Saying “no” to a customer

“At our company, we used to have a rule that you never say no to a customer. If you felt like you shouldn’t do something, you would get somebody else above you to make the decision. This would go all the way up to the manager before anyone would say no to a customer.”

Mr. Eisenberg – Mr. Feinstein
Founders of Bed, Bath & Beyond

Bad weather, good reads

Stormy weather in Istanbul gave me more time to read in the weekend. Below are the summary of the remains of the week in my notebook:

> Foodservice Recovery in the US

With its defensive characterics in staples, food distribution also benefits from growth in relatively discretionery segments.

Restaurants -%60 of the overall foodservice=$600Bn– proved to be more resilient than we thought during the pandemic: Only 11% were permenantly closed and the industry fully recovered pre-COVID level sales in 2021. Although its growth in 2022 has been entirely price-driven, greater productivity per unit is encouraging.

Point to note: Independent restaurants are 4x profitable for foodservice companies than overall restaurants channel on the back of higher penetration of private label, higher service levels and dynamic pricing.

Retail ($71Bn) is expected to be fastest growing part of the market with 7-8% growth p.a.

Travel & Leisure represents $63Bn part of the market and still down 40% vs 2019 levels! The segment is expected to grow around 3-4% p.a for the next decade.

Healthcare ($31Bn) is highly resilient and captured all of the pandemic sales losses.

Education ($34Bn) is another resilient part of the market that fully recovered to 2019 levels and expected to grow by 2-3% p.a. for the next decade.

Looking at the valuation of major players, current levels (9,5x-13,0x EV/EBITDA) are much lower than pre-pandemic levels (16,0x-21,0x) and considering M&A track-record of the major players (CYY, USFD, PFGC) looks reasonable.

> Fast-growing Apple Pay adoption is threathening PayPal

As per #Salesforce eComm data covering 1.5bn shoppers globally, global eComm has fallen 2% in November 22. UK & Ireland eComm are weakest in Europe, followed by Germany and France.

Interestingly, Apple Pay grew 59% (makes up 6% of US eComm) in November in the US while PayPal (15% of US eComm) adoption has fallen 8% yoy.

Unpleasent take for PayPal shareholders: Extremely benefited from pandemic era surge of eComm, PayPal shall possibly continue to face strong competition from Apple Pay in the next years.

> Electric Smelter Furnaces’ (ESF) advance in steelmaking

Direct Reduced Iron (DRI) is put forward as main tool for decarbonisation of steel making in Europe. Problem is that it requires high grade iron ore pellets which is rare in the proven reserves (c.3%). A solid alternative could be ESF which is tried in the pilot applications across Europe by #thyssenkrupp and #tatasteel.

ESF uses same converter (no certification changes), cheaper electrodes, creates much more slag and use a wide array of iron ore feedstock.

If ESF proves to be a preferred way to decarbonise, met coal demand deceleration could gain further monentum. Met coal producers are possibly very good examples of #valuetrap in the market.

My view of Stellantis (in 6 sentences)

$stla StellantisNV.

+ YTD pricing power (will it continue in 2H?). High FCF

+ relatively slow EV rampup plans vs. comp (later margin dilution)

+ limited exposure to China vs. comp

+ lower breakeven vs. comp

– reliance on large vehicles (SUVs) in times of sky rocket oil prices

– deterioration of the auto demand in europe.

Hyper growth and other stories…

Growth by itself does not create value. If ROIC is lower than cost of capital, growth destroys value.

As there is no return in most of “#unicorns”, these are extremely successful at #value destruction.

Have a look at Gorillas: “Over the past 12 months, it was, on average, losing more than €1.50 for every €1 it generated in net revenue”

Next growth driver for online advertising

Online advertising market is huge but growing slower compared to last ten years. Good news for the players in this market is that  #penetration rate of online advertising market is estimated to be around 15% now, which seems too low as we are exposed to very high penetration of global and large local brands over internet. However if you consider small and medium-sized business with good customer equity and check how much you are exposed to their advertising over internet, this penetration level becomes more reasonable. Ad #platforms have recently introduced in-app shopping versus clicking out (to merchant’s app / website). Facebook Shops and Instagram Shopping (2020), Ads on Instagram Shops (2021) are all expected to increase conversion rates, resulting in the increase in value of ad inventory. E-commerce operators are also bringing advertising solutions such as Amazon’s Sponsored Products or ebay’s Promoted Listings. #Automation of campaign management and generation of creatives will possibly give SMBs access to tools that larger advertisers could afford now. #Google, for instance, is trying hard to help advertisers in terms of media planning and ad copy creation. It just rolled out Ads Creative Studio tool to create customized ads based on uploaded assets. The company “want to make it easier for media and creative teams to work together and at the same speed“. Such tools might help not only larger advertisers and ad agencies but also -more importantly- SMBs that can not afford to hire an ad agency. Automation of advertising could be a next #gamechanger for #onlineadvertising, #adagencies, #broadcasters and SMBs. Investors of ad platforms and management of media and advertising agencies are better to keep a close eye on this trend.