193 (31 December 2014)

Welcome to week 193!  The articles below caught my attention this week.  Please note that what are intended to be relatively objective “briefs” are preceded by dashes (——–), whereas additional material or relatively subjective comments are preceded by asterisks (********).  The links to articles preceded by [SR] require a subscription to be read in their entirety, although complete articles may frequently be found by a title search.

(25 December 2014): “Retina 5K iMac: Powerful Proof of the PC Renaissance” (http://www.nytimes.com/2014/12/25/technology/personaltech/retina-5k-imac-powerful-proof-of-the-pc-renaissance.html)

********An ad campaign for Apple in 1997 used the expression “Think Different” (https://www.youtube.com/watch?v=nmwXdGm89Tk), something we tend to associate with the late Steve Jobs.  In this article about a product, and an era, we get a glimpse of how he thought.

——–“About a year before he died, Steve Jobs was asked at a conference to predict the future of the market for personal computers. . . . [In responding] He reached for an analogy. ‘When we were an agrarian nation, all cars were trucks, because that’s what you needed on the farm.’ . . . But as farming died off and people in urban areas began to buy automobiles, the auto market split into distinct categories.  There were easy to use, relatively maintenance-free cars for everyday drivers, and powerful, specialty vehicles like trucks for people who needed to get stuff done.  Laptops and desktops ‘are going to be like trucks,’ Mr. Jobs predicted.  ‘They’re still going to be around.  They’re going to have a lot of value.  But they’re going to be used by one of x people.’”  The predictions of Steve Jobs have pretty much been realized.  Today it is estimated that there are more than two billion smartphones and tablets in use globally.  Still, there will always be professionals, like “photographers, video editors, animators, digital producers and Web-addled writers” who need to larger screens and the greater power of a traditional PC.  “Some people will always need trucks.”

********Smartphones and PCs are like cars and trucks—I admire this analogy.  I also find the story to be an especially good antidote to black and white versus gray thinking, i.e., all or none versus a little bit of each.  On the subject of thinking differently, I would like to draw attention to the work of Scott E. Page of the University of Michigan.  Although trained as an economist, he is probably best referred to now as a complexity scientist.  The relevance of his work for the present context is his attention to the role of cognitive diversity in forming teams and getting things done.  You can see his books at: http://www.amazon.com/Scott-E.-Page/e/B001IGSQKQ/ref=sr_ntt_srch_lnk_1.  Of these, Diversity and Complexity is certainly the most accessible.  Page also has a lecture series for The Great Courses entitled “The Hidden Factor: Why Thinking Differently Is Your Greatest Asset” (http://www.thegreatcourses.com/courses/the-hidden-factor-why-thinking-differently-is-your-greatest-asset.html).  Word to the wise: all of The Great Courses go on greatly-reduced sales periodically, so wait for a sale if you have an interest in this series.  Sales prices are typically reduced by 70%.

(25 December 2014): “Rise in Loans Linked to Cars Is Hurting Poor” (http://dealbook.nytimes.com/2014/12/25/dipping-into-auto-equity-devastates-many-borrowers/)

——–“The automobile is at the center of the biggest boom in subprime lending since the mortgage crisis.  The market for loans to buy used cars is growing rapidly.  And similar to how a red-hot mortgage market once coaxed millions of borrowers into recklessly tapping the equity in their homes, the new boom is also leading people to take out risky lines of credit known as title loans.  They are, roughly speaking, the home equity loans of subprime auto.  In these loans, which can last as long as two years or as little as a month, borrowers turn over the title of their cars in exchange for cash—typically a percentage of the cars’ estimated resale values.”  In 2013 “More than 1.1 million households in the United States used auto title loans . . . according to a survey by the Federal Deposit Insurance Corporation.”  It was the first year in which such loans were included in its annual survey.  “Title loans are an increasingly prevalent form of high-cost, short-term credit in subprime finance, as regulators in a number of states crack down on payday loans.”

********This article made me think about squeezing an inflated balloon and how a squeeze in one place causes an expansion someplace else.  This is an analogy that I’ve run across on occasion in my reading and certainly seems applicable here: a regulatory “squeeze” in one area results in an expansion of business somewhere else.  It turns out that this has been given verbal expression as “the balloon effect” when applied to drug policy.  You can learn more about the effect at: http://en.wikipedia.org/wiki/Balloon_effect.

(26 December 2014): “Cross Border Mergers Face Growing Scrutiny” [SR](http://www.wsj.com/articles/cross-border-mergers-face-growing-scrutiny-1419454132)

——–“Cross-border merger activity surged this year to nearly $1.1 trillion in announced tie-ups, according to Dealogic.  That is the highest since 2007 and up from $773 billion in 2013 . . . But many of these deals are running into a growing corps of global deal cops.  More than 100 international jurisdictions now have their own merger regulators, each wanting a say over transactions that touch their industries, economies or interests.  The mandates of these agencies often include protecting consumers, corporate icons, key industries and national security.”  In light of these concerns, “Some deals include sweeteners meant to help win over regulators.”  In the recent takeover of Canadian-icon Tim Hortons Inc. by Burger King Worldwide Inc., “it was promised to list the new company on the Toronto Stock Exchange.”

********Given the level of merger activity, it is clear that businesses are finding ways of managing the increased complexity of the regulatory environment.  Although it was of no real surprise, I did find the mention of importance of “incentivizing” the regulators to be interesting.  Incenting a regulator seems quite different than complying with a regulation.

(26 December 2014): “A Decimated U.S. Industry Pulls Up Its Socks” [SR](http://www.wsj.com/articles/a-decimated-u-s-industry-pulls-up-its-socks-1419440433)

——–The hosiery trade has fallen so far in the U.S. that its trade group, the Hosiery Association, disbanded in 2013: “Employment in U.S. hosiery and sock mills [today] totals about 8,600, one quarter of the tally for 2001.”  It is a familiar story—low cost of production overseas, especially  in China, led domestic buyers to source their products elsewhere.  But the tide is changing and hosiery jobs are returning to the U.S. and, in particular, to North Carolina.  “Earlier this month, at a long-idle plant it acquired . . . in Hildebran, Peds [Legwear] began production of socks that are to be sold at Wal-Mart stores, starting in March. . . . Changes in technology, attitudes and costs” are bringing hosiery jobs back to the state.  Regarding technology, new Lonati machines combine multiple steps in the manufacturing process, resulting in the elimination of a whole department at the U.S. plants.  Regarding attitudes, Wal-Mart “is trying to reduce its heavy reliance on imports.”  Finally, cost differences, especially labor, have changed dramatically in recent years: “average manufacturing wages in the U.S. have risen less than 2% annually over the past five years, while those in China have about doubled since 2008.”  Behind the developments in Hildebran, NC is 45-year-old Michael Penner, a native of Montreal, Québec, who had previously sworn off sock manufacture.  But in ways circuitous, including a Bruce Springsteen song recommended by a Hildebran worker, “Mr. Penner asked Wal-Mart executives if making socks in the U.S. would be a good way to expand sales at Wal-Mart stores.”  The executives’ enthusiastic reply, according to Penner, “was the tipping point.”

********The article points to a number of factors that affect where things are made, none of which “determine” things in historical time: technologies can be matched, relative wages can vary, and attitudes can change.  At the moment, things are looking up for hosiery in North Carolina.  You can get a glimpse of how socks are made in the five-minute “How It’s Made—Socks” video at: https://www.youtube.com/watch?v=C7wvOPgh2YE.  The Bruce Springsteen song noted in the article is “Death to My Hometown,” which you can view at: https://www.youtube.com/watch?v=TsjjE8jXDts.

(27 December 2014): “Gastronomes Foraging for Bargain Truffles Are in Luck” (http://www.wsj.com/articles/gastronomes-foraging-for-bargain-truffles-are-in-luck-1419647565)

——–[This is the A-Hed, quirky, article.]  “A wet, warm summer in Northern Italy, where the world’s most desirable white truffles are dug up, has produced a bumper fungi crop.  That pushed prices down about 50% from last years, according to chefs, dealers and restaurant operators.  The steep drop sparked an unprecedented frenzy as truffle hunters, brokers and chefs have scrambled to move the delicate merchandise. . . . They last from just a few days to a few weeks, with the average running about 10 days from the time it’s yanked out of the ground by a truffle hunter.”  John Magazino, an import specialist at Chef’s Warehouse, estimates “that he’s selling as much as a third more white truffles than during the same time last year.”  He notes: “The people who normally buy truffles are buying a lot more, and it’s opened up a second tier of restaurants.”

********The article goes on to note that the quality of white truffles has been higher this year.  Thus a good growing season led to quantity and quality increases for white truffles.  The truffles are still far from inexpensive, with chefs paying about $1,000 a pound this year in comparison to $2,000 a pound last year.  Still, if you want the white truffle experience, this is likely to be an ideal year to have it.  Take a look at an upscale Italian restaurant and check out its offerings.  The article notes, too, that large price variations for truffles are not unusual, because “The tubers have resisted agricultural industrialization—unlike lobsters or caviar, these specialty foods aren’t farmed or cultivated in a meaningful way.  White truffles need extremely specific growing conditions.”

(27 December 2014): “Will 2015 Be the Year of the Chicken?” (http://www.wsj.com/articles/will-2015-be-the-year-of-the-chicken-1419632701)

——–Chicken is no longer being seen as a place filler on restaurant menus.  New chickens, such as those sporting the French Label Rouge raised in North Carolina or the Green Circle, a “French heritage breed raised on Amish farms,” are providing new tastes and cooking opportunities for people who going beyond the Cornish Cross breed developed out of the Chicken of Tomorrow project pursued in the U.S. in the mid-20th century.  The result of that project was a chicken ”built to live fast, die young (hatchling to supermarket in as little as 30 days) and leave a bland but meaty corpse.”  People who are embracing the trend to heritage chickens remark that “it was like I was eating chicken for the first time.”

********This is sort of a “follow up” to the recent publication of Andrew Lawler’s book Why Did the Chicken Cross the World?  The Epic Saga of the Bird that Powers Civilization.  While reading this article I was struck by the thought that so much of the development of earlier food “products” was oriented toward reducing heterogeneity to create something standard, but recent developments have been oriented toward increasing heterogeneity.  This seems like a story that can be told.  Perhaps it is told in Lawler’s book.

(29 December 2014): “Prosecco Enjoys Bubbly Times” [SR](http://www.wsj.com/articles/prosecco-enjoys-bubbly-times-1419814079)

——–“This week’s New Year’s libations will illustrate an increasingly established truth in the sparkling-wine business: sales are bubbling, but it’s got little to do with Champagne.  Though shipments of French-made Champagne have been climbing in the U.S. since 2009, the real pop in the sparkling-wine industry is coming from Prosecco.  Sales of the sweeter and less expensive Italian-made cousin of Champagne rose 32% in the 12-month period ended Dec. 6, five times the growth rate of sparkling wine overall.”  Although Prosecco isn’t the only sparkling-wine challenger to authentic Champagne from the Champagne region of France, the sales of others such as Spain’s cava and Moscato, which is made everywhere, have been much less impressive.  Regardless of type, the last three weeks of the year are an important for sparkling wines, as “More than 20% of their annual U.S. sales take place” during that time period.

********The number of substitutes for Champagne is increasing and the category of ‘sparkling wine’ is becoming better known among U.S. consumers.  Sam Heitner, the director of the Champagne Bureau, claims that increased competition is beneficial to Champagne, noting “The more people drink sparkling wine . . . the stronger the opportunity for champagne to take people thinking about sparkling wine and move them into the Champagne category.”  Heitner’s comment in consistent with vertical product differentiation in the sparkling wine category, with Champagne at its top.  It also brought to mind the notion of gateway drugs, the frequently alleged notion that the use of one drug of lower potency will lead to the use of drugs of higher potency.  Perhaps status is a drug?

********This seems like a good place to draw attention to Mike Veseth, Extreme Wine: Searching the World for the Best, the Worst, the Outrageously Cheap, the Insanely Overpriced, and the Undiscovered (2013).  Veseth is an economist who writes informally about wine with a good degree of humor.  I’m about halfway through the book and I have found it at times illuminating but always enjoyable.  You can learn more about the book at: http://www.amazon.com/Extreme-Wine-Outrageously-Overpriced-Undiscovered/dp/144221922X/.  While at Amazon I checked the author’s page and found that his next book will be released on August 4, 2015, entitled Money, Taste, and Wine: It’s Complicated!  It appears that Veseth has found his audience.  You can learn more about this book at: http://www.amazon.com/Money-Taste-Wine-Its-Complicated/dp/1442234636/.

(30 December 2014): “Supermarkets, Convenience Stores Now Woo Diners, Too” [SR](http://www.wsj.com/articles/supermarkets-convenience-stores-now-woo-diners-too-1419899444)

——–“Consumers weighing whether to dine out at a tablecloth restaurant or a fast-food joint now have additional options to consider: the grocery store and the minimart.”  Supermarkets and convenience stores have long offered some ready-to-eat foods “But in recent years companies in both categories have reformatted their stores and beefed up their menus with fresh, made-to-order offerings that they hope will woo eaters from traditional restaurants and burger joints and lead them to buy other goods the stores sell as well.”  The sale of prepared foods at Whole Foods Market Inc., “which pioneered the sale of fresh-cooked items in its stores, more than doubled to $2.7 billion in fiscal 2014 from $1.3 billion in 2007.  The puts Whole Foods on a par with restaurant companies like Chipotle Mexican Grill Inc., whose sales were $3.2 billion last year.”  Restaurant chains, including McDonald’s, which is trying “to reverse a two-year slump in its U.S. sales,” have taken note of this new competition.  “Both supermarkets and convenience stores are embracing fresh foods to compensate for softer sales of some of their traditional offerings.”  Two of those offerings are tobacco products and gasoline.

********Paul White, senior prepared-foods coordinator for Whole Foods, notes, “We used to think of food service as this smaller part of the grocery business . . . We are turning it on its end.”  The higher profit margin of prepared food in comparison to groceries makes the shift attractive, but as Bob Marian, the CEO of Roundy’s Inc., notes: “running a restaurant is an entirely different business than running grocery stores.  It is more complex and requires employees with a different skill set.”  A recent article in the Asheville Citizen-Times provides a glimpse of that skill set and one of the main  obstacles to restaurant success (ego).  You can learn more at: http://www.citizen-times.com/story/news/local/2014/12/26/asheville-restaurants-fail/20929605/.

(31 December 2014): “Start-Ups Rise to Close a Gap for Farmers” (http://www.nytimes.com/2014/12/31/business/start-ups-rise-to-close-a-gap-for-farmers.html)

——–“In spite of the surging demand for locally and regionally grown foods over the last few years, there is a chasm separating small and midsize farmers from their local markets.  But a growing number of small businesses are springing up to provide local farmers and their customers with marketing, transportation, logistics and other services, like the Fresh Connection, a trucking business providing services to help farms around New York City make deliveries.”  Such new businesses are occupying a space that opened up when the American food system, which was once dominated by “larger and larger farms selling into highly integrated and centralized distribution,” came to be challenged by Whole Foods’ demonstration that “there was money to be made in local agriculture.”  This has resulted in an increasing number of “food hubs” to coordinate warehousing and distribution, but although some have become “self-sustaining and even profitable, . . . in the last year, several also have gone out of business.”  Technology is behind FarmersWeb, “an online marketplace that connects farmers to buyers.”

********You can learn more about FarmersWeb at: https://www.farmersweb.com/.

(31 December 2014): “For Wal-Mart in Mexico, Bodega Format Trumps Big Box” (http://www.wsj.com/articles/for-wal-mart-in-mexico-bodega-format-trumps-big-box-1419981085)

——–“Wal-Mart Stores Inc. is taking on its biggest competition of all in Mexico: the street vendors, traditional markets and small stores that account for over half of grocery sales in the country.”  Although Wal-Mart currently has a fifth of grocery sales in the country, further growth “is hard to come by in Mexico’s congested towns and cities, where consumers tend to shop in family-owned shops or markets” some of which stretch back to pre-Columbian times.  Wal-Mart’s approach is “a mini-grocer format called Bodega Aurrera Express, which the company launched in 20008.  The store looks like an oversize mom-and-pop shop, with products stacked high against the walls. . . . [the] stores average 2,690 square feet of selling space, roughly 3% of the area needed to open a Wal-Mart Supercenter.”

********The article was submitted from La Guadalupana, Mexico, which has a street market, called a tianguis, which is open three days a week.  Employees at the local Bodega Aurrera Express “say their busiest days are when the street market is open.  They call it symbiosis.”  Vendors of the tianguis think the small format stores of Wal-Mart are “competing for sales, but not very successfully.”  According to one seller, “People are accustomed to the tianguis . . . This is how it has always been in Mexico.”  Still, there is evidence that some customers are price and quality sensitive.  Marisol Carillo, a “30-year old stay at home mother of three buys packaged items like toothpaste and shampoo at bodega Aurrera Express, where she says the prices are better, but still gets her fruit, vegetables and meat from the open-air stalls.”

May you have a good week!


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