October 14, 2010

"Wal-Mart: America's Largest Locavore Grocer"... Wait... What?

According to a piece today on Reuters, Wal-Mart Stores Inc. has announced plans to double its commitment to sourcing its produce from smaller farms and ones more local to their retail locations.

Yes, that Wal-Mart...
"Welcome to Wal-Mart, I'm the Backbone
 of America"

The company claims that this change to their produce inventory will constitute a $1 billion increase to their sales of foods from "emerging markets."

By utilizing their enormous presence in the American retail market to... err... market, and sell all this locally-grown produce, the big-box behemoth claims that they can carve out 9% of market share for locally-grown 'fruits and veggies.'

That's NINE PERCENT of the ENTIRE U.S. produce market.

And by doing this, the company estimates that they can create a 10-15% rise in annual income for their new vendors, independent and other small farmers.

So... let's tick these off on our virtual fingers, shall we? Better quality produce... from local farms... that will reach a staggering percentage of possible consumers and potentially revolutionize the toxic American diet... while helping farmers?

Wow.

There is so much "do-goodery" represented on our digital fingertips that our avatar is blushing.*

And it's all due to the good people at... Wal-Mart.

We know, it feels weird.

So, why is the perceived Deathstar of Small Businesses making what seems to be an altruistic economic decision?

Why is the least-trusted corporation on the globe spending capital to research and develop a plan that provides better food for more people while making more money for the most honored of nationalistic, hardworking archetypes; the independent American Farmer?

And what does it say about our culture that the descendants of "Darth Walton" are now extending their profit minded tentacles, and offering the consuming public a freshly-picked, shiny, organic, small-batch nectarine... at an affordable price?

Well, maybe it's time to consider the option that this new approach is also good business.

And we here "The Biz" don't mean that as a slight to Wal-Mart. Any company that makes more than $405 billion in revenue annually, as the company made last year (a 7% increase from 2008), and can attribute more than half of that revenue domestically to grocery sales (51%), can continue to go about business as usual without making any significant changes to their business model.

Instead of going out to small, family farms and becoming a market conduit, bringing a huge portion of the American populace a higher level of nutritious produce, Wal-Mart could have continued to shell for poor quality, mass-produced swill that they buy at wholesale discounts from faceless "AgroGiants,"and still made hundreds of billions of dollars.

But, like it or not (and frankly, why would you not?), Wal-Mart has made this five-year commitment and it's very, very impressive.

It almost makes you hope they can make it work for their bottom line...

Hey, we said "almost."

* - (ed note- we don't actaully have an avatar... yet)

October 13, 2010

Enjoy that Delicious Steak While You Can... Still Afford it

Because as the price of corn surges higher and higher on the commodities markets, some publications have begun their watch of how it might affect cattle futures, and inevitably the cost of our steaks.

And corn isn’t just inching up slowly, today’s WSJ not only refers to a two year high of $5.79 a bushel (a figure that hit the limits allowed by The Chicago Board of Trade), it also shows that corn has shown 17% rise in price over the last 3 days.


The piece even goes so far as to quote an agricultural analyst who makes the claim that he “can smell $6 now.”

While the cause and effect between corn and cattle prices can be sometimes be viewed as not having immediate reciprocal impact, the signs in this case are already apparent.

A report on Bloomberg this Monday quoted a cattle futures analyst who reported data demonstrating that the U.S. annual per-capita beef supply for 2011 might plummet to a 35 year low of 46.8 pounds.

Any slump, or surge for that matter, in American beef production will have influence on retail prices, but a nosedive this dramatic will have more immediately negative impact on beef’s affordability for the average American consumer.

In fact, the very same report on Bloomberg foresees such a swift swelling in the cost of American beef that the rise in its value might outpace the rate of inflation on all U.S. food combined.

Unfortunately, this will be a bigger story in the months and years to come, as cattle aren’t commodities that can be discovered or harvested early. American cattle takes an average of three years to mature and even longer in the case of more “gourmet” strains of beef, like grass-fed for example.

And as corn is a major feeding crop for farm animals nationwide, we can expect to see the costs of other meats rise as well.

Bacon prices, for instance, are the highest they’ve been since the Carter Administration as the cost of feeding pigs, and thus maintaining equilibrium in the market for pork belly continues to be more and more expensive.

So it looks like “that place” you love with that “super cheap bacon cheeseburger” might be changing price points sooner than later…so can we here at “The Biz” interest you all in any genetically-altered Salmon while you wait? They’re corn free you know…

(editor's note) We here at “The Gastro Biz” are hot on the trails of some quotes from NYC restaurateurs to see what they’re seeing on the wholesale side of things and will update when we get one or two.

And Now for Something Completely Different...

After recently reading Dan Ariely's wonderful book Predictably Irrational, I decided to conduct an experiment of my own to see how people will, if given the chance, act irrationally in regards to their own best interest when making a decision.

The Hypothesis

As a formerly employed, commuting New Yorker, I am intimately familiar with the often convoluted, and always unsatisfactory, ways through which employers procure MTA Metrocards for their employees. In fact, my most recent employer outsourced their procurement operation to a company that would, if so authorized, garnish my pre-tax earnings to hold in escrow until I purchased my own monthly $89 Metrocard and submitted a receipt and voucher for reimbursement of my own pre-tax salary.
Despite the seeming simplicity of this operation, I often found myself in consternated frustration at having to “jump through hoops” on a monthly basis to receive my own money after filling out irksome paperwork. And doing it all just to save myself the taxes on $86 a month. In the end I often found myself leaving the money in my “Transit Account,” where it would just sit, doing nothing until I claimed it.
Effectively, I was often leaving my own money on the proverbial table despite being enrolled in a perfectly functional procurement program.
After reading Dan Ariely’s experiments, and seeing that the MTA will again increase the cost of a monthly Metrocard (this time to $104), I deduced an experiment of my own that I believed would demonstrate that other commuters will also fail to protect their own savings if given similarly convoluted choices, especially if one of them seems to take money “up front.”
Having learned in my Foundations of Finance class that “money paid out in the future is worth less than money paid today,” I created a scenario in which I acted as imaginary employer that offers employees two different options for procurement of their monthly Metrocards for a the week pre-dating the rise in cost from $89 to $104. One option was created to simulate “taking” the employees money up front, while the other was created to seem like a more gradual, less punitive garnishing of wages.
My belief was that given the choice, employees would choose the later, less-valuable option more often than the better, first option.


The Parameters
Option #1, “Pay Now”- My “company” will sell the employee a packet of six, monthly Metrocards at their face value of $534 before taxes. This amount will be garnished from your wages immediately.
The total savings for this option are $133.79 ($90 saved in avoiding Metrocard fare hike and $43.79 in saved sales tax)
Option #2, “Pay Later”- My “company” will garnish $104 in pre-tax wages, and provide a monthly Metrocard on the first Monday of every month. However, to offset the effect of the fare hike, we will add a taxable bonus of $15 to the employee’s paycheck at the end of every monthly pay cycle.
The savings in this option are approximately $20.38(Although $55.38 is saved in sales tax, roughly $35 would be paid in income taxes on the total of $90 in bonus). 




The Experiment
I used 10 friends, whom I know to be employed, commuting, New York City residents, as a sample group and pitched them the two options verbally.
I did not allow them to take notes, as I was interested in their “gut decision” to the choices presented.
After they considered the options for 2 minutes, I laid out the options on two index cards, withholding the actual amounts of savings that they actually provided, for 30 seconds. I then gave them another minute to consider the options.
After the time was up, I asked them to write their choices anonymously on scraps of paper and pass them back.
I then tallied the results.


The Results
Seven of the test subjects chose Option 1 while only three chose Option 2.
Frankly, I was pleased that I was able to prove my hypothesis, but I remain somewhat baffled by the margin on which I was able to do so.
I was also rather surprised by how much, in the aggregate, was lost in potential savings by the 10 respondents.


October 10, 2010

Should McDonald's Be Rooting for HIGHER Unemployment?

A few month back, The Washington Post published an article that linked a dip in fast-food breakfast sales to rising unemployment. The argument was made that with fewer people making morning commutes to their jobs, fewer and fewer breakfasts were being purchased at "drive-thru" windows.

While the argument holds some water in terms of data relating to breakfast purchases, the overall numbers, especially for McDonald's, are much less correlative. 

Since the article was published in February the US unemployment rate has, according to numbers published by the Bureau of Labor, stayed almost entirely consistent (9.7% in February, 9.6% in September) but McDonald's has reported two very strong quarters of earnings.

So, while the numbers in the mornings might be down, could an unstable economy and a high rate of unemployment be good "Mickey D's?"

Jeremy Baker, a finance manager at Websense in San Diego, says that it's hard to see how the company couldn't be somewhat buoyed by customers needs to 'cut-back,' "[McDonald's] is often times the most convenient, least expensive and most kid-friendly food option for most people."


This combination of factors viewed through the optic of stagnating recovery and stalled job growth could mean big business for McDonald's.



With more people trying to save, more potential diners should flow through the 'Golden Arches.'

"They're not going anywhere anytime soon," Baker says of the future outlook for Ronald & Co.


If only the same could be said for the unemployed.