Why Amazon.com, Inc. Stock Could Enter the Restaurant Business

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Fast food chain Carl’s Jr. (which some of you know as Hardee’s) recently suggested in some tweets that e-commerce giant Amazon.com, Inc. (NASDAQ:AMZN) acquire the restaurateur. As strange as this sounds, let’s be honest. Owners of Amazon stock have seen their company make some relatively unlikely deals, each one of which seems to somehow continue driving the AMZN stock price higher.

Why AMZN Stock Could Enter the Restaurant Business
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Case in point? In August, the company closed on its purchase of grocer Whole Foods Market, bringing it head to head with names like Kroger Co (NYSE:KR) and Wal-Mart Stores Inc (NYSE:WMT). Just a few years ago, such a deal would have been unthinkable.

Still, fast food? Not only is it well out of AMZN stock’s wheelhouse (even by Amazon’s loose standards), it’s an increasingly tough business. Between 2008 and 2016, restaurants saw a 14% decline in foot traffic. Not even Amazon, which considers profits a distant-second priority to widening its revenue footprint, would be crazy enough to tiptoe into those waters, right?

As it turns out, it isn’t quite as ridiculous as it may seem on the surface.

Looking for a Suitor?

On the off chance any fans and followers of AMZN stock have not yet heard, over the course of the past week or so, the official Carl’s Jr. Twitter page has posted several different explanations of why Amazon.com may want to acquire the privately held fast food chain. Among the more entertaining ideas were a “Tender Button,” explaining that the same technology Amazon provides that easily allows customers to reorder laundry detergent with just the push of a button could just as easily order chicken tenders for delivery.

Carl’s Jr. Chief Marketing Officer Jeff Jenkins explained: “This is about generating a conversation around a partnership. The tweets are obviously a start to try and see where the dialogue goes …have a lot of fun with it, and see if they find the spirit of it as fun as we do.”

Carl’s Jr. has neither confirmed nor denied if it’s genuinely looking to be sold, nor has Amazon commented. As they say though, there’s sometimes a kernel of truth even in the biggest of lies. Maybe CKE Restaurants Holdings, which owns a small handful of other restaurant brands, really is looking to cede ownership. AMZN stock wouldn’t be the most outlandish suitor, in light of its recent move to wade deeper into food delivery waters.

Amazon Is Already Indirectly in the Restaurant Business

Most AMZN stock owners likely already know the company has been offering same-day delivery of select goods in some markets, including restaurant-made food.

What most investors may not know, however, is that Amazon.com turned up the heat on that effort in a big way last month by partnering with restaurant-ordering software company Olo. The deal connects the customers of thousands of restaurants with Amazon, including those of Chipotle Mexican Grill, Inc. (NYSE:CMG) and Shake Shack Inc (NYSE:SHAK), establishing it as the best-positioned middleman to make deliveries, perhaps in some cases displacing GrubHub Inc (NYSE:GRUB).

GrubHub, by the way, has generated $576 million worth of revenue over the course of the past four reported quarters and mustered that top line with nowhere near the marketing firepower Amazon boasts. And here’s the part current and would-be owners of AMZN stock will like: GrubHub actually turned a real GAAP profit by ferrying deliveries of freshly made restaurant food.

Amazon’s new food delivery service is still debilitatingly expensive for some restaurants to use, as Amazon Restaurants pockets 30% of the sales for itself. Greater scale can whittle those costs down, though. Owning a few of those restaurants it makes deliveries for could also mitigate the cost because then all the profits would be going into Amazon’s pocket.

Looking Ahead for AMZN Stock

Don’t get the wrong idea. Carl’s Jr. in and of itself lacks the scale Amazon would arguably need to make getting into the restaurant business worthwhile. On the other hand, if viewed only as an experiment or proving ground, Carl’s Jr. could just be the first stepping stone of many Amazon leaps into these uncharted waters. In other words, never say never.

Indeed, though Amazon’s increasingly disparate divisions may seem like strange bedfellows, this reporter has said more than once that Amazon’s ultimate goal is to be a lifestyle company, capitalizing on every aspect of your daily routines. Perhaps it’s willing to lose a little money in some ways in order to make a lot of money off you in other ways.

In that light, Amazon entering the restaurant business isn’t far-fetched at all.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter.


Article printed from InvestorPlace Media, https://investorplace.com/2017/10/amazon-com-inc-amzn-stock-restaurant/.

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