The Amazon Threat Forces Grocers To Go High-Tech

to get into the grocery business. It's a low margin, highly intensely competitive business. Why would they want to, you know, kind of get away from their cool tech and home delivery and all that kind of stuff. But they're there. They are sticking with it, and I think they're actually increasing their investments and that's forcing the industry, the supermarket industry, to respond with their own technology. Matthew Boyle, us retail reporter for Bloomberg News, joins us live here in the

Bloomberg and Director Broker studio to help us break it down. So, Matthew, give us a sense of what the supermarket industry is doing to try to fend off or compete with Amazon. Uh, well, they need to do something. I mean, they're in a war of attrition right now and they're losing. And I'm talking about traditional supermarkets. You know, um places like Kroger, which just earlier this year had to throw out their

long term guidance because they couldn't get a story remodel. Right, So you're talking about traditional supermarkets that are getting squeezed, and not just by Amazon, by companies like all the this German import which is very deep discount what they call hard discounters, where it's a lot of store brands and a very spartan store experience. But people don't mind if you've give them what they want at a price you know, that's affordable. They don't need a lot of

the bells and whistles. So the grocers are kind of getting it from all sides. The traditional grocery stores. They need to think differently, and so they're looking to technology, some of which Amazon is has already adopted or is adopting as ways to not just you know, make shoppers go wow, look at all these funky bells and whistles, but just to sort of get the basics right and solve some operational problems that will hopefully lift those margins

that you mentioned that are always a razor thing. You also suggested that perhaps they could hide under a desk in the fetal position, but that might not be the best business Other industries have industries have done that, and uh, you know, it is a business model that has been adapted, not necessarily successfully. One statistic in your story that I thought was really compelling was that food retailers globally lose about three billion dollars a year due to items being

out of stock. Is this the type of technological challenge that could just be fixed by having the right program that understands what you have. I mean, I don't want to say fixed, but it will certainly help. I mean, what is easier? You know you've got these days you have to hire people to literally walk down the aisles. It could take hours and take them away from other tasks, let's say, like filling an online order and getting that out to a shopper and doing something more value added.

These robots that we talk about in the story that just sort of meander up and down the aisles checking for out of stocks, for missing items in the company. I spoke to a Giant Eagle, which is, you know,

a great Pittsburgh, Midwestern based retailer. Uh. They saw a twenty one percent reduction in out of stocks in the one store where they've had this robot the longest I gotta say in this, in this technological revolution that we're in, the problems that people are discovering, and the solutions stock the shelves. Yeah, I mean literally it's you know, how much how much money and how much time can it

be just put into the idea of better Yeah, exactly. So, Matthew Canney, I'm thinking about, you know, walking down the aisle of a supermarket and seeing that worker with the kind of the price gun. Do you know kind of are those days can you do that one more time? That sound? Did you? Are those days still with us?

Things like which I didn't even write about, But those robots we mentioned, if you add electronic shelf labels or electronic shelf tags to replace the sticker gun, um, that can that will benefit even more so the use of those shelf stocking robots when you just have electronic shelf X. So there's a lot of them, but again it's slow adoption. A big problem here is that the grocers are very risk averse. They want to do, you know, what their dad did, their grandfather did. This is the way we've

always run this store. Um, you know, this is what's worked in the past. But they again, they're starting to get a little bit more adventurous here. It's more than that, though. I mean a lot of these companies operate on pretty small margins, right. Uh, this is not a get rich quick kind of business, and you have to make investment in order to succeed against the Walmarts of the world

or the Amazons of the world. So can you sort of give us a sense of how they're doing it, how they're investing, if they're able to invest given the overhang of their little Exactly, you're rightly, this is not get rich quick, this is not die. This is don't go away, don't become the next year's So they're making investments that exactly you know, they have to make. But a the same time, look at Walmart, they're they're also

paying all of their workers more. You know, they've had to increase just their starting minimum wage and in many cities New York included. You know, if you're talking about a fifteen dollar minim waves. So they are making investments in their people, but these investments in technology, which are increasing what they will not make them though if they

don't get a clear return on investment. That's why a lot of what we're seeing just now is just pilots, a couple of stores here, twenty stores there, figure out

what's working tweak it. So we're not going to see wide scale universal adoption of a lot of these technologies for probably years, and there have been technologies over the past five years that we thought we're going to change the way we shopped, and they haven't because it was a lot of g whiz stuff that didn't really provide an r O. I. So Amazon again, they I call it dipping their toe with this Whole Foods acquisition, dipping their toe into the supermarket business. Is there any sense

that they're gonna maybe do more than dip their toe. Yeah, I think we've got a foot in there now. It's more than a toe, given you know, it's started with Whole Foods, of course, but just in recent weeks we've had a lot of news from them. They are going to open a traditional, more traditional, lower priced than Whole

foods Uh grocery chain. Starting in l A. They have slashed or eliminated the additional fee that they charge for their prime customers to do Amazon Fresh, which is their online service, essentially saying, if you're a Prime customer, now the food delivery is free, just as the streaming video is free. So and they're also planning to take their Amazon Go technology, the cashier list stores we all have heard about, and bring that to bigger stores rather than

the tiny ones. What's that smell? It's the smell of burning cash. I mean, I'm listening to you speak. Where is the make money part? Well? For Amazon, you know they're making money off the cloud and advertising. Yeah, so that's why again we're seeing very selected small pilots. But with the things like the shelf scanning robots don't look at it of out of stocks, that's such jargon e term.

Think of it as lost sales. If the honey bear isn't there on the shelf, you're not getting that sale of honey If it is there, If the robot tells you it's not there, get you know, get somebody to get it in the back. You have now gained a sale. That is a sale that is profits certainly, so that is what will help these I certainly, rather than all these fancy terms like AI and VR and stuff like that. If the money bear ain't there, the honey bear ain't there.

Here's the revelation for you. I actually enjoy food shopping. But I have to tell you this. If there was an app to say, hey, where is the honey bear? Oh, it's all three road to you know, ten steps that I actually looking. Most good retailers will do that. If you have their shopping app and you walk in and a lot of them will allow you to upload your shopping list. There will be a map overlaid. It'll know where your location is, and I will say, the honey

bear is here. Um. You know that's what really screws people up. When a store gets remodeled, people are suddenly saying, where's the honey bear? I will say. One thing I think would be really cool being app showing the expiration dates of different things. So that's a totally different topic. You know, the sell by used by that's we'll have to continue that. We'll have to have a full show on the sell by and used by dates. Matthew Boyle, thank you so much for being with us. That was

a great story. Matt Boyle, as the US retail reporter for Bloomberg News, joining us here in our interactive broker studios. Really interesting revolution under way in the groceries, not where the industry can keep up. Boy US shopper spent a record at nine point two billion dollars on Cyber Monday. That's sevent more than last year. It added to a robust Black Friday. So it seems like the consumer is in good shape as we head into the thick of

the holiday sales. To get more color, we welcome Christian Magoon. Christian is a chief executive officers Amplify e t S with over seven hundred fifty million dollars and under management based in Colorado Springs. Christian, thanks so much for joining us. So it seems like the consumer is out there spending for the holidays. Yeah, Paul, has been definitely a very good start to the season. Um, We've likely to see

record holiday shopping. Um. You know, some forecasts believe that this year will grow about four percent overall and holiday shopping and actually go from about a nine hundred and seventy billion dollar season last year to a trillion dollars season this year, so very exciting. I think, you know, fifty year unemployment, steady wage growth are really helping the consumer be confident. Here. Of course, the big area of growth has been online retail. UM. Well, total sales maybe

up about four percent. Online retail is trending up maybe fifteen to sixteen percent. So that's going to be the sweet spot for investors and we think for those looking for to kind of ride this retail trend, both you know, for growth, but also for kind of the trend of going online versus in store. Christian, I'm looking right now at the holdings of I Buy, which is the e t F that you run, uh with about two billion

dollars of assets over under management. I'm just looking. Hell, let's one is that is that a retail stock that's your top holding according to this That's right, So it's a newly added member of the e t F. And really the criteria, Lisa, is that a company has to have seventy or more of their revenue coming from online sales. And Peloton fits that that criteria. Um, you know, most people think of Amazon as being you know, kind of the primary online retailer, but you know, Amazon is just

one of many. We've actually had more performance in alpha generated in the last year from companies like Carbona, Shopify, v I P Shop, all those companies up between a hundred and thirty and a hundred this year. UM. You know, I buy is unique from an online retail ETF because it is not market cap weighted. It's equal weighted UM and we do have that revenue test, so we think that you're getting access to a lot of unique names

that maybe don't necessarily know. I think Peloton is one that people know right now, but the carbon is of the world, v I P Shop, Okado, those name tims to have a nice impact and have been an alpha driver for the fund, which is a five star rated morning Star fund in the number one performer in the consumer cyclical category over the last three years. I will just say, Paul, it's interesting to see what retail online

retail consists of. It consists of food and getting cars to take to places, right, I mean, it's it's grub Hub, it's getting lift uber and then and then when you feel really guilty about not moving around, you go bike and covered. Hey, Christian, so I know there's one less shopping week here for this holiday period relatutil last year. What kind of risk is that for some of these retailers and some of the ETFs that track them. Yeah,

it definitely is a risk. I mean, we're six days less because the holiday shopping season started later, with Thanksgiving being six days later than last year. So you know, one risk is bad weather, frankly, because we have a compressed time period, and we've actually now seen that a little bit on Black Friday and Cyber Monday. Thank you

guys experienced it yesterday a little bit. And the interesting stat we're seeing from Adobe Analytics, which tracks the hundred largest online retailers, is that uh, states that had bad weather two inches or more of snow solid uptick and online retail sales by between uh you know, seven and nine per cent. So we're seeing that, um, you know, brick and mortar kind of face this headline risk of bad weather where people stay in, but it actually turns

into a tail wind for online retailers. Um. Also, you know, this this trade issue is definitely something that could impact some consumer confidence. In the last four months, we've seen it trending downward, still in a very healthy range, but it's something to watch, particularly as we've heard President Trump back away from maybe the urgency of doing a trade

deal here by the end of the year. Christian, you talked about the good performance of I Buy over the past three years, and certainly the shares of stocks that you have, the shares of companies that you have in your portfolio have done very well, the likes of Expedia or let's see lift Uber Netflix, That however, is getting called into question now because of how high the valuations are and this question of yes, this is the new model, but perhaps there has been too much capital put into

these particular companies. How do you respond to the valuation questions. Well, it's definitely a challenge because when you look at maybe the counterparts of brick and mortar, they have very low valuations, but of course there's the risk they're going out of business. So when we look at the valuations of these growth companies, you know, their PEG ratios are we think are still attractive.

You know, right now there's still about eleven percent market share of online retail as opposed to all retail sales in the US, uh in China, for example, that's over market share. We think many of these companies are going to double or triple their market share or their sales over the next three to five years as online retail starts to continues to emerge. Right now, going back to online retail has gone about an average compounded annual growth rate.

So when we look at these companies, we actually think that over the next three to five years, if they double or triple their their sales, that these these valuations will actually look potentially like values. Um. We just think this trend is going to continue. More and more consumers are going to trust going online, whether that's through mobile payments or the convenience, the competitive pricing, or the or the increased selection. So we think this is a global

trend that investors can capitalize. And you know, since the fund has been out, it's returned about over the last three and a half years versus the SMP at about fift so it's definitely been a place for Elphin. We think that's going to continue. Christian mgoon, thank you so much for being with us. Christian mcgoon, chief executive officer of Amplify E t F. It's all about trade today.

That's what's thinking at stocks. At least if you trust the price action in responds to certain headlines President Trump coming out and saying, who knows, Maybe we'll make a deal, maybe we won't, maybe we don't need to make a deal before election, and I'll push it back after that. You're seeing the nastack down one point two percent. Also, now we're hearing about taxes on porcelain and French wine, and she's joining us on to discuss all things trade.

Brendan Murray, who covers the entire area for US here at Bloomberg News, Brendan, can you just paint a scene here on what was driving the escalation that seems to be coming to a ford in some ways? Today the President and his advisors say that we're inching closer and closer to a deal with China, uh, making it sound like something was imminent and they were going to meet meet this uh sort of a deadline of December fift before the U s raises more tariffs on Chinese imports.

And yet the President today kind of stepped back and said, Uh, you know, I don't really have a deadline that I'd be fine if this drags out fully all the way through the election of next year. So I think the stock market reaction is definitely Uh. They were that is that investors have been thrown for a loop here, Uh, you know, thinking that they were close to a deal, but now this is something that could drag on and

on for months and months. Uh you know, whether this is just a negotiating strategy on Trump's part, the idea being that you know, the closer you get to deal, the more you the more you act like you don't need it, you don't want it. Um is a whole another question that uh you know that that is still remains to be answered. But I just want to take a step away here. This has been just a tariff news cycle here over the last several days. It's not

just China. Uh we had yesterday steel tariff discussions on Argentina and Brazil. Today it's French wine and cheese. You know, Historically, how effective have tariff's been and has the US been a big wielder of tariffs historically? Not in the recent past. Obviously the Trump administration changed all that. But tariffs are are fairly blunt instrument, used mainly as uh leverage in negotiation.

You threaten them before you actually impose them. So the big difference that we've seen in the Trump administration is that they impose them and then they say, Okay, let's negotiate, uh, you know, if you want to, if you want us to remove them. So uh they have traditionally in the you know, in the recent in the recent past, the past few decades, you know, uh, countries have have been moving more and more to lower tariffs. Uh. You know, Trump has come in and uh you know, is using

them to extract concessions from from trading partners. The interesting thing about the French uh move that you that you mentioned is that this could sort of bring the trade war into Europe as a whole. The the European Union, uh you know, uh will will have a reaction to

to that on France's behalf. And you know there's a scenario that uh you know that you can see where things kind of spiral out of control in this sort of tip for tat uh way that the U. S. China trade war has evolved, that you know, we could wind up with two fairly large showdowns on you know, two huge continents for a huge economic trading partners of

the US. Brendan, do you think that the headline is the US and Europe are kind of ratcheting up the tensions on both sides of the Atlantic, or do you think that the headline is it could have been so much worse and President Trump could have been going after the auto sector for example, uh in Europe. And this is sort of more a negotiating tactic all around as he tries to seem powerful heading into a couple of

tough weeks. Absolutely, the car terirafs that you mentioned, that deadline for the Trump administration to act upon came and went without any action. A lot of people, uh economists and auto industry experts have said that, you know, something like that would surely uh you know send you know, some economies like Germany into recessions. Uh you know, so, Uh, there was a measure that there is a measured approach

it easton that way from the Trump administration. Uh. And you know in in in reality, the two point four billion dollars UH tariffs on two point four billion dollars in French products is it's not a huge amount when you consider, uh, you know, the tens of billion dollars that the that the country's trade between themselves. Brendan, you briefly describe what the digital service taxes and why it's a big deal to the US government. So this is a three percent tax on the gross revenue of of

large tech companies. Companies that make over bring in more than seven fifty million dollars in revenue a year. This hits companies like Google and Facebook and Amazon, and France has has enacted that's enacted it this year. They're trying to drive a sort of international move toward towards such attacks. Uh and and the U. S has has has come out against it, saying, if we're gonna tax, if American company is going to be taxed, the U. S. Government is going to do that, is going to do that,

not the French government. So uh, you know, in some ways, you know, the Trump administration is acting, uh, you know, to to defend companies that it normally doesn't defend. Uh and and you know, and and in in this case in particular, you know, they could have gone to the w t O UH to dispute this, uh this tax. Instead they're taking the you know, the the Trump strategy of going one on one uh you know, so w t O case could drag on for years and years.

So uh, this is this is the Trump administration strategy is to is to uh is to fight their own fights. Brendan Murray, thanks again so much for joining us here and bring us up to date on all things trade. Brendan covers the trade issue globally for Bloomberg News. Joinning us from London and there is a lot for Brendan and his trade team to be working on now. We have trade discussions, tariff discussions, it seems like in every corner of the world, and it's obviously has major impacts

on financial markets. Rates continue to be exceptionally low. The question is, how about is it time to start looking at and what should we expect To answer that question, there's nobody better than our good friend, Ira Jersey, chief US interest rate strategist for Bloomberg Intelligence. Thanks so much

for joining us. So as we think about is it still a lower rate for longer type of outlook from your perspective, Well, I think in the in the front end and policy rates I think will continue to remain kind of in the in this area. I don't think that the Fed is likely to do anything, if at

all next year. Um Potentially they could, they could ease policy a little bit if things get really bad on the economic front, but I think they'll wait until after the election to kind of reassess how things are unless unless you see things like you know, negative payroll prints for example, um on on. On the on the longer

term side, it's looking at like a tenure rate. I think it's pretty clear that when you get these headlines about trade, you wind up, uh, you know, rates winded rawling like today ten years down eight basis points and yield um but you know that goes away and you wind up with probably a pretty substantial sell off and you wind up with um tenure yields up closer to two and a quarter instead of where they are now.

So so I think a lot of this is very predicated on uh, kind of the balance of uncertainties remaining remaining negative. But if you get rid of some of those uncertainties and you know, the market can kind of take off. Troy Gisky of Skybridge Capital is on Bloomberg

Radio earlier. We were noting that, yes, the market was down ahead of the open, but not down by as much as you would expect if President Trump, say in the summer, had been saying, you know what all tariffs are ago, who knows if we're even going to get a deal this year or next year for that matter, there seems to be a buffer, and he was saying that comes in the form of the FED increasing its balance sheet about three bill million dollars since the end

of August. How big of a support is that to valuations, certainly in bonds. Yeah, well, well it helps a little bit. I mean, you remember, they're buying mostly um, they're buying mostly shortened UH debts, so they're buying mainly TE bills, which you know don't have really a lot of market risks, so um. So yes, it's helpful a little bit, but it's not as meaningful as if they were going out and buying a whole lot of you know, five, ten,

and thirty year bonds. But but that said, it actually dampens volatility, which is a proven risk encourager, right, I mean basically, the lower the the the volatility, the more people will be inclined to buy stocks and by jump bonds and going to risk. Well, I think I think it is a little bit more of a risk on because by buying by by buying TE bills, they're effectively increasing the UM. They're increasing bank reserves, which which does encourage some risk taking. UM. But but that's not what's

helping keep ten year yields low? Right, So, so there's a difference between you know, how this might be helping risk assets versus how it might be UM supporting or not supporting things like ten year treasuries and and and the like. UM. So I think the the thing that economic fundamentals, I think matter much more to the long end of the curve. And what you see is when you see uncertainty and you see heightened uncertainty, you're gonna wind up with UM regardless of what happens to say

the equity market. The equity market might go up a little bit under the idea that's going to ease, that interest rates are going to be low, and that might be supportive evaluations in some risk assets. But on the other side that the reason why that's happening is because you have the expectation for low inflation, for for low and and stable grow low but yet stable growth that

will keep bond yields very low. So UM because when you look at things like really yields, so the that's the yield on on tips and and the yield that investors are demanding above inflation, you're only looking at that being ten basis points over the next ten years. So people don't think that there's going to be a lot of volatility or particularly fast growth where you would expect there to be a lot more risk in things like uh inflation and inflation expectations that you demand a higher

premium for that, and you don't see that. So as long as that remains very low, which I think is what the trade tensions do, um, you're gonna wind up seeing low bond deals. But again, like that can go away in a heartbeat, and you can wind up with a fifty basis point sell off in a hurry if that uncertainty goes away. Presidential election year and your experience, has there been increased volatility or the hows the bond

market typically done in presidential election years. Yeah, so so during presidential elections, the only time that you saw a major move after an election was really after Donald Trump's election in two thousands sixteen. You go back, um, you go back to the prior thirty years, so the prior six elections, and you really did not have significant market reaction one way or the other. It tended to be whatever the trend was going into that based on economic

fundamentals is what continued to drive the bond market. But Steen, you know that that was a significant change, and you know this this year, maybe you could see something similar if you've got to had a candidate win that you know was going to either, uh, you know, change policy quite significantly, and you know we'd have to see who that was before you can make a guess us to which direction the bond market would move. Our Jersey. Thank

you so much for being with us. Our Jersey covers all things interest rates for us as chief US interest rate strategist for Bloomberg Intelligence. Thanks for listening to the Bloomberg pen L podcast. You can subscribe and listen to interviews at Apple Podcasts or whatever podcast platform you prefer. Paul Sweeney, I'm on Twitter at pt Sweeney. I'm Lisa bram Woods. I'm on Twitter at Lisa bramwods one. Before the podcast, you can always catch us worldwide on Bloomberg Radio.