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    Published on: May 5, 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, coming to you this morning from Los Angeles, California, and the Grand Central Market, which has been operating here since 1917.

    The Grand Central Market is a great example of how food companies can differentiate themselves. There are a ton of vendors here, selling bread, pasta, cheese, coffee and beer. There's even a place right by the front door that is cooking an entire pig inside an enormous pot. (I'm posting some pictures underneath the video box.)

    As I record this video, it is a Sunday morning, and there are more than 100 people lined up to buy eggs sandwiches at a place called Eggslut, which started out as a food truck and now has a bricks-and-mortar location here and one scheduled to open soon in Venice, out by the beach.

    In the food business, if you want to compete, good and great food can be the great differentiator. Even just the perception of good and great food can be a great differentiator.

    Here, at Eggslut, people have decided that the egg sandwiches are good enough or different enough or maybe just cool enough that it worth lining up for them ... and maybe, because they're doing so, they'll be a little cool, too.

    I'm talking about egg sandwiches here ... made with just enough creativity and marketed with just enough savvy to get people talking and lining up and eating. It's not just an egg sandwich. It is an EGG SANDWICH.

    In the food business, if you want to compete with big box stores or online retailers, that's how you make a difference. That's how you move the needle. That's how you attract customers. That's how you succeed.

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

    KC's View:

    Published on: May 5, 2016

    by Kevin Coupe

    The New York Times this morning has a piece by technology columnist Farhad Manjoo in which he writes about Apple, a company that has come in for some criticism lately because it posted a revenue decline for the first time in more than a dozen years.

    But I recommend it not because it is about Apple - a company that makes pretty much every technology item that I own - but because it makes a larger and important point about management and leadership.

    Manjoo's broad point is that while Apple's approach typically has been to perfectionist in its choice of projects, to say no a thousand times before saying yes, modern challenges may point to a time in which it needs to make bigger, bolder, and faster bets ... taking risks that it traditionally might have avoided.

    The current environment - which seems to be dominated more by "data-driven online services" rather than "stand-alone hardware innovations like the iPhone" - may mean that "the slow search for precision and perfection might no longer be in Apple’s best interest," Manjoo writes, adding that CEO Tim Cook's "goal, now, should be to alter Apple’s governing ethos to induce a small measure of chaos into his company."

    I think this serves as a good warning for a lot of businesses, especially those that - perhaps even in defiance of their best intentions and efforts - are doing too many things the way they've always done them, for no other reason than they've always done them that way.

    (This is not an exaggeration. In recent months, I have sat in on management strategy sessions at several companies during which inefficient and/or ineffective practices have been defended by people using precisely those words.)

    "A small measure of chaos."

    Those are five very important words, I think. I don't care if you are company the size of Apple, or a small independent retailer with just a couple of stores - it is critical, both in terms of disrupting your business model and challenging the competition, to make bigger, bolder, and faster bets.

    (Yesterday's "Innovation Conversation," by the way, dealt with the same subject ... suggesting that companies need to think about investing in outside start-ups that can help them innovate in a way that they cannot on their own.)

    Manjoo points out that Amazon’s successful cloud business and its Prime subscription service both "were birthed from a company whose chief executive has embraced risk and failure as a signal measure of corporate health." And he quotes Amazon CEO Jeff Bezos as saying, “I believe we are the best place in the world to fail (we have plenty of practice!), and failure and invention are inseparable twins ... Most large organizations embrace the idea of invention, but are not willing to suffer the string of failed experiments necessary to get there.”

    Bigger, bolder, faster bets. A small measure of chaos. Failure and invention are inseparable twins.

    Manjoo's entire piece is worth reading here. But don;t just think of it in terms of Apple. Think about your own business.

    It may be an Eye-Opener.
    KC's View:

    Published on: May 5, 2016

    The Cincinnati Business Courier has a story focusing on how Kroger will fare against Amazon, which continues to expand its grocery footprint and recently brought its Prime Now same-day service to Kroger's hometown Cincinnati market.

    The general agreement seems to be that as formidable as Amazon is, Kroger is better positioned than most grocers to compete because of its operational effectiveness and efficiencies, the sophistication and adaptability of its management team, and its roll-out of a click-and-collect service called ClickList.

    Burt Flickinger III, managing director of Strategic Resource Group, tells the Courier that Kroger "has the most powerful private label brands in the country, a powerful promotion program, everyday low pricing and special events ... Kroger is going to continue to gain market share in every market.”

    That said, Flickinger concedes that "Amazon is very competitive on canned goods, diapers, coffee and other items. In fact, some independent grocers are buying diapers more cheaply through Amazon than through consumer products makers such as Procter & Gamble Co., he said. But when it comes to higher-weight items, such as milk and laundry detergent, its prices tend to be less competitive."

    Flickinger adds, "The more conventional supermarkets that don’t have the depth and capabilities of Kroger are vulnerable." And he suggests that "Amazon is taking the Northeast supermarket sector by storm" in part because "the Northeast is much more vulnerable with its population centers being non-Kroger trading areas."
    KC's View:
    I almost never disagree with Burt Flickinger ... and this won't be one of those times. Kroger's ability to use targeted marketing, honed through recent years by using Dunnhumby-generated data, gives it a unique competitive tool against Amazon, which is better than almost everyone at deploying customer data to build sales. Plus, it operates better stores than most of its peers.

    The companies that have not been working for years to develop and exploit their own advantages are going to be facing what the great Bob Murphy used to call "nine miles of bad road."

    Published on: May 5, 2016

    The Dallas Morning News reports that Whole Foods has identified six more markets - in Ohio, Indiana, Georgia, and California - where it plans to open its new "365 by Whole Foods" format that is designed to be lower priced, higher tech, and more accessible and attractive to millennials, as well as being more competitive with the likes of Trader Joe's.

    The initial thirteen 365 stores now will be located in Los Angeles, Santa Monica, Portland (Oregon), Houston, Bellevue (Washington), Cedar Park (near Austin, Texas), Cincinnati, San Francisco, Evergreen Park (Illinois), Gainesville (Florida), and Concord, Claremont and Los Alamitos (all in California). All these units are scheduled to be opened before the end of 2017.

    Whole Foods made the announcement as it released Q2 numbers that showed same-store sales that were down three percent - the third straight quarter of decline - on revenue that grew 1.3% to $3.70 billion and net income that dropped 10 percent to $142 million.
    KC's View:
    I think it is important to stipulate right now that the 365 format is not going to change Whole Foods' business prospects overnight. It is going to take time and money to gain a foothold and establish traction with the consumer. The question in my mind is whether the concept can establish differentiated advantages for the company while still helping build the overall brand. It'll be a tough trick to pull off.

    Published on: May 5, 2016

    Reuters reports that Amazon's business marketplace - which "offers U.S. businesses exclusive pricing and discounts for buying in bulk, free two-day shipping for orders of more than $49, tax exemption and the option to get products delivered with an Amazon guarantee" - generated $1 billion in sales during its first year of operations.

    The company says that the business marketplace continues "to grow at a rate of 20 percent month-on-month, and that highlights ... how strong the need is in this segment."

    According to the story, " Amazon added more than 30,000 sellers and more than 300,000 businesses to its platform in the past year and continues to add 'thousands of customers' every week ... Amazon's customers on the platform range from companies like Cardinal Financial Corp to consumer products makers like Henkel & Co and institutions like the University of California-San Diego and the University of Illinois."
    KC's View:
    I trust the folks at the Federal Trade Commission (FTC) are paying attention as they continue to argue that Staples and Office Depot should not merge their operations because it would eliminate competition.

    Published on: May 5, 2016

    The Fresh Market, under brand new ownership by Apollo Global Management and management by former Food Lion CEO Rick Anicetti, has announced its decision to close 13 of its 175 stores, or about eight percent of its fleet.

    The stores affected included all of The Fresh Market's units in Texas, Iowa, Missouri and Kansas. They are all scheduled to be shutter by May 18.

    Anicetti said in a statement that it was “a difficult but necessary step with the end goal of producing a strong, more agile company ... This shift also allows us to focus our energy and resources on the growth of our remaining stores, as well as new stores we have planned in the future. We continue to pursue our strategy of offering exceptional products, engaging shopping experiences, and great customer service across all our stores."
    KC's View:
    The Fresh Market has struck me as a company that is far too diverse in terms of geography ... it often seemed like it wasn't building the kind of mass that would give it any sort of efficiency. (I always argue that effectiveness is more important than efficiency, but give me a break.)

    I'm thinking that Anicetti will be very good at bringing greater discipline to The Fresh Market ... but he also, I think, needs to give it a stronger and more differentiated identity.

    Published on: May 5, 2016

    Walmart said yesterday that it is bringing back the greeter system that dates back to the company's beginnings under Sam Walton, saying that at most of its 5,000 US stores it will position staffers and entrances and exits.

    The move is being made to both improve customer service and fight shoplifting.

    Fortune writes that "at the majority of its nearly 5,000 U.S. stores, Walmart will position a greeter at the entrance, reversing a previous strategy of putting such workers in other parts of the store, including the main shopping aisle. As for the remainder, largely stores deemed to be at greater risk of theft, Walmart will also station a so-called 'customer host,' a worker who greets customers, but also seeks to prevent shoplifting by checking receipts. The 'customer hosts,' identifiable by their bright yellow vests, will also carry out other tasks from handling situations where a customer gets hostile to processing returns."

    The story also notes that Walmart "is also creating a new position to have an employee oversee the self-checkouts, an area that promises to speed up shopping but is prone to theft."
    KC's View:
    Never understood why Walmart got away from greeters ... it seemed like a core differentiator that should have been emphasized, not abandoned.

    Published on: May 5, 2016

    The Washington Post reports that Lands' End - which has been in the news lately because of management turmoil created by a new, fashion-conscious CEO who seems to some to be out of touch with the company's tradition and values - is launching an Amazon Prime-like membership service.

    According to the story, "Lands’ End is promoting on its website a new program it is calling the Canvas by Lands’ End Circle Membership. For $50, customers can receive free shipping and free returns on all Canvas by Lands’ End purchases, as well as 20 percent off all full-price purchases, among other perks, such as early access to sales."

    The Post says that "it’s not hard to see why Lands’ End and other retailers think they might benefit from a Prime-like subscription. For Amazon, the program has been a powerful loyalty-building tool, an incentive for customers to come back to the site again and again. Prime is estimated to have more than 40 million subscribers, and perhaps more than anything else Amazon has done, it has helped turn occasional shoppers into habitual ones."

    And, the Post goes on: "Lands’ End is not the only retailer experimenting with a Prime-like service. Sephora recently launched Flash, a subscription that allows customers to pay $10 per year for two-day shipping on all online purchases. And Walmart has been testing an offering called Shipping Pass, in which customers pay $50 a year for free three-day shipping on all purchases. (It’s not clear yet whether Walmart will roll that pilot program out to the masses.) And other iterations of subscriptions, too, are popping up in the marketplace. Restoration Hardware recently launched a program in which you pay $100 a year to receive 25 percent off all purchases, in addition to some other perks."
    KC's View:
    I think the press makes a mistake when it defines Prime as a subscription model. It is, in fact, more of a loyalty program. (Subscribe-and-Save is the subscription model.) That said, it always is a good idea for retailers to find ways to identify, communicate with, and give preference to best customers. Not sure it'll make a difference for Lands' End, but it certainly is worth a shot.

    Published on: May 5, 2016

    The Wall Street Journal has a story about how Sainsbury and Tesco differ in their approaches to competing with discounters Aldi and Lidl that have thrown the UK market into turmoil.

    The story notes that Tesco is adopting a "back to basics" approach that it believes will drive sales and margins, while Sainsbury is getting into new businesses that will actually give it a more diversified portfolio. Among them - selling home loans, which happens to be a business that it got out of in 2004.

    Sainsbury also has spent the equivalent of $1.74 billion to acquire Argos, describe din the story as "a chain that sells cheap furniture, electrical items and other home goods."

    The Journal goes on to write that "Tesco and Sainsbury spent the half-decade up to about 2013 engaged in a 'space race' that lumbered them with too many large stores. Selling new products and services is one solution to this problem. But companies often stumble when they enter business areas they only half-know. Sainsbury needs to tread carefully."
    KC's View:
    US retailers should pay close attention.

    Published on: May 5, 2016

    Reuters reports that the National Labor Relations Board (NLRB) will hear a complaint from the United Food and Commercial Workers (UFCW) that Walmart "violated federal law by barring employees who went on strike from having coworkers present at disciplinary meetings, potentially paving the way for a decision expanding the rights of nonunion workers." It is, the story says, just the latest chapter in a long-running fight between the retailer and organized labor over unionization and employment practices.
    KC's View:

    Published on: May 5, 2016

    • C&S Wholesale Grocers said yesterday that it has agreed to acquire Connecticut-based Davidson Specialty Foods, which provides direct store delivery (DSD) services for over 6,000 specialty, kosher, and ethnic products to independent and chain retailers across New England and the New York metropolitan area.

    Terms of the deal, which is slated to close in June 2016, were not disclosed.
    KC's View:

    Published on: May 5, 2016

    ...will return.
    KC's View: