Friday Oct.08, 2021

👖Supply chains = trendy

That new-jeans feeling [Flashpop via Getty Images]
That new-jeans feeling [Flashpop via Getty Images]

Hey Snackers,

To boost its economy, Spain may offer young Spaniards $290/month to move out of their parents’ houses, plus another $462/year to spend on “cultural activities” — except bullfights (for real).

Stocks rose yesterday after lawmakers set aside differences to raise the debt-ceiling through early December and prevent a default. Now all eyes are on the September jobs report, which comes out today.

Hip

Levi’s stock surged thanks to “casualization” and an always-fashionable supply chain

Cotton comeback… High-waisted jeans are in at Levi’s. Levi’s lifted its annual forecasts after last quarter’s sales blew past pre-pandemic levels for the first time. Rising cotton costs have caused shares of retailers like H&M and Gap to fall over the past six months. But Levi’s stock surged 9% yesterday thanks to the denim powerhouse’s strong sales and proactive supply chain.

Casual clothes, serious supply chain… Levi’s is cashing in on denim demand. The overall apparel market has outgrown its pre-pandemic size, and denim sales have grown even faster. Levi’s leaned into the jean-aissance by investing in Levi’s-branded stores and embracing the post-pandemic “casualization” trend (think: baggier fits and yoga-wear). But there’s another secret to Levi’s success: smart supply-chain management. Here’s the skinny:

  • Splitting at the seams: The spread of Delta has caused widespread factory shutdowns in Vietnam, where Nike makes half its shoes, Everlane produces 40% of its clothes, and Adidas gets 28% of its kicks. Retailers’ plans unraveled.
  • Spread the threads: Levi’s makes only 4% of its products in Vietnam. The rest are made in 24 other countries.
  • Never miss a stitch: The supply shortage cost Levi’s just $10M last quarter — out of its $1.5B in sales. Adidas, on the other hand, could lose $600M from supply shortages in the second half of this year alone.

Reliable supply chains never go out of style… but fashion trends come and go. Levi’s sales are booming today because it diversified its supply chain years ago. Levi’s de-risked system ensures no more than 20% of products come from any one country, preventing pipeline wrinkles. In the wake of pandemic factory closures, more companies making everything from shoes to furniture are trying on Levi’s strategy and diversifying their supply chains too.

Swoosh

From Snapchat to StockX: Nike still reigns supreme with Gen Z

King of the sneaks... Nike is officially the No. 1 footwear and apparel brand among teens, according to Piper Sandler’s Gen Z survey. It’s held the top spot in both categories for the past decade. The competition:

  • Runner-up: American Eagle took second — the same spot as the past two years. Converse, owned by Nike, came in fourth.
  • Big spender: Gen Z makes up nearly half of shoppers in the US and has a whopping $140B in spending power. Nike’s taken note.

Slam-dunk strategy… Thanks to social media (Nike is IG’s most followed brand with 177M fans) and the rise of “sneakerheads,” Nike has shown it's not just the sponsor of your favorite NFL team. For years, it’s been tailoring its products and reach to Gen Z:

  • Virtual fits: Since 2019, Fortnite fans have been able to purchase Nike skins and branded clothes for their avatars.
  • Resale: 60% of Gen Z males use StockX, a sneaker-bidding marketplace where a rare pair of Jordans can cost $500 or more.
  • AR Yoga: Nike’s augmented-reality feature allowed Snapchat and TikTok users to experience everything from yoga to dancing. (Snapchat was teens’ No. 1 social-media app.)
  • Gen J’s: This year, NBA player Zion Williamson became the first Gen Z player to design a shoe for Nike’s popular Air Jordan line.

Nike is like the Beyoncé of retail brands… and Gen Z is the music industry. Similar to how Queen B has resonated for decades and across generations, Nike has stayed relevant by reaching young customers where they are and leaning into styles that click. While Fortnite and Snapchat are in today, Nike will need to keep refocusing its strategy as social hubs shift.

What else we’re Snackin’

  • Vax: Pfizer asked the FDA to approve its Covid vaccine for kids ages 5 to 11. Approval, which could protect 28M more people, could come by Halloween.
  • Pricey: Packaged-food giants like PepsiCo and Conagra are raising the prices of grocery-store staples to keep up with rising labor and transportation costs.
  • Toothy: Shares of Smile Direct Club soared 33% over three days this week as retail investors rallied around the stock on Reddit.
  • Glossy: Meredith Corp., which publishes magazines like People and Better Homes and Gardens, sold for $2.7B to the NY media giant IAC.
  • Gas: Prices of natural gas keep hitting record highs. US prices hit their highest levels in a decade, setting the stage for a pricey winter heating season.

Friday

  • September unemployment rate released

ID: 1868094

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Do you want to run the State Department of McDonald’s?

A couple of days ago, a tweet making fun at McDonald’s hiring a “Manager for Diplomatic Relations” went viral.

At first glance, the idea that McDonald’s, a burger franchise known for its double quarter pounders and perfectly salted fries, is expanding its diplomatic influence with policy makers in Foggy Bottom and the world at large sounds comical. But it’s actually crucial.

There are more than 40,000 McDonald’s locations spread across 115 countries around the world, and 90% of these stores are independently owned and operated franchises that pay royalties to the parent organization to operate. Tens of thousands of franchises operated by different owners with different beliefs, priorities, and values can get complicated, fast.

As we noted in Snacks in February, McDonald’s received heavy backlash from franchisees in countries including Saudi Arabia, Oman, Jordan, Kuwait, and Pakistan after McDonald’s Israel donated thousands of free meals to IDF personnel. But it wasn’t McDonald’s, as an entity, that made the donations. It was the owner of the company’s Israel franchises, who was acting under his own volition.

There are more than 40,000 McDonald’s locations spread across 115 countries around the world, and 90% of these stores are independently owned and operated franchises that pay royalties to the parent organization to operate. Tens of thousands of franchises operated by different owners with different beliefs, priorities, and values can get complicated, fast.

As we noted in Snacks in February, McDonald’s received heavy backlash from franchisees in countries including Saudi Arabia, Oman, Jordan, Kuwait, and Pakistan after McDonald’s Israel donated thousands of free meals to IDF personnel. But it wasn’t McDonald’s, as an entity, that made the donations. It was the owner of the company’s Israel franchises, who was acting under his own volition.

Nuke stocks up on AI excitement

For most of humanity, the thought of “nuclear-powered AI” sends a shiver down the spine. But the stock market is all for it! Just check out the list of top performing S&P 500 stocks this year. Just behind established AI plays — Super Micro Computer and Nvidia, you’ll find Constellation Energy, the largest operator of nuclear plants in the U.S. NRG Energy, which also operates nuclear plants, isn’t far behind. Bloomberg reports that CEO of power distributor Exelon — which spun off Constellation in 2022 — says in the Chicago area alone, AI could drive a 900% jump in demand for energy from data centers.

Tech

China makes Apple remove WhatsApp, Threads, Signal and Telegram from app store

In its latest move to restrict foreign tech, Beijing has ordered Apple to remove a number of popular messaging apps from its app store there, including WhatsApp, Threads, Signal and Telegram.

These apps had only been available through VPNs but were popular nonetheless, according to the Wall Street Journal.

Apple said the Chinese government asked them to remove the apps in the iPhone maker’s second biggest market over “national security concerns.” Last week, China told its state-owned telecoms to phase out the use of US chips by 2027.

Apple said the Chinese government asked them to remove the apps in the iPhone maker’s second biggest market over “national security concerns.” Last week, China told its state-owned telecoms to phase out the use of US chips by 2027.

Business

Tesla's recall reveals just how bad Cybertruck delivery numbers have been

Thanks to a recall of Tesla’s Cybertrucks, we now know how many of them have actually been delivered: 3,878 since the EV company began releasing them to customers in November.

In its third and fourth quarter earnings report, Tesla said that its current Cybertruck production capacity was greater than 125,000 a year. Musk had previously said he expected to produce 250,000 Cybertrucks a year by 2025.

Either way, that’s a lot more than the roughly 775 it’s delivered each month so far.

The recall is over an issue with the gas pedal pad that, the National Highway Traffic Safety Administration says when pressed, “may dislodge, which may cause the pedal to become trapped in the interior trim above the pedal.” The cause of the issue: “unapproved” soap that the manufacturer used to aid in getting the pad on the pedal.

A Cybertruck customer this week posted a TikTok about a terrifying incident in which this happened and “held the accelerator down 100%” in his 6,000+ pound vehicle. Thanks to some quick thinking where he held down the brake and put it in park, he wasn’t injured.

This is the long-awaited Cybertruck’s second recall since it came out five months ago.

Either way, that’s a lot more than the roughly 775 it’s delivered each month so far.

The recall is over an issue with the gas pedal pad that, the National Highway Traffic Safety Administration says when pressed, “may dislodge, which may cause the pedal to become trapped in the interior trim above the pedal.” The cause of the issue: “unapproved” soap that the manufacturer used to aid in getting the pad on the pedal.

A Cybertruck customer this week posted a TikTok about a terrifying incident in which this happened and “held the accelerator down 100%” in his 6,000+ pound vehicle. Thanks to some quick thinking where he held down the brake and put it in park, he wasn’t injured.

This is the long-awaited Cybertruck’s second recall since it came out five months ago.

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Markets

Cocoa hits $11,000

Cocoa prices are breaking records on an almost daily basis — with cocoa futures closing at (another) all-time high of $11,020 per metric ton yesterday.

That’s up 158% since the start of the year, and over 4x on the typical prices seen in 2022 — as crop production continues to fall short of demand.

Major cocoa-producing nations like the Ivory Coast and Ghana, which between them grow about two-thirds of the world’s cocoa, have seen excessive tree failure due to disease, changing weather patterns, and hot, dry conditions causing devastating droughts.

As such, consumers are starting to see the effects of the largest cocoa supply deficit in over 60 years: “shrinkflation” and reduced-cocoa recipes might soon hit your favorite chocolate bars, and Hershey stock was recently downgraded. Unfortunately, the worst may still be yet to come: the International Cocoa Organization expects production to lag behind demand by 374,000 tons for the 2023-24 season.

Cocoa prices

Major cocoa-producing nations like the Ivory Coast and Ghana, which between them grow about two-thirds of the world’s cocoa, have seen excessive tree failure due to disease, changing weather patterns, and hot, dry conditions causing devastating droughts.

As such, consumers are starting to see the effects of the largest cocoa supply deficit in over 60 years: “shrinkflation” and reduced-cocoa recipes might soon hit your favorite chocolate bars, and Hershey stock was recently downgraded. Unfortunately, the worst may still be yet to come: the International Cocoa Organization expects production to lag behind demand by 374,000 tons for the 2023-24 season.

Cocoa prices
Power

World out of balance: It costs the US 3¢ to make 1 penny

The cost of producing a US penny rose 13% in fiscal 2023 to 3.07 cents. Yes, it means that Uncle Sam loses more than 2 cents for every cent it produces. (And no, you can’t make it up on volume.)

For the record, that’s the 18th straight year the penny’s face value has been below production costs, fueling calls for abolishing the lowest value denomination coin. Canada started to phase out the penny in 2013, joining Australia, Brazil, Finland, New Zealand, Norway, and Israel, according to Smithsonian Magazine.

3.07¢
Business
Rani Molla
4/18/24

Netflix is going to stop sharing subscriber numbers

After posting subscriber numbers that beat expectations today, Netflix says it’s no longer going to share those numbers starting in the first quarter of 2025. That’s a big deal since subscriber numbers have long been one of the main metrics that investors have looked at.

“In our early days, when we had little revenue or profit, membership growth was a strong indicator of our future potential,” its shareholders letter read. “But now we’re generating very substantial profit and free cash flow.” The company said that it will focus on revenue and operating margin as its main financial metrics, while it will look at time spent on the platform to gauge customer satisfaction.

Another way to read this? They’ve hit market saturation and just aren’t going to be growing that much anymore, and they thought they’d end on a good note. Going forward they’re focusing on how to get more money out of the customers they do have.

They’re doing so by cracking down on password sharing and charging for extra members. They’re also pushing people to ad tiers, which are more profitable than non-ad tiers.

“Scaling ads to become a more meaningful contributor to our business in ‘25 and beyond,” Netflix said.

Netflix’s ads membership grew another 65% in Q1 over the previous one, after rising 70% the quarter before, and 40% of signups in ad markets continue to be for those ad plans.