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    Published on: August 21, 2015

    by Kevin Coupe

    It was just a few weeks ago that Netflix was being applauded in certain circles for announcing a new benefit for its employees - up to a a year in paid leave for employees who have given birth to a new baby.

    Which sounded highly progressive.

    But now, Netflix is being criticized for not extended the policy to the approximately two thousand employees who work in the DVD rental division - you know, the folks who stuff the red envelopes - that actually generates more than half the company's revenue.

    The Associated Press reports that "protesting groups contend Netflix is unfairly favoring the mostly high-paid computer programmers and other technology specialists working in its Internet-video service over the lower-paid employees who sort through discs and stuff envelopes in the distribution centers that get and send DVDs." And the argument is that the lowest-p[aid employees would actually be the ones who would benefit the most from the liberalized leave policy.

    Netflix has responded to online protests by saying that its "DVD employees get bigger paychecks and better benefits than people in comparable jobs. 'We are regularly reviewing policies across our business to ensure they are competitive and help us attract and keep the best employees,' the Los Gatos, Calif., company said in a statement."

    I do think there are two lessons here. One is that especially (but not exclusively) for high-profile companies, treatment of employees can become a highly public issue ... perhaps even a spectacle. Companies need to pay attention.

    The second lesson is that perhaps companies need to construct personnel policies by thinking first about the people on the bottom, not the people on top or even in the middle. In part, that's just because technology often gives those people a bigger and louder voice than they used to have. And in part, it is because the people at the bottom often are the ones who provide the foundation on which a business is built ... the people on the front lines, responsible for doing the work and implementing the strategies and tactics decided decided upon at higher organizational levels.

    I'm not sure Netflix was being malicious is how it structured the policy change. I think they probably were just being traditional in how they thought about the company structure.

    The Netflix case, I think, is an Eye-Opener.
    KC's View:

    Published on: August 21, 2015

    Fortune reports that the local food movement is booming - generating $11.7 billion in sales last year, expected to climb to $20.2 billion in 2019, with almost half of consumers saying that they'd pay 10 percent more for such products, and almost a third saying they'd up as much as 25 percent more.

    However, the story also says that it is a category replete with potential problems because of differences in how it is defined by various parties.

    For example, "the 2008 Farm Act, an agricultural policy law, defines a 'locally or regionally produced agricultural food product' as one that is marketed less than 400 miles from its origin ... A few states such as Vermont and Connecticut have established rules that define local as within the borders of the state or within a certain small perimeter of the state ... Wal-Mart defines local as grown and sold in the same state, whether the state is teeny Rhode Island or ginormous Texas. For Safeway, it’s an eight-hour drive. Even Whole Foods states on their locally grown page that 'mostly we like to leave it up to our stores' but generally use state lines or regions within large states."

    Which means, Fortune writes, that "questions are being raised about what exactly 'local' means. Just as controversy has dogged the labels, 'all-natural' and 'organic,' there are real concerns that consumers may not be getting what they think when they 'buy local' at the local supermarket. The label 'local' is too often part marketing hype, some say."
    KC's View:
    I do think that the food industry has to be careful not to kill the local goose that laid the locally grown golden egg. Fraud - or even imprecision - could very quickly alienate consumers who are feeling good about buying local food and supporting local purveyors.

    Remember how I had such a negative reaction to finding California wine displayed as local at a Haggen store in Oregon? (To see the video, click here.) I don't think is an isolated case, and I don't think it is an isolated reaction.

    (By comparison ... a couple of years ago I wrote about how "local" made the difference in one BLT I ate ... and you can see that piece here.)

    The segment will grow ... but it has to be nurtured, not abused.

    Published on: August 21, 2015

    Associated Wholesale Grocers (AWG) announced that Jerry Garland, who has been with the company for a quarter-century and has been president/CEO since 2009, will retire in January 2016 and be succeeded by David Smith, the company's executive vice president of operations.

    Garland will remain with the company in an advisory role.

    The announcement notes that Smith "got his start in the food industry as an independent store owner. He also worked in wholesale for 17 years in a number of positions at Malone & Hyde Inc. and Fleming. Smith, who joined AWG in 2003, opened the co-op's new Gulf Coast Division in 2013."

    AWG generates close to $9 billion in annual sales, and supplies more than 3,400 grocery stores in 26 states.
    KC's View:

    Published on: August 21, 2015

    Hy-Vee hasn't even opened up any stores in the Minneapolis/St. Paul market yet, and it already has established a potentially important marketing platform - it has become a Founding Partner of U.S. Bank Stadium, the new NFL facility there, and has become an official partner of the Minnesota Vikings.

    According to the announcement, "The 10-year Founding Partner agreement includes prominent signage throughout the stadium as well as opportunities for branded concessions and specialty food offerings. The scope of the partnership supports the supermarket’s expansion into the Minneapolis-St. Paul market, which will begin with the opening of two stores (New Hope and Oakdale) next month. In the coming years, Hy-Vee plans to add four to five grocery stores annually in the Twin Cities."
    KC's View:
    No question that Hy-Vee - one of the best food retailers out there - is playing the long game.

    Published on: August 21, 2015

    Responding to revelations that it tried to deflect criticism about the role of sugary drinks in exacerbating the nation's obesity crisis by funding so-called research suggesting that exercise is far more important than diet, the Coca-Cola Co. says that it will begin disclosing the size and extent of its investments in scientific research and advocacy.

    CEO Muhtar Kent said this week that the company also "would assemble a panel of independent advisers on its financial support for academic research," the New York Times writes.

    “As we continue to learn, it is my hope that our critics will receive us with an open mind,” Mr. Kent wrote in an op-ed piece published in the Wall Street Journal. “At times we will agree and at times we will passionately disagree.”
    KC's View:
    Beyond the fact that I think the suggestion that exercise is far more important than diet is ludicrous (and the vast majority of scientists seem to agree), I also think that Coke made a big mistake in funding research that only reinforced negative stereotypes about its business model, and in being less than transparent about it. This is a good fix, and all companies should learn the lesson.

    Published on: August 21, 2015

    The Wall Street Journal reports that a group called Authors United - described as a collection of prominent writers who originally bonded over what they saw as Amazon's unfair pricing demands on publisher Hachette - has officially for a Department of Justice antitrust investigation into the online retailer.

    "Led by author Douglas Preston," the story says, "the group sent a letter to the DOJ that said Amazon has repeatedly blocked or limited the sale of thousands of books on its website, sold some books below cost to gain market share, and attempted to compel customers to buy books from its own imprints rather than from other companies."

    The letter said, in part: "We respectfully request that the Antitrust Division investigate Amazon’s power over the book market, and the ways in which that corporation exercises its power."

    The Justice Department has promised to review the group's letter and allegations.
    KC's View:
    One thing is for sure. This kind of charge is at least one of the reasons why Jeff Bezos acquired the Washington Post ... a paper that gives him a real voice and real power in Washington, DC.

    I'm skeptical that Amazon actually could be broken up ... but I have to wonder if the company's fast growth and occasional hubris will exact a cost.

    Published on: August 21, 2015

    Internet Retailer has a great story about e-grocery that pulls together a lot of intelligence and information, and that is absolutely worth reading. An excerpt:

    "U.S. consumers spent $591.6 billion buying groceries in 2014, according to the U.S. Commerce Department, making grocery the largest retail category in terms of dollar sales, after automobiles. And only a fraction of it was spent online. But, after years of slow growth in online grocery sales, that’s starting to change.

    "Sources estimate U.S. consumers spent about $18 to $24 billion buying groceries online last year, or between 3% and 4% of their total spend. That percentage may seem modest, and it is less than half of e-commerce’s penetration of total retail spending, but it’s a big jump from three years ago when e-grocery accounted for less than 1% of grocery sales, according to Kantar Retail. And there is more growth ahead...."

    To find how much growth, and where it is, click here.
    KC's View:

    Published on: August 21, 2015

    The New York Times reports that "new data collected by Stericycle, a company that handles recalls for businesses, shows a sharp jump in the number of recalls of organic food products.

    "Organic food products accounted for 7 percent of all food units recalled so far this year, compared with 2 percent of those recalled last year, according to data from the Food and Drug Administration and the Department of Agriculture that Stericycle uses to compile its quarterly report on recalls. In 2012 and 2013, only 1 percent of total units of food recalled were organic."

    However, the Organic Trade Association (OTA_ disagreed with the conclusions, "saying its own quick analysis of recall data from the F.D.A. and the Agriculture Department shows the problem is less severe, with organic products accounting for 4.9 percent of recalls, in line with the percentage of organic food sold out of total retail sales of food."
    KC's View:
    More organics sold, more organics recalled. Sounds normal to me. I wonder if at some level the organic industry should embrace these numbers as being reflective of broader acceptance and higher sales? (Though they probably don't want to be too public about it...)

    Published on: August 21, 2015

    City Wire reports that "Wal-Mart announced that Marybeth Hays, senior vice president over the home category for Walmart U.S., will move to chief merchandising and marketing officer for Walmart China ... The memo also says Rick Hays, who has served as vice president of hardware and paint for Walmart U.S., will take over as the general merchandise and merchandising officer for Sam’s Club China ... Also in this shift, John Furner, will leave the role of chief merchandising and marketing officer for Walmart China and move to the U.S. for another job that will be announced soon."

    According to the story, "A separate memo by Walmart U.S. CEO Greg Foran also circulated on Thursday gave more details on shifts underway in the U.S division. Foran said Scott McCall, senior vice president of general merchandise (seasonal), is being moved to the bedding, bath, cook and dine, home decor and home management categories. McCall will also retain his position over the toys and celebration categories.

    "Terry Price, senior vice president of hardlines, will also assume responsibility over outdoor living, stationery, automotive, sporting goods, hardware and paint categories. Laura Wilkin, senior vice president, replenishment will now oversee 'Flow Strategy and Systems Innovation,' Foran noted in the memo ... Scott Pleiman, senior vice president, strategy, pricing, planning and modular development, will assume responsibility of replenishment."
    KC's View:

    Published on: August 21, 2015

    Food Business News features a comment from Dan Cooke, general manager of global e-commerce for the Kellogg Co., made at this year's Grocery Manufacturers Association (GMA) Leadership Forum about the growing power of Amazon:

    "“It is imperative we know how to play with them,” he said. “For someone in my shoes, I have to understand it. We need to make choices and understand the strategic intent behind what we want to pursue.

    “Amazon is a critical customer for us in this space. They are still small, but they are growing quickly. When a consumer thinks about Amazon they think about a box that shows up on their doorstep. For us, they have continued to evolve their value proposition and offerings to consumers. It is important to note each one of their efforts has a value proposition for consumers, Amazon and us.”

    Full disclosure: Kellogg Co. is a valued MNB sponsor.
    KC's View:
    Damned right that Amazon is a critical customer. And that's a hugely important observation by Cooke - that Amazon's efforts are designed to have value for suppliers, customers, and Amazon ... which is one of the reasons that the company continues to grow.

    Published on: August 21, 2015

    Crain's Chicago Business reports that Walgreen has decided to partner with Washington State-based Providence Health & Services "on 25 new clinics in Washington and Oregon. The clinics will be owned and operated by Providence—a first for Walgreens, which operates about 400 clinics on its own."

    The move, the story says, "hints at a future in which Walgreens outsources its retail clinics - the in-store sites that offer lower-cost, quick services such as strep throat tests and flu shots - to a traditional health care operator."

    • The Wall Street Journal reports that "Staples Inc. said its plans to take over rival Office Depot Inc. remain on-schedule despite regulators' recent opposition to consolidation in other industries ... The merger, if approved, would take the U.S. down to one chain of office-supply superstores from three in just a couple of years; in 2013, Office Depot acquired OfficeMax. Regulators blocked a proposed tie-up of Staples and Office Depot in 1997, but the companies say the marketplace has changed dramatically since then."
    KC's View:

    Published on: August 21, 2015

    Yesterday, MNB took note of a Fortune report that "three California law firms have filed a class-action lawsuit against Costco and CP Foods, its Thai seafood supplier, and are seeking an injunction to stop the company from selling shrimp unless it is labeled as a product of slavery." The lawsuit is related to an investigation last year that discovered "horrific conditions" connected to the farmed shrimp industry, and the story says that "the plaintiff in the class action suit is Monica Sud, a resident of California who had purchased shrimp from Costco without knowing that she had essentially been supporting slavery."

    I commented:

    The original investigation, according to the story, defined "horrific conditions" as including "20-hour shifts, regular beatings, torture and execution-style killings."

    Which some would argue is only marginally worse than the conditions at Amazon.

    Of course, when opposing such treatment, one then has to ask an existential question - if you had to give up one thing, would you rather give up shrimp or Amazon Prime?

    There were MNB readers who felt this was not my best moment.

    MNB reader Gail Graham wrote:

    I am a regular reader and I enjoy your commentary and your humor. But this time I thought your flippant comment about the “horrific conditions” at the Thai shrimp farms being only marginally worse than at Amazon, inappropriately makes light of a very real human rights issue. The United States 2014 “Trafficking in Persons Report” relegates Thailand to the lowest category among 188 examined and the report estimates that more than half of the Burmese workers in one Thai port reported experiencing slave conditions.

    I think today’s consumer does care about the source of their food and the conditions under which it is produced—including the treatment of the people doing the work. And while the recent articles about Amazon paint a picture of a less than idyllic workplace—and perhaps will cause some people to ask “At what cost is my convenience?- the conditions are a far cry from what is happening at fish farms in Thailand. I think your jibes at Amazon serve to divert attention from a serious issue in our food supply chain.

    From another reader:

    Perhaps the Amazon jests were a bit a poor judgement call with respect to those allegations of some serious suffering on the part of those Thai shrimp industry workers?  I know the quips were hard to resists, but ask yourself if they were Virginia workers, would you take that tone?

    Maybe. To be honest, I did sort of think twice about that joke after I wrote it ... though, obviously, I decided to go with it.

    It is fair to accuse me of making light of human trafficking ... which actually was not my intention. if anything, I was making light of the accusations about the toughness of the Amazon workplace. Sure, it can be punishing ... but those folks tend to be making good money, and they're living in Seattle, they can leave for other jobs, and life could be much worse. So while the Amazon issues are serious, they have to be kept in perspective.

    Besides ... my general impulse is to make fun of pretty much everything. Sometimes it gets me in trouble, but I think in general it serves me pretty well.

    We wrote yesterday about a Milwaukee Business Journal report that a Wisconsin law form has filed five complaints against Meijer Inc., accusing the retailer of selling products below cost, which would be a violation of the state's Unfair Sales Act.

    I commented:

    Silly law. Companies ought to be able to sell stuff for whatever price they want. Mandating certain margins seems anti-capitalism to me.

    Again, not everyone agreed. One MNB reader wrote:

    While I’m no fan of minimum mark-up laws (and am actually undecided on laws regulated sales below cost), to flippantly suggest it’s a silly law is off base.  It’s only anti-capitalism in the same sense of anti-monopoly laws or other consumer protections.

    With sales below cost, companies with deep pockets can price to a level independents can’t afford to match.  These laws protect small business and eventually consumers because prices will only rise with competition eliminated. 

    Maybe this sort of protection is going too far and is part of fair completion, but clearly there are reasonable positions on both side of the law and it can’t be dismissed as silly.

    I guess my "flippant" quotient was a little high yesterday.

    However, there were those who agreed with me.

    One MNB reader put the law into context:

    There are a handful of states with such laws.  I am pretty sure that California and Louisiana still have laws that forbid the sale of numerous dairy products (milk, cheese etc.) below cost.  The company I worked for was on the wrong end of a California State complaint many years ago.  A major hurdle is calculating "cost".  That often depends on how you allocate fixed costs like overhead.  Fortunately California had over reached in my case - their law applied to pasteurized process cheese but not to pasteurized process cheese food  (example Kraft Singles) so I was able to easily dispose of that complaint.  A number of state set minimum prices on certain dairy products, e.g. Pennsylvania.  Others do not allow manufacturer's coupons on such dairy products.

    However, most of the states that have these laws no longer enforce them.   Other items where some states restrict pricing are gasoline and alcoholic beverages.  Ohio has minimum markups on beer and wine.  On wine the distributor must mark it up a minimum of 33% and a retailer 50%.  So a $3 bottle of wine is sold by the distributor for $4 to a retailer, and the retailer then has to sell that for no less than $6. Retailers are permitted to offer a 10% case discount, mix or match, making the net $5.40.

    MNB reader Steve Traun wrote:

    Meijer couldn’t buy better advertising…

    From another reader:

    What a gift a competitor has given Meijer in free publicity about its low pricing.  We all should be so lucky as to have news stories about being lower priced than our competitors.  The consumers don’t care if a product is below cost, and everyone appreciates a bargain—and now they know where to get them.

    And another:

    If there really is such a dumb law in Wisconsin it's a cinch Governor Scott Walker doesn't know about it.  And if he doesn't, he probably will know now.  And I wouldn't be a bit surprised if he jumps in to propose legislation.  This seems like just the kind of protectionist nanny-ism that the GOP typically rails against.

    Unless proposing such legislation is not seen as ultimately helping a his presidential aspirations.

    MNB reader Daniel Hogan wrote:

    I agree with you that this law is ridiculous and anti-capitalistic. The term “loss leader” exists for a reason.

    Finally, on another subject ...

    We wrote yesterday that he founder of the Fresh Market supermarket chain has acquired a Park Avenue penthouse in New York City for for $21.4 million, in a transaction described by the New York Times as "the most expensive closed sale of the week."

    The reason it is noteworthy? Ray D. Berry bought the apartment - which also has carrying charges of $16,272 a month - from Donald Trump.

    I commented:

    In this case, I guess Trump did not consult his "The Art of the Deal." The penthouse originally was on the market for almost $25 million.

    But one MNB reader made a good observation:

    Maybe Ray D. Berry read Trump's book?

    Excellent point.
    KC's View:

    Published on: August 21, 2015

    I'd like to suggest that you take a look at an op-ed piece penned by Jennifer Weiner for the New York Times this week ... it is very observant, very funny, and basically suggests that the hacking of the Ashley Madison website - which essentially makes money by enabling people to cheat on their spouses - is indicative that "we’re a nation of losers, mouth-breathing, couch-potato, hands-down-our-pants dolts."

    I wish I'd written it. And if you want to read it, click here.

    The Man From U.N.C.L.E. is not a stupid movie, but it strikes me as being over-produced, over-directed and over-stylized ... and probably not over-thought.

    Based on the old TV series that actually was co-created by James Bond author Ian Fleming, the premise is fairly simple - during the height of the Cold War, an American agent, Napoleon Solo, is teamed with a Russian agent, Illya Kuryakin, and work for the United Network Command for Law & Enforcement to fight evildoers everywhere. The series was done with tongue firmly in cheek, and with droll, knowing performances by Robert Vaughn as Solo and David McCallum as Kuryakin.

    The movie version isn't awful, but as co-written and directed by Guy Ritchie, it never misses an opportunity to use five camera angles when three would do, to pound home character points over and over without any belief in the actors' ability to communicate any sort of interior life, and to be overly self-satisfied with its somewhat mocking view of the Cold War era and the Solo-Kuryakin origin story. Henry Cavill as Solo and Armie Hammer as Kuryakin are okay, but they are directed to be prototypical characters rather than actual people, so it hard to root for them.

    I wish they'd done a better job, because it might've led to some sequels. In the case of the Mission: Impossible movies, they've actually gotten better; but lousy box office and mediocre reviews suggest to me that the men from U.N.C.L.E. are unlikely to get a second shot.

    That's it for this week. Have a great weekend, and I'll see you Monday.

    Fins Up!
    KC's View: