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    Published on: December 19, 2022

    We've talked about the ESG (Environmental, Social, Governance) movement from time to time here on MNB, but it was interesting to see a new report from The Conference Board - hardly a bastion of liberal progressivism - that spoke to the impact that companies can have when taking such an approach, as opposed to traditional philanthropy.

    Published on: December 19, 2022

    by Kevin Coupe

    The New York Times this morning has a piece about how some fashionistas are turning to a new fabric as they design their wares - grocery bags from FreshDirect.

    An excerpt:

    "Before the pandemic began, leather was a go-to material for the handbag designer Shelley Parker. But when life went remote during the lockdowns, Ms. Parker, 54, couldn’t stand the idea of buying it online. 'When I buy leather,' she said, 'I touch it, I feel it. I smell it.'

    "As her leather supply depleted in 2020, Ms. Parker started to experiment with a medium that by then had become more plentiful at her Queens apartment: the colorful plastic totes used to deliver groceries from FreshDirect, which feature the company’s logo surrounded by produce … Ms. Parker began by slicing the FreshDirect bags into pieces. With those scraps, she made a handful of purses and small pouches using techniques including plaiting, macramé and sashiko, a form of Japanese embroidery."

    The price tag for one such handbag:  $899.

    She's not alone.  A number of artists and designers are doing the same thing, trying to find new uses for the bags, which FreshDirect used to take back and recycle.  It stopped that policy back in 2020, however, which led many of its customers with way too many bags to keep.

    The Times also writes about Theda Sandiford, an artist and the senior vice president of commerce and digital at Def Jam Records, who "cannot look at the bags without being reminded of the pandemic during which they proliferated, and the grief and stress that it has caused. To help process those feelings, Ms. Sandiford sliced up FreshDirect bags that she had collected from the trash room of her apartment building in Jersey City, N.J., and wove the pieces through shopping carts to create artworks for a series she called Emotional Baggage Carts … The first cart she made using FreshDirect bags, called 'Wide Load,' now belongs to the Museum of Contemporary African Diasporan Arts in Brooklyn. She showed other carts, earlier this month, at the Satellite Art Show in Miami Beach, Fla. On her website, one cart she made using FreshDirect bags is for sale for $15,000."

    Now that's an Eye-Opener.

    Published on: December 19, 2022

    Reuters reports that the Washington State Supreme Court extended a block on a $4 billion dividend payment by Albertsons to its shareholders that would precede the company's planned acquisition by Kroger.

    The temporary injunction was imposed by a state court while the state's Attorney General appeals a previous decision to allow the dividend to be paid.

    In a statement, Albertsons said that it has "filed a motion to expedite the Washington Supreme Court’s review."

    And, the company said, it "continues to believe that the claim brought by the Attorney General of the State of Washington, and the similar lawsuit brought by the Attorneys General of California, Illinois, and the District of Columbia, are meritless and provide no legal basis for preventing the payment of a dividend that has been duly and unanimously approved by Albertsons Cos.’ fully informed Board of Directors."

    Kroger, the country's second largest food retailer, said in October that it wanted to acquire fourth-ranked Albertsons for $24.6 billion, a move that would leave the newly combined company still at number two behind Walmart, but with some 5,000 stores around the US.  The deal is subject to regulatory approval by the Federal Trade Commission (FTC), with the divestiture of a number of stores in select markets expected.  However, the proposed deal has been roundly criticized by some lawmakers, labor groups and consumer advocates as being bad for competition and likely to result in higher prices for shoppers.

    KC's View:

    While under any circumstances a merger of Kroger and Albertsons would have gotten both legislative and regulatory attention, the $4 billion dividend payment has heightened both the heat and light around the proposed deal.  The dividend has been presented within the context of the merger agreement, though Albertsons has argued that it embarked on a return-value-to-shareholders strategy even before the merger was negotiated and actually has nothing to do with the deal.  But the fact remains that it was announced at the same time as the merger, and so at the very least, the optics are bad.

    I don't know a lot about the M&A business, and so I was interested to read a piece in the New York Times by Joe Nocera in which he looked at the proposed merger and dividend through the prism of how it rewards private equity.

    You can read the entire piece here, but it essentially points out that "dividend recapitalizations — or dividend recaps, as they are called — have become a fairly common trick in the private equity playbook. Last year, according to a Bloomberg report, companies borrowed around $80 billion — a record — to pay out dividends to their private equity owners. Critics say that dividend recaps too often leave companies without enough capital to withstand a business downturn … Dividend recaps are usually under the radar, as private companies are not required to make the same level of financial disclosure as public companies. The Albertsons recap, however, was right there in the merger documents — and critics quickly pointed to it as a classic example of how private equity firms take care of themselves ahead of the companies they own."

    The Albertsons dividend, Nocera writes in his Times piece, would happen despite the fact that "Albertsons did not have $4 billion in hand; it would have to borrow $1.5 billion, adding to its nearly $7.5 billion debt load."

    Now, to be clear, Albertsons argues that even after the dividend is paid, it will still have $3 billion in liquidity and well-positioned to continue competing even if regulators decide not to allow the merger to take place.

    Expect all of these numbers to be front and center as the FTC examines the rationale and likely impact of a Kroger-Albertsons merger.  Nocera writes in the Times that "even if the higher court rules against Washington State, and the dividend is paid, the scrutiny it has received suggests that government officials are no longer willing to shrug their shoulders at the excesses of private equity. Almost everyone I spoke to about Albertsons’s dividend mentioned the Toys 'R' Us bankruptcy in 2017. The toy company’s debt rose to $5 billion from $100 million while under private equity ownership; in the end, that debt load sunk it."

    I do think that there is one thing that the Kroger-Albertsons deal has lacked up to this point - a distinctive and credible voice that is able to put the facts in a context that creates a vision for how this deal, in the end, will be good for consumers, good for labor, good for suppliers, and not unfair to other retailers with a compelling competitive strategy.  The Nocera piece in the Times only underlines the need for such a voice.

    Published on: December 19, 2022

    Over the weekend, I got email from both Wegmans and Walmart that, I thought, illustrated different but equally compelling takes on how to market to consumers during the current holiday season.

    The notion of essentially rolling back prices at a time when inflation is driving up the cost of food and shoppers have a recessionary mindset (even if we are not officially in a recession), is a powerful one.  People trying to get the biggest bang for their buck this year are likely to find this simple image to be persuasive.

    Wegmans, of course, takes a different approach - the image is designed to make you hungry, and the instructions are there to make the cooking of a holiday meal to be both accessible and aspirational.  And, the idea that the credited author of the piece is an actual Wegman … well, that completes the picture of a family company dedicating to helping families eat better during the ultimate family holiday.

    Published on: December 19, 2022

    The Associated Press reports that "Amazon failed to properly record work-related injuries at warehouses located in five states, a federal agency said Friday while announcing it issued more than a dozen citations during the course of its ongoing investigation of the company.

    "The Occupational Safety and Health Administration said it handed out 14 citations during inspections over the summer at six Amazon warehouses in New York, Florida, Illinois, Colorado and Idaho.  The citations were for failing to record, or misclassifying, injuries and illnesses, not recording them within the required time and not giving the agency 'timely' records of such matters, OSHA said. The e-commerce giant, which earned over $33 billion last year, faces about $29,000 in penalties."

    Amazon spokesperson Kelly Nantel responded to the citations by saying that Amazon has a “robust safety program” to protect workers.

    “Accurate record keeping is a critical element of that program and while we acknowledge there might have been a small number of administrative errors over the years, we are confident in the numbers we’ve reported to the government,” Nantel said, adding the company was pleased OSHA acknowledged “all of the alleged violations are ‘other than serious’ and involve minor infractions.”


    KC's View:

    Wow.  A 29 grand fine.  Jeff Bezos probably loses that much in the couch cushions of his 417-foot, $485 million mega yacht during an average week.

    Published on: December 19, 2022

    Willamette Week has a long piece about the growth - and now, the apparent retreat - of the ghost kitchen business ion Portland, Oregon.

    Here's how WW frames the story:

    "A few years ago, restaurants started sprouting up in Portland like toadstools, with names like Mr. Beast Burger, Sticky Wings and Man vs. Fries. They served smash burgers, hot wings, and cheese fries to patrons ordering with a tap of their phones.

    "None of these places really existed—at least, not in the way people usually think of restaurants. They were “ghost kitchens,” where one or more cooks prepare as many as seven kinds of cuisine at commissary kitchens, brick-and-mortar restaurants and, in some cases, food trucks. At the edge of an empty parking lot. All for delivery only.

    "On apps like Uber Eats and Grubhub, ghost kitchens overwhelmed Portland’s brick-and-mortar restaurants floundering in the pandemic … And in this city, more than a quarter of the ghost kitchens appear to be run by one company: a privately held Miami-based corporation called Reef Technology, which likes to put ghost kitchens in trailers, or vessels as it calls them, and place them in parking lots around the city."

    But now, Reef seems to be in retreat, closing down a number of its ghost kitchens amid questions about the expertise of its staff, the conditions in which food was being prepared, and the viability of the long-term economic assumptions upon which the business was being built.

    You can read the entire piece here.

    KC's View:

    I've always thought that there is a place for ghost kitchens, but it seems to me that a couple of things have happened here.

    One is that the concept and its progenitors have slammed into the same headwinds as every other e-commerce and tech company.  Accelerated by the pandemic, but now dealing with inflation and a recessionary mindset.  Some retrenchment was inevitable.

    But, if you read the story, there's something else at work here - Reef appears to be a company driven by ambition, hubris and greed, without realizing that a dedication to food quality and authentic community relations was necessary to make its ghost kitchens work.

    I still think there is promise in the concept, but the positioning and priorities have to be right.

    Published on: December 19, 2022

    •  Meijer announced a new partnership with Uber Technologies "to offer on-demand and scheduled grocery delivery to customers" in Michigan, Indiana, Illinois, Ohio, Wisconsin and Kentucky.

    According to the announcement, "Beginning this week and continuing through the winter, nearly 250 Meijer locations will be available to shop through Uber and Uber Eats. This upcoming holiday season, customers will be able to order their favorite Meijer must-haves, from fresh and frozen turkeys to baked goods, produce and more, delivered on-demand, right to their doorsteps. Meijer locations will be featured stores throughout the Uber Eats app this season and will be included in Uber's Holiday Shop—a one-tap destination for holiday essentials."

    •  From CNBC:

    "Hundreds of Amazon workers will go on strike, Britain’s GMB union said Friday, marking a first for the company’s employees in the U.K.

    "Employees at Amazon’s Coventry warehouse in central England voted Friday to go on strike, with the walkout likely to happen in January 2023. Roughly 1,000 people work at the Coventry facility.

    "The workers are unhappy with a pay increase of 3%, or 50 pence per hour, Amazon introduced in the summer, which they say fails to match the rising cost of living. They want Amazon to pay a minimum of £15 an hour.

    "Inflation has soared due to increased energy costs and supply chain disruptions, with consumer prices currently at a 41-year high. The Bank of England hiked interest rates on Thursday in an effort to slow inflation.

    "Though Amazon workers in the U.K. have previously stopped working in August and on Black Friday in November in protest over the summer pay increase, these were spontaneous, unsanctioned withdrawals of labor.  This will be the first legally mandated strike to take place in the U.K." to hit Amazon.

    •  From Bloomberg:

    "German labor union Verdi called on Inc. warehouse workers to go on strike across the country during the holiday season, seeking to press the company for higher pay and to join collective bargaining agreements … Verdi called on Amazon employees at Bad Hersfeld, Dortmund, Graben near Augsburg, Koblenz, Leipzig, Rheinberg and Werne to join the strikes."

    According to the story, "The timing and location of individual walkouts won’t be announced in advance, the union said in a statement on Sunday. Amazon didn’t immediately respond to a request for comment."

    Published on: December 19, 2022

    •  Kroger Health, Kroger's healthcare division, last week announced an agreement with Prime Therapeutics LLC, described as "a diversified pharmacy benefit manager collectively owned by Blue Cross and Blue Shield Plans that serves more than 33 million people," that will allow Kroger's pharmacies to remain in-network.

    The announcement says that "this direct agreement demonstrates a continued commitment to provide millions of patients with quality, affordable healthcare services."

    •  Caribbean-based holding company Massy, which owns 57 stores in various markets there, announced that it has acquired Florida's Rowe's IGA Supermarkets, a seven-store independent, for $47 million (US).

    According to the announcement,  the acquisition "is aligned with the Massy Integrated Retail Portfolio's strategy to expand its retail footprint in the US market.  The acquisition will represent a 1% increase in the Massy Group's assets and is expected to contribute to an increase in the Group's profit before tax of approximately 4%. For the

    Integrated Retail Portfolio, the acquisition is expected to increase its profit before tax by 7%."

    •  Consumer Reports has announced "its support … for the USDA’s proposed regulatory framework for reducing salmonella illnesses from poultry. In a letter sent to the USDA, CR endorsed the proposal to test incoming flocks for salmonella contamination before they are sent to processing plants and called on the agency to focus prevention efforts on the strains that are most likely to make people sick."

    According to the announcement, "An estimated 1.35 million Americans are sickened by salmonella every year and nearly a quarter of those cases come from chicken or turkey.  Salmonella contamination is widespread in chicken in part because of the often crowded and filthy conditions in which they are raised. A recent CR investigation, for example, found almost one-third of ground chicken samples tested contained salmonella. Of those, 91 percent were contaminated with one of the three strains that pose the biggest threat to human health: Infantis, Typhimurium, and Enteritidis.

    "While the USDA currently requires producers to test poultry for salmonella, a processing facility is allowed to have the bacteria in up to 9.8 percent of all whole birds it tests, 15.4 percent of all parts, and 25 percent of ground chicken.  Producers that exceed these amounts are given what amounts to a warning, but not prevented from selling the meat … Under the USDA’s proposal, poultry producers would be required to test incoming flocks for salmonella before slaughter and provide documentation of salmonella levels or serotypes to processing plants. The requirement is meant to incentivize plants to implement measures to reduce the salmonella load in the final poultry product."

    Published on: December 19, 2022

    MNB reader Henry Stein sent me an email about last week's In Conversation piece with Joshua Siegel, COO of the Titan Casket Company:

    Amazingly educational and provocative interview with Joshua Siegel at Titan Caskets. Clearly a guy and company that recognized an unfulfilled consumer need, satisfied only by a near monopoly. No doubt, Joshua is well grounded and thinking way outside the box……

    And, from another reader:

    Just a wonderful interview ! Could not help but recall the “Chuckles the Clown “episode from the Mary Tyler Moore show years ago.

    One of the funniest episodes of television ever produced…

    On the subject of growing sales of private label, one MNB reader wrote:

    Private label is still just okay.  Even though there have been strides made towards improving quality, for most retailers it still does not match the quality of branded.  The consumers know this too.  The other issue I see facing more PL is that most retailers do not drive the PL like the brands do.  Unless you have “branded mentality” that drives PL, it will never meet the branded sales.  Also, add in the cost of goods along the entire supply chain, and you have PL costing that is much closer to branded.  Which hampers the ability for retailers to drive their PL direction.  PL is seen as a tool to separate them from their competition.  This may be true, but it also puts them on an island when it comes to cost of goods, instead of utilizing the brand efficiencies of scale.  It is a tricky path through a hedge of thorns.

    And, continuing our conversation from last week about the importance of continued learning, MNB reader Steven Ritchey wrote:

    Learning.  I am incessantly learning new things, from your site, from friends, from people I'm not friendly with.

    I want to continue learning until the day I pass on from this life.

    I have a good friend who is a true "Nerd."  He is the organist at my Methodist Church, yet is an ordained Lutheran Pastor.  I cannot begin to tell you all I have learned from this man, and not all about religion.  He sometimes calls me "Nerd Boy, " which from him is a high compliment.  He says it's because I'm insanely curious and am always asking questions, always wanting to know how something works, why one idea was successful and another one failed.

    I'm with you, I want to be learning every day for the rest of my life, and maybe pass some knowledge on to others along the way.

    Finally, this email on a number of subjects from MNB reader Brian Blank:

    I’m a little of two minds about your report on the SoNo Collection.  We visited it for the first time on Labor Day of this year, coming back from a trip to Queens and LGA (returning our grandson to his parents who’d been in the City for a wedding).  We thought about making a trip into Manhattan, but decided we’d rather get back on the road, especially since the weather was promising rain.  We were very excited when the mall opened, but never made it down there to check it out…living in central CT, it quickly became apparent that by the time we got all the way to South Norwalk, we may as well just go to NYC; this time, it was kind of a spur of the moment decision to pull off the highway and check it out.

    There were shoppers, but nothing crazy.  Labor Day would keep things slow, except that the weather *could* have driven people indoors since it wasn’t beach/pool weather.  But people here do tend to go out of town…  Also, the sheer size of the mall would disperse people.  The 3rd floor bar/restaurant at Nordstrom was quite enjoyable, and we encountered so many friendly and helpful staff at the Bloomingdale’s.  But other than Zara, there weren’t many support stores that pertained to us. (In fairness, Apple pertains to us, but we didn’t have any particular Apple needs that day.) Or for that matter, that I’d ever heard of—which could be indicative of our age, our gender, or our socio-eco (Hartford doing OK is different from Shoreline doing OK…).  We poked into a couple of stores but the stores I would automatically go into even if I didn’t *need* any thing (Vineyard Vines, Tommy Bahama, Gap, Banana Republic, to name a few) were notably absent.  I’m guessing at least two of those are probably well-established nearby with no need of joining a new mall.

    My local shopping this holiday season bears out that malls are less crowded than before - however the people in them are buying.  I noted in your video that it was clearly daytime, when people are working and children are in school (unless you recorded it over the weekend).  COVID, flu and other concerns I’m sure are keeping children off of strangers’ laps.  My shopping trips have been after work and on weekends.  Yes, I remember not only pre-COVID days, but also pre-Amazon days—malls were jam packed and opened early and stayed open late.  Long gone, sometimes to my frustration, sometimes to my relief.  (Definite relief that I’m no longer a mall worker!)  With that in mind, maybe your daytime assessment of mall traffic was a little unfair, but I can also see the many reasons why it’s on point as well.  Was a giant honking 3 level mall the best decision this far into the new millennium?  Probably not.

    Sorry for such a lengthy dissertation on a mall!

    Your eye-opener mentioning the changing demographics of Americans identifying as “Christian”, or more to the point, Americans no longer identifying as Christian, was in fact an eye-opener, but not for the reasons one might expect.  I took particular note that the narrative was about people dropping out of the faith to whatever degree, and not the typical narrative of “ethnic replacement”, which was not only a relief, but strikes me as more honest.

    Lastly, you have long been an advocate of lifelong learning, which reminds me of my grandfather on my mother’s side.  He passed away in 2011 at the age of 99, and loved learning the entire time.  One significant difference between you and my grandfather:  he retired, which started a whole new (and fortunately long) chapter of his life, full of enjoyment and the ability to continue seeing, doing and learning.  He loved his work (he owned a Super Dollar-later SuperValu store in my little hometown) but he appreciated being freed from it.  Then again, being your own boss is a bit different from being not only your own boss, but the boss of a whole store full of other people, isn’t it?

    Published on: December 19, 2022

    •  Argentina won the World Cup yesterday, defeating France in a thrilling 3-3 game that ended with Argentina winning in a 4-2 penalty shootout.

    •  In Week Fifteen of National Football League action…

    Indianapolis Colts 36, Minnesota Vikings 39

    Baltimore Ravens 3, Cleveland Browns 13

    Miami Dolphins 29, Buffalo Bills 32

    Philadelphia Eagles 25, Chicago Bears 20

    Detroit Lions 20, New York Jets 17

    Pittsburgh Steelers 24, Carolina Panthers 16

    Kansas City Chiefs 30, Houston Texans 24

    Atlanta Falcons 18, New Orleans Saints 21

    Dallas Cowboys 34, Jacksonville Jaguars 40

    Arizona Cardinals 15, Denver Broncos 24

    New England Patriots 24, Las Vegas Raiders 30

    Tennessee Titans 14, Los Angeles Chargers 17

    Cincinnati Bengals 34, Tampa Bay Buccaneers 23

    New York Giants 20, Washington Commanders 12