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From The MNB Archives
Monday, November 07, 2016
by Kevin Coupe
As much time as I've spent here on MNB talking sports over the past few weeks, especially during what was a thrilling World Series, I'm not sure I spent enough time drawing business lessons from the experience.
And so, this morning, I'd like to use this space to offer an Eye-Opening perspective from MNB reader Ryan Murphy ... which, I think, speaks for itself:
As I lifelong Cubs fan, the last week has been euphoric for me. Having never experienced a World Series championship, I had no idea that it would feel this thrilling! I hope you had the same feeling back in 1986 with your beloved Mets.
My grandmother is 94 years old and is one of the many elderly Cub fans that you've probably seen celebrating the last few days. She fondly tells stories of her grandfather listening to the Cubs on the radio and taking her to Wrigley in the early 1930's as a little girl. They were very close.
My 19-month old daughter stayed up with me to watch game seven (not quite the whole game, like Chapman she faded in the eighth inning). As the game came to a close I thought about my grandmother as a little girl with her grandfather sharing moments just like me and my daughter were. Someday I'll tell my daughter that her great great great grandfather would be proud.
Now, there's quite a bit that her great great great grandfather would not recognize about today's game. I wasn't listening to the radio. I was streaming the game on my smart TV. When she needed a diaper change I simply switched over to my phone with the MLB app and didn’t miss a pitch. And I don’t live anywhere near Chicago – I’m in Florida. I won’t even mention what he probably would have thought about the DH and replay review.
Despite all the changes, the experience of sharing the game with my daughter is essentially unchanged from the same experience my grandmother had with her grandfather. As the game concluded, I thought about how the Cubs connect six generations of my family. Many people don’t even know who their great great great grandparents are. I’m fortunate enough not only to know, but to share their passion with the next generation.
That kind of nostalgia is powerful and rare. This is where the business lesson lies. A company can’t acquire or copy 108 years of history. Way back when, you were either around or you weren’t. Besides the Cubs, my grandmother’s other frequent topic of discussion is shopping at the nearby Jewel. She’s shopped there since my mother was young. She likes Jewel and they’ve kept her business for all these years. When I’m back in Illinois and see a Jewel, I immediately think of her and fond memories of my childhood.
Companies that can create that kind of nostalgia have a competitive advantage that the Amazon’s of the world cannot usurp. Of course, nostalgia cannot replace good operations (see A&P). And like MLB, you must use technology to enhance but not overwhelm the experience. It is a differentiator and a powerful one if you can tap into it.
Just ask any of the five million people who went to the parade.
As I said. An Eye-Opener.
Walmart CEO Doug McMillon laid out aggressive environmental and sustainability goals last Friday at the Net Impact Conference in Philadelphia, saying that it wants to Walmart is double the sales of locally grown produce in the U.S.; expand and enhance sustainable sourcing to cover 20 key commodities, including bananas, coffee and tea; and implement a new plan designed to achieve science-based targets for reducing greenhouse gas emissions.
In a statement released with the presentation, Walmart said that it would be "the first retailer with an emissions-reduction plan approved by the Science Based Targets Initiative, in alignment with the Paris Climate Agreement in December 2015. Under the approved plan, Walmart will use a combination of energy-efficiency measures, together with a commitment to source half of the company’s energy needs from renewable sources, to achieve an 18 percent emissions reduction in its own operations by 2025. Additionally, Walmart will work with suppliers to reduce emissions by 1 Gigaton by 2030, equivalent to taking more than 211 million passenger vehicles off of U.S. roads and highways for a year."
“We want to make sure Walmart is a company that our associates and customers are proud of - and that we are always doing right by them and by the communities they live in,” McMillon said. “That’s really what these commitments are about. And that’s why we’re so passionate about them.”
McMillon also focused on company programs designed to "train hundreds of thousands of U.S. associates by the end of next year, providing them with skills needed to move from entry-level positions to jobs with more responsibility and higher pay, along with a new pledge to take a leadership role in promoting ethical recruitment and treatment of workers in the global retail supply chain."
Walmart also said that it will join the Leadership Group for Responsible Recruitment, described as "a collaboration of businesses and NGO partners working to ensure ethical recruitment and treatment of workers globally."
The Associated Press writes that "Wal-Mart's goals, being announced Friday by CEO Doug McMillon, follow a plan set in 2005 as the company sought to deflect criticism of its practices and burnish its image. Wal-Mart has extended its effort since then into its supply chain, which because of its size — more than 10,000 stores globally — gives it outsized influence on the overall industry."
And the story notes that "Kathleen McLaughlin, a Wal-Mart senior vice president, said she couldn't estimate how much the programs will save or cost. While they have an impact on society, they overall also make good business sense, she said."
I may be most interested in the point that McMillon made about aligning Walmart's environmental goals with the 2015 Paris Climate Agreement, especially since there seems to be at least a possibility that the next President of the United States could be a guy who has said that he is "not a big fan" of those accords, and that “at a minimum I will be renegotiating those agreements.” It is interesting timing, but perhaps it had more to do with when the Net Impact Conference was taking place, as opposed to the presidential election.
I'm sure that Walmart will get some criticism for its decisions, at least in part from folks who think that it isn't going far enough.
But I give the company a lot of credit for trying to do the right thing. McMillon seems to accept the notion that Walmart's size and ubiquity gives it extra responsibilities, and he appears focused on living up to them while understanding that he also has to keep the company productive and profitable. That's not an easy balancing act, but I think he's decided to take the long view - his approach may create some short term rough spots, but the decisions will bear fruit (some of it, apparently, fair trade and/or local) in the long run.
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CNBC reports that the Grocery Manufacturers Association (GMA) "has been ordered to pay $18 million for violating campaign-finance laws to conceal the identities of corporations that poured $11 million into defeating a 2013 food-labeling initiative in Washington."
Thurston County Superior Court Judge Anne Hirsch described the violations as “intentional," which allowed her to triple the original $6 million fine to $18 million "for punitive damages." Additionally, CNBC reports, "the grocers group will have to pay the state’s trial costs and attorney’s fees." Hirsch said that GMA's argument that its its actions were unintentional as “not credible.”
In fact, CNBC writes, "Internal GMA documents showed the trade group wanted to insulate individual companies from consumer blowback they might receive for opposing food labeling. The grocery industry believed it could evade disclosure and distributed talking points to members advising them to deny they were funding the anti-I-522 campaign."
The CNBC story notes that "the case stems from the hard-fought and expensive 2013 campaign over Initiative 522, which would have required labeling of genetically modified organisms, or GMOs, in food products sold in Washington. Voters narrowly defeated the measure, with a record $22 million spent on the 'no' campaign.
"GMA was the largest donor, spending more than $11 million. But its donations were disclosed only as coming from the association, not the companies that bankrolled the effort, such as PepsiCo, Nestle and General Mills."
GMA decried the fine, and promised to appeal, saying there was “no basis in law or fact to support this unprecedented, inequitable and clearly excessive penalty — nearly 18 times higher than any other Washington state public-disclosure fine.”
I went back to look at the stores from 2013, and even then it seemed really, really clear that GMA was doing everything it could to avoid being transparent. It only released the names of funders of the campaign under pressure from the state's attorney general.
Ironically, GMA now is accusing that attorney general of only pursuing the case so aggressively as a way of furthering his own political ambitions. First of all, everybody in politics has ambitions ... which doesn't necessarily mean that every case they pursue is just to improve their political standing, nor that a case is illegitimate just because a politician pursues it. (I'd bet real money that GMA would not be so cynical about the ambitions of a politician who agreed with it.)
I mean, give me a break.
Three years ago, I wrote the following about this case:
The broader message to every company and organization, I believe, is that if you oppose transparency, if you look to operate in the shadows, if you look to prevent the dissemination of information, you are going to find yourself on the wrong side of history. Maybe not today, maybe not tomorrow, but soon...
We are living in a transparency-driven world, and organizations better get used to it.
In Washington State, apparently, "soon" is now. Time to pay the piper.
Reuters reports that one of Whole Foods' top 10 shareholders "has met potential activist investors to discuss management changes at and explore a sale of the upscale grocery chain," raising concerns about the company's direction.
The reports have not named the shareholder.
A Whole Foods spokesperson tells CNBC that "As discussed on this week's earnings call, we are focused on pursuing the right strategies to position the company to produce strong results and returns for our shareholders over the long term."
Last week, Whole Foods announced that its Q4 revenue was $3.5 billion, compared to $3.4 billion during the same period a year ago, on same-store sales that were down 2.6 percent, the fifth straight quarter in which Whole Foods saw same-store sales drop. Profit, however, for the quarter was up - to $88 million from $56 million a year earlier. And, as it made those announcements, the company said that co-CEO Walter Robb will step down from the job at the end of year, leaving founder John Mackey as the sole CEO of the retailer.
Whole Foods said that while it will roll out a nationwide loyalty program, and is committed to its new "365" store format, it is "not participating in a race to the bottom,” but rather is focused on providing better customer service and promoting its “higher-quality products.”
I think that Mackey is going to be under a lot of pressure to deliver some significant short-term improvement in the company's numbers. And I continue to believe that it remains to be seen whether they kept the right CEO; Mackey may have the vision, but Robb was the operations guy.
Interesting piece in the Chicago Tribune reports that while deflation is resulting in lowered prices in the nation's supermarkets, "restaurants are raising prices after years of stagnant growth, citing swelling labor costs that are offsetting the benefits of lower food prices."
Over the last year, the Tribune writes, "a government index measuring grocery prices has fallen by 2.2 percent, the largest decline since December 2009, near the recession's peak. In contrast, the index measuring the cost of food eaten away from home, or restaurant prices, has risen 2.4 percent. The difference in prices between eating out and eating at home is now the widest in 30 years."
The Tribune goes on: "These issues are only accelerating a shift that's been happening for years: Americans are grabbing more rotisserie chickens and other hot meals from supermarkets for the convenience and the cheap prices relative to dining out. In major cities where rents are steep, the difference in cost between lunch at a quick-service restaurant chain and a comparable supermarket meal could be as wide as 10 to 12 percent ... Restaurants are stuck between a rock and a hard place, observers say, because competition is stiffer than ever, but the line between profit and loss is thinning. Rising minimum wages around the country, including here in Chicago, overtime regulations, health care costs, shifting parental leave policies and other mandates are squeezing restaurants at a time when many expected to be recovering — finally — from the recession."
I think that in many ways, this trend opens the door for supermarkets to really get aggressive in terms of competing for share of stomach. (Which is always they ought to view competition, IMHO.)
But it can't just be price. Restaurants are going to be looking to create more compelling experiences and offer more differentiated food as a way of compensating for higher prices. Supermarkets have to do the same - better experiences, better food ... because "compete" is a verb.
The Wall Street Journal had an interesting story the other day about the revival of the Twinkie, accomplished after two investment firms bought the Hostess snack brand out of liquidation in 2013.
From the start, the story says, the focus was on "the famous pale-yellow calorie tube with a cream-like filling. Executives decided they needed to stick to the indulgent nature of the product aimed at their biggest group of customers, the men they internally refer to as 'Bubba in a truck'."
There were, the Journal writes, "some strategic Twinkie adjustments—including extending its shelf life and creating a deep-fried version. The turnabout has been successful enough to allow Hostess, which sells more than 2 billion snack cakes a year, to return to the public stock market, a move expected in coming days."
And there are broader lessons: "Hostess’s staying power says as much about Americans’ relationship with food as it does about its owners’ strategy. People might try to eat healthy most of the time, but they still want to treat themselves. That dichotomy not only fueled sales of kale and quinoa but also led to the cupcake and Cronut and made a taco shell fashioned from a Doritos chip Taco Bell’s best-selling product ever."
A great example of how consumers rarely are one thing or another ... they can eat kale and Twinkies in the same day, and just feel that these things are touching different parts of their soul. And stomach.
Good piece in the New York Times over the weekend about how the supermarket landscape is changing in New York City. An excerpt:
"In New York City, distance is measured in blocks. The number of blocks a New Yorker has to trek lugging an armful of groceries could mean the difference between a great neighborhood and a crummy one.
"For many, that walk seems to be growing longer as corner markets and grocery stores have closed in neighborhoods across the city — forcing many New Yorkers to rethink their daily routines and in some cases changing the very tenor of a neighborhood.
"The neighborhood grocery store — with its dim and narrow aisles full of provisions precariously stacked from floor to ceiling and the cashier who greets you and your dog by name — is a critical piece of a New York life. Supermarkets of suburban proportions, like Whole Foods, are making their mark on the city; Wegmans will open its first city store, in Brooklyn, in 2018.
"But while these stores have distinctive — and sometimes pricier — offerings like artisanal cheese and artichoke ravioli, they cannot replace the labyrinthine corner market, a linchpin for any neighborhood. It can keep a neighborhood manageable for new parents who need diapers now or seniors who cannot carry their groceries a long way."
And, the Times goes on:
"Tally the losses, and it certainly seems as if the ground is shifting. Between 2005 and 2015, the city lost around 8 percent of its greengrocers — family-owned stores of less than about 7,000 square feet. About 300 such stores closed during that time, about a third of them in Manhattan, according to the Strategic Resource Group, a retail consultant.
MNB fave Burt P. Flickinger III, managing director of Strategic Resource, puts it in stark terms: In terms of supermarkets, “New York City is worse than New Orleans post-Katrina.”
You can read the entire story here.
There are a couple of things to keep in mind when reading this story.
One is that a lot of people expected to stay in business just because they were local. These days, that may not be enough.
Which leads me to a second point - that it is this environment that creates fertile ground for services like AmazonFresh or FreshDirect.
• Multiple reports say that Amazon is eying Singapore and Australia for expansion next year, with Southeast Asia in general seen as fertile territory for its e-commerce business.
TechCrunch writes that "Southeast Asia is home to over 600 million consumers and, while online is estimated to account for less than five percent of all commerce today, its digital economy is tipped to grow significantly over the next decade."
From MorningNewsBeat, September 15, 2016:
A US Department of Labor report recently revealed that there were 5.2 million jobs available in the United States ... which was said to be the highest level of job availability since these specific numbers started being tracked back in 2000. This despite the fact that there remains considerable debate, much of it cacophonous, about national unemployment and under-employment.. The problem, one expert said, is that what we have in this country is "one of the biggest mismatches between skills and lack of qualified help available in the nation's history."
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• The Indianapolis Business Journal reports that "Indianapolis-based Caito Foods Service - which began a half-century ago by hawking produce downtown and now supplies groceries and distributors in 22 states - has agreed to be acquired by Grand Rapids, Michigan-based SpartanNash for $217.5 million in cash."
• Fortune reports that McDonald's is developing a mobile app that next year will allow customers "to order and pay for their food with their smartphones." The story notes that "McDonald’s is relatively late to the mobile ordering game—Starbucks, Taco Bell, and a bevy of other fast food chains launched apps that help customers avoid the register over a year ago. The Starbucks app is so popular that about 25% of the company’s customers use it to pay for their orders."
Got the following email from an MNB reader about our story about start-up companies looking to disrupt the death-and-dying industry:
Reading your statement on “death, dying, and disruption” reminded me of an observation made this summer at Arlington National Cemetery. They are completing a huge Columbarium, or crematorium, for the inurnment of ashes. (Inurnment appears to be a new word for internment.) In the past few years, I have attended several funerals, or memorial services, at which the deceased was cremated instead of buried. I think much of this decision is based on cost. In planning for final arrangements, people don’t want to place the heavy cost (normally well over $10,000) on their loved ones. The funeral industry has long thrived on emotions to profit from caskets, grave sites, memorial stones, and other features.
In fact, friends recently purchased an urn for their deceased father on Amazon.com! It cost much less than the price quoted by the funeral home. The point is that if there is business involved, disruption is inevitable when competitors see an opportunity to profit from changes.
Commenting on a story last week, I suggested that Kroger may have more work to do with the Mariano's format than many might've expected - I've been in several lately, and was less impressed than expected.
One MNB user responded:
If you had been touring the early versions of this concept, you would have found an entirely different experience. Most impressive to me was the early-in store on Randolph street in the heart of the loop. One time I went there to have coffee with Bob and tour the store with him. I arrived early to get a feel for it, and was just amazed at the level of staff engagement — people looking to help me in virtually every corner of the store, right down to the frozen aisle.
When Bob and I toured, he knew most of the staff by name. The retail environment was electric, clean, fun — people with silver trays running all over the place providing samples from bakery, pastry, prepared foods and product samples. Food was good!
As it scaled ... I’m not sure you can scale Bob, but at least his priorities and objectives were served. A store opened near me in Lincoln Park and initially it was a similar experience. Now it is a shadow of its former self. No engagement in the aisles. Poorly trained people in all depts with public context like Deli and meat. Boring old-world supermarket food. Dirty. And perhaps most important, stuck. No further innovations to keep it fresh.
Bob is gone; you can tell. Having him retire? Mistake in my book.
From another reader:
I agree with your assessment of Mariano’s. I live in Chicago and have noticed a change in assortment not for the better and higher prices on a number of items. A lot more out of stocks than I’m used to as well. The brand transition is also kind of a mess, in some cases they’ve got Roundy’s and Kroger labels of the same product with different pricing. Seems like they should have a better strategy to run out inventory of Roundy’s and Topco brands before moving into Kroger. And their organic produce is just not priced well and quality is just not there. In a market so saturated with amazing independents and plenty of Trader Joe’s and Whole Foods they’ll need really focus on putting Mariano’s back in the spotlight as a premium shopping destination.
I just wanted to thank everybody for emails, texts, Facebook postings and even a couple of old-fashioned cards last Friday to wish me a happy birthday. I was touched not just by the good wishes, but by the expressions of how important MNB has become to some of you. In less than two weeks, MNB will celebrate its birthday and it is so heartening to realize the degree to which we're all in this together.
In Week Nine of the National Football League...
And yesterday, in the New York City Marathon, Ghirmay Ghebreslassie a 20-year-old from Eritrea, became the youngest male champion ever, finishing in 2 hours, 7 minutes and 51 seconds - which also made him the third fastest runner in the marathon's 46-year history.
And, Mary Keitany, 34, of Kenya , won the women's division for the third year in a row, running it in 2 hours 24 minutes 26 seconds.
A few admissions here.
First, I had to look up where Eritrea is. It is a tiny country just north of Ethiopia, east of Sudan, and just across the Red Sea from Saudi Arabia. (I love any story that teaches me something new.)
Second, I am blown away by these finishing times.
And not only these. I have two nephews who ran the marathon yesterday, and I am proud to say that Ryan Hopkins finished in 2:58:55, and his brother, TJ Hopkins, finished in 3:10:28.
I am both impressed and envious. I've only run two marathons in my life, and they were both around 5:26… I can’t even imagine doing it as fast as they did it. (These days, I'd probably clock in at around seven hours...but I'd delude myself that slow and steady wins the race.)
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