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    Published on: July 27, 2018

    by Kevin Coupe

    It is an article of faith among retailers that the best way to grow a business is to turn customers into evangelists. A shopper who waxes rhapsodic about his or her favorite store is the best kind of sales tool.

    There are fewer retailers better at this than Wegmans. I’ve never met a Wegmans customer who is less than devoted to the food retailer, and many would be willing to drive considerable distances, past all sorts of other stores, to shop at Wegmans.

    But there are two women named Sarah and Rebecca, who have taken this to extremes.

    According to NewYorkUpstate.com, these two women recently went on a road trip that had them visiting all 97 Wegmans locations in six states in a single week. And take pictures.

    They described themselves in social media as “Wegmans minions.” Wegmans referred to them as “Wegmaniacs.”

    I think they’re a little crazy … but for the retailer, they are the best kind of crazy.

    You can check out all their pictures here. It's an Eye-Opener.
    KC's View:

    Published on: July 27, 2018

    United Natural Foods Inc. (UNFI), which describes itself as the “largest distributor of natural and organic products in the U.S. and Canada,” said yesterday that it will acquire Supervalu, defined as the “largest publicly traded food wholesaler in the US,” for approximately $2.9 billion, ending a period during which Supervalu was under investor pressure to sell the company. C&S Wholesalers reportedly also was in the hunt for Supervalu, but was outbid by UNFI.

    The announcement said that UNFI “expects to finance the transaction substantially with debt” and “plans to divest Supervalu retail assets in a thoughtful and economic manner.” These retail assets are comprised of some 3,000 stores under a variety of banners.

    UNFI said that it expects to achieve cost synergies totaling more than $175 million within three years, and that it “will benefit from its ability to deliver comprehensive and expanded offerings, including the addition of high-growth perimeter categories such as meat and produce to UNFI's natural and organic products.”

    Among the advantages cited by the company are:

    • The deal “expands customer base and increases distribution opportunities across channels, including those where demand for ‘better for you’ products is accelerating and UNFI is under-represented; unlocks new opportunities through comprehensive product portfolio.”

    • “Delivers comprehensive and expanded offerings – including high-growth perimeter categories such as meat and produce – to UNFI’s natural and organic products.”

    • And, “Wider geographic reach and greater scale is expected to increase efficiencies and effectiveness.”

    "This transaction accelerates UNFI's ‘Build out the Store’ growth strategy by immediately enhancing our product range, equipping us to bring an attractive, comprehensive product portfolio to an expanded universe of customers," said UNFI chairman/CEO Steve Spinner in a prepared statement. ”Combining our leading position in natural and organic foods with SUPERVALU's presence in fast-turning products makes us the partner of choice for a broader range of customers.

    Mark Gross, Supervalu’s CEO, said that the combination of the two companies “provides a substantial premium and delivers certainty of value to our stockholders, meaningful benefits to our customers, expanded opportunities for our employees, and the ability for us and our vendors to efficiently serve a varied customer base … We believe that this transaction is the best and natural next step for our stockholders, customers and employees.”

    MarketWatch writes that “Moody’s said the deal makes strategic sense, coming at a time of growing competition in the food retailing business. Amazon.com Inc.’s acquisition of Whole Foods has created a deep-pocketed giant in the grocery category that has put pressure on competitors.

    “The UNFI-SuperValu deal ‘gives more credence to our assessment that the wholesale food-distribution business needs scale now more than ever to counter the pricing and competitive pressure permeating throughout the food retailing business,’ said Moody’s Vice President Mickey Chadha in commentary.”

    And the Wall Street Journal writes that UNFI may have simply needed Supervalu’s capacity: “Bankers have expected more consolidation in food distribution, given pressures on costs. Supervalu has acquired regional distributors in the past two years. United Natural has also struggled to meet volume demands after Amazon bought Whole Foods last year, boosting sales.”
    KC's View:
    I’m old enough to remember when the nation’s three biggest wholesalers were Fleming, Scrivner and Supervalu.

    And then there were none.

    Except, of course, that there are other wholesalers - such as AWG, SpartanNash and C&S - that almost certainly are going to start targeting Supervalu retailer customers to suggest that they can offer a better deal. One question that will be dangling out there is whether existing Supervalu customers will see this as being positive for their businesses

    I have some thoughts.

    First, it would appear that Supervalu’s investors are a lot more excited about this deal than UNFI’s. Supervalu’s stock price was up 65 percent yesterday, while UNFI’s was down 16 percent. To be fair, this is just a snapshot, but it reflects a certain skepticism about a company with $8 billion in annual revenues buying one with about $12.4 billion.

    I’m always a little skeptical about synergy claims; it posits the deal as being about subtraction, not addition or multiplication. I’d prefer to know how the deal is going to make everyone better.

    The thing about the synergy claims is that it may not factor in the likelihood that UNFI - which admits to be taking on a lot of debt to make this work - may have to raise its prices in order to service that debt. If it raises prices, that means its retailers will have to do the same. Hard to imagine that this would make UNFI customers more competitive in the marketplace.

    One of UNFI’s biggest customers is Amazon-owned Whole Foods, which sort of makes me wonder if this deal was pursued as a hedge against the possibility - which some consider to be strong - that Amazon/Whole Foods eventually pull that business because it believes it can do it more efficiently and effectively. If the Supervalu acquisition is such a hedge, made even though UNFI has had trouble meeting demand with its existing infrastructure, that means it may have been pursued out of some level of desperation. Which doesn’t make me feel better about it …

    Plus, is it possible that the Supervalu deal, and the possibility that it will force UNFI to raise prices (which a number of folks would argue are already too high), could increase the likelihood that it loses the Whole Foods business? And makes it harder for UNFI customers to compete because they have to raise their prices?

    It’s interesting. If Supervalu, a traditional company with a mainstream distribution business, had acquired UNFI, I think the general reaction would have been that it was trying to expand by buying a company with a forward-looking strategy focused on health and wellness. But in this deal, we have this forward-looking company buying a more traditional business, which seems at least a little dissonant.

    But maybe they just didn’t have any choice. When lots of pieces are being moved arounds the board, you don’t want to be the one company standing pat.

    Published on: July 27, 2018

    Amazon said yesterday that it had Q2 profit of $2.53 billion, up from $197 million a year earlier. Revenue for the period was $52.89 billion, up 39 percent from the same period a year ago. The company’s operating margin was 5.6 percent, its highest in more than a decade and a big increase from the same period a year ago.

    The Wall Street Journal writes that the company’s record profits were “powered by the company’s newer services businesses that are ushering the online retail giant into an era of swelling profitability. Fast-growing areas including the company’s cloud-computing business, advertising offerings and services it provides to sellers on its site helped propel Amazon to its highest profit margin in years …Those businesses have helped offset its traditional retail business, which tends to yield lower margins although still the bulk of its revenue.”

    These numbers, the Journal notes, means that Amazon has had “three straight quarters of profits over $1 billion, and extends Amazon’s profitability streak across three years. No longer is Amazon known for suffering losses or producing razor-thin income by plowing every dollar it makes back into investments.”

    The Journal also reports that “Amazon reported $4.31 billion in revenue from brick-and-mortar stores,” which include Whole Foods.

    And, CNet writes that while Amazon increased the price of a Prime membership in the US by 20 percent - on a rolling basis, as renewals come due - the evidence to this point is that it is not causing any sort of decrease in memberships. CFO Brian Olsavsky says that the renewal rates are “looking really, really good,” and the CNet story notes that “last week's Prime Day sale also brought in a single-day record of new Prime sign-ups. Amazon has more than 100 million paid Prime members worldwide, with its largest market in the US.”
    KC's View:
    People used to say that Amazon didn’t make money, and so did not have a sustainable business model … even though Amazon did make money, but just reinvested it in the business.

    Then people said that, well, Amazon may be making money, but it isn’t making money at retail, which is where it really counts, and so it does not really have a sustainable business model.

    Seems to me that at some point the skeptics are going to have to accept the idea that maybe Amazon just has a different business model, and that it is simply attacking problems from a different angle and a disruptive perspective. The thing is, Amazon is making money. Which makes it more dangerous than ever.

    This doesn’t mean that the future is assured. There will be obstacles and challenges, especially because no matter what the culture, there may be a point at which maintaining an innovative mindset is going to get harder as the company continues to balloon in size. Keeping that “today is day one” attitude is, to be sure, job one. But is has to get harder with every passing day.

    And, of course, there are the political challenges that the company faces, though these could vanish with one election.

    One other thing. I got a lot of email from MNB readers after the cost of a Prime membership went up, suggesting that this was going to have a swift and deleterious impact on Amazon.

    Guess not.

    Published on: July 27, 2018

    The Dallas Morning News reports that Walmart-owned Sam’s Club has hired about 100 employees for a new 45,000 square foot technology office that it is opening in the city.

    These tech employees, the story suggests, presumably will work on a new concept Sam’s store in the city’s Lower Greenville neighborhood that will go into a space previously occupied by a Walmart Neighborhood Market.

    The News writes that “this is a new office, separate from other technology operations that Sam's and Walmart have in San Bruno, Calif. and at its headquarters in Bentonville,” and “will be the only Sam's office solely devoted to technology work … The merging of e-commerce with store operations and technology seem to touch every part of a retailer's operations these days. The changing landscape is forcing companies like Walmart to expand its own technology staff and to create partnerships with other companies.”
    KC's View:
    Again, Walmart continues to make moves suggesting that in so many ways, it is doing business differently than it used to. That’s important … and I can’t wait to see what a Neighborhood Market-sized Sam’s might look like.

    Published on: July 27, 2018

    Starbucks said yesterday that its Q3 sales increased 11.5 percent to $6.31 billion, while profit was up 23 percent to $852.5 million.

    Same-store sales were up in the US by one percent, even as traffic was down two percent - which means that Starbucks was able to improve its numbers by raising prices.

    The Wall Street Journal notes that Starbucks seems to be anticipating tougher times: it “lowered its expectation for global comparable sales growth this fiscal year to below 3%, from a previous estimate of 3% to 5% growth.” Starbucks, the story says, is “trying to shore up its business by closing underperforming stores and slowing the growth of licensed stores in airports and supermarkets,” while at the same time “adding stores in regions including the South, raising concerns among some analysts that the chain may be overextending itself again.”

    Starbucks’ third quarter is the last during which Howard Schultz was chairman of the company; he has departed amid speculation that he will get more heavily involved in national politics, including a possible run for the Democratic presidential nomination.

    New CEO Kevin Johnson, the Journal writes, “told investors last month that his plan for boosting U.S. sales involves selling more items targeted to customer preferences through the Starbucks mobile app. The chain recently opened its app to customers who aren’t members of its rewards program and is giving rewards to anyone who registers a credit or debit card with the company. Membership in Starbucks’s rewards program was up 14% in the quarter compared with a year ago to 15.1 million users.”
    KC's View:

    Published on: July 27, 2018

    • The Columbus Dispatch reports that Giant Eagle is expanding its Scan Pay & Go service, allowing customers to use either a smartphone app or a hand-held scanner to scan products as they walk the store and put them in their carts and bags. The service was launched in its home market of Pittsburgh last month, and now is being expanded to three Market District stores in the Columbus, Ohio, market. There are another nine Ohio stores scheduled to get the system in the near future.

    The Dispatch goes on to say that “the move to what insiders call “friction-less” shopping has produced a host of new options for grocery shoppers. Kroger, Giant Eagle, Walmart and more offer online shopping with at-store pickup during which shoppers never need to leave their cars. There are also expanding delivery services for a host of grocers and an expanding availability of fresh foods from outlets such as Amazon.”
    KC's View:

    Published on: July 27, 2018

    • The Wall Street Journal reports that Walmart “has chosen Capital One Financial Corp. as the new issuer of its store credit card … ending a nearly 20-year partnership with Synchrony Financial.

    According to the story, “The deal covers both the credit cards that can only be used at Walmart’s website and stores, as well as co-branded cards that can be used almost anywhere else, the people said.

    “Losing Walmart is a major blow to Synchrony, the largest U.S. store-card issuer. Walmart is one of Synchrony’s five biggest accounts, and it accounts for about 19% of Synchrony’s store-card portfolio … Earlier this year, Synchrony lost Toys “R” Us, another store-card partner, to bankruptcy, and another of its five biggest accounts, J.C. Penney Co. , has been struggling for years.”
    KC's View:

    Published on: July 27, 2018

    Bloomberg reports that new Chipotle CEO Brian Niccol, who came over from Taco Bell to turn around the chain’s lagging fortunes, seems to be having an impact - Q2 same-store sales were up 3.3 percent, higher than the 2.7 percent that Chipotle was predicting.

    The story says that “after struggling to bring back diners in recent years following illness outbreaks, Chipotle is seeing better results under Niccol, who took the helm in March. In his first months on the job, the chain has started investing in store remodels, new food items, faster service times and a new advertising campaign.

    “Some of the plans that are helping the chain recover were in place when the new CEO arrived, but he deserves credit for increasing the chain’s marketing presence, said Michael Halen, an analyst at Bloomberg Intelligence.”


    USA Today reports that Procter & Gamble-owned Gillette, which has been dealing with disruptive influences from the likes of Dollar Shave Club and Harry’s, not has a new problem - Kroger, which “is launching a new house brand line of razors and grooming products” called Bromley's For Men.

    According to the story, “The Bromley's collection includes razors with interchangeable 7-blade, 5-blade or 3-blade cartridges. Related skincare products include a pre-shave prep wash exfoliator, charcoal-infused daily cleanser, shave cream, post-shave balm, and a daily moisturizing lotion with SPF 15 (sun protection factor) … The new line is an expansion of Kroger's formidable private-label business that generates a sixth of the company's total sales or more than $20 billion a year.”


    USA Today reports on a retailer rising from the near-dead.

    The resurrection is being staged by RadioShack, which announced that it will open more than 100 “express locations” nationwide, expanding on a relationship with Hobby Town that had it opening the sites in addition to trying to grow its e-commerce presence.
    KC's View:

    Published on: July 27, 2018

    • Kings Food Markets and Balducci’s Food Lover’s Market announced the hiring of Jim Moriarty, most recently a divisional CFO with Walmart, as its new Chief Financial Officer.


    Fortune reports that Anheuser-Busch InBev, in a move that reflects the company’s evolving change in emphasis, has named Lucas Herscovici, currently global marketing VP of strategic functions, to a new company role - chief non-alcohol beverage officer. The move is seen as a response to the fact that Millennials and members of Generation Z are “drinking less than their elders.”
    KC's View:

    Published on: July 27, 2018

    …will return.
    KC's View:

    Published on: July 27, 2018

    Tomorrow's the night...!

    As often happens at this time of year, I’ve been getting emails from Portland, Oregon-area MNB readers wondering if I am going to have one of those casual get-togethers that we've done here the past few years.

    The answer is yes … and this year, I’m thrilled that it will be sponsored by Portland State University’s Center for Retail Leadership.

    So, let's get together Thursday night, August 2, at 5 pm, at Nel Centro, located at 1408 SW 6th Ave, in Portland. I'll plan on being there for a couple of hours, hopefully on the outside patio - and I hope that any MNB readers who'd like to stop by will do so. Put it on your calendar.
    KC's View:

    Published on: July 27, 2018

    Mission: Impossible - Fallout is the sixth in the series, which itself is based on the classic - but low budget, shot-mostly-on-the-Paramount-backlot - television series from the late sixties and early seventies. When the first movie came out, back in 1996, I had a largely negative reaction - I thought the filmmakers, including director Brian De Palma, were intellectually dishonest by turning the hero character from the series, Jim Phelps (played on TV by Peter Graves, and in the movie by Jon Voight), into the bad guy. It was a cheap trick that didn’t respect the material, and as a fan of the series, I was offended.

    I didn’t much like the next two follow-ups, either - the second one, directed by John Woo, was way over-directed, and the third, by JJ Abrams, just never seemed to gel in my mind.

    But then, something remarkable happened. Against all odds, the series got better. A lot better. Brad Bird (The Incredibles) directed Mission: Impossible - Ghost Protocol with a verve and even a sense of humor that took advantage of star Tom Cruise’s sense of humor and willingness to try pretty much any stunt and let the audience see him sweat. It was terrific. Then, Christopher McQuarrie directed Mission: Impossible - Rogue Nation and topped him … the movie was clever, sly, well-acted and just a ton of fun, with Cruise actually getting better while being surrounded by some terrific actors, such as Alec Baldwin, Jeremy Renner, Simon Pegg, Ving Rhames, and Rebecca Ferguson, with a great villain in Sean Harris.

    And now, go figure, almost the entire troupe is back again (Renner is out, Henry Cavill is in) for Mission: Impossible - Fallout, with McQuarrie directing and working with Cruise to do an amazing series of set pieces that defy the odds - and sometimes, gravity - as Cruise jumps out of planes, races motorcycles, and performs all sorts of outrageous stunts all as his character Ethan Hunt, tries to track down stolen plutonium.

    The story is strong, and actually has some subtle nods to earlier films, with a real emotional core. It actually helps that Cruise is now in his mid-fifties, and you can see some of the mileage and feel some of the aches and pains. The fact that most of the cast has been working together for some time creates a what appears to be real affection and a narrative shorthand. Everybody is loose and comfortable and it gives a movie a great vibe.

    Fallout is almost as good as Ghost Protocol and Rogue Nation. I guess my only reservation is that they push the notion of a cliffhanger maybe just a little bit too far. But, I was totally involved in the story, and on the edge of my seat for pretty much the whole movie.

    All is forgiven about Jim Phelps. (Not forgotten. Just forgiven.) I’m happy to heartily recommend Mission: Impossible - Fallout, which is the very definition of a fun summer movie.



    It’s been pretty hot in Portland, and so I’ve enjoyed the locally produced Sesión Mexican Style Lager - a cerveza from Full Sail Brewing that has been pretty much perfect for the weather. I recommend it.



    That’s it for this week.

    Have a great weekend, and I’ll see you Monday.

    Sláinte!!
    KC's View: