WEBVTT - France Wouldn't Consume More U.S. Wine, Even With Zero Tariffs 0:00:05.800 --> 0:00:08.360 Welcome to the Bloomberg P and L Podcast. I'm Pim 0:00:08.440 --> 0:00:11.160 Fox along with my co host Lisa A. Brahmowitz. Each 0:00:11.280 --> 0:00:14.440 day we bring you the most important, noteworthy and useful 0:00:14.480 --> 0:00:17.079 interviews for you and your money, whether you're at the 0:00:17.120 --> 0:00:20.360 grocery store or the trading floor. Find the Bloomberg P 0:00:20.520 --> 0:00:27.760 and L Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. Well, 0:00:28.000 --> 0:00:31.400 wine has been the topic of a presidential tweet. It 0:00:31.480 --> 0:00:34.440 is also a topic of discussion among those who look 0:00:34.520 --> 0:00:39.280 for alternative investments. Tom Gearing is managing director and co 0:00:39.479 --> 0:00:42.760 founder of Cult Wines based in London, but he joins 0:00:42.840 --> 0:00:46.239 us here in our Bloomberg Interactor Broker Studios. Tom, thank 0:00:46.280 --> 0:00:49.680 you very much for being here. What is Cult Wines? 0:00:49.760 --> 0:00:53.480 What is your business? Psycholt Wines is a wine investment company, 0:00:53.520 --> 0:00:57.040 specifically so with different traditional merchant or a wine breaker 0:00:57.080 --> 0:00:59.360 on a wine auction house. All we all sets up 0:00:59.400 --> 0:01:02.360 completely to deal with private clients all over the world 0:01:02.480 --> 0:01:04.760 and to build up fine wine collections for the sole 0:01:04.800 --> 0:01:08.760 purpose of capital appreciations, so buying physical cases of wine, 0:01:08.800 --> 0:01:12.039 bottles of wine, storing those wines, ensuring them, managing them 0:01:12.040 --> 0:01:15.280 on behalf of the clients providing daily valuations for online 0:01:15.319 --> 0:01:18.360 platform and then reselling the wines and advising them throughout 0:01:18.400 --> 0:01:21.280 that life cycle for investment purposes. It is not to 0:01:21.280 --> 0:01:23.399 be drunk in the future. This is to be purchased 0:01:23.400 --> 0:01:26.319 and resold as a profit for our clients to benefit 0:01:26.360 --> 0:01:30.200 their over investment portfolio. Now I understand that you got 0:01:30.280 --> 0:01:33.120 involved in this in a big way before you could 0:01:33.200 --> 0:01:39.160 legally consume any wine. At the age of thirteen, you 0:01:39.680 --> 0:01:46.560 started a twelve bottle case of Domain Romani Romani CONTI right, 0:01:46.640 --> 0:01:52.720 this is a very worthwhile and prestigious wine. What did 0:01:52.760 --> 0:01:56.000 you discover about it? So? I was very fortunate when 0:01:56.000 --> 0:01:57.840 I was growing up. My father was actually an investment 0:01:57.840 --> 0:02:00.600 banking but it was a massive wine collective, very about wine, 0:02:00.600 --> 0:02:02.680 So I grew up around wine. I think the first 0:02:02.720 --> 0:02:04.360 time I even tasted wine was about eleven when I 0:02:04.440 --> 0:02:06.760 was taken to Burgundy with my father. UM. So he 0:02:06.840 --> 0:02:08.400 bought a lot of wine at auction. This is actually 0:02:08.400 --> 0:02:10.240 a really salient point in terms of what we do 0:02:10.280 --> 0:02:12.480 as a business. Um and he bought a case of 0:02:12.520 --> 0:02:16.440 the main Romny County Romani qunt original wooden casing. Now, 0:02:16.480 --> 0:02:18.840 if anyone knows a lot about wine, these particular bottles. 0:02:18.840 --> 0:02:20.680 They're producing very small quantity, but they come with almost 0:02:20.720 --> 0:02:23.440 like a serial number, So they have numbers on the front, 0:02:23.480 --> 0:02:26.200 which obviously detailed which bottle number it is. Um So 0:02:26.280 --> 0:02:28.240 if you're buying an original case of six bottles, if 0:02:28.280 --> 0:02:30.040 it had never been tampered with, never been open, it 0:02:30.080 --> 0:02:33.320 was the original six bottles, they should be the same 0:02:33.360 --> 0:02:36.200 consecutive numbers. So whatever they number, they are in a series, 0:02:36.240 --> 0:02:38.760 they should be consecutive. So one, two, three, four, five six. 0:02:39.000 --> 0:02:40.640 When we got the case home, I opened it up. 0:02:40.680 --> 0:02:43.680 We were inspecting the bottles, taking photos, condition checking the wines, 0:02:44.000 --> 0:02:46.160 and we found out that the bottom layer of the case, 0:02:46.200 --> 0:02:48.560 to the bottom six bottles, when we looked at it, 0:02:48.800 --> 0:02:52.720 the numbers were not consecutives. They were inconsequential. So what 0:02:52.840 --> 0:02:55.040 that means is at some point in time, someone had 0:02:55.040 --> 0:02:57.160 opened that case and replaced them. So immediately you think 0:02:57.200 --> 0:03:00.320 to yourself, are these wines Counterfeit is their potential some 0:03:00.360 --> 0:03:02.799 forgent activity going on, because there's no way that these 0:03:02.800 --> 0:03:04.840 wines shouldn't be in that order. And the reason I 0:03:04.880 --> 0:03:06.680 say that's a salient point for what we do now 0:03:06.720 --> 0:03:08.799 as a company is that we now manage over a 0:03:08.880 --> 0:03:11.320 hundred twenty million dollars of wine on behalf our clients 0:03:11.320 --> 0:03:13.960 and actually making sure that our clients are protected from 0:03:14.000 --> 0:03:18.720 any potential for forging activity counterfeit bottling is essential because 0:03:18.760 --> 0:03:20.880 if you're buying wine for the purpose of reselling to 0:03:20.960 --> 0:03:23.320 make a profit, you need to make sure that you're 0:03:23.360 --> 0:03:25.560 selling wines that are authentic. And this has been a 0:03:25.840 --> 0:03:27.560 big problem in the wine and she over the last 0:03:27.560 --> 0:03:29.800 ten to fifteen years. So that was obviously a very 0:03:29.919 --> 0:03:32.280 early experience in my in my career, and I wouldn't 0:03:32.280 --> 0:03:33.520 even say it was a career at that time. I 0:03:33.560 --> 0:03:35.680 was just thirteen years of age, but it really has 0:03:35.720 --> 0:03:37.320 stayed with me and it's something that we hold very 0:03:37.320 --> 0:03:40.600 dear to ourselves now being a professional wine investment company 0:03:40.680 --> 0:03:43.000 advising private clients all over the world. All right, now, 0:03:43.040 --> 0:03:45.680 I'm going to put you on the Twitter spot because 0:03:45.840 --> 0:03:50.720 earlier today President Donald Trump said, quote, France makes excellent wine, 0:03:50.720 --> 0:03:53.360 but so does the United States. The problem is that 0:03:53.440 --> 0:03:55.880 France makes it very hard for the US to sell 0:03:55.920 --> 0:03:59.560 its wines into France and charges big tariffs, whereas the 0:03:59.680 --> 0:04:03.960 US makes it easy for French wines and charges very 0:04:04.000 --> 0:04:08.960 small tariffs. Not fair. Must change is that accurate. Well, 0:04:09.080 --> 0:04:11.360 let's let's start the accuracy, because often there's not a 0:04:11.400 --> 0:04:12.920 lot of them with Donald Trump. So they actually are 0:04:12.960 --> 0:04:15.120 that French wine and US wines are excellent. So he's 0:04:15.120 --> 0:04:17.599 correct with that point. What he's inaccurate about is the 0:04:17.600 --> 0:04:20.279 fact that in France the domestic French mark, but the 0:04:20.320 --> 0:04:23.880 domestic market in France for consumption wine is almost entirely French. 0:04:24.360 --> 0:04:27.800 I mean, if you're Italian wine producer, Australian New Zealand, 0:04:27.800 --> 0:04:31.000 they sell very little wine in the domestic market. In fact, 0:04:31.120 --> 0:04:34.720 I travel extensively in France. When I'm in Bordeaux, trying 0:04:34.720 --> 0:04:37.640 to get someone in Bordeaux to drink of Burgundy is impossible. 0:04:37.839 --> 0:04:39.400 You know, if you go to Bordeaux, all the wine 0:04:39.400 --> 0:04:42.680 shops have a hundred percent Bordeaux. So in France it's 0:04:42.720 --> 0:04:44.599 difficult to people get to get people to drink outside 0:04:44.640 --> 0:04:47.320 their own region, let alone their own country. So the 0:04:47.480 --> 0:04:50.080 terrorists that he's talking about is absolute nonsense in my opinion. 0:04:50.160 --> 0:04:53.160 I mean having you know, if Californian wine had zero 0:04:53.240 --> 0:04:56.120 import taxes to ship to export into France, it would 0:04:56.160 --> 0:04:58.440 make zero difference to whether someone in France would buy 0:04:58.520 --> 0:05:01.400 and consume Californian lines. And also the other thing to 0:05:01.440 --> 0:05:02.920 imagine is, you know, you go to a lot of 0:05:02.960 --> 0:05:06.200 these rural agricultural areas of France and outside the more 0:05:06.279 --> 0:05:09.040 prestigious border Burgundy, but paces um, you know, in the 0:05:09.120 --> 0:05:11.680 land without province, whatever it might be, people can go 0:05:11.839 --> 0:05:14.760 to the local cooperative, the local cooperative and they can 0:05:14.839 --> 0:05:17.840 get a gallon of wine for like two euros. So 0:05:18.160 --> 0:05:20.280 those type of individuals are never going to suddenly start 0:05:20.320 --> 0:05:22.960 buying American wine just because there's no tariffs on it. 0:05:23.080 --> 0:05:25.360 So it's really an economies of scale. So for me, 0:05:25.520 --> 0:05:27.080 I would look at this tweet and say, it's put 0:05:27.120 --> 0:05:30.120 political posturing. You know, this is nothing more than obviously 0:05:30.279 --> 0:05:32.279 something that's come up between Trump and Macron, and he's 0:05:32.320 --> 0:05:34.360 using it as a way to you know, you know, 0:05:34.440 --> 0:05:36.960 negotiate or bargain with with the French president. But I 0:05:37.040 --> 0:05:39.720 think in the actual real economy of wine, it would 0:05:39.720 --> 0:05:42.040 make zero difference in my opinion. It also seems as 0:05:42.080 --> 0:05:44.599 though there are a lot of idiosyncrasies when it comes 0:05:44.680 --> 0:05:48.000 to the wine and alcohol trade because of course, in 0:05:48.040 --> 0:05:52.280 the United States you have state boundaries that limit what 0:05:52.560 --> 0:05:58.440 cannon cannot be sold and transported across state lines the 0:05:58.720 --> 0:06:01.279 when you gave the idea it all right in France, 0:06:01.960 --> 0:06:04.960 the domestic market is so domestic that it would be 0:06:05.080 --> 0:06:08.400 like an American saying I will not drink a wine 0:06:08.440 --> 0:06:11.039 that comes from the state of Oregon. I will only 0:06:11.120 --> 0:06:15.200 drink wine that comes from Nappa. Right. That's the kind 0:06:15.240 --> 0:06:18.440 of connection it is there, really is like that. Are 0:06:18.800 --> 0:06:22.200 there a preponderance of French wines when it comes to 0:06:22.320 --> 0:06:26.720 this cult wine business or is it's starting to expand 0:06:26.800 --> 0:06:30.920 to include American labels for example? Very very good question. 0:06:30.960 --> 0:06:32.880 If you're looking at the investment market for fine wine, 0:06:32.920 --> 0:06:34.479 you know, you're very You're talking about probably one percent 0:06:34.520 --> 0:06:37.400 of all wine produced would be categorized to say investment grade, 0:06:37.640 --> 0:06:40.279 and that markets worth about five billion dollars a year. Now, 0:06:40.320 --> 0:06:42.080 if you look at say our assets under management, our 0:06:42.120 --> 0:06:46.440 hundred twenty million dollars around it is in Bordeaux, about 0:06:47.440 --> 0:06:49.560 in Burgundy, so really France and then obvious you've got 0:06:49.600 --> 0:06:53.600 paces like Champagne, etcetera. So France is probably around of 0:06:53.640 --> 0:06:55.880 our total a u M. Outside of that we have 0:06:56.160 --> 0:07:00.920 US is our next biggest regional you know, breakdown within 0:07:00.960 --> 0:07:04.520 our portfolio Italian wines and then New World regions like Australia, 0:07:05.279 --> 0:07:08.440 New Zealand and and and even South America, but Californian 0:07:08.480 --> 0:07:11.160 wines in particular, some of the NAPPA producers have been 0:07:11.320 --> 0:07:14.040 excellent for investment purposes. You know, some of the top 0:07:14.160 --> 0:07:17.040 wines have made fantastic returns for clients over thinking of 0:07:17.160 --> 0:07:20.280 Screaming for example, absolutely, I mean Screaming. It was a 0:07:20.400 --> 0:07:22.640 very tough wine to to source and acquire. Obviously it's 0:07:22.680 --> 0:07:24.640 producing very small quanties. But you're right, you know, if 0:07:24.680 --> 0:07:26.320 you were on that waiting list and you get those 0:07:26.320 --> 0:07:28.720 wines allocated to you, you're almost guaranteed to make a 0:07:28.960 --> 0:07:31.240 profit if you resell those wines, because you're getting them 0:07:31.280 --> 0:07:33.880 as such a great price. There's such little quantity available 0:07:33.920 --> 0:07:36.120 that when you resell, you're almost guaranteed to make a 0:07:36.160 --> 0:07:38.160 good return. But if you're looking outside of that, you've 0:07:38.160 --> 0:07:40.880 got some up and coming producers. Obviously some more well 0:07:40.960 --> 0:07:43.160 known ones that opuswan Dominus that have done very well. 0:07:43.240 --> 0:07:45.240 So I think the Californian wine wine market from an 0:07:45.240 --> 0:07:48.080 investment perspective is is very strong and growing. Should I 0:07:48.360 --> 0:07:51.600 give you twenty seconds, Should I be concerned that I 0:07:51.760 --> 0:07:55.200 like screwed up bottles? Not? Not at all I mean, 0:07:55.280 --> 0:07:56.880 I think, I think in the next twenty years we 0:07:56.960 --> 0:07:58.720 might see a change in the industry. But it's just 0:07:58.840 --> 0:08:01.600 not enough scientific and back vintages of wines that are 0:08:01.640 --> 0:08:04.200 being produced in screwcaps and really show whether they all 0:08:04.560 --> 0:08:07.880 have any real differences to to to cool closures. Well done, 0:08:08.000 --> 0:08:10.880 Thanks very much for being with us. Tom Gearing, he 0:08:11.080 --> 0:08:15.120 is managing director co founder of Cult Wines. Cheers to 0:08:15.160 --> 0:08:21.880 you and many thanks for being here. A bucket of salt, 0:08:22.520 --> 0:08:25.840 A bucket of salt. Those are the words used by 0:08:25.880 --> 0:08:32.720 a witness to the EU negotiator Chief Brexit negotiator Michelle Barnyer. 0:08:33.080 --> 0:08:36.520 He was speaking to European ministers. One witness said that 0:08:36.840 --> 0:08:40.800 Barnyer said the parameters of a possible Brexit agreement are 0:08:41.000 --> 0:08:46.120 very largely defined, but the witness then said it was 0:08:46.200 --> 0:08:49.079 should all be taken with a bucket of salt. Well, 0:08:49.280 --> 0:08:52.479 maybe he's got his own bucket of salt. David Danny Blancheflower, 0:08:52.559 --> 0:08:57.360 Professor of Economics, Dartmouth College, Hanover, New Hampshire, can be 0:08:57.480 --> 0:09:02.000 followed on Twitter at d underscore blanch Flower joins us Now, 0:09:02.320 --> 0:09:06.120 Danny blanch Flower, how big is your bucket of salt? Well? 0:09:06.720 --> 0:09:12.000 A pinch of salt seems obviously seems an exaggeration. We're 0:09:12.080 --> 0:09:16.319 two years in when the UK government needs to get 0:09:16.480 --> 0:09:20.520 some kind of deal done, particularly before a European Council 0:09:20.640 --> 0:09:25.000 meeting of November twenty five. Um, and Brexit supposedly is 0:09:25.000 --> 0:09:28.480 going to happen March next year, certainly doesn't look like it. 0:09:28.600 --> 0:09:32.040 The bucket of salt suggests that, um, there's nowhere near 0:09:32.080 --> 0:09:33.680 to doing that. And you and I have talked about 0:09:33.679 --> 0:09:37.400 this several times. The Northern Ireland problem seems to be 0:09:38.000 --> 0:09:40.000 a large one. And I was in the UK last 0:09:40.040 --> 0:09:42.640 week and great fund was being made of a speech 0:09:43.000 --> 0:09:46.079 made by Dominick Rabb, the Brexit secretary, who appeared to 0:09:46.360 --> 0:09:50.840 have just realized that Britain was an island, which which 0:09:51.120 --> 0:09:54.280 which meant that trade deals and over the ports were 0:09:54.320 --> 0:09:57.280 really important. So I think we're a long way away 0:09:57.480 --> 0:10:01.520 from any kind of deal. May is in trouble, but 0:10:01.679 --> 0:10:03.600 it doesn't really look like within the party there are 0:10:03.640 --> 0:10:07.880 alternatives and outside the party. So this is buckets assault 0:10:07.960 --> 0:10:11.480 being rubbed in the wound. Um, and we're nowhere near 0:10:11.559 --> 0:10:14.120 a deal and maybe no deal at all is what 0:10:14.280 --> 0:10:17.480 will happen. Well done, Danny Blanche Flower. I like the 0:10:17.600 --> 0:10:21.360 connections there. I mean I think maybe Mr Rabs should 0:10:21.400 --> 0:10:25.080 probably Minister Rabs should probably read a little Wadsworth. Maybe 0:10:25.160 --> 0:10:29.840 that will help him understand the disposition of the United Kingdom. No, no, exactly, 0:10:29.880 --> 0:10:31.640 We're two years in and I mean literally it was 0:10:31.720 --> 0:10:34.360 all over the TV and the newspapers. He made a 0:10:34.440 --> 0:10:37.719 speech say he don'tly just really realize how important UM 0:10:37.840 --> 0:10:39.880 the port of Dover was and kind of having these 0:10:39.960 --> 0:10:43.959 deals done, and preparations are being made by the UK 0:10:44.160 --> 0:10:49.920 government for no deal, including stockpiling medicines and food, and 0:10:50.000 --> 0:10:52.719 there was even talk that the huge traffic jam which 0:10:52.800 --> 0:10:55.160 was likely to occur at Dover with lots of lorries, 0:10:55.200 --> 0:10:57.959 they would have to buy porter parties because a thirty 0:10:58.000 --> 0:11:01.000 mile jam would mean that, you know, some you have 0:11:01.120 --> 0:11:04.400 to deal with all eventuality. So this obviously looks disastrous. 0:11:04.480 --> 0:11:06.839 But what's interesting I was looking in the ft today 0:11:07.120 --> 0:11:11.040 it doesn't appear that UM polling has actually moved as 0:11:11.080 --> 0:11:14.600 far against the bricks that as you might think. It's 0:11:14.640 --> 0:11:16.840 still pretty close in the polls, and there's big talk 0:11:16.920 --> 0:11:20.199 about having a second referendum, and the reality is that 0:11:20.720 --> 0:11:23.040 the markets are sort of clear on this. The reality 0:11:23.120 --> 0:11:26.160 is it's not absolutely clear, Danny, Well, not to be 0:11:26.600 --> 0:11:30.400 two pros poetic about it. But you know King Richard 0:11:30.480 --> 0:11:34.920 the second Shakespeare Sceptred Aisle and all that. Are the 0:11:35.040 --> 0:11:38.480 British just going to model through or is there a 0:11:38.600 --> 0:11:40.880 real feeling and you were just there, Is there a 0:11:41.000 --> 0:11:44.720 real feeling that things are going to be very different 0:11:44.800 --> 0:11:49.439 a year from now? Well, I certainly think that, um, 0:11:51.000 --> 0:11:53.760 in some sense, people are as he rightly say that 0:11:54.160 --> 0:11:57.160 they're muddling through. But I talked to a number of people, 0:11:57.480 --> 0:12:00.160 including a variety of academics from Europe, who were very 0:12:00.520 --> 0:12:04.319 concerned that sort of racial attacks on them, the sense 0:12:04.400 --> 0:12:07.440 that foreigners shouldn't be there had risen, so that there 0:12:07.520 --> 0:12:10.440 was certainly a sense of that having conversations with people. 0:12:10.760 --> 0:12:13.719 But the Brits will eventually muddel through. But I think 0:12:14.200 --> 0:12:16.880 he is he was saying that in the past that's happened. 0:12:17.160 --> 0:12:19.959 They're just not clear where we are. But I think, 0:12:20.000 --> 0:12:24.240 honestly it's a lack of political alternatives. Um, No one's 0:12:24.280 --> 0:12:28.680 really told an alternative to trying to find some model 0:12:28.920 --> 0:12:33.520 through um outcome. I mean, I guess the classic would 0:12:33.559 --> 0:12:37.520 be whatever happens, declare victory, withdraw and pretty much go 0:12:37.720 --> 0:12:40.520 back to a to a situation pretty much like now, 0:12:41.000 --> 0:12:44.079 and and the basically the transition period will be a 0:12:44.120 --> 0:12:46.520 really long time and a new government that comes in 0:12:46.960 --> 0:12:49.199 can actually change all of that and go back to 0:12:49.240 --> 0:12:52.079 where we were. So I think buying time pushing you. 0:12:52.160 --> 0:12:54.480 And I've talked about the famous phrase kick the can 0:12:54.600 --> 0:12:57.160 down the road. Well, this is a giant canful assault 0:12:57.520 --> 0:12:59.520 and that's gonna kept pushed down the road. So I 0:12:59.600 --> 0:13:01.960 think I've think people are muddeling through, but there are 0:13:02.040 --> 0:13:06.360 great concerns that things have changed, and particularly that I 0:13:06.440 --> 0:13:09.160 mean in the UK that the views about foreigners of 0:13:09.320 --> 0:13:11.559 something that you know, are you Polish, that kind of 0:13:11.600 --> 0:13:13.920 stuff has changed a bit. All right, well, let's move 0:13:14.000 --> 0:13:17.240 from salted beef to pasta because I want to get 0:13:17.280 --> 0:13:20.920 your thoughts about what's going on in it's the International 0:13:21.040 --> 0:13:24.920 Monetary Fund coming out and warning that Italy's plan to 0:13:25.080 --> 0:13:29.920 increase spending carries quote substantial risks and would leave the 0:13:30.080 --> 0:13:36.080 country vulnerable to market turmoil. Well there's an understatement, right, well, 0:13:36.240 --> 0:13:39.559 and the European Commission has said this, but in a 0:13:39.640 --> 0:13:44.320 sense this is hardly surprising. You see the move to populism, 0:13:44.760 --> 0:13:50.040 you see the move of these political parties against against them. Um, 0:13:50.480 --> 0:13:54.000 mosterity that hang on, Danny. But I mean there's there's populism, 0:13:54.120 --> 0:13:57.560 and then there's just then inability to do simple math. 0:13:58.679 --> 0:14:00.839 No I agree with that, of course, the inability to 0:14:00.920 --> 0:14:03.160 do simple math. But that I mean, in some sense 0:14:03.240 --> 0:14:05.960 that's what's exactly been true in the Brexit conversation we've 0:14:06.040 --> 0:14:09.679 just had. Um, simple math is kind of what's got 0:14:09.760 --> 0:14:11.959 us here in the first place. I'm not suggesting I 0:14:12.000 --> 0:14:13.599 agree with it, but I think you're completely right. I 0:14:13.760 --> 0:14:16.840 think it's a surprise. Um. So now you have these 0:14:16.920 --> 0:14:19.280 parties like Five Star who got elected on we're going 0:14:19.360 --> 0:14:21.680 to help the workers and so on. So they're going 0:14:21.720 --> 0:14:24.800 to start to push for this, and obviously the I 0:14:25.000 --> 0:14:26.840 m F and the Youth Commission and others are going 0:14:26.880 --> 0:14:29.960 to push back. But in a sense, these groups have 0:14:30.040 --> 0:14:33.280 a point, which is that austerity has had a really 0:14:33.400 --> 0:14:35.680 large impact on people. And you might think that that 0:14:35.840 --> 0:14:38.480 explains a lot of the populism. But you're right, simple 0:14:38.600 --> 0:14:41.120 math and facts don't seem to be the order of 0:14:41.160 --> 0:14:43.160 the day around the world right now, and that's where 0:14:43.200 --> 0:14:45.640 we are, all right, So I'm going to untether you 0:14:45.840 --> 0:14:49.600 from simple math and facts give us your worst case 0:14:49.680 --> 0:14:52.880 scenario for what happens to Italy. Give you about half 0:14:52.920 --> 0:14:58.320 a minute. Well, I mean, obviously the talk talk about UM, 0:14:58.760 --> 0:15:01.640 not just Brexit, but I I text it is obviously 0:15:01.680 --> 0:15:04.000 going to be on the table and we're going to 0:15:04.040 --> 0:15:06.720 see a major confrontation. I mean, PYM, let's go back, 0:15:06.760 --> 0:15:10.040 these are double these Italy has double digit unemployment still 0:15:10.640 --> 0:15:13.000 UM and so there's going to be a battle, a 0:15:13.080 --> 0:15:15.720 battle between the Commission, the i m F and others 0:15:15.920 --> 0:15:18.080 to try and helpful and it's probably going to be 0:15:18.160 --> 0:15:20.760 a major battle in the worry would be that we 0:15:20.840 --> 0:15:23.360 won't just be talking about Brexit, will be talking down 0:15:23.400 --> 0:15:27.280 the road about Italy staying enough enough, not least because 0:15:27.720 --> 0:15:30.920 what is the EU done essentially for those at the 0:15:30.960 --> 0:15:33.280 bottom end in Italy. Same argument was made with them 0:15:33.360 --> 0:15:35.240 in France with the election. So I think it's going 0:15:35.280 --> 0:15:37.040 to be a mess. The ability to keep a government 0:15:37.080 --> 0:15:39.280 in place as a mess um and this is going 0:15:39.320 --> 0:15:41.560 to have a great more term all in the markets 0:15:42.120 --> 0:15:45.560 because people are hurting. It sounds like a messy recipe, 0:15:45.880 --> 0:15:49.720 Thank you very much. Danny blanch Flower, Professor of Economics, 0:15:50.040 --> 0:15:54.400 Dartmouth College, Hanover, New Hampshire, follow him on Twitter. As 0:15:54.440 --> 0:15:58.760 we all do a d underscore blanch flower. You're listening 0:15:58.840 --> 0:16:07.920 to Bloomberg Market. I'm pim fox all natural ingredients, getting 0:16:08.040 --> 0:16:13.760 rid of artificial colors, of flavors and preservatives, not for humans, 0:16:14.200 --> 0:16:17.960 but for dogs, cats and your other pets. Here to 0:16:18.000 --> 0:16:20.840 tell us more more about the change in the world 0:16:21.120 --> 0:16:24.800 of pet nutrition and pet health and all things having 0:16:24.840 --> 0:16:27.560 to do with pets is Ron Coglin. He is the 0:16:27.640 --> 0:16:31.800 chief executive of Petco and they are based in San Diego. 0:16:31.960 --> 0:16:35.480 He joins us here in our Bloomberg Interact or Broker's studios. Ron, 0:16:35.600 --> 0:16:39.000 thank you very much for being here. Appreciated. Give people 0:16:39.160 --> 0:16:42.240 just the overview first of all of the pet and 0:16:42.400 --> 0:16:46.040 the pet business and then we'll get into natural ingredients. 0:16:46.280 --> 0:16:49.400 Sounds good. Great to be here. So the pet business 0:16:49.480 --> 0:16:51.800 is a wonderful business. I've been the CEO at Petco 0:16:51.920 --> 0:16:54.920 now for five months and the thing that is most 0:16:55.000 --> 0:16:58.240 impressive is just the love that pet owners have for 0:16:58.480 --> 0:17:02.160 their pets. As a business, this it's a rapidly growing business, 0:17:02.240 --> 0:17:06.840 growing six percent across and food business is a billion 0:17:06.880 --> 0:17:09.920 dollar business, so it is a big business. I was 0:17:09.960 --> 0:17:11.880 going to say, the love that they have for their 0:17:11.920 --> 0:17:15.959 pets and the bottomless pocket of money that they spend. 0:17:16.600 --> 0:17:19.320 Some of that's of course going to be spent on food. 0:17:19.480 --> 0:17:24.400 And you've taken a particular position at pet Co. Tell 0:17:24.480 --> 0:17:27.680 us what you decided to do that's right. So one 0:17:27.720 --> 0:17:29.840 of the things that's clear is pet owners want to 0:17:29.880 --> 0:17:32.400 do the right thing for their pets, and that includes 0:17:32.520 --> 0:17:34.560 feeding them the right food and a pet go For 0:17:34.680 --> 0:17:37.040 fifty years, we've sought to do the right thing for 0:17:37.160 --> 0:17:40.520 pet parents and pet the pets that they love. So 0:17:40.640 --> 0:17:44.880 we decided to take a stand against artificial flavors, artificial colors, 0:17:45.160 --> 0:17:48.840 and artificial preservatives, and will we announcing that will be 0:17:48.920 --> 0:17:53.280 eliminating products that have those ingredients starting in two thousand 0:17:53.359 --> 0:17:59.400 and nineteen, things like ethanol, things like sulfur dioxide, things 0:17:59.480 --> 0:18:04.120 like high H. I can't even I can't even pronounce 0:18:04.200 --> 0:18:08.000 half these chemicals that UH ethanol, F D n C, 0:18:08.320 --> 0:18:11.760 yellow glycerol. We don't think that they belong in our pets. 0:18:11.800 --> 0:18:15.040 So we're eliminating them and we're the first company, major 0:18:15.080 --> 0:18:18.040 pet food company that will eliminate them. Okay, when you 0:18:18.119 --> 0:18:21.640 mentioned pet food company, that's got me thinking that there's 0:18:21.680 --> 0:18:24.720 a whole supply chain out there that either has to 0:18:24.880 --> 0:18:27.040 adapt or they're not going to get into the Pet 0:18:27.160 --> 0:18:30.320 Coast store. Tell us what the reaction has been and 0:18:30.440 --> 0:18:33.400 how that might change your mix of vendors. So there's 0:18:33.400 --> 0:18:37.280 really a continuum of three different types of pet food companies. 0:18:37.880 --> 0:18:41.159 Um one is those that are already all natural, and 0:18:41.240 --> 0:18:43.879 we sell a lot of products from companies like Merrick 0:18:43.960 --> 0:18:46.920 companies like Taste of the Wild as an example. Then 0:18:46.960 --> 0:18:49.159 there are others who said, great idea, we're going to 0:18:49.280 --> 0:18:53.280 reformulate or we're gonna launch natural versions of our line 0:18:53.600 --> 0:18:55.480 and we're gonna work really hard to make sure that 0:18:55.600 --> 0:18:58.200 that's successful. Then there are others that say, you know what, 0:18:58.359 --> 0:19:01.280 we're not going to make the changes with the artificial ingredients, 0:19:01.720 --> 0:19:04.200 and those uh, those companies won't be on our shelves 0:19:04.200 --> 0:19:05.879 anymore because we don't think they're doing the right thing 0:19:05.960 --> 0:19:09.200 for our customers. What about the brands that are attached 0:19:09.359 --> 0:19:13.439 to various types of pet food and we were talking 0:19:13.560 --> 0:19:16.600 just before you came on. You know, many people remember 0:19:16.680 --> 0:19:20.439 pet food as outpo, that was all there was. Are 0:19:20.560 --> 0:19:26.840 those brands catching up to this preservative artificial free food 0:19:27.280 --> 0:19:31.080 or are they sort of slow walking the change? Some 0:19:31.240 --> 0:19:33.800 of them are far behind like the ones that you mentioned. 0:19:34.040 --> 0:19:37.080 Others are making the change and will actually have their 0:19:37.160 --> 0:19:40.560 natural lines in our stores when we start in January, 0:19:41.119 --> 0:19:45.360 and then others are far ahead on already organic foods, 0:19:45.560 --> 0:19:49.840 on natural foods and lacking artificials. What about the price 0:19:50.000 --> 0:19:53.960 point of these kinds of foods, Are they higher? Yeah, 0:19:54.200 --> 0:19:58.440 that's a that's a misnomer that people think because you're 0:19:58.440 --> 0:20:02.200 going eliminating artific show that necessary things are much more expensive. 0:20:02.600 --> 0:20:05.520 We pride ourselves and having an array of price points, 0:20:05.760 --> 0:20:08.960 so we'll have foods without artificials, and the opening price points, 0:20:09.160 --> 0:20:12.480 will have a product like our wholehearted own brand that 0:20:12.760 --> 0:20:15.000 is uh that doesn't have those artificials in the mid 0:20:15.080 --> 0:20:18.240 price points, and then we'll have you know, wonderful high 0:20:18.359 --> 0:20:20.440 end products like the merricks in the Taste of the 0:20:20.480 --> 0:20:23.480 Wilds or candidates that I mentioned earlier. Now, of course, 0:20:23.600 --> 0:20:28.280 pet Co much more than just pet food. You've got operations, grooming, 0:20:28.560 --> 0:20:30.720 I've got training, You've got a variety of things. You 0:20:30.800 --> 0:20:34.080 also have partnerships with non pet Co outlets, for example 0:20:34.119 --> 0:20:37.639 in Canada, I believe we sell products through a third party. 0:20:37.880 --> 0:20:40.360 That's right. So the future of PETC, the new pet 0:20:40.440 --> 0:20:43.400 Co as you will, is about it being a nutrition 0:20:43.480 --> 0:20:47.760 powerhouse but also being a services powerhouse. Our groomers do 0:20:47.880 --> 0:20:50.880 a wonderful job. I visited over a hundred grooming salons 0:20:50.880 --> 0:20:53.199 in my first five months. And the passion that they 0:20:53.280 --> 0:20:55.080 have for the pets. Sometimes I wonder where they like 0:20:55.200 --> 0:20:57.840 the pets more than they like human beings. If you 0:20:58.000 --> 0:21:02.200 if you ever wonder, Actually it's obvious most of the time. 0:21:02.880 --> 0:21:04.280 If you have a new pet, you want to come 0:21:04.320 --> 0:21:06.760 to a pet go to get them trained, And increasingly, 0:21:07.160 --> 0:21:09.119 if you want vet services, you can come to a 0:21:09.200 --> 0:21:11.680 petc and that's something will be scaling out. So the 0:21:11.760 --> 0:21:15.359 whole idea is a nutrition powerhouse and his services powers 0:21:16.040 --> 0:21:17.280 and at the end of the day, we want to 0:21:17.320 --> 0:21:20.080 be the pet parents partner. I'm making sure we're taking 0:21:20.119 --> 0:21:22.160 great care of those pets. Did you have to learn 0:21:22.240 --> 0:21:25.480 a whole new vocabulary? I mean, because your previous role 0:21:26.359 --> 0:21:31.240 was at Hewlett Packard, UH and PepsiCo. Do you have 0:21:31.320 --> 0:21:34.040 to learn a whole new group of you know, vocabulary 0:21:34.080 --> 0:21:36.720 in order to talk about pets and their owners? The 0:21:36.800 --> 0:21:39.240 first step was opening up your heart. People have a 0:21:39.320 --> 0:21:41.320