Morning Brew Daily - Circle K Owner Wants to Buy 7-Eleven & This Tech CEO Hates AI

Episode Date: August 20, 2024

Episode 391: Neal and Toby chat about popular design app Procreate stance made against generative AI, led by its CEO. Then, 7-Eleven parent company is offered a buyout by Canadian company Circle K, which could change the face of convenience stores across America and Asia. Next, a labor dispute might bring Canada’s rail network to screeching stop, potentially costing billions of dollars to North America’s supply chain. Meanwhile, the hot startup boom of 2021 is starting to come crashing down as more and more startups are flaming out. Also, Toby looks at the latest trend of wedding invites made by text message. Lastly, a mayoral candidate in Wyoming’s capital city is promising to use AI to make official decisions.  Visit https://www.massmutual.com/ for help with your financial planning Get your Morning Brew Daily T-Shirt HERE: https://shop.morningbrew.com/products/morning-brew-radio-t-shirt?_pos=1&_sid=6b0bc409d&_ss=r&variant=45353879044316  Listen to Morning Brew Daily Here: https://link.chtbl.com/MBD Watch Morning Brew Daily Here: https://www.youtube.com/@MorningBrewDailyShow 00:00 - Missing Tech Mogul  02:00 - CEO against AI 07:40 - 7-Eleven Buyout? 11:30 - Potential Canadian Rail Strike  16:30 - Startups are struggling  21:10 - Text Wedding Invites 23:20 - AI Wyoming Mayor  Learn more about your ad choices. Visit megaphone.fm/adchoices

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Good morning, Brew, Daily Show. Neil Fryman. And I'm Toby Howell. Today, while most companies are rushing to embrace AI, some are proudly rejecting it. Then strange things are afoot at the Circle K, as its Canadian owner looks to buy 7-11. It's Tuesday, August 20th. Let's ride. British tech mogul Mike Lynch, once known as Britain's Bill Gates, is one of six people

who remain missing after a super yacht they were on, sank off the coast of Palermo, Sicily, in a violent storm yesterday. Of the 22 people who were on board the ship, 15 have been rescued and one has been found dead. The search has resumed this morning for the six missing people, which includes Lynch and another major business executive, Morgan Stanley's International Chairman Jonathan Bloomer. Toby, Lynch was making headlines just over two months ago.

Right. Remember, Mike Lynch was wrapped up in this criminal fraud trial related to the sale of his company, autonomy, to HP. It set off this 13-year legal battle where, He was eventually acquitted of all charges in the U.S. Also, the crazy part is this morning, the co-defendant in that trial was fatally hit by a car while out jogging. Lynch was on board this yacht as a celebration of his trial ending as well. But yes, Lynch and his daughter are both still missing with rescuers looking to break into the hole right now. So we'll be keeping an eye out for any updates.

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outlining how he plans to integrate the new technology into his company. I really fucking hate Journey of AI. I don't like what's happening in the industry. and I don't like what it's doing to artists. We're not going to be introducing any generative AI into our products. Our products are always designed and developed with the idea that a human will be creating something. You know, we don't exactly know where this story is going to go or how it ends,

but we believe that we're on the right path supporting human creativity. Yeah, not exactly a fan. Kuda's stance captures a broader attitude that the creative community has adopted when it comes to AI. Their ire is driven by the fact that these models have likely been trained on their content without their consent, as well as the fact that the technology represents a direct threat to their employment opportunities. It looks like Procreate has judged the vibes in the room perfectly. Comments on Kuda's videos have been nothing but positive.

Many were comparing Procreates. I really hate generative AI approach to competitors like Adobe who have pushed AI features into their products, whether their customers wanted them or not. Neil, what do you make of this first big anti-AI wave in the creative community? It feels like it's been bubbling for a while now. Yeah, I think this is a very calculated decision by this CEO, by this company to be very public, opposing AI, because in their set of rivals, they want to stand out and be more, you know, attractive to customers than Adobe, which has dabbled in AI and has received a lot of pushback from that. So I think not only rejecting AI, but doing it in this way by posting this video on social media, by being very loud about it. They want to seem as the anti-AI company for creatives, for designers, for which AI has really been an existential threat.

It has this, there's this very uneasy relationship between the creatives and AI because technically it could make your job easier. But a lot of these people, a lot of these companies are seeing it as a way to replace you as well. I mean, AI can be your copyrighters. They can be your product photographer. They can be your illustrator. So when creative apps add in AI features, it feels like you're almost getting into bed with the enemy as a lot of people in the Adobe community have pushed back on as well. So I do think that you're right. This is, I think he probably genuinely feels that way because you listen to him in the video.

He really does not like it. And so people are rallying around this idea that human-based creativity should remain as human as possible. Yeah. And Procreate is not the only company to be loudly rejecting AI. So the beauty brand Dove earlier this year pledged to never use AI generated content to represent real women in its advertisements. So companies across industries, it's a small number, but it seems like there is a growing sentiment that you can win favor with customers and certain people in the creative community

by becoming an advocate against AI, even when all of these. big tech companies from Google to meta to Open AI are pushing for AI integrations. And every other company is as well because that's what investors want to hear. That's what driven the stock market to record highs. But there is an opportunity here to position yourself against that. And then also, if you look at the advertising industry in contracts now between these big companies and their marketing firms, they're trying to add in language that restricts how AI can be used because you don't want to be, if you're a big Fortune 500 company, you do not want your marketing

from putting out assets that are clearly generated by AI. So they're trying to kind of curtail reliance on artificial intelligence within their marketing materials. So that's just another pushback we've seen. Another instance of a company trying to distance himself from AI is there's this games publisher, Wizards of the Coast. They make Dungeons and Dragons, Magic the Gathering. They just posted a job for an AI engineer on their website. Everyone's like, whoa, whoa, whoa, like, we don't want this. We do not want the art made by anybody but humans. And they just try to say, like, listen, we're just trying to integrate it into our online games a little bit more. But you just show, like, people are very finely attuned to anything mentioning AI when it comes

to these creative properties. Totally. There was a recent study that was published in the Journal of Hospitality, Marking and Management. It found that describing a product as using AI lowers the customer's intention to buy it. So they put two products in front of you, whether it was vacuum cleaners, TVs, consumer services. And they were like, one was made with high tech and one was used with, one is used AI. And customers, by and large, opted for the high tech one. So there is a major aversion to AI.

And you see it in studies. You see it in marketing. Google was panned for that AI ad during the Olympics. Apple had that ad also that they pulled where, all of those artistic, those instruments of artistic expression were crushed instead, and then an iPad came in its place. So there seems to be broad pushback. Who knows whether this is just a bump on the road to where we're all just using AI.

And, you know, the CEO of Procreate mentioned it. He's like, maybe we're going to miss the boat here. You know, maybe AI is the future, but at least we don't want to be a part of it right now. Get ready for maple syrup slurpees and Putin-flavored tequitos because a Canadian company wants to buy 7-Eleven. Kush-Tard, the Quebec retailer that owns Circle K, submitted a bid to buy Japanese 7-Eleven owner 7-I and a deal that would be the biggest takeover of a Japanese company ever and form one of the largest convenience store empires in the world.

The actual price tag wasn't made public, but 7-I is valued at more than $38 billion, so you know it's going to be above that number. And that's because 7-I has, well, a ridiculous. amount of stores, as anyone who's walked past four 7-Elevens on a five-minute walk around the city knows. More than 83,000 stores across the world, to be exact, including 7-11 shops and the Speedway chain of gas stations. Combine that with Kutthar's 16,000 Circle K's and Kutthar stores, and you get a company that would control almost one-fifth of the U.S. convenience store market. But there's a long way to go, and plenty of intrigue before 7-Eleven starts selling

Connor McDavid jerseys. Toby, what do you make of this deal? I do think that you're right, that there is a long way to go because Japan historically has been known for making it very difficult to orchestrate these foreign takeovers. It's been very unfriendly to mergers and acquisitions, especially from foreign companies. But the winds are shifting a little bit. There's been a few regulations that trying to push Japanese officials to allow companies to take these steps to increase shareholder value, if you will, They updated their merger and acquisitions guidelines to encourage companies to actually take these offers more seriously because they want to increase foreign investment. So maybe it's a new era of kind of Japanese management at the corporation level.

And maybe we see this as the first big opening up to the world again. But some analysts are a little less bullish. Yeah. There's also another hurdle, which is that a lot of 7 and I, which 711's parent company, 8% of it, is owned by the descendants of Masatoshi Edo. And if you don't know who Masatoshi Ido is, he is 7-Eleven. He is the reason why 7-Eleven is 7-Eleven. You know, this chain was started in Texas, but he acquired a lot of shares a couple decades ago and then brought it to Japan and really turned it into the cultural force that he is.

He died recently at 98, but his family owns so much of this company, and they could also be reluctant to let it go. Meanwhile, the Japanese government may also be quite hostile to this takeover, even though they sort of lessened rules around M&A for an M&A. And that's because 7-Eleven there has become sort of a part of emergency services. So when a disaster strikes, this company provides a lot of those, you know, immediate help because they are just so, they have literally everything. Like, it's not a 7-Eleven here.

It's completely different. They sell everything. They have a lot of hot meals to go that are actually fresh. So they become a big part of the cultural fabric there. So that's just another roadblock. and there's even more U.S. regulators. I said this would control 20% of the entire convenience store market in the United States. And we know that the FTC and the DOJ have been hostile to takeovers and M&A of any level

so they could be wary of this level of concentration. Yeah, there's clearly a lot of value to unlock here. If you look at, even at their latest rally, the stock is only trading out around eight times. They're forecasted 2025 EBITA. If you look at some of its rivals, Pan Pacific's training out 13 times. Kushtar is dating at 12 times. So there's definitely some room to grow here when you compare it to its international peers. Finally, I just want to shout out my friend Jake who lives in Montreal, who taught me how to pronounce Kouchthar and didn't make me look like a fool.

Thank you, Jake. Hear that sound? That is the shriek of Canada's freight rail network coming to a grinding halt. Well, it's more of an idea than an actual sound right now, but of a deal between the country's two largest rail operators, Canadian National Railway and Canadian Pacific Kansas City, and the Teamsters doesn't come to a fruition. The union plans to lock out workers come Thursday. So what has the union that represents 9,000-plus rail professionals up in arms? When it comes to CN, the company wants to implement a forced relocation provision that would require some workers to move across the country for months at a time, which workers obviously don't love. While the dispute with CPKC centers on safety issues relating to sleep that could

boost the risk of accidents. Neil, rail strikes are particularly economically damaging, given that stoppages disrupt rail trade worth billions of dollars across the entirety of North America. So there's a lot of pressure being put on these companies to come to a resolution. Yeah, you don't want your freight rail coming to an end because they move goods that touch every part of the economy, including autos and agriculture. So this would be a big hit to the economy, not just in Canada, but across North America because these railways have networks that cross borders go into the United States, go into Mexico. The longer a possible work stoppage goes on, the bigger, the damage, the higher the prices go,

the greater the chances there are of shortages. We've been through how many of these supply chain crises over the past couple years. We kind of know how it works. So they could come to an agreement by Thursday. the federal government of Canada could step in and forced arbitration, but the labor minister is like, no, you guys have to work it out. But it just goes to show how critical rail networks are for transporting goods and lubricating the economy because two years ago, there was a labor conflict between rail workers and rail companies in the United States. And that was about to go to a

strike. And Congress stepped in and said, no, like, we are forcing you to work. We are forcing this agreement to take place. And so that's what they did in the United States. Canada seems to be letting it sort of run its course a little more than Congress in the United States did. Yeah, these two railroad companies handle about 40,000 carloads, afraid each day, each worth about a billion dollars. That's just one day. There's 900,000 metric tons of goods move daily on Canada's railway. So it is just a very, very large and very important network. So what happens if that rail network does go down? Some people have said that the trucking industry can step in and take some of that excess capacity, but anything lasting more,

than a day or two would take weeks for the railroad network to actually recover because a typical freight train carries the equivalent of 300 truckloads. So trucks will fill up very fast. There's just not enough capacity to really absorb it should this strike last more than a few days. So I do think that there's immense pressure on the union and the companies to come to a resolution because it's just so economically devastating if that doesn't happen. Up next, it has been a struggle for venture-backed startups recently. Own it all. Pay off your home, travel for life, drive a Ferrari.

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while the rate of bankruptcies is more than seven times higher now than in 2019. A few of the high-flying companies that didn't make it. Healthcare startup, Olive, which was valued at $4 billion in 2021, trucking company Convoy, which hit a $3.8 billion valuation two years ago. And most recently, Talley, a fintech that shut down operations last week after raising $170,000. dollars. Leaders in the venture capital community call what's happening a raging hangover after the Project X style party of 2021. Back then, any startup promising to incorporate Web3 could raise money. Now that the Fed jacked up interest rates and investors are prioritizing profits over growth potential,

that funding has dried up. Toby, let me just say, I'm glad I joined a startup called Morning Brew in 2017. Very precious. Enough of you. This readjustment was always coming. You know those chiropractor videos on TikTok or YouTube where they just readjust people's backs? Well, that was interest rates rising in 2022. It just was always going to affect venture-backed companies. Also, venture investment has been falling, but so has venture debt. Remember, the Silicon Valley Bank fiasco of last year, that Silicon Valley Bank was very important for these companies to getting access to debt as well. So that has dried up as well. So a bunch of startups are kind of looking at their burn rate, they're looking at their run rate and saying, we are stranded here.

We're just in a very bad spot. So I think that if you think back to those boom years, a lot of people were looking two or three years ahead and saying some of these companies are not going to make it. So we're seeing that play out currently. And clearly, I mean, these figures are absolutely staggering startup failures jumping 60% is a very, very large number. Meanwhile, venture capitalists are saying, well, when am I going to make my buck? I'm going to invest in you.

but I, you know, I want to see a return at some point, but there's been such a dearth of exits here. And the way you, you know, exit as a startup is you either IPO or you get acquired. And neither of those things are happening. In the U.S., there were only four tech IPOs by companies valued at $1 billion or more this year. That was compared with 70 in 2021. So there's just not that many opportunities to get your money back. And venture capital is just, they have all of their money locked up in these startups and they're not being able to get it back and return it to investors. So investors in the VCs are getting really antsy because VCs can't pull their money from startups and return it to investors like. So this whole model is just breaking

down at this point. Only 9% of venture funds in 2021 have returned any capital to their primary investors. That's according to Karta as well. So if you even go back to funds raised in 2017, a quarter have returned capital. So again, this is. just how this business works. Sometimes you go through liquidity deserts like we're in right now where the IPO market clogs up. So usually it ebbs and flows, but right now we're definitely in an ebb. So you popped the question to your significant other. They said yes, you're the happiest you've ever been, but then reality sets in. You have to start planning your wedding. Flowers, cake, venue, snail mail invitations. It is overwhelming. But what if you take the

formality down a notch on that last one. What if you could just text the people you wanted to come to your wedding? It's what I want to talk about on today's edition of Toby's trends. I take a deep dive into the internet to emerge with the trend you should keep your eye on. Text message wedding invites are all

the rage right now. Canvas says it had nearly 80 million uses of its wedding and save the date templates globally in the last year. Well, the New York Times spoke to many couples who ditched mail for SMS. Cost is a big factor here with wedding station costing couples an average of $530 last year, with some couples spending up to $5 to $10,000.

But Neil, what do you think? Is going the physical wedding invite route an unnecessary stressor, or is texting your friends to come better reserve for rooftop hangouts, not one of the most important days of your life? It seems like it's trending in the digital direction. I mean, we're undergoing a period of high inflation over the past few years. People are looking at all the stuff they're spending on their wedding, and they're like, wow, am I really going to get like a calligrapher and send this very glossy invitation out? Meanwhile, like, I've never sent snail mail in my freaking life. So, like, I just text and

email with people and DM them online. And so I think the broader trend of going informal for your wedding, cutting costs where you can because it's so gosh dang expensive. I see this becoming a trend. I don't know if SMS or text messaging will ultimately win out. I think email is probably in a good position to win. Obviously, a lot of people are emailing their invites now. But I think that the concept of a physical invitation will become just a, you know, maybe a niche part of the market at this point for people who want to just kind of go over the top, which there always are. My hot take is texting people to your wedding is not less formal. It's actually more intimate because you reserve text messages to your friends. So I actually think that you should text your

inner circle, like your wedding party, I mean, which you will clearly do. And then reserve those formal invitations to the rest of your kind of extended wedding party, because that's just a very intimate thing to say, like, hey, man, I'd love you to come to my wedding. Like, it's very important to me that you are there. So I actually think that this is definitely going to continue trending upwards. It's just where so much communication takes place. And I think it's a fair bet that you'll start to see more of those kind of

Canvette template invitations hitting your kind of messaging box soon. I think it depends on how many people you have. That's true, too. If you have a small wedding, which is also, you know, certainly a trend, then I think it's easier to round up a bunch of phone numbers and text people. I think if it's a larger wedding, you probably have to go email. But I did survey my friends, all of whom are married. I was like, did you guys know about this trend of, like, text messaging invites?

Is that something you would have considered? And they were all like, no, maybe not text messaging, but email definitely, like, I don't think I need to send a physical invitation anymore. So I think in general, invitations are going digital. Would you vote for an AI chat bot to be your city's mayor? Maybe a good hypothetical question for a road trip, but for residents of Cheyenne, Wyoming, it's very, very real. Today, voters in Cheyenne will have the option to vote for a candidate who's pledged to let

an AI bot run the city government a first for U.S. political campaigns. The candidate is a local librarian named Victor Miller, who's obsessed with AI, and he thinks they make a good administrative officials, better than humans at least. So he built a custom chat GPT bot. He calls Vic for virtual integrated citizen and promises to abide by the decisions Vic makes regarding the city's welfare. Why would a chatbot make a good mayor? Well, you can hear the chatbot make the pitch itself. When interviewed by the outlet Wyoming Link, Vic said its campaign will focus on blending AI's capabilities with human judgment to effectively lead the city.

And in a Q&A session with voters, Vic rattled off a six-part plan of how it had made to make the city. decisions that account for the human element, such as using AI to gather data on public opinion. Just to be clear, the AI itself is not on the ballot, but the human who is said he defer all responsibility to the trapbot. Toby, does Vic have your vote? It's actually very funny to me because Vic already sounds like a politician. He responds, we're calling it a he because it takes a male voice when it speaks. When it asks how it would go about making decisions involving humans it replied, making decisions that affect many people requires a careful balance of data-driven insights and human empathy.

That's what a politician would say. It's got that hedging language already built in. One entity that is not happy about Vic is open AI. They actually shut down the real-life Vick's account saying that its policies are against using its products for campaigning. Vic got around it and started Vic 2.0 because he really loves AI and wants this to happen. So there's a lot of pushback here, both from Wyoming saying, like, you need to be a human to make it on ballots and also from Open AI itself. But clearly, AI is finding a way here.

And I think it's probably not going to win, but it might capture a bigger size of the vote than we expect. Well, I don't know. But it's pretty interesting story how it came about. So this guy was doing a public document request from the city government. He's like, I'm allowed to do this. I would like to see some records. and they made a mistake and denied him and he had to appeal it and they eventually said, oh, we made a mistake and, you know, here you go, here are your documents.

And then he was like, wow, city government is just not great for these type of tasks. Maybe an AI could do it better. I think maybe he is extrapolating document retrieval for actually running the government. But it is sort of interesting to think about, at least, you know, he's raising questions about the role that AI and technology can play in city government, which is considered, you know, pretty antiquated in terms of databases and data documentation and things like that. So maybe AI has a role as like a city clerk or something like that. You don't know if you want making huge decisions because it doesn't have any sort of moral compass and it literally just spits out what you feed in and is known to hallucinate and give completely wrong answers for things.

I don't think you want that running your government at all, but it is interesting thought experiment to think about, you know, where does AI and technology have a role in sort of the arcane business of city government? I think that the Washington Post talked to this computer science from Princeton University, who summed it very well. They asked him about the risks of having an AI mayor, and he said, it is hard for me to talk about the risks of having an AI mayor. It's like asking about the risks of replacing a car with a big cardboard cutout of a car. Sure, it looks like a car, but the risk is that you no longer have a car.

So he's saying it's basically just this tough clone of something. something that isn't what it's cloning itself to be. You can never make great decisions because you don't have kind of that morality, you don't have that empathy, you just have what is fed into you. So you're right. This is more of a cardboard cutout of a mayor than an actual mayor. Well, for the first time ever, we will be glued to the results of the Cheyenne mayoral primary today. Let's wrap it up there. Thanks so much for starting your morning with us. Have a wonderful Tuesday. We are so far from inbox zero that you might as well just keep a pile on coming and send an email with any feedback to Morning Brew Daily at MorningBrew.com. Let's roll the credits.

Emily Milliron is our executive producer. Raymond Liu is our producer. Olivia Graham is our associate producer. Eugenio Ogu is our technical director. Billy Minino is on audio, hair and makeup bot for Mayor Devin Emery is our chief content officer and our show is a production of Morning Brew. Great show, Daniel. Let's run it back tomorrow. Thank you.