McDonald's Milkshakes are Almost as American as Chinese Chicken
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“Whether it’s the restaurant or the supermarket or the kitchen supply shop, it’s hard to think of sector that is more commercialized and more replete with entrepreneurship and innovation. It is all monetized. … Quality customers are often more important to a restaurant than a quality chef.”
Professor Tyler Cowen’s recent book, An Economist Gets Lunch, is his latest success at illustrating “markets in everything” – and like his wildly popular blog, Marginal Revolution, the engaging read’s ideas and insights are also directly applicable to making discerning choices in stocks, partnerships, and other investments.
[continued from "Tyler Cowen Dishes on the Business of Dining, Eating, and Fooding"]
Slepko: Similar to your amazing chapter on barbecue and what it tells us about various parts of America, you do a good job of showing through cuisine that the Chinese market is not a monolith – and even more so that talking about India as "one culture" is more laughable than talking about Europe as "one culture". In Tyler Cowen’s Ethnic Dining Guide you write, “the rise in Chinese is the big local story.” Tell me the plot that’s afoot.
Cowen: People have realized you can take Sichuan spices [from southwest China] and ship them across the ocean and they don’t lose very much value as they are dry or powdered or otherwise storable and they remain as potent as they would be in China. Whereas, something like Cantonese food [southern China, Hong Kong] which is based on precision cooking of pure, excellent fish and local vegetables is very hard to ship to the US and have it hold up.
That’s what America’s been discovering in the last decade.
Slepko: You speculate that there might be more Filipinos in the US than Chinese (the largest Asian ethnic minority in America). Yet, there are only about 481 Filipino restaurants in the US, and somewhere around 43,000 Chinese restaurants in the US – which works out to 3 for every 1 McDonald’s (NYSE: MCD). What’s going on here, and why don’t you see more consolidation and franchising in the ethnic restaurant business (outside of food courts). You mention in the book that PF Chang’s (NASDAQ: PFCB) has different economics than a typical Chinese eatery. For instance, because they cater to non-Chinese, their soft drinks are often double or triple that of Chinese restaurants targeting similar clientele of a Chinese persuasion.
Cowen: Chinese restaurants are family owned, and their labor force is often family and they get by with lower costs which makes it difficult to scale them. You lose what’s special. There’s also been a lot of chaining of what might be called Mexican-related foods (though they aren’t quite Mexican food necessarily).
A lot of the Filipino tradition is about dining at home, plus a lot of Filipinos have taken so much to fast food – and in the Philippines especially US, Spanish, and Chinese styles of food. As eaters, they are already quite synthetic as eaters, so they are readily able to switch to other cuisines when they live in the US. It is often said the Philippines has the best non-native food in all of Asia, which is possibly true. You can probably imagine eating a pizza in the Philippines, whereas the same could probably not be said for pizza in Korea.
Slepko: Does this misperception of the Filipino community in the US have wider implications for investing in the Philippines itself? As only a few public companies from the region are listed on US exchanges, three ETFs dominate US investment in the Philippines and among its South China Sea peers – iShares Thailand (NYSEMKT: THD), Market Vectors Vietnam (NYSEMKT: VNM), and iShares Philippines (NYSEMKT: EPHE). They all have similar trading volumes (around 150,000), however, while the Philippines ETF has attracted almost USD 150 million in assets, the Vietnam ETF has pulled in about USD 250 million, and the Thailand ETF is well over USD 650 million. Anecdotally, there seems to be a high correlation between American interest in their cuisines and American interest in their markets.
Cowen: While I can’t address all the specifics there, I can say that among all the major Asian countries, the Philippines is the least hospitable to foreign investors, and they have restrictions on foreign investment written into their constitution. Now finally they are maybe (maybe) thinking of changing, though I don’t think they are about to do it. Fewer institutions have evolved in the Philippines to package things for foreign investors in an appealing way. There is some of it, I think there will be more, and in general I’m bullish on the Philippines. Thailand has been much, much more hospitable to foreign investors. People in the Philippines know that, and it stings them – same with Vietnam. I think over time we’ll see similar changes [like in Thailand] in the Philippines.
[The Philippines’] infrastructure is extremely poor, and precisely because they were colonized by Spain and the US for such a long period of time [~400 years], they are more sensitive to a lot of issues regarding foreigners. Of course, Thailand was never really colonized, and although Vietnam was, they can congratulate themselves for having beaten the US in a war – which not many countries can say. In some ways it makes it easier for them to be more open.
[continued in "Barbecue Doughnuts?"]
Nick Slepko (hukgon) has no position in any company mentioned here at the time of publication. The Motley Fool owns shares of McDonald's. Motley Fool newsletter services recommend McDonald's. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.