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    Published on: June 5, 2017

    by Kevin Coupe

    One of the things that I love most about my job is that I end up reading so much stuff - newspapers and magazines and websites that have stories about subjects that I'd never thought about before.

    I end up learning stuff, pretty much every day. Which is a pretty good way to make a living.

    For example...

    The Los Angeles Times decided to do a story about why so so many doughnuts shops in the region use essentially the same 9-by-9-by-4-inch cardboard container with four semicircle flaps to fold together - and that always comes in pink.

    It was something about which I'd never spent any time thinking. But the answer is fascinating.


    "The pink box is a distinctly regional tradition, one so ingrained it often requires an outsider to notice. The Northeast has Dunkin’ Donuts and its neon orange and pink box. The South has Krispy Kreme and its polka dot box. But come to Los Angeles and it’s the no-frills pink box, with signature grease marks, that commands counter space in our offices, waiting rooms and police stations ... But unlike New York’s celebrated Grecian coffee cups, the pink box has endured with little fanfare, its origins something of a mystery.

    "One thing is certain, though, the pink box phenomenon could only happen here. Southern California is the undisputed epicenter of the doughnut world — a testament to our love affair with junk food you can handle behind a steering wheel. L.A. County alone has at least 680 doughnut shops, according to Yelp, about 200 more than New York City and double the number in Chicago’s Cook County. Instead of national chains, the Southern California doughnut sector is dominated by mom-and-pop businesses run by immigrants, none more influential than Cambodian Americans."

    And it is the presence of Cambodian Americans in the Southern Californias doughnut business that seems to account for the pink boxes. In addition to the 9-by-9-by-4-inch pink boxes being a perfect fit for a dozen doughnuts, they also "cost a few cents less than the standard white. That’s a big deal for shops that go through hundreds, if not thousands, of boxes a week. It didn’t hurt either that pink was a few shades short of red, a lucky color for the refugees, many of whom are ethnic Chinese. White, on the other hand, is the color of mourning."

    The trend, the story says, has caught on in other places, with boxes being sold "in Arizona and Texas to relatives of local Cambodian doughnut shop owners.

    "And few pink doughnut boxes are more coveted than those found at Voodoo Doughnuts in Portland, Oregon. "The owner took a trip to California 15 years ago, and promptly inspired him not just to use pink boxes but adopt the slogan, “Good things come in pink boxes.”

    And one last piece of arcane information. Next time you are watching a TV show that takes place in New York, and see you see a pink box of doughnuts, you'll know that it was shot in Los Angeles.

    Now that's what I call an Eye-Opener.
    KC's View:

    Published on: June 5, 2017

    The Associated Press reports on the messages being sent by Walmart CEO Doug McMillon at the company's annual shareholder meeting last Friday in Bentonville, Arkansas.


    • "McMillon highlighted ideas Walmart has introduced or tested in the past year, like grocery pickup and technology that tracks food through the global supply chain. The company has also put money into its online operations, buying up several smaller retail sites as it seeks to compete better with Amazon."

    • "McMillon and other executives also noted the company's investments in higher wages and training for its employees. 'We will compete with technology, but win with people,' McMillon told a cheering audience."

    • However, while saying that "workers shouldn't fear increasing automation in the industry," McMillon also said that "the company may have reached an employment peak, with 1.6 million workers. 'We may end up over time with fewer people, paying them more and have them use more technology,' he said. But when or if that would happen is 'to be determined'."

    • "McMillon cited the company's efforts to offer more shopping options, including automated pickup stations in some store parking lots, in-store pickup for online orders, and 'Jet Fresh' delivery, which provides grocery delivery in 1-2 days and is available to about half of U.S. households. That service is a result of the company's acquisition last year of online retailer 'The historic trade-off between price and service doesn't really exist anymore,' McMillon said."
    KC's View:
    I think McMillon has to be given credit for being a CEO willing to say out loud what analysts and statisticians have been telling us - that millions of retail jobs are going to be lost to automation.

    "The good news is that a bunch of Walmart employees are going to made more money. The bad news is that the rest of you are going to lose your jobs...
    In a recent story in The Atlantic, they put it this way: "Department stores, including Macy’s and JC Penney, have shed nearly 100,000 jobs since October—more than the total number of coal miners or steel workers currently employed in the U.S."

    As enthusiastic as I am about e-commerce and the digital revolution, I am not ignoring the potential major problems it creates in terms of the American labor force. I just think that we can't ban e-commerce (at least, I don't think we can). I just firmly believe that government and industry have to come together to develop a nuanced, progressive, forward-thinking public policy approach to these issues.

    Published on: June 5, 2017

    The Wall Street Journal reports that this morning will see opening arguments in the long-running "pink slime" case, in which Beef Products Inc. is claiming that it was defamed by ABC News and one of its correspondents, Jim Avila, when the network's nightly news program reported on the use of "lean finely textured beef" that was sprayed with ammonia as filler in ground beef.

    ABC News ran several stories about the subject, though Beef Products will have to prove that it was intentionally malicious in its coverage and use of the word "slime," which it says is the most offensive word that could've been used to describe its products.

    While the US Department of Agriculture (USDA) has approved the use of "lean finely textured beef," one of its staff microbiologists actually is the person who coined the allegedly negative term, "pink slime."

    Beef Products, the Journal writes, "says the product ... is merely the result of discovering how to extract more lean beef from cows ... LFTB is made from beef trimmings put through centrifuges to remove fat. Some LFTB is treated with tiny amounts of ammonia gas to kill pathogens." The characterization otherwise hit its sales and profits hard, the company says.

    ABC News argues that it never said that LFTB was unsafe to eat, and that "slime may be an unflattering word choice, but it is the kind of ‘imaginative expression’ and ‘rhetorical hyperbole’ that is constitutionally protected.”

    ABC News could be on the hook for more than $6 billion if it loses the case.
    KC's View:
    I'm not crazy about the use of "imaginative expression" and "rhetorical hyperbole" in what is supposed to be a news story; in fact, this argument makes me less sympathetic to ABC News than I've been up to this point. (I engage in both, but I try to keep it to the sections that are labeled as my commentary ... it seems to me that this is both the fair and responsible thing to do.)

    This is not a great time to be defending oneself in a libel case, since something like 38 percent of the country is convinced that anything they read with which they disagree is so-called "fake news."

    To me, the primary defense ought to be that the company was not being transparent about what was in its ground beef, and that it falls within the purview of a journalistic organization to report on such a lack of transparency. That strikes me as entirely fair ... and if they asked me to testify to that as someone who has been writing about the food business for more than 30 years, that's what I would say. But they're not asking me ... which is probably a good thing because, as I said above, if they think that "imaginative expression" and "rhetorical hyperbole" are suitable in a new story, I'd have to say no.

    Published on: June 5, 2017

    In the interest of fairness, especially to assuage those who think that I'm way too enthusiastic about e-commerce in general and Amazon specifically, I want to recommend an op-ed piece in the Los Angeles Times that I found to be provocative.

    It is by novelist Amy Koss, who, essentially, posits that Amazon is the devil.

    An excerpt:

    "In the past, the devil offered endless love or glamorous fame to tempt the weak. But in a world of dating sites and apps, love is only a swipe away and YouTube fame requires no more than a goofy pet. So what would Satan offer Americans today to win our souls.

    "How about easy consumption?

    "It’s not ambition he needs to appeal to, but our acquisitiveness and sloth."

    You can read the entire piece here.
    KC's View:
    In reading Koss's op-ed piece, I was reminded about a scene from Broadcast News, in which reporter Aaron Altman (played by the incomparable Albert Brooks) is describing to producer Jane Craig (Holly Hunter) why he thinks q reporter with whom she is involved, Tom Grunnick (William Hurt), is the devil.

    "I know you care about him. I've never seen you like this about anyone, so please don't get me wrong when I tell you that Tom, while being a very nice guy, is the Devil." The devil, he says, won't be a guy with a long, red, pointy tail:

    "He will be attractive! He'll be nice and helpful. He'll get a job where he influences a great God-fearing nation. He'll never do an evil thing! He'll never deliberately hurt a living thing... he will just bit by little bit lower our standards where they are important. Just a tiny little bit. Just coax along flash over substance. Just a tiny little bit. And he'll talk about all of us really being salesmen. And he'll get all the great women."

    Just remembering that scene makes me smile.

    I must say that I fundamentally disagree with Koss's assessment, though I completely understand where she is coming from.

    I've never believed that the Amazon appeal is to sloth. Rather, I'd like to think that it gives us a chance to have time for things that are more important. I don't think that shopping for food or clothes or books has any sort of inherently greater value than, say, playing with your kids or going for a jog or watching a movie or reading a book or cooking a meal.

    But that's just me. (Well, and a few other folks, I suspect.) We all make our own value judgements.

    On the other hand, maybe I'm just like Joe Boyd.

    Published on: June 5, 2017

    Bloomberg has a story saying that at least for the time being, the fast-casual restaurant business seems to have hit a plateau, gone into the doldrums, has become over-saturated and is facing an uncertain future.

    According to the story, "The category's once-enviable growth looks like it's hit a plateau. This year, U.S. fast-casual sales growth will slow to between 6 percent and 7 percent from about 8 percent in 2016, according to industry consultant Pentallect. In each of the prior five years, sales had grown between 10 percent and 11 percent."

    Examples of companies experiencing turmoil: "Noodles & Co. and Pie Five, which sells personalized pizzas, are closing locations. Red Robin Gourmet Burgers abandoned its fast-casual Burger Works venture, shuttering outlets and re-branding others. Mexican-food seller Qdoba is delaying new openings amid falling sales. Sandwich maker Potbelly said it expects negative sales for the year as its largest-volume restaurant closes. And Zoe's Kitchen has posted slower growth lately."

    The problem: "Americans are increasingly looking for the convenience of delivered food, as well as cheaper prices, especially after a bout of deflation made buying groceries less expensive. Fast-casual meals usually carry a minimum $10 price tag, and the companies have largely lagged in delivery and mobile ordering. Big pizza chains have offered mobile-ordering technology for years."

    The story does concede that "not all fast casual has fallen on hard times. Those that have embraced technology, convenience and healthier meals are still doing well." Panera, Bloomberg writes, is one example of this. But ..."better-quality fast food for less money, companies that push cook-it-yourself meal kits and the homelike comfort of mom-and-pop restaurants are taking a bite out of sales."
    KC's View:
    This simply points to some inescapable facts - that the food business is cyclical, consumers changeable, and there is no such thing as an unassailable business model. And one other thing - that 'compete' is a verb.

    Published on: June 5, 2017

    Nielsen is out with a study saying that while Q1 retail sales in the US were down close to $3 billion "due to a shift in Easter timing and changing consumer preferences, growth is not completely elusive. In fact, some food and beverage manufacturers are finding pockets of growth, most notably small manufacturers."

    The report says that "looking back five years ago, the largest food and beverage manufacturers accounted for one-third of dollar sales. Today, they account for 31%, while smaller manufacturers (those with at least $100,000 in annual sales) have gained two percentage points of market share, equal to about $2 billion. Today, the smallest manufacturers, nearly 16,000 companies, account for 19% of dollar sales and are driving more than half of the growth (53%).

    The reason? Nielsen's analysis "showed that smaller companies are putting a great emphasis on health and wellness to meet consumer demand for transparency, while also selling products at premium price points. As a result, retailers are making room for them on shelves."

    And, most importantly, customers are responding.

    "As consumers continue to demand products with clean labels, they’re willing to pay the price, regardless of promotions," Nielsen writes. "As smaller manufacturers capitalize on this trend, retailers have opened up shelf space to cater to their offerings—and meet consumer demand."
    KC's View:
    But ... this also means that large, middle and private-label players have an opportunity for growth - if they are willing and nimble enough to embrace the trends that are driving growth for smaller companies.

    Published on: June 5, 2017

    Reuters reports that discount retailer Dollar Express has "filed a lawsuit accusing rival Family Dollar and its parent company Dollar Tree Inc of driving it out of business ... Dollar Express was formed in 2015 when private equity group Sycamore Partners II LP bought some 330 stores in 35 states from Family Dollar and Dollar Tree. Family Dollar had to sell the stores in order to win antitrust approval to merge with Dollar Tree.

    "In the lawsuit filed Thursday, Dollar Express accuses Dollar Tree of using confidential information to open new shops near the divested stores to drive them out of business," as well as putting unqualified managers who were unable to compete into the divested stores.

    The situation is compared in the story to what happened when government regulators forced Albertsons to sell 168 stores to Haggen in order to complete its acquisition of Safeway; Haggen was unable to handle the stores and filed for bankruptcy within months; Albertsons was then able to buy back stores that it wanted to keep.
    KC's View:
    At some point, companies like Haggen and Dollar Express have to take some responsibility for biting off a lot more than they could chew.

    That said, I continue to believe that federal regulators need to rethink their definitions when it comes to things like competition and antitrust. The world has changed, there are a lot of new players and circumstances to take into consideration, and our regulations ought to reflect that.

    Published on: June 5, 2017

    Advertising Age has a story about how Walmart, which "has stepped up investments in its own private labels the past two years," now also is "getting branded suppliers to launch – more accurately relaunch – products. That's turned the world's biggest retailer into a nostalgia broker lately."

    For example, "Walmart's cereal buyer discovered a trend around indulgent cereals, especially as late-night snacks, as well as enduring social-media nostalgia Oreo O's, first launched in 1998 but discontinued in 2005 ... So the buyer went to Mondelez, owner of Oreos, and cereal maker Post, and told them: 'You need to bring this back. But this time we need you to do it better than ever,' Crozier said. The buyer 'worked with the suppliers very closely on reformulating it and making the product even better.'

    "The result was relaunch of Oreo O's this week, starting for 90 days exclusively at Walmart ..."

    The story goes on: "The nostalgia appeal plays out in some of Walmart's recent advertising playing off old rock anthems, too. But Walmart's stepped-up product development effort isn't all about nostalgia or other people's brands. Executives from Chief Merchandising Officer Steve Bratspies on down went to great lengths to highlight increased emphasis on quality as well as price ... This includes 'democratizing' organic foods through lower prices, such as with new organic applesauce pouches."
    KC's View:
    This story reminded me of a piece I did years ago, after Target announced that it had an exclusive deal to sell a special Oreo cookie for Halloween, with a vanilla biscuit and a candy corn-flavored filling. When I looked for them at my local Target, I found that they were buried amid all the other various kinds of Oreos, with absolutely nothing done to distinguish them just weeks before Halloween, or to point out that this was a Target exclusive, or anything else. It was, I suppose, a harbinger of a lot of the issues that have plagued Target recently.

    I'm guessing Walmart won't make the same mistake. (I'm talking to you, Mr. McMillon.) Which is one of the reasons that Walmart seems to be doing a better job adapting to new realities than Target.

    Published on: June 5, 2017

    • The Seattle Times reports that after a day or two of flirting with the big number, Amazon's shares closed above $1,000 per share - at $1,006.73, to be precise - at the end of trading on Friday. It was, the story says, "a sign of Wall Street’s optimism about the competitive strength of the world’s largest e-commerce and cloud computing giant."

    Bloomberg reports that Amazon, having "lost billions overseas trying to replicate its U.S. success, is now attempting to crack one of the biggest and most sparsely populated nations where bricks-and-mortar retailers are king."


    According to the story, Amazon "says it’s 'actively looking' for a warehouse as it prepares to start operations in Australia. Anticipating a price war, analysts have almost halved profit forecasts for local electronics chains such as Harvey Norman Holdings Ltd. and JB Hi-Fi Ltd."

    But Australia could be down under in more ways that one for Amazon, the story suggests, noting that Australia is "a nation almost as large as the U.S. but home to just 24 million people. Major population pockets can be 4,000 kilometers (2,500 miles) apart, driving up the cost of fast deliveries. Wages are higher than in most major developed nations. And the quantity of red tape means it’s easier to do business in Macedonia, according to rankings by the World Bank."

    Amazon has not put a date on when it plans to begin engaging in e-commerce in Australia.
    KC's View:

    Published on: June 5, 2017

    ...with brief, occasional, italicized and sometimes gratuitous commentary…

    Own Brands Now reports that Kroger is reducing prices on some 2,000 private label items, plus "hundreds of key national brand items in nearly every department," calling it the "largest one-year price investment in the company’s history," in its Columbus, Ohio division.

    • The Grand Rapids Press reports that when Meijer opens a new 30,000 square foot urban format there later this year, it won't carry the company's iconic name. Rather, it "will go by the moniker of Bridge Street Market," described as a "nod to its neighborhood location and unique market format."

    The format "appears to be a one-off" for Meijer, the story says.

    In my experience, everything is a one-off, until it works.

    The Street reports that "the U.S. Court of Appeals for the Second Circuit in Manhattan revived a lawsuit against Whole Foods Market for overcharging customers at its New York City stores by misrepresenting the weight of pre-packaged foods. The court ruled that plaintiff Sean John's lawsuit was improperly dismissed when a lower court ruled that he had no case because he could not prove that he had been overcharged for a specific purchase.

    "The court said that even though John would have trouble meeting the evidentiary thresholds, his lawsuit was still valid."

    • The Los Angeles Times has a story about how it is not a coincidence that more purple foods are showing up in supermarkets. Whole Foods, the story says, is making a big deal about how purple is "indicative of a high level of antioxidants, as one of the key nutrition trends of 2017."

    Which means that beets suddenly are all the rage - not because of the color, but because it is a superfood "great for cardiovascular health and lowering cholesterol."

    Purple, the story says, now also can be found as the color of potato chips, frosted flakes cereal, carrots, and even black rice tortillas.

    I'll accept the nutritionists' word on this. And they'll have to take my word for the fact, because of all the times my mom served us canned beets when I was a kid, I get super sick to my stomach when I see them.

    • The Puget Sound Business Journal reports that "Costco co-branded Citi Visa credit cardholders will spend more than $100 billion in the co-branded card's first year, and over 70 percent of that will be in places beyond Costco warehouses."

    According to the story, "About 1.5 million new co-branded credit card accounts, or about 2 million actual credit cards, have been approved since the launch, up from the 1 million accounts reported for its first quarter (ended Nov. 20) ... The Citigroup Visa cards ended a decades-long relationship Costco had with American Express, which has struggled since the loss."
    KC's View:

    Published on: June 5, 2017

    On Friday, MNB reported that Walmart is testing a program in which it asks store employees to deliver online orders to customers' homes or offices on their way home from work, an effort to establish a "last mile" advantage over primary online rival Amazon. The notion of a "last mile" advantage is notable considering that nine out of 10 Americans live within 10 miles of a Walmart.

    The tests are taking place in New Jersey and Arkansas, with workers able to make extra money by using their own cars.

    I commented: Brilliant.

    Now, I do think that Walmart has to be a little careful about which employees it uses in this initiative - you want to have people who are upbeat and friendly and positive ambassadors for the brand. (I know a little something about this. When I worked my way through high school in a clothing store, I used to drop stuff off to customers all the time. It wasn't a formal service, just something we did because we believed in doing everything we could to make the shopper's life easy. And I always knew that I was a representative of the company when I knocked on the front door ... I had to be every bit as personable there as when on the sales floor.)

    Ultimately, this demonstrates something that every retailer has to do - figure out what your built-in advantages are, and then find new ways to leverage them. This is something that Walmart has that Amazon doesn't ... and so it changes the game a bit.

    The next move is Amazon's.

    One MNB reader responded:

    Walmart’s idea to use employees as delivery agents could be fraught with peril.

    Are they still on the clock when they deliver? Who’s auto, liability, or personal injury insurance pays if there is a car accident?

    People driving cars in unfamiliar neighborhoods while searching for an unknown location are probably more likely to get into accidents. Most store insurance coverage ends when an employee leaves the company parking lot.

    You are concerned that delivery employee selection needs to use the best company ambassadors; what happens if the delivery people behave nefariously or do something criminal along the way or at the delivery residence?

    As a store director, I once made deliveries, on my way home, to a customer who was recuperating from a hospitalization.  A call to corporate headquarters praising me, and my company, for providing such wonderful assistance, was forwarded to the CEO.  He promptly gave me a congratulatory call for my good citizenship.

    Then, he proceeded to warn me never to ask any of my employees to do deliveries of any kind.  He made it very clear that I was only to do that sort of thing on my own time; because of potential insurance and liability issues.  He suggested that it would probably be best for me to cease and desist such activities in the future.  If I were Walmart, I’d be a bit nervous about sending their employees, some of whom just got a raise to $9 per hour, out on the streets for deliveries…

    From another reader:

    One other issue here is, because these are employees, not independent contractors like Uber, there is liability for Wal-Mart to consider- car accidents while performing this work, etc., so it's not totally without some cost.  However, I would bet it becomes popular with employees,  getting extra pay while driving home!

    And another:

    I don't shop at Wal-Mart much, but I give them credit for what they do in a lot of ways. The fact that they are using employees to deliver is not new but they are testing it to scale it to a new level with technology. Good store Leaders always take care of customers. If we were out of stock of an item, we would tell the customer give us your address and we will bring it to you. Now, many retailers agonize over: What is our liability? Do We have to bond the employee? Is this overtime? Can we pay the employee as a contractor for the delivery after a shift? How much will it cost to issue a 1099 if we can make the employee a contractor? How much liability insurance should we require an employee to carry on their auto insurance? There are at least 20 other questions that arise. I know as I was on executive committees that discussed all those items and have seen many c-suite executives get so mired in the details that it stalled or stifled or killed innovation. Yet, the good store leaders just did it.

    Last week's "FaceTime" commentary was about budget proposal sent to Congress by the Trump administration that 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 suggested 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. It still has a lot of work to do, like making sure that surly workers get an attitude adjustment. But I'd hate to see them move backwards. I wrote:

    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.

    One MNB reader responded:

    Though I’m no fan of the surly postal workers, I must say that the post office in general gets a bad rap.
    I find it funny when people complain about the cost of a stamp increasing a few pennies.
    To think that you can have somebody come to your house 6 days a week to pick up a letter that they will then deliver to any address in the United States for only $0.49….wow.
    Maybe that sweet deal is why they are so financially challenged (and surly!)

    And from MNB reader John Ruocco:

    Maybe the key statement in the post is 6 days cut to 5. Just maybe the change Is for first class mail not package delivery. Did you read the proposal?

    Like you, guessing by looking at their trucks. Most packages don't come with the regular mail, so easy to cut a day of mail and still have 7 days of packages. I like you know the President does not do the budget, but does set the theme and suggests the direction, but nice way to back into a political message.


    And finally, last week we took note of a Chicago Tribune report about how Sears Holdings said that some of its Kmart stores "were targeted by hackers, leading to unauthorized activity on some of its customers’ credit cards" after "Kmart’s store payment systems were ... infected with virus-like computer code undetectable by current anti-virus systems."

    I wrote:

    The good news is that it seems probable that very few actual shoppers were affected, since Kmart doesn't have very many customers.

    You'd think that Sears/Kmart would've known immediately that something was wrong, since it would've seen activity in its store payment systems.

    Prompting one MNB reader to write:

    You're kind of a twisted guy, aren't you...

    I guess that's why we keep reading. (I thought exactly the same thing...)

    In the words of Claus von Bülow, as portrayed by Jeremy Irons in Reversal of Fortune: "You have no idea..."
    KC's View: