Signs are growing that frugal American consumers are staying at home for breakfast, extending a trend that has hit evening sales at US restaurant chains.
General Mills, whose brands include Cheerios cereals and Yoplait yoghurt, estimated yesterday that total US breakfast cereal sales rose about 5 per cent in June to August from a year ago. Its US sales of breakfast cereals rose 10 per cent, while its yoghurt sales were 19 per cent higher.
Ken Powell, chief executive, said the company's products, which also include Progresso soup and home baking brands, have in general benefited from a shift away from eating out in the evening.
But the increased sales of cereal and yoghurt were consistent with the hypothesis that the same thing is happening in the morning, he said.
Until recently Americans have increasingly eaten breakfast on the way to work, and the trend has supported the growth of breakfast offerings from fast-food restaurants such as McDonalds and from Starbucks and other shops that sell coffee.
Early this year Jamba Juice, a chain built around the sale of fresh fruit “smoothies”, began to offer food as well. It said the baked goods sector was the “fastest growing day part” in the quick service restaurant business.
But David Palmer, a consumer goods analyst at UBS Equity Research, observed in a note to clients: “US restaurant breakfast traffic was flat in the June quarter for the first time since 2004.”
This trend could benefit not just General Mills but also its cereal rival, Kellogg's, he said.
Mr Powell said General Mills' yoghurt sales also seemed to be benefiting from a growing readiness to save money by making a “brown bag” lunch at home rather than eating out.
“Generally we are reading and seeing a shift to dinner [at home], and the percentage of consumers who brown-bag and bring their own lunch is also going up a bit,” he said.
General Mills also reported strong growth in sales of its soup brand. Progresso sales were up 9 per cent in the quarter.
Its rival Campbell's has also seen strong soup sales this year.
Saturday, September 20, 2008
Tuesday, September 16, 2008
China cuts benchmark interest rate for first time since dotcom bust
China's central bank cut the country's benchmark interest rate for the first time in more than six years last night, in the face of global financial turmoil and signs of a slowing domestic economy.
The People's Bank of China lowered the one-year lending rate by 27 basis points, to 7.2 per cent per annum, after years of gradual rises aimed at fighting inflation and reining in what some saw as an overheating economy.
The PBoC also said it would reduce the amount that smaller domestic banks must hold in reserve with the central bank by one percentage point to 16.5 per cent from September 25, freeing up funds for those banks to lend. That will be the first drop in the reserve rate requirement since 1999 but does not extend to the country's five largest banks or the postal bank.
“This is a response to global events and shows policymakers are more worried about the export machine grinding to a halt in the face of global worries,” said Ben Simpfendorfer, chief China economist for RBS.
“But this is probably insurance rather than signalling serious concern over domestic worries and we should not overplay this decision.”
China's consumer price inflation fell to 4.9 per cent last month, its lowest level in 14 months, after peaking at a 12-year high of 8.7 per cent in February.
In announcing the cuts, the central bank did not mention the global credit crisis but said the moves were intended to “solve prominent problems in the current economic operation” and “ensure steady, rapid and sustained development”.
However, Stephen Green, Standard Chartered's head of China research, said: “The timing likely has something to do with the Asian equity market sell-off today [Monday], on the back of the Lehman collapse and fears of more financial contagion in the US.”
The People's Bank of China lowered the one-year lending rate by 27 basis points, to 7.2 per cent per annum, after years of gradual rises aimed at fighting inflation and reining in what some saw as an overheating economy.
The PBoC also said it would reduce the amount that smaller domestic banks must hold in reserve with the central bank by one percentage point to 16.5 per cent from September 25, freeing up funds for those banks to lend. That will be the first drop in the reserve rate requirement since 1999 but does not extend to the country's five largest banks or the postal bank.
“This is a response to global events and shows policymakers are more worried about the export machine grinding to a halt in the face of global worries,” said Ben Simpfendorfer, chief China economist for RBS.
“But this is probably insurance rather than signalling serious concern over domestic worries and we should not overplay this decision.”
China's consumer price inflation fell to 4.9 per cent last month, its lowest level in 14 months, after peaking at a 12-year high of 8.7 per cent in February.
In announcing the cuts, the central bank did not mention the global credit crisis but said the moves were intended to “solve prominent problems in the current economic operation” and “ensure steady, rapid and sustained development”.
However, Stephen Green, Standard Chartered's head of China research, said: “The timing likely has something to do with the Asian equity market sell-off today [Monday], on the back of the Lehman collapse and fears of more financial contagion in the US.”
Kill or cure for the Wall Street malaise
The world has not ended. The international economy has not yet collapsed. But one thing is now quite clear: the banking system as we know it has failed.
Following the disappearance of Bear Stearns in March, and now the bankruptcy of Lehman Brothers and the surprise plans for Bank of America to absorb Merrill Lynch, three of Wall Street's five big independent investment banks have disappeared inside six months. After an astonishing weekend it is too early to predict the future shape of investment banking with confidence, but business as usual is not one of the possibilities.
Lehman is entering bankruptcy because the US Treasury refused to subsidise a rescue. That is a change of policy after Bear Stearns and a stark contrast to the nationalisation of Fannie Mae and Freddie Mac. It is emphatically a courageous call. The Bear Stearns bail-out was motivated, and probably justified, by the fear that a collapse of Bear would wreck the entire financial system, so interconnected was the bank with its peers.
Those concerns also apply to Lehman Brothers. But the US government does not have limitless resources; even if it did, the challenge in a serious financial panic is for the government to choose the right place to draw the line. Allow a Fannie Mae to collapse, and the US economy might well collapse with it. Yet bailing out anyone who asks nicely is a recipe for promoting (even more) recklessness and yet another crisis in the future.
So while the Treasury's decision is hugely risky, that risk may pay off. An important distinction between Lehman and Bear is that, while Bear failed suddenly, Lehman Brothers has been struggling for months. Those exposed to its failure have had time to hedge their risks and tidy up their transactions, so the financial system, rocky as it is, may be able to handle the unwinding of Lehman's financial contracts in an orderly fashion. If so, the decision by Hank Paulson, the Treasury secretary, will be seen as the moment when investors and bankers had at last to take responsibility for their own risky decisions.
That is the potential reward for courage. Still, it is rather early to pronounce the tough love policy a success. Wall Street has not seen the bankruptcy of an investment bank since Drexel Burnham Lambert in 1990, and the sector's interconnectedness through the credit derivatives market has since grown beyond recognition. These are uncharted waters.
The immediate market reaction has been restrained. Equities fell when markets opened yesterday, with some European bank stocks particularly hard hit. The gold price rallied and the cost of insuring against defaults by big banks has shot up. Yet panic would be too strong a word to describe this – the US authorities will be hoping that it is the return of realism.
If the markets survive the immediate aftermath of the disappearance of Lehman Brothers, that will be a big step away from the precipice. The likely takeover of Merrill Lynch is another one. While it may seem disturbing that the “thundering herd” feels vulnerable enough to seek a stable at the Bank of America, the truth is that, with Lehman gone, attention would have turned next to Merrill. Whatever influenced John Thain, Merrill's chief executive, he has proved himself more pragmatic and more flexible than Dick Fuld, the chairman and chief executive of Lehman. In finding shelter he has helped to create a welcome firebreak against panic.
The future of Goldman Sachs and Morgan Stanley, the last two independent investment banks, is now an open question. Goldman has survived not because of a fundamental difference between it and Bear, Lehman and Merrill, but because it took more successful bets. Investors may be happy to bet that the run of success will continue, but regulators may not: expect capital requirements to be tightened.
There will now be renewed calls for more regulation, and understandably so. But it is naive to think that the right regulatory response is obvious. From poor governance to flawed incentives, incompetent risk management to foolish strategies, the failures of the financial system have been so widespread as to render a coherent regulatory riposte impossible. The likely outcome is that tight capital requirements will be forced to serve as a catch-all response to risk. If so, the banking sys- tem will look more like that of the 1960s – a low-risk, low-return utility business. The ambitious and the avaricious will no doubt seek more ex- citing hunting grounds with hedge funds and private equity groups.
For now, the Treasury's calculated risk looks better judged than those of a banking system intoxicated by bail-outs. Yet even well-judged gambles often fail.
Following the disappearance of Bear Stearns in March, and now the bankruptcy of Lehman Brothers and the surprise plans for Bank of America to absorb Merrill Lynch, three of Wall Street's five big independent investment banks have disappeared inside six months. After an astonishing weekend it is too early to predict the future shape of investment banking with confidence, but business as usual is not one of the possibilities.
Lehman is entering bankruptcy because the US Treasury refused to subsidise a rescue. That is a change of policy after Bear Stearns and a stark contrast to the nationalisation of Fannie Mae and Freddie Mac. It is emphatically a courageous call. The Bear Stearns bail-out was motivated, and probably justified, by the fear that a collapse of Bear would wreck the entire financial system, so interconnected was the bank with its peers.
Those concerns also apply to Lehman Brothers. But the US government does not have limitless resources; even if it did, the challenge in a serious financial panic is for the government to choose the right place to draw the line. Allow a Fannie Mae to collapse, and the US economy might well collapse with it. Yet bailing out anyone who asks nicely is a recipe for promoting (even more) recklessness and yet another crisis in the future.
So while the Treasury's decision is hugely risky, that risk may pay off. An important distinction between Lehman and Bear is that, while Bear failed suddenly, Lehman Brothers has been struggling for months. Those exposed to its failure have had time to hedge their risks and tidy up their transactions, so the financial system, rocky as it is, may be able to handle the unwinding of Lehman's financial contracts in an orderly fashion. If so, the decision by Hank Paulson, the Treasury secretary, will be seen as the moment when investors and bankers had at last to take responsibility for their own risky decisions.
That is the potential reward for courage. Still, it is rather early to pronounce the tough love policy a success. Wall Street has not seen the bankruptcy of an investment bank since Drexel Burnham Lambert in 1990, and the sector's interconnectedness through the credit derivatives market has since grown beyond recognition. These are uncharted waters.
The immediate market reaction has been restrained. Equities fell when markets opened yesterday, with some European bank stocks particularly hard hit. The gold price rallied and the cost of insuring against defaults by big banks has shot up. Yet panic would be too strong a word to describe this – the US authorities will be hoping that it is the return of realism.
If the markets survive the immediate aftermath of the disappearance of Lehman Brothers, that will be a big step away from the precipice. The likely takeover of Merrill Lynch is another one. While it may seem disturbing that the “thundering herd” feels vulnerable enough to seek a stable at the Bank of America, the truth is that, with Lehman gone, attention would have turned next to Merrill. Whatever influenced John Thain, Merrill's chief executive, he has proved himself more pragmatic and more flexible than Dick Fuld, the chairman and chief executive of Lehman. In finding shelter he has helped to create a welcome firebreak against panic.
The future of Goldman Sachs and Morgan Stanley, the last two independent investment banks, is now an open question. Goldman has survived not because of a fundamental difference between it and Bear, Lehman and Merrill, but because it took more successful bets. Investors may be happy to bet that the run of success will continue, but regulators may not: expect capital requirements to be tightened.
There will now be renewed calls for more regulation, and understandably so. But it is naive to think that the right regulatory response is obvious. From poor governance to flawed incentives, incompetent risk management to foolish strategies, the failures of the financial system have been so widespread as to render a coherent regulatory riposte impossible. The likely outcome is that tight capital requirements will be forced to serve as a catch-all response to risk. If so, the banking sys- tem will look more like that of the 1960s – a low-risk, low-return utility business. The ambitious and the avaricious will no doubt seek more ex- citing hunting grounds with hedge funds and private equity groups.
For now, the Treasury's calculated risk looks better judged than those of a banking system intoxicated by bail-outs. Yet even well-judged gambles often fail.
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