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    Published on: September 14, 2015

    by Kevin Coupe

    The Washington Post reported over the weekend that in the case of one important metric, Jet - which launched its retail website last July - seems to be doing okay.

    According to a software provider called ChannelAdvisor, "Jet is having early success in building customer loyalty:  Since its debut, Jet has had a 23 percent repeat buyer rate, better than the 17 percent seen at eBay and the 11 percent seen at Amazon during the same time period."

    Now, it isn't all good news for Jet:

    "Jet’s success doesn’t just depend on its ability to convince customers to pay its $50 annual membership and to shop the site regularly," the Post writes. "Crucial to Jet’s future is whether it is able to keep growing the roster of merchants that sell on its marketplace. Without a huge network of sellers, the site will never have the wide selection of its rival, Amazon."

    And, the Post goes on, "ChannelAdvisor said it doesn’t see any evidence that Jet is stealing business away from Amazon or eBay. For example, customers who purchased from Jet as well as from either Amazon or eBay did not slow down their purchase rate at the more established sites once Jet came on the scene. But it’s difficult to say whether this is bad news for Jet."

    The story notes that "ChannelAdvisor’s analysis only includes transactions with sellers who use its software, so it does not include orders that are filled directly by Jet or by third-party sellers who don’t use ChannelAdvisor. So it is not a complete view of how Jet compares with its rivals."

    Sure, Jet is getting some sampling, and it seems entirely likely that low prices can help generate return visits and purchases by consumers. The issue, it seems to me, that Jet will have to continue to address is whether it can maintain that pricing. The volume it is doing cannot be anything like the kind of volume that Amazon is doing, which means that it has to subsidize the low prices itself ... which inevitably means that it is burning through capital, and is doing so without any of the infrastructure advantages that Amazon has. The question is how long Jet can do this, and how long this approach is sustainable.

    Some of the early metrics for Jet may be positive, but it has a long way to go to prove it can go head-to-head with both Amazon and Walmart, each of which is willing and able to go to the mattresses against this interloper.

    The battle has just begun. It is, and will continue to be, an Eye-Opener.
    KC's View:

    Published on: September 14, 2015

    The Cincinnati Business Courier reports that Kroger plans to introduce a unique new upscale private label called Hemisfares that CEO Rodney McMullen says will bring "only the best food finds from around the globe to our food curious customers for an amazing authentic eating experience. It’s a guide tour of the best tastes on the earth ... “We find customers are increasingly becoming foodies. And it’s really trying to figure out how do you find great products that will satisfy that foodie need experience they want in a way that is actually a very affordable price.”

    CFO Mike Schlotman adds, "“The whole idea of Hemisfares is to allow our customers to take a journey of food experience around the globe without having to leave home. Some of this product, it’s the first time that anybody’s gone through the trouble of importing the product with some of the items in into the U.S. that we have.”

    Among the categories that will have Hemisfares-labeled products are pasta, olive oil and Balsamic vinaigrette.
    KC's View:
    It seems to me that this is reflective of a broader trend - that customers in general are getting more sophisticated about food, a shift that is being driven to a great degree by the Food Network and the plethora of cooking shows and chef/celebrities that are out there.

    In general, it is my feeling that you cannot go wrong by raising your game and trying to appeal to a higher common denominator. Aspirational marketing is smart ... it isn't always right in every instance, but it is one way to improve traffic, sales and profits.

    Published on: September 14, 2015

    The New York Times reports that a new study by researchers at the University of Notre Dame concludes that corporate executives who are granted generous stock options at the companies where they work are willing to "make unwise acquisitions or, even worse, to undertake aggressive accounting practices" as a way "to reap the riches from a rising share price." In addition the Times writes, the researchers "found a correlation between generous option grants and the incidence of serious product recalls," and the study says that "“C.E.O. option pay was associated with both a higher likelihood of experiencing a recall as well as a higher number of recalls.”

    Adam J. Wowak, as assistant professor of management who co-authored the study, tells the Times, "If options are generally causing C.E.O.s to be more aggressive, then it makes sense that more mistakes could occur and consumers could be affected. Options could be making C.E.O.s ignore the downside potential of some of their actions.”

    The Times goes on:

    "The researchers scrutinized companies in two industries that are closely regulated by the Food and Drug Administration. All of the companies had sales and assets of at least $10 million. The academics looked at the size of stock options in proportion to a chief executive’s total pay and calculated a two-year average, finding that recalls tended to be more prevalent at companies with higher option percentages. The names of specific companies were not cited in the study.

    "One group of companies produced consumer staples like foods, beverages and personal care products, while the other manufactured health care products, including medical devices and pharmaceuticals. Over the period studied — from 2004 through 2011 — these two sectors together accounted for over 85 percent of all recall activity reported by the F.D.A., the professors said."

    Wowak tells the Times that "among publicly traded corporations over all, stock option grants as a percentage of total pay had declined recently. Many companies are dispensing restricted stock instead, making sure that executives feel the pain of a falling share price alongside their stockholders. With options, a falling stock price represents a lost opportunity for a future gain, not an actual hit to executives’ wallets."
    KC's View:
    Wow. What a surprise. There actually are senior executives out there who are more focused on their own compensation packages than on the long-term, sustainable health of the companies they run. Another good question to ask is the degree to which these same executives - acting in the best interests of their personal portfolios - also try to improve profitability by driving down labor costs in their organizations, effectively declaring the engagement of the people on the front lines to be marginal to their companies' success.

    Just curious.

    By the way, this could become a political hot potato. Reuters had a story over the weekend about Donald Trump - by almost any measurement the frontrunner for the Republican presidential nomination - said over the weekend that the high salaries p[aid to many senior c-level executives were a "joke" and a "disgrace," suggesting that these execs often with with boards stacked with friends who don't do any significant oversight. "It's a total and complete joke," he said on Face The Nation.

    Think about this within the context of last week's story about how A&P set up a $6 million trust fund - designed to provide continued compensation to senior executives - three-and-a-half months before filing for bankruptcy; the company now is trying to void agreements with the unions that were reached through collective bargaining, arguing that they inhibit the company's ability to sell its stores and go out of business. This story dovetailed with a story about Jeff Smisek, who resigned as United Airlines' CEO amid a corruption probe, but now has a severance package that includes financial compensation that could reach $20 million, free first-class air travel for life, free airport parking for life, health insurance, and retention of his company car.

    I don't often find myself agreeing with Trump, but he's right on this one.

    It is a total and complete joke.

    Published on: September 14, 2015

    Mark Bittman, the New York Times food columnist who has pushed the envelope on promoting his vision for national food policy over the past five years, sometimes becoming a polarizing figure among those who disagree with him, has announced that he is stepping down as a Times columnist to "take a central role" in a new food start-up that he so far has not named.

    "Between time pressures and potential conflicts of interest (you shouldn’t pitch a venture capitalist and write about a company he’s funded the following week), I can’t do both," Bittman writes.

    "I’ve long seen myself as an activist and an advocate as well as a journalist<' he adds. "Although I’m eager to understand both sides of an argument, I’ve felt that my job was to parse an issue, get the facts right, figure out what I thought was the correct position on that issue, and express it ... If you see food only as food, if you think of food only as pleasure, your head is in the sand. Food affects just about everything, and vice versa. The increasing awareness of this has led to big changes at the intersection of food and news and opinion."

    I've always thought Bittman played an appropriately provocative role ... I probably agreed with him as often as I disagreed with him. I'll miss his erudition and perspectives. I also think it'll be interesting to see if the ideas he's expressed from the relative safety of a pundit's nest are able to take hold and be both practical and profitable in the real world setting. (This is something I wrestle with all the time.)

    His final Times column is worth reading, and you can check it out here.
    KC's View:

    Published on: September 14, 2015

    Interesting piece in the Los Angeles Times over the weekend about the Southern California grocery business, the largest and arguably most competitive in the country, where Haggen declared bankruptcy last week only six months after entering the market, where Tesco's Fresh & Easy experience there was a debacle, and where "Albertsons and Safeway, which also own Vons and Pavilions, merged into one company to better compete against market leader Ralphs and others."

    Still, the story says, the market remains irresistible to many - "discount food chains Aldi and Grocery Outlet Bargain Market plan new stores in the area. Whole Foods intends to open the first of its value-oriented stores, called 365, in Los Angeles next year ... The market's enormous size also is why big-box discount retailers such as Wal-Mart Stores Inc., Target Corp. and Costco Wholesale Corp. have expanded their grocery offerings in the last decade." And both Amazon and Google "are trying to exploit consumers' desire for convenience by ramping up grocery-delivery services."

    At the same time, "price competition is especially acute 'because the cost of living is so high in California,' said Burt Flickinger III, an industry analyst at consulting firm Strategic Resource Group. 'Consumers in Southern California need to save more money on groceries than just about anywhere in the continental US'."

    The entire story can be read here.
    KC's View:
    People think of Southern California as a place of near unrelenting sunshine (and these days, I suppose, as a place where water gets more scarce with every passing day). But for many retailers, to paraphrase Raymond Chandler, the streets are "dark with something more than night." Irresistible, but for many, deadly.

    There's another great line from Chandler that sort of sums up both the lure and the danger of the Southern California marketplace: "From 30 feet away she looked like a lot of class. From 10 feet away she looked like something made up to be seen from 30 feet away."

    The thing we all have to remember is that these retail adventures have consequences. Whatever ends up happening to Haggen, there are people who are going to suffer ... people who had careers in these stores, people who work for companies small and large that supply these stores ... all of whom may see their lives face serious reversals as a result of these misadventures.

    Chandler also once said that "it is not a fragrant world." But for many of these people, the world stinks.

    Published on: September 14, 2015

    GeekWire has a piece about Amazon's new restaurant delivery service; writer Jacob Demmitt offers a perspective:

    "I tapped 'checkout' at 7:12 p.m., was in my pajamas by 7:25 p.m., and at 7:49 p.m. I opened my apartment door to find an Amazon Prime Now delivery rider standing there with a bicycle helmet in one hand and my dinner in the other ... That’s pretty much all you need to know about my first experience with Amazon’s new restaurant delivery service. It worked flawlessly, from beginning to end ... As someone who has never been one to take advantage of the plethora of food delivery services available to me in one of Seattle’s hippest neighborhoods, I must say this changes everything. It was simple, quick, reliable — and free of delivery charges."

    The story goes on to say that "Amazon tells GeekWire that it has bigger plans for the service, hinting at upcoming expansions into other cities. There are rumors that New York may be next, based on restaurant job openings there, but nothing has been announced quite yet. There is no shortage of tech giants and startups offering restaurant delivery in major cities across the country — GrubHub, Eat24, BiteSquad, Caviar, and many more — but Amazon has an edge with its built-in customer base of tens of millions of Prime members."

    The analysis can be read here.
    KC's View:
    One of the interesting observations in the piece was that "the whole experience left me feeling quite impressed — and pleasantly full. Now Prime Video just needs to add more of the shows I want to watch, and we’ll have a complete Amazon night."

    Which is precisely the point....a complete Amazon experience, inside the ecosystem, with no need for anything else.

    Published on: September 14, 2015

    CNBC has a story suggesting that Walmart is operating under a "ton of pressure" because of wage hikes and increased health care costs, which led it to the promotional fees and slotting allowances that it has begun charging manufacturers, who are pushing back against these new charges.

    But the biggest pressure, one analyst says, is being exerted by Amazon.

    "Amazon is forcing Wal-Mart and other companies to step up and spend shareholder money to get in the game in terms of e-commerce and it's pressuring profitably and they're pushing back on their suppliers to make up for it," Stacey Widlitz, president of SW Retail Advisors, says.

    City Wire writes that "the biggest change for the suppliers to accept is an added 1% handling charge Wal-Mart is requiring for products that enter a distribution center. This alone is likely to be a significant profit center for the retailer who handles more than one billion cases of product annually through its supply chain network.

    "Retail experts say it’s important to note that Wal-Mart charges far fewer fees than promotionally driven retailers who exact heavy tolls for participation in cooperative advertising programs, loyalty marketing programs and product placement in stores.  While that may be the case, with the new contract terms Wal-mart would charge a food supplier 10% of the value of inventory shipped to new stores and to new warehouses, both one-time charges, and 1% to hold inventory in existing warehouses. Prior to the change, the supplier faced none of those extra fees."

    The CNBC story notes that many experts say that Walmart isn't doing anything radical in the retail segment, and in a statement, Walmart tells CNBC: "We're looking at creating greater consistency to even out the playing field across the suppliers. We've looked across retail and other industries and believe what we're doing here is what companies are doing in an effort to do great business."
    KC's View:
    What continues to interest me about this story is how Walmart seems to be looking for refuge in the "everybody does it" argument ... where it used to proudly proclaim that it did not operate like everyone else, that it made its own rules, that it was more competitive because it worked to disrupt what for most retailers was standard operating procedure. (It didn't use the "disrupt" word ... but let's face it, that's exactly what Sam Walton did all those years ago.)

    I'm hardly an expert on Sam Walton. But I do have to wonder what he'd think about this new approach in Bentonville.

    Published on: September 14, 2015

    The US Food and Drug Administration (FDA) last week released guidance on how restaurant chains need to list nutritional information, saying that "restaurant menus have to list calorie counts next to the price of each item, in the same type size," the Washington Examiner reports, adding that "the guidance is intended to help deal with various nuances of the rule, which affects chains of 20 or more establishments that do business under the same name. Eateries in grocery stores are also covered."

    FDA has said that companies must meet the requirements by December 2016.

    "If a restaurant doesn't comply by next year," the story says, "the agency could seize its food supplies, sue it or even issue criminal penalties."

    In a statement released Friday, Leslie Sarasin, president/CEO of the Food Marketing Institute (FMI), said, “We certainly appreciate FDA's attempt to clarify a cumbersome regulation that was not originally designed for the supermarket industry. This guidance is a helpful start to what we hope will be an ongoing dialog about the most appropriate ways of addressing implementation questions being raised by food retailers ... “As we and Members of Congress have reminded FDA, chain restaurants and supermarkets are fundamentally different – and on issues as diverse as their business operations and their service offerings. So, we look forward to working with the agency in shaping guidance for a labeling process that makes sense both in a grocery store setting and to provide meaningful information to food retail customers."
    KC's View:

    Published on: September 14, 2015

    • The Associated Press reports that Subway has completed an internal; investigation into its former spokesman, Jared Fogle, who last month agreed "to plead guilty to having paid for sex acts with girls as young as 16 and for having received child pornography." That probe, the company says, revealed that it received a "serious" complaint about him four years ago that had nothing to do with criminal activity or sexual behavior, but that it regrets that the complaint was "not properly escalated or acted upon.” Details about the complaint were not disclosed.

    “It is important to note that the investigation found no further evidence of any other complaints of any kind regarding Mr. Fogle that were submitted to or shared with Subway,” the company said.

    • The Associated Press reports that CVS has confirmed "that the company that manages their photo website was indeed hacked this summer, possibly resulting in the theft of some CVS customer information." The site has been shut down since July.

    According to the story, CVS said that "it started contacting potentially-affected customers on Friday. A spokesman for the Woonsocket, Rhode Island-based company wouldn't say how many customers were being notified, or comment beyond the note to consumers posted on CVS' photo website."

    • The New York Times reports that a variety of constituencies have begun to address the issue of forced labor at sea, a practice that can lead to virtual slavery and human trafficking on the part of some commercial fishing companies. Last week, the story says, "a group of consumers filed a class-action lawsuit in California against Mars, accusing the company, among the biggest producers of seafood-based pet food in the world, of failing to disclose its dependence on forced labor. A similar lawsuit was filed in late August against Nestlé, also a major producer of seafood-based pet food."

    Legislation that would require greater transparency and reporting in corporate supply chains has been introduced in both the US Senate and House of Representatives, and, the Times writes, Rep. Carolyn B. Maloney (D-NY) "sent a letter last week to the National Oceanic and Atmospheric Administration, or NOAA, which monitors the oceans, urging the agency to focus not just on illegal fishing but also on preventing 'trafficking and slavery in the fishing industry'."
    KC's View:

    Published on: September 14, 2015

    • 99 Cents Only Stores announced that Geoffrey Covert has been named the company's new president/CEO, effective immediately. It was just late last week that Kroger announced Covert's retirement as senior vice president of retail divisions; he worked for Kroger in various roles for almost 20 years.
    KC's View:

    Published on: September 14, 2015

    Responding to our recent reference to a Wall Street Journal section looking at how millennials live their lives, MNB user Rebecca Ewing wrote:

    I have to say I hated the WSJ article and hope that the future they predict doesn't become a reality. I don't think they really understand my generation. Maybe we get married later, but many of us still want to get married or have a life partner. No benefits?? The benefits and health care policies are one of the biggest things I look at when choosing a job. I would never take a job without health care.

    I do believe we will change the workplace, but definitely not in the way these experts thing. Personally, I want a job I can be consumed in, but have the freedom to work from home, or from 4am-10 then 2-4; and any hours I feel most productive. I hate hate hate working in a cubicle- I feel like a rat in a cage. (I know many people my age feel the same way.) The sad thing is I liked my last job, but sitting inside in a cubicle for 9 hours a day felt soul sucking and I honestly would have gotten more work done with more freedom. (I recently left my position for one with more flexibility.) I know we come off as entitled or arrogant, but we are perceived wrong. We want to work hard and are ambitious but we are questioning many of the rules that no one liked in the first place.

    I'm sorry to go on a rant, I just think my generation definitely has its flaws, but can also accomplish many things, we are just misunderstood.

    But another reader was a little more sympathetic:

    After growing up & going to college in a small town in southwest Virginia, immediately upon graduating I received an employment opportunity in Massachusetts. Less than a year later, an opportunity arose for me to take a job in Florida. I didn’t ever want to move back to the South again, but I decided that since I was 25 and had no reason not to give this a shot for a year or 2 that I would trade my snowboard for a surfboard and live by the beach for a bit. I’ll miss watching the leaves change in the Northeast, but they made planes for a reason.
    This article really hits the nail on the head. Of course there are many in previous generations who have stayed single longer and moved around a lot, and  many of my peers are indeed homeowners married with children. But the cookie-cutter vision of the American family who own a home with a white picket fence close to Grandma’s at 30 years old is not appealing or interesting to many Millennials.

    It isn't just Millennials. I'm 60, and white picket fences isn't all that appealing or attractive to me, either.

    Regarding Google Express making deals with Whole Foods and Costco that will expand their e-commerce footprint, MNB user Melissa Setser wrote:

    Can. Not. Wait.  Til Google Express comes to my town…I think it’s inevitable, and B&M grocers need to get on board, or be left behind…I would pay dearly to have groceries waiting at my door (and have to think many others would, too).  Love Amazon Prime Pantry, but I haven’t found the platform to be terribly user friendly.  Regardless, Prime Pantry (including the box fee) was, on average, 10% cheaper than my local grocery store.  Can’t beat that, folks.

    On the subject of increased wages for retail employees, one MNB user wrote:

    Having been in the trenches, store manager and district manager, for both
    Wal-Mart and Dollar General, I know first-hand what a pay raise does for
    hourly folks.

    It has always boggled my mind how short-sighted and narrow-minded higher-ups
    seem to be, when it comes to wages.

    As Mr. Sam Walton always said, "Give a person responsibility, and as long as they handle it...give them more". He did not say "and pay them more for the extra" but it was always implied. I was a stockman and rose to a buyer position because of his belief. How dedicated, motivated, and happy do you think I was?! Extremely!!

    I have proven in store after store, PAY for the person you WANT...whatever the position, not the person you HAVE, and then train them UP. If they cannot handle it, deal with them accordingly. In my experience you will have a very happy, determined and LOYAL employee. Indirectly, you lower your shrink, employee turnover, while increasing productivity and morale, ultimately increasing your PROFIT! So WHAT if your wage line goes up a little!?

    MNB user Jim DeLuca had some thoughts on the subject of the cost of employee turnover:

    I am always suspicious of the cost of turning over a retail frontline employee.  I have worked retail grocery on and off for 40 years with turnover varying from 20% to 50% a year.  When I analyze my costs it is nowhere near $5000 per employee.  I advertise on my doors, on Craigslist, on Facebook and to my email list.  Basically no cost.  I interview maybe 4 or 5 candidates, some twice;  maybe staff time for that of about 40 hours max; more likely 20 hours: cost of about $600 tops.  Training for most of my frontline positions: stocking clerk or cashier, is 4 intense days to get up to 80% ready and then then next 30 days to get pretty decent at the work and to get the culture.  Four days of double pay is about maybe $400.  Loss of effectiveness for the next month; maybe 32 hours lost or about $500 additional.

    So my count shows a cost of $1500 maximum; still not cheap though. Some of that interview time is not really extra cost since the staff is already being paid to be there.   I am not sure how to measure the loss of  a great employee and the effect that has on coworkers and shoppers.  Probably could cause some ripple effect that might lose sales or productivity too.  While that might effect my small retail store, I do not see how that would effect a Wal-Mart.

    We had a piece that mentioned Macy's increased focus on e-commerce, which prompted one MNB user to write:

    It was interesting to see this news blurb this morning since I just had an ‘experience’ with one of our local bricks and mortar Macy stores this past weekend. In general, the department store model, in my opinion, needs a big overhaul in order to remain relevant. In in addition to being woefully understaffed, ‘my’ Macy’s continues to winnow down product lines and choices and putting departments in awful areas. The lingerie and sleepwear is charmingly merchandised at an seldom used entrance door next to mattresses. It looks like a bargain basement and forget it if you need help. Plus sizes and maternity are merchandised next to suitcases and blenders like an afterthought in a bleak, poorly lit space.

    It’s an awful shopping experience. Then, if you do manage to find something (and the sales person is ‘doing their job’) you're forced to respond to numerous sales pitches that revolve around Macy’s selling my shopping info to outside parties (their new Plenti program is one) and self-scroll through card holder deals to guess at what would save me the most money,  so the check out experience takes 10 minutes. And, oh yes, I would LOVE to give you my cell number for push notifications...said no one ever. And let’s not forget feeling shamed for not participating in their charitable giving program - which costs $25 (it’s for GREAT causes though) and tracks your purchases for a year so you’re ‘rewarded’  for shopping. What the actual hell? 

    I went home and shopped online - at Zappos and Nordstrom.

    Finally, commenting on a story about McDonald's, I cracked wise on one particular subject:

    "The company said in its statement that animal welfare is a top priority for the company. I'd prefer that McDonald's think more about human welfare and make a better hamburger..."

    Which led one MNB user to write:

    Seriously? I can't believe you just wrote that. Humans have a choice in whether to consume McDonald's products. Animals don't have any choice regarding their living conditions. If we're going to eat them the least we could do is treat them humanely while they are alive and sacrifice them as humanely as possible when their time comes. Do you have pets? Probably not. That would explain this careless comment. $10 says you get a lot of heat on this one.

    Actually, this is the only comment I got ... maybe because most folks realized that I was kidding, that it was part of my ongoing and probably wearying anti-McDonald's schtick.

    Two things.

    We have two dogs. Love them both. The oldest, a yellow lab called Buffett, has her large and aging body wrapped around my feet even as I write this, just as she does pretty much every morning. (The other lab, Parker, probably is in the other room scavenging for a cookie.)

    Second ... regarding McDonald's. yesterday, our car broke down on the Bruckner Expressway while we were driving home from New York City. Pulled into a parking lot and called for assistance. There happened to be a McDonald's there ... and so, while we waited, we indulged.

    I have to tell you, the new Buttermilk Chicken sandwich doesn't suck. It probably is awful from a nutrition perspective, but I ate it, along with some fries, and I liked it. (And I don't even hate myself for it.)
    KC's View:

    Published on: September 14, 2015

    In the US Open Women's Singles finals, Flavia Pennetta defeated Roberta Vinci - who had upset Serena Williams to make the finals - 7-6 (4), 6-2 ... a remarkable achievement for the world's 26th ranked women's player who also happened to be 33-years old.

    And, when the match was done, she immediately announced her retirement, saying she'd reached the decision to retire even before the tournament began.

    That's called going out on top.

    In the Men's Singles finals, Novak Djokovic defeated Roger Federer 6-4, 5-7, 6-4, 6-4, which earned him a second US Open singles championship.

    In Week One of the National Football League...

    Indianapolis 14
    Buffalo 27

    Carolina 20
    Jacksonville 9

    Kansas City 27
    Houston 20

    Seattle 31
    St. Louis 34

    Cleveland 10
    NY Jets 31

    Green Bay 31
    Chicago 23

    Miami 17
    Washington 10

    Detroit 28
    Aan Diego 33

    Baltimore 13
    Denver 19

    Tennessee 42
    Tampa Bay 14

    New Orleans 19
    Arizona 31

    Cincinnati 33
    Oakland 13

    NY Giants 26
    Dallas 27
    KC's View: