YouSaid · the spoken record

Zack Fuss

lines on the record: 71
first: 2021-01-12
most recent: 2021-01-12
sittings or episodes: 1
sources: podcast

Every line below is reproduced as it was said and linked to the record it came from. Nothing here is summarised or generated. Directory · Search · Corrections

“It's clearly the sacrifices that my parents have made to give me the opportunity to do what I do today. My father has been working at the same hospital for 40 years, working in investments is sometimes humbling, but really it's a privilege. I get the opportunity to learn every day. And that's because of the sacrifices that my mother and father have made. The reality is my father as a physician is saving lives. I'm allocating capital and I'm forever grateful for what he does and continues to do at the ripe age of 70 as I sit here and listen to management teams and refilings for a living.”
2021-01-12 · Invest Like the Best · Zack Fuss – Breaking Down the Food Ecosystem – [Invest Like the Best, EP.208] · IDENTIFIED FROM THE TRANSCRIPT · source
“Whether that be Series A growth stage opportunities or late stage public companies while their competitive landscape is inherently very different, the way that we can add value as investors is not only in identifying those defensible businesses that have high rates of return that can redeploy capital, but in connecting the dots between them and making those introductions. And so I think that having a hybrid model where you're both operating and investing and sharing within that ecosystem is something that kind of compounds knowledge, but also compounds your competitive advantage as an investor. And so the combination of a flexible capital base, an industry-specific expertise is something that I think puts us in a very advantageous position. And I think that it's much harder for prototypical asset manager to compete directly with something like that.”
2021-01-12 · Invest Like the Best · Zack Fuss – Breaking Down the Food Ecosystem – [Invest Like the Best, EP.208] · IDENTIFIED FROM THE TRANSCRIPT · source
“Compete with multi, multi billion dollar asset managers for the next incremental data point, it's going to prove very difficult. But I think that the reality is that lots of people are coming around to the fact that crossover funds have an inherent competitive advantage and they likely do. And that's because the spillover between public and private assets. And if you consider the insights you get from your private assets and how they can inform the strategy of a public investor, and if you consider the conversations that we have with public company management teams and what they're seeing, the value is not so much created in the ability to analyze a business better than other investors, but it's really taking that active approach to the market, whether it be public or private and connecting the dots. And I think at Continental Grain, where we try to focus our time and energy is we have the ability to invest throughout the life cycle of businesses.”
2021-01-12 · Invest Like the Best · Zack Fuss – Breaking Down the Food Ecosystem – [Invest Like the Best, EP.208] · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, I mean, it's a fascinating concept. I think what we saw over time, we all as equity analysts fashion ourselves to be very strong business analysts. But ultimately, if you consider the competition, the fragmentation, the competitiveness of a quote-unquote hedge fund, they're not necessarily great businesses. There's this inherent asset liability mismatch between you as the investor that wants to take a long-term approach to the market and your LPs that in many cases require short-term lockups on their capital, sometimes that are as short as three months in time. And I think what that's created is an implicit advantage for those that have capital that's permanent or semi-permanent in nature and their ability to take a longer view. I think that the reality is that the markets are largely efficient. If you're trying to”
2021-01-12 · Invest Like the Best · Zack Fuss – Breaking Down the Food Ecosystem – [Invest Like the Best, EP.208] · IDENTIFIED FROM THE TRANSCRIPT · source
“Customers in a way that hasn't been transparent in the past. And I think that's going to have profound implications in the competitive landscape for all businesses.”
2021-01-12 · Invest Like the Best · Zack Fuss – Breaking Down the Food Ecosystem – [Invest Like the Best, EP.208] · IDENTIFIED FROM THE TRANSCRIPT · source
“B2C businesses and the businesses that we invest in because I think that as we alluded to earlier, software is eating the world and automated technologies are a derivative of that. And I just question whether that's going to create or destroy profit pools and who's going to benefit from it. And I think that's really interesting. And I think as an extension of that, the reality is that billions of people have supercomputers in their pockets today, which means that we know more about our customers than we ever have before. and how are businesses going to leverage the power of that information to customize solutions for their customers in a way that was not possible in the past. That visibility into the customer allows us to segment them in ways that we historically haven't been able to. And whether that's in food delivery or grocery or insurance or entertainment, the reality is that we now have the ability to see our”
2021-01-12 · Invest Like the Best · Zack Fuss – Breaking Down the Food Ecosystem – [Invest Like the Best, EP.208] · IDENTIFIED FROM THE TRANSCRIPT · source
“The most interesting question is ultimately that classic Red Queen problem. It's the reality that there's newer and newer disruptive technology, but the question being, does that mean that these legacy businesses and these disruptive forces are going to have impacts on profit pools that are durable? Or are we just going to be running in place implementing new technology, but the incremental return on investment from that new technology doesn't yield anything to the ultimate end user? And I think that there's a number of questions in both food and non-food related industries where it's relevant. And I think that as an investor, it's tough to understand whether it's worth, for instance, automating an entire factory or if the gains from that automation are just going to go to the consumer, which is great as a consumer, but not necessarily as compelling for an investor. So I kind of consider that problem throughout the ecosystem of B2B businesses.”
2021-01-12 · Invest Like the Best · Zack Fuss – Breaking Down the Food Ecosystem – [Invest Like the Best, EP.208] · IDENTIFIED FROM THE TRANSCRIPT · source
“Experimentation, whereas historically the stored self has served as a billboard for the company. But if you can acquire customers online in an inorganic fashion through online social media channels or digital apps and drive trial of your product without having to front the cost of rent and the capital associated with its store buildout, I think that's something that's very interesting. And then I think look, the reality is that in the United States, there's such a long tail of cuisine that's already available. So the likelihood of picking a concept that doesn't already exist would be different.”
2021-01-12 · Invest Like the Best · Zack Fuss – Breaking Down the Food Ecosystem – [Invest Like the Best, EP.208] · IDENTIFIED FROM THE TRANSCRIPT · source
“Think that at the end of the day, for new concepts, you have to be culturally relevant. So I think there are certain areas of the food and agriculture ecosystem today, whether it be locally sourced or better for you, that are super powerful. You want to have very rich gross margins that afford you the opportunity to invest in the store itself and the customer experience. And you also want to have an embrace of digital adoption and technology. The reason that these ghost kitchen concepts are so interesting is because hypothetically, if you can lower your cost of rent and the cost associated with the front of house, but also take that money and invest it behind a better product. So for instance, give your customers more food or use higher quality ingredients. The value proposition of something like that is incredibly strong. So I think that what we're going to see with some of these new concepts is”
2021-01-12 · Invest Like the Best · Zack Fuss – Breaking Down the Food Ecosystem – [Invest Like the Best, EP.208] · IDENTIFIED FROM THE TRANSCRIPT · source
“Those unit economics that we spoke to, you continue to enjoy. But if you're investing behind a system that's decelerating, it's almost the opposite effect. As we spoke to about Papa John's, they went through a really rocky time where their founder made some comments that hurt the performance of the business. And the franchisees suffered. So you live and die with the strength of your brand.”
2021-01-12 · Invest Like the Best · Zack Fuss – Breaking Down the Food Ecosystem – [Invest Like the Best, EP.208] · IDENTIFIED FROM THE TRANSCRIPT · source
“To operate and own the restaurants, they can have a couple hundred stores. So it's a really, really big economic opportunity for them. There comes down to the question of if you want to own your real estate or not, which is important. If you own your real estate, it's more expensive. You can engage in something like a sale leaseback where you buy the ground, build a structure, and lease it back to a real estate investor and take the cash proceeds from that business and reinvest it. But at the end of the day, what's most important is that you're investing behind a healthy brand has growth prospects and that's because as the system grows, more money is contributed to the advertising pool. And that advertising spend is shared across the entire system. And so that's why you see these massively scaled quick service restaurants that tend to have a loudest voice. And I think that drives traffic to your store and it becomes this feedback loop of success where your store is doing more traffic or profitable. You have more funds to open up more stores.”
2021-01-12 · Invest Like the Best · Zack Fuss – Breaking Down the Food Ecosystem – [Invest Like the Best, EP.208] · IDENTIFIED FROM THE TRANSCRIPT · source
“The four wall margins of something like a dominoes, typical food store has best in class is above 20%, something like Chipotle. And so you want to know that when you open that store, that it's going to have a sustainable high margin structure and that you're going to get a strong return on your investment. Now, the way that the franchisee and the franchise art work together is that the franchisee pays the franchisor, call it 4 to 6 percent off of their top line sales. So that restaurant level margin I just talked about is going to be automatically reduced by the cost of that royalty. And then the question is, how many stores can I likely own, operate over time? As we talked about the dominoes example, the average dominoes franchisee has seven stores and does a million dollars in EBITDA. That's probably a five to six million dollar business that they control. So it's a really, really interesting economic opportunity. Some of the most institutionalized franchisees, the people”
2021-01-12 · Invest Like the Best · Zack Fuss – Breaking Down the Food Ecosystem – [Invest Like the Best, EP.208] · IDENTIFIED FROM THE TRANSCRIPT · source
“So ultimately, with any franchise, the Unit Economics are going to be the most important. I know that that seems obvious, but I think that some people fail to recognize that different businesses have different return profiles and different brands and logos have higher and better returns. We spoke to dominoes. It's one of the best. What you want to know fundamentally is if I go and build a store, how much is it going to cost me to build that store? and how much can I likely expect for that store to generate in cash every year really it comes down to payback period like any private investor some of them have really low costs and super low paybacks in terms of the time it takes to get your money back some of them have super high costs and longer payback periods but the quantum of that payback is higher right given the upfront investment at the end of the day you want to have four wall margins that are really strong we talked a little bit about”
2021-01-12 · Invest Like the Best · Zack Fuss – Breaking Down the Food Ecosystem – [Invest Like the Best, EP.208] · IDENTIFIED FROM THE TRANSCRIPT · source
“Going to be in a position very well to have super, super high returns on capital. It's interesting. There's been this pervasive trend in restaurants to franchise your stores. Most of the major U.S. quick service restaurant concepts are 90 to 95% franchised. The reason that you cannot do that, you can maintain operational control of your business is because the unit economics you enjoy are so strong that it wouldn't make sense to outsource them because you want to capture those economics for yourself. Chipotle is an incredible restaurant. Ironically, it was owned by McDonald's until back in the day and they probably wish they held on to that one today.”
2021-01-12 · Invest Like the Best · Zack Fuss – Breaking Down the Food Ecosystem – [Invest Like the Best, EP.208] · IDENTIFIED FROM THE TRANSCRIPT · source
“I mean, Chipotle was a pioneer. Chipotle with their assembly line approach. It's almost militaristic in nature. The reality is that Chipotle gives you the best value for your buck relative to any other store, and they do it at the best margin profile possible, which is amazing. Even before people were focused on food delivery and to go, which has become one of the most important aspects of any successful restaurant business, Chipotle had their second make line. In the back of the house, they had it. So if you ordered a head or if you had a catering order, they could be producing whatever it was in the front of the house at twice the capacity. So if you recall back into 2015 when the lines for Chipotle were around the corner at lunchtime in Midtown Manhattan, they were not only generating those orders that people had at the counter, but also twice that in the back of house. And so if you consider the natural operating leverage you get on just increasing that square foot productivity.”
2021-01-12 · Invest Like the Best · Zack Fuss – Breaking Down the Food Ecosystem – [Invest Like the Best, EP.208] · IDENTIFIED FROM THE TRANSCRIPT · source
“And then merchandise within that store. But there are value added services that you can add. And Home Depot is no different. They shifted their focus from the do-it-yourselfer to the professional, a business like Target who decided that they would need to reinvest billions of dollars into their store experience to offer as comprehensive and omnichannel approach as possible. So when you can layer on services and insurance and buy now later type applications, there's just so many other ways that you can monetize the customer that haven't been trialed in the past because incumbent businesses have become sleepy. And I think we're just in a competitive environment now where that's just no longer the case. And these incredible retailers that are focused on maintaining the returns.”
2021-01-12 · Invest Like the Best · Zack Fuss – Breaking Down the Food Ecosystem – [Invest Like the Best, EP.208] · IDENTIFIED FROM THE TRANSCRIPT · source
“I mean, I think if you consider the turnaround of something like a Best Buy, for instance, and obviously a large, very well-run public company, there was this irrational fear throughout the 2000s that they were going to be replaced by the likes of Amazon and they had something called showrooming. It was the concept that you would walk into the store and because of the price transparency of Elwool via the internet, you would look up that 50-inch TV and you would purchase it online for cheaper. Best buyer realized this and they decided that they would start to match prices. There was this inherent creative disruption in their store where they realized we no longer can compete on price. So what we need to do is compete on convenience, compete on service. They offer the geek squad. There's something I like to refer to as moving up the value chain. Where a store like a retailer historically has competed on the quality of the”
2021-01-12 · Invest Like the Best · Zack Fuss – Breaking Down the Food Ecosystem – [Invest Like the Best, EP.208] · IDENTIFIED FROM THE TRANSCRIPT · source
“The reality is, you're not going to go to the third, the fourth, the fifth page on the Kroger app or the Amazon website in order to find what you're looking for. So I think that we're going to see a shift back as we have to some of these incumbent brands who are going to flex the dollar power they have to invest behind their brands and are likely going to be around for a lot longer than I think people in metropolitan areas tend to think.”
2021-01-12 · Invest Like the Best · Zack Fuss – Breaking Down the Food Ecosystem – [Invest Like the Best, EP.208] · IDENTIFIED FROM THE TRANSCRIPT · source
“Large consumer package good companies could count on 2% inflation, 2% GDP growth, a little bit of pricing power. So they kind of were able to count on four to six percent top line growth with really healthy margins. I mean, the operating margins of best-in-class CPG businesses were in the high teens, low 20s. That changed over the course of the last five years as companies started to face competition from upstart brands. But the reality is that the scale advantages and the distribution that large CPGs have through the grocery channel is very difficult to compete with. And so I think the way that this plays out is that Gavin Baker had a fantastic post on the inherent advantages that incumbents have in an online world. And I don't think that that problem is any different in the case of CPG. I think that the reality is that when it comes to auction costs for advertising, the Procter& Gamble and Kraft Heinz of the Worlds are going to win.”
2021-01-12 · Invest Like the Best · Zack Fuss – Breaking Down the Food Ecosystem – [Invest Like the Best, EP.208] · IDENTIFIED FROM THE TRANSCRIPT · source
“The reality is that we have a highly consolidated, very deep pocketed grocery retail environment in the US. Kroger, Walmart, Costco, Amazon, Albertsons, then the long tail of regional competition, they're going to have to embrace technology. If you kind of think about how e-commerce has evolved in the world of online retail, I think something like 60% of online commerce searches today are started on Amazon. And the question is going to be when you go to do your local grocery shopping, where are you going to start your search? Is it going to be at walmart.com? Is it going to be on Kroger? Is it going to be an app? So I think that that is going to be super dynamic. I think that food delivery is not going away. I think that if anything, we've proven that the unit economics in many use cases can and will work, which has been questionable prior to this point. But I also think that on the CPG side of things, we went from an environment where CPG companies”
2021-01-12 · Invest Like the Best · Zack Fuss – Breaking Down the Food Ecosystem – [Invest Like the Best, EP.208] · IDENTIFIED FROM THE TRANSCRIPT · source
“There's the belief that much of the way that we consume food and where we get it will return to normalcy over time. I think that the reality is that we've historically been massively overstored on restaurant counts. I don't know that that's necessarily going to change. I think that the reality is that restaurant tours know that they're not always in it for the money and they enjoy it. There's certainly things that we're going to need to do to change the industry, but the reality is that Americans like to eat out. And I think we're going to continue to do so. But what I think that COVID has done is it's forced restaurant owners to realize that they need to figure out other ways to monetize their store base, whether that's through delivery or order ahead or a subscription product or dynamic pricing like a former guest who's mentioned on your show. But I think that restaurants are likely going to return and return with strength. I think e-grocery is something that's not going away.”
2021-01-12 · Invest Like the Best · Zack Fuss – Breaking Down the Food Ecosystem – [Invest Like the Best, EP.208] · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, what's really interesting is the way that the supermarket landscape has evolved there versus here. There are probably two brands that you may not be intimately familiar with, but one is Aldi and the other is Leedle. Both have started to make inroads into the US. They're a lot more similar to a Trader Joe's type of business where 90% of what's in the store is private label. And what's amazing about private label food is that you can offer to your consumers at a lower cost but get a higher margin for it. The reason is you're essentially disintermediating part of the value chain. The best example would be kind of a Costco in the US who's Kirkland brand is probably one of the largest independent brands in the US, but it's owned by Costco. These are grocery stores that lead with private label as opposed to”
2021-01-12 · Invest Like the Best · Zack Fuss – Breaking Down the Food Ecosystem – [Invest Like the Best, EP.208] · IDENTIFIED FROM THE TRANSCRIPT · source
“Over time, we can have more efficient operations and less waste. That food then could be reoriented and redistributed towards areas of the economy that need the help and the support. And I think that if you consider kind of the ESG implications of the food ecosystem, a lot of it will be focused on the sustainability of production, packaging, and distribution. And I think that there are a lot of promising developments there that hopefully will help to stem some of those problems.”
2021-01-12 · Invest Like the Best · Zack Fuss – Breaking Down the Food Ecosystem – [Invest Like the Best, EP.208] · IDENTIFIED FROM THE TRANSCRIPT · source
“So I think there are a couple of things. I think on the more novel ingredient side, you have things like mushrooms and probiotics and prebiotics and alternative novel ingredients that people are going to experiment with. But on the other hand, I think that you have a very interesting social debate around why we can produce food so cheaply in this country, yet so many people still go hungry. It's not due to the lack of production. I mean, as I alluded to earlier, we can produce table eggs and chicken and beef and pork at literally pennies on the dollar. Really what it comes down to is distribution. How are we getting food to the places that it needs to be for the people that need it? And I think that e-commerce and e-grocery as an example are going to be very important applications of that because so much of the value chain today is captured by the landlords and the real estate. And so if you consider that”
2021-01-12 · Invest Like the Best · Zack Fuss – Breaking Down the Food Ecosystem – [Invest Like the Best, EP.208] · IDENTIFIED FROM THE TRANSCRIPT · source
“Be grown in a lab at the cost of which we can deliver it today will be competitive. The reality is that we can produce ground beef today at something like 25 cents a pound and do it very profitably. And I think that inherently it's going to be very difficult to compete with something that's so different on the cost curve. But there's certainly a subset of a market for it. And as these companies become increasingly sizable, they're going to be able to compete. Now the core question, right, is what do the large consumer packaged goods businesses like the Tysons and the General Mills of the World do to compete with these businesses and push back and regain their market share if they have the size and the scope to spend? And unfortunately, so much of CPG retail is the ability to spend to get your product in front of the consumer. Now they have to like it, but at the end of the day, that competitive advantage of incumbents is probably not going away.”
2021-01-12 · Invest Like the Best · Zack Fuss – Breaking Down the Food Ecosystem – [Invest Like the Best, EP.208] · IDENTIFIED FROM THE TRANSCRIPT · source
“Receives a lot of media attention. That media attention leads to more consumer awareness, more consumer awareness leads to consumer trial. And you've almost had the ability to lower your acquisition costs by free media that came from a reaction at a stock price. Many times the markets are right. I think that when things don't make sense, it makes sense to question why they're not immediately apparent to you. And I think that if you consider the protein industry in the US and the size and scope of it, it's not unrealistic to think that you can carve out a small but increasing portion of it that is, quote-unquote, plant-based. And there are a lot of other businesses like a modern meadows that are doing things that are completely innovative, have the same biological makeup of an animal-based product that are going to be grown in a lab. And I think if you kind of think to the future implications of that, something like ground meat, that”
2021-01-12 · Invest Like the Best · Zack Fuss – Breaking Down the Food Ecosystem – [Invest Like the Best, EP.208] · IDENTIFIED FROM THE TRANSCRIPT · source
“It's amazing how receptive the public markets have been to a company like a Beyond Meat. I think it has close to a $10 billion valuation today. The reality is that American consumers are more cognizant of what they're putting in their bodies than they have been in the past. But on the other hand, the reality is that McDonald's has something like 13,000 stores in the US that do two and a half million dollars in volumes per store. So there's certainly a dichotomy between the types of consumers that are thinking about how they're consuming. But I think alternative protein is something that's important. The reality is that the reason that a company like Beyond Me got so much attention is because it's different. And to speak to the reflexivity that you alluded to, it is interesting how fundamentals are impacted by market performance and that coming public at $20 a share, quintupling over the course of a month.”
2021-01-12 · Invest Like the Best · Zack Fuss – Breaking Down the Food Ecosystem – [Invest Like the Best, EP.208] · IDENTIFIED FROM THE TRANSCRIPT · source
“Increasingly receptive to younger and more speculative businesses. And there is a reflective nature in going public and getting your name out there. And I think that the art of storytelling is just as important today as it's ever been in helping you to kind of get up that curve of consumer adoption.”
2021-01-12 · Invest Like the Best · Zack Fuss – Breaking Down the Food Ecosystem – [Invest Like the Best, EP.208] · IDENTIFIED FROM THE TRANSCRIPT · source
“The reality is that if you build a business once and it's profitable and the unit economics work, but I also think on the other hand, it's important to consider that some of these businesses that are considered to be sleepy or less disruptive are now themselves becoming the disruptors. We joke about Walmart in that if they were to change the way that they talk about their business to GMV and to daily active or monthly active users, it would probably be treated as a different industry. The way in which businesses tell their story and the narrative that they create helps to become and scale up over time. And I think that the competition that's facing them is cognizant of them, but small and focused, as you said, still has the ability to win. There's a reason that a business like Sweet Green has started from a small concept by three Georgetown grads to a real business today. The public markets are becoming”
2021-01-12 · Invest Like the Best · Zack Fuss – Breaking Down the Food Ecosystem – [Invest Like the Best, EP.208] · IDENTIFIED FROM THE TRANSCRIPT · source
“I think that what's most appropriate to think about here is that you can't run in every race at the same time. I think the reality is that narrow and focused businesses will still be able to compete. I think there are certain subsets of the market where mental models are heuristics that we find to be more attractive given those dynamics. On the one side of things, businesses that provide some sort of social signal. It's a niche brand that's hyper relevant and hyper focused. I think that part of the challenge or the aspirations to become the quote unquote next to Amazon. But the reality is that you can have a very”
2021-01-12 · Invest Like the Best · Zack Fuss – Breaking Down the Food Ecosystem – [Invest Like the Best, EP.208] · IDENTIFIED FROM THE TRANSCRIPT · source
“Subscription offering, it's abundantly obvious to me that today the best businesses are those that are willing to embrace change and compete and that classic innovators dilemma is not impacting them and to the same extent that it has businesses in the past.”
2021-01-12 · Invest Like the Best · Zack Fuss – Breaking Down the Food Ecosystem – [Invest Like the Best, EP.208] · IDENTIFIED FROM THE TRANSCRIPT · source
“Your margin is my opportunity. And so it forces companies that historically may not have tried to move up the value chain to actually invest behind their businesses, to stack S-curves. It's that point, the diffusion of innovations where your growth starts to stagnate and you need to find the best way to either harden your economic moat or compete in a new market. And if you consider the advantages that a company like a Home Depot has. They haven't grown stores in nearly a decade, but they're starting to do acquisitions like a Home Depot supply and a business like Chipotle that's leaning into its digital capabilities. And now rather than being constrained by the four walls of their restaurant, are going to be able to expand that to their greater delivery area and take something that probably would have been capped at a couple million dollar unit volume and expand it further. It's something like Disney introducing Disney Plus and going direct to consumer and Walmart piloting.”
2021-01-12 · Invest Like the Best · Zack Fuss – Breaking Down the Food Ecosystem – [Invest Like the Best, EP.208] · IDENTIFIED FROM THE TRANSCRIPT · source
“Play out more and more today given the implications of the pandemic combined with that concept of increasing returns to scale. The reality is that the best businesses now are going to face cheaper rent in that if they are a traffic driving retailer. And as buy online pick up in store becomes a competitive alternative to online delivery, it's going to drive people to the store, which is a higher contribution margin shopping event. They can hire more efficiently by leveraging digital tools. facet of it is embracing technology rather than trying to compete or avoid it. And they're going to be able to borrow cheaper and cheaper rates to hurt down market competition or compete with them. I think incumbents today are becoming increasingly difficult to compete with in a lot of ways that Amazon inspired a class of high quality, well-positioned companies to take on that day one approach that Jeff Bezos extols. It's the old”
2021-01-12 · Invest Like the Best · Zack Fuss – Breaking Down the Food Ecosystem – [Invest Like the Best, EP.208] · IDENTIFIED FROM THE TRANSCRIPT · source
“I would say one of the key takeaways is that they are in many cases founder led and they are maniacal about the first principles of their business. So if you think about a business like Walmart, which is kind of the archetype of the American retail business, the reality is that for the first 30 or 40 years of Walmart's business, the four wall margins were really healthy and they were an incredible merchandisers. But the business on a consolidated basis wasn't generating cash, which is funny as we look today and complained about some of these high growth businesses being non-free cashfully generative. But the difference being that on the four wall level of the store, they knew to the penny how profitable these businesses were. I alluded to it earlier, but I think some of the best operators have the ability to leverage that second act. I think we're seeing it.”
2021-01-12 · Invest Like the Best · Zack Fuss – Breaking Down the Food Ecosystem – [Invest Like the Best, EP.208] · IDENTIFIED FROM THE TRANSCRIPT · source
“7,500 square feet, so slightly bigger than a convenience store. But really tiny compared to a Walmart supercenter at over 100,000 square feet. And it carries about 10,000 items as opposed to a Walmart that may have 100,000 separate SKUs. And within that tiny footprint, they're generating $2 million in sales and can be staffed with six or seven people. So really, really great businesses. But what's unique about Dollar General and the way they go to market and what I think is the most underappreciated facet of their business is the way that those thousand stores a year get built with such speed and efficiency. They have what's called a”
2021-01-12 · Invest Like the Best · Zack Fuss – Breaking Down the Food Ecosystem – [Invest Like the Best, EP.208] · IDENTIFIED FROM THE TRANSCRIPT · source
“So I think in the physical world, you see it a lot in restaurants and retail. There's some crazy, impressive retail businesses. I think Walmart is one of the most fantastic examples. And more recently, we've seen it with a business like Dollar General. Dollar General is the largest discount retailer in the US behind the likes of a Walmart. It generates $30 billion of sales across 17,000 stores. I mean, there are 3,000 more generals in the U.S. than there are McDonald's. They're typically found in rural areas focused on towns of 10,000 to 20,000 people, markets that are probably too minor for Walmart on big grocers to bother with. They're adding a thousand stores a year. So that's like three stores a day. At this point, I think 75% of Americans live within five miles of Dollar General. So I don't know if you're familiar with their stores. Their footprints are relatively small. They're around.”
2021-01-12 · Invest Like the Best · Zack Fuss – Breaking Down the Food Ecosystem – [Invest Like the Best, EP.208] · IDENTIFIED FROM THE TRANSCRIPT · source
“This morning, we learned that Dunkin Brands is looking to be acquired by brands, which I actually think is something that if you're going to study dominoes, you need to be cognizant of what inspire is building, which is a portfolio company of work capital. And under that sits Arby's and Buffalo Wildlings and another fast food concepts. In the family, as an example, it's something that's very different to compete with.”
2021-01-12 · Invest Like the Best · Zack Fuss – Breaking Down the Food Ecosystem – [Invest Like the Best, EP.208] · IDENTIFIED FROM THE TRANSCRIPT · source
“Company was started by two brothers in Ann Arbor, where the company is still headquartered. They started with one restaurant and then actually started franchising quite quickly. The trend of late has actually been to start with company operated units, prove out the economics, and then start to franchise. I think operators would probably sit on both sides of the debate as to which is the better process. And it was family owned until from the 1960s until 1998, where the company sold most of the business to bank capital. It's interesting, all these QSR businesses have either been taken private or spun off of larger enterprises. So for instance, Young Brands came off of Pepsi, Duncan was also taking private by Bain. Wingstop was a sponsored back company. And so there is something about the efficiency and productivity and scalability inherent in the private equity model and also the leverage. But we'll leave that there. That makes these really good businesses for private equity to own. And then ironically,”
2021-01-12 · Invest Like the Best · Zack Fuss – Breaking Down the Food Ecosystem – [Invest Like the Best, EP.208] · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, so I think that one of the most important is the decentralization of their business. In technology companies, people are way more cognizant of the ecosystem or the marketplace. I think you can make an argument that dominoes is in and of itself a marketplace. You essentially have aligned incentives with your franchisees in that when they do well, the franchisor does well as well. And that's important because they're creating value and the franchisees are working on behalf of their own businesses to go and create value for themselves. In many ways, it is kind of that software in a box model that people like to talk about. Domino's created the business once and then they're selling it multiple times. The restaurant is the form factor, but the technology and know-how and process power of the business are what really drive the returns. And I think that for any business, if you consider returns on capital requisite in the business model, what it comes down to is how much cash can you generate for”
2021-01-12 · Invest Like the Best · Zack Fuss – Breaking Down the Food Ecosystem – [Invest Like the Best, EP.208] · IDENTIFIED FROM THE TRANSCRIPT · source
“Really a year and a half, two years ago, where same store sales decelerated because of the competitive impact from those aggregators, but they kind of stuck to their strategy of maintaining that relationship one-on-one and driving sales to their stores and acquiring customers themselves. There are scale benefits into being a franchise system because all your franchisees contribute to the advertising pool. So it just became a function of them spending those advertising dollars in a more efficient and productive manner. And I think the ghost kitchen example is an interesting one. There are essentially stores that were created for delivery. And I think that if we consider the food and restaurant ecosystem as delivery becomes a more competitive category, it's going to force dominoes to really innovate and stay on the leading edge. And Ghost Kitchens, the reason that they work is because you're able to spread the rent cost across multiple restaurant concepts. And beyond that, as we were talking about earlier, they're in less desirable real estate locations. And so the rent per square foot is just less, which leads.”
2021-01-12 · Invest Like the Best · Zack Fuss – Breaking Down the Food Ecosystem – [Invest Like the Best, EP.208] · IDENTIFIED FROM THE TRANSCRIPT · source
“Engineering of this business are really truly remarkable. If you're doing five deliveries an hour at $4 per delivery, you have $20 to spread across that hour of work for your delivery person. They've been very adamant about not sharing their data with the third party aggregators, with Grubhub and DoorDash and Uber Eats because they really value that relationship they have with the customer. And it's also proprietary information that they feel like the restaurants are kind of being short-sighted and sharing that information, but it wasn't easy. I mean, I love the concept of emote attack. And I think that they kind of proved that through the last three or four years where you had some very deep pocketed investors funding the operating losses of a DoorDash or an Uber. When you're dealing with competition that's uneconomic, it's very difficult. You definitely saw competitive impact on Domino's business despite the fact they're growing their same store sales at gaudy levels through the pandemic.”
2021-01-12 · Invest Like the Best · Zack Fuss – Breaking Down the Food Ecosystem – [Invest Like the Best, EP.208] · IDENTIFIED FROM THE TRANSCRIPT · source
“As we spoke to earlier, pizza almost definitionally is a better product for delivery. It delivers well, but more importantly, the economics of a pizza delivery drop are more powerful. So if you consider a business, as we've referenced, that starts with 80% gross margins versus 60%, that 20% differential in the margin is what funds their ability to deliver pizza. So let's consider a $20 order of dominoes, two medium three topping pizzas. 20% provides you with $4 to essentially fund that delivery cost, and a delivery person can do, I don't know, call it four to six deliveries per hour. Although as an aside in Japan, apparently they can deliver pizza in less than less than two minutes, which is pretty impressive.”
2021-01-12 · Invest Like the Best · Zack Fuss – Breaking Down the Food Ecosystem – [Invest Like the Best, EP.208] · IDENTIFIED FROM THE TRANSCRIPT · source
“If you consider the virality and the consumer trial that that helped to catalyze, people were reinvited back into the business and started to trial the product. And they improved it. That was one of Patrick Doyle's kind of best innovations, but really the most powerful because I think anyone that is loosely aware of the domino story today fully appreciates the fact that they kind of came out 10 years ago and said flat out. We stink.”
2021-01-12 · Invest Like the Best · Zack Fuss – Breaking Down the Food Ecosystem – [Invest Like the Best, EP.208] · IDENTIFIED FROM THE TRANSCRIPT · source
“Company released a pretty viral video of consumer essentially boiling down to the fact that they're pizza taste like cardboard, the age-all debate of product versus distribution. It became very clear that Domino's was a distribution company that wasn't focusing enough on their product. They refocused on the formulation. They improved the crust, they improved the pizza, they improved the sauce. I kind of like the heuristic that Rory Sutherland offers that you want someone in your business that's willing to do something that the CFO will tell you is a terrible idea. I think coming out and saying that the product tastes terrible is generally not a typical marketing strategy.”
2021-01-12 · Invest Like the Best · Zack Fuss – Breaking Down the Food Ecosystem – [Invest Like the Best, EP.208] · IDENTIFIED FROM THE TRANSCRIPT · source
“Of a multi store system that is ordering higher amounts of goods, and as they're ordering more cheese, dough, and sauce, they're getting fixed cost leverage on their stores and the entire system is more profitable. The reason we can see that that's working is the average franchisee in the US has six or seven stores doing about 150,000 in EBITDA per store or a million dollars in their entire system going from Domino's employee to a business owner of six to seven stores doing a million dollars you can appreciate the wealth that's being created throughout the system”
2021-01-12 · Invest Like the Best · Zack Fuss – Breaking Down the Food Ecosystem – [Invest Like the Best, EP.208] · IDENTIFIED FROM THE TRANSCRIPT · source
“Really interesting kind of feedback loop in their businesses where they invest more in the stores, it drives higher same store sales because they have higher same store sales. The stores are more profitable because the stores are more profitable. The franchisees are willing to open up more stores. And because the franchisees are willing to open up more stores in their designated region, that means that delivery times are going to be lower. And if delivery times are lower, that means that the customers are going to be more satisfied in order more pizza. And on and on and on you go. And they've actually formalized that strategy into something called fortressing. So for instance, if a franchisee has two stores in a market and that market's starting to show the stores are at capacity, dominoes will inform that franchisee that they should open up another store in that region if you consider the flywheel that we just referenced as stores generate more sales, they can lower their delivery times by opening up an incremental store, which makes the whole region more profitable. And then you have the scale benefit.”
2021-01-12 · Invest Like the Best · Zack Fuss – Breaking Down the Food Ecosystem – [Invest Like the Best, EP.208] · IDENTIFIED FROM THE TRANSCRIPT · source
“A couple things, it kind of is a really interesting business model in that you're creating the business once and you're selling it multiple times. Every Domino store has a pretty similar order process flow. And if you consider kind of the way that that eases the operational burden on its employees, so the preparation and cooking process for every menu item, whether that be pizza, pasta, wings, desserts, actually uses the same oven. And based upon different points of entry, all the food products complete their cooking at the same time and then are ready to be picked up by the delivery person and dispatched to the home. It's almost like a system engineer's dream in the way that these businesses that work. And then the question is, okay, how are they driving same store sales of their stores? So for a medium, large two-topping pizza, they've charged $7.99 for as long as I can remember. And so as they gain incremental scale, they have the benefit of passing that scale economics on to their customer. There is this.”
2021-01-12 · Invest Like the Best · Zack Fuss – Breaking Down the Food Ecosystem – [Invest Like the Best, EP.208] · IDENTIFIED FROM THE TRANSCRIPT · source
“Is because it's more fragmented and less institutionalized, especially in the United States, they can work with their franchisees to implement new types of technology that may be more challenging for someone like a young brands or a McDonald's who are dealing with more kind of private equity type sponsor oriented owners. Back when they were turning around the product of their business back in the mid-2010s, they also made sure that all their stores were on a unified point of sale system. What that means is that Domino's corporate in Michigan has visibility into the unit economics, the sales, the store level data, and that helps them to inform decisions about where to open new stores, what products to trial, how to push on certain initiatives, how to price their products. It's certainly not a technology company, but they are more tech forward and they show a higher propensity to experiment than most of their kind of fast food quick service.”
2021-01-12 · Invest Like the Best · Zack Fuss – Breaking Down the Food Ecosystem – [Invest Like the Best, EP.208] · IDENTIFIED FROM THE TRANSCRIPT · source
“Yeah, they certainly have the returns of a tech company, so I can see why people lead with that. There are a couple things they've done that show that they are a technology forward company. I think they deserve a ton of credit in appreciating and reacting to platform shifts. So for instance, historically, pizza was a dial-in business. So people would pick up the phone and call. And then the internet helped to accelerate and facilitate internet orders. And then as mobile became more relevant, they made sure that you could order on your mobile. Today, 65 to 70 percent of their orders come through digital channels. So mobile or internet. Another thing that they are really focused on is allowing you to order wherever you may be as a customers. You can order through Alexa. You can order through Google Home. You can order through your iPhone. They even went as far as allowing all these hot spots where you can order to Central Park, for instance. So they're certainly tech focused. The other thing I think is important and the reason that their relationship with their franchisees is so powerful.”
2021-01-12 · Invest Like the Best · Zack Fuss – Breaking Down the Food Ecosystem – [Invest Like the Best, EP.208] · IDENTIFIED FROM THE TRANSCRIPT · source
“Taco Bell. Most burger joints, they're going to have cash on cash returns probably in the high teens to low 20s, so a four to five year payback, which 30 ish percent return, so still very healthy depending upon the region. The only thing I've actually seen that's better is a wing stop. If you look at that stock price chart, you can see kind of how unit economics really drive returns, 40 to 50 percent. Their business model is quite similar, except the difference with wingstop is they historically haven't had delivery. But if you consider the footprint of their stores, and another reason that Domino's is competitively advantaged, because Domino's is a delivery business, they can take lower cost real estate as well. So they don't need to be at the busy intersection or in the strip mall where there's a lot of foot traffic. They can go to more BNC type locations. And so you have a higher gross margin, you have a lower cost of rent, and that kind of all boils down into a much more powerful unit economic for a standalone store.”
2021-01-12 · Invest Like the Best · Zack Fuss – Breaking Down the Food Ecosystem – [Invest Like the Best, EP.208] · IDENTIFIED FROM THE TRANSCRIPT · source