Texas, along with his very good buddy. Now, Elon Musk, too, watch Starship take flight. And NASA is very much looking forward to seeing Starship do more of these and complete more successful ones

because they're not going to the moon or Mars without Starship being successful. So it carried its first payload, though, a banana. Banana. A single banana. Maybe eventually soon it will carry some humans. You've had the Mile High Club. Now try the Mile High Burger. Delta announced a first of its kind partnership with Shake Shack to serve its burgers to passengers on some flights. This is a boogie airline we're talking about, so the offer won't be available to everyone. It'll be served for people in first class on domestic flights departing from Boston that are at least 900-mile. long. But if all goes well, Delta says Shake Shack is coming to more airports come 2025.

Toby, I'm excited for this. The only time I have Shake Shack on a plane is when I buy it at JFK's Terminal 4. Bring it on board and make everyone jealous. This is a little risky, though, because Shake Shack doesn't want its brand being associated with, you know, a soggy or rubbery product. They are cooking the burger on the ground. Then they will reheat it in the air. But that has its limitations. That being said, I absolutely. loves Shake Shack. So getting a Shackburger in the sky, it literally might make me fly Delta, although those limitations are

a little bit of annoying. Gotta fly out of Boston, have to be over 900 miles and got to be first class. So you got to go from like Boston to L.A. or Boston to Denver. Let's do it. It's worth it for the Shackburger. Finally, it seems Airbnb's grand plan to let tourists play Gladiator in the Coliseum has

ruffled some Togas in Rome. Italian officials have pushed back against the rental giants plan to turn their World Heritage Site into an Airbnb experience in promotion of the new Gladiator 2 movie coming out. The company said it will select 16 guests to participate in two private events next year where you can submerge yourself in ancient times with sword on shield combat. We are not Disneyland, we are Rome, Italian politician Enzo Foshi said in a statement last

week. Neil, is Airbnb going too far here? I think it's Italy we're talking about. They very much treasure their ancient. monuments. And I was thinking whether this could happen in the United States, because I don't think we have such a level of reverence for our historical buildings. Imagine if someone wanted to throw a rager at Faniel Hall or like a murder mystery at Monticello or if you wanted a tailgate at the Alamo or something. I think we'd be like, sure, whatever. You know, these things are

not that old. We don't care so much. Let's have some fun. So maybe the American mind can't comprehend how much level of tradition is imbued in Coliseum. And also, I think it's just Airbnb. It's an American company coming in and maybe cheapening what they consider and what is like a very, very remarkable building that, you know, that's over 2,000 years old. I mean, it would be sweet. Can you imagine, you know, larping and doing some sword on sword combat in the cause of you? That's why I'm like, let's do it.

I don't live there. So let's do it at the, let's do it at the Fennial Hall. All right, that is all the time we have for today. Thanks so much for starting your morning with us and have a wonderful. Wednesday. For any questions, comments, or feedback, send an email to Morningbrewdaily at morningbrew.com. And if you're enjoying the pod, by all means, spread the love and share it with someone who you think would benefit from a dose of business news in the morning. For anyone who needs some direction, Toby is here with some instructions. I want you to share the podcast with someone

who you do the gladiator experience with in Rome. But what's that? Oh, it's 16 guests. Guess you got to share today's episode with 15 of your closest friends. I don't even have it. 15 close friends. Yes, you do. Good luck, everyone. Okay, let's roll the credits. Emily Milliron is our executive producer. Raymond Lute is our producer.

Olivia Graham is our associate producer. Eugenwa Ogu is our technical director. Billy Minino is on audio. If you're going to Jersey, Mike, snack hair and makeup and number 13 original Italian. Devin Emery is our chief content officer and our show is a production of Morning Brew. Great show today, Neil.

Let's run it back tomorrow.