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    Published on: May 19, 2014

    Article Text.

    by Kevin Coupe

    While Amazon makes a big deal of being a customer-centric enterprise, one of its guiding operating principles seems to be a desire to control as much of the supply chain and the customer experience as possible. It is the feeling around here that this will become even more pronounced in the future, which is why competitive retailers and manufacturer partners need to pay attention - at its core, this is the reason that Amazon is building so many distribution centers around the country, and why it seems likely that it will use its own trucking fleet to deliver products in an expanding number of markets, rather than continue to depend on the likes of FedEx, UPS and the US Postal Service.

    But sometimes, Amazon's desire for control can go a little too far … and make it ripe for ridicule. And when it comes to that, almost nobody does it better than Stephen Colbert on "The Colbert Report." Click above to see…
    KC's View:

    Published on: May 19, 2014

    CNN has an interesting story about the minimum wage debate, focusing on what some would suggest is an anomaly…though an undeniable one.

    The argument against an increase in the minimum wage - from sources that include the US Congressional Budget Office (CBO) - is that it will ultimately cost jobs; the nonpartisan CBO projects that "while gradually raising the federal minimum wage to $10.10 would lift 900,000 out of poverty, it could also mean the loss of 500,000 jobs."

    However, it also is a fact that "in Washington state, small businesses are adding jobs faster than any other state in the country, according to a report from Paychex and IHS. It’s also the state where the minimum wage, at $9.32 per hour, is the highest … Not only was Washington the strongest state, San Francisco - with a minimum wage of $10.74, the country’s highest - had the greatest job gains in the past year among cities measured."
    KC's View:
    Part of the advantage that places like Washington State and San Francisco have is a dependence on a technology-driven economy … they are places where a rising tide seems to be lifting a lot of boats. Though not all of them, to be sure … both places have seen plenty of reports about income disparity.

    The thing is, the income disparity issue is not one that can simply be solved by increasing the minimum wage. It strikes me as typical of this country that we look at real problems created by a vanishing middle class and the enormous (and growing) chasm between the top five percent and everybody else, and the argument focuses on the minimum wage.

    You can't boil down systemic cultural and socio-economic issues to a couple of bucks per hour. Not to say that a couple of bucks per hour can't have an impact, but it is a band-aid.

    Published on: May 19, 2014

    The New York Times reports that the city of Portland, Oregon, expressing concerns about Walmart's ethics and labor practices, "has begun divesting itself of all its holdings" in the giant retailer, making it the first municipality to do so. "When this policy was adopted, the city had five Walmart bonds totaling $36 million, which was 2.9 percent of its portfolio," the Times writes. "As of Thursday, its bonds total $27 million."

    “We as a city talk a lot about our progressive values,” Commissioner Steve Novick tells the Times. “We care about working people, we care about the environment, we care about human health — and money talks. We don’t want our money to be saying things that are at cross purposes with values we profess every day."

    According to the story, "On Thursday, the first of Portland’s Walmart bonds matured, reducing its holdings in the country’s largest retailer by 25 percent … In October, Portland’s City Council decided it would not buy more Walmart bonds after its existing holdings matured (state law prohibits the city from investing in stocks).

    "The city is devising a process to evaluate other companies in its investment portfolio. So far, only Walmart has made the hands-off list."

    Walmart said it would not comment on the city's investment policies, but did note that Walmart currently employs 550 people in Portland and plans to hire another 600 for new supercenters there. Walmart also claims that its full-time employees in Portland make an average wage of $13.20 per hour.
    KC's View:
    Listen, the best reason to divest Walmart stock is that it has been underperforming, and there are a fair number of folks who don't have a lot of confidence in its near-term prospects.

    I have no problem with this approach. I think one's investments should reflect not just one's financial priorities, but also - if one chooses - ethical and values concerns. That goes for individuals, and it goes for public institutions, which ought to reflect the values of its citizens. That seems to be what is happening here, and I approve.

    Published on: May 19, 2014

    The Wall Street Journal reports that a recent global survey by the McCann advertising agency revealed that "84% of respondents said they’re aware that companies track the websites they visit to suggest products they might like. Seventy-one percent of respondents in the survey, including 58% in the U.S., worry about the amount online stores know about them."

    The survey also revealed that "65% of shoppers are willing to share data so long as they understand the benefits for them," that "52% of respondents said shopping is too impersonal these days and said they are concerned about how much retailers rely on data and algorithms," and that "57% of those polled said they worry that they will not be able to discover new things if companies always show them things that they have expressed interest in previously."
    KC's View:
    I think there is a lot of concern about this, but I also believe that younger folks are willing to trade personal information for offers that they perceive as being relevant and appropriate. That's what marketers need to aim for … being as relevant and targeted as possible.

    Published on: May 19, 2014

    The Associated Press reports that Chipotle shareholders, in a non-binding and purely advisory ballot, voted overwhelmingly against a new executive compensation plan.

    According to the story, "last year, co-CEO Steve Ellis and Montgomery Moran were paid $25.1 million and $24.4 million, respectively." The new plan would continue their compensation at these levels, but 77 percent of those voting rejected the notion.

    A spokesman for the company said that while it does not have to adhere to the vote results, it takes the numbers very seriously, and that creating shareholder value is a ‘top priority.’’
    KC's View:
    The Chipotle folks would be wise to take this seriously. Chipotle has been a strong performer over the years, but that's an awful lot of money to be paying two guys … though I'd be interested to know what the company pays store managers and front line employees, just for context. There's just something obscene about that kind of money.

    Published on: May 19, 2014

    Bloomberg reports that Walmart-owned Asda Group in the UK is consulting with its 4,100 store managers "over their roles as the grocer places increasing emphasis on e-commerce … The consultation is part of a process that will see the grocer also create 5,000 new roles for a net addition of about 900 workers."

    According to the story, "Asda has been conducting trials at 20 stores over the past six months to develop a structure 'that removes some existing department manager roles and creates new deputy manager, trading manager and section manager roles, as well as adding additional section leader roles to stores to increase the number of colleagues on the shop floor,' the grocer said."
    KC's View:

    Published on: May 19, 2014

    Reuters reports on how the US Federal Communications Commission (FCC) has advanced a "net neutrality" proposal that would, if it became policy "would ban Internet providers from blocking or slowing down access to websites but may let them charge content companies for faster and more reliable delivery of their traffic to users."

    A four-month public comment period has commenced, and there is expected to be "an intense tug-of-war between some tech companies and consumer advocates on one side and Republicans and broadband providers on the other, over the extent to which the agency can regulate Internet traffic."

    The FCC has pledged not to allow the internet to become a place where there are haves and have-nots, while skeptical consumer advocates believe that the internet should be treated like a public utility.
    KC's View:
    I really worry about a system in which certain companies with deeper pockets might get prioritized access to the internet based on the depth of their pockets … it sounds suspiciously like cable television business in this country, which I think a lot of people would argue has been a real disaster for consumers, creating a system in which certain companies have monopolies, able to dictate prices without fear of competition. (Though this is changing…slowly…as more options are available to consumers.)

    Published on: May 19, 2014

    • The Boston Globe reports that Roche Bros. opened its first small-store format, in Weston, Massachusetts, over the weekend, an 11,100 square foot unit with a “farmer’s market-like flair” that will appeal to "the discerning locavore with an appreciation for exotic produce and artisanal fare." The format, called Brothers Marketplace, is the first of two planned units; the second is scheduled to open in Medfield in July.

    • In California, the Press Enterprise reports that the Stater Bros. Markets grocery chain has signed a new credit agreement that will "significantly reduce" the interest payments it has been making on debt, that "includes a $150 million revolving line of credit and combined $575 million in two term loans," and which could allow the company to expand should opportunities arise.

    According to chairman/CEO Jack Brown, such opportunities could become available if federal regulators call for divestitures in the wake of a proposed acquisition of Safeway by Albertsons. "We are well-positioned to move ahead if and when locations become available," he says.

    • The Huffington Post has a story about why Costco seems to be outperforming Sam's Club, suggesting that one of the major reasons may be that Costco traditionally has targeted a more upscale customer with disposable income, while Sam's target shopper is more economically challenged, and has less money to spend in an economy where many people are stuff suffering for recessionary after-effects.

    In addition, the story says, Costco has generated greater customer loyalty "thanks in part to the chain's commitment to signature offerings," while Sam's Club may be hurting because of competition from internet companies such as Amazon.

    • Darden Restaurants has reached an agreement to sell its challenged Red Lobster chain to the Golden Gate Capital investment chain, for $2.1 billion.
    KC's View:

    Published on: May 19, 2014

    Gordon Willis, the cinematographer who worked with directors such as Francis Ford Coppola, Woody Allen and Alan J. Pakula to create distinctive looks for films that include The Godfather and The Godfather, Part II, Annie Hall and Manhattan, and All The President's Men and The Parallax View, has passed away at age 82.
    KC's View:
    For some of us, seeing Gordon Willis's name in the credits was all by itself a signal that what we were about to watch was something that was going to look incredibly unique. And the directors who hired Willis knew that he was the kind of cinematographer who would give these projects a differential advantage.

    Published on: May 19, 2014

    We had a story the other day about manufacturer concerns regarding counterfeit products being sold on Amazon, which led MNB reader Alex Jackson to write:

    We (Frieda’s) stopped selling our products on Amazon because of this exact reason and Amazon didn’t do anything to help. We had to go to the 3rd party supplier and ask them to stop. They were apologetic, but whether they actually stopped, we don’t know.

    Just last week, someone said they recently bought our Dried Chiles on Amazon. Again, we don’t sell on Amazon…

    It’s even more disturbing that Amazon doesn’t help the suppliers stop the counterfeiting.

    On another subject, MNB reader Brian Blank wrote:

    You called out Safeway and Harris Teeter in regards to seeing if their seafood ratings with Greenpeace suffer as a result of their recent acquisitions by Albertson’s and Kroger, respectively.  Be fair…it will also be worth noting (even more so, I think) if Albertson’s and/or Kroger learn from the best practices of Safeway and Harris Teeter, which I would hope they will.

    Fair enough.

    It was no my intention to suggest that these companies will lower their standards as a result of being acquired. In fact, it is a measure of how smartly acquisitions are done when one can see the degree to which the best policies survive, no matter where they started.

    Responding to my coverage of speeches given at the Portland State University/Center for Retail Excellence executive forum last week, one MNB reader wrote:

    I noted with interest all of the various people from Proctor & Gamble and Kroger at your conference suggesting that things are different than ever and we need to understand the points of disruption and follow the consumer outside the retail channel and be utilizing data metrics and stay relevant on social media and so forth.

    And while I absolutely agree that this is necessary for brands and retailers that want to stay relevant into the future, I have yet to ever see a single example of how this is being executed with any success. The common example that gets a lot of attention is the ability to better target promotional offers to customers by way of coupons, but again, I have yet to see anyone talking about verifiable success. I'm thinking success here would be someone who walks to the podium and states with conviction "We have been test marketing our (big) data-driven promotional strategy at 25 stores in three markets and we've seen a 10% lift over a six months. Boom, we win!" Similarly, brand managers will point to their social media strategies   --  some seemingly more effective than others -- but I've yet to see a best-in-class example that has yielded concrete $$ outcomes that has caused the industry to shift their strategies. As in "THIS IS WHAT WORKS. GOODNIGHT."

    I'm not saying that examples of success are easy to achieve. But if we are to believe in the data science behind much of this, where is the scientific evidence of success? Giving away 2x more coupons surely doesn't - on its own -qualify. And It's great for Mile Ellis (for whom I have nothing but utmost respect) to say "We're going to increase disruption and make people really uncomfortable" But where is the scientific evidence that doing so has generated extra $$$?

    I think a better way of framing this issue would be to say "Folks have been trying strategies in this area for some time, and many more are pursuing these strategies with ever more zeal. But we've reached the inflection point where talking about this stuff and creating new strategies is no longer enough. If you can't come back to this conference next year with a solid example of how your strategy has shown demonstrable sales increases in controlled case studies, you have lost the game. And furthermore, you will not be asked to speak on this panel."

    Maybe the best wake-up call would be an empty panel with an open discussion framed around the proclamation "We are all losing at this game. How can we save our company and our jobs? And how embarrassing would it be to be seen drifting out of the sky attached to a golden parachute?"

    That might truly drive home the seriousness of inflection and disruption.

    We've had some discussion here about student college loan debt, which prompted one MNB reader to write:

    Student loan debt--not only do we get to pay dearly for educational choices, but it's fair to say that I busted my tail to get through school and have a relatively successful career--successful enough that I now can't even deduct from taxes the interest I pay on the student loan debt. I'm not a policy wonk, but this just doesn't sit right with me...I work hard, get an education and based on income, don't get to reap the tax benefits of hard work? Harrumph!

    I'm with you.

    There's a story in the Times today that says that the colleges with the highest levels of student debt also happen to be the colleges with the highest paid administrators.

    Which strikes me as typical. Unsurprising. And profoundly upsetting.
    KC's View:

    Published on: May 19, 2014

    • California Chrome won the Preakness Stakes on Saturday, positioning the horse, which also won the Kentucky Derby, as potentially the first Triple Crown winner since Affirmed in 1978 - if it can win the Belmont Stakes on June 7.
    KC's View:

    Published on: May 19, 2014

    Shoppers won’t need to travel far for a taste of the World’s Best Honey – Wholesome Sweeteners already sells it. Wholesome Sweeteners Fairtrade and Organic Honey comes from the Brazilian honey producers whose honey won the gold medal in their class at the 2013 World Beekeeping Awards.

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    The honey category is growing across the USA with honey sales up 4% in conventional and 21% in the natural channel. Wholesome Sweeteners Organic Honey sales have far surpassed industry growth rates with a 54% increase in the natural channel and a 21% increase in the conventional channel. It’s obvious what shoppers want. They’re trading up!

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    *SPINS 3/20/2014
    KC's View: