business news in context, analysis with attitude

Published on: March 4, 2013

by Kevin Coupe

The question is, how much is too much? And at what point will consumers say, "Enough!"

The Los Angeles Times has a story about how a number of airlines - ranging from United to Southwest - are introducing new fees as a way of bolstering their bottom lines. (Fees contributed $36 billion to airlines' balance sheets last year.)

"Among the fees airlines have announced in the past few weeks are a charge to zip through airport screening gates and board early, a fee to watch streaming movies and a fee to have your bags delivered in  36 cities around the country," the Times writes.

United is the airline said to be charging fees for early boarding, a privilege that used to be saved for frequent flyers and people paying for first class or business tickets, while Southwest is charging one fee for Wi-Fi access and another for people who want to stream movies onto their laptops or tablet computers.

And while these moves may be seen as positive in the short-term for airlines, the question that remains to be answered is whether, in the long-term, they are damaging airlines' value propositions and their relationships with frequent flyers. Privileges used to be earned, which resulted in passengers - like the character played by George Clooney in Up In The Air - being loyal so they could get preferred boarding/seating advantages.

But now, in search of the short term buck, airlines are selling those advantages to the highest bidder. It remains to be seen whether they are really selling themselves short.

And in the same way, every retailer and marketer ought to be looking at its customer-impacting business decisions and evaluating whether the move sit is making to save money here or make money there might be hurting its long-range viability and sustainability.

Published on: March 4, 2013

The New York Times reports that even as Europe deal with a horse meat scandal, discovering traces of it in meat that was labeled as 100 percent beef, the US Department of Agriculture (USDA) "is likely to approve a horse slaughtering plant in New Mexico in the next two months, which would allow equine meat suitable for human consumption to be produced in the United States for the first time since 2007."

According to the story, "The plant, in Roswell, N.M., is owned by Valley Meat Company, which sued the USDA and its Food Safety and Inspection Service last fall over the lack of inspection services for horses going to slaughter. Horse meat cannot be processed for human consumption in the United States without inspection by the USDA, so horses destined for that purpose have been shipped to places like Mexico and Canada for slaughter."

The story goes on to note that "the impending approval comes amid growing concern among American consumers that horse meat will somehow make its way into ground beef products in the United States as it has done in Europe. Major companies, including Tesco, Nestlé and Ikea, have had to pull food from shelves in 14 countries after tests showed that products labeled 100 percent beef actually contained small amounts of horse meat. Horse meat is not necessarily unsafe, and in some countries, it is popular. But some opponents of horse slaughtering say consumption of horse meat is ill-advised because of the use of various kinds of drugs in horses."

Meanwhile, Reuters reports that in the UK, Taco Bell has discovered that there is horse meat in some of the ground beef it has been serving at its three restaurants there. Yum Brands, the parent company, said it would improve its inspection processes in the UK in response to the finding.

According to the story, Yum Brands already had been "grappling with a food safety scare in China ... On Monday, Yum said it would stop using more than 1,000 poultry slaughterhouses in China as it moves to tighten food safety and reverse a sharp drop in business at KFC restaurants in its top market after a scare over contaminated chicken."

Reuters also reports that "Britain's Food Standards Agency (FSA) said on Friday it had conducted 1,797 tests over the last seven days. More than 99 percent of the readings came back negative for horsemeat levels at or above 1 percent. However, four tests were positive, it said. They were for Taco Bell ground beef, beef skewers made by catering company Brakes, and two types of Birds Eye ready meals - spaghetti bolognese and beef lasagne."

Published on: March 4, 2013

On Friday, MNB took note - with great pleasure - of the email that Andrew Mason sent to Groupon Inc. staffers last week, acknowledging with unusual candor that a) he was fired, b) he should have been fired, c) the company deserved a second chance, which only a new CEO could provide, and d) the company needs to keep the customer front and center of every decision.

Well, Fortune has a piece this morning about Mason's severance check ... which, as it ends up, will be $378.76.

That's right. Three hundred and seventy eight dollars and seventy six cents.

That's because his employment agreement gives him half his annual salary upon termination - and he was getting paid $756.72 a year.

Published on: March 4, 2013

Anheuser-Busch InBev took to 10 of the nation's major newspaper over the weekend, placing full-page advertisements defending itself against a proposed class action lawsuit accusing it of watering down a number of its beer brands.

The ad shows a can of drinking water bearing the company's logo, with a headline that says, "They must have tested one of these." The ad copy notes that A-B has donated 71 million cans of drinking water to the American Red Cross and other global disaster relief organizations, and pledges that "in every other circumstance, the Anheuser-Busch logo is our ironclad guarantee that the beer in your hand is the best beer we know how to brew. We take no shortcuts and make no exceptions. Ever."

Published on: March 4, 2013

Fortune is out with its list of the 50 most admired public companies, based on a survey of 3,800 executives, directors, and analysts, and number one (despite the recent decline of its stock price) is Apple, followed in the top ten by Google, Amazon, Coca-Cola, Starbucks, IBM, Southwest, Berkshire Hathaway, Walt Disney and FedEx.

Other notables on the list: McDonald's (12), Procter &Gamble (15), Nordstrom (16), Whole Foods (19), Target (22), Costco and Johnson & Johnson (tied for 23), Walmart (27), Nestle (32), PepsiCo (37), Unilever (39), Home Depot (45), and Facebook (48).

The story also looks at seven companies that were on the list of most admired companies back in 1983 when Fortune started this annual feature, but, for various reasons, no longer are. The list is instructive: Eastman Kodak, SmithKline Beckman, Rockwell International, McDonnell Douglas, Western Electric, Gillette, and Wang.

You can read the whole story and see the whole list here.

Published on: March 4, 2013

Terrific piece on Slate.com that poses the following question: What was the first novel ever written on a word processor?

The answer: A 1970 Len Deighton novel about World War II entitled, "Bomber." And the equipment was a 200 pound contraption that had to be hoisted through his window by a crane.

The story of what that piece of equipment was like, and how Deighton came to use it, is fascinating ... and you can read it here.

And keep in mind as you read it ... "Bomber" was being written in 1969 and 1969 ... fewer than five decades ago ... and it is extraordinary the degree to which the world has changed in a relatively short period of time.

Published on: March 4, 2013

The Associated Press reports that "Rite Aid has expanded an online doctor service for its drugstore customers that is limited to virtual visits but cheaper than a traditional primary care appointment ... Rite Aid's service connects drugstore customers with doctors for a video or phone consultation about a range of ailments like allergies, bronchitis, rashes, the flu or sinus infections. Rite Aid officials say the concept aims to improve access to health care. The drugstore's effort comes less than a year before a wave of new patients is expected to hit the health care system when the federal health care overhaul expands insurance coverage to millions."

Rite Aid said that its NowClinic Online Care program is available at 58 locations in four cities: Baltimore, Boston, Philadelphia and Pittsburgh.

Published on: March 4, 2013

...with brief, occasional, italicized and sometimes gratuitous commentary...

• The Orlando Business Journal reports that Publix Super Markets is dismissing reports that it may be interested in bidding for Harris Teeter Supermarkets as unfounded.

Publix spokeswoman Maria Brous says that "here is currently a lot of rumor and speculation; however, that is all it is – rumor."

• Whole Foods has released the official opening date for its much discussed store in Detroit - June 5.

I know that there has been a lot of debate about whether it makes sense for Whole Foods to open a store in a city where the economy is so bad that the state is moving to take over control of its finances. But I recently had the chance to spend some time in Detroit, and I was impressed with the level of fresh food marketing there, especially when you look at outstanding stores like those operated by Westborn Market, you realize that there is a real hunger for great food there.

• Newsday reports that "the union representing Stop & Shop's meat, seafood and deli workers postponed a strike vote until Monday." Meaning today.

According to the story, "The United Food and Commercial Workers Local 342, which represents about 800 Long Island workers, had scheduled a strike vote on Friday, after almost two years of negotiating with Stop & Shop officials, the union said."

• The National Association for the Specialty Food Trade (NASFT) announce that it is changing its name, to the Specialty Food Association (SFA).

According to the organization, "The name change caps a year-long celebration of the association’s 60th anniversary and comes as membership has reached a record 3,040 companies. It is part of a larger effort to draw attention and focus to the $75 billion specialty food industry with new branding that will be officially launched at the Summer Fancy Food Show in New York City, June 30 – July 2, 2013."

Published on: March 4, 2013

• President Barack Obama is expected today to nominate Sylvia Mathews Burwell, head of the Walmart Foundation, to be his new director of management and Budget, a Cabinet-level position.

Burwell is the former COO and founding president of the Bill and Melinda Gates Foundation's Global Development Program, as well as a former deputy chief of staff for President Bill Clinton.

CNN notes that "while it may not have the profile of jobs such as secretary of state or secretary of defense, the OMB position is a central part of a president's administration. One example of its importance is the rise of Jack Lew, who held that job before becoming White House chief of staff and now treasury secretary.

"The stakes are especially high now, with Obama engaged in a protracted, heated battle with the Republican-led House of Representatives about the size and shape of the federal government's budget."

Walmart CEO Mike Duke released a statement calling Burwell "a strong leader who both masters the details and has a clear vision for making big things happen ... She cares deeply about people (and) she understands business and the role that business, government and civil society must play to build a strong economy that provides opportunities and strengthens communities across the country."

Published on: March 4, 2013

• Bonnie Franklin, who played Ann Romano, the divorced mother of two teenaged girls in the long-running CBS sitcom "One Day At A Time," has passed away of complications from pancreatic cancer. She was 69.

Published on: March 4, 2013

We got a number of emails responding to last week's story about Walmart's problems dealing with out-of-stocks.

One MNB user wrote:

Walmart shelf resets occur Feb/Mar.  That's definitely going to have an impact on OOS (or the new measure that the consultants are going into store to "measure, AOS Availability On Shelf), as category advisorships (manufacturers who are allowed to see Retail Link data, one per shelf set, and direct the buyer on what to put on shelf) go in and do the reset.  Having been through this, you've got labor issues in store to actually do the reset (incremental but still accounted in labor hours) and OPP (opening price point) smaller suppliers that just cant get quantity to the stores in timely manner. 

Resets seem to be pretty major in all categories this year, the "upscale" store in NWA had a HUGE tent sale where the products that were discontinues were half price.  I've never seen this here, usually they just have a small clearance section in the back endcaps.  And of course, the retail "standard"  of labor hours scheduling which automatically restricts number of hours a GM can use...sales drop in Feb leads to fewer hours in Mar.  And finally, remodels can be an issue...the remodeling process is still going on and I know the disruption in store is still huge...both for consumers and for associates.  I have to wonder who the new logistics VP is and how skilled he/she is in incorporating/solving the whole problem.  About three years ago, my VP there gave us a quick recap of one of those monthly C-suite meetings.  She told us that the they had looked at AOS and could account for about 30% of the problem.  That was about 1 year after the first signs of problems...

Wow. I only understand about 30 percent of that, but I certainly appreciate the detail.

From another reader:

What I find interesting and a bit funny is that while Mr. Simons is saying all this, Walmart is holding up suppliers purchase orders on a regular basis. Something that only throw off any ordering system and with Walmart cash makes no sense. If inventories are a problem there are system that can fix this, again an area where Walmart once was the leader. I would suggest that Walmart is holding purchase orders and shipments to help product flow do to the labor cuts that Mr. Simons has ordered. I know of several case where stores had outs and called their main office and asked for product and were told NO, something that was unheard of during Mr. Walton's and Mr. Glass's leadership.

And another:

After working for a major DSD food supplier for 42 years, every time I go into a Walmart now and talk to a Wal-mart employee about something that is out of stock, I am told that it is the “ vendors” fault or that they don’t know where that product is because those Damn vendors move the products around.

It seems to me that Wal-mart needs to adopt the longtime independent store management attitude of  treating the consumers needs instead of “that’s not my area”.

Training would help.

Still another MNB user wrote:

I think we have to divide the issue of in-stock into 2:

Out of stock due to really no stock at Walmart storage at each individual store

OR

• Out of stock due to associate not refilling stock even though stocks are available in the storage?

Number 1 solution is simpler as issues probably arise from either system reading error or supplier not supplying enough.

Number 2 is more complex as it involves human motivation.




On the subject of whether Costco should be concerned about the showrooming trend, one MNB user wrote:

I have been with Costco for over two decades and I have a slightly different perception of the affects of showrooming at Costco.

Showrooming is good for our business where it is not for other brick and mortar retailers.  While there are some items Amazon may beat us on... our margins are so thin the difference in price is generally very little if any.  For our member who wants it "now", this fact actually drives sales for us.  We love the fact that our members are educated about what they are shopping for because they get what they want at the best value and that is part of our creed.  Our members know that we are committed to bringing great merchandise at the best pricing... It adds value to the membership and that is extremely important to us.  Our goal is to offer the best price and we monitor every channel out there that competes for a share of our members wallet.

As for me, I find plenty of items to purchase from Amazon that are not available in the limited Costco sku count and can tell you the sporting goods/electronic/media retailers have all lost my business due to the pricing and convenience of Amazon.



On another subject, one MNB user wrote:

I saw the comment one of your readers made today about not having to clip digital coupons at HEB.  HEB is in the process of testing digital coupons, so I suspect there will digital clipping coming soon to his local HEB.




Regarding the charges that Anheuser-Busch may be watering down its beer, one MNB user offered:

As my son said re this current issue, Watered Down Budweiser is redundant.




We continue to get emails about JC Penney's travails. One reader wrote in:

Regarding the continuing misery that is J.C. Penney, I suspect that some of the same people who were excited to see what Ron Johnson was going to do with the flailing retailer are now quick to point fingers and criticize his every move.

But there is another story here, which is that business folk place far, far too much emphasis on people (i.e. supposed "great leaders") when the reality is that these institutions are larger than life.

The idea that Ron Johnson should be credited with the success of the Apple retail stores is as ridiculous as the proposition that he could "fix" J.C. Penney. There were hundreds of people that engineered the Apple retail format, just as there were thousands that stood by the wayside for decades as J.C. Penney slid into irrelevance. Ron Johnson may be the CEO, but at the end of the day he's just a dude. Yes, organizations require a leader, but the reality is that the "leader" never wields the power that the business literature believes he or she does. These things are far more complex. As a colleague of mine who works at Amazon is fond of pointing out, "those who attribute all of Amazon's successful maneuvers to Bezos obviously haven't worked at Amazon."
 
Nonetheless, I'm always happy to be proven wrong. After he strikes out at Penney, perhaps he can move on to Kmart to revive his career and prove the "great leader" theory of business, wherein we can see his book displayed at the airport bookstores--which seems to be the only place any of us find ourselves shopping for actual printed books anymore...

I disagree with you on this, in the sense that I believe that great leaders absolutely can make a difference when they realize that the sun does not rise and set on their corner offices. They know that front line personnel make their success possible ... and they lead, as opposed to just managing. They have a vision, they communicate a narrative to employees, and they nurture the organization to pursue that vision together.

From another reader:

There is no question that JC Penny’s is and was not doing well and something had to be done. There is no question that Ron Johnson allowed his marketing team to get ahead of his merchandising plan. Ron Johnson should have taken a bit more time to study his chain, study what stores should be kept, and which ones should have been closed. That his HR team needed to do a LOT better job of working with and thru employees that were unhappy and others that need to go. But this didn’t happen and Johnson is paying the price more ways than one.  Yes, sales are down, for many reasons. But the stores have been cleaned up, price points sharpen and quality and morale much better. A lot of make downs on date appeal has been taken and a new EDLP policy was rolled out ... Johnson needs to be give credit for cleaning up the stores, trying to look forward to what future generations want, to improve in stock, check outs, real time inventory, etc.

What Johnson needs is foot traffic and retail excitement to bring back the customers who his ex marketing team brought in, a bit too early. What Johnson really needs is time and if I may suggest staying off CNBC and letting his new management team show what their doing ... Will Johnson make it? I don’t think so as there is too much negative feeling and movement out there for him to fail, and that’s a shame for retail.




Regarding Price Chopper's battle with the NY State Attorney General, MNB user Glenn Cantor wrote:

Price Chopper is a New York-based and owned retail chain that contributes much to the New York state economy.  Their stores are well-maintained and liked by their customers.  While consumer issues should be addressed, I would think that the New York state government would want to quietly correct issues without bringing negative public attention to such a valuable asset to New York.




MNB user Lane Ware had some thoughts about former Groupon CEO Andrew Mason:

Like you, I am impressed with Mason's email and for the very reasons you list.

What I think may be missing in this discussion is the acknowledgement that starting a company and growing an existing company are two different skill sets. Mason obviously did a great job at starting up Groupon, but is not the right person to help take it to the next step in its evolution -- and that's okay. I work for a very small company and entrepreneurs are my heroes. And entrepreneurs with a sense of style (I too had to look up Battletoads) are my super heroes. I'd rather work side-by-side with a start-up maven then be stand-along sidekick to traditional CEO any day.

Agreed.




And, this report from the e-commerce field:

I was in need of some AP test prep books for my daughter. Went online to B&N to order them, got my total, then decided to just have them prepped for pick-up at the nearby store to my house.

Lo-and-behold, the price went from $40 to $70! When I called the store to see if they would price match, I was told no. Drove to the store, asked for the manager, who said (and I quote) "if we price matched to our on-line pricing, we'd go out of business!". She told me their on-line pricing was to combat Amazon, and they couldn't possibly match that in-store. After she walked away, the clerk leaned over and said, "You know, you can ask for a gift receipt, go home and order them on-line, and just return those copies with your gift receipt when you get them....". What?!

Needless to say, I ordered them from Amazon, and will do just that! (And Barnes & Noble wonders why their sales are poor?!).

No wonder here.