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Let's move over to talk a little bit about food. I love to talk about food here, and we're talking about the grocery.
Industry is growing.
Oh, I need too, So this is very timely here. But apparently we're seeing through Kroger's results here that it's attracting value seeking customers who are now opting to eat at home as opposed to potentially ordering out. I don't know that I can include myself in that segment, but clearly the street likes what Kroger has to say here. We're seeing shares that are up as much as four point two percent in trading today, now trading about one point five percent higher. It's really been a great year
for Kroger. They're up about eleven percent year to date. But we are joined by somebody who's able to break down more in depth with us for us, that's Jennifer Bartash's She has Bloomberg intelligenc Andior analysts of retail staples and packaged food here to break down these earnings for us. Jen, talk to us about what you're seeing from this report. Are people apparently cooking more well?
It would it would appear so, especially with middle and lower income consumers, they're being a little bit more careful about where they're spending. And this is something we usually see when there's any kind of thread of inflation, people sort of retrench and they cook more at home. And it's also complemented by a growth in awareness about health and wellness, whether it's gop one drug related or whether
it's just self induced. People are trying to live healthier lives and that's generally easier when you prepare your own food.
So when you look at comparable sales, Coger's saying that for the full year and now it sees comparable sales gaining three point four percent versus a previous guide of three and a quarter percent, so kind of a marginal move higher. Jen, what does Kroger's future look like overall? Because not so long ago it was trying to get through this deal with Albertson's This twenty four point six billion dollar deal that it later abandoned and is now stuck in a legal mier.
Yeah, it's you know, Kroger, I think is at the point where they're retrenching and they're reevaluating their core business and they're figuring out what is the best way to move forward, and I think there's some really encouraging signs
in the business of how they're approaching that. The first thing, and they've talked about this a little bit over the last couple quarters, is they're really taking a hard look at their e commerce business and all of the investment that they had lined up for the ocado automated fulfillment centers that they were building. So we're expecting to hear
a lot more detail on that next quarter. But they're also talking about really looking at non core assets, and so to us, that means things like the Fredmeyer jewelry business, it means the Vitacost dot com business. So that approach to becoming leaner and more efficient and more cost effective is really a positive trajectory for the company.
And just jumping in here with a headline that just cross the bloomber gets at hothead, which means it's one of those that we deem really important. Gold has just surpassed its inflation adjusted record high set in nineteen eighty. So, Nora, we talked about that everything rally, whether it's risky assets or whether it's safe haven assets. You see that reflected in gold prices, gold futures right now higher at the moment, and you know, we continue to see this plowing into safe haven assets.
Absolutely, we're seeing that across the board. So this is definitely something to look at.
Jen, back to you.
I want to talk a bit more about the e commerce aspect that Krigger has going on here. So essentially, do they have online ordering so that they're able to deliver groceries to consumers or how does this work?
They do, so, they offer the ability to order online and then they fill that order in one of two ways.
They either fill it from one of these highly automated fulfillment centers, which is ocado driven and those are the ones with all the robots that do all the work that you see images of, or and which is much more common in the network, they fill those orders in stores, so somebody walks around the store, fills the orders and people either pick it up or it is delivered from the store to their house, so they have these, you know,
both of these models that are working well. What's interesting is that Kroeger said today, for the first time ever, delivery sales in terms of e commerce outpace those for the curb side pickup, and so that just shows how much the consumer has shifted to where they would much rather have things brought to them than to stop at a store, even if it's only to stop at the
curb outside the store to pick up their order. So there's there's definitely some interesting trends moving there, and I think Kroeger's just looking to stay in tune with where the customer is moving.
Right, I mean, they certainly want to cater to the customer and the changing preferences of this customer. I'm curious about the profitability of this strategy. Does e commerce Are the profit margins in delivery higher?
Uh?
No, Generally speaking, they're lower. And so that's why it becomes so important to be able to be super cost efficient when you're filling orders. When you're talking about groceries. Historically, you know, grocery as an industry is a very low margin industry to begin with. But when people all used to go to the grocery store, you were doing the fulfillment and you're doing the last mile delivery yourself. You took it, you put it in your cart, you bait
for it, you took it home. You know, is a that is the most profitable transaction that a grocery store happens. The second most profitable is when you go to the store and pick it up, so that curb side, you know, that curb side pickup. And then the least profitable is when they have to bring it to you because now the retailer is absorbing the cost of that last mile
delivery and getting it to your house. So that's why there's such a focus on looking at the operations, looking for ways to cut cost to help move that needle of profitability to where it will be neutral, you know, or similar to what would be for an in store shopping experience.
Unless they start to charge people for that.
I think about door Dash and Uber eats and all those services where you know, the delivery charge is almost half of what the actual product costs.
Yeah, the delivery charges help, but the other thing that's probably the more important part that's a little less visible to the public is the revenue that they generate from ad sales, and so that's when you're online and you get special offers for a certain brand of cereal or certain type of soup. You know, those that advertising sales are driven through their retail media networks, and that is
a very very high margin, very profitable business. So the bigger that online e commerce becomes, the more effective they are at managing that that advertising business. That helps offset the profitability and the drain on the delivery costs as well.
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I want to move on to a conversation in the consumer space. Let's talk about CBS and ALTA and how they can spur growth by connecting wellness with beauty. We're joined by Lindsay Dutch. She's Bloomberg Intelligence Consumer Hardline Senior Analyst, and we have a lot to dig into here.
Lindsay tell us what's.
Going on in this space and how CBS and ULTA could potentially connect beauty and wellness.
Hi, Nora, thanks for having me. The wellness market is huge, four hundred to five hundred billion dollars at least, that's four to five times the beauty market alone. Beauty is closer to one hundred billion dollar opportunity. But in our survey, you know, we found that seventy percent of people prefer
to shop beauty and wellness together. So we think that the opportunity for retailers, both big and small, to sort of break into this wellness category and gain share is to bring the two categories together with marketing in the store and really get people to shop across both.
Let me ask an obvious question, lindsay, what is the difference between wellness and beauty?
Is wellness products or is wellness services?
So in this, you know, in this conversation, we were really thinking about products, but the wellness market is very difficult to define. So we're thinking about you know, you know, people are leaning into you know, preventative routines, they're thinking about longevity, they're trying to improve their sleep, their digestion.
They also want to look better, they want to feel better, so it's really across all, you know, aspects of you know, mind, body and wellness, and but products that you would be like taking off the off the shelf from like a CBS or a Walmart type of product.
So my question here then is if products are these products that are regulated in any way, So.
Some of them are, some of them are not.
I mean, if you think about maybe your social feed, you probably see a lot of you know, influencers touting products. You know, there's a big focus on gut health recently that I've seen. You know, a lot of people are buying into you know, that idea and thinking about that and buying products for that. And the bottom line is when they shop for things that make them feel better on the inside, they're also shopping for things that make them look better on the outside.
You know what's interesting as I'm reading through your research report here, one of your points is beauty enthusiasts also like to shop wellness products, and you're mentioning how a lot of people want to pour into themselves on the inside as well as the outside. Can you talk a bit about you know, influencer culture and how this could potentially also be adding to this push You mentioned CBS al to Walmart, what what does this look like right now? What's the landscape?
Okay, So if we.
Take a step back, so we think, you know, some of the biggest players in this space, it would not be surprising to you. You know, you're talking about an Amazon, You're talking about Walmart, CBS, you know, Dollar General I think also has a big, you know hold in this space. But then there's a lot of smaller retailers that are also looking to get into this space. So Aulti Beauty, for example, they have about seven hundred SKUs that are
devoted to wellness. That's that's a small portion of the twenty thousand plus SKUs that they carry in their store. But they're really getting trying to push into this market. They think that wellness could be a billion dollar opportunity for them. But I think retailers both big and small can find an opportunity in this big market. Also because the growth in the market, you know, exceeds lots of
other categories, including beauty. If we think about sort of the influencer angle that that you talked about, you know, the survey is really interesting because you know, people say, you know, a large amount of people said that they prefer an expert opinion and I think that's why they like to shop at places like CBS. The pharmacist is right there, you can get their opinion. But then they also said thirty four percent said that they value a
celebrity or an influencer backing a product. So there's sort of like two different things going on. And there's a lot of misinformation in the social media world, you know, so we're sort of seeing consumers lean into both, you know, that social viral product and then also wanting an expert to weigh in somehow.
I feel like we might see a scenario where CBS or Alta will now have an influencer at the store. Yeah, actually provide advice, lindsay, when it comes to products related to wellness that these stores can stock, what would they make, what would they give up shelf space for? Meaning what would they remove from their stores in order to make available products that relate to longevity, sleep nutrition?
I don't think, yeah, I don't think they are necessarily removing things. I think, you know, they might just be doing sort of an end cap.
You know.
Alta has been working really hard to make their wellness section a lot bigger, you know, and they go through their brand negotiations very often, especially with their merging brands, so you might be sort of swapping one emerging for another in a different category. I also think that for wellness, you know, wellness really lends itself well to online, and obviously online is an endless aisle. You can carry as
many products as you want. And the reasons for that is really that, like wellness products are often in like a thirty day supply, So that's something that if you start taking a vitamin or any type of supplement, creatine, whatever you're going to, you know want to take that every single day, and you don't want to run out. So I think online subscribe and save models are going to be really important in this space.
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Let's move over into the airlines industry. We are about to be joined here by George Ferguson. He's Bloomberg Intelligence senior Aerospace, Defense and airlines analysts George, we always love speaking with you. What's the leadst right now with Delta.
Well, so Delta came out with an eight K this morning, you know where they disclosed to the marketplace that they're going to speak at the Laguna conference that gets Morgan Stanley's Laguna's conference, and they said that their revenue numbers would be at the high end of the original range they gave. So I guess that's a good sign. I guess that fairs have come in in the current quarter at least not worse than what Delta thought. Right, and again maybe ooched a little bit to the higher end
of their expectations. We didn't see any change to EPs though guidance or any other guidance, So it makes you wonder if some of the expenses aren't a little bit higher. So I thought it was. It was okay news, but this was sort of raised guidance because the quarter's been going much better than they expected.
Okay, So it was encouraging, but it was not in all clear like, let's increase our guidance and tell you
that things are notably better. What's interesting is that the CEO at Bassian spoke at the Economic Club of Washington earlier this week and gave a little more color about what he's seen, and his takeaway was that the lower income customers remain challenged, but they're seeing a lot more enthusiasm from business travelers and premium customers, and this is where Delta has really staked its claim on that segment of the market.
Agreed, Agreed. I mean we saw a CPI number this morning, right that has airfares in it. It was up about three percent year every year, and I think the sequential was up fourst to five if I remember correctly, So I mean those were decently strong numbers for airfare growth. But I still suspect we have the same trend going on inside the business that we saw in two Q, and that is as you said, I think the high end consumer continues to travel and want more amenities, want
better seating as they travel. So if you're American United Delta, you're well positioned to capture that and subsidize what I think is probably still weakness at the lower end of the business. I think as we gin into three Q, will hear that. You know, if you're a basic economy flyer, you're managing other increased costs in your budget and so you may be not flying or you know, flying less, trading down a bit.
George's corporate travel back.
So at the end of two Q, I think, you know, what we heard was that corporate travel was was starting to surpass or twenty nineteen levels. So so we definitely know corporate travel has returned slower than a leisure and I think, frankly, it's probably very structural and will continue this way. I think there are industries like consultants that traditionally went sat at their at their customer's offices to
do their work. I think, you know, now we've gotten a lot more comfortable with video conferencing and things like that. I think you'll you'll miss some of that old demand for corporate that you know, had supported airfares. I think it has become much more of a leisure business. But three Q is going to be a wash on that because three Q is really a leisure story typically for the airlines. Well, one more thinking for you.
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We're going to break down what's going on in the real estate market. Of course, this is an area that people are always focused on, especially as it pertains to real estate investment trust. That's a place where you're seeing so many different segments really having some different moves here. And we're going to be joined by one person who is all over this, Jeffrey Lingbaum. He is Bloomberg Intelligence senior US RITE analysts, and we want to kind of
discuss and break down what's the latest with real estate. Jeff, what did you take away from these earnings is I'm looking at the rate index here in the s top five hundred. It's only up about one point nine percent this year, so nothing to run home about. But what were you really seeing through these reports this earning season?
Yeah, thanks, Nora, thanks for having me on. I mean, one of the things, one of the things we're thinking a lot about is what the future looks like. You know, the earnings that come out, you know, you know, are less important than the outlook. And one of the sectors we're looking a lot at is residential rental residential. We're in a cycle now where rent growth has been slowing, impacted by some heavy supply, but the opportunity exists for
rent growth to accelerate into twenty twenty six. And one of the things we just put out a piece about is the comparison between the cost to rent and the cost to own, and owning a home is still significantly higher than renting, and the reats that play in the rental residential space are poised to benefit from that, both on the apartment side and on the single family rental side. And so I think that as we look forward to the next year, we could see rental growth accelerate for those guys.
So are you seeing any bifurcation at all between multifamily rates versus single family rentals?
Well, single family rentals have had faster growth over the past year as multifamily growth slowed on the rental side. On the rental revenue side, and frankly, there's less competitive supply for single family rentals than there is for multifamily rentals. The growth rate may slow a little bit for single family just because their comps are a little bit harder
as multifamily rents start to rise. A little bit, but for the most part, I think they both are poised to benefit from this you know, attractive rental environment compared to the cost to buy homes as mortgage rates remain at elevated, sticky, sticky, elevated high and there's just not enough inventory and rens renters are winning from that well. Jeff.
Of course, we know that we are working with United States that is short a lot of housing here. And if you rewind about one to two years ago, there was a conversation about flipping some of these multi family properties or office properties excuse me, into multi family properties. Is that something that's still being discussed.
It's definitely being discussed, and it's happening, and it's going to happen more. It's not yet nearly as significant as I think the logic would tell you it should be, both in terms of how much housing is needed and how much unused office space there is, so there will be more of it. But it's definitely starting to happen. And New York City is an interesting place to look
at on that. You know, right now there is excess inventory of office space, but the excess inventory and the availability is really at the lower end and that's the stuff that's going to get turned into residential. The higher end office space is full and there's not availability, and so tenants that want large blocks of high end new space are really having to pay up for it if
they can even find it at all. And interestingly enough, we're starting to see signs of new development of New York office buildings.
So you mentioned the new development here in New York for office buildings. Talk to me just regionally what the activity is looking like when we think about leasing office leasing.
So leasing is different than building and on the leasing side, again, New York early is one market where the leasing activity has been the most robust. You know, if you look across the country, San Francisco is a is a kind of the two markets kind of kind of get paired together as almost like the opposites of like how how office markets have responded post COVID. People came back to the office faster in New York. The demand came back
faster in New York. San Francisco is a little bit behind, but we're starting to hear signs AI is causing some some ramp up demand there for office space. Leasing is starting to pick up as well as a result of that, I mean, then you look around to some other markets, you know, they all have their local nuances. D C is a market where, you know, kind of in the in the Northern Virginia, you've got you've got tech and defense, you know, really driving demand and driving leasing, and in
the disc strict itself, maybe a little bit slower. So you know, and if you look around suburbs, probably not nearly as as a significant demand as urban centers, you know, but it's really going to differ market by market.
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