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    Published on: May 12, 2015

    by Michael Sansolo

    It appears that Whole Foods and Macy’s have similar plans for very dissimilar forms of retail. In order to chase to economic realities of the day - large portions of the population, including Millennials, struggling to make do with lower incomes- both are pursuing the value-retail segment.

    No one knows if their plans will work, but either way I bet others follow. Creating bargain-based divisions are nothing new and in all likelihood will grow in importance as competition soars from deep discount “dollar” chains or the twin European invaders Aldi and Lidl.

    Before anyone jumps in that pool, I’ve got a simple suggestion: fly Spirit Airlines. If you want a sense of what value is and is not, I think Spirit delivers a very strange, yet clear answer.

    Remember, value doesn’t just mean price. It means understanding what a consumer expects from you and your products: what they need to have vs. what they might like to have. Get that equation right and you have a winner. Get it wrong and you have a disaster. And that’s why a flight on Spirit might just matter.

    Flying Spirit is a unique experience. It is the airline you probably heard about once or twice in the news for all of its “a la carte” pricing. That is - at Spirit you pay for everything.

    • Want to print your boarding pass at the airport—it will cost you.

    • Checking a bag will cost as will every carry-on beyond your “personal” item.

    • Even that soft drink you get on board - prepare to shell out a couple more bucks.

    In all honestly, I never wanted to fly Spirit. I had heard the same stories about the nickel and dime policies and thought them ridiculous. Plus Spirit got poor marks for on-time arrivals. Yet a recent speaking engagement forced my hand. My choice was to hit my client with a really high airfare or take Spirit and save them close to 70 percent.

    I decided Spirit was worth the chance and to make a long story short: I’d do it again. Because what I learned on that trip was my real value equation with air travel and suddenly Spirit was a reasonable alternative.

    What I want from an airline is actually pretty simple. First, get to me to my destination SAFELY. (That’s a pretty big one.) Second, get me there close to the time you promise. Beyond that, there isn’t much. The planes I’m on are rarely that clean; there are really no free on-board services beyond my can of Coke Zero; and the entire process with the exception of my TSA Pre-Approved status stinks.

    Spirit did just fine. With the help of an experienced adviser I knew to print my boarding pass on my own, to pre-book my carry-on luggage to reduce my cost, and even to pay a few extra bucks to get a slightly more comfortable seat. The only negative: Spirit doesn’t offer TSA Pre-Check.

    The result: my first flight landed right on schedule; the return flight 20 minutes early. Basic values received!

    Now I understand my next Spirit flight could change my mind. Then again, I am writing this article while stuffed in a crowded seat on a packed United Airlines jet. United used to give me free bags, movies, television shows and even food. Now all except the free bags (I fly a lot) are gone. United has made flying less comfortable and made Spirit a better alternative.

    The Spirit lesson for other businesses is simple. First, understand what your customers really, really value. If all you offer them beyond the basics are things they willingly give up, you have a problem. Your edge might not matter.

    Conversely, make your edge matter. If you reduce those things that make you special - customer service, quality, whatever - you close the gap between you and the value players making their alternative offering all the more successful.

    Remember, value and price are not synonymous and the former is far harder to measure than the latter. Lose that edge at your own peril.

    Michael Sansolo can be reached via email at . His book, “THE BIG PICTURE: Essential Business Lessons From The Movies,” co-authored with Kevin Coupe, is available on Amazon by clicking here. And, his book "Business Rules!" is available from Amazon by clicking here.
    KC's View:

    Published on: May 12, 2015

    by Kevin Coupe

    Here's a number for you.

    The New York Times reports that Airbnb "now has more than a million rooms available in homes, apartments and even former barns — more places to sleep than hotel giants like Marriott and Hilton."


    The Times goes on to note that "despite this growth, though, the big hotel chains, at least outwardly, have yet to take substantial action to counter the potential threat from the upstart lodging service." In part, that's because the travel market is strong, and the major chains say Airbnb has not had any measurable impact on their revenue.

    However, the Times writes that while chains may seem sanguine, "hotels are taking some actions as the service grows more popular. Hospitality industry representatives are asking for laws requiring Airbnb properties to adhere to the same safety standards that hotels do. Airbnb said it required hosts to follow their local laws and encouraged all hosts to take some basic steps to keep their homes safe."

    And small hotels are taking a different approach - they're joining Airbnb.

    One thing strikes me as certain. If hotels don't think that Airbnb is competition, they're making a mistake ... and at the very least, they ought to be thinking about the qualities that make the service successful.

    It'll be an Eye-Opener.
    KC's View:

    Published on: May 12, 2015

    The Denver Business Journal reports that "Safeway is closing nine locations across metro Denver, citing non-profitability as the main reason for the decision."

    Safeway was acquired last year by private equity firm Cerberus Capital Management, parent company of the Albertsons chain. The two chains' operations have largely been merged, and in Denver - where both chains were being hammered by competition from a variety of angles, from the likes of Kroger's King Soopers, Walmart, Whole Foods and Trader Joe's - the conclusion was reached that closing units was the most appropriate course of action.
    KC's View:
    One has to wonder if this is going to be a pattern at the new Albertsons-Safeway organization ... that in places where the company is not competitive, it is going to cut off the dead wood and concentrate on the stuff that works.

    Published on: May 12, 2015

    Delhaize and Ahold this morning confirmed that they indeed are in preliminary talks about a possible merger, though they emphasized that there are no guarantees that the talks will bear fruit.

    Some reports put the value of such a merger at $25 billion or more.

    Meanwhile, Bloomberg reports that the merger "is more likely now after Delhaize brought in new management and overhauled its board to loosen the Belgian company’s ties to its founding family ... The board is more international than in 2007, the last time merger speculation cropped up, with fewer Belgians and more Americans, reflecting the company’s increased U.S. presence. It also includes executives from multinational companies such as Unilever and Adecco SA. Muller, the first CEO from outside the family, is from the Netherlands, Ahold’s home country.
    KC's View:
    This one sounds like it is going to happen.

    Published on: May 12, 2015

    Time has a piece in which it suggests that when Whole Foods announced that it would open a new chain of stores under a different name that would have lower prices and a stronger appeal to millennials, it was an attempt to save face in case previously announced plans don't work out.

    After all, it wasn't that long ago that Whole Foods said it planned to grow from its current fleet of 417 stores to more than 1,200, that it was engaged in a broad price-cutting strategy that would help it gain distance from its "whole paycheck" reputation, and that it would open a portion of these stores in smaller markets by using a smaller footprint.

    Now, the story suggests, Whole Foods may be seeing that these strategies and tactics have their limitations, especially in the face of highly effective competition from the likes of Sprouts and Trader Joe's, and is reaching for a different approach that will help it fulfill its growth goals.

    And, Time suggests, while consumers may respond to this new strategy, the evidence to this point is that Wall Street is less than enthralled.
    KC's View:
    I loved it when one MNB reader came up with a name for this new chain of stores - "Half Foods."

    I'm not saying this can't work. But I do think that Whole Foods is demonstrating that its strategies and tactics haven't been working to the extent that it hoped, and there are serious questions about whether this is just a matter of throwing (organic, gluten-free) spaghetti against the wall to see what sticks.

    Published on: May 12, 2015

    Re/code reports that "Amazon has quietly expanded its Amazon Fresh grocery delivery business to parts of Northern New Jersey, a check of its Amazon Fresh website found."

    The story goes on: "The expansion is not a huge surprise, considering that Amazon started delivering groceries to parts of Brooklyn and Manhattan in the last eight months, and at least some of the food being delivered is coming from a big warehouse in Avenel, New Jersey. But with each new market in which Amazon launches its Fresh business, it becomes more clear that this initiative is no longer an experiment; it’s a big part of where Amazon expects to get sales growth from in the future."

    And: "The move into New Jersey comes shortly after Amazon announced it would offer a limited number of frozen and perishable items such as milk and juice for delivery in Manhattan as part of a program called Prime Now. This is separate from the Amazon Fresh initiative, which offers a much wider selection of groceries. Prime Now allows Prime members to get two-hour delivery on a smaller selection of goods for free, and one-hour delivery for an extra $7.99 fee."
    KC's View:
    Now, what Amazon Fresh really needs to do if it wants to be successful is get into the rotation of food purveyors used by New Jersey Gov. Chris Christie ... since a new report from a non-profit investigative unit revealed this week that about 80 percent of the governor's $360,000 annual allowance has gone to food and booze, including $76,373 spent at Wegmans Food Market for 53 different purchases, $11,971 at ShopRite on 51 occasions and $6,536 at ShopRite’s liquor stores in just seven visits.

    Published on: May 12, 2015

    Fortune reports that Starbucks has responded to a sticky public relations problem - sourcing much of its Ethos brand water from drought-plagued California - by moving its sourcing and production out of state to its Pennsylvania supplier.

    The company says that it also will look for a new, non-California source for water that it can sell on the west coast.

    The story notes that "the news comes a week after Mother Jones magazine published a report that found that Starbucks was sourcing water from private springs in central California’s Placer County, at the foot of the Sierra Nevada mountains, and operated a bottling factory further south in Merced (about halfway between Monterey and Yosemite), both in areas deemed by the federal government to be experiencing “exceptional drought” conditions."
    KC's View:
    Great example of how sometimes it doesn't matter how good your intentions or practices are, because you just find yourself in the wrong place at the wrong time. When that happens, you have to respond ... quickly.

    I'm not sure if it even was possible, but I guess the ideal situation would've been for Starbucks to make the shift before Mother Jones ran the story. But life rarely is ideal.

    BTW ... the story notes that "Starbucks bought the Ethos Water brand in 2005 and gives a nickel of every $1.95 bottle sold to water charity projects around the world. Ethos has raised around $12.3 million for water charity projects to date."

    Published on: May 12, 2015

    Check out this YouTube video, which illustrates Walmart's Advanced Vehicle Experience ... designed to be the company's entry in modern, efficient trucking. It's pretty cool looking ... and probably better to see it the first time on video rather than on the road. (See it on the road the first time, and you might drive into an abutment...)

    KC's View:

    Published on: May 12, 2015

    In one of the more predictable moves it could have made, Tesco has replaced its auditor of 32 years, PricewaterhouseCoopers (PwC) with Deloitte.

    The decision comes as Tesco continues to try to recover from the accounting scandal that has led to numerous executive departures, lawsuits and a series of investigations into its financial dealings.
    KC's View:
    Like I said, this had to be the easiest decision that Tesco had to make this year.

    Published on: May 12, 2015

    • In the UK, This Is Money reports that Walmart-owned Asda Group is looking to gain some sales momentum - hard to do in the face of very tough competition from discounters such as Aldi and Lidl - with a price slashing tactic that it says will make it "5 per cent cheaper than Sainsbury’s and Tesco on a range of key branded goods."

    "News of the reductions emerged," the story says, "after a fresh round of financial results from leading retailers, which showed that the price wars and increasing competition from discounters Aldi and Lidl are taking a toll on profits."
    KC's View:

    Published on: May 12, 2015

    Got the following email from an MNB reader who was ruminating on all the observations we've had here about Walmart suffering from a serious and systemic out-of-stock problem:

    I have often wondered if Walmart’s high out of stock levels are another example of “making money on the buy, not the sell”, although I can’t for the life of me figure out how they think it helps their business … unless they are withholding payments long after products have sold through, and then delaying reordering long enough to make money on their money.  I guess it could be a strategy, but a very short-term one.

    Uber is testing the water on food deliveries with a 10-minute guarantee. leading one MNB reader to write:

    Is my memory correct that Dominos once did a 20 or 30 minute or free delivery? End result was stopping the guarantee and stopping the accidents caused by speeding drivers. Just thinking.

    On the subject of Whole Foods' decision to launch a new chain of stores next year that will have lower prices and appeal to millennials, one MNB user wrote:

    I feel that constantly pandering to the lowest price is not necessarily good for business or stakeholders. It seems to me that ever since Whole Foods has tried to focus on value brands and lower prices to bring in new customers, the stock price has been going down. There have been some ups, but the sales growth each year is softer and softer. That could, to a certain extent, be a matter of saturation of the markets where they already are. There are only so many tummies to fill. But I think they are negating their main demographic.

    It seems that they are just a “grocery store” now…not someplace special you can  brag about getting that cheesecake from, or amazing produce. They may still be the best at what they do, but they need to focus on their foundations and not just running after any extraneous shopper. Maybe the new brand will let them do that – maintain the higher end feel and demographic while still creating an engine that everyone can benefit from.

    Sometimes, it’s not just about spending the least amount of money. It’s about quality and values. Americans spend a much smaller proportion of their income on food than most other countries. And, in general, in this country you get a lot of crappy food for your money, filled with government subsidized corn and soy fillers in various forms. I don’t mind paying for good, decent food – that is actually food.

    From MNB reader Larry Ishii:

    I fully agree with your assessment of Whole Foods’ strategy for this new format.

    But being targeted at the “20-30 somethings”, don’t they run the risk of making these shoppers so comfortable to the new format that they will resist the current format as they get older?

    We baby boomers will all be gone in time (at least not able to do our own food shopping) and Whole Foods could be left with shoppers that will only accept the lesser sort of program.

    This could be very risky.

    On another subject, referring to a comment I made the other day, MNB reader Alina Gagnon wrote:

    Just curious. How come you are not a CVS fan?

    Mostly, it is the long receipts that are responsible for the death of millions of trees, and a loyalty program that strikes me as totally store-friendly and not nearly as usable by consumers as it should be.

    On the subject of Blue Bell's listeria problems, one MNB user wrote:

    People who don’t live in Texas will have a hard time understanding what Blue Bell Ice Cream means to Texans, and what a shock it is to learn what is truly a part of Texas Life has been mismanaged and misrepresented.

    I agree that the violation of the public trust will be very hard if not impossible to recover from, and the executives involved should be prosecuted.  Blue Bell will make a great case study of what can happen with a very private family owned company where in my opinion they became convinced that they were invincible based on the success and growth of the company over the past 20 years from small town roots in Brenham, TX.

    MNB reader Andy Casey wrote:

    Definitely agree, it would surprise me if Blue Bell ever recovers from this as a company – beyond the costs of the recall, the litigation will be lengthy and expensive.  Probably the best we can hope for is they sell their recipes to someone who knows how to do it right because it was really good ice cream.

    The biggest surprise of this story to me was not that a major corporation would know about a listeria problem for two years and do nothing about it, but that Blue Bell was the nation's second largest ice cream company.

    But I do have a thought about what to do with all that ice cream. Apparently there are all these tunnels in Texas that are being used to house federal troops with designs on imposing martial law on the Lone Star state. Maybe they could dump all that listeria-infected ice cream down there and wait for the troops to keel over.

    We had a piece recently about a study that suggested that a pretty large percentage of people find grocery shopping to be a fun experience, leading one MNB user to write:

    Since it is a global survey, I will give them the benefit of the doubt. But I have to say, it is not a fun day for me grocery shopping when the family is ushering cranky kids through the grocery store. I sympathize, been there, done that, but I don’t enjoy the experience any more than the crying child in the cart or the slow moving moper bringing up the rear. It is a necessity, but I can’t bring myself to shop via e-commerce yet, I like looking at the produce and picking out my own meat. Maybe someday but I am not ready to give up my trip just yet.

    I mentioned that even though I shop at Stew Leonard's, once referred to as "the Disneyland" of supermarkets, I try to make the experience as short as I can, leading MNB reader John Couch to write:

    "Because as pleasurable as Stew's is, it is a good day when I can get in and out in a half-hour" ... you apparently judge the speed of the event as the appropriate measure of fun. You must prefer the trailers over the actual movie as the trailers  are so much faster. Yes?

    Not the same thing. In fact, I can think of a number of experiences that, the longer they last, the better. It is just that grocery shopping doesn't make the list.

    To be honest, though, there have been times when the trailers have been better than the movie they preceded.

    On the subject of Amazon's various food-related innovations, MNB user Gary Loehr wrote:

    Wouldn't it just be easier for Amazon to invent a transporter.  Or perhaps a holodeck, so you could experience using things without actually having to buy them at all.

    Considering Jeff Bezos' enthusiasm for space flight, it would not surprise me at all if he had people on staff trying to turn Star Trek solutions into reality.

    It would only be logical.

    I've been a little critical of supermarket chains that seem not to be as far along as they should be in the technology department, especially when it comes to loyalty programs that seem in some ways to be antiquated. One MNB reader offered the following observation:

    I work for a chain that cannot access a frequent shopper card through a phone number. Why? Privacy protection. As a customer, do you really want to give your phone number out when checking out so that it could be overheard? Or how about the potential identity thief standing at the next register watching the cashier type that phone number in? The less information I give out when signing up for a frequent shopper card, such as a phone number, the better. I believe most chains will accommodate a customer if they forget their card.

    Maybe there are all sorts of reasons that this does not make sense, but when I was at PetSmart the other day, the keypad asked me to type in my phone number, which resulted in access to my account. It then asked me if I wanted to have the receipt emailed to me, which I did...and the keypad simply verified that my email address had not changed. It didn't seem insecure, and in fact seemed pretty efficient. If I am wrong, I am willing to be educated.

    On another subject, one MNB user wrote:

    I have written to you before on this subject of Made in the USA. It is good to see that we have more products that are made in the USA and it is also good that we Americans are willing to pay a bit more for goods that are made in the USA.  The WTO, NAFTA, CAFTA, etc. might have had good intentions for open and free trade, but the jobs that we once had, were outsourced to those countries where the labor was much cheaper than those jobs we had in the USA. Every major retailer was forced to buy goods that were made where the goods could be made cheaper.  The American consumer was forced to buy goods that were not made in the USA, and the unintended consequence was the jobs that were here in America left.
    The answer is plain and simple, WalMart, Target, K-Mart, Home Depot, Lowe’s Costco, Sam’s Club, and every other major retailer has to change where they source their merchandise from. It is all good that Walmart has an initiative to have hundreds of million dollars that they have committed to buy Made in the USA goods to sell, in their stores, but that is a drop in the ocean, dollar wise.
    In addition to the major retailers, GM, Ford, NIKE, Apple, GE, Boeing, etc. have also outsourced quite a bit of their manufacturing to countries with cheaper labor.
    An over simplification, as the capitalistic system determines who will make the goods and where they come from.

    I get your point. Though I'm not sure that the use of the word "forced" in your opening paragraph is quite accurate.

    We had a story the other day about demands that Whole Foods places on its suppliers, which led one MNB user to write:

    Sounds like Walmart’s demands on vendors.

    I get the reference, but I'm not sure that's entirely accurate. The story you're referring to talked about how Whole Foods pushes its vendors to get things like organic certifications, GMO labels, higher quality ingredients and more effective brand names. When those vendors buy into the Whole Foods approach, they get shelf placement.

    But when Walmart places demands on its vendors, based on everything I've read and heard, it tends to be mostly about costs, so Walmart can lower its prices. If that means dwindling margins for the supplier, or lower quality ingredients, so be it ... because Walmart wants to be consistent with its low price brand message (or at least the perception of low prices).

    Not to over simplify, but one strikes me about being a high common denominator approach, and the other is about the lowest common denominator. Of course, this could all change as Whole Foods launches a new, lower-priced chain of stores, and Walmart looks to find ways to appeal to the Amazon consumer.

    We had a piece in MNB the other day quoting a New York Times story in a way that grabbed Kevin Hollenbeck's attention:

    My biggest takeaway……Amazon has only a 2% share of the 1.2 trillion dollars of purchases American made……time to buy more Amazon!

    Caution: MNB is not responsible for any stock purchases or sales that you may make.

    Responding to yesterday's piece about the Dufl app, one MNB user wrote:

    So for just $120 a year, plus $100 for *every* trip I take (good luck getting that through your expense account unless you're the boss...), I can trust my wardrobe to being lost at every hotel I stay at?  I can't begin to count the number of boxes and envelopes I've had sent out of necessity over the years to various hotels, and how few of those hotels can even find the box, let alone manage to get it to me on time (whether handing it to me, having me trek through a rabbit-warren of corridors to find the shipping office, or leaving it in my room).  Most of them eventually find it -- almost every time too late to matter. Kinda makes the nightmare about giving a presentation in your underwear seem unnervingly real.

    And from MNB reader Chris Utz:

    I’ll bet that the owner of MorningNewsBeat will allow Dufl as a reimbursable business expense.  Not so sure that would extend to many Fortune 500 companies.   I’m afraid I’ll just have to keep washing/ironing my own clothing in the field as needed.  Perhaps someone could come up with an app that would keep clothes packed in a suitcase from getting creased and wrinkled…

    And, on another subject, from an MNB reader:

    Your article today on Kroger makes me wonder. How can the largest supermarket chain in North America continue to fumble with e-commerce. Kroger's recent purchase of Harris Teeter should have been the answer to their e-commerce dilemma. Why would Kroger spend thousands of dollars trying to internally construct an e-commerce platform when Harris Teeter is successfully running the one of the best programs in the US and their shoppers love it. Is this another example of the "I have to build it myself" mentality that many of large retail chains seem to be embracing? It seems to me that instead of reinventing the wheel, Kroger needs to get into the market with a proven product that works (like the Harris Teeter model) and establish themselves as a player in the e-commerce field.

    Stockholders should be asking why aren't we there and why are we building our own when we already have access to the best model in the business.

    On the subject of McDonald's, a company about which I have great fun making rude remarks, one MNB user wrote:

    As a former stockholder, I made a lot of money on McDonald's but had to bail when the stock started to plummet. Having said that, I am probably the only one you'll ever meet who loves McDonald's. Why? Because it's consistent. I'm never disappointed. I always know exactly what I'm going to get. It tastes the same hot as it does cold. And they have clean restrooms. My vote is yes, they should try it. Maybe I'll even buy the stock back.

    Food that tastes the same hot as cold. Now, there's a ringing endorsement.

    Which reminds me ... On the subject of McDonald's deciding to sell a bunch of company-owned stores to franchisees, MNB reader Bob Warzecha wrote:

    We think that MCD’s move is a brilliant one in the near term.  By moving more toward a franchise-only model they not only save some expenses but will generate additional free cash flow.  The company can give some of this cash back to investors in the form of stock buy-backs and increased or a special dividend.  Looking at the universe of fast food operations that operate at a nearly franchise only model (for example Dunkin’ Donuts has 99% franchises), those stock trade at higher multiples.  So in the short term the stock price should trade in the $105-$110 range.
    In the long term if this model does not work we can quickly short the stock and make money on the downturn as we have in many other failed retail stocks.

    Ah. Good to know that there's always a silver lining for the investor class. They succeed, you make money. They fail, you make money. Capitalism at its best.

    Maybe I am getting old. I kind of yearn for the days when people made stuff, and when the stuff was good stuff that people wanted, it generated revenue and profits, which allowed them to employ people and make more good stuff.

    Then again, maybe the days I'm yearning for never existed.

    Finally, a couple of weeks ago I mentioned in an OffBeat piece that I'd had the best eggplant in my life at a Toronto restaurant ... which led to my favorite kind of email:

    The next time you’re in Toronto, look me up.   My wife makes my mom’s recipe and it’s the best on the planet.

    You bet. I'll bring the red wine.
    KC's View:

    Published on: May 12, 2015

    Following last week's report from National Football League (NFL) investigators saying that it was likely that New England Patriots team employees and quarterback Tom Brady conspired to use slightly deflated balls that were easier to grip during last season's AFC championship game, the NFL yesterday suspended Brady for four regular season games during the coming season.

    In addition, the NFL fined the Patriots $1 million and took away two draft picks, including their 2016 first round pick.

    Brady did not comment on the ruling, but his representatives said he would appeal. In a prepared statement, Patriots owner Robert Kraft said "Tom Brady has our unconditional support. Our belief in him has not wavered.”
    KC's View:
    Probably means the Patriots will only win 11 games this year. And the only people who will really suffer will be those locker room attendants.