Monday 20/08/18

  1. In RETAIL-RELATED NEWS TODAY, we see US companies pass costs on to consumers, how the Asda/Sainsbury’s deal stacks up and online vs offline growth
  2. In CAR-RELATED NEWS, Tesla short-sellers are sitting pretty and car makers look at making money from data
  3. In OTHER NEWS, I bring you an inadvisable cooking technique. For more details, read on…

1

RETAIL-RELATED NEWS

So US companies pass higher costs on, the Asda/Sainsbury’s tie-up gets closer and offline suffers from online growth…

US companies push rising costs on to customers (Financial Times, Andrew Edgecliffe-Johnson) shows that big US companies are confident enough to pass on rising freight, labour and raw materials costs in the form of higher prices to the end-customer as everyone got a boost from Trump’s tax reforms in December whilst the labour market remains super-tight. Companies who have announced upcoming price increases include the likes of Coca-Cola, Kraft Heinz, Stanley Black & Decker, Whirlpool, Caterpillar, Kimberley-Clark (which makes Kleenex and Huggies etc.) and Newell Brands (which makes Rubbermaid containers and Sharpie pens, etc). Goldman Sachs analysts pointed out that “following the best earnings season since 2010, S&P 500 profit margins have now risen to an all-time high” but that a combination of the fading of the tax cut boost, slowing of global growth and likely rise in wage pressures and interest rates will eventually take the edge of the current euphoria.

Asda merger may force sale of 300 stores (The Times, Deirdre Hipwell) suggests store disposals that could be necessary to complete Sainsbury’s £12bn merger with Asda, with the enlarged entity being billed by Sainsbury’s chief exec Mike Coupe as “a vibrant company that can compete with the Amazons and the Lidls and the Aldis of this world”. On the other hand, a senior supermarket industry executive puts a rather different spin on it in A bargain buy, but does it actually stack up? (The Times, Deirdre Hipwell) when he said that the merger “is a complete bugger’s muddle…as these are two brands that have nothing in common. Asda is a one-club golfer whose club was nicked by Aldi and Lidl. Asda is not a better business for having been owned by Walmart and it will not be a better business by being owned by Sainsbury’s, which has not an ounce of discounter in its blood”. The Companies and Markets Authority (CMA) is likely to look at food prices, petrol prices (did you know that the Big Four supermarkets account for almost 45% of the fuel sold in the UK?) and clothing (with Asda’s George being the #2 in value clothing behind Primark and Sainsbury’s Tu being #6)

as part of its scrutiny of the deal.   * SO WHAT? * I’ve always thought that this “Sasda” deal comes more from desperation rather than aspiration, whatever Mike Coupe thinks. Both Sainsbury’s and Asda have suffered over the years from the continued onslaught of the German discounters and I wonder whether their combined new slogan should change from “Save Money. Live Better”/”Live well for less” to “If you can’t beat ‘em, join ‘em”. If the enlarged entity has to sell some outlets in order to go through, it’s not that obvious as to who the buyers might be as Waitrose looks unlikely to open new stores, M&S has scaled back its store openings and the Co-op, along with Aldi and Lidl, operate from smaller locations. Tesco and Morrisons could be in the frame, but they already overlap in around half of the 300 locations identified by The Times. FWIW, I think that disaster is likely as both supermarkets could lose their identity and potentially alienate customers with an ill-defined remit. I think that Sainsbury’s should put all its discount-related aspirations into Asda to really get it to take on the likes of Aldi and Lidl and keep Sainsbury’s as its more “up-market” offering. I think that making a distinct difference would be preferable to making some third wishy-washy identity that combines the two as the cultures are just so different.

High street suffers as online marketplaces triple in popularity (Daily Telegraph, Matthew Field) cites a report from payment provider Stripe which says that internet and app shoppers are increasingly spending on digital marketplaces like Deliveroo, Booking.com and Airbnb rather than going direct to retailers, with the growth rate tripling every year. This trend in spending is hitting food and restaurants, with a report from UBS saying that the global food delivery market was now worth $30bn, with “millennials” three times as likely to order via food delivery apps than their parents. * SO WHAT? * This is just further evidence of how online growth is hurting offline survival. I will say, though, that I think that food delivery will fall sharply at some point in the not-too-distant future as punters realise that ordering take-out is expensive versus making meals yourself, however cheap the delivery charge, and is an extraneous expense that can be cut very easily. Generally speaking, though, I think that high street retailers and restaurants will really have to concentrate on providing better experiences in order to keep customers coming in and spending because it’s something that they CAN do and the online retailers can’t. If they can make shopping more of an emotional experience, they will not only be able to get punters coming through the door – they may be able to make them part with more cash when they are there as well!

2

CAR-RELATED NEWS

In car-related news, Tesla short-sellers are sitting pretty and we look at what your car is saying about you…

Despite Elon Musk’s best efforts to stick it to them with his mischievous/litigious recent tweet, Tesla short-sellers sitting on profits of $1.2bn (Financial Times, Shannon Bond and Robin Wigglesworth) shows how well the short-sellers have done since he made that fateful tweet. Although shares went 9% higher initially, they are now 19% below what they were beforehand. The market remains sceptical of his ambition to buy out existing shareholders at $420 a share and some, such as Crispin Odey, a prominent UK hedge fund manager, believe that “Tesla feels like it is entering the final stage of its life”. * SO WHAT? * You never know, but Musk may yet have the last laugh if he DOES find the backers. The thing is, though, if he REALLY had secured funding to take the company private why didn’t he come back with details when regulators asked him straight away? The fact that it is dragging on would suggest that he is desperately trying to backfill his promises and getting entities like Saudi Arabia’s PIF to stall things by saying that they were in the frame all along. At this rate, if Musk is found guilty of lying to the market in his tweet, he will not only get punched in the face with fines from the regulator AND payment of damages to investors who are taking him to court over it currently, he will also get kicked in the balls by the short-sellers he aimed to p!ss off in the first place as the shares plunge even further. This could potentially make his position untenable – and if he had to leave, I think the shares could plummet towards zero because in reality Elon Musk IS the company. No-one else will be able to raise money like he can and given that Tesla burns cash like there’s no

tomorrow, it really could come to a sticky end. I hope it doesn’t go this way because it is an innovative company and its leader is a very impressive individual – but if Musk has lied, he deserves everything he has coming to him. Hedge funds, on the other hand, will be laughing all the way to the bank. The Saudis could then buy the whole company at a fire sale price and perhaps reinstall Musk in a senior position, but do it all behind closed doors.

In Talking about cars, What your car knows about you (Wall Street Journal, Christina Rogers) we learn that car makers are collecting increasing amounts of data from your car and that they are thinking about how to make money from it. Modern cars generate data that tracks everything from your location to how hard you are braking to whether or not your windscreen wipers are on – and then stores that somewhere on a cloud-based server. Manufacturers are using this data to improve car performance and identify problems early – but they are also using it to provide more personalised services to drivers. For instance, Hyundai is launching a programme that collects vehicle data on driving habits such as how hard you’re braking and how many miles you travel and using it to get owners discounts with car insurance. Other ideas include using the data to generate in-car adverts or selling it to mapping firms to get more accurate traffic info. GM is planning on introducing a new feature that can tell when you are running low on fuel, which then generates a coupon on the car’s display that you can used at a nearby petrol station! How amazing is that?!? * SO WHAT? * This is a very interesting area of potential growth for car manufacturers because at the moment they make money from the cars themselves and possibly finance and maintenance. Providing services like those described above gives them another handy income stream to the extent that McKinsey & Co believes that monetisation of such data will be worth up to $750bn by 2030. The major sticking point is going to be user buy-in as it is unclear how much drivers are willing to sacrifice in the way of privacy for convenience. Still, it looks like an interesting way forward!

3

OTHER NEWS

…And finally, in other news…

I bring you an inadvisable yet quite impressive cooking technique in Master tempura chef in Hamamatsu uses his bare hands to cook with boiling oil (SoraNews24, Casey Baseel https://tinyurl.com/ydzalkyo). Yee-ouch! Do NOT try this at home!

As always, thank you for reading Watson’s Daily!