Wednesday 14/11/18

1. In MACROECONOMIC AND OIL NEWS, EU worker numbers fall sharply in the UK and the oil price hits new lows
2. In RETAIL NEWS, Sainsbury’s and Waitrose lag, Aldi sales soar, Farmers say “no” to Sasda and B&M is waiting for the crumbs
3. In INDIVIDUAL COMPANY NEWS, Apple targets a tricky Indian market, WeWork gets a boost from SoftBank and Juul quits social media
4. In OTHER NEWS, I bring you a man attempting eternal youth. For more details, read on…

So the number of EU workers in the UK is falling sharply and the oil price hits a new low…

Fall in EU workers is UK’s steepest since records began (Financial Times, Gavin Jackson) highlights the sharpest drop in the number of EU nationals working in the UK since records began in 1997, according to figures from the Office for National Statistics published yesterday. This is exacerbating an already-acute problem in the availability of suitable employees as unemployment rates hit lows not seen since the 70s. Senior ONS statistician Matt Hughes pointed out that “With faster wage growth and more subdued inflation, real earnings have picked up noticeably in the last few months…however, real wage growth is below the level seen in 2015, and real wages have not yet returned to their 2008 levels”. Brexit fears are likely to continue to bite UNLESS Theresa May manages to achieve

some kind of miracle deal AND get it past her colleagues. Until then, uncertainty will reign.

In Oil falls to lowest price in 12 months (The Times, Simon Duke and James Dean) we see that oil has continued its downward path despite Saudi Arabia saying that it was considering production cuts at the next OPEC meeting in December as there are signs that supply is starting to overtake demand. * SO WHAT? * There are many forces at work here. On the one hand, you’ve got Trump tweeting things like “Hopefully, Saudi Arabia and Opec will not be cutting oil production. Oil prices should be much lower based on supply” and then you’ve got the oil producing countries on the other baying for production cuts to stem the oil price slide. That is then complicated by Saudi Arabia having to look like it is prioritising its fellow OPEC members whilst simultaneously keeping the US happy by ensuring the oil price doesn’t go through the roof due to its recently-reimposed sanctions on Iran. A tricky situation indeed, but a production cut certainly looks more likely at the next OPEC meeting although market prices don’t seem to be reflecting that at the moment.

In retail news, incumbents lumber on while Aldi reaps more sales, Farmers say “no” to “Sasda” and B&M is ready to benefit from the deal’s disposals (if it goes ahead)…

Sainsbury’s and Waitrose sales lag rival supermarkets (Daily Telegraph, LaToya Harding) cites the latest industry figures from Kantar Worldpanel which reveal Sainsbury’s to be the worst-performer of the UK “big four” supermarkets for the last quarter whilst sales at Tesco, Asda and Morrisons all rose. Its market share also fell from 16.3% to 15.8%, versus Asda which has a 15.3% share. Sales and market share also fell for Waitrose while German discounters continued to attract more punters. Aldi’s market share shot up by 0.9% – the biggest year-on-year gain by any retailer in almost four years – to 7.6% with sales up by 15.5%. Lidl’s market share also increased from 5.1% to 5.5% with sales up a very healthy 10.2%. * SO WHAT? * The German discounters are just killing it at the moment, and it seems that our incumbents are just watching customers slip through their fingers. The good news, from Sainsbury’s point of view, is that these figures strengthen their argument that the merger with Asda SHOULD go through given the changing grocery retailing landscape although Farmers give thumbs down to Sainsbury’s merger with Asda (The Times, Deirdre Hipwell) shows the flipside as suppliers are concerned that they are just going to get screwed over by the bigger

entity. The National Farmers Union has voiced its worries in a submission to the Companies and Markets Authority as part of the latter’s investigation of the proposed merger.

Uncertainty puts brakes on B&M’s sales (The Times, Deirdre Hipwell) highlights a slight bump in the road for the Liverpool-based discounter with sluggish UK sales but solid profits (profits were up by 33% in the six months to September) one month after expanding into the French market with the acquisition of the Babou chain for £80m. B&M plans to buy stores jettisoned in Sainsbury and Asda merger (Daily Telegraph, Ashley Armstrong) reflects the ambition of the company as it announced 58 store openings this year, which would take it to 630 versus chief exec Simon Arora’s ambition of having 950 across the UK. It sounds like he was taking the credit for the demise of Homebase and Toys R Us as increasingly price-conscious customers flocked to the discounters and said that the chain has already moved into some of their old shops. He is also looking to snap up outlets that will have to be sold off if the Sainsbury’s-Asda merger goes through. * SO WHAT? * This looks like a retailer that’s going places. With expansion into Germany in 2014 via the purchase of Jawoll, a £152m acquisition of Yorkshire-based budget chain Heron Foods, the Babou purchase in France and the potential opportunity of buying Sainsbury’s/Asda cast-offs at presumably close to fire-sale prices, B&M look well-positioned to make a massive step-up. However, all I would say is that many a UK retailer has failed badly when expanding abroad so although it sounds boring, I think they really should concentrate on getting the domestic offering spot-on otherwise they run the risk of spreading themselves too thinly.

Apple aims for India, WeWork gets a hand from Softie and Juul abandons social media…

Apple tries to take a bite out of blossoming Indian market (Daily Telegraph, Matthew Field) takes a look at the conundrum facing Apple as it tries to appeal to nation that will be more populous than China within four years whilst simultaneously maintaining its huge (in some cases, 64%) margins. After years of growth elsewhere, mature markets are showing signs of “peak smartphone” meaning that makers are having to seek out other markets to get that growth feeling again. In the UK, for instance, smartphones account for 87% of the market – with 50% of these being Apple, so you can see that there’s not a whole load of scope for upside. India, on the other hand, is a market where the number of smartphone users is expected to grow to 442m by 2022 but you can’t really justify selling an iPhone for $1,000 when the average per capita income is $2,000, which is why companies selling cheap-and-cheerful offerings, such as China’s Xiaomi and locals such as OnePlus, are cleaning up. * SO WHAT? * Apple’s pricing means that it can target only 1% of the potential smartphone market, but it needs to do something sooner rather than later to get a proper foothold as Counterpoint Research analyst Neil Shah pointed out that “If Apple continues to lose its grip on the Indian market it will be difficult to attract a smartphone user on their third or fourth Android phone”. Mind you, some observers suggest that Apple may not NEED to sell more iPhones as they have been supremely good at squeezing more revenues from their installed base via more services and apps. Although I get this, I don’t buy the argument fully – so Apple is going to have to find a way of cracking this potentially highly lucrative market whilst simultaneously protecting its brand. After all, if it made a cheaper iPhone for the local market it would have to make it impossible for those phones to work elsewhere otherwise there could be pandemonium as Indian phones haemorrhage from the country to be sold on black markets worldwide. I think that Apple has to move manufacturing over to India as a starter otherwise it’s just not going to be feasible IMHO. Conversely, if it manages to

do this successfully, it could maybe increase its margins by exporting from there to developed countries which could then effectively subsidise the Indian market.

WeWork raises $3bn from SoftBank as losses balloon (Financial Times, Judith Evans and Eric Platt) highlights a welcome cash injection by SoftBank into the flexible office provider as the latter’s losses skyrocket to $2bn per annum. SoftBank will hand over the cash next year in exchange for a warrant that will allow it to by new WeWork shares by the end of September 2019. WeWork’s vice-chairman Michael Gross shows no sign of slowing down when he said “Our view is that there is tremendous wind at our back – we are the only serious global player out there…our growth is actually accelerating as our product offering continues to go deeper and reach not just small-sized companies but Fortune 500 companies and everything in between”. * SO WHAT? * This all sounds very exciting but highly risky. The company is targeting opportunistic growth but I am of the opinion that this is brilliant right now but when the wheels fall off global growth and banks start calling in the loans companies like WeWork are going to be massively exposed to a potentially fatal double-whammy of falling real estate prices and higher numbers of tenants leaving (which they can do given the short term nature of the contracts) as they go under or seek cheaper premises. It’s all good now, but definitely worth monitoring.

Following on from what I have been saying earlier this week, Juul says it will quit social media (Wall Street Journal, Jennifer Maloney) is a further major concession for the e-cigarette company after allegations that it is encouraging underage e-cigarette use. It says that it is closing down its Facebook and Instagram accounts in the US and cutting down its use of other social media. * SO WHAT? * This is pretty big IMHO. Given that social media advertising – both direct and indirect – has been a huge influence on the product’s popularity amongst young’uns it does put into question where Juul’s future growth will come from. It seems that the company is very serious about curbing its activities as its CEO Kevin Burns said that “our intent was never to have youth use Juul…but intent is not enough, the numbers are what matter, and the numbers tell us underage use of e-cigarette products is a problem. We must solve it”. The drama continues.

And finally, in other news…

There certainly comes a time in your life where you wish that you could be transported back to those headier carefree days of youth. Well someone is waging a one-man battle on age in the courts in Man, 69, who identifies as 20 years younger begins legal battle to change age (SkyNews https://tinyurl.com/yamsflj8). I’m not confident of his chances, but wouldn’t it be funny if he won??