By Matthew Gutierrez and Shawn OβMalley
The rich and powerful are meeting in Davos this week. If, like us, you didnβt get an invite, this is what theyβll be talking about.
As the exclusive gathering has fallen under scrutiny, its impact has probably been muted, but the event carries on.
One area of concern? The worldβs five wealthiest men keep getting richer. Elon Musk, LVMHβs Bernard Arnault, Jeff Bezos, Oracle co-founder Larry Ellison, and Warren Buffett have seen their combined wealth double since 2020 to $869 billion.
π If that pace continues, it wonβt be long before we have the worldβs first trillionaire.
β Matthew & Shawn
Hereβs todayβs rundown:
Today, we'll discuss the three biggest stories in markets:
Chinese officials load up stimulus bazooka
John Deere partners with SpaceX
Why Burger Kingβs corporate owner is buying a franchisee
All this, and more, in just 5 minutes to read.
POP QUIZ
Chart of the Day
In The News
π€ Chinese Officials Load Up Stimulus Bazooka
Our Chart of the Day (in the section above) shows that Chinese growth remains a top concern for the global economy.
Extended pandemic lockdowns, rocketing youth unemployment, deflation, indebted local governments, a real estate bubble, and regulatory crackdowns spooking foreign investors encapsulate just a few of the headwinds hitting Chinaβs economy in recent years.
And as βthe worldβs factory,β which boasts over a billion of its own consumers, what happens in China matters everywhere.
Special plan: On that note, Chinese officials have highlighted a major plan to shore up the worldβs second-largest economy.
This βspecial sovereign bond planβ would raise almost $140 billion in new debt, China's fourth-largest fundraising effort in 26 years.
With payback dates decades away, these long-term bonds are intended to fund projects related to food supplies, energy, supply chains, and urbanization.
Why it matters:
Ever since the Asian Financial Crisis in 1998, big bond sales like this to fund central government spending have been rare. An exception was made in 2020 to backstop pandemic response measures with a similarly large fundraising effort.
The move reflects a broader strategy shift. Chinaβs President, Xi Jinping, seemingly hopes to tilt spending and stimulus efforts away from local governments to the countryβs central government, particularly as regional governments in China have become increasingly debt-laden.
China is open for business: This came as Chinese Premier Li Qiang spoke to business elites at the World Economic Forum in Davos on Tuesday, making unexpected assurances to foreign investors that Chinese investments represent an opportunity β not a risk.
Specifically, he outlined that Chinaβs expected economic growth this year is 5.2%, offering an early preview into the governmentβs official GDP report for 2023 to be released Wednesday.
Whether investors buy that forecast remains to be seen, with more than $11.8 billion exiting Chinaβs economy late last year, βimplying firms were yanking profits or disinvesting from China altogether,β according to the WSJ.
That marked China's first negative quarterly outflow of foreign direct investment since 1998.
π John Deere Partners With SpaceX
Hereβs a cool new term: space farming. No, not farming in space (maybe one day!), but rather, farming (on earth) powered by space.
While farm equipment has become remarkably complex, internet connectivity has remained a limiting factor for years. Perhaps not anymore, though, thanks to Elon Muskβs space company.
Space internet: John Deere will tap SpaceXβs satellite fleet to support the companyβs efforts to automate planting and harvesting in remote locations.
John Deere is the planetβs largest farm machinery manufacturer. Its SpaceX deal will help connect tractors, seed planters, crop sprayers, and other equipment in areas with limited internet.
Said Deereβs chief technology officer, βThis takes us a step closer to ubiquitous connectivity anywhere in the world.β
Why it matters:
From software enabling herbicide sprayers to distinguish between weeds and crops to driverless tractors plowing fields, Deere has poured billions into helping farmers digitize their operations.
While SpaceXβs satellite network, known as Starlink, has gained notoriety for its use in the war in Ukraine, automated farming in remote areas represents one of many areas where the company is facilitating compelling new possibilities.
Itβs estimated that 30% of U.S. farmland lacks sufficient Wi-Fi service. That problem is higher globally β in Brazil, for example, 70% of farmland has inadequate internet access.
Digitized farming: For Deere, using satellites to keep their products connected to the internet reflects a broader focus on turning agriculture into a high-tech biz.
Deere execs hope 10% of company revenues by 2030 will come from software service fees, offering a higher-margin and steadier business model than conventional machinery sales.
Everybody wants to sell software these days, and Big Agriculture is no different.
More Headlines
π³οΈ Former President Trump wins Iowa caucuses
πͺ Goldman Sachs beats on earnings
π€ Americaβs best jobs in 2024
β‘οΈ Elon Musk wants more control of Tesla, seeks 25% of voting power
πΎ Crop-killing weeds are advancing across U.S. farmland
π¬ Banks plan to challenge Biden administration on overdraft fees
π Burger King Owner Buys Franchisee for $1 Billion
America may run on Dunkinβ β but it also runs on burgers and fries. Industry giants like McDonaldβs, Wendyβs, and Burger King rack up tens or billions of dollars in annual sales nationwide, and their stores line many American roadways.Β
Most of their restaurants are franchises. For Burger King, itβs 99.7% of their locations, to be precise.Β
Whatβs new? This week, the owner of Burger King did something fairly unusual: It bought its largest U.S. franchisee for about $1 billion in cash to revamp hundreds of locations and boost sales.Β
New year, new me: That owner, Restaurant Brands International Inc, will buy Carrols Restaurant Group by the second quarter of this year, then spend about $500 million to remodel 600 of the more than 1,000 locations.Β
βThis presents an opportunity for us to really take charge of the BK U.S. image transformation,β said a Burger King executive.
Burger King was founded in 1953 in Florida, though it has long trailed behind McDonaldβs and recently fell behind Wendyβs in U.S. sales.Β
The goal: In short, Burger King wants to refranchise many stores to new or smaller owners, which could take five years or longer. The chain wants to increase its βoperator baseβ in the U.S. to about 400, up from 300.Β
Yes, itβs common for a franchisor to buy an operator, but itβs less common to see an acquisition where the owner is buying a large franchisee that is outperforming other franchises.
βTypically, you want your franchisees to have scale,β one analyst commented. βMost chains are trying to consolidate their franchise systems.β
Burger King executives say the βsweet spotβ for franchise operators is about 50 locations, enough where they live relatively close to all of them and can focus on guest satisfaction and the real North Star: profitability.
Why it matters:
The news offers a window into the big world of franchising, which began in the U.S. around 1850. But it didnβt become popular until the 1960s and 1970s as KFC, Dunkin, McDonaldβs, Burger King, and other chains grew as automobiles became widespread.Β
Franchising allows business owners to buy into a much larger company β in this case, Burger King β and become the owner of one or more locations of that business. The franchisee agrees to all kinds of terms, and theyβre seen as less risky than starting a business from scratch.Β
The cost to open a Burger King franchise includes an initial $50,000 fee, then royalty fees (4.5% of gross sales) and advertising fees (4% of gross sales). Prospective franchisees must be worth at least $1 million with a minimum liquid capital of $500,000.
The Burger King news comes a year after the parent company launched a $400 million plan to revive the business.
As a Burger King executive said, βIβve always been a big believer in the network effects, getting an entire portfolio remodeled. I think that when consumers see that across the market consistently, it helps with recruiting, it helps with staffing the restaurants, it helps with the overall image and perception of the brand.β
Quick Poll
On Friday, we asked: Do you think your company is doing enough to embrace AI?
β Said one No voter, βItβs still early for most companies to adopt AI into their business. They probably take a stand to wait and see the results of early adopters.β
β Wrote another reader, β(Iβm) retired, but it will impact all companies in 3 years. Those who embrace it and those who do not.β
TRIVIA ANSWER
See you next time!
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