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    Published on: March 9, 2022

    The continuing goal of "The Innovation Conversation" is to explore some facet of the fast-changing, technology-driven retail landscape and how it affects businesses and consumers. It is, we think, fertile territory ... and one that Tom Furphy - a former Amazon executive, the originator of Amazon Fresh, and currently CEO and Managing Director of Consumer Equity Partners (CEP), a venture capital and venture development firm in Seattle, WA, that works with many top retailers and manufacturers - is uniquely positioned to address.

    Today, Tom and KC break down the Kroger pure-play, e-grocery, hub-and-spoke strategy, considering the metrics for success that the chain must be using … discuss the implications of the Farmstead-Circle K deal for format disruption … and further explore the potential for uncommon partnerships that can move the competitive needle.   Their conclusion:  while the challenges are many for food retailers, and it certainly isn't easy to rise to the moment, it actually is as easy as it ever has been to find approaches that can create differential and essential advantages.

    If you'd like to listen to this Innovation Conversation as an audio podcast, click below.

    Published on: March 9, 2022

    Walmart announced yesterday that it is rolling out two initiatives designed to drive higher subscription numbers for its Walmart+ membership program.

    The first - free memberships for all "full- and part-time Walmart U.S. associates working in our stores, distribution centers and fulfillment centers."   Chris Cracchiolo, SVP & GM for Walmart+, says that "this new associate benefit is not only our way to say thank you for all they do, but it’s also so associates can use our membership, tell us how it’s going and ultimately speak to customers about it from personal experience."

    Second, Walmart+ said it is "collaborating with one of the largest streaming platforms, Spotify, to offer a special promotion for Walmart+ members. Starting today, new and existing Walmart+ members will receive six months of Spotify Premium for free. That means our Walmart+ members who haven’t previously tried Spotify Premium can enjoy ad-free streaming of millions of songs and podcasts, unlimited skips, the ability to play any song anywhere and the ability to download music for listening offline and on-the-go."

    Cracchiolo said, "As we look into the future, Walmart+ will only continue to evolve. Stay tuned for new partnerships, new ways to save and an even more seamless in-store and online experience in the coming months, as we continue to find innovative ways to expand our Walmart+ offerings and reach even more customers."

    KC's View:

    Not to be cynical, but … if you want to drive up numbers for a paid membership service, one way to do it is to give it away.  That said, I do think that there vis some value in using one's own staffers to provide feedback on what works and what doesn't.  What remains to be seen is how Walmart+ will elicit and respond to the reactions of its associates to the program.  (I wonder how many of those associates are paying for Amazon Prime.  Maybe Walmart could find a non-judgmental way to find out, and use that as a benchmark.)

    Now, as for the Spotify benefit … again, I hate to be cynical but it strikes me as ironic that this is being offered at a time when Spotify reportedly has been losing paid subscribers to its premium service because of the Neil Young-Joe Rogan controversy.  (Young pulled his music from Spotify because of what he referred to as Rogan's misinformation about coronavirus vaccines, and the situation only got worse when audio with Rogan using racial epithets was released.). Spotify's stock price also has been dropping of late, so I suspect that the folks at Spotify are looking for a good news story.

    Published on: March 9, 2022

    The Washington Post this morning reports that "a bipartisan group of members on the House Judiciary Committee has alerted the Justice Department to 'potentially criminal conduct' by Amazon and its senior executives related to a committee investigation into competition in digital markets."

    The accusation is that Amazon has engaged "in a 'pattern and practice' of misleading conduct that appeared designed to 'influence, obstruct, or impede' the committee.

    "The panel has been conducting a 16-month investigation into competition in digital markets.  Amazon could not immediately be reached for comment. In the past, a company spokesman has denied that it misled the committee."

    KC's View:

    The most surprising word in this story?  "Bipartisan."

    I'm sure that Amazon will vigorously defend itself, but it has to be at least somewhat concerning that in a polarized political environment, one thing people can agree about is that they think Amazon may have violated the law.

    Published on: March 9, 2022

    The Wall Street Journal this morning reports that "Visa Inc. and Mastercard Inc. are preparing to increase the fees that many large merchants pay when they accept consumers’ credit cards.

    "The fee increases - delayed during the past two years because of the pandemic - are scheduled to kick in next month … Interchange fees account for most of the increase. Merchants pay these fees, which are set by the card networks, when shoppers use their cards. The fees go to the bank that issued the card.

    "Though invisible to shoppers, interchange fees are a constant source of aggravation for merchants. Their interchange costs have ballooned in recent years along with the popularity of rewards credit cards, which typically carry higher fees to cover the cost of travel perks and other benefits. But the networks’ 'honor all cards' rule means that a merchant who accepts one Visa credit card, for example, must accept all of them.

    "U.S. merchants paid card issuers an estimated $55.4 billion in Visa and Mastercard credit-card interchange fees in 2021, more than double the amount in 2012, according to the Nilson Report. They pass along at least some of these costs to the consumer in the form of higher prices. More merchants have started charging consumers extra when they pay with credit cards."

    KC's View:

    These fees aren't just a constant source of aggravation - they're also a constant source of tension, litigation and proposed legislation as retailers seek to fight against what they see as usurious fees that create higher prices.

    Expect more of the same moving forward, and retailers looking for ways to stop taking certain cards.  Lawyers and lobbyists connected to this issue are about to get very busy.

    The fight this time may be even more intense, since the increases are coming at a time of growing inflation.

    Published on: March 9, 2022

    The Washington Post reports that "several major American food and beverage companies announced Tuesday that they would suspend their operations in Russia, a step that comes after days of mounting public pressure on the corporate world to sever ties with the country over the Kremlin’s invasion of Ukraine.

    "McDonald’s chief executive Chris Kempczinski said the global fast food chain would temporarily close its 850 restaurants in the country … Shortly after the McDonald’s announcement, Starbucks, Coca-Cola and PepsiCo announced they would pause services in Russia.

    "Starbucks’s licensed partner, the Kuwait-based Alshaya Group, which owns and operates 130 stores in Russia, will temporarily shutter locations and 'provide support' to its roughly 2,000 local employees."

    At the same time, c-store company Alimentation Couche-Tard Inc. announced that, effective immediately, it "is suspending operations in Russia and implementing plans to take care of its employees in a responsible and safe manner."

    Brian Hannasch, President and CEO of Couche-Tard, said, "We condemn Russia's aggression against Ukraine and the huge human impact it is having for both Ukrainians and Russians.  As such, we have made the decision to suspend operations. Couche-Tard has had stores in Russia for nearly three decades, and we are proud of our Russian team members and their dedicated service to local customers and communities." 

    In Russia, Couche-Tard has operated under its primary brand Circle K including over 320 employees and 38 stores located in St. Petersburg, Murmansk, and Pskov. 

    The New York Times offers some context:

    "Investors, as well as social media users, have been applying pressure on businesses to pull out of Russia, especially fast-food chains, which have been criticized for lagging behind other companies with decisions about their Russia operations.

    "For food companies that have spent decades cultivating the Russian market, the act of pausing or ceasing operations in the country is complex. It involves unwinding often byzantine local supply and manufacturing chains, addressing the fates of tens of thousands of Russian employees, and untangling close ties with Russian banks, investors and others that allowed them to flourish all these years."

    The Times also reports that "Amazon has quietly stopped letting customers in Russia and Belarus open new cloud computing accounts.  The policy change for Amazon Web Services started over the weekend … but was not publicly announced until Tuesday."

    Published on: March 9, 2022

    Fast Company has an interview with Walgreens CEO Roz Brewer in which she talks about the company's increased focus on healthcare as a growth driver going forward.  Some excerpts:

    "We began to look at the continuum of healthcare across the United States and said we think we can be the world’s leading partner in reimagining localized healthcare for all. It helped me think about a new growth engine for the company … It is very personal for me. My mom was sick up until [her death in] 2011. [She had] kidney failure as an outcome from diabetes and cardiovascular disease. Her care was very delicate, and it took all of us—my sister, my brother-in-law, and I—to manage her care for years beyond her passing. She had excellent insurance, but we couldn’t control her bills. They kept coming, so we just paid them. But we did that because we could; there’s no way many Americans can do that. What [Walgreens is] able to do now is to bring transparency to what it costs to care for yourself. It’ll eventually put the patient in control."

    "We typically report out things like the amount of foot traffic in our stores and our sales by category. But we’re going to start reporting out numbers in terms of our impact on reducing either the cost of healthcare or improving health outcomes. It’s obviously bigger than us. But we’re big enough to start it, with 9,100 physical units and the number of patients we see."

    KC's View:

    One of the other things that Brewer says in the interview is that making this shift takes Walgreens from being transactional to being more relationship-focused because "health is not transactional."  

    That's really important for a retailer like Walgreens - it allows for more sustained relationships with customers, and also creates a barrier to disruption by other companies (like Walmart, Amazon and CVS) looking to make advances in the healthcare segment.

    And it is a strategy worth emulating by other retailers.  Be a resource, not just a source.

    Published on: March 9, 2022

    Vice has a long story with a simple premise - "across the country, Amazon's delivery service partners, the small businesses that exclusively deliver packages for Amazon, are going tens of thousands of dollars into the negative."

    An excerpt:

    "Amazon’s Delivery Service Partner program advertises on its website that its partners can expect to make up to $300,000 in annual profit with as little as $10,000 start-up investment … Amazon advertises the delivery service partner program as an opportunity for those without significant capital to invest to run their own business, yet once launched, business owners become wholly beholden to Amazon and in a precarious financial position. Amazon is currently facing a $15 million lawsuit from two of its former Portland delivery partners that shuttered last year because they 'were losing money and employees trying to satisfy Amazon and their constant changes.' The lawsuit alleged that Amazon 'controlled nearly every aspect' of two Portland delivery companies' businesses."

    You can read the entire story here.

    Published on: March 9, 2022

    In San Diego, KGTV-News reports on how "the newest employee at Tofu House on El Cajon Boulevard, near San Diego State University, can't take an order or refill a drink. Still, it's helping the restaurant overcome many of the hardships brought on by the pandemic - it is a DAASH XL Robot that "can carry up to 80 pounds of food from the kitchen to the tables."

    Owner Tony Nguyen says that "with the robot carrying out the food, now the only task the staff needs to do is put the food on the table.  It takes one or two seconds and gives them time to take care of other tables as well."

    The story says that "Nguyen rents the robot for $600 per month. That's far less than what he'd pay one minimum-wage employee," and also helps him compensate for the labor shortage hitting so many businesses.

    The story goes on:  "Even if all of his human servers call in sick, Nguyen says Tofu House can stay open by letting the robot run food and having customers get it off the tray.

    "He says the savings also help him put more money towards his marketing budget, and it allows him to keep prices down for his food.

    "Nguyen says he'll never fully replace his employees with a robot. He still needs humans as cooks and to take orders and interact with customers. But he realizes embracing technology is the future of the business."

    Published on: March 9, 2022

    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 a total of 81,012,955 Covid-19 coronavirus cases, with 55,215,670 reported recoveries and 987,615 deaths that could have been largely prevented.

    Globally, there have been 450,215,905 total cases, with 6,038,114 fatalities and 384,488,813 reported recoveries.  (Source.)

    •  The Centers for Disease Control and Prevention (CDC) says that 76.6 percent of the total US population has received at least one dose of vaccine … 65.1 percent is fully vaccinated … and 44.1 percent has received a vaccine booster shot.

    •  From the New York Times this morning:

    "Covid-19 may cause greater loss of gray matter and tissue damage in the brain than naturally occurs in people who have not been infected with the virus, a large new study found.

    "The study, published Monday in the journal Nature, is believed to be the first involving people who underwent brain scans both before they contracted Covid and months after.

    "Neurological experts who were not involved in the research said it was valuable and unique, but they cautioned that the implications of the changes were unclear and did not necessarily suggest that people might have lasting damage or that the changes might profoundly affect thinking, memory or other functions.

    "The study, involving people aged 51 to 81, found shrinkage and tissue damage primarily in brain areas related to sense of smell; some of those areas are also involved in other brain functions, the researchers said."

    Published on: March 9, 2022

    With brief, occasional, italicized and sometimes gratuitous commentary…

    •  CNBC reports that "Amazon has purchased Veeqo, a company that makes tools to help online businesses sell products on and off Amazon.

    "The Big Tech company quietly acquired the e-commerce software start-up last November, but it didn’t publicize the acquisition. Veeqo announced the deal in a company blog post, and Octopus Ventures, one of the firm’s investor, confirmed the deal on Monday.

    "Amazon is estimated to claim about 40% of the nation’s e-commerce sales, but has long been interested in claiming a share of sales on other digital platforms like eBay, Etsy, Shopify and Walmart … By acquiring Veeqo, Amazon could integrate more robust tools for sellers into its MCF program, potentially luring them away from other providers."

    •  Variety reports that Apple "has snared rights to a Friday-night package of Major League Baseball games, extending Silicon Valley’s reach into the world of sports.

    "Under terms of the new pact, Apple will have exclusive rights to telecast two 'Friday Night Baseball' games each week — totaling about 50 per year —   in the U.S. and to eight countries overseas, via its Apple TV Plus."

    The deal follows Amazon's landing of exclusive Thursday Night Football" rights from the NFL, starting later this year.

    Two things here.

    First, this is a vivid example of how traditional ways of doing business can be disrupted by  non-traditional companies.  Everybody is competing with everybody.  Consider yourself warned.

    Second … whether this even matters will depend on the Major League Baseball owners and players are able to resolve their labor differences and actually have a season.

    Published on: March 9, 2022

    With brief, occasional, italicized and sometimes gratuitous commentary…

    •  From USA Today:

    "After Evan Seyfried died last year, his family filed a lawsuit against his employer, Kroger, saying he was driven to suicide by harassment from his managers.

    "Wednesday marks the anniversary of his death. The group 'Justice for Evan' has planned in-person protests in 15 cities, including Cincinnati, and online events in three more.

    "Jana Murphy leads the group and said Seyfried's death put a spotlight on workplace harassment and 'organization mobbing' … Since Seyfried's death, Murphy said hundreds of people have come forward with similar stories of their workplaces.

    "'He was bullied by his manager. He was mobbed by Kroger,' Murphy said. 'His death was 100% preventable.'

    "She said Seyfried was a whistleblower and followed all the proper corporate channels to report the abuse he was experiencing, but Kroger did not protect him. These accusations are reflected with the wrongful death lawsuit still pending before the Hamilton County Common Pleas Court."

    In a statement released Tuesday, Kroger officials said: "The Kroger family is saddened by the loss of our associate, Evan Seyfried, and extend our condolences to his family and friends. Because this is a matter of active litigation, we are not able to comment further."

    •  Publix Super Markets reportedly has decided to end the sale of coconut milk from major producer Chaokoh, after a campaign by people for the Ethical Treatment of Animals (PETA) revealed the use of chained and caged monkeys in Thailand’s coconut-picking industry.

    “A life as a chained-up coconut-picking machine is no life at all for a monkey, who needs to play, eat, and explore with family members,” says PETA Executive Vice President Tracy Reiman. “Since PETA exposés have confirmed cover-ups of cruelty on coconut farms, no company with a conscience can keep supporting Chaokoh, and Publix should be commended for taking action to help monkeys.”

    •  Nutrition guidance program Guiding Stars said this week that it is adjusting its algorithms so that "drink options that are calorie free, like water and seltzer, are now eligible to earn stars … Examples of new star-earning beverages include water, seltzers, unsweetened teas, unsweetened coffee, coconut water, kombucha and 100% juices."

    Guiding Stars’ nutrition guidance icons are assigned to products based on their nutritional value, with one-star for good, two-stars for better, and three-stars for best.  The company says that the system is being used at more than 2,000 grocery retail stores, including Ahold Delhaize-owned stores in the US.

    I've always been a fan of the Guiding Stars system, but it never really occurred to me until now that the algorithms, the way they were written, were weighted in favor of products that are seen as being good for you, and did not include products that are not bad for you.   Seems reasonable to me, in a world with so many choices, to broaden the definitions and give shoppers more choices.

    Published on: March 9, 2022

    On the subject of Kroger's hub-and-spoke, pure-play e-grocery model, one MNB reader wrote:

    One of the largest expenses a retailer deals with is SG&A (selling, general, and administrative expenses).  Costs of stores, including store labor, are huge.  If the new model with Kroger and these Ocado hubs greatly reduces these expenses, that means at some point Kroger can reinvest those savings back into price.  If everyone else in a market is running a traditional “store centric” model, they will be at a distinct cost disadvantage.  I don’t know the specifics on SG&A expenses with this new model, but can’t wait to see how Kroger leverages this in the future.

    On the subject of the stories about how businesses are reacting to Russia's invasion of Ukraine, one MNB reader wrote:

    I received a cringeworthy (being polite) from Seeking Alpha today titled "War In Ukraine - Stocks Poised to Thrive" - so I wrote them back basically saying "AYFKM" here?

    Now, I am not naive and know that some sectors experience higher profits/revenue when bad stuff happens, but come on - say it a different way than "Here's how to maximize your portfolio while innocents die in Ukraine!"

    Off my soapbox. Do better Seeking Alpha.

    From another MNB reader:

    In light of the unbelievable tragedy of the Ukrainian people today any US corporation doing business in Russia should be shamed and and boycotted here in our country.

    Are the profits ultimately that important???

    On another subject, one MNB reader wrote:

    I have to confess, seeing your Pandemic Review section get smaller and smaller each week and each day is the best reduction in journalism I could ever imagine. It gives us all hope.

    Regarding new gene-edited beef that has been cleared by the FDA for eventual sale - without being labeled - I commented yesterday:

    I wish that the gene-edited beef would be transparently labeled as such - not because I am afraid of it or wouldn't be willing to eat it, but because I believe in transparency.  I hate it when institutions - whether governmental or private enterprise - say I don't need to know something. 

    One MNB reader wrote:

    This is an interesting take coming from you considering your stance on the vaccines over the last year… wouldn’t you like to see the same transparency coming from Pfizer and Moderna? Informed consent regarding vaccines? Pfizer submitted to hide the data from their clinical trials for 75 years because “you don’t need to know something.” 

    Luckily the motion was denied, but I find it difficult for you to take two different stances on the same issue of transparency to the consumer.

    Exactly how have I taken two different positions?

    I'm in favor of transparency by the pharmaceutical companies.  Never said anything else.  

    But almost a million people in our country have died because of Covid-19, many of them because they were not vaccinated.  That means many of those deaths were preventable.  I may be agnostic about eating gene-edited beef (even as I wish it would be labeled), but I'm not agnostic about getting vaccinated … and I think greater transparency always is better, though lack of transparency by the companies should not be equated with lack of efficacy.  That's clearly not the case.