Jozi, Jozi 26o 12' 16" S, 28o 2' 44" E. Friday of course was the traditional start of the shopping frenzy in the US ahead of the holidays, but was a very slow day for markets. We still managed to eke out a gain here on Friday, the Jozi all share index added 21 points to now what is just one good day away from 38 thousand points, 37865 was the closing level on Friday. I suspect, judging from the futures market that we would not get that today. Maybe. There is a lot of data out this week, we even get some insight into third quarter GDP locally here. There is a second look at US GDP, the preliminary read, the final read for third quarter US GDP comes out on the 20th of December. But I see a couple are suggesting an upside surprise in the US, whilst in Europe the outlook remains grim.
The finance ministers in Europe meet today again to thrash out the Greek money, hopefully third time lucky. I genuinely believe that the Greeks have done everything in their power to reduce spending, the unfortunate truth is that unit labour costs in Greece, Spain, Ireland and Portugal will only converge with those of Germany in Q1 2015, Q3 2016, Q2 2015 and Q2 2018 respectively. According to this FT Alphaville article anyhow: Converging competitiveness and balance sheet recessions. So, this is being massaged in that direction, no wonder everything is moving in slow motion. To take the pain now and in a hurry would be more than devastating, but watching the mess in slow motion is no more appealing. I will still maintain that whilst there is genuine hardship in these places, they are still rich people problems. The sums of money that are being given to Greece and the forgiveness is and was huge. So, no more would be the word from the Germans, that would set too dangerous a precedent. Oh, and what do you make of the folks from Catalonia going more wild and less centre? Catalan election weakens bid for independence from Spain is what the headline reads.
The term Black Friday is used to describe a day when traditionally the American retailers would shift into profitability for the year. Everything after that, the next month and a week or so would be the profit period. An accounting term, moved into the black for the year. It is not completely clear where the term comes from, but according to Wikipedia the term originates from the early 60's. Unfortunately from a markets point of view there was a shortened session in the US, following a day of resting and reflection in the US. Thanksgiving. Most of the giving was on the part of the turkeys, the PETA website suggests that 45 million birds are slaughtered for the celebration. Wow, that is a lot of turkey.
So, the normal rule of thumb for some serious retail therapy post the turkey gorging would be to go and look for special deals at your local retailer, stand in the queue and make sure you get that deal. But, sales were not the same as last year, slightly lower actually. Online sales however, were not, topping one billion Dollars for the first time. And then I stumbled across this, what a hoot: Las Vegas: Visitor Traffic on pace for Record High, Convention Attendance Lags. See that, convention visits to Las Vegas are still 20 percent off the all time highs in 2006, but overall visits are at their all time highs. So, whilst people might have bought less (or paid less probably) at the physical infrastructure stores than last year on the actual day, they are certainly not visiting Vegas less. As long as what is happening there, stays there.
But that was the actual day, Friday. What has happened over the last few years is that the whole weekend becomes an event. Black weekend. Total sales for the weekend increased in the mid teens over the last year, according to the WSJ: Early Sales Pay Off, for Now. So online sales jumped, but the average size per user shrank. Which means that more people are shopping online, which is becoming a preferred method for many people. I know that if I am looking for something different, find it online first. I suspect in the coming years that more and more South Africans will become used to transacting this way. I am certainly comfortable transacting online. I buy ebooks and magazines electronically, and have done so for a number of years.
Today however is Cyber Monday. Each and every year the shopping "holiday" becomes more and more important for retail sales. The event was coined in 2005, according to Wiki, by Shop.org. Last year Cyber Monday sales topped one and one quarter of a billion dollars, double what it was in 2006. Americans are used to shopping online, but you certainly get the sense that more and more are getting used to it here. I mean, think about it, I know what I want when I go to the store, if there is no sales consultant, no parking fee, no time "wasted" (shopping is not an experience for me) and more importantly no retail space being rented, the product must be cheaper online. It still needs to be bought and shipped, and of course stored in-between. It needs all of those things, but it can be much cheaper. We shall see how it all ends for the online retailers.
- Byron's beats
One company which is certainly not hanging around is Famous Brands. They released two expansion announcements in the last week which we look into now.
The first announcement was a relationship the company has struck up with Netcare.
"The Netcare Group, which operates South Africa's largest private hospital network, has awarded Creative Coffees franchising company, a division of Famous Brands, a contract to provide a branded restaurant and retail solution to the hospital group under the Net Cafe trademark."
It makes sense, numbers passing through our private hospitals are growing. Patients and their guests need refreshments. If the quality is good, which you would expect from Famous Brands, then it is a no brainer. And they are getting innovative, this from the Managing Executive of Creative Coffees, Brent Kairuz.
"The new Net Cafe outlets will be designed to deliver an exceptional experience to all Netcare customers. This will include customised offerings in certain retail environments such as on-site preparation of flowers and gifts. Within a hospital environment, retail is a significant component of the overall sales mix of a hospital coffee shop because there is a strong demand from consumers for convenience purchases."
And then today they announced the purchase of well known brands Europa and Fego Caffe'. The consideration is not material so no number was given but I'm sure management did their due diligence carefully. CEO Kevin Hedderwick made some interesting comments, the one that caught my eye the most was the following.
"Current trends clearly illustrate that the food service market is underpinned by four major growth sectors: breakfast, coffee, snacking and chicken, and both Europa and Fego Caffe extend our presence within those categories."
You see we don't have that Starbucks culture which is very much based on people walking through the city streets. We have shopping malls and let's be honest, people love to sit, drink coffee and eat. Coffee is a great business with big margins and the growth in breakfast again underpins that thesis of faster lifestyles with less time for cooking.
Famous Brands now really do dominate the coffee market in SA with House of Coffees, Mugg and Bean, Brazilian Cafe and Wimpy along with these new acquisitions. They have a knack for buying the right companies at the right time. I like the theme, i like the ambitious proactive management and I like their dominant position in the market. We continue to add to this one.
Digest this.
Unintended consequences. You saw the case of the hedge fund that managed to seize the Argentinean frigate in Ghana, well there was a court ruling in their favour. But this is even more serious than that, because this ruling in favour of the hedge fund is likely to be met with a blank stare and blank account from the Argentineans. Read the background here: Argentina nearing technical default. So if they do pay, they are damned and if they don't pay, they are damned. All I can say is that it wont be long before the IMF boot them out for lying about their inflation numbers and then they realise that perhaps it is them, and not the rest of the world. Try and come back from that guys. Some places unfortunately are too "smart" for their own good.
The Fiscal cliff event has dominated, last week there was talk that there would be Republicans that would agree to tax hikes and that toned down the pending showdown. This was quite a good post I came across which outlined both the positive and negative sentiments that are facing Mr. Market right now: Weekly Bull/Bear Recap: Turkey Week Edition. I suspect that in amongst the "frog like" market participants, the earnings picture is key for me. 111 odd Dollars on the S&P forward means the index is cheap by historical standards. Companies, I will still maintain are in far better shape now than at most times through the last few decades. They have used the process to prune the weeds, paint the walls, repair the broken windows. For this week however, Talks Over Fiscal Cliff Stay Stuck in Low Gear. Expectations are low this week for a deal.
Crow's nest. The market has sold off around one third of a percent today thus far. Perhaps issues around the fiscal cliff delayed might present the flip floppers with some opportunities to sell after the great rally last week.
Sasha Naryshkine and Byron Lotter
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