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    Published on: January 6, 2020

    by Kevin Coupe

    It made news at the end of last week when U-Haul announced that in the 21 states where it is legally allowed to do so, it will no longer hire nicotine users, saying that it wants to promote “a culture of wellness,” and have a healthier workforce.

    I'd guess that it also almost certainly will help the company get lower insurance rates, and save it some healthcare money. Not that this is a bad thing. It may be gravy, but it'll be tasty gravy.

    The decision also generated some controversy. Not surprisingly.

    The Washington Post writes that "prospective job applicants in 21 states where companies are allowed to refrain from hiring nicotine-using individuals can expect to see the anti-nicotine policy on job applications and to be questioned about their nicotine use, according to the company. They can also be required to undergo nicotine screening to be deemed hirable in states where testing is allowed … U-Haul will grandfather in current workers who might be nicotine users. The company offers nicotine cessation assistance to employees."

    But … there is an argument that this may be more punishing than encouraging, since the policy is said to exclude from employment even people who are using nicotine-based smoking cessation products. And some say that it is at least mildly hypocritical for U-Haul to ban the hiring of people who are addicted to nicotine when it has coffee - which can lead to caffeine-addiction - in its offices, and isn't banning people who drink alcohol and could be addicted to it.

    I cannot say I blame U-Haul for the decision. Beyond the fact that I am assiduously anti-smoking, I do think that companies have a right to do what they can to assure that their workforces are as healthy as possible. And unlike coffee and alcohol, tobacco and its various delivery systems have been engineered to addict people to something that is likely to eventually kill them.

    I suspect that someone will challenge this, on the grounds that while tobacco may be addictive and potentially lethal, it also is legal. Which eventually, I'd guess, will call into question the laws in the 21 states that don't prohibit such moves … and maybe those in the 29 that do. It'll be interesting to see how the judiciary makes these decisions.

    Regardless … this is an Eye-Opening move by U-Haul. And I wonder if we'll see more of this going forward as smoking and smokers get marginalized.
    KC's View:

    Published on: January 6, 2020

    The New York Post reports that Fairway Market, which started life as a fruit-and-vegetable stand during the Great Depression and evolved into one of New York's iconic food retail names, is "on the verge" of filing for bankruptcy for a second time … with some speculating that it could be looking at liquidation.

    The company has been in the process of closing some of the suburban New York-area stores, and the Post says that it "may even lose its flagship store on Broadway and West 74th Street as competitors, including ShopRite, have toured the store with an interest in acquiring the real estate."

    Here's how the Post describes the company's seemingly relentless decline:

    "Fairway’s downturn started in 2007 when the Glickberg family sold an 80% stake to private equity firm Sterling Investment for $140 million. Four generations of the family had owned and operated a handful of Fairways in NYC, starting with a fruit-and-vegetable stand that opened in 1933.

    "Fairway quickly fell victim to Sterling’s aggressive expansion plan aimed at enticing suburban shoppers, which only served to burden the company with a crushing $300 million in debt. Sterling took Fairway public in 2013 and worked to transform the local city grocer into a national chain with 300 stores, including many in the burbs … It was bought out of bankruptcy by an investment arm of Blackstone, GSO Capital, which recently sold its stake.

    "Now owned by lead shareholders Brigade Capital Management and Goldman Sachs Group, Fairway is quietly closing stores with the most recent shuttering in Nanuet, New York — a 65,000-square-foot store that closed in September. Sources say another two stores in New Jersey — in Paramus and Woodland Park — are likely next on the chopping block. Half of its 14 stores — and the ones struggling the most — are in the suburbs of Long Island, Connecticut and New Jersey, sources said."

    A major component of Fairway's problem, the story says, is that it has close to $175 million in debt that matures in just a few years. The other component of its problem - the fact that so many of its stores are struggling - makes it unlikely, maybe impossible, for it to meet those debt obligations. Sources tell the Post that the moves it is making now likely presage an eventual liquidation sale, since there is little evidence that it is able to turn things around.
    KC's View:
    As usual, I'm more interested in the second part of the problem - the strategic and tactical issues that plague the company - than the first.

    Fairway started going downhill, it seems to me, almost from the moment that the Glickberg family sold it. I've never understood why the buyers didn't insist that the Glickbergs stick around to teach them about the business … the buyers never really seemed to understand the secret sauce that made Fairway special, but rather embarked on a horrible strategy of diluting that sauce and adding all sort of ingredients that in some ways made in unrecognizable.

    By the way … it is emblematic of Fairway's lack of focus on its brand equity that it is using Instacart to make its deliveries. There are few faster ways to enable the erosion of your brand than making a deal with Instacart and allowing people to think that they are shopping there rather than with you.

    It would be a shame if Fairway went away, but if it happens, it will be suicide. Not homicide.

    Published on: January 6, 2020

    Advertising Age reports that Walmart's ad tech business, Walmart Media Group, last Friday "introduced Advertising Partners, a new unit that includes third-party vendors Flywheel Digital, Kenshoo, Pacvue and Teikametrics. The move will potentially allow advertisers to tap into Walmart’s trove of consumer data to offer advertisers better targeting and measurement tools."

    The story says that "Walmart's key differentiator is its massive data on offline sales, as the company can now attribute digital ads to products purchased in store by consumers … That will surely grab the attention of packaged goods advertisers, as their digital marketing challenge is often the inability to tinker with their digital ad spend based on tying it back to actual sale. Until now, most of their Walmart sales are done through third-party retailers who are unable to provide any sort of attribution."

    Ad Age writes that this is "a shot across the bow of its biggest rival, Amazon … The vendors Walmart selected also happen to represent large advertisers who already use their tools to buy ads on platforms such as Amazon and Google Shopping."
    KC's View:
    No question that Walmart is smartly looking for ways to turn its advantage over Amazon - thousands of stores with enormous proximity to customers and resultant sales data - into a weapon that can drive its momentum going forward.

    We're going to see more and more of this, as smart business leaders define ways in which they can compete with Amazon by doing things that it cannot and/or will not. At the same time, we'll see Amazon doing the same - which is why it is doing more bricks-and-mortar investment, and continuing to innovate with the customer in mind.

    With the customer in mind. Those five words, I think, ought to be the highest priority for everyone jumping into this competition. If what Walmart is doing with its ad tech business is good for consumers, that will be an advantage worth having. But if customers are not the beneficiaries of these innovations, it could be problematic.

    Published on: January 6, 2020

    The Wall Street Journal reports that a new survey from The Conference Board suggests that "fear of an economic decline" tops the list of concerns expressed by US CEOs - a change from 2019, when it ranked third, and 2018, when it "was barely a blip in the survey data."

    According to the story, "The Conference Board projects that global growth will accelerate slightly this year to 2.5%. The organization’s report accompanying the CEO survey warned that executive fears, justified or not, can have consequences for the economy. 'One real risk of this recession mindset is that it can become a self-fulfilling prophecy,' the report warned."

    Other concerns expressed by CEOs included global trade … global political instability … more intense competition … and the tight labor market.

    The Journal writes that "when it comes to internal pressures, global CEOs ranked attracting and retaining top talent as their chief concern, followed by creating new business models because of disruptive technologies, fostering a more innovative culture and developing leaders."
    KC's View:
    I've read a bunch of stories suggesting that the likelihood of a 2020 recession actually has decreased in the minds of many economists, but for CEOs, it seems to be a greater concern.

    Maybe I'm oversimplifying. But if you're going to believe someone, would it be an economist or a CEO?

    Published on: January 6, 2020

    The Washington Post writes about the Consumer Electronics Show (CES) in Las Vegas, taking place this week, described as "a massive marketing event where technology companies show off their newest innovations. It’s a parade of product announcements, very sharp TVs and weird gadgets, many of which will never be released."

    On tap this year will be various forms of facial recognition technology, "which has caused a lot of controversy and concerns over privacy and bias … the same companies making those systems want it to be embraced as a fun, user-friendly technology that makes tasks easier."

    That's not the only recognition tech getting attention: "A number of companies are planning to show toilet-related tech … Toilets are getting sensors to help determine how much water each flush requires, voice assistants are standing by to flush your toilet, and wearables monitor your stomach and send you a smartphone notification when it’s time to use the bathroom. Toilet paper maker Charmin is even showing off demos of something mysterious called a 'roll bot'."

    The Post notes that "cannabis and tobacco technology, such as vaporizers, is still forbidden at the show. But if past years are any indication, crafty cannabis-adjacent companies will find a way around the rule with clever marketing and euphemisms. There are indoor-hydroponics systems and machines that blend essential oils (including, say, THC). Expect more of the same this year, including a secure, odor-concealing box called Trova for 'objects that aren’t for all audiences'."

    One change this year will be that "for the first time in its 52 years, the conference will allow sex-toy companies to exhibit on the show floor" in the health-and-wellness section. This segment generated some controversy last year when one sex toy company won a CES innovation award, which was taken away because the product was "immoral, obscene, indecent, profane," and then reinstated after CES realized that it had handed the manufacturer more publicity than it possibly could've gotten under other circumstances.
    KC's View:
    Last year the largely unexpected hit of CES was an automated bread baking vending machine. It'll be interesting to see what emerges as the unexpected hit this year.

    Published on: January 6, 2020

    Good piece in the Wall Street Journal about how Amazon and Microsoft are "turning up the pressure on each other as they battle to supply corporate America with remote computing power, stoking a fight that is expected to dominate the tech world over the next decade. Revenues from this business - known as cloud computing - jumped 246% in the previous decade, according to a 2020 estimate from research firm Gartner Inc."

    Amazon has been the dominant player in this segment, but Microsoft is amping up the competition, "telling potential clients that, unlike with Amazon, when they sign up for the company’s Azure cloud-computing business they won’t be placing valuable customer or product information into servers run by a potential rival." But Amazon argues that companies like Microsoft are wannabes; Andy Jassy, chief executive of Amazon Web Services, recently said that "there are a lot of companies that have become pretty good at being checkbox heroes, where they kind of look at something we have and they rush to have it out there and say we have it too.”

    You can read the entire story here.
    KC's View:

    Published on: January 6, 2020

    Reuters reports that Amazon "is considering opening stores in Germany, its second biggest market after the United States, the ecommerce company’s head in the country was quoted as saying on Saturday."

    According to the story, Ralf Kleber "declined to give concrete details or a timetable," though he also said that "Amazon wants to push shopping via its Alexa voice-controlled devices, noting that it was selling its Echo Dot device at a low price to encourage widespread adoption."

    The story notes that "Amazon already operates stores in the United States and Britain, including the Whole Foods grocery chain and checkout-free Amazon Go food stores."
    KC's View:

    Published on: January 6, 2020

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

    • Save-A-Lot, which was acquired by Canadian private equity group Onex Corp. from Supervalu in 2016, said on Friday that it "has reached an agreement with a substantial majority of its lenders to recapitalize the business and deleverage its balance sheet," a move that it hopes will give it breathing room to implement a business plan that will resuscitate the company's operations.

    According to the announcement, "Under the terms of the agreement, which has been approved by lenders representing 67% of the Company’s term loan credit agreement, Save A Lot will receive $138 million in new capital to strengthen the business and provide financial flexibility. In addition, the agreement provides for a reduction of indebtedness of over $400 million, strengthening the Company’s balance sheet and significantly reducing annual interest expense."

    “The agreement with our lenders is an important step in securing Save A Lot’s long-term success,” said Kenneth McGrath, Save A Lot's CEO. “This is a significant statement of confidence in our business and gives us the appropriate levels of capital to compete effectively.”

    I hope so, for Save-A-Lot's sake. I've been to way too many of its stores that suffer from "nobody gives a damn" syndrome, and the company has not been able to get the kind of traction based on a defined differential advantage that would allow it to survive. They may have money now … but the question is, does Save-A-Lot have any good and original ideas?

    • In Oregon, the Bulletin reports that Rudy's Market Inc., parent company to Newport Avenue Market in Bend, has acquired the Terrebonne Thriftway, in Terrebonne, and renamed it Oliver Lemon's.

    Terms of the deal were not disclosed.

    “We believe Oliver Lemon’s will be their own distinct brand, different than Newport,” Lauren Johnson, CEO, tells the Bulletin. “The opportunity presented itself, and we wanted to be in Terrebonne. We thought it was a fun name and reflects who our employee owners are and that we live in a great place with colorful characters here.”

    The story notes that "Rudy Dory founded Newport Avenue Market, but the company has been employee-owned since 2015 when the family owners created an employee stock ownership plan, or ESOP. There are now more than 100 employees at the Bend store.
    This is the second store that Rudy's has acquired in recent years; in 2017, it bought Melvin’s Fir Street Market in Sisters.

    Sisters is about 22 miles northwest of Bend; Terrebonne is about 23 miles due north.

    Newport Avenue Market is one of my favorite independent retailers - they're smart and creative and ambitious, and I'm thrilled to see that the company is finding ways to grow at a timer when a lot of small retailers are thrashing about trying to find a solution. Newport Avenue Market's approach has always been to create strong connections with the communities it serves, and be willing to try new things whenever and wherever possible. I love it.

    • The Wall Street Journal reports that "Bed Bath & Beyond Inc. has signed a deal to sell roughly half its real estate to a private-equity firm and lease back the space in a transaction that will generate more than $250 million in proceeds for the troubled home-goods retailer, according to people familiar with the situation … The proceeds will be used to repay debt, buy back shares and fund a turnaround effort."

    The troubled retailer, the Journal writes, "is expected to evaluate the rest of its real estate and retail concepts, which include the Buy Buy Baby chain and Harmon drugstores."

    Another example of a company that really doesn't do anything different, and which has seen its competitive advantages erode with the growth of Amazon. My question is this: Now that you have some financial breathing room, what are you going to do with it that is innovative and creative?
    KC's View:

    Published on: January 6, 2020

    • Richard Wardwell, who joined California-based Superior Grocers more than five years ago after a career spent at Raley's, Walmart and Save Mart, has been promoted from COO to the company's presidency.

    • The Wall Street Journal reports that "Marks & Spencer Group PLC said Friday that it has appointed David Surdeau as interim chief financial officer while it looks for a permanent replacement for Humphrey Singer, who left on Dec. 31 … Mr. Surdeau previously worked at Tesco PLC for over 16 years, most recently as group planning, treasury and tax director."
    KC's View:

    Published on: January 6, 2020

    Georges Duboeuf, who popularized the sale and consumption of Beaujolais Nouveau - promoting it so relentlessly and enthusiastically that wine drinkers waited with bated breath for its release date - has passed away at age 86 after suffering a stroke.

    The BBC reports that he "opened his own winery, Georges Duboeuf Wines, in 1964," and "throughout the 1980s he held Beaujolais Nouveau festivals which were attended by celebrities of all kinds, including Michelin-starred restaurateurs. By the time he passed the company on to his son Franck in 2018, the company was producing about 30 million bottles a year that were sold internationally."
    KC's View:

    Published on: January 6, 2020

    MNB reader Andy Casey had a thought about how car companies are teaming up with Amazon to put Alexa-power systems into more cars:

    I realize this is inevitable, perhaps useful, but I’m worried about adding distractions for drivers in the short term.  Of course, when we get to the autonomous driving nirvana projected to come the car will just be another place for all manner of marketing promotions and communications. Whether that is progress or not, I suppose will be in the eye of the beholder.

    They'll have to pry the manual transmission from my cold dead fingers.

    Regarding the move by Sears to sell its DieHards brand to Advanced Auto Parts, MNB reader Mike Bach wrote:

    Advanced Auto Parts ... if they depend on retail then beware. (Or, putting their name on a College Bowl game as their primary marketing spend.)  I think the new retail will be ONLINE + instant-delivery; no physical retail assets.  The DieHard brand is nice, but the ROI on that purchase is stronger, if it enables ONLINE + instant delivery.

    Consumers, at an increasing rate (according to your technology story) will be armed with the best product intel, product stats, availability projection and product pricing that retail marketing will become of lesser consequence.

    On an other subject, from an MNB reader:

    I’m a bit dubious when it comes to the development of biometric-based systems.  I love the idea of scanning my thumb print or palm.  Quick, easy, and I never forget my pin number.  But I currently have an iPhone that can’t read my thumb print.  A friend of mine used to work with our local police and was told that taking finger prints of older people was difficult.  It seems our finger prints wear off as we age (which explains why objects slip out of my hand all the time; no finger print ridges to grip with).  If a palm reader requires you to hold your palm flat against the reader, my hands don’t do that anymore.   It’s not just a matter of reading palms, it’s a matter of dealing with the aging population with an ever-changing set of challenges.  Alas, for now, my pin number is the only way to access my iPhone.

    On the subject of start up companies being launched to facilitate the many returns going back to retailers, MNB reader Gail Nickel-Kailing wrote:

    I was in the midst of the “Dot Com” run-up and bust in the late 1990s and early 2000s and there were indeed companies then trying to develop a returns distribution network. Though I guess you couldn’t really call it a “distribution network,” maybe a “returns facilitation system.” One was located on Mercer Island WA, though for the life of me I can’t remember the name. I do recall meeting the founder and discussing their process. Lordy, that was a long time ago!

    The more things change…

    Finally, last week we took note of a CNN report that the Ninth Circuit Court of Appeals has ruled that if a company makes a diet soda that doesn't make people lose weight, it does not mean that the company has engaged in false advertising … The original complaint argued that "due to the prominent use of the term 'diet' in the product's name, Diet Dr Pepper consumers reasonably believe that the product will assist in weight loss, or at least healthy weight management, for example, by not causing weight gain."

    But the Ninth Circuit maintained that "no reasonable consumer would believe that the word 'diet' in a soft drink's brand name promises weight loss or healthy weight management."

    I commented:

    I feel bad for the plaintiff, only because we all wish there were magic pills or potions that would cure our maladies and conditions. But there aren't … and that can be a hard lesson.

    I've said it here before, and I'll say it again.

    I’ve always told my kids that life essentially boils down to a simple equation:

    Responsibility + Discipline = Autonomy

    Not pills and potions.

    And autonomy, I’ve always told them, is the Holy Grail when it comes to living your life.

    MNB reader Dan Blue wrote:

    I really like the simplicity of your equation Responsibility + Discipline = Autonomy. Like all great equations, it’s simple and is easy to understand. I’m going to use it with my 12 year old.

    But MNB reader Bill Welch has a different version:

    Integrity + Self Reliance = Success

    For me, Autonomy is equal to Success … and ultimately more important.

    Of course, that could explain my career.
    KC's View:

    Published on: January 6, 2020

    It was Wild Card weekend in the National Football League…

    Buffalo 19
    Houston 22

    Tennessee 20
    New England 13

    Minnesota 26
    New Orleans 20

    Seattle 17
    Philadelphia 9
    KC's View: