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Thank you for a great article, Alona. I have no experience in this subject matter, so it’s great learning. It’s hard to imagine a company more negatively impacted by Trump’s policies than NextEra – doubly-impacted by new support for traditional fossil fuel companies and inflated raw materials costs related to the isolationism you discussed here. Despite that, NextEra’s stock is up 39% in the last year. I wonder what the explanation is? Is it that the bottom line impact of the tariffs is marginal? Is it that demand growth continues to outpace forecasts? As per Seeking Alpha contributor Michael Fitzsimmons, it is primarily the latter as well as a series of quality acquisitions made by NextEra over the last year [1].

I am not a fan of Trump or generally of isolationist policies, but I wonder if in this particular case, the overall benefit will be a positive one. Will tariffs force the big renewable energy players to turn toward domestic suppliers, and more rapidly close the quality gap while also increasing jobs in the US? It’s an interesting example of how the isolationist moral conundrum becomes blurry when those being “negatively impacted” have a lot excess profits to spare. It reminds me of the changes to tax treatment of stock options proposed in the next tax bill. Yes, silicon valley will take a hit. But no one cries for the young and rich.

Sources:
[1] Seeking Alpha, 2017 “NextEra Energy Partners: Green Energy Will Succeed Despite Trump’s Withdrawal From Paris Accord”

Thank you for this article Erin! Super interesting read.

I came into this article bearish on coconut water, and reading about the climate risks on coconut supply exacerbates the concern for me. The question I ask myself is: Is the insanely high demand for coconut water indication of a new sustainable market, or a bubble waiting to pop? I worry that it’s the latter. There have been a number of reports challenging the actual nutritional value of coconut water. There have even been class-action suit against Vita Coco [1] and Harmless Harvest [2] related to false claims to the nutritional value of their product. On top of that, coconut water is an “acquired taste”, that is why the big players make the majority of their revenue from blended product, mixing coconut water with other more familiar flavors. On the supply chain side, climate concerns are just a portion of it. The nature of the fruit makes it difficult to scale up. Palm trees have a long grow cycle, and produce a small quantity of juice by square foot compared to other fruits [3].

For these reasons, I’d be a little concerned about PepsiCo aggressively hedging its coconut supply. If I were management, I would first my demand forecasts and think critically about the marketing dollars that would be required to continue to grow demand. Secondly, if I believe demand will continue to surge, I might look into alternative growing methods, investing in research around growing in a more controlled environment.

Sources:
[1] Business Insider, 2012 “Vita Coco Will Pay $10M To Settle Suit Over ‘Super-Hydrating’ Coconut Water”
[2] Forbes, 2017 “Coconut Water No Longer ‘Raw’ After $1 Million Class Action Settlement”
[3] Gro Intelligence, 2016 “Cuckoo for Coconuts: Demand Is Soaring, but Production Isn’t Keeping Up”

Thank you for this. It really is a fascinating market, as the value added by real estate brokers seems so marginal, and yet the market continues to re-affirm their value.

I spent the last two years running finance and analytics at Updater (UPD), which plays in this space. Updater provides movers with a simple tool through which they can manage moving-related tasks, e.g., booking a moving company, setting their forwarding address with the USPS, reviewing utilities options, etc. We sell the digital platform to real estate agents and property managers, who in turn give the tool for free to their movers, as a value-added service and as a medium for re-engagement post-transaction. Re/Max was a client of ours. The reason they were interested in partnering with us, and the reason why UPD has been successful, is exactly related to what you’ve written here: their information access advantage is eroding, so they are instead turning to differentiated service as their mode of competition.

That said, I am admittedly skeptical (hence, I am not at UPD, but here at HBS). Staging, open houses… these services are ripe for technological disruption. Companies like AR Pandora and iStaging have already built tools for augmented reality home tours, where you can place your own furniture and truly visualize your “home”. With such technologies, the role of the agent is diminished. Consumers can, in the comfort of their own home, merge financial information about listings with the look and feel information that agents so thoroughly enable today [1]. Re/Max does not have the technical expertise to build such products. My question is: who are these A/R companies more likely to sell to? Big tech companies, who have synergistic cultures and massive access to capital; or brokerages, aging giants who have lost their core competitive advantage. Again, color me skeptical.

Thanks again for a great article.

Sources:
[1] Forbes, 2017 “Eight Ways Virtual And Augmented Reality Are Changing The Real Estate Industry”

Great article, Matt. Thanks for sharing. People talk a lot about the potential impact of telemedicine outside of the US (which, don’t get me wrong, is both massive and incredibly important), but seem to talk less of its impact within the continental US, which you’ve done eloquently here.

You spoke about the impact of tele-health on the specialty care domain, creating supply in remote parts of the US where it is more difficult to attract specialists. But I want to point out that there is also shortages in primary care, due to young medical professionals increasingly selecting specialized fields where earning potential is greater [1]. Unlike the problem in specialty, this problem is not geography-specific within the US. Telemedicine provides the opportunity not only for primary care MDs to offer care for unserved geographies, it also allows them to generally operate more efficiently, decreasing cycle times and increasing utilization. Beyond that, primary care is unique in that it allows physician’s assistants and nurse practitioners, which are disproportionately located in major metro areas, to provide lower cost primary care to remote areas. In this way, digitization dis-intermediates the traditional provider chain, such that patients can pay for only the services they need (which often do not require an MD), and therefore can reduce the cost of care further.

Source:
[1] Huffington Post, 2017 “Primary Care Is In Crisis. Here’s One Way To Fix It”

Thank you for this interesting article Daniela!

After you posed the question: “can Rappi become profitable?”, the first question I asked myself was: “what do the experts think?” And things look good! Rappi’s two lead investors are Andreessen Horowitz and Sequoia Capital (aka, the “Dream Team”). This same duo invested in DoorDash and Instacart. [1,2]. It also doesn’t hurt that one of Columbia’s first tech successes was ClickDelivery.com, which sold to Delivery Hero in 2015 for an undisclosed amount [3].

The reason I immediately look towards funding, is that I think it will take a lot of it to be both profitable and expansive with this opportunity. ClickDelivery may have provided some limited consumer education, which helps, but I don’t believe that it’s substantial enough for Rappi to take a “lean” approach to this opportunity. Like we saw in class today, with Uber and Lyft versus Sidecar and Fasten, a digital marketplace like this requires scale on both sides of the equation. In my humble opinion, that won’t happen without significant marketing dollars (including promotions and discounts on consumers and deliverymen), as well as significant dollars spent on the product itself to ensure that Net Promoter Score (NPS) is high on both sides of the equation. Many studies have shown that NPS has a dramatic correlation with long-term revenue trajectory [4].

The last point I’ll make regarding funding, largely in response to your point around Rappi’s impetus to maintain “lean management”… Having worked with two startups, both under 50 people, one with $13M in funding and the other with $100M… it takes money to make money. And its as true in HR as in any other factor of a business. Investing in experienced, talented (expensive) senior leadership pays for itself quickly. So, my advice for Rappi, if it is to become both big and profitable, is to think a little longer term, and dig deep in the Andreessen Horowitz and Sequoia Capital well, and grab whatever money it can to reinvest in itself.

Thanks again for a great article Daniela!

[1] Latin American Private Equity and Venture Capital Association, 2016 “Andreeseen Horowitz Invests in Colombian App Rappi”
[2] American City Business Journals, 2016 “‘Smart money’ VCs continue to back food delivery startups”
[3] Axon Parnters Group, 2015 “Axon Announces that an Exist from ClickDelivery is on the Menu”
[4] Wootric Inc, 2017 “There is a Correlation between CX and Revenue Growth – and Here’s the Data to Back It Up”

You had me at “The Grape Depression” (love a good pun!)

You lost me at “more expensive wine” (hate increased alcohol expenses!)

Just kidding.

Great article, Grant. It’s a really interesting look into a not-often-talked-about consequence of rising temperatures and rising sea levels. I really like the action steps you’ve proposed here, but I am concerned, just as Berit and Yohannes seem to be, that they aren’t feasible – that management will not be willing to engage in these capital-intensive and low-NPV projects. I would be less concerned if CB were not a publicly-traded company. But it is. And not just that, it’s a thriving one: “The stock has been a solid winner for long-term investors, up by over 500% in the last five years compared to a 78% rise in the broader market” [1] This, in spite of lackluster performance in CB’s wine business: from 2015 to 2017, revenue in CB’s wine division increase only 8%, compared to those from Beer and Spirits divisions which grew 33%. Similarly profit margin growth also trailed that of other divisions [2].

I wonder if the more feasible, and impactful, approach to combatting climate change and its affects on CB’s supply chain, is through industry-wide (and collaboratively-funded) initiatives and coalitions, aimed at maintaining water supply efficiently, and counteracting carbon emissions. Such organizations could also play a lobbying role, aiming to positively impact regulations at the state and national level. These types of initiatives could be rolled under the company’s corporate sustainability functions, rather than attributed to supply chain overhaul or infrastructure investments, and therefore would likely face a lesser reaction from the investor community. This type of approach might also lead to secondary benefits, in terms of supply chain coordination, a key driver of supply chain effectiveness as discussed in conversation related to bull whip effect.

Thanks again Grant! Great food (and wine) for thought.

Sources:

[1] ICE Data Services, 2017 “Why Constellation Brands Stock Has Soared 25% This Year”
[2] CB Brands, 2017 “CB Brands Annual Report 2017”