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Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm Pim Fox.

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Speaker 1: Along with my co host Lisa Abramowitz. Each day we

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Speaker 1: bring you the most important, noteworthy, and useful interviews for

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Speaker 1: you and your money, whether you're at the grocery store

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Speaker 1: or the trading floor. Find the Bloomberg p m L

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Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. Shares

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Speaker 1: of CBS they are down more than a six percent

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Speaker 1: after this ruling by the Delaware judge. A victory for

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Speaker 1: Shari Redstone, who happens to be a CBS director and

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Speaker 1: president of the of her family's movie theater operator, National Amusements.

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Speaker 1: Of course, they're pushing for a merger with CBS and

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Speaker 1: National Amusements controls viacom. Here to tell us more about

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Speaker 1: it all is Paul Sweeney, Director in North American Search

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Speaker 1: for Bloomberg Intelligence and Internet and media analyst for Bloomberg Intelligence.

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Speaker 1: Paul uh, Is this the conclusion do you believe of

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Speaker 1: Leslie Moonvest's career at CBS. Well, it certainly could be.

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Speaker 1: I think we still have probably six months of litigation

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Speaker 1: back and forth between the you know, like all the

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Speaker 1: parties here, but this was a big blow for less

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Speaker 1: uh and for the board that was trying to reassert

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Speaker 1: some level of UH influence and and versus its control

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Speaker 1: shareholder National Amusements here and and UH that initial uh

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Speaker 1: opportunity for them really took a big blow here. So, UM,

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Speaker 1: this is something that I think, you know, the next

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Speaker 1: the ball is in the court of Sherry Redstone and

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Speaker 1: National Amusements and what will they do with the board,

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Speaker 1: what will they do with management including less Um? And

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Speaker 1: I think with the stock down six percent kind of

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Speaker 1: tells you that investors think a deal is coming and

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Speaker 1: merger is going to happen, and it won't include less Moonves. Yeah.

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Speaker 1: So so basically shares down more than six percent on

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Speaker 1: the expectation that less Moonves will exit from the helm

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Speaker 1: of CBS, that Viacom and CBS will merge, with a

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Speaker 1: lot of shareholders of CBS don't want um just can

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Speaker 1: you bring back the memory of y CBS is so

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Speaker 1: y CBS showholders are against this merger at this point.

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Speaker 1: I think CBS shareholders view Viacom as a flawed asset. Um.

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Speaker 1: It's you know, it's a company that's been struggling. Um.

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Speaker 1: The cable networks are particularly prone to chord cutting because

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Speaker 1: the the MTV networks, the Nickelodeon networks and all those

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Speaker 1: they tend to uh you know, be targeting younger demos,

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Speaker 1: and the younger demos are spending a less and less

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Speaker 1: time with television Number one and number two. The film studio,

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Speaker 1: the paramount film studio has really been underperforming. So if

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Speaker 1: you're CBS shareholder, you say, g my, CBS Stories working

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Speaker 1: pretty well, the CBS networks doing well, the Showtime networks

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Speaker 1: doing well. Um, and I'm pretty happy with my CBS investment.

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Speaker 1: I don't want to uh see CBS buy Viacom because

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Speaker 1: I just don't think they're a great company, and I

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Speaker 1: think they're gonna be dilutive to my growth rate going forwards.

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Speaker 1: So I think most investors, and I think less Moon

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Speaker 1: of Us was saying, listen, if you're going to force

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Speaker 1: us to merge with Viacom, it has to be on

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Speaker 1: our terms at CBS. I E our financial terms. We

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Speaker 1: want to we don't want to delude our shareholders, and

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Speaker 1: more most importantly, it has to be on our management terms.

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Speaker 1: We want our management team to run the combined company.

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Speaker 1: And that management issue is really the stumbling block here. Paul,

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Speaker 1: maybe just outline what was CBS trying to do tactically. UM.

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Speaker 1: I think well, CBS was trying to invoke a part

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Speaker 1: of their by laws, which is very unique to their

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Speaker 1: by laws, which allows them to convene a special meeting

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Speaker 1: today of the board and to declare a one time

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Speaker 1: stock dividend which would dilute the ownership the voting ownership

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Speaker 1: of n A I from about eight percent down to

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Speaker 1: sevent effectively Nick negating the control that Sherry Redstone would have.

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Speaker 1: And that's what got blocked. You know, when you came

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Speaker 1: in here, you said that Sherry Redstoree and less Moonves

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Speaker 1: can never work together again, period the end. So even

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Speaker 1: if there's some kind of win on this appeal, uh,

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Speaker 1: you know, unless they actually can strip control from Sherry Redstone,

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Speaker 1: less moon Vous is out. I think so, I think

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Speaker 1: the I don't see a scenario here where, uh, this

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Speaker 1: management team at CBS, this board at CBS can ever

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Speaker 1: come back and work with Sherry Redstone and National Amusements.

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Speaker 1: I just think that, you know, the trust, the relationships

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Speaker 1: have probably been irrevocably broken here with these legal maneuvers.

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Speaker 1: So I'd like you to put on your psychology hat

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Speaker 1: because I know that you have one. And talk a

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Speaker 1: little bit about Sherry Redstone when she reads this result,

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Speaker 1: when she hears the court ruling, is she jubilant or

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Speaker 1: I mean it's sort of a tricky thing because she

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Speaker 1: also owned shares in CBS. Yeah, yeah, it's it's I

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Speaker 1: I think she is. I think she's um. She's probably

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Speaker 1: as a control shadow of both companies, is really playing

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Speaker 1: the long game here. And the long game for her

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Speaker 1: and for her family's interest into two companies is to

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Speaker 1: in her mind, to put the company together to be

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Speaker 1: a larger company with more global scale, more resources to

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Speaker 1: compete not just against the Comcast and the Disneys of

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Speaker 1: the world, but against the the Googles and the facebooks

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Speaker 1: and the Amazons and the Netflix. Is um and that

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Speaker 1: is that that is a theory that is prevalent in

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Speaker 1: the media world today. We're seeing lots of consolidation again,

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Speaker 1: most notably with Disney looking at twenty one century Fox,

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Speaker 1: Comcast circling around those same assets. Um so a T

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Speaker 1: and T, you know, trying to close its acquisition of

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Speaker 1: Time Warners. So her strategic rationale is absolutely consistent with

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Speaker 1: what's going on the marketplace. Uh, it's just simply that

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Speaker 1: the you know, one of the two parties in this case, CBS,

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Speaker 1: doesn't want to do the deal on her terms. Would

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Speaker 1: it be possible for CBS under Leslie Moonvest to initiate

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Speaker 1: a large acquisition, Uh no, because, um, you know, Sherry Redstone,

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Speaker 1: as again control shareholder, would not allow it. And that's

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Speaker 1: one of the reasons over the years, Uh, CBS hasn't

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Speaker 1: really done any large acquisitions because, um, you know, they'd

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Speaker 1: be a would have to get the approval of of

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Speaker 1: of National Amusement and Sherry Redstone, and I guess they

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Speaker 1: felt like that they never had that support. So, you know,

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Speaker 1: I think the the only bowl case scenario left for

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Speaker 1: CBS is that that they win their you know, legal

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Speaker 1: case against National Amusements, um, and they are left as

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Speaker 1: a standalone company with National Amusements maybe even diluted down,

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Speaker 1: in which case then the story becomes very interesting for

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Speaker 1: CBS shareholders because they can either uh you know, just

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Speaker 1: grow with the existing management team and let the management

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Speaker 1: team you know, kind of deal with it, or um,

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Speaker 1: you know, they become a acquisition candidate of their own.

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Speaker 1: But that assumes that they you know, kind of went

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Speaker 1: all on appeals going forward. Here, I'm wondering if you

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Speaker 1: could just extrapolate out into the future, and let's talk

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Speaker 1: about Sherry Redstone strategy. You're saying that she's betting on

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Speaker 1: a stronger combined company between Viacom and CBS. Viacom shares

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Speaker 1: up about one percent on this news. Is she right? Well? Um,

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Speaker 1: I don't. It remains to be seen the the assets here.

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Speaker 1: One could argue that even if you emerge CBS and

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Speaker 1: Viacom together, it's still not a great company. It's it's

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Speaker 1: not a Walt Disney, um. You know, and and and

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Speaker 1: you you take a look at some of the other

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Speaker 1: media moguls in the marketplace. Jeff Bukas at Time Warner,

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Speaker 1: Rupert Murdoch at twenty one Century Fox. They've effectively thrown

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Speaker 1: in the towel and agreed to sell their companies because

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Speaker 1: they recognize that, you know, going forward over the next

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Speaker 1: five to ten years, you know, how do I even

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Speaker 1: think about compete against Amazon and Google and Facebook and

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Speaker 1: Netflix and all these companies in the Apple um. So,

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Speaker 1: you could argue that even if you emerge these two companies,

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Speaker 1: you're still left at a competitive disadvantage, you know, kind

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Speaker 1: of going forward. And I do want to note it

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Speaker 1: was up one percent that shares of Viacom, but they

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Speaker 1: are now down about a half percent, so right, and

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Speaker 1: the shares of CBS, they're down about the six and

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Speaker 1: a half percent. Is there any likelihood just quickly, uh,

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Speaker 1: Paul less moon Best could have a second career. I

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Speaker 1: mean he's going to be a very attractive candidate for

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Speaker 1: any position, absolutely, and uh, he's gonna have a lot

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Speaker 1: of money in his pocket as well. So, um, you know,

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Speaker 1: we've we've seen that in the past. Um, you know,

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Speaker 1: Jeffrey Katkatzenberg has been able to raise some money to

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Speaker 1: kind of get into back into the business on the

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Speaker 1: digital side. What we're seeing here is, I think, you know,

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Speaker 1: we've seen a lot of media execs who have left

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Speaker 1: kind of the big conglomerates kind of go off on

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Speaker 1: their own and you know, kind of try to figure

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Speaker 1: out ways to make money in the digital side of

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Speaker 1: the media business. Paul Sweeney, we will be having you

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Speaker 1: back to discuss this more in depth, I'm sure as

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Speaker 1: it progresses. A really interesting and fascinating and frankly surprising decision.

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Speaker 1: Paul Sweeney, Director of North American Research for Bloomberg Intelligence.

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Speaker 1: The shares of oil refiners are surging today a delic

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Speaker 1: US holdings up more than five percent, CVR Refining a

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Speaker 1: gain of nearly four percent, Holly Frontier adding more than

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Speaker 1: five and a quarter percent. Here to tell us more

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Speaker 1: about the refining industry is Peter Polican. He is the

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Speaker 1: U S Energy analyst for Bloomberg Intelligence. He joins us

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Speaker 1: here in our and THREO studios. Peter, thank you very

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Speaker 1: much for being here. Maybe you could just start up

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Speaker 1: by explaining that US refining capacity is not necessarily aligned

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Speaker 1: with the kind of shale oil that exists in abundance

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Speaker 1: in the United States. Yeah, that's correct. I mean a

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Speaker 1: lot of people when they think about, um, the explosion

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Speaker 1: of shale and US independence, they don't realize that oil

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Speaker 1: by itself can't is not really terrible useful. It needs

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Speaker 1: to be refined. And the US refining complex, which is

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Speaker 1: the largest and biggest in the world, was built prior

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Speaker 1: to shale. So what that means is it was actually

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Speaker 1: built in a world to process a very different type

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Speaker 1: of crew to heavier type of crude than what shale is.

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Speaker 1: So now reaching the point where these refiners have tried

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Speaker 1: to benefit as much as they can from the onslaught

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Speaker 1: of shale, but it's reaching a maximization saturation point. So

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Speaker 1: now that crew that's the US is producing needs to

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Speaker 1: find a new home. So you're seeing the spread between

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Speaker 1: W A t I, which is domestic prices, and Brent,

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Speaker 1: which are global prices blow U and that's gonna be

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Speaker 1: persistent for some time. Who are the big refiners in

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Speaker 1: the US. So we have Delic, there's Valero, um Pete,

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Speaker 1: There's PBF, Philip sixty six. All these refiners in general

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Speaker 1: benefit because essentially they're gonna they're gonna capitalize on lower

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Speaker 1: input costs and higher output output costs for their prices

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Speaker 1: for their product. So is this a reason why we

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Speaker 1: haven't really seen the profit boom in many shell companies

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Speaker 1: that that some are expecting. I mean, most shell companies

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Speaker 1: are still spending more than they are taking in, that's right.

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Speaker 1: I mean overall price levels going up obviously helps all

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Speaker 1: these companies, but they do have a cash flow problem.

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Speaker 1: But oil prices at seventy dollars quite frankly cures a

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Speaker 1: lot of balance issues and debt issues that they're having.

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Speaker 1: Um But the issue going forward now for them is

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Speaker 1: domestic producers em p s will receive a lower price

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Speaker 1: and uh someone else globally, So that means is on

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Speaker 1: a relative basis, they're not winners, Peter. I'm looking at

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Speaker 1: the national average price as quoted by the triple A

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Speaker 1: and the price two dollars and nineties cents, although of course,

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Speaker 1: if you're in California or New York or any of

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Speaker 1: the host really uh, you're ending up paying U substantially

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Speaker 1: higher price in some cases California three dollars and seventy

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Speaker 1: cents for a gallon? Is the increase also going to

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Speaker 1: affect industries that use refined products other than gasoline, So

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Speaker 1: I'm thinking of the chemical industry. Well, I think all

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Speaker 1: these industries are governed by by different forces, So the

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Speaker 1: refiners are really going to benefits essentially. The way that

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Speaker 1: you think about it is, look, they produce a variety

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Speaker 1: of products that go into a lot of different industries,

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Speaker 1: like you mentioned, from petro chemicals to gasoline, and the

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Speaker 1: margins for those products are widening, which is called the

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Speaker 1: crack spread. So all the the real winner and all

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Speaker 1: this uh is going to be the refiners, and they'll

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Speaker 1: simply elevate the cost of their products to UH the

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Speaker 1: UH the end users which are the petro chemical companies

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Speaker 1: in an ultimately U S consumer. So has there been

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Speaker 1: any talk about building more refinery capacity here? There has

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Speaker 1: been talk of it. Xon is thinking about expanding their

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Speaker 1: their light old processing capacity UM. But the real the

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Speaker 1: reality is refiners are really expensive facilities and in order

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Speaker 1: for them to consider UH green field expansion, the economics

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Speaker 1: need to be better. So what they've done historically is

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Speaker 1: sale boomed, is that they've done added things onto their

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Speaker 1: facilities such as altinization units and other type things to

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Speaker 1: to be able to process more crude. But at some

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Speaker 1: point these are capital these are capital maximizing companies, and

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Speaker 1: you cannot maximize the profits of refiners by increasing the

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Speaker 1: increasing exponentially the amount of shille that they process. Peter,

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Speaker 1: Can they just export it? Well, this is a great

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Speaker 1: question in the subject of the next research report I'm

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Speaker 1: writing on. But now we've actually going to reach a

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Speaker 1: cap in in exports. So currently re export about two

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Speaker 1: point seven million barrels per day, and if you look

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Speaker 1: at the chart for exports, it looks like something exponential growth. Now,

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Speaker 1: the mistake the markets are making is that they're extrapolating

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Speaker 1: that this exponential growth and exports can continue. But that's

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Speaker 1: about to hit a bottle next. So refiners are maxed out.

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Speaker 1: Oil has nowhere to go in the continental US, and

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Speaker 1: there's a glut of it being produced. So that's spread

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Speaker 1: between w t I and Brent is going to stay

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Speaker 1: wide for a long time. And this suggests that the

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Speaker 1: price that people are going to pay at the pump

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Speaker 1: could potentially rise just proportionately in the US to the

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Speaker 1: rise in Brent. That that's right, meaning essentially gasoline is

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Speaker 1: priced off of Brent global prices. So when people talk

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Speaker 1: about discounted U S crudin the abundance of US shil,

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Speaker 1: why aren't we seeing it at the pumps. The reality

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Speaker 1: is refiners process local crude, but the gasoline market is

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Speaker 1: a global market and that's priced much higher. Wow, that

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Speaker 1: was really fantastic. I understand this a lot better. Peter

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Speaker 1: at Pulican, he is U S Energy analyst for Bloomberg Intelligence.

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Speaker 1: We will look out for that next report, We will

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Speaker 1: read it and we will highlight it. Definitely really interesting

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Speaker 1: dynamic right now, given the fact that the the oil prices

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Speaker 1: are climbing to their highest level in years, and this

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Speaker 1: should help those shild is, it should help the pump.

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Speaker 1: And yet and yet earnings for companies in the SMP

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Speaker 1: five hundred up about so far, and yet the stock

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Speaker 1: market doesn't seem to reflect that increase in profits. Here

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Speaker 1: to help us understand more, as Casey Matthews, he is

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Speaker 1: economist chief investment officer for you m B Bank based

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Speaker 1: in Kansas City, Missouri, helping to manage more than ten

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Speaker 1: billion dollars of customer assets. Casey, thank you very much

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Speaker 1: for being with us. So what accounts for what is

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Speaker 1: seems to be a divergence you look at as you

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Speaker 1: As you mentioned profits are up, but stocks, well, the

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Speaker 1: SMP five hundred is up two year today. Right. My

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Speaker 1: take is our economy in the markets are in a

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Speaker 1: state of transition. We came from this Goldilocks environment where

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Speaker 1: we had low interest rates, low inflation, synchronized global growth,

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Speaker 1: and a course stellar corporate earnings. It's interesting our research

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Speaker 1: department and I were sitting around talking about, well, what's

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Speaker 1: the opposite of Goldilocks? Some degree it might be the

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Speaker 1: big bad Wolf. So today our economy is transitioned from

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Speaker 1: a Goldilocks environment to an economy riddled with these big

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Speaker 1: bad wolves. Now we have rising interest rates, changing inflation expectations,

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Speaker 1: a question regarding synchronized global growth, peak earnings, trade wars.

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Speaker 1: So you can see, you have all these issues that

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Speaker 1: potentially could blow down economic activity, and that of course

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Speaker 1: disrupts the market, leads to volatility and a lot of uncertainty.

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Speaker 1: The big bad wolf. I think you just coined the

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Speaker 1: new phrase casey values. Are we experiencing the big bad wolf? Um?

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Speaker 1: Given the fact that we are transitioning to the other

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Speaker 1: part of the Goldilocks story, Um, I'm trying to figure

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Speaker 1: out what does this mean that you're moving a greater

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Speaker 1: proportion of your ten billion dollars of assets into cash

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Speaker 1: or what are you doing with this? You have a

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Speaker 1: good question. Not yet. I think clearly there are some

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Speaker 1: yellow flags out there in the economy and financial markets,

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Speaker 1: but doesn't appear that we have the red flags. And

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Speaker 1: when you look at a lot of market signals, many

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Speaker 1: times if you look at those signals mutually exclusively, it

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Speaker 1: will lead to a premature decision to de risk portfolios.

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Speaker 1: The perfect example is the slope of the yield curve.

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Speaker 1: Of course, the difference between the two and tenure treasuries

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Speaker 1: about fifty three basis points today and this indicator has

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Speaker 1: a perfect track record forecasting looming recessions. Um So once

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Speaker 1: the once the slope of that yold curve becomes flat

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Speaker 1: to inverted, there's the red flag you've got an oncoming recession.

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Speaker 1: But it's interesting still have twelve to eighteen months before

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Speaker 1: you see the recession once that you old curve becomes inverted.

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Speaker 1: So what we like to do is look for pairings

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Speaker 1: of signals, and we found is when you look at

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Speaker 1: the slope of the yield curve paired with the change

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Speaker 1: in high yield spreads, you get a better signal uh

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Speaker 1: to de risk portfolios. And it's not as premature as

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Speaker 1: just looking at one the slope of the yield curve.

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Speaker 1: So those are things that we're watching right now, and

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Speaker 1: right now you get a bit of a green light,

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Speaker 1: meaning it's not time to de risk portfolios just yet. Casey,

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Speaker 1: If someone has new money to deploy, what would you

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Speaker 1: suggest they do. Well, of course it depends on their

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Speaker 1: their objectives and their risk budget. Well, let's say that

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Speaker 1: they're they're willing to weigh three to five years. They

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Speaker 1: don't want to lose it, of course, but they're willing

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Speaker 1: that to under to undertake an investment that there isn't

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Speaker 1: going to show a month by month increase in value. Yeah,

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Speaker 1: I think to some degree it's it's it's the old

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Speaker 1: adage of a well diversified portfolio. I would put money

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Speaker 1: at risk today. Um, I am favorable in the stock

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Speaker 1: market or ass allocation models are overweight risk via the

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Speaker 1: stock market and to something that US stock market, emerging

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Speaker 1: stock market, developed Europe, where would it go. Yeah, we're

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Speaker 1: overweight domestic large cap stocks. Of course, they have a

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Speaker 1: healthy weight to mid caps and small caps, and then

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Speaker 1: do have an allocation to international and emerging markets, so

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Speaker 1: across the board we would get exposure. But to answer

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Speaker 1: your question, I think the play right now is domestic

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Speaker 1: large cap stocks. Alright, So Casey, one thing that I'm

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Speaker 1: wondering is it's one thing to say, look, I don't

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Speaker 1: see a recession on the horizon. Companies look like they're

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Speaker 1: in pretty good shape. It's another thing to say, look,

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Speaker 1: the relative valuation just doesn't look so hot anymore, and

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Speaker 1: you're certainly seeing that narrative continue to gain prominence. Is

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Speaker 1: the tenure treasury rises? Where are you on that at

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Speaker 1: what point will the tenure treasury start to look attractive

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Speaker 1: as an alternative to stocks. Oh, I think the yield

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Speaker 1: has some legs to go on. That meaning three tan

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Speaker 1: it's too early. I don't think investors are going to

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Speaker 1: switch from stocks to bonds just yet, especially looking at

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Speaker 1: a tenure treasury. Um. I think you have to get

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Speaker 1: that yield up to closer to four percent. It's interesting.

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Speaker 1: At the beginning of the year, our forecast for the

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Speaker 1: tenure treasury was three and a quarter percent, and a

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Speaker 1: lot of people thought, oh, you're you're going to miss

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Speaker 1: the mark there, And here we are at three point

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Speaker 1: one percent already, So I think we got some time.

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Speaker 1: I think the tipping point would be closer to four

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Speaker 1: rather than three. Kasey Matthews, thank you so much for

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Speaker 1: being with us, with us and giving us the Big

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Speaker 1: Bad Wolf theory of the world. Kasey Matthews is an

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Speaker 1: economist uh and chief investment officer at u m B,

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Speaker 1: a bank with ten billion dollars un management. M This

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Speaker 1: is the time in the show when we wring our

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Speaker 1: hands and wonder whither Walmart. We announced a pretty good

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Speaker 1: earnings report earlier today and shares were up and now

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Speaker 1: they're down more than a percent here to Wax. Wax

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Speaker 1: Retail with US is a Jennifer Gatasha's senior US food

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Speaker 1: retail and mass Merchants analyst for Bloomberg Intelligence. Jennifer, what

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Speaker 1: happened here? Why are people treating this as a negative report? Well,

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Speaker 1: you know, it really was a solid quarter for Walmart.

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Speaker 1: But I think the news that is out about in

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Speaker 1: the deal between Kroger and Ocado is that is just

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Speaker 1: reinforcing the idea that there's no clear winner in online

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Speaker 1: commerce for grocery, especially UM, and that it's going to

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Speaker 1: remain a very competitive landscape for the indeterminate future. Tell

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Speaker 1: people about the Kroger deal, So yeah, what what this

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Speaker 1: deal that Kroger and Occada have have have penned and

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Speaker 1: is really about installing highly efficient automated warehouses that do

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Speaker 1: picking of grocery online orders. UM assembles those orders very

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Speaker 1: quickly and then UM is able to you know, achieve

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Speaker 1: a lot of scale so that they can be delivered

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Speaker 1: to people's homes in a very economical manner. UM. The

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Speaker 1: biggest challenge with a with the home delivery for groceries

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Speaker 1: is that it's it's the least profitable business model that

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Speaker 1: companies can follow. So something that's highly efficient and highly

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Speaker 1: automated really helps solve some of that problem, you know, Jennifer,

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Speaker 1: I'm struck by the fact that Walmart reported earnings that

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Speaker 1: included fairly good online sales. They purchased flip cart, uh,

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Speaker 1: and they were penalized for it because people were saying,

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Speaker 1: you're going outside your wheelhouse. But they showed pretty good

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Speaker 1: growth internationally. Why are they getting punished if they do

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Speaker 1: and punished if they don't. Well, it's one of those

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Speaker 1: situations where you know, at this point, um, you know,

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Speaker 1: Walmart is just going to stick true to their to

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Speaker 1: their their plan for the year, which is really about

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Speaker 1: optimizing their portfolio, making the or experience as good as

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Speaker 1: it can um. And at this point it's very difficult

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Speaker 1: to determine exactly what would make everybody happy, if there

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Speaker 1: is even such a thing, um So, so really it's

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Speaker 1: about staying the course, um. And they do expect that

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Speaker 1: the online sales will be back up in around the

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Speaker 1: entire year for for growth and the growth figureine And

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Speaker 1: really that's the plan right now. Do we have any

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Speaker 1: information that this ocado technology as used by Kroger in

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Speaker 1: the United States because the Occado technology is in use

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Speaker 1: in the UK in their business, also in France with

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Speaker 1: the deal with the casino supermarket operator. Is there any

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Speaker 1: information that says it's going to work here in the

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Speaker 1: United States, Well, you know, depending it could be very

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Speaker 1: efficient in the United States in certain areas. UM. The

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Speaker 1: model really relies on having a good population density so

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Speaker 1: near our big urban centers UM, and it relies on

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Speaker 1: people in continuing to adopt online grocery. And that's something

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Speaker 1: that's still more nation in the US than it is

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Speaker 1: in Europe at this point, but it is continuing to

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Speaker 1: grow at a pretty rapid pace. So there's an expectation

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Speaker 1: that by the time these facilities are built in our

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Speaker 1: operational but there will be enough demand to sustain them.

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Speaker 1: One thing I'm struck by so Kroger shares are of

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Speaker 1: about two point six percent so far today after this

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Speaker 1: news was announced. What strikes me though, is when you

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Speaker 1: start battling on the food grounds. I think about Amazon

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Speaker 1: dot Com and how we were talking yesterday about the

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Speaker 1: fact that they're offering their Amazon Prime members discounts at

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Speaker 1: Whole Foods. I mean, isn't this an uphill, uphill battle

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Speaker 1: at this point and give him sort of the footprints

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Speaker 1: that Amazon has. Well, it's definitely a highly competitive environment, right,

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Speaker 1: But you know, you have to think about with Amazon,

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Speaker 1: they still haven't really mastered fresh food. Um. They've brought

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Speaker 1: some some expertise in that area when they got Whole Foods,

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Speaker 1: but again, Wholefords only has about four hundred and sixty

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00:23:55,960 --> 00:23:59,280
Speaker 1: stores across the United States. Um. Compare that to Kroger's

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00:23:59,280 --> 00:24:03,080
Speaker 1: over tea house. Right. So UM. So Amazon, you know,

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00:24:03,200 --> 00:24:06,720
Speaker 1: cannot ever be underestimated with their willingness to conquer a

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00:24:06,800 --> 00:24:10,680
Speaker 1: particular category, and grocery is clearly in their sites. UM.

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Speaker 1: But I don't think that there's a verdict yet that

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Speaker 1: they've actually been successful doing that. And they're already scouting

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00:24:16,200 --> 00:24:18,800
Speaker 1: sites in the United States for this new kind of

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00:24:18,840 --> 00:24:22,199
Speaker 1: automated warehouse, right they are, indeed, UM, And you know,

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00:24:22,240 --> 00:24:24,280
Speaker 1: I would expect that some of the initial sights will

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00:24:24,280 --> 00:24:27,760
Speaker 1: be in areas where Kroger already has very strong market share. UM.

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00:24:27,800 --> 00:24:31,800
Speaker 1: Certainly something that's close to their home hometown in Cincinnati, UM,

439
00:24:31,880 --> 00:24:36,280
Speaker 1: and perhaps somewhere like Los Angeles or Seattle area areas

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00:24:36,320 --> 00:24:39,760
Speaker 1: where they have um leading market share and a good

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00:24:39,840 --> 00:24:41,800
Speaker 1: number of stores in the area, so they have a

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00:24:41,880 --> 00:24:44,600
Speaker 1: large customer base they can draw from. One thing I'm

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Speaker 1: I'm wondering as we talk about the Accada deal is

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Speaker 1: how much this has to do with people picking up

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00:24:50,600 --> 00:24:54,560
Speaker 1: their groceries in crog locations versus and in packaging it

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00:24:54,640 --> 00:24:56,239
Speaker 1: for them ahead of time, or how much it has

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00:24:56,280 --> 00:24:58,600
Speaker 1: to do with actually delivering it to that because the

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00:24:58,680 --> 00:25:01,320
Speaker 1: last mild delivery is what everybody talks about, is being

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00:25:01,320 --> 00:25:04,520
Speaker 1: the most expensive and difficult to accomplish. Yes, uh, and

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00:25:04,800 --> 00:25:08,600
Speaker 1: that's absolutely accurate. And these these store, these these centers

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00:25:08,640 --> 00:25:11,360
Speaker 1: are really meant to to to be that last mad

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00:25:11,400 --> 00:25:14,680
Speaker 1: delivery to people's homes. Um. And what what will happen

453
00:25:14,760 --> 00:25:16,359
Speaker 1: is at some point quick and collect for you pick

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00:25:16,400 --> 00:25:19,280
Speaker 1: it up with the grocery stores is gaining popularity um.

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00:25:19,320 --> 00:25:21,520
Speaker 1: But when you're picking those groceries in the store, at

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00:25:21,560 --> 00:25:25,399
Speaker 1: some point that operation becomes interferes with other shoppers in

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00:25:25,440 --> 00:25:28,800
Speaker 1: the store. Um. And you know, if if the offering

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Speaker 1: continues to grow at the pace it has, UM, there

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Speaker 1: are locations where their demand will outstrip their ability to

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Speaker 1: fill offers in stores, and then those could be shifted

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Speaker 1: over to one of these automated centers, Jennifer, Soabys which

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Speaker 1: is based in Canada, the retailer, the grocery store. Really,

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00:25:46,280 --> 00:25:52,040
Speaker 1: they've also struck this deal with Okado for these automated warehouses.

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Speaker 1: Is there any indication that when this scales it will

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Speaker 1: be a competitive advantage and that maybe even Walmart look

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Speaker 1: to do the same thing well in in in Canada,

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Speaker 1: much like in the United States, SOBS has an exclusive

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00:26:06,280 --> 00:26:10,080
Speaker 1: arrangement with Vocado. UM. But one of the challenges that

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00:26:10,240 --> 00:26:12,240
Speaker 1: is that is there in the Canadian market is but

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00:26:12,680 --> 00:26:15,240
Speaker 1: um the initial location for these warehouses are in the

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Speaker 1: Greater Toronto area, and that is not Soby's home base. UM,

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Speaker 1: it's not where they have the majority of their stores. UM.

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Speaker 1: So it will be interesting to see as it unfolds

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Speaker 1: if they're able to acquire market share away from the

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Speaker 1: UM from blah blaw and from Metro, who are the

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Speaker 1: ones who have a greater share in that area. I

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Speaker 1: want to thank you very much for being with us.

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Speaker 1: Always a pleasure. Jennifer Bartash is senior US retail and

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Speaker 1: Staples and Restaurants analyst for Bloomberg Intelligence. Thanks for listening

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00:26:44,160 --> 00:26:47,080
Speaker 1: to the Bloomberg P and L podcast. You can subscribe

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00:26:47,080 --> 00:26:50,679
Speaker 1: and listen to interviews at Apple Podcasts, SoundCloud, or whatever

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00:26:50,720 --> 00:26:54,240
Speaker 1: podcast platform you prefer. I'm pim Fox. I'm on Twitter

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00:26:54,520 --> 00:26:58,040
Speaker 1: at pim Fox. I'm on Twitter at Lisa Abramo. It's

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00:26:58,080 --> 00:27:01,119
Speaker 1: one before the podcast. You can always catch us worldwide

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00:27:01,119 --> 00:27:02,080
Speaker 1: on Bloomberg Radio