2017's Dramatic Decline in Global Wine Production

of course of intense interest for the wine industry. And here to help us understand what's going on is Steven ron Kliev. He is the global beverages strategist and food and agrib business research and advisory group for Rabobank International, major Dutch lender lender to the agriculture industry. Stephen, thanks for coming into our studios here just give us an update on what you know right now about UH wine cultivation production. The harvest was almost complete, I believe in

Napa and Sonoma. That's correct. That's correct. So it's it's still very much a fluid situation. And and you know, one of the questions that we get asked often is you know, what will this mean for overall California wine production? And and really, you know, the the short answer is probably not that much in terms of volume, right, because when you look at Napa and Sonoma, you're talking about ten percent of of overall California wine production, and as

you said, probably eight of that was already harvested. So in terms of overall volume, probably doesn't mean much. In terms of disruption to the industry, it's enormous. It's it's it's enormous impact. And you know, first off, let's I think you would share in this. Let's send our condolences to the families of forty one people that that lost their lives, to the countless people that lost homes and businesses.

It's it's a tremendous disruption to the industry, mostly because of what it's meant for for tourism and disruption to operations in one of the most prestigious regions in all of California, or the most prestigious regions in all of California. Well, let's also talk about future production, because just because there's been everything or mostly the vineyards had been already harvested doesn't mean that the damage couldn't continue into next year.

Is there any talk about that? There is some concern, and and and there will be small pieces of vineyards that will see some some some um long term impact on production. But for the most parts, UH, vines tend to be fairly resilient. I think they'll they'll come back. The The big impact is going to be what does this mean for the two thousand and seventeen vintage, which was looking really good. Uh, there's concern. You know, most

of what was out there had been harvested. The challenges that you know, it's the ten percent that hadn't been harvested is Cabernet sauvignon. And that's, you know, the most valuable when you think of the US wine industry, the US wine market, the typical consumer, the typical wine sold in the market sells for under eight dollars a bottle. Napa Valley Cabernet sauvignon sold direct to consumer averages around

a hundred dollars a bottle. So it's this is the most premium wine grape in the market, and that's what's out there potentially being affected by smoke Taine. Okay, now this is that we were talking about California. Now I want to get your thoughts on France, Italy and Spain because they have not had a good year. That's been a you know when you talk about overall volume and people ask me what, you know, what are the what does the California wildfires mean for for consumption globally? Their

volume not much. France, Italy, in Spain. That's really a horror terrible weather. Terrible weather. You had, you had frost in the spring, you had drought, you had extreme temperatures in the summer, hail, all of that, and and it really hit all three of them. We've seen years in the past when any single one of those might have had an off year, but never where you've seen all three of them down so much the same time. And you know, again you're going back to now the smallest

vintage that we've seen in over fifty years. So this is you know, this will really weigh on wine consumption globally. We've seen, you know, with that, just to kind of put it in perspective, the decline that we've seen versus last year in production globally because of those three countries that make up half of all wine production. That decline represents something like ten of typical global wine consumption in

a year. So something's going to have to give globally, and wine producers in the industry will look for levers to to try to mitigate the effects of that, but there will be impacts that will reverberate kind of globally and wine consumption because of it. Well, the events this year don't make me want to have don't reduce my

desire to have a drake. It's not that in some is necessarily going to go down, just that prices could go up, right, I mean, could we see a real increase in prices, especially as millennials evidently love wine and are drinking lots of it. Absolutely, and thank god for millennials, right, um, thank god for wine. Let's forget the millennials. Come on, Yeah, I think you know some of the price increases is

we've looked at it. I think we expect that, you know, much of the price increases will see in in the very low end segments of the European wine market, right the stuff that gets drunk for you know, a Euro

two or a leader, that's where you'll see it. You will see some of the price increases passed on, you know in the in the higher end stuff like the Bordeaux and the rio Hus, but they have a little bit more of a cushion in terms of margin to to to take on that price increase just quickly as a big lender to the agriculture industry and to the wine industry. UM collateral is what grows on the vines, right and the land. Is it going to change blending pattern?

I don't think so so far. When you when you think of the UM the wildfires, what it's done, it's been the it's been tremendous the impact. But it's it's really been When you look at the number of wineries and NAPA wineries, it was maybe fifteen that were affected. The vineyards are mostly okay. Uh. It's really more the destruction of interruption of operations, interruption of tourism, which has become really the driver of of route to market for

for a lot of these wineries. Steven Nickley, thank you so much for joining US Global beverage strategist and food and aggrib business research and advisory for Robbo Bank International. He is their in house wine drinker. I want to turn our attention to one tech company that is sitting very pretty today. I'm talking about Twitter shares up fourteen and a half percent after releasing earnings that beat analysts

estimates and showed some strength in their user rates. And I want to bring into tender we're all global Internet and consumer electronics analysts for Bloomberg Intelligence to talk about what kind of underpinned the success here that Twitter unveiled. So tender, just how good were the earnings today? Quote? Are the expectations are very low? Actually, and last quarter we saw a deceleration in some user momentum, but this quota they just showed that the momentum has come back.

So a combination of continued cost cuts which happens helping profitability, they're making product changes and the numbers are showing that they seem to be working. Well, what isn't working? What needs to be fixed? So basically, if you look at the growth rate right now, it's still you know, we're talking about four percent um why hy growth rate and users and we have not seen a big secular shift like people coming back to Twitter at the same pace

as peers are experiencing. So that's not working yet. But the product changes that they've done in terms of simplifying it and notification things like that is showing that these changes can drive engagement. What about profitability? What about advertising? They show that they were able to monetize more effectively the audience that it has. Now that's the big question, right, So first step was to sort of resurrective user growth, bring in more users on board, and then go convince advertisers.

So they're doing a good job convincing investors right now. Now they have to use that momentum to convince advertisers to shift at budgets here. But as far as profitability is concerned, I mean, uh, they have done a good job in terms of like cost cuts and getting the margins up, so that should continue and it's working in their favor. Also, one thing to remember is the expectation for next year and next or next year are very low, you know, single digits, and they're coming from this seventeen

comparison which is negative. So if they continue this moment and um, I think you know, at least in the phase of low expectations, they could they could see better results to tender. Can we can we just move a little bit to the future and get your thoughts on alphabet give us a preview of what what analysts are going to be looking for. Sure, so the underlying demand here, coming mostly from mobile search and YouTube, is pretty strong. Um In fact, we saw that last quarter as well.

They recorded the high the highest growth and paid clicks. What would be interesting to see is the traffic acquisition cost, which made them sort of miss revenues a little last quarter. Uh So the cost that they paid to distribution partners including Apple, uh and more and more mobile search at basically contribution from mobile search increasing also increases the traffic acquisition cost. So the top line expectation is strong, the

end market demand is strong. There will be a keen eye on how these costs are faring, especially in light of what we see what we saw last quarter. And not to give everyone whiplash, but I also want to get a look ahead to Amazon dot Com. They're reporting earnings it for one today PM Wall Street time, and I am very curious to see how much they're sacrificing their margins to gain a competitive edge. What are you looking for? Yeah, don't be surprised if they miss on

the bottom line, I mean, expenses ramp is expected. They are increasing expense expenses on a WS as content spending, and with double Whole Foods acquisition integration, that should also go up. But if you look at the third quarter with Amazon Prime Day, with the contribution from Whole Foods, and continue growth in a WS, they should be fine. The guidance for next quarter is going to be very important from a revenue standpoint because we are kind of

flying blind right now. It's the first full quarter of Whole Foods integration, so we need to see what sort of impact the price cuts and traffic increase has had on the net revenue for Amazon. But all in all, the end market demand is strong on all fronts to tender. If you pull out Amazon Web Services from Amazon, what kind of company is it? Uh, It's not a profitable company. So they have seen actually profit margins have been rising

in North America, but beyond that it's lost making. So the idea here is to sort of read scale in their prime and FBA cycle internationally so they can replicate what they're doing here in North America. But it'll take time, and with the Whole Foods push, things are going to get even more volatile in terms of spending, So don't expect a double x a w S Amazon to uh, you know, secularly grow their profits, but it's expected because revenue growth has been pretty strong in light of these expenses.

Any chance that investors will call for Amazon to spin off a WS into a separate business at the moment, I mean, right now a w S is the sort of the profit driver for the company, but still it's the country. There are many contributions, very low. Profit contribution is high. It actually plugs into a lot of other services that Amazon is providing, you know, your Alexa, your content spending that they're doing. So a WS is pretty plugged into the whole Amazon ecosystem, including logistics. So I

don't see a reason why that should be done. To begin with J Tantra, I'm curious how much information will get on how their acquisition with Whole Food of Health Foods has been going, you know, and kind of where they're thinking, because I know that it's just completely destroyed the stocks of a lot of grocery chains out there.

As people start to guard for whatever disruption they have planned, what do you expect to learn so they'll basically the revenue guidance should actually help us understand the run rate that Whole Foods was doing as a standalone company is an increasing or decreasing. Uh. If it's decreasing, it's probably coming from the price cuts that they're doing. If it's increasing, then the traffic that they're getting because of this acquisition

is actual outpacing those price cuts. So I guess it's not the amount of impact, but the place of impact that's what that's what's going to be most important. So if they guide higher than what the street is expecting right now, I mean we could expect that negative effect on others to continue. Do you expect any details at all about moving into other businesses such as the prescription

drug delivery business or indeed even the banking industry. Not much, just some color maybe, But it's super early days in in in on those regards, and we have to keep in mind the Whole food acquisition is start getting a eight hundred billions all plus market, and they have the last mild delivery problem still to be solved and optimized.

So until those things are uh done, I I don't see, like you know, any color on a big revenue contribution coming from you know, any of these other experimentation face. I think that they're doing right now, so it's a

long game that they're playing on those fronts. I'm wondering about regular Tory pressure, the idea that an increasing number of regulators, both in Europe and the US are starting to question, uh, sort of the incredible size and pricing power of Amazon, and you know, do you expect them to address that or at least nod to that as a potential risk. It is a potential risk, and especially in eu've we've been seeing uh more and more of

those examples. But one thing to keep in mind is with Amazon, a big chunk of their revenues driven by third party sale services, third party sellers on the platform, so it's not Amazon selling directly, it's you know, other businesses selling through Amazon. So that sort of like dilutes

the monopolistic sort of argument a bit. But as far as examples you have seen in EU, uh, those risks will linger not just for like the next couple of quarters, but the next couple of years, given you know how fast they're growing, and um, the end market still is much much bigger. But that will be an ongoing sort of argument, if you may. We are awaiting details and the comments from House Speaker Paul Ryan having to do with the budget resolution that was just recently past, will

be bringing that to you live. We're speaking with cha Tender Warrel. He is our global Internet and consumer electronics analysts for Bloomberg Intelligence. He's joining us from our Bloomberg nine sixties studio in San Francisco. Tender, you know, I keep thinking about what you just said having to do with these third party sellers that use Amazon basically for

all of fulfillment UH needs. But aren't states I mean I know that for example, of state in Massachusetts has asked for a list of those third party sellers because right now they're not paying sales tax. Yeah, so they have left it on the sellers the onus of collecting the sales tax when it comes to third parties. And you know very state by states, so there there are some states where you're seeing more scrutiny on that end.

But in the end, if there is a widespread change in terms of tax collection, I think it will basically being normalized by the volume growth that these third party sellers are seeing. Because you have to keep in mind that when third party sellers go on FBA program, they get exposed to prime members and Prime members are continuing to increase, not just in numbers, but the amount of

money that they're spending on on on Amazon. So basically that exposure, that volume that they're getting should help them offset in an instance where uh, the sales tax need to be enforced. Just sort of zooming out a little bit because today is such a big fang tech stock day with you know, both Google and or Alphabet I'm sorry, and Amazon reporting after earning today and we got Twitter's already. I'm wondering what you're saying. With Twitter, there were really

low expectations going into this and they exceeded them. Expectations are still pretty high for Alphabet and Amazon. That do you think will do you think that will create a negative surprise? Uh, potential that the market's not prepared for the So we have to take both the cases separately.

So with Alphabet, negative surprise potential could come from these traffic acquisition costs and at pricing that we talked about, because as more AD dollars come from mobile, they have to pay the distribution network to get that and that did sort of cause us per last time. If you remember, there was a confusion when Google reported in terms of what they missed and what they what they beat because of this tax, So that issue could surface again with

Alphabet with Amazon. Like I said, with Whole Foods contribution, V are sort of flying in the dark here in terms of what the contribution is going to be. So any negative surprise in terms of you know, the expectation was Whole food will maintain its revenue run rate that it had before Amazon bought it. If that expectation is much lower, then you could see some surprise on the downside. Thank you so much for joining us to Tendra. We're

all global Internet and consumer electronics analysts for Bloomberg Intelligence. Well, we'd like to learn more about the European Central Bank as they seem to have decided to slow the pace of their quantitative easing program, but they are extending the program by nine months here tell us more in detail.

Is maxim A Spahi, our Euro Area economist for Bloomberg Intelligence, and you can follow maxim A at on Twitter at m x s b A. Alright, m x s b A, tell me about the European Essential Bank and what is this plan about extending uh the quantitative easing program? Yes, good morning from from London. So the ECB decided today to go with the consensus. So I mean that means they extended a quee program by nine months, but they cut the monthly pace of purchases from sixty to surrey

starting in January. Most importantly is that drag Is said during the press conference that there won't be no sudden stop to the quee program, so he basically hinted at further extension of the quee program. He basically said that September was probably not going to be the end date of the quee program. And that's in itself as a

very dolvish statement. Well, Maximi, I was looking at some analyst notes after the announcement by the ECB earlier today, and they were saying, you know, yes, it's thirty billion euros of as purchase as the purchases, but it's actually gonna be forty five billion euros because they're going to be reinvesting the proceeds of notes that they currently have. Just to give you a sense of how this has

been received, the two year German bond yield plummeted. It went back down to negative uh is the point seven to five percent. I mean, this just means that it's tape. It it's gonna be que forever in the European Union. Now, yeah, the that's the whole debate about the stock and the

flow of Quie and Mayo. Draggie said very specifically today they actually published a press release on on the details of this, that they were going to reinvest all the bonds that come to maturity and so basically that they were going to be in the markets for a long time even after stopping the purchase. You hasn't mentioned it, but one day they will have to stop. We think it's going to be in two thousand nineteen, early two thousand nineteen. After that, the huge stock of purchases will

be reinvested, just like the FED did for a long time. Yes, is there any sense of when the European Central Bank may start to raise the deposit rate or is that just completely off the table at this point. So it's it's it's not gonna happen anytime soon. But if you add up the nine months extension of today, the fact that he said there was going to be no sense stop that, so that qu is gonna be it's gonna

be extended after September. And if you also had to that the n change forward guidance, who still promises that the rates are gonna stay at the current levels for an extended period of time and I quote well past the curierizon. If you add everything up, that means they're gonna have to wait until two thousand nineteen, we think end two thousand nineteen to start hiking rates again. And if you think about it, Mario drag is going to

leave the e CB in October two thousand nineteen. So there's actually a high chance now that is going to leave after eight years at the ECB head without ever having to hike rates. Maxim ay the the Euro Area, the Eurozone economy is not homogeneous, and you have the

enviable task of being the Euro Area economist. So I'm wondering if you could describe which countries and which economies have benefited the most from the actions of the e c B. Well, if you look just at the pure composition of QUI um they QUI is mostly oriented towards Germany because that's a large economy, and the e c B implements the purchases according to its capital keys. That means how much the weight of each country in the economy.

So around purchase are going to Germany, So Germany is probably the most the one that benefits the most from it. On the other hand, you can also look at what's going on in Spain and its Italy, and the fact that the growth rate is accelerating in these countries, that unemployment is going down, that financial conditions allow less tight than before. That's all to put on the e CBS credits. So everybody is benefiting from it, just not to the same extent. You know, I find it interesting that the

yield curve in Germany is steepening on this. In other words, people expect that this will allow inflation to pick up over the longer term much more than it would otherwise. Are people pretty abolishtion this and are people saying, you know what, this is actually going to bleed into the banks and provide a better backdrop for them. Or are people raising alarm and saying that the longer this goes on, the more fragile the economy becomes. I mean, we're a

sentiment right now. Well, I think I think what what the market is looking at right now? If you look at the euro, it's also reacting. It's that's going down and gets the dollar after this Starfish press conference. But I think the market is reacting to the fact that the ECB is gonna stay for longer, that the rate hike won't happen anytime soon, but also to the fact that Mayo dragging seemed to be very pleased by the

way the economy was going. Gross is strong, we have unemployment continuing to go down, there's a good momentum in the region. The only problem again is that inflation is not following. We have a V shaped profile of inflation, meaning that it's gonna go down over the next month

before it starts rising again. And all this obviously is coming into investors anticipations, and the yield curve obviously reflects that, especially Germany, which is the main Euros on assets to buy in the market real quick, any commentary on the e c B S purchase of CORPORATEBT. Notice that they didn't discuss the composition today, which is a bit surprising, to be honest, because you would expect them to at least address that issue. So they're gonna continue buying them

and probably not change any parameters anytime soon. Um from the QUEI program, Max Masbai, thank you so much for joining us. Always a pleasure speaking with you. Max Masbahi, euro Area economist for Bloomberg Intelligence, joining us from London, and I think back to what Ray Dalio said on Bloomberg Surveillance this morning. He said, the longer this goes on, the harder will be for central banks to taper as yields go up and as the economy start to accelerate.

Something to keep in mind right now, let's focus on the new technology and a new generation of automobile from Audi. Joining us is Scott Kio. He is the president of Audi of America and he joins us in our studio. Scott, thanks for being here. Um, let me see if I can just do this in three words, long, low, and wide. Would that be a good description of the new generation?

He saven absolutely textbook, absolute textbook. You want to make something beautiful and the automotive business, that's generally what you're doing. Why did you do that? Because you've you've really you've changed the shape of the automobile. We'll get to the cockpit in the second, but the exterior, the shape has changed, it has you know, this is our second generation of the A seven and when we launched the first generation car, people sort of said, we're crazy. It was a sport

back design. It wasn't your classic three box sedan, and we launched it and the market loved it. Our market share went up, of course, in that segment, the market share went up three or four points. This is now the second generation of the car, and what we have is an all new head of design, a gentleman by the name of Marklita. And you know, his real premise is to make beautiful cars. And you see it and how we stretched the car out a little bit and

lowered it. But even if you go back to Da Vinci, there is this thing of perfect proportions and an automobiles. It's long, low and wide. And if you look at beautiful cars, that's almost always what they are, and the A seven is one of those simple Scott, I want to talk about something that is beautiful. In another way. People are seeing electric vehicles as in the future of cars and the future of profitability, in the future of clean electricity. And I'm wondering, when do you see them

actually being profitable. We really haven't seen either the demand for them from the American public nor the profitability for the car companies. Where do you see this going well least. Look, I I think you're right. Yeah, you have to walk a fine line obviously between compliance and the standards and the greenhouse gas emissions. But of course, at the end of the day, a customer does not walk into a showroom saying, how can I help the automotive industry hit

their targets. You need a consumer product that a customer loves and joys and wants to pay for. But look, I'm an optimistic and the reason I'm optimist is if you look at out these demographic they are affluent, educated, and they believe and want new technologies. And the simple thing I see when I drive out these prototype electric cars which will be launching in two thousand nineteen, the very simple thing is you feel like you're driving the future.

And I think that's something that's gonna work. I think the other point, you know, not to go on too long, is I have a very simple criteria. There's twenty six million luxury cars navigating America right now, and yearly we sell retail about one point four million across the industry. That tells me there's the need for some new stimulus. And I think this is the new stimulus. So I'm an optimist where the break even on profitability, as you know,

it's going to be a couple of years. We need to get more scale, as you know, and costs need to continue to come down. All right, So what cost do you think electric vehicles have to be sold at in order to generate interest from a broader swath of public And when, specifically the year do you expect electric vehicles to truly take off in the US. Look, the year they're going to take off for Auty is going to be two thousand nineteen, because that's the year we're

launching our first electric cars. So from an Audi perspective, Uh, you know, I think we did the smart thing. We placed the car right in the sweet spot of the luxury segment. I think what a lot of people have done is they have sort of made what I'll call a compliance car. And at the end of the day, you have to make a beautiful car. So we've made

an suv. It's a C segment SUV, which is the second largest segment in luxury and so consumers are going to desire this and that's when it's going to start to go. Now, in terms of percentages, what we've announced, I can see AUDI doing twenty five to thirty percent of its total business by being electric. I think that's fair. I think that's reasonable, and I think we can get that done before we get to the future. I just want to mention the past. And I don't know whether

you're familiar with the program night Writer. Remember I remember, remember a kid booking around I do, okay, So I gotta say that the current updated version reminded me of the night Rider because of the lights. You can actually do a light show. It's l E ED laser lights with the Audi A seven. What what are you doing putting laser lights on the car because it's cool, It's really cool. Uh No, and who makes I'll give you

an engineering, I'll give an engineering. Well, but look, I think if you look at Audi, we've sort of been the innovators of lights. We were the first to do l E d s and actually l E d s started in the race track with our with our prototype race cars in Lama, and then from l E d

s we put them on our passenger cars. We put them on the R eight first, and now it's on every single autie and if you look at the industry, every single car has LED lights now and usual they don't call them l D lights, they call them OUTI lights because it's something we innovated. The next phase we feel of l d s is laser lights. Now we have them on a few hundred r eights today and it's simple. You get better visibility to look out and you get a more consistent light. And I think this

is something that will become a standard. But of course we need to get the cost right. It's going to take a little bit of time, but that's the first thing everyone said when we launched l e d s. They said, no way. And now it's an industry standard, so you've got to roll the dice and take some risk on innovation. Scott, thank you so much for joining us and for the honest state, why do you have them? Because they're cool? Scott Kia, President of Audi of America, Incorporated,

based in Herndon, Virginia. Thanks for listening to the Bloomberg P and L podcast. You can subscribe and listen to interviews at Apple Podcasts, SoundCloud, or whatever podcast platform you prefer. I'm pim Fox, I'm on Twitter at pim Fox. I'm on Twitter at Lisa Abramo wits one Before the podcast. You can always catch us worldwide on Bloomberg Radio