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Banks, Kroger, and Retail Sales (Podcast) · Bloomberg Intelligence

• 0:00
  Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside
• 0:04
  Speaker 1: my co host Matt Miller. Every business day we bring
• 0:06
  Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along
• 0:11
  Speaker 1: with essential market moving news. Find the Bloomberg Markets Podcast
• 0:15
  Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and
• 0:18
  Speaker 1: at Bloomberg dot com slash podcast. Kathan Hagary in DC,
• 0:22
  Speaker 1: Paul Sweeney here in New York on a Bloomberg Interactive
• 0:25
  Speaker 1: broker studio Busy Danny earnings fun. Particularly for the big banks,
• 0:28
  Speaker 1: we had a mix of some of the yeah, what
• 0:30
  Speaker 1: I kind of consider the pure investment banks like Morgan
• 0:32
  Speaker 1: Stanley and some of the more maybe mainstream banks, commercial banks,
• 0:36
  Speaker 1: Corporate Bank, City Wells Fargo. We have Allison Williams here
• 0:39
  Speaker 1: in our studios here giving us a sense of kind
• 0:41
  Speaker 1: of what's going down here. So it's been a really
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  Speaker 1: choppy year, Allison. From a capital markets perspective, that's a problem.
• 0:49
  Speaker 1: I would think, I don't know, um, but we have
• 0:51
  Speaker 1: a you know, we've got interest rates going up and
• 0:53
  Speaker 1: that means net interest margin. That's a good thing. So
• 0:57
  Speaker 1: when you put it all together, what did you see
• 0:59
  Speaker 1: so far in some of the earning today. So to
• 1:02
  Speaker 1: your point, net interest income very strong in fact, um,
• 1:06
  Speaker 1: you know, we sort of had a sense that it
• 1:08
  Speaker 1: was going to come in better than expected, came in
• 1:10
  Speaker 1: even better than that, and banks are guiding up for
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  Speaker 1: the near term. But as we know, a lot of
• 1:17
  Speaker 1: the thoughts are turning towards three and um, there there
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  Speaker 1: was higher than expected provisions related to we think banks
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  Speaker 1: getting more conservative on the economic outlook. UM. Of course
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  Speaker 1: that that remains fluid. On the capital market side of things,
• 1:35
  Speaker 1: fixed income trading the highlight of the quarter that was expected,
• 1:39
  Speaker 1: but again coming in a little bit better. Equities trading
• 1:42
  Speaker 1: week fees, as we know, very very weak. But what
• 1:46
  Speaker 1: we're seeing in and you're seeing it in the stocks today, um,
• 1:49
  Speaker 1: main Street is really the business that's outperforming for this quarter,
• 1:54
  Speaker 1: and you're seeing that lift um for companies like well
• 1:56
  Speaker 1: it's Fargo, even though they took two billion dollars charge
• 2:01
  Speaker 1: related to some hysterical historical issues. Now raises a lot
• 2:05
  Speaker 1: of questions about how long net interest income can stay
• 2:08
  Speaker 1: elevated and how long the consumer can stay resilient. When
• 2:13
  Speaker 1: we are continuing to hear from FED officials even this morning,
• 2:17
  Speaker 1: that interest rates are staying higher for longer. I think
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  Speaker 1: that is the question, um just in terms of things
• 2:25
  Speaker 1: are much better if this quarter they look really good
• 2:27
  Speaker 1: for next quarter, but um again provisions are rising. That
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  Speaker 1: really relates to the expectations for next year because the
• 2:37
  Speaker 1: current trends actually are coming in more positive than expected.
• 2:41
  Speaker 1: And then in terms of higher rates, great for the
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  Speaker 1: margin right now, but at what point does that start
• 2:47
  Speaker 1: to more dramatically slow loan growth and at what point,
• 2:50
  Speaker 1: due to pause the costs start to rise more meaningfully,
• 2:53
  Speaker 1: which will cut into that. It's October and Allison that
• 2:57
  Speaker 1: time year. This is just bread into me. Even though
• 2:59
  Speaker 1: I haven't worked on the street for fifteen years, I'm
• 3:01
  Speaker 1: already thinking bonus time. What are the big investment banks?
• 3:05
  Speaker 1: What's the world on the street about, given it's been
• 3:08
  Speaker 1: such a bad year or tough year for the for
• 3:10
  Speaker 1: the markets, what's the expectation for compensation this year? So? Uh,
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  Speaker 1: you know, last year was a huge year for fees
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  Speaker 1: and trading. We saw compensation um rise accordingly we saw
• 3:24
  Speaker 1: coming into the year, I would say, very intense pressure
• 3:30
  Speaker 1: in terms of pay um. But we are hearing more
• 3:33
  Speaker 1: about lower compensation um. And if you look at sort
• 3:37
  Speaker 1: of Golden Jackson Morgan Stanley. Their compensation is the most
• 3:39
  Speaker 1: hyped to capital markets. It looks like the declines are
• 3:42
  Speaker 1: similar to revenue. UM. We're also going to be looking
• 3:46
  Speaker 1: to see what banks are doing on headcount. UM. We're
• 3:50
  Speaker 1: seeing growth in the quarter that relates to campus hires.
• 3:52
  Speaker 1: As you know, UM tends to grow in the third quarter. UM.
• 3:56
  Speaker 1: Morgan Stanley was just speaking on their call and said,
• 3:58
  Speaker 1: you know, they're they're not looking at any dramatic cuts yet,
• 4:01
  Speaker 1: but obviously these are things they're going to be looking
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  Speaker 1: at in the fourth quarter. You know, this is something
• 4:05
  Speaker 1: Paul Sweeney looks at real closely, from someone to take
• 4:08
  Speaker 1: a rug out from under him, whether the workers that
• 4:12
  Speaker 1: do stick around, depending on how headcount works out, whether
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  Speaker 1: they're going to be coming back into the office. So
• 4:19
  Speaker 1: I think that you know, we've seen mixed trends, so
• 4:23
  Speaker 1: banks like JP Morgan and Goldman Sachs taking a harder
• 4:27
  Speaker 1: line on things, and then some other banks sort of
• 4:29
  Speaker 1: using that as a way to compete in providing more flexibility.
• 4:33
  Speaker 1: As we know, think things remain a little bit influx,
• 4:36
  Speaker 1: and I think we're all curious to see what the
• 4:38
  Speaker 1: backdrop starts to look like going into UM. But I
• 4:43
  Speaker 1: would also say it's a tougher revenue environment. And my
• 4:47
  Speaker 1: guess is when you're thinking about things like compensation cuts
• 4:51
  Speaker 1: and staff changes, people are probably going to want to
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  Speaker 1: be in the office more often and you know, again
• 5:00
  Speaker 1: hopefully on the road. If you're a banker trying to
• 5:02
  Speaker 1: get more business, Hey Elson, on a global scale, is
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  Speaker 1: there can these European banks? Can they ever be competitive?
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  Speaker 1: I mean really competitive? I think Deutsche Bank, Anna Barkley's,
• 5:14
  Speaker 1: the Swiss banks, it just seems like they just they
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  Speaker 1: will never have the scale unless the rules change over
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  Speaker 1: the in terms of cross border m and A that
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  Speaker 1: they can compete with the big banks in US. Yeah,
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  Speaker 1: I think, And I think part of it is, you know,
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  Speaker 1: we're sort of a decade long now of sort of
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  Speaker 1: a virtuous cycle for the US banks and you know
• 5:32
  Speaker 1: the opposite for the Europeans. U S banks got issues
• 5:35
  Speaker 1: behind them. Sooner they moved past the legatory, regulatory and
• 5:40
  Speaker 1: legal issues, sooner they had a good economy. They had
• 5:44
  Speaker 1: they had a period of higher rates before they came
• 5:46
  Speaker 1: down and now coming back again, and that all allowed
• 5:50
  Speaker 1: them to make these long term investments. So like you're
• 5:53
  Speaker 1: looking at JP Morgan. You know, they're equity trading. Last
• 5:56
  Speaker 1: last quarter is more than anybody, and that was a
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  Speaker 1: business that you know, as you know, cash equities was
• 6:02
  Speaker 1: was sort of the laggard for them, and now they're there,
• 6:05
  Speaker 1: whereas on the Europeans it's it's sort of been the opposite. Um,
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  Speaker 1: they've struggled with revenue, they haven't had the money to invest,
• 6:11
  Speaker 1: they've done restructuring after restructuring, credits. We know has some
• 6:15
  Speaker 1: big risk management issues. Um. So it does seem like,
• 6:20
  Speaker 1: you know, it's one of those things on paper, would
• 6:23
  Speaker 1: make sense for a couple of these to get together. Um,
• 6:26
  Speaker 1: but there's also issues, right, everyone wants to be the buyer.
• 6:29
  Speaker 1: No one wants to be the seller exactly. And it's political,
• 6:32
  Speaker 1: it's cultural, I know, but it just you see how
• 6:34
  Speaker 1: the market shares are going, you just gotta say, boy,
• 6:37
  Speaker 1: at some point they're just going to be competed almost
• 6:39
  Speaker 1: out of business and made so almost irrelevant. Its crazy
• 6:43
  Speaker 1: to see how that's evolved, all right. Alison Williams, senior
• 6:45
  Speaker 1: banking analysts for a Bloomberg Intelligence, also co director of
• 6:50
  Speaker 1: Research for the America's for Bloomberg Intelligence in the pandemic
• 7:00
  Speaker 1: of our go to voices for really scientific based analysis
• 7:06
  Speaker 1: of the virus, of the you know, the treatments and
• 7:10
  Speaker 1: of the vaccines with Sam Fazelli, head of European Research
• 7:13
  Speaker 1: and pharmaceutical analysts for Bloomberg and Intelligence. Now that we've
• 7:18
  Speaker 1: essentially for most people in the world have kind of
• 7:21
  Speaker 1: put this in the review mirror, we can actually let
• 7:22
  Speaker 1: him get back to doing what he does, just extend
• 7:26
  Speaker 1: the emergency over at the White House. I saw that. Yeah,
• 7:30
  Speaker 1: so it depends on how you view what I guess.
• 7:32
  Speaker 1: But Sam, you know, there is another booster out in
• 7:36
  Speaker 1: the marketplace and I'm getting it in a couple of weeks, Um,
• 7:40
  Speaker 1: what's your view of I guess these periodic boosters h
• 7:44
  Speaker 1: for COVID nineteen the hilt. So the issue is that
• 7:51
  Speaker 1: we've never really done this before, right, Everything about this
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  Speaker 1: pandemic has been clearly one of the first time I've
• 7:58
  Speaker 1: been through this kind of thing us in a hundred years.
• 8:01
  Speaker 1: So it's difficult to be a hundred percent sure about anything,
• 8:05
  Speaker 1: and I think that's one of the things that I
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  Speaker 1: think has surprised people about the science. But in this
• 8:09
  Speaker 1: particular case, people are being asked to take it by
• 8:12
  Speaker 1: Vail and Booster that's more properly fully tested in in
• 8:15
  Speaker 1: folks as regardless efficacy, And the thing that I've been
• 8:20
  Speaker 1: saying all along, I'm a little bit worried pushing this
• 8:22
  Speaker 1: to the broad population. Let's put a science folks that
• 8:26
  Speaker 1: are perhaps as old as me or have got some
• 8:28
  Speaker 1: issues with the immunity, etcetera. Certainly for those folks, but
• 8:32
  Speaker 1: to push it out broader, and we don't even know
• 8:34
  Speaker 1: how well it does against the current variants that are
• 8:37
  Speaker 1: all sorts of flavors of record. Now, I think it's
• 8:40
  Speaker 1: gonna as a risk that it would cause us even
• 8:44
  Speaker 1: more lots of confidence in vaccines in general if it
• 8:48
  Speaker 1: doesn't work so well. That's what I'm worried about. Well, Sam,
• 8:51
  Speaker 1: we did just get some guidance from Fiser just this
• 8:54
  Speaker 1: week that the by Valent vaccine that's targeted on the
• 8:58
  Speaker 1: CRON shows strong results in boosting neutralizing antibodies. I mean
• 9:04
  Speaker 1: that has to count for something, doesn't it? Uh Normally,
• 9:09
  Speaker 1: Nat and I would say yes, But did you see
• 9:11
  Speaker 1: a single number in that did we point take in? No? No,
• 9:18
  Speaker 1: But it was against to be a five of variants.
• 9:22
  Speaker 1: What are we dealing with? Nine? New York before six
• 9:25
  Speaker 1: b Q one one simple five happens number when you
• 9:32
  Speaker 1: talk to these PhD types, Nathan, that's what happens. But
• 9:35
  Speaker 1: we are all about the numbers. There was a lot
• 9:36
  Speaker 1: of numbers just now saying it's all about numbers. I know,
• 9:41
  Speaker 1: I know that's the backbone of Bloomberg intelligence research and
• 9:44
  Speaker 1: that that data. All right, let's talk about the stock
• 9:46
  Speaker 1: um Fiser. I look at the f A function, which
• 9:50
  Speaker 1: is financial analysis. I look at kind of the revenue trends.
• 9:52
  Speaker 1: All right, So in they had forty two billion of
• 9:55
  Speaker 1: revenue and then boom, it doubled in eighty one billion,
• 10:00
  Speaker 1: and it's looking to add another or I guess go
• 10:03
  Speaker 1: to about a hundred billion this year consensus, but then
• 10:07
  Speaker 1: it drops down to like seventy nine of revenue. How
• 10:11
  Speaker 1: does the stock perform with that kind of crazy changes
• 10:17
  Speaker 1: in revenue? And yes, it was all COVID nineteen related
• 10:19
  Speaker 1: or mostly, but how does the stock perform? How do
• 10:22
  Speaker 1: investors look at the stock like visor U during this
• 10:25
  Speaker 1: COVID in post COVID period. Yeah, I know, you know.
• 10:30
  Speaker 1: The first thing I want to say is hots off
• 10:32
  Speaker 1: to them for really absolutely so hard and I think
• 10:36
  Speaker 1: to get this faccine out because it has made a
• 10:38
  Speaker 1: huge difference to the way that people are reacted to
• 10:41
  Speaker 1: this virus data side. As you know, investors tend to
• 10:44
  Speaker 1: look forward, and when you look forward, it's very difficult
• 10:47
  Speaker 1: to know where this boost campaigns and how many more
• 10:51
  Speaker 1: of these shots were gonna need. If you take away
• 10:54
  Speaker 1: you know, the COVID vaccine had more things than the
• 10:57
  Speaker 1: rest of fightser together. So that's what I think investors
• 11:01
  Speaker 1: are a little bit not worried about. But what's the
• 11:04
  Speaker 1: company going to do with this massive windfall? Can it
• 11:08
  Speaker 1: converted into more nuggets to drive that long term growth?
• 11:12
  Speaker 1: And that's what everyone's hanging on to see. If you
• 11:15
  Speaker 1: look at the stock price, you see that it hasn't
• 11:17
  Speaker 1: really performed that particularly well over the past six months.
• 11:21
  Speaker 1: And that's why, well to some extent, Fighter might want
• 11:25
  Speaker 1: there to be annual boosters so they can keep getting
• 11:29
  Speaker 1: these shots into people. It wouldn't that help a little
• 11:32
  Speaker 1: bit if if they got a annual booster campaign going. Yeah,
• 11:37
  Speaker 1: I think even one of the competitors would like its
• 11:40
  Speaker 1: bi annually every every every six months. That the company
• 11:44
  Speaker 1: may want that, but the question is to people need it.
• 11:47
  Speaker 1: I think if you think about people over the age
• 11:49
  Speaker 1: of sixty seventy, those who are not able to keep
• 11:52
  Speaker 1: the immune system in in ship shape to fight the virus,
• 11:57
  Speaker 1: and also those who are unfortunately in you know, come
• 12:00
  Speaker 1: wise or com mobilities of wish. There are a lot
• 12:02
  Speaker 1: of people may require a shot every six months, every
• 12:05
  Speaker 1: twelve months, but the broader folks over the age of twelve,
• 12:08
  Speaker 1: you know, those who are fifty, forty thirty, do they
• 12:11
  Speaker 1: really needed And I think that this boost the campaign
• 12:15
  Speaker 1: is going to potentially show us that that we we are.
• 12:19
  Speaker 1: It's a difficult battle to trans stop infections with this accent.
• 12:23
  Speaker 1: All right, Sam, let's step back a little bit. You've
• 12:25
  Speaker 1: been covering the pharma and the biotech industries for decades.
• 12:28
  Speaker 1: As we step away a little bit from focus on COVID.
• 12:32
  Speaker 1: Are your industries biotech farmer? You know, are they going?
• 12:37
  Speaker 1: Is there anything we can learn from this m r
• 12:39
  Speaker 1: N a technology that might help with I don't know, cancer, Alzheimer's,
• 12:43
  Speaker 1: some of the other big issues that you know, the
• 12:45
  Speaker 1: health care industries focused on. Yes, So, Paul, Only two
• 12:50
  Speaker 1: days ago, I think Madonna had an update about a
• 12:54
  Speaker 1: deal that deal, the pact that they have with LURK
• 12:56
  Speaker 1: of the US in using m orny as a vaccine
• 13:00
  Speaker 1: against counter and the theory is great because you can
• 13:05
  Speaker 1: try and dice to divert the immune system, push the
• 13:08
  Speaker 1: immune system to recognize special markers on cancer cells that
• 13:13
  Speaker 1: you introduce using the m R an a technology that's great.
• 13:16
  Speaker 1: Fingers crossed. It will show some strong benefits. A lot
• 13:20
  Speaker 1: more detail needed, so at least in that front, I
• 13:21
  Speaker 1: think you've seen some of that. Pushing it out to
• 13:24
  Speaker 1: neuro neuropsychiatric diseases, etcetera. All of those things need to
• 13:28
  Speaker 1: be proven. Well. One thing we've learned during the pandemic,
• 13:31
  Speaker 1: science can really deliver if it's let a lot, if
• 13:36
  Speaker 1: it's left alone to do his job well. And I
• 13:38
  Speaker 1: think this was exactly what we've seen with regards to
• 13:43
  Speaker 1: the m R and a technology which many people didn't
• 13:45
  Speaker 1: believe in, but enough people did to finance it and
• 13:48
  Speaker 1: get it to help us get through this problem. Sam,
• 13:53
  Speaker 1: you're and and I know you're in France. Give us
• 13:55
  Speaker 1: just third thirty seconds. How are people in France thinking
• 13:57
  Speaker 1: about the pandemic? Is it completely in the rear view
• 13:59
  Speaker 1: mirror or is it still kind of front and center? Yeah? No,
• 14:04
  Speaker 1: I mean everybody knows it's there. We have some friends
• 14:06
  Speaker 1: who were supposed to go and help us this weekend
• 14:08
  Speaker 1: to be moving house, and they both got COVID. They're
• 14:10
  Speaker 1: sitting at home. But people don't think about it like
• 14:13
  Speaker 1: that anymore. Life is absolutely back to normal here. No
• 14:17
  Speaker 1: different to New York, no different to London. Okay, moved on,
• 14:20
  Speaker 1: all right? Good stuff. Sam Fazli, Yes, and he's uh.
• 14:25
  Speaker 1: He lives in France. He works in London. Occasionally he
• 14:28
  Speaker 1: shows up in New York. I have no idea where
• 14:30
  Speaker 1: this guy is most of the time. Sam, exactly ahead
• 14:33
  Speaker 1: of European research. He's a pharmaceutical analyst, one of the
• 14:36
  Speaker 1: absolute best in the city of London. He's been doing
• 14:39
  Speaker 1: it for decades and he's been a great help to
• 14:41
  Speaker 1: us a Bloomberg Radio television during his pandemic, giving us
• 14:43
  Speaker 1: some you know, real fact based analysis there. He's a
• 14:46
  Speaker 1: Bloomberg intelligence, so we appreciate getting his thoughts. All right,
• 14:51
  Speaker 1: let's break down this with this big M and a
• 14:52
  Speaker 1: trade here that again, Bloomberg News was broke a couple
• 14:55
  Speaker 1: of days ago. It's been official today. Kroeger Albertson's nearly
• 15:00
  Speaker 1: a billion dollar deal. Jenn bartashes she covers this sector
• 15:04
  Speaker 1: like nobody else on Wall Street. She's a senior equity
• 15:06
  Speaker 1: analyst for Bloomberg Intelligence. Hey, Jen, so we've kind of
• 15:11
  Speaker 1: got the deal. It was again first reported by Bloomberg
• 15:14
  Speaker 1: a couple days ago, now confirmed. My question is antitrust?
• 15:18
  Speaker 1: Is this going to get approved by the regulators? Good morning, Paul.
• 15:22
  Speaker 1: It's I think the question that's really top of mind. Um.
• 15:25
  Speaker 1: It's clear that Kroger is trying to offset that concern
• 15:29
  Speaker 1: by the structure that they've announced with a spin off
• 15:31
  Speaker 1: company in some stores. But when you look at the
• 15:34
  Speaker 1: actual map of coverage, it's there. There. There are areas
• 15:38
  Speaker 1: where there's not a lot of overlap, but there are
• 15:40
  Speaker 1: areas where there's significant overlap. And those happened to be
• 15:43
  Speaker 1: in big urban areas like Seattle, like Los Angeles, San Diego,
• 15:48
  Speaker 1: at Texas, in the Houston area. So this is where
• 15:51
  Speaker 1: the concern comes in that the FTC, which has become
• 15:54
  Speaker 1: increasingly critical of big of big mergers, may really push
• 15:59
  Speaker 1: back and some of this. Yeah, a lot of folks
• 16:02
  Speaker 1: on this side of the country might not be as
• 16:04
  Speaker 1: familiar with Albertson's, but it is big out on the
• 16:06
  Speaker 1: West Coast where I spent a little time as a kid,
• 16:09
  Speaker 1: so I have vague memories of it. What are the
• 16:12
  Speaker 1: struggles for Albertson's out West, Jen, Well, you know Albertson's.
• 16:17
  Speaker 1: Albertson's has done a good job of improving their operations
• 16:20
  Speaker 1: in the last couple of years. UM. But when you're
• 16:22
  Speaker 1: talking about very dense markets where both Albertson's and Kuger operate, UM,
• 16:28
  Speaker 1: there's there's going to have to be, you know, some
• 16:30
  Speaker 1: sort of solution that's that's provided to avoid you know,
• 16:34
  Speaker 1: market share ending up in the hands of just too
• 16:37
  Speaker 1: few competitors. UM. And we've seen the Biden administration take
• 16:41
  Speaker 1: a bigger stance on this kind of anti trust type
• 16:43
  Speaker 1: thing with the meatpacking industry and other technology industry things
• 16:46
  Speaker 1: like that. So that's that's one of the concerns um.
• 16:50
  Speaker 1: And so you know, the other thing is that there's
• 16:52
  Speaker 1: a long timeline before this deal is meant to close,
• 16:56
  Speaker 1: which is the beginning of four There's a lot that
• 16:59
  Speaker 1: can go wrong in such a long try and frame
• 17:01
  Speaker 1: that could disrupt the current operations and make the success
• 17:04
  Speaker 1: of the merger ultimately a little bit riskier. Hey, Jen,
• 17:07
  Speaker 1: I you know, I kind of get it. Um you know,
• 17:10
  Speaker 1: bigger's better, scale, all that kind of stuff and a
• 17:12
  Speaker 1: relatively low low margin business. Give us a sensor. Just
• 17:16
  Speaker 1: describe how Walmart has come into this business, the supermar
• 17:21
  Speaker 1: market business, the food business, and how they've disrupted the business.
• 17:24
  Speaker 1: Where's Walmart? And can this combined co compete with Walmart? Yeah,
• 17:30
  Speaker 1: that's a great question call when you know, if you
• 17:32
  Speaker 1: look at Walmart and you break down their revenue and
• 17:34
  Speaker 1: you look at what the same goods that are sold
• 17:36
  Speaker 1: at a grocery store versus everything a Walmart carries a
• 17:40
  Speaker 1: little of our fifty of their revenue comes from what
• 17:42
  Speaker 1: grocery market grocery stores sell. Um So it is a
• 17:46
  Speaker 1: big It is a big competitor on a national scale.
• 17:49
  Speaker 1: They hold about of all food retail or grocery market
• 17:54
  Speaker 1: share um so, the combined entity of Kroger and Albertson's
• 17:58
  Speaker 1: together would bring their mark get share up to you
• 18:01
  Speaker 1: about just under So you know they can compete. And
• 18:07
  Speaker 1: obviously scale will help them compete because they can be
• 18:09
  Speaker 1: more competitive on pricing, they can procure goods at a
• 18:12
  Speaker 1: lower cost. But it takes time to achieve that type
• 18:16
  Speaker 1: of synergy. Um And in the meantime, Walmart will not
• 18:19
  Speaker 1: take their foot off of the accelerator. Um. And so
• 18:22
  Speaker 1: you know, yes, it will improve their ability to compete,
• 18:25
  Speaker 1: but um, they're also going to be tied up with
• 18:28
  Speaker 1: integration efforts, UM, which could delay their ability to continue
• 18:31
  Speaker 1: to expand and remain competitive with Walmart during that time frame.
• 18:35
  Speaker 1: It's not just Walmart. I think the last time we
• 18:37
  Speaker 1: heard about a big grocery deal sort of like this
• 18:40
  Speaker 1: was when Amazon purchased Whole Foods. I mean, how has
• 18:44
  Speaker 1: the grocery market just more broadly shifted given all the
• 18:49
  Speaker 1: different types of players that are in it now. It's
• 18:52
  Speaker 1: it's been a huge change in the dynamic of the
• 18:54
  Speaker 1: industry in the last couple of years. UM. And you
• 18:57
  Speaker 1: know with with Amazon, you know, purchase of Foods, which
• 19:00
  Speaker 1: is probably the most recent larger transaction out there. UM. Yeah,
• 19:04
  Speaker 1: it really shook the industry up, especially from a technology
• 19:07
  Speaker 1: perspective and a digital ordering type of perspective. Um. When
• 19:13
  Speaker 1: you're looking at the traditional supermarket players, however, it's been
• 19:17
  Speaker 1: a story about industry consolidation. UH. And we've seen smaller
• 19:21
  Speaker 1: players go out of business or be scooped up. Um.
• 19:24
  Speaker 1: And so what we're seeing in the industry now is
• 19:28
  Speaker 1: we're having gale driven players UM, making it increasingly difficult
• 19:33
  Speaker 1: for smaller regional players or local players to remain successful
• 19:37
  Speaker 1: and competitive. UM. And that that then also is kind
• 19:40
  Speaker 1: of a long term trend that we expect to see
• 19:42
  Speaker 1: continue with regards to that that consolidation UM. And there
• 19:46
  Speaker 1: are new pressures of having you know, being more technologically
• 19:50
  Speaker 1: savvy and to create you know, higher revenue stream you know,
• 19:53
  Speaker 1: higher margin revenue streams for these businesses as well. So
• 19:56
  Speaker 1: there are a lot of balls to juggle for for
• 19:58
  Speaker 1: these retailers at the moment. All Right, jenn thanks so
• 20:01
  Speaker 1: much for joining us. You are the experts, so we
• 20:03
  Speaker 1: had to get you on to kind of talk about
• 20:05
  Speaker 1: this deal, big deal billion bankers getting paid, which is
• 20:09
  Speaker 1: the first thing I look at. New competitor potentially for
• 20:12
  Speaker 1: the Walmarts of the world in the supermarket space. I'm
• 20:15
  Speaker 1: still waiting for Piggy Wiggley to come to New Jersey,
• 20:17
  Speaker 1: but we'll see. Jennifer Bartasha's senior equity research annelist for
• 20:20
  Speaker 1: Bloomberg Intelligence, joins us there and again UM consolidation UH
• 20:25
  Speaker 1: in the supermarket business. And his Nathan was talking about,
• 20:27
  Speaker 1: I mean, you know, I got Amazon coming in with
• 20:29
  Speaker 1: Whole Foods years ago really changed the landscape as well.
• 20:37
  Speaker 1: We had to retail sales this morning. I don't know.
• 20:40
  Speaker 1: The headline, flat month the month, that's a little bit
• 20:44
  Speaker 1: weaker than the prior month, so that's not great. The
• 20:47
  Speaker 1: control group, however, came in a little bit better and
• 20:49
  Speaker 1: expected and better than last month. So let's call it mixed.
• 20:52
  Speaker 1: I guess, but I don't know. What do I know?
• 20:54
  Speaker 1: Mariy Shure, she knows what's going on. She's a senior
• 20:56
  Speaker 1: equity also Columbia Thread Needle Investments. Before that, she was
• 21:00
  Speaker 1: with some little shop downtown Goldman Sachs University of Pennsylvania,
• 21:04
  Speaker 1: so she's uh, knows what she's talking about here. Mary,
• 21:06
  Speaker 1: What did you take away from some of the retail
• 21:09
  Speaker 1: sales data we we saw this morning? How's the consumer
• 21:11
  Speaker 1: doing well? Thanks so much for having me. My reaction
• 21:15
  Speaker 1: this morning was very similar to yours. More mixed. I
• 21:19
  Speaker 1: would say two key takeaways for me. Number one, the
• 21:23
  Speaker 1: flat month over month read um really implies negative real
• 21:29
  Speaker 1: or unit demand given what we've seen with inflation, and
• 21:33
  Speaker 1: that is very concerning, especially at a time when the
• 21:37
  Speaker 1: companies have all really relied on pricing to drive sales,
• 21:41
  Speaker 1: and with building inventories, it seems like pricing maybe less
• 21:47
  Speaker 1: of a lever going forward, so the what happens with
• 21:50
  Speaker 1: the unit demand will be even more key to watch.
• 21:55
  Speaker 1: And then the other key takeaway would really just be
• 21:57
  Speaker 1: the shift towards necessities. We saw categories like food, health,
• 22:01
  Speaker 1: and personal care in general merchandise accelerate slightly month over month,
• 22:06
  Speaker 1: while other discretionary category categories saw slow down, and for me,
• 22:12
  Speaker 1: the real ones I was watching, we're furniture and consumer
• 22:15
  Speaker 1: electronics UM that saw the greatest deceleration month over month.
• 22:19
  Speaker 1: And I think that you know, those categories remain um
• 22:23
  Speaker 1: at risk cutting into the holiday given building inventory and
• 22:28
  Speaker 1: still slowing demand following following two very strong years. So
• 22:32
  Speaker 1: are you starting then to see cracks in the resiliency
• 22:35
  Speaker 1: that a lot of these bank CEOs you've been hearing
• 22:38
  Speaker 1: from our saying that they still see in the consumer. Yeah,
• 22:44
  Speaker 1: it's such a great question. We've been talking of this internally.
• 22:47
  Speaker 1: You know, the macro is more important than ever, but
• 22:50
  Speaker 1: yet there seems to be an even greater discrepancy between
• 22:54
  Speaker 1: the macro and the micro in some cases. Um And
• 22:57
  Speaker 1: when I think we absolutely have seen cracks, especially for
• 23:02
  Speaker 1: some of the categories that were strongest over the past
• 23:05
  Speaker 1: few years, like home, consumer electronics, even apparel UM given
• 23:11
  Speaker 1: the building inventory and as I said, weakening pricing power,
• 23:15
  Speaker 1: which has really been the key driver of sales over
• 23:18
  Speaker 1: the past two years UM, and I think that that
• 23:20
  Speaker 1: risk continues as we head into holiday and next year.
• 23:24
  Speaker 1: You know, a lot of the retailers are talking about
• 23:28
  Speaker 1: bringing inventory more in line with sales as we enter
• 23:31
  Speaker 1: the holiday. But you know, given what we're seeing on
• 23:34
  Speaker 1: a high level in the macro data looking at inventory
• 23:39
  Speaker 1: levels relative to sales, UM, there are still a pretty
• 23:43
  Speaker 1: wide and unfavorable gap there. So it really does kind
• 23:47
  Speaker 1: of call into question what as you said, some of
• 23:50
  Speaker 1: these large bank CEOs are saying in general about the consumer.
• 23:54
  Speaker 1: I mean, as we saw the retail sales, they're still okay.
• 23:57
  Speaker 1: It's not that they're falling off a cliff, which would
• 24:00
  Speaker 1: suggest that the consumer is still healthy overall. I think
• 24:04
  Speaker 1: we're just seeing, you know, a greater variance in terms
• 24:07
  Speaker 1: of how the consumer is spending their money. Of course,
• 24:10
  Speaker 1: spending more on necessities as we've seen you know, increases
• 24:14
  Speaker 1: in prices of food and energy and gas. You know,
• 24:18
  Speaker 1: and spending less on some of these discretionary categories where
• 24:21
  Speaker 1: they've really stalked up already over the past two years. Hey, Mari,
• 24:24
  Speaker 1: how how promotional our retailer is going to be this
• 24:27
  Speaker 1: holiday season? Am I going to get some deals when
• 24:29
  Speaker 1: I go to the store? Absolutely? I think you you
• 24:33
  Speaker 1: should definitely expect to see deals better than last year.
• 24:37
  Speaker 1: And the truth is, throughout this entire year, given that
• 24:40
  Speaker 1: inventory was heavy entering this year, we have seen promotions
• 24:45
  Speaker 1: rising in categories again like home and apparel. I think
• 24:50
  Speaker 1: that continues through the holiday. You saw some retailers, including Amazon,
• 24:54
  Speaker 1: trying to pull forward promotional events into October. I don't
• 24:59
  Speaker 1: think that at works very well given that number one,
• 25:03
  Speaker 1: the companies have been promotional, So I don't think that,
• 25:07
  Speaker 1: you know, the marginal return on the increase on the
• 25:10
  Speaker 1: incremental promotion is there. And the narrative in the media
• 25:15
  Speaker 1: is that inventory is heavy, so I think consumers are
• 25:18
  Speaker 1: going to be more willing to wait for the deal,
• 25:20
  Speaker 1: and the longer they wait, the more nervous retailers get.
• 25:24
  Speaker 1: And so I think you can definitely expect to see
• 25:28
  Speaker 1: higher promotions than you have over the past year or two. However,
• 25:32
  Speaker 1: a relative to pre pandemic levels. I think that the
• 25:35
  Speaker 1: retailers will still be net less promotional. All right, Mary, sure,
• 25:40
  Speaker 1: thank you so much for joining us, giving us that
• 25:43
  Speaker 1: rundown again. We had retail sales today kind of a
• 25:45
  Speaker 1: mixed picture. But as we head into that all important
• 25:47
  Speaker 1: holiday season. Mary Shore, Senior equity analyst at Columbia thread Needle,
• 25:52
  Speaker 1: giving us her thoughts here promotions, maybe gets promotions there.
• 25:56
  Speaker 1: On Nathan's you go out and do your holiday show,
• 25:58
  Speaker 1: feels like Black Fridays to into Black October, right when
• 26:02
  Speaker 1: you have all these early deals coming in and the
• 26:04
  Speaker 1: question is you know stuff gonna be on the shelf
• 26:06
  Speaker 1: when you do go there, when you do click by,
• 26:07
  Speaker 1: that'll be interesting as well. Thanks for listening to the
• 26:12
  Speaker 1: Bloomberg Markets podcast. You can subscribe and listen to interviews
• 26:16
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• 26:20
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• 26:25
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• 26:27
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• 26:30
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