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    Published on: January 26, 2018

    by Kevin Coupe

    USA Today reports that cult favorite fast food burger chain In-N-Out has figured out one way to make sure its stores maintain a high level of service and food quality.

    It pays store managers exceedingly well - in excess of $160,000 a year, on average.

    That salary, experts say, is way higher than at other fast food chains. And, In-N-Out managers are responsible for just one store, and “for all aspects of the restaurant, from employee training to the cleanliness of counter tops.”

    Denny Warnick , In-N-Out Vice President of Operations, says that the pay scale goes back to the company’s beginnings, and a belief that “quality service requires quality employees with quality pay.”

    “Paying their associates well was just one way to help maintain that focus, and those beliefs remain firmly in place with us today,” Warnick says.

    Which is why, I think, I have never had an interaction with an indifferent In-N-Out employee, and I’ve always had a sense that its stores are run by people who are taught to leaders, not just managers. It’s the best kind of double-double.

    That’s something you can’t get online. And it is an Eye-Opener.
    KC's View:

    Published on: January 26, 2018

    Walmart said yesterday that it is partnering up with Rakuten, the largest e-commerce company in Japan, to launch an online grocery delivery business there, as well as to develop an e-book business here in the US.

    National Public Radio reports that the e-commerce initiative in Japan will give Walmart a stronger online presence in a nation where consumers “spent about $19 billion on food deliveries in the year ended March 2017, including orders made in person, over the phone or online,” but where there is considerable competition.

    The e-books project also appears to be a competitive move - in this case, to play defense against Amazon, which has dominated the e-book business with its Kindle technology. Amazon has roughly 83 percent of the US e-book market, Bloomberg reports.

    Scott Hilton, chief revenue officer at Walmart U.S. e-commerce, released a statement: "Working with Rakuten Kobo enables us to quickly and efficiently launch a full eBook and audiobook catalog on to provide our customers with additional choices alongside our assortment of physical books. Kobo is a global leader in eBooks and audiobooks with nearly 6 million titles from thousands of publishers. The full assortment of eBooks will be available on later this year, with audiobooks launching after that.”

    As all this transpires, Walmart also is laying off corporate staff. Bloomberg reports that Walmart is eliminating between 400 and 500 jobs across its marketing, human resources, merchandising, real estate, logistics and finance divisions.

    “We’ve been looking at our structure for some time as we explore ways to operate more effectively,” the company said in an emailed statement on Thursday. “Those efforts continue. We’re committed to handling every transition smoothly and ensuring everyone is treated as fairly and respectfully as possible.”
    KC's View:
    What Walmart is doing is something that we talk about a lot here on MNB - the importance of fighting the next war, not the last one. CEO Doug McMillon knows that he has the toughest battle that Walmart ever has fought on his hands, and he has to do everything he can to get more efficient wherever possible and more effective in the places that matter.

    Now, to be honest, I don’t entirely get the e-book initiative. Kobo already is in the business, but hasn’t made much headway in the US. I’m not sure it makes a lot of sense for Walmart to go after Amazon in a segment where it has such a huge market share, and where, growth has sort of stagnated. That said, Apple also announced this week that it is getting back into the e-book business, so maybe there is a sense that the stagnation is at Amazon, not in the broader marketplace, and that new entries - especially one powered by Walmart - might be able to shake loose some additional growth.

    Published on: January 26, 2018

    The New York Post reports that Amazon may be in the hunt to buy online bulk grocery retailer Boxed, which just a few days ago was said to be in discussions with Kroger about being acquired.

    According to the story, Boxed CEO Chieh Huang visited Amazon headquarters in Seattle this week to discuss a possible deal: “It is the first time Huang has met with the Seattle behemoth and comes on the heels of reports that Boxed — which sells bulk grocery goods — is an acquisition target of Kroger, the country’s largest grocery chain … Boxed is seen as a vehicle for traditional brick-and-mortar retailers to up their e-commerce game, providing 24-hour delivery and access to a growing stable of high-tech distribution centers.”

    The story says that “Kroger has grown interested in Boxed, in part, because it needs to improve its home delivery chops to better compete with rival Whole Foods and others.” There is a report that Boxed already has rejected a Kroger bid of between $300 million and $400 million, with experts saying that Boxed likely is holding out for around $500 million.

    Boxed, which sells about 1,600 SKUs, has estimated annual sales of about $100 million.
    KC's View:
    It sounds like someone is going to get Boxed, but other than being a defensive move, it is hard for me to imagine it brings a lot to Amazon that the bigger company doesn’t already have. On the other hand, sometimes it makes sense to play defense … and even if Amazon loses to Kroger, it probably will succeed in driving up the purchase price that Kroger has to pay.

    Published on: January 26, 2018

    CNBC reports that a month after having acquired delivery service Shipt, “Target has moved forward on its plans to offer same-day delivery to roughly half of its stores by early 2018.”

    The rollout begins early next month, in Florida.

    Shipt is described as “a membership-based service where customers place online orders from nearby stores, which its fleet of shoppers pick and deliver that same day.”

    According to the story, “Target plans to make the service available for the majority of its stores before next holiday season. By the end of 2019, it plans to use Shipt for same-day delivery of "all major product categories.”
    KC's View:
    Hard for me to imagine that as all this happens, the other companies that do business with Shipt, like Publix, will continue to do so. They have to be looking for an alternative … unless, of course, this opens the door for some of them to begin providing Target’s grocery business, in the same way that CVS has taken over its HBC/Rx business nationally.

    Published on: January 26, 2018

    The Wall Street Journal reports that the Teamsters union has launched contract negotiations with United Parcel Service (UPS) by demanding that the shipping company agree not to use drones and driverless vehicles to make deliveries.

    The teamsters also reportedly are calling “for a ban on deliveries after 9 p.m., including during the peak delivery months of November and December when drivers can find themselves delivering packages late into the night.”

    The Journal writes that “UPS, like Inc. and others, has been testing drone deliveries and has said there are opportunities for new technologies to help reduce costs. In February 2017, the Atlanta-based company conducted a test in rural Florida with a drone that plucked a package from the roof of a truck, and then delivered it while the driver proceeded to the next delivery.”

    Neither UPS nor the Teamsters commented to the Journal about the negotiations.
    KC's View:
    This is such BS. If the Teamsters had its way, there would still be a budget line at UPS for buggy whips.

    I can understand why they are concerned. But the Teamsters ought to spend more time figuring out how to train its members to fly drones, and develop other kinds of technological expertise, rather than trying to stop the march of progress.

    As for trying to stop post-9 pm deliveries, all this would do is put UPS at a competitive disadvantage, opening the door for other services to provide them. (No wonder Amazon wants to expand its role in the last mile delivery business.) Again, the Teamsters ought to be figuring out ways to help UPS and other businesses be more competitive, not less so.

    Like I said. This approach is a crock.

    Published on: January 26, 2018

    CNBC reports that Albertsons “is launching a new initiative with Quotient Technology to provide feedback on the impact of brands' digital ads on sales in Albertsons stores. The platform, Albertsons Performance Media, will use shopping data to help brands better target their ads.
    Those promotions will be placed across all sites and apps where digital ads are served and will not be restricted to pages relating to Albertsons.”

    Albertsons says it has signed up 60 CPG companies for the program.

    According to the story, “the program comes as Albertsons pushes further into digital and e-commerce. Last summer, it acquired meal kit company Plated, which it has been introducing to Albertsons stores. It has also been expanding its partnership with delivery service Instacart, with plans to roll out the service to 1,800 stores across the country by mid-March.”
    KC's View:
    There are so many moves being made by so many companies, Albertsons has no choice but to try to get aggressive in this segment. Talking to people in the industry, there is a general sense that Albertsons is playing catch-up here … lumbering along with an almost oppressive infrastructure that does not serve it well in a 2018 innovation economy.

    Published on: January 26, 2018

    Bloomberg reports that the Delaware Supreme Court has ruled that a lower court “correctly dismissed suits filed by a dozen pension funds” that claimed Walmart failed to properly investigate and then covered up accusations that it greased the wheels of growth in Mexico by bribing local officials. According to the story, “The Supreme Court ruling resolves the last civil claims against Wal-Mart’s board stemming from the bribery allegations.”

    Walmart has set aside $283 million to cover a settlement with the U.S. government over the bribery investigation, and settlement negotiations are said to be ongoing.
    KC's View:

    Published on: January 26, 2018

    Publix founder George Jenkins is the subject of a new musical that debuted last night at Florida’s Harrison School for the Arts.

    The show is titled “When You Dream,” and was written by a local teacher, Tyler Campbell, and Harrison principal Dr. Daryl Ward. The performers are all local students.

    Publix reportedly donated props to the enterprise.

    No word about whether a Broadway run is being considered.
    KC's View:

    Published on: January 26, 2018

    • The National Association of Convenience Stores (NACS) said yesterday that “the U.S. convenience store count increased to a record 154,958 stores as of December 31, 2017, a 0.3% increase (423 stores) from the year prior … Single-store operators within the convenience retail space also increased by 139 units (0.14%), up from 97,504 stores at year-end 2016 to 97,643 stores at year-end 2017.”

    According to the statement, “The convenience store count is significantly higher than other channels of trade, accounting for more than one third (34.4%) of the brick-and-mortar retail universe tracked by Nielsen in the United States. Except for the dollar store channel, all other major channels have fewer units at year-end 2017 than 2016.”
    KC's View:

    Published on: January 26, 2018

    • Big Y Foods announced that Nicole D’Amour Schneider, an almost 30-0year veteran of the company and most recently its director of pharmacy, has been named senior director of operations.

    • Walgreen said that Rick Gates, its group vice president of pharmacy, has been promoted to the role of senior vice president of pharmacy and healthcare.
    KC's View:

    Published on: January 26, 2018

    Got the following email from an MNB reader responding to yesterday’s FaceTime commentary about competing with Amazon Go:

    I don’t disagree that competing with Amazon is possible. However, I think it’s much, much harder than most anticipate.
    Think about successful retailers like Wegmans, Costco, H-E-B, or Dorothy Lane. Each is driven by a single hypothesis about user experience. "If we can successfully do {insert idea about how shoppers like to shop} then we will attract and retain profitable shoppers." And so far, each of these retailers has been largely successful - and homogeneously successful. To paraphrase Tolstoy, "Well run Wegmans are all alike; every poorly run Wegmans is poorly run in its own way." These companies are successful because they have learned to avoid failure.

    Amazon, by contrast, is *fantastic* at failing. Just think about all the ways they're selling groceries today: Through their site and app (and this includes Prime, Prime Pantry, and Subscribe and Save); Amazon Fresh delivery; through Prime Now delivery (and they have a separate Prime Now deal with Sprouts); through the new Amazon Go convenience store; through Whole Foods; and through Echo and other Alexa-enabled devices. I'm probably missing one or two, but that's about 10 different ways to buy groceries from Amazon.

    Now, I can ask you what would happen if one of those leader retailers were to experiment with multiple home delivery strategies...but I don't need to. Last October, Costco introduced two new home delivery options: a partnership with Instacart and Costco Grocery for nonperishables (you could already buy some items from their website and through Google Express). And their stock price promptly dropped 6% on concerns it could hurt margins (it has since risen 25%). Large retailers, their management, their boards, and their owners and shareholders just don't seem to have the appetite for failure and financial erosion.

    You could also argue that successful retailers are successful because they're able to give consumers what consumers know they want. Amazon, meanwhile, is experimenting with concepts and experiences that consumers don't necessarily want today but might come to want in the future. Through expensive, parallel, high-risk experimentation Amazon is creating a new world of consumer demands. Wegmans, Costco, H-E-B, Dorothy Lane, even Walmart represent the success stories of several decades of intense retail competition, experimentation, failure, and innovation (even Staples was once a VC-funded startup). But without a willingness to re-engage in these high-risk activities (and a willingness to redevelop what must be long-atrophied innovation and failure muscles) I don't see much hope for them in the long term.

    MNB reader Herb Sorensen wrote in about a possible Kroger-Alibaba partnership:

    I began writing about the Convergence of Online,  Mobile and Bricks (COMB retail) several years ago.  That is racing forward, with those furthest along eating others' lunches.  But bear in mind that Kroger is already deep into the wider world retailing, beginning, at least, with their acquisition of Fred Meyer, years ago.

    People who study businesses by focusing on financial performance are likely to be well behind when R&D is driving the future.  But R&D, like advertising, is inherently not well managed with "sharp pencils."  Hence the lag between the cutting edge of reality, and all accounting driven industries.

    Yesterday, MNB took note of an Axios report that a new study from the World Economic Forum and Boston Consulting concludes that “some 1.4 million Americans will lose their jobs to technological change in the next eight years, including 70 percent whose job type will just disappear. Without new skills, according to the report, 575,000 of them — 41% — will have either minuscule or no chance of finding other work.”

    One MNB reader responded: 

    You link this survey with the Amazon launch and the IBM basket reader trials, and you can very clearly see where the working class is headed.  Just imagine how many cashier jobs will be lost to “basket readers”.  You load up the cart, want through the scanner and out to your car. 

    From the customer side: No lines.  No smiling (or grumpy) cashier.  No plastic bags.  No wasting time. 

    From the retailer side: Faster turn over in products.  Greater traffic flow.  More profit per sale.  Far less shrink. 

    Now tie in clipless coupons and it becomes a total win with the manufacturer as well.
    Hard to beat the win-win-win on this one.

    Except, of course, for the workers who do not adapt, or are not offered ways to learn and grow.

    On an other subject, from MNB reader Phil Censky:

    The commentary about your son getting you more engaged in the spirits industry made me think of this book - “Boozehound” by Jason Wilson is a fantastic piece of nonfiction from the former spirits & cocktails columnist for the Washington Post.

    Part travelogue, part history, part recipe book. I became obsessed with trying different spirits and classic cocktails after reading it.

    I’ve just downloaded it to the Kindle app on my iPad. Thanks.

    And finally, regarding yesterday’s Baseball Hall of Fame election results, one MNB reader wrote:

    Being a huge baseball fan, the Class of 2018 is one of my favorites. I really liked Jim Thome gettin into the HOF as a first timer. All he did was go to the plate everyday and play the game he loved. A guy who loved the game, smacked 612 dingers, 23 of them game winners, a major league record. Vladdy Daddy, what a treat to watch that rocket arm he had , throwing guys out at the plate on the fly. One of the best arms ever. Hoffman, 700 plus saves, one of the best closers of all time. Lawrence, Chipper Jones, one of the best switch hitters of all time, just let his stats do the talking. The HOF Class of 2018 was put into Cooperstown without any issues. Batter up! 3-4 weeks when catchers and pitchers show up.

    Michael Conforto, stay healthy and have a monster year for the Mets.

    From your lips…
    KC's View:

    Published on: January 26, 2018

    It was with mixed emotions that I watched the 10th and final episode in the sixth and final season of “Longmire,” the contemporary western that began life on A&E and then, after three seasons, moved over to Netflix. I was sad because I’ve come to love this cast of characters and the unfolding and intertwined plot lines, many of which came together in the final hour, but I also felt a sense of satisfaction and completion - “Longmire” rode out of town with head held high, having maintained a high level of quality.

    If you’ve never seen “Longmire,” I would recommend it as entirely binge-worthy. The series is built around the towering performance of Robert Taylor as Walt Longmire, sheriff of fictional Absaroka County in Wyoming (though the series was shot in New Mexico for some reason). Longmire is a literary cousin to Robert B. Parker’s Jesse Stone, as played on TV by Tom Selleck - taciturn, lonely, independent, but righteous to a fault and brimming with integrity. “Longmire” has had moments when it even has become a comedy of manners, as the titular character has struggled to understand and express his feelings, or even admit he has them.

    Taylor is exceptional in the role, and the supporting cast is great - Katee Sackhoff, A Martinez, Cassidy Freeman and especially Lou Diamond Phillips.

    Much of “Longmire” focuses on the tensions emerging from the intersection of Native American life with local communities - the battles are cultural, economic and legal, with Longmire at the center of many of them. It was a strong through-line for the series, providing a backbone upon which to build a network of interconnecting and complex stories.

    I’ve never read the Craig Johnson books on which “Longmire” is based, but I may have to add them to the list … but it is hard to imagine that they’ll top what has been a wonderful television series experience.

    It was fun to head out to Seattle last week to get the personal guided tour of the new Amazon Go store … and the bonus was that I got to make an unexpected trip to Etta’s - which, as longtime MNB readers know, is one of my favorite restaurants and home to Morgan, the best bartender on the planet. (If you go to Etta’s any Tuesday through Friday evening, go to the bar, ask for Morgan, and tell him Kevin sent you. In about 30 seconds you’ll feel like a regular. Trust me.)

    Going to Etta’s meant that I sat down and Morgan poured me a glass of wine. I never ask for anything specific, and he just pours a glass in front of me and pours something that he likes. It’s always great. In this case, it was the Gilbert Cellars 2014 Left Bank Red, a blend of Cabernet Sauvignon, Merlot, Cabernet Franc and Petit Verdot, from Washington State’s Columbia Valley. Delicious. Ton eat, I had my usual - a double order of tuna sashimi, served with green onion pancakes and tobiko.

    It was a rainy night in Seattle. I’d been to the future at Amazon Go. I was enjoying a lovely evening at Etta’s. It was good, I must admit, to be me.

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

    KC's View: