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    Published on: March 9, 2015

    by Kevin Coupe

    A story emerged out of one of the Sunday news shows yesterday that I think teaches a strong business lesson. Now, to repeat something that I wrote last week when I took shots at Hillary Clinton for not using an official State Department email address when she served as Secretary of State, therefore keeping all her emails on a personal account less vulnerable to prying eyes, let me just say for the record that I want to wade in a little carefully here, because the context is political ... but to be absolutely clear, I am not choosing political sides. But the example is too juicy to resist. Last week, when writing about Clinton, I wrote that she is just the latest example of a person who, believing that they can control the narrative, actually behaves in a way that subverts their best interests and hands control of the narrative over to others."

    All of which I believe, Fervently. And I think it offers a strong and relevant business lesson.

    But yesterday, Sen. Lindsey Graham (R-South Carolina), who has said that he is considering a run for the presidency, said on "Meet The Press:" that there never will be a problem about looking at his email ... because he has never sent one.

    Not officially. Nor privately. Never.

    “I don't email,” Graham said. "You can have every email I have ever sent. I've never sent one.”

    Fox News writes that "Graham's lack of email use in a world -- both inside and outside of the beltway -- that essentially relies more each day on social media could ... pose a challenge for him if he becomes a presidential candidate."

    Referring to his lack of email experience, Graham said, "“I don’t know what that makes me."

    Well, I do. The word Luddite comes to mind.

    And the question I would ask is whether there is a board of directors anywhere in America that would hire a CEO that never had sent an email. (This isn't a generational issue...Graham is younger than I am.)

    I remember that when I started MNB more than 13 years ago, I'd occasionally run into a CEO who did not read the site online, but rather would depend on an assistant or secretary to print it out. (One of them actually suggested to me that as much as he liked MNB, he thought it would be a lot more compelling if it were in color. I had to gently tell him that maybe he should ask his secretary to use a color printer. True story.)

    I'm glad to say that this hasn't happened for a long time. And as outrageous as I find Clinton's actions to be, I find Graham's admission also to be remarkable ... and in its own way, an Eye-Opener.
    KC's View:

    Published on: March 9, 2015

    Yahoo! Food reports that "by a nose, American dollars spent at restaurants and bars outstripped those plunked down in grocery stores in January, a first since the Census Bureau began tracking data in 1992 ... More than two decades ago, Americans spent $162 in groceries for every $100 they spent in restaurants. But this past January, they spent nearly equal amounts of money in both places: $50.475 billion in restaurants and bars, and $50.466 billion in grocery stores."

    “I think it’s a combination of a recovering economy and changing eating habits,” says Mark J. Perry, a University of Michigan economics and finance professor, suggesting that lower gas prices have helped provide people with disposable income with which to eat out. Plus, he says, "The role of the restaurant has changed in society. It’s less of a special occasion [destination], and even for some people, like me, eating out is an everyday occasion."
    KC's View:
    This speaks to a lot of things ... in part, the rebounding economy, but also the inability of a lot of people to cook, the lack of time to actually prepare a meal, and the degree to which at least some restaurants seem to have successfully adopted the "third place" strategy that has helped drive the growth of companies like Starbucks in recent years. And, I think it points to a major challenge facing many American supermarkets ... because if restaurants are growing their share of stomach, somebody has to be losing.

    Published on: March 9, 2015

    The New York Times has a long piece about McDonald's identity crisis, which now is being addressed by Steve Easterbrook, the longtime company executive who has spent most of his time in Europe but now serves as the corporation's CEO. Last week, the story says, he was in Las Vegas at a franchisee meeting, outlining a new image for the chain - that if a "destination," a "modern, progressive burger and breakfast restaurant” where “customization and made to order” are essential and where executives “align our food story around the consumer’s definition of quality and value.”

    The problem, of course, is that McDonald's is largely seen these days as a fast food restaurant where the food isn't that great and not even that fast.

    One analyst tells the Times that Easterbrook seems "clearly wedded to the notion that they need to try new things to restore growth." The question is whether he can forge a new direction for the company while keeping its core identity intact. Or maybe whether he can forge a new identity for the company while keeping its core direction intact.

    Or do something else entirely, though something that works.

    You can read the entire story here.
    KC's View:
    For some reason, I can't seem to get RadioShack out of my mind when I read about McDonald's travails - the story of a brand with a long history that could seem to find its way to relevance in the modern world. The circumstances, to be sure, are different, but I think McDonald's has to be careful about following RadioShack down the nine miles of bad road that has doomed that company to virtual obsolescence.

    And I still think the best way for McDonald's to change its image and fortunes would be to make a better burger.

    Published on: March 9, 2015

    The Wall Street Journal has a story about Mike Hallatt, described as a "55-year-old serial entrepreneur and Vancouver native" who decided to start bringing Trader Joe's products into Canada in 2012 and selling them as a store he calls Pirate Joe's ... completely with a fully disclosed markup and transparent business model - making Trader Joe's products available in Canada, where the company has no stores.

    According to the piece, Trader Joe's management is not happy with Pirate Joe's, but Hallatt continues to make weekly trips into the US, where he hires people to buy as much as $6,000 worth of products at Trader Joe's; he says that Canadian customs agents are so used to him by now that they accept his spreadsheets as an accurate accounting of what he's bringing into the country.

    The Journal writes that the single-store outlet "plans to go nationwide in Canada later this year via an online shop that will ship products anywhere from Nova Scotia to the Yukon."

    Though even Hallatt seems surprised that the concept has remained viable for three years. "This thing is basically a pop-up store that has gone on too long," he says.
    KC's View:
    Forget about the specifics of this story. The larger lesson, I think, is how important it is to have such differentiated product that people will move heaven and earth to get it. It is easy to have the same stuff everybody else ... it is hard to define and exploit points of difference. Whatever the implications of the Pirate Joe's business for Trader Joe's, there has to be a certain sense of satisfaction that it proves out the company's essential business proposition.

    Published on: March 9, 2015

    The New York Times reports on a study from researchers at the University of Maryland and the University of North Carolina at Chapel Hill saying that "narcissistic CEOs tend to overspend on investments and deliver substandard results. On top of that, they are often paid more than their humbler yet better-performing peers."

    According to the story, "Researchers came to this conclusion after analyzing the signatures of about 450 chief executives at public companies. The size of a person’s signature is positively associated with many of the traits of narcissism, such as ego, exploitativeness and dominance."

    The story goes on to note that the researchers "looked at the executives’ level of investment and tracked later results. Given the data, it appears that the narcissists talked a good game but could not live up to it. Not surprisingly, their tenure at companies was shorter, too. Narcissists may do the most damage at the top, but they can disrupt workplaces at all levels. They possess very little empathy and have grandiose views of themselves, leading to feelings of entitlement and a constant need for admiration."
    KC's View:
    A few weeks ago, I had a chance to spend some time at USC, with the 2015 Food Industry Management Class. And one of the things they've been focused on is the whole nature of servant leadership ... which, considering this story, I find to be heartening.

    I'm not sure that analyzing signatures is the most scientifically valid way of determining which CEOs are out for themselves. But we all know the ones who are out for themselves, and the ones who are not, and I would not be at all surprised to find out that the narcissists are less effective in the long run.

    Published on: March 9, 2015

    Reuters reports that "the family of a Northeast Ohio high school senior who died of a caffeine overdose last year filed a wrongful death lawsuit on Friday against several companies including Inc, which shipped the supplement ... Logan Stiner, 18, died in May of a cardiac arrhythmia and seizure due to acute caffeine toxicity shortly before he was set to graduate from high school, Lorain County Coroner Dr. Stephen Evans said. Bags of powdered caffeine were found in his room."

    The story notes that "the state court lawsuit contends Amazon and six apparently related Arizona-based companies violated Ohio safety laws by manufacturing, distributing or selling powdered caffeine ... The lawsuit filed by Stiner's father says the companies promoted, advertised, offered for sale and sold Hard Rhino pure caffeine powder on Amazon. It also names as a defendant a classmate who bought the powder and gave some to Stiner."
    KC's View:
    I have no idea about legal culpability here ... but I do know that my heart breaks for these parents. I also know that this reflects a larger, more pervasive trend ... holding retailers responsible for the products they sell.

    Attention must be paid.

    Published on: March 9, 2015

    Reuters reports that Amazon "has opened an online store on Alibaba Group Holding Ltd's fast-growing online marketplace, as it seeks to expand in China."

    Alibaba, of course, is seen as a competitor to Amazon as it expands its presence in the US.

    The story notes that "Alibaba's Tmall offers virtual storefronts and payment portals to merchants. Several western retailers, including Zara owner Inditex, Britain's Burberry and ASOS, have joined TMall this year as they look to boost their presence in China."
    KC's View:

    Published on: March 9, 2015

    • Delhaize-owned Food Lion has announced that it plans to remodel all of its Raleigh, NC, stores this year, a market refresh effort that it says will bring those stores in line with its "Easy, Fresh and Affordable. You Can Count on Food Lion Every Day!" strategy."

    According to the announcement, "The Raleigh market remodels are expected to be completed in stores on a rolling basis between April and October 2015. Food Lion will continue to launch enhancements for customers across all of its 1,100 stores in 2015, as well as remodels in markets over time. Raleigh is the third market to receive the store remodels. Seventy-six stores in the greater Wilmington, N.C., and Greenville, N.C., markets were remodeled in 2014."

    • Dollar General announced that it is opening stores in three new states - Maine and Rhode Island, - which expands the retailer’s presence to 43 states.
    KC's View:

    Published on: March 9, 2015

    • Walmart India announced the appointment of two new executives - Ashwin Mittal as Walmart India's new chief financial officer (CFO) and Javier Rojo to lead real estate and business development. According to the announcement, Jill Anderson, currently the CFO of Walmart India, will soon repatriate back to Walmart in US.

    Walmart says that Mittal joined the company in 2007 as head of financial planning and analysis and since then has assumed various key roles including head - business finance and strategy, deputy CFO and chief business development officer. Rojo previously was the senior real estate director for the New England, US division of Walmart.
    KC's View:

    Published on: March 9, 2015

    Got the following email from MNB reader Craig Espelien:

    On the wage front, I do not agree with a mandatory increase in minimum wage to a “living wage”.  I empathize with folks who are unemployed and underemployed (I have been both during periods of my career) but the jobs (retail, fast food, etc.) that this impacts are typically part-time and were not intended to be a “career” (I worked at these jobs in the past – and my wages increased the longer I stayed the more value I added to the organizations involved) and are usually adjusted by the market forces as necessary.

    I am an economist by education and a retailer by experience – and the concept of scarcity of resources has been ingrained in me continuously over the years.  If you own a scarce resource, then you will be rewarded for it; if you need a scarce resource then you will be forced to pay a premium for it.  Minimum wage jobs in and of themselves typically do not require a scarce resource – they require limited training and are perceived as replaceable (this is a chicken or egg dilemma as the hidden cost of replacing unhappy workers is not factored in to the cost of operating a business or the impact of low wages on a business) provided there exists a sea of “replacement” workers.  When labor is scarce (per your notes today on both the MarketWatch and Bloomberg pieces), wages naturally rise as companies compete for these scarce resources (similar to how inflation works – fewer goods being chased by more dollars).

    As an example, when Eden Prairie (Minneapolis suburb) was new and growing (and was the HQ of Supervalu where I worked at the time) in the mid-1990’s, the local Burger King was offering part time jobs starting at $9.00 – and struggled to get workers due to the scarceness of labor (minimum wage was under $4 per hour at the time).  I believe that Walmart embraced both this opportunity and the PR opportunity by taking the stance they did – the challenge going forward with a mandatory minimum at $15 is that there is no going back once the scarcity of labor is removed – and then companies will need to reduce staff to save costs.  I am not convinced that the upward spiral (the multiplier effect of rising wages and rising disposable income) will offset the downward spiral (low sales/profits leads to cuts in costs and staff which leads to poor service which leads to lower sales/profits).  The market will work if we allow it to – but demanding a short term (and permanent) fix to a passing (albeit uncomfortable and disheartening) challenge is not good fiscal or monetary policy.

    Jobs are worth what the market dictates (or should be) – one of the large tech companies (Google I think but don’t quote me here) recasts wages for every job every year – some years you get a raise and some years you don’t based on what your job is worth in that market.  Mandatory increases in minimum wage moves us closer to the nanny state – and smells too much like welfare to me as the jobs it would apply to were never intended to be the sole support mechanism for an individual or a family.

    On a related issue, MNB reader Christ Utz wrote:

    Walmart’s well-publicized wage hikes highlight a simple economic trend:  Inflation…

    I wouldn’t be too quick to credit Walmart with altruistic motives.   Other retailers have raised wages with little fanfare.  I’ve seen signs at Aldi offering over $12/hour for non-managerial  positions.   As long as Washington keeps printing boatloads of money to finance deficit spending; we can expect this trend to continue.

    From another reader:

    Kevin, its hard to feel sorry for Wal-Mart increasing its minimum wage.  They still rely on the Gov’t to provide healthcare to many of their workers.  Perhaps the solution would be to provide meaningful healthcare (and related premiums) to their part & full-time workers, instead of asking the Gov’t to subsidize?  That’s a better solution in the long term…

    On the subject of yet another great quarter for Kroger, one MNB user wrote:

    I work for Kroger (Fred Meyer) and I have to say, it’s a great feeling to wake up and go to work each day knowing that the leadership of your company really knows what they’re doing!

    It occurs to me that the people who don't know what they are doing are the folks who a couple of weeks ago were suggesting that Kroger's winning streak was about to end ... I'm convinced that more often than not, those kinds of statements are uttered by people who most want to see themselves quoted in the papers, and who are less interested in understanding the companies they cover.

    And, from another reader on a different subject:

    I was one of those people who yesterday when someone mentioned to me about Daylight Savings Time being this Sunday and I hadn’t realized it….but you know the nice thing…even if somehow I would have forgotten….my iPhone would have changed and I wouldn’t have missed it….I still remember a time  when I was in college and a friend who forget to set his clock for the time change and missed a class on the Monday…it was pretty funny but that is not something anyone could claim anymore.

    True. I think the only things that don't change by themselves are old fashioned wrist watches, microwave ovens, and car clocks.
    KC's View:

    Published on: March 9, 2015

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    KC's View: