In with the new out with the old

In with the new out with the old

In with the new out with the old

I don’t know if any of you missed the headlines this past week regarding Amazon and their new grocery store--- yup you read that right GROCERY store. Amazon Go is a revolutionary initiative in which the grocery store has no checkout lines. You walk in check-in the store with your Amazon App and shop away. The app will scan the products you take and the app will bill your amazon account.

So what does this mean? Yes Amazon is expanding into grocery but imagine the effects of an initiative like this. Amazon has been able to remodel the grocery business by eliminating checkout lines and in turn eliminating employees who have to staff cash registers and self-scanning devices. There are able to add to their bottom-line without having any additional employees (besides replenishment staff). Mcdonalds did a similar thing recently eliminating almost 75% of their cash registers by installing automated ordering kiosques. Their bottom line is capable of growing organically just like Amazon’s which not an easy feat is.

So what exactly is organic growth?

Organic growth is when companies will look within the company to grow their business. This can come from increased product development, new product offerings, and revamps, increasing the output or even expanding their customer base. Many companies have been growing organically as of late. Amazon and McDonalds. Starbucks is another company that has been the king of organic growth. They recently announced new store s in which clients can choose the beans they would like and it’s grounded in front of them and served. They have also put tremendous efforts in their rewards programs and their store design which has boosted foot traffic in the past.

What does this do to companies and how does re-shape your investment mindset.

When I look at a company to invest- I am obviously looking for synergies that it can make with other companies in the market. Is it likely to get acquired or merge with someone in the future – are all questions I ask myself. But a big portion of evaluating companies is looking at their ability to grow internally. What new products are they able to offer? At what price point? Will customers want to buy the product? Will the product be profitable? Someone who has done a terrific job at this is Tim Hortons- think of how many new product offerings they have come up with in the last year alone. What’s great about Tim Hortons is that many of their new product developments did not need them to buy additional machinery. The whole Nutella craze which is still going on didn’t cost their franchises more to offer – but did wonders to their bottomline. Something is definitely working here as the stock has responded quite positively with a growth of 26.4% this year alone.

The take away message – is that you should not only be looking at what the company is doing now. Take that further and stretch your view to what they will be able to do in five years or 10 years. One of the keys to picking a good stock – is evaluating their brand relevance in the next few years. You don’t want to invest in a business only to learn that a product that was popular when you invested but is no longer relevant. Think of companies like Twitter that were very popular but are now in decline.

Disclaimer: All of the above opinion is my own personal opinion. Please do your research before making any financial decision. Please consult with a licensed representative or financial advisor before making any financial decision. I have no business relationship with any of the companies mentioned above – nor I am receiving any compensation from them.

Source: Google FInance - Growth is Excluding Dividends

for examples only 

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