Speaker 1: This is Wall Street Week. I'm David Weston bringing you
Speaker 1: stories of capitalism this week. As the business and political
Speaker 1: elites gathered in Davos, Switzerland, what did they try to
Speaker 1: accomplish and what are the odds of success? Plus President
Speaker 1: Trump pledges to deport unlawful immigrants by the hundreds of thousands,
Speaker 1: we look at what that could mean for the economy
Speaker 1: and the rapid growth of non alcoholic beer, what is
Speaker 1: driving it and how far could it go? But we
Speaker 1: start with the tragedy of the Los Angeles fires, measured
Speaker 1: first and foremost in the lives lost and the homes destroyed.
Speaker 1: It's much more than a story about money, but it
Speaker 1: is also about money, and sadly only the most recent
Speaker 1: chapter of a story We've brought you in December about
Speaker 1: how much we are willing to pay to protect what
Speaker 1: we value. Then it was losses from hurricanes in Florida.
Speaker 1: Now it's about the even greater losses from fires in
Speaker 1: Los Angeles.
Speaker 2: H It's a lot of a lot of hard work building,
Speaker 2: building a business and seeing.
Speaker 3: This it's tough, and we can see fireballs just rolling
Speaker 3: up the street.
Speaker 4: Really scary when you can see the flames coming up
Speaker 4: over the houses. It looked like pandemonium.
Speaker 5: You love retired firefighters, so I know, I know the
Speaker 5: dangerous one is a wind driven fire. There's nothing now,
Speaker 5: you know, very little we can do.
Speaker 6: It's definitely tough. There's a lot of people who don't
Speaker 6: have insurance.
Speaker 1: Yeah, as those that lost their homes try to figure
Speaker 1: out how or even if they can rebuild, they'll be
Speaker 1: turning to their insurance companies. JP Morgan estimates the insured
Speaker 1: damages covered could exceed twenty billion dollars, which would make
Speaker 1: these the costliest wildfires in US history. So could this
Speaker 1: push California's insurance market to its limit?
Speaker 3: This is speculative and shifting day by day, so we're
Speaker 3: not sure exactly where it's going to land. But the
Speaker 3: insurance industry that have looked into this and have looked
Speaker 3: at the impact on their book are not running for
Speaker 3: the hills.
Speaker 1: Jerry Theodoro is director of the Finance, Insurance and Trade
Speaker 1: Policy Program at Our Street Institute, a DC based think
Speaker 1: tank that promotes free markets. Like Theodoro, SMP Global Ratings
Speaker 1: says the insured losses from the LA fires should be manageable.
Speaker 1: In part, that's because it's not just the primary insurance
Speaker 1: companies bearing the losses, it's also the reinsurance companies that
Speaker 1: back them.
Speaker 3: Up made it. Insured losses are twenty to thirty billion
Speaker 3: dollars and reinsurance is going to a big piece of
Speaker 3: that risk that's spread all over the world Bermuda, London,
Speaker 3: Continental Europe, the Far East. Reinsurance companies taking a piece
Speaker 3: of the pain. So a big company like the Farmers,
Speaker 3: which is the second largest insurer in California for homeowners,
Speaker 3: has got over one hundred reinsurers on its reinsurance panel.
Speaker 1: As the ones insured homeowners are the first step in
Speaker 1: a ladder of risk that starts with individuals or businesses,
Speaker 1: goes up to insurers, than to reinsures, and ultimately can
Speaker 1: hit investors or even taxpayers. With each step, the risk
Speaker 1: is calculated, changed, repackaged and spread around. But one thing
Speaker 1: we know for certain, it never goes away. Instead, it's
Speaker 1: increased and with it the premiums have also been on
Speaker 1: the rise.
Speaker 3: It's a tragic event and it's one that the insurance
Speaker 3: industry I think is prepared to deal with of this
Speaker 3: incredible distribution of risk. I mean, think about having one
Speaker 3: hundred reinsurers on your panel you know Lloyd syndicates, big guys,
Speaker 3: big reinsurers in continental Europe Bermuda reinsurans. There are some
Speaker 3: US insurance Korea, China, other countries too that have got
Speaker 3: reinsurance companies that take a bite out of the apple
Speaker 3: of a company that is seeding its risk to the
Speaker 3: reinsurance market so that it pays up to a certain amount.
Speaker 3: This is the most that we're prepared to lose.
Speaker 7: Swissree is a global reinsurance company and our clients are
Speaker 7: insurance companies. We partner with insurance companies to protect their
Speaker 7: balance sheets.
Speaker 1: Monica Ningen is CEO of US Property and Casualty Reinsurance
Speaker 1: at Swiss re, one of the largest reinsurers in the world.
Speaker 7: When it comes to reinsurance rates, there is an impact
Speaker 7: from climate change, but it's relatively small. The other factors
Speaker 7: being economic in inflation, wage inflation, inflation of construction plays
Speaker 7: a big factor. Especially in the last few years. We
Speaker 7: see people moving to areas that are more prone to catastrophes.
Speaker 7: We also see people moving into forests that are of
Speaker 7: course impacted by wildfires.
Speaker 1: So there's a big.
Speaker 7: Component of it that comes from just people living in
Speaker 7: places that are more exposed to catastrophes.
Speaker 1: With the help of reinsurance, insurers may be able to
Speaker 1: cover the enormous losses in Los Angeles, but the owners
Speaker 1: of homes and businesses will pay part of the cost
Speaker 1: through higher premiums. Across the country, insurance prices have surged
Speaker 1: over the past two years. Since the beginning of twenty
Speaker 1: twenty three, the cost of homeowners insurance nationwide has climbed
Speaker 1: over twenty one percent, while CPI rose just five percent.
Speaker 1: The price of some commercial insurance is up nearly fifteen
Speaker 1: percent over the same period. After seven of the twelve
Speaker 1: major companies writing policies in California cut back on their coverage,
Speaker 1: California recently changed some of its regulations, specifically to let
Speaker 1: insurers take into account higher rates paid to reinsurers and
Speaker 1: to use forward looking models to project losses like those
Speaker 1: suffered in La. But as efficient as insurance and reinsurance
Speaker 1: may be at distributing the risk up and down the chain,
Speaker 1: the best remedy, by far is to avoid more minimize
Speaker 1: the risk altogether. For a disaster like wildfires that begins
Speaker 1: with enhanced firefighting capacity.
Speaker 8: The La County Fire Department was prepared for one or
Speaker 8: two major brush fires, but not for this is not
Speaker 8: a normal red flag glurt.
Speaker 1: Months before the Palisades Fire, the LA Fire Department's budget
Speaker 1: was cut by about seventeen million dollars.
Speaker 9: Unless that local government's budget has a whole bunch of
Speaker 9: just reserve extra cash, it means that to increase some
Speaker 9: port portion of those services or capacities always comes at
Speaker 9: the expense of something else. Right now, we can point
Speaker 9: at water, we can point it responders, we can point
Speaker 9: at all kinds of things.
Speaker 1: Frank Freevolt is a former fire chief who now leads
Speaker 1: the Wild and Urban Interface Fire Institute at California Polytechnic
Speaker 1: State University.
Speaker 9: There are limits to the water system that you can
Speaker 9: expand it's not just about getting the water someplace. It
Speaker 9: needs to have a certain amount of pressure, especially in
Speaker 9: firefighting situations. You have to increase capacity of storage. You
Speaker 9: have to improve the distribution system, and that is that
Speaker 9: is not cheap. You that have to lay additional distribution
Speaker 9: lines into the infrastructure means tearing up roads, going through
Speaker 9: other utilities, disrupting traffic. Or you need to increase the
Speaker 9: diameter of the things you already have, which is really
Speaker 9: the same thing.
Speaker 10: LA will rise, and make no mistake, I am confident
Speaker 10: that we.
Speaker 1: Rebuild, But what will that rebuilding look like and will
Speaker 1: it be different in ways that reduce the risk of
Speaker 1: these sorts of losses being repeated in the future. Risk
Speaker 1: models flag the Palisades due to several factors, including high
Speaker 1: home values, challenging terrain, and windy, dry weather.
Speaker 4: The more we build out into fire prone areas, and
Speaker 4: in California, many of our areas are fire prone, we
Speaker 4: have these very flashy climate episodes of really wet, wet, wet,
Speaker 4: then dry, dry, dry, hot, hot, hot, which means that
Speaker 4: the vegetation at any given time is very susceptible to burning,
Speaker 4: and so the more humans are out there at the
Speaker 4: urban interface with this highly flammable landscape, the more likely
Speaker 4: there will be an ignition.
Speaker 1: Stephanie Pincel is the director of the California Center for
Speaker 1: Sustainable Communities at UCLA. She points out that city planners
Speaker 1: don't have as much say in urban planning as one
Speaker 1: might think.
Speaker 4: This is not the first fire. This is one of many, many, many,
Speaker 4: many fires that has occurred. The problem is, we, like
Speaker 4: have been accustomed to living in a certain way, and
Speaker 4: so it's very hard for policymakers to resist the desire
Speaker 4: to rebuild in exactly the same way. Urban planners have
Speaker 4: very little to do with that, in fact, because if
Speaker 4: the mayor and the governor and others proclaim that things
Speaker 4: are going to be rebuilding exactly the same way in
Speaker 4: exactly the same places, the urban planner only has to
Speaker 4: follow the you know, they have to follow along. They
Speaker 4: are not at the leading edge.
Speaker 1: Taking steps to reduce future risk will not come cheap,
Speaker 1: which means that there has to be the political will
Speaker 1: to spend the money that's needed.
Speaker 4: We have to really think practically about what rebuilding.
Speaker 2: Can look like.
Speaker 4: The other thing is that is not talked about very much.
Speaker 4: We're a tax restricted state, and we need to have
Speaker 4: a vigorous and serious discussion. We have to do things
Speaker 4: like public participation, budgeting. Give people a budget, where would
Speaker 4: you spend the budget. Let's have a discussion about this
Speaker 4: and bring people into the understanding of what governing your
Speaker 4: place is like and that these decisions are not easy decisions.
Speaker 6: I'm just happy to see the community rallying together. I
Speaker 6: know everyone's been on the phone texting about how we're
Speaker 6: going to come back from this, and it's going to
Speaker 6: take a lot of effort in a lot of time.
Speaker 6: But I love the Zoork, Kyle says, and I really
Speaker 6: ex tested my home to come back together and rebuild.
Speaker 1: But in the end, it all comes back to those
Speaker 1: experiencing the laws most directly and painfully. It turns on
Speaker 1: the behavior of those of us at the bottom of
Speaker 1: the insurance chain to determine whether and how best to
Speaker 1: protect ourselves from the next one.
Speaker 7: So when you look to the future, I think there's
Speaker 7: a few things that will change. I think that consumers
Speaker 7: were still to better understand their own risk exposure and
Speaker 7: what their own resiliency looks like. As events impact our
Speaker 7: lives every day, consumers are being more aware than they
Speaker 7: ever have been on the risks that their homes face.
Speaker 9: Whatever we do, do not build back in the same
Speaker 9: place in the same way, or we have the same consequence.
Speaker 1: Coming up. We turn to the snowy slopes of the
Speaker 1: Alps where we talk with our special contributor Larry Summers
Speaker 1: and have Sonny Beschloss of Rock Creek about what the
Speaker 1: move away from globalization means for things like the World
Speaker 1: Economic Forum that's next on Wall Street Week. The World
Speaker 1: Economic Forum was founded in nineteen seventy one to bring
Speaker 1: together leaders from around the world to develop a common
Speaker 1: agenda on important policy issues. The theme this year is
Speaker 1: collaboration in an intelligent world. Collaboration is something we aren't
Speaker 1: seeing all that much of.
Speaker 11: I must say.
Speaker 1: We are joined once again now by our very special controller,
Speaker 1: Larry Summers of Harvard, who actually has now been coming
Speaker 1: here for parts of five decades. So welcome Larry. It's
Speaker 1: great to have you.
Speaker 11: Good to be with you here in Davos.
Speaker 1: David, so give us your perspective of the years. I mean,
Speaker 1: it was a very different world in nineteen seventy one.
Speaker 1: How has Davos changed or not changed over that period
Speaker 1: of time.
Speaker 11: It's still cold, it's still crowded, people are still networking
Speaker 11: at a ferocious rate. I think the world saw Davos
Speaker 11: and the people who came to Davos with a bit
Speaker 11: more admiration some years ago than today. If you look
Speaker 11: around the world, do the election of President Trump in
Speaker 11: the United States, what's happened in France with Lapan, what's
Speaker 11: happening in Germany? Almost everywhere? The kinds of political figures
Speaker 11: who don't really like Davos, and the kind of cosmopolitan
Speaker 11: globalism for which it stands are riding high, and people
Speaker 11: here have different reactions. Some are scared, some are angry,
Speaker 11: some are a little bit contemptuous. I think it's important
Speaker 11: that everyone be listening and reflecting on the political strange
Speaker 11: that clearly are more present in democracies today than they
Speaker 11: were a decade or two ago.
Speaker 1: There has been a fair line discussion about what the
Speaker 1: reelection of President Trump means. A lot of discussions as
Speaker 1: well about general of AI, something that you've been talking
Speaker 1: about for some time, and the technological innovation that's going on.
Speaker 1: What do you make of that, and maybe as important,
Speaker 1: does technology help us avoid financial mistakes.
Speaker 11: I don't think technology is any kind of armor against
Speaker 11: financial access. I even argue the opposite. I think almost
Speaker 11: all bubbles start with a story that's based in reality.
Speaker 11: The Internet was a big thing in the nineties, but
Speaker 11: that didn't stop a bubble from developing. In nineteen ninety nine,
Speaker 11: Japan had really come into its own as a highly productive,
Speaker 11: rapidly growing economy, but that even contributed to the massive
Speaker 11: Japanese bubble in the nineteen eighties. Twenties were a period
Speaker 11: of extraordinary technological change. It was the biggest period for
Speaker 11: diffusion of both electricity and the automobile in the United States,
Speaker 11: but that didn't stop. Indeed, it contributed to the euphoria
Speaker 11: that led to accesses in the market and to a
Speaker 11: sharp decline in the market in the nineteen twenties. So
Speaker 11: I think it's a mistake for people in markets to
Speaker 11: lose sight of the fact that even if there are
Speaker 11: happy things happening technologically, that those are not armor against
Speaker 11: financial or cyclical excess. And I think that's particularly important
Speaker 11: at a moment when there are lots of questions about
Speaker 11: the processes generating public policy.
Speaker 1: A Sunny Beach Loss of Rock Creek has been participating
Speaker 1: in Davos meetings for many years, although she didn't make
Speaker 1: it to Switzerland this year. We asked her about how
Speaker 1: it has adapted to a changing world and what comes next.
Speaker 12: First of all, the number of people going has changed
Speaker 12: a lot, David. This year, I think it will be
Speaker 12: close to three thousand people going from one hundred and
Speaker 12: thirty countries. It started much more as a European, much
Speaker 12: smaller focused group for business leaders only, so in that
Speaker 12: way it has changed. It has also changed in terms
Speaker 12: of the scope it used to really look at a
Speaker 12: few topics, and now it looks across so many different sectors,
Speaker 12: from energy to tech, to utilities, to infrastructure, to a
Speaker 12: lot of the soft and to a lot of issues
Speaker 12: that are interested to nonprofits only and governments. So the
Speaker 12: scope of the topics covered has changed. The biggest change
Speaker 12: I find is that let's say if you went there
Speaker 12: in the early nineteen nineties, as I did, what you
Speaker 12: would find is that you.
Speaker 2: Could cross collaborate a lot more.
Speaker 12: By that, I mean if you were in one sector,
Speaker 12: let's say finance or economics or multilateral groups, you would
Speaker 12: be talking to other groups as well, and you would
Speaker 12: go into meetings that you knew nothing about and come
Speaker 12: back learning a lot about specific topics. Today with is
Speaker 12: very very established. But one both advantage and disadvantage is that.
Speaker 2: You go in your own lane.
Speaker 12: So if you are a business leader, you are meeting
Speaker 12: with other business leaders.
Speaker 2: You may go to the morning yoga.
Speaker 12: Session with a lot of other people, but really the
Speaker 12: most of your sessions are pretty determined. If your university president,
Speaker 12: you go into meetings with other university presidents.
Speaker 1: Obviously, the World Economic Forum has evolved over the many
Speaker 1: years it's been in existence. The world has changed as well.
Speaker 1: When it was started back in nineteen seventy one, most
Speaker 1: of the multilateral cooperation set up in the wake of
Speaker 1: World War Two was still intact. A lot of is
Speaker 1: challenged today, if not absolutely taken apart. How does the
Speaker 1: world to the way it exists now really make it
Speaker 1: possible for we F to do what it's trying to do.
Speaker 12: I think, as you said, the world is a very
Speaker 12: different place today, and I think what the WEF allows
Speaker 12: is often actually at the sidelines of WEF for people
Speaker 12: who are having some sort of conflict to meet and
Speaker 12: talk in ways that they might not be able to do.
Speaker 12: So you do see politicians who are meeting there in
Speaker 12: quiet ways. A lot of business gets done there in
Speaker 12: also relatively quiet ways. So people looking at M and
Speaker 12: A or people looking at specific kinds of deals get
Speaker 12: a lot accomplished during these meetings in a very concentrated way.
Speaker 1: Klaus Schwab obviously found it and continues to lead it,
Speaker 1: and the agenda for this year, as I understand, is
Speaker 1: collaboration in an intelligent world, the intelligence in part in
Speaker 1: artificial intelligence, and he's made a call for really having
Speaker 1: global cooperation and dealing with generator of AI. What are
Speaker 1: the prospect for that?
Speaker 12: I think, David, it would be great if there was
Speaker 12: cooperation globally across the globe on general AI, but as
Speaker 12: we both see, that is probably not very likely, if anything,
Speaker 12: With the existing geopolitical issues that we see, there's more
Speaker 12: division on how countries and scientists and technical people are developing.
Speaker 12: And if you're sitting in the US or you're sitting
Speaker 12: in China or other parts of the world, I think
Speaker 12: people are not necessarily collaborating.
Speaker 2: Even inside countries.
Speaker 12: Companies are not necessarily collaborating as we see whether you're
Speaker 12: looking at open AI or other companies that are involved
Speaker 12: in developing a lot of the new technology. I think
Speaker 12: there's not necessarily as much collaboration as you would like.
Speaker 12: But I think the bigger topic, and class does touch
Speaker 12: on this is not just collaboration is probably not going
Speaker 12: to happen as much as you would like in these meetings.
Speaker 1: When we think about global cooperation, I am strugg by
Speaker 1: the difference between the response the global financial crisis in
Speaker 1: two thousand and eight two thousand and nine. We're to
Speaker 1: a large degree, I believe nations, even rival nations, came
Speaker 1: together to fix it and the response to COVID nineteen
Speaker 1: where it's not at all clear that they did come
Speaker 1: together in twenty twenty, is that indicating that it's harder
Speaker 1: and harder to get rival nations to really work with
Speaker 1: one another.
Speaker 12: I think definitely much harder today in terms of their
Speaker 12: rivalries between nations. But also what has happened is the
Speaker 12: world economic order.
Speaker 2: Has changed what you had.
Speaker 12: Maybe if you looked even at the stock market, you had,
Speaker 12: for example, the Chinese stock market had become large, and
Speaker 12: you saw that it was a big share of the market.
Speaker 12: European markets were a little bit bigger. Today you have
Speaker 12: such dominance of the US when it comes to finance,
Speaker 12: when it comes to the size of the US companies,
Speaker 12: when it comes to the power of the US dollar.
Speaker 2: A lot has shift that.
Speaker 12: While you know, ten years ago we might have thought
Speaker 12: there would be more diversification with the global seuth with
Speaker 12: a lot of emerging markets doing better, with Europe doing
Speaker 12: better with the EU, what we have found is that
Speaker 12: whether it is regulation in the EU, whether you know,
Speaker 12: the differentiation in emerging markets among them those who have
Speaker 12: used technology in a different way compared to the other ones,
Speaker 12: and where there's been more political strife. And by the
Speaker 12: way we should look at the red points when you
Speaker 12: look at the wef new risk areas, the risk of
Speaker 12: war has increased, particularly in emerging markets. So you have
Speaker 12: a world much more dominated today by the US in
Speaker 12: a way you didn't before. So this strife that we see,
Speaker 12: we see I think increasing because of the huge differentiation
Speaker 12: that you see between the US and other countries. And
Speaker 12: I think China is going through so much of its
Speaker 12: own problems where internal consumption is not going up, where
Speaker 12: you have the demographic issues, where you have growth issues,
Speaker 12: where the growth the economy is coming up to much
Speaker 12: lower levels. So you are in a different world that
Speaker 12: that's not very conducive to cooperation.
Speaker 1: If we were creating the equivalent of a World Economic
Speaker 1: Forum today, would we do it the same way? I
Speaker 1: wonder there are so many alternative meetings that are held
Speaker 1: around the globe pretty much every day of the year,
Speaker 1: somebody's meeting, and the need for cooperations global coverage has
Speaker 1: gone up, even as the prospects for it may have
Speaker 1: gone down. Is this the most effective way to really
Speaker 1: develop global agendas on these important issues.
Speaker 12: I think if you were starting from scratch, you might
Speaker 12: do it differently. You might again go back a little
Speaker 12: bit to the origins of web and truly try to
Speaker 12: get groups that do not necessarily come across each other
Speaker 12: or talk to each other to start talking much more
Speaker 12: across and sort of take out the hierarchy out of
Speaker 12: it a little bit. So in that way, I think
Speaker 12: things could be done differently today and also bring young
Speaker 12: people into the conversation much more, because at the same time,
Speaker 12: as well has accomplished bringing a lot of different kinds
Speaker 12: of people, it is still fairly regimented when it comes
Speaker 12: to different populations.
Speaker 2: I think you would do it differently.
Speaker 12: One thing, David that was very interesting with that COVID
Speaker 12: is when COVID happened, I think a lot of people
Speaker 12: thought that wef would die potentially, But what we learned
Speaker 12: is that people, as much as we like to meet
Speaker 12: on zoom and as much as we like to meet
Speaker 12: more efficiently electronically and digitally, we really want to meet
Speaker 12: each other in person. So you certainly need people to
Speaker 12: come together in person to discuss big topics and come
Speaker 12: to some sort of resolution.
Speaker 1: Coming up non alcoholic beer is all the rage, at
Speaker 1: least for some We take a look at the fastest
Speaker 1: growing non alcoholic brand in the United States Athletic. That's
Speaker 1: next on Wall Street Week. This is a story about habits,
Speaker 1: those we love and those we should probably do something about.
Speaker 1: Sold the barrels of bear and full.
Speaker 2: Don't you know what.
Speaker 13: I'm one of those.
Speaker 1: I love beer, so here's the right place to be.
Speaker 1: Alcohol has been part of human society since the first
Speaker 1: beers appeared in the Stone Age. It spans everything from
Speaker 1: pop culture, go to the Winchester.
Speaker 13: I have a nice coat client for all lists of blowouts.
Speaker 1: To presidents. But now, after thousands of years, change may
Speaker 1: be coming to the one point six trillion dollar alcohol industry.
Speaker 10: We used to have a phrase in the early days,
Speaker 10: people drinking good times and people drinking bad times. Well,
Speaker 10: the trends appeared to be disproving that.
Speaker 1: Brad Berkman's family has been in the alcohol business since
Speaker 1: his great grandmother became one of the first women to
Speaker 1: hold a New York state liquor license. Now he's a
Speaker 1: lawyer at Greenspoon Martyr representing breweries, wineries and distilleries.
Speaker 10: There's a lot of concern with sales Valumely twenty twenty
Speaker 10: four as we move into twenty twenty five. We've seen
Speaker 10: significant drops in all categories of alcoholic beverages, that is, wine, beer,
Speaker 10: and distilled spirits, and the industry is a bit rattled.
Speaker 1: By it, and it's young people driving the change. In
Speaker 1: a survey last year, IWSR found that the number of
Speaker 1: US drinkers who had added non alcoholic beverages to their
Speaker 1: mix had gone up from seven percent to thirteen percent.
Speaker 1: For millennials it was twenty two percent, with gen Z
Speaker 1: following at fifteen percent.
Speaker 10: I mean boomers are still drinking, right, We're not seeing
Speaker 10: that much of a difference in all categories. But gen
Speaker 10: zs as I mentioned, are looking for health alternatives or
Speaker 10: healthier alternatives, at least those things they perceive to be healthier.
Speaker 10: So you know what does that mean. It could mean
Speaker 10: non alcoholic alternatives, It could mean low proof drinks, low
Speaker 10: proof spirits. It could mean Selzer's or similar products.
Speaker 14: While bar and restaurant volume is an overall low percentage
Speaker 14: of our volume, I think it's a really high introduction
Speaker 14: to our product.
Speaker 1: One of those making the change from alcoholic to non
Speaker 1: alcoholic beers was a young trader at point seventy two
Speaker 1: named Bill Schufeld.
Speaker 14: I was turning thirty, taking my career more seriously. I
Speaker 14: was about to get married and kind of evaluating all
Speaker 14: these major goals in my life, like health, wellness, relationships, career,
Speaker 14: being a father. And there's one thing there was a
Speaker 14: ceiling on all those things, and that was alcohol. And
Speaker 14: I kind of realized, you know, I'm going out to
Speaker 14: three or four work dinners a week than some things
Speaker 14: dinner with my wife and relaxing on weekends. And I
Speaker 14: went from someone who was surviving workouts to loving working
Speaker 14: out and so basically feeling the best I've ever felt
Speaker 14: and being as productive as ever. But I was still
Speaker 14: at all those social things, and I realized there was
Speaker 14: no other half of the adult beverage menu. So if
Speaker 14: you wanted to be in all those places and not drink,
Speaker 14: there weren't options.
Speaker 1: So Schufelt teamed with craft brewer John Walker to create
Speaker 1: some of those non alcoholic options, founding Athletic Brewing in
Speaker 1: twenty seventeen. Today, the Connecticut based brewery is rapidly approaching
Speaker 1: a one billion dollar valuation, writing a surge in non
Speaker 1: alcoholic beers since twenty eighteen, The category now accounts for
Speaker 1: one point five percent of total beer sales in America.
Speaker 14: Most food and beverage businesses outsourced production, at least in
Speaker 14: the early days. We made the opposite quality decision to
Speaker 14: do everything ourselves. And so our first we built. It
Speaker 14: took me one hundred and twenty investor meetings to raise
Speaker 14: our nearly three million dollars from sixty six incredible angel investors.
Speaker 14: And we thought we were building this brewery for five years,
Speaker 14: and it was oversized. Enough cushion there, and we outgrew
Speaker 14: that breery in ten months, and so immediately we're going
Speaker 14: back to our investors and seeking a bigger plan. And
Speaker 14: so our next bury was three thousand miles away in
Speaker 14: San Diego. It was about ten times the footprint and
Speaker 14: about twenty times the output of the original plan. So
Speaker 14: the first one we built connected was the first ever
Speaker 14: non alcoholic production facility in the US, and then immediately
Speaker 14: built one two years later ten times the size of that.
Speaker 14: And then the year later we started building another one
Speaker 14: on the East coast that was two and a half
Speaker 14: times the size of that bigger one and about fifty
Speaker 14: times the size of our original brewery.
Speaker 1: As you look to continue to growing your business, what's
Speaker 1: the lowest hanging fruit. Is it to get other areas
Speaker 1: that you reached geographically, Is it to get more people
Speaker 1: drinking category, is to move into other beverages.
Speaker 14: I'd say most of all the above. I'd say naturally,
Speaker 14: our awareness is still pretty low, only about twenty percent
Speaker 14: of Americans, even though the non i'll call category has
Speaker 14: been totally revamped and is a really exciting place. So
Speaker 14: I think new consumers becoming aware to the category in
Speaker 14: the independent on and off premise so privately owned stores,
Speaker 14: our penetration is still pretty low. Also, it's below twenty
Speaker 14: percent nationally, so there's a lot of opportunity to be
Speaker 14: more available. It's a really underdistributed category, despite it being
Speaker 14: the fastest grown category in beer the last five years.
Speaker 14: So I think new populations, awareness, distribution are all probably
Speaker 14: the biggest opportunities.
Speaker 1: It may be small, but it's growing fast, and Schufeld
Speaker 1: thinks that growth has a way to go.
Speaker 14: I really believe that for zero to two percent is
Speaker 14: the hardest, like getting the boulder rolling. I think two
Speaker 14: to ten percent is going to be incredibly faster than
Speaker 14: people think, and ten to twenty percent will happen in
Speaker 14: a blank and I think it's probably going far beyond
Speaker 14: that also, which that would point into a category that's
Speaker 14: somewhere in the twenty five to fifty billion dollar range
Speaker 14: in the not too distant future.
Speaker 1: Reaching those numbers would require the sort of generational culture
Speaker 1: shift that Schufeldt feels is beginning to take hold in
Speaker 1: corporate America.
Speaker 14: I kind of saw in my financial career over the
Speaker 14: twelve years I was in finance, it went from being
Speaker 14: a badge of honor to be hungover and out entertaining
Speaker 14: to really frowned upon, and people were really performance driven
Speaker 14: and health driven, and so I saw that change in myself,
Speaker 14: and so I was definitely extracolating that there's this big
Speaker 14: tipping point coming in society, which has actually played out
Speaker 14: over the last ten years.
Speaker 1: When you talk about tipping points for alcohol, you have
Speaker 1: to give credit to Dame INGA Beale, who in twenty seventeen,
Speaker 1: when she was the first female CEO of Lloyd's of London,
Speaker 1: instituted a ban on employees having alcohol between the hours
Speaker 1: of nine and five, part of a broader initiative to
Speaker 1: modernize an institution established over three centuries ago.
Speaker 13: I started working in the eighties and I can remember
Speaker 13: going to the bar, going down the pub with the
Speaker 13: other underwriters, with my coworkers, with the brokers who brought
Speaker 13: us the business, and necking down a few glasses of beer.
Speaker 13: So I remember growing up like that. But you know,
Speaker 13: times had moved on and I said, look, we need
Speaker 13: to make sure that we've got people sober when they're
Speaker 13: making big, multi billion decisions sometimes. So we said, right,
Speaker 13: we're going to have an drug and alcohol policy, which
Speaker 13: means you won't be able to consume alcohol if you're
Speaker 13: coming back to work during the day, so if you're
Speaker 13: in working hours, no alcohol.
Speaker 1: Wow.
Speaker 13: I had no idea that that would get me more
Speaker 13: headlines than anything else I did. While I was modernizing Lloyd's,
Speaker 13: the technology I was doing, introducing the innovation lab, opening
Speaker 13: up new markets, this was the one, this banning alcohol
Speaker 13: at lunchtime, that got me more head lines around the world.
Speaker 13: I wasn't expecting it, so there was this huge backlash.
Speaker 13: And when you're going through any change and you haven't
Speaker 13: really involved and included people enough, you could always have backlash.
Speaker 13: If you're ahead of your time, you're trying to force
Speaker 13: something through, particularly when it's unexpected. I mean, nobody likes
Speaker 13: to be perhaps told what to do, so I was
Speaker 13: accused of operating a nanny state so fundamentally trying to
Speaker 13: control everything that everyone was doing. So that was very
Speaker 13: much a backlash on me personally, and people didn't really
Speaker 13: understand why it was necessary because they'd been used to
Speaker 13: it for so long. They've been used to it for centuries. Actually,
Speaker 13: when you're doing culture change, even though culture is so
Speaker 13: difficult to define and so difficult to actually explain and
Speaker 13: tell somebody else about, we are talking about a real
Speaker 13: culture change here.
Speaker 1: Even with some initial backlash, Bill's policy shift did stick,
Speaker 1: and Lloyd says since widened the policy to include anyone
Speaker 1: entering its offices.
Speaker 13: If you go to the bars around the Lloyd's market
Speaker 13: now you'll see a whole host of array of non
Speaker 13: alcoholic drinks for sale. And I remember when I used
Speaker 13: to be a young underwriter. You'd go into the pub,
Speaker 13: the bar, the beer was the cheapest thing. If you
Speaker 13: wanted the equivalent volume in a soft drink, a soft beverage,
Speaker 13: it costs much more than the bear did. It just
Speaker 13: wasn't the dum thing. You're seeing a complete or we
Speaker 13: are feeling now in the London market, the financial market
Speaker 13: a difference, and non alcoholic beverages now are basically not
Speaker 13: being priced out of the market like they used to be.
Speaker 1: And while that culture shift is opening up a market
Speaker 1: for the likes of athletic the ultimate question is how
Speaker 1: far can this trend go? Could the future of alcohol
Speaker 1: be under threat? Could alcohol go the way of cigarettes,
Speaker 1: something seen as ubiquitous a century ago but now a
Speaker 1: rarity on Wall Street or the city of London.
Speaker 10: I don't think it's a flash in the pan. But
Speaker 10: will it go the way of the cigarette and tobacco?
Speaker 10: I don't have an answer to that yet. I strongly
Speaker 10: doubt it, only because the cultural aspect and society, if
Speaker 10: you will, of the consumption of alcohol, right and how
Speaker 10: we drink and where we drink, and all those events
Speaker 10: that are tied in to the consumption of alcohol, and
Speaker 10: frankly all businesses that are tied in or other businesses
Speaker 10: that are tied into the consumption of alcohol, bars, restaurants, hotels,
Speaker 10: I mean, you name it. There are too many, too
Speaker 10: many opportunities. It's too baked into our culture, it's too
Speaker 10: baked into many people's lifestyles to go the way of tobacco.
Speaker 10: That doesn't mean that we're not going to see a
Speaker 10: decrease in consumption as a result of these health concerns.
Speaker 10: I predict that it will have some effect. We will
Speaker 10: see a decrease in some sales of alcoholic beverages, particularly
Speaker 10: those that are perceived as being unhealthy. Popular priced products
Speaker 10: may take a hit.
Speaker 1: If I'm a traditional alcoholic beer producer, should I be
Speaker 1: worried about you? Are you taking away market share from me?
Speaker 4: So?
Speaker 14: I think we have some parallels to other industries, like
Speaker 14: plant based meat, plant based milk, But the big difference is,
Speaker 14: like athletics not trying to bring back prohibition, we're not
Speaker 14: trying to take away anyone's alcohol. I was just a
Speaker 14: consumer who is at bars. I love beer, I love
Speaker 14: good food. I wanted to be in those places and
Speaker 14: there was nothing on the menu. And I think there
Speaker 14: are fifty plus percent of adults in that position. Alcohol
Speaker 14: and beer have been around for five thousand years. I
Speaker 14: don't think it's going away, and it's a big part
Speaker 14: of society and social traditions. However, there's this really exciting
Speaker 14: growth vector of the category that I think shouldn't be ignored.
Speaker 14: It should be embraced and encouraged and fostered. But we're
Speaker 14: definitely not trying to be antagonistic to the industry. We're
Speaker 14: trying to help it grow.
Speaker 1: The US producers about one hundred and seventy five million
Speaker 1: barrels of beer each year. Unlikely Americans will lose their
Speaker 1: taste for beer anytime soon, but they just might revisit
Speaker 1: their taste for alcohol. Cheers, jeers, Thanks, thank you. That
Speaker 1: does it for this episode of Wall Street Week, I'm
Speaker 1: David Weston. This is Bloomberg. Join us next week for
Speaker 1: more stories of capitalism.