business news in context, analysis with attitude

Published on: October 9, 2013

by Kevin Coupe

USA Today reports on a poll conducted by Bookish finding that "40% of adults — including 46% of those ages 18 to 39 — own an e-reader or a tablet. That's more than double the numbers less than two years ago.

"Reading devices are even more popular among college graduates (60% say they have one) and those with annual household incomes of at least $75,000 (62%).

"According to the poll, 35% of those with reading devices say they're reading more books since they got their reading devices."

This is reality.

There will be folks who will say that somehow reading on tablets is somehow morally inferior to reading a physical book. There will be folks who say that shopping in a physical bookstore is a better, more personal experience than shopping for them online. And there are those who will argue that this is a pitched battle of values, and want to hold back what they see as a violent, unfriendly technological storm.

All of which I think is nonsense.

Reading is reading. Business models change, technologies change, and shopper priorities change.

This is a competition of preferences, not a battle of values. To cast it any other way is to be in denial about how the world works.

And I would argue that the challenge to physical bookstores is to find new ways to compete, not to simply rage against the dying of the light.

Compete is a verb. (Haven't said that for a while.)

Published on: October 9, 2013

Bi-Lo Holdings announced yesterday that when it closes on its acquisition of Sweetbay, Reid's and Harveys stores from Delhaize, it intends to convert the Sweetbay stores to the Winn-Dixie banner and the Reid's stores to the Bi-Lo name.

The company said that it intends to keep the Harveys banner, though some of the stores using that banner could be changed to the Winn-Dixie or Bi-Lo name.

According to the company, "The transitioning of Sweetbay and Reid's stores to Winn-Dixie and BI-LO banners respectively is to reduce overlapping footprints. There is little overlap between BI-LO, Winn-Dixie and Harveys stores. Through this transaction, we will be able to provide our great products at a great value to a broader base of customers."

The transaction is expected to close in the first quarter of 2014. Bi-Lo said in May that it has a deal to acquire the three chains from Delhaize for $265 million.

The Tampa Bay Times writes that "Sweetbay has had a prominent spot in the marketplace since 2004, when Tampa's Kash n' Karry changed its name to Sweetbay as part of plans to remodel stores, expand product selection and create a customer-friendly culture. The name comes from a type of magnolia tree.

"But caught between customer service-oriented Publix and value-driven Walmart, Sweetbay still struggled to find its niche and gradually lost market share. In January, Sweetbay said it was closing 33 underperforming stores in Florida, including 22 in the Tampa Bay area."

Published on: October 9, 2013

The Financial Times reports that Walmart has decided to bail out of its joint venture with Bharti Enterprises in India, a move that comes "in the aftermath of a series of regulatory investigations and concerns over international investment rules for the country’s retail sector."

By buying out Bharti's 50 percent position in the venture, Walmart will now have sole ownership of 20 wholesale stores in India and will focus only on wholesale operations there, ignoring for the time being the retail side of the business. FT notes that this decision "is likely to be seen as a further blow to attempts by India’s government to attract major global retailers into the country." The Indian government last year "changed regulations to allow international supermarket groups to own up to 51 per cent of their Indian operations, but no major grocery chains have taken advantage of the opening. Walmart has complained frequently about restrictions under the new ownership rules."

Once the business divorce has been finalized, Bharti will have, among many other interests, a chain of Easy Day-brand convenience stores.

Published on: October 9, 2013

Amazon.com announced yesterday that it has created a new service "that streamlines how customers transact with online merchants. 'Login and Pay with Amazon' allows participating companies to empower customers to go from browsing to buying in just a few clicks using their Amazon account information." The program "helps replace guest checkouts with recognized customers, leading to improved services which could include: managing and tracking orders, purchase history detail, special discounts, instant access to shipping addresses and payment methods."

"Amazon has more than 215 million active customer accounts," says Tom Taylor, VP-Amazon Payments. "Login and Pay with Amazon enables companies to make millions of our customers their customers by inviting online shoppers with Amazon credentials to access their account information safely and securely with a single login."

USA Today writes this morning that "the new service is a direct challenge to PayPal, which currently dominates the online payment business with a long-running service that lets consumers buy on websites using their existing PayPal credentials.

"PayPal has managed to fend off multiple challengers over the years, however, Amazon's massive existing customer base and the account information it has stored on these shoppers may be a big draw for some other online retailers."

Meanwhile, Time reports that PayPal is offering its customers free two-day shipping, with no annual fee ... hoping to compete with Amazon Prime, which offers two-day shipping for an annual fee: "Shoppers who make purchases with the websites for participating retailers - there are nine total, including Sports Authority, Levi’s, Aeropostale, Dockers, and PBS - automatically get free two-day shipping within the U.S. when they use PayPal at checkout. No minimum purchase is required."

Published on: October 9, 2013

Advertising Age reports on what it calls a "big movement," described as "an insurgent group of digitally enabled entrepreneurs gnawing away at the dominance of multibillion-dollar brands and their giant marketing budgets."

According to the story, "Small and midsize firms took 1.6 share points, or nearly $10 billion in sales, from the packaged-goods behemoths over three post-recession years from 2009 to 2012, according to a report from IRI and Boston Consulting Group. The smaller the players, the bigger the impact: Companies with sales of less than $100 million gained the most and the share shift accelerated over time."

The story goes on: "That the little guys are making a big impact in an industry long dominated by giants like Procter & Gamble Co. and Unilever is puzzling to say the least. After all, bigger companies have major scale-based cost advantages in manufacturing, distribution and marketing.
"Much of the credit for smaller brands' ability to break through goes to digital disruption in media and retailing, though a host of other factors also figure in, according to industry executives and observers. Those range from the natural agility of small players to changing consumer tastes and the tendency of the massive CPGs to cut off their smaller businesses."

While e-commerce is a piece of the puzzle, allowing small players to have a retail presence at a fraction of the cost of a physical store or to even cut out traditional retailers by going consumer-direct, there also is a sense that smaller companies are simply more open to new players, new ideas, and new approaches to business: "The democratizing effect of social media and the impact of e-commerce likely play a role in smaller players gaining ground. But other changes in the retail environment can't be discounted.

"Take beauty-only retailers such as Ulta and Sephora, each with sales of more than $2 billion annually and growing far faster than the rest of beauty retailing. Several industry players say those chains, whose data aren't included in IRI numbers, are far friendlier than others toward startup brands, frequently adopting and merchandising them aggressively under exclusive deals."

And, the story concludes: "Maybe the biggest advantage for small brands is a willingness to zig away from the strategic and creative zags of category titans."

You can read the entire piece here.

And you should.

Published on: October 9, 2013

The Chicago Sun Times has a story about the 11th Mariano's store in the Chicago area, in the city's South Loop just a quarter mile from the northern border of Chinatown, which offers specialty products that the company believes will appeal to ethnic audiences as well as to nearby yuppies.

CEO Bob Mariano says that "the new inventory isn’t just a matter of making a splash, but a product of research. Mariano says he spent five years planning the South Loop location, visiting nearby restaurants, butcher shops and specialty stores to assess demand for inventory."

The story goes on to say that "Mariano and his upmarket competitors like Whole Foods have transformed the local grocery market by assessing the new intersection between quality and price. According to a recent report by Mid-America Real Estate, square footage for gourmet stores in the Chicago area increased by 60 percent in the past two years. Meanwhile, the square footage for traditional grocers dropped by more than 5 percent in the same time period ... Mariano remains careful to maintain the perception that his stores are not for gourmands alone."

Published on: October 9, 2013

• Bloomberg reports that Amazon is building three new logistics centers in Poland, employing 6,000 permanent employees, designed "to build capacity for further expansion in Europe ... Poland’s central location in Europe, proximity to Amazon’s European clients and access to a skilled workforce were among the reasons for Amazon’s investment decision, Tim Collins, director of retailer’s European operations, told reporters at news conference in Warsaw. Amazon won’t close any of its existing European logistic infrastructure, he said."

According to the story, "The three sites will be integrated into the network of 25 centers in Europe as part of an expansion strategy to serve customers in every European country, including Russia and Ukraine, Collins said. He declined to disclose the value of Amazon’s planned investment, saying only it would be in the 'hundreds of millions of euros'."

Published on: October 9, 2013

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

• The Cincinnati Business Courier reports that Kroger does not expect the current shutdown of the federal government to affect the timing of its planned acquisition of Harris Teeter, which has to be approved by the Federal Trade Commission (FTC).

According to the story, the FTC "said in a document explaining its government shutdown contingency plans that it will continue to investigate antitrust implications of acquisitions even though the government is closed."

According to some folks, the shutdown isn't really affecting anything. And defaulting on the debt won't really happen, or won't really affect anything.

As Ernest Hemingway's Jake Barnes says in "The Sun Also Rises" ... Isn't it pretty to think so?"


• Jos. A. Bank has offered to acquire Men's Wearhouse for about $2.3 billion, an offer that Men's Wearhouse says it is considering.

Jos. A. Bank has more than 600 stores and a market value of $1.17 billion; Men's Wearhouse has more than 1,100 stores and a market value of about $1.68 billion.

It has been an eventful year for Men's Wearhouse. This past summer, George Zimmer, the founder, former CEO and spokesman for the company, was deposed by the board of directors after conceding that there 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. 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."

Judge for yourself whether it seems like Men's Wearhouse's board might find the buyout offer to be attractive. I don't know enough about the business to be sure, but it certainly seems to me like an offer that is priced with a 36 percent premium over current stock value might be seen as welcome.


• Bloomberg reports that Starbucks, looking to "encourage the U.S. government to reach a solution to the shutdown and pending debt crisis," is launching a "pay it forward" promotion that will run through Friday - buy someone else their favorite drink and receive a free tall drink for free.

“This is a different yet authentic way Starbucks can help our fellow citizens to come together by supporting one another during a particularly challenging time," wrote company CEO Howard Schultz in a memo to employees.

In other Starbucks news, the company has officially opened a $70 million factory in Southern California that "will be able to churn out 140,000 gallons of Evolution Fresh juice each week ... The Rancho Cucamonga facility will be Starbucks’ sixth manufacturing site in the U.S. and its first in California. The factory will also be the company’s only plant focusing on juice, made with ingredients mostly sourced from within 200 miles."


• Bloomberg reports that there has been yet another garment factory in Bangladesh, killing at least nine people and causing sever damage at a facility that provided product to Loblaws and Hudson's Bay Co.

According to the story, "Bangladesh’s garment industry expansion has been marred by factories operated in buildings with poor electrical wiring, an insufficient number of exits and little fire-fighting equipment. That has put pressure on international retailers to improve work conditions. Last month, thousands of garment factory workers staged violent protests, seeking to more than double their monthly pay to $104 and forcing about 400 of the country’s 5,000 garment factories to close."


• The Los Angeles Times reports that a "salmonella outbreak in Foster Farms chicken contains several antibiotic-resistant strains that may explain an unusually high rate of hospitalization. The Centers for Disease Control and Prevention said Tuesday that some salmonella strains found in the outbreak were resistant to one or more drugs -- and that 42% of those sickened have been hospitalized ... The U.S. Department of Agriculture issued a public health alert Monday linking some raw chicken products produced in California to a salmonella outbreak.

"The agency’s Food Safety and Inspection Service found chicken produced by Foster Farms at three California facilities with strains of Salmonella Heidelberg. So far, 278 illnesses have been reported in 18 states, with 77% of those cases occurring in California, according to the CDC."


• Wegmans Food Markets said this week that it is offering early retirement - a severance package that gives select employees two weeks pay for every year they have worked for the company - to store workers in New York State who have worked for the company for at least 15 years and are at least 58 years old.

Health insurance for workers who take the deal will be continued for six months, with Wegmans paying 85 percent of the cost, as it does today.


• Ahold-owned Peapod said that it is now sourcing organic, aquaponic produce from Farmedhere, an indoor, urban grower that offers product sourced within 15 miles of the city and within 24 hours of being harvested.

According to the Farmedhere website, "Our vertical growing technology and local distribution methods reduce energy use, travel time and costs tremendously, making this model one of the most sustainable ways to guarantee access to fresh, healthy produce in city centers, in any season. On average a head of lettuce travels 1,200 miles to reach your plate, our greens travel just across Chicago, which is why they’re the freshest."


• Lund Food Holdings, Inc., parent company of Lunds and Byerly’s, announced its purchase of Village Market, a 35,000-square-foot grocery store located at 16731 Highway 13 in Prior Lake. The store is currently being reset with Lunds’ product selection and rebranded as Lunds Prior Lake.
 
“This is a great opportunity for us to grow our family of employees and extend our brand into an area of the Twin Cities where we previously lacked a presence,” said Tres Lund, president/CEO. “We look forward to providing Village Market customers with our brand of quality, service and expertise.”

Published on: October 9, 2013

...will return.

Published on: October 9, 2013

In Major League Baseball, the Boston Red Sox beat the Tampa Bay Rays 3-1, winning its best-of-five game American League Divisional Series 3-1 and moving on to the AL Championship Series.

And, the Detroit Tigers defeated the Oakland Athletics 8-6, drawing even at two games a piece in its best-of-five ALDS playoffs.