business news in context, analysis with attitude

Published on: July 23, 2012

by Kevin Coupe

Interesting piece in the Huffington Post, passed along to me by an MNB reader, about how the CEO of Lenovo, Yang Yuanqing, has decided to give $3 million of his $5.2 million bonus and give it to some 10,000 employees of the company.

That works out to about $314 per person, the story says, which might not be much in the US but for these employees in China this could be a month's pay.

Now, to be sure, Yang Yuanqing still walks away with a more than $2 million bonus, and reportedly earned $14 million in salary for the past year. So he's not hurting ... and it is easy to be cynical about the distribution.

But I think the gesture is both symbolic and more so. It suggests that Yang Yuanqing understands that there is real value on the front lines of his company, and that he can only continue to rake in such huge sums of money, and his company can only see double digit profit increases (which it did) if the people throughout the company believe that they have skin in the game and that their efforts will be rewarded.

Some CEOs seem to labor under the delusion that they and their top management teams are completely responsible for their companies' successes, and that the contributions of front line employees are incidental. (Oddly enough, these same folks often believe that their companies' failures can be blamed on front line employees, and that's where cuts are first felt ... while top execs sometimes continue to receive bonuses.)

What Yang Yuanqing did, whatever his motivations and regardless of his personal circumstances, is Eye-Opening - a reminder of what leadership really is all about.

Published on: July 23, 2012

SeekingAlpha.com, which usually trades in financial analysis, had a piece by jeff Bailey over the weekend in which he looked at the mess in which Supervalu finds itself, with sales and profits that don't seem likely to cover its debt load, which led management to put the company on the sales block as a whole or in pieces.

Excerpts:

• "Supervalu brought in a Wal-Mart guy, Craig Herkert, in 2009, as CEO. He was formerly president and CEO of the Americas for Wal-Mart, in other words he was the guy who had been crushing Supervalu and other traditional grocery chains. But was he the right guy for Supervalu?"

• "Mulling Supervalu's decline, one reflects on personal experience at a Supervalu-owned Jewel store in the city of Chicago, where Jewel enjoys a commanding market share and has the very best locations locked up: the store seems almost unmanaged. I didn't notice 'our listless workers' among the business risks in the Supervalu 10-K, but the lawyers might consider adding it in next time.

"Its checkers, drawn from the same labor pool that produces polite and helpful servers at McDonald's and Starbucks, often don't speak to customers at all, instead carrying on personal conversations with the co-worker bagging your groceries. No eye contact, either, often. Shelves holding some popular items (yogurt, for one) are often poorly stocked and missing what you're looking for. The manager, a fellow who looks beleaguered, is willing to be drawn into conversation on these failings, but his response runs along the lines of, 'It's hard'."

• "Supervalu has been too stretched financially to invest hugely in remodeling its stores. But there's nothing keeping Herkert and the people below him from demanding of store managers and front-line employees that they do their jobs reasonably well. With the location advantages traditional chains have, they pretty much have to chase customers away to fail; seems that's what Supervalu has been doing in my neighborhood for years."

Published on: July 23, 2012

The Orange County Register reports that Walmart plans to open its first Neighborhood Market in California this week, a 31,000 square foot store carrying 29,000 SKUs in Huntington Beach.

According to the piece, "Three other Neighborhood Markets will debut later this year in Rancho Santa Margarita, Garden Grove and Anaheim ... Other Walmart Neighborhood Markets are planned for Los Angeles, San Diego, San Bernardino and Upland."

Experts suggest that as Walmart rolls out the new format in California, it is likely that a price war could break out that will envelop Walmart, Tesco's Fresh & Easy concept, as well as all the traditional supermarket retailers operating in an increasingly competitive environment.

Meanwhile, the Chicago Tribune reports that the Walmart Express small format store operating in in West Chatham, Illinois, will close July 27.

The story says that "the smaller format store that opened last summer and sells primarily groceries was losing customers to the larger Walmart Supercenter that opened in January and is roughly 100 yards away." Walmart executive say they wanted to test whether a small format store could be successful operating so close to a larger store, but that this particular failure does not mean that the company is losing any enthusiasm for the smaller concept - "Walmart is trying-out its smaller Express format with 11 stores (including West Chatham) operating in three Chicago neighborhoods, northwest Arkansas and North Carolina," the story says.

Published on: July 23, 2012

USA Today reports that some hotel chains are focusing on creating teen appeal, hoping that this will endear them to parents who will choose to stay in places where their kids are engaged.

Among the ideas is one adopted by Omni Hotels, in which it has created a special Teen Concierge charged with interacting and interfacing with kids via social media.

Other concepts include developing special menus for teens, offering reduced-price massages and facials for teenaged girls, and even special teen programming on their television systems.

Until now, the story suggests, when hotels catered to kids they often were thinking about younger children, offering little that was specific to teens. But that is changing, as parents are seen as empowering their teens to make decisions about things like hotel stays; in addition, the chains hope that they can create some sense of loyalty during teen years that will carry over to when these teens get older, get jobs and start traveling on their own.

Published on: July 23, 2012

Advertising Age reports that in an effort to take advantage of consumer enthusiasm for craft beers, Anheuser-Busch InBev "is launching a series of Budweiser-branded brews named for the zip codes where they were created."

According to the story, "brewmasters at 12 AB InBev breweries created their own small-batch 'tribute' beers, each with a distinct style. The company pared the list to six beers that will be sampled this summer. Based on consumer feedback, the brewer will narrow the list to three beers that will be included in a limited-edition sampler pack hitting stores in the fall ... The initiative is another example of how big brewers are following the playbook of smaller craft brewers by spotlighting brewmasters and seeking to connect with local communities. MillerCoors, for instance, has begun showcasing Keith Villa, the creator of Blue Moon."

Published on: July 23, 2012

• Internet Retailer reports that Walmart's website now "enables teachers to digitally submit their classroom supply lists, and online shoppers to buy those items via a new site, classrooms.walmart.com. The effort, set to include a mobile element in coming weeks, launched today as part of the retailer’s larger back-to-school shopping push.

"Shoppers visiting that site can find their school via a search box displayed near the top; consumers can search by school name and state. If a school or teacher has submitted a supply list - essentially, the e-commerce version of a service long offered by many Wal-Mart and other bricks-and-mortar stores that asked teachers to drop off their lists - the search calls forth those lists ... The site also gives parents the option of having supplies shipped to their homes or held for pick-up at a Wal-Mart store. The chain also tries to sell related products on the left-hand side of the site, with links to girls and boys clothing, books, snacks and other items the modern first-grader might need or desire."

Published on: July 23, 2012

The New York Times reports that NYC Mayor Michael Bloomberg's administration isn't just fighting the obesity wars by banning things like trans fats and super-sized sugary soft drinks, but also is working with "community grocers to encourage healthier eating choices in some of New York City’s poorest neighborhoods, where more than half of the population has been deemed overweight or obese.

"Dozens of bodegas, supermarkets and convenience stores in two Bronx neighborhoods have agreed to prominently feature nutritious foods like fruits and vegetables near their entrances, while shifting sweeter, less healthy drinks and snacks to the back. Water and lower-calorie drinks will be displayed at eye-level and in the impulse-buy racks near cash registers, and city-produced 'Shop Healthy' banners will be draped in the aisles. Wholesale distributors in the area also plan to create incentives for supermarkets to stock healthier foods. While only a few of the stores have started to make these changes, the city’s health department said that it had commitments from about 150 food establishments in the area, and that the program could eventually be extended into other boroughs."

The Times notes that business support for the initiative may be illusory: "At C-Town, a worker was seen restocking a glass-front refrigerator near the cash registers about two hours after city officials had left the store. During the news conference, the refrigerator had been filled entirely with bottles of Dasani water; the worker said he had been asked to replace those with 20-ounce containers of Coca-Cola and other sodas."

Published on: July 23, 2012

• ThisIsMoney.com reports that Tesco is delaying the official launch of Marketplace, the e-commerce site designed to compete with Amazon.com, "amid speculation that it is searching for more partners." The story suggests that Tesco wants to have a more robust network of manufacturers represented on the site when it begins promoting the site, which has been operating under the radar in a Beta format.

Published on: July 23, 2012

• The Sacramento Bee reports that in urging members of the United Food and Commercial Workers (UFCW) to approve a tentative contract agreement reached with Save Mart Supermarkets, union leadership is saying that the chain "loses money at most of its stores," and that the agreement "includes concessions required to stabilize Save Mart's business."

The union says that based on the numbers it has seen, if it did not make concessions - such as suspending premium pay for Sunday and night work - then it would have faced store closures that would have resulted in job losses. Save Mart is not commenting.

• The Los Angeles Times reports that Starbucks plans to open its first Evolution Fresh juice bar in California this fall, when it opens one in San Francisco. The company currently has two in operation, both in the Seattle area, and plans to open a third there soon.

Starbucks says that the Evolution Fresh units are places where "juice experts craft fresh juice blends and serve up globally inspired recipes using fresh ingredients in a unique retail setting with convenient free local delivery." The cost is steep, according to the Times: "A 120-calorie, 16-oz. bottle of coconut water with pineapple runs roughly $5. The same amount of juice prepared by hand costs $8. Smoothies are $7."

• The Wall Street Journal reports that Nestlé SA is taking an undisclosed stake in a Colorado company that makes milkshakes for Alzheimer's patients that are designed to improve their memory and cognitive function.

According to the piece, "Nestlé has long been interested in the links between food and brain health. In 2006, it invested 25 million Swiss francs in a collaboration with ETH Lausanne, a leading Swiss technical university, to develop food products that protect the brain against diseases such as Alzheimer's. The company's interest in the field intensified last year with the launch of Nestlé Health Science."

Published on: July 23, 2012

• Reuters reports that Bruce Johnson, Sears Holdings' former interim CEO, has agreed to become CEO/president of of Sears Hometown and Outlet Stores Inc., which is in the process of being spun off from Sears.

Published on: July 23, 2012

Responding to all the coverage of Supervalu's issues, one MNB user wrote:

I remember well when the Jewel Food Stores and the people that worked and shopped there had almost the same "fanatical cult following," at least in my eyes, as one reader recently described Wegmans as having.

Of course that was before American Stores, Larry Johnston, Albertson’s etc.

Jewel owned the Chicago land market and still does, I believe, but is heading in the wrong direction from all I’ve heard & read.

Getting the business upright again with a dedicated, energized team of hard charging people will not be an easy accomplishment.

Maybe if Jewel-Osco and the other Supervalu brands are sold off and they rid themselves of Supervalu overhead it might be the best option for all involved.

Another reader wrote:

Over the last 10-15 years I have seen several high ranking executives leave Walmart to accept CEO and President positions in so many companies. I believe many these persons have not done well in the new companies they have joined for a few reasons which will seem too basic.

They can not duplicate the Walmart culture.

Walmart has the second largest IT Center in the world and only surpassed by the US Government from what I have read.

These two areas are the life blood of many business's today and in the future.

I am not trying to say many of the executives are not qualified, but the experience they had gained while at Walmart can not be duplicated in any manner that I can see.

Sort of like former GE executives who seemed unable to function once they got out of Jack Welch's shadow?




On the subject of WinCo's expansion into Texas, one MNB user wrote:

Congratulations to WinCo on their success!!!  They grew out of Boise, across the northwest and then down the west coast and are now poised to enter Texas and the Dallas market.  The rest of the country should be put on notice that sooner or later they will have a WinCo competing against them.

It is interesting to compare WinCo’s fortunes over the past 10 years to those of Supervalu.  The WinCo format was built upon Supervalu’s Cub Foods format of the late 80’s/early 90’s.  A warehouse format that focused on providing value to families.  Management at WinCo built upon the format, religiously kept to its price/value underpinnings, perfected it, but really did little to change it over the years.  Up until 2005, Supervalu owned a 25% stake in WinCo and took pride in watching the company grow.  However, Supervalu sold their stake in WinCo and put the money toward the Albertson’s acquisition. What a contrast in outcomes.  Today Supervalu’s stock value is just 7% of what it was in 2005, and the company can’t seem to find success in any of the markets it operates in across the US.  WinCo is a financially successful ESOP, that is seeing success in all of their markets and is strategically entering new ones.

The really sad part of this WinCo story is that Supervalu still owns the Cub format, has many of the Cub pioneers still working for the company,  and has expertise with many other successful formats (Bristol Farms is another format that is seeing far more success since being sold by Supervalu, than they had under Supervalu’s ownership); but the management at the company over the past few years focused solely on their small bore neighborhood conventional format, accepted 5-7% comp store decreases and has driven the company to the edge of a cliff.  While Supervalu’s fate is unfortunate, the inevitable break-up of the company should put many of the divisions in a place with new management and leadership that will allow those banners and formats to thrive once more.




On another subject, one MNB user wrote:

Wanted to comment on your piece about Shake Shack. It is clear that they really live by the tenets described by their CEO, as illustrated by the following story.

On a recent visit to NYC, my husband & I were very excited to go to Shake Shack – I had read about it on Chowhound (indispensable online tool for on-the-road foodies!) and our plan was to go after the theater since they are open until midnight. We waited on line at the 8th Ave & 44th St location for over 15 minutes at 10:00pm on a Tuesday (the wait during the afternoon was 4x that) and let me tell you...it was worth every second! Great staff was only topped by awesome food! Their burger is what you always wish a fast food burger would be but never is...thick, hot, juicy, tasty, fresh soft roll...in a word: delicious. Crisp crinkle cut fries tasted like real potato. And don’t even get me started on the chocolate shake...it was pure heaven.

It was by far the least expensive meal we ate during our entire trip, but probably the most memorable...it has been nearly 3 weeks and I still cannot stop thinking about Shake Shack, telling my friends about it, and wondering when I can get to another one because I am dying for another burger & shake there. And that’s the point...I had a great, memorable experience that made me a brand ambassador (of sorts) and left me wanting more. Isn’t that the holy grail of our business?

You bet.




I made a comment the other day about how, if people want their kids to read email, they have to send them a text message telling them to do so. Which led one MNB user to write:

When we send our son a package to his out of state college address (typically from Amazon, but that’s another story), we have get his attention through a text or email and remind him to go to the mailbox, or “campus package pickup point,” to retrieve it; otherwise, the package languishes forever in postal purgatory.   He merely explains: “I don’t check the post office mail”.

Ditto.

MNB user Russell Thomas wrote:

My colleague Jim Tebay told me there are two kinds of people:  Social Media Natives like my kids who have grown up with it and Social Media Immigrants like me who have reached these foreign shores with wonder and bewilderment.  My youngest son, the 12-year old, got his first email address last year.  I asked if he liked the address.  He said “Well, it doesn’t really matter, Dad, because you are the only one that still uses email”.  Now that was an eye opener!

Been there, done that.

And, from another reader:

The only time I use e-mail to contact my twenty something daughters is when I need to send an attachment. Text is the communication of choice except in an emotional crisis, than Mom’s voice is needed (and quite honestly for long conversations, I am too slow when texting).





Regarding the decision by the US Food and Drug Administration (FDA) to officially ban the use of BPA in baby bottles and sippy cups, MNB user Curt Lindy wrote:

Finally the FDA took action to protect the public however I give the real credit for this action to Wal-Mart and their refusal to have BPA products in their stores, which created the change by the manufactures making the FDA action mute.




Respond to our recent story about hiring issues, one MNB user wrote:

Right now, here in the rust belt, we are continually looking for good help - from part time store clerks to director positions. A person who was recently hired for a full time administrative office position quit the day they were to start. We have trouble getting people to show up for interviews or even sometimes staying through orientation. Just about every single one of our departments across all store locations is understaffed right now and we're looking. We usually have at least 25 positions available. And we're having trouble finding food service managers.

We offer decent pay, excellent benefits including insurance for part time work, good hours, nice working conditions and every location offers parking and is on a bus line. Plus we were just named one of the best places to work in our area. Our turnover is at a record low as well.

We are experiencing record sales and sales growth and we just opened a 4th location.

I have no idea what's going on with economy or jobs, but we're definitely not feeling a slow down here. I do know is that our growth is quickly being hampered by lack of qualified candidates. Hell, sometimes any candidates at all.

Of course, we don't actively poach people from competitors but believe me, we're thinking about it! 

I'd love to know if other small to mid size independently owned grocers are experiencing the same thing... and why.




We had a story last week about how the state of Washington is registering people to vote via Facebook, which led one MNB user to write:

Good luck with that in Wisconsin (voter DIScouragement).  Next step is DNA swabs, if the Gov. gets his way.   Pretty sure that’s all he left out of his voter ID bill probably because he didn’t think of it.  Lots of debate still going on about the subject prior to the fall election.

From another reader:

Sigh! This makes me even sadder that I live in Florida where the governor is doing everything he can to purge voter lists and hinder registration, even prosecuting teachers for registering students and not turning in their names within the new 48-hour rule. The League of Women Voters pulled out of Florida, saying the new rules and their accompanying fines were too onerous.

If I ever get to retire, I'm leaving Florida!

I did think that there was an interesting difference between what is happening in Washington and what seems to be happening in other states.




On another subject - a piece I did last week on my enthusiasm for teaching this summer at Portland State University - MNB user Bob Hermanns wrote:

I read with keen interest your “FaceTime” post today where you describe the teaching experience as “wonderful on steroids”.  You not only described the experience well, you also pointed out the level of interest and ability these young people bring to the classroom.  It is my never-ending goal to spread the gospel of educating our future leaders and it is a most satisfying activity.

Hopefully, the vast audience of industry executives who are unaware, or do not have an appreciation for the abilities and character of tomorrow’s leaders will open their eyes as they read posts like yours today.

MNB user Mary Manning wrote:

I really enjoyed your article about your experiences with students at Portland State. I'm lucky enough to get to teach them too, and you captured so well how lively and creative they are. The Food Industry Leadership Center gives them the experience of a small cohort in a huge university, and it's amazing how much poise and confidence they gain from that. At the end of the term I wish I could hire all of them.

MNB user Dave Dec wrote:

I wanted to thank you for your "FaceTime" story. Being the lead technical trainer I share your passion for learning and being in the classroom. I agree with your comment about food marketers forgetting about how important the food experience is to people. The assignment you gave your students confirmed that. Thank you for sharing your experience as a teacher as well as a student; referring to your morgue experience. I love it when people ask me the tough questions. And though sometimes when we ask the tough questions we may not be perceived in the best light, being brave enough to do so makes us all better learners and better people.

From another reader:

You are totally right, teaching in the food industry is a great experience. I co-teach a Casino Management Class at Kent State University in the Hospitality Management Program. I find our class is very conservative with their questions. Our class travels to Las Vegas for first hand tours of the world’s best casinos but it is like pulling teeth to have the class ask questions of the industry leaders. We have addressed this issue in class and cannot find any answers to this questions of no questions.

Please share your thoughts.

I'm probably the wrong guy to ask about this stuff ... my teaching experience is limited to this July. (Except for the one-shots I've done over the years, of course.) Mrs. Content Guy, who teaches third grade, believes that no matter what the age, the best way to get kids to learn is to have them teach each other ...

One thing I've done, when I've brought in industry folks (who have been exceptionally generous with their time), is to not have them give presentations, but rather chat with them interview-style ... make it a relaxed conversation that is easy for the students to join in on. It saves the experts from having to make a speech, and keeps everything casual.

But as I say, I'm no expert. I just like talking to people...and listening to their answers.

MNB user Bill Smillie wrote:

Reading your “FaceTime” article, I took myself back to my college “nights” where I got most of my college credits in “night” school and guys like you and me that had years of real-time experience taught classes on labor law, marketing, salesmanship, personnel management (Hey, it was the 70’s) and brought the real world into the classroom.  It was a better education than day school where a well-educated smart guy with a teaching degree recited theories and axioms from someone older than them to younger people who cared less and were there only because they had to be to beat the draft.  Congratulations to you for taking the time to share some of your “wisdom” with others.

Well, I was a film student at Loyola Marymount University ... so I wasn't seeing the kind of people you were seeing. On the other hand .... I have vivid memories of classes like the one where Burt Lancaster showed up after we screened one of his films - dressed in a button down shirt, jeans, sandals and a Mexican poncho, smoking Camels. He talked with the class for hours, and then hung out with a bunch of us until he finally had to leave to catch an early flight to NY.

I had a lot of nights like that. It was totally cool.




So, you're probably saying to yourself .... What? No more email about gay marriage?

To be honest, there was a lot of it. And continues to be.

I'm making a command decision here not to post it all, simply because I don't want it to dominate the proceedings.

Let me just say a couple of things.

To the few of you who suggested that the discussion has no place on a site such as MNB, I respectfully disagree. It might not have a place on a lot of other sites, but MNB has evolved into the kind of place where precisely this kind of conversation can and should take place, when warranted. It was not random ... it all was within the context of decision made by a business CEO to stake out a position, and my response to it, and then your response to me.

I recognize that this can be a tough subject for a lot of folks, and no matter how many emails I run here, it is unlikely that their minds will be changed. (Just like mine won't. We have that in common.) So at some point, I think I have to cut off the discussion ... though, to be honest, it could all come up again, if some story prompts me to focus on it. I also think that for those of us who feel one way on the issue, there is a suspicion that we have time on our side ... that 10 or 20 years from now, people will wonder what all the controversy was about. "Patience is a virtue," my mom used to say to me. We'll see.

I was glad that, within the context of my comments last week, I got a bunch of people to laugh by referencing movies as diverse as In & Out and Blazing Saddles. Ultimately, I must concede, I'm happiest when people write in to say I made them laugh. (I'm also pretty happy when people say I got them to think...)

And with these movie references in mind, I'd finally like to tip my hat to the MNB user who seemed so happy with my comments that he wrote:

If I weren’t already married, I’d “gay marry” you! 

Thanks for being willing to bring up the tough topics. I have been reading your MorningNewsBeat for years and it has been one of the very best vehicles I have found to help educate our work teams about the retail industry.

I appreciate the thought ... I can honestly say that in more than 10 years of doing this, it is the first time anyone has expressed their appreciation in quite that way.

You made my day.

Published on: July 23, 2012

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