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    Published on: March 11, 2016

    by Kevin Coupe

    There's a Fortune piece this morning that makes fast - and parenthetical - reference to something that I think is going to be an enormous economic factor in coming years...

    Fortune reports that even as Walmart struggles to improve its stores, expand its e-commerce offerings and pay its employees more even if it hurts short-term profits, the company "is making progress on a key challenge for all stores now: winning young adults just starting their careers and families, otherwise known as 'millennials'."

    The reason some two-third of US millennials shopped at Walmart in the last month? Chief Merchant Steve Bratspies says that it is "because at their stage in life, they need bargains as they spend on diapers, then kids’ clothes, and save money to start making mortgage payments (or pay off student debt.) Bratspies said internal research showed Walmart’s market share rose 4.5% percentage points among mothers in this age group over the last two years."

    Or pay off student debt.

    Those are words not to be taken lightly if you are in the business of selling people stuff, and depend on the availability of discretionary income.

    Fortune had another story the other day pointing out that "more than 40 million Americans have some type of student debt, totaling more than $1.3 trillion in the U.S. And the most recent class of 2015 is the most indebted so far with an average of $35,000 in student debt."

    This debt load creates a lot of different responses. In some geographic areas - like Kansas - governmental officials are creating "opportunity zones" where they will offer tax breaks and even financial incentives in order to get people to settle there. In others, the response can be a little more dramatic - the New York Daily News reported recently that in Houston, Texas, seven US Marshals arrested a man who had not paid a $1500 student loan from 1987. (Admittedly, this may be an outlier.)

    But I think that the extent of student debt out there, and the crushing impact it may have on young people's ability to buy homes, take vacations, invest in the stock market, have children ... well, it could be enormous. And I think that retailers have to start factoring that into their plans and strategies. It will be an enormous challenge, but also might be an enormous opportunity.

    And an Eye-Opener.
    KC's View:

    Published on: March 11, 2016

    Whole Foods said yesterday that the restaurant concept By Chloe., owned by ESquared Hospitality, has been named the first partner in what is being called the Friends of 365 program, which will bring outside vendors of various kinds into its new "365 by Whole Foods Market" format. By Chloe. is a vegan fast-casual concept that until now has had just one location, on Bleecker Street in New York's Greenwich Village.

    Jeff Turnas, president of the 365 business, said in a prepared statement that the restaurant "truly embodies what we look for in partners – innovative businesses that align with our core values and introduce our customers to new food products and up and coming brands."

    The story says that the restaurant "will feature its own space within the 365 by Whole Foods Market Silver Lake location, offering a core menu of items reflective of the flagship by CHLOE. location in NYC, accented with seasonal LA-influenced Market Specials." Signature items reportedly will include a Guac Burger, Quinoa Taco Salad, Mac n Cheese, and Air-Baked Fries, with the section located adjacent to the produce department and offering both dine-in and to-go options.

    Meanwhile, Whole Foods also announced yesterday an expansion of its relationship with e-commerce facilitator Instacart, saying that they "are launching in several new markets in the coming year, building on the 17 existing metros where consumers use Instacart’s delivery service to order from Whole Foods Market stores. The companies are also looking ahead to create new e-commerce and delivery solutions, as well as increase the number of Whole Foods Market stores with Instacart shoppers for the fastest and most high quality service ... In addition to serving new cities, the companies will grow the number of Whole Foods Market stores with embedded Instacart shoppers by up to 50 percent nationwide by the end of 2016. This will create a more robust delivery network in both new and existing cities."

    The first two new markets where Whole Foods will expand its Instacart service are Orange County, California, and Baltimore, Maryland.
    KC's View:
    No reason to think that the restaurant won't work, though, to be fair, this will be just the second edition of a restaurant concept that isn;t even a year old. It is a truism in retailing that one of the hardest things to do is go from one store to two ... so we'll see how it works.

    The way they're characterizing this partnership makes it sound like many of the stores will have different partners ... which is smart in terms of customization, though I have to imagine that it'll create some operational headaches. Again, we'll see how it works.

    I'm very interested in seeing how Whole Foods' continuing expansion of e-commerce initiatives plays out. I remain skeptical about Instacart as an option, simply because it is in bed with so many other companies. I think that a differentiated format like Whole Foods ought to have a differentiated e-commerce option.

    Published on: March 11, 2016

    USA Today has a story about how the iconic Oreo cookie has become the center of a political tumult that has drawn criticism from both sides of the political aisle, as manufacturer Nabisco's mother company, Mondelez International, " finds itself in the crosshairs of three White House hopefuls who have criticized the company for its plans to lay off hundreds of workers in Chicago as it shifts some North American production to an upgraded plant in Salinas, Mexico."

    The story notes that Mondelez "will begin laying off 600 workers at its Chicago bakery on March 21. The cuts come as Mondelez shifts work to four new cookie and cracker production lines in Mexico, a $130 million investment expected to be completed by the middle of this year. Donald Trump, Hillary Clinton and the Bernie Sanders campaign have pointed to the move, which the company says will save it $46 million annually, as emblematic of the problem of big corporations offshoring of American jobs."

    Trump, who has in the past served as a commercial pitchman for Oreo, has said that he won't eat the cookie again until the company moves back to the US.

    The story makes clear that there are two issues at work here. One of the reasons that Mondelez is moving production to Mexico is the ability to save $46 million in production costs, but the company says that many of the jobs would've been lost to Chicago anyway because of more efficient equipment and higher productivity levels. Six hundred Chicago employees will keep their jobs there; the company is not totally eliminating its operations there.

    USA Today also writes that "Oreo and other Nabisco snacks made at the newly-installed factory lines at the Mexico plant will be sold in the North America market, but the famous cookie will also continue to be made at U.S. facilities in New Jersey, Oregon and Virginia. Beyond the U.S. and Mexico, Oreos are also made in 16 other countries for sale in international markets."
    KC's View:
    I don't remember the Trump ads for Oreo ... I'm surprised that he'd endorse anything without his name on it.

    It seems to me that there's one thing we can count on in this debate - it will be a political football, with ideologically opposing forces coming up with different solutions, but no resolutions.

    Published on: March 11, 2016

    The New York Times has a piece about how "Nick Wingfield, who covers Amazon for The New York Times, visited the only Amazon bookstore in existence, in the University Village mall in Seattle. From inside the store, he had an online chat with Alexandra Alter, who writes about publishing for The Times. They discussed Amazon’s strategy and how the retailer’s stores differ from other bookstores."

    What they had to say was revealing ... and you can read it here.
    KC's View:

    Published on: March 11, 2016

    The Wall Street Journal reports that CVS Health "plans to spend $50 million over the next five years on a youth antismoking campaign as it aims to position itself as a serious competitor in the health-care industry." The move comes less than two years after CVS banned the sale of tobacco products from its stores, a move that it said cost it $2 billion in annual sales.

    According to the story, the initiative "will include social-media elements, videos, graphics and school programs. The goal is to contribute to a 3% decline in the national youth smoking rate and a 10% decline in the number of new youth smokers."

    Some context from the Journal story:

    "Youth antitobacco campaigns have been around for decades and have failed to completely bring an end to youth smoking. Nationally, tobacco companies outspend state-level tobacco prevention programs 20 to 1. The industry spends an estimated $9.6 billion on marketing annually, according to the American Heart Association, Robert Wood Johnson Foundation and other groups.

    "Daily cigarette smoking has fallen more than 50% among high-school students over the past five years, according to government studies. An estimated 3% of 10th-graders and 5.5% of 12th-graders said they smoked in 2015. But the Centers for Disease Control and Prevention estimate that 3,800 youth under the age of 18 smoke their first cigarette daily, and more than 2,100 youth and young adults become habitual smokers."
    KC's View:
    There are few things sadder to me than seeing young people smoking ... it just seems to me that they are putting themselves at a long-term disadvantage from a young age, and that's a shame. And it reinforces to me the notion that there will be a special - and especially hot - circle of hell reserved for tobacco company executives.

    Good for CVS.

    Published on: March 11, 2016

    • The Triad Business Journal reports that in addition to being looked at by Kroger as a possible acquisition target, The Fresh Market also looks appetizing to three investment companies - Apollo Global Management, KKR & Co. and TPG Capital. All four are said to be in the second round of an auction process for the company, though if Fresh Market decides the dollars are not enough, they could pull the 183-store retailer off the market.

    • The Seattle Times reports that "the private equity firm that owns Albertsons has gotten the green light from antitrust regulators to buy Haggen’s final core of grocery stores in Oregon and Washington." While that doesn't mean the deal is done, it is an ironic end to a sorry saga during which Albertsons was forced to sell off stores after it acquired Safeway, 33-unit Haggen bought 146 of the stores and then went bankrupt after it found that it did not have the infrastructure, strategic acumen or management expertise to run a company that big.

    The story also notes that Haggen has "filed court documents to close four stores — in Federal Way and Burien, as well as Clackamas and West Linn in Oregon — that it considers noncore but had kept operating. That would leave some 30 stores to be taken over by Albertsons’ owner."

    Reuters reports that Dollar General, buoyed by higher same-store sales that seem to be driven by both more customers and higher average transactions, plans "to open 80 smaller format stores this year in addition to the 30 it already operates, to better tap densely populated areas and rural locations." The story notes that "Dollar General's performance was in sharp contrast to that of Wal-Mart Stores Inc, which reported lower-than-expected comparable sales for the holiday quarter last month, hurt by a strong dollar and low prices for grocery products."

    Bloomberg reports that Tailored Brands - the company that owns both Men's Wearhouse and Jos. A. Bank - "plans to shutter about 250 locations this fiscal year, including all of its outlet stores." The goal is to cut costs in an environment in which the company's sales and profits have been sliding; the company also wants to "align" the two divisions.
    KC's View:

    Published on: March 11, 2016

    Remember ... for most of us in the US, this weekend marks the end of Standard Time and a return to Daylight Savings Time. On Sunday, March 13, at 2 am, it will be time to turn your clocks forward an hour. (Assuming, of course, you actually have clocks that require manual changing ... a foreign concept to anyone younger than a certain age...)
    KC's View:

    Published on: March 11, 2016

    If you are a moviegoer with an appreciation for cinema history, you know Ken Adam's work. He is the production designer who created the War Room set that was a centerpiece of Stanley Kubrick's classic Dr. Strangelove or: How I Learned To Stop Worrying And Love The Bomb. And he was the production designer on every one of the Sean Connery James Bond movies, and several of the Roger Moore movies, creating many iconic villain's lairs, with perhaps the most extravagant being the volcano hideout used by Blofeld in You Only Live Twice.

    Ken Adam passed away yesterday. He was 95.
    KC's View:

    Published on: March 11, 2016

    Yesterday MNB took note of a New York Times analysis of the Amazon Echo, described as a "screenless, voice-controlled household computer" that "brims with profound possibility."

    One MNB user responded:

    My Echo arrived just yesterday, and I already love it.   This morning Alexa was reading a book to me while I was making my lunch.   When my old can opener annoyed me for the 10th and last time,  I said “Alexa, order a can opener.”  She replied with a brand/model and price that sounded good.  I said, “Yes.” She confirmed the order and resumed reading the book where she had left off.   It took about 12 seconds – which will soon start to feel like an unbearably long time, I’m sure.

    We wrote yesterday about a Politico report that "Starbucks is urging its US employees to vote in both the primaries and the upcoming presidential election, and 'will be using TurboVote to make it easy for all U.S. employees to register to vote from both computers and mobile devices'."

    I commented:

    In a country where not everyone shares the belief that we ought to make it easier for more people to vote, it is nice to see Starbucks doing its part. It'd be nice if we changed our entire approach to elections ... we ought to begin the voting on Saturday mornings at 12:01 am eastern time, and end it on Sunday at 11:59 pm eastern time, providing the entire nation with 48 hours during which they can vote. (It'd also be nice if the candidates started talking about issues rather than body parts, but that's probably more than anyone can reasonably ask for.)

    One MNB user responded:

    How about two weeks to vote?  Yes 48 hours is better than 12 hours, but let’s make this easy.  

    Hey - how voting on-line and really make this easy?  Let’s try to pull all barriers down.


    And MNB user Rebecka Rivers wrote:

    Sorry, can’t relate to your wanting 48 hours to vote. Here in Oregon we vote by mail and I take at least a week (sometimes two) researching all the issues before marking (okay, sometimes erasing and re-marking) my ballot. Oregonians get a chuckle from of the out-of-staters that try to call us on voting day to sway us on the issues, not realizing they should have called us weeks ago to have a meaningful conversation. Having the extra time also sparks great conversations around the dining table.

    Ah, Oregon.

    On another subject, MNB reader Ron Birkinbine wrote:

    Noted your update on the e-commerce initiative at Lunds & Byerlys.  I’m a 25 year technology veteran with the last 10 years at Supervalu (disclosure: L&B is a highly valued Supervalu customer).  Next week I’m moving from Idaho to an apartment building right next to the Lunds & Byerlys on France Avenue in Edina, MN.  One of the reasons I chose that apartment complex was the availability of a Lunds & Byerlys right outside my door, and this new e-commerce initiative just makes that choice all the better.

    Guaranteed I’ll be giving their e-commerce a try and have already put a reminder on my calendar to send you an update in three months.  Looking forward to learning a lot, both as a customer as well as a tech geek.  And thanks for your excellent newsletter – always try to find time in my day to give it a read.  A real win-win when I can learn about my business (and so much more) while getting a good laugh or two.

    My pleasure. And yes...keep us updated.
    KC's View:

    Published on: March 11, 2016

    It took me about five days of consistent, dedicated effort, but I managed to plow through the entire fourth season of "House of Cards," which began streaming on Netflix a week ago. (It was a tough job, but somebody has to do it.) I'm here to report that as "House of Cards" has evolved, it increasingly has become part of the theater of the absurd. more "Macbeth" than "The West Wing," an exploration of depravity, greed, and incipient despotism in the Washington ruling class. (I'd vote for President Jed Bartlet over President Frank Underwood in a second, but I'd love to see the two of them in a primary debate.)

    And it is absolutely captivating - a guilty pleasure, to be sure, but a highly watchable indictment of politicians and the political system that loves to wallow around the muck of outsized personal ambition and its consequences. "House of Cards" never makes one feel good about the system it portrays, but it also is never less than entertaining in its cynicism.

    Working on the assumption that most people reading this have not yet had the chance to watch all 13 new episodes, I will avoid giving away any plot points that might ruin things for you. But I can say that Kevin Spacey continues to give a career-defining performance as the craven President Frank Underwood, whose initials tell you everything about his character that you need to know. And more than ever, Robin Wright is his equal - and even, sometimes, his better - as his wife, Claire. The supporting cast is, as always, fine.

    One of the extraordinary things about this season of "House of Cards" is how there are events and issues that almost give one whiplash because of how they mirror things in the news almost every day ... and yet, the series was written and shot months ago, which means that Beau Willimon, who has developed and overseen the show since it began, deserves some sort of award for almost scary prescience.

    Here's the thing about "House of Cards." As soon as we finished watching the final moments of season four, we were simultaneously dismayed by the system and people that it portrays so vividly, and disappointed that we'll have to wait a year or so for season five.

    Now, I get to watch the second season of "Bosch," the adaptation of the Michael Connelly novel that begins streaming the 10 episodes of its second season today, exclusively on Amazon.


    I have a couple of nice reds to recommend to you this morning ... the 2012 Le Cinciole Chianti Classico, which we had the other night when I made lasagne, and it had that great peasant food appeal of a wonderful chianti ... and the 2012 Recuerdo Malbec, from Argentina, which has a nice rich spiciness that went well with a beef stew that I made.

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

    KC's View: