Beware of the Mr. Beast IPO.

five months ago I made a video here it's

called the disaster of the Mr Beast IPO

and you should watch it but in it I make

this very clear argument that in the

restaurant environment you have

extremely low margins you generally as

like a Cheesecake Factory or Red Robin

right now you're barely profitable

because you're dealing with the

inflation of food and Labor uh it's

basically where the inflation is it's

very difficult to turn a profit uh most

restaurants are sitting maybe somewhere

around five to ten percent of uh of of

their revenue going to profit which is

very very low the McDonald's model works

really well because they make most of

their money off of franchising so in

other words the McDonald's Enterprise

makes most of their profit off of

basically handing the bag the proverbial

bag of pain to somebody else and then

skimming money off the top that's how

you actually make money well in the

restaurant industry is you have a brand

and then you have some other sucker run

the restaurant because it's really

expensive and low margin and you take

your fee without all of that headache

it's exactly why Costco does not

actually care to make a profit off the

food they sell you they want you to pay

for the membership because that's where

they really make their money so I made

this video about five months ago and Mr

Beast argued maybe I should IPO

feastables and Beast burger while

they're relatively small so you guys can

share in the growth feel pretty

confident we can easily 100x the revenue

we are doing but I don't know if that'll

be too stressful or not haha and I made

this argument that

investing in an IPO for a restaurant is

a horrible idea because the odds of

failure are extremely high and I said

look people love Mr Beast and they're

going to go crazy for this

because

hey love Mr Beast but from a business

point of view it's a horrible idea

restaurants suck it's a really low

margin business High labor turnover

constantly training people and big big

big it's very difficult to control

quality it's difficult to control

quality in a restaurant that you run

unless you're there all the time it's

even more difficult to control quality

if you're doing a ghost kitchen model

and this is where the ghost kitchen

model is one where let's say you're

running a red robin and you have you

know a chef and and three line Cooks

you've got somebody prepping the the

plates or or checking the plates and

then you've got servers or whatever

you're operating your restaurant the

idea is that oh well if somebody wanted

to call in you know a hundred dollars of

Mr Beast Burgers they might call your

restaurant which is already staffed

without knowing it uh and place that

order through you even though it looks

like it's Mr Beast or and Beast Burger

it's operated through your kitchen and

now you're able to get an extra hundred

dollars of Revenue because you're

putting together the Beast Burger food

or whatever with the people you already

have working

and then you send it out and it looks

like Mr B sent you a burger when it was

really your local Red Robin repackaging

it or whatever

problem with this is how if it's hard to

operate consistent quality at your own

restaurant imagine how difficult it is

when you have 10 000 different

restaurants potentially creating Beast

Burgers there's no way you're going to

have a consistent experience or quality

on top of that problem

you have uh the irony what I called of

Mr Beast arguing that Beast Burger has

shared over a hundred million dollars in

Revenue with restaurants heart face

happiness they keep most of the Rev from

orders they fill for us of course they

do because most of the revenue goes to

expenses if 90 cents out of every one

dollar goes to expenses of course they

have to keep most of the revenue

otherwise they would go bankrupt but if

then you take five cents and they're

left with the other five cents you're

taking 50 cents of the profit so in

other words you're taking 50 percent of

the profit now we don't actually know

what the exact Arrangement is over at

Beast Burger but that's roughly to catch

you up to speed what I argued now a lot

of people are like but Kevin ghost

kitchens are good because they already

have the staff there

ah no that's not how the restaurant

industry works the restaurant industry

doesn't put 10 Cooks in a kitchen and

hopes people show up at three o'clock on

a Monday afternoon they staff according

to demand so if more demand comes in

whether it's people sitting down in the

restaurant or beef burger orders they

staff according to that so of course

you're going to have variable costs that

shift yes you already have the kitchen

there yes you already have the building

and the rent that you pay understandable

but that doesn't necessarily make it a

more profitable Enterprise for the

restaurants because now they're

operating this and rather than selling a

burger in restaurant maybe they spend 30

cents on advertising and get some more

in-store customers and they're able to

make an extra 20 cents

or they do Beast burger and do they make

an extra 10 cents instead right we could

go through the argument on that a little

bit more detail but I don't think it

matters the argument is that when you're

considering variable costs you want to

do what makes you the most profit

problem with ghost kitchens again though

is the reputation and that was the final

argument I made in that video is that

the problem with investing in an IPO for

a restaurant is you're really betting on

the reputation of that restaurant

because if your kids like I want to

order a beast burger and every time you

order it the orders put together poorly

or it's bad quality it will fail

that's the argument I made five months

ago

enter

this tweet that's now circulating

I started Mr Beast burger and this was

just a few days ago here Mr Beast I

started Mr Beast Burger to help

restaurants make more money during the

pandemic and it worked but sadly when

working with 2 000 restaurants I don't

own it's impossible to guarantee the

order quality I'm moving on from Mr

Beast Burger so I could focus on

feastables and making snacks now what's

fascinating here is Mr Beast in another

tweets has argued he's basically stuck

in a contract with this company that is

essentially licensing his brand to

enable Beast burger and he can't walk

away from that deal so Beast Burger

isn't going away it's not shutting down

it'll still exist but he'll stop

pitching it perhaps or do his minimum

pitch and is really distancing himself

from the brand and he argues that he

made a bad deal and that's where it

probably is going in a much better

Direction with feastables where hey

let's focus on making say chocolate bars

or white labeling chocolate bars now

this opens up the whole other can of

worms of the food industry

which is also a gross reference to make

when it comes to food can of worms but

in the food industry there's something

known as private labeling or white

labeling let's say I want to sell you

coffee

I am not going to go

and go get coffee beans in South America

and figure out the best plants and the

best way to grow that you know Coffee

Bean and then figure out how to roast it

in the optimal way and then and then

sell you that coffee that's not going to

happen so Mr Beast is not going to do

that either with chocolate to find his

cocoa beans instead generally what you

do is you do something known as private

labeling so you say you just Google

private label coffee and there will be

ten thousand different websites that pop

up maybe not that many but there'll be

hundreds of different opportunities for

you to buy coffee

and slap your own logo and brand on it

so when somebody says hey I run my own

coffee business what you should really

ask is

is that just a private label I mean and

does it matter that much well to some

extent it does right because it could

just be in theory rebranded Starbucks

Coffee you could buy the same beans that

they do and it's just rebranded

Starbucks coffee and then you have to

ask yourself okay well if I'm just

buying rebranded Starbucks coffee would

I rather buy the Starbucks Coffee bag or

your coffee bag well then it comes down

to the price right and then price is

coming to come down so really generally

what happens when you have private label

food is the only difference is the

marketing it's like all the same crap

but the only difference is the marketing

and the brand and so this is where

you have to ask yourself is there going

to be something specifically unique

about the chocolate bars potentially

that Mr Beast is creating and maybe he's

found the best private label company but

then

you also wonder is that something you

would invest in from an IPO point of

view something where wait if it's not

actually your chocolate it's just a

private label chocolate why don't we

invest in the company making the

chocolate oh my gosh watch it ends up

being you know the maker of KitKat or

let's say uh the maker of KitKat is the

supplier which is Hershey by the way uh

let's say

the Hershey Company

supplies Mr Beast with the feastables

chocolate then just invest in that

company potentially right because your

margins and Theory should be higher

there of course that's not necessarily

going to be true in the event there was

ever some sort of IPO around food

specifically because you'll have hype

rather than fundamentals that'll

initially almost certainly much like a

meme coin in crypto go into anything

that Mr Beast touches and this is not a

slight on Mr Beast at all it's just a

way of arguing that we have to be

careful with with food-based IPOs or any

kind of food-based investment because

it's very difficult to make a buck and a

lot of the way a buck is really made is

just sort of rebranded marketing

and I think that's that's something to

be aware of as an investor especially

since most restaurants end up failing

it's really

a company that has done restaurants

really well I would argue is Chipotle

Chipotle has figured out how to sell a

very very inexpensive food rice and

beans predominantly

for a lot of money now you get a burrito

in California it's like 17 once you add

like a little bit of guacamole it's like

you know a little dice of of guacamole

and and some meat especially if you get

two Meats it's like I mean it is a full

meal but still my gosh for a burrito 17

bucks it's getting crazy out there uh

but but they've done it well because

they figured out how to sell very

low-cost food very expensively uh so

that's probably where I'd rather be

although I'd also rather just not be in

the restaurant industry at all anyway so

that's a longer rant on on what's going

on uh here in the latest with Mr Beast

but to some extent I'm making this video

to say we called it this is not to say

we're cheering food Mr BEAST's failure

it's just that it's very very difficult

to operate ghost kitchens and probably

won't work it doesn't look like it's

working uh and so if you're ever

considering investing in food based

things consider this in the long run uh

because uh it is very difficult to make

lots of money with AI what if

restaurants start using AI well they

actually start already are you've got

for example

uh what's it called um

uh

Denny's I'm pretty sure is now doing AI

ordering let's see Denny's AI ordering

uh

uh I'm pretty sure it was Denny's anyway

uh they they basically have an AI that

takes your order and I'll tell you I

would prefer AI take my order I was in

Canada and I know maybe it's because I

was in Quebec for a period of time and

nobody apparently understands English

but every time I went to a McDonald's to

order they'd screw up the order and I

think it's just they don't speak

American

just like

you know hey I'll take a Big Mac with

fries we like oh here we go okay In

fairness I'm in their world but but yeah

most of the orders were wrong and I'm

like now if we had AI it'd be fantastic

anyway all right yeah it's been red and

restaurants restaurant rant over okay

bigly red bigly rant on Mr Beast and

restaurants

laughs

all right all right all right

now I want you to know this when it

comes to AI

time is what's going to make you money

and if you can prove that value to an

employer you'll always be able to be

employed so this is another way of

making sure that you don't get replaced

but

foreign