business news in context, analysis with attitude

Published on: May 17, 2023

It has been reported that a number of electric vehicle manufacturers are getting rid of AM radio from their cars, and that at least one is eliminating Apple CarPlay as an option.  It is all about controlling the platform, but I think there is a lesson here for retailers about how having a differential advantage is only part of the battle.

Published on: May 17, 2023

by Kevin Coupe

The Federal Trade Commission (FTC) said yesterday that it has filed a federal lawsuit aimed at preventing pharmaceutical company Amgen's proposed $27.8 billion acquisition of Horizon Therapeutics, arguing that "the deal would allow Amgen to 'entrench the monopoly positions' of Horizon’s eye and gout drugs," the Wall Street Journal writes.  "The agency said that those treatments don’t face any competition today and that Amgen would have a strong incentive to prevent any potential rivals from introducing similar drugs."

This is, the story says, the first step in the process:  " A federal judge would need to approve the injunction. That is part of a two-step legal process the agency typically uses to prevent mergers it believes are illegal.

I bring this up because of one particular passage from the Journal story:

"Under Chair Lina Khan, the FTC has taken a stricter stance on deals generally, saying antitrust enforcers in the past several decades shied away from challenging many deals, allowing firms in technology, healthcare and other industries to amass excessive market power."

Which makes me wonder whether one of the "other industries" referenced could be the supermarket industry, and if this suit makes it more likely that the FTC also will try to derail Kroger's proposed $24.6 billion acquisition of Albertsons.

Sure, the pharmaceutical business is different from the retail business.  But that doesn't mean that the FTC's attitude toward consolidation and competition will be any different.

Some more context from the Journal story:

"The argument that the combination would limit potential future competition underlies some other recent FTC merger challenges and represents a novel theory for challenging deals, said Taylor Owings, an antitrust partner at Baker Botts. Among the claims behind the theory, Ms. Owings said, was that other drugs will emerge to compete with Horizon’s products, and that Amgen would smother those rivals with illegal and anticompetitive tactics … Under the Biden administration, the FTC and Justice Department have challenged more corporate deals, including some that didn’t involve mergers of rivals. The FTC has sued to stop Microsoft from acquiring the videogame maker Activision Blizzard, a deal that European Commission authorities cleared Monday. The agency has rejected Illumina’s proposed purchase of an outstanding stake in the cancer-test maker Grail."

I suspect that for the folks at Kroger and Albertsons, as well as the people at various entities working to make their merger happen, this effort by the FTC was an Eye-Opener, reflecting a reality with which they may have to deal in the not-too-distant future.

Published on: May 17, 2023

GeekWire reports that "the owner of a major shopping center south of Seattle is suing Amazon, alleging that the company attempted to terminate its lease for a proposed Amazon Fresh grocery store under false pretenses."

The story notes that "according to the lawsuit, Amazon’s November 2022 termination letter said the company wasn’t satisfied with its ability to obtain permits required under the lease, and asserted that the landlord hadn’t provided a required waiver from a nearby Marshalls department store consenting to Amazon’s use of the building.  The lawsuit alleges that Amazon 'did not make commercially reasonable and good faith efforts to obtain the permits and approvals,' and says the property owner 'has performed all conditions, covenants and promises on its part to be performed in accordance with the terms and conditions of the Lease'."

GeekWire points out that "Amazon is in a similar dispute in the Philadelphia suburbs with the owner of another proposed Amazon Fresh location. The landlord there alleges that Amazon has failed to pay the required rent. Lawyers for Amazon have reportedly filed a countersuit there, saying that the landlord hasn’t met the terms of that lease agreement."

The lawsuits argue that what is really happening here is that Amazon is changing its approach to physical retail development, which prompted it to try to get out of signed leases.  CEO Andy Jassy has conceded the first point, saying earlier this year that "Amazon was pausing the expansion of its Amazon Fresh grocery stores, amid broader cutbacks, 'until we have that equation with differentiation and economic value that we like'."

Amazon has some 40 Amazon Fresh stores operating around the country, but there are at least seven so-called "zombie stores" that have been largely built but are sitting unoccupied.

Published on: May 17, 2023

CNBC has a story about why Trader Joe's continues to reject e-commerce as being irrelevant to its business model - it is "happy to keep running its business the way it has since it was founded in 1967."

An excerpt:

"One reason is simple: money. Building out a robust delivery operation would involve creating a network of warehouses to store products, as well as a delivery system to get those products to customers’ doors.

"For a brand that closely watches its bottom line to keep prices low, it’s a non-starter."

In addition, the story says, "for Trader Joe’s, the in-store experience is part of the draw for shoppers in the first place.  With a constantly rotating selection of products, Trader Joe’s has trained customers to come into the store expecting to find something new and exciting with each visit … That experience would not be the same if you were trying to order something from a website that just showed you the products you already know about … The 'treasure hunt' aspect of customers looking for fun new treats, coupled with the supermarket chain’s famously friendly employees, have combined to create a recipe for success that Trader Joe’s isn’t keen on messing with."

Published on: May 17, 2023

The Washington Post reports that Taco Bell has gone to court to invalidate competitor Taco John's 1989 trademark on the term "Taco Tuesday."

"The Registration potentially subjects Taco Bell and anyone else who wants to share tacos with the world to the possibility of legal action or angry letters if they say 'Taco Tuesday' without express permission from Registrant – simply for pursuing happiness on a Tuesday," the company said in the filing. "This violates an American ideal: 'the pursuit of happiness.'"

Taco Bell has more than 7,200 locations in the U.S. and about 1,000 restaurants outside the US.  Taco John's has about 400 locations in 23 states.

The Post writes that "in response to the petition, Taco John's rolled out a two-week long Taco Tuesday deal offering two tacos for $2.  'I'd like to thank our worthy competitors at Taco Bell for reminding everyone that Taco Tuesday is best celebrated at Taco John's,' Taco John's CEO Jim Creel said.

Creel added:  "When it comes right down to it, we're lovers, not fighters, at Taco John's. But when a big, bad bully threatens to take away the mark our forefathers originated so many decades ago, well, that just rings hollow to us. If 'living más' means filling the pockets of Taco Bell's army of lawyers, we're not interested."

The Post notes that Taco Bell said that it "seeks no damages; it simply seeks reason and common sense."

Published on: May 17, 2023

The Wegman Family Foundation has donated $1.5 million to Niagara University’s Holzschuh College of Business Administration "to establish the Robert B. Wegman Endowed Director of Food Industry Innovation and Supply Chain Excellence."

According to the announcement, "The director will lead the growth and development of its centers of Food Industry Leadership and Supply Chain Excellence and will guide the efforts in creating a leading-edge facility on campus to house the centers. The director will also collaborate with food industry leaders in Western New York to create, build, and inspire transformative programs and partnerships that reach the pinnacle of global excellence and enrich the educational and career opportunities for students."

Company founder and industry icon Robert Wegman graduated with a bachelor’s degree in accounting from Niagara University in 1941.  His granddaughter, Colleen Wegman, the company's president-CEO, said in a prepared statement, “At Wegmans, we believe education creates opportunity.  We’re proud to partner with Niagara University to help prepare the next generation of food industry professionals for their future in this essential business.”

Published on: May 17, 2023

FMI-The Food Industry Association has announced the five recipients of the 2023 Store Manager Awards.

•  Category A (1-49 stores):  Wander Rezende, Roche Bros.

•  Category B (50-199 stores):  Sean Conlon, Giant Food

•  Category C (200+ stores):  Delton Schafer, Albertsons Companies

•  Category D (International):  John Fox, SPAR Northern Ireland/Henderson Group

•  People’s Pick Category:  Joel White, The Kroger Co. (King Soopers-City Market)

According to the announcement, the "four Grand Prize winners receive a crystal award and $1,000 each. The People’s Pick recipient is awarded a special trophy and $500 to celebrate their store employees."

Leslie G. Sarasin, FMI’s president-CEO, described the 2023 group as being "in a class of their own as they have maneuvered through post-pandemic challenges and shoppers’ changing behaviors, all while serving as pillars of their local communities and uplifting their workforce. It is an honor to recognize and celebrate them.”

Published on: May 17, 2023

•  Instacart has agreed to a $46.5 million settlement of a 2019 lawsuit charging that the company improperly classified employees as independent contractors.

The company has not admitted to any wrongdoing in coming to the settlement.

The settlement covers some 308,000 people who worked for Instacart between September 2015 through December 2020.  "Individual reimbursements will vary depending on the number of hours each person worked over that time period," City News Service reports, with payments designed to cover the use of personal equipment by workers during their Instacart employment.

•  Connecticut Public Radio reports that lawmakers in the state "are considering new rules for big, modern warehouses like the massive facilities operated by Amazon," requiring them to "tell warehouse workers about any quotas they are expected to meet for tasks completed."  In addition, legislation would require the state to track employee injury rates.

"Amazon has more than 15,000 employees and 14 warehouses in the state," the story points out.

While employees have told legislators that they are being unfairly penalized for bathroom breaks, Amazon says that the company is only paying attention to extended time away from their stations.  Amazon also says that its "reportable injury rate has fallen by almost 24% since 2019. But a labor union group called the Strategic Organizing Center said Amazon workers are twice as likely to be injured on the job, as employees at other warehouses."

•  CNBC reports that Amazon Prime Video has signed a deal with "the Professional Pickleball Association for global streaming rights to four live PPA Tour events per year, including the 2023-2024 PPA Tour World Championship Series."

Terms of the deal were not disclosed.

According to the story, Prime’s deal with the PPA "deepens its commitment to the world of sports streaming rights, which range from Thursday Night Football to emerging sports leagues and sports documentaries."

CNBC notes that "pickleball continues to see rapid growth, with an estimated 36 million people picking up a paddle between August 2021 and August 2022, according to a report by the Association of Pickleball Professionals. The sport grew more than 158% over the past three years, according to the 2023 Sports Fitness Industry Association Topline Participation Report."

Published on: May 17, 2023

•  From the Arkansas Democrat Gazette:

"Walmart Inc. must pay $19.3 million to K2 Distribution Co. for breach of contract and other claims, a jury ruled Friday in Washington County Circuit Court.  The award is reportedly the largest jury award for damages in the county's history."

According to the story, "K2, based in Pittsburgh, Calif., had sold cleaning products to Walmart under Walmart's private label. Early in the pandemic, Walmart turned to the company to provide large amounts of hand sanitizer and dispensers for Walmart employees and customers.

"According to K2's complaint, it spent more than $35 million to fulfill its obligations of delivering thousands of custom-designed dispensers and cases of sanitizers, as well as contracting for hundreds of thousands of additional gallons of sanitizer.

"'K2 Distribution upheld its end of the deal, but Walmart failed to honor its commitments and agreements,' K2 said in its complaint.  'For reasons that had nothing to do with K2 Distribution's performance of its obligations, Walmart kept and refused to pay K2 Distribution anything for 44,000 dispensers, canceled all in-process orders in August 2020, and thereafter declined to purchase any additional sanitizer from K2 Distribution,' the company said.

"'Adding insult to injury, Walmart falsely asserted in bad faith that it had never made any agreement with K2 Distribution,' the company said.

"Walmart spokesman Randy Hargrove said in a statement that the retailer values its supplier relationships and disagrees with the verdict.  'We continue to believe our business dealings with K2 were appropriate, and we are reviewing our options, including the filing of post-trial motions,' Hargrove said."

•  From CNBC:

"DroneUp, a Walmart-backed startup competing alongside Amazon and others in the nascent drone delivery market, is cutting jobs across the company, CNBC has learned.

"The Virginia-based company began informing staffers of the layoffs Monday morning, according to two people who lost their jobs and asked not to be named because they weren’t authorized to speak publicly on the matter … The layoffs come as the tech industry continues to downsize and were part of the company’s decision to focus more on its delivery hubs, a network of facilities for on-demand orders in the U.S. DroneUp is moving away from enterprise services like construction and real estate monitoring, aerial data capturing, and marketing, the ex-employees said."

“After tremendous consumer adoption of our drone delivery services, we have made the decision to shift our business model to align our company structure around the continued growth and success of drone delivery and other drone services out of our Hubs,” DroneUp CEO Tom Walker told CNBC in a statement.

The company said that over the next six months, “we will hire more people than were laid off.”

The story notes that "attempts at scaling commercial drone delivery in the U.S. have been slow moving, largely due to technical challenges and a lengthy regulatory approval process with the Federal Aviation Administration. The agency has authorized several companies to test drone deliveries in select markets as long as they don’t pose significant safety risks."

Published on: May 17, 2023

•  Target Corp. announced that its Q1 revenue was $25.32 billion, compared to $25.29 billion during the same period a year ago.  Q1 net income dropped to $950 million, from $1.01 billion a year earlier.  

Same-store sales for the period were flat.

"Even as customers buy fewer discretionary items, Target is drawing them to stores with groceries, everyday essentials and on-trend items, CEO Brian Cornell said," according to CNBC.

•  From the Wall Street Journal:

"Americans boosted their retail spending in April for the first time in three months, a sign of consumers’ continued resilience despite high inflation and rising interest rates.

"Retail sales - a measure of spending at stores, online and in restaurants - rose a seasonally adjusted 0.4% last month from the month before, after declining in February and March, the Commerce Department said Tuesday.

"Consumers spent more on autos and dining out last month, while boosting online purchases. They cut spending on gasoline and on big-ticket purchases such as appliances and furniture."

“Consumers remained engaged in April,” National Retail Federation (NRF)  Chief Economist Jack Kleinhenz said in a prepared statement.  “Shoppers are being selective and price-sensitive, but we continue to expect that spending will see modest gains through the course of the year. Year-over-year growth slowed, which was partly because of upward revisions to last year’s data but also an early indication that credit conditions are tightening and excess savings are shrinking.” 

•  From the Boston Globe:

"REI employees in Boston voted Monday night to join the United Food and Commercial Workers, approving the union 44-23. The store, one of five in Massachusetts, is the fifth in the national outdoor equipment chain to win union recognition in the past year, with four more elections on the way.

"Employees in Boston are demanding higher pay, better health and safety measures, increased staffing levels, and more consistent hours for part-timers."

The story notes that in a statement, the company said it “believes in the right of every eligible employee to vote for or against union representation. We fully supported our Boston employees through the vote process and we will continue to support our employees going forward as they begin to navigate the collective bargaining process.”

The Globe writes that "a wave of union activity at well-known companies such as Starbucks, Amazon, Trader Joe’s, Apple, and Chipotle have breathed new life into the beleaguered labor movement. Agreeing on a first contract can take years, however. A third of new unions don’t reach an agreement for more than three years after winning an election, according to Cornell University’s School of Industrial and Labor Relations."

Published on: May 17, 2023

…will return.