KenTacoHut drops $375M on burgers

Tuesday, January 7, 2020 by Robinhood Snacks | Disclosures

Yum goes ham

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Hey Snackers,

Regular cats and regular waiters are so 2019. 2020 is already bringing us adorable robot cat waiters.

Fresh after falling on Middle East tensions, markets bounced back to start the week — and demand for "safe haven" investments jacked gold prices up to an almost 7-year high.

Scaled
1. SmileDirectClub snags a spot at Walmart — but not with its core product

Prime real estate... Walmart is Earth's biggest retailer — Now SmileDirectClub will sell its mouth-flattering goods exclusively on Walmart's website and across its 3,800+ US stores. One of the worst IPOs of 2019, SDC shares popped 25% on news of the partnership. The awkward part? The partnership doesn't even include their core product.

  • Before: SDC is a direct-to-consumer brand, selling its clear braces-replacing aligners from its own website (like DIY Invisalign).
  • After: SDC-branded electric toothbrushes, tooth-whitening kits, dental device cleaners — they're all new, and will now be sold at Walmart.
  • MIA: Its go-to clear aligners will stay exclusively on SDC's website and its SmileShop locations.

More like Smile InDirect... SDC's strategic move to go off its own website and into another retailer isn't totally fresh — its online-first, direct-to-consumer cousins made similar moves: Casper mattress, Harry's razors, and Quip toothbrush all now sell in Target stores. But SmileDirect's the only one to keep its core product to itself.

  • Side note: Walmart will see how SDC's products do with its lower-income customers before possibly setting up full SDC shops within its stores.
THE TAKEAWAY

This is SDC's top-of-funnel strategy... How do you warm people up for a bigger commitment, more expensive core product? Offer them gateway goods instead. SDC's main teeth-straightener costs nearly $2,000. An SDC electric toothbrush in color "blurple" costs just $25.

  • First date: SDC earns your trust through its cheaper, low-commitment options at Walmart.
  • Marriage: Then, after months of keeping your teeth white with SDC products, maybe you'll feel ready to put a ring (or an aligner) on it.
Devoured

More than late night drunchies... Yum! Brands announced Monday that it's buying California-based Habit Restaurants, causing the burger chain's shares to surge 33%. You know Yum as the owner of fast food go-tos KFC, Pizza Hut, and Taco Bell (AKA, Ken-taco-hut) — this is its 1st acquistion of a stand-alone fast-casual chain since going public in '97. We fried up the history:

  • 1969: The Habit Burger Grill opens in Santa Barbara — the fancy burger chain boasts some healthy-ish options too (fried green beans FTW).
  • 1977: PepsiCo starts a fast food division by acquiring Pizza Hut (then Taco Bell in '78, then KFC in '86).
  • 1997: Pepsi decides its done with restaurants. So it wraps up the tacos, chicken, and pizza into a separate company, and sticks on the "Yum Brands" name (and separate YUM stock).
  • 2020: Yum is now the world's largest restaurant company with 49K stores in 145 countries. Next, it's throwing Habit's 265 locations on the menu, planning to add over 2K more.
THE TAKEAWAY

The burning question on everyone's lips... Why Burgers? Why Now? The answer: Because fast-food needs fast-casual. When you think fast-casual, you picture harvest grain bowls that you pay for at the counter (after loading up on free toppings). But burgers are part of the fast-growing segment too:

  • Five Guys and Shake Shack are also fast-casual (more expensive and higher quality than Mickey D's, but still pretty accessible).
  • From 2005 to 2017, the number of burger outlets quadrupled — Americans are willing to pay for more expensive premium burgers.
  • Yum wants a piece of the growing fast-casual pie without straying too far outside its comfort zone. Burgers hit the spot.
Un-acquire

"Protect Life"... That's the bold mission that greets you at Axon Enterprises. The inventor of the taser also makes body cameras and sells both to police with hopes that fewer uneccesary deaths happen. Now Axon finds itself in court for a different reason — its suing the government for demanding it break itself up.

  • Almost 2 years ago, Axon acquired Vievu, which also made body cameras for police officers.
  • 2 weeks ago (on Christmas Eve Eve), the Federal Trade Commission accused Axon of aggressively jacking up prices after it gained all that market power (AKA, acting like a monopoly).
  • The FTC's demanding Axon spin-off a "clone" company to compete against itself with body cameras.
  • Plus, it has to equip that company with its business secrets (this is a company's worst nightmare).

You don't like DMV requests... (this one's worse). The government's request is so soul-crushing for Axon that it's suing. The taser-creator believes this is government overreach and that there's still plenty of competition in body cameras. The CEO crafted a whole blog post about it, and the company outlined its side of the story.

THE TAKEAWAY

The opposite of cuffing season... For years, it's been open-season for companies to mega-merge with each other, creating monopoly-ish dominated industries. If a Democrat becomes president, they may call for breakups in the industries below, and these breakups could follow the Axon playbook.

  • Tech: Facebook was allowed to acquire Instagram, the biggest threat to its dominance.
  • Airlines: After a jaw-dropping number of mergers, 4 major airlines now handle 75% of the air travel market.
  • TV & Movies: Disney has acquired Marvel, Star Wars, Pixar, and Fox.
What else we’re Snackin’
  • Goopy: Gwyneth Platrow partnered up with LVMH's Sephora to start selling her Goop wellness-infused vitamins and magic-enhanced beauty masks
  • $$$: Bed Bath & Beyond needs to raise some cash, so the chain is selling half of its store properties for $250M, then leasing the buildings so it doesn't even have to move out
  • JetGreen: JetBlue plans to starting mixing in renewable fuel to try and become the 1st carbon-neutral American airline
  • Mickey Cheese: Disney's streaming biz is already worth over $100B, according to Barclays analysts who are spending waaaay too much time watching Disney+
  • Sunny: Tesla-Rival Fisker unveils a $37.5K electric SUV with a solar roof and 100% "vegan" interior
  • CES-y: The unique sex toy that was banned from last year's Consumer Electronics Show is the event's show-stopper in 2020
Snacks Daily Podcast

Biting off more on the Axon drama, SmileDirectClub's top-of-funnel strategy, and Yum's awkward history (it was part-owned by a tobacco company).

Tuesday
  • The Cosumer Electronics Show (CES) kicks off in Las Vegas
  • Earnings from Pier 1 Imports

Disclosure: Authors of this Snacks own an option of SmileDirectClub

ID: 1050410

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