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On December 1, 2017, E-nonymous commented on CVS Health: Can It Disrupt the Health Care Sector and Beat Amazon? :

Thanks for commenting, Leigh.

Interesting questions that you posed, with a couple of thoughts as answers:
-Could there be an exodus from other payors to Aetna? Yes, I think this would have to be a key component of CVS’ strategy for them to attempt such a massive acquisition that is outside of an area where they currently have a core competency. To some degree, health insurance has been commoditized. In that scenario, a vertically integrated health care provider that can drive cost efficiency and thereby offer cheaper insurance could have a huge advantage over the competition.

-Would this cause hospitals and other providers to cut Aetna a better deal? Again, potentially yes. Other integrated health care systems like Kaiser Permanente and the Mayo Clinic have already executed an end-to-end customer health care experience, albeit on a vastly smaller scale. They report lower costs and better patient outcomes. If this can be done at a large scale (and CVS is the largest health care company in the US), that could have massive ripple effects across the entire health care sector.

On December 1, 2017, E-nonymous commented on Inditex/Zara: Fast is the new slow :

Very interesting analysis of the fashion industry’s upheaval as the sales game moves online, and I think it’s a great follow-up to the industry disruption that we talked about with the GAP case in marketing. Challenging to wrestle with potential changes to an operating model that has been successful for Inditex. I tend to agree with you that attempting to move fully into the online space, while maintaining a brick & mortar retail presence, will make it difficulty to capture cost efficiencies and compete directly with ultrafast fashion on price. However, I don’t think that Inditex needs to. Their ability to win at the brick and mortar retail game has already been proven, and I think the ultrafast fashion retailers are occupying another niche, especially among young folks. As young folks age and body shapes change, though, I think customers could become more likely to try before they buy within the clothing space to maximize efficiency. This trend plays to Inditex’s strength in offline locations, and primes them for the future.

On December 1, 2017, E-nonymous commented on CVS Health: Can It Disrupt the Health Care Sector and Beat Amazon? :


Bonus points for the double post!

The Reduced Rx program is an effective manufacturers’ incentive program to encourage people to use specific brands of medication not covered by insurance. For CVS, these revenues are additive to those generated through PBM programs, and increase their share of the prescription drug filling market. Great point that the increased foot traffic to the pharmacies (at the back of the store) could also drive more front store sales.

CVS Caremark (the PBM within CVS Health) is already the PBM for Aetna, so customers with health insurance through Aetna can generally fill prescriptions through CVS retail pharmacies more cheaply than elsewhere. I think the potential value to a merger would be to increase customer loyalty within the CVS ecosystem, and to drive efficiencies once you can have an end-to-end health care relationship with a customer. can fill most of their medications throughgenerally receive best prices for filling medications through CVS retail pharmacies. which is why this merger could make capitalize on existing relationships.

Thanks for your comment!

On December 1, 2017, E-nonymous commented on CVS Health: Can It Disrupt the Health Care Sector and Beat Amazon? :

Thanks for the comment, Michelle. I didn’t realize the relative size of CVS within the healthcare space until I researched this article – they are the largest player in the US market. Given the overall size of the combined company, I think you’re right to be concerned about potential anti-trust concerns. I think those may be mitigated somewhat by the fact that Aetna only holds about 5-6% of the health insurance market, and CVS only has ~25% market share in the retail pharmacy and PBM spaces. I also share your concerns about CVS’ ability to effectively implement last mile delivery. They have run pilot programs within the last several years that had less than stellar reviews at the pharmacy level, but have chosen to proceed with nationwide rollout anyways. I guess we’ll know by the end of 2018 how effective they have been. Thanks again!

I am concerned that your point about unrealistic bids for energy contracts runs contrary to the narrative about Chile being an innovative leader in the renewable energy space. If those companies are unable to deliver their promised bids, or are forced into bankruptcy, I think the Chilean renewables sector could face setbacks similar to those suffered by US solar companies after the Solyndra bankruptcy.

Separately, if Chile is able to produce economically viable solar energy, it could have huge impacts on the Chilean economy. The development of a renewable energy sector, with potential exports of energy, technology, and manufactured goods, would enable diversification of the economy away from its heavy concentration on mining and fluctuations in currency prices. This industry could also drive foreign direct investment in Chile and provide increased employment opportunities.

In short, by focusing on the renewable energy sector, the Ministry of Energy may be doing well both for Chile and for the environment.

Great summary of the efforts that Sierra Nevada has put into addressing climate change.

While I agree that there could be some variability in hops production due to global warming, I’m not sure that the severity of the problem is understood well enough to merit expanding their supply chain globally. Over the last two years, growth in the craft beer market has slowed substantially and may be approaching zero (1). If that trend holds, current supply within the hops market could be enough to source Sierra Nevada’s needs going forward without the expense associated with supply chain expansion. I think a more cost effective approach may be either to a) control more of their hops production, as Alexandra alluded to, or b) move their breweries closer to their hops growers to minimize transportation costs. In any case, the potential long term nature of climate change offers significant opportunity for Sierra Nevada to experiment over the coming years / decades to find measures to effectively mitigate the effects of increased temperature.

Conversely, I am far more concerned about water shortages in the near term. They have significantly higher and expensive mitigation costs that are not as cost-effective as outsourcing hops production. Ultimately, I think the only choice is to move your operations to an area that you anticipate will have long-term access to water, while continuing to refine production processes to reduce water waste.

(1) https://www.economist.com/news/business/21724864-slowing-beer-market-and-might-ab-inbev-has-small-brewers-worried-craft-beer-america

On November 28, 2017, E-nonymous commented on AK Steel: Casualty of a Protectionist War with No Winner in Sight :

Very succinct and thorough analysis of the effects of supply and demand on the steel market, and the potential impacts of protectionism. I think your comment that “AKS should not rely on protectionism to achieve profitability” hits a key point – it seems that several companies who have recently claimed damages from illegal subsidization are doing so primarily to avoid facing long term economic realities, rather than compensate for actual damages from malign intent.
I think the recommendation to shutter the BOF plants is worthwhile. There is already a broader industry trend of moving away from BOFs towards electric arc furnaces, and this could also free up capital to invest in newer steel production technology like twin-roll or single belt casting. Interesting article on those here: https://www.economist.com/news/business/21718545-150-year-old-idea-finally-looks-working-new-technologies-could-slash-cost-steel
I think both of those options are in line with AKS’ desire to move upstream in the production process and provide increased value for customers. Ultimately, as you alluded to, this environment could force AKS to make good long term decisions rather than rely on what has worked in the past.

Great summary of an interesting topic. I am pleasantly surprised by how proactive the American Trucking Association seems to have been in addressing some of the potential risk factors associated with the automation of trucking. Given the overall disruption that automation is likely to cause across the economy as a whole, I’d like to see the ATA collaborate with other industries to also push proactive policies to shape adoption of the new technology.
I find the level of concern over job loss to be interesting as well. Every time there has been a major technological innovation, there has been significant societal concern about what that might do to overall employment, yet humanity consistently finds innovative ways to create new jobs. I still think there needs to be a dedicated retraining program (as you alluded to) in order to ease the transition, but I don’t think we need to look at a universal basic income yet.

I’m not convinced that the root of Boeing’s problems lie in populist rhetoric or isolationism – rather, I think Boeing was outmaneuvered in a strategic narrative by its dominant competitor, Airbus. For quite some time, Boeing has effectively used the cudgel of trade policy and close relationships with the US government to ward off competition within the airplane manufacturing sector. I think Boeing’s rhetoric conveniently ignores its own implicit and explicit subsidies from the US government, and the fact that Boeing doesn’t make a plane that directly competes with the C-series aircraft. Additionally, I find Boeing’s claim that Bombardier sold planes below cost (no judgement from me on whether that is true) to be ironic, since Boeing’s use of program accounting essentially allows it to obscure the true cost of its early airplane models and sell them on a below-cost basis. I think Airbus managed to successfully provide national stakeholders with a dialogue that ran counter to Boeing’s narrative, and turned Boeing’s narrative against it. Ultimately, then, this looks to me more like an unsuccessful attempt to smother a future competitor with anti-subsidy tariffs than a reaction to populist sentiments.