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    Published on: April 28, 2017

    by Kevin Coupe

    I am intrigued by a Los Angeles Times story about a garage owner in the Arts District who is doing something that every businessperson needs to do - planning for a potentially radically different future.

    Not just talking about it.

    The developer is "working on plans for a grand residential complex in downtown Los Angeles that includes what appears to be an ordinary garage. There will be row upon row of lined stalls at street level and two floors underground to store nearly 1,000 cars of tenants and visitors to the trendy Arts District, where parking is relentlessly hard to find."

    But ... that garage is being designed with the possibility in mind that even Los Angeles - as car-centric an economy as one can imagine - could become a different place "when ride-sharing services such as Uber and self-driving taxis whittle down car ownership until parking places become expendable."

    The garage's design has been developed so it could be "converted into shops, a gym and a theater" with a minimum of fuss.

    This strategy, the Times writes, "reflects a consensus among some developers and planners that California’s vaunted car culture is inevitably going to run out of gas — as inconceivable as that might be for many adults who have spent decades controlling their own destiny behind the wheel."

    For the purposes of this Eye-Opener, the precise business model is less important than the very important instinct to plan not for tomorrow, but for the inevitable changes that tend to remake businesses. Even in California, where most people probably think that car culture is forever.

    That strikes me as very smart ... and worth emulating.
    KC's View:

    Published on: April 28, 2017

    The Chicago Tribune reports that the U.S. Food and Drug Administration submitted paperwork to the White House Office of Management and Budget that appears to signal a delay in federal rules that would mandate the posting of calorie counts on all restaurant, supermarket and convenience store menus.

    The story notes that "the Trump administration has sought to lift regulations that it calls burdensome to businesses.

    "Key players in the long-running battle over calorie regulations were unsure Thursday of the rule's future after the FDA's move. Proponents of the labeling effort, like watchdog group Center for Science in the Public Interest, say the rules are at risk, but not necessarily off the table."
    KC's View:
    I know that many people in the food business think I'm wrong about this, but I think that these kinds of rules are a good idea in that they provide a level of information and transparency to the consumer, allowing them to make better choices. I think in the end, even though such regulations might seem expensive and burdensome, they'll actually be good for business because they'll be good for consumers.

    I guess we'll have to agree to disagree.

    Published on: April 28, 2017

    The Des Moines Register reports that Hy-Vee plans to build a small store - between 12,000 and 16,000 square feet - and gas station in West Des Moines that "could also offer a quick-serve restaurant and a drive-up lane for customers ordering groceries online."

    The store may be called Hy-Vee Fast & Fresh, though no final decision has been made about the name; the company says that however the format shakes out, it will expand on things that Hy-Vee has done successfully in other stores while on a smaller scale that works in a c-store setting.
    KC's View:
    This falls into the general category of going to the customer instead of waiting for the customer to come to you. Which is to say, of critical importance if one is to survive in today's competitive retail landscape.

    Published on: April 28, 2017

    Tech Crunch reports that Google has improved the way its Google Home voice activated device responds to requests for recipes. Until now, it has simply recited the recipe in a way that made it difficult to keep up, but now it will offer five million new recipes and "also allows you to easily step through them and ask questions about them."

    According to the story, "That ability to tell your Google Home to start cooking, repeat steps and move on to the next step is pretty useful in and of itself. To power this, Google has indexed recipes from Bon Appetite, The New York Times, Food Network and others." Cooks also "can now use the Google Assistant on your phone or the Google Search app for iOS and Android to find a recipe and then easily send it to the Google Home with the click of a button."
    KC's View:
    I approve. It sounds to me like this is where voice assistants start to make the transition to becoming artificial intelligence, because they become more intuitive about how to interact with the user. One of my observations about the Echo/Alexa system is that interactions are all individual, and there is no building of one interaction on top of another. But that will change.

    Published on: April 28, 2017

    CNBC reports that a second significant Whole Foods shareholder - mutual-fund manager Neuberger Berman, which owns 2.7 percent of the company's stock - has "urged its members to 'immediately engage shareholders' to consider options that could include a sale."

    The story notes that this comes "just a few weeks after activist investor Jana Partners took a nearly 9 percent stake in Whole Foods and suggested it should consider putting itself up for sale."
    KC's View:
    Let's face it. Whole Foods is in play. The questions that may be most relevant is when it will be sold and to whom. Not if.

    Published on: April 28, 2017

    The Cincinnati Business Courier reports that when Lidl starts opening its discount stores in the US, one of the markets it will start with is Cincinnati.

    The story says that Lidl "is looking for numerous store sites in Greater Cincinnati and Dayton, according to multiple retail real estate sources. A Lidl spokesman confirmed the company has started looking at sites in Ohio, although he wouldn't give specifics.

    The Courier notes that to this point, Lidl was said to be focused on the eastern seaboard for its initial US stores. It had said to be focused on opening 20 stores this summer, with 100 planned within a year.
    KC's View:
    I'm pretty confident that Lidl is going to have an impact in the markets where it opens ... almost as confident as I am that Kroger is going to bring its game to this battle and be very ready to compete. It'll be tough and it'll be hardball and something to watch.

    Published on: April 28, 2017

    The Seattle Times reports on the opening of Kai Market, described as a "small-format store Uwajimaya is opening in South Lake Union" that offers everything from "sashimi to a poke bar, packaged cold noodle salads to bento boxes."

    According to the story, "Leaders of Uwajimaya, a family-owned and operated Asian supermarket chain that’s become an institution in the Seattle area, believe the smaller-format store means the company can expand to more areas without having as much of a cost commitment. At 5,500 square feet, Kai Market is about double the size of most convenience stores but much smaller than the 30,000 to 50,000 square feet of traditional Uwajimaya stores."

    And if some customers feel a lack of confidence about cooking seafood, there will be "classes on cooking and related topics such as sake that Kai Market plans to hold in an adjoining meeting room in the building."
    KC's View:
    Love this idea, especially the idea about educating consumers about how to use the product. Just goes to show that one does not need to have a big store to have big ideas.

    Published on: April 28, 2017

    Fortune reports that when Kevin Johnson, the new CEO of Starbucks, did his first quarterly results presentation, it was with a fair amount of pessimism about the prospects for bricks-and-mortar retail.

    Referring to a recent Wall Street Journal article (that also was mentioned here on MNB) about how the pace of store closings in 2017 appears to be likely to exceed even that of 2008's Great Recession, Johnson said, "The article illuminated once again the seismic shift in consumer behavior underway and the devastating impact that this sea change in behavior is having on many traditional brick and mortar retailers ... The retail industry is going through a disruption right before our eyes."

    Johnson knows whereof he speaks, since he was speaking in the context of "fiscal second-quarter sales figures that disappointed investors, sending shares down about 5% in after-hours trading on Thursday. For the 13-week period ending April 2, Starbucks reported total net revenue grew 6% to $5.3 billion while same-stores sales were up 3% both globally and the key Americas market. That growth was not as strong as Wall Street had expected, though per-share earnings of 45 cents exactly matched expectations ... In the U.S., same-store sales benefited from higher average spending, offset by a decline in transactions that was related to changes Starbucks made to the loyalty program to dissuade split ordering as a way to game the old system for more rewards."
    KC's View:
    One of the more interesting things about the Starbucks results was its noting that close to one-third - 29 percent - of its sales were made online or through its mobile application. I know that some of this creates delays in-store when people place orders remotely, but in the end I think the relevance of its mobile app and payment systems will be an enormous advantage.

    Published on: April 28, 2017

    Bloomberg has a story about Boxed Wholesale, an online retailer that "sells bulk packages of paper towels, granola bars and maxi pads, including free delivery within two days on most orders and an inexpensive house brand of products ... One big difference between Boxed and the e-commerce giant: the startup sells only about 1,500 products, mostly household goods, compared with Amazon’s roughly 350 million items from books to televisions to mixed nuts. Now Boxed has spent tens of millions of dollars on a new automation system, launching this month, to triple the output of its 140,000-square-foot warehouse in Union, New Jersey, without needing more space or workers."

    The story goes on to say that "Boxed said it had sales of about $100 million in 2016, up from about $50 million the previous year. The average order size is about $100 and includes 10 items, meaning most orders meet a $50 threshold for free shipping."

    “Our strategy is to not chase Amazon,” says founder Chieh Huang. “We have to build our business our own way.”
    KC's View:

    Published on: April 28, 2017

    Amazon said yesterday that its Q1 net sales increased 23 percent to $35.7 billion in the first quarter, compared with $29.1 billion in first quarter 2016. Net income was $724 million in the first quarter, compared with net income of $513 million in first quarter 2016.

    The Reuters analysis makes the point that "Amazon's revenue has soared in recent years as shopping has moved online and businesses have moved their computing operations to the cloud, where Amazon Web Services (AWS) is the biggest player. AWS accounts for a majority of Amazon's operating profit.

    "Some investors worried that mounting competition from rival cloud providers like Microsoft Corp and price cuts at AWS would slow the company's momentum. Many also expected Amazon's staggering array of investments - from new warehouses, TV and movie production to research on artificial intelligence - to weigh on profits.

    "But those fears proved unfounded for the first quarter."

    However ... "Across the board, the company is stepping up investments from a year ago. It plans to build new warehouses and create more than 130,000 full-time and part-time jobs by mid-2018 to speed up delivery. It is racing to make its voice assistant Alexa, which competes with Apple Inc's Siri, a ubiquitous platform like Windows has been for desktop or Android has been for phones."
    KC's View:

    Published on: April 28, 2017

    • The Seattle Times reports that the city's mayor, Ed Murray, has sent legislation to the City Council that would reduce the per-ounce amount that he'd like to charge in a previously proposed soda tax while adding diet sodas to the list of drinks that would be taxed.

    The story says that Murray originally proposed a two cents-per-ounce tax on sugary drinks, but now has amended the proposal so that the tax would be 1.75 cents per ounce. The Times writes that "after Murray’s initial announcement, some suggested the exclusion of beverages with artificial sweeteners would be unfair because affluent white people tend to consume more diet drinks. The revised tax would be applied to all distributors, regardless of size, but would exclude 100 percent fruit juice, medicine, infant formula and milk-based products.

    "In February, Murray said the tax would raise $16 million per year. He now says it would raise $23 million per year."

    Advertising Age reports that "Procter & Gamble Co. wants to cut a whopping $2 billion in marketing spending over five years, and for the first time is providing details on a broader $10 billion cost-cutting plan launched a year ago."

    The cuts include "$1 billion or more in media and around $500 million in agency fees, which comes on top of $600 million of cuts in prior years that reduced P&G's spending there to around $1.4 billion annually."

    The moves reflect concerns about P&G's ability to grow in a slow-growth environment in order to grow markets and market share."
    KC's View:

    Published on: April 28, 2017

    ...will return.
    KC's View:

    Published on: April 28, 2017

    Their Finest is a new British film that takes place during World War II, as London is being bombed, virtually everybody is involved with the war effort, and no matter how bad things get, someone is likely to say that he or she will "feel better after a cup of tea."

    The movie concerns the making of a movie by the British Ministry of Information that is meant to simultaneously improve public morale as well as persuade America to get into the war. Gemma Arterton plays an advertising copywriter who is hired by the Ministry to write the movie's women's dialogue, though her expertise and hard work gradually earns her more of an active role in the production. Bill Nighy - who I would watch read the phone book - plays the fading film star who is persuaded to take a supporting role because he isn't being offered anything else, and he brings enormous panache to the part.

    Their Finest is enormously charming, as well as an interesting look at how Brits dealt with the the pressures of constant bombing and uncertainty about their ability to achieve victory. In addition to the performances by Arterton and Nighy, the film is filled with exceptional British actors - Sam Claflin, Jack Huston, Helen McCrory, Richard E. Grant and Jeremy Irons among them - who give it authenticity and make it utterly authentic. And I very much liked the subtext of the movie, which portrayed an effective feminism long before the term had been coined.

    I highly recommend Their Finest. It isn't spectacular moviemaking, but it is craftsmanlike (in the best possible sense) with a strong point of view.

    I have a couple of Oregon wines to recommend to you this week ... 2014 Willamette Valley Vineyards White Pinot Noir, which I thought was sort of amazing, and the 2011 Alloro Vineyard Riservata Pinot Noir, which I found on a rack in the basement, have no idea where it came from, and which I thought was delicious.

    That's it for this week.

    Have a great weekend, and I'll see you Monday.

    KC's View: