Weekly Reads - September 12, 2022
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The U.S could be headed toward another massive supply chain disruption as railroad workers are expected to strike potentially leading to network shutdowns across the major rails. While 10 of 12 railroad workers’ unions have struck new labor deals, the two remaining unions account for more than 90,000 rail workers setting up for massive labor shortages if a deal is not struck. The impact of a strike would be devastating to the U.S economy with trains accounting for about 28% of total U.S freight movements and the nation’s freight rail system already dealing with severe congestions and imbalances across various regions. Adding further disruption could lead to ripple effects across the food, energy, chemical, energy, metals, and automobile industries who rely on rails for freight services. The two holdout unions are accusing the railroad companies of scare tactics and unfair treatment of employees, while the railroad companies remain unwilling to meet union demands and already giving notice that they have begun plans to enact a contingency controlled shutdown of their network. With the U.S supply chain finally starting to recover post COVID there is no doubt that the U.S government and industry players will continue to push for a deal in hopes to avoid another supply chain catastrophe.
Social media’s foray into gaming seems to be coming to close with major players TikTok downsizing their gaming operations and Snap closing their gaming business entirely. This decision comes on the back of worsening macro conditions and the lack of traction this business has generated. For Snap the gaming business was seen as a massive drag on profitability and closing the business was the only path toward reducing their cost structure. Gaming has not been a successful venture for many of these social media players despite significant investment in the space. In Snap’s case the company launched gaming in 2019 with exclusive titles from Zynga, ZeptoLab, and Spry Fox, but in the last three years failed to deliver on the initial fanfare. The company reported 100 million users for Snap Games between2019 and 2020 but hasn’t reported any metric since then indicating the company probably did not see any material growth in the user base. Facebook has dealt with their own struggles in gaming with their original hit Farmville declining in popularity as new games offered better experiences and integrated social features. The overarching problem with these social media games is their lack of complexity and depth versus traditional mobile and platform games which leads to massive churn over time as users forgo these simplistic games for better experiences elsewhere.
Burger King is making a $400million investment in revitalizing its brand in hopes of accelerating sales growth and driving franchise profitability. The investment plan known as “Reclaim the Flame” intends to use $150 million for advertising and $250 million for restaurant technology, equipment, enhancements, and remodels/relocations. 93% of Burger King franchisees are on board and have agreed to co-invest in increasing advertising spend for the next few years. This investment is expected to negatively impact the company’s earnings per share at around $0.10to $0.12 before seeing any potential sales improvement. This initiative clearly shows that management is unhappy with Burger King’s recent performance with the company underperforming direct competitor McDonald’s and popular QSR companies like Chick-Fil-A and Chipotle. Aside from increasing spend on advertising and technology the company is looking to reinvent its menu by focusing on premium products like building its chicken sandwich portfolio. It’s obvious the company is attempting to restructure their stores to focus on higher ticket items and creating a better customer experience in order to improve its brand standing in the mind of consumers.