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tv   Bloomberg Business Week  Bloomberg  August 28, 2016 8:00am-9:01am EDT

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david: welcome to bloomberg businessweek. i am david gura. carol massar is on assignment this week. in this week's issue, baltimore's secret surveillance program. a plane has been flying over the city since january and recording pretty much everything. the technology behind bitcoin. world war ii grave robbers and what is being done to stop them. all of that and more ahead on "bloomberg businessweek." ♪
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david: i am with ellen pollack, the editor-in-chief of "bloomberg businessweek." let's start with a section about preschool in japan. there is such a conversation about universal pre-k, that is something that is not possible in japan. why? ellen: there is this big shortage of women in the workplace and the prime minister is hoping to get more women actually working, and more women would like to work but there is a huge childcare issue. there are not enough nursery schools and the nursery schools are just sort of mired in regulation, and the teachers are paid very poorly so the teachers are constantly dealing with paperwork, etc. they do not want to do it anymore so they are trying to recruit more teachers and they in fact are building more nursery schools, but it is tough to make it all come together. david: high yield investment programs, something i have not heard of before, talk about what they are.
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basically online programs that invest in various things and promise really outrageous returns. really many of them are ponzi schemes so they are paying old investors with new investors' money. a lot of investors know that in their whole idea is, i'm going to put my money in and try to get my returns out the for the -- before the whole thing collapses, but they are essentially old-time ponzi's with a twist of being online. david: amazing gamesmanship of when to get out. you profile somebody who is s and hene of the site says if i were not doing this , somebody else would. ellen: there are all kinds of sites that support, they are aggregators, they provide support for these online site so it is a whole industry around them. as usual there are people who think they can outsmart the market. david: the cover story is about persistent surveillance systems
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, a company started by a guy named ross mcknight that is surveilling baltimore, not 24/7 but many hours. ellen: monte heard about the company and this guy had been in the military, created a system where you flew over parts of iraq and were able to figure out who was setting off these roads side bombs. when he left the military he wanted to try to sell it to state or local governments and has been trying to do that for several years. he ended up convincing baltimore to give it a six-month try and the advantage is well you do not , see faces, you can follow these little dots that are people theoretically who are fleeing crimes, etc. david: interesting tension in the piece between these municipalities, these police departments who are thrilled at the prospect of the technology, and citizens and privacy advocates who say this is too much. ellen: there has sort of been this uproar where people are saying, you are violating my
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right. you should have at least told us we were being spied on. and it has become kind of a big deal and the police department in baltimore says they want to continue doing it because they can follow these. these pixels, you do not kind of see the person's face but can follow their form as they flee a crime. david: i spoke to monte reel. what is persistent surveillance? flying over the cities, what is it looking for? monte: it is a technology that this guy, the founder of persistent surveillance technologies, created originally to try to track people who were planting roadside bombs in iraq. so, he was with the military when he developed the technology. the way he described it, it is like google earth with tivo capability. so what it is, it is it is this
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array of cameras that attached to the bottom of a plane and they fly over a city in a circle essentially. the plane will stay up for hours and hours at a time, up to 10 hours a day. those cameras are capturing an image of an area that is 30 square miles, so it is one enormous image. and analysts on the ground can look at the image which is updated every second, and they can zoom in on particular areas. for example, if any crime or incident is reported at a certain location they can go down to that location, zoom in, and then using that tivo like capability they can rewind and go forward in time for when that incident occurred, or go backwards. the investigative possibilities this opens is, say there was a shooting at a corner in the city. the police can figure out what time that shooting occurred, go back into the footage and look
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at that particular corner, and they can identify for example a vehicle that drove up to that corner at that time. and then going backwards they can rewind and basically tell where that vehicle came from, or they can go forward in time and say where the vehicle went. so for police or military investigating incidents like that, it can be a valuable tool in determining where suspects came from and went to. david: reading this that felt like a show like csi realized where investigators are able to zoom in and follow something maybe not real-time but shortly thereafter. this has been implemented in a number of cities, in los angeles and baltimore most recently. talk about the way it has been received in baltimore where crime has been an issue for some time. monte: it was used on a short-term trial basis in other cities, for example in los
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angeles county only for about nine days. as kind of a trial. baltimore is the first city where it has been used on anything near a long-term basis. and it was started in january and it has not been publicized. a program that has not been debated publicly. from ading for this came private donor, said there were no public funds expended said there were no public hearings held to debate the program. so it has been done very quietly in baltimore since january. they took a couple of weeks off but for about eight months, this has been happening. the program has been, basically it has been in existence, in operation but out of the public eye. david: how do you create a cover that captures the scope of that story? i asked creative to her --
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director rob vargas. rob: it is not what they see that from the same perspective so we had a couple of great aerial shots of baltimore. we decided to use one because that is basically what the whole story is about. it is all about aerial surveillance, and from there it was about coming up with a good cover line. david: talk about it. rob: this kind of surveillance is constant and originally it was not being done with people's knowledge. and so, i think one of the editors came up with a line, it is not spying, it is always watching. which gets out the fact that this is happening around the clock and that is not something that most people are used to hearing about. and then we just came up with a deck uncovering baltimore's secret security program which has not been something in the public. david: up next, it new rules may be taking the wind out of renewable energy projects, and making a red state blue, the
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shifting political landscape in georgia. it is all ahead on bloomberg businessweek. ♪
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♪ david: welcome back to "bloomberg businessweek." i am david gura. you can listen to us on the radio on sirius xm 1130 in new york, and 1200 in boston. in the politics and policy section, stormy skies could be on the way for renewables. >> there has been so much enthusiasm from the obama administration about new solar and wind projects. why haven't they materialized to the degree i assume the administration would have wanted?
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jennifer: well, the has really came on public lands for the administration came and said, we want to make public land a great place to site wind. many of these are still in the process of the developed. the environmental review process for these projects is a lengthy one. it can take 18 months to get through a required environmental review and permit could take a while to obtain. they still have to go through years of scrutiny. david: the administration seems to be aware of this, and has proposed a way of cutting through that red tape. what does the obama administration propose happen here? jennifer: the proposed rule is designed to speed up the process, the permitting process by basically frontloading a lot of the environmental analysis that developers end up having to undergo after they get a lease
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or right-of-way to develop a project. the idea is that at the interior department, regulators would in concert with wind and solar developers, decide on prime real estate saying these are areas that have really strong wind or intense sunlight, but are also relatively free of environmental conflicts. they do not have a lot of danger that endangered animals running around or clear environmental issues that could create real problems down the road. the idea is to frontload that environmental work and then subject these projects to competitive leasing instead of
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the current process, which is a first-come first-served approach where developers are racing to get to the agencies. the tracks would be sold at a competitive lease sale, and auction much like the way oil and gas rights are sold on public land today. the federal government probably would see more money coming in. this is taxpayer land so that is something they are excited about, but it also means that these projects probably would be moving through the pipeline quicker. david: you mentioned oil and gas drilling, something that has gone on for some time and you have a corpus of rules that center on that. when you look at regulations for wind and solar, is there an argument to be made that they have not caught up yet like to have for oil and gas? jennifer: for the bureau of land management, it is really with wind and solar working with an old regime. wind and solar developers get now when they get a right to develop public land is a right-of-way, a right-of-way authorization, the kind of permit or authorization used for ditches or pipelines.
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by contrast, oil and gas developers are getting actual leases that have more firm rates that cannot be changed as frequently. the terms are more locked in. they have been working with an old regime and trying to adapt it for this 21st century energy, and this is evidence that the administration thinks that needs to be changed. david: also in the politics and policies section, democrats have georgia on their minds. i spoke with margaret newkirk about whether it could go blue this november. the rumors of georgia turning blue have been going since 2008. what is the difference for democrats? are they optimistic this time will be different? said, theyike you have been talking about this for a long time and it has not come true. the big difference this year is
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probably donald trump and the idea that he is losing some of his republican and galvanizing the democrats base without them helping much. they have also been working to reach out to the new minority voters they have been unable to turn into actual voters, the growing population. david: bearing that in mind that this is about donald trump, how much confidence does it give democrats there would be a measurable effect? that is, if he is turning off a lot of died in the wool conservative voters, in four years time is somebody else runs again they may have a shot of winning democratic votes again. margaret: political experts are still saying the real switch in georgia is going to be in 2020, and it remains to be seen whether this will accelerate it. they are opening offices all around the state for the first time in years trying to cement that in.
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they really want to win the governor's office in 2018 so that they can have a veto on any redistricting map that comes out of republican legislature. but it remains to be seen. the general consensus is that 2020 is the magic year. david: what would a democrat learned from that race, the fact that she did not win? margaret: i have heard two things and one is that she did not get enough white vote but the other is they are still having this problem turning out the population, that they are trying to reach this new demographic shift that they think will put them in power. i talked to one legislator. she had 1040 asian american voters and only 10 voted. those are bad turnout numbers. david: up next, blockchain technology. enthusiasts say it could destroy our corporate hierarchies. are we entering a brave new world?
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nasa is using technology that is so old you would not even want it in your cell phone. all of that ahead on "bloomberg businessweek." ♪
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♪ david: welcome back to "bloomberg businessweek." i'm david gura. we take a deep dive into the technology behind it point. sounds a block chain could end companies as we know it. at the risk of embarrassing myself, what is blockchain? peter: it is a chain of blocks. david: now i do feel embarrassed. peter: each block is a bunch of data recording other data and it sits out there in the ether, not
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just on one person's server. it exists in mirror image all across the internet so it is secure by the very fact that it is shared. there is nobody in control who can mess with the digits and change them around. it is also cryptography, guarantees it cannot be easily modified. you have to really put a lot of effort into securing this stuff so the idea is that it creates trust. if something exists on a blockchain, as i said in the article, it is true with a capital t. david: this is the skeleton around which bitcoin is built. peter: bitcoin is fascinating by itself but i think what is more interesting is the technology underlying it, blockchain. it has more uses than just a digital currency and i would argue it could even be the beginning of sort of the
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disintegration of the corporation as we know it. david: spell that out for us because what you described is a very egalitarian sounding system. if there are any number of companies, investors lining up to harvest this technology, how do you square that? peter: because there are various transition periods, you plug it into your existing business. it makes a bank run more efficiently because they can have a better idea of the reliability of their customers and they can do transactions other banks, in a reliable way. what i'm talking about is 10, 20 years down the line to a point where corporations start to not need to exist in the form they exist today. right now, why does a company exist? this goes back to 1937.
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the theory is it is too hard to do transactions at an arm's-length basis, searching, contracting, and coordinating. he would rather do it in where you can use a command and control system. you have a boss who tells you, i want you on tv this time, this place, and you do it because you are getting paid versus printing -- bringing in an outside person who has to be brought along, have to do a separate contract. what blockchain does is extend what the internet has already started to do, which is allow more transactions to be done in that arm's-length way in a very simple, low friction way. david: why is the international space station running on chips that are more than 30 years old? reporter ian king has that story. ian: you would assume anyone who watches science programs on tv
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or science fiction that there is something incredible going on here, that nasa has invested or science fiction that there is massive computing resources in this thing. but in reality, not so much. something that might have gone in your laptop in 1985 if you even had a laptop and that is pretty much what is going on up there. david: nothing less than a pentium 386? ian: there was not even pentium. it was just a 386. david: you will forgive me. it was a while ago. why is that the case? why is nasa still using technology that is decades old? ian: that is at the heart of the question that we addressed. everybody with a laptop or smartphone once the leading edge, the best performance they can get and they will not tolerate a second delay. nasa has a completely different set of priorities. what is really going on here is in space, this is a terrifying
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and difficult environment, the nott in this world -- well, worst in this world that worst in the universe for human beings as well as electronics. everything we send out has got to be rock solid. that procurement cycle, their attitude is completely different. everything is built around safety and nothing can go wrong. david: safety and reliability, you mentioned the roughness of the universe on the space station. on space shuttles. on the equipment. what are the particular challenges that nasa faces putting computers into space? nasa faces? ian: the primary one is radiation. it is basically creating small nuclear reactions in the cells of your skin. arguably for semiconductors, it is even worse. that is micro electronic switches that thrive on changing very small voltages to represent ones and zeros. if you bombard them by
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radiation, the itemization effectively reduces their properties and it breaks down the materials. it gives them their ability to count and record data. david: up next, nazi gravediggers, world war ii memorabilia is getting more expensive. so collectors are going right to the source. and why wine collectors are seeing red. that is all ahead on "bloomberg businessweek."
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♪ david: welcome to "bloomberg businessweek." the rise of something known as relic tourism and voice control, how companies are trying to get you to talk to your phone. the former ceo of weight watchers has a new venture. all of that ahead on "bloomberg businessweek." ♪
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david: we are here with the editor-in-chief of bloomberg businessweek, ellen pollack. in the small business section, essentially food halls popping up in london. what are they doing? ellen: it is a company called london union that is about 18 months old. they are setting up kind of like food trucks but they are food halls. in new york we have smorgasbord but in other parts of the world there are other kinds of market. often are dismal food. food.artisanal their twist is they are open at
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night so what kind of has a party like atmosphere. you can try out pizza, try out crusty duck with cheese. david: what do these pieces look like? they are kind of spartanly appointed. ellen: they are kind of like bare-bones. cheap real estate. the first one i think was founded in the east london and i think it was called dalston yard. it faced an old warehouse and they brought in food stalls. you know it is sort of like a , fair, kind of. david: in the features section, an amazing piece about a guy who set up a wine shop in the bay area and a website, and began to attract a lot of attention for the prices he was charging. before we get into what he ended up doing, how did he become so successful? ellen: he was offering pre-arrival wine so you can buy it before it was shipped. often he would let you store it in his warehouses for free, and the prices were always good so
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he attracted people who were actually collecting expensive wine. they would buy ahead of time and what they slowly started finding was that the deliveries were slower and slower. eventually, it turned out that he was not really buying all the wine he said he was, and he was filling orders as people want to deliveries rather than pre-buying. no one could really understand how his prices could be so low. they were low because he was not on the up and up. david: ultimately this becomes a legal case. how did that happen? ellen: people were spending huge sums of money and at the end, hundreds of thousands of dollars, nearly a million and a few cases. the customers were so angry that at one point someone came into the shop and said to the salespeople, he owes me wine, i am taking this now, you call the police. david: no one called, right?
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ellen: no one called. david: another piece is about a group in latvia who roamed the countryside exhuming bodies of people who died in world war ii and re-burying them. talk about what they are up to and the attention they face from people collecting world war ii memorabilia. ellen: a lot of german soldiers died in latvia and the surrounding area, and in many cases when people went home after the war they would bury the soldiers where they were. occasionally they were exhumed, usually by accident. there is a volunteer group that wants to give these people a dignified burial and let their families know that their bodies were finally, many years later, found, and they create cemeteries. they are doing this on a volunteer basis but meanwhile there is a huge market and nazi
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memorabilia so often it is a fight of who is going to get there first, the bounty hunters or the people digging the graves. david: thomas rogers road along with some of those volunteers. i spoke with him via skype. at the center of this piece is a market for world war ii memorabilia. we will get into that in a second, but you hitch a ride with folks who traversed the countryside in latvia. what are they looking for? what are they collect the? thomas: they are a group of volunteers based out of riyadh. their main goal in is to find the remains of both german and soviet soldiers so they can be properly reburied and the loved ones and relatives of these people can be informed what happened to them. these side goal is also to prevent some of these people who are digging up relics for
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monetary reasons. in case they come upon a body they might not reported to or in some cases they might even rob the items that are in the body. they want to keep that from happening so they exhume these bodies to sort of save them. david: remind us of the history, the world war ii history in latvia. there is a quotation from one of the men you profile, "in latvia it is normal for you to have dead soldiers on your yard," indicating it is pretty commonplace. situate the history for us. thomas: one particular part of latvia especially was the focus of extreme fighting toward the end of the second world war. what happened first was that the soviets came in before the nazis and then came back from the opposite direction. when the soviets invaded the second time, a lot of german soldiers were trapped in the west of latvia, and about a
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hundred thousand were killed. but because the soviet authorities after the war were not especially interested in exhuming the soldiers and reburying them, a lot of them were left as they were found or their farm back to houses, found dead bodies in their backyard and buried them where they could. a lot of these bodies were left in haphazard resting places across certain parts of latvia. david: what motivates members of this group who travel the countryside digging up these bodies and reburying them? thomas: i think on one end, a lot of these people are amateur metal collectors who spend time looking for items and once they had a certain number of collectible nazi items they decided to go further and start looking for bodies. at this point, they were
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motivated by helping the families of these people find some sort of closure. it is very moving to see these people come out of the mud who have been stuck in a pit in a forest for 70 years. i think for them it is a very emotional and serious endeavor. david: why are pension funds fighting regulations to help them? why siri may need an assistant. ♪
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♪ david: welcome back to "bloomberg businessweek." you can listen to us on the radio on sirius xm channel 119, fm 99.1 in washington, dc. pension funds searching for yield are turning to private equity so why are they fighting legislation to make the fee structure more transparent? i asked neil weinberg.
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neil: the fees can be quite substantial, or than 100 times what you pay for a mutual fund. one is a so-called management fee which is similar to what you pay with a mutual fund. they tend to be pretty high, in the range of about 2% which is expensive for a mutual fund. there are other fees charged known as a carry and fees are charged to the actual company that these funds invest in. it would be as if fidelity was not only charging you but charging general motors for investing in general motors. david: why is there so much secrecy surrounding some of these fees? neil: i guess it is because they
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can, and the high fees and lack of disclosure, critics would say certainly has helped create many of the billionaires we have around us in new york who have made their money from private equity. the fees are high and have been poorly disclosed, and the securities and exchange commission has found in many cases the fees that are disclosed do not even tell you how much you are actually paying, which can be a lot more. david: the sec has pointed that out, what has it done to these funds vis-a-vis these fees? neil: the states have appealed to the sec. or 13 leading treasurers and other officials. asking them to make stricter disclosure rules. the sec does not appear to be taking any action on that score but what they have done is taken a close look at the industry on a fund by fund or company by company basis. what they found two years ago is that more than half of the private equity funds that they looked at were overcharging their investors. this is something which might be akin to theft or embezzlement in another industry but here we just call it overcharging.
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david: what has happened at the state level? if that is what has happened at the federal level? what have states done about this? neil: since 2014 when the sec came up with these rather disturbing findings, what happened in a number of states about seven or eight by our count, is that they have come up with legislation, and this is typically a state assembly man or woman will come up with a bill and try to create greater disclosure. this creates a number of problems. it is a very powerful industry and in many cases there is a limit to the power of state assembly meant. there is also the threat that the pension funds that that state runs on behalf of its own workers they get kicked out of these funds. it may be that a large private equity company says if you are going to force us to disclose our fees we will just operate in
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49 others. david: big tech companies in a race to improve their virtual assistants. about whata reporter is at stake invoice control. matthew: it is a computer program that you interact with, with your voice. you have siri, where you are supposed to be able to ask about the weather or set a timer or return some bit of information. the dream, that is the version we have now, but the dream that a lot of people see is you being able to do things like turn down the lights or ask it to do more complicated things like maybe book me a vacation later in the month or the year, something like that. more complex tasks then we can do now. david: so integral to doing this thing is having a microphone that can pick up what you are saying and that is what you write about. what has been the difficulty in
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developing something that works effectively? matthew: it is kind of interesting because we have the technology right now to make a very sensitive effective microphone, but the problem is you run into these trade-offs. when you are talking about consumer technology, it has to be small, very low on power, and reliable. obviously all of those things are important when you are talking about smaller devices and mobile devices so that is interesting. as far as the microphones themselves, especially with voice interaction, you want to be able to recognize a voice or any other sort of input, as clearly as possible. right? and so for that you want a really high signal-to-noise ratio which means the microphone has a better chance of sort of distinguishing the signal, whether that be your voice or some other input, from the noise.
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maybe that is the noise around you or the noise generated by the microphone itself. in addition to that you also , have this thing called an acoustic overload point. the best example of that is when you go to a concert and try to take some video with your phone and a lot of times the audio comes through and it is a wall of really bad sound. bringing that acoustic overload point up is one way to sort of compensate for that as well. david: the former ceo of weight watchers thinks he has found a better way to keep america healthy. jersey mike's is upping its sandwich game. we will explore how it plans on devouring the competition. all that is next. ♪
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♪ david: welcome back to "bloomberg businessweek." i am david gura. a look at what is on the menu at snap kitchen, the latest venture from the former ceo of weight watchers. i spoke to our reporter. let's start first with what snap kitchen is. what makes it different from other competitors out there? leslie: i would say the biggest difference is it is a grab and go concept so you can be in and out of that place really quick. just a minute or two if you want to. they also have a lot of diet friendly options, vegan, gluten-free, vegetarian, all the things people are looking for. david: who is the target customer? leslie: it is the millennial but also someone who is a little bit older and looking to feed their family or themself for the week. you know, you can go in on a sunday night or monday and pick up lunches or pick up all of your meals for the whole week. they even have a few kid
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options here in chicago, too. david: the ceo used to be at weight watchers and his tenure did not end well. what makes people think this time is going to be different? leslie: he mentioned they are similar companies and that the people working there are focused on food and health. but he said snap kitchen is more about the food and having fun with food, and not necessarily about like being on a diet or the deprivation mindset which i think maybe got to him a little bit at weight watchers. david: this company has been around for six years. when you look at where it is in its lifecycle right now, is it a company talking about an ipo, talking about expanding quickly in the near term? leslie: it is still pretty early but the ceo david kirchhoff has mentioned it is a possibility in the future, not that this would be something in the near term but something a little ways out, and some of these concepts do well on the public market.
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you know, they are pretty small but they are attractive to investors. like shake shack or zoe's. david: jersey mike's, a fast casual restaurant is eating away at subway's market share across the country. what is jersey mike's compared to say a subway? felix: that is similar, you get your subs and you order by number. it is a little bit more expensive, the ingredients are a little bit higher quality, and they have hot subs they cook on a flat grill as opposed to heating up in a microwave. but otherwise, yes, it is a sandwich shop. david: that is very much what it is trying to convey, the cheese and meat is sliced in front of you. there is a grill in the back where they are making this stuff. felix: it is somewhat theatrical, to show you that i am preparing the food. it is fun watching them slice
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the meat right in front of you. david: is it part of a bigger trend in that regard that it is doing that? felix: i think the same thing is happening in fast food sandwiches that has been happening in fast food burgers the past couple of years. there has been a trend toward fast casual and so-called better burgers. mcdonald's has been floundering a little bit and you see chains like shake shack, five guys eating up market share and that has been going on for a while, and now i think you are seeing the same thing in sandwiches. subway's profits have been declining and you have a number of smaller chains in gaining popularity. firehouse, the big three. jersey mike's is growing the
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fastest. david: in north carolina there was a jersey mike's a couple of decades back. why has this company been so slow to expand? felix: they started franchising in i think the mid-1980's. and yes, north carolina. the carolinas was one of their zones, the san diego area, but they did not have much of a national profile. i think part of it is people's tastes have just caught up with what they are doing. suddenly there is a demand and people are willing to pay a couple more dollars for lunch if they feel like they are getting a better sub. and in that way, i think they are capitalizing on what is happened to the industry as a whole. they are also starting to advertise nationally and they are sort of coming out a little bit in a way that years ago, they kept such a low profile. david: we have talked to you earlier about viacom. how did you come to write about this piece? felix: i just ate at jersey mike's. too many times. there is one around the corner
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from our office. david: "bloomberg businessweek" is available on newsstands. and online. we will see you back here next week. ♪
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♪ emily: i am emily chang and this is "the best of bloomberg west," where we bring you all of our top interviews. uber faces the challenge of profitability. uber is said to have lost at least $1.2 billion so far this year. what does that say about the business model? tim cook marks five years at the helm of apple, taking a look at his tenure. the front page of the internet is answering your questions, talking to the cofounders of reddit.

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