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    Published on: July 31, 2018

    by Michael Sansolo

    It was, as Snoopy from Peanuts famously wrote, a dark and stormy night. A bad time to have a flight. But I did and as you can imagine, things didn’t turn out well. But rest assured, this isn’t another screed against United Airlines, but rather, I believe, a business lesson in the challenges we all face and how to make a bad situation better or worse.

    So back to the dark and stormy night and my flight from Charlotte, NC, to my home airport near Washington, DC. We’re had an absurdly stormy July in the east, so flights have been nightmarish and once again I was stuck in an airport waiting.

    To be clear, I do not blame United for those delays. Weather is way out of their control and frankly, if air traffic control and pilots think it is too stormy to fly, I really don’t want to challenge their knowledge and experience. Of course, it was my second consecutive day of three-hour delays, so I was a tad crabby.

    Here’s where it got bad. When my flight finally landed at Washington Dulles airport after midnight, things fell apart. It was a small plane so nearly all the passengers had to check our bags planeside. That means we have to wait in the jet bridge at the arriving airport for those same bags. And wait. And wait. And wait.

    After 10 minutes a stunningly chipper United employee came bounding down the jet bridge to check on our bags. He went out on the tarmac and returned a few minutes later still chipper but bearing bad news. It turned out that at that major international airport, United had only one ground crew working (it was late after all), and we were in line to get our bags.

    Now it was nearly 1 am and the mood in the jet bridge was ugly. Even the chipper employee couldn’t combat that.

    Here’s the lesson, I believe. There are things in every business that we cannot control like the weather. Sometimes those issues create real friction for our customers who, like my fellow passengers, and me, were quite put out even though we know the weather is no one’s fault.

    But there are many other things in our control and those are the areas we must address with diligence. United, for example, did nothing to improve conditions in Charlotte where the delay began. Announcements were sparse and useless, no snacks or drinks were offered to calm us and, of course, the lack of a ground crew at our destination made a delay that much worse.

    I think retailers can relate to this more than ever. Think of the articles MNB and every other media outlet has featured recently about bad interactions between customers and staffers thanks to insensitive comments about race, sexual orientation and more.

    I happened to be with a very smart retail executive last week who bemoaned this situation. As he explained, the incredibly low unemployment rate is creating new pain point for retailers because recruiting is next to impossible these days. Making matters worse is that many of those applying for retail jobs are failing drug screenings as residue of the nation’s opioid problem.

    The executive said his company obviously wants every shopper to have a good experience, but it’s impossible to ensure that every staffer will come through every time. Like it or not, people have various prejudices and at times, those feelings spill into the market place.

    Now you may think this is political correctness run amok, but every customer wants to be treated fairly so their perception of being insulted is all that matters.

    Like the weather, you cannot control or change the upbringing and feelings your staffers bring to the job. People feel how they feel.

    But it isn’t all out of your control. As the executive I was speaking with explained, his company has redoubled its training efforts to make staffers sensitive to the vast and diverse population that comes into stores. Plus his company teaches classes in the proper use of social media and has strict rules on who and what can be posted on a company account.

    In other words, they are trying to take care of everything they control, which, like it or not, is something we all need do these days. Whatever we can make better, we should.

    Michael Sansolo can be reached via email at . 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.
    KC's View:

    Published on: July 31, 2018

    by Kevin Coupe

    In Minnesota, the Star Tribune has a story about how, “as thousands of big-box stores go dark nationwide, husks of once-shiny retail spaces are sitting empty across the Twin Cities, touchstones of the changing realities of retail.”

    The story notes that “a record-breaking 110 million square feet of retail space nationally has been slated for closure so far this year, according to real estate research firm CoStar Group, which has been tracking such totals since 2008.

    “The growing list of troubled retailers reads like a cheerless stack of sales catalogs. Chains like Toys ‘R’ Us, Herberger’s, Kmart and Sears account for much of the recent churn, including at least 20 Minnesota stores already marked for closing this year. That’s on top of structures already left behind by the likes of Sports Authority, Rainbow Foods and Circuit City.”

    This is an old song. It wasn’t that long ago that MNB picked up on a report from Axios saying that Starbucks’ new CEO, Mike Ullman, disputed projections from some quarters that roughly 25 percent of the nation’s 1,200 malls will close because of online competition and shifting consumer shopping habits.

    He actually thinks it will be much worse - that only 300 or so malls may actually survive long-term.

    But in this old song, there may be a new verse.

    The Star Tribune writes that “signs of life are stirring as cities and brokers work to fill big boxes and smaller ‘junior boxes’ with either new retailers or new uses, from schools to adventure parks to fitness facilities. Some cities are taking a more aggressive redevelopment approach, actively courting desired tenants or even reducing derelict stores to rubble. Others are joining what real estate analysts describe as a growing movement to split the mammoth spaces into more bite-sized pieces. Indeed, “as consumer habits change,” officials say that “they’ve seen an influx in ‘experiential’ businesses moving into vacant stores, including fitness studios and entertainment hubs.”

    The thing is, everybody has to learn to sing a new song these days. It may mean finding new uses for old boxes. It may mean building new kinds of boxes. it may mean erecting tents because boxes are so last decade.

    But that’s what businesses need to do. The one song they can’t sing is this:

    “Seems Like Old Times.”
    KC's View:

    Published on: July 31, 2018

    Bloomberg reports that Kroger “is considering expanding a ban on Visa credit cards that one of its California subsidiaries plans to put into effect next month. The retailer’s Foods Co. Supermarkets unit will stop accepting the cards on Aug. 14 at 21 stores and five fuel centers in Central and Northern California, including in San Francisco and Sacramento, in a dispute over fees, the Cincinnati-based grocery chain said in a statement Monday.”

    “It’s pretty clear we need to move down this path, and if we have to expand that beyond Foods Co., we’re prepared to take that step,” says Chris Hjelm, Kroger’s chief information officer.

    The company says that consumers will still be able to use Visa debit cards, as well as other credit card brands, and that the savings will be passed on to consumers.
    KC's View:
    I think Kroger is making the right move here, and I would expect that if it does not get the response it wants, it’ll expand the ban. It is really hard to take away credit card acceptance - as opposed to never accepting cards, which is part of the WinCo offering - but the message to customers has to be that the credit card companies are ripping them off, and Kroger has to work as an agent for the consumer.

    That’s a compelling argument.

    Published on: July 31, 2018

    A couple of stories point to possible frontrunners in the competition to become the site of Amazon’s second headquarters city, dubbed HQ2.

    • The Puget Sound Business Journal reports that Amazon is in the process of “hiring an economic development manager with ‘prior experience with economic incentives’ in Washington, D.C., one of the front runners in the Seattle-based company's search for a second headquarters.

    “Responsibilities would include working on site selection, ‘new corporate initiatives, site expansion plans and requirements,’ and working with ‘state and community economic development, workforce and labor, taxation, and other key government agency officials, as well as chambers of commerce, utilities, and other key public/private stakeholder groups,’ according to the posting.”

    The story notes that “Washington, D.C., is thought to be a front runner in Amazon's HQ2 search. Amazon named three finalists in the general region – Washington, D.C., Northern Virginia and Montgomery County, Maryland – and could opt to spread its HQ2 across the region to maximize potential incentives.”

    Geekwire reports that “new statistics have emerged that paint Toronto as an attractive candidate for the company’s second headquarters.”

    According to the story, “A new report from real estate services company CBRE ranks Toronto as No. 4 for tech talent out of 50 cities in the U.S. and Canada. The only city in the running for HQ2 that outranks Toronto is Washington, D.C., which is seen as a frontrunner in the race for Amazon’s $5 billion second headquarters. San Francisco is ranked first and Seattle, Amazon’s hometown, is second.”

    This story reports that more than “240,000 workers comprise Toronto’s tech talent pool, a 51 percent increase since 2012, according to the report. The Canadian city is No. 1 when it comes to ‘brain gain’ according to CBRE. In other words, tech workers educated in Toronto tend to stay there after graduating.

    “Toronto is also one of the cities where technology employers get the most bang for their buck. The average salary for a software engineer in Toronto is less than $100,000, compared with much higher salaries in Washington, D.C., Seattle, and San Francisco.”

    Amazon has said that it has completed all its city visits, and plans to make an announcement this year.
    KC's View:
    GeekWire also notes that while “talent is one of Amazon’s most important criteria in deciding which city will become its second home,” the animosity between Amazon and the Trump administration could play a role. The story points out that President Trump has charged Amazon with “exploiting the U.S. Postal Service, underpaying taxes, and using the Washington Post (which Amazon CEO Jeff Bezos owns independently from the company) as a propaganda engine.”

    One question, at least, is the degree to which politics will play a role in the Amazon HQ2 decision. I wouldn’t bet it being a deciding factor, but I could be wrong. Bezos and Amazon will make the decision, I think, based on what is best for the business.

    Besides, life can take funny turns. It is at least possible that the lawsuit accusing Trump of violating the US Constitution’s emoluments clause by maintaining ownership of the Trump International Hotel in DC - it is said to play host to many foreign dignitaries looking to curry favor with the administration - is successful, forcing the Trump family to sell it. Just imagine if Amazon bought it, and turned it into a headquarters building. (It is, after all, the old Post Office building … so there’s a little bit of poetry there.)

    Published on: July 31, 2018

    Forbes reports on a new study from NPD Group saying that “more than 80% of meals are being prepared at home … That’s even higher than in 1975, when 75% of meals were prepared at home.”

    This trend, the story suggests, “is a sharp contrast to statistics showing that the number of restaurants and Americans' restaurant spending have both grown during the past 10 years.” But “NDP says restaurant spending is up because prices are higher at restaurants, not because consumers are eating out more frequently.” In addition, restaurants more than ever are emphasizing their take-out features, which also is driving up sales. “Half of all restaurant meals are purchased to eat at home, whether delivery, take out, or something that forms the centerpiece of an assembled meal,” the story says.

    In fact, the eat-at-home trend is at least partially being fueled by the meal kit business, and the move by many meal kit brands to the supermarket, where they are more accessible and successful.

    The story quotes David Portalatin, an advisor to NPD, as saying that “due to a changing workforce, the ease of online shopping, and the boom in streaming entertainment, there are fewer reasons than ever to leave the house.”

    And, he says, he’s “bullish on opportunities for meal kit makers, grocery stores and restaurants to get their share of the eat-at-home trend.”
    KC's View:
    Agreed. But retailers have to be aggressive about mining these opportunities, looking for innovative ways to deliver in ways that are relevant and resonant. You can’t let the trend come to you.

    Published on: July 31, 2018

    Yesterday, MNB took note of a Los Angeles Times story about how Starbucks, “facing a rare sales decline in China, is betting a rapid rollout of delivery service will get the business back on track … Starbucks says deliveries will help it will fend off competitors that are already offering the service, coupled with deep discounts.”

    Now, the Wall Street Journal adds another wrinkle to the story, reporting that “under the deal set to be announced later this week, Alibaba’s food-delivery unit will provide delivery this fall.”

    The story says that “Starbucks stands to gain if Alibaba uses its marketing clout to steer customers to its coffee, said Jeffrey Towson, an investment professor at Peking University.” While “Starbucks has mostly had the China market to itself since opening its first store in the country in 1999,” the Journal writes that the coffee retailer has been hit hard by the combination of increased competition, new government regulations, and the fact that it is viewed less as an aspirational brand than it used to be.
    KC's View:
    The problem is that it does not necessarily follow that if people don’t want to go out to Starbucks, they’ll be willing to have it delivered.

    The issue is whether Alibaba can bring its estimable marketing muscle to bear in such a way that counteracts the current trends.

    Published on: July 31, 2018

    The Wall Street Journal reports that US Foods is buying five businesses from Services Group of America for $1.8 billion in a move designed to expand its presence in the Northwest.

    The five companies are Food Services of America, Systems Services of America, Amerifresh, Ameristar Meats, and Gampac Express.

    According to the story, “The all-cash deal is the latest sign of consolidation in the low-margin and increasingly competitive business of getting food to stores, service businesses and restaurants.”

    The Journal writes that the acquisition comes after US Foods reported a disappointing quarter, and said that the company was “hurt by a shortage of truck drivers in a tight labor market. Across the U.S., strong economic growth is stoking high demand for freight while low unemployment has made it hard to recruit drivers.”

    It was just last week that the food distribution industry saw another consolidation move, as United Natural Foods Inc. (UNFI) agreed to acquire Supervalu for $2.9 billion.
    KC's View:

    Published on: July 31, 2018

    The New York Times reports on frayed relations between Seven & I Holdings-owned 7-Eleven and its franchisees, in part over the hundreds of private label items that they are forced to carry, even though they might not sell as well as national brands.

    In addition, the franchisees are said to be upset about a new contract being forced on them by 7-Eleven that “aggravated broader tensions over the suppliers they must use and how much they have to pay for the goods they sell in their stores … The relationship between 7-Eleven and its store owners has been deteriorating for years. In the early 2000s, the company and franchisees split profits equally. But 7-Eleven has taken an increasingly bigger cut, franchisees say, and is now saying that store owners who do not renew their contracts by the end of 2018 could see their profits shrink further.”

    Now, franchisees say they have only two options - sign the contract, or walk away from their businesses.

    &-Eleven said in a statement that “it enjoyed a ‘strong, productive relationship’ with its franchisees,” the Times writes. “The company denied pressuring store owners to sign the new contract, arguing instead that it was offering an incentive to lock in current profit-sharing rates.”

    You can read the entire story here.
    KC's View:
    This is a very complicated story that touches on a lot of issues, including the ability of individual retailers to respond to market conditions, versus the desire of a franchising organization to control as much of a business as possible.

    I’m fascinated by this, especially by the fact that so little of what seems to be the focus of the argument has to do with some of the modern factors that influence retailing today. If you’re arguing about hot dogs and Slurpees, how are you going to effectively compete with Amazon, Walmart’s new c-stores, and all the other formats that are being developed to appeal to consumers’ convenience needs?

    Published on: July 31, 2018

    QSR reports that White Castle is teaming up with Door Dash to expand its delivery service to some 300 of its locations, or about three-quarters of its total fleet that serves 13 states. According to the story, “To kick off the deal, DoorDash is offering free delivery on all White Castle orders of $10 or more between July 30 and August 5.”
    KC's View:

    Published on: July 31, 2018

    Reuters reports that “a 6-year-old boy whose toy reviews have drawn billions of views on YouTube will debut his own line of slime, stuffed animals and other merchandise at Walmart Inc next month, the retailer said on Monday … The star of the YouTube channel Ryan ToysReview, known simply as Ryan, helped select the toys and apparel that will be sold under the name Ryan’s World … The products include T-shirts with four designs featuring some of Ryan’s favorite things, including pizza.”
    KC's View:

    Published on: July 31, 2018

    • Just as its financial performance seems to be improving, Chipotle is facing yet another food safety problem.

    According to the Columbus Dispatch, a Chipotle in Powell, Ohio, “was closed Monday following multiple complaints of food making customers sick.” The story says that there were six reports of a total of 12 people who got sick after eating at the Chipotle.

    “We take all claims of food safety very seriously, and we are currently looking into a few reports of illness at our Powell, Ohio, restaurant,” said Laurie Schalow, chief communications officer for Chipotle. “We are not aware of any confirmed foodborne illness cases, and we are cooperating fully with the local health department.”

    Just last week, Chipotle reported that its Q2 same-store sales were up 3.3 percent, higher than the 2.7 percent that Chipotle was predicting, which suggested that the chain finally is coming back after a series of illness outbreaks related to its restaurants and food safety procedures.
    KC's View:

    Published on: July 31, 2018

    Last week, when reporting on the $2.9 billion acquisition of Supervalu by United Natural Foods Inc. (UNFI), I made reference to more than 3,000 Supervalu retail stores.

    That was inaccurate. That number specifically referred to Supervalu-supplied stores, not Supervalu-owned stores.

    I should have been more precise.

    Mea culpa, mea culpa, mea maxima culpa.
    KC's View:

    Published on: July 31, 2018

    Yesterday’s Eye-Opener bemoaned the continuing stream of sexual harassment stories, and repeated something I’ve said before:

    Who raised these guys? Didn’t they have mothers and sisters and wives and daughters? How did they lose their moral compasses? Who were their fathers? What kinds of male role models did they have who persuaded them that it was okay to abuse women through the abuse of power?

    If you are any sort of leader in any sort of company, it is time for you to step up and say to everyone in your organization, there is no place here for this crap. If you are a victim, here’s my email address and phone number - please get in touch with me now and help me rid this organization of the creeps who are playing this game. I am on your side. And, if you are a predator, get ready to pack your bags ands clean out your office, because there is no room for you here … and I don’t care if you are the biggest superstar in the company. You’re going to be gone, and if we can do it, we’re going to make sure you are going to be prosecuted.

    Don’t forget. If living up to your moral and ethical responsibility isn’t enough to get you to do the right thing, remember that you have a fiduciary responsibility to do this. Every suit filed against your company and/or its leadership puts you at risk. You need to get in front of this.

    And one more thing. if you are a leader who behaved badly in the past, do us all a favor and step down now. Because the bells of justice eventually are going to toll for you…

    One MNB reader responded:

    Your comments would be spot on if you had been gender neutral. Power corrupts.

    To me, there is nothing gender neutral about this story. Does that mean that no woman in a position of power has ever been guilty of sexual harassment? Of course not.

    But there is no equivalency here. None.

    From another MNB reader:

    If one is to overlook bad behavior in or organization is be complicit in such behavior-- and no longer claim to be an innocent bystander.


    And, another MNB reader wrote:

    Kevin, after reading your morning news beat today, I saw this WSJ article which highlights the legal industry turning a blind eye toward sexual harassment. Can you imagine the lawsuits from women working at different law firms if they were harassed from the same guy or guys being passed around among these law firms. As you suggest, we are only at the beginning of learning how this behavior is systemic and pervasive. It is sad to say but I think Ronan Farrow will have a job telling these stories for a very long time.

    I was gobsmacked by Journal story about law firms. An excerpt:

    Law firms stand out in a corporate landscape where rainmakers accused of bad behavior often receive second and third chances, according to interviews with dozens of lawyers, legal recruiters, consultants and leaders at some of the country’s largest firms.

    Firms’ sole assets are lawyers and their client relationships. As demand for work from the biggest law firms has softened since the financial crisis, poaching top partners has become one of few ways to boost revenue.

    Many firms ask about prior complaints in new-hire questionnaires but do nothing to vet the answers, lawyers say. Firms rarely ask partners for references at their old firm, for fear of alerting competitors a star lawyer is in play.

    You can read the entire story here.

    Regarding the impact that an increased Prime membership fee might have, one MNB reader wrote:

    The increase in cost for Prime isn’t an issue for us.  I’ll be stuck in bed for a few weeks following an upcoming medical procedure and will use every cent of that increase availing myself of the offerings on Prime. 
    Between that and holiday shopping, I’ve made my money back. Again.

    From another reader:

    You know what Amazon does KC? Keeps everybody honest, keeps them on their toes, everyday - boom!
    KC's View: