Pizza is America’s favorite food, but…

Pizza is America’s favorite food, but…

Let’s get this out of the way before we get started with this signal by saying that we here at Tematica love pizza. We may be part of the herd on this one, but what can we say – we love it. And it seems we are far from alone, given that it seems pizza is America’s favorite food as well. Per the data, 350 slices of pizza are consumed every second – whoah!

But… and yes there is a but… as consumers embrace our Cleaner Living theme, what will become of this Guilty Pleasure staple?

We’ve seen gluten-free based pizzas come to market, and more recently they’ve been joined by cauliflower based crust ones (trust me, they are better than you might think). Odds are healthier friendly alternatives are on the way as evidenced by even Little Caesar offering a pie topped with plant-based Impossible Sausage.

We have yet to see any movement on the plant-based meat alternatives by industry heavies Pizza Hut, Domino’s, or Papa Johns, but we’re keeping our eyes peeled and our taste buds ready.

Do we think traditional pizza will fall by the wayside? No, but it just may be reserved for moments people truly want to indulge. The same is likely true for burgers and while that may fly in the face of all the headlines for Beyond Meat, the reality is a tasty burger, just like an incredible slice of pizza, will never go out of fashion.

According to a survey conducted last year by The Harris Poll for the California Pizza Kitchen chain, some 21% of the 2,000-plus American diners questioned named pizza as the food they’d pick if they could only eat one thing for the rest of their lives. Pizza beat out steak (16%), burgers (13%), both tacos and pasta (11% each) — though strangely enough, only one pizza operation made our recent list of America’s favorite regional fast food chains: Seattle-based MOD Pizza, which is also the fastest-growing fast-food chain in America.

Every man, woman, and child in the nation eats an average of 23 pounds of pizza annually — that translates to around 46 slices — adding up to a total of about 3 billion pies. To break the pie chart down another way, about 350 slices get consumed every second of the day.

A lot of that pizza — 59%, according to one recent estimate — gets eaten at home, and while some ambitious cooks doubtless make their own from scratch (or with a premade crust), it’s safe to say that a large portion comes out of the supermarket freezer case. (Americans spend about $4.4 billion on frozen pizza annually, and it’s said that two out of three households consume it regularly.)

Source: America’s 25 Favorite Pizza Joints – 24/7 Wall St.

Pizza Hut expands beer delivery to seven states

Pizza Hut expands beer delivery to seven states

There are several food items that are hallmarks of American culture – hamburgers, hot dogs, and the combination of pizza and beer. Guilty Pleasures one and all, and in what can only be described as a sea change moment, Pizza Hut, which is owned by Yum Brands (YUM), is embracing (finally) the delivery of pizza and beer. If you’ve experienced Domino’s Pizza, Papa Johns or even Pizza Hut you know it used to be two very different tasks — order the pizza and make sure you have enough beer to go along with it (as well as some wine as well beverages for the under drinking age folk).

Perhaps it has to do with its revenue being pressured, but Pizza Hut is grabbing our Guilty Pleasure investing theme by the horns and doubling down, partially combining those two tasks to capture incremental revenue dollars by offering beer convenience. For some of us here at Tematica, that is a step in the right direction, but others would like to see them include wine as well. Baby steps is what I have to say. Now to see what the beer selection is…

More than a year after first testing beer delivery in Arizona, Pizza Hut said Monday it will expand the pilot program to 300 restaurants in seven states by mid-January.

“As the official Pizza Sponsor of the NFL, we’ve been celebrating football fans all season long, so it only makes sense for us to bring more customers the beloved combo of pizza and beer ahead of the Super Bowl,” chief brand officer Marianne Radley said in a statement. “We are proud to be pioneers of beer delivery and are well-poised to take on more markets in the coming year.”

Customers will be required to prove they are of legal drinking age at the time of delivery by showing a valid form of identification and completing a form for the restaurant’s records, the company said. Online orders that include beer will feature a pop-up prompting users to confirm they are of legal age.

In May, when beer delivery expanded in California and Arizona, the prices ranged between $3 and $4.50 for two packs and $5.99 and $10.99 for six packs.

Over the past year, Pizza Hut has worked to revitalize the brand through value promotions and a focus on growing delivery and carryout-focused restaurants.

Source: Pizza Hut expands beer delivery to seven states

A Middle-class Squeeze recipe: Flat real wage growth with prices poised to move higher

A Middle-class Squeeze recipe: Flat real wage growth with prices poised to move higher

We’ve been witnessing inflationary pressures in the monthly economic data over the last several months. Some of this has been higher raw material due in part to trade tariffs and other input costs, such as climbing freight costs, as well as the impact of increased minimum wages in certain states. Habit Restaurant (HABT) noticeably called out the impact of wage gains as one of the primary drivers in its recent menu price increase.

This June 2018 earnings season, we’ve heard from a growing number of companies – from materials and food to semiconductor and restaurants –  that contending with inflationary pressures are looking to pass it through to consumers in the form of higher prices as best they can. The thing is, wage growth has been elusive for the vast majority of workers, especially on an inflation-adjusted basis. Keep in mind that is before we factor in the inflationary effect to be had if these escalating rounds of trade tariffs are in effect longer than expected.

As these price increases take hold and interest rates creep higher, it means consumer spending dollars will not stretch as far as they did previously.  Not good for consumers and not good for the economy but it offers support for the Fed to boost rates in the coming quarters and keeps our Middle-Class Squeeze investing theme in vogue.

 

U.S. average hourly earnings adjusted for inflation fell 0.2 percent in July from a year earlier, data released on Friday showed, notching the lowest reading since 2012. While inflation isn’t high in historical terms, after years of being too low following the 2007-2009 recession, its recent gains are taking a bigger bite out of U.S. paychecks.

“Inflation has been climbing and wage growth, meanwhile, has been flat as a pancake,” said Laura Rosner, senior economist at MacroPolicy Perspectives LLC in New York. “In a very tight labor market you would expect that workers would negotiate their wages to at least keep up with the cost of living, and the picture tells you that they’re not.”

Source: American Workers Just Got a Pay Cut in Economy Trump Calls Great – Bloomberg

Silver Screen

Coming soon to theaters: higher prices. Movie theater operator Cinemark Holdings Inc. plans to pass costs along to customers, partly due to seating upgrades.

“Our average ticket price also increased 3.7 percent to $8.08, largely as a result of inflation, incremental pricing opportunities associated with recliner conversions, and favorable adult-versus-child ticket type mix,” said Chief Financial Officer Sean Gamble. “As we’ve continued to roll out recliners, our general tactic has been to go forward with limited pricing upfront and then when we see the demand opportunity increase there, and I’d say there’s still — we still believe there is further opportunity as we look to the back half of this year and forward in that regard.”

To be fair, movie ticket prices have been marching steadily higher in recent years. But theaters aren’t the only ones planning to pass on costs.

Sugar Boost

The maker of Twinkies and Ding Dongs wants to charge more for its sugary snacks.

“We will implement a retail price increase and incremental retailer programs to help offset the inflationary headwinds we and others in the industry are experiencing,” Hostess Brands Inc. Chief Executive Officer Andrew Callahan said on a call, explaining that the company is researching how to do so without choking off growth. The majority of the change will come in 2019, he said.

Bubble Wrap

Sealed Air Corp., the maker of Bubble Wrap and other packaging materials, is trying “to do everything we can operationally to keep our freight costs low,” Chief Financial Officer William Stiehl said in apresentation. “Where I’ve been very happy with the company’s success is our ability to pass along price increases to our customers for our relevant input cost.”

Steel Prices

Tariffs are hitting home at Otter Tail Corp.’s metal fabrication unit BTD, but leadership doesn’t sound especially concerned. Thank pricing power.

“We do not anticipate higher steel prices from tariffs having a significant impact on BTD’s margins as steel costs are largely passed through to customers,” Chief Executive Officer Charles MacFarlane said on a call. “BTD is working to enhance productivity in a period of increased volume and tight labor markets.”

Tariff Tag

The trade impact pass-through is equally real at semiconductor device maker Diodes Inc.

“Products that we import into the U.S. from China, all of those products are going to be ultimately affected by the tariffs,” Chief Financial Officer Richard White said on a call. Between U.S. levies that began July 6 and additional rounds planned to follow, “it’s about $3.6 million per quarter, but we plan to pass these tariff charges on to our customers.”

Home Costs

Housing developer LGI Homes Inc. is “consistently” seeing sales price increases as costs bump higher — a sign that pricing power exists even in big-ticket markets like housing.

“We’re able to and need to raise our prices to keep our gross margins consistent,” Chairman Eric Lipar said on a call. “In the market that we’re in, which I’d characterize as a good, solid, strong demand market with a tight supply of houses and the labor challenges, the material challenges that we all face, we see at least for the next couple quarters, that trend continuing. Prices are going to have to increase on a same-store basis if you will in order to offset increased costs.”

“We’re dealing with a higher monthly payment for the buyer now because of the rising interest rates from nine months ago. Demand seems to be there,” he said, adding that the company may need to examine ways to address the situation. “Rather than reducing the price, we may have to look at smaller square footages. The buyer may have to choose.”

People Problems

Not everyone is finding opportunities to pass along costs: Civitas Solutions Inc., a health and human services provider that caters to those with disabilities and youth with behavioral or medical challenges, is seeing slimmer margins.

“The number of people that are exiting the company are still a concern to us and I think it’s driven largely by the full, robust economy,” Chairman Bruce Nardella said on a call, citing workers seeing opportunities to leave to get higher wages. “Over the last two years, our margins have eroded because of that labor pressure.”

Pizza Pain

As if a leadership feud and sales slump weren’t problematic enough, pizza chain Papa John’s International Inc. also has to deal with wage pressures and rising costs. It’s responding by attempting to eke out efficiency gains, rather than by raising prices, to defend its margins.

“We have employed third party efficiency experts to review the potential for improvements within our restaurants,” Chief Executive Officer Steve Ritchie said on a call. “They are also conducting time and motion studies. Their work will directly supplement the work we are doing within our restaurant design of the future.”

Addressing Pressures

As some companies maintain profits by pushing costs to customers, Flowers Foods Inc., the maker of Tastykake pastries and Mi Casa tortillas, is finding work-arounds. It increased prices in the first quarter to help offset input inflation, but has also eaten some of the cost.

“Our margins were impacted by inflationary pressures from higher transportation cost, a tight labor market, and increasingly volatile commodity markets,” Chief Executive Officer Allen Shiver said on a call. “To address these inflationary pressures, we are aggressively working to capture greater efficiencies and cost reductions.”

 

Source: Inflation Is Coming to Theater Near You as U.S. Companies Flex Pricing Power – Bloomberg

Facebook joins Amazon in disrupting food delivery 

Facebook joins Amazon in disrupting food delivery 

Recently it was announced that Amazon (AMZN) partnered with Olo, a supplier of order and pay technology to thousands of U.S.  restaurants, to expand its burgeoning food order/delivery service. After testing a similar solution over the last year, Facebook (FB) is now taking its own take on this live across the U.S. As we watch these and other competing services that are likely to develop (where is Alphabet/Google on this?),  it will be interesting to see the split between online orders at home or office vs. mobile orders.

We suspect mobile activity, as with several other aspects of our Connected Society investing theme, will win the day. We also suspect restaurant companies, especially smaller ones, a breathing a sigh of relief that as they embrace this technology disruptor their fate may be somewhat different than brick & mortar retail.

Facebook Inc. wants to be a bigger player in the restaurant game.The social network has announced a new feature that will let users buy meals on its website through third-party delivery services like DoorDash or directly from a group of restaurants such as Chipotle Mexican Grill Inc. and Five Guys.

Facebook has been working on the new product for a year, and carried out tests with restaurants including Papa John’s. It’s part of tech company efforts to boost their presence in the restaurant industry.

Source: Facebook to Take Food Delivery Orders Directly on Its Website – Bloomberg

Apple Gets Serious with tvOS, Ups App Size for Better Experience

Apple Gets Serious with tvOS, Ups App Size for Better Experience

Apple TV has been one of the key devices to spur chord cutting, but it’s become an even more powerful platform with tvOS. Cue apps like shopping and ordering food for example via Amazon and Papa Johns (Did you miss the new Amazon shopping app for Apple TV?). As nice as that has been those apps have been lacking due to size, but Apple is fixing that. After tonight, apps can be as big as 4GB, up significantly from the prior 200MB. This should result in a far better user experience (especially for gaming… and you thought GameStop was already hurting), something we know Apple tends to focus on. This also serves to make the living room a greater hub in the Connected Society.

While Apple TV apps were limited to 200MB in size when the device was first announced back in 2015, Apple has announced this evening that it is now accepting larger tvOS binaries. This means that developers can now submit apps as big as 4GB. With today’s change, tvOS apps can now be just as big as iOS apps, which are also capped at 4GB. Apple says that this increase in size will allow for developers to “provide a complete, rich user experience” right from installation.

Source: Apple increases app size restriction for tvOS apps from 200MB to 4GB | 9to5Mac

Papa John’s Confirms the Appification of TV Is Underway

Papa John’s Confirms the Appification of TV Is Underway

The pizza industry has been one of the early adopters of digital and mobile technology compared to the rest of the restaurant industry with  Papa John’s (PZZA) at the forefront. This new order app on Apple’s tvOS powered Apple TV  confirms the sea change that is upon when it comes to TV into a consumption + gaming + digital entertainment platform. It’s not lost on us that now one doesn’t need to get off the couch to order a pizza, but we see that as the intersection of our Connected Societ, Cashless Consumption  and Fattening of the Population. One more step closer to Disney’s (DIS)  WALL-E.

 

Papa John’s knows a delicious pizza goes well with marathoning your favorite shows by way of the Apple TV. That’s why the pizza giant has launched a new app to let you order, customize and pay a pizza order directly from the Apple TV itself.

The new app actually beats Domino’s to the punch, a surprising turn of events given Domino’s “emoji” ordering and the Xbox ordering campaign launched a while back. The fact that Papa John’s got to Apple TV first is a milestone for the company in addition to the fact that it was the first pizza chain to offer up digital ordering back in 2001 and the first to introduce mobile ordering back in 2007.

Source: The new Papa John’s app for Apple TV makes ordering a breeze