Weekly Reads
Weekly Reads - June 20, 2023

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America’s most loved quick-service-restaurant Chick-fil-A built its empire by embracing its “outsider mentality” and embracing change far faster than their competition.

Founded in 1946 Chick-fil-A has become a cultural icon in the U.S. through its unusual business practice of closing on Sundays. Closing on Sunday seems strange when many other rival restaurants are operational and consumers are looking to eat out rather than cook at home. For Chick-fil-A’s chairman, Dan Cathy, closing on Sunday is seen as a competitive advantage that McDonald’s and Starbucks haven’t figured out yet. Cathy believes that by closing Sunday you simultaneously build scarcity for your product while giving employees time to rest and recharge, which improves their productivity for the upcoming week. Cathy says that by closing on Sunday Chick-fil-A sees higher incremental traffic/sales during the weekday as users clamor for their favorite fast-food meal after being denied it for 24 hours and employee's work/life balance improves which leads to better retention. This “secret sauce” has helped Chick-fil-A become the 3rd largest QSR in the U.S. with the expectation of reaching 2nd in the next 24 months. Chick-fil-A was built with an “outsider’s mentality” under the idea that a QSR can provide great food, a great place for employment, and best-in-class customer service without having to sacrifice company culture. Cathy also pointed to the company’s willingness to embrace change and innovation to keep up with users and competition. For the first 18 years of operation, Chick-fil-A was a mall-based food business before launching separate units after management started to see the death of malls. Today, Chick-fil-A is embracing a digital-first strategy keeping up with user preferences while maintaining their dedication to high-quality products and the core ethos of the company. With the average Chick-fil-A store making over $9 million a year in sales and 76 straight years of sales growth maybe closing on Sundays is not a sales deterrent but it’s part of the “secret sauce” that has helped Chick-fil-A become America’s most loved QSR.

Inflation is driving insurance prices higher for the next few years adding more pressure to consumer wallets and state legislators to create laws to help their constituents handle rising cost of living .  

The U.S. insurance industry is headed toward a “hard market” of rising prices over the next few years until inflation is fully absorbed into current profits and repriced. Rising inflation has taken a toll on insurance company profits as the cost of labor and materials has increased and the rise of natural disaster incidents across the U.S. Across the industry, U.S. property& casualty insurers had a $27 billion net underwriting loss last year their worst performance since 2011. To restore profitability insurance companies have increased their premiums and are even exiting certain markets like Florida and California which have high natural disaster risk. These premium hikes are likely to have a devastating effect on the disposal income of low to middle-income families increasing the cost of living across the U.S. Legislators are now under the spotlight to figure out a way to help their cash-strapped constituents while making sure insurance companies can stay solvent and operational long-term. Miami has brought forward legislation that would help keep down rising legal costs for insurers in hopes that legal savings would slow down hikes on insurance premiums. If other cities and states do not follow suit and try to find creative ways to help both insurance companies and the consumer we could be headed toward a prolonged period of price hikes that could stymie demand for goods/services and positive economic growth.

The arrival of FedNow could revolutionize the payments industry by making instant payments cheaper and faster, weakening the competitive moats of current payment platforms and increasing the probability that incumbents’ payment platforms will slash their transaction fees to keep marketshare.

The launch of FedNow by the U.S. government could have a far wider impact on the payments business than initially expected. Like most government projects FedNow was viewed as an ambitious but questionable project with critics pointing to the U.S. government’s tech talent disadvantage, the complexity of building a payments system, and the deep entrenchment of incumbents. Many of these criticisms are still valid, but FedNow’s purpose of providing a better, more convenient way to move money at a fraction of the price could have a negative impact on incumbents. FedNow follows the footsteps of government-based payment systems like Pix in Brazil which has been a big success and has seen mass adoption across the population in just a few years. FedNow plans to offer instant payments between users, businesses, and the government at a minuscule cost through a user’s mobile phone. Today, most electronic money transfers occur via Automated Clearing House (ACH) a system that doesn’t work at night, on weekends, and can take three days to move money. More modern payment systems(Venmo, Cash App, PayPal, Visa, Mastercard, etc.) are more flexible, but are typically more expensive for the end user/merchant. FedNow is a 24/7 payments platform with the lowest transaction fees in the industry, which is very compelling for businesses and users across the U.S. who want to reduce their transaction costs. With FedNow launching in July 2023 we could see incumbents began to slowly lower transaction fees to slow down the adoption of FedNow by businesses and users in order to retain market share and improve user loyalty.