business news in context, analysis with attitude

Published on: July 16, 2015

This commentary is available as both text and video; enjoy both or either ... they are similar, but not exactly the same. To see past FaceTime commentaries, go to the MNB Channel on YouTube.

Hi, I'm Kevin Coupe and this is FaceTime with the Content Guy, coming to you this week, as I will most of the summer, from Portland, Oregon, where I'm doing my annual "adjunctivity" at Portland State University's wonderful Center for Retail Leadership, team-teaching a summer class with Tom Gillpatrick.

One of the things I always say about this teaching experience - I've done it for four years now - is that I often learn as much from the students as they learn from me. Sometimes, I get an education outside the classroom.

That's what happened a couple of weeks ago. I've been renting an apartment in the Pearl District, right across from a several block long park where there are basketball courts, a children's playground, room for the homeless to hang out, and some bocce courts. Mrs. Content Guy was in town, and we walked over to the Park Kitchen for a drink, and then headed back to the apartment.

As we cut across the park, we stopped to watch a bocce game. It's something neither of us knew anything about, and so we thought we'd watch it for a bit. There were about four people playing, including this fellow who later introduced himself to us as Tyrone.

Tyrone came over to us and chatted for a bit, and then invited us to play with him. We said no, we didn't want to interrupt the game. But Tyrone smiled and said that the game wasn't all that important. And then he said something really smart: "You can't learn just by watching. You learn by playing."

That's an important lesson with a lot of relevance. There are a lot of companies out there that are struggling with training issues, and I think that Tyrone hit the nail on the head. If companies want to train people so that they are engaged with their companies, engaged with consumers, and serving as enthusiastic ambassadors for the business, one of the best ways to do it is to let them get their hands dirty, to get experience, to even experience a sense of play.

We spent about two hours that night playing bocce. I think I'll remember the rules. I know I'll remember Tyrone.

That's what is on my mind this Thursday morning. As always, I want to hear what is on your mind.

Published on: July 16, 2015

by Kevin Coupe

Here are some numbers worth thinking about...

• Variety reports that Netflix added 3.3 million new members during the second quarter of its fiscal year - almost double the number of new members it added during the same period last year, a period that generally is considered to be a slow one. The new members gives Netflix 65.6 million total.

The story notes that the new members seem to responding to Netflix's private label content - "almost 90% of Netflix members have watched original content."

(Revenue for the quarter, by the way, was $1.64 billion, an increase of 23% year over year, and net income of $26.3 million, versus $71.0 million in Q2 2014.)

• GeekWire reports that "Amazon now has about 44 million U.S. Prime members ... who spend an average of $1,200 a year, compared to about $700 a year for non-members."

• And Information Week reports that while Apple's iPhones make up just 20 percent of the worldwide market share for smartphones, Apple has 92percent of global smartphone profits.
So what does this mean?

Well, I think these three sets of statistics speak to the power of differentiated product, loyalty, and a great narrative.

It's simple. Netflix continues to grow market share because it offers content that you can't get anywhere else, Amazon continues to parlay its Prime program into an ecosystem that makes it the first, best choice for its shoppers, and Apple has created a compelling story behind its products that make its phones the premier choice for consumers young and old, rich and poor.

That's a pretty good formula for success. Differentiated product, loyalty, and a great narrative.

It's an Eye-Opener.

Published on: July 16, 2015

The New York Post reports that the Great Atlantic & Pacific Tea Co. (A&P) could declare bankruptcy as soon as this week, a filing that would "come in the form of a so-called 'prepackaged' bankruptcy, which could divvy up the company’s best locations." The move would effectively end the company's 156-year history, which has ranged from being the nation's biggest company 50 years ago to a more recent run of misfortune and mismanagement that made the 110-store chain a bare shadow of its former self.

According to the story, "Mid-Atlantic-based Acme Markets, owned by parent company Albertsons and Safeway, is poised to scoop up nearly 80 of the bankrupt firm’s 300 or so locations, according to sources close to the negotiations. Kroger also is interested in Pathmark locations, according to a source. Dutch-owned Ahold, which owns Stop & Shop in New York and New England as well as Giant in Philadelphia, has likewise been jockeying for A&P locations, insiders said."

An A&P spokesman tells the Post that "no decision has been made ­regarding a particular outcome, and it would be inaccurate and ­irresponsible to suggest otherwise. The company is committed to continuing to serve its customers and communities as it always has and intends to keep its stores fully staffed."

Published on: July 16, 2015

The Washington Post reports that despite some criticisms of Amazon's Prime Day promotions as being more a garage sale in which unwanted items were cleaned out, "big sales and widespread publicity for the event billed as Black Friday in July appeared to be a win for the online retail giant."

The promotion, which offered rolling promotions of specific and limited amounts of merchandise throughout the day, only available to Amazon Prime members, appeared to generate two-to-three times the sales of an average July day. The Post writes that Amazon says that "orders surpassed those from Black Friday last November. In 15 minutes, Prime members scooped up 35,000 'Lord of the Rings' Blu-ray sets, 28,000 Rubbermaid sets and tens of thousands of Fire TV sticks. The 1,200 TVs priced at $999 sold out in less than 10 minutes."

Published on: July 16, 2015

USA today reports that Starbucks has pledged to open 15 new stores "in low income and predominantly minority neighborhoods, including a store near the epicenter of last year's unrest in Ferguson, Mo., as part of an effort to broaden the coffee company's footprint in urban areas where they have set a goal of spurring job growth."

According to the story, "The first locations are expected to open next year in Ferguson's West Florissant Corridor, Chicago's Englewood neighborhood, and the Jamaica section of New York's Queens borough. Starbucks also plans to open a store in a yet-to-be determined neighborhood in Milwaukee as well rehabilitate an already existing store in Phoenix's Melrose District.

"At each location, Starbucks plans to hire 20 to 25 young people from the neighborhood. The new stores will be designed so they can be used by Starbucks and local community organizations to conduct jobs skill training classes."

Yesterday, MNB took note of a related Los Angeles Times report that "Starbucks Corp. is leading more than a dozen companies in an effort to hire 100,000 young workers with 'systemic barriers to jobs and education' in the next three years ... The group has pledged to bring on more 16- to 24-year-olds as apprentices, interns and employees by 2018."

Published on: July 16, 2015

The Washington Post reports that Congress is debating the labeling of genetically engineered foods, with the fight focusing on "a bill sponsored by Rep. Mike Pompeo (R-Kan.) that would block state and local laws from requiring food labels to disclose genetically engineered ingredients.

"Vermont, Connecticut and Maine have passed mandatory labeling laws for genetically modified food. At least 15 other states are considering similar regulations."

According to the story, "The bipartisan bill has become the latest battleground over the use of genetically modified organisms, or GMOs, in the U.S. food supply. GMOs have been around for 20 years. About 90 percent of the corn, soybeans and cotton grown in the United States is genetically engineered, meaning that the crops have been artificially altered to use less water or resist pests.

"The American Association for the Advancement of Science, the American Medical Association and the World Health Organization have said that all GMOs on the market are safe. So has the federal government. But as consumers grow increasingly concerned about what is in their food — from antibiotics and hormones to additives and trans fats — pressure is mounting on the food industry and producers to be more transparent."

Published on: July 16, 2015

In the UK, the Telegraph reports that Tesco is raising the threshold for free use of both its delivery and click-and-collect services, increasing it from the equivalent of roughly $39 (US) to about $63 (US). Customers who spend more than the minimum amount get free shipping or pick-up; spend less, and the fee is the equivalent of about six bucks.

According to the story, the move has "sparked anger" among Tesco customers ... or at least among Tesco customers inclined to go on social media to complain.

Published on: July 16, 2015

Seeking Alpha reports that "a major shake-up has just occurred at Wal-Mart's China e-commerce unit, reflecting its disappointing progress three years after the US retailing giant took control of local upstart Yihaodian. The shake-up has seen the sudden resignation of Yihaodian's two founders, Yu Gang and Liu Junjun, who also were the chairman and CEO, respectively. Yihaodian confirmed the departures and said they were announced after a high-level Wal-Mart official came to visit the company."

The story notes that despite Walmart's investment in the company, which gave it 51 percent ownership, "one list said Yihaodian now ranks as China's 10th largest player with a scant 0.7 percent market share. It's no surprise that the list is lead by well-known Alibaba and JD.com."

Speculation is that Walmart may decide to acquire the remaining 49 percent and then engage in what the says would be "a rapid integration of the operation with its own traditional retailing business."

Published on: July 16, 2015

Internet Retailer has a piece worth reading about the growing emergence of e-grocery in the US, including an unusual Farmers Market program developed by, of all companies, Overstock.

"In North America, 9% of consumers already order groceries online for pickup at the store, and 57% say they are willing to use that option," the story says.

You can read the entire piece here.

Published on: July 16, 2015

• Bloomberg reports that a gay Walmart employee from Massachusetts has filed a class action lawsuit against the retailer, claiming that the company failed "to alter their benefits policy to include same-sex spouses immediately after the U.S. Supreme Court overturned the Defense of Marriage Act in June 2013."

The story says that the suit charges that Walmart "only began extending such benefits in January 2014 - nearly six months after DOMA was overturned - at which point the woman's wife had already spent more than $150,000 battling ovarian cancer.

Walmart maintains that its benefits coverage at the time was "consistent with the law."

Published on: July 16, 2015

• The Des Moines Register reports that the annual Greenpeace ranking of US supermarkets' sustainable seafood programs - evaluating "efforts in seafood sustainability and protecting industry workers" - has Whole Foods at the top of the list, followed by Wegmans, Hy-Vee, Safeway, Target, Aldi, Trader Joe's, Walmart and Costco.


• The New York Times reports that Union Square Hospitality Group - the Danny Meyer-led company that created Shake Shack - "is making a minority investment in Tender Greens, a growing chain of restaurants based in California."

The standard Tender Greens menu, the story says, "gives customers a choice of proteins that they can have alone, with sides or in salads and sandwiches, as well as a choice of big salads. Menus may vary by location, depending on what each chef decides to offer as specials and what is in season."

This is the first time Union Square has bought into, as opposed to developing in-house. But Meyer tells the Times that "we do not have a monopoly on all the great ideas in the world. I saw it and ate at it and wished it was an idea I had come up with.”


• Advertising Age reports that "Target is gearing up for back-to-school, its second biggest selling season, with half a dozen new spots starring social media influencers, as well as a new tool called 'School List Assist' and deals to make shopping easier for parents. The effort aims to establish Target as a one-stop shopping destination during the high-traffic period, said Rick Gomez, SVP-marketing at Target."

Published on: July 16, 2015

Yesterday, we featured a "Millennial Mind" piece by Portland State University student Chelsea Ware, in which she argued that retailer loyalty programs would have to be adjusted as millennials become the center of the shopping target, since they have different priorities than "older generations" (a phrase that makes me wince).

MNB reader John Zogby wrote:

Chelsea is brilliant and captures an essential ingredient of what makes Millennials tick. Like Wayne Gretsky who famously said that he always skated to where the puck was going to be not where it is, she identifies that some things are not as important to Millennials . But some things are – notably the need to be the first on the block to possess something cool and to be able to brag about it. Concert tickets, Uber gift certificates, special invitations to taste new wines and beers. These can go a long way. Retailers, pay attention.
 
Thanks for sharing this.

MNB user Todd Ruberg agreed:

I really enjoy Chelsea’s perspective…….but yes, the “older generation” comment smarts

What is really amazing to me is how slow our industry is on taking action for the millennial demographic.     We are working with companies who have been continuing to “study” it and “consider alternatives”…..instead of realizing its a significant change in the market, with more spending power than any other generation now.

Bloomberg had a great article on Subway this week…..a company in real trouble.   A franchisee said “We are not cool with the millennials.   We seem tired and old and its hard to break out of that”.

This generation is not that hard to understand and market to,  but it will require change and ACTION.    Reminds me a bit of how our industry kept “studying” the growth of the Hispanic market years ago…again, treating it like an interesting development instead of a signifiant market change requiring action.       As always, there will be winners and losers here.   Winners will act, losers will study, pontificate, delay……. 

From another reader:

I enjoyed reading Chelsea Ware’s ideas about our younger generation uses loyalty cards.  This outdated utility is not limited to millennials, however.  For me, using a specific retailer’s loyalty card is always an after though, made at the checkout…”Oh, yea, wait a second, I have a card.”  I have about 8 on my key ring, just in case.  Most don’t need to be there, because they offer phone apps or checkout entry with a phone number.
 
Loyalty programs should be about earning loyalty from both sides of the relationship.  The retailer (or business) should be loyal to me as a regular customer, just as I am supposedly loyal to them.

Here’s a great example.  The most used loyalty card on my key ring is my membership tag to Retro Fitness, my gym.  Whenever I go to the gym to workout, Phil, the Manager, says to me, “Hello, Glenn.  Good to see you.”  Simple yes, but that is loyalty.  There is no reason why grocery store managers cannot get to know the names of their best, regular customers.  And, those customers should never wait in lines, either at the deli, meat counter, or especially checkout.

And another:

Much like Chelsea Ware, I obtained a degree in business marketing and wound up in the CPG industry (I graduated in 2014 and joined Advantage Sales & Marketing’s “ACE Program” a month later). Additionally, I minored in music and completely agree with her idea of rewards in the form of experiences. Experiences will always be supreme to tangible things, and I think the Millennials recognize and embrace that idea.

One statement she made could not be more true about my generation; “Millennials are getting married and having children later… We have time to cultivate our interests and we take pride in doing so”. I believe that expressing how individually unique we are is the new “fitting in”. I think our generation has done a great of embracing differences, and I hope this positive trend continues in future generations.




MNB took note yesterday of a USA Today reports that "Texas billionaire and philanthropist Sid Bass has become an investor and partner in Blue Bell Creameries, which had to shut down its factories and recall all of its products after listeria contamination of its ice cream was linked to 10 illnesses ... No details about the size of the investment were disclosed, but the story notes that "Blue Bell is extremely popular in its home state, and Bass and his family have deep ties to Fort Worth."

I commented:

The key word in the description of Bass in this case is "philanthropist," because I'm simply not convinced that this brand can be saved. The name Blue Bell is forever linked with listeria, the company's feeble efforts to deal with the crisis in its early stages were noteworthy, and those empty spaces have been sitting there for a long time, reminding people of the company's issues.

MNB reader Monte Stowell wrote:

Put your article about Blue Bell ice cream in your “Review File” in one year after Blue Bell ice cream comes back onto the market. I have to believe that the fine people in Texas will welcome this iconic brand back into their freezers as soon as it comes back into the marketplace. It is a Texas powerhouse brand and I think once they again put it back onto the shelves, the Texas consumer will be waiting to buy this Texas brand.
 
I would bet you a nice bottle of Oregon Pinot Noir that Blue Bell ice cream will be back on the shelf to stay. Are you on with this bet?

Depends on how you define "to stay." Based on recent history, that's a hard thing to quantify.

MNB reader Renee White wrote:

I’m writing in response to your comments that you aren’t convinced that the Blue Bell brand can be saved, despite the investment from Sid Bass.  I live in Oklahoma, less than a mile from one of Blue Bell’s plants.  I am a huge fan (at the expense of my waistline) and cannot wait to get my hands on some Blue Bell Chocolate Chip Cookie Dough ice cream.  You talk frequently about retailers needing to find ways to increase brand loyalty.  Do you realize the significant loyalty folks in this region have to Blue Bell?  There are Facebook groups (for instance, We Stand with Blue Bell) of people vowing not to eat any ice cream until Blue Bell returns.  I’ve seen memes half-heartedly joking that “No Blue Bell = No Ice Cream”.  People around here love Blue Bell so much, we are willing to forgive the unfortunate decisions of management during the listeria crisis, so long as we get our Blue Bell ice cream back as soon as possible.  So while I understand the reason for your comments, I think it might be a more worthwhile venture to figure out HOW Blue Bell got the brand loyalty it has.  Sure, maybe Blue Bell didn’t handle the listeria problem efficiently and appropriately.  But before all that happened, they were doing something very well.  And understanding how they became such a valuable brand to so many people would be a lesson I expect all retailers could learn from.

MNB user Mike Springer wrote:

I believe overall we as a nation are a forgiving people.  Your comment that “The name Blue bell is forever linked with listeria” will soon fade over time…as does many other situations when it’s convenient to do so.  

This comment is not meant to take away from the seriousness of the deaths linked or the accountability that lies with the people involved; however, the people that have grown up with the brand and have enjoyed the product will soon be willing to forgive and will embrace the product they miss.  

Blue had a cult following and I believe there is still a huge demand for getting this product back on the shelves.

From another reader:

In my supermarket in Linden, Texas, folks will kick the door in to get Blue Bell.  But those states that had just started selling it will probably not stock it.  So it will never be what it was.

From MNB reader Joe Barsa:

As a "yankee" who lived in Fort Worth for a year, I'd have to disagree with your opinion on the imminent demise of Blue Bell. Texans are the most prideful and fiercely loyal people I've ever come across, often times to a fault. There were stories in the news down there about people who were filling their entire freezers with potentially tainted product after the recall, because they were terrified that they might not be able to buy it again. Blue Bell is an iconic Texas brand through and through and I'd imagine that consumers in Texas will come back with open arms once things get straightened out. Also, the whole listeria thing aside, it really was the best store-bought ice cream I've ever had.

MNB reader Rich Heiland wrote:

In the wake of the Bass investment I thought I'd drop you a note. I live about 40 minutes from Brenham. It has surprised me how Blue Bell has dropped off the radar. You just don't hear people talking that much about it. I don't know if that is just a case of every news story running its course, acceptance or just waiting it out on the assumption it will come back. And, I think it will come back in Texas, and even come back strong. Beyond that I am not sure if the brand can be resurrected or how soon.

In terms of Bass, I am not surprised to see someone step in, though I was surprised it was him as opposed to another food company bottom fishing.  I am not surprised Blue Bell needs money. As a private company we can't know how much debt they are carrying, what the terms of insurance might have been for bringing plants back on line, if there is insurance given claims of negligence in terms of who knew what and when. But, it would not surprise me if the company has taken on significant new debt to clean up and retool, or had to re-negotiate current debt because of loss of cash flow.

But, I would never sell Bass short. I would not be shocked, depending on how much he put in and how much control it gives him, that one day we are saying "Boy, that damn Bass sure can pick 'em."

I will concede that my lack of Texas roots and the fact that I've never eaten Blue Bell ice cream colors my perceptions.

If it comes back, it'll be a major branding story. I'm not persuaded, but we'll see.




Regarding the cutbacks at Haggen, MNB reader Ken Fobes wrote:

I couldn’t agree more with your comments. The company is an unknown entity in the Pacific Southwest market and faces an uphill battle to grow its business. Their task will be even more daunting by cutting staff and labor hours in their stores.

The good news is that by re-branding the stores they acquired, they have a perfect opportunity to leap-frog their more established competitors, without any existing carryover “baggage.  They must now deliver on their Fresh and Local go-to-market strategy. If they do, they will build a strong foundation upon which they can grow market share and secure a loyal customer  base. 

We believe fresh department operations (Meat, Seafood, Produce, Deli and Food Service) are the ultimate private label and  competitive differentiator.

If Haggen wishes to grow sales and margin, reduce operating costs, improve associate productivity and provide superior customer service, they should focus their attention on improving their fresh operations.  Without this focus, they risk leaving significant incremental sales and savings dollars on  the table.




The other day, we had a story about how Whole Foods is teaming up with PBS Kids for a back-to-school promotion designed to get into the hands of young students "a variety of eco-friendly school supplies, from notebooks made from recycled paper to organic cotton backpacks and reusable lunch totes. Many of the proceeds from the sales will be used to support PBS Kids’ educational programming and the Whole Kids Foundation, which is dedicated to improving children’s nutrition and wellness."

I commented:

I think this is a very good idea ... but I can't help but think that maybe while those kids are in Whole Foods picking up their school suppliers, maybe they could give some basic addition and subtraction lessons to all those clerks who the retailer "admits" have been overcharging shoppers.

Which led one MNB reader - and Whole Foods executive - to write:

You take something positive and then just couldn’t resist throwing in a cheap shot at Whole Foods. Nice! Everyone is always looking for their chance to take their pot shots. Welcome to the club.

I was just being a wisenheimer. I do that with just about everybody.




And finally, from MNB reader Terry Pyles:

I have been a loyal and avid MNB subscriber for many years.  I look forward to it every day.  I so appreciate the hard work and dedication that you, Michael, and Kate contribute in order to keep your readers informed of the issues of the day, be they business or social.  I want to thank you for all that work.

IMHO today's MNB was one for the ages.  Great analysis, excellent commentary, a terrific guest column, and as always, fantastic feedback from your readers.

I was particularly impressed with the letter from Leslie Sarasin, president/CEO of the Food Marketing Institute (FMI).  I usually find it somewhat tedious to get through a multi paragraph "Your View", but not this time.  Ms. Sarasin's letter was thought provoking and extremely well presented.  While she was critical of some of your previous analysis, she was neither rude nor insulting.  A most excellent read.

If today was somebody's first time reading MNB they surely got a taste of excellence.  Where else are you going to find Vulcans, pinko commies, dead chains walking, and unabashed Mets fandom all in one place?

As far as I'm concerned, you can put that last sentence on my tombstone.

Thanks.