Bloomberg Audio Studios, Podcasts, radio news. This is Bloomberg Business Week Insight from the reporters and editors that bring you America's most trusted business magazine, plus global business, finance and tech news. The Bloomberg Business Week Podcast with Carol Masser and Tim Stenebeck on Bloomberg Radio.
All right, we want to shift gears because one of the things that has been.
You said, shift gears so helpful. I like that. We're gonna explain why that makes sense.
So helpful is touching base with CEOs around the globe with everything that's going on. At Lastian, it's the more than eighty billion dollar market cap enterprise software company behind a Gyra, Confluence, Trello, and more. The company is more than three hundred thousand customers around the World's got a great view when it comes to tech spending among businesses both big and small. Company was founded co founded by Mike cannon Brooks. He's also CEO the billionaire Invested Renewable Energy.
He also works to combat climate change, and he's joining us right now to talk about a lot of what is going on, as well as some news that he had this week in the world of f one Racing Mike. First of all, forgive there's a lot coming at us right now, but we are so grateful to have you. We want to get to the F one news, but we also want to ask you about the macro environment.
How do you kind of figure out what to focus on what not when things are coming certainly geopolitically, we are talking a lot about tariffs and a terra for essentially, how do you take it all in and how do you assess today's business environment globally?
Sure, guys, thank you, thank you very much for having me.
Look, there's no doubt it's a busy world at the moment and there's a lot going on. My strategy has been almost ridiculously simple most of the time, which is just to work out what the business needs. Normally, the best way you can figure out what we should spend our time on in a given day is to look at your customers and go talk to them right any
and that doesn't mean it's simple. They are facing lots of different global effects in parts of the world, and so you know, we if we work out how we can help them, that usually is our simplest way to gain some focus in an otherwise highly confusing world when there's.
A lot going on.
To what extent, though, do you have to increase your value to them because their margins get squeezed as the result of tariffs, as the result of a potential trade war. What do you have to do to prove to them that you're worth spending money on.
Sure?
Look at last Even's products are all about collaboration and efficiency for companies, right we help teams of people.
Our mission is to unleash the potential of every.
Team, has been for decades, and our job is to make sure that we explain to customers how our software can do that and have those customers adopt the software.
Whether they're running project, whether they're looking at their strategic.
Plans, whether they're building technology, whatever it is that they're doing. We help them make their technology teams work better with their business teams. And we have always been an incredibly value conscious offering. You get an incredible amount of value from Elastin for a very low price, and that helps in tricky economic times. But fundamentally we have to justify with the customers and have them demonstrate to themselves ideally the value of our software and how it makes them
more efficient to work together. And that's where I think we've kept a pretty clear north star for a long time. And why we have, you know, three hundred thousand customers and it's still growing strongly at the size we are today.
Well those three hundred customers, three hundred thousand customers, excuse me, all over the world when you hear updates from your global sales sporce, are you hearing from then about any particular concern in different regions of the world that could be affected by tariffs, that are seeing weakness for other reasons. What's the read that you have on the globe from your sales for us.
Look, there's always challenges in different parts of the world. This is not new.
I think in any given small slice of time, we see that we have very global companies, we have very local companies in that three hundred thousand. Our customer base has always spanned small businesses through to very very large businesses, some of the largest companies in the world. In fact, we have like eighty five percent of the Fortune five hundred as customers. You have a lot of issues going on for a lot of different companies. Our job is
to make those companies more efficient. They still have to deal with those issues. They have to run projects and collaborate and communicate with each other. We help them do that. We always have, and so whatever issues they're dealing with, whether it's an issue of growth, whether it's an issue with Vitariff or a challenge Atlatians try to help their teams deal with that issue more efficiently.
If we can't demonstrate their value, we're not going to be around.
So again, just sticking to that north Star has been a very simple principle for a long time.
Vote.
So, Mike, no, you're not seeing any signs of any kind of slow down or pullback by some of your customers as they kind of wait for the dust to settle. I mean, we certainly feel like we're in it, you know, as we have kicked off a new administration here and every day are dissecting different headlines that come out of the White House. But you know, there's geopolitical turbulence, as you well know, around the world, and I think there's you know, dust that needs to settle in different places.
So is there any signs of any hesitation that you're seeing among customers or not yet?
Look round one of you.
We continue to see, you know, really good growth across customer events and especially in the enterprise segment. So our largest customers those organizations with you know, more than a thousand people around the world. We have more than five hundred customers that spend more than a million dollars a year now with at Lassian, and that is our fastest
growing customer segment. So I'm sure that those businesses are having to do with all of that dust in the air as you talked about, But at the same time, they have their own customers to deal with. They still have their business to run, and whatever the problems are, they have to do with it. And so our software helps their teams deal with whatever it is that they need to do, how they handle their customers, and also how do they handle whatever is going on in whichever
part of the world. As long as we keep that value ratio great for our customers. We invest very heavily in R and D and continue to develop and build our software every single day. We have a fantastic team. I'm not sure focusing on all that sort of thing is very helpful for us all for our customers. To be honest, they have their own customers to deal with, and I.
Should put out last month, you guys reported second quarter results that beat expectations to raise your full your forecast, and investors have definitely rewarded you big time. The ADRs that trade in the United States are at more than fifty percent TIM in the past year.
I just want to remind everybody we are waiting for President Trump. He's making comments in the Oval Office, where he's been speaking for the better part of close to an hour at this point. We'll bring those comments to you as soon as the tape playback starts. It is Bloomberg Business Week. That's Carol Master. I'm Tim Steneveek. We're speaking with Mike cannon Brooks, the co founder and CEO of at Lassian. Mike, I do want to talk a little bit about different industries that you serve. We talk
a lot about AI. I know you guys are doing a lot with AI as far as customers go, Customers that are using your product, customers that are leaning into AI right now. Are you seeing more growth on the tech side of your business in terms of those types of customers given what we're seeing come from the tech community over the last couple of years.
Great question, I as a huge topic among our customer base. From a Lastian's point of view, we certainly.
Believe all of the progress making and AI every week, in every quarter at the moment is fantastic for our ability to achieve our mission right. We can build better and better products that more Taylor and our customized to
the world that our customers are trying to do. There's no doubt our core customer base what we like to call technology driven companies, So companies that believe like William's Racing or like a financial services company, they both be the same that believe technology is their source of competition. It's the way that they are going to get an edge, survive, or thrive in their industry. Any of those businesses are
deeply investing in AI in lots of different ways. They are trying to work out how this technology makes them more efficient, how it helps them to compete fundamentally.
At Lastian's role.
There is to invest very heavily, as we have done in the R and D of actually bringing AI to our customers. So we're a big believer that if we don't ship software that people can use the rest of it doesn't matter. It's all just kind of talk. So our investment has been in taking those AI innovations and developments every week, every month, incredibly rapidly, and getting them to our customers in a form that they can use.
We have done that, and it's one of the things it's one of the things that lasting Williams Rising teams most excited about. It's one of the things that a lot of coustomers are talking about, is how they can make their businesses more efficient, especially as you mentioned in the Current Times, which is a big challenge.
One last question about AI before we talk about some of the news you guys had this week. Our Bloomberg Intelligence team, our in house group of analysts noting that it may threaten your seat based sales model. They say Deep seeks cost effective model of training lms can bolster AI adoption, driving a shift of work to digital agents from humans, and so they say that's a risk for some of the enterprise software players with seat beat based
revenue models, including yourself and some others. So will it could the deep Seek have an impact like that on your business?
Look, we certainly deeply believe in the fact that agents are going to make a huge difference to businesses around the world. We're already seeing that that we're very much on the leading edge of that technology. We shipped our product Rovo a year and almost a year and a half ago now and have continued to update it and have now more than a million users waking up and using LASSI and AI technologies, including all of our agents every day.
I think the.
We take the position that AI fundamentally is about unleashing some form of human creativity.
Right.
It lets people do more with less. It helps them to be creative. It's a fantastical tool. That tool, there's no doubt, makes people able to do more. You can write more software, you can answer more emails, you can do whatever it is that you want to do, and you can do it.
More creatively and at a higher level.
The thing with most of the industries that we work in, right we sell to knowledge workers around the world, people that spend the day sitting at a laptop or behind a computer and using fundamentally creativity to try to improve whatever business they're working in. Those are usually not supply
limited by human creativity. If you take software engineering as a field, if we made all software engineers in the world twice as effective, the question is, would we have half as many software engineers or would we build twice as much software. I think we'd end up building twice as much software, not the other way around, because we don't have a shortage of ideas of what we would like to build. In the world, most businesses don't get
everything they need to get done. All our agents are doing is helping those businesses to achieve more, and they'll all be competitive with each other as well, so there's a natural are of conservation of profits there as well.
Hey, Mike, I don't have my glasses on, but your hot I want to talk about, you know, some news you had this week and this is your partnership with Williams Racing the F one team.
I believe it.
Says that on your hat. Does it say that it does?
Forgot forgive me?
I said it all my glasses on and there's some distance here as I look back at our feedback monitor.
Tell us about this.
Partnership and what you guys are going to be doing and why you wanted to do it.
It's an incredibly exciting partnership for us. It's from an Elastian point of view, it's the first major brand deal. From the Williams point of view, it's the first time it's the largest deal they've done. It is the first time they've had a title partner and a technology partner.
Look, obviously, Williams is an amazing, storied.
Race team, right, one of the winningest teams of all time and has had a challenging you last decade. However, there is huge renewal going on in the Elasti Williams team.
Right.
This partnership is just one step new partnership, new driver, new principles, new ownership, huge investment in digital transformation and technology as a way to catch up and to win. We are you know, I think eighty percent of the teams on the Greed or more are at Lassian customers and have been for decades.
So this is a sport where technology is really important. It is a sport where.
Technology teams, those building you know, fluidynamics models and wind tunnels and cars and all of the monitoring technology that goes into it have to meet with the business teams, those in the sponsorship groups. So our fundamental system of work is what the company, what Elassie Williams is trying to do and trying to embody We Then, obviously it's a global sport.
We have customers all around the world.
But more importantly, you know, having spent a lot of time now over the last six months with the Williams team, this is a really great cultural fit for a Lassian.
This is a team of.
People who are working incredibly hard every day to use technology to try to change their fundamental outcome. They're on a massive journey of rebuild the culture. The palpability of getting act to the winner's circle is phenomenal, and we just we fell in love with the story and we're like, okay, we can help you do this. So we're leaning very
heavily into technology partnership. We have a lot of things we can help them with to make their business far more efficient and hopefully, you know, change the results of the team, which is a mission that at Lastian now has thousands of people working on.
So sad about that.
It's a long term deal. It's been described as a record breaking deal. Just for context. Can you give us some of the numbers behind this deal, how much it costs?
I can, Unfortunately, I can tell you that it is certainly a long term deal.
Are we're on the at Lastian Williams journey right and we are trying to use all of our software and all of our technology, and all of our culture and our practices of how we work to show fundamentally our customers and to show the world that we can make a massive difference in what is obviously an incredibly competitive industry. Right down to hundreds of milliseconds. The gap between first and last on the grid in the last race of last year was the smallest it's ever been.
Is Okay, So we don't have the details on the exact figures, but how do you justify ROI on this given that it's such a big deal, and you know, it's kind of hard to measure how many people will become LASSI in customers as a result of this title sponsorship.
Look, we're we always have been an incredibly metric focused organization.
As a large bootstrap company.
You don't get that way without a numbers.
Look, we have a number of success metrics here.
Firstly, always from a brand point of view, Formula one is a very fast growing and global sport and we have, as I mentioned, customers in almost every country on the planet. So we need to continue to have our brand and our presence and our story told in a larger life way around the world. But that's obviously worth a lot of money to us. Secondly, as an enterprise opportunity, the Formula one is you know, it's like a mobile executive
briefing center, right it takes its business. This is a fantastical customer of it lasting that we can take to twenty four cities around the world, and in those twenty four cities we can bring our biggest customers to show them how Williams works, what we are doing to help the team. And this is incredibly powerful in the enterprise to be able to show real world examples of what we can do to help a customer.
Mike, just real quick.
One last question the Formula one, the FW four seven car forty seven car that's going to have your branding. I guess it gets unveiled. I don't know really soon. Are you going to be able to take it around the track? Have you been told that.
You're could or.
Look, my driving skills might need a little bit of work for that one. I've certainly sat in the car and tell you that is that is a challenging job. That is not It's not not as comfortable as as my daily driver, that's for sure. It does get failed on Tuesday, and we're certainly really exciting. We've done some really innovative actually, I think for for Formula one design work between the Lassian design team and the Williams design teams.
So super excited to show the world the car on Tuesday, and super excited to show how we're trying to bring our collaboration and teamwork practices, you know, right into that into that car in fact, and into the garage, into all the mechanics and all the strategiest that work on the race as well.
So we're not just a digital company you'll see on Tuesday.
Don't totally need a AI for that, right, you just need a really cool car. I'm just going to say.
A lot of things to compete in the sports.
So we're we're on the journey, we're learning a lot, and we're putting our.
Shoulder behind it.
Carol, I do feel like if you signed the check, you can drive the car.
I'm just gonna say, Mike, you know you do get some leverage with all of this. I'm just gonna you know, and the company name is going to be on the car, so you should be able to take it out for spin.
Look, I would also say it might not be a good idea for the Williams team or the Elastic team. I'm not sure my team would think that's a great idea for me to be driving it to three hundred or more kays an hour around the track.
Here I hear you listen. Thank you so much.
We know it's later where you are, but we so appreciate you joining us on this Thursday.
Really really appreciating. Good luck out with that partnership.
We've been of course talking to Mike cannon Brooks, he's CEO, co founder of ed Lassian, and of course talking about the new news that they had their deal, their partnership when it comes to F one racing.
So some really cool thing with the Williams team.
You're listening to the Bloomberg Business Week podcast. Catch us live weekday afternoons from two to five these during listen on Applecarplay and Android Otto with the Bloomberg Business app, or watch us Live on YouTube.
Another headline from the President, I'd love to have Putin, President Putin of Russia back in the G seven. He also says, I do believe that President Putin really wants peace, and of course he's referring to the war between Russia and Ukraine Team well.
Bloomberg Economics calculates that protecting Ukraine and expanding their own militaries could cost the continent's major powers an additional three point one trillion dollars over the next ten years.
All right, let's see what our guest has to say. Let's head to London and Monica Bishkoshkaida. She is the public policy director of the strategic consultancy firm Key Element Group. Monica is so good to have you here with us, President Trump. Another headline from the Oval Office, Russia should be sitting.
At the table.
What are the tea leaves we need to read in terms of what we are getting from President Trump today? And also knowing that President Trump spoke with President Putin yesterday.
Yeah, so the call between President Trump and President of Putin has shown that they're communicating directly, which means that the Green husband sidelin Ukraine is not part of the conversation about its own future. And as I said, right now,
it seems like there's normalization with Russia. The relationship with Russia and Russia will be back at the table, which in a vedy is unprecedented in that went the first century you haven't seen another leader attack country in Europe and be back at the table after killing civilians, after
committing war crimes. So what we're seeing right now is unprecedented, and we're seeing Putin who's being really emboldant strength things, and he can clink the power for many years to come because now he will have a huge victory just to recap.
So Russia should be sitting at the table. He also says that Ukraine will have a seat at the table. He says he wanted to make sure Putin wanted to do a deal that was earlier in the day. So again we continue to see things. Do you think Russia's in the driver's seat with this and then it'll be more favorable to him in any deal.
I don't know.
Can you tell from some of what we've been getting over the last couple of days.
Yeah, So the fact that the call was between the two leaders, Trump and put In, all these shows that the conversation was more direct and Zelenski was not involved in this conversation. We have also seen a response from European countries that have been saying that we should also be included, because you know, this is about security of Europe. Not only security about Ukraine, and they have not been included yet in the conversation. So we see that the
decisions are being made already in a way. And we saw the defend Secretary of the US talk about possible conditions of this deal, for example, no need of membership for Ukraine, no US troops underground in Ukraine, and Ukraine having to accept territories that it has lost. So we are already seeing this deal shaping up and Devita shaping up.
Right now.
We see that Russia definitely is the winner here and Russia is getting exactly what Putin has wanted. And we could also see that Russia will not have sanctions on itself anymore, and then you know, the all will also be supporting Putin, who will then be able to stay in power for many years.
Given what we've learned from the President over the last few days, including just in the last few minutes in the Oval office, Monica, how do you think this war ends? Does it mean land from Ukraine going to Russia, perhaps natural resources to the United States in exchange for some protection. What's your view?
So I think that you know, right now we only have the public information that does come from the US about possibility of ending this war. And yes, under this possibility, Ukraine would lose territories that Russia currently controls. But I think another aspect that nobody is right now talking about, and it's very very important, is the impact that the end of war would have for decades to come. And
I'm talking about Ukrainians and Ukrainian population. You had Ukrainian population that does fighting for three years in this war, and they were fighting for their own freedom, but we're also being part of Europe, of the U, of NATO and for freedom of the best. And how they will feel, they will feel betrayed if this is how the war ends and the terms are really unfavorable for Ukraine, and then you have the satisfied population, you have the anti
Western sentiment. But I'm afraid of, and some people in Ukraine are afraid of, is that this creates a really fertile ground for future manipulations from Russia and potentially even installing Acro Russian government.
You know, one thing I want to ask you, Monica, that if the US you know, is basically you know, saying that the European allies they have to shoulder most of the burden for any settlement. And as Tim mentioned earlier, you know, we're talking our own Bloomberg economics team that protecting Ukraine and expanding their own militaries could cost the continent's major powers in additional three point one trillion dollars
over the next ten years. If the US is backing off in terms of financial support to its European allies, what is likely to prevent President Putin from maybe waging another war, going after another border at some point other territories.
So I think what was very important that President Trump has said is that European countries really need to invest in their own security and increase their defense spending. And we have seen now for example, Latvia, Lithuania and Estonia that all the countries they're increasing their defense spending to five percent. And of course these are small countries and
they don't have huge budgets for it. But other European countries should follow this example and also increase their defense spending and their budgets to be able to defend themselves if the time comes. But also very important aspect they want to mention is the reconstruction of Ukraine. That will create a lot of opportunities for also American businesses to be part of this reconstruction and to benefit financially in
the future from it as well. So I see two coins of this argument, and I think that reconstruction is something that should be considered. As you mentioned where earths potentially could be a deal between US and Ukraine or European countries and Ukraine. So there are definitely avenues to be explored on financial site as well.
Monica, thanks so much. You're gonna have to leave it there. Monica Beach Coorskaida. She is public policy director of the strategic cultency firm Key Element Group.
This is the Bloomberg Business Week podcast. Listen live each weekday starting at two pm Eastern on Applecarclay, and Android Auto with the Bloomberg Business App. You can also listen live on Amazon Alexa from our flagship New York station, Just say Alexa play Bloomberg eleven thirty.
As we've been reporting throughout the day, we're all in on kind of understanding what's going on with these reciprocal tariffs. Just to remind everybody, President Trump ordered his administration to consider imposing reciprocal tariffs on numerous trading partners, raising the prospect of a wider campaign against a global system that
he complains is tilted against the US. Ali Furman is consumer Markets industry leader for PwC, and like many of us, I think I can say our colleagues at Bloomberg Economics have been doing this quite a bit, Yes, crunch in the numbers to try to get a pick sure of the impact of these tariffs. She joins us from New York. Alli lots of work for the folks with the calculators today. What are the calculations that you've seen at PWCs to how much could be affected by these tariffs.
Well, first of all, thanks for having me again. It's great to be back. Tim and Carroll. Listen.
We've done some industry impact analysis across all industries, looking at the upper end of the tariff ranges that Trump talked about during his run up to the presidency, and we estimate the tariff revenues could increase from eighty one billion a year to nearly nine hundred billion a year, which is our figures that don't take into account countermeasures that trading partners may impose in reaction to US policy changes.
But that's just taking into account the upper end of the ranges that he talked about prior to any of the executive orders that were actually signed.
But that's quite a significant jump eighty one billion to nine hundred billion a year.
So the folks that you talk to, you know, clients that you have, are they starting to freak out?
I wouldn't say freak out.
I think just over the last I would say ten business days, we're seeing a lot of companies move from kind of a planning slash weight and see phase into
a take action phase. So we're seeing you know, everything from setting up the ability to dynamically model some of these impacts that are very fluid, taking into account things like ACE customs data, which every company has, that's that's data around their imports, to you know, data from their financial systems, trying to understand frankly, what the competition where
they import from. To just get a broad sense of different scenarios and how to think about things like supply chain dependencies, raw material sourcing, looking at transfer pricing strategies, looking at you know, supply chain optimization moves, manufacturing optimization moves.
It's just, you know, it's a fluid situation. So being able to.
Evaluated real time with dynamic models that allow for different inputs and levers to assess, you know, what strategies to prioritize.
That's a really common way.
We're seeing companies like retaillers who are affected by this and consumer packaged good companies.
Wait, so, al, is that a freak out or not?
I mean, I don't think it's a freak out, but it's a it's a planful way of you know, considering our options.
I would say, I mean, can we say like after decades or years easily, but definitely decades.
I mean there's been a lot that has been said.
About you know, going to the low cost provider, especially for manufacturing. I think about the retail industry and how that made good business sets right and so so much stuff was offshore. I mean, is this possibly a moment in time where people have to really rethink their supply chaine and in an environment that we're even our trading partners and those that we get along with that it's a complicated relationship.
My answer is yes, it is.
It is a moment in time to rethink suppliers and also supply chain footprints. But keep in mind, neither of those two things are like flip a switch and you can you can change them all tomorrow.
They're kind of longer term.
Mitigation strategies to these tariffs versus shorter term in the short term. You know, the impact that tariffs are likely to have on companies is margin erosion, particularly some of these companies that have thinner margins to begin with.
Like so for example give us some examples.
So you know, apparel okay, thing relatively thin margins, right, So you have to think about ways to mitigate margin erosion, even outside of direct tariff mitigation levers like we just described around supply chain optimization and moving your manufacturing operations out of China to other Southeast Asian countries or back into the US.
So you think about ways to mitigate margin erodi.
You think about cost cutting, cost cutting in you know, functional areas where you can maybe leverage AI or other types of emerging technology to make your processes more efficient and get some cost out of.
The business to try to hedge some of this tariff impact. Because I'll tell you what.
You know, today's market from a consumer perspective, twenty twenty five is very different than it wasn't twenty eighteen. Consumers have are fatigued from going through this inflationary period, with shelf prices increasing thirty percent in the last five years, you know, it's going to be very hard to pass on all of this tariff impact to the consumer of today and not see a negative impact to your volumes. So you really have to think about other strategies to employ.
Some of this is likely to flow to the consumer.
Unfortunately, do you do okay, do any of those strategies include moving manufacturing to the United States.
For sure, But that's a longer term proposition.
It's not something that is going to be able to just quickly be implemented in the short term and see the roi of doing that. It just it's a complicated situation to move your manufacturing from Asia to the United States.
But in some cases it's like it's not even possible. I mean, you know, we have a story later that we're going to talk about the company Shark Ninja. They make the Ninja Creamy. My sister got one of those for Christmas. By the way, yeah your microphone's offer. Sorry, yeah, really, she got it and she loves it. That's what she asks for from everyone.
But if she's buying it, maybe with tariffs or if somebody's going SANFT clause Okay.
Yeah, doesn't have tariffs. The CEO told Bloomberg that they're not moving to the US. He said, here's what he said. Quote, our industry doesn't exist in the US. The product is not made here, the components are not made here. It's not like the car industry that you could say, well, let's flex it back to the United States. It's not something we believe is on the horizon. How many more
of those types of companies are out there. I mean, you're not going to see apparel made in the US on a wide scale basis, right, Niche.
Markets, smaller retailers, you know, like American Giant might see, you know, some additional market share from this. Think about small furniture stores that maybe you know, US based, would supply companies, local butcher butcher shops even could benefit from this in the short term.
But yes, no, you're.
Right, this, the move to US manufacturing is not applicable to all industries or you know, all types of products, So it cannot be relied on as the sole you know, tariff mitigation measure. It should be evaluated, you know, amongst many other things that companies are considering doing.
All right, crazing strategy is another one.
Yeah, oh okay, cool, Thank you, Thank you so much.
Alie Furman.
She is consumer Markets industry leader for PwC. Joining us right here in New York City.
You're listening to the Bloomberg Business Week podcast. Catch us live weekday afternoons from two to five these during listen on Applecarplay and Android Auto with the Bloomberg Business app, or watch US live on YouTube.
We are all in on tariffs today. I mentioned this I think with John Taffer or even earlier. Yeah, we talked about it with me, We talked about it with you. Shark Ninja. They make the creamy. They have said that they're largely cutting out China in its supply chain for the US market as tariff's increase costs. But it's not going to make the products in the US. The company CEO, Mark Baracas told Bloomberg that our industry doesn't exist in the US. It's not like the car industry. The components
are not here. You can't say, let's flex it back to the United States. It's not something we believe is on the horizon. Companies adjusting their supply chains is our next guest specialty CRISP is a platform and analyzes data across the supply chain, I think retailers, distributors, and brands. Ari Trasdahl is the founder and CEO at CRISP. He joins us here in the Bloomberg Interactive Brokers studio remind everyone of where you touch the supply chain, where you come into it.
Great. Yeah, CHRISP works cross the entire supply chain.
We have about six thousand CPGs and food companies, pharma companies on the platform and help them kind of understand the retail sales cross two hundred and fifty thousand stores, pricing, distribution, inventory, etc. But also kind of through the supply chain that they have behind them all.
Does it go all the way back to where it was created, the ingredients that go into it, or does the supply chain just start once it hits a certain geographical area and that distributor gets the US gets the store shelf.
Yeah, but typically we use closer to consumer, So it's retailers, it's distributors, and it's large manufacturers, but large CPGs that we work with and they might have one hundred and fifty two hundred thousand suppliers that are from domestically and from the nationally, so they leverage our data.
To plan through their entire supply chain.
Is there anything you can see already where or maybe in your conversations with some of your customers, are what you are hearing in terms of what we're getting at the White House tariffs, threats of tariffs, and whether increasingly they're thinking about our rethinking where their global supply chain has to be, and whether or not they're creating redundant supply chains to make sure that they're in a good situation or good place.
No.
Yes, absolutely, it is.
Supply chains react poorly to uncertainty, and we saw that during the pandemic as well, and similar behaviors as consumers have we see the similar behavior on professional retailers and professional manufacturers and distributors. It's to make sure that you
have enough of these products. So the cost that we're going to see in the supply chain is both coming from the increase of the cost of the ends, but it's also coming from the cost of just this challenge is rippling through a long supply chain with overstocks and understocks, and we kind of remember all of this from the from the pandemic. So already starting to see those type of shorter term initiatives.
So did we not learn anything.
I'm not sure if we learned anything. We learned a little bit.
Did we learn like make the ppe here in the US did we learn that?
Did any changes come back where people substantially change their global supply I think I feel like we've had conversations with people who did some rethings.
I mean, there's been a lot of near showing. There's been a lot of like if you go, we've Business Week gets written about this, the rise of factories south of the border, Chinese factories being built in Mexico.
But absolutely, and some of it just makes sense to be closer to where you're selling.
Yeah, yes, absolutely, so we saw a lot of that after the pandemic. And there's a lot of investments in technology actually, because it's not like we're starting out with a very robust supplate supply chain in the first place, take through the loan, which is kind of one of the big parts of what CRISP dost A. Third, all the few that's made in the world is lost in the supply chain, just the inefficiencies, and well that's ridiculous.
So with all the technology we have.
You know, you're just saying, in the process and just moving it around, we lose a third of all the food that comes through the supply chain spoilage, ye.
To spoilage from all the way from where it's grown to its exported to it's imported to productions of one third. At the same time, you have a billion people that live with some kind of food insecurities in the world, right So, which is the one part of this. But these supply chains are are really not very robust. So and when these things happen like a pandemic and what
we're seeing now as well. My concern, in addition to increased prices is also these kind of big ripple effects that go through the supply chain.
I might blown away by that.
You know.
The other thing is I think about when I grew up, you know, you had seasons where you got things. Right now I'm getting you know, strawberries in the middle of or at any time, like maybe there's something wrong.
Long to that.
Well, you know, because if I'm thinking, if we're moving shipping stuff around and we're losing so much of it, that just seems like such a bad thing. It's also not good for the environment, the waste, I mean, the spoilage.
If you come to California, strawberry seasons every time of the year.
Yeah, but that's California.
Yeah, Like I will tell you those were the fall the grapefruit I today had a sticker that it was from Israel.
Yeah, yeah, absolutely.
So how do we solve something like that or are we not going to because people have gotten used to I can get anything I wanted anytime of the year, I.
Believe, so all the consumer behaviors has truly changed and they want to have all the products at all time, and that you have to have global, global supply of this product daughter components. I find interesting is also to build the materials. We will always kind of think about, Okay, avocado's going to get more expensive or are going to get more expensive, But also it's as we see kind of firsthand, is that a typical CpG product has fifteen
to twin any different different type of ingredients. So if you have shortage or the higher prices and all that, there's a lot of decisions that needs to kind of happen based upon just building materials as well. So not only the fifteen percent of the products that are directly impacted, but it's also all of the products that are indirectly impact.
Does your platform also handle recalls.
Yes, shargebacks, recalls and things that need to come back from the retailer.
We also see those that type of.
Is that happening more and more? Is it happening less? Can we? I'm always shocked when I see a large scale recall and the scale of it. You know, everybody throwing away a certain bag of spinach or something, or this week it was tuna that was bought at different stores had to be thrown away.
Absolutely not. We see all of those type of thing seasonal products at the end of the season.
But is that happening less?
I think it's quite stable.
We saw a lot of it right after the pandemic because you had so many, so huge swings on everything, but I would expect that to increase a lot now. Every time you get these ripples, the consequences are typically the vehicles.
How much does the waste and something like food add to the cost of food and just at about thirty seconds.
Very good, very good question.
So at least a third of the food in the supply channels then is lost, So the waste has huge potential for the reduction of consumer consumer prices. So can we think about this at twenty percent thirty percent reduction of consumer prices if you just could get this under control. The other part is also assortment and package sizes.
It's very complex.
If you go into a retailer, you typically see fifty thousand different products merchandised by one. So and the retailers have had a lot of initiatives around I'm introducing that and rationalizing all of these products as well. But the consumer product companies, they want to make more products, more flavored, more.
I'm overwhelmed. Go to the supermar.
I'm like, I just want plane water. I just want playing this.
Buying water at the supermarket now, okay good.
Not really, I got to filter it.
Okay good, But I'm just saying we can talk about that.
Go on a plane. I'm like, over oh yeah, I know.
Ari.
Thanks for coming in, Ari charge, We founder and see you at Chris joining us right here in studio.
This is the Bloomberg Business Week Podcast. Listen live each weekday starting at two pm Eastern on Apple, Corflay, and Android Auto with the Bloomberg Business app. You can also listen live on Amazon Alexa, from our flagship New York station Just Say Alexa Play Bloomberg eleven thirty.
Well, yesterday's CPI number showed us that inflation still an issue in many categories, including food and beverage. Food and beverage was up two point four percent year over year rose three tenths of one percent from the previous month.
Eggs, Carol, we talked about it.
We talked about it. You see the waffle house, the fifty cent egg surcharge as a result of the difficulty and procuring eggs. How are that you.
Still have some makes in the frights?
Okay, I want to ask what John to Taffer has to say about kind of the environment, whether it's the cost of food and everything which all goes into running certainly restaurants and bars.
Certainly if they're serving food.
John Taffer is back with us here in our Bloomberg Interactive Broker studio. As you know, he is the author of several books, including the Power of Conflicts, Speak your Mind, Get the results you want. He's also the EP of Bar Rescue, which is now in its wet.
Season, ten season, fifteenth year.
That's amazing, that is amazing.
Where Network POWERMUNT Network welcome back.
Welcome back.
I mean, listen, when you started this, did you anticipated all that this was going to go this long?
No?
I did not.
And you know, we had what we called escalating costs. Now we have creeping costs, so it's a little slower. But you know, the restaurant business is such that food costs can't really exceed thirty percent thirty three percent. So for every dollar that my costs go up, I have to raise it three dollars to the consumer.
Wow.
Now there's only a certain amount of elasticity in that.
So say my hamburger prices go up three dollars, I got to increase them by nine dollars. Now the consumer's not going to accept that nine dollars. So maybe I can push it to three or four dollars so I can recover half of the inflationary impact on my business. But in many cases, I can't recover all of it. So that's where it's eroding on our operating costs.
So what do you do, John? Do you like make the burger smaller?
Do you Well, you have a couple of choices. You can make the burger smaller, that's one choice, or you can raise your prices, or you can try to redesign your menu. So, for example, and this is interesting, psychological pricing and eye tracking with laser movement tells me that if I box an item on the menu, sales of that item will go up by twenty percent.
If I shadow or.
Chef specially goes up by about fourteen percent. People have a six percent propensity to order the bottom two items on a list. So what I'll do is, I'll take my most profitable item in dollars and cents, not percentage. I'll box that one, take my second, most, shadow it, third and fourth, put them on a list properly. I won't price anything other than ninety five cents. There's no such thing as eight twenty five, eight fifty, eight seventy five.
It's eight ninety five. When I need to raise my price, it goes to nine ninety five. Psychological pricing. If you price at eight fifty, you're leaving forty five cents on the table every time. It means nothing at that point. So, understanding these elements, I want to move you through boxing. I'm going to move you to different menu items.
Wow.
So for example, waffle House is infusing a fifty I would also run on eggs. I would run a special on waffles because that doesn't use eggs. So I'm telling my friends in the breakfast business, run pancake specials, run corn beef hash specials. Do everything you can to move the consumer away from the eggs construction.
And they can do that.
You didn't mention automation, which you see the chain's doing a lot right now. Are are are mom and pop shops able to use automation?
Well, you know, a lot of them are a little intimidated by I tell you the truth, just like they're intimidated by sophisticated accounting systems and stuff. My research tells me that about seventy percent of the independent.
Operators don't have monthly p and ls.
So we're asking them to look at a capital investment or a long term lease program, you know, to buy technology. A little intimidating for them, so I find that they're not as eager to move into it. And interestingly, if you go to the restaurant convention the National Restaurant Association five years ago, there may be two robotic boots. Now there's probably close to one hundred robotic boots. Everything from French fry robots to hamburger flipping robots, everything you.
Can possibly that, but mom and pops aren't doing that yet, but you're going to have to do. And the Chipotle's got you know, they've got the autocado with which helps with peeling and you know, couring avocados and freeze people up to do other things. But we're not we're not seeing that yet from now.
I think McDonald's is one of the leaders in it, in some of the robotic French fry equipment and such. But certainly, you know, it costs a lot less, it doesn't get sick, and it's the future of our industry. And look, we're struggling with labor as you know still, and we think that the no tax on tips might really make a difference for us as an industry, really really.
Could solve that problem. I think it happens.
Oh, we think it's going to happen. Yeah, I believe it's going to happen.
Why do you think it's a good idea because I think for those of us who pay taxes on all of our income or wondering, well, wait a minute, how is that fair? And I guess the other side is that let's pay those workers a living wage, and so it's not you know, because I feel like increasingly we're tipping everybody also.
Who declares their tips.
Well, I don't like it when I go into a coffee store, yeah, and you know, I'm asked to tip the batista.
I mean, it's a little out of line.
Sometimes.
I went to a dry cleaner the other day and I went in to pick up my dry cleaning, and it asked me if I wanted to tip the dry cleaning.
It's a little outrage now, every guy out of control.
So what you think within the hotel or the restaurant industry.
Let me tell you why. Because they get an employee tip credit. So many in many states, they don't make minimum wage. They make two and three dollars an hour.
No I know.
So by not tipping them on you, by not taxing them on their tips, we're giving them a chance at that living wage.
It's really important make the institution in the restaurant pay them that living wage.
Why don't we do it there?
Well, we could do it there, but that's going to increase costs. So if we look at inflation and those costs, here's the problem in the restaurant industry. It's it's an industry that we manage by percentage. Occupancy costs cannot exceed twelve percent.
Of revenue every month or every year. It just cannot.
Okay, Labor costs cannot exceed thirty percent. I'm up to forty five percent already. Yeah, food costs can exceed thirty percent. I'm up to seventy five percent. Now I have my ang my insurance, my utilities, all my other costs. I have waste and supplies. By the time I move that up, guys, I'm at twelve fifteen percent margins.
That's all I got.
But what if we didn't have tips? Like you know, and I know who was it that tried to do it?
Here?
Was it Danny Meyer?
Was it Danny Meyer?
Tes tips?
Like?
Do you don't think we would think, Okay, I'm paying more because I'm not tipping that that would make it even it out and then possibly.
But there's some fear in that. As an operator, Okay, you know, I have to educate the customer. And I must tell you anytime somebody tells me I'm going to start a business and educate the consumer, they tend not to be very successful at it.
That's fair. That's fair type margins.
Also, I got to share with you that the restaurant industry is the largest non government employer in America, and when the restaurant industry hurts, America hurts. Right, There's a lot of consumers work for us, So keeping that industry healthy is our largest consumer, is very, very important. And I look at the buyouts the car companies have gotten and other industries have gotten. The restaurant industry hasn't gotten that. So I think providing this relief makes sense for that industry.
Of course, I'm an advocate for it, but I do.
Hey, Johnny, you mentioned the no tax on tips as one of the policies forthcoming from this administration. How are you looking at other policies in terms of growth, in terms of helping the restaurant industry, in terms of potentially hurting the restaurant industry if prices go up as a result of tariffs and people have less disposable income, how are you looking at what's coming out of Washington.
I mean, I've done a lot of work on tariffs.
I've read a lot of white papers, and I've really tried to do my homework on it. And it's tough to come down with a hard position on knowing how it's really going to have an impact. I look at it this way. A German car company is charging a Germany's charging US ten percent tariff to bring our cars there. We're charging two and a half percent. Well, let's say we bumped that two and a half percent to ten percent.
So now the German car comes into America at a base cost point in theory ten percent higher than an American competitor. They can't compete that way, so they're going to have to make adjustments and distribution and operating costs in some way to be competitive again. So it's hard for me to accept that every tariff that ten points is going to make it to our pockets. I think there's competitive influences and a whole bunch of factors that play apart. And then we could BMW they built the
factory in America. We can tell you what they built the factory in America. So I think that we have to look at this as a longer play.
Well, look at Ford and GM. They built cars in Canada and Mexico, and then they'll get hit with tariffs when they bring those cars in and when the car components cross the border multiple times as a result of the manufacturing process.
It's but I would say, you know who was sitting at who's controlling our government? And we allowed Ford Motor Company to start building plants in Canada and Mexico, why didn't we incentivize them to build them here? Then? So now I think we're backing into it. We have these these international companies that we want to make residents.
Well, some of it is like, you know, the globalization right of our world, and right, so we've got allies, and we've got alliances, and we invest in your country and you invest in our country. Right, That's kind of how it's all happened. Is it bad if we kind of back off.
Of all of that in your view?
I don't know if we're backing off on all of that. Is understanding that in the post COVID world, every country is in a different economic place. Today, it's a different we're talking about environment, there's a very different environment now. America is operating at a significant deficit with significant debt.
We have to fix this. The world knows we have to fix it.
The world doesn't want us to cave in. We're the largest marketplace in the world. So it seems to me that the world.
Has to accept that these changes have to be made to eliminate the deficits that we all have to make us all healthy. So can we do this together in a constructive way. That's what remains to be seen to me.
What about your world at the bar world where tariffs could affect the liquor market Mexican tequila, which coming from Canada.
That concerns me.
But you know that Mexican tequila needs to compete, you know with other brands and other products. I don't have to sell as much tequila. I can move my menu and sell more bourbon. So you know, we do have options in the industry. And I think that the marketplace is a challenge. The liquor industry is in the toilet right now, so the marketplace is a challenge for them. I think they need to be aggressive and I don't think they're going to allow a tariff to take them down.
Yeah, increasingly, and just there's a lot of interesting dynamics on the and the liquor.
I'm not saying I.
Know this to be a fact, but this is just how I feel about this. I think time will tell on well.
In terms of policies.
You talked about, you know, a shortage of workers in terms of immigration, and I know there's illegal versus legal, but you know, the hospitality industry got really hurt, you know, after the pandemic, a lot of people left that industry.
Found better jobs, better paying jobs.
What's your view on immigration.
Well, I think legal immigration is important, but I think we need immigrants to come in. First of all, I don't want to hire somebody who I can't do a background check on.
I can't do that.
There's too much.
Liability today, especially in the hotel industry, So I have to hire people that I can do background checks on that I can have confidence in hiring them, that they're safe, they're not thieves, my employees are safe, etc. And right now we don't have that. So when I look at the immigrants, the illegal immigrants that have come across that I can track their background, they have no value to me. Interesting, I'm not sure there are of much value to America if we can't track their backgrounds.
I would say that someone might push back and say, well, if there's fewer people to do the labor that illegal immigrants do right now, that might pull from your labor labor force of legal immigrants working at restaurants and then cause your cost to go hire.
Well, I didn't use the term. I'm trying to focus on criminals. There are legal immigrants that do have backgrounds, and you can verify who they are. I don't have an issue with that. I have an issue with the criminals or the people whose backgrounds we can check. The ones that have gang tattoos, etc. They're of no use to the hospitality industry, So that doesn't solve our problem. The good ones do. The ones that have backgrounds that came here with well good.
Whoever comes in like, You've got to make sure you understand exactly.
So we have to understand the people that come here with good intentions could be valuable contributors to our society.
Twenty seconds tune in. What is that about?
Oh, you know, I'm doing a small business radio show. You know, with all my experience in dealing with failure and the things I have new entrepreneurs, I want to talk to them.
You know, entrepreneurs want to slow your role.
I want to help out you.
We do.
It's a way for well, you guys are doing it in a little more sophisticated. I want to really help those small entrepreneurs, those people starting out in those family businesses.
There's so many out there. John Taffer, congratulations on a tenth season. So appreciate you coming in, of course, executive producer of Bar Rescue.
This is Bloomberg.
Mac.
How about you let me drive?
Oh no, no, no no, this is not a toy.
Please, I'll do the grave.
I want to drive.
It's a good question.
This is the drive to the clothes.
Now plums for me a thing well, driver, Kelvin.
Don on Bloomberg Radio.
Right, TikTok, everybody.
About eighteen minutes left here in the trading session. You just started Bill Maloney breaking down the trade for you on this Thursday, and we've got stocks hovering near their highs of the session. So we are definitely seeing a rally underway. Up about one percent on the S and P five hundred just to recap now's T one hundred. We are looking at a gain of about one point two percent. We've seen stocks move up today. We have
seen yields back off right now. That ten year note with the yield of four fifty two that despite two hot inflation prints. But the expectation is some of those components, the PPI components that go into the PCE that I think the expectation is that that number, that inflation print, which is the Fed's preferred inflation print, will actually trend low.
You just got to peel back the layers and look at exactly what moved it, right, and then plug that into inflation prints. All I do is I look at the Bloomberg terminal tell me everything. Hey, let's see what Ben Cook has to say about this. He's portfolio manager of the Hennessy Energy Transition Fund.
Ben.
Good to have you with us. The Hennessy Energy Transition Fund. It's returned, according to our own data here at Bloomberg, eighteen point five to four percent annually for the last five years, and to perform the index and most peers. It puts it in this seventy eighth percentile among its peers. Has some very familiar energy names at the top Exon Mobile, Schneer, EQT, Conico, Phillips, Chevron, and more. Thanks so much for joining us. How are you.
I'm doing great, Tim, Thanks for having me.
Okay, so let's start on energy and just talk to you a little bit about the Trump administration and what you see as sort of the next catalyst for energy production here in the US, it does seem like the president isn't necessarily a one hundred percent aligned with what the producers want to do when it comes to drilling thread that needle for us.
Yeah, I think that's an accurate way to discrib But obviously the shareholders today are driving the decisions by management teams to allocate capital in a way that is friendly
to shareholders and not necessarily geared towards growth. So as much as the current administration would like to see the industry ramped drilling and drill baby drills, as Trump often says, the reality is is that those capital allocation decisions, again, are are being driven by companies that are answering to shareholders who like to see the return of capital.
Proposition.
Does that change if energy prices go higher?
You know, I think that there's a potential incentive obviously to increase activity if prices go higher. But again, in terms of capital allo allocation priorities, the industry has gotten very comfortable with the primary focus being a return of capital to investors in the form of dividends and shary purchases and then of course managing drilling budgets.
Ultimately, you know, I think we'd have to see a continued commitment.
To the return to capital and a price level that would be adequate enough to not only deliver that shareholder return but also provide incremental cash flow that could be redirected towards drilling.
Well.
But and again it's a balance, right, You're not going to have these major integrated oil companies and everybody in the energy sector go out and drill if it doesn't make financial sense. Right, There is a business formula dynamic, right, in terms of what it's going to cost to get that oil out of the ground and then ultimately what they can sell it for or if they expect to be selling you know, selling it for by the time
they get it out of the ground. So there's it's not so simple as just drill baby, drill us.
Right.
No, that's exactly right.
I mean, the business has gotten very efficient over the last you know, call it five ten years. The development of shale resource here in the United States has benefited from them provements in technology. Companies are continued to develop complete the drilling, the completion process has become more efficient. These companies are doing more with less and they're they're uh,
they're achieving cost savings as well. And so you know, the industry has become very resilient and generally in the in the more attractive shale place as have they've reduced the let's call it the the development.
Cost per barrel.
So the profit margin potentially, you know, with a lower price could remain the same. But again it's the profit. Uh, it's the motive by the companies to return capital to investors.
I think that is the primary objective going forward.
How are you looking at potential tariffs on Canada specifically with regard to energy, How does that uh work in your world of these energy companies that you follow, because a lot of that oil comes to the US.
Yeah, sure, it sure does.
I mean, you know, over four million barrels a day is imported into the United States from Canada, and it certainly is a meaningful contributor to the refining appetite for crude oil in the Midwest. Yeah, you know, it's it's not clear though that an immediate you know, uptick and pricing will be fully borne by the US consumer. Consumer behavior ultimately will determine how much of that increase and that that tear for the imposition of that taxi will
affect the price here in the US. We could potentially see the US refining industry, particularly in the Midwest, a resort to switching to supplies from the Rocky Mountain region or even the bock and shale region. So that's a possibility. You know, on the other side of the border, Canadian producers could lower their price as well.
So you know, in terms of.
Tariffs, whether it's Canada or you know, our Asia of training partners there, it really have to look at it on a country by country basis.
You know.
The President said just in the last couple of hours from the Oval Office, Canada will be a very interesting situation because we just don't need their product, and yet they survive off the fact that ninety five percent of what they do Canada. Then he goes on to talk about taxes in the fifty first state, But do you agree with him that we don't need their product.
Well, at the end of the day, you know, trade relationships are are important obviously for a variety of reasons, and I think you know, there's there's a lot of negotiating tactic that's embedded in these these tariff headlines that we're continuing to see. Could we switch away fully away from you know, four million barrels a day of imported crew product from Canada immediately? I suppose we potentially could
over the long term. It would come at a cost, but the point remains, you know, I think it's the Canadian volumes coming into the United States are very important for our refining industry, and you know, it would be likely a difficult transition for us to make to fully switch away from that crude.
I'm curious since it is an energy transition fund, and I did see the biggest utility in Virginia, home to the Global Hotspot Data Center Alley, so I demand from data centers and development almost double in the last half of twenty twenty four. So I do wonder about how
you are thinking about the AI play in particular. Certainly some questions came to the forefront after deep Sea came out a few weeks ago and just looked like it could do AI a model comparable to potentially chat cheapt but less expensive and not requiring necessarily all of the energy just got about thirty seconds. Are you rethinking that and the impact that could have on some of the energy players.
No, not rethinking that today, Caroly.
You know, the reality is what we're hearing from the companies across the natural gas value chain, whether it's producers of midstream operators or even the utilities themselves, is the demand for data center build out, ultimately the natural gas that will power the power generation needed to fuel those data centers. It's a very significant growth driver, and we'll continue to see very impressive growth rates in the electric
utility industry over the balance of the decade. We'll likely see growth rates and electric demand on the order of a percent and a half per year, which compares very well relative to last ten fifteen years, a roughly flat electric demand growth. So the trend is very strong. Don't see any reason to believe that's not going to continue.
All right, got it?
Bred, Thank you so much. Ben Cook, portfolio manager at the Hennessy Energy Transition Fund, joining us from Dallas, Texas.
Do not go anywhere.
We're counting you down to the clothes on this Thursday.
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