Fritz vG

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On November 28, 2017, Fritz vG commented on Amazon, Mexico and Trumponomics- Is the bet too high? :

I’m intrigued by this question, Oded, and it’s one that many companies will be facing as they consider investment outside of the US with NAFTA’s future remaining uncertain. Of note is that Amazon has made this move in full recognition of Trump’s views and it is a company that has historically been bold in investing in areas it views as having potential. I believe Mexican e-commerce must be one of these considered bets the company is making. An additional backdrop I think it is interesting to consider is the global land grab that is happening in e-commerce. Amazon is competing on a global scale with increasingly global competition, such as AliBaba. For Amazon not to move quickly and aggressively into a neighboring market to the US may leave it exposed and creating a first-mover advantage in Mexico may be a strategic bet that the company is willing to make despite the political uncertainty Daniel mentions above [1]. For me an important question is whether the risk of doing nothing in Mexico is higher than the risk of operating in an uncertain political environment?

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On November 28, 2017, Fritz vG commented on Unilever: The Problem of Water :

Thanks, Larissa. Enjoyed reading this! I think Unilever and Paul Polman have been great beacons for driving sustainable supply chain practices and corporate focus on sustainability. Polman’s shift to reporting every 6 months instead of every quarter remains one of the more awesome ways I’ve seen a company begin to focus on longer-term performance. In short, love it!

How likely do you feel it is that Unilever will hit its goal of doubling the business and halving the environmental footprint by 2020? With only two years remaining, I don’t think its going to happen. Much of this comes down to the difficulty you note in changing behaviors of ~7,600 suppliers across the globe. With that in mind and the clock ticking, it feels like both of your options 1 & 2 won’t get the company there. I wonder if it’d be better for Unilever to double down in specific sectors or product categories (like detergents, as you note) to show that the goals are possible in some areas of the business? Would there be specific sectors where there is a concentrated number of suppliers that Unilever has some serious influence over? I could envisage a scenario in which Unilever can have disproportionate impact in some areas and thus have something remarkable to show for its efforts by 2020 rather than good but effectively failing results across the board.

On November 28, 2017, Fritz vG commented on Shooting Oneself in the Foot(ball) :

A refreshing take on Brexit and its implications! Thanks, Yohannes. It’s interesting that you raise both the Football Association (FA) and the EPL as I think both of these parties have conflicting interests when it comes to Brexit. The Premier League runs separately from the FA and represents the interests of the 20 clubs participating in the league. The FA, as you note, is tasked with running English football outside of the leagues, including the national team and the grass roots playing of the game. The FA has long been concerned about the waning development of young English talent and that a successful, lucrative Premier League stifles the development of the English National Team. One of your sources (xii) references that the FA has gone as far as to consider lobbying the government to prohibit the movement of European players to the UK, which is in direct opposition to the lobbying that the Premier League is doing. The downside of a restricted labor market is access to global talent yet and potentially access to a global fan base, yet I do believe there may be longer term benefits to the league by having to nurture more English talent at home. Selfishly, this may improve the performance of the national team, as Premier League clubs devoting millions into local player development in lieu of exorbitant transfer fees may lead to global talent being manufactured at home. Some of the most popular and lucrative teams in the premier league in the last decades have had a core backbone of English players (the famous Manchester United Class of ’97, Chelsea’s title winning teams under Mourinho), which speaks to their global appeal and hints that the strength of the league may carry on despite less international representation. All in, there’s a good chance that in the mid-longer term, development of English players may not hamper the league as much as we think.

Apologies for the length, but your MCO point and Ninad’s reference to Financial Fair Play has hit a nerve. MCO’s are certainly an exploitation of the system and as a fan, I have concerns about the way that clubs are now buying up other clubs in other leagues around the world as it leads to enormous conflicts of interests in developing players and sustaining a club. It also saps my own passion for supporting a local club, often steeped in tradition. An advantage of Brexit may be that it aids Financial Fair Play by making the MCO model less tenable and more difficult to operate as transferring players from the ‘spoke’ clubs to the ‘hub’ club becomes harder.

On November 28, 2017, Fritz vG commented on No more Champagne? :

Thanks, Jonathan. This is a provoking piece and it’s interesting to consider some of the creative approaches champagne houses are going to have to take to tackle this threat to their livelihood. I’m intrigued by Taittinger’s move to acquire land in England, which if the Company can get the branding and positioning of a good product in place, may be a smart move to make up for lower production volumes in France. I agree with Darrin’s comment that the Company may have a loyal brand following irrespective of the challenges it faces but if grape yields continue to decline, a smaller house like Taittinger will need to find other ways of making up for lost volume. So, it seems like the 69 hectares in Kent added ~25% more land to the Company’s 290 hectares in France [1], which is a positive step. To agree with your point, I wonder whether the Company can continue to acquire land in England ahead of others in a more competitive market. The backdrop of uncertainty we now have is what Brexit might look like and how this, and a weaker pound, impacts an expansion to England?

I’m interested by Peter’s comment on whether more climate change resistance grapes might be grown, as we’ve seen the advent of this strategy in hops cultivation for beer. From a quick dig around, it seems like the champagne industry is working on 4-5 grape types that could fit the bill but that it may take 15 years to get these into production [2]; seems like a long putt to deal with a medium-term problem but I’d love to hear your thoughts!

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On November 27, 2017, Fritz vG commented on Will Cash Always Be King? What Does It Mean for ATMs? :

This is a really interesting read, Pranay. I think our generation will see a world in which cash isn’t king. That said, I’m in agreement with Kevin in that it there should always be places of sale where an ATM is required, whether it be convenience stores, gas stations or countries which have higher skepticism of cashless transacting (e.g. Germany, Italy). To Kevin’s point, the NCR’s last earnings call transcript shows that the company is focused on ATM hardware for convenience stores and gas stations [1]. Fundamentally though , I think NCR is has a falling knife on its hands with its hardware division and I agree with you that they should diversify and focus efforts elsewhere.

I’d like to push back on the potential of innovative ATM offerings as I don’t believe these represent a large end-market and represent innovation in a declining market. I feel diversifying into POS, software and services remains a much more interesting avenue. Q3 results show that NCR’s cloud business is growing healthily [2]. To me, a SaaS model with recurring revenue and growing ACV could be a growth vector that yields more some serious benefits, if the company can get it right. Software and services are a vital part of the digital world, are often recurring in nature and have higher gross margins (~25-50% gross margins) than NCR’s hardware business (~15% gross margins). As the encumbent in this industry, the Company has a right to play here and the institutional relationships, as you note, to push their products. So, I wonder if this existential threat actually has the potential (admittedly an uphill climb) to yield a business model that is inherently better than the hardware one that the Company may have to leave behind?

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On November 27, 2017, Fritz vG commented on How Big is Amazon’s Opportunity in Healthcare? :

I believe it’s only a matter of time before Amazon makes a concerted push into healthcare. Healthcare spending represents ~18% of the US economy and Amazon won’t neglect this and I think it will make an entry into multiple parts of healthcare. Amazon has started selling durable medical equipment online, begun developing internal pharmacy benefit plans and AWS just started a move into healthcare IT in partnership with Cerner [1]. In response to your question, “how well equipped is Amazon to disrupt the entire healthcare supply chain”, I think most downstream pharma and elements of healthcare IT are fair game.

With regards to the pharma supply chain, I certainly agree with your assertion that downstream is the place to be and that cost is an important element. The question I have is whether you’re underestimating (i) the importance of convenience (which can improve prescription compliance, improving outcomes and lowering overall cost of care) and (ii) the role of the provider and their importance in pushing an Amazon-like delivery solution? On the latter question, I think that providers will be able to drive significant changes in consumer behavior, providing Amazon has a product that integrates easily with their system and is convenient for consumers. One startup that has made inroads (and is known to Amazon) is NimbleRX [2], which offers same day, free delivery to patients in the Bay Area and runs a wholesale pharmacy integrated behind the scenes with physician practices. The company just raised $28M of Series B funding [3] . Their competitive advantage is reputedly this smooth provider linkage and relationship; I wonder whether Amazon could scale this kind of provider-focused business model rapidly and lower logistics costs to provide a wholesale pharmacy capable of overcoming the consumer behavior barrier you’re concerned about?

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