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    Published on: February 20, 2014

    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.

    There was a story the other day in the Seattle Times about a venture capitalist named Nick Hanauer, who turned a $45,000 investment in Amazon, made in the company's early days, into more than $100 million when he finally sold it.

    The story, however, was not about that so much as it was about Hanauer's belief that the US needs a national minimum wage of $15 per hour. But in the context of the discussion about wages, Hanauer made the statement that he believes that Amazon has not created any jobs, and in fact may have destroyed a million jobs as it has grown, most of them in the businesses and industries that it has disrupted.

    That number may or may not be accurate. If it is only 50 percent accurate, that alone would be worth taking note of, and I suspect that in coming years, Amazon may have to deal with some of the same job destruction issues that Walmart has dealt with for years. That's one of the things that happens when big companies get bigger and more efficient and effective … it is not the most pleasant of consequences, but it may be the inevitable collateral damage of progress.

    I'm not here to defend job destruction strategies, but I do think that such things always have happened. In the movie Other People's Money, Danny DeVito plays a venture capitalist who essentially asks the question, what good is it to be the world's best buggy whip manufacturer in a world that no longer needs buggy whips?

    The answer is, not good at all. The people who made buggy whips had to find new jobs, develop new skills, create new careers. They were helped out some by private industry, and some through public policies that helped them achieve some level of relevance. But mostly, they became relevant because they were willing to see that the world had changed, and they had to change with it.

    As I say, I'm not defending Amazon. It just happens to be better at what it does than almost anyone else, and disruption often is not a localized event … it can be big and powerful and, by its very nature, seismic in nature.

    We can't expect Amazon or any other company to inhibit progress. We can just look for the new opportunities and find ways to take advantage of them, and remember that the process never, ever stops.

    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: February 20, 2014

    by Kevin Coupe

    What is it about fast food pizza parlor employees and their sense of personal hygiene?

    A few years ago, we had the Domino's employees who decided to pick their noses and put the nasal mucus on pizzas … and not only record the event, but post it on YouTube.

    And now, we have a Pizza Hut district manager who decided to urinate into a back room sink normally used to wash utensils. The moment was caught for posterity by a local TV station news crew.

    The man has been fired, and the company maintains that no food tampering took place.

    "First of all, we are embarrassed by the actions of this individual," Pizza Hut said in a statement. "Pizza Hut has zero tolerance for violations of our operating standards, and the local owner of the restaurant took immediate action and terminated the employee involved … We follow strict safety and handling procedures and the restaurant has since been closed. We apologize to our customers of Kermit, West Virginia, and those in our system who have been let down by this situation."

    USA Today reports that this Pizza Hut has been closed and will remain so until completely sanitized and certified as such by local health officials.

    I don't even know where to start with this one. These actions are disgusting and incomprehensible on all sorts of levels.

    But I cannot help but wonder the following:

    Who the hell are these people? How were they raised? What were they thinking? And what is it in their lives and their jobs that made them think that such behavior was in any way okay?

    Such behavior may be an Eye-Opener. But mostly, it makes me want to close my eyes and shake my head.
    KC's View:

    Published on: February 20, 2014

    Safeway Inc. confirmed yesterday that it is engaged in talks to sell the company, either piecemeal or as a whole.

    Among the companies mentioned in various reports are CVC Capital Partners and Leonard Green & Partners, who also have a joint ownership position in BJ's Wholesale Club, and Cerberus Capital Management, which has a majority ownership position in Albertsons and which was first rumored to be interested in Safeway back in October.

    Safeway has hired Goldman Sachs to assist in the process. Bloomberg notes that "KKR & Co. bought Safeway in 1986 for about $4.3 billion, according to data compiled by Bloomberg. The retailer went public in 1990."

    The Los Angeles Times reports that last year, Safeway "decided to exit the Chicago market and sell its Canadian operations. It raised $230 million through an initial public offering of its gift card provider, Blackhawk Network Holdings. The company said Wednesday it planned to distribute its remaining 37.8 million shares in Blackhawk to Safeway shareholders."

    Safeway says that no deal is imminent, and that there is no guarantee in the end that any sale will take place.
    KC's View:
    Where there is smoke, there almost assuredly is fire. The only question seems to be whether Safeway will continue to be an entity, or will be broken up for parts. It is just a matter of time.

    Published on: February 20, 2014

    The Washington Post reports that a new analysis from the nonpartisan Congressional Budget Office (CBO) suggests that an increase in the federal minimum wage to $10.10 per hour would have mixed results - it "would increase earnings for 16.5 million low-wage Americans but cost the nation about 500,000 jobs."

    According to the story, "The higher wages would lift about 900,000 people out of poverty, the report said. But the CBO warned that raising the minimum wage could also cause employers to lay off low-wage workers or hire fewer of them, reducing overall employment by about 500,000 jobs, or about 0.3 percent of the labor force. The CBO acknowledged that its calculation is an estimate and said actual job losses could range from 'very slight' to as many as 1 million positions."

    The Post writes that President Barack Obama and congressional Democrats "have made a higher minimum wage the linchpin of their midterm strategy. Their plan calls for raising the federally mandated salary from $7.25 per hour to $10.10 per hour by 2016, with automatic increases thereafter to account for inflation. Democrats say such a move would deliver broad economic benefits, giving employers a more stable, productive and satisfied workforce … Republicans, however, accuse the White House of pandering to low-income workers without fully understanding the impact of their policies."

    The Post suggests that public support for an increased minimum wage is all over the map, depending on who happens to be doing the polling and who is being asked.

    The Wall Street Journal notes that "the report predicted other positive effects for the economy. Low-wage workers tend to spend a larger fraction of their earnings, so some firms would see increased demand for their goods and services as a result, the CBO said. However, higher wages could result in price increases and smaller profits, muting some of that simulative effect of increased spending."

    Meanwhile, Bloomberg reported that Walmart is "looking" at whether to support an increase in the federal minimum wage. For Walmart executives, it seems to be a matter of balancing the increased payroll costs with the fact that at least some of its customers would have more money to spend in its stores. (A Walmart spokesman appeared to walk that statement back after the Bloomberg story appeared, saying that the company would remain neutral in the debate.)

    Bloomberg notes that the National Retail Federation (NRF) and the Chamber of Commerce have come out against an increase in the national minimum wage, while the Retail Industry Leaders Association (RILA) "has taken no stance on the minimum wage debate."

    However, the Associated Press reports that Gap has said it will increase its minimum hourly wage for employees to $9 in 2014 and $10 in 2015, a move that will impact some 65,000 employees at its Gap, Banana Republic and Old Navy stores.
    KC's View:
    This is going to be an ongoing debate, and I suspect there won't be any sort of resolution before the November mid-term elections, and maybe not before the 2016 presidential elections.

    Whether Walmart wants to walk back its comments or not, it seems to me that the internal debate written about by Bloomberg is, in fact, the crux of the issue. Does an increase in revenue compensate for lost jobs? I'd like to think that if companies were making more money because of higher sales, they'd be able to higher more people even though the minimum wage is higher … but life doesn't always work out that way. Besides, it isn't that simple - health care issues also are having an impact on hiring (whether or not it should - I found Michael Sansolo's column about this issue last week to be very persuasive), as is the broader trend toward a tech-driven efficient marketplace in which there may just be fewer traditional jobs.

    In the end, what worries me is the disconnect between people at the top of companies and the people on the front lines. The people at the top often are rewarded for eliminating people and paying people as little as they can get away with, and those rewards come in the form of big salaries and big bonuses. I'm no economist, but that doesn't strike me as a sustainable long-term economic/social/cultural model.

    It is more likely a recipe for disaster. Again, I'm not sure that a simple increase in the minimum wage is enough to solve the problem … it may well just be a band-aid that only momentarily (like through the next election cycle) covers up a more systemic and serious economic problem.

    Published on: February 20, 2014

    The LA Business Journal reports that investment group TBG has completed its $394 million acquisition of Arden Group, parent company of the 17-store Gelson's Markets chain.

    With new ownership in place, Gelson's has a new store ready to open at the end of March, and plans to open as many as 10 new units in coming years, giving it a bigger fleet with which to compete with the likes of Bristol Farms and Whole Foods.

    “With TPG’s retail experience and financial support, we are confident that we can profitably grow Gelson’s, and we are excited to embark on this new phase for the company,” Gelson’s CEO Rob McDougall said in a statement.
    KC's View:
    I hope so. Vibrant competition is good for everyone.

    Published on: February 20, 2014

    EuroFruit reports that Doug Gurr, an Amazon VP in the UK, hinted recently during a speech that "the group is preparing to expand the company’s fresh produce retail business worldwide."

    He did not provide details or a sense of timing, but said that Amazon's game plan is to test, see what works, and then roll it out broadly. Amazon Fresh started out in Seattle, and recently has been expanded to Los Angeles and San Francisco.
    KC's View:
    It is a matter of when. Not if.

    Published on: February 20, 2014

    Bloomberg Businessweek reports that the Federal Communications Commission ()FCC) plans to rewrite its rules so that internet providers such as Comcast, Cablevision and Verizon are unable to block content or slow down Internet traffic in a way that could negatively impact content providers such as Amazon and Netflix.

    Bloomberg writes that "it’s the latest step in a debate over whether Web content suppliers need protection from Verizon, Comcast Corp. and other companies that control Internet access to homes and businesses. Without rules, providers could charge content companies higher rates for preferred treatment -- expenses that may be passed on to consumers and change the industry’s economics … The FCC has said that without rules to ensure equal access to the Internet, service providers could favor wealthier, established players over startups, squelching innovation."

    The "Internet neutrality" issue has been the subject of much legislative and legal wrangling, as people on both side of the issue debate whether the internet should be treated essentially as a public utility, or whether it should be subject to the exigencies of private enterprise.
    KC's View:
    Count me firmly in the column of people who believe that however the rules are set up, major corporations like Comcast ought not be able to control what we see and how we see it. I'm no lawyer, but the proposed acquisition of Time Warner Cable by Comcast is somewhat worrisome … that strikes me as a potential behemoth that would have way too much power.

    Published on: February 20, 2014

    It has long been an article of faith here at MNB that shoppers don't think in terms of retail format; they rarely say "I'm going to the supercenter" or "I'm going to the convenience store" or "I'm going to the quick service restaurant." Instead, they think in terms of a specific store or the specific product they want, and made their shopping decisions in that context.

    Format, this argument would suggest, is a business-centric construct, and may be increasingly an obsolete notion in a world that by definition is getting more customer-centric.

    Now, King Retail Solutions is out with a new study, conducted in conjunction with the University of Arizona Center for Retailing, that puts some numbers to this trend, reporting that over the past 12 months, 77 percent of those surveyed bought groceries from a non-grocer, 62 percent bought fresh meals from a non-restaurant, and 57 percent bought clothing from a non-clothing store. The trend seems to be accelerating, since in the coming 12 months, 96 percent of respondents said they would buy groceries from a non-grocer, 92 percent said they would buy clothing from a non-clothing store, and 88 percent said they would buy fresh meals from a non-restaurant.

    The study is full of intriguing numbers and analysis of how consumers shop, and you can access the study here.

    Full disclosure: King Retail Solutions is a member of the MNB family of sponsors.
    KC's View:
    The bottom line, it seems to me, is that retailers - whatever segment in which they operate - need to be highly focused on their differential advantages, thinking less about format than about the specific ways in which they are going to be compelling and relevant to their shoppers, curating products and services that make them the most compelling option.

    Published on: February 20, 2014

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

    • The Wall Street Journal reports that Sbarro will close 155 out of 400 stores that it owns and operates in North America, largely in mall food courts.

    The Journal notes that Sbarro "struggled after taking on debt as part of a 2007 buyout by investment firm MidOcean Partners. It closed more than 150 restaurants in the two years before its April 2011 bankruptcy filing. MidOcean didn't retain ownership following Sbarro's bankruptcy exit in 2012."

    Even after the closings, there will be more than 800 Sbarro owned and franchised units globally.

    Feel bad about the people who are going to get laid off, and the holes that now will exist in a bunch of malls. That said, it isn't a huge culinary loss except to those who like heavy, greasy, generally tasteless pizza and pasta dishes. However, on a positive note … at least nobody has accused Sbarro employees of peeing in the sink or picking their noses and putting it on the pizza.

    Advertising Age reports that "Mondelez International is going on a digital-marketing binge as the maker of Oreo and Trident finds a better return on investment online than from TV ads, executives said today at a financial conference.

    "The company's goal is to grow mobile and digital from about a quarter of its media budget to more than half of all spending by 2016, Mark Clouse, the company's North American president said at the annual meeting of the Consumer Analyst Group of New York."

    • The Food Marketing Institute (FMI) says that more than 130 supermarket chefs, representing 30 different retailers, submitted recipes for the annual FMI Supermarket Chef Showdown before the November deadline and now await their selection among the semi-finalists on April 15.

    The top-25 finalists will compete live in front of celebrity judges in a special kitchen stadium created on the convention floor at FMI Connect on June 11, 2014 at McCormick Place in Chicago. The chef’s recipes varied across five established categories that include: Healthy Meals; Family Meals; Ethnic Meals; Dessert; and Side-Dishes/Mini Meals/Snacks.

    • The Washington Business Journal reports that Ahold-owned Giant Foods has signed a deal with BrightFarms Inc. to supply produce to its stores from an "urban greenhouse" in the District of Columbia. Terms of the deal were not disclosed.

    BrightHouse has been signing a series of deals with companies like Roundy's, Schnucks and Cub Foods to provide products from similar locations around the country.

    Crain's Chicago Business reports that Fresh Thyme Farmers Markets has said that it plans to open more than 60 stores in the US Midwest over the next five years. Fresh Thyme is described as "the result of a merger between the former Sunflower Farmers Market, a chain of groceries based in Phoenix, and Sprouts Farmers Market, a group of more than 160 stores throughout the West and Southwest."

    According to the story, "Chris Sherrell, Fresh Thyme's president and CEO, previously held the same title at Sunflower. His LinkedIn profile says he is based in Phoenix, but Fresh Thyme's site says the company will move to the Midwest, most likely Chicago. Company executives were not immediately available for comment. According to information on Fresh Thyme's site, the new company's investors are leaders of Grand Rapids, Mich.-based retail giant Meijer Cos."
    KC's View:

    Published on: February 20, 2014

    …will return.
    KC's View: