As of 10:30 a.m. ET

Fast Food Industry Analysis

The fast-food industry, like other restaurants, was negatively affected by the global pandemic. In April, they saw sales down 36%, and in early September they had yet to return to pre-pandemic sales numbers. A number of prominent chains have made some changes recently in an attempt to attract consumers and increase sales. 

• In August, KFC decided to suspend the use of the slogan "finger-lickin' good," ostensibly due to the CDC's recommendation that people keep their hands away from their face. As Catherine Tan-Gillespie, chief marketing officer of KFC said, "[We have] an iconic slogan that doesn’t quite fit in the current environment."
• Burger King in early September released new restaurant designs focusing almost exclusively on an in-car eating experience. The company is adding additional drive-thru lanes and areas to park specifically for in-car eating. 
• McDonald's launched a new McNugget flavor in the U.S. – Spicy Chicken McNuggets – for the first time since the product was introduced in 1983. 
• Taco Bell has eliminated dozens of items from its menu during the pandemic, including Nachos Supreme, Mexican Pizza, and the 7-Layer Burrito. In Canada, however, it launched a limited edition Jalapeño Noir wine to pair with a Toasted Cheesy Chalupa.

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Pepsi has announced Driftwell, a new enhanced water beverage it claims will improve sleep quality. The drink contains L-theanine, an amino acid founds in mushrooms and tea. It provides hydration before bed and assists in improving sleep quality and combating the symptoms of stress.

The product:

• The idea came from an internal competition within Pepsi where employees developed new product ideas. 
• The drink also has 10% of the daily recommended dose of magnesium. 
• It will be available online in December and in stores in Q1 2021.

The industry:

• Since the early 2000s, consumer preferences have changed, with sugary drinks being one of the most common items eliminated or reduced in diets.
• In 2012, the average child under 18 drank 79 calories (over half a can of coke) less per day than in 2004. This means that, on average, each child consumed 200 cans of sugary carbonated drinks less per year in 2012 than in 2004. 
• From 2015 to 2020 the market for sugary soft drinks fell by an average of 3.6% each year. 
• In 2016, the sales of bottled water overtook the sales of sugary soft drinks for the first time. 
• 80% of consumers now want to drink bottled water that serves a functional benefit.

Verizon announced it is buying prepaid wireless communication provider TracFone in a $7b deal. Verizon currently has four million prepaid subscribers and TracFone 21 million customers. The acquisition would give Verizon the most prepaid customers in the U.S. telecom market. Verizon has 116 million regular monthly subscribers, making it the largest wireless carrier in the U.S.

 More:

• T-Mobile, which acquired Sprint in a $32b deal this year, has the second-most number of prepaid subscribers, ~20 million. AT&T is third with 18 million subscribers.
• TracFone is the biggest wireless reseller in the U.S. market and around 13 million of its customers use the Verizon network for communication.
• Verizon is expected to generate $800m more in revenue by redirecting TracFone’s subscribers who currently use T-Mobile and AT&T to its own network.
• Verizon and AT&T are adopting different strategies to grow their businesses. Verizon is focusing on growing its telecom services and AT&T is focusing on the media industry with its Time Warner acquisition.
• Though the deal is yet to get approval from antitrust and telecom regulators, it is expected to go through, as they both offer complementary and not competing services.

The SEC is conducting an investigation into fraud allegations made by Hindenburg Research against Nikola Motors. The research firm alleges Nikola deceived investors about the capability of its trucks.

More:

• The allegations were released on Sept. 10, and Nikola’s shares have fallen by 30% since then. General Motors invested $2b in Nikola last week, and its shares have decreased by 10% since the report came out.
• Regarding a 2017 promotional video for Nikola One, Hindenburg alleged the vehicle was "simply filmed rolling down a big hill."
• Nikola CEO Trevor Milton wrote a 2,700 word reply to Hindenburg’s allegations. He responded that "Nikola never stated its truck was driving under its own propulsion."
• Nikola says the allegations were made to financially benefit short-sellers.

Kraft Heinz announced it is set to cut $2b of its operating costs in the next four years. The company also announced it is planning to increase its marketing spend by 30%, to $1.4b. The company’s stock price rose by 3% since this morning.

More:

• The company’s market cap stood at $110b in 2017 and is currently at $39b, a 65% decrease.
• Analysts have expected an increase in ad expenditure since the appointment of Kraft Heinz CEO Miguel Patricio in July 2019 due to his background in advertising. 
• For the last quarter, the company reported revenue of $6.4b and a net loss of $1.6b due to a reduction in the value of its assets.

QUICK HITS

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• Sony has cut PS5 forecasts due to production issues.
• Slack is gathering industry leaders and product experts at Slack Frontiers, a free virtual conference dedicated to digital transformation.*

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