One of the dangers investors is looking at the world with blinders on because it means missing the larger picture. For example, if we were to look at the recent stock price success of Beyond Meat, a new constituent in the Tematica Research Cleaner Living index, and chatter over the expanding reach of Impossible Foods, one might think the world was no longer interesting in meat.
To the contrary, we are continuing to see the tailwind of our New Global Middle-Class investing them spur demand for the protein complex.
When it comes to the burgers or steaks on your plate, looks and tastes can be deceiving as “meatless meat” and “plant-based meat” gain traction.
Sales of meat alternative grew 30% in 2018 compared to the previous year, according to Nielsen Product Insider.
While the alternative meat market could grow to be worth $140 billion globally in the next ten years, according to Barclays, it’s still a small percentage of the current $1.4 trillion global meat market which is also showing no signs of slowing down.
Still, the demand for alternatives has increased.
Despite the trend in eating plant-based “meat,” global consumption for meat is still on the rise, driven in part by countries like China and Brazil which saw a massive increase in recent decades.
The average person in China, for instance, went from consuming just nine pounds of meat per year in 1961, to 137 pounds per year in 2013, according to The Economist.
“As countries get wealthier, there’s a tendency to eat more meat as a sign of wealth, as a sign of like, ‘I can afford it,’” said Lily Ng, CEO of Foodie, a food magazine and online platform based in Hong Kong.
Globally, the average amount of meat consumption has nearly doubled over the past 50 years.
Although, countries including the U.S. and the U.K. may have reached a so-called “Meat Peak” — which means total meat consumption has hit a peak and declined slightly recently. In addition to that, one in three people in the U.K. says they’ve stopped or cut down on eating meat, according to a survey by Waitrose supermarket.
The impact of the slowing global economy and current trade war can be found in a number of places. The most common is the equity markets, which have seen their 2019 gains recede. We’ve also seen US retailers report dismal quarterly results of late, with falling same-store comparisons. But another victim has been China led tourism to the U.S., which historically has brought Chinese consumers looking to snap up branded US goods as part of our Living the Life investing theme.
While the latest data shows a drop in 2018, so far this year US-China trade tensions have increased dramatically complete with another round of tariff increases on both sides. This combination is likely to divert Chinese travelers to the US yet again this year searching for luxury goods that are not impacted by trade tariffs. This suggests that at least one of several drivers of the challenging environment for US retailers is poised to continue.
Chinese tourism to the U.S. was down in 2018 for the first time since 2003 as the trade war between the two countries rages on.
According to a report in the AP, citing the National Travel and Tourism Office, travel from China to the U.S. declined 5.7 percent to 2.9 million visitors last year, marking the first year-over-year decline since 2003. Tensions between China and the U.S. was cited as one of the reasons fewer tourists are visiting.
Earlier this month, President Donald Trump slapped tariffs on $200 billion worth of Chinese products coming into the U.S. The White House also blacklisted Huawei, the Chinese telecom player, preventing it from doing business in the country. China has retaliated with its own tariffs on $60 billion of U.S. products coming into China. The report noted that in the summer of 2018, China issued a travel warning, urging its citizens to be careful due to shootings, robberies and costly medical care in the U.S. The U.S. countered with its own travel warning for U.S. citizens visiting China.
In addition to the trade war, the AP reported that economic concerns on the part of Chinese consumers are limiting travel to the U.S. Chinese citizens with less income are opting to vacation closer to home, noted Wolfgang Georg Arlt, the director of the Chinese Outbound Tourism Research Institute. The research firm said 56 percent of travelers leaving China in the last 90 days of 2018 were headed for Hong Kong, Macau or Taiwan, up from 50 percent in 2017. The Chinese consumers that are venturing farther are visiting exotic places including Croatia, Morocco and Nepal.
Industry watchers said the decline in Chinese tourism to the U.S. isn’t likely to last for long, as the middle class in China is expected to continue to grow. The U.S. expects Chinese tourism to increase by 2 percent in 2019, reaching 3.3 million visitors. By 2023, the U.S. government expects that will increase to 4.1 million visitors. “Even if the Chinese economy cools, it’s still going to continue to be a very good source of growth for the travel industry,” said David Huether, senior vice president of research for the U.S. Travel Association.
In the United States over 80% of households enjoy broadband internet access, a fact that many of us take for granted and as we stream media to our TV’s and other devices and install IoT devices in an attempt to achieve the perfectly “connected home”. Of course, no country has reached the heights of South Korea when it comes to broadband penetration — crossing over 100% as of the end of 2017.
When it comes to Latin America, the penetration of broadband has lagged the rest of the world; however that is changing:
Latin America’s broadband penetration reached 45 per cent of households in 2018 from a previous 43 per cent in 2017. Going forward, 10 million new accesses are expected within two years and internet household penetration will reach 50 per cent of households in 2020, according to GlobalData, a data and analytics company.Ivan Maldonado, Technology Analyst at GlobalData commented, “The total number of fixed broadband household penetration will rise 2 per cent or 5 million broadband connections in 2019, driven by telecommunication operators, reaching a household penetration of 47 per cent for the same period.”
The expansion of broadband access across Latin America is a strong tailwind not only for our Digital Infrastructure theme, for also for our New Global Middle Class investment theme, which focuses on areas around the world where rising disposable incomes are driving demand for a host of products and services. And of course, with more disposable income and an improved digital infrastructure, this development also provides a tailwind for companies such as Netflix (NFLX), Disney (DIS) and Amazon (AMZN) that are riding the Digital Lifestyle tailwinds.
Goldman Sach’s (GS) recent move into the more entrepreneurial side of Mexico via a credit line of up to $100 million to a four-year old fintech firm (Creditjusto) that specializes in making 3-year loans to small businesses is yet another aspect of our Rise of the New Middle Class. Advances in both technology and in finance are enabling individuals and small companies in emerging markets to access resources that had been previously completely unobtainable. This is allowing for access to the tools of wealth creation across a wider range of society, providing a tailwind for our Rise of the New Middle-Class Investing theme.
According to a recent WSJ article,
The bulk of lending by Mexican banks targets large corporations, home mortgages and consumers, according to the Bank of Mexico. More than 80% of Mexican small businesses rely primarily on supplier financing, not bank credit, Banxico said.
This is changing however, fueling the fires of innovation and entrepreneurship in countries in which such growth was limited.
A host of new online lending platforms and supply-chain financing services have popped up in recent years in Mexico to help fill the void, said Andres Fontao, a co-founder and managing partner of Finnovista, a firm that advises fintech startups.
As companies like Creditjusto expand, offering needed capital to fund growth, so will Mexico’s Middle Class. As the Wall Street Journal points out,
Goldman’s involvement is a reminder of how small fintech companies are challenging and reshaping the banking industry, especially in developing markets like Latin America.
Over the last several months, we’ve received several pieces of data that not only point to a slowing global economy, particularly at Europe and China but also to growing worries over the consumer’s ability to spend. We’ve covered the US data points rather thoroughly on this episode of the Cocktail Investing Podcast as part of our Middle-class Squeeze investing theme. When it comes to China, from the CEIC shows why luxury goods companies associated with our Living the Life investing theme are seeing falling sales. Per the CEIC, China’s household debt as a percentage of GDP surged to 53.2% in December, from 36% five years earlier. While that remains below the global average of 62%, it’s the pace of growth that has caused concern likely leading to either a re-think or retrenchment in Chinses consumer spending.
Factor in the recent problems associated with Boeing’s 737 Max aircraft that are likely to crimp international air travel, and the outlook for luxury goods companies and others associated with our Living the Life investing theme, at least in the near-term, look for less vibrant than they have in several years. Casting a shadow as well is the latest pushout in US-China trade talks that appear to have slipped to June from March/April.
Prada SpA shares fell to the lowest close since 2016 as slower Chinese spending contributed to an unexpected drop in the Italian fashion house’s annual profit.
The Hong Kong-listed luxury group attributed a slump in Asia mostly to Chinese tourists reining in spending in Hong Kong and Macau because of the weakness in the yuan. Other luxury brands, including Kering SA’s Gucci, have seen the impact of softer buying by Chinese tourists offset by increased spending on the mainland, but Prada failed to get a similar boost from Chinese spending at home, said Citigroup analysts led by Thomas Chauvet.
Prada’s China sales were flat for the year, a “significant swing” after a first-half gain of 17 percent, Citigroup said. Monday’s stock plunge after the disappointing earnings shaved $864 million off the company’s market value.
Chinese consumers have turned more cautious amid the slowest economic expansion in almost three decades and a trade war with the U.S. While cars and iPhones have seen bigger slumps so far, Prada’s results could spark worry that China’s newly wealthy middle class is scaling back on high-end purchases. For an industry that relies on Chinese demand for 30 percent of $1 trillion in global luxury spending, that’s a chilling prospect.
Examining revenue growth at chicken-producing companies such as Tyson Foods and Sanderson Farms shows a surge in chicken consumption over the last several years. Some of this has to do with the consumer shift to healthier eating and alternative low-carb lifestyles that focus on protein consumption as well as rising demand associated with our New Global Middle-class investing theme. In a bid to meet demand, chicken producers have sought solutions to grow more birds and make them bigger to render more meat, but there have been abnormalities about these fast-growing birds that are prompting questions. When we hear abnormalities and problems when it comes to the food we eat, we see it as a prompt for consumers to knowingly look for foods that are in line with our Cleaner Living investment theme. We are after all what we eat.
Chicken companies spent decades breeding birds to grow rapidly and develop large breast muscles. Now the industry is spending hundreds of millions of dollars to deal with the consequences ranging from squishy fillets known as “spaghetti meat,” because they pull apart easily, to leathery ones known as “woody breast.”
The abnormalities pose no food safety risk, researchers and industry officials say. They are suspected side effects of genetic selection that now allows meat companies to raise a 6.3-pound bird in 47 days, roughly twice as fast as 50 years ago, according to the National Chicken Council.
Researchers and breeders are still trying to pin down the exact cause of problems, a Tyson spokesman said. “While there are some factors linked to the occurrence—including bird weight, feed ingredients and the time of year the bird is grown—even a combination of these factors will not necessarily produce the same issues consistently,” he said.
That efficiency drive has helped U.S. meat giants such as Tyson Foods., Pilgrim’s Pride Corp, Perdue Farms Inc. and Sanderson Farms Inc. produce a record 42 billion pounds of chicken nuggets, tenders and other products in 2018. Now, it’s adding an estimated $200 million or more in annual industry expenses to identify and divert breast fillets that are too tough, too squishy or too striped with bands of white tissue to sell in restaurants or grocery stores, according to researchers at the University of Arkansas.
“There is proof that these abnormalities are associated with fast-growing birds,” said Dr. Massimiliano Petracci, a professor at the University of Bologna in Italy, who leads a team of researchers investigating the chicken breast problems in breeds used in commercial farms.
A few days ago we ran across a story that probably didn’t make headlines in too many places. Here at Tematica, however, it was quickly shared with the team because it perfectly depicts the coming together of two of our investment themes: The New Global Middle Class and the Digital Lifestyle. Here is part of the story from Mediapost.com:
Walgreens is adding the Alipay mobile payment platform to more than 7,000 Walgreens locations nationwide. Alipay, operated by Ant Financial Services Group and used by 1 billion people globally, will allow shoppers at Walgreens to use the same payment system commonly used in China. More than two-thirds of Chinese tourists used smartphones for payments abroad last year, according to Nielsen.The Alipay deployment will allow Walgreens to offer the payment system to more than 4 million Chinese travelers in the U.S. at any given time, and Walgreens is the largest U.S. drugstore chain to deploy Alipay, according to Walgreens. “Walgreens is focused on making shopping more convenient for our customers. This collaboration has particular significance for our Chinese customer population, who now has a new way to experience Walgreens,” stated Richard Ashworth, Walgreens president of operations. “Not only can they buy our products via our dedicated store on Alibaba’s Tmall Global marketplace, but they will now also be able to shop in the U.S. using Alipay as they would in China.”
So here we have a U.S. retailer adding a mobile payment option specifically to cater to tourists coming from China. The global leader in mobile payments is mainland China, where 61% of worldwide users are based, and Alipay has emerged as the dominant provider, boasting over 850 million active users. In 2018, there were reports of apparel brand Guess adding Alipay as a payment option in 50 of its U.S. stores. That move by Guess followed on the heels of brands such as Lacoste, GNC, Rebecca Minkoff, Holt Renfrew and Harry Rosen offering up Alipay at checkout.
What we will be monitoring closely at Tematica Reseach is whether the use of Alipay can gain a foothold in the U.S. market beyond Chinese tourists. With over 189 million active iPhones in the United States, and most of those Apple (AAPL) devices equipped with the Apple Pay feature, a 2018 survey by CivicScience showed only 1 percent of respondents used mobile payments as their primary payment method over credit and debit cards or cash. With the average Chinese tourist spending over $5,000 on overseas trips, anything retailers can do to reduce the friction of a transaction is well worth it and U.S. consumers witnessing the ease of checkout for those tourists might just tip the balance across other apps as well.