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    Published on: January 7, 2019

    by Kevin Coupe

    Last week, MNB reported on the passing at age 87 of Herb Kelleher, who co-founded Southwest Airlines and in many ways disrupted the value propositions offered by traditional airlines.

    It was a story that captured the attention of MNB reader Dennis Meek, who wrote that he was “saddened” by the news … and then went on to explain why in personal terms.

    I was flying home from Germany after my unit returned from Iraq during the first Gulf War. Due to flight costs, I ended up getting to the States and taking a Southwest Airlines flight for the last bit of my trip.

    I was traveling in my dress uniform and during the flight there was this older gentleman who was serving drinks. 

    When he got to me, here is how the conversation progressed:

    Older Gentleman: “You want a beer? I’m buying.”

    Me: “No, sir. I’m not 21 yet.” 

    Older Gentleman: “Well, I’m the CEO of the airline and I think you earned it. Besides, I won’t tell if you don’t.”

    Me: “Yes sir, I’ll have that beer, and thank you.”

    Herb Kelleher: “Here you go and once I finish, I’m going to come back and we’ll have one together and talk.”

    And he did.

    Since that chance encounter, I’ve never flown a different airline if Southwest was an option. And, I kept my word and never told anyone … until now.

    First of all, I am enormously flattered and touched that you chose MNB as the place to share that story.

    It speaks to so much of what we try to talk about here, especially the importance of real leadership, the kind that serves as the ethical foundation of a business’s culture. Herb kelleher didn’t have to buy that beer. Hell, he didn’t even have to be working on that plane. He was the CEO, and most CEOs would believe that they have better things to do.

    But Kelleher seemed to understand that there wasn’t anything more important for him to do than make indelible connections with customers and serve as an example to his fellow airline employees … and to all of us, who continue to learn from stories like these. Sometimes, it only took a moment.

    I’d be willing to be that there are a lot of stories like Dennis’s being told about Herb Kelleher these days.

    I also would suggest that every person in a leadership position read this story and then ask himself or herself, “What story will they tell about me? What will the narrative of my life tell people about my priorities and passions? How do I behave in a way that demonstrates that it isn’t just about profit and market share, but about serving something greater?”

    Will the answers to those questions be Eye-Openers?

    KC's View:

    Published on: January 7, 2019

    The New York Times has a story about how big box retailers and national chains are using what it termed “an aggressive legal tactic” to reduce their local property tax bills, saying that their stores and properties have been appraised at values that are too high considering the degree to which bricks-and-mortar retailers have suffered at the hands of e-commerce companies.

    These retailers - names like Walmart, Home Depot, Target, Kohl’s, Menards and Walgreens are mentioned specifically - argue that even stores that are successful ought to have their assessments and property taxes lowered because the new competitive reality is that those locations no longer are worth what they used to be. They then argue that the value of abandoned or closed retail properties ought to be used to evaluate what their open businesses are worth. If local assessors don’t agree, these retailers then go to court to make their cases - and sometimes win - and the cost to local governments can, in the aggregate reach billions of dollars … especially because one legal win in a locality results in other businesses in the area making the identical argument.

    One result - the consideration of laws that would ban such a tactic from being used by businesses.
    KC's View:
    Ah, irony.

    The Times points out that the companies making this argument already are seeing tax relief at the federal level because of the recent tax cuts passed by the last US Congress and signed into law by President Trump. These companies would suggest - and there is some validity to this - that it is their responsibility to maximize their shareholders’ profits, and it would be fiscally irresponsible of them not to make this case.

    I get that. Except that I think there’s a countervailing argument that what they are doing is undermining their own businesses, which will result in them being worth even less over the long-term … which may allow them to argue for even lower taxes, but also result in a climate where they’re no loner in business. It is, I think, typical short-term thinking.

    Let’s face it. If the localities in which these businesses operate get less tax revenue, one of two things is going to happen:

    They’re going to have to increase the taxes on homeowners … who are going to be the people who a) shop in their stores, and now will have less money to make purchases, or b) work in their stores, and now will be facing a reality in which they may have to take second and third jobs to make ends meet. It won’t be good for the local economy, which will hurt real estate values, which hurts the community.

    Or, they’re going to have to drastically reduce services, like keeping the roads paved and the lights on and the police and fire departments paid. There will be less money for the schools, which will affect the quality of teachers they can hire, and the investments they can make in various programs (the arts will almost certainly be the first to go, followed by the libraries and science labs … though they’ll probably fund athletics until there are tumbleweeds blowing aimlessly across campus). It won’t be good for real estate values, which hurts the community.

    And none of this will be good for these retail businesses.

    Like I said. Typical short-term thinking.

    They should be looking at these communities as places where they want to make investments, where they want to create the kinds of connections that will keep their businesses not just relevant and resonant, but growing in value.

    Instead, they argue for the inevitability of their demise, and then will bemoan their fates when the boulders they have set in motion gather speed and run over them.

    Ah, irony.

    Published on: January 7, 2019

    Ahold Delhaize announced on Friday that its Stop & Shop division has acquired King Kullen Grocery Co., which will give it 32 King Kullen stores, five Wild by Nature stores, and the chain’s Long Island headquarters.

    Terms of the deal were not disclosed. It is expected to close during the first quarter of 2019.

    “This transaction underscores our commitment to further strengthen the positions of our great local brands in the U.S., both through organic growth and fill-in acquisitions,” said Ahold Delhaize CEO Frans Muller in a prepared statement.

    “Our family has been in the grocery business for 88 years," Brian Cullen, co-president of King Kullen Grocery Co., said in a prepared statement. "Recently, we determined that the best option for our family and our associates was to merge King Kullen into Stop & Shop. We are grateful to our Long Island customers and employees over several generations and proud to have supported so many fine organizations. It has been an honor and a privilege to be part of the fabric of this Island for all these years.”

    Newsday reports that “King Kullen and Stop & Shop did not provide details about the number of King Kullen employees, whether the King Kullen name will be preserved, or how many stores will close.” The paper notes, however, that “King Kullen has closed more stores than it has opened in recent years,” shutting down “five stores between 2015 and 2017.”

    Newsday also points out that “the announcement comes the same week that Lidl US, the U.S. arm of German discount grocer Lidl, closed on its purchase of Bethpage-based Best Market’s 27 stores in New York and New Jersey, including 24 on Long Island.” Burt Flickinger III of Strategic Resource Group tells the paper that buy purchasing King Kullen, Stop & Shop should be able to increase “its procurement power to lower prices against Lidl’s and Amazon’s food retail Armageddon.”
    KC's View:
    I’ve been doing this long enough that it has been drilled into my thick skull that pretty much whatever Burt Flickinger says is right, and that if one disagrees with him, one better be ready to be wrong.

    That said … I’m a little surprised that he thinks adding King Kullen to its roster of stores can drive prices Stop & Shop’s prices down that much. After all, Stop & Shop already has a better than 35 percent market share on Long Island (King Kullen has about 11 percent); Stop & Shop already has 51 stores on Long Island, and the buying power of a chain with more than 400 stores in total. Can King Kullen really give it that much more buying power, especially since some would describe it as damaged goods, a company that has not kept up with the times.

    I would’ve thought that this could be seen as more of a defensive move, to prevent someone else from coming into the market or, in the case of ShopRite, growing an existing presence there that could compete more effectively with Stop & Shop. But as I say, I could be wrong. Probably am. I’m used to it.

    I’ve been told the story of how, back in the mid-thirties, King Kullen was part of a group of retailers that banded together to figure out how to do battle with a growing number of larger retailers (like A&P, First National and Safeway) as well as manufacturers that did not feel their interests were aligned with those of the smaller group. Eventually, as I understand it, this led to the formation of the Super Market Institute. (Which eventually morphed into the Food Marketing Institute.)

    Best I can tell, there is only one retailer from that original group of retailers still operating as an independent entity - Golub Corp. which owns Price Chopper, Market 32 by Price Chopper, and Market Bistro. Until Friday, there were two.

    I will say this. Seems to me that the Golub/Price Chopper folks have done a far better job of staying relevant than King Kullen, which I think most people would agree hasn’t exactly been killing it on the innovation front. I hope that the investment from Stop & Shop serves the chain, its employees and its customers well.

    Published on: January 7, 2019

    The US Food and Drug Administration (FDA) is accusing e-cigarette companies Juul and Altria of not following through on promises they made to actively prevent minors from obtaining their products, which public health health experts believe are being used to get young people addicted to nicotine.

    According to a story in the New York Times, FDA Commissioner Dr. Scott Gottlieb “is drafting letters to both companies that will criticize them for publicly pledging to remove nicotine flavor pods from store shelves, while secretly negotiating a financial partnership that seems to do the opposite. He plans to summon top executives of the companies to F.D.A. headquarters to explain how they will stick to their agreements given their new arrangement.”

    At issue, the story says, is a deal announced in December which had Altria purchasing a 35 percent stake in Juul, which has to this point dominAted the e-cigarette market. The FDA seems concerned that while Juul was committing to various steps that would reduce minors’ access to the category, the Altria connection would actually give it far greater marketing muscle - not to mention lobbying muscle that could be used to fight any federal regulation of the category.

    Executives from both Juul and Altria deny that have any such intention, and continue to pledge to decrease kids’ access to their products.
    KC's View:
    I find it sort of amusing that companies like Altria and Juul are being accused of acting in bad faith.

    Of course they are acting in bad faith. That’s what these companies do. That’s what they’ve always done … all with the goal of selling their poison to new generations of consumers, which will then become addicted and keep them in business long enough to get the next generation addicted. And if that means spending millions on lobbying to make sure that public health officials can’t do their jobs, then that’s what they’ll do.

    Published on: January 7, 2019

    Bloomberg reports that “Sears Holdings Corp. is preparing to potentially wind down the iconic retailer after Chairman Eddie Lampert’s bid to buy several hundred stores out of bankruptcy fell short of bankers’ qualifications, people with knowledge of the matter said.”

    However, the story points out, it is possible that Lampert could sweeten his $4.4 billion bid to the point where bankers would accept it. In addition, “he also has outlined a back-up plan in which ESL would pursue the purchase of some of Sears’s parts, including real estate and intellectual property, such as its brand.

    Sears Holdings - which operates both Sears and Kmart stores - declared bankruptcy with $11.34 billion in debt. Lampert has argued that to allow it to collapse completely would be allow 68,000 jobs to vanish, though he’s also made the case that his largesse should be rewarded with protection from future lawsuits filed by disgruntled creditors.
    KC's View:
    The problem here is that there probably is no other entity that would want Sears, now that it has been driven into the ground by Lampert’s incompetence as a retailer, and it is hard for me to imagine any future for the company if he is any way associated with it.

    Published on: January 7, 2019

    Fortune reports that Walmart and Amazon, normally bitter rivals, “have come together in India to lobby the government on regulations that threaten to dampen their expansion ambitions.” The new rules, the story says, would “require online marketplaces to treat all vendors equally, effectively barring foreign companies from featuring exclusive products on their platforms, owning inventory, and thus being able to influence pricing and offer huge discounts.”

    In other words, preventing Walmart and Amazon from doing many of the things that give them differential advantages. Which is, of course, the point, as the Indian government looks to even the playing field between the e-commerce behemoths and small/local retail businesses.

    Among other things, the story says, “the giant retailers are asking for an extension on a Feb. 1 deadline for implementing those rules, according to people with knowledge of the matter.”

    There’s a lot at stake - between them, Fortune notes, Walmart and Amazon have invested more than $20 billion in India.
    KC's View:

    Published on: January 7, 2019

    The Washington Post had a terrific story over the weekend about new advances in the field of gene editing of farm, animals and the impact on the nation’s food supply.

    An excerpt:

    “As scientists in labs across the world create virus-resistant pigs, heat-tolerant cattle and fatter, more muscular lambs, a big question looms: Will regulation, safety concerns and public skepticism prevent these advances from becoming anything more than fascinating laboratory experiments, or will the animals transform agriculture and the food supply? So far, gene-editing tools have jump-started research worldwide, creating more than 300 pigs, cattle, sheep and goats. Now, proponents of the field say the United States is at a make-or-break moment, when government action over the next year could determine whether any gene-edited food animals make it to market.”

    The Post goes on:

    “Gene-edited plants will soon be in the grocery store, but similar tinkering with the DNA of animals faces a far more uncertain future. The regulatory process for getting animals approved is more complex and treats the edited DNA as a veterinary drug — a difference that animal scientists argue will effectively kill their field by preventing innovations that could make raising livestock more sustainable, more efficient or more humane. Many advocates and ethicists agree that the current oversight system is a poor fit but think that scientists and industry underestimate potential safety concerns.”

    You can read the entire, thought-provoking story here.
    KC's View:
    I’ve always been agnostic on the subject of GMOs and gene-editing; I try to avoid knee-jerk reactions, I’m willing to be persuaded, but I think the pro-GMO forces haven’t done a very good job of educating the public. Plus, at a time when so many of us are trying to eat better/cleaner, eating products made with GMOs kind of runs contrary to the prevailing trends.

    I’m not sure this Post story is going to help the gene-editing case, though - there’s just so much that I find unsettling. I can feel my knees jerking a bit, though … and I also worry that the framework for the discussion is all wrong.

    Published on: January 7, 2019

    Seeking Alpha reports that “RBC Capital sees huge potential for Amazon's convenience store roll-out. The cashierless Amazon Go store base is forecast by RBC to bring in 50% more revenue on average than a normal c-store at $1.5M per year. If Amazon follows through on a plan to open 3K stores by 2021, the RBC estimate suggests annual revenue of as much as $4.5B for the company from the concept.”
    KC's View:
    I don’t always put a lot of stock - pun intended - in these sorts of prognostications, mostly because I always wonder whether the analyzing company is somehow being self-serving. But … one of the things that I found most interesting about this particular analysis was when it listed companies that could be affected by an Amazon Go rollout. That list included Circle K, Walgreens, Grubhub, 7-Eleven, Shell, Kum & Go, Murphy USA, TravelCenters of America, Uber Eat, Casey's General Stores, McDonald's, Chipotle, Subway, Dunkin' Donuts and even Starbucks.

    In a word, Yikes! Even if they’re only half-right…

    Published on: January 7, 2019

    …with brief, occasional, italicized, occasionally relevant and sometimes completely gratuitous commentary…

    GeekWire reports that “Amazon says more than 100 million Alexa-powered devices have been sold, a figure that shows the company’s early lead in virtual assistant technology is paying off … Amazon is notoriously secretive about device sales but the new figure sheds some light on the popularity of devices powered by the company’s voice-controlled assistant.”

    The story notes that “Google, Apple, and Microsoft are all competing with Amazon for dominance in virtual assistants. Amazon’s Alexa has led the way for years, but the market has become much more competitive recently. Google is gaining ground in the space, and a September report found the Google Home Mini was the top-selling smart speaker in the second quarter of 2018, though Amazon’s devices still outsold Google in aggregate.”

    The Wall Street Journal,meanwhile, has a story this morning about how, despite all the promises, real integration of virtual assistants into our lives remains a goal, not a reality. People “don’t want a thousand commands for a thousand devices. In most cases, voice-controlled assistants have hit a wall where they perform a specific set of tasks well and not much else. They may be crazy ambitious, but they aren’t ready to take on real work.”

    The question, as always, is the degree to which these companies can monetize this technology … which doesn’t just mean using them to sell stuff (though that’s important) but also enveloping their users in the soft, warm, and irresistible embrace of whatever ecosystem them represent.

    TechCrunch has a story about the debut of Amazon Showroom, described as “a visual design tool that allows you to place furniture into a virtual living room, customize the décor, then shop the look … the new feature is focused on helping Amazon shoppers put together a living room. In a virtual setting, you can make adjustments to the wall color and the flooring, then swap out each item in the space with one of your own choosing — including the sofa, coffee table, chair, end table, lamp, rug and even the art on the wall … Not surprisingly, Amazon’s own home furnishing brands are heavily featured here.”

    It was, TechCrunch notes, just over a year ago that Amazon “launched its first in-home furniture brands, with private labels Rivet and Stone & Beam. This past fall, it began experimenting with a new, more visual way to shop for furniture and other merchandise with its Pinterest-like recommendation service Scout.”
    KC's View:

    Published on: January 7, 2019

    …with brief, occasional, italicized, occasionally relevant and sometimes completely gratuitous commentary…

    • The Tampa Bay Business Journal reports that Publix Super Markets “continues to expand its new GreenWise Market banner, this time with a location in Birmingham, Alabama.” Publix said that “it is acquiring two leases from Western Market, a Birmingham-based grocery chain. One of those locations, in Vestavia Hills, will open as a traditional Publix store. The other, in Mountain Brook, will be a GreenWise Market slated to open by the third quarter of 2019.”

    The Birmingham GreenWise is slated to be the seventh store carrying the banner. The Journal notes that Publix has been secretive about its plans for growing the GreenWise fleet, which “is a multifaceted tool for Publix. It's not meant to be the primary grocery store for most shoppers; it's for grabbing dinner or picking up specialty items like wine and cheese, allowing Publix to better compete for those extra trips its shoppers make to stores like Lucky's Market or Trader Joe’s.”

    I think it always makes sense to have more than one kind of arrow in your quiver.

    • A new food trend, according to the Wall Street Journal - drinkable soups:

    “More products pitching soup as a beverage are appearing on grocery shelves, packaged in coffee cups, bottles and Mason jars - no spoon needed. Campbell Soup Co. has a new line of ‘sipping soups’ topped with coffee-cup lids, Tio Gazpacho’s bottled soup touts ‘no bowl required,’ and Nona Lim, a line of Pho soups and beef broths, recently introduced ‘heat and sip’ cups.”

    The concept, experts say, should appeal to people looking for both healthier meal options and greater convenience, though there also are concerns that it will be difficult to get people to think of soup in this context.

    I’m a little surprised that this is being pitched as a big deal - I grew up drinking Campbell’s tomato soup out of a mug (usually with some Saltine crackers to dunk on the side). I still drink soup that way from time to time, because it is incredibly convenient. So put me down as a “yes” vote for whether this trend should actually catch on.

    Bloomberg has a story about how beverage makers continue to look for ways to make water cool for kids.

    The story notes that “most kids don’t drink enough water, according to a 2015 study in the American Journal of Public Health. But they’re so accustomed to sugary drinks that they find clear, unsweetened liquids unpalatable. Enter a steady stream of startups and longtime industry players who’ve left a trail of failure in their wake … New companies such as Rethink Brands, Hint Inc. and Hello Beverages Inc. are trying to reverse the trend with sugar-free, zero-calorie beverages that are essentially flavored water in a box. Mainstream brands like Capri Sun and Mott’s have recently introduced better-for-you options, while Coca-Cola Co.’s Honest Kids drinks are available in McDonald’s Happy Meals.”

    The goal, the story suggests, is to “replicate the surprise success of National Beverage Corp.’s LaCroix, the sparkling water embraced by millennials.”

    I have to wonder if one of the reasons LaCroix is successful is that it doesn’t just appeal to young people. I drink it, and I’m anything but a millennial … I wonder if La Croix’s demographics are broader than just ‘embraced by millennials.”

    • Hy-Vee announced on Friday that “to assist in combatting the national opioid epidemic,” it is implementing “a new controlled substance prescription policy. As of Jan. 1, 2019, Hy-Vee pharmacies no longer allow a subsequent fill of a Schedule II controlled substance, or a refill of a Schedule III or Scheduled IV controlled substance more than 72 hours early without authorization from the prescriber. Hy-Vee pharmacies also no longer accept GoodRx coupons for controlled substance prescriptions.”
    KC's View:

    Published on: January 7, 2019

    Regarding the various stories about autonomous vehicles, from MNB reader Jim Swoboda:

    I watch with great interest the evolution of the driverless vehicle. As much as I would like to see them happen quickly, I suspect it will take longer than expected. The reason, the legal system. I can only image the lawsuits that will occur when an accident occurs. Who will the finger be pointed at? The company who built the vehicle? The programmer of the software? The provide of the hardware to the manufacturer of the vehicle? The company using the vehicle? The occupant of the autonomous vehicle (e.g. Teslas today) who is trusting what he/she purchased? As we know, the process in legislating is so broken today, and so slow in responding, this all could get tied up in the quagmire of government. Just look at drones for an example. They still are far behind creating logical laws based on the technology today…which is moving at light speed vs. glacial speed in government. Not hopeful.

    Got the following email from an MNB reader:

    In regard to the Fareway Stores program for full-time employees to provide $100 a month assistance to pay towards student loans, I wonder how many of their employees are full time.

    Like virtually all retailers I suspect the majority are part-time.  Then, how many of these full time employees have student loans.  Also I presume that this assistance will be taxable income to those employees so the net benefit after taxes will be perhaps only $70.  But it is good p.r.

    I think anything that helps people with student loans is a good thing. Of course, anything that helps people more is better … but I make an effort not to be too cynical about this stuff.

    I commented briefly last week about the difference between the Vietnam Memorial in Washington, which is completely and appropriately solemn, and the 9-11 memorial in New York City, where too many people, it seemed to me, smile and laugh and take selfies.

    One MNB reader wrote:

    Do they have concessions at 911 Memorial? IF so could that be a contributing factor to the bad behaviour..the commercialization of memorial ?? Never been there.. but bad behaviour…horrible!

    They do … and there is a giant shopping mall adjacent to it. Your point is a good one.

    On another subject, from another reader:

    In the 1/4/19 Your Views section, the two comments on socialism are really flawed and extreme and sound like typical conservative rhetoric. Social Democracy is what people in the U.S. want, not pure socialism, i.e. Communism. Many of the socialist ideas put into practice in Europe post-WWII and since have been very positive. The inequality problems and poverty and homelessness are still present, but compared to the U.S., are much better. Canada, the UK, Denmark, Sweden, Norway, Germany, and The Netherlands are all pretty solid examples of this. There are things like universal health care, a higher minimum wage, affordable child care, paid maternity/fraternity leave, green energy regulation and public investment, etc. that all help people across the income spectrum and are common sense and fair. It also keeps in place all of our democratic institutions and norms. You’d still have the rags to riches ability that people here talk about, but you’re helping those towards the bottom avoid the bottom and be sustainably middle class, which is very crucial. You may limit the extreme wealth of the Bezos’ of the world by taxing and regulating them more, but wouldn’t most Americans prefer that?

    I’d argue that there are three major reasons pure socialism fails are: 1) dictators in charge who remove democratic institutions, the press, & purge dissent, 2) Government ownership of many industries (which isn’t what Universal Healthcare or Medicare for All is, by the way – it’s only about insurance, not all of the healthcare industry), and 3) removal of all incentives to work hard/better to get ahead, which is the lifeblood of our country.

    Those things aren’t issues even if you are able to pass Bernie Sanders-style socialist reforms, so it wouldn’t fail and wouldn’t make life worse for people – it’d make life more equitable and enable growth in the middle class again, which would in turn drive economic gains with more consumers having more money. The current economic gains are mostly going to the wealthy, which increases inequality and creates perverse incentives for companies to buy back shares rather than pay their workers more money.

    “Conscious capitalism” is a good term for an in-between focused on business that people really want. The government can tilt incentives towards conscious capitalism (see Elizabeth Warren’s bill) with informed consumers doing the rest of the work, as they’re starting to do now by holding companies accountable and voting with their dollar.

    Another reader also responded to Friday’s email:

    Really,.. Stalin, Mao & Hitler are socialist? All that education and can’t tell a dictator from of socialist. Sad.
    KC's View:

    Published on: January 7, 2019

    It was the National Football League Wild Card weekend…

    In the AFC, the Indianapolis Colts defeated the Houston Texans 21-7, and will move on to play the Kansas City Chiefs next Saturday.

    And, the Los Angeles Charger beat the Baltimore Ravens 23-17, and will play the New England Patriots next Sunday.

    Over in the NFC, the Dallas Cowboys beat the Seattle Seahawks 24-22, and will move on to play the Los Angeles Rams next Saturday.

    And, the Philadelphia Eagles defeated the Chicago Bears 16-15, and will play the New Orleans Saints next Sunday.
    KC's View: