Editorial Note:
I will be heading out on VA for the year's balance and returning on January 3, 2022. We have scheduled a Restaurant 1Q22 themes call for January 6 @ 2 PM.
HAPPY HOLIDAYS
Howard Penney
More avocados from Mexico (AVO)
Hass avocado prices are at a ten-year high for the second week in a row. The U.S. market is currently reliant on Mexico for supply at this time of year. Avocados From Mexico, the largest marketer of avocados in the U.S., recently added the Jalisco region to the import market for the U.S. beginning in June 2022. Previously all avocado imports from Mexico came from the Michoacan region, which accounts for 80% of production. Jalisco is the second-largest producing state in Mexico. Jalisco will increase the available supply, especially in the summer months. The avocado forecast continues to call for higher prices throughout the end of the year. Avocado sales increased 3.4% in the four weeks ended October 3, the first YOY increase since the four-week period ended February 21. In November, avocado sales accelerated to 9.2% YOY growth. The Mexican government plans to add two other states to the approved export list to the U.S. because growing supply, not demand, is the more significant concern.
CMG Management COGS commentary from 3Q21 Earnings call on October 21, 2021, did not mention higher Avocado prices but did on the 2Q call:
- Our supply chain team has done an outstanding job navigating the numerous industry-wide disruption, which led to food costs being 30.3% in Q3, a decrease of 200BPS from last year
- This was due primarily to leverage from menu price increases, partially offset by higher costs associated with beef and freight that unfortunately continue to worsen.
- It's hard to predict how much of these headwinds will ultimately be temporary vs. permanent, but they are likely to persist for the foreseeable future.
- In addition, Q4 will also include the higher-cost brisket LTO, which collectively will result in our food costs being in the low 31% range for the quarter.
MCD moves to outsource Technology
McDonald's will sell artificial intelligence company Dynamic Yield to Mastercard, it announced Tuesday. Terms of the deal were not disclosed, but the transaction is set to close in the first half of 2022. McDonald's will continue working with Dynamic Yield and Mastercard on digital initiatives. MCD bought Dynamic Yield in 2019 for $300 million and was used in its drive-thrus and ordering kiosks in the U.S., Australia, and Canada to offer customers personalized promotions based on their purchase date, time of day, current store traffic, trending products, and other factors. This spring, the sale follows reports that McDonald's was considering a partial sale of Dynamic Yield. Many franchisees have complained in the past that Dynamic Yield didn't deliver the sales boost they expected and that its Technology failed to meet expectations. Yet, they must pay a technology fee to the comp[any. "The acquisition by Mastercard will strengthen unique, existing synergies across McDonald's digital engagement experiences currently powered by SessionM and Test & Learn. McDonald's plans to further scale and integrate Dynamic Yield's capabilities globally and reflect McDonald's more significant effort to outsource its Technology rather than own and operate it within the system.
The MCD CEO on the last earnings call:
- "There are certain times when it may make sense for us to go acquire a technology so that we can accelerate the development of that, make sure that it is bespoke to McDonald's needs."
- "But at some point that technology reaches a level of development where I think getting it to a partner who can then blow it out and scale it globally makes more sense."
