Motley Fool Hidden Gems Investing - Burgers Rise, Booze Dips

Episode Date: December 6, 2023

The McDonald’s golden arches will be coming to thousands of new spots in the next few years and Brown-Forman feels the ache of slowing growth in the spirits market. (00:21) Bill Mann and Dylan Lewis discuss: - McDonald’s growth plans to hit 50,000 locations and 250 million loyalty members by 2027, and other insights from its investor day. - The sauce Bill wishes would get more love at McD’s. - Slowing growth in the spirit market, and how it is affecting Brown-Forman and Diageo. (12:47) Deidre Woollard talks with Slutty Vegan founder Pinky Cole about building a restaurant chain, leveraging brand partnerships, and investing in the future. Companies discussed: TGT, BYND, SHOO Host: Dylan Lewis Guests: Bill Mann, Pinky Cole, Deidre Woollard Engineers: Dan Boyd Learn more about your ad choices. Visit megaphone.fm/adchoices

Dylan Lewis. Burgers might be getting better and even closer. Motley Fool Money starts now. I'm Dylan Lewis, and I'm joined over the airwaves by Motley Fool Senior Analyst, Bill Mann. Bill, thanks for joining me. Bill Mann. Hey, Dylan, thanks for the invite. Hope you're doing great. I am. And I have to be honest, Bill, I feel like today's show feels a bit like an instant classic. We have two stories and an interview. All of it is about food. Probably one of our favorite things to talk about. So, I am incredibly excited. I hope you're bringing the excitement, too. The gluttony market is ready to be entertained. Why don't we start with McDonald's on the

Gluttony Market. They have their Investor Day this week, and they just revealed some huge growth targets as part of their Investor Day presentations. Bill, targeting 50,000 restaurant locations by 2027, which would be the fastest period of growth in the company's history. They currently have like 42,000 locations. My first question is, does Earth have enough room for 50,000 McDonald's locations? I just want to put this in context a little bit. In the United States, there are about 13,400 McDonald's. And so, obviously, not all of that growth is going to happen in the U.S. In fact, I would suspect that very little of it will be here. So, when they're talking about an additional 8,000 McDonald's, think about all of the McDonald's

all around the United States, and they are building 60% of those in the next couple of years targeted by 2027. They're going to do so worldwide. It's been a tough year for some of the McDonald's markets. I mean, obviously, they're now out of Russia, for example, which was a big market for them. They've de-emphasized China to some degree. But I suspect the latter, in particular, you're going to see a renewed emphasis. I don't know if this has been mentioned to you before, Dylan, but there are more than a billion people in China. There are quite a few, yeah. And I would imagine that there are probably some McDonald's locations that could go there to serve some of those people.

Yeah. They've got several hundred restaurants, McDonald's, throughout China now, but there is actually plenty of room for McDonald's to grow. One of the more interesting things about this investor day was the fact that they dropped this little nugget in. 17 of the McDonald's menu items are billion-dollar brands in their own right. It's incredible. I like that you dropped Nugget there. I don't know if that was on purpose, but the Nuggets are part of one of those 17 brands. It's an interesting way to restate just how powerful the collective brand value of McDonald's is. I'm a little bit angry that hot mustard sauce isn't a billion-dollar brand, because I feel like that is the sole reason that I go into McDonald's, just to get anything with the hot mustard sauce.

But going across the board, they're talking about basically breaking down and building back up not only how people interact with McDonald's through mobile ordering, through delivery even, but also in how these items are made. Yeah, they have a couple different initiatives that tie into some of this stuff. One of them is a Best Burger initiative. This is, I think, in some ways, a Domino's-style initiative, where McDonald's is revisiting one of its most iconic brands, its burger line, and saying, I think we need to improve this a little bit.

From what I've read from The Wall Street Journal, new brioche bun coming to this thing, they're going to be changing how they handle ingredients, also how patties are prepared. I look at this bill, and I say, with the way that the food market has moved, and just what it costs to buy something at a McDonald's or Burger King. These are no longer budget options. And it kind of makes sense to me that they need to revisit their offering because they are no longer competing and clearly cheaper than the other burgers out there. They're kind of reaching parity with some of those more fast casual style burgers. We've reached burger parity. Now, it has been the case for a long time that McDonald's was not considered a discount or a low cost place in

a bunch of the markets they're in. And this, again, is where a lot of their growth is coming from. Now, the Domino's thing that you're talking about is legendary marketing, where they came out and they said, hey, guess what? Our pizza isn't very good. And you know what? We're going to make it better. This is not what McDonald's is doing. I think that they are perfectly happy, satisfied with the quality of their products. But as you mentioned, as they get into higher price points, which is somewhat inevitable, they do recognize the fact that they do need to compete on quality in certain areas while keeping the McDonald's experience as similar and as familiar as it has been in the past. One other spot for growth that I do want to check in on with this

Investor Day and some of the things that they've talked about is, we see location growth as a major headline here, but you zoom in and the digital element and the loyalty element of their business is increasingly coming into focus. One of the other big headlines was them really wanting to expand the use of their loyalty programs and the impact and the spend that they see with their loyalty programs. Bill, to me, it seems exactly like where the food industry is going. We're just going to see more and more of this from the chains. I think there's no accident at all that the only external quote that they put in their big press release came from Sundar Pichai, who's the CEO of Google. I mean, AI is going to be a very big thing for McDonald's as it is

for Domino's now. And you can giggle a little bit at the thought of a burger in the metaverse or you're artificially intelligent. This is how the microchip is going to get delivered into your system, they also want to expand their loyalty program by as many as 250 million active users. And in the way that they're doing it, being much smarter in how they reward and attract the people they consider to be their best and most valuable customers. And that's proven to be an incredibly valuable relationship for people to have. I think one of the things I'm interested to see as we see this grow is the system connection they have, where we see more kiosks in locations. How does that sync up with the app and how people know?

And really, what businesses are generally able to do in terms of pushing members to new products or higher margin products as the relationship becomes more digital and they have a little bit more control over what people are paying attention to on the menu. Yeah. I'm just excited to walk into a McDonald's someday and have hot mustard sauce just handed to me the moment I come in, regardless of whatever else I order. You know, Bill, if you keep mentioning it on the podcast, It's basically free advertising. It may become the billion-dollar brand that you want it to be. It's going to take a while, but I think if you're consistently plugging it on the show, you might help it get its way there. Honestly speaking, my smartphone is right

here next to me, and I'm sure it's going, oh, yeah, hot mustard sauce. You've mentioned that quite a lot. I guess this is what we're going to be delivering your direction. Yes, our AI overlords are moving into the McDonald's space as well. We have McDonald's projecting some incredible growth. A slightly different story when we take a look over at the whiskey market. Jack Daniels owner Brown Forman disclosed that whiskey sales were down 2% for the first half of its fiscal year, which sent shares down 10% today. Bill, we're also seeing shares of Diageo down. It seems like, generally, there's a little bit of softness in the spirit markets. Yeah. Both of those companies, and those are two of the largest publicly traded spirits makers in

the world. Brown Forman is the maker of, amongst other things, Jack Daniels is probably its most important brand. Especially in the higher end of the whiskey market, we've seen a fair amount of what people have considered to be a bubble mentality. In the really high end amongst the collectors, the prices for whiskeys have gone through the roof. So, it is interesting to me the fact that it is down about 1% year over year, and the stock is down about 20%, which should tell you 20% over the year. It's down 9-ish percent today at Brown Foreman. It should tell you a little bit the amount of enthusiasm that was being built into the market, specifically as it comes to the whiskey market. But it really goes across the board for spirits.

Yeah, I think all told, Brown Foreman revised its guidance down from 5% to 7% year-over-year organic sales to 3% to 5%. So, it's still projecting growth for the year, but expecting some softness. This was, for me, Bill, an interesting opportunity to take a step back and look at the alcohol market in the United States. You look at where spirits were 20 years ago, early 2000s, about 28% market share. It has now reached parity with beer. They both own about 40%-plus of the overall alcohol market. Brown Forman has been a huge beneficiary of that. Diageo has also been a huge beneficiary of that. Do you feel like we're just having to reach a point where we're moderating our growth expectations a little bit?

When you put it that way, it's wild to think about, because it's not like you would look at the U.S. beer market and say that they've been resting on their laurels. There has been a huge growth in craft brewing. Maybe even just the top-line major brewers, they're getting attacked on all ends. Included in the spirits market is an area of the market called ready to drink. You go to grocery shelves now and you see the Moscow mules and things that are already in cans. This was really never done before. It was a big market for them. I think it came on the tail end of the hard seltzer movement. If alcoholic water isn't enough for you, have we got an opportunity for you? Yes, they are looking for ways for spirits to be put out

in a lower alcohol format. Consumers have responded in a big, big way. It is interesting you bring that up. It's a category, to me, that has seen innovation in an incredible way over the last five to 10 years. It has probably never been better to be a drinker in the United States, especially if you're not someone who traditionally has liked beer or liked wine. You go to a supermarket now and you have a lot of those ready-to-drink type options that you would have had to have made at home five or 10 years ago. It seems like we are almost kind of waiting for that next catalyst or waiting for that next trend in the space. Yeah, maybe. I love how you put it that this is like a golden age for drinkers.

If you love drinking, it's never been better. Yeah. And as far as I'm concerned, I prefer my alcohol to be weapons grade. So none of this is particularly of great interest to me. But And you take Jack Daniels as a platform, and Jack Daniels as a brand is worth billions of dollars. So, the fact that Brown Forman has moved it into different formats, lower alcohol, fruitier drinks, carbonated drinks, I don't think that we've seen the end of it. I think we are just at the beginning of those levels of innovation. Again, as far as I'm concerned, though, I'm an old fuddy-duddy. Give me whiskey in a glass with an ice cube, maybe. Bill Mann is a man of weapons-grade spirits and hot condiments.

Bill, appreciate you being on the show today. Thanks, Dylan. You just found out that your sales team is at risk of missing quota. Don't panic. Just ask Rippling AI. Since it's built on your real-time people and business data, Rippling AI can pull metrics from Rippling and Salesforce into a meeting-ready dashboard showing quota attainment, headcount plan, and monthly revenue to quota by region. In seconds, you'll see exactly what's behind your quota risk and fix it before it's missed. Question answered, action taken, crisis averted.

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Up next, Deidre Willard talks with Pinky Cole, founder of Slutty Vegan, to discuss what it takes to build a marketing company masquerading as a restaurant chain. I want to talk a little bit to start off with about your brand in general, because a lot of people think they have the idea for the next food trend. and we've seen so many food trends come and go, highly competitive space. How did it start for you? And how did you kind of find the angle that worked for you? So I was a television producer and a casting director at the time where I came up with Slutty Vegan. And mind you, I had a restaurant before that caught on fire and I lost everything. So this was sort of my redemption

period. So I'm thinking that, okay, I got my dream job working in TV. I'm doing well. I don't need to do anything else. But the universe had something else aligned for me. And that was this crazy concept called slutty vegan that I came up with in my two bedroom apartment, not knowing that this concept would turn into a multimillion dollar brand. I was really just trying to one, have a side hustle and to show my friends that you can eat vegan and it could be cool. And the next thing I know, I have this concept that is now becoming a household name that everybody wants to be a part of. So it's been five years since I created the brand and I have done so much. We opened up 13 and counting locations. We've won a bid in the airport. We've had tons of brand partnerships

and the brand continues to grow. And when I look back five years over my life and I'm like, I cannot believe that all of this has happened over burgers, pies, and fries. So I'm excited about the growth in my business. And it just really just opened up so many verticals for the other things that I'm doing. So you've got this bold brand and then you're putting your, your, your brand in target. So how did that happen? And how has the response been so far? So target is a very interesting story. I was at, um, a festival called Afropunk and it was an executive at target. And somebody was like, that's an executive at target. You need to go talk to them. So me being who I am, one thing about me is I'm always going to shoot my

shy. So I walked up to him and I introduced myself to him. I'm like, do you know who I am? I was slutty vegan. I want to talk to you. And he was looking at me like, this girl is crazy. That conversation was just one. So very organic and fluid and authentic that there was so much essence that was born out of that conversation. And as a result of that, he was just like, I like you. I like your spirit beyond the business and all the things that you do. You have a really good spirit and it's, and it just meshes with who I am and what I represent. I want to help you. And from that conversation, we've been able to put our bacon in stores, our seasoning in stores, our slutty vegan dips in stores. And that was about

almost two years ago. And the relationship has been so beautiful. One, because Target obviously is for the community and they've shown that time and time again, which I can appreciate. And two, to go from being a mom and pop shop to an incorporation, to be able to have products in stores and my friends and family can walk past and say, dang, that's pinky stuff in stores is the best feeling in the world because I never in my life imagined to have products on shelves of stores that I shopped at as a little girl. And now to be, uh, one of those people who has products in stores is just, it's a dream come true. So I'm just happy and I'm thankful, um, for target and you know, it only gets better from here. I'm curious about the bacon. We were

talking before the show, and I've had the dips, but the bacon isn't available yet where I live. But I wanted to get your take, too, on the faux meat trend in general, because I know you've used Beyond Meat and Impossible in some of your products. Beyond Meat, a publicly traded company, has kind of been one of those things where people are asking if the market is big enough for what they were planning. What do you think about the faux meat market in general? I'm going to be totally honest. Cause that's the only way that I could be. I believe that the market is very saturated right now. Once upon a time when people wanted vegan food, you couldn't just go to every single restaurant and get a vegan option. Right. And then I believe that I contributed to the

craze, right. The trendiness alongside beyond me and impossible me, um, of making it super popular that all big businesses wanted to tap into the market, right. Everybody wants to be a part of a hot market. So what happens when everybody gets a part of a hot market, it becomes saturated. And when it's saturated, you don't have to look far and wide to go get it. So you don't have to pay $17 for a vegan burger anymore. You can pay $3 and go to the grocery store and get that. So what I think is happening now is because the market is so saturated, a lot of businesses are unable to sustain themselves who strictly focus on vegan food. Um, the competitive advantage that I have is I've already built a true solid concept

that is proven and people love it. So if I don't sell another burger right now, so lady vegan is still a brand, right? And I can still sell other products, but a lot of other businesses can't say that. Is it difficult? Very well. It's very difficult. I still use impossible and I still use beyond and I really respect and love them and love their partnership.

But I also think that collectively as a market, we have to figure out how to continue to get innovative so that this wave doesn't die, so it can continue to sustain itself so that we can all be successful. But I think we'll get through it. Well, some of the pushback too has been that some of the vegan options aren't healthy. And so there's this sort of like the two camps of like vegan is the healthiest option. And while vegan, you know, vegan, there's a whole spectrum within vegan. So where do you sit sort of in that? I think there's a lot of propaganda around veganism and the meat industry. And obviously, you know, veganism has kind of like taken over per se when it comes to like people eating meat and not eating meat. So now there's a level of

competition. So obviously there's going to be some propaganda associated with it. I believe that everything is in moderation. My concept is to meet people where they are. Am I saying that you got to eat a salad every day? Absolutely not. But what I'm saying is you come to slutty vegan and you can get a familiar option, something that you're already used to. And then it might change your mindset on eating vegan when you go to another restaurant. And that's really my take on it. I believe, like I said, everything has to be in moderation, whether you are eating chicken, beef, pork, or a vegan burger, everything is in moderation. There are healthier options that is in the vegan community. Obviously a lot of people push burgers and fries, but if you look

a little bit deeper, you'll realize that there are a lot of healthy vegan options and you just gotta be mindful of what you eat. You've also taken your brand and you've ventured into all these diverse collaborations with Steve Madden for a PETA certified sneaker. You've got bag collection, lip bar with a vegan lipstick. What have you learned from these successful collaborations and what are you looking for in your next collaboration? What I learned in collaboration is that is the surest way to grow your business by way of brand partnerships. You want to get exposure, you attach yourself to a brand that's bigger than yours, right? And for anybody that's watching and listening to this, that is part of the surest way to get a different

level of exposure. If you're trying to get a new audience, if you want more people to hear about your brand, you got to connect with the right people. It's just like relationships, personal relationships, professional relationships. You got to align yourself with the people who are already doing it, who are already successful so that you can continue to grow your brand and grow your business. That's probably one of the biggest things that I've learned. We got a lot of really dope brand partnerships that are coming up in 2024. And I'm really excited about them because a lot of the people that I like to partner with wouldn't typically brand themselves with a vegan restaurant. But I like to say that Slutty Vegan is more than just a restaurant. We are a marketing

company that happens to sell burgers, fries, and pies. So this is a lifestyle movement. When you think about Pepsi, when you think about Coca-Cola, this is a movement that's not just going to stop with food. It is a movement that makes people feel good. It makes people feel like they can conquer the world. And that is how I lead with it when we do brand partnerships. So I feel good about what we have going on coming up in Q1 and Q2, even in Q3 with the brand partnerships that we've already been planning with. As a person who's investing in your future, investing in your family's future. How has the way that you've sort of invested both in your business and in your personal life changed? You're a great interviewer, by the way. Nobody ever asked

me these kind of questions. My personal life, I'll start there. I put my kids in Montessori school. That might not seem like a big feat, right? But I did that because I wanted to make sure that I'm fully preparing my children for the world in a way that I didn't get that level of preparation. So I'm utilizing my resources to give them the push that they need so that they could be the very best. My daughter is about to have vocal lessons. She's two years old. You know what I'm saying? So like I get to do all the things that I didn't get to have done by way of lack of resources when I was growing up. Right. I make sure that my environment is a happy and healthy environment. I I'm fortunate enough to live in a country club.

Right. I'm fortunate enough to have trust funds and plans for my children so that when they turn 18, whether they decide to go to college or not, they are set up for the future. So personally, it's important to make sure that my kids have what they need. Cause at the end of the day, they are now my number one priority, making sure that my kids are good professionally, same thing, like real estate, making sure that the business that I create yields a return that I can reinvest in the business. And I also can reinvest in the community.

That's really important to me. And I believe that every entrepreneur should have a philanthropic arm in their business because it's not always about just reinvesting money in the business and that's it. You got to reinvest into the people that are investing into you. And that's how you continue to grow successful and sustainable businesses. So it feels good to be able to do that on both sides. And it only continues to get better as I evolve. I've been a legitimate entrepreneur for the last five years. And is it hard? Absolutely. But is it worth it? Totally. And I wouldn't change a thing. And the more that I can be around and surround myself

with the people who are already successful. I know that my thought process will evolve and even get better more than it is right now. As always, people on the program may own stocks mentioned and The Motley Fool may have formal recommendations for or against, so don't buy or sell anything based solely on what you hear. I'm Dylan Lewis. Thanks for listening. We'll be back tomorrow. Thanks for watching!