Plant protein Impossible Foods inks a deal with Burger King?!?!?!

Earlier this week we posted a Signal that highlighted the change underway at the deli counter in the grocery store as part of our Clean Living investing theme. We are seeing another company respond to the changing landscape that is the shift to better for you, healthier foods as Burger King, which is owned by Restaurant Brands International, is testing a plant-based protein meat alternative with Impossible Foods.

Burger King isn’t the first fast food restaurant to adapt part of its menu to this tailwind, and odds are it won’t be the last, but it is the first (at least that we know of) that is bringing this degree of fast food scale to Impossible Foods. While there may not be a match between Impossible and Restaurant Brands’ Popeyes and Tim Hortons, we’ll be looking to see if Impossible and Burger King look to move beyond just the Impossible Whopper to other products. We’ll also be looking to see how McDonald’s, Wendy’s and others respond. Will they look to further the influence of our Clean Living investing theme on their menus, or will they instead embrace the sinful pleasure of burgers, fries and shakes that fall into our Guilty Pleasures investing theme?

The Impossible Whopper is supposed to taste just like Burger King’s regular Whopper. Unlike veggie burgers, Impossible burger patties are designed to mimic the look and texture of meat when cooked. The plant protein startup recently revealed a new recipe, designed to look and taste even more like meat. That version is being used in Burger King’s Impossible Whoppers.

Other fast food and fast casual items are also appealing to eaters with dietary restrictions or preferences. Taco Bell said in January that it’s testing out a vegetarian menu board in stores, and Chipotle (CMG) recently expanded its line of diet-based bowls to include vegan and vegetarian options. “Lifestyle bowls” launched earlier this year with Whole30 and double protein meals in addition to the keto and paleo bowls.

Impossible products are served at nearly 6,000 US restaurants right now, but the Burger King partnership is a “milestone” for the company, said Impossible Foods COO and CFO David Lee.

Source: Burger King is testing out the Impossible burger – CNN

Shifting Consumer Preferences Favor Food with Integrity Bullets Not Restaurant Shares

Shifting Consumer Preferences Favor Food with Integrity Bullets Not Restaurant Shares

It’s no secret the restaurant industry is having a tough time given restaurant traffic data and less-than-flattering industry articles as it grapples with several consumer-centric issues. We received yet another indication of that restaurant pain last week when Sonic Corp. (SONC) reported a 7.4 percent decline in same-store-sales. The company’s management team chalked up the drop to “a sluggish consumer environment, weather headwinds and share losses…” amid a “very intense” competitive environment. Predictably, the company is retooling its menu offering and even though it’s late to the party, it is also jumping on the smartphone bandwagon.

Stepping back there is a larger issue that Sonic and other restaurants have to contend with – declining restaurant traffic that is due not only to lower prices at grocery stores but also to the shift in consumer preferences to healthier foods. That preference shift is toward natural and organic offerings as well as paleo, gluten-free and others and that’s one of the reason’s we’ve favored shares of United Natural Foods (UNFI) as grocers expand their offering to meet that demand.

Even as companies like Coca-Cola (KO) and PepsiCo (PEP) tinker with their carbonated soft drink formulas to reduce sugar, the new enemy, they have to do so without sacrificing taste. Some investors may remember the whole New Coke thing back in 1985 that was ultimately a failure given the different taste. As Coca-Cola, PepsiCo and even Dr. Pepper Snapple (DPS) look to reformulate to ride either the lower sugar or better-for-you shift, it bodes rather well for flavor companies like International Flavors & Fragrances (IFF) or Sensient Tech (SXT).

That shifting preference has led several restaurant companies such as Panera Bread (PNRA) and Darden’s (DRI) Olive Garden to change up their menus in order to lure eaters. Over the last several years, Panera has been working to eliminate artificial additives in its food to make it “cleaner” for consumers and in 2015 it released a “no-no” list of more than 96 ingredients that it vowed to either remove from or never use in food. Darden is shifting to lighter fare recipes that have far fewer calories than prior ones. Even Chipotle (CMG), the one-time poster child for our Food with Integrity investing theme until its food safety woes last year, has come to fulfill its pledge of using no added colors, flavors or preservatives of any kind in any of its ingredients.

These are all confirming signs of our Food with Integrity investing theme that Lenore Hawkins and I talked about on last week’s podcast. Here too with these new menu offerings, it’s a question of how can restaurants offer healthier alternatives without sacrificing flavor? To us, the answer is found in  International Flavors & Fragrances, McCormick & Co. (MKC) and Sensient shares as well as other flavor companies.

Against that backdrop — – the shift to eating not only at home but eating food that is better for you – we have serious doubts when it comes to the quick service restaurant industry. According to the data research firm Sense360, which analyzed data from 140 chains and 5 million limited-service visits, 38% of heavy quick-service restaurant users reduced their visits in February, compared with the period before Christmas. Not exactly an inspiring reason to revisit shares of Sonic or several other QSR (Quick Service Restaurant) chains like McDonald’s  (MCD) or Wendy’s (WEN) at a time when bank card delinquency rates are climbing, subprime auto issues are doing the same, student debt levels loom over consumers and real wage growth has been meager at best.

While more people eating at home is a positive for Kroger (KR) and Wal-Mart (WMT), our “buy the bullets not the gun” approach continues to favor shares of McCormick and International Flavors & Fragrances in particular.  For those unfamiliar with “buy the bullets, not the gun” it’s a strategy that looks to capitalize on select industry suppliers that serve the majority of the industry with key components or other inputs. Shining examples of this strategy have included Intel (INTC), Qualcomm (QCOM) and recently acquired ARM Holdings. Common traits among them include a diverse customers base and strong competitive position with a leading market position for their products. The same holds true for both McCormick and International Flavors & Fragrances, which are also benefitting from our Rise & Fall of the Middle Class investing theme.

Cocktail Investing Ep. 8  – Getting buttered up with Steve Fredette of Toast, a restaurant technology company at the intersection of the Connected Society and Asset-lite investment themes

Cocktail Investing Ep. 8  – Getting buttered up with Steve Fredette of Toast, a restaurant technology company at the intersection of the Connected Society and Asset-lite investment themes

In this episode of Cocktail Investing, we learn about the bread and butter of restaurant technology from Steve Fredette, President and co-founder of Toast, the customizable, cloud-based, all-in-one restaurant POS and restaurant management system built by MIT foodies. While they many not know it, their company Toast combines aspects of both our Connected Society and Asset-lite investing themes. Steve also offers a few confirming data points on our Food with Integrity investing theme as well.

Tematica’s cocktail mixologists, Chris Versace and Lenore Hawkins talk with Steve about what restaurant owners fear most, what most people get wrong about the industry and what it takes to stay relevant in a fast-changing food world. With Toast serving restaurants ranging from the small fast-casual to larger chains to even Michelin stars, Steve is able to share unique insights into a sector we all experience, but one we rarely get to see behind the curtain, and how restaurants are looking at technology to help drive consumer engagement as well as offset rising minimum wages and other costs.


Companies mentioned on the Podcast
  • Amazon (AMZN)
  • Beef ‘O’ Brady’s
  • Brass Tap Beer Bar
  • Chipotle Mexican Grill (CMG)
  • Costa Vida
  • McDonald’s (MCD)
  • Pieology
  • Popeye’s Louisiana Kitchen (PLKI)
  • Restaurant Brands International (QSR)
  • Starbucks (SBUX)
  • WalletHub
  • Wendy’s (WEN)
Chris Versace Tematica Research Founder and Chief Investment Officer
Lenore Hawkins Tematica Research Chief Macro Strategist
Facing Higher Wages, Wendy’s Exploring Automation Options To Cut Costs

Facing Higher Wages, Wendy’s Exploring Automation Options To Cut Costs

What do rising minimum wages and the need for workers that are always prompt and courteous add up to?

If you’re an employer, especially in the quick-service restaurant industry you may say higher costs and problems. When there are problems, companies tend to look for solutions and we’ve already seen ordering kiosks pop up at Panera, mobile ordering at Starbucks and its coming this year to McDonald’s. Wendy’s is jumping on the ordering kiosk bandwagon, but it is also eyeing other “forays into automation.” Based on a recent McKinsey analysis of 800 occupations,  “accommodation and food service” contain the highest percentage of tasks—73%—that could be completed using current technology. It seems automation, which includes robots of different kinds, could be popping up at Wendy’s before too long… not good news for the 5 million Americans who work in food and beverage serving industries.

By the end of the year, Wendy’s says it will have installed self-serve ordering kiosks in 1,000 of its restaurants.

COO Robert Wright told the LA Times that the machines, along with other forays into automation, will help reduce labor costs, which rose 5% at the company last year as a number of states—including Alaska, California, and Massachusetts—raised their minimum wages. Replacing human labor with machines, or threatening to do so, has become a common response to raising wages by fast food executives.

The first automated burger machine, for instance, debuted more than 50 years ago, but practical considerations, like the cost of the machine compared to labor and the machine’s limitations, stalled adoption. Today, as the price of labor rises, the cost of machines drop (three of Wendy’s kiosks, according to the LA Times, will cost just $15,000), and the quality of the technology improves, automation technology is becoming a legitimate option to fast food restaurants.

Source: Wendy’s will make automate ordering at 1,000 stores this year — Quartz