Hacker News Reader

Comment by bee_rider | Hacker News Reader

> This year, Tyson Foods, the country’s largest meat processor, saw its first-quarter profits nearly double. Meanwhile, all over Texas, barbecue places have shut their doors: Two Sawers BBQ, in Floresville; 1836 BBQ, in New Braunfels; Brisket Bar-BQ, in Bellaire.

Kinda curious what the long term plan is here for Tyson -- just sell directly to customers after all the restaurants have closed, I guess?

View on HN

It's misleading to talk about profits purely in absolute terms. The profit margin could stay the same while the absolute number doubles.

If you make $10 profit on $100 revenue one year (a 10% margin) and $20 profit on $200 revenue the next year (still a 10% margin), profits "doubled" but the profit margin stayed the same. When you add in the inflation and the fact that the $20 this year is not worth as much as $20 was last year, it's not even a real doubling in absolute terms.

Inflation will produce "record highs" in terms of absolute number of dollars in all sorts of things, but if you don't account for the fact that the dollars are not worth the same amount as before it's disingenuous.

Sure, but someone loses, and in this case the loser is the local restaurant that doesn't appear to have much pricing power.

It sounds like the restaurant was a side project that was barely solvent to begin with. They could try raising prices, but if the customers leave then people simply aren't willing to pay what it costs to keep that place open and the demand to support that restaurant in that place just isn't there.

> It sounds like the restaurant was a side project that was barely solvent to begin with

This is an incredibly bad take.

Restaurants are a grueling business and many have low margins — 80% fail within 5 years. Since the beginning of the pandemic many incredible and beloved restaurants in my city have been forced to close due to lock downs, landlords raising rents, rising costs, etc.

> They could try raising prices, but if the customers leave then people simply aren't willing to pay what it costs to keep that place open and the demand to support that restaurant in that place just isn't there.

If customers are sensitive to higher prices, it's probably because of record inflation and economic downturn limiting their disposable income.

Nowadays the only establishments with stability are chains: McDonalds, Starbucks, Burger King... places that for the most part only care about profit and neither pay or treat their employees well, or have good quality food. A city without diverse locally-owned restaurants is a bleak prospect.

> Throughout most of R-BBQ’s existence, Rodriguez has worked other jobs as well, first at the health clinic in town, then at the school district. His heart was in the restaurant, but he was cognizant of his father’s railroad pension and the stability it provided.

It says right in TFA article that the owner works other jobs to support himself. No doubt restaurants are a tough business. Lots of businesses fail. Should we subsidize every business in existence that can't make the economics work on its own merits?

I'm sorry people will lose the restaurant they love so much, but apparently not enough to pay the higher prices it would take to keep it open. Times change, economic conditions change, businesses come and go. That's a natural part of the economy and life. Things don't last forever, especially if you're unwilling to face reality and do the things that are necessary to make them last.

> Since the beginning of the pandemic many incredible and beloved restaurants in my city have been forced to close due to lock downs, landlords raising rents, rising costs, etc.

Yes, I've heard of many of these. It's always a person who went to the place once 2 years ago and is sad now that it's closing. Guess what you can do to keep local restaurants open? Go to them and buy food!

> It says right in TFA article that the owner works other jobs to support himself.

Both bee_rider and InefficientRed's comments were clearly about the general effect and not the specific restaurant mentioned in the article.

Regardless, the fact that Rodriguez has to work another job to support himself doesn't make it a 'side project'.

> Yes, I've heard of many of these. It's always a person who went to the place once 2 years ago and is sad now that it's closing. Guess what you can do to keep local restaurants open? Go to them and buy food

Are you really disregarding the content of my post because of a made up scenario that you're attributing to me?

In 2020 a beloved Syrian cheese and dessert shop, owned by a refugee, was forcibly evicted because their land lord tripled their rent. The lot remains vacant to this day. Was this personally my fault for not buying enough cheese?

> In 2020 a beloved Syrian cheese and dessert shop, owned by a refugee, was forcibly evicted because their land lord tripled their rent. The lot remains vacant to this day. Was this personally my fault for not buying enough cheese?

Obviously every single instance of a restaurant closing is not going to be the same. Maybe the landlord hates Syrians. Maybe they're negotiating a deal where Starbucks will pay triple the rent for a 10 year NNN lease that will make more money even with the vacancy, maybe it's a money laundering front for the Russian mob, who knows?

I'm sorry your favorite cheese shop closed and it was probably not personally your fault for not buying enough cheese. Maybe you just live in a town that does not have enough cheese loving people to support a cheese shop, or there are uniquely evil landlords who have a vendetta against immigrant hard-luck stories. Sometimes businesses we like close. It happens.

Hey, I never said it was _my_ favourite!

Anyway, my point is that only focusing on the 'logic' and numbers misses the point. The myopic focus on short-term profits hurts the average person and their communities.

You asked in an earlier comment if we should "subsidize every business in existence that can't make the economics work on its own merits?" I am not necessarily saying that we should, but we ought to acknowledge that the economy is not a system based on merit. In addition to blatantly profiteering, many large companies have taken trillions from programs like PPP loans that were meant to protect jobs, and proceeded with layoffs or stock buybacks instead. That money not only comes from you and I, but it also affects our communities — people lose their jobs, and the record profit are shuffled away into tax havens.

Does the world _need_ a specialty cheese shop? No. But the larger collapse of small, locally owned businesses since 2020 is a worrying trend.

I mean I don't know if you'be been out eating any time in the previous 6 months, but fast food is no discount. Most mom-pop places comparable or cheaper than fast food.

I completely agree: in my neck of the woods, a breakfast combo at McDonalds now costs more than the incredible mom & pop places nearby. The problem is convenience and access.

Fast food chains are ubiquitous and designed to be a quick and predictable choice for people. Mom & pop places don't tend to have large parking lots, or drive-thrus that people can line up around the block for. They also can't afford the margins that UberEats or Doordash take — and food delivery has exploded in the past few years.

Lastly, many people are creatures of habit and few are probably looking to shake things up right now. The unfortunate truth is that the best value or quality seldom wins these days.

mcdonalds in particular seems to have deliberate price discrimination. if you go in and buy one of the prominently featured combos, you could end up spending over $10. on the other hand, ordering from the dollar menu and using discounts through the app, you can get a lot of food for not much money. today I got two mcdoubles, large fries, and a soda for $3.50. I dunno where you would find a cheaper ~1200 calorie hot meal.

There are no capitalists in foxholes. Stop voting for neoliberal vampires (i.e., Democrats) and small business tyrants (i.e., Republicans). If people want price controls, vote for social democrats and communists. If none are running where they live, run for office on monopoly busting and price controls.

>It sounds like the restaurant was a side project that was barely solvent to begin with.

It's actually hilarious how downvoted this comment is, considering how close it is to another sentiment that's actually popular (ie. make the same point, but make it about labor costs rather than evil corporations raising prices. Both are based on the claim that if a business isn't profitable enough, it shouldn't exist in the first place.

Tone matters. The comment people don’t like comes across as really callous.

> Both are based on the claim that if a business isn't profitable enough, it shouldn't exist in the first place.

I think a little bit of empathy goes a long way. The past few years have wreaked havoc; many people and businesses are struggling to stay afloat. Coldly repeating the mantra that small businesses failing (many for reasons outside their control) is just 'the economy' is rubbing salt in the wound.

Even in the best of times, many great businesses weren't profitable for several years.

Just means the restaurant wasn't very good to begin with. Chipotle, McD's, etc. have all raised prices nationally, and they operate in what has to be the most price sensitive market possible. I know the good restaurants in my area have doubled prices and people keep coming because they're the best.

Rising prices differentiate the good businesses from the bad.

> Just means the restaurant wasn't very good to begin with.

Or that the local market won't support higher prices. Some communities just don't have the disposable income to spare.

And even McDonalds is closing stores:

https://www.statista.com/statistics/256040/mcdonalds-restaur...

You are talking about a fundamentally different situation than the article, and than a lot of areas face. “The good restaurants in my area.” That implies a much larger selection than the typical small town, where there’s likely a McD’s but not a chipotle.

And as was already stated, the buying power in these towns tends to also be lower, maybe fluctuating due to tourists but nowhere near a city’s average. Your “people keep coming” and “doubled prices”comment suggests a much higher level of disposable income.

And throwing out corporate chains as part of this? The franchises are just tiny pieces of the whole. There’s a whole massive machine watching each limb, supplying it, and sometimes amputating it. Which, yet again, compare that to a mom and pop, it is nowhere near the same.

If you haven’t been to a small town, you should visit a few. Your disposable income would be welcome in a lot of great restaurants that are still struggling. A lot of not so great ones as well.

I believe the implication is that if everyone collectively agreed to eat the inflation – go from 10% margin to 5% margin for the same $10 – there would be a lot less inflation because purchasing power would be the same regardless of what some number on a computer says.

But if everyone raises prices “because inflation”, well that’s exactly what inflation is – things getting pricier.

I know this sort of coordination can’t happen. Point is inflation is a trailing measure of price changes. Without price changes there is no inflation. People set those prices.

It’s just cost-plus pricing. Tyson needs to tie up money in inputs, production, and distribution—money that could be put to work elsewhere.

Now apply that to workers wages. Can guarantee those haven't 'doubled' regardless of the method used to calculate it.

Your hypothetical is of course possible and good to keep in mind, but in this case:

https://www.meatpoultry.com/articles/26162-tyson-foods-repor...

Compared to 2021:

It looks like they increased the price of beef by 31.7%, sales decreased by 6.2%.

For chicken, they increased the price by 19.9%, and sales increased 3.6%.

It is possible I'm misreading things though, I'm definitely no economist.

> Adjusted net income for the fiscal first quarter was $1.12 billion, a 140% increase from $467 million, reported in Q1 of fiscal 2021

> Operating income more than doubled from $705 million for the first quarter of 2021 to $1.45 billion in fiscal 2022.

> Sales for the quarter were $12.93 billion versus $10.46 billion during the same period in 2021, an increase of nearly 24%.

In any case, if people have decided to replace beef consumption by chicken consumption -- economically I guess it is probably a little worrying that people feel the need to switch to the cheaper meat, but health-wise it is probably a win. So, silver lining!

The missing piece here is how much did costs increase? Are the costs maybe slower to catch up due to locked in prices and they raised to consumers earlier? We'll see. I wouldn't expect these record profits to hold.

It's a public company so no need to say it's misleading and hypothesize. Q1 sales up 23.6% (volume +0.3%, so all price), NI up 140.0%, and net margin up 94.1%.

Source for the numbers? The only relevant one is profit margin, which is up 0.43%, which is not material.

https://www.macrotrends.net/stocks/charts/TSN/tyson-foods/pr...

Dec 2021 profit margin - 7.47%

Mar 2022 profit margin - 7.90%

Dec 2021 net income (profit)- $1.121B

Mar 2022 net income (profit) - $829B

They should plan on being broken up. Way too much consolidation in meat processing has been allowed over the past few decades. According to Matt Stoller, cattle prices haven’t increased, though retail prices have: “But since 2015, the ‘meat margin’, or the spread between the prices ranchers get for their cows and the prices consumers pay at the supermarket, has widened dramatically. Despite high consumer prices, independent ranchers are losing money, and going out of business.“[1]

[1] https://mattstoller.substack.com/p/economists-to-cattle-ranc...

Except Tyson’s net income margin is like 7-8%, so ask yourself if Tyson acted as a nonprofit going forward and sold everything at ~7% discount, would that change anything? (Personally I don’t think it would)

Why not? Profit margins are up, but overall sales volume was also up 25%. If they can make more money by selling more product, why stop?

https://www.cnbc.com/2022/02/07/tyson-foods-higher-meat-pric...

Higher margins is exactly what we would expect in a supply constrained environment. Demand outstrips supply, so businesses can raise their prices without leaving unsold products. The natural temptation here is to enforce price controls or whatever, but they come with their own problems. If demand is outstripping supply, price controls would lead to empty shelves/rationing.

> Higher margins is exactly what we would expect in a supply constrained environment... The natural temptation here is to enforce price controls or whatever, but they come with their own problems.

Or in markets with limited effective competition, no? In which case breaking up businesses is another option.

Your statement is incorrect. Their sales volume was flat (up 0.3%), not 25%. The rest of the sales increase was price. Also, that's from Q1 (reported in February) so a bit old. Q2 (reported in May) saw a 16.1% increase in sales, with volumes down 1.5% and price up 17.6%.

They are raising prices because demand is sky high. They have no shortage of customers even with raising prices. Inflation is largely demand-driven with a few key supply constraints thrown in to make things worse.

Whittle down the customers who cannot pay a premium and sustain large margins. Brex did that with its small business accounts.

Reply on news.ycombinator.com