🎙️ Digital Distinction

Less Subway, more Starbucks, Chipotle, and Chick-fil-A.

That’s what the latest report reveals about America’s most popular chains as people eschew Subway for new industry favorites.

Starbucks continues to open about a store a day, while the average Chick-fil-A store nets $6.7 million in annual sales in only six days per week 🤯

Our Chart of the Day below does all the talking.

— Weronika, Shawn & Matthew

Here’s the rundown:

Today, we'll discuss the three biggest stories in markets:

• Why Walmart is booming and Target isn’t

• Ripping up the playbook on drug pricing

• Bitcoin’s calm shatters with tumble

All this, and more, in just 5 minutes to read.

CHART OF THE DAY

IN THE NEWS

🛒 Walmart and Target Face Similar Problems — Only One is Thriving (CNBC)

The pandemic and inflation have made shoppers thriftier, but the nation’s biggest retailers are responding very differently. “Tarjay” appeals to a higher-end demographic than Walmart, which explains why its throw pillow-to-square-foot ratio is so high at its stores.

However, folks would rather shell out on European vacations and Eras Tour tickets, setting aside Target’s charcoal toothpaste, scented candles, and artificial plants.

• As a result, Target missed Wall Street’s projections last quarter and slashed its forecasts for the rest of the year.

Not the same: It’s a different story at Walmart, where more than half of the retailer’s revenue comes from groceries — it’s the largest grocer in the U.S.

• The pull of low-cost groceries is keeping people visiting Walmart’s stores. Walmart crushed its earnings on Thursday, raking in $161.63 billion in revenue and beating expectations by over $1 billion.
  

• At Target, groceries represent around 20% of sales. Instead, the company heavily depends on discretionary spending on clothing and household decor to drive sales.

Yet many are cutting back discretionary spending or would rather go one strip mall over to search for bargains at T.J. Maxx, Marshalls, and Home Goods.

Why it matters:

Thinking twice about nonessentials: Said Target’s CEO, “As we look at the consumer landscape today, we recognize the consumer is still challenged by the levels of inflation that they’re seeing in food and beverage and household essentials. So that’s absorbing a much bigger portion of their budget.”

Digital distinction: The split between the companies is even sharper in e-commerce. Target’s online sales fell 10.5% year-over-year, while Walmart’s rose 24%.

• Walmart credited that success to its store pickup and delivery initiatives and its third-party marketplace meant to rival Amazon’s business model. The average weekly visitors to its website is up more than 20%, too.

Too little, too late? Target is lagging online, though its Chief Growth Officer said the company would be remodeling its digital experience in the next few months.

Both companies are optimistic that back-to-school shopping and the season of pumpkin spice and gift-giving will boost sales, but Walmart’s optimism comes from a position of strength, while Target’s is more based on hope.

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💊 A Big Health Insurer Is Ripping Up the Playbook on Drug Pricing (CNN Business)

A major California health insurance provider, Blue Shield, is casting away the prescription drug pricing system to reduce medication costs for its 4.8 million members.

Blue Shield intends to reduce its reliance on CVS Health's pharmacy benefit management services. Instead, it will collaborate with new partners, including Amazon and Mark Cuban's pharmaceutical company.

New strategy: The health insurance provider wants to reduce drug expenses for its insurance plan holders and revolutionize the complicated system Americans use to pay for drugs.

• The non-profit insurer disclosed its strategy to engage five partners for services traditionally handled by pharmacy benefits managers (PBMs), who negotiate drug prices with pharmaceutical manufacturers.
  

• This involves a straightforward net price structure, eliminating rebates and concealed charges, and could save the business roughly $500 million annually, or around 10% to 15% of the insurer’s drug spending.

How it’ll work: Amazon will provide drug delivery to homes, Mark Cuban's Cost Plus Drug Company will grant access to affordable medications, including retail pharmacy options, and Abarca will handle drug claims processing.

• “The current pharmacy supply chain is a forest of opacity and profit,” noted Blue Shield’s CEO. “It is overwhelmingly complex. It is designed to maximize the earnings of the participants.”
  

• He outlined that his company’s new setup will be “flipping that on its head.”

Why it matters:

As the population ages and chronic diseases become more common, the demand for secure, legally approved pharmaceutical drugs among Americans continues to increase.

Big Pharma: For years, exorbitant drug expenses have consistently posed a major healthcare concern for Americans. According to Blue Shield, most adults use at least one prescription drug each year, with over a third using three or more, per CDC data.

• The new plan is supposed to shake up the current system, help out with the medication cost, and “have a profound impact on the industry,” Cuban said.

The significant change doesn’t go without losers. It deals yet another setback to CVS Caremark, as it’s slated to forfeit the contract for handling Centene's yearly pharmacy requirements of $40 billion starting next year.

MORE HEADLINES

🚀 Elon Musk’s SpaceX turns profitable 

🍫 Chocolate makers' prospects sour as cocoa prices spike 30%

🛩️ Air travel boom creates crosswinds for air cargo

🖌️ 1/3 of Americans have tattoos — industry expected to hit $4 billion

📉 Bitcoin’s Calm Shatters With Sudden Tumble (Bloomberg)

The calm is over.

Bitcoin was hovering around $29,000 for weeks until this week’s selloff in risk assets, including Bitcoin. Its price fell from $29,000 to as low as $25,314 in 24 hours, with more than $1 billion of positions unwound amid the selloff.

Zoom out: Bitcoin is still up about 60% in 2023, well ahead of even well-performing tech stocks. But this week, rising bond yields, economic weakness in China, and a global risk-off appetite —when investors reduce their exposure to riskier investments — have hampered the price.

• Some fear China could weaken its currency, the yuan, to boost its economy (a cheaper exchange rate makes exports more attractive.) In 2015 Bitcoin cratered 23% in two weeks after a yuan devaluation.

• Further downside? “With limited catalysts to push Bitcoin higher in the short term, a fall below $25,000 could put bears in charge, and if the rout in global risk assets continues, Bitcoin could face further downside,” one analyst commented.

The Wall Street Journal also reported that Elon Musk’s SpaceX had sold off its Bitcoin holdings, worth $373 million, adding to the pressure on Bitcoin.

Recent gains this summer came after BlackRock filed for a Bitcoin ETF on June 15, adding to its 72% first-quarter surge following 2022’s rout (Bitcoin fell 64% last year).

Selling off: Bitcoin isn’t alone, as the Nasdaq Index has fallen 8% in the last month from its mid-July peak. After a strong first half, the benchmark S&P 500 index fell about 5% in the past month.

• Ethereum, the world’s second-largest cryptocurrency behind Bitcoin, has dipped about 12% in the past month, including a 10% drop this week alongside Bitcoin.

Why it matters:

For months, Bitcoin traded in a narrow range. According to Bloomberg data, its 90-day volatility had reached its lowest since 2016. As Bitcoin works to become a mainstream financial asset and currency, wild price swings have previously scared professional investors away.

The negatives piled up: “There was optimism earlier in the week that a resolution to the Grayscale Bitcoin ETF would come this week, but that passed with nothing coming out,” a crypto investment firm CEO noted.

• “Traditional markets have been weak all week with (the S&P 500) and tech selling off, 10-year rates reaching highs and the dollar catching a bid, and China credit and econ data weakness, all of which are negatives for risk assets.”

No sweat: Bitcoin bulls are unphased, noting that 5% and 10% drops are routine, just as price upswings often come quickly.

See you next time!

That's it for today on We Study Markets!

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