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    Published on: May 29, 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.

    Over the past few years I've been pretty tough on the US Postal Service. Not so much the people who work on the front lines, but the top management, which I think over the years has been unwilling or unable to confront the fact that the post office may be an obsolete business model that, for the most part, has outlived its usefulness … simply because things haven't changed all that much, other than the vehicles, since the Pony Express.

    And, of course, let's not let the US Congress off the hook, since it has saddled the Postal Service with financial obligations that would be difficult to meet under the best of circumstances, let alone now, when many of the currents seem to be running against it.

    Now, none of this is the fault of the people on the front lines, most of whom are hard-working people with the best intentions. The guy who delivers mail to my office is great … he watches out for me and my mail, especially when I'm traveling, and I have nothing but confidence in him.

    But, let me tell you what happened the other day.

    This is my home mailbox. The other day, a guy who was doing some construction work on the house was parked in such a way that the mailman, in his truck, could not pull right up to the mailbox and leave the mail inside. Nope, he actually had to get out of the truck and walk three, maybe four steps to leave the mail. He did so, but he also left this note inside the mailbox: "Please do not block mailbox." And he left the same note on the contractor's truck.

    Now, I don't mean to be petty here … but the mailbox wasn't blocked. It was easy to get to, albeit on foot. Three steps!

    At some level, maybe this is a civil service mentality. But I also think there is a broader business lesson here. How many employees in any business would resent it if made to go just a little bit out of the way for a customer? How many employees in failing businesses would feel that way … and to what extent could one actually attribute a business's problems to employees with that kind of attitude problem?

    My feeling is, that guy should've walked the three steps and thanked his lucky stars that the Post Office hasn't yet gone to five, four or even three day a week delivery. Or sold its assets to FedEx or Amazon.

    The thing is, it is entirely possible that postal workers are being evaluated based on speed, not customer service. And not just postal workers. There are a lot of organizations in which people are ranked on efficiency, not effectiveness. When you think about it, such cultures may actually be getting in the way of their own success.

    In the current economy, nobody - not at the highest levels, and not on the front lines - can afford to mail it in. Because we live in a world where the only way to get ahead is to work hard and take advantage of the opportunities to delivery exceptional service … not whiny little notes.

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

    KC's View:

    Published on: May 29, 2014

    by Kevin Coupe

    The Produce News offers some good news to people worried about the winter-spring lime shortage that drove prices up and made it tougher to create boat drinks and key lime pie (which, in my view, are two of the staffs of life).

    Weather conditions produced light crops, but recent rains are said to be helping, "and the big fruit is coming," said one expert, adding that "supplies should be adequate and the market should stay at a more normal level."

    So break out the flip-flops. We can all breathe a sigh of relief.
    KC's View:

    Published on: May 29, 2014

    Interesting piece in the Wall Street Journal that looks at the current Amazon-Hachette pricing dispute through the prism of a successful antitrust suit brought by the US Department of Justice several years ago that ended with Apple and several publishers being found guilty of colluding to keep e-book prices high.

    The Journal writes that "Justice's antitrust shop alleged that Apple colluded with the publishers in 2009 and 2010 ahead of the introduction of the iPad in a conspiracy against Amazon and buyers of electronic books. But there was nothing in those cases remotely approaching the exertions of market power that Amazon is now leveraging in its pricing feud with the publisher Hachette. Could it be that the feds targeted the wrong monopolist?"

    The story goes on: "Amazon (has) conceded that it has throttled back print inventory from Hachette, leading to delays of two weeks to a month on many titles. Other tactics over the last several months include selectively raising prices, disappearing 'pre-order' buttons that drive the best-seller lists, and encouraging consumers to buy books from houses other than Hachette."

    The dispute, according to the Journal, "centers on the structure for selling e-books. Under the so-called agency model, Amazon takes a 30% commission of a listed price, but any consumer discounts come out of Amazon's cut. Amazon prefers a formula to share the cost of markdowns, and publishers are balking. The last rough fight over pricing led to the DoJ charges, and the negotiations with Hachette are Amazon's first with a major publisher since that settlement dictated terms for two years.

    "The book industry is enraged by the e-tailer's squeeze play, but Amazon is not a public utility and under no obligation to sell products or at a certain price. Retailers promote or disadvantage products all the time with advertising, prices or store placement, and people can still buy hardbacks and e-books elsewhere."
    KC's View:
    This story creates additional context for this contretemps, and it makes me think that Hachette could be just the first target for Amazon … which may be thinking about putting similar pressures on as many of its suppliers as possible. (See an email in "Your Views" for one example.)

    The question is where the tipping point is - when does Amazon shift from being an advocate for the consumer to being an unacceptable barrier between shoppers and the products they want to buy.

    Published on: May 29, 2014

    The Wall Street Journal reports that Institutional Shareholder Services (ISS), an organization that advises big shareholders on how to vote on proxy issues, is recommending that Target stockholders oust "seven of the company's 10 directors for not doing enough to ensure Target's systems were fortified against security threats … The recommendation focused on directors who serve on Target's audit and corporate-responsibility committees, which are tasked with overseeing and managing risk."

    The recommendation follows last year's massive data breach that compromised the credit and debit card information of some 40 million Target shoppers.

    Target has responded to the ISS recommendation by saying that "overseeing risk is the responsibility of the entire board and is part of its continuing review of the company's strategy."
    KC's View:
    Wow. Holding a board culpable for decision-making gone bad. What a concept.

    Seems like more often than not, they'd get a raise.

    This is not the first time Target's board members have been questioned, if I recall correctly. In May 2009, Target shareholders rejected the call by hedge fund founder and shareholder activist William Ackman to replace five of its incumbent directors with an independent slate of candidates that Ackman said would be better positioned to help the company compete with Walmart in a tough environment.

    One has to wonder how things would have been different if those moves against Target's board had been successful.

    Published on: May 29, 2014

    The Washington Post reports that "a new survey of nearly 4,000 Americans by Accenture found that 72 percent of people ages 18 to 34 would bank with Wal-Mart, Google or T-Mobile if they offered banking services. Of the nearly two dozen companies that researchers asked about, people were most willing to sign up with Square or PayPal because of the relationships they already have with the companies. Nearly one-third of those polled said the same about T-Mobile, Costco, Apple and Google."

    According to the piece, "These upstarts are gaining footing in the banking world with prepaid debit cards that customers can use to pay bills, make purchases and deposit checks via a smartphone camera -- pretty much all the things you can do with your traditional checking account. And they are piquing the interest of a highly coveted group that traditional banks have struggled to attract: young people."
    KC's View:
    The story makes the excellent point that while Walmart has been denied a bank charter by regulators (who, IMHO, have been influenced by lobbyists for a financial services industry that dreads competing with the likes of Walmart), it actually has been able to incrementally offer banking services … "Wal-Mart may be getting the last laugh as it reaps the benefits of being a bank without the headaches of being regulated like one."

    The same goes for all these other entities that are taking on traditional bankers. And it begins to look like yet another industry that is being disrupted by outside influences, despite its efforts to stave off competition through government regulation as opposed to actually competing.

    Published on: May 29, 2014

    Fortune reports that Target "has created a digital advisory council made up of four outside tech leaders with one goal: to shorten the time it will take for the discount chain to catch up to the competition in the e-commerce wars … The first members of Target's digital council will be: Ajay Agarwal, a managing director at venture capital firm Bain Capital Ventures; Amy Chang, CEO of Accompany and previous head of Google Analytics; Roger Liew, technology chief at travel site Orbitz Worldwide, and Sam Yagan, CEO of dating site operator Match Group and founder of OkCupid.

    "The group will meet quarterly with Casey Carl, the Target executive overseeing omni-channel operations."

    In a related story, MultiChannel Merchant reports that Target plans to test same-day delivery in Minneapolis, Boston and Miami: "For a $10 charge, Target customers in those test cities the ability to order as late as 1:30 p.m. and receive “rush delivery” of qualifying items between 6 p.m. and 9 p.m. the same day."

    In addition, Target said that it "plans to roll out standard shipping from 136 stores in 38 U.S. markets later this year," and "continues to see encouraging results from in-store pick-up, and that those online orders make up about 10% of (its) digital transactions."

    The story notes that at this point, it is estimated that just two percent of Target's revenue comes from e-commerce, compared with four percent of Walmart's … and Walmart's web sales grew 27 percent in the most recent quarter.
    KC's View:

    Published on: May 29, 2014

    • The Wall Street Journal reports that "authorities in China are pushing Wal-Mart Stores Inc. to settle a dispute with employees in a case that highlights the increasing power of workers in China’s labor market.

    "Wal-Mart was told by authorities in the city of Changde to file by Friday plans to settle a dispute with employees who worked at a store that has since closed, according to a spokeswoman for an arbitration committee hearing the claim. More than five dozen employees say they didn’t receive proper compensation or notification about the store closing and are demanding that Wal-Mart double workers’ severance … Wal-Mart said it would cooperate with authorities and has been looking for ways to reach an agreement that works for the union and the company."

    Walmart said it followed local laws by offering two-weeks notice and offering relocation opportunities.
    KC's View:

    Published on: May 29, 2014

    Mark Bittman has an intriguing piece in the New York Times about Olivier de Schutter, a human rights lawyer who for the past six years has served as the United Nations "special rapporteur on the right to food."

    "With increasing depth," Bittman writes, "De Schutter has analyzed a food crisis that is international and systemic, with common threads in countries rich and poor. He’s revealed how we can change things, how the will of the citizens and countries of the world can be powerful tools in making a new food system, one that is smart and sustainable and fair."

    Bittman writes that de Schutter's analysis is "damning": “'Poor countries should be supported not by dumping food on their local markets but by helping them reinvest in their own local food systems, by investing in their helping them feed themselves.' This is especially true of poor farmers who may be driven off the land by an inability to compete with food sold at international commodity prices, people who subsequently cannot afford that commoditized food. Think, please, about the horrible irony of that situation, and of what food justice actually means."

    And, he says: “Many of us have arrived at the conviction that junk food and sugary drinks are like tobacco and deserve to be treated in the same way.”

    Fascinating piece. Worth reading in its entirety here.
    KC's View:

    Published on: May 29, 2014

    Bloomberg reports that Tesco, after seeing its efforts to sell its Turkish stores fail, now "will focus on its better performing stores" and "may close some of its more than 190 stores in the country." The company said that its goal will be "“to focus the business on its heartlands, minimize capital spend and improve profitability."

    • The Wall Street Journal reports that General Mills "plans to start selling Cheerios Protein, hoping to boost sales among the growing numbers of people giving up cereal in favor of protein-rich breakfasts like Greek yogurt. The new cereal will have about seven grams of protein per serving without milk and come in two flavors, Oats & Honey and Cinnamon Almond, a spokesman for General Mills said."

    • The BBC reports "Tesco has finalised a deal with the state-run China Resources Enterprise (CRE) to create the largest food retailer in China. The joint venture will combine Tesco's 131 outlets in the country with CRE's almost 3,000 stores, called Vanguard.

    "CRE will own 80% of the new chain and Tesco will have a 20% stake."
    KC's View:

    Published on: May 29, 2014

    Yesterday, MNB took note of a New York Times report that First Lady Michelle Obama is "pushing back" against a proposal in the US House of Representatives that would exempt some school lunch programs from meeting mandated dietary and nutrition standards, based on whether school districts are profitable or not.

    I commented:

    There always are reasons not to do such things. But I have to say that IMHO, making school meals more nutritious ought to be a high priority. Too many of them serve slop that does nothing to nourish the kids who eat it. And nourishing kids' bodies ought to be seen as important as nourishing their minds.

    One MNB user responded:

    I agree that we need to make sure the school food is nutritious.  However, locally (my wife is a teacher) there has been a huge upswing in the amount of food thrown away after the government put in the new regulations on school lunches due to the children not liking what they are eating,  There also appears to be a large decrease in children purchasing the school prepared food and milk.  Schools in my area have had to raise lunch prices (to cover overhead) as more children are bringing their food to school- and unfortunately, more times than not, it is the chips and soda that are in these lunch boxes that the government is trying to prevent.

    Furthermore, my wife's school has had to lay off some of the kitchen staff due to decrease purchases of the school meals.  I would ask the government take a step back and look at these implemented guidelines under the current administration to see if it is really effectively helping children eat more healthy or is it shifting the meal solution from a hot school provided meal to a take from home meal.

    MNB user Jeff Folloder wrote:

    On the one hand you have a drive to only offer healthy food in schools.  It's a good idea with unintended consequences.  Because a lot of it does wind up in the trash, uneaten.  And a lot of it just doesn't get purchased.  Which results in hungry kids.  Or you serve a variety of choices, including less than healthy, and wind up with less waste and less hungry kids.

    Hungry kids have trouble learning.  And school should primarily be about learning.  So where do we strike the balance?

    From another:

    I saw a posting that outlined the lunch menu (tilapia, meatball subs, etc) at Sidwell Friends a school in DC where the Obama family has chosen to send their children.  I have no political agenda here, but an interesting idea—perhaps Sidwell could put together a menu based on the amount of funding received by a public school to show all the children how lucky they are to attend a school that can afford good food.

    All children should have access to good quality food, especially if that might be the only meal they are assured of receiving, no matter how lucky (or hard they and/or their parents work) to be enrolled in a high-end private school.  I have also found it interesting to see how competitive college foodservice has become—there is a Japanese steakhouse option at Virginia Tech!

    I think the school lunch program is in need of a major overhaul, but honestly I don’t know where to start.  Seeing the lunch ladies force kids to take an apple that ends up in the trash is not the solution, but if half of them at least take a couple of bites, it is a start.

    And another:

    I, too, agree with the efforts to make our kids' school lunches healthier, but I question the tactics the government is using to achieve this. My high-school aged daughter has complained that she is now required to take two servings of fruits/vegetables every day. She's an active and healthy kid who likes fruits and veggies and has good eating habits. But she says there are times when she simply doesn't want to eat what the school is offering that day. She may not care for what they're serving, but she is forced to purchase it to meet the federal guidelines. She tells me that most kids just buy the food and then throw it into the trash. How is that helping solve the problem? Like the old saying.... "You can lead a horse to water….."

    MNB reader Tom Herman wrote:

    I don’t think the federal government should be mandating what local school districts do.  They can provide guidelines.  Since when was Michelle Obama elected to dictate what local schools do.  Advocating is one thing, dictating is another.  If you looked a little closer you would see that these lunches are not popular with the kids, they are going uneaten and thrown away and they are costing the school districts tons of money.  Some districts have had to lay off teachers because of it.  The top down big brother approach does not work.  What’d next, telling adults what size soft drinks they can purchase?

    Another wrote:

    If your kid doesn’t like what is being served, they can pack a peanut butter and jelly sandwich. That’s what mine do. Really don’t understand why this is such an issue. Aren’t there more important things in education that need addressing?

    MNB reader Beatrice Orlandini wrote:

    Amazing how private interests can cause major nearsightedness.

    Haven't these people ever thought of the impact on children's health caused by a bad diet? And the ensuing costs for society?

    Maybe not in the very near future, but much nearer that you may think.

    Teaching EVERYBODY to eat healthy should be a priority of every administration.

    BTW, healthy food CAN also be VERY good…

    I have to admit that I find the "kids will just throw the apples in the trash" argument kind of amusing.

    You're right. A lot of kids are not eating the healthier lunches. But if we applied the same criteria to all of the subjects taught in schools, then there would be a lot of kids opting out of an awful lot of classes. (I never would have taken math or science, for example.)

    Isn't the point of education helping people to make more educated choices and decisions? I think that this ought to include the foods served in lunchrooms, as well as teaching kids about sports and approaches to exercise that they can carry with them throughout their lives.

    BTW…sure, Michelle Obama has played a major role in lobbying for one approach to these issues, but she isn't "dictating" anything. Federal regulators are. And especially since pretty much every First Lady since Betty Ford has been activist in one area or another, I have no problem with that … she's actually offering a balance to all the big corporate interests that may be lobbying for self-serving regulations.

    The reason that federal regulators are getting involved in such issues is, if I understand the system correctly, because these public school districts are accepting federal money that go to their meal programs. As a taxpayer, I'd rather that money go to nutritious foods that help to reinforce broader notions about smarter, informed choices. They can eat crap at home, or on the street corner, or anyplace else. In schools, we ought to be raising the bar.

    And for the record … I say this as someone who has had weight issues for his entire life, and probably ate way too many napoleons for dessert in my high school cafeteria.

    We're smarter about such things now. We actually ought to act like it.

    Got an interesting email about Amazon:

    Kevin, when we looked at doing business with Amazon, we realized with all of their fees and terms, we needed to add 23% to the cost for us to make the margins we needed. Part of it was the programs you needed to be in such as subscribe and save (13%). The other big factor was they wanted to hold your money longer than any other account we work with. We usually give 2% for 30 days net 31 but they wanted 2% 60 net 61. It was definitely tilted in their favor. BTW – we chose not to do it.

    MNB reader Skye Lininger emailed me a note saying that at least one publisher has defended Amazon's position, saying…

    …it’s nothing more than a run-of-the-mill vendor/retailer negotiation blown out of proportion and mis-reported in the original NYT article on the subject.

    Like you, I am an Amazon fan. It is interesting that the press turned on them over this issue, making it into a David vs Goliath story. In fact, Hachette is part of a $10b publishing conglomerate and Amazon is just doing what retailers do, negotiating aggressively with its vendors. I like Amazon’s pricing, it saves me money several times each month—and, like all good retailers (and I think of Kroger, Trader Joe’s and Costco) they can only provide those savings by negotiating effectively on my behalf.

    On another subject, MNB reader Jeannine Wilkins wrote:

    I am a regular reader of MNB and always appreciate your input.  Thought I’d share some of my background as it relates to the power of consumer input.  This is actually what I do for a living – and several of my clients are in the retail/hospitality/entertainment business which is why I enjoy your daily email.  My company creates online communities (private) where a company’s customers can share their thoughts, often via surveys and discussions.  They can also start their own discussions – so the client company gets unsolicited feedback as well.  They can and do also share images – one that comes to mind is a shopper sharing a picture they took of all the cigarette butts at the store entrance because store employees gathered there to smoke and they were tired of having to pass through a  cloud of smoke to get in the store. It’s pretty powerful stuff.
    KC's View:

    Published on: May 29, 2014

    Numerous news outlets are carrying stories about an appearance by Walmart CEO Doug McMillon at the Code Conference, a media and technology confab in Los Angeles.

    Among the items emerging from the event…

    • McMillon said that Walmart's "pace of acquisitions . . . is going to accelerate" as it looks to compete more effectively with Amazon and others in the online space. The Wall Street Journal story notes that "Walmart has already been fairly active in acquiring web companies through its research division @WalmartLabs, which has made a dozen small acquisitions over the past few years. Earlier this month, the company bought Adchemy, an advertising technology company for online retailers, for an undisclosed amount."

    CNBC reports that McMillon said that he can foresee a time when big box stores do not dominate the company's business. "If they [customers] don't want stores we don't have to have stores, having said that I think we will have stores in the future, but it will change," he said. And, McMillon added that "e-commerce, and the blurring of e-commerce with traditional retailing, will likely lead to smaller stores, with customers increasingly using stores as a pickup location."

    GeekWire reports that McMillon complimented Amazon, saying that it "is teaching the world what's possible." He also said that "since Jan. 1, he’s taken three trips to Silicon Valley, where the company operates its labs, and he says he considers himself a student of technology."

    • McMillon also said that while he made close to $10 million last year, he is just another associate. "I'm one of them," he said, according to the CNBC report, and he pointed out that he used to work in a store and a warehouse. He argued that even Walmart's lowest-paid employees have the opportunity to move into higher-paid jobs.
    KC's View:
    I was intrigued by one element in the GeekWire story in which McMillon said that he wasn't sure about Walmart producing its own differentiated content in the same way that Amazon and Netflix do … but that the company is likely to partner with tech companies to make differentiated devices.

    Just goes to show how companies have consider and embrace even non-traditional businesses as they move forward and try to differentiate themselves. In addition, of course, to being willing to change traditional models in an effort to remain relevant.