In this week’s Commercial Awareness update, we discuss Amazon’s checkout-free grocery store, Apple’s taxes, the political landscape in Germany, Britain and the US, and Ferrero Group gobbling up Nestle’s brands.
The Political Landscape
In the political world, headlines rarely move away from Trump and Brexit. Trump celebrated his first year as president, but problems in the US Senate have become the main focus this week. In Europe, there are positive signs after Macron and May met and the SDP backed Merkel talks.
US Senate Shut Down
The US Senate is currently shut down after the house was unable to agree on a spending bill for 2018. Over the weekend, the Senate tried to agree to a temporary bill that would have kept federal services running until the middle of next month - today, thousands of federal workers won’t be able to report to work due to the stalemate. The Republicans have 51 senators of the 100 members, but under the rules, the bill needs 60 votes to pass, meaning some Democrats need to vote in favour of it. At the time of writing, Democrat senators are unwilling to budge without amendments to the bill.
The key argument centres on immigration, with the Democrats demanding protection from deportation for more than 700,000 undocumented immigrants who entered the US as children. Talks will continue in an attempt to end this shutdown - the first since 2013, which lasted 16 days and cost the US economy $2 billion in lost productivity. During that time national parks were closed, which caused public uproar.
Macron’s Special Deal
During Macron’s first visit to the UK since becoming French President, he suggested there could be a special trade deal with the EU offered to the UK after Brexit. He reiterated that Britain couldn’t “cherry pick” the deal they wanted within the single market, but this latest interview appears to give Britain the opportunity to maintain a strong relationship with the EU after its exit. Macron also said there was time for the UK to change its mind on remaining in the union - something Prime Minister Theresa May has ruled out.
During the visit, May and the French President announced they remain committed to the Le Touquet agreement, which gives the UK border controls in Calais and France controls in Britain. They also agreed to an extra £44.5 million to be spent on Channel border security.
SPD Backs Merkel Talks
After months of deadlock, there has been a breakthrough with negotiations in Germany, as the Social Democrats (SPD) voted to start formal talks with Merkel’s CDU/CSU bloc. Merkel’s former coalition partners, the SPD, narrowly voted in favour of a blueprint for a new deal at a special party congress. This brings Merkel one step closer to forming a new government, but this could come at a price. The SPD is demanding concessions on immigration and healthcare - if they don’t make progress on this, commentators fear the party will reject the final deal, on which leader Martin Schulz plans to ballot all 443,000 of its members.
Companies to Watch
Last week, the first physical grocery store with no checkouts – either cashier operated or self-service - was open to the public. Amazon Go in Seattle uses cameras in store to track what customers pick up during their shop and charges their card for the items when they leave. The store was open to staff back in December 2016, but there were initial issues – such as people putting items back in the wrong place – meaning there were delays to opening it fully to the public.
This isn’t the first time Amazon has ventured into physical retail space – they have 12 bookstores across the US. However, there are no plans to expand their checkout-free supermarkets just yet. Amazon Go is a trial of the technology, which could have a huge impact on the sector. With all grocery stores trying to make it as easy as possible for customers to shop, removing queue times would be a major competitive advantage.
US tech giant Apple has pledged to expand its American operation, after the government announced tax cuts for companies last month. It has pledged to invest $30 billion in the next five years, creating an estimated 20,000 jobs and making a $350 billion contribution to the US economy. Apple holds $246 billion in low-tax countries, and repatriating some of these assets back to America will cost the company a one-off payment of $38 billion. As part of the plan to invest more in America, Apple is expanding its US advanced manufacturing fund from $1 billion to $5 billion, which will invest in American suppliers.
Apple is the biggest company to announce a change in policy since Trump’s tax reform, which allows companies to pay a levy of 15.5% on overseas cash holdings which are repatriated. In the announcement, the President also unveiled plans to cut corporate tax rates from 35% to 20%.
The manufacturer of Nutella, Ferrero Group, announced it will acquire Nestle’s US confectionery business for $2.8 billion. The deal will elevate Ferrero to the world’s third largest seller of confectionery and means it will own exclusive rights to Nestle’s brands in the US, including Wonka and Butterfinger. The deal follows Ferrero’s acquisition of Ferrara Candy (the company that makes Lemonheads) last year for $1.3 billion.
Some commentators suggest Ferrero paid a premium for Nestle’s brands, but it could be a smart move to gain a greater foothold in America. Currently, 56% of Ferrero’s sales come from the Western European market, which grew slower than other regions in the last five years. In the UK, Ferrero is the fourth largest chocolate company, with a 7% market share.
And finally… London is Europe’s Most Expensive City to Rent Property
New research has named London as the most expensive city in Europe for renting for a third consecutive year. The average price for a 3-bed flat in a prime location in England’s capital is £5,398 per month, which is double the equivalent in Paris and four times the average rent cost in other UK cities. There is some good news for renters in London, as another report suggests rents are falling in the capital, which is likely to be affected by the changes to stamp duty back in 2016 on buy-to-let properties. Many buyers acquired new properties before the change, which increased supply on the market in the following months.