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This is Bloomberg Business Week Daily reporting from the magazine that helps global leaders stay ahead with insight on the people, companies, and trends shaping today's complex economy. Plus global business, finance and tech news as it happens. The Bloomberg Business Weekdaily Podcast with Carol Masser and Tim Steneveek on Bloomberg Radio.
Harveryone. Welcome to the Bloomberg Business Week Weekend Podcast. Tim is on assignment. Now we've officially entered the final month of twenty twenty five, you know that, and all eyes are on this Wednesday's FOMC interest rate decision. That meeting with market participants. It is expected to bring another rate cut by the Fed, largely priced in, some say, despite the FOMC committee working with less economic data than usual
after that government shutdown for more than a month. Now for the latest on what to expect from the Fed meeting, head on over to Bloomberg dot com or check it out on the Bloomberg terminal. Even without that data, We've got some really great reads this week into US economic health.
We have the CEO of Lending Club with an outlook on consumer credit he joins us in just a moment plus a deep dive into private credit with Christina Lee of oak Tree Capital Management, who also has a take on the health of the consumer that's actually impacting the firm's investment strategy. Also why a recent downgrade in the cloud security company zscaler is not phasing its CEO, Jay Chawdry.
We speak with him a little bit later on all of that to come, but first, the online lending marketplace and platform for loans, credit cards, deposit accounts, insurance, and a lot more. We're talking about lending Club. They announced recently a one hundred million dollars share buy back. It was just about one month ago, which was nearly five percent of the company's market value on the day of
that announcement. Analysts have been raising their price targets on the stock this year, and even most recently since the company reported earnings late October and posted third quarter results that beat estimates and provided a guidance range for new fourth quarter originations with a midpoint above estimates. We caught up with Scott Sanborn, chief executive officer of lending Club. He's been CEO for almost a decade and he's been
at lending Club for fifteen years now. Also joining our chat Herman shan He is Bloomberg Intelligence Senior analyst for US regional Banks who help bring this conversation, this roundtable altogether.
Scott, I want to start with you and just give us some size and scope of the business, the consumers that you're working with, who's interacting with the platform.
Yeah, so we serve a customer base we call the middle majority. They are if you think about credit, which we are a credit centric bank.
If you've got a lot of money, you don't need a lot of access to credit.
You pay cash for car, you save up to send your kids to college. If you're on the other end of the spectrum, you can't really access credits. So there's this middle group that are high income, heavy users of credit. So they can afford a car, they can afford to send their kids to school, but they need to use credit to do it.
That's who we serve.
It's a really big customer base that represents about a third of the US population, but.
It's close to half of the credit wallet.
So they are more likely than average to have every form of credit, and that credit is with the exception mortgages also larger than average.
That's what we serve.
How much do these people usually make our average?
And you know, obviously misleading averages can be misleading, but average is about one hundred and twenty five thousand dollars, but you can think of it of ranging between call it eighty thousand dollars in individual income to about two hundred thousand is where we really over index.
Great.
One of the real highlights of your recent investor day was the panel discussion with Marketplace Investors, and we talked about this earlier before your appearance here on radio. One of the panel THATTS talked about being aligning performance expectations partnering with better operators. Are you seeing that with the private credit space.
Yeah, we do so.
You know, we were born as a marketplace. Initially, everything we originated we sold. When we acquired the bank in twenty one, we started to hold a portion of our loans on our balance sheet.
That both gives us.
A stronger and more resilient earnings profile also allows us to do other things innovate using our balance sheet. And what we found is just by aligning our interest with our loan buyers, we're the largest eater of our own cooking. We're the largest holder of lending club loans. We care very deeply about the performance of the credit and you know,
credit is always evolving, it's very dynamic. Because we have a balance sheet, what we can do is when we want to test something new, we test it on our balance sheet.
Let's try longer duration, let's try a larger loan size, let's try.
A new marketing channel.
We hold that first, we own it, we own it, we.
Make sure it performs the way we expect, and then we release that to the marketplace. If you don't have a balance you can't really do that. And so that's visible in our results across every aspect of underwriting. So lower delinquencies than the rest of the industry thirty or forty percent.
Below, lower roll rates, higher recovery rates, lower.
Prepayments, lower fraud, literally every aspect that you can measure of credit, we're out performing on.
Has that remained consistent this year, in recent months, in recent weeks, like you have a great real time view of the consumer in the form of how well they are doing in terms of paying back their loans. That's right, still looking good.
Yeah, So that's been consistent for you know, we release four years of data we put out there, and so it's remained consistent. But you know it's not it's kind of like a duck on a pond. It's remained consistent because we're doing.
A lot of work underneath the cover.
So you know, something that we shared an investor Day is at any given time, we have more than two hundred tests in the market where we're evaluating price points, changes to the credit. So we're constantstantly adjusting to reflect what's happening with the consumer, and that's what's giving us the consistent results.
Well, so that to me says you're very picky about who you lend to. That's true, we are so in terms of your test, So tell me what it is I mean, and how many of people who apply or want to access your platform. You're like, I'm out.
Yeah, So we're pretty good at selecting who we want to have in our portfolio and reaching out to those people and then both delivering the price and product experience, but also let's call it the user experience that gets them all the way through. So we look for areas where, for example, we can control the use of the fund proceeds. If you come to me and say i want twenty thousand dollars because I'm going to do whatever my kid
needs braces or I'm moving cross country. Great, but unless I'm paying the orthodontist, I don't actually know that that's what you're using it for. Yeah, So we try to, you know, set ourselves up so that we are in some ways controlling the use of proceeds and then making the experience such that it makes it really easy. So or largest use cases for people who already have debt, credit card debt, most notably, which at this point more than half of all Americans are carrying. They're carrying it
at really high rates twenty three percent interest rate. It's highest they've ever been in history. And we say, great, you should do this instead. It takes less than five minutes. We're going to save you seven hundred basis points. And by the way, check all the credit cards that you have that you want us to pay off, like we see you have Chase or a cap One. Great, check those and we're going to pay them directly, so we
know you are paying off your credit card debt. You're not just saying you're going to pay off your credit card debt and taking out more money we are paying it off for you. Benefit for you is you know you've consolidated everything into one bill.
Other benefit is.
Your FICO score usually goes up by thirty thirty five points because you've lowered, you know, your utilization.
How much can you low? Like I'm going to tell you, credit card rates just blow my mind about how high they are. And I'm just curious, why are they so high? Are people so bad? Is it to cover? No, I'm curious.
Yeah.
No, it's a great question, and it just.
Seems like it's out of control, and I think it prevents people from becoming financially solvent or creating, you know, kind of getting ahead of the game if you will.
Yeah, there's a lot to unpack in that.
It is.
No, No, it's a great question, and you know there's a number of questions underneath. But I'd say the biggest thing is if you think about how people choose credit cards, it is not based on the interest rate. Yeah right, it's my Skymiles card or whatever, my retail store card. I'm going to get rewards for this. I don't even know what the interest rate is, or it's a promotional rate that resets, So that's one, they don't choose based on that. Half of the people don't revolve on the card.
They're collecting these rewards. Yeah, but they're not carrying a balance. Well, guess who's paying for that. All the people that are carrying a balance. Those people don't know what their rates are. The research we've done is half of all customers don't say they don't know the interest rate on their credit cards, and the half that say they do, more than half of them are wrong. They think they know their rate,
but they don't, right. And so cards have been able and one of the big resets with the cards was was driven by the Card Act, which limited how much cards could increase rates, so they factored in higher rates.
I just want to jump in real quick. We are speaking with Scott Sanborn, CEO of a lending club. He's been CEO for close to a decade. We also have here with us Hermann Chan. He's Bloomberg Intelligence senior analyst for US regional banks.
Thanks.
I wanted to follow up with you, Scott on some of the medium term expectations you laid out an Investor Day. You talked about doubling loan originations. We're talking about eighteen to twenty billion dollars a year. What are some of the levers to get you to that level? You mentioned use cases? Maybe talk about home improvement as a use case, and how do you maintain solid credit quality as you ramp up?
And an improvement is something you're getting into, right.
That's right, yep.
So first and foremost is as I mentioned, you know, credit card refining people out of their credit card debt into a fixed rate, lower rate.
Loan is number one use case.
It's it's about eighty eighty percent of what we do. That market is the largest it's ever been. There's one point three.
Trillion eighty percent of what you do.
Is that?
Wow?
Go ahead?
Sorry, So that is you know, one point three trillion in balance is priced at really really high rates. We you know, when the rate environment shifted and the inflationary pressure shifted, we pulled back on a lot of our marketing. So we're currently running today at sort of below our historical volumes. So we're just going back into that market, turning back on marketing channels that we had turned off.
And then the other areas. You know, personals can be used literally for anything, right, and before credit cards came around and came to be, they were the dominant way consumers at access you know.
Credit for everyday need.
So we have a major purchase finance business that's growing today, call it fifty plus percent year on year. That's allowing things like elective medical procedures, you know, lay six races for your kid, you know, all kinds of procedure of fertility treatments, teeth implants, so things that insurance doesn't pay for but you want.
To do and you want to do right away.
Private school education it's another one. So home improvement is sort of a next adjacency. People right now are staying in their homes longer. You know, seventy five percent of Americans, their mortgage rate is under five percent. They're not going anywhere, and the homes are getting older. So the homes need to be invested in, they need to be improved. So effectively enabling home improvement through an unsecured loan, where again we are controlling the use of proceeds. We can pay
the supplier, we can pay the contractor. We've got the capability through an acquisition we announced to you know, disperse this in phases to multiple parties.
So we're really excited to kick that off.
Consumer doing okay, I'd say the consumer we serve is demonstrating themselves to be remarkably resilient.
That a lot.
It's a drinking game, but we'll acknowledge the sentiment isn't great.
Are thanks to Scott Sanborn, chief executive officer of Lending Club, alongside our own Herman Chan. He is Bloomberg Intelligence Senior Analyst for US regional banks. Coming up the split mood around private credit soaring, inflows rising risks, lots of questions.
One of the things to look out for is one of the questions. I think that we all talk about our valuation marks.
Right.
Is there transparency? Is there not transparency? I always tell people to ask them what is your valuation methodology?
Christina Lee of oak Tree Capital Management joins us. Next, you're listening to Bloomberg Business Week. This is bloom.
You are listening to the Bloomberg Business Weekdaily Podcast. Catch us live weekday afternoons from two to five pm Eastern Listen on Apple CarPlay and Android Auto with the Bloomberg Business app, or watch us live on YouTube.
In a recent opinion piece for Bloomberg, Apollo Global Management CEO Mark Rowan argued that much of the fear around private credit is based on myths that the core of this market remains high quality and relatively safe. Even so, not everyone is so confident. Bloomberg Opinion columnist Paul Davies argues that the lack of transparency in private credit is
one reason that investors could be more fearful. He goes on to say that the outlook for repayment problems in bankruptcies isn't great and that in fact, it's getting worse. Needless to say, a lot of questions have emerged in
recent weeks about private credit. It all really goes back to that JP Morgan earnings call back in October, when the head of JP Morgan, Jamie Diamond, made that comment about more cockroaches being out there, kind of tapping into some of the concerns about the private lending world, the private credit world, the financial landscape, that there could be more problems.
Out there, like you should assume that every something has we scour all process, all procedures, all underrunning all everything, and you know, we think we're okay and other stuff. My antenna goes up with leaves like that happened, and I should I shouldn't say this, but when you see one cockroach, they're probably more, you know, and so we we should everyone should be four more than this one.
This past week, we leaned on Christina Lee, managing director and co portfolio manager for oak Tree Capital Management's US private debt strategy, for some insight.
I think it's been called the Great cockroa chores, you name it. I think one of the issues that I think people are having is there's been some high profile bankruptcies that I've happed recently, and people are saying, is this systemic? Is this a pattern of what's next? I think sometimes you do have to take a step back and remember we're doing sub investment grade credit. You are taking risk. There will be defaults, there will be restructurings.
You don't get eight to nine percent all in yields by not taking risk.
Okay. So having said that, when you guys, especially you know, in terms of private credit, I think what really tripped a lot of investors or investments up in the private world, private credit, private equity for that matter, is that there weren't the exits that were normally there. Right, We've seen them pushed off, and I think it's starting to come back,
but then you had terms renegotiated. You just like all these things started to happen, and you just wonder whether it gets a little bit fuzzier and that there is more opportunities or more touch points for things to come undone roll that in and how we should be thinking about that part of it.
I think defaults have been very, very low in private credit, and if you were to look at various managers, their loss ratios, et ceter, default rates would probably all be relatively similar. And that's because private credit hasn't really been through a downturn yet.
Right.
The advent of the class when it really started booming was maybe ten years ago. I think COVID was too short. I think what you're seeing right now also is defaults will likely rise because a lot of these bars put in capital structures when it was a zero interest rate environment, which is you know, now it's higher for longer, and I think that's why you're seeing defaults and some cracks emerge.
Does it get worse though, because you're right, an investment in a zero rate where money costs nothing is very different from where we are today, right. It's just the business dynamics and the financial dynamics of a deal looks very different. So do we see more cracks going forward? Is Jamie diamond Wright that there's never just one cockroach.
I think you likely will see some cracks, but what will be dependent is the cracks have been massed, the cracks have been around for a year or two. Is there's a lot of liquidity in private credit and even in private equity. They weren't necessarily deploying in new investments, but they were helping the resisting investments.
Forgive me for about when does too much liquidity, though, become a problem where you're chasing after there's so much more folks involved in the private market world, private credit, private equity, and when there's a lot of money around, it's like people are chasing deals and maybe more likely to take on even more risks. So when does it get messy or does it not? In this world, maybe it's something different.
I think right now, what you're seeing is there's still a supply demand imbalance. As you had mentioned, there's less exits, there's less M and A, and so private credit dry powder has increased. But if we were to look at kind of the exit piece that private equity needs to do M and A should increase starting in twenty twenty six,
and that supply demand imbalance should lessen. But right now, what you're seeing is there's really an imbalance right now, and so you are seeing that competitive nature of private credit. And does that mean looser underwriting standards a lot of time? Yes, would you do it?
Howard Marx, the co chairman principal co found under of oak Tree Capital Management, out just last month, that was in the beginning of November, with a traditionally long memo about private credit, but in bold on the second page he writes, so, no, I don't think this is necessarily the beginning of a trend. And by the way, it's called cockroaches in the coal mine. It's not an indictment of the whole sub investment grade debt market or the
whole private credit market. Rather, it's just a reminder that the yield spreads people care about so much are there for a reason, because sub investment grade debt entails credit risk. You agree, this is essentially just part of investing in this type of debt.
Exactly if you don't take on risk, that usually means that you're yielding something lower. Right, it goes hand in hand, and I think because we've been in such a benign market where that you haven't seen a lot of defaults, et cetera. That's why people, I think are surprised.
So then what's the what are the products or what are what's the credit that investors should avoid right now?
Like?
How do you separate because of another? A criticism I guess you could say is that there's not a lot of transparency necessarily with this type of investment, So then how do investors know what they should invest in what they should stay away from?
Yeah, I think one of the things to look out for is one of the questions. I think that we all talk about our valuation works, right, Is there transparency? Is there not transparency? I always as tell people to ask them what is your valuation methodology? How often are you looking at your valuation? Because in the end, we are in a private liquid market, there's no mark to market, there is no market, and so there is a subjectiveness
and a judgment on the manager. And I think a lot of it is do they mark their investments aggressively or are they conservative?
Right? How do you know?
I think you have to ask your questions of how what methodology. Do do you do you discounted cash flow? How much does current field matter?
But this is where I think about Christina, that a firm, whether it's Oak Tree or somebody out, Yes, right, if you're you're playing games in terms of evaluations or not being so transparent or whatever for your investors, the deals aren't going to pay off, right and investors are not going to give you any more money. So is that kind of a checks and balance in some way in terms of ensuring you guys are doing the work like
they trust a manager. Yeah, and that you guys are making sure you have the transparency before you go into a.
Deal exactly, because if you are way too aggressive and all your marks are overinflated, you will have a really hard time with your investors, right, right. That is reputation risk. And also just inherently, as a creditor, you are always worried about kind of what's next, what's the next risk, because your upside is getting what's contractually due to you, right, So a lot of just inherently as a credit investor, you tend to be conservative because.
That's why it's some you know, and some of the conversations we've had in trying to figure out, like there are there more cockroaches out there that maybe some of what some have said is smaller players that maybe maybe don't do as much homework or something that's where we might see some problems. Talk to us about the market overall, where you guys are finding opportunities right now and what kind of kind of opportunities. And I'm curious if it
tells you kind of what this investment environment. Is it a healthy one? Is it a stressed one? Like I'm just curious.
I would say right now it is there's a supply demand, a balance, So what does that mean. It's very competitive. If you think about the first nine months of the year with the tariffs, right with all of the uncertainty, M and A went to a screeching halt for the most part. Now M and A has kind of come back after Labor Day, and so now you're seeing what I call a little bit of fomo where you're seeing
a lot of lenders rush to get deals done. And I think this is the time that you want to be very selective, you want to be a credit picker, because the terms are getting more aggressive. Leverage is going up, pricing is going down. And so from like oak Tree's philosophy standpoint is, you really need to be elective. It's a yellow light. Proceed with caution. You're not going to stop investing, but you've got to pick and choose your spots.
Do you think this type of asset class will end up in the four oh one k's of many Americans?
I think that is I call it the next frontier. I think from a technology standpoint, if you think about private credit, it's a relative. I'm talking about more sponsored direct lending. It's a pretty mature asset class at this point, right, right, And I think where you're going to see innovation is what I call technologies on reaching new investors or fund construction. And so I do think four oh one case will
be the next horizon. But that's also where private equity is also going into, right, And so will that help a little bit with the supply demand?
Yes, rightly right?
Whether whether people want it or not in their four o one k's, I don't know.
Well, it does though, it creates another demand right for what's going on there? Just kind about a minute left? Can you can you share with us, I don't know, an interesting deal that you recently did I don't know how specific you can get, but just give us an idea in terms of maybe the type of deal, terms or whatever you can share.
Can't just not about a specific deal, but just what we're seeing in the market right now is it's it's kinter intuitive, but as the interest rates go lower, you're seeing leverage creep up because bars can actually make their interest charges now. And so before when interest rates were say four percent on sofa, you didn't really see deals go over six times, yeah, because otherwise a barro couldn't pay their interest. Now it's actually going the other way,
where you're getting lower yields but higher leverage. And that just notes the level of competition. So we're hoping that twenty twenty six there will be a little bit more balance than deals. Yeah, but that's what we're seeing in the moment.
So does this assume.
Too, that you think the Fed will continue to rate to cut rates even into twenty twenty six.
I think it all depends on who gets appointed, you.
Really, So yeah, do you think is it is it a done thing that if if it's Kevin has it that you can assume that there'll be lower rates. Just got about thirty.
Seconds I'm not going to make an assumption around it, but we all have an understanding wort the administration wants is lower rates.
Right, interesting time.
And we'll see where the underlying economy also says. We'll hopefully well also dictate where the race of neflee land right.
That the FED sticks to the band aid and what needs to be done. Thank you so much, really appreciate it. Christina Lee, Managing director and co portfolio manager for US Private debt Strategy over at oak Tree Capital Management. Joining us right here in our Bloomberg Interactive Broker studio.
This is the Bloomberg Business Week Daily Podcast. Listen live each weekday starting at two pm Eastern on Apple car Play and the Android Auto with the Bloomberg Business app. You can also listen live on Amazon Alexa from our flagship New York station, Just Say Alexa played Bloomberg eleven thirty.
This past week, we got an update about the Trump administration ending a pay incentive program intended to hire and retain experts in the federal government's primary civilian cybersecurity agency, which has already been depleted by firings, resignations, and reassignments. The program, known as the Cybersecurity Retention Incentive program will be eliminated in twenty twenty six and replaced with a
different incentive program called the Cybersecurity Talent Management System. Cybersecurity experts warned that ending the extra pay will lead to more departures at the agency, further weakening the federal government's defenses against cyber attacks, with some employees facing a significant pay cut of as much as twenty five percent. That
story on the Bloomberg. We know that cybersecurity experts have worn for years now that the rise of artificial intelligence and large language models will radically transform the way hackers operate and make devastating breaches easier to pull off, whether it's in the private or public sectors. Just last month, AI developer Anthropics said that it disrupted what it described as a highly sophisticated AI led espionage campaign from China
that use the company's clawed chatbot. Thwarting cyber risks of all kinds is the world of cloud security companies. Zscaler. The company released its operating results for its fiscal twenty two twenty six first quarter, which revealed accelerating revenue growth on the back of staring demand for its products. However, the stock is still down roughly thirty percent from its twenty twenty one record high, when it reached what some analysts call an unsustainable valuation during a frenzy in the
tech market. For more on the company the outlook in the world of cybersecurity, we caught up with zscalerx cooj Chottery. Also joining our conversation, Bloomberg Intelligence Global head of Technology Research man Deep Sing.
We had an outstanding quarter.
Our arr growth twenty six percent, revenue growth twenty six percent, free cash flow margin fifty two percent, operating margin twenty two percent. We beat all the metrics that Wall Street was looking for. In fact, if you take our free casual margin and add it to our revenue growth, that's seventy eight percent. That beats the rule of forty that many investors look for very very well. And this is
at scale of three billion dogs or higher. There are only about five pure play enterprise SaaS companies that are in that unique class, so we're done extremely well. We are very proud of what we delivered and be passed a meaningful beat. We did and raised our annual target, so I think we're very pleased with it. I think investors get it wrong from time to time.
This is one of those times.
That's what I's going to ask you know what, you think investors just got it wrong, because I mean, thirteen percent is a pretty big hit. So you think, I mean, that's not like them wavering at all. They really wanted more from you guys. I mean the expectations were certainly high.
Look, markets do what they do. I have one focus, keep on innovating and serving our customers. And those innovations started with zero trust architecture, which has changed the world of old school firewalls and VPNs and now as a security is coming a securities become a big concern and zero trust that we pioneered is the foundation of it. So we have amazing interest from our customers. That's why we're able to deliver.
These strong numbers.
Over forty five percent Fortune five hundred companies trust us, depend upon us.
So I'm very polish about our future.
So talking about AI security, I mean, you have a business model that's reliant on companies hiring more people and you have a c based model. How does that change with AI security? Because AI, you know, what we are seeing out there is more consumption based so how does that impact you and your business?
It's a good question. So we started out with bringing zero trust for users, so users can access applications without being on the company network, and natural pricing for that is user based. Let me move the model to the our architecture. The next thing, how about zero trust communication for workloads cloud workloads. That's actually based on number of workloads and actually amount of traffic, so it's not just user based. If you think about a security, there are
many facets of a security. What one of the biggest things our customers look for is as every company starts using a lot of agents. These agents are some like people. They need to access their applications, they need to talk to other agents. So we are extending our zero trust exchange that are designed for users and workloads and branches now to agentic exchange so that right agent can talk to right agent and right application. So obviously there's an
opportunity for us to secure that communication. Yes, the number of users may not grow significantly, but I believe every company will have scores of agents for every single employee and they need to be secured and we are extremely well positioned to handle that.
And talking about agents, it sounds like one of your biggest competitors is doubling down on observability and identity, especially on the browser side, as an area of focus for agent take AI is that something you feel is very important to roll out the agents.
So some companies try to go and buy many companies to create a collection of things. We are very focused on what we want. We will focused on zero trust and then we focused on AI. Regarding observability, we actually do observability for the areas that matter to our customers.
We sit between the user and the application. So today we have a sizable business, hundreds of millions of dollar business with the product we call Zeskin Digital Experience, where we can tell our customers if any user is having any performance issues as they try to access those applications. It's integrated with a platform. While many companies have many point products and they are separate, we like to have
integrated platform that serves our customers. So we not only provide secure and reliable experience, we make sure that it is fast and you can trouble shoot those things. But I'm not going into broad observability, which has become a broad area. We are focused on the areas that are relevant to our customers.
And identity is that something you care about. The identity on the browser.
Identity is important. Think about identity for users. We have been working from day one with all leading ID provider for users or whether it's Microsoft and oct and others. Now when it comes to identity of agents, I believe they'll be any contenders Microsoft, Google, Aws octors of the world. Our philosophy is to federate those identity providers use that identity and we are the zero trust exchange, the switchboard to make sure the right AI agent talks to right agent.
In this world.
I do not need to own everything. I need to do some of the things I do the best and integrate with partners with proper API integration so our customers get the biggest benefit. We believe in doing a few things, but do them extremely well and partner with others.
So I do feel like we're all learning as we go. And of course man Deep and Jay, you guys are ahead of us in a big way. But when they talk Man Deep about zero trust, this never trust, always verify. I think about digital touch points thinking that there are threats within an organization and outside, and you've got to make sure there's security everywhere.
Yeah, no matter where you are, and that's where you know sase is a term that gets thrown a lot, and z scaler is in the leading position in that magic quadrant. So I have one other question J for you. So, given the amount of data in the world of security, and you know you guys generate trillions of data points, will the security world have its own LELLM.
Yes, the answer is yes.
We are actually working on building our security focused LM and I do not need to have the large large language model. Security is very focused set of high equality data. With over eight thousand customers and forty five percent of Fortune fire and companies, we generate over half for trillion transaction logs a day. Those logs are anonymized, but they can give us an idea of where the threats are coming from. We can find a needle huistag and help all of for customers.
So AI is only.
As good as the data that powers it, and we have the best data and we believe we can help identify some of these threats in almost near real time and provide a closed loop system so that the threats can't really exploit our customers and provide them benefit at a much faster wayte That's why we have focused on AI powered security operations, and our acquisition of Redcarty is part of the strategy because they build some very very good,
egentic AI technology that we're integrating with our platform.
The use of AI to make the system more robust certainly makes sense, but the concern about how AI has made the attackers just more robust and the attacks more robust. Can you point to specific instances where hackers have actually used AI to enhance their attacks and did it work?
Yes, there are many, many examples. Let me give you a few simple ones. Every attack starts by finding your attack surface, who where you are and public IP address is the starting point. Every firewall, every VPN, every application portal is an attack surface. In the past, a hacker may have taken weeks to identify it. Now you can go to chat GPT and say tell me all the firewalls and VPNs that have one abilities and give it to me in a nice tablar format. Under sixty seconds, you can get that.
Now.
The second part hackers would do is these phishing emails. Now they can ask AI to say, write an email that looks like a cfo's writing style, no typos, make it very targeted.
That's number two.
Third, hackers are using automation that AI provides.
Once they are on the network.
Automation can find the key applications and try to encrypt that data. A lot of that is happening. What does the skuttter do in this case? Number one, we hide your attack surface. Your applications are hidden behind our cloud. Bad guys can't even find you. They can find you, they can attack you. And the second is owned the network. The biggest problem with firewalls and VPNs is right, they're trying to protect the castle, and we actually make it zero trust.
Jay, We've got to run. This was so informative and so enlightening in terms of AI security. We so appreciate it, Jay Todrey, he's founder chairman' CEFZ Scaler and of course our own Mandi Singh a bi.
You're listening to the Bloomberg Business Weekdaily podcast. Catch us live weekday afternoons from two to five pm Eastern Listen on Apple CarPlay and Android Auto with the Bloomberg Business app, or watch us live on.
YouTube plentyhea our second hour of the weekend edition of Bloomberg Business Week. We have a great glimpse of the world around us, from real estate to retail, including Yeah, it's shopping's biggest season. So what does Target need to do to turn its business around? Plus break out the hot chocolate, We catch up with the founder and global CEO of the UK based chocolateer Hotel Chuck a Lot, this company taking on the US. First up this hour
a lot happening with New York real estate. This past week, New York Mets owner Steve Cohen won approval to operate a casino next to Cityfield and Queens as one of three projects selected for gambling licenses right here in New York City. Two other projects were also selected genting groups Resorts World Whidge proposes to expand a casino next to the Aqueduct racetrack in Queens and Bally's Corp. Whige plans to operate a gaming facility at the site of a
Bronx golf course. We spoke with ron Eliasaff. He is founder and managing director of north Wind Group. It's a real estate private equity firm in Manhattan that has transacted over five point six billion dollars of debt inequity investments in residential, commercial, senior, life and healthcare properties.
It was a long wait, I think for a lot of the observers and the companies who put in bids for these licenses. I'm just wondering how you view this in terms of changing the real estate landscape. This one is not in Midtown where one of the other licenses could have gone, But how do you view it?
I think in general it's a positive thing for New York City. I think it was given it's not going to be in Manhattan, and I think to support growth in communities and queens and Broncs. It's overall a positive thing. It will create jobs, opportunities, increase tourism and attraction. I think the hard rock bit together with Stevie Coin, is going to make great things for city field there.
It's great transportation.
I don't think anybody wants a casino in Times Square or anywhere in the city. Agreed, and overall it's going to be If you look at the three projects that are almost there right there's still final stage together to get done. It's going to be total over twenty billion dollars invested in developing the real estate around it. Hotels, tourist attractions, concert venues, music.
It's a good thing on the casino side. The thing that's puzzling to me is that we all have casinos in our pockets with our phones nowadays. It seems like and the rise of prediction markets, the rise of online sports betting and doing it through apps, it means like.
It's not the same experience.
You don't have to go to Vegas or Atlantic City.
I don't gamble personally, but I think casinos are not what you do on your phone. It's exactly what Carol is saying. It's a touristic attraction. You go there for the experience. It's coupled with great dining, with shows, circussola or whatever it is. And I think it will overall increase tourism to New York.
Interesting. Interesting, take a big picture right now? How do you see a real estate in New York right now?
I think right now everybody's bracing for the mum Dani taking office in January and what will come next. I think there's been positive signs. Staying on as a commissioner seems something that, at least for the realistic community, is perceived as a positive thing. I think public safety is on top of every everybody's mind. But with that said, there are some pretty aggressive legislation looming. Recently, city council is pushing a COPAK community offer to purchase.
It's not sponsored by Mondney.
Per se, but it's definitely something that you see as a left wing agenda. It's basically means that anybody that owns a multifamily building will have to first give a writer first offer to nonprofits and community transitions to purchase it. Basically could potentially stall selling real estate multifamily.
Those multi family buildings aren't moving anyway though.
Right they are. They are, they're moving. I'm not rent stabilized buildings. This will this will if it passes, which they got a pretty overwhelming initial vote.
So this goes for rent stabilized and non rent stabilized too.
So any multi any multifamily above certain unit count, which is pretty overwhelming and it hasn't passed yet, But this sort of agenda will scare investors potentially and will make people pause the city. You asked about the city in general, the city is facing a supply shortage that's unbelievable.
But what what does do for a supply shortage?
Though, this will hurt it because people you will think twice before buying.
I think that's what's so puzzling to us. And I'm going to speak for Carol a little bit, because we talk about the supply demand challenge with with multi family real estate, and with real estate in New York City anyway, the prices won't come down unless you build more house.
This sort of legislation will do the exact opposite of.
Taking a political position here.
I mean this is this is not a political position. This is this supply the supply demand. In economics, if the city council or the mayor wants to reduce pricing, what they have to do is push more supply in You push more supply by providing subsidies, by endorsing legislation that makes it easier to build, change zoning less effective, increase up zone, not limiting someone's ability to sell their own property, rent their own property. So this will have
a negative effect. Not aupon to the fact, I mean, what.
Are the rules? I mean, I don't understand why when a developer is building a building that there isn't either a certain percentage that's always put aside for people who maybe don't make as much money.
Well, there have been certain programs, right.
Certain programs. But why I mean, well.
The full affordable kind of subsidies have been tapped out of maximized in the budget. So then there was four twenty one A that papered off and die. Then forty eight forty five X those have built in twenty twenty five percent affordable components in it.
Every new construction.
Yes, if you qualify, right, and then now with.
Food, I mean, if you qualify there are certain ground well four twenty one A is expired, but forty five X you have to qualify with pricing and how much you do. But then if you build round up and you've done it in the timeframe that the relegislation existed, you would have to build twenty five percent or provide twenty five percent affordable.
So why do you think is it just zoning that we don't have enough affordable housing here in New York City, I mean, or any major city.
The issue in the city is it is the land is limited. Yeah, right, Manhattan is an island. Cost of land is very high, cost of construction is very high. It's not like building somewhere in middle of Texas you can just bring your trucks in.
You have to stop traffic. You have to build.
The cost of labor is more expensive, so everything costs more to build, so the end product costs more. So for you as a developer, it has to be more profitable to justify it. But the city has done a few things right. If you look at City of Yes, it was a great program. It is still a great program. The four sixty seven m tax abatement. We basically said if you convert an office building to resilient and set aside affordable, you get a tax incentive, property tax incentive.
Those have been positive, I think examples of how the city has done it right. Yeah, this specific bill on the table is a very bad example, and I hope it doesn't pass.
I think people could also point to something closer to my neighborhood, like Gowanis rezoning. I mean, if you go to a long fourth Avenue in Brooklyn and you know the Gowanis area that has been that was rezone owned, there's just multi like huge buildings and thousands of units that are going up there as a results.
And I agree with you, up zoning is the right way to go because in the long term, the city will benefit from more property tax eventually on more units being built. I would personally up zone the entire Midtown district that connects to Hudson Yards. Right now we have these mid block garment district building giving more property rights.
Right, you have a building.
Right now, you can build twelve times more than what your land lot sizes.
Double it.
I mean, it's not like we're building go higher. I mean the city we have plenty of sky rises here, right.
Yeah, right.
I think one of the challenges would be transportation to move all the additional people, and I think about that a lot dense. It does get dense, and it's not like you can add more You can't add more cars to the subway. You can't always increase frequency of subway trains coming because some of these trains share tracks.
It has to come with with investment infrastructure. So this is up zoning is not something you pressed the button. You have to plan ten years ahead and it has to come with additional infrastructure for public public transportation for sure. So in places in Queens and Midtown you have to plan and building more public transportation. I think eventually you're going to see also eventually these driverless cars coming in that will have a huge impact on traffic.
Over time in a positive way.
I think in a positive way, definitely.
When you think they'll arrive.
We've I've seen when driving around the city. I've tried it in the West Coast in LA. It was one of the best experiences.
I've never met anyone who tried it and didn't like it.
It's like unbelievable. The rate environment. If and do we get it's expected that the Fed's going to cut rates next week meets, how is that impacting kind of deals, valuations, opportunities right now?
It's pretty I think it's pretty priced in right now. I think if you look at the ford, if you look at the forward curve, it's pricing in this reduction it expects it. I think we're very close to being a kind of neutral state. I don't think we're going to see another significant decrease in rate. Maybe another fifty bits over the next year, but not more than that.
That's what the price of the market is pricing. And you're seeing more liquidit tique flow into the real estate market in general, both from the lending side, from the credit We've seen spreads come in and more loans available and equities back, and people are making investments that feel more comfortable now that there's more predictability.
Our thanks to Ronnie Eliasaff. He is founder and managing director of Northwind Group. You're listening to Bloomberg BusinessWeek. Coming up off of the back of retail earnings and Black Friday, we take a deep dive into Target and the uphill climb for its incoming CEO. And speaking of earnings, Macy's reported this past week posting better than expected results, but the retailer warned that it may be seeing softer demand
to come in the future. For details are remain Bostic caught up with the CEO of Macy's, Tony Spring for a pen and pad interview enjoyed Bloomberg's Danny Berger and Matt Miller to talk about it.
I mean, I did ask him a lot about what foot traffic was.
Was there an actual increase.
He did say he was happy with foot traffic, but he also seemed to implog here that a lot of the revenue gains that they've seen in this most recent quarter was people buying more so basically bigger tickets, bigger receipts, if you will, rather than actual actually more people going in there. But this is also a company that is you know, he's done that. He's doing the conference call now, and he's been asked a lot about how strong this
holiday season is going to be. And one of the reasons why you see the shares down a little bit here is the comp sales growth, while certainly an improvement over previous years, is still kind of lagging what you would have seen at a company like Macy's in holiday seasons of past. Remember, this is going to be or supposed to be their best quarter of the year, their physical fourth quarter.
You know, going to a physical store seems like a quaint idea, but a strange thing to do, right, I mean, most of us buy all of our stuff online.
What are they doing with that? Well?
I mean, first of all, the average age of a macy shopper is over forty. It's like, you know, late forties.
I think is the average age that gives you.
A sense of wanting a challenge that they're going I know, madd and you're still in your thirties. But we get to this idea here that there is still a cohort of boomers out there that do want that physical experience. Macy's obviously is now trying to make sure that the younger generation of gen Z and beyond that they are actually engaged in the physical stories and trying to make them more experiential. That's the long term story, you know,
and that's what he's doing. He's basically taking three hundred and fifty Macy's stores, basically going to revamp all of these stores to make them more experiential. He's only done about a one hundred and twenty five hundred and fifty so far. They're going to get to the rest over the next year and a half two years.
It feels like we're in this bizarre world where the retailers who do well it's because you've got like Sidney Sweeney to do your campaign or Casa are some.
Sort of celebrity. I mean, Macy's isn't doing that.
But it feels like we're in this weird era of collapse and influence.
Well, it's interesting and you bring up, you know, obviously, what we're seeing with the American ego. Their shares on fire. I think when they open they're going to be having their best day in a couple of months. But it gets to this idea. That's a singular brand, right, and Macy's is a multi brand retailer in an era where a lot of us go directly to the brands themselves. We connect with those brands either because you know, Matt salivates over Sydney Sweeney in that ad or something else.
And the question is how does macy sort of get that fired. They've had a lot of collabs with Wicked and other things like that that do get people into the stores, but it's a much bigger challenge.
Danny.
That's Bloomberg's remain bostic. Danny Berger and Matt Miller just ahead on Bloomberg Business Week. More in the retail space, and I'll look inside the inner workings of Target. I'm Carol Masser, and this is Bloomberg.
This is the Bloomberg Business Week Daily Podcast. Listen live each weekday starting at two pm Eastern on Apple car Play and the Android Auto with the Bloomberg Business App. You can also listen live on Amazon Alexa from our flagship New York station, Just Say Alexa played Bloomberg eleven thirty.
Target has had a tough couple of years. Well it's almost two thousand stores still sell a ton of stuff, and the company remains profitable. Some observers say it has long had a culture of high self regard, which can be dangerous in an industry as rapidly evolving as retail.
Yeah, sometimes you got to be humble. The ailing retailer has lots of lost.
Yeah, I'm sorry, that was my fault.
Has lost. It's a cheap, chic appeal. Can a new CEO get it back on feet with his old boss next next door? I always think about that when there's a new CEO and yet the old CEO is kind of, you know, somewhere as executive chair or something. That's the question, though, at the heart of jaywon King and Devin Leonard's profile for Bloomberg Business Week. You can check out the story. It's on the URMO and also at Bloomberg dot com. Devin joining us right here in our Bloomberg studio. Got Devin,
by the way, senior Global business writer. Just want to get your title out there. Hey, Target is a retailer we all know, and I've probably loved at different times. I have been one of those people when they did those fashion combinations, and I wanted to be to say, the tea kettle no, not the teakettle, but.
That's that's a big star of the profile.
But I've lined up, you know, because I wanted to, you know, get a piece of some fashion folk, you know, and their combination or their their collaboration with with Target. Talk to us about how you wanted to approach this one because they've been going through a tough time for a while.
While here, I don't know, I mean, it's just this company that's that that at it's you know, and it's good times. People have just really loved it, been really passionate about it, and and uh, I my wife, my daughter were really into it. My daughter, as a teenager, spent just hanging out there and and and that was her whole thing.
You know.
It was was you know, they they'd be selling you know, and to sue handbags, but at the price that you know, my daughter, who's like you know, sixteen could afford. And so this whole thing of kind of like bringing design, bringing fashion to the masses, you know, to to to to teenagers. You know, it's this huge, huge achievement. And yet uh, you know, things have been for things have
been really really tough in sales have been declining. They peaked, you know, during the pandemic, and they just haven't been able to get get the group back and there's been a lot of a lot of missteps. But you know, we you know, we wanted to sort of delve into that and look at that and go talk to them about that, and so we did in in uh in early September, and uh, you know, spend a lot of time researching going back to them. But uh, I mean, I know, it's it's it's kind of a it's kind
of a tragic story at this point. I mean maybe they maybe they can turn around, but turn it around, but you know, they're in rough they're in rough shape.
Well, you got to attend this PEP rally, uh for that that was kind of the culmination of the most recent CEOs time at Target Brian Cornell, and you spent some time with him and his uh.
Success soon to be successful in gamecoming right pending.
Yeah, it's like looking for the word yah.
Yeah, And it's confusing.
Does he how does he look at his time and and sort of the arc of this narrative. Well, because there's a little bit of a disconnect.
Yeah, no, no, totally, tim because because uh, I mean
that that was the thing. You know, it was this huge you know event fourteen thousand, sorry, you know, upper level, you know, targeting in this you know, eight o'clock in the morning in the target set of the music's booming, red lights everywhere, and then you know, the Brian Cornell, you know, you know, the current CEO has been CEO since twenty fourteen, comes out and you know, basically it's going to be his his last time as you know, at target together as CEO, and you know, it's a
big look back, you know, you know, at the highlights and basically emphasized him that when he came in, he did a really good job, and you know, the company did turning around. Then he did that, he pulled it out of Canada where they were they were losing money. He rebooted a bunch of stores and rebooted a lot
of the store brands. You know, the company peaked though, you know, you know, in twenty twenty two, and he doesn't really he didn't really talk about what happened after that, except we didn't really grow and there's all kinds of things that happened in the last couple of years that it contributed to, you know, the decline of their stock and the client of their sales. You know, you know,
they've had some big political controversies. You know, the they ticked off conservatives, they ticked off you know, liberals with their abandment of dei, so you know, you know, you know, so they're kind of like, you know, all purposes of the offender. And and then and then the stores have been operated, the story have been kind of a mess. Anyway, he sort of ignores all that, and then he cut bursts into tears on the stage, and it's kind of like, well,
wait a minute. You know, he's announced that he's stepping down. He's not leaving though, until January, and then replacement in his right hand man, who's an insider. That's not to say that you know, maybe he won't that's not to say he won't work out, but but but it's not what investors wanted to snock drop. And it was this moment kind of like you know, he was you know, he was kind of milking this moment in station in front of all these folks when his last couple of
years have been kind of a disaster. If if he'd left, you know, in twenty twenty two, he could have gone out in history as a great retail CEO. But he but he stuck around.
And well they wave the manag for a retirement age for him a couple of times.
Right well, just well once once was enough, Carol, I think, but yeah, that was still But I.
Think, what's crazy? What's fascinating? And you see this over and over again with companies and they are, you know, in a hard place, trying to figure out their way forward, and then they just top somebody who's been at the company for another twenty you know, who's been there for twenty years. And I know sometimes folks are like, well, it's good you have an insider who knows it, but a lot of times what you need is an outside.
Well actually, and we're neglecting something here because it's one thing to basically ignore investors and a point and the point, you know, consum an insider. Some guys's been there for twenty two years, but we're for neglecting to mention that. On top of that, Brian Cornell, the guy a lot of people think is responsible for, you know, who presided over you know, over the you know, the sort of catastrophe over the last couple of years. He's not going anywhere.
He's sticking around as executive chairman. And I think there are there are instances where like Jeff Bezos, you know, you know, when it's time that you know, you know, you know then you know, you know, you know his replacement, Edrew jac I mean, he sticks around his executive chairman. It's kind of well, you know, he's the founder, he's
responsible for a lot of company's success. If he wants to stick around and kind of kind of keep an eye on things and you know, leave the strategy find But when you're somebody who's had a really terrible record in the last couple of years, why are you sticking around? And why is the board why? Yeah, yeah, he of
course he's the chairman of the board. But but but but it just seems to speak to speak to kind of a larger problem at Target that you know, the thing you mentioned the beginning about a lack of urgency and addressing problems and sometimes even acknowledging they have problems.
Right.
So yeah, So when Cornell came in more a little more than a decade ago, he pulled the plug on the Canada stores, which was seen as a pretty big move.
They were all losing money. They's, yeah, one hundred and thirty.
Three, but they hadn't been in Canada for that long, right, right, And there were just a lot of as you point out in the piece, a lot of execution issues.
It's actually right, some chain issues.
Yeah, at what point like the Target that you scribe and that Carol describes, and you know, the taking out all the ads like to take over the New York.
No, it's all that stuff is. And I remember also about, yeah, what was the.
Sort of the end of that, like why did that era decline?
Well, that all of that stuff happened, you know, for certainly for the most part, happened under the I guess this CEO of Bob Ulrich who became CEO of Target in nineteen eighty seven and they just had about, you know, three hundred plus stores. It was part of Dayton Hudson sort of a department store company. But he basically, you know, you know, decided that to compete with Walmart, we have
to have like kind of cooler style or products. We have to have cleaner, you know, more more well lit stores. The execution has to be better. But he kicked off this whole thing that sort of I would say culminated, but it really really started, you know, with the Michael Graves partnership, and that was in nineteen ninety nine. That resulted in the famous Teakettle, which course we can't stop talking about it.
You can mention enough times in the.
Story because because it's just sort of like it was incredible. It was it was a piece of art that people could buy for thirty four ninety nine. But in any case, he steps down because of you know, the retirement age limit. In two thousand and eight, he's replaced by Greg Steinhoffel, who was his number two, his right hand man, and that's just that just didn't really work out. Even you know, Bob Allwork says in the story, he thinks that's, you know, the you know, the biggest mistake he ever made.
But they never.
Really probably the worst decision in my yes, God bank life, Yeah, filling them. But Steinhoffel did not respond to request.
For no, but right, but but so Brian Cronell comes in twenty fourteen and after steinhoff has asked it, and by the way that follows follows the you know, the hack you know, you know, a target you know, in the twenty thirteen that was and The funny thing is like that's something that's happened in a lot of companies since, but at the time it was kind of a first and it blew everybody's minds. And yeah, and he took
responsibility for it, kind of lost his job. But but but so Brian Cornell came in and fixed a lot of that stuff. But I think in terms of like maintaining that, you know, that stylistic edge, the edge on design, I think that that kind of started.
To wane and and uh and.
Then and then in the pandemic, they themselves admit that they weren't really staying in touch with the consumer people. You know, people were working from home and they weren't doing all the things they do. It was going out to consumers homes and like looking through their their you know, you know, their you know, their.
Makeup bags and all that stuff.
You know, they're kind of trying to do that now and and trying to trying to.
Make up for that.
But but they really, you know, they really lost the edge. But so to the aswer your question, though it's been it's happened slowly, and then you know, the pandemic, post pendemic, it's accelerated you know, really rapidly this sort of decline.
I mean, I've to say, when my daughter was younger, I mean I livedn't Target, like I was there all the time, and sometimes I've gone back for her even today, and she's not a little one anymore. But so what do folks say needs to be done at Target? Because I got to say, when it was in its groove, it was a pretty cool retail.
I know, and they're really successful, yeah.
Super successful, and everybody talked of a Tar, right it was kind of cool. So what do what do outsiders or folks say needs to be done?
Well, there's I mean, they need to get their edge back in style design. They say that, they say they're doing that. I mean, of course, the question is.
They really they really got there in the first place in a very different kind of you know media, you know, retail retail environment. So yeah, so it's a bit of a challenge to you know, to to recreate the success that they had. I mean, you can't just like take O. I guess you could take over the New Yorker. Now, I don't think it would be quite quite the same thing. But they have that. They still have operational problems at their stores. I mean, you know, you can got a
really nice story in the suburbs. We went to very nice, nice one of the inn Adina, uh you know, Minnesota, right outside of Target, where it turns out quite a few of the you know, top Target executives, including one Michael Fidelki shop. So of course that place was fantastic. But or you can go to the target down the street from where I live in Washington Heights one.
Hundred and eighty Firstets is actually locked up.
Yeah, and it's just it's it's it's a mess.
So so how do you really And I think there's kind of in between sort of sort of you know, my target and the target target we went to. But they have to fix fix all that stuff. They have a bunch of unhappy employees. They have to they have to do something there. But a lot of it is just executing at the level you know that they used to they used to used to execute and then that they've kind they've kind of let that slid, and uh, you know, can they do it in uh in uh,
you know, twenty twenty five, twenty twenty six. You know, it's a different world than it was in the odds, So we'll see.
Well, it's a cool deep dive another one. You always do these stories where you just kind of like into so much detail. Hell, you learn a lot, Devin. Thank you really appreciate. Devin Leonard be Senior Global Business writer at Bloomberg Business Week. Check out his story Jwon King and Devin Leonard doing it for Bloomberg miss this week. Yeah no, no, no, what a reporter.
Yeah, very very always awesome Devin. When you join us.
Thanks you're listening to the Bloomberg Business Weekdaily Podcast. Catch us live weekday afternoons from two to five pm Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business app, or watch us live on YouTube.
You wouldn't love about the holidays?
This is a chocolate Yeah, I knew you were going to say it.
Cut to the chase.
Well, you know it's funny that you say that. It's funny to say because our Bloomberg News team is out with the ultimate footy gifts for anyone who likes to cook an eat. Did you see this at the dream roll?
Nice job?
The word chocolate. It's mentioned ten times in the gift guide.
Say no more.
Okay, it's also for good reason. Because it's the time of year where we like to indulge in that often include, at least for me and I know for Carol Masser, eating our share of chocolate.
Let's be really good chocolate with us.
Here in the Bloomberg Interactive Broker studio is Angus Thurwell, he's hot her In Global CEO of Hotel Chakolat. It's the UK based chocolate tier that has more than one hundred and fifty cafes in the UK. You'll remember this was bought by Mars for more than six hundred and sixty million dollars. That deal closed at the beginning of twenty twenty four, so it's been almost two years since you've been under the Mars umbrella. Almost two years.
Yeah, we've been.
We've been really busy since then, thank you. I mean, the whole rationale of combining with Mars was to strap Rocket Launches onto the Hot Chocola brand. We already knew from previous entrees into the American market that the brand resonated with people. The playfulness and the contemporary design coupled with a really you know, strong approach or more cocoa less sugar. Yeah, so even with milk chocolate and white chocolate diving up the cocoas so it's not overloaded with two much sugar.
So we care you're speaking like you're speaking my language now, like more coco, less sugar, totally. Yeah, Like I'm talking like ninety dark is like you know.
Well, yeah, that's well, you're almost at my level. Yeah, that's one hundred percent. I love that, Okay, Yeah, I take it as a drink every morning. In our we have a drinking chocolate machine called Velvetizer, which enables families at home to make Burister grade drinking chocolate really effortlessly.
Velveteer, Velvetizer, Velvetize.
What is what is drinking chocolate like comprised of.
Well, I mean, if you if we step back and consider the history of humans and cocoa together, the history in the drinkable version is five thousand years according to the latest archaeological digs where they found ceramic fragments of drinking goblets with little traces of cocoa on, and the edible version is only just over two hundred years of history.
So the drinkable version has way more heritage. And basically what you do is you take up take the cocoa bean and grind it up and then dissolve it into either a water base, which is the early civilization's way, or the way we prefer the velvetizer. Put it onto your preferred milk, either dairy or plant, and it makes the most amazing, rich, deep wholesome chocolate drink.
And this is sugar free.
You can go sugar free, so there's no you don't need to add any sugar. It's either already in there to a very restrained level, or as I'm hoping to get you on, we can take you all the way to one hundred percent not a single scintilla.
Of sugar there. I guess let's do it.
But it's fascinating that you say that, because I think the views around chocolate, certainly maybe globally, but I know certainly in the United States has changed in terms of looking at the amount of coco or chocolate that's in something, and that I think Americans are changing their preference. Tell us about the American market and what your experience has been since you guys have been moving into it.
Yeah.
So, we we're based in Chicago now and we've spent pretty much all of twenty twenty five trying to win over the city of Chicago by opening five you know, amazing locations and taking you know, like really careful note of the way people are interacting with our chocolate. And what we're seeing is that our Neon sign that's in every store that says more Coca less sugar. People are doing Instagram picks against it, and they're really loving that.
The drinking chocolate which we serve over indexes as a mix compared to our UK model. So that's telling us that the American consumer is very open to experimenting with I feel like composed and original drinks. And you don't have to go far love our drinks. I know, if you if you look at the New York culture, the LA culture, you know that drink drinks are an art form.
Is it hot cold?
Both?
Like both those plus ice ice?
Okay?
Yeah, And we also have a version where we combine it with a with our own soft serve as well if you want to go you know, like really, you know, all the way. So so we really notice those dimensions, and we we've also noticed that the preference for amongst affluent Americans is dark and they start off saying I'm a dark person. Don't even show me any milk. But there's a way to do milk chocolate well, which is, you know, it can be very creamy and still loaded
up with loads of cocoa. And so that's been a bit of an eye opener, we think for the chicagoans to you know, to taste really high end milk.
You mentioned the idea with the Mars partnership and Mars acquiring you a couple of years ago, was to strap this rocket ship on expansion. Certainly the idea of distribution is incredibly helpful with the global companies such as Mars, but also about sourcing and getting the actual ingredients. Are you able to get ingredients the same ingredients you were getting as an independent company now for cheaper as a result of being part of Mars.
In some cases yeah, I mean if we put cocoa to one side, where we willingly spend more than the market price. And I'll come on to that if you will permit me a bit later. But when we're looking at other things like hazel nuts, were able to use the buying power of the of the group and the financial strength of Mars as well. I mean, you know, as an independent business we could offer a certain security over our trading relationship with our favorite hazel nuts supplier.
But when we're part of Mars, suddenly our credit rating is much higher and that can get reflected in better terms. It's how the world goes around. So, yes, they're some of the synergies, but the combination was more about growth, not really about a cost based play. Yes, we'll collect those along the way to try and be a more efficient business and reinvest the proceeds into more development and more growth.
I'm still obsessed with the velvetizer. I'm just going to say for Christmas, oh exactly. So talk to us about the US market, the growth that you've seen and tell us what it's like. So you mentioned Chicago. Tell us about expansion and what you've seen since you've been here.
Yeah.
Well, I mean if we look at our domestic market first, which is the UK market, there's loads of headroom left there and we've opened about twenty twenty five locations in the UK over the last twelve months. Yeah, and here in the US we I'm very much a standing start, but already five open and they're spread across different neighborhoods in Chicago and also on a magnificent mile as well. So we're going into the holiday season all guns blazing, you know, with an amazing offer.
What is the growth market for you guys, is it? Do you see the United States as being like a bigger and bigger part of the of the business.
Yes, very much. I mean, you know, the US is the world's biggest consumer market. As we know, it's the leading media and culture center for the world.
I mean social media plays a role in right, like expanding the brand usually, yeah.
I mean it's it's you know, the way we built it in the UK was word of mouth. We didn't spend any money on above the line advertising.
It's amazing.
It was all pr and word of mouth and reviews. And we very much want to focus on similar tactics in America. We know we've got a story to tell, we know we're differentiated and yeah, and America is our total focus.
We for growth.
We know that if we win in America, we can then you know, win everywhere. As Frank Sinatra said, almost.
Yeah, So what's the expansion plan in New York and Los Angeles and other parts of the country.
Yes, we're you know, you won't be surprised that we've scoped out already. You know, the next three to five years, and we're clearly looking at New York and California and you know the other kind of interesting states. So I mean there's a wealth of headroom available for us to grow into. But the key, the key thing I bring is an insistence on quality growth. Right, We're not just trying to wrack up, you know, like numbers of stores. The most important thing is to hold on to that quality.
The way our team interacts. They need they need training, they need to know everything about cocoa and chocolate, and that gives the confidence to be able to engage and have a proper conversation. And our supply chain, which MARS will help on hugely. The logistics, the things like finding patents, you know, getting getting permits, which a different state by state, so all those things are pretty you know, difficult for Brits to understand where it's one homogeneous country, it's like
one set of planning laws. But in America, you know, it's such a vast market that you've got to you've got to crack the code for you know, California when you've just learned it for Illinois.
Some people live in New Jersey and work in New York and have to pay taxes in both places. It's not fun.
You do get some of it back a little bit later on. Just final thoughts in terms of where you hope this business is. I don't know, two years. What's a fair timeline that you're thinking about? And just get about a minute left.
Here, I think I mean in the UK, it took us ten years to become a household name brand. In America, we're hoping to do it in half the time.
That's no pressure, we'll come back. Please, just gonna say, I'm a person who leaves my office and I'm going to just tell you there's another chocolate place that's down below, but I will actually buy chocolate on my way home. So hopefully you guys will be in the neighborhoods soon so I can do that hopeful intention. Angus, thank you so much, Happy holidays, and thanks for coming in. Angus Thirlwell, he's founder and global CEO at Hotel Chuck a Lot, joining us right here in studio.
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Yeah