Disney just announced, in what has become an annual tradition, that it is raising prices for Disneyland tickets 10.4%, such that the a single day Disneyland ticket will now cost $149, and annual passes will now cost a low of $399 to a high of $1,949. This is roughly in line with the typical Disney experience over the past generation or so, as Disneyland has raised its priced by 9.8% annually since 1993.
When I talk to you about brand power regarding investments, this is what I mean. What businesses can just nonchalantly raise its prices, and yes, there are complaints, but when the ledgers are counted, the customers keep pouring in?
There aren’t many market news data points that I believe actually point you in the direction of a great investment, but I do consider this Disney news to be one of the exceptions.
Just because something is a well-known consumer brand does not mean that it has pricing power. This is an important distinction because the successful wielding of pricing power is how an investor is able to reap outsized returns.
Recently, investors learned that Gillette has far less pricing power than previously assumed, as price hikes were met with unit sales declines. Other great businesses, like Coca-Cola, have to go about it in an indirect way, reducing the portion size but keeping the price higher per ounce in order to effect the price increase. Still, other businesses have to outright do something that approaches deception, such as Hershey using lower-quality ingredients in making its candy bars–the chocolate you get isn’t the same quality you got in 1990, but the hope is that the brand equity in your imagination remains intact so the business can continue to raise prices based upon old glories.
My theory is that, the more directly a business is able to raise its prices, and the greater the amount, the stronger the competitive advantage. Disney is making no bones about what it is doing. 2019 prices are 10% higher than 2018’s prices. This is what it always does. There are no close substitutes, and people will still overcrowd the Disney theme parks even in response to these price hikes. I think it’s a shame that the dream of a Disney vacation is becoming more and more out-of-reach for a lower middle-class and even middle-class family, but from an investor’s point of view, higher revenues will come because the foot traffic remains at capacity and the price grows at a double-digit clip.
This price hike is one of the best endorsements of Disney as an excellent long-term investment I can think of, though you should not read this post as an endorsement of what I think of the value proposition of the stock at the current price.
Originally posted 2019-01-06 22:51:51.