business news in context, analysis with attitude

Published on: August 6, 2013

by Kevin Coupe

Jeff Bezos, the owner and founder of Amazon.com who has helped turn e-commerce into an everyday factor in American life, yesterday agreed to acquire the Washington Post and numerous other media properties from the Graham family, which has owned the paper for some eight decades, for $250 million.

The purchase came just a couple of days after the New York Times Company said that it will sell the Boston Globe and other New England media businesses to John W. Henry, principal owner of the Boston Red Sox, for $70 million. The Times bought the Globe in 1993 for $1.1 billion.

Bezos reportedly is purchasing the Post on his own, and the paper will not be part of Amazon.com.

In a letter to staffers, Bezos promised not to tinker with the paper's core values, though he acknowledged the need to "invent" and "experiment" as the paper is synched with the demands of a digital age.

"The values of The Post do not need changing," he wrote. "The paper’s duty will remain to its readers and not to the private interests of its owners. We will continue to follow the truth wherever it leads, and we’ll work hard not to make mistakes. When we do, we will own up to them quickly and completely."

He continued: ""There will of course be change at The Post over the coming years. That’s essential and would have happened with or without new ownership. The Internet is transforming almost every element of the news business: shortening news cycles, eroding long-reliable revenue sources, and enabling new kinds of competition, some of which bear little or no news-gathering costs. There is no map, and charting a path ahead will not be easy. We will need to invent, which means we will need to experiment."

The unexpected announcement was said to send shock waves through the paper and the media world in general. Bob Woodward, perhaps the most famous journalist at the Post, told Politico in an email that his "overall thought is that this a very good outcome for the Post.  Bezos has the money, patience and potential vision to make this work. He is an original who has changed commerce. Gutsy call by Don Graham in the larger interests of the paper and its survival.  It is all about money.  Once the ad and circulation revenue sunk, they had to do something.  So I am optimistic for the moment."

Optimistic for the moment.

That's probably the default position for many in the newsroom, and for the many readers who depend on the Post each day for their news and analysis. But the harsh reality is that over the past decade, the Post has been hemorrhaging money and losing subscribers and advertisers. or maybe it has been losing money and hemorrhaging subscribers and advertisers. This has happened because of the disruptive impact of technology and non-traditional competition, and because the Post, like many newspapers, has found it difficult to come up with ways to remain relevant in a 21st century media environment.

Such a scenario is not just limited to the media business. Virtually every industry, and the icons that dominate those industries, are vulnerable to such influences.

The good news for the Post, I think, is that Jeff Bezos is a guy who specializes in disruption. He embraces change. Encourages it. Part of the ongoing strategic approach at Amazon is forcing all executives to rethink their businesses, to figure out how to put themselves out of business, and then turn those insights into new businesses and strategic directions. That is a mentality that most newspapers have sorely lacked.

In addition, Bezos is a guy who has demonstrated a willingness to lose money in the short-term while developing a long-term strategy. The metaphor I like to use is that he plays chess while many of his competitors play checkers.

Finally, while Bezos clearly is an unsentimental executive - once it has been demonstrated that a business has no future, he is perfectly willing to dump it - he also is a person of eclectic interests. How else to explain the fact that he has spent a significant amount of money to recover from the ocean floor the Apollo rocket engines that launched the first men to the moon?

But the interest that I find most fascinating is his involvement with something called The 10,000 Year Clock, which currently is being built in the mountains of West Texas on property owned by Bezos. On the website, it says that "building something to last 10,000 years requires both a large dose of optimism and a lot of knowledge. There’s a huge geek-out factor in the Clock because the engineering challenges are formidable. What do you build with that won’t corrode in 100 centuries? How do you keep it accurate when no one is around?" (You can read all about it here.)

That sounds like a pretty good list of attributes for someone in the media business, or any business for that matter. Optimism. Knowledge. The willingness to address and embrace challenges. The desire to create something sustainable.

I hope that what Bezos does at the Washington Post is an Eye-Opener. I like the odds.

Published on: August 6, 2013

by Michael Sansolo

It’s been widely said that the best lessons come from defeat—in life, sports or business. With that in mind, the New York Times this week provides a billion good lessons in one shot.

Let me preface this with two points: first, in hindsight we are all geniuses. Keep that in mind as your read about what happened to the Times because the newspaper’s tale of business woe is one we can only laugh at in hindsight. And second a personal note: I’m a huge fan of the Great Grey Lady of journalism. If I had one career goal that never came through it was to work at the Times. Luckily, I get to write for MNB.

As Kevin reported here yesterday, the Times announced that it is was selling the Boston Globe and its related New England media properties to the owner of the Boston Red Sox for $70 million. That may be a tidy sum, but it also represents a staggering business failure because in 1993 the Times purchased the Globe for $1.1 billion. (That’s Billion, with a B.)

In other words, in 20 years the Times managed to lose more than 90% of its investment in the Boston newspapers. Not surprisingly, we can find a lot of business parallels to consider in this.

First, the pace of change today is like nothing we have ever seen. The Times is widely considered America’s best newspaper. It has won the most Pulitzer Prizes by far and the reporting on a wide range of subjects is wonderful. (Anyone doubting how fast that change is taking place need only consider Monday’s startling news that Amazon’s Jeff Bezos bought the Washington Post, another pillar of American journalism. Clearly, more change is to come…and quickly.)

Likewise, the paper has a pretty solid business model. Over the course of the past century newspapers endured the explosive growth of radio, television and then cable television. Throughout the 1900s countless newspapers closed, yet the Times kept growing. In the early 1990s its circulation hit record highs of over one million copies sold every day and more on Sunday.

Yet with all that brainpower, the Times couldn’t see how the world was about to change. Just 20 years ago no one - clearly not even the nation’s premier newspaper - could have predicted the explosive power of the Internet and the impact it would have on how America consumes news. Subscriptions are down across the board, countless newspapers have ceased operations and once proud and profitable publications like the Globe, are now shadows of their former selves.

It’s a stark reminder to all of us to recognize the volatility of the times and to understand that even the most solid business model can be turned upside down by the new forces of business. Plus it’s a reminder that what we know about the past can be rendered meaningless like never before.

But there’s one last lesson in this story and that’s in the willingness to move on. Sure, the Times took a big financial hit and it’s very likely that a management bloodbath would have followed if the paper wasn’t so strongly controlled by a single family. Yet it is still admirable to see how this great American institution is trying to find a way to make its business model relevant for the future.

Over the past few years, the Times has been at the forefront of building a new business model for newspapers by hunting for a way to monetize online readership. The newspaper has approximately 650,000 subscribers for its digital subscriptions and revenue tops $110 million annually. Needless to say, other publications are now trying the same method.

So yes, the best lessons may come from losing, but sometimes the better lessons come from those who rebound after a loss.

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: August 6, 2013

CNBC reports that the US Securities and Exchange Commission (SEC) is preparing to begin enforcement of a law passed by the US Congress three years ago, requiring public companies "to calculate how much all their employees get paid, figure out the median, then compare it to the CEO's pay package.

Some believe that such information will train a needed spotlight on pay disparity in publicly owned corporations, while critics say that it is useless information because there is no real metric for what is appropriate.

Published on: August 6, 2013

The Chicago Tribune reports on a new study from Market Track saying that "nearly eight in 10 shoppers surveyed have 'showroomed' (78 percent) and 'webroomed' (76 percent) in the past 12 months ... Showrooming takes place when a shopper uses his or her mobile device to check prices and do research online for cheaper merchandise while shopping inside a store. Webrooming takes place when a shopper researches a product online but decides to buy it right away in a store."

Published on: August 6, 2013

Bloomberg reports that both China and Russia have stopped importing some milk powder from New Zealand's Fonterra Cooperative Group - a company described as accounting "for about a third of the global trade in dairy products" - after Fonterra officials warned that "three batches of the product made last year may contain bacteria that can cause a rare illness called botulism."

According to the story, "Russia temporarily suspended purchases of all New Zealand dairy products, Trade Minister Tim Groser said today at a press conference in Wellington. China stopped imports of whey protein and a dairy base powder from Fonterra used in infant formula." It is believed that there could be a domino effect, with the food safety issue affecting exports to countries that include Australia, Thailand, Malaysia, Vietnam and Saudi Arabia.

Further details from the story: "The potentially contaminated whey protein was manufactured at one New Zealand plant in May 2012 and sold to eight Fonterra customers, the company said. It is an ingredient in products ranging from baby formula to sports drinks ... About 17 tons of the contaminated protein was used by customers in Australia and New Zealand to make about 2,100 tons of infant formula, Fonterra said today on a call. The rest was used by other customers including Coca-Cola Co. in other products.

"There have been no reports of any illness linked to consumption of the affected products, Fonterra said."

Published on: August 6, 2013

Bloomberg has a piece about C&S Wholesale Grocers Chairman Richard B. Cohen, described as "one of the 100 richest people in the world and the second-wealthiest man in New England," who has "transformed C&S into the world’s largest grocery wholesaler since taking the helm of the business in 1989."

While the piece acknowledges that Cohen likes to stay under the radar and has not given an interview in a decade, he has "managed to make money in an industry bedeviled by small profit margins and mismanagement by focusing on efficiency and paying his workers extra to avoid mistakes."

The story notes that C&S "had sales of $21.7 billion in 2012, distributing more than 95,000 products to 4,000 supermarkets from Maine to Hawaii. Cohen is the business’ sole owner ... He has a net worth of $11.2 billion, according to the Bloomberg index, and has never appeared on an international wealth ranking -- a status one associate said suits him just fine."

“I’m not sure I’ve met anyone as smart, analytic and quantitatively driven as Rick,” says Thomas DeLong, a Harvard Business School professor who consults with C&S. “Many CEOs have a need to prove they’re the smartest guy in the room. Rick is not like that.”

You can read the entire profile here.

Bloomberg also has a story about Bob Piccinini, the 71-year-old majority owner of Save-Mart, a billionaire who "has expanded Save Mart by exploiting local zoning laws to thwart bigger competitors and acquiring hundreds of low-performing stores from adversaries." Described as a guy "with little patience for the details of merchandising" and "little interest in the day-to-day intricacies of retailing and reinvesting in his supermarkets," but with "a natural talent for numbers and finances."

You can read this profile here.

Published on: August 6, 2013

Bloomberg has a piece about Blue Moon, the beer brand created by MillerCoors, which is being attacked by craft beer aficionados who say that its corporate parentage means that it is not really a craft beer ... even though it generally is listed in that category, and has about a 15 percent market share in the craft beer segment.

"After years of quietly building its brand in the shadow of MillerCoors, Blue Moon is fighting back against the naysayers," Bloomberg writes. "It's adding more artisanal brews, including a wine hybrid. Marketing emphasizes the beer's provenance and Belgian-trained brewmaster. Blue Moon is even taking credit for helping to popularize craft ... Blue Moon's decision to confront its critics is a tactical necessity. The brand is the centerpiece of MillerCoors' Tenth & Blake Beer Co., created to capitalize on the rapid growth of craft and import brews and offset slowing sales of light beers."

"We should be proud to make beers that grow and are popular — that's the American way," says MillerCoors CEO Tom Long. "Being small and unpopular, what's the utility in that?"

Published on: August 6, 2013

Reuters reports that "the world's first laboratory-grown beef burger was flipped out of a petri dish and into a frying pan on Monday, with food tasters declaring it tasted 'close to meat' ... Resembling a standard circular-shaped red meat patty, it was created by knitting together 20,000 strands of laboratory-grown protein, combined with other ingredients normally used in burgers, such as salt, breadcrumbs and egg powder. Red beet juice and saffron were added to give it colour."

The cost of the burger: about $332,000 (US).

While food critics were apparently "muted" in their praise of the burger's taste, the aim of the project is "to show the world that in the future meat will not necessarily have to come from the environmentally and economically costly rearing and slaughtering of millions of animals."

While it is believed that the project may be scalable to the point that it could provide burgers to people around the world, it also is expected that it could take 20 years to reach that point.

The World Health Organization (WHO) has projected that meat production is expected to be outstripped by meat demand over the next decade, which has led scientists to seek alternatives to traditional beef production.

Published on: August 6, 2013

The Cincinnati Business Courier reports that when Kroger's bid to acquire Harris Teeter for more than $2.4 billion was accepted, there were 18 other companies that asked for and received information about Harris Teeter's competitive and financial condition. There apparently was just one other bid for the company.

According to the story, "In May and June 2012, two private equity firms made visits with Harris Teeter officials, which led to Harris Teeter retaining J.P. Morgan in November 2012 to advise it about a possible sale.

"In late 2012, J.P. Morgan and Harris Teeter made a list of companies that may be interested in an acquisition and sent information to at least 18 companies besides Kroger.
Kroger made its first proposal for acquisition in April with a purchase price between $42 and $45 a share. Another party with a portfolio of supermarkets also made an offer, which led to months of negotiations between Harris Teeter, Kroger and the other party.

"Kroger’s bid was eventually increased to $49.38 per share, or more than $2.4 billion, on July 7 contingent to an agreement the next day. Harris Teeter officials agreed to the deal on July 8."

Published on: August 6, 2013

• JC Penney announced that it has hired Debra Berman, Kraft Foods' vice president for marketing strategy, to be its new senior vice president of marketing.


• The National Association of Convenience Stores (NACS) announced that Stephanie Salvador has joined the organization as government relations coordinator. She is a former staffer with Sen. Jeff Bingaman (D-New Mexico), Senate Majority Leader Harry Reid (D-Nevada), and former Sen. Herb Kohl (D-Wisconsin).

Published on: August 6, 2013

...will return.

Published on: August 6, 2013

Major League Baseball yesterday announced 50-game suspensions for a dozen players related to violations of of the sport's drug policy, specifically as it relates to performance enhancing drugs provided by Florida's Biogenesis clinic.

None of the suspensions are being appealed, and the players will begin serving them immediately. They will keep the players off the field through the end of the regular season, though they could be available if their teams make the postseason.

The players involved are: Philadelphia Phillies pitcher Antonio Bastardo; San Diego Padres shortstop Everth Cabrera; New York Yankees catcher Francisco Cervelli; Texas Rangers outfielder Nelson Cruz; Padres pitcher Fautino De Los Santos, (currently playing in Double-A ball); Houston Astros pitcher Sergio Escalona (currently playing in Double-A ball); Yankees outfielder Fernando Martinez, (currently playing in Triple-A ball); Seattle Mariners catcher Jesus Montero (currently playing in Triple-A ball); free agent pitcher Jordan Norberto; Detroit Tigers shortstop Jhonny Peralta; New York Mets outfielder Cesar Puello (currently playing in Double-A ball); and Mets infielder/outfielder Jordany Valdespin (currently playing in Triple-A ball).

At the same time, MLB suspended New York Yankees third baseman Alex Rodriguez for 211 games for violating league policy on the use of performance enhancing drugs and for conspiring to obstruct the league's investigation. Rodriguez is appealing the suspension, and can play until the appeal is heard, probably during the off-season; if the suspension is upheld, it will cost Rodriguez more than $30 million in salary.