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    Published on: June 27, 2013

    This commentary is available as both text and video; enjoy both or either. To see past FaceTime commentaries, go to the MNB Channel on YouTube.

    Hi, I'm Kevin Coupe and this is FaceTime with the Content Guy.

    Once again, I'd like to turn to the entertainment industry to talk about the notion of business change, and what companies have to do to adapt to new realities.

    I was prompted to think about this by a Fast Company piece about a recent appearance at the University of Southern California (USC), celebrating the opening of the new Interactive media building at USC's School of Cinematic Arts, by two fellows who know a little something about the subject - Steven Spielberg and George Lucas.

    You can read the whole story here. Essentially the argument that both men made was that the industry is changing in such fundamental ways that it may be almost recognizable in just a few years.

    Lucas, for example, said "that the collision of movie, television, video game, and Internet content represents a rare godsend for creative types: 'Right now, there are amazing opportunities for young people moving into the (entertainment) industry to say 'Hey, I think I’m going to do this and there’s nobody to stop me’ because all the gatekeepers have been killed!'"

    And Spielberg, talking about the fact that so many of the big movies are mega-budgeted explosion fests with more focus on special effects than plot and characters, said: "There’s going to be a big implosion, a big meltdown where three or four, maybe even half a dozen of these mega-budgeted movies are going to go crashing into the ground."

    The irony, of course, is that Spielberg pretty much invented the summer blockbuster movie with a little film called Jaws, and Lucas perfected the concept with the Star Wars films. So they have some culpability here, though I think it is fair to say that it is studio chiefs who wanted every movie to be Jaws or Star Wars, and who were better at reading spread sheets than screenplays and the books on which they were based, that bear a greater level of blame.

    In their USC session, both Spielberg and Lucas talked about how films and games may be merging, how virtual technologies could reinvent the entertainment experience, and even how variable pricing may at some point mean that you'll pay a lot more to see Man of Steel on opening weekend than you will to see Lincoln. But the big point, and the one that every business needs to think about, is how even the most successful practitioners of the movie art and business are thinking about how they need to change in order to be relevant.

    That's something that retailers need to think about. The world of big data, of mobile marketing, of e-commerce, of higher transparency and increased expectations - all these things mean that they have to raise their game, learn new tools and tricks, and be willing to totally reinvent themselves in order to stay in and sustain the business.

    The good news is that the core business - selling things that consumer need, want, and value - stays the same. It is just everything else that has changed, including the interests and compulsions of the end users.

    Spielberg made the same point at USC. While the audience and available technology continues to evolve and change, he remains convinced that in the end, is the great story and the compelling character that will be the difference makers. He said, "The thing I emphasize to everybody who comes to work at my company is, don’t play with the toys until you have something to say."

    The lesson is clear. Stay true to the core mission. But be willing to challenge virtually everything else about the business model. Because if you don't, somebody else will. And that somebody else, as it happens, will be the competition.

    That's what is on my mind this Thursday morning. As always, I want to hear what is on your mind.

    KC's View:

    Published on: June 27, 2013

    by Kevin Coupe

    Fascinating piece in the Wall Street Journal this morning about how General Electric is trying to sell kitchen appliances to twentysomething consumers, a group that is "too big to ignore," but that generally has not been the target of such manufacturers. According to the story, GE "plans to target them with a low-price but high-design line of kitchen appliances, hoping to hook them young and eventually trade them up to pricier ovens, refrigerators and dishwashers ... The new line, called GE Artistry and available in September, includes glossy black or white appliances with brushed stainless steel handles and accents. The oven, refrigerator, microwave and dishwasher, which together cost about $2,400, are among the least expensive appliances in GE's lineup."

    In designing the new line, there were several goals:

    • Simplicity. This is a generation that doesn't cook much, so it does not need fancy functionality and options.

    • Irony. The stove has an analog clock, which is seen as a kind of "wink" at product lines that often are loaded with electronics.

    • High style. Younger consumers want their products to look cool, so that's what GE went for. And there's nothing faux about it - the line comes in white and black, but not stainless steel, because real stainless steel is too expensive and faux stainless steel looks fake, and that's not what this generation wants.

    To me, this is a good lesson in what a lot of industries, both on the retail and manufacturing sides, ought to be doing in order to appeal to the next generation of consumers. Old store formats, traditional product lines, and conventional sales pitches may not suffice, because they may not resonate with twentysomething consumers even as they age into thirtysomethings. And yet, they very soon will be the center of the target for many marketers ... but the weapons needed to hit the bullseye may need to be different.

    It is an Eye-Opener.
    KC's View:

    Published on: June 27, 2013

    The Wall Street Journal reports that Cerberus Capital Management is bidding to acquire the 200-store Harris Teeter supermarket chain, though "Cerberus hasn't decided if it would attempt to acquire the entire company or whether it would buy a major piece and leave some part in the hands of public shareholders."

    Earlier this year, Cerberus acquired several supermarket chains from Supervalu and is looking to expand further in the category. The story says that if Cerberus is successful in its Harris Teeter bid, it will leave current management in place.

    It is unknown if any other companies have made bids for Harris Teeter, or plan to.

    According to the Journal, "An acquisition of Harris Teeter would be somewhat of a departure for Cerberus, which has typically sought far more distressed companies. Harris Teeter produces higher margins and offers higher-end goods compared with Cerberus's mostly down market chains.

    "But Cerberus sees savings in combining Harris Teeter with the Supervalu business, according to the person familiar with the matter."
    KC's View:
    I was with them all the way, until that "combining Harris Teeter with Supervalu" line. My first reaction is that combination could screw up both businesses ... but these guys are a lot smarter than I am. We'll see.

    Published on: June 27, 2013

    The New York Times reports this morning that the problem of counterfeit foods and beverages is becoming more rampant around the world, writing that "investigators have uncovered thousands of frauds, raising fresh questions about regulatory oversight as criminals offer bargain-hunting shoppers cheap versions of everyday products, including counterfeit chocolate and adulterated olive oil, Jacob’s Creek wine and even Bollinger Champagne."

    In some cases, it can be manufacturers using horsemeat instead of beef in products such as lasagne as a way of saving money. Or, it can be even more dangerous, as when an international organized crime ring brewed ten of thousands of liters of counterfeit vodka that, while it had a near-perfect label, was laced with bleach and methanol, which can cause blindness.

    An excerpt:

    "Investigators say a huge array of deceptions exist. Simple ones involve presenting cheap products as branded or top-quality ones, like selling catfish as sea bream, labeling farmed salmon as wild or marketing battery-produced eggs as organic or free range. In February, the German authorities began investigating around 160 farms suspected of breaking rules on organic and free-range egg production, for example.

    "In other cases, cheaper ingredients are added to genuine products to increase profit margins. Sometimes vegetable oil goes into chocolate bars, or pomegranate juice, wine, coffee, honey or olive oil is adulterated with water, sweeteners or cheaper substitutes.

    "Whenever there is tampering, there are potential risks to health. Indian restaurants in Britain have been prosecuted for adding ground peanuts to almond powder, which poses a risk to allergy sufferers. Food experts say that engine oil is among the substances found in olive oil."

    One estimate is that as much as 10 percent of food products sold in the developed world may be counterfeit.
    KC's View:
    This is a fascinating piece, and you can read the whole thing here.

    Published on: June 27, 2013

    Bloomberg reports this morning that Amazon.com and 7-Eleven are suing Visa and MasterCard, accusing the credit card companies of price-fixing their interchange fees at usurious rates. Both retailers have rejected a multi-billion dollar settlement offer from the card companies that has been accepted by some retailers and that is under consideration by a Brooklyn federal court judge.

    According to the story, "The retailers and about 30 others filed a lawsuit in federal court in Manhattan against the card companies and several major banks. The companies are among more than 7,000 that have dropped out of the $7.25 billion accord over the fees, which are borne by merchants when customers use credit cards ... Dozens of retailers have said they’re opposed to the accord because it would give Visa and MasterCard too much freedom to raise rates in the future." It would also prevent them from suing MasterCard and Visa in the future.

    The card companies called the suit "tired arguments" without "merit or strength."

    The Bloomberg story also notes that "Visa sued Wal-Mart Stores Inc. this month over concerns that the world’s largest retailer would also file a separate swipe-fee complaint. The payment network said in a complaint that it wanted to prevent 'the continuation of endless, wasteful litigation'."
    KC's View:
    I don't know how this case is going to be resolved, but there seems to be little danger that endless, wasteful litigation is going to come to an end anytime soon.

    Though maybe it is not wasteful, since consumers have a dog in this hunt. These high fees get passed along to consumers, who eventually pay the fees in the form of higher costs for goods.

    As consumers, we have a real stake in this getting done right. That said, retailers need to be making the case to shoppers that if fees can be reduced, prices will be reduced ... and then they have to deliver on that promise.

    Published on: June 27, 2013

    George Zimmer, the founder and former CEO and spokesman for Men's Wearhouse, is firing back at the board that deposed him.

    As has been amply chronicled here and elsewhere, Zimmer was fired about a week ago after what he conceded were deep disagreements with the board; he argued that the company was moving away from a “guiding principle of servant leadership” that put a greater premium on employee satisfaction and customer service, rather than share price. Then, the board shot back at him, saying that "Zimmer was let go in part because he wanted to take the company private by selling it to an investment firm, while the board did not want to take on the debt required for such a transaction." The company also said that Zimmer was intransigent in his demands, and at one point even wanted to be reinstalled as CEO with absolute power over the company's direction - alternatives that the board apparently found to be less than appetizing.

    Now, the Silicon Valley Business Journal reports, Zimmer had released an open letter to the board. Some excerpts:

    • "Over the years, as CEO, I consistently encouraged the company to take a longer term approach of investing most of our profits back in the company, delivering value to our customers and building a loyal and dedicated workforce totally committed to service, rather than pursuing shorter term strategies based on financial engineering. Inside the Boardroom, we often had spirited discussions about how best to achieve these objectives. Regardless of whether the Board eventually sided with my point of view or not, I believe this dialogue and discussion led to better decisions that contributed to the success of The Men’s Wearhouse.

    "Unfortunately, this dynamic seems to have changed."

    • "Just one month after the directors unanimously nominated me for reelection to the Board, last week they abruptly fired me from my management role and postponed the Annual Stockholder Meeting so they could nominate a new slate of directors that excluded me. To justify their actions, they now have tried to portray me as an obstinate former CEO, determined to regain absolute control by pushing a going private transaction for my own personal benefit and ego. Nothing could be further from the truth."

    • "Earlier this year, concerned with the Board’s response to the short term pressures of Wall Street, I encouraged the Board to at least study a broader range of strategic alternatives ... including the possibility of a going private transaction. Rather than thoughtfully evaluating the idea or even checking the market to see what value might be created through such strategic alternatives, the Board quickly and without the assistance of financial advisors simply rejected the idea, refused to even discuss the topic or permit me to collect and present to the Board any information about its possibilities and feasibility, and instead took steps to marginalize and then silence me.

    "Such behavior by the Board does not strike me as consistent with sound principles of good corporate governance or the core values of The Men’s Wearhouse, but instead suggests that the directors were more concerned with protecting their entrenched views and positions than considering the full range of possibilities that might benefit our shareholders and indeed all our stakeholders."

    Indeed, one of the things that Zimmer reportedly objected to was raises being given to top executives, which he felt were inappropriate and out of synch with the company's culture.
    KC's View:
    I got an email yesterday from a CEO friend of mine, asking me why I was so fixated on the Zimmer story. "I've never seen you in a suit anyway!" he said.

    True. Zimmer probably would not like the way I look. (Jeans, shorts, and t-shirts are pretty much the uniform around here.)

    To me, what makes this story interesting - what ought to make it a teachable moment for every CEO - is the whole notion of corporate culture and institutional priorities. I know that the Men's Wearhouse board would like to spin it as a case of an aging CEO who simply cannot give up the reins and is making a power grab, but if that's actually the case, it is doing a lousy job of telling its story. In fact, it seems more and more like a board of directors that is more focused on Wall Street and Main Street, that wants to enrich itself at the expense of front line employees, and that does not have a feel for what makes retailing work.

    Another CEO friend of mine is fond of saying that as a corporate leader, "the more you give, the more you get." The Men's Wearhouse case seems to be one in which the board wants to take, not give ... wants to control, not enable ... wants to focus on the short-term bottom line and not the long-term big picture.

    Sure, I'm fixated on the Men's Wearhouse story. It's fascinating. And, if you're in my business, it is the gift that keeps on giving.

    Published on: June 27, 2013

    The Chicago Tribune reports that Paula Deen - the celebrity chef and restaurant owner who is embroiled in a public relations and legal controversy over what appears to be a history of using racial slurs and showing racial insensitivity, has lost several more clients.

    Walmart said yesterday that it is ending its relationship with Deen, and will not order any more of her products beyond what it has already ordered. Caesars Entertainment, which has a Deen restaurant in one of its hotels, also has cut ties with her.

    The Food Network and Smithfield Foods ended their relationships with Deen last week.
    KC's View:
    Asked yesterday by Matt Lauer on "Today" if she understood that the use of the n-word was seen as objectionable by African-Americans, her response was, "I don't know." And then she went on to talk about how young African-Americans in her restaurant kitchens often use that kind of language.

    Here's a tip. Asked that question, there is only one response: "Yes. I know. It is a horrible, hateful word."

    This woman cannot get off the public stage fast enough. (Of course, it is hard to stop watching and writing about her problems. It is like a train wreck that keeps repeating itself every time she opens her mouth.)

    Of course, I'll admit to a high level of intolerance toward people who use this kind of hate speech. In fact, I'm even more intolerant than that ... also on "Today" yesterday, she said ... and I quote ... "I is what I is."

    I would fire her just for that criminal abuse of the English language.

    Published on: June 27, 2013

    The Kroger Co. yesterday published its seventh annual sustainability report, saying that it is "committed to moving retail locations toward 'zero waste' and sourcing 100% certified sustainable palm oil."

    "For 130 years, Kroger has aimed to serve each individual customer, every day, and to be good stewards of our communities and the environment," said David Dillon, Kroger's chairman and chief executive officer. "Our sustainability progress today is part of this proud heritage, thanks to more than 343,000 associates who are helping make each community we serve a better place to live."

    Excerpts:

    • "Kroger is ... moving toward the EPA's Zero Waste threshold of 90%, in all Kroger retail locations. To get there, Kroger will increase the diversion rate to 65% for all stores by the end of 2013, and to 70% by the end of 2015. Today, the company diverts 58% of waste."

    • "Kroger is ... committed to sourcing 100% certified sustainable palm oil by the end of 2015. Kroger is working with supplier partners to transition out of unsustainable palm oil, to help prevent the loss of critical habitats, and support the protection of high conservation value forests."

    • "Kroger's aggressive work to reduce energy, the implementation of a refrigerant management plan and improved fleet productivity has led to a 4.8% reduction in overall carbon footprint -- even as the company grows in size and sales."

    • "Since 2000, Kroger has reduced overall energy consumption in stores by 32.7%. In total, Kroger facilities have saved more than 2.48 billion kWh--that is enough electricity to power every single family home in Columbus, Ohio for one year."

    • "Kroger has increased its fleet efficiency by 33.1% since 2008 and is on track to meet their goal of improved fleet efficiency by 40% by 2014. The company's store delivery fleet includes 2,700 tractors and 10,000 trailers and makes almost 5,400 deliveries every day."
    KC's View:

    Published on: June 27, 2013

    Reuters reports this morning that Anthony Cuti, the former CEO of Duane Reade, and William Tennant, the chain;s former CFO, "lost a bid to have a U.S. appeals court reverse their 2010 convictions on securities fraud ... The 2nd U.S. Circuit Court of Appeals in New York affirmed the convictions and the sentences."
    KC's View:

    Published on: June 27, 2013

    ...will return.
    KC's View: