Wednesday, April 12, 2017

If you're in advertising, United's fiasco should make you want to slit your wrists

Unless you've been hiding out in Tora Bora for the last few days, you know all about United Airline's PR fiasco. Last Sunday, an overbooked flight between Chicago and Louisville led to the "reallocation" (United CEO Munoz's choice of words) seen around the world.

But here's the thing: After that PR disaster -- hell, United basically detonated an atom bomb under its brand -- the company's stock dropped sixteen cents. Considering that the starting price was over $70, the effect of all that incomparably negative publicity was impossible to spot in amongst the normal daily standard deviation in UAL shares.

"Brand value? We don't need no stinkin' brand value!" says the market, as UAL's price rebounds to within a day's standard deviation of where it was before Chicago cops showed airline passengers they've forgotten nothing since '68.

If you're in advertising, you've spent your working life arguing that your clients' brands are among their most valuable assets. And you've almost certainly positioned yourself as a skilled steward of those brands. But would you dare suggest that any ad campaign could counter United's fiasco? Would you dare suggest that anything -- ANYTHING -- you'd ever do could help United or any other client, as much as that fiasco hurt them?

Of course you wouldn't. There are limits, even to the hubris of ad guys.

And yet at the end of the day, the markets have decided that blowing up United's brand was trivial.

I'd ask, "What does the stock market know that we don't know?" but at the end of the day, I suspect the market's placing about the right value (cost) on this worst-corporate-PR-of-the-year moment.

The truth is airlines' customers have, by and large, adopted one of two operating modes (or, they're combining those two.) Some are pure price shoppers, and they'll buy the cheapest ticket they can find on any given day subject to their personal willingness to endure things like multiple or long layovers; others are points-gatherers who have picked an airline and are sticking with it.

Millions of people have posted, "I'll never fly on United again!" on Facebook. If you're one of them, the market's called bullshit on your threat. If you're in advertising, the market's blithe evaluation of the impact of that event on United's brand, or -- take your pick -- the fact that the market basically doesn't value brands nearly as much as you do, you pretty much have to slit your wrists right now.

While I have to believe that there are still a bunch of companies that thrive because of great customer service, there are clearly plenty that don't.

Friday, February 17, 2017

What Donald Trump’s campaign (might have) learned from Trader Joe’s

When I wrote ‘Build a Brand Like Trader Joe’s’ back in 2012, I could not have imagined Donald Trump as the President of the United States.

Since Trader Joe’s customers skew liberal, I will probably not make any new fans by pointing out that one of the secrets of Trump’s success could have been pulled straight from my book. Donald Trump has certainly internalized one of the secrets to Trader Joe’s success—and it’s one that, while obvious, is not followed by many other politicians, or brands.

So what is this thing, that Donald Trump and Trader Joe’s have in common?

It’s simply this: Neither Donald Trump nor Trader Joe’s care how many people don’t like them, as long as enough people do like them.

Both Clinton and Trump were historically disliked. The difference: Some people really liked Trump.
True story: If you Google the phrase “What I love about Trader Joe’s”, you’ll see all the same things you see if you Google “What I hate about Trader Joe’s”.

Those famously chatty cashiers? Some people love ’em and others hate ’em. You know the way TJ’s arbitrarily drops one item and replaces it with something completely different without notice? That drives some people crazy, but for everyone who hates it, there’s someone else who thinks that the unpredictable product mix makes every trip to TJ’s a little adventure.

That willingness to piss off a potential customer is incredibly rare. Most companies will do almost anything to avoid conflict. In the decades I spent in the ad business, I had clients who spent hundreds of thousands of dollars producing TV ads. We launched ad campaigns and clients often saw an immediate uptick in sales and profits—but only a handful of viewer complaints were all that were needed to kill a costly campaign.

The problem with that cautious approach is, if you’re preoccupied with making sure that no one hates you, you’ll almost certainly also ensure that no one loves you, either.

Almost every brand would do better to focus on making some people love them. But Trader Joe’s is one of the only businesses I’ve ever studied or worked with that really takes that truth to heart.

Donald Trump’s the only Presidential candidate who I’ve ever seen who almost went out of his way to antagonize voters who he knew would never vote for him anyway. I’m fairly certain he has not read my book (or anyone else’s, really.) But he instinctively knew that by winding up liberals, he could made right-wing voters love him.

You know that I’m right about this: The things that liberals hate about Donald Trump are the very same things that his supporters love about him.

By contrast, Hillary Clinton’s campaign tried desperately to appeal to old-school Republican voters who were put off by Trump’s persona.

Basically Clinton’s strategy came down to a battle of negative ‘net-favorables’. “Lots of people hate Donald Trump. If I can be the sensible candidate that fewer people hate, I should win this thing hands down.”

Fewer people did hate her, but not enough people loved her.

As the election came down to the final days, I watched Trump with a mixture of horror and fascination. I realized that he was simply never going to pivot to the center—in defiance of accepted wisdom amongst GOP strategists. In the end, his approach worked just well enough to win the Electoral College vote.

Now, of course, it really doesn’t matter that many people find shopping at Trader Joe’s to be infuriating; they can shop at many other grocery stores. Trump… that’s a different story. If you find him infuriating, he’s still your President.

Sunday, November 6, 2016

Is the good ship Trader Joe's changing course?

That was a question I asked at the conclusion of my 2012 book, "Build a Brand Like Trader Joe's".

Just around the time I was leaving the company, TJ's head office announced changes to the management 'track' that caused quite a few full-time employees to quit. And they changed the way Crew Members were evaluated, in subtle ways that I thought reduced the rewards for truly exceptional employees.

At the time, I noted that it was a big company and it would take a long time before customers might see the effects of such changes.
One thing that's interesting about this story is that in New York, especially, customers are almost as likely to hate Trader Joe's famously chatty approach to customer service as they are to appreciate it. Half the comments readers posted amounted to, "I wish they'd shut up, anyway."
I was reminded of that when the company got some notably bad press in the New York Times the other day, in a story about an employee who claims to have been fired for not smiling enough (or just being allergic to Kool-Aid.)

I'm inclined to believe the employee, Thomas Nagle (seen above). In TJ's limited defense however, the entire brand's been built around a certain kind of employee-customer interaction. Employees who aren't cut out for that kind of interaction should probably not have been hired in the first place.

Are you a regular TJ's shopper? What do you think? Has customer service suffered at the chain over the last five years or so?

Thursday, April 7, 2016

Don't put too much credence in reports that TJ's is lowering prices across the board

Over the last couple of weeks, a story's gone viral about Trader Joe's (perhaps) introducing a sweeping set of price cuts.

Aggregators like Business Insider and slightly more reputable sources like Fortune picked up this story, which originated with a quick research trip by an investment analyst for Deutsche Bank. The analyst did a "cart comparison" of 77 grocery items, purchased at Whole Foods and TJ's. Apparently an earlier comparison found TJ's 15% cheaper, while the more recent check showed TJ's to be 26% cheaper.

The reason an investment analyst would do this in the first place is, Whole Foods is a publicly traded company. Investors are curious about Whole Foods strategy going forward, including plans to spin off a new smaller grocery store concept that seems to be a more direct competitor to Trader Joe's.

Right off the top of my head, I can think of two reasons to question the simplistic conclusion that TJ's is dropping prices. The first has to do with the design of this experiment: if Deutsche Bank wanted to determine whether TJ's was lowering prices, the way to do that would be to compare a current TJ's 'basket' with an earlier identical selection of goods. They didn't do that; they just used Whole Foods as a benchmark. Nothing I've read points specifically to TJ's lowering prices, as opposed to Whole Foods raising them.

And, they noted that the price disparity was greatest in produce. While I'm a big fan of TJ's as a company and a brand—and while I'm no fan of Whole Foods—no grocery expert would ever say that comparing TJ's produce to Whole Paycheck's was an apples-to-apples comparison. Produce is a TJ's weak point, and a Whole Foods strong point.

Meanwhile, if there are any current Trader Joe's employees who want to weigh in on the "price drop" story, feel free to contact me through this web site. I'd love your insights.

Friday, March 11, 2016

Whole Foods rebounds, but there's a difference between the stock market and, well, a food market

Whole Foods stock has taken a pounding over the last year or two. Same store sales have fallen, as lower-price rivals from Costco to Walmart have increased their organic food offerings.

Whole Foods was also hurt by a weights-and-pricing scandal that added insult to the injury of already-high prices.
The first '365' store will open in a few months. Like Trader Joe's, it will offer a smaller-than-usual number of SKUs and emphasize Whole Foods' private-label products. I imagine they'll do a better job than Trader Joe's when it comes to produce, but the key to profitability will be prepared foods. Whole Foods seems to be doing a lot right, right now. But can 365 stores develop a TJ's style cult following? As readers of Build a Brand Like Trader Joe's can guess, I think it's all going to come down to the customer experience. So, I'm dismayed that Whole Foods is cutting staff at the same time... 
The company's responded to increased competition by launching a new line of smaller stores, called '365', that are plainly modeled on Trader Joe's. While the stock (NASDAQ: WFM) has climbed about 10% so far in 2016, it's still trading near a 5-year low.

So is this a good time to buy in? Maybe, but as an afficionado of the Trader Joe's business model, I'm put off by Whole Foods' recent announcement that it was going to cut 1,500 jobs. Trader Joe's outperforms in the grocery category in large measure because it is way overstaffed, by the standards of typical market.

Wednesday, September 30, 2015

Undrinkable? Maybe. Soon to be unbreakable? Probably.

There's a wide range of glass thicknesses used in the wine business. Bronco Wine already packages Charles Shaw wines in very thin/light bottles, which might explain why there's so much breakage in the stores. Moving to PET packaging would improve margins and reduce breakage.
Anyone who's worked in a Trader Joe's store knows that several times a day, there's a wet cleanup in the wine department—usually no great loss, as it's just a bottle of Two-buck Chuck. 

That may soon be happening a lot less frequently, because Bronco Wine, the supplier of TJ's most famous plonk, is experimenting with plastic bottles. The bottles are supplied to Bronco by a company called Amcor. They're made from PET, which stands for polyethylene terephthalate, lined with a silicone oxide barrier (trademark: Plasmax). The purpose of the Plasmax inner coating is to prevent the oxidation through the package.

Currently, Bronco is testing the packaging with its Green Fin white wine, which is packaged only for Trader Joe's. The plastic bottles are lighter than glass (of course) and are fully recyclable. While crew members in stores will appreciate reduced breakage, there are a number of advantages including faster fill-rates (the rate at which bottles can be filled, capped, and put into cartons in the plant) and lighter shipping weights.

PET is the same plastic used for a lot of the small bottles of wine served on airplanes (though not usually in First Class!) If you've bought Jack Daniels in a plastic bottle, it was also made of PET.

Friday, March 20, 2015

Two guys named Kevin hold Two-Buck Chuck for ransom

This week, Trader Joe's was named in a class action suit alleging that many California wines—including “Two Buck Chuck”—have unsafe levels of arsenic. Some wines have up to five times the arsenic allowed in drinking water. 

The State of California (and the U.S. EPA) specifies that drinking water cannot contain more than 10ppb (parts per billion) arsenic, a toxic heavy metal. There is no standard for wine. Specifically, the sample of Charles Shaw White Zinfandel was found to have more than 20ppb of the toxic heavy metal.

The lawsuit, which was first reported by CBS News, has generated a ton of publicity very quickly. It’s a regular meme, right now. The suit was brought by a lawyer named Brian Kabateck, who was alerted to arsenic levels in popular (read: cheap) wines by BeverageGrades, a company run by two guys going by the name Kevin.
According to his website, "Mr. Kabateck’s vigorous litigation on behalf of his clients has netted more than a billion dollars in recoveries. He has won many multi-million dollar verdicts, judgments and settlements in the areas of personal injury, insurance bad faith, pharmaceutical litigation, wrongful death, class action, mass torts and disaster litigation... Because of his deep knowledge of the law and dynamic speaking style, Mr. Kabateck is a frequent analyst for national, local and legal media outlets. He makes regular appearances on CNN, MSNBC, CBS, NBC, ABC, FOX  and CW stations. In addition to his television exposure, Mr. Kabateck often speaks at seminars, law schools and industry events. 
I suppose it’s possible that Kabateck is in it for more than just the money. It’s possible that he really does have the safety of California wine consumers at heart, but is just misinformed.  

But whether Kabateck wins his lawsuit or not, this publicity is a gold mine for the Kevins and their BeverageGrades business. By highlighting the “dangerous” levels of arsenic in some wines, they’re effectively pressuring winemakers to pay for BeverageGrades' testing and rating service. Until now, they haven’t had that much business, since they’ve only given their ‘Seal of Approval’ to about 150 wines in total. 

Kerry Hicks (left) was identified as Kevin Hicks in BeverageGrades' own press release about arsenic levels in cheap California wines. Hicks' previous business was HealthGrades, a web site that rates doctors and hospitals and which claims to get a million hits a day. That's a lot more interest than BeverageGrades has ginned up, until now. Kevin Byrne is Hicks' business partner.
I’m not just a conspiracy theorist when I suggest that Hicks & Byrne have purposely manufactured a problem—or should I say, 'hysteria' about arsenic levels in wine—in order to promote their solution, in the form of BeverageGrades ‘A+’ rating. (Which, by the way, is the only rating they offer; it’s either A+ or, by inference, poison.) 

BeverageGrades has pretty much admitted that’s exactly what it set out to do. A day or two after their carefully orchestrated story broke, they had the gall to send a professionally written press release to, reading in part...

BeverageGrades provides comprehensive health and nutritional information for alcoholic beverages via testing in its independent, state-of-the-art lab, using methodology developed by the American Organization of Analytical Chemists. BeverageGrades offers two health panels for screening products for the presence of contaminants in levels that exceed regulatory standards; these include heavy metals in one panel, and pesticides in in the other. The company offers an A+ BeverageGrades Certification to specific products that fall below certain regulatory thresholds in panels of heavy metals and pesticides... 
Our goal is to be the beverage industry’s top resource for analytical product information, so producers are able to remain in compliance with regulatory provisions, and maintain consumer trust.

Don’t be fooled by the coy language, that’s little more than a fucking ransom note. What they're saying to the wine industry is, "First we'll shake consumers' confidence in your products with this bogus arsenic scare. Then, you can pay us to rebuild consumer trust with our pseudo-scientific Seal of Approval." So, what’s been lost here? Well, business ethics, obviously. But another thing lost is scientific perspective.

Yes, it’s a fact that arsenic is toxic. Some arsenic compounds are very, very toxic. But since Kevin/Kerry Hicks is a medical doctor, he knows that small quantities of arsenic have long been safely used in both traditional and western medicine.

Here are the facts: While California and the U.S. EPA set a cautious level of 10ppb for arsenic in drinking water, many other places either don’t regulate it or allow much higher levels. The EPA accepted up to 50ppb until 2006.

There is no scientific evidence to support the lawsuit’s claim that arsenic levels in Two Buck Chuck represent a health threat. Acute arsenic poisoning results from the ingestion of more than 100mg of arsenic. That means that you’d need to consume all the arsenic in at least 7,000 bottles of cheap rosé at once, to poison yourself.

Of course, the implied threat is not acute poisoning, but the carcinogenic effects of long-term, chronic exposure. That's a real thing, although all the studies have looked at well water with far, far higher levels of arsenic than BeverageGrades found in wine. The most-cited study, of a population exposed to arsenic in Taiwan, looked at people drinking water with at least ten thousand times as much arsenic in it. And, the people most susceptible are children, especially in utero. Children and pregnant women shouldn't be big wine drinkers anyway.

Those poor Taiwanese people were drinking water loaded with arsenic. Other studies have established toxicity at lower levels, but not at the 10ppb level set for water, which is the level BeverageGrades claims is also unsafe in wine. Estimates of the toxicity at those levels are extrapolations. 

According to Health Canada, if you spent your lifetime drinking water with 10ppb arsenic your odds of dying of cancer would be 0.3% higher than if your water had no arsenic at all. So if you're an American man with baseline odds of dying of cancer of 1 in 4 (estimate: American Cancer Society) raising the arsenic level in your water by 10ppb would increase your odds to 1 in 3.98. A woman's chances of getting cancer are about 1:5, so they'd go up to 1:4.98.

To put it another way, in a hypothetical population of 1 million people you'd expect, say, 22.2% of population to die of cancer and 77.8% to die from all other causes. If the arsenic levels in that population's drinking water were to be raised by 10ppb, you'd expect 22.5% of them to die of cancer, leaving 77.5% of them to die of all other causes. Again, these are estimates, based on extrapolations from toxicity at much higher levels. It's not possible to accurately measure the risk from drinking water at 10ppb, because the risk is so small that it's lost in standard deviation.

The reason there are no arsenic levels established for wine in the U.S. is that there is no evidence that wine has ever been a dangerous source of arsenic for anyone. 

Even if you look at the highest concentrations of arsenic that BeverageGrades found, and assumed that all the arsenic they found was the most toxic form, you’d die of cirrhosis, diabetes, or in a drunken car crash long before you’d accumulate a toxic dose of arsenic. Not only that, but as BeverageGrades knows, the cheap wines that showed high arsenic levels are blends of grapes from all over the state, that change all the time. There’s no reason to believe that those wines’ arsenic levels will be the same next month, let alone next year. 

The Ontario (Canada) Vintners Quality Alliance standard, which is reserved for high-quality wines that are far above minimum standards, allows for 100ppb arsenic. The highest arsenic levels found by BeverageGrades were about half that amount.
Kabateck Brown Kellner is going after Trader Joe's, the Franzias, and a few others because they’re huge targets with deep pockets. BeverageGrades released those brands' arsenic levels to Kabateck because Hicks & Byrne know TJ's and the rest of the commodity winemakers will never pay them for a good rating. But if they can hurt TJ's, they'll scare other winemakers into paying what amounts to protection money.

Don’t get me wrong; Two Buck Chuck is shit. But this lawsuit is bullshit, and BeverageGrades’ strategy is nothing less than corporate piracy.

Here's the full list of companies named in the suit:

  • Sutter Home Winery
  • Trinchero Family Estates
  • Folie a Deux Winery
  • California Natural Products
  • Golden State Vintners
  • Varni Brothers Corp.
  • Treasury Wines Estates Americas
  • Beringer Vinyards
  • Seaglass Wine
  • Constellation Wines
  • Hahn Family Wines
  • Smith & Hook Winery
  • Raymond Vinyard and Cellar
  • Fetzer Vineyards
  • A. Korbel & Bros.
  • Mason Cellars
  • Oakville Winery
  • Woodbridge Winery
  • Simply Naked Winery
  • Winery Exchange
  • Sonoma Wine Co.
  • Don Sebastiani & Sons
  • Bronco Wine Company
  • Trader Joe’s Company
NOTE: This version includes changes to the math/statistics to make it more accurate and easier to understand. It corrects some arithmetic errors that appeared in the first 18 hours this post was live. The errors were not substantial.