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Day: February 26, 2024

Consumers are tired of inflation. But some retailers fear falling prices

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Just ahead of the holiday season, Walmart initially delivered encouraging news to inflation-weary shoppers, indicating that prices on essential items like food were decreasing instead of increasing. The prospect of potential deflation in key household categories was welcomed by consumers grappling with the most significant price hikes in decades.

However, the retail giant later revised its stance, acknowledging that higher prices persisted for many grocery items and household staples like paper goods. Walmart’s CFO, John David Rainey, clarified that while deflation remained a possibility in certain categories, prices were now more stable than they were three months ago, as reported on CNBC.

In recent weeks, other corporate leaders have echoed a similar sentiment. Despite a slowdown in inflation, prices continue to rise faster than desired by the Federal Reserve. Companies like Home Depot noted that prices for home improvement items have “settled” instead of decreasing. Popular brands like Coca-Cola indicated ongoing price increases, with plans for more modest hikes in the future.

The latest government data reinforces the notion that while the year-over-year rate of price increase is declining, the Consumer Price Index still rose by 3.1% in January compared to the previous year. Food prices saw a 2.6% increase, driven by a 5.1% jump in prices for food away from home, including restaurant meals and vending machine purchases.

While inflation concerns persist, there have been some areas of relief for consumers, such as decreases in prices for consumer electronics, used cars, and certain general merchandise categories. Wages have continued to rise, mitigating the impact of persistently high prices in some areas.

The dynamics of deflation, while potentially offering relief to consumers, pose challenges for companies. Executives may be hesitant to reduce prices, as it could impact profits and be perceived as a signal of economic weakness. The current uneven pattern of deflation is observed more prominently in commodity-oriented categories, with certain products like chicken and eggs experiencing price reductions, while others, including cocoa, sugar, and tomatoes, have seen recent increases.

Analysts predict that food-at-home prices may turn negative later this year, historically occurring about once a decade for approximately eight months. Some major brands have signaled a shift in their approach, with companies like Kraft Heinz and PepsiCo pledging more modest price increases and focusing on productivity savings to offset rising costs.

While deflation could potentially benefit consumers, it also raises concerns for businesses, particularly in fixed-cost scenarios. Wage costs, supplier contracts, and the potential impact on overall revenue are among the challenges associated with deflation. As companies navigate these complex dynamics, the delicate balance between meeting consumer expectations and maintaining financial stability remains a focal point for both retailers and consumers alike.

Following uncertainties regarding Alibaba’s future, co-founder Joe Tsai reassures, stating, ‘We have regained stability.’

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The Chinese e-commerce giant Alibaba is poised for a resurgence in the market following a challenging period, as stated by co-founder Joe Tsai in an exclusive interview with CNBC’s Emily Tan on Friday.

Concerns about Alibaba’s future had arisen due to internal changes, the cancellation of a cloud computing IPO, and heightened competition in its core e-commerce sector. The company faced increased rivalry from cost-conscious consumers turning to lower-priced goods from PDD Holdings and the surge of livestreaming sales on Douyin, China’s equivalent of TikTok, owned by ByteDance.

Tsai expressed confidence in Alibaba’s comeback, attributing it to restructuring and new management. He acknowledged previous competitive pressures but asserted, “Now we’re back.”

Anticipating a significant growth in e-commerce penetration in China, Tsai expects it to exceed 40% in the next five years, up from the current 30%.

Alibaba underwent a leadership reshuffle, with Tsai becoming chairman in September, and Eddie Wu taking over as CEO, replacing Daniel Zhang. The company split into six business groups last year, with plans for public listings, starting with the cloud unit. However, a cloud IPO was halted in November due to unfavorable market conditions.

Despite the challenges, Tsai and co-founder Jack Ma have shown confidence in Alibaba, purchasing over $200 million worth of company shares. The company’s U.S.-traded shares have remained relatively stable for the year, trading at around $76, a fraction of its November 2020 stock price.

Amidst increased competition and challenges, Alibaba remains committed to enhancing its artificial intelligence capabilities and capitalizing on cloud computing opportunities. Tsai highlighted the richness of AI applications in e-commerce, including quick product catalog creation and virtual dressing rooms.

Addressing the success of Chinese-affiliated e-commerce players in the U.S., Tsai acknowledged their “great consumer proposition” with high-quality products and reasonable prices. While observing their strategies, Alibaba, through platforms like AliExpress and Trendyol, continues to sell overseas.

Tsai also touched on U.S.-China tensions, emphasizing the need for collaboration despite competition. Although Alibaba no longer plans to spin off its cloud business, the company remains focused on advancing its AI capabilities and leveraging cloud computing in the dynamic e-commerce landscape.

Shares of Berkshire Hathaway surged following a substantial increase in profits, bringing Warren Buffett’s conglomerate closer to a valuation of $1 trillion.

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Berkshire Hathaway experienced a rise in its shares on Monday following robust fourth-quarter earnings, as reported over the weekend by Warren Buffett’s conglomerate. The premarket trading for Berkshire Class B shares showed a 2.3% increase, further building on the already impressive 17% gain for the year. As of Friday’s close, Berkshire held a market value of $905.5 billion, according to FactSet.

The conglomerate disclosed operating earnings of $8.481 billion for the fourth quarter, marking a 28% increase compared to the previous year’s $6.625 billion. This growth was primarily attributed to significant gains in its insurance sector. Berkshire’s cash reserves also reached a record high, reaching $167.6 billion in the fourth quarter, surpassing the prior quarter’s record of $157.2 billion.

Despite the positive outlook, an analyst cautioned that the stock might already be fairly valued, suggesting that the optimistic earnings expectations are already factored into the stock price. Edward Jones’ James Shanahan noted that Berkshire’s shares have outperformed financial services peers in 2023, driven by a robust earnings outlook, but he believes the current share price adequately reflects these positives.

Warren Buffett, in his annual letter released over the weekend, conveyed a tempered perspective on future performance. He anticipates only a slight outperformance compared to the average company, especially as Berkshire approaches a net worth equivalent to 6% of the total S&P 500 companies. Buffett mentioned that the conglomerate’s mix of businesses positions it to do slightly better than the average American corporation, operating with lower risk of permanent capital loss. However, he cautioned against expecting anything beyond a modest improvement, stating that such expectations would be wishful thinking.

Buffett also noted that only a handful of businesses are likely to significantly impact Berkshire through acquisitions, highlighting that the conglomerate’s last major deal was in 2022 when it acquired insurer and conglomerate Alleghany for $11.6 billion.

Shoppers are growing weary of rising inflation. However, certain merchants are concerned about the prospect of declining prices.

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Just before the holiday season, Walmart shared positive news for consumers concerned about inflation: prices for essential items like food were decreasing instead of increasing. The retail giant expressed the possibility of encountering deflation in key household categories if this trend persisted, offering relief to consumers facing significant price hikes.

However, in a recent reversal, Walmart stated that higher prices on various grocery items and household essentials, such as paper goods, have remained in place. CFO John David Rainey mentioned that while deflation exists in specific categories, the overall prospect is still uncertain, but prices have stabilized compared to three months ago, according to CNBC.

Other major corporations have echoed similar sentiments in recent weeks, acknowledging a backdrop of cooling inflation but prices that are still escalating faster than the Federal Reserve desires. Home Depot noted that prices for home improvement items have “settled” rather than decreased. Companies like Coca-Cola and other popular brands in snacks, sodas, and household essentials revealed that their prices continue to rise compared to the previous year. Although they plan for more restrained price increases, they don’t anticipate price cuts.

Coke CEO James Quincey emphasized on CNBC’s “Squawk on the Street” on February 13 that sustained deflation is rare over time, and it’s not a typical consumer experience.

Recent government data supports this perspective, indicating that while the year-over-year rate of price increase is moderating, the consumer price index rose by 3.1% in January compared to the previous year. Food prices saw a 2.6% increase, driven by a 5.1% surge in prices for food away from home, including restaurant meals and vending machine purchases.

While overall prices are still on the rise, consumers have found relief in certain areas such as consumer electronics, used cars, and some general merchandise categories where prices have decreased. Rising wages have also softened the impact of persistently high prices in certain sectors.

Inflation has been a significant concern for consumers, executives, and investors over the past two years, affecting household budgets and prompting reevaluation of spending habits. While the Federal Reserve has worked to control inflation without causing a recession, the relief felt by consumers has been limited.

A Pew Research Center survey conducted from January 16 to January 21 highlighted that the cost of everyday items topped Americans’ economic worries, with 72% of respondents expressing “very” concerning views about the prices of food and consumer goods.

While deflation could provide relief for consumers, it introduces challenges for businesses. Companies may prioritize protecting profits over passing on lower input costs to consumers to avoid potential declines in sales and stock prices. Executives might be hesitant to acknowledge deflation, as it could be interpreted as a sign of a weakened brand or economy by investors.

Gregory Daco, Chief Economist at EY, emphasized that uniform price decreases are rare outside of recessions, but consumers can benefit from occasional price corrections, citing the example of airfares during the pandemic.

Tom Sacco: Crafting “Happy Places” and Magical Memories in the Pizza Industry

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In a candid interview with Tom Sacco, the Chief Happiness Officer, CEO, and President at Happy Joe’s Pizza and Tony Sacco’s Coal Oven Kitchen, we explore his multi-faceted role, the concept of leading with a “Servant’s Heart” in today’s restaurant industry, and the key factors contributing to Happy Joe’s success.

Overview of Role and Vision:

Tom Sacco’s role involves strategically positioning Happy Joe’s Pizza and Tony Sacco’s Coal Oven Kitchen as leaders in their respective pizza industry sub-segments. From menu innovation to international expansion, Tom focuses on creating “Happy Places” for families with young children through a holistic approach encompassing food, design, technology, and community involvement.

Chief Happiness Officer Concept:

The concept of being a “Chief Happiness Officer” is rooted in leading with a Servant’s Heart. Tom’s vision revolves around creating “Happy Places” for both children and adults. The focus is on serving others through food, design, hospitality, and community engagement, ensuring guests, staff, shareholders, and vendors are prioritized.

Key Factors for Success:

Happy Joe’s Pizza has garnered numerous recognitions and rankings. According to Tom, the success is attributed to returning to the Franchisee First approach Focusing on the fundamentals, executing great tasting food, extending “Best-in-Class” hospitality, developing unique recipes, and creating magical memories for the guests. Staying relevant, accommodating, and resonating with today’s consumers, especially moms, is another key factor.

Servant’s Heart in Expansion:

Leading with a Servant’s Heart is pivotal in the brand’s expansion strategy. Creating positive, “Happy” experiences for children globally is not only a positive influence but also extends to philanthropy, benefiting less fortunate children in the communities Happy Joe’s expands into.

People Development and Mentorship:

Tom’s approach to people development is unique—he prioritizes attitude and character over skills. Leading with a Servant’s Heart, he believes in teaching skills to gain experience while emphasizing the importance of hiring people that bring passion, a Servant’s Heart, and a Warrior Spirit which allows them to put the team, guests, and vendors first. Tom builds open, candid, trusting relationships with his guests, team, franchisee, vendors, and shareholders. Everything and anything can be openly and frankly discussed.

Innovation in Menu Development:

Being a student of the industry, Tom stays innovative by observing, listening, studying, and tasting. Having a good streak of predicting consumer preferences, he humbly attributes his success in menu ideation to a combination of luck and understanding guest preferences.

Driving Revenue Lessons:

Listening to your guests and delivering 110% of what they want, whether it is menu items, hours of operation, pricing concerns, service, and hospitality, and then give them more than they expected.  The lessons Tom has learned over time have resulted in significant sales and profit increases along with improved shareholder valuations. Guest satisfaction is the key driver, and providing the best version of what the guest wants consistently leads to revenue growth.

Grandfather’s Influence:

Tom’s grandfather, Tony Sacco, imparted simple yet profound advice in mentoring and teaching his grandson in the kitchen of his restaurant—focus on quality, be it in food, service, experience, and memories. Tom lives by this advice daily, shaping his business strategy around maintaining the highest quality in all aspects has been a successful formula for 40 years.

Balancing Family and Career:

Balancing a family-focused life with a demanding executive career became easier for Tom as he learned from his life partner, Gwen. Her mentoring and direction helped him understand the importance of balancing family and career, making him a better leader, a compassionate warrior, a wonderful husband, and a strong family man.

Crucial Skill for Success:

Among various skills, Tom considers people skills as the most crucial for ensuring success and growth. Collaborating with others, overcoming challenges, listening to the input of others, and collectively achieving goals are guided by his effective people skills.

Transformational Change Management:

Tom shares a transformative experience in turning around a struggling national brand or growing an emerging brand. By listening to his franchise owners, restaurant operators, and implementing a comprehensive plan based on their input, Tom identified the critical elements that needed to be modified, transformed, and improved, his brands have made significant strides going from losses to growing profits, ultimately succeeding in highly challenging situations.

Priorities for Happy Joe’s Expansion:

As Happy Joe’s Pizza and Ice Cream expand across North America as well as Internationally, Tom’s priorities are to maintain “Best-in-Class” status, stay Franchisee-First-Focused, and ensuring sustained excellence. Growth initiatives are aligned with sustaining excellence, emphasizing a much higher calling which is the creation of magical, memorable experiences for children driving the top and bottom lines.

Future Trends in the Restaurant Industry:

Tom foresees the restaurant industry continuing to evolve  based on consumer changing demands, with a focus on where, when, what, and why people choose to eat out. Automation might play a bigger role in addressing labour challenges, positively impacting the industry.

Connecting Emotionally with Guests:

In an industry often transactional, Happy Joe’s addresses the challenge of emotional connection. Training team members to read the room, engage emotionally, and go above and beyond creates positive, memorable experiences that resonate with guests of all ages.

Advice for Aspiring Leaders:

Tom’s advice for aspiring leaders is to enter the industry with a passion for service, leading with a Servant’s Heart. Your Passion,  Servant’s  Heart, and Warrior Spirit should guide one’s journey.     Staying true to these values will contribute positively to the industry’s future and help you fulfil your own.

Closing Thoughts on Happy Joe’s Legacy:

In closing, Tom expresses a hope that Happy Joe’s Pizza & Ice Cream will be recognized for the magical memories created for families and children worldwide. Selling more than great pizza, Happy Joe’s aims to be remembered for the joy and happiness it has brought to generations, not just great pizza & ice cream

Tom Sacco’s journey exemplifies a commitment to service, leadership with a Servant’s Heart, and a legacy of creating “Happy Places” and magical memories in the pizza industry.

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