When it comes to investment ideas, bets on food and drink companies look utterly boring compared to the latest darlings of whatever hype cycle is currently peaking. And that hype cycle right now is, of course, none other than AI.
And hey, who wouldn’t want in with the mass interest around ChatGPT and other generative AI models? From big tech companies like Google [NASDAQ: GOOG] to chip makers like NVIDIA [NASDAQ: NVDA], you gotta be in it to win it, right?
But here’s the thing. I’m going to tell you to ignore AI for a moment.
Instead, I’m going to tell you to take a look at where the smart money is placing its bets.
And let me tell you, once you look past the heavily publicized VC deals and big tech moonshot bets (e.g., the $10bn Microsoft [NASDAQ: MSFT] investment in OpenAI), there’s a lot more money sloshing around “boring” investment theses like food and drink.
And for good reason.
Let’s take a look.
PS: Stick around ‘til the end for some great stock tips.
PPS: If you just want to skip to the end, let me save you the scrolling. The #1 pick on our radar right now is Restaurant.com parent company RDE, Inc [OTC: RSTN]. Between its recent CardCash.com acquisition, and its recently launched restaurants and dining app, the company is positioned to hit massive growth over the coming 1-3 years.
Learn more about RDE, Inc [OTC: RSTN] and why its CEO, Ketan Thakker, is bullish on food service investments in this “Hidden Entrepreneur Show” episode hosted by Josh Cary.
Until AI Turns Us All Into Paperclips, Food and Drink Will Always Be King
Unless you buy into the “paperclip maximizer” idea of AI as an existential threat, the bare necessities of life — food, drink, and shelter — will forever be in hot demand.
Now, of course, I’m not here to tell you to invest in shelter. Shelter in today’s day and age is basically just real estate. And everyone knows real estate is a good investment, so no need to harp on here.
But what about food and drink?
When’s the last time you thought about your food and drink investments in the same way you thought about your real estate holdings or your moonshot bets on hyped-up tech trends?
If your answer was never, then my next question is simple — are you crazy?
Now, before you get offended at me calling you crazy, consider this.
Some of the Biggest Tech Companies Aren’t Tech Companies
Here’s a challenge. Name some of the biggest tech company success stories that come to your head.
I bet that list is probably dominated by companies that, at a fundamental level, have little to do with VR, crypto, AI, or any other currently or previously hyped-up tech trend.
Instead, they’re usually focused on something a little more old-hat.
Here are a few examples.
Facebook/Meta [NASDAQ: META] and the dozens of social networks — Human connection and communication.
Airbnb [NASDAQ: ABNB] — Good old “shelter”.
Uber and Uber Eats [NYSE: UBER] — Transportation, and Food and drink.
Did You Catch That Bit About Uber Eats?
Did you catch that last bit about Uber Eats?
Good. Now consider this — the Uber Eats product generated $10.9 billion in revenue off the back of $55 billion in gross bookings in 2022.
And no, I’m not talking about Uber’s total revenues. That $10.9 billion was generated by Uber Eats alone.
And its competitors aren’t doing too bad either.
Take DoorDash (NASDAQ: DASH), for example. Its trailing twelve-month (TTM) revenues are somewhere around $7.7 billion.
Sure, its market cap is “only” $2.77 billion. And its TTM revenues are “only” $2bn. But who cares about gross dollar values when its stock price has shot up 59% over those same 12 months?
Oh, and while we’re speaking of stock prices, remember how we mentioned DoorDash (NASDAQ: DASH) just before? That one’s up 64% over the last 12 months.
And that’s just a taste (excuse the pun) of the food delivery market. You can also add GrubHub, Postmates, ChowNow, Swiggy, JustEats, Delivery.com, Eat24, Hungry Panda, ASAP, and InstaCart, to name just a few.
Oh, and one more thing.
Before you think any of those share price performance figures were just an anomaly, this sort of share price action is happening all over the tech-based “food and drink” sector.
In fact, it’s even more pronounced once we get into the small-cap end of the market.
And if you don’t believe me, take RDE, Inc [OTC: RSTN] for example. That’s the company behind Restaurant.com, and its stock has more than doubled in price over the last 12 months. (And, if some recent news is anything to go by, that’s just the beginning… but more on that later.)
Basically, what I’m saying here is that even if high-tech investing is your bag, companies focused on the most basic thing on earth (that is, food and drink) are going absolutely gang-busters.
And they will continue to do so until the day the AI turns us all into paperclips.
Everyone Should Invest in Food and Drink — Even Warren Buffett Agrees
If the long-term staying power of the companies above can’t convince you that food and drink investments are a great idea, then maybe some of the old fogeys will.
Take Warren Buffett and Berkshire Hathaway, for example.
It has holdings in companies like Diageo, Coca-Cola, Kraft Heinz, Kroger Co, and Mondelez.
They’re all food and drink companies.
And while we’re on the topic of Warren Buffett, did you know his favorite breakfast is served up daily by a McDonald’s Corporation [NYSE: MCD] restaurant?
Now here’s another fun fact.
Averaged out, McDonald’s Corporation [NYSE: MCD] shares have returned a consistent 7-8% a year over the last five years based on price performance alone (up from about $180 a share in 2018 to about $260 a share today). Now throw the consistent dividends it pays out on top of that and you’re looking at a very healthy return from a “boring” investment thesis.
Oh, and one more thing before we move on from Warren Buffett-related facts — his BFF, Bill Gates, has famously snapped up enough farmland to make him the biggest landowner in the US.
But why so much farmland?
Well, that’s presumably because he sees a future where humans keep wanting to eat food.
Here’s How You SHOULD NOT Invest in Food and Drink
While I am here making the case that food and drink bets make for some of the most compelling investment ideas right now, I’m also going to say they’re also a terrible idea.
At least, betting on anything directly in the chain (whether it’s the farm, the grocery store, or the restaurant) isn’t the smartest bet.
Now, that’s not because there’s no money to be made.
In fact, there’s a ridiculous amount of money to be made. Restaurant sales alone are set to tip almost a trillion dollars (yes, a trillion, as in, $1000 billion) just this year.
But for all the money sloshing around, there’s also a ridiculous amount of competition.
Grocery stores are at each other’s throats, slashing prices and, with them, margins.
Grocery store buyers are necessarily squeezing farmers, leaving many to rely on government subsidies to make ends meet.
And as for restaurants. Sure, there might be hundreds of billions in revenues a year. And most are still operating on decent margins.
But restaurants are also a dime a dozen. Just count how many you cross next time you take a walk around town.
That means there will inevitably be more losers and underperformers than winners.
To illustrate, take a look at the 10 biggest restaurant companies in the world right now:
|Starbucks Corp.||NASDAQ: SBUX||-8.5%|
|Compass Group PLC||OTC: CMPGY||9.8%|
|Darden Restaurants Inc.||NYSE: DRI||0.48%|
|Yum China Holdings||NYSE: YUMC||16.6%|
|Chipotle Mexican Grill, Inc.||NYSE: CMG||-17.3|
|Yum Brands Inc||NYSE: YUM||-1.6%|
|Restaurant Brands International, Inc.||NYC: QSR||17.3%|
|Domino’s Pizza, Inc.||NYSE: DPZ||-31.6%|
|Bloomin’ Brands, Inc.||NASDAQ: BLMN||4.1%|
Basically, aside from the top three performers (Yum China, Compass Group, and Restaurant Brands International), everyone else lost.
And yes, I’m counting several “positive” returns as a loss — if they can’t at least keep up with inflation, then it’s a loss in my books.
In other words, while the winners are winning big, they’re also leaving plenty of losers in their wake.
And, in all honesty, we’re not convinced that betting on the fickle whims and wishes of the food-eating public is the soundest investment thesis (which is kinda what you have to do if you’re going to back restaurants).
While it might have been Dominos and Starbucks yesterday, it’ll be something like MrBeast Burger today, and who knows what tomorrow.
And guessing at what comes tomorrow isn’t something you want to try.
With that said, if you really must, stick to something safe like McDonald’s. Sure, its TTM performance hasn’t been stellar, but it has been a reliable (dare I say, untouchable), above-average performer over the long term.
Alternatively, if you want a little more growth in your stocks, read on.
Here’s How You SHOULD Invest in Food and Drink
Let’s go full circle.
Remember how we spoke about the most successful big tech companies at the beginning?
And remember how most of them, at their core, aren’t really “tech” companies.
In other words, what we have is a situation where the hottest food companies are tech companies. And the hottest tech companies are food companies.
Any guesses as to why that is?
That’s right. It’s because they don’t actually supply anything themselves. Instead, they provide new ways to consume/engage with/purchase/enjoy the thing itself.
Basically, they’re basically just an interface between clients and service providers. Everything else is just window dressing.
That puts them in a position to leverage demand for services, without being subject to the same squeeze that the service providers themselves are facing (e.g., rising cost of goods, rising rent prices, increased price-based competition, etc.).
They’re also immune to the fickle trends that service providers themselves face. That’s because they essentially sell on behalf of every provider, thus when clients jump ship, the big tech company finds itself still at the helm of that ship.
Now, admittedly, when it comes to food and drink investing, you’ve probably missed the boat on delivery apps. The days of gangbuster hockey stick growth are coming to an end.
But there is a food-meets-tech trend that’s way more compelling right now.
Let’s take a look.
Here’s Why Restaurant.com (RDE, Inc. | OTCQB: RSTN) Is the Single Most Compelling Bet Right Now
Let’s do a quick recap.
- There will always be big money to be made catering to basic human needs. The smart money knows this. And there are plenty of successful companies attesting to this.
- The most basic of all basic needs — food and drink — is an especially compelling sector to invest in. Everyone from the old-school “value investor” Warren Buffett to Silicon Valley VCs will tell you this.
- However, food and drink “providers” are locked in cutthroat competition with each other. Some stalwarts are nice long-term plays if you’re content with modest, consistent returns. But if you’re looking for real growth, this isn’t where you’ll find it without making wild guesses.
- Much of the competition in the sector, for better or worse, is price-based.
- The biggest winners in the sector aren’t actually direct participants — they’re mediators between clients and providers (i.e., they’re tech companies, not farmers/restaurateurs/grocery stores/etc.).
Now to understand why all of the above makes RDE, Inc [OTC: RSTN] so compelling, let’s get a couple of facts straight:
- RDE’s flagship brand, Restaurant.com, is a destination where diners can purchase “meal certificates” which they can use to pay for meals.
- These “meal certificates” are compelling for diners because they come at a huge discount over paying the full price in the restaurant. (E.g., commonly seen offers include getting a $25 meal certificate for just $10).
- Selling meal certificates through Restaurant.com is compelling for restaurants because competition is stiff, and discounts will forever be the strongest tool in the marketing arsenal when it comes to selling everyday dining experiences.
Now go and re-read the article recap just above.
Do you see what’s going on here?
Let me spell it out for you.
- Like Uber Eats and its brethren, Restaurant.com is a mediator in the massive food and drink industry.
- Restaurant.com is answering the biggest challenge facing the food and drink industry by providing restaurants with the most powerful tool they can use to compete.
- Restaurant.com is answering consumer demand in the food and drink industry by delivering what consumers really want — discounts.
If that’s not compelling enough, let’s also consider a few other things:
- RDE, Inc [OTC: RSTN] shares have gained 115% over the last 12 months based on nothing more than the strength of its plain old Restaurant.com website.
- In the last couple of weeks, Restaurant.com has finally gone properly mobile, launching both Android and iOS. This is big, as mobile is really where it’s at when it comes to dining — there’s a reason why Uber and its ilk are mobile apps first. (Read up about what the app launch means here)
- RDE, Inc [OTC: RSTN] also inked an acquisition agreement with CardCash.com recently. You can read more about the CardCash.com acquisition here. Or, if you’re happy with the tl;dr version, the basic gist is massive synergies, phenomenal cross-promotional potential between Restaurant.com and CardCash.com, and a shield against seasonality and unforeseen events like the Covid pandemic.
Now, in all honesty, we don’t have a crystal ball here. So if you ask us what the exact stock price is going to be in 12 months’ time, then you’re asking a question that can’t be answered.
What we can say with certainty, however, is that food and drink bets are nowhere near as overhyped as shiny things like AI. In fact, food and drink bets are kinda boring until they get noticed, meaning companies like RDE, Inc [OTC: RSTN] are heavily undervalued while they remain under the radar.
That means we can say one other thing with pretty good certainty.
In the next 12 months (or maybe 24… timing these things is hard without a crystal ball), the phrase “line goes up” will more than likely describe RDE, Inc [OTC: RSTN] share prices.
The product is right.
The market is right.
All that remains to be seen is exactly how fast that line goes up.
DISCLAIMER: This article was written by a third party contributor and does not reflect the opinion of Born2Invest, its management, staff or its associates. Please review our disclaimer for more information.
This article may include forward-looking statements. These forward-looking statements generally are identified by the words “believe,” “project,” “estimate,” “become,” “plan,” “will,” and similar expressions. These forward-looking statements involve known and unknown risks as well as uncertainties, including those discussed in the following cautionary statements and elsewhere in this article and on this site. Although the Company may believe that its expectations are based on reasonable assumptions, the actual results that the Company may achieve may differ materially from any forward-looking statements, which reflect the opinions of the management of the Company only as of the date hereof. Additionally, please make sure to read these important disclosures.
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