Upside/Downside - Grow Your Profits and Cash Flow
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My name is Matt Cooley and value creation has always been central to my career, from start-ups to multi-billion-dollar product lines. As a finance executive at successful companies, I've noticed a thing or two about what creates versus destroys value. In this podcast, we explore value creation and share a few laughs on the way to higher profits and cash flow.
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Matt Cooley
Upside/Downside - Grow Your Profits and Cash Flow
Ep 31: This episode: Mammoth meatballs + Consumer prices in US vs Europe
Upside/Downside is a podcast for finance and business geeks about the hard work of value creation with a dose of humor thrown in for good measure. I'm your host, Matt Cooley.
Panelists Dana Price and Sami Akbay join me to discuss the cultivated meat and meat substitute industries. Sustainability, ethics and taste are all on the value creation menu. Ready for dinner?
Then we move on to consumer prices in the US vs Europe. From mobile plans to pharmaceuticals to live concerts, it can seem like we're getting the short end of the stick here in the states. But are markets more rational than you think?
Get down to the meat of value creation with us on this episode of Upside/Downside!
Thank you for listening and please visit Upside/Downside podcast and enter your email for my FREE list: "10 places to look for higher profits and cash flow right now!".
Matt
Welcome back, everyone. panelist Dana Price and Sami Akbay. Dana is CFO of an edtech company and never lets her burn rate get out of control. She also breaks technology, like last week when Dana was caught using so much data on her mobile plan that the nearby cell tower went up in flames. Welcome, Dana.
SPEAKER_01:I didn't think you knew about that cell tower, but thank you for having me regardless.
SPEAKER_02:Everybody knows about that cell tower. Sami Akbey is a technology executive and founder and is one of those people who knows how to shove data into the black box and make something useful come out the other side. That's Mr. Data to you. Thank you very much. Welcome, Sami.
SPEAKER_00:Thank you, Matt. Hi, Dana.
SPEAKER_02:We're going to talk about cultivated meats and meat substitutes today and how sustainable the value creation is around these products. And then we'll discuss why certain things seem to cost more in the US versus Europe. Pharmaceuticals and mobile plans come to mind, guys. But for this conversation, we're even going to throw in concerts into that list. So let's nosh over cultivated meats and meat substitutes first. It's funny, all these different words now for just a steak, right? We're now beyond the impossible burger and other plant-based meat substitutes. Mammoth meatballs and other delectable treats can be grown by using genetic sequences, basically as recipes, to multiply cells into enough material for a meal. I know this sounds appetizing, guys. While still too early to find cultivated meats at grocery stores, over 100 companies are apparently out there developing products, and these cultivated meats will join already available plant-based meat substitutes like the Impossible Burger and Beyond Burger with promises to save the environment and all of us from early death by cholesterol. Just as I was getting used to Impossible Burger for Taco Tuesdays at our house, I now apparently have more options. Dana, my friend, what are the upsides and downsides to cashflow and profits with all this?
SPEAKER_01:So I think you definitely just hit on one of the key terms is options, right? If you have more options, you know, with typical supply and demand, right? So there's more options for people to choose from. I think you're also, you know, a byproduct of that would, no pun intended, would be helping climate control. So that sort of is a much greater sort of higher level need that is clearly needed at the current time. You're saving the slaughter of animals, which obviously is a huge, fight for some various groups. I think, you know, from a genetic perspective, you know, just like anything, when something new comes out is it's new. So you have the adoption curve, but you're also going to have a lot of different stages of folks who may or may not have uptake on that because it involves genetics. So, you know, if you want to go out on the extreme, if you're using genetics to make a, you replacement meat product. Well, could you do something else with that, like maybe cure cancer? And would that be a better research in the lab than making a non-meat product? So I think there'll be investment. The good side is, the upside is there'll be investment and there'll be early stage investors that'll be willing to invest in this. But the question is, at what point do you get it right? And how much of the population is willing to sort of eat a non-meat product um on the downside of this you are clearly going to put the farmers out of business eventually you know that's really really long term but as you start to take livestock you know a cattle farmer offline or reduce his stock or her stock and what what so how are you going to subsidize that on the curve from you know zero to a hundred and how do you reskill or upskill or what does that farmer and the farmer's family do for their wages and to make a living going forward if you are essentially not going to be using livestock? I think the FDA obviously is going to play in this. I don't know whether that's an upside or a downside, but there needs to be regulations, just like any food product that's put in a store. There's going to be staunch advocates of it, and there's going to be staunch opponents of it. of it based on how you feel about using genetics. So I think it's an interesting concept. I think, you know, most folks have tried some sort of non-meat product, taste like meat, you know, but sometimes you just want a steak. So I think it's an interesting battle going forward.
SPEAKER_02:Yeah. And, you know, you kind of touched on it a bit, but the ethics of, you know, altering genes. So this mammoth meatball story is interesting because they are all altering genetic material in order to grow these mammoth meatballs. That's exactly what they're doing. And in fact, I think the article that I focused on the most, the DNA sequence wasn't complete. So they completed it by using elephant DNA or something like that. So there's so many things going on here and how those all distill down to cashflow and profits at the end is fascinating. I mean, I think it's anybody's guess.
SPEAKER_01:It is. I mean, it's just a new product in a really sort of warped sort of way. But like any product, you'll have uptake, you'll have cost, failed cost, failed tries, investments lost, but then you'll have some that hit and will be supported and will be approved for mass consumption. When you get into genetics, you get into a very probably hot topic of discussion, and you will have two sides of that coin, and then the conspiracy theorists as well.
SPEAKER_02:Yeah, interesting. Sami, what's in your mind about this?
SPEAKER_00:I see upside and more upside. I don't really see as much downside, and I don't really see too much of an ethical issue. Not ethical, but the genetics and playing with the genetics of it does not bother me as much. I think that cat's out of the bag, and It's inevitable. We're going to use it. Every new technology has its risk exposures as long as people do it in a controlled and responsible fashion. There are a few reasons why I think it's a lot of upside. First of all is the humane and sustainability side of it. Because not killing animals is going to bring a substantial number of new participants into the marketplace. There are going to be a lot of people who don't eat meat for either ethical reasons or religious reasons or for reasons that keep them out of this market. That's probably going to be another billion people eating meat that were previously selective about that. So the second part of it is environmental impact. Cattle is almost 15% of the greenhouse gas emissions. It's a tremendous impact on clean water supply. It uses majority of the agricultural land. It causes deforestation. It causes pollution. It leads to loss of biodiversity in a lot of the countries. All of these things get mitigated or somewhat controlled or reduced by the virtue of having this. And then, of course, from the kind of more progressive perspective, more scientific perspective, it could help build customized nutrition for people who have needs that are not addressed with the current food supply chain. Now, there are also side effects, obviously. For example, as much as I love my fake burgers, They're processed foods. They have quite a bit of room to get better, but I'm excited about it overall.
SPEAKER_02:You hit on something that I've been reading a lot about lately, and I don't think folks focused on initially when Beyond Burger and Impossible Burger and those companies started coming out with their products. It may be plant-based, but it is very, very heavily processed. And these cultured meats, which are actual meat products, They're not plant-based. It looks the same. I mean, they're growing them on the side of vats in labs. So you're hitting on something there that I think is important. It is very heavily processed food. It's also interesting just looking at Impossible Burger and Beyond Burger, those two companies. One is sort of taking off and gaining market share. The other one is sinking for various reasons. So I think it's an open bag whether a open question whether this stuff is how long-term it's going to be. But on the cultured meat side, this is brand new and I think that's interesting too. Both of you, what about taste? I don't mind the plant-based meat substitutes as much if they're heavily seasoned, if they're sitting in a taco or something like that. But I find that the burgers by themselves, and I I prefer a real beef burger. I'm curious if both of you have any perspective on the actual taste.
SPEAKER_00:I prefer the real thing still. But at the same time, as you said, if it's in a sauce or if it's in a taco, it's kind of difficult to tell the difference. And these are the early days. I can only imagine it will get better and it will get perfected. I'm cautiously optimistic.
SPEAKER_01:Yeah. And the only thing I would add is, you know, I don't eat a meat hamburger plain anyway. So naturally, by default, I have to put ketchup on it. Mm hmm. So, so,
SPEAKER_02:So it sounds like, if I sum this one up, it sounds like the three of us are willing to make that transition. And, you know, Dana, to your point, in many respects, we're going to see a normal product lifecycle here. It's got probably a lot more twists and turns given the ethical issues and other issues that we've discussed. But it sounds like we're on board for the long term and this should be an interesting ride. So, okay. All right. That was good. That was good. Let's move on to consumer prices in the US versus Europe. at least for certain things, there can be really big differences. And so I'm glad you both agreed to talk about this one because this one has been on my mind for a while. Did you two know that Beyonce fans here in the US could actually save money by flying to Europe for her concerts rather than stay home? And according to a Telefonica study, Americans pay on average two times more than Western European countries do for a gigabyte of data. And when it comes to pharmaceuticals, The common storyline in the US has been prices correlate to high R&D spend. And that's why Americans pay so much. But a study published last year by the University of California concluded that no such correlation actually exists. And pharma companies are simply charging what the markets will bear, which sounds a lot like basic value creation. So those are just three examples. But Sami, what do you make of all of this in terms of value creation?
SPEAKER_00:I think that all three of those things that you touched on have different kind of reasoning and different basis. For starters, I mean, price is the value you capture in the eyes of the customer. And it does have quite a bit of dependency on people's ability to buy as well as the cost of providing a service, right? So if you look at something like the mobile plans and the cost of gigabyte of data laying infrastructure in a country like united states where the land mass is so humongous could be more expensive and therefore you know when you kind of take a cost plus approach to pricing it might be more justifiable that when you have a mobile plan in the us even when it's just domestic you're almost like covering 50 countries in europe Whereas in Europe, if I have a plan that works in Germany and then I go to a different country, from country to country or from region to region, I might have some price differentiation. So that's one side of it. The Beyonce ticket example, the average disposable income per person, I think is significantly different. And that is a by-product of how much of the services are socialized. In Europe, someone might be making a lot less money and someone may end up with a lot less disposable income in their pockets, but they're not paying nearly as much for rent and food and healthcare and certain other services. So there is a relative value to what you pay for a ticket, which is smaller than, smaller nominal terms than what you pay in the US. But if you actually actually compare that to percentage income, that might be comparable. And then when it comes to pharma, that's actually the most interesting one because I had a friend who used to work for a large pharmaceutical company in the pricing department. They had a very sizable pricing department. It was all based on different countries' ability to pay and whether or not the more developed richer countries had a moral obligation to foot the R&D component of the bill, right? I mean, if you made the R&D distributed equally across every country, you would make certain medication prohibitively expensive in parts of the world who may not be able to afford it. And does that have a moral component? Are we required to subsidize So it sounds like from your perspective,
SPEAKER_02:markets are acting rationally. Exactly. for different drivers. How would you explain Canada though? You know, right over the border, wealthy country, obviously smaller than us, but you know, drug prices are so much lower.
SPEAKER_00:I feel Canada is almost like the spoiled sibling, you know, given the size of the country and the population. There go our Canadian listeners. Okay. You know, it's like, that's essentially, they're the free rider here. They benefit unnaturally from being a neighbor of the United States in some ways. But at the same time, I don't think that might be the case only for medicine or pharmaceuticals. So that is an anomaly.
SPEAKER_02:Interesting. Okay, so rational markets overall. Dana, weigh in here. How do you see this?
SPEAKER_01:Sure. So from a pharmaceutical side, or a medical side. I sort of see it as... What will the market bear in the US, right? Yeah, we pay a lot, but I think we also have access. And for those who have private medical plans through their companies, you have access to choose your doctor. If you want to choose a surgery, whether it's required, necessary or not, and you choose the date in which you want to do it relatively soon. If you jump over to Europe under socialized medicine, that's not necessarily the case. And if you think about the folks that are waiting I'm waiting for long, long periods of time just to have a basic routine procedure. I'm willing to pay more on my side to basically be able to go see the doctor when I want to see the doctor or do what I want to do. And I think I look at it from sort of, and this may sound a little obnoxious, but what is my time worth? My time is worth, there's a value associated with my time, right? I have limited resources across the company. You know, I've got operations around the world. So yes, I might be paying more for certain things in the US, but I'm also looking like, you know, look at the energy costs in Europe. It's skyrocketing. My electric bill in my office in Europe has tripled compared to last year. So while Europeans might have better cell phone plans or something like that, you know, they're also getting hit. I Everybody knows what VAT is. Would you like to pay 20%, 25% tax on everything? I mean, think about it. We complain when sales tax goes up to 9%, but Europeans are paying VAT. Sure. So I think the whole VAT on top of everything else might sort of even it out compared to our little sales tax on top of what we're paying. So I just look at it from that perspective is what is the market willing to bear and what is my time worth.
SPEAKER_02:Right. Okay. So both generally feel that the markets, you both feel that they are acting rationally and the differences that we have in the US are worth something. I don't think I can disagree with either of those perspectives. Okay. Wow.
SPEAKER_00:So I mean, at the same time, the markets acting rationally does not make me less angry about the prices of medicine and things like that i may i may have a hard time stomaching it i just you know i can understand it
SPEAKER_02:yeah and you know as we as we travel more and more all the time right and we experience these things with our friends and colleagues and and just through the news you know you wonder at some point will it have a you know sort of blowback on prices back here but maybe not you know this has been going on for a long time and prices still haven't adjusted so you know that does argue for forward markets are acting relatively rationally. It's interesting. So, Dan and Sami, if you want to come over for a barbecue later, we're having lab-grown mastodon rib roast. Sami, you bring the Beyonce tickets and Dana, you bring the cholesterol meds, my friend. Count me in. I'll be right back. Excellent. Thank you both for sharing your insights. And to our listeners, value creation is lurking everywhere. Keep your eyes peeled and look for our next episode soon. Thank you.
