business news in context, analysis with attitude

On Friday, we took note of a Wall Street Journal story about how "the U.S. economy grew at a 2.6% annual rate in the third quarter despite a slowdown in consumer spending during the summer amid high inflation and rising interest rates."  

I commented about the mixed messages:

I'm not an economist, and have a shaky understanding  of economic theory.  But I gather that while the economy is performing better than expected, it almost doesn't matter because these macroeconomic trends pale when compared to the high price of gas and food, and high mortgage rates.

It's funny, but with age comes perspective.  I'm old enough to remember when gas was 45 cents a gallon, but also when it was approaching five bucks, and when lines snaked around gas stations and you could only fill your tank every other day.  Sure, mortgage rates are in the seven percent range, but when we first bought our house in 1984 our adjustable rate was more than 13 percent.  It is all about perspective.

But that doesn't matter when families are struggling to feed and clothe their kids, and they have to make choices between fueling their cars and heating their houses this winter.  

MNB reader Matt Hautau wrote:

It's a fair comment, but I think what’s unique about this inflationary trend is that, since the early 1980’s, the real wage has fallen far behind what is now a “living wage” and the impact of inflation on consumers will be exacerbated by our collective debt required to maintain a decent standard of living.

Take housing, where the bubble has driven prices far beyond the average income.  From 1980 to 2000, the Home Price/Median Income ration hovered between 4x and 5x.  Today, it’s almost at 8x.  Homeowners are close to twice as leveraged and the escalation interest rates on variable rate mortgages will likely drive another loan default crisis.  Hell, the last housing crisis didn’t even require the current interest rate spike to kick it off. 

Meanwhile the stock market surges.  Black is white.  Up is down.

But another MNB reader wrote:

I agree with you.  I too remember the $.45 gas days, but there are big differences between then and now.  All the other sectors that vie for the consumers dollar were far less then vs now.  We didn’t have the trillion $$ debt we have now.  The vast majority of younger people, of working age, actually worked.  Now, not so much.  You didn’t have the crazy minimum wages then, like now.  We still had a manufacturing base vs now we are service based.   Please let me know where I can get a flux capacitor???    

It is interesting to see that these two writers attribute the problem in part to different issues - the first one suggests that people aren't making enough money, and the second one talks about "crazy minimum wages."

Choose your corner.

On the subject of the Kroger-Albertsons deal, one MNB reader wrote:

For all the Anti’s against this merger.  You are not thinking this through.

Firstly, the selling of stores will not cause massive job losses.  These stores will be sold and most likely the eee’s will begin to work for the other retailer. ( If they even want to work.)

Secondly, it is being floated that a separate new retail chain with execs from both orgs heading it, will emerge and purchase the stores to create a somewhat seamless transition. This has occurred with past mergers.  So competition will still be alive and well,  which is counter to the position of no comp in the markets.

Finally on the increased difficulty for startup and regional brands to gain traction, this may actually get easier with another player coming in.  BTW, it has always been difficult for startups and regional brands to gain traction in larger retailers, if they don’t have the volume to maintain their shelf position.  Both retailers currently have directions in place to favor regional or startups.  They just must be able to present a compelling story as to why they should be there.  No free lunches just because you are local.  Great example - Tillamook.  They were always west coast, very regional.  But over time they built a story and now you see them on the east coast.  So please stop whining about how bad this merger will be, and the corporate greed, and start to looking at ways it could be of benefit. 

May I suggest that it is not entirely fair to suggest that people who oppose the merger, or argue that it requires careful regulatory examination, are "whining."  Unless, of course, you are similarly willing to characterize two companies the size of Kroger and Albertsons saying that the need to merge to compete effectively with Walmart as "whining."

You make a number of points, but I'm not yet willing to accept them as fact - not that there won't be any job losses if the stores are sold off to other companies, not that a spinoff chain will necessarily be successful, and not that a "compelling story" is enough to insure success or even competitiveness.  And I'm not sure that Tillamook is a great example - it is a brand, not a retailer.  There may be lessons there, but it like comparing cheese to artichokes.

I think this is a significant enough deal to allow for a nuanced conversation about the issues it may create, and not knee-jerk reactions one way or the other (by legislators, regulators, competitors or even pundits). was out last week with new research saying that grocery stores that "saw big visit gains during the pandemic … aren’t giving them up easily. They’re still holding their own against dollar and discount stores, which are starting to offer grocery options of their own … Among the brands that seem to be performing the best are Food Lion, which "saw visits up more than 32% during Q3 2022 compared to Q3 2019. Likewise, Aldi and Trader Joe’s saw visits up 25.9% and 16.4%, respectively, during the same period."

One MNB reader responded:

I don’t consider dollar and discount stores as a comparable to retail stores.  Maybe in soft goods but not food retail.  The info about Food Lion, Aldi, and TJ’s maintaining visit increases does not surprise me at all.  I think of it as a no brainer.  All 3 tend to have lower retails due to either lower margin pressure or reduced serving sizes. Some really good info I would have rather seen is, who within the food retail sector is winning the battle for $$?  With the more frequent visits are the basket sizes up, down, or flat?  These are far truer readings as to what is happening.

Good point, though to be fair, is in the visit tracking business - and is excellent at its job.

On another subject, one MNB reader wrote:

I understand the comment you attributed to Amazon CEO Andy Jassy that employees might be better off without the Union.

I had a year of managing a teamster local shop and found it simple if you followed the contract and treated each worker equal to the worst performer in the shop.  The challenge became if a valuable, hard-working, productive employee violated even minor work rule that might get a "don't do that again" in a non-union shop, you had to follow the discipline program steps outlined in the contract.  If you give a break to a high performer, you have to give the same break to all members of the shop in the eyes of the union management.

I have often found that employees are motivated differently.  Having to eliminate individual performance from consideration in managing employees was difficult for me, because almost every worker in the shop was on one of the discipline steps, but those were the rules, I followed them and did not have to reinstate any of the employees that were terminated after going through the step levels of the discipline program.