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    Published on: June 11, 2020

    KC considers two of his favorite brands - Graeter's Ice Cream and Stumptown Coffee - that have seen their traditional business models challenged by the pandemic.  While both brands have had to pivot on strategy and tactics, KC argues that their saving grace is a relentless, laser-like focus on their value propositions - quality and heritage.  And that's huge!

    Published on: June 11, 2020

    Starbucks said yesterday that it expects to lose between $3 billion and $3.2 billion in quarterly sales because of the coronavirus, and as a result plans to close some 400 stores in the US over the next 18 months.

    The Puget Sound Business Journal reports that in closing those stores, Starbucks plans to "transition to more pickup locations designed for on-the-go customers, as opposed to traditional cafes. The company typically closes about 100 stores annually in the Americas due to lease expirations and other market factors … This shift to on-the-go stores has been underway for two years. It includes the expansion of new Starbucks Pickup stores in dense markets, including New York City, Chicago, Seattle and San Francisco, Starbucks spokesperson Jonathan Cruz said.

    "It also includes design of convenience-led enhancements such as curbside, drive-thru and walk up windows in suburban areas, he said. The company has resumed opening new stores and plans to open 300 net new stores in fiscal year 2020 – down from its original plan to open 600 this year."

    “While we had originally planned to execute this strategy over a three- to five-year timeframe, rapidly evolving customer preferences hasten the need for this concept and we are now envisioning the accelerated development of Starbucks Pickup stores in major U.S. cities over the next 18 months, including retrofitting and repositioning many existing cafés to expand our store portfolio with a mix of appropriate store formats,” CEO Kevin Johnson and Chief Financial Officer Patrick Grismer said in the statement.

    Roughly 95 percent of Starbucks' US stores have been reopened now that shelter-at-home and lockdown policies have been relaxed, though most of them have modified operations that do not allow for indoor seating.  The Business Journal says that "about 90% of sales were through the drive-thru window and mobile-order-and-pay in the last week of May, compared to roughly 60% before Covid-19."

    KC's View:

    And in other news, former Starbucks CEO-chairman Howard Schultz, who retired from the company in 2018 to explore a possible presidential campaign, announced via social media that he would return to the company because only he could fix what ails it.  

    Just kidding.  (Though I bet more than a few Starbucks execs and vets immediately checked their social media sites, wondering how they missed this particular bit of news.)

    I wouldn't be surprised if we heard some noise from Schultz, however.  I've always thought that he has a bit of a messiah complex, which showed itself in 2008 when he took back the CEO job after stepping into the chairman's role, and again showed itself when he talked about running for president.

    I do think that this is an interesting time for Starbucks, one that may provide a number of lessons for other retailers.  The third-place strategy that always the core of its value proposition already had begun to fade a bit - that is evident in the to-go sales percentages from before the pandemic.  But now it is pivoting to an even greater extent … though I absolutely believe that as it does so, the data and customer connections that have been forged through its order-and-pay mobile app will be invaluable.

    That said … if I were Kevin Johnson, I'd occasionally look out the window, scan the traffic on Utah Avenue, and see if Schultz is driving by.   If so, I'd invite him in for a cup of coffee.  To go.

    Published on: June 11, 2020

    Axios reports that the US Department of Labor released new data this morning saying that 1.5 million Americans filed jobless claims last week.

    According to the story, "Twelve weeks after the crisis began, new unemployment applications are still more than double the previous record number of weekly filings — set in 1982.  Continued claims, or the number of Americans continuing to receive unemployment benefits after initially applying, dipped slightly to 20.9 million from 21.2 million.

    "A drop-off in this figure is a sign that a wave of workers are falling off the ranks of unemployment and possibly returning to work."

    The story notes that "unemployment applications have tapered off from their peak at the start of the coronavirus pandemic, but remain at historically high rates even as states take steps to reopen and businesses start to bring workers back."

    Published on: June 11, 2020

    Exclusively from the Wall Street Journal this morning:

    "The European Union plans to file formal antitrust charges against Amazon. AMZN 1.79% com Inc. over the e-commerce company’s treatment of third-party sellers, according to people familiar with the matter.

    "The charges could be officially filed as early as next week or the week after, one of the people said. The European Commission, the bloc’s top antitrust regulator, has been honing its case, and the case team has been circulating a draft of the charge sheet for a couple of months, another person said.

    "The formal charges would be the commission’s latest step in a nearly two-year probe into Amazon’s alleged mistreatment of sellers that use its platform. The charges—called a statement of objections—stem from Amazon’s dual role as a marketplace operator and a seller of its own products, the people said. In them, the EU accuses Amazon of scooping up data from third-party sellers and using that information to compete against them, for instance by launching similar products."

    Amazon has not commented on the specific story, but has maintained in the past that it does not abuse its size and ubiquity when selling own-label products.

    Published on: June 11, 2020

    Newsday reports that Ahold Delhaize-owned Stop & Shop is ending its planned acquisition of King Kullen, the 37-store Long Island, New York, supermarket chain.

    The two companies cited marketplace changes created by the Covid-19 coronavirus pandemic as the reason they could not conclude a deal, but would not get more specific than that.

    The acquisition originally was announced in December 2018.  No price for the purchase was disclosed.

    Newsday notes that even without King Kullen, which has been in business for 90 years, Stop & Shop still "has the largest grocery market share on Long Island, where it employs more than 8,000 workers at 51 stores."

    KC's View:

    I hope this is not a case of King Kullen, experiencing a surge in sales because it suddenly was seen as "essential" because of the pandemic, getting an inflated sense of self-worth.  I don't know of anyone on Long Island that ever would've described King Kullen as essential before the pandemic, and in a lot of ways, I suspect that King Kullen may be as vulnerable to strong competition - from companies ranging from Amazon to Walmart to Aldi to Stew Leonard's - as any US supermarket chain.

    Stop & Shop may have seen King Kullen as being a real estate play, and  sometimes you have to know when to walk away from a deal that no longer makes sense.

    Published on: June 11, 2020

    The New York Times this morning reports that "Just Eat Takeaway, a European food delivery service, said on Wednesday that it had agreed to buy Grubhub for $7.3 billion, a deal that would give it a foothold in the United States."

    The Times notes that "Uber had been in talks to buy Grubhub, but those discussions foundered over price and regulatory concerns, said people with knowledge of the discussions, who were not authorized to speak publicly. If Uber had bought Grubhub and combined it with Uber Eats, the result would have been the largest food delivery service in the United States, with about a 55 percent market share. That had attracted antitrust scrutiny."

    Uber is saying that it will continue looking for food-centric companies to acquire.

    Jitse Groen, CEO-founder of Just Eat Takeaway, launched " in 2000 when he was a student frustrated with the challenge of ordering pizza online. He took public in 2016, and now has a net worth of more than $1.5 billion, according to Forbes.

    "In addition to the deals for Grubhub and Just Eat, Mr. Groen bought the German portion of Delivery Hero’s business for about $1 billion in 2018."

    KC's View:

    It'll be interesting to see what addition M&A activity takes place now in the hot food delivery sector.  I'd expect to see a bunch of interesting deals … and maybe even a move by some traditional retailer to get into the space by writing a check.  (Let's face it.  The GrubHub deal would've been even more interesting if it had been bought by the likes of Walmart.)

    Published on: June 11, 2020

    As protests continue to take place to push for racial justice, prompted by the murder of George Floyd, an African-American man who died after a Minneapolis police officer pressed a knee into his neck, American businesses continue to respond in a variety of ways.

    Some random examples:

    •  Albertsons yesterday announced "a $5 million donation to social justice organizations as well as those on the front line of the fight for equality," including a "$2 million donation toward the social justice efforts of the NAACP Legal Defense and Education Fund and the National Urban League Inc … a $1 million donation toward the company’s African American Associate Resource Group’s efforts to partner with local organizations who are working to support communities and neighborhood actions throughout our market areas … and a $1 million reserve fund for social justice and diversity initiatives in the future, including community outreach, supplier diversity and ongoing education."

    “Racial justice and equality cannot be achieved by people returning to the status quo. We must intentionally open a door to lasting change across our country,” said President and CEO Vivek Sankaran. “We’ve seen unity in the seas of people throughout the country demanding justice for those whose lives were senselessly taken and calling for an end to hatred, intolerance and systemic racism. We will be part of the solution by helping our communities lay the foundation for racial equality and social justice.” 

    Then company said that the first step it took "was a conversation where executive leaders listened to African American associates and several of its Associate Resource Groups. The company’s leadership heard that they should hold similar conversations with their own teams throughout the organization – which it has already initiated – and take concrete action to foster lasting change."

    •  NBC News reports that Walmart announced that it "will no longer place 'multicultural hair care and beauty products' in locked cases in any of its stores.

    "The practice, which Walmart says was only in place 'in about a dozen' of its 4,700 U.S. stores, has received criticism for the implication that the customers who buy these products, largely people of color, can't be trusted. The cases must be unlocked by a store associate, and the products are usually then taken to the front of the store for purchase."

    Walmart spokesman Lorenzo Lopez told NBC News that the company is "sensitive to the issue and understands the concerns" and would be implementing the change in policy “as soon as possible.”

    California-based Smart & Final announced that it is "donating $100,000 to the educational arm of the NAACP Legal Defense and Educational Fund, an organization advocating for racial justice."

    In addition, CEO-president Dave Hirz told customers and employees, the company is "taking a hard look at ourselves internally and determining where we can do better. Our Diversity & Inclusion Committee will be tasked with educating our associates on racial issues and ensuring we’re properly serving our Black Smart & Final associates and customers.

    "For us," Hirz wrote, "taking action also means recommitting to the communities we serve, many of which are in incredibly diverse neighborhoods. We recognize that it is during times like these that we are needed more than ever. I’ve been extremely proud of our teams’ around-the-clock efforts to keep our stores safe, open, and ready to serve our communities – including all of the neighborhoods in which our Smart & Final stores were damaged and looted during recent riots."

    •  Variety reports that "Netflix is promoting a new 'Black Lives Matter' collection to U.S. subscribers, featuring over 45 titles about racial injustice and the experience of Black Americans.

    "Movies, TV shows and documentaries in the Black Lives Matter collection include Spike Lee’s Da 5 Bloods (releasing Friday, June 12); Ava DuVernay’s 13th and When They See UsMudbound; Orange Is the New Black; Dear White People; and Barry Jenkins’ Oscar-winning Moonlight.

    Netflix began displaying a popup screen featuring the Black Lives Matter collection Wednesday when users first logged in to the service on the web or connected-TV devices. The streamer also added the collection to users’ notifications.

    •  Beauty products retailer Sephora committed yesterday to devote 15 percent of its shelf space to products made by black-owned businesses, a move that could "fuel the growth of the brands and attract new investments that would ultimately extend to black communities."

    The move had been solicited by Aurora James, a creative director in Brooklyn, who has been using social media to propose what now is known as "the 15 Percent Pledge" to major retailers, believing that such a commitment could have an enormous and tangible impact on the black business community and the people who comprise it.

    The New York Times writes that "Sephora, which is owned by LVMH Moët Hennessy Louis Vuitton, said it was committed to the three stages of the pledge that Ms. James outlined: figuring out the current percentage of shelf space and contracts dedicated to black-owned businesses, identifying concrete next steps to increase that number, and taking action by publishing and executing a plan 'for growing the share of black businesses Sephora helps empower to at least 15 percent.'

    "Rent the Runway also said on Wednesday that it had committed to the pledge."

    KC's View:

    I love the idea of the 15 Percent Pledge.   Writing checks is important, because it reflects an investment in addressing these issues.  Having conversations both internally and externally also is important, because it creates awareness and, hopefully, understanding of issues beyond our own personal boundaries.

    But the 15 Percent Pledge, it seems to me, combines these two approaches in the best possible way … and, I would think, has the additional advantage of improving the exposure of a wide variety of products that many people may never heard of, and that may be highly relevant to their lives.

    That's how you create differential advantages - you actually offer products and services that are different.

    I love this.

    Published on: June 11, 2020

    Random and illustrative stories about the global pandemic and how businesses and various business sectors are trying to recover from it, with brief, occasional, italicized and sometimes gratuitous commentary…

    •  In the United States, there now have been 2,066,508 confirmed cases of the Covid-19 coronavirus, with 115,137 resulting deaths and 808,551 reported recoveries.

    Globally, there have been 7,478,234 confirmed coronavirus cases, with 419,391 fatalities and 3,792,244 reported recoveries.

    •  From Axios:

    "Texas health authorities reported a total of 2,153 coronavirus hospitalizations on Wednesday, up from 2,056 on Tuesday and 1,935 patients Monday … The three days of record-breaking coronavirus hospitalizations come more than a month after Texas allowed its statewide stay-at-home order to expire.

    "The recording-breaking hospitalizations also follow large protests in urban areas over the death of George Floyd."

    Axios points out that "hospitalization figures are generally viewed as a more reliable indicator of coronavirus spread than growth in reported cases, which can be a product of increased testing."  It also reports that "hospitalizations have increased in nine states since Memorial Day — Texas, North and South Carolina, California, Oregon, Arkansas, Mississippi, Utah and Arizona."

    •  The Wall Street Journal has a story about the impact of the pandemic on small business owners who saw themselves as heading for the exists, but now no longer can afford to.

    Here's how the Journal frames the story:

    "More than 40% of the 30.7 million who own small businesses are 55 and older, and the majority of them have poured their savings into their shops and companies. Many have been hit by coronavirus closures at a time when they were within a year of selling in order to fund their retirement. They have to decide whether to invest more time, energy and money in businesses they have put their hearts into, or cut their losses. At their age, they don’t have the time to start over."

    The story goes on:  "What to do next is not just a financial decision, but an emotional one as well. Many began with a dream and spent decades fulfilling it, raising children along the way, some of whom joined them at the counter or warehouse. They and their business are often a part of the local community and provide jobs and gathering spots for neighbors. Closing that chapter means beginning another one that many associate with their last."

    Interesting piece … and, as a small business owner myself, kind of a sad one.  You can read it here.

    •  Fox News reports that "the Mall of America was back in business on Wednesday, nearly three months after the Minnesota tourist attraction shut down because of the coronavirus.

    "About 150 of the 500 stores in the Minneapolis suburb of Bloomington reopened their doors to a new shopping experience that included signs encouraging social distancing, reduced seating, touchless hand sanitizer stations and plexiglass dividers at checkout areas.

    "The mall, which is the nation's largest, initially planned to reopen on June 1, but it pushed back the date because of protests in the Twin Cities over the death of George Floyd."

    •  The Wall Street Journal this morning reports that the Coachella Valley Music and Arts Festival and its country sibling, Stagecoach, have been cancelled for 2020 because of the pandemic.

    Originally scheduled for April, promoters had pushed them to October, hoping that pandemic-related issues would have subsided sufficiently by then to hold the events.   But concerns about the coronavirus and a possible/probable second wave of infections made the holding of the festivals increasingly problematic.

    Coachella, the Journal notes, is the highest grossing music festival in the world.

    •  Axios reports that "United Airlines on Wednesday became the first major U.S. airline to ask all passengers to complete a health self-assessment during the check-in process amid the coronavirus pandemic …  Whether checking in online, at a kiosk or in person at the airport, passengers would be required to accept United's 'Ready-to-Fly' checklist that includes confirmation that you: will wear a face mask … haven't been diagnosed with COVID-19 in the last 21 days … haven't had symptoms or been in close contact with someone who tested positive in the past 14 days … (and) haven't been denied boarding by another airline for medical reasons."

    The story says that "to reassure the public it's safe to fly, battered airlines are stepping up their cleaning and disinfection procedures. Most carriers are requiring employees and passengers to wear masks and now United is going a step further by asking travelers to confirm they are healthy."

    •  Variety reports that Disney has proposed a "July 17 reopening of Disneyland, its flagship U.S. theme park in Anaheim, Calif., amid a months-long closure that occurred as a result of the ongoing coronavirus pandemic. Its theme parks and resort facilities have been shuttered since mid-March.

    "The company’s parks division has planned a phased reopening, beginning with Downtown Disney on July 9, Disneyland and Disney California Adventure on July 17 and Disney’s Grand Californian Hotel & Spa and Disney’s Paradise Pier Hotel on July 23."

    According to the story, "In order to comply with governmental requirements and to promote social distancing, the company said that it will use a new theme park reservation system to manage attendance, which will be rolled out soon. All guests will have to make reservations in advance to enter the park. For the moment, Disneyland is temporarily pausing new ticket sales and Annual Passport sales and renewals … Parades and nighttime spectaculars will 'return at a later date.' While Disney characters will be in the parks, there will not be any character meet-and-greets for the time being. The company did not announce an anticipated return date for those events and activities."

    •  Los Angeles Magazine reports that iconic fast food chain In-N-Out Burger is suing its insurance company, Zurich American, for not paying out on a claim filed when the coronavirus pandemic forced it to close all its more than 350 units in California, Oregon, Arizona, Nevada, Utah, and Texas.

    In-N-Out says that its policy was an "all risk" policy, which meant that it should have been covered not just for traditional risks such as fore, but also for "unknown and novel risks" such as a pandemic.

    Los Angeles says that the policy would have capped out at $250 million;  In-N-Out has sales of close to $1 billion last year.

    The story also notes that "Musso & Frank Grill in Hollywood and chef Thomas Keller, with restaurants in Yountville, New York, Las Vegas, and Miami, are among the restaurants filing similar lawsuits against their insurers."

    Insurance companies love to say "no" - it is their default position until pushed.  In this case, I would imagine that the insurers have made a mistake, because In-N-Out almost certainly has attorneys that will go after them animal-style.

    Published on: June 11, 2020

    TechCrunch reports that Walmart-owned Sam's Club "announced the nationwide launch of curbside pickup, bringing the service to all its 597 clubs across the U.S.

    "The retailer had been piloting curbside pickup at 16 club locations before today’s launch, and saw positive results. With the pandemic sending more shoppers online, Sam’s Club has since expedited the rollout to all locations, where it’s free for Plus-level members and above."

    KC's View:

    Seems to me that virtually every new retail establishment that is opened going forward has to have a curbside pickup facility built into the footprint.  Gotta be there - because if you don't have it, you're going to be at a competitive disadvantage.

    Published on: June 11, 2020

    The Wall Street Journal this morning reports on how "Thrive Market, based in Los Angeles, is one of a host of retailers that have spent years trying to compete against the Amazon retail juggernaut. The coronavirus pandemic provided a fleeting window of opportunity. Amazon, overwhelmed by a wave of orders, temporarily reoriented its business toward essential items, leading consumers to begin looking elsewhere.

    "But capturing that opportunity—and trying to ensure it is more than a temporary blip—brought extraordinary challenges for Thrive and others, demonstrating the difficulty of competing with even a weakened Amazon."

    Terrific story … and you can read it here.

    Published on: June 11, 2020

    •  The Financial Times reports that online supermarket and distribution company Ocado is looking to raise the equivalent of $4 billion (US) "as it seeks to capitalise on a surge of interest during the coronavirus crisis. The group said the pandemic had been a 'catalyst' for a permanent and significant move towards online grocery deliveries. It said the new money would provide "financial flexibility to capitalise on opportunities arising from the significant acceleration in online adoption and grow faster over the medium term."

    FT notes that while Ocado still has a consumer e-grocery business, its larger focus these days has been the "commercialisation of its intellectual property through licensing deals with other food retailers," such as working with Kroger in the US to build robotic distribution centers.

    •  The Seattle Times reports that "in a significant reversal, Amazon said it will stop police use of its controversial facial recognition technology for a year … The Seattle company said the technology, known as Rekognition, will continue to be made available to organizations that use it 'to help rescue human trafficking victims and reunite missing children with their families.'  Amazon made no statement regarding surveillance cameras and other technologies sold through its Ring subsidiary, which works closely with police departments."

    “We’ve advocated that governments should put in place stronger regulations to govern the ethical use of facial recognition technology, and in recent days, Congress appears ready to take on this challenge,” the company said in a blog post Wednesday afternoon. “We hope this one-year moratorium might give Congress enough time to implement appropriate rules, and we stand ready to help if requested.”

    Published on: June 11, 2020

    •  The Street reports that United Natural Foods Inc. (UNFI) said yesterday that "it expected to operate its Cub Foods banner and some Shopper Food stores for up to 24 months and delayed a planned sale."

    Some context from the story:

    "United Natural Foods said in December that it had agreed to sell 13 of its 43 Shoppers Food stores, with the transactions expected to close by the end of February. In March, the company said that it would market the remaining stores to 'several potential buyers.'

    "During a conference call with analysts, Steven Spinner, chairman and CEO, said that as an interim step, it was 'in the process of separating Cub from United Natural Foods, which means Cub will operate more as a freestanding entity than it does today, with its own dedicated resources once the separation is complete.'  Spinner said it could take up to a year for Cub/Shoppers to become a freestanding operation."

    The Street notes that UNFI reported net income of $88.1 million for the most recent quarter, compared with $57.1 million in the year-earlier quarter.  Sales totaled $6.67 billion, up from $5.96 billion a year earlier.

    •  The Wall Street Journal this morning reports that Tyson Foods "said it is cooperating in a Justice Department price-fixing investigation under a leniency program that will allow the company to avoid criminal prosecution in exchange for aiding in the continuing probe of other poultry suppliers.

    After receiving a grand-jury subpoena in April 2019, Tyson discovered that some of its employees were implicated in the alleged scheme. The company said it approached the Justice Department, disclosing its own actions and seeking leniency."

    The story goes on to point out that "Tyson’s public acknowledgment of its role in the investigation comes a week after four chicken-industry executives, including employees of Pilgrim’s Pride Corp. and Claxton Poultry Farms, were indicted on charges of price fixing and bid rigging. The Justice Department alleged chicken-company executives and employees for years exchanged details of their own pricing and that of competitors via phone calls and text messages, at the same time that they were negotiating supply deals with restaurants."

    Published on: June 11, 2020

    •  Big Y Foods announced that it has hired longtime food industry executive Stephen M. Creed, most recently senior vice president supply chain management at Associated Grocers of New England, to be its new senior director of distribution and logistics.

    Published on: June 11, 2020

    Yesterday I got an email from an MNB reader who clearly is unhappy with the tone and quantity of criticisms I've made of deals retailers have made with Instacart.  He wrote:

    Just wondering: Have you bothered to keep-count of the number of times you've expressed this opinion?  Triple-digits, perhaps?

    Could be quadruple-digits.  I've been doing this a long time.

    Going to keep doing it, too.  I'm sure that more than a few readers see the comments, roll their eyes, and move on.  But others do pay attention … every once in a while, I talk to someone who has been moved by my criticisms to rethink their Instacart deals and at least consider other approaches.

    Let's be clear - I actually don't criticize Instacart very much.   I think its business model is a great one for Instacart.  I just question whether it is in the best interest of retailers to outsource a critical part of the customer experience to a company that also is doing business with the competition.  (See?  I did it again.  Add another one to the tally.)

    I feel like I've been down this road before - when I criticized retailers many years ago who adopted Priceline's Name-Your-Own-Price -For-Groceries program as an e-commerce model.  I thought it made sense for Priceline, but that retailers doing it were dumber than dirt by putting their entire value proposition into question.  

    I got that one right.  I think, in the end, I have this one right, too.

    But if I'm wrong … I'll be the first one to admit it.

    Yesterday, I took note of a Wall Street Journal report that some retailers - including Macy's and Kohl's - are seeing a surprising amount of traffic and sales as their stores reopen around the country.

    I commented:

    I hope these folks don't get complacent, or begin to believe that things may go back to the way they were.  Because that would be delusional, not to mention a kind of retail malpractice.

    This story prompted one MNB reader to write:

    I have never encountered a bigger sissy in my life. Grow up!

    Now, this surprised me a bit.  If someone is going to accuse me of being a sissy - a word, by the way, that seems awfully unenlightened for 2020 - I would've thought it would be over my stated reluctance about going into bars and restaurants in the immediate future.

    But maybe it was just the totality of my attitude that created this level of enmity.

    That's okay.  You can call me anything you want.  I say what I want to say, I try to be honest as best I can, and I try to understand the attitudes and beliefs of others (even the people with whom I profoundly disagree), and I try to be as nice as I can to people (which may be the hardest thing of all, since I am by nature a pretty sardonic guy).

    And I always, always sign my name.  Just so there is no ambiguity about authorship.