Did We "Scoop" The Times?

Well, we use "Scoop" loosely, but it’s still kinda cool that this was in last Saturday’s Times, ELEVEN whole days after we put a very similar post up here on “The Biz."

We questioned the Dark Side WEEKS ago...

While we hope that this means the venerable folks at America’s “Paper of Record” are reading us, we also realize that this story is growing and have to tip our hat to what the reporter, Randall Stross, has brought to the coverage.

We also had a lot of questions about how competition would affect OpenTable’s less-than-benign hegemony in the market that they seem to have created and Stross uses his space in the paper to introduce us to RezBook, a newly-minted offshoot of IAC’s (read: Barry Diller’s) UrbanSpoon that is aiming to take a bite out of OpenTable’s pie (food analogy… cute, right?).

But RezBook, according to Stross, does not seem to be straying too far from the original business model, charging similar prohibitive fees that are passed on to the restaurateurs. It would seem to follow that either (A) this model is the only one that works in this sector, or (B) Diller and Co. are looking to capitalize on OpenTable’s ongoing demonization with a site that does the same thing, with the same drawbacks, under a different name.

We’re currently on the lookout for local joints that use or don’t use OpenTable, so stay tuned for Updates…

Who's Paying for All This New Food Safety (Hint: It's you... twice)

The new food safety legislation passed by the Senate last week that will have a revolutionary impact on the way that food is tested, and inevitably produced, in America, will also have a mindboggling price tag.

The Omaha World-Herald, a great paper for agribusiness stories by the by, quotes the Congressional Budget Office (CBO) as estimating the cost of the bill at $1.4 billion over the next five years.

One point four billion. With a “B.”

And that’s just the government’s tab.

While no estimates have been made, or in all honestly could reasonably be made, of what the new legislation will cost the businesses who make the food that need to be inspected under the newly intensified strictures demanded by the bill, we can only expect it to be enormous.

And, whatever the number, it will most definitely be passed on to the consumer in the end.

The bill calls for unprecedented FDA oversight on all food inspections nationwide, which will demand an increase in FDA facilities to handle the extra workload. The Senate debate (or lack thereof as the bill was passed with an almost 3-1 margin) circled around the recent outbreak of deadly food-borne illnesses in a number of foods, namely eggs, that were responsible for a few deaths over the summer throughout the country.

Senators seemed enamored of presenting the bill as a health crusade that would “save lives” and help the government offset a health care cost associated with food-borne illnesses that the CBO also wagered a guess at, coming up with a figure of $152 billion.

While the government investment of $1.4 billion seems like a no-brainer investment to offset that huge healthcare number, it looks paltry and “spun” when put in contrast with the amount that implementation of the bill will cost businesses and, inevitably, the American consumer.

Doing anything to raise the cost of food (even imported food, per the language of the legislation) during the climb out this recession while simultaneously suspending unemployment benefit extensions to the most desperate Americans and asking them to pay tax dollars into a $1.4 billion government program that their government can't afford during this historical budget crisis, feels less-than savory to us humble editors at “The Biz.”


And the cost to on-the-margins, smaller fine food purveyors will inevitably be draconian. Off the top of our head, we have to speculate that this bill will have some real-life impact on the "Locavore" market.

Meaning, we hope you have budgetary wiggle room for that locally-sourced duck confit you like so much...  

The Beef Lobby's New Hipster PR Army

The current issue of Mother Jones has a story about a group of pro-agribusiness college students who are being simultaneously educated in press relations by “Big Beef” (agree with them or not, you have to appreciate Mother Jones’ anti-establishment literary aplomb).

As we’ve discussed here at “The Biz” a few times lately (scroll away), the price on beef commodities and beef futures are soaring due to a number of factors, not the least of which being some overseas grain crises, and the rise in cost could provide oxygen to the burgeoning flame of the various “locavore”/organic movements across the country.

Obviously “Big Beef,” or the “National Cattlemen’s Beef Association if we’re being journalistically proper, would prefer not to allow any threats to the profitability of their product to grow stronger, especially with the Senate’s decision on Tuesday* to increase standards of food safety nationwide, a decision that will certainly drive the costs of production and retail value upwards.

According to the MJ piece, at least part of the Beef Lobby’s plan is to target the de facto poet laureate of the “Locavore” movement, Michael Pollan.

Pollan, a best-selling author and quasi-prophetic figure in the hipster food community, has been a powerful opponent to the “factory farming” model of beef production that powers the financial engine of the vehicle that is the Beef Lobby.

And targeting Pollan apparently means creating “sleeper-cell” type groups of students that will make their livings in the worlds that agribusiness allows to exist in their economic shadow.

So the MBA’s (“Masters of Beef Advocacy”) are now on the prowl, with money from the Beef Lobby lining their pockets, and they’re apparent mission is to reach out within their own age group and zeitgeist to counterweigh the effects of Pollan and his messianic message of an American palate devoid of agribusiness-created foods.

* - (ed note: More on that Senate bill ASAP)

Red Bees in South Brooklyn!

While this isn’t exactly a business story, we find ourselves unable to resist posting this story from yesterday’s Times about red bees in Brooklyn.

The borough is home to us at “The Biz” so the mere idea that a maraschino factory nearby our home can turn living creatures red is one that is almost too cool not to muse on for a little while.

The mind boggles.

Enjoy your evenings, for tomorrow we put away such childish things and explore the laugh-a-minute world of newly overhauled food safety regulations.

Thanks, “the Senate!”

Is Tyson Now the Lazarus of the Meat Industry?

Or is there a more logical explanation?


We’ll start up the “Doubting Thomas” Machine in a second, but let’s first acknowledge (and stick with the biblical analogy) that Tyson Foods Inc. seems to have rolled away the metaphorical stone at the mouth of the metaphorical tomb in which they seemed to be ensconced after last year's dismal earnings reports.


2009 was a historically tough year for a company that has been around for more than a hundred of them since their founding in 1896. The Arkansas-based food giant reported a $215 million loss in their operating income at the close of last year’s business with profit margins on their beef business alone running at a loss of 3.2%


But, as The Times reported last week, it looks like Tyson is bouncing back.


Big time.


This year’s final quarter earnings almost look like that of a different company altogether with a reported operating income of roughly $1.5 billion dollars, a $1.77 billion turnaround in one year.


That’s some year.


But, returning to our Lazarus metaphor, the miraculous mending of Tyson’s finances might be not so divine as it is an actuarial inevitability brought about by external market forces.


One salient piece of info from Tyson’s 2010 Q4 earnings report (we read them so you don’t have to) is the performance of the company’s beef business. As we said earlier, that same sector of their revenue stream accounted for a loss of nearly $346 million during Q4 2009. 


In Q4 2010 beef accounted for $542 million in profit for Tyson, a 4.6% gain in profits on their margins.


And if you follow us here at “The Biz,” you know that this is not too surprising (remember?) as beef prices are spiking like a 19^th century fever patient.


So is Tyson really a company that has been rewarded with a second lease on life for its good values and strong belief in the American dream?


Or is it a company that’s getting a profit vacation from an unnatural bubble in beef prices brought about by grain shortages in lands far, far away?


We hesitate to make a call either way as we’re merely humble editors of a blog and not analysts at a commodities brokerage, but we think that Tyson is worth a look for investors.


But make sure it’s a long, lingering one.

Down with OpenTable!... Long Live OpenTable!

OpenTable.com, for those of you not “in the know,” is a website that allows diners to make restaurant reservations using the ease of the internet and also track availability at the “hottest” places, giving them a better chance and getting a precious table in temples of the new gastronomy in towns like New York and Chicago.

An aggregator like OpenTable should be a boon to the restaurant scene in any city where it crops up, and it has been popular enough to go into all 50 states, 22 major cities and now internationally in cities like Paris and Tokyo, but there’s a catch; to be a restaurant that can fill their open tables on OpenTable, one has to pay for the privilege.

And that is irking many of OpenTable’s current and potential clients.

In San Francisco, a bit of a furor has erupted over an “open letter” to OpenTable (clever, no?) on the website of a restaurant called Incanto.

Incanto’s owner, Mark Pastore, uses the space to somewhat excoriate OpenTable’s business practices and claims that the fees charged by the site to restaurants can, when broken down, run as high as $10.40 for a “four-top.”

That amount is undeniably problematic for a smaller restaurant operating on its own revenue margins, and we think it’s safe to estimate that the vast majority of American restaurants fit this description. 


Smaller (let’s just say “most”) restaurants would then be right to be fearful of OpenTable’s growing presence in their industry if the fee structure doesn’t adjust… and soon.

Pastore decries OpenTable’s “hegemony” and cites the $1.5 billion post-IPO valuation that the company currently carries as a newly minted public entity.

And that number is “the rub” as Shakespeare would pen if he had Pastore’s attention.

OpenTable’s success might be coming at the expense of the American Restaurateur, to whom Pastore is clearly trying to give voice, but they just might be too successful to be challenged with any real significance.

At the beginning of the month The Journal reported on OpenTable’s Q3, which was very healthy to say the least as earnings per share quadrupled from $.04 quarter-to-quarter from last year.

That type of growth does not create the image of a vulnerable venture and if we needed even more proof, they were even blessed by Sam Sifton a few weeks back.

When someone like “The Sifton,” who can move New Yorkers to restaurants like a pied piper, gets involved, it’s akin to powerful rivals eyeing each other respectfully across a battlefield.

So good news for OpenTable, bad news for the little guy? Or is this posturing by business owners trying to get a better deal from their already pretty good deal?

Happy Thanksgiving from "The Biz"

Here's a heartwarming (eventually, you need to read through) story from The Times about value-added food programs for the needy this holiday season.

For us, it takes an interesting angle that we've become all to familiar with, and are starting to tire of reading.

The marriage of "corporate responsibility"and food issues, while laudable and just, seems to be fast becoming the "low hanging fruit" of corporate PR.

In this story it's Morgan Stanley getting name-checked for the good work that, while menial, is (faux-Pollyanna inflection) just as hard "but more fun"than the financial sector jobs held by the quotable volunteers.

Maybe it's a bit subjective on our part, but with Wal-Mart going sustainable (see below, wink), Mike Bloomberg waging war on soda in NYC and his own city and private sector offices, large agro-business trying to change their images by force of "green" will and the publicly vocal, yet privately sneaky, praise of Michelle Obama's school lunch program, it just seems like lazy disingenuousness on the part of The Times to work with Morgan Stanley's PR people and quote people who are partially responsible for massive unemployment while they hand out value-added food to families who have been victimized by their greedy mistakes.

Anyway, happy happy,

Your Humble Buzzkill Editors

A Man Who Knows His Wine

A while back we interviewed a guy named David Hitchner for a piece we were writing on local NYC food businesses, and we thought we'd throw it up on here for the readers of "The Biz."

David owns a very cool wine shop and an awesome restaurant in the East Village. If you're a fellow New Yorker, you should really go frequent his establishments. "The Biz" approves.

Enjoy;

David Hitchner is a new breed of “wine geek,” the kind that might very well shape the tastes of wine drinkers in post-recession America.

“The options market on Bordeaux should be interesting this year,” he tells me in a calmly casual tone that fails to conceal his vibrant knowledge and impressive recall of wine-related minutiae, “2005 was the last [Bordeaux] vintage and all the reviews were great but since then a lot of vendors have liquidated their top-shelf stuff, like Brunellos.”

And, unlike the stereotype of the older, elitist, sommelier, he says this all without a hint of pedagogy in his voice.

The twenty-seven year old businessman can often be found offering his thoughts on viniculture from behind the bar of his intimate East Village wine bar “In Vino,” or, a few blocks farther east at his wine shop, “Alphabet City Wine Co,” where he can recline his lanky frame on one of the worn leather chairs that, along with a vintage looking turntable, constitute a lived-in, ad hoc living room in the center of the sales floor.

A Maryland native and graduate of McGill University in Montreal, Hitchner settled into the East Village during the autumn of 2007, where he started working at “In Vino” under its previous owner, putting his wine knowledge to use from the behind the bar.

Meanwhile he and some friends began to formulate the plan for their own mercantile wine business, one that fit their evolving view of how wine should be sold.

“I got into this because I love wine and the wine industry,” Hitchner says, “But my business partner and I found all the wine shops we went to were too big, too anonymous, too elitist. We wanted create a down to earth, affordable store for a younger, less prejudiced audience that was interested in drinking newer stuff and being educated by people who really love wine.”

They found an available commercial space, hired a lawyer that specialized in liquor board cases and began to apply for an off-premises liquor license, a notoriously difficult process within the borders of New York City.

In the end, the partners presented a forty-plus page application document that introduced their mission statement of “providing affordable wines from independent producers,” and also included Census records, building department blueprints, prospective investment reports and news clips.

“Our lawyer said it was the most detailed report he’d ever seen,” says Hitchner with obvious pride, “and he was a very good lawyer.”

As the liquor license process moved forward, Hitchner and his partner struck a deal with the owner of “In Vino” to buy the restaurant which they took over at the end of 2007.

Suddenly, the partners found themselves to be the proprietors of two businesses with a massive financial crisis looming invisibly on the horizon.

“The businesses kind of ‘grew up’ during the recession,” says Hitchner in hindsight, “and because we were new, we just seemed to grow despite the downturn.”

And he believes that their incongruous success can be attributed to the store’s original mission statement.

“We were educating people that good wine can be affordable wine, so people from the neighborhood came to trust us, and they kept coming back.”

This unique opportunity to educate and grow a consumer base should bode well for “The Alphabet Wine Co.” and its ability to continue growing, especially in a changing climate within the wine industry.

“This liquidation of more high-priced wines has shown just how on the margins distributors were,” Hitchner postulates, “there’s been a correction.”

That correction will be a once in a generation opportunity for younger, local wine merchants like Hitchner to capitalize on the moment and begin to be the primary of influencers of wine drinkers for years to come.

“After all Bordeaux isn’t run by vintners,” Hitchner says, returning to his ruminations on Bordeaux, “it’s a “marketing machine” run by the wine sellers.”

Hitchner is not being critical of himself with his observation, he’s blaming the “wine sellers,” not the “wine geeks.”

-----------------------------------------------------------------------------------------------------------

He's a good man.
Thanks again for your time David.

Let's Talk About This Four Loko (in the voice of your mother)

The news coverage of America’s most disliked new energy drink has reached almost every corner of media and is, at this point, almost unavoidable.

What has not been discussed enough though, and what really interests us here at “The Biz” is the cultural relativism inherent in the American lifestyle that allows a product like Four Loko to be conceived of, produced, funded, tested, approved, marketed and sold to willing consumers before “Watchdog Groups” leap in and start a campaign to destroy it.

Going back in very recent history (and for those you still unfamiliar with “The Loko”) the news of Four Loko’s impending demise seemed to come to light concurrently with a public awareness of its existence.

The energy drink, a product of Phusion Products, a four-year old, Chicago-based company, is an alcoholic beverage that contains malt liquor, giving it 12 percent alcohol by volume to be exact which is more than twice the average amount found in a light beer. The other ingredients are predominantly caffeine, guarana, a fruit from the Amazon that roughly twice as much caffeine as coffee beans, and taurine, an amino acid that accelerates the ability of the human body to synthesize the other three products.

Mmmm, tastes like science.

To mask the taste of the major four ingredients (Four Loko, get it?) the drink is sold in flavors like lemonade, kiwi strawberry and watermelon to name just a few.

Sound delicious yet?

Or at least intriguing?

If you said yes to either, you have a lot of company as Four Loko is never sold for more that $2.50 per can.

If you said no to both, you also have a lot of company as many have alleged that the beverage is dangerous and, in some states, unlawful.

Back in 2008, more than a few states tried to change state laws and make caffeinated alcoholic beverages illegal. The political pressure made a number of companies, like Anheuser Busch (does anyone out there remember “Sparks”?) change the formulas of the malt liquor beverages they produced that contained caffeine.

But Four Loko is a whole new ballgame and its formula makes all its predecessors seem innocuous by comparison.

So much so that there is another tidal wave of legislators throughout the country moving in concert to ban “The Loko” within their state lines.

A good example of the financial and political minefield that this aforementioned wave is creating is the opposition that Phusion and its creation are facing in New York.

Now "The Empire State" is admittedly home-base for “The Biz” but this is genuinely an interesting case as state law forbids the legislature from singling out certain products that have had their genus approved by the Food and Drug Administration.

Now since larger companies, like our old example Anheuser Busch, have worked with states to keep their products on the shelves, a small, newer company like Phusion can’t fight the state alone.

But will frothing intense opponents of Four Loko, like US Senator Chuck Schumer (D-NY) use the nuclear option and support a ban on alcoholic caffeine beverages and risk alienating large, potential donors just to keep a Kiwi-Lemonade flavored abomi booze that keeps you up all night, off of shelves?

So it seems like we’re looking at the old debate of government versus private enterprise, which means it could be a long, tough slog for everyone.

I hope the two sides have the energy and patience to get it figured out in a reasonable amount of time.

If not, can we here at “The Biz” suggest this cool new energy drink?....

Also, here's a little bit of "on topic fun"

Is Kellogg's Writing off 2010?

As The Times reported Tuesday (and we here at "The Biz" have suspected for a while) The Kellogg's Company is so disappointed with their sales figures for 2010 that they are publicly talking about a bounce back year in 2011.


Citing a June 25^th recall of their Apple Jacks, Corn Pops, Froot Loops and Honey Smacks brands of breakfast cereal boxes and lower sales figures for their Eggo brand toaster waffles, the Battle Creek, Michigan-based company reported a third-quarter income of $301 million a share for this year, compared to $353 for the same period last year. Earnings per share were down 14 percent to 80 cents. David Mackay, Kellogg Company's chief executive officer, said in October that the recall hit North American operating profits the hardest, plunging 13 percent.


So it’s no real surprise to hear that Mackay told The Times, “We are addressing the major issues that took us off course in 2010.”

With their CEO looking ahead before the company releases their fourth quarter numbers, investors in Kellogg’s shouldn’t be too hopeful for what they’re going to see in January. But it seems like the company is already trying to manage those expectations.

And we here at “The Biz” think that might be pretty gutsy considering that the grain shortages throughout Europe seem to be spreading and could very easily push the cost of grain upwards sooner than later.

This is definitely a “stay tuned” situation…