business news in context, analysis with attitude

Published on: July 29, 2019

Content Guy’s Note: In a competitive environment where Amazon’s Alexa-based system seems to have created for itself a distinct competitive advantage, how do you compete? I recently heard one Eye-Opening answer.

In the class that Tom Gillpatrick and I team-teach at Portland State University during the summer, our students had the good fortune of spending time with Jon Stine, who has had a unique 30+ year career working in marketing (for companies like Pendleton Woolen Mills), academia (at MIT) and technology (for companies that include Cisco and Intel). Stine was in class to talk to us about his newest venture, called the Open Voice Network, which struck me when he described it as being a little audacious and a lot appropriate and timely - especially if you are in the business of competing against Amazon, which, let’s face it, pretty much everybody is.

And so, I asked Stine to engage in an email interview for MNB to describe the Open Voice Network, its ambitions and implications, and he agreed. FYI … this e-interview has been lightly edited for clarity.

KC: There seems to be two basic premises behind your development of the Open Voice Network.  One is that voice technology is both early days and in a time of enormous growth, and the other is that, in terms of commerce, Amazon (and I say this with some admiration) has achieved a rather successful land grab with its Alexa based system.  Is this a fair description, and how did you come to the conclusion that what was required was a different approach - not a series of competitive offerings, but one broad-scale competitor that has a very different operating/business model?

Jon Stine: The originating premises (back in 2016-2017) were these:  1) this AI-voice assistant thing (notably, at that time, Alexa and Siri) is no mere tech toy – in fact, we can see that it will become a primary interface to the internet (and perhaps, THE primary interface to the internet); 2) as that happens, it will affect all consumer-facing industries, and may have a huge, re-shaping impact on commerce, and 3) hmm . . . there’s a lack of interoperability – are these like the browser war days of the early internet?

Then, this question:  given the benefits brought by the introduction of standards through the years, and the value of “open” technologies  . . . might AI-voice be a place where an open, standards-based approach might provide the greatest economic and social benefit?  Might the future of AI-voice be bigger and brighter if AI-voice assistance was interoperable, accessible, and data protected?

A “standards-based” approach suggests specifications that, for instance, would enable interoperability across platforms.  Such specifications could be adopted by proprietary platforms, or could be the basis for the development of a completely “open” platform.

KC: Explain the structure of the Open Voice Network - exactly how will it work, how will it be funded, and what kind of access will retailers large and small have to it?  And exactly what devices will be employed?  A new technology entrant?  Google’s existing system?  Apple’s?

JS: The Open Voice Network is planned as a not-for-profit association of consumer-facing enterprises, technology companies, marketing firms, and university researchers, dedicated to AI-voice that is “open:” standards-based, interoperable, accessible, and data-protected.  It will be funded by its members, governed by a Steering Committee of member representatives, and led day-to-day by an Executive Director.

In addition, it will  operate as a Directed Fund of The Linux Foundation; as such, it will have access to The Linux Foundation’s shared administrative, legal, and marketing services, and the collective wisdom of The Linux Foundation’s many successful standards-setting efforts.

KC: Okay, hang on a minute. I’m not the most tech-savvy person in the world, so I want to be absolutely clear about this - exactly what are you building?  Is it software?  Hardware?  Just a loose coalition of companies creating standards?  I’m having a little trouble envisioning what the “final” product will look like.

JS: At present, we can envision three outcomes of the Open Voice work.

First, a set of technical specifications (software and hardware) that would be proposed as standards for the AI-voice industry – to be adopted by manufacturers of smart speakers, and more importantly, the developers of voice assistant interfaces and platforms.   It’s envisioned that these technical specifications would enable such things as platform interoperability, data privacy, and the global registration of an entity’s name – so that requests for “retailer A” would always go to retailer A.

Second, a reference architecture or reference design which would enable any third party to build an operative, standards-based device, interface, or platform.  This is the essence of “open” technology – the core capabilities are known to all, and used by all . . . and commercial offerings are then created by third-party developers, who differentiate their offerings by adding various features and services.

And third, an open AI-voice platform, such as the “Almond” platform recently created by Professor Monica Lam and team at Stanford University.   This is being made available to all, and is an alternative to proprietary platforms.
 
All three outcomes are aimed at the big goal: AI-voice that is interoperable, accessible (i.e., you can be confident of finding the other party you want), data protected, and secure . . . regardless of whether you’re communicating through a proprietary platform or a newly-available “open” platform.  If we do our work well, every AI-voice user will have a multitude of choices, and confidence that the system will work as promised – much as it is today with the internet.

KC: You talk about a “zero interface” system … but I’ve always been under the impression from Amazon that you need an interface - with wake words - in order to assure some level of privacy (and, as we now know, the Amazon system isn’t as private as we may have thought).  How do you address privacy concerns?  Who/what will be the arbiter of standards used in the system?

JS: The ”zero interface” is a reference to the fact that, with voice, we no longer type, tap, or swipe – we go back, if you will, to the interface of birth: voice.  With all voice interfaces to date, you will – as you point out – need a “wake word” that alerts the assistance to forthcoming commands or requests.

The topic of privacy in AI-voice is a multi-faceted challenge.  First, voice is a biometric identifier – I can determine who you are by your voiceprint.  Second, AI-voice provides much more than words or phrases; intonation, pitch, cadence, and patterns of hesitation all point to meaning and emotional states.  Third, AI-voice in commerce will contain all the information of a T-log, along with sequence of ordering and any questions that may accompany the purchase.  We are just beginning to identify and address the ethical, legal, commercial, and technological questions that emerge in the world of AI-voice.

KC: Who are you working with at this point?  Are there technology companies, retailers and/or suppliers who have committed to at least testing it?
 
JS: We have received an encouraging number of sponsorship commitments to date --  from retailers, consumer goods firms, technology firms, marketing agencies, and start-ups in the AI-voice space.  Thanks to this show of support, The Open Voice Network expects to officially stand up as an organization this Fall. 
 
KC: Can you imagine a time when Amazon might be accessible through the Open Voice Network?
 
JS: We can certainly imagine a world in which interoperability, accessibility, and data-protection standards for AI-voice have been adopted worldwide.  As part of that vision, we can certainly imagine an Alexa user connecting with assurance (and data protection) to a retail brand of choice that has built its AI-voice assistance system on another platform.

KC: How long will it take from conception to implementation?  And what do you need - in terms of money, participation and whatever else may be required - to achieve your timeline goals?

JS: The development and adoption of global technology standards is not measured in weeks or months, but in years.  That being said, we must act now – and with speed.  The most recent forecasts suggest a world of more than 8 billion operative AI-voice assistants by 2023.  Will that world be open or closed?  Good for the many or the few?

What do we need?  Two things: members and their active participation.   Membership brings the financial resources that enable us to invest in the academic and industry research from which standards will emerge.  Active participation results in brain-storming, best practice sharing, and the intellectual give-and-take that makes us all better.

Another note from the Content Guy: If indeed it is reasonable to argue that Amazon has successfully managed, through speed of innovation and implementation, to dominate the early e-commerce days of the AI-voice assistants business, then it may also make sense that for other companies - on the supplier and retailer sides, as well is in the tech sector - to find ways to collaborate that may give everybody a better chance to compete in this arena. I’m fascinated by what Jon Stine is proposing, and will look forward to tracking the Open Voice Network’s development as it moves forward.

If you want to know more about the Open Voice Network, go to its website, email him at jon.stine@openvoicenetwork.org , or call him at 503.449.4628.

Published on: July 29, 2019

CNN has a story about something that Walmart and Nordstrom have in common - they are both opening physical stores where people can’t actually go shopping.

• “Earlier this month, Walmart opened Walmart Pickup Point, a 40,000 square-foot prototype store outside of Chicago in Lincolnwood, Illinois, to cater to customers' online pickups and deliveries. Customers drive up to the site to designated parking spots, and a Walmart worker will load up their trunk with their order.

“The inside of the Lincolnwood locations looks like a Walmart with groceries and everyday items such as diapers, household cleaners and pet supplies. Unlike a traditional Walmart supercenter, however, customers won't be able go inside. It is also testing a similar model near its Arkansas headquarters.”

The CNN piece compares the Walmart Pickup Point to Nordstrom Local:

• “Nordstrom Local hubs are smaller than its traditional department stores. They give customers a place to make pickups and returns and take advantage of Nordstrom's alteration and tailoring services. Nordstrom has three Local stores in Los Angeles and is slated to open its first two in New York City in September.”

But the only clothes you’ll find there are those that you’ve picked out online and have had transferred there to be tried on.

CNN writes that “Walmart and Nordstrom's innovations are the latest examples of how retailers are attempting to create distinctive services to fight off Amazon.”

Published on: July 29, 2019

The New York Times has a story this morning about how, two years after Amazon bought Whole Foods for $13.4 billion, the deal seems to have “only whetted” Amazon’s appetite for further incursions into the industry.

Certainly, the Times writes, “the marriage has made clear the difficulties of selling fresh food inexpensively, either in a physical store or through delivery. Bananas are not the same as books. But the combination has also shown glimmers of success, particularly in delivery. And that has provided some fuel to Amazon executives pushing to add another food-selling option — one built from the ground up.”

Which is why “the company is now quietly exploring an ambitious new chain, probably separate from Whole Foods, that … would be built for in-store shopping as well as pickup and delivery.” The Times suggests that an old internal memo from early 2017 could frame the parameters of what Amazon has in mind:

“The new stores, the document envisioned, would have robust produce, fresh food and prepared meals sections. Nonperishable products, like paper towels or canned beans, would be stored on a separate floor, away from customers. Shoppers could order those items with an app, and while they shopped for fresh food, the other products would be brought down in time for check out. There would also be an area to pick up groceries ordered online and to manage packages for delivery drivers.”

The Times suggests something that ought to get the attention of all Amazon competitors: “To be a major grocery player, Amazon would need a little more than 2,000 stores, the old memo estimated. That’s far fewer than the 5,000 run by Walmart, the country’s top grocery seller, but more than the roughly 1,200 operated by Publix. Whole Foods got Amazon about a quarter of the way there.”

Published on: July 29, 2019

Good column in the Wall Street Journal by Bee Wilson about the criteria that people use when making food choices.

Here’s how Wilson frames the discussion:

“I recently visited an exhibition in London devoted to the future of food, called ‘Food. Bigger Than the Plate’ at the Victoria and Albert Museum until Oct. 20. Each room contains ingenious visions for reinventing how and what we eat. Will we embrace a sustainable form of salami fashioned from insects, an ingredient some chefs tout as a protein of the future? Will mushrooms be grown in spent coffee grounds, a plentiful bed of nutrients that is normally thrown away?

“In the final room, you can order from a futuristic ‘Food Lab.’ At a counter, you tick three criteria for ‘a great food system,’ and the chefs prepare a snack accordingly. You can choose from attributes that include ‘wild,’ ‘vegan,’ ‘cutting-edge,’ ‘open-source,’ ‘traditional’ and ‘zero waste’.”

After much agonizing I went for a snack that would combine ‘delicious,’ ‘nutritious’ and ‘biodiverse.’ They handed me a chia seed cracker topped with foraged mushroom spread (for biodiversity), fish dust (for a nutrient boost) and local sheep cheese, plus a relish made from tomatoes too ugly for the supermarket. It had a rich tangy favor from the sheep’s cheese and relish, which I assumed were meant to be the delicious elements in the snack (at any rate, they were the most delicious to me).

“I was glad I had put deliciousness first. The chefs behind the counter told me that almost everyone walking round the exhibition made the same choice. But in a sense it was all a trick. The chefs told me that they had designed everything on the menu to fit the ‘delicious’ category, on the understanding that few human beings in their right mind are eager to eat something that is described as less than delicious.”

Bee argues:

“For all of our modern food quandaries, delicious still wins. Sustainability matters, for sure, but what really speaks to us most about food remains the pleasure that it gives to us. It’s a shame that we spend so much of our lives denying this simple truth.”

Published on: July 29, 2019

The Wall Street Journal reports on the growth of private label - with its higher margins, lower marketing costs and expanding appeal - and its impact on “big food” companies.

Cited in the story:

• “Retail sales of private-label foods and beverages have notched faster year-over-year gains than branded items for three consecutive fiscal years, according to data from market-research firm Nielsen.”

• “Kroger Co. , the largest U.S. supermarket chain, has almost doubled the number of products it sells under its own brands since 2005. Walmart Inc., the biggest domestic food seller, has invested in improving the quality of its store brands. Rival grocer Albertsons Cos. said it introduced more than 1,100 private-label items in its 2018 fiscal year and that sales of those store brands made up about one-quarter of sales in its latest quarter, up from 23% in fiscal 2017.”

• “Retailers have been building out capacity to offer various store-brand products in addition to hiring manufacturers to make items for them. Walmart opened its own dairy plant, while Costco Wholesale Corp. is developing a poultry-processing facility. Kroger operated 37 food-production plants as of February, according to its annual report.”

The story notes that CPG companies have been cutting prices - even when commodity costs are going up - in order to stay competitive with own-label items.

Published on: July 29, 2019

The New York Times has a story about all the efforts that beverage manufacturers engage in to support recycling education, but the “one approach to recycling that many of these companies do not support has proved to actually work: container deposit laws, more commonly known as bottle bills, which cost them lots of money.”

The story suggests that “in the 10 states where consumers can collect a few cents when they return an empty bottle or can, recycling rates for those containers are often significantly higher. In some cases, they are more than twice as high as in states without such deposits.”

The Times writes that “for decades, beverage companies, retailers and many of the nonprofit groups they control have fought to kill bottle bill proposals across the country - with great success. Since 1987, only one state, Hawaii, has passed a bottle bill. This year, such measures have been proposed in at least eight states. Nearly all have been rejected or failed to gain traction.”

The end result is that “recycling in much of the country still depends almost entirely on the good will of consumers to place their used containers in a bin for pickup. The process is convenient, but means millions of bottles and cans head straight to a dump instead.”

The Times story notes that “facing public pressure over its contribution to plastic pollution in the ocean and the problems with many municipal recycling systems, the beverage industry has released broad statements in recent weeks suggesting a new openness to bottle bills.” But there is some skepticism in the pro-bottle bill community that this is anything other than public relations posturing.”

Published on: July 29, 2019

ZDNet reports that convenience store chain &-Eleven is “rolling out a self-checkout feature in its app that allows customers to scan barcodes of products and pay via PayPal or other online methods. However, checkout is not totally automated. Upon leaving the store, one must put their smartphone with the app running face down on a scanner to complete the transaction … What 7-Eleven has really done is not eliminate checkout lines but create two of them, one of which should have a shorter queue. Lines at the company's stores generally aren't too long as people pick up just a few items at a time as opposed to, say, a warehouse club. But it's clear that the prospect of competing with Amazon Go has the convenience chain focusing on the signature experience of that store. 7-Eleven's process may be primitive compared to Amazon's, but it does result in a faster checkout by waiting on even a short line.”

Published on: July 29, 2019

The BBC reports that British food delivery service, Just Eat is in talked to be acquired by a Dutch food delivery company, Takeaway. According to the story, the combined company would have an approximate market value of $11 billion (US).

The BBC points out that Just Eat says that “a fifth of the adult population in the UK used its services, while its delivery business in Canada - Skip The Dishes - was growing rapidly after the introduction of a bilingual service.” However, Just Eat is facing off in a pitched battle in the UK with the likes of Uber Eats and Deliveroo (which recently got a $575 million investment from Amazon, though the deal has been put on hold by antitrust regulators concerned about the impact on competition), and it has investors who are pushing for a sale, believing that it will be better served by being part of a larger, better financed concern.

Published on: July 29, 2019

• The Wall Street Journal has a story about Allswell, described as an “influencer-approved, online-only” brand of mattresses and bedding being pitched “to people willing to pay more than is typical for a mattress from a deep discounter.” Allswell was launched “like other direct-to-consumer startups of its ilk, starting with paid mentions among social-media influencers and a wacky marketing campaign—the company showed off its wares in a mobile tiny-home tour.”

But what wasn’t said was that Allswell is owned by Walmart, which “started it as an experiment in reaching younger, wealthier and more socially conscious shoppers.”

The Journal suggests that while Allswell seems typical for a Casper-Warby Parker world, it could one of two ways for Walmart:

“It is … either a brilliant move by Walmart into an area of product-as-marketing that will someday be the norm, or it is a cargo cult-ish attempt at doing all the surface things to attract affluent millennials that could founder once its target audience realizes that behind the curtain is the great and powerful deep-discounting big-box store.”

Published on: July 29, 2019

• The National Grocers Association (NGA) announced last week that Greg Ferrara, the organization’s executive vice president, will succeed Peter Larkin as president/CEO upon Larkin’s retirement on September 1.

Ferrara has been with NGA since 2005, and currently oversees NGA’s advocacy and lobbying efforts, public relations, industry relations and retail and wholesale membership.

Published on: July 29, 2019

• InsideBitcoins reports that Albertsons-owned Safeway is “partnering with Lolli, a Bitcoin rewards shopping app, to provide its customers with 3.5 percent of their purchases in Bitcoin. Per the post, the rewards program will be open to all online Safeway shoppers, and it will also be instituted at all 894 Safeway locations, which span 17 states in the country.

“However, instead of getting Bitcoins in rewards, users will be getting satoshis instead—cents on the dollar. In addition to that, customers who would like to be eligible for the rewards program will need to set up accounts with Lolli.”

The story says that the goal is to grow Bitcoin adoption in the US and transform it “into a major payment vehicle.” But to do so, they need a gimmick … and using bitcoin to reward Safeway shoppers seems to offer some opportunity.

Published on: July 29, 2019

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

• USA Today reports that “Costco membership cards have gone digital. 
Instead of flashing a plastic membership card when entering the wholesale club and at checkout, members can now pull up a digital membership card on the Costco app.”

The app is available for both Apple and Android users.

However, Costco has encountered some criticism on social media for not going far enough - the ability does not yet exist to load the membership card into the Apple wallet, which would make it even more accessible.

“Make it happen; it’s not that difficult,” wrote one critic on social media.

The digital card also is not yet accepted at Costco gas stations.

I’m with the social media critics on this … it cannot be all that hard to allow people to put the digital card in the Apple wallet, where it will be a lot more accessible.


• The Lincoln Journal Star reports that that Hy-Vee is changing vendors for its clothing boutiques, ending its relationship with F&F, which was originally developed by British retailer Tesco, and going into business with Joe Fresh, which was originally developed for Canadian retailer Loblaws.

Joe Fresh merchandise will begin being sold in Hy-Vee stores with clothing boutiques as soon as next month, the story says.

The Journal Star describes Joe Fresh as “an affordable line of clothing that is sold in nearly 1,500 Canadian retail locations, including Loblaws, a top Canadian grocery retailer, and Shoppers Drug Mart, a leading Canadian drug store retailer.” The brand made an effort to break into the US market through a deal with JC Penney, but that didn’t work out. It also had a store on New York City’s Fifth Avenue, but that was closed several years ago.


• Hy-Vee has announced its desire to open a freestanding pickup kiosk in a parking lot adjacent to its store in New Hope, Minnesota. The facility would have three lanes enabling people who placed online orders to easily pickup their merchandise; the goal is to cut down on traffic congestion in the front of the store.



• USA Today reports on a new Consumer Reports study saying that “major grocery stores such as Whole Foods, Acme, Costco and Hannaford have been selling some greens carrying listeria. The study they conducted, prompted by recent romaine outbreaks, included 284 samples of varying greens including kale, spinach, lettuce and others. In that selection, six samples were tainted with Listeria monocytogenes.”

However, the Centers for Disease Control and Prevention (CDC) doesn't seem concerned. "It's always concerning to find a bacteria that can make people sick in foods that won't be cooked," Brittany Behm, spokesperson at CDC told USA Today, but added, "It's important to remember that most of the time healthy people aren't going to get sick from Listeria.”

The story notes that “the populations more likely to be infected are the elderly, pregnant women, newborns, young children and people with poor immune systems.”

Oh. Only them. I feel so much better now.

Published on: July 29, 2019

• Nielsen is out with a new study saying that “although a large sector of cannabis products remain illegal under U.S. federal law, state-legalized cannabis and cannabidiol (CBD) from hemp will translate into billions of dollars in revenue. From marijuana sold via licensed dispensaries where it’s legalized for recreational use to hemp-derived products that are emerging at retail outlets, cannabis could generate new revenue for those that can capitalize on related opportunities … In 2018, we estimate that total sales of all legalized cannabis in the U.S. reached $8 billion. This includes sales of hemp-derived CBD. That’s $8 billion in a country where marijuana is now legal for recreational use in just 11 U.S. states and Washington, D.C. With newer recreational markets such as Michigan and Illinois opening up for business in 2020 and more states likely to follow suit, we predict that sales of all legalized cannabis in the U.S. will reach $41 billion by 2025.”

However, the Nielsen study also cautions: “The legal constraints for use and sale vary by retailer, state and even by city for each sector of the cannabis market, and therefore demands careful attention by all prospective entrants to this market. This landscape is fluid and poised for change.”

You can access the Nielsen study here.

Published on: July 29, 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.

• Bloomberg reports that the Trump administration is threatening tariffs on French wine.

The reason? France plans to “tax big multinational tech companies.”

According to the story, “The law signed by President Emmanuel Macron imposes a 3% tax on the revenue of technology giants such as Facebook Inc. and Amazon.com Inc … The tax, retroactive to January, affects companies with at least 750 million euros ($845 million) in global revenue and digital sales of 25 million euros in France. While most of the roughly 30 businesses affected are American, the list also includes Chinese, German, British and French companies.”

Responding to the law, President Trump tweeted, “France just put a digital tax on our great American technology companies. If anybody taxes them, it should be their home Country, the USA. We will announce a substantial reciprocal action on Macron’s foolishness shortly. I’ve always said American wine is better than French wine!”

Trump, of course, has long said he has never consumed either alcohol nor coffee. However, he does own a winery in Virginia.

The story notes that just last month, Trump “promised to do ‘something’ about French wine that he said is allowed into the U.S. virtually tariff-free while France imposes duties on U.S. wine, calling the arrangement unfair … Wine is France’s second-biggest export after aerospace equipment. The U.S. is the biggest market, accounting for about a quarter of France’s 13.2 billion euros in wine exports last year.”

France has argued that taxation on global digital companies is a different issue and needs to be considered separately from wine tariffs.

Published on: July 29, 2019

Responding to Albertsons’ quarterly numbers, one MNB reader wrote:

Not exactly big numbers, but at least they're out of the red. Enough to raise an IPO? Not in my opinion.



On the subject of plastics, one MNB reader observed:

Let me preface this by saying I am among those that are trying to reduce my use of plastic as much as possible. But, this piece made brought to mind another great visionary, George Carlin. Perhaps one of his most amazing bits was about saving the planet where he expounds about how the planet will be fine and perhaps one of our sole purposes in life is to create plastic. As we enter this new chapter where industry is starting to take notice of our impact on the planet, I wonder how or if his views would change.

"If it’s true that plastic is not degradable well, the planet will simply incorporate plastic into a new paradigm: the earth plus plastic. The earth doesn’t share our prejudice towards plastic. Plastic came out of the earth. The earth probably sees plastic as just another one of its children. Could be the only reason the earth allows us to be spawned from it in the first place: it wanted plastic for itself. Didn’t know how to make it, needed us. Could be the answer to our age-old philosophical question, “Why are we here?” “Plastic.” - George Carlin

In the headline about the plastics story, I referenced Benjamin Braddock, which prompted MNB reader Louis A. Scudere to write:

Love the Graduate reference...wonder how many younger than 60 will get it.

And, from another reader:

Wow another sly tip of the cap to The Graduate. Twice in less than a year…

Can’t make too many Graduate references. But as for people under 60 … well, I’m afraid that in most cases, all I get back is the sound of silence…



We had a story the other day about how Wakefern is getting into the micro fulfillment center business, with plans for one in New Jersey that will be designed to serve online customers of fewer than a dozen ShopRite stores operated by member Inserra Supermarkets. The mini-warehouses will fulfill both pickup and delivery orders, and are said to be able to robotically assemble orders of 60 SKUs or fewer in a matter of minutes.

I commented:

This is how you compete. You find ways to exploit your local connections, to take advantage of proximity and speed up your operations in a way that gives you a differential advantage.

This is one of the things I love about Wakefern and its retailers. They do the hard work, they play all the angles available to them, and they see a few angles that nobody else does. No whining. Just hardball competition.

Prompting one MNB reader to write:

I agree with everything you said, KC - one need only look at their average sales per store to see what a great job they do in a highly competitive market.



We also had a story the other day about the Seattle soda tax, which has been bringing in far more money than expected … in part because it doesn’t seem to have done what it was intended to do - discourage people from drinking soda. In fact, consumption seems to be going up, as it also has in other markets where a soda tax has been imposed.

I commented, in part:

Naturally, even as people debate the health implications of all this, local politicians are fighting about what to do with all the money … I personally don’t have a huge problem with soda taxes. I think that over-consumption can create health problems, and health problems can create public policy issues, and so it makes sense to craft a nuanced response to them. But it looks like this response wasn’t nearly nuanced enough.

Which makes me think, maybe we ought not to take this approach. Not that we should ignore potential health and public policy issues, but maybe, just because the world is a tough place to live in, we ought not be too worried if people want to have a Coke. It makes them feel better, and feeling better is something that these days shouldn’t be underrated.

One Seattle retailer and MNB reader wanted to challenge me on this:

The city council did not knowledge of actual sales of soda drinks when they made their projections. The tax revenue surplus that they have been experiencing was due to an initial low estimate of sales, not that sales haven’t changed.

As a grocery retailer doing business in Seattle, I think that there are a number of things wrong with the city’s taxation.

First, it’s not a soda tax. The official ordinance language is Sweetened Beverage Tax. The tax applies to any non-alcoholic beverage with any ingredient in any form of caloric sugar-based sweetener including but not limited to sucrose, glucose, or high fructose corn syrup. So the list of products is huge, and goes way past carbonated soda. It’s not just Coke, it’s hundreds of products that have increased. Gatorade is an example. Ironically, all Starbucks sweetened drinks have an exemption.

The tax has doubled the retail shelf price in many cases. Since it raises the cost per ounce by 1.75 cents, the lower the retail price was before the tax, the higher the retail percentage price jump. For retailers that are located just outside city limits, they have a huge price advantage for what is a significant category. The small mom and pops that often have a large sales mix of sweetened beverages had the largest disadvantages.

To make matters worse, Seattle has one of the highest sales tax rates in the country, and sodas are taxed at 10.1% on top of the Seattle “Soda Tax” . Double taxation if the term I believe. One of the most well known Seattle retailers that has locations just outside the city (and internationally) encouraged their customers to buy their sweetened beverages in their outlying stores. Smaller Seattle retailers don’t have that option, and have no choice but to charge as much as double the market price.

Finally, Washington State has been said to have one of the most unfair tax systems in the country, with the hardest hit being the lower income population. The “Soda Tax” revenue is driven by a higher proportion attributed to this group. While the intent of the tax was to reduce consumption and direct revenue to educate consumers to improve health, much of the funds made its way to Seattle’s general fund.

As a Seattle retailer, I can tell you this. The higher prices have definitely pushed purchases of sweetened beverages from Seattle stores to outlying retail locations. The tax effect simply moved the purchases out of town. It’s double taxation, and targets the most vulnerable group in a very expensive city. So I can’t agree with you and say I have no problem with so called soda taxes. It’s a much larger problem than you see on the surface.



Finally, regarding last week’s piece about the problems that private equity can create in retail, MNB reader Carol Elliott wrote:

I was lucky enough to be present during a Wal-Mart annual meeting for their top 500 suppliers. CEO's and their seconds in command were present. David Glass took the stage and started his address to the group with this sentence: "The people who have affected all of the LBOs in this country ought to be taken out and shot."  He detailed, in his view, the ill effects of a "massive wealth transfer" that was the result of LBOs and cautioned the group to guard their companies against "these predators". He reassured the audience that Wal-Mart would never be party to an LBO and that they had put "measures in place" to specifically guard against them.

Given that Wal-Mart was expanding almost exponentially at the time and had very aggressive growth plans that they outlined, I couldn't help but to be somewhat skeptical. However, they actually exceeded their expectations. And yes, they caused a lot of disruption as Amazon has more recently.  In my estimation, here's how both Wal-Mart and Amazon achieved success: laser focus on their customers, prudent financial management, superlative inventory management, aggressive adoption of technology, and in Wal-Mart's case, focus on their front line managers. Put simply, they both know what business they're in and execute accordingly.

However, retailers like Sears destroyed themselves from within. Failure to anticipate consumers' changing preferences, horrible inventory management, poor store management, lack of technology infrastructure, etc. plagued Sears and others. Private equity just hastened their demises. So, while it's a complicated issue, as with most business issues, it comes down to simply understanding what your "purpose" is. Sears, especially, lost their way long before they went bankrupt. I feel for all of the dedicated people who worked there and who tried to do their best, only to lose their jobs and pensions. 

Thanks as always for your great content. It's been a "must read" for years…..