FTC Sues to Block Major Grocery Merger & BYD Taking Over the Car Market?

0:00Does it ever feel like you're a marketing professional just speaking into the void? But with LinkedIn ads, you can know you're reaching the right decision makers, a network of 130 million of them, in fact. You can even target buyers by job title, industry, company, seniority, skills, and did I say job title? See how you can avoid the void and reach the right buyers with LinkedIn ads. Spend$250 on your first campaign and get a free$250 credit for the next one. Get started at linkedin.com slash campaign. Terms and conditions apply. Good morning, Brew Daily Show. I'm Neil Freiman. And I'm Toby Howell.

0:34Today, the FTC wants to put the largest ever supermarket merger in the freezer section. Then beware Baconator lovers, Wendy's is getting creative with a new burger pricing strategy. It's Tuesday, February 27th. Let's ride.

0:54There might be a world in the not too distant future where humans are able to talk to whales. Seriously, a New Atlantic article highlighted a well-funded project that's bringing together leading AI researchers to decode sperm whales language. These whales communicate through clicking sequences known as codas. And if scientists spent enough time decoding these clicks paired with key tech breakthroughs, it's possible that eventually humans would be able to initiate a conversation with them, marking the first time two species living side by side for tens of millions of years would make contact with one another.

1:31First of all, this is huge because hopefully we can tell the sperm whales to talk to their pals, the orcas, and tell them to stop seeing our ships because if killer whales turn on us, we are doomed as a species. but also I feel like the scientists pick the wrong species to do this with. You got to go after the dog market first, right? That's how the first trillionaire is going to be born. If someone can invent a way to talk to dogs, but Neil, I got to ask you, if you could talk to any animal, which animal would you choose? Well, I'm trying to get in better shape. So I'd love to consult the best fitness influencer on earth, the dung beetle, because the dung beetle is the strongest insect on earth.

2:06They're able to push balls of fresh animal poop that weigh more than 200 times their body weight. So I'd love just to know the regimen. That sentence never went in the direction that I was expecting it to. I thought when you said fitness, it was going to be like cardio fitness. So I thought maybe an antelope or something. You're a muscle guy. That makes sense. Before we jump into the show today, we have a quick word from our sponsor, Veeam. We're coming close to the end of February, which means we are close to the end of our Veeam ads. Neil, what are some of your best Veeam memories? So many, so many.

2:37I liked when we discovered that Veeam was founded by Ohio State grads, but still sponsored Morning Brew, even though we were founded by Michigan grads. Show you that cybersecurity and data recovery is a grand unifier. I, for one, am not looking into the past, but into the future. We've got a few more days left with Veeam, and I intend to make each one of them count. But I also like the ad where I said, Veeam me up, Scotty. That was classic. Veeam might be departing the pod soon, but they will never leave your business out to dry, head to veeam.com today. That's V-E-E-A-M.com today. This episode is brought to you by State Farm.

3:12Checking off the boxes on your to-do list is a great feeling. And when it comes to checking off coverage, a State Farm agent can help you choose an option that's right for you. Whether you prefer talking in person, on the phone, or using the award-winning app, it's nice knowing you have help finding coverage that best fits your needs. Like a good neighbor, State Farm is there.

4:00higher food prices, and less bargaining power for unions. There are a lot of subplots going on in this case. The FTC is looking to string together some wins after a bumpy start to chair Lena Kahn's career. President Biden is also looking on intently after explicitly calling out grocery stores for price gouging despite falling inflation. While Kroger and Albertson say they need this merger in order to compete with the Walmarts, the Amazons, and the Costcos of the world. Neil, where do you want to start here? Let's do maybe some Kroger Albertson's 101, Maybe just to set the stage here, Kroger's based in Cincinnati has about 2 ,700 stores.

4:34They own brands like Ralph Smith, Harris Teeter. And then you have Albertsons. They're based in Boise. They have 2 ,200 stores, Safeway, Shaw's, those brands. Together, they would combine, they would account for 13 % of the market. And their argument is that Walmart is the big guy here. They control 25 % of the grocery market, followed by Amazon and Costco. So similar to what we saw with JetBlue and Spirit linking up together or wanting to link up together in the airline market to take on the big four. That is Albertson and Kroger's play as well, saying we need to band together to take on these big guys because they're becoming a huge share of the grocery market.

5:14We can't let that happen. Yeah, I think if you look ahead to how this thing might play out, the FTC is going to argue that Kroger and Albertsons are not competing with those people. They're competing with traditional supermarkets. And again, on paper, it would make sense to block this because Kroger and Albertsons are the number one and number two largest supermarket chains. But you are correct in saying that Kroger and Albertsons are saying that's not who we're competing against. We're competing against the much bigger players, the big box warehouse clubs, Costco's and Walmarts of the world. So I think the case will kind of come down to how a judge ends up interpreting the market and who Kroger and Albertsons are actually competing against.

5:49Right. So the FTC is saying that this merger will drive up food prices and grocery prices are absolutely in the spotlight over the past few years with inflation. They did do some research in the past, the FTC itself, on how grocery mergers did affect consumer prices. It wasn't clear cut that they would lead to higher prices. A paper from 2018 found that mergers in some markets resulted in price increases, but mergers in other markets, it led to actually price decreases. And that's Kroger and Albertson's argument that together we would have much greater buying power and be able to reduce costs across the board.

6:27That's one half of kind of why the FTC is scrutinizing this, but the other half is kind of the labor portion of it. And this is kind of a major win for labor advocates because it's only been recently that the FTC has been seriously taking into account whether mergers will lead to employers having excessive leverage over their employees, over their unions. So I think this is a win, a checkmark in the book for labor advocates, which is not something you necessarily always see considered in these mega mergers. Right. And the largest grocery store union has come out and opposed the deal. Meanwhile, there's this other bank deal going on.

7:02Capital One and Discover want to merge in a$35 billion deal. That has also attracted a lot of scrutiny. 13 top Democrats in Congress this week urged the Biden administration to reject that merger. So if you're trying to make a deal right now, it's tough going. If you are wondering what's keeping Elon Musk and other auto CEOs up at night, it's BYD. The Chinese EV maker is going full beast mode, releasing a high-performance electric supercar priced at$233 ,000 and a budget$15 ,000 sedan in the same week, showing that it aims to compete on both ends of the auto market in its quest for world domination.

7:41There is little precedent for an automaker going up against both Lamborghini and the Toyota Corolla at the same time. But BYD is more confident than a dad manning the grill after dethroning Tesla as the world's top selling EV maker in the fourth quarter of 2023. And U.S.-based automakers are kind of freaking out about BYD. Last week, the CEO of Chrysler parent Stellantis said that BYD's potential entrance to the U.S. market would be as disruptive as when Japanese cars arrived in the 1970s and South Korean vehicles in the 90s. Elon Musk, who previously laughed off BYD, recently said, and I quote, If there are not trade barriers established, BYD will pretty much demolish most other car companies in the world because of their cost advantage.

8:25Toby, are we going to be driving our kids to soccer practice in BYDs? I don't know. I was peering through some of these pictures and they do, especially the supercar. It looks pretty freaking cool. I will say it is interesting to see them try to run every single playbook at the same time. We, as you said, we've never seen someone debut a super luxury car to go after the luxury market and also the$16 ,000 Toro or Corolla killer. And it's doing all that in the face of sagging demand for EV. So again, I do think that is interesting that they are running this all-out push. Their stock is down 12 % this year because investors are still saying, we're not sure if the demand for EVs is quite there yet.

9:05So I do love that they're throwing everything in the kitchen sink at it. It could go really well. They could take over the world, or it could just fall flat because maybe the consumer demand isn't quite there yet. It's not. But over the past year, look, this company has grown so much, especially in the export business. They do make cars for the domestic Chinese market, but they have grown so much in international markets as well. And that's what's kind of freaking out. These other automaker CEOs from Europe and in America, in 2022, they shipped 55 ,000 cars. The next year, that surged to 240 ,000 vehicles.

9:42So BYD, because there isn't enough shipping capacity actually to send all these vehicles to these overseas markets, they're building their own shipping business. They've made their own ship to be able to send cars abroad. It's this very specific type of ship too. To ship cars, you have this thing called the roll-on, roll-off ship, which allows you to, as you might expect, drive the cars on and off the ship. Makes it much easier for loading. And there's just simply not enough of these type of ships out there. So the cost became exorbitant. So BYD is like, listen, we're going to go vertically integrate essentially, and we're going to build our own ship.

10:15So it is a scary, it's not even a sleeping giant anymore. It's just a giant out there. So BYD, definitely a name to keep your eye on. Samsung is getting into the ring game Sauron style, unveiling its newest wearable product in Barcelona at the Mobile World Congress yesterday. The Galaxy Ring is a health tracking device that gives you heart rate readings, monitors your sleep, and provides you with a readiness score each morning. Samsung's team also hinted that stuff like non-invasive glucose monitoring and blood pressure sensing could be around the corner, as well as a feature that would allow the ring to carry out contactless payments.

10:51AI is also involved because, of course it is. The Vision is for an AI assistant to comb through all your health data and make sense of what you're seeing, ideally through an easy-to-interact-with chatbot. With the Oura Ring already around and an Apple Ring reportedly imminent, the wearable health wars are starting to heat up. Right. So this is, in the same way that the Vision Pro from Apple is validating or legitimizing the headset market, the same thing might be happening with rings. It's a small segment in the wearables market, but perhaps it could be growing. The company that pioneered or is generally considered to have pioneered the smart ring is Aura, a Finnish company that's now worth over$2 billion, and it could be IPO-ing soon.

11:34And so Samsung coming into this space actually has Aura executives saying, look, we told you that this is going to become a thing. It's not just smartwatches. It's not just AirPods that people are going to wear. It's going to be these rings. This is the new playbook, too. Health tracking is already a key selling point of a lot of these smartphone manufacturers, a lot of these watch manufacturers, Samsung, Apple, Google, all are adding these features to attract and then retain customers. Remember, the smartphone market and the wearables market is decently saturated, especially smartphones. So, how do you keep milking revenue out of these additional users?

12:08And a lot of it is through their services business, their subscription business. And I think health subscription business is going to be a major, major part of how these companies are going to grow revenue going forward. Right. Samsung is billing this as part of this connected care. And that's definitely in quotes around your home where it's your health tracking is not just going to be attached to one device because it won't just be your smartwatch that you have to wear all the time. It won't just be this ring that you have to wear all the time. It's as you go about your home, there will be so many Samsung connected devices that will give you a holistic Portrait of your health as you open up the refrigerator as you put on your ring as you put in your earphones All that kind of stuff will lead to this particular Health score that you have this dashboard and I know you're big on this you think everything ultimately Everyone will have this health dashboard one day because of all the things we're wearing that are connected to the internet and our bodies Yeah, I think that Amazon or not Amazon's Samsung's term for it is ambient sensing.

13:07So yeah, your refrigerator kind of pair up with your watch to let you know that you haven't eaten vegetables in 10 days. And maybe that's why you're not feeling so good. And yeah, I am very bullish on this. People are more invested in their health. We've talked a lot about longevity and how that is a growing market. So I think this is all part of the same system. I do think that Apple's imminent debut, as a lot of analysts are saying, is also going to reshake up the market because Apple has probably the most robust suite of health features right now. I spend my time frequently going through like, how's my cardio fitness looking?

13:38So I think that suddenly we're about to see this new arms race aided by AI as well, because health data is a little bit, sometimes you get caught in the weeds and it would be nice to have an AI chatbot that can tell you like, hey, this is why your heart rate variability matters. This is why your cardio fitness matters. So very bullish on this space in general. And it was cool to see Samsung kind of unveil its latest gadget. Okay. We're going to hear a quick word from our sponsors, but stick around because we got a hefty helping of Toby's trends coming up right after this.

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14:57Before starting EBCLIS, tell your doctor if you have a parasitic infection. Searching for real relief? Ask your doctor about EPCLIS and visit ebglis.lily.com or call 1-800-LILY-RX or 1-800-545-5979. Tonight on NBC, Jimmy Fallon and Bozema St. John host the highly anticipated new competition show. I hired 10 creatives from all walks of life. They will be battling it out to see who can impress the world's biggest brands. This is a huge opportunity. This is the battle for the next big idea. This is not play play. We're spending millions of dollars. I'm so excited to embark on this adventure with all of you.

15:33Make the best idea win! On Brand with Jimmy Fallon. Series premiere tonight on NBC. If you are craving a Wendy's burger, I suggest suppressing those hunger pains until after lunchtime. And I'll tell you why in this edition of Toby's Trends, where I, a rapidly aging Gen Zer, educate my ageless millennial co-host Neil about a recent trend I've had my eye on. So Wendy's new CEO is looking to test out a dynamic pricing strategy for their burger starting in 2025. Under the new model, their$5.99 Dave's Single Quarter Pounder Burger might cost you as much as a dollar more if ordered during lunchtime.

16:14During mid-morning and late afternoon lulls, though, the price might fall by as much as a dollar. This surge pricing, or whatever you want to call it, has long been a staple of other industries. ride sharing being the most common where Uber and Lyft jack up those prices if demand for their services is high. Now, Wendy's wants to utilize new electronic menu boards to dynamically change their prices as well. Neil, I'm on the fence about this trend, to be honest. Wendy's is already the most expensive fast food chain in the US, according to data from Price Listo, and its prices rose 35 % due to inflation between 2020 and 2022.

16:50This just seems like a pathway to even more expensive burgers. It absolutely does. And I have a theory about this in the restaurant industry. I think this is all enabled by the advent of digital menus, putting prices on a digital board instead of a paper one, because in industries where dynamic pricing exists, airlines, ride sharing, we've only ever bought services through digital platforms. Like you have no idea what the typical airfare from JFK to Phoenix is or what an Uber costs from your house to work. Restaurant prices historically have been on paper menus or physically printed. But now that digital menus exist and Wendy's is investing$20 million in these digital billboards, these chains can basically disorient you into thinking you have no idea what the standard price of a cheeseburger is.

17:34So when you walk in, you'll just be like, all right, I guess I have to accept what this price is. And ultimately, I think most fast food chains are going to do dynamic pricing. And here I thought that those digital menu boards were just as HD images of the Baconator I was about to order. But yes, we have actually seen this in the restaurant industry before. Stonegate Group, which owns a bunch of pubs over in the UK, recently announced the adoption of surge pricing at 800 of its locations. Tons of people got really mad about that. Consumer advocacy groups were calling it an unhappy hour surge. But Stonegate Group was like, this is a reality of the restaurant business these days.

18:08We have to kind of charge more during these peak hours in order to support our businesses. So it is certainly not just Wendy's. It is a risky pricing model, though, because we saw that backlash there. There's a survey from a software company called Capterra that found that 52 % of customers believe dynamic pricing in restaurants is the same as price gouging. And again, we've talked about it ad nauseum on this show that consumers are very, very sensitive to price gouging in the current moment, in the current inflationary environment. So I think this is a fine line that Wendy's is walking here. Consumers absolutely hate dynamic pricing, but I just don't think there's anything they can do about it.

18:45Lyft's CEO last year said, I hate dynamic pricing. I hate surge pricing. We're going to get rid of it. Lyft still has it because a few months later, he's like, yeah, we're going to keep it. I mean, it makes sense. If there's a Taylor Swift concert in town, we'd be very, very dumb not to jack up prices because there's surging demand. So I just don't think this is going in a way it's going to seep into more industries. My favorite instance of dynamic pricing, though, is something called the Beer Exchange. And that's kind of a beer stock market. It just closed down in Detroit, but there's still one in Kalamazoo, Michigan, where the prices fluctuate based on demand like a stock market.

19:23And then every few instances during the day, there's a crash where all of the prices plummet to their lowest prices ever for five minutes. And I think that is a funny little thing. Moving on, have you noticed that there are randomly a ton of car washes popping up in your neighborhood? You are not hallucinating. According to a report by Bloomberg, the number of car washes across America is surging, leading to pushback from some communities who consider them an invasive species. First, let's establish one thing. Car washes are one of the fastest growing categories in retail right now. More car washes were built in the last decade than all the preceding years combined.

20:00There were 60 ,000 car washes across the U.S. right now, and the market is expected to double by 2030. Investors are foaming at the mouth about this high margin business, scooping up mom and pop shops and consolidating their holdings. As Bloomberg described it, private equity has turned toward car washes with the zeal of a mid-century cartoon wolf sizing up a femme fatale. Sure. We were reading this Bloomberg article this morning, And the first example that they led with was there's this town, Streetsboro in Ohio. It's got 17 ,500 people and four full-service car washes in town with a fifth being built.

20:37It is crazy. These are just fantastic businesses. Unlike, they're great for the people operating and owning them, but not so great for the actual towns themselves. Unlike restaurants or businesses, they don't really pay taxes to their host communities. They also don't bring much of else to the table in terms of jobs. They're increasingly automated. They increasingly lead to traffic congestion. So you see why these cities in these states are kind of pushing back across this car wash explosion that we're seeing. It is funny. The reason that they're such good businesses, the automation, you know, all that kind of things makes them terrible residents for cities.

21:16And that Streetsboro town that you mentioned actually put a moratorium on car washes. And an increasing number of places across the U.S. are doing that because they consider them a scourge on their towns. That's what happens when you try to go do a big word. Yeah, absolutely. I do think the car wash boom does reflect a broader change in society as well. You're not seeing the family on the weekends soaping down their car, sudsing up their car, detailing it in their driveways. You are seeing people, much like oil changes they're not doing themselves. They're going to these self-service places. The number of car washes done at professional facilities jumped from 50 % in 96 % to 79 % in 2021.

21:58So again, it is meeting a consumer demand. This is where the industry is kind of heading. And all these car washes are popping up saying, listen, we know you want it. So we're building now. And what particularly juicy characteristic of the car wash business that I did not realize, maybe it's because I've been living in a city for so long, but this membership plan. Basically, you can sell memberships for$20 a month for unlimited car washes, the movie pass of car washes. And that is an incredible business. Some car washes are getting 80 % of their revenue from subscriptions. So, to have that recurring revenue with margins of 50 % or more, you can see why there are dozens and dozens of PE firms that are scooping up the last vestiges of the mom-and-pop car wash boom that existed during the 60s and 70s.

22:43And, I mean, if you're just a PE firm, I know it's not a mid-century cartoon wolf, but they are looking at car washes and saying, this is possibly the best business I could ever imagine. Right. It's great margins. And they also are saying that Amazon can't ship a car wash, so there's not going to be this some big player coming in and massively innovating, cutting them out. So again, a great, if you're a PE firm listening to this, look at this. They know. They know. They know. Okay. Our final story, a club more exclusive than Augusta National just welcomed its newest member. Yesterday, Amazon officially became part of the Dow Jones Industrial Average, the iconic stock index that was created all the way back in 1896.

23:23Some consider inclusion in the Dow like being inducted into the Hall of Fame of corporate America since the index contains only 30 stocks. But since there are only 30 stocks in the Dow, Amazon had to bump one out. And the castaway would be Walgreens, which is getting the boot after its share price dropped 60 % since it was added in 2018. The addition of Amazon shows how the Dow is trying to stay relevant at a time when tech giants are dominating the stock market. The index is very old school. It's got industrial companies like Caterpillar, manufacturing giants like 3M and Honeywell, and consumer stalwarts like McDonald's and Coca-Cola.

23:58But it's been slow to acknowledge the tech boom. And the addition of Amazon is its attempt to keep pace with the much broader S &P 500, which has been lapping the Dow in recent years. The Dow is so weird, man. So the Dow is a price-weighted index, which means stocks that have higher share prices are giving more weight. And the reason why the ripple effects of how Amazon got added is that Walmart did this three-for-one stock split, which essentially watered down Walmart's contribution to the Dow. And so, to maintain kind of a normal level of exposure to consumer retail, which is obviously a huge part of the stock market, they needed to bring in another stock alongside Walmart.

24:35Amazon makes a ton of sense. They actually did their own stock split back in 2022, which allowed their share price to come down to a level in which they could get added to the Dow, but it just goes to show what an idiosyncratic exchange the Dow really is. I'll go further. I'll say it's useless. The first thing, when you walk into business school, I didn't go to business school, but I've heard the first thing they tell you when you walk into business school is the Dow does not tell you anything. It is, don't pay attention to the Dow because it is weighted by share price, which makes no sense. The S &P 500 is weighted by market cap.