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    Published on: June 10, 2016

    by Kevin Coupe

    Chipotle, once the nation's favorite fast casual Mexican food chain, now has dropped the fourth place according to an annual Harris Poll that measure's consumer sentiments about restaurant brands.

    The plummeting rating would appear to be a direct result of a series of food safety issues that plagued the company over the past year, causing some consumers to get sick and some of its restaurants to be temporarily closed down. Perhaps even more worrisome is the fact that despite that Chipotle has claimed to have everything under control, with a more centralized approach to food prep that it hopes will stave off problems (though centralization also tends to erode its whole locally-made-food-with-integrity vibe), it never has been able to say concretely what caused the problems to begin with.

    USA Today writes this morning that Moe's Southwest Grill, with roughly one third as many locations as Chipotle, has ascended to the top spot, followed by Taco Bell, Qdoba and Baja Fresh.

    Now, to be sure, it isn't all about food safety. The USA Today story notes that the fast casual landscape has become much more competitive, with lots of new menu items introduced by Chipotle's competitors. But even that, it seems to me, can be connected to food safety issues - after all, while Moe's is rolling out an ancho chili lime rice bowl as a limited-time item, Chipotle is busy distributing coupons in an effort just to get people to walk in the front door again and try one of its burritos.

    Now, this isn't to suggest that Chipotle is facing its last days. The coupons have had a strong redemption rate, the company says, and it still has far more locations and higher sales than Moe's. It is a little early to suggest turning the lights off.

    But - and this is a big but - the Chipotle lesson is one that has to be learned by every single company in the food business. Food safety isn't just about not making people sick ... though that ought to be enough. It also is about protecting and sustaining the brand.

    To cut corners, or to not take seriously things like the new mandates created by the Food and Drug Administration (FDA) as a result of the bipartisan Food Safety Modernization Act (FSMA), is not just an ethical lapse, but also a breach of one's responsibility as a leader of whatever food company you work for.

    I've gotten to know way more about this stuff than I ever thought I would because of all sorts of work I've been doing in this area, talking to both retailers and suppliers about food safety infrastructure. (As usual, full disclosure - MNB is sponsored in part by ReposiTrak, which offers an industry-wide solution to food safety that has been exclusively endorsed by the Food Marketing Institute, among others.)

    The decline in reputation that Chipotle has suffered ought to be an Eye-Opening cautionary lesson for anyone in the food business.
    KC's View:

    Published on: June 10, 2016

    The New York Times reports that the Philadelphia City Council is expected next week to pass a soda tax that would add one-and-a-half cents per ounce of carbonated beverages that contain either sugar or artificial sweeteners, a move that would increase the cost of a 20-ounce beverage by 30 cents. The tax will not apply to juice drinks that are at least 50 percent juice, even if they contain added sugar.

    If the vote goes the way it is expected to, Philadelphia will become only the second US city to pass such a tax; Berkeley, California also has one. According to the story, "Other cities have been tracking Philadelphia’s proposal. San Francisco; Boulder, Colo.; Oakland, Calif., and several smaller communities are planning to introduce soda tax measures this year."

    The Times writes that proponents of the tax managed to get their way not by emphasizing the potential public health advantages - such taxes usually are framed as a way of getting people to stop drinking sugary soft drinks, which have been linked to obesity, diabetes and tooth decay - but rather by pointing to the added revenue potential.

    The money from the new tax will be "used to pay for popular initiatives, including expanded prekindergarten, and renovations of city libraries and recreation centers," the Times writes, though late-hour negotiations have meant that some of the money will be used to plug a budget shortfall.
    KC's View:
    It seems to me that certain things are inevitable. One is that while the city may have laudable goals in terms of how it plans to use the money, it is pretty likely that more of it will be used for mainstream budgetary purposes than for pre-K and city libraries. That's just a fact of life, and it won't be long before city officials will be looking for other ways to raise money. One can argue that this is because city government in Philly is bloated beyond repair, or that local residents are unwilling to prioritize and pay for things like pre-K and libraries.

    The other thing that seems inevitable is that the soft drink industry will sue to block this tax. When the People's Republic of Berkeley does something like this, it can be characterized as an outlier. But when Philadelphia does it, the concern has to be that a series of dominoes are about to fall and land on an industry that already may be worried that its best days are behind it.

    Published on: June 10, 2016

    The Cincinnati Business Courier has a fascinating interview with Kroger CEO Rodney McMullen in which he proves the truism that anything can be accomplished if you are not worried about who gets the credit. He spends much of the interview applauding other people in the Kroger organization who he says have been responsible for its amazing run of the past few years, and generally seems to count himself lucky for consistently being in the right place at the right time.

    You can, and should, read the story here. But there are a couple of quotes that I'd like to pull out and highlight.

    Regarding the influence that the Mariano's acquisition will have... "The next stores we start opening, you’ll see some Mariano’s influence on the restaurant part of our business (where customers can buy prepared foods to take home and eat). You’ll see some things that we’ve learned from Mariano’s, everything from sexy stuff to functional stuff."

    Regarding the Kroger mindset... "When I go into a store, I always look at how long does it take for me to get hungry? We’re in the business of feeding people. How do our associates engage with customers? Every day we have the opportunity to help 8.5 million people have a better day. Well, are we doing that?

    "The other day I got a letter from a customer. She said all of her family and all of her husband’s family had been in town all week. She had an hour of open time, so she went and bought two bascarts full of groceries. She said, 'I’m standing in line and the floral woman comes over, opens a register and checks me out, and then goes and gets a couple people to help me out to the car with my groceries. What they don’t know is my family and my husband’s family were here because my husband has stage IV cancer. It was incredibly helpful for me, the things your associates did.' Our associates did it because they could see she needed help. We get to do that every day."

    Regarding the learning curve at Kroger... "Everything you do will help you learn and improve from where you are. You just have to be humble enough to use it.”
    KC's View:
    Bingo. Not only does Rodney McMullen always come across to me as the kind of guy you'd want to be in a foxhole with, but also as the kind of leader you'd want to follow into that foxhole, knowing that you wouldn't be there very long.

    I don't know about you, but people who practice a philosophy of servant leadership and who seem to have their egos firmly in check are looking really good to me right about now.

    Published on: June 10, 2016

    Bloomberg reports that the Merchant Customer Exchange (MCX) consortium is shutting down its CurrentC mobile wallet business that was designed to compete with things like Apple Pay and Android Pay, and is instead "refocusing on supporting partner JPMorgan Chase & Co.’s mobile-payment service," called Chase Pay.
    The consortium is made up of companies like Target and Walmart, which actually has just introduced its own new mobile payment service ... called, inevitably, Walmart Pay.

    The story says that MCX "removed its wallet, CurrentC, from the Apple App Store last weekend. The last day for consumers trying the app to use it is June 28, CurrentC said on its website June 6. In May, MCX said it would fire 30 staffers -- or about 40 percent of employees -- and postpone a nationwide roll-out of the service."

    In its story, CNet writes that "Apple and other companies have introduced their own payments systems as a way to gain a foothold in the burgeoning mobile payments market. So far, mobile payments have yet to carve out a significant slice of retail transactions. But the companies involved believe consumers will increasingly use their phones to purchase items on the go as the process gains greater support from banks, merchants and other parties. Of all the systems out there, Apple Pay is the leader so far."
    KC's View:
    Tough business to be in, I would imagine, especially if one of your member companies is testing a competitor to one of your core products. That does't strike me as act of faith in the consortium's work. That said, I'd bet on cell phones being a dominant way to purchase things someday ... unless we get to the point where cell phones are obsolete technology because of some other innovation.

    Published on: June 10, 2016

    The Seattle Times reports that AmazonFresh has launched in the UK, "entering what’s already a fierce battle royal for supremacy among some of the world’s most competitive supermarket chains."

    According to the story, AmazonFresh is launching in Central and East London, with a planned rollout that will be "methodical," in the words of Ajay Kavan, vice president of AmazonFresh.

    The Times writes that "the UK AmazonFresh will be priced more cheaply than its domestic counterpart, perhaps a testament to the current price war among supermarkets and discount grocers in Britain ... While US Prime members are charged an extra $200 a year on top of their $99 Prime fee for the AmazonFresh service, the service in the U.K. will cost about 7 pounds, or about $10 a month, on top of the annual Prime membership fee. The service will cover unlimited deliveries of orders worth at least 40 pounds (about $58)."

    This is the first international rollout for AmazonFresh.
    KC's View:
    But probably not the last. World domination takes time, but Amazon is nothing if not patient. Also inexorable.

    I do find it interesting that the discounting fever that has infected the UK - driven by Aldi and Lidl, and affecting all the major food retail players - even seems to be creating new standards by which Amazon must live. I have no doubt that it'll find its way through this ... Amazon has the great advantage of comprehensive buying histories for everyone in the UK who has ever bought anything from its site, and not only does it have the algorithms to apply to this information, but it is not afraid to use them.

    Amazon may not find its UK Fresh business to be the most profitable, but it still has to do it, if only because that's what necessary to create the enveloping ecosystem on which it depends for long-term growth.

    Published on: June 10, 2016

    Supervalu yesterday announced that its Save-A-Lot subsidiary "has filed Amendment No. 1 to its Form 10 Registration Statement (Form 10) with the U.S. Securities and Exchange Commission in connection with the possible spin-off of Save-A-Lot into a separate, publicly traded company."

    The amendment, according to the company, "includes Save-A-Lot’s recent financial results and details the Company’s current expectations that immediately following a spin-off, Supervalu stockholders would directly own approximately 60 percent of the outstanding shares of common stock of Save-A-Lot and that Supervalu would retain approximately 40 percent of the outstanding shares of common stock of Save-A-Lot."
    KC's View:
    I know this all takes time, but as I've said here before, I'm sure that the folks at Save-A-Lot are anxious to have this all resolved and off their plate, so they can get 100 percent focused on the serious business of upgrading a chain of stores that needs it if the company is to compete effectively in a tough environment that's only gets harder and more competitive with every passing day.

    Published on: June 10, 2016

    MarketWatch reports on some pretty stunning numbers from Starbucks, saying that the coffee retailer "had $1.2 billion loaded onto Starbucks cards and the Starbucks mobile app as of the first quarter of 2016.

    "As of the second quarter of fiscal 2016, 41% of Starbucks transactions in the U.S. and Canada were conducted using a Starbucks card (24% of transactions at company-operated retail stores U.S. used the Starbucks mobile app), according to figures Starbucks provided to MarketWatch. The company had 12 million active loyalty members in the U.S. in the second quarter."

    Here's the punch line: "The Starbucks figure exceeds the deposits at many actual financial institutions, including California Republic Bancorp ($1.01 billion), Mercantile Bank Corp., ($680 million) and Discover Financial Services ($470 million)." It also "far exceeds Green Dot Corp., among the largest prepaid-card providers, with its $56 million on deposit."
    KC's View:

    It is worth pointing out that Starbucks essentially has persuaded its customers - and I count myself among them - to provide it with what basically is millions of dollars in interest-free loans, in exchange for which it gives us convenient checkout, the ability to pre-order from the road, and the occasional free cup of coffee.

    Sounds fair to me.

    Published on: June 10, 2016

    AFP reports that, as expected, Tesco is selling its 95.5 percent controlling stake in Turkish business Kipa to Migros, allowing Tesco to retire the equivalent of about $150 million (US) in debt, while generating cash proceeds of about $43 million (US).

    Tesco CEO Dave Lewis said in a statement that "the sale of Kipa reflects the particular strategic challenge we have faced in Turkey as a small regional player in a highly competitive market. It removes the need for the sustained investment required to enable the business to compete independently, allowing us to focus on improving profitability in Central Europe and continuing to grow our businesses in Southeast Asia."

    • In Milwaukee, the Journal Sentinel reports that Meijer has opened its fifth Wisconsin supercenter, this one in Sussex.

    According to the story, " In addition to the Sussex location, Meijer will also be opening a supercenter in Waukesha later this summer. Meijer said it has made a major commitment to growth in Wisconsin and plans to open two to three additional stores per year through 2020, including potential locations in the Green Bay, Fox Valley, Greenfield, Manitowoc and Sheboygan area in the next several years."
    KC's View:

    Published on: June 10, 2016

    Just time for one quick email this morning. (We'll have more next week.)

    From MNB reader Stephanie Steiner, who wanted to respond to the criticism that I write too much about certain companies and not enough about others:

    I find it comical that people want to complain that there is too much news about Amazon (or Walmart) in MorningNewsBeat, and I’m glad you took the time to explain that nearly every retailer is competing with them.  If they don’t realize they are, I would hope they at least realize they are competing with a retailer which is reacting to one (or both) of those companies.  I think some individuals expect to see “too much” about those companies, and as soon as they see any information about either, they miss the information about your favorite staff member at the dry cleaner, or the innovations at the doughnut shop, or what Chelsea has to say about removing human connection (or getting way too reliant on generalizations).

    But more importantly, let’s make this all about me and what I want.  You talk too much about baseball.  I don’t want to read any more about baseball, never mind any important lessons that might be included. I’m a soccer girl. Whenever you write about baseball it irks me to a level that causes me to miss anything else you have written. I hold you accountable. “Alexa! Oops, I mean Kevin! Write about professional soccer!”

    I'm afraid I'm going to disappoint you on this, since I don't know a scissor-kick from a wall-pass. Though maybe I can ask Alexa to educate me...

    (I just did. Alexa had no idea. Guess I'll have to rely on an old-fashioned source of information. Like Google.)
    KC's View:

    Published on: June 10, 2016

    Been a long week, and I must confess that there hasn't been time to watch any movies, binge on any TV shows, or even settle down with a good book. I hate that, but sometimes it happens ... especially in a week when I have two speeches and a big video project to finish producing. (Nobody should cry for me. I'm only a week or so from departing for my summer adjunctivity at Portland State University in Oregon. All is good.)

    But in the interest of offering something different, I do want to share this episode of "Carpool Karaoke" from "The Late, Late Show with James Corden." Corden has caught fire with these segments, which are pretty simple - just him driving around with people, singing along with the radio. It's just that these people are amazing (Adele!) and Corden is a powerhouse talent himself. The result has been segments getting millions and millions of views online, which only bolsters CBS's late night brand identity as offering something differentiated.

    This weekend, Corden is hosting the Tony Awards, and so he decided to do a Broadway-themed "Carpool Karaoke" segment ... and it will knock your socks off. Or at least, it did mine ... the only problem being that since I watched it, I keep singing the last song used in the segment, which is making everyone around me a little crazy.

    Enjoy. (And then do yourself a favor, and go enjoy some live theater ... it was my first love when I was an acting student many years ago, and it still has the capacity to touch my heart and mind in unique and transcendent ways.)

    In honor of my coming trip to Oregon, I want to recommend to you the Full Sail Hop Pursuit IPA, from Hood River, which is utterly delicious with plenty of hops to spare. Thank me later.

    One other thing. Lastly, but hardly an afterthought ... Happy Birthday to Allison Joan Coupe, who turns 22 today and is discovering that the great ride is just beginning.

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


    KC's View: