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    Published on: June 1, 2017

    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.

    There was a piece in the Wall Street Journal the other day saying that the budget proposal sent to Congress by the Trump administration included one surprising suggestion - that the US Postal Service should cut back on its delivery days from six days to five as a way to address the multimillion dollar losses it suffers each year.

    This sort of surprised me, especially coming from the first administration run by a businessman, who, one would think, would be more focused on how to be competitive. Instead, the mindset seems to be one that rarely works - that the Post Office needs to cut its way to prosperity.

    I would suggest that in a lot of ways, the Post Office may be more relevant today than ever - largely because it adopted a seven day delivery schedule in many markets that has it delivering Amazon shipments on Sundays. Plus, it has made deals that have UPS delivering products to the Post Office, which then delivers the items to consumers. I don't know about you, but it seems to me that I see more postal service trucks than ever making deliveries, not fewer ... and the USPS confirms that while first class mail is way down, package shipping actually makes up about 28% of overall revenue, up from nearly 20% in fiscal 2014. It isn't hard to imagine that this number will continue to grow as e-commerce does ... especially if the Post Office does things to be more competitive and relevant, not less so.

    Now, I'd never list myself as a fan of the US Postal Service, largely because there are too many people working there who don't seem to realize they are in the customer service business. Sometimes they act entitled, as opposed to feeling lucky that they still have jobs in an industry that gets consistently more competitive and loses customers every day to email. But that may be something that requires a real cultural transplant, and that takes time ... and probably some sort of charismatic leader from the business community willing to take on an enormous challenge. (Years ago, when the Irish Postal Service was in trouble, they brought in supermarket icon Feargal Quinn to transform the business. Which he did. The solutions today would be different than they were then, but they ought to be looking for someone in that vein.)

    That said, the Postal Service is shutting down offices and consolidating, so that's a good thing. The big thing they need to do is get some relief from Congress in terms of how it calculates pension costs and liabilities, which would be a huge help.

    But the one thing they need to do is get more competitive, not less so. They need to find new ways of maximizing their infrastructure investments, not reasons to shut the place down for an extra day.

    The good news is that the US Congress is unlikely to let this proposal go through, simply because a lot of voters like to get mail on Saturdays. But while that's a good reason, it ought not be the only reason. I have no problem with the notion that government ought to be able to make do with less, but when it comes to essential services like the US Mail, I think that simply cutting back doesn't help anyone.

    More competitive, not less so. to me, that's the key.

    That's what is on my mind this Thursday morning. As always, I want to hear what is on your mind.

    KC's View:

    Published on: June 1, 2017

    by Kevin Coupe

    Interesting piece in the New York Times the other day about how "there is a new crop growing in Southern California’s famous avocado groves — coffee." There are some two dozen avocado farms between San Diego and Santa Barbara that are "nurturing coffee bushes ... in what may be the first serious effort in the United States to commercialize coffee grown outside Hawaii, home of Kona coffees."

    To put this into context, the Times writes that "there are roughly 800 coffee farms in the Hawaiian Islands producing as much as nine million pounds of unroasted beans a year; California produces only hundreds of pounds. Globally, 12 billion pounds of coffee are consumed each year."

    According to the story, "The farmers are hoping to capitalize on a variety of changing factors abroad and here, including the aging of California’s avocado trees, which are producing less fruit ... The avocado growers face major disruptions in their business, including increased competition from Mexican imports, less access to water and rising real estate prices, all of which are forcing them to rethink that crop."

    It may take a long time for these farmers to turn California into a major coffee producing area, but it doesn't seem entirely impossible - after all, it already does a pretty good job with Olive oil and wine. But what's really important is that facing disruption, these farmers/businesspeople are seeking new paths ... because that's what you have to do.

    It is an Eye-Opener.
    KC's View:

    Published on: June 1, 2017

    The Los Angeles Times writes about a new report from Credit Suisse suggesting that between 20 and 25 percent of the shopping malls in the United States will close in the next five years, as e-commerce continues "to pull shoppers away from bricks-and-mortar retailers."

    The accounting and advisory firm Marcum has a different take on the state of America's malls - it puts the likely fatality rate at closer to 30 percent.

    However, the story notes that "Paula Rosenblum, co-founder and retail analyst at RSR Research, believes the report overstates the risks." She says that lower-tier malls are more at risk, and that it is more likely that the nation will see a redefinition of the shopping mall as opposed to some sort of mass extinction.

    She says that "shopping centers will be driven by the demands of millennials and members of Generation Z behind them, who are more likely to spend money on entertainment rather than just clothing," and that malls “are going to become more of a destination, not just for shopping but for activities and experiences.”

    Which is interesting, since the Orlando Sentinel has a story about how Triple Five Worldwide Group of Edmonton - the folks who built Mall of America in Minnesota - "are proposing a massive 6 million-square-foot (557,000 square-meter) project on the edge of the Everglades in bustling South Florida that would dwarf any other shopping mecca in North America ... In addition to millions of square feet of retail, the project would include an indoor ski slope, a water park, a submarine ride attraction, a skating rink, 2,000 hotel rooms, theaters, a performing arts center and places to eat and drink."

    The story notes that "Miami-Dade County officials could vote this fall to approve it, despite some criticism that it will worsen the region's already choking traffic problem and might produce mostly low-paying jobs." There also are concerns that the proposal ignores the e-commerce trend that is making so many malls irrelevant ... though proponents argue that the nature of this development would make it immune from such issues.
    KC's View:
    There likely will always be a role for differentiated shopping centers, because there is no way that e-commerce will totally displace traditional shopping venues. While mass extinction is not likely to happen, that also probably will be a lot of casualties along the way.

    Speaking only for myself, that South Florida developments sounds just awful ... and considering the direction that shopping is taking, it runs the risk of being a 6-million-square foot mausoleum.

    Published on: June 1, 2017

    The New York Post reports that "Albertsons’ quest for a takeover target is not going so well," with its interest in both Sprouts and Whole Foods not bearing fruit.

    In the case of Sprouts, the problem seems to be that its market cap has grown, and that it is "now trading at too high a multiple for a transaction to happen."

    As for Whole Foods, the story says that the company is not interested in being acquired.

    Cerberus Capital-controlled Albertsons, having bought Safeway in 2015 for $9 billion, has been said to be interested in growing the company through acquisition, but has yet to find the perfect fit.
    KC's View:
    I wouldn't be surprised if, even though its prospects seem diminished at the moment, Cerberus comes up with another interesting acquisition in the near future. I always thought Sprouts was a better idea than Whole Foods for Cerberus ... but I also think that Whole Foods' management's lack of interest may not matter as much if its performance doesn't improve.

    Published on: June 1, 2017

    GeekWire reports that Amazon has just received a patent for a new kind of shipping label - it has "a built in parachute to help packages make a soft landing when dropped out of the air by drone or other airborne craft."

    According to documents from the US Patent and Trademark Office, "The parachute label could look and act just like any other shipping label, but underneath is a system of cords, a parachute, a breakaway cover and possibly a harness to keep everything in place. The package could also be loaded with sensors to make sure the package hits its landing zone and a shock absorber in case the cargo is coming in a little too hot.

    "Images in the patent file suggest that the parachute labels could be applied to every package, once drone delivery becomes a more common method for Amazon, and then later removed if a truck or other ground-based method makes more sense than drone delivery. The parachutes could be adorned with everything from bar codes and QR codes, to the delivery address, to coupons and more."
    KC's View:
    My first reaction to this was (only mild) disbelief.

    But then I thought about it for another two seconds, and realized that why should we expect anything different from a company that also filed for a patent for "collective unmanned aerial vehicles" that would have "smaller drones stick together in various configurations, that would then allow the super-drone to carry virtually any size, weight, or quantity of items, travel longer distances, etc..."

    Within this context, shipping labels that include parachutes must seem like small potatoes.

    Published on: June 1, 2017

    The Washington Post reports that bond and mutual fund giant Pacific Management Investment Co. (Pimco) is out with an annual "secular outlook" study saying that the risk of a recession taking place in the next five years is 70 percent.

    The Pimco report calls the current global situation as "a world of insecure of stability," and projects two percent growth and two percent inflation in the US in the near term.

    The Post writes that "Pimco, known for its fixed-income bond funds, says that when a recession does arrive, governments will be hard-pressed for solutions because of years of low interest rates. Both the Federal Reserve and the European Central Bank have created easy money by reducing interest rates to near- zero percent. The lower borrowing costs have helped drive up asset prices but have also promoted deficit spending by reducing the interest that governments pay on their debt."
    KC's View:
    We all know that the economy is cyclical, and that there's always another recession coming. Pimco can be a lot more specific and informed in its projections, but I could make the same prediction - knowing absolutely nothing about economics - and probably stand about as much a chance of being accurate.

    The reason I think the prediction is important, though, is because it is something that every company needs to think about as they make plans for new stores, new services, and new innovations. For example, Starbucks is putting a lot of time and money into new, even more upscale coffees ... but I would question the degree to which these could end up being a problem if the economy tanks.

    Published on: June 1, 2017

    There are a couple of stories this morning reporting on how a couple of local, independent retailers in the Boston area have found themselves in conflict with much larger corporate interests.

    The Associated Press reports on how a North Attleborough, Massachusetts, coffee shop owner, Steve Copoulos, says he has received a cease-and-desist letter from Dunkin' Donuts telling him that he violated its trademark when he put a sign in his window saying, “North now runs on Mike’s."

    Copoulos says that when he reopened his father's coffee shop recently, his goal was to be the "exact opposite" of a corporate coffee shop, and only put up the sign to get a few laughs from customers. The lawyer's letter, he says, was unexpected.

    The offending window art subsequently has been washed off, the AP writes.

    At the same time, the Boston Globe reports on the battle between a former 7-Eleven franchisee named Abu Musa, who was forced to give up his South Boston store after an extended dispute with corporate over the hot foods it was forcing him to sere in his store. Musa thought the food was gross, labor intensive and ultimately a waste of his money, but 7-Eleven maintained that his franchisee agreement required him to carry it. The argument eventually went to court, and Musa had to walk away from his store.

    Now, he has opened a new store virtually across the street - and calls it 6-Twelve.

    According to the Globe, Musa is "trying strategies to attract particular corners of the local market. He carries a variety of snack foods from Ireland, things like Tayto chips and frozen bread from Pat the Baker. He also sells MBTA passes and is the only UPS Access Point on the eastern side of the neighborhood, allowing the young professionals who have moved to the area to have packages delivered to the store, avoiding missed drivers and stolen boxes."

    He's also doing his best to undercut 7-Eleven on price (which he says he can do because he has a deep understanding of its pricing strategies), and has pledged to never, ever carry hot food.
    KC's View:
    I love these stories ... because I love it when independent businesses of any kind show a little bit of moxie and panache in competing with larger, better funded entities. They inspire me.

    Published on: June 1, 2017

    Memorial Day 2017 weekend will certainly be one that will remain in memory for anyone who worked or shopped at Radio Shack, since it was over the weekend that the company began the closure of more than 1,000 stores, leaving just 70 company-owned store sand 500-dealer-owned stores open by the end of this week.

    "In its heyday," USA Today writes, "Fort Worth-based RadioShack had 7,300 stores and could claim that it had a store within three miles of 95% of all American households ... The meltdown of what was once one of America's best-known chains represents a strange turn of events considering it was only in March that parent General Wireless Operations filed for bankruptcy protection and proposed closing only about 200 RadioShack stores."

    While in some ways the dealer-owned stores appear the same as corporate stores, the story notes that dealers are able to carry non-Radio Shack-branded merchandise.
    KC's View:
    Turn out the lights. The party's over.

    Which isn't surprising, since it appears that nobody with any connection to Radio Shack ever went into an Apple Store and realized that the world was changing.

    Radio Shack isn't a victim here. It committed suicide.

    Published on: June 1, 2017

    CNBC reports that that "in less than a month, McDonald's has more than doubled the number of its U.S. locations that offer delivery ... delivery is now available at more than 2,000 locations," with the expectation "the partnership with UberEats to expand to more than 3,500 locations by the end of June."

    CEO Steve Easterbrook told an investor conference this week the company has been seeing "encouraging results," and that "60 percent of delivery orders were placed in the evening or late at night, and arrived, on average, within 30 minutes."
    KC's View:

    Published on: June 1, 2017

    Forbes reports that drought "in various key Mediterranean regions of olive-growing Europe" has "been slamming" the olive oil industry for the past 3-5 years, which has resulted in global prices for olive oil being up 25 percent in 2017 even as global output is down 14 percent.

    According to the story, "Projected annual declines vary widely among the major producers, with Italy in the lead - and expected to suffer a record massive cut in the 12 months through September, according to the International Olive Council. The story isn't much better in Greece (down 20%), Tunisia (17%) and massive producer Spain (down 7%)."

    Even as prices have gone up, the story says, "the global market for extra virgin olive oil is ever-thirstier. The first five months of the current crop year - through February 2017 - saw strong increases in demand compared to the prior year: 58% in Australia, 36% in Brazil, 34% in China, 9% in Canada, 8% in Japan and 2% in the United States."
    KC's View:

    Published on: June 1, 2017

    • The San Diego Union Tribune has a piece about how Netflix CEO Reed Hastings responded to questions at the Code technology conference about why his company has not invested in live sports streaming, unlike Amazon, which recently signed a streaming deal with the NFL.

    “They’re trying to be Walmart," Hastings said about Amazon. "We’re trying to be Starbucks.”

    The Union Tribune writes that "the Starbucks-Walmart comparison, though arguably apropos, suggests that Netflix has a bit of a superiority complex when it comes to the quality of its own original shows and movies. Amazon, meanwhile, is the anything-for-everyone brand, as Hastings sees things."

    At the conference, Hastings said, "Amazon’s business strategy is super broad: Meet all needs. The stuff that will be in Prime in five to 10 years will be amazing, right? We can’t try to be them. We’re never going to be as good as them at what they’re trying to be ... What we can be is the emotional connection brand, like HBO.”
    KC's View:

    Published on: June 1, 2017

    • The Minneapolis/St. Paul Business Journal reports that "Supervalu Inc. will explore more wholesale-distributor acquisitions in the future as the Eden Prairie-based grocery company continues to shop around its underperforming retail stores to potential buyers."

    CEO Mark Gross says that as Supervalu finalizes its purchase of Unified Grocers, it will seek out new opportunities in the same vein. "Showing people we can do that deal and showing our customer base that that integration goes smoothly should lead to other opportunities," Gross says. "There are other smaller distributers and we would think those people would see that transaction and say they would want to be a part of our larger organization."

    The story also notes that Supervalu's declining sales in its retail division is at least one of the reasons that it wants to put more of an emphasis on wholesale.

    • Albertsons announced yesterday that it has acquired MedCart Specialty Pharmacy - described as an "industry-leading, URAC accredited, pharmaceutical and healthcare provider of customized specialty care services and medication management for patients and physicians addressing complex diseases" - as a way "to strengthen and extend its pharmacy specialty services" business.

    Business Insider reports that Wegmans' first New York City location - a Brooklyn store first announced in 2015 - won't be opening "until much later than expected," probably sometime in mid-2019.

    The store originally was slated to be opened this year, then was pushed back until 2018. However, the company is still waiting for the developer to finish building on the site, after which it will take Wegmans a year to get the 74,000 square foot location ready for customers.

    • Upstate New York-based Tops Friendly Markets said yesterday that it has acquired the Shurfine Grocery Store located at 9049 Erie Road, Angola, NY. This acquisition brings Tops Markets overall store count to 173 in addition to five franchise stores. Terms of the deal were not disclosed.
    KC's View:

    Published on: June 1, 2017

    • BJ's Wholesale Club announced the hiring of two executives charged with focusing on its digital strategy.

    Scott Kessler, formerly EVP/CIO with the Belk department store chain, has been named to the same role at BJ's; he succeeds the retiring Peter Amalfi.

    And, Rafeh Masood, former vice president of customer innovation technology at Dick's Sporting Goods, has been named senior vice president, chief digital officer at BJ's.
    KC's View:

    Published on: June 1, 2017

    ...will return.
    KC's View: