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    Published on: June 26, 2017

    by Kevin Coupe

    Think of it as an after-five culture clash.

    The Wall Street Journal reports that one of the by-products of Walmart's $3.3 billion acquisition of Jet was the dictum from Bentonville that drinking would no longer be allowed in Jet's Hoboken, New Jersey, headquarters.

    Not that they were drinking a lot, or during the workday. But, "Jet employees were accustomed to the perks and quirks of a startup that raised more than $500 million from investors. They had the requisite pool table, cold-brew coffee on tap and conference rooms named after comic-book locations. While those things stayed, an array of liquor in an office kitchen cupboard marked 'Bar' didn’t. Some Jet employees squirreled away a few bottles before an outside company packed up the contraband, says one former employee."

    In fact, Walmart "made a major concession to Jet’s thousands of employees by allowing Jet to pay for an off-site happy hour. " But the problem was that people didn't go to off-site happy hours the same way they went to the in-office versions, where they could just wander in and out and go back to work.

    Then, something surprising happened: "Wal-Mart reversed course. In recent weeks Jet brought back Thursday night happy hour in the office - generally beer, wine and food." In fact, the Journal writes, "The change is permeating the empire. Wal-Mart had wine and beer at a tailgate for its e-commerce team in San Bruno, Calif., when it hosted its annual day at a San Francisco Giants game in May. It is also allowing other startups it has acquired to host a weekly office happy hour - pending approval from a Wal-Mart executive vice president."

    The story notes that this represents an extraordinary shift for Walmart, which is headquartered in an Arkansas county that only allowed the sale of alcohol in 2012, and which "generally doesn’t allow employees to expense alcohol during work outings, let alone drink in the office."

    It seems to me that these are the sorts of adjustments that Walmart is going to have to make if it is going to be taken seriously by the kinds of innovative people and companies that will drive it forward in its competition with Amazon and embracing of 21st century realities. That it did so ... well, that an Eye-Opener.
    KC's View:

    Published on: June 26, 2017

    The Wall Street Journal reports how how "business groups are fighting back against plastic bag bans across the country, setting up collisions between manufacturers, environmentalists and lawmakers." While the first such ban was in San Francisco more than a decade ago, followed by bans in places that include New York and Washington, DC, " "more recently, more states with backing from plastic bag manufacturers and other business groups have pushed back with bills preventing such bans. In May, Minnesota Gov. Mark Dayton, a Democrat, signed a bill to prevent cities from banning plastic, paper or reusable bags. The move killed a plastic bag ban in Minneapolis passed last year. At least five states have similar laws that prevent such bans."

    And, "in Pennsylvania, the Republican-led House and Senate passed a measure with support from Democrats that would prevent bans on plastic bags statewide.
    Officials from at least four major cities in the state, including Philadelphia and Pittsburgh, said they opposed the bill. Gov. Tom Wolf, a Democrat, said he would veto the bill, saying cities should be able to make decisions 'in the best interests of their constituents'."

    The case for the bag bans goes like this: "Environmental groups ... continue to push for ways to reduce plastic bags and other consumer plastics, which have been found in ever greater quantities in the oceans and other water systems. About 8 million metric tons of plastic find their way into the oceans each year, a World Economic Forum report found last year. At the current rate, there will be more plastic than fish, by weight, in the oceans by 2050, the report said. Roughly 25 countries have enacted measures to cut the use of plastic bags."
    KC's View:
    I think that states and municipalities can adopt such bans or not ... though I disagree with the folks who think that states should be able to stop cities and towns from enacting their own. Banning bans seems hypocritical for folks who, I'd guess, would probably champion states' rights in a different debate.

    As for me ... I find the more-plastic-than-fish-in-the-ocean-by-2050 argument to be pretty persuasive ... and certainly more persuasive than the argument for the unbridled use of single-use plastic bags.

    Published on: June 26, 2017

    The New York Times has a terrific story that tracks Sinclair Browne, who is "a driver for the online grocery business Peapod. He plays the most important role in solving the biggest problem vexing the online grocery industry: moving food, undamaged and unspoiled, from the warehouse to the customer’s house. It’s known as the last-mile problem." The story provides some insight to the complications and challenges inherent to the delivery process ... and is really, really interesting. You can read it here.
    KC's View:

    Published on: June 26, 2017

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

    Bloomberg has a story about how a closing of the proposed $13.7 billion acquisition of Whole Foods by Amazon also is likely to "mark the end of one of the most reasonable - perhaps the only reasonable - executive compensation schemes in America."

    The story goes on: "No one will cry for Whole Foods CEO John Mackey, of course. Forbes estimates his net worth at $76 million. The Amazon deal made him $9 million richer practically overnight. That nine-figure payout is one most Americans will never see. But it should also be noted that in America’s executive suites, a nine-figure payout — especially when a megadeal like Amazon-Whole Foods is involved — is just as rare. They are usually much, much higher." Especially when one compares his payout to that of Yahoo CEO Marissa Mayer, who after five years of almost complete failure in the role "pocketed nearly a quarter of a billion dollars."

    Mackey's "entire payout comes from the fact that Mackey is, like many others, a Whole Foods shareholder. He will receive no merger bonus. No golden parachute will deploy. There are no options to vest. Mackey hasn’t be granted one in more than a decade." In fact, "Mackey’s public stance against excessive executive pay is well-known," and "no executive at the company is allowed to be paid more than 19 times the average worker’s salary."

    On this one, I am completely in synch with Mackey's reasoning, and I think the Mayer payout is nothing short of obscene. That said, they won't be adjusting Amazon's compensation program to match Whole Foods', I expect.

    Fast Company reports that Whole Foods CEO John Mackey apparently is convinced that a takeover by Amazon will not impede his company's approach to "conscious capitalism," which he defines as when a "firm has a purpose beyond profit," and that "gives precedence to its workers, vendors, customers, and community as much as shareholders, thus creating a holistic interdependence."

    Selling to Amazon, the story suggests allows Mackey "to preserve some of these values, instead of being chewed up by Wall Street or being chewed up by a rival."

    But "for all his genius in building a 460+ store network and generating more than $8 billion a year," the magazine writes, "Mackey ultimately failed to square the needs of shareholder capitalism with the needs of conscious capitalism. And the future of Whole Foods, now in the hands of a quite different company, is uncertain."

    It isn't like Jeff Bezos consistently bows to the needs and demands of shareholders. But ... it will be really interesting to see how much of Whole Foods' culture will be intact in just a few years.

    Bloomberg has a story about how the Amazon-Whole Foods deal may affect Target, which "has been losing shoppers despite an expanded food offering that includes more fresh produce, gluten-free and organic products, and grab-and-go items. Now Target will likely face a reenergized Whole Foods that’s backed by a deep-pocketed parent-to-be already challenging the company in apparel and beauty products." Target, the story suggests, "stands to fare even worse once Amazon applies its digital know-how—pricing algorithms, customer-preference data, free shipping—to Whole Foods’ portfolio of antibiotic-free meats, organic kale, and hopped-up craft beers."

    There may be a bigger problem for Target, Bloomberg writes: "Perhaps most worrisome for Target is that its customers are also fans of Whole Foods and Amazon. Almost 1 in 4 of Target’s grocery shoppers also shops at Whole Foods, according to consultant Magid, compared with fewer than 1 in 10 for Wal-Mart and supermarket chain Kroger Co. More than two-thirds of moms aged 27 to 51 who shop at Target also use Amazon Prime, vs. 42 percent of all consumers."

    Target ought to outsource its grocery operations to Amazon/Whole Foods in the same way that it has outsourced its HBC/Rx business to CVS. Might be a real game-changing combination...
    KC's View:

    Published on: June 26, 2017

    The Washington Post reports that "beleaguered" Sears Holdings has announced its intention to close yet another 20 stores, bringing to more than 260 the number of Sears and Kmart stores that it has said it will close this year.

    The story notes that "Sears Holdings said it would close 18 Sears stores ... and two Kmart stores, all of which are owned by Seritage Growth Properties, a real estate investment trust that in some cases has effectively become Sears’s landlord.
    Hedge fund billionaire Eddie Lampert is the chairman of Seritage and Sears, an arrangement that has resulted in at least one shareholder lawsuit."

    And, it goes on: "The relationship between Sears and Seritage has raised concerns among Sears shareholders. Earlier this year, Lampert and Sears’s board of directors paid $40 million to settle a lawsuit alleging that Lampert had tried to siphon off the company’s best real estate by selling it to Seritage. Sears shareholders argued that the 'highly conflicted transaction' would probably “plunge the company into insolvency."
    KC's View:

    Published on: June 26, 2017

    Seeking Alpha reports that more than four out of 10 users of Amazon's Echo/Alexa system - or, to be precise, 42 percent - own multiple versions of the device.

    According to the story, "Owning multiple Echo products makes sense since the line starts at the ultra-affordable Dot and will soon extend up to the Echo Show, which has a security camera-friendly video screen.

    "The variety of devices works for more consumers and pair together better than other companies that have one main type of smart speaker such as Google Home. Edison Research’s report also shows that homeowners use and enjoy smart speakers with 65% saying they wouldn’t want to return to a pre-smart speaker life."
    KC's View:
    I totally get this. We have five in our house, and it does not take long for them to become indispensable. And I can't wait until our Amazon Show arrives...

    Published on: June 26, 2017

    Re/code reports that "Amazon has applied for a patent for tailoring its fulfillment centers for a future where drones are delivering items to people’s doorsteps in urban areas.

    "The e-commerce giant imagines beehive-like towers filled with robots, where drones can dock and be restocked before flying out again for another delivery. In the patent application, Amazon says its current delivery centers are relegated to the outskirts of urban areas, where there’s enough space available to accommodate a large warehouse." And, they're designed to satisfy customers who "are becoming accustomed to speedy, on-demand delivery and services, where packages are delivered within a few hours or the same day, fulfillment centers located far away from densely populated urban areas aren’t always convenient enough."
    KC's View:

    Published on: June 26, 2017

    • In Minnesota, the Star Tribune reports that Walmart has added its stores there to the list of those that are no longer offering in-store price matches.

    According to the story, "The price-match policy was brought back by retailers like Walmart and Target in the recession to give consumers the impression of price sensitivity. Even if consumers don't ask for a price match, they feel a retailer is being fair by offering it.

    "Walmart tried to simplify its price-match policy in 2011 by not requiring consumers to show proof of a competitor's ad. It also added a Savings Catcher app to automatically give the customer the lower price from a competitor."

    However, the story notes, "only about 5 percent of consumers took advantage of matches" where they were offered.
    KC's View:

    Published on: June 26, 2017

    Reuters reports that the Sonic Drive-In–a fast food chain "is the first large chain to test a 'blended burger,' a mushroom-beef burger with less fat and calories than the traditional version, a flavor that some consumers say is better, and a much smaller carbon footprint ... After a 60-day trial in some yet-to-be-announced markets, Sonic will decide whether to make the blended burger a permanent offering at its more than 3,500 locations."

    • Supervalu announced on Friday that "it has completed the previously announced acquisition of Unified Grocers, Inc. in a transaction valued at $390 million, comprised of $114 million in cash to Unified Grocers’ shareholders for 100 percent of the outstanding stock of Unified Grocers plus the assumption and pay-off at closing of Unified Grocers’ net debt of approximately $276 million."
    KC's View:

    Published on: June 26, 2017

    • Albertsons announced two executive appointments to its Marketing & Merchandising team, with Dennis Clark, the company's Group Vice President of Marketing & Merchandising, has been promoted to Senior Vice President of Merchandising, and Pat Brown, Vice President of Merchandising Strategic Initiatives, named Group Vice President of Merchandising, leading Deli & Prepared Foods and Business Initiatives.

    Brown, FYI, is the former CEO of Natural Markets Food Group, and former Chief Operating Officer of New Seasons Market and Director of Retail Operations for H-E-B.

    • Dollar General Corporation announced that Jason Reiser, most recently executive vice president/COO at Vitamin Shoppe, has been hired as executive vice president and chief merchandising officer.
    KC's View:

    Published on: June 26, 2017

    Responding to the story last week suggesting that since Amazon and Whole Foods together will have just a 1.6 percent market share of the US supermarket business, it is unlikely that federal regulators will oppose the sale on antitrust grounds, one MNB reader wrote:

    1.6% aside, do you really see this administration enforcing antitrust actions?

    I think that there are a lot of reasons that Trump may dislike Jeff Bezos, chief among them his ownership of the Washington Post. No reason to think he wouldn't try to punish Bezos for perceived grievances if he could.

    The same story suggested that any antitrust move would cite Amazon's "unstoppable head start" in e-commerce as a reason to oppose the acquisition. Prompting one MNB reader to write:

    An unstoppable head start for Amazon? Last time I checked several of these chains have thousands of stores. Seems to me that's a head start over Amazon!
    These chains have had plenty of time to prepare for Amazon, but have dragged their feet, and now playing the woe-is me-song because they are behind on e-commerce!

    I agree. Completely.

    We had an Eye-Opener on Friday that compared merchandising efforts in an Amazon Books store with a 365 by Whole Foods unit, and concluded that the 365 store came up short. MNB reader Hy Louis responded:

    The picture of La Croix water looked exactly like a display I saw in a supermarket in North Korea.  I wish they would have allowed a picture and I would have liked to compare them side by side.  When you see large displays of water to fill up space, its a sign things are not going well.

    That's my thought. Though I wouldn't have gone with a North Korea comparison...

    On Friday we linked to a George Will column in the Washington Post about the constant disruption that has defined the supermarket business almost from the beginning. "In the accelerated churning of today’s capitalism," Will wrote, "changing tastes and expanding choices destroy some jobs and create others, with net gains in price and quality. But disruption is never restful, and the United States now faces a decision unique in its history: Is it tired — tired of the turmoil of creative destruction? If so, it had better be ready to do without creativity. And ready to stop being what it has always been: restless."

    MNB reader John Rand wrote:

    Thanks for the link. I don’t often agree with Mr. Will’s priorities but I have always respected his ability  to put forward compelling arguments that prompt serious thoughts.

    And all I could think of, reading this, was a phrase that was used to describe the Westward migration 19th Century:

    “The cowards never started, and the weak died along the way” has been variously to settlers traveling on the Oregon Trail and to the “Forty- Niner’s” gold rush to California. But it aptly sums up retail enterprises today, most of the consumer goods suppler community,  and indeed, all of us, as we learn to cope with ever-faster disruption.

    The difference may be that the option many folks chose 150 or more years ago, to play it safe by staying home, is not available. The future is coming for us whether we want it to or not.

    KC's View: