Philippa Kaur

HOW HAVE America’s retailers coped with covid-19? “We’re still learning,” declared John Furner, who runs Walmart’s vast American operations, on November 17th, as the supermarket giant reported third-quarter results. He is being too modest. Walmart, as well as a handful of other big firms such as Target, its smaller rival, and Home Depot, a DIY Goliath benefiting from housebound home-improvers staring at dingy walls and outdated kitchens, are thriving.
Paul Lejuez of Citigroup, a bank, described the three months to October as “another stellar quarter” for Walmart. Total global revenues increased by 5.2%, year on year, to $135bn. If anything, international sales, which grew by just 1.3%, dragged down strong performance in America, which accounts for the bulk of revenues; Walmart has said it will sell most of its flagging Japanese supermarkets. By contrast, domestic comparable-store sales, a standard industry metric, rose by 6.4%. Home Depot’s quarterly revenues shot up by 23% compared with a year ago, to $33.5bn, keeping up the previous quarter’s pace. Target’s operating profit nearly doubled to $1.9bn.

Shining retail stars mask darkness elsewhere in the industry. American shoppers rebounded faster than elsewhere in the rich world (see chart). But retail sales grew by just 0.3% last month, compared with the one before, the slowest in half a year. They softened in most of the 13 categories tracked. As investors swooned over Walmart and Home Depot, Kohl’s, a middling retail chain, reported falling revenues. “The distinction between the haves and the have-nots has gotten even sharper,” says Simeon Gutman of Morgan Stanley, an investment bank.

Mr Gutman points to the successful firms’ superior management of diverse, global supply chains. This allows shoppers to satisfy most of their retail needs in one store—particularly important in a pandemic, when people are keen to limit their outings. Walmart’s customers make fewer trips to the store but spend more whenever they do, he notes.
The star retailers’ biggest edge, though, comes from e-commerce. Walmart in particular upped its e-game just in time to benefit from a pandemic surge in online shopping. A survey of American shoppers by McKinsey, a consultancy, found that kerbside pick-up has nearly doubled from pre-covid levels, and in-store “click and collect” sales have shot up by nearly 50% from last year. Walmart’s digital sales leapt by nearly 80% in the latest quarter, year on year, to $10bn. That is still less than 8% of revenues—but more than in the whole of 2016, according to Morgan Stanley. The fast-approaching holiday shopping season is likely to bring even more online sales than usual, says Mr Gutman.
By doubling down on digital, Walmart is taking on Amazon’s e-emporium. The tech giant is not taking this lying down. On November 17th it launched its long-awaited digital pharmacy. This threatens not just chemists such as Walgreens and CVS but also Walmart, which sells prescription drugs in over 4,000 of its big-box stores. When it comes to e-commerce, Mr Furner’s humility is fully justified. ■

This article appeared in the Business section of the print edition under the headline “Beastly earnings” More

REACH A CERTAIN prominence in public life and you may be invited to become a non-executive director. The most lucrative option is to join the board of a large company. But for social prestige, there is nothing quite like joining the board of a cultural organisation. In Britain, these boards are dominated by “the great and the good”—aristocrats and wealthy businesspeople.
Sir John Tusa, a former BBC executive, has written a guide based on his extensive experience among Britain’s literati and glitterati. “On Board: The Insider’s Guide to Surviving Life in the Boardroom” is a useful primer for any board member. The job, Sir John argues, is not all about free tickets and lavish dinners. “There is no difference between governance on a corporate board and an arts board,” he says. “Sitting on a board, let alone chairing one, is one of the most demanding, complex and taxing activities in the world of public life.”

The book also gives an inside glimpse of the political battles that were fought over the future of venerable institutions such as the British Museum, English National Opera and the National Portrait Gallery. Cultural boards face a constant tension between the need to get funding from the government and the artistic ambitions of their executives, a dilemma made even thornier by the need to repair crumbling or outdated buildings.
Such was the traditional nature of these institutions in the years when Sir John operated that the book is sometimes redolent of the interwar era. He was invited to join the board of the British Museum over lunch at the Garrick, a gentleman’s club founded in 1831. He then discovered that board meetings were held on Saturday mornings because a former Archbishop of Canterbury, when a trustee, had requested the time slot as it allowed him time to write his Sunday sermon in the afternoon.
Perhaps this old-fashioned atmosphere (which has now been changed by bringing in a wider range of trustees) led to some of the difficulties that Sir John describes. Too many appointments were rushed, he says, forgetting the first rule: “If you can’t see the right candidate in front of you, don’t appoint.” One frequent problem he faced was tension between the chairman and chief executive, so he suggested that one-to-one discussions between the two should be part of the appointment process to ensure compatibility. When in their posts, the duo should aim to talk every day.
Even then, the chairman (or woman) must retain a certain air of detachment. The boss’s approach, says the author, can be summed up by the quote: “We are totally on the same side until the day that I have to sack him.” Bad chairmen tend to impose their views, fail to respond to ideas and refuse to alter their approach. Often they place their favourites on the board, creating factions and causing destruction.

Sir John’s advice to chief executives is to tell the board what they are doing, when, how and why—all in order to persuade board members that the boss deserves support. But CEOs should not deluge trustees or directors with paperwork: “If information is power, it must be remembered that too much information is a smokescreen.”
As for board members, Sir John says they should ask questions of the executive, and be careful about accepting the answers too easily. They should also remember that there is no such thing as a stupid question. And it is not their job to develop strategy: “The executive proposes, but the board disposes,” he says.
Trustees should be chosen with a view that one of them is capable of chairing the board in due course. Furthermore, trustees should know why they have been invited to join the board and how they might best contribute to the organisation’s success.
All Sir John’s suggestions seem sensible and most would apply to public companies as well as to arts institutions. The role of non-executive directors has never been well defined. Tiny Rowland, a swashbuckling tycoon, dismissed them as “Christmas tree decorations”—just for show, in other words. Think of the great names that studded the board of Theranos, a blood-test startup, and how they failed to stop its collapse.
Most non-executives do their best but are caught between two stools. They do not know enough to challenge the executives properly. But if they push their questions too far, they will not be reappointed. Above all, trustees and non-executive directors cannot do their job unless the management wants their input. Wise bosses should know their limitations and rely on boards for advice.
This article appeared in the Business section of the print edition under the headline “How to play the board game” More

JOHN STANKEY is an American chief executive from central casting. The 58-year-old has a square jaw, a lanky frame and, as one friend put it, “the world’s deepest voice”. During his 35 years as a telecoms executive, he has been a voracious dealmaker. He helped set Southwestern Bell Corp, one of the Baby Bells spawned by the break-up in 1984 of American Telephone & Telegraph (AT&T), on an M&A blitzkrieg that eventually consumed the original Ma Bell herself. He then helped orchestrate its $176bn push into entertainment, buying DirecTV, America’s largest cable provider, in 2015, and Time Warner, a media colossus, three years later. In July he took over as AT&T’s boss. A self-confessed “Bell-head”, he doesn’t flinch when confronting media moguls. Yet before one constituency he practically cowers: widows, orphans and other investors that depend on AT&T as the world’s second-biggest dividend-payer after Microsoft.
That is a problem not because AT&T cannot afford this year’s anticipated $15bn payout. Despite the travails of covid-19, it easily can. The rub is that it has become a treadmill. This year is the 36th since AT&T was broken up in which it has increased the dividend. Such a legacy may not be strange for a stolid telecoms firm. But with a flighty media business on the side, it is a foolish promise. Moreover, AT&T’s acquisition spree has saddled it with almost $150bn of net debt, even as its two core businesses, mobile telecoms and entertainment, are in the throes of upheaval that requires immense financial flexibility. Instead of revitalising each of them, AT&T has so far done what many “dividend aristocrats” do—try to sell the family silver to make ends meet.

Yet there are indications that Mr Stankey may be prepared to challenge the old ways of thinking. He ought to—even for the sake of those widows and orphans.
He started the job with the odds stacked against him. Not only has the covid-19 pandemic clobbered WarnerMedia, the renamed Time Warner, by disrupting film releases, accelerating the decline of cable TV and reducing advertising spending. He also had to overcome doubts about his leadership abilities first aired last year by Elliott Management, an activist hedge fund, when it took a stake in AT&T. When his former boss, Randall Stephenson, announced his retirement in the midst of the pandemic, it was hard to imagine that an outsider could run a company with a market value of $200bn and a phone book’s worth of problems by Zoom. So Mr Stankey won the contest, despite his role as Mr Stephenson’s lieutenant during years of value destruction. Since then, he has soothed some nerves, taking further acquisitions off the table, promising to repair the balance-sheet and lengthening debt maturities. Yet the share price languishes, as investors wonder if he can sustain the dividend while competing against two fierce rivals, T-Mobile in telecoms and Disney in entertainment.
One big test of his mettle will be an auction next month of wireless spectrum. Mobile, after all, is AT&T’s mainstay, generating as much core earnings, or EBITDA, in a week in the third quarter as WarnerMedia did in a month. Yet T-Mobile, once a distant third in wireless subscriptions, is now running neck-and-neck with AT&T and has its sights on Verizon, the leader. After its merger with Sprint, T-Mobile has also surged ahead of both rivals in the coverage and speed of its fifth-generation (5G) network, adding to its appeal. In order to catch up, AT&T and Verizon will take part in an auction of mid-band 5G spectrum starting on December 8th. Verizon’s balance-sheet is robust enough to bid what some expect to be at least $15bn. AT&T may feel more constrained. Yet those who keep a careful eye on its credit rating think it should splurge, both on spectrum and the fibre networks it lays across America. Davis Hebert of CreditSights, a research firm, calls them the “core tenets” of its business. (How quickly it can sell long-in-the-tooth assets like DirecTV to ease the financial strain is another matter.)
On November 18th Mr Stankey may have shown promising signs of audacity, though, when WarnerMedia announced an unexpected move in support of HBO Max, AT&T’s streaming platform that competes with Disney+, not to mention Netflix. It said it would release “Wonder Woman 1984”, a potential Christmas blockbuster, simultaneously on HBO Max and in American cinemas on December 25th (it will hit cinemas in other countries earlier). That will break a long tradition of releasing films in theatres first to recoup production costs at the box-office, and to support the cinema business. It shows the company may be prepared to cannibalise revenues in one part of the firm—Warner Bros, the film studio—for the greater goal of driving subscribers to its streaming service, which is potentially a bigger long-term source of value. If going all-in on streaming attracts hordes of subscribers, it could reward Mr Stankey’s dogged faith in the marriage of phone and film.

From Wonder Woman to Superman
It is time for more of such hard choices. Yet the risk is that Mr Stankey feels he has time on his side. He now appears to enjoy Elliott’s support (reports that the asset manager had sold its equity stake do not mean it has thrown in the towel; it may still have a large derivatives position). The rating agencies are patient. Neil Begley of Moody’s says that because of coronavirus and other reasons, it has put big investment-grade firms like AT&T on a “longer leash”. Many remain convinced the dividend is a sacred cow.
That breeds complacency, however. The payout saps AT&T’s financial flexibility just when it needs all the leeway it can find. It encourages defensiveness, when T-Mobile and Disney are, as Roger Entner, a telecoms analyst, puts it, “surrounding it like wolves”. Come what may, one day it will have to cut the dividend—preferably to be complemented with more flexible share buy-backs. If Mr Stankey does that to make the company more nimble, he might emerge a corporate superhero. If it is forced upon him by weak earnings, it will be kryptonite that could cost him his job. ■
This article appeared in the Business section of the print edition under the headline “Wring out those Bells” More

HUNDREDS OF JOBSEEKERS lined up outside a factory gate on a recent autumn morning. Uni-Royal, a Taiwanese maker of electronic components for such brands as Samsung and Toshiba, was looking for extra help at its plant in Kunshan, an hour’s drive west of Shanghai. New factory hands could earn 4,000 yuan ($610) a month, double the local minimum wage. Kunshan is dotted with hundreds of Taiwanese manufacturers like Uni-Royal. More than 100,000 Taiwanese call Kunshan home.
“Little Taipei”, as Kunshan is known, illustrates a broader phenomenon. Exact estimates vary, but as many as 1.2m Taiwanese, or 5% of Taiwan’s population, are reckoned to live in China—many of them business folk. Taiwan Inc has not let fraught political relations with China, which views the island as part of its territory, get in the way of business. Taiwanese companies have invested $190bn in Chinese operations over the past three decades. Foxconn, a giant Taiwanese contract manufacturer of electronics for Apple and other gadget-makers, employs 1m workers in China, more than any other private enterprise in the country.

As the West grows increasingly suspicious of communist China’s rise—a trend that America’s next president, Joe Biden, may slow but not reverse—Beijing seems keener than ever to bolster cross-strait commercial bonds. It sees Taiwanese firms as a source of investment and critical technologies such as computer chips, the export of which to China Washington has tried to curtail. At the same time, corporate Taiwan is cooling on its giant neighbour. Geopolitics is not the only reason.
When China opened up to foreign investment in the 1980s, entrepreneurs from Taiwan were the first foreigners to open their wallets. Enticed by cheap labour and land across the strait, they quickly set up shop in the coastal provinces closest to Taiwan. To this day Jiangsu (which includes Kunshan), Zhejiang, Fujian and Guangdong attract most Taiwanese money (see map). A common language and shared culture helped reduce transaction costs. Foxconn built its first Chinese factory in Shenzhen in 1988. By 2008 around a sixth of China’s stock of inward investment came from Taiwan, making it the biggest foreign investor in China.

Today three of China’s 12 most popular consumer-goods brands by revenue are Taiwanese. Chinese gobble up Master Kong instant noodles, Want Want rice crackers and Uni-President juices. Apple’s three biggest China-based suppliers—Foxconn, Pegatron and Wistron—are all Taiwanese.

Now China is going out of its way to recruit more businesses from Taiwan. Between 2018 and 2019 the government unveiled no fewer than 25 policies aimed at luring them. Measures include tax credits and, more striking, a special right to bid on lucrative government contracts, from railway construction to “Made in China 2025”, an innovation scheme centred on advanced manufacturing. In May the Chinese authorities released an official directive, signed by five ministries, permitting Taiwanese-owned firms in China to “receive the same treatment as mainland enterprises”. It applies even to sensitive areas like 5G mobile networks, artificial intelligence and the hyperconnected “Internet of Things”. No other foreign firms enjoy similar treatment.
These efforts by Beijing have so far had limited success. Annual investment flows from Taiwan have fallen by more than half since 2015 (see chart). This growing reticence on the part of corporate Taiwan can be explained by three considerations. The first is geopolitical.
China’s goal of discouraging formal independence by strengthening business ties is increasingly transparent to many Taiwanese. Beijing’s special treatment of Taiwanese firms, which are designated as domestic ones in its drive for “indigenous innovation”, only stokes more suspicions. It may have helped Taiwan’s independence-leaning president win re-election in January. Chinese firms, which have been able to invest in Taiwan since 2009, are coming under fire from the island’s regulators, which suspect them of being a fifth column for the Chinese Communist Party. Last month Taobao Taiwan, the local version of Alibaba’s Chinese e-commerce platform, said that it would cease operations.
Trading partners
Geopolitical tussles beyond the Taiwan strait also play a role. Tariffs imposed by America on a long list of Chinese exports have prompted many Taiwanese producers to shift operations out of China. A recent survey by the National Federation of Industries, a trade body in Taiwan, found that four in ten Taiwanese bosses with factories in China said they already have or will “transfer capacity” elsewhere, mainly to South-East Asia. Taiwan’s Giant, the world’s biggest producer of bicycles, has identified Hungary as an alternative production base.
Making life even more difficult for some Taiwanese firms is America’s blacklisting of certain Chinese tech titans. Huawei, a Chinese telecoms champion that is a particular target of American ire, last year accounted for 15% of the revenues of Taiwan Semiconductor Manufacturing Company (TSMC), a huge chipmaker. This month TSMC confirmed it has set aside $3.5bn for a new plant in Arizona.
A second challenge for Taiwanese firms concerns competition. Zhang Yingde, a Taiwanese small-business owner in Shanghai, talks of a “red supply chain” which, Beijing’s directives notwithstanding, continues to favour Chinese bidders. Mr Zhang says he can only hope to get in on the action as a subcontractor. Jerry Huang, the head of Ningbo’s Taiwan Business Association, which represents some 300 Taiwanese manufacturers in the eastern Chinese city, says that none has won a big government contract to date.
Mr Huang does not blame discrimination against Taiwanese firms. He points instead to the capabilities of homegrown Chinese rivals, which are becoming more competitive and innovative. This month Wistron, a Taiwanese assembler for Apple, agreed to sell its factory in Kunshan to Luxshare, a low-cost Chinese competitor. The fact that Wistron was prepared to cede operations to a Chinese rival suggests that technical know-how in electronics assembly is no longer a barrier to entry that Taiwanese outfits feel compelled to guard.
Now that their dominance in manufacturing is fading, Taiwanese firms which want to succeed in China may need to ride on “Taiwan’s soft power”, says Keng Shu of Zhejiang University. This will be easier in services, he reckons, given Taiwan’s global reputation for warm customer service. But unlike manufacturing, where Taiwan enjoyed a first-mover advantage, China’s services industry has no shortage of established players, foreign and domestic.
The third reason for Taiwan Inc’s diminished zeal for China has to do with generational change. Uni-Royal in Kunshan is a case in point. Taiwanese expatriates who dominate its management are nearing retirement. Young Taiwanese are reluctant to take on the often thankless task of running Chinese factories. A common refrain heard from Taiwanese owners across China is that the impending “leadership vacuum” has made them cautious about big outlays.
To attract stripling Taiwanese entrepreneurs, China’s central government has in the past year opened dozens of “cross-strait entrepreneurship incubators” in big cities. These offer perks like free office space, introductions to potential Chinese clients, posh flats at discount rents and a chance to apply for up to 500,000 yuan in seed capital from the government. Weak pitches such as insufficiently differentiated mobile apps need not apply, says Zhu Yan, who operates an incubator in Jiaxing, in Zhejiang province. Still, the bar is lower than Chinese venture-capital firms typically set.
Mr Zhu’s incubator has lured ten Taiwanese startups. But schemes like it will not be enough to allay Taiwanese bosses’ concerns about pricier labour and stiffer competition—let alone about the new great-power rivalry. More likely than not, the golden era of Taiwanese business in China is over. ■
This article appeared in the Business section of the print edition under the headline “Scaling back” More

TO THE CONSTERNATION of Ugur Sahin and Özlem Türeci, much of the couple’s coverage in the German press focused on their Turkish roots. “Our world can be saved. From Mainz. By children of migrants,” was a headline in Bild, Germany’s best-selling tabloid. Their story certainly defies the cliché of owners of doner-kebab stands and fruit-and-vegetable shops—even if Mr Sahin and Ms Türeci, chief executive and chief medical officer, respectively, of BioNTech, would have preferred to read about the details of their firm’s discovery, in partnership with Pfizer, an American drugmaker, of a highly effective vaccine against covid-19.
“There are other BioNTechs,” says Rosemarie Kay of the IfM, a think-tank in Bonn. Migrants are much likelier than the average German to start a business (see chart). According to a recent survey by KfW, a state-owned development bank, one in four of the 605,000 founders of firms last year had foreign origins. They are not limited to groceries and gastronomy. Spotted, established by Nik Myftari, a refugee from Kosovo, is a dating website. Novum, created in 1988 by Nader Etmenan, who fled Iran, has become one of Germany’s biggest chains of hotels.

Immigrants to Germany (like Mr Sahin) or those with at least one parent who was born abroad (like Ms Türeci) number 19.6m, representing 24% of the population. A study from the Bertelsmann Foundation, another think-tank, found that members of this group own 773,000 businesses. Of these, 469,000 are sole traders. The rest are employers, mostly in construction, retail and services. Their numbers are growing. By comparison, the number of other Germans who own businesses declined by 275,000 in the period, to 3.2m.
“Germans are averse to self-employment,” says Armando Garcia-Schmidt of the Bertelsmann Foundation. Many graduates prefer a safe civil-service career to the vicissitudes of starting a business. The booming labour market of the past decade helped skilled and unskilled youngsters land a decent job without trying.
Options for migrants tend to be more limited. Some come from countries with strong entrepreneurial traditions and tend to pick successful entrepreneurs as role models. Various studies show that explicit or implicit discrimination makes the labour market, even in good times, much tougher for migrants. And many have qualifications from their country of origin that are not recognised in Germany, so creating a business is their only chance to earn more than the wage from a menial job.
Mr Garcia-Schmidt expects the labour market to become more difficult for everyone once the pandemic has abated and Germany’s generous furlough schemes expire. Covid-19 has made 2020 a terrible year for founders of all stripes. As the country emerges from the coronavirus recession, more native Germans may opt for self-employment as an alternative to joblessness. They can learn a thing or two from their migrant neighbours. ■

This article appeared in the Business section of the print edition under the headline “Pride and prejudice” More

CHRIS KEMPCZINSKI is anything but supersized. One year into his tenure, the CEO of McDonald’s is a lean-framed 52-year-old who runs marathons. Hard to believe, then, that he eats a McDonald’s meal twice a day, five days a week. “There are days when I’m indulgent and days when I’m careful about what I’m eating, but I eat a lot of McDonald’s,” he admits in an interview. Indeed he puts many of his best customers to shame. On average, the top 10% of Big Mac bingers visit his restaurants a fifth as regularly as he does.
Perhaps he is making up for lost time. Unusually for a McDonald’s boss, he is not a company lifer. He joined in 2015, hired by his predecessor, Steve Easterbrook, when McDonald’s was on the verge of meltdown. It was floundering in its attempts to compete with innovative American upstarts, such as Chipotle and Shake Shack. Its premises were shabby even as it offered hundreds of items on the menu that many of its customers could not afford. Critics called it a parasite on society, paying low wages and promoting obesity. Mr Kempczinski acknowledges that it suffered from hubris. Under Mr Easterbrook, who took charge in 2015, the mission was to shake it out of its complacency.

What followed was a lesson in corporate renewal that could have made Mr Easterbrook a megastar CEO had he not been fired last year for having a consensual relationship with an employee. (McDonald’s has recently sued him for allegedly concealing other sexual relationships and wants to recover a big pay-off.) Yet sensibly Mr Kempczinski is sticking to the programme. Unlike many new bosses overeager to tear up the legacy of their disgraced predecessors, he unveiled a new strategy on November 9th that builds on the work started in recent years. In the midst of a pandemic, it offers a valuable lesson of its own. Never let a crisis go to waste.
The seeds of the revival of McDonald’s started with a simple decision that is surprisingly easy to get wrong: go back to basics. From 2015 onwards, it pared back its array of menu offerings and focused on price and quality. It recommitted to Ray Kroc’s beloved business model, increasing the share of franchises last year to 93% (of almost 39,000 restaurants), up from 82% in 2015. That provided it with higher-margin and steadier royalty and rental income. It streamlined its sprawling international operations, selling control of its restaurants in China and Hong Kong. The results were impressive. Across McDonald’s sales exceeded $100bn last year; its operating margins, thinner than a frazzled patty in most of the restaurant industry, ballooned to 43%. And its share price sizzled. Since 2015 its market value has almost doubled to $160bn.
As it recovered its financial footing, it turned to investing in the future. But counter-intuitively, it probably benefited by not rushing. According to John Gordon, a San Diego-based restaurant consultant, its franchisee model makes it hard to move fast—and important to build consensus. It tests new ideas out in local markets before suggesting them to franchisees worldwide. Its ownership of the land under franchisees’ restaurants gives it a joint interest with them in co-investing in refurbishments and technological upgrades. Not only does this help woo customers by reinforcing the brand, it also supports the value of the land. In recent years McDonald’s and its franchisees have invested heavily in installing kiosks for touchscreen ordering and making other improvements such as two-lane drive-throughs. Last year the company made its biggest acquisition in years, buying a tech firm that helps personalise the drive-through experience. The overhauls may have cost franchisees a lot. But over the course of the covid-19 pandemic, they have started to reap the benefits.
That is because McDonald’s has used the crisis to step up the pace of its transformation, resulting in big sales surges in recent months, especially in America. With the interiors of many of its restaurants closed, it has relied on the roll-out of its digital, drive-through and delivery initiatives, all of which encourage a more “contactless” experience that it believes will outlast the pandemic. Recalling Kroc’s aphorism that “We’re not in the hamburger business. We’re in show business,” it has dazzled customers with customised menus by superstar rappers such as Travis Scott. And it has made old favourites, such as Big Macs and Quarter Pounders, central to its menu, which adds to simplicity in the kitchen and speeds up customer service. Over the next two years it hopes a long-awaited digital loyalty programme will enhance sales growth and maintain margins at their elevated levels of 2019. With a covid vaccine, it could do even better.

Many challenges remain for Mr Kempczinski. On food, McDonald’s is a laggard when it comes to chicken sandwiches and plant-based products. It promises a Crispy Chicken Sandwich and non-meat McPlant soon. The former is vital to catch up with competitors such as Chick-fil-A. The company says it is shifting marketing away from sales drives towards promoting itself as a community-focused-brand, but not everyone likes the pious tone. “Social Justice Warriors are now running McDonald’s Corporation. Stuff that has nothing to do with selling Big Macs,” says one franchisee quoted in an analyst’s report. McDonald’s faces two lawsuits from former and current black franchisees, alleging racial discrimination by pushing them into poor areas. It refutes the accusations.
From Big Macs to big data
Its ubiquity means McDonald’s is often in the news for the wrong reasons. But as a corporate turnaround, it is a compelling story. Instead of suffering from a tech onslaught as many bricks-and-mortar chains have, it has turned itself into a digital pioneer. Instead of hunkering down during the pandemic, it has embraced new ways of doing business. Despite Mr Kempczinski’s baptism of fire, even the leadership transition has been the best the industry has seen in years, says Sara Senatore of Bernstein, an investment firm. He should not be harshly judged for his frequency at the lunch counters. So far he has earned all the Quarter Pounders he can eat.■
This article appeared in the Business section of the print edition under the headline “The big McComeback” More

SUPERMARKET SHELVES stripped bare by stockpilers were familiar scenes as anxious shoppers loaded up with toilet rolls and pasta when lockdowns were first imposed. The taste for long-lasting dried food has been a boon for Italy, a country in deep recession. Although Italians remain the biggest eaters of pasta worldwide, munching through 23kg per head annually, the country’s pasta-makers export 60% of their production, mostly to Europe and America. While stuck at home far more cooks made plates of spaghetti, fettuccine and farfalle. According to ISTAT, the Italian statistics agency, exports of pasta increased by 30% in the first six months of the year compared with the same period in 2019.
Barilla, the world’s biggest pasta-maker with sales of €3.6bn ($4.2bn) last year, must keep up with increased demand for its core product. The 143-year-old family firm also owns Wasa, the world’s biggest maker of Swedish crisp bread, as well as a host of smaller snack brands. The company’s high-tech headquarters in Parma operated at close to capacity, producing 1,000 tonnes a day, throughout Italy’s harsh lockdown in spring. Some other Barilla factories produced more pasta than ever, says Bastian Diegel of Barilla in Germany, albeit at significantly higher cost thanks to the additional safety measures. It continued to make all of its 120 varieties.

Maintaining supplies to Germany, one of Barilla’s most important markets, even required dedicated transport. Starting in March the job of providing 22% of the pasta and as much as 39% of the sauces eaten in Germany meant dispatching two trains a week from Parma to Ulm, its main warehouse in the country. Each train has 16 wagons transporting 490 tonnes of pasta, 60 tonnes of sauces and 50 tonnes of pesto. From June the trains ran three times a week; soon they might make four journeys.
The question for Barilla and other pasta-makers is whether the boom will outlast the pandemic. Luigi Cristiano Laurenza of the International Pasta Organisation is confident. Pasta consumption worldwide increased from 7m tonnes in 1999 to 16m tonnes last year, even before it became a pandemic staple. Italy may have lost its appetite a little in recent years but there is room for growth nearly everywhere else, in particular in Africa and Asia. Pasta is cheap, tasty and versatile, says Mr Laurenza, making it especially attractive for cash-strapped families battered by a pandemic.
It is especially important for Barilla that plates remain laden after a series of missteps. In 2002 it spent €1.8bn on a hostile takeover of Kamps, a German baker. It turned out to be a costly mistake and in 2010 Barilla sold Kamps to a private-equity firm. In September 2013, Guido Barilla, the company’s chairman, said that the firm’s family values meant that he would not do a “commercial with a homosexual family”. The comments provoked an outcry, in particular in America, and threats of a boycott. Mr Barilla was forced to apologise and the firm subsequently launched a limited-edition pasta box showing two women sharing a kiss over spaghetti. Although cooking pasta requires plenty of hot water, pasta-makers should stay out of it.■
This article appeared in the Business section of the print edition under the headline “On board the spaghetti express” More

DISNEY PROMISED investors in spring 2019 that a new video-streaming service would win between 60m and 90m subscribers by 2024. Disney+ has outperformed that forecast spectacularly, hitting its five-year subscriber target in just eight months. In doing so it is fulfilling the digital-transformation plan set in motion three years ago by Bob Iger, Disney’s longtime boss, now its executive chairman.
Marketing muscle, crucial to success, has been backed up by “The Mandalorian”, a space western inspired by “Star Wars”. Such is its popularity that Disney was late meeting demand for a plush-toy of its baby Yoda character. The pandemic added a turbocharge, dashing fears that Disney+ and other new streaming services, like HBO Max and Apple TV+, might struggle to attract time-starved consumers. Lockdowns mean extra hours to while away, notes Tim Mulligan of MIDiA Research.

Amid school closures Disney+ has been as trusty a baby-sitter as baby Yoda’s nurse droid. Of all the new streaming services Disney+, which launched in western Europe in March, just as lockdowns began, is the clear winner. Even so it has not touched the leader, Netflix, which has 195m subscribers worldwide and over 70m in America alone (see chart).

Disney’s other businesses have suffered because of the pandemic. Shuttered theme parks, closed cinemas and cancelled sporting events have taken their toll. In August Disney said covid-19 wiped out $3.5bn of operating profits at its parks, experiences and products division in three months. The company is expected to report another quarterly loss on November 12th, after The Economist went to press. Yet the streaming service’s subscriber gains have helped shield the firm’s share price. It has fallen but by far less than its peers.
Disney+’s rapid success also underlines a doubt about the firm—whether Mr Iger’s choice of successor was correct. The favourite for the top job was Kevin Mayer, who designed and launched Disney+. Mr Iger chose Bob Chapek, a talented operating executive who had been running theme parks. “Given the runaway success of Disney+ it is even harder to understand how the theme park and home-entertainment executive got the top job,” says Rich Greenfield of LightShed Partners, a research firm. Mr Mayer left Disney this summer.
Will Mr Chapek now bet heavily on Disney+? The firm as a whole lavishes nearly $30bn a year on original and acquired content but this year set aside only $1bn for Disney+. Netflix spends $15bn a year. The Disney service’s rich library is enough to keep under-tens engaged but it may lose subscribers unless it regularly offers original grown-up fare. Third Point, an activist investor, wants Disney to stop its dividend and spend the $3bn a year on Disney+.
Disney could do more than that if it went “all-in” on streaming, dropping its current system in which, for example, big-budget films go exclusively to cinemas, and putting everything it makes onto Disney+ at once. The service could then spend as much as Netflix and raise its price from $6.99 per month to over $10.

This would make for a huge global business but there is a danger that it would swiftly cannibalise the existing parts of Disney’s empire. A more likely course is that Disney will move new content more rapidly onto Disney+. It could also combine Disney+ with Hulu, a separate and successful video-streaming service the firm took control of last year.
Disney is expected to announce in December that it will spend a lot more on content for the service. All eyes will be on whether Mr Chapek seems as tuned-in to streaming’s bright future as Mr Iger was. ■
This article appeared in the Business section of the print edition under the headline “The streaming kingdom” More