business news in context, analysis with attitude

Published on: April 15, 2013

by Kevin Coupe

Today being Tax Day, it seems like a good day for a laugh.

So we submit for your consideration a piece that was in the Washington Post by Gene Weingarten in which he critiques a new online section of the New York Times called "Booming," designed for Baby Boomers.

Weingarten suggests that the Times has it wrong:

"It contains stories that the Times editors seem to think my kind of people would want to read. One of the first, for example, was about the proliferation of low-cut jeans that make your belly flab ooze over the waist. It was basically a complaint about what those crazy kids are wearing today, and a paean to the glory days of Mom Jeans. Another article was titled 'Why Do My Knees Hurt?'

"Also, there is a regular feature called 'Making It Last,' interviewing couples who have stayed together at least 25 years. The stories contain all the heat, passion and sheer exuberance of a barium enema. Here’s a direct quote from one: 'We are still in love and have mutual respect for each other.'

"Anyway, I’m here today to make some suggestions to the Times for making 'Booming' even better. First, change the title. 'Booming' is too loud. We boomers prefer a little peace and quiet when we kvetch. Call the section 'Oy'."

And then, he suggests more than a dozen story ideas that are really relevant. My favorite: "A weekly TV feature summarizing the plots from all the shows you miss by going to bed at 9:30."

Weingarten has won the Pulitzer Prize twice, and he's always worth reading. For this one, click here.

It's an Eye-Opener.

Published on: April 15, 2013

RetailNetGroup is out with an extensive analysis of the likely expansion of the AmazonFresh e-grocery service that has been pioneered by Amazon in Seattle, but probably will be extended to San Francisco by this June and Los Angeles by October. "The expansion," the analysis says, "has implications for the grocery and CPG market online and offline, but could also be Amazon's Trojan horse for same-day delivery in the US," and could "roll out to as many as 40 US markets by the end of 2014."

The analysis suggests that Amazon is focused on breaking even, not making money, with the service, and seeing it in strategic rather than tactical terms, because it is "a powerful way to drive frequent customer interaction" and "helps Amazon justify its own 'last-mile' logistics fleets in major urban centers, putting Amazon trucks in high-density neighborhoods on a daily basis, and potentially changing the economics of same-day delivery."

Some excerpts:

• "Amazon sees itself as unmatched in terms of merchandising and logistics - AmazonFresh requires no minimum order and offers 100k SKUs of general merchandise with grocery orders. It was the first to unattended delivery and its pre-dawn doorstep delivery is its most popular option, accounting for 50-60% of orders. According to former AmazonFresh executives, Amazon also considers its picking and delivery efficiency to be world-class, superior to both long-time incumbents like Peapod and newer depot-picked models like Ocado."

• "Interviews with former executives also indicate that AmazonFresh's customer retention rate is very high and that once acquired, customers shift large shares of their grocery wallet to Amazon. That said, customer acquisition has always been Amazon's biggest hurdle for Fresh, and RNG expects AmazonFresh to put major emphasis on customer acquisition in their imminent expansion. Expect deals on initial orders, IP-address targeted ad space on Amazon's main page, direct mailings, local out-of-home media campaigns, and more. RNG also expects Amazon to ask large vendors for support."

• "Though Peapod and FreshDirect are perhaps the more obvious competitors Amazon may face as it expands to new markets, RNG DIGITAL considers Walmart the most significant. Walmart has been quietly incubating its own grocery delivery service in the Bay Area and now Chicago, led by a former ASDA executive with considerable experience in the space. If Amazon expands as aggressively as it is posturing to, and if full-basket delivery is as strategic as RNG believes it could be, Walmart is the US retailer best positioned to respond. Still, despite solid strategy and capabilities, Walmart’s internal conflicts between its core brick-and-mortar business and its increasingly relevant online businesses could hold it back."

Published on: April 15, 2013

The always readable David Carr has his usual Monday media column in the New York Times this morning, and it is all about the ongoing battle being fought between traditional businesses (in this case, TV networks) and upstart offerings that threaten their viewer base and economic model.

Essentially, Carr argues that traditional businesses are used to providing content the way they want to - bundling channels and services together, so people pay for things they don't want or need in order to get the stuff they want - which may be inefficient for consumers but is high efficient in delivering profits. But as technology and innovation move forward, the balance of power shifts, giving consumers more options and undermining their economic model. Carr may be writing about TV, but he's really describing a broader trend that affects a lot of industries.

The entire column is worth reading here. But here is the passage that grabbed my attention:

"Historically, once the consumer decides, it doesn’t matter what stakeholders want. They can’t stop what’s coming.

"The advent of the Internet presented an existential challenge to bundles. Once consumers got their hands on the mouse and a programmable remote, they began to attack the inefficiencies of the system. When seeking information, they sought relevant links, not media brands. And DVRs put them in the control room of their own viewing universe."

Published on: April 15, 2013

Walmart Canada is launching a new lifestyle magazine this week, called "Live Better" and published with Rogers Media, that will come out six times a year. The Wall Street Journal reports that the "full-color, high-gloss magazine will feature stories about cooking, beauty, health, home decor and fashion, and will be free at Walmart Supercentre stores across English-speaking Canada. A French version is due later this year."

The story also notes that the magazine's "initial run is 1 million copies, making it the largest-circulation magazine in Canada. The publication will also be available online." The magazine is being launched just a month after Target began opening stores in Canada.

Published on: April 15, 2013

Interesting piece in the New York Times that uses JC Penney's apparently failed attempt to switch from coupons and price promotions to EDLP as a springboard to discussing why customers respond to sales. "Most shoppers, coupon collectors or not, want the thrill of getting a great deal, even if it’s an illusion," the Times writes.

Economists and marketing experts say "that consumers are conditioned to wait for deals and sales, partly because they do not have a good sense of how much an item should be worth to them and need cues to figure that out," the Times reports, adding, "Consumers infer that they get a great deal based on the reference point provided by the higher, presale price. Social scientists refer to this idea as anchoring, and it applies to all sorts of consumer behavior and expectations. Without that anchor, consumers have trouble determining whether the store is actually giving them a good price."

EDLP can only work if retailers are willing to accept narrow profit margins, the Times writes: "Costco, for instance, almost never runs sales and doesn’t adjust prices much, but it depends on annual membership fees for profit. Walmart, which also offers low prices, makes up for thin margins with a high volume of customers who visit often."

Published on: April 15, 2013

Business Insider reports that Eric Schmidt, the chairman of Google, is predicting that by 2020 every person on the planet will be connected to the internet.

He's getting some pushback on the prognostication: "In other words, he believes that in just seven years, the Internet will be accessible even in the parts of the world with no electricity that are struggling with far more basic things, like clean water," Business Insider writes.

And another critical Tweet goes like this: ""What is this nonsense? There are 1 billion people not yet connected to food."

And yet, the story suggests, "it's not as far-fetched as it sounds. For instance, Google supports a project called GEEKS Without Frontiers which is creating low-cost technology to bring wireless Internet to places where traditional wired Internet isn't possible.

Samsung is working on a project that has turned old shipping containers into solar-powered, Internet connected classrooms for kids in Africa, with the plan of serving 2.5 million students by 2015. And that's only two projects. While it's hard to believe that every person in the world will have access to the Internet by 2020, many more of them will."

Published on: April 15, 2013

The Washington Post has a piece about the deliberations at the US Department of Agriculture (USDA) over new "new federal nutrition standards limiting sugar, fat and sodium for school snacks and drinks. The rules would be the first update to school snack guidelines in more than 30 years and would come as first lady Michelle Obama continues to take aim at childhood obesity. About one-third of children in the United States are either overweight or obese.

"The mandates will be controversial. School districts worry that changes to snack guidelines will reduce food sales that help keep cafeteria budgets balanced. They also say the rules could limit some children from eating enough calories because recent federal rules shrank the size of school meals.

"Others say the proposed guidelines don’t go far enough. High-fat potato chips, candy bars and sugary sodas will be out, but flavored milks or low-fat yogurts with nearly the same sugar content as certain chocolate bars could be in.

"One person’s healthy snack is junk food in the eyes of another.

"USDA officials say the intent of the proposed standards is not to limit popular snack items but to provide healthier options for students."

The story notes that "the proposed minimum USDA guidelines would generally require snack foods to contain fewer than 200 calories a serving, with no more than 35 percent of the calories or weight coming from sugar or fat and less than 200 milligrams of sodium a portion. The guidelines would prohibit trans fats and require that less than 10 percent of snack calories come from saturated fats.
They would also require that snack foods be either a fruit, a vegetable, a dairy product, a protein food or a 'whole-grain rich' grain product or contain at least 10 percent of the daily value of a nutrient such as calcium, potassium or vitamin D.

"The beverage guidelines would eliminate sugary soda. Students would be able to buy water, low-fat plain milk, and non-fat plain or flavored milk. Juices would also have to be 100 percent fruit or vegetable juice with portion limits."

Published on: April 15, 2013

• Bloomberg reports that a federal judge has ruled that "websites critical of a settlement that Visa Inc. (V) and MasterCard Inc. (MA) reached with retailers over so-called swipe fees are misleading and must be corrected ... Sites at issue include Merchantsobject.com and home sites for the trade groups National Community Pharmacists Association, National Grocers Association and the National Association of Convenience Stores, among others, according to court filings submitted by the plaintiffs’ lawyers.

"The sites provide one-sided information encouraging retailers to object and opt out and don’t fully explain consequences of those actions, the plaintiffs’ lawyers said. While opting out allows merchants to pursue their own lawsuits against the credit card firms, it deprives them of the ability to receive payments for damages under the settlement, the lawyers said."

Lyle Beckwith, government relations representative for the National Association of Convenience Stores, said the ruling was "not a big deal," adding: "“This is just unbelievable nit-picking. We are standing between attorneys and their $700 million payday and they don’t like it.”


• Bloomberg reports that Starbucks will lower prices by 10-13 percent on its Starbucks and Seattle's Best brand packaged coffees sold in US supermarkets and retail stores.

"This will allow us to both enhance the value that we’re providing our existing packaged coffee customers, and hopefully increase the frequency which they purchase Starbucks and Seattle’s Best coffee, as well as attract new customers,” says spokesman Jim Olson.


• The Los Angeles Times reports that California's Office of Environmental Health Hazard Assessment "has added the controversial plastics-softening chemical, bisphenol A, to its official list of chemicals known to cause birth defects ... The listing, authorized under a 1986 law, Proposition 65, requires that manufacturers of goods containing BPA, such as water bottles, provide warnings or reformulate their products ... BPA has been connected with birth defects, altered brain development, behavioral changes, cancer and cardiovascular disease."

The American Chemistry Council criticized the decision, saying that it undercuts and undermines the traditional scientific review process.


• The Wall Street Journal reports that the US dairy industry is petitioning the US Food and Drug Administration (FDA), asking that it be allowed not to identify reduced calorie chocolate milk as being such, but rather just note the inclusion of artificial sweeteners such as aspartame in the ingredient list. The reason? Phrases such as "low calorie" or "low sugar" are seen as a turn-off by kids, who are the primary consumers of these products.

The dairy industry is trying to reverse a decades-long decline in milk consumption, but opponents say that it is important to prominently note the inclusion of artificial sweeteners in milk products.


The Los Angeles Times reports that New York State Supreme Court Justice Jeffrey Oing has ruled that JC Penney can sell products designed by Martha Stewart Omnimedia, as long as they are unbranded.

The judge "dismissed Macy’s claim of unfair competition against J.C. Penney," which came as part of as court battle in which Macy's has accused JCP of contract infringement.

Macy's said that it was disappointed in the ruling, but plans to persist with its broader suit. Analysts say that the ruling may push the two companies to reach a negotiated settlement rather than leave the decision to the courts.

Published on: April 15, 2013

• Jonathan Winters, the master of improvised comedy who brought his genius to television programs that included "The Jack Paar Show," "The Tonight Show Starring Johnny Carson" and "Mork & Mindy," movies such as 'It's A Mad, Mad, Mad, Mad World," and countless comedy albums - all of which culminated in his being awarded the Kennedy Center's second Mark Twain Prize for Humor, in 1999 - has passed away. He was 87.

Published on: April 15, 2013

Got the following email from MNB user Larry Walsh last week:

It was interesting to read the first two segments of the MNB today, where the post mortem of Ron Johnson’s reign at JC Penny, was immediately followed by a glowing review of the new Walgreens concept.  I think there are some striking similarities between the two.

While not struggling by any means, Walgreens finds itself trying to find solutions for their primary business driver which is filling prescriptions.  Decreasing margins for prescriptions, and an aggressive growth plan which has cannibalized business from its other locations has them looking to make some changes moving forward.  I love their new store concept but here is the rub.

That’s not who Walgreens is, and like JC Penny I’m not sure they can be something so radically different from their roots.

Walgreens for so many years has been about convenience and location.  It is the place where you get your prescriptions filled, and bought cosmetics, OTC items, and a dancing Santa around the holidays.  For decades, they have taken steps to reduce access to the pharmacist, building pharmacies that were designed for high interaction with technicians, not pharmacists.  Now they expect their customers to buy sushi, smoothies, and get a manicure?  All while asking their pharmacists to come out front after spending decades trying to hide them?

As a pharmacist, I love what they are doing, but as someone who has both worked for Walgreens and competed against them, I think you are talking about a huge change in culture.  To attempt to make such a change at a long standing operation like Walgreens could prove to be a monumental task.  Just ask Ron Johnson.
 
Thanks for brining great content to my email box.  I appreciate it.

On the same subject, another MNB user wrote:

I saw the future of Walgreens a couple of years and its name is Duane Reade.  Its store in the historic Trump Building on Wall Street and a couple of locations nearby have served as an almost futuristic laboratory for its parent Walgreens.  This store is just a few minutes walk from the World Trade Center.  As you can tell by the location there are plenty of shoppers and lots of Wall Street suits indulging themselves.

The sushi bar is manned by two chefs during busy times.  Of course there is a well manned juice bar with an accent on fresh fruits and health.  You can buy a keg of Heineken among the many beer choices.  They offer sandwiches from New York’s iconic grocery Zabar’s.

The pharmacy has a relaxing waiting lounge.  The store offers a station where customers can see how various combinations of makeup look on their faces and change at will.  This is a half minute walk from the salon which offers affordable cuts in an atmosphere of elegance.

I am sure you’ll enjoy the full-time greeter.   She never takes her eyes off you as she recites the history of the building and the many unique features of the store.

By the way, an uptown Duane Reade offers a changing variety of intriguing fresh brews in refillable jugs. This is the future of Walgreens.

On the subject of JC Penney's travails, one MNB user wrote:

I think you are dead on about culture.

When Ron Johnson went into Apple he went into a well-defined culture with Steve Jobs still alive. The culture almost demanded that the Apple stores evolve as they did and in that climate the stores were start-ups. When he went to JCP he tried to take the physical outcome of a culture - the Apples stores and how they were created - into  a 102-year-old company with most likely a hodge-podge of century old cultures. Johnson might as well have tried to fly to the moon in a bi-plane.

If you want to see how quickly things can go to hell in retail these days, read "The New Rules of Retail - Competing in the World's Toughest Marketplace" by Robin Lewis and Michael Dart. They write of the many things JCP in their opinion has done right moving toward new retailing. It would be easy to look at things today and say they were wrong, but maybe they were not. Maybe in some ways JCP was doing things right, but got leadership wrong. Which is why I am with you on bringing back old leadership. They need visionary fire, but fire that can build on what Lewis and Dart cite, not on imitation.

I have to feel, though, that it might be too late. I am not sure today's consumer gives many second, and certainly not third, chances.

From another reader:

Kevin, it seems to me that the next people to be replaced at JCP is the Board itself.  That they don’t have a succession plan beyond the former CEO is an indictment of their own shareholder responsibilities, right?

I would agree.

Some folks compared Ron Johnson to former Supervalu CEO Craig Herkert, which led one MNB user to write:

Interesting to read Craig Herkert’s name in MNB after some time.  Fair discloser: I am a long time Supervalu investor.   As such I think the board is there to represent the interests, long and short, of the investors.  Wayne Sales and the board hire Mr. Herkert to “fix” Supervalu, Mr. Sales and the board fired Mr. Herket for not “fixing” Supervalu and put Mr. Sales in to “right the ship”.  Mr. Sales spends less than nine mounts as CEO, finds buyers for the Albertsons banners at .20 cents on the dollar, at which time he steps down and gets a $12,000,000.00 plus golden parachute.  This does not feel like the board looked out for anyone outside the board room.  I wish Mr. Duncan and the new management team all the best, and I am still an investor as I did not pay $4.00 for any of my shares.

We made this point here on MNB at the time - that there were a few people at the top getting rich for borderline incompetence, protecting nothing so much as their own rear ends and bank accounts.

MNB user Mark Raddant wrote:

Regarding JC Penney, this also point to the difficulty trying to make a huge change in a publicly traded marketplace where results are gauged by 3 month windows.  JC Penney has been losing market share and profits slowly for years.  They get an executive who implements dramatic, costly change, not just in store design and layout, but in the targeted customer base.  There is no rational way to think the intended transition in customer base was going to happen in three months!  Old customers will leave, but the development of new customers is going to be an evolving transition.  After reading about the change, I have visited JC Penneys for the first time in years.  The stores are brighter and more inviting and interesting,and over the last few months they are also busier than at any time in the past.  This was change happening: surgery, recovery (the current phase, now ending) and rehab, growth, and fitness, if allowed to follow the path to recuperation.

It will be interesting to see if the board’s response to the market (not the consumer’s trending response to the stores) just ends up killing the patient instead of facilitating a healthy recovery.




On another subject, an MNB user wrote:

The USPS, even with its vast problems, is still the best and cheapest, postal system in the world.  I have been an amateur radio operator for almost 50 years.  During that time I have had many reasons to send mail overseas and receive mail from my friends there.  Our overseas rate just went up $1.10.  Most European countries charge between $2.00 and $3.00 to the US for that 1 oz letter to the US.  If you want an extended explanation as to why we hams use the mail system, I will explain it to you, if you want (just ask, but you may be sorry).  Even though there is some pilferage stateside, there is nothing like the level of mail theft in other countries.  SO what the USPS should do is to keep pace with the rest of the world.  Double what they charge for first class mail and do away with special rates for junk mail (and maybe get rid of most of the stuff going directly from mailbox to recycle bin).  Yes, I have had delivery problems and things that have disappeared into a black hole, but I still think they do an amazing job with what they have to handle.

Published on: April 15, 2013

It took two playoff holes on the final day of play, but Adam Scott yesterday became the first Australian to win the Masters golf tournament.