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    Published on: May 9, 2016

    by Kevin Coupe

    The Seattle Times has a story that is Eye-Opening without being entirely surprising, saying that of the 30 highest revenue companies in the US, Amazon is the one mentioned the most in other companies' conference calls with analysts as offering opportunities or being a threat, with CEOs often citing Amazon as the reason their companies are doing well. Or not.

    According to an analysis, Amazon was mentioned in 92 different conference calls during the two weeks ending May 4, compared, for example to 43 mentions of Walmart, 33 mentions of Ford, and 14 mentions of General Electric.

    Just behind Amazon was Apple, mentioned 79 times.

    The only company mentioned more than Amazon, the Times writes, was Google - and Google does not reside in the top-30-revenue-generating list.

    The lesson, the Times writes, is that "tech is becoming such a critical part of day-to-day life that its corporate titans are seen by almost everybody as partners, rivals or examples worthy of emulation - sometimes all three.
    For no company is that truer than for Amazon, which has its fingers in seemingly every pie, from cloud computing to retail, from entertainment to logistics and transportation.

    And even Warren Buffett, has said that what Amazon has "accomplished in a fairly short period of time and continued to accomplish is remarkable," pointing specifically to "the number of satisfied customers they have developed."

    Like I said. Eye-Opening, without being entirely surprising.
    KC's View:

    Published on: May 9, 2016

    Krispy Kreme announced this morning that it has agreed to be acquired by investment group JAB Beech in a deal that has an equity value of $1.35 billion.

    According to the announcement, "JAB focuses on long-term investments in premium brands, and owns stakes in retail coffee companies, including Keurig Green Mountain, Jacobs Douwe Egberts and Peet's Coffee & Tea. The deal is expected to close in the third quarter, after which Krispy Kreme will be privately owned but continue to operate from its headquarters in Winston-Salem, N.C."
    KC's View:
    Krispy Kreme was for many years the poster child for companies where management breathed its own exhaust ... they were so focused on growing that they forgot about what made the brand special ... Krispy Kreme doughnuts became almost ubiquitous, but they didn't taste so good, and so the company faced significant problems. (The low-carb fad and financial issues didn't help.)

    I hope that the new ownership doesn't make the same mistake. Krispy Kreme seems to have come back a bit, and the resurgence has to be nurtured, not exploited.

    Published on: May 9, 2016

    The Chicago Tribune reports on how a federal judicial panel there is scheduled this week to hear a "bevy of food labeling lawsuits" in order to decide "whether to combine similar cases and where to locate them for pretrial hearings."

    Among the cases are a suit against Trader Joe's "alleging the grocery chain is under-filling its 5-ounce cans of tuna and therefore misleading customers," a suit against Quaker Oats "alleging consumers have been misled because Maple & Brown Sugar oatmeal does not contain maple syrup despite the wording and images of maple syrup on the packaging," and a suit against Kraft Heinz "alleging misrepresentation in the marketing of its Parmesan cheese, which is labeled '100% Grated Parmesan Cheese,' despite containing filler material derived from wood chips."

    There are, of course, differing views of what is happening here. One is that an increasingly informed and aware consumer class simply is demanding that food companies be specific and accurate in how they describe the products that they sell. Another is that this is the result of money-hungry attorneys looking to generate big fees by taking on big food. And there seems to be general agreement that part of the problem is that federal regulators have not been specific enough about these definitions, and that the courts may not be the "appropriate mechanism to determine these issues."
    KC's View:
    Inevitably, there will be legislation and litigation and lots of sturm und drang about all this stuff. In the end, I think, manufacturers can solve many of these problems themselves simply by being accurate and clear about what it is their products, as well as how and where they are made. Be honest. Be transparent. And be careful not to be too cute by half.

    Published on: May 9, 2016

    The Wall Street Journal has a story about how the costs of credit fraud "are starting to stack up" for retailers who now have to bear the cost of such fraud because of new rules that were implemented when the financial services industry transitioned to chip-based cards that were supposed to reduce such fraud.

    The problem, as has been well-documented here and elsewhere, has been that even retailers that have bought the new chip-enabled terminals have not been able to accept chip-based cards because of delays in getting the terminals certified by the banks. The result, retailers argue, is a system that now has taken banks off the hook for fraud costs even though they largely have been responsible for the retailers not being able to take the safer cards. The story notes that "financial institutions have been issuing the new cards to customers for more than a year, but just 22% of retailers are able to process them."

    The Journal writes that "chargebacks among small and medium-size merchants rose 15% in the fourth quarter from a year earlier, according to a recent survey by The Strawhecker Group, a payments consulting firm. The industry believes the volume of chargebacks has likely risen since then, because the fourth quarter included only a few weeks under the new rules and it often takes a while for the costs to flow through to merchants."

    Some experts say that these chargebacks probably total "tens-of-millions of dollars and will likely continue to rise," and probably are "far higher for big merchants."
    KC's View:
    It just feels like all the outrage about the banks may be reaching some sort of critical mass, and maybe it will translate into action that will be a lot fairer to retailers and consumers. It feels like it ... but I wouldn't count on it, because the financial services industry seems to write the biggest checks and fund the better lobbyists.

    Published on: May 9, 2016

    F. Scott Fitzgerald once wrote about New York that "the city seen from the Queensboro Bridge is always the city seen for the first time, in its first wild promise of all the mystery and beauty in the world."

    Which is what I thought about this weekend when reading two different stories about Fairway, the once iconic New York food store that started during the Depression as a fruit-and-vegetable stand on the Upper West Side, was managed successfully by several generations of the same family before they sold it to a private equity group that then brought the company public ... only to see it declare bankruptcy three years later.

    The New York Times has a piece saying that "this shouldn’t necessarily occasion a eulogy; the grocery chain will continue its operations as it restructures and reduces its debt load. At the same time, it is hard to feel optimistic about the future of the endearingly chaotic, unpolished New York retail style that Fairway has embodied.

    "As business reporters have duly noted, Fairway’s difficulties have stemmed in large part from the greed of private-equity investment, which has fueled an aggressive and miscalculated expansion ... Simultaneously, of course, came the guerrilla incursions from FreshDirect and Blue Apron and the countless other three-steps-to-vegetarian-cassoulet meal-delivery services that the Internet economy has facilitated. Arguably, though, Fairway has also fallen victim to a culture of increasingly tiered consumer experiences, for which it remains almost too quaintly ecumenical."

    Good piece, and you can read it here.

    At the same time, Fortune has a story suggesting that the Fairway story is one that provides "is a good case study in (the) risks of premature IPOs."

    An excerpt: "Fairway was just never in a prime position to outmaneuver bigger, far more profitable rivals. The chain was also too highly leveraged to be able to effectively move out of the New York City region to hunt for growth along the Northeast. It went public too early – or perhaps was never meant to launch an IPO. Other grocers, like Wegmans Food Markets and Publix Super Markets, run smooth, well-regarded businesses outside of the grasp of Wall Street."

    You can read the Fortune story here.
    KC's View:
    Fitzgerald also once wrote, "Never confuse a single defeat with a final defeat." Fairway better hope that he got this right, and that it will live to succeed another day; I don't think that it is going to go belly up anytime soon, but I'm not sure that its past glories are any guarantee of success. And the most important thing to remember is that Fairway's wounds are almost all self-inflicted ... which is not to suggest that there isn't tough competition, but that ownership and management made a series of decisions that seemed to be more about money than food, more about management's priorities than shoppers', more about Wall Street than Main Street.

    Published on: May 9, 2016

    Tulsa World reports on a recent speech by now-retired Kroger CEO David Dillon in which he attributed the company's extended winning streak "to a decision in the early 2000s to change its focus to satisfying customers through 'good prices,' not 'great,' a term he used to describe the company’s 400,000 employees who provide a better service that make customers want to return.

    "Focusing on sales instead of profit was 'a pretty major change,' Dillon said."

    Dillon also said in the speech that he remains convinced that the click-and-collect model will work better for supermarkets than the delivery model, though he conceded that "it may work for Amazon."
    KC's View:
    If you focus on sales rather than profits, you almost by definition are focusing on customers. And that's the definition of successful retailing, I think.

    Published on: May 9, 2016

    The Washington Post had a good piece over the weekend that, while conceding that the term "processed foods" these days carries with it negative connotations, suggesting products that have had all the flavor and nutrients rendered out of them, there is one highly positive thing about such items.

    It is possible to chew them. Easily.

    Daniel Lieberman, a professor of biological sciences at Harvard University, tells the Post that before foods were processed, people "used to spend a disproportionate amount of our days chewing.”

    According to the story, "Lieberman pointed to the eating habits of chimpanzees, who spend about half their day chewing, for perspective. That might sound ridiculous, but it’s not as far off from how we used to eat than one might think. Our teeth, Lieberman said, just aren’t capable of breaking certain foods down efficiently without any form of extra-oral food processing (a fancy term for any and all changes food undergoes before it enters our mouths)."

    He adds, "You can go for an entire day without chewing today, and that’s really bizarre from a historical standpoint."

    The irony, of course, is that less chewing probably has led to more dental problems ... and more processing also has led to higher obesity levels, as people eat more food but get less energy from it.

    But it takes less time.

    So chew on that.
    KC's View:

    Published on: May 9, 2016

    NamNews reports that Kroger is cutting prices on some 1,000 SKUs in its Mid-Atlantic stores, saying that "the move will affect popular items at the 120 stores in the division, and will cover grocery, general merchandise, health & beauty, and fresh meat. Also included are natural and organic products."
    KC's View:

    Published on: May 9, 2016

    Got the following email from MNB reader Jerome Schindler about the lawsuit challenging Quaker Oats' "100 percent natural" claims:

    The Quaker Oats "100 percent" natural lawsuit is absurd yet validates my advice (usually ignored) to clients over the past few years to cease any unqualified claims of all natural or 100 percent natural.  Even Ivory Soap only claims to be 99 and 44/100 percent pure.

    Responding to our stories about criticism of Amazon's apparent decisions - now being reversed - not to offer same-day delivery to some poorer neighborhoods in markets that it serves, one MNB reader wrote:

    People are growing tired of having their business dictated as to where they are or not allowed to do business. These are business choices based on pure economics but the left continues to draw something other than business into the decision. I have worked for many companies that had set parameters as to where their business would go. Tight streets, home business, parking violations and unconventional deliveries all have an impact on where proper business can be conducted. Every time a business makes a decision, a new “macroaggression” is invented try to tell the world what they did wrong.

    I'm not sure there is such a thing as a pure economic decision anymore ... technology-enabled transparency means that companies are being judged not just on quality and price, but on environmental impact, social positions, labor policies, and a bunch of other issues. Some of these issues generate a response from the government, and some of them are amplified by both traditional and non-traditional media.

    Is this fair? Not always. Does it result in decisions sometimes being made because of perceptions rather than reality? Sure.

    But it doesn't really matter.

    One MNB reader has been reading Ace Atkins' Spenser novel, "Slow Burn" this weekend, and email me when lines strike her as resonant of stuff we talk about here. And one of those lines (cleaned up a bit for MNB purposes) is this:

    "Those days are long over. Get with the (bleeping) times or they’re gonna get with you."

    On the same subject, another MNB user wrote:

    Kevin - my 2-cents on the Amazon expansion to South Chicago for Amazon same-day service.

    My darling daughter is attending the University of Chicago (coincidentally in the South side of Chicago).  If you know anything about UC, you know it's not a cheap place to attend!

    The student population is over the moon for same-day Amazon, and I think they will find it will be a money-producing move for Amazon to move ever-so-slightly south of the loop.

    Not everyone in South Side is a hoodlum, folks!  Some are paying ~65K each year to have their children live there!

    On another subject, MNB user Larry Ishii wrote:

    I cannot agree with your comments more regarding Kroger using Lucky to move into the Minneapolis market.

    I have the utmost respect and awe for Kroger. It makes me wonder why other companies cannot be as well run as Kroger.

    I only worked for Kroger for one year (after the Fred Meyer Inc. acquisition) but it did not take long for me to see who and what they are.

    From another reader, about the same story:

    I don’t think Cub fits the Kroger acquisition profile. They generally don’t look at chains that aren’t already performing well.  The Roundy’s deal of course came with Mariano’s which gave them a huge presence in Chicago where they had none.

    As for Minneapolis. It’s certainly being discovered by outside retailers. We serve Lucky and we serve most of the  important coops which is a strong category here.

    If you look at who’s coming to Minneapolis from without it’s not mainstream grocers but Fresh Thyme, Lucky and even the Hy Vee’s are on a different order than just a regular grocery store.

    My guess as far as Kroger goes in the Minneapolis market would be Kowalski’s an iconic brand they could retool into Main & Vine locations or Lucky or divide them up. Main & Vine for instance would be good for downtown Minneapolis…the Hennepin store.

    And regarding possible Kroger interest in buying Cub Foods, one MNB user wrote:

    In "Amok Time" (an episode of the original "Star Trek"), Spock told T'Pring, "After a time, you may find that having is not so pleasing a thing after all as wanting.  It is not logical, but it is often true."

    This might better fit Kroger's interest in Cub Foods.

    The one thing that I'm pretty sure of is that Kroger will be totally logical in deciding what to acquire ... and perhaps more importantly, what it does not.

    I also think that we have to be careful about giving too much credence to speculation fueled by consultants more interested in headlines than facts. Because as Spock also once said, "Insufficient facts always invite danger.”

    MNB reader Tom Murphy had a thought about Walgreen seeming to flirt with the cannabis business:

    This is a copycat industry.  First mover advantage will be short-lived as everyone hits the bandwagon.  Let me see, cannabis oils in the pharmacy section, joints in the cigarette section, and brownies in the bakery!  A holistic approach is warranted!

    We had a story about McDonald's testing garlic fries, called "Gilroy fries" after the California community that grows much of the nation's garlic, in some stores, which led Jan Fialkow to write:

    Sure hope McD’s plans to use US garlic! If they end up using Chinese imports, someone will find out and make it public. Aside from the inaccuracy of the name, the safety of Chinese foodstuffs is a problem for many. Maybe not the people who frequently eat at McD’s but attendant publicity would not be positive.

    Totally agreed.
    KC's View:

    Published on: May 9, 2016

    • The undefeated Nyquist won the Kentucky Derby - the first leg of the Triple Crown - on Saturday, beating Exaggerator by 1 ¼-lengths. The official winning time was 2:01.31, which was almost two seconds faster than last year's Derby winner, American Pharoah, which went on to win all three legs of the Triple Crown.

    • On Saturday afternoon, New York Mets pitcher Bartolo Colon - just a couple of weeks shy of his 43rd birthday and currently in his 19th season as a major league baseball player - hit his first home run of the year in a game against the San Diego Padres. It was also the first home run of his career - and he instantly became the oldest player to hit his first home run.
    KC's View:
    I didn't watch the Kentucky Derby, but I did see Colon's home run ... and it was one of the real highlights of a still-young baseball season.

    There also was a story over the weekend from ESPN that used the Colon home run to illustrate how technology has changed a once-staid business - it said that a baseball card memorializing Colon's feat "is being produced as part of the Topps Now line, in which the classic company takes memorable moments from the 2016 MLB season and turns them around into instant cards that are available for purchase for just 24 hours."

    That's extraordinary. It highlights once again how consumer expectations are being reshaped by technology and companies that understand that they need to remake themselves in the image of what consumers now need and want. And at some level, it affects every company in every business and every venue.