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    Published on: May 31, 2019

    by Kevin Coupe

    CNBC has a report about how Amazon CEO Jeff Bezos has added a new member to the company’s so-called “S-team,” which is an elite group of top executives that consult on major business decisions.

    The new member is 21-year company veteran Peter DeSantis, who the story says “played a critical role in building Amazon Web Services from its early days in 2006 … The addition followed two high-profile departures last year. Sebastian Gunningham, who ran the company’s marketplace, left to join WeWork, and Diego Piacentini opted not to return to Amazon after taking a two-year leave to work with the Italian government.”

    Remarkably, the story points out,  “Bezos’s S-team remains almost exclusively male — its only female member is human relations boss Beth Galetti.” Bezos has said that the reason for the lack of gender diversity is due to low turnover in the group, and that change will “happen very incrementally over a long period of time.”

    CNBC goes on: “But lack of diversity goes beyond the S-team into the broader leadership ranks. As CNBC previously reported, almost all of the executives at the top of Amazon’s core businesses, like retail, cloud and hardware, are white men. Only four of the 48 executives in those roles are women. That number goes up slightly if you include public relations and human resources roles.”

    It is a little surprising - and Eye-Opening - to me that Amazon has so few women in this leadership structure, and even more so that Bezos only is willing to commit to incremental improvement “over a long period of time.” That doesn’t seem like quite enough for 2019.

    But I would be remiss if I did not point out that Gianna Puerini is the vice president of Amazon Go - and, quote frankly, one of the smarter retail execs I’ve met in recent years. And so there is a lot of female representation at Amazon, even if it isn’t quite at the S-team level.

    KC's View:

    Published on: May 31, 2019

    Costco yesterday said that its e-commerce sales went up 20 percent during the most recent quarter, a period during which same-store sales were up 5.6 percent.

    (Total revenue rose to $34.74 billion in the quarter, up from $32.36 billion a year ago. Profits rose to $906 million, up from $750 million in the year-ago period.)

    The Wall Street Journal writes that Costco “is taking a comparatively cautious approach to online growth versus other retailers. Walmart Inc. and Target Corp. have invested heavily to speed online delivery and offer curbside pickup, but Costco doesn’t have plans to offer groceries for online pickup in stores.”

    Costco Chief Financial Officer Richard Galanti says, “We continue to look at it. We continue to scratch our head at it … We still want to drive the customer to the warehouse.

    The Journal writes: “ The chain is adding lockers to more stores so shoppers can pick up online orders this year, mostly for small, high-priced items.”
    KC's View:
    Could Costco be right about bricks-and-mortar, and everybody else is wrong? To be honest, some of what Costco is doing in this area mystifies me … though it also is hard to argue with its continued sales and profit increases.

    But I still question whether it is best prepared for a world in which fewer people will have big houses, big families, big basements and even big cars … all of which seem sort of intrinsic to its business model.

    Published on: May 31, 2019

    Business Insider writes that “Walmart's curbside grocery pickup offering, which is set to be available from 3,100 stores by the end of the year, is gaining serious traction: Between 11% and 13% of Walmart customers use the service, and it will account for 33% of the retailer's digital sales by next year, per a report from Cowen and Company cited by Retail Dive.”

    The story goes on: “Shoppers are spending more when using curbside pickup. While the average spend per trip for in-store shoppers was $49.70, customers spent more than 2.5 times as much when shopping online for grocery pickup — $124.86 on average. This is good for Walmart and will likely encourage the retailer to continue its aggressive rollout of the offering to new areas: In early 2018, the retailer was offering pickup at 1,200 stores, but worked to grow this number to 2,200 by the end of 2018 and now has its sights set on 3,100 of its over 5,000 stores, leaving it more room to grow.”
    KC's View:
    The argument here for a long time has been that Walmart has to go big or go home - it is important, for Walmart to make the right kind of splash, to roll these kinds of initiatives fast. It is all about impact … and perception … if it is to blunt Amazon’s e-commerce advantages.

    Published on: May 31, 2019

    Business Insider reports that analysts are suggesting that Amazon’s decision to improve its Prime membership offering from two-day shipping to one-day shipping could be a precursor to an increase in its Prime membership fees.

    Stifel analysts tell Business Insider that research suggests “shoppers are overwhelmingly unwilling to pay more for one-day shipping.”

    However, the question remains - if Amazon is going to invest $800 million in this effort, does it need to raise prices someplace else to compensate?

    Amazon raised Prime membership from $79 to $99 in 2014, and from $99 to $119 in 2018. Studies have suggested that “the rate of signups seems to be staying steady even after the 2018 price increase,” the study says.
    KC's View:
    Hard to know if this is real, or just idle speculation from analysts looking for some ink.


    The reports say that Amazon Prime has 100 million members. If it could get people to pay just $10 more - $129 a year, which I think wouldn’t be all that bad - it’d bring in an extra $1 billion a year (if my math is correct). That more than pays for one-day delivery … and all it really needs is for 80 percent of members to accept the increase. I’ll bet it could do better than that.

    Published on: May 31, 2019

    FedEx yesterday announced that it will adopt a new year-round seven-day-delivery business model as of January 2020, expanding a holidays-only policy that it has had the past few years.

    “We have made significant investments in capacity, technology and automation at FedEx Ground over the past 20 years. These investments have allowed us to gain ground market share for 19 of the last 20 years, and we are now ideally positioned to extend that growth as the average daily volume for small parcels in the U.S. is expected to double by 2026,” said Raj Subramaniam, president and chief operating officer, FedEx Corp. , in a prepared statement. “Expanding our operations to include Sunday residential deliveries further increases our ability to meet the demands of e-commerce shippers and online shoppers.”

    The shift also will diminish FedEx’s dependence on the US Postal Service: “In addition to delivering every day of the week, FedEx Ground is making changes to enhance its efficiency in last-mile deliveries,” the company said. “Nearly two million FedEx SmartPost packages that were previously given to the U.S. Postal Service for delivery to homes every day will be increasingly integrated into FedEx Ground operations and delivered by the same service providers currently handling FedEx Ground residential packages.”
    KC's View:
    This is a response not just to competitive pressures, but also to consumer expectations. Five or six days a week just isn’t acceptable anymore … whether you like it or agree with it or not.

    Published on: May 31, 2019

    The Verge reports that “Uber is experimenting with increasing the cross-promotion of its Eats food delivery service and its ride-hailing offering inside the company’s app, CEO Dara Khosrowshahi said Thursday. Khosrowshahi said he feels comfortable trying this after finding out that when customers use more than one of the company’s products, their engagement with Uber ‘more than doubles’ overall. He also thinks it could help cement the company’s dominance in certain emerging markets.”

    Khosrowshahi has good reason to try to improve the company’s penetration. The story notes that “Uber’s losses have only accelerated this year, as the company confirmed Thursday that it lost $1 billion in the first quarter of 2019, after taking a $3 billion bath in 2018. Increasing the cross-promotion of the Eats and standard Uber services is one way the company hopes to staunch the bleeding.”

    According to The Verge, Khosrowshahi said this week “that the company’s ride-hailing service is already a ‘very strong audience creator’ for the Uber Eats business. But he also said that 50 percent of Eats customers don’t use Uber for ride-hailing; the food delivery service is bringing in new customers.”

    “It is a huge category, and there are some folks that believe that the food category can be larger than the rides category,” he says.
    KC's View:

    Published on: May 31, 2019

    Reuters reports that Amazon “is interested in buying prepaid cellphone wireless service Boost Mobile from U.S. carriers T-Mobile US Inc and Sprint Corp … mainly because the deal would allow it to use the new T-Mobile’s wireless network for at least six years.”

    None of the companies has commented on the report.

    Here’s some context from Reuters:

    “Amazon has already been building experience by offering phone calls through its Echo Connect product, which uses a person’s home phone service and allows an Alexa-enabled voice-activated speaker to make phone calls.

    “Amazon, which started out selling books, has a long history of exploring new ventures, such as making original TV shows for Amazon Prime members. It is now one of the Big Four technology companies along with Alphabet Inc, Apple Inc and Facebook Inc, and is a leading cloud services provider.

    “T-Mobile and Sprint have already pledged to sell Boost as part of measures to reduce their market share in the prepaid wireless business and gain regulatory approval for their planned $26 billion merger.”

    US regulators would have to approve any sale.
    KC's View:
    This is all about control … and Amazon trying to have as much control over as many consumer experiences as possible. Not hard to imagine that this becomes part of the Prime offering in some way, as Amazon continually tries to enrich that offering.

    Published on: May 31, 2019

    CNBC reports that today the US Food and Drug Administration (FDA) will hold its first public hearing into the sale of CBD, or cannabidiol, derived from hemp, “touted as a magical elixir that can treat everything from inflammation to epilepsy,” in which it is expected to “hear from CBD manufacturers, researchers, farmers, retailers and more.”

    The story notes that “the industry is booming and has the potential to become a $22 billion business by 2022, according to cannabis-focused research firm Brightfield Group. Companies are pressuring the agency to change its rules to allow them to legally add CBD to food and beverages.”

    For example, Leslie G. Sarasin, president/CEO of the Food Marketing Institute (FMI), plans to say that “given the complex regulatory landscape and growing consumer interest in products containing hemp, especially CBD, FMI regularly fields a wide range of questions from member companies that, understandably, seek clarity about the current regulatory framework for the sale and labeling of these products … A challenge for us is that the Agricultural Improvement Act of 2018, or Farm Bill, contains several provisions that allow for the cultivation, production, and commercialization of industrial hemp and hemp-derivatives like CBD. However, the new law did not alter FDA’s authority over the use of such ingredients in FDA-regulated products; not to mention the role of other regulatory agencies and the states. Food retailers recognize the confusion among the public, suppliers and retailers, and state regulators as a result of the Farm Bill language.

    “It remains our intention to be in full compliance with all FDA requirements. As such, we seek appropriate assurances regarding the safety of these products and the legality of how – and where – they are merchandised.”

    • Meanwhile, • Leafly reports that “Ben & Jerry’s, the Vermont-based ice cream maker known for such cannabis-inspired concoctions as Half Baked and Dave Matthews Band Magic Brownies, announced Thursday that it’s hopping on the CBD bandwagon - or wants to, anyway.”

    In a press release, the Unilever-owned ice cream company wrote: “You probably already know that we’re fans of all things groovy. So it’s no surprise that we can’t wait to get into the latest food trend: cannabidiol, or CBD … We are committed to bringing CBD-infused ice cream to your freezer … as soon as it’s legalized at the federal level.”
    KC's View:

    Published on: May 31, 2019

    Fox Business reports that Walmart Canada “is testing out new state-of-the-art technology this week at a store in Toronto, Canada. Shoppers at the Toronto-Stockyards location can use the My Walmart app to enter an aisle called the ‘Fast Lane’ for a speedy checkout.” The Fast Lane concept is part of the company’s new Urban Supercentre Concept there.
    KC's View:

    Published on: May 31, 2019

    • The Wall Street Journal reports that even though beef alternative company Beyond Meat has been generating a lot of enthusiasm in supermarket aisles, fast food restaurants and the stock market, it still has just two percent of the meat alternative market. Which means that there is a lot of upside in bigger companies with meat alternative ambitions, such as Kellogg and Conagra Brands.

    The Journal writes that “it is true that many consumers, even if they aren’t strict vegetarians, want to eat less meat. As for so many diet questions these days, the science isn’t settled, but many believe that reducing meat consumption brings substantial health benefits. As for the environment, there is little doubt that less meat is better … The rise of these so-called ‘lessetarians’ - those simply interested in cutting back - is a big business opportunity.”

    CNN reports that Coca-Cola has been testing a new product in international markets
    called Coca-Cola Plus Coffee or Coca-Cola With Coffee - that actually has more caffeine than its traditional cola products.

    Except that it is not entirely a new product - in 2006, the company introduced Coca-Cola Blak, a coffee-flavored cola, but it flopped. However, Nancy Quan, Coke’s chief technical officer, argues that it may just have been ahead of its time.

    No date has yet been set to bring coffee-infused Coke to the US, but the company says it is optimistic about its potential.

    • The National Retail Federation (NRF) is out with a survey saying that “Americans are expected to spend more than ever on gifts for Father’s Day this year … Total spending for the holiday is estimated to reach $16 billion, up from last year’s $15.3 billion … Father’s Day spending has grown 70 percent, approximately $6.6 billion, since 2009. The biggest drivers of Father’s Day spending are growth in spending by consumers ages 35-44, and spending on clothing, special outings and gift cards. This year, 75.9 percent of people plan to celebrate and are expected to spend a record $138.97, up from last year’s $132.82, and up from $91 in 2009.”
    KC's View:

    Published on: May 31, 2019

    • Rite Aid announced that it has hired Erik Keptner, most recently SVP of marketing at Wakefern Food Corp., as its new SVP and chief marketing and merchandising officer.
    KC's View:

    Published on: May 31, 2019

    Content Guy’s Note: Stories in this section are, in my estimation, important and relevant to business. However, they are relegated to this slot because some MNB readers have made clear that they prefer a politics-free MNB; I can't do that because sometimes the news calls out for coverage and commentary, but at least I can make it easy for folks to skip it if they so desire.

    • President Trump said late yesterday that as of June 10 the US will impose a five percent tariff on products imported from Mexico, and would increase that “gradually” - at the rate of five percent a month - until the tariff reaches 25 percent. The tariffs will be imposed, Trump said via tweet, “until such time as illegal migrants coming through Mexico, and into our Country.”

    The impact is likely to be felt quickly. The New York Times writes that Mexico is “the United States’ largest supplier of agricultural imports, including cucumbers, grapes, beer and avocados.” In addition, “imports from Mexico include billions of dollars of cars, machinery, fuel, medical devices and many other goods.”
    KC's View:
    The only thing I really understand about this tariff situation is that there is likely to be a lot of blowback - not just from Democrats (who instinctively oppose Trump on pretty much everything) and not just from Mexico (which no doubt sees trade and immigration as different issues) and not just from US businesses and consumers (that are going to end up spending more money on a wide variety of products), but also from some Republicans in Congress who seem to be dubious about this approach and its ultimate impact on the economy going into an election year.

    The tariffs on products imported from Mexico are on top of those imposed on China … and there is a lot of coverage of those. For example, when writing about Costco’s quarterly results, the Wall Street Journal reports that “it is unclear how this month’s tariff increase to 25% on around $200 billion worth on Chinese imports including bicycles, furniture and luggage will affect store prices or cost of goods, said Costco Chief Financial Officer Richard Galanti on a call with analysts Thursday.

    “Costco has brought in some imports early to reduce tariffs, reduced costs with some suppliers, cut orders for some goods and is looking at sourcing outside of China in some cases, he said. Price increases are being passed on to shoppers on some items.”

    Galanti puts it this way: “At the end of the day, prices will go up.”

    Published on: May 31, 2019

    …will return.
    KC's View:

    Published on: May 31, 2019

    Been on a bit of a theater run recently. You may remember that a few weeks back I saw and reviewed - rhapsodically - the new Broadway adaptation of Harper Lee’s “To Kill A Mockingbird” by the peerless Aaron Sorkin, starring Jeff Daniels. This new version, while faithful to the plot and spirit of the original, infused what essentially is a period piece with the hot charge of currency, helped along by what seem to be deepening tides of bigotry in this country. “Mockingbird,” while originally written in the early sixties and written about the thirties, managed to be highly relevant to 2019.

    Last weekend, we saw “Network,” a stage production based on the 1976 movie written by the great Paddy Chayefsky and directed by Sidney Lumet - a film that is a biting satire of a television-centric culture, a condemnation of lowered standards, and an enormously accurate, as it turns out, prognostication of where “reality TV” would take us as a culture. (Which is to say, nowhere good.)

    More than four decades later, “Network” would seem to be ripe for revival … but instead of updating the premise and the plot to allow for the fact that almost everything Chayefsky foretold came true, and moving on from there, “Network” just revisits the plot with some snappy production values (that I liked but that Mrs. Content Guy found to be distracting, gimmicky and largely gratuitous) and one legitimately amazing performance - Bryan Cranston as Howard Beale, played by Peter Finch in an Oscar-winning turn in the movie, who is transformed from a Cronkite-like TV anchorman into an ultimately tragic “mad prophet of the airwaves,” propelled by his network’s lust for ratings and profits.

    The staged “Network” is still set in the mid-seventies, but the satire loses its bite because we know how much came true - we’re meant to be dazzled by staging and performance, not by ideas and insights, which is a shame, because Chayefsky was very much a writer obsessed with ideas and provocations, not easy shots.

    In “Mockingbird,” I’d bet every line or every scene was thought about in terms of what we know now and how far we’ve come - and how far we have not come - since the events of the play. Not so “Network,” I’m afraid. I enjoyed our evening at the theater - I love going to plays and musicals, and if I could afford it, I’d go a couple of times a month - but in this case the result was disappointing because it didn’t bring much new to the table.

    There is a good business lesson in this, I think. (Not about how to succeed on Broadway. To be fair, “Network” has enjoyed a sold-out limited run, and got a lot of Tony nominations. By those measures, it was a hit.) But I do think that retailers ought to be more in the business of saying to themselves with every new store, “What fresh insight about customer needs does this store provide? What idea are we communicating here that we’ve never communicated so well before?”

    I think that without asking those questions - and then answering them - retailers end up depending on the effectiveness of staging, not on the vitality of ideas and insights. Me, I prefer the latter, even if I can enjoy the former.

    Two quick “Network”-related stories, if I may.

    In 1976, I was the film reviewer for The Loyolan the campus newspaper at Loyola Marymount University, where I was then a senior studying film. (Not journalism, and not business, and certainly not retailing. I’ve never taken a class in any of those things, which some of you will say explains a lot. But I digress…)

    Anyway, in the fall of 1976, I was one of a number of college film reviewers invited to MGM studios in Culver City for a preview screening of the original Network, and then attend a press conference there with Paddy Chayefsky, Sidney Lumet, Peter Finch (who died a short time later, in January 1977, at age 60), and Faye Dunaway, who played the female lead. I remember it being one of those totally cool days, and especially impressed by Chayefsky’s intellect and force of personality. Forty-three years later, I still am.

    A year or two later, I’d moved back from Los Angeles to the east coast, and one Sunday I found myself in New York’s Central Park. (I have no idea why … though I may well have been going to see a Shakespeare in the Park production at the Delacorte Theater there.) But I do vividly remember seeing Paddy Chayefsky striding through the park, bearded and serious, dressed all in black except for a khaki jacket, clutching the Sunday editions of the New York Times, New York Daily News and the New York Post as if they were the tablets containing the Ten Commandments. And I remember thinking to myself, that’s what a writer looks like - a little outraged by what he sees around him, but ready to tilt at windmills with nothing but ideas and words and a well-turned sentence that might actually change the world.

    Chayefsky died in August 1981 at age 58. I have to think that if he were around today, he’d be disgusted, alarmed and ready to once again do battle … and he would not settle for revisiting old victories.

    One of the great pleasures of the coming summer arrived the other day - the 2017 Carlton Cellars Yamhill-Carlton Auxerrois, which is crisp and refreshing and best served nice and cold. There aren’t a lot of versions of Auxerrois out there, but I love this one, especially because it is from of my favorite Oregon wineries … great with seafood, or just for sipping at 5 o’clock … or even at 4 o’clock. (It is almost summer. What the hell.)

    Back Monday. Have a great weekend.

    KC's View:

    Published on: May 31, 2019

    Claus von Bulow, who was convicted of the attempted murder of his wife, socialite Martha “Sunny” von Bulow, but then saw that conviction overturned on appeal and then was acquitted of the charges in a second trial, has passed away at age 92.

    The New York Times writes this morning: “The tall, aristocratic Mr. von Bulow was charged with putting his wife … into an irreversible coma to gain her fortune so he could live with his mistress, a raven-haired soap opera actress. He was convicted of attempted murder in 1982 at a trial in Newport, R.I., that was widely followed with its high society overtones about possible attempted murder by insulin injection.

    “The conviction was overturned on appeal, and he was acquitted at his second trial in 1985. The jury in the first case endorsed the prosecution claim that Sunny von Bulow’s coma was caused by insulin injections administered surreptitiously by her husband, Claus, but the second jury didn’t reach the same conclusion.”

    Harvard Law Professor Alan Dershowitz represented von Bulow in the appeal and second trial.
    KC's View:
    Jeremy Irons won the Best Actor Oscar for the 1990 movie about the trials, Reversal of Fortune, and I can vividly remember this amazing scene between Irons and Ron Silver as Dershowitz.

    Dershowitz looks at von Bulow and says, “You’re a very strange man.” To which von Bulow replies: “You have no idea.”