business news in context, analysis with attitude

Published on: March 15, 2018

To see past FaceTime commentaries, go to the MNB Channel on YouTube.

Hi, Kevin Coupe here, and this is FaceTime with the Content Guy.

Today’s FaceTime commentary is only available as a video … shot on the campus of the University of Southern California (USC) while I was teaching at the Marshall School of Business’s Food Industry Executives Program and Food Industry Management Program.

Enjoy.

Published on: March 15, 2018

by Kevin Coupe

Nielsen is out with a statistical analysis that, while some of it seems self-evident, is worth being reminded about: that women are a “rumbling economic powerhouse … In the U.S. alone, women make up just over half of the population, and they’re accountable for over $39 trillion dollars. That puts them in charge of 30% of the world’s wealth, and the number is growing.”

And more:

“Females of every age and ethnicity bring distinctive values and priorities to the world of consumption. Multicultural women, in particular, are conscious consumers, supporting brands and companies that give back to and do no harm to their environment, community, family, and health.

“In fact, 58% of African-American women agree that they are willing to pay more for a product that is environmentally safe, and 62% of Hispanic women agree that they buy based on quality, not price. Eighty-six percent of Asian-American women agree that they are always looking for new ways to live a healthier life.”

I’m glad to be reminded of this, but it does make me think two things.

First, I’m not sure that this can be described as a “rumbling economic powerhouse” any longer. Nothing rumbling about it these days - it appears to me that women have pretty much decided en masse that they are tired of being taken for granted economically and culturally, tired of being harassed without consequences for the harassers, and angry that in 2018 we’re having so-called “conversations” about equality, equity, diversity and inclusion that should’ve been resolved decades ago.

They’re not rumbling. The noise being made these days is almost symphonic, though it might be more accurate to say that what they really want to do is rock and roll the world’s expectations.

They’re ticked off. And I don’t blame them.

Second, how and why did it take this long?

That’s the Eye-Opener.

Published on: March 15, 2018

Toys R Us said yesterday that it plans to close or sell all of its US stores, and also will close all its UK stores. The US closures will result in the loss of some 30,000 jobs.

The decision comes after a September bankruptcy filing in the US was followed by what the New York Times characterizes as a “brutal” holiday shopping season.

“In the age of internet retailing,” the Times writes, “Toys R Us has struggled with an antiquated sales model that could not keep up with Amazon and Walmart, and was burdened by $5 billion in debt from a leveraged buyout in 2005 … Toys R Us was a textbook example of disruption by internet retailers - a giant that once appeared invincible, but whose advantage disappeared as consumers went online for wider selections, lower prices and the ease of buying with a click.”

The liquidation process in the US should take a couple of months.

In the UK, Toys R Us, after having filed for the equivalent of bankruptcy last month, said that it will close down its stores there after having failed to find a buyer.

Published on: March 15, 2018

The National Retail Federation (NRF) and Forrester are out with a new “State of Retail Online” study suggesting that “traditional and online retailing are increasingly intertwined as customers seamlessly shop across touchpoints and the industry uses both platforms to better serve them.

The study goes on:

“Of the companies surveyed this year, 32 percent were ‘pureplay’ online retailers while 57 percent were multichannel retailers, including traditional bricks-and-mortar retailers that also sell online.

“This year’s data reveals that 43 percent of store-based retailers surveyed expect a net increase in the number of bricks-and-mortar stores they operate by the end of 2018 compared with 2017, and only 16 percent expect a net reduction. Additionally, retailers are proactively working on their real estate assets, whether testing new store formats such as opening some type of pop-up store (24 percent), and opening new warehouses or distribution centers (12 percent).

“New physical locations are important because 42 percent of retailers surveyed say that faster delivery of online orders is their top customer-facing priority, and many plan to use stores to achieve that goal. Omnichannel services such as buy online, pick up in-store are an in-store priority for 21 percent, along with 15 percent that cite ship-from-store as a fulfillment priority.”

And:

“Digital continues to contribute significantly to retail overall, both directly and as it influences sales in stores. Seventy percent of retailers surveyed noted that online conversion rates – the number of people browsing an item online who actually follow through and make a purchase online – increased in the past year. Further good news: 62 percent said repeat customers were up and 57 percent said average order values had increased.”

Published on: March 15, 2018

The Vancouver Sun reports that Costco, having begun delivering groceries to consumers in the US last year, now is looking for ways to bring the service to its Canadian operations.

“We are looking at sites from which we can fulfill fresh grocery orders,” Costco Canada spokesman Ron Damiani tells the Sun. “We are extremely happy with the results that we have had out of the US.”

No timeline has yet been set for a rollout of the service in Canada.

The story notes that Canada’s Loblaw has begun delivering groceries via Instacart in Toronto and Vancouver.

Published on: March 15, 2018

The Wall Street Journal has an interesting story about changes taking place in the restaurant industry, driven by the growth of the takeout sector.

In the restaurant business, apparently, companies like Grubhub and Just Eat have provided “ordering platforms for restaurants. They make money by charging restaurants a cut of orders placed through their platforms. The restaurants, for the most part, handle getting the food to the customer.”

Now, though, they are being challenged by food-delivery specialists such as Uber Eats and Deliveroo that “have built restaurant marketplaces of their own, while also handling the physical delivery on behalf of restaurants.” Now, the “traditional platforms need to invest in delivery or risk having their lunch eaten. This raises issues: Delivery is a much more capital-heavy, lower-margin business than creating a marketplace.”

But there’s a next step: “In time, this could lead to a much more profound disruption of the restaurant industry, as  so-called cloud kitchens, without the cost of prime retail space, work exclusively for online orders.”

In another restaurant-related story, Bloomin’ Brands is taking two of its restaurant concepts - Outback Steakhouse and Carrabba’s Italian Grill - are combining them in a new format, Outback & Carrabba’s Express.

The first one opened last month in Tampa, Florida. The unique angle - it “offers strictly takeout, delivery and catering — and no dine-in.”

Published on: March 15, 2018

• In a follow up to yesterday’s story about Walmart expanding grocery delivery from the six markets where it has been testing it to more than 100 metro areas in the US, USA Today notes that this will make the service available to more than four out of 10 US households.

The story notes that “Walmart has been leveraging its own network of stores — enough that one is within 10 miles of 90% of U.S. households — by offering shoppers the ability to pick up groceries ordered online at 1,200 locations. That number will jump to more than 2,200 by the end of 2018.”

Published on: March 15, 2018

• CNBC reports that Amazon has decided to shut down a three-year-old program called Vendor Express, which was designed “to make it easier for wholesalers to get inventory onto the e-commerce site and avoid having to go through the company's invite-only Vendor Central portal … Vendor Express offered a quick onramp for smaller merchants to have products listed under the tag, ‘sold by Amazon’.”

In an email, Amazon told vendors using the program “that it will stop taking orders as of May 21, and that the program will become ‘permanently unavailable’ starting Jan. 1, 2019. ‘We're constantly looking for ways to improve the selling experience on Amazon,’ the email said. ‘After careful evaluation, we've decided to retire Vendor Express and refocus the business on other selling programs’.”

CNBC says that vendors told it that the program “was fraught with counterfeits from its early days and likely failed to gain traction among high-quality sellers. One vendor, who asked to remain anonymous, said that although Vendor Express asked for samples and certain registration forms before placing large orders, the process wasn't strong enough to ensure authenticity.”


• The Financial Times reports that Japan’s Fair Trade Commission has raided Amazon’s offices in that country “ over allegations the company asked its vendors to shoulder part of the costs for offering their products at a discount on its e-commerce site.” In Japan this is considered to be an antitrust violation.

Amazon says it is cooperating with the investigation.

Published on: March 15, 2018

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

• Associations Now writes that “with a newly released whitepaper and forthcoming transparency index, the Food Marketing Institute and the Center for Food Integrity are making the case for transparency as a chief means of building consumer trust and promoting a deeper connection to food.

David Fikes, vice president, FMI communications and consumer/community affairs, makes this argument: “Grocers who provide easy access to clear information the shopper wants will be rewarded by a shift in consumer perception—moving from being a simple purveyor of food to a trusted ally in the shopper’s food experience.”

According to the story, “To help answer some of those questions, FMI and CFI are working to develop a transparency index. The intent is to provide retailers with an easy-to-use tool that will assess how well they have integrated transparency into their cultures and operations and to provide specific research-based guidance to enhance transparency.”


• The Wall Street Journal reports this morning that LL Bean has cancelled “a data collection and analytics project that would have tested the use of a blockchain ledger and sensors attached to coats and boots.”

The story suggests that the project was always designed to be a limited test that would involve just a few tech companies, a dozen or so product testers, and compile just a few data points about things like “temperature, frequency of wear and number of washes.”

If I were LL Bean, I’d be sort of annoyed at the position being taken by the tech companies, which seem to be arguing that the retailer wasn’t ready or fully supportive of the project, and may have “missed a chance to find out how willing their customers might be to buy products with built-in technology.” It strikes me as equally likely that these tech companies got over-ambitious about the test, went beyond where LL Bean was willing to go, and now is throwing the retailer under the bus. Those aren’t the companies with which I’d want to do business, if I were a retailer.

Published on: March 15, 2018

I keep arguing that retailers looking at Instacart as a long-term solution are making a mistake because they are outsourcing a critical part of the customer experience that, instead, they should own.

MNB reader Randy Evins wrote:

Couldn’t agree more….I get it…Instacart is easy and gets the box checked without all the growing pains and startup costs. But outsourcing your customer? Not so strategic I think.

Exactly. It is tactical, but not strategic.

Aldi is using Instacart, prompting MNB reader Todd Ashworth to write:

If I were Aldi I would be more concerned about Instacart damaging the price image……I saw an Instacart price survey the other day and it wasn’t pretty.



We had a piece the other day about how brain injuries potentially could undermine and even destroy the NFL’s business model. One MNB reader responded:

My husband and I have been both college and NFL fans for as many years as we can remember (a lot!).  Since word has been coming out about head injuries and their traumatic side effects, it has started to affect our love of the game.  In the past two years, we have really dropped our viewership of the game, and have started to watch other sports to compensate - golf, soccer, tennis, basketball, and yes, baseball.  I can't imagine a parent now who would allow their kids to even take up the game.

As for the future of football - take out all hitting?  Cover them in protective gear like Rollerball?  Can't see the future of the game without drastic changes.  Sad.

I’m not sure Rollerball - at least, in the original James Caan incarnation - would be the model I’d use for survival.



On another subject, I got the following email from MNB reader Jeff Folloder:

I read your piece regarding the resurgence of phone booths.  Frankly, I boggled that they ever went away.  Being able to have a private conversation is not just needed, it's considerate.  The ubiquity of phones for everyone in every place means that we are often assaulted with the (usually) loud conversations in every bit of public space.  And that's a shame.  Because I really do not have a need to hear someone from the table next door in a shouting match on speaker phone regarding which one of her Pomeranian's sweaters is cutest.  I suspect that there really is a business angle to be played, though... At some point, somebody will figure out how to do some pretty nifty advertising.  In the modern phone booth.



We had a story the other day about PCC in Seattle opening a store in a luxury downtown, which I was having trouble reconciling in my own mind. It prompted MNB reader Robert Wheatley to write:

As a former Seattle-ite, I know what you mean about PCC’s imagery…

You’re witnessing the evolution of Food Culture in your story about PCC’s move to the Rainier Square tower. There was a time when even Whole Foods was a bit more Birkenstock, and organic foods was more of a “movement.” As food culture has evolved, what was once a tertiary, mission-oriented businesses in the food world have gone mainstream. The idea of organic, slow food, sustainable farming, supporting local agriculture has transformed to be part of the premium-ization of everything in food retail.

So perhaps even PCC benefits from this transition as the Prius customer is joined with the Range Rover crowd in appreciation of higher quality, real food experience. Having said that as organic and special is increasingly democratized, it is also commoditized when Walmart starts selling organic produce. This helps explain why local has become so important as the market evolves, looking again for what is unique, special and higher quality.



Kate McMahon had a column yesterday about what she - and I - feels is the disconnect that would occur if Whole Foods were to start stocking traditional soda products.

One MNB reader responded:

I understand your viewpoint with regards to Coca-Cola being launched into Whole Foods.  WFM has established a shopper position in the “better for you” space.   I don’t for one moment feel that everything WFM sells fits their perceived product positioning but generally I give them credit for testing / initiating  / trying.  In fact, I met a couple of their folks at the just-concluded Expo West show and I can tell you they ask some great questions about the ingredient quality.  These merchants are passionate about what they do. 

But, the story of Coca-Cola going into WFM isn’t about ingredient quality nor good for you.  It’s about establishing foot traffic, using brands. Personally,  I suspect there are other brands to follow…or there ought to be.   Let me tell you why I feel this way.

I was the guy responsible for initiating then launching Coca-Cola into Woolworth’s-South Africa.  It was year 2000, I was in my third year as an Ex-Pat and had eyed Woolworths as a potential target to sell Coca-Cola. We had a 85% share of market and were growing.  Not only did Woolworths not sell our products, but they didn’t sell any major household items from P&G, Unilever, Tiger Brands (a major SA FMCG producer) and others I could name.  Despite our size and reputation (we held the African continent’s leading Markinor scores at the time) getting in the door at Woolworth’s  was impossible.  Until one day, I managed to have a discussion with their Board Chair, that led to a discussion with the Managing Director, etc. etc. 

Net of it – the concept emerged which was about brands driving foot traffic setting up the next generation of shoppers and that the addition of 700 SKU’s into their portfolio would allow Woolworths to offset lower margin with incremental basket size. At the grass roots level, my point was that every item has a role – and its important to understand and measure the product against that role. Remember, this was 2000 and category management wasn’t as established a practice as it is now, nearly two decades later.    (Man, just writing that… now I feel old…I digress…)

Much time has elapsed since that initiative and the finer details of the pitch we made escapes me – but what I remember clearly was that Woolworth’s had hit a “glass ceiling” in terms of its ability to attract new shoppers.  The addition of Coke and other brands was seen as a way to cross generations and even racial preferences (this was post apartheid Africa, if you both remember that era).  Not every Coke SKU was listed in Woolworth’s. Concessions within the bottler model were required; also not an easy sale.

What I feel strongly about is that the decision was a key pillar in Woolworths rapid expansion as a premium, convenience oriented food retailer in S Africa.  I visit the stores when I’m in the country and their assortment of Coke (and other broadly distributed FMCG goods) is still minimal by comparison to others.  But, their stores are thriving.  Anyone who understands African retail will tell you that Woolworths gave rise to premium food shopping.  Coke is still Coke – it gives consumers a moment of refreshment.  That today’s concerns about sugar are not lost on me but it’s also not a reason to discount a Woolworths / WFM comparison either… the role of the item matters to retailers.
 
That’s my personal take-away:  It’s less about whether Woolworths (or in the case of your story – Whole Foods) store remains a “purist” in all they procure and sell. Its about understanding the role of the item and what it does for the retailer food basket. Well-established national brands have earned the right (as measured by purchase frequency) to be on the shelves of all retailers. As we said to Woolworths back in 2000,  selling brands gets the Rands (SA local currency) out of the consumers pocket before they spend at Pic N Pay or Spar or Shoprite, which is always the last stop before they shopper goes home.

I guess the only question I’d ask is, is this how Whole Foods would define/describe its business model? And is this what Amazon bought?

Another MNB reader wrote:

I know from first hand experience that when HEB opened their first Central Market store in Austin Texas, they followed the Whole Foods Blue Print and avoided key brands like Coke, Tide, Miller Lite beer and Campbell's Chicken noodle soup.  They wanted their consumers to know they were unique and differentiated and would only carry items that met their definition of wholesome, nutritious and good for the planet.  After an incredible amount of consumer feedback, their 2nd store opened with all of these items.

Their customers essentially said, we love your store! We love the products you carry but we need some of the items you don't carry.  Please put some of them in so we don't have to make a trip to another store.  So in a nut shell they took one SKU of Coke, one SKU of diet coke, one SKU of Tide and so forth.  Based on customer feedback they provided the customer the opportunity to buy something at the Central Market store so they did not need to make another trip.  None of these products are top seller even today at Central Market but it apparently appeased enough customers to where the feedback became very positive.



An interesting note from an MNB reader:

Not related to anything in today’s news but an observation to share… 

As I’ve been job hunting and filling out applications, today is the FIRST time I’ve filled out an on-line application that DIDN’T ask about previous pay.  I can’t help but wonder if this is something finally changing in the HR industry?   Previous pay should NEVER play a role in the job you’re applying for, but until now, every position I’ve applied for has a mandatory field requiring your previous salary.  Catch is, if you lie, then you could be fired in the future, so you’re forced into revealing your previous salary, even if you were severely underpaid (or gender discriminated, yes it happened to me) in that position.  Thought it was worth sharing.

It was. Thanks.



Finally…

I ignited a bit of a firestorm yesterday with my Eye Opener, and got a lot of criticism for what I wrote. I believe that if I’m going to take swings at people and institutions for a living, I have to be willing to take it when they hit back. So, let me set up the controversy I created, give you a generous sampling of the emails I received, and then, at the end, I’ll respond.

The original story went like this:

A woman boarded a United flight from Houston to New York on Tuesday. She had with her two children, one an infant, and a a black French bulldog that was in a pet carrier. The flight attendant, apparently worried that the pet carrier could not be stored safely under the seat, ordered the passenger to put the pet carrier, complete with pet, in the overhead compartment. (This apparently is against the rules. United now says it is investigating.)

To cut to the chase, the dog died.

According to a witness who spoke to the New York Times, the woman “collapsed to the floor, rocking back and forth while clutching the dog’s body. Her daughter started to cry. And then the woman handed her infant to a stranger while everybody sat in aisle 23 and cried.”

Horrible story. It was when I started doing commentary that I got myself into trouble:

At the risk of seeming hard-hearted, let me start by saying that if I’m in aisle 24 or higher, and I can’t get off the plane because of everybody crying in aisle 23, I’m pissed off.

About the incident itself … I think there is plenty of room to blame the passenger in this case. Not to be cruel here, but sometimes I think that people who travel this way - two kids and a dog - are thinking only of themselves, and not about their kids or their dog, and certainly not about their fellow passengers. Which is why I think it is good thing that airlines are starting to crack down on this stuff. (United recently banned an “emotional support peacock” that some woman wanted to bring on a plane with her. I support this decision.)

But in the end, United - which, as the Times notes, has had “a string of alarming customer service incidents” recently that has gotten it a series of highly critical news stories and social media criticisms - has to start figuring out what it is in its corporate culture that is creating these problems. Certainly United isn’t unique - there are lots of companies with cultures in which employees make the wrong decision and don’t feel empowered to challenge orthodoxy when it doesn’t make sense. When bad decisions or unspoken challenges lead to problems that undermine a company’s essential value proposition, then companies need to think about what the real, core problems are.

From one MNB reader:

Oh boy Kevin. I think you should prepare yourself for a violent backlash.

To be fair, I think while people were mad at me, more were disappointed.

Another MNB reader wrote:

Eek...A dead puppy..and that’s your eye opener?

It seemed to me that the eye opener was that you can be pretty callous.

MNB reader David Spawn wrote:

Not one to often agree with you, I find this statement of yours particularly ham-fisted….

“Not to be cruel here, but sometimes I think that people who travel this way - two kids and a dog - are thinking only of themselves, and not about their kids or their dog, and certainly not about their fellow passengers.”

Do you know why this passenger was flying with so many dependents?  My guess is you do NOT.

Have you ever inconvenienced other passengers around you, blocking their way while they got “pissed off”?  My guess is YES, given the amount of flying you seem to do.

Have you ever not had another option to fly with so many dependents by yourself?  Hmmm, MAYBE?

Try withholding judgement for a day and wait to see how the news cycle spins and more information likely comes out before feeling the need to deliver a “real Eye-Opener” – seems a bit of a stretch on this one.  Or just chose not to pick a story that doesn’t really serve your purpose.  You could also choose not to run that section of the blog, I’m not sure your MNB readers would miss it so terribly if it was both irrelevant and not particularly well thought out.

MNB reader Mark P. O’Brien wrote:

I take it you have never owned a dog. That’s cold dude.

MNB reader Joe DiVincenzo wrote:

Wow.

Kevin, with all due respect, I think you are way off base with this one.  Blaming the mother trying to travel (traveling from being with her husband due to his job, from what I gathered from the News Media) for thinking only of herself is beyond comprehension.  What would you have her do in this case besides not allowing her and her children to be with her husband in the first place?  I Imagine having to travel with 2 children and a Pet was not high on her idea of a fun time.  Unless you know a great deal about her situation and why she was traveling, I think you just insulted a lot of mothers who are doing their best to raise and support their families and often have to make the most of whatever option is available to them.  Perhaps she erred in not having the proper Airline approved crate, but I think that hardly warrants accusing her of thinking only of herself and blaming her for her dogs death.

I suspect your mailbox will be overwhelmed with negative responses.

One more reader wrote:

I think you're being hard-hearted towards the poor woman. How many stories have you read in the past few months about passengers being dragged off the plane by police for "non-compliance?" Travel is hard. Travel with kids is harder. Traveling as a solo parent--especially a mom, subject to continual judgment--is really really really hard. How could this terrible situation not happen? Through bad corporate policies and bad decisions by individual flight attendants trust between passengers and crew has been destroyed. And without trust passengers will act out of fear.

From another reader:

I wouldn't be surprised if you get some not-so-happy people with how you delivered this story, and quite frankly I'm slightly appalled myself.  First of all, you need to take a look at the greater issue before you place most of the blame on the passenger.  This dog was paid for, and fit the standards laid out by United Airlines to fly with the passenger, underneath the seat.  This was not someone who was taking advantage of the system and going the route of an emotional support animal (I agree that there are people taking advantage of that situation, but that's an entirely different subject).  The issue here is that this was a paying customer, who was given the okay when checking in, that her animal fit the requirements to fly underneath the seat in front of the owner.  This is solely a United issue.  

Secondly, I'm disappointed that you automatically say that the passenger is only thinking of herself.  You do not know the story of why this woman needed to travel with 2 kids plus her dog.  Do you think that someone travels with 2 kids (1 being an infant) and a dog for fun?  No.  That's very narrow-minded of you to say.

Thirdly, you must be a cat person.  My dogs are my family members.  If I just saw someone's dog die on an airplane because the airline could not follow through with the policies they themselves have defined, then I would be less worried about getting off the plane and/or to quote you being 'pissed off'.  Also, the 'news gods'?  Someone's loved one just died.  It doesn't sound like you understand how bonded someone can be with an animal.

And from another reader:

The real story is that United does not give a flying football. It’s just one more lawsuit they have to work through But in the end they don’t care.

And from another:

The only eye opener here is your lack of empathy.

You obviously do not have a dog, and don’t tell me “when I was a kid”……….It’s not the same.
 
I would have chosen another eye opener, not try to split the middle on this.

Okay, I get the point.

Now, let me respond.

I think that the criticisms about my not knowing much about the woman’s situation are completely fair. You’re absolutely right about that.

In rereading the piece, I can see that I was imprecise in how I assessed the blame. To be clear, this is a United Airlines problem; I’ve flown millions of miles in my life, and I have never, ever seen an animal put in the overhead compartment. I cannot imagine what that flight attendant was thinking. Was there no part of her that thought, gee, is this really a good idea?

United has had so many of these kinds of problems lately that I would hope that someone in the executive suite is thinking that there is a serious cultural flaw hurting the company, and that something better be done before something happens from which there is no return.

For the record … the Chicago Tribune has a story this morning detailing how United accidentally shipped a dog that was supposed to be flown from Oregon to Kansas to Japan instead. And, yes, the dog that was supposed to end up in Japan went to Kansas.

Furthermore, the story says, the US Department of Transportation (DOT) reports that in 2017, “there were 24 deaths reported of the half-million animals transported by air … and three-quarters of those deaths occurred on United Airlines.”

As far as the dog … you’re right. My response was cold. Unnecessarily so. Especially because I’m not that guy. I love dogs. We have two at home. Right now. One - a 14-year-old yellow lab named Buffett - is snoring about three feet away from me at this very moment. The other - a 7-year-old rescue dog named Parker - is resting her head on my foot. (Clearly, neither one read yesterday’s Eye-Opener.)

I’ve given this a lot of thought, and can come up with about nineteen ways to either defend or explain myself.

But what it comes down to is this.

I was trying to be a smart ass. I ended up just being an ass.

Mea culpa, mea culpa, mea maxima culpa.