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    Published on: September 18, 2009

    Notes & comments from The Content Guy

    SEATTLE -- Back in July, Starbucks made a bit of news when it opened the 15th Avenue Coffee & Tea format, a stand-alone store that, except for a small “inspired by Starbucks” sign, bears none of the traditional branding accoutrements of the giant coffee chain. The store, which is a renovated Starbucks unit, serves wine, beer and sandwiches in addition to coffee and tea, and seems to be an effort to see whether a different marketing approach can work for the company.

    The experiment hasn’t been universally applauded; no less a critic than HarvardBusiness.org has called the format essentially dishonest and “doomed to failure, because there's no way a corporate coffee chain can create an authentic neighborhood coffeehouse experience … Your favorite local coffeehouse is the product of someone's passion, dedication, and probable borderline craziness. 15th Ave is the product of corporate product design and development.”

    Well, I may not have the credentials of HarvardBusiness.org, but let me disagree a little bit.

    While in Seattle this week, I stopped by 15th Avenue Coffee & Tea, and found it to be a pretty cool concept. It has a local, neighborhood feel, with less of the polish that one expects – it doesn’t seem mass-produced, and one gets the sense from the employees that they have a different kind of skin in the game. There are big community tables, enormous murals that seem like they were discovered in some local gallery rather than being mass-produced by Starbucks’ design department, and a small but nice selection of six wines and seven beers, plus a number of sandwiches and snacks (not the pre-packaged stuff sold at Starbucks). They also have “daily cuppings” every morning, which is sort of like the coffee version of a wine tasting, which is a nice little touch.

    I had a great turkey sandwich on whole grain bread, served on a pewter plate, and Red Hook Slim Chance beer, which was perfect on an unseasonably warm September day. The only thing that annoyed me was that the store continues what has become a Starbucks pattern in its newest stores, listing the products on the menu boards without listing the prices.

    But what about the business case?

    While it is true that 15th Avenue Coffee & Tea is kind of trying to hide its true identity, I think there is something else going on here. In Seattle, where coffee courses through people’s veins rather than blood, I suspect that they aren’t fooling anyone – there are coffee shops on pretty much every corner, and people are hooked into the coffee scene in a way they aren’t in most cities.

    Rather, I think this is Starbucks trying to figure out how to expand in new and different ways. Even great brands can bump up against boundaries at one time or another, and finding a new vehicle for growth can be a smart thing. I can imagine that down the road, after the format has been tweaked and adjusted, Starbucks could find a way to license or franchise the 15th Avenue format around the country. It could exist under a variety of names under local ownership all over the country. It could provide growth without damaging the main brand…the same way that Starbucks seems to be using its Seattle’s Best Coffee brand as a different way of growing.

    Interestingly, Fortune has a piece from author Kevin Maney – adapted from a new book, “Trade-Off: Why Some Things Catch On, and Others Don't” - in which he discusses where Starbucks has gone wrong in recent years. He suggests that it has happened because Starbucks got caught betwixt and between as it tried to become more convenient even as it tried to show fidelity to its core experience and value proposition.

    “Consumers are willing to give up convenience for great fidelity, or ditch fidelity for great convenience,” Maney writes. “But anything that offers just so-so fidelity and so-so convenience falls into a no-man's-land of consumer apathy that I call the fidelity belly …
    Remarkably, the most successful products and services tend to be either high in fidelity or high in convenience -- one or the other, but not both. In fact, products attempting to be both typically end up with a confused brand … This impossible place of both fidelity and convenience is something I call the fidelity mirage. And Starbucks chased it big-time.”

    Is the 15th Avenue concept a way for the company to try to recapture its mojo and get in touch with its past, after a time when CEO Howard Schultz seemed obsessed with growth and stock value? Certainly. Will it work? Hard to say.

    But you don't learn if you don't try.

    While I was skeptical about the concept when I first heard about it, a visit made me think about the format in different ways. We always say here on MNB that it is critical for companies to try new things, to find new approaches to business that will allow innovation and imagination to flower. To use the cliché, it’s out-of-the-box thinking. Give them credit for trying.
    KC's View:

    Published on: September 18, 2009

    The Orange County Register reports that Tesco-owned Fresh & Easy Neighborhood Markets is launching a major advertising campaign “bombarding various markets,” according to the story, “with its ‘low price, fresh ingredients’ philosophy using radio ads, freeway billboards and bus shelter signs.

    “The media campaign will also promote several store changes made over the last few months, including adding more than 1,000 new grocery items — ranging from liquid soap to ready-to-cook meats.”

    It is actually the first major ad campaign undertaken by Fresh & Easy, which entered the US two years ago but has had more than its share of growing pains despite what the company said was careful and comprehensive research before it ever opened any stores.

    The Register says that Fresh & Easy has made some specific changes in its offering, providing shoppers with more loose fruits and vegetables instead of pre-packed produce; featuring more than 1,000 new SKUs, with both national and private brands; and putting more signage in the aisles informing customers both about prices and nutritional attributes.

    CMO Simon Uwins says that the 125-store chain has finally achieved the size where a large and unified campaign makes sense, and that it would not have been sensible to do so earlier, when the format was still being tweaked.
    KC's View:
    The experience here at MNB is that the hundreds of emails that we’ve gotten over the years about Fresh & Easy have been generally split into two camps – people who were disappointed in the concept or outright hated it, and those who found it to be refreshing and innovative. I suspect that this is probably true among the general population…though it doesn’t make sense to alienate or irritate half your customer base…and so the question that Fresh & Easy has to answer is whether the ad campaign is enough to overcome whatever bad press and negative word of mouth it has gotten to this point.

    I think it probably isn’t too late to make a good impression, and that there is no evidence that Fresh & Easy is going anywhere, despite the predictions by some that Tesco would lose its appetite for the battle in the US. But, I also think that there probably isn’t a lot of margin for error…and that Tesco better have it right this time.

    Published on: September 18, 2009

    In Florida, Bay News 9 reports that Publix Super Markets has opened its 13th “Pix” gas station and convenience store, as the company tries out “new concepts, different sizes, different product mixes to try to figure out what's the best bet for us," according to company spokesperson Shannon Patten.

    The story quotes Burt Flickinger III, managing director of Strategic Resources Group, as saying that the convenience-oriented initiative being undertaken by Publix is a smart one, and that he expects Publix to add as many as 150 “Pix” stores over the next five years.
    KC's View:
    I would agree with the always-reliable Burt Flickinger…though, to be fair, it takes a certain kind of madness to disagree with him. Creating these kinds of stores – which offer a new and different level of service to existing customers, and even can lure in new non-Publix shoppers – is one of the smartest ways to grow market share and sales in a recession.

    Published on: September 18, 2009

    The New York Times reports that Hershey is considering a bid for Cadbury, the chocolate manufacturer that earlier this week rejected a $16 billion bid from Kraft as being inadequate.

    The story says that the trust that controls Hershey has gone to Warren Buffett’s “favorite banker” for advice on making a bid, and quotes Buffett himself as saying that Kraft had undervalued Cadbury.
    KC's View:

    Published on: September 18, 2009

    The Los Angeles Times reports that the author of a California Senate bill banning self-checkout systems from being used for alcohol sales has pulled the bill for procedural reasons – by doing so, the bill can be introduced to the new legislative session in January without having to go through the committee process.

    The bill, which already has been approved by the California Assembly, developed from the premise that self-checkout systems make it too easy for minors to buy alcohol.

    According to the story, “California already forbids cigarettes, spray paint and some over-the-counter medications to be sold in self-service lines.”
    KC's View:
    As a parent, I think this sort of bill is a very good idea. There appears to be no downside.

    Published on: September 18, 2009

    Business Week and branding agency Interbrand are out with their annual evaluation of the world’s greatest brands, with Coca-Cola and IBM retaining their hold on the top two spots on the list. However, the list also notes that because of the recession, the total value of the top 100 brands dropped 4.6 percent over the past year, to a total of $1.15 trillion.

    • Bankrupt Pilgrim’s Pride Corp. in the US and Bertin SA in Brazil have been acquired by JBS SA, the world’s largest beef producer, Bloomberg reports, saying that “JBS will buy a 64 percent stake in Pilgrim’s Pride for $800 million in cash based on an enterprise value of about $2.8 billion … JBS will take over Bertin in a share swap by creating a holding company that will control both meatpackers.”

    Bloomberg reports that Ocado Ltd., the UK pure-play online grocery service, may initiate an initial public offering (IPO) of the company’s stock as a way of fueling its growth. An IPO could generate as much as the equivalent of $900 million in capital.
    KC's View:

    Published on: September 18, 2009

    • Edwin J. Holman, former chairman/CEO of Macy’s Central, has been named the chairman of The Pantry convenience store chain. He succeeds the retiring chairman/CEO Peter Sodini; Terrance Marks, former executive vice president at Coca-Cola Enterprises, was named The Pantry’s new CEO late last month.

    Advertising Age reports that Burger King CMO Russ Klein has taken a leave of absence for personal reasons. His role will be filled temporarily by Mike Kappitt, the company’s senior vice president of business intelligence, and Burger King CEO John Chidsey wished Klein "a speedy return.”
    KC's View:

    Published on: September 18, 2009

    Got a lot of email yesterday about the MNB Radio piece noting that United Airlines has begun selling the privileges that formerly used to be enjoyed only by its best customers and most frequent fliers…which I suggested was a dumb idea because it reduces the efficacy of the loyalty marketing program even if it generates revenue.

    One MNB user disagreed with me:

    Personally I applaud this move. Why? I am probably like many Americans, I do not travel by air very often. Less than once a year. So this gives me the option of improving my experience while flying and not sitting there envious of the frequent fliers that can take advantage of the 'perks'. So, while the move may erode the value of the frequent flyer program for those individuals, in my opinion, the airline can find a way to add new value for these folks. Loyalty is important to airline, as is revenue, I believe the airline is smart enough to find a way to continue to add value and take care of all its customers.

    I want to put this as gently as possible…but I categorically reject the notion that someone who flies United Airlines less than once a year ought to be treated the same way as someone who flies 100,000 miles a year. It simply doesn’t make sense. And let’s face it – there are limited ways in which to show appreciation for such loyalty, and United is now giving them away for a buck.

    Companies that want to have a level playing field for all their customers, regardless of their spending levels, are making a serious mistake in my estimation. It may open the door for new customers to come in, but it also opens the door for loyal customers to leave…and it costs a lot more to get a new customer than to retain an old one.

    MNB user Paul Schlossberg agreed with me:

    Thanks for pointing this out to us. Great example of how to make a commodity from a premium marketing position (the elite level earned by spending lots of money to put your seat in their seats for 50,000 miles, 100,000 miles, or even more annually). Airline fares have been a commodity for many years. Now one airline is converting their elite status to a commodity. Let's see how long it takes for the other lemmings to follow down the path to completely turning off their most loyal (and most profitable) customers. They're seeking a short-term burst of marginal revenue. They're willing to trade it for (the loss of) long-term customer relationships. This is a case of not understanding the lifetime value of a customer.

    What else could they do to make flying on business an even more difficult experience? Just wait. Someone at an airline headquarters will be in a conference room in the next week or two presenting another short-term strategy to maximize revenue or minimize cost. Will this new strategy benefit their most loyal (and most profitable) customers?

    I think that it is Jeff Bezos of Amazon who talks about "obsessing over your customers." The airlines (and lots of others) should pay attention to what he's saying.


    Precisely.

    BTW…I found it amusing how many people wrote in abut the fact that united now seems to be treating its best customers the same way it treats guitars…which is a testament to the power of the Internet and people’s ability to lambaste companies with which they are not happy. (If you don't know what I’m talking about, go to YouTube and search for “United Breaks Guitars,” a video that has gotten more than five million views!
    KC's View:

    Published on: September 18, 2009

    I’ve been in Seattle all week, and nothing has damped my enthusiasm for this wonderful city, where the residents and lucky visitors have been enjoying fabulous weather.

    • Earlier this week, I had the opportunity to speak to the National Cooperative Grocers Association (NCGA), a fun group with a unique niche in the nation’s food industry. I don't think they’d mind if I described many of them as aging hippies, especially because it is that outlook on life that informs the way they approach their businesses. They are highly focused on health and wellness (one guy brought his bike with him from halfway across the country, so dedicated is he to riding and exercise), and to the empowerment of the shoppers who in many cases are members/owners of the co-ops. I appreciate their hospitality, and enjoyed them immensely. (In part, I suppose, because they laughed in all the right places...)

    • I also had the chance to spend some time with the folks from PCC Natural Markets, which is a terrific chain of nine co-ops. The store I visited is as nice a store as you can imagine – highly individual and neighborhood-centric – and it served one of the best vegetable no-cheese pizzas I’ve ever had. I also had a drink that they call Kombucha – which is a naturally fermented tea drink that I don't completely understand, but liked a lot.

    • Yesterday, because I knew I would be drinking coffee and writing MNB between 3 am and 6 am, I decided to do it at a Starbucks down by Pike Place Market, where Joe Scarborough and Mika Brzezinski were doing “Morning Joe” during a week-long west coast swing. (Better there than in my hotel room, where I’d be watching “Morning Joe” anyway.) I am here to tell you that Scarborough is an engaging guy, making sure he worked the room to shake pretty much everybody’s hands and thanking them for showing up so early. Brzezinski is every bit as gorgeous as she looks on TV…maybe more so. And the show itself remains one of the best things on TV – a steady diet of intelligent conversation where people can disagree without being disagreeable, and where both liberals and conservatives can air their views without fear of being labeled. And I walked away not just with a nice memory, but a “Morning Joe” t-shirt and baseball cap.

    • On Wednesday night, I joined a friend and his sons at the Seattle Mariners game at Safeco Field, and it was my favorite kind of ballgame – 2:20 of generally crisp play, with the Mariners decisively beating the Chicago White Sox. I’ve been to a large percentage of the nation’s major league baseball stadiums, and of all that I’ve visited, I have to say that Safeco may smell the best – with the aromas of various ethnic foods wafting through the seats and making me hungry for nine innings. The power of smell is not to be underrated – and I have to tell you that Safeco smelled better than a lot of the supermarkets I’ve been to in my life.

    • Two of my favorite restaurants are in Seattle – Etta’s Seafood, where the bartender Morgan remains a font of information and a provider of great wine and beer…and Serious Pie, where the pizza is fabulous (especially the one I had with heirloom tomatoes and pesto, which was out-of-this-world good).

    • And the Pyramid Brewery is a great place to go –especially before the baseball game – where a Pyramid Rollick Amber Ale is just the thing to wash down a salmon BLT sandwich.

    As for other things…

    • Did you see that piece in the Wall Street Journal the other day about a restaurant in New York’s Greenwich Village called Commerce where they’ve stopped taking cash? The rationale is simple.

    "If you don't have a credit card, you can use a debit card," restaurant co-owner, Tony Zazula tells the paper. "If you don't have a debit card, you probably don't have a checking account. And if you don't have a checking account, you probably shouldn't be eating at Commerce to begin with."

    The only exception: tips.

    • The Los Angeles Times had a piece about the newest cause being adopted by People for the Ethical Treatment of Animals (PETA): they want the horse-drawn carriages that take people through New York’s Central Park to be replaced by “a fleet of electric cars made to resemble vintage automobiles.”

    The theory is that being hooked up to the carriages and forced to pull them around the park is cruel to the horses.

    Beyond the fact that horse-drawn carriages are a time-tested and lovely tradition that connects New York to its past and that electric cars simply aren’t the same, I keep thanking the fates that PETA didn’t exist hundreds of years ago when the nation started moving westward via horses and covered wagons.

    Because we would have been walking, and it would have taken a lot longer to get to California.

    • There’s a new movie out called “Adam” that I cannot recommend highly enough. I didn’t know much about it until my mother-in-law saw it and told us about it…and boy, am I glad she did. The movie concerns the unlikely romance between Adam, a man with Asperger’s Syndrome, and Beth, a writer who lives upstairs from him in a New York apartment building. “Adam” is a delightful and thoughtful romance that never takes the easy way out, never tries to fudge the emotional realities of the people involved. Hugh Dancy is excellent in the title role, Rose Byrne is lovely as Beth, and the film is written and directed by Max Mayer, who I’ve never heard of but who would seem to have a bright future. Go see it.




    That’s it for this week. Have a great weekend, and I’ll see you Monday.

    Sláinte!!
    KC's View: