It’s possible that I shall make an ass of myself. But in that case one can always get out of it with a little dialectic. I have, of course, so worded my proposition as to be right either way (K.Marx, Letter to F.Engels on the Indian Mutiny)
Tuesday, February 06, 2024
N.B. Power facing $32.6M revenue loss after September surprise by Higgs scrambled its budget
CBC Mon, February 5, 2024 Premier Blaine Higgs signed an order last September releasing N.B. Power from a hard 2027 debt-reduction target. That forced the utility to tear up its budget and postpone an October rate increase application 10 weeks to mid-December, a delay that may cost the utility $32.6 million. (Jacques Poitras/CBC - image credit)
N.B. Power is appealing to the New Brunswick Energy and Utilities Board to save it from a "deleterious" financial loss caused by the Higgs government blowing up months of its corporate budgeting last fall.
The utility has applied for a 9.25 per cent rate increase that it says it needs to begin on April 1 but a hearing into the request isn't scheduled to even start until mid-May because the company was more than 10 weeks late in filing its request.
N.B. Power says that means a decision on new rates from the board, after it reviews evidence from a May hearing, will probably take until July 1. That, it claims, will cost the utility millions of dollars in lost revenue in April, May and June that it cannot afford to give up.
To remedy that, N.B. Power lawyer John Furey filed a motion with the utilities board last week asking for an "interim" rate increase on April 1, before a hearing is held into whether or not the increase is reasonable.
"Even in the most optimistic scenario in which the board is able to render a partial decision which enables the implementation of rates by July 1, 2024, N.B. Power will sustain a negative net impact of $32.636 million," Furey wrote in the motion. N.B. Power lawyer John Furey and utility president Lori Clark at an Energy and Utilities Board hearing in 2020. Furey is asking the board to grant an interim rate increase of 9.25 per cent on April 1 before a hearing into the increase is held in May. (Roger Cosman/CBC)
He said missing out on higher rates for three months could wipe out any profit N.B. Power might earn in the coming year and will further deepen its already serious debt problems.
"The likelihood that N.B. Power's earnings would be so substantially reduced, or become negative, is a deleterious impact that justifies the implementation of interim rates," Furey wrote.
Last year N.B. Power was operating under a directive from the Energy and Utilities Board to file for new rates by Oct. 4 to allow for a February hearing into the request.
That was to give the board plenty of time to approve rates or reject and adjust them prior to the beginning of N.B. Power's fiscal year on April 1.
The utility had spent months developing plans and budgets to meet those deadlines.
It was a major undertaking because of N.B. Power's growing financial troubles, major upcoming capital projects and a directive from the Higgs government for it to lower its debt level by hundreds of millions of dollars from 94 per cent to 80 per cent of its total capital structure by March 31, 2027.
Plans for a fall 2023 election in New Brunswick were so advanced organizers for Premier Blaine Higgs booked a bus and outfitted it with PC branding, a new campaign slogan and a giant photo of the premier. A large rate increase announcement from N.B. Power was planned around the same time but postponed after cabinet upended its budget. (Submitted by Charles Doucet)
However, on Sept. 25, nine days before N.B. Power's deadline to submit its rate request, Premier Blaine Higgs signed a surprise cabinet order extending its debt reduction target two years, to March 2029.
It significantly lowered the amount of money the utility would need for immediate debt reduction and upended months of budgeting which then had to be reconstructed.
Eventually N.B. Power filed its rate request 72 days late, on Dec. 15.
"The entire GRA [general rate application] filing package, which was largely complete as of September 27, 2023, when the directive was received, must be updated and/or revised to reflect that directive," N.B. Power's chief financial officer Darren Murphy said in an affidavit explaining the delay to the board.
Premier Blaine Higgs has acknowledged he was on the verge of calling a fall general election around the time N.B. Power was originally scheduled to apply for its rate increase .
Reducing N.B. Power's debt target just days before the filing deadline pushed the announcement of a large increase outside of a potential election window but the government has denied that was a consideration in the last minute change.
"Not politicking at all, not so," Mike Holland, minister of natural resources and energy development, said about the cabinet decision at the time.
"This has been a part of our daily work — not something that we dream up off the cuff."
Higgs eventually changed his mind about the election — despite his party preparing election materials for it, including the renting and outfitting of a campaign bus and Elections New Brunswick spending $1.7 million to prepare returning offices.
Costs to N.B. Power are much higher.
According to the utility it will lose $12.2 million in revenue in April, $10.8 million in May and $9.6 million in June if the original delay in its application pushes the approval of higher rates to July.
It argues granting a full 9.25 per cent increase on April 1 is not harmful because if a full hearing later determines a lower increase should be awarded, overpayments from customers in the early months can be calculated and returned through discounts on a future bill.
It may be a tough argument for the utility to win.
In 2016 the EUB rejected N.B. Power's application for an interim rate increase under similar circumstances. The utility had failed to apply for an increase until late December but requested it be granted on April 1 prior to a hearing.
The request was denied.
Christopher Stewart was a lawyer for J.D. Irving Ltd. in 2016 when he argued against NB Power receiving an interim rate increase from the utilities board before a full hearing was held. He's now a board member and will likely have to rule on a similar application this year.
Christopher Stewart was a lawyer for J.D. Irving Ltd. in 2016 when he argued against N.B. Power receiving an interim rate increase from the utilities board before a full hearing was held. He's now a board member and will likely have to rule on a similar application this year. (Shane Fowler/CBC)
An additional problem for N.B. Power is that two of the lawyers who argued against awarding an interim increase in 2016, then Public Intervener Heather Black and J.D. Irving Ltd. lawyer Christopher Stewart, have since been appointed to the utilities board as members. Both will likely be involved in ruling on whether or not to grant an interim increase this year.
Stewart was especially skeptical back in 2016.
"What N.B. Power is asking this board to do in this particular application is to say, 'look, we didn't get our work done on time but we would like the result we had wanted if we got our work done on time,'" Stewart said in his 2016 argument.
"That's no basis for you to grant an interim rate increase in this circumstance."
N.B. Power lawyer John Furey, who lost that 2016 application, notes in his motion this year that the late application is the New Brunswick government's fault, not N.B. Power's — a distinction the utility hopes will make a difference.
"The basis for the requested variance of the filing date for this application was beyond the control of N.B. Power," wrote Furey in his current motion.
N.B. Power sells 2 Fredericton properties to Toronto firm
CBC Tue, February 6, 2024 NB Power has sold both its original headquarters building in Fredericton and its most recent to Toronto-based Forum Asset Management. (Edwin Hunter/CBC News - image credit)
N.B. Power has sold its two downtown Fredericton buildings, one of them a heritage property, for $39 million, hoping to pay off some debt and lower operating costs.
The sale will see N.B. Power move all of its offices to 527 King St., the company's former headquarters near Carleton Street, where it will now lease space.
"The sale will allow us to make progress towards paying down debt, reducing operating expenses and improving energy efficiency in the building," Dominique Couture, an N.B. Power spokesperson, said in an emailed statement. Architect John L. Feeney designed the headquarters for the New Brunswick Electric Power Commission, which was built in 1949.
Engineer John Feeney designed the headquarters for the New Brunswick Electric Power Commission. The building now has heritage value, according to the province. (Edwin Hunter/CBC News)
The 515 King St. property will undergo renovations to improve its energy efficiency.
"Consolidating NB Power's office space into one building and bringing in a national building operator signals a transformational approach to running our business and demonstrates our strategic plan in action, using partnerships to improve our operational performance," Couture said.
She said a public request for proposals was issued last year by a national real estate brokerage, which resulted in several bids from across the country. NB Power's current headquarters are 515 King Street was sold as part of the deal with Forum and will no longer be occupied by the utility.
N.B. Power's current headquarters at 515 King St. will no longer be occupied by the utility, which will move its operations to the 1949 building on a lease basis. (Edwin Hunter/CBC News)
The building at 527 King was completed in 1949. Designed by engineer John Feeney, the building is considered to have heritage value because of the skill required to build it at that time, according to the Parks Canada Historic Places website.
Feeney's career began in 1910, when he became city engineer with the City of Fredericton. He later worked for the Dominion Engineering Department, until he took a job with the New Brunswick Electric Power Commission.
At the time, the utility's headquarters were in Saint John, and Feeney was given the job of designing a new headquarters in Fredericton, which turned out to be the 527 King St. building.
The four-storey brick and stone building reflects "a fusion of Modern Classical and Art Moderne elements," according to HistoricPlaces.com.
The building on 527 King Street has heritage value due to the skill required to build it in the 1940s. According to the Historic Places website, the four-storey structure reflects “a fusion of modern classical and art moderne elements."
The four-storey building at 527 King reflects 'a fusion of Modern Classical and Art Moderne elements,' according to HistoricPlaces.com. (Edwin Hunter/CBC News)
The defining elements of those architectural styles include the building's balanced front facade and projecting frontispiece, central windows separated by fluted pilasters, the curved walls of the entrance and simple cornice over the first storey, the website says.
The utility's name in those days, New Brunswick Electric Power Commission, is etched across the top of the building.
Fredericton firm MacPherson and Myles built the structure based on Feeney's design. He became the utility's chief engineer in 1951.
The building was recognized as a historic building by the province in 2009.
How a Black pioneer helped the boom of northern B.C.'s gold rush
CBC Sun, February 4, 2024 A painting commissioned by the Huble Homestead/Giscome Portage Heritage Society from Richard Estell depicts John Robert Giscome, Henry McDame and two Lheidli T'enneh guides on their travels up to the Peace River Country. (Huble Homestead/Giscome Portage Heritage Society - image credit)
John Robert Giscome left his mark on British Columbia.
A trail and small community north of Prince George, B.C., are named in his honour.
But Krystal Leason, executive director of the Huble Homestead/Giscome Portage Heritage Society in Prince George, says many people don't know much about the prospector and his role in northern B.C.'s gold rush.
"[People] often assume he's white and so they're very surprised to discover that he was actually a Black man from Jamaica, which is pretty neat and really speaks to the early diversity of B.C. and the contributions of Black people to our province's history," Leason said.
For Cecil Giscombe, a writer and professor of English at the University of California Berkeley, learning about the prospector has given him insight into a distant relative.
"The Giscome/Giscombe name, there aren't very many of us," Giscombe told CBC News. "It's a small family and all of us trace our heritage back to the north coast of Jamaica."
Leason and Giscombe hope more people learn about Giscome's journey affected travel into northern B.C. for years to come.
"Giscome is kind of a minor figure … [but he] opened up the north for all sorts of mercantile things," said Giscombe.
John Robert Giscome and Henry McDame were allegedly the first non-Indigenous people to travel on the trail now known as the Giscome Portage Trail. After Giscome publicized knowledge of the shortcut, it became the main way of travel through Northern B.C. during the gold rush.
John Robert Giscome and Henry McDame were allegedly the first non-Indigenous people to travel on the trail now known as the Giscome Portage Trail. After Giscome publicized knowledge of the shortcut, it became the main way of travel through Northern B.C. during the gold rush. (Huble Homestead/Giscome Portage Heritage Society)
Retracing 'a hero's journey'
Records show Giscome left his hometown of Saint Mary, Jamaica in 1854 to work on California's Panama Railway.
Giscome and nearly 600 other Black people left California due to discrimination and harassment, according to Giscombe, and settled on Vancouver Island at the invitation of James Douglas, B.C.'s first governor.
"Douglas greeted them happily … he was afraid that British Colombia was about to be annexed by the United States. He was happy to have people who did not like America," Giscombe said.
Giscome decided to seek his fortune in gold. In Quesnel, he met Bahamian Henry McDame, who joined him to prospect the Peace River country.
With ice and high water levels impeding their progress, the unnamed guide suggested a shortcut, which Leason says cut a 100-kilometre trip down to just 12 kilometres.
In 1863, John Robert Giscome relayed information about his travels to and through the Peace River country for an article in the British Colonist. The story he relayed of a shortcut between two waterways led to the formation of the Giscome Portage.
In 1863, John Robert Giscome relayed information about his travels to and through the Peace River country for an article in the British Colonist. The story he relayed of a shortcut between two waterways led to the formation of the Giscome Portage. (British Colonist archives)
The group was greeted by "a salute of about 30 shots" when they arrived at a Hudson's Bay Company fort for being the first non-Indigenous people to travel that way, the British Colonist article says.
"It really was a game changer in the way people access the north," said Leason, adding the article created awareness of the route and prompted it to be named Giscome Portage.
"In the early 1900s when settlement was really booming in Fort George and this region … there's hundreds of people passing through … for settlement, for mining, for trapping, for prospecting … on Giscome Portage."
Leason says while not much is known about McDame, records show Giscome "actually struck gold" as a prospector.
She adds he left $21,000, the equivalent of about $500,000 in today's dollars, to his Victoria landlady after he died in 1907. Cecil Giscombe biked and camped from Vancouver to Prince George, B.C. to retrace and better understand the trip taken by his distant relative John Robert Giscome in the 1800s.
Cecil Giscombe biked and camped from Vancouver to Prince George, B.C., to retrace and better understand the trip taken by his distant relative in the 1800s. (Cecil Giscombe)
In 1991, Giscombe followed Giscome's steps through "a hero's journey," biking and camping all the way to Prince George.
"I camped [near Giscome Portage] trying to feel authentic and being vaguely nervous about the bears," said Giscombe, who released books in 1998 and 2000 about his discoveries.
"But walking the portage, just being there and breathing … and you're just feeling incredibly ebullient like, oh wow, oh sugar, this is beautiful."
Since then, Giscombe has travelled to Victoria and Jamaica to trace more history, but every year he finds himself back in Prince George to visit friends and walk the trail made popular by a distant, but dear, relative.
For more stories about the experiences of Black Canadians — from anti-Black racism to success stories within the Black community — check out Being Black in Canada, a CBC project Black Canadians can be proud of. You can read more stories here.
(CBC)
CANADA Extension of foreign buyer ban won't solve affordability woes, economist says
Denise Paglinawan Tue, February 6, 2024 Aerials Views Of Toronto As Housing Prices Fall For Fourth Month
Ottawa’s decision to extend a ban on foreign homebuyers for an additional two years is a reasonable move, but will not go far to address the country’s housing affordability crisis because such buyers are not a major factor to begin with, a leading bank economist says.
The plan to extend the ban, which came into effect on Jan. 1, 2023 and was set to expire on Jan. 1, 2025, was announced on Sunday by deputy prime minister Chrystia Freeland. The ban will now expire on Jan. 1, 2027.
CIBC World Markets Inc. deputy chief economist Benjamin Tal said that while the ban is “reasonable policy” and “a step in the right direction,” he does not consider it a major macroeconomic move.
“I’m not surprised whatsoever that they extended it,” Tal said, noting that foreign buyers are an easy target for a government eager to show it is taking action on housing.
Mortgage strategist Robert McLister said the foreign buyer ban is “like a magician’s handkerchief” that diverts attention from the actual problem of too many incoming immigrants relative to the number of homes built.
McLister, who write a column for the Financial Post, said that a large share of foreign buyers purchase high-end properties and banning those individuals can result in lost tax opportunities and can dampen the wealth of more affluent Canadians, who benefit from the price gains at the higher end of the real estate spectrum.
Under the ban, foreign commercial enterprises and people who are not Canadian citizens or permanent residents are prohibited from purchasing residential property in Canada either directly or indirectly.
“For years, foreign money has been coming into Canada to buy up residential real estate, increasing housing affordability concerns in cities across the country, and particularly in major urban centres,” Freeland said in a press release announcing the extension. “By extending the foreign buyer ban, we will ensure houses are used as homes for Canadian families to live in and do not become a speculative financial asset class.”
Vancouver had the largest proportion of non-resident ownership in urban Canada at 4.3 per cent In 2021, according to the latest available data from Statistics Canada. Charlottetown had the second-highest rate at 3.5 per cent, while Toronto sat at 2.6 per cent.
The ban on foreign buyers carries the potential for fines of $10,000 for violations.
Officially known as the Prohibition on the Purchase of Residential Property by Non-Canadians Act, the ban was meant to take some pressure off home prices amid an affordability crisis only made worse by the rising cost of living brought on by inflation and elevated interest rates.
Housing prices have soared over the past decade, pushing the cost of home ownership out of reach for many people.
—With additional reporting from the Canadian Press
Crypto mining company loses bid to force BC Hydro to provide power The Canadian Press Mon, February 5, 2024
VANCOUVER — A cryptocurrency mining company has lost a bid to force BC Hydro to provide the vast amounts of power needed for its operations, upholding the provincial government's right to pause power connections for new crypto miners.
Conifex Timber Inc., a forestry company that branched out into cryptocurrency mining, had gone to the B.C. Supreme Court to have the policy declared invalid.
But Justice Michael Tammen says in a ruling issued Friday that the government's move in December 2022 to pause new connections for cryptocurrency mining for 18 months was "reasonable" and not "unduly discriminatory." BC Hydro CEO Christopher O'Riley had told the court in an affidavit that the data centres proposed by Conifex would have consumed 2.5 million megawatt-hours of electricity each year.
That's enough to power and heat more than 570,000 apartments, according to data on the power provider's website.
Energy Minister Josie Osborne said when the policy was introduced that cryptocurrency mining consumes "massive amounts of electricity" by running high-powered computers around the clock, but adds "very few jobs" to the local economy.
This report by The Canadian Press was first published Feb. 5, 2024.
The Canadian Press
Exclusive: Bionaut Labs raises an extension round in preparation for micro-robot clinical trials Allie Garfinkle Tue, February 6, 2024 Robyn Beck—AFP/Getty Images
Have you ever seen the movie Fantastic Voyage? I hadn’t, but everyone I talked to at or around medical micro-robots startup Bionaut Labs kept telling me I had to.
Once I watched it, I saw why—the movie, released in 1966 and starring Raquel Welch, is about a futuristic technology allowing people to shrink down, so tiny that they can enter the human body to do surgery. The movie may be psychedelic and far-fetched, but if Bionaut has its way, that future is imminent (sort of).
Bionaut is building micro-robots that precisely deliver drugs to hard-to-reach areas in the human brain. The company’s goal is to build “an elegant solution…that can reach places in the body we previously just couldn’t go,” said Bionaut CEO and cofounder Michael Shpigelmacher.
So far, the company’s animal testing has been successful, and Bionaut has now raised more cash in anticipation of what will be the company’s biggest challenge yet: human clinical trials later this year.
Fortune can exclusively report that Bionaut’s raised an extension round, which involved the Mayo Clinic, along with existing investors Khosla Ventures, Upfront Ventures, and OurCrowd. Fortune has also learned that Bill Gates’ Gates Ventures has invested, per two sources familiar with the matter. (A Gates Ventures representative didn’t return two requests for comment.)
To date, Bionaut has raised over $70 million, Fortune can confirm. In 2022, the company closed its Series B, led by Khosla, bringing the total the company had raised by then to $63.2 million, according to Crunchbase. Bionaut declined to disclose valuation.
Bionaut’s micro-robot is about the size of a grain of rice and is meant to move through the human body’s bloodstream and tissue to deliver drugs far more accurately than we can today. The micro-robot is controlled through magnetism—Bionaut’s scientists and engineers move the robot through the body by tweaking the electromagnetic field.
"We think that this paradigm that we're bringing in time could spawn a whole different generation of ways to treat diseases,” said Shpigelmacher, who previously cofounded PrimeSense, a 3D sensor technology company acquired by Apple in 2013 for a reported $345 million (some reports suggested as much $360 million or $400 million). PrimeSense’s technology became FaceID.
Eventually, the company aims to deliver a wide range of treatments dispersed throughout the body via “the Bionaut.” This in mind, Bionaut’s total addressable market is unknowable, but “any number you came up with would be big enough to justify the investment,” said Samir Kaul, Khosla Ventures founding partner and managing director. OurCrowd CEO and founder Jonathan Medved echoed that sentiment: "What I'm hoping for is that one tenth of the potential is realized.”
In the near-term, the company has decided to focus on the area most requiring precision drug delivery: the brain, with the goal of treating diseases like cancer and Parkinson’s. However, the first use case the company is bringing to bear in clinical trials will be comparatively simple: Dandy-Walker Syndrome, a condition characterized by accumulating brain fluid.
Still, Bionaut faces challenges by nature of what they do—biotech hardware is a famously tough-to-predict sector, said Kazi Y. Helal, PitchBook senior emerging technology analyst.
“They’re shooting for the stars by targeting neurology, so that’s a good moat,” he said. The trouble is, it doesn’t matter if you raise a Series C, D, or make it to an IPO, if you can’t get the technology to provide its practical, promised value.
“That’s the big risk for them, and that’s where I’m a little skeptical,” said Helal. “The validation of raising money’s nice, but what’s real is when it goes into a human and there are no toxic effects. We’re still waiting for that.”
So, is this just a far-fetched, psychedelic fever dream? Bionaut’s offices are decorated with sci-fi movie posters, so I’d say they know they’re dreaming—they just have the conviction to believe they can make their dream come true.
Ultimately, Bionaut’s moonshot is its purpose.
“This is what venture is meant for, right? These kinds of big, audacious ideas––not just functional, incrementally better technologies, but genuinely new modalities, truly revolutionary technologies,” Upfront Ventures partner Kevin Zhang told me.
If Bionaut’s successful, we could be far closer to something that, decades ago, was purely sci-fi. The Fantastic Voyage’s title card reads: “Someday, perhaps tomorrow, fantastic events you are about to see can and will take place.”
Well, perhaps not tomorrow, but maybe someday soon.
Piedmont Lithium lays off 27% of workforce amid weak prices Reuters Tue, February 6, 2024 A rock is displayed at Piedmont Lithium's headquarters in Belmont
(Reuters) -U.S. miner Piedmont Lithium said on Tuesday it recently completed a 27% reduction in its workforce as part of a cost-cutting plan, amid a decline in the price of lithium.
The company said it expects to complete the majority of its cost saving initiatives by the end of the first quarter and aims to achieve about $10 million in annual savings. It had 40 employees as of Dec. 31, 2022.
In January, larger rival Albemarle had announced its intention to cut jobs and halt expansion in response to declining prices for the metal used in electric vehicle batteries.
“These cost reduction actions, while difficult, are necessary to position the company for the long-term. Lithium prices have fallen sharply, and the market consensus is currently negative," CEO Keith Phillips said in a statement.
The global supply of the metal has outpaced demand from the battery market over the last year, resulting in an 81% decline in prices, according to Benchmark Mineral Intelligence.
Piedmont said on Tuesday it has provided additional information to North Carolina regulators to obtain a long-delayed mining permit and that a decision is expected in the coming weeks.
The company has also invested in Quebec-focused Sayona Mining and Ghana-focused Atlantic Lithium, securing access to lithium from both companies.
(Reporting by Sourasis Bose in Bengaluru; Editing by Savio D'Souza and Dhanya Ann Thoppil)
Ivory Coast Cocoa Output Risks Lagging Contracted Sales Mumbi Gitau, Baudelaire Mieu and Yinka Ibukun Tue, February 6, 2024
(Bloomberg) -- Ivory Coast’s prolonged weather crises risk leading to a cocoa bean shortfall of 70,000 to 100,000 tons compared with contracted main-crop sales, according to people familiar with the matter.
Le Conseil Cafe-Cacao, the country’s regulatory body, has sold about 1.35 million tons in forward contracts for the 2023-24 main-crop that runs through March, the people said.
The CCC cautiously sold the 2023-2024 harvest to take into account the expected drop in production, a spokeswoman for the industry regulator said, declining to comment on the size of shortage. The head of the regulator earlier dismissed buyer concerns over dwindling supplies and declined to give data on beans sold so far.
Ivory Coast’s cocoa harvest is divided into two parts — the first or main-crop plucked between October through March — and a smaller mid-crop that follows.
“We remain confident we will fulfill all the contracts with the main crop,” Yves Kone, who heads the CCC, said by phone. “The harvest hasn’t yet ended. In the worst-case scenario, in the past, we’ve used the mid-crop to cover contracts.”
The CCC typically sells the bulk of a season’s expected crop months in advance to exporters who must buy the volumes they booked once the harvest starts. In surplus years, companies comfortably purchase the contracted volumes, and the regulator can sell the excess beans in the spot market. However, a production shortfall like the one playing out in Ivory Coast, means it’s likely some contracts cannot be met.
The increasing intensity of the seasonal dusty Harmattan winds in the region is sparking worries about damage to the upcoming mid-crop as well as next season’s bigger main-crop harvest. Already, the CCC has halted the 2024-25 forward sales until it has a clear picture on production.
That adds to global concerns over tight supplies that have pushed prices to the highest in four decades. The production shortfall in the top grower this season has already hurt exports, currently lagging the previous season by nearly 40%. Cocoa futures in New York soared past $5,200 a ton on Monday before pulling back slightly.
If the deficit leads to companies rolling over their unfulfilled contracts into the mid-crop it will diminish supplies available in the country. In addition to the lower output, factories in Ivory Coast may also struggle to keep processing because a tax incentive that boosted local grinding ended last year.
McDonald’s is promising ‘attention to affordability’ after the price of Big Mac meals hits $18
Orianna Rosa Royle Tue, February 6, 2024
More isn’t always more—as McDonald’s CEO recently admitted. After beefing up its prices in the hopes of generating more sales, the burger giant actually wound up turning off some core customers. Now, its chief executive Chris Kempczinski has hinted at a U-turn to lower prices, with a focus on “affordability” to boost sales.
On an earnings call Monday, Kempczinski revealed that sales in the last quarter fell short of expectations for the first time in nearly four years, thanks in part to higher menu prices.
“I think what you’re going to see as you head into 2024 is probably more attention to what I would describe as affordability,” Kempczinski told analysts.
The company posted global same-store sales growth of 3.4% for Q4, falling short of estimates of a 4.79% jump. In contrast, same-store sales increased by 8.8% in Q3—before the increased menu prices—beating analyst estimates at the time. Low income customers are snubbing fast food for home-cooking
Thanks to price hikes at the end of last year, the once ultra-affordable fast food chain is no longer a cheap eat option—and it’s not gone unnoticed by customers. The Chicago-based chain has taken heavy criticism over its Big Mac meals that are priced at nearly $18. Meanwhile, customers have slammed its on-off Dollar Menu for not having a single $1 item.
It’s why, according to Kempczinski, customers making less than $45,000 per year in particular have stopped ordering from McDonald’s. Instead, many have turned to home cooking as inflation has eased and the cost of groceries has come down.
“Eating at home has become more affordable,” Kempczinski added. “The battleground is certainly with that low-income consumer.”
However, Kempczinski’s definition of affordability may not meet customer's expectations. Prices at McDonald's are still expected to increase—albeit at a slower pace of 2% to 3%, versus last year’s 10%— restaurant analyst Mark Kalinowski told the New York Post.
Fortune has reached out to McDonald’s for comment. McDonald’s banked on benefitting from a 'difficult' economy
McDonald's leadership team may be surprised by the company’s latest lackluster performance.
Kempczinski previously boasted the company is banking on customers feeling the pinch and choosing to eat at McDonald's as rising costs leave them with few affordable options.
He even described the current cost of living crisis as an “opportunity” for the chain to shine.
“Between inflation remaining high, the elevated cost of fuel, interest rates, housing affordability pressures and more, consumers all over the world are having to pay more and more for everyday goods and services, proving time and time again in difficult economic times, the McDonald’s brand and our positioning on value is an opportunity for us,” Kempczinski said on a third-quarter earnings call. Middle East
Another challenge that McDonald’s bottom line has had to face is war in the Middle East. The burger giant is among several Western brands that have seen protests and boycott campaigns against them over their perceived pro-Israeli stance.
The announcement came not long after McDonald's Israel announced on social media that it gave out thousands of free meals to Israel Defense Forces personnel in October—drawing criticism from McDonald's franchises in some Muslim countries.
Starbucks has similarly slashed its annual sales forecast partly due to a hit to sales and traffic at stores in the Middle East, as well as, calls to boycott the coffee chain.
Thank America’s immigrants for killing the recession and keeping unemployment at 50-year lows, Nobel laureate Paul Krugman says Irina Ivanova Tue, February 6, 2024 Selcuk Acar—Anadolu/Getty Images
A major economic mystery of the post-pandemic U.S. is how, with the tightest labor market in decades, employers keep adding jobs every month—even as record-high inflation steadily cools.
To that question, Nobel Prize–winning economist Paul Krugman has a simple answer: It’s the immigration, stupid.
“The economy is chugging along, creating lots of jobs, inflation is basically in the rearview mirror now, and not a hint of all of the terrible stuff that was supposed to be happening,” Krugman told the New Republic’s Daily Blast podcast on Sunday.
A major reason that employers have been able to keep hiring without refueling inflation is because the labor force is growing, Krugman noted.
“How much of the increase in the labor force is foreign-born workers? How much of the increase since 2020 is foreign workers? The answer is all,” he said, adding that every aspect of U.S. outperformance relative to other advanced countries is due to its ability to grow rapidly, thanks to the availability of foreign-born workers.
Immigration to the U.S. dipped slightly at the start of the Trump administration before plummeting in 2020 amid COVID-induced lockdowns, then rebounded two years later. That’s been reflected in the labor force data: As of this month, there were 3.1 million more immigrant workers in the labor force than just before the pandemic. Meanwhile, the native-born labor force rose to 1.5 million above its pandemic level last summer, but has since shrunk to below those levels.
“The aftermath of the pandemic-era shutdowns of immigration was one of the tightest labor markets we’ve ever seen, and it started to cool as labor became more available,” Aaron Terrazas, chief economist at Glassdoor, told Fortune. “Correlation isn’t causation, of course, but it’s a natural way to think about it.”
That’s a big deal for the Federal Reserve because the Fed has been laser-focused on the job market as it decides where to take interest rates—even though workers’ raises are only partly responsible for the pandemic inflation surge.
“The economy is not only continuing to grow but it seems to be accelerating; inflation has fallen from about 9% to nearly 2% again. A big part of that is the big rebound we’ve seen in the labor force and productivity growth,” said Andrew Hunter, deputy chief U.S. economist at Capital Economics, who also point to the increased labor-force participation of women, and mothers in particular, as a surprise factor. “That’s helped to keep growth strong and also keep inflation down. That’s something not many people were predicting.”
But doesn’t the addition of 3 million foreign-born workers mean that those jobs aren’t going to American-born workers? Well, no, Krugman says.
“They're not stealing American jobs,” he said on Daily Blast.
Foreign-born workers tend to have different skills and work in different industries, and so “they're not perfect substitutes for American workers," Krugman added. "What they do is they open up space to run the economy hotter, and almost certainly actually lead to higher employment among people born here."
Here’s one example of how that might work. Immigrants are heavily represented in the care sector, as nannies, au pairs, home health aides, and nursing-home assistants. By caring for middle- and upper-class Americans’ children and homes (at a fairly low cost), immigrants allow middle-class women to do more paid work in the workforce.
“That’s a market intervention that makes those services available for middle-class and upper-earning households, but [it creates] competition for people providing services as well,” said Terrazas. Other examples include the lower-paid ranks of health care, as well as agriculture, where low prices for food are made possible by the backbreaking work and low pay of thousands of immigrants and temporary foreign workers.
“We don’t have one immigration policy; we have different policies at different skill levels,” Terrazas added. Choosing the “right” amount of immigration necessarily means balancing different constituencies, and making deliberate choices about which industries should prioritize higher worker pay and which should focus on lower end-user prices, he said.
Of course, immigrants aren’t only workers, but “people with lives and families,” Terrazas said. “Immigrants are also consumers; they have kids, and families, and they go to school and use roads and parks and recreational facilities.”
This consumer demand is another force driving the economy forward, by creating demand for goods and services. And immigrants tend to start businesses at higher rates than native-born Americans, including businesses that then employ other people. Krugman illustrated this with an example from his childhood home of Utica, where a Bosnian refugee started the now-thriving Chobani Yogurt company. (“It's actually Bosnian yogurt,” Krugman quipped.)
“It turns out that the dynamism, the vitality of the U.S. economy is very much aided by the inflow of immigrants,” he said.
None of that means we should be advocating for fully open borders, Krugman made pains to note. But it suggests that the U.S. economy has a long way yet to go before the supply of workers becomes too much to handle.
As Apollo chief economist Torsten Slok wrote recently, the native-born workforce in the U.S. still has about 5 million “missing workers”—including people who died during the pandemic—as well as the missing growth after it.
“These 5 million missing workers are the reason why the labor market is tight and why wage inflation is likely to remain elevated,” Slok wrote. “Put differently, there is still plenty of room for job growth.”
YouTube creators raked in $70 billion in the past 3 years. The video giant just revealed its plan to grow even bigger
Alexandra Sternlicht Tue, February 6, 2024
YouTube has paid a whopping $70 billion to video publishers on its service in the last three years, reflecting how it has become a major piggy bank for both creators and media companies that reach a big enough audience.
YouTube CEO Neal Mohan announced the milestone on Tuesday in a letter to his service’s video community that also laid out YouTube’s priorities for this year. In it, he talked about a focus on artificial intelligence to make it easier to create videos, increasingly professional-quality videos, and a growing emphasis on subscriptions for consumers to watch videos ad-free while still paying dividends to content owners.
The letter comes after a strong fiscal 2023 for parent Alphabet, driven partly by YouTube’s quickly expanding ads and subscriptions businesses. The video giant, which generated over $9 billion for Alphabet last year, has become a huge source of potential growth for its parent as consumers increasingly shift their entertainment time from cable TV to streaming—in many cases on big-screen TVs in their living rooms.
“They’re watching YouTube the way we used to sit down together for traditional TV shows,” Mohan said.
In a sign of its status among creators, Mohan said, YouTube now has over 3 million channels enrolled in its ad and subscription revenue sharing program (YPP). Those channels—mostly individuals and small outfits that he described as “next-generation studios”—get a cut of any revenue their videos generate.
The creator world has become so big that Mohan, in his letter, suggested that YouTube may lobby for creators in Washington over unspecified legislation. He wrote the company will “help policymakers and partners across the industry see the economic and entertainment value that creators bring to the table.”
In terms of subscriptions, Mohan wrote of their importance to YouTube and that it will push for more in 2024. Last year, they generated $15 billion, driven by YouTube’s premium TV, music, and NFL Sunday Ticket offerings. Mohan also revealed that YouTube TV (a cable replacement) has 8 million subscribers while Music has 100 million (including trial members). The big subscription numbers show how YouTube is continuing to encroach on territory dominated by paid streamers like Netflix and Spotify Premium, particularly the latter as the music platform has 226 million paid subscribers globally (while Netflix has around 260 million).
The real venue for YouTube to compete with the likes of Netflix and Spotify is the living room. Helped by YouTube TV, NFL Sunday Ticket, and other big screen-ready content, Mohan said users average more than 1 billion hours of YouTube content on their TVs daily as opposed to watching it on their laptops or smartphones. This comes as YouTube simultaneously takes on TikTok for dominance in short, snackable video clips, especially with YouTube’s introduction of TikTok competitor Shorts.
While living room-ready content may ring alarm bells for creators—most of whom do not have the means or training to make big-picture-perfect content—Mohan hopes YouTube’s AI with “appropriate protections” will quell their fears. These AI tools include Dream Screen, which creates a professional or realistic-looking background, and Music AI Incubator, which helps with audio. “Everyone should have access to AI tools that will push the boundaries of creative expression,” he said.
