Barbecue Doughnuts?

Nick is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.


“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.

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Slepko:  One of the more interesting parts of the book for most Fool readers will probably be when you contrast the business of barbecue with the business of donuts – the whole regional vs national, artisanal vs mass production, complicated set-ups vs easily franchised aspects that seem to define and dictate highly diverging business models.

Cowen:  They are both morphing.  It used to be clear what was barbecue and what was not.  It was something done by a particular set of pretty traditional people in a few parts of the United States.  Now it’s spreading everywhere, and its becoming a matter of degree – like the Korean bul-gogi or Indian tandoori or Brazilian churrascaria.  I would say those categories are collapsing somewhat, which is mostly a healthy development.

If you look at donuts, or consider the gourmet cupcake shops – some of which are artisan, some of which are chained – they are not your grandfather’s Dunkin’ Donuts (NASDAQ: DNKN), they are way better.  In some sense through capitalist innovation, donuts are becoming more like barbecue, and barbecue is becoming more like donuts.

Slepko:  That sounds like the worst fusion cuisine ever.  I’m from the West Coast, but when I worked in DC, I was surprised by how tribal the divisions were between fans of Dunkin’ Donuts and Krispy Kreme (NYSE: KKD) – even though in doughnuts alone, Dunkin’ pulls in almost ten times more in revenue.  Do you have an opinion on what this great rivalry means for the future of the Republic?

Cowen:  I would have to say that Canada’s Tim Hortons (NYSE: THI) is the winner as it has become identified with an entire country and has outdone all its American competitors…I think because Canada’s a smaller market, they had it more to themselves and there’s more of a cultural identity to them.  The idea that you grow up going to a Tim Hortons is somehow more memorable or folkloric in a way that Dunkin’ Donuts doesn’t quite have.  Dunkin’ Donuts is a phase you grow out of, whereas Tim Hortons is something you become nostalgic about.  They’ve managed to make that leap, and it’s a brilliant business move.

Slepko:  What about barbecue?  Is there any decent mass market barbecue out there?  In your book, you discuss how Chipotle’s (NYSE: CMG) sous-vide technique has helped to overcome some of the complications and is, “The closest thing to quality, mass market barbecue,” in the US (if not the world). 

Cowen:  It depends on what you mean by “mass market” because even the biggest barbecue chains are not that large.  However, there’s a new form of mass market barbecue and it’s called the Internet and FedEx (NYSE: FDX).  Just yesterday, I googled “Kreuz Market Lockhart” which is in Texas – and is one of the best known barbecue places [and profiled in An Economist Gets Lunch].  We ordered our Thanksgiving dinner from them, and they will ship it courtesy of FedEx.  They are just one store, but in a way this becomes like chaining and they do a lot of business mail order.  Expansion happens in a lot of subtle ways you don’t always see up front – by the way, I recommend you do the same.  Their shipping charges are quite low, and it’s cheaper than preparing a normal Thanksgiving dinner.

Slepko:  So you are doing a traditional Thanksgiving barbacoa dinner like the Spanish “Pilgrims”?

Cowen:  Brisket, spicy sausage, and pork ribs.  It’s enough to feed five people and shipping charges are like USD 30, and it comes pretty much ready.  Because it’s slow cooked and you reheat it slowly it holds up quite well…FedEx gives you access to more variety and basically barbecue is cheap because you cook it en masse even if you are just a single proprietor.  The real question is if you can scale up, and this allows them to sell more barbecue.  On my end, it is crazy not to do it considering the dollar-value of my time just to wait in line at a supermarket.  I’m saving money, and I’m getting something awesome.

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Nick Slepko (hukgon) has no position in any company mentioned here at the time of publication.  The Motley Fool owns shares of Chipotle Mexican Grill and FedEx. Motley Fool newsletter services recommend Chipotle Mexican Grill, FedEx, and Krispy Kreme Doughnuts. 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.

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