In this episode of Industry Focus: Consumer Goods, Motley Fool intern Haddiya Noor joins the show to chat with host Emily Flippen about how the restaurant industry has handled the pandemic, including how it's dealing with changing consumer trends as well as the current labor shortage.

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This video was recorded on July 20, 2021.

Emily Flippen: Welcome to Industry Focus. Today is Tuesday, July 20th. I'm the host of this episode, Emily Flippen. Today I'm joined by one of our Motley Fool investing team interns, Haddiya Noor. We'll be talking about the restaurant industry today, taking a look at some of the dynamics of the industry and then mentioning a few of the businesses in particular and how we think they've handled the past year, as well as our expectations for the future. Haddiya, thank you so much for joining.

Haddiya Noor: Thanks for having me.

Flippen: This is so much fun. I love not only when we have interns at The Fool, but when they are willing to jump on and tape podcast with us to be clear, taping a podcast is a daunting task and you have it twice as hard because in addition to taping this podcast today, you are also taping it live here on Motley Fool Live, in front of a live audience so especially stressful, but you do great. Don't worry too much about it. Thanks for jumping on.

Noor: Of course.

Flippen: Before we get into the show, maybe let's just talk a little bit about your internship. How's it going? How do you like at The Fool so far?

Noor: It's been just so great. It's been a whole different experience. I know the Fools can vouch for this too, but I go around telling current Fools that The Fool is so great as if I'm pitching the company to them knowing full well that they already work here full-time. That gives you any idea of how I feel. There it is.

Flippen: A pitch to remake all of our interns, not only drink our Kool-Aid, but also spew our Kool-Aid out during podcasts. That's great to hear.

Noor: It has been chugged.

Flippen: [laughs] We'll be talking about some specific restaurant businesses and I want to definitely hear your thoughts on them. But before we do that, let's talk about the restaurant industry as a whole. Haddiya, I know you spent a lot of time thinking about the industry and how they handled last year, and how that changes consumption over time. When you look at the landscape, what stands out to you?

Noor: Mostly, definitely the fact that restaurants adapted so quickly to pick up in delivery and curbside and literally everything in between, mostly out of force, but definitely also because it could see that demand was going that way. Apart from that, I really think there's a serious push for healthy eating. Faster restaurants especially, will need to keep up or they will be left behind just because people have been very conscious of the fact that health is important, especially after being inside for a year or so and curious to see how that will pan out.

Flippen: I'm mildly offended that you would imply that my fast food trips aren't healthy. I'm joking. It's definitely something to think about, although that's been a trend that we've been experiencing over the long term. I remember talking about businesses like Domino's Pizza (DPZ -0.60%) even five or 10 years ago and thinking, well, the health trends are really going to work against them, but Domino's has been an absolutely amazing business to own over the last decade. To some extent, I think there is definitely an increased demand for healthy food. But when somebody is not making a healthy choice, man are they ordering a lot of pizza?

Noor: I know pizza can be healthy. There's always a light cheese option, there's the option of making yourself feel better by adding spinach. It's always there. You just got to make it work for the customer.

Flippen: One of the things that we also saw over the pandemic though, in addition to maybe ordering more pizza, was people just cooking at home or we've talked about it a lot, I know on our podcast, but also think everybody's just thought about it more over the past year when we went into lockdown in 2020. There is a sudden emphasis on well, I'm going to be buying a lot more groceries, doing a lot more cooking at home, and doing less eating out. The eating out that I am going to do, clearly I'm going to be getting it delivered or picking it up from a restaurant, going through a drive through something like that. Do you think these types of demographic changes, the demand in the way that we consume food, do you think it's going to be permanent? How do you expect that to continue to change and how we've seen it change over the course of 2021.

Noor: I would love to sell it so I could tell the future. Say I would love to tell the future. But who knows? Honestly, the way people have acted over just the past year, the way we are coming out of restrictions easing, just nobody really knows. Restaurants are getting back and up to it because people miss the experience. People miss people. I want to say that it will boom a little bit again. But I do think it's largely preferably in that people do enjoy cooking more and definitely men who picked up sour dough and everything in between, including my dad.

Flippen: I know you have this Deloitte report here that you added to our notes. It is interesting to come across some interesting surveys about consumption trends with, I presume it's Americans right now. The interest in takeout and delivery as we come back to normal, the report said something like 40% of surveyors that they'd be interested in more takeout and more delivery than they had previously. How do you think that's going to impact the decisions that businesses, whether that'd be fast casual, fast food or even formal dining restaurants take to reach these consumers?

Noor: I think those have to adapt super quickly. Even if they haven't already, the emphasis on indoor dining or just dining options will be a lot less. If not less, those shift their focus a little bit because I know that restaurants that adapted the quickest, they thrived the most during the pandemic. Seeing as the trend is going to go post pandemic, they need to be able to follow it.

Flippen: Definitely. I'd be remiss if we didn't talk at least a little bit about the labor shortages that we're experiencing across the United States right now. It's impacting all businesses. Again, whether that'd be fast food, fast casual, or full service. We're going to try to do it in a way that hopefully isn't offensive to anyone because I know that this can be a really hot topic. I think everybody is different in what they perceive to be the problem. But given the fact that labor tends to be the biggest and the most expensive input into costs for the restaurant industry, it's important to at least have a conversation about it. I'm curious what you're making of the situation right now, which is really an inability to get and keep lower wage workers out of a lot of restaurants right now.

Noor: When I was doing my research, the thing that popped out the most to me was the fact that the reason there is such a big shortage isn't really anything to do with more than the fact that people are realizing they're worse. The work in itself can be rewarding. It's just that companies aren't doing it right. Workers have been complaining forever about conditions in really hot kitchens. If you saw the Burger King lockout recently, that was really something, where they rearranged the letters on their little board outside and said, "Sorry for the inconvenience, but we all quit." I thought it was hilarious. Naturally, it's not funny knowing where it comes from and that workers feel like they're being mistreated. There's been a huge wave of quitting along just the entire world, let alone just the restaurant industry. I just think it's people realizing that they need to be treated better, and I absolutely agree. Restaurants and just whatever kind they are need to adjust.

Flippen: It'll be really interesting to see what, if anything, solves the shortage that we're experiencing today. There's one half of the argument that is related to unemployment benefits. It's an interesting one, we've seen this labor shortage come out of time, we've also extended unemployment benefits, increased unemployment better benefits both at a federal and state level beyond what they've been historically. I think the majority of those extended benefits are expected to end in September. A lot of studies have come out to try to predict, if you will. What's going to happen in September? Does this shortage magically disappear? Not magically. Does this shortage disappear with the lack of extension of unemployment benefits or does this continue to persist? They've come across with different conclusions. Again, I'm not an economist, but it'll be interesting to see what causes the fix here because there is certainly an aspect to it that is associated with people simply not wanting to work under conditions that have been laborious, hard, hot. 

That Burger King example with no air conditioning inside of their working staff. I'm not sure if that is fixed alone by increasing wages, that's a quality of life question. I think over the past year, a lot of people have asked themselves, "Well, what's the quality of life that I expect from my career, especially when my health is at stake?" or on the other hand, does it go away when our pandemic goes away? The question concerns the quality of our health and our workplace going back to normal when we're all not scared about potentially catching an infectious disease every day. I don't know the answer, but certainly, it does have a lot to do with questions about quality of work, wages, unemployment, even stuff like child care. All of that goes into the equation. It's leaving a lot up and question marks for the restaurant industry right now. It is really hard to look at and analyze businesses when you look at their biggest input price right now, which is labor, and you say it to yourself. I don't know what that looks like over the next year. As you mentioned earlier, it's one of those things that's virtually impossible to predict.

Noor: I feel like companies are relying on a combination of their incentives, as well as just going out and looking for better workers. Not better, but more workers to work out the shortage itself. I just think it's going to take a lot more than a tuition bonus or a referral bonus to keep workers because they'll come in and out, and the turnover is really high in the industry. But it really is a matter of retaining employees through better foundations.

Flippen: When you think about the labor shortage and how it impacts the restaurant industry, it's really three-pronged. In one camp, we have fast food workers, who are often paid whatever the minimum wage is in their state or the federal minimum wage. Then we have fast casual. When you look at brands, I think Chipotle (CMG -0.12%) is a good example, and we'll talk about that. But they typically pay somewhat above minimum wage, they're trying to decrease the turnover and they can afford to do that because they're fast casual, certainly higher-margin products. Then you have the full-service restaurant, which is obviously the one that has been most heavily impacted during the pandemic. We don't need to spend a ton of time talking about it because I think everybody listening can probably extrapolate the impact that the last year had on in-service dining. But these are workers that were paid tipped wages, which I believe the minimum wage for tipped workers is somewhere around $2 or $3 at the federal level. Then, that supplement is made up of tips. When you essentially turn off a tip faucet, even that headed into 2021, so significantly below where it was in 2019, that impacts them heavily. A lot of people who are working, especially at full-service restaurants, are no longer interested in doing so. But to kick it off, let's talk about the first aspects. Let's talk about some of these fast food businesses. Just to ask you a personal question, I know you talked about the health trend. Maybe fast food isn't your thing. Do you have a personal favorite?

Noor: Oh, my God, yes. Are you kidding? Chick-fil-A. Every time.

Flippen: Chick-fil-A is an interesting example though, because I'm sure as you know, mentioning Chick-fil-A, part of the reason why people like their experience at Chick-fil-A so much is the customer service that they get when they go to Chick-fil-A. Yes, the chicken sandwiches are great, but it's a consistent experience. They have workers that are often friendly and engaged. A lot of people chalk that up to the fact they pay their workers more. They have lower turnover.

Noor: That makes sense, I really feel like they follow that at the Fool too, and it just adds up.

Flippen: Well, I have a personal favorite, which I'm embarrassed to admit here on this podcast.

Noor: If it's McDonald's (MCD 2.20%), I'm going to cry.

Flippen: It's McDonald's. Let me defend myself.

Noor: Emily, I got to go actually.

Flippen: There's two things that I like as a McDonald's consumer, we will get to the stock. As a McDonald's consumer, I love their McCafe. If you are in an oppressed need for some coffee beverage, McDonald's does not make bad coffee. I'll defend that. You can tweet me, if you want. I like McDonald's coffee. I also like their ice cream cones, the soft serve ice cream cones. If you can get it when the machine is working, it's a high-quality ice cream cone. Those two things together along with maybe an occasional Chicken McNugget, that does it for me.

Noor: But have you had a milkshake from Chick-fil-A?

Flippen: I have not. I admittedly have not.

Noor: You need to have the [...] that they have right now, it will blow your mind.

Flippen: I will take you up on that. For now, let's think about McDonald's because that's my personal favorite. We don't really spend a lot of time talking about McDonald's on Industry Focus. It's largely because it's, if I'm frank with you, not a super exciting business model, but it's one that is so ubiquitous that it's certainly worth mentioning, especially given how they handle the pandemic. I would argue that I think McDonald's was well-positioned heading into 2020. You may disagree, but they had invested really heavily in their global supply chain, as well as their technology right there in the process of updating a lot of their stores. So, when the pandemic happened, they were actual or the first food businesses to roll out things like contactless delivery, local pickup, and more importantly because they were so globally diversified, they had spent so much time thinking about their supply chain. They had zero break, not a single break in their supply chain for any food, packaging materials, equipment, or other solutions across the globe. I mean, we're talking about a global pandemic and you're telling me McDonald's wasn't impacted at all in terms of their supply chain. I feel like that deserves an extra level of proxy for this business.

Noor: For short 10,000% though I, honestly, in all fairness, I do prefer McNuggets over the Chick-fil-A Nuggets. I'll give them that in that regard. My respect for McDonald's because they are a household name. I know myself when all the restrictions were being put in place, shutdowns were happening and I wanted something quick, but I also wanted McDonald's. I figured McDonald's will be open. It was. You would go through a drive-through and it was open, maybe not 24-hours a day anymore, but it was there. It was just as reliable as a Walmart being open. There could be an apocalypse in these places just because they've built a certain reputation for themselves, and that really works in their favor.

Flippen: I love that you call that out because McDonald's was a few chains where 100% of their stores remained open in the United States. They were able to do stuff like cut their marketing spend by 70% in 2020, while still managing to grow their sales. In fact, I believe it was by June 2020, McDonald's was able to recover nearly 90% of what they were doing during the same period in 2019, and part because of that dynamic you mentioned which was drive-throughs. They are just so easily accessible, so open that 2020 was not, while challenging in some regard right there, they were still impacted in terms of total sales. They were able to actually retain a lot of their positioning simply because they were able to be accessed easily in a way that a lot of other chains weren't.

Noor: Yeah. I'm just not surprised at all. Even when the world is going up in flames and you're sitting at home going, everything's fine, I'm fine. You would think, you know what, let's complement this experience with McNuggets.

Flippen: Never upset about that. I will say they did manage to keep a lot of their 2020 momentum into 2021 in a way that I didn't quite expect. They had a relatively new CEO who joined. I believe it was in November 2019. I mean, talk about a trial by fire because this poor CEO comes in right before a global pandemic. But their early investments into modernizing their stores and investing in their tech, certainly helped them last year. I have some of my own opinions about what I think about McDonald's as an investment over the future and maybe hence that way we don't spend a ton of time talking about them. What do you think about the future of McDonald's? Are you taking the over or the under?

Noor: I really thought for a minute that they might go under just because of the push for health and whatnot. But the thing is, someone is always going to want something like McDonald's. For when they do, McDonald's will be there. It's like your grandma, you can rely on McDonald's being there.

Flippen: Yeah.

Noor: I don't think they're going to go under at any point, not soon at least.

Flippen: Definitely. Certainly, I think that's the case. I will say a lot of things that benefit them. To your point about the fact that the health trend probably isn't going to kill McDonald's. You see that something like 85% of all orders picked up through a drive-through are hamburgers. I mean, that dynamic is still very present today the same way it was, 20, 30, 40, 50, 60 -- I can go back over many years ago. There are things that I like. Again, this new CEO is more forward looking in ways that I appreciate. Their partnerships, the BTS Meal, they're doing stuff to try to keep themselves relevant and somewhat fresh, but I don't like their franchise model. When people think McDonald's is in the business of selling hamburgers, I always remind them they're not really in the business of selling hamburgers, they're in the business of selling other franchises. The issue is when you have 40,000 existing locations, finding new opportunities to open up productive franchises is even more challenging, which has led to really slow revenue growth historically negative in many years. It's especially challenging for me as just competition in the fast casual space takes over. It's definitely an interesting business. I don't like the business model that much, even though I absolutely love the ice cream and the coffee. A little single focused for me, so for that reason I'm not interested in going out and buying any McDonald's stock today.

Noor: That's fair. I definitely see their growth slowing down a little, but maybe the retention aspect and a better working conditions aspect could keep them growing because that's where they could take a little bit from Chick-fil-A.

Flippen: I want to mention another fast-food chain here before we move onto the fast casual industry, which I think everybody always wants to talk about. But this is a little bit of a very selfish pick on my part. Adding this company into our outline because I love to talk about it, it's Yum! Brands. I'm curious. You probably knew the businesses they own, but did you know, parent company Yum Brands before prepping for this podcast?

Noor: No, I didn't.

Flippen: Yeah. Yum Brands is the owner of KFC, Pizza Hut, Taco Bell. Most of your non McDonald's fast food chains, good chance are they track back to Yum Brands. I love this business not only because I am a Taco Bell fan, but also because I spent a few years living in China where Yum Brands has spin-off their Chinese operations into YUMC, which is their Yum China brand. I loved seeing the difference in strategy between KFC, Pizza Hut, and Taco Bell, which are these fast food chains in the United States versus those in China where they're nice sit down restaurants. It's just that I love that dynamic, so I had to talk about it today. What shocked me the most with the Yum Brands in 2020 was just what a bright spot KFC was for them. Sales still declined in line with the industry, but they had launched their own own delivery services, which actually helped position them strongly, which is critical because KFC alone is nearly 50% of Yum Brands operating profit. So if something needs to succeed with this business, it's definitely the fried chicken.

Noor: Hey, you know something else? I just did not think that wasn't already a thing. When I sat in the outline I said wait, this wasn't just assumed? They didn't already have delivery modes? That's interesting.

Flippen: They definitely did in China, which is why if I was forced to choose, it would not be a hard choice for me. Between investing in Yum Brands and Yum China, I would choose Yum China easily. I think their supply chain, their technology, and their brand recognition is on the rise in China whereas in the United States, I think Pizza Hut, especially, is fighting an uphill battle. Taco Bell's done some stuff to keep themselves relevant. KFC seems to always be there, although admittedly, I feel like it's still on the decline, just personal anecdotal experience. But what actually gets me excited about Yum Brands, especially when compared to something like McDonald's, is just how diversified their portfolio is. I have no idea if you knew this Haddiya, but last year they made an acquisition of a California-based fast casual burger joint, Habit Burger. It itself was a publicly traded company and they closed that acquisition at possibly the worst time. That deal was like March 2020, right when the pandemic hit and things were just starting to get hard. They had acquired Habit Burger, which was virtually all indoor dining at the time, and it was certainly a challenging business to acquire. They could have gotten a pretty hefty discount if they had maybe waited six months. But this most recent quarter, if you look at their performance in 2021, Habit Burger is coming back with some fire behind it. I love the optionality that exists in a business like Yum Brands, where they have this existing chain driving a lot of positive operating profit, but they still have an interest in maybe expanding it. I think Habit Burger is the first conscious expansion Yum Brands has made in recent years. Let's see if they continue to do stuff like that in the future.

Noor: I'm excited for them.

Flippen: We have to talk about it. We have to move on to fast casual. Everybody is waiting. Let's talk about Chipotle. Chipotle actually reports earnings after the market closes today. So we're taping this on Tuesday the 20th. Chipotle reports earnings after the bell. I believe tomorrow, another Motley Fool intern, Gram, is going to be on to talk about Chipotle earnings so we'll get a follow-up update on Chipotle and how their quarterly performance has been. But Haddiya, how do you feel about Chipotle?

Noor: As a business or just personally?

Flippen: As a business and personally. It's hard to separate the two sometimes.

Noor: As a business, they have clearly done well for themselves. Chipotle is on the level that McDonald's is, I think in terms of household name when it comes to quick Mexican food I guess. Although Mexican, I say very loosely. But they have their own brand and it works for them. Personally, I don't want to pay extra for guac. I would rather go to Moe's where it's free.

Flippen: You're the only person I've heard of who would choose Moe's over Chipotle even if the guac is extra. But I will let you have that opinion because I did defend McDonald's, so I'll let you defend Moe's. I think what interests me about Chipotle is just heading into the pandemic, their relatively new CEO, Brian Nichols, who came from Taco Bell, he was the former CEO of Taco Bell, came into this business that was right in the middle of, I think, the great CAISO crisis of 2017 if you want to call it that. Again, another ingredient that was introduced at a surcharge. But Nichols was very clear when he came in that he really wanted to focus on maybe a more traditional QSR strategy which scared a lot of people, but it included things like boosting to-go orders, boosting digital sales, introducing the Chipotle app, the loyalty program, and setting up second production stations. All of these things that were a deviation from what Chipotle was doing prior and obviously heading into 2020, all of those things were super beneficial to the business. I love his focus there. It helped in 2020, but not just in 2020 alone. In 2019, so previous to the pandemic Chipotle actually grew digital sales 88%. This is a business that was on the rise far prior to 2020. Even thinking about the businesses in 2021, we've talked about the labor shortage. 

What's really interesting about Chipotle versus other businesses is that labor is not their most expensive input. If you look at their breakdown, it's actually just the food cost itself, which says something about the expensive food that Chipotle sources, all of their ethical standards that end up being costly. But it also means that labor isn't the number one price to be watching with this business. It's certainly there for Chipotle, it's certainly a dynamic we have to keep an eye on. But their supply chain is almost arguably more important because it's nearly 30% of their costs.

Noor: I'm not surprised because the guac, it all makes sense now. It really adds up. But I don't know, I'm not personally that interested in Chipotle just because of my own experiences. Yeah.

Flippen: I will say out of all of the businesses we're going to talk about today, and I think we only have maybe one or two more that we're going to run through here. Chipotle is, for me, by far the business I am most excited about and the one that while I'm not a shareholder, you would not have to push me to buy shares at Chipotle. In fact, I feel like part of the reason why I'm not a shareholder of Chipotle comes down to just a lack of proactivity on my part. I actually really love this business. I really like what Nichols is doing as well. I think there was a world in which it didn't quite succeed and it hurt Chipotle's quality. But I think he's proven that you can apply a lot of the successful strategies of more fast food style restaurants with the quality of Chipotle and you can actually get a combination of the two that is best suited to serve a lot of customers at a higher price point, while also retaining a really high-quality and high level of experience. I'm really excited about Chipotlanes in particular, the fast food initiative.

 While the stores have not fully, obviously not every Chipotle is outfitted with a drive through. They have early tests of the drive-throughs. I think around 60 across the United States right now. For the locations where they have drive-through lanes, they've increased store sales by nearly 15%. I love that and I also love the fact that they are actually expanding more aggressively into Canada as well. They've been really slow to expand internationally because what requires them to expand internationally is to create a supply chain that is really heavily focused on ethics. It's impossible to do that in many countries across the world. So moving that supply chain into Canada proves to me that, OK, we've had success in the United States. We've figured out how to apply it in at least one international country, although admittedly still in North America. Maybe that means that management is going to make a more concerted effort for them to expand into new countries in the future. Either way, I still see a lot of growth ahead for Chipotle.

Noor: I take it all back. Honestly, though personally I don't like it, not a big fan. The business can be respected, they can be appreciated. It will definitely grow with Chipotle and oh my goodness. If drive-throughs thrived in the pandemic, I cannot imagine the success they're going to see afterwards, especially with Chipotle.

Flippen: I will also move on I guess really quickly here. I realize that we're running out of time and I've droned on about my love for Chipotle way too long in this episode so I will derail myself here. Well, let's talk a little bit about Wingstop (WING 1.49%). Wingstop is another one that we don't spend a lot of time on Industry Focus talking about, but it feels really appropriate because we've talked about input prices being so expensive for restaurants right now, we talked about changing consumer trends. Wingstop is facing all of those challenges and another challenge, which is the price of wings. Have you heard about the craziness that is wing prices right now?

Noor: I have. But I feel like I've been hearing this for years now. It's not something that's new. Either that or it just keeps fluctuating and I don't purchase wings often enough, but that's mortifying.

Flippen: The wing prices over the last year have nearly doubled or I think it's somewhere between doubled or tripled depending on who your supplier is. But for a business that sells wings, that is just devastating and Wingstop actually had a mitigation policy in place, but they weren't prepared for such extenuating circumstances. One of their, I guess, price mitigation strategies has actually been to move from just wings, which is a really popular product for American consumers, which are really focused on white meat to thighs. They launched this campaign where they renamed themselves. Not really, but I guess they rebranded themselves. Thighstop, where they're trying to get people to buy more chicken thighs. They taste the same as wings, but they are the dark meat as opposed to the white meat. It's really interesting to see if they'll be successful in that initiative. Again, this is a business that is reporting earnings in the upcoming week. So we'll have some early indication about whether Thighstop is really going to be a strategy that moves the market for Wingstop. But either way, I think this is an interesting business. Definitely want to watch. Again, they are really focused on digital sales, which will also be a critical metric to see what their next quarterly reports.

Noor: I would love to see the direction that that goes because for me the wing is an experience in itself. I could not get the same experience from a thigh.

Flippen: Honestly, I believe this in the bottom of my heart, if you had any taste, a wing and a thigh, both of which have been fried and breaded or whatever by Wingstop. I'm not confident I could tell the difference. I tend to be bullish on the idea that consumers aren't necessarily going to tell a difference either. But it's really interesting when you get into the weeds and we don't have time here, but I encourage everybody to go out of their way to read some of the reports about Americans' preferences for white meat. It traces back really long. We have a long history of nights states of really having a heavy focus on white meat, chicken, in particular, the McDonald's craze. They said they're chicken nuggets are now made of 100% white meat because there's a backlash that Chicken McNugget was not made with all white meat. They had the dark meat in there as well. Trying to convince consumers that they like dark meat. Dark meat is just as good as white meat and it will be really interesting. I personally love thighs, they're more flavorful. I don't understand why. I won't go into it too much.

Noor: It's the extra fat. It makes it more flavorful.

Flippen: I'm convinced they should have at least some level of success, which should help them keep that costs down. But talk about a challenging spot to be in for Wingstop. You have the labor issues, you have consumption issues, competition coming out of 2021 and then you pile on wing prices on top of it. Not a great time for them right now, but they've been making the most. Lastly, I guess let's talk about at least one full-service restaurant. I know we mentioned at the top of the show we have fast-food, fast-casual, and have to talk at least a little bit about full-service, although it's an outdated story at this point. 

Let's talk about Darden Restaurants (DRI -0.66%). Darden's ticker is DRI. They're the parent company of restaurants like LongHorn Steakhouse and Olive Garden and The Capital Grille, you can hear those names and immediately know to yourself how they did last year, talk about poor Darden again, business that was essentially turned off like a light switch during the pandemic. But they did pivot. They not only suspended their dividend, but they actually did a lot of interesting dynamics, especially with Olive Garden like frozen meals, trying to sell more to-go meals. They did a lot to try to retain their audience. I'm not as bearish on the future of Darden. I will say Olive Garden recently had one of their best days ever in terms of total sales and that was still focused heavily on to-go. Maybe you can make some argument here that they've engaged with a new type of consumer that's going to continue to order to go, as well as an existing consumer that's going to be dining in and that can help them long term. But when I hear those names, personally, I'm just not as excited about their futures, especially not in comparison to the thigh stop in Chipotle.

Noor: That's very interesting. I did not see Olive Garden being a successful and to-go sector at all. Because when you go to Olive Garden, you go for the experience and when I say experience I really just mean for the free breadsticks and I don't know if that's a big thing in their to-go part, but if it is then I, yeah. Although again, I guess Chipotle and Wingstop, they have places to expand into, I don't think Darden really has that.

Flippen: Yeah, I agree. I think to some extent it will be acquiring businesses. But the problem is that they are so heavily invested and what are really large format large-scale stores that require a ton, again, of labor and while we talk about the labor shortage and impact it's had on 2021 to an extent in 2020. That's true. But we're also talking about labor in general, which has become increasingly expensive over the last decade or so. This was a conversation even prior to the pandemic is OK, well, labor costs are going to go up. How are these businesses going to handle that? I think it's easier for fast food in the fast casual businesses of the world which have done more to engage with technology. Have done more to manage their prices than it is for full-service restaurants, which depend so heavily on things like tipped workers. It is more challenging, I will say. I always downplay, I guess some of these legacy businesses. It's easy for me to sit here as a millennial and say, "Who's going to LongHorn Steakhouse anymore?" The answer is a lot of people, and I think a lot of investors in businesses like Darden do so because it's predictable, it's cash-generating and they have a steady dividend. While I personally may not be a shareholder and I may not be interested in buying shares, I can understand that for a certain type of investor out there, maybe somebody who is listening today, they may feel differently.

Noor: For sure, they're definitely reliable umbrella companies. They are just boring. It doesn't seem as exciting, but they're very reliable.

Flippen: Very true. Well, Haddiya thank you so much for joining for today's episode. Again, I know this is challenging. I do not envy your position at all, but you've done an amazing job. Again, thank you for joining us for your internship this year as well. I hope the rest of it's just as enjoyable as the beginning of it.

Noor: Thank you for having me. This was great, I don't think I took any oxygen at all in the last 40 minutes. But apart from that great still.

Flippen: Awesome. Listeners, that does it for this episode of Industry Focus. If you have any questions or just want to reach out to say "Hi," feel free to shoot us an email at [email protected] or tweet at us @MFIndustryFocus. 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 Tim Sparks for his work behind the screen today, for Haddiya Noor, I'm Emily Flippen. Thanks for listening and Fool on.