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Breakingviews - Corona Capital: Coca-Cola, Viral inequality

NEW YORK/MILAN/LONDON/MUMBAI (Reuters Breakingviews) - Corona Capital is a daily column updated throughout the day by Breakingviews columnists around the world with short, sharp pandemic-related insights.

Bottles of Coca-Cola are seen at a Carrefour Hypermarket store in Montreuil, near Paris, France, February 5, 2018. REUTERS/Regis Duvignau

LATEST

- Hard seltzer

- Covid fairness

REFRESHING. Coca-Cola is jumping on the hard seltzer bandwagon just as the alcoholic drink is gaining popularity. The soda maker will launch Topo Chico Hard Seltzer next year, Chief Executive James Quincey said on CNBC on Monday. Coke has sold alcohol before – it had a wine business in the 1980s and recently started selling alcoholic soda in Japan – but it’s a departure for the brand that, during the U.S. prohibition era, was marketed as “The Great National Temperance Beverage.”

Then again, temperance isn’t really in fashion in these times of Covid-19. Sales of hard seltzer increased almost 140% year-over-year in the 12 weeks to Sept. 5 as drinkers moved outdoors, compared with a 7.5% rise for beer, according to data from Nielsen and Cowen. Sales of Boston Beer’s Truly more than doubled in the same period, and the brewer’s stock now trades at 56 times forward earnings, twice Coke’s own valuation. Given hard seltzer is more a twist on an old product than a reinvention, it’s worth a shot. (By Amanda Gomez)

MIXED METRICS. When is the right time to ease Covid-19 lockdowns? Common metrics are the rate of tests that come back positive, and the average number of new cases per day. But there’s a third idea that’s being considered in California, according to one San Francisco radio broadcaster: measuring Covid inequality. That is, looking at the disparity between low-income and high-income areas.

That could create surprising results. Consider New York City’s Queens borough, where public data shows the Far Rockaway neighborhood has quadruple the rate of positive tests as the somewhat wealthier Arverne area, even though they’re just a couple of miles and one zip-code digit apart. Every city, and country, would find similar discrepancies.

The result would most likely be that restrictions are eased more slowly. But that doesn’t make it a bad idea. Conversely, focusing on hardest hit, lowest-income areas would mean resources get diverted to where they’re needed, and rich folk would have an incentive to see that happen. Besides, with essential workers generally over-represented in lower-income areas, the faster those spots improve, the better for everyone. (By John Foley)

BATTLE OF THE BULGE. Aaptiv, a fitness app backed by Amazon.com’s Alexa Fund, may be the latest company to take advantage of investors’ huge appetite for at-home fitness. The startup – valued at over $200 million two years ago – is considering a sale, according to Bloomberg. If the skyrocketing values of fitness subscription services like Zwift, now worth over $1 billion, are any indication, its value has probably jumped.

Meanwhile, traditional gyms have lost significant weight in the fight for exercisers’ dollars. Town Sports International, the owner of New York Sports Clubs, recently said it was filing for Chapter 11 bankruptcy. Gold’s Gym International did the same in May. And the share price of Planet Fitness has fallen by almost a quarter this year.

But banking on the continuation of the pandemic-generated shift toward at-home exercising may be premature. It could be like assuming the people who show up at a gym in January will still be there in April. (By Anna Szymanski)

INTERNAL DUEL. The pandemic is undermining Italy’s right-wing opposition leader Matteo Salvini. The League chief, a vitriolic European Union critic, failed to deliver a clean sweep at Italian regional elections this week. The centre-left PD party, which is in the ruling coalition, secured three out of seven regions and lost just one to the centre-right. The results, together with support in a referendum for a government plan to shrink parliament, reinforced investors’ view that Giuseppe Conte’s executive will stay in charge.

Salvini’s chief worry will be the success of Veneto governor and League rival Luca Zaia, who won praise for his handling of Covid-19. Zaia, dubbed “The Doge” and more moderate than Salvini, won a third mandate with 77% of votes. That’s a prelude to a duel within a party that is topping the opinion polls. If Zaia gets the upper hand, investors will fear the League less. (By Lisa Jucca)

PANIC ROOM. With Britain teetering on the brink of a second national lockdown, Whitbread is bowing to the inevitable. After announcing a 78% slump in like-for-like domestic revenue in the 26 weeks to Aug. 27, the 4 billion pound operator of Premier Inn hotels and Beefeater pubs said it would lay off as many as 6,000 people, or 18% of its workforce. Swallowing the 12 million pounds to 15 million pounds in redundancy costs is an acceptance that things are unlikely to improve any time soon.

These workers – like most Whitbread staff – are on flexible furlough. Under the scheme, the government pays at least 80% of salaries up to a cap, even when staff aren’t working. But the Treasury has been tapering its support, with employers meeting the shortfall. Whitbread is evidence that without a blank cheque, the costly job-retention schemes merely delay the reckoning. (By Dasha Afanasieva)

POT-DE-VIN. If persuasion fails, try bribery. Such is Suez’s approach to investor relations. On Tuesday, the French waste management company tried to fend off a potential hostile bid from rival Veolia by pledging to hand shareholders 2 billion euros in bumper dividends and buybacks over the next two years. That’s more than a fifth of its current market value. The promised largesse comes after state-backed Engie, which holds 30% of Suez, told Veolia to raise a 15.50 euro per share offer for its stake.

Suez boss Bertrand Camus’ munificence relies on cost cuts and sales growth to achieve 1.7 billion euros of operating profit by 2022 on revenue of 17 billion euros. That implies a meaty 220 basis point expansion in annual margins. So far, the bullishness is failing to sway investors waiting for a possible raised cash bid from Veolia: Suez shares edged up a paltry 0.6%. (By Christopher Thompson)

STALLING. Indonesia’s Garuda is flying low but reckons bankruptcy is off the table. The flag carrier has weighed up insolvency proceedings but will instead seek better terms on its aircraft loans, according to Bloomberg. The airline, which has $5.4 billion of leasing debt, has already delayed repayment of an Islamic bond but says an expected $580 million bridging loan from the government is taking longer than expected. Time is of the essence.

The carrier’s shares have fallen 55% so far this year, slightly worse than Thai Airways, which secured court approval this month for a restructuring. Like its Asian rivals, Garuda is counting on a speedy revival in domestic tourism as tough restrictions on international arrivals remain in place. With the virus raging across Indonesia, however, it’s going to be a long and bumpy ride. (By Una Galani)

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