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    Published on: July 21, 2016

    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, Kevin Coupe here, and this is FaceTime with the Content Guy.

    "Life is mostly metaphor," the great Robert B. Parker once wrote, and MNB readers know that I'm a big believer in that notion. I look for metaphors pretty much everywhere ... and most recently, found one while on vacation.

    We were hiking among the redwoods in Northern California, on our way to Monterey and the Organic Produce Summit. The day was glorious, the trees surpassed our expectations, and we knew that before the sun went down we'd be dining and sipping wine in Sonoma. I should not have been thinking about work, but sometimes I can't help myself.

    As we walked amongst the giant trees, Mrs. Content Guy wondered aloud what it would take to make one fall. An earthquake of enormous magnitude? A tsunami? I agreed with her, and said that I could only imagine how deep the trees' root systems must go.

    Shortly thereafter, I learned that I was wrong. In fact, the redwoods' root systems don't go very deep at all, especially when you think about how tall these trees are. Rather, they tend to spread out wide, and they tend to be intertwined with the shallow root systems of other redwoods. It isn't by being alone and deep that redwoods stand tall and strong, but rather by depending on others for strength. By being, in essence, part of a community.

    Now that's what I call a metaphor. Not just for business, but for life, politics and culture. If we support each other, if we share ideas, if we understand that we are stronger together than we are apart, then we have the chance of withstanding even tectonic shifts, whether they be literal or figurative.

    Now this can be hard in a competitive environment. I get that. But there is a time and a place for sharing and connecting. It is one of the things that I really enjoy about the class that I teach during the summer at Portland State University - there is the opportunity for executives to come in and share their ideas and thoughts with students, and they often learn a lot as well. It makes everybody stronger.

    Which leads me to another metaphor.

    It ends up that the pine cone from which redwoods grow is one of the smallest in nature. And it is often true of little ideas and unknown people that great innovations often come from them.

    We just have to pay attention, so we can grow with them, lest we just end up in their shadow.

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

    KC's View:

    Published on: July 21, 2016

    Here's the email MNB received this morning:

    "In line with required notification periods for listing purposes, Delhaize Group and Royal Ahold announced today that they expect to complete their intended merger on July 23, 2016 if regulatory clearance has been obtained from the Federal Trade Commission (FTC) in the United States by that date."
    KC's View:
    So Saturday's the date. Probably. Almost certainly. (Finally.)

    I hope they'll be very happy together.

    And, as I've said here before, I hope that this ends up with the newly combined company being more effective, not just looking for efficiencies. Because if this is just a defensive play, and there is no strategic plan for how Ahold and Delhaize are going to become better, more relevant and more innovative retailers as a result, then I'm afraid that nobody is going to end up happy together. (Except the bankers and lawyers. They always end up happy. Or at least richer.)

    Published on: July 21, 2016

    The Wall Street Journal reports that Procter & Gamble, apparently fed up with retailers serving as a middleman between it and consumers, "is experimenting with steps such as one that it just launched in Atlanta called the Tide Wash Club, an online subscription service for the dissolvable Tide Pods capsules that are the company’s highest-priced laundry detergent. The company offers free shipping at regular intervals."

    P&G also is testing an offering called Tide Spin, which it refers to as "the 'uberization of laundry,' in which customers in parts of Chicago can use a smartphone app to order laundry pickup and delivery from Tide-branded couriers."

    With these efforts, the Journal writes, "P&G is delving deeper into the business of connecting consumers directly with the products it makes, especially a new generation less loyal to the company’s big brands."
    KC's View:
    It is ironic that these efforts became public just as it was announced that Unilever was acquiring Dollar Shave Club - which has disrupted much of P&G's Gillette business by going consumer direct and building a subscription model - for a cool one billion dollars. Cash.

    P&G reportedly was surprised by that news, but it isn't hard to see why it would want to get into the consumer direct and subscription businesses. After all, Amazon is developing a strong model with its Subscribe & Save and Dash Button programs, which tend to build brand loyalty but also, to some degree, loyalty to Amazon. The manufacturer may be the recipient of greater loyalty, but Amazon still controls the road, which means it can make demands and establish many of the rules, in the same way that big retailers like Walmart can.

    Needless to say, P&G probably finds this unbearable, and is looking for ways that it can control more of the road. What I don't completely understand is the pricing model; the Journal says that P&G is a little bit more expensive thatn retailers are, not less. Which I would think eliminates one potential advantage.

    There's also the issue, long term, of whether this is scalable. This might work for one or two brands in a couple of categories. But do consumers really want to have multiple online relationships with a variety of suppliers, when they can boil it down to one relationship with an online retailer?

    Remember that this can be seen as part of an ongoing continuum of tension between retailers and P&G. It was just a little over a year ago that Walmart decided to stock Persil, a European competitor to Tide, in its US stores, right next to Tide - essentially as a way of letting P&G know who is boss, and not to forget it.

    Now, there may be a way that P&G can develop relationships with retailers that would allow them to serve as the distribution arm for its products, fulfilling orders without actually stocking and selling the product. Maybe traditional retailers can be to P&G what Instacart is trying to be to traditional retailers ...

    I'm not entirely sure how this could play out, but I always keep in mind the words of Leo McGarry: "In the history of everything that works, there was a time when it didn't."

    Business models and business relationships may have to change. But then again, why not?

    Published on: July 21, 2016

    National Public Radio has a story about how Walmart "is piloting sales of weather-dented apples at a discount in 300 of its stores in Florida," joining the "bandwagon" of companies that say they are selling less-than-perfect produce as a way of addressing food waste.

    The brand of apples being sold is called "I'm Perfect."

    According to the story, "Ugly fruits and vegetables are a fact of life on the farm. Sometimes the dents and scars are so minor that you wouldn't think twice about buying them. They're perfectly edible, delicious and just as nutritious as their unmarred brethren — or perhaps even more so. But their cosmetic challenges (think hail-pocked apples or curvy leeks) have traditionally kept them out of retail stores ... Imperfect produce often ends up in landfills instead, contributing to food waste, which, in turn, is a major source of greenhouse gas emissions."

    This is not Walmart's first foray into the ugly produce business. NPR notes that "Wal-Mart has been testing sales of uglies since late April, when it started marketing 'Spuglies' — a brand of weather-damaged potatoes — in its Texas stores."

    And, Walmart is not the only retailer taking advantage of the trend. Both Giant Eagle and Whole Foods have embraced similar efforts.
    KC's View:
    I think it is great that retailers are engaged with this effort, but I also think it is important to remember that it really isn't all that new. For years retailers used to put less-than-perfect produce on sale, but a friend of mine reminded me that many stopped doing that because it ate into the sale of traditional, more attractive produce.

    Now, retailers simply are doing what they used to do, while being able to justify it as an environmentally positive.

    Not that there's anything wrong with that.

    Published on: July 21, 2016

    The New York Times has a piece about how the definition and delivery of community-supported agriculture (CSA) models have changed as consumer demand for such services has "ballooned." According to the Times, new ideas for connecting farms with consumers have meant that "online hubs are using sophisticated distribution technology to snap into the food chain, often using 'CSA' to describe what they deliver ... As the 'farm share' concept has spread, the CSA has become just another part of the sprawling, messy modern system of knowing where your food comes from and choosing what you want to eat."

    Which means the traditional retailers can become part of the CSA system ... or can find newly aggressive CSA models competing against them more effectively. It also means that traditional farmers may find their approaches to be under attack.

    "The organic farm boxes you buy online may or may not be local," the Times writes. "Local farm boxes may or may not be organic. The farmers may or may not be paid more than wholesale prices. And customers may or may not care."

    You can read the entire story here.
    KC's View:

    Published on: July 21, 2016

    The New York Times reports that the US Department of Justice has cleared the way for the $106 billion takeover by Anheuser-Busch InBev of SABMiller, allowing for the combination of the world's two biggest brewers.

    According to the story, there are caveats: The combined company cannot "buy a distributor if that would push more than 10 percent of its overall sales volume in the country through wholly owned distributors. Anheuser also agreed not to cut any ties with wholesalers as part of the transaction. And the company, which makes Bud Light, agreed not to make moves that would encourage distributors to favor Anheuser or SABMiller brands over competing ones."

    The two parties already have agreed to sell their stake in the MillerCoors join venture to Molson Coors, and to sell off brands such as Grolsch, Peroni and China's most popular beer, Snow.
    KC's View:
    Obviously, I know nothing about antitrust law, because it is hard for me to imagine why the feds would let this deal go through, but block the Staples acquisition of Office Depot.

    And I don't really understand the caveat about agreeing "not to make moves that would encourage distributors to favor Anheuser or SABMiller brands over competing ones." Isn't that the whole point of what every company does - build strategies and tactics that make other people prefer them to the other company?

    Published on: July 21, 2016

    The Cincinnati Business Courier reports that Kroger-owned Axium Pharmacy Holdings "has agreed to buy Modern HC Holdings Inc., which is also known as ModernHealth. The two companies will combine to create an 800-employee specialty pharmacy company."

    Terms of the deal were not disclosed.

    Robert Clark, Kroger’s senior vice president of merchandising, says that the deal "will accelerate the growth of Kroger’s health and wellness business ... Expanding our specialty pharmacy services will provide our customers with greater access to medications we don’t currently dispense and access to additional services without going to another pharmacy. (The merger) will allow Kroger to both serve more customers who require complex drug therapies and deliver those therapies at greater value to customers and insurance payers."
    KC's View:

    Published on: July 21, 2016

    Reuters reports that Walmart yesterday said that "it was pushing suppliers to remove eight hazardous chemicals from products including household cleaning, personal care and beauty items.

    "The chemicals include formaldehyde, a carcinogen found in wood products and building materials; butylparaben used as a preservative in cosmetics; and triclosan, which is used in toothpaste for treating plaque."

    The retailer committed three years ago "to increase transparency about ingredients in products it sells, advance safer formulations and attain the US Environmental Protection Agency's Safer Choice certification for Walmart private brand products," the story says.
    KC's View:

    Published on: July 21, 2016

    Grub Street reports that Starbucks plans to open a new café in Kuala Lumpur, the capital of Malaysia, that will employ deaf baristas. "Ten hearing-impaired individuals ... will work alongside three hearing staff," the story says, with pads provided so that people can write down their orders if they don't know sign language.

    According to the story, "The company partnered with Malaysia’s Society of Interpreters for the Deaf to provide two sign-language interpreters to help train workers. They’re also sticking around to teach sign language to staff at the store who don’t have a hearing disability."

    • The New York Post reports that Target Corp., persuaded that its future looks brighter when considered within the context of smaller, urban stores, "expects to roll out 14 more this year."

    The story notes that "Target is looking beyond its core customers in the burbs and scooping up attractive real estate abandoned by other struggling retailers like grocers, Barnes & Noble and OfficeMax." By grabbing non-traditional locations and adopting a more localized approach to merchandising, Target hopes that it can improve store performance and overall productivity.
    KC's View:

    Published on: July 21, 2016

    • Target Corp. announced that it has hired Benjamin Cook, formerly the Americas head of logistics and supply chain for Apple, to be its new senior vice president of global logistics, inventory allocation and replenishment, responsible for leading "the optimization of Target’s inbound and outbound supply chain processes, including carrier transportation and last-mile delivery."

    The Wall Street Journal notes that Cook, who previously held supply chain jobs at Kimberly-Clark and Home Depot, "will report to Arthur Valdez, who Target hired from Inc. earlier this year to run its supply chain operations."
    KC's View:

    Published on: July 21, 2016

    Regarding Unilever's $1 billion acquisition of Dollar Shave Club, one MNB user wrote:

    Create a $1B company in four years? Well done!  Let's over-simplify....

    Couple of guys get fed up with expensive razors; decide to go direct. 

    Start up operation; retail contract packers.  Buy good blades.  Sell direct to customer.  Borrow more money; buy factory.

    Create a customer list of 3 million with $156M annual sales in four years.  Build company of 200 people.  Sell out for $1B ... 6x sales revenue.  Oh, did I mention.... while you're at it, beat P&G as they try to copy the formula.

    The VC guys take $400M.  Employees 20% or $200 million ... avg $1M each.  Founders split $400M.

    Beat the Cincinnati based MBA's at their own game.  How?  Rule 1: Get there first. Rule 2: Provide better value.

    Smart financial types ask: "Why couldn't P&G do it better?"  Margin targets too high (prices too high) and they became second (maybe third) in a crowded field. 

    What are the learnings?

    Run same playbook  in other categories ... be first.  Be best value.  Few people who understand hard work. Pay employees for their hard work (e.g. execution).

    Which other categories ... Consumption based categories will likely earn similar multiple.  Alcohol? Eventually the state-driven shipping restrictions will fall... 

    Another example of why physical retail has the same future as Woolworths (USA - no insult to other Woolworth brands internationally which are more visionary).

    To quote Jimmy Malone from The Untouchables, "Here endeth the lesson."

    One MNB user had some thoughts about Walmart's slowly expanding Marketplace business:

    I am a huge fan of Amazon, but I hope as Walmart both expands its’ marketplace and works to improve the online experience for customers, it doesn’t cut corners and hurt brand imaging.

    Walmart has a ton of ground to cover to catch up or be considered a legitimate online threat to Amazon. I think the steps in the right direction are being taken though.

    With that said, Amazon is currently facing an issue with its’ marketplace being home to a lot of counterfeit products. These sellers are damaging the business, and sometimes the reputation, of other sellers including many US based small businesses.

    Not that I am opposed to copycat products. I have been purchasing things like this on eBay since the early 2000s, but at some point, you need to have someone manage this and make sure there are not counterfeit items being sold with the intention of misleading the consumer into thinking these are from the brand manufacturer. If I buy a knock off product, I want to buy it knowing it is a knock off and the risks associated as opposed to being deceived – whether intentionally or not – into thinking I am just getting a great deal on the brand product.

    Writing about the See Jane Go alternative to Uber and Lyft, providing women with women drivers with whom they'd feel safer, an idea that one MNB reader said could be a slippery slope toward discrimination, one MNB user wrote:

    I think See Jane Go is a great idea.  It’s something women are taught beginning at childhood.  Don’t get into cars with strange men.

    I know several women who won’t use Uber for that very reason.  I haven’t had any problems when traveling alone, but will confess to a sense of relief when I have a woman driver at night.

    As for the other items mentioned, avoiding gays or blacks or whatever, I’m sure that happens now.  Some people remain afraid of the world and just search for ways to articulate it.

    Another MNB user also took issue with the reader who was critical:

    Women have to take precautions and avoid risky situations. It’s interesting that women too often are essentially blamed when they get attacked - “Why did you go jogging alone?” Why did you drink so much?” "Why did you let him into your home?” … but when we are careful, we’re accused of being overly sensitive. Can’t win. …

    And from another MNB user:

    I’m happy for the reader that he/she can take this point of view.  It indicates to me that this person probably hasn’t ever been threatened or attacked or had someone close to him/her that has been.  As a woman who has been threatened with rape and who has traveled alone, I believe we need to look at this from a different point of view.  It’s not necessarily the bias women have against men that has women avoiding getting into a car with a male stranger, but rather a bias that some men have against women.  Unfortunately, there are a few men who feel that they have a right to prey upon woman.  While this is a minority of men, it’s enough to make life terrifying for too many women.  I don’t have the statistics, but I think readers will find victims are more common than society wants to admit.  Do I have a bias against lone, strange men?  Yes, I do.  But the answer is not as simple as tallying it up to bigotry and saying, “don’t be a bigot.”  It is a real safety issue.  See Jane Go can be a real comfort for those of us who have to travel alone and can’t forget the nightmare.

    MNB yesterday took note of a Fortune report that "there is a petition circulating on the Internet - with close to 11,000 signatures on it to this point - asking Starbucks to terminate all store leases on properties owned by Donald Trump, the Republican presidential candidate. The signers are people who say they disagree with comments made by Trump 'about various groups of people, including Mexicans, Muslims, and women'."

    The Fortune story went on to say that "supporters of the cause pledged to buy a gift card from Starbucks if they terminate their lease at Trump Tower. So far nearly 2,000 people have pledged close to $70,000."

    I commented:

    To me, this reflects the level of connection that many Starbucks customers feel with the chain; at some level, they think it reflects their values, and so they expect it to extend to issues like this one. That isn't something that customers feel about all such businesses, and Starbucks should treasure these feelings, even if it decides to ignore them. (Which it probably will.)

    One MNB user wrote:

    I would pledge to buy a Starbucks card if the stores remain.  In fact, I would do it time and time again!  There is a silent majority of Starbucks shoppers who support the view of strengthening this country and its businesses (no matter how small or large) through legal ways of hard work and dedication, and these are also the values that Starbucks is built on.

    From another reader:

    I think they should terminate all the leases. It will make Trump even more money after they pay the fees associated with breaking a lease and then the increase coming with a new tenant. Makes me want to hang out in a Starbucks with my Make America Great Again hat.

    I'm not sure about the lease thing. Trump currently is suing a chef in Washington, DC, who pulled out of a deal to have a restaurant in his new hotel there, saying that Trump's comments about immigrants would hurt his image and brand equity. I have no idea how the case will turn out, but there's at least the possibility that Trump could lose. (We know he won't settle the case. He says he never settles.)

    MNB reader Thomas Zatkulak wrote:

    Really, an online letter petition that cannot be validated that these are the actual feelings and beliefs of Starbuck’s customer is a story? And your comments that Starbucks should take this into consideration? Businesses should define who they are not an on line petition. This is why some businesses lose their focus, they read and try to manage their corporate message based on articles with an agenda. Move on to a real story. My response would have been the same if this was a petition supporting Trump.

    Well, yeah. It is a story. A pretty interesting one, I think.

    But for the record, I don't think I said that Starbucks should do what the petitioners are suggesting. Just that the petition reflects a certain kind of enviable brand resonance.

    To be clear, I think that Starbucks should probably put out a statement saying that Conservatives and Republicans drink as much coffee as Liberals and Democrats, and that the country would be in better shape if all these folks would drink Starbucks coffee together and talk about the things they have in common, rather than arguing about the things that divide them.

    At least, that's what I'd do.
    KC's View:

    Published on: July 21, 2016

    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, Kevin Coupe here, and this is FaceTime with the Content Guy. I'm reporting to you this morning from the new 365 by Whole Foods store in Lake Oswego, Oregon, the second store under this banner that has been opened by the company.

    In promoting the 365 concept, Whole Foods has talked about it being lower priced than its traditional stores ... with a greater use of technology ... a tighter focus on private label ... and more limited SKU count ... all of which it hoped would add up to stronger appeal to millennials and other folks put off by its "whole paycheck" image.

    After having spent some time in the store, I can tell you that I'd probably give it a C+ ... or, as Mrs. Content Guy, a third grade teacher, would put it, "definitely needs improvement."

    One of my concerns about the format, at least from how it has been described, was that it would derivative rather than differentiated, and I'm sorry to say that this version, at least, bears out those fears. While it is an attractive store, with high ceilings and warm colors, it also sort of feels like Costco and Trader Joe's got together and had a baby. The shelving feels like it was stolen from Trader Joe's warehouse, and the frozen food coffin cases are right out of the Trader Joe's playbook, except that they sort of obscure the product rather than highlighting it.

    There are some nice touches, like a cold room in the produce section - again, right out of the Costco playbook - and a good use of electronic signage. Except that the electronic signage works against the low-price image, and there is a startling lack of price-oriented signs throughout the store. The prices may be good, but also may not be - the limited assortment makes it hard to determine. But bananas selling for 19 cents apiece - and organic bananas selling for 29 cents apiece - certainly doesn't strike me as cheap.

    There's also a ton of labor, despite the fact that service departments are at a minimum ... and you'd think that labor is one place where they could save money. But maybe that's because the store is new, or because John Mackey and Walter Robb happen to be here this morning.

    While I like some of the technology, some of it seems awkward. There is a tablet computer in the wine department that allows you to scan s wine label so you can get more information - but the information largely consists of short reviews mostly by people who are largely unidentified. I don;t know who they are, or what their taste in wine is. And the technology doesn't even answer what often is the most important question when it comes to wine - what food does it go with? Another cardinal sin in the wine department - they appear to have more California pinots than Oregon pinots. That's just not cool.

    Listen, this is early in the 365 development process, so it is impossible to accurately judge where this format will take the company. That's especially true because - and I've talked to some vendors about this, and they agree - this particular 365 seems like a work in process.

    And to be fair, I did talk to some customers who think this is a refreshing addition to the community's shopping options. Some say the salad bar is great, and the burger bar seemed to be getting some action... My summer class at Portland State University has as an assignment visiting this store and writing about it. They're all millennials, so I'll let you know down the road what they think.

    365 by Whole Foods ... derivative rather than differentiated, and needing improvement.

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

    KC's View: