What We Learned This Week

Billion Dollar Consolation Prize: Just weeks after losing their highly public proxy fight with Disney, Nelson Peltz and his firm Trian Management sold their entire stake in the company. Peltz and Trian had long criticized Disney’s management style and operational performance, attributing these factors to the company's chronic underperformance relative to its potential. Over the past year, they acquired a significant stake in Disney and actively voiced their opinions on potential changes. When these efforts failed, they waged a proxy fight to gain seats on Disney's board and influence its strategic direction. However, Disney's vigorous defense, led by returning CEO Bob Iger and bolstered by strong ties with long-term investors, ultimately prevailed, and the company's full slate of directors was elected. Trian's decision to sell its entire stake signifies a clear retreat from its efforts to influence Disney’s operations. Despite the proxy fight loss, it is estimated that Trian made over $1 billion in profit from this investment, which may have been their ultimate goal. This outcome is undoubtedly a win for Disney's management, allowing them to proceed without the distraction of activist interference. Nonetheless, a collaboration between Iger and Trian could have been beneficial, combining Iger’s experienced leadership with Trian’s track record of driving positive change from an outsider's perspective. In the end, the clash of egos proved insurmountable. Now, the onus is on Iger and Disney to steer the company in the right direction.

Unbranded Competition: The Wall Street Journal published an insightful article this week on the growing trend of private label products across consumer categories. Their studies revealed that private label (i.e., store brand) items outpaced the growth of branded items in every consumer goods category examined. Notable private label brands include Great Value from Walmart, 365 from Whole Foods, and Kirkland Signature from Costco. Particularly interesting is the broad-based adoption of these brands among millennials and Gen Z consumers, who appear to be more brand-agnostic for everyday consumable items compared to their parents' generation. This shift is likely due to major retailers successfully eliminating the stigma that their house brands are cheap, low-quality alternatives. In some cases, such as with Costco's Kirkland Signature, consumers have begun to perceive these private labels as higher quality than branded products, due to their immense trust in the Costco brand. Although branded products still represent over 70% of sold goods in the country, the changing preferences of younger demographics and retailers' efforts to capture this market are noteworthy. This trend is particularly interesting in the U.S., where branded items have historically had a strong foothold compared to other developed markets. If this trend continues, it suggests that consumers are starting to prioritize trust in where they shop over specific product brands for consumables. It will be interesting to see how the brand defensibility of major consumer product goods companies evolves in the coming years

Chinese Autos are Becoming Relevant: It seems that with every passing moment, Chinese automakers make impressive technological advancements. These developments might go unnoticed in the U.S., as Chinese vehicles aren't sold here due to prohibitive tariffs. However, it's remarkable how these brands have transformed from being seen as producers of cheaply made products to industry leaders with specs rivaling the world's best automakers in a short time. China's immense labor and production capacity also allow for rapid scaling of operations. Just this week, BYD, their largest manufacturer, announced a hybrid vehicle with a claimed 1,300-mile range on a tank of gas—an impressive leap from the 500-600 mile range of other major manufacturers. Even more astonishing is that these vehicles start at under $15,000. This technological prowess and competitive pricing extend across various segments, from EVs to performance cars to ultra-luxury vehicles. Although these cars are not sold in the U.S., it's worth considering the potential impact on the domestic automotive industry if they were. How would U.S. manufacturers compete with such formidable offerings? Elon Musk has repeatedly stated that competing with Chinese auto manufacturers would be a significant challenge. Moreover, if China can achieve this level of success with cars, it's conceivable they could do so in other industries. Given that the primary barriers to global adoption are governmental, it’s uncertain how long these roadblocks will hold.