Welcome! The articles below caught my attention this week. What are intended to be relatively objective “briefs” are preceded by dashes (——–), whereas additional material or relatively subjective comments are preceded by asterisks (********). Article titles preceded by [SR] require a subscription.
(19 February 2020) [SR] “Grocers Wrest Control of Shelf Space From Struggling Food Giants” The Wall Street Journal
——–“The biggest U.S. food makers, already dealing with increased competition and shifting consumer tastes, now face an additional threat: supermarkets are taking away prime shelfs space. Grocers are relying on their own proprietary research to decide how and where to shelve certain products, rather than relying on companies that well well-known brands to tell them what to put on what shelf at what price. The shift is resulting in less space for traditional supermarket staples from companies such as General Mills Inc. and Clorox Co. in favor of niche items and store brands that deliver higher margins and are often in higher demand. . . . The diminished power of ‘category captains’—the top sellers of products such as soup or cereal—is the biggest change to the way food is sold since Walmart Inc. expanded its grocery offerings 30 years ago, industry veterans say.”
********Evidently retailers have derived income from “heavy slotting fees big brands pay for prime space” but now “retailers are more focused on doing what it takes to maximize sales growth even if it means giving up some of those fees by stocking more of their store-branded products.” Since, as the article notes, the category-captain role began dissolving over “the past 18 months,” one wonders what happened. New software? Is it only recently that retailers have become aware that there might be a benefit to foregoing slotting fees to advance their own products?
Somewhat connected to this article—software and movement away from big brands—is “The Crop Software Behind Your Daily Cup of Coffee” Bloomberg.com. The company behind the software is Cropster, which “started as a tool to lift coffee producers out of poverty” and now has “a bigger mission: to save the entire global food supply.” Tools for coffee roasting have been central to Cropster’s success. Its CEO, Norbert Niederhauser, saw that “roasters had two things going for them: the need for more precise tools and the ability to pay for them.” A contributing factor was the current “Third Wave” of coffee. Big-brand coffee was the First Wave, with the likes of Folgers and Maxwell House. The Second Wave was “driven by such chains as Starbucks and Peet’s Now the Third Wave was beginning to build” with boutique brands “such as Intelligentsia, Blue Bottle, and Stumptown . . . selling . . . higher-cost, single-origin, and artisanal coffees produced by craft roasters.” Sounds like a familiar path.
(20 February 2020) “Poverty Is All About Personal Stress, Not Laziness” Bloomberg.com
——–“Economists are starting to accumulate evidence that instead of being indolent layabouts, poor people are harried and frantic. To deal with a world of precarity, where any misstep or piece of bad luck can lead to disastrous consequence, requires a massive amount of cognitive effort. And it’s the stress of that constant effort, rather than bad morals or welfare-inspired laziness, that drives many poor people to make subpar decisions. Economist Sendhil Mullainathan of Harvard University has been at the forefront of the effort to better understand the challenges of poverty. . . . Scarcity, he believes, begets stress, which leads to bad decisions, which creates even more scarcity. Thus poor people get trapped in an exhausting but inescapable cycle of precarity.”
********The basic idea is that stress affects cognitive performance, something that is true for both real and imagined circumstances. E.g., a study of “farmers in a poor region of Brazil, found that both actual droughts and being forced to think about droughts reduce cognitive performance.” If this line of argument is correct, “it has importance consequences for how governments try to alleviate poverty. Instead of being conditional on work—which simply adds one more source of stress and risk—welfare benefits should be unconditional.” Applicable, it would seem, to work requirements to qualify for various benefits such as the Supplemental Nutrition Assistance Program.
(21 February 2020) “The U.S.-Iran Pistachio War Is Heating Up” Bloomberg.com
********In fact, it seems like the “war” is almost over. “Persia enjoyed a virtual monopoly on cultivating the hardy yet demanding pistachio tree for at least 1,000 years.” But climate change, diminishing water resources, and poor governance have led to lower production in Iran. An important ingredient in Iranian cuisine, “The dearth of harvests has led to a kind of despair.” Producers are now looking outside of Iran to grow pistachios, for example, Georgia. Although the U.S. is a relative newcomer, starting “to produce pistachios only in 1976, [it] has now overtaken Iran as the world’s leading producer.” The article provides a good example of the invisible forces at work, as U.S. import duties and outright bans on Iranian pistachios have contributed to the relative decline of Iran’s crop globally.
(21 February 2020) “The Gas Station M&A Frenzy Looks Like a Bubble” Bloomberg.com
********This article examines what seems to be a good idea—buying up gas stations at a time when households are getting smaller with an idea toward expanding the consumer offerings at the station—while considering that the likely expansion of electric cars will reduce trips to gas stations. Social change and technological change are front and center in this exploration.
Consistent with the expansion of electric cars is the dramatic growth of solar farms. That expansion is made clear in “Super-Size Solar Farms Are Taking Over the World” Bloomberg.com. It begins: “All of a sudden, solar energy is huge. As many of the world’s major governments and corporations move to transition the global power supply away from fossil fuels, developers are transforming swaths of empty desert, agricultural land, and rural lakefront into vast solar energy farms The mega-size projects represent a new class of renewable power capacity that’s finally approaching the scale of coal-, oil-, and natural-gas fired plants.” In fact, in 2019, developers commissioned “at least 35 projects of at least 200 megawatts worldwide . . . With about 3,000 solar panels needed for each megawatt of capacity, a 200-megawatt project would be at least as big as 550 American football fields.” In southern Egypt there is a 1.5- gigawatt project that has “more capacity than many nuclear power plants.”
(22 February 2020) “The Virus Is Interrupting Supply Chains From Watches to Lobsters” Bloomberg.com
********This week has seen the largest decline in U.S. stock indices since 2008 due to investor concern over the possible consequences of the Coronavirus. This article explores some of the likely consequences on the supply chains of a variety of products: Hong Kong watches; American board games; masks made in Mexico; German auto parts; Indonesian garments; Malaysian pets; sea transport; New Zealand lobsters; Japanese heavy equipment; and Vietnamese furniture. I’m familiar with the expression “the interdependent web of all existence,” which expresses how plants, animals, and human are interconnected. In fact, there is also an “interdependent web of all markets” and this article provides some good illustrations.
(25 February 2020) “Checkup for $30, Teeth Cleaning $25: Walmart Gets Into Health Care” Bloomberg.com
——–Calhoun, Georgia, about a one-hour drive north of Atlanta, is home to Walmart’s ambitious move to fulfill a basic need for all Americans—health care. Inside the new Walmart Health center, “Walk-ins are welcome but most appointments are booked online beforehand. No insurance? No problem. Need a lab test on Sunday? Sure thing.” Perhaps “The first thing you see at Walmart Health is the price list.” So, “Whatever a patient needs, she knows the price upfront—a huge departure from how health care usually works.” Health care has been on Walmart’s radar for some time, but it took a back seat to other strategic priorities. But now health care’s time has come. As Walmart attempts “to grab a bigger slice of the nation’s $3.6 trillion in heath spending”, it is “harnessing its greatest asset—the 150 million people coming through its 4,756 stories each week.” In doing this, Walmart is pitted “against rivals such as CVS Health Corp. . . . and creates a new front in Walmart’s battle against Amazon.com Inc.” and Walgreens.
********The article concludes, “if Walmart’s goal is to be the front door of health care in America, one thing in its favor is that it already controls so many doorways to American consumers.” As consultant Chas Roades notes, “Everyone says, ‘Look out, Amazon is getting into health care,’ but it’s way more scary if Walmart really puts these pieces together . . . Now they’re really getting serious about it.” Health care services would seem to be a business in which a physical presence—bricks-and-mortar—is essential.
May you have a good week!