business news in context, analysis with attitude

Published on: October 19, 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 who led the team that developed 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 Furphy and KC consider several issues:

•  The challenges that face companies involved in a merger or acquisition, as they look to innovate along parallel and complementary lines until a deal can be completed.

•  How competitors to merging companies can take advantage of the moment to drive their own innovations.  "It is a good time to be a better you," says Furphy.

•  After a second Amazon Prime Day promotion that seemed to fizzle rather than sizzle, what next steps for the company ought to be.

•  And the business lesson that can be learned from the fact that so many Major League Baseball division winners have been beaten in the playoffs by teams of lesser accomplishment.  (Dorothy Lane Market's Norman Mayne is cited, just FYI.)

If you'd rather download and listen to The Innovation Conversation as an audio podcast, click below.

Published on: October 19, 2022

Bloomberg reports that the US Senate already is planning hearings into the Kroger-Albertsons merger deal, probably as soon as next month.

From the story:

"Minnesota Senator Amy Klobuchar and Utah Senator Mike Lee, the top Democrat and Republican on the Senate Judiciary antitrust panel, expressed 'serious concerns about the proposed transaction' Tuesday and said the committee would host a November hearing on the deal.

"Separately, in a joint letter to the US Federal Trade Commission, Klobuchar and two other Senate Democrats also asked the agency to closely scrutinize the deal, saying it 'raises considerable antitrust concerns.'

"'The grocery industry is essential to daily life, and Americans need the benefits that robust competition bring,' they wrote."

The lawmakers are reacting to the proposed  $24.6 billion acquisition of Albertsons by Kroger, which was announced last Friday.  The deal would combine the assets of Kroger, the nation's second-ranked grocery retailer, with a 9.9 percent market share, and Albertsons, the nation's number four grocery seller with a 5.7 percent market share.  Combined, the new company would have a 15.5 percent market share, second to Walmart's 20.9 percent of national grocery market share.  (Costco would remain in third place.)

Published on: October 19, 2022

Albertsons said yesterday that Q2 net sales reached $17.9 billion, up from $16.5 billion during the same period a year earlier - driven by a 7.4 percent increase in same-store sales, which in turn was driven by high food price inflation.

Q2 digital sales were up 36 percent.

Net income for the period was $342.7 million, up from $295.2 million during the same period a year ago.

"Our team continued to deliver strong performance during the second quarter," Vivek Sankaran, CEO, said. "Throughout the quarter, we continued to invest in our digital transformation, our differentiation in Fresh and the modernization of our capabilities. As we look ahead to the balance of the year, we believe we are well-positioned to further accelerate in each of these areas, as we continue to roll out our Customers for Life strategy."

Albertsons also said that there was 16 percent increase in loyalty club membership, to a total of 31.8 million.

Published on: October 19, 2022

Axios reports that Amazon warehouse employees at a facility near Albany, New York, have voted 406-206 not to join the Amazon Labor Union, a move that "deals a major blow" or organized labor efforts at the company.

Some context from the story:

"More than 900 workers were eligible to vote at the Albany warehouse, which is known as ALB1.

"The union was started by former Amazon worker Christian Smalls and officially formed after workers at a Staten Island warehouse unionized in April — a landmark moment for organized labor and for the e-commerce behemoth, which has resisted unionization efforts in its U.S. operations.

"It was the second unsuccessful unionization push for the Amazon Labor Union, after a separate Staten Island Amazon warehouse also voted against unionizing in May."

Published on: October 19, 2022

Bloomberg reports on how German discounter Aldi continues to gain market share in the UK, "gaining market share from bigger rivals as millions of Britons search for cheaper bills on their weekly shop."

It is, the story suggests, "a repeat of the aftermath of the financial crisis when Aldi and its fellow German discounter Lidl stole shoppers from the likes of Tesco Plc and J Sainsbury Plc. This time, the British stalwarts have learned their lesson, bringing out more own-brand ranges and launching price matching campaigns against Aldi. The fight to maintain shopper loyalty is fiercer than ever."

But Aldi continues to grow: "In the three months to early September, Aldi gained about £64 million of sales from Tesco, £43 million from WM Morrison Supermarkets Plc, £41 million from Asda, £21 million from Sainsbury and £8 million from Lidl, according to Kantar data … An extra 1.5 million customers have visited Aldi over the past three months. When sales were up by at most the low single digits at most UK supermarkets, they rose 19% at Aldi and 20.9% at Lidl."

The keys, according to the story, is a limited assortment that is highly targeted in terms of its customers' priorities, and an approach to both low prices and value that seems in synch.

The story notes that "other supermarkets are reacting to the threat. Tesco price matches Aldi on more than 600 everyday items while Sainsbury does the same on over 200 products. Asda has its bright yellow Just Essentials range of own-brand products and even Marks & Spencer Group Plc is offering lower prices through its Remarksable value range including bread, milk and ground beef."

Expect no letup in these varied marketing approaches:  "The squeeze on shoppers is showing little sign of easing," Bloomberg writes.  "Grocery price inflation struck a record high of 12.4% in the last month, according to Kantar, and rising prices are still threatening to tip the UK into a recession."

Published on: October 19, 2022

Reuters reports that Starbucks is the subject of a complaint made to the US Equal Employment Opportunity Commission (EEOC) that argues the company "is discriminating against white employees by only allowing minorities to enroll in two training programs."

The group, America First Legal (AFL), asks the EEOC "to launch an investigation into the programs, which were designed by Starbucks to boost workplace diversity … AFL on Tuesday sent a separate letter to Mellody Hobson, the chair of Starbucks' board of directors, claiming Starbucks is violating its fiduciary duty to shareholders by maintaining the 'racist' programs created in 2020 and earlier this year."

Reuters writes that "Starbucks in January said 71% of its employees are female and 48% are people of color.

"'This means that white employees, particularly white men, are statistically underrepresented in the company's workforce, and potentially the subjects of invidious discrimination,' AFL said in its letter to the EEOC."

The story notes that "the National Center for Public Policy Research, a conservative think tank, sued Starbucks over its diversity policies in Washington state court in August.  The group objected to Starbucks setting hiring goals for Blacks and other people of color, awarding contracts to 'diverse' suppliers and advertisers, and tying executive pay to diversity."

Starbucks has denied wrongdoing in the Washington State suit, and has not yet commented on the new EEOC filing.

However, the Reuters story also points out that there apparently have been no employee complaints about the minority training programs, because AFL asked the EEOC to take the rare step of investigating Starbucks without one.

Published on: October 19, 2022

•  Walmart yesterday announced "the launch of a new platform designed around creators. The program is called Walmart Creator and it’s a one-stop portal that makes it easy for creators to monetize shoppable products from the retailer … Creators who sign up will have access to tens of thousands of products and are given the opportunity to earn revenue all while earning commissions on sales they refer with no cap. Users of the platform can share product links to any social platform or group of their choice, receive product recommendations based on interests and affinities and collect valuable performance data to help grow their community and following.

“We know our customers are inspired by the content and stories they see from their favorite influencers in their social feeds every day,” said William White, chief marketing officer, Walmart U.S. “This next step in our strategy will help fuel inspiration for our customers by connecting their favorite creators directly with our brand and the brands they love at Walmart.”

Published on: October 19, 2022

•  Netflix yesterday said that its Q3 revenue grew 5.9 percent to $7.93 billion, while net profit fell 3.5 percent to $1.4 billion;  its operating margin in the period dropped to 19.3 percent from 23.5 percent during the same period a year earlier.

But … perhaps most importantly, Netflix added 2.4 million new subscribers during the period, more than twice as many as anticipated, reversing a trend over the previous two quarters that showed a shrinking subscriber base.

The shift comes as Netflix is about to launch a new, lower priced tier that will allow subscribers to access much of its content but will featuring advertising content.

•  The Hollywood Reporter writes that Netflix is getting into the bricks-and-mortar retail business.

"The streaming giant says that it will be opening an 'immersive retail experience' at the shopping and entertainment complex called 'Netflix at The Grove' featuring products from its original shows and experiential elements … Programs like Squid Game, Stranger Things, Bridgerton, Cocomelon and Ada Twist, Scientist will be represented in the shop, which will sell apparel, books, collectibles like Funko figures and other products … The Netflix-branded store in Los Angeles marks the latest effort by the streaming company to explore shopping and immersive experiences. The company previously launched a Stranger Things experience and pop-up store, as well as a Bridgerton experience called The Bridgerton Ball."

Published on: October 19, 2022

With brief, occasional, italicized and sometimes gratuitous commentary…

•  The Minneapolis/St. Paul Business Journal quotes Target Corp. CEO Brian Cornell as saying that the company's inventory problems have been resolved.

From the story:

"Target was stung by changes in consumer habits earlier this year, leaving it with a glut of inventory. The company responded by slashing prices to unload merchandise, hurting quarterly results over the summer; it also replace its top supply-chain executive.

"'We put that inventory problem behind us,' Cornell said. 'And now we can focus on great execution' as it preps for the fourth quarter. Target's holiday shopping season has already begun, in fact. It began its Black Friday sales event a full three weeks earlier than last year."

Cornell also says that while there are a variety of perspectives about prospects for a recession, "What we've seen all year long is really healthy traffic and a guest that's shopping in our stores and shopping online."

•  Kroger said that Zalat Pizza, a Dallas-based, 24-unit pizza business, will open locations in two of its stores in the Houston market before the end of the year.

Further rollout of the concept is expected next year.

•  In California, KTLA reports that "California businesses are no longer allowed to charge a higher price on products marketed for women, also known as the 'Pink Tax'," which "refers to women’s products marked with a higher price tag when the item is identical to a lower-priced men’s item. Oftentimes, the only difference is the product’s color or packaging, such as in shampoos, deodorants, shaving razors, etc."

According to the story, "The bill prohibits two 'substantially similar' products from the same company from being 'priced differently based on the gender of the individuals for whom the goods are marketed and intended.'

"The bill defines 'substantially similar' as two goods with the following characteristics:  No substantial differences in the materials used in production … The intended use is similar … The functional design and features are similar … The brand is the same or both brands are owned by the same individual or entity."

New York, the story, has a similar law in place.

•  From the Wall Street Journal:

"Nestlé said it has agreed to acquire the Seattle’s Best Coffee brand from Starbucks Corp., bolstering the Nescafe and Nespresso owner’s coffee business in the U.S.

"The world’s largest packaged-food maker said Wednesday that the acquisition of the brand, which sells a range of packaged coffee in grocery stores as well as in locations such as workplaces, universities and hotels, would add depth to its North American portfolio. Nestlé didn’t disclose the terms of the deal."

•  From CNBC:

"McDonald’s will sell Krispy Kreme doughnuts in select restaurants later this month for the first time.

"Starting Oct. 26, the fast-food giant will sell Krispy Kreme doughnuts at nine locations in the Louisville, Kentucky, area as part of a test. McDonald’s said the test will help it learn more about how teaming up with Krispy Kreme would affect its operations.

"McDonald’s customers will be able to order the original glazed, chocolate iced with sprinkles and raspberry filled doughnuts, either individually or in packs of six. Participating McDonald’s locations will sell the doughnuts all day, but the treats won’t be available for delivery.

"Krispy Kreme will deliver fresh doughnuts daily to the McDonald’s restaurants, according to McDonald’s. The doughnut chain uses a “hub and spoke” model that lets it make and distribute its treats efficiently.  Production hubs, which are either stores or doughnut factories, send off freshly made doughnuts every day to retail locations such as grocery stores and gas stations."

If memory serves, one of the reasons that Krispy Kreme got into real trouble a few years ago was that its doughnuts were available everywhere, which reduced its "special" quotient - suddenly, they were a commodity, and the quality image suffered.  The company should be leery about making the same mistake again.

Published on: October 19, 2022

…will return.

Published on: October 19, 2022

•  In the final, deciding - and delayed by inclement weather on Monday night - game of the American League Divisional Series, the New York Yankees defeated the Cleveland Guardians 5-1, winning the best-of-five series three games to two.  The Yankees now go on to face off against the Houston Astros in the American League Championship Series, which begins tonight at 7:37 pm EDT.

And, in the first game of the best-of-seven National League Championship Series, the Philadelphia Phillies beat the San Diego Padres 2-0.

Game two this afternoon at 4:35 pm EDT.