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Monday, July 21, 2014

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BREAKING NEWS: Philip Clarke Out As Tesco CEO

Tesco, the British retailer that has gone from flying high with global expansion plans to a series of quarters in which sales and profits have been below expectations, announced this morning that embattled CEO Philip Clarke is leaving the company. He will be replaced by Dave Lewis, the current president of personal care at Unilever.

It is the first time that Tesco has gone outside the company for a CEO, the BBC reports.

In a prepared statement, Clarke said,"Having taken the business through the huge challenges of the last few years, I think this is the right moment to hand over responsibility."

And chairman Richard Broadbent said: "Philip Clarke agreed with the board that this is the appropriate moment to hand over to a new leader with fresh perspectives and a new profile … Dave Lewis brings a wealth of international consumer experience and expertise in change management, business strategy, brand management and customer development. He is already known to many people inside Tesco, having worked with the business over many years in his roles at Unilever."

The announcement came as Tesco said that first half results would be disappointing because of market conditions that were more challenging than expected.

The Wall Street Journal reports this morning that "Mr. Clarke has been CEO since March 2011, during which time he has issued Tesco's first profit warning in nearly two decades, pulled out of operations in Japan and the U.S. and suffered the departure of many top-level executives.

"Tesco's plan to revive its performance in the U.K. at first centered on improving stores and customer service, but more recently Mr. Clarke has opted to invest in reducing prices of everyday products to compete with discount chains. Pressure built on Mr. Clarke as trading remained weak, and the executive received a frosty reception from investors at the retailer's annual shareholder meeting late last month."

KC's View: From everything I've been told, there are real morale problems at Tesco, and Clarke no longer had the confidence of his troops … which made his eventual departure likely. At the same time, the company's continuing problems - and his apparent inability to fix them - meant that he'd also lost the confidence of investors. That made his immediate departure inevitable.

That said, I think in all fairness it has to be pointed out that he didn't build the leaky boat that Tesco became all by himself. Sir Terry Leahy, his immediate predecessor, created a lot of the messy scenarios that Clarke found so difficult to clean up. Putting all the blame on Clarke doesn't seem quite fair.

I kind of feel a little sorry for Clarke. His predecessor, Leahy, was made a knight. Leahy's predecessor, Ian MacLaurin, was made a knight and then a Lord. But I don't think Clarke should be planning on receiving similar honors anytime soon.

Monday Morning Eye-Opener: Slicing The Online Pie

by Kevin Coupe

Interesting story from the San Diego Union-Tribune about a La Jolla Domino's pizza, which last Friday turned off its phones for an entire day, "offering a half-off discount for all menu-priced pizza purchased online to encourage people to order using digital channels."

According to the story, "This will be the first Domino's store in the U.S. to go all-digital. Online orders account for about 40 percent of the company's sales, and that percentage is significantly higher in La Jolla … About 69 percent of consumers order food online using a smartphone or tablet, according to a study by the Interactive Advertising Bureau, which found restaurant-specific app downloads are on the rise."

I just thought that this was interesting …. an indicator of how dramatically consumer behavior has changed in just a few years, and a total Eye-Opener.

I have to admit that I've signed onto this trend. I've been ordering pizzas by phone for years, but when my local pizza parlor started taking online offers, I found that it was faster, more accurate (I never get olives instead of onions, or pepperoni instead of peppers), and even cheaper, since they offer a small discount for online offers.

But I don't care about the discount. I just care about getting it right and getting it fast, and the online process simply works better. It has been an Eye-Opener.

Market Basket Tumult Leads To Fired Workers, Empty Stores, Tweeting Customers

The Boston Globe reports that the situation at Market Basket has gone from bad to worse, as protests by employees over the June firing of CEO Arthur T. Demoulas led to a slowdown of deliveries to stores, which led to empty shelves, which led to the firing of a number of management-level employees including long-time warehouse manager Dean Joyce, all of which culminated in tweets and photos posted on social media by employees and customers that put the level of the company's distress in sharp relief.

The story says that "on Friday, workers swarmed the company’s corporate headquarters in Tewksbury, vowing to cut off restocking at individual supermarket locations until the Board of Directors reinstates ousted CEO Arthur T. Demoulas." They appeared to make good on the threat, which led to the additional firings. At the same time, employees posted handmade signs in at least some stores explaining the out-of-stocks, saying that they hoped Arthur T. Demoulas would soon be returned to his job and that things would get back to normal.

District manager Tom Trainor, in a speech at a Friday rally, put it this way: “We can shut this company down."

According to the Globe, "Employees had told the board of directors they required a response to their demand for Demoulas’s re-instatement by 4:30 p.m. Thursday. On Thursday afternoon, co-CEOs Felicia Thornton and James Gooch released a letter saying the board would meet by telephone on Monday to discuss the demand, and that at least two employees would be given the opportunity to speak with the board … The letter from the CEOs also said any employees who 'abandon' their jobs would be fired … Leaders of the employee movement were careful not to label the action as a strike or a lockout, and indications were that many of those who did not work had called in sick or used vacation time. It’s not clear how that strategy would affect Thornton and Gooch’s edict, though it would figure to give those employees some leverage. Several employees at the rally said they were willing to lose their jobs."

Arthur T. Demoulas’s similarly-named cousin, Arthur S. Demoulas, led a longtime fight to oust the CEO due to a conflict over the company’s finances. The fight is characterized differently by the two sides. The Arthur S. Demoulas faction argues that Arthur T. Demoulas spends money irresponsibly and refuses to take direction from the board. The Arthur T. Demoulas side maintains that his cousin is fueled by greed, only interested in raising prices, cutting employee compensation, and threatening the formula that has built the company to a New England success story.

KC's View: The thing that new management has to be worried about is that even if they were to bring back Arthur T. Demoulas - an action that would involve an awful lot of groveling, I suspect - things could be, to use a phrase from the military, "FUBAR." It is just hard to imagine everything going back to the way they were … which is a shame for the employees and customers at Market Basket.

Hard to know all the ins-and-outs of the situation, but it does seem reasonably clear that a) Arthur S. Demoulas took his eye of the ball and underestimated the impact of the firing on the conduct of business, and b) egos got in the way of doing business.

Yup. "FUBAR" seems about right…

By the way … how many retailers would kill to have employees so dedicated to the company's CEO and so committed to the company that they are willing to lose their jobs rather than abandon a cause? Sure, they're worried about their pensions and other compensation issues, but this seems greater than just that.

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Ag-Gag Laws To Be Scrutinized By Federal Courts

The Associated Press reports that the fight over so-called "ag-gag laws," which impose criminal and financial penalties on people who secretly record cases of animal abuse by farmers and livestock producers, is moving to the federal courts, as animal rights activists look to have such laws declared unconstitutional.

According to the story, "Half of U.S. states have attempted to pass so-called ag-gag laws, but only seven have been successful. Among them are Idaho, where this year's law says unauthorized recording is punishable by up to a year in jail and a $5,000 fine, and Utah, whose 2012 law makes it a crime to provide false information to gain access to a farm. Both states now face separate but similarly worded lawsuits that say the measures violate federal statutes offering whistle-blower protections and free-speech guarantees.

"Farm organizations and livestock producers say ag-gag laws are aimed at protecting their homes and businesses from intruders, and some plan to use social media to ensure the public they have nothing to hide. But animal rights groups, free-speech activists and investigative journalists want to throw out the laws because they say the secrecy puts consumers at higher risk of food safety problems and animals at higher risk of abuse."

KC's View: Ag-gag is one way to characterize these laws. "CYA" is the way I'd describe them.

I've always thought that these laws are an absolute crock. Admittedly, I have a pro-information bias … but it seems reasonable clear to me that these laws are about obscuring and hiding the truth, not exposing it. Do I think all animal activists get it right every time? Of course not. But I firmly subscribe to the sentiment, as best expressed by U.S. Supreme Court Justice Louis Brandeis, that "sunlight is the best disinfectant."

Ag-gag laws are about shadows and darkness.

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Judge Rules Antitrust Suits Against Visa and MasterCard Can Go Forward

Reuters reports that "a federal judge declined on Friday to dismiss antitrust lawsuits filed against Visa Inc and MasterCard Inc by retailers who opted out of an estimated $5.7 billion class action settlement in 2012 over transaction fees. Retailers such as Target Corp and Amazon.com Inc have accused Visa and MasterCard of fixing the fees charged to merchants each time their customers used credit or debit cards. They also alleged the two companies prevented merchants from steering customers to cheaper forms of payment."

The ruling came from U.S. District Judge John Gleeson, the same judge who approved the $5.7 billion settlement. After the initial approval, the story notes, "thousands of retailers, including some of the biggest in the United States such as Wal-Mart Stores Inc, opted out of the settlement, complaining it was not adequate."

KC's View: Good. I've never believed that a settlement opposed by so many plaintiffs in the case ought to be imposed on them, and I look forward to hearing this case argued in open court. I'd like to see a little sunlight trained on Visa's and MasterCard's business practices.

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As Competitive Advantage, Some Online Stores Seek Bricks-And-Mortar Presence

companies that were once digital-only … are seeing the value of hanging up shingles in malls and bustling shopping streets."

To be clear, the story says, "Of the thousands of merchandisers dedicated to working on the Web, only a relatively small group has opened a physical space, analysts say. But in going back to the industry's shopkeeping roots, these merchants are acknowledging that no matter how easy or efficient a website is, some people still like to browse the old-fashioned way."

Among the retailers cited in the story are Nasty Gal, Birchbox, Bonobos, and JustFab.

KC's View: I think it is noteworthy that most of the retailers mentioned in the story as having a new interest in bricks-and-mortar retailing are fashion companies. I'm not sure that every online retailers would make the same decision.

But I also think that every retailer should do what is best to communicate with its customers. For some it will be all-online, and for others, it will be some combination. Less often it will purely bricks-and-mortar, just because of how consumers are changing, but anything is possible.

Not only does this min-trend not surprise me, but I actually think it makes sense … on a case-by-case basis.

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Amazon Offers New Digital Book Subscription Service, But There Are Limits

The Wall Street Journal reports that Amazon has "introduced a digital subscription service that allows subscribers unlimited access to a library e-books and audiobooks for $10 a month. The service, Kindle Unlimited, offers a Netflix-style, all-you-can-read approach to more than 600,000 e-books, including blockbuster series like 'The Hunger Games' and 'Diary of a Wimpy Kid,' nonfiction titles like 'Flash Boys' by Michael Lewis, as well as literary fiction and classics."

There are limits, however. None of the nation's five biggest publishers are participating in the program, almost certainly because of the major debate that Amazon is having with Hachette over costs, which has led the e-tailer to essentially de-list Hachette-published books from the online marketplace often dubbed "the everything store."

According to the story, "In offering the service, Amazon is entering an increasingly crowded marketplace. It will be competing with publishing start-ups offering similar services, like Scribd and Oyster, which charge a comparable subscription fee and have comparable digital libraries.

Scribd has some 400,000 titles and charges subscribers $9 a month. Oyster has more than 500,000 titles available and gives readers unlimited access for $10 a month.

"With similar pricing models, the competition among e-book subscription services could come down to content and what books and authors are included."

KC's View: I don't blame the big publishers for not playing ball. Right now, they've got to use whatever leverage they have in their battle with Amazon.

I do think that book clubs will be a major market for this concept. There are a ton of books that Mrs. Content Guy reads for three different book clubs that she's in, but that she has no major desire to own. If she could rent them digitally…I think that would be a major attraction for her.

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FastNewsBeat

...with brief, occasional, italicized and sometimes gratuitous commentary...

Bloomberg reports that McDonald's and Yum! Brands, which has both KRC and Pizza Hut restaurants, have stopped buying meat products for their Chinese operations from a Shanghai-based supplier because of charges that the company has been selling chicken and beef past their expiration dates.

The story notes that "the allegations renew concerns about unsafe food in China following abuses that have included lacing baby formula with melamine, a compound used in plastics, and fox DNA found in donkey meat."

It always seems like it is Chinese suppliers who make the most persuasive possible case for Country of Origin Labeling (COOL).


CNBC reports that US Treasury Secretary Jack Lew has "railed against U.S.-based companies that attempt to avoid domestic taxes by re-incorporating overseas through acquisitions, calling out their lack of 'economic patriotism.' Pharmaceuticals company Mylan and drug chain Walgreen sparked the debate on what's known as corporate inversions when both announced their intention to buy foreign companies for the tax benefits.

According to the story, "Currently, the U.S. has the highest corporate tax rate of all the OECD countries at 35 percent, a fact that corporations argue forces them to find tax savings abroad. The Congressional Research Service found that the number of corporate inversions has accelerated, with 47 such deals made in just the last decade. It also discovered that the U.S. Treasury would lose an additional $20 billion in tax revenues over the next decade because of these deals."


• The Sacramento Bee reports that R.J. Reynolds Tobacco Co. has vowed to an appeal a jury verdict of $23.6 billion in punitive damages that came after a lawsuit was filed by the widow of a longtime smoker who died of lung cancer.

A company executive called the damages "grossly excessive and impermissible under state and constitutional law … This verdict goes far beyond the realm of reasonableness and fairness, and is completely inconsistent with the evidence presented. We plan to file post-trial motions with the trial court promptly, and are confident that the court will follow the law and not allow this runaway verdict to stand."

According to the story, "The case is one of thousands filed in Florida after the state Supreme Court in 2006 threw out a $145 billion class action verdict. That ruling also said smokers and their families need only prove addiction and that smoking caused their illnesses or deaths.

"Last year, Florida's highest court re-approved that decision, which made it easier for sick smokers or their survivors to pursue lawsuits against tobacco companies without having to prove to the court again that Big Tobacco knowingly sold dangerous products and hid the hazards of cigarette smoking.

"The damages awarded to Robinson after a four-week trial came in addition to $16.8 million in compensatory damages awarded Thursday."

Even I, who believe that a special circle of hell is being reserved for tobacco company executives, think that $23.6 billion seems a little overboard.

But then, I read the tobacco company executive's quotes, and I wonder, what exactly is within the realm of reasonableness and fairness when it comes to someone dying of a product that you made, that you designed to be addictive, and then supported with millions of dollars in ad dollars? I'm not saying that people who smoke don't have culpability; whenever I see anyone smoking, especially a young person, I wonder what it is they don't understand about the messages on the side of those packs?

Maybe the award is a little much. But it'll be kind of fun to watch them sweat…

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RIP

James Garner, who enjoyed stardom in both the movies (The Great Escape, The Americanization of Emily, Space Cowboys, Murphy's Romance) and on television, where he starred in two of the medium's most enduring hits, "Maverick" and "The Rockford Files," has died of natural causes. He was 86.

KC's View: When the news of Garner's death broke, I wrote on Facebook that he was a unique example of American masculinity - compassionate, no-nonsense, funny, with common sense and no desire to fight but a willingness to engage when pushed. He's got a lot of great work to his name...and a legacy that will survive him for a long time.

Is there anyone who didn't like James Garner as an actor? He was one of those people who instantly raised the level of everything in which he worked - perhaps mostly because he seemed like a guy with a ton of integrity, and that integrity seemed central to every project he graced with his considerable presence.

Your Views: Catching Up

I didn't get to any emails last week because of my personal circumstances, so let's see if I can catch up a bit…

On the subject of AMC Theaters installing comfortable easy chair-like seating in theaters where they need to do something to get people to come in the front door, one MNB reader wrote:

I live in the northern suburbs of Minneapolis, MN.  The AMC theater near me in Coon Rapids, MN has had the comfortable Laz-E-Boy seats for a few years now. I was skeptical of the concept when I first heard about it.  The remodeling of the theater resulted in the seating capacity being cut in half.  However, I can tell you that it was well worth it!   I did not frequent the theater much before the remodel but now look forward to seeing movies in the theater so I can watch in comfort.  I have not gone to a theater without the comfy chairs since I experienced the chairs at AMC.  I drive by 3 other theaters to go the AMC with the reclining chairs.

I think we can count this as a "yes" vote.

And from another reader:

Just wanted to share that the AMC here in Tulsa added the reclining seats about a year ago.  Initially I had the same thought as you, that I would spend all that money & then fall asleep half-way through the movie.  But we decided to give it a try, despite that we had been regular “early bird” (aka cheap ticket) Cinemark customers for some time & had also purchased Cinemark’s re-usable cup/popcorn bucket to save on our movie snacks.

To our surprise, we did not fall asleep (the loud sound probably helped that) and were absolutely floored by the experience!  No more too-tall people right in front of us and my restless legs aren’t quite as restless!  We now much prefer to go to the AMC for movies, even though that means we no longer get the “early bird” cheap seats & don’t get to enjoy the same snack savings we had at the Cinemark.  It’s just that much better of a movie-going experience, that I am willing to pay more.  Now if they would just add a baby-sitting option, much like my local gym has...maybe we’d be able to get to the movies more often!


I think that's another "yes" vote.

And from another:

I wanted to add to your piece on the La-Z-Boy seats at AMC theaters, if I may.  In my home town of Rochester, NY, they have already converted one of their theaters.  I must say, the seats are as comfortable as anything I have ever had in my home.  They are fully reclinable, and yet they left enough room between rows that people can easily navigate in and out without bumping into anyone or anything.  Perhaps the best feature is that, using the AMC online ticket app, you can not only purchase your tickets in advance, you can actually reserve your seat.  It is a major improvement on the old model.

You are one hundred percent correct, however, that for some of us, reclining equals sleeping.  After dozing off countless times, much to the delight of my grandchildren who had to give me a nudge to stop my snoring, I have decided not to take advantage of that particular feature.  My fiancé chides me every time, that I am the only one in the theater sitting straight up in a recliner.  But I’ll say this, the seats are so wide and so plush, it’s the best darned sitting straight up experience you could ask for.


Another "yes."




One MNB reader wanted to comment on the subject of a Washington Post story about how the Federal Trade Commission (FTC) has filed a lawsuit against Amazon, charging that the e-tailer has made it "too easy for children to make purchases when using mobile apps without a parent's permission," and my commentary, which said, in part:

As a parent who occasionally got a surprise when I opened up the cable bill and found purchases that I had not made nor authorized, I'm completely sympathetic to the FTC position on this matter. It isn't just kids who need to be protected, it's their parents wallets … and it seems to me that Amazon maybe ought to be a little more vigilant in creating safeguards. If not, it ought to be forced to do so…

As a parent of 4, if your kids are making charges on Amazon, Google Play, iTunes, or via SMS on their phones, then it’s the parent’s lack of oversight and sheer ignorance of what you’re handing over to your kids.  Typical response from parents who fail to parent, “It’s not my fault, somebody else should be responsible for my children!!!”.

I have 4 kids, all with cell phones, all have the Amazon App (because their free music streaming with Prime is great for them).  Every time there’s an order, I get an email from Amazon and txt message from my bank (research it, just about all banks have this feature).  My kids also know to ask.  When my kids were younger and were on our Roku and wanted to RENT a movie, they had to ask…..That’s called parenting!!!!!!

When you hand your kids an electronic device with a virtual credit card attached to it then you better have some damn discussion about the rules for using it and swift punishment for when they break those rules.

“Amazon maybe ought to be a little more vigilant in creating safeguards”?????!!!  How about Amazon should charge more to parents who are too lazy to do their damn jobs as parents!!!


Okay, those are all fair points.




We had a story recently about Krispy Kreme management thinking about branching into new food categories as a way of bolstering sales, which led on member of the MNB community to write:

I love donuts but can’t stomach one from Krispy Kreme.  The greasy, overly-sweet treat just makes me feel like I’m trying to hurt myself or at least dig an early grave.  With that said, a new one just opened about a mile from my house, and the first day the line wrapped the building from morning to night! You would have thought they were giving cash by the dozen…or at least in them.  They definitely have diehard fans out there.

My boyfriend and I went there this past weekend during breakfast, and though I didn’t get anything, it would have been nice if they had at least ONE healthier or savory option.  All quick service restaurants need to get on board with variety and healthier options. Even those who don’t eat healthy all the time would like the option to sometimes! I think it would be brilliant to add KK donut pieces/flavor to ice cream or throw a burger between two of them.  Gross to say the least, but that’s how America likes it.  Fat, sweet and deadly.





On another subject, from another reader:

Just wanted to throw in my two cents on the Amazon Prime spending: Until recently, I had only ever been a Prime member when I had a free month-long trial. But after I discovered the magic of Christmas shopping online last winter, and then when Amazon began launching this litany of new services and features over the last six months, that changed really fast.

I was thrilled to pay the now-higher price to have access to things like free two-day shipping, Prime Video, Prime Music and the Kindle First/Kindle Owners’ Lending Library.

And it seems like every day they’re adding some new feature that is either exclusive to or better for Prime members. I love that Amazon treats its Prime members like members of a club, instead of just mines for data. Amazon goes out of its way to make things easy and streamlined. And yeah, that encourages me to spend more with them. The convenience of Amazon just kind of snowballs when you become a Prime member and you begin going out of your way to find ways to buy everything – from toilet paper to jewelry – from them.





We had a story last week about a Los Angeles Times report that Netflix has stopped shipping DVDs on Saturdays, "a move that could save the company 10% annually on shipping costs." The story noted that "last year the U.S. Postal Service considered ending Saturday mail delivery, leading to a report that said the change could make Netflix more profitable. Ultimately, the USPS backed off its plan to end Saturday deliveries, but Netflix has gone through with it."

I commented:

One of the things that always has distinguished Netflix is how new DVDs seem to show up even before you think they could have received the old one you mailed back. I suppose that this new policy could slow things down and affect customer happiness … but I'm guessing that Netflix probably looked at the numbers and saw that Saturday was a low-shipment day, just because of when people generally watch and return DVDs.

That said, it always is a little worrisome when companies reduce customer service to save money.


To be honest, I was clearly off my game when I wrote that comment. I should have written what MNB reader LuRene Dille wrote to me:

It would have been a better idea to find out how to deliver on Sunday’s…better/more service not less!!!

That's absolutely true.

It also is true what MNB reader Jim Swoboda wrote:

What’s a DVD?

Point taken.

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Want To Grab A Beer Or A Glass of Wine?

I'm going to be in Portland enjoying what I like to think of as my "adjunctivity" (team-teaching a marketing class at Portland State University with the great Prof. Tom Gillpatrick) until August 1 … and it occurs to me that this would be a great time to try and grab a beer or glass of wine with local members of the MNB community.

I'm thinking Nel Centro, located at 1408 SW 6th Ave, Portland, … on Monday, July 28 … say, from 5:30-7 pm? No need to RSVP…I'll just be there, hanging around outside by the fire pits, looking forward to meeting with anyone who would like to hang with me.

PWS 28