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Wednesday, September 27, 2017

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Kate’s Take: Holes In The Promise

by Kate McMahon

Amazon’s much-ballyhooed $13.7 billion takeover of Whole Foods promised to slash prices at the upscale supermarket chain, which has long been saddled with the sobriquet “whole paycheck.”

It only has been a month since the deal has been closed, and there has been a lot of debate - and media coverage - about the degree to which that promise has been delivered upon.

Foodies and analysts across the country have been tracking the price cuts, posting cash register receipts and comparison charts online. For example, Business Insider zeroed in on 15 of the “best- selling grocery staples” targeted for price reduction at a Whole Foods in Brooklyn on Aug. 25. The total was $97.76. Three days later, when Amazon took over and implemented changes, the same grocery cart cost $75.85, an almost 23 percent savings.

Across the East River in Manhattan, a New York Times comparison of five items rang up at $28.02 on Aug. 24 and $24.04 four days later. A Bloomberg spin through the aisles in midtown showed an enormous swing - from a whopping 43% drop in the per pound price of organic Fuji apples (from $3.49 to $1.99) and a lesser 7% dip in the cost of a dozen organic large brown eggs (from $4.29 to $3.99).

The website Eater sent editors in New York City, Chicago, San Francisco and Austin to Whole Foods with comparable shopping lists featuring the staples on sale. Prices in New York dropped 25% on average. In Austin, home to Whole Foods corporate headquarters, prices were already lower to begin with, so shoppers saw a 22% average decrease.

The website opted to compare the Whole Foods prices with competitors Trader Joe’s and Target. Their grocery basket included five items: One dozen eggs, one Hass avocado, two Gala apples, two pounds of fresh chicken breast and a one-quart carton of Blue Diamond Almond Milk. Whole Foods was the most expensive at $22.64, followed by Target at $16.11 and Trader Joe’s at $14.80. That’s a whole lot of difference.

From my own research at Whole Foods, for every product highlighted by the bright yellow sale sign there were scores more that were still more expensive than at other stores. In fact, CNBC reported that retail analyst Chuck Grom of Gordon Haskett wrote that the 114 products he tracked week-over-week declined by only 1.2% at a Whole Foods in Princeton, N.J. after the Amazon takeover. In fact, some 78% of the 114 arbitrarily chosen products didn’t see any discounts, leading Grom to find “our initial checks suggest that Amazon's bark may be greater than its bite.”

Amazon has said there will be further price cuts, and it will work to wrap Whole Foods into its existing ecosystem, with special in-store benefits for Amazon Prime members and Whole Foods private label lines such as 365 Everyday Value available online.

It will be interesting to see if the reported increase in traffic at Whole Foods is sustainable, and just how much pressure the price cuts put on competitors. One price change that caught my attention was the Whole Foods Organic Rotisserie Chicken, which had sold for what I considered a stratospheric $13.99, now has been reduced by 29% to $9.99.

So, we assembled a panel of MNB taste testers for rotisserie chickens sold at Whole Foods, Stop & Shop and Costco, all located within a 2.3-mile radius in suburban Connecticut. The three-pound Costco chicken sold for $4.99 and the price of the one-pound, 14 ounce Stop & Shop chicken had been reduced from $5.99 to $4.99. In addition to the one-pound, 12-ounce Whole Foods organic rotisserie chicken ($13.99 to $9.99) we also sampled the Whole Foods simple two-pound rotisserie chicken, $8.99 reduced to $7.99.

Based on visual appearance and skin color/doneness, we ranked the chickens in this order = Costco, Whole Foods Simple, Stop & Shop and in last place the Whole Foods Organic, with one panelist saying the skin “looked diseased.” (It did.)

Based on taste, Costco was again No. 1, followed by Stop & Shop, the Whole Foods Organic and then the Whole Foods simple chicken, which tasted dry compared to the others.

I’ve long been a fan of the Costco chicken, which clearly had the best taste and price pound-for-pound. We were pleasantly surprised by the Stop & Shop bird, and agreed that Whole Foods needs to up its rotisserie game in order to compete, particularly at those prices.

I also found the answer to the pressing question: How the heck can Costco sell a three-pound chicken for $4.99? In a 2015 conference call with analysts, Costco CFO Richard Galanti said the wholesale club made a determined decision to keep chickens at $4.99 even when others were raising prices to $5.99 and above. “We were willing to eat, if you will, $30 to $40 million a year by keeping it at $4.99” to keep customers satisfied and coming back.

The approach works. Like many, I have zipped into Costco to pick up a chicken for dinner and left with a best-selling novel, a fleece jacket, 36-pack of Charmin Ultra and a 12-pack of toothbrushes. Fortunately, not a 78-inch TV. (At least, not yet.)

It seems pretty clear that there are some holes in the ability of Amazon/Whole Foods to deliver on their promise. However, that is no reason to be complacent or reassured. After all, it only has been a month.

Comments? As always, send them to me at .

Wednesday Morning Eye-Opener: By The Book

by Kevin Coupe

CBS Sunday Morning had a really good story about author Ann Patchett, who, in addition to being a successful novelist, also is an independent bookstore owner. She partnered with a woman who was retiring from her job in the publishing business to open Parnassus Books in Nashville six years ago, a time when bricks-and-mortar bookstores all over the country were closing.

Since that time, though, the tide has changed … while the number of independent bookstores in the US went from more than 3,000 to a little more than half that, the number now is growing, and has reached 2,300.

Patchett tells CBS News correspondent Lesley Stahl, "I think that what's happening is that people are missing the community that independent bookstores provide. We're creating an environment that is for a lot more than just selling books.” At Parnassus Books, that means having lot of signings, performances by the likes of Yo-Yo Ma, and doing everything possible - to use a phrase we use around here a lot - to make the store more than just a source of product, but as resource for its customers.

It is a pattern that the independent bookstore community seems to be adopting, and the story is worth watching. It is an Eye-Opener.

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California Court Considers Coffee Chemical Contretemps

The Los Angeles Times reports that an obscure group called the Council for Education and Research on Toxics is engaged in a lawsuit that “claims Starbucks and about 90 other companies, including grocery stores and retail shops, failed to follow a state law requiring warning signs about hazardous chemicals found everywhere from household products to workplaces to the environment.”

The toxic chemical at issue is acrylamide, described in the story as “a carcinogen found in cooked foods such as French fries that is also a natural byproduct of the coffee roasting process. The coffee industry has acknowledged the presence of the chemical but asserts it is at harmless levels and is outweighed by benefits from drinking coffee.”

The goal of the lawsuit is to force “coffee manufacturers, distributors and retailers to post ominous warnings about a cancer-causing chemical stewing in every brew” - unless they are able to remove the chemical from the process. Defense lawyers have argued that coffee manufacturers and retailers should be exempted from the state’s toxic chemical regulations because of as regulatory caveat for chemicals that “result naturally from cooking necessary for palatability or to avoid microbiological contamination.”

If successful, the Times writes, such a verdict “could send a jolt through the industry with astronomical penalties possible and it could wake up a lot of consumers, though it’s unclear what effect it would have on coffee-drinking habits.”

KC's View: When I read this story, the first thing I thought about was how confused consumers must be. Sometimes we get told that coffee ( or a variety of other foods and beverages) are good for us, and then suddenly someone wants to put a warning label on the things we love. No wonder consumers throw up their hands sometimes, with no idea what to eat or drink.

In this case, I’m going to keep drinking coffee, Black. Caffeinated. The hell with it. It is lone of the great pleasures of my life.

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Competitive Reality Forces A Virtual Response

It is a basic business reality that movie theaters have had a tough year, in part because of lousy films released by the studios. But a larger reality is that the huge number of entertainment alternatives creates new and tough competition for the local multiplex, and it may be that offering comfier seats, better food and alcohol may not be enough to re-energize the industry.

Hence, the $20 million investment by the AMC Entertainment theater chain into a company called Dreamscape Immersive, which has been developing a virtual reality multiplex concept that will offer a variety of experiences. The technology, according to the Times, “allows up to six people to explore a virtual-reality environment at once, seeing fully rendered avatars of one another.”

According to the story, “Dreamscape joins a cluster of companies that are trying to take advantage of the still-untapped consumer promise of virtual-reality technology, the desperate need by shopping malls to reinvent themselves in the online retail age and the pressure on movie studios (and theater companies) to find new avenues of growth.”

Among the other investors are Steven Spielberg, 21st Century Fox, Metro-Goldwyn-Mayer and Warner Bros.

The Times writes: “The AMC deal, which brings total investment in Dreamscape to more than $40 million, calls for up to six Dreamscape locations to open over the next 18 months. Some will be inside existing AMC theaters, and some will be stand-alone centers nearby. Additionally, Dreamscape will open a flagship location in the first quarter of next year at the Westfield Century City mall in Los Angeles.”

KC's View: This is, I think, such a great lesson for every business … it is critical sometimes to be willing to embrace even business models that seem antithetical to or competitive with what we traditionally have done, especially if we can use them to gain a competitive advantage. In this case, movie theater companies are deciding that they are in the entertainment business, not the business of showing movies. You do what you have to do to survive.

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Retail Gazillionaire Says Physical Retail Is In Disarray

CNBC has an interview with real estate investor Sam Zell in which he said that he does not think that “Amazon reinvented the wheel. I don't think buying Whole Foods is going to make it easier for Amazon to fulfill its objectives … "Basically, Amazon is buying depots, not retailers.”

Zell tells CNBC that he has little confidence in bricks-and-mortar retail: “I'm generally a contrarian. I generally rub my hands together at the opportunity for serious dislodgment. [But] an area that's in this much disarray, with so many weak players, it's not an area where I would want to deploy capital at this time.” And, he notes that “the U.S. has four or five times the amount of square footage per person of retail as anywhere else in the world.”

KC's View: I’m not a Sam Zell fan - he has a dubious record when it comes to employee relations and countenancing sexual harassment within his organizations, plus when he owned the Chicago Tribune he struck me as having an utter disregard for journalism. In short, he represents everything about rich, arrogant guys (I’d prefer another noun, but this is a family website) that I utterly hate.

But on this one, I think he’s in the ballpark. Amazon is more interested in real estate than bricks-and-mortar retailing, and physical retailing isn’t a great basket into which to put your eggs.

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The MNB Walmart Watch

TechCrunch reports that Facebook’s efforts to compete effectively with Microsoft with its Workplace product - described as “an enterprise version of the social network designed specifically for use by teams and entire businesses” - got a boost with Walmart deciding to have its 2.2 million employees use it.

According to the story, “Walmart is rolling out Workplace to the whole of its business in stages, starting with associates and teams at Sam’s Club and other parts of the operation. The move speaks to how Walmart — which last year acquired for $3 billion — continues to step up its tech game as it feels the pinch of competition from Amazon, an e-commerce giant that is very quickly moving into Walmart’s brick-and-mortar territory.”

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E-conomy Beat

Fox Business reports that the British retailer Costcutter is “the first in the world to let shoppers use their veins to pay for groceries … The technology uses infrared light to scan people’s finger veins and then uses a biometrics to link to their bank cards.”

The price of the technology is said to be “relatively inexpensive compared to retinal scanners.”


AOL Finance has a story about how discounter Aldi “is taking aim at Whole Foods with a new store design … that looks almost identical to Whole Foods' cheaper chain of stores called 365 by Whole Foods … The Aldi stores' new design features softer lighting than its older stores, as well as a larger fresh produce section, wider aisles, and electronic displays on the walls.”

The story says that “the grocery retailer announced it is opening more stores that feature the new design after stores that utilize the layout outperformed traditional Aldi locations. The retailer is spending more than $1.6 billion to revamp stores and open locations with the updated format.”

USA Today reports that “orange juice drinkers may pay as much as $2.30 more for a gallon of orange juice as the result of broad swatch that (Hurricane) Irma cut through Florida's citrus crop … The Florida Department of Citrus estimates that 30% to 70% of the Sunshine State's crop was destroyed. But the result price rises could be mitigated if consumers switch to other juices or juice blends.”

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Executive Suite

Content Guy’s Note: This story is about six weeks old, but to be honest, I missed it the first time around … and since I like this person, when this was pointed out to me by a mutual friend, I wanted to circle back and take note…

• Beth Newlands Campbell, the former president of Hannaford Supermarkets, Food Lion, and the Atlantic/Ontario Business Unit of Sobeys, has been named president of Rexall Drugstore, which operates 471 pharmacies across Canada.

According to the announcement, Newlands Campbell will lead Rexall's long-term business strategies that enhance corporate growth and strengthen the organizations' position in the marketplace. Newlands Campbell will report directly to Domenic Pilla, CEO of McKesson Canada.

Your Views: Arrogance & Ignorance

On the subject of Target’s decision to raise its minimum wage. one MNB reader wrote:

I agree that this is a good move by Target but it’s worth noting that they are very late, and their service has suffered as a consequence.

Many of us in competitive labor markets have been at $11 for a couple of years and will continue moving forward and up.

Too bad a lot of these massive players don’t just take a bit of a hit in earnings and get their workers off SNAP and other assistance programs that we all end up paying for…

You’re right. Too bad. But big business and big CEOs are rewarded based on how low they can drive their labor factors, not how they make a difference in their people’s lives, nor on the degree to which they can help these people feel invested in their businesses.

Got the following email from MNB reader Bob Martell:

Couldn’t agree more with Michael Sansolo’s takeaway on the Ken Burns Vietnam series. I was aware of French colonialism in Indochina during the 19th century & how we made their problem ours. I knew that our involvement began in the Truman/Eisenhower era but had no idea of the scope and how it devolved under Kennedy, Johnson & Nixon. He's also spot-on about Sen John McCain - a true patriot whose honor & dedication is an inspiration to the entire country. Sen McCain is the exact opposite of our president.

Our most recent episode  of “Arrogance & Ignorance” has been apparent since last Nov. The fact that the 2 countries now at each other’s throats are being run by 11yr olds who can’t detach themselves from the bathroom mirror & puerile name-calling - with the fate of the planet at stake, is horrifying.

Regarding the ongoing controversy enveloping professional sports and the Trump administration, one MNB reader wrote:

Saw an interesting meme in Facebook yesterday and while I’m not taking a side on this subject (for many reasons including my father serving in the Air Force), it really made me stop and think.   It’s a picture of how we “watch” football at home, sitting on sofa with snacks in our lap with the caption of, “Do you stand while watching the game on TV at home, then why do you have a problem if someone else kneels on the field live”….   Brief reminder to check our emotions before getting so upset.  Of course, this assumes most of us don’t stand at home when no one else can see….

And, from MNB reader Tom Herman:

The NFL has a long standing rule that players must stand for the national anthem. They have chosen not to enforce it. What the owners have lost sight of is their customers. If they lose the players, they lose the game? The customer pays for all of this with exorbitant ticket fees, taxes for new stadiums and high cable bills. Is it too much for the lower or middle class paying customer to ask that the multimillionaire players stand during the national anthem to respect their country in return for their hard earned dollars? To knell during the national anthem just politicizes another segment of our lives that used to be entertainment to get away from work and politics. Can we not watch TV, go to the theater, or watch football without the long tentacles of politics invading our space?

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