business news in context, analysis with attitude

Published on: November 1, 2022

Okay, I'm a little annoyed.  One might even say, McPissed … by yet another story about how fast food purveyors - in this case, McDonald's - are gaining share of stomach at the expense of supermarkets because of inflation.  My argument:  If supermarkets are losing this battle, it is the result of self-inflicted errors. Not fighting back. Not making their case about VALUE. Not marketing as aggressively as they should.

Published on: November 1, 2022

by Kevin Coupe

The news was reported yesterday afternoon - the US Department of Justice had prevailed in its efforts to block a $2.18 billion merger of Penguin Random House and Simon & Schuster, two of the world's top five publishers.

My first thought:  What does this tell us about potential roadblocks to the $24.6 billion proposed acquisition by number two grocer Kroger of number four grocer Albertsons?

The deals are not the same by any means.  First of all, the Kroger-Albertsons merger has a value that is 10 times bigger.  And there may be ways for the supermarket chains to assuage the Federal Trade Commission (FTC) and Justice Department and convince them to let their deal go through.  (For example, the grocers can get divest stores to address competitiveness issues.  I'm pretty sure that Penguin and Simon & Schuster wouldn't have sold off their relationships with Stephen King and John Grisham to Hachette to make the deal work.)

But there are some commonalities - most specifically, and most likely, in the approach taken by regulators in assessing them.

Here's how the New York Times wrote about the judge's decision in the publishing case:

"A federal judge blocked on Monday a bid by Penguin Random House, the biggest book publisher in the United States, to buy one of its main rivals, Simon & Schuster, in a significant victory for the Biden administration, which is trying to expand the boundaries of antitrust enforcement.

"The judge, Florence Y. Pan, who heard the case in the United States District Court for the District of Columbia, said in an order that the Justice Department had demonstrated that the merger might 'substantially' harm competition in the market for U.S. publishing rights to anticipated top-selling books … Penguin Random House has about 100 imprints that collectively publish more than 2,000 new titles a year. Through the merger, it would have gained roughly another 50 imprints from Simon & Schuster."

From the Wall Street Journal:

"In blocking further publishing-industry consolidation, the decision provided a needed boost to Biden-era antitrust enforcers at the Justice Department after they lost a string of recent merger challenges in court.

"German media company Bertelsmann SE, whose holdings include Penguin Random House, agreed to the Simon & Schuster acquisition in November 2020.

"Assistant Attorney General Jonathan Kanter, the Justice Department’s top antitrust official, said the merger would have decreased author compensation and 'diminished the breadth, depth and diversity of our stories and ideas.'

"Mr. Kanter added: 'The decision is also a victory for workers more broadly. It reaffirms that the antitrust laws protect competition for the acquisition of goods and services from workers'."

The publishers have said they plan to appeal the ruling, so it is not over yet.

One difference commonality between the two deals is that they both focus on the suggestion that the merged companies would be better able to compete with outside entities.  In the case of Kroger and Albertsons, those entities are Walmart and Amazon (which has an outsized influence on the marketplace despite the fact that its food sales are far smaller … for the moment).  In the case of the two publishers, part of the goal is to have more leverage in dealing with Amazon.

Here's how New York Times columnist Shira Ovide characterized

 it a couple of months ago:

"The government's rationale is pretty simple:  the purchase would effectively reduce competition in the book business, hurting authors who will have fewer places to peddle their wares and potentially hurting consumers by raising prices … The elephant in the room is Amazon. Book publishers want to become bigger and stronger partly to have more leverage over Amazon, by far the largest seller of books in the United States. One version of Penguin Random House’s strategy boils down to this: Our book publishing monopoly is the best defense against Amazon’s book selling monopoly."

The Times story yesterday pointed out that "industry luminaries, among them powerful literary agents and best-selling authors, testified. Executives from Penguin Random House and Simon & Schuster spoke in support of the deal, arguing that the merger would benefit writers, because combining the publishing houses would lead to cost savings, allowing the company to spend more on books."

But the opposite argument is that the consolidation of power also would hurt smaller publishers and beginning writers - there would be so much focus on big writers and best sellers that anyone not meeting that standard would be lost in the shuffle.   (Ironically, Stephen King - who is published by Simon & Schuster imprint Scribner - testified to this effect in court, going against his own publisher and, arguably, his own financial interests.)

When it comes time for the FTC and the Justice Department to evaluate the Kroger-Albertsons deal, the metrics may be different, but in some ways, the stakes will be much greater.  This isn't just about books and publishers and highly compensated authors, but rather about retail entities that serve as the backbones of their communities and play a vital role in the nation's food supply.

As Axios puts it, Kroger and Albertsons may be facing regulatory headwinds, since the publishing case "is seen as a precedent-setter for mergers and acquisitions at large under the Biden administration."

The announcement of the Penguin Random House and Simon & Schuster ruling was an Eye-Opener.  Hard to imagine that the execs at Kroger and Albertsons saw it as good news.

Published on: November 1, 2022

From the New York Times this morning:

"For years, food companies and restaurants generally raised prices in small, incremental steps, worried that big increases would frighten consumers and send them looking for cheaper options. But over the last year, as wages increased and the cost of the raw ingredients used to make treats like cookies, chips, sodas and the materials to package them soared, food companies and restaurants started passing along those expenses to customers.

"But amid growing concerns that the economy could be headed for a recession, some food companies and restaurants are continuing to raise prices even if their own inflation-driven costs have been covered. Critics say the moves are all about increasing profits, not covering expenses."

The Times goes on:  "So far, food companies and restaurants have been able to raise prices because the majority of consumers, while annoyed that the trip to the grocery store or drive-through for takeout costs more than it did a year ago, have been willing to pay. But there are plenty of shoppers, including those with lower incomes or retirees on fixed budgets, who say the higher prices have led to changes in their routines … In grocery stores, consumers began increasingly switching to less expensive store brands in March, executives at TreeHouse Foods, a company that makes cookies, crackers, pickles and beverages for retailers, told Wall Street analysts on a call in August."

Published on: November 1, 2022

Axios reports that "for a while, it seemed like everyone was job-hopping. Well, those days are likely behind us — especially in pandemic-fueled sectors, including tech … The red-hot labor market is cooling off. Demand for workers is down sharply from last year, according to new data from the job site Indeed."

The story suggests that "tech's woes could be an early indicator of what's to come in the broader labor market, which has stayed strong despite other worrying signs in the economy.  Fewer job openings is a sign of less demand for workers - and an indicator you won't be able to job hop your way to the kind of sky-high pay increases certain professionals scored in 2021.'

Axios writes that ZipRecruiter's chief economist Julia Pollak says that "fewer workers are quitting their jobs for better prospects," and that "amid increased fears of a possible recession, employees are prioritizing job security over pay."

One caveat:  "While overall job listings are down 9% on Indeed this year, they're still 50% higher than pre-pandemic levels."

Published on: November 1, 2022

There have been several stories out there about how Hooters is teaming up with NASCAR driver Chase Elliott on a new virtual chicken format that will deliver a variety of poultry dishes via Grubhub, DoorDash and Uber Eats.

The items will be delivered from some 196 Hooters locations around the country, but will not be available in those restaurants.

The name of the ghost kitchen brand:  Chase Elliott's Chicken Tenders.

Published on: November 1, 2022

The Wall Street Journal reports that "more communities in California wine country are telling gasoline stations to set up shop somewhere else.

"Eight cities and towns in Napa and Sonoma counties have banned the construction of new gas stations. The city council in Novato, Calif., located in Marin County, passed a ban in an initial vote last week and is expected to give it final approval in November.

"Local leaders say the laws are part of an effort to fight climate change in a region that has been devastated by wildfires and drought.

They also say there is increasingly less need for gas stations in the area, as state data show electric vehicles are more common in Marin, Napa and Sonoma than the nation at large.

"Opponents say the bans will raise prices and force residents to drive farther for gas, and that new stations could also charge electric vehicles."

As reported here on MNB, California already has adopted rules that will end the sale of new gasoline-powered cars as of 2035.

Published on: November 1, 2022

•  Amazon said this morning that it "will open its second Amazon Go store in the LA area in Torrance, CA and are excited to confirm a third Amazon Go store in the area coming soon to Woodland Hills, CA. Additionally, we’re sharing the news that Amazon Go is seeking Zero Carbon Certification with the International Living Future Institute (ILFI) for all of the Amazon Go stores in the LA area. This includes the two new stores mentioned above as well as the Amazon Go store that recently opened in Whittier, CA (in September 2022)."

The Torrance store, like the Whittier store recently covered here on MNB (pictured below), will feature a "Made-to-Order kitchen which offers freshly prepared meals, including breakfast, sandwiches, salads and wraps for customers to choose from or customize – available all day and at prices they can feel good about.  The Made-to-Order kitchen offers breakfast bowls, sandwiches and burritos, hot and cold deli sandwiches, salads, and wraps."

Published on: November 1, 2022

•  Wakefern Food Corp. said that in its just-completed fiscal year, total sales were up 4.7 percent from the previous year, to a record $18.6 billion.  Sales for Wakefern's Price Rite Marketplace format were up six percent, to $850 million.

The 40-member company is the largest retailer-owned cooperative in the U.S.

•  United Natural Foods Inc. (UNFI) announced that it has reached "a new agreement with Cornerstone for Natural™ to bring their Smart Shelf Tag program to UNFI’s suppliers and retailers. Smart Shelf Tags contain ELi QR Codes, an enhanced, more secure version of a QR code, which can be scanned to provide shoppers with additional product information and rich digital content on their mobile phones without requiring an app."

Published on: November 1, 2022

•  The Save Mart Companies announced today Tamara Pattison has joined the company as senior vice president, chief digital officer, saying that "this newly created position will further enhance the organization’s opportunities for emerging digital technologies and e-commerce strategies, enabling future growth."

Pattison most recently was Director of A3Ventures, the innovation lab and capital investment arm of AAA Northern California.

•  The International Dairy Deli Bakery Association (IDDBA) has announced the upcoming retirement of IDDBA president-CEO, Michael Eardley.  IDDBA's Executive Committee has begun the search process, and will "be accepting letters of interest and resumes through December 3, 2022."

Published on: November 1, 2022

My favorite kind of email, from MNB reader Tom Hahn:

KC, one thing I can always count on about MNB is a daily dose of your elitist point-of-view. First, you correctly offer a POV that the Inc. story on Chick-fil-A and their 3-day work week “reflects a sort of elitist view of work”. You then follow that with a story on the demise of service stations in California as a necessary outcome to the state’s foolish, virtue-signaling decision to require all vehicles sold in the state to be zero-emission by 2035.

And your comment to that story is “Progress is hard”.  But, not to worry, that surely doesn’t reflect any kind of elitist view of work.

You may think I was being elitist, and that California is "virtue signaling."  But I think it is equally fair to argue that California is trying to get ahead of an inevitable wave and in doing so, maintain its reputation as a place where trends begin.

Was I being glib?  Sure.  I'll cop to that.  Sometimes I just like to poke the bear and see what happens.  Usually, that means an email like yours, endeavoring to put me in my place.

On the same subject, one MNB reader wrote:

If “gas stations” will go away, surely drug chains will change dramatically. Look at the percentage of front end dollar sales for chain drug.  They carry thousands of skus for a very low percentage of sales.

As a salesman calling on chain drug, I was always amazed that certain categories were even carried in a drug chain.  Time, energy and personnel will be shifted to the “health” side of the business in the future.  

It should have started years ago.

The demise of one category almost always results in the creation of another.  (Hope that doesn't sound too glib.)

Another MNB reader wrote:

There is a far bigger issue. CA electric grid has insufficient size today, with blackouts common. No planned hydro, atomic, or fuel cell stations. Solar and wind have no projects announced. The grid isn’t up to more electric demand, period. All else is just rearranging Titanic deck chairs.

I would say that the state has about a decade to get its act - and its grid - together.  However, in my view the worst thing the state could do would be to go backwards.

We had a story the other day about how Southeastern Grocers (SEG) said that 375 Winn-Dixie and Harveys stores in Alabama, Florida, Georgia, Louisiana and Mississippi now will offer "a new online shopping and delivery service" that will allow customers to "shop for their groceries online through the Winn-Dixie and Harveys Supermarket apps and websites and receive their orders in as little as two hours for only $9. In celebration of the new online shopping experience, customers purchasing $35 or more worth of groceries will automatically receive free delivery in as little as two hours, for a limited time … . It’s a Winn Win for our customers seeking quality and value with the added convenience of delivery.”

I commented:

First of all, I love the wordplay - "Winn Win" is a great turn of phrase.

Second, it seems to me that these are table stakes in 2022 - the kind of things that retailers have to do in order to remain relevant and resonant.  So good for SEG.

Third, I'd just point out that SEG should be a little careful with certain terminology.  In the press release, it calls this a "proprietary new service," but I'm not sure you can say it is "proprietary" when it is being powered by DoorDash, which has to be offering it through other retail venues.

Meredith Hurley, SEG's Director of Public Relations & Community, responded:

Thank you for your coverage of our new online shopping and delivery service. I always enjoy reading your take on retail news and appreciate your recognition of our "Winn Win" wordplay. I also wanted to give you just a little bit of added context:

We consider our unique approach of bringing together best-in-class service providers to power and fulfill our customers' needs to be proprietary in its application to the marketplace.

The online shopping platform is powered by Mercatus, and the order is then fulfilled by DoorDash Drive, DoorDash’s white label fulfillment platform.

Fair enough.  Point taken - sometimes it is the way different factors are mixed together that creates something differentiated.

Yesterday, we reported that CVS Health has released what it called The Rx Report: A New Day in Retail Pharmacy, saying that a survey conducted by Morning Consult concluded that there is a "strong consumer preference and demand for an expanded role of pharmacists."

I commented:

All of which sounds great, except that whenever CVS makes these statements about wanting to play a greater role in the health care continuum, I cannot help but think of what I saw at my local CVS pharmacy counter:

Very little about this image suggests to me that I ought to trust these folks or give them a greater role in my health care.  In fact, very little suggests any level of professionalism.

One MNB reader responded:

Your observation is spot on.  CVS pharmacies are understaffed, overworked, and just plain don’t have the time or resources to perform additional duties or services.  If you cant get into an urgent care facility you certainly will not get urgent care at the CVS.  I don’t care how much corporate speak you pour out on caring for their customers.  It doesn’t cover the current mess in the stores.  Typical example of the “headquarter disconnect”, not intellect. 

One other note.  I got an email from an MNB reader complaining that I'd used the picture a total of three times, and that maybe I ought to a) complain to customer service, and b) go back to see if they've improved things.

Well, now I've used the picture four times.  I actually was in the neighborhood yesterday, and checked - and not only was the pharmacy counter in equally bad shape, but my interaction with the folks in the pharmacy proved the point that they're understaffed and overworked;  it was just plain frustrating.

As for complaining to customer service … I think MNB is a far better soapbox, with greater visibility.  I just don't think their priorities match my expectations.

Another email on what is becoming a familiar subject:

On the Kroger/Albertsons debate…

We have both(Smiths and Albertsons banners), Winco and Walmart here in Sin City.  Comparing a simple item over the weekend - Lloyds prepackaged ribs as it was on the menu for dinner Saturday night.  Granted Albertsons and Smiths offer a cleaner and better merchandised shopping experience than both Winco and Walmart, the ribs were $18 at Walmart, $22.99 at Smiths and $24.99 at Albertsons.  As you are in the car driving home from shopping, do you want to say “Wow, what a great shopping experience at Albertsons/Smiths with my 100 items” OR “Wow, I have $54 extra in my bank account after buying my 100 items at Walmart”?

I know which one MOST of America is choosing when you look at both market basket totals and transactions per day amongst the big players here. 

This deal will fall on deaf ears for most of the country and I doubt highly that pricing will change much with Alb/Smiths being high/low advertising retailers and we have all watched what happens with Kohls/BB&B when you try to deviate from what people know you as. 

The only winners out of this are the lawyers and executive teams.  It will be neutral for the vast majority of us shoppers.  The losers will be the people getting cut as corporate office synergies start.

In yesterday's FaceTime, I expressed a few thoughts on the subject of when, where and how businesses should draw the line on taking political positions, prompted by the controversy created by the antisemitic bile generated by Kanye West.  Basically, I said that while I understand why a lot of businesses want to stay away from taking political positions, this is one of those cases where the moral, ethical thing to do is denounce the person who says the words, denounce the larger cultural sentiment behind the words, and, if there is any business relationship with that person or people, sever it.  Immediately.  I said I am tired of the ugliness, fed up for the most part with social media (which I think is about to get a lot worse), and just, in general, done.

MNB reader Robert Wheatley responded:

Interesting issue Kevin. I think there might be an adjacent frame for this conversation. In theory government exists for the greater good, to solve problems facing our society. All politics aside (parties, candidates and their agendas), every piece of research we see agrees that people, more than ever, believe corporations have a responsibility to be part of the solution for existential threats and issues such as food security, climate impact, racial equality, etc. Companies have a responsibility to weigh in and be part of the conversation on societal issues that may also be the traditional province of public policy.

This is quite different than partisan politics which is a minefield of division and separation these days. If the focus is on helping solve the global issues of climate challenges, fairness to people, racial injustice -- then you’re on the side of the angels, no matter if the issue is embraced to a greater or lesser degree by either political party. If anything, absent the politics and self-serving agendas, business may do a better job at addressing some of these challenges than other institutions.

Another MNB reader wrote:

WELL DONE…finally some logic and decency in the modern business world!! It seems absurd that civil discourse or supporting vs. undermining societal good is something that we have to strive for in this country!!

I'm not sure I'd ever want to be described as a source of logic and decency.  But I appreciate the thought.

Published on: November 1, 2022

•  In Monday Night Football action, the Cleveland Browns beat up on the  Cincinnati Bengals with a 32-13 win.

•  Last night's scheduled third game of the World Series between the Houston Astros and Philadelphia Phillies - now tied in the best-of-seven series at one game apiece - was rained out, and will be played tonight.