Transcripts For BLOOMBERG Bloomberg Technology 20170616 : vi

Investigation into meddling. News, 24 hours a day, 27 hundredmore than journalists and analysts in more than 27 countries, this is bloomberg. This is bloomberg technology, coming up, amazon globals gobbles up whole foods. We go over every angle of this stunning development, including the implications for. Rickandmortar stores why the worlds ecommerce giants diving back into the space it has disrupted. Shockwaves rippling across upon. Why the competition should be concerned that amazon may have a plan in the pipeline. Amazon upsets the grocery cart. Agreed to by whole foods by 13. 7 billion. New sent shares of both whole foods and amazon are trading higher on friday and then shockwaves of ross online and offline worlds. It is a highly ambitious world to give amazon the ability to dominate every part of a customer shopping experience. Majorzon has become a distributor of tv and movies. Physical bookstores and changed the future of homes. Now it is taking on groceries, a massive and noncyclical business, we all have to eat. It is it big purchase, the biggest they have ever made. We are joined by brad stone, our Senior Executive who wrote a book on amazon. You, rad. Rt with brad. Yearsnt back to last shareholder letter by jeff bezos and he talked about three areas of strength. He said we are on the search for the business. He has put an anchor in the ground. Business that people dont like the model of ordering online or having a develop delivered to your home. This is a big bet on food, groceries and meal delivery. That is why whole foods is a smaller player. There are small, what, they put foothold does amazon really have . Expeditingso about their online process. There are about 20 cities they are in today. There is still some expansion but you get there is john mackey jeff bezos, how do you see them working this whole thing out . John mackey will stay the ceo of whole food. He needed this kind of relief. Leadershipw that the situation will change. I see amazon bring different models to whole foods. Amazon devices into a portion of whole footwear customers can experiment with an echo or an amazon fire and taken home. Perhaps product categories that will foods hasnt introduced. As a from the leadership perspective, if you look at other acquisitions, they have left the Leadership Teams notably intact. The message we are getting from investors is to change the experience. His amazon looking to change the Traditional Grocery buying experience. You just like your mobile phone and check out yourself, is that what it is about or leverage in the whole foods infrastructure . This is what amazon struggled with on the fresh side. Helps with that as well. Yourts talk about amazon, team had a piece out about amazon being interested in buying slack and a messaging service. Will we see amazon buying Autonomous Vehicles next . That is interesting. Amazon is that it has been conservative. Usually, not new networks but accelerating an existing initiatives. This deal does break the mold in a number of different ways. One that occurs to me is that whole foods is a wounded franchise. Seven quarters of diminishing or similar sales. It used to speak to the exclusivity of organic foods. But now wall everyone from walmart to krogers is into organics. A lot is needed in terms of investment and rehabilitating. Does that mean that he will be handsoff . Not as much. I dont know that jeff bezos is that handsoff with the washington post. He gave the company a lot of leeway, the money to bring a Technology Orientation to the newspaper. You also cover alibaba. They have been investing billions of dollars in Grocery Stores across the other pond. What do you make of this new battlelines being drawn . Largely, amazon has been cut. I think the difference between a markets is that the u. S. Is a much more developed a traditional market. We like both companies fundamentally. Both can do well in their respective areas. About what that they have been introducing hartwell. Hardware. Theyre trying to make it easier for people to buy impulse purchases from their home. There is the one, you can scan a barcode or Say Something into it, it is those buttons where you can press a button to reorder your tied automatically. De automatically. You can imagine amazon buttons. You can imagine an echo where somebody is asking for a certain food item or even a male. One of those prepackaged sushi mills that whole foods has, or a burrito. Amazon has gone and made a big bet. Amazon is trying to make more touch points for the consumer. The more you engage with one of their products, they look at the data and how much you increase your sales. Whole foods is an amazon property. Theyre looking at all of these touch points. There was another big deal announcement. Walmart is buying the highend mens retailer. They initially offered through jet. Com y but most jock, shoe by do youw, shoebuy, what make of it . We know amazon well. These things are strategic. Theyuld be surprising if announced this to shortcut walmart. Walmart is catching up. There are a lot of brands and apparel categories. Of jet. Com has been on a mission to fill some of these holes. Can walmart catch up . Upit will be tough to catch to amazon. Is there room for a number two or number three player in the u. S. . Sure. That will be to offset what we likely see as a decline in traditional retail space. Different part of the market. We will see how that is adopted. Our Senior Executive editor from bloomberg tech, thank you so much. Up, how will this megadeal give amazon access to hundreds of physical stores . The expansion of the amazon footprint, next. A struggling retailer, asking about what the amazonwhole foods deal means. This is bloomberg. The competition is extremely tough. People have to find ways to become more efficient and do a better job. We will have to see you have these mergers and amalgamations, it makes sense. Billiony says its 5. 5 are in shanghai is close to breaking even. Speaking to Tom Mackenzie in shanghai, bob iger says that it is a feat that none of the disney resorts have been able to achieve in the last 30 years. We did say that we hope to break even. I can confirm that we will. Today is the end of the first full year of business. Is also an extraordinary achievement. I am not sure that we have ever done that. Lets return to our top story. Deal to buyckbuster whole foods. This acquisition will likely disrupt not just grocers but overall retail industries. Here to talk about the impact of brickandmortar, we are here to talk about Matt Townsend to cover the retail space. What does this mean for other grocers . These physical stores . If you look at these other kroger,walmart, target, walmarts stock went on the most in 2015. I would say the market is predicting that they will take a share, potentially. Isther thing to think about looking at the hopeless shopper, it is an upper middle last to a wealthy shopper, these are the most coveted choppers out there, they can latch onto these potentially. They can take them into the amazon ecosystem. Bloomberg intelligence pro that this opened up an opportunity for more clicks. Foods getsng whole its physical presence into groceries. Could apparel be next . Amazon has been making its own apparel. What do you think of that . That has been speculated for a long time. It has always been speculation amazon willt where get into brickandmortar retail. There is a speculation about apparel. There is plenty of opportunities to pick up stress. Gap, allook at j. Crew, of these mallbased apparel chains that are doing well. There is still something out there, it seems like they potentially have their hands full. We will see. It could happen. Maybe they are busy. We just book about walmart buying jets. What is to stop amazon from buying a company like target . Bezos and thef track record, maybe nothing. Good they take on more debt . I guess they could. It could be downgraded. I wouldnt put anything past amazon and its ambitions. Work,y can make all foods they could commence investors it could be a good idea to go after the brickandmortar chain. Amazon has been rolling out its own brickandmortar locations. Grand whens to the it comes to amazon go and whole food . That is a big . I was talking to some people today. The 365 frank, they thought that that could be the private brand going forward. It is pretty well known. Some analysts thought that it was an addon. It could be part of the market, that is a project for bezos. A lot of question marks, Matt Townsend who covers retail. Coming up, we check out the Global Impact of amazon on groceries, how european details can damage that high. This is bloomberg. Wall street, experts, analysts, they think that jeff bezos doesnt know what he is doing. He doesnt worry about earnings, he is paying attention to quarterly earnings. In the end, he has had the last laugh. He is now one of the two or three richest man in the world. Underestimating him has not been a smart thing to do. A that if jeff bezos thinks it is a good idea, it probably is a good idea. Motorbike has raised more than 600 million in funding. It was led by internet giant . 10. They will use the funds to fuel its global expansion. The company says it plans to be in 200 cities by the end of the up. Amazons takeover sent shocks across the u. S. And across the pond. Stors weighed amazon has been exploring its fresh new grocery Delivery Business like london and berlin, despite all foods, whole foodss small footprint in europe. Joining us now to discuss this is caroline hyde. What does this mean for the european grocers . Whole foods is anybody present in the u. K. You can check on my bloomberg and we both a chart for you. Byshows how much it was hit this. It is basically the united kingdom. It is a big juggernaut of a player. It early. O look at the yellow, that actually grows. Amazon to deal with they have a deal with amazon already. To ise heard from heaven an hereditary it potentially, we might see more. This is another u. K. Online only retailer. He suggesting that it could be next. There is a lot of movement going on. , thatggest one of the day is our whole delay. They have a big presence in the u. S. The u. S. Things they will be hit first. Europe will be hit as well. Online groceries are still just a fraction of overall Grocery Shopping. What are the actual trend among european shoppers . About a fraction. But actually a bigger oppression than in the u. S. These numbers blow my mind sometimes. If you dig into these numbers, they go into who is winning the race in ecommerce. Charge,rea leads the they have Something Like 70 of all commerce being done electronically. The u. K. Isnt far behind. They have 7 of all of their retailing, all of their spending is done online. Were seeing that the u. K. Is a pretty prominent fire when it comes to online buying. They like their online purchases. Spain falls lay off with about 1. 7 . Then comes the u. S. 1. 4 uys only spend 1. 7 of your buying is done online. The trend is bigger in europe. There is still far more to come. Amazon tompanies like make it that much more addictive and that much quicker. And have set the standard all the other grocers have to play catchup. Looking how are they can compete or maybe there will be a target. There isng of targets, speculation that amazon could have a grander plan in europe. What could targets be . That is and only Online Retailing here in the net kingdom. It is interesting in amazon, when i was in berlin, berlin was saying one of the biggest hirers out there. It was really dominating the city, and he germany could be taking over. Is currently the only stock that they see outperforming. They had a deal with amazon. They are ready help provide Online Retailing. This could be a friend, rather than a foe. It is on thet, downside. Maybe, but it would be. Giving us a perspective across the pond, thank you so much. Coming out, we examine your impact of amazons purchase of whole foods. How they can dual with an ecommerce giant. And a feature i want to bring to your attention, our new interactive tv function, you can find it on tv at the bloomberg. You can watch is to a number of other things, check it out. Alisa i am Alisa Parenti in washington and you are watching bloomberg technology. Lets start with a check of your first word news. President trump is outlining the Financial Health of the business assets he placed in a trust when he took office. The information comes in a new Financial Disclosure he made today to the office of government ethics. The documents cover january 2016 through the spring. The document shows he resigned from more than 500 positions, many of them a day before his inauguration. Calling it a terrible deal, President Trump canceled parts of former president obamas historic government agreement with cuba. He banned dealings with cubas military and put new travel restrictions on american citizens visiting the island. Trump we challenge you to come to the table with a new agreement in the best interest of their people and our people, and also of cubanamericans. While some applauded the move, democratic opponents are taking exception. I think this is a colossal the President Trump organization. They do not understand cuba. What they are doing is time to fulfill a campaign tweet. This is american foreignpolicy. It makes no sense. Alisa british Prime Minister theresa may has pledged over 6 million to help london tower fire victims. That is as protesters stormed a town hall new housing and financial compensation for people burned out of their homes. The death toll in wednesdays fire has been raised now to 30. Meantime, theresa mays government has bowed to you demands on the first age of brexit talks. Official negotiations will focus on the terms of the u. K. s departure. A future trade deal will not be discussed at the same time. Present talks start monday. A moscow court has reduced time for the Opposition Leader by five days. He was sentenced to 30 days on monday for instigating an unsanctioned rally. Tens of thousands took to the streets in more than 100 cities and towns across russia in some of the most widespread protests in years after he called for demonstrators to demonstrate against government corruption. Russia claims it may have killed the leader of islamic state. The Russian Defense Ministry Said it is verifying intelligence that he was killed late last month in a russian airstrike near the de facto capital in syria. The man who led germany through reunification has died. Helmut kohl was the chancellor of germany for 16 years. Global news 24 hours a day powered by more than 2700 journalists and analysts. I am Alisa Parenti and this is bloomberg. Emily this is bloomberg technology. I am emily chang. Back to our top story, amazon buying whole foods. It is a blockbuster deal. Sparked charter on how food tech and delivery startups will be impacted by this megadeal. The acquisition comes to weeks after blue apron filed for a 100 million ipo. Joining us is bob odonnell and our reporter. Bob, i want to start with you. You have so many businesses vying for a piece of this market. How does this deal change the game . Bob it dramatically reshapes everything. You have a behemoth that makes all the little players look a lot smaller still. You have the ability and reach amazon has. There are a lot of interesting synergies between amazon and whole foods and what you can do. All of a sudden, it becomes very interesting. When you throw in the amazon device where you can tie that into your shopping as well, they have a very interesting angle that changes the nature of how we think about groceries. I think that makes it really tough for the little guys. Emily instacart is a big competitor to amazon fresh. They have a partnership with whole foods. What does this mean . They are an investor in instacart. Competitor to amazon fresh. Theyve had this relationship for years. To have whole foods be a supporter of amazon is complicated for instacart. They have four years left on a fiveyear contract they signed with whole foods. Emily will the contract hold . We are hearing it is still valid and allows us to cart to be the exclusive delivery provider for most of whole foods products. Emily there has always been a question about whether a grocery delivery startup would succeed. It goes back to the spectacular failure. Grocery delivery something a big company will own . Bob i think the fact that amazon made the purchase of a Grocery Store first says something. I think that says groceries are a difficult thing to do online. Randomdo a lot of purchases when they are shopping for groceries, much more so than other categories. I think that is the reality of how people like to shop for food. I think that is difficult to overcome. Amazon gets the benefits of real estate and warehousing and other kinds of things. I think it says something about the nature of online shopping. You can only go so far. Emily i think i did Online Grocery shopping for about a year. I started going back to the physical store. I had a more pleasant experience. What does this mean for all of companies . One of the most interesting things for instacart is their pitch to Retail Partners is often we can provide delivery for you so you do not get caught out comped out by amazon. They can say amazon is serious about this. If you want to succeed on your own, you need to partner with thirdparty delivery. It is not just instacart. There are other thirdparty providers who can go to Grocery Stores and say you need to work with us because you have a huge competitor who is even more powerful now. Partnering with us maybe the way to save yourself. Emily do you see greater consolidation across the grocery industry . Bob i think there has to be. Look at what the market did today. In one day, massive change. That clearly reflects where people think it needs to go. I think we will see dramatic changes. The bigger question is how that ripples into the general markets, into target, walmart, and those places as well. Clearly i think in groceries, we will see some movement happen. Emily what will it mean for other tech giants . Google has its own Shopping Service competing with instacart and amazon fresh. What does it mean for the Bigger Companies . Do they recede or jump in full throttle . Google has been pulling back from Google Express in the last year or two. They had a partnership with whole foods that has lessened. It is hard to think google will double down. On the other hand, maybe they see it as validation this market that has not been online could have a future. It is a huge market. The idea it could only be amazon is not true. You will see opportunities for other Big Companies to make inroads. Emily as disruptive as this deal might be, do you think amazon can pull it off . Bob that is a fair question. It is a very different business. When you bring together very different industries, sometimes that does not work as well. The question will be how the philosophy of the company and management impacts it. I think amazon sees this as being critically important because they can use it to try these ideas they have had about retail. I think this also becomes an interesting experiment for them to figure out how to find the way forward. Emily do you see amazon pushing further into clothing . Bob if you think about things people like to see and touch, it is food and clothing. Those are the sort of things people generally want to be able to physically interact with. That is hard to replicate online. Emily what is the day two story . I think it is looking at how we might see the growth of online. People continue to talk about how little we talk about ecommerce all the time. I think there is a way amazon could make this very in person, very physical process more technologically streamlined, that is a huge change in how we would be buying a lot of our things. Emily ellen huet and bob odonnell, great to have you both. Thank you both for stopping by. Coming up, one amazon competitor says it will take the company five to 10 years to catch up with the Traditional Grocery landscape. We will hear from the c. E. O. Of the Online Grocery startup next. This is bloomberg. Emily apple has hired sonys breaking bad team as part of its push into tv. They helped the company take advantage of the demand for highquality series spurred by streaming Services Like netflix. The move is seen as further proof apple plans to create exclusive videos. The company has been testing documentaries and reality shows through its subscription service. Back to the story we have been covering all day. Amazon to buy whole foods. It is a move that has investors excited and competitors worried. Chieh huang, the founder and c. E. O. Of boxed, joined Bloomberg Markets earlier today to talk about what the deal means for his company. Remember starting our company four years ago and going up and down the gates of stanford and saying groceries are going to change. I remember a lot of the Companies Said 1998 called, they want their Business Model back. Groceries try to be disrupted in 1998 and 1999. It is not going to happen. Four years later, it is a bit of indication it is happening. We put in the hard work. We are more of a competitor to sams club. At the end of the day, we put in four years of hard work to make that playbook. Today,se grocers down when you think about what they should have invested in technology the last four years, they are going to now. After having all that money they should have invested into Technology Get taken away by the market in one day of trading. You start to say this is how we are going to invest. What does the grocery landscape look like in two years . Game changer. If you go on the earnings calls for the traditional brickandmortar retailers, the one storyline was amazon cannot replicate the fact we spend billions of dollars building a grocer on every street corner. Over the next 90 days, i wonder what the narrative will be going forward. For amazon, what does it do for them . What gaps does this fill that amazon . It already had a Fresh Grocery business. It was small considering amazons size. I would say two main things. There is a gap and functional component when it comes to the financial metrics. It gives them a fresh Fulfillment Center in towns across the u. S. That is just one. From a financial perspective if you look at the different grocers already under pressure, this might be the final death knell. I dont know if it was engineered like that. But from the outside in, it looks that way. They could completely dominate. Im curious about accessibility. If you are living in a small town in america, you have the local grocery. Does this affect your access to fresh food . Ofi think that is the core why i think it does not affect our business as much. Our business is for folks who do not have the physical means, time or patience to visit a warehouse club. They are only available in about 400 towns across america. He does not affect us as much. For the countryside consumer, maybe not today, but that playbook that has been usurped by amazon can be replicated across many towns across the country. What is it they see in food beyond the fact there is a revenue stream . Is this about the data they get . If you look at the subset of customers amazon go to in the subset in whole foods, they are not changing the c. E. O. , they see value surely beyond food. Absolutely. You mentioned the crystal ball four years ago. It was not like this is interesting. It was the biggest crystal ball we could find. Market. 1 trillion at the end of the day, i hearken back to what we felt was a race going on. Will Technology Folks figure out retail faster than retailers and grocers figure out technology . At the end of the day, both were running slow. Now amazon took a shortcut. There are challenges in fresh food. You dont sell fresh food. We are doing a small test in certain locations. But for the most part, we are not. It is a tricky thing. What is amazon going to have to address . What are the challenges if it is going to be selling more fresh food . Are they just going to use these as Fulfillment Centers so there is availability in a 1520 mile radius . Will they truly use a Distribution Network and use the logistics to power amazon fresh so they can have a Bigger Network . Right now, building the systems and learning that playbook is really slow and expensive. Now to have access to it. This is an exception, the only model they have made so potent works for food. People want to see and touch food. Do you think they add to the stores beyond this . Do you think this fulfills that mandate . I think they will start adding to the stores. The last thought i had was when it comes down to it, we built this business over four years of hard work moving at the speed of a nimble company. If you are a traditional grocer today, youre probably thinking, what do i do . You are figuring out who will make the flight deck to present to the c. E. O. Thinking they have to replicate a playbook we have written over the last four years, moving at their speed, it might be five to 10 years before they catch up. Boxed the founder of earlier. We will dig deeper into the megadeal and why amazon is dipping its toes into the massive food and beverage industry. This is bloomberg. Of dealnewser bit announced today, airbnb is purchasing the background check startup to protect guests and hosts from bad actors. By analyzing data, it could help airbnb track various customer violations such as side deals between guests and hosts. Withtartup has struggled fraudulent guests who sidestepped fees by contacting hosts directly. Airbnb has more than 3 million home and apartment rental listings and is expanding into new categories including travel experiences. Back to amazon and whole foods, our biggest story of the day. Earlier, David Rubenstein talked about how the deal would disrupt the grocery industry. When jeff bezos or amazon makes a move, it makes the world Pay Attention because they are the Largest Online retailer in the world is moving toward online sales. If the food world were to go this way, it will clearly change the way people shop. Emily lets dig into why jeff bezos is now taking the plunge into the grocery industry with shira ovide. You have a new piece out today talking about the behavior of Grocery Shopping, that it mostly still resides offline. I wonder if that is what it is going to be longterm . Is it something people want to do in person . I think it is too early to whether shopping for groceries is going to be online or in physical stores. For me, whether amazon spendingt 14 billion on whole foods is a sign they believe at least for the near term the 98 of Grocery Shopping that happens in stores is going to continue happening in stores and amazon needs to have a significant play in physical locations to capture a significant share of the market. Emily one of the Big Questions is the actual strategy. How will the Customer Experience change in the store . When i walk into whole foods, what will be different now that amazon is an owner . What do you think . Published had a story in the last 20 minutes or so. One of the things it mentioned is the possibility of amazon incorporating shoeless technology it has been testing at a Convenience Store it basically allows people to grab food off the shelves and walk out without paying. It automatically charges your amazon account. There is the possibility they could use whole foods locations as a place to test that further. Whole foods has a large private label business, something amazon is very interested in in many categories. That could be an interesting category for amazon to cut losses at a low margin pressure chain. Emily whole foods is known for having Premium Products and prices. Will we see prices come down in the stores . You saw what happened to the rest of the supermarket industry today. Everybodys stock fell. That is a bet amazon is going to be willing to cut prices and take losses if it needs to, if it believes the end goal is to win market share in grocery, which is one of the last categories in ecommerce. Emily is that a sustainable model . I dont know. It is a fair question. The interesting thing about iszons ecommerce operation often now amazon is not the lowcost player. It does not have to be the lowcost player anymore because they have you hooked with prime. You automatically shop on amazon. It is easy. That is how they have hooked people. They lure you in with low prices for a while and keep you there because they have their hooks in you and it is a habit. If they can do the same thing in grocery, that is another multibilliondollar windfall for amazon. Emily you look at the big tectonic shift between the big tech giants, whether facebook, google, or apple. How does this position amazon in the race against the biggest and most Innovative Companies in the world . As far as i can see, amazon is the only one of the big tech giants really making a play in food and beverage. Google has this program, Google Express, that does retail store deliveries and things like that. It is not done very well. This is a category unlike almost anything else amazon isnt and where it has relatively little competition, at least from the joint tech companies. Emily 1700s 795 billion business. Check out her piece. Thanks for joining us. That does it for this edition of bloomberg technology. We have you covered on every angle of the amazon whole foods deal. Do not miss special edition this weekend for my full conversation with tim cook bearing at 10 30 a. M. Eastern on saturday right here on bloomberg television. Announcer from our studios in new york city, this is charlie rose. Was not business as usual in washington this week. A mass shooter opened fire during batting practice at the republican correctional congressional baseball teams practice. Reportedington post Robert Mueller is investigating President Trump for possible obstruction of justice. A spokesman for Vice President pence confirmed he has hired an outside counsel to handle the various russian inquiries. Dan balz