business news in context, analysis with attitude

Published on: April 23, 2013

by Michael Sansolo

Our news has been full lately with some spectacular failure, whether it was the debacle at JC Penney or Fresh and Easy’s failure to launch. So against that backdrop I’d like to offer us a wonderful quote on the challenge of any new endeavor that came from the late, great television series "The West Wing." It involved an argument about a new missile defense system that continually managed to disappoint, and chief of staff Leo McGarry said the following:

“There's been a time in the evolution of everything that works when it didn't work."

In short, the road to success is paved with lots of failure and lots of guts. Once in my career, I witnessed such an event on a grand scale and I think the story speaks to the power of vision and leadership.

It happened in 1982, when I was an overnight editor for the suburban New York newspapers owned by the Gannett Company. Gannett was feverishly preparing for the launch of USA Today, a newspaper that promised to be unlike anything we had ever seen. It would have shorter stories, blazing colors and a weather map of the US that would make everyone’s eyes pop out.

While it was only 31 years ago, technology was very different and the thought of beaming newspaper pages off satellites and down to printing presses in offices like mine was staggering. I was there the night they tried and the result was, to put it mildly, a mess.

What makes color work in newspapers and other printed material is the alignment of four colors that combine to produce every other color. When it works, it’s incredible. I got to see what happened when it didn’t. It was so bad, in fact, that security guards checked the overnight crew to ensure we weren’t smuggling a copy of the weather map with us.

As a lowly copy editor on the overnight shift, I couldn’t possibly understand the bigger picture, but a guy named Al Neuharth did. He was the chairman of our company and save for one late night when he and the board of directors stunningly appeared in our newsroom, he was someone with whom I had no personal contact. All I knew was what I read. Honestly, I wasn’t sure I liked his ideas.

Neuharth had a vision of a new way of communicating the news. He rightly understood that our collective national attention span was growing shorter and that those long stories that people like me wrote were simply outdated. He understood that television news had changed the rules and that newspapers had to keep up or die.

Considering the ascendancy of 140-character Tweets as a way to share information, I think it’s fair to say that Neuharth was onto something. It’s hard to know if newspapers will continue to survive, yet it’s also possible that market forces will erode the industry to local newspapers and a few great national brands like the New York Times, Wall Street Journal and Washington Post. Oh yes, and USA Today.

Because the simple truth is that Neuharth’s vision filled a void no one even knew existed. It’s why USA Today is such a welcome read on the road. It’s a quick chance to catch up, check out the state-by-state review to make sure things are okay at home, read the sports…and check out that fabulous weather map.

I actually had a story in one of the first issues of USA Today that involved the bombing of an IBM office related to a protest against South Africa’s racist Apartheid policies. I was given 200 words to explain the whole issue and thought that was inane. But that too was Neuharth’s vision: get to the point and be done.

Just as it was his vision to debut the paper nationally with a lead story about the death of Grace Kelly on the same day most news stations focused on a key assassination in war torn Lebanon. Six months later (forget about 31 years) no one could recall that killing in Beirut, but Grace Kelly is still remembered. Neuharth saw that one too.

Al Neuharth died last weekend, leaving behind a world of journalism he changed forever. He probably never remembered meeting me and would have cared less about my review of his vision. But I remember him, his vision and the weather map that looked like spaghetti spilled on a page.

I hope that given the opportunity I’d have his guts and maybe even a little of his vision. And the willingness to look at really messed up weather pages and see something that someday would work.


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: April 23, 2013

by Kevin Coupe

We've focused a lot in recent months on the strategic decision by Netflix to position itself as a content provider and competitor to broadcast networks and the likes of HBO, rather than just as a content delivery system competitive with services like Redbox and iTunes.

This decision led Netflix to begin producing its own original series, such as the much-praised "House of Cards," and to place decisions about how to consume the series firmly in the hands of customers by making all 13 episodes of the first season available for online streaming all at the same time. (You could watch one a wee, one a day, or binge on all 13 episodes in one sitting ... it was up to you.)

What this did was allow Netflix to create for itself both a differential advantage and a kind of private label product - both of which were designed to give it a competitive edge.

It is an approach that is having repercussions elsewhere in that industry.

For example, Amazon.com said yesterday that its decision to produce a series of pilot programs for original children's programs and situation comedies, and then allow customers to watch them, rate them, and decide which ones should be turned into series, appears to have been successful - the pilots were the most watched TV shows available for streaming on the Amazon Instant Videos service over the weekend, with thousands of reviews posted by viewers. (Eighty percent of those reviews, apparently, were positive.)

Netflix itself is feeling pretty good about the situation. Here's how Variety described yesterday's announcement:

"Netflix reported 29.17 million domestic subscribers in the first quarter of 2013, surpassing HBO for the first time. Netflix, which ended 2012 with 27.15 million domestic subs, added just over 2 million subs ..."

And reportedly fewer than 8,000 people subscribed to Netflix to watch "House of Cards" and then discontinued their subscriptions.

The lesson here, it seems to me, is how important it is not to accept the limitations or definitions that may be forced on us by markets or analysts or even customers. It wasn't that long ago that Netflix CEO Reed Hastings was being lambasted for some admittedly poor strategic pricing decisions, but he moved past those, fixed his mistakes, and now look at the company.

It's been an Eye-Opener.

Published on: April 23, 2013

In Minnesota, the Star Tribune reports that "with the recent retooling of Cub’s corporate parent, Eden Prairie-based Supervalu Inc.," Cub Foods president Brian Audette and his co-workers "have reason for optimism. Struggling Supervalu shed its four largest — and in some cases, most troublesome — conventional chains, leaving five smaller ones. The firm can focus more resources on Cub, now its largest traditional chain."

However, analysts tell the paper that "the fundamental problem facing Stillwater-based Cub, its local rival Rainbow Foods and most conventional grocers nationwide has not changed. They’re stuck in the middle.

"Low-price competitors are only growing, as Wal-Mart builds new supercenters and retailers from dollar stores to drugstores roll out more grocery offerings. On the market’s higher end — where top-flight produce and meat offerings matter most — traditional Twin Cities heavyweights Lunds and Byerly’s have held their own, while Whole Foods’ local presence is growing."

According to the story, Audette says that "Cub has undergone no broad price reduction like that at Supervalu’s former Jewel chain in Chicago — nor does he expect one. 'We know how important price is, but it’s not just price,' Audette said. 'We are about value and delivering that total grocery experience.'

"That experience includes a broad selection of fresh produce and meats, myriad prepared deli foods and baked goods, in-store pharmacies and, in many locations, adjacent liquor stores, he said."

Published on: April 23, 2013

• Bloomberg Business Week reports that Walmart president/CEO Mike Duke got a 14 percent raise in pay to $20.7 million, with future bonuses being tied to the retailer's efforts in the area of compliance controls.

According to the story, "Starting this fiscal year, the company has added a 'compliance component' to executive bonus evaluations. During the year, the senior leadership team will evaluate compliance policies, processes and controls and prepare a timetable for implementing improvements that will 'address key components of a corporate compliance program'."


• The Financial Times reports that members of the Walmart board of directors who are working on the investigation into alleged bribery of Mexican officials by company executives there are seeing their cash compensation doubled to at least $120,000 "because of the extra work."

According to the story, "The world’s largest retailer by sales said four members of its audit committee were paid an extra $60,000 last year on top of their $60,000 annual retainers and equity awards worth $175,000 ... Walmart said the extra payments were justified by a 'significant increase' in the workload of the audit committee, which is conducting an internal probe into alleged violations of US anti-bribery law."

In addition to investigations being conducted by the US Securities and Exchange Commission (SEC), the US Department of Justice, and members of the US Congress, Walmart also has been been running an internal probe into the charges, which were first made by the New York Times. And Walmart has said that its investigation has gone beyond Mexico to its operations in Brazil, China and India.

Published on: April 23, 2013

The New York Times reports this morning on how "hotels around the world are using technology in new ways, with the goal of speeding up or personalizing more services for guests," essentially using technology "as a substitute for human hospitality."

An excerpt:

"Instead of the staff at the front desk offering advice on where to go for dinner, guests may be lent an iPad loaded with maps and suggestions for local restaurants and sightseeing. A hand-held device in the room might control the television, blinds and temperature, replacing the role of the bellman who would describe how the features in the room work when he dropped off a guest’s luggage ... Hotels are also using technology to save money and manage inventory. Workers used to have to count sheets, towels, robes and table linens by hand on the way out of the hotel to the laundry and on the way back in, to try to avoid theft. Some hotels now stitch in small radio frequency ID tags, which transmit radio waves, so that when a cart of laundry passes by a sensor, the number of items inside is displayed. The method saves time in counting items and has decreased theft."

The use of technology in the hospitality business isn;t always analogous to various forms of retail, but the article remains instructive ... and you can read it here.

Published on: April 23, 2013

Reuters reports that Walmart-owned Asda Group in the UK is saying that it plans to invest the equivalent of $1 billion (US) this year "in its online operations, new and existing stores and its supply chain, helping to create 2,500 new jobs ... Asda said the focus of its investment has shifted to accelerating its multichannel business, with stores supporting internet and smartphone channels."

Published on: April 23, 2013

• The Wall Street Journal reports that Belgian retailer Delhaize Group "posted a rise in operating profit two weeks ahead of schedule on Monday, suggesting that months of heavy restructuring and store makeovers in the U.S. are finally paying off.

"Operating profit, stripping out restructuring charges, store closures and asset sales, rose 14% to €214 million ($279 million) for the three months ended March 31, compared with a year earlier, while revenue rose 2.1% to €5.5 billion at constant exchange rates. Both figures beat analysts' expectations."


• John Pistole, head of the Transportation Security Administration (TSA), announced yesterday that he has decided to delay a change in policy that would have allowed air travelers to bring small pocket knives onto airplanes. The change was supposed to take effect on Thursday.

Opponents of the policy change said that Pistole was reacting to an outpouring of objections that came after it originally was announced. But Pistole said that he just needed more time to consider the objections and figure out how to best integrate the planned changes into current rules.

Published on: April 23, 2013

• Richie Havens, who electrified Woodstock with a two-and-a-half hour opening act while organizers struggled to get other, better-known performers to the stage, died yesterday of a heart attack. He was 72.

Published on: April 23, 2013

Got the following email about P&G's decision to delay payments to its suppliers:

Kevin,  the audiences’ that gets hurt the most with lengthening in invoice payments are the service providers, particularly the small, entrepreneurial types. These 1-3 person companies whom devote a large percentage of their time to complete a project and write only one invoice  / month to the CPG’s can get into some cash flow issues.  It’s easy to say “well, raise your price” and sometimes that can be done, particularly if you’re a new or prospective supplier. If you are a supplier already performing services, this is less likely to happen.

As one who fits the small 1-3 person service provider category, I can tell you it’s difficult to get the likes of P&G, GSK, Reckitt-Benckiser, Mondelez and others who have already moved to use longer payables, to change their “global terms” because it often involves exception sign-off from CFO. Shockingly, no one wants to go to their CFO for that type of exception because it often involves more work (or credibility issues) for that individual personally. Advocating for faster payment terms is “unpaid work” for small service provider companies.  (Ironic in all of this is that part of the work that small service companies perform was work that these CPG’s used to have full-time headcount assigned to perform not that long ago.)
 
What’s even worse, however, are that some major CPG’s that are now charging an annual fee for “prompt invoice payment”.  Whomever in your community said that these CPG’s are learning from the worst-practice retailers is absolutely correct.
 
What the CPG’s whom have made this change have forgotten is that “one size doesn’t fit all”. The more progressive thinkers understand that suppliers who deliver commodities several times a month have different cashflow needs than those whom devote a significant percentage of their month to deliver a single CPG’s project - and they will go to bat for small service companies to be paid monthly if the story makes sense.

I feel your pain. I fall into the category of 1-3 person company, too.




Regarding the possibility that Amazon could get into the bricks-and-mortar store business, an idea about which I expressed considerable skepticism, MNB user Ken Wagar wrote:

I surely understand your point here and agree with it if we decide to think about retail in traditional ways but THAT may be a serious mistake when one speaks of Amazon and Bezos. It could be a transformational type of store unlike anything we have experienced and a new iteration of retail as yet unseen. While I wouldn’t bet the farm it is going to happen, I also wouldn’t bet the farm that Bezos can’t make a significant impact in a new type of fixed position retail emporium. I find it unlike KC to be closed minded to the possibilities.

I'm trying not to be closed-minded, and I concede, cheerfully, that Jeff bezos is a lot smarter about such things than I am.

But I don't think it makes me resistant to change when I point out that Amazon's advantages have all been tied to its ability to be nimble, which is itself tied to an operation where legacy issues don;t exist and where disruption is part of the culture. That's simply harder to do, I believe, in a bricks-and-mortar environment. Not impossible, but harder.




We wrote yesterday about Walmart's new "Made in America" initiatives, which prompted one MNB user to write:

Remember when Mr. Sam was alive and in their ads, he was touting that Walmart was proud to feature made in America products. Somehow after Mr. Sam was not here, Walmart made a conscious choice to have most of their goods made in China and other countries. The Walmart board made this choice and what they got in return was an entry for them to open Walmart stores in the world’s most populous country. What did China get in return? They got the biggest retailers commitment to have the goods they wanted to sell in the USA to be made in China.  Every other Big Box retailer in the USA followed suit to remain competitive with Walmart costing and pricing. I wonder where the American made jobs ended up?

I guess they've seen the light in Bentonville...

Published on: April 23, 2013

The National Grocers Association (NGA) this morning has released the results of a long-awaited study that it says "provides a clear picture of the key role independent grocers play at the national, state, and congressional district level."

Among the takeaways from the report:

• "20,884 stores are operated by independent supermarket companies in every congressional district of the United States."

• "Independent grocers are responsible for $129.5 billion in annual sales."

• "Independent grocers employ 944,200 people, and pay over $30 billion in wages each year."

• "An additional 569,380 jobs are created through re-spending of those wages or companies which support the supermarket industry."

• "Independent supermarkets and their employees contribute $13.25 billion in taxes to the federal government, which is 1.73% of the total taxes collected at the federal level."

• "An additional $13.98 billion in taxes are paid by the industry at the state and local level."

• "In total, independent grocers account for close to 1% of the total US economy, as determined by GDP."

"These results are astounding, but not surprising," said Joseph Sheridan, president/COO of Wakefern Food Corporation and current chairman of NGA, in a prepared statement. "Independents are the true 'entrepreneurs' of the grocery industry. But beyond that we strive to enhance the communities that we serve, and seeing the numbers in black and white shows just how impactful those efforts are."

The research was conducted by John Dunham and Associates and funded by Mondelez International, The Shelby Report, NGA's Grocers Research & Education Foundation, and Nielsen.

NGA said it will use the study "to spread the message to suppliers, partners in the industry, and on Capitol Hill that independent grocers are an important part of our nation's economy and that their issues should be heard."