business news in context, analysis with attitude

Published on: August 22, 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 19, 2013.

This will be the last FaceTime before Labor Day, and so I thought I'd catch up on some stories that have grabbed my attention over the past few weeks but somehow haven't found their way into MNB. And, go figure ... each one reminds me of a movie.

Remember that line from Forrest Gump about how "life is just a box of chocolates, you never know what you;re going to get."

Well, that goes double in the Uk, apparently. There was a story in the Daily Mail there about how teenagers shopping at a Tesco found maggots crawling around inside a box of Cadbury Caramel Nibbles. According to the kids, the maggots smelled of fungus - though to be honest, I have no idea what fungus smells like - and they were disgusted when the maggots started crawling on their hands and clothes. They ran out of the store, as did a whole lot of other customers. That British thing about keeping a stiff upper lip only goes so far...

To be honest, I held off on reporting this story because I was reasonably sure that within a matter of days it would be reported that the maggots actually were put there by the teenagers. But it's been almost a week, and all the media seems to be reporting is that Tesco has apologized for the problem.

I'll bet. It's amazing, though, how the world has changed. When I started out as a newspaper reporter back in the late seventies, I remember a politician I covered telling me that he didn't mind bad stories because "today's newspaper wraps tomorrow's fish." That's a great line, but no longer true ... not only does news stay around forever, but it goes all around the world like a flash. Which is why companies cannot afford to be anything but on top of their games.

I also thought it was interesting to read the story in the New York Times the other day about how some independent bookstores, facing extraordinarily tough competition, have turned to the crowdsourcing trend as a way of staying afloat. From the Times story:

"In San Francisco, a campaign for Adobe Books successfully raised $60,000 on Indiegogo.com in March after the store faced a rent increase and nearly went out of business.

"In Asheville, N.C., the Spellbound Children’s Bookshop collected more than $5,000 when it appealed to customers for help moving to a new location.

"In the Flatiron district of Manhattan, Books of Wonder raised more than $50,000 in an online campaign last fall after the recession and other losses depleted its financial resources."

I'm not sure this is a sustainable business model. But I do think that the idea of tapping into the loyalty of consumers is a smart one, especially for venues like independent bookstores where there is enormous emotional support even as the financial support seems to move over to retailers like Amazon.

It seems to me that what's really important is what happens next ... how do these and other stores convert the short-term donations into long-term consumer support by offering shoppers products and services that the competition cannot. It isn't enough to be local ... you have to be local and better.

Still, it gives me an idea for a sequel to You've Got Mail, a movie that came out only 15 years ago, and yet in terms of how it portrays the book business, now seems hopelessly out of date. it's been a crazy 15 years...

Finally, there was this story from the Times that may partly explain why the US Postal Service is in so much trouble. Apparently, since 2001, the Post Office has been taking pictures of every letter and package mailed in the United States. That's 160 billion photos - last year alone. And then, those photos are provided to law enforcement authorities when they are needed in criminal cases.

Talk about Big Data. Hell, talk about Big Brother.

Which leads me to another movie reference: If you haven't seen it, you need to watch Francis Ford Coppola's 1974 masterpiece, The Conversation, which, amazingly enough, he made in between The Godfather and The Godfather, Part Two. Talk about being on a roll! Today, when issues of personal privacy, national security and corporate overreach are very much in the news, The Conversation looks at themes that are extremely current, even though the movie is almost 40 years old.

And by the way, if you've seen The Conversation, watch it again. it's worth it.

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

Published on: August 22, 2013

Next week is the last week of summer, and as my habit at this time of year, I'm going to be taking a bit of time off and returning on Tuesday, September 3, after the Labor Day weekend.

I'm actually going to start my break a day early, to help my daughter out as she goes off to college on Friday. And next week, I'll be doing something completely different ... I'm driving cross-country with Brian, my 24-year-old son.

After spending two years in beer/wine retailing, Brian has decided to follow two of his passions. One, he's moving to Los Angeles, where the weather is more to his liking than in New England. And, he's decided to pursue his dream of a career in sports marketing, management or media ... which is what he studied in college. (Here's a naked parental plea: If you know anyone in Southern California who would be willing to offer him guidance in these areas, please let me know and I'll pass the info on to Brian.) Next week, we'll be driving cross country, seeing some sights, grabbing at least one baseball game, sampling some local foods and beers, and even visiting some stores.

In years past, I would've simply put MNB on hiatus. But. the reaction earlier this summer to the MNB Interview series was so positive that I've decided to continue it while I'm on the road.

Just to remind you ... the MNB Interview series consists of e-interviews with business thought leaders who I like and respect, and who have something to say. "The MNB Interview," which will run tomorrow and all next week, poses the same 13 questions to six different people, with one luminary featured each day. I sent each person the questions, and requested that they answer at least 10 of them; I told them that their answers could be as short or long as they wished, and as serious or irreverent as they liked. What I was looking for was a window into how they think and feel.

I think the whole project is pretty cool ... and I hope you feel the same way.

BTW ... I won't be completely off the grid as we travel from Connecticut to California. As I did earlier this summer, I'll almost certainly be posting reflections and pictures from our travels on Facebook. I hope you'll join me there, and that you'll welcome me back on September 3.

Published on: August 22, 2013

The Federal Reserve said yesterday that it would appeal the decision by Judge Richard J. Leon of Federal District Court for the District of Columbia that said the Federal Reserve exceeded its authority when it set a 24 cent-per-transaction cap on debit card usage. The Fed had capped fees at 21 cents per transaction, much higher than the initial 12 cent cap it proposed, though half the average of 44 cents per transaction that traditionally has been charged.

Judge Leon also concluded that the card companies may need to reimburse retailers potentially billions of dollars in debit-card transaction fees he previously ruled were set too high.

According to the Times, "The appeal will be a crucial test of the courts’ power to overturn the financial regulations that stemmed from the sweeping banking overhaul after the crisis. In most instances, the courts have sought to change the new rules in ways that favor banks. But in this case, Judge Leon’s decision could diminish a lucrative revenue stream for banks and others. The Fed’s appeal could also stoke criticism that the central bank makes unnecessary concessions to the banking industry ... On Wednesday, it became clear that there was a potential outcome from the case that retailers would particularly want to avoid. If the Fed’s current rule ceases to have effect because of Judge Leon’s actions and the Fed puts nothing in its place, the banks would theoretically be free to increase fees above 21 cents a transaction. Representatives for both the banks and retailers said they favored a continuation of the 21-cent status quo while the case plays out."

Published on: August 22, 2013

Crain's New York Business reports that the New York City Council plans to introduce this week a bill that would mandate the city's supermarkets "to charge 10 cents for each paper or plastic bag they give customers." The bill, the story notes, is opposed by some in the business community and favored by environmental groups.

The goal of the bill, Crain's writes, is "to dramatically reduce the 100,000 tons of plastic bags that the city sends to landfills each year. The New York City Office of Management and Budget says that New Yorkers annually use 5.2 billion carryout bags, the vast majority of which are not recycled.

"The legislation aims to alter the behavior of city consumers, who would be able avoid the 10-cent charges by bringing their own bags when they go shopping. Los Angeles, Washington, San Francisco and other cities have already implemented measures to cut down on plastic-bag consumption and have seen reductions of 60% to 90% in waste. The New York bill borrows from other cities' bills but does not replicate any one of them."

Examples of the opposition points of view:

"We're adamantly opposed to this," says Brad Gerstman, of the New York Association of Grocery Stores. "It's a tax on small businesses and their customers, and it's insane at this juncture to further incentivize customers to go shopping in a different city or state."

"A 10-cent-per-bag tax would be a detriment to hardworking families and businesses trying to make ends meet," says Mark Daniels, chairman of the American Progressive Bag Alliance. "The proponents of this bill are misinformed and largely rely on science that has been hijacked by environmental activists."

The story notes that "in 2008, Mr. Bloomberg tried to impose a tax of six cents per plastic bag, but the measure failed amid opposition from consumers and retailers. Instead, New York passed a law requiring medium-sized chain businesses and stores over 5,000 square feet to recycle plastic bags returned by consumers ... With an environmentally-friendly City Council and Mayor Michael Bloomberg leaving office at the end of 2013, advocates of the bill are looking to get it passed this year."

Published on: August 22, 2013

The Wall Street Journal reports on how Whole Foods is challenging conventional wisdom about its "whole paycheck" image, "increasingly emulating the discount tactics used by traditional supermarkets ... One of the chain's latest initiatives: nationwide "flash" sales on specific items promoted on Twitter and Facebook that run for just a few hours, like a five-hour buy-one-get-one-free deal on ice cream last month. The chain also is increasing one-day sales on items like salmon, blueberries and organic chicken to 17 this fiscal year, from 14 last year."

At the same time, the story says, Whole Foods "is moving beyond the realm of grass-fed beef with more lower-priced items like frozen meatballs and vacuum-packed fish fillets," has "added more conventional fruits and vegetables at lower prices than the organic offerings," and is "opening new stores in smaller markets, suburbs and lower-income urban areas."

Published on: August 22, 2013

Bloomberg Businessweek reports that Walmart is eliminating the $5 fee charged to customers who want to use its layaway program during the upcoming end-of-year holiday shopping season.

According to the story, "The holiday layaway program is slated to kick off Sept. 13 and will last until Dec. 13. About 35,500 items will be available, 1,000 more than a year ago. At the same time, Wal-Mart is bringing back its $10 cancellation fee that was eliminated last year."

Walmart revived its layaway program in 2011, five years after having phased it out, as a response to what it saw as a recession-driven slowdown in consumer spending.

Published on: August 22, 2013

James Surowiecki, the business writer for The New Yorker, has a piece in this week's issue about the economic impact of low-priced lobster, noting that market forces are impacting lobstermen and the restaurant industry in very different ways.

I didn't know much about this subject; all I know is that the price of lobster at Stew Leonard's lately has been as low as I've ever seen it. But I found it to be interesting ... and thought you might, too.

You can read the story here.

Published on: August 22, 2013

• Reuters reports that Massmart, the South African retailer that is majority owned by Walmart, "plans to open 90 stores in the next three years." CEO Grant Pattison says that most of the new stores would be in South Africa, where debt-laden consumers are reining on spending, while 10 to 15 stores would be opened on the rest of continent."

Walmart has been reported to be interested in acquiring other African retailers as it looks to expand its presence on the continent.

Published on: August 22, 2013

...with brief, occasional, italicized and sometimes gratuitous commentary...

• Bristol Farms opened its newest and 13th store yesterday, on Wilshire Blvd. in Santa Monica, California, offering local shoppers what CEO Kevin Davis says is "all the bells and whistles of a regular Bristol Farms with an expanded everyday grocery section that allows for all of your every day shopping needs."

I love watching Bristol Farms grow ... terrific company, smart management, and now, freed from the shackles of Albertsons ownership, able to chart its own course.

• In Indiana, the Star Press reports that Kroger plans to open one of its discount-driven, limited assortment Ruler Foods formats in Muncie by the end of September. The story notes that Kroger has not had a store in Muncie since it closed its unit there in 1973.

The store is the 22nd Ruler Foods to be opened by Kroger.


• The New York Times has a piece about how a California company, Revolution Foods, is creating a line of Meal Kits designed to challenge the Lunchables brand, but to do so with healthier items that will satisfy consumer nutrition concerns.

It is a significant business. Despite complaints that Lunchables have too much fat, sugar and preservatives, the line generates more than a billion dollars a year in sales.


• New York-based Fairway Markets said yesterday that customers with hearing loss now can place orders at the Broadway store's deli counter with greater ease, thanks to the installation of a hearing loop." The hearing loop, the company says, "works with an individual's telecoil-equipped hearing instrument or cochlear implant. The person behind the deli counter will speak into a microphone that is connected to the hearing loop, which transmits the signal (speech) wirelessly to the T coil. The system blocks out ambient background noise and amplifies the clerk's voice, making everything clearer."

Fairway said that it is the first supermarket in New York City to install this technology.


• The United Family announced "the launch of a texting program designed to enhance shopping experiences" at its United Supermarkets, Market Street and Amigos supermarkets. "Guests who opt-in to the texting program will receive product information and savings opportunities they can use instantly."
 
“Our new mobile alert program will provide guests with special offers and product information while at home, on-the-go or even inside our stores,” says Jennifer Nanz, digital media manager for The United Family. “As our guests turn to their mobile phones for relevant news and deals, we want to be sure they receive value-added offers that enhance their shopping experience at our stores.”

Published on: August 22, 2013

Responding to our story about how Amazon is taking on fulfillment duties for the magazines published by Conde Nast, one MNB user wrote:

Amazon is going to manage Conde Nast's digital and print subscription process. Didn't Amazon do the online work for Borders' Books? How did that work out? For Borders' Books that is.

Not well. Point taken.




Got the following email from MNB user Stan Barrett:

Just dropped off son at college - had the choice of a Wal-mart vs. Target to do some last-minute shopping.  Not knowing the town, we picked the closest one - WalMart.  Later we went to Target, where we should have gone in the first place.  Walmart - haphazard shelf sets, merchandise piled high in aisles, no room for more than one cart in an aisle, poor lighting, carts scattered all over the parking lot, etc.  Target - well lit, wide aisles, all “college stuff” in one section, carts back in store where they belong.  Prices - roughly the same.  Summary - well, next time we will just go to Target.
 
I think that explains most Wal-Mart issues……I know that in some areas they have nice, organized stores, but this was not the case here.




Responding to an email yesterday that accused me of being snarky when I wrote that 20 companies' 5-year, $45 million commitment to upgrade safety problems at foreign factories constituted a "shallow" response, I wrote:

A $45 million commitment by 20 companies over five years amounts to about $450,000 a year apiece, or a little more than a thousand bucks a day per company. For some, that's a rounding error. Or a mediocre bribe to a foreign official. (Sorry. That was a cheap shot. Couldn't help myself.)

Which prompted MNB reader Brian Blank to write:

Kevin, you should be ashamed of your comment that $450,000 a year is a “mediocre bribe to a foreign official”!
 
$450,000 would be a mediocre bribe to a DOMESTIC official.  In a locale such as Bangladesh, that sum would qualify as riches beyond measure.  (Now, if that sum needs to be spread around to bribe a number of officials and not just one…)

Good point.




We had a piece yesterday about Amazon's warehouse building spree, and what that could mean down the road. Which led one MNB user to write:

Relative to your own story today ... (And, I love Amazon.) How many retail jobs are dying because of their lower pricing and efficiency? I never thought I’d see Barnes & Noble on the brink of bankruptcy. People aren’t paying for newspapers anymore or magazines. Those are more jobs gone. A living wage is actually less of an issue than the fact that entire sectors of jobs for the middle class are disappearing. And, I’m part of the problem because I’m interested in what Amazon is doing and will take advantage of their warehouses being nearby.




We've had a lot of stories about WinCo lately, prompting one MNB user to write:

I have called on WinCo since they were called Waremart in 1973. I am with a large CPG company and my company sales have grown exponentially over the past 40 years. I have been reading all the articles that you have written about, and the comments that your readers have made about Winco. The one thing that that really stands out from what I have seen over the years is the commitment that Winco has made not only to their employees, but to the vendors and the salespeople who call on them. They have been very loyal to those companies and the people who have been calling on them since their humble beginnings when the customer wrote the prices on the grocery articles with a grease pencil and pushed around big carts.

There are many reasons that people have written about as why Winco has been successful, but the one thing that I have not seen is anything written about the quality of their executive management over the years. Bill Long the retired Chairman and CEO, Scott Preece, former COO and President, Gary Pivas, former CFO, now, Chairman of the Board, Dave Strausborger, the VP of Promotional Buying, and many other VP’s set the cornerstone for today’s success of Winco.  They all had or have values, principles, honesty, integrity, focus on the customer, a vision that they instilled in all of their employees, and the ESOP program that fostered these common values helped to grow a culture that I have not seen in very many grocery companies. From day one, the new employees are engaged in embracing the Winco culture. Not like drinking Kool-Aid, but a culture that shows that any employee can be successful and work their way up the ladder into management positions if they work hard. Winco has people in place to recognize these people and then they work them into MIT programs. Lots of opportunities for the ladies and the guys with Winco.
 
The current CEO Steven Goddard and COO, and EVP, Rich Charrier are continuing to lead their company and the employees into one of the finest companies in the food industry in the US. Those of us who have watched this company grow into what it has become have been on one heck of a great ride with Winco. The great ride is not over, hang on., as Winco truly is a Winning Company.

MNB user John Coan wrote:

It is hard to compare an employee owned company like WinCo to a public company like Wal-Mart from an employee satisfaction standpoint. WinCo has certainly fostered the ownership behavior and culture with their employee owners. On average an employee owned company outperforms non-employee owned companies by 11 to 12%.

You're right, it is hard to compare. But not in the way I think you mean.





On the subject that has taken up a lot of attention here on MNB over the past few weeks, one MNB user wrote:

I love the back and forth going on regarding the living wage issue. I especially loved the email form MNB reader Chuck Jolley.

Chuck ended his email with this: “Do Sam’s Club and Walmart get a free pass on dipping into what amounts to corporate welfare to help pay their employees?”

That my friends is the question.

We have options as a society which in my mind are as simple as this.

Would you like to:

A - legislate a living wage - say $15 an hour

or

B - continue to let low wage employers hire people at low hourly wage and let government safety net programs take care of them?
 
If you picked B, let them pay whatever they want and let the low wage earners draw welfare, food stamps and healthcare because they are poor then answer this question.

Who is paying for the Government safety net programs? Last time I checked all of us are.

Me personally I’d rather legislate a living wage, get them off government assistance programs and deal with whatever inflationary implications are created.

Henry Ford nailed it…people making more are going to spend more. Our economy will benefit from that.

In my opinion this issue is a core tenant of how we strengthen the middle class in our country. I believe a stronger middle class will make for a very vibrant economy and much larger tax revenue stream.

So think about it this way  – if we legislate a living wage we can REDUCE SPENDING on assistance programs and our income tax revenues will GO UP!

That sounds like (part of) a recipe for reducing the deficit and potentially the debt we all own.

It’s never just as easy as “stay out of business’s way." Staying out of the way has created a working poor that we ALL are subsidizing through tax dollars.

Meanwhile the worst of the worst paying employers get the biggest pass…and that is not the American way and sure as hell is not what conservatives claim to be all about.

From another reader:

According to Payscale the median salary of a Wal-Mart associate is $22,400.  Wal-Mart has 2.1 Million employees worldwide and 1.4 Million in the US alone.  Let’s take look at the numbers.

• 700,000 US people at or below $22,400
• ~$15 Billion in wages to the bottom half
• Mike Duke’s 2012 Compensation: $23.5 Million

If Mike Duke gave his entire salary to the bottom half of paid employees, an associate’s compensation would increase $33.57 for the entire year or less than 65 cents a week.

I don't think I've suggested that Mike Duke's salary should simply be redistributed. My broader argument is about whether some corporations ought to have a different perspective on the wage issue. Do higher wages only lead to lower revenue and profits? Or, can higher wages actually lead to greater productivity and efficiency? And, when you add the potentially damaging effects of income disparity in this country to the equation, does that mean that there needs to be a fundamental rethinking of this issue?

I think these are questions worth addressing.

From another reader:

My argument on a highly increased minimum wage is simply this; if I owned a company that made widgets and I paid the minimum $15.00 p/h and my competition from across the sea somewhere paid their workers .50 cents an hour to make same widgets. Which one would Walmart buy and sell for the lowest retail? Which one would the American shopper buy? Nine times out of ten lowest retail wins, which simply explains why Walmart is so powerful.

MNB reader John Kopecky wrote:

It’s real simple;  If you don’t like what you are being paid and think you can do better, QUIT and look for another job!!!  Stop trying to run someone else’s business.  If you REALLY think you are worth double what you are being paid, go out and test the market.  Everyone wants to make twice the amount they are being paid.  I want twice the pay, too.  I wish you a lotta luck.

I understand your point of view, but I think it oversimplifies and even misstates the issue.

From still another reader:

Yesterday, a friend of mine shared a link on FB titled "McBulls**t" in support of a nationwide boycott of McDonalds for "forcing workers to smile at customers and pretend they're happy about being paid minimum wage in horrific conditions with no sick days and no healthcare." 

How true that is, I don't know. Employees are certainly free to peacefully protest and seek better wages and conditions. However, when they are performing their duties, doing so enthusiastically and with competence while smiling at customers are not unreasonable standards for any employer to set. The surest way to ensure that you are paid the minimum, whatever that may be, is to do the minimum with a lousy attitude. Let's raise the minimum wage high enough so that miserable service and incompetence will still pay the bills. 

In this age where EVERYONE on every team gets a trophy, maybe that's the goal.

I would absolutely agree with the notion that if you are working for a company and accepting a paycheck, you have a responsibility to do your job right - to be enthusiastic, cheerful, and competent. Mrs. Content Guy went to the local Staples the other day and had to listen to a checkout person tell her about how much she hated her manager and disliked her job. This isn't a wage issue. It is a character issue. (Though I think questions could legitimately be asked about how she managed to keep her job, and whether her manager has any clue about howe she comports herself.)

And, from another reader:

While it is a stretch to say you are supporting legislation for a living wage, I would certainly infer from the “companies should do the right thing” reference that you support the principle of higher wages than what legislation (we do have a minimum wage!) already exists.  This is the conundrum.  We do have legislation and what is being debated in the grand scheme is what should the minimum wage be?  As the MNB debate has raged on, our online community correctly acknowledges that this is far from an easy answer.

Does a low wage earner who is a head of household have a need for greater earnings?  Does a high school student working the same job have an identical need?  Is income equality in every location in the United States necessary?  Clearly, we have seen instances where companies have elected to pay more under the “right thing to do” principle and they have been greatly rewarded with more productivity, less absenteeism and far less turnover.  This has largely offset the cost of the higher wages. 
 
Would the same hold true if an across the board wage increase was legislated?  I have great concerns.  And because of that, the cost of goods would likely rise rapidly which would all but negate the impact of the higher wages. 
 
I’m sensitive to the issue.  When my son got his first job at minimum wage, I did some quick math on his buying power relative to what my buying power was many years ago at the same minimum and I quickly came to the conclusion that inflation has outpaced minimum wage growth (I had to work roughly 25 minutes for a gallon of gas while he had to work 35 minutes for the same gallon).  So what happened?  He discovered that a local grocery store was paying more than minimum wage and quickly applied.  With some retail experience, he was immediately hired and has caught up.  In other words, the free market worked.

Agreed. As I've said, I prefer a free market solution to this problem.

MNB user James P. Scher wrote:

One comment that I think has probably been said many times is that if you pay people a fair wage they can live on and feel good about they will be better, more dedicated and more loyal.  We all know the cost of inconsistency and the cost to replace employees.
 
Another comment that I do not think I have heard yet would be, why don’t we consider a tiered wage system that is not based upon the business (e.g. Walmart in D.C.) but based upon life stage.  I have a hard time arguing that your average 16 year old really needs an increase in his minimum wage or that she needs health insurance provided by their employer.  However, there is, in my mind, very little doubt that the 24 year old mother supporting (trying) needs and deserves both a higher wage and health benefits of some sort.  Perhaps this is a potential compromise that would make more sense all around.

And, for the last word in "Your Views" until after Labor Day, we turn to MNB reader Marty Gillen:

Kevin,  you've really stirred things up with some people.  I for one understand what you are saying and what you are doing.  I agree with you.

That being said, and this is a little tongue in cheek, what has really got my goat these days is this:

Double Stuff Oreos really do not have double the icing or white stuff than regular Oreos.

Ritz Crackers have recently been downsized to 13.7 ounces per package from 15.1 ounces but the price is the same.  I understand this is being done to maintain margins and keep retail prices from going up, but gee whiz.

What is this world coming to?

Good question. I'll ponder that as we hit the road....