Yesterday Research in Motion made two major announcements, which were the launch of the BlackBerry 10 and a name change for the company. After years of buildup RIM finally launched the new BlackBerry 10 but surprised onlookers by announcing that they would be changing the name of the company to BlackBerry with the ticker BBRY. Rob Enderle thought both announcements were impressive in an interview on CNBC stating the new phone is very sleek, has a better keyboard and is similar in size to the iPhone 5. It almost looked liked the company examined the complaints that other phones had and looked to correct them with the replaceable battery, security improvements, etc. Rob thought the name change was a big step in the right direction because it highlights their products similar to what Apple did over a decade ago. Like Apple, the company is vertically integrated. However, they are much more of a global brand and focused on business – consumer instead of consumer – business like Apple. To hear Rob’s whole interview please visit http://video.cnbc.com/gallery/?video=3000144732.

Rob Enderle is President and Principal Analyst of the Enderle Group, a forward looking emerging technology advisory firm. He specializes in providing rapid perspectives and suggested tactics and strategies to a large number of clients dealing with rapidly changing global events.

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A deceleration in PC sales has been the driving force behind the acceleration in consolidations and collaborations in the semiconductor industry. Roulston Research recently held their semiconductor roundtable on January 25th with Jim Ballingall and Carl Johnson to analyze and forecast the major trends and shifts that are happening. Jim Ballingall is the former VP of Worldwide Marketing, GLOBALFOUNDRIES, former VP of Worldwide Operations, Marvell Technology Group, and former CEO at GetSilicon. Carl Johnson is the President/Founder of INFRASTRUCTURE, former semiconductor analyst with Merrill Lynch and Piper Jaffray, and former chairman of SEMI’s Strategic Conference Committee. Both consultants provide years of experience and an in-depth view of the major changes happening in the semiconductor industry. The industry is continuing to contract and change due to the decline in PC sales and mergers & acquisitions by larger players such as Lam Research’s acquisition of Novellus Systems to complement their process suites and combat rising cost in a fragile economy. Growth will happen in very specific sectors; however the presenters do not see a significant rebound in the chip market unless the market environment improves significantly. As companies strategically position themselves to succeed in this changing industry, the major players emerging (or most watched) in the semi-conductor manufacturing segment are Taiwan Semiconductor Manufacturing Company (TSMC), Intel and Samsung with the major consumers being Apple, and Qualcomm.

TSMC has established themselves as a dominant force among competitors in the 28 nanometer nod market, while companies such as ARM holdings and Intel have decided to make major changes to their strategy by venturing into other areas of interest. ARM Holdings is invading the server space at the low end of the spectrum and Intel is continuing their push into the mobile market, a market that has outpaced and eroded the PC market by large margins. The presenters view on Intel strategy is optimistic as Intel has been trying for quite some time to establish a present in the mobile environment and is expected to gain ground in the long run. Intel is leading the charge with their investment in R&D and their $4.1 billion dollar investment in AFML in an effort to shave two years from the time to adopt new production techniques. The company leads in-terms of logic manufacturing but is lagging in SOC integrations capabilities, an area currently being reworked and could poses a threat to ARM. Other topics mentioned include the major transition in process technology and wafer sizes along with how this will affect large foundries and IDMs, opportunities in the capital equipment market, payoff from the Novellus Systems by Lam Research and more. If you are interested in listening to the podcast from the event or engaging Jim or Carl in a 1 on 1 discussion please contact info@roulstonresearch.com.

Sometimes with all the media attention as we have mentioned before we have seen the Tatum Survey go thru adjustments that are hard to define. The January survey is one of those examples. An upward tick is the result of less people saying things are bad. Does that mean things are better? If the battered dog doesn’t’ get hit for a month has the punishment stopped?

The bottom line of this economy and the market is that there is very little visibility and confidence in forecasting. Yes we just replaced the third extension of the “Bush Tax Cuts” with permanent new rates, but now the President and Congress are still discussing other revenue(deductions in particular) adjustments. This together with Obama Care, potential new regulatory reform, International issue (European slowdown and budget concerns) Fed Policy and a general anemic GDP just are not the components to of optimism. As we have stated so often the markets are a barometer of confidence in many ways.

We look for the next few months to probably continue to send mixed messages. The Tatum Survey should once again prove to be a leading indicator as we look forward. Stay tuned.  To read the full survey please visit January_2013_Tatum_Survey.

Compass Restaurant Consulting & Research recently attended the ICR Xchange in Miami where over thirty restaurant brands held presentations and breakout sessions. Brand management discussed a range of topics with most focusing on previous quarterly performance or previously made presentations. However, there were several brands that made noteworthy comments about their brand and even a few discussed ObamaCare. Below are Compass’ takeaways.

BKW:

  • Beverage Platform Upgrade – During the breakout session someone questioned coffee upgrades. BKW said they were going to upgrade and focus on the entire Beverage Platform. This indicates Burger King’s interest in growing their beverage business. No one else in the breakout session seemed to have caught this.

This is significant because recent studies point to a growing trend of “snacking” among consumers. In a recent study by NPD “snacking” accounts for 20% of all food dollars spent away from home and that category includes beverages. McCafe is a $2 billion business at McDonald’s. Sonic’s Happy Hour (2-4pm where most beverages are featured at ½ price) accounts for 28% of their business. So for BKW to enter this arena will provide many opportunities to capture sales that are low-hanging fruit and position themselves to be one of the few brands focused on capitalizing this growing dining trend.

CMG:

  • Veggie Bowl & Burrito – They will be rolling out a new Veggie Bowl & Burrito – Sofritas (Tofu) beginning in February. It appears they are trying to get a jump on Taco Bell’s Cantina Menu “Veggie” offerings.
  • Catering Program – They will launch a catering program starting in Colorado. They are looking at catering as a growth opportunity for sales. Obviously CMG has heard of Panera Bread’s success with catering.
  • Price Increases – CMG also mentioned the possibility of price increases in 2013. They were the only restaurant brand that mentioned price increases. This could price them further out of some consumers’ reach.

CMG seems to have put some focus on broadening their efforts to recapture/capture market share. Getting ahead of Taco Bell’s Cantina Menu rollout of a Veggie Bowl / Burrito will keep CMG from looking like they copied Taco Bell. Instead they now have taken the lead on this product. With the launch of the Catering Program they will attempt to mimic the success of Panera Bread with their catering business. Catering is currently averaging 20% of Panera Bread sales so the potential for catering to add business is a good move; fits well in CMG business model.

On the subject of price increases, this will hurt sales – especially at a time when consumers are very sensitive to price. Consumers have proven they will trade down quality for price, especially at Chipotle.

RT:

  • Store Closings – RT mentioned closing under-performing stores; closing other brands in portfolio (except Lime Fresh Grill). Only mention of expansion was the Lime Fresh Grill brand. Could this be the end of Ruby Tuesday?

Concerning the closing of the Marlin & Rays concept –  this is puzzling. The concept is sound and fills a niche in Casual Dining that has little competition – seafood. Sales at one time were better than RT. It seemed like this could have been a growth vehicle for RT.

With RT focusing their growth on the shoulders of Lime Fresh, they are showing their confidence in that concept (and conversely with no mention of growth in RT – demonstrating a lack of confidence in that concept). Recent studies indicate that Mexican food is the fastest growing cuisine in the Fast Casual sector. So RT has positioned themselves well for growth after all.

SONC:

  • New Store Development – During Sonic’s presentation and breakout session, they mentioned “because franchisees made an additional $15,000 last year, they were now showing strong interest in expansion.” This is in contrast to franchisees recently interviewed by Compass. The majority of these franchisees currently view expansion as acquisition of existing units as opposed to new store development. (Franchisees are making minimal plans toward new store development; more to fulfill minimum Territorial Development Agreements than a desire to grow new units.)
  • New Building Design – Also mentioned in the breakout session was the new building design that could save as much as 20%. Yet, when questioned, the Corporation’s commitment toward building this design was weak and they were depending on franchisees to develop the new design and tout its benefits.

These comments were a bit curious. Most franchisees we spoke with are currently focused on how to handle ObamaCare and what to do about the new taxes as a good many of them are Sub-Chapter S corporations or LLC’s where the business income flows to them personally thus putting them in the tax bracket above $250,000. That extra $15K income is going to pay bills not fund new unit development; at least in the short-term.

WEN:

  • Breakfast – Announced that breakfast would be put on the back burner and discontinued in units where breakfast was under-performing. This is a dramatic shift from where they stood on breakfast two years ago when they stated that “Breakfast drives QSR growth…” This seems like a pretty significant reversal.
  • Three Tiered Re-imaging Program – They spoke of their Three-Tiered Re-imaging Program costs and varying results. BKW is achieving the same results (and in some instances even better) but, Burger King’s re-image program costs significantly less. There appears to be significant disparity between BKW and WEN re-image costs.

Once again Wendy’s demonstrates how out of touch they are with the customer. Their breakfast failure was due to Wendy’s desire to be like Panera Bread’s breakfast offering items like Panini, Artisan Egg Sandwich on a Ciabatta type roll all of which carries a higher price point; rather than offering the QSR breakfast customer the entrees they want which are at a lower price point. Breakfast failed because they simply priced themselves out of the market and management still doesn’t get it.

YUM:

  • Late Withdrawal from the ICR XChange – Many attendees questioned whether this was brought about by YUM’s recent statements on their ailing China market.

OBAMACARE:

As far as comments about ObamaCare, two brands (in their breakout session) took the position that the Affordable Healthcare Act will not impact businesses as much as what small business owners are saying. They explained this position as the interpretation of the word “offer” verses “provide” in the Employer Mandate portion of the law. In simple terms, their understanding is that if an employer offers the health insurance but the employee refuses – then the employer is off the hook. If the employee opts to take the insurance, an employer can charge that employee up to 9 ½ % of their income to help pay for their insurance. Management does not anticipate many employees opting to take the insurance because of this.

Several problems with this position: 1) it’s built completely on the assumption they are right in their interpretation of the Employer Mandate (what if they are wrong!). 2) The majority of the Healthcare Bill has not been completely defined, therefore, any conclusions drawn are very speculative.

While small business owners have taken a more cautious and guarded position and interpretation concerning the Healthcare Bill, they believe they must provide insurance to all full-time employees.  They are anticipating having to incur some expense concerning this bill and therefore attempting to make plans accordingly. If their wrong – no harm done.

In speaking with the National Restaurant Association about this, the spokesperson indicated that both sides are partially correct according to current interpretation. However, they pointed out that the bill is about 2000 pages in length; yet, to date (January 20, 2013) there are over 13,000 pages of definitions and regulations and that barely scratches the surface. In one instance there are 18 pages that explain the definition of a full-time employee. In summary, there isn’t a complete definition of any portion of the Healthcare Bill; so uncertainty still dominates.

 

Steve Crichlow is the founder of Compass Restaurant Consulting and Research which provides clients with monthly fundamental industry insight and commentary on leading Quick-Service Restaurants (QSR) and Casual Dining concepts. Before starting Compass, Steve had 40 years of restaurant operations experience including being a multi-unit franchisee at Burger King, Popeye’s, Sonic Drive-In and most recently CiCi’s Pizza. He is also long time member of the National Restaurant Association. Steve specialized in turning around underperforming markets and for his involvement in the development of several key operating systems within the industry. He incorporates his 40 years of operational experience, extensive rolodex of restaurant industry contacts, and insight and evaluation from the street level where most corporate strategic growth plans actually take place into his analysis. To learn more about Compass Restaurant Consulting and Research please visit http://www.compassrcr.com/.

Highlights from ICR

January 23, 2013

Last week Roulston Research attended the ICR Retail Conference and Miami. Below are our thoughts on the company presentations we attended:

Bob Evans (BOBE) – Has come a long way under CEO Steven Davis. They really have focused their food business and figured out the grocery store buying process. Restaurants are looking at take out as a good way to supplement the operational transition. Very impressed by management focus and understanding of the issues.

Wendy’s (WEN) – Breakfast returns to back burner and company focusing on other day parts.  Used to follow this much closer but couldn’t help but feel this story is same old/same old. Breakfast start and stops, new menu items that work and don’t, the” me too” of the big three (even though the best burger and salad option). Can’t see the compelling story.

B&G Foods (BGS) – Flying under the radar is an understatement. Niche products in niche categories have created good growth and returns. Not knowing much of the background this company is a well-disciplined player in the food space. 

Bravo Brio Restaurants (BBRG) – A niche market with a controlled growth strategy. Wonder why they are public but like the opportunities. They really get the real estate/demographic strategy it seems and lots of store growth potential. Would seem to be a nice fit in bigger company.

Denny’s (DENN) – Can’t help but like a company that recognizes the 3am customer as representing a different day part and demographic. This company has some growth plans that make it much less sleepy than at first glance. Can they grow it profitably? Can they improve operations? Some questions but also opportunity it seems.

 Krispy Kreme (KKD) – Flying under the radar they are focused on franchise expansion. Surprising recovery seems to be a result of recognizing they oversold the product thru non store growth(you could buy these doughnuts at one point everywhere). The question here is same store sales growth. They can grow thru attractive franchise attraction but how far?

Dunkin Brands Group (DNKN) – Going to California was the announcement. As the father of multiple recent college Alums this franchise expansion just seems to be a great alternative to Starbucks.  Their positioning is well thought out and the recognition of day parts in their thought process is  creative and refreshing.

SodaStream (SODA) – A well-capitalized marketing concept that is definitely gaining traction. WMT acceptance and new product development is bolstering the company. This is a paradigm changer. Can’t understand one thing-Who goes after them first in legacy soda biz?  Can’t imagine this company staying independent.

Cardtronics (CATM) – The ATM network space is intriguing. There is a data collection point in the transaction that players are starting to recognize. This company is struggling to monetize the regulatory changes happening. But the space has some interesting paradigm changes occurring.

 Express (EXPR) – As we saw on our mall tours they missed this year on both the fashion and store presentation. They say fashion (knits in particular) came back in later holiday. Let’s look at next store set but they missed at Christmas and this company is fashion sensitive.

Wet Seal (WTSLA) – Very impressed by new CEO appearing on day 10 at the conference. Goodman is impressive and seems very focused on the right ways to compete in fast fashion. With a crowded market place count us among skeptics.  This could be the sleeper as a great balance sheet and cash with the Clinton Group involvement could be interesting.

Pacific Sunwear (PSUN) –It seems the bleeding has stopped. Do they have a growth market? Is this truly a distinguishable brand for a worthwhile market? To many questions here it seems.

TJX Companies (TJX) – There are just some companies doing the right thing…seems like always. These guys are laser focused on productivity as if they were a manufacturer. Very impressive to find a retailer finding things to improve when macro trends already blowing winds the right way. Have a hard time believing this does not have more legs.

Limited (LTD) – Victoria Secret is the crown jewel as everyone knows and is growing and positioning very well. Just concerned as to what is next step here. Don’t profess to follow this closely.

Urban Outfitters (URBN) – Dick is back and it shows. After a stumble these guys in the mall tour seemed to be back on their game and it shows.  Controlled growth with some operational improvements and think this company is back in a good position. 

Body Central (BODY) – Needs a new CEO and soon. This seems to be a rudderless ship. Could this be a private equity opportunity? Not sure where it positions itself in the long run but needs management help.

Coldwater Creek (CWTR) – Every event like this has winners and losers. The management seems so in denial here that not only is it past being a short, but one has to wonder how a board could listen to the management. Not one answer to a question in 20 minutes seemed to be prophetic or insightful of any recognition that bad fashion in a declining demographic target is not a good recipe.

American Eagle (AEO) – On their game. Seemed to hit fashion right this holiday and yet management shows an ability to self-criticize that is refreshing.  There is some interesting growth in the story as Aerie has some interesting opportunities it seems and is getting some traction, granted from small base.  Management seems to be on their game here.

Cabela’s (CAB) – This is a niche growth company with stellar management in a space near and dear. It’s hard to believe what a category killer they are and yet how dominant their footprint can be in their space. Management knows the customer and knows their business.

Last week Target made a major announcement that they would be launching six new brands that are exclusively available on Target.com. This move raised eyebrows as the company is trying to differentiate themselves from other online retailers. The new brands range from home goods to apparel. Dick Seesel isn’t sure that something bigger isn’t going on here stating, “While the six new brands will draw traffic, buzz and (hopefully) sales to the website, I wouldn’t assume that they are slated for e-commerce forever. It’s worth noting that five of the six brands are “home goods” in an area where Target has lost some cachet. (It’s also worth noting that Bed Bath & Beyond’s acquisition of World Market points toward a “multicultural” approach to this business.) It would not surprise me to see the test results of these brand introductions end up with at least one or two expansions to bricks & mortar, after Target evaluates the risks and rewards.” To read the full article please visit http://www.retailwire.com/blog-post/6dd02b55-1aa8-4666-b565-5920f9478985/why-is-target-launching-brands-online-instead-of-in-stores.

Richard Seesel is the Manager and owner of Retailing In Focus, LLC. He was most recently a Senior Vice President and Divisional Merchandise Manager at Kohl’s Department Stores. Dick is proud to have helped Kohl’s grow from 18 stores to a national retail powerhouse, during an era of change and consolidation throughout the retail industry. Dick will be participating in our upcoming Retail Roundtable on Thursday January 31st at 2 PM Eastern. If you are interested in attending or dialing-in to the event please contact info@roulstonresearch.com.

A group of oil and natural gas pipeline operators are planning to spend about $1 billion on rail depot projects to move crude oil from land-locked inland fields to refineries on the U.S. coasts. For the first time, oil and gas companies that have traditionally rented rail capacity are buying those assets to move oil from oil sands fields in Alberta, the shale oil fields in the Bakken region of North Dakota, and the Eagle Ford in Texas. Moving oil by rail costs about 3 times as much as moving it by pipeline, but favorable price differentials between landlocked crude production in U.S. shale oil basins and Alberta oil sands and coastal refineries due to transportation bottlenecks are covering higher rail transport costs.  This means more money in the pockets of railroads where total petroleum shipments exceeded 540,000 carloads in 2012, up from 370,000 carloads in 2011. About 1 million barrels a day of rail-unloading capacity is being built in the United States, more than double the current level of shipments, which averaged about 456,000 barrels a day in the third quarter. Burlington Northern, which handles about 35 percent of U.S. oil shipments, is planning capital improvements to haul 40 percent more crude in 2013. A major disadvantage, besides higher costs, is that the rail industry is faced with a shortage of rail cars that can take two years to be built and delivered. The increased movement of oil by tank car means companies such as Union Tank Car are reaping the benefits of expanded demand for rail tankers. To read the full article please visit http://www.instituteforenergyresearch.org/2013/01/18/oil-industry-investing-in-rail-depots-an-alternative-to-keystone/.

Thomas J. Pyle is the president of the Institute for Energy Research (IER). In this capacity, Pyle brings a unique backdrop of public and private sector experience to help manage IER’s Washington, DC-based staff and operations. He also helps to develop the organization’s free market policy positions and implement education efforts with respect to key energy stakeholders, including policymakers, federal agency representatives, industry leaders, consumer entities and the media. To read more about the Institute for Energy Research and their mission please visit http://www.instituteforenergyresearch.org/.