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I haven’t dined out a ton in the last decade. I’ll admit it – so when I have gone out recently, post-COVID, some of the stark contrasts to pre-COVID are too hard not to recognize. My experience last night at Pizza Hut wanted me, at the moment, to find a way to short that company into oblivion. But as I was discussing this with my wife, she reminded me of a few days before when she asked me to stop at a Chipotle so she could get a quick order to go – they refused her service because she didn’t order ahead on the app.

If anyone has gone to a McDonald’s lately – I’m sure you are aware of these.

I was in Vegas a few months ago for my brother’s wedding, and I wanted to get a coffee in the hotel, sort of like a Starbuck’s cafe mocha. The thing cost like $7, and the app for me to pay at was suggesting 10%, 20%, 25% tips? The barista is staring a hole in your head, and she hasn’t even made your coffee yet. Isn’t that what her job is? She’s not bringing it out to me.

This goes back a decade or more for me, when conversations of $15 an hour min wage came up, and I wrote a huge blog article for another friend’s blog before I stood this up. I posted a picture like the McDonald’s kiosk ordering above, and said, “that is $15 min wage”.

Any of you who read my blogs know that I’m for sound money. But I also did studies that showed how the increase of the money supply far outpaced wage growth. For 40 years, you saw a lot of “good jobs” leave this country, and with it, you had available supply of workers. This allowed for wage suppression. 99.9% of people have zero clue how businesses operate, and less of a clue the management has to continue to grow revenues and profits. Our system is crazy beautiful, if you understand how efficiency works. Luckily, yours truly was a metrics manager for 4 years and studied the hell out of business and quality control. The things I did with regression and statistical process control. Reading the works of Deming. Like an opera.

With this understanding, you also know that today, there is a TON of cash sloshing around in the system. Zombie companies are everywhere. But what this also means is that a lot of companies that should have been taken out behind the shed and put down like broken horse continue on, today. See – all of us that took economics and business classes understand the concepts of….economies of scale….and market saturation. Recession is a “healthy” tool, and can be akin to perhaps my health blog side that writes about the 2016 nobel prize study on autophagy. The concept is – older and/or malformed cells, during a period of fasting, are taken apart and recycled into new, healthy cells. This is a 10000% accurate metaphor for what used to happen to businesses until the MMT crowd came along.

My experience – Pizza Hut

Look, I’m not looking for a gift card for a free pizza. I’m not writing this to shake the tree here because someone screwed up. I’m writing this because I lost a part of my childhood last night that I’ll never get back.

My earliest memories of Pizza Hut were when I was 5 years old. My preschool in Douglassville, PA – Hickory Dickory Dock – went on a field trip to the Mt. Penn Pizza Hut. I remember ladling sauce on pizza that was then fired in the over and we ate. I loved it!! A few years later, in 4th grade, Pizza Hut had this campaign called “Book It” which had me reading a stupid amount of books to get a free personal pan pizza each month. I’d like to say that program spawned a ton of reading which led to 10 years of college, and me wanting to learn and read about the world daily. In high school – after our shitty basketball team would lose to future NBA stars like Donyell Marshall by a few hundred points, 10-20 of us would go to the Morgantown, PA Pizza Hut and socialize on a Friday night. Cow tipping was so 1960s….

Admittedly, Pizza Hut wasn’t on the list of my top 10 pizzas the last 2 decades. I’m married to an Italian from Long Island, and eating at Pizza Hut for her people is…let me quote her…”a crime against her ancestors”. I literally had to beg her to come, as I had promised my 13 year old for a year I’d get him stuffed crust pizza. I have a 2 year old wrecking ball also, so I wanted him involved, and yes – I needed the mom’s help as he’s a handful.

I had remembered perhaps 25 years ago, getting a pan pizza and the pizza sizzling coming out to the table. Getting orders of breadsticks with a nice bowl of dipping sauce. Refills of Mountain Dew until my insulin levels couldn’t take the pain anymore. The smells. The dim lighting that made it feel somewhat intimate, somehow. While I hadn’t been a tremendous fan of the pan pizza, I had become a fan of the New Yorker perhaps 20 years ago with delivery. But some of my local pizza shops had NY style pizza I liked – so I favored them.

In the past decade, I had ordered pizza hut twice. Once from my old house in York city (some stuffed crust deal) and then once just after COVID started, where I went to a local Pizza shop to do pickup. The woman behind the counter was new – she was a dental assistant recently laid off during COVID with shut downs and I could tell she may have felt even embarrassed to work there, like it was a step down. COVID was hard on a lot of people, for a lot of reasons – and while I felt for her, I also realized it was hitting people differently and this might harden up a lot of society.

I showed up with the family last night, walked in, and the first thing I did was look for “please wait to be seated”. Not there. There were 3 guys who looked like they had shame being there sitting in the front across from a cash register. A father and daughter were in the dining room, and no one else. I came at 5:15, no big deal. Probably no one eats that early. With a 2 year old, that’s kind of how you try and roll. I saw a nice lady at the register and she said, “we don’t have dining service. You can eat here, but we don’t have wait staff”.

My wife’s warning started to resonate in the back of my head. OK, we can make due with this. We go find a seat, where the tables appear to be a quarter of a mile apart, because…COVID I guess. What used to be quaint dim lighting to me as a kid are now light fixtures that hit my jaw, and now that tables are moved around, I have to move in a serpentine fashion to navigate the dining room.

So I go up to order, and they have 2 paper menus printed out. Me and the 13 year old decide on a stuffed crust pizza, some breadsticks, fries, and a personal pan for the 2 year old. Drinks? No fountain drinks – but a poorly stocked fridge behind the counter of 1 liters and 20 oz drinks. Ugghh. No fountain drinks. The woman asks me if I wanted ketchup for the fries – great, this means packets coming our way. How classy.

$47 later, I take my seat and a few minutes later the nice lady brings out a plastic bag of paper plates, 2 paper cups, and napkins. This wasn’t going to be eating on real plates. Great.

About 25 mins later, out came the food. No sizzling cast iron pizza stuff. It was in a box. So were the fries, and the pan pizza. The breadsticks were in a bag, covered in grease, and just a tiny sauce portion in a small plastic container, probably enough for 2.5 breadsticks.

The pizza was awful, with the exception of the stuffed crust. Like, part of me was thinking that I just want to order the stuffed crust. The fries were horrific. I don’t know when this style of french fries became popular, or what masochist begs for this style of fries, but they need to be taken out in the street and beaten. OK, maybe you can’t say these things on social media anymore, but I’m nostalgic today for my 1990s when we could eat food with flavor and say such things. My wife looked at me, trying hard not to laugh hysterically with the “I told you so, this is horrible, you are a horrible person for betraying my people and forcing me here at gunpoint. I was right you sonofabitch”.

I found myself like Ray Liotta in this scene, begging for my wife not to end me in the parking lot.

We ate, and as we ate, the amount of plastic bags, and boxes, and napkins, and grease overwhelmed the table. My 13 year old crushed 4 slices of it, and I hope he got his stuffed crust craving tickled, because the next time he has one of them that I care about is when he has a car and can drive himself there lol.

Case studies

Yum! brands owns Pizza Hut, I just looked it up. One of my favorite things about the MBA – as opposed to my undergrad in IT – was the extraordinary amount of case studies of companies. I loved it. You’d read 2-3 pages on a company, and they’d drop nuggets here and there of the disaster at hand, and then you acted like a management analyst to solve all of the problems with things you just learned. The case studies were so much fun! Well, in the real world, when you ARE in the position to do these things for a company, it’s pretty cool. Most people without a business education just sort of look at you like an idiot, but month after month, mysteriously, you hit and exceed all goals. I’ve now been in the manager’s seat for 10 years, and I love it. I seek out all kinds of new management challenges all the time….but Pizza Hut? You now have my attention.

The Yellen-inspired “no recession ever” and MMT stuff, has zombie companies hiring people and producing goods and services – you see low unemployment numbers. But what this also means is that there’s not a tremendous amount of people in the labor force available, and to get people, you need to hope someone is pissed at their current job, is upgrading their current job to work for you, or you somehow are in a bidding war to pay them more to remove them from their current job.

Low unemployment is a double-edged sword. While you can see these low unemployment numbers, it makes it FEEL like a healthy economy due to…money. But what you are NOT seeing, at face value, is that companies have critical services that might not get done, unless they pay top dollar to get someone. This has upward wage pressures, as companies cannot afford to lose crucial pieces. Likewise, margins start to collapse. You are also seeing the prices of goods go up, which then has more pressure on margins. Companies are faced with a few problems to solve – and can only do a few things:

1. Pass on costs to customers
2. Shrink serving size or service performed
3. Segregate costs out a la carte
4. Pay some people more, but let others go
5. Change how you operate at cheaper costs to survive

All of the above you are seeing today. Shrinkflation in anything you buy. Costs are passed on to customers – as earlier in the day I bought breakfast as well for the family, and there was another $48 for…not a lot. The coffee barista looking at me for a tip on a $7 coffee before she even started it, was also segregating out costs. The Pizza Hut and Chipotle examples were making the operations more lean by cutting wait staff and even dishes/dishwashers to have disposable paper plates.

The dining example at Pizza Hut was horrific. But it is a sign, to me, of the top. The top that is about to break.

Leaner operations, to the point of destroying your brand. Something is about to give.

Enter the bank failures

I wrote about the SVB yesterday, but after me trying to explain this to my wife, and getting 30 seconds of eye rolls, I stopped telling her about it. Just 5 mins ago, she sent me a link that Etsy is “delaying” payments to shop owners due to banking issues.

The Fed, in my 2023 Macro forecast, NEEDED to break things. Their INTENTION was to pop the asset bubbles and reclaim the $4-6T they injected into the economy. SVB’s main issue was that they had bought a lot of MBS – and rather than get a 2% yield or something from SVB, people were now moving to treasuries. A bank run ensued.

But this is what I was talking about in my forecast. People will be FORCED out of their positions, into cash – and then FORCED into treasuries. At 6.5% inflation, they are more or less being corralled into a 4.5% treasury, guaranteed a 2% loss while inflation is higher. The ANTICIPATION here is then that perhaps inflation will be 2% and that taking the cash they have and moving to these items, they will preserve their purchasing power. What many are now trying to grasp, is what to do with cash over $250k in a bank account. Many are then starting to wonder about knock on effects with Contagion with companies exposed – like the Etsy’s of the world. I didn’t even see them on a list, so they may be having an effect from one of the entities affected – having a tertiary effect here.

But what is going to happen as well I believe, is a lot of the zombies are going to start folding. This is your malformed cells getting pulled apart and repurposed. Some of the cell parts can be useful, while the rest is recycled into glucose. I believe you will start to see unemployment – but ONLY after you see a flee from commercial real estate. Now that a lot of the COVID protections are ending for mortgage stuff, I can see the FIRST line of defense is getting rid of excess corporate space so many can work from home more.

This will create more banking shit storms. Eventually, you will have the unemployment wave happening. Less people will eat out. But the question then is, how can the Pizza Huts not shut down? To me, this is a dying brand. Tony’s NY style pizza across the street has perhaps been in operation for 30 years and their food tastes 10 times better. Pizza Hut MIGHT be able to then afford wait staff in these restaurants at some point again, and bring back the sizzling pan pizza. But I didn’t think there was someone back there ladling sauce on the pizza. It felt almost like we have no pizza maker there anymore, that it’s frozen shit they just throw in an oven for 5 mins and call it a day.

Likewise, if nat gas prices go silly, Tony’s pizza can just add $1 surcharge to the pizza whereas local pizza huts suffer margin issues.

Economies of Scale, and time to prune

To me, we are about to see a cleansing. My memories of Pizza Hut – are just that – memories. The first stage of grief over loss is denial, and that’s what I was in going into the restaurant last night. I was in denial they had changed their entire brand around – while presumably to survive during COVID, have kept the lack of dining experience intact due to how hard it is to hire wait staff now.

Autophagy is about to hit businesses, in a big, big way. I had mentioned in my macro forecast that a lot of M&A is coming. However, I believe the strong pieces here could be re-purposed.

It seems to me Pizza Hut lost. What do you do? You need to restore that brand, that nostalgia. You need to close a shitload of poor performing locations and go back to what you did well. While corporate navigation has ALL been about growth and increased profits, I feel economies of scale in literally every brand have been exhausted, and every efficiency trick has been used. While profits are still deteriorating now – its because of such cuts to everything has damaged the brand and turned people like me off from ever visiting there again.

The only real thing for the 20,000 Pizza Huts out there to do is to re-brand themselves, trim poor performing locations, and re-open what they used to do with the dining experience. For all I know, I was in a rare location that did not have dining service, but the fact that I had zero clue what I was walking into speaks a lot about their brand deterioration. Instead of 3 Pizza Huts in York, that all barely make a profit, cut to one big one, with dine in service. That still doesn’t solve the problem of no one seemingly making the pizza anymore. If you proceed with frozen stuff and bland tasting pizza, you will get slaughted by the Pizza! Pizza! of the world, who beat you to cheaper pizza. You are lost, between Little Caesars, Tony’s Pizza, and MOD pizza.

What you see with market saturation, is – imagine you had a lemonade stand and people were lined up 20 deep. Kids on your block see this, and they stand up a lemonade stand. There’s only 20 customers a day, and the more of these that are stood up, the less your market share is. This leads to cutting costs, cutting portions, etc. Eventually – there’s too much supply for the demand. Companies saturate the market. Each of the companies struggle to different degrees, until eventually some of them die, which then helps the others gain some of that market share back. The “strong” survive – mostly through attrition and strong balance sheets that can withstand tough times. But we are also in a new paradigm for many of you out there – the first recession in 14 years is hitting like a Mack truck right now, and all of our leaders are in denial because they point to a labor market, mostly, that is about to get laid off by the millions soon based off of increased rate policies that happened a year ago. Wait until the last 6 months of rate hikes hit, it’s gonna be lit.

So the 20 customers to the lemonade stand are about to be 5 or 10. This isn’t one of the kids closing shop. It’s a wake up call to the entire lemonade industry. So with this, corporate brands that have destroyed their brand will go down with the ship. And, they will suffer at the behest of a $15m severance package. While millions will be laid off.

Perhaps this is the end of Pizza Hut, but because we haven’t had a recession since 2009, Pizza Hut is actually a zombie company as well? To me – the experience I had last night was the end of the brand.

Not to make light of grief – but this isn’t exclusive to loved ones. It can be a dog, a job, a relationship. In this case – a long held memory of nostalgia. With death of a parent – I went through this over months – with both of them. With things like death of a company, you go through the stages…more rapidly…

Here is what I went through

SHOCK – Saturday 5:07PM – showing up and the parking lot was bare, wondered if they were open. Walked in to see no one dining and three people miserable and in shame of being spotted there.

DENIAL – Saturday 5:12PM – So I have to order at the counter, I can make due with this. As long as the food is on point.

ANGER Saturday 5:22 PM – #$%^%$^%$ paper plates and cups delivered to me in a @#%@#$ plastic bag? My @#$%@#$% food arrived in boxes like it was to go? What the @#%$^ am I seeing with that BAG of bread sticks that looks like it is smothered in a side of “heart attack” with the bag dripping of grease.

BARGAINING – Saturday 5:34PM – taking the first bite of pizza and looking at my wife’s face as she realizes I’m an idiot for forcing her here. “But as long as the stuffed crust is good, we can salvage the operation”.

DEPRESSION – Saturday 5:44 PM. After eating 3 slices of shit pizza, a loaf of bread with the breadsticks, and 2 shitty fries with my 20 oz bottle of diet pepsi that expires March 23 2023 (don’t they stamp them like a year or two out) I felt miserable. I regretted the experience. I did like the stuffed crust, but the pizza was horrible.

TESTING – Sunday 8AM – wondering if there’s maybe other Pizza Huts that have the dine in experience I was used to. Wanting to sit down and write about this to understand my feelings and make sense of the world around me.

Acceptance – Sunday, 9:28AM – Pizza Hut is dead. Long live The Hut.

RIP Pizza Hut. You are a delayed casualty of COVID, but you will be forever in my memories.

P.S. with my “health blogs” – you don’t read about Pizza Hut. Once every 3-4 weeks, I have a “free” weekend. I try to keep the calories reasonable, but this helps me from building up cravings that might go months long. I regret using my “Free night” on this dreck. Now, if they can just sell that stuffed crust all by itself 🙂