business news in context, analysis with attitude

Published on: October 28, 2022

And now, the second part of my extended conversation with Gary Hawkins, of the Center for Advancing Retail & Technology (CART), about his recent LinkedIn column suggesting that the proposed Kroger-Albertsons deal is no less than a significant move in the direction of a total transformation of the traditional retail food business.

If you want to listen to this as an audio podcast, click below.

To see part one, click here.

If you'd like to read Gary's original column, click here.

Published on: October 28, 2022

by Kevin Coupe

There was a confluence of stories yesterday that circled around the same issue - health - that suggest impending problems for retail businesses.

First, Axios reports on a new Kaiser Family Foundation report suggesting that "employers face a brutal increase in health-insurance premiums for 2023."

The piece notes that "premiums stayed relatively flat this year, even as wages and inflation surged. That reprieve was because many 2022 premiums were finalized last fall, before inflation took off."  And, in a tight labor market, "some employers absorbed rising costs of coverage instead of passing them on to workers."

But, Axios writes, "an October survey of 1,200 small businesses found that nearly half had raised prices to offset rising costs of health care."  And there is the expectation that has premiums skyrocket, employers are going to have to either raise prices or pass along at least some of the increases to workers.

Axios notes that "nearly 159 million Americans get health coverage through work — and coverage costs and benefits have become a critical factor in a tight labor market.

Meanwhile, the New York Times reports on a potential "tripledemic" that could affect Americans this winter.

Here's the explanation:

"For more than two years, shuttered schools and offices, social distancing and masks granted Americans a reprieve from flu and most other respiratory infections. This winter is likely to be different.

"With few to no restrictions in place and travel and socializing back in full swing, an expected winter rise in Covid cases appears poised to collide with a resurgent influenza season, causing a 'twindemic' - or even a 'tripledemic,' with a third pathogen, respiratory syncytial virus, or R.S.V., in the mix.

"Cases of flu have begun to tick up earlier than usual, and are expected to soar over the coming weeks. Children infected with R.S.V. (which has similar symptoms to flu and Covid), rhinoviruses and enteroviruses are already straining pediatric hospitals in several states."

The Times also has another Covid-centric story about the rebound cases of Covid that seem to be occurring with greater frequency:

"When the antiviral treatment Paxlovid came into wider use for Covid-19 infections earlier this year, doctors who prescribed it and patients who took it noticed that symptoms sometimes flared up again a few days after having gone away. Some people even tested negative before they experienced the rebound. But this puzzling phenomenon can occur whether you take Paxlovid or not, according to a new study … Eighty-five percent of those who had a rebound reported that their symptoms were mild; 15 percent had at least one moderate symptom.

"The most common complaints during a symptom rebound were coughing, feeling fatigued and having a headache."

I bring all this up because health issues could easily have an impact on businesses that already are straining to find enough people to keep operating - especially going into a season that, in retail, tends to require higher staffing levels.

Whether it is Covid, the flu or this new respiratory syncytial virus, businesses are going to have to be sensitive to employees' various situations and figure out a way to maintain service levels under difficult circumstances.  It all will be an Eye-Opener.

I can speak to the whole rebound syndrome - that's exactly what happened to me.  Days after I recovered from my first bout with Covid, I got hit with severe cold symptoms and extraordinary fatigue … and then tested positive.  It was back into isolation for five days, though I had a quick recovery and finally feel like myself.  (Unlike my first go-round, I had no problem continuing to do MNB.  I've had no "Covid fog" that I'm aware of … or, at least, I seem to be no foggier than usual.)

Published on: October 28, 2022

Amazon yesterday released its Q3 results, but shook the marketplace by projecting that its Q4 net sales "are expected to be between $140.0 billion and $148.0 billion, or to grow between 2% and 8% compared with fourth quarter 2021 … Operating income is expected to be between $0 and $4.0 billion, compared with $3.5 billion in fourth quarter 2021."

The forecast, the Wall Street Journal writes, is "the latest stark sign of how shifting economic forces are battering tech giants that thrived during the pandemic."

Amazon said that Q3 net sales increased 15% to $127.1 billion in the third quarter, compared with $110.8 billion in third quarter 2021 … North America segment sales increased 20% year-over-year to $78.8 billion … net income decreased to $2.9 billion in the third quarter, compared with $3.2 billion in third quarter 2021."

CEO Andy Jassy released the following statement:

“In the past four months, employees across our consumer businesses have worked relentlessly to put together compelling Prime Member Deal Events with our eighth annual Prime Day and the brand new Prime Early Access Sale in early October. The customer response to both events was quite positive, and it’s clear that particularly during these uncertain economic times, customers appreciate Amazon’s continued focus on value and convenience.

"We’re also encouraged by the steady progress we’re making on lowering costs in our stores fulfillment network, and have a set of initiatives that we’re methodically working through that we believe will yield a stronger cost structure for the business moving forward. There is obviously a lot happening in the macroeconomic environment, and we’ll balance our investments to be more streamlined without compromising our key long-term, strategic bets. What won’t change is our maniacal focus on the customer experience, and we feel confident that we’re ready to deliver a great experience for customers this holiday shopping season.”

CFO Brian Olsavsky said yesterday that Amazon is "preparing for what could be a slower growth period like most companies. We are going to be very careful on our hiring … We certainly are looking at our cost structure and looking for areas where we can save money.”

The Journal writes that "Amazon has the largest share of online commerce, about 38%, but its market share has plateaued in recent years, according to market research firm Insider Intelligence. Analysts say the company’s size has made it unlikely the e-commerce unit’s growth would hit the same pace it once did. Amazon also is dealing with increased competition from Walmart Inc., Target Corp. and others."

Published on: October 28, 2022

Market analytics company Jungle Scout has released its new 2022 Amazon vs. Walmart report, looking at how "consumer shopping preferences and investments in omnichannel strategies and tech are shaping the rivalry between these retail giants."

Conclusions:

"Consumers prefer Walmart over Amazon for groceries. 56% of consumers turn to Walmart for groceries, compared to 15% who prefer to buy them from Amazon."

"Consumers turn to Walmart for affordability. 43% of consumers say product prices are the main reason they shop at Walmart over Amazon, followed by familiarity with products."

"Consumers prefer to shop on Amazon for electronics, books, and clothing.  And they prefer to shop at Walmart.com for groceries, medicine, and cleaning supplies."

"Amazon is still the dominant ecommerce platform. 75% of U.S. consumers have purchased from Amazon recently, compared to 43% who have shopped on Walmart.com."

Published on: October 28, 2022

From the Wall Street Journal:

"The U.S. economy grew at a 2.6% annual rate in the third quarter despite a slowdown in consumer spending during the summer amid high inflation and rising interest rates.

"Gross domestic product - the broadest measure of goods and services produced across the nation - increased after declining in the first half of the year, the Commerce Department said Thursday. Consumer spending, the economy’s main engine, cooled from July to September compared with the previous quarter."

According to the story, "The third quarter included mixed signals on the economy’s performance. Consumer inflation remained close to a four-decade high as broad price pressures persisted. The Federal Reserve continued rapidly raising interest rates in an effort to slow economic activity enough to lower inflation.

"Many economists are worried about the possibility of a recession in the coming 12 months. They expect the Fed’s efforts to combat inflation will further weigh on the economy, after higher rates have already begun denting the housing market and stock prices … So far, though, key segments of the economy have remained resilient. The job market cooled some but stayed strong with robust payroll gains and low unemployment."

Published on: October 28, 2022

•  From The Verge:

"Walmart and Netflix are expanding their digital Netflix merch shop to physical stores, the two companies announced on Thursday. The shop, called The Netflix Hub, will be coming to more than 2,400 Walmart locations.

"At the in-store Netflix zones, you’ll be able to buy things like 'music, apparel, collectibles, games, and seasonal items' from big Netflix franchises like Stranger Things, Squid Game, and even the upcoming Knives Out sequel. Walmart and Netflix will also be selling 'concession kits' of goodies like popcorn and candy to make watching Netflix at home feel like you’re at the movies … Walmart will also be selling a $19.99 Netflix gift card, which conveniently translates to a single month of Netflix Premium following a recent price hike."

Published on: October 28, 2022

•  Save Mart said yesterday that it "has teamed up with Amazon to offer Amazon customers two-hour grocery delivery from Save Mart stores in Lathrop and Ceres, with more cities in California’s Central Valley to be added soon. With new convenient access to Save Mart’s quality produce and products, Amazon Prime Members will have their grocery needs fulfilled at affordable prices."

“The Amazon partnership represents The Save Mart Companies’ ongoing digital transformation to serve our shoppers and fulfill their needs with innovative and affordable solutions,” Tamara Pattison, SVP-Chief Digital Officer, The Save Mart Companies, said in a prepared statement.

•  Target-owned Shipt yesterday announced what it is calling "Dealivery Days, an exclusive three-day savings event kicking off on Saturday, November 5th. Shipt members and customers will be able to unlock exciting deals on an array of products from national retailers like Target and Walgreens to regional favorites like Meijer and Fred Meyer, amongst an expansive suite of participating mid-sized and nationwide retailers."

Shipt says that the promotion is a recognition "that inflation is impacting consumers across the country," and so it "is prioritizing deals for customers in the categories that have been the most affected. Categories such as meat and pet products, both of which have seen an average price increase of over 15 percent over the past year, will be featured during Shipt’s Dealivery Days."

•  From The Verge:

"DC Attorney General Karl Racine sued Shipt, a gig delivery company, Thursday for misclassifying full-time workers as independent contractors in order to 'cheat' them out of wages and avoid payroll taxes.

"In the Thursday complaint, Racine accuses Shipt of unlawfully denying full-time delivery workers basic employment benefits and protections by wrongfully classifying them as contractors. Specifically, the suit claims that Shipt misrepresents the nature of a delivery driver’s work, suggesting that the worker acts as their 'own boss.'  But in reality, drivers are required to sign up for hourly shifts, and the amount of money they make depends on the number of orders placed within that timeframe. If no orders are placed, drivers don’t turn a profit and could even operate at a loss, Racine argued in the complaint, alleging Shipt’s business model violates DC’s minimum wage laws."

Published on: October 28, 2022

•  Placer.ai is out with new research saying that grocery stores that "saw big visit gains during the pandemic … aren’t giving them up easily. They’re still holding their own against dollar and discount stores, which are starting to offer grocery options of their own … Placer.ai’s Indexes show that visits to grocery stores overall are down a bit from last year, but are still tracking above pre-pandemic levels. During the week of September 26, visits to grocery stores were down 3% year-over-year, but up 0.6% compared to 2019."

Among the brands that seem to be performing the best are Food Lion, which "saw visits up more than 32% during Q3 2022 compared to Q3 2019. Likewise, Aldi and Trader Joe’s saw visits up 25.9% and 16.4%, respectively, during the same period."

Published on: October 28, 2022

In Thursday Night Football action, the Baltimore Ravens defeated the Tampa Bay Buccaneers 27-22, leaving the Tom Brady-led Bucs at 3-5 … the first time in his career that Brady has been on a team two games under .500.

Published on: October 28, 2022

Got this note from MNB reader Patrick Smith:

"The Pacific Northwest is home to the origins of Albertsons/Safeway and regional Kroger Chains, QFC and Fred Meyer. They dominate the traditional supermarket business in the region. As reported, if allowed to go through, store closures and loss of jobs will be casualties of the merger, plus the decline of a competitive environment for the consumer.

It is hard to fathom lower consumer prices when Kroger will have to recover the twenty-five billion dollars they are spending to acquire their competitor. Access to the retailer’s shelf will be much more difficult for startup and regional brands whose distribution at Fred Meyer and QFC have noticeably shrunk since Kroger took complete control of these two chains in about 2011. It seems that the merger will only benefit Albertsons/Safeway stockholders and the Kroger Corporation."

Yesterday we took note of a Bloomberg story about how "Kraft Heinz Co. and Jeff Bezos-backed startup NotCo are following through with their bet on plant-based foods," with products called Not Cheese and an animal-free mayonnaise.

I commented:

Somehow, "Not Cheese" is a phrase that does not titillate my taste buds.  With a name like that, I half expect the slogan to be, "Also Not Tasty."

One MNB reader responded:

Not Cheese from Kraft/Heinz is nothing new, over 30 years ago when dairy costs increased significantly, Kraft Imitation Cheese Slices made using Soybean Oil in place of cheese were introduced and hung around for a while, but were usually sold as economy items to compete with generic quality products.

I am not sure how you can make mayonnaise without eggs as eggs are in the standard of identity for a product to be called mayonnaise.

Plant based looks to be a fancy name to cheapen the product and sell at a premium cost.

Yesterday, commenting on two labor-related stories, I said that I did not understand the unions' positions, saying that Amazon CEO Andy Jassy violated labor law by saying in interviews that his employees would be better off without a union, as well as saying that any benefits offered by Starbucks to non-union employees also had to be offered to employees who have chosen collective bargaining by their union.  I conceded that I'm not a lawyer nor a labor law expert, but that both positions seem illogical.

Prompting one MNB reader to write:

I am totally impressed. Liberal, New England, Kevin coupe siding with management over the unions? There is definitely hope. Baby steps but it’s a start. Congratulations.

First of all, if you'd been paying attention over the past 20+ years, you would know that I've always had a high level of skepticism about the ways in which unions approach management-labor issues.  I've also had a high level of skepticism about the ways in which management approaches management-labor issues.   I think they both focus on the wrong stuff, and I've said that here over and over.

So this is nothing new.

I've also said here on numerous occasions that my politics are complicated … and so while I appreciate you trying to characterize me as one easily-defined thing, because that is so much easier than acknowledging any sort of nuance, you would be wrong.

Published on: October 28, 2022

The new Jack Reacher novel, "No Plan B," is out, and once again it appears to have been written by series creator Lee Child's brother, Andrew Child.  (The transition has been taking place over the past several books, as Lee Child reportedly has spent more time focusing on the TV series for Amazon Prime Video.)  I've said in the past that I'm not crazy about Andrew Child's writing style - there always was a kind of ironic buoyancy to Lee Child's work that his brother's work, with a blunter style, lacks.

That said, I really enjoyed "No Plan B."  The novel is extremely well plotted, with three separate narrative streams - only one of which involves Reacher for most of the book - taking place, only converging at the end.  There are plot twists and misdirection, resulting in a real page turner.

And as always, there's Reacher - wandering the countryside, picking destinations on impulse and managing to find trouble and injustice pretty much everywhere.  In "No Plan B," he sees the murder of a young woman who literally is thrown under a bus.  When the authorities refuse to believe that there was foul play, Reacher's finely tuned sense of right and wrong leads him on a cross-country journey not just to fond out who did it, but why … and it lands him right in the middle of a conspiracy.

"No Plan B" is a fun ride.  Not quite as much fun as it might've been had Lee Child written it, but it'll do.

Speaking of fun … season three of "Stanley Tucci: Searching for Italy" is back, turning Sunday nights on CNN into destination television.  There's nothing like Tucci's tour of Italy's various regions, telling us just enough about the history, politics and people, but mostly visiting farms and vineyards and restaurants, watching some incredibly talented people make magic in the kitchen, often just by using olive oil, tomatoes and pasta in ways most of us never would've considered.

Amazon has just unveiled the trailer for the third season of "Jack Ryan," starring John Krasinski, and it also looks like a lot of fun … even if it seems to have very little to do with the original novels and character created by Tom Clancy;  he';s more of an action hero in the TV series, as opposed to being the "I'm an analyst, I just write reports" semi-nerd of the Alec Baldwin and Harrison Ford movies.In this iteration, Ryan has gone all "Fugitive" after he seems to uncover and then is implicated in a conspiracy.

Check it out:

That's it for this week.  Have a great weekend, and I'll see you Monday.

Sláinte!!