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    Published on: December 14, 2015

    by Kevin Coupe

    Most commercials, I think it is fair to say, are not worth watching once, much less twice. So it was a little the unusual the other day when I was working at my desk with a a TV news program on in the background, and I found myself using the DVR to re-watch a commercial that I'd only sort of seen and didn't quite understand.

    The commercial, which you can see here, shows a bunch of Microsoft Store employees walking up Fifth Avenue in New York City, accompanied by a children's choir, and ending up at the Apple Store, where they sing Christmas carols for employees and customers. The graphic says that they want to “deliver a special message to some old friends," and that the goal is to "spread harmony."

    Digital Trends reports that Microsoft had to get permission from Apple to film there, and presumably to use the video in a commercial, though Apple employees did not know precisely what was going on.

    It is kind of a cute commercial, though it also made me think about other industries where this would never happen. Would Pepsi employees serenade Coke staffers in Atlanta? Would Toyota employees deliver Christmas presents to Ford headquarters in Detroit? Would Batman show up in a Marvel Christmas movie? I doubt it.

    While Apple and Microsoft are competitors, they also are business partners. I can't find the numbers published anywhere, but there are have to be many millions of dollars worth of Microsoft Office for Mac products sold each year. And let's not forget that when Steve Jobs was working to revive Apple back in the late nineties, it was a $150 million investment in the company by Microsoft that gave him a little running room.

    (I did find story in Engadget noting that Microsoft had sold its ownership in Apple by 2003 ... though if it had held onto those shares, they'd be worth $21.86 billion ... or roughly a quarter of its total 2015 revenue. Yikes.)

    I'm also petty enough to be glad that Microsoft went to Apple, not the other way around ... and willing enough to take a cheap shot to note that there probably was no problem leaving the Microsoft Store to go caroling since there likely were few customers there to serve.

    But let's put history and pettiness aside for the moment, an just enjoy the holiday moment, and of season's greetings being exchanged by two old rivals.

    It is an Eye-Opener.

    KC's View:

    Published on: December 14, 2015

    The Wall Street Journal this morning has a story about how start-up companies are developing technologies that will allow people with smartphones top use them to ascertain the safety of the food they are about to eat or serve to their families.

    "What if you could know exactly what you’re putting in your mouth, down to the last bite? What if we all had the ability to inspect our food in a way previously accessible only to chemists with costly laboratories?

    "The power to scan our environment at a molecular level, with devices no bigger than our smartphones, is coming. In some cases, it is already here, thanks to a handful of startups.

    "The Nima from 6SensorLabs is an organic-chemistry lab small enough to carry in your pocket. Right now it is only good for one thing: detecting gluten in foods at minuscule concentrations, as little as 20 parts per million, the FDA’s threshold for declaring a food 'gluten-free.' At $250 for the device and $5 per disposable reaction chamber, it isn’t for the trendy gluten avoider, but rather diagnosed celiac sufferers who become seriously ill when they are 'glutened' by packaged goods and restaurant fare that isn’t carefully prepared.

    "But in the future ... it could be adapted to recognize all manner of proteins—including ones that would allow it to recognize bacterial contaminants such as E. coli and salmonella."

    While we are early in the process of developing such mobile technologies, the Journal concludes, "We have invented and made ubiquitous electronics that can see, hear and even feel with exquisite sensitivity, but the ability to analyze and break down the very constituents of our world—through something like smell and taste but with far more acuity than what’s accomplished by nature—will almost certainly create whole new applications, markets and billion-dollar businesses."
    KC's View:
    On the face of it, this would seem like a good thing ... and probably inevitable, as technologies improve and customers demand a higher level of accountability and transparency from the companies they patronize. But it isn't hard to imagine this turning into a nightmare for businesses, as consumers bring their smartphones into stores and restaurants and use them to evaluate the food they're buying, even before they actually buy it.

    Again, this probably is inevitable ... but it almost certainly will demand a higher level of vigilance and expertise from companies trying to establish their food credibility. Then again, companies that misguidedly believe that speed trumps quality won't care ... though I think this opinion may also be misguided. (See our next editorial story...)

    Published on: December 14, 2015

    The Associated Press reports that Yum Brands CEO Greg Creed believes that the future of his company's three major fast food brands - KFC, Taco Bell, and, especially, Pizza Hut - will be built around speed and convenience, not product quality. Creed says that "there was a time when the way to beat the competition was to have a better product. He now believes that convenience trumps quality, and that 'nothing beats making better easy'."

    In fact, the company has reduced this into a kind of mission statement, that "easy beats better."

    The story goes on to say that "with Pizza Hut in particular, Creed said the chain hasn't paid as much attention to making life easier for customers as it focused on being 'better.' Yum notes the chain's sales have flagged even as Pizza Hut is often cited as a favorite among consumers. It turns out people who prefer the chain's pizzas are only willing to wait about two minutes more for it, Creed said. Yet Pizza Hut takes more than two minutes longer to deliver than its competitors."

    Creed also has chosen a company from another industry on which to model Pizza Hut - Uber. "If you think about the Uber experience, it's easy to use, it's easy to pay, it's very easy to track," he says.
    KC's View:
    If your quality is mediocre, it strikes me as a pretty good decision to say that what you are going to focus on is getting your delivery folks to drive faster.

    I suppose that if Pizza Hut believed that its quality sucked, they'd be pushing for drones.

    I think speed is important, but I cannot remember a time when we ever tasted a pizza - or or anything else, for that matter - and we said, "That's not every good, but at least it got here fast."

    It is like last Saturday's "SNL" skit with Will Ferrell returning as George W. Bush, offering commentary about the various GOP presidential candidates, saying about Jeb Bush's campaign poster saying "JEB!", "Look, I don't like the taste of broccoli, but it doesn't get any tastier if you call it 'broccoli!"

    I think this is a misguided strategic decision by Pizza Hut.

    The irony, of course, is that until a few weeks ago I would have pointed to Chipotle as a prime example of how quality matters now more than ever ... but that argument isn;t quite as compelling these days.

    Published on: December 14, 2015

    The Wall Street Journal reports that "United Parcel Service Inc. is straining to handle a surge in online sales that has resulted in more holiday volume than it had expected, causing a wave of disruptions that could spell trouble for the holiday season.

    On-time delivery rates for UPS ground packages based on their normal shipping transit times last week fell to 91%, according to an analysis of millions of packages by software developer ShipMatrix Inc. During the same week last year, the on-time rate was 97%, which is UPS’s usual average during nonpeak months.  FedEx Corp. ’s early numbers were also lower than usual at an estimated 95%."

    The story notes that "UPS has been slammed with unexpectedly high volumes, extra pickups and not enough staff and equipment to handle all of the packages in some locations, according to people familiar with the matter."

    The Journal goes on to note that "most of the problems surfacing so far involve UPS, which does more residential deliveries than FedEx and has been trying to contain costs. It is unclear how much difficulty FedEx and the U.S. Postal Service are having handling the loads. All combined, the three carriers have been expecting to ship more than 1.5 billion packages over the holidays, an increase of more than 10%."
    KC's View:
    Two things to think about here.

    One is that the delivery companies want to avoid the problems of past years ... though it always seems like we read stories in early fall about how they are gearing up to deal with higher expected volume, but it always ends up being higher than expected, which in itself ought to be a lesson about how customers and expectations have changed.

    The second is that this is why Amazon is trying to figure out how to take increasing control of its distribution systems ... whether it is a trucking fleet or drones. The sense there clearly is that the infrastructure is not equal to the challenges of the near future, so they're trying to get ahead of the wave.

    Published on: December 14, 2015

    24/& Wall Street reports on a new comScore study saying that "Amazon sites had 189.8 million unique visits in October across desktop, tablets and mobile devices. That makes it the fourth most visited family of sites in America. Wal-Mart's total was less than half of that at 88.3 million.

    And the Washington Post reports on a new CNBC poll in which "consumers were asked how often they search for products or check prices on Amazon when they shop online. Some 24 percent of online shoppers said 'always,' and another 25 percent said 'most of the time.'  That means Amazon has managed to lure some 49 percent of online shoppers to consistently consider their site.  (And still another 26 percent said they “sometimes” search Amazon.)"

    These results, the story says, underscore "the enormous challenge that traditional retailers face as they try to pull down more online sales.  They have to win the minds of a shopper who is habitually — almost on autopilot, really — going to Amazon.  And so while chains such as Walmart and Target are spending billions of dollars to create websites that are more attractive and easier to use, and are overhauling their supply chains to offer speedier and more reliable shipping, all those innovations simply won’t matter if they can’t get shoppers to reflexively think of them in the same way shoppers already think of Amazon."
    KC's View:
    I think it is fair to say that at least in our house, we're doing holiday shopping both online and in bricks-and-mortar stores ... but I'm pretty sure that virtually every online purchase has been made on Amazon.

    Published on: December 14, 2015

    MarketWatch has an assessment of the new Walmart Pay mobile payments system announced last week by the retailer, which is designed to compete with the likes of Apple Pay as well as with the CurrentC system in which Walmart is a founding partner.

    Some people, the story suggests, are not impressed:

    "The rollout comes at a time when retailers are scrambling to capture market share in mobile payments. By processing sales in this way, retailers aim to circumvent credit card fees, build customer loyalty and reap the sales. But getting consumers to buy in is one of the biggest hurdles.

    "In reality, most consumers use few apps on a daily basis for any reason. Half of the time that smartphone users spend on apps is on their single-most used app; 18% of time is spent on their second-most used app and 10% on their third-most, showing there is little time spent on additional apps beyond a primary three, according to analytics company comScore. Plus, mobile payments still make up a small percentage of purchases in the U.S.

    "Just 18% of smartphone users in the U.S. and Canada use their phones to make a payment at least once a week, according to an Accenture survey from this summer. Only 14% of people with smartphones plan to make even one purchase using mobile payments during the holiday season, according to personal-finance website Bankrate ... In Accenture’s survey, 54% of smartphone users who don’t currently make mobile payments said they would if they were offered discount pricing or coupons, and 53% said they would if they received rewards points with a rewards card stored on the phone. And 53% said they would if it improved their shopping experience."

    Fortune reports that Walmart "has starting selling the Apple Watch on its website, becoming the biggest retailer to carry the popular device ... The retailer is selling the watch at only a few select stores at this point, a Walmart spokeswoman told Fortune. The only versions Walmart is selling are the 38 mm and 42 mm Apple Watch Sport models in silver or space gray, ranging in price from $349 to $399."

    Walmart also is selling the Apple Watch on its website. "The addition of Walmart, the largest U.S. retailer with $290 billion sales a year (including about $13 billion online) gives Apple much more reach in selling the device," Fortune writes. "And for Walmart, it could drive traffic to its website, on which it is spending billions to make it better compete with and other e-tailers."
    KC's View:
    I have to say that I disagree with what appear to be the Accenture conclusions, which is that Walmart may be too far ahead of the wave on this. I have no idea if it makes sense to create Walmart Pay and still have a commitment to CurrentC, but history suggests that consumers will adapt this technology faster than anyone expects, and so it makes sense to try to get ahead of the wave. When it hits the tipping point, it'll happen fast ... and those who wait too long to adapt may find themselves at a competitive disadvantage.

    As for selling the Apple Watch ... I think this illustrates the degree to which Walmart may be trying to change its spots without changing its stripes. Which could result in one very confused animal if it is not managed effectively.

    Published on: December 14, 2015

    The Wall Street Journal this morning reports that the University of Michigan preliminary December sentiment index suggests that "US consumer confidence improved for the third straight month in December, offering some hope for retailers during the key holiday season. Consumer spending accounts for roughly two-thirds of overall economic output in the U.S., and retailers are hoping a strong jobs market and low gas prices could entice shoppers to spend during the final month of the year."

    The index, according to the story, "rose to 91.8 from a final November reading of 91.3 ... Consumer sentiment in early December was slightly below the sentiment index’s average of 92.9 during 2015, although the year-to-date average is the highest reading since 2004."
    KC's View:

    Published on: December 14, 2015

    ...with brief, occasional, italicized and sometimes gratuitous commentary…

    CNN reports that coming off a "brutal year," Whole Foods may be looking for a sale of the company that could allow it to focus on Main Street concerns rather than on Wall Street and the investor class.

    A number of investor sites have speculated that Whole Foods could be bought by a private equity group, with Cerberus and 3G Capital mentioned prominently. None of these companies commented on the speculation.

    CNN concedes that this is not new, and that both Publix and Costco have in the past been mentioned as possible Whole Foods suitors, though "it's not clear why either company would want Whole Foods."

    However, there seems to be a sense among some investors that Whole Foods' marketing and perception problems - which are both tangible and intangible - have created an environment in which selling the company may be its best option.

    Granted, getting the company off Wall Street may provide some short-term relief for Whole Foods management ... but I wouldn't underestimate the pressures that could come from a private equity group that might buy the retailer. I have to wonder if what the company needs is a new CEO, someone who understands the culture and mission, but also can be clear-eyed and objective in dealing with an infrastructure that has to have some legacy issues.

    • Walgreens Boots Alliance and Rite Aid Corp. said Friday the Federal Trade Commission has requested more information about their proposed merger.

    "Walgreens and Rite Aid said they had expected the so-called 'second request.' The companies still expect the deal to close in the second half of 2016."

    The story notes that "Walgreens in October agreed to pay about $9.4 billion to buy Rite Aid, a move to create a drugstore giant at a time when companies in nearly every corner of the health-care industry are seeking to gain advantage from bulking up. The deal was expected to be closely scrutinized by antitrust regulators, as the companies are two of the three-biggest drugstore owners in the country."

    • The Kroger Co. (KR) today announced that associates working at King Soopers and City Market stores in Colorado have ratified new labor agreements with UFCW Local 7. The contracts cover more than 10,000 associates working in 103 stores, 36 fuel centers and pharmacy technicians in 78 pharmacies in Colorado, including Denver, Boulder, Broomfield, Colorado Springs, Fort Collins, Grand Junction, Longmont, Parker and Pueblo.

    Yahoo News has a story about how Starbucks "is in the midst of yet another Christmas controversy surrounding its seasonal products" - a polar bear shaped cookie that is all white except for a red scarf around its neck. except that some people apparently think that it actually looks like a polar bear with its throat slit, with some suggesting that "the apparent attack on polar bears was actually a continuation of the company's campaign against Christmas that began back in November, when Starbucks rolled out their annual red cups for the holiday season, but without the Christmas ornaments or snowmen that have been featured as decorations in the past."

    There's only one problem, the story says: "Starbucks hasn't even sold the polar bear cookies in years, reports BuzzFeed. The photos are old, and the polar bear cookies haven't been sold in stores since 2010."

    Forgive me, but some people are morons. They're looking for a fight, and they're using obsolete ammunition. The problem, of course, is that sometimes people like me pay attention, which exacerbates the issue.

    • The Christian Science Monitor reports that the US Department of Treasury has delayed the promised redesign of the ten dollar bill, which will put a woman on the face of US paper currency, replacing Alexander Hamilton, a founding father and the nation's first secretary of the treasury. The Treasury Department "had planned to select a woman by January 1, but faced with deluge of public opinion, it now projects making a decision some time next year. "

    I don't have a strong opinion on which woman ought to be chosen, but I do think that they ought to keep Hamilton on the $10 bill by himself, and get rid of Andrew Jackson from the $20. It just makes more sense, and I hope this is why they're delaying the decision...
    KC's View:

    Published on: December 14, 2015

    • BJ's Wholesale Club announced that Christopher J. Baldwin, BJ's president/COO, has been named president/CEO, succeeding Laura J. Sen, who is assuming the role of Non-Executive Chairman.
    KC's View:

    Published on: December 14, 2015

    On the subject of Volkswagen's ethical issues, MNB user Andy Casey wrote:

    Problems like this almost always originate from the top and frequently because senior management demonstrates an unwillingness to accept bad news.  Not defending anyone who was involved in the cheating work around but in cultures like that taking bad news to the boss typically results in the messenger getting spanked.  Over time people learn to avoid doing that, masking results to validate expectations instead and it frequently leads to poor decision making albeit this seems an extreme case.

    Another MNB user wrote:

    This really is a damn shame. I leased a 2013 VW Passat SEL (gas) which is really a great machine. I was prepared to buy the vehicle at the end of the lease in April 2016 since the buyout price is favorable and the mileage will be considerably under the lease mileage cap. Even though this is a gasoline powered vehicle I feel that the VW brand may be so badly tarnished that it may not survive. The trade in value of the 2013 VW Passat may be next to nothing in a few years.

    History has shown that auto makers can survive safety and quality issues, if handled correctly and honorably. However, this breech of promise by VW I believe is not repairable or survivable.

    Buying a Benz!

    MNB reader Dan Blue wrote:

    I have never owned a Volkswagen, but I drove an Audi for years and it remains the most enjoyable car I've ever owned (the birth of my son and my wife's inability to operate a standard transmission saw it traded in for a more… family friendly vehicle). I find this whole debacle to be a disgusting display of corporate hubris and a complete lack of integrity. A corporate culture that can allow something like this to happen does not develop overnight; it's systemic and by design. I can confidently say I will never own another Audi after this.

    What I find particularly galling is the fact that I continue to see Audi commercials with their tag line, Truth in engineering.

    I wrote on Friday that I'm not buying the blame game that VW seems to be positioning itself to play ... just as I'm not buying any product made by Volkswagen or its corporate brethren, Audi and Porsche. (Though, I admitted that if I had the money to buy a Porsche 911 Carrera Cabriolet, my moral superiority and ethical condescension might fade away...)

    Which led MNB reader Larry Cooper to write:

    I’ve had a few struggles getting in my new Porsche Targa 4S each morning but I’m almost “over the hump”….

    Larry was kind enough to send me a picture of his Porsche. It's gorgeous.

    On Friday, I posted an email from an MNB reader who sensed some level of disingenuousness when I disagree with criticisms. MNB reader Roger Hancock was kind enough to come to my defense:

    If I were to characterize the theme of your blog with one word, it would be innovation.  It trumps change because it implies newness, creativity, inspiration.  Change in and of itself - not so much - as the old adage, "The more things change, the more the stay the same" tells the story.

    Hats off to you because you come across to me as living by the theme that you write about.  It took courage to post the anonymous view about "I'm not sure this is true."  And you then owned the criticism with your reflection, "...but maybe that's just me being defensive."

    To me, your comment "I'm not sure..." is your expression of leaving the door open to perhaps having an inaccurate opinion on a matter that you're willing to change if you are convinced by additional facts.  In other words, I don't read it as defensively as your other reader, but having raised four teenagers myself, certainly appreciate her perspective.  I guess the proof of your motivation is whether you actually ever change opinions based on the facts.

    While I can't point to specifics, I can recall occasions where that is exactly what you have done in your blog.  Innovation is never easy - as you regularly point out.  Practicing it personally may be the most challenging of all, and you seem to travel that road regularly.  Again, hats off.

    Thanks. It's been 14 years, but I always think of MNB - and my own contributions - as a work in progress. I think that's probably a good thing...
    KC's View:

    Published on: December 14, 2015

    It's Week Fourteen in the National Football League...

    Lions 14
    Rams 21

    Falcons 0
    Panthers 38

    Redskins 24
    Bears 21

    Bills 20
    Eagles 23

    49ers 10
    Browns 24

    Saints 24
    Buccaneers 17

    Seahawks 35
    Ravens 6

    Chargers 3
    Chiefs 10

    Colts 16
    Jaguars 51

    Titans 8
    Jets 30

    Steelers 33
    Bengals 20

    Raiders 15
    Broncos 12

    Cowboys 7
    Packers 28

    Patriots 27
    Texans 6
    KC's View: