238 (11 November 2015)

Welcome to week 238!  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 an Internet title search.

This week the impact of the Millennial generation, those who are between the ages of 18 to 34 during 2015, is a recurring theme.  One set of generational definitions along with discussion can be found in a publication of the Pew Research Center: http://www.pewresearch.org/fact-tank/2015/01/16/this-year-millennials-will-overtake-baby-boomers/.  The frame for Pew’s work can be found in “The Whys and Hows of Generations Research” (http://www.people-press.org/2015/09/03/the-whys-and-hows-of-generations-research/).  The article is available as a pdf: http://www.people-press.org/files/2015/09/09-3-2015-Generations-explainer-release.pdf.  It seems like people who have demographic knowledge and “big data” expertise would have some real opportunities open to them.

(4 November 2015): “Are Regulations Killing the Small Community Bank in America?” (http://daily.jstor.org/death-american-community-bank/)

——–Bodcaw Bank is a locally-owned financial institution in Stamps, Arkansas, a town of 1,500 whose main claim to fame is as the childhood home of Maya Angelou.  “Like many nearby towns its size, Stamps has declined in both population and commerce in recent decades.”  However, it still has its bank.  Bank president Scott Hulberg see its presence for the community as essential: “If we weren’t here, this community would dry up.”  Some small towns lose their banks through mergers with other banks but bank regulation has also played a role.  The Dodd-Frank bill that resulted from the Great Recession “failed to distinguish between community banks and large, investment-oriented banks.”  As a result, smaller banks have a relatively large burden than larger banks.

********This article is a bit longer than what usually appears in JSTOR Daily but it is worth a look.  Particularly interesting is the emphasis on personal relationships (trust) in smaller banks, as opposed to an almost complete adherence on “the numbers” at larger banks.  Also noteworthy is the common practice of larger banks of bundling loans and reselling them; at smaller banks the loans tend to stay put.  All this points to the importance of treating individuals as individuals, instead of making them fit some Procrustean bed.  The emphasis on the individual is one of the factors leading Millennials to “go local with their money” (http://www.bloomberg.com/news/articles/2015-11-10/millennials-do-not-like-big-banks-and-all-those-fees-they-charge).  As Cam Fine, who is the CEO of the Independent Community Bankers of America, notes: “Millennials in particular crave more high-touch . . . They want to make sure people are paying attention” to the needs they have.

********Somewhat related to the above is the new book How the Other Half Banks (http://www.amazon.com/gp/product/0674286065/), by Mehrsa Baradaran.  As a New York Times review of the book notes (http://www.nytimes.com/2015/10/11/books/review/how-the-other-half-banks-by-mehrsa-baradaran.html), “The answer to the implicit question contained in her title . . . is simple: “The ‘other half’ hardly banks at all.”  In light of the foregoing, one begins to get a broader view of the diversity of banks and banking-related services, as well as the challenge of creating and enforcing regulations meant to deal with all of them.  Democracy Now! (http://www.democracynow.org/2015/10/30/how_the_other_half_banks_how) has a 13-minute video interview with Mehrsa Baradaran.

********The Saturday Essay (http://www.wsj.com/articles/the-uberization-of-finance-1446835102) on “The Uberization of Money” provides an argument for a trend that is sure to impact small-scale banking and investing.  The article asks, “The familiar middlemen of 20th-century banking and investing are giving way to something very different.  Are we ready for the opportunities—and the risks?”  The article notes that “Uber is a high-tech middleman that is making the intermediaries of the past obsolete.”  So, Uber has prospered by eliminating the middleman in ride hailing.  But the “financial world is one of the most mediated industries on the planet, and this is precisely what is about to change.  Uberization also means using vast amounts of data to make those connections feasible.”  Legislation, as well as technology, will be needed to make this shift.  Of course, legislation can also be used to delay or reconfigure this shift, and it is likely that it will be used by some incumbents.  As the author of the Essay suggests, disintermediation enabled by technology and large data sets is one of the main drivers of modern life.

(5 November 2015): “M.B.A.s Get Lessons in Income Inequality” [SR](http://www.wsj.com/articles/m-b-a-s-get-lessons-in-income-inequality-1446653337)

——–“With the gap between the highest and lowest-income Americans at its widest level in decades, some business school are putting income inequality of the syllabus.”  Among the schools are MIT, Harvard, and Northwestern University.  Some of the courses “consider remedies for inequality, while others focus on helping students market to consumers at the bottom of the wealth pyramid.  As M.B.A.s aspire to become top earners, schools say they must understand the forces that affect people at every income level.”  There has been an increase in academic interest in income inequality since the recession.  Additionally, according to Richard Parker of Harvard’s Kennedy School of Government, the current generation of students is “very concerned about fairness.”

********There is a hint of the invisible handshake—social and historical forces—in this article as it refers to generational differences in attitudes and interests of students.  Something that would have added to the article would have been a link to the syllabus of one or more of the instructors teaching these courses.  What are the students reading and discuss, and what projects are they required to undertake?  A related article is “Behind Rising Inequality: More Unequal Companies” [SR](http://www.wsj.com/articles/behind-rising-inequality-more-unequal-companies-1446665769).

(5 November 2015): “Maersk Line to Cut 4,000 Jobs as Market Deteriorates” [SR](http://www.wsj.com/articles/maersk-line-to-cut-staff-as-market-deteriorates-1446623156)

——–“The world’s biggest container-ship operator is altering course, slashing jobs and canceling or delaying orders for new vessels after years weathering a sharp downturn in the container-shipping market.”  In addition to cutting 4,000 jobs from its 23,000 land-based employees, “It is also canceling options to buy six Triple-E vessels, the world’s largest container ships, to cope with the deepest market slump in the industry since the 2009 global financial crisis.  Maersk said it would also push back plans to purchased eight slightly smaller vessels.”  Maersk’s surprise announcement signals that it is “no longer immune to a combination of slowing global growth and massive container ship overcapacity on many routes.”

********The article includes a graph showing monthly “average spot freight rates between Shanghai and Norther Europe” for January through October 2015.  Although the graph is somewhat hard to read, it shows that rates have declined from a peak of $1100 per container in January to a current level of $428 per container; the yearly low appears to have occurred in June at about $300 per container.  Fewer vessel orders mean less work for South Korean firm Daewoo Shipbuilding & Marine Engineering Co.  The combination of lower rates and overcapacity make it easy to understand that there is current pressure to consolidate in the container shipping industry.  The data used in the article came from Braemer ACM Shipbroking, about which you can learn more at: http://braemaracm.com/.

(5 November 2015): “Guinness Is Going Vegan” (http://www.nytimes.com/2015/11/05/business/guinness-is-going-vegan.html)

——–After 256 years as a brewer, Guinness “is going vegan.  The company announced on Monday that starting at the end of 2016, its beer will no longer contain trace amounts of fish bladder, an integral part of its filtration process.  Few customers—except perhaps vegans and vegetarians who enjoy a pint—were probably even aware that the famous inky-black drink contained any fish parts at all.  But it is actually quite common for cask beers to be filtered using isinglass, a gelatinlike substance derived from the dried swim bladders of fish that is used to separate out unwanted solids like yeast particles from a brew,” according to Guinness.  According to Edmund Long, spokesperson for the advocacy group Vegan Ireland, says that vegans have been complaining to the company for a long time and “they were delighted by the decision.”

********Sometime in 2016, then, Guinness will have a “vegan-friendly” brewing process.  All this makes me wonder if Asheville craft brewers have vegan-friendly brewing processes?  I’ve sent an email to Tony Kiss, the “Beer Guy” of the Asheville Citizen-Times to see if he knows.  On another note, the notion of vegan friendly is an interesting one.  Presumably someone who is a committed vegan will have a vertical demand curve Guinness, i.e., be unwilling to consume Guinness at any price, if it contains animal products (isinglass).  If the isinglass is removed, then some vegans will have downward-sloping demand curves.

********On the topic of liquids, The Washington Post has an intriguing article on raw milk: https://www.washingtonpost.com/lifestyle/style/got-raw-milk-a-md-farm-now-sells-the-hotly-debated-drink–for-pets/2015/11/04/63b86f54-7cd5-11e5-b575-d8dcfedb4ea1_story.html.  You can now buy raw milk in Maryland—if your pets will be consuming it.  I suspect that little of the milk makes its way to pets.

(7 November 2015): “How Millennials Are Changing Wine” (http://www.wsj.com/articles/how-millennials-are-changing-wine-1446748945)

——–[Lettie Teague’s wine column.]  Millennials “have been heralded as the generation capable of changing everything.  The largest generation to date at 75 million strong, they certainly have clout.  This group of 18- to 34-year-olds is technologically savvy, environmentally engaged and eager for stories about the things they love.  They’ve helped transform the way we connect with one another, but will they also (re)shape the way we drink?”  Perhaps.  Millennials are less enamored with the 100-point wine scale than older wine drinkers, valuing “stories and a personal connection” in selecting their wines.  Their “rebellious tastes can lead them into trouble” but their “enthusiasm for the obscure has also been a boon” for restaurant wine offerings.  It is now possible to have a “wine list without Napa Cabernet or New Zealand Sauvignon Blanc.”  Whether they revolutionize wine or not, Millennials have “certainly done their part to promote small producers creating interesting wines in odd corners of the globe.”

********The article raises, once again, generational differences in tastes and experience.  In reading Lettie Teague’s comment about “small producers,” I couldn’t help but think about craft brewing locally and as a movement.  It does seem like they are two manifestations of the same thing, part of which is no doubt due to Millennials and another part of which is the movement toward things organic and local, i.e., things thought to be pure and local, things on a human scale.  In any event, retailers of all description will want to pay attention to the preferences of Millennials: “by 2017, they’ll have more buying power than any other demographic group.”  Presumably this refers to income and not wealth.

********It appears that one country that may be playing a role in Millennial wine consumption is China.  Although large a consumer of the wines of other countries, China is beginning to develop high-quality wine production of its own.  The Ningxia region, which borders the Gobi Desert, is turning out to be a center of activity.  Currently these wines are not exported but that day is likely to come.  You can learn more by reading “China’s Winemakers Seek Their Own Napa Valley” (http://www.nytimes.com/2015/11/08/business/international/chinas-winemakers-seek-to-grow-their-own-napa-valley.html).  Tasting notes on five Chinese wines can be found at: http://www.nytimes.com/2015/11/08/business/international/a-tasting-of-chinese-wines.html.

********Millennials aren’t only changing wine—their preferences are shaking up the grocery store, as noted in the Opinion piece “A Seismic Shift in How People Eat” (http://www.nytimes.com/2015/11/08/opinion/a-seismic-shift-in-how-people-eat.html).  The shift—larger than just Millennials—is such that some in the grocery business refer to the center of stores, where many packaged foods (like cereal) appear, as “the morgue.”  Today much of shoppers’ time “is being spent in the perimeter of the store with its vast collection of fresh products—raw produce, meats, bakery items and fresh prepared foods.”  The survival of “legacy companies” will require them to “make bold changes in their core product offerings.”)

********One legacy company that is taking changing tastes seriously, and specifically those of Millennials, is Campbell Soup, which is “banishing ingredients that today’s consumers don’t like and using advertising and social media to have a conversation with consumers about what it is doing” (http://www.nytimes.com/2015/11/10/business/campbell-rethinks-its-recipe-as-consumer-tastes-change.html).  A clear indication of its changing approach is that it is altering the broth of its signature chicken noodle soup.  As CEO Denise M. Morrison says as an indication of Campbell’s strategy, “We’re closing the gap between the kitchen and our plants.”  As a partial explanation of its approach, she observes: “There are 80 million millennials now, and they’re shopping and thinking differently about food and in a way that is influential.”  I found it interesting that the article mentions the grocery store perimeter and provides a link (http://www.nytimes.com/2012/08/11/business/in-grocery-stores-the-perimeters-take-center-stage.html) to an earlier article featuring the concept.

(7 November 2015): “You’ve heard about surge pricing.  Get ready for surge-priced parking.” (https://www.washingtonpost.com/local/trafficandcommuting/youve-heard-about-surge-pricing-get-ready-for-surge-priced-parking/2015/11/07/4ff53f80-83ef-11e5-8ba6-cec48b74b2a7_story.html)

——–The District of Columbia “is testing a program under which the price of parking at meters in one of the city’s most popular neighborhoods would change based on demand.  This ‘surge pricing’ means you could be paying $8 an hour to park in Chinatown-Penn Quarter at peak times. . . . City officials say the idea is to reduce downtown traffic congestion, 25 percent of which, studies show, is caused by vehicles circling the block looking for a parking space.  It is simple supply and demand, they say. . . . Prices will vary depending on the time of day.”  Such an approach to “smart parking” has been adopted at several cities across the country, including San Francisco where SFpark “has parking rates fluctuating from 25 cents an hour to $18 an hour during special events.”

********The article goes on to point out that “Surge pricing is a concept familiar to users of Northern Virginia’s express lanes on Interstates 495 and 95, along with customers of app-based ride-hailing services such as Uber.”  The Atlantic has a brief article on time-sensitive pricing for motor vehicle use: http://www.theatlantic.com/business/archive/2015/08/rush-hour-traffic-commute/402418/.  So-called congestion pricing, “which would charge people extra for driving at peak hours” have already been introduced in London and Stockholm.  The authors of a journal article cited in The Atlantic suggest that such pricing schemes are likely to be more effective than building more roads, noting that “As soon as you manage to create space on the road, by whatever means, people are going to use that space . . . Except when people have to pay for it, of course.”  Nobel laureate William Vickrey is considered to be “the father of congestion pricing” (https://en.wikipedia.org/wiki/Congestion_pricing); you can learn more about Vickrey at: http://www.nobelprize.org/nobel_prizes/economic-sciences/laureates/1996/vickrey-bio.html.  I suspect it is unlikely that the North Carolina Department of Transportation has considered a congestion pricing approach to the massive road reconfiguration plans it is developing for Asheville, North Carolina.  You can learn more about those plans at: http://www.citizen-times.com/story/news/2015/10/31/dot-decisions–26-connector-asheville-loom/74768074/.

(10 November 2015): “Battle Brews Over Kombucha Teas” (http://www.wsj.com/articles/battle-brews-over-kombucha-teas-1447116607)

——–“A fermented teas called kombucha recently became one of America’s fastest-growing bottled drinks even though it tastes a lot like vinegar and can sport tendrils of live cultures that resemble jelly fish.  But the U.S. government is worried there may be too much of something else in the cloudy, carbonated brew: booze.  Federal regulators have fired off warning letters in recent weeks to some kombucha producers after finding alcohol levels above one-half of 1%, the U.S. dividing line between alcoholic and nonalcoholic drinks.”  Although an industry representative notes that “Nobody’s saying, ‘let me get a six-pack of kombucha and get wasted tonight,’” regulatory authorities say that they are concerned about “enforcing warning labels, minimum age requirements, special taxes and other regulations governing alcoholic beverages.”  The alcohol in kombucha is produced by fermentation that continues after the tea is bottled, which is responsible for the occasional exploding bottle and likely explains why measured alcohol content varies.

********You can learn more about kombucha at: https://en.wikipedia.org/wiki/Kombucha.  As the article notes, the problem of exploding bottles, and presumably alcohol measurement, can be solved by pasteurization, “but producers say the cultures [in kombucha] must remain alive to deliver purported health benefits.”

(11 November 2015): “Behind the Move to Ban Tipping” [SR](http://www.wsj.com/articles/behind-the-move-to-ban-tipping-1447206602)

——–“Two months before Danny Meyer announced he was eliminating tipping at his restaurants, he gathered 15 of New York’s top restaurateurs, representing about 80 establishments, to brief them on his plans and solicit opinions.  It was one step in a painstaking process to roll out a policy that has roiled the restaurant industry, sparking conversations about the fairness and future of an entrenched American practice. . . . Mr. Meyer began contemplating the idea of eliminating tipping with Tom Colicchio more than two decades ago . . . Unlike Mr. Meyer, who is attempting to redress the imbalance between servers and cooks, Mr. Colicchio instituted the practice to make his waiters’ compensation more stable.”

——–Meyer’s explorations began when he hired Erin Moran as his “chief culture officer.  Her first week, she was tasked with addressing the widening gap in pay between back-of-the house and front-of-the-house workers.”  After 18 months of work, during which time more than 100 solutions were considered.  “The issue was more stark than they realized.  Wages for line cooks have increased 22% since 1985, but over the same period the tipped minimum wage for servers more than quadrupled.  That increase doesn’t take into account servers’ true compensation, since as restaurant checks have risen, so too have tips.”  Although Meyer’s company, Union Square Hospitality Group, tried many ways to address the gap, ultimately Ms. Moran’s team ultimately concluded “There was no way to alleviate the pay imbalance without eliminating tipping.”

********The New York Times covered this story in October (http://www.nytimes.com/2015/10/15/dining/danny-meyer-restaurants-no-tips.html).  What really caught my attention was Meyer’s interest in and concern about the widening gap of compensation between line cooks and servers, as well as the deliberateness with which the gap was studied by Moran.  The article brought two things to mind.  First, is there a widening gap between line cooks and servers in Asheville and its burgeoning restaurant scene?  Second, wouldn’t it be nice if business people like Mr. Meyer and Ms. Moran brought their knowledge, experience, and intention to addressing compensation gaps more generally?  Perhaps that is what will happen as more M.B.A.s, as mentioned in the (5 November 2015) article, become knowledgeable about income inequality.

May you have a good week!

Bruce

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