On Monday, July 21st, both Chipotle and Netflix released second quarter 2014 earnings. Chipotle’s second quarter 2014 revenue was up 28 percent to $1.05 billion. Netflix net income more than doubled to $71 million in the second quarter from $29 million from second quarter 2013. Both companies crushed analyst, investor and, likely, their own expectations. This caused both stocks to soar in afterhours trading on Monday and subsequent sessions thereafter.
What does this mean?
This makes us wonder if Americans have turned over a new leaf when it comes to personal spending. America may have adopted what we call “not-so-expensive” (NSE) options. Both company’s target markets are middle class consumers who seek quality and cost efficient products and services.
The country’s economic improvements have been lackluster, at best. Jobs are returning, but are heavily part-time jobs. Consumers who are lucky enough to have a job have cut spending, either out of fear of becoming jobless or because of the escalating costs of necessities, such as energy and food.
Despite the current economic landscape, both companies had stellar performances. What gives?
Chipotle’s same-store sales, sales in second quarter 2014 compared to second quarter 2013, were up 17.3 percent. This was largely driven by increased traffic and not increased prices per order. Rather than going to an expensive restaurant, American’s visited Chipotle 17.3 percent more this year than last year.
We frequent Chipotle. Chipotle’s food is fresh, mostly healthy and orders can be customized. Most of their food is organic and non-GMO, which appeals to conscious eaters. Occasionally, we will each get our own meal. More often than not we’ll split a naked burrito for about $8, depending on the type of meat we choose. Where else can two grown men eat for $8? Of course, we are conscious about our portion and waist sizes.
Also Read: The Reason for Income Inequality
Chipotle is, also, fast. Our anecdotal evidence suggests McDonalds’ is not must faster than Chipotle. The added benefit is that Chipotle’s food doesn’t make our insides regret our visit afterwards, as McDonalds does. Chipotle’s food looks more like their advertising than McDonalds’ food does, too.
So, Chipotle is NSE, healthy and fast. These may be the reasons Chipotle’s earnings have skyrocketed. These may be the same reasons why other quick-casual dining restaurants such as Garbanzos and Panera Bread are doing so well.
If you haven’t done so already, hop on the NSE restaurant bandwagon.
Netflix’s subscribers increased to 50 million in over 40 countries in the second quarter of 2014 from 38 million in over 40 countries in the second quarter of 2013. With the convenience of a flat and affordable monthly fee for a TV show or movie to never be more than a click or a day away, it’s no wonder Americans may be turned off by gargantuan, overpriced movie theaters.
2014 summer ticket sales are expected to be down 15 to 20 percent from 2013. July 2014 sales, alone, are down 30 percent from July 2013. Tickets costs are down, but concession costs are up dramatically. Even without concessions, though, the cost for two people to see a current movie on a Friday night is about $21.50. For parents, it costs about $8 per kid. The cost for a family of four is about $37.50 before food, candy or drinks. Any parent can tell you it would take an act of God to get two kids past a fully decorated and advertised concession booth without spending a penny.
It seems for this and other reasons, such as convenience and on-demand capability, Americans may have foregone hauling their family to a theater across town and paying good and limited money to watch a movie with strangers who talk to each other, cough, take calls and text.
Of course, Netflix isn’t the only recourse Americans have for entertainment. Amazon is good competition for Netflix. TV stations, such as HBO and Showtime, have shows as good as any movie released over the last several years. With the ability to stream or get a DVD of your favorite show within a day, your family can be entertained for hours.
Also read: How I Saved/Earned $654 in One Week
If you haven’t done so already, hop on the NSE entertainment bandwagon.
A Practical Shift Towards NSE
It’s impossible to eliminate all spending and it’s impractical for personal finance experts and financial advisors to suggest otherwise. Just as a dietician asking a patient to never eat a cookie again will prove fruitless and, possibly, cause the patient to overindulge in the next batch of cookies they see, personal finance pros asking consumers to eliminate any and all personal spending will have the same consequences. This is why we promote NSE and, possibly without knowing it, America has adopted it.
If our assessment of American spending habits it accurate, it’s good to see the pragmatic shift. Dining and entertainment alternatives, such as Chipotle and Netflix, let Americans have a good quality of life on a NSE budget.
If your family has or is making this shift, welcome to the club. We’re happy to have you. With this shift in personal spending, adopt a reciprocal shift with personal savings. Funnel your savings, regardless of how large or small, into savings and investments. Our article, “Turning a Little Money into a Lot of Money” will help you easily and simply do just that.
Only time will tell if this is a long-term trend or an anomaly. If it is a long-term trend, it will be interesting to see if this trend spreads into other areas of spending, such as auto, clothes and homes.
Our hope, of course, is that our assessment is accurate and the trend is long-term. Hopefully this post inspires you to find NSE alternatives for your life.
What NSE alternatives do you use?