business news in context, analysis with attitude

Published on: September 18, 2015

by Kevin Coupe

Advertising Age reports that comedian Steve Rannazzisi has lost his gig as the commercial spokesman for Buffalo Wild Wings.

The reason: Rannazzisi admitted this week that he fabricated a story about being in New York City's World Trade Center and narrowly escaping after the terrorist attacks of 9-11. It didn't take long for the company to part company with the comedian, saying that "upon careful review, we have decided to discontinue airing our current television commercials featuring Steve Rannazzisi."

Which means that you can add Rannazzisi's name to the list of people who have lost gigs because it was discovered that the truth of their lives was at variance with the stories they'd been telling. On that list are names like Bill Cosby, Jared Fogle, and Brian Williams.

As Shakespeare once wrote, "At the length truth will out."

Or, in more modern terms: Transparency wins.

It is an Eye-Opener.

Published on: September 18, 2015

The Seattle Times reports that bankrupt Haggen has sent a memo to employees saying that it is working with Albertsons - the company that it acquired 146 stores from in what ended up being a disastrous move, as well as the company that it currently is suing for $1 billion, accusing it of sabotaging its attempts to make the stores competitive - to get it to rehire some of the employees that moved to Haggen in the transition. It requires the permission of the Federal Trade Commission (FTC).

According to the story, "Haggen said the companies are 'cooperating' in a request to waive the one-year ban preventing Albertsons from hiring workers from the 146 stores it sold to Haggen. That ban, like the sale of the stores, was required by federal antitrust regulators as a condition for Albertsons’ $9.4 billion takeover of Safeway.

"The order was meant to protect Haggen from poaching by a bigger rival. But now, with Haggen planning to shrink under Chapter 11 bankruptcy protection, the ban stands in the way of job security for thousands of grocery store employees ... Haggen told staffers that getting a waiver from the FTC has been a 'priority,' to 'ensure our employees can take advantage of every opportunity available to them'."

In the memo, the story says, Haggen assured employees "that it’s in active talks with many different potential buyers for 'a significant number' of locations. 'We hope to share more details as they become available, perhaps as soon as next week'."

it is just the latest twist in the Haggen saga, which has been a debacle ever since it acquired the Albertsons and Safeway stores. From the beginning the stores were perceived as being high-priced, with the emphasis seemingly placed on high margins rather than competitive prices. As a result, Haggen has been experiencing a serious traffic, sales and profits problems in the new stores, which created cash flow issues, which resulted in slowed shipments and increased out-of-stocks, which in turn led to even lower sales ... and, finally, the decision to file for bankruptcy protections and sell off as many stores as possible - perhaps even the entire chain.

Haggen reportedly owes its creditors more than $270 million.

Now, the Oregonian reports that Haggen has asked the bankruptcy court overseeing its business "for approval to pay an investment banking firm more than $1 million to explore selling the company and its assets, including stores." That firm is Sagent Advisors, described in the story this way:

"The firm oversaw the 2011 purchase of Haggen's majority stake to private equity firm Comvest, as well as the grocer's purchase of 146 stores from Albertsons earlier this year.

"It entered into a new agreement with the firm in November 2014 for financial advice in 'connection with a potential sale or acquisition of Haggen, Inc.,' documents show.

"Haggen has paid Sagent more than $4.4 million since November, the records show, and plans to pay it more than $1 million more to explore selling the company now ... Haggen plans to pay Sagent a transaction fee of at least $1.25 million (or $30,000 per store, or a small percentage of the sale price, whichever is greater), plus $50,000 a month for its services, the document says.

"The grocer's filing deems the terms 'reasonable and appropriate,' and goes on to justify the contract: 'Sagent is needed ... to assist with negotiations, to provide expert advice and testimony regarding financial matters related to transactions ... and to enable the debtors (Haggen) to discharge their duties as debtors and debtors-in-possession'."

Published on: September 18, 2015

The Bergen Record reports that 25-store Kings Food Markets has begun aggressively promoting its private label lines, called Kings Own. There currently are " 350 Kings Own products in its stores, ranging from candy to canned tomatoes, and it plans to soon double the number of offerings to 700 items," the story says.

The Record says that Kings is promoting the own label line "as a premium option," believing that the emphasis should be on "outstanding value" for the price, rather than just price, according to Judy Spires, president/CEO of Kings.

The story continues:

"Spires said Kings has been working on the Kings Own rollout for 2 1/2 years, introducing products one by one, until it had enough of a critical mass of offerings to begin promoting the line in earnest. That began this month, starting with a Sept. 11 promotion to benefit food banks in which customers were asked to buy one Kings Own product to try, and one to donate to an anti-hunger organization. On Sept. 25, the chain hopes to introduce shoppers to its organic pasta products by giving a free box to the first 175 customers at each store. From then until Oct. 8, the chain will host a contest to win a tote bag full of Kings Own products."

Published on: September 18, 2015

Bloomberg has the fascinating story of Al Jarvis, a Michigan man who started working at a McDonald's when he was 16, and eventually became a franchisee when he bought one neat Grand Rapids.

"Over the years he hired hundreds of employees, saw dozens of menu items come and go, and spent four or five hours a day, five or six days a week, watching over the counter and grills from his vantage at the fry station," the story says. "Jarvis looked forward to celebrating 50 years with McDonald’s this past May. And then, six months short of that milestone, he sold his restaurants. 'I wanted to get the hell out,' he says..."

The reason? Jarvis says he is concerned that the company is losing touch with its roots. "Like many of his fellow operators, he wonders whether executives at headquarters will figure out how to innovate while staying true to the chain’s promise of serving good-tasting food fast. Jarvis’s experience suggests the answer is no, and unlike current franchisees, who are reluctant to speak on the record because they don’t want to provoke HQ, Jarvis is free to say what others can’t or won’t."

It is an enormously informative and detailed story, complete with numbers, that makes it clear just how difficult it is to run a McDonald's franchise ... and what the structural issues are that could prevent the chain from achieving past glories. You can read the whole story here.

Published on: September 18, 2015

Pitney Bowes is out with its annual Holiday Shipping Survey, which concludes that "most Americans plan to shop both in-stores (94 percent) and online (92 percent) this holiday season, with 94 percent of consumers planning to shop from a computer and 49 percent making purchases from a mobile device."

The survey goes on to say that "93 percent of consumers find shipping options to be an important factor in their overall shopping experience (a 23 percent increase from 2014). Overwhelmingly, 88 percent of those surveyed find free shipping with a 5-7 day delivery to be more attractive than paying a fee for a 1-2 day delivery."

Also, the survey found that "30 percent will shop before Thanksgiving, 41 percent will shop from Thanksgiving through Cyber Monday, 26 percent will shop on Thanksgiving and Black Friday, 17 percent will shop on Cyber Monday, 13 percent on the weekend between Black Friday and Cyber Monday, (and) 34 percent will shop during the month of December."

Published on: September 18, 2015

• The Oregonian reports that Kroger-owned Fred Meyer there "is joining the increasing number of retailers fighting for a piece of the new world. Fred Meyer recently debuted its program at its Burlingame location, and plans to add the option to five other Portland-area stores this year."

The story says that "next year, the Northwest retailer hopes to add the program to dozens of other stores in the region," offering a click-and-collect service.

The Oregonian notes that "With its Prime Now service, Amazon offers Portlanders the chance to order groceries from New Seasons Market, World Foods and Uwajimaya -- and receive them within two hours.

"Likewise, Instacart offers speedy deliveries to much of the metro area from Whole Foods Market, Costco, Safeway, Natural Grocers and Green Zebra Grocery."

Published on: September 18, 2015

• Fortune reports that "Walmart on Thursday released its plans for hiring seasonal workers, saying it expects to hire 60,000 temporary employees for the holidays this year. Walmart said in a press release that it will have more associates in its stores working more hours this season, and they will 'focus on providing service and convenience to our customers'."

The story notes that "the upcoming holiday season will be the first since Walmart introduced a higher starting wage for its workers."


• The Wall Street Journal reports that Trinity Wall Street Church in New York City " is asking the U.S. Supreme Court to weigh in on its dispute with Wal-Mart Stores Inc. over whether shareholders should have a greater say in what products a company sells."

Last April, the 3rd US Circuit Court of Appeals has ruled that Walmart does not have to let shareholders vote on a proposal by the church, which owns about $300,000 worth of Walmart stock, that would have forced the retailer's board to tightly supervise the sale of guns with high-capacity magazines.

The proposal, was initiated by Rev. Dr. James Cooper, rector of the wealthy and socially progressive Episcopalian parish, who argued that the sale of such products put public safety at risk and also potentially hurt the company's reputation and the values that create its brand equity. Walmart's argument has been that to allow such a proposal to be voted on by shareholders would open the door to a wide range of proposals that would make corporate governance impossible. It originally won that argument before the US Securities and Exchange Commission (SEC), but Trinity Church appealed to the courts and won. That prompted Walmart to appeal to a higher court, which produced this result.

And now, Trinity is going to a higher power - though not the Higher Power - to see if it can finally get its way.

Published on: September 18, 2015

• Business Insider reports that in the two years since Kroger launched its Simple Truth organic brand, annual sales have reached $1 billion. The company describes it as "our most successful brand launch ever," and the story notes that a recent JPMorgan report said that Kroger "is expected to surpass Whole Foods Market within two years and become the nation's top seller of organic and natural food."


• The Wall Street Journal reports that American Express, having lost is exclusive arrangement with Costco, has signed a deal with Walmart's Sam's Club division to assure that its cards will be accepted there.


• The San Gabriel Valley Tribune reports that Grocery Outlet Bargain Market, which operates more than 220 locations in California, Idaho, Nevada, Oregon, Pennsylvania and Washington, "plans to open 14 stores in the greater Los Angeles area beginning in December," and hopes to open 20 to 30 stores a year for the next several years.

Published on: September 18, 2015

• Reuters reports that President Barack Obama has nominated Dr. Robert Califf, a researcher and cardiologist, to be the next commissioner of the US Food and Drug Administration (FDA). Califf has been deputy commissioner at FDA since early this year.

According to the story, "The position is subject to confirmation by the Senate, but industry observers do not expect him to face significant opposition."

Published on: September 18, 2015

Responding to our piece about how Jeff Smisek, despite the fact that he resigned from the CEO job at United Airlines because of a corruption probe, walked away with one hell of a golden parachute, one MNB user wrote:

Your label of "disgusting" about UAL / Smisek situation is a total understatement.  I've met Jeff on a few occasions, as I was involved on a Passenger Feedback Committee which was asked to review and feedback on proposed passenger-focused concepts.  (This was back when UAL, or better said the Continental side of UAL cared & valued customer feedback.)  Jeff has long had a "healthy sense of self", always believing the loyalty program was an expense and hiding behind the Star Alliance in creating fare schemes that disrupted competition. Regardless, he was fully supported by his Board. 

Which leads me to my point; the fact Smisek keeps his perks is a Board of Directors issue. The Board could just as easily justify his resignation for cause and force the loss of benefits.

Why aren't the Boards more accountable?  In the case of UAL, they have (minimally) needed an independent Chairman for a long while and whether or not Jeff is found guilty, the Board is accountable. The problem is that they, too, get the same flight benefits, etc. as Jeff. 

Boards aren't acting as Boards are required to act.

MNB user Jeremy Couture wrote in about a discussion of the story on Tony Kornheiser's radio show:

I know you’re a devoted “Little”.  Mr. Tony discussed Jeff Smisek’s compensation package, and said by far the most valuable part of it was the free airport parking for life.




On another subject, one MNB reader wrote:

I have worked extensively in retail companies that were unionized and companies that are non-unionized.  Over the years I became very disenchanted with unions, and saw that in well run organizations employees and companies are both better off without union involvement—and often in the best of circumstances the union did not effectively represent the workers.  However, I have changed my position in the past 7 years as I have seen companies in the service industry exploit workers while excessively compensating those at the top regardless of if they are successful leaders or not.  Unions are not perfect—but I doubt we will every have a middle class again without them—and that is sad.




And, on another subject, from another reader:

My son did a stint at Walmart about a year ago.   He seemed fine with the work and the management.  The problem was the hours.  He was promised a “full time” job when he started.  But Walmart just wouldn’t give him or other employees (he says) more than 26-28 hours a week.  Raising the wage rate a buck or two an hour is great.  What would have been a lot more meaningful for him was a full time 40 hours a week.  After repeatedly asking for more hours, he finally left for another retail job that was good on their promise of “full time” employment.    Maybe turnover would go down if they stopped treating the vast majority of store employees as part-timers?




MNB reader Joe Elledge had some thoughts about my continuing criticisms of Instacart:

Perhaps you will be proven wrong about the viability of Instacart as a stand-alone business.   Perhaps you should be examining Instacart from the POV of a logistics provider as opposed to an adjunct to existing Grocery retail.   Perhaps Instacart is another 3rd Party Logistics company, such as Excel Logistics, as opposed to Wal-Mart’s developing grocery delivery service?  The value they add is identical to that of a 3PL  – picking, shipping, transport, and delivery of goods or materials from one point to another on a pre-determined schedule – correct?   Granted, Instacart does not run it’s own distribution centers.  Instead, Instacart uses the grocery retailers’ stores as distribution centers.  This strikes me as being very efficient from a capital POV.  If Instacart is actually a logistics company, they are building unmatched scale in delivery operations.  If they continue to build scale in the absence of competitive offerings, perhaps they will become unbeatable from a cost and service POV?  The UPS of grocery delivery?   And isn’t Instacart’s logistics service offering opportune given larger demographic trends?  Could instacart be riding the growing macro-demographic shift to dual income families or the aged?  Both of whom are either incapable or unwilling to do their own shopping?  I think, in the end, you may be proven wrong about Instacart…

Maybe.

But while Instacart may be a logistics company, if they mishandle fresh food and somebody gets sick, the consumer is going to blame the retailer, not Instacart. My concern is that retailers are outsourcing an important part of the shopper experience ... and that in the long run, this is a dangerous way to go.

But I could be wrong.

Another MNB reader thinks that I am wrong:

Your paranoia about the end result of retailers use of outsourced delivery services reminds me of the thinking in the convenience store world. When self-service gas fuel pumps made their way into the picture, most of the leaders of that format said it would be “the end” because customers had to come inside for sales to grow and be profitable. What we all learned is that the self-service customer and the walk-in customer can be two separate customer bases, or even two different shops by the same customer. In the end it is about customer loyalty, not just how they make the purchase.




On the subject of so many companies announcing delivery services, MNB reader Tom Murphy wrote:

This is an interesting industry trend, but the background on this that I am seeing is the realization that cost and volume volatility, plus the density of the delivery points, can have a huge impact on margin…totally erasing it or taking it negative in some cases.  Additionally, lots of retailers are modeling this on today’s gas prices…when a barrel of oil goes back up to $100+…many models will fall apart and consumers will not be willing to pay for increased delivery costs…leading to lesser volume…sound like a death spiral?  Delivery may be the right business model going forward, but you better have your hands on a good Activity Based Costing model…or it may eat your lunch…worse, it could alienate your customers.




Got an email about Target offering to give employees Fitbits so they can track their own physical activity:

Call me a conspiracy theorist, but Target having detailed information about employees health is a slippery slope.  Although they claim to only look at aggregate data, it’s going to be tempting to use it to make employee decisions when crunch time comes.

What they're not telling employees is that they're also keeping track of them via black helicopters.




I wrote yesterday about Jeff Bezos' interest in space exploration and rockets, leading MNB reader Kelly Jacob to write:

Jeff Bezo's interest in space doesn't surprise me at all. I don't know if you read the book "The Next 100 Years", but considering it was written in 2009, the predictions are fascinating liking from a 2015 perspective and ahead.  Part of what it talked about was the value of space in the future. All wars/disagreements will not only be fought by robots, but fueled by electricity...specifically SOLAR. Knowing land is scarce and to fuel the world it would take solar panels covering the state of Nevada, where would there be plenty of "land" with sun exposure...the MOON.

It's a tremendously eye opening read, but with satellites fueling our iPhones, GPS, global communications, etc, the space station has been the test and the preliminary pioneers that will set the stage for the next group of workers for the likes of Bezos, Musk and other entrepreneurs that won't be held back by governmental quagmires that would never get us where we need to go hence the disembowelment of NASA.

That galaxy far, far away isn't so far anymore!!!!

I wrote yesterday:

It is encouraging that people like Bezos and Musk are investing in something that the government has decided no longer is in its best interests. Foolishly, I think...

One MNB user responded:

It's always inspiring when the federal government privatizes an industry it had no business being in to begin with.

The federal government had no business being in space exploration? I disagree profoundly ... it is exactly the kind of thing, to my mind, that the federal government should be doing. The fact that it doesn't reflects, I think, a level of small-mindedness, lack of imagination and a ignorance about the importance of innovation.

Go watch The Right Stuff. Please.

Published on: September 18, 2015

Over the past week, I've finished off a wonderful book called "McCarthy's Bar," by Pete McCarthy, which follows the author on what he calls "a journey of discovery" in Ireland.

For McCarthy, the journey is a personal one. Born of an English father and an Irish mother and raised in Britain, he nonetheless feels connected to Ireland in a way he does not quite understand. But it is there, just under the skin, an itch that needs to be scratched. And so, he goes to Ireland on an extended trip that takes him to a number of Irish communities, putting him in contact with a wide range of unusual people (and a fair number of cows), always following what he calls "the eighth rule of travel," which is to "never pass a bar that has your name on it."

"McCarthy's Bar" is enormously entertaining - funny and whimsical,serious when it needs to be, with a knack for finding the right word or phrase that evokes a moment and puts the reader right next to McCarthy as he ventures with a high sense of both irony and adventure into places he's never been before. I particularly enjoyed it because I discovered as I read it that I'd been to some of the places that he writes about; I spent a summer in Ireland after graduating from college, have made a number of trips there since, and there were some shared experiences that caught me off guard and made me smile in recognition.

But I don't think you need to have traveled through Ireland to enjoy this book. In many ways, it reminded me of the work of Bill Bryson, especially his "In A Sunburned Country," which takes a similar sort of look at Australia. That's high praise indeed. McCarthy is an accomplished travel writer and comedian, and this book shows both talents off to great advantage.

"McCarthy's Bar" isn't a new book - it was published in 2000 (some of the references to the Celtic Tiger are a bit dated). The only reason I found it is that my daughter is reading it for an Irish studies class that she's taking at Quinnipiac University; she left it out, I picked it up, and found it to be utterly charming.

There's just one downside. Pete McCarthy, I've since discovered, died of cancer in 2004, at age 52. That's way too young, and I'm sorry that he only wrote one other book, "The Road To McCarthy," which I plan to order and read straightaway.

"McCarthy's Bar" is the kind of book best read with a pint at hand. High praise indeed.




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

Slàinte!

Published on: September 18, 2015