I used to say that about pizza shops then I opened one….

lol

They do smell delicious though !

In other news…I can’t see Dominoes ever being surpassed in that space. Operationally and product wise it’s a devil of a business and they have a 30 year head start.

Quite a few folks hitting Berry it looks like. Gotta get there myself (donuts or not!).

@Strawman's holiday post has prompted me to share some of my own observations from two week's holiday spent on the West Coast of the USA. (Hence, I've taken a break from posting on SM, but from time to time have kept an eye on what the community has been posting.)

Because these observations are a bit random and incohesive, I've just dumped them in this forum reply, but linked items to relevant companies of interest.

Sees Candies - Another great, simple business

Everywhere I travelled, I saw the See Candies stands in stores or entire pop-up stores in places like airport terminals. The penetration of this brand, and the consistency of the product placement clearly indicates a mature business that generates a strong margin. Indeed, according to a search on Bard, See Candies revenues have grown from $380 million in 2013 to $470 million in 2021 (a CAGR of 2.7%), with profits growing from $78m to $103m (a CAGR of 3.5%). A great example of a simple business that continues to scale and expand margins. Disc: Although I don't actively invest in Berhshire Hathaway, I estimate via my international passive funds, that it represents about 0.4% of my total assets, so I have a passing interest. I'm not a customer, as I am a European chocolate snob, although I also like Whittakers from NZ.

Data Security is a Big Deal

Hanging out with friends in San Francisco and Silicon Valley, I could not help but notice the advertising spend going into promoting data security services. Many of the big names are spending large, but also many I've never heard of. There is clearly a fight going on for market share, and the advertising spend makes clear to me that the market is big.

Coming home, I've noticed that $DSE is advancing nicely. (Held, small position in RL and SM) so I am interested to see what the next report reveals.

Apple is everywhere

The Cupertino Campus is impressive and best enjoyed flying over it on approach to SFO. More generally, Apple is everywhere and its market cap hit $3 trillion during my visit. Key messages on the Apple billboards include "Privacy is King. That's iPhone" and "We're in the business of staying our of yours. That's iPhone" and my favourite "What happens on your iPhone stays on your iPhone". So it is really engaging with the data security and privacy themes. All my friends were using Apply Pay as their default, and I even started using it for the first time, as it made things like using the Clippercard on SF public transport so easy. It is hard for me to consider buying $APPL directly at the moment, although passively, it already accounts for 2.5% of my total assets. However, should the market offer a serious pullback, this is probably the one overseas stock I'd consider buying directly.

Retail is in dynamic flux

I stayed in a nice Air BnB apartment in Russian Hill and throughout the day courier vans and Ubers made up the majority of traffic in the street. Even staying with a friend in Orgeon, there were almost daily deliveries of packages to the front door. The default when checking to buy something in a store, was then to order it for free delivery same or next day on Amazon Prime to avoid needing to carry the item out of the store! Funnily enough, I did the same in Carindale QLD the day before leaving to the US. Standing at a pop-up store to buy a new iphone cover for my daughter and under time pressure, I got fed up waiting for service, and ordered the exact item on Amazon, cheaper, delivered to my house free next day.

As an aside, picking up on Australia, in my afternoon at Carindale where were the crowds? Food, cosmetics, tech (JBHiFi, Apple), sportswear (Rebel, Athletes Foot), budget fashion. Which shops were empty? Branded clothing and homewares, e.g., Adairs (sniff, held, RL and SM).

My friends were abuzz talking about the impending closure of the Westfield flagship mall in San Francisco, knowing it is an Aussie company. COVID and WFH has further hollowed out US CBDs but created new opportunities in the communities where people live.

Interestingly, Lovisa's US expansion might be recognising this trend, if you look at their store footprint in the Bay Area. (Disc: I have recently initiated a real life position in $LOV, as the operating economics and global expansion runway which is proven means that this has recently offered a compelling entry point at $18.02. I have accumulated 25% of my intended RL position, and will periodically add further increments particularly should there by further SP weakness as we pass through the bottom of the cycle over the enxt 12-18 months. I should probably relfect this in SM.)

While we weren't in the US for retail (weak A$ means a coffee or a meal is expensive!), its very evident that Americans are still spending with wild abandon, although some anecdotal evidence from conversations that customers are more likely to seek out value alternatives in many discretionary items,... but not essentials like tech!

Exhibit: Current Lovisa Store Locations in the SF Bay Area (Nothing in the SF, Oakland or San Jose CBDs; Gold Star was my holiday place)

EVs and Self-driving - the future is here

One thing you notice in the US (and also in Europe) is how many EVs there are. You actually hear the difference when 5 or 6 consecutive EVs drive past you up one of SF's steep hills, hardly making a sound. There are a lot more models on offer than we see here in Australia, although I'm not sure they've solved the charging infrastructure issue. This was one thing that is still holding back some of my US friends.

Unlike Matt Joss (See Baby Giants podcast earlier this year) I didn't take a self-driving taxi, but during the day Waymo cars on what I assume were training runs were evident. There was also a self-driving vehicle operating in the Botannic Gardens. Strange to see someone sitting in the back of a car with no-one up front.

OK, so that's it. It was a great holiday, while at the same time repleat with investing insights if you cared to look. But I am glad to be back home. The coffee's generally better here and it does my head in driving on the wrong side of the road.

@Greenblatt Used to be family owned, now owned by an Asian Family? So, still family owned...

What a great post!

I thought i'd add some thoughts on the retail clothing front. For context, my better half works at HQ level in fast fashion / retail and shares quite a bit on market dynamics and landlord operations. Some thoughts based on discussiosn we've had.

1. Whilst its true that in difficult times, buying tends to become more polarised to the two ends of costs. It's also true that revenues at the lower end are still significantly impacted as consumers may forego new clothes / accessories in lieu of other, more important spend.
2. Where spend needs to happen, there is a tendancy to spend on what the industry calls 'basics'. So this would be things like t-shirts, underpants, bra's, tights, socks etc. Basics ranges of the likes of Big W, Target, K Mart, and even slightly more upmarket players such as H&M and Uniqlo will do quite well.
3. Discretionary spend on 'Costume Jewelery' i.e. Lovisa will be impacted slighly but a signifcant proportion of their demographic will be kids with pocket money / evening / weekend jobs and so forth. So they will be less impacted than medium / premium range jewellery brands.
4. The major brands that have buying power (i.e. popular consumer retailers), will negotiate footfall commitments and minimum 3rd party retailer commitments into lease agreements with the likes of Scenter, Vicinity etc. This gives them the ability to break leases if footfall diminishes or certain other players leave the venue. Due to the optionality that retailers have in the USA on location (which is lacking in Australia), and the knock-on impact that will have to their tennant base within a site, i'm not surprised that Westfield is closing down. There was a time in my life where I lived on aggregate in the Bay Area for 2 months of the year, and during that time a good friend told me that the lifecyle of Bay area acommodation is that when you leave college, you start out by renting in the city, then when you want to buy, you go way out, and then as you climb the greasy pole, you start to move back in again; but never to the city, it's just too expensive.
5. Scentre has much stronger bargaining power in Australia than Westfield (non Australian entity) does in countries like the USA. As you will have seen in the Bay Area, there is a proliferation of retail parks that comprise one or two big-box bands, an assorted number of smaller retailers, one or two grocery retailers, token starbucks, P.F. Chang, Dave and Busters, in-and-out etc and an open air, parking lot. This gives brands like Lovisa optionality to exist outside of Malls outside of the CBD. In Australia, its very hard for these kinds of stores to exist anywhere but inside a mall (mostly owned by Scentre & Vicinity), unless they're in the CBD. I know there are other smaller malls like Stockland's but they tend to attract less 'fashion' type brands, as the conumer experience tends to be more around grocery shopping, it's less of an 'event' and more of a 'chore'. So you'd be less likely to see a Lovisa, Uniqlo or H&M in one of these.

I hold Lovisa on SM but not in RL.

On See's candies - I love how Charlie M relentlessly engages in AGM product placement (and consumption).

@Strawman the kids spotted it a mile away, best business in Aus strikes again!

Never not busy! Enjoy @Wini

Also, great observations @mikebrisy & @Trancer

I hear you on Pizza too @topowl. Gross margins and low capex is one thing, but it all comes down to turnover. I learnt that the hard way with a espresso/chocolate bar i ran in North Sydney years ago. 90% the money was made between 7-10am, the rest of the time you were paying rent and staff for little benefit. The overall average was...well, very average!

I think that's what makes this donut shop so special -- consistency of demand. I reckon if you put the exact same business down in some typical suburban location, it'd be very ordinary.

Location, location, location! There's a few pie shops that seem to have the same characteristic as the Berry Donut shop in that they are themselves a destination. I'm thinking of places like Hayden's Pies in Ulladulla and Heatherbraes Pies Sutton Forest.

I was fantasising the other day about opening a Dutch/Belgium style Friet cart. If you've been to that neck of the woods, you'll know what I'm talking about -- essentially insanely delicious hot chips, fried in duck fat and served in a paper cup with a mayonnaise style sauce. You just don't find them in Oz, so you have a novelty factor. And they are incredibly delicious. And as with the donuts, high margin, low capex. Just need a good location with lots of consistent tourist foot traffic...

Anyone keen? haha

MMM on that note Im going to go down now and get a Berry Donut. Down on the farm today just around the corner.

Let me know next time your going to Berry. I have a farm just around the corner. Could drop in say hi in person. My number just in case for anyone. 0407 938 386.Text though as I dont usually answer numbers I dont know. Always like to meet new people.

@Strawman, I will be a customer for some of thos chips!

An insight I was given years ago, which in hindsight is pretty obvious but it really changed my thinking at the time, was that a good business is really about the concentration of demand, rather than the controlling supply or having the best product. After learning that I now see it everywhere with successful buisness.

One of the best examples I have, similiar to the donut shop, is the Frosty Mango, basically an ice-cream and coffee shop on the highway between Cairns and Townsville that rarely if ever will not have a heavily filled carpark. It's now become a destination in itself. Good margins on the icecream too!

Will do @Saiton!

And I love that @Slideup -- "concentration of demand". Brilliant.

There's so much wisdom at the grassroots level of business that is entirely applicable to any business, even billion dollar listed companies.

All of this has reminded me of Buffett's:

“I am a better investor because I am a businessman, and a better businessman because I am an investor.”

Tease!

Keen, yes, but where does one source duck fat in sufficient quantity to deep fry things? I would totally buy a barrel to wallow in... *drool*

Yeah, huge fan of these @Strawman. Colloquially (and affectionately) known as 'pomme frites mit hunden shizer' (see photo for why) to many late night revellers around damrak. You can just about live off these on a short visit.

Huge competition though, no moat (just canals), diverse customer base, lots of substitutes, lots of repeat but little in the way of truly recurring revenue, average gross margin I suspect (mostly labour costs). No pricing power unless you are the last one open on any given night...

I'd rather be a consumer than an owner, especially in the wee small hours.

Unless of course, you open one in Sydney and can somehow keep the copycats away!

Now we're talking !

Yum.

Yep, we spent a lot of money for our bricks and motar location. It was great but still only pumped a couple hrs a day.

And even then, you need every cog (ahem...I mean staff member) firing perfectly to make it all work.

Operationally, Domino's figured it out. Trust me, for people that aren't a fan of their product, imo their product level is the only one that's achievable in that volume and environment....and even that's hard to achieve.

If a black hole swallowed Dominos today, no-one would be able to step in and replicate for years, if not decades.

Crazy stuff.

Full confession, I'll only eat it if all other options are exhausted.....lol

The moral of the story is to make less pizzas, and sell more wine...lol

Ah yes, it'd all be about finding the right location...

Maybe the smarter play is to set it up and flip it before the imitators come knocking? Better still, franchise model! haha

I agree re Dominoes @topowl -- Don Meij really did understand what mattered from a business perspective. I think a big part of the success was also that they moved fast and early on the tech side of things -- specifically the app which really did work amazingly well from an ordering and delivery standpoint.

Absolutely agree on the tech side.

On the operational side.....people underestimate the amount of time and expertise it actually takes to get a quick service restaurant biz humming when teenagers are at the heart of it. I mean try getting a teenager to do anything at home......

It's incredibly difficult. Difficult enough to send most people who try either financially into the ground or running and screaming in the other direction to find their sanity lol.

Pizza isn't burgers, it's exponentially harder to get right, and equally to do it in a fast and profitable fashion.

Kudos to Dominos.

Having said that, I sold my business, am currently doing post grad in data analytics, and at this exact moment am currently making sourdough wood fired pizza at home for my fam.

#fridaypizzanight

I should really buy some dominos share....lol