Motley Fool Hidden Gems Investing - Our Listeners Can Fix Cracker Barrel

Episode Date: June 20, 2024

Cracker Barrel is trading lower than it did when its restaurants were shut down during the pandemic. (00:21) Bill Mann and Ricky Mulvey discuss Nvidia becoming the most valuable company, and review turnaround plans for Cracker Barrel sent in by Motley Fool Money listeners. Plus, (13:55) Alicia Alfiere and Mary Long take a look at Coupang, a dominant e-commerce company in South Korea. Companies discussed: NVDA, MSFT, CBRL, WDFC, CPNG Host: Ricky Mulvey Guests: Bill Mann, Mary Long, Alicia Alfiere Engineer: Dan Boyd Public.com disclosure: A High-Yield Cash Account is a secondary brokerage account with Public Investing, member FINRA/SIPC. Funds from this account are automatically deposited into partner banks where they earn a variable interest and are eligible for FDIC insurance. Neither Public Investing nor any of its affiliates is a bank. US only. Learn more at public.com/disclosures/high-yield-account (edited) Learn more about your ad choices. Visit megaphone.fm/adchoices

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i'm ricky mulvey joined today by bill man bill we have some very important business and i'm glad you are here to join me for it we have business to attend to and i'm happy to be here as well but the first thing we're going to talk about that's that's for later we have listener ideas to turn out turn around cracker barrel because you know what activist investing is also for the rest of us before we get there though nvidia has taken over microsoft is the most valuable public company in the world you're going to talk about it tomorrow with ron and dylan on the friday radio show. But there's one statistic I want to zone in on before you talk about more of the big cap tech companies, all that. And that's the market cap per employee. I'm going to run through a few

companies here, Bill, and then get your reaction. AMD, $7 million per employee. Google and Microsoft, they're around $15 million per employee. Apple, $20 million per employee. And then we have NVIDIA, low numbers those are low numbers nvidia is at 113 million dollars per employee these are professional athlete numbers here bill what do you make of this i mean you know what nvidia does right yes they design chips that's why i included amd well i mean but also they are they are at the forefront of the ai boom which is going to replace employees all over the place that's what we are told to believe at least i mean i don't know that it is really a surprise to anyone who thinks about numbers but 113 million dollars is a lot i mean that is a huge number per employee and i doubt

sincerely that there are very many employees at all uh at nvidia that by themselves can generate 113 million dollars in value each person's their own small cap company or micro cap company excuse Do you think it's a fair metric to compare these big cap companies on that measure? I mean, it's better. We used to joke about some statistics that didn't seem to have a whole lot of meaning. One we came up with was on a price to phone number basis, is this company expensive? On an employee basis, obviously, the issue is that companies don't do the same things as each other. And so, maybe that's not a great insight. But you're talking about the companies that are performance enhanced by technology. So I think at the end of the day,

when you're talking about a company that is that large, that has that much valuation per person, you have to go to brass tacks and say a huge amount is being expected of NVIDIA. Oh, it is. But it also seems there seems to be a law of physics that's been breaking not only this year, but throughout the 2010s, throughout the 2020s, which is that the law of large numbers seems to not be applying. It took Apple a few decades to get to a trillion. It took them a few years to get to $2 trillion. Why do you think it is with these companies, the larger you are, the faster you rise? I've been thinking about that a lot. NVIDIA creates a really interesting dilemma for stock analysts. I don't know that there

is an argument out there that nvidia is at the end of its rope or that it's downhill from here but the stock uh itself it's gone from a 200 billion dollar company which by the way is huge to three trillion dollars in very short period of time which means that the expectations that are built into NVIDIA are just extraordinary. Now, is this an extraordinary company? Yes, but it has to be more extraordinary than expectations. And $113 million per employee is a really interesting way of painting what the expectations are for NVIDIA to do over the next few years. Let's get to a company that is the complete opposite. Can you think of a more complete opposite company for NVIDIA than the Cracker Barrel, old country kitchen.

So for context, a couple of weeks ago, Nick Seipel and I talked about management's turnaround plan for the Cracker Barrel. I invited listeners to share their own turnaround plan for the company at podcasts at fool.com. And we got some good suggestions, Bill. And I think what we should do, we're going to go through the plans. We got management plans. We got the listeners plans. Whoever has the best plan gets a Motley Fool t-shirt. So we're going to include Cracker Barrel management in there just to keep things fair. You know Cracker Barrel management's plan. You don't know the plans of our listeners. I love the thought of Julie Messino suddenly receiving a Motley Fool t-shirt. Yes, we're fair. And also, can you tell that we're between earnings seasons? Anyway,

Julie Messino in the latest earnings call basically said, quote, historically, Cracker barrel has made limited changes to our design aesthetic, and we've probably relied a little too much on what was perceived to be the timeless nature of our concept. End quote. The turnaround plan has three overarching business imperatives. It has five pillars in the strategic plan. Basically, it comes down to updating the lighting, updating the experience, a different menu, including like bee sting chicken tenders, which are hand-breaded, coated in that sweet honey glaze, more media spend. They focused on basically getting food out to their customers faster, a 4 PM to 6 PM early diners special where you can get a meal

for nine bucks. All right. We'll, we'll, we'll, we'll start with our, uh, our test case. That's, that's management's idea. Bill, where are you at on the crack? You're, you're a value hunter. Where are we at on the turnaround plan for the cracker barrel as we stand? It's really important to note that Cracker Barrel currently is trading lower than it did during the pandemic lows, you know, when restaurants were closed. And so, the market is saying the fact that they've opened has destroyed capital. Yeah. So, I agree with them that they're at the far end of the nostalgia curve in terms of the experience there. I mean, all of those things for bringing people back into the stores sound good. I might come up with a

different name than bee sting that doesn't necessarily excite me all that much sounds swollen exactly that sounds bad there you go do i do i pay money for extra bee stings they have to do something all right let's let's go to motley fool money listener ideas to turn around the cracker barrel because they do have to do something and and our listeners have ideas one our first one comes from mr claw my activist suggestion is to pivot the brand of fast casual here's what it's called Fire Pit by Cracker Barrel. Triple down on chicken and breakfast, steal a little business from Chick-fil-A, from Bojangles, Popeyes, even Casey's. Go all in with a communal eating feel like an outdoor fire pit dining area. Start the rollout in the approach freeways and then move

to the warmer core market cities. This strategy allows them to play with the menu and with store decor without alienating the long timers. If they increase total store locations across both banners, then closing legacy stores wouldn't cause investor alarm. Cracker Barrel needs to leverage their brand before it becomes a liability. That seems like something a venture capital firm could exploit. Mr. Claw has his suggestion on the table. Bill, you're on the board of Cracker Barrel. What say you? It was definitely a differentiating process. It sounds really expensive. It does. And we got a cheaper one. That comes from Martha. Close down one of the spaces in each restaurant to regular customers and use it as a rentable event space, become more

of an events company. This would be great for retirement parties, birthdays, church groups, et cetera. It's a little bit less involved than Mr. Claus idea. All right. I like it. And then from Jeff, we have leaving the store pretty much as is, but he's going from more of a cost cutting perspective, primarily, primarily keep the store open from Thursday to Sunday, because that's where he sees the restaurant is its most packed. This would allow them to reduce staff. Jeff is ruthless out here, Bill. And he says that every time he's been to a Cracker Barrel on a weekend,

it is completely packed. So he's really focused on cost-cutting to turn this business around. And then from Jason, this goes more in that sort of strategic initiative direction. It's van life. So he's going to do a campaign for Route 66 to digital nomads with Facebook marketing, animated GIFs, get different couples showing a younger presence at the Cracker Barrel and recognize that the menu isn't the problem. So here's what he's going to

do. He's going to put USB chargers outside by the rocking chairs. Then he's going to borrow from Walmart's model and put in overnight parking spaces. You register them with an app. So it's becoming more of a campsite. You also have an app-based loyalty program, rewards-based payments in the app and then after all of the above is successful then you start looking at updating the menu based on app demand and or adding like electric vehicle charging put solar on buildings overnight access to the to the bathrooms and that really catering to the to the travelers really go all in on that i can go to the last one unless unless you got to take no keep going i'm taking notes okay we got notes ideally cracker barrels uh management is taking notes and then we have

a three-pillared approach from Wes. Wes's idea for the store, really focus on home decor. Go in on one area. For the food, slowly modernize the menu in a Southern way. Offer a brunch menu with more modern items like chicken and waffles, biscuit beignets, I'd love to see what that is, and mimosas. For the afternoon, we're offering barbecue ribs with a modern spin on the barbecue sauces. Look around at smaller Southern restaurants and see what's working for them. And then for the building, add in a larger patio so more people can eat in the open air. Experiment with a few restaurants that are not right off the highway, but with an enjoyable view of the outdoors.

Maybe even set out games like Cornhole or Giant Jenga Towers for the family. They need to embrace a family feel, not just a Southern feel. We have a lot of ideas. You are, for the purposes of this discussion, the only board member that matters. the only person that will receive a t-shirt is going to be through your decision bill this is this is weighty it could be it could be julie messino or it could be one of the listeners of motley fool money who are you going to choose i believe that it's going to have to be jeff with a very simple idea of keeping the stores closed for longer periods of time one of the

areas in which this company is being really inefficient is through labor costs right now. Now, he was being ruthless. I think that there is actually a very successful model that's a little bit close to what he's talking about, and that's Texas Roadhouse, which is only open for dinner now. I guess you would put it on a very high-line level as being a similar restaurant concept to Cracker Barrel, at least in the neighborhood, much more successful. And they have limited their opening times. I'm only going to say this because I've been called out by several emailers, Bill, and maybe I need to stop responding to them as much. Texas Roadhouse is open for lunch on weekends. Yeah. And they will tell you. Fair enough. And that's fine. I mean, we're not being prescriptive

here yeah right you can you can be open at lunch just like texas roadhouse i'm surprised you didn't know that ricky i didn't and then as we wrap up are there any other you know it takes a certain amount of energy to look at a company and say i can fix you are there any activist plans you'd like to launch before we before we close the segment i think the wd-40 needs to come out with another product called WD 42. Okay. And WD 42 has a coloration on it that tells you when it is ready to reapply. There you go. We got, we got one. And if you have some, you can email us hopefully with a voice memo at podcasts at fool.com some companies to get your, uh, to get your brain flowing. We've got Starbucks, we've got McDonald's Disney. How about GameStop, which

now has like a $4 billion cash pile. If you have any ideas for them about how they can change their businesses send a voice memo to podcasts at fool.com that is podcasts with an s at fool.com hey bill thanks for uh thanks for going through this and uh good on jeff you get a motley fool t-shirt well done 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,

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not amazon alicia at the end of last year you and i were at a live recording of motley full money at the Denver Press Club. And one of the questions that I posed to you and Tim White and Tim Byers, who were also there, was what stocks you were excited about. And at the time, this is December 2023, you had mentioned Coupang. And now it's June 2024. And I figured I'd reach out to you and get some more details on why you were so excited about Coupang stock. Let's do it. So let's dive in and learn a little bit more about this e-commerce company. When I hear e-commerce being based in the U.S., I immediately think of Amazon. And so certainly in the U.S., but also in many other parts of the world, Amazon has become synonymous with convenience, right? You order a

package, it arrives in two days, now that's the new norm. But there's this other e-commerce company based in Korea, South Korea, this one that you're so excited about, that seems to be even better than Amazon at this whole convenience thing. How has Coupang beaten Amazon at its own game, if you will? Oh, beaten at its own game. That's a setup. We'll see. I will tell you, and you can tell me what you think. Coupang is actually known as the Amazon of South Korea. Their customer service and delivery abilities are impressive. You talked about Amazon being able to deliver within the next day. I think their stats are something like 60% of their largest six metro centers, they can get 60% of those residents

having next-day or same-day delivery. So, that's pretty impressive. Now, Coupang, granted, South Korea is a much smaller landmass. You're talking about a country the size of Indiana. Vienna. But through Rocket delivery, which is similar to Amazon Prime, 99% of orders can be delivered within a day. There's also an ability to deliver packages by 7 a.m. for orders received by midnight, and also same-day delivery as well. Pretty impressive. Part of the reason why they're able to do that is because Coupang strategically set up its infrastructure, so that 70% of the South Korean population was within seven miles of one of their logistics centers. So, that's a key strategic advantage because it would take a lot of money

and a fair bit of time to be able to catch up to that logistics power. Comparisons aside, Coupang isn't necessarily coming for Amazon, right? Its focus is South Korea. And it is the dominant e-commerce company there. It's captured nearly 90% of that domestic market, which is really impressive. But perhaps a bear case would also be that it's the dominant e-commerce company in South Korea. And South Korea is a small country, and it has an aging population. First of all, are we thinking of this as a growth company? And if so, does Coupang need to look beyond its home base to actually unlock real growth beyond what we've already seen? Yeah, and that's a great question. So first, the penetration number that you cited is

pretty much the number of households that are using Coupang. It is the leader in e-commerce in South Korea. In 2022, it captured something like 22% share of the market. But there's still room for the company to grow within that market, especially because they only represent something like 5% or less of the overall retail in the country. It is also looking to expand internationally. So, it's looking to expand it to Taiwan. They already have a presence there. And we're looking to see how the company builds its presence. And one of the things I actually like about Coupang and the management team is this smart way they look at investments and expanding. They try to make sure that whatever, I guess we could call them bets that they're making,

whatever new offerings they're trying to do. They're trying to make sure that those offerings have a certain amount of return on investment, are generating cash flows after a certain amount of time. Otherwise, those ideas, those offerings don't get more money, and they could pull the plug. That's what they did when they tried to expand it to Japan. It wasn't performing as they wanted. And so they left that market. It sounds kind of funny that that's something that I'm excited about, but it is a win because it's counterintuitive, right? But leadership didn't throw good money after bad because they had that careful approach. You want to make sure you add monies to areas that are working and you exit the ones that aren't. So as an investor, as we look at

Coupang's expansion into Taiwan, what will you be keeping an eye on to ensure that management is continuing with this careful approach that they had in Japan and then rolling back and stepping out if things aren't looking positive? Yeah. Well, so continue to follow the company and follow what they say about how things are going in Taiwan. I feel like they've already learned from some of their lessons from expanding within South Korea and then also in Japan And one stat that I really like is rocket delivery in Taiwan scaled faster in the first 10 months of its launch than the first 10 months of the launch in South Korea. So they clearly seem to be learning from their past.

And so little things like that, seeing how it moves going forward is going to be really important. We've talked a lot about this market dominance and penetration within South Korea. But I have to ask, because it's almost impossible for me to believe that they're the only player in the game. Are there any potential competitors in that country that you're keeping an eye on that could come for Coupang, or already are trying to come for Coupang? Yeah, there are definitely competitive forces. There have been for a while. The one to keep an eye on is Alibaba. And so, they recently announced plans to spend over $1 billion in the next three years to try to

to build out infrastructure in South Korea. Remember I said that strategic logistics footprint is a competitive advantage. That's a fair amount of money and time that's going to take Alibaba to try to match them. Coupang has the lead here, and it's no stranger to competition, but that doesn't mean that the company can sit back on its laurels. It has to continue to serve and delight customers and find new ways to get customers to engage with its offerings. And they are trying to find new ways to get customers to engage with their offerings. There's more to Coupang than just e-commerce. The company splits its revenue into two categories.

One, product offerings, which kind of encompasses a lot of that e-commerce platform. Then there's also developing offerings. And those developing services include things like food delivery, video streaming, fintech tools. Any of these that you're particularly excited about, whether that's just because it's a cool, unique offering, or because it really has growth potential? Ah, yes, there is one that I'm excited about. So, I'm most interested in watching Eats, and it's not just because I'm a foodie. It's also because Coupang reported something really interesting last year. They said that WOW members, which are kind of like Amazon Prime members,

those members that used Eats have a higher retention and are more engaged with Coupang. And that's pretty exciting, right? Especially if that continues. And if that happens with some of the other developing products, I think we could potentially see the beginning of a flywheel effect. So even though there might be some other parts of the developing story that maybe are