Dunkin’s Travis: Public Companies Profit From Scrutiny

made by the company and CEO Ellen Mosk. The shares are down about two percent, making a little bit of gains against the initial losses on that headline. We will monitor it for you. Perhaps it is perfect timing, then that we talk about what it is to be a private company rather than a public company, and what it means to be a good manager versus a bad manager. Here joining us now is Nigel tracks Best, executive chairman of the Duncan Brands Group, also the author of a book,

The Culture Challenge or The Challenge Culture. Excuse me why the most successful organizations run on pushback? Nigel, thank you so much for being with us. Delighted to be here. Decades of experience in this business, you know, just just talking about Tesla and some of the issues that they've had with going private or going public. From your perspective, is it better to be a private company? And why?

Great question, And as a very happy second time Tesla owner, really yeah, yeah, I mean I think the machine is awesome. As someone said last week, it's artificial intelligence on wheels, So I think the product is fantastic, do you No, no, no. I bought the stock a long time ago and got out with a very hefty gain. But anyway, um, but it's a fascinating question. It's a it's a question that's

discussed in the book. Because I joined Duncan back in two thousand nine and we were private, I think we were helped, which is going to sound slightly contradictory by the fact it was in the middle of the recession. You can't get more in the middle of the recession than January two thousand and nine. And we spent the first year studying the company and our franchisees with several microscopes because everyone was under severe pressure and and in

many ways, when I look back, that was good. But I was supported with a phenomenal group of private equity firms, being Carlisle and thhle. We had an excellent board, and what is interesting is that two of those original board members are still on our board now um uh still on the board um And we went completely public in

two thousand and twelve. So I like being private, but I'm one of the few CEOs that actually likes being public as well, because I truly believe that the questions from people like yourself, or from analysts and certainly investors have a role to make you better. They constantly challenged the status quo, which is what what my book's all about. It's about getting input from informed outsiders. It is the

outside looking in. And I truly believe you know that good managers, as you say, good leaders, can operate in both private circumstances and public circumstances. Nigel Travis as the author of the Challenge Culture why the most successful organizations run on pushback. In addition to your role at Duncan Brands, you previously have experienced as the chief operating officer Blockbuster. You also worked at Burger King and you've also had a career at Papa John's. You've also helped to restructure

an English football team, Layton Orients. Can you tell us what some of those things have in common. Well, actually cook quite a bit um. Firstly, the English football team, which UH a consultium led by myself bought the club June last year. We had no bank account, no credit card processing and worst of all, no players. But we applied the challenge culture and everything we did. And the

challenge culture is about two things. Is about challenging, which is what everyone focuses on, but mostly it's about culture. So to link all those companies together over time, I've tried to develop a very positive culture in all the companies. I think we've got an extremely positive culture in Duncan where people have always been encouraged to challenge, pushback too, if you like, take all the hierarchical boundaries out the way.

Papa John's, despite some of their recent problems, we had a great culture when I was there, and I did it there without changing any of the leadership team. You did a whole digital initiative there. Oh yeah, yeah. We we became the leaders of online pizza ordering in nineteen sorry, two thousand and five, two thousand and six, and I focused on that because when I was at Blockbuster we did a lot of great things. We had to constantly fight new technology challenges coming towards us all the time.

We probably didn't tackle Netflix early enough. We certainly didn't tackle Netflix early enough, and we could have bought the company for about fifty million it's now worth I think a hundred and sixty billions, something like that. But we came back hard and we put them under pressure. And after I left, after my then boss John anti Arco left, the company struggled and eventually went bankrupts in two thousand

and ten. But we could have been the leaders. So I think the messages you've got to constantly look at, look where you are, how you challenge going forward, how you challenge the status quo, but all within the context to answer your question of a very positive, people oriented culture. And that's what the books about. It's not just the challenging, it's about creating that culture. We should live every day. You should set an example of what it's about every day,

and I truly think we've demonstrated that at Duncan. I want to go back to something that you were talking about with respect to being a public company, that that actually encourages a challenge culture, and I want to ask you about the fact that we've seen a growing number

of companies go private from being public. Are you concerned that that doesn't foster enough of a challenge culture that potentially companies will end up struggling or being failures because they're not getting scrutinized and questioned every step of the way. I think that's a great question. And it's interesting that the number of public companies, and I think this is what you're referring to, is declining at quite a rapid rate. I think it's down by something like that may not

be right, but yeah, it's traumatic. And I think the point you make is fair comment because we all need outsider input looking in. I mean, one of the benefits we have in Duncan and we had the same in Pupa John's, and we have the same at the football club. The football club we have fans rather than franchisees. Duncan and Papa John's we have franchisees. They are the ultimate challenges.

But some times you need people standing right outside the organization looking at trends and by the way, analysts, this is what people don't realize. Analysts, good analysts like some of the people we have in our industry, and by the way, we have thirty five analysts who follow Duncan, which is probably too many, but thirty five. The benefit is they talk to the competition, they followed the trends,

and they make you think the whole time. So the Challenge culture, a major part of it has been being pushed to think and say what direction are we going in? Is it right or not? And by the way, just say something on Duncan. Under the new leader, Dave Hoffman, we're going in exactly the right direction. Well done, Thank you very much for coming in and spending time with us. Nigel Travis, the author of The Challenge Culture, Why the

most successful organizations run on pushback. He is the executive chairman and the former chief executive of Duncan Donuts and Baskin Robins. Don't want to miss out on the imp laeve that he has a lot of doughnuts and ice cream, because I will tell you he is not. He's very fit, keep working out, challenged myself every day. All right, we uh, we appreciate it and we look forward to having you

in the future. Much appreciated. China has decided to levy levy tariffs on about sixty billion dollars worth of imports from the United States. This is contingent, of course, on the plan tariffs on two billion dollars worth of Chinese goods. China plans to slap additional tariffs on over five thousand categories of US products with two levels of tara phrase ten and five percent. Here to tell us more about the issue is Leland Miller. He is the chief executive

of China beige Book International. You can follow their work on Twitter at China beige Book. Leland Miller. Always a pleasure, Thank you for coming in. Do you believe that this back and forth in tariffs will have a meaningful effect on the Chinese economy. I think it will. I think

it already has. And we've got some new data they're coming out next week that I think will shine a light on on on on what is happening and and and you know not that nothing is hit except the fifty billions so far, and even that is just a few weeks in. If that is showing an effect, then it tells you a lot about what two billion will do, and what about what will fillion will do? So I do think it is is it's already showing an effect. Uh, we'll have a little bit more on that week. Well,

it's manufacturing. So manufacturing has been going strong for a long time, and in China, in China, and uh and and I think that the manufacturing sector has gotten skittish on what's going on next and and uh, and that's one of their real concern points. Well, the Shanghai composit rallied overnight in the heel on the heels of this news. One theory had been, first of all, it had been so beaten up and had been trade at its lowest level.

But also there are some theories out there that China will come back with some kind of infrastructure project that will help bolster the economy. So how does that factor in and doesn't that offset this? Yeah, I think that that's part of it. Um, China is now faced with a serious trade threat that looks like it's going through, in which case the government's gonna have to respond. So I think it's going to be all systems go. We're already seeing a little bit of that about that in

the in the credit world. Uh. And so there's that. And I think the other part about this is that the two billion didn't come out of nowhere. This was going through. The surprise I think was that they they expedited the process a bit and they moved up the implementation date. But the two billion has been talked about for months. It was always going through. Uh even if you were to have a deal later this fall, the president wanted that two either hovering right over him or

recently into effect in order to negotiate. So the twitter billion, I don't think it's any major surprise. Leland. Tell us about the Chinese economy right now. You spend a lot of time time analyzing it, where its strengths and weaknesses. Well, the two thousands, sixteen, two thousands seventeen years, we're all about recovering from the early crisis and recovering the economy into a into a period of strength and stability entering

the Party Congress, and they accomplished that. I think that when we talked about this throughout twenty seventeen, it was, you know, all systems go, things are looking good. They didn't have this trade war hanging over them in seventeen and and since then things have gotten a little bit more tricky. So you have this, you have the trade war looming, you have uh A a bunch of sectors in the economy, the old economy, manufacturing, property and others that have been run so hard for so long that

they're starting to weaken. And so you have this possibility of a weakening economy with looming tariffs overhead, and it's making people nervous. And so the big question is how accurate official data are on credit, which they're saying there's not that much barring yet and investment and they're saying that this is at historic lows. Now, we don't agree with that, and we'll have some different takes on that

in the coming weeks. I think that official data tells you a good story three months earlier, but I think there's some there's some new developments on the horizon right now. Perhaps credit is expanding pretty quickly as they loosen up the strings. I'm just wondering. One thing that we're waiting

for is details on retaliation from China. What could some of those measures be in addition to some of the tariffs that they've put out there on sixty billion dollars of US goods, But what could they do as far as basically shifting their supply chains and their lines of business away from the US. Well, they are going to have to look into that the same way that the

US is looking into it. They're gonna have a harder time because I think that the you know, the US trade with China is very one sided at this point, and so the US is other places that can go China. China wants to have markets for its goods, it's it's going to be hard to avoid the US. So they have a much tougher task here. But the z t E incident was a wake up call for them. I think that the the escalation and their of of these tariffs and their apparent weakness in the face of them,

is another wake up call. So, you know what, what we're seeing right now, independent of tariffs, and independent of whether we somehow see a fall deal or a deal in in early twenty nineteen, is a decoupling of the U S and Chinese economies. And I think that that is setting itself down a path that's not yet irreversible, but is looking like this is going to be the

thing that defines the next decade. If that is indeed what defines the next decade, where will the capital come from in order to continue the accelerated growth that China wants to enjoy. Well, you know, China in some ways is a very attractive market. Now. You don't have a very good regulatory structure. You don't trust that the government is going to do what it says it's going to do.

On the other hand, you have enormous opportunities. You've got a huge consumer base, you've got um interest rates that that should be paying out relatively healthily, and as long as you're in a low interest rate world, which we're emerging from right now. So you've got this bod market that's that's crying out for foreign capital. So there are

opportunities there. But the Chinese really have to get there, get their economy into shape, and they have to be more open, and I think they would be forced into that the more they're back into a corner. Leland Miller, such a pleasure having you on. Thank you so much for coming in. Thank you. Really interesting him this idea that the decoupling of the US and Chinese economies will

be the defining feature of the next decade. According to Leland Miller, chief executive officer of the China Beige Book International, there's been a lot of money raised recently for real estate, for example, Carlisle has raised five and a half billion dollars for its private equity real estate for fund. Black Stone has said to raise more than eighteen billion dollars for a real estate fund. And now we learned that ox IF is looking to raise two point eight billion

dollars for real estate. So our next guest is probably a very popular individual. Scott Lawler is the chief executive of a way Point Residential and he joins us here in our eleven three oh studios. Scott, thank you very much for being here. Are you at all surprised at the amount of money that's being raised by private equity

firms to invest in real estate? Well, first, thanks for having me, And I would not say I'm surprised because this is a trendline that's been evolving throughout this psycho where you know, after the crash, the manager field, if you will, real estate investment manager playing field got shaken up quite a bit and the few survivors capitalized on that opportunity and suddenly there were a fewer managers and

much much larger funds. And that's continued. Obviously now there's more managers back in the game, but the trend towards mega funds, if you will, amongst sort of the all the fame name managers has been in place for some time and they've been successful with it all, right, But here we are, two thousand eighteen, some people are seeing some possible wobbles in the US housing market. There isn't the same kind of dynamism that we saw during the recovery,

certainly in terms of price increases. Where are the opportunities, right? So, I mean, you know, ten billion, eighteen billion, that's a lot of money to invest, for sure, But in a week, I mean, this is we're talking literally, these are the past week. But it's important to understand how they define their playing field. So you know, you don't deploy a fund like that. And it's not for me to say these guys run their business other than we all know

they've done it very well. But you know they're thinking in terms First of all, they're thinking globally of course um. And secondly, um, you know, in terms of say larger transactions, say there's been a public to private activity and so on in the reach sector and things like that. So they're really in the mega trade business. And when you can't you raise funds at that level, you're kind of playing at a different tier, and the and the competitive

supply and demand dynamics are different. So someone like me and I have to be careful where I play because in certain places that could be fifty folks chasing an opportunity, and I don't want to be the fifty one. But when you're playing at their level, that's not the case. We hold on a second, So this is important. These are direct competitors to you in certain circumstances. How do you ensure that you're not playing in the same sandbox? What's the sandbox that you see the opportunities for a

fund of your size? Right, So we're the biggest cut obviously is deal size, Right, So if you read about you know, five billion dollar public to private transaction as an example, it's probably not going to be us, you know, leading the charge there. So we're playing in smaller markets.

We're doing deals that are maybe fifty million dollars on average of total capitalization, and we would very very rarely cross paths with someone who had a ten billion dollar fund because they're not going to get that money out the door efficiently doing fifty million dollar deals. They're going to get it out the door doing very very large transactions. So it's a it's a very different playing field, all right, very different playing field residential rental properties, that's that's a

specialty for you. That's right. Where are you looking to expand? So we've been expanding the last couple of years, UM in a couple of ways. I define it by geography and I define it by strategy. So we really found the greatest opportunity for the most part, not exclusively, but heavily focusing on some smaller markets, UM, which are different than when i've student housing, for example in North Carolina.

That's right, Well, that's as it relates to specialty. So we've gone into smaller geographies half a million million person metro areas, and in addition, we've gone into specialty property types such as student and senior, and we find those are more compelling areas right now than say keeping it you know what I call center of the fairway, if you stick with just conventional and just in the major metros, it's where you see the fiercest competition and in my view,

the most troublesome pricing. So how much more are you getting with respect to returns to invest in some of these smaller opportunities that have a smaller pool of competitors than the large cat type deals. The spread isn't what it used to be, and I wish it was greater. There's some I mean, look, if you talk about prime properties and major metros, you know cap rates and you know going in returns are sub four percent frequently. Um, we're at least a hundred a hundred fifty basis points

higher than that. So I'd rather play a hundred fifty basis points higher and be in Omaha, de Moin or what have you, then pay a three seventy five to be in San Francisco. Doesn't mean I'm right. There's a lot of smart folks. You see it differently. It's just what we do. Are you concerned about the amount of money going into this space and how high valuations have gotten. I'm absolutely concerned about the amount of money in the space because it makes our life very difficult, you know.

It's why we have to focus on specialty property types, why we focus on smaller markets. Um, we are constantly looking for opportunity. You know, I call outside the center of the fairway. We have to rummage around in the rough quite a bit. We're in a we're in the one in a hundred business, which is a very tough way to make a living. We look at a hundred deals to do one. But keep in mind our business is still quite a bit less efficient than the securities world.

It's more efficient than it was thirty years ago, but less efficient by far than say, trading securities. And so the point is, if you're willing to endure the brain damage and the wheel spinning of the one in a hundred, you can find risk adjusted opportunity. That's how we define the business is we're looking for miss price risk. You know, I want to ask you to describe what it's like to build student housing now compared to what your dorm

room looked like back in ninety two. For in a lot of ways, I'm very jealous of those who were born thirty years later. To me, that's one of them. I was actually at my old school recently. Of course, my daughter is looking at it, and we looked at the dorm and she thought I was joking, and it looked more like a prison cell than say the dorm she'd seen at all the other schools we were trying. Actually was riot proof. It was the biggest cement structure.

Literally it was built for riot proof situations. But if all our kids saw our dorms, they won't believe it. And so now the world has changed profoundly, which is part of the opportunity because it's not just a matter of existing inventory relative to demand. It's the quality and appropriate. It's if you will have the existing inventory relative to current taste and preference. And there's been a massive shift.

Basically the younger kids, you know, demand more and the markets providing it, whether it's the physical layout, the services, amenities, all that kind of stuff. I mean, you really, you, as a parent, are you going to pay for it? I mean, how much you're gonna pay for your kids housing? Is that okay with you? That question exactly. We're gonna next time. I'm going to bring an eighteen year old young lady and she's going to join this conversation and

she's gonna say, yes, my dad's gonna pay. We welcome that. If you buck now probably is hearing this loud and clear, Yeah, sure, but um, you know, it's just something that's changed profoundly over the course of a generation. And so as a result, there's an opportunity even if there's a market with plenty of inventory, there's a very good chance the majority that inventory is just not favored by the current generation. Real quick, thirty seconds. How close are we to the next downturn

of the housing market? Well, um, that's a tough one. I call it the end in question. I get asked it every day and book and say, Scott, would inning are we in? And you know my answer is, I'm not sure it's possible to answer the question, bequesse to say we're in the seventh three hinting is to say here, it's synonymous with asking, if you had just said to me, right, Scott, when is the recession going to hit what? You know, what quarter of what year? How long? How bad? My

answer will be, I don't exactly. So we are not believers in market timing, and I talked to my investors about this lot. We're very, very big believers in doing quite a bit of severe downside sensitivity analysis. And so my answer to the question always is here's what happens if and making sure we're okay when the music stops playing that we're fine, as opposed to here's why it's going to happen in the third quarter of nineteen or

what have you? Scott Lawler, thank you so much. A much more sophisticated, nuanced, and intelligent answer, although you could have said, you know. September two thousand and one, Scott Lawler, founder and chief executive officer of Waypoint Residential, thank you so much. The price of oil moves higher. Brent oil seventy eight dollars eighty five cents of barrel. West Texas intermediate crude trades at sixty nine dollars and seventy two cents of barrel. What's next for crude? Julian Lee are

oil strategies for Bloomberg News joins us from London. Julian what are the implications for increased sanctions against Iran and the price of crude oil? Well, I think that we are going to see further declines in Iranian production and Iranian exports. We've already seen as of the first half of September that those flows coming out of Iran are down by around about a million barrels a day from

where they were in April. That's the last full month before President Trump announced that he was pulling the US out of the Iran nuclear deal and that the sanctions would snap back. So we've lost a million barrels a day, and we're still a month and a half away from the data at which those sanctions are to be fully implemented. So I think over the next six weeks or so,

we will lose more Iranian oil. We could lose easily another half a million barrels a day if you look at what is still going to to Europe, to Japan, Um and places like Turkey and India, who, even if they don't fully stop buying Uranian oil, are likely to

start trimming the amount that they purchase. So, Julian, let's take a step back here, because the broader picture is that oil is going offline in Venezuela, it's going offline in Iran, and there is a question of whether Saudia, Arabia and Russia, some of the biggest producers in the world, are willing to increase their production to offset the declines that we're seeing in Venezuela as well as i Ran.

So I'm wondering, from your perspective, do you think that Usha and Saudi Arabia are willing to produce more or do they want to see the price rise to increase their profits to shore up their economy is I'm thinking, particularly of Russia. I don't think they do particularly want to see the price rise. I think they are fairly content with the sort of level that we see at

the moment, both of them. Yeah, absolutely, I think that the question is not so much whether they want to increase production as to whether they are able to increase production. Saudi Arabia is producing about ten point four million barrels a day at the moment. That was our estimate for August. It's never produced more than ten point six ten point seven, so it's getting close to not the theoretical limit of its capacity, but certainly the uh if you like, the

tested level of its capacity. We don't know how much beyond that it can go. Russia, too, I think, has increased its production since the early part of this year, when it was abiding by the deal it reached with Opeq. Their oil minister has said they can add another three hundred thousand barrels a day by the end of this year. But again that is taking us into uncharted territory for for post Soviet Russia, UM and the Russian government itself.

I think it was the the Economy minister UM came out earlier earlier today, their finance minister who said that the break even price that Russia needs to balance its budget for is forty dollars a barrel UM. Now, yes, they'd like more than that because they would like to pay down some of their debt and build up a UM a sort of a rainy day funds. So they'd

like more than forty. But I think both Saudi Arabia and Russia are very aware that when prices get too high, demand starts to suffer, and both of these countries want to be exporting oil and selling oil into the market for the long term future. Julian, just a little bit more on Iran. They don't just export crude. They also export condensate. This is that super light oil that's used

in the petrochemical industry. Tell us about condensate and the potential buyers or those that are no longer buyers, Okay, I mean condensate is is interesting this time around because it was excluded from the sanctions when they were enacted under President Obama. UM. President Trump has made it very clear that he expects buyers to stop buying both crude and condensates. Condensates are if you like a much smaller pool of supply. There are fewer producers of condensates. It's

essentially a very light liquid that comes out of gas fields. UM. The biggest buyer of irrain and condensate by far is South Korea. They have already stopped. The last ship carrying Iranian condensate to South Korea left I think in July. Um it arrived in early August. May have been June and July that it arrived, but certainly for the last month or two, South Korea has not bought any Iranian condensate. That causes a problem for South Korea in terms of

finding alternative sources of supply. One of the one of the things is that the Iranian condensate is is quite high in sulfur. This is a a an element that that has to be removed from the condensate to make it consistent with product specifications, so it also makes it cheaper. I see, well, Julian Lee, We're gonna have to follow up on that next time. We have to leave it there. Julian Lee, Bloomberg ot oils strateg is coming to us from London. Definitely an interesting moment. We have a Brent

crew climbing back up towards eighty dollars of barrel. Uh and uh. We'll see how that factors into both consumer prices as well as the political calculus. 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. It's one before the podcast. You can always catch us worldwide on Bloomberg Radio