business news in context, analysis with attitude

Published on: January 28, 2013

by Kevin Coupe

The Seattle Times has a piece about Amazon Fresh, noting that the experiment - selling fresh products, many of them from local purveyors, and delivering them in Amazon-owned vans - that started in 2007 remains an offering limited to some 80 Seattle-area zip codes.

"A broader rollout of Fresh once seemed unlikely as Amazon’s reluctance to charge customers sales taxes prevented it from putting down roots in most parts of the U.S.
That changed in 2011, when Seattle-based Amazon began cutting deals with states to collect sales taxes, paving the way for new distribution centers near major urban hubs, including New York and San Francisco.

"While an expanded distribution network could lay the groundwork for Fresh to go national in 2013, it remains to be seen whether its lime-green trucks head elsewhere anytime soon.

"Analysts say Amazon has yet to crack the code on how to deliver mass-market groceries at prices that enable it to both compete for customers and turn a profit. What’s more, they say, Amazon must convince customers to put aside their misgivings about buying perishable food sight unseen."

This is interesting, since I've heard rumblings that Amazon actually is on the verge of expanding Fresh into Los Angeles and/or San Francisco, possibly as soon as this summer, a decision that - in addition to the fact that Fresh has finally gotten to the point of profitability because of increased minimum purchases and increased delivery fees - has been driven by an increased number of distribution and new cross-docking facilities.

I've also found it revealing that Amazon, building on what it calls its "Big Radish" program in Seattle, which offers free shipping to high-frequency users spending at least $50 per order, also may offer a version of its Prime program retooled for Fresh membership - pay a monthly fee of, say $20, and get lower minimums and no delivery charges. (Using the highly successful Prime program as an engine to drive growth is a very smart idea, I think.)

Amazon also seems to have done a good job of addressing the whole "sight unseen" issue by using reputable, well-known purveyors as sources of product. You're not buying Amazon's croissants or Amazon's deli meats or Amazon's prepared meals, but rather products that have other companies' names and reputations standing behind them. This concept has proven to be successful in Seattle, I'm told, and will be replicated elsewhere.

There remain a number of people who believe that Amazon Fresh is a mistake - that it will take the company down an unprofitable road that is fraught with marketing and operational potholes, where the carcasses of companies like Webvan can be found decaying in a variety of virtual ditches. And certainly that is possible.

But I keep remembering this line from Amazon's recent commercial (which seemed to double as a marketing manifesto):

"What once was wildly impractical is now completely normal. And normal just begs to be messed with."

When I think about that line, it seems to me that there is almost no way that Amazon does not take this leap with its Fresh program. Call it arrogance, call it ambition, call it anything you like. But grocery shopping does, in fact, just beg to be messed with. It won't be for everyone ... but then again, neither was the concept of buying books and and music online when the company started almost two decades ago.

Published on: January 28, 2013

The US Court of Appeals on Friday ruled unanimously that the Obama administration went beyond its constitutional authority when it made three appointments to the National Labor relations Board (NLRB) last year when the Senate was on vacation.

Such "recess appointments" often are made by presidents when they are faced with what the Washington Post describes as "Senate opposition and inaction"; administrations are able to bypass the Senate - which has the constitution responsibility to confirm or deny the appointments - and name the nominees to posts on an interim basis.

According to the Post, "Chief Judge David B. Sentelle sharply criticized the administration’s interpretation of when recess appointments may be made, saying it would give the president 'free rein to appoint his desired nominees at any time he pleases, whether that time be a weekend, lunch, or even when the Senate is in session and he is merely displeased with its inaction.' He added, 'This cannot be the law'."

After the ruling was handed down, the National Grocers Association (NGA) issued a statement supporting the decision. NGA president/CEO Peter Larkin said: "NGA believes that the Constitutional separation of powers is important, and the unconstitutional appointments in this case illustrate those limits were surpassed. Looking forward, we will continue to support efforts to curtail excessive and burdensome regulations and to ensure a level playing field for employees and employers."

The Post writes that "Friday’s decision casts doubt on hundreds of decisions the NLRB has made in the past year, ranging from enforcement of collective-bargaining agreements to rulings on the rights of workers to use social media."

And, the story says: "The issue seems certain to end up before the Supreme Court, which ultimately could clarify a president’s authority to fill his administration and appoint federal judges when a minority of the Senate blocks consideration of his choices.

"Although recess appointments have been made throughout the nation’s history, they have been more commonly made by modern presidents who face partisan opposition that has made it hard for nominees to even receive a vote in the Senate."

Published on: January 28, 2013

The Los Angeles Times reports that a year after 99 Cents Only Stores was acquired by a couple of financial companies, the family management team that sold it has left the company. They have been replaced by Rick Anicetti, the former CEO of Food Lion who has been on the board of 99 Cents for the past eight months and now becomes interim CEO, and Michael Fung, the former CFO at Walmart's US operations, who is joining the company as interim CAO.

According to the story, "Los Angeles private equity firm Ares Management and the Canada Pension Plan Investment Board bought the retailer in a deal that closed in January 2012 and took the firm private. When the chain announced the deal, valued at about $1.6 billion, it said the family management team would remain in place.

"But the City of Commerce company said this week that Chief Executive Eric Schiffer, Chief Administrative Officer Jeff Gold and Executive Vice President of Special Projects Howard Gold 'are no longer employed by the company'."

The retailer operates 311 stores in California, Texas, Arizona and Nevada.

Published on: January 28, 2013

From now on, Subway said over the weekend, its "footlong" sandwiches will actually be a foot long.

It was just a week or so ago that Subway found itself in the middle of a controversy, created when an Australian teenager ordered one of Subway's "footlong" submarine sandwiches, and then pulled out a tape measure to see if it was, indeed, 12 inches long. In fact, the sandwich was just 11 inches long. The teen took a picture, posted it online, and the debate went viral, with pictures and measurements being posted online from Subways all over the world.

After a muddled response - among other things, it said that "footlong" was meant to be a creative term, not one of actual measurement - Subway issued the following statement:

"We regret any instance where we did not fully deliver on our promise to our customers. We freshly bake our bread throughout the day in our more than 38,000 restaurants in 100 countries worldwide, and we have redoubled our efforts to ensure consistency and correct length in every sandwich we serve. Our commitment remains steadfast to ensure that every Subway Footlong sandwich is 12 inches at each location worldwide."

Published on: January 28, 2013

The Los Angeles Times reports that "brominated vegetable oil, a synthetic chemical that has been patented in Europe as a flame retardant, will no longer double as an ingredient in Gatorade sports drinks.

"Molly Carter, a spokeswoman for Gatorade owner PepsiCo Inc., said the company has been considering the move for more than a year, working on a way to take out the ingredient without affecting the flavor of the drink."

PepsiCo denied that a petition on Change.org generating more than 200,000 signatures had anything to do with the decision.

Published on: January 28, 2013

There was a wonderful piece in the New York Times yesterday by Nancy F. Koehn, a historian at Harvard Business School, about management lessons that can be learned from the presidency of Abraham Lincoln, a subject that, while current because of the success of the Spielberg movie, also has a certain sense of timelessness.

"Even before Lincoln the movie came along, there was a certain cult of leadership surrounding the 16th president," Koehn writes. "C.E.O.'s and lesser business lights have long sought inspiration from his life and work. But today, as President Obama embarks on a new term and business leaders struggle to keep pace with a rapidly changing global economy, the lessons of Lincoln seem as fresh as ever. They demonstrate the importance of resilience, forbearance, emotional intelligence, thoughtful listening and the consideration of all sides of an argument. They also show the value of staying true to a larger mission."

It is an excellent article and worth reading here.

Published on: January 28, 2013

The Wall Street Journal this morning reports that Barnes & Noble, which operates 689 retail stores in the US, plans to pare that number down to 450-500 units over the next decade.

According to the story, B&N traditionally has closed about 15 stores a year over the past decade, but was opening as many as 30 stores a year at the same time. "Its store openings have largely dried up as consumers' shift toward digital books has upended the market and developers have stopped opening new malls; this fiscal year it has opened only two stores," the Journal writes.

"It's a good business model," says CEO Mitchell Klipper. "You have to adjust your overhead, and get smart with smart systems. Is it what it used to be when you were opening 80 stores a year and dropping stores everywhere? Probably not. It's different. But every business evolves."

Published on: January 28, 2013

Advertising Age writes that while PepsiCo has hired Beyonce and Sofia Vergara as "brand ambassadors," Coca-Cola has decided to match them by hiring Taylor Swift.

The story says: "The 23-year-old singer will partner with Diet Coke on a series of branding initiatives, Ad Age has learned. It's not clear how Diet Coke will use Ms. Swift, though it's likely she will become a brand ambassador of sorts, with the partnership going beyond simply 30-second TV spots."

And, the story goes on:

"Ms. Swift doesn't have the superstar presence of the leotard-wearing, vigorously-dancing Beyonce, who was named the official brand ambassador of Pepsi last month. In addition to being one half of entertainment's highest-wattage power couple along with Jay-Z, Beyonce is headlining the Super Bowl halftime show sponsored by Pepsi, performed at Barack Obama's second inauguration, has starred in movies and will be the subject of autobiographical HBO documentary next month.

"Still, Ms. Swift's power is rising fast. According to Billboard's list of 2012's top 40 Money Makers, the star blew past competition like Adele and Lady Gaga to come in at No. 1, with earnings of more than $35 million last year. Her newly struck deal to rep Diet Coke follows a lucrative contract with Cover Girl, as well as work for Sony Electronics and Keds. She's been nominated for 15 Grammy Awards and taken home six."

Published on: January 28, 2013

• The New York Times has a story about how, "with retailers’ Internet prices now changing more often — sometimes several times within the space of a day — a new group of tools is helping shoppers outwit the stores. Rather than requiring shoppers to do the work by entering an item into price-comparison engines throughout the day, the tools automatically scan for price changes and alert customers when the price drops.

"Some tools, including one from Citibank’s Citi Card, even scour sites for lower prices after a purchase and help customers get a refund for any price difference.

"Web sites that help shoppers compare prices and track online deals have existed as long as e-commerce itself. But rapid changes in pricing at many major retailers have made it more difficult for shoppers to keep on top of it all."

Published on: January 28, 2013

• The Sacramento Bee reports that Fresh Market will open two stores in Sacramento, California this fall.

According to the story, North Carolina-based Fresh Market opened its first California store last year in Roseville, and has three more on the drawing board, in Palo Alto, Santa Barbara and Laguna Hills.

• The Detroit Free Press reports that "Target, which sells fresh produce, meats and other staples at many of its stores across the U.S., is scheduled to announce Monday the overhaul of nine of its metro Detroit stores to include larger grocery sections."

• The Associated Press reports that "McKee Foods Corp. is offering to pay between $25 million to $30 million to acquire the Drake's brand from Hostess Brands Inc.

• USA Today reports that the folks at Cracker Barrel Old Country Store Inc. plans to expand its "lineup of Cracker Barrel-branded food products ... offering them at grocers and other outside retail outlets for the first time."

It will be the third time that Cracker Barrel has tried to expand beyond the restaurant business: "First, it branched into the takeout business with several Cracker Barrel Corner Market locations throughout Tennessee. Then it opened a retail-only store, simply called The Store, in a Nashville-area mall. Both efforts failed."

Published on: January 28, 2013

No, that isn't a misspelling. In fact, it is meant to describe the deal received/earned by the top executive who is leaving the company as part of a sale of assets and change in management.

According to the Star Tribune, Wayne Sales, who had been the nonexecutive chairman of Supervalu's board before he stepped in to replace the fired Craig Herkert, will walk away "with $12.8 million for about eight months of work."

During that eight months, Sales helped to engineer a $3.3 billion deal with Cerberus Capital Management, which is "buying Supervalu's four largest supermarket chains, and it plans to purchase up to 30 percent of Supervalu's stock at $4 a share."

The Star Tribune writes that Sales was given a two-year contract as CEO. "Under his agreement, salary and cash bonuses, as well as stock awards, due through those two years are accelerated if there is a 'change of control' at Supervalu.

"Since that is expected to happen with Cerberus' new ownership stake, Sales will receive $8.1 million in cash and $4.7 million in equity compensation, according to a securities filing. The cash payments include his annual salary of $1.5 million, pro-rated through July 28, 2014. (Supervalu's fiscal years end in February.) Sales also will get his 'target bonus; of $1.5 million for Supervalu's 2014 fiscal year."

And, the Minneapolis/ St. Paul Business Journal writes that in addition to the Sales payday, three other executives are getting golden parachutes: Sherry Smith, CFO, $3.51 million; Janel Haugarth, president of Independent Business and Business Optimization, $3.65 million; and J. Andrew Herring, executive vice president for real estate, market development and legal, $2.82 million."

The Business Journal notes that these "payments would be made when those executives are terminated from their positions within two years of the date the sale of the company closes. All three also had received retention bonuses in August."

Published on: January 28, 2013

We got a number of emails last week about Disney's proposed use of RFID bracelets by guests in its theme parks and questions being raised about this practice by elected officials concerned about privacy issues.

One MNB user wrote:

Although I would love to side against the Mouse, I don’t feel strongly about this.  You decided to enter the Kingdom – they are not stalking you in your  home (just don’t forget to take the wristband off!) or following you about in public.  I do think that there should be a ‘opt out’ that just gives you a basic wristband – like Easy Pass vs. Cash.  They have every right to try to find out what you like and don’t like, in order to make your future experiences better……..or to beam information down to that chip that subtly transferred from the band into your wrist………

From another reader:

While I agree that asking questions is important and appropriate, this is just another example of a Congressional member with too much time on their hands and who is prepared to over burden us with additional government regulation, chitter chatter, and blowhard chest beating.   Maybe we should put RFID wristbands on our bureaucrats and politicians to see what they are actually up so we can have Disney streamline the madness created by Washington.

MNB user Melanie Gaudun wrote:

With nightmares about losing my daughter (Kacey) in a crowd, I’d actually welcome child-tracking technology at a place like Disney, but for me, the parent, not for them.

From another reader, along the same lines:

I find it interesting the concern around privacy with Disney's RFID bracelets.  A few years ago I was vacationing at WDW with my husband and two young boys.  We were at a water park when our four year old dashed across a cement path and immediately disappeared into a large crowd entering the park.  By the time we negotiated our way through the crowd our four year old was no where to be found.

We enrolled the help of the lifeguards and other Disney personnel.  Everyone was very concerned about a four year old alone in a water park with no lifeguard or adult oversight.  However, we were all at a significant disadvantage.....the best description we were working from to find him was "he has blonde hair, blue eyes, and has a navy and white swimtrunks."

Fortunately, after four and a half hours of searching (and a completely ruined day at the park) we found him!   He had been jumping waves in the wave pool and other than a sunburned nose was completely safe.

I share this only to say, as a parent I am more than happy to let Disney know whatever they want about our park activities, if the bracelet can keep children safe and found quicker.  If we had had this technology available to us, it would have enhanced, not detracted, from our experience and their brand.
 
And that, my friend, is an eye opener.  (Wink!)

MNB user Mike Schrauth wrote:

Just spent three days skiing at Breckinridge, a Vail resorts property.  Their new EPIC pass is RFID based.  No need to hang a lift ticket of your jacket, just a credit card that is scanned as you enter the lift lines at the bottom of the hill and by automatic scanners as you load mid slope.  At the end of the day you can go online and see where you've spent your day.  Vail has created a series of awards for specific achievements, number of runs, number of lifts taken, total vertical feet covered and has created an online community for those who want to share.  Was my privacy violated?  No, it enhanced the experience and just might help Vail resorts create an improved experience down the road.

And, if you'd been hit by an avalanche, I'm guessing it would have been easier to find you.

Win-win.

I think the message here is that people are willing to embrace these kinds of technological innovations as long as they see them as improving their lives in some sort of relevant way. Like EZ-Pass. Sure, somebody knows when I cross any bridge or go through any toll. This can be a problem if I commit a crime and try to manipulate an alibi. (I've seen "Law & order" enough times to know this.) But it also makes it easier for me to get places faster, so using it is a no-brainer.

Unless, of course, I decide to commit a crime. Then, I'm using the cash lane.




We had a story last week about how a New Zealand economist is calling for the elimination of all cats from the island nation, saying that they are parasites that are preying on the bird population there, causing some to become endangered. He doesn't want the cats to be killed, just spayed or neutered so they can't reproduce.

Nor surprisingly, this generated some email.

One MNB user wrote:

As a cat lover (understatement), I found the Eye Opener about the proposal to eliminate all cats from New Zealand to be utterly horrifying.  I pray that this economist is just some crackpot looking for attention, or at least might be attempting to use an exaggerated proposal as a satirical means of drawing attention to the need for responsible pet ownership, in the manner of Jonathan Swift.

However, if this proposal gains any traction, I hereby call for an emergency airlift of all cats from New Zealand, followed by a prolonged nuclear bombardment of the country.  So, we’d have to learn to live without grapefruit-tasting sauvignon blanc…  (So there’s no confusion, my proposal was satirical.  You know, for the most part.)  Also, ALL pet owners should practice responsible pet ownership in the prevention of unwanted litters—cats AND dogs.

MNB user Kathleen Whelan wrote:

Keep them indoors – the cats, I mean.  As for Gareth Morgan, he should be kept indoors as well.  And away from microphones and social media.  And birds are not always that great ..has he never heard of Scarecrows?

From another reader:

My father refused to register and tag our dog because cats did not require registration.  He also thought cats should be required to wear bells to alert birds in the vicinity. More cowbell! He waited for Dinah to get ticketed so he could argue the case in court but Dinah was no tramp and did not wander. The day in court never came and the issue with cats has not been resolved.

And another:

When did having a purpose ever have a relationship to conservation?  That strikes me as biological arrogance on our part – the very same arrogance that conservationists blame for killing off endangered species in the first place.  “We’re responsible for destroying the habitats of all these species.  We have to reverse the meddling we’ve committed!”  But meddling is exactly what New Zealand’s trying to do.  The history of biology is replete with new species being introduced to established ecosystems, them fighting each other, and one winning out.  It’s inevitable that a predator would be re-introduced to that biome, so this drama would unfurl eventually anyways.  It has nothing to do with us, but rather with two species’ relative fitness to survive.  Why punish a flexible, intelligent, adaptable species for surviving to the best of its ability, in favor of a stupid, stubborn species that can’t be bothered to adapt to a new threat?  If we interfere, we’re meddling with evolution just as surely as if we headshot all the pandas, whales, and white tigers.

And cats are not parasites.  They’re part of the food chain, are capable of surviving outside of a host body, and can eat pretty much anything.  They’re an evolutionary success story, and a species likely to inherit the planet if we ever go the way of the dinosaurs.




Last week we had a story about McDonald's signing up with the Marine Stewardship Council to verify all of its fish that gets breaded, fried and sold as 'Filet-O-Fish' sandwiches are sustainably certified Alaskan pollock. In exchange for audits of its massive supply chain, McDonald's each year can sell hundreds of millions of fish sandwiches, and soon-to-be sold Fish McBites, in boxes with the council's trademarked blue Eco-label.

And I commented:

Sustainable? Certified Alaskan pollock? I'm actually shocked to find out there is any actual fish in McDonald's Filet-O-Fish sandwiches...

To which MNB user Steven Ritchey responded:

I know  you were doing what you do, being a smart aleck.  But, McDonalds goes and does something I think is smart.  They aligned themselves with what I suppose is a trustworthy organization to verify the fish used in their fish sandwiches is indeed sustainable, that the Alaskan Pollock they are using is being responsibly caught, and not over fished.

You're right, this is a smart move by Mickey D's. And you're also right that being a smart aleck is what I do.




And, responding to a piece about what should happen to Shaw's, one MNB user speculated:

Or could Cerberus sell Shaws to Kroger, who is cash heavy now, and wants in the NE market…. Combine that with the other market Kroger is missing, Chicago/Jewel, and you have some serious dollars gained back in the sale for Cerberus.

Then to solidify Kroger entrance into the NE market, Ron Burkle works again with Bob Miller to sell Pathmark to Kroger…

Watch for it.

I will.

Published on: January 28, 2013

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