Speaker 1: Thank you so much for joining us for this special
Speaker 1: edition of Bloomberg Daybreak. US markets are close for the
Speaker 1: Juneteenth holiday. I'm Nathan Hager, and coming up this hour,
Speaker 1: we will focus on retail, a close look at the
Speaker 1: health of the country's biggest companies. Bert Flickinger, Managing director
Speaker 1: at Strategic Resource Group, will join us along with Bloomberg
Speaker 1: Intelligence senior retail analyst Punam Gooyle. Plus, the government has
Speaker 1: been very busy filing lawsuits against big tech. We will
Speaker 1: bring you up to date on the latest anti trust
Speaker 1: litigation with the senior analyst who covers just that topic,
Speaker 1: Jennifer Ree of Bloomberg Intelligence. But we want to begin
Speaker 1: with a closer look at the gas and oil market
Speaker 1: as the official start of summer approaches. For that, we
Speaker 1: are pleased to welcome Stephen Shork, the founder and president
Speaker 1: of the energy industry consultancy the Short Group. Steven, great
Speaker 1: to have you with us as always, But we're speaking
Speaker 1: right in the middle of an East Coast heat wave
Speaker 1: and that has got to put high demand on the
Speaker 1: energy grid. Is demand going to keep a lid on prices?
Speaker 2: Do you think it's an interesting situation here with regard
Speaker 2: to the heat wave. Of course, that translates into air
Speaker 2: conditioning demand, so it's also so therefore it's a bullesh
Speaker 2: boom for the natural gas market. Now, the natural gas
Speaker 2: market did have a nice run up up until about
Speaker 2: a week ago, but it looks like that situation is
Speaker 2: over and we're retracing back into a bear market. Why
Speaker 2: even though we have strong demand, we have very strong supplies,
Speaker 2: and that also translates, Nathan into the situation with gasoline.
Speaker 2: We are at the peak season or just beginning with
Speaker 2: the peak season, you know, right from Memorial Day through
Speaker 2: July and August, of course, and when we look at
Speaker 2: the supply situation from either a year over year basis,
Speaker 2: where we're looking at inventories now in and around New
Speaker 2: York Harbor, which is where you take delivery of the
Speaker 2: New York Mark until Exchanges gasoline contract and down in
Speaker 2: Pad three, which is the Gulf Coast refinery at the center.
Speaker 2: So those two market areas are the most important market
Speaker 2: areas as far as East Coast drivers are concerned, because
Speaker 2: you manufacture gasoline in Philadelphia and New York Delaware, and
Speaker 2: then you get the rest of it along the Colonial
Speaker 2: pipeline that gets shipped up from the North coast. So
Speaker 2: when we look at the inventories in those two particular
Speaker 2: market areas, we're looking at a surplus on a year
Speaker 2: over year of three point nine million barrels and a
Speaker 2: one point three million barrel surplus to the seasonal time
Speaker 2: series analysis. So whether we're looking on a year over
Speaker 2: year basis or on a seasonally adjusted basis, supplies as
Speaker 2: we go into the summer driving season are very comfortable
Speaker 2: at this point.
Speaker 1: So do you see that supply demand imbalance coming more
Speaker 1: into balance as we get further into the summer driving season?
Speaker 1: Is demand going to continue even when we we you know,
Speaker 1: have these forecasts of a demand slowdown in global energy.
Speaker 2: Yeah, it will be, and that is contingent on, of course,
Speaker 2: an economics slowdown. So that is certainly a secondary driver
Speaker 2: to prices in the near term. That that is more
Speaker 2: of a long term bearers driver. But as far as
Speaker 2: the summer goes, this is a spot market driven contract
Speaker 2: at this point and therefore the market Nathan is based on.
Speaker 2: Pricing is in balance. That is to say that when
Speaker 2: we look at crude oil prices, for instance, the New
Speaker 2: York WTI market, it's been yo yoing in between the
Speaker 2: middle eighties and the middle seventies, with the mean thus
Speaker 2: far this quarter right around eighty one eighty one dollars
Speaker 2: and twenty cents. Now our modeling coming into the second quarter,
Speaker 2: the central tendency or the median in our model's output
Speaker 2: was eighty one sixty, So we're right there. We're very
Speaker 2: stable market and the stable market Nathan again going into
Speaker 2: I think it's intuitive you have a stable market, that's
Speaker 2: a telltale that the market is in balance. And more importantly, Nathan,
Speaker 2: when we look at the futures market to spread the
Speaker 2: differential and prices between July and August, September, October, this
Speaker 2: gives you the market's view of any potential imbalances coming
Speaker 2: on the horizon. And what we're seeing there is not
Speaker 2: only we're seeing in market that is balanced, but the
Speaker 2: way the spread markets are trading, that is, July is
Speaker 2: losing value to August, August is losing its value relative
Speaker 2: to September. This is a telltale that when we do
Speaker 2: see the imbalance, the market thinks we're going to have
Speaker 2: too much supply not enough enough demand, and of course
Speaker 2: that's going to translate into much more appetizing prices at
Speaker 2: the pump for consumers.
Speaker 1: How appetizing would you say? How accommodating are these gasoline
Speaker 1: retailers going to be to the driving public this summer,
Speaker 1: do you think?
Speaker 2: Well, the great think about gasoline retailers is that there
Speaker 2: are one hundred and forty five thousand retailers in the
Speaker 2: lower forty eight United States. So that's a lot of competition.
Speaker 2: In my hometown in Villanova suburbs of Philadelphia, we have
Speaker 2: virtually a gasoline station on every block. Therefore, that competition
Speaker 2: will certainly keep a lid on prices. Now, of course,
Speaker 2: there will be higher prices in the summer. There are
Speaker 2: always our higher prices in the summer for two very
Speaker 2: obvious reasons. One of course, is demand. We're going to
Speaker 2: hit the pinnacle of our demand in July and August.
Speaker 2: And the second driver is the type of gasoline we
Speaker 2: have to put in our car. It's what's called the
Speaker 2: summer grade gasoline. And when we have to acquire the
Speaker 2: seed stocks that go into making that cocktail of gasoline,
Speaker 2: the seed stocks we use the summer are much more
Speaker 2: expensive than what we can use in the winter. Therefore,
Speaker 2: the manufacturing, the blending of gasoline is more offensive so
Speaker 2: we will see gasoline prices higher, But the retailers. I
Speaker 2: think this is important because I think the retailers they're
Speaker 2: the ones who bear the brunt of it because they're
Speaker 2: on the firing line. But ask yourself, why does a
Speaker 2: gastline station retailer always have a convenience store or an
Speaker 2: auto mechanic garage adjacent to it, Because that's where they
Speaker 2: make their money. They don't make their money on gasoline.
Speaker 2: Their margins are that thin they have to make it
Speaker 2: up elsewhere. So it will be contingent on oil prices,
Speaker 2: which again have been very stable, and the retailers, because
Speaker 2: of this competition, they will not be quote unquote gouging
Speaker 2: the consumer this summer.
Speaker 1: Speaking with Steven Short, the founder and president of the
Speaker 1: Short Group, which consults on the energy industry, and given
Speaker 1: this backdrop, Steven, the stability that you see in the
Speaker 1: gasoline market, I'm curious to get your take as well
Speaker 1: on the decision by OPEC and OPEQ plus to continue
Speaker 1: with supply constraints into next year. What kind of read
Speaker 1: through that potentially could have even longer term as we
Speaker 1: get past the summer.
Speaker 2: Yeah, absolutely, it is certainly a barished telltale because they
Speaker 2: came out with a rather dubbish statement of the last
Speaker 2: meeting that they'll start to curtail these quotas later on
Speaker 2: in the year. And when we look at and it's
Speaker 2: really not surprised because what OPEK, because I've had the
Speaker 2: opportunity to work with OPEC, so I do know this
Speaker 2: firsthand that they will look at the structure of the
Speaker 2: forward market. So there is that curve. There's a price
Speaker 2: for oil every single month going out for the next
Speaker 2: ten years, so they look at the formation of that
Speaker 2: curve and what the curve has been telling us in
Speaker 2: the past six months, whether we're looking at the three
Speaker 2: main oil contracts that trade around the globe of the
Speaker 2: NIMES contract hearing in the US, the Brent contract which
Speaker 2: is a London based contract, and then they do buy contract.
Speaker 2: And when we look at the forward pricing, we're looking
Speaker 2: at a market that is certainly signaling that the barrels
Speaker 2: that are coming closer to delivery are cheaper or are
Speaker 2: losing their value to the longer dated contracts. So what
Speaker 2: this tells you is that the expectation is for weaker
Speaker 2: demand going beyond the summer and through the end of
Speaker 2: this year, and certainly this is the way I think
Speaker 2: OPEC is looking at the market situation.
Speaker 1: Is that something that you agree with that we are
Speaker 1: going to see a continued slow down in global demand
Speaker 1: given where things are this summer?
Speaker 2: Yes, I do. I think for two reasons. One, the
Speaker 2: US consumer is completely tapped out with credit card debt
Speaker 2: these high interest rates. We know that household debt is
Speaker 2: got record highs, now, credit card debt at record highs,
Speaker 2: and so forth, so we do know. And then now
Speaker 2: what Maason, what we're starting to see is a delinquency
Speaker 2: rate on credit card payments that are ninety days in
Speaker 2: the arrears. We're starting to see that now at highs
Speaker 2: we have not seen since before the Great Recession. So
Speaker 2: clearly the consumer is tapped out. Now that doesn't mean
Speaker 2: they won't tap out more on their credit cards, but
Speaker 2: certainly consumer spending will certainly take a hit. And because
Speaker 2: you don't have to drive to the Jersey Shore, you
Speaker 2: can stand in your backyard and run a hose over
Speaker 2: your head, your demand is much greater or much more
Speaker 2: susceptible to these high prices. So yes, the answer that question,
Speaker 2: I do see constraints on demand because even though gasoline
Speaker 2: prices are cheaper than a year ago. The consumer is
Speaker 2: in a much worse place than they were a year ago.
Speaker 2: So it's a little bit of both here.
Speaker 1: To that point, Stephen, we've had predictions many times over
Speaker 1: the past few months about that the consumer is going
Speaker 1: to crack, even if we are starting to see some
Speaker 1: of those signs come through now, I mean, what's the
Speaker 1: possibility that we could continue to see the consumer power
Speaker 1: through like they seem to have done over the last
Speaker 1: few months, defying some of the predictions.
Speaker 2: Yeah. Absolutely, that has been a major surprise, certainly to me.
Speaker 2: But there are other signs. As we said now a
Speaker 2: year ago people defaulting or not making their credit card payments,
Speaker 2: even minimum payments with half of what it is today
Speaker 2: that are defaulting or delinquent, I should say. So that
Speaker 2: is a clear telltale. Also when we look at the
Speaker 2: jobs numbers. Now we're looking at the jobs numbers and
Speaker 2: the establishment and the households. You have two different surveys,
Speaker 2: and there is a considerable deficit between these two. The
Speaker 2: establishment survey, which is the one that the market trades on,
Speaker 2: which has beaten expectations by the biggest Wall Street banks
Speaker 2: have been wrong on the jobs number month in, month
Speaker 2: out for the past year. So what is going on there?
Speaker 2: These are very good economists. What are they missing? Well,
Speaker 2: part of the missing is the way they calculate, that
Speaker 2: is to say, the way the Bureau of Labor Statistics
Speaker 2: calculates their numbers. They're making some assumptions that that are
Speaker 2: pretty grandy oaks when it comes to the amount of
Speaker 2: new businesses being created, which factors into statistically what they
Speaker 2: think the new jobs being created are. All it is
Speaker 2: is a statistical number that they are guessing at and
Speaker 2: putting in and when you look at this adjustment, it
Speaker 2: is very high relative to what we've seen in the past.
Speaker 2: So where I'm going with this, Nathan, is perhaps the
Speaker 2: jobs market, which continues to beat on the headline numbers.
Speaker 2: If you just dig into the weeds a little bit,
Speaker 2: the job situation in this country is not as rosy
Speaker 2: as the headline number would suggest. So now you marry
Speaker 2: that with tap dot consumers and inflation which is still high.
Speaker 2: Granted that inflation might only be grown at four percent
Speaker 2: this year. That's four percent on top of the twenty
Speaker 2: percent it's grown over the past three years. So we're
Speaker 2: looking at a market. So to answer your question. It's great.
Speaker 2: Who knows ken consumer continue to power on perhaps, but
Speaker 2: we do know that they're facing a considerable wall and
Speaker 2: eventually at one point they're going to have to cry
Speaker 2: uncle when that is. Your guess is as good as mine.
Speaker 1: Thank you for this. Stephen, really great having on with us.
Speaker 1: Matt Stephen Short, founder and president of the Short Group.
Speaker 1: And coming up next we'll take a closer look at
Speaker 1: the health of the country's retailers. Will be speaking with
Speaker 1: Bert Flickinger of Strategic Resource Group and put them Goyle,
Speaker 1: senior retail analysts at Bloomberg Intelligence. It's twenty minutes past
Speaker 1: the hour, Nathan Hager, and this is Bloomberg Welcome back
Speaker 1: to this special edition of Bloomberg Daybreak. US markets are
Speaker 1: closed for the June teen holiday. I'm Nathan Hager. Thanks
Speaker 1: for joining us. We want to turn our attention now
Speaker 1: to the health of the country's retailers, and for that
Speaker 1: we have a special holiday roundtable for you. Joining us
Speaker 1: now Bert Flickinger, Managing director at Strategic Resource Group, along
Speaker 1: with Punham Goyle, senior US retail analyst at Bloomberg Intelligence.
Speaker 1: It's great to have the both of you with us
Speaker 1: on this holiday, and we are doing this as we
Speaker 1: come off the latest read on retail sales, we are
Speaker 1: still seeing signs of slow down in the American consumer. Bert,
Speaker 1: I'll start with you, what does this slowdown mean in
Speaker 1: terms of where we could go for the rest of
Speaker 1: the summer.
Speaker 3: Nathan, As you reference the monthly retail sales reported on
Speaker 3: the Bloomberg terminal yesterday Tuesday, it's stick an ask. It's
Speaker 3: the worst of times for retailers. It's the best of
Speaker 3: times of times for retailers like Kroger and Costco. Costco
Speaker 3: hit a fifty two week high. Kroger's doing a very constructive,
Speaker 3: well intentioned merger with Albertson's the lower prices to consumers
Speaker 3: even more as consumers are fighting record inflation, which you're
Speaker 3: seeing in the rest of retail. Nathan. That the only
Speaker 3: other elements other than food retail that are doing well
Speaker 3: or off price, led by TJX and other off price,
Speaker 3: with a handful of specialty retailers also putting together strong
Speaker 3: results too.
Speaker 1: Speaking of specialty retailers, Punham, I know you cover those,
Speaker 1: particularly in the specialty apparel space. Is it a best
Speaker 1: of time's worst of time situation in your world as well.
Speaker 4: Well, I think there is a confluence of events that
Speaker 4: are happening. So you do have a weaker consumer that's
Speaker 4: spending less undiscretionary, but at the same time, you have
Speaker 4: this fashion cycle where consumers are out and about more
Speaker 4: so they are spending a little more in apparel. They're
Speaker 4: just deciding where to go. So we think in this case,
Speaker 4: the retailers that are benefiting with a play on value
Speaker 4: are some of the ones that we've seen rise very fast.
Speaker 4: Those you know, Chinese based or originated retailers, whether it's
Speaker 4: Shean or Temu, They're they're starting to take share. And
Speaker 4: then the Walmarts of the world, we've seen that they've
Speaker 4: posted strong results and they continue to make their play
Speaker 4: for value, drive consumer interest, whether it's the high end
Speaker 4: now or even you know, continue to keep the mid
Speaker 4: and low tier consumer.
Speaker 1: Well, if we do bert continue to see pile into
Speaker 1: sort of lower priced retail names and sectors, what could
Speaker 1: that mean for some of the higher price point companies.
Speaker 1: Are they going to have to start bringing in sales
Speaker 1: this summer.
Speaker 3: Yes, the higher price companies will have to bring in sales,
Speaker 3: and it's going to be tough. In a presidential year
Speaker 3: with record ad spending and costs to bring in that consumer.
Speaker 3: And also what's interesting is in our strategic Resource group
Speaker 3: analyzes chain drug, which is normally a safe harbor and
Speaker 3: typically good and affordability, is struggling. Walgreens down seventy five
Speaker 3: five years, write a down ninety nine point seven CBS
Speaker 3: down fifteen percent. Walmart wins. As Poonam said, and you said,
Speaker 3: Nathan and Kroger Elbertson's with over four thousand pharmacy went.
Speaker 3: Pharmacies win and consumers win. But unless it's everyday low
Speaker 3: price or price impact like Costco, like Winco, like TJX, Ross,
Speaker 3: Dress for Last, et cetera, promotional will still be a
Speaker 3: big part of the playbook for Macy's and others, but
Speaker 3: it'll be tougher to track customers. As Punham reference that
Speaker 3: shoppers are spending for want, not for need.
Speaker 1: So in terms of the retail names that you cover, Poonam,
Speaker 1: how could that play out for names like some of
Speaker 1: those apparel companies that you look at, are they going
Speaker 1: to start discounting as well?
Speaker 4: They will start discounting. I mean, discounts will definitely come
Speaker 4: into play. And sometimes it's not a function of the
Speaker 4: inventory that they have at hand. But it's the neighbors, right,
Speaker 4: So if the stores around you are discounting, you need
Speaker 4: to show the value proposition too. But there is a
Speaker 4: group that I cover that I think benefits in this environment,
Speaker 4: and that's the resale companies like Rent the Runway, like
Speaker 4: thread Up, Poshmark. These companies have a resale element to
Speaker 4: them and eBay and they drive the value message across
Speaker 4: pretty nicely. So we think that they're going to benefit
Speaker 4: in all of this.
Speaker 1: And Bert, what about the interplay between brick and mortar
Speaker 1: stores and e commerce? How do you see that playing
Speaker 1: out into the summertime.
Speaker 3: We're seeing Internet sales trailing twelve month growth rate below
Speaker 3: seven percent for a long time, so still strong, still
Speaker 3: stronger than the rest of retail. But people are going
Speaker 3: to bricks and mortar because, as Punam said, they're own
Speaker 3: to Walmart, they're going to Target, they're going to Costco,
Speaker 3: aldi in Kroger, and they want to see the produce
Speaker 3: and see the meat, especially with meat prices soaring because
Speaker 3: of a b and bird flow affecting first the poultry
Speaker 3: flocks but now transferring over to livestock, so egg prices,
Speaker 3: especially for meat pork poultry are the highest in years,
Speaker 3: with poultry still a value, but maybe not for long.
Speaker 1: Of course, a lot of those names that Bert just
Speaker 1: referenced have some e commerce business of their own Punham,
Speaker 1: Do you see any interplay there, some divergence between foot
Speaker 1: traffic and clicks.
Speaker 4: Yeah. Look, I think you know, for grocery, it's still
Speaker 4: a largely brick and mortar business, so I think consumers
Speaker 4: will prefer that channel for the foreseeable future as the
Speaker 4: way they shop for their produce, especially, But when you
Speaker 4: talk about the off price retailers that were just mentioned
Speaker 4: don't have a clicks business. Teach X is a very
Speaker 4: small online presence, so for those stores, if you want
Speaker 4: the value, you have to go into them. But on
Speaker 4: the same front, retailers like Amazon, which you know you're
Speaker 4: shopping online. The reason to go to Amazon is because
Speaker 4: you can get the breadth of offering and you can
Speaker 4: get the convenience and the items same day, next day.
Speaker 4: So I think that's still a medium that people will
Speaker 4: want to shop at because they want their things quickly,
Speaker 4: and some people still don't like going to stores for
Speaker 4: some of the stuff that can be replenished automatically, and
Speaker 4: they don't need to feel in touch.
Speaker 1: Speaking with Punam Goyle, senior US retail analyst at Bloomberg Intelligence,
Speaker 1: along with Bert Flickinger, the Managing director of Strategic Resource Group, Bert,
Speaker 1: I know something you follow in particular is the impact
Speaker 1: of movie attendance on brick and mortar mall traffic. It
Speaker 1: seems like it's been kind of hit or miss. I mean,
Speaker 1: we just had a record weekend for the new Pixar sequel.
Speaker 1: Some other movies haven't done as well. What could this
Speaker 1: mean for malls in terms of this cinema traffic that
Speaker 1: in a lot of ways they've had to come to
Speaker 1: rely on in recent years.
Speaker 3: Nathan, you synthesize it very well, hit or missed with
Speaker 3: fewer theatrical releases as a carryover from the understandable artists
Speaker 3: and writers strike, so fewer properties from Disney, Marvel, etc.
Speaker 3: From the major studios, so new releases don't come to
Speaker 3: the rescue Nathan until after the December holidays. In the meantime,
Speaker 3: to your point, customer counsel are down thirty percent, and
Speaker 3: a lot to the movies at the malls, and a
Speaker 3: lot of those customers cross over and shop after they
Speaker 3: go to the movies, especially families with large presence of
Speaker 3: children or caregivers going with children. So at a time
Speaker 3: that the malls are suffering and Walmart's abandoning tens of
Speaker 3: millions of square feet of real estate that reached their
Speaker 3: plan absolescence, some of the co anchors are either going
Speaker 3: bankrupt or where they're just segueing out as Walmart and
Speaker 3: Amazon do. And so it's very concerning crossroads for retail
Speaker 3: this summer, especially with the movie drop off for the
Speaker 3: first time in a decade.
Speaker 1: Curious to get your view on the mall outlook as well, Punam.
Speaker 1: I know you spent a fair amount of time in
Speaker 1: the outlets as well.
Speaker 4: Yeah. I think Look, mall traffic has been challenged for
Speaker 4: over a decade now and I don't see that changing
Speaker 4: regardless of where we go in the future. I see
Speaker 4: that there is a shift more growing to digital, which
Speaker 4: is going to continue to really deter especially the lower
Speaker 4: quality malls. Right. I think the A malls like the
Speaker 4: Short Hills Mall in New Jersey, they'll have traffic. But
Speaker 4: when you go to some of these other malls when
Speaker 4: they lose the anchors, as brit just said, that the
Speaker 4: traffic really falls off, and that's going to continue to
Speaker 4: hurt the mall cycle in the stores within those malls.
Speaker 1: Anything else besides movie theater, they can keep them all
Speaker 1: business going.
Speaker 3: Bird BJS and Costco are constructively converting former Macy's, former Seers,
Speaker 3: former j C. Pennies to wholesale clubs as his wind
Speaker 3: Co a Esop, which is the highest volume food retailer
Speaker 3: in America and also the lowest price, even lower than Walmart.
Speaker 3: So there is repurposing in the space. But to Punam's
Speaker 3: present point, we're seeing America go from four hundred percent
Speaker 3: over stored a decade ago in terms of retail mall
Speaker 3: space to between one hundred and twenty to one hundred
Speaker 3: and thirty percent over stored, which will be back in
Speaker 3: balance probably a few to no more than five years
Speaker 3: from now. And there's going to be quite a commercial
Speaker 3: quote unquote casualty count with a even viable change closing
Speaker 3: brick and mortar flagship stores and undercapitalized chains going out
Speaker 3: of business.
Speaker 1: We're also going to see America go to Paris in
Speaker 1: the next few weeks for the Summer Olympics. Just to
Speaker 1: think about summer in general. Punam, in your world when
Speaker 1: it comes to apparel sales. Can we see something of
Speaker 1: a Team USA gear bump?
Speaker 4: Yeah. Absolutely. Look, these sporting events are back in full
Speaker 4: motion to how they were a pre pandemic. It's the
Speaker 4: first year, you know, we're really back the way we
Speaker 4: used to watch sports and attend sporting events. We not
Speaker 4: only have the Paris Olympics, though, we also have the
Speaker 4: euro Championships going on, and there's a lot of momentum,
Speaker 4: and there are new launches, whether it's by Nike, Aditas
Speaker 4: whom or the other names that are going to drive
Speaker 4: brand heat, and the teams that win and the endorsers
Speaker 4: behind them are going to gain momentum. And that momentum
Speaker 4: really lasts right. It's brand heat that's driven today that
Speaker 4: will continue for the next six to twelve months because
Speaker 4: those product launches carry on their momentum.
Speaker 1: What do you see as a potential bigger catalyst this
Speaker 1: summer in terms of retail shopping, Bert, is it the
Speaker 1: summer sports or could it be back to school later
Speaker 1: on the summer.
Speaker 3: It's a combination that to Nathan, and also the wild
Speaker 3: card is our family used to be one of the
Speaker 3: largest restaurant suppliers, everything from fast food defined dining, and
Speaker 3: we know the math of McDonald's and BK and everybody else.
Speaker 3: They've raised prices thirty percent over the last two and
Speaker 3: a half years, so we're seeing menu inflation and fast food,
Speaker 3: which means the customer that ten years ago eight eleven
Speaker 3: meals a week away from home and only ten at home,
Speaker 3: that customer is now eating about twenty meals a week
Speaker 3: at home. So they're shifting. They're spending from fast food
Speaker 3: and casual dining in home, where the basic markup for
Speaker 3: McDonald's on food is about seven hundred to nine hundred
Speaker 3: percent over one thousand percent on beverages. So for the
Speaker 3: Bloomberg terminal math and for the consumer at home, you
Speaker 3: can see each person in the family for a dollar
Speaker 3: or to a meal for something you're going to be
Speaker 3: paying half one hundred to sixty five dollars a meal
Speaker 3: for a family five going through the fast food window.
Speaker 3: So I think to the key reference points you've made
Speaker 3: back to school or BTS and sports, and the first
Speaker 3: major transformational shift from food away from home to food
Speaker 3: at home for the first time in nearly forty years.
Speaker 1: Speaks to the challenges to come for the consumer. As
Speaker 1: you've been seeing just in the data this week. Thank
Speaker 1: you Bert, thank you Poonham for all of this. That's
Speaker 1: Bert Flickinger, Strategic Resource Group and Punham Goyle, senior US
Speaker 1: retail analyst for Bloomberg Intelligence. Now, next we're going to
Speaker 1: get you caught up on the government's latest anti trust cases.
Speaker 1: We're going to speak with Jennifer Ree of Bloomberg Intelligence
Speaker 1: as a special Juneteenth edition of Bloomberg Daybreak continues. It's
Speaker 1: thirty seven minutes past the hour. I'm Nathan Hager, and
Speaker 1: this is Bloomberg. Thanks again for joining us on the
Speaker 1: special edition of Bloomberg Daybreak. West markets are closed for
Speaker 1: the Juneteenth holiday. I'm Nathan Hager. Big Tech has been
Speaker 1: in the crosshairs of US anti trust along with some
Speaker 1: other major sectors. So let's get an update on where
Speaker 1: some of these cases stand. There are quite a few
Speaker 1: to get through. Let's bring in Jennifer Ree, senior litigation
Speaker 1: analyst for Antitrust with Bloomberg Intelligence. Really appreciate the time
Speaker 1: considering how heavy the caseload has become in your world. Jen,
Speaker 1: Thank you for this, especially when it comes to Google.
Speaker 1: Amazon's search giant is facing scrutiny on a number of fronts,
Speaker 1: isn't it?
Speaker 5: Oh so many? That company has a lot of trials
Speaker 5: coming up, because I really don't expect settlements in any
Speaker 5: of them. They're a waiting a verdict in one and
Speaker 5: have several coming up, one in September and then one
Speaker 5: in the spring.
Speaker 1: Yeah, so let's start with the one that's coming up.
Speaker 1: This is having to do with the search business, right, Well.
Speaker 5: The decision that's going to come out anytime now, I
Speaker 5: think has to do with the search business, right That
Speaker 5: trial ended at the end of last year and then
Speaker 5: closing arguments were in early May, and I believe it
Speaker 5: could come out at any time, although my gut tells
Speaker 5: me that Judge is going to be very careful about this,
Speaker 5: and it's probably still a couple months before he decides
Speaker 5: and issues a decision just on liability, by the way,
Speaker 5: not on remedy. So if he decides for the DOJ
Speaker 5: in that case, at that point, after that there will
Speaker 5: be a hearing on remedy and what the proper injunction
Speaker 5: would be for Google on this one. I think this
Speaker 5: is on Google Search right, just to be clear, and
Speaker 5: it's about whether or not it's default its agreements to
Speaker 5: be the default search engine in a lot of different
Speaker 5: places where people have to access the Internet and don't
Speaker 5: even really know they're using a search engine like set
Speaker 5: behind Safari in the Apple devices. Whether or not, those
Speaker 5: four closed other competitors and really led to maintaining the
Speaker 5: dominance that Google Search has obtained over the years.
Speaker 1: So what could a potential ruling mean in terms of damages,
Speaker 1: in terms of the kinds of changes Google might potentially
Speaker 1: need to make to satisfy the Justice Department?
Speaker 5: You know, that is a really big question, and so
Speaker 5: many have said the DFJ didn't really think through what
Speaker 5: the proper injunction would be if they did win. There
Speaker 5: are no damages at play here. This is not about money.
Speaker 5: This is about changing the conduct of the company. And
Speaker 5: I think there are a few options, and the judge
Speaker 5: might actually impose several of them rather than just one.
Speaker 5: But I think the most obvious one would be to
Speaker 5: prohibit them from entering into these default search agreements. I mean,
Speaker 5: they're paying something like twenty five or twenty six billion
Speaker 5: dollars a year to various companies to have that default position.
Speaker 5: I think twenty or twenty two something like that alone,
Speaker 5: just to Apple and the judge could say you simply
Speaker 5: can't do that anymore. But the weird thing about that, Nathan,
Speaker 5: is that who does that really hurt? It hurts companies
Speaker 5: like Apple and Mozilla because the chances are still great
Speaker 5: that they set Google searches the default. They think it's
Speaker 5: the better option for their users, but now Google doesn't
Speaker 5: have to pay them. Another option would be something like
Speaker 5: what's happening in Europe, where there have to be at
Speaker 5: least in Android devices and in Chrome these are the
Speaker 5: properties owned by Google. There would be a choice screen.
Speaker 5: So if somebody buys a new Android phone and they're
Speaker 5: setting it up, they'd be given a choice as to
Speaker 5: what search browser they want a search engine I'm sorry
Speaker 5: to be as their default. That's another option. The judge
Speaker 5: can't force Apple to do that, but can have Google
Speaker 5: do that in the Google owned properties. And I think
Speaker 5: one other option would be forcing Google to share some
Speaker 5: of the data and maybe even algorithms that it uses
Speaker 5: for all the searches that have been done over the years,
Speaker 5: because there was a lot of evidence in trial that
Speaker 5: every single search that's done allows that search engine to improve,
Speaker 5: and the more searches you have, the better the search engine. Becomes.
Speaker 5: And part of the reason that some of the rivals
Speaker 5: haven't really been able to become as good as Google
Speaker 5: Search is because they just simply haven't had that scale.
Speaker 1: I mean, if we saw some kind of remedy like that,
Speaker 1: I mean, that could be a major change, a major
Speaker 1: issue for Google. I mean, that kind of data is
Speaker 1: something that big tech companies really hold close, is it?
Speaker 2: You know?
Speaker 5: Absolutely? But I will say Google's argument was, look, we're
Speaker 5: just better. We've put a lot of money into improving
Speaker 5: this search engine. We have the best people, the best
Speaker 5: R and D, We've spent a lot of time on it,
Speaker 5: and we're really good. And if that's true, if that's
Speaker 5: their argument, well then the companies will have to prove
Speaker 5: they can do that too, once they have the data.
Speaker 5: And that's not necessarily a given.
Speaker 4: Now.
Speaker 1: In terms of the other cases that the Google is
Speaker 1: waiting for, we're also looking for some remedies in the
Speaker 1: Epic Games lawsuit against the Google App Store, how are
Speaker 1: we expecting that to go down?
Speaker 5: Well, you know, I would say that the first hearing
Speaker 5: on that surprised me a little bit because the judge
Speaker 5: is really really intent on a remedy that covers every
Speaker 5: single thing that the jury found the Google had done unlawfully.
Speaker 5: So this is there was a verdict already and a
Speaker 5: jury found that Google was unlawfully maintaining a monopoly both
Speaker 5: for the distribution of apps on Android devices but also
Speaker 5: for the payment of apps or the in app payments
Speaker 5: within the Playstore. So the judge talked about what we
Speaker 5: would expect. He said, Google's going to have to let
Speaker 5: other companies distribute apps on Android devices, so in other words,
Speaker 5: there'd be other app stores on the device outside of
Speaker 5: the Playstore, and also let other payment services companies exist
Speaker 5: on the Playstore and in these other apps, so that
Speaker 5: the developers could process the payments through those companies and
Speaker 5: not through Google. The thing the judge did that was
Speaker 5: surprised me a little bit is he said, look, these
Speaker 5: companies need a bit of a leg up because Google
Speaker 5: has suppressed them for so long. They need to get
Speaker 5: at foothold and get some developers that are willing to
Speaker 5: develop apps just for their store. So Google, maybe what
Speaker 5: you're going to have to do is provide your entire catalog,
Speaker 5: your entire Playstore catalog to these other distributors for some
Speaker 5: matter of years, maybe two, and allow them to sell
Speaker 5: your apps. Now Google would take the profit from that,
Speaker 5: would get the revenue from those sales, But what it
Speaker 5: would do was it would get a foothold in there
Speaker 5: for these other app stores, so they could get to
Speaker 5: know developers. They could get some customers and start to
Speaker 5: develop their own apps and make money that way.
Speaker 2: Wow.
Speaker 1: Really fascinating to think about some of the sea changes
Speaker 1: that could keep coming in the tech sector. We're speaking
Speaker 1: with Jennifer Ree, the senior litigation analyst for Antitrust with
Speaker 1: Bloomberg Intelligence. Now, outside of big tech, there's a lot
Speaker 1: to talk about. We just had this major case filed
Speaker 1: over the Live Nation Ticketmaster tie up. I know this
Speaker 1: is early days, but what's the thinking about where this
Speaker 1: could go down?
Speaker 5: You know, it's an interesting case because I think they're
Speaker 5: really after reading the complaint, which is all we have,
Speaker 5: and it was not an unexpected complaint. I think people
Speaker 5: really differ on how what they think about the strength
Speaker 5: of the complaint. I happen to think it's a pretty
Speaker 5: good one. They are aspects of the complaint that are
Speaker 5: weaker in aspects that are stronger, but I tend to
Speaker 5: think it's a pretty good one, particularly where they allege
Speaker 5: that the companies engaged in unlawful exclusive dealing. In the
Speaker 5: antitrust world, if a company that has a monopoly in
Speaker 5: a market tied up with exclusive deals, long term exclusive deals,
Speaker 5: I should say, more than about forty or fifty percent
Speaker 5: of the outlets for whatever that product is, which it's
Speaker 5: apparently according to what the DOJ says, the facts are
Speaker 5: at this company is done. That means it forecloses its rivals.
Speaker 5: Its rivals can't get in there and enter those contracts.
Speaker 5: What I'm talking about is Ticketmaster and the agreements that
Speaker 5: the company enters with venues for Ticketmaster to be the
Speaker 5: exclusive ticketing agent for anything that takes place at that
Speaker 5: venue for like ten years or fourteen years, it means
Speaker 5: seat Geek or some other company can't come in there
Speaker 5: and sell tickets. And it's pretty straightforward in antitrust law,
Speaker 5: that kind of an agreement can violate the law. I mean,
Speaker 5: all of the facts are taken into accounts, so you
Speaker 5: have to look at whether it's terminable, whether it's terminable
Speaker 5: by will, as I said, the term of the agreement,
Speaker 5: and many other issues related to that agreement, but just
Speaker 5: on its face, if the facts are as the DOJ says,
Speaker 5: it looks like there's a possibility they could at least
Speaker 5: get some traction on that claim. We also claim that
Speaker 5: there's tying going on. And what tying is is Live
Speaker 5: Nation saying to the artist it promotes, and it promotes
Speaker 5: a lot of artists or artists that want to use
Speaker 5: its venues, I should say, and it owns and operates
Speaker 5: and manages a lot of venues. We have to promote
Speaker 5: you too. You can't perform in that venue, and that
Speaker 5: might be some big, great venue, particularly amphitheaters where the
Speaker 5: artist wants to perform unless you also hire us for promotion.
Speaker 5: Oh and by the way, we're going to use ticket
Speaker 5: Master too to sell the tickets to your events. This
Speaker 5: can also violate the antitrust laws. So I thought those
Speaker 5: two claims were actually pretty good, and I think they
Speaker 5: go beyond what's in the consent orders that have already
Speaker 5: been entered by this company related to when the two
Speaker 5: companies merged. Some people say, look, this is just about
Speaker 5: violating that consent order. But this is beyond just violating
Speaker 5: that consent order.
Speaker 1: You know, it's interesting to think about why this action
Speaker 1: was brought against Live Nation and ticket Master. Now when
Speaker 1: you know, the merger has been fairly contra almost from
Speaker 1: the time it was entered into more than a decade ago.
Speaker 1: I mean, why go after them now? You know it.
Speaker 5: Really And this is why some people think the case
Speaker 5: is weak. They're saying, well, this is just political because
Speaker 5: why now? But I think you have to look at
Speaker 5: sort of the pattern of the history in twenty ten
Speaker 5: when they first merged and the deal was cleared, but
Speaker 5: cleared with a consent order. So a consent order is
Speaker 5: a settlement, meaning that the DOJ found the deal to
Speaker 5: be illegal, but the company was willing to enter a
Speaker 5: remedy that fixed at least what they thought would be
Speaker 5: illegal about the deal. And you know what, they're looking
Speaker 5: into a crystal ball. They're not always right. These things
Speaker 5: don't always work, but they're trying their best, and it
Speaker 5: didn't really work. I mean, that's what history has shown.
Speaker 5: But they entered that consent order, so at that point
Speaker 5: they were allowed to go forward with the deal. Now,
Speaker 5: back in twenty nineteen, there were a lot of complaints
Speaker 5: from industry participants that they weren't abiding by the terms
Speaker 5: of that order. At that time, Trump's DOJ did look
Speaker 5: at it open an investigation, I think just as to
Speaker 5: whether they're violating order, and found that they were. And
Speaker 5: what Ticketmaster said was, look, the terms are vague and ambiguous,
Speaker 5: we're not really violating it. But if you read the
Speaker 5: terms the way we are, but you need to clarify
Speaker 5: the terms. So the dj did that. They were much
Speaker 5: more explicit about the terms. They laid out that the
Speaker 5: companies cannot retaliate against venues that don't use Ticketmaster and
Speaker 5: use arrival, cannot retaliate against artists or you know, anybody
Speaker 5: for not using any part of the supply chain for
Speaker 5: not using Ticketmaster, and they extended it by about five years.
Speaker 5: So I think we have a couple things happening. First,
Speaker 5: we're getting complaints that they're violating that order again now,
Speaker 5: and then you also had that the tailor Taylor Swift
Speaker 5: fiasco that everybody knows about now. I should say that
Speaker 5: the investigation of the company was already ongoing before that happened.
Speaker 5: But what that did is provide an example of why
Speaker 5: more competition is needed in my mind and in the
Speaker 5: mind of many people, because it shows that without competition,
Speaker 5: the company doesn't really have to put a lot of
Speaker 5: money in R and D and innovation into their it,
Speaker 5: and maybe that's part of the reason for the failure.
Speaker 5: Certainly the high demand might have been part of it too,
Speaker 5: but the it also possibly could have been better had
Speaker 5: they faced more competition to be better. So I think
Speaker 5: when you put all that together and you look at
Speaker 5: that history and you think, well, we settled once for
Speaker 5: violating the consent order, we can't just settle again because
Speaker 5: we'll look foolish. Now there's public attention. It's a politically
Speaker 5: you know, it's a politically good case to bring. There's
Speaker 5: nobody that's going to be upset about us suing Live Nation.
Speaker 5: No one who's ever gone to a concert and paid
Speaker 5: for all those fees and paid for the ticket price.
Speaker 5: So why not just go for it now?
Speaker 1: Now, apart from the Live Nation ticket master dispute, we
Speaker 1: do have some other anti trust cases coming up related
Speaker 1: to mergers that are pending. We also have an election
Speaker 1: coming up. How do you expect antitrust to potentially differ
Speaker 1: between a Biden administration and a Trump administration in our
Speaker 1: last minute?
Speaker 5: You know, I think it's going to be uncertain because
Speaker 5: first it depends on who Trump nominates for DOJ and
Speaker 5: at FDC to be the decision makers, and you know,
Speaker 5: it's kind of a split in the Republican Party, some
Speaker 5: that are very business friendly and some that sort of
Speaker 5: like what the current FDC and DJ are doing. So
Speaker 5: it depends on that, but I also think it'll be
Speaker 5: a little bit erratic.
Speaker 1: Thank you for this, Jen, really great to have you
Speaker 1: on with us.
Speaker 5: Thank you.
Speaker 1: That's Jennifer Ree, senior anti trust litigation analyst at Bloomberg Intelligence.
Speaker 1: Our thanks as well to Stephen Shork of the Short Group,
Speaker 1: Strategic Resource Groups, Bert Flickinger, and Punam Goyle of Bloomberg Intelligence.
Speaker 1: And thanks to you as well for listening on this
Speaker 1: Juneteenth holiday. I'm Nathan Hager. Stay with us. Today's top
Speaker 1: stories and global business headlines are coming up right now.