business news in context, analysis with attitude

Published on: October 6, 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.

Last weekend, I had the opportunity to drive up to Lake George to do a speaking engagement for the Frozen & Refrigerated Association of NewEngland (FRANE), which was cool not just because I'd never been to Lake George before, but also because it gave me the chance to visit a Howard Johnson's there.

Now, I normally wouldn't go to a Howard Johnson's. But this was different. Because this actually was the last Howard Johnson's.

It's been in the news lately, since the second-to-last Howard Johnson's closed. And the stories have largely been sentimental, focusing on how when there were HoJo's everywhere, American was a simpler and better place. I figured it would be good for my soul to get in touch with that, so I steered the Mustang off Route 87, hung a right and hen a left and went looking for a simpler and better time.

I didn't find it.

Oh, I found the Howard Johnson's all right. There was the iconic orange roof, and a building surrounded by an almost empty parking lot. When I went inside, it was dark and dingy and there were just four people eating, two couples at separate tables, but they might as well have been in separate counties. Serving cases were empty, and the salad bar looked like the kind of thing that food safety regulations were invented to address. One of the patrons was eating spaghetti and meatballs that looked like it had been served directly from a can.

By the way, it was dinnertime when I stopped by. Restaurants across the street seemed busy. So this was not a matter of a lack of customers during the offseason. For this HoJo's, I suspect it always is offseason.

I sat at the counter and perused the menu, which seemed populated by items from the fifties and prices from 2016. Nothing looked particularly appetizing, so I decided to go with an old standby - a black and white milkshake. "Sorry, we don;t have that," the waitress said. "We just have chocolate, vanilla and strawberry shakes." I didn't want to break it to her that if she had the makings of as chocolate shake and vanilla shake, she probably could make a black-and-white shake. I ordered chocolate. It took about 10 minutes to get it, and it tasted like chalk. Albeit chocolate chalk.

I paid on the way out, and then, just out of perverse curiosity, checked out the men's room. No surprise, the garbage can looked like it hadn't been emptied in a week. Somehow, I wasn't surprised.

Now, I don't want to be unkind here, but if this is the reflection of a simpler and better America that some people say it is, we're better off without it.

The thing is, what really bothered me about the last HoJo's is that nobody seemed to be trying. Aside from a small sign saying "last one standing," there was absolutely no effort to take advantage of the brand name's role in the nation's gastronomic history. They could've had real fun with it - it was a Friday night, and they could have had music playing, maybe an antique car show in the parking lot, and all sorts of nostalgia-driven promotions driven by an innovative energy that nobody else on the street could've matched. But instead, there was what appeared to be a death watch.

Sometimes life deals you a crappy hand. But that's the hand you have to play ... and in this case, I don't think the last Howard Johnson's was taking advantage of any of the opportunities that might have allowed it to differentiate itself and drive customer traffic and sales.

Won't matter, though. I have to believe it'll be gone soon, and the name will only be remembered by people who check out Wikipedia from time to time.

It'll probably be found under "irrelevant" or "obsolete."

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

Published on: October 6, 2016

by Kevin Coupe

Bed Bath & Beyond, a company that largely has depended on aggressive couponing to get customers into its stores, apparently has identified an alternative strategy that it hopes will allow it to better compete with Amazon's Prime program and drive badly needed higher margins.

The Wall Street Journal reports that the home goods retailer "is testing a membership model that for $29 a year offers a 20% discount on all purchases and free shipping."

Beyond +, as the program is called, is just in a testing phase, and the retailer is not commenting on how many customers are involved. And the Journal writes that there appears to be some resistance among Bed Bath & Beyond consumers to a program that is designed to move the company away from the familiar blue and white coupons on which they have come to rely.

The story notes that "the invitation-only program was launched less than two weeks after Bed Bath & Beyond reported a 17% drop in profit and slowing sales growth in its most recent quarter. In the quarter ended in August, the company reported yet another increase in coupon usage with a slight decrease in average coupon amount. Coupon redemptions have squeezed the retailer’s margins for the past 15 quarters, according to UBS analysts."

It was exactly a year ago - October 8, 2015, to be precise - that MNB took note of a Washington Post story about how, other than bills and credit card offers, the thing we are most likely to see at least once a month in our mailboxes is a Bed, Bath & Beyond coupon promising 20 percent off any single item, and that an expanding number of customers were timing their trips to the retailer around the coupon's arrival. This was putting pressure on margins ... and now, a year later, the retailer seems to be taking somewhat tentative steps toward resolving the issue.

I think Bed Bath & Beyond is smart to try and cope with the problem, though I tend to believe that maybe it is not moving as quickly to find solutions as one might expect. But it least is a recognition that Amazon's entire business model i designed to make it less necessary and desirable to actually go to the store.

What Bed Bath & Beyond is doing is an Eye-Opener. What remains to be seen is whether it will be enough, and in time.

Published on: October 6, 2016

The Associated Press reports that Amazon has announced changes to its Amazon Fresh pricing structure. To this point, Amazon Prime members have been paying $299 a year for the total Prime package, which included Amazon Fresh. But now, the story says, "it will cost $15 per month as an add-on for Prime members. That works out to about $280 a year with the Prime membership," though it has the advantage of spreading the payments out over a 12-month period.

In the same story, AP reports that "Amazon has updated its barcode-scanning Dash shopping wand so you can now buy anything with it, not just groceries ... you scan a product’s barcode or say its name to add it to your Amazon shopping cart. You still need to go to Amazon’s website or app to complete the order. The wand is meant as a quick way to reorder a product or order an item that’s on the top of your mind while at home."

Published on: October 6, 2016

The Wall Street Journal reports that "'single-origin' cuts are taking the local food craze to new heights," with a number of retailers "building farm-to-store meat operations that sate some consumers’ desires to trace their burger or bacon all the way back to an individual animal."

Among the retailers that are embracing this approach - Whole Foods Honest Beef, FreshDirect, and Amazon Fresh.

These programs, the story says, "take aim at the industrial meat processors like Cargill Inc. and Tyson Foods Inc. that sit at the center of a hub-and-spoke system tying hundreds of thousands of farmers across the country with retailers and food distributors." And the consumers who are using them seem willing to pay premium prices for what they want.

The Journal notes that "there is little chance that single-origin meat sellers ... will soon jeopardize the business of the four companies that buy over 80% of U.S. cattle, and produce around 18 billion pounds of beef annually. Setting up a single-cow supply chain is costly and complex."

Published on: October 6, 2016

As part of its annual food issue, the New York Times Magazine this Sunday has a long piece about the ongoing and long-lasting battle over transparency in the meat business.

An excerpt:

"When picking among shrink-wrapped packages in the meat aisle of your local grocery, it’s remarkable how little information you’re provided about the steak, pork chop or chicken breast inside. The label tells you the particular cut, its weight and the price per pound, but store brands almost never give even basic information about how that animal was raised. In December, Congress repealed its country-of-origin labeling requirements for beef and pork, so now meatpackers don’t identify where the animal came from. Beef commands a premium if it is labeled 'grass-fed' or 'naturally raised,' but the Department of Agriculture withdrew oversight of those terms in January and no longer verifies such claims.

"Even in cases where the U.S.D.A. does certify labels, the rules can be slippery. The term 'humanely raised,' for example, has no standard definition, and the U.S.D.A. does not conduct site visits to confirm enforcement for those approved to use the label.

"Amid such dwindling transparency and oversight, animal rights activists, once regarded as the radical fringe, have taken on a somewhat unlikely role as consumer watchdogs. Trading provocations (splattering fur-wearing models with fake blood) for middle-ground strategies ('Meatless Monday'), they are drawing the attention of not only shoppers concerned about humane animal handling but also food-safety advocates and environmental groups who worry about the ecological impact of large-scale meat production. The principal tool of this public-relations effort has been daring hidden-camera footage, released in slickly edited videos that aim to shock consumers about what really happens on the production line."

It is a fascinating piece, and you can read it in its entirety here.

Published on: October 6, 2016

CNBC reports that Walmart "is accelerating its investment in e-commerce in a bid to narrow the gap with Amazon," and now plans to "double the number of giant warehouses dedicated to online sales to 10 by the end of 2016." This pace of expansion "is faster than the 8 large warehouses that industry consultants expected Wal-Mart to build by the end of 2017."

At the same time, the story says, Walmart "has installed new technology such as automated product sorting and improved item tracking that for the first time puts them on par with Amazon's robot-staffed facilities, according to supply-chain consultants."

The story goes on to highlight Walmart's focus on e-commerce initiatives:

"Wal-Mart in the last four fiscal years has accelerated its investment in e-commerce and digital initiatives, excluding acquisitions, from about $300 million in 2013 to $1.1 billion this year for a total of about $3 billion, according to public filings and earnings transcripts. E-commerce accounts for about 3 percent of Wal-Mart's overall sales.

"Since 2011, Wal-Mart has acquired 15 e-commerce startups, one of which became its core Silicon Valley technology arm, @WalmartLabs. Last month, it completed its purchase of online retailer Jet.com for about $3 billion and named Jet's founder, Marc Lore, the head of Wal-Mart's e-commerce business."

However, some context is needed. The CNBC story also points out that Amazon has "40 warehouses of one million-plus square feet and plans to open five more by the first quarter of next year," and that its "online sales of $107 billion last year far outstrip Wal-Mart's $13.7 billion of online sales in the same period."

Interestingly, the Washington Post this week has a story about how "Walmart is America’s largest grocer, and its aggressive expansion of pickup services has turned its parking lots into a laboratory for the future of online grocery shopping — one of the trickiest puzzles in all of retail ... With the pickup model, Walmart is testing whether its best weapon in this digital fight is its most old-school — and hardest to replicate — asset: a network of more than 4,600 stores."

Walmart, the story says, "is counting on a different idea of convenience, one that caters to time-starved suburbanites who spend hours each day in their cars. Maybe for them swinging into a parking lot for a few minutes makes more sense than waiting around the house for a delivery ... While Walmart does not disclose sales figures for online grocery pickup, it has taken the program from five markets to more than 80 nationally in the past year.

And, Fox News is reporting that Walmart "has increased its stake in JD.com, China's No. 2 e-commerce site" from 5.9 percent to 10.8 percent. This move comes, the story says, "four months after Wal-Mart bought an initial stake in JD.com in a deal that also gave JD.com ownership to its Chinese company Yihaodian e-commerce site, including the brand and app."

Published on: October 6, 2016

• The Wall Street Journal reports that Amazon is being sued by three drivers who charge that "the company violated federal labor law by classifying them as contractors rather than employees. The drivers are seeking back wages, overtime pay and compensation for fuel, car maintenance and other expenses ... The lawsuit comes as Amazon is laying the groundwork for its own shipping business, which its executives have said will add delivery capacity, particularly during the peak holiday season. Amazon currently delivers its own packages from roughly 70 facilities, mostly built in the past two years, in 21 states."

The story notes that the drivers filing the suit "have all driven for a program called Amazon Flex, a smartphone app launched last year, through which drivers choose the shifts they want to work and schedule their own pickups. The program has expanded to nearly 30 metropolitan areas."

Published on: October 6, 2016

...with brief, occasional, italicized and sometimes gratuitous commentary…

• USA Today reports that the Mall of America in Minnesota has announced that it will close on Thanksgiving Day, saying it wants to make it possible for mall employees to spend the holiday with their families. While the more than 500 stores that operate in the mall do have the option of opening, mall services will not be available.


• Weis Markets said yesterday that it plans "to purchase the location and assets of Nell's Family Market of East Berlin LLC in East Berlin, PA from C&S Wholesale Grocers." Weis previously purchased the Nell's in Hanover, Pennsylvania, in 2015.

Terms of the deal were not disclosed.


• Reuters reports that PepsiCo "has been accused in a lawsuit of misleading shoppers into believing its Naked juices and smoothies primarily contain 'high-value' ingredients such as kale, when the main ingredient is often cheaper, less nutritious apple juice." The suit says that PepsiCo "emblazons healthy fruits and vegetables on Naked labels, and touts how the drinks have 'no sugar added,' when they actually contain roughly as much sugar as a can of Pepsi."

PepsiCo has said that the lawsuit, which was filed by thew Center for Science in the Public Interest (CSPI) is "baseless."

Based on how the story describes the Naked Juice labels - and I have to be honest, I don't drink them, so it isn't like I have one in my refrigerator to which I can refer - I'm not sure that the case is as cut and dried as PepsiCo would like it to be. And it is worth noting that a 2013 settlement forced PepsiCo to stop calling Naked juices "all natural." in this case, quite literally, the jury is out.

Published on: October 6, 2016

• James McCann is stepping down as the head of Ahold USA to take on what is called "a portfolio of non-executive and advisory roles," and will be succeeded by Kevin Holt, who has been serving as CEO of Delhaize America." The move follows the completion last summer of a merger between Ahold and Delhaize, and takes place in an environment in which the two companies are integrating their operations.

Published on: October 6, 2016

I've been writing a lot lately about Aldi and Lidl's plans for the US, and how US retailers need to take the threat very seriously. But one MNB reader isn;t necessarily buying:

For 2 years prior to Tesco opening in the US every day you talked about how scared the US retailers should be of them and how they were going to change the landscape and have an impact on this  and an impact on that and that if you were a US food retailer how worried you would be etc etc etc you went on and on.

Just one question: How did that work out for you and Tesco?

Now you are starting all over again like all the US retailers should be scared out of their boots of these guys and how they might not be around when they come in. I realize they are big so was/is Tesco, I realize they are successful with their concepts in Germany and no doubt they won't help the US retailer but don't underestimate the US retailer They will survive. I read your news letter everyday and i do hope I don't have to read everyday as to what Lidi is going to do to the US food industry. The way you talk all supermarket operators including Walmart should start closing up now and ease the pain.

This is a very fair point.

I've said this before, and I'll say it again. I was totally wrong about Tesco's Fresh & Easy stores ... but I think this is because Tesco totally misread the market, which was completely out of character for the company. They were guilty of hubris, and underperformed dramatically. (Once they opened, by the way, I registered my disappointment.)

It always is possible that, while trying to emulate Paul Revere, one ends up looking a lot more like Chicken Little. I'll try not to beat a dead horse, but I'm willing to take the risk.

I don't think, by any means, that US retailers ought to close up and go home in the face of Aldi and Lidl. But I do think they need to take the threat seriously and begin competing with them now, and not wait until they open up down the street. (I'd be willing to bet that Walmart already has a war plan developed for how to compete with Lidl. No question about it.)

By the way, I also got this email yesterday, from MNB reader Bob Thomas:

I am familiar with Lidl in Germany.  They have the ability to offer an amazing value proposition to US consumers – quality and price.
 



Regarding Target's small urban store initiative, MNB reader David Fischer wrote:

I've been to several of the Target Express locations in the Bay Area. I can't figure out how they are different from a CVS or Walgreens? They have pharmacy, food and a small selection of general merchandise. Is Target basically getting into the drugstore business?




Responding to our story yesterday about Kroger pursuing a market share strategy in the current food deflation environment, MNB reader Tom DeMott wrote:

Kevin, I worked at Kroger in the late seventies and early eighties and I can tell you the one refrain I heard from many executives during this time was to always defend market share. Division management were evaluated on their market share and if there was ever any slippage, they would defend it relentlessly often with corporate assistance. Defending Market Share is in Kroger’s DNA.

Unfortunately most food retailers defend their historical profit rates at the expense of market share which often begins a downward cycle into irrelevancy.

And MNB reader Larry Ishii wrote:

I agree with you that Kroger is smart to strategize this way; they did not get to where they are without a lot of very smart decisions having been made along the way.

As I had told you once before, I was so impressed with Kroger for the year that I worked for them on the West Coast. They have been so much smarter than Wal Mart in managing their company and their growth.

Let’s hope that they continue with their excellent decision making and excellent management development.
 



And two more baseball-related emails....the first from MNB reader Noah Fleisher:

I’m a lifelong Texas Rangers fan, and therefore accustomed to (and expecting) heartbreak from my team, but this is going to be a delicious series. The drama is inherent already. I predict Rangers in 4, and I predict Joey Bats better wear a suit of armor when he takes his first at-bat at the Ballpark.
 
Rangers fans have also not forgotten the incredibly boorish behavior of the Jays’ fans last year – the same behavior that was on display again against the O’s.

And, from another reader:

Just a quick note about innovation in baseball.  I find it amusing that we still see managers and pitching coaches using land-line phones to call the bullpen from their dugout.  This technology is about as close as one can get from two cans connected by a string.

Absolutely right. And I'd look for that to change. Soon.

Published on: October 6, 2016

In last night's nail biter of a National League Wild Card game, the San Francisco Giants defeated the New York Mets 3-0, benefitting from a complete game shutout by Madison Bumgarner and a ninth inning three-run homer by Conor Gillaspie. The Giants will now go on to face the Chicago Cubs - the team with the best record in baseball - in one of two National League Divisional Series.