business news in context, analysis with attitude

Published on: May 18, 2015

by Kevin Coupe

There was an interesting piece in the Washington Post about Rick Stewart, a former CEO of a pharmaceutical company called Amarin, who has found a second and potentially more impactful life since he left his job after running then-unsuccessful trials for a drug designed to treat Huntington’s Disease.

What he seems to have discovered is a drug that could help people quit smoking, and, the story says, "researchers are excited about what could be the first new treatment for smoking cessation to emerge in years."

The story is an Eye-Opener, I think, because of the story's essential premise - that as a CEO, Stewart essentially could not or would not have seen the potential for the laburnum-derived drug because he "was too deep inside the drug industry, a place often criticized for its short-sighted focus on profits." It was only once he was on the outside - freed from the demands on a CEO - that Stewart was able to look for unusual opportunities and exploit them.

Cool piece, with some larger truths ... and you can read it here.

Published on: May 18, 2015

The Wall Street Journal reports that Target executives have informed their counterparts at a number of CPG companies - including Campbell, Kellogg's and General Mills - that it plans to decrease the promotional support it gives their products and focus more on fresh foods.

The story observes that "shoppers have long been shifting to fresh and healthy-sounding foods at the expense of canned and bagged goods in the aging center of the supermarket. But the move by Target’s new chief executive, Brian Cornell, who runs one of the 10 largest grocery businesses in the U.S., is among the starkest signals yet that the changing tastes of American consumers will leave some big brands in the lurch."

In addition, the story says, Target plans to focus more on private label products - all of which puts pressure on CPG companies to perform or face less shelf space and promotion, and possible expulsion from Target stores.

The story goes on: "Target’s verdict was a surprise blow to suppliers, which had spent much of the past decade helping the company build a grocery business. They expanded sales offices near Target’s headquarters in Minneapolis, created exclusive products for the chain and shared extensive consumer research. Target in return gave them millions of dollars in sales and a relatively upscale customer.

"Now, several suppliers are considering whether to shift the money they spend on in-store marketing like signs and displays to retailers that are willing to give them more support, people familiar with the matter said.

"Target is unapologetic. The chain feels its food aisles have lacked the distinctiveness that underpins its success in areas like apparel and home goods. Like all grocers it is strongly courting younger shoppers who favor smaller, organic and natural brands."

Published on: May 18, 2015

The Associated Press reports that Blue Bell Creameries, reeling from revelations that it knew about listeria contamination of some of its facilities for two years, which resulted in 100 illnesses, including three deaths, and the recall of all its products in the US, plans to lay off 37 percent of its workforce.

According to the story, 750 full-time and 700 part-time employees will lost their jobs.

In addition, another 1,400 employees will be furloughed, and will receive a "substantial portion" of their salaries. "Employees essential to ongoing cleanup and repair efforts will continue working but have their pay reduced, Blue Bell said. Workers at distribution centers in 10 states will also be laid off."

The story quotes Blue Bell CEO and President Paul Kruse as saying that the decision was "agonizing," saying, "At Blue Bell, our employees are part of our family, and we did everything we could to keep people on our payroll for as long as possible. At the same time, we have an obligation to do what is necessary to bring Blue Bell back and ensure its viability in the future."

Published on: May 18, 2015

Bucks Local News reports that the last remaining Genuardi's store, in Audubon, Pennsylvania, will close soon, eliminating the last vestiges of a two-dozen store regional chain that was the Wegmans of its time, with a strong fresh foods offering and high customer service levels.

"Many of course, would argue that any heirloom connection with the Genuardi’s of yesterday has been gone since 2001, when Genuardi’s Family Markets was sold to Safeway Inc.," the story says. "In recent years, each of the two dozen Pennsylvania Genuardi’s stores that Safeway acquired had been sold and converted to a Giant or a Weis or simply shuttered ... With the store lease expiring and Safeway now under the auspices of AB Acquisition, owner of Albertson’s LLC and New Albertson’s, Inc., which is controlled by an investment group led by Cerberus Capital Management, the 40 Audubon employees knew the store’s luck had finally run out."

Published on: May 18, 2015

The Associated Press reports that Toys R Us has decided to close the iconic FAO Schwarz store that has operated on New York's Fifth Avenue since 1986. The store is famous for having appeared in several movies, most notably Big, in which Tom Hanks and Robert Loggia danced on the store's giant piano keyboard.

Toys R Us bought the FAO Schwarz brand in 2009; the retailer has been operating in New York since 1870, and is the oldest toy store in the US.

The retailer says that high costs led to the decision.

Published on: May 18, 2015

GeekWire reports that Amazon-owned Audible.com has hired Eric Nuzum, the former vice president of programming for National Public Radio (NPR) for the job of senior vice president of original content.

Nuzum worked for NPR for almost two decades, and was a major architect of a podcasting strategy that has extended its brand and is expected to lead to more than a billion downloads this year.

No specific projects have been announced, but the speculation is that Nuzum could help Amazon develop an original audio content initiative that would run parallel to the original video content available to its Prime members.

Published on: May 18, 2015

The Wall Street Journal has an analysis of a potential merger of Ahold and Delhaize, noting that while it would create a $40 billion supermarket chain that would be the nation's third largest, it won't necessarily make either chain better or more competitive in the long run.

"A tie-up," the story says, "would fortify Ahold’s market share in the Northeast and take it into the South and mid-Atlantic states. Ahold is strong online through Peapod, while Delhaize has been further along with a chain of supermarkets under the Hannaford brand.

"But the pair has relatively little overlap, meaning fewer cost-cutting opportunities. There may be purchasing savings, but the duo would lack Wal-Mart-style buying power. Both also have been slower to react to market trends. Rival Kroger has spruced up stores to compete with Whole Foods while improving pricing and loyalty programs to attract customers looking for value."

A merger "might give short-term relief" to the chain's competitive shortcomings, the story says, but "Ahold and Delhaize need radical overhauls. There are problems size alone can’t solve."

Published on: May 18, 2015

• New world retailing, meet old world transportation.

The Financial Times reports that as Amazon has rolled out its Prime Now express service in New York City, it has found that the city's subways have provided a faster way to get around the grid than its streets.

In fact, Amazon has confirmed that its delivery people in NYC are using bicycles or public transportation whenever possible, and are only using vans when delivering large packages such as flat screen televisions.

Published on: May 18, 2015

The New York Times has a piece in which it is suggested that the most important lesson from the Great Recession may be the importance of reduced expectations for economic revivals, that a kind of fundamental reset is taking place that will have long-term and dramatic implications for the country.

In fact, the piece postulates that we may be in for a "grimmer future," in which public policy cannot fix our problems, and private enterprise is not being rewarded for making decisions that help the broader economy.

You can read the entire, sobering story here.

Published on: May 18, 2015

• USA Today reports on a new data released by Placed, described as a service "that monitors the behavior of more than 150,000 American consumers daily," saying that "more than half of all shoppers in the country visited a Walmart location in March. No other U.S. store could claim a majority of Americans as customers that month." In addition, the story says, half of the most-visited retailers in the nation are fast-food chains.

The top-five most visited retailers are Walmart (visited by 51.91 percent of shoppers), McDonald's (48.4 percent), Subway (37.41 percent), Starbucks (31.81 percent), and Walgreen (28.53 percent).

Published on: May 18, 2015

• AB Acquisition LLC, parent company of Albertson's LLC, New Albertson's, Inc., and Safeway Inc., announced that Mark Panzer has been named Senior Vice President of Pharmacy, Health & Wellness, overseeing the company's 1,760 pharmacies in 34 states across the country. Panzer replaces Darren Singer, who has left the company to pursue other opportunities. Panzer most recently was President & CEO of Pharmaca Integrative Pharmacy, Inc.

Published on: May 18, 2015

Got some email reacting to Friday's "FaceTime" commentary about the Haggen conversions.

One MNB user wrote:

I need this to be anonymous since I am a supplier to Haggen.

While our sales people are out in the stores here in Washington, particularly the converted Safeway stores, the feedback they are getting from the store personnel are sales are down as much as 40% since the conversion.

One store that was converted a month ago was supposed to have flyers going out to local residents announcing the change.  They have still not been mailed.

Several stores that have been ordering from Super Valu instead of Unified Grocers have gone back to Unified because Super Valu prices are too high.

Things had better change quickly or this new venture will not last 2 years.

From another reader:

I don’t know too much about Haggen or its conversion of the Albertsons/Safeway stores.  I’ve never been in a Haggen, nor have I been in a Safeway (other than Von’s and Von’s Pavillion).  From reading MNB, I understand that there was a mandated deadline for getting the old names off the buildings.  With the scope of the undertaking, it is quite understandable that things would need to happen in stages—at least that would be the logical assumption.

Maintaining a working store to a) serve each location’s existing customers (and not send them into the arms of the competition), and b) maintain revenue flow would also be necessary.  Sure it would be nice to open Jeannie’s bottle and have her blink a beautifully renovated store into existence, but that’s not real life.  But, from what I’ve read on MNB, the real issue doesn’t appear to be ‘making a mediocre first impression’, but rather simple communication.

Well, I should say that I am giving Haggen the benefit of the doubt by working on the assumption that their end goal is to convert their newly acquired stores into the same sort of experience that they are known for in their home market.  Assuming that to be true, it would seem that they have not taken the opportunity to market the planned changes, build anticipation, and (as you are fond of saying) control their own narrative.  Ads and signage discussing their history, values, etc. and promising a wonderful new store to emerge in the coming months would go a long way toward negating the axiom of only getting one chance to make a first impression.  Planned and executed well, upgrades could be done a bit at a time (without the disruption of a major remodel project) so that every shopping trip could be a little treasure hunt—“ooh, I wonder what’s new THIS week”!    But, that IS working on the assumption that they are planning to be more than a meh player in their new markets.




Regarding Target's decision to create "connected home" departments, one MNB user wrote:

This from the people who knew confidential information was being pilfered from their front ends and didn’t react swiftly to protect their own shopper base?

From another reader:

Regarding Target’s ‘connected home’ sections.  A very nice bit of differentiation and not out of line with much of their customer base.  A very valid point you made about being sure to staff the section properly, because otherwise—why not just order from Amazon.    But the first thing I thought of when I read this item?  The data breach.  I don’t want anything from Target connected to my home!

Ironic, huh?



On another subject, from another reader:

As cliche as it might be...long time reader, first time commenter.

I couldn't help but reflect on your recent reaction to the term "super" regarding the Ahold-Delhaize merger talks. It feels rather reminiscent of the press around Supervalu's incorporation of Albertson's stores, making them the #2 grocery retailer at that time.  Having worked at Supervalu post Albertson's acquisition, let's hope Ahold-Delhaize have a solid plan for serious operational and technological alignments to avoid looking like Fezzik battling the Man in Black.

Boom! Extra credit for the Princess Bride reference.

And I love it when people use the "first time, long time" intro ... from the beginning, I've wanted MNB to have a semi-sports radio vibe.




We took note last week of a Reuters report that Walmart has promised to "start disclosing directly to investors what it spends on lobbying on a state-by-state basis, responding to shareholder pressure to improve transparency on how the retailing giant seeks to influence public policy."

I commented:

Good. I'm a total believer in complete financial transparency when it comes to lobbying expenses and political contributions ... every expense over $100 ought to be immediately disclosed online by whoever is getting the money and whoever is spending it. Since we now seem to be at the point where the courts increasingly are removing constraints on what people can spend, if we are going to have the best government money can buy, we at least ought to know who is doing the buying and what a politician costs these days.

Which led MNB reader Bob Stevenson to write:

Do you trust the government's transparency and full disclosure numbers?

No. I don't entirely trust anyone. (Except Mrs. Content Guy.)

But that's not a reason to not require total political and financial transparency.




Got a couple of emails responding to Michael Sansolo's column about Spirit Airlines.

One MNB user wrote:

Michael - loved your article.  My cousins fly Spirit all the time - they get last minute, one way flights from Detroit to Dallas for $29!!!  Amazing - and I love it because they visit often!

But another wrote:

I too was "Spirited Away" although by Spirit to never ever fly them again...as they were closing the jetway door as we barely made it on I explained there were many more passengers trying to get through their terrible ticketing process and was told these words..."Hey buy cheap...fly cheap" and he was right...Michael you too will experience the lack of value from Spirit..it's not an if it's just a when

Perhaps best put by the Emirates Airlines Chairperson while responding to United and American complaints about losing market share to Emirates...“Offer the best to the passengers and people will fly with you,” Sheikh Ahmed said in an interview at his office at Dubai International Airport, which overtook London Heathrow as the world’s top hub by international passengers last year. “They don’t mind paying maybe an extra penny to fly if your service is good, at the end of the day it is all about service.”

As I also travel extensively I am fortunate to be able to travel on both jetBlue and Emirates frequently...and also have the additional benefit of these 2 airlines being travel partners...(do you think that was their strategy??...just asking).




Finally, got the following email from MNB reader Ron Sarasin:

Just read your MNB comments about the federal government owning Texas.
 
The federal government was created by the states, not the other way around.  The Tenth Amendment to the Constitution is very clear on that point. 
 
Amendment X: The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.
 
Seems pretty clear, even though Congress seems to be unaware of the Tenth Amendment!

A fair point. But I still think that the concerns of some Texans that secret tunnels, shuttered Walmarts and military training exercises all are being used to mask a federal declaration of martial law there seem a little...paranoid.

Published on: May 18, 2015

• American Pharaoh, the horse that won the Kentucky Derby, won the second leg of horse racing's Triple Crown, the Preakness Stakes, on Saturday, setting it up for the final leg in the Belmont Stakes on Saturday, June 6.

Published on: May 18, 2015

Kellogg brings frozen breakfast sales to life with two new Special K® Medley Flatbread Breakfast Sandwiches. Each brings new flavors and ingredients shoppers have been looking for, including spinach-infused eggs or crisp bacon combined with tasty cheese between bagel flatbread made with whole grain. 

See more at centerstoregrowth.com.