In this week's episode of Industry Focus: Consumer Goods, Emily Flippen talks with Fool.com's Dan Kline about what he's seeing at this year's Consumer Electronics Show. Dan shares some of the coolest stuff he's seeing, and also explains why so many of the reports on "coolest stuff at this year's CES show" highlight tech that will never reach consumers.
Tune in to learn how to spot innovations that'll actually break through to the consumer side; where smart tech might go from here; what 5G will mean for consumer technology, and when it might actually get here; the current state of augmented reality; and much more.
To catch full episodes of all The Motley Fool's free podcasts, check out our podcast center. To get started investing, check out our quick-start guide to investing in stocks. A full transcript follows the video.
This video was recorded on Jan. 7, 2020.
Emily Flippen: It's Tuesday, January 7th. I'm your host, Emily Flippen. This week is an exciting one for our consumer-good aficionados. Joining me today over the phone to tell us why is Fool.com analyst Dan Kline. Dan, thanks for joining!
Dan Kline: Thanks for having me! But before we get to that, it's also an exciting week because this is the first time you're sitting in the hosting chair.
Flippen: That is true, and it's lined up well with some good consumer news as well. But I'm really thankful both to be the new host for Industry Focus and to have you as my first guest.
Kline: Thank you for having me! And, as you alluded, I am in Las Vegas at the Consumer Electronics Show, something I have been doing off and on since -- I want to say 1995, but it might have been 1994.
Flippen: You've been going to CES almost as long as I've been alive, Dan.
Kline: See, this comes up way too often on Industry Focus, where we find a subtle way to put out how much older I am than all of you. [laughs] Now, I will point out that my first trip to CES, I was 19 and working for a company that produced the in-room TV. And there used to literally be, we'd spend all day producing a half-hour TV show, and then we would drive the tapes to all the different hotels, and the hotels would put them in on loop. That is, of course, no longer a thing.
Flippen: I can't imagine how much CES has changed since 1994, 1995.
Kline: It's absolutely stunning. My first year here, it was overwhelming for me. I was 19, it was one of my first-ever business trips. But it was a part of the Las Vegas Convention Center, and it shared space with, I forget the exact name of it, but an adult-video expo. And the logic of that was, at the time, the top consumer-good product was the videotape. And, of course, later, the digital disc, the DVD. So, you were putting two things that were very complementary next to each other.
This is actually the first year where those two shows don't happen concurrently. And that's partly because CES has gotten so big, a team of 10 of us probably couldn't see all of it. It literally takes over the whole city. There's stuff at multiple convention centers, the whole Las Vegas Convention Center. We were at events at the Aria yesterday. Matt Frankel is at the Sands Convention, where I'm going to join him later today. So, it's really gotten to be a giant show. And, some of the biggest players, your Microsofts, your Apples, your Amazons, they may not be here as exhibitors, but they're very much here behind the scenes.
Flippen: We chatted a little bit before the show started about how many people were there in Vegas for CES. I think you said, what was it, 170,000?
Kline: The population of the city swells by about 170,000. Vegas is a city. You've been here recently. It's obviously set up for a lot of people; they're used to huge traffic. CES is the only time where, if you're coming in today, the cab line at the airport might be 45 minutes. And I've been coming to Vegas three or four times a year for a very long time for various shows; this is the only show that the city seems to notice. You might see traffic on New Year's or during the heart of March Madness, but this just becomes, the entire city is overwhelmed. It's very difficult to get anywhere. A one-mile cab ride might take you 25 minutes. So, this pushes Vegas to its absolute capacity.
Flippen: I can't imagine what that scene looks like. I do want to pick your brain more about CES, but before we dive into it, we have some other big news coming out of the consumer-goods industry this week. That's Yum! Brands, the parent company of brands like Taco Bell, KFC, Pizza Hut -- my favorite places to eat. [It] decided to acquire another brand into its mix; that brand is Habit Restaurants. And Dan, I'm sad to admit, this is actually not a brand that I was previously familiar with.
Kline: Habit's a burger chain. We have a lot of them in Florida. They're often in a plaza with a Blaze Pizza -- which is, you order it and they make it in five minutes -- and sometimes with a Chipotle. So I would say it markets itself as a fast-casual burger brand.
I didn't see this coming, but it's actually kind of a masterstroke. If you look at the KFC, Taco Bell, Pizza Hut triumvirate there, they're really lacking a burger brand. So, this is a company in Yum! that has all sorts of data, and it can basically say, "OK, we have locations in this food court. What are we losing to burger providers? Well, we could bring in the burger location here."
This is a relatively small purchase. They paid about $350 million, $14 a share, roughly a $3 premium over what it was trading at. And they get a brand that they can rapidly plug into existing locations; they will know where to build stand-alones. I didn't know Habit was for sale, but this is a very smart move, coming in and snapping it up.
Flippen: I have to admit, I was a little less thrilled, at least immediately, when I heard this news, than you seem to be. Personally, when I think about burger chains, I imagine it being a really saturated market. I think about the performance of companies like Shake Shack historically, and just the fact that they're competing both with sit-down burger restaurants and fast food, and then you have the In-N-Outs, the Shake Shacks. The burger market's really saturated. That being said, it seems like people from Florida really love Habit.
Kline: I think there's 15 chains that are about the same quality, and any of them would apply here. But if you look at what Yum! is already selling, these are complementary products. A family stops at a rest stop. That rest stop previously had a Wendy's, a KFC, a Pizza Hut, and a Taco Bell. Now, over in the quadrant that has the Yum! Brands products, they've added Habit [Burger] Grill to part of their locations. There's a lot of ability to be synergistic, whether it's with part of the menu, with the full menu, to know: OK, this market, we could win market share if we offered burgers. They can obviously just ask customers, "Hey, would your family be more likely to eat here if we had more choice?" And I think "burger" is the obvious hole. I wouldn't want to launch a from-scratch burger chain, there's too much competition. But a burger chain where I could leverage off existing customers for Pizza Hut, Taco Bell, KFC? That seems to me like a very logical fit.
Flippen: Well, I'll tell you what, I can't wait to try Habit Burger if I'm ever down in Florida. Austin and I were actually in Vegas, and one of the analysts going with us had never tried In-N-Out Burger. And it was actually one of those things that we had to go to when we are there in the locale, because it was so mind-blowing to us that Ari had never tried In-N-Out Burger. So, is Habit something that I should try next time I'm in Florida? Is that important?
Kline: Here's the thing: no. I'll equate it to Shake Shack. Everyone built up Shake Shack to me as this amazing thing. What Shake Shack is, is a decent burger for the price, and a pretty good shake for the price. I'll say the same thing about Habit. It's not spectacular. You're not going to go, "Oh my God, I paid fast-food prices and that was a $200 burger." You're going to go, "Hey, that was a better burger than I would normally expect from fast food." But I think that's in line with In-N-Out or Shake Shack, or any of the 15 other chains that are trying to occupy this space.
This basically takes a company, Habit, that was in a tough position as a stand-alone -- a restaurant chain with an under-$500-million market cap, hard to expand, hard to identify where to go. It now joins a multibillions, tens-of-thousands-of-locations company that can use all that location data to be able to very smartly take this chain big very fast.
Flippen: I saw Austin potentially rolling his eyes there, or at least expressing some doubt at your comments.
Austin Morgan: I'm not a big fan.
Kline: Is Austin that big of an In-N-Out guy?
Morgan: No. The opposite, really. I wasn't a huge fan of In-N-Out. It's OK, but the fries...
Flippen: OK, the fries could be improved.
Morgan: It's got to be a good combo. The fries knock it down a notch.
Flippen: I don't disagree there.
Morgan: Shake Shack, good fries. Five Guys, good fries. Good fries, better burger.
Kline: I don't think anyone's going to the Yum! Brands because they're best in class for what they do. Taco Bell is not the best in class. Pizza Hut is largely not pizza. KFC, you could argue, maybe they have the best fried chicken for fast food. But in general, if Habit Burger is good enough, that speaks well to what Yum! has been doing. Then it becomes about capacity, audience, location, ability to deliver, all the technology you can leverage as a much larger company. Hey, three of the family want Taco Bell, one person wants Habit Burger, one person wants KFC. You can make that logistically work in a way three separate stand-alone chains couldn't.
Flippen: Well, I disagree with some of those points, but I will be really excited to see what happens to Habit. I do hope they expand some. I hope they take advantage of Yum! Brands' scale and get up here to D.C. sometime. Honestly, I feel like I could probably talk about fast food all day, which is something a vegetarian probably shouldn't say, but I'll say it anyway. But I know that listeners want to get on to the exciting stuff coming out of CES. I know there's so much hype, so much excitement out there.
What are you seeing, and how much of it is just hype to you?
Kline: One of the things I've learned having gone is, the real announcements have become less and less. When I was here a few years ago, that's when they first announced Sling TV. That was somewhat revolutionary. It's the first live-streaming TV at a low price. Since then, the announcements have gone down in impact. It's more about broad product categories. But a lot of what you'll see on TV, your local news will be like, "Oh my God, at CES, there's a toilet that can tell you if you're sick! There are robots that can do all these different things!" And there are. Those things are here. There's a $3,000 plush robot that's very lovable that replaces, I don't know, a pet and a child. It seems like a pretty cool product. But is there ever going to be a mass-market release of a $3,000 huggable robot? Probably not.
A lot of what you're going to see on the "This is the coolest stuff out of CES!" is much more pie in the sky. The real stuff to look at is the incremental changes. Samsung yesterday introduced a TV that rotates so you can view it like an upright smartphone. Sounds silly, but given how we're experiencing some of our data, some of our information, that perspective makes sense. We went to a Qualcomm press conference where they, with some hype, talked about the first Lenovo 5G-connected laptop. Well, that's going to happen; as 5G networks get built out, you're going to need dedicated hardware. But, of course, you could buy a 5G-connected laptop, you just can't do anything with it, because there are no 5G networks; and, in fact, there aren't even pricing parameters for how you might connect to those networks. So, you have to dig through what's real and what's just sort of hypothetical.
Flippen: Yeah. Your mention of the TV reminds me that last year at CES, if I remember correctly, there was a ton of excitement around products like LG TVs that would do stuff like roll up into boxes so you could, I guess, bring them with you to places. I don't think that actually ended up happening in 2019. I think they're back again in 2020 at CES.
Are there any products that you actually think consumers might have a chance of getting their hands on this year? Or is everything there just conceptual?
Kline: No, I think it's much more the incrementally interesting products. The last few years, one of the ongoing themes has been the behind-the-scenes battle of Amazon and Apple and [Alphabet's] Google and everybody to get their digital assistants in other products. I think you're going to see a tremendous amount of that. Whether it's something you're seeing: "Hey, lamp, what time is it tomorrow?" That's a terrible question, that makes no sense. "Hey, lamp, how far away is the Venetian hotel?" That, I think, is going to become very common. But you're also starting to see more Internet-of-Things-connected devices where your smart device is doing things without your input. Maybe your lamp is ordering a new bulb from Amazon because the bulb has gone out. That technology's been shown for years, and it's starting to move more into reality.
One of the things you see every year that's not practical is, it's a smart refrigerator that can tell you when your milk has gone bad, when your eggs have spoiled. The reality is, no one will pay for that, because you have a pretty good test for whether your milk has gone bad that doesn't cost you thousands of dollars. But the idea that those things exist: You'll start to see a high end, and you'll start to see things become the norm that were once fanciful. Smart TV used to be like, will this ever happen? Now it's really a question of, do I want it in the TV, or am I going to buy this under-$30 device to have it anyway? So, there's a lot of practical stuff here. It's just not what's going to make the news.
Flippen: I even express, I guess, some doubt about the interconnectedness of things that I think a lot of people feel like is coming sooner rather than later. When I think about Amazon's Alexa device, that's probably the most ubiquitous in-home smart system, if you will. People still largely don't use these types of consumer devices in their most effective ways. They mostly use them for listening to music, setting timers, hearing weather. In reality, what I would imagine Amazon, and others who are connected with them, want them to do is purchase things, right? Hear your news. Do you see people increasingly using connected devices?
Kline: No. Well, I see them using connected devices, but I see them using them for what I do. "Hey, Alexa, play some Bruce Springsteen." "Hey, Alexa, what time is it? Set a timer." Very basic things.
Flippen: You probably just set off a lot of people's Alexas with that.
Kline: [laughs] We have not made the major jump -- even ordering is not so simple, or phone calls, or things that should be integrated. And that's absolutely the end game. But we're still in a turf war for just which devices you have and how you'll use them. And I think use expansion will happen. I know that I will sometimes use a voice search on my TV when I want to narrow down, "Hey, Alexa, what episodes of Saturday Night Live do I have available?" And it will bring up anything for free or for paid that I could watch in that genre. You're going to start to see creep, where it becomes more useful and more integrated. And then you'll slowly see an expansion.
But I don't know if full-on smart home will ever become something your average person wants, because as much as it's cool to walk in and say, "House, turn the lights on. Start the toaster. Make me a cup of coffee," none of those things are all that hard to do on their own. And there's an enormous amount of stuff here for that. If you want a smart anything, it's here.
But the real innovations you're going to see are more going to be around smart health, and taking things like connected fitness to the next level. That's everything from the room full of, call them Peloton knockoffs -- it's Peloton for boxing, it's Peloton for kickboxing, it's Peloton for any sport you could think of! Then, you're going to start to see, like, OK, your watch can now tell you your blood sugar is low. And these are real-world things we're starting to see integrated. And I think that will probably be the biggest leap that starts to slowly trickle out of this year's show.
Flippen: Let's talk about that a little more. When I hear you say that, the first thing that comes to my mind is Fitbit. That was a trap that I fell into at about $14 or $15 a share, when I really believed in the value of the information that Fitbit was going to collect on health, and how valuable it would be for people who were Fitbit users to collect information about their health. And it was connected, right? It was connected through your body, it was connected through your app. And at some point, the value proposition was, it would be connected to your healthcare provider, or your insurance provider, potentially. But none of that's really materialized. I wonder if healthcare is one of those things that people like to keep private.
Kline: I think on an aggregate basis, there's a lot of good things happening. Apple is figuring out heart disease trends and other things using aggregate data you could never have collected through surveys or studies or other methods. So we are seeing it on a gross level. I think we're also seeing it on an athletic performance level. I mean, I am by no means a high-performance athlete, but I use a Fitbit to track my steps and my energy output, and have I exercised enough today, and water, and things like that. And for someone like me, who's making a pretty strong effort to get in shape -- which is something we've talked about, not you and I, but me and various hosts on different shows -- I'm willing to use some next-level stuff. I'd love for my watch to be able to tell me, "Hey, you legitimately are dehydrated, go get some water." I think those things are coming. And people, yes, they want control, but it's going to become like Teladoc, where it's just such a convenient service, you're maybe willing to look aside [from] some of the privacy issues.
Flippen: I agree with that. Anything that can make me catalyze to be healthier in my life, especially drinking water, would probably be helpful for me. When you think about what CES, and the things you're seeing there, and the excitement around new consumer products, means for investors: You mentioned that Apple and Amazon, these big companies that have historically been great consumer-goods innovators, aren't there at the show. Is there really any actionable information, is there really any meaning for investors in CES?
Kline: So, I think one of the things to look at as investors is: What's the ongoing story for consumer goods? Let's forget technology for a second. The ongoing story for consumer goods, for retailers, is omnichannel and supply-chain logistics.
There's a lot of hype that's coming out. Uber showed off its sky taxi in partnership with Hyundai -- it can fly! And we all know what the regulatory likelihood of flying sky taxis are. Or even drones. Or even, we've seen unmanned vehicles. But it's that sort of stuff in the fringes that you're seeing.
You'll see robots at this show, and I have for the past 10 years, that do really cool stuff. A standing robot that can make you a drink, and vacuum, and, I don't know, babysit your kid. And that's great, but where have we seen robots? We've seen them on the floor in Walmart doing inventory. We've seen them at Stop & Shop, which is a regional grocery-store chain, scaring people. Not really sure about their robots. We've seen them on the back end doing order fulfillment for pickup and delivery. And a lot of that is in the fringes here at CES. And that's where you should be watching. What is going to help a regional chain like, say, Publix, which has money, but not all the money, the way Amazon or Walmart does? What are they going to invest in to improve their logistics? And what is seen here as sort of fanciful -- there's an awful lot of drones here -- that is in some way going to make the leap? And drones might not be delivering for a regional grocery chain, but they might be doing inventory in the warehouse, or helping with theft control in portions of the store.
So there's a lot of stuff to take in, and I'm here for another full day on the floor, but in the weeks after this, you're going to see this trickle out of, OK, everyone hyped up this laptop that can fold up into your pocket that costs $11,000, and no one will ever make. That's not that practical. But this electric scooter that can run for five hours is going to be super useful in warehouses moving things around. I made that up completely, but it's the in-the-margins, delivery, supply chain, omnichannel. And all that stuff is here, it's just not as cool as a glove you can put on that lets you be like Iron Man.
Flippen: And it's really different than what we're hearing from the media today, too, because a lot of the excitement is from a consumer perspective. But what I'm hearing you say is that consumers are likely never going to see -- at least not directly, at least not over the near to medium term -- the fruits of the research and the development labor that have gone into CES. Instead, it's going to be trickling down into niche uses in the back end.
Kline: Yeah. I go back to, when you look at the show, there's literally a football-field-sized area, or at least there has been in past years, that's just full of massage chairs. And the reality is, a massage chair is pretty good. You spend $1,000 to buy a massage chair. A $10,000 massage chair might be able to do some amazing things. But the average person probably can't afford a massage chair that diagnoses their specific muscle problems, can tell them if they've been eating incorrectly, and can help them study for the LSATs. Like, these are not all necessary things.
But CES will show the limits. And there might be, with certain things, uses that we never foresaw coming. For years, electric scooters were shown as a personally owned mobile transportation idea. Now, of course, mobile scooters have become a, I don't want to say a menace, but you've walked around Alexandria. There's like seven different companies that have mobile scooters, and they're everywhere. But that wasn't the intended use.
So, I think you're going to see more stuff introduced at this show. Maybe that technology that tells you if your eggs are bad will work better at bars and restaurants, so we don't have to send Jon Taffer in to tell them they're serving spoiled food. You'll see things like, I have a Keurig Drinkworks. It's like a K-Cup, but it makes alcoholic beverages. You've seen things like that at CES for years, and they've filtered into the bar Matt Frankel and I went to last night, where a robot arm made our very overpriced drink that wasn't worth it at all. But it was a gimmick that probably started at a CES. Can a robot make drinks? It can; it's just not worth it.
Flippen: [laugh] A world without Jon Taffer is a world I don't want to live in. But I do happen to think maybe there are some uses -- I'd be remiss if I didn't ask you about what you're seeing as it applies to AR [augmented reality] especially. I know VR [virtual reality] has been one of those trends that really caught on -- gosh, I don't know how long ago, five-years-plus ago. And then it really just didn't have a ton of consumer use, despite consumer products being out there. How do you feel about AR?
Kline: I find it pretty disappointing, in that we went to a seminar. And I won't embarrass the people who were speaking, but they were celebrating some what I would call very minor marketing successes that got people to use AR or VR technology. They were still talking about Pokemon Go. I have to be honest, I'm like the last guy who still plays Pokemon Go, but I've never played with the AR. That adds absolutely nothing to it unless you want to post a screenshot of, like, "I'm at a funeral playing this game, and, look, Pikachu is on the coffin!" It doesn't add to the game.
So, I think we're in a stagnation period where the technology has held up adoption, because if AR and VR did not require a weighty headset -- and I own [Facebook's] Oculus Quest. The Oculus Quest is fun to put on your head and do, like, "Hey, I'm going to do a virtual roller coaster. I'm going to watch the boxing match from really close up." But it's not a practical thing for you to sit down at your desk and say: "Oh, hey, Dan and I later have a planning meeting. We're both going to put these headsets on and talk for 45 minutes, so we can kind of pretend we're sitting at the same table." I'm sure there's innovative AR and VR here, but there's absolutely a bottleneck that this isn't just a simple pair of slip-on glasses or goggles or something that doesn't need the technology. And from what I saw from a bunch of industry leaders, I don't think they know where to go yet.
Flippen: So, no Snapchat sunglasses for you, then?
Kline: No. [laughs]. Look, I love all this stuff. I'm a sucker. I will buy every new fast charger, every headset. But putting on an Oculus to do novelty things, or PlayStation virtual reality, it's fun...it's not that fun, and it's heavy. Look, I'm sure there's some lightweight things on the show floor. I'm sure there's some glasses. But they've been showing the same kind of stuff in these areas. And the experiences have gotten better. The games are really fun. But there's nothing that makes me say, "Hey, it's a good idea to go out and invest $200 or $300 in a headset." I do think that this will happen, but I think it will be more part of our phone. Definitely less having to wear a separate piece of technology.
Flippen: I do have one last question for you, Dan. I think the last time you were on the Consumer Goods Industry Focus podcast, you talked about Black Friday and your experience last time you went out -- how frustrated you were with the constantly breaking, cheap, $5 coffee makers. So, I have to ask, did you manage to find a better coffee maker at CES?
Kline: [laughs] I have not physically seen the coffee makers at CES. And that is another thing. There will be all sorts of experimental coffee makers. And the reality is, we have a winner in the U.S.; Keurig, for what it's worth, has won that market. I personally am a [Nestle] Nespresso guy. I have a Nespresso machine at both houses, and like the coffee a lot better than what a Keurig can do.
But I do think you're going to see innovation in the bar area. The Keurig Drinkworks is a cool product, but it's very bulky, it's somewhat expensive, it's not going to appeal to too many people. I do think you will see a march toward more of a SodaStream-type bar system, where the price to entry is closer to $100 than it is $300. I don't know that that technology is here, but I'm going to guess it probably is, because one of the areas that you actually see real change every year is making your home devices more convenient. I now have an air-fryer/toaster-oven in my kitchen. That was something that was technology at CES five or six years ago that you could tell was coming, but they were all separate devices at the time.
Flippen: So, as consumers, we should all be investing in our kitchen equipment, then. Paying up for the air fryers and coffee makers.
Kline: I think you want to look at the really smart multiuse things. People love the [Instant Pot], but part of the reason for that is, it can do a bunch of different things, and it's only one appliance. I am not as big a fan; I can never get the top to stick on right, and for it to pressure-cook.
But I think you're going to want to look for a couple of things. Does a device solve multiple real problems at an affordable price? And then, in the back of it, like the way the Emperor looms over the new Star Wars movie: The thing behind everything is 5G. When we have a real rollout of 5G, your ability to have laptops, or phones, or headsets, or who-knows-what that do so much more become stronger. So, it's one of those things that a lot of companies here talked about 5G, but you'd really have to talk to T-Mobile, AT&T, and Verizon. And I've spoken to all of them about 5G. Actual rollout dates are...there'll be some rollout this year, but it won't be meaningful. There's this underlying current of when this happens, then that. But that's probably not in the next 12 months.
Flippen: Yeah, we'll be keeping an eye out for our 5G Internet-of-Things-connected devices, hopefully at CES shows in the future. Dan, thank you so much for joining us today. It's always great when we can get boots on the ground at shows like CES. It makes for a great experience.
Kline: I technically wear sneakers, but I'll count as "boots on the ground."
Flippen: [laughs] Well, listeners, that does it for this episode of Industry Focus. If you have any questions or want to reach out and say "Hey," shoot us an email at email@example.com or tweet us @MFIndustryFocus. If you're looking for more of our stuff, subscribe on iTunes, or check out videos on YouTube.
As always, people on the program may own companies discussed on the show, and The Motley Fool may have formal recommendations for or against any stocks mentioned, so don't buy or sell anything based solely on what you hear. Thanks to Austin Morgan for his work behind the glass today. For Dan Kline, I'm Emily Flippen. Thanks for listening and Fool on!