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On December 1, 2017, Charis commented on After Brexit, Barclays Should Exit :

Thank you rsi – I thought the context setting paragraph up front was brilliant and described what is really quite a simple situation which many politicians are trying to obfuscate. It is absolutely clear from the EU’s stance and the UK’s current government double bind that the final terms will be particularly punishing for the UK economy, and anyone qualified should be able to see that.

One course of action you haven’t mentioned, which seems to me as one of the few realistic ones, is Barclays withdrawing from the EU and focusing on the UK market. As a traditional English bank with some shaky moments in its recent past [1], it will not be as globally competitive without the advantage of its ties to the London financial centre (much like Lloyds and Natwest in the retail banking space). With the technocrats at the ECB and EBA unwavering in their demands, Barclays is likely to face drawn out regulatory battles, penalties and fines, all while its customer base in the EU is shrinking and its home market economy is inevitably suffering. Downsizing and rationalizing operations exclusively within the UK may well be the prudent thing to do at this point; unfortunately, this is not a very appetizing proposition to investors, and the current CEO is, as you pointed out, burying his head in the sand. Having worked in the UK financial services industry during the Brexit vote drama, I observed there was not only much talk of (and consulting spending on) global banks leaving London, but also British banks retreating from the bigger stage.

[1] Barclays bank reaches $100m US settlement over Libor rigging scandal,

On December 1, 2017, Charis commented on Associated British Foods: Mmmmm…Brexit :

This was a great case study into some of the difficult dilemmas facing British corporations in the highly uncertain environment created by the Brexit vote outcome. At the highest level, it’s clear that any deal at this point is better than no deal, and all decision making is currently suspended until the final terms of the divorce are formulated. This is why ABF, like many other businesses in the UK, is still operating as if nothing happened, awaiting its fate and planning for several different eventualities.

There are two secondary effects on ABF that might be interesting to think about. The first is that, from the entire retailer space, Primark is probably going to get hit the hardest, due to their discounter model and lack of wiggle room in terms of margins. Any variation in their cost structure will have to be transferred to the consumer, and their highly price sensitive audience will not be forgiving, flocking to other mid-price retailers who can take the margin hit to maintain their volumes. In this sense, their hand is forced with regards to which levers they can pull. The second is a further complication likely to arise due to their operations abroad: their daughter companies will be able to price more competitively in the continent than in their home country, and are likely to be seen as price gauging by UK consumers who will bear the cost (ironically, as in many other areas, probably the same demographic clusters that voted for Brexit in the first place…). This may have a deleterious effect on their brand value and further erode market share.

On your thought-provoking question regarding the lobbying powers of corporations, I believe there should be channels of communication across the government / business divide, but not to the extent that private institutions are effectively handed policy power. Rather, they should be used to effectively communicate the financial implications of decisions through regulated bodies such as chambers of commerce and industry representatives. The UK probably has that balance about right at present (unlike the USA, where campaign contributions tied to corporate favours are routine). I can’t help but think, however, how the outcome of that fateful vote could have been different if only business leaders were given more credence in their warnings for the dire impact Brexit will have.

On December 1, 2017, Charis commented on Chile: A Challenging Climate for a Global Winemaker :

Thank you for a particularly riveting and imaginative depiction of the issue at hand, Matt! As a (not very knowledgeable) wine lover, the narrative resonated with me. The wine making industry is particularly vulnerable to the effects of climate change due to its multiple dependencies to the shifting weather patterns you identified (rising sea levels and increase in transportation costs, soil acidity, differences in oak timber composition, day length and temperature variations). It strikes me that the wine producers have very little power to do anything against all the supply-side factors here (although as we learned in our Château Margaux case, taste might not really matter as long as you maintain pedigree). Indeed, relocation may be the only option available to some wineries: a paper published in the journal Proceedings of the National Academy of Sciences warned that grape sites may be forced to move their vineyards to higher latitudes and higher elevations [1].

One need not be completely pessimistic, however: this can also be seen as an opportunity for wineries to create a new paradigm of an ever changing prestige market, one where new wine locations can disrupt the centuries old Bordeauxs and Burgundys, which have traditionally commanded hefty premiums to their competitors. Concha y Toro has the scale and ability to purchase and develop new land across the Americas, while it is not constrained by a location-specific brand name or grape variety like its blue-blood French competitors. Why could it not then break new ground in creating new varieties of, say, Paragayan Merlot? After all, if the world is ending we might as well have good wine.

[1] Climate change, wine, and conservation,

On December 1, 2017, Charis commented on How Monsanto Is Weathering Climate Change :

Thank you TGD, this was a very interesting insight into a rather poorly understood industry and company. It is clear from your analysis that Monsanto both stands to gain and is at great risk from climate change; their steps to react and adapt to the impending change seem to be much more substantial than what is observed in other industries. I wonder if this is due to their unique vantage point in such a climate-dependent industry, which perhaps allows them to view with more clarity the catastrophic consequences of shifting weather patterns. There are shades of our Barilla case in this manifestation of a supplier dealing with its distributors (or end customers). Weather data Monsanto is in possession of can directly predict the variability of supply, and is therefore shared with the other supply chain players to achieve better outcomes for all parties.

The company is no stranger to controversy, as you have mentioned. Maintaining the cynical spirit with which many observers have commented on it, I have two issues with regards to its approach to climate change. The first is that, while you say it can mitigate the effects of climate change by being carbon neutral and fighting deforestation, it is actually one of the few world players that stands to profit from a deterioration in the climate. This applies not only in designing new more resistant crops like you mentioned, but also in having a growing population with a constricting supply of food, which will allow them to price their products higher in the most desperate locations, and control a higher share of the market. The second is the transparency and honesty with which their acquisition, Climate Corp, will share data with farmers: with increasing uncertainty in weather patterns and opaqueness of predictions, they will be in a position to skew their projections to maximize profitability for their product portfolio, rather than provide objectively useful data to their customers.

Thank you Panda, this post is a great comprehensive introduction to the Chinese retail space and in particular. I found the large capital expenditures you cited interesting, but do not think the fact they have not yet reached profitability should be worrisome. Amazon was famously unprofitable for almost a decade before turning in a profit [1] as it sought growth in an expanding market; this is even more pertinent for a Chinese retailer that seeks to grow with its target home country demographic. Investments in supply chain infrastructure are perhaps the most important aspect of this, as the largely rural geography of China is tricky to serve and offers its own challenges. The cost to serve some remote areas is currently prohibitive, and requires significant innovation as you correctly pointed out. An emphasis on next generation data manipulation and artificial intelligence is evident in their management’s representations, with their head of robotics saying AI is the future of all Chinese retail [2].

An example of digital innovation you touched on was a focus of one of my consulting projects: JD is actually at the forefront of developing its own commercial delivery drones, with an eye to have a working product within the next year [3]. The drones could make round-trip or hub-and-spoke trips to and from rural destinations, and be combined with more traditional solutions like delivery vans. Incorporation into the overall supply chain network would allow for route optimization akin to ride-sharing service technologies. This level of technical expertise is at the global cutting edge, and is required to keep the more refined western competitors at bay when they enter the market in earnest (similarly to how Alibaba battled with eBay).

[1] Amazon, once a big spender, is now a profit machine,

[2] AI Is The Future Of Chinese Retail, Says’s Head of Robotics,

[3] Chinese e-commerce giant is developing a drone that can deliver packages weighing as much as one ton,

Thank you JerBear – this was very informative and it is interesting to see a more contemporary version of the Barilla case of course. It seems that even in our digitalized age, which we often consider mature enough, there are spectacular potential improvements on the table achievable by aligning different players along the supply chain.

One thought in terms of how to incentivize the distributors would be to offer actual equipment and know-how in addition to the cash discounts and points system you propose. As Barilla did, the demonstration of how this is a better supply chain and inventory management system needs to be convincing up front to effect the change required of the distributors. Unilever could perhaps use some of its own controlled distribution and sorting centres and produce data packs for third parties, showing them the possible improvement in terms of lower inventory costs and fewer stock-outs. A more heavy-handed approach might be possible for a supplier as big as Unilever: they could demand that their distributors comply with this system (subsidizing a fair amount of the cost), otherwise they lose supply of their products.

QR code usage in inventory management is not one of Unilever’s core competencies at present, and you correctly point out that cost will be a major determinant of whether or not this initiative maintains momentum. Fortunately, there is the alternative of contracting a third party to develop and implement such a solution for Unilever; this could potentially be expanded across multiple suppliers in the industry if the technology is inclusive and adaptable enough. An example of this is ScanTrust, whose product specifications would seem to do the trick for Unilever and others [1]. The major impediment, as in the original case, would be transparency and the sharing of data with the platform and between suppliers and distributors.

[1] ScanTrust raises $4.2 million for QR codes in supply chains,