business news in context, analysis with attitude

We got several reactions to the Scott Moses piece about why the Federal Trade Commission (FTC) needs to take a different approach of mergers and acquisitions in the grocery sector, in a way that reflects reality and allows smaller grocers to gain the benefits of scale in a way that in turn benefits consumers.  The current construct favors giant companies, he argued, in a way that hurts smaller retailers struggling to survive and consumers who benefit from their existence.

One MNB reader wrote:

It is is easy to confuse size with scale.  There are lots of big retailers who do not generate economies of scale because of transaction intensive business processes and inefficient, bureaucratic organization models. 

Reviewing FTC business concentration guidelines makes sense, but it won’t necessarily improve competitive position for regional retailers.

And Robinson Patman’s cost justification criteria for pricing differentials still will favor the biggest, most efficient operators…as from a consumer perspective they should.   

I think Scott would argue that in the grocery industry, there is a direct correlation between size and both economies of scale and profit, which, along with lower-cost debt capital (larger companies statistically have better credit ratings and therefore a lower cost of debt) can then be reinvested into the productivity loop to acquire and retain more customers (ie, more sales), which lead to more scale efficiencies and even more profit, which can then be reinvested, etc…  It is a flywheel with which smaller entities simply cannot compete.

Scott's argument would be that regional grocers’ competitive position will improve when they are allowed to merge and grow, so they can experience a lower cost of capital and more of a productivity loop.  Leveling cost of goods with Robinson-Patman is unlikely to level the playing field given the lower cost of capital and other scale benefits larger operators have, but it likely would lead to higher prices for more customers, which would be awful during this hyper-inflationary grocery environment.

Another MNB reader wrote:

It is probably pass the time for traditional grocery to make money by selling product and not via slotting allowances and the like.

I'm a big believer that retailers should make money on the sell, not the buy … but I think this is more of a factor for big retailers than small ones.



We also had a story yesterday about a 27-year employee of a Burger King in the Las Vegas International Airport operated by HMSHost, whose years of service were recognized in pathetic, insulting fashion by his employer.  The situation went public via social media, garnering the man enormous public support and widespread derision for HMSHost.

One MNB reader wrote:

This sounds like the perfect opportunity for the entire exec team from HMS to rethink how they they want to recognize loyalty from their staff. And go big with their new program.   A program that will become part of their culture and outlast the tenure of the current exec team.

To me, this is an easy one.  The CEO needs to get on a plane to Las Vegas and fix it … and then engage in a systemwide assessment and recalibration of the company's culture.



And, we had a piece yesterday about how, when the Los Angeles Dodgers honored their legendary pitcher, Sandy Koufax, with a statue in front of Dodger Stadium, Koufax used the moment to thank the people - from a sandlot baseball coach to clubhouse managers to fellow Dodgers players and ownership - who helped him in his life and career.

I commented:

Koufax - one of the greatest pitchers of all time - understood that his greatness was enabled by others, built on the hard work of others.

In doing so, Koufax displayed remarkable leadership … the kind of leadership that business leaders - even those, especially those at the highest levels of compensation and achievement - ought to demonstrate.  They may occupy corner offices, they may enjoy extraordinary compensation packages, but they are only there because their achievements and careers have been enabled by others.

It was an Eye-Opening performance by Koufax, who once again showed the world that he knows how to pitch.

One MNB reader responded:

One of my favorite players of all times.  Obviously, also a great person.  You mentioned that a lot of business leaders could learn from him.  I would like to add that a lot of political leaders would also be smart to also learn from him and recognize that it is the team around them that is the most critical part of their success.  I have worked for both types and can clearly say that the Koufax approach inspires and wins all the time. 

And, from another reader:

I was fortunate to grow up in Southern California and see Sandy pitch on numerous occasions. Every time he took the mound there was the potential to pitch a no hitter. Watching Sandy pitch and Vin Scully announce the game is something that every baseball fan should have had the pleasure of enjoying. These are two of the finest men in baseball lore.