Morning Brew Daily - Google Won’t Have to Sell Chrome & Kraft Heinz Breaks Up

Starting point is 00:00:01 Marketers, tell us if this sounds familiar. You invest in something that seems incredible like millions of views, but then don't see any revenue. Instead, invest in what looks good to your CFO. LinkedIn Ads generates the highest row ads of all major ad networks. Spend $250 on your first campaign on LinkedIn ads and get a $250 credit. Just go to LinkedIn.com slash MBD. That's LinkedIn.com slash MBD. Terms and conditions apply.

Starting point is 00:00:33 Good morning, Brew, Daily show. Freiman. And I'm Kyle Hagey. Today, Google gets a slap on the wrist for being a monopoly. And we'll talk about who gets custody of luncheables in the Kraft Hines breakup. It's Wednesday, September 3rd. Let's ride. Good morning and happy Wednesday. Kyle, we know that prices are getting out of hand, but I don't think I've seen anything like this paying $36,000 simply for the privilege of shopping at a grocery store. That store is Arawan, the ultra-boogie Los Angeles shop, known for its $20, smoothies and $88 jars of seamoss. Yesterday, the Feed Me newsletter reported that an Aeroon will be opening in New York City

Starting point is 00:01:17 with a catch. It's going to be located in an upcoming members-only paddle club started by the founder of Kith, and the club has an initiation fee of $36,000 plus annual dues of $7,000. Twist my arm, I'm in. I just got to say, this is Buzzword City. Arwan, Private Padel Club, West Village, Kith founder. were like, surprised they didn't work in Laboo in there somehow. Like, it's like millennial cards against humanity.

Starting point is 00:01:44 Not to disappoint our listeners who obviously were about to spend 36K to see this heroin. It's not even a full heroin. It is a slimmed down version, like a tonic bar inside of this private club. So maybe we can get in free somehow, pull some strings, but I probably won't be going. And now a word from our sponsor, Roku Ads Manager. Kyle, would you say you have a target audience? Pickleball heads and snow cone enthusiasts.

Starting point is 00:02:06 Wow, you had that locked and loaded. Well, Roku Ads Manager can help you segment targeted audiences so you can design CTV campaigns for each of them just in time for Black Friday. Roku Ads Manager combines the simplicity of digital ads with the impact of TV. Advertisers can use it to manage, optimize, and measure CTV campaigns in a few easy steps. It's as easy as running an ad on social media. Set your budget, select your audience, and you're ready to go live. Plus, you can connect your Roku Ads Manager with Shopify to develop interactive ads, create and track campaigns driving to a specific goal and monitor spend and performance in Shopify.

Starting point is 00:02:41 Right now, our listeners can get a $500 match on their first $500 spent with code brew 500 at ads.roku.com. That's code BREW 500 at ads.orgu.com. Terms apply. The reports of Google's death have been greatly exaggerated as the tech giant just dodged the worst penalties that could have come out of the U.S. District Court ruling yesterday. Now, if you briefly go back in time to last year, you'll remember that Google lost their antitrust case over search engine dominance, with the judge declaring that, quote, Google is a monopolist and is acted as one to maintain its monopoly. This news sent the stock sliding 5% at the time, and it appeared the worst was yet to come for

Starting point is 00:03:23 Google. Now, back to yesterday's decision, which was centered around what remedies Google would need to take in light of the fact they were deemed a monopoly. The judge decided Google would not have to spin off its Chrome browser and could still make payments that enable distribution of its products. Two big wins for Google. What Google can't do is have these payments be conditioned on being the exclusive search engine on browsers or devices. Now, why do the judge come to this decision? Well, like pretty much everything these days, artificial intelligence. Yes, that's right. AI, which many have viewed as a threat to Google's

Starting point is 00:03:57 empire, might be the very thing that saves it with the judge declaring that AI is already changing marketplace dynamics and increasing competition in search. Because of this, he said, quote, there are strong reasons not to jolt the system and to allow market forces to do the work. This ruling ends a five-year battle between the DOJ and Google, and Google shares were up 8% in aftermarket trading. Neil, for Google, this feels like when you get grounded as a kid, but in your room as an Xbox snacks, your cell phone, and you're like, I guess I got punished, but it doesn't really feel like it. Google must be feeling pretty good after this decision. It's feeling lucky. It gets all the benefits of being a monopoly without any of the downsides.

Starting point is 00:04:37 And across the tech world, they're breathing a sigh of relief. The DOJ and the FTC has gone after pretty much every single big tech company, not just Google, but meta, Amazon, and Apple as well with antitrust lawsuits. This kind of sets a precedent or sets the tone for all of those rulings set to be handed down this year and next and the year after that by essentially just putting a slap on the wrist on Google, not forcing it to sell off. It's Chrome. browser saying you got to do a few things here and there, share some search data, but certainly far from the worst case scenario, which is why you saw shares pop yesterday and this morning. Yeah, and also one of the biggest winners of the Google case is Apple, because Apple's stock is

Starting point is 00:05:18 actually up on the news because Apple and Google can continue working together. Apple can continue receiving $20 billion payments from Google to make Google. It's a default search. And also Apple and Google are now working together on AI, which has been Apple's weak spot. And literally in the decision, the judge wrote, quote, that if we didn't permit these payments, that fewer products and less product innovation from Apple would happen. And so Apple in some ways saved Google's butt as well. And in some ways, I think we should just take a step back and say this was the most important antitrust case of the 21st century. We haven't seen anything like this, the government trying to break up a tech giant since.

Starting point is 00:05:59 Microsoft in the late 90s and early 2000s. Just a massive decision that everyone was watching to see what would happen with Google and it gets to keep its business intact. Now, Google is a big company has a lot of things going on and one of them is this ad tech business, which has also come under fire by the government that was also ruled to be a monopoly in the separate case. This particular one was about Google. Search. That one was about its ad tech business and it might have to spin off some of those divisions in its ad tech business. We'll find out what a judge rules there. But at least for Google search, which is its biggest cash cow, you know, it gets to keep that pretty much the status quo as it's been going on in a big win for big tech and a big loss for the

Starting point is 00:06:45 government. Yeah, it feels like AI is almost this smokescreen that's protecting now. A lot of these, you know, I hate to call them like traditional or legacy companies, but the Googles, the meadows of the world, people are saying we're entering in this new era, your monopoly dominance is probably just going to come to an end with market forces, so we don't need to act here. However, Executive Director of the American Economic Liberties Project did say, quote, this feckless remedy to the most storied case of an obolation of the past quarter century is a complete failure of his duty and must be appealed. And so maybe there'll be some appeals. Google will definitely appeal. So this is not the last we've heard of it. Google is, you know, Google did not get a huge penalty

Starting point is 00:07:22 here, as we've been mentioning, but it will still appeal to get, you know, as little of the harshness as possible. That's right. All right, moving on, scandalous CEO exits, mergers, unwound, activist investors, price wars. There's more uneasiness in the food industry than my stomach after eating bodega sushi. Here's a rundown of the chaos of the last 48 hours. And let's start with Kraft Hines, the food conglomerate that is breaking up 10 years into its marriage. Yesterday, the company said it would split into two companies, one focused on sauces, spreads, and seasonings. That's the bigger and faster growing one, with the other comprised of North American grocery staples, a stagnating category. Think of it as splitting up the ketchup and the hot dog.

Starting point is 00:08:02 Sacralogous, I know, but key to corporate synergy. The condiments company will own items like Heinz ketchup, Philadelphia cream cheese, and Kraft mac and cheese, while the other will control things like Oscar Meyer, Kraft singles, Lunchables, and Cool Whip. So it's not exactly a clean breakup into Kraft and Heinz, but it is an admission that the two linking up did not work out. Back in 2015, Warren Buffett helped arrange a merger between the food companies. and a bet that scale, owning brands in far-flung places all across the grocery store would be a winning strategy. Narrator, it did not. Consumers have swapped in fresher fruits and veggies for the unintelligible ingredient list.

Starting point is 00:08:40 Craft Hines hangs its hat on. Plus, figuring out how to manage so many brands across so many different categories was too complex, leading to none getting enough love. The stock is down more than 60% since the merger completed a decade ago. Yeah, Warren Buffett pretty much hit them with the I'm not mad, but I'm disappointed. And you, if Warren Buffett said that to me, my life would be over. He is still the biggest shareholder. He's not a fan of this move, but he did say that he's not going to try to block it. As you mentioned, shares are down 68% since the merger completed in 2015. You know, I hope it works out for them, but there is some really just tough headwinds this company or two companies are facing.

Starting point is 00:09:17 You have inflation-wary buyers. You have private labels. We just did a story on Aldi that are having consumers switch to these generic labels. you have GLP1 drugs. You have RFK saying, get your additives out of all the food. I'm not sure, but it sounds like Velvita probably has a few additives in it. So this company is facing very strong headwinds. Whether this pivot works or not, who's to say? One thing I think it might allow them to do is be better position for an acquisition. In 2023, Kellogg split off its more popular brands.

Starting point is 00:09:51 And its cereal brands remained under Kellogg, but the new brands, went to Kelanova, then that company was acquired. And so this might just be a better way to position a company that maybe shouldn't have got together in the first place. Now one might be able to be acquired or a spun off in a different direction. So it opens the door for more possibility. You're seeing this all across the industry. You just mentioned Kellogg split off into two companies. Both of those companies were then acquired by Mars and then Ferreiro.

Starting point is 00:10:19 And then just a few weeks ago, Kearing Dr. Pepper, another big merger of various food. consumer beverage companies came together in 2018, but then two weeks ago said that we're going to split up as well into coffee. One company will be, you know, mainly a coffee company. One will be a beverage company. So you're seeing these food conglomerates saying all of this stuff that we're trying to manage all across the grocery store. It just doesn't work out. We need a focus on single, not single items, but like very more, more focused categories. Because, I mean, when you look at Kraft Heinz, they had over 200 brands across 55 categories in 150 countries.

Starting point is 00:10:57 None of them were getting enough love. They weren't devoting enough resources to each of them. Crafts singles just languishing there. I'm the only one who's buying that now because I love American cheese. And Capriesson is another brand that's kind of fallen out of favor as people just move away from these processed highly sugar drinks and food. So we'll see what happens with Kraft Heinz. They need to protect Caprizzan and Lunchables.

Starting point is 00:11:20 Those two got me through elementary school. So no matter what, protect those brands. All right, let's take a quick break. but we'll be back with a CEO getting frisky with a coworker. If things are bad at Kraft Hines, they might be even worse at Nestle. The largest consumer goods company in the world ousted its CEO, Laurent Frick, on Sunday, after discovering he was having an undisclosed romantic relationship with a direct subordinate. It was a shocking announcement in part because this guy had only been on the job for one year.

Starting point is 00:11:50 The previous CEO was sacked last year for not doing a good job. So after the promotion of Nisprosso head, Philip Navrat, Rottel to the top role. That means Nestle has now had three CEOs in 12 months. It's an unprecedented leadership crisis for a 159-year-old Swiss firm that historically exudes stability and professionalism, and it was all over the front pages of Switzerland, where Nestle accounts for a large chunk of cultural cachet and the stock exchange. That's a problem because Nestle's stock has lost almost a third of its value over the past five years underperforming rivals like Unilever. Nestle, which makes Kit Kat,

Starting point is 00:12:25 espresso coffee, and loads of other items, is going through the same motions as Kraft Heinz, struggling to navigate the ever-dynamic world of food consumption. If you're looking at the glass-half-full, the new CEO offers a fresh start to revitalize a company in crisis. If you're more of a glass-half-empty guy, you wonder why this executive search was so rushed

Starting point is 00:12:43 and an insider was tapped to lead a turnaround. Kyle, which one are you? I'm team Philip Navrottle. I think that the Nespresso chief is going to turn this around. I think you're spot on. This actually could be good for the company. Navrato was this rising star. He owns Nispros, which coffee has been a really strong growth area for Nestle.

Starting point is 00:13:04 And so there's some opportunity here. I do think that it might be, end up being a good thing. I do have to compliment you, Neil, though. Your duolingo French lessons have been pulling off. I appreciate that. Your pronunciations are great. I do want to say, again, I think people make these changes in some cases because the macro environment is so difficult. Nestle has fallen 17% over the past year.

Starting point is 00:13:29 You mentioned the loss of two CEOs, the loss of a chairman in a year, like this is a kind of red crisis for Nestle. And so they might feel like going and doing this large executive search, it's going to take too long. It's too risky. Let's tap a known entity to really turn this around. We'll see if that does work out. I do think it's kind of funny how they found out about the affair. they did an internal investigation, and they didn't find anything. Classic. And then complaints kept coming in, and they hired an outside firm, and the outside firm found it right away. And so it sounds like they were trying to push this under the rug until they couldn't anymore. And, you know, good luck to Navrottle.

Starting point is 00:14:06 Well, what is he going to do? Like, what's the path forward for Nestle, as we talked about a lot of these food companies are facing so many challenges? Well, one area that could be a growth driver is pets, right? So Purina makes up 20, or just pet food in general, makes up 20% of all of Nestle's sales and Mars, which is that competitor in the United States, has been buying up all these veterinary clinics, which helps them sell their pet food. Mars is a huge pet food company as well. So some analysts are saying, Nestle, you've got to go after the vet world, the pet food world, lean in here. This is a growth driver compared to chocolate, which is not, you know, which is not growing. So what these companies have to do, we just talked about Kraft Heinz.

Starting point is 00:14:48 now we're talking about Nestle, is their MO is we're just going to scoop up a bunch of different brands and different categories and then try to siphon off and spin off all of the categories that just aren't growing anymore, which is what Kraft-Hinz is doing, and then lean into the ones that are growing. Right. mantle. Yeah, and they've outlined the strategy, which is bring volume back. They want to do better M&A in the future. And then they also want to focus more on emerging markets. So maybe one of the issues is focusing too much on these developed markets that have always been there for them.

Starting point is 00:15:30 And they need to go focus more on emerging markets that can untap some growth. All right, well, I need a kickout after this. Let's head back to the U.S. for a third of food giant that's seen better days, Pepsi. Yesterday, reports came out that activist investor Elliott Management acquired a $4 billion stake in PepsiCo and is pushing it to make change. changes to boost its flailing stock price. Not to get all broken record, but Pepsi is another food giant that's hemorrhaging customers. Its namesake soda has dropped to number four in U.S. sales behind Coke Dr. Pepper and Coke owns Sprite, and its independent beverage distributors told the Wall Street Journal that they have never

Starting point is 00:16:05 seen a worse time for the brand. Pepsi doesn't just do drinks. It also does food, owning brands like Frito-Lay, Doritos, and Quaker Oats. But that is not doing well either. Sales growth in North America for food has slowed every quarter since peaking in late 2022. Shares have fallen more than 25% from the record two years ago. Blood that's attracted the activist investor sharks. We don't know what Elliott management is proposing for Pepsi, but it did just successfully force changes at other target companies, Starbucks and Southwest Airlines. Expect Elliott to come into the Pepsi boardroom guns ablazing. That's right. And Elliott has shared some ideas they think can help turn Pepsi around. I think, you know, this is an iconic American

Starting point is 00:16:44 brand. As you mentioned, it's fallen to fourth place. So there's a lot of upside here. One of the the main focus is for Elliott is that Pepsi should re-franchise its bottling network. Coca-Cola did this in 2017, and it has really boosted their stock price. And basically, Pepsi wants a lot of control over its bottling network. Elliot's like, you don't need to do that anymore. Leave ownership in the hands of local and independent bottlers, and you take care of the marketing and the distribution. So that is one way to turn this company around. Pepsi has also been doing some stuff in the background. They've closed two manufacturing plants in North American for its food business, kind of trying to focus maybe more on the beverage space. It's making its transportation and

Starting point is 00:17:23 logistics more efficient. And it's also doing the classic, let's evaluate how we do marketing. And so there's some things that Pepsi is doing, but Elliot's definitely going to force their hand. They have a massive stake in this company. I think there's a lot of upside here. I think they need to bring back Kendall Jenner. I think that's what's been missing. Okay, let's wrap up this food wrap up on a high note, at least for people who like, cheap fast food, aka me and Kyle. McDonald's said it would be bringing back its extra value meals, which haven't been offered since before the pandemic, as part of its strategy of emphasizing affordability after

Starting point is 00:17:54 prices got out of hand. The extra value meals allow you to pair entrees, such as Big Macs or Egg McMuffins, funny that they call that entrees, with medium fries or hash browns and a drink for a combo that will cost 15% less than if you ordered each of those items separately. McDonald's is hammering value after years of declines in customers with household incomes of less than $45,000, a key cohort that no longer sees the golden arches as good bang for their buck. Reengaging the low-income consumer is critical, McDonald's CEO said, as they typically visit our restaurants more frequently than the middle and high-income consumers.

Starting point is 00:18:30 We'll see if the return of the extra value meal does the trick. Neil, we can't do four food stories in a row ever again. No, we can't. I'm too hungry. What's your McDonald's go-to order? I mean, usually like a McDouble and a McChicken. And that's because they are really cheap. It's part of this value menu that, to tie it back to the news, McDonald's was in the headlines for serving a $19 Big Mac meal.

Starting point is 00:18:52 And then last summer, they rolled out this value meal, $5 value meal that was such a hit that they extended throughout this summer in addition. So they're seeing success with that. And they're just continuing to hammer value. That's right. And as someone that orders the combo meals, double cheeseburger meal, shout out, large fry, large Coke, zero. I have seen the price climb. And so that is exactly what McDonald's is trying to fight. The interesting thing here is there is a tension sometimes between corporate and the franchises.

Starting point is 00:19:19 And so McDonald's actually had to negotiate with the franchises to get these price drops. And they said, we will actually help subsidize if you start losing money on these because we need to bring back the perception that this brand is affordable and unlocks value. I think we're going to see that play out in the broader economy where any company that has a corporate franchise model is going to have to fight these battles. And as you brought it up, the McDonald's CEO mentioned. in this two-tiered economy, that higher-income consumers are doing just fine. It's the lower-income consumers that are really getting hit by inflation. And that's kind of McDonald's bread and butter. And so hopefully they can turn it around because I need my double cheeseburger meal. And whatever McDonald's does, the fast food industry follows. So some analysts are saying we're

Starting point is 00:19:59 about to see a price war in fast food because a McDonald's is lowering its prices and offer all of these more affordable meals than Taco Bell, Wendy's, Burger King. They're all going to do the same thing. So we're going to see a price war that's going to be a huge benefit. for consumers who want a cheap meal on the go, it's not going to be as good for these companies' profitability. All right, let's sprint to the finish with some final headlines. There are some shoes that are almost too big to fill, but Chloe Mall is going to try. The 39-year-old journalist has been tapped as the new head of editorial content for Vogue U.S., replacing the legendary Anna Wintour, who ran American Vogue for 37 years.

Starting point is 00:20:37 Wintour announced in June that she would step down as editor-in-chief of Vogue, but will still keep other executive roles at parent company Condi Nest. Moll is a self-described proud Nepo Baby, the daughter of actress Candace Bergen and film director Louis Moll, but she says she worked hard for every success she's had. Coming from her role as the editor of Vogue.com and a podcast host, Maul will be tasked with keeping Vogue relevant and at the center of the fashion world in the rough and tumble media landscape,

Starting point is 00:21:02 which has already been disrupted by the internet and is expected to be convulsed once again by AI. Kyle, this is like being the next shortstop of the Yankee. after Derek Jeter when Tor has an almost impossible legacy to live up to. I mean, it's given me a lot of confidence as a podcast host that, you know, one day I could rise to the ranks of to lead Vogue. Look, I hear Vogue, I think Devil Wears Prada. I have to bring up Devil Where's Prada too, coming soon.

Starting point is 00:21:24 I'm still hoping to see Ann Hathaway somewhere in New York. I'm more excited for that movie than the actual changes at Vogue. Well, it's a tough job for sure what Moll is stepping into because they have this print magazine and just magazines in general are facing huge headwinds in this new digital media landscape where people are gravitating more towards creators and influencers for their news. One thing that Mal wants to do is turn the print edition into more of a collectible item. She wants to reduce the frequency right now. They're published every month, right?

Starting point is 00:21:53 She wants to sort of go upscale with magazines and turn them more into collectible items with very high quality paper stock and make them even more glossy than they are now. And another strategy or lever that she wants to pull is doing more analysis and stop chasing these really quick turnaround web stories. And one example that she gave was that like every other media company when Taylor Swift and Travis Kelsey, I forgot his name, got engaged. They all published stories right away about what happened. But she said that the story that got more traffic than their quick turnaround piece

Starting point is 00:22:27 was an analysis of Taylor Swift's diamond ring. So that's what they're going to lean into is more of those deep dives, more of those analysis, and, you know, we wish your luck. I like the strategy. All right. Burning Man has wrapped up. in the Nevada desert, but not without a scandal that had everyone talking. A man was found dead, quote, lying in a pool of blood at the festival Saturday night,

Starting point is 00:22:48 prompting a homicide investigation by local and federal officials. At around 9.14 p.m. on Saturday, just as the iconic wooden sculpture of a man was starting to burn, deputies responded to a report of a man who was, quote, obviously deceased. His identity remains unknown, and it won't be a simple case for investigators, given the unique impermanence of the Burning Man site that is dismantled at the end of every festival. As the sheriff noted, it's a complicated investigation of a crime in a city which will be gone by the middle of the week. Yeah, this is a crazy story. Obviously, very sad. It sounds like True Detective Season 5 or something. Like, I can't imagine any more complex crime scene than Burning Man. And so I hope they're able to get to the bottom of this, but truly something out of like a TV show.

Starting point is 00:23:31 But there is, speaking of coming out of a TV show, there is a circle of light. mom because the other big story that came out of Burning Man was that a woman had a baby in an RV at Burning Man she had no idea she was pregnant neither did the husband or the the dad so there was a baby born in Burning Man in an RV they named they named the baby Aurora and the mom said that she was just disappointed that she had to put Reno on the birth certificate instead of Black Rock City which is the the city that they build and tear down we have to watch we have to watch that baby grow up, because I feel like there's some, like, witchy spirits that are going to be imbued in the baby.

Starting point is 00:24:10 Finally, one of the most popular video games in history is heading to the big screen. Yesterday, Paramount Skydance said it inked to deal with Activision to make a live action Call of Duty movie, the first time the franchise will be expanded to television or film. David Ellison, CEO of Paramount, said, quote, we're approaching this film with the same disciplined, uncompromising commitment to excellence that guided our work on Top Gun Maverick, ensuring it meets the exception. high standards this franchise and its fans deserve. And it takes one to no one. Ellison said he's a huge fan of Cod and has played the game for, quote, countless hours. Kyle, for years, no one could figure out

Starting point is 00:24:45 how to turn successful video games into successful TV shows and movies. But recently, it's starting to click and this Call of Duty flick has Blockbuster ridden all over it. Neil, all I can say is I'm not seeing this movie. Call of Duty 4 has already taken thousands of hours of my life in like eighth grade. I'm not giving Call of Duty any more hours. I'm done. I can't see it. It's too. It's too tempting. Well, the thing is, I mean, if this goes well, then you could imagine that many other movies and TV shows will follow. So it's a big bet by Paramount. And they've been making some really big bets since they were acquired by Skydance.

Starting point is 00:25:19 And that $8 billion merger just last month, they bought the rights to UFC for $7.7 billion. They're going to show UFC starting next year just on Paramount Plus. And then they also poached the Duffer brothers from Netflix. Those guys, if you don't know, are the dudes who created. stranger things. So that was another big poach by Paramount. David Ellison is going balls to the wall here. And as I mentioned, I mean, video game adaptations are becoming actually huge after decades. No one could figure it out because we had Mortal Kombat, Super Mario Bros., a Minecraft movie, which was a billion dollar movie. Paramount has already

Starting point is 00:25:53 done really well with Sonic. I was talking to some four-year-olds over this weekend, and they were like, I love Sonic. So Sonic has been a huge franchise. We'll see what happens. It makes sense with the video games. You have this. built-in loyal audience that has developed this incredible relationship with the brand and so you know putting it on the big screen it can only well they thought that would be the case with halo but that flopped yeah so hopefully hello show hopefully call duty is more like minecraft and less like halo that is all the time we have thanks so much for starting your morning with us and have a wonderful wednesday if you have any thoughts or feedback on today's show send a note to morning brewdaily

Starting point is 00:26:26 at morning brew.com let's roll the credits emilymilliron is our executive producer raymond And Lou is our producer. Our associate producers are Olivia Graham and Olivia Lake. Warren Buffett is disappointed in hair and makeup for never showing up. Devin Embry is our president and our shows of production of Morning Brew. See y'all tomorrow.

Morning Brew Daily - Google Won’t Have to Sell Chrome & Kraft Heinz Breaks Up

There aren't comments yet for this episode. Click on any sentence in the transcript to leave a comment.