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    Published on: March 24, 2016

    This commentary is available as both text and video; enjoy both or either ... they are similar, but not exactly the same. To see past FaceTime commentaries, go to the MNB Channel on YouTube.

    Hi, Kevin Coupe here and this is FaceTime with the Content Guy.

    We spend a lot of time here talking about new business models can disrupt old business models, and I try whenever possible to look for examples outside the retailing business on which we focus so much of our attention. I also like to use movie metaphors whenever possible.

    Well, now I get to use both.

    There has been a lot of chatter in the movie business recently about a new startup business called Screening Room, which has been launched by a couple of entrepreneurs, including Sean Parker, the technology investor who played a role in the growth of Facebook and co-founded Napster. (He was played by Justin Timberlake in The Social Network.)

    Essentially, Screening Room challenges the traditional movie business model in which most movies are first shown in theaters and then, after a period of time, are available for at-home viewing. Now, that time has been shrinking in recent years as streaming services have gained traction, and in some cases, movies even can be seen at home before being released in theaters. But not big movies, not major studio releases.

    Screening Room would charge consumers $150 for a living-room device that can be used to rent mass-appeal movies for $50 apiece, for a 48 hour window) on the same day they arrive in theaters. If I had such a setup, for example, I'd be able to watch Batman v. Superman: Dawn of Justice at home tomorrow instead of spending the almost 18 bucks I'm going to spend to see it in IMAX 3-D. I wouldn't get the full impact, but I wouldn't have to leave the house.

    The problem, of course, is that some movie studios and theater chains see this as threatening their business model. The Regal movie chain, a couple of independent chains, a few trade associations, and a list of studios that includes Disney, Warner Bros., universal, Paramount and 20th Century Fox all are resistant, to say the least. Directors such as Christopher Nolan and Brett Ratner have weighed in against it.

    But there are some folks who think they may have seen the future, or at least one version of it - the AMC theater chain, for one. Plus directors such as Peter Jackson, J. J. Abrams and Ron Howard, not to mention a fellow you may have heard of named Steven Spielberg, all have expressed support.

    Remember that old line from Star Trek about how "everything is impossible until it is not"? Well, that's exactly where I think we are here, as in so many other industries that face potentially disruptive innovations.

    In the end, if customers prefer to watch movies at home on systems that are increasingly sophisticated, that's what the content providers will have to give them ... and they'll have to adjust their business models for this fact and perhaps invest in the entities that are making it possible. If they want people to go to the movies, they'll have to produce movies that demand that one see them there .., which, to my mind, is the case with Batman v. Superman: Dawn of Justice. I want to get the IMAX 3-D experience, so I'll spend the money. But I'm not sure, for example, that a bunch of movies currently in theaters - like My Big Fat Greek Wedding2 or Whiskey Tango Foxtrot or Hello, My Name Is Doris - need the big screen experience. They might even do better in limited theatrical release simultaneous with at-home availability.

    The lesson should be learned by retailers. Want to get people to not use e-commerce? Create stores that are compelling, differentiated and worth leaving home for. (They don't even have to be in IMAX 3-D ... thought it might help.)

    I could even argue that people willing to spend $150 on yet another box and then spend $50 to be able to watch it at home for $50 may actually be providing the studios with additional income, as opposed to cannibalizing ticket sales.

    I think that people and companies are going to have to experiment with lots of different models and technologies and innovations, looking to find the right balance but always ending up where the customers wants them to be, knowing, of course, that consumer demands will continue to evolve. And so must they.

    Evolve, and be relevant. Or die. Because irrelevance, to a business, is like kryptonite to Superman.

    That's what's on my mind this Thursday morning. As always, I want to hear what is on your mind.

    KC's View:

    Published on: March 24, 2016

    by Kevin Coupe

    A company called Ebates is out with a new survey saying that "14% of Americans prefer shopping to sex and 37% prefer it to pizza. What's more, 55% of Americans said they would permanently give up bacon for a one-day, all-expenses-paid shopping spree."

    To which I can only say, at the very least these people need to find a new pizza parlor.

    I also wonder, does this include e-commerce?

    Just asking.
    KC's View:

    Published on: March 24, 2016

    In Southern California, the Press Enterprise reports that discounter Aldi has begun its competitive incursion into the market, aiming "to carve its slice of the vast Southern California market hungry for rock-bottom food prices." Its first four stores at in the region called the Inland Empire, and "plans to open about 45 outlets in eight counties this year and boost its nationwide total from nearly 1,500 to about 2,000 stores by the end of 2018."

    The story notes that "Aldi’s Inland markets are tailored to local tastes and feature expanded fruit and vegetable offerings, larger wine selections and more healthy food choices than its stores in other regions."

    It also points out that Aldi management hopes to avoid the fate of Tesco's Fresh & Easy, which never was able to get traction despite enormous publicity and high expectations.

    The Press Enterprise writes that Stater Bros. Executive Chairman Jack Brown has urged Aldi to "bring it on;' Brown seems to find some solace in the failure of Fresh & Easy - and Haggen - to make a dent in the marketplace. "We’ve been here for 80 years. We’ll continue to be the No. 1 supermarket in the area."
    KC's View:
    I like Jack Brown a lot; as I think I've said here before, we found common ground years ago over a personal note that John Wayne once sent to me.

    That said, I would caution him to be careful about underestimating Aldi, which is not Fresh & Easy and not Haggen. It is an aggressive, ambitious, high accomplished retailing machine that has done a lot of damage over the years to retailers that understated its potential impact.

    There's also a basic 2016 business truism that Brown makes the mistake of challenging. Just because you've been in business for 80 years is no guarantee that you'll be in business tomorrow.

    I hope that what he meant to say was that Stater Bros. has survived and thrived for 80 years by being able to meet new challenges, by having a nimble management structure that can adjust to change, and by having a customer-oriented business model that will fight for every customer dollar. Not only do I hope that this is what he meant to say, but that these things are true. Because if they're not - if Stater Bros. is bureaucratically structured, locked into legacy systems and processes, and built for the good of the business instead of the good of the customer - then they are in more trouble than they know.

    Bloomberghas a story in which it writes that "Germany-based Aldi has quietly grown its U.S. business to nearly $13 billion, according to Kantar data. A closely held company focused mainly on the East Coast and Midwest, Aldi doesn’t disclose its sales or profit. But Kantar forecasts that within five years the company’s annual sales will reach nearly $20 billion as total stores increase by about 33 percent to 2,000, including a major expansion on the West Coast." And the story makes the point that Aldi has put even Walmart on the defensive in the markets where they compete.

    John Wayne once said, "If everything isn’t black and white, I say why the hell not?" But John Wayne died in 1979, and he probably wouldn't recognize the world we now live in ... it is hard to know whether he even would have been able to adjust to it. But maybe he would have ... because John Wayne also once said, "Tomorrow hopes we have learned something from yesterday."

    I hope that Jack Brown and Stater Bros. pay more attention to the second quote than the first.

    Published on: March 24, 2016

    The Seattle Times this morning reports that Amazon is adding two Seattle-based food retailers - Uwajimaya and PCC Natural Markets - to its Prime Now fast-delivery service in Seattle.

    According to the story, "Two-hour deliveries are free to subscribers of Amazon’s $99-a-year Prime membership, and one-hour deliveries cost $7.99 .... This latest Prime Now venture is a new take on the supermarket business, which Amazon started testing in Seattle in 2007 with AmazonFresh. That service, which involves delivery of groceries directly sold and fulfilled by Amazon, requires an upgraded Prime membership that costs $299 a year."

    Both PCC and Uwajimaya have partnered with Instacart in the past for grocery deliveries.
    KC's View:
    Amazon gets to expand its ecosystem, and both PCC and Uwajimaya get to take advantage of an established delivery infrastructure ... which is a big deal for these relatively small companies.

    Published on: March 24, 2016

    Reuters reports that Amazon has released the results of a study on gender pay equity within the company, saying that "its female employees earned as much as their male counterparts."

    The study was done after an activist shareholder challenged the company on the issue; Reuters writes that "the disclosure came as U.S. companies face criticism on the issue of pay equality, especially in the male-dominated technology sector."

    According to the story, "Amazon, which estimates that women made up 39 percent of its global workforce and 24 percent of managers as of July, said a review of compensation including both base pay and stock compensation found that women earned 99.9 cents for every dollar that men earned in the same jobs. The survey, which was conducted by an external labor economist, covered Amazon workers at various levels of the company's organization in the United States ... The study, which was recently completed, also found that minorities earned 100.1 cents for every dollar that white employees earn in the same jobs."
    KC's View:
    This is one of the issues on which companies will be judged, and about which they need to be transparent. Every company ought to be looking at their numbers on this, and fixing problems before they become public. They ignore these issues at their own peril.

    Published on: March 24, 2016

    USA Today reports that Starbucks plans to introduce "a Chase Visa prepaid rewards card at the end of the year. Customers will be able to use the card anywhere Visa is accepted and earn 'stars' on every purchase, regardless of whether it's for Starbucks items.  The company also said that it is "considering other possible debit or credit card partnerships."

    The move follows last month's announcement that Starbucks plans to change its loyalty marketing program, rewarding customers based on dollars spent rather than the number of transactions. While the optics of the shift resulted in broad criticisms of the company, especially in social media, USA Today writes that "Starbucks says it hasn't felt the burn: More than 500,000 customers have signed up for the rewards program since the changes were announced, bringing total active members in the U.S. to more than 12 million."
    KC's View:
    Go figure. Maybe I got it right when I said that the Starbucks loyalty contretemps would end up being much ado about nothing ... and that in the end, if Starbucks' goal is to reward best customers, these decisions are in its best interests.

    Published on: March 24, 2016

    Fast Company has a story about a researcher who discovered that the much-hyped, often-discussed generational differences exhibited by the millennial generation may in fact be far less significant than many believe.

    Jessica Kriegel, ho earned a PhD in educational leadership with a specialization in human resources management from Drexel University in 2013, says that she discovered that "it's all kind of made up. There's not a lot of hard data that supports any of these assumptions. It's all anecdotal, case studies, research studies with 200 people that they apply to the broader population, and it's really damaging."

    Interesting piece ... and worth reading here.
    KC's View:
    I've always felt that the folks who make generational generalizations (try saying that five times fast) make a mistake when they say that this generation is this or that ... because no generation is one thing or another. People within a generation can be vastly different based on a wide range of influences, and these differences have to be taken seriously. Misjudgments can cost companies a lot of time and money.

    Published on: March 24, 2016

    Reuters reports that in a court hearing yesterday about Federal Trade Commission (FTC) efforts to block Staples' proposed $6.3 billion acquisition of Office Depot, the Amazon executive spearheading that company's business supply efforts appeared to support the FTC's belief that a deal will reduce competition in the segment and create higher prices for consumers.

    According to the story, " Prentis Wilson, vice president of the relatively new Amazon Business unit, testified that his business had no big corporate customers, did not stock shelves and often did not bid for a customer's business.

    "Wilson's comments appeared to support the FTC's argument that the online retailer could not provide the same level of services as Staples and Office Depot.
    Wilson testified that Amazon Business, which began in early 2015 as a successor to Amazon Supply, is starting to respond to some demands by corporate customers. It allows companies to approve purchases by their employees. It has also started permitting companies to pay an invoice instead of paying for purchases up front.

    "But Wilson said that Amazon Business responded to requests for proposals, which are essentially bids, only in a 'limited way.' He said the unit does not create customized catalogs for companies and does not stock shelves for companies."

    The story notes that the "federal judge is considering whether to issue a preliminary injunction to block the deal. The decision will depend in part on whether Amazon is perceived as a potential big player in the office supply business."
    KC's View:
    Maybe I'm wrong, but it seems to me the Amazon's current reality could be vastly different from its reality six or 12 months from now. It also seems to me that Amazon's path might be easier with Staples and Office Depot separate rather than together.

    Published on: March 24, 2016

    • The Wall Street Journal reports that "France confirmed a case of bovine spongiform encephalopathy, also known as mad-cow disease, Thursday but described it as isolated. The BSE case was confirmed in a five-year old cow that died prematurely in the Ardennes region in northern France."

    The story notes that "a BSE outbreak in Europe 20 years ago led the European Union to ban exports of U.K. beef in 1996 and some EU countries put export bans on French beef in 2000 after tainted meat made it into supermarkets ... The detection of a case of BSE could be a blow to French agriculture already reeling from a collapse in milk prices that is threatening the existence of many farms."


    ABC News reports that a Sprouts staffer inadvertently put employee information into the hands of scammers.

    According to the story, "Last week, a payroll department employee at the company's headquarters in Arizona responded to an email thought to be from a company senior executive. In the email, the person asked for the 2015 W-2 statements of all Sprouts workers. The employee complied with the request, but the company quickly realized that the email was not legitimate and contacted federal authorities.

    "The FBI and IRS are now investigating the scam. A company spokesperson did not say how many employees were affected by the phishing scam."


    Internet Retailer reports that Walmart has confirmed that "between Feb. 15 and 18 the company exposed personal information, including name, address, date of birth and prescription history, of potentially as many as 5,000 customers who buy and refill prescriptions through the online pharmacy. The personal data and medical records were visible when other consumers logged on to Walmart.com’s pharmacy pages." The company says that "no debit card, credit card or Social Security information was compromised. The problem wasn’t attributable to an outside hacker but occurred because of coding errors during a migration to a new server."
    KC's View:

    Published on: March 24, 2016

    • The Wall Street Journal reports that grocery delivery business Shipt, which has found itself expanding through a relationship with Publix, has hired former Starbucks executive Joe Manning as its new head of business development.

    Manning is identified in the story as the person who, as Starbucks' director of business and channel development, "was responsible for putting licensed Starbucks stores in national chains including Safeway, Kroger and Target, and for getting Starbucks coffee sold in supermarkets."
    KC's View:

    Published on: March 24, 2016

    Two deaths yesterday of people who played different roles in popular culture...

    • Joe Garagiola, who spent eight seasons as a catcher for the St. Louis Cardinals in the late forties and early fifties, but later gained national attention with his infectious and lovable enthusiasm for baseball and its assorted personalities as a sportscaster for NBC, died yesterday after a long illness. He was 90.

    Garagiola hosted various TV game shows, and served as a co-host of the "Today Show" from 1967 to 1973, and again from 1990 to 1992. Garagiola, who grew up in St. Louis with Yogi Berra (later joking that not only was he not the best catcher in the major leagues, but he was not even the best catcher on his street), also guest-hosted "The Tonight Show starring Johnny Carson" and even for a time was the TV host of the “Westminster Kennel Club Dog Show” for USA Network.


    • Ken Howard, who gained popular fame in the late seventies TV series "The White Shadow," in which he played a former pro basketball player who coaches an inner city, multiracial high school team, passed away yesterday at age 71. No cause of death has yet been announced.

    In addition to "The White Shadow," Howard was an accomplished Broadway actor ("Child's Play," "1776," and "Seesaw") who later in his career on "30 Rock" played the CEO of fictional Kabletown, which acquired NBC. He also was in movies such as Michael Clayton and The Judge and when he died was serving as president of the SAG-AFTRA actors' union.
    KC's View:

    Published on: March 24, 2016

    MNB the other day took note of a Wall Street Journal report that a California jury ruled that Coca-Cola did not mislead consumers when it advertised a pomegranate-blueberry juice that contained less than one percent pomegranate juice. The suit had been brought against Coke by Pom Wonderful, which was seeking more than $75 million in damages. The jury in the case decided that Pom had not proved that Coke's labeling was misleading and that, since it had not suffered any economic harm, it did not deserve any money.

    I commented, in part:

    First, it is rich that Pom would accuse anyone of false advertising, since it has been banned by the federal government from making claims about the health benefits of pomegranate juice. (The Journal notes that Pom has claimed that it is effective in fighting "heart disease, prostate cancer and erectile dysfunction."

    That said, with all due respect to my friends at Coke, it won't come as any surprise to MNB readers that I have a problem with a product labeled as pomegranate-blueberry juice containing less than one percent pomegranate juice, even though Coke maintains that the labels were accurate and packaging depicted all five fruits used in the juice.

    This isn't all that different from frozen blueberry pancakes that don't actually contain blueberries. And some people in the industry wonder why some folks get exasperated about labeling that they view as being anything but transparent and accurate. I don't care where the bar is set by the law. I think retailers and manufacturers ought to be focused on setting the bar high, with an eye on being honest and accurate in the eyes of consumers.


    One MNB user responded:

    I stopped shopping the juice aisle altogether when I finally realized I was being offered two hundred variations on apple, grape and pear juice mis-represented as all kinds of other fruit juices.  Tell me, why does the product title front panel description not have to operate from the same rules as the ingredient clause with listing by content ranking?

    Please don’t ever back off your posture on transparency and disclosure. The voice of reason and common sense needs to be heard.  The laws of the land are now the  laws of the corporate citizens, not those of the people.  And now our agencies are corporate chattels and mouth pieces.  Misleading is just that.  Corporate citizens want their consuming public dumb, stupid and foolishly fooled.


    MNB user Martin Carroll wrote:

    You are right on so many levels here…theater-of-the-absurd type of stuff with Pom suing Coke over this. But then, I really like how you moved from “micro” to “macro” on the subject of the Coca Cola ruling. Moving from the decision on pomegranate-blueberry juice labeling, to the broader notion of how shoppers feel exasperated about proper labeling, to the broader context of industry responsibility in the area of transparency is, in my mind, a concise, appropriate, and insightful train of thought. Trust in this area of the marketplace is essential.

    Thanks. I get one right every once in a while.




    Regarding the controversy about Starbucks under-filling its lattes, MNB user Chris Wilcox wrote:

    So – what’s funny about the whole SBUX issue is that over the last month, the flat white I typically order has gotten lighter and lighter… to the point yesterday that there was nearly an inch of foam on top of it and I had to practically hold it at a 90 degree angle to get any coffee out (not to mention the ongoing mental battle about dropping $5 on 16 oz of milk and probably 2 oz of actual coffee). This morning? The cup was full and the foam was nestled against the top of the cup. While I would like to chalk it up to coincidence, I’m a little too savvy (or perhaps jaded?) to be convinced of that.




    Responding to our ongoing coverage of the FTC's efforts to derail the Staples acquisition of Office Depot, one MNB user wrote:

    The attorney for Staples should point out to the FTC the great job they did with the Albertsons Safeway merger. The FTC has a lot of nerve even being in existence after that screw up.

    I think the FTC should exist. I also think that the definition of competition has to be adjusted for 2016 realities.




    Responding to the story about the growth of Alibaba, MNB user Bryan Silbermann wrote:

    Having just returned from PMA meetings in China last week, I have a comment on your item about Alibaba’s performance and plans.

    A group of PMA’s member and staff leaders visited the Alibaba HQ in Hangzhou last week and were given an extensive view of the capabilities, accomplishments and plans for the company.  We even had lunch in one of their lovely restaurants on the sprawling six-building campus that houses the current 30,000 employees (average age: 26).  Amazingly, there is another huge construction project underway right across the road to house several more tens of thousands of employees expected to be hired in the coming years to fulfill the plans you quote CEO Daniel Zhang as having.  The spin-off effect Alibaba is having in the city is obvious everywhere, with cranes rising above housing complexes and shopping centers.
     
    One should not lose sight of the scope of Alibaba’s vision to become more than just a trading platform for other merchants.  It’s Alipay service is soon set to overtake payments made on the platform by Mastercard.  Its logistics services are also  making huge gains and have surely had an impact on Amazon’s plans in this regard.  And the volume of its transactions on Singles Day 11-11-2015 is simply astounding as a snapshot in time of the programming, merchants, logistics and customer service capabilities they’ve assembled to deliver so many products to so many people in so short a time span.





    Yesterday, I ran an email from the MNB user that was prompted by the death of Andy Grove, the iconic former CEO of Intel. It ticked some folks off, but I want to rerun it here, just for context:

    An immigrant. From Hungary, which, according to my Cruise Missile Atlas of the World, is somewhere in Europe, which is near Russia and all those dangerous and terrible Moslems.

    We should have had a wall. We should keep such people out. We don’t need any darn immigrants coming into our country, sucking down our resources living on welfare and doing things that ought to be done by real Americans, like totally transforming the world and building untold billions of dollars in value and competitive advantage for the USA for decades.

    Damned immigrants.


    One MNB user wrote:

    I find the email that you published regarding Andy Grove being an immigrant to be completely asinine and ignorant.  The writer goes out of his way to perpetuate a leftist falsehood that everyone in the GOP, Conservatives, etc .... are anti-immigration.  The writer fails to distinguish between Legal Immigration and Illegal Immigration.  They fail to distinguish between a stringent screening process and the inherent safety risks and economic drain associated with a full open door policy.  The Statue of Liberty reads:

    “Give me your tired, your poor,  Your huddled masses yearning to breathe free,  The wretched refuse of your teeming shore.  Send these, the homeless, tempest-tossed, to me:  I lift my lamp beside the golden door.”

    Nowhere in this poem does it say to send us your gang members, drug dealers, terrorists, or common criminals.  Nowhere does it indicate that we cannot, or should not, be selective about those we allow in.  Nowhere does it indicate that we should not limit immigration during specific times where credible threats are present.

    This country was built upon the backs of immigrants and will continue to grow based on an appropriate immigration policy.  The reality is that we should all want to promote immigration of those that will assimilate and can add to the greatness of this country (remember The Great American Melting Pot?).   To relate this to one of your business lessons, immigration should be viewed as the ultimate synergistic relationship, with the result being American Exceptionalism, which is definitely greater than the sum of its parts.  This is where there is a huge difference between the legal immigration of a man like Andy Grove vs a common drug mule crossing the southern border illegally.  This is also where the writer of the email you published clearly, and purposely, oversimplifies the situation to promote a demonstrably false political agenda.


    From another reader:

    Yes, Mr. Grove was an Immigrant – who came to the US in 1956-7… Anyone who thinks the world of 2016 has anything in common with 60 years ago needs to put on a different pair of glasses and see what is happening across the world TODAY. I believe bias is wrong, but it is also especially dangerous when yielded by those in denial of reality.

    And MNB reader Tom Robbins wrote:

    Let's keep the political "Crap" out of an otherwise very good daily forum.

    To be fair, MNB does veer into the political from time to time, especially when I think that political issues could have an impact on the conduct of business.
    And to be clear, I thought long and hard about running that email. I knew it would inflame some passions ... especially in view of the event sin Belgium this week. But ultimately, that is at least one of the reasons I did it.

    When I read the original coverage of Grove's death, I also took note of his immigrant history, and so when I got the email I thought he made a legitimate point. I agree that there is a big difference between legal immigration and illegal immigration, just as there are big differences between how different people would deal with illegal immigrants. I do happen to think it is unfortunate when some folks describe illegal immigrants as being thieves or drug dealers or whatever ... a lot of them are anything but. And I think the current political climate actually lends itself to an anti-immigrant tone ... even legal immigrants. Where I think this could have a business impact, for example, is on legal immigrants who may be working in retail stores and who may be targeted by the less tolerant among us.

    Here's what I think I know. The subject of immigration is a highly complex one that deserves far more nuanced conversation and debate than we are getting in this country. Both sides of the political aisle are, for the most part, staking out positions and not budging, because they think that this is how elections are won. They may be right ... in which case, we're all screwed, because that certainly is not how you govern. And winning elections these days seems far more important that actually governing.

    If you think this does not have an impact on the conduct of business, I think you are mistaken.
    KC's View: