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    Published on: May 19, 2023

    There was an intriguing headline in the Washington Post the other day: "Is the sun white or yellow?  It's a hot debate, and everyone's wrong."  It reminded me of the social media debate a few years ago about the color of a certain dress, and the argument once again serves as a great business metaphor.  

    Published on: May 19, 2023

    Walmart yesterday said that its Q1 total revenue was $152.3 billion, up 7.6 percent compared to the same period a year ago, on US same-store sales that were up 7.4 percent and e-commerce sales that were up a whopping 27 percent compared to same period a year ago.

    The retailer also said that its Q1 operating income was $900 million, up 17.3 percent from a year ago.

    One other critical note:  Walmart's Q1 advertising business was up more than 30 percent.

    Some media analysis:

    •  The New York Times:  "Higher-income households and younger customers are shopping more at Walmart, the company said, reflecting a trend that its executives have called out in recent quarters as Americans face higher-than-usual inflation. The retailer said it had also gained market share in the grocery category."

    •  The Wall Street Journal:  "Executives said the performance doesn’t mean shoppers are flush with cash. Sales slowed as the first quarter progressed, said Walmart Chief Financial Officer John David Rainey in an interview, as people dealt with cuts to SNAP benefits and tax refunds shrank. A pandemic-era boost in food assistance payments to low-income households ended earlier this year.

    "Shoppers continued to gravitate to smaller package sizes and store brands to manage their spending, he said. Though inflation has cooled in recent months, eating into sales in the quarter compared with last year, food prices are up around 20% compared with two years ago, Rainey said."

    •  From the Associated Press:  "The retail sector has been under strain as millions of shoppers shift from buying clothing and home furnishings, to necessities. Walmart, however, said it’s seen easing costs in its supply chain and freight from last year, which will improve margins.

    "General merchandise costs are now lower than a year ago in the U.S., McMillon said, but they’re still higher than two years ago. In grocery and consumable categories like paper products, Walmart is still seeing high single digit to low double digit inflation in the cost of goods.

    "'The persistently high rates of inflation in these categories, lasting for such a long period of time, are weighing on some of the families we serve,' McMillon said.

    "The cumulative effect of stubborn inflation will create more uncertainty in the second half of the year, McMillon said, adding that the company is working with suppliers to bring costs down."

    KC's View:

    To me, the two most interesting numbers are the advertising and e-commerce increases.  The first one makes the point that Walmart is continuing to drive new revenue streams that it can use to support its low price proposition, which clearly is resonating with shoppers.

    The second one underlines the fact that e-commerce continues to be a vital factor in the retail sector;  there was some backsliding in the waning days of the pandemic as people yearned to get out, and some projections that tough economic times would erode e-commerce sales.  But that doesn't seem to be the case at Walmart.  Competitors should take note.

    Published on: May 19, 2023

    From The Information:

    "Instacart has become an advertising powerhouse.

    "The grocery-delivery firm’s ad revenue totaled about $740 million last year, up 30% from 2021, according to a person familiar with the matter. That’s a striking increase, given that the digital ad market was largely stagnant last year. Nearly 30% of Instacart’s 2022 revenue came from selling advertising rather than actually delivering groceries.

    "Instacart’s ad revenue and its contribution to the top line haven’t previously been reported. The company’s success in building the ad business, which launched in 2019, should bolster its pitch to prospective investors as the company awaits an improvement in market conditions that would allow it to go public. Not only does advertising generate higher profits than grocery delivery, but the ad growth is offsetting a slowdown in Instacart’s core business."

    KC's View:

    It is remarkable that almost a third of Instacart's revenue is coming from something other than delivering groceries, which has been, after all, its core business.

    The Information points out that there is a question about whether this business can continue to grow, but I tend to think that it will - not necessarily at the same rate, but steadily and organically, especially as Instacart cements retailer relationships over the long term.  The larger question is if it is possible that advertising could actually become its core business - dependent, of course, on the e-commerce sector but actually generating higher numbers and stronger margins.

    It doesn't seem like such a stretch to me, especially if the e-commerce sector continues to grow.  Keep in mind that Walmart's e-commerce business was up 27 percent in Q1, which I think reflects continuing strength in that side of the business.  All of which is good for Instacart.

    Published on: May 19, 2023

    From the Tampa Bay Business Journal:

    "Publix Super Markets Inc. will once again phase out its GreenWise Market banner — less than five years after reintroducing the concept."

    According to the story, Publix has confirmed that the eight Greenwise stores it currently operates will be transitioned back to the Publix banner.

    According to the Journal, " The GreenWise stores are much smaller than traditional Publix stores and have an emphasis on organic and specialty items as well as prepared and made-to-order foods … Publix first rolled out GreenWise in the early aughts but built only three stores, including one in Tampa’s Hyde Park neighborhood. The grocer debuted a reinvented GreenWise Market in Tallahassee in October 2018. That version of the concept had no traces of the Publix brand or name, save for a splash of signature Publix green on exterior signage. Even the chain’s Pub subs, which have a cult following, were conspicuously absent from the first GreenWise Market.

    "By the time the company debuted the new GreenWise in Tampa, on the ground floor of Water Street Tampa apartment tower Heron in 2021, it had added Publix back to the store’s name."

    The story notes that "the company plans to implement some GreenWise Market features into its traditional stores. Its newly redeveloped location on Gandy Boulevard, for example, features Publix Pours, a bar serving craft beer, wine, coffee, tea and cold brew."

    KC's View:

    I would guess that the GreenWise banner just wasn't getting it done to the degree that Publix wanted it to, and also was a cost because the marketing materials had to be unique to the format.  I don't know if this was a creative decision or an economic judgement, but I'd guess more the latter.

    Published on: May 19, 2023

    CNBC reports that as Target released its quarterly numbers this week, it also pointed out a major drag on earnings - organized retail theft, which was $763 million in 2022 and is projected to be as much as $1 billion this year.

    The story notes that "organized retail crime has become a hot-button issue in the industry, and some companies have blamed the growth of online marketplaces that allow thieves to anonymously sell electronics, makeup and other items they stole from stores. Home Depot, Walmart, Best Buy, Walgreens and CVS are among the major retailers that have spoken about the problem, saying that shrink has gotten worse."

    CNBC quotes Target CEO Brian Cornell as saying that "the problem affects all of us, limiting product availability, creating a less convenient shopping experience, and putting our team and guests in harm’s way."  And, the story says, Cornell "called out the challenge on the company’s fiscal first-quarter earnings call, saying the retailer and others are grappling with rising theft on top of slower sales and more price-sensitive shoppers. He described retail theft as 'a worsening trend that emerged last year,' and said violent incidents have increased at Target’s stores."

    More context from the story:

    "Cornell said Target is trying to reduce theft by installing protective fixtures and adjusting assortment in some stores. He said the company is working with politicians, law enforcement and retail industry trade groups to come up with policy solutions … Cornell said the company is 'focused on keeping our stores open in the markets where problems are occurring.'  It has roughly 1,900 stores across the country, which are located in suburban areas and major cities including New York City and San Francisco."

    KC's View:

    I have no idea what the best solution to this problem is, except that it is critically important for retailers - and law enforcement - to have a no-tolerance approach even to the smallest infractions, lest they mushroom into far bigger problems.

    "The line must be drawn here! This far, no further!" - Capt. Jean-Luc Picard

    Published on: May 19, 2023

    From CNBC:

    "Nearly a decade after announcing grand plans for 30-minute drone delivery of items up to 5 pounds, Amazon told CNBC it’s now completed just 100 deliveries in two small U.S. markets.

    "Compare that number with internal projections from January for 10,000 deliveries by the end of this year, according to a video address in early 2023. Days after Amazon set its target, a significant number of Prime Air workers were let go as part of the largest round of layoffs in company history. 

    "Now, Amazon’s 2023 goals have changed, the company said, pointing to regulatory hurdles put in place by the Federal Aviation Administration."

    However, "where Amazon has stalled, other companies’ drone programs have seen greater traction, particularly those that started outside of the regulatory confines of the U.S."

    Alphabet subsidiary Wing reportedly has made "330,000 deliveries. While thousands of those have been for partners such as Walgreens in Virginia and Texas, the company primarily delivers in Australia, where it brings orders from DoorDash and the supermarket Coles to homes in more than 50 suburbs."

    And Walmart, which works with drone company Zipline to make deliveries in Arkansas, "recently announced its fixed-wing aircraft has made 600,000 commercial deliveries, largely of medical supplies in Africa. In March, Zipline unveiled a far different model that lowers a 'droid' to the ground by a tether.

    "A growing list of companies, including Sweetgreen and nutrition retailer GNC, have signed up to deliver with the new drone when it’s scheduled to come online in 2024."

    You can read the entire story here:

    Published on: May 19, 2023

    Fox Business has a story about some social media outrage prompted by Starbucks' decision to replace its old ice machines with new ones in select locations - the old contraptions made ice cubes, while the new ones make "ice nuggets."

    According to the story, "The change — albeit very small — is apparently infuriating some customers who claim the new nugget ice melts faster and can even dilute drinks … Others are ecstatic over the nugget ice, which is less dense than cubed ice."

    Starbucks says that the new machines "are part of the company's plans to cut its water footprint in half by 2030."  It also says that it "tested the nugget ice and confirmed that it does not melt faster than Starbucks current ice.  Employees are also using the same ice scoop, so the volume of ice per beverage will not change."

    KC's View:

    Two things.

    First, at least Starbucks is making changes that are relevant to the cold beverage business, which is now larger than its hot beverage sales.  One of the reasons that Starbucks has been dealing with employee issues is that management ignored the shift that was taking place, leaving baristas to navigate stores that were ill-equipped to provide what customers wanted.

    Second, this is an example of why consumer education is critically important.  We were talking about this story around the dinner table last night, and my daughter was questioning the rationale behind the change.  I told her that it was part of a water-saving initiative, and that satisfied her - Starbucks needs to be aggressive in educating patrons, both in-store and via its app, about changes like these that have their roots in responsible motivations.

    Published on: May 19, 2023

    With brief, occasional, italicized and sometimes gratuitous commentary…

    •  From the Wall Street Journal this morning:

    "ESPN is laying the groundwork to sell its channel directly to cable cord-cutters as a subscription-streaming service in coming years, according to people familiar with the matter, a shift with profound implications for the company and the broader television business.

    "Executives at ESPN and its parent, Disney, for years have said it was inevitable that the sports-TV channel would one day be available as a stand-alone streaming service. Now, as consumers increasingly cut the cable-TV cord, the company is actively preparing for that shift under a project with the internal code name 'Flagship,' the people said. The company has set no firm timeline for the change.

    "ESPN would continue to offer the TV channel after launching a streaming option, the people familiar with the matter said. Still, the change could have a major impact on cable-TV providers, since ESPN is one of the main attractions of the cable bundle. The providers pay to carry the ESPN channel and would have to compete with the new streaming service."

    Just another reflection of the continuing shift of customers from traditional business models to newer versions of content and product consumption. This stuff doesn't happen in a vacuum - it is all part of a larger continuum.  Retailers need to pay attention. 

    Published on: May 19, 2023

    •  From Bloomberg:

    "Applications for US unemployment benefits fell by the most since 2021 after fraudulent claims in at least one state boosted the numbers in previous weeks.

    "Initial unemployment claims fell by 22,000 to 242,000 in the week ended May 13, Labor Department data showed Thursday. On an unadjusted basis, claims decreased by the most in two months, to 215,810, largely due to a drop in Massachusetts.

    "Some economists have been wary about drawing strong conclusions from the data amid reports that fraudulent claims have been behind the recent upward trend in filings."

    •  Fox Business reports that "Wendy’s fast-food customers may soon get their food delivered by underground robots, to help speed up the handoff from the restaurant to those who order from their phones.

    "The fast-food chain announced a new partnership with Pipedream, a company that developed an underground autonomous robot system that can be used to deliver digital food orders from the kitchen to parking spaces within seconds … Wendy’s will be the first quick-service restaurant to pilot Pipedream’s technology, which the tech company says is designed to make digital order pick-up fast, dependable and invisible."

    Wendy's envisions the Pipeline system as looking like this:

    (From Wendy's)

    Published on: May 19, 2023

    I'm not quite to the point where I'm swearing off movies that use computer-generated imagery (CGI), but I'm getting close.  Maybe I'll do so gradually - like, swear off movies in which 50 percent or more of the movie is done with CGI.  Perfect examples of the kind of movie I'll try to avoid in the future are Doctor Strange in the Multiverse of Madness and Shang-Chi and the Legend of the Ten Rings.  In other words, Marvel movies.  I haven't even tried to watch Ant-Man and the Wasp: Quantumania (which apparently puts me in fairly large company since the film, unique among Marvel films, didn't do very well) because it looks both tedious and like almost none of it was shot in real places.

    However, I'm glad that I made an exception to my growing CGI antipathy for Guardians of the Galaxy Vol. 3, which has always been sort of an outlier in the Marvel cinematic universe because writer-director James Gunn, who's made all three of the Guardians movies, has positioned them sort of like psychedelic shaggy dog stories.  And as his mismatched and vagabond mercenaries he's pulled together a cast - Chris Pratt, Zoe Saldana, Dave Bautista, Karen Gillan, and Pom Klementieff, with voice work by Bradley Cooper and Vin Diesel - that always has seemed to have fun and not take the proceedings too seriously.  Strangely enough for a comic book movie heavily dependent on CGI, it actually turns out to be the actors and their characters that are the main attraction.  

    When Vol. 2 came out a few years ago, I reflected on the fact that more than most Marvel movies, the Guardians franchise seemed preoccupied with the notion of family - losing one, gaining another, and finding affection and loyalty in unexpected places.  It wears those ambitions lightly enough to keep the film from becoming ponderous, but they fit well enough to make the movie work.

    Guardians of the Galaxy Vol. 3, allegedly the final film about this particular group, has a plot, but I'm not sure it matters all that much.  If you like this kind of stuff, it isn't a horrible way to spend a few hours in a movie theater.  (And, like the first two, it has an outstanding soundtrack of golden oldies.)

    If there's one big summer movie that's not going to have much CGI, it almost certainly is going to be Mission Impossible: Dead Reckoning, Part 1 - because it is a Tom Cruise movie, and he doesn't go in for that kind of fakery.  Here's the trailer, and the movie looks amazing:

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