Speaker 1: Bloomberg Audio Studios, Podcasts, radio news. This is Bloomberg Business
Speaker 1: Week Insight from the reporters and editors that bring you
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Speaker 1: tech news. The Bloomberg Business Week Podcast with Carol Masser
Speaker 1: and Tim Stenebeck on Bloomberg Radio.
Speaker 2: All right, we want to shift gears because one of
Speaker 2: the things that has been.
Speaker 3: You said, shift gears so helpful. I like that. We're
Speaker 3: gonna explain why that makes sense.
Speaker 2: So helpful is touching base with CEOs around the globe
Speaker 2: with everything that's going on. At Lastian, it's the more
Speaker 2: than eighty billion dollar market cap enterprise software company behind
Speaker 2: a Gyra, Confluence, Trello, and more. The company is more
Speaker 2: than three hundred thousand customers around the World's got a
Speaker 2: great view when it comes to tech spending among businesses
Speaker 2: both big and small. Company was founded co founded by
Speaker 2: Mike cannon Brooks. He's also CEO the billionaire Invested Renewable Energy.
Speaker 2: He also works to combat climate change, and he's joining
Speaker 2: us right now to talk about a lot of what
Speaker 2: is going on, as well as some news that he
Speaker 2: had this week in the world of f one Racing Mike.
Speaker 2: First of all, forgive there's a lot coming at us
Speaker 2: right now, but we are so grateful to have you.
Speaker 2: We want to get to the F one news, but
Speaker 2: we also want to ask you about the macro environment.
Speaker 2: How do you kind of figure out what to focus
Speaker 2: on what not when things are coming certainly geopolitically, we
Speaker 2: are talking a lot about tariffs and a terra for essentially,
Speaker 2: how do you take it all in and how do
Speaker 2: you assess today's business environment globally?
Speaker 4: Sure, guys, thank you, thank you very much for having me.
Speaker 5: Look, there's no doubt it's a busy world at the
Speaker 5: moment and there's a lot going on. My strategy has
Speaker 5: been almost ridiculously simple most of the time, which is
Speaker 5: just to work out what the business needs. Normally, the
Speaker 5: best way you can figure out what we should spend
Speaker 5: our time on in a given day is to look
Speaker 5: at your customers and go talk to them right any
Speaker 5: and that doesn't mean it's simple. They are facing lots
Speaker 5: of different global effects in parts of the world, and
Speaker 5: so you know, we if we work out how we
Speaker 5: can help them, that usually is our simplest way to
Speaker 5: gain some focus in an otherwise highly confusing world when there's.
Speaker 4: A lot going on.
Speaker 3: To what extent, though, do you have to increase your
Speaker 3: value to them because their margins get squeezed as the
Speaker 3: result of tariffs, as the result of a potential trade war.
Speaker 3: What do you have to do to prove to them
Speaker 3: that you're worth spending money on.
Speaker 6: Sure?
Speaker 5: Look at last Even's products are all about collaboration and
Speaker 5: efficiency for companies, right we help teams of people.
Speaker 4: Our mission is to unleash the potential of every.
Speaker 5: Team, has been for decades, and our job is to
Speaker 5: make sure that we explain to customers how our software
Speaker 5: can do that and have those customers adopt the software.
Speaker 4: Whether they're running project, whether they're looking at their strategic.
Speaker 5: Plans, whether they're building technology, whatever it is that they're doing.
Speaker 5: We help them make their technology teams work better with
Speaker 5: their business teams. And we have always been an incredibly
Speaker 5: value conscious offering. You get an incredible amount of value
Speaker 5: from Elastin for a very low price, and that helps
Speaker 5: in tricky economic times. But fundamentally we have to justify
Speaker 5: with the customers and have them demonstrate to themselves ideally
Speaker 5: the value of our software and how it makes them
Speaker 5: more efficient to work together. And that's where I think
Speaker 5: we've kept a pretty clear north star for a long time.
Speaker 5: And why we have, you know, three hundred thousand customers
Speaker 5: and it's still growing strongly at the size we are today.
Speaker 3: Well those three hundred customers, three hundred thousand customers, excuse me,
Speaker 3: all over the world when you hear updates from your
Speaker 3: global sales sporce, are you hearing from then about any
Speaker 3: particular concern in different regions of the world that could
Speaker 3: be affected by tariffs, that are seeing weakness for other reasons.
Speaker 3: What's the read that you have on the globe from
Speaker 3: your sales for us.
Speaker 4: Look, there's always challenges in different parts of the world.
Speaker 4: This is not new.
Speaker 5: I think in any given small slice of time, we
Speaker 5: see that we have very global companies, we have very
Speaker 5: local companies in that three hundred thousand. Our customer base
Speaker 5: has always spanned small businesses through to very very large businesses,
Speaker 5: some of the largest companies in the world. In fact,
Speaker 5: we have like eighty five percent of the Fortune five
Speaker 5: hundred as customers. You have a lot of issues going
Speaker 5: on for a lot of different companies. Our job is
Speaker 5: to make those companies more efficient. They still have to
Speaker 5: deal with those issues. They have to run projects and
Speaker 5: collaborate and communicate with each other. We help them do that.
Speaker 5: We always have, and so whatever issues they're dealing with,
Speaker 5: whether it's an issue of growth, whether it's an issue
Speaker 5: with Vitariff or a challenge Atlatians try to help their
Speaker 5: teams deal with that issue more efficiently.
Speaker 4: If we can't demonstrate their value, we're not going to
Speaker 4: be around.
Speaker 5: So again, just sticking to that north Star has been
Speaker 5: a very simple principle for a long time.
Speaker 4: Vote.
Speaker 2: So, Mike, no, you're not seeing any signs of any
Speaker 2: kind of slow down or pullback by some of your
Speaker 2: customers as they kind of wait for the dust to settle.
Speaker 2: I mean, we certainly feel like we're in it, you know,
Speaker 2: as we have kicked off a new administration here and
Speaker 2: every day are dissecting different headlines that come out of
Speaker 2: the White House. But you know, there's geopolitical turbulence, as
Speaker 2: you well know, around the world, and I think there's
Speaker 2: you know, dust that needs to settle in different places.
Speaker 2: So is there any signs of any hesitation that you're
Speaker 2: seeing among customers or not yet?
Speaker 4: Look round one of you.
Speaker 5: We continue to see, you know, really good growth across
Speaker 5: customer events and especially in the enterprise segment. So our
Speaker 5: largest customers those organizations with you know, more than a
Speaker 5: thousand people around the world. We have more than five
Speaker 5: hundred customers that spend more than a million dollars a
Speaker 5: year now with at Lassian, and that is our fastest
Speaker 5: growing customer segment. So I'm sure that those businesses are
Speaker 5: having to do with all of that dust in the
Speaker 5: air as you talked about, But at the same time,
Speaker 5: they have their own customers to deal with. They still
Speaker 5: have their business to run, and whatever the problems are,
Speaker 5: they have to do with it. And so our software
Speaker 5: helps their teams deal with whatever it is that they
Speaker 5: need to do, how they handle their customers, and also
Speaker 5: how do they handle whatever is going on in whichever
Speaker 5: part of the world. As long as we keep that
Speaker 5: value ratio great for our customers. We invest very heavily
Speaker 5: in R and D and continue to develop and build
Speaker 5: our software every single day. We have a fantastic team.
Speaker 5: I'm not sure focusing on all that sort of thing
Speaker 5: is very helpful for us all for our customers. To
Speaker 5: be honest, they have their own customers to deal with,
Speaker 5: and I.
Speaker 2: Should put out last month, you guys reported second quarter
Speaker 2: results that beat expectations to raise your full your forecast,
Speaker 2: and investors have definitely rewarded you big time. The ADRs
Speaker 2: that trade in the United States are at more than
Speaker 2: fifty percent TIM in the past year.
Speaker 3: I just want to remind everybody we are waiting for
Speaker 3: President Trump. He's making comments in the Oval Office, where
Speaker 3: he's been speaking for the better part of close to
Speaker 3: an hour at this point. We'll bring those comments to
Speaker 3: you as soon as the tape playback starts. It is
Speaker 3: Bloomberg Business Week. That's Carol Master. I'm Tim Steneveek. We're
Speaker 3: speaking with Mike cannon Brooks, the co founder and CEO
Speaker 3: of at Lassian. Mike, I do want to talk a
Speaker 3: little bit about different industries that you serve. We talk
Speaker 3: a lot about AI. I know you guys are doing
Speaker 3: a lot with AI as far as customers go, Customers
Speaker 3: that are using your product, customers that are leaning into
Speaker 3: AI right now. Are you seeing more growth on the
Speaker 3: tech side of your business in terms of those types
Speaker 3: of customers given what we're seeing come from the tech
Speaker 3: community over the last couple of years.
Speaker 4: Great question, I as a huge topic among our customer base.
Speaker 4: From a Lastian's point of view, we certainly.
Speaker 5: Believe all of the progress making and AI every week,
Speaker 5: in every quarter at the moment is fantastic for our
Speaker 5: ability to achieve our mission right. We can build better
Speaker 5: and better products that more Taylor and our customized to
Speaker 5: the world that our customers are trying to do. There's
Speaker 5: no doubt our core customer base what we like to
Speaker 5: call technology driven companies, So companies that believe like William's
Speaker 5: Racing or like a financial services company, they both be
Speaker 5: the same that believe technology is their source of competition.
Speaker 5: It's the way that they are going to get an edge, survive,
Speaker 5: or thrive in their industry. Any of those businesses are
Speaker 5: deeply investing in AI in lots of different ways. They
Speaker 5: are trying to work out how this technology makes them
Speaker 5: more efficient, how it helps them to compete fundamentally.
Speaker 4: At Lastian's role.
Speaker 5: There is to invest very heavily, as we have done
Speaker 5: in the R and D of actually bringing AI to
Speaker 5: our customers. So we're a big believer that if we
Speaker 5: don't ship software that people can use the rest of
Speaker 5: it doesn't matter. It's all just kind of talk. So
Speaker 5: our investment has been in taking those AI innovations and
Speaker 5: developments every week, every month, incredibly rapidly, and getting them
Speaker 5: to our customers in a form that they can use.
Speaker 5: We have done that, and it's one of the things
Speaker 5: it's one of the things that lasting Williams Rising teams
Speaker 5: most excited about. It's one of the things that a
Speaker 5: lot of coustomers are talking about, is how they can
Speaker 5: make their businesses more efficient, especially as you mentioned in
Speaker 5: the Current Times, which is a big challenge.
Speaker 2: One last question about AI before we talk about some
Speaker 2: of the news you guys had this week. Our Bloomberg
Speaker 2: Intelligence team, our in house group of analysts noting that
Speaker 2: it may threaten your seat based sales model. They say
Speaker 2: Deep seeks cost effective model of training lms can bolster
Speaker 2: AI adoption, driving a shift of work to digital agents
Speaker 2: from humans, and so they say that's a risk for
Speaker 2: some of the enterprise software players with seat beat based
Speaker 2: revenue models, including yourself and some others. So will it
Speaker 2: could the deep Seek have an impact like that on
Speaker 2: your business?
Speaker 5: Look, we certainly deeply believe in the fact that agents
Speaker 5: are going to make a huge difference to businesses around
Speaker 5: the world. We're already seeing that that we're very much
Speaker 5: on the leading edge of that technology. We shipped our
Speaker 5: product Rovo a year and almost a year and a
Speaker 5: half ago now and have continued to update it and
Speaker 5: have now more than a million users waking up and
Speaker 5: using LASSI and AI technologies, including all of our agents
Speaker 5: every day.
Speaker 4: I think the.
Speaker 5: We take the position that AI fundamentally is about unleashing
Speaker 5: some form of human creativity.
Speaker 6: Right.
Speaker 5: It lets people do more with less. It helps them
Speaker 5: to be creative. It's a fantastical tool. That tool, there's
Speaker 5: no doubt, makes people able to do more. You can
Speaker 5: write more software, you can answer more emails, you can
Speaker 5: do whatever it is that you want to do, and
Speaker 5: you can do it.
Speaker 4: More creatively and at a higher level.
Speaker 5: The thing with most of the industries that we work in,
Speaker 5: right we sell to knowledge workers around the world, people
Speaker 5: that spend the day sitting at a laptop or behind
Speaker 5: a computer and using fundamentally creativity to try to improve
Speaker 5: whatever business they're working in. Those are usually not supply
Speaker 5: limited by human creativity. If you take software engineering as
Speaker 5: a field, if we made all software engineers in the
Speaker 5: world twice as effective, the question is, would we have
Speaker 5: half as many software engineers or would we build twice
Speaker 5: as much software. I think we'd end up building twice
Speaker 5: as much software, not the other way around, because we
Speaker 5: don't have a shortage of ideas of what we would
Speaker 5: like to build. In the world, most businesses don't get
Speaker 5: everything they need to get done. All our agents are
Speaker 5: doing is helping those businesses to achieve more, and they'll
Speaker 5: all be competitive with each other as well, so there's
Speaker 5: a natural are of conservation of profits there as well.
Speaker 2: Hey, Mike, I don't have my glasses on, but your
Speaker 2: hot I want to talk about, you know, some news
Speaker 2: you had this week and this is your partnership with
Speaker 2: Williams Racing the F one team.
Speaker 7: I believe it.
Speaker 8: Says that on your hat. Does it say that it does?
Speaker 7: Forgot forgive me?
Speaker 2: I said it all my glasses on and there's some
Speaker 2: distance here as I look back at our feedback monitor.
Speaker 7: Tell us about this.
Speaker 2: Partnership and what you guys are going to be doing
Speaker 2: and why you wanted to do it.
Speaker 5: It's an incredibly exciting partnership for us. It's from an
Speaker 5: Elastian point of view, it's the first major brand deal.
Speaker 5: From the Williams point of view, it's the first time
Speaker 5: it's the largest deal they've done. It is the first
Speaker 5: time they've had a title partner and a technology partner.
Speaker 4: Look, obviously, Williams is an amazing, storied.
Speaker 5: Race team, right, one of the winningest teams of all
Speaker 5: time and has had a challenging you last decade. However,
Speaker 5: there is huge renewal going on in the Elasti Williams team.
Speaker 6: Right.
Speaker 5: This partnership is just one step new partnership, new driver,
Speaker 5: new principles, new ownership, huge investment in digital transformation and
Speaker 5: technology as a way to catch up and to win.
Speaker 5: We are you know, I think eighty percent of the
Speaker 5: teams on the Greed or more are at Lassian customers
Speaker 5: and have been for decades.
Speaker 4: So this is a sport where technology is really important.
Speaker 4: It is a sport where.
Speaker 5: Technology teams, those building you know, fluidynamics models and wind
Speaker 5: tunnels and cars and all of the monitoring technology that
Speaker 5: goes into it have to meet with the business teams,
Speaker 5: those in the sponsorship groups. So our fundamental system of
Speaker 5: work is what the company, what Elassie Williams is trying
Speaker 5: to do and trying to embody We Then, obviously it's
Speaker 5: a global sport.
Speaker 4: We have customers all around the world.
Speaker 5: But more importantly, you know, having spent a lot of
Speaker 5: time now over the last six months with the Williams team,
Speaker 5: this is a really great cultural fit for a Lassian.
Speaker 4: This is a team of.
Speaker 5: People who are working incredibly hard every day to use
Speaker 5: technology to try to change their fundamental outcome. They're on
Speaker 5: a massive journey of rebuild the culture. The palpability of
Speaker 5: getting act to the winner's circle is phenomenal, and we
Speaker 5: just we fell in love with the story and we're like, okay,
Speaker 5: we can help you do this. So we're leaning very
Speaker 5: heavily into technology partnership. We have a lot of things
Speaker 5: we can help them with to make their business far
Speaker 5: more efficient and hopefully, you know, change the results of
Speaker 5: the team, which is a mission that at Lastian now
Speaker 5: has thousands of people working on.
Speaker 4: So sad about that.
Speaker 3: It's a long term deal. It's been described as a
Speaker 3: record breaking deal. Just for context. Can you give us
Speaker 3: some of the numbers behind this deal, how much it costs?
Speaker 4: I can, Unfortunately, I can tell you that it is
Speaker 4: certainly a long term deal.
Speaker 5: Are we're on the at Lastian Williams journey right and
Speaker 5: we are trying to use all of our software and
Speaker 5: all of our technology, and all of our culture and
Speaker 5: our practices of how we work to show fundamentally our
Speaker 5: customers and to show the world that we can make
Speaker 5: a massive difference in what is obviously an incredibly competitive industry.
Speaker 5: Right down to hundreds of milliseconds. The gap between first
Speaker 5: and last on the grid in the last race of
Speaker 5: last year was the smallest it's ever been.
Speaker 3: Is Okay, So we don't have the details on the
Speaker 3: exact figures, but how do you justify ROI on this
Speaker 3: given that it's such a big deal, and you know,
Speaker 3: it's kind of hard to measure how many people will
Speaker 3: become LASSI in customers as a result of this title sponsorship.
Speaker 5: Look, we're we always have been an incredibly metric focused organization.
Speaker 4: As a large bootstrap company.
Speaker 5: You don't get that way without a numbers.
Speaker 4: Look, we have a number of success metrics here.
Speaker 5: Firstly, always from a brand point of view, Formula one
Speaker 5: is a very fast growing and global sport and we have,
Speaker 5: as I mentioned, customers in almost every country on the planet.
Speaker 5: So we need to continue to have our brand and
Speaker 5: our presence and our story told in a larger life
Speaker 5: way around the world. But that's obviously worth a lot
Speaker 5: of money to us. Secondly, as an enterprise opportunity, the
Speaker 5: Formula one is you know, it's like a mobile executive
Speaker 5: briefing center, right it takes its business. This is a
Speaker 5: fantastical customer of it lasting that we can take to
Speaker 5: twenty four cities around the world, and in those twenty
Speaker 5: four cities we can bring our biggest customers to show
Speaker 5: them how Williams works, what we are doing to help
Speaker 5: the team. And this is incredibly powerful in the enterprise
Speaker 5: to be able to show real world examples of what
Speaker 5: we can do to help a customer.
Speaker 7: Mike, just real quick.
Speaker 2: One last question the Formula one, the FW four seven
Speaker 2: car forty seven car that's going to have your branding.
Speaker 2: I guess it gets unveiled. I don't know really soon.
Speaker 2: Are you going to be able to take it around
Speaker 2: the track? Have you been told that.
Speaker 8: You're could or.
Speaker 5: Look, my driving skills might need a little bit of
Speaker 5: work for that one. I've certainly sat in the car
Speaker 5: and tell you that is that is a challenging job.
Speaker 5: That is not It's not not as comfortable as as
Speaker 5: my daily driver, that's for sure. It does get failed
Speaker 5: on Tuesday, and we're certainly really exciting. We've done some
Speaker 5: really innovative actually, I think for for Formula one design
Speaker 5: work between the Lassian design team and the Williams design teams.
Speaker 5: So super excited to show the world the car on Tuesday,
Speaker 5: and super excited to show how we're trying to bring
Speaker 5: our collaboration and teamwork practices, you know, right into that
Speaker 5: into that car in fact, and into the garage, into
Speaker 5: all the mechanics and all the strategiest that work on
Speaker 5: the race as well.
Speaker 4: So we're not just a digital company you'll see on Tuesday.
Speaker 2: Don't totally need a AI for that, right, you just
Speaker 2: need a really cool car. I'm just going to say.
Speaker 4: A lot of things to compete in the sports.
Speaker 5: So we're we're on the journey, we're learning a lot,
Speaker 5: and we're putting our.
Speaker 4: Shoulder behind it.
Speaker 3: Carol, I do feel like if you signed the check,
Speaker 3: you can drive the car.
Speaker 2: I'm just gonna say, Mike, you know you do get
Speaker 2: some leverage with all of this. I'm just gonna you know,
Speaker 2: and the company name is going to be on the car,
Speaker 2: so you should be able to take it out for spin.
Speaker 5: Look, I would also say it might not be a
Speaker 5: good idea for the Williams team or the Elastic team.
Speaker 5: I'm not sure my team would think that's a great
Speaker 5: idea for me to be driving it to three hundred
Speaker 5: or more kays an hour around the track.
Speaker 7: Here I hear you listen. Thank you so much.
Speaker 2: We know it's later where you are, but we so
Speaker 2: appreciate you joining us on this Thursday.
Speaker 7: Really really appreciating. Good luck out with that partnership.
Speaker 2: We've been of course talking to Mike cannon Brooks, he's CEO,
Speaker 2: co founder of ed Lassian, and of course talking about
Speaker 2: the new news that they had their deal, their partnership
Speaker 2: when it comes to F one racing.
Speaker 8: So some really cool thing with the Williams team.
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Speaker 2: Another headline from the President, I'd love to have Putin,
Speaker 2: President Putin of Russia back in the G seven. He
Speaker 2: also says, I do believe that President Putin really wants peace,
Speaker 2: and of course he's referring to the war between Russia
Speaker 2: and Ukraine Team well.
Speaker 3: Bloomberg Economics calculates that protecting Ukraine and expanding their own
Speaker 3: militaries could cost the continent's major powers an additional three
Speaker 3: point one trillion dollars over the next ten years.
Speaker 2: All right, let's see what our guest has to say.
Speaker 2: Let's head to London and Monica Bishkoshkaida. She is the
Speaker 2: public policy director of the strategic consultancy firm Key Element Group.
Speaker 2: Monica is so good to have you here with us,
Speaker 2: President Trump. Another headline from the Oval Office, Russia should
Speaker 2: be sitting.
Speaker 7: At the table.
Speaker 2: What are the tea leaves we need to read in
Speaker 2: terms of what we are getting from President Trump today?
Speaker 2: And also knowing that President Trump spoke with President Putin yesterday.
Speaker 9: Yeah, so the call between President Trump and President of
Speaker 9: Putin has shown that they're communicating directly, which means that
Speaker 9: the Green husband sidelin Ukraine is not part of the
Speaker 9: conversation about its own future. And as I said, right now,
Speaker 9: it seems like there's normalization with Russia. The relationship with
Speaker 9: Russia and Russia will be back at the table, which
Speaker 9: in a vedy is unprecedented in that went the first
Speaker 9: century you haven't seen another leader attack country in Europe
Speaker 9: and be back at the table after killing civilians, after
Speaker 9: committing war crimes. So what we're seeing right now is unprecedented,
Speaker 9: and we're seeing Putin who's being really emboldant strength things,
Speaker 9: and he can clink the power for many years to
Speaker 9: come because now he will have a huge victory just
Speaker 9: to recap.
Speaker 2: So Russia should be sitting at the table. He also
Speaker 2: says that Ukraine will have a seat at the table.
Speaker 2: He says he wanted to make sure Putin wanted to
Speaker 2: do a deal that was earlier in the day. So
Speaker 2: again we continue to see things. Do you think Russia's
Speaker 2: in the driver's seat with this and then it'll be
Speaker 2: more favorable to him in any deal.
Speaker 8: I don't know.
Speaker 2: Can you tell from some of what we've been getting
Speaker 2: over the last couple of days.
Speaker 9: Yeah, So the fact that the call was between the
Speaker 9: two leaders, Trump and put In, all these shows that
Speaker 9: the conversation was more direct and Zelenski was not involved
Speaker 9: in this conversation. We have also seen a response from
Speaker 9: European countries that have been saying that we should also
Speaker 9: be included, because you know, this is about security of Europe.
Speaker 9: Not only security about Ukraine, and they have not been
Speaker 9: included yet in the conversation. So we see that the
Speaker 9: decisions are being made already in a way. And we
Speaker 9: saw the defend Secretary of the US talk about possible
Speaker 9: conditions of this deal, for example, no need of membership
Speaker 9: for Ukraine, no US troops underground in Ukraine, and Ukraine
Speaker 9: having to accept territories that it has lost. So we
Speaker 9: are already seeing this deal shaping up and Devita shaping up.
Speaker 8: Right now.
Speaker 9: We see that Russia definitely is the winner here and
Speaker 9: Russia is getting exactly what Putin has wanted. And we
Speaker 9: could also see that Russia will not have sanctions on
Speaker 9: itself anymore, and then you know, the all will also
Speaker 9: be supporting Putin, who will then be able to stay
Speaker 9: in power for many years.
Speaker 3: Given what we've learned from the President over the last
Speaker 3: few days, including just in the last few minutes in
Speaker 3: the Oval office, Monica, how do you think this war ends?
Speaker 3: Does it mean land from Ukraine going to Russia, perhaps
Speaker 3: natural resources to the United States in exchange for some protection.
Speaker 3: What's your view?
Speaker 9: So I think that you know, right now we only
Speaker 9: have the public information that does come from the US
Speaker 9: about possibility of ending this war. And yes, under this possibility,
Speaker 9: Ukraine would lose territories that Russia currently controls. But I
Speaker 9: think another aspect that nobody is right now talking about,
Speaker 9: and it's very very important, is the impact that the
Speaker 9: end of war would have for decades to come. And
Speaker 9: I'm talking about Ukrainians and Ukrainian population. You had Ukrainian
Speaker 9: population that does fighting for three years in this war,
Speaker 9: and they were fighting for their own freedom, but we're
Speaker 9: also being part of Europe, of the U, of NATO
Speaker 9: and for freedom of the best. And how they will feel,
Speaker 9: they will feel betrayed if this is how the war
Speaker 9: ends and the terms are really unfavorable for Ukraine, and
Speaker 9: then you have the satisfied population, you have the anti
Speaker 9: Western sentiment. But I'm afraid of, and some people in
Speaker 9: Ukraine are afraid of, is that this creates a really
Speaker 9: fertile ground for future manipulations from Russia and potentially even
Speaker 9: installing Acro Russian government.
Speaker 2: You know, one thing I want to ask you, Monica,
Speaker 2: that if the US you know, is basically you know,
Speaker 2: saying that the European allies they have to shoulder most
Speaker 2: of the burden for any settlement. And as Tim mentioned earlier,
Speaker 2: you know, we're talking our own Bloomberg economics team that
Speaker 2: protecting Ukraine and expanding their own militaries could cost the
Speaker 2: continent's major powers in additional three point one trillion dollars
Speaker 2: over the next ten years. If the US is backing
Speaker 2: off in terms of financial support to its European allies,
Speaker 2: what is likely to prevent President Putin from maybe waging
Speaker 2: another war, going after another border at some point other territories.
Speaker 9: So I think what was very important that President Trump
Speaker 9: has said is that European countries really need to invest
Speaker 9: in their own security and increase their defense spending. And
Speaker 9: we have seen now for example, Latvia, Lithuania and Estonia
Speaker 9: that all the countries they're increasing their defense spending to
Speaker 9: five percent. And of course these are small countries and
Speaker 9: they don't have huge budgets for it. But other European
Speaker 9: countries should follow this example and also increase their defense
Speaker 9: spending and their budgets to be able to defend themselves
Speaker 9: if the time comes. But also very important aspect they
Speaker 9: want to mention is the reconstruction of Ukraine. That will
Speaker 9: create a lot of opportunities for also American businesses to
Speaker 9: be part of this reconstruction and to benefit financially in
Speaker 9: the future from it as well. So I see two
Speaker 9: coins of this argument, and I think that reconstruction is
Speaker 9: something that should be considered. As you mentioned where earths
Speaker 9: potentially could be a deal between US and Ukraine or
Speaker 9: European countries and Ukraine. So there are definitely avenues to
Speaker 9: be explored on financial site as well.
Speaker 3: Monica, thanks so much. You're gonna have to leave it there.
Speaker 3: Monica Beach Coorskaida. She is public policy director of the
Speaker 3: strategic cultency firm Key Element Group.
Speaker 1: This is the Bloomberg Business Week podcast. Listen live each
Speaker 1: weekday starting at two pm Eastern on Applecarclay, and Android
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Speaker 1: Just say Alexa play Bloomberg eleven thirty.
Speaker 3: As we've been reporting throughout the day, we're all in
Speaker 3: on kind of understanding what's going on with these reciprocal tariffs.
Speaker 3: Just to remind everybody, President Trump ordered his administration to
Speaker 3: consider imposing reciprocal tariffs on numerous trading partners, raising the
Speaker 3: prospect of a wider campaign against a global system that
Speaker 3: he complains is tilted against the US. Ali Furman is
Speaker 3: consumer Markets industry leader for PwC, and like many of us,
Speaker 3: I think I can say our colleagues at Bloomberg Economics
Speaker 3: have been doing this quite a bit, Yes, crunch in
Speaker 3: the numbers to try to get a pick sure of
Speaker 3: the impact of these tariffs. She joins us from New York.
Speaker 3: Alli lots of work for the folks with the calculators today.
Speaker 3: What are the calculations that you've seen at PWCs to
Speaker 3: how much could be affected by these tariffs.
Speaker 10: Well, first of all, thanks for having me again. It's
Speaker 10: great to be back. Tim and Carroll. Listen.
Speaker 11: We've done some industry impact analysis across all industries, looking
Speaker 11: at the upper end of the tariff ranges that Trump
Speaker 11: talked about during his run up to the presidency, and
Speaker 11: we estimate the tariff revenues could increase from eighty one
Speaker 11: billion a year to nearly nine hundred billion a year,
Speaker 11: which is our figures that don't take into account countermeasures
Speaker 11: that trading partners may impose in reaction to US policy changes.
Speaker 11: But that's just taking into account the upper end of
Speaker 11: the ranges that he talked about prior to any of
Speaker 11: the executive orders that were actually signed.
Speaker 10: But that's quite a significant jump eighty one billion to
Speaker 10: nine hundred billion a year.
Speaker 2: So the folks that you talk to, you know, clients
Speaker 2: that you have, are they starting to freak out?
Speaker 10: I wouldn't say freak out.
Speaker 11: I think just over the last I would say ten
Speaker 11: business days, we're seeing a lot of companies move from
Speaker 11: kind of a planning slash weight and see phase into
Speaker 11: a take action phase. So we're seeing you know, everything
Speaker 11: from setting up the ability to dynamically model some of
Speaker 11: these impacts that are very fluid, taking into account things
Speaker 11: like ACE customs data, which every company has, that's that's
Speaker 11: data around their imports, to you know, data from their
Speaker 11: financial systems, trying to understand frankly, what the competition where
Speaker 11: they import from. To just get a broad sense of
Speaker 11: different scenarios and how to think about things like supply
Speaker 11: chain dependencies, raw material sourcing, looking at transfer pricing strategies,
Speaker 11: looking at you know, supply chain optimization moves, manufacturing optimization moves.
Speaker 10: It's just, you know, it's a fluid situation. So being
Speaker 10: able to.
Speaker 11: Evaluated real time with dynamic models that allow for different
Speaker 11: inputs and levers to assess, you know, what strategies to prioritize.
Speaker 10: That's a really common way.
Speaker 11: We're seeing companies like retaillers who are affected by this
Speaker 11: and consumer packaged good companies.
Speaker 7: Wait, so, al, is that a freak out or not?
Speaker 11: I mean, I don't think it's a freak out, but
Speaker 11: it's a it's a planful way of you know, considering
Speaker 11: our options.
Speaker 2: I would say, I mean, can we say like after
Speaker 2: decades or years easily, but definitely decades.
Speaker 7: I mean there's been a lot that has been said.
Speaker 2: About you know, going to the low cost provider, especially
Speaker 2: for manufacturing. I think about the retail industry and how
Speaker 2: that made good business sets right and so so much
Speaker 2: stuff was offshore. I mean, is this possibly a moment
Speaker 2: in time where people have to really rethink their supply
Speaker 2: chaine and in an environment that we're even our trading
Speaker 2: partners and those that we get along with that it's
Speaker 2: a complicated relationship.
Speaker 10: My answer is yes, it is.
Speaker 11: It is a moment in time to rethink suppliers and
Speaker 11: also supply chain footprints. But keep in mind, neither of
Speaker 11: those two things are like flip a switch and you
Speaker 11: can you can change them all tomorrow.
Speaker 10: They're kind of longer term.
Speaker 11: Mitigation strategies to these tariffs versus shorter term in the
Speaker 11: short term. You know, the impact that tariffs are likely
Speaker 11: to have on companies is margin erosion, particularly some of
Speaker 11: these companies that have thinner margins to begin with.
Speaker 3: Like so for example give us some examples.
Speaker 11: So you know, apparel okay, thing relatively thin margins, right,
Speaker 11: So you have to think about ways to mitigate margin erosion,
Speaker 11: even outside of direct tariff mitigation levers like we just
Speaker 11: described around supply chain optimization and moving your manufacturing operations
Speaker 11: out of China to other Southeast Asian countries or back
Speaker 11: into the US.
Speaker 10: So you think about ways to mitigate margin erodi.
Speaker 11: You think about cost cutting, cost cutting in you know,
Speaker 11: functional areas where you can maybe leverage AI or other
Speaker 11: types of emerging technology to make your processes more efficient
Speaker 11: and get some cost out of.
Speaker 10: The business to try to hedge some of this tariff impact.
Speaker 10: Because I'll tell you what.
Speaker 11: You know, today's market from a consumer perspective, twenty twenty
Speaker 11: five is very different than it wasn't twenty eighteen. Consumers
Speaker 11: have are fatigued from going through this inflationary period, with
Speaker 11: shelf prices increasing thirty percent in the last five years,
Speaker 11: you know, it's going to be very hard to pass
Speaker 11: on all of this tariff impact to the consumer of
Speaker 11: today and not see a negative impact to your volumes.
Speaker 11: So you really have to think about other strategies to employ.
Speaker 11: Some of this is likely to flow to the consumer.
Speaker 3: Unfortunately, do you do okay, do any of those strategies
Speaker 3: include moving manufacturing to the United States.
Speaker 10: For sure, But that's a longer term proposition.
Speaker 11: It's not something that is going to be able to
Speaker 11: just quickly be implemented in the short term and see
Speaker 11: the roi of doing that. It just it's a complicated
Speaker 11: situation to move your manufacturing from Asia to the United States.
Speaker 3: But in some cases it's like it's not even possible.
Speaker 3: I mean, you know, we have a story later that
Speaker 3: we're going to talk about the company Shark Ninja. They
Speaker 3: make the Ninja Creamy. My sister got one of those
Speaker 3: for Christmas. By the way, yeah your microphone's offer. Sorry, yeah, really,
Speaker 3: she got it and she loves it. That's what she
Speaker 3: asks for from everyone.
Speaker 2: But if she's buying it, maybe with tariffs or if
Speaker 2: somebody's going SANFT clause Okay.
Speaker 3: Yeah, doesn't have tariffs. The CEO told Bloomberg that they're
Speaker 3: not moving to the US. He said, here's what he said. Quote,
Speaker 3: our industry doesn't exist in the US. The product is
Speaker 3: not made here, the components are not made here. It's
Speaker 3: not like the car industry that you could say, well,
Speaker 3: let's flex it back to the United States. It's not
Speaker 3: something we believe is on the horizon. How many more
Speaker 3: of those types of companies are out there. I mean,
Speaker 3: you're not going to see apparel made in the US
Speaker 3: on a wide scale basis, right, Niche.
Speaker 11: Markets, smaller retailers, you know, like American Giant might see,
Speaker 11: you know, some additional market share from this. Think about
Speaker 11: small furniture stores that maybe you know, US based, would
Speaker 11: supply companies, local butcher butcher shops even could benefit from
Speaker 11: this in the short term.
Speaker 8: But yes, no, you're.
Speaker 11: Right, this, the move to US manufacturing is not applicable
Speaker 11: to all industries or you know, all types of products,
Speaker 11: So it cannot be relied on as the sole you know,
Speaker 11: tariff mitigation measure. It should be evaluated, you know, amongst
Speaker 11: many other things that companies are considering doing.
Speaker 10: All right, crazing strategy is another one.
Speaker 2: Yeah, oh okay, cool, Thank you, Thank you so much.
Speaker 7: Alie Furman.
Speaker 2: She is consumer Markets industry leader for PwC. Joining us
Speaker 2: right here in New York City.
Speaker 1: You're listening to the Bloomberg Business Week podcast. Catch us
Speaker 1: live weekday afternoons from two to five these during listen
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Speaker 3: We are all in on tariffs today. I mentioned this
Speaker 3: I think with John Taffer or even earlier. Yeah, we
Speaker 3: talked about it with me, We talked about it with you.
Speaker 3: Shark Ninja. They make the creamy. They have said that
Speaker 3: they're largely cutting out China in its supply chain for
Speaker 3: the US market as tariff's increase costs. But it's not
Speaker 3: going to make the products in the US. The company CEO,
Speaker 3: Mark Baracas told Bloomberg that our industry doesn't exist in
Speaker 3: the US. It's not like the car industry. The components
Speaker 3: are not here. You can't say, let's flex it back
Speaker 3: to the United States. It's not something we believe is
Speaker 3: on the horizon. Companies adjusting their supply chains is our
Speaker 3: next guest specialty CRISP is a platform and analyzes data
Speaker 3: across the supply chain, I think retailers, distributors, and brands.
Speaker 3: Ari Trasdahl is the founder and CEO at CRISP. He
Speaker 3: joins us here in the Bloomberg Interactive Brokers studio remind
Speaker 3: everyone of where you touch the supply chain, where you
Speaker 3: come into it.
Speaker 12: Great. Yeah, CHRISP works cross the entire supply chain.
Speaker 13: We have about six thousand CPGs and food companies, pharma
Speaker 13: companies on the platform and help them kind of understand
Speaker 13: the retail sales cross two hundred and fifty thousand stores, pricing, distribution, inventory, etc.
Speaker 13: But also kind of through the supply chain that they
Speaker 13: have behind them all.
Speaker 3: Does it go all the way back to where it
Speaker 3: was created, the ingredients that go into it, or does
Speaker 3: the supply chain just start once it hits a certain
Speaker 3: geographical area and that distributor gets the US gets the
Speaker 3: store shelf.
Speaker 13: Yeah, but typically we use closer to consumer, So it's retailers,
Speaker 13: it's distributors, and it's large manufacturers, but large CPGs that
Speaker 13: we work with and they might have one hundred and
Speaker 13: fifty two hundred thousand suppliers that are from domestically and
Speaker 13: from the nationally, so they leverage our data.
Speaker 12: To plan through their entire supply chain.
Speaker 2: Is there anything you can see already where or maybe
Speaker 2: in your conversations with some of your customers, are what
Speaker 2: you are hearing in terms of what we're getting at
Speaker 2: the White House tariffs, threats of tariffs, and whether increasingly
Speaker 2: they're thinking about our rethinking where their global supply chain
Speaker 2: has to be, and whether or not they're creating redundant
Speaker 2: supply chains to make sure that they're in a good
Speaker 2: situation or good place.
Speaker 5: No.
Speaker 12: Yes, absolutely, it is.
Speaker 13: Supply chains react poorly to uncertainty, and we saw that
Speaker 13: during the pandemic as well, and similar behaviors as consumers
Speaker 13: have we see the similar behavior on professional retailers and
Speaker 13: professional manufacturers and distributors. It's to make sure that you
Speaker 13: have enough of these products. So the cost that we're
Speaker 13: going to see in the supply chain is both coming
Speaker 13: from the increase of the cost of the ends, but
Speaker 13: it's also coming from the cost of just this challenge
Speaker 13: is rippling through a long supply chain with overstocks and understocks,
Speaker 13: and we kind of remember all of this from the
Speaker 13: from the pandemic. So already starting to see those type
Speaker 13: of shorter term initiatives.
Speaker 3: So did we not learn anything.
Speaker 12: I'm not sure if we learned anything. We learned a
Speaker 12: little bit.
Speaker 3: Did we learn like make the ppe here in the
Speaker 3: US did we learn that?
Speaker 2: Did any changes come back where people substantially change their
Speaker 2: global supply I think I feel like we've had conversations
Speaker 2: with people who did some rethings.
Speaker 3: I mean, there's been a lot of near showing. There's
Speaker 3: been a lot of like if you go, we've Business
Speaker 3: Week gets written about this, the rise of factories south
Speaker 3: of the border, Chinese factories being built in Mexico.
Speaker 2: But absolutely, and some of it just makes sense to
Speaker 2: be closer to where you're selling.
Speaker 13: Yeah, yes, absolutely, so we saw a lot of that
Speaker 13: after the pandemic. And there's a lot of investments in
Speaker 13: technology actually, because it's not like we're starting out with
Speaker 13: a very robust supplate supply chain in the first place,
Speaker 13: take through the loan, which is kind of one of
Speaker 13: the big parts of what CRISP dost A. Third, all
Speaker 13: the few that's made in the world is lost in
Speaker 13: the supply chain, just the inefficiencies, and well that's ridiculous.
Speaker 7: So with all the technology we have.
Speaker 2: You know, you're just saying, in the process and just
Speaker 2: moving it around, we lose a third of all the
Speaker 2: food that comes through the supply chain spoilage, ye.
Speaker 13: To spoilage from all the way from where it's grown
Speaker 13: to its exported to it's imported to productions of one third.
Speaker 13: At the same time, you have a billion people that
Speaker 13: live with some kind of food insecurities in the world,
Speaker 13: right So, which is the one part of this. But
Speaker 13: these supply chains are are really not very robust. So
Speaker 13: and when these things happen like a pandemic and what
Speaker 13: we're seeing now as well. My concern, in addition to
Speaker 13: increased prices is also these kind of big ripple effects
Speaker 13: that go through the supply chain.
Speaker 7: I might blown away by that.
Speaker 3: You know.
Speaker 2: The other thing is I think about when I grew up,
Speaker 2: you know, you had seasons where you got things. Right
Speaker 2: now I'm getting you know, strawberries in the middle of
Speaker 2: or at any time, like maybe there's something wrong.
Speaker 8: Long to that.
Speaker 2: Well, you know, because if I'm thinking, if we're moving
Speaker 2: shipping stuff around and we're losing so much of it,
Speaker 2: that just seems like such a bad thing. It's also
Speaker 2: not good for the environment, the waste, I mean, the spoilage.
Speaker 3: If you come to California, strawberry seasons every time of
Speaker 3: the year.
Speaker 8: Yeah, but that's California.
Speaker 3: Yeah, Like I will tell you those were the fall
Speaker 3: the grapefruit I today had a sticker that it was
Speaker 3: from Israel.
Speaker 12: Yeah, yeah, absolutely.
Speaker 2: So how do we solve something like that or are
Speaker 2: we not going to because people have gotten used to
Speaker 2: I can get anything I wanted anytime of the year, I.
Speaker 13: Believe, so all the consumer behaviors has truly changed and
Speaker 13: they want to have all the products at all time,
Speaker 13: and that you have to have global, global supply of
Speaker 13: this product daughter components. I find interesting is also to
Speaker 13: build the materials. We will always kind of think about, Okay,
Speaker 13: avocado's going to get more expensive or are going to
Speaker 13: get more expensive, But also it's as we see kind
Speaker 13: of firsthand, is that a typical CpG product has fifteen
Speaker 13: to twin any different different type of ingredients. So if
Speaker 13: you have shortage or the higher prices and all that,
Speaker 13: there's a lot of decisions that needs to kind of
Speaker 13: happen based upon just building materials as well. So not
Speaker 13: only the fifteen percent of the products that are directly impacted,
Speaker 13: but it's also all of the products that are indirectly impact.
Speaker 3: Does your platform also handle recalls.
Speaker 13: Yes, shargebacks, recalls and things that need to come back
Speaker 13: from the retailer.
Speaker 12: We also see those that type of.
Speaker 3: Is that happening more and more? Is it happening less?
Speaker 3: Can we? I'm always shocked when I see a large
Speaker 3: scale recall and the scale of it. You know, everybody
Speaker 3: throwing away a certain bag of spinach or something, or
Speaker 3: this week it was tuna that was bought at different
Speaker 3: stores had to be thrown away.
Speaker 13: Absolutely not. We see all of those type of thing
Speaker 13: seasonal products at the end of the season.
Speaker 3: But is that happening less?
Speaker 12: I think it's quite stable.
Speaker 13: We saw a lot of it right after the pandemic
Speaker 13: because you had so many, so huge swings on everything,
Speaker 13: but I would expect that to increase a lot now.
Speaker 13: Every time you get these ripples, the consequences are typically
Speaker 13: the vehicles.
Speaker 2: How much does the waste and something like food add
Speaker 2: to the cost of food and just at about thirty seconds.
Speaker 12: Very good, very good question.
Speaker 13: So at least a third of the food in the
Speaker 13: supply channels then is lost, So the waste has huge
Speaker 13: potential for the reduction of consumer consumer prices. So can
Speaker 13: we think about this at twenty percent thirty percent reduction
Speaker 13: of consumer prices if you just could get this under control.
Speaker 13: The other part is also assortment and package sizes.
Speaker 12: It's very complex.
Speaker 13: If you go into a retailer, you typically see fifty
Speaker 13: thousand different products merchandised by one. So and the retailers
Speaker 13: have had a lot of initiatives around I'm introducing that
Speaker 13: and rationalizing all of these products as well. But the
Speaker 13: consumer product companies, they want to make more products, more flavored, more.
Speaker 7: I'm overwhelmed. Go to the supermar.
Speaker 8: I'm like, I just want plane water. I just want
Speaker 8: playing this.
Speaker 3: Buying water at the supermarket now, okay good.
Speaker 8: Not really, I got to filter it.
Speaker 3: Okay good, But I'm just saying we can talk about that.
Speaker 7: Go on a plane. I'm like, over oh yeah, I know.
Speaker 8: Ari.
Speaker 2: Thanks for coming in, Ari charge, We founder and see
Speaker 2: you at Chris joining us right here in studio.
Speaker 1: This is the Bloomberg Business Week Podcast. Listen live each
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Speaker 1: station Just Say Alexa Play Bloomberg eleven thirty.
Speaker 3: Well, yesterday's CPI number showed us that inflation still an
Speaker 3: issue in many categories, including food and beverage. Food and
Speaker 3: beverage was up two point four percent year over year
Speaker 3: rose three tenths of one percent from the previous month.
Speaker 7: Eggs, Carol, we talked about it.
Speaker 3: We talked about it. You see the waffle house, the
Speaker 3: fifty cent egg surcharge as a result of the difficulty
Speaker 3: and procuring eggs. How are that you.
Speaker 8: Still have some makes in the frights?
Speaker 2: Okay, I want to ask what John to Taffer has
Speaker 2: to say about kind of the environment, whether it's the
Speaker 2: cost of food and everything which all goes into running
Speaker 2: certainly restaurants and bars.
Speaker 7: Certainly if they're serving food.
Speaker 2: John Taffer is back with us here in our Bloomberg
Speaker 2: Interactive Broker studio. As you know, he is the author
Speaker 2: of several books, including the Power of Conflicts, Speak your Mind,
Speaker 2: Get the results you want. He's also the EP of
Speaker 2: Bar Rescue, which is now in its wet.
Speaker 3: Season, ten season, fifteenth year.
Speaker 7: That's amazing, that is amazing.
Speaker 3: Where Network POWERMUNT Network welcome back.
Speaker 7: Welcome back.
Speaker 2: I mean, listen, when you started this, did you anticipated
Speaker 2: all that this was going to go this long?
Speaker 4: No?
Speaker 6: I did not.
Speaker 14: And you know, we had what we called escalating costs.
Speaker 14: Now we have creeping costs, so it's a little slower.
Speaker 14: But you know, the restaurant business is such that food
Speaker 14: costs can't really exceed thirty percent thirty three percent. So
Speaker 14: for every dollar that my costs go up, I have
Speaker 14: to raise it three dollars to the consumer.
Speaker 12: Wow.
Speaker 6: Now there's only a certain amount of elasticity in that.
Speaker 14: So say my hamburger prices go up three dollars, I
Speaker 14: got to increase them by nine dollars. Now the consumer's
Speaker 14: not going to accept that nine dollars. So maybe I
Speaker 14: can push it to three or four dollars so I
Speaker 14: can recover half of the inflationary impact on my business.
Speaker 14: But in many cases, I can't recover all of it.
Speaker 14: So that's where it's eroding on our operating costs.
Speaker 7: So what do you do, John? Do you like make
Speaker 7: the burger smaller?
Speaker 14: Do you Well, you have a couple of choices. You
Speaker 14: can make the burger smaller, that's one choice, or you
Speaker 14: can raise your prices, or you can try to redesign
Speaker 14: your menu. So, for example, and this is interesting, psychological
Speaker 14: pricing and eye tracking with laser movement tells me that
Speaker 14: if I box an item on the menu, sales of
Speaker 14: that item will go up by twenty percent.
Speaker 3: If I shadow or.
Speaker 14: Chef specially goes up by about fourteen percent. People have
Speaker 14: a six percent propensity to order the bottom two items
Speaker 14: on a list. So what I'll do is, I'll take
Speaker 14: my most profitable item in dollars and cents, not percentage.
Speaker 14: I'll box that one, take my second, most, shadow it,
Speaker 14: third and fourth, put them on a list properly. I
Speaker 14: won't price anything other than ninety five cents. There's no
Speaker 14: such thing as eight twenty five, eight fifty, eight seventy five.
Speaker 14: It's eight ninety five. When I need to raise my price,
Speaker 14: it goes to nine ninety five. Psychological pricing. If you
Speaker 14: price at eight fifty, you're leaving forty five cents on
Speaker 14: the table every time. It means nothing at that point. So,
Speaker 14: understanding these elements, I want to move you through boxing.
Speaker 14: I'm going to move you to different menu items.
Speaker 3: Wow.
Speaker 14: So for example, waffle House is infusing a fifty I
Speaker 14: would also run on eggs. I would run a special
Speaker 14: on waffles because that doesn't use eggs. So I'm telling
Speaker 14: my friends in the breakfast business, run pancake specials, run
Speaker 14: corn beef hash specials. Do everything you can to move
Speaker 14: the consumer away from the eggs construction.
Speaker 12: And they can do that.
Speaker 3: You didn't mention automation, which you see the chain's doing
Speaker 3: a lot right now. Are are are mom and pop
Speaker 3: shops able to use automation?
Speaker 14: Well, you know, a lot of them are a little
Speaker 14: intimidated by I tell you the truth, just like they're
Speaker 14: intimidated by sophisticated accounting systems and stuff. My research tells
Speaker 14: me that about seventy percent of the independent.
Speaker 6: Operators don't have monthly p and ls.
Speaker 14: So we're asking them to look at a capital investment
Speaker 14: or a long term lease program, you know, to buy technology.
Speaker 14: A little intimidating for them, so I find that they're
Speaker 14: not as eager to move into it. And interestingly, if
Speaker 14: you go to the restaurant convention the National Restaurant Association
Speaker 14: five years ago, there may be two robotic boots. Now
Speaker 14: there's probably close to one hundred robotic boots. Everything from
Speaker 14: French fry robots to hamburger flipping robots, everything you.
Speaker 3: Can possibly that, but mom and pops aren't doing that yet,
Speaker 3: but you're going to have to do. And the Chipotle's
Speaker 3: got you know, they've got the autocado with which helps
Speaker 3: with peeling and you know, couring avocados and freeze people
Speaker 3: up to do other things. But we're not we're not
Speaker 3: seeing that yet from now.
Speaker 14: I think McDonald's is one of the leaders in it,
Speaker 14: in some of the robotic French fry equipment and such.
Speaker 14: But certainly, you know, it costs a lot less, it
Speaker 14: doesn't get sick, and it's the future of our industry.
Speaker 14: And look, we're struggling with labor as you know still,
Speaker 14: and we think that the no tax on tips might
Speaker 14: really make a difference for us as an industry, really really.
Speaker 3: Could solve that problem. I think it happens.
Speaker 6: Oh, we think it's going to happen. Yeah, I believe
Speaker 6: it's going to happen.
Speaker 2: Why do you think it's a good idea because I
Speaker 2: think for those of us who pay taxes on all
Speaker 2: of our income or wondering, well, wait a minute, how
Speaker 2: is that fair? And I guess the other side is
Speaker 2: that let's pay those workers a living wage, and so
Speaker 2: it's not you know, because I feel like increasingly we're
Speaker 2: tipping everybody also.
Speaker 3: Who declares their tips.
Speaker 14: Well, I don't like it when I go into a
Speaker 14: coffee store, yeah, and you know, I'm asked to tip
Speaker 14: the batista.
Speaker 3: I mean, it's a little out of line.
Speaker 6: Sometimes.
Speaker 14: I went to a dry cleaner the other day and
Speaker 14: I went in to pick up my dry cleaning, and
Speaker 14: it asked me if I wanted to tip the dry cleaning.
Speaker 3: It's a little outrage now, every guy out of control.
Speaker 2: So what you think within the hotel or the restaurant industry.
Speaker 14: Let me tell you why. Because they get an employee
Speaker 14: tip credit. So many in many states, they don't make
Speaker 14: minimum wage. They make two and three dollars an hour.
Speaker 12: No I know.
Speaker 14: So by not tipping them on you, by not taxing
Speaker 14: them on their tips, we're giving them a chance at
Speaker 14: that living wage.
Speaker 2: It's really important make the institution in the restaurant pay
Speaker 2: them that living wage.
Speaker 8: Why don't we do it there?
Speaker 14: Well, we could do it there, but that's going to
Speaker 14: increase costs. So if we look at inflation and those costs,
Speaker 14: here's the problem in the restaurant industry. It's it's an
Speaker 14: industry that we manage by percentage. Occupancy costs cannot exceed
Speaker 14: twelve percent.
Speaker 6: Of revenue every month or every year. It just cannot.
Speaker 14: Okay, Labor costs cannot exceed thirty percent. I'm up to
Speaker 14: forty five percent already. Yeah, food costs can exceed thirty percent.
Speaker 14: I'm up to seventy five percent. Now I have my
Speaker 14: ang my insurance, my utilities, all my other costs. I
Speaker 14: have waste and supplies. By the time I move that up, guys,
Speaker 14: I'm at twelve fifteen percent margins.
Speaker 3: That's all I got.
Speaker 2: But what if we didn't have tips? Like you know,
Speaker 2: and I know who was it that tried to do it?
Speaker 10: Here?
Speaker 3: Was it Danny Meyer?
Speaker 7: Was it Danny Meyer?
Speaker 2: Tes tips?
Speaker 3: Like?
Speaker 2: Do you don't think we would think, Okay, I'm paying
Speaker 2: more because I'm not tipping that that would make it
Speaker 2: even it out and then possibly.
Speaker 14: But there's some fear in that. As an operator, Okay,
Speaker 14: you know, I have to educate the customer. And I
Speaker 14: must tell you anytime somebody tells me I'm going to
Speaker 14: start a business and educate the consumer, they tend not
Speaker 14: to be very successful at it.
Speaker 7: That's fair. That's fair type margins.
Speaker 14: Also, I got to share with you that the restaurant
Speaker 14: industry is the largest non government employer in America, and
Speaker 14: when the restaurant industry hurts, America hurts. Right, There's a
Speaker 14: lot of consumers work for us, So keeping that industry
Speaker 14: healthy is our largest consumer, is very, very important. And
Speaker 14: I look at the buyouts the car companies have gotten
Speaker 14: and other industries have gotten. The restaurant industry hasn't gotten that.
Speaker 14: So I think providing this relief makes sense for that industry.
Speaker 14: Of course, I'm an advocate for it, but I do.
Speaker 3: Hey, Johnny, you mentioned the no tax on tips as
Speaker 3: one of the policies forthcoming from this administration. How are
Speaker 3: you looking at other policies in terms of growth, in
Speaker 3: terms of helping the restaurant industry, in terms of potentially
Speaker 3: hurting the restaurant industry if prices go up as a
Speaker 3: result of tariffs and people have less disposable income, how
Speaker 3: are you looking at what's coming out of Washington.
Speaker 6: I mean, I've done a lot of work on tariffs.
Speaker 14: I've read a lot of white papers, and I've really
Speaker 14: tried to do my homework on it. And it's tough
Speaker 14: to come down with a hard position on knowing how
Speaker 14: it's really going to have an impact. I look at
Speaker 14: it this way. A German car company is charging a
Speaker 14: Germany's charging US ten percent tariff to bring our cars there.
Speaker 14: We're charging two and a half percent. Well, let's say
Speaker 14: we bumped that two and a half percent to ten percent.
Speaker 14: So now the German car comes into America at a
Speaker 14: base cost point in theory ten percent higher than an
Speaker 14: American competitor. They can't compete that way, so they're going
Speaker 14: to have to make adjustments and distribution and operating costs
Speaker 14: in some way to be competitive again. So it's hard
Speaker 14: for me to accept that every tariff that ten points
Speaker 14: is going to make it to our pockets. I think
Speaker 14: there's competitive influences and a whole bunch of factors that
Speaker 14: play apart. And then we could BMW they built the
Speaker 14: factory in America. We can tell you what they built
Speaker 14: the factory in America. So I think that we have
Speaker 14: to look at this as a longer play.
Speaker 3: Well, look at Ford and GM. They built cars in
Speaker 3: Canada and Mexico, and then they'll get hit with tariffs
Speaker 3: when they bring those cars in and when the car
Speaker 3: components cross the border multiple times as a result of
Speaker 3: the manufacturing process.
Speaker 14: It's but I would say, you know who was sitting
Speaker 14: at who's controlling our government? And we allowed Ford Motor
Speaker 14: Company to start building plants in Canada and Mexico, why
Speaker 14: didn't we incentivize them to build them here? Then? So
Speaker 14: now I think we're backing into it. We have these
Speaker 14: these international companies that we want to make residents.
Speaker 2: Well, some of it is like, you know, the globalization
Speaker 2: right of our world, and right, so we've got allies,
Speaker 2: and we've got alliances, and we invest in your country
Speaker 2: and you invest in our country. Right, That's kind of
Speaker 2: how it's all happened. Is it bad if we kind
Speaker 2: of back off.
Speaker 8: Of all of that in your view?
Speaker 14: I don't know if we're backing off on all of that.
Speaker 14: Is understanding that in the post COVID world, every country
Speaker 14: is in a different economic place. Today, it's a different
Speaker 14: we're talking about environment, there's a very different environment now.
Speaker 14: America is operating at a significant deficit with significant debt.
Speaker 6: We have to fix this. The world knows we have
Speaker 6: to fix it.
Speaker 3: The world doesn't want us to cave in. We're the
Speaker 3: largest marketplace in the world. So it seems to me
Speaker 3: that the world.
Speaker 14: Has to accept that these changes have to be made
Speaker 14: to eliminate the deficits that we all have to make
Speaker 14: us all healthy. So can we do this together in
Speaker 14: a constructive way. That's what remains to be seen to me.
Speaker 3: What about your world at the bar world where tariffs
Speaker 3: could affect the liquor market Mexican tequila, which coming from Canada.
Speaker 6: That concerns me.
Speaker 14: But you know that Mexican tequila needs to compete, you
Speaker 14: know with other brands and other products. I don't have
Speaker 14: to sell as much tequila. I can move my menu
Speaker 14: and sell more bourbon. So you know, we do have
Speaker 14: options in the industry. And I think that the marketplace
Speaker 14: is a challenge. The liquor industry is in the toilet
Speaker 14: right now, so the marketplace is a challenge for them.
Speaker 14: I think they need to be aggressive and I don't
Speaker 14: think they're going to allow a tariff to take them down.
Speaker 2: Yeah, increasingly, and just there's a lot of interesting dynamics
Speaker 2: on the and the liquor.
Speaker 6: I'm not saying I.
Speaker 14: Know this to be a fact, but this is just
Speaker 14: how I feel about this. I think time will tell
Speaker 14: on well.
Speaker 7: In terms of policies.
Speaker 2: You talked about, you know, a shortage of workers in
Speaker 2: terms of immigration, and I know there's illegal versus legal,
Speaker 2: but you know, the hospitality industry got really hurt, you know,
Speaker 2: after the pandemic, a lot of people left that industry.
Speaker 7: Found better jobs, better paying jobs.
Speaker 8: What's your view on immigration.
Speaker 14: Well, I think legal immigration is important, but I think
Speaker 14: we need immigrants to come in. First of all, I
Speaker 14: don't want to hire somebody who I can't do a
Speaker 14: background check on.
Speaker 3: I can't do that.
Speaker 6: There's too much.
Speaker 14: Liability today, especially in the hotel industry, So I have
Speaker 14: to hire people that I can do background checks on
Speaker 14: that I can have confidence in hiring them, that they're safe,
Speaker 14: they're not thieves, my employees are safe, etc. And right
Speaker 14: now we don't have that. So when I look at
Speaker 14: the immigrants, the illegal immigrants that have come across that
Speaker 14: I can track their background, they have no value to me. Interesting,
Speaker 14: I'm not sure there are of much value to America
Speaker 14: if we can't track their backgrounds.
Speaker 3: I would say that someone might push back and say, well,
Speaker 3: if there's fewer people to do the labor that illegal
Speaker 3: immigrants do right now, that might pull from your labor
Speaker 3: labor force of legal immigrants working at restaurants and then
Speaker 3: cause your cost to go hire.
Speaker 14: Well, I didn't use the term. I'm trying to focus
Speaker 14: on criminals. There are legal immigrants that do have backgrounds,
Speaker 14: and you can verify who they are. I don't have
Speaker 14: an issue with that. I have an issue with the
Speaker 14: criminals or the people whose backgrounds we can check. The
Speaker 14: ones that have gang tattoos, etc. They're of no use
Speaker 14: to the hospitality industry, So that doesn't solve our problem.
Speaker 14: The good ones do. The ones that have backgrounds that
Speaker 14: came here with well good.
Speaker 2: Whoever comes in like, You've got to make sure you
Speaker 2: understand exactly.
Speaker 14: So we have to understand the people that come here
Speaker 14: with good intentions could be valuable contributors to our society.
Speaker 7: Twenty seconds tune in. What is that about?
Speaker 14: Oh, you know, I'm doing a small business radio show.
Speaker 14: You know, with all my experience in dealing with failure
Speaker 14: and the things I have new entrepreneurs, I want to
Speaker 14: talk to them.
Speaker 3: You know, entrepreneurs want to slow your role.
Speaker 8: I want to help out you.
Speaker 5: We do.
Speaker 14: It's a way for well, you guys are doing it
Speaker 14: in a little more sophisticated. I want to really help
Speaker 14: those small entrepreneurs, those people starting out in those family businesses.
Speaker 2: There's so many out there. John Taffer, congratulations on a
Speaker 2: tenth season. So appreciate you coming in, of course, executive
Speaker 2: producer of Bar Rescue.
Speaker 8: This is Bloomberg.
Speaker 15: Mac.
Speaker 2: How about you let me drive?
Speaker 3: Oh no, no, no no, this is not a toy.
Speaker 12: Please, I'll do the grave.
Speaker 3: I want to drive.
Speaker 4: It's a good question.
Speaker 3: This is the drive to the clothes.
Speaker 15: Now plums for me a thing well, driver, Kelvin.
Speaker 3: Don on Bloomberg Radio.
Speaker 7: Right, TikTok, everybody.
Speaker 2: About eighteen minutes left here in the trading session. You
Speaker 2: just started Bill Maloney breaking down the trade for you
Speaker 2: on this Thursday, and we've got stocks hovering near their
Speaker 2: highs of the session. So we are definitely seeing a
Speaker 2: rally underway. Up about one percent on the S and
Speaker 2: P five hundred just to recap now's T one hundred.
Speaker 2: We are looking at a gain of about one point
Speaker 2: two percent. We've seen stocks move up today. We have
Speaker 2: seen yields back off right now. That ten year note
Speaker 2: with the yield of four fifty two that despite two
Speaker 2: hot inflation prints. But the expectation is some of those components,
Speaker 2: the PPI components that go into the PCE that I
Speaker 2: think the expectation is that that number, that inflation print,
Speaker 2: which is the Fed's preferred inflation print, will actually trend low.
Speaker 3: You just got to peel back the layers and look
Speaker 3: at exactly what moved it, right, and then plug that
Speaker 3: into inflation prints. All I do is I look at
Speaker 3: the Bloomberg terminal tell me everything. Hey, let's see what
Speaker 3: Ben Cook has to say about this. He's portfolio manager
Speaker 3: of the Hennessy Energy Transition Fund.
Speaker 6: Ben.
Speaker 3: Good to have you with us. The Hennessy Energy Transition Fund.
Speaker 3: It's returned, according to our own data here at Bloomberg,
Speaker 3: eighteen point five to four percent annually for the last
Speaker 3: five years, and to perform the index and most peers.
Speaker 3: It puts it in this seventy eighth percentile among its peers.
Speaker 3: Has some very familiar energy names at the top Exon Mobile, Schneer, EQT, Conico, Phillips, Chevron,
Speaker 3: and more. Thanks so much for joining us. How are you.
Speaker 15: I'm doing great, Tim, Thanks for having me.
Speaker 3: Okay, so let's start on energy and just talk to
Speaker 3: you a little bit about the Trump administration and what
Speaker 3: you see as sort of the next catalyst for energy
Speaker 3: production here in the US, it does seem like the
Speaker 3: president isn't necessarily a one hundred percent aligned with what
Speaker 3: the producers want to do when it comes to drilling
Speaker 3: thread that needle for us.
Speaker 16: Yeah, I think that's an accurate way to discrib But
Speaker 16: obviously the shareholders today are driving the decisions by management
Speaker 16: teams to allocate capital in a way that is friendly
Speaker 16: to shareholders and not necessarily geared towards growth. So as
Speaker 16: much as the current administration would like to see the
Speaker 16: industry ramped drilling and drill baby drills, as Trump often says,
Speaker 16: the reality is is that those capital allocation decisions, again,
Speaker 16: are are being driven by companies that are answering to
Speaker 16: shareholders who like to see the return of capital.
Speaker 15: Proposition.
Speaker 3: Does that change if energy prices go higher?
Speaker 16: You know, I think that there's a potential incentive obviously
Speaker 16: to increase activity if prices go higher. But again, in
Speaker 16: terms of capital allo allocation priorities, the industry has gotten
Speaker 16: very comfortable with the primary focus being a return of
Speaker 16: capital to investors in the form of dividends and shary
Speaker 16: purchases and then of course managing drilling budgets.
Speaker 15: Ultimately, you know, I think we'd have to see a
Speaker 15: continued commitment.
Speaker 16: To the return to capital and a price level that
Speaker 16: would be adequate enough to not only deliver that shareholder
Speaker 16: return but also provide incremental cash flow that could be
Speaker 16: redirected towards drilling.
Speaker 12: Well.
Speaker 2: But and again it's a balance, right, You're not going
Speaker 2: to have these major integrated oil companies and everybody in
Speaker 2: the energy sector go out and drill if it doesn't
Speaker 2: make financial sense. Right, There is a business formula dynamic, right,
Speaker 2: in terms of what it's going to cost to get
Speaker 2: that oil out of the ground and then ultimately what
Speaker 2: they can sell it for or if they expect to
Speaker 2: be selling you know, selling it for by the time
Speaker 2: they get it out of the ground. So there's it's
Speaker 2: not so simple as just drill baby, drill us.
Speaker 5: Right.
Speaker 15: No, that's exactly right.
Speaker 16: I mean, the business has gotten very efficient over the
Speaker 16: last you know, call it five ten years. The development
Speaker 16: of shale resource here in the United States has benefited
Speaker 16: from them provements in technology. Companies are continued to develop
Speaker 16: complete the drilling, the completion process has become more efficient.
Speaker 16: These companies are doing more with less and they're they're uh,
Speaker 16: they're achieving cost savings as well. And so you know,
Speaker 16: the industry has become very resilient and generally in the
Speaker 16: in the more attractive shale place as have they've reduced
Speaker 16: the let's call it the the development.
Speaker 15: Cost per barrel.
Speaker 16: So the profit margin potentially, you know, with a lower
Speaker 16: price could remain the same. But again it's the profit. Uh,
Speaker 16: it's the motive by the companies to return capital to investors.
Speaker 15: I think that is the primary objective going forward.
Speaker 3: How are you looking at potential tariffs on Canada specifically
Speaker 3: with regard to energy, How does that uh work in
Speaker 3: your world of these energy companies that you follow, because
Speaker 3: a lot of that oil comes to the US.
Speaker 15: Yeah, sure, it sure does.
Speaker 16: I mean, you know, over four million barrels a day
Speaker 16: is imported into the United States from Canada, and it
Speaker 16: certainly is a meaningful contributor to the refining appetite for
Speaker 16: crude oil in the Midwest. Yeah, you know, it's it's
Speaker 16: not clear though that an immediate you know, uptick and
Speaker 16: pricing will be fully borne by the US consumer. Consumer
Speaker 16: behavior ultimately will determine how much of that increase and
Speaker 16: that that tear for the imposition of that taxi will
Speaker 16: affect the price here in the US. We could potentially
Speaker 16: see the US refining industry, particularly in the Midwest, a
Speaker 16: resort to switching to supplies from the Rocky Mountain region
Speaker 16: or even the bock and shale region. So that's a possibility.
Speaker 16: You know, on the other side of the border, Canadian
Speaker 16: producers could lower their price as well.
Speaker 15: So you know, in terms of.
Speaker 16: Tariffs, whether it's Canada or you know, our Asia of
Speaker 16: training partners there, it really have to look at it
Speaker 16: on a country by country basis.
Speaker 15: You know.
Speaker 3: The President said just in the last couple of hours
Speaker 3: from the Oval Office, Canada will be a very interesting
Speaker 3: situation because we just don't need their product, and yet
Speaker 3: they survive off the fact that ninety five percent of
Speaker 3: what they do Canada. Then he goes on to talk
Speaker 3: about taxes in the fifty first state, But do you
Speaker 3: agree with him that we don't need their product.
Speaker 16: Well, at the end of the day, you know, trade
Speaker 16: relationships are are important obviously for a variety of reasons,
Speaker 16: and I think you know, there's there's a lot of
Speaker 16: negotiating tactic that's embedded in these these tariff headlines that
Speaker 16: we're continuing to see. Could we switch away fully away
Speaker 16: from you know, four million barrels a day of imported
Speaker 16: crew product from Canada immediately? I suppose we potentially could
Speaker 16: over the long term. It would come at a cost,
Speaker 16: but the point remains, you know, I think it's the
Speaker 16: Canadian volumes coming into the United States are very important
Speaker 16: for our refining industry, and you know, it would be
Speaker 16: likely a difficult transition for us to make to fully
Speaker 16: switch away from that crude.
Speaker 2: I'm curious since it is an energy transition fund, and
Speaker 2: I did see the biggest utility in Virginia, home to
Speaker 2: the Global Hotspot Data Center Alley, so I demand from
Speaker 2: data centers and development almost double in the last half
Speaker 2: of twenty twenty four. So I do wonder about how
Speaker 2: you are thinking about the AI play in particular. Certainly
Speaker 2: some questions came to the forefront after deep Sea came
Speaker 2: out a few weeks ago and just looked like it
Speaker 2: could do AI a model comparable to potentially chat cheapt
Speaker 2: but less expensive and not requiring necessarily all of the
Speaker 2: energy just got about thirty seconds. Are you rethinking that
Speaker 2: and the impact that could have on some of the
Speaker 2: energy players.
Speaker 15: No, not rethinking that today, Caroly.
Speaker 16: You know, the reality is what we're hearing from the
Speaker 16: companies across the natural gas value chain, whether it's producers
Speaker 16: of midstream operators or even the utilities themselves, is the
Speaker 16: demand for data center build out, ultimately the natural gas
Speaker 16: that will power the power generation needed to fuel those
Speaker 16: data centers. It's a very significant growth driver, and we'll
Speaker 16: continue to see very impressive growth rates in the electric
Speaker 16: utility industry over the balance of the decade. We'll likely
Speaker 16: see growth rates and electric demand on the order of
Speaker 16: a percent and a half per year, which compares very
Speaker 16: well relative to last ten fifteen years, a roughly flat
Speaker 16: electric demand growth. So the trend is very strong. Don't
Speaker 16: see any reason to believe that's not going to continue.
Speaker 7: All right, got it?
Speaker 2: Bred, Thank you so much. Ben Cook, portfolio manager at
Speaker 2: the Hennessy Energy Transition Fund, joining us from Dallas, Texas.
Speaker 8: Do not go anywhere.
Speaker 2: We're counting you down to the clothes on this Thursday.
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