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Why You Should Try a Subscription Model for Your Business (and Some Tips on How to Do It)

Every entrepreneur wants consistent monthly income to fuel their cash flow and business goals. However, between economic cycles and changing customer interests, that regular revenue may be hard to achieve.

I’ve talked with more and more small business owners lately who use a subscription business model. It involves offering monthly subscriptions for various products and services. Options for these subscriptions cover all kinds of items. Maybe you know someone who receives a subscription box filled with clothing or makeup. Perhaps you’ve tried making meals prepared by Blue Apron or you receive shaving supplies from Dollar Shave Club. Millions of people enjoy Netflix and Spotify for streaming. Other companies offer toys for kids and treat boxes for pets.

The subscription e-commerce industry generates hundreds of millions of dollars in revenue each year. A 2018 McKinsey survey noted that nearly 60 percent of American consumers surveyed had multiple subscriptions. The monthly subscription economy doesn’t show any signs of slowing down. People love the time and money they save, as well as the excitement of personalization and convenience.

Besides attracting and retaining customers who want these benefits, there’s a significant advantage for subscription companies: recurring revenue. Instead of a one-time payment, monthly subscription businesses collect a monthly fee (or sometimes a year of fees in exchange for a lower monthly rate) before sending out the product or service.

This revenue model provides an upfront spike in cash flow along with a longer-term outlook for stable income. Moreover, you’ll get a better sense of product volume for inventory planning and management.

There is no time like the present to start a monthly subscription business to ride the lucrative wave. Here’s how to launch:

Decide on a subscription model type.

There are three main sub-models that can frame your monthly business within the subscription model. The curation model involves creating a personalized box for customers based on interests they share when they sign up. This might include sample-size versions of products related to a hobby or lifestyle.

The replenishment model is the one I use most often. It offers a regular stream of products the customer uses. For example, Amazon offers this under the name, “Subscribe and Save,” for many food items, cleaning supplies, vitamins, and more.

The access model provides a feeling of exclusivity for customers who get products and experiences not available to anyone without a subscription. Again, let’s reference Amazon. Its Prime program gives members special discounts, offers, and products not accessible to non-Prime members.

Consider a service-oriented subscription model.

You may be wondering how to find your niche. Consider a service-oriented skill set you have that could fit this approach. For example, if you specialize in graphic design, web development, or writing, consider this model for your monthly business.

In contrast to a monthly retainer model, a service-based subscription model provides upfront revenue while giving clients the opportunity to select a pricing tier with accompanying services that fit their needs.

Proceed like any business startup.

I’ve met many a startup founder that didn’t do the basics. Make sure you conduct research, determine a market need or interest, think about what the new product looks like, scope out any competition, and establish pricing.

Create a business plan that outlines your monthly business model, marketing plans, launch timeline, budget, and profitability forecast. Explore technology that helps automate the ordering, processing, and payment aspects of your subscription. I know entrepreneurs who use SaaS companies like Zuora or Zoho here. Also, study how other subscription brands have used marketing tools and platforms to launch and grow their business.

When you are ready to share your subscription business with your audience, consider a no-obligation trial. This entices people to try it on their terms and get excited to sign up for a longer period. In addition, make sure your website or social media promotion has a transparent subscription pricing guide that describes what customers receive at each pricing tier.

Taking all these steps prior to launch can set your monthly subscription business up for success. You want to know that you can attract customers and then deliver an exceptional experience so they maintain their subscriptions and spread the word.

Offer a recurring automatic payment method.

As part of establishing a successful subscription business, it’s ideal to offer old and new customers a way to select recurring automatic payments for their monthly subscription service. They can choose where to deduct the money from — a bank account or credit card.

This model works because it saves them from having to remember to make a payment each month. Instead, they can set up a payment method and comfortably receive the service on a regular basis.

By: John Boitnott

Source: Why You Should Try a Subscription Model for Your Business (and Some Tips on How to Do It)

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3 Ways to Recession-Proof Your Company & Why Right Now Is the Best Time to Do It

David Barrett survived the Great Recession by making his business as boring as possible.In 2007, the founder and CEO of Expensify was trying to launch a prepaid debit card that would enable–and hopefully encourage–charitable giving to panhandlers in San Francisco. But, as forecasts of economic turmoil mounted, investors were interested only in ideas that sounded “sane and reasonable,” he says. So Barrett started pitching the safest related product he could imagine: an automated expense-report management system.

That worked; Barrett secured enough money to quit his full-time job in April 2008. He still intended to pursue the card idea, but soon hit a production snag–and with the economy in free fall, Barrett recalls thinking, “Shit, I really need to make a business out of this right now.” So he doubled down on business-expense management.

Almost 1.4 million small businesses with employees closed from 2008 through 2010, according to the U.S. Small Business Administration. Expensify, now with five offices and a staff of 120, wasn’t one of them–a feat Barrett attributes to those pre-recession pivots. They taught him to “build a product that is needed in a downturn,” he says. “Sell aspirin, not vitamins.”

Recession war stories may seem out of place during this prolonged period of economic growth, but there are signs that a slowdown is on the way. A June 2019 survey from the National Association for Business Economics put the risks of a recession beginning before the end of 2020 at 60 percent. A third of the 2019 Inc. 5000 CEOs expect a recession to begin this or next year, with another third bracing for one in 2021. Whenever the downturn hits, these steps can help your business weather it.

Fundraise.

Build your cash reserves while you can. Serial entrepreneur Mitch Grasso had a potential downturn in the back of his mind while raising capital for his latest venture, Beautiful.ai. The presentation software company raised $11 million in Series B funding in March 2018, just 17 months after a $5.25 million Series A round. “I chose to raise money earlier than I would have otherwise, even though it cost me probably a little more” in terms of valuation, says Grasso. “If there’s money on the table, take it sooner rather than later. You’ll always find a way to spend it.”

Conduct consumer research.

You might not be able to pivot your entire business model, so figure out what products and services your customers will need even in poor conditions, says Carlos Castelán, managing director of the Navio Group, a retail business consulting firm.

Ryan Iwamoto, co-founder of caregiving service 24 Hour Home Care, started asking his customers for their input when the federal government introduced sweeping rules for home health care agencies in 2016. He wanted to be “the first in market to educate them on all the regulations coming down in our industry,” Iwamoto says. “It allowed us to build better relationships”–and has helped boost his company’s revenue by more than 68 percent since the law changed, he reports.

Ink multiyear contracts with clients, not vendors.

Earlier this year, during a regular assessment of her company’s revenue targets, Sandi Lin considered the potential impact of an economic slowdown. The co-founder and CEO of Skilljar was happy to discover half of the customer training platform’s revenue was on multiyear contracts, meaning “at least theoretically, that even if all of our other customers went bankrupt,” Skilljar would have some runway–and less pressure to scramble for new business.

Lin applies the opposite approach for vendor contracts; while Skilljar is sponsoring a major customer conference this fall, she negotiated a minimal commitment on room nights and seats with the hotel and venue. Which is a smart business practice in good times, too; as Lin says, “the most important job of an entrepreneur is to survive.”

By: Jeanine Skowronski

Source: 3 Ways to Recession-Proof Your Company–and Why Right Now Is the Best Time to Do It

WATCH MY PREVIOUS VIDEO ► https://youtu.be/SCCMp_PVxz8 WATCH MY NEXT VIDEO ► https://youtu.be/9Pa7mAcKmXo ———————————————————– FINANCIAL STEWARDSHIP ACADEMY (USE DISCOUNT CODE: “FREEDOM” FOR 30% OFF) ► http://bit.ly/Buy-FSA-Webinar ———————————————————– ▼ 30 DAY GUIDE TO REDUCING STRESS AT WORK▼ ============== EBOOK FOR MOMS (30% OFF DISCOUNT CODE: STRESSFREE30) ► http://bit.ly/Reduce-Stress-eBook PAPERBACK (AMAZON) ► http://amzn.to/2yvaQaS KINDLE (AMAZON) ► http://amzn.to/2lUZ57W AUDIO (AUDIBLE) ► http://amzn.to/2oEp3sJ iBOOK (APPLE) ► http://bit.ly/StressiBook ———————————————————– FREE DETOX SYSTEM FOR MOMS ► http://bit.ly/10DayMBDS SMART MOM’S TRANSFORMATION SYSTEM ($100 OFF DISCOUNT CODE “TRANSFORM”) ► http://bit.ly/Buy-SMTS ———————————————————– Brief Overview: Small and Large businesses can get hit pretty hard during recessions so it’s important to choose a business that can withstand the ups and downs that come with the economy. There’s lots of different options and ideas to choose from if you are new to small business, but there’s also some ideas that you can choose to diversify your income streams if you already own a business or multiple businesses. The key is to pick a person, product, and/or company that you know, like, and trust to make sure you have the best chance of success during the ups and downs. ———————————————————– ▼ NEXT STEPS▼ ============== SUBSCRIBE ► http://bit.ly/LanceMcGowanYT SHARE ► This video with someone that would benefit from it COMMENT ► On what you liked most about this video! ———————————————————– ▼ SEARCH ▼ =========== #lancemcgowan #fsa #financial #financialstewardshipacademy #finances #finance #stewardship #biblical #bible youtube for more videos! ———————————————————– ▼ BUSINESS INQUIRIES▼ ===================== Email Lance at support@lancemcgowan.com with questions OR Email Tanner at frigaardtanner@gmail.com ———————————————————– ▼ SEND ME MAIL▼ ===================== Lance McGowan 11700 W Charleston Blvd #170-415 Las Vegas, NV 89135 ———————————————————– Disclaimer: The information contained on the Lance McGowan YouTube channel and videos are provided for general and educational purposes only and do not constitute any legal, medical or other professional advice on any subject matter. These statements have not been evaluated by the FDA and are not intended to diagnose, treat or cure any disease. Always seek the advice of your physician or other qualified health professional prior to starting any new diet or treatment and with any questions you may have regarding a medical condition. If you have or suspect that you have a medical problem, promptly contact your health care provider.

Singapore’s Richest 2019: ‘Popiah King’ Outfits Factory Buildout For Meat Alternatives

At 70, Singapore’s “popiah king” Sam Goi still has his sights set on expanding his food and property empire. After earning his royal sobriquet—and his $2 billion fortune—making the paper-thin crepes used to wrap spring rolls known as popiah, he is now branching out. He wants to invest in meat substitutes and other special-diet foods, and play angel investor to food startups like the one he started in 1977, Tee Yih Jia Food.

More On Forbes: Singapore’s Richest 2019: At 101, The World’s Oldest Billionaire Has No Plans To Slow Down

Today In: Asia

Goi knows something about building a brand. Privately held Tee Yih Jia (TYJ) today exports Asian food items such as spring rolls, glutinous rice balls and samosas to more than 80 countries. It’s now in the process of doubling its production capacity with a new facility due for completion in 2021.

Goi’s Singapore-listed development company GSH, however, has hit a lull. After a S$75 million windfall in 2017 from its sale of private-equity unit Plaza Ventures, net profits dropped 93% in 2018 to S$6 million on a 9% decline in revenues. That’s pushed GSH’s shares down 13% in the past year, helping pull Goi’s fortune down by $100 million.

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Goi arrived in Singapore in 1955 when he was six years old with little but the shirt on his back after his family fled China’s Fujian province in a small boat. Goi dropped out of high school, but used his training in a repair shop to gain a toehold in the food industry.

With S$450,000 borrowed from a bank and his father, he bought an underperforming food company and overhauled it, increasing production from 3,200 popiah skins a day to 25,000. In 1980, he brought in technicians to design the world’s first automated system for making spring roll pastries at the blistering rate of 30 million a day. He then branched out, pumping out fortune cookies, flatbread and samosas.

More on Forbes: Singapore’s Richest 2019: Daryl Ng Takes His Family’s Sino Group Into The Future With 5G, AI

Goi returned to his hometown in Fujian in 1985 and built his first China factory there, later adding a frozen-food facility, a brewery and a vinegar plant in other parts of China. Goi also snapped up land in China’s second-tier cities long before China’s property boom. Most of Goi’s exposure to property, though, has come through GSH, where he now has a nearly 60% stake.

TYJ also has a subsidiary in Yangzhou focused on developing residential and commercial properties in surrounding Jiangsu province. But Goi’s plans for TYJ are more food-related. Goi’s daughter Laureen, who runs TYJ Food Manufacturing, has been building a state-of-the-art food factory nearly four times larger than the present one in Singapore, with the latest in automation, including driverless vehicles.

The new facility will also have a laboratory developing new products, and TYJ may even invest in and incubate promising food ventures, furthering Goi’s legacy as a foodstuff innovator.

Correction: the original version of this story incorrectly stated Goi’s late son Ben was involved in TYJ’s factory expansion. It is his daughter Laureen. Also corrected is that the new facility is an expansion not a replacement of the existing manufacturing plant.  

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Pamela covers entrepreneurs, wealth, blockchain and the crypto economy as a senior reporter across digital and print platforms. Prior to Forbes, she served as on-air foreign correspondent for Thomson Reuters’ broadcast team, during which she reported on global markets, central bank policies, and breaking business news. Before Asia, she was a journalist at NBC Comcast, and started her career at CNBC and Bloomberg as a financial news producer in New York. She is a graduate of Columbia Journalism School and holds an MBA from Thunderbird School of Global Management. Her work has appeared in The New York Times, Washington Post, Yahoo, USA Today, Huffington Post, and Nasdaq. Pamela’s previous incarnation was on the buy side in M&A research and asset management, inspired by Michael Lewis’ book “Liar’s Poker”. Follow me on Twitter at @pamambler

Source: Singapore’s Richest 2019: ‘Popiah King’ Outfits Factory Buildout For Meat Alternatives

First Runner Up for Singapore Heritage Short Film Competition 2018

In A World Of Bubbles, Tokyo’s ‘Skyscraper Curse’ May Be Scariest

It’s been a medal-caliber few years for Japan’s property developers. Not Olympic gold of the kind Tokyo will award athletes 12 months from now. But construction ahead of the 2020 Games, building that’s been a godsend for Japan’s property developers. That will happen when the cost of staging a few weeks of sporting events explode to $25 billion from the $7 billion Tokyo originally estimated.

What if, though, the 2020 construction boom spells trouble for the century ahead? The reference here is to the “Skyscraper Curse” that may be rearing its head in the third-biggest economy.

Building related to Tokyo 2020 turned the Japanese capital into a giant construction site. Even developers unattached to the August 2020 Olympics have used the excitement to build new office towers throughout the city. Office space that, frankly, might have a hard time renting out floors two years from now.

Multinational companies, after all, continue to favor Singapore and Hong Kong (for now, at least) for Asian headquarters. And it’s not Shinzo Abe’s seven-year reflation scheme is catalyzing a startup boom to fill all that office space once the five-ring Olympic circus leaves town.

Today In: Asia

Mori Building recently unveiled ambitious plans to construct Japan’s tallest skyscraper, a title suddenly held by Osaka. This epic redevelopment project that will include offices, residences, shops, restaurants, a hotel, and an international school will come at a cost of 580 billion yen ($5.45 billion), which surely has contractors and rivals salivating at the possibilities. But there’s reason for broader caution.

One can quibble with the wisdom of putting a 64-story, 330-meter edifice in the center of one of the world’s most seismically active metropolises. It’s economic risks, though, that Prime Minister Abe’s office should be considering.

History betrays an uncanny correlation between world’s-tallest-building projects and financial crises. Roll your eyes if you want, but I’ve been covering the phenomenon for two decades. Here’s a quick recap of the last 112 years.

The Panic of 1907, when the New York Stock Exchange lost 50%, occurred just as Manhattan celebrated the opening of the 47-story Singer Building and 50-story Metropolitan Life North Building. The Great Depression that began in 1929 coincided with the New York christenings of 40 Wall Street and the Chrysler Building. Despair and homelessness spoiled the party over the 1931 opening the Empire State Building.

Fast forward four decades to New York and Chicago, the hosts to the world-topping World Trade Center and Sears Tower projects. Both opened as the Bretton Woods monetary system was breaking down and stagflation was fueling fiscal crises.

In 1997, Kuala Lumpur was quaking amid regional market turbulence just as Malaysia’s Petronas Towers came online. In the early 2000s, Taipei opened the world’s biggest architectural marvel in time for political turmoil at home and growing tensions with China, which views Taiwan as a breakaway province. The 2008 completion of Dubai’s 828-metre Burj Khalifa Tower dovetailed with the city’s bust, cascading oil prices and the “Lehman shock” a world away.

This is just the last 100 or so years of the Skyscraper Curse. Spiritualists may track the phenomenon back to the biblical Tower of Babel. But coincidence or not, it’s hard to miss the overlap between history-making economic disruptions and new architectural Guinness World Records entries.

The common, and indisputable, thread is ultra-low interest rates fueling over-investment and froth. Developers are always looking to harness the newest engineering and technological advances. That impulse gets supercharged by excess monetary expansion. It’s not surprising, then, that tallest-building projects often get green-lighted near the top-ticks of speculative manias.

Again, not the most solidly scientific of arguments. Yet Asian developers still engage in serious real-estate one-upmanship. South Korea’s tallest building, the Lotte World Tower, opened in 2017 just in time for President Park Geun-hye’s impeachment and imprisonment on bribery charges. Also in 2017, Shenzhen toasted the opening of the Ping An Finance Center, the No. 4 tallest building globally, as U.S. President Donald Trump was telegraphing his China trade war.

In Melbourne, the ongoing Australia 108 project aims to become the Southern Hemisphere’s tallest residential tower. A coincidence, maybe, but many economists worry Australia is veering toward its first recession in more than 25 years.

What about Tokyo? Abe’s seven-year revival project has been 90% monetary easing and perhaps 10% structural reform (and that’s being generous). All that liquidity, coupled with the construction boondoggle that is Tokyo 2020, has revived land prices in an otherwise deflation-traumatized economy.

As of February, the Nikkei Financial Review reported, Tokyo property prices, as measured by new condos, approached late 1980s bubble-period levels. Yet inflation is advancing just 0.6% year-on-year, less than halfway to the 2% target. And ominously, real wages are down six straight months now as Trump’s China trade war slams Japan’s export engine.

All this means the Bank of Japan’s historic easing has Tokyo construction sites buzzing with activity. The rest of the nation’s slowing economic regions, not so much. All that building is stellar news for property developers, but it’s also creating a bull market in concerns that Japan’s latest building boom could be, well, cursed.

I am a Tokyo-based journalist, former columnist for Barron’s and Bloomberg and author of “Japanization: What the World Can Learn from Japan’s Lost Decades.” My journalism awards include the 2010 Society of American Business Editors and Writers prize for commentary.

Source: In A World Of Bubbles, Tokyo’s ‘Skyscraper Curse’ May Be Scariest

The one-year countdown to the 2020 Summer Olympics begins! As Tokyo gears up to host the games, NBC’s Keir Simmons takes us around the amazing venues in Japan’s capital city. » Subscribe to TODAY: http://on.today.com/SubscribeToTODAY » Watch the latest from TODAY: http://bit.ly/LatestTODAY About: TODAY brings you the latest headlines and expert tips on money, health and parenting. We wake up every morning to give you and your family all you need to start your day. If it matters to you, it matters to us. We are in the people business. Subscribe to our channel for exclusive TODAY archival footage & our original web series. Connect with TODAY Online! Visit TODAY’s Website: http://on.today.com/ReadTODAY Find TODAY on Facebook: http://on.today.com/LikeTODAY Follow TODAY on Twitter: http://on.today.com/FollowTODAY Follow TODAY on Instagram: http://on.today.com/InstaTODAY Follow TODAY on Pinterest: http://on.today.com/PinTODAY #SummerGames #TokyoOlympics #TodayShow 2020 Olympics 1 Year Out: How Tokyo Is Prepping For Summer Games | TODAY

This Kombucha Entrepreneur Hired a Man Who Spoke No English. He Is Now a Company Executive

Fifteen years ago, a non-English-speaking man applied to work at GT’s Living Foods. In Spanish, he told the hiring manager, “I am willing to do anything.” He got the job.

Originally, his job was to sweep and mop the floors. He moved up to housekeeping, and later was promoted to work on the bottling line.

“Every month, every quarter, every year he grew, and his attitude got better,” says GT Dave, founder and CEO of GT’s Living Foods. “He promised he would do anything, and he did. He had zero ego, zero pride, and the best attitude I’ve ever seen.”

Dave even goes so far as to say that this hire is better at his job than any other employee–even those with more education and industry experience. Unlike many people, who are specifically good at only one or two tasks, this employee has an affinity for quickly learning how to do many different things. And now he’s an executive at GT’s Living Foods. His job is to develop kombucha flavors and to run production lines. He’s also a general problem solver for the company.

In a company like GT’s Living Foods, Dave says, he needs people who are scrappy, flexible, and quick to jump on problems that need solving. “We’re very, very lean. We’re very, very agile. We’re much more artistic than we are corporate,” Dave says. “It’s a hard environment for your typical executive to exist in.”

As such, Ivy League degrees and decades of experience don’t necessarily count for much. Dave says résumés don’t matter to him: He looks for the same can-do attitude in every applicant who walks in the door. And, once he hires someone, that person has to keep proving she’s worthy of the job.

“I want to see what you can do here, and now. That’s my litmus test for talent,” says Dave.

By: Lizabeth Frohwein

 

Source: This Kombucha Entrepreneur Hired a Man Who Spoke No English. He Is Now a Company Executive

Our Founder & CEO, GT Dave, speaks to industry leaders & entrepreneurial pioneers on “Keeping The Attachment” at BevNet Live Winter 2018 in Santa Monica, CA. Watch to the end to see the announcement of our newest offering, DREAM CATCHER: Our CBD-Infused Sparkling Wellness Water. For more information about GT Dave and GT’s Living Foods, visit GTsLivingFoods.com. Follow @GTsKombucha on Social Media! Facebook: https://www.facebook.com/GTsLivingFoods/ Instagram: https://www.instagram.com/gtskombucha/ Twitter: https://twitter.com/gtskombucha Pinterest: https://www.pinterest.com/gtskombucha/ LinkedIn: https://www.linkedin.com/company/gts-… Website: https://gtslivingfoods.com

 

Amazon Is Launching a New Program to Donate Unsold Products, After Reports That Millions Were Being Destroyed

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Amazon wants its third-party sellers to make better use of their unsold or unwanted products that often get dumped — by giving them away to charity.

Amazon is launching a new donations program, called Fulfillment by Amazon (FBA) Donations, for third-party sellers that store their inventory in Amazon’s warehouses in the U.S. and UK, CNBC has learned. Starting on September 1, the donation program will become the default option for all sellers when they choose to dispose of their unsold or unwanted products stored in Amazon warehouses across those two countries. Sellers can opt out of the program, if they want.

The donations will be distributed to a network of U.S. nonprofits through a group called Good360 and UK charities such as Newlife and Barnardo’s. After this story was published, Amazon announced the program via a blog post on Wednesday afternoon.

The new donations program is designed to reduce the amount of inventory that must be dumped from Amazon’s warehouses, helping the environment and putting otherwise wasted products to some use. Recent reports found that Amazon routinely discards unsold inventory, with one French TV documentary estimating Amazon to have destroyed over 3 million products in France last year. Given that Amazon generates the bulk of its sales in the U.S., the number of destroyed inventory in its U.S. warehouses is likely much larger than those found in other countries.

“This program will reduce the number of products sent to landfills and instead help those in need,” Amazon wrote in the email to sellers announcing the launch.

Sellers who spoke to CNBC said the new program makes it cheaper to donate their unwanted inventory. Amazon charges 50 cents to return unsold inventory to sellers, much more than the 15 cents charged for disposal. Sellers destroy their inventory for a variety of reasons, including returns that are no longer usable or for safety issues.

In an email statement to CNBC, Amazon’s spokesperson confirmed the launch of the new program, adding it’s “working hard” to bring the number of destroyed products to zero.

“At Amazon, the vast majority of returned products are resold to other customers or liquidators, returned to suppliers, or donated to charitable organizations, depending on their condition,” Amazon said.

By: Eugene Kim

Source: https://www.cnbc.com/

 

More Selloff Strategies: Cramer’s ‘Mad Money’ Recap

When investors encounter tough days in the stock market, they need a game plan for how to respond, Jim Cramer told his Mad Money viewers Friday. That means knowing what type of selloff you’re dealing with and how best to navigate it. Fortunately, history can be your guide in identifying those inevitable moments of weakness and keep you from panicking.

Stocks finished down Friday, as Donald Trump’s recent threat to levy 10% tariffs on an additional $300 billion of Chinese imports overshadowed the latest U.S. jobs data.

The Dow Jones Industrial Average, which hit a session low of 334 points, finished down 98 points, or 0.37%, to 26,485. The S&P 500, which saw its worst week of the year, fell 0.73% and the Nasdaq dropped 1.32%. The Dow had its second worst week of the year as it fell 2.6%.

Cramer told his viewers that the U.S. stock markets have only seen two truly horrendous selloffs since he began trading in 1979. Those were the Black Monday crash in October 1987 and the rolling crash of the financial crisis from 2007 through 2009. But while both of these declines saw huge losses, they were in fact very different.

Many investors don’t remember Black Monday, where the Dow Jones Industrial Average lost 22% in a single day. Even fewer remember that the market lost 10% during the week prior, and continued its losses on the Tuesday after. While it wasn’t known at the time, this crash was mechanical in nature, caused by a futures market that overwhelmed the ability to process the flood of transactions. In the confusion, buyers stepped aside and prices plunged.

The carnage wasn’t stemmed until the Federal Reserve stepped in with promises of extra liquidity. But in the end, the economy was strong. There was nothing wrong with the underlying companies, the market just stopped working. That’s why it only took 16 months to recover to their pre-crash levels.

Investors witnessed similar mechanical meltdowns in the so-called “flash crash” of 2010 and its twin in 2015. On May 6, 2010 at precisely 2:32 p.m. Eastern, the futures markets again overwhelmed the markets, only this time machines were doing most of the trading. The crash lasted for a total of 36 minutes, during which time the Dow plunged 1,000 points from near the 10,000 level.

In August of 2015, another flash crash occurred at the open, with the Dow again falling 1,000 points in the blink of an eye. In the confusion, traders couldn’t tell which prices were real and which ones were pure fantasy. Only those with strong stomachs risked trading at the heart of the decline, but those traders were rewarded handsomely.

In all of these cases, Cramer said, the machinery of the markets was broken. Even the circuit breakers put in place after 1987 were not able to stem the declines and in fact, did very little to even slow them down. But for those investors who were able to recognize what was actually happening, these declines were a once- (well, twice-) in-a-lifetime gift.

Cramer and the AAP team are making three more trades as they reposition on this week’s selloff, including Burlington Stores, (BURLGet Report) and Home Depot (HDGet Report) . Find out what they’re telling their investment club members and get in on the conversation with a free trial subscription to Action Alerts Plus.

The Great Recession

The Great Recession was a totally different animal. The market began falling in October 2007, but didn’t bottom until March 2009, almost two years later. Afterwards, it took until March of 2013, four years later, for the markets to get back to even. Cramer said this kind of decline is the most dangerous, but fortunately, it’s truly a once-in-a-lifetime event, only occurring every 80 years or so.

The Great Recession was caused by the Fed raising interest rates 17 times in lock step, trying to cool an already cooling economy. The recession could have been avoided had the Fed done their homework and actually talked to CEOs, as Cramer did at the time.

Cramer recalled talking to the CEOs of banks, all of whom told him that defaults on mortgages were on the rise in a fashion none of them had seen before. Cramer’s famous “They know nothing” rant on CNBC stemmed from those conversations, as the Fed did nothing until the first banks began to collapse. The market fell 40% before finally finding its footing.

How can investors identify this type of devastating decline? Cramer said investors can ask whether the economy is on a solid footing. Is business declining? Is employment falling? Are interest rates still rising even as cracks are appearing? If big companies are unable to pay their bills, the problem could be a lot deeper than you think.

On Real Money, Cramer keys in on the companies and CEOs he knows best. Get more of his insights with a free trial subscription to Real Money.

Today’s Market

Today’s market is not like 2007, however, Cramer said. Business is stronger, our banking system is stronger and there’s still time for the Fed to take their foot off the brakes and wait for more data before proceeding.

So you’ve just spotted a mechanical breakdown in the market, what should you buy? Cramer said he’s always been a fan of accidental high-yielders, companies whose dividend yield is spiking because their share prices are falling with the broader averages.

He said that these stocks are always among the first to rebound, as their dividends help protect them. He advised always buying in wide scales as the market declines. That way, if the rebound is swift, you’ll still make a little money, but if it’s a larger, multiday sell off, you’ll make even more.

Cramer reminded viewers that when the Fed is cutting interest rates, almost every market dip is a buying opportunity. But when it’s raising rates, things get tricky. Not every rate hike causes a crash, however, only ones that push rates high enough to break the economy.

During these times, it’s important to remember that stocks aren’t the only investment class out there. You can also invest in gold, bonds or real estate to stay diversified.

It’s Not Just the Fed

The Fed isn’t the only reason why the market declines, and Cramer ended the show with a list of the other common culprits.

The first sell-off culprit are margin calls. Too often, money managers borrow more money than they can afford and when their bets turn south, they are forced to sell positions to raise money. We saw this happen in early 2018 when traders were betting against market volatility by shorting the VIX. When volatility returned, these traders lost a fortune and the whole market suffered.

There are also international reasons for the market to sell off, including crises in Greece, Cyprus, Turkey and Mexico, among others. Cramer said in these cases, it’s important to ask whether your portfolio will actually be impacted by these events. Usually, the answer is no.

Then there’s the IPO market. Stocks play by the laws of supply and demand after all, so when tons of new IPOs are hitting the markets, money managers often have to sell something in order to buy them. Declines can also stem form multiple earnings shortfalls as well as, yes, political rhetoric coming from Washington.

Cramer said many of these declines happen over multiple days. The key is to watch if the selling ends by 2:45 p.m. Eastern. If so, it may be safe to buy. But if not, there will likely be more selling the following day and it will pay to be patient.

By:

Search Jim Cramer’s “Mad Money” trading recommendations using our exclusive “Mad Money” Stock Screener.

To watch replays of Cramer’s video segments, visit the Mad Money page on CNBC.

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Source: More Selloff Strategies: Cramer’s ‘Mad Money’ Recap

 

How Important Is Frito-Lay For PepsiCo’s Growth?

Image result for PepsiCo

Frito-Lay North America has maintained its position as the fastest growing segment for PepsiCo (NASDAQ: PEP) over recent years. PepsiCo Revenues (shows PepsiCo’s key revenue components) have increased from $62.8 billion in 2016 to $64.7 in 2018, growing at a CAGR of 1.5%. During the same period, FLNA saw its revenues increase from $15.5 billion to $16.3 billion, at a CAGR of 2.5%.

A] Division Overview

1) What is on offer?

  • FLNA makes, markets, distributes, and sells branded snack foods, which include branded dips, Cheetos cheese-flavored snacks, Doritos tortilla chips, Fritos corn chips, Lay’s potato chips, Ruffles potato chips, and Tostitos tortilla chips.
  • In addition, FLNA’s joint venture with Strauss Group makes, markets, distributes, and sells Sabra refrigerated dips and spreads.

2) Who is paying?

  • FLNA’s branded products are sold to independent distributors and retailers.
  • Frito-Lay targets people across demographic sections through its products.
  • The products are positioned as a quick fix solution for hunger and are thus normally included in the category of fast foods.

3) Available Alternatives?

  • The segment faces intense competition from other snacks offerings from Procter & Gamble, Kraft Foods, Kellogg’s Company, and General Mills.

You can view the Trefis interactive dashboard – Frito-Lay North America: PepsiCo’s Primary Growth Driver – and alter the assumptions to arrive at your own estimate for the segment’s and company’s revenues and profitability. In addition, here is more Consumer Staples data.

B] Frito-Lay: Revenue Trend and Revenue Share

  • FLNA has been able to add $0.8 billion to its revenues over the last 2 years, at a CAGR of 2.5%.
  • Revenue growth has been driven by continuous innovation, new products, effective pricing strategies and volume growth.
  • As per the latest PepsiCo Earnings, FLNA revenues increased by 4.5% (y-o-y) in Q2 2019.
  • The segment is expected to grow at a healthy rate to add about $1.3 billion in revenues over the next two years, driven by growth in variety packs and its trademark Doritos.
  • Frito-Lay contributes about a quarter of PepsiCo’s revenues, with its share continuously rising.
  • We expect FLNA to continue to grow at a rate faster than PepsiCo as a whole, taking the segment contribution to 25.6% in 2020, from the current 25.3%.
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Trefis

C] Innovation and Strategies

  • Over the recent years, Frito-Lay has been successfully able to expand its reach to cater to different categories of consumers.
  • Frito-Lay was traditionally a dominant player only in the mid-tier snack segment. It did not have a significant presence in the premium or the bottom end of the snacks market.
  • However, Frito-Lay made its premium products available in high-end stores (such as Citarella) and the deli sections of grocery chains in order to create the right perception of these products.
  • In the bottom end of the segment, Frito-Lay has Cracker Jack as a brand offering high value for money. Similarly, Taqueros was made available in dollar stores and other retail outlets that typically attract value-seeking consumers.
  • Additionally, conscious of a consumer shift toward health snacks, the segment has come up with offerings such as Stacy’s Pita Chips and Sabra, which offers packaged Mediterranean dips such as hummus.

D] Most Profitable Segment

  • Frito-Lay is the most profitable division of PepsiCo, with its operating profit margin being almost 2x PepsiCo’s total operating margin.
  • We expect the segment to improve its margins from the current level of 30.6% to 31.8% by the end of 2020.
  • Improved profitability is expected to be driven by healthy revenue growth along with productivity savings.
  • The recently announced 2019 Productivity Plan, under which PepsiCo will leverage new technology and business models to further simplify, harmonize, and automate processes, and in addition optimize its manufacturing and supply chain footprint, is likely to provide a further boost to the profitability of its already high-margin Frito-Lay segment.

E] Conclusion

Trefis estimates PepsiCo to add close to $4 billion in revenues over the next two years, out of which $1.3 billion (over 31%) is expected to come from Frito-Lay. As per PepsiCo Valuation (shows valuation analysis) by Trefis, we have a price estimate of $128 per share for PEP’s stock. Thus, the primary factor for the company to report a healthy revenue growth rate, improved profitability, enhanced shareholder returns, and elevated stock price, is a solid and sustained performance in the Frito-Lay division.

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Source: How Important Is Frito-Lay For PepsiCo’s Growth?

BlockTower Capital CIO: Wall Street in “wait and see” mode with BTC

Ari Paul, co-founder and CIO of crypto hedge fund BlockTower Capital, sent a tweet storm out earlier today giving insights into his conversations with “traditional investors, traders and crypto funds”.  Paul, who has actually sent out about 20 tweets regarding the topic, shared mostly positive impressions coming from his conversations, as there definitely seems to be interest coming from Wall Street towards Bitcoin, although there is some debate as to what would be the optimal point of entry for these institutional investors………..

Source: BlockTower Capital CIO: Wall Street in “wait and see” mode with BTC

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