business news in context, analysis with attitude

Published on: October 20, 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, I'm Kevin Coupe and this is FaceTime with the Content Guy.

We seem to be on a bit of a sports tear here on MNB. There has been lots of baseball coverage and metaphors, and on Tuesday, Michael Sansolo sketched out business lessons that retailers and suppliers can learn from NBC's coverage of the Summer Olympics. At the risk of seeming like ESPN Jr., I'm going to continue down this road...

The Washington Post had a story the other day about how the National Football League, long considered to be "a last line of defense against the rapid growth of 'cord-cutting' and on-demand viewing upending the industry." For the first time, NFL ratings are on the decline - down 10 percent for the first five weeks of the current season, compared to the same period a year ago.

Now, there are a lot of reasons being cited for the decline. There's all the attention being paid to the election, which is sort of funny because at one point Donald Trump was complaining about when the debates against Hillary Clinton were scheduled because of concerns that folks would rather watch football. And, there is the retirement of Peyton Manning and the suspension of Tom Brady, which took away two of the game's biggest draws.

But there are a few other things going on that are instructive to any business. First, there is so much competition for the consumer's time and entertainment dollar, it finally may be having an impact. There just are other things to do. And, there is the cord-cutting that allow people to access game action without actually having to turn on the networks that paid so much money for the rights to show the games.

I also think there may be one other thing at play. I've noticed lately that when I'm watching football on television and there is a particularly tough hit, I find myself wondering about the long-term consequences on the player. Ten or 15 or 20 years from now, I wonder, will that player find himself in the company of those who have suffered and continue to suffer the long-term effects of concussions received during their careers. And I also wonder if that's having an impact on ratings.

I'm no expert on sports broadcasting, so I don't have all the answers. But I do think it is possible to learn some valuable and broader lessons from what's happening to the NFL.

In many ways, I think, the powers that be in the network executive suites and the NFL probably figured that football would be the gift that would keep on giving, the golden goose that would never die. And that probably was a mistake. Every goose eventually dies, sometimes of natural causes and sometimes because it gets shot by a hunter.

In every business, from professional football or food retailing, it is the height of hubris to think that things never will change, that the customers and the revenue always will be there. Stuff happens. Competition, some of it unorthodox, often from unexpected directions. Trends take people in a different direction, and new realities can change the way people view a business.

It is arrogance to think otherwise. It is arrogance to think you can just keep raising prices and licensing fees and broadcasting costs and expect that nothing ever will change.

That's the lesson from the NFL season so far. Owners everywhere, of every business, have to have a game plan that is nimble enough to deal with every challenge, not just the ones you see coming.

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

Published on: October 20, 2016

Jack Kofdarali, president of Southern California-based convenience store operator J&T Management as well as the chairman of the National Association of Convenience Stores (NACS), said yesterday the he believes that "food is our future," though he conceded that c-stores will "have to fight for customers in an already crowded marketplace."

That fight, he said, will include having "to tell our story and correct misperceptions about our offer. And we’re going to have to address an increasingly long list of regulations that stand in our way—whether related to food or our other products.”

The comments were made at the annual NACS Show, taking place in Atlanta this year.

Kofdarali said that retailers that have adopted this approach have found success. “Their focus is not just on food made fast, but on food that is really good—both in taste and in quality,” he said. “And here’s the most important thing: It’s making them money.”

Published on: October 20, 2016

Reuters has a story about how Kroger's current questions about the feasibility of acquiring stores being divested because of the Walgreens Boots Alliance purchase of Rite Aid is casting "uncertainty on the future of the $9.4 billion Walgreens-Rite Aid deal, which need approval from antitrust authorities, who have pushed back against a number of large deals this year."

According to the story, the Federal Trade Commission (FTC) has informed Kroger that "it would not have the option to close and integrate Rite Aid stores that are near Kroger locations."

The Reuters piece goes on to say that "to be sure, it remains possible that other buyers, such as private equity firms, may step in to buy the stores if Kroger opts not to pursue a deal. It is not clear, however, whether another supermarket operator will step in, said David Balto, an antitrust attorney."

Published on: October 20, 2016

In Minnesota, the Star Tribune reports on the possibility that Supervalu, having finally sold off its Save-A-Lot business for $1.37 billion, could now decide to unload its five other retail businesses.

"On the one hand," the story says, "Cub and the rest of Supervalu’s conventional supermarkets have long been fighting a losing market-share battle, so the company could dump them if the price was right. On the other, Cub and its brethren are important outlets for Supervalu’s wholesale grocery business.

"Whatever the outcome, Supervalu’s once-mighty retail presence — it was the third largest U.S. supermarket operator just four years ago — is down to about 200 stores, the largest collection of which is in Minnesota. There are more than 80 Cub outlets, including 30 franchised locations, mostly in the Twin Cities."

The story notes that most of Supervalu's retail holdings, if sold, probably would be sold at a relatively low price because "none of Supervalu’s chains in Baltimore, Washington, D.C., St. Louis or Virginia lead the market." In the Twin Cities, however, "Cub is the market leader, despite ceding share." And, one analyst suggests that Supervalu's likely insistence that any buyer sign a supply chain agreement with its wholesale division also could serve as an impediment.

Published on: October 20, 2016

The Seattle Times reports that Apple is filing a lawsuit over the sale of products on Amazon that it says were counterfeits.

According to the story, Apple "is suing Mobile Star, a New Jersey company it says is the source of the products. The lawsuit was filed Monday in U.S. District Court in the Northern District of California ... Apple says its investigators purchased 100 Apple-branded products 'sold as genuine' by independent merchants on Amazon’s site, and almost 90 percent turned out to be fake."

The story goes on to say that "the Mobile Star case is especially interesting because it indicates that Amazon’s own retail unit, which benefits from trust garnered by the Seattle company’s carefully protected brand, may have been hoodwinked into selling counterfeit chargers and other items.

"Apple said in the suit that Amazon pointed the finger at Mobile Star as the source of the majority of the products identified as counterfeit. Amazon turned over to Apple additional inventory it had purchased from the New Jersey distributor, the lawsuit said."

Published on: October 20, 2016

• The Louisville Business Journal reports that Kroger is rolling out its click-and-collect ClickList service to eight stores in the Kentucky market as part of a $150 million investment in renovations and construction projects there.


• Albertsons-owned Tom Thumb said yesterday that it "is introducing a new grocery delivery program with a fleet of state-of-the-art home delivery trucks in Dallas – Fort Worth today, offering customers convenient and affordable grocery shopping ... Tom Thumb is launching the service in the metroplex with new delivery trucks to support the North Texas area. The new trucks are equipped with multiple-temperature zones so the frozen items stay frozen and the vegetables are crisp when delivered."

Published on: October 20, 2016

• The Sacramento Bee reports that Walmart is offering grocery click-and-collect services at three of its Sacramento-area stores.

The Bee writes that "Walmart’s Sacramento-area launch is part of a Northern California rollout. The service was introduced Monday in Patterson, Tuesday in Stockton and Wednesday in Lodi."


• Forbes reports that Walmart "is taking another crack at China’s e-commerce market" with a new two-hour delivery service developed with JD.com.

According to the story, "The company announced today that more than 20 of its 423 stores in the country will provide the service for customers ordering on New Dada, a joint venture JD.com established last year with logistics site Dada, with the number expected to double by year end. Walmart also said it will open a Sam’s Club store on JD.com and sell imported products on the site’s cross-border e-commerce unit, JD Worldwide."

Forbes notes that "the move comes after Walmart nearly doubled its stake in JD.com from 5.9% to 10.8% in October. It first invested in the Chinese site in June, selling its Yihaodian marketplace to JD.com."


• Bloomberg reports that Walmart and its foundation have pledged to invest $25 million over five years in food safety research in China, in part through the establishment of the Walmart Food Safety Collaboration Center that will "facilitate research in areas such as the root causes of food-borne illnesses, and developing solutions for China’s food supply chain."

The goal, the story says, is to "support projects in applied science, education and communications." CEO Dough McMillon says that "by bringing together the best food safety thinkers from across the food ecosystem, from farmers to suppliers, retailers to policy regulators, we’ll accelerate food safety awareness and help make Chinese families safer and healthier."

Published on: October 20, 2016

• The Guardian reports that the three Tesco executives charged in the company's accounting scandal will go to trial next September.

All three executives - former UK finance director Carl Rogberg, former UK managing director Chris Bush and former UK food commercial director John Scouler - have pleaded not guilty to one count each of abuse of position and false accounting.

Published on: October 20, 2016

Got the following email about the Tesco-Unilever price dispute - and my reaction to it - from MNB reader Austin F Noll Jr.:

I am in complete disagreement with your POV on the Tesco pricing issue. CPG companies manufacture/produce product for sale to the consumer. They establish a cost of goods "price" based on labor,material costs and the price of the ingredients. They compete in the marketplace based on their quality/price relationship with their consumers. If the quality is good/acceptable and the consumer equates the price paid as good value then a transaction occurs. They also compete in the market place with other companies that make similar products thus you have to be " in-line" with your pricing/value or you will be out of business. The retailer procures product from the CPG companies and places a retail on that product based on the guidelines they establish for the category and the image they want to project to their customers. Manufacturers can suggest what retails that they deem appropriate but in no way can they insist on a retail price. The retailer has the sole discretion to price the product that they stock at the retail price that they determine.

In the end it's the consumer who determines whether he or she will pay the price that a retailer establishes. To allow a retailer to dictate a manufacturer's cost of goods price (base price) is not reasonable or fair in the real world. Large retailers then could demand a better price than their smaller counterparts and then "price" the smaller retailers out of business.

I am not naïve to what happens at different points in time in the industry with regards to trade dealing and discounts but I am a firm believer that every manufacturer should be transparent in their list prices and that these should not be subject to individual "retailer whims" as to whether they are fair or not. The consumer will make that call in the retail store. If Tesco chooses to discontinue lines or brands based on their assumption of what a manufacturer's list price should be then they will have to accept that many of their consumers will follow their preferred brand to other retail locations.

From another reader:

Having worked at CPG’s for 35 years in Customer Management, the hardest part of any role in working with retailers, was managing price increases - particularly double digit ones. They are very challenging to justify unless there are significant cost of goods increases that have occurred due to suppliers passing these on to manufacturers. That being said, it’s very hard to understand why Unilever thinks they can pass on a steep price increase to retailers due to the Brexit impact. Unilever is a multinational and they likely drive a good percentage of their margin from currency exchange (operating much like a bank would globally). I am sure that Dave Lewis is aware of much of this and perhaps that is what drove the reaction from Tesco. It will be interesting if we see more of this from other CPG’s and how this impacts retailer/supplier partnerships long term.

And from another:

I laughed when I saw the article on the dispute between Tesco and Unilever on a price increase.  Dave Lewis, CEO of Tesco, came from Unilever so Mr. Lewis knows Unilever’s practices very well.  Some companies need to take price increases for the right reasons, with real increases in the costs to do business.  Some may take them because they need to reach a promised number to shareholders.  I feel it’s wrong for retailers to bully manufacturers if they need to raise their price.  Some manufacturers do the right thing and spend back on the business with deeper promotions if there are savings down the road.  There are honest reasons for price increases.

And another:

You continue to ignore the possibility that a supplier may have a justified price increase. I have been on the receiving end of demands from Retailers
like Tesco that try to offset their poor strategic decisions by threatening suppliers unless they make price concessions.

I don’t feel you have taken a balanced approach on the issue. You have taken a populist but simplistic position.

Published on: October 20, 2016

The best-of-seven American League Championship Series came to an end last night with a 3-0 Cleveland Indians defeat of the Toronto Blue Jays, earning the Indians the AL pennant as they won the series four games to one. The Indians now await the end of the National League Championship Series to see who they will play in the World Series.

And, in the NL Championship Series, the Chicago Cubs beat the Los Angeles Dodgers 10-2, drawing even in the best-of-seven series at two games apiece.