Gunning for likes - who's listening?
Frank Jasper, Chief Investment Officer
10 April, 2018
A US election twisted by the use of your private Facebook data; 180,000 students march in Washington seeking changes to gun control, a move that has influenced how weapons are sold; Chipotle, a US fast food chain, has a health scare and it is transmitted around the world in a tweet storm leading to a dramatic fall in sales.
The way that brands, customers and social media interact has undergone a revolution in recent years. This has profound effects for investors, representing both risks and opportunities. This is where responsible investing - one element of which involves understanding how a business interacts with society - and traditional, financial focussed investing intersects.
All of us, every day, make decisions about what we believe in. We reflect these decisions in our conversations with friends and where we shop. Social media has given these conversations a reach and influence that they never had. Views that reach public consciousness are literally influencing the world that we live in.
Businesses are becoming attuned to this, attuned to the moods of their customers and decisions that they make. Leading businesses are even more aware of this than most, moving quickly to change how they operate in response to the attitudes of customers.
This is a powerful force.
The examples noted in the introduction have all prompted responses that have had an influence over how companies operate and on their profitability and hence impacting share prices.
In the case of Facebook, web searches globally on how to delete Facebook profiles have doubled since the Cambridge Analytica scandal. Facebook will have to respond with heightened privacy controls to retain its leading market position.
Following the February shooting of 17 teenagers in Parkland, Florida a number of companies changed policies in relation to weapon sales. Dicks Sporting Goods announced an immediate and total ban on the sales of assault style rifles in its stores. It said it would no longer sell high capacity magazines or sell guns to people under 21 years of age, regardless of local laws. Walmart followed with a similar announcement. These companies made those decisions regardless of federal law, instead reflecting the voice of their customers.
The case of Chipotle, a Texmex style food outlet, is an interesting one. In 2015 more than 50 Chipotle customers suffered food poisoning. This story was spread far and wide on social media and Chipotle's sales plummeted. Sales have not yet recovered to 2015 levels.
Chipotle is not alone in poisoning customers. In 1992 Jack in the Box, a US hamburger chain, suffered a food poisoning scandal which ultimately killed 4 customers. This was in the pre social media days and the company was able to respond with an advertising message that it controlled. While sales fell the company was able to restore customer faith and now Jack in the Box is a leading fast food outlet.
Time will tell if Chipotle can manage a similar renaissance but it is already taking a lot longer to recover than Jack in the Box did. This is a potent example demonstrating how powerful the voice of the customer has become in determining a company's fortunes.
As investors we have to be aware of the social environment that companies operate in. Companies both reflect and in the case of leading firms, may lead, our social views and opinions. These views affect the outlook and ultimately the share prices for these companies. This is now a major focus for our research team.
Responsible investing is not an aside to how we invest your money. It is front and centre. It will become even more important over time. If we, as consumers, continue to advocate strongly for our beliefs the way each and every company responds will become a key driver of what marks out the leaders from the also-rans. It will driver share prices and is a change we welcome.