Love has often been exchanged for vaguely defined and regrettable things, so it stands to reason that “love” will now be accepted as a form of payment for McDonald’s food. The company has released a preview of its upcoming Super Bowl ad, which follows on the heels of its new “Lovin’ Beats Hatin’” campaign—a push to remind Americans that too much hatred can fill you with bile, leaving you with hardly any bile left to dissolve a McDonald’s hamburger. Most recently, McDonald’s reminded everyone of the deleterious effects of being filled with hate by debuting a series of commercials positing the sign for the nugget dispensary as a shining beacon in times of tragedy, enraging millions.
Now McDonald’s is ready to focus on the lovin’ part, creating the below TV spot that shows various customers being informed that they can pay for their sandwiches and sundaes with traditional displays of love—such as calling their mom, hugging their kids, or awkwardly dancing with a McDonald’s employee.
As explained on the McDonald’s website, the “Pay With Lovin’” promotion runs from Feb. 2 to February 14. As with love itself, it requires navigating a labyrinthine set of regulations, arbitrary judgments, and strict conditions. For example:
Not everyone will receive lovin’. Instead, only certain people will even be deemed eligible. Those who don’t will wander through the McDonald’s wondering, “Why him? Why her? What’s wrong with me?” Satisfying answers will never be provided.
McDonald’s employees and their families are not eligible for love.
Lovin’ can only take place during a specific designated time (known as “The PWL Time”), which will also be randomly decided. This is not under your control. No amount of dropping hints or begging will get you lovin’ outside of PWL Time.
That time will be determined by someone else—namely, each restaurant’s “Lovin’ Lead” manager. What gives them the right to say whether you’re worthy of lovin’? Why do they have so much power over saying when you can have it? These are delicate questions best not asked.
If you are somehow chosen for lovin’, you’ll be asked to perform “a random act of Lovin’ (the “Lovin’ Act”) that only the Lovin’ Lead can decide. These can include things like “fist bumping the Lovin’ Lead, calling a loved one, telling the Lovin’ Lead what the Participant loves about their significant other, blowing a kiss, or other general sentiment or Lovin’ Act in the theme of the Game.” These acts must be “completed to Lovin’ Lead’s reasonable satisfaction.”
What if you don’t feel like doing any of those things? What if you wish to express your lovin’ in different ways? What if that’s just how you show your lovin’, and it’s not your fault—it’s just learned behavior from your parents’ unhappy marriage and an unaffectionate childhood? That’s too bad. You have to think about your Lovin’ Lead’s needs now. Failure to show them lovin’ will result in “forfeit of Participant’s status as an unofficial prize winner.” You won’t get any lovin.’ You’ll be a loser.
You can’t transfer your lovin’ to anyone else. It’s a monogamous arrangement between you and the McDonald’s manager.
In exchange for winning lovin’, you agree to abide by the rules. That includes allowing McDonald’s to spread your name, likeness, voice, and anything else that might identify you as their lover throughout the world. They can also decide to take away your lovin’ at any time they want, with no explanation required. You can’t say anything about it to anyone. Don’t go telling people that McDonald’s is some kind of harlot, taking its love from everyone indiscriminately, serving up its goods to anyone who happens to walk in the door at PWL Time. They’re not having that.
But they can still tell the whole world about you.
German grocery store doesn’t waste, rest of food industry should follow suit
In Berlin, Germany, storeowners Sara Wolf and Milena Glimbovski have crowdfunded a revolutionary project that dares to accomplish the “impossible.”
The two women established a grocery store - Original Unverpackt [Unpackaged] - and sell upwards of 350 different products that are dispensed from refillable containers, while some of the liquid commodities come in bottles with individual deposits. What makes Original Unverpackt special is the fact that the unique dispersion system creates zero waste. The costumer is able to cater to his or her needs, purchasing only what is needed - thus creating less waste at home, as well.
Today, grocery stores offer products that are sold in brightly colored, attention-grabbing packages that are designed to appeal to customers.However, Wolf and Glimbovski recognize that this kind of marketing only leads to waste and they firmly believe that package-free groceries are the answer.
At Original Unverpackt, many of the food products are placed in gravity-storage receptacles – the same way that many candy stores have operated for years.Customers supply their own containers from home and are able to purchase exactly how much they need. Fresh fruits and vegetables are left unpackaged and products such as pasta, cereal and cheese are kept in cellophane-free packaging or glass jars.In the event that someone forgets their canisters or bags at home or decides to do some spontaneous shopping, Original Unverpackt has containers and recycled paper bags available for purchase.
Wolf and Glimbovski have also worked closely with health authorities during the development and launch of the store, so all processes are strictly hygienic and safe for consumers. As a college student, this type of store strongly appeals to me because food waste is an area that I strive to improve upon in my own life.Just night, I threw away about a third of a loaf of bread because I didn’t eat it fast enough and it grew moldy. Unfortunately, food waste is an issue for many other Americans, as well.
According to the United States Environmental Protection Agency [EPA], only 4.8 percent of food products were recovered from the initial 36.43 million tons that were produced in the United States in 2012. Sadly, 53.80 percent of our municipal solid waste [MSW] was also discarded completely. As for plastics, 31.75 million tons were generated, while only 2.80 million tons were recovered [an 8.8 percent recovery rate.] Similarly for paper and paperboard, 68.82 million tons were generated and 44.36 million tons were recovered [a 64.6 percent recovery rate.] The recovery rates for glass and all metals was 27.7 percent and 34.0 percent,respectively.
As you can imagine, grocery stores use and supply all of the aforementioned products: plastic, cardboard, glass, metal and, mostimportantly, food. Although Original Unverpackt is the first of its kind and the Berlin location is merely a pilot store, I think that this project has the potential to send the message to the rest of the food industry that alternative methods of operation are both feasible and worth the effort - and that the current method of grocery shopping is not sustainable.
Whole Foods, Half Off
Photographer: Andrew B. Myers for Bloomberg Businessweek
John Mackey, the co-founder and co-chief executive officer of Whole Foods Market, is making for the produce section of his 80,000-square-foot flagship store in Austin, Texas. He walks with a slight limp, the result of osteoarthritis in his hip after years of jogging and basketball, so it’s easy for customers to recognize him and chat him up.
One, clutching a ground beef and veggie taco lunch, tells him he’s been shopping at Whole Foods for three decades. “You don’t look old enough to have eaten here for 30 years,” says Mackey. He stops by an elderly woman picking through a container of pink lady apples. “These are not organic, but I happen to know for a fact the grower does incredible things in the way they take care of the soil,” he tells her. Other customers turn to each other and whisper as Mackey passes. The fishmongers and meat cutters behind the counter call out his name.
Mackey is the graying heartthrob of mindful groceries. Over the past 37 years he’s helped popularize the notion that Americans should devote more thought—and money—to their food. He took what had been a college town’s alternative grocery, with bins of grains and lentils, wilting veggies, and biodegradable soaps, and built a high-margin supermarket chain with almost 400 stores in 43 states and $14.2 billion in annual revenue. On the strength of its share price, Whole Foods briefly became the second-most valuable food retailer in the U.S., behind Wal-Mart Stores, in the fall of 2013. But Whole Foods, unaffectionately known as Whole Paycheck, had a lousy 2014. Same-store sales growth fell from 8 percent to 4 percent, and its share price tumbled 10 percent. Meanwhile, competition is squeezing Whole Foods like an organic lemon over a bowl of quinoa.
On one side are traditional chains such as Kroger, Safeway, and Wal-Mart, which have rushed to add soy crackers and $5 half-gallons of organic milk to their shelves. On the other are fast-expanding regional and national grocers catering to Land Rovered cosmopolites—Sprouts Farmers Market, Fresh Thyme Farmers Market, and Trader Joe’s, the last of which spread to Colorado, Florida, and Texas in 2013 and 2014. These chains offer grass-fed beef and probiotic yogurts as well, and the additional locations are carving up Whole Foods’ once-devoted customer base.
Mackey is in the awkward position of having to explain why Whole Foods can thrive in the very world he created. Which is why he’s eager to tour the fruit and vegetable aisles of his Austin store. Dangling over the displays are a series of SALE! placards in red letters. The company was once reluctant to compete with rivals purely on price, but here are signs proclaiming that organic broccoli is marked down to $1.48 a pound and two boxes of Driscoll blackberries are $3. Mackey points out a sign across the aisle: The seedless navel oranges and green kale are “responsibly grown.” The produce gets ratings—good, better, and best—based on farmers’ records in water conservation, worker safety, and other metrics. Some goods at Whole Foods cost more, and he wants to tell you why. “Look at where your eye goes when you walk into the store,” Mackey says. “We are now going to make sure we tell customers what we are about: values and value.”
Co-CEOs Robb, left, and Mackey at the Whole Foods flagship store in Austin
Photographer: Ryan Lowry for Bloomberg Businessweek
A libertarian with a hippie streak, who rails against creeping nanny-statism (Obamacare, minimum-wage laws) and the soullessness of corporate America, Mackey is challenging some of his own cherished beliefs. He’s down with advertising now. For the first time in Whole Foods’ history, the chain is running national ads: It’s spending $15 million to $20 million on a campaign that features rugged-looking farmers and fishermen vowing that “values matter.” And the company’s finally using one of the oldest tools in the supermarket toolbox, which Mackey resisted for years: a loyalty program.
It’s too early to determine how these changes will play with consumers, but at least one constituency is enthusiastic: the competition. “They’re becoming more and more like a traditional grocer,” says Rob Spiro, the CEO of Good Eggs, a Silicon Valley-based organic food delivery service, who says there’s now room for other companies to forge strong bonds with foodies. “They aren’t at the forefront of food consciousness in the way they were four or five years ago.”
In 1978, Mackey opened Safer Way Natural Foods, his first health food store, on an Austin city block about a half mile from Whole Foods’ current headquarters. The tiny store, which he founded with his then-girlfriend and $45,000 borrowed from family and friends, didn’t stock meat, sugar, coffee, white flour, or alcohol. “It was a pure store,” Mackey says. “And it didn’t do any business.”
Mackey eventually merged Safer Way with a crosstown rival, renamed it Whole Foods, and moved to a larger space inside a former nightclub. Although his personal tastes have remained health-conscious—he went vegan 11 years ago—pragmatism caught up with earnestness. The stores began to sell duck confit and rib-eye steaks, and Mackey scandalized purists by stocking gluten-free cheesecakes and other heretical but profitable products. “We never wanted to be holy foods market,” he says. “We want to be a one-stop grocery store.”
Mackey proved that people would pay extra for food if it was plausibly earth-friendly. So there are no Doritos or Coca-Colas, but you’ll find fair-trade chocolate bars and cranberry kombucha. Whole Foods opened hundreds of stores from 1990 to 2014, in part by snapping up regional health food chains, and attracted a zealous workforce inspired by its mission of bringing healthy food to the world. Cities competed for stores; shoppers competed for parking spots.
Photographer: Andrew B. Myers
The company knew only good times until late 2007 and the global financial crisis. As even well-heeled shoppers started looking for discounts, same-store sales growth went negative for the first time during its 2009 fiscal year, and the stock price fell from $30 to $4 a share. Wall Street analysts condemned Whole Foods as a high-cost operator that couldn’t compete in tough times and wondered whether it had the capital to ride out the recession.
Walter Robb, Mackey’s operationally minded co-CEO, calls the Great Recession the company’s first “crucible moment.” At the time, Whole Foods was highly decentralized, with regional managers making decisions on merchandising and prices while getting rewarded for quarterly financial performance. The system motivated them to keep prices and profits high, particularly in markets without local competition from other health food retailers. That reinforced the Whole Paycheck image—a nickname that the company improbably claims started out as praise from a devoted customer who said he felt tempted to empty his bank account at the store. “A lot of consumers still think of Whole Foods in that way, as an elitist store that isn’t within their reach or even a place where they want to shop,” says Carlotta Mast, executive director for content and insights at New Hope Natural Media.
As the economy recovered, so did Whole Foods, posting some of its best years. Its stock price rose to $60, and in the fall of 2013, its market capitalization exceeded that of Kroger, the 130-year-old giant that operates more than 2,000 stores. The visible trend toward healthy, natural foods sparked a new wave of competition. Fresh Thyme, backed by $50 million in private equity, started an aggressive expansion across the Midwest. Sprouts, a Phoenix-based grocer with an emphasis on smaller stores and cheap produce, had one of the biggest initial public offerings of 2013. It’s now in 11 states.
At the same time, traditional supermarkets, noticing that shoppers were losing their taste for processed foods, scrambled aboard the healthy foods bandwagon. “Everyone seemed to realize at the same time that the market was tipping,” says Robb.
Suddenly it became clear that Whole Foods was vulnerable. In a terrible earnings report last May, the company cut its same-store sales and earnings forecast for the third time in 12 months; the stock fell 15 percent. The next day, Whole Foods’ management council of seven executives, dubbed the “e-team,” met in the company’s sixth-floor conference room in Austin and agreed they hadn’t done enough to prepare for the competition. “We were no longer relevant,” says Robb. “John and I were the stupidest guys around.”
Mackey and Robb have one of the most unconventional partnerships in American business. Robb sold his Mill Valley (Calif.) supermarket to Whole Foods in 1991 and, with Mackey’s support, was promoted to co-CEO in 2010 after getting offers to lead other companies. The pair now describe themselves as equal partners, with each involved in running the business and guiding the long-term vision.
They share a fashion sense one might call “free-range businessman”—crosshatched button-downs with earth-tone undershirts and loafers. Robb awkwardly describes the partnership as “marriage without the sex.” Informed of that metaphor, Mackey says, “Walter and I have a platonic relationship,” then thinks for a moment. “That would be a hot scandal, wouldn’t it?”
In separate interviews, the co-CEOs give different reasons for the growth slowdown. Mackey says it was primarily the result of Whole Foods’ own aggressive expansion. New locations drew customers from older stores, a situation that should have corrected itself as the entire market grew. Robb argues that the company had fundamentally underestimated the speed with which all of retail was changing and natural food was becoming ubiquitous. “All of a sudden there was the narrative that you can get the same stuff in many other places and you could get it for cheaper,” he says.
Photographer: Andrew B. Myers
Mackey likes to quote economist Paul Romer’s line that a “crisis is a terrible thing to waste” (though, like others, he attributes it to former Obama Chief of Staff Rahm Emanuel). The challenges of 2014 offered him a chance to shake up his company. But one of the first opportunities involved shedding his disdain for traditional advertising.
Mackey hates phony, hard-sell marketing. Meetings with various ad agencies over the years typically went badly, after they opened their pitches with research suggesting Whole Foods should start selling mass-produced brands such as Diet Coke and Oreos. Robb changed Mackey’s mind by bringing in the New York branding agency Partners & Spade, which has done lauded work for such companies as Warby Parker and Shinola, a luxury watchmaker with a side mission of reinvigorating Detroit’s business community. Fresh off the May earnings debacle, Robb invited the firm’s co-founder, Anthony Sperduti, to present to the e-team.
Mackey admits he had “a bad attitude” going into that meeting, but he says Sperduti impressed him by declaring off the bat that he hadn’t done any market research and that he prefers to tailor messages from instinct and his personal knowledge of brands. “Most CEOs might view it as a negative,” Sperduti says.
Partners & Spade then spent a few months collaborating closely with the e-team, whose members expressed an unusual interest in controlling just about every sentence in the ads. Mackey and his colleagues ruled out specific words such as “humane,” so as not to antagonize animal rights activists who criticize the company for selling any meat at all. And they insisted that actors not be used—everyone in the spots had to be an actual employee or supplier. Much of this feedback came from Mackey himself. “Usually the founder or CEO at that level does not want to talk about and pressure-test every word and nuance of phrase,” Sperduti says. The TV spots, which started running nationally in October, have sweating farmers and setting suns and voice-overs that say things like, “We want to know where our food comes from. We care what happens to it along the way.”
The “we’re not Whole Paycheck” message will be more direct in the stores. The price markdowns of fruits and vegetables, advertised prominently in the Austin flagship, could expand to other cities this year, according to the company. Whole Foods has also unveiled its “responsibly grown” produce-rating system for fruit, vegetables, and flowers, which mirrors the decade-old standards it uses to rank meat and poultry at its butcher counter. Farmers whose products get the “best” label, for example, must prohibit the use of a dozen major pesticides. (Suppliers voluntarily submit information through an internal website, and an outside auditor can follow up.) Mackey also says the company has begun to prepare standards for such products as eggs and shellfish.
“We have the ability to compete on price, and we will do that,” Robb says. “But this is not just a race to the bottom. We are also going to start a new race to the top, with better-quality food, higher standards, richer experiences for our customers, and new levels of transparency and accountability in the marketplace.”
Getting its loyalty program off the ground, meanwhile, required another compromise by Mackey. The company tried a loyalty program in the late 1990s but dropped it after Mackey sensed customers’ growing resentment that discounts were offered only to cardholders. The new program, which is being tested in about a dozen stores in the Northeast, works primarily as a smartphone app. In addition to some discounts, there are rewards such as cooking classes from an in-store chef.
Robb has also spearheaded a partnership with San Francisco-based Instacart, which is to grocery delivery as Uber is to taxis. Customers order online, and a network of contract workers picks up the items and delivers the goods within a few hours. Companies such as Webvan and HomeGrocer tried food delivery and failed during the first dot-com boom. Now Amazon.com, Wal-Mart, and others believe consumers are comfortable enough with e-commerce to make it feasible. (Mackey predicts the capital-intensive AmazonFresh foray into grocery delivery will be “Amazon’s Waterloo.”) Whole Foods’ Instacart program is up and running in 15 cities. Mackey says he’s delighted with the results so far and professes not to be worried about the competition.
Analysts and investors seem to like Whole Foods’ initiatives. The stock is up almost 6 percent for January, and in a recent note to investors, brokerage firm Sterne Agee upgraded its rating on the company from neutral to buy and said that management was finally “back to playing offense.” Others want to agree but aren’t sold yet.
“Whole Foods has unbelievable brand equity, a supply chain that is somewhat exclusive to them, and very strong customer loyalty,” says Karen Short, an analyst at Deutsche Bank Securities who has a neutral rating on the stock. “They’ve dug themselves out of a hole once before. I hope they can do it again.”
Mackey’s vowed to be less of a distraction. He’s said global warming is overhyped and isn’t necessarily bad for the planet, ranted against labor unions, and compared Obamacare to fascism (he later apologized). These views are at odds with the political leanings of his customers, and when he shoots his mouth off, the company’s numbers tend to go south. During a three-month tour in 2013 to promote his book Conscious Capitalism, which argues that businesses should have a higher calling than just making profits, Whole Foods stock declined almost 5 percent. That could be coincidence. Either way, Mackey is no longer “an unrepentant foot-in-mouther,” as the New Yorker once described him, but has learned that the less he holds forth on politics, religion, sex, or climate change, the better. “I have found that there are some things Americans just can’t talk about,” he says. “People are so polarized on these issues. I don’t want Whole Foods attacked by flash mobs because I mentioned something to Bloomberg Businessweek.”
Robb says Mackey has been properly humbled: “John has realized he needs to cork his own politics. He’s been spanked enough.”
Still, Mackey can’t quite help himself, particularly when the topic turns to health care. As Whole Foods tries to match prices with the new competition, it needs to reduce its own costs, and a big part of that is health insurance for his 85,000-plus employees. Just talking about it gets him riled. He says Obamacare is just a sneaky way to replace employer-run health care with a single-payer system and worries that the bad dietary habits underlying poor health in the U.S. are largely ignored by the health-care system. “Americans all insist they eat well, but if you look at what they’re eating, they’re kidding themselves,” he says. “Americans eat a terrible diet. It’s nonsense. Of course they can eat better. They just choose not to.”
One idea he’s working on is a sort of weight loss and nutrition camp for employees and customers. It’s based on a program called Total Health Immersion, a weeklong clinic that Whole Foods employees can attend for free, where they undergo medically supervised testing, group discussions with nutritionists, and cooking classes. Mackey wants Whole Foods to offer Total Health Immersion to customers as a healthful weekend getaway. He says he’s negotiating to buy a property in Austin, and “if it works here, there’s no reason we can’t do it in every major city in the U.S.” He sees a huge market need, as he once did for organic foods. “Americans are sick of being sick,” he says. “They don’t know what to do, and there’s so much misinformation, which is why we started Whole Foods in the first place.”
Mackey’s second idea is even more grandiose: a Whole Foods medical clinic. He says he was inspired by Rosen Care, an employer health-care program run by Rosen Hotels & Resorts in Orlando, which offers employees an on-site company-owned medical facility. The clinic has a staff of 38 health-care practitioners serving 5,300 employees and places an emphasis on nutrition and preventive medicine, which company founder Harris Rosen says has reduced his per-employee health-care costs to about half the national average. Mackey met Rosen at a health-care conference last summer in Las Vegas, then traveled to Florida to tour the clinic. He’s considering rolling out Whole Foods clinics to employees—and even, perhaps, to customers.
“Health care is so broken in America,” Mackey says. “If we allow markets to work, if we allow entrepreneurs to get in here and do things like I’m talking about doing, we will pretty much solve the health-care problem in a generation.”
A PR representative hastens to add that Mackey’s medical center and weight-loss retreat plans are nothing more than “brainstorming,” but it sure doesn’t seem that way. Mackey holds forth on the state of American health with the same righteousness that he flashed while hobbling through his Austin flagship and declaiming the virtues of wild-caught salmon (the only thing he misses eating since going vegan).
“‘No one else does this but us,” he says as he gets ready to dash off to another meeting. “But everyone else will probably copy us. They’ve been doing it for 10 years.”
Which of the 11 American nations do you live in?By Reid Wilson
Red states and blue states? Flyover country and the coasts? How simplistic. Colin Woodard, a reporter at the Portland Press Herald and author of several books, says North America can be broken neatly into 11 separate nation-states, where dominant cultures explain our voting behaviors and attitudes toward everything from social issues to the role of government.
“The borders of my eleven American nations are reflected in many different types of maps — including maps showing the distribution of linguistic dialects, the spread of cultural artifacts, the prevalence of different religious denominations, and the county-by-county breakdown of voting in virtually every hotly contested presidential race in our history,” Woodard writes in the Fall 2013 issue of Tufts University’s alumni magazine. “Our continent’s famed mobility has been reinforcing, not dissolving, regional differences, as people increasingly sort themselves into like-minded communities.”
Woodard lays out his map in the new book “American Nations: A History of the Eleven Rival Regional Cultures of North America.” Here’s how he breaks down the continent:
Yankeedom: Founded by Puritans, residents in Northeastern states and the industrial Midwest tend to be more comfortable with government regulation. They value education and the common good more than other regions.
New Netherland: The Netherlands was the most sophisticated society in the Western world when New York was founded, Woodard writes, so it’s no wonder that the region has been a hub of global commerce. It’s also the region most accepting of historically persecuted populations.
The Midlands: Stretching from Quaker territory west through Iowa and into more populated areas of the Midwest, the Midlands are “pluralistic and organized around the middle class.” Government intrusion is unwelcome, and ethnic and ideological purity isn’t a priority.
Tidewater: The coastal regions in the English colonies of Virginia, North Carolina, Maryland and Delaware tend to respect authority and value tradition. Once the most powerful American nation, it began to decline during Westward expansion.
Greater Appalachia: Extending from West Virginia through the Great Smoky Mountains and into Northwest Texas, the descendants of Irish, English and Scottish settlers value individual liberty. Residents are “intensely suspicious of lowland aristocrats and Yankee social engineers.”
Deep South: Dixie still traces its roots to the caste system established by masters who tried to duplicate West Indies-style slave society, Woodard writes. The Old South values states’ rights and local control and fights the expansion of federal powers.
El Norte: Southwest Texas and the border region is the oldest, and most linguistically different, nation in the Americas. Hard work and self-sufficiency are prized values.
The Left Coast: A hybrid, Woodard says, of Appalachian independence and Yankee utopianism loosely defined by the Pacific Ocean on one side and coastal mountain ranges like the Cascades and the Sierra Nevadas on the other. The independence and innovation required of early explorers continues to manifest in places like Silicon Valley and the tech companies around Seattle.
The Far West: The Great Plains and the Mountain West were built by industry, made necessary by harsh, sometimes inhospitable climates. Far Westerners are intensely libertarian and deeply distrustful of big institutions, whether they are railroads and monopolies or the federal government.
New France: Former French colonies in and around New Orleans and Quebec tend toward consensus and egalitarian, “among the most liberal on the continent, with unusually tolerant attitudes toward gays and people of all races and a ready acceptance of government involvement in the economy,” Woodard writes.
First Nation: The few First Nation peoples left — Native Americans who never gave up their land to white settlers — are mainly in the harshly Arctic north of Canada and Alaska. They have sovereignty over their lands, but their population is only around 300,000.
The clashes between the 11 nations play out in every way, from politics to social values. Woodard notes that states with the highest rates of violent deaths are in the Deep South, Tidewater and Greater Appalachia, regions that value independence and self-sufficiency. States with lower rates of violent deaths are in Yankeedom, New Netherland and the Midlands, where government intervention is viewed with less skepticism.
States in the Deep South are much more likely to have stand-your-ground laws than states in the northern “nations.” And more than 95 percent of executions in the United States since 1976 happened in the Deep South, Greater Appalachia, Tidewater and the Far West. States in Yankeedom and New Netherland have executed a collective total of just one person.
That doesn’t bode well for gun control advocates, Woodard concludes: “With such sharp regional differences, the idea that the United States would ever reach consensus on any issue having to do with violence seems far-fetched. The cultural gulf between Appalachia and Yankeedom, Deep South and New Netherland is simply too large. But it’s conceivable that some new alliance could form to tip the balance.”
The future of new business is disrupting old business
There are many lessons to be learned from Uber, the taxi- and car-hailing start-up that came out of nowhere and is valued at $41 billion. Less than three years ago, Uber had zero drivers. Now it has more than 160,000 active drivers who have collected $656.8 million in fares (net of what they pay Uber).
Among the lessons, some point to the rise of the sharing economy, which also includes firms such as Airbnb, Snapgoods, RelayRides, TaskRabbit and Lending Club. Others talk about the “on-demand economy,” which creates a new class of labor that straddles the line between being self-employment and working for a firm.
Ritholtz is chief investment officer of Ritholtz Wealth Management. He is the author of “Bailout Nation” and runs a finance blog, the Big Picture. View Archive
I prefer a Big Picture view to get the proper perspective on these start-ups. From 30,000 feet, we see what all of these newcomers have in common: They attack an existing market dominated by entrenched incumbents that are inefficient, expensive or both.
Consider Uber. How are the cabs in your city? In Manhattan, where I work, they are rather awful. They are uncomfortable and not especially safe (who wants to slam his face into a plexiglass wall covered with metal projections?). As bad as they are, they are typically unavailable when you need one. The second it begins to rain, it is nearly impossible to find one. And what idiot decided to do shift changes at 5 p.m. — right at the start of rush hour, when swarms of riders need cars, all of whom are unavailable as they are returning to the outer boroughs for their daily change of drivers?
But the biggest inefficiency is the limit on the total number of cabs, as mandated by Taxi and Limousine Commission rules. Hence, that monopoly supply limitation thwarted competition, reduced the available number of cars and allowed the value of medallions to skyrocket. The cabs are dirty and ugly, and the service is awful, but at least they are expensive and unavailable when you need one!
Until Uber rolled in. Since then, the value of a medallion has fallen substantially. The same is true in other cities where Uber operates.
We can credit (or blame) a number of factors. Companies like Uber and Lyft are more convenient, they are cost-competitive (especially low-cost Uber X) and the cars are nicer (especially Uber Black Car). But the biggest factor is that these firms have identified economic inefficiencies in major markets. They are bringing new efficiencies to underserved consumers.
How does this happen?
To begin with, the existing companies have become fat and lazy. That’s what the term “entrenched incumbents” means — they are here already, and they usually have some moat around their business to prevent true competition.
In New York, the former lack of real competition allowed taxis to extract excessive charges, regardless of the poor service.
Uber broke that monopoly. In doing so, it brought true competition to the market for car services. That is why Uber is worth a fortune.
What other industries are ripe for disruption? All of the following have some form of restriction which limits supply and reduces competition, thereby keeping prices high even when providing poor service.
Credit transactions: How is it that every time a consumer uses a credit card, the retailer pays a 3 percent (or more) transaction fee to credit-card companies? Most of the new transaction processors — whether it’s Apple Pay, Square or PayPal — still process the back end through the major credit-card firms. This area is long overdue for a new competitor that will be cheaper to the retailer (and, therefore, to the consumer) and more convenient to the shopper.
Mortgages: The way we finance homes in this country is slow, filled with middlemen, who run a nonstandardized evaluation process. This makes financing a home cumbersome and difficult. Whoever figures out how to replace this inefficient process stands to make a fortune in residential real estate. The same is true for commercial loans.
Medicine: There is a shortage of doctors, and the American Medical Association is aiming to keep it that way. According to the World Bank, the United States has 2.4 physicians per 1,000 people, putting us way down the list of developed nations. We are behind such emerging nations as Croatia, Moldova, Macedonia, Jordan, Slovenia and Uzbekistan. Germany and Israel have 3.7 physicians per 1,000 people, while Greece (6.2) and Cuba (6.7) leave us in the dust. The Kaiser Foundation has a similar ranking, in physicians per 10,000 people, and the United States ranks 53rd. That is abysmal. If we finished 53rd in the Olympic medal race, there would be an outcry. Yet the very real doctor shortage hardly is discussed. If it takes you a long time to get a doctor’s appointment and costs a lot of money, well, now you know why.
Groceries: Shopping for food can be a bothersome, time-consuming chore. Firms like Peapod and Fresh Direct are seeking to fix that, delivering groceries to your home. How long will it be before the giant real-estate-consuming footprint of the suburban supermarket is a thing of the past?
Asset management: Increases in technology are starting to have an impact on this industry. Robo-advisers (Wealthfront, Liftoff, Betterment, Private Capital, et cetera) have a tiny percentage of total assets, but it’s growing. And Vanguard just jumped into the field, bringing it heft and credibility.
The old disruption was passive indexers vs. active managers. Here, the entrenched incumbents are especially deep-pocketed and won’t go down without a fight.
Real estate: Brokers have enjoyed a 6 percent sales commission for as long as there have been houses to sell. That began to change, and you can credit mobile apps. The technology embedded in apps such as Zillow, RedFin, Trulia and even Google Maps and Mortgagecalculator.org is changing the way we buy homes. It is long overdue.
All of the above sectors are the obvious markets. No one saw taxis as an industry ripe for disruption, and I bet that lots of other markets we hardly even think about are similarly ready for competition. I have no idea which market the next generation of disruptive technology will focus on. Whether it’s the college admission process or virtual reality or 3D printing or advanced robotics and drones or autonomous vehicles or next-gen genomics is almost beside the point. The one thing you can be assured of is that no industry is safe from disruption.
That is how progress is made.
Sysco at Standstill With FTC Over US Foods Deal
Food Service Firm Offers to Sell 11 Distribution Centers to Appease FTC
ENLARGE
A deal between Sysco and US Foods would create an industry giant with about 25% of the market for selling food and other supplies to restaurants, schools, hospitals and other institutions.PHOTO: ASSOCIATED PRESS
Sysco Corp. ’s negotiations with antitrust regulators over its planned acquisition of US Foods Inc. have reached a standstill, a person familiar with the matter said, as the company announced an agreement to divest far more in assets than originally planned to obtain approval.
Sysco has been wrestling for more than a year with the Federal Trade Commission over its acquisition, which would unite the two largest companies in the food distribution industry into a single giant.
Sysco said Monday that it reached a deal with rival Performance Food Group Co. to sell 11 distribution centers with a combined $4.6 billion in revenue—more than double the $2 billion in annual revenue that Sysco originally planned to sell.
However, FTC staff members haven’t signed off on the divestiture proposal. Sysco representatives met with FTC staff members again in Washington, D.C. last week, during which they couldn’t agree on a solution, leaving the talks at a stalemate, according to the person familiar with the situation.
Shares of Sysco were down 1.7% in Monday morning trading.
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So Sysco is now turning its hopes to the five-member FTC commission, hoping it will agree to approve the deal despite the staff’s reluctance.
“Unfortunately, the FTC has taken a different view of the potential competitive impacts of the merger” than Sysco’s view, Chief Executive Bill DeLaney said in a news release. “While we respectfully but vigorously disagree with the FTC’s analysis, we believe this divestiture package fully addresses its concerns.”
An FTC spokeswoman declined to comment.
The divestiture, which is contingent on the merger winning approval, covers US Foods distribution centers from San Diego to Denver that make up nearly a quarter of US Foods’ sales. Financial terms of the sale weren’t disclosed.
Sysco and US Foods buy food and other restaurant supplies that they then sell and deliver to restaurants, hospitals and other institutions. Without the proposed divestitures, they account for more than 25% of the industry’s sales.
The FTC has given the deal close scrutiny amid concerns from some restaurants and others in the industry that a combination would give Sysco too much pricing power. Sysco says the industry is rife with regional and specialty distributors that will make for stiff competition even after the pending $3.5 billion acquisition of US Foods.
Both the FTC’s bureau of competition and bureau of economics have been looking at the deal. A majority of the agency’s five commissioners must agree upon any course of action. The agency, which has three Democratic commissioners and two Republicans, is known for bipartisan cooperation but the commissioners do sometimes disagree on the agency’s approach.
Sysco in November again pushed back the timeline for completing the acquisition, saying talks with antitrust regulators were taking longer than expected.
Performance Food Chief Executive George Holm said the new distribution centers will enable the company to compete for national broadline food service customers.
After Sysco and US Foods, Performance Food is the largest competitor in the market. PFG’s operations are focused most heavily in the Southeast and along the Eastern Seaboard. The company has been preparing for an initial public offering, and expects to raise around $100 million. It has done 12 acquisitions in the past six years and that acquisitions remain a key part of its strategy.
Meanwhile, for the quarter ended Dec. 27, Sysco reported a profit of $157 million, or 27 cents a share, down from $211 million, or 36 cents a share, a year earlier. Excluding merger and integration-planning expenses and other items, earnings rose to 41 cents a share from 39 cents the year earlier.
Revenue increased 7.6% to $12.1 billion.
Analysts polled by Thomson Reuters expected a per-share profit of 41 cents and revenue of $11.93 billion.
The company’s food-cost inflation was 6%, driven mainly by the meat, dairy and seafood categories.
Operating costs grew 10% due to an increase in payroll expenses.
Sysco and traditional distributors have struggled in recent years with declining profit margins, as higher commodity and transportation costs make it tough to beat the low prices of a growing sector of self-service wholesale food stores, such as Costco WholesaleCorp. and Restaurant Depot.
Shares of Sysco had risen 12% in the past 12 months through Friday’s close.
