business news in context, analysis with attitude

Published on: March 19, 2013

by Michael Sansolo

Not every discussion on business challenges today needs to focus on emerging technologies, social media or new demographics. Sometimes the biggest challenges come from the world’s oldest issues: family dynamics and mortality.

The reality is that no titan of business, no matter how creative, successful or wealthy gets to run his or her company forever. The follow-up reality is that somehow many of those same businesses go on and sometimes do even better. As Charles de Gaulle, the legendary French leader, said long ago, “The graveyards are full of indispensable men.”

Yet for some companies, that legacy never occurs and frequently it’s because no one thought the unthinkable: what happens when I'm gone.

This is hardly an issue for family businesses alone. Even publicly traded companies have struggled with succession issues ranging from chaos to palace coups to destructive infighting. But the story somehow takes on a sadder tone when the battle is within a family and the casualties run much deeper.

The Washington Post magazine ran a fascinating story about one such intra-family squabble this weekend, with an interesting twist. The family business being threatened in this case is an incredible natural wonder, Luray Caverns. Located about two hours from Washington, DC, the caverns are an awesome place to visit. I hardly know a thing about stalagmites or spelunking and I rarely opt for any activity that leaves me deep under the ground, but Luray is a joy.

However, there isn’t so much joy for the family that owns and operates the cavern. The Post story detailed the long and tortured path of disharmony and litigation tearing apart the aptly named Graves family. The dispute sullied the final years of their parents’ lives and now tears the couple’s six children into two distinct camps.

Needless to say, the business is threatened too. Thanks to the nature of this particular family business - the third most visited caverns in the US and the most visited in the east - the casualties of the battle include the surrounding town that feeds off the tourist traffic.

The Luray story reads as a cautionary tale of business transition because the Graves family actually started by doing things right. The family succession seemed to be proceeding well until the decisions of the new generation became more questionable, more divisive and eventually toxic. For that reason, it’s the type of story that many business leaders need read and discuss with key staff to determine how their own plans are structured. Perhaps the Luray story can help countless other businesses have what might be the single most difficult conversation they might ever have.

We’re fond here at MorningNewsBeat.com of using stories from movies. (You might have noticed this.) When it comes to succession planning, my favorite story comes from the movie many consider the apex of all business lessons, The Godfather.

A few years ago, I was speaking to a group of independent operators about succession planning, which many in the group had managed to ignore. So I mentioned The Godfather. The famously insightful Vito Corleone sees what happened when he was seriously wounded and his hot-tempered eldest son takes over the “family business.” Many people die, including the son.

Corleone learns his lesson and taps Michael, his youngest son, to take over. In the process he skips the obviously less skilled and intelligent, yet older son, Fredo. (Okay, many people still die, but it’s a book and movie about gangsters.)

After the speech, one very concerned retailer grabbed me for a private discussion. The metaphor, he said, made him think about his business and his two sons. The older, he said, was his Fredo; nice and committed, but simply not cut out to lead. The younger was his Michael.

Suddenly he realized the future of his family business required an extremely uncomfortable discussion. The same is likely true for you.


Michael Sansolo can be reached via email at msansolo@mnb.grocerywebsite.com . His book, “THE BIG PICTURE: Essential Business Lessons From The Movies,” co-authored with Kevin Coupe, is available by clicking here .

Published on: March 19, 2013

Blackhawk Network Holdings, the gift card unit of Safeway Inc., said yesterday that it has filed for an initial public offering (IPO) that could raise as much as $200 million for the company.

Blackhawk manufactures and distributes the retail gift, debit and telephone cards sold in many of the nation's stores; it also runs the payment and gift card infrastructures for Safeway and other retailers.

Reuters reports that "Safeway currently owns about 96 percent of Blackhawk and will continue to hold a significant stake in the unit after the IPO, according to the filing ... The company, founded in 2001 as a division of Safeway, reported adjusted net income of $50.3 million on revenue of $949 million in 2012."

Published on: March 19, 2013

The New York Times reports this morning that NYC Mayor Michael Bloomberg, fresh off the decision by a judge to strike down his proposed banning of jumbo sugared soft drinks as a way of addressing the city's obesity crisis, now has proposed legislation that would require the city's retailers to keep all cigarette products out of sight.

According to the Times, Bloomberg said "his bill would make New York the first city in the nation to force retailers to keep tobacco products hidden. He said they could be kept, for example, in a cabinet or a drawer, behind the counter or a curtain, but not anywhere where customers could see them.

"The campaign is intended to shield children from tobacco marketing and to keep people who have quit smoking from buying cigarettes on impulse, he said."

The story says that Bloomberg "also proposed a second bill that would raise penalties for retailers who evade tobacco taxes by selling smuggled cigarettes, prohibit them from redeeming coupons and require them to sell cheap cigars and cigarillos in packs of at least four. It would also create a minimum price of $10.50 per pack for cigarettes and little cigars, as a further disincentive to smoke.

"The bills would not stop stores from advertising that they have cigarettes for sale, or from displaying prices; they would not raise taxes; and they would not apply to tobacco stores, which cannot admit minors without their parents."

The mayor seems to have learned something from the soft drink controversy. In banning jumbo sugared soft drink sales, Bloomberg avoided sending the bill to the City Council and instead had his Board of Health pass the regulations, a move that the judge in the case said was inappropriate. The new tobacco rules will go to the City Council for consideration.

However, Bloomberg's desire to focus on public health issues remains intact.

The Times writes that "the Bloomberg administration has banned smoking in almost all public spaces, including parks, plazas and beaches, as well as restaurants and bars. But the current proposal comes after some legal defeats for antismoking measures.

"In 2010, a federal judge struck down a New York City law that would have forced tobacco retailers to post gruesome images of health damage caused by smoking, finding that only the federal government had the authority to regulate cigarette warnings and advertisements.

"A federal regulation requiring similar graphic warnings on cigarette packages and advertising was struck down by a federal appeals court for the District of Columbia last year, on the ground that it violated corporate free speech rights. The court majority found a lack of evidence that graphic warnings had reduced smoking in countries like Canada that had them. Many experts expect the issue to go to the Supreme Court."

Published on: March 19, 2013

Bloomberg Business Week has a story saying that Walmart, concerned about worker safety conditions in Bangladesh factories where a recent fire left more than 100 employees dead, giving the retailer a PR black eye, could end up moving its offshore sourcing to Cambodia or Vietnam, where workers cost more but the infrastructure appears more stable.

Published on: March 19, 2013

by Kevin Coupe

Here at MNB, we love beer. Love movies. So, we gotta love this promotional idea.

USA Today reports on a deal made by MillerCoors to tie a promotion into the new movie, The Internship, in which Owen Wilson and Vince Vaughn (who last teamed in The Wedding Crashers) play two unemployed middle aged guys who get internships at Google.

According to the story, the promotion "will offer four enthusiastic beer drinkers a two-week 'internship' with the company.

"The gig runs May 17-30, and the winning interns will hit the road (in a beer-filled bus) to do things like deliver beer to a Las Vegas beach club, taste brews at the MillerCoors headquarters, hang with a NASCAR pit crew and, of course, attend the Los Angeles premiere of The Internship."

Now, I'm not big on entering contests .... but I'm certainly going to enter this one.

(In the unlikely event I win, I may need some time off from MNB between May 17 and 30. Just FYI...)

Published on: March 19, 2013

In Minnesota, the Pioneer Press reports on the case of Erwin Lingitz, who was arrested when he left a Cub store carrying produce bags full of 1.4 pounds of deli meats he did not pay for - but that he'd scooped up from an unattended sampling table.

According to the story, Lingitz was detained by a security guard and police while attempting to leave the store; it took three people to place him in custody, where he was charged with disorderly conducting and misdemeanor shoplifting. Eventually those charges were dropped, but Lingitz says he was injured in the fracas and is now suing the store.

A Supervalu spokesman says that Lingitz "violated societal norms" in taking so many samples. Lingitz's wife tells the paper that the amount is "irrelevant because it was free anyway."

Published on: March 19, 2013

• Economic Times reports that "Walmart Stores Inc has stopped opening new stores in India, pending an anti-bribery probe into the company's operations, and has asked several employees hired a year ago for the new outlets to relocate to other parts of the country.

"Bharti Walmart, the 50:50 joint venture between Walmart and Bharti Enterprises, had planned to open seven Best Price Modern Wholesale stores (in Gujarat, Maharashtra, Andhra Pradesh, Madhya Pradesh and Tamil Nadu) between last November and March, according to an internal schedule reviewed by ET. According to persons familiar with the situation, many of the seven stores were to begin operations last year, but just weeks before the scheduled openings, the company decided to pull the plug because of the ongoing investigations, as well as tightening of procedures for obtaining licences."

Published on: March 19, 2013

• Online Media Daily reports on a study from comScore saying that "U.S. consumers spent 3.8 billion minutes streaming video advertising in February. Consumers viewed 9.9 billion video ads, last month, with Google sites (YouTube) serving an all-time high of 2.2 billion ads ... All told, video ads reached more than 50% of the total U.S. population an average of 63 times during the month. In other words, 178 million Americans watched 33 billion online content videos in February, according to comScore."

Published on: March 19, 2013

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

• Southern California-based Gelsons Markets said yesterday that it will close its Pasadena store in July, a move that will leave it with just 16 units. However, the company will soon have 17 stores, when it opens a Long Beach, California, store that is in a former supermarket space that is being remodeled.


• Sprouts Farmers Market announced that it will open its first store in Oklahoma when the doors open on a unit in Norman next Wednesday.

Sprouts now operates more than150 stores, with 15 more scheduled to open this year, and employs nearly 12,000 people.


• The Wall Street Journal reports that Starbucks has bought its first coffee farm - a 600-acre property in Costa Rica that it plans to use "to develop new coffee varieties and test methods to eradicate a fungal disease known as coffee rust that is vexing the industry."

Terms of the acquisition were not disclosed.


• The Associated Press reports that Burger King is rolling out a new menu item this week - a turkey burger that it says is "part of its limited-time offers for spring, marking the latest fast-food effort to cater to health-conscious diners."

Published on: March 19, 2013

• Published reports say that Bi-Lo has named Anthea Jones to be president of the chain, while continuing in his role as senior VP of operations.

Randall Onstead will continue as president/CEO of Bi-Lo Holdings LLC, which also owns Winn-Dixie.

Published on: March 19, 2013

Yesterday, we had a long email from an MNB user that defended the notion of an increase in the minimum wage. Now, in the interest of fairness, here is a rebuttal:

I have spent my entire career in and around the grocery business - 44 years and counting.  For more than a few years I worked for one of the country’s best national retailers, in a job that specifically dealt with labor budgets and union contracts – summarized here as “store 1 receives $2000 per week to spend on front end labor”.  If labor costs $7.25 per hour, the store gets 276 hours.  If it’s $10.00 per hour, the store gets 200 hours, meaning that 76 hours have to go away – either through across the board cuts or from “targeted workforce efficiencies” – meaning that 3-4 part-timers become no-timers.

It’s a very straightforward business proposition tied to a 1-3% profit margin.  Given that wages and benefits make up more than 1/3 of total expenses, a 39% increase in wages (not just for the bottom end of the scale, but ultimately filtering to those above as well, particularly in union operations) not only doesn’t leave any profit but could actually put a retailer instantly in the red.
 
I am not just projecting this – I HAVE SEEN IT HAPPEN more than once.

The statistics the reader included don’t lie – wages have fallen since 1972.  However, they really tell a different story than the one intended:   Overall earnings are down from 1972 to 2011 to a large degree because the nature of employment in this country has changed – the good old US of A has largely transitioned from a skilled manufacturing economy to a service economy – to some degree because our labor rates were too high compared to those in other countries, and the jobs moved away.
 
Arbitrarily raising the minimum wage won’t create spending power – it will just move it from those who lose their jobs to those who get to keep them.

And, another reader offered:

You shared some data, from an MNB user, showing weekly earnings (based on 1982-1984...source Fed Reserve Bank of St. Louis).

It might be interesting to run some other data along side...the weekly pay of our Senators and Congressional Representatives.

I wonder how their pay rates have changed over the same time span...1972 - 2011. Do you think that their pay scale trend is performing better or worse versus the data points we saw from Monday's MNB Your Views?




Also had some reactions to yesterday's piece about Walmart focusing more on "Made in the USA" products. MNB user Mark Boyer wrote:

It seems that a focus on “Made in the USA” would provide more and better jobs in the US, resulting in a more financially stable consumer base that spends money in places like Walmart and other retail outlets. This is the type of “stimulus” that provides repeatable, enduring results.

From another reader:

The question to ask here is, is this just like the” commitment” to buy local produce, which has turned out to be one sku and limited quantities? Could this be WalMart concern that sourcing in China maybe being changing, that China is looking to drive its economy internally vs. just relaying on exports. Perhaps they see the growing instability in the Mid East (India) ? Last, and I think this is big, that they don’t want to have the government point to them as one that’s not helping the US with jobs, and growth as the learned this lesson with health care.. In fact, Walmart is continuing to cut labor, increase its part time ratio (today the ratio of full to part time is 50/50 chain wide and 60/40 part to full in many stores). So hiking up the red, white and blue is the thing to do…

Another MNB user chimed in:

Am I the only one who sees the hypocrisy (or irony if we choose to be more kind) in this initiative? I remember over the past two decades how Walmart  would specify the “China Price” – the actions that effectively drove down prices and enabled lower income families to participate in the material part of the American Dream. And oh, at the same time accelerated the gutting our manufacturing base. (I know, it isn’t all Walmart, but when that much market power was wielded, our economy was irretrievably changed). And now the tide has turned and the economic factors favor domestic manufacturing. But somehow I can’t see a real rise in real wages – labor has been beaten into submission.
 
Can’t dispute the laws of economics but really has the world flipped?

And, from yet another reader:

I am a Food Broker in California.  While “Made in America” sounds great, the fact of the matter is that “Assembled in America” is a more accurate term in many cases.  Paper products, for instance, are simply “converted” here in the USA.  The pulp comes from overseas in large rolls and is simply re-rolled into consumer size packages.  We recently lost a private label bid because the source statement said “Made in China” while the competitor who won the bid sourced his product from the exact same place.
 
Almost all beef jerky comes from South America in bulk and is packaged here.  Beyond that, packaging for many products comes from China including plastic, glass, and labels.  I question what the exact parameters are for the “Made in America” logo on a product to qualify.

MNB user Mike Franklin wrote:

How about sourcing in the USA because it is good for the USA…instead of strictly self-motivated reasons?
 



I predicted yesterday that JC Penney CEO Ron Johnson won't last in the job and that he'll be out by Memorial Day. (I like what Johnson is trying to do ... I just think the deck is stacked against him.)

One MNB user responded:

I don't give Ron Johnson till Memorial Day.  I suspect they will launch the parachute by mid-April.  Their Sunday print ad featured just one unsmiling female model on almost all pages of their multi-page ad.  The unspoken message?  We sell to only one demographic here.

From another reader:

I’ve worked as a buyer for JCP, Target and Eckerd Drug which spanned a 25 year career.  I’ve observed retailers over that period and know it’s a tremendously difficult task to go from a Hi/Lo strategy (beaucoup Tabs, coupons, ROP ads) to an everyday low price strategy.  Mr. Johnson should have taken the advice of some of his operations people who wanted to test the concept prior to launching; unfortunately his stint at Apple made him an “all in” guy.  The stores are looking good and their new ad strategy publishing comparable pricing can work in the long run.  The question will be can they hang on until the strategy takes hold.  What a mess to go back to the old strategy by raising prices so that you can lower them on sale.




Finally, I wrote yesterday about a Tampa Bay Times report that Publix is testing a new nutrition and meal planning service in its Riverview, Florida, store, offering a registered dietician "on hand to help costumers make sense of food labels and plan healthy meals ... The program includes personal shopping assistance, nutrition counseling, meal planning, and group tours of the store."

I commented:

Think of this as Apple's Genius Bar, adapted to the supermarket. Great idea ... the only problem is that more companies should have been doing it years ago.

One MNB user responded:

ShopRite has been providing dietician consulting services in selected stores since 2006.  Today there are 56 Registered Dieticians covering 64 of our stores -- and our numbers are growing.  Not only do they provide nutritional consulting services, but they frequently reach out to the community (schools, senior centers, etc) to educate on healthy eating.  Just thought you should know.

And MNB user Connie Clifford wrote:

Noticed your comment regarding Publix RD program. Hannaford has had in store Registered Dietitians since 2003 ... They are now in close to 60 of our stores.


You're right ... and I was imprecise in my commentary.

What I should have said is, it is surprising that it has taken Publix so long to catch up with a smart trend that a number of retailers embraced years ago...