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    Published on: June 15, 2015

    by Kevin Coupe

    The New York Times is about to deliver a powerful message about the growing importance of mobile to people at its Manhattan headquarters who access the internet from a desktop computer.

    For a week, they won't be able to read the paper's homepage from those computers. To do so, they'll have to use either a smart phone or a tablet computer.

    The goal is to reinforce to everybody in the business exactly how they have to think differently about content is being accessed by customers - consider more than half the people going on the Times website are doing so from a mobile device.

    I think this is really smart. In pretty much every business, people tend to discount the degree to which the customers are changing, especially if changing the way one does business to adapt to a changing shopper would require extra work, extra effort, extra money, and extra attention to details large and small. And so, people drag their heels and convince themselves through rationalization that things don't really need to change, that the myth of the evolving customer is being perpetuated by the media or some other entity.

    Except that, of course, we all can remember Jeff Goldblum's line from The Big Chill: "Rationalizations are more important than sex ... when was the last time you got through the day without a good rationalization?"

    One way to get people's attention, to make them may attention, is to force the issue.

    Like the Times has done.

    I suspect it'll be an Eye-Opener.
    KC's View:

    Published on: June 15, 2015

    The Washington Post reports that German discounter Lidl "will launch its expansion into the U.S. market from Virginia, creating more than 700 jobs in Arlington and Spotsylvania counties as it establishes an American headquarters and distribution center."

    The facility will require an investment of more than $200 million, and is encouraged by some $7 million in incentive grants that have been offered by Gov. Terry McAuliffe.

    The Wall Street Journal adds that "the announcement marks a step in what’s fast looking like an arms race between Lidl and Aldi for who can conquer the U.S. discount grocery market. Aldi has a head start, already having 1,400 stores in the country. Analysts have said there is a clear opportunity for discount grocery as, Wal-Mart aside, the U.S. doesn’t have a large national discount-grocery player, with the U.S.’s dollar stores focused more on nonfood items."

    Lidl has said it plans to have stores in the US by 2018, but has not been any more specific than that. Yet.
    KC's View:
    This is an event that, while early in the Lidl invasion process, may prove to be extremely important when the history of this business effort is written. And make no mistake that this is an invasion - just ask the folks in the UK if what Aldi and Lidl have done there has amounted to a full-scale, competition-disrupting, business-devastating invasion that promises only to get worse as time goes on.

    I said on Friday when writing about Aldi's US expansion plans that I thought ti ought to scare the crap out of a lot of retailers, and I would reiterate that about Lidl's plans. Except that, as a number of people point out in "Your Views" below, it isn;t just retailers who ought to be worried.

    Think the shark in Jaws. Times two.

    You folks better have a big enough boat.

    Published on: June 15, 2015

    Time has a story about how Whole Foods, trying to regain momentum in a marketplace for organics that is fast becoming more competitive, has irritated some of its organic farmers who are unhappy about "a new rating system the famously green grocer is instituting in its stores .. because in some instances it may give non-organic produce a higher rating than fruits and vegetables grown organically."

    The story says that in evaluating and rating produce, Whole Foods is using a system called "Responsibly Grown" that "takes into account things such as water use and conservation efforts, as well as pesticides."

    The magazine goes on: "It’s rare for organic farmers to speak out against Whole Foods, which has been one of organic farming’s biggest backers. Company officials say 60% of the food that is sold in the company’s stores is organic." But with increased competition, "Whole Foods appears to be using the new rating system to differentiate itself from competitors. Farmers say it will be expensive to make the changes needed to win the highest grade in the new Whole Foods rating system, and they accuse the company of offloading the costs of its new marketing campaign on them."
    KC's View:
    I suppose it is a hard thing for organic farmers to hear, that the thing they do for a living to differentiate themselves and their customers isn;t always the most important thing.

    But I also have to wonder if in some ways stories like this one - and this has gotten a lot of play in papers around the country - help or hurt Whole Foods' broader narrative, especially at a time when it is adding new chapters with its planned 365 format that will allegedly be smaller, less expensive, higher tech and more appealing to millennials.

    Published on: June 15, 2015

    Fast Company has a story about a new Glassdoor survey that ranks the bosses best-liked by their employees ... and HEB's Charles Butt is third on the list, with a 96 percent approval rating.

    The only people who beat him are Google’s Larry Page and Nike's Mark Parker, which of whom had a 97 percent approval rating.

    "Among the spectrum of industries represented by these favorite CEOs, tech is the most prevalent, with 15 CEOs out of the 50," the story says. "The retail industry made its presence felt with seven CEOs represented."

    Those seven, in addition to Butt, are: Costco's Craig Jelinek (ranked 13th), Sephora's Calvin McDonald (17th), J. Crew's Mickey Drexler (26th), Wegmans' Danny Wegman (28th), Nordstrom's Blake Nordstrom (29th), and Starbucks' Howard Schultz (31st).

    According to the story, "Glassdoor’s rankings use the company’s proprietary algorithms to parse the reviews of employees who anonymously and voluntarily provide feedback via the Glassdoor company review survey all year long on whether they approve or disapprove of how their CEO is leading the company, along with insight into their job, work environment, and company. A minimum of 100 reviews had to be entered in order for the CEO to be considered."
    KC's View:
    Many of the names on the list are not at all surprising, mostly because you can kind of tell the companies with CEOs who are inspiring and visionary, lading rather than managing. The only reason that I was mildly surprised by the presence of the Sephora CEO is that it is a company I know very little about, other than that my daughter is a happy, frequent customer there.

    One point that needs to be made is that while Drexler is on the list, and traditionally is one of the best business leaders in the fashion industry, there have been a lot of articles written lately about problems at J. Crew and some management upheaval there. I suspect the company will ride it out without any problem, but it is good to remember that employee devotion is not a guarantee of a ride without turbulence.

    Published on: June 15, 2015

    ZDNet writes that Amazon has released what is described as its first transparency report ever, in which it "disclosed how many government data demands it receives." The story makes clear that Amazon was under no legal obligation to make the information public, but was under "mounting pressure in the face of transparency reports becoming an industry norm."

    The report says that:

    "Amazon received 813 subpoenas, of which it fully complied with 66 percent .... received 35 search warrants, of which it fully complied with just over half ... Out of the other 13 other court orders it received, Amazon fully complied with just four ... received 132 foreign requests, of which it fully complied with 82 percent ... disclosed that it had received between zero and 249 national security requests, such as a court order issued by the secretive Foreign Intelligence Surveillance Court."

    According to ZDNet, "Amazon is the last major technology company in the Fortune 500 to disclose how many times governments have come knocking on its door, demanding customer and user data."
    KC's View:
    I have a few different reactions to this information, the first of which is, exactly does one "fully comply" with only a percentage of the search warrants, court orders and other requests/demands for information that come from official sources?

    I guess the answer is that Amazon has good lawyers.

    As the company that probably knows as much about its customers - which, let's face it, is pretty much anyone with a computer and a pulse these days - Amazon is to be applauded, I think, for challenging these demands for information and only complying when it has to. While I haven't ordered anything to be ashamed of or worried about, I don't think the government should be able to come in with a big net and just seize all this information because it wants to. (It also occurs to me that what Amazon may be unwilling to give up, the credit card companies probably are more than happy to provide ... but I may feel that way because my general feeling of contempt for banks and credit card companies.)

    Of course, having written that, I instantly have to acknowledge that I don't nearly enough about the threats the nation faces as the experts do, and I find this while discussion of how much liberty one is willing to give up to insure freedom to be endlessly fascinating.

    Published on: June 15, 2015

    The Wall Street Journal reports that Alibaba Group, the Chinese e-commerce behemoth, "plans to kick off a pay-to-watch video subscription service called Tmall Box Office, or TBO, in two months ... The platform will stream mostly foreign and local film and TV content, as well as some original content produced by Alibaba itself ... The service will be operated on Alibaba’s TV platforms including smart TVs and over-the-top TV box."
    KC's View:
    Sound familiar?

    If not, let's see if the following passage resonates:

    "This is Alibaba’s latest efforts to build an ecosystem of TV and film content, which already includes a movie-ticketing website, a crowdfunding film product and the film studio Alibaba Pictures ... Alibaba is among an increasing number of online companies strengthening Internet TV services to attract the country’s growing number of so-called cord-cutters who view TV online as opposed to watching over traditional platforms."

    Did someone say "ecosystem?"

    Keep one thing in mind - whatever Alibaba does outside the US probably is just prologue for what it eventually plans to do in the US.

    Published on: June 15, 2015

    Crain's Chicago Business has an interview with Alex Gourlay, the new president of Walgreens, in which the Scotland native (and president of Boots before its merger with Walgreen) lays out his plans to revitalize a company that has become "stagnant ... in one of the nation's most tumultuous industries."

    The story notes that Gourlay and his new European management team want to transform Walgreen "significantly," and that he "is scrutinizing the whole shebang. He's streamlining employee ranks, making cuts that affect senior staff in Deerfield down to district and store managers. He's updating supply chain technology and using data culled from Walgreens' Balance Rewards program to purchase inventory more efficiently, rather than leaving buying decisions to the whims of individual store management. He's considering partnerships to take over its in-store clinics and strengthen its pharmacy sales.

    "And for the first time, he is looking critically at Walgreens' more than 8,300 stores and closing underperforming locations. In April, the company announced plans to shutter 200 stores."

    Crain's writes that Gourlay is evaluating how to cope with a major change in the drug store business: "Health insurers have reduced the amount of money they pay to pharmacies while narrowing their networks and pushing more costs to patients. That means people who previously chose a pharmacy based purely on convenience - Walgreens' historic strength - now are visiting ones that are in-network and have lower co-pays." This means Gourlay has to find ways to partner with pharmacy benefits managers who can help him rebuild this side of the business.
    KC's View:
    Not to be knee-jerk about this stuff, but I always worry just a little bit about situations in which American companies are described as having a European management team. There's no reason it can't work, but it remains a fact that such structures have not always worked.

    I also worry some about business leaders who, when trying to figure out how to return a company to prosperity, seem to think and talk largely in terms of cuts, cuts, cuts....efficiencies, efficiencies, efficiencies...centralization, centralization, centralization. I'm just not sure that such an approach is best when trying to figure out how to make stores more compelling, locally focused and profitable.

    Published on: June 15, 2015

    Listeria has once again become a problem for an ice cream manufacturer.

    The New York Times reports that "just weeks after reopening, Jeni’s Splendid Ice Creams in Ohio has once again shuttered its production facility and retail locations after finding a potentially lethal food-borne bacteria in its factory ... Jeni’s has been closely monitoring and testing its equipment after detecting the bacteria in its ice cream in April, a finding that prompted the company to recall all of its products and close its 20 retail locations and the production facility."

    No diseases have yet been traced back to Jeni's ice cream ... which is not the case with Blue Bell ice cream, which also has been dealing with listeria contamination of its factories and products, with 10 illnesses and three deaths attributed to the company's ice cream.
    KC's View:
    This is a tough one, especially because since Jeni's resumed production, it has been testing every batch of ice cream to make sure the product was listeria-free. I'll give Jeni's this - it has been strong during the communications process, unlike Blue Bell, which has been pretty ham-fisted in its approach to this problem.

    By the way, I've talked to a lot of retailers about this, and pretty much every one of them agrees that Blue Bell is dead as a brand. It's over. Turn out the lights. Turn off the freezers. And maybe make room in a cell somewhere for members of management who are likely to be proven negligent.

    Published on: June 15, 2015

    The Washington Post has a fascinating story about how Disney theme parks seem intent on pricing middle class consumers out of the possibility of visiting them.

    "When Walt Disney World opened in an Orlando swamp in 1971, with its penny arcade and marching-band parade down Main Street U.S.A., admission for an adult cost $3.50, about as much then as three gallons of milk," the story says. But now, times have changed, and "Disney has raised the gate price for the Magic Kingdom 41 times since, nearly doubling it over the past decade. This year, a ticket inside the 'most magical place on Earth' rocketed past $100 for the first time in history."

    The story goes on: "rising prices have changed the character of Big Mouse’s family-friendly empire in unavoidably glitzy ways. A visitor to Disney’s central Florida fantasy-land can now dine on a $115 steak, enjoy a $53-per-plate dessert party and sleep in a bungalow overlooking the Seven Seas Lagoon starting at $2,100 a night.

    "For America’s middle-income vacationers, the Mickey Mouse club, long promoted as 'made for you and me,' seems increasingly made for someone else. But far from easing back, the theme-park giant’s prices are expected to climb even more through a surge-pricing system that could value a summer’s day of rides and lines at $125."

    While Disney officials say the increased prices are a result of rising attendance and their desire to provide a "magical experience" to attendees, the story says that "some see Disney’s magically ascending price tag as a reflection of the country’s economy, where stagnant wages and growing inequality have transformed even the way Americans take time off."

    You can read the entire story here.
    KC's View:
    To me, this is very much worth reading because it suggests to me the possibility that Disney, as it looks to milk every dime it can from its operations, also could be hurting itself in the long run by making itself a more exclusive destination that is not available to middle and lower-middle class consumers. And it is doing so at a time when it continues to spend millions advertising its resorts ... which could manage to ramp up the frustration with the company.

    I don't really mean this, but maybe the company has to open a discount-Disney that is smaller, less expensive, higher tech and more accessible to people of lesser means.

    I do think that Disney has to be concerned about this, because it is a brand with a lot more at stake than just theme park attendance ... it has a lot of other things it wants to sell people and lot of other venues, physical and virtual, that it wants people to patronize. Tarnishing the brand could create real problems for the company.

    It isn't a Disney movie, but this scenario reminds me of the Jurassic Park movies ... since it suggests that just because you can do something does not mean that you should do something. (The Jurassic Park movies, by the way, are Universal productions ... and since that is a company with its own theme parks and other entertainment divisions, the lessons apply.)

    Published on: June 15, 2015

    • As expected, Los Angeles Mayor Eric Garcetti has signed the legislation raising the city's minimum wage eventually to $15 per hour. USA Today reports that "the first step comes in July, 2016, when the minimum wage becomes $10.50. Then, each following year, it will rise another another step -- $12, $13.50, $14.25 and then $15."

    The story notes that "Los Angeles follows Seattle and San Francisco, among others, in raising the minimum wage. Last year, Chicago passed a phased-in minimum wage increase to $13 an hour. Depending on whether inflation kicks up, Los Angeles' law could be eclipsed by the state. California's Legislature is weighing a bill to raise the minimum wage to $13 in 2017 and step it up after that based on inflation."
    KC's View:

    Published on: June 15, 2015

    Regarding the decision by one business leader to offer free college tuition to the children of employees who helped him launch his company, MNB user Jim Swoboda wrote:

    I find fascinating, the continual revelations pointing to companies offering more perks to attract and retain great team members.  Many of the articles on increasing the minimum wage, offering paid time off, providing for tuition assistance paint the picture that these are revolutionary ideas.  They are not.  They have always been used when the competitive market gets tight in regards to finding great people to join their teams.  

    Equally fascinating watching the pendulum swing away from cost cutting to investing back into people.  It is people who have always made the difference and leaders in places to make a difference seem to be now learning that for the first time.  Hard to fault them.  They grew up during the cost cutting 90’s and 00’s all driven by the American consumerism that was  driven by never ending price wars which led to off shoring to find lower labor costs.  We each, personally, have to be introspective to that point.  We complain when jobs move, when wages go down, yet our choices drive that behavior as we do want to buy goods made domestically, but we do not want to pay domestic wages.  Interesting paradox.


    Be nice, wouldn't it, if companies actually were consistent and demonstrated their commitment to employees in good times and bad? Because the people who make the good times good are also the people who help you get through the bad times. Not the cause of the bad times, which always seems to be the message when corporate leaders talk about cuts, cuts, cuts....efficiencies, efficiencies, efficiencies.




    Regarding some of the meal businesses that seem to be cropping up in some many places, MNB fave Glen Terbeek wrote:

    Do you remember Ukrop’s Dinner for two which had a recipe and all of the ingredients in a "Dinner for Two" branded bag.  It had to be 25 years ago.  If I remember correctly they offered 3 different dinners each day and they published a calendar for the month with the recipes being offered each day.

    The price was not the total of all of the ingredients’ retails, but a value added price for the meal idea and pulling it together as a solution.


    I do remember it. And you are absolutely right - this is not a new idea, but rather just the latest iteration ... and it is amazing that mainstream supermarket companies have not jumped on this bandwagon with alacrity, but rather are allowing start-up companies, often heavily funded by financial types in love with the latest bright and shiny object, to nibble around the edges and steal some market share.




    On the subject on higher wages for retail employees, often mandated through minimum wage legislation, one MNB user wrote:

    Once again we seem to ignore history.  Look at our manufacturing industries' history.  Higher wages eventually lead to more mechanized, robotics, or technologies replacing people.  Some of our retail fast food chains are already trying self-order stations.  How about self-check-out stations in groceries and home supply stores?  ATM’s in banks.  Raise wages too high and the answer to many businesses will be replace the humans with machines/technology.  The next step in many cases was to ship the industry out of the country.  Raising wages and assuming all will be well now is merely self-deception.  It is not that simple.

    Nobody said it was simple. But if you are a retailer paying an in-store employee $8 an hour, say, and that employee works 40 hours a week, 52 weeks a year, that person is making a whopping $16,640 a year - before taxes. And while I know that many retail employees are younger and more part-time, I would also point out that I worked as a retail employee in both high school and college, and paid my entire way through Iona Preparatory School and Loyola Marymount University while doing so. I'm not saying that the same thing ought to be possible today, when college is a lot more expensive, but I think the disconnect is serious.




    Regarding the new 365 by Whole Foods concept, MNB user Chris Utz wrote:

    I believe that Whole Foods 365 is simply a competitive answer to Fresh Thyme, Sprouts, The Fresh Market et al. who have been cannibalizing the organic market at reduced prices; plain and simple!

    I don't think anything is that plain and simple...and I think you forgot someone.

    One MNB user wrote:

    Unless I’m missing something, this concept sounds more like a “ Trader Joe’s killer” than Walmart. Good for you food, limited selection, value, all sound like what would come out of the Trader Joe’s mission statement. TJ appears to be quite successful and I’m sure that it deserves imitation. It will be a challenge for a management team with a “Whole Paycheck” reputation to take on folks with Aldi roots. “Five Buck Chuck” just doesn’t have the same ring as “ Two Buck Chuck”. 

    MNB reader Larry Owens observed:

    With that name, guess they’ll be open on Christmas.




    We had a story last week about Publix's continued belief that you can't make money in the e-grocery business, which has led to continued reluctance to invest in the segment. My argument in part is that the Publix customer is changing and becoming more tech savvy, and that it will have to offer this option at some point. One MNB user agreed:

    Publix, the land of the snowbirds!  You can see a shopper “fall of the grid” in April/May, email them in Sept or Oct, welcome back to the land of sunshine with a shopping list of their average weekly purchases last summer, select a date and you have an instant online order to pick up (or deliver) the day you arrive to your snowbird location, and lock them in with replenishment orders weekly… as a marketer, I’d  love this opportunity to instantly and regularly build my online shopping!  I would love it as a customer, to have everything ready for me the day I arrived.

    Agreed. It is an opportunity. Also a challenge, but one worth embracing.

    From another MNB reader:

    If Publix made these statements without any effort to research or test online channels; I would agree 101% with your comment. You only have to go back to your own archives to know that few chains have tested every aspect of online like Publix. They consistently come back with the same reply – they can’t control or “deliver” the Publix customer experience  profitably outside of the store.

    Many retailers are jumping into relationships with unproven partners without considering the impact to the customer relationship. To quote a famous change agent "A man's got to know his limitations". I do think online has a place in the industry – but chains who rate low on the customer experience scale may regret a focus toward at the cost of “in-aisle” sales.


    I totally get your point. Public would hardly be alone if it believes that e-grocery works against its decades-long quest to create a differentiated store experience, but I think that it almost doesn't matter. If customers want it, you have to offer it, or risk irrelevance. You have to figure out how to extend the in-store experience to the online environment, and use it as bait to get people into the store rather than as something that hurts the store.

    At least, that's what I think.




    Responding to last week's story about Aldi's planned expansion and my comment that it should scare the crap out of a lot of retailers, one MNB user wrote:

    Not only should retailers be scared, national brand foods better sit up and take notice! Just walk thru an Aldi’s and see how many national brands they sell. Very very little.

    From another reader, John Stanhaus:

    You are right, in that some people should be scared, but it goes beyond just retailers. Sure mainstream retailers are at a economic disadvantage versus discounters, who according to a 2014 Supermarket News blog post “get by” with an over 11% lower gross margin, but generate higher store contribution percentages (2.6%) and EBITDA percentages (3.4%) due to lower operating costs and overhead.

    But I’m thinking about the branded CPG manufacturers. All these new stores are not going to be stocking their products. This on top of the recently cited trends, I believe Target has told CPG brands that they will be placing less emphasis on their products, many of which also are processed and go against healthy market trends.
     
    The trend toward lean management and zero-based-budgeting at Campbell, and Heinz/Kraft is no surprise. These major manufacturers are run by smart people and they see the direction that the market is moving. Own-brands at discounters or store brands at mainstream is where future growth, especially in center store categories, will come, so branded manufacturers either have to scale down their manufacturing base to reflect the new reality, possibly providing additional manufacturing capacity for private label manufacturers, or utilize that capacity to, perish the thought, start selling store brands! It is not as difficult to sell branded and private label out of the same company as some (Conagra) might make you believe, especially after adopting some management techniques such as lean, zero-based-budgeting, activity-based-costing etc.

    I understand that in Europe, where private label penetration percentages are significantly higher than in the US, such successful dual trackers are rare and are limited to large enterprises, FrieslandCampina, a dairy, and Bonduelle  a vegetable processor. But so are vertically integrated retailers, while in the US, Kroger and Safeway’s manufacturing capabilities are key element to their private label success.

    It will be interesting to see how this all plays out.


    MNB reader Bob Vereen wrote:

    I started out buying just one thing at Aldi years ago, suggested by a friend. Today it is our major food retailer - quality of its private brands is outstanding; produce decent and very competitively priced.   Savings are really substantial, especially on basics like cereal, milk, etc.




    On the subject of Country of Origin labeling laws, which in some cases are falling in the face of international treaty challenges, MNB user John Rand wrote:

    A very long time ago I had an uncle who was an accomplished editor and author, and who spent a lot of his life mentoring young writers. I remember a writer who came to review a draft of a book with which he was struggling, and he said something about publishing it under a pen-name. Uncle Lester was pretty direct: “if you aren’t proud enough of your work to sign your name, you should burn the manuscript and start over”.
     
    I totally agree with your mantras of transparency. Whether I grow grapes in Chile or herd beef cows in South America and farm fish in Thailand – I ought to be proud enough of my industry and maintain standards that make me want to “sign my work”. The same goes for ingredients and nutrition in packaged goods and whether to label  GMOs and every other thing we debate.
     
    Sign your work. Or burn the manuscript and start over.


    As someone who signs his work for a living, I totally agree.

    And another MNB reader saw an opportunity:

    Then COOL will be voluntary.  What an opportunity for a retailer to "differentiate" itself.

    I totally agree.
    KC's View: