business news in context, analysis with attitude

Published on: September 15, 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.

One of the things we like to talk about here on MNB is the importance of facing reality. You have to do battle with the competition you have, not the competition you'd like to have. You can't be in denial about how things actually are ... because if you don't deal with reality, it sort of means that you're hunting for sharks and you don't have a big enough boat. (See Jaws chapter in "The Big Picture: Essential Business Lessons from the Movies.")

I was thinking about this the other day when I saw a Reuters story about how a new US Department of Labor report revealed that there were 5.2 million jobs available in the United States last July ... which was said to be the highest level of job availability since these specific numbers started being tracked back in 2000.

Let me repeat that: There are more jobs available in the US right now than at any time in the last 16 years.

Yikes.

Now, I want to be clear about something. I understand that there is a lot of debate, much of it driven by politics, about the unemployment rate and the under-employment rate, and the strength and/or weakness of the US economy. It is a presidential election year, and so the debate is at a fevered pitch, made only more cacophonous by the existence of social media and 24-hour cable news, and quite frankly, I don't want to get into that part of the argument. (I'm a reasonable guy who believes in intelligent discussion, contextual thinking, nuanced judgements and equitable compromise. Clearly, I have no voting lane in this election and no place in the national debate.)

But I do want to focus on that available jobs number, and on something that one expert quoted in the Reuters story said - that when you compare the available jobs number to the number of companies laying people off (for reasons that sometimes have to do with business weakness and sometimes have to do with higher productivity through technology, among other things), what we have in this country is "one of the biggest mismatches between skills and lack of qualified help available in the nation's history."

Let's think about that mismatch. Essentially, it seems to me, the problem is that we have a lot of computer programming jobs available, and a lot of coal miners out of work. (Yes, I know I'm using a broad brush here. Stick with me for a minute.)

I'm speaking here as an interested taxpayer. Wouldn't it make sense to open a bunch of computer programming schools in coal mining communities and say to the people there who are out of work, "Hey, we're going to make it possible for you to go to school for almost no money, and we're going to do our best to help you position yourselves for the economy we're going to have, not the economy in which you grew up?" I'd be willing to see some of my tax dollars applied to that effort.

If those folks who are desperate for work and to rebuild their lives were willing to grab that opportunity, it would mean that they'd eventually land jobs that actually exist, would pay more taxes, would be able to spend more on groceries and clothing and cars and houses and educations for their children. It would expand the tax base, not just tax the existing base. And the really cool thing is, for many of the new economy jobs, they wouldn't even have to leave their communities ... little Silicon Valleys might sprout up all over the place, which would create business opportunities for supermarkets and coffee shops and all sorts of other retail.

Again, I know that I'm painting with a broad brush. The differences between available jobs and available people is not always as stark as the difference between computer programming and coal mining. But there's got to be ways to deal with reality that focus on common goals and values, as opposed to the things - some important and some not so much - that separate us.

To me, it is about building a big enough boat. The sharks are circling, and the more we are in denial, the more likely it is that we're going to get eaten.

There's that line from Craig Ostbo that I'm fond of quoting: "You're either at the table, or you're on the menu." I know what I prefer.

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

Published on: September 15, 2016

TABS Analytics is out with its 2016 Food and Beverage Study, positing that "online grocery shopping continues to be weak, with just 4.5 percent of consumers regularly purchasing food and beverages online compared to 78 percent of consumers regularly purchasing food and beverages from brick and mortar grocery outlets.

"Although regular online grocery purchasing increased by half a percentage point since the 2015 study (from 3.9 percent in 2015 to 4.5 percent in 2016), it has yet to break five percent in the four years TABS has conducted this study."

The study only identifies one "bright spot" in online grocery shopping - Amazon, which is says realized "a two percent increase in shopper penetration from 14 percent in 2015 to 16 percent in 2016, the TABS study found. Amazon was the only online shopping domain to increase shopper penetration in 2016."

The study goes on: "Walmart.com remained flat in penetration at 12 percent in both 2015 and 2016, while the grocery banners, overall, dropped from 16 percent in 2015 to just 11 percent in 2016. Target.com saw a two percent grocery penetration decline from seven percent in 2015 to five percent in 2016. The decline in Target.com penetration mirrors their exit from the curbside pickup service."

Kurt Jetta, CEO and founder of TABS Analytics, suggests that the study results indicate that "online grocery is failing. For the fourth year in a row, consumers have turned their backs on buying groceries online no matter how much online grocery retailers try to entice them. Sixty-nine percent of consumers never buy groceries online. With only 15 percent of consumers stating loyalty to shopping for groceries online, this is not a sustainable business model, especially when you consider the industry loyalty rate benchmark is 70 percent."

The TABS study also suggests that companies that focus on appealing to millennials are making a tactical error, since those shoppers are not the center of the food retail target.

"Unlike the cosmetics industry that thrives on millennials buyers," the study says, "just over a quarter of millennials are heavy buyers of food and beverage consumables, compared to 35 percent of households with children who are heavy buyers of food and beverages. Just 20 percent of households with no children are heavy buyers.

"Millennials are also harder to target with deals than other demographic groups since their participation in deals is well below the national average, particularly circulars and free standing inserts. Despite an uptick in participation in 2016, millennials use of circulars remains a full 12 percentage points below the study average of 42 percent. The gap for free standing inserts is even larger at 14 percentage points below the study average of 34 percent."

Published on: September 15, 2016

Several stories this morning are suggesting that for all the noise that Target has been making about achieving greater sales and relevance through an improved grocery offering, the company has no intention of providing a full-service grocery offering in its stores.

The Washington Post reports that CEO Brian Cornell made clear this week that "Target won’t be looking to solve its grocery problems by taking a page from the Whole Foods playbook and investing in flourishes such as sushi counters and rotisserie ovens that send shoppers home with prepared meals. Instead, Target will be sticking with a convenience-oriented, self-service format, centering its efforts to engage more customers on offering better product in a more appealing presentation."

And the Wall Street Journal quotes Cornell as saying, "“We’re not a grocer. We’ve been able to drive traffic without having a sushi chef.” The Journal says that Target's goal is to improve and then market improved aesthetics and product selection, "including new paint, lighting and signage, to draw back customers who have been disappointed with the company’s fresh foods ... The retailer has also been building out dedicated grocery teams and hiring regional leaders to execute strategy changes. It also plans to remodel grocery aisles in additional stores after testing out presentation changes in 25 stores in Los Angeles. Dallas is one of the next markets that will see those grocery updates."

The Post notes that Cornell's efforts to turn around Target's fortunes "have recently hit a speed bump, with the retailer reporting disappointing second-quarter earnings in August and lowering its forecast for the full year."

Published on: September 15, 2016

The Wall Street Journal reports that even as Bayer has agreed to buy biotech giant Monsanto for $57 billion, farmers today "are finding it harder to justify the high and often rising prices for modified, or GMO, seed, given the measly returns of the current farm economy. Spending on crop seeds has nearly quadrupled since 1996, when Monsanto Co. became the first of the companies to launch biotech varieties. Yet major crop prices have skidded lower for three years, and this year, many farmers stand to lose money."

At the same time, "Biotech farming has also shown limitations, given how certain weeds are evolving to resist sprays, forcing farmers to fork out for a broader array of chemicals. Some are starting to seek out old-fashioned seed, citing diminished returns from biotech bells and whistles."

While this squeeze seems to be leading to a merger-and-acquisition trend in the category as companies look to achieve scale and savings, Monsanto has been maintaining that farmers will continue to use its seeds because they will save money on things like pesticides.

The Journal notes that the Bayer-Monsanto deal isn;t taking place in a vacuum: "DuPont Co. and Dow Chemical Co. are pursuing a merger that would eventually spin off a combined agricultural business, along with two other units. Syngenta AG agreed in February to a $43 billion sale to China National Chemical Corp., after turning down a takeover proposal from Monsanto."

And here's the other trend that is part of the broader equation: "Following a string of bin-busting harvests, prices for the two main U.S. agricultural crops have plummeted," the Journal writes. "U.S. farmers this year will collectively earn $9.2 billion less than they did in 2015, and 42% less than they did in 2013, according to the USDA. The USDA projects corn, soybean and wheat prices holding near their current low levels over the next decade..."

Published on: September 15, 2016

Bloomberg has a story saying that while we are in an election season during which the debate has meant that "Muslims haven’t always been made to feel welcome in America," the irony is that "sales of halal food, prepared according to Islamic law, are surging -- and not just among the fast-growing U.S. Muslim population: Adventurous millennial foodies are embracing it too."

Here's how the story frames the trend: "There’s a well-trodden path in America’s food culture, leading from ethnic-specialty status to the mainstream. It happened long ago with Italian cuisine, and to some extent with kosher food, which offers a closer parallel to halal. Like the Jewish equivalent, Islamic rules mandate humane treatment of animals as well as other special preparations.

"At every level of the U.S. food chain, halal already occupies a small but rapidly expanding niche.
In grocery and convenience stores and similar outlets, research firm Nielsen estimates that sales reached $1.9 billion in the 12 months through August, a 15 percent increase from 2012 ... A look at the demographics makes halal seem less of a risk. There were 3.3 million U.S. Muslims last year, but the number’s projected to grow to 8.1 million by 2050 -- and about halfway through that time, Muslims will surpass Jews as the largest non-Christian religious group in the U.S., according to Pew Research Center."

Published on: September 15, 2016

The Wall Street Journal this morning reports that a coalition of organizations - including the American Beverage Association, the Pennsylvania Food Merchants Association, and several beverage distributors - is suing to prevent the city of Philadelphia's tax on sweetened drinks from going into effect next year.

The story notes that "Philadelphia become the first large US city to pass such a measure in June, when the city council approved a levy of 1.5 cents per ounce on nonalcoholic beverages with added sweeteners ranging from soda to sports drinks and energy drinks. A civil complaint filed with the Philadelphia County Court of Common Pleas argues the tax is unlawful because such drinks already are subject to a state sales tax and that Pennsylvania law prohibits cities from imposing duplicate taxes."

The Journal goes on: "City officials said Wednesday they are confident the tax will be upheld. They have argued the tax can withstand legal challenges in part because it is imposed on distributors and isn’t a sales tax ... The legal challenge, which had been expected, comes as other cities weigh special taxes on sugary drinks amid rising concern over obesity and diabetes rates. Residents in San Francisco; Oakland, Calif.; and Boulder, Colo., will vote in November ballot initiatives."

Published on: September 15, 2016

The San Francisco Business Times reports that Instacart CEO Apoorva Mehta said at a tech conference this week that despite the "thin margins, unstable labor forces, and no shortage of competition from the likes of Amazon" with which his business contends, he "is confident nonetheless that the company will become 'cash-flow positive' within 12 months and remain a successful independent company."

That last part - about being independent - came up when Mehta was asked about the possibility that he could sell the company to Whole Foods, which has invested in Instacart and was one of the first retailers to do business with the company.

"We work with lots of different grocery stores, so it doesn't make sense to think about us selling to a grocery store," Mehta said. "The best path for us is to continue to be an independent company."

Published on: September 15, 2016

• The Wall Street Journal this morning reports that Ocado, Britain’s largest online-only grocer, "blamed intense competition for 'sustained and continuing margin pressure' in a trading update Tuesday." The interesting thing is that "Ocado processed 19% more orders a week for the quarter through 7 August than in the prior year - its fastest growth in more than half a decade." The real problem for Ocado, the story says, "is the price war facing all U.K. grocers. The German grocers Aldi and Lidl, which don’t have online operations, continue to roll out stores with market-beating prices." Their efforts have roiled the marketplace, creating major competitive issues for companies like Tesco and Walmart-owned Asda ... and apparently they're also having an impact on Ocado.

The irony is that this is the precise moment that Amazon has chosen to debut Amazon Fresh in the UK.

There's an added complication - "the pound’s Brexit-related plunge this year. The cost of imported food for retailers rose 12.7% in the year through August, according to official statistics released Tuesday. This is also creating the margin squeeze to which Ocado sees no imminent end."

Published on: September 15, 2016

• The Rochester Business Journal reports that Wegmans plans to begin bottling a private brand pasta sauce "in a jar made from lighter-weight PET plastic, the type used for water and soda bottles ... Reasons for the change include the new plastic jars do not shatter if dropped, they are lightweight and can be shipped using less fuel, and they are more widely recycled than glass jars, said Jason Wadsworth, Wegmans sustainability manager."

Wadsworth says that "by switching from glass to PET jars the same amount of pasta sauce can be shipped each year using 55 fewer trucks. That change can save 974 gallons of diesel fuel, cutting carbon dioxide emissions the equivalent of driving around the Earth once in an average passenger vehicle.”

Published on: September 15, 2016

• In Canada, the Financial Post reports that there are some generational changes taking place at George Weston Ltd., which owns Loblaw.

W. Galen Weston is stepping down as Executive Chairman of George Weston, but will retain the honorary title of Chairman Emeritus. His son, Galen G. Weston, will become Executive Chairman, and the fourth generation of family leadership at the company; he will retain his responsibilities as Executive Chairman and President, Loblaw Companies Limited.


• Advertising Age reports that Procter & Gamble has hired Gerry D'Angelo, the top European media executive for Mondelez International, to be its new global media director. The story says that this delivers on a commitment that P&G - long a paragon of internal advancement - has made to increase hiring from the outside as a way of compensating for bench strength that has thinned in recent years.

Published on: September 15, 2016

We've had some discussion here in recent days about the case of an Albertsons baker who refused to inscribe a birthday cake with the words, "Trump 2016." After the customer drew attention to the incident on social media, local TV stations picked up the story, and then it went national.

My original comment:

This stuff just makes me nuts. You're a baker. Bake the freakin' cake, and write whatever the customer wants on top of the cake, assuming it isn't profane or vulgar. This goes for gay weddings and presidential endorsements. Writing something on top of a cake does not constitute a personal endorsement.

But I was challenged on this, by a reader who wrote:

Kevin, I’m curious if you have ever refused an advertiser to your site? It is that baker's constitutional right to deny a customer. The customer’s rights have not been infringed upon. In fact, if I use the knowledge I have gained from reading your blog, that customer should find a baker who will do it, or start her/his own bakery and develop a niche catering to issues other bakers don’t want to. I don’t understand why you don’t take the stance “Why doesn’t the customer just go to another baker and not make a big deal out of it?”

I responded that the customer clearly has the right, and probably would be well-advised, to just go to another baker. But I'm not clear that Albertsons would be happy about losing business because of one of its employees' political opinions ... this could be a slippery slope.

And I think that's a difference between MNB and this Albertsons bakery. MNB is very much a reflection of my opinions, feelings, taste, whims and biases ... so when I've turned down advertisers, it is because I think the message is inconsistent. I'm not sure that's the case at the bakery.

However, another MNB reader disagreed:

I think you are off base on your response in saying that writing something on a cake does not imply personal endorsement, yet placing a banner ad on your site would.  I would argue that every single cake that a baker makes is just as much of an advertising piece (call it a tiny edible billboard for his business) as placing that banner ad on your site.  In that sense, refusing to decorate a cake with a message that he does not support is no different than you refusing the tobacco advertising based on your personal beliefs.

While I applaud the notion that a baker in a supermarket should feel that every product he or she makes is a reflection of their personal taste and opinions, I'm just not sure this is the case. And by the way, when I worked for other people and companies - in newspapers, magazines, video and online - I could not expect that those properties would be a direct and consistent reflection of my opinions.




Regarding Walmart's plans for self-driving shopping carts, MNB user Brian Blank wrote:

I think you may be confusing self-driving shopping carts with the existing shopping cart status quo when you describe the “chaos” you imagine.  From my experience in the aisles and parking lots, I think even if shopping carts become self-aware and rise up against us, it will still be an improvement over the way things are.




We got a number of responses to Kate McMahon's column yesterday about the outrageous prices being charged for EpiPens.

One MNB user disagreed with Kate's outrage:

Why would you even care about the cost of EpiPen? You have no right to complain about what profit or salary someone is paid. Let's try this, an iPhone cost $15 to make but sells for $600, what is the difference? Hillary Clinton charges $250,000 to speak, I have not heard you complain about that fee. Same profit but no one complains.

You also never mentioned Adrenaclick as a cheaper alternative to EpiPen. The next time you complain about the cost of something you need to remember simple economics, supply and demand. All the complaining in the world will not change that.

By the way, I use and carry the EpiPen as well, I have no problem paying $600.00 because I'm grateful something is around that can save my life in an emergency. There is no need for me to look the gift horse in the mouth.

But another MNB reader wrote:

I too join in the outrage. I don’t have an epi pen but I have asthmatic allergies and I know what it is like with the ton of bricks on your chest squeezing your air passages to a pin hole and the struggle to get a little bit of air. How would CEO Heather Bresch otherwise have otherwise behaved had she and her family been in an anaphylactic crisis?  She does not “get” what she is doing to kids and their parents.

I blame the b schools for this Greed training.  They will need Epipens in hell...

MNB reader Bob Thomas had a one-word response:

BRAVO!

MNB reader Timothy Bastic wrote:

Well stated, really tired of overcompensated executives especially when they take advantage of a situation that affects people’s health and ultimately their lives!  This totally unacceptable an inexcusable.  I am in business to make a profit as well but not by overcharging due to a non-competitive environment.

MNB reader Paige c. Grunnagle wrote:

My two year old son was diagnosed with nut allergies this year.  And lucky us, we have three locations where he receives care so we wanted 3 sets of pens to be safe.  We settled for 2 and lots of daily shuffling because of the outrageous price. 
 
Mostly, I wanted to tell you that I loved your quote at the end of the post.  And yes, it really is the best book out there.

That quote, at the end of Kate's column, was this:

“For what shall it profit a man, if he gain the whole world, and suffer the loss of his soul?”

MNB user Tom DeMott wrote:

Thanks for quoting scripture, there are many good business lessons in this Book for all of us. It’s sad to see that greed seems to drive many individuals in business and in life.

Can I get an "amen?"