business news in context, analysis with attitude

Published on: August 15, 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 for the week of August 12, 2013.

I admire chutzpah. Always have.

I also have written over the years about how much I like the subscription model, when companies do their best to lock in the business of their customers by providing automatic replenishment. It has been an enormous success for Amazon with its Subscribe and Save program, and I know that I probably have more than a dozen items that I used to buy at bricks-and-mortar stores and I now subscribe to on Amazon, getting them automatically at specific time increments.

They're often cheaper, but that's not the real attraction ... I just like the idea that there are a bunch of categories that I don't have to think about. I have a kind of subscription to the place where I get a haircut, so I can go in as often as I want and just pay a monthly fee. I have a Netflix subscription, and I would argue that it was by offering subscriptions that Netflix was able to sink the Blockbuster business model. And I have a subscriptions to Starbucks coffee that has two pounds of coffee delivered each month, and even have a Jockey subscription so I can get new packages of underwear every year. (TMI?) And I think there are a lot of people like me.

And now, from California, comes news of another subscription model - for flying. A gentleman named Wade Eyerly has started a business called Surf Air, which he describes as being like Netflix for air travel: pay an initial membership fee of $500, a monthly fee of $1,650, and fly as often as you like to specific locations on six-seat, single-engine turboprops. That's chutzpah.

The New York Times writes that "Surf Air started flying in June, with service between smaller airports in Burbank, Calif., and San Carlos near Palo Alto, tapping into those who do business between Hollywood and Silicon Valley and would prefer to do so without the headaches of major airports. It added service last month to Santa Barbara, Calif., and is considering additional destinations by the end of the year."

The Times goes on to say that "it was not hard to see the lure recently when members arrived and departed from Burbank. It was possible to pull into the small parking lot outside the Atlantic Terminal, which is separate from the main terminal, walk a few dozen steps to the lobby, grab a snack from the concierge cart and walk out on the tarmac to board the plane. There were no tickets, no lines and no body scans. A valet parked the customers’ cars ... It is a pitch to certain kinds of decision makers — the small-business chief executives, the bottom half of the one-percenters, those who have not yet made their fortune but are intent on making their mark. For his customers, Mr. Eyerly hopes Surf Air can be an incubator of ideas, where flights can be dinner parties in the air, where the membership can be a Facebook for entrepreneurs."

As someone who spends months of every year on the road, it isn't hard for me to see the attraction of this business model, though I have no idea of the business model makes any sense.

On the other hand, I don't want to be the old fart who dismisses it out of hand.

Eyerly says that one advantage of the Surf Air business plan is that it will become obvious in 12-18 months if it is going to work. If it does, great. If it doesn't, he'll shut it down and move on to the next idea.

That's a lesson in 21st century business development all by itself. Try lots of things, tap into a defined consumer need or desire, don't be afraid of failure, and work like hell to make sure the concept takes flight. And if doesn't ... well, as Jimmy Buffett sings, Breathe In, Breathe Out, Move On.

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

Published on: August 15, 2013

US News & World Report has a story by Melanie Warner, author of "Pandora's Lunchbox," in which she writes about the issue of transparency, using as her subject the Papa John's pizza chain. Papa John's, she says, makes a big point of the fact that its mission is "to build a better pizza," which means using "fresh, never frozen original dough, all-natural sauce, veggies sliced fresh daily and 100 percent real beef and pork."

Except that this may not be the fact.

"Those 'better ingredients': Good luck finding out what they are. Unlike the packaged products you buy at the supermarket, restaurant food isn't required to list ingredients. Many fast food chains, like McDonald's, Taco Bell and Subway, do voluntarily provide them, in part for indemnity against lawsuits and in part because they realize some of their customers actually want to know what they're eating.

"But not Papa John's. They've decided it's better to keep their ingredients a secret. You won't find any information about them on either the company's website or in stores."

Warner continues:

"By not disclosing what's in its food, Papa John's is revealing that it doesn't think too much of its customers. It is either asking customers for blind trust or assuming people are too stupid and complacent to ask questions. When we do ask questions, they refuse to answer. At least that was my experience, both when I approached Papa John's as a journalist and a customer. This strikes me as a foolish approach in an age when American eaters are demanding more transparency when it comes to food, not less. For some reason, Papa John's has failed to realize that when you hoist your entire brand up on the idea of high-quality food, you'd better be able to back it up."

Papa John's is not the only chain to be guilty of this approach. Warner writes that Olive Garden, Applebee's, Cheesecake Factory, Chili's and TGIF's "are some of the other sit-down chains that also won't tell you what's in their food."

You can read the whole piece here, but here is the essence of her argument:

"Given how dramatically food production has changed in the last half century, Americans deserve to know what they're eating. That's the impetus behind the growing public support for the labeling of GMOs. Even those who are OK with eating genetically modified corn or soy still would like to know about it."

Companies that believe they can avoid being transparent, that they know better than their customers, are guilty of a certain kind of arrogance. Their eyes, in fact, are closed to reality.

Published on: August 15, 2013

Y'know how sometimes you go on a website and you see tile ads for e-commerce sites that you've previously visited, and for products that you've recently perused online?

That's called "retargeted ads." and they are there because of technology that tracks the sites and pages you've visited.

eMarketer.com reports that a survey done by "programmatic buying technology company Adroit Digital and research company Toluna" suggests that close to 60 percent of US online shoppers notice these ads ... and that the majority of these people don't seem to mind them, even though the ads are a reminder of how privacy has been sacrificed to technological advances.

According to the story, "Thirty percent had a positive or very positive reaction to retargeted ads, vs. 11% who felt negatively about them. The greatest percentage, though - 59% - had a neutral reaction. And regardless of their emotional reaction - good or bad - there is no question that some of those web users will ultimately go on to make a purchase once they’ve been reminded of a product."

Published on: August 15, 2013

The Denver Post reports that the Denver City Council is expected to vote on a proposal that would impose a five cent charge for disposable plastic shopping bags handed out by supermarkets ands convenience stores. The five-cent charge is actually less that that imposed by other Colorado cities; Aspen imposed a 20 cent charge two years ago, and Boulder recently imposed a 10 cent charge on paper and plastic bags.

What makes the Colorado situation particularly interesting - some would say vexing - is the state law called the Taxpayer's Bill of Rights, which says that such charges, if they are considered fees, must be used to finance specific services utilized by those paying the charge. If there is no such service, then the charge is considered a tax, and is subject to a popular vote by residents.

Critics suggest that the rationale behind the Denver proposal is "spongy," and that a legal challenge to any imposition of fees is likely.

Published on: August 15, 2013

HJ Heinz Co, recently acquired by Warren Buffett's Berkshire Hathaway and the Brazilian investment firm 3G Capital for $23.3 billion, said yesterday that it is eliminating 600 jobs in the US and Canada, including 350 in its hometown of Pittsburgh - a move that cuts roughly a third of its operation there.

Heinz has pledged that it plans to remain headquartered in Pittsburgh. The company says it is offering severance packages and outplacement services to the people losing their jobs.

Spokesman Michael Mullen tells the Associated Press that the cuts are "intended to enable faster decision-making, increased accountability and accelerated growth."

Published on: August 15, 2013

Advertising Age has a story about Caribou Coffee, which has been retrenching since it closed 80 stores earlier this year and rebranded another 88 under the Peet's Coffee & Tea banner.

Alfredo Martel, Caribou's senior VP-marketing and product management, describes the strategy this way:

"We wanted to heighten our differentiation from Starbucks. And that was big, to really change the color palette, change packaging design, so that our branding would be more differentiated and more cohesive, with the retail as well as CPG. We were a fragmented brand because we didn't quite look the same way across our lines of business. We have continued to innovate around our coffee quality and beverages, and we expanded our line into non-coffee drinks and expanded and elevated our food portfolio significantly from 2010 until now. We've been on the journey of branding differentiation and product differentiation, and now a customer-experience journey, which will be the effort of cohesive branding and value proposition, a cohesive product platform, updated store design and technology ... It's an opportunity to play from a level of strength, rather than a position of playing, 'Hey, we're the little guy and we have to go fight Goliath.' It's an area that's a lot more balanced for us."

Published on: August 15, 2013

Slate.com has a piece by technology writer Farhad Manjoo in which he looks at the Pebble - the smart watch that was designed to connect with smart phones and keep wearers even more connected than ever. The Pebble got a lot of attention - including here on MNB - when it used crowdfunding to pay for the initial manufacturing process:

"Pebble’s Kickstarter campaign met its initial fundraising goal of $100,000 within a couple hours of its launch, and when the campaign closed a month later, Pebble had raised more than $10 million, making it the most-successful pitch in Kickstarter’s history," Manjoo writes. "This mega-popularity overwhelmed the Pebble team; several months of manufacturing delays followed the pitch, and watches that people were expecting in 2012 eventually began shipping in the spring of this year.

"I got a Pebble a couple weeks ago. It wasn’t worth the wait. The watch is bulkier than I expected, it isn’t as useful as I’d hoped, and it’s more than a little buggy. At $150, the Pebble is not very expensive for a wristwatch, but for the same money you could get a smaller, more stylish dumbwatch, and you’d likely be happier with it."

But while the Pebble may not deliver on the promise, Manjoo suggests that the promise remains worth keeping ... and if the folks who make the Pebble have not come up with the idea solution, someone else will.

The piece can be read here.

Published on: August 15, 2013

CBS News reports that Walmart has opened a "miniature" store across from the campus of George Tech in Atlanta, a 2,500 square foot unit that features "a full-service pharmacy, general convenience items and merchandise tailored to the campus."

The story notes that "the Georgia Tech store is the third of its kind. The others are located at the University of Arkansas and Arizona State University."

Published on: August 15, 2013

• The Puget Sound Business Journal reports that Starbucks is saying that it has "opened its 500th Clover brewing location, a $11,000 machine that brews one cup of coffee at a time, and added it wants to double the number of Clover locations worldwide by the end of next year." The company says that the plan is a response to growing consumer demand.

The Clover coffee brewing machine, which uses Starbucks Reserve beans, came to Starbucks in an acquisition it made in 2008 of a small coffee equipment company.


• Metro, the Canadian supermarket retailer, announced that it "will convert about half a dozen Metro stores into Food Basics discount outlets, close between one and three stores, and offer early exit to some employees," according to a Reuters story. And, the company said it "has agreed to operate Target Corp's in-store pharmacies in Quebec."

The story notes that Metro "has been facing competitive pressure, especially in Ontario, as U.S. retailers expand their operations into Canada. U.S.-based Target plans to open its first 25 stores in Quebec this fall."

Published on: August 15, 2013

Yesterday, we posted an email from MNB reader Ray England in which he criticized a New Yorker piece by James Surowiecki referenced here as essentially promoting a Socialist Utopian agenda. (It was in yesterday's "Your Views" .)

I was a little dismissive of his email, commenting:

I don't think that Surowiecki was arguing for a Socialist Utopia, though I imagine that it is easier to demonize an argument by using such a phrase. I think he was just pointing out some structural problems with the economy as it currently exists.

Not everyone agreed with me. One MNB user wrote:

I liked Mr. England’s response, but manufacturing could not or would not have moved off shore if we had not had reverse socialism/free trade.  If our free Trade agreements supported the US way of life, we would have stipulated free trade with countries that allowed their populace to pursue some of the ideals we want for ourselves.  So if Free trade was limited to countries with certain Environmental standards and which allowed their workers the right to organize, the movement would have slowed down.  Instead we have off-shored slave wages, substandard living conditions, environmental degradation and all the associated “costs” of our cheap goods and higher corporate profits - and fewer jobs.

And another reader wrote, in part:

All this talk about fair wages, living wage, and Obama Care has me fired up.

I’m neither a Democrat or a Republican, or a Dooms Day Prepper…yet.  I’m a libertarian which basically means I find fault with both sides of our two party system or at least I trust neither.  One side is all about Big Brother, and Big Government, and the other has Abortion and Christianity as it’s litmus test for admittance.  True Conservatism would embrace all religions, but Right wingers would call that Liberalism?  Our country was founded on religious liberty not Christianity.   The fact that the Republican party has been co-opted by the Religious Right saddens me.  Which party is a fiscally conservative Jew or Hindu going to feel most welcome?  Or maybe a Mormon for that matter!

Kevin, I’m actually frightened by the direction our “leaders” are taking us as a nation.  We are rapidly approaching a tipping point in terms of debt and spending in this country that is going to come home to roost.  Like an earthquake driven tsunami this could escalate rapidly into runaway inflation.  It will be the direct result of the devaluing of our currency by The Fed through Quantitative Easing and the reckless government spending our “leaders” are so in love with to pander for our votes.  We’ve collectively become like the frog in the pot and don’t even realize it.  Don’t people get it?  Don’t they remember the Carter years? This coming financial crisis may make the Carter years feel like the Tea Cup ride at Disneyland and nobody seems to be paying attention, and our “leaders” are too spineless to do anything other than embrace ideology.  Who do you think has more twitter followers Kim Kardashian or Ben Bernake?  The point is America doesn’t care and isn’t paying attention.
 
In my view we do not have an expensive health care system, we have a system with too few people paying and their numbers are dropping.  Each time I hear about corporate layoffs I clutch my wallet knowing that more health care payers are being eliminated and my premiums must go up to compensate.  By placing the burden back on business as sense of ethical corporate responsibility and by taking away the financial incentive to eliminate full time jobs in favor or part time it will ensure that our current health care system is saved and simultaneously more people will be covered and paying for their own coverage.  And with more people paying in prices will drop for everyone and we will get closer to the true price of health care.
 
On top of all that, our tax system is a joke and is costing us money.  It’s too complex to navigate and understand and gives a differential advantage to the lobbyists of large corporations.  It's inherently unfair as it stands today.

As for those who embrace our two party system and love “their” representative because they bring home the bacon.  You are a Kardashian-viewing Frog in a pot!  Relax knowing we have the best government money can buy.
 
In the meantime I’m trying to figure out where to put my 401K money that is inflation proof and still create a return.  Oh and I had to Google "Kardashian" for the spelling!

I don't quite know where to begin, so let me offer just one thought. You should have used Google to find out how to spell "Bernanke."

And Ray Englander offered a response to my commentary:

I appreciate that you take the time to publish views of your readers even when they may differ from your own. I am saddened though that you chose to accuse me of demonizing Mr. Surowiecki’s  argument when I  characterized it as a Socialist Utopia. Facts are facts and in Mr. Surowiecki’s instance I believe he was indeed describing a Socialist Utopia. As I understand the phrase, as Socialist Utopia is described as an environment where revolution of a people is not necessary to bring about social change in order to end to poverty and unemployment; all that is necessary is social pressure and convincing arguments to entice those that have to voluntarily surrender what is theirs to others. In other words, I guess it is a peaceful path to societal embrace of the Marxist Golden Rule; From each according to his means, to each according to his needs. In practice, however; we all know that such a redistribution is done through government intervention. We see it more and more right here in the good ole US of A.
 
If a Social Utopia is not what Mr. Surowiecki was describing, I don’t know what is. Further, I believe one could argue that given Mr. Surowiecki was making his argument via a widely read periodical, that he was attempting to create social pressure in order to convince companies such as McDonalds and Walmart to voluntarily surrender capital (through increased wages) to their employees in order to help bring about the end of poverty through creating a living wage. The result of such an argument if won, places profits and capital under social  rather than personal control. Hence, a Socialist Utopia, or as that dude on Duck Dynasty says. Everybody Happy, Happy.

However, not everybody was buying what Ray England was selling.

MNB user Chuck Jolley wrote:

Ray England seems to be a big fan of Tea Party politics and their rather short-sighted view of economics.  Let me ask this question:  What happens when the majority of American workers are thrust into minimum wage jobs and are faced with a daily struggle to make ends meet?  How will they be able to afford the products big business produces?  Does he remember the Golden Age of the American economy when we had a vibrant and well-paid middle class with the purchasing power required to buy homes, cars, the niceties of every day life?  If he does, he should be reminded that the income spread between the wealthiest and the rest of us was much closer.  With most of the rise in income going to the top 2% and coming out of the pockets of the 98%, maybe it’s time to ask some questions about the evils of income redistribution – from the bottom of the economic curve to the top.  People like him have long moaned about the socialistic evils of income redistribution from the top down; time to look at it as it really is.

And from another reader:

Gee, if I wanted to read “The Conservative agenda 101” with a complete how to on a deregulated economy as our nirvana and national foundation I would just tune into faux news.
Anyone who thinks we can simplify national economic policy statements and their cause and effect into a paragraph or two is not likely  well versed enough to listen to anyway.

Thanks for wasting about 25 lines of text space on that blather from Mr. England.

One person's blather is another person's manifesto.