A blog about business and economics.

April 23 2014 1:55 PM

The Waffle Taco’s Biggest Enemy Isn’t McDonald’s. It’s Consumer Habits.

Yum! Brands execs admitted this morning that the Waffle Taco is fighting an uphill battle in the fast-food breakfast wars. "We gotta break major habits," CEO David Novak said of Taco Bell's morning menu rollout during Yum!'s quarterly earnings call. "People have a tendency to do the same thing every day. It’s hard to even get our current users to give us a try."

Novak also made clear that he sees breakfast as critical to Taco Bell's national success. "I've always said if you can be successful at breakfast—and we fully intend to be—there's no reason in the world why Taco Bell can't go from 5,000 stores to 8,000 stores in the United States," he said. Fast-food breakfast accounts for tens of billions of dollars in sales in America.

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Though Novak stressed that "we are in it to win breakfast," his comments sounded less assured than those of McDonald's CEO Don Thompson on Tuesday. Gesturing to Taco Bell, Thompson said McDonald's had "not seen an impact relative to the most recent competitor that entered the [breakfast] space," and that new competition would only make McDonald's pursue breakfast more aggressively.

Yum!, the corporation behind Taco Bell, Pizza Hut, and KFC, reported mixed earnings after the bell on Tuesday. It said same-stores sales at Taco Bell's U.S. locations declined 1 percent in the first quarter, but chalked much of that up to the harsh winter. In the earnings call, execs said Taco Bell will be a first-half, second-half story this year.

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April 22 2014 5:54 PM

McDonald’s vs. Taco Bell: Q1 Earnings Edition

Don Thompson wants customers to know that at McDonald’s, “we actually crack eggs.” It was a point the CEO kept coming back to in his first-quarter earnings call on Tuesday as he attempted to reassure investors that new competition in the fast-food breakfast wars isn’t a serious threat to the Golden Arches and its flagship Egg McMuffin.

“It seems every year, there's someone new that is making a run and none of them have really stopped their focus on breakfast, whether that be the closer in competitors or if that's sandwich shops or if that's taco shops or anything else,” Thompson said, in an apparent nod to Taco Bell. “We have not seen an impact relative to the most recent competitor that entered the space.”

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Breakfast has come into sharp focus ever since Taco Bell rolled out a new morning menu, and McDonald’s responded with a free coffee promotion. Taco Bell is among the chains vying for a slice of the fast-food breakfast industry, an area where McDonald’s has long enjoyed the lion’s share of sales. The industry did a total of $31.7 billion in U.S. sales in 2012, of which McDonald’s claimed about $10 billion.

In the earnings call, Thompson said that the new competition “forces us to focus even more on being aggressive relative to breakfast.” He emphasized that McDonald’s excels in preparing its breakfast items fresh and serving them up quickly. “We crack fresh eggs, we grill sausage and bacon, we bake biscuits, and we toast muffins,” he said, adding later, “It’s not a microwave deal.” Taco Bell, the AP reports, has said it thaws and cooks frozen eggs in the morning.

Breakfast aside, McDonald’s wasn’t looking too hot after reporting its first-quarter results. The company said its net income dropped by 5 percent to $1.2 billion, or $1.21 per share, worse than what analysts had expected. It was the latest in a string of iffy results for McDonald’s, which has suffered from increased competition, internal missteps, a slowed economy, and, most recently, climbing food prices. McDonald’s shares inched down 0.4 percent on Tuesday, to $99.32.

Yum! Brands, the corporation behind Taco Bell, reported rosier results on Tuesday. The company beat bottom-line expectations with earnings of $0.87 a share, but missed on revenue. U.S. same-store sales at Taco Bell declined by 1 percent and operating profit fell 16 percent. Same-store sales also edged down at Pizza Hut but rose at KFC, two other chains operated by Yum.

"We experienced disappointing U.S. results, which were impacted by unusually severe weather," David Novak, CEO of Yum, said in a release. "We have confidence in our plans to drive balance of year improvement and are particularly pleased with the initial results of our recent Taco Bell breakfast launch."

Shares of Yum! Brands were moving higher in after-hours trading and climbed 1.9 percent to $77.48 before the bell. The company will hold its first-quarter earnings call on Wednesday morning, which may shed some light on its side of the breakfast battle.

April 22 2014 2:58 PM

HBO’s New Reason You Need #HBOGoplease

A teenage girl is watching a graphic sex scene in Girls when in walks her middle-aged father. He pauses to munch a chip and then offers some fatherly wisdom: “See, honey? You have the right to speak up. You know, it’s your body.” The kicker text appears on the screen: “Might be a good time for HBO Go.”

HBO is cashing in on every teen and twentysomething TV-viewer’s worst nightmare in a new set of seven ads, which play on the cringe-worthy awkwardness of watching shows like Girls, Game of Thrones, and True Blood in a family setting. (An adultery scene in True Detective, for example, puts Dad in a reflective mood: "You know, I never cheated on your mother. ... Not that I didn't have opportunities.") The narrator swoops in with a rescue plan at the end of each ad: “HBO Go. The best of HBO on all your favorite devices. Far, far away from your parents.”

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HBO describes the new marketing campaign as “hilarious” and says the segments are “bound to hit home with millennials.” The network is promoting the ads on BuzzFeed and its YouTube and Twitter sites, and is also asking viewers to create content with their own “awkward HBO viewing moments” using the hashtag #HBOGoplease. Wistful pleas of young watchers have already flooded Twitter (though many are from HBO’s agents on college campuses).

But it seems as though the people getting asked for #HBOGoplease will be parents—the same parents you want out of the room once you've got #HBOGothankyou. And if you watch all of the commercials, you’ll notice that Mom and Dad don’t mind taking in the raunchy content alongside their kids—in fact, they seem to get a kick out of making their children squirm. Why would they want to guarantee their kids will never spend time watching TV with them again?

April 22 2014 2:03 PM

Can an App Help Save the Planet? This Startup Hopes So. 

This story first appeared in Inc.

More than half of Americans say they worry about global warming. But what are they doing about it?

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Probably not as much as they think. As any behavioral psychologist could tell you, there’s a significant rift between an individual’s priorities and one’s actual behaviors. A new company called Oroeco seeks to address this rift as it applies to carbon footprints.

This Earth Day, Oroeco is bringing its website out of beta. The site, roughly two years in the works, allows individuals to sync their purchases on spending-analysis tool Mint.com (which is entrepreneur-founded, but now owned by Intuit) with Oroeco in order to discover and monitor the carbon emissions associated with their purchases, say, groceries or a monthly electric bill.

From there, the website—and, soon, an app—can estimate your entire monthly carbon footprint. Moreover, it can compare your consumption, and C02 used, to that of your neighbors, or your Facebook friends. If you don’t do so hot for the month—say, you fly from New York City to Bangkok and back, which means you caused an estimated 7,000 pounds of carbon dioxide to be emitted—you can purchase carbon offsets directly through Oroeco to lower your footprint. Simply using the site for analysis is free.

“We’re initially targeting folks who already care about climate change, which is the majority of people,” says Oroeco founder Ian Monroe, who spent most of the past decade at nonprofits, nongovernmental organizations, and governmental organizations, working on initiatives to fight climate change. “Our primary goal is to drive change in consumers’ behaviors. There’s this gap we all have in what we care about and what we all actually do day-to-day.”

Monroe started working on the ideas for Oroeco in 2011 in San Francisco and incorporated the company and raised $15,000 and the following year in an Indiegogo campaign, which also generated the company’s first 150 beta testers of its Web app. The Web app has just 250 users in advance of the Earth Day beta launch.

There are a few carbon-emissions calculator apps already on the market (most are free), including Leafully, and some by nonprofit groups or energy-source advocates, including the Propane Education and Research Council. The site GoodGuide locates environmentally friendly products; currently the most notable company in the energy-consumption monitoring space is Opower, which recently went public.

In addition to showing users how their environmental footprint compares to that of their neighbors, the Oroeco app also gives both friendly suggestions—and rewards—for cutting that number. If a user eats less red meat or cuts plastic bags from her life, she can not only can earn in-app badges, but also real-life prizes, such as a Nest Thermostat.

“We also estimate the average household can save $1,000 a year by making really simple changes to their habits,” Monroe says.

It’s pretty refreshing to see a team of successful startup folks and hackers (by the way, it’s a woman-led team of developers, also a refreshing rarity) come together for a goal that’s more about doing good than making money. While it’s structured as a company and has three different revenue streams in mind, Oroeco has so far forgone seeking significant venture-capital funding in favor of grants and an Indiegogo campaign (it has about $91,000 in grants and awards, and $40,000 in angel funding). And while some employees are paid by this, Monroe doesn’t pay himself. He also doesn’t pay office rent.

“We are a pioneer of the sustainable office, in that we don’t really have one,” Monroe says, explaining that the whole Oroeco team works remotely. 

The business model from the start is simply taking a small cut from sales of carbon offsets from its partner, Impact Carbon. Monroe is floating the ideas of offering premium services, and, as a third line of revenue, adding affiliate advertising.

One significant challenge for the company will be expanding internationally. In the United States, its integration with Mint.com allows tracking of users’ purchases—but there’s no Mint.com or equivalent on other continents, due primarily to differences in banking regulations.

What Oroeco is trying to tackle is also a difficult problem from a behavioral standpoint. It’s far easier to reward outright positive behavior than to try to cut down on negative behavior. I asked Monroe how Oroeco can accomplish this when a user continues to see her negatives—creating carbon emissions—tick up and up.

He admits it’s a challenge, one on which the company is working with researchers at Stanford University and University of California–Berkeley to learn the best ways with which to interact with users. Monroe says for now, the company’s Web app focuses on the positive: It gives tips to users and also prompts positive behaviors, such as biking to work or installing solar panels. Plus, the ability for users to compare themselves to local averages and, specifically, their friends, might provide a big psychological push for them.

“Once we have information in the right place and incentives in the right place, we can build on that social benchmarking and play off that desire to not just be as good as average,” Monroe says. “If you want to be better than average, and achieve that, it’s always going to be pushing that average down. We can move the needle on carbon output that way.”

April 22 2014 11:47 AM

The Privatization of Our Public Colleges (in Two Charts)

State cuts to higher education spending aren’t the only reason public colleges are getting more expensive. But they are, without a doubt, one of the most important reasons. In some parts of the country, undergraduate education has been all but privatized, with taxpayers covering less than 15 percent of the expenses necessary to educate students.

Here’s what the privatization trend looks like nationally, as captured in the State Higher Education Executive Officers' newest annual report on public college finances. In the 1980s, student tuition covered less than a quarter of so-called “educational revenue,” which is essentially the money colleges have available to spend on basic operating expenses, like teaching and administration. The rest came from government appropriations. Today, students cover almost half the cost of their own educations, on average.

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SHEEO

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The movement away form public funding is far further along in some states than others. In New Hampshire and Vermont, tuition supplies 85 percent of educational revenue. (Not coincidentally, New Hampshire may well have the worst student debt problem of any state.) In contrast, students pay for around a third or less of their own expenses in states like North Carolina, New Mexico, California, Alaska, and Wyoming.

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SHEEO

Government cuts are part of the privatization story, but so are increasing expenses. States tend to cut funding to colleges in the wake of recessions, which forces tuition up. When the economy heals, they often restore some of it. But even if they do, tuition generally doesn’t drop much. Instead, the previous hikes tend to get locked in, as schools accumulate new expenses. But whether you think heartless legislators or feckless administrators are to blame, the end result is the same: Students are paying a growing share of costs, and the public’s share is shrinking.

April 21 2014 5:58 PM

Get Rich or Die Younger: The Shrinking Lifes Spans of Poor U.S. Women

Always remember kids: There’s more to life than making money, but making lots of money might buy you a longer life.

Brookings economist Barry Bosworth has produced the grimmest analysis yet of the growing “longevity gap” between America’s rich and poor. Generally, it confirms that the more affluent you are, the longer you should live. But then there are these two big take-aways, captured in the Wall Street Journal graph below:

  1. Among men older than 55, life expectancies are growing fastest for the rich.
  2. Among women older than 55, life expectancies are growing for the rich and shrinking for the poor.
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WSJ

Shrinking. That is simply horrifying. Thanks to analysis by the Social Security Administration, we’ve known for a while that male life spans were rising much quicker among the top half of earners than among the bottom half. But declining life expectancies are not supposed to be a first-world problem.

As Annie Lowrey has explained in the New York Times, it’s actually very difficult to say whether the growth of economic inequality has played any direct role in the diverging life spans of upper and lower income Americans. Wealth buys better access to medicine. But the rich and educated also tend to make healthier choices than less fortunate Americans. It could be that low-income women are making such poor lifestyle decisions that they are now shaving years off their expected longevity. Bosworth suggested to the WSJ that smoking might be a culprit.

But I would just like to reiterate a point I’ve made here before: Every time a politician says we need to raise the retirement age again because everybody is living so much longer, remember these graphs. It simply isn’t true. Moreover, because the poor live shorter lives, postponing benefits hits them the hardest. It's one of the cruelest ways you could cut a program meant to help the needy.

April 21 2014 5:12 PM

Netflix Adds Subscribers, Plans Price Increase

Netflix climbed in after-hours trading Monday on better-than-expected earnings and news that the company had added 2.25 million domestic subscribers in the first quarter.

The movie and TV streaming service signed up 4 million new members in Q1 2014, representing strong growth in both the domestic and international segments. Earnings per share came in at $0.86, topping estimates for $0.83, on revenue of more than $1 billion. Netflix shares jumped nearly 7 percent to $372 after the bell, up from their Monday close of $348.49.

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Netflix CEO Reed Hastings and CFO David Wells also dropped some big news about pricing in their letter to shareholders. The company plans to raise streaming prices by $1 to $2 for new members in different countries later this quarter. In the U.S., that could bring fees a high as $10 a month for the streaming plan.

Hastings and Wells emphasized that the price hike would only apply to new sign-ups while existing members would stay on their current pricing plans (i.e., $7.99 in the U.S.) for a “generous time period.” Netflix tested this approach in Ireland this January, asking new subscribers to pay €7.99 instead of €6.99, and grandfathering existing members into their pricing plans for two years. The company said it saw “limited impact” from the change.

The latest quarter was also strong internationally for Netflix, which noted its service is becoming “the first-run home for many great U.S. TV series” outside of North America. Netflix said its international segment is on track to become profitable this year.

It will be interesting to see whether the report is enough to turn Netflix around in the eyes of investors. Netflix has lost 4.7 percent since the start of the year and nearly 15 percent in the past month alone, as tech stocks have sold off broadly.

April 21 2014 3:45 PM

Do Your Genes Make You Procrastinate?

Procrastinators, in my experience, like nothing better than explaining away their procrastination: General busyness, fear of failure, and simple laziness are just a handful of the excuses and theories often tossed around. Now researchers from the University of Colorado–Boulder have added another option to the list: genetics.

According to a new paper published in Psychological Science, the traits that lead to both procrastination and impulsivity are "moderately heritable." For procrastination, that hereditability was measured at 46 percent; for impulsivity, 49 percent. In other words, nearly half of what makes you procrastinate and act impulsively might not be your fault.

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"The most interesting thing is that genetically they seem to be related, which suggests that they've sort of evolved together," said Daniel Gustavson, lead author on the paper. "We also learned that a lot of what makes people procrastinate and what makes them impulsive might be them specifically forgetting about their goals and not necessarily delaying as much."

To conduct the study, researchers analyzed responses to questionnaires from 663 same-sex twins. Respondents were, on average, about 23 years old and were considered representative of the general population in terms of cognitive ability. The questionnaires were designed to measure procrastination, impulsivity, and goal-management failures.

While the study shows that there is some degree of overlap between procrastination and impulsivity, the researchers stress that it's hard to identify causation. Is procrastination an evolutionary byproduct of impulsivity? Or do we act impulsively because we box ourselves into tight corners by procrastinating, and force quick decisions? Those questions still stand.

For now, procrastinators everywhere should take heart in gaining what could be the best excuse yet for their inordinate thumb-twiddling: blaming it on Mom and Dad. But even if the research supports this, it might not go over so well at home.

April 18 2014 6:41 PM

Do White Castle Prices Tell Us Anything About the Minimum Wage?

Economists love hamburgers. Specifically fast-food burgers. This is partly because all right-thinking human beings love ground meat on a bun, but it’s also because the sandwich makes a handy yardstick for international financial comparisons. The ingredients and labor involved in preparing a Big Mac are pretty much the same no matter where you are in the world, so by looking at how many hours of toiling it takes a worker to earn enough to purchase one, you can get a sense of how wages really stack up across countries. The Economist famously created the Big Mac index in 1986 to see which currencies were overvalued. It started as a joke. Now, as the magazine proudly notes, it’s a subject of academic study.

Sadly, I don’t think the Wall Street Journal’s cheeky White Castle Minimum Wage Index” is destined for the same longevity. The paper looked at how many delicious steamed sliders (and don’t get me wrong, they are delicious) the minimum wage has been able to purchase over time. The point is that as it notes, in 1981, the $3.35 minimum could buy a whole dozen. Today, at $7.25, it could purchase just 10. This is supposed to illustrate “the dilemma caused by raising the minimum wage”—namely, that it leads fast-food chains and other low-wage employers to raise prices. When the federal minimum jumped about 24 percent between 2007 and 2009, burger prices popped up by the same.

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Graph: WSJ

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Which is fair enough. Economists have regularly found that the minimum wage impacts fast-food prices, which, as the WSJ notes, makes sense because the industry is so reliant on unskilled labor. But two big problems. First, when I look at this chart, I mostly see the effects of steady inflation on burger prices post-1980 (presumably, they didn't only rise when labor costs went up). Second, if the goal is to capture broader living standards, it doesn’t make much sense to measure the value of the minimum wage over time using the price of a single product that’s so closely tied to it. The Big Mac is a great tool for geographical comparisons, because its production is so standardized across countries. You don’t need to control for those same cross-border differences when you look at wages and living standards in a single country over time. Better to just use inflation.

If you are going to use a single expense to measure living standards, though, you’re probably better off using something major like rent. As far as I know, nobody actually counts White Castle Burgers as a major line item in their monthly budget. Tasty as they might be.

April 18 2014 4:45 PM

Why People Are Freaking Out Over General Mills’ New Legal Policy

Update, April 21, 2014: On Saturday, General Mills announced that it had reversed the legal changes made last week and reverted to its original terms. The changes, the company said, had been "widely misread" and caused concern among consumers. "We never imagined this reaction," General Mills wrote in a blog post. "On behalf of our company and our brands, we would like to apologize. We're sorry we even started down this path." So go ahead and download those coupons.

Starting today, you might want to think twice about downloading a dollar-off coupon for Cinnamon Toast Crunch or a two-for-one discount on Yoplait. Those small savings will now cost you the right to sue.

General Mills, the massive food company behind Cinnamon Toast Crunch, Yoplait, Cheerios, and dozens of other labels, added language to its website this week that fundamentally alters its customers’ legal rights. Under the new terms, people who interact with General Mills in a broad range of ways—downloading a coupon online or entering a contest, for example—waive their right to class action and agree to resolve any disputes with the company through informal negotiations or binding arbitration.

To get a sense of just how broad the umbrella for these class action waivers are, here’s a relevant section on the changes from General Mills’ website:

In exchange for the benefits, discounts, content, features, services, or other offerings that you receive or have access to by using our websites, joining our sites as a member, joining our online community, subscribing to our email newsletters, downloading or printing a digital coupon, entering a sweepstakes or contest, redeeming a promotional offer, or otherwise participating in any other General Mills offering, you are agreeing to these terms.

Needless to say, people are unhappy. After all, who wants to think about forfeiting legal rights to a massive corporation when they’re just trying to get a discount on Pillsbury cookies and Toaster Strudel? And waiving your right to a class suit feels like a tall price to pay for a few dollars or cents in savings.

“I will have to take to wearing a hat into the grocery store that says, in boldface print of course, ‘By accepting payment for any purchases I may make, you hereby agree that trial by jury and lawsuits including class actions remain available means for the resolution of any disputes,’” says Ted Mermin, executive director of the Public Good Law Center and a professor of consumer law at UC–Berkeley School of Law. “'I will set my Web browser to carry a cookie conveying the same message.'”

Joking aside, class-action waivers, while disadvantageous to consumers, have been quite common ever since the Supreme Court upheld them in its 2011 ruling in AT&T Mobility v. Concepcion. “The case provides corporate America with another useful tip on how to avoid costly litigation: If you haven't already done so, rush to lock your customers and/or employees into invisible mandatory arbitration agreements that will bar them from challenging your misconduct in a class-action suit,” Dahlia Lithwick wrote in Slate at the time.

And rush they have. AT&T, Sprint, eBay, Amazon, and Dropbox are just a handful of the companies that have introduced arbitration clauses and class-action waivers into their terms of service—aka those dense pages of legalese that only the rarest of users ever bothers to read in full. “Class action waivers are everywhere,” says Florencia Marotta-Wurgler, a professor at New York University School of Law. Her research shows that fewer than one in 1,000 people will click on website links to view the full terms of a contract before hitting “I agree.”

What’s so unusual about the General Mills situation is that consumers, all of a sudden, are taking note. That’s at least in part because the changes have drawn extensive and critical coverage from the media, but also because the scope of how consumers can become subject to this agreement is unprecedented.

“What's unusual about General Mills' move is that we haven't seen such a broad-based waiver from a consumer packaged goods company,” explains Eric Goldman, a professor at Santa Clara University School of Law and director of its High Tech Law Institute. “General Mills is using a direct point-of-contact with its customers—its Web interactions—to create new contract terms that would be difficult or impossible through the normal distribution chain.”

Compounding that is the fact that General Mills largely botched the rollout of its new policy. Rather than broadcasting the changes, the company quietly added the terms to a legal statement online and has since appended a thin gray advisory bar to its website. Initially, though, the New York Times reported that placing an order through the General Mills online store did not trigger any sort of notice that the company had changed the legal terms governing the purchaser.

When consumers aren’t made to explicitly agree with terms of use, a major change like a class-action waiver won’t be considered enforceable unless the company can demonstrate it gave “reasonable notice.” This notification needs to be fairly prominent, so the initial update on the General Mills website may not have made the cut. “Courts have said it’s not reasonable notice when companies do way more than that,” Marotta-Wurgler notes.

We reached out to General Mills for comment, and a spokesman referred us to a post on the company's blog. "The policy doesn’t preclude a consumer from pursuing a claim. It merely determines the forum," they write. "Arbitration is a straightforward and efficient way to resolve such disputes."

Even if the General Mills changes do hold up, legal experts say it might not be such a bad thing. “I will say that I will be grateful to General Mills if its foray into forced arbitration makes people start to ask a little more seriously whether we really want a society in which fundamental rights can be waived with the click of a mouse,” says Mermin. If nothing else, people certainly are talking.

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