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    Published on: October 11, 2018

    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 week from Alphabet’s Sidewalk Labs in Toronto, which I’m visiting during GMDC’s excellent Retail Tomorrow conference. This is a fascinating place, situated on about 12 acres close to downtown, but adjacent to hundreds of acres just aching to be developed.

    But it isn’t just going to be another urban development. The Sidewalk Labs, which is a sister company to Google, is working with local city officials to both reimagine and reinvent this corner of Toronto.

    It is a fascinating experiment that is in early days, but that shows a lot of promise based on what I’m seeing. Toronto was chosen by Alphabet to be the focus of this project in part because officials here were willing to engage in a public-private partnership.

    The project has some ambitious goals for the area - a 14 percent decrease in the cost of living, 30 percent more green space, a 67 percent decrease in greenhouse gas emissions, even zero traffic fatalities. If these goals can be achieved on a small scale, the idea is that on a larger scale, the positive impact can be enormous. And Toronto, in many ways, seems like just the place to see if this can work.

    Toronto is a truly international city - more than half of the people who live here weren’t even born in Canada, much less locally, but the city has embraced this phenomenon as a source of diversity and strength as opposed to weakness. It also is a city facing its own infrastructure issues - specifically stress on its housing and transportation systems.

    What they’re trying to do here is approach these issues from a bottom up approach … designing a corner of the city as if they are designing a city from scratch. The digital component of this is critical, because the Sidewalk labs have been developed with an internet-up approach; it is baked into the city’s DNA, as opposed to being retrofitted.

    That’s a great metaphor for the current retail environment, I think. Amazon has enormous advantages because it is a company engineered from the internet-up … that gives it the ability to be faster, with less friction, because this 21st century way of doing business is built into the company’s DNA. Legacy companies - from Walmart and Kroger all the way down to a single store independent - struggle with this because they are trying to impose a digital sensibility onto a traditional infrastructure. It is just harder.

    That doesn’t mean that companies shouldn’t do it. In fact, they absolutely must try. But they have to recognize the cultural and economic challenges they will face as they move forward and, I think, understand that as they move forward, they need to identify their differential strengths and emphasize them to shoppers whenever and however possible.

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

    KC's View:

    Published on: October 11, 2018

    by Kevin Coupe

    America First may reflect the rhetoric de jour, but it does not, apparently, apply to cheese.

    One by one, Bloomberg reports, “America’s food outlets are abandoning the century-old American staple. In many cases, they’re replacing it with fancier cheeses … Wendy’s is offering asiago. A&W’s Canada locations switched to real cheddar. McDonald’s is selling the Big Mac’s soft, orange square of American cheese with a version that doesn’t contain artificial preservatives. Cracker Barrel ditched its old-fashioned grilled cheese. So did Panera Bread, replacing American with a four-cheese combo of fontina, cheddar, monteau and smoked gouda.”

    In each case, the story says, the result has been higher sales.

    Indeed, the evidence is more than anecdotal: “U.S. sales of processed cheese, including brands like Kraft Singles and Velveeta, a mainstay of delicacies such as ballpark nachos, are projected to drop 1.6 percent this year, the fourth-straight year of declines, according to Euromonitor International.”

    I think it says something good and Eye-Opening about the improving sophistication of the American palate … people are being exposed to more and better kinds of food, and it is having a real impact on consumption and commerce.

    To be honest, I cannot even remember the last time I bought American cheese. Even when we make macaroni and cheese, it generally is with a variety of cheeses … and American is not among them.
    KC's View:

    Published on: October 11, 2018

    The US Department of Justice yesterday said that health care retailer CVS can acquire Aetna, the nation’s third largest insurance company, for $69 billion, as long as they sell off Aetna’s Medicare Part D prescription drug business.

    The Washington Post writes that the deal, which is likely to be closed by the end of the year, “could potentially transform the health-care industry and change how millions of Americans receive basic medical services … The tie-up will allow CVS — whose retail pharmacy business serves 5 million customers a day — to turn more of its brick-and-mortar locations into front-line clinics for basic medical services and patient monitoring. By deepening its knowledge of and relationships with patients, CVS has said the combination could help Americans stick with medication regimens and stay out of the hospital.”

    The core of the deal is access to “immense amounts of data generated not only by CVS’s 9,800 retail outlets and 1,100 MinuteClinics but also from Aetna’s 22 million medical members,” as the combined company looks to “become a part of the nation’s social fabric, using the local retail pharmacy as both a window into people’s lives beyond the doctor’s office and assuming the role of a health-care assistant.”

    The Post goes on: “The Aetna acquisition is also expected to give CVS more leverage in its negotiations with drugmakers over drug prices, analysts say. A substantial share of CVS’s revenue comes from its role as a ‘pharmacy benefit manager’ for insurance companies and employers. As health-care costs have risen, PBMs have emerged as important power players in the pharmaceutical supply chain.”
    KC's View:
    It will be interesting so see how this deal helps to reshape the health care business at some level, which is important at a time when access top affordable health care continues to be a major issue among the electorate. (Polling shows that it is a big voter concern in the mid-terms.)

    It won’t just be CVS that stands to gain. Suddenly, it seems to me, Target - which turned its pharmacy/HBC business over the CVS a few years ago - could end up being an important part of the health care equation, which would make it relevant in all new ways.

    While I have my issues with the CVS retail experience, I admire what it is trying to do in terms of vision - moving from just being a drug store chain to being an important component in a much broader and more consequential construct. I do think they cannot take their eyes off the core retail business … but as long as they do that, this deal has the potential for being a game changer.

    Published on: October 11, 2018

    The Washington Post reports that Starbucks will begin subsidizing child care for its US employees.

    According to the story, “The new benefit, a partnership with child care provider Inc., will provide 10 subsidized backup day care days for parents for instances when regular care falls through. In-home backup child care will cost $1 an hour or $2 an hour after the 4th child. Care at a day care center will cost $5 per day … Unlike some of Starbucks's other benefits, which require employees to work 20 hours before they can access them, Care@Work is available to more than 180,000 U.S. employees, regardless of how much they work.”
    KC's View:
    This move comes shortly after Starbucks improved its parental leave policies, and as Starbucks - like every retailer - is engaged in an ongoing battle for employees at a time when unemployment is low and demand is high. It’s the kind of thing that companies have to do if they want to be employers of choice.

    Published on: October 11, 2018

    Yahoo Finance has a story about how Uber CEO Dara Khosrowshahi recently said that the company’s food delivery business,Uber Eats, “hit $6 billion in bookings earlier this year, growing over 200%, quickly becoming a crown jewel for the ride-sharing company.”

    That means, he said, that “the next logical step is to enter the grocery space.”

    “‘With Eats, we’re getting into the business of moving food around. I think that this product of delivering great quality food to you at home in 30 minutes or less is magical and is going to move into grocery in a way that’s fundamental and a lot more people are going to be eating at home…you can absolutely see grocery as being an adjacency,’ he said at Vanity Fair’s New Establishment Summit 2018.”
    KC's View:
    I’ll be interested to see if Uber has something more ambitious in mind than just being part of the Instacart-Postmates-GrubHub universe. To me, Uber could leapfrog these competitors if it can come up with a strategy in which it supports retail brands and builds their connection to shoppers, as opposed to virtually disintermediating them. Playing the short game it has been playing is fine, but I also believe that it needs to have some sort of vision for a strategic long game.

    Published on: October 11, 2018

    Digiday has a story about Indigo, a Canadian bookstore chain, which has its eyes on the US as a place where it can grow - despite the fact, or maybe especially because Borders has gone out of business and Barnes & Noble seems to be in irreversible decline.

    The first Indigo opened this week at a mall in Short Hills, New Jersey, and includes an in-store coffee shop.

    According to the story, “The company, which is Canada’s largest book, gift and specialty toy retailer, currently has 85 large and 121 small-format stores under the brands Indigo, Chapters, Coles, Indigospirit and The Book Company. It’s held its own against the growth of Amazon in Canada by moving beyond books to lifestyle and home accessories, and it’s created an inviting atmosphere for customers. It’s also built an arsenal of private-label brands exclusive to the retailer, including IndigoKids, IndigoBaby, Wellness, IndigoPaper, among others.”

    Digiday writes that Indigo has managed to remain relevant by de-emphasizing books and putting more of spotlight on products that, when people come into the store, they’re more likely to buy them. Bookstores, the logic goes, are too much like libraries, and so people feel free to browse and read and maybe have a cup of coffee, without feeling compelled to buy anything.
    KC's View:
    It is an interesting notion - the very things that Barnes & Noble and Borders thought made them a desirable place to shop has been judged by another, similar retailer to be the real problem with their long-term viability.

    Though, when you think about it, I suspect the folks at Amazon would say the same thing about Indigo.

    We’ll see.

    Indigo’s management likes to say that Canadian customers think that its stores are their “happy place.” That may be true, but if they wanted to find out if the same thing could happen with American customers, I’m not sure I would’ve picked New Jersey, especially a place that is just 90 miles from Philadelphia and 25 miles from New York. Maybe Vermont?

    Published on: October 11, 2018

    Reuters reports on how Amazon developed a computer model designed to recruit and evaluate job candidates, with the idea being that automating the process would be more efficient. There was only one problem - somehow, the artificial intelligence taught itself to prefer men to women.

    According to the story, “the company realized its new system was not rating candidates for software developer jobs and other technical posts in a gender-neutral way. That is because Amazon's computer models were trained to vet applicants by observing patterns in resumes submitted to the company over a 10-year period. Most came from men, a reflection of male dominance across the tech industry.

    “In effect, Amazon’s system taught itself that male candidates were preferable. It penalized resumes that included the word ‘women’s,’ as in ‘women’s chess club captain.’ And it downgraded graduates of two all-women’s colleges, according to people familiar with the matter. They did not specify the names of the schools.” Then, Amazon edited the program to make it gender neutral, but has concluded that there is no way to be assured that other discriminatory tendencies won’t creep into the system. And so, it has disbanded the project.

    The story points out that Amazon says it never depended on any such programs to reach conclusions about job candidates.

    Reuters concludes that the case provides a lesson “in the limitations of machine learning< especially since there is a “growing list of large companies including Hilton Worldwide Holdings and Goldman Sachs that are looking to automate portions of the hiring process.”
    KC's View:
    Jeez. Even the computer software is sexist.

    No wonder women think they can’t get a break, and are taking to the streets. Can’t blame them, not even a little bit.

    Published on: October 11, 2018

    Time reports that Amazon “is sweetening the pay for some of its longtime warehouse workers after employees criticized the loss of bonuses and stock awards as part of the company’s pledge to boost all wages to at least $15 an hour … Amazon said any workers already earning $15 would get raises of $1 per hour. Now, some of those employees are learning their hourly raises will actually be $1.25 an hour. Additionally, Amazon is introducing a new cash bonus of $1,500 to $3,000 for tenure milestones at five, 10, 15 and 20 years. Workers with good attendance in the month of December will also get a $100 bonus, according to the company.”
    KC's View:

    Published on: October 11, 2018

    BusinessInsider reports that Walmart has held acquisition talks with startup Away Luggage, though it is unknown whether the negotiations are continuing.

    However, the story says, Walmart’s interest in the company seems to be inline with its desire to appeal “to a higher-end, urban shopper. To do so, it's made a number of acquisitions in the last several years, including e-commerce company, women's indie clothing brand ModCloth, and men's clothing company Bonobos. Just last week, the company announced that it had bought up plus-sized women's brand Eloquii.”
    KC's View:

    Published on: October 11, 2018

    • As Sears reportedly prepares for a bankruptcy filing, perhaps as soon as this week, there are reports that CEO Eddie Lampert will not this time will not write a check from his hedge fund for the $134 million debt payment due next Monday.

    Fox Business reports that while Lampert has bailed the retailer out numerous times with short term loans, that is not his intention this time.

    And,Fox Businessalso reports that “the Sears board decided against selling the Kenmore brand to Lampert for $400 million, as he had proposed, after it became clear his broader restructuring plan that he went public with late last month wasn't winning support from creditors.”

    The Wall Street Journal notes that “over the last decade, the company has closed two-thirds of its Kmart locations and one-third of its Sears department stores.” At the same time, the story says, Sears has fallen behind on its payments to suppliers and has been cancelling some order sot manufacturers.

    MarketWatch reports that Kroger and its recently purchased Home Chef business are launching “weekly rotating in-store kits at select Kroger locations. The company will also launch a limited test of the new Home Chef Express product, a meal kit that could be ready to eat in about 15 minutes. The Home Chef meal kits will first be available at select Kroger locations in Illinois, Kentucky, Michigan, Ohio and Wisconsin, with additional locations expected in 2019.”

    • The Chicago Tribune reports that Treasure Island Foods closed the last of its six stores yesterday, a couple of days ahead of schedule, “officially ending a 55-year run in Chicago.”

    The story says that “last week, Treasure Island filed notice with the state that it was laying off 486 workers. The document filed with the state didn’t specify why the company failed to give the workers 60 days’ notice, as is typically required for mass layoffs by state and federal Worker Adjustment and Retraining Notification acts.”

    The Tribune writes that “two lawsuits are pending. Longtime produce wholesaler Anthony Marano Co. sued Treasure Island last week over more than $450,000 in allegedly unpaid produce. Recent court filings indicate Treasure Island owes $900,000 in total to its produce vendors. The United Food and Commercial Workers International Union, which represents 28 employees, also filed a lawsuit against Treasure Island last week, for allegedly violating a federal law that governs layoff notices.”

    Business Insider reports that Mondel z International has announced that “it will make all packaging for all of its brands recyclable by 2025 and will eliminate 65 million kg of packaging by 2020 … Mondel z sells products in 165 countries, and working toward this goal will also lead to the elimination of a total of 65 million kg of packaging due to redesigns since 2013. Upcoming redesigns will also more clearly feature information on recycling.”

    • The Wall Street Journal reports that the US Postal Service (USPS) has applied to the Postal Regulatory Commission for a10 percent increase in the cost of a first class stamp, to 55 cents, as well as “more aggressive price increases on its parcel business, where it is allowed to adjust prices as the market demands. Those include a 3.9% increase on priority mail express and a 5.9% increase on priority mail.”

    The story says that “the agency proposed a 9.3% increase on Parcel Select packages weighing over 1 pound and a 12.3% increase on lighter packages shipped using that service.” Parcel Select, the Journal points out, is the service that “large shippers like Amazon as well as carriers like United Parcel Service Inc. and FedEx Corp. , use to deliver packages the last leg of a trip to the customer’s door. The so-called last mile is typically the most expensive part of an online order’s journey.”
    KC's View:

    Published on: October 11, 2018

    Yesterday, I wrote that “Oakland University, in Rochester, Minnesota, is the home of a new Plum Market that is designed to provide healthier shopping options to students on campus.”

    I screwed up. The store is in Rochester, Michigan.

    Thanks to all the MNB readers who pointed this out to me.

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

    Published on: October 11, 2018

    Got a number of emails yesterday responding to Kate McMahon’s column, “Lactation Chronicles,” about the argument over what “milk” is.

    MNB reader Craig Espelien wrote:

    Your weigh-in on the milk vs. other medium extracted liquid (soy milk and others)… made me feel like I should provide a bit of feedback.

    While you and the California court make a solid point, I can tell you that consumers are confused by things you and I would look at and go “wow”. Example…

    Years ago I ran a marketing group for a private brand sales and marketing firm and one of our packages - for frozen french fries - had an image of a serving suggestion - fries served on a plate with a hamburger. We had to change the packaging as we received too many consumer complaints that their package did not contain a hamburger. So much for the consumer not being easily confused.

    Also, milk has a clear standard of identity (as do cheese, ice cream ,etc.). Real cheddar cheese can’t be confused with Pasteurized Processed Cheese Food Product as we can make many things look like cheese that are in act not cheese - this was done for a nutritional benefit influenced by the WIC program so that kids would not get short changed on nutrition. If real milk adds some nutrients kids need (calcium and vitamin D come to mind) and if the other types of white colored liquid that come from plants or nuts do not have these things, then I feel you are in the wrong - parents who want their kids to eat healthy could be using one of these other products instead of real milk thinking that the same nutritional benefits are accruing when they may not be.

    Let’s move to Ice Cream - another standard of identity product. I am a huge ice cream fan (defined as having a minimum of 10% butterfat to be called ice cream). In the past this prevented lower grade products from being passed off as full bodied ice cream. Today, if my memory and analysis are still good, Halo Top is technically not an ice cream and is referred to as a form of frozen dessert. By your logic, we can call anything frozen and flavored that was made near a cream/butterfat tank could be ice cream when, in fact, that is not the case based on standard of identity.

    Finally, one that is perhaps a bit more fun - vodka. The only alcohol that, to my knowledge, has an absolute standard of identity (and I have no idea why). In this case (see Kettle One Botanicals - which are sort of vodka but do not meet the standard of identity), the only real differences between actual vodkas is the amount of “shoulders” (these are the beginnings and ends of a run through the still that have bad qualities including stuff that makes some people itch and have their ears turn red) a brand chooses to use (this is part of the standard of identity). This makes regular Kettle One and Fleischmann’s vodka very similar - the only different is packaging and marketing.

    While I empathize with the almond, soy and other liquids that are doing a great job of marketing to take share away from milk, I am afraid I can’t agree with you on leaving them as “milk”. Milk is a bit like Kleenex - no one would allow any other brand of facial tissue to use Kleenex on their package as that is a trademarked brand - even though too many folks to count likely ask for a “Kleenex” when they are indifferent to the brand of facial tissue might be available for use. Milk is closer to Kleenex - a true brand that is owned by only one group and that is dairy farmers who remove lactated liquid from cows.

    If we want to change how this works, I would suggest starting with changing the standard of identity - not the dictionary definition (which is important but is not the law/accepted rule of the land like standard of identity is).

    Fromm another MNB reader, a different opinion:

    Thank you for this insightful article and I absolutely loved your last comment that “It seems to me the dairy lobby is just crying over spilt milk.”

    Our household has one Vegan, one Vegetarian and one who will eat anything.  We certainly don’t get confused when we shop nor are we confused when we open the refrigerator for a beverage, “yogurt” or a slice of “cheese”.

    As far as the section that stated:

    In a statement, Gottlieb he was concerned that consumers might mistakenly assume that non-dairy alternatives labeled “milk” would have the same health and nutrition benefits associated with cow’s milk, making them a “dairy product in disguise.”

    As the Vegan in the family and an avid reader on the subject who looks at evidence and science from both sides of the coin I take issue with Gottlieb’s statement.  Nutritional benefits of cow’s milk?...maybe if you are a baby cow…not if you are a human.  People can drink cow’s milk if they so choose,  but they don’t have to in order to have all the nutrients they need to be healthy.

    The dairy lobby is crying over spilt milk!

    And from another:

    I had to chuckle while reading your article this morning but also wanted to share something.  Your reaction ie; “Yuck” gave me the chuckle, but then I wondered if you’ve seen the documentary on Netflix called “What the Health” ?   It’s an interesting movie looking at the Milk Industry, Government regulation organizations (such as FDA) and other groups that should be non-partisan, however are supported by the very industries they are supposed to regulate.  If not, I’d highly recommend watching it.  It sheds some light into reasons (mostly monetary) behind their concerns.

    As someone in the manufacturing industry professionally my whole career, I can say the consumer shift to non-dairy products is significant. Personally however, as someone who allergic to all dairy, I do wonder just how stupid they think consumers are when purchasing “milk” products.

    Again, if you have time, the film is illuminating, eye-opening and totally worth watching.

    MNB reader Glenn Cantor wrote:

    More than labelling non-dairy “milk” beverages as “milk,” the marketers of almond, soy, cashew and other products in this category package their product in cardboard, “milk” containers, ship it to stores on the same rolling racks as does dairy milk, and then merchandise it adjacent to dairy milk.  It is promoted to be used the same as dairy milk- in cereal, with coffee, etc.
    As a result, shoppers/consumers perceive this beverage product as a healthier form of milk.  This is an example of ingenious marketing in a high-volume category.  The dairy milk lobby is way too late in trying put this genie back in the bottle.

    We had a reader yesterday who was not impressed with the Good Housekeeping -Amazon collaboration, GH Lab, in the Mall of America. MNB reader Tom Murphy responded:

    The reaction from MNB reader “a merchant" to the GH Lab store opened at the Mall of America made me smile. He said:

    "Being a merchant at heart I didn't care for the store. I like HUGE displays - not one of each item. Stack it high and let it fly baby!”

    I smiled because a few years ago, I was part of a team hired by the COO of a family owned grocery chain to perform an analysis of store assortment. In short, the merchants and the operators were fighting over how much space to allocate to a specific product assortment and at what cost to overall store yield (not margin - think profit per square foot). At our first review, the CEO seemed less than supportive of the analysis, so I asked him which of his store’s five anchovy labels (brands not variety) he preferred. Of course, he went off the rails on his merchant and the study continued.

    I will not make fun of either party in this argument, the merchant or the operator. They are both wrong and both right…the part I don’t understand is how all these grocers with all this information cannot figure out what the right size assortment, store and consumer format is! Are they still shooting from the hip as in “buy it low, stack it high, watch it go”!!

    And finally, MNB reader Janis Raye wrote:

    You and Michael were talking about the Wawa at Drexel University, and how it is likely taking lots of business away from Drexel’s student center. I wondered if you’ve ever seen the Wawa that is on the Princeton campus. It’s affectionately known there as “the Wa.” Our daughter has said she always heard it is considered the highest grossing Wawa in the chain. They did a renovation of the store recently as part of the redo of the train station there — might be worth a look.
    KC's View: