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    Published on: July 25, 2014

    by Kevin Coupe

    I have a thing for irony. I think this qualifies.

    Consumer Affairs reports that German government officials, distrustful of their American government counterparts because of revelations that the US National Security Agency (NSA) was spying on electronic communications between pretty much everyone everywhere (including the phone of German Chancellor Angela Merkel), believe they have found a way to circumvent or at least slow down American spies.


    That's right. The German legislative committee looking into the spying allegations has decided to use a typewriter - and a manual one at that - in order to make its internal communications harder to steal.

    According to the story, "Germany isn't the first modern government to acquire old-fashioned technology for security purposes; last July the Russian government reportedly bought 20 new electric typewriters for certain high-level government documentation, after learning the extent of NSA spying activities."

    Of course, the story concedes, "Using typewriters doesn't make you (or a foreign government) immune to spying, from the NSA or anyone else, but it does at least guarantee that a successful spy will have to make an actual effort, and perhaps even take some actual risks, in order to gain your secrets, rather than merely press some buttons on a computer keyboard, bring up the NSA file on you and monitor your communications to his heart's content. That's about the best you can hope for, these days."

    Good thing I'm not worried about the NSA spying on my communications. I'd have to start sending MNB via carrier pigeon….
    KC's View:

    Published on: July 25, 2014

    The Chicago Tribune reports that Amazon has committed to "spending more than $100 million on original video content in the third quarter, considerably higher than its spending a year ago and in the second quarter, Chief Financial Officer Tom Szkutak said on Thursday … Szkutak told analysts during a call that members of Amazon's Prime membership program are increasingly streaming free videos online. Eventually those customers buy digital videos and other digital content as well, he added."

    Meanwhile, as the New York Times reports, the extent of those investments were unveiled as Amazon "announced second-quarter losses nearly double what Wall Street predicted. It also warned that the third quarter would be worse. Much worse." Which made the company's stock price drop 10 percent, shaving its valuation by more than $15 billion.

    Here's how the Times sums up the issues facing Amazon:

    "Amazon long ago proved that it could sell vast quantities of goods to tens of millions of people, and that it could simultaneously develop new businesses while innovating with old ones.

    "What is a more debatable question is when — or even if — all those investments will truly pay off."

    The Times notes that "Amazon officials exude a serene if vague confidence. 'We’re not trying to optimize for short-term profits,' Thomas J. Szkutak, the chief financial officer, said in a conference call. 'We’re investing on behalf of customers and share owners,' he said. 'We’re fortunate to have these opportunities'."
    KC's View:
    As Oliver Hardy might've said to Stan Laurel, "Another fine mess you've gotten us into this time…"

    It is a fascinating problem that Amazon has to deal with. Whether competing on the retail side with Walmart and all the other retailers out there or on the content side with Netflix and all the other content providers out there, Amazon essentially is in the position where it has to keep making investments and innovating, because to slow down might be to cede the advantage to someone else, which could be a huge mistake in the current competitive environment. And yet, as Amazon tries to build for the future - even if, at some level, that future is uncertain - it becomes more and more difficult to prove its case to skeptical investors, who like to see an end game.

    In this game, there is no end, no winning. There's only surviving, and not surviving.

    When the folks at Amazon, for example, says that "the Prime shipping club, for example, picked up more members in the second quarter than it did in the second quarter of 2013, and Prime members buy more than non-Prime members," and suggest that this points to greater profitability in the future, I'm inclined to agree. But I'm not an investor with money on the line, and I'm not in the position where I need or want short-term gains.

    Amazon isn't playing a short game, but that can be a problem when they money people are.

    But I think all Amazon can do is keep moving forward, believing wholeheartedly that this is the only way to build and survive.

    Published on: July 25, 2014

    The New York Times this morning reports that the Obama administration is calling for the US Congress "to strip away tax advantages that have encouraged a rush of mergers and acquisitions that give companies an overseas base while they maintain their presence in the United States."

    The practice, called "inversion," has moved into the spotlight recently with reports that Walgreen could acquire the shares in British chain Boots that it does not already own and then move its corporate headquarters to save on taxes.

    In a speech yesterday, President Barack Obama accused such companies of essentially "renouncing their American citizenship by 'cherry-picking' the nation’s tax laws at the expense of ordinary taxpayers," according to the Times. “These companies are cherry-picking the rules, and it damages the country’s finances,” Mr. Obama said. “It adds to the deficit. It sticks you with the tab to make up for what they are stashing offshore.”

    The Times writes that "there is growing consensus on Capitol Hill that the rush of inversions should be stopped. Lawmakers from both parties worry that the more companies move their headquarters to countries like Ireland and the Netherlands, the more the American tax base is being compromised. Democrats and Republicans seem to agree that a short-term fix is needed, but there is partisan disagreement about what anti-inversion legislation should look like."

    One of the sticking points is whether any legislation would be retroactive - essentially forcing companies that have engaged in the practice to unwind their deals. Democrats think that the law should allow for this, but Republicans disagree. The story notes that the call for legislation means that the investment banking community is pushing US companies to make such deals now, betting that even if a bill is passed, retroactivity will not be a part of it.
    KC's View:
    First of all, I tend to agree with the notion that you can't make this kind of legislation retroactive. That strikes me as an untenable approach to legislating and doing business. All one can do is play by the rules that are in place at any given moment, and it isn;t fair to, when you change the rules, also punish people for not obeying rules that did not exist. Fair is fair.

    When it comes to the inversion debate, here's what I'd like to see - someone needs to come up with a simple chart that explains where corporate taxes go, and why it is good business for someone to stay here rather than go abroad. I'm willing to accept on faith the idea that the US is a better place to do business than anywhere else in the world, in terms of having a culture of innovation, greater levels of freedom, more access to capital, etc… But markets don't do much on faith…and so someone has to make this case persuasively.

    Published on: July 25, 2014

    • In its coverage of the executive changes at Walmart, MarketWatch notes that Greg Foran, who is replacing Bill Simon as CEO of the company's US discount stores, "is a groundbreaking choice: He has never worked in the U.S. Instead, Foran spent his last decade before joining Wal-Mart at Woolworths Ltd. the biggest retailer in Australia and New Zealand. He only left, according to Australian press reports, after he was passed over for the top job."

    Which is sort of ironic, since, as the story points out, Simon is leaving Walmart "after being passed over for the top job in favor of (Doug) McMillon."

    The story suggests that Foran is perceived as a more accomplished merchant than Simon, and that he will bring new thinking and approaches to a US operation that badly needs both - which is exactly what McMillon wanted. However, radical changes are not expected, but rather just a focus "on e-commerce and the acceleration of opening smaller stores," which is where McMillon is placing his biggest bets.
    KC's View:
    As someone wrote me yesterday, y'think that Simon might be interested in the top job at Target? (I wonder when his noncompete runs out…)

    Published on: July 25, 2014

    Bloomberg Businessweek reports that McDonald's has decided to use the next 18 months to do some soul searching and rebranding, telling investors that "it is taking the next year and a half to regroup after sales continued to slide in the recent quarter and such competitors as Chipotle seem to be leaving the burger leader behind. In McDonald’s case, however, the repositioning won’t necessarily involve the typical hallmarks of a rebrand, such as a new logo or total design overhaul … will instead focus on reworking the basics: better value, service, marketing, and menu."

    The goal "is to become a 'more trusted and respected brand,'” says CEO Don Thompson, and create a dining experience “customers will feel good about."
    KC's View:
    Three words - make better burgers. (For an example, go check out Burgerville in Oregon…a fast food restaurant that doesn't cater to the lowest common denominator.)

    Published on: July 25, 2014

    A new survey from Forest City and Alexander Babbage says that "shopping ranks as a favorite activity among nearly half of all teens and young adults aged 13 to 24.  Shopping at malls ranked above a virtual shopping experience among the entire group, with the 13-to-17-year-old age group showing the strongest preference for a bricks-and-mortar shopping experience."

    Of the key shopping influences, the survey says, "friends and in-store displays topped the list.  In fact, the study found that young shoppers are four times more likely to be influenced by friends and three times more likely to be influenced by in-store displays than by social media.

    "The survey also found that teens and young adults are more deal-oriented than generally expected.  In addition to finding a deal, young shoppers seek an experience that delivers individuality, authenticity and uniqueness.  Results also show that teens and young adults visit large shopping centers more frequently and spend more money there than at any other virtual or physical shopping venue."
    KC's View:
    Sure, they like shopping at malls with their friends. It is all about community. Plus, they're young … they've got nothing else to do.

    Any suggestion that this trend means that these young people won't embrace online shopping as they get older is simply nonsense.

    Published on: July 25, 2014

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

    • The Dallas Morning News reports that Safeway shareholders today are expected to vote in favor of the $7.6 billion sale of the company to Cerberus-owned Albertsons.

    However, that doesn't mean the actual closing of the deal will come anytime soon, since federal antitrust regulators still are examining the deal and its competitive implications in places where the two chains overlap, such as Los Angeles; Seattle; San Diego; Portland, Ore.; Phoenix; and Dallas-Fort Worth.

    • Whole Foods,in one of the least surprising announcements of the year, has said that it "strongly supports Oregon's Measure 92, requiring mandatory labeling of raw and packaged foods containing Genetically Modified Organisms (GMOs) by January 1, 2016."

    More than 155,000 Oregonians signed a petition to put Measure 92 on the ballot this November.

    Whole Foods already has taken this step: By 2018, all food in Whole Foods Market's U.S. and Canadian stores must be labeled to indicate if they contain GMOs.

    • Pity poor Tesco. The Britain-based retailer has had a tough week.

    First its CEO is fired.

    And now, the Mirror reports - with pictures - about a sign posted on a refrigerated case in a Tesco Express store in East London, apologizing for the fact that it was out of order and apologizing for any inconvenience.

    Except that the brainiac who wrote the sign apologized for any "incontinence" caused by the broken fridge.

    The sign quickly made it onto Twitter, forcing Tesco to apologize online for both the broken equipment "and for the grammatical errors."

    Except that I don't think this actually was a grammatical error. It was incorrect word choice. But I'm not asking Tesco to apologize for the mistake. They've had a bad enough week.
    KC's View:

    Published on: July 25, 2014

    • Roundy's announced that its executive vice president/CFO, Darren Karst, will be leaving the company to join Rite Aid in the same role. The company also announced that Michael Turzenski, currently Roundy’s Group Vice President and Chief Accounting Officer, has been named to succeed Karst as Group Vice President/CFO.
    KC's View:

    Published on: July 25, 2014

    Got the following email from MNB reader Craig Espelien:

    Your observations today on the Apple store in Portland and why Apple seems to stay focused on “cool” – and keeps the cool factor with emerging technophiles were interesting.  I have two points.

    First, Apple does not seem to mind that they are not the units leader in anything (iPhones sell fewer units than other operating systems. Computers sell less than Windows based, etc.) and this may be due to price – they occupy the “Premium” or even “Luxury” segment of their space – where others focus on OPP (opening price point) or Mid-Price.  They have refused to budge over the life of the company from this price/value position – where others continually seek to undercut them in terms of price and overall value.  That leads to my second observation/comment…

    Years ago there was a Quaker Buying Game (it may still be used but I am not sure) that put people into teams and you had to figure out how to make, market and sell a widget (think Coffee Makers).  This was a simulation that was built off of the decisions team members made about price, quality, innovation and a few other factors (some of these dim in the depths of time as this was part of my grad school experience – focused on team building strangely enough rather than sales and marketing) where the computer created an outcome by meshing the decisions of all teams into a fictitious marketplace.  I have since been exposed to this simulation multiple times – and the eerie thing is that the team that starts – and stays with – the best of everything (innovation, quality, price premiums, etc.) usually wins (my team came in second as we blinked in terms of quality during one of the rounds – we sold the most units but did not make the most money).

    My point, Apple seems to be focused on the total value of staying cool – and connected to the emerging market – whereas Microsoft (and many other competitors) seem to want to race to the lowest common denominator.  We can tie this to the grocery segment as too many stores try to be the cheapest but the folks who focus on the higher end (Whole foods, Lund’s/Byerly’s, Wegmans, etc.) seem to be weathering the storm better.  Now, I am not naïve enough to think that there is not success in other areas – there is.  But, it seems to me that people who chase their competition end up struggling more (regardless of their channel – can you say Family Dollar) than those who focus on being the best they can be at what they do (Dollar Tree).  Walmart struggled when it tried to be more like Target, Target has struggled since it tried to be more like a grocery store, Save A Lot struggled when it tried to be too much like Aldi, the list could go on and on.

    My Words of Wisdom for today:  All retailers and manufacturers should look at Apple and ask themselves – what nuggets of business acumen can I harvest from their success and what am I willing to sacrifice to get there (we could talk about canned vegetables sometime as they epitomize the challenges faced in the CPG world – but that is a much longer story)?

    MNB reader Matt Weeks posted the following note on MNB's Facebook page:

    It would be interesting to compare the difference … between "play" and "work" in terms of engagement with a brand. As in all consumer brand experiences that drift into the "must purchase" category (as in food, (coffee for you), soft goods, fuel, other regular repeat purchase brand experiences), there is something going on emotionally as people "engage" with, and associate the brand in their minds. Is there something chemical going on associated with the pleasure zones as well? In "play" we burn-in experiences with the brand in a different part of our mind than "work." Yet as you see in the Microsoft VS Apple store experiences, it's not the size but rather it's the nature of the brand. So what can all retailers/ brands learn from this? Is there room for "play" at Whole Foods? at BP? at Dunkin' Donuts? at Macy's? What are your thoughts on what drives people to "play" as part of engagement, even in categories that crossover into "work."

    I'm not sure it is so much a matter of play vs. work as it is engagement vs. indifference. Apple has made the decision to create an ecosystem, not just products. It has focused on premium products, emphasized style and taste, and that approach - while much debated - seems to have worked in its favor. It may not be the biggest and most successful company of its type, but Apple seems to change the world with greater frequency than its brethren.

    I must've been off my game yesterday.

    We had a story that started out this way:

    In Minnesota, the Pioneer Press reports that Target is testing a new small store format with a 20,000 square foot TargetExpress store that opened this week in Minneapolis's Dinkytown neighborhood, and another one that is planned for the Highland Park section of St. Paul.

    MNB reader Jill M. LeBrasseur was faster than I:

    Was it wrong of me to keep waiting for some comment on the fact that this new small store is opening in Dinkytown? I couldn’t believe you passed up that pun-portunity.

    And another reader chimed in:

    I would assume that everything (not just the new TargetExpress) is smaller in Dinkytown.

    Boom! (I can't believe I missed this one.)

    But I also missed another one.

    We took note of an Extreme Tech report that a Sainsbury store in the UK soon will become the first supermarket on the planet to get all of its electricity from its own food waste. It all has something to do with biogas and anaerobic digestion, which led MNB reader Steven Ritchey to write:

    I’m still trying to come up with a way to connect the campfire scene in Blazing Saddles with the creation of methane gas from garbage and generating electricity with it.  There’s got to be a connection.

    Go figure. Mel Brooks was an environmentalist.

    I just wish I'd thought of this. Apparently, yesterday morning my mind was nota raging torrent, flooded with rivulets of thought cascading into a waterfall of creative alternatives.

    By the way, on a more serious note about this subject, MNB reader James Tenser wrote:

    Here’s proof that I read and enjoy MNB even though I rarely pipe up in comments.

    I loved the Biogas at Sainsbury Eye-Opener this morning because it adds even more fuel to the argument that retail stores can be net energy producers.

    Of course I’ve been thinking mostly about photovoltaic rooftops, due possibly to my location in Solar Arizona.

    Composting might be more efficient for supermarkets in some more northerly climes. Or maybe both make for a winning combination.

    All true.

    But for the record, you don't have to prove anything.

    And MNB reader Joe Madigan wrote:

    Just writing to say that I was at Chicago’s Museum of Science and Industry with my daughter recently and learned about the energy process that you described for Sainsbury.  You may already know this, but this technology is fairly well-established on US dairy farms, including selling energy back to the grid.  Even better, it captures the methane, a potent greenhouse gas, and uses it to create energy instead of polluting the atmosphere.  To paraphrase Sinclair Lewis….”they use every part of the cow except the moo”.

    I did not know that. (Then again, what I don't know makes up a really long list…)
    KC's View:

    Published on: July 25, 2014

    I cannot recommend strongly enough that you see a new documentary called Life Itself, which is about the life and death of the popular film critic Roger Ebert.

    It is a remarkable movie, filmed in the months leading up to Ebert's death from cancer last year. While it is directed by Steve James (who made Hoop Dreams, a movie that Ebert championed), the movie is very much an Ebert production - his memoir (also called "Life Itself") is liberally quoted, and he is seen offering suggestions and directions to the documentarians.

    The move essentially follows two tracks. It follows Ebert's life as a college newspaper editor, film critic for the Chicago Sun Times, recovered alcoholic, author, TV celebrity (and a nemesis to his co-host, Gene Siskel) and general raconteur; it also celebrates his marriage, late in life, to Chaz Ebert, a relationship that added immeasurably to his happiness and satisfaction. But, the movie also looks unflinchingly at Ebert's illness, as his jaw was partially removed, which left him unable to talk, eat or drink. But even facing enormous challenges and pain, Ebert continued to write, becoming even more prolific in the last months of his life, all of which are shown - to the point of sometimes being hard to look at.

    Life Itself is an enormously profound and moving movie … maybe not the best choice of a movie to watch just days after the death of my sister from cancer … but in the end, it is a movie about life, not death. It is intimate and moving. It celebrates a man of great passion and talent … and it is one of the best documentaries of its kind that I have ever seen.

    And here's the good news. While Life Itself has just been released to theaters, it also is available on iTunes, making it easier to see and share.

    See it. ASAP.

    That's it for this week. Once again, I thank you for all the emails and notes, and I hope you have a great weekend.

    See you Monday.

    KC's View: