business news in context, analysis with attitude

Published on: June 4, 2018

by Kevin Coupe

Fascinating piece in the New York Times over the weekend about what it calls “a growing group of A-list authors bypassing print and releasing audiobook originals, hoping to take advantage of the exploding audiobook market. It’s the latest sign that audiobooks are no longer an appendage of print, but a creative medium in their own right.”

Authors including Michael Lewis, Robert Caro and Jeffery Deaver have made direct deals with Audible, which used to produce audio books for various publishers but now is bidding against traditional publishers, which more and more want to produce their own audio books. The reason? The Times writes that “after years of stagnation in the industry, audiobooks have become a rare bright spot for publishers. While e-book sales have fallen and print has remained anemic, publishers’ revenue for downloaded audio has nearly tripled in the past five years, industry data from the Association of American Publishers shows.”

The Times cites Audible executives as saying that “they are investing in original works in part to meet growing consumer demand and to generate stories that are designed to be listened to rather than read. In the past two years, the company has released 77 original audio works, and it has nearly 150 more in various stages of production. “ Michael Lewis, for example, “is betting Audible will expand his audience and draw even more people to his work,” and has “signed a multiyear contract with Audible for four audio original stories.” Lewis is a publishing brand name - among his books are “The Big Short” and “Moneyball.”

So, let’s examine what we have here.

A traditional business that is stagnating. A disruptive technology that is burgeoning. And a company that then is able to challenge and then compete with legacy businesses.

Sounds familiar? Sound Eye-Opening.

Oh yeah, there’s one more thing.

Audible is owned by Amazon.

Published on: June 4, 2018

The Wall Street Journal reports that meal kit company Hello Fresh is joining the trend toward offering meal kits in supermarkets, and this week will begin having its kits sold in some 600 Ahold Delhaize-owned Giant and Stop & Shop stores.

The move seems to be yet another acknowledgment that meal kit companies need retail availability beyond the subscription model with which the majority of them began.

Blue Apron meal kits now are being sold in Costco stores. Albertsons bought Plated. Late last month, Kroger bought Home Chef.

The Journal quotes Germany-based HelloFresh CEO Dominik Richter as saying that “while online subscriptions will drive sales for the foreseeable future, retail placement will help the Berlin-based startup find new customers.”

The story notes that “Hello Fresh has grown rapidly since arriving in the U.S. in 2012. The company reported around $215 million in sales and 1.2 million customers in its most-recent quarter. New York-based Blue Apron, previously the market leader, counted 786,000 customers and $197 million in sales during the same period.”

Published on: June 4, 2018

The Orlando Sentinel reports that Southeastern Grocers, parent company to Winn-Dixie, Bi-Lo, Harvey’s and Fresco y Mas, has emerged from bankruptcy protection, 94 stores smaller and having “traded about $522 million of debt for equity and overall decreased debt by $600 million.”

CEO Anthony Hucker tells the Sentinel, “We’re going to remodel, renew or convert 100 stores this year, and we’ve already done about 30 … “with the store remodels we’ve done over the last few years, now we are looking at 235 stores to be remodeled or converted by the end of this year,” with the goal being, as the paper puts it, “to revitalize the brand that has struggled to keep up against Publix, Walmart, Aldi and a handful of other new niche grocers.”

One tactic - a new loyalty marketing program slated to be phased in this summer.

The paper points out that “experts have questioned if Southeastern Grocers has the financial support to make upgrades to its stores to keep up with dominant chains such as Publix and Walmart, expanding discounters such as Aldi and new competitors such as Lucky’s Market and Sprouts, both of which are expanding in the region.”

Published on: June 4, 2018

The Seattle Times reports that Walmart is taking on Amazon in the latter’s home base, and will “begin delivering groceries ordered online to people in Seattle and surrounding suburbs … the 15th of 100 markets where Walmart plans to provide the service by the end of the year.”

The story notes that “Walmart is trying to distinguish itself with a flat fee for same-day delivery, $9.95, rather than requiring a subscription. (To use AmazonFresh same-day delivery, people must be Amazon Prime members and pay an additional $15 a month for the service.) The Walmart service also requires a $30 minimum order. Orders are picked from store shelves by Walmart employees and delivered by third-party contractor DoorDash.”

Published on: June 4, 2018

The Washington Post had a piece over the weekend about how Toys R Us workers, faced with unemployment as the retailer folds, are challenging the way in which company execs are treating them.

Here’s how the Post frames the story:

“Toys R Us isn’t paying severance to its 30,000 workers who will lose their jobs as the retailer shuts down, even though it doled out millions in executive bonuses a week before it filed for bankruptcy. Now, some workers are calling on lawmakers to create new rules that would require bankrupt companies backed by private-equity firms to provide compensation to their workers.

“On Friday, more than a dozen workers met with lawmakers in New Jersey, where Toys R Us is based, to push for severance pay. Workers also called for new regulations on leveraged buyouts, as well as windfall taxes that would prevent private-equity firms from running a business into the ground and then walking away with huge sums of money.

“In addition to meeting with lawmakers, employees are preparing to file a claim in bankruptcy court next week asking that they be fairly compensated, according to workers’ advocates at the Center for Popular Democracy.”

The story goes on:

“Last year, Toys R Us awarded executives $8 million in bonuses a week before filing for bankruptcy. A few months later, the company got approval from a bankruptcy judge to pay up to $21 million in additional bonuses to executives if they met certain performance goals. (That money was never awarded because the company’s performance fell short.) Chief executive Dave Brandon received $11.25 million in compensation last year.

“Toys R Us is one of dozens of retailers backed by private equity to file for bankruptcy since last year, as heavy debt loads and increased competition take their toll on the industry. Others that have filed for bankruptcy following leveraged buyouts include Nine West, Claire’s, Gymboree, True Religion and Payless Shoe Source.”

Published on: June 4, 2018

The New York Times reports that “four more people have died from tainted romaine lettuce … bringing the total to five deaths related to a virulent strain of E. coli whose source has still not been located.”

The Centers for Disease Control and Prevention (CDC) now also says that 197 people in 35 states have been sickened by tainted romaine lettuce, all of which seems to have come from the Uma, Arizona, growing region.

The Food and Drug Administration (FDA), however, continues to maintain that romaine lettuce currently on store shelves is safe to eat: “Any contaminated product from the Yuma growing region has already worked its way through the food supply and is no longer available for consumption. So any immediate risk is gone.”

Published on: June 4, 2018

USA Today reports that Bon Appétit Management, described as a “big food-service company with eateries at major U.S. college campuses, museums and other institutions,” plans to ban plastic straws and stirrers from its more than a thousand locations in 33 states.

It will be a phased ban, completed by September 2019.

As an alternative, Bon Appétit said it will “ offer paper straws to diners who have physical challenges or “strongly feel the need” for one … The inspiration for Bon Appétit's ban came, in part, from the University of Portland in Oregon, where students worked to outlaw plastic straws on campus in April. Bon Appétit has a contract with the university.”

The story notes that “plastic straws have become an issue because they can foul beaches or waterways and, in most cases, aren't really necessary for drinking. Americans use an estimated 500 million disposable plastic straws every day, according to Eco-Cycle, a Boulder, Colo.-based non-profit recycler.”

Published on: June 4, 2018

Engadget has a story about counterfeit products sold on Amazon, which has no legal exposure and “tends to downplay the issue and shift the blame to third-party sellers.”

An excerpt:

“The Counterfeit Report (TCR), an advocacy group that works with brands to detect fake goods, has found around 58,000 counterfeit products on Amazon since May 2016. That's a small slice of the 560 million items on the site, but even a single counterfeit is probably too many for most customers. Craig Crosby, The Counterfeit Report's publisher and CEO, said that as Amazon's sales keeps increasing, so does the fake goods problem. All told, the group managed to have 35,000 items taken down, but TCR says that the total number of fakes on Amazon could be much higher than 58,000 since that only accounts for brands it represents.”

The story says that “while Amazon has made efforts to combat this issue, like requiring sellers to get permission from certain brands to list their products, there are still thousands of fakes clearly being sold on the site. That's the main reason the high-fashion industry refuses to work with Amazon.”

You can read the entire story here.

Published on: June 4, 2018

• Target said late last week that it will launch same-day delivery of groceries and a range of other products, via its Shipt home delivery service, to select areas of Illinois, Michigan, Ohio and Wisconsin, with plans to also expand to Indiana and Missouri.

Published on: June 4, 2018

• PCC Community Markets, the largest consumer co-op in the country, continues its growth pattern with the announcement of plans for a new 25,000 square foot store in Bellevue, Washington, that is scheduled to open in 2020.

According to the story, “Bellevue will be the co-op’s fourth Eastside location, joining its long-established Kirkland, Issaquah and recently remodeled Redmond stores. The Bellevue project is one of several announced this year for the local, independent grocer, including Seattle’s Ballard neighborhood (2019) and Downtown Seattle (2020). PCC will also open a Madison Valley store in 2020 and reopen its West Seattle store in 2019; the co-op welcomed shoppers to the Burien PCC on May 23, 2018. In total, the co-op will grow from 11 stores today to 16 stores by 2020.”


• The Associated Press reports that “the company that once rescued the Twinkies brand is now taking over the maker of Necco Wafers The family business of billionaire Dean Metropoulos announced Friday it paid $17.3 million for the New England Confectionery Co., or Necco … Metropoulos' firm previously bought Twinkies maker Hostess out of bankruptcy in 2013.”

Published on: June 4, 2018

Last week, we took note of a CNBC interview with former Walmart CEO Bill Simon, who the story said “slammed Amazon for using cloud and ad revenues to support what he called meager retail profits.” He said that Amazon has been “gaining traction and profitability by other business activities that have nothing to do with retail," including Amazon Web Services and advertising. Walmart, on the other hand, “went out head to head, knuckle to knuckle and won market share in retail by executing a business model that customers wanted.”

I argued that Simon should stop whining about Amazon figuring out a formula that helps to support its retailing business, which continues to evolve as the company looks for new competitive advantages. They figured out a better way, or at least a more effective way, which was something that other retailers were not able to do. Simon would be better off wondering why he didn’t figure out a way to better compete with Amazon, and peer around the corner into the future, when he was in Walmart’s c-suite between 2010 and 2014, a time when Amazon was achieving considerable competitive traction. It is time for him to show a little style, concede that Amazon has been smart enough to reinvent the game and create a new economic model, and talk about what its competitors must do to differentiate themselves and succeed.

MNB reader Michael W. Bruce responded:

I’m not going to knock Mr. Simon; we all whine, he just gets to do his to a much wider audience.  But I’d like to offer for thought, “What if?”.  What if Walmart had succeeded in the 90s and early 2000s with their own ambitions to start a retail bank for the unbanked?  While Mr. Bezos built his “cash cow” in an unregulated area of commerce, computer outsourcing, Walmart chased the dream of building a banking behemoth to cater to their clientele, most of which didn’t have much use for today’s banks with high interest rates and account charges.  Walmart ran headlong into one of the strongest political lobbies out there and had their dreams blocked by the banking regulators, something that Amazon  did not face.  What if Walmart had succeeded, which by now could have been one of the largest banks in the nation based on deposits?  They would surely have created a second cash cow (to their retail operations) which could have been used to help subsidize their technology and commerce investments, and maybe been on par with the kind of investments that Amazon has made.
 
Just something to ponder.  Being an old traditionalist, I wasn’t “for” their being a bank, but would have enjoyed watching how it impacted the retail banking horizon.

And MNB reader John Rand chimed in:

Like you, I find that Mr. Simon’s comments on Amazon are slightly odd, even though I have heard similar opinions all across the industry from retailers and even suppliers.

What amuses me about all this is the echo I hear – since these are almost exactly the same comments that were being made about Walmart in the 1980’s and early 90’s as everyone began to feel the pressure of Walmart’s growth and expansion.

I vividly remember being present at what can only be called a diatribe launched by a very senior leader at a moderate sized local grocery chain in New England, about how Walmart wasn’t really a terribly good retailer but how their logistics provided a tremendous advantage in overhead and their ability to blend high-margin products such as clothing and sporting goods to support less margin-friendly categories such as traditional center store grocery was inherently unfair and made competition difficult.

And, of course, he was right about the advantages Walmart had, and this was before the Supercenter concept had even fully taken hold. I will note that the chain is still in business and has thrived, but it certainly was no cakewalk.

I suspect the same comments were made by greengrocers and general stores in the 1920s when the self-service supermarket was first developed (and no, I don’t quite go back that far…)
 
The wheel turns. Disruption leads to innovation which leads to more change and more disruption. There is no place where it stops and stabilizes for very long, and it probably wouldn’t be healthy if it did.