Thursday 14/03/19

1. In MACRO NEWS, May loses another vote and Hammond announces the Spring Statement
2. In STREAMING NEWS, Spotify files a complaint against Apple and Google’s YouTube Music launches in India
3. In RETAIL-RELATED NEWS, Starbucks feels the heat in China, Inditex lifts its dividend, Morrisons sees sales rise and Sports Direct offers Debenhams a £150m loan
4. In INDIVIDUAL COMPANY NEWS, Boeing tries to limit fallout and the FDA moves to limit e-cigarette sales
5. In OTHER NEWS, I bring you the Triangle Challenge. For more details, read on…

So May loses out yet again and Hammond issues the Spring Statement…

I wish we could have a rest day on Brexit news, but unfortunately that’s not possible at the moment so Theresa May issues ultimatum after MPs ditch no-deal Brexit (Financial Times, Jim Pickard and Laura Hughes) tells us that the PM, after MPs voted yesterday to take a no-deal off the table permanently, has said that MPs need to now get behind her Brexit deal or face a delay of a few months that would force Britain to hold elections to the European Parliament. * SO WHAT? * Sterling staged a bit of a relief rally last night as the prospect of a no-deal Brexit was defeated, but then the European Commission stated that it wasn’t actually up to the UK to decide whether it left the EU with a deal or not – it was up to its remaining 27 member countries to decide whether to extend the March 29th

deadline, with the implication being that if members vote against a deadline extension, the UK may end up with a “no-deal” by default. As one commission spokesman put it, “To take no-deal off the table, it is not enough to vote against no-deal – you have to agree to a deal. We have agreed a deal with the prime minister and the EU is ready to sign it”. The next vote will be about extending Article 50.

Chancellor Phillip Hammond announced the Spring Statement yesterday, which covered things like climate change (no gas boilers or hobs in new homes built from 2025 onwards), extra money for the police to fight knife crime, free sanitary products to be given out at schools, a review on the living wage, a relaxation in immigration rules for top scientists and academics and a delay for the introduction of new income tax reporting rules for the self-employed etc. If you want to see how it may be relevant to you personally, then I’d recommend you have a look at the table of data in How the Statement affects you (Daily Telegraph).

Spotify takes on Apple and YouTube Music debuts in India…

In Spotify lodges antitrust complaint against Apple (The Times, James Dean) we see that Spotify has just filed a competition case with the European Commission accusing Apple of abusing the power of its App Store to favour its own music streaming service. The App Store takes a 30% cut of fees if developers enable its “in-app purchase” service where customers can be charged for a service, like upgrading from a free to a paid subscription and it is this fee that is getting Spotify’s goat. Spotify also complained that Apple unfairly restricts developers who don’t enable this in-app purchase system by not allowing users access via Siri and HomePod. * SO WHAT? * I think that this case signifies how deeply tech companies have become woven into the fabric of our daily lives and, while you can understand the commercial reasons for Apple wanting to hobble the competition on their own platform, this does go against the ethos of consumer choice. At the moment, I guess going to the App store is like a trip to your local Sainsbury’s only to find that all the McVitie’s Jaffa Cakes, Heinz ketchup and baked beans were only available in the

warehouse (where a bloke on the door charges you a fee to enter), with the shop floor only selling own-brand goods. I would have thought that this case will drag on and become a debate on how these tech giants will have to be regulated more broadly going forward in order to keep competition fair.

Google’s YouTube Music launches in India to take on Spotify (Financial Times, Stephanie Findlay) heralds the arrival of YouTube Music, the music subscription service launched by Google in June last year, in India two weeks after Spotify debuted in the country. It offers a free version with ads as well as a premium paid version for $1.42 per month to go ad-free. YouTube Music’s subscription is Rs99 versus Spotify’s price of Rs119 per month. * SO WHAT? * This is a crowded market as everyone can see the potential (plus many have failed in the “other” big market, China), so YouTube Music will be competing with local giants Gaana (which is backed by China’s Tencent) and JioSaavn as well as Spotify, Amazon Music and Apple Music. However, it will hope that India’s thirst for video will set it apart from its rivals. Interestingly, only a year ago there were no music videos on YouTube that had Indian artists with over 500m views – now eight videos have breached that level and this week, the three top artists on YouTube’s global artist chart were all Indian: Neha Kakkar, Alka Yagnik and Kumar Sanu. Great news for Indian consumer choice!

Starbucks has a fight on its hands in China, Zara owner Inditex ups its dividend, Morrisons has rising sales and Sports Direct offers Debenhams a chunky loan…

I’ve mentioned the company before but Starbucks fights hot startup in China (Wall Street Journal, Julie Wernau and Julie Jargon) looks at the fight that Starbucks has on its hands with domestic start-up Luckin Coffee as the latter is experiencing exponential growth on the back of increased demand for beverage deliveries. This has pitted Starbucks, Luckin and McDonalds against each other to determine who can have the best and most efficient delivery system. The preponderance of deliveries for food, meals consumer goods – and now coffee – has become such an issue in some cities that office and apartment buildings have robots to receive deliveries and avoid clogging up the elevators! * SO WHAT? * Starbucks’ business in China has been built on the premise of customers relishing the experience of drinking their expensive coffees in plush surroundings, but the market is changing. Luckin Coffee only started in October 2017 but has already raised $1bn in funding and opened 2,000 stores offering mainly delivery or pickup. Starbucks signed a deal with Alibaba-owned food delivery platform Ele.me in August last year to boost its delivery capability, but the fact is that its coffee is quite a bit more expensive than Luckin – a 16 oz Americano in Beijing costs 37 yuan ($5.52!) from Starbucks and 27 yuan from Luckin if you have it delivered. Mind you, the pain is worth it as Sanford C. Bernstein researchers say that annual coffee consumption per capita in China is about 5 to 6 cups versus over 300 cups per capita in America. I presume that Luckin’s offering is heavily subsidised in order to grow popularity, but the luxury that Starbucks has enjoyed over the past decades of being pretty much the biggest fish in the pond is being rudely interrupted by a rapidly growing piranha. If it doesn’t do something drastic, it may have to do an Uber and abandon the country altogether (but I don’t think we’re at that stage yet).

Zara parent Inditex lifts divident on higher online sales (Financial Times, Ian Mount) highlights the clothing retailing giant’s decision to boost its dividend as online sales increased by a respectable 27%. Revenues and profits were, however, slightly lower than analyst expectations as the company suffered from a strong euro – this is a major factor for Inditex given that almost 60% of its sales are in non-euro countries, meaning that its products are more “expensive” in said countries. * SO WHAT? * Sounds like a decent enough performance to me and it’s good to hear that its online offering is going well.

Meanwhile, back home, Morrisons investor windfall as grocer hails rising sales (Daily Telegraph, Ashley Armstrong) shows some rare good news from a British grocer as higher sales enabled it to pay out a third special dividend in a year. Some analysts were hoping that the proposed takeover by Sainsbury’s of Asda would help to turbo-charge Morrisons’ presence in the south of England as “Sasda” disposed of overlapping properties – but this deal is looking increasingly unlikely to come to fruition.

Sports Direct offers Debenhams £150m interest-free loan (The Guardian, Sarah Butler) shows that Mike Ashley is not taking “no” for an answer as his company Sports Direct has now offered to give struggling department store Debenhams a big loan in exchange for an additional 5% stake in the company and him taking over as chief exec. * SO WHAT? * Debenhams is continuing in its efforts to fend off his advances (mainly because almost all the board will lose their jobs, I would have thought!) but the noose appears to be tightening. I would back Ashley and have done with it. He can then meld the best bits of House of Fraser and Debenhams and jettison/repurpose the rest. I just don’t think that Debenhams as a standalone is a long term prospect.

Boeing’s woes continue and the FDA cracks down on e-cigarettes…

US grounds Boeing 737 MAX jets (Wall Street Journal, Andy Pasztor, Alex Leary and Andrew Tangel) shows the ongoing aftermath of the weekend’s fatal Ethiopian air crash after Federal Aviation Administration (FAA) officials said that it had similarities with another recent crash involving the same model. President Trump said that the FAA was grounding the planes and banning them from US airspace, his actions following those already taken by the UK, Australia and Canada. Boeing tries to limit the fallout (Wall Street Journal, Doug Cameron and Andrew Tangel) shows how this latest news is hitting the company hard as the 737 MAX is its most popular plane and it is racing against time to salvage its reputation. * SO WHAT? * This is a major headache for the plane maker (which is obviously nothing compared to the death and anguish it has caused) as it had nosed ahead of rival Airbus in being

the supplier of choice to an industry that is seeing surging international demand. It’s unclear as to whether this will affect the current order book (planes take rather a long time to make and so if they find the problem now, they can rectify the design), but sentiment is obviously very bad at the moment.

FDA sets limits on retail sales of flavoured e-cigarettes (Wall Street Journal, Jennifer Maloney) shows that although chief Scott Gottlieb is about to leave his post next month, he is continuing to push forward with his crusade against e-cigarettes with an effective ban on convenience stores and petrol stations selling most flavoured e-cigarettes. The new directives were originally proposed in November and are starting to come into force. Gottlieb added that if underage vaping continues to increase, the FDA would consider an outright ban on all pod-based vapourisers. * SO WHAT? * This is obviously bad for Juul, which has 73% of the US e-cigarette market and it is also bad for convenience store operators who will be losing a valuable stream of income. Mind you, given that Gottlieb’s leaving, it remains to be seen as to whether his successor will pursue this cause quite so assiduously.

And finally, in other news…

I thought I’d leave you today with The triangle dance challenge: newest challenge to take over the Internet is harder than it looks (Evening Standard, Georgia Chambers https://tinyurl.com/yyf5j29u). Disastrous possibilities abound…