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    Published on: March 18, 2016

    by Kevin Coupe

    The Wall Street Journal this morning has a story about how "new research from Nielsen suggests that many users won’t wind up canceling their pay TV subscriptions, but instead will cut back on what they pay and then layer on streaming video services like Netflix." Only 22 percent of US and Canadian poll respondents said they were prepared to totally cut the cord that has connected them to traditional TV services.

    Megan Clarken, Nielsen’s president of product leadership, says that "instead of cutting the cord, consumers are more likely to 'cord shave,' or shift to cheaper cable packages that offer fewer channels overall, but carry the ones they most want. 'For most viewers, online and traditional services are not mutually exclusive, but complementary,' Ms. Clarken said.

    I'm not really surprised by these numbers, but also think that we have to be careful not to underestimate what is happening here.

    I have a brother who has completely cut the cord, but I can't imagine doing that ... if only because it would limit my ability to watch Mets games, and I like being able to watch cable TV news, especially during the current silly season. So you can count me among the people who will keep the cord intact for the foreseeable future, but would be very happy to have access to packages that are more limited; there probably are only about two dozen channels that I actually watch, which means that there are hundreds that I don't need to be paying for.

    What this really means is that traditional cable companies are going to have to rethink their business models because consumers increasingly are going to demand it. It is that simple ... and every business has to be aware of the trends that could force them to make fundamental business model changes for the same reason.

    The other thing to remember is that companies like Netflix and Amazon and Apple are going to focus increasingly on live content, which will allow them to compete more effectively with traditional networks. Will there come a time when I can watch the Mets on Amazon or Netflix? I cannot imagine why not, and when it happens it'll be an Eye-Opener ... not to mention the beginning of certain death to those companies that are ignoring the challenge.
    KC's View:

    Published on: March 18, 2016

    The Street has a story about how Costco is continuing to eliminate the sale of all tobacco products from its stores, a process that it actually started three or four years ago - even before CVS announced that it was doing the same thing.

    According to the story, "Costco is eliminating tobacco from some of its core warehouses and pushing that business instead to its Business Centers, which sell products tailored to local businesses." A spokesman for the company puts it in business terms: "Tobacco is a very low margin business, tends to have higher theft and is labor intensive in some cases (due to local municipality regulations) -- further, we felt we could better use the space to merchandise other items."

    Costco says it will continue selling tobacco out of its business centers, which sell products tailored to local businesses.

    When CVS made its highly publicized decision, it emphasized the health issues, saying it could not be a legitimate health care purveyor and still sell products so directly connected to illness and death. (Though, to be sure, the low margin nature of the business had to take some of the pain out of the decision.)

    Asked why Costco had not been more public about its tobacco-elimination plans, a spokesman said, "We don't do releases at Costco, they are a waste of money."
    KC's View:
    I don't care why stores stop selling this crap. Business reasons, ethical reasons, marketing reasons. Doesn't matter to me. These products are designed to addict and kill people.

    Published on: March 18, 2016

    The New York Post reports that Amazon "is believed to be eyeing the corporate business unit of Office Depot," which would allow it to jump-start its new office supply business." If it acquired that business, the Post writes, it would likely remove one of the impediments to Federal Trade Commission (FTC) approval of Staples' proposed purchase of Office Depot.

    The FTC has sued to stop the merger, concerned, among other things, that it would eliminate all competition in the corporate business sector.

    According to the story, "While no decision has yet been made about whether Jeff Bezos’ $272 billion market-cap company will ink a deal, there has been talk on Wall Street that the chief executive was looking to expand his Amazon Business footprint ... This month, Amazon - answering a Staples subpoena in that chain’s battle with the Federal Trade Commission decision to block the Office Depot merger - said it wanted to keep confidential several operational planning documents that, in detail, explain its business goals and the requested investment that Amazon Business was seeking from the company as a whole to achieve its aims."

    There are also have been reports that Amazon could be interested in acquiring the privately held WB Mason office supplies chain.
    KC's View:
    I've been arguing all along that I did not understand the "dearth of competition" position, since there is so much competition online. Some have said that corporate and government contracts are the problem, but I think that maybe governments and companies could be a lot more effective, efficient and transparent if they started shopping at Amazon. This kind of acquisition would make such a shift even easier.

    Published on: March 18, 2016

    Chipotle got bad news this week that had nothing to do with the food safety issues that have hurt its image, sales and profits over the past few months - it was ordered by an administrative law judge to pay back wages to a former employee fired because he posted critical messages about Chipotle on his personal Twitter account.

    The Washington Times reports that "James Kennedy, 38, was terminated from a Havertown, Pennsylvania, location in February 2015, two weeks after he landed in hot water with management over his social media posts." Those posts criticized Chipotle's labor and pay policies.

    According to the story, "Mr. Kennedy ultimately deleted the post after a supervisor told him it violated a social media policy that barred 'disparaging, false' statements about Chipotle. Two weeks later, he was fired after being disciplined for a petition he circulated among co-workers that objected to the restaurant’s policy for employee breaks.

    "In Monday’s ruling, Judge Susan A. Flynn ruled that Chipotle violated the National Labor Relations Act by enforcing an illegal social media policy and directing Mr. Kennedy to stop circulating the petition ... Judge Flynn ordered Chipotle to offer Mr. Kennedy his job back and compensate him for lost work. Additionally, she said, the company must post signs at several locations acknowledging its social media policy violated federal labor law."

    In other Chipotle news, the Wall Street Journal quotes Chipotle CFO Jack Hartung as saying that even if the beleaguered fast food retailer manages to regain competitive traction after a series of serious food safety issues, as much as seven percent of its customer base will never return.

    "This is going to be messy,” he said at a retail and technology conference. “It’s worse than I thought."
    KC's View:
    If Hartung thought this wasn't going to be this messy, then he wasn't paying attention.

    As for the social media issue ... it just reflects the degree to which companies have to be more conscious than ever about how they are perceived by employees ... because those employees can have an enormous impact on how companies are perceived. It always has been an article of faith around here that, ideally, employees are a business' best ambassadors. Now, it is a reality ... and they also can be a business's worst enemy.

    Published on: March 18, 2016

    Fortune has a piece about Macy's CEO Terry Lundgren told an investment conference this week that he thinks Amazon's potential impact on his business is overstated.

    It was just last year that a research company predicted that Amazon would eclipse Macy's in apparel retailing sometime next year.

    Lundgren says that "Macy’s nearly 800 namesake stores offer it a huge advantage over Amazon, given how shoppers tend to buy the same item in multiple sizes when they order online. And Macy’s can use its stores to handle returns, which lowers some of the shipping costs and offers another chance to win some sales while those customers are in stores."

    “They’re going to have an interesting challenge when they start getting all those returns coming back online,” Lundgren said. “The large, large majority of online purchases which are returned in our case come back to stores because they’re so convenient. And so we at least have a shot at selling them something else.”
    KC's View:
    Interesting point, and Lundgren could be right. But, he also could be wrong ... and could join the legions of other retail executives who made the mistake of underestimating Amazon.

    It seems to me that Amazon-owned Zappos has figured out how to deal with the returns issue efficiently, effectively and economically. And it strikes me as likely that Amazon has absorbed learnings from Zappos' experience.

    But Lundgren isn't alone in his feelings about Amazon...

    Published on: March 18, 2016

    BidnessEtc has a story about how FedEx Services CEO Mike Glenn this week said that he wasn't too worried about Amazon's apparent desire to get into the freight business and compete with companies like FedEx and UPS.

    Glenn said that the company has been "in constant dialogue with them to understand their transportation needs as they've experienced significant growth.”

    And, the story says, Glenn "elaborated that the company was looking to invest in transportation, which was driven by its 'need for supplemental capacity related to inventory management.' He added that if the e-commerce company was looking to internalize logistics, it would have to spend billions of dollars and invest substantial time before it would be at a position to give FedEx and United Parcel Service, Inc. a run for their money. He said: 'The reality is it will be a daunting task requiring tens of billions of dollars in capital and years to build sufficient scale and density to replicate existing networks like FedEx'."

    FedEx CEO Fred Smith describes the Amazon issue this way: “Concerns about industry disruption continue to be fueled by fantastical -- and I chose this word carefully -- articles and reports. In all likelihood, the primary deliverers of e-commerce shipments for the foreseeable future will be UPS, the U.S. Postal Service and FedEx.”
    KC's View:
    I think that FedEx probably has less to worry about in the short-term than Macy's does, but I also think that as Amazon clearly becomes more focused on how it can become more dominant on the last mile to the consumer, it is going to be trying a lot of different approaches. It may not instantly compete in terms of scale with FedEx and UPS, but it is likely to nibble here and there until it finds the game-changing sweet spot that allows it to have real impact ... and both FedEx and UPS need to be vigilant.

    Some companies would see "fantastical" as something out of reach. I suspect that Jeff Bezos sees "fantastical" as just this week's challenge.

    Published on: March 18, 2016

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

    • The Central Pennsylvania Business Journal reports that European discounter Lidl has acquired property in Spring Garden Township there for a second York County store. The other store that has been announced for the region is in Dover Township.

    The story notes that "the timetable for when the two York County stores would open is not known, but Lidl officials have said the chain plans to open stores in the U.S. by 2018. Lidl now operates some 10,000 stores in 26 countries across Europe."

    Be afraid. Be very afraid.

    The Wall Street Journal reports that Whole Foods says that "it will replace the industry-standard chickens bred to rapidly pack on pounds with slower-growing varieties that Whole Foods believes will enjoy better lives and yield better-tasting meat. The move, which Whole Foods expects to complete by 2024, will involve repopulating chicken farms that supply its stores with breeds like the Red Ranger and Naked Neck, which generally grow to marketable size about 23% more slowly than conventional varieties favored by top meatpackers."

    Maybe I'm a barbarian, but I never in my life have even thought about how fast chickens grow. Not ever. I learn something every day.
    KC's View:

    Published on: March 18, 2016

    There is a lovely little piece in OC Weekly about the great Frieda Caplan, founder of Frieda's Specialty Produce, who has done so much to introduce more than 100 unique fruits and vegetables to the US market:

    "Now 92, Caplan is a legend many times over in the produce industry: pioneer, innovator, a proud feminist in a notoriously macho world whose jovial nature masks a steely determination that rivals knew never to underestimate." The story notes that while her daughters Karen and Jackie run the business as CEO and COO, Frieda Caplan "continues to show up to the office every day to work, wearing her trademark purple, long after her peers left work for the golf course."

    The story goes on to say that "Caplan would rather research the future than dwell on the past. She says the next great produce discoveries will come from India, a country whose dizzying varieties of fruits and vegetables still remain relatively unknown stateside."
    KC's View:
    I would remind you that there is a terrific documentary about Frieda Caplan called "Fear No Fruit" that you can watch on-demand on iTunes, Amazon Instant Video, Google Play, Vudu and XBOX. She's a great woman with a great vision who created a great company ...

    Published on: March 18, 2016

    One MNB user had a response to yesterday's story about how REI had a great year, building both sales and goodwill when it decided to shut its stores on Black Friday, instead encouraging(and paying) its employees to take a hike that day:

    I was a contributor to their sales increase. When I heard what they had done, I immediately made a plan to shop REI for Christmas gifts.  We bought several hundred dollars worth and covered 3 presents on the list and one unplanned purchase for ourselves.  And we loved giving those particular gifts!  They are refreshing and daring heroes in the sea of stupid anti-social greed.  AND I boycotted anyone who was open on Thanksgiving!

    In the continuing discussion of mandated GMO labeling, I commented yesterday:

    Let's be clear. It isn't so much that these food industry interests don't want state-by-state labels as much as they don't want mandated labeling at all. And they can talk about the high costs of labeling, but that strikes me as a non-starter - if manufacturers discovered that sodium would help people be taller, thinner and more attractive, you can be damned sure that they'd figure out a way to say so on their labels virtually overnight, and products wouldn't cost a penny more because of it.

    One MNB user responded:

    Great comment!!  The salt example is perfect - you hit the nail on the head. Love your commentaries.  They "trump" others.

    From MNB reader Gregg Raffensperger:

    I agree that transparency in labeling is a good thing.  However I also side with the manufacturers that are nervous if this is to become a state by state mandate.  That could lead to specific packaging for each state, which could lead to different packaging with each multi state retailer.

    Even though I am not a proponent of “big government”, my vote is for US standards.  In this case it fits.

    Agreed. I think manufacturers and GMA are being disingenuous when they push for a ban on state-by-state labeling, because what they really want is a ban on all mandated labeling.

    From another reader:

    Interesting that some of the votes to block state GMO labeling came from senators who express a strong "States' Rights" voice; but only for certain things.


    And from another:

    I predict that in the short term, the people of Vermont are going to have to learn to live without things like corn flakes or coca cola or foods from a factory because no (non-Vermont based) company is going make Vermont-specific labeling.  It may be temporary but there is going to be this window of time where Vermont is all alone.  One could argue that this is a great public health outcome, since those foods probably kill you.
    However, on a more pragmatic level, if my toddler couldn't have dinosaur shaped chicken nuggets, all hell would break loose.

    KC's View:

    Published on: March 18, 2016

    Raymond Chandler, writing about his private hero Philip Marlowe, once said that "down these mean streets a man must go who is not himself mean, who is neither tarnished nor afraid." Michael Connelly, one of Chandler's literary descendants, created a compelling and legitimate heir to the Marlowe tradition when he began writing novels about LAPD detective Hieronymus 'Harry' Bosch back in 1992.

    Last year, Bosch made his small-screen debut when Amazon began streaming a 10-episode series that, at the time, was the most-watched Amazon original series on Amazon Prime Video. I was extremely impressed by the first season's fidelity to the tone of the novels, and by Titus Welliver's tightly wound performance as the title character.

    Now, "Bosch" is back on Amazon with a second 10-episode series ... and it is even better than the first go-round - more textured, with even better supporting performances and an ever stronger sense of Los Angeles' many layers. The second season is taken from the events portrayed in three Connelly novels - "Trunk Music," "The Drop," and "The Last Coyote" - which allows the series to be choosy about what it takes and leaves, while always taking the time to allow events and characters to breathe. This allows the audience to be even more invested in what it is watching, and that helps an already impressive series to get better.

    Now, let's be clear. "Bosch" isn't the kind of television series that breaks new ground or transcends the genre. It is, at its core, a police procedural. But like the novels on which it is based, "Bosch" finds its individuality in the curves and shadows and the edges. And also like the novels, the show gains resonance as the main character becomes a little bit less of a lone wolf; in the second season, Bosch spends more time with his ex-wife and their teenaged daughter, and he increasingly finds meaning in their needs and, to his surprise, his own. To coin another phrase from Chandler, Connelly's novels and the TV series are " with something more than night."

    There are no happily-ever-afters in "Bosch." Some cases never get resolved, some bad guys never get punished. Sort of like life. But Harry Bosch keeps going forward, resolute in his belief that everybody matters, or nobody matters ... even if that sometimes puts him at odds with the powerful, the modern, and the influential.

    "Bosch" is terrific stuff. Watch it. (Start with season one, if you haven't seen it.) I suspect that like me, you'll end up hoping that there will be a season three.

    I have an excellent wine to recommend to you this week - 2013 Bon Naso pinot noir from Oregon, made by the Loosen Christopher winery ... which is rich and elegant and smooth and everything one expects from an Oregon pinot.

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

    KC's View: