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    Published on: July 28, 2017

    by Kevin Coupe

    There is plenty of time to talk about Amazon's growth. (We'll get to its second quarter numbers - high on sales, low on profit - in our next story.)

    Just now, I'd like to refer you to a New York Times story about a different kind of growth challenge facing the company.

    In this case, Amazon is looking to hire a linguist with an Australian background, in a job that the Times suggests is "likely to involve research for Amazon’s voice recognition device, the Amazon Echo, which helps users check the weather, stream music and plan to-do lists through a personal assistant named Alexa."

    The reason that Amazon is seeking such a linguist is that "the inability of some software to recognize accents is a well-documented frustration among people who speak English with a non-American accent," the Times writes, adding, "The effort by the Seattle-based Amazon to hire more linguists with backgrounds outside American English may point to an acknowledgment that such systems must adapt to all types of voices if they are to appeal to multiple markets."

    It is the kind of 21st century problem that faces Amazon and any other company that wants to be relevant to people beyond US borders, and wants to be successful in a global economy.

    I also want to point you to a YouTube video mentioned by the Times, and available above, from the BBC, which involves two Scotsmen in a voice-activated elevator. It has received more than a million views ... and it is an Eye-Opener that will seem resonant to many people.

    Enjoy. & Happy Friday.

    KC's View:

    Published on: July 28, 2017

    Amazon yesterday reported a 25 percent increase in retail sales during its second quarter, to $38 billion, even as it also reported a 77 percent decline in Q2 income - a disparity that appeared to illustrate that even as it remains enormously attractive and accessible to consumers, it is willing to spend significant amounts of money in order to maintain a competitive advantage and grow its ecosystem.

    Reuters reports that "investing in faster shipping and video has become a refrain of sorts for the company. While some expected Amazon's spending in these areas - stepped up since last year - to ease, the company is plowing ahead to reinforce its fast-shipping club Prime."

    Indeed, "Subscription sales including Prime fees rose 51 percent in the second quarter to $2.2 billion," Reuters writes. There are estimates, the story says, "that more than 50 percent of U.S. households will have Prime membership by the end of 2017."

    Net income was $197 million in the second quarter, compared with net income of $857 million.

    Founder/CEO Jeff Bezos characterized the company's investment approach this way:

    "Our teams remain heads-down and focused on customers. In the last few months, we launched Echo Show (our newest Echo device with a video screen), introduced calling and messaging via Alexa on all Echo devices, debuted Inside Edge on Prime Video (the first of 18 Indian Original Series), introduced Amazon Channels in both the U.K. and Germany, launched four new Fire tablets, expanded Amazon Fresh to Germany, launched Prime Now in Singapore, launched our 25th airplane with Prime Air, hired more than 30,000 new employees, opened three new Amazon Books stores, launched more than 400 significant AWS features and services, migrated more than 7,000 databases using AWS Database Migration Service, and held our third annual Prime Day -- signing up more Prime members than ever before. It's energizing to invent on behalf of customers, and we continue to see many high-quality opportunities to invest."
    KC's View:
    Make no mistake, there is a coterie of investors and analysts that thinks that it is crazy that as Amazon continues to grow it is not able to realize some efficiencies of scale that allow it to reduce costs, or at least reduce the growth rate of costs.

    To be clear, Amazon is nothing if not consistent. Bezos always has said that if you want short-term returns, invest your money someplace else ... because Amazon intends to continue investing its money in all the things it believe sit needs to do in order to maintain a competitive e-advantage. In my view, that's never been as true as it is now ... Walmart/Jet would just love it if Amazon eased up on the gas a bit. But that's not gonna happen.

    It was funny to see a Variety story yesterday about how "Amazon is moving into self-distributing its own movies, putting it on the path to becoming a full-fledged film studio." It is, the story said, both the producing studio and distributor behind Wonder Wheel, the new Woody Allen movie coming out in December; while it has bought and produced movies in the past, such as Manchester by the Sea, in the past it always has used outside distributing companies to get the movies into theaters.

    I'm not entirely sure why Amazon needs to get into this end of the movie business, except that it probably wants to control as much of the process and the customer experience as it can. That costs money. Not a ton, in this case, but money. But that's what companies do if they have ambitions like Amazon's.

    Published on: July 28, 2017

    Earlier this week, Walmart made 10 recommendations for how the US manufacturing sector might revitalize itself and "help recapture $300 billion of the $650 billion worth of consumer goods that are currently imported."

    Not among the recommendations: Look for merchandise outside the US.

    Which is interesting, since Reuters reports that Walmart's online business "is recruiting vendors in China and other countries to boost its online offerings in a pivot away from Wal-Mart's Made-in-America campaign ... According to two sources with knowledge of the matter, Wal-Mart Stores Inc in February began inviting sellers from China, the United Kingdom and Canada to list on the marketplace section of, where it earns a share of revenue from goods sold and delivered to customers by third-party vendors."

    Walmart's move was born out of practicality - not every item is sells is available in a made-in-the-USA version.

    Wal-Mart Vice-President of Partner Services Michael Trembley says that "Wal-Mart's move is focused on meeting customer demand for different types of products and increasing online assortment. Wal-Mart's marketplace inventory has quintupled this year to 50 million items," which "pales in comparison to Amazon's nearly 300 million products online."
    KC's View:
    Maybe using the word "hypocrisy" in the headline was a little strong, but I don't think that it is unfair to point out that maybe the Bentonville Behemoth is sending out mixed messages.

    It is all well and good to make public policy recommendations. But I think that Walmart is more credible on this issue when it pledges to buy more made-in-the-USA goods, helps US companies grow their capacity, and invests in plans that clearly identify these made-in-the-US goods and market them aggressively.

    I'm just a little surprised that nobody in Bentonville noticed that these two approaches appear to be at odds with each other, and suggested that a more cohesive strategy makes sense.

    Published on: July 28, 2017

    CNBC reports that on its "Closing Bell" program this week, Amazon CFO Brian Olsavsky "implied that the acquisition" of Whole Foods "is part of a broader experiment to test out different store formats that most appeal to its customers."

    Olsavsky said, "We believe there won't be one solution, so we're experimenting with a number of different formats: physical pick up points and Amazon Go to online ordering and delivery to your door through Prime Now and Amazon Fresh. We'll see how customers respond ... We think [Whole Foods] are very customer-centric just like us, they've built a great business focused around quality and customers, so we're really glad to join up with them."

    One investor, Michael Yoshikami, founder of Destination Wealth Management, proclaimed on the program that pretty much all the potential benefits of the deal had to be long-term.

    "What are they going to do with Whole Foods? People are mystified," he said, adding, "It's all about the vision and the future. Jeff Bezos is not looking next year. He's looking 20 years down the road and always has."
    KC's View:
    I think there will be some surprises, ands it remains to seen how extensively Amazon will bring changes to Whole Foods, and how quickly. But "mystified?" Really?

    Published on: July 28, 2017

    Starbucks said yesterday that it plans to shut down all 379 of its Teavana stores during the coming year.

    The Los Angeles Times reports that the move is aimed at improving the company's financial performance: "Starbucks acquired the mall-based chain in late 2012, and said this past April that it was reviewing options for it. Starbucks Chief Executive Kevin Johnson noted declining foot traffic at malls."

    The company's financial performance was, in fact, front and center yesterday as it reported Q3 revenue of $5.66 billion, up 8.1% from a year ago, with US same-store sales up five percent for the quarter. Global same-store sales were up four percent.

    Starbucks also marked the day with an announcement that it will buy out the 50 percent of its East China business that it does not own, for $1.3 billion — the single largest acquisition in company history - while selling its 50 percent stake in its Taiwan operation.
    KC's View:
    So I guess we can add Teavana to a list of unsuccessful Starbucks acquisitions that includes Hear Music and La Boulange. Y'think this says something about its ability to successfully acquire properties and manage/grow them?

    BTW....the "declining traffic at malls" argument is intriguing. I wonder how many Starbucks stores are in malls. (Though, to be fair, in most malls you can count on two stores to be busy - Starbucks and the Apple Store. I've never noticed Teavana being particularly busy, though never as desolate as the Microsoft Store.)

    It also is interesting to me that it is working so hard to reduce costs ... especially since there are economists who believe that we'll experience a recession sometime in the next 3-4 years; recessions tend not to be kind to Starbucks.

    Published on: July 28, 2017

    ZeroHedge reports that while "spending on food at home and food away from home have been converging over the past 60 years, with traditional home-cooked family meals on the decline," we have, in fact, reached a significant point - " according to the USDA, for the first time ever, the amount spent eating out has surpassed what US consumers spend on food at home."

    There are a couple of other pieces of information that, ZeroHedge says, are important within this context:

    • "Consumers are eating alone more often and more 'on demand.' 47% of US meals are consumed alone and 43% of US consumers say they enjoy eating alone. Given how busy households and consumers have become, it is becoming more common to combine eating with catching up on news/social media, or to consume on the go."

    • "Consumers are willing to pay a premium for increasing levels of convenience and on demand. Globally, on average, they are willing to pay 14% more for online grocery delivery, 25% more for meal kits, 30% more for prepared meals and 55% more for restaurant take-outs."
    KC's View:
    It seems to be generally accepted that young people are getting married later, having kids later, buying houses later, and buying cars later (if at all). We need to add to that list the probability that moving to what we think of as traditional shopping and eating patterns also is going to happen much later, if at all. Retailers that have depended on traditional patterns are going to have to think long and hard about this.

    Published on: July 28, 2017

    Bloomberg reports that Walmart "is trimming the workforce at its headquarters again, part of the retailer’s campaign to reduce expenses," with the move expected to affect just a few dozen employees.

    The story notes that "Wal-Mart has been looking to slim down its operations as it boosts wages for employees and ramps up e-commerce spending to compete with Inc. Hundreds of positions were eliminated earlier this year."
    KC's View:

    Published on: July 28, 2017

    • Whole Foods - currently hoping to be acquired by Amazon for $13.7 billion - yesterday said that its Q3 same-store sales were down 1.9 percent, on quarterly net income of $106 million, down from $120 million during the same period a year ago. Total sales for the period were $3.7 billion, up $22 million from a year earlier.

    Reuters reports that German discounter Aldi North is saying that it plans to spend the equivalent of $6 billion (US) "to revamp its stores in Germany and around Europe ... Aldi North's sister chain Aldi South announced plans in June to invest $3.4 billion to expand its U.S. store base to 2,500 by 2022."
    KC's View:

    Published on: July 28, 2017

    • The Food Marketing Institute (FMI) and the National Grocers Association (NGA) yesterday applauded the US House Energy & Commerce Committee’s approval of the Common Sense Nutrition Disclosure Act (H.R. 2017), which they said would create "needed flexibility into FDA’s final menu labeling rule, which was expanded to regulate grocery stores without making accommodations for the variety of formats, food offerings or other local initiatives in a grocery store setting."

    A companion bill has been introduced in the US Senate.

    The FDA regulations are currently set to go into effect on May 7, 2018.

    • The Washington Post reports that Rep. Paul Ryan (R-Wisconsin), the Speaker of the House of Representatives, has agreed to "jettison" any demand for a border adjustment tax that he wanted to include with any tax overhaul plan considered by the Congress later this year.

    Ryan, part of a group of Republican lawmakers that pushed for a tax on items imported into the US, reportedly has conceded that "there are many unknowns associated with it," and agreed to move forward of tax reform without it.

    The Post writes that "Ryan had defended the proposed border tax for more than a year, but he acknowledged it had divided his party. He has long said his top priority was passing an overhaul of the tax code, and discarding the import tax is expected to make it easier for GOP leaders and the White House to move closer towards a deal ... Several business groups cheered the joint statement Thursday, saying it shows unity between the White House and GOP leaders going forward."
    KC's View:

    Published on: July 28, 2017

    The Associated Press reports that as of now, there remains only one iPod being sold by Apple - the internet-connected iPod Touch - as Apple has discontinued sale of the iPod Nano and the iPod Shuffle.

    The story notes that the move reflects "the waning popularity of the devices in an era when most people store or stream their tunes on smartphones." Neither of the two iPods being discontinued offered internet connectivity, nor had they been updated in years.

    The AP writes that "in a show of its commitment to the iPod Touch, Apple doubled the storage capacity of its top-of-line model to 128 gigabytes. That version costs $300. An iPod Touch with 32 gigabytes of storage sells for $200.
    KC's View:
    There's an important lesson here. The iPod was in many ways a foundational product for Apple, and yet now for the most part the line is dead ... because it was important for Apple to move on. There are a lot of companies that would not or could not do that, because they think that core products and even core values often just are things with a lot of dust on them. There's a big difference, and understanding that means being able to differentiate between what is relevant and what is not.

    Published on: July 28, 2017

    Starbucks recently named its longtime counsel to be chief partner officer, and I commented that if I were an employee I would not necessarily be thrilled to learn that the company's lawyer now is my main liaison to management.

    MNB reader Melissa Setser responded:

    Come on, let’s not lump ALL attorneys into one bucket…maybe the appointment is a little odd, but…there are many attorneys out there (present company included!) who are compassionate leaders who’d advocate very strongly that a company treat its employees with kindness, giving broad guardrails and opportunities for success and growth within the company.

    Fair enough. I gave in to my anti-attorney reflex. The good news is that reflex kicks in far less often than my anti-banker reflex.

    We had a story the other day about how President Trump continues to conflate the Jeff Bezos-owned Washington Post with the Bezos-founded Amazon, criticizing the latter for not collecting/paying taxes while being angry at the Post for what he perceives as unfair critical coverage. MNB reader Brian Blank responded:

    The Orange Menace tweeting about ANYBODY’S taxes just raises my blood pressure!  But then I’m reminded of that it seems that anytime he casts aspersions or throws accusations at others - he’s talking about himself (“crooked Hillary”, “lock her up”, “Mexicans are rapists” to name just a few examples).

    Our recent story about Albertsons prompted some email suggesting that what the retailer really needs to do is adjust its approach to slotting allowances. One MNB reader chimed in:

    I mentioned to a wholesaler client that we weren’t required to pay slotting to any of our customers but them. They replied, “We believe slotting keeps companies from bringing us items that don’t fit.”

    This triggered two thoughts, which I kept to myself. (It was actually three thoughts, but the first one was brief and foul and not terribly instructive.) One, slotting is a profit center for you pure and simple and it takes money away from consumer-facing promotions. Two, if you were any good at doing your job you could determine which items “fit” and which don’t and get behind the “fits” and provide a service to your stores who are looking for items consumers want to buy.

    I've always believed that slotting allowances tend to be a corrupting, corrosive influence.

    Regarding Chipotle's new food safety problems (customers getting norovirus, rats dropping from the ceiling of one of its stores), and the suggestion that the chain could be a victim of a conspiracy, MNB reader Rick Werner wrote:

    Full Disclosure:  I am a dedicated Chipotle fan, especially when I’m on the road looking for good food at a reasonable price.
    I don’t put a lot of stock in the conspiracy theories, but stranger things have happened.  I am more interested in how many norovirus incidents occur at other fast food outlets that go unnoticed.  It is a very widespread virus that is notoriously difficult to control.  Chipotle may suffer from an excess of scrutiny more than an excess of food safety issues.

    From another reader:

    If you watch "Billions" on Showtime - Paul Giamatti is fantastic, as an aside -   Episode 11 (which I just streamed last night via my subscription through Amazon) of the current season is a dramatization of the short sell/corporate sabotage you mentioned!  Worth checking out…maybe these conspiracy theorists are on to something!

    I'm a big "Billions" fan, and I'd forgotten about that. Good point.

    Yesterday I quoted a nutritionist as saying that consumers want good health, not good nutrition. Prompting one MNB reader to write:

    I would value a better understanding of how to discern between “better nutrition” vs. “better health.” Did the nutritionist offer any additional guidance?

    I think the point was that consumers are more interested in the end result than the process ... and that effective marketing/merchandising is best positioned in that way.

    Another email, from another reader:

    Hy-Vee recently opened a brand new store in Austin, MN that my wife and I
    visited last night. We only go there to get what we can't get at the Aldi
    across the road, because we find the prices to be out of control,
    especially in the health market area of the store, which is really the only
    reason we go there.

    It was about 9:00 PM. (Aldi was closed) when we went to the bakery area
    looking for a loaf of fresh sour dough and found the cases all empty and
    the people staffing the area cleaning up for the night. Assuming the bread
    had just been put to bed for the night, my wife asked if she could get a
    loaf and was told that it had been thrown away. When we left (after buying
    nothing) I drove around to the back of the store, curious and a bit
    irritated, and sure enough, there was a worker emptying an entire rack of
    fresh bread into a dumpster.

    Maybe I'm just naïve, and this is standard grocery practice, but it sickens
    my wife and me how they charge exorbitant prices while the store is open,
    only to throw away what they're not able to squeeze our community with when
    it's time to go home. Seems to me the local Salvation Army....somebody....would be able to make good use of that bread and whatever else they chuck.

    As I said, maybe this "if we can't profit from it, then nobody gets it" practice happens all the time, but that doesn't make it right, especially
    considering Hy-Vee's website has a Charitable Giving page boasting their
    community citizenship practices.

    We decided from now on we'll make the 40 mile trip to Rochester to visit a
    real health foods store, and a less expensive one at that. We have that
    luxury, but many don't.

    On the subject of counterfeit products sold via Amazon, MNB reader Bob Thomas wrote:

    If or when Alibaba comes to the US market a way for Amazon to differentiate itself is to do a much better job removing suppliers with counterfeit products.  The best way to do that is to work with the Trademark owners.

    I totally agree. I've always felt that this is an Amazon responsibility, and that it needs to redouble its efforts not to sell counterfeit items while respecting companies that do not want to sell their products on its site.

    Finally, chiming in about LL Bean's new positioning efforts, MNB reader John Rand wrote:

    I love their stuff, although I am not by any means the sort of person who buys anything without comparison shopping. But I was an early convert to online for clothing, and one thing has prevented me from being more enthusiastic about LL Bean: in my experience, they offer free shipping but you have to pay postage on returns. Most of the places where I also buy clothing follow the “Zappos” model of zero friction/zero risk for the consumer where return slips are in the box with the purchase and the return freight is pre-paid.

    This became quite irksome when they actually made a shipping error to me and sent the wrong item – but expected me to pay for its return and replacement. I complained and they made it right (regaining one point of a two point loss!) but it shouldn’t have needed me to spend time and effort to make the case and get a refund after the fact.

    I have friends who work there, they are a great employer, and I have enjoyed their stores since I was a college student in Maine and a trip to Freeport in the middle of the night was one of those odd things students do in a Maine winter (the original store being famous for being open 24/7/365).  I love their stuff. And they make few mistakes, and I make very few a as a purchaser. I usually order the right size, the colors are not usually hard to rely upon, all the odd things that can go wrong between the sales floor and the fitting room are rare – but they do happen
    But it is not customer centric to make me pay for the few mistakes that occur.

    KC's View:

    Published on: July 28, 2017

    Novelist Ace Atkins continues his remarkable string of winners with "The Fallen," the seventh book in his series of novels about former Army Ranger and current southern sheriff Quinn Colson. Set in fictional Tibbehah County, Mississippi, the Colson books have a kind of Elmore Leonard vibe to them while being wholly original; with each book, Atkins has expanded the canvas on which he is working and the palate of colors he is using to capture an ever-broadening range of characters. While Colson is the hero/protagonist of the books, he is surrounded by people who become deeper and more sharply defined with every new novel.

    In "The Fallen," the crime to be solved is a series of bank robberies taking place in which the criminals are wearing Donald Trump masks. It isn't as simple as just that, though. There is a growing conspiracy behind the robberies, tied to a local madam and strip club operator, as well as drug dealers and human traffickers. And, the book - which is both very funny and sharply observant - continues to explore what has been a common theme of all the Colson novels - average people trying to get by and do the right thing, while people of greater power and influence work to manipulate them for their own benefit.

    "The Fallen" is my definition of a page-turner. Go read it. I suspect that then, like me, you'll be impatient for the next one in the series.

    I saw four movies while on vacation, the three of them are definitely worth recommending.

    The Big Sick - probably my favorite of the summer so far, an unexpectedly moving romantic comedy of culture and manners. Based on a true story, it stars Pakistani comic Kumail Nanjiani, playing himself; he cowrote the screenplay with Emily V. Gordon. The story concerns what happens when Nanjiani, who comes from a traditional Muslim family that expects him to marry within the faith, meets and falls for a woman named Emily, who isn't. When she gets seriously ill, he comes into contact and conflict with her parents, played by Ray Romano and Holly Hunter (and they are both wonderful). I don't want to tell you more than that, other than to say that this was one of the most delightful surprises I've had in a movie theater in some time.

    Dunkirk - the new Christopher Nolan movie about the evacuation of British soldiers from Dunkirk in May 1940 as the Germans were advancing and putting the entire and nascent British war effort at risk. Dunkirk cuts back and forth among three different stories - one in the air, one on the water, and one on the land - and uses a mixture of fresh-faced actors and some well-known stars (Tom Hardy, Mark Rylance, Kenneth Branagh) to weave a complicated and utterly compelling story that is something really unique - an intimate war movie.

    War For The Planet of the Apes - the third in the rebooted series that has revitalized the franchise while posing serious questions about the nature of humanity. The new Apes movies are laden with metaphors, and that's what great science fiction does, and there's no question in my mind that this new series if films is science fiction at a high level. Plus, Andy Serkis is astonishing using motion-capture technology to play Caesar, leader of the ape revolution.

    Spider-Man: Homecoming - another reboot of the series, this one focusing on Peter Parker/Spider-Man as a naive high schooler. It is fun, with Tom Holland in the title role. I can't get very excited about it, but I can't criticize it for what it is not. And if nothing else, Spider-Man: Homecoming is what it is.

    I've never had Chiaretto before, or at least I don't think so ... but this summer I've discovered what apparently is a fairly well-known dry rosé from the Lake Garda region of Italy. It is an extremely pale rosé, but it has lots of flavor, and I love it served extremely cold. My favorite so far as been the Cà Maiol version... but I intend to keep exploring.

    BTW...I had it with spaghetti al tonno, which essentially is pasta with red sauce and tuna ... a wonderful summer dish. Heaven....I'm in heaven...

    I also had and loved a beer that was new to me - River Pig Lager, from Breakside Brewery, which has been perfect for the summer days I've been enjoying in Portland. Yum.

    Finally, thanks to the MNB readers who stoped by Nel Centro in Portland last night to have a glass of wine or a beer, and just visit. It was fun, as always.

    That's it for this week. Have a great weekend, and I'll see you Monday.

    KC's View: