2023 Week 4: Strangely Quiet Week
F&B service providers rolling out branches without dining area; Intel reported a disastrous earning results
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Markets run down
F&B Service Providers Explore Alternative Retail Formats
Online and drive-through orders have soared since the pandemic. For instance, 85% of all fast food orders in the US are made "to go" instead of dining in. As a result, major F&B service providers are switching their operations and strategy to accommodate this change in customer behavior — McDonald’s, Taco Bell, Starbucks, and other F&B service providers are rolling out seat-less retail outlets.
“McDonald’s Corp. has a new restaurant outside Fort Worth, Texas, with no tables or seats for customers and a conveyor belt that routes food to drivers who order ahead.”
"[Starbucks] also plans to build a lot of new stores, and new locations are being designed for more specific purposes as a way of alleviating the current congestion. One location might churn out delivery orders with no other means of ordering, while another might allow customers to pick up mobile orders only.” — WSJ
What are the benefits of this revamped store format?
Cost-savings: Rent is a significant cost bucket for any F&B service provider, costing ~10% of total revenue. However, thanks to online food delivery services, F&B retailers can reduce their rental costs by launching smaller branches (with fewer/no seating areas) without significantly affecting their revenues.
Improved operations: The food/beverage preparation process is the major bottleneck in F&B service providers' operations. Employees must juggle in-store, online, and drive-through orders, leading to longer wait times and unhappy customers. However, with a store that solely focuses on online orders or drive-through orders, firms can free up capacity that can be utilized to improve preparation speed. Moreover, firms can utilize the additional space, which would have been utilized for the seating area, to build additional capacity (e.g., extra workstations and equipment) that would greatly improve the number of items prepared per store.
However, there are some additional factors to consider:
Location of drive-through/online-order-only stores: How will these stores affect the revenue of the existing stores around the area — will it cannibalize revenue from other physical branches?
Additionally, firms must evaluate a particular location’s online delivery demand vs. in-store demand. This way, they can selectively launch their revamped stores while closing down under-utilized physical stores or renovating existing stores to remove seating areas — whichever option is cheaper.
Negative impact on brand image: It is also crucial to note that stores that do not provide seating areas might impact the firm's existing brand image. For instance, Starbucks brands itself as a place for "civic engagement," but how will its brand image alter without a seating area? Could this impact customer retention in the long term?
Intel’s Disastrous Earnings Report
Intel’s recent earnings results were a major disappointment. Intel’s profit and revenue declined by 60% and 20%, respectively, from what they were in 2021.
What caused this decline?
Demand for chips weakened: The largest decline in chips demand came from the PC industry. Given the weak macroeconomic outlook, firms such as Dell, Lenovo, and HP saw a decline in PC demand as consumers cut back on their spending. As a result, PC firms are holding onto unsold PC inventory and curtailing their chip purchases.
Decline in gross margins: Chip manufacturing is a scale business. In other words, the cost to produce each chip increases if factories are underutilized, which is the case for Intel. Consequently, its gross margins have decreased by 4% this quarter.
What to expect?
A semiconductor is a cyclical industry, following the ups and downs of the broader economy. It is difficult to predict how quickly demand will bounce back this year, but it is safe to say that the firm will experience a significant slowdown this year.
We can expect Intel to focus on cutting costs wherever possible, but this will not significantly improve its situation — a bounce back in demand is the only way for Intel to spread its fixed cost base and reduce its per-unit cost of chips significantly.
🗒Weekly Headline Summary
Asia Specific
India's Gautam Adani: Asia's richest man in the eye of a storm|RT
China aims to boost consumption and imports as global demand cools|RT
Japan, Netherlands Agree to Limit Exports of Chip-Making Equipment to China|WSJ
Thailand's first unicorn Flash Express hits the gas in Philippines|NK
Beyond Asia
Debt Ceiling Clash Revives Dispute Over Paying Bondholders First|WSJ
Bed Bath & Beyond to Close 87 More Stores, Harmon Chain as Restructuring Options Narrow|WSJ