business news in context, analysis with attitude

Published on: August 18, 2015

by Michael Sansolo

Lexus announced a marketing change recently that is notable both for what the automotive company is doing and how they did it - because in both cases there are implications for every other company.

Let’s start with the idea: Beginning in 2016, Lexus is going to experiment with a new and (to my mind) long overdue pricing model. Instead of the traditional dance with the car dealer, Lexus is going to a no-haggle pricing policy. The price is the price.

Now this is hardly a new idea. Straightforward pricing has fueled growth for CarMax and countless other dealers around the country. Today, car buyers are easily capable of entering a showroom armed with every bit as much price and cost information as the salesperson. Haggling brings little upside.

Lexus’ decision recognizes this reality and growing importance of Gen X and Millennial shoppers. Both have grown up in the information age and see no joy in the strange pursuit of deals when car shopping. Making this pricing shift, Lexus hopes, will make the company increasingly relevant for the younger generations.

There’s an easy parallel for an important discussion in the food industry: Will this same quest for transparency fuel renewed interest in everyday low pricing, especially as consumers have more information about every product they buy and more options about where to buy?

On the bright side, that Lexus, a luxury car company, is planning for Gen X and Y shoppers provides an interesting counterpoint to constant discussion of the financial woes of the younger generations. The simple truth is that no consumer group is monolithic - many in the younger generations continue to struggle with student debt and low wages.

However, some are going to do just fine or better and as they age will continue to want upscale items and enhanced experiences.

Yet here’s the other interesting aspect of the Lexus decision. According to reports, the idea came from a special group of Lexus deals called the “groundbreakers.” These are dealers the company identified as showing a pattern of innovative decisions.

That should get us thinking too, about how companies should form their own groups of groundbreakers or innovators to help guide strategic decisions.

We all know we can get tremendous insights from the front lines, especially since the people there tend to be younger and more diverse than top management. Let’s be real: the younger generations of shoppers looks a lot more like those folks too.

Creating groundbreaker groups could lead to fabulous insights for any company in any industry. It could create new ideas, new energy and certainly a ton of competition to get inside one of those special groups.

And to be clear, this must be done with a far different climate than the one that reportedly exists at Amazon, at least according to the New York Times story that Kevin wrote about yesterday. (There's more on this story below.)

Innovation teams can produce great insights, but only if well directed.

Sounds like a good path to get into high gear.

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 on Amazon by clicking here. And, his book "Business Rules!" is available from Amazon by clicking here.

Published on: August 18, 2015

The New York Times has a follow-up to its weekend story about what is described as an often "punishing" workplace environment at Amazon, quoting CEO/founder Jeff Bezos as sending an internal memo saying that the article “claims that our intentional approach is to create a soulless, dystopian workplace where no fun is had and no laughter heard ... I don’t recognize this Amazon.” Bezos went on to say that "I strongly believe that anyone working in a company that really is like the one described in the NYT would be crazy to stay ... I know I would leave such a company."

The Times notes that the image of Amazon as an inhospitable place to work mirrors in some ways the labor issues that Walmart has faced as it has grown; Walmart "has faced growing legal fire and public scrutiny over the treatment of its 1.3 million workers. Since 2000, the company, the nation’s largest private employer, has paid hundreds of millions of dollars in fines over employees forced to work off the clock or denied breaks."

"The Amazon depicted ... looks like a crummy place to work," the Times writes, "It’s a reputation that carries risks that could hamper recruitment and even hurt its position with customers. It won’t be long before Mr. Bezos devises reforms of his own."

In a separate story this morning, the New York Times suggests that in some ways, Amazon may not be an outlier, writing that "the account appeared to put Amazon at odds with recent workplace trends, but the reality, experts say, is not nearly so neat: Grueling competition remains perhaps the defining feature of the upper echelon in today’s white-collar workplace.

"If anything, analysts point out, Amazon offers at least one major advantage over many other companies, which is that its founder and chief executive, Jeff Bezos, has created a culture in which employees typically know exactly where they stand."

The Times goes on: "On Wall Street, in Silicon Valley, across the legal profession and the corporate world, a growing chorus of companies are singing the praises of a kinder workplace, announcing policies like generous maternity leave at Netflix, and Goldman Sachs’s rule against investment-banking analysts working on Saturdays.

"But a closer look at the forces that drive the relentless pace at elite companies suggests that — however much the most sought-after employers in the country may be changing their official policies — brutal competition remains an inescapable component of workers’ daily lives. In some ways it’s getting worse."

Mashable has a piece saying that that "over the years, many former employees have talked openly about the hard-charging, hyper-efficient and confrontational nature of working at Amazon — before noting that it's a workplace that gets things done.

“'It absolutely is a deliberately adversarial culture because when everybody’s arguing and fighting and not afraid to talk, the end decision will be the best one,' Nadia Shouraboura, a former Amazon executive, said in 2013.

"On Glassdoor.com, a job hunting website featuring anonymous employee reviews, the most common criticism of Amazon - listed in more than 600 reviews - is about work/life balance."

Indeed, one of the tenets at Amazon generally has been that if you are concerned about work/life balance, it must mean that you don't like your job very much.

Published on: August 18, 2015

The Sacramento Bee reports that California Gov. Jerry Brown has rejected entreaties by business interests and signed new legislation that would require supermarkets "to retain employees for at least 90 days after a merger or buyout ... In addition to preventing a grocery store owner from firing workers without cause during that 90-day period, the legislation requires the store’s new owner to consider offering those workers continued employment."

However, the bill may not impact stores that are closed for 90 days after being acquired, and Brown said in a signing message that he hopes that this window will be closed by additional legislation "before the end of this legislative session."

The Bee story notes that "Assembly Bill 359 ... was backed by labor unions and opposed by business interests. The California Chamber of Commerce included it in its annual list of 'job killer' bills."

Published on: August 18, 2015

Confirming a decision that was first made public by union officials, and that was noted by MNB yesterday, the Great Atlantic & Pacific Tea Co. (A&P) said yesterday that as part of its Chapter 11 proceedings it will sell all of its almost 300 stores, getting out of the retail business that it first entered in 1859.

Newsday reports that "previously the company had said it would sell some but not all of its stores, and it has received bids for 118. Now it says in U.S. Bankruptcy Court for the Southern District of New York, in Manhattan, that it will also seek bids for the remaining 153 stores."

The story goes on to say that "Acme Markets Inc., Stop & Shop Supermarket Co. and Key Food Stores Co-operative Inc. have already submitted separate bids for 118 stores for about $600 million. Each bid remains subject to higher offers."

Published on: August 18, 2015

The Associated Press reports that "Blue Bell Creameries will resume distributing ice cream to select markets in Texas and Alabama this month after halting sales and production following listeria contamination."

An Alabama factory resumed ice cream production in July after going through an extensive clean-up; two other factories, in Alabama and Oklahoma, are still being upgraded, the story says.

Published on: August 18, 2015

GeekWire reports that Amazon has applied for a patent that "describes a plan for delivering packages via public transit - turning buses, trains, subways and other vehicles into roaming pickup locations."

The story goes on: "One scenario described in the patent is essentially an Amazon Locker on wheels, installed inside or attached to the outside of a bus, train or other form of transit. Customers who ride a particular route regularly could opt to have a package delivered to their preferred bus, to retrieve while they’re riding. Or those in a specific area could choose to pick up their package at a bus stop, receiving a text message when their item is approaching. That latter option could be especially useful in rural villages and other areas 'where carriers for delivering items are rare or prohibitively expensive,' the filing says."

This would be different from how Amazon is operating in New York, where its delivery people are using public transportation to deliver packages to homes and workplaces.

Published on: August 18, 2015

In a radical move, both Starbucks and Panera announced that their pumpkin spiced lattes this fall will actually be made with pumpkin.

The Associated Press reports that "Starbucks, which was widely criticized last year for its lack of transparency about the drink’s ingredients, said on Monday that its drink would now be made with real pumpkin and without caramel coloring. Panera said its new drink, also to be made with pumpkin, would be made 'entirely without artificial colors, flavors, sweeteners, preservatives or high-fructose corn syrup'."

For both companies, the pumpkin spiced lattes has been among their most successful limited-edition specialty beverages.

Published on: August 18, 2015

The Wall Street Journal reports that the US Postal Service (USPS) "is ramping up same-day delivery of everything from bottled water to fresh fish as its new postmaster general tries to better compete with FedEx , UPS and even amazon.com.

"In New York City, letter carriers in the early morning hours load boxes of fresh and frozen seafood from Fulton Fish Market onto mail trucks and deliver them to local restaurants by 11 a.m. They collect packages from Internet electronics retailer Newegg Inc. for fast, local afternoon delivery. They’re also doing daily water delivery to businesses for Nestlé SA in Manhattan and Brooklyn.

"Same-day delivery is part of a big push by Megan Brennan, the new postmaster general, to make the postal service more competitive ... Brennan said she’s pushing Congress to green light the shipping of alcoholic beverages. She also wants to expand grocery delivery and offer more Sunday delivery."

Published on: August 18, 2015

• The New York Times reports that Petco yesterday filed for an initial public offering (IPO), a move that will give its current private equity owners the ability to sell their shares almost a decade after buying the company.

Late last year, Petco's primary competitor, PetSmart, went private "in a buyout led by the investment firm BC Partners for about $8.7 billion."


• Fascinating story in the Wall Street Journal about how it took Wendy's "three years and a search involving more than 30 growers for Wendy’s Co. to procure enough blackberries for a new salad it plans to offer next summer ... Wendy’s quest for the nearly 2 million pounds of blackberries it will need to embellish a seasonal salad at its 6,500 North American restaurants illustrates the challenges large chains are trying to digest as they seek to keep up with growing demand for fresh ingredients."

That demand, the story notes, is being driven as so-called "fast casual" restaurants such as Chipotle make the case for healthier, fresher ingredients instead of stereotypical fast food. But the demand also puts enormous stresses on both retailer and supplier infrastructures as they look to satisfy changing consumer tastes.


• Coborn’s, Inc. said yesterday that it "has built a gluten-free bakery from scratch to meet the demand for fresh gluten-free bakery treats at its 50 Midwestern supermarkets and its online delivery company, CobornsDelivers. The bakery is housed on the Coborn’s corporate campus across from the company’s central bakery, and has begun production of 20 specialty bakery treats."

Published on: August 18, 2015

• The Associated Press reports that Target has promoted its CFO, John J. Mulligan, to the newly created role of COO. He is being succeeded by Cathy Smith, who was previously chief financial officer at Express Scripts, and who has also served as chief finance officer of Walmart International.

Published on: August 18, 2015

Got a number of reactions to yesterday's Amazon workplace story.

One MNB user wrote:

Fascinating article on Amazon.  Walmart is the antithesis of Amazon.  Walmart is a customer & people driven organization who focuses on the team, not individual success.  Walmart also is female-centric, politically correct, with long-tenured Associates.  I have been with Walmart nearly 25 years, and most of my coworkers have been here 15+ years.  New grads are nurtured and developed and offered resource groups.  Work/life balance is important at Walmart and salaried management work 50 hrs a week.  We do check our emails on our phones, not because we are told, but because we want to check the pulse and to support any of our Associates who may need us.  I guess that is the difference between tech companies and brick and mortar.  Walmart is all about motivation, encouragement, and strive for excellence.  Both cultures have their merits and both companies have survived/thrived.  I have been contacted over a dozen times by Amazon recruiters over the past 5 years.  What continues to strike me as odd is that they have never called me for a role that pertains to my areas of expertise or knowledge; the roles are off-the-wall; almost as if the recruiters are grasping at straws to fill positions.  Based on the extreme opposite culture; Walmart Associates would not thrive at Amazon and vice versa.

First of all, I salute you for your loyalty to Walmart ... and I'm glad that you have found it to be a supportive, nurturing and creative workplace. Every company should have employees like you.

But I also would love to know the flavor of the Kool-Aid they are serving in the company cafeteria.

Because, to be fair, this is a company that has been accused many times of being male-centric, of locking janitors in stores overnight, of denying people their lunch breaks, and of generally being a tough and sometimes inhospitable place to work. (Didn't there used to be a mandatory Saturday morning meeting in Bentonville?) Now, also to be fair, my sense is that there has been a concerted effort to change the workplace culture at Walmart, just as I suspect there is about to be a similar effort at Amazon.

Here's the thing. I'm not slamming Walmart here any more than I would slam any other employer. One thing that I think that Walmart and Amazon have in common is that if you go to work in either place, you know pretty much what you;re getting into - you're going to work hard and long, and if you do well, there will be rewards.

From another reader:

Great. Now we  find out that the organization that has destroyed all types of retail business that really can't make money with their "creative disruption" treats its employees (assets?) like crap. I'm surprised you keep touting this place as the Holy Grail with some minor blemishes. If the rest of the world's business organizations had this as a model we would all end up financially and morally bankrupt.

First of all, I would dispute your description of Amazon as an organization that has destroyed all types of retail businesses. I would suggest that for the most part, these businesses have destroyed themselves by not creatively disrupting themselves ... by not seizing opportunities created by evolving technologies ... and by not realizing they need to find new ways to be relevant to a new generation of consumers.

Second of all ... I think the situation is more complex than you are suggesting. Most people have been treated like crap by some employer, somewhere along the way. The smart people learn from the experience ... which is exactly what is happening at Amazon.

This doesn't excuse an abusive workplace environment ... but again, I think it is simplistic to suggest that this is what it is like at Amazon.

Third of all ... while I am uncomfortable with the scenarios described by the Times, Amazon continues to be one of the great creative innovations of my lifetime ... and to ignore or deny that is, in my view, a mistake.

And from MNB reader Kevin Hollenbeck:

As soon as I read the New York times piece on Amazon, I thought what is Kevin going to say about this?
 
Like you my wife and I are both avid Amazon fans, however as we were discussing the article over Breakfast, my wife mentioned she is not sure that she feels good about supporting a company with these kind of values and work practices reported in the article. I do think that Jeff Bezos has some PR work to do……this on top of the disappointing Black Friday in July sale…are these  the first chinks in the armor or just a little speed bump on the continued road to retail domination.
 
I remember not too long ago people thought Wal-Mart was going to rule the world.
MNB reader Philip Herr chimed in:

Interesting juxtaposition this morning of the Amazon article with the articulate letter defending CEO pay.  I am not sure what organization she heads, but I cannot believe her employees “punch out” at 5.00. What with white collar employees pretty much on 24 hour call via phones, the idea of leaving the job behind at 5.00 is laughable. And as to the blue collar workers who get to leave at 5.00 – that assumes they have a full work-week and haven’t been sent home or failed to be called in when on stand-by.  Oh, and as to labor unions protecting workers, which state is she from? No, I don’t deny that CEOs are entitled to far bigger paychecks than the “rank and file” but the disparities have been growing – had they kept up we would all be much wealthier wouldn’t we? And finally, please don’t mistake entrepreneurism with risk. As has been well documented, many employees are defined as contractors in order to offload risk.

On the subject of CEOs pay, still another MNB reader wrote:

While I fully agree with the readers' comments about the stress and burden
on CEO's, as well as your view they should be paid what the "market will
bear", it bothers me when CEO's are on each other's companies' boards and
compensation committees. This is clearly an open invitation to game the
system.



Regarding the total dissolution of A&P, one MNB user wrote:

I worked in the  CPG industry from 1978 until 2010 when I retired. Worked in the NY MARKET for SC JOHNSON. I started as a retail rep, and part of my territory included A&P stores. I wondered how they stayed in business back in the 80's.  I was here when they bought Waldbaums and destroyed that chain, was stunned that they managed to survive all these years. When they bought Pathmark, I again was stunned, but certainly not surprised to watch them destroy another chain. Well over the years, I had many different titles and responsibilities in sales.

As an Account Manager, at one time or another I called on just about every Account in the NYNJ area including A&P. They died a long time ago, they just didn't have the good sense to disappear. My nephew has 17 years with Pathmark, and I feel for him and all the employees that A&P has no loyalty or concern for!! Those executives in Montvale should get nothing except perhaps some jail time for their gross mismanagement of the company they were supposed to be running!!  I don't know how they can look in a mirror!




One MNB reader who has been consistently critical of the tone of my Haggen coverage wrote in about yesterday's story:

A bit more balanced, but not sure the “iceberg” comment was necessary. On the positive side, they have a history of divesting non-profitable stores (it was how they got to the 18 pre acquisition) and building a solid foundation of loyal consumers and solid business practices.

You're right ... that's looking on the positive. It strikes me as being a little delusional, but it is looking on the bright side of life...