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    Published on: June 30, 2021

    The Wall Street Journal reports that when product and service suppliers want to do business with Amazon, the retailing giant often has a condition for making a deal - those companies have to be willing to allow Amazon to "buy big stakes in their companies at potentially steep discounts to market value."

    According to the Journal, Amazon "has struck at least a dozen deals with publicly traded companies in which it gets rights, called warrants, to buy the vendors’ stock in the future at what could be below-market prices, according to corporate filings and interviews with people involved with the deals.

    "Amazon over the past decade also has done more than 75 such deals with privately held companies, according to a person familiar with the matter. In all, the tech titan’s stakes and potential stakes amount to billions of dollars across companies that provide everything from call-center services to natural gas, and in some cases position Amazon among the top shareholders in those businesses.

    "The unusual arrangements offer another window into how Amazon uses its market heft to increase its wealth and clout."

    The Journal writes that "an Amazon spokeswoman said the warrants it obtains in commercial agreements are typically tied to milestones that Amazon has to meet, such as large purchases from the supplier. The company declined to comment on specific deals, or say how many warrants it has exercised or the amount of money it has made from such agreements."

    One of the companies with which it does have an agreement - SpartanNash.

    The Journal  writes:  "Grocery distributor SpartanNash Co. last year amended a contract with Amazon to deliver groceries to its Amazon Fresh arm. The Grand Rapids, Mich.-based company had been supplying Amazon with food since 2016, but this time Amazon added a condition: if it bought $8 billion worth of groceries over seven years, it could get warrants to purchase around 15% of SpartanNash’s stock at a price potentially lower than the market. Amazon also said it wanted to be notified of any takeover offers for SpartanNash and have a 10-day window to offer a counter-bid.

    "SpartanNash executives were taken aback, said people familiar with the matter. No customer had requested such terms before. Executives ultimately decided they didn’t want to haggle with one of SpartanNash’s biggest customers, and that being tied to Amazon could raise their company’s profile, one of the people said. Amazon received warrants in the company when the deal was announced that would amount to 2.5% of its stock if exercised. If it receives and exercises warrants for the additional 12.5%, according to the contract terms, it would be SpartanNash’s second-largest shareholder after mutual-fund manager BlackRock Inc."

    KC's View:

    I know I already used this movie quote this week in a different commentary, but I can't help but use it again because it seems so appropriate.

    It is like Amazon made SpartanNash an offer it couldn't refuse.  Or, if it did, the wholesaler would take an enormous hit to the bottom line.

    I would imagine that some of these vendors look at their regular business reports and see good news and bad news.  The good news is that Amazon is giving them more and more business.  The bad news is that, since Amazon often "ties its warrants to how much business it gives a supplier" (in the words of the Journal), these same business leaders know that Amazon may be coming for their first-born male children (who may be sold into indentured servitude driving Amazon prime delivery trucks).

    Now, I suppose that another way to look at these arrangements is that Amazon doesn't just want to enjoy temporary flings with these companies, but wants to be able to get married down the road if the circumstances are right - except that the prenup totally goes Amazon's way.

    That said, there are vendors who see an enduring relationship with Amazon as giving them stability and an enduring business relationship, albeit with a retailer that can make or break them on a whim.

    It is hard to imagine that this story is going to play well with lawmakers and regulators who already thought Amazon had way too much market power.  I would suspect that Lina Khan, the new and openly-hostile-to-Amazon-on-antitrust-grounds chair of the Federal Trade Commission (FTC), has to be saying that this is what she's been warning about when writing about how current law does not account for modern business realities, especially as practiced by a company like Amazon.

    This won't be the last we hear of this, I'd guess.

    Published on: June 30, 2021

    The Associated Press reports that The Conference Board's monthly assessment of consumer confidence suggests that it is up for as fifth straight month, as businesses reopen and vaccination rates increase.

    According to the story, The Conference Board said that "its consumer confidence index increased to 127.3 in June, up from a May reading of 120.0.  The June increase reflected an improvement in consumers' assessment of current conditions.

    "Consumer sentiment is expected to keep rising in coming months which will provide more support for consumer spending, which accounts for 70% of economic activity."

    Published on: June 30, 2021

    Bloomberg has an excellent piece about how Amazon's use of automation to manage its labor throughout the company has created a system that can treat people unfairly and then be deaf to their concerns and entreaties.

    An excerpt:

    "At Amazon, machines are often the boss—hiring, rating and firing millions of people with little or no human oversight.

    "Amazon became the world’s largest online retailer in part by outsourcing its sprawling operations to algorithms—sets of computer instructions designed to solve specific problems. For years, the company has used algorithms to manage the millions of third-party merchants on its online marketplace, drawing complaints that sellers have been booted off after being falsely accused of selling counterfeit goods and jacking up prices.

    "Increasingly, the company is ceding its human-resources operation to machines as well, using software not only to manage workers in its warehouses but to oversee contract drivers, independent delivery companies and even the performance of its office workers. People familiar with the strategy say Chief Executive Officer Jeff Bezos believes machines make decisions more quickly and accurately than people, reducing costs and giving Amazon a competitive advantage."

    One example of how this works, and how it can go wrong, is Amazon's Flex delivery service:

    "The moment they sign on, Flex drivers discover algorithms are monitoring their every move. Did they get to the delivery station when they said they would? Did they complete their route in the prescribed window? Did they leave a package in full view of porch pirates instead of hidden behind a planter as requested? Amazon algorithms scan the gusher of incoming data for performance patterns and decide which drivers get more routes and which are deactivated. Human feedback is rare. Drivers occasionally receive automated emails, but mostly they’re left to obsess about their ratings, which include four categories: Fantastic, Great, Fair or At Risk.

    "Bloomberg interviewed 15 Flex drivers, including four who say they were wrongly terminated, as well as former Amazon managers who say the largely automated system is insufficiently attuned to the real-world challenges drivers face every day. Amazon knew delegating work to machines would lead to mistakes and damaging headlines, these former managers said, but decided it was cheaper to trust the algorithms than pay people to investigate mistaken firings so long as the drivers could be replaced easily."

    You can read the entire piece here.

    KC's View:

    I keep saying it, and I'm going to continue to say it.  Amazon is smart enough, rich enough, and capable enough to be able to use algorithms when it works, but build in safeguards so that the process has some level of humanity.  That it does not do so is a matter of choice.  

    Y'know, Jeff Bezos is going into space in a few weeks, and I think he should worry that the craft in which he is traveling isn't being controlled by the HAL 9000 computer.  He could find himself on the outside looking in, saying, "Open the pod bay doors, HAL."

    Published on: June 30, 2021

    • The Wall Street Journal reports that FedEx "said it would boost capital spending by 22% this year to add capacity to its network, after a surge in e-commerce packages caused ground delivery delays and left some freight customers without service.

    "The package giant plans to spend $7.2 billion in the fiscal year started June to accelerate capacity expansion, modernize its fleet and facilities, and increase use of automation. It had about $5.9 billion in capital spending in each of the last two fiscal years."

    Published on: June 30, 2021

    With brief, occasional, italicized and sometimes gratuitous commentary…

    • CNBC reports that Walmart says it will "offer a less expensive version of insulin that could better fit into the budgets of millions of Americans who don’t have health insurance or struggle to pay for the lifesaving diabetes drug.

    "Starting this week, the retailer will sell an exclusive private-label version of analog insulin, ReliOn NovoLog, to adults and children who have a prescription. The drug will be available at its membership-based Sam’s Club in mid-July. The insulin will cost about $73 for a vial or about $86 for a package of prefilled insulin pens."

    The story says that "the insulin is the latest addition to Walmart’s private brand of diabetes products, ReliOn. It already sells a low-price version of insulin for about $25 as part of the line, but that is an older formulation that some doctors and advocates say is not as effective at managing blood sugar swings as newer versions of insulin, called analogs."

    Dr. Cheryl Pegus, Walmart’s executive vice president of health and wellness, says that "the price difference with branded competitors will be as much as $101 per vial of insulin or up to $251 per pack of prefilled insulin pens."

    Yikes.  When Walmart says always low prices, it means ALWAYS low prices.

    • Walmart has announced the launch of a new site designed "to help veterans and military spouses, whether early career, mid-career, or experienced professionals, 'Find-a-Future' and achieve their goals. Walmart associates and non-associates can register for free on the platform, use tools to audit their current skills and experience, and connect to the right partners to help future seekers build a roadmap across three paths," which include helping them find a job at Walmart, identifying educational paths that will help them achieve their goals, and growing their own entrepreneurial businesses.

    Published on: June 30, 2021

    With brief, occasional, italicized and sometimes gratuitous commentary…

    •   Craig Boyan, president of H-E-B, spoke at this week's Midsummer Strategic Executive Exchange, sponsored by FMI-The Food Industry Association, and suggested that "a combination of things" are responsible for the labor shortage affecting virtually every business in Texas.  Among them are continuing concerns about the pandemic and child care, as well as stimulus payments that have made it easier not to have to return to work.

    Boyan said that he expected the crunch to ease by autumn, and said that H-E-B is raising wages across the board and making "all eligible partners owners of the company, and we believe that investing in people is a winning strategy."

    In other words, treating employees not as a cost, but as an asset.

    Published on: June 30, 2021

    •  California-based Raley's said yesterday that Craig Benson, the company's  vice president, technology, has been promoted to the role of senior vice president, head of technology.

    At the same time, Raley's said that  Levi Wingo, executive director of store operations, has been named  vice president, operations. 

    Published on: June 30, 2021

    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 US, there now have been 34,527,493 total cases of the Covid-19 coronavirus, resulting in 619,980 deaths and 29,007,373 reported recoveries.

    Globally, there have been 182,620,548 coronavirus cases, with 3,954,822 resultant fatalities, and 167,232,790 reported recoveries.  (Source.)

    •  The Centers for Disease Control and Prevention (CDC) says that 66.2 percent of the US population age 18 and older has received at least one dose of vaccine, and 57.2 percent is fully vaccinated.

    • Bloomberg reports that "the gap between the most vaccinated and least vaccinated places in the U.S. has exploded in the past three months, and continues to widen despite efforts to convince more Americans to get a Covid shot."

    While the general news about vaccination rates in the US is positive, "newly available county-level data show how those national figures hide very different local vaccine realities.

    "In the least vaccinated group of counties, many of which are in the South and Central regions of the U.S., less than half as many people have gotten at least one Covid vaccine dose as in the most vaccinated counties in the cities and on the coasts. Those less vaccinated places are not catching up, either. The gap between more- and less-vaccinated counties is expanding, and the trailing counties are far below levels needed to halt future waves of infection."

    • The Boston Globe reports that Cambridge, Massachusetts-based Moderna says that a new study shows that "its two-shot COVID-19 vaccine works against worrisome variants, including the Delta strain."

    According to the story, Moderna says that "its vaccine produced neutralizing activity against the variants it tested, including strains of the virus that were first identified in India, Nigeria, and South Africa. Blood serum samples for the study were obtained from eight participants one week after their second Moderna shot."

    “These new data are encouraging and reinforce our belief that the Moderna COVID-19 Vaccine should remain protective against newly detected variants,” says Stéphane Bancel, Moderna's CEO. “These findings highlight the importance of continuing to vaccinate populations with an effective primary series vaccine.”

    • From the Los Angeles Times:

    "With the highly contagious Delta variant of the coronavirus continuing to spread statewide, the Los Angeles County Department of Public Health is recommending that all residents wear masks in public indoor spaces — regardless of whether they’ve been vaccinated for COVID-19 … Officials have said the available vaccines appear to offer strong protection. But there’s significant concern that those who have yet to receive all their required shots, or any doses at all, remain vulnerable to the Delta variant — which may be twice as transmissible as the conventional coronavirus strains."

    In its statement, county health officials wrote that, as a precaution, “people wear masks indoors in settings such as grocery or retail stores; theaters and family entertainment centers, and workplaces when you don’t know everyone’s vaccination status … Until we better understand how and to who the Delta variant is spreading, everyone should focus on maximum protection with minimum interruption to routine as all businesses operate without other restrictions, like physical distancing and capacity limits."

    The Times writes that the announcement "is one of the clearest signals yet of just how seriously health officials are taking the strain, and the danger it poses, particularly to those who have yet to be inoculated."

    Published on: June 30, 2021

    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.

    • From the Wall Street Journal

    "The Biden administration is developing an executive order directing agencies to strengthen oversight of industries that they perceive to be dominated by a small number of companies, a wide-ranging attempt to rein in big business power across the economy, according to people familiar with the plans.

    "The executive order, which President Biden could sign as soon as next week, would direct regulators of industries from airlines to agriculture to rethink their rule-making process to inject more competition and to give consumers, workers and suppliers more rights to challenge large producers.

    "The goal is to broaden the way policy makers approach business concentration in the U.S., going beyond conventional antitrust enforcement focused on blocking big mergers. For example, companies in industries controlled by a small number of big firms might face new rules for disclosing fees to consumers or for their relationships with suppliers, the people familiar with the effort said."

    The Journal points out that it is almost certain that any such order will be challenged in court by "businesses and conservative legal groups."

    KC's View:

    This sentence grabbed my attention, especially when read within the context of the Journal's other story about Amazon demanding discounted stock warrants from some suppliers as a condition of doing business with them:

    "For example, companies in industries controlled by a small number of big firms might face new rules for disclosing fees to consumers or for their relationships with suppliers, the people familiar with the effort said."

    Seems to me that Amazon could end up being a test case for such an executive order.  But I have to wonder if every business would reflexively think that such an policy would be a bad idea, and that it might, in fact, expose some business practices to light in a way that might be good for a lot of smaller folks.

    Published on: June 30, 2021

    Got the following email from a reader reacting to our story about Chewy's improving fortunes:

    As someone who used to be in Customer Service, my experience with Chewy has been exceptional. Apart from the service they offer in the everyday sale of products, they also seem truly concerned about pets and their owners. Unfortunately last year, my wife and I had to make a decision to terminate the life of our dog due to health issues that were beyond treatable. We had just received an order of prescription dog food that we haven’t even opened. Chewy refunded the entire order and asked us to donate the product to a shelter. In a few days we received a card signed by several people offering condolences on our beloved dog. I will be a customer for as long as we have a pet.

    Wow.  That's extraordinary.  And it challenges the perception that e-commerce businesses don't have a human heart.  They can.  And sometimes actually do.

    From another reader:

    Chewy has been great! The auto refill and ship program work well and is easily adjusted for changes.  The one stop shop for food, toys, treats and drugs has been a real help as well.  Our Golden is so happy too.  She actually likes the UPS driver now!  Great business model.  Fast, courteous, and accessible.  Why is it so difficult for others to understand??

    We had a story yesterday about how a US District Court dismissed FTC complaints against Facebook, and I commented:

    This won't be over until it's over … and there is way too much political pressure from both sides of the aisle to let this go anytime soon.  But, expect big tech companies to fight back using actual laws as their defense … which only will be a problem if Congress actually changes the laws.  Which could happen.

    Prompting one MNB reader to write:

    Typical government.  If they don’t like the law the say it is written, they just rewrite it to suit their own feel good direction.  What is better for the protection of all business is not a consideration. 

    Two things.

    First, I would argue that all businesses should not be protected.  Those that do not protect the customer - and the customers' data - would be at the top of my list of those that ought not be protected.

    And second … you'd prefer that government not change laws that are out of date or insufficient for modern realities.  I'm not saying that all law changes meet that standard, nor that lawmakers aren't perfectly capable of changing laws for their own ignoble purposes.

    But I'd rather not say that all laws should not be changed.

    We had a story yesterday about how the Connecticut Shoreline - from West Haven to the Rhode Island border - strikes some experts as fertile ground for Whole Foods expansion.

    I commented:

    One of the things that may make this part of the country attractive to a retailer like Whole Foods could be that a reshaped economy could have more people working from home more of the time.  Which means that the Connecticut Shoreline section of the state, which is really too far from New York, Boston or Providence to make it easily commutable on a daily basis, might seem more attractive - and affordable - for folks who need accessibility to these cities and their airports, but not all the time.  Which it turn would make the area more attractive to a chain like Whole Foods.

    But not just Whole Foods.

    Seems to me that the area also could be ripe for some Amazon Fresh stores.  Or maybe a Wegmans.  Or a Stew Leonard's.  Or maybe Roche Bros.  Or Price Chopper/Market 32.  (I'd love to see Hannaford think about it, but I'm guessing that its sister chain, Stop & Shop, would object.)

    My only point here is that it is a mistake to limit the thinking to Whole Foods, and that there are other retailer who could take advantage of the opportunity.  But those retailers will have to be aggressive, I think - the window won't be open forever.

    One MNB reader responded:

    So true about the Connecticut shore.  My only wish is that smaller independents would make the move and not larger chains.  I think they could present a more responsive and targeted experience for the local and seasonal shopper.  I’m not a fan of Whole Paycheck. 

    On another subject, from MNB reader Craig Espelien:

    As a disruptor themselves, what if Amazon took a page from the German Union/Management relationship? There, Unions are part of the total process (appears to be mandated) and this has limited, minimized or reduced the us vs. them mentality.

    Another place to disrupt for Amazon if they can see beyond the downsides of unions.

    This would make Amazon almost indestructible…

    Finally, yesterday we took note of a report in The Spoon about how Robomart is launching a fleet of mobile mini-marts in West Hollywood, California, with one version stocked up with snacks and another dedicated to over-the-counter items that normally would be carried by a drug store.

    "The company says that versions are under development that would be dedicated to packaged grocery and 'Pantry, Deli, and Café'."

    I commented, in part:

    I've long though that this kind of approach - bringing the store to the shopper, as opposed to expecting the shopper to come to the store - is the next step in the e-commerce evolution (though it actually harkens back to how merchants behaved decades ago).  We've written here about other, similarly themed businesses trying to do the same thing, and I have no reason to be less enthusiastic about the concept.

    MNB reader Howard Schneider responded:

    KC, you are so right about how this approach “harkens back to the past.” Growing up in Los Angeles in the 1950s and 60s, there was an immensely popular institution, the Helms Bakery. As the suburbs sprawled but many moms (like mine) had not yet learned to drive, the Helms trucks would prowl the streets blowing a high-pitched whistle. Mom could leave a placard in the window if she wanted them to stop, or we kids would just run after the truck to buy goodies from the long, polished wooden shelves inside. A yellow cake donut covered in milk chocolate cost six cents.

    And MNB reader Lynn Olsen brought visual aids to the discussion:

    I thought you might like to see an earlier version of a Mobile Mini-Mart.  Seen at the Pioneer Village Museum in Minden, NE. 

    Seems that, just like paisley neckties and wide lapels, good ideas come back around again. 

    And check out the horse-drawn hearse; elegant but a bit outdated, like some retail businesses.  But that’s another story . . .