business news in context, analysis with attitude

Published on: January 18, 2016

A guest column by Chelsea Ware

Content Guy's Note: You may remember that I met Chelsea Ware at Portland State University's Center for Retail Leadership's annual executive conference last year. She's a student in the program, and when I found out she also was a blogger, I invited her to write a piece for MNB ... and she's written several, each generating a terrific reaction to her insights into how her generation thinks and acts ...

Here's her latest offering. Enjoy ... it is its own kind of Eye-Opener.

If you ever come to Portland Oregon, you can count on one thing being absolutely certain: there will be a line around the block for Salt and Straw Ice Cream and there will be a line around the block for Voodoo Doughnuts. It is a basic fact of Portland life.

Both retailers specialize in serving quirky foods. Salt and Straw has one of a kind ice cream flavors such as "Happy Birthday, Elvis!," which includes "homemade bacon-peanut butter Oreos are smashed up into delicious bite sized chunks, and swirled into a malted banana pudding ice cream," and "Sparkling Mimosa Sherbet," which is exactly what it sounds like. Voodoo offers a wide range of doughnuts, often with unconventional toppings such as Captain Crunch or Froot Loops, and some of them with names that we can't use here.

While these lines are equal in length, they are not equal in composition. Salt and Straw’s line has repeat customers while I've learned that research has shown that Voodoo’s lines are often made up of those who are at the establishment for the first time, with tourists often willing to spend hours to get doughnuts that they equate with the "Portlandia" experience.

This suggests to me that while both companies may have sustainable business models, only one of them has a truly growable model.

But why?

I believe it is because one shop innovates more than the other, and tells a better story about its innovations.

Salt and Straw uses the change of the seasons to introduce new flavors. The flavors are eccentric, fun and only there until the start of the next season. This creates a sense of excitement and urgency when purchasing their products. By doing so, they keep consumers interested in their brand and the experience they provide.

Voodoo, on the other hand, rarely updates its menu and going there is like checking something off of a sightseeing to-do list.

As millennials continue to gain purchasing power, it is imperative for businesses to innovate continually with new products, ideas, and concepts. The fact is, we have short attention spans. (I think people do in general, but millennials take it to the extreme.) We are constantly on the hunt for the newest, coolest thing to get our hands on and share with our followers on social media. We need continuous stimulation from the brands we purchase from.

A retailer’s products and the brand image around them need to be like an ever-evolving story that is being told to the consumer. We're always looking forward to the next chapter. If a retailers won’t provide us with a new chapter, then we will look for a competitor who will.

I was at Salt and Straw a few months ago and one of their clerks offered me a sample of guacamole ice cream. To be honest, I thought the flavor sounded a little questionable, but Salt and Straw is aggressive about offering samples ... and as I put the spoon in my mouth the clerk began telling me about how Salt and Straw conceived the bizarre flavor. They went to a local school and asked a bunch of 5th graders to brainstorm possible ideas for them. Not only was the smooth avocado ice cream with chunks of crunchy cinnamon sugar tortilla chips absolutely delicious, but I got emotionally involved because of the narrative around it.

And, as I was leaving, the same clerk shouted to me “come back in a month to try our flavors inspired by the wild flowers of the Pacific Northwest!” Not only did I buy a pint of guacamole ice cream, I shared it on Instagram, told my friends to go there and check it out too, and then came back the next month to try the new flavors the clerk recommended.

While Voodoo’s doughnuts are edgy and unique compared to conventional doughnut shops, there’s little reason for me to go back. There’s no new tastes, sights, smells, or experiences to be had and I know that any other trip there will be just like my first. There is no new chapter.

All businesses need to keep advancement and innovation at the forefront of their strategizing. Reality check: Every hot product or idea will eventually cool off.

The key to business sustainability and growth lies in always writing new chapters in the consumer experience and creating evolving emotional attachment with the brand.

Now if you will excuse me, I need to go get in line for my Oregon Black Truffle ice cream. I want to get there before the after-work rush hits.

Chelsea Ware is a senior at Portland State University in Oregon, pursuing a bachelor's degree in business marketing in addition to a food industry leadership certificate. She graduates in March. You can email her here.

Published on: January 18, 2016

As MNB was being posted on Friday morning, we broke with the just-released news that Walmart announced plans to close 269 stores around the world, including 154 in the US. The US closings include 102 Walmart Express stores, 23 Neighborhood Market stores, 12 Supercenters and four Sam's Club stores.

The company said that the closures are part of a general retooling and re-evaluation of its business, eliminating unprofitable stores and units that may have been cannibalizing sales from other Walmart stores. The company says it plans to open more than 400 stores in the coming year, with CNBC characterizing this as a shift "toward Supercenters and Neighborhood Markets in profitable locations."

In the wake of that announcement there have been a series of market-specific reactions...

• In Washington, DC, for example, local officials are outraged that as part of the announcement, Walmart will not build two promised stores there in low-income neighborhoods, saying that the decision is related to high building and labor costs that would make the locations unprofitable. (Three recently built Walmart stores in DC will remain open.)

As part of that "high labor costs" argument, the story says, some are saying that Walmart is implicitly blaming the District's high minimum wage; it currently is $11.50 an hour, and if approved via ballot later this year, could go as high as $15 an hour. These numbers, some say, made new stores untenable, which in the long run hurts the hundreds of people who would've gotten jobs there, the thousands of families who could've shopped there, and the city's tax base.

• Time has a story noting that "from the get-go it seemed like the Walmart Express format was not a natural fit for the retail giant." It was almost impossible for Walmart to deliver the same shopper experience, selection and prices at Express stores of 15,000 square feet and even Neighborhood Markets of 40,000 square feet that it did at 100,000 square foot supercenters."

• And there have been a number of stories in the media about communities where Walmart is shutting down, and local residents are upset because Walmart essentially put all the local competition out of business ... and now is closing its stores, leaving residents without a local supermarket.

Meanwhile, Fortune reports that Walmart has decided to merge two devisions - its tech group in Bentonville, Arkansas, and @WalmartLabs in California's Silicon Valley - to create a new unit called Walmart Technology.

"The teams’ merger echoes the growing shift in how consumers shop and shows just how important it is for Walmart to fully integrate its nearly stores with its $13 billion a year e-commerce business," the story says, adding that "the cohesion will notably be key to helping Walmart ramp up its online grocery pick-up service better compete with Amazon’s food delivery efforts. Walmart in recent years has poured billions into e-commerce, with a view to offering customers a seamless shopping experience and get more mileage out of its thousands of stores. For instance, it allows shoppers to pick up online orders at any store, to use a shopping up to alert store workers when they are getting to a Walmart to pick up an order, and also use the merchandise inventory in its enormous fleet to speed order delivery at a time Amazon is redoubling its efforts to shorten delivery times."

Published on: January 18, 2016

USA Today has an interesting story suggesting that the plummeting stock market and questions about the global economy could provide technology companies, especially start-ups, with "a rude awakening this year after a magic carpet ride the past few years."

The story notes that "mega-rounds, defined as funding of more than $100 million for venture capitalist-backed companies, are in free fall. The rate of private start-ups attaining unicorn status — a valuation of at least $1 billion — are grinding to a crawl. Friday layoffs at tech start-ups, deemed Black Fridays, are increasing. Bellwether tech stocks such as Apple, Google, Facebook and Amazon have been taking it on the chin."

And, the story goes on, "A report from PricewaterhouseCoopers and National Venture Capital Association underscores the chasm: While last year was the second-best in two decades for venture capital investments, at $58.8 billion, the fourth-quarter figures marked the smallest amount amount invested since Q3 2014 ($11.3 billion)."

Published on: January 18, 2016

The Puget Sound Business Journal has a story about how Portland-based New Seasons Market has committed to the opening of a new store in Seattle's Ballard neighborhood, its second in the Puget Sound region.

New Seasons - which operates 16 stores in Oregon, one just over the border in Vancouver, Washington State, and one in San Jose, California - committed to the opening of a store on Washington's Mercer Island later this year. It also has plans to open a pair of stores in the San Francisco Bay Area, as well as another one in Portland.

The retailer has established a strong image in the Portland market with its focus on local, healthy foods and commitment to donate 10 percent of its after-tax profits to communities where it operates.

Published on: January 18, 2016

Marketing Daily reports on the annual brand perception rankings done by YouGov BrandIndex, which says that for the third year in a row, Amazon was ranked number one. Netflix was number two, up from number three; YouTube dropped from number two to number three.

According to the story, "Amazon and Netflix were the only brands in last year's top 10 to improve their scores this year compared to last; the others were even or dropped a few points.

"Rounding out 2015's top 10: Google; Cancer Treatment Centers of America (newly added to the YouGov BrandIndex database along with other hospitals in early 2015); Apple and Samsung (tied at #6); iPhone (new to the top 10); and Lowe's and Walgreen's (tied at #9). Walgreen's was also new to the top 10."

The story notes that "Three brands that were in 2014's top 10 didn't make it in 2015: Subway, Ford and Cheerios.

"Subway, hit by the child pornography and sex-with-minors scandal that sent its longtime brand rep Jared Fogle to prison, dropped from #3 among all brands (across categories) last year to #20 this year, as its Buzz score dropped from 24.9 to 17.2 ... Ford's overall ranking slipped from #9 to #11 (though it remained #1 within the automotive category) ... Cheerios' overall ranking declined from #10 to #17."

Published on: January 18, 2016

• Three months ago, we reported on how Playboy had announced its decision to no longer feature pictures of nude women, saying that it wanted to be a relevant magazine, it had to focus on the journalism, not the titillation factor ... especially when nudity isn't that hard to find - it is as close as any device that is connected to the internet.

"The decision to eliminate nudity - the very thing that differentiated and defined the magazine when it started in 1953 - highlights a competitive reality that faces every company," MNB said. "Reinvent, or risk death. Disrupt from within, or be disrupted by the competition."

Well, one of Playboy's major competitors in the men's magazine business has had the same sort of reality check. Penthouse announced last Friday that "it is ending its print edition after 50 years on the newsstand and will now only be offered in digital format." The magazine once had a subscription base of more than five million, and now is so low that it isn't even audited.

Published on: January 18, 2016

The San Antonio Business Journal reports that HEB "will move forward with plans to construct a 7,416-square-foot convenience store and fuel station near Bandera Road and North Loop 1604 West (in San Antonio). That's about half the size of H-E-B's downtown location, which is in the 12,000-square-foot range ... the site will essentially be an extension of the H-E-B Plus! location just a block away."

Published on: January 18, 2016

• The National Retail Federation (NRF) said last week that retail sales during the 2015 end-of-year holiday season were up three percent, less than the 3.7 percent that it had projected. The increase is the slowest since 2013.

At the same time, NRF said that holiday e-commerce sales increased nine percent, more than the six-to-eight percent that had been projected.


• USA Today reports on an increase in shipping rates by various companies that could affect both businesses and individuals - and could conceivably impact

According to the story, "Rates for Priority Mail packages shipped via the U.S. Postal Service will go up on average 9.8% on Jan. 17, a move that comes at the same time that private delivery services are also raising rates.

"Within the last month, UPS Ground service rates increased on average 4.9% and FedEx by 4.9%. In addition to the Priority Mail rate hike, the Priority Mail Express prices will rise on average 14.4%, says USPS."


• The Omaha Herald reports that SpartanNash "will close three Omaha-area stores and remodel eight others this year, as competition and changing consumer tastes alter the local landscape for grocery retailers. SpartanNash will spend $14 million to remodel four Bag ’N Save and four No Frills stores, rebranding them as Family Fare stores, just as it did in 2015 when it spent $15 million to remodel four former No Frills stores and two former Bag ’N Saves."

Published on: January 18, 2016

The Financial Times has a column by Lucy Kellaway in which she delivers what appears to be a well-deserved lambasting of Punit Renjen, chief executive of Deloitte Global, who wrote an internal memo keyed to the beginning of the new year that first struck her as a funny, and then seemed "so ugly, so empty and so downright stupid, it is hard to go on laughing."

"Deloitte employs more than 220,000 people. It advises big companies, which pay vast amounts of money for its services," Kellaway writes. "That its chief should talk such nonsense is a bit of a worry. Many of the people who work there are bright, yet anyone in possession of even a normal IQ could not fail to read the message and wonder what on earth they were doing working there."

The problem, she says, is that the "Deloitte boss leads his staff into a forest of guff so thick and dark that they are unlikely ever to get out again," and is wildly imprecise in both words and meaning. One of his chief crimes, she argues, is that the memo pushes for consistently exceptional delivery of services, and suggests that everybody who works at Deloitte is exceptional.

Neither can be true, Kellaway says. The very definition of exceptional is that "the point about being exceptional is that it only happens as an exception," and it simply is impossible for all 220,000 employees to be exceptional, and on the face of it, the claim is "pure hype."

The column does not suggest that motivational memos that exhort employees to do better and work more effectively have no place ... just that imprecision in intent and content can be dangerous, and even, in the end, demotivating.

You can read the entire column here.

Published on: January 18, 2016

The annual National Retail Federation (NRF) "Big Show" is taking place this week in New York City's Jacob Javits Convention Center ... and I'm planning to spend some time there today.

If there are any MNB readers who'd like to get together, I'll be camping out from 1-3 pm at the MyWebGrocer booth, #4452 ... I'll have some copies of my books to give away, and I'm always happy to catch up with members of the MNB community.

Hope to see you there...

Published on: January 18, 2016

Got the following email about Walmart's announced closures:

In the end business is business but what the closing of some of these stores will do for some of these small communities is heart wrenching.  I live in one of the small communities that has a WM Express store that will be closing at the end of the month with the next nearest food store, a Walmart format, being roughly 30 mins away.  When the WM Express opened, the local grocery store, Marvin’s, was forced to close its’ doors.  This is not the only community this has happened to.  There are several other small towns close to me where this same instance has occurred.  These small towns are now clamoring to understand where they are supposed to buy their food and we all know that the probability of another grocery store opening in these small towns in slim to none.  Facebook pages are blowing up with hurt and anger due to the closing of the Express’s which now leaves these towns as a food desert.  I get it – it is business but I feel for these small towns who depend not only on the Express store to feed their community but also the tax dollars that it provided to the city.




We had some conversation here last week about sales taxes on internet purchases, and the impact that they've had on sales by companies such as Amazon. Which led one MNB user to write:

I’m a state and local tax accountant for Supervalu/Albertsons and I find all of the sales tax nexus legislation very interesting. It’s the pesky Quill case and Commerce Clause that prevent states from taxing a lot of online retailers that do not meet the definition of substantial nexus.

States are trying as quickly as they can to define substantial nexus and go after those businesses who do business in the state but do not collect or remit tax. This is one area I think the federal government should get involved and might produce a positive result . I believe the research is probably correct on the Ohio study but will not disrupt Amazon’s growing empire. I think most people at income levels less than $500k/Yr. are somewhat price conscious. Maybe they want to go to the local store to see if it’s the same price since Amazon is finally charging tax in 27 states (luckily not Idaho yet but I honestly had to look up if they do charge tax so it’s obviously not on my radar). This is where Amazon will have to continue to price things competitively given they don’t have the sales tax advantage. If they want to implement their drone program they will have nexus in those states.

Another idea that you might pass along to any Amazon higher ups you know. I’m sure Amazon has a ton of people that are way smarter than me working on this but what if the whole drone program is going about the process backwards on the transaction side. What if Amazon got people to buy their own drones for a shared cost (i.e. Store credit or even better a leased asset they can depreciate) and the people could schedule when their drones leave and come back to their home with the packages? If you need a new battery the cost is shared but you can purchase drone protection for an additional $50 a year, creating yet another market for Amazon customers. Imagine a world where you want something delivered/shipped between 5pm-10pm. You set your drone out and send to the local Amazon distribution center as soon as you get home and your drone gets in line for the products to be loaded. Then its delivered to your house before you go to bed and you put your drone on the charger for the night. Each drone would receive less wear and tear and honestly people usually take care of things they can call their own. Call me crazy but I think it’s closer to the present than we think...

Consider Amazon higher-ups so informed. Interesting idea.




On another subject, one MNB user wrote:

It’s interesting that people keep pushing the idea that Millennials will be the big purchasers and early adaptors of autonomous cars, I tend to think it’s the other end of the spectrum. Especially when this generation has become adverse to purchasing large monetary assets when they can share or rent not to mention the migration back to the city lifestyle.  I believe that you will see the tail end of the baby boomers and Gen X people be the big buyers/early adapters of driverless cars.  These are the people that grew up with car industry and value the freedom the car brings and will have the resources to afford them, what better way to keep your mobility as our body’s begin to break down as we get into our 80’s and 90’s.   With these generations having extended families and/or no families close by, what better way for these individuals to be able to live on their own and feel as if they have worth.   I can very well see our mature generations becoming buyers of these vehicles just to keep their mobility and give them a way to get out of the house and maintain their freedom.




Also got the following report from an MNB reader:

Albertsons did a very nice job of converting former A&P or Pathmark stores to their Acme banner.  The converted stores are, at once, vibrant and clean.

That's what I've heard.




I described last week the NFL decision to allow the St. Louis Rams to return to Los Angeles as part of a musical chairs philosophy at the league that allows its owners to reap hundreds of millions of dollars in fees paid by people and companies looking to move their teams. It is, I said, a "win-win" decision, which prompted a bit of outrage from an MNB reader:

How is it a win-win for the very loyal St. Louis fan base?  It will be a win for the St. Louis Cardinals and Blues, but a loss overall for that city.  Understand that it is a business move, and Stan Kroenke (Rams owner) more than doubled his franchise worth in one day, but there is negative impact.  I do not believe the “rationales” from the Rams organization for the move or the city of STL as reason to stay as I am sure the truth is actually somewhere in the middle, but for Kroenke to say that STL fan base was not there supporting the franchise is a flat out lie.  There is always a loser in these deals, and it is usually a fan base.

I misspoke if I left the impression that I thought this is a good deal for the city ... I was actually being sarcastic, since I think the NFL owners generally will fleece any city if they think they can get away with it.

That said, let's remember that the Rams once moved from Los Angeles to St. Louis, and nobody in St. Louis complained then.




From another reader:

I went to Chipotle for lunch yesterday with some coworkers.  We were frequent eaters there prior to their health troubles and this was our first group outing back since about October.  The store wasn’t as full as it used to be, but there was a light stream of customers while we sat and ate.  More importantly, I noticed the staff checking temperatures on the steam table and refrigerator and logging information on clipboards.  I’m sure this happened in the past, but it was very obvious this time, possibly just because I was in-tune with their issues.  It certainly makes me feel better as a customer.
 
Having worked in the restaurant business for years, I’m generally more forgiving of things because “accidents happen” even in the best managed businesses.  Having multiple accidents in succession, however, does give me cause for concern from any retailer.  I question if their model is truly conducive to an international food retailer.   Sourcing as locally as possible means so many more chances for poor supply chain controls to have an impact on their business.  Unfortunately, this means more pre-prepared foods, which could impact freshness and overall quality. 
 
As an unsweetened tea drinker, I noticed they didn’t have any lemons for my tea.  I know those lemons can be prime candidates for food-borne illness since they liable to be touched by lots of people in a day.  I can only assume that this was one avenue they thought was better to be safe than sorry and removed them from the store.  Over-reaction or not, it’s a smart business decision, but they missed an opportunity to put single-serve lemon juice concentrate I can squeeze in my tea, thus negating the impact of this health-driven change.  It won’t stop me from going back, but it’s indicative of the little things that can get lost in a big change like this.  Executing the details shows how much a company pays attention to what they’re doing to and for their customers!

Hopefully they can figure this out without ruining a great product in the name of safety!




Responding to my FaceTime piece about Roche Bros. last week, one MNB user wrote:

If you ever want to point out a retailer that is a model for giving back to the community look no further than Roche Bros.




We had an extended debate last week about Amazon's business model, which prompted one MNB user to write:

Interesting insights from both sides of the argument, now in YOUR VIEWS. Right now the dialogue has both sides saying that the emperor (on the other side) has no clothes.

What is the line credited to Jeff Bezos? "Your margin is my opportunity?"

If you are building a new business (or opening a new channel), you're not obligated to do everything that the established brands are doing. Nor are you required to do things the way the incumbents are operating. 

If a company squeezes the costs out specific business practices or eliminates them, the advantage shifts in some way to the "squeezer." If that same squeezer, presses the advantage against every activity and every line in the P&L, eventually the established companies are disrupted. That becomes a classic case of disintermediation at work. 

Amazon as described in this MNB dialogue is the squeezer. And perhaps the same is true for Netflix in the earlier posting.

Look back to when the Walmart distribution pipeline was the envy of other retailing brands. They were using "big data" long before it was being described that way. They ran fast and lean; both effective and efficient. 

Like any advantage, the edge can fade, Just in time inventory can mutate to become, let's run the business with less inventory. If you do that across the entire store, eventually you might have a big problem with out-of-stocks. Didn't that happen? 

It is still early in the game for Amazon (and Netflix too). I will bet that the disruptive players will make the businesses better. If the incumbents do not improve, they risk losing share of market, sales and profits.  

Is it true that emperor has no clothes? Don't know that we can make that call yet.

Regarding Amazon's decision to offer a discount on Prime memberships last weekend, MNB reader Mark Delay wrote:

While I agree that Amazon is doing a smart thing they need to be cautious. As someone who has been a “loyal” Prime member for years and just paid his annual fee of $99 I’m not sure my loyalty is being rewarded by this kind of promotion. Just sayin……

And MNB user Pete Louree wrote:

You continue to provide great industry content and perspective. This week I particularly enjoyed the debate / discussion around Amazon's business model.  Appreciate what you do.

Hey, I'm lucky. I've got a diverse readership willing to share their opinions and feelings about important issues in a way that other sites can't or won't ... and because I don't have anything resembling corporate oversight, I can pretty much do whatever the hell I want, and think only about a) illuminating and entertaining the reader and b) illuminating and entertaining myself.




Finally ... the MNB Eye-Opener on Friday looked at how Zappos' Holocracy experiment - attempting to create a non-hierarchical organizational structure - is not going as hoped, with about eighteen percent of the company, or about 260 people, departing since the new and controversial approach was adopted.

Which led MNB reader Russell J. Zwanka to write:

Your Eye Opener reminded me of the "Star Trek" episode "The Enemy Within" where Captain Kirk is split by the transporter into his "good" side and "bad" side.  Eventually it becomes apparent that the good side, full of caring and niceness has no idea how to make a decision.  The bad side, with determination and un-fettered drive is the side Kirk needs to be the actual Captain.

Egalitarian environments work as long as everyone can agree and get along. Unfortunately, that means everyone in the organization needs to be self-driven, never have a bad day, and able to empathize and see all points of view.  Never happens.  And, since it never happens, someone has to be able to sort through the various points and make a decision.  The absence of decision-making is either chaos or complacency.

True. (And extra credit for the "Star Trek" reference...)

In the episode you mention, Kirk comes to the conclusion that it is his darker side that gives him the ability to command and make decisions, but "Bones" McCoy points out that it is his "good" side - intelligent and kind - that may provide his courage. And that's an important observation.

We all have these two sides, and Spock makes the following observation:

Being split in two halves is no theory with me ... I have a human half, you see, as well as an alien half, submerged, constantly at war with each other. Personal experience ... I survive it because my intelligence wins out over both, makes them live together.

That's important ... and why intelligence never should be underrated or minimized.

Published on: January 18, 2016

In the National Football League (NFL) Divisional Playoffs...

Kansas City Chiefs 20
New England Patriots 27

Green Bay Packers 20
Arizona Cardinals 26

Seattle Seahawks 24
Carolina Panthers 31

Pittsburgh Steelers 16
Denver Broncos 23