business news in context, analysis with attitude

Published on: October 31, 2016

by Kevin Coupe

Asked about Amazon's long term investment strategy on an earnings call last week - which came after Amazon delivered third quarter profit of $252 million, up from $79 million during the same period a year ago, and revenue for the period that was up 79 percent to $32.7 billion - CFO Brian Olsavsky had a line that Business Insider suggested "best summed up Amazon's thinking:"

"We are honing the businesses that we're in and making them as efficient, as profitable as possible, while also investing very pointedly and very wisely, we believe, in things that will enhance customer experience and create lasting businesses for us down the line."

And there it is. In just 43 words.

The story notes that balancing efficiency and effectiveness is easier said than done, though it has to be acknowledged that Amazon has generally been pretty good at a "two-track strategy where it squeezes as much money as possible from its strongest businesses, while carefully reinvesting profits into new growth opportunities."

We talk about this a lot here on MNB, because Amazon's discipline and simultaneous ambition are difficult to emulate or imitate, especially for companies that have long legacies and traditions of doing things a certain way. Certainly there are readers who think this is overblown, or a bubble of some kind, and that is isn't sustainable.

The investment class often is skittish, which is why last week when Amazon announced those increases, the stock went down because better numbers were expected ... though not achieved because of the company's investments in technology and content.

Though, as Business Insider puts it,"Investors may have simply forgotten Amazon's crazy growth in recent quarters (stock price more than doubled in 18 months) is a result of years of heavy investments."

It is an approach that some people are convinced will work, and some are not. But at the very least, as Amazon creates changes that have and continue to reshape the retail environment, those 43 words are an Eye-Opener.

Published on: October 31, 2016

Business Insider has a piece by a reporter who decided to try Kroger's ClickList service to see how it works. The description notes that ordering online was easy, especially because the site uses the shopper's Kroger rewards number as a baseline - it instantly creates a shopping list based on past purchases. The reporter also says that it was easy to fill in the list with new purchases, simple to compare prices, and easy to choose a pick-up window.

Here's how it went from there:

"I parked in one of the ClickList spots and next to my window, I saw a sign instructing me to call a phone number to notify the store that I had arrived.

"I called the number and an employee answered the phone on the first ring. He asked for my name and told me he would deliver my groceries in a few minutes. Five minutes later, an employee walked up to my car window and introduced himself as Morgan.

"Out of my order of 24 items, the store didn't have two items in stock in the brands that I had selected, he said. So he substituted those products with comparable brands that were the same price. He showed me the items he had substituted to make sure I approved of his selections. He swiped my credit card using a tablet and gave me a receipt for my order.

Then:

"Once he finished, I decided to run into the store to grab some flowers. 
This is a huge advantage of ClickList over grocery delivery services that I have used in the past. With click-and-collect, you can still enjoy the benefits of a brick-and-mortar store without having to spend an hour wandering the aisles inside. So if you like to pick out your own produce, for example, or if you realize you forgot something on your list, you can make a quick trip into the store to grab those items since you are already on site to pick up your online order."

And here's the reporter's conclusion:

"Within 10 minutes of my arrival, I had a trunk full of groceries that will last me more than a week. Normally, this shopping trip would have taken me about an hour.

"ClickList was ridiculously easy and seamless, and now I can't imagine buying groceries any other way."

Published on: October 31, 2016

The New York Times over the weekend had a long story about how the public policy debate over genetically modified crops has essentially missed or avoided a specific problem - that "genetic modification in the United States and Canada has not accelerated increases in crop yields or led to an overall reduction in the use of chemical pesticides."

The conclusions are based on a number of studies, many of which compare results in the US and Europe; they also, not surprisingly, as disputed by companies such as Monsanto.

You can read the entire piece here.

Published on: October 31, 2016

Marketing Daily reports that Google has been testing a feature for mobile devices "that allows consumers to verbally query the item at a nearby store and have multiple results returned in audio along with prices and availability. A more detailed list serves up on the mobile screen."

Essentially, this means that if one were near a store, it would be possible to ask your device if it carried a specific item, and then find out a) if the store had it, b) what the item costs there, and c) what other nearby stores might carry the item and what they charge for it.

The story notes that while this is similar to the standard search experience, the ability to translate it into a verbal experience is seen as potentially transformative.

Published on: October 31, 2016

The Chicago Tribune reports on how Cook County commissioners in Illinois are scheduled next month to vote on "a proposed sweetened beverage tax, which would add a penny-per-ounce to the cost of sugar- and artificially sweetened drinks if approved ... And as they are in cities like San Francisco and Boulder, Colo., local officials are making the case for public health, pointing to mounting evidence linking sugar-sweetened beverages to obesity, diabetes and other health conditions."

And, as in other communities where such taxes have been considered, the soda industry "is digging in" to fight it, spending hundreds of thousands of dollars on lobbying and advertising designed to get the commissioners to see things its way.

This is no small community - Cook County, which includes Chicago, is the nation's second most populous county.

Published on: October 31, 2016

The Chicago Tribune reports that sales growth in the craft beer market, which has been a major growth area in recent years, "is slowing." According to the story, "once-thriving brewers are laying off workers and the proliferation of new brands all competing for attention harkens to the dime-a-dozen startups from the web's early days."

The problem, according to the story, "is partly due to the sheer number of beer-makers competing to entice drinkers. A thirst for more local and flavorsome beers swelled the number of breweries in the U.S. to a record 4,656 in June, yet the volume of beer produced is growing at less than half the 18 percent rate it boasted two years ago, according to the Brewers Association, a trade body for the American craft beer industry. The U.S. now has more breweries than it did at its high-water mark of 1873, according to the group."

There have been recent stories about how Boston Beer Company has been facing issues with its Samuel Adams brand; California-based Stone Brewing has laid off five percent of its workforce, and Redhook Brewery is "halving the number of workers at its Woodinville brewery in Washington state."

The craft beer slowdown also is certain to affect major brewers, since companies such as Anheuser-Busch InBev have been highly acquisitive of small breweries as they sought to bolster their larger businesses.

Published on: October 31, 2016

• The Wall Street Journal reports that Amazon's "shipping costs are likely to spiral higher in the fourth quarter because of the combination of more expensive fast shipping and greater holiday-related volumes."

The story notes that while Amazon "has been rolling out free deliveries in as fast as an hour to its Prime members," most of whom pay just $99 a year for the privilege, and usually end up spending more than twice as much annually as non-Prime members. But this service has a cost, and Amazon now says that "the faster deliveries are costing it a lot of money - and as online orders surge during the holidays, its shipping costs could top the $3.9 billion it spent in the third quarter."


• The Wall Street Journal also reports that Amazon has launched its Prime service in China, "aiming to get a leg up on local rivals by capitalizing on Chinese consumers’ desire for products from overseas ... Prime will give Chinese consumers access to more than nine million domestic products with no minimum purchase, and to four million imports via Amazon’s Global Store with unlimited free overseas shipping on orders of 200 yuan or more. Amazon estimates that most members will receive overseas packages in five to nine days."

The story says that Amazon "has struggled in China in recent years, and the Prime membership, which offers unlimited free cross-border and domestic shipping, could help it gain ground. Alibaba Group Holding Ltd. and JD.com Inc., the main Chinese e-commerce players, offer free shipping, but usually for only domestic transactions, and the two don’t yet match Amazon’s global reach."

Published on: October 31, 2016

• The Wall Street Journal has a piece about David Taylor, CEO of Procter & Gamble, saying that "at a time when consumers’ changing habits are upending the way people shop and many of the world’s most entrenched corporate giants are re-creating themselves," his goal is not to disrupt the company from within but to play to P&G's "historic strengths."

Taylor tells the Journal that "he is confident that P&G’s best prospects remain rooted in fundamentals. That means selling to the masses by way of big retailers on the strength of meticulously collected consumer research, a massive research-and-development operation and the world’s biggest advertising budget. P&G, he says, needs to learn to do these things faster and more effectively."


• The Press Democrat reports that Albertsons-owned Safeway is acquiring two G&G Supermarkets in California's Sonoma County. Terms of the deal were not disclosed, and it should be concluded by the end of the year.

Published on: October 31, 2016

• The Coca-Cola Co. announced that Barry Simpson, who most recently oversaw IT for its global business units, has been named the company's chief information officer. He succeeds Ed Steinike, who passed away earlier this year.

Published on: October 31, 2016

• MNB learned over the weekend that Byron E. Allumbaugh, who served as the chairman/CEO of Ralphs Supermarkets in Southern California from 1976-1997, has passed away. He was 84.

Published on: October 31, 2016

I got a lot of email about last Thursday's FaceTime piece about the South Carolina couple who went to a Cracker Barrel and decided to leave their waitress, instead of a tip, a note scrawled on a napkin lecturing her on why she ought to be at home taking care of her husband and children.

(You can see the entire piece here.)

MNB reader Jeff Totten wrote:

Well said! Your suggestion as to what Cracker Barrel (or any other company) should do to reinforce its employee(s) is right on the money. I can't believe the note written by the couple. My Bible doesn't say that. Thank you for your excellent commentary.

Another MNB reader wrote:

Right on KC, right on.

I can tell you that when we’ve had similar things said in our stores, we have stood up for all employees. When we made a controversial decision, to some, to offer a local newspaper about the LGBTQ community and some were offended, we stood up for all of our shoppers. We listen to all of our customers but no, they are not always right.

MNB reader Louisa Falk wrote:

I want to say so many things about these people and this story but I’ll leave it at this. Why were the Watleys eating dinner at the Cracker Barrel in the first place? Shouldn’t Mrs. W.  have cooked a hot meal at home for the “Mr.” as “he and God intended”?

From yet another reader:

Makes me really sad that they would leave a note like that KC, and worse that there are still people in this world who still think that way, have those kinds of beliefs. I'm still in shock after reading their note. I am 55 going on 35 and would no more pen that nonsense than the man on the moon. I mean seriously?

This isn't the 1950's, Mr. and Mrs. Watley, shame on you both. You owe this young woman an apology in my book.

But MNB reader Jim Martin isn't so sure:

Hey Kevin, You know better. Just because you saw a picture of a napkin doesn’t mean the Watleys exist. It could just as easily been a person eager to disparage people of faith, maybe the waitress herself. It’s a story that’s impossible to document. it’s not responsible journalism. By the way, I do agree with your closing statements about the importance of all employees.

The story was reported in a number of places, and it certainly seemed legitimate to me. I certainly thought the point was worth making.

If I find out something to the contrary, I'll report that, too.

MNB reader Kevin Hollenbeck wrote:

Kevin…..hate to say this….but maybe Hillary was right…..”Deplorable."
 



On another subject, from another reader:

If Target wants to get my business back, they have to knock off the “Must Buy Multiple Items” to get a Target gift card worth $5-$10. I do not need all these big packs that have these offers attached to them in Target’s weekly ads. It would behoove Target to offer a good cost to a single package purchase to gain my business back. I do not want to spend $15-$20 on certain goods. Also, these BOGO ads for certain categories, vitamins and supplements turn me off completely. I only need one of something, not being forced to buy 1 at regular price. Just reduce the cost by 25%, and I might come back in and shop Target. Ditto for Rite Aid and Walgreens.

My wife used to be a big Target customer, but no longer shops at Target. FYI, I went into a certain Target the other morning at 10:00 am, and the produce and meat departments looked like they had not been worked for one or two days. They were not ready for business that day.




MNB reader Howard Davidson wanted to challenge something I wrote:

I’d dispute your comment about the daily deals model not creating on-going value. As a consumer I’ve been exposed to literally dozens of new retailers and even better- entertainment and recreational choices I would never have known about without the benefit of the daily emails. Frankly the savings were icing on the cake - just to be exposed to interesting new products and services from both local and national vendors has proved a great value to me, and I suspect to many companies as well for whom Groupon and Living Social have created new patrons.

Maybe. But I think at least some of the problems that Groupon and Living Social are facing may be related to the fact that exposure to new businesses is not leading to long-term relationships and non-savings-driven purchases by customers. How many folks just wait for the next Groupon before going back?




On the broader subject of online shopping, and why a lot of people just hate to leave home, MNB reader Gail Nickel-Kailing wrote:

We moved just a few weeks ago from Seattle to Helena, Montana. And if we still lived in Seattle, I’d agree that it’s becoming more and more difficult to “leave home” to do pretty much anything. Rush hour now lasts about 18 hours, and in some parts of the city gridlock is common. Simply getting in the car and heading out to any major retailer is a daunting task - never mind trying to cross Lake Washington from Seattle to Bellevue or back.

My husband and I were lucky that we lived in a neighborhood where we could walk for all our purchases - food included. Within just 4 blocks we could reach our doctor at a neighborhood clinic, our dentist (one of a half dozen nearby), a great little hardware store, a nice drug store/pharmacy, our regional bank, a sweet little bakery run by a French couple, one of the remaining independent bookstore in the city, a post office (and an independent mail and copy shop), my hairdresser, my husband’s barber, a branch of the public library, an independent coffee shop and a Starbucks, a cobbler (where I had shoes and boots repaired), an optometrist, and numerous little shops, restaurants, and cafés. I could dash out to a small Albertsons for select items and walk a little further to a recently upgraded Metropolitan Market. BTW, there’s a public swimming pool in the neighborhood too. And I forgot, our church was 5 blocks away.

Helena is in some ways similar, in some ways very different. I can walk 4 blocks to a special little natural food store where I can buy meat raised by I rancher I know and cabbage from a small market gardener. Three blocks to any assortment of churches… My walk is just a few blocks further here, but I can walk to the Post Office and our dentist, the public library, and several great coffee shops (not a Starbucks). We’ve only been here 6 weeks and are still exploring the city. The bad news is that we need to get into the car to drive for a lot of necessities - the hardware store, the pharmacy, any substantial supermarket, and on the northeast side of town a plague of big box stores has spread. 

It’s not the grocery shopping that has convinced me to stay home and shop online, it’s Shopko, Target, Macy’s, etc., that have done it. One visit and we decided they were all “Poster Children” for online shopping!

From another reader:

My wife and I stay home plenty…we’ll eat leftovers or eggs and toast before venturing out into this crazy right wing oasis called NW Arkansas…
It’s kind of ”peoply” out there…and the Trump folks scare me.

Disclaimer..I’m only joking. Mostly.




Finally ... we took note last week of a Boston Globe report that Dunkin' Donuts CEO Nigel Travis, when talking about the fact that the company did not meet revenue expectations during the most recent quarter (growth was a sluggish 0.5 percent, though profits and same-store sales were said to be healthy), blamed "the overwhelming dampening effect of the presidential election,” among other things.

I commented:

Everybody has to blame something, and the elections are a pretty fat target. (Another year, and it might've been the weather. Or the dog ate his homework. Question: Isn't it a CEO's job to navigate the shoals of current events and still grow sales?)

It is interesting, though. Franchisees may be worried about regulatory and wage issues, but you wouldn't think that would necessarily have an impact on coffee and doughnut sales. I don't know about you, but it is only an enormous amount of self control that prevents me from chowing down on a dozen chocolate glazed doughnuts after watching newscasts or debates. (Instead, I just drink.)

MNB reader Ron Rash wrote:

Please provide more information about this “self-control” thing.

I thought it was pretty self-explanatory.

Published on: October 31, 2016

• The World Series will return to Cleveland for Game Six tomorrow night, after a weekend in which the Cleveland Indians defeated the Chicago Cubs 1-0 in Game Three, and then 7-2 in Game Four. Last night, the Cubs staved off elimination with a 3-2 win, keeping the their hopes alive that they may be able to win their first World Series championship since 1908.



• It was Week Eight in the National Football League...

Washington 27
Cincinnati 27

Detroit 13
Houston 20

Kansas City 30
Indianapolis 14

New England 41
Buffalo 25

San Diego 19
Denver 27

Arizona 20
Carolina 30

Seattle 20
New Orleans 25

NY Jets 31
Cleveland 28

Oakland 30
Tampa Bay 24

Green Bay 32
Atlanta 33

Philadelphia 23
Dallas 29

Published on: October 31, 2016