Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm Pim Fox.
Speaker 1: Along with my co host Lisa Abramowitz. Each day we
Speaker 1: bring you the most important, noteworthy, and useful interviews for
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Speaker 1: or the trading floor. Find the Bloomberg p m L
Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. Shares
Speaker 1: of CBS they are down more than a six percent
Speaker 1: after this ruling by the Delaware judge. A victory for
Speaker 1: Shari Redstone, who happens to be a CBS director and
Speaker 1: president of the of her family's movie theater operator, National Amusements.
Speaker 1: Of course, they're pushing for a merger with CBS and
Speaker 1: National Amusements controls viacom. Here to tell us more about
Speaker 1: it all is Paul Sweeney, Director in North American Search
Speaker 1: for Bloomberg Intelligence and Internet and media analyst for Bloomberg Intelligence.
Speaker 1: Paul uh, Is this the conclusion do you believe of
Speaker 1: Leslie Moonvest's career at CBS. Well, it certainly could be.
Speaker 1: I think we still have probably six months of litigation
Speaker 1: back and forth between the you know, like all the
Speaker 1: parties here, but this was a big blow for less
Speaker 1: uh and for the board that was trying to reassert
Speaker 1: some level of UH influence and and versus its control
Speaker 1: shareholder National Amusements here and and UH that initial uh
Speaker 1: opportunity for them really took a big blow here. So, UM,
Speaker 1: this is something that I think, you know, the next
Speaker 1: the ball is in the court of Sherry Redstone and
Speaker 1: National Amusements and what will they do with the board,
Speaker 1: what will they do with management including less Um? And
Speaker 1: I think with the stock down six percent kind of
Speaker 1: tells you that investors think a deal is coming and
Speaker 1: merger is going to happen, and it won't include less Moonves. Yeah.
Speaker 1: So so basically shares down more than six percent on
Speaker 1: the expectation that less Moonves will exit from the helm
Speaker 1: of CBS, that Viacom and CBS will merge, with a
Speaker 1: lot of shareholders of CBS don't want um just can
Speaker 1: you bring back the memory of y CBS is so
Speaker 1: y CBS showholders are against this merger at this point.
Speaker 1: I think CBS shareholders view Viacom as a flawed asset. Um.
Speaker 1: It's you know, it's a company that's been struggling. Um.
Speaker 1: The cable networks are particularly prone to chord cutting because
Speaker 1: the the MTV networks, the Nickelodeon networks and all those
Speaker 1: they tend to uh you know, be targeting younger demos,
Speaker 1: and the younger demos are spending a less and less
Speaker 1: time with television Number one and number two. The film studio,
Speaker 1: the paramount film studio has really been underperforming. So if
Speaker 1: you're CBS shareholder, you say, g my, CBS Stories working
Speaker 1: pretty well, the CBS networks doing well, the Showtime networks
Speaker 1: doing well. Um, and I'm pretty happy with my CBS investment.
Speaker 1: I don't want to uh see CBS buy Viacom because
Speaker 1: I just don't think they're a great company, and I
Speaker 1: think they're gonna be dilutive to my growth rate going forwards.
Speaker 1: So I think most investors, and I think less Moon
Speaker 1: of Us was saying, listen, if you're going to force
Speaker 1: us to merge with Viacom, it has to be on
Speaker 1: our terms at CBS. I E our financial terms. We
Speaker 1: want to we don't want to delude our shareholders, and
Speaker 1: more most importantly, it has to be on our management terms.
Speaker 1: We want our management team to run the combined company.
Speaker 1: And that management issue is really the stumbling block here. Paul,
Speaker 1: maybe just outline what was CBS trying to do tactically. UM.
Speaker 1: I think well, CBS was trying to invoke a part
Speaker 1: of their by laws, which is very unique to their
Speaker 1: by laws, which allows them to convene a special meeting
Speaker 1: today of the board and to declare a one time
Speaker 1: stock dividend which would dilute the ownership the voting ownership
Speaker 1: of n A I from about eight percent down to
Speaker 1: sevent effectively Nick negating the control that Sherry Redstone would have.
Speaker 1: And that's what got blocked. You know, when you came
Speaker 1: in here, you said that Sherry Redstoree and less Moonves
Speaker 1: can never work together again, period the end. So even
Speaker 1: if there's some kind of win on this appeal, uh,
Speaker 1: you know, unless they actually can strip control from Sherry Redstone,
Speaker 1: less moon Vous is out. I think so, I think
Speaker 1: the I don't see a scenario here where, uh, this
Speaker 1: management team at CBS, this board at CBS can ever
Speaker 1: come back and work with Sherry Redstone and National Amusements.
Speaker 1: I just think that, you know, the trust, the relationships
Speaker 1: have probably been irrevocably broken here with these legal maneuvers.
Speaker 1: So I'd like you to put on your psychology hat
Speaker 1: because I know that you have one. And talk a
Speaker 1: little bit about Sherry Redstone when she reads this result,
Speaker 1: when she hears the court ruling, is she jubilant or
Speaker 1: I mean it's sort of a tricky thing because she
Speaker 1: also owned shares in CBS. Yeah, yeah, it's it's I
Speaker 1: I think she is. I think she's um. She's probably
Speaker 1: as a control shadow of both companies, is really playing
Speaker 1: the long game here. And the long game for her
Speaker 1: and for her family's interest into two companies is to
Speaker 1: in her mind, to put the company together to be
Speaker 1: a larger company with more global scale, more resources to
Speaker 1: compete not just against the Comcast and the Disneys of
Speaker 1: the world, but against the the Googles and the facebooks
Speaker 1: and the Amazons and the Netflix. Is um and that
Speaker 1: is that that is a theory that is prevalent in
Speaker 1: the media world today. We're seeing lots of consolidation again,
Speaker 1: most notably with Disney looking at twenty one century Fox,
Speaker 1: Comcast circling around those same assets. Um so a T
Speaker 1: and T, you know, trying to close its acquisition of
Speaker 1: Time Warners. So her strategic rationale is absolutely consistent with
Speaker 1: what's going on the marketplace. Uh, it's just simply that
Speaker 1: the you know, one of the two parties in this case, CBS,
Speaker 1: doesn't want to do the deal on her terms. Would
Speaker 1: it be possible for CBS under Leslie Moonvest to initiate
Speaker 1: a large acquisition, Uh no, because, um, you know, Sherry Redstone,
Speaker 1: as again control shareholder, would not allow it. And that's
Speaker 1: one of the reasons over the years, Uh, CBS hasn't
Speaker 1: really done any large acquisitions because, um, you know, they'd
Speaker 1: be a would have to get the approval of of
Speaker 1: of National Amusement and Sherry Redstone, and I guess they
Speaker 1: felt like that they never had that support. So, you know,
Speaker 1: I think the the only bowl case scenario left for
Speaker 1: CBS is that that they win their you know, legal
Speaker 1: case against National Amusements, um, and they are left as
Speaker 1: a standalone company with National Amusements maybe even diluted down,
Speaker 1: in which case then the story becomes very interesting for
Speaker 1: CBS shareholders because they can either uh you know, just
Speaker 1: grow with the existing management team and let the management
Speaker 1: team you know, kind of deal with it, or um,
Speaker 1: you know, they become a acquisition candidate of their own.
Speaker 1: But that assumes that they you know, kind of went
Speaker 1: all on appeals going forward. Here, I'm wondering if you
Speaker 1: could just extrapolate out into the future, and let's talk
Speaker 1: about Sherry Redstone strategy. You're saying that she's betting on
Speaker 1: a stronger combined company between Viacom and CBS. Viacom shares
Speaker 1: up about one percent on this news. Is she right? Well? Um,
Speaker 1: I don't. It remains to be seen the the assets here.
Speaker 1: One could argue that even if you emerge CBS and
Speaker 1: Viacom together, it's still not a great company. It's it's
Speaker 1: not a Walt Disney, um. You know, and and and
Speaker 1: you you take a look at some of the other
Speaker 1: media moguls in the marketplace. Jeff Bukas at Time Warner,
Speaker 1: Rupert Murdoch at twenty one Century Fox. They've effectively thrown
Speaker 1: in the towel and agreed to sell their companies because
Speaker 1: they recognize that, you know, going forward over the next
Speaker 1: five to ten years, you know, how do I even
Speaker 1: think about compete against Amazon and Google and Facebook and
Speaker 1: Netflix and all these companies in the Apple um. So,
Speaker 1: you could argue that even if you emerge these two companies,
Speaker 1: you're still left at a competitive disadvantage, you know, kind
Speaker 1: of going forward. And I do want to note it
Speaker 1: was up one percent that shares of Viacom, but they
Speaker 1: are now down about a half percent, so right, and
Speaker 1: the shares of CBS, they're down about the six and
Speaker 1: a half percent. Is there any likelihood just quickly, uh,
Speaker 1: Paul less moon Best could have a second career. I
Speaker 1: mean he's going to be a very attractive candidate for
Speaker 1: any position, absolutely, and uh, he's gonna have a lot
Speaker 1: of money in his pocket as well. So, um, you know,
Speaker 1: we've we've seen that in the past. Um, you know,
Speaker 1: Jeffrey Katkatzenberg has been able to raise some money to
Speaker 1: kind of get into back into the business on the
Speaker 1: digital side. What we're seeing here is, I think, you know,
Speaker 1: we've seen a lot of media execs who have left
Speaker 1: kind of the big conglomerates kind of go off on
Speaker 1: their own and you know, kind of try to figure
Speaker 1: out ways to make money in the digital side of
Speaker 1: the media business. Paul Sweeney, we will be having you
Speaker 1: back to discuss this more in depth, I'm sure as
Speaker 1: it progresses. A really interesting and fascinating and frankly surprising decision.
Speaker 1: Paul Sweeney, Director of North American Research for Bloomberg Intelligence.
Speaker 1: The shares of oil refiners are surging today a delic
Speaker 1: US holdings up more than five percent, CVR Refining a
Speaker 1: gain of nearly four percent, Holly Frontier adding more than
Speaker 1: five and a quarter percent. Here to tell us more
Speaker 1: about the refining industry is Peter Polican. He is the
Speaker 1: U S Energy analyst for Bloomberg Intelligence. He joins us
Speaker 1: here in our and THREO studios. Peter, thank you very
Speaker 1: much for being here. Maybe you could just start up
Speaker 1: by explaining that US refining capacity is not necessarily aligned
Speaker 1: with the kind of shale oil that exists in abundance
Speaker 1: in the United States. Yeah, that's correct. I mean a
Speaker 1: lot of people when they think about, um, the explosion
Speaker 1: of shale and US independence, they don't realize that oil
Speaker 1: by itself can't is not really terrible useful. It needs
Speaker 1: to be refined. And the US refining complex, which is
Speaker 1: the largest and biggest in the world, was built prior
Speaker 1: to shale. So what that means is it was actually
Speaker 1: built in a world to process a very different type
Speaker 1: of crew to heavier type of crude than what shale is.
Speaker 1: So now reaching the point where these refiners have tried
Speaker 1: to benefit as much as they can from the onslaught
Speaker 1: of shale, but it's reaching a maximization saturation point. So
Speaker 1: now that crew that's the US is producing needs to
Speaker 1: find a new home. So you're seeing the spread between
Speaker 1: W A t I, which is domestic prices, and Brent,
Speaker 1: which are global prices blow U and that's gonna be
Speaker 1: persistent for some time. Who are the big refiners in
Speaker 1: the US. So we have Delic, there's Valero, um Pete,
Speaker 1: There's PBF, Philip sixty six. All these refiners in general
Speaker 1: benefit because essentially they're gonna they're gonna capitalize on lower
Speaker 1: input costs and higher output output costs for their prices
Speaker 1: for their product. So is this a reason why we
Speaker 1: haven't really seen the profit boom in many shell companies
Speaker 1: that that some are expecting. I mean, most shell companies
Speaker 1: are still spending more than they are taking in, that's right.
Speaker 1: I mean overall price levels going up obviously helps all
Speaker 1: these companies, but they do have a cash flow problem.
Speaker 1: But oil prices at seventy dollars quite frankly cures a
Speaker 1: lot of balance issues and debt issues that they're having.
Speaker 1: Um But the issue going forward now for them is
Speaker 1: domestic producers em p s will receive a lower price
Speaker 1: and uh someone else globally, So that means is on
Speaker 1: a relative basis, they're not winners, Peter. I'm looking at
Speaker 1: the national average price as quoted by the triple A
Speaker 1: and the price two dollars and nineties cents, although of course,
Speaker 1: if you're in California or New York or any of
Speaker 1: the host really uh, you're ending up paying U substantially
Speaker 1: higher price in some cases California three dollars and seventy
Speaker 1: cents for a gallon? Is the increase also going to
Speaker 1: affect industries that use refined products other than gasoline, So
Speaker 1: I'm thinking of the chemical industry. Well, I think all
Speaker 1: these industries are governed by by different forces, So the
Speaker 1: refiners are really going to benefits essentially. The way that
Speaker 1: you think about it is, look, they produce a variety
Speaker 1: of products that go into a lot of different industries,
Speaker 1: like you mentioned, from petro chemicals to gasoline, and the
Speaker 1: margins for those products are widening, which is called the
Speaker 1: crack spread. So all the the real winner and all
Speaker 1: this uh is going to be the refiners, and they'll
Speaker 1: simply elevate the cost of their products to UH the
Speaker 1: UH the end users which are the petro chemical companies
Speaker 1: in an ultimately U S consumer. So has there been
Speaker 1: any talk about building more refinery capacity here? There has
Speaker 1: been talk of it. Xon is thinking about expanding their
Speaker 1: their light old processing capacity UM. But the real the
Speaker 1: reality is refiners are really expensive facilities and in order
Speaker 1: for them to consider UH green field expansion, the economics
Speaker 1: need to be better. So what they've done historically is
Speaker 1: sale boomed, is that they've done added things onto their
Speaker 1: facilities such as altinization units and other type things to
Speaker 1: to be able to process more crude. But at some
Speaker 1: point these are capital these are capital maximizing companies, and
Speaker 1: you cannot maximize the profits of refiners by increasing the
Speaker 1: increasing exponentially the amount of shille that they process. Peter,
Speaker 1: Can they just export it? Well, this is a great
Speaker 1: question in the subject of the next research report I'm
Speaker 1: writing on. But now we've actually going to reach a
Speaker 1: cap in in exports. So currently re export about two
Speaker 1: point seven million barrels per day, and if you look
Speaker 1: at the chart for exports, it looks like something exponential growth. Now,
Speaker 1: the mistake the markets are making is that they're extrapolating
Speaker 1: that this exponential growth and exports can continue. But that's
Speaker 1: about to hit a bottle next. So refiners are maxed out.
Speaker 1: Oil has nowhere to go in the continental US, and
Speaker 1: there's a glut of it being produced. So that's spread
Speaker 1: between w t I and Brent is going to stay
Speaker 1: wide for a long time. And this suggests that the
Speaker 1: price that people are going to pay at the pump
Speaker 1: could potentially rise just proportionately in the US to the
Speaker 1: rise in Brent. That that's right, meaning essentially gasoline is
Speaker 1: priced off of Brent global prices. So when people talk
Speaker 1: about discounted U S crudin the abundance of US shil,
Speaker 1: why aren't we seeing it at the pumps. The reality
Speaker 1: is refiners process local crude, but the gasoline market is
Speaker 1: a global market and that's priced much higher. Wow, that
Speaker 1: was really fantastic. I understand this a lot better. Peter
Speaker 1: at Pulican, he is U S Energy analyst for Bloomberg Intelligence.
Speaker 1: We will look out for that next report, We will
Speaker 1: read it and we will highlight it. Definitely really interesting
Speaker 1: dynamic right now, given the fact that the the oil prices
Speaker 1: are climbing to their highest level in years, and this
Speaker 1: should help those shild is, it should help the pump.
Speaker 1: And yet and yet earnings for companies in the SMP
Speaker 1: five hundred up about so far, and yet the stock
Speaker 1: market doesn't seem to reflect that increase in profits. Here
Speaker 1: to help us understand more, as Casey Matthews, he is
Speaker 1: economist chief investment officer for you m B Bank based
Speaker 1: in Kansas City, Missouri, helping to manage more than ten
Speaker 1: billion dollars of customer assets. Casey, thank you very much
Speaker 1: for being with us. So what accounts for what is
Speaker 1: seems to be a divergence you look at as you
Speaker 1: As you mentioned profits are up, but stocks, well, the
Speaker 1: SMP five hundred is up two year today. Right. My
Speaker 1: take is our economy in the markets are in a
Speaker 1: state of transition. We came from this Goldilocks environment where
Speaker 1: we had low interest rates, low inflation, synchronized global growth,
Speaker 1: and a course stellar corporate earnings. It's interesting our research
Speaker 1: department and I were sitting around talking about, well, what's
Speaker 1: the opposite of Goldilocks? Some degree it might be the
Speaker 1: big bad Wolf. So today our economy is transitioned from
Speaker 1: a Goldilocks environment to an economy riddled with these big
Speaker 1: bad wolves. Now we have rising interest rates, changing inflation expectations,
Speaker 1: a question regarding synchronized global growth, peak earnings, trade wars.
Speaker 1: So you can see, you have all these issues that
Speaker 1: potentially could blow down economic activity, and that of course
Speaker 1: disrupts the market, leads to volatility and a lot of uncertainty.
Speaker 1: The big bad wolf. I think you just coined the
Speaker 1: new phrase casey values. Are we experiencing the big bad wolf? Um?
Speaker 1: Given the fact that we are transitioning to the other
Speaker 1: part of the Goldilocks story, Um, I'm trying to figure
Speaker 1: out what does this mean that you're moving a greater
Speaker 1: proportion of your ten billion dollars of assets into cash
Speaker 1: or what are you doing with this? You have a
Speaker 1: good question. Not yet. I think clearly there are some
Speaker 1: yellow flags out there in the economy and financial markets,
Speaker 1: but doesn't appear that we have the red flags. And
Speaker 1: when you look at a lot of market signals, many
Speaker 1: times if you look at those signals mutually exclusively, it
Speaker 1: will lead to a premature decision to de risk portfolios.
Speaker 1: The perfect example is the slope of the yield curve.
Speaker 1: Of course, the difference between the two and tenure treasuries
Speaker 1: about fifty three basis points today and this indicator has
Speaker 1: a perfect track record forecasting looming recessions. Um So once
Speaker 1: the once the slope of that yold curve becomes flat
Speaker 1: to inverted, there's the red flag you've got an oncoming recession.
Speaker 1: But it's interesting still have twelve to eighteen months before
Speaker 1: you see the recession once that you old curve becomes inverted.
Speaker 1: So what we like to do is look for pairings
Speaker 1: of signals, and we found is when you look at
Speaker 1: the slope of the yield curve paired with the change
Speaker 1: in high yield spreads, you get a better signal uh
Speaker 1: to de risk portfolios. And it's not as premature as
Speaker 1: just looking at one the slope of the yield curve.
Speaker 1: So those are things that we're watching right now, and
Speaker 1: right now you get a bit of a green light,
Speaker 1: meaning it's not time to de risk portfolios just yet. Casey,
Speaker 1: If someone has new money to deploy, what would you
Speaker 1: suggest they do. Well, of course it depends on their
Speaker 1: their objectives and their risk budget. Well, let's say that
Speaker 1: they're they're willing to weigh three to five years. They
Speaker 1: don't want to lose it, of course, but they're willing
Speaker 1: that to under to undertake an investment that there isn't
Speaker 1: going to show a month by month increase in value. Yeah,
Speaker 1: I think to some degree it's it's it's the old
Speaker 1: adage of a well diversified portfolio. I would put money
Speaker 1: at risk today. Um, I am favorable in the stock
Speaker 1: market or ass allocation models are overweight risk via the
Speaker 1: stock market and to something that US stock market, emerging
Speaker 1: stock market, developed Europe, where would it go. Yeah, we're
Speaker 1: overweight domestic large cap stocks. Of course, they have a
Speaker 1: healthy weight to mid caps and small caps, and then
Speaker 1: do have an allocation to international and emerging markets, so
Speaker 1: across the board we would get exposure. But to answer
Speaker 1: your question, I think the play right now is domestic
Speaker 1: large cap stocks. Alright, So Casey, one thing that I'm
Speaker 1: wondering is it's one thing to say, look, I don't
Speaker 1: see a recession on the horizon. Companies look like they're
Speaker 1: in pretty good shape. It's another thing to say, look,
Speaker 1: the relative valuation just doesn't look so hot anymore, and
Speaker 1: you're certainly seeing that narrative continue to gain prominence. Is
Speaker 1: the tenure treasury rises? Where are you on that at
Speaker 1: what point will the tenure treasury start to look attractive
Speaker 1: as an alternative to stocks. Oh, I think the yield
Speaker 1: has some legs to go on. That meaning three tan
Speaker 1: it's too early. I don't think investors are going to
Speaker 1: switch from stocks to bonds just yet, especially looking at
Speaker 1: a tenure treasury. Um. I think you have to get
Speaker 1: that yield up to closer to four percent. It's interesting.
Speaker 1: At the beginning of the year, our forecast for the
Speaker 1: tenure treasury was three and a quarter percent, and a
Speaker 1: lot of people thought, oh, you're you're going to miss
Speaker 1: the mark there, And here we are at three point
Speaker 1: one percent already, So I think we got some time.
Speaker 1: I think the tipping point would be closer to four
Speaker 1: rather than three. Kasey Matthews, thank you so much for
Speaker 1: being with us, with us and giving us the Big
Speaker 1: Bad Wolf theory of the world. Kasey Matthews is an
Speaker 1: economist uh and chief investment officer at u m B,
Speaker 1: a bank with ten billion dollars un management. M This
Speaker 1: is the time in the show when we wring our
Speaker 1: hands and wonder whither Walmart. We announced a pretty good
Speaker 1: earnings report earlier today and shares were up and now
Speaker 1: they're down more than a percent here to Wax. Wax
Speaker 1: Retail with US is a Jennifer Gatasha's senior US food
Speaker 1: retail and mass Merchants analyst for Bloomberg Intelligence. Jennifer, what
Speaker 1: happened here? Why are people treating this as a negative report? Well,
Speaker 1: you know, it really was a solid quarter for Walmart.
Speaker 1: But I think the news that is out about in
Speaker 1: the deal between Kroger and Ocado is that is just
Speaker 1: reinforcing the idea that there's no clear winner in online
Speaker 1: commerce for grocery, especially UM, and that it's going to
Speaker 1: remain a very competitive landscape for the indeterminate future. Tell
Speaker 1: people about the Kroger deal, So yeah, what what this
Speaker 1: deal that Kroger and Occada have have have penned and
Speaker 1: is really about installing highly efficient automated warehouses that do
Speaker 1: picking of grocery online orders. UM assembles those orders very
Speaker 1: quickly and then UM is able to you know, achieve
Speaker 1: a lot of scale so that they can be delivered
Speaker 1: to people's homes in a very economical manner. UM. The
Speaker 1: biggest challenge with a with the home delivery for groceries
Speaker 1: is that it's it's the least profitable business model that
Speaker 1: companies can follow. So something that's highly efficient and highly
Speaker 1: automated really helps solve some of that problem, you know, Jennifer,
Speaker 1: I'm struck by the fact that Walmart reported earnings that
Speaker 1: included fairly good online sales. They purchased flip cart, uh,
Speaker 1: and they were penalized for it because people were saying,
Speaker 1: you're going outside your wheelhouse. But they showed pretty good
Speaker 1: growth internationally. Why are they getting punished if they do
Speaker 1: and punished if they don't. Well, it's one of those
Speaker 1: situations where you know, at this point, um, you know,
Speaker 1: Walmart is just going to stick true to their to
Speaker 1: their their plan for the year, which is really about
Speaker 1: optimizing their portfolio, making the or experience as good as
Speaker 1: it can um. And at this point it's very difficult
Speaker 1: to determine exactly what would make everybody happy, if there
Speaker 1: is even such a thing, um So, so really it's
Speaker 1: about staying the course, um. And they do expect that
Speaker 1: the online sales will be back up in around the
Speaker 1: entire year for for growth and the growth figureine And
Speaker 1: really that's the plan right now. Do we have any
Speaker 1: information that this ocado technology as used by Kroger in
Speaker 1: the United States because the Occado technology is in use
Speaker 1: in the UK in their business, also in France with
Speaker 1: the deal with the casino supermarket operator. Is there any
Speaker 1: information that says it's going to work here in the
Speaker 1: United States, Well, you know, depending it could be very
Speaker 1: efficient in the United States in certain areas. UM. The
Speaker 1: model really relies on having a good population density so
Speaker 1: near our big urban centers UM, and it relies on
Speaker 1: people in continuing to adopt online grocery. And that's something
Speaker 1: that's still more nation in the US than it is
Speaker 1: in Europe at this point, but it is continuing to
Speaker 1: grow at a pretty rapid pace. So there's an expectation
Speaker 1: that by the time these facilities are built in our
Speaker 1: operational but there will be enough demand to sustain them.
Speaker 1: One thing I'm struck by so Kroger shares are of
Speaker 1: about two point six percent so far today after this
Speaker 1: news was announced. What strikes me though, is when you
Speaker 1: start battling on the food grounds. I think about Amazon
Speaker 1: dot Com and how we were talking yesterday about the
Speaker 1: fact that they're offering their Amazon Prime members discounts at
Speaker 1: Whole Foods. I mean, isn't this an uphill, uphill battle
Speaker 1: at this point and give him sort of the footprints
Speaker 1: that Amazon has. Well, it's definitely a highly competitive environment, right,
Speaker 1: But you know, you have to think about with Amazon,
Speaker 1: they still haven't really mastered fresh food. Um. They've brought
Speaker 1: some some expertise in that area when they got Whole Foods,
Speaker 1: but again, Wholefords only has about four hundred and sixty
Speaker 1: stores across the United States. Um. Compare that to Kroger's
Speaker 1: over tea house. Right. So UM. So Amazon, you know,
Speaker 1: cannot ever be underestimated with their willingness to conquer a
Speaker 1: particular category, and grocery is clearly in their sites. UM.
Speaker 1: But I don't think that there's a verdict yet that
Speaker 1: they've actually been successful doing that. And they're already scouting
Speaker 1: sites in the United States for this new kind of
Speaker 1: automated warehouse, right they are, indeed, UM, And you know,
Speaker 1: I would expect that some of the initial sights will
Speaker 1: be in areas where Kroger already has very strong market share. UM.
Speaker 1: Certainly something that's close to their home hometown in Cincinnati, UM,
Speaker 1: and perhaps somewhere like Los Angeles or Seattle area areas
Speaker 1: where they have um leading market share and a good
Speaker 1: number of stores in the area, so they have a
Speaker 1: large customer base they can draw from. One thing I'm
Speaker 1: I'm wondering as we talk about the Accada deal is
Speaker 1: how much this has to do with people picking up
Speaker 1: their groceries in crog locations versus and in packaging it
Speaker 1: for them ahead of time, or how much it has
Speaker 1: to do with actually delivering it to that because the
Speaker 1: last mild delivery is what everybody talks about, is being
Speaker 1: the most expensive and difficult to accomplish. Yes, uh, and
Speaker 1: that's absolutely accurate. And these these store, these these centers
Speaker 1: are really meant to to to be that last mad
Speaker 1: delivery to people's homes. Um. And what what will happen
Speaker 1: is at some point quick and collect for you pick
Speaker 1: it up with the grocery stores is gaining popularity um.
Speaker 1: But when you're picking those groceries in the store, at
Speaker 1: some point that operation becomes interferes with other shoppers in
Speaker 1: the store. Um. And you know, if if the offering
Speaker 1: continues to grow at the pace it has, UM, there
Speaker 1: are locations where their demand will outstrip their ability to
Speaker 1: fill offers in stores, and then those could be shifted
Speaker 1: over to one of these automated centers, Jennifer, Soabys which
Speaker 1: is based in Canada, the retailer, the grocery store. Really,
Speaker 1: they've also struck this deal with Okado for these automated warehouses.
Speaker 1: Is there any indication that when this scales it will
Speaker 1: be a competitive advantage and that maybe even Walmart look
Speaker 1: to do the same thing well in in in Canada,
Speaker 1: much like in the United States, SOBS has an exclusive
Speaker 1: arrangement with Vocado. UM. But one of the challenges that
Speaker 1: is that is there in the Canadian market is but
Speaker 1: um the initial location for these warehouses are in the
Speaker 1: Greater Toronto area, and that is not Soby's home base. UM,
Speaker 1: it's not where they have the majority of their stores. UM.
Speaker 1: So it will be interesting to see as it unfolds
Speaker 1: if they're able to acquire market share away from the
Speaker 1: UM from blah blaw and from Metro, who are the
Speaker 1: ones who have a greater share in that area. I
Speaker 1: want to thank you very much for being with us.
Speaker 1: Always a pleasure. Jennifer Bartash is senior US retail and
Speaker 1: Staples and Restaurants analyst for Bloomberg Intelligence. Thanks for listening
Speaker 1: to the Bloomberg P and L podcast. You can subscribe
Speaker 1: and listen to interviews at Apple Podcasts, SoundCloud, or whatever
Speaker 1: podcast platform you prefer. I'm pim Fox. I'm on Twitter
Speaker 1: at pim Fox. I'm on Twitter at Lisa Abramo. It's
Speaker 1: one before the podcast. You can always catch us worldwide
Speaker 1: on Bloomberg Radio