Links 10 August 2016

Global Macro / Markets / Investing:







Unconventional Economist
Latest posts by Unconventional Economist (see all)








    • Low Supply Lifts Housing Lot Prices To a Record ($US45,000) – WSJ
      … google search title if blocked …
      The prices home builders pay for single-family lots hit a record high in the U.S. last year, a sign that a scarce supply of developed land is pushing up the cost of new homes.

      Median single-family lot prices were $45,000 last year, surpassing the previous peak of $43,000 at the height of the housing boom in 2006, according to an analysis of the most recent census data by the National Association of Home Builders. …

      . Prices have hit record highs even as the typical lot has been shrinking. Median lot sizes for single-family homes last year dropped to 8,589 square feet (HP comment … 797.5 square metres), the lowest since the Census started consistently tracking the data in the early 1990s. … read more via hyperlink above …

      Five successful cities with cheaper houses than New Zealand – and what we can learn | Michael Daly | Fairfax NZ …

      The missing piece of the Auckland housing puzzle (Houston) | Catherine Harris |

      In Houston, Texas, there’s no such thing as a housing shortage.

      The state’s biggest, blue-collar dominated city rolls out as much as is needed, and land is cheap. Real cheap.

      A decent house that might cost more than a million in Auckland will set you back US$200,000 to $300,000 in Houston. … read more via hyperlink above …

  2. Retailers, Suppliers, and an Oligopoly payment schedule palsy in the press

    Australia’s mainstream media specialises in precisely this type of piece which I often refer to as ‘good news pap’ and have written for a number of corporate clients in markets other than Australia. The below is an interesting piece as although there is nothing particularly controversial (or an outright lie) in it, the entire tenor of the piece is presented to the reader in such a way as to give rise to a number of essentially false assumptions.

    These are –

    That a supplier to Australian grocery retailing is identifying ‘improving’ competition – without for a moment questioning if all suppliers are the same in supplying to Australian grocery retailing (when the company doing the identifying has considerable power over the duopoly to protect its interests, and could quite rightly identify that the presence of an oligopoly in Australian grocery retailing over the last 15-20 years actually protects its interests). The desire to push this message would presumably be stemming from the marketing and media analysis services the large corporate has access to are probably picking up increased levels of suspicion about the retail world and its links to and treatment of suppliers – note the Michael West pieces of late about the treatment of agricultural and dairy producers selling through Coles and Woolworths.


    That the market is ‘increasingly competitive’ – without looking for a moment at whether it has been quite uncompetitive for a number of years or without for a second raising the idea that there is an ACCC which is supposed to be ensuring a particular degree of competition but which has been bound and gagged in many respects when it comes to looking at retail, and is averse to looking at payment terms to suppliers in any field.

    The thrust of the piece is an unspoken ‘everything is going well’ mood in grocery retailing, when it is fairly obvious that everything isn’t. And this bien etre is being pushed to you via the financials of a supplier who benefits from the lack of competition in the Australian grocery sector, is protected by that lack of competition from competing products, and where the message is being pushed to the public in a media which is another oligopoly and benefits from precisely the same sort of cosy relationship as the sole source of being able to deliver a message for the large global corporate.

    It is probably delivered against a backdrop of all parties (the retailers and the providers of goods – in this case a very large multinational) not wanting a revived ACCC looking at (let alone reporting on) the retail sector and its consequent impacts on Australian consumers.

    One wonders how the story came about. It is most unlikely to be a journalist interested in the subject of payments and pressures applied by larger organisations on smaller suppliers – particularly with the spin it has. More likely there is someone in an editorial capacity somewhere who has told a journalist the line of a piece they wanted, and presumably pointed them in the direction of the line from the Kraft Heinz report, which provides the only remote substance (albeit spectacularly flimsy) for the piece which fits with the headline. What motivated this individual is another question. Something makes me suspect a tipoff from a PR type, which has become a desk based piece which can be written easily with a few search queries in google, and gets served up as an incoherent glibness reporting on nothing much at all……..

    Kraft Heinz says Australian grocery market ‘increasingly competitive’

    Australia’s grocery wars are being noticed by one of the world’s biggest food and drink companies. Kraft Heinz, a big supplier to supermarkets Woolworths and Coles, says Australia’s $90 billion-odd grocery market is increasingly competitive.

    The news comes amid reports that Australia’s grocery giant, Kellogg’s, is putting the squeeze on its suppliers.

    Presumably Kraft Heinz is noticing this from the perspective of a very large global supplier of a considerable number of the products you see in your grocery basket each week, which has presumably had a cosy agreement with Australia’s grocery retailing oligopoly of Coles and Woolworths. As a very large player it will have the scale to be able to influence the oligopolistic behavior of Woolworths and Coles, and will own of a large number of products which customers know and trust (giving it some power in negotiating with retailers), and because the Coles Woolworth approach to suppliers (particularly if they are small) will act to deter new competitors, Kraft Heinz will benefit from keeping the oligopoly working as long as it is delivering the sales at a price which suits Kraft Heinz.

    The throwaway about Kelloggs’s is interesting. Kellogg’s is a supplier to Coles and Woolworths too and like Kraft Heinz, it would be in a position to influence margins and shelf space. But the article takes us off in the direction of the treatment Kellogg’s affords its suppliers. Having started an article referring Kraft Heinz and what it is saying about the retail sector, we have slipped into a discussion about Kellogg’s and its treatment of suppliers. More to the point there is no reference to how Kraft Heinz treats its suppliers – a question which is begging already.

    Kraft Heinz chief executive Bernardo Vieira Hees said last week: “As an industry we are in an environment where retail competition is intensified in our biggest and most mature markets, including the United States, Canada, the UK, continental Europe and Australia.”

    Kraft Heinz’s Australian brands include Heinz baked beans, Greenseas tinned tuna, Golden Circle tinned fruit, Cottee’s cordial, and Original Juice Co.

    It does not break out its Australian performance, but Australia is part of a “rest of world” category that produced $US885 million ($1.16 billion) in net sales for the second quarter. Earnings before interest, tax, depreciation and amortisation for “rest of world” was $US208 million.

    OK this is where the ‘pap’ comes from. Over a chunk of earth too large to meaningfully consider the CEO says retail competition is ‘intensified’ . What does that actually mean in terms of competition? Has it intensified across the board in all those regions, or intensified on average? Have some parts of that geographic spectrum intensified less than others, and where would Australia sit in terms of that intensification? – Neither the journalist or their editors seemingly have thought to go there. Does he mean that all those other ‘mature’ markets are devolving into comfortable oligopolies like Australia? Or is he just saying that to keep a ‘nice little earner’ in play in Australia lest Australia become as competitive as nearly all of those other mature markets? From there we get a plug for a load of Kraft Heinz brands, and some touting of company financials which don’t tell us a thing about how much it makes per sold item in Australia vis a vis how much it makes per sold item somewhere else. All fine provided nobody starts asking meaningful questions about what it means for Australian consumers.

    The latest official retail figures showed grocery sales increased by just 1.9 per cent over the June quarter, compared with 4.3 per cent growth in liquor sales.

    “June quarter supermarket sales were the weakest since 2005, although sales did reach similar lows in 2010,” Macquarie recently told clients. “While sales for the month of June did recover, it was not enough to offset the weakness seen over April and May.”

    From there we get space cadet figures which aren’t even attributed (to anything). Apparently they tell us that grocery spending is rising marginally while consumers are opening up the turps (which is a good distraction for the ambient reader). Then we get half a sentence from a Macquarie note suggesting grocery is weak right now (It is weak because the nation is in debt, and has become gripped by a load of rent seeking oligopolies creaming consumers every chance they get with impotent competition regulatory settings powerless to do much about it is the real issue here) with some timeframe references so short as to be meaningless – April and May were weak and June was up, so how are we looking YoY?

    The comments by Kraft Heinz come after another multinational, cereal giant Kellogg’s, told suppliers it would now take 120 days to pay them.
    Kellogg’s is Australia’s biggest cereal maker with an estimated one-third market share. A spokesman said Kellogg’s was “working with suppliers individually to ensure those payment terms are viable for their businesses”.

    From slipping the reader the thought of alcohol sales – even if unattributed – versus grocery sales, or where retail competition is intensified across much of the developed world for Kraft Heinz, all of a sudden we are back with the big bad business over there (pointing to Kellogg’s) and not here (where Coles Woolworths and Kraft Heinz mentioned in the opening paragraph are). It has told suppliers they can wait 120 days for payment – anyone interested in large producers and retailers taking producers to the cleaners should take a look at some of Michael West’s recent pieces, Supermarkets’ “pay-on-scan” scam ups ante on suppliers (August 7, 2016) and Pay time: the big squeeze on small business (August 1, 2016).

    But from there the line about Kellogg’s having someone work with suppliers is your classic example of corporate psychopathy. Slap some glib words into a press release about ‘working with’ and companies can often evade a look at the pressure they are actually bringing to bear. We can be pretty sure that whoever from Kellogg’s is ‘working with’ affected suppliers will also be letting them know they can be replaced by other suppliers that want the outlet for their product if they wont accept the terms Kellogg’s is dictating to them. It is exactly that sort of mindset that the corporate protected by a secure oligopolistic position will try and dictate across the board to bolster its profits – to suppliers and consumers, and even outlets if it thinks it can (or isn’t getting an appropriate cut from the outlets it is working with).

    Suppliers have long complained that long payment terms make them faux-banks and signal excessive market power.

    John Winter, chief executive of the industry body the Australian Restructuring Insolvency & Turnaround Association, said longer payment terms drive “financial distress.”

    “We don’t have any hard and fast data on this being causal in collapses, but there is no getting any from the fact that those suppliers will not be able to use that financial capital for other activities,” he said.

    The next sentence makes a valid enough point – suppliers do have issues about longer term payment timeframes – but it doesn’t refer to who is the supplier in the context of this article. You the reader are being supplied with bullshit on this point. Are we talking about suppliers to retailers (where we have no discussion on what their payment terms are, and no discussion of Coles Woolworths or Kraft Heinz who were mentioned in the lead sentence) or are we talking about suppliers to suppliers of products to the grocery retail world (in which case we have Kellogg’s being fingered for being nasty to suppliers but no look whatsoever about the impact this same approach has on consumers).

    After that, however, we certainly have an issue and one which becomes ever more paramount in a very low interest rate world (and one with soft demand) where large companies (with bigger balance sheets, in a better position to get credit from large banks) force terms on suppliers to them (who are not in as good a position with banks – generally smaller balance sheets, where cash flow is a more significant factor) and where this ability to force terms on suppliers can be used to buttress the bottom line of either a larger supplier or a retailer, and force the smaller suppliers to crimp their margins further. And if you think that approach might be solely reserved for suppliers, then try comparing the prices on offer at a supermarket without a competitor in the vicinity to those with a competitor over the road or down the street.

    John Winter is wheeled out to make a statement of the blindingly obvious, followed and an acknowledgement that there aren’t stats on the blindingly obvious.

    Industry body the Australian Food and Grocery Council said payment terms were “closely linked to payments from downstream trading partners.”

    A recent trade payment analysis showed the national average for time taken to settle invoices was 44.9 days in the June quarter.

    Dun & Bradstreet said the number was “still well below the corresponding 2015 result of 49.2 days. However, the rise marks the first increase in average payment times since the first quarter of 2015.”

    Stephen Koukoulas, economics advisor to Dun & Bradstreet, said trade payments remained “near historical lows, notwithstanding the uptick during the second quarter.”

    Finally we get the Food and Grocery council suggesting that it is the end consumer setting the payment date for suppliers with the risk involved in the wait not being carried by the retailers. Some mild stats tossed in to suggest there has been some improvement in the last year on the payment timeframes, and a closing introduction of the Kouk suggesting things have never been better, but at least providing a longer term perspective. What anybody was supposed to make of this bilge in the first place, or even why it was run, must remain a mystery. But it was in your press.