Ep 28: This episode: Autonomous Restaurants, Buy-Now-Pay-Later

Upside/Downside is a podcast for finance and business geeks about the hard work of value creation with a dose of humor thrown in for good measure.  I'm your host, Matt Cooley. 

In this episode, panelists Dana Price and Sami Akbay join me to explore the coming roboticization of the restaurant industry.  Quick-serve formats in particular (or should it be Quick-bytes?) are poised for a productivity boost.  But who might get left behind and how important is the human element to the everyday consumer?

We then delve into the world of Buy-Now-Pay-Later.  Facing likely regulation and a growing but not surprising default rate, this payment method is seeing substantial uptake by consumers and merchants for its simplicity.  Is it just another way for lenders to make a buck, or is this an emerging disruptor to the credit card industry?

Robots, food, credit, humor and anxiety all on today's Upside/Downside menu.  Pull up to the first window and join us!

Thank you for listening and please visit Upside/Downside podcast and enter your email for my FREE list: "10 places to look for higher profits and cash flow right now!".

Matt

Transcript

SPEAKER_01: 0:02

Welcome, everyone. This is Matt Cooley, host of the podcast Upside Downside, where we explore the value creation angles of current news stories and how the actions we take as business professionals affect profits and cash flow. Welcome to our distinguished panelists, Dana Price and Sami Akbey. Dana is CFO at Area 9 Lyceum Group and never lets her burn rate get out of control. She also breaks technology like last week when she allegedly threw a Roku device against the wall during the Jets game. Welcome, everyone. Welcome, Dana.

SPEAKER_00: 0:34

It's great to be here.

SPEAKER_01: 0:35

Sami Akbey is a technology executive and founder and is one of those people who knows how to shove data into the black box and make something useful come out the other side. Welcome, Sami. Thank you, Matt. Good to be here. Well, it's great to have you both here. Today, we're talking about autonomous restaurants and those buy-now-pay-later offers that are starting to pop up everywhere. But let's start with autonomous restaurants. Mediterranean bowl restaurant Mesli launched two locations in San Francisco and San Mateo, California, serving fresh meals starting at$6.99. There's some kind of central kitchen in the back with actual humans, but the restaurants themselves are fully robotic and don't have to be manned. And the robots take your order on one side, deliver your food on the other. Mesli is joining several other companies like Pazzi Robotics, Miso Robotics, SJW Robotics. Quite honestly, there are a lot of companies in this space right now, and they're all working to automate the quick serve segment. If you're a White Castle fan, a robot named Chippy might be responsible for making your French fries. This is true. And yet another company called Stellar Pizza was founded by former SpaceX employees. And according to their homepage, launches this fall in Los Angeles, like right about now. What's going on in this space, guys? And what are the value creation upsides and downsides? And panel, I promise to buy you lunch at one of these places when the opportunity arises. Dana, why don't we start with you? What upsides do you see? And could this be an important pivot point even for value creation in the food service industry?

SPEAKER_00: 2:18

Sure. So I think, you know, kind of piggybacking also on my prior podcast and my feelings about talking to humans in supermarkets. No, I mean, listen, the obvious one is giving the huge staffing shortages in just about, you know, every restaurant there is, you know, having electronic help, I think can only help, you know, creating a better experience in some way, shape or form, you know, better might be subject to definition by individuals. But I think it can definitely help the shortage we have right now. I think, you know, the other thing, you know, for folks who travel up and down 95, that's that's the highway here on the East Coast. Zones at Carter. If you go into McDonald's, you have to order on the board before you talk to a human anyway. So you're sort of in some places halfway there. And while I have given up belly bombers at White Castle due to my age, I think, listen, if it helps me get my burger or salad or whatever faster because it's fully staffed and the quality doesn't suffer, then I think it's a positive.

SPEAKER_01: 3:35

Okay, that's interesting. Sami, what's in your mind about this? What kind of upsides do you see?

SPEAKER_02: 3:41

I think when you go to a restaurant, one of your top expectancies is consistency. And robotics will ensure that consistency as well, because you can go to two different Burger Kings in our area, and that's one of my kind of guilty pleasures. I'll go to your Burger King probably twice a month. And if I go to the Burger King on 206, the food I get is not exactly as the Burger King on Quaker Bridge Road. It's consistency that becomes a benefit of this in addition to cutting out. I mean, right now with the minimum wages rising and employees being so sparsely available, I think it's going to just make fast food more consistent, more available and cheaper. But I think, you know, only for fast food, this applies.

SPEAKER_01: 4:50

Yeah, similar thoughts on that as well. Yes, the frontline labor shortages, quality of service, consistency, et cetera, absolutely. Those aspects should drive more consistent cashflow and predictability, right? Which is good in the quick serve space. What strikes me though is at the end of the day, these are still restaurants and they're still gonna have to keep us interested over time and compete for our stomachs and wallets. So getting a little bit into downsides, Dana, if we go back to you, what kind of downsides do you see to this? Are there

SPEAKER_00: 5:29

any? I think there could be. Urban dictionary, right? So if I go in and, you know, is it aluminum or aluminium? And if I ask for a soda or I say, give me a pop, like if I ask for a pop, is someone going to punch me in the face? Like the urban dictionary and the way people use words and the accent on how they pronounce the word, is that all obviously loaded into Chippy or whoever the respective individual computer might be? And I also think, is it only fast food or does it start to creep into semi-fast food, fast dining? Like a

SPEAKER_01: 6:12

TGI Fridays or

SPEAKER_00: 6:14

something, right? Yeah, because that might actually get into a whole other experience discussion. And then the only thing I I also think about is what if you're disabled? Um, how does that affect your experience, your ability to order, um, how you order, um, you know, whether you, like if you have a speech impediment or if you're blind, like how do you handle the technology of that?

SPEAKER_01: 6:39

Yeah, those are, those are very important questions and those could definitely have an impact on, on cashflow. Sami, what, what's in your mind about downsides?

SPEAKER_02: 6:49

Well, I, don't think that if you're going to a fast food restaurant, this is fine. But if I go to a fancy restaurant and some machine is making my food, I'm not really sure if I'm as excited about it because when you go to a fancy restaurant or a kind of normal restaurant, let's call it, your expectation is that you're paying for an experience rather than the ingredients. And if a machine is making my food and I'm paying like$30 a plate for$7 of ingredients, That's not exactly my expectation. The other thing is I think a lot of younger people are currently kind of hooked to this gig economy, and that's one of the reasons that there's a shortage of employees. But how long or how much longer, I guess, is this going to last, especially with autonomous vehicles? and other automation technologies coming in. I mean, today, one of the reasons that you can't find labor for some of these institutions or some of these restaurants is because, hey, I'd rather drive an Uber or I'd rather work for Grubhub and deliver food or whatever, like a taxi. those jobs are going to get automated out as well. I mean, 10 years, 15 years, 20 years later when autonomous vehicles and autonomous delivery drones are the norm, I think this is going to have deeper repercussions.

SPEAKER_01: 8:45

Yeah, and that's a fair point because a whole other part of this autonomous restaurant industry is the delivery of the food. And so that just continues for the reasons you just mentioned to get more and more automated. The obvious points that we've raised here I think are very important for investors. Is labor substitution a sustainable enough differentiation strategy over the long term is kind of what I'm thinking. I have a lot of questions. think it's heading in a very interesting direction. But competing in quick serve space, I'll call it, there's so many important variables beyond just the labor. Labor's obviously one of the biggest. You're still going to be in the restaurant business. One more reflection on that is these Mesley bowls. They sound interesting, but$6.99, it's a cheap lunch, right? That's a different target market than the experience that you raised, Sami. So, good points. Good points on that.

SPEAKER_02: 9:52

Hey, one last thing, though. Yesterday, I had to buy a pair of shoes because I didn't have one with me going into a store.

SPEAKER_01: 10:01

You're not going to tell us Chippy the robot deep-fried your shoes by accident, are you?

SPEAKER_02: 10:07

No, no. Nobody deep-fried my shoes, but the store had three employees working and there were six customers in there and after I tried two pairs I was told that I was allowed to try only one more pair because they had a limitation on how many pairs you could try

SPEAKER_01: 10:27

really

SPEAKER_02: 10:29

yeah I mean at that point I was just thinking okay you know what a robot should replace you because I don't feel like and she had the audacity to ask for you know can you provide positive feedback after you make your purchase so that you can Oh,

SPEAKER_01: 10:48

brother, nail in the coffin of that place. Wow. Right. Okay, that's the first I've heard of that. I mean, Dana, have you heard of that?

SPEAKER_00: 10:56

No, I would have gotten up and left immediately.

SPEAKER_02: 11:00

Yeah, I would have gotten up and left immediately, except I was not in walking distance of any other shoe stores, and my shoes were super uncomfortable.

SPEAKER_01: 11:10

Wow. Okay, well, maybe we'll have to make that a future topic. So let's move on. million this year, which is 77% higher than last year. So it's growing quickly. I've personally not used it, but apparently the most common offer from these companies is to break up your purchase price into four interest-free payments over six weeks, so you know exactly what you need to pay and when, versus a credit card where your monthly payment doesn't have to directly correlate with your purchases. The industry isn't really regulated today, although the Consumer Financial Protection Bureau is headed in that direction. And interestingly, this I thought was interesting. These purchases don't apparently feed into your credit scores, which is interesting. So there's a lot going on here. Sami, why don't you take this one first? What do you see as upsides, value creation upsides to this buy now, pay later phenomena?

SPEAKER_02: 12:37

I mean, this trying to bypass credit scores in providing credit has been pretty attractive for a number of players and obviously it's good for being able to sell to people with some credit rating and there's also credit cards or debit cards available for people who don't want to go through a credit check. And I think it just removes one other friction in selling. So in that sense, it's good. Also, the other part is there are people who are new to the country, like new immigrants and people who don't have a credit score quite yet because they have not been around for long enough. It's also a vehicle for them. Even when they're able and willing to buy and pay, they may not transact. It's also good for those people as well. And it's been done, I think, in a lot of other countries for quite some time. One of the reasons that in the past we did not want to do that was the cost of doing these layaway plans or the cost of each of those transactions. So there are a lot of efficiencies in these companies being able to do this brings a completely new group of people demographic of people into the addressable market as well as providing a nice vehicle that is not heavily regulated and almost archaic. I mean, the FICO scores and everything is, I mean, it's not, it just needs a complete revamp, I think, because it just takes into consideration factors that may or may not be as relevant as they were when those measures were put in place like, you know, 15, 20, 30 years ago.

SPEAKER_01: 14:50

So the market's changing Give the market what it wants. That's the value creation opportunity.

SPEAKER_02: 14:56

That's exactly it, yeah.

SPEAKER_01: 14:58

Thank you

SPEAKER_02: 14:58

for articulating what I was thinking.

SPEAKER_01: 15:01

No, yours was much more interesting. I just summed it up. Dana, what do you think? I

SPEAKER_00: 15:08

definitely agree with Sami. I think also, whether we're going in or are in a recession, depending upon your personal opinion upon that, you have to make a choice, right? Do I fill the tank with gas? Or, you know, do I buy groceries? And that's, you know, half my paycheck right there. It allows people a little bit of flexibility where they don't have to front the cash right now. So they can continue to just do the, you know, pay the important things like mortgage and rent and, you know, groceries, food, gas to get around. Just the fundamentals. Worry about those shoes you were trying on, Sami, later on down the line.

SPEAKER_01: 15:48

Yeah. Yeah. So I agree with both of you. There's this. is meeting a market need that has evolved. And yes, it has been around in various forms, particularly in other countries, but it's interesting to see it take hold here. And I was just reading something this morning that one of the reasons millennials and younger folks like this is that predictability. It doesn't get lumped in with your credit card bill and you have to decide how much you're going to pay this month. It's four installments equal, you know exactly what And they're due, et cetera, et cetera. So that's interesting. So if the market can be served that way, then there's money to be made here. What about the downsides of buy now, pay later? Because there's a lot of coverage right now that, you know, here we go again. People are starting to get into trouble. And I can't tell yet whether that's normal, you know, bad credit management trouble or what's going on here. But what are the downsides? Dana, do you want to take that first?

SPEAKER_00: 16:51

Sure. I think your point on the credit reporting, you know, does it eventually hit your credit report? Don't know. Can they even, you know, manage it in order to have it hit your credit report? The other thing that sort of, you know, looms in the back of my mind, since I am a geeked out CFO, is, you know, there's nothing that is interest free, right? It's implied interest. So, you know, what does the cost actually become? Is it truly fixed? Are there any hits? Is this something where you have to read the fine print because suddenly it's like the subscriptions, you're like, wait, I'm paying how much? And what if you don't have the cash at that time?

SPEAKER_01: 17:35

that's a good point because in some of the articles that i i've read about this they do market it as interest-free but of course they're not doing this for free so there's a lot going on here yeah

SPEAKER_00: 17:48

no free lunch that's what my no no free lunch my finance if i didn't remember my finance professor from business school i you know

SPEAKER_01: 17:56

right although that's 699 uh mediterranean from mesley it's getting pretty close to free right absolutely yeah sami what uh what are the downsides of this? Look, I mean,

SPEAKER_02: 18:07

if this were a$7 billion industry, it's different from$77 billion industry. As the numbers get bigger, it becomes a true credit product, right? And just like any other credit product, if you're not measuring risk and calculating it into the pricing and availability, then you're going to have that amount of exposure. This is This is just yet another scheme by companies trying to bypass you know, what has been in place for a reason. The reason that like, you know, you have credit cards and credit scores and all of that is because you want to be able to control and measure and, you know, account for that risk. So I've seen in other countries where this was a pretty normal practice. First, the credit card companies adding a buy not pay later type of a feature that was left out of the credit scoring. vendors or retailers themselves putting it on uh saying okay we're just going to like you know bill you on a monthly basis so this item is let's say 120 but we're going to charge you 10 a month for the next 12 months and eventually people's ability to service that debt uh may actually lapse because that$10 a month for$120 item when you buy too many things will hit a threshold. In almost all of those cases, the government had to jump in and regulate it because as much as we hate regulations, or at least I hate regulations, the regulations are there for a purpose or for a reason. That's, I think, the downside. It's going to blow up. Of Of course, what Dana mentioned earlier, there is no free lunch. Interest rates at 2% is one thing. Interest rates at 5%, 6% is a different thing. That cost of that money is going to catch up and remove a lot of the advantages. Most of these business class, I think, were put together around interest. Money was practically free to borrow. So it's no longer that.

SPEAKER_01: 20:42

Yeah. So if you're an investor or an employee or a manager at one of these buy now, pay later companies, it's going to be a rocky ride. So yeah, that's something to take into consideration as well. Both really fascinating points there. Excellent. So Dana and Sami, will you be doing any online shopping today or perhaps heading over to White Castle for some of Chippy the Robot's French fries?

UNKNOWN: 21:08

Thank you.

SPEAKER_02: 21:10

I hear that there's someone cooking in Cranbury, New Jersey, and I'm going to go there for dinner.

SPEAKER_01: 21:23

There you go. Let us know how the robots look at that location. All right. Well, thank you both for sharing your insights today. That was a lot of fun. And to our listeners, keep pushing those value creation buttons, and we'll see you next time.

SPEAKER_00: 21:39

Thanks, Matt.

SPEAKER_01: 21:40

Thank

SPEAKER_00: 21:41

you. Bye.