A (2:36)

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B (2:46)

Right now, our listeners can get a $500 match on their first $500 spent with code BREW500@ads.roku.com that's code B R E W 500@ads.roku.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 has acted as one to maintain its monopoly. This news sent the stock sliding 5% at the time and and it appeared the worst was yet to come for 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 did 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 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 is 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.

A (4:38)

It's feeling lucky. It gets all the benefits of being a monopoly without any of the downsides. 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 Metta, 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 in the year after that. By essentially just putting a slap on the wrist on Google, not forcing it to sell off its Chrome browser, saying you got to do a few things here and there, share some search data, but, but certainly far from the worst case scenario, which is why you saw shares pop yesterday and this morning.

B (5:17)

Yeah, and also one of the biggest winners of the Google case is Apple because Apple stock is 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 its 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.

A (5:53)

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 Microsoft in the late 90s and early 2000. Just a massive decision that everyone was watching to see what would, what would happen with Google and it gets to keep its business intact. Now Google's 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 adtech business. And it might have to spin off those, 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 is as it's been going on in a big win for big tech and a big loss for the government.

B (6:51)

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 Google's the meadows of the world people are saying we're entering 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 monopolization of the past quarter century is a complete failure of his duty and must be appealed. And so maybe there'll be some appeals.

A (7:22)

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 here, as we've been mentioning, but they will still appeal to Gail to get, you know, at as little of the harshness as possible.

B (7:34)

That's right.

A (7:35)

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 Heinz, 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. Sacrilegious, I know. But key to corporate synergy. The condiments company. Company will own items like Heinz ketchup, Philadelphia cream cheese, and Kraft Mac and Cheese, while the other will control things like Oscar Mayer, 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 vegg for the unintelligible ingredient list Kraft Heinz 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.

B (8:59)

Yeah, Warren Buffett pretty much hit them with the I'm not mad, but I'm disappointed in 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 are some really just tough headwinds this company or two companies are facing. 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 Velveeta 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 positioned for an acquisition. In 2023, Kellogg split off its more popular brands and its cereal brands remained under Kellogg, but the new brands went to Kellanova. Then that company was acquired. And so this might just be a better way to position company. A company that maybe shouldn't have got together in the first place. Now one might be able to be acquired or spun off in a different direction. So it opens the door for more possibility.

A (10:16)

You're seeing this all across the industry. Just mentioned Kellogg split off into two companies. Both of those companies were then acquired by Mars and then Ferrero, and then just a few weeks ago, Keurig, Dr. Pepper, another big merger of various food and 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. 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 to 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. None of them were getting enough love. They weren't devoting enough resources to each of them. Craft Single is just languishing there. I'm the only one who's buying because I love American cheese. And Capri sun is, 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.

B (11:23)

They need to protect Capri sun and Lunchables. Those two got me through elementary school. So no matter what, protect those brands.

A (11:29)

All right, let's take a quick break, but we'll be back with a CEO getting frisky with a coworker.

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A (13:06)

If things are bad at Kraft Heinz, they might be even worse at Nestle. The largest consumer goods company in the world ousted its CEO Laurent Fricks 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. The previous CEO was sacked last year for not doing a good job. So after the promotion of Nespresso head Philip Navratil 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 stock has lost almost a third of its value over the past five years, underperforming rivals like Unilever. Nestle, which makes KitKat, 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 and an insider was tapped to lead a turnaround. Kyle, which one are you?

B (14:23)

I'm. I'm team Philip Novraddle. 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 Nespresso, which coffee has been a really strong growth area for Nestle. 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 paying 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. 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. Well, 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 they. It sounds like they were trying to push this under the rug until they couldn't anymore. And, you know, good luck to Navratil.

A (15:42)

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? Like, 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 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 and now we're talking about Nestle is their MO Is we're just going to scoop up a bunch of different brands in different categories and then try to siphon off and spin off all of these categories that just aren't growing anymore, which is what Kraft Heinz is doing, and then lean into the ones that are growing. Analysts are saying, Nestle, you are hanging too much onto coffee and chocolate, which is your bread and butter. But it's just a business that isn't growing right now. You need to get into things like vitamins or pet foods or different adjacent areas that are growing. So we'll see if Navardal takes up that mantle. Yeah.

B (16:55)

And they've outlined the strategy, which is bring volume back. They want to do better M and 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, and they need to go focus more on emerging markets that can untap some growth.

A (17:11)

All right, well, I need a kick out after this. Let's head back to the US For a third 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 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 US sales behind Coke. Dr. Pepper and Coke owns Sprite and its independent beverage distributors told the Wall Street Journal that they have never 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 force changes at other target companies. Starbucks and Southwest Airlines expect Elliott to come into the Pepsi boardroom guns a blazing.

B (18:14)

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 brand As you mentioned, it's fallen to fourth place. So there's a lot of upside here. One of the main focuses for Elliott is that Pepsi should refranchise 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. Elliott'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 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 Elliott's definitely going to force their hand. They have a massive stake in this company. I think there's a lot of upside here.

A (19:11)

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. A k a 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 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. Re engaging the low income consum critical, McDonald's CEO said as they typically visit our restaurants more frequently than the middle and high income consumers, we'll see if the return of the extra value meal does the trick.

B (20:09)

We can't do four food stores in a row.

A (20:11)

No, we can't.

B (20:12)

I'm too hungry. What's your McDonald's go to order?

A (20:15)

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. 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.

B (20:41)

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. 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 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 around because I need my double cheeseburger meal.

A (21:32)

And whatever McDonald's does, the fast food industry follows. So some analysts are saying we're about to see a price war in fast food because of 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 where 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 Moll is going to try. The 39 year old journalist has been tapped as the new head of editorial content for Vogue US replacing the legendary Anna Wintour, who ran American Vogue for 37 years. 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 Conde Nast. Mal is a self described proud Nepo baby, the daughter of actress Candice Bergen and film director Louis Mall. 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, Mol will be tasked with keeping Vogue relevant and at the center of the fashion world in the rough and tumble media landscape, 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 Yankees after Derek Jeter when Tor has an almost impossible legacy to live up to.

B (22:51)

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 Wears Prada too. Coming soon. I'm still hoping to see Anne Hathaway somewhere in New York. I'm more excited for that movie than the actual changes at Vogue.

A (23:06)

Well, it's a tough job for sure what mall 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. 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, and Travis Kelsey, I forgot his name, got engaged, they all published, you know, stories right away about what happened. But she said that the story that got more traffic than their quick turnaround piece was an analysis of Taylor Swift's diamond ring. So that's what they're going to lean into is more of those. More of those deep dives, more of those analysis and, you know, we wish your luck.

B (24:13)

I like the strategy.

A (24:14)

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, prompting a homicide investigation by local and federal officials. At around 9:14pm 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.

B (24:53)

Yeah, this is a crazy story, obviously. Very sad. It sounds like True Detective season five or something. Like, I can't imagine a more complex crime scene than Burning Man. And so I hope they're able to get to the bottom of this. But trul. Something out of, like, a TV show.

A (25:07)

But there is. Speaking of coming out of a TV show, there is a circle of life moment 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 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.

B (25:39)

We have to watch. We have to watch that baby grow up because I feel like there's some, like, witchy spirits that is going to be imbued in the baby.

A (25:47)

Finally, one of the most popular video games in history is heading to the big screen. Yesterday, Paramount, Skydance said it inked a 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 exceptionally high standards this franchise and its fans deserve. And it takes one to know on. 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 how to turn successful video games into successful TV shows and movies. But recently, it's starting to click. And this Call of Duty flicks has Blockbuster written all over it.

B (26:31)

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. It's too tempting.

A (26:42)

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 in 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, Super Mario Brothers, a Minecraft movie which was $1 billion movie. Paramount 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.

B (27:39)

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 can only.

A (27:48)

Well, they thought that would be the case with Halo, but that flopped.

B (27:51)

Yeah. So hopefully, hopefully Call of Duty is more like Minecraft and less like Halo.

A (27:55)

That 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 Brew daily at Morning Broadcom. Let's roll the credits. Emily Milian is our executive producer. Raymond Lu 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 Emery is our president and our shows are production of Morning Brew.

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See y' all tomorrow.

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