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Beyond Meat Will Not Save Blue Apron

Mac Greer, The Motley Fool

In this episode of MarketFoolery, host Mac Greer talks with Motley Fool analysts Emily Flippen and Ron Gross about some market updates. Domino's (NYSE: DPZ) put up its 33rd consecutive quarter of U.S. same-store sales increases, but the stock is down on cannibalization concerns. A few years after their fake accounts scandal, we check back in on Wells Fargo (NYSE: WFC) -- where are they now? Blue Apron (NYSE: APRN) is up -- you don't hear that every day -- after announcing it'll offer Beyond Meat (NASDAQ: BYND) in some of its meals. If that sounds like it doesn't fix Blue Apron's deep-rooted, long-term issues, that's because it doesn't. Tune in to learn more!

To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. A full transcript follows the video.

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This video was recorded on July 16, 2019.

Mac Greer: It's Tuesday, July 16th. Welcome to MarketFoolery! I'm Mac Greer, and I am joined by Motley Fool analysts Emily Flippen and Ron Gross. How are we doing? 

Ron Gross: How are you doing? 

Emily Flippen: Doing well!

Greer: I'm doing good! I'm feeling rested, had a little vacay.

Gross: Oh, you did have a little vacay!

Greer: A little vacay! That's short for vacation. 

Gross: For those playing along at home.

Greer: For those playing along at home, that's the way I roll. That's the way I roll!

Gross: You even did a podcast on vacation. There's no rest for the weary.

Greer: I didn't do a podcast. I did two podcasts.

Gross: That's impressive!

Greer: I did them from this little cottage. The whole idea was, it was going to be at the foot of the Flatirons in Boulder, Colorado, which it was, but it was actually in a cottage, so I think some of the effect was lost. I actually unplugged the fridge, I turned off the AC. I was channeling our very own Steve Broido. 

Gross: You were pro.

Greer: I was pro until the second podcast. I actually forgot to hit stop. 

Gross: [laughs] So, your whole vacation is...

Greer: Tim Beyers was about to go back to Denver, and I said, let me just make sure I got this. And, in fact, I did not get this, and we had to rerecord the whole second podcast. So, there you go. There's a little inside tip: hit stop.

Gross: You can hit stop and still get the whole thing. It'd be a problem if you didn't hit record.

Greer: No, I hit record, and then I was excited that we had successfully completed the second podcast -- and I also knew Tim needed to get back to Denver -- so I just grabbed the SD card. I just ripped it out of the recorder after hitting pause. Pause is not the same as stop. So we had to rerecord it.

Gross: That's a lesson for the kids at home.

Greer: But no one knows that. No one knows that unless I confess to it. 

Gross: All right, very good!

Greer: So, lots to talk about here. We're going to talk some Wells Fargo in a bit. They had that whole kerfuffle a few years ago --

Gross: Everyone just turned off their radios, clicked off their computers.

Greer: OK, maybe Wells Fargo doesn't get your attention. But what if I said fabricated accounts? So, they had that whole kerfuffle a few years ago. We're going to see how the stock's doing today. We're also going to talk Blue Apron and Beyond Meat. Blue Apron, not doing so well, but Beyond Meat has been red hot, and they are hooking up and we'll see if that matters. 

But let's begin with Domino's Pizza. A rough day for Domino's. Shares down around 7% at the time of our taping. Disappointing earnings and concerns over Domino's expansion strategy. Now, Emily, the stock has not done much over the past year. But we were talking before the show, you pulled the numbers, and it is an absolute monster over the last 10 years, shares up more than 3,500% What do you make of Domino's today?

Flippen: Domino's new strategy of fortressing is seeming maybe more like abandoning to some of their franchises. That's because their new strategy, since last year, has been to build as many Domino's as they can to be the only game in town. It's really seemed, at least this quarter, to cannibalize a lot of their sales. Regardless, like you mentioned, Domino's has actually been a beast of an out-performer since its lows in 2009. So, it'll be interesting to see if, given a little bit more time, this fortressing strategy starts to play off. My speculation is that, while I do think that it will take time for consumers to change the way that they consume food -- you're very accustomed to going to a handful of apps instead of going direct to the store that you want to buy from. Domino's, as they begin to roll out more stores, it'll take some time for consumers to start realizing, "Hey, there's a Domino's down the block now. They can get to my house in 10 minutes now with a pizza." But at the same time, we're now accustomed to having a lot of food choices. Pizza and Chinese food are not the only thing that can get delivered anymore.

Gross: Says you.

Flippen: [laughs] Says me. So, it'll be interesting to see it that actually starts to hurt Domino's, or if this strategy of fortressing starts to pay off.

Greer: Just to clarify, though, fortressing is just a fancy term for, "We're expanding"? Is that it, essentially?

Flippen: Well, expanding in areas where they already have presence, is the idea.

Greer: That's so pretentious, though. I really hate that word. Can I hate that word?

Gross: You can hate that word, that's fair. 

Flippen: You can hate that word. 

Greer: Oh, it's just awful. Just say that. Say, "We're going to expand. We're going to grow in areas where we already are." 

Gross: Like Starbucks.

Flippen: But then analysts come out and say, "You're cannibalizing."

Greer: Don't go medieval on me. Is that a Game of Thrones play? Ron Gross.

Gross: Yes?

Greer: One of our analysts, around 10 years ago or so, I forget his name, but he was bullish on Domino's when it was around $5 a share or so. And had I listened to this person, I would be a rich man. We would probably not be here. I would not be here. That analyst was...

Gross: Yes, that was me. I don't like to take victory laps because then I have to apologize for all the ones I get wrong. So let's just say it was fortuitous. I did actually purchase it back then, but, as a value investor typically does, I sold it much too soon. I did just fine, but whatever you just quoted as the percentage, I didn't realize those gains.

Greer: 3,500%, but who's counting? 

Gross: Yeah, it's done really well. You go back to them revamping the menu, everything from the sauce to the cheese, and adding to the menu. They've done a great job, and now with technology, they continue to do a good job. Longtime leader Patrick Doyle retired last year. He really did a super job. 

I think what investors are reacting to today and lately is the fact that they couldn't possibly keep the growth up that they had been posting over the last years. Even this quarter, they had the 33rd consecutive same-store sales increase in the U.S. Very impressive, but it was only 3%, where I think people were looking for more like 4% or 5%. But it's very difficult to keep putting up numbers like that time and time again. And investors get a little unhappy, for lack of a better word, and sell off the stock. 

Greer: Ron, you mentioned the technology. Hot off the presses, Domino's will launch GPS tracking for delivery orders by the end of 2019. What that means is, I will know exactly where my pizza is as it's being delivered. Is that a good thing?

Flippen: I don't think it's a bad thing. We see this already with Uber Eats, so in a way it's reactive, but at the same time, if you don't think Papa John's and all the other third-party apps are not going to start copying this, you're probably sorely mistaken.

Gross: I think, quite frankly, although a lot of these delivery-type pizzas are the same to me, Domino's should be careful about resting on their laurels. The other folks are coming after them, and they're not going to roll over, whether it's Pizza Hut with their $5 menu along with beer delivery, or even more potentially troublesome is Starboard Value's interest in Papa John's and helping them recover. Don't sleep on Starboard, they know what they're doing and they're going to do everything they can to make sure that their investment turns out the way they want it to.

Greer: Also troubling for me, back to this GPS tracking thing, I don't want to know if my pizza makes a wrong turn. I'm going to find that very anxiety inducing, because I'm going to watch it, just like you like watch Uber or Lyft. You see where the car is. If the pizza takes a wrong turn, what do I do with that information?

Gross: Scream.

Greer: Yeah, I don't know. I think ignorance is bliss. I think they're going too far. I don't mind if the franchisees have that GPS, but I don't need to know that.

Gross: I was hanging out with a buddy the other night. Let's say maybe there was alcohol involved. He calls Domino's and he says, "What is the largest pizza you have?" They're like, "We have an extra large, sir." "I'll take that." "It'll be to you in less than 30 minutes." My buddy was the happiest I've ever seen him. 

Flippen: Target demographic for Domino's.

Gross: So, while I always say this isn't the best pizza on Earth, it is awfully convenient when you need it. 

Greer: Ron, shares of Wells Fargo down slightly today. 

Gross: Yeah, I think that's the story you're seeing across the board in terms of interest income and the current interest rate environment we're living through, whether it's JPMorgan cutting its forecast for 2019, net interest income, or Goldman Sachs struggling there, too. 

But overall, these banks are reporting better than reported results. The ones that are focused on the consumer are doing better. Like you said, Wells Fargo, checking and consumer lending business grew nicely. Interest income remains the albatross around the necks of some of these banks. It's going to be like that for the time being until the interest rate environment changes once again.

Greer: We should mention that back in 2016, you may remember, Wells Fargo got into a wee bit of trouble for --

Gross: A kerfuffle?

Greer: A kerfuffle! I love that word! For fake accounts, fabricated accounts. They eventually acknowledged that there can be as many as three and a half million fake accounts. Now, they fired some employees. Are they out of the woods there, Ron, in terms of that? I think trust and goodwill, very valuable things. There's a great quote by Under Armour CEO Kevin Plank, he says, "Trust is built in drops and lost in buckets."

Gross: I do think it still remains a problem. However, their internal customer satisfaction surveys showed satisfaction scores rising to multi-year highs. If you believe their own internal surveying, perhaps things are firming up a bit. It would be nice to see a CEO in place. Obviously, they're having trouble attracting someone of a caliber that is worthy of running a multi-billion dollar bank. They have an interim CEO in place right now, but that's not going to do it. They need to get someone at the helm and continue to make progress to bring that trust back. Without that trust, there is no business.

Greer: We should add that Berkshire has a 9% stake in Wells, but they've been selling it off slowly.

Gross: Very slowly. If you look at a chart, it's almost imperceptible, the bar graph from quarter to quarter. But it is slightly down. I don't see them getting rid of the full stake. In fact, it would take forever to do so. I think Buffett still wants to believe. Obviously, the trust thing is probably paramount on his mind. He probably would least try to pull the plug on a fair amount of stock if he lost trust completely. It would be nice to see him get involved to get a CEO that is respected in there to continue the momentum. But we'll see what happens. 

Greer: Here's something that we don't say every day: shares of Blue Apron up more than 20%. In fact, we don't say that most days, Emily. Shares of Blue Apron up on news that Blue Apron is adding Beyond Meat to its meal kits next month. Now, Blue Apron is a meal delivery company, and, well, it hasn't exactly delivered on Wall Street. In June, they had a one-for-15 reverse stock split. For those of you scoring at home, that is typically not a good sign. On the other hand, Emily, Beyond Meat, up more than 700% since its IPO in May. The question here, can Beyond Meat save Blue Apron?

Flippen: Heck, if they drag even 1% of what they've done over the past month for Blue Apron, maybe this is their saving grace. But I'm not putting my money on it. Blue Apron for a long time now has been trying to convince people to change the way that they eat, change the way they consume food, and drive growth their way, in a very competitive environment. Taking on Beyond Meat's probably going to temporarily help their stock simply because the fake meat craze is so much of a craze right now. But I think long-term, ultimately, look, if you're a consumer, the same way you can go to a grocery store and buy produce that you would make a Blue Apron meal with, you can go to the meat section of your grocery store and buy a Beyond Meat burger. The people who are interested have already probably gained exposure. I'm not sure if people who have dedicated their lives to alternative meats are going to subscribe to a meal kit service solely for the purpose of getting the occasional Beyond Meat burger.

Gross: Alternative meats. It's like alternative facts. It just doesn't sit right with me. [laughs] Listen, I think it makes perfect sense to include meat alternatives in these food services. Absolutely nothing wrong with that. Perfectly good idea. Certainly won't save Blue Apron. It won't be enough to turn that business.

Greer: So what is the problem? At its core, what is the problem with Blue Apron? Is it a bad idea? Is it bad execution? Is it both? What's the problem?

Flippen: I don't think it's a bad idea or bad execution, it just should not be a publicly traded company. It was never going to have large enough demand to justify having a high valuation that would be listed on the stock market. I think they played into the craze themselves, and when push came to shove, ultimately, it's a small subset of the population that are going to subscribe to something like this, and they challenge themselves by delivering stuff that has an expiration date on it. It's hard to manage inventory. It's hard to attract and retain customers. It's overall an expensive, low-growth business.

Gross: And I think there still are too many of these home delivery services out there. The market will take care of that, believe me. We'll see either consolidation or some of them going out of business. Maybe the survivor will make a go of it and there'll be enough business for one, perhaps two, of these types of companies. But there remains too many of them.

Greer: Now, I know both of you like to cook. Have either of you used Blue Apron or any meal delivery service?

Gross: I have not because I actually like the act of going shopping and picking the produce and picking the protein. It's not something for me, but I certainly understand how it could be for others.

Flippen: I was actually gifted a subscription this past Christmas. I don't think it was Blue Apron. I can't quite remember which service it was.

Gross: Their marketing dollars, hardcore.

Greer: [laughs] Not a great sign!

Flippen: It was good food. I enjoyed the experience. And when push came to shove, I was never going to spend my own money to stay subscribed to it.

Greer: We did Blue Apron for three or four months. A couple of things. The meals were fantastic, when you had time. And it didn't take that much time, but it took 30, 45 minutes or so. The other thing that struck me that I wasn't prepared for was the packaging. There was so much packaging that after a while, I'm like, I just don't want all this stuff.

Gross: And it's not cheap, the packaging, either.

Greer: No! And then you're in that situation -- Ron, unlike you, I don't really like picking out produce. 

Gross: [laughs] I don't blame you at all!

Greer: I'm not great at it. And I forget -- like, aren't supposed to thump melons? But, I don't know what you're supposed to listen for, I'm not sure. But, at the end of the day, if I'm going to spend that much time -- even if it's 30, 45 minutes, I'd just as soon order takeout. So, I feel like they're competing with Grubhub and all these other services as well.

Gross: DoorDash, all of them.

Greer: That's tough. OK, as we wrap up here, it is summer. How about one cooking, grilling, baking tip? Ron Gross.

Gross: Don't be afraid of some good baby back ribs. Low and slow in the oven with some dry rub. Let them fall off the bone for a long period of time. Then throw them on the grill at the end. Baste them with some good barbecue sauce. Let them get good and crusty. Delicious! 

Greer: How long am I looking at? Is that a day?

Gross: Hours, two to three hours. 

Greer: OK, Emily, what do you got?

Flippen: Treat yourself this summer. Add a little bit of butter. I made hash browns the other day. I normally just use a little bit of oil. It's my go-to snack. I cooked them with butter this time. And that's very basic. It's very basic. 

Gross: Delicious!

Flippen: It was mind-blowing. It was diner-style hash browns. And the trick is absurd amounts of butter. 

Greer: OK, I love that idea! But I get a little thrown by butter, specifically -- we were talking about this before the show, because these are the things we talk about -- the nonstick grill throws me off. If I'm cooking eggs, or if I'm doing something on a nonstick grill, do I need to put butter in it before I cook anything? 

Gross: Do you mean the nonstick pan?

Greer: Nonstick pan. Sorry. See, I don't even know the terms. Yeah, I've got my nonstick pan, I'm ready to go. I'm going to make eggs or grilled cheese or something. Do I have to put butter in there?

Flippen: Well, do you want to enjoy your meal? You don't have to put butter in anything. The nonstick pan was designed on the process of telling people it's easier. It's less calorie dense to cook without butter. But you know what? Those hash browns were cooked on a nonstick pan and a lot of butter.

Greer: OK, so pro butter.

Flippen: Pro butter!

Gross: But, you are correct. If the pan is a true nonstick pan and it's a good one, you don't need the butter from a nonstick perspective. You need it from a flavor perspective. 

Greer: OK, good. See? These are the things you don't get on Bloomberg. OK, as we wrap up, the desert island question. You're on a desert island for the next five years. You have to buy one of these stocks: Domino's, Wells Fargo, Blue Apron, or Beyond Meat?

Gross: Ooh... It ain't Wells Fargo. It ain't Blue Apron. Huh...

Flippen: Oh, this is easy!

Gross: Really?

Flippen: Oh, yeah!

Gross: You go first. 

Flippen: OK, I'll cut you off. [laughs] Domino's to me has a lot of optionality still left in it, but when push comes to shove, I'm still not ordering pizza as much as I did in the past because I have too many options now. So I'll go with Beyond Meat because it plays in well into those too many options. 

Greer: What if I told you that Domino's was fortressing?

Flippen: [laughs] It would make me slightly more bullish.

Gross: I'll have to agree with Emily. I think, look forward 10 or 20 years, the meat industry as we know it will be significantly different. 

Flippen: Full of alternatives?

Gross: [laughs] Yes, full of alternative meats. And it seems like Beyond Meat has a nice little foothold so far in that industry. So, I would go with them as well.

Greer: OK. As always, if you have questions or comments, marketfoolery@fool.com is our email. As always, people on the show may have interest in the stocks they talk about, and The Motley Fool may have formal recommendations for or against, so don't buy or sell stocks based solely on what you hear. Ron Gross, Emily Flippen, thanks for joining me!

Flippen: Thanks for having us!

Gross: Thank you, Mac! Always a pleasure!

Greer: That's it for this edition of MarketFoolery! The show is mixed by Dan Boyd. I'm Mac Greer. Thanks for listening! And we will see tomorrow!

Emily Flippen has no position in any of the stocks mentioned. Mac Greer has no position in any of the stocks mentioned. Ron Gross owns shares of Berkshire Hathaway (B shares) and Starbucks. The Motley Fool owns shares of and recommends Berkshire Hathaway (B shares), Starbucks, Under Armour (A Shares), and Under Armour (C Shares). The Motley Fool has the following options: short January 2021 $200 puts on Berkshire Hathaway (B shares) and long January 2021 $200 calls on Berkshire Hathaway (B shares). The Motley Fool recommends Grubhub and Uber Technologies. The Motley Fool has a disclosure policy.