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    Published on: June 14, 2018


    This commentary is available as both text and video; enjoy both or either ... they are similar, but not exactly the same. To see past FaceTime commentaries, go to the MNB Channel on YouTube.

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

    One of the complaints often made about a certain e-commerce company is that it has an unfair advantage because Wall Street holds it to a different standard than other companies. Most companies show even slightly smaller than expected revenue or profits, or, heaven help us, an actual decline - regardless of the reasons - and management gets roasted, the stock price drops, and we’ve got corporate Armageddon.

    It doesn’t matter, say, if a company’s strategy hinges on customer service … if an investment in staffing and training and benefits, all designed to support the long-term goals and company narrative, hurts the short-term bottom line, there inevitably will be weeping and the gnashing of teeth.

    That strikes me as very short term thinking. it is, of course, the kind of thinking upon which many CEOs are judged and compensated.

    So, when one particular company manages to avoid that trap by building long-term thinking into its culture, infrastructure and goals … well, that’s tough for companies that haven’t done the same.

    This made it interesting to me the other day when the WSJ had story about how James Dimon, chairman/CEO of JPMorgan Chase , and Warren Buffett, chairman of Berkshire Hathaway, are making the argument that public companies ought to “consider ending the practice of providing quarterly earnings guidance, arguing that it encourages an ‘unhealthy focus’ on short-term profits at the expense of long-term growth and economic strength.”

    Exactly.

    They say that a traditional quarterly focus often is “at the expense of long-term strategy, growth and sustainability.”

    Exactly.

    They’re not arguing that quarterly reports should not be issued - in fact, they say that they are “an essential aspect of U.S. public markets.” But, they says, communications with shareholders ought to be tailored to the needs and strategic goals of individual companies, not based on a template established by the investor class.

    The Journal writes that Buffett and Dimon “are the latest in a long line of executives and corporate-governance advocates to voice qualms about quarterly earnings guidance. Not only does it encourage short-term thinking, critics say, but it also enables companies to skew the market’s perception, by setting guidance artificially low and then ‘beating expectations’.”

    Exactly.

    “Advocates of providing guidance say it gives investors important information and cuts down on surprises and volatility in the market,” the Journal writes. Maybe. But I’d argue that it also inhibits a lot of companies and corporate leaders from actually achieving their potential, which you’d think would be a good thing for investors.

    Maybe everybody ought to take a lesson from a different Buffett - Jimmy - who sings that the secret to life is to “breathe in, breathe out, move on.”

    That may not seem like the best recipe for short-term investing. But it might be an approach that will nurture greater long-term prosperity .. for companies, shareholders, and employees. Because, in fact, what Dimon and Buffet really are espousing is a stakeholder-centric approach to company management and investing.

    That’s what’s on my ming this morning. As always, I want to hear what is on your mind.


    KC's View:

    Published on: June 14, 2018

    by Kevin Coupe

    Fortune has a story about how Bill Murray - of “Saturday Night Live,” Ghostbusters, Caddyshack and Groundhog Day fame - is opening a food truck haven in Charleston, South Carolina.

    “Slated to open this summer,” the story says, “the area (once code-named Food Truck-O-Rama, but now called The Container Bar) will have a massive indoor/outdoor bar (where champagne on ice could be sold) and parking spaces for food trucks, including electrical hookups for their equipment … Murray, who lives in Charleston, has a number of business ventures in the city. He and his partners in The Container Bar opened Rutledge Cab Co. five years ago, a popular restaurant in an abandoned gas station, which is near the new venture. Murray is also the co-owner of the Charleston RiverDogs, the city’s minor league baseball team.”

    One reason for The Container Bar - Charleston does not allow food trucks to park on public streets.

    Beyond the coolness of being able to go to a Bill Murray joint, I think this is instructive in how it shows us how new opportunities can be defined and explored. Food trucks are seen by a lot of folks as being exciting, and bringing them together could multiply the effect; that’s certainly the case in places like Portland, Oregon. Add a little bit of a Bill Murray vibe, and the whole thing sounds like a lot of fun … not to mention a compelling and differentiated experience.

    Isn’t that something for which every retailer should be reaching? Finding ways to repackage existing models in a way that generates some juice?

    I can’t wait to go to Charleston and see this. It sounds like an Eye-Opener.
    KC's View:

    Published on: June 14, 2018

    Business Insider reports on an internal Whole Foods meeting this week at which CEO John Mackey said that while the company’s sales have been growing since it was acquired by Amazon, the two entities “have had ‘many, many’ clashes where he has had to ‘speak truth to power’ and Amazon has ‘backed off’.”

    Furthermore, the story says, Mackey told the group, "I ultimately am not afraid to get fired ... so that gives me a position of strength to speak truth to power when it's necessary to do so, and I've done it many, many times … I'm sure that Amazon has probably gotten more disagreement from me than any other single person and possibly more than everyone else combined. I have the least amount to lose — I have done this for 40 years, I am financially secure, I love Whole Foods.”

    Mackey also said:

    • ”I'm overall pleased with where we're at. Does that mean I love absolutely everything about Amazon? No, I don't. I don't love absolutely everything about my wife either, but on balance I love, like, 98%. That's a pretty good ratio, based on my previous relationships.”

    • ”Prime affinity and Prime Now are the two biggest initiatives, but also reducing our prices — we are going to be doing more of that over time. Getting things to our customers at lower prices while hopefully not reducing our quality standards and our service has been a major goal in the first year.”

    Mackey also “slammed media reports,” Business Insider writes, saying "they just make things up.”
    KC's View:
    Mackey may not like the press, but he’s not very clear about what the media has gotten wrong.

    Frankly, none of this seems particularly surprising. Sales are up, there are some tensions between the two companies, and Mackey is willing to quit if pushed too far. Does any of this sound shocking?

    I’d be interested to know how many Whole Foods customers a) know who John Mackey is, and b) would care if he got fired or left the company. Just curious…

    I am a little jealous, though, that Mackey loves 98 percent of his spouse’s attributes. Because I’m pretty sure that Mrs. Content Guy would put it at 60-40 … and I’m not sure that my good parts outweigh my bad parts.

    Published on: June 14, 2018

    Citing an oversaturated marketplace, Kroger said yesterday that it plans to close its 14 stores in the Raleigh-Durham, North Carolina, market.

    However, this doesn’t mean it is abandoning the market - Kroger’s Harris Teeter subsidiary will continue to operate there and will, in fact, acquire eight of the closing units and convert them to the Harris Teeter banner.
    KC's View:
    No big deal here, I think (though the hundreds of folks who may lose their jobs with disagree). I think that we’d all agree that many markets are oversaturated, and I’d argue that it makes sense to constantly be evaluating how banners are operating and making changes that will best serve customers and the company. That’s what this looks like.

    Published on: June 14, 2018

    CNBC reports on how “Microsoft is working on technology that would eliminate cashiers and checkout lines from stores, in a nascent challenge to Amazon.com's automated grocery shop.” Microsoft’s goal, the story says, is “to help retailers keep pace with Amazon Go, a highly automated store that opened to the public in Seattle in January. Amazon customers scan their smartphones at a turnstile to enter. Cameras and sensors identify what they remove from the shelves. When customers are finished shopping, they simply leave the store and Amazon bills their credit cards on file.

    “Amazon Go, which will soon open in Chicago and San Francisco, has sent rivals scrambling to prepare for yet another disruption by the world's biggest online retailer. Some have tested programs where customers scan and bag each item as they shop, with mixed results.

    “For Microsoft, becoming a strategic ally to retailers has meant big business. In addition to developing retail technologies, it ranks No. 2 behind Amazon in selling cloud services that are key to running e-commerce sites, for instance.”

    The technology, much of it on display at the Microsoft Retail Experience Center in Redmond, Washington, reportedly has been shown to retailers from around the world, and Microsoft is said to have had active talks with Walmart.
    KC's View:
    Here’s the real challenge. Other retailers are thinking and talking about how to adopt this technology. Amazon, almost certainly, is thinking about the third iteration … and the second iteration hasn’t even been made public yet.

    Published on: June 14, 2018

    The Associated Press has what appears to be an extraordinary piece of journalism, investigating a company called Sea To Table that specialized in “guaranteeing its products were wild and directly traceable to a U.S. dock — and sometimes the very boat that brought it in.”

    The story maintains that Sea To Table is a fraud.

    “Sea To Table offered a worry-free local solution that arrived from dock to doorstep by connecting chefs directly with more than 60 partners along U.S. coasts,” the AP writes. “While its mission is clear, scaling up to a national level while naming specific boats and docks is currently unrealistic. Still, the company is predicting rapid growth — from $13 million in sales last year to $70 million by 2020, according to a confidential investor report obtained by the AP.
    As its business expanded, Sea To Table has been saying one thing but selling another.”

    The AP investigation “found that the company was linked to some of the same practices it vowed to fight. Preliminary DNA tests suggested some of its yellowfin tuna likely came from the other side of the world.” The company may have said that its tuna came from Montauk, NY, but “during a bone-chilling week … photographers set up a camera that shot more than 36,000 time-lapse photos of a Montauk harbor, showing no tuna boats docking. At the same time, AP reporters worked with a chef to order fish supposedly coming from the seaside town. The boat listed on the receipt hadn’t been there in at least two years.”

    It is an amazingly detailed piece, and you can read it here. (And if you sell seafood from Sea To Table, you likely will have some questions to ask.)
    KC's View:
    I hope the full ire of the federal government comes down on these folks … jail, fines, and maybe a steady diet of questionable seafood sourced by disreputable fishermen.

    Published on: June 14, 2018

    Bloomberg has a story about how the growth of last-mile delivery services, driven in large part by Amazon but also adopted by a wide range of other e-commerce companies anxious to remain relevant, has created a shortage of companies and drivers able to deliver on the promises that online retailers are making.

    In fact, the story says, “the rush to bring everything from groceries to gourmet meals to customers’ doorsteps has sparked such a demand that job postings for delivery drivers have tripled nationwide on Indeed.com in the past three years.”

    The story goes on: “The dearth of truck drivers needed to carry products from city to city is well documented, but the growth of e-commerce depends as much or more on a steady supply of qualified last-mile car and van drivers … Despite concerns, the forces propelling the demand for more delivery drivers show no sign of slowing. Amazon said in April that its Prime memberships had topped 100 million. Grubhub, meanwhile, works with more than 80,000 restaurants in 110 U.S. markets, up 38 percent in the first quarter of this year from the end of 2017, company filings show.”

    It isn’t just a matter of timing and infrastructure: “Along with the intensifying hunt for more drivers is a growing concern about customers getting poorly served or even sick. The restaurant industry is talking with the U.S. Food and Drug Administration about ways to prevent food-borne illnesses or other problems arising from third-party delivery.”
    KC's View:

    Published on: June 14, 2018

    The New York Times has a story about the Landmark Mall, in Alexandria, Virginia:

    “Opened in 1965, the mall housed the region’s most fashionable department stores, Hecht’s, Woodward & Lothrop and Sears & Roebuck. Boys came to buy their first suit at the haberdasher, and teenage girls could get their shoes dyed to match the color of their prom dress … Landmark tried to adapt over the years. It began as an open-air shopping center and went through an overhaul in the 1980s to enclose the property.”

    The Times writes that “Landmark’s original anchor stores either have been bought out, went bankrupt or are clinging to life — like many in the retail business. Last year, 6,985 stores closed in the United States, a record number, according to Coresight Research, a retail analysis and advisory firm. This year, retailers are on a pace to close roughly 10,000 stores.”

    One of the Landmark stores that has closed was Macy’s. Fifteen months ago, it shut its doors for good.

    But recently, some of its doors have been reopened, and a corner of the store now is being used for something different.

    It is a homeless shelter, providing “60 beds, hot meals and showers for families and for single men and women who are having trouble finding a place to live in a city with a scarcity of affordable housing.” The Times interviewed one of the women who is living there, who finds it to be somewhat disquieting - she used to work at the Macy’s, and now is living there.
    KC's View:
    The Times notes that the mall is not entirely vacant. A movie company has rented out a large portion of it to film a sequel to Wonder Woman, last year’s hit movie.

    And there is one major retailer still open, still hanging on.

    Sears.

    Go figure.

    Published on: June 14, 2018

    Fierce Retail reports that shortly after “jumping into the pet supply game,” Amazon already is “rivaling online giant Chewy.com. Amazon is close to Chewy in unbranded searches on Google and Amazon, like Chewy, launched a private label of pet products earlier this year … According to the latest report from GartnerL2, Amazon now gets 38% of all organic hits on pet care, just 1% less than Chewy. And in some categories, such as high-volume products and natural and grain-free, Amazon has surpassed Chewy in organic searches. The only space where Chewy is not currently being threatened by Amazon is the dietary space.”
    KC's View:

    Published on: June 14, 2018

    • The Wall Street Journal has a story about how “global scale won’t always help the world’s biggest food companies resist the pressures squeezing the industry. Giants like Nestlé, Unilever and Danone,” the story says, “owe much of their recent success to rapid growth in developing markets.”

    But…”the case for investing in emerging-market consumers now looks less clear-cut. Poorer countries still appear to deliver better growth: Nestlé’s sales rose 4.8% last year in developing countries, compared with just 0.7% in rich countries. But such ‘organic’ numbers, which strip out currency and portfolio changes, mask the impact of depreciating currencies. In dollar terms Nestlé’s sales were flat last year.”

    At the same time, “Giant companies by their nature will struggle to respond to the rapid shift in tastes toward fresher, healthier and smaller brands. Corporate bureaucracy, with its inevitable tension between product and geography in the hierarchy, can slow responses to innovative local competitors. Size also makes it harder to transform through deals.”


    • The New York Post reports that Lands’ End, which has 159 shops inside Sears stores, plans to close 20 of them by the end of the year, and is planning to expand its standalone fleet of stores by approximately the same number over the coming years.

    Sears, of course, used to own Lands’ End until it spun the retailer off.

    Two other points about Lands’ End…

    First, the company says that online sales remain its foundation: “Online sales rose 19.7 percent in the second quarter, outpacing the overall increase of 11.7 percent, to $299.8 million.”

    Second, the Post writes that Lands’ End’s stock market price keeps going up the more that the company distances itself from Sears.
    KC's View:

    Published on: June 14, 2018

    • Mars announced that Andrew Clarke, the company’s chief marketing and customer officer, has been named global president of Mars Wrigley Confectionery, effective in September.

    Clarke is succeeding the retiring Martin Radvan.
    KC's View:

    Published on: June 14, 2018

    Yesterday we took note of a Fox News report that for the time being, every In-N-Out location in Texas - all 37 of them - have been closed. If you want a Double Double, Animal Style or a chocolate shake, you have to go elsewhere until In-N-Out gets a shipment of hamburger buns that the company feels are up to its standards.

    That’s right. In-N-Out was dissatisfied with the quality of buns that it got - we are assured that it was a quality issue and not a food safety problem - so it decided that it would rather close than serve up burgers on sub-standard buns.

    I commented:

    Wow. Can you imagine? In-N-Out may lose money because of the closures, but the brand equity it gains - this clearly is a customer-focused statement, strategy and culture - is enormous. Priceless, you might say.

    One MNB reader responded:

    On a trip to California several years ago, I watched a PBS special on In-N-Out as they highlighted the history of the company, interviewed the executives, etc.  For a retail geek like me, it was riveting.   I immediately set out to find a restaurant and used public transportation to get there while my wife was attending a work-related meeting.   Once I arrived, I knew from your readers that I needed to order a “double-double, animal style”.   Upon my return, I was almost foaming at the mouth in my explanation to her about where I had been and what I had experienced as there is nothing like it in the Midwest where we live (sorry, Five Guys!).   After I took her back to the location I had visited, she was hooked as well. 

    We rarely spend time in areas that have In-N-Outs, so it’s a special treat to stop in.   Just last month I walked from the Fairmont Hotel in San Francisco down the hill to Fisherman’s Wharf for a burger and fries.   I suppose that once there’s an In-N-Out on every street corner in the US it won’t be a big deal……but for the time being, it’s a fun diversion.


    But not everyone agrees. MNB David Spawn wrote:

    I am perplexed by In-N-Out stating they “have always served the highest quality food with no compromise,” – dripping, grease-laden beef patties, with Kraft singles-quality cheese, iceberg lettuce and out of season tomatoes.  That is the statement that is an eye opener. 
     
    Everyone is entitled to their own opinion, but I would not start at In-N-Out Burger looking for the highest quality food for sure.

    KC's View: