Monday is shaping up to be a unique news day following excellent online retail sales over the holiday weekend. Amazon’s (AMZN) flying drones and Darden Restaurants’ (DRI) “Italian” burgers seem to have stolen the show today.
Amazon’s Flying Drones
During a 60 Minutes interview, Amazon CEO Jeff Bezos said that the firm is experimenting with fulfilling small orders using drone aircraft, a service dubbed Prime Air. In what sounds more like science fiction than a strategic endeavor, Bezos hopes the drones will allow Amazon to deliver products in as little as 30 minutes, giving its same-day efforts a boost. The “flying drone” service is scheduled to be in place within 4-5 years and will require approval from the Federal Aviation Administration (FAA). The technological hurdles (self-guiding drones that can travel to specific delivery points), financial hurdles (the air travel industry is among the most taxed due to security issues), and practical hurdles (how to implement the idea on a large scale) may be near insurmountable for it to gain traction, but that that doesn’t mean Amazon won’t pursue it. The firm continues to be focused on meeting ever-growing consumer demands, and fast delivery is certainly in line with them. If successful, Prime Air would have implications on firms as widespread as eBay (EBAY) to FedEx (FDX) and UPS (UPS). We don’t think flying drones will be near your doorstep anytime soon.
Olive Garden Adds Burgers to Its Menu
In what caught many analysts by surprise, Darden Restaurants’ Olive Garden announced Monday that it will start serving six-ounce hamburgers to better compete with fast-casual competition. Specialty burger chains such Red Robin (RRGB) and peers Chili’s, owned by Brinker (EAT), and Applebee’s, owned by DineEquity (DIN), have performed wonderfully this year, as Darden’s shares have lagged. The Italian chain’s internal research showed that it was losing share to restaurants with burger options, and the firm hopes the incremental burger choice will help same-store-sales performance, which continues to falter. The Olive Garden burger will be “topped with mozzarella, prosciutto, arugula, pesto tomatoes, and aioli spread” and served with Parmesan garlic fries. The new offering might shake things up in consumer minds about Olive Garden being primarily an Italian food option, but we don’t think it will be widely successful.
Image Source: Bloomberg, Olive Garden
Valuentum’s Take
Amazon continues to set the innovation bar in the online retail space, but its new “flying drone” service may be a bit of a stretch. Though we don’t rule out the possibility that the service will ever take flight, the obstacles seem too high to leap over at this point. Still, Amazon’s online performance over the holiday weekend was solid, even if it wasn’t better than that of Best Ideas portfolio holding eBay. As for Darden, a focus on cost control and the ongoing evaluation of a break-up of its three brands—Red Lobster, Olive Garden and Longhorn Steakhouse—remain on the top of investors’ minds. Though flying drones and Italian burgers are enough to steal headlines today, we don’t view the announcements as material to our valuation of each firm. Our best ideas continue to reside in the Best Ideas portfolio and Dividend Growth portfolio.