A blog about business and economics.

July 30 2014 6:39 PM

Can Whole Foods Escape Its “Whole Paycheck” Image?

It's hard to feel bad for a store whose nickname is "Whole Paycheck," but this has been a particularly rough year for Whole Foods. Once the king of organic, Whole Foods has recently come under attack on all fronts. After the company announced its second-quarter results in May, shares fell nearly 20 percent overnight on fears that the chain was losing its hold on the organic market. Heading into Wednesday's earnings report, Whole Foods' stock was the second-worst performer in the S&P 500 after losing 30-some percent of its value since January.

Now once again, shares of Whole Foods are slipping in after-hours trading on Q3 earnings that failed to reassure Wall Street. Whole Foods missed on same-store sales and lowered its outlook for the fourth consecutive quarter. Profit came in above expectations and revenue in line, but investors are less concerned with those figures than seeing whether Whole Foods can keep customers coming to its stores amid increased competition for healthy and organic shoppers.

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Whole Foods' effort to ditch its "Whole Paycheck" image has become increasingly urgent as big-name competitors like Walmart and Kroger Co. have stepped into the organic market. Many niche products that were once tough to track down outside of a Whole Foods or boutique market are now available at mainstream groceries. In an effort to bring traffic back to its stores, the company will be launching its first-ever national marketing and branding campaign this fall to focus on the "real and substantive differences" that Whole Foods offers consumers.

"We're trying to advertise who we are. We're trying to change what we think is a negative narrative about our company. And we're trying to be very clear what makes Whole Foods a unique, special company," co-CEO John Mackey said on the call. "What we are absolutely convinced of is that in the long term this is going to create great value for our investors."

The chain will continue to work on cutting its prices—an effort that hurts in the short term but is likely to bring back some customers. It also plans to make cosmetic touch-ups to some of its older stores. But until it can match the steep 25 percent discounts offered at Walmart and the convenience of getting organic kale from a neighborhood supermarket, Whole Foods might be fighting a losing battle.

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July 30 2014 9:54 AM

Great News This Morning: The Economy Grew at a 4 Percent Rate Last Quarter

It looks like the economy got the spring awakening we were all hoping for. After contracting during the winter, U.S. gross domestic product grew at a 4 percent annual rate from April through June, according to the Commerce Department. Overall, it has expanded by about 1 percent during the first six months of the year.

These are preliminary numbers that will be revised. But they seem to confirm that our first-quarter economic shrinkage was indeed a fluke, in part due to the freakishly bad weather. The Wall Street Journal notes that, with revisions, the economy grew at a 4 percent rate during the back half of 2013, making it “the best six-month stretch in 10 years.” We’re not exactly on a roll yet, but there’s some pretty good reasons to be optimistic.

July 29 2014 5:01 PM

McDonald’s Japan Rolls Out Tofu McNuggets

McDonald's Japan unveiled a game-changer on Tuesday: Tofu Shinjo Nuggets. The item is being rushed onto the menu less than a week after McDonald's announced it was stopping all sales of chicken products imported from China because of reports that a supplier might be shipping expired meat. The tofu nuggets will hit Japanese locations on Wednesday and be available until late September.

Tofu Shinjo Nuggets—literal translation: "minced tofu nuggets"—are made primarily from tofu and vegetables such as onions, soybeans, and carrots. They also include minced fish and will be served with a ginger-flavored sauce, a spokeswoman for McDonald's told the Wall Street Journal. "Because it isn't meat, it tastes a bit different. It's a bit softer," she said.

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It's possible tofu McNuggets will enjoy just a brief moment in McDonald's Japan while Chinese chicken suppliers clean up their acts. But Tofu Shinjo Nuggets could also be something much better—the cusp of a new vegetarian/pescatarian push that expands beyond a meager number of salads (which are overwhelmingly topped with bacon and chicken). In May 2013, a 9-year-old girl called for McDonald's to introduce healthier options such as kale chips and more veggies. Maybe the chain will finally heed her call.

If the big dreams don't pan out, there should at least be a fun experiment here for anyone who lives in Japan and has also had normal nuggets. Try the tofu variety and tell us: Which tastes less like chicken?

July 29 2014 2:30 PM

Americans Are Really Terrible at Paying Their Bills

Looking for an evergreen industry to invest in? Try debt collection. According to a new report by the Urban Institute, more than 35 percent of Americans owe nonmortgage debt that’s been turned over to a collection agency—including anything from credit card balances to student loans to medical bills and parking tickets. If that sounds especially shocking, consider: In 2004, the Federal Reserve found that 36.4 percent of Americans had debt in collection on their credit file.

Like most financial ills, Americans in some parts of the country are having more trouble paying off their bills than others. As shown on this map above, the South is especially plagued with debt collectors—in some corners of the region, more than 61 percent of adults with credit reports have an agency on their tail. What’s more, these figures don’t include low-income Americans who are shut out of mainstream credit sources and instead rely on services such as payday lenders. (One slightly positive note: When you cut bills out of the picture, and focus only on credit-card balances and actual loans, only 5.3 percent have debt past due.)

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Two points to make here. First, a smart populist politician could probably get a lot of mileage promising to crack down on some of the sleazier tactics that debt collection agencies employ. They're a villain many of us can relate to. Second, this is why we need consumer finance laws that protect Americans from themselves.

July 29 2014 12:36 PM

Should We Redesign the Entire Welfare State to Fix Chronic Poverty?

At Bloomberg View, Megan McArdle writes that my colleague Jamelle Bouie and I are off-base in our criticisms of Paul Ryan’s rather paternalistic anti-poverty proposal, which we both think is overly focused on addressing the needs of the chronically poor, even though most people who experience poverty escape it after a relatively short period of time.

Her point is generally about budget math. Most people might not linger in the safety net for long, she argues, but Washington likely spends most of its aid dollars on those who do. I’m oversimplifying a bit, but think of it as a reverse version of the 80/20 rule, which says 80 percent of a business’s profits will come from 20 percent of its customers. A few families in deep long-term poverty are most likely going to consume a disproportionate share of the government’s aid dollars.

So, mathematically, I think the argument being made by Bouie and Weissmann fails; it obviously makes a lot of sense to focus on the group that generates a disproportionate share of our entitlement spending. At the very least, we should consider the strong possibility that those struggling with chronic poverty might need very different kinds of help than those dealing with a temporary income problem – rather than suggesting, as Bouie does, that we should obviously focus on doing whatever is best for people having an acute poverty episode because they’re the majority.
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McArdle admits that we don’t actually know what percentage of government aid goes to the chronically poor, but her assumption that they consume a lot of it is probably sound. But that doesn't amount to a defense of Ryan’s plan.

If your overriding policy goal is to shrink federal spending over time, then yes, drastically redesigning an enormous chunk of the safety net in order to (maybe) move a relatively small group of people who seem to be stuck in intractable poverty toward work might make sense. Ryan’s plan would crunch up to 11 different programs into one, then require each beneficiary to meet with caseworkers and sign a contractually enforced life plan outlining how he’s going to get a job and get off the dole. It’s a radical re-envisioning of how the U.S. welfare state should work, and the only way to really justify it is if you think our current approach to poverty is so ineffective and expensive that we ought to scrap it and start from scratch.

But if your policy goal is, instead, simply to design a safety net that works for most Americans who come into contact with it, and cost isn’t your No. 1 worry, then burning down and replacing the one we have is just rash.

Nobody thinks the U.S. welfare state is perfect. Pieces of Ryan’s big idea might even improve it. Would it be nice if poor Americans could go to a single office for all their benefits? Absolutely. Could funding caseworkers tasked specifically with helping the chronically poor be useful? Sure. However, the majority of poor people aren't in dire need of adult supervision. To completely redesign programs that already work well (such as food stamps), while forcing every single person who needs a hand through a rough patch to submit to a new and intrusive bureaucratic regime, is simply overkill. Doing so might not even move many people out of poverty and could have any number of unintended consequences. (Would anybody be shocked if having to sign a life contract scared off some poor parents from trying to get benefits that they really needed?) Looking for specific places where the safety net is weak, and then fixing it in a targeted way, is the more responsible choice.

Ryan’s defenders, including McArdle, point out that he only wants a pilot program so that a few states can experiment with his approach. But remember, these aren’t lab experiments. We’re talking about lives and livelihoods. We ought to be careful with them.

July 28 2014 5:54 PM

Grover Norquist Is Going to Burning Man

Now, some people might look at that tweet and conclude that Burning Man is officially dead. But really, Burning Man has been dead for a while, at least if you use the presence of middle-aged corporate types as your measure of mortality. Google's Eric Schmidt was there all the way back in 2007. And it makes a certain kind of sense that the founder of Americans for Tax Reform would make a pilgrimage out to the desert. He's a libertarian anti-tax crusader. Burning Man is a libertarian utopia. Why wouldn't he want to see some of his ideals in action?

Anyway, at this point there's no indication on his Twitter feed that Norquist is kidding. So if anybody finds him emulating a Sparkle Pony, dropping by the orgy tent, or done up like this guy, please take a picture for us.

July 28 2014 5:23 PM

The New York Times’ Explanation for Why It Still Drug-Tests Employees Is Ridiculous

Over the weekend, the New York Times editorial board came out in favor of full-on federal marijuana legalization, and as you can see above, it promised to take reader questions this afternoon at 4:20 p.m. (The paper of record is apparently also pro–stoner humor.)

In any event, I doubt readers will come up with a more interesting question than Huffington Post media reporter Michael Calderone, who over the weekend asked why, exactly, the New York Times Co. still drug-tests its new employees, especially if the editorial line is now officially pro-cannabis. While publisher Arthur Sulzberger Jr. might support the board’s position, a spokeswoman told Calderone the company wasn’t changing anything about its drug-testing regimen. “Our corporate policy on this issue reflects current law,” she told Calderone. “We aren't going to get into details beyond that.”

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What complete nonsense. Yes, marijuana is still an illegal drug. And yes, the business and editorial sides of a newspaper are technically separate. But as the Department of Labor makes crystal-clear, “The majority of employers across the United States are NOT required to drug test.” (The bold caps are the department’s formatting, by the way.) Unless the Times is secretly employing air traffic controllers, there’s nothing about “current law” that requires the Times to police its employees’ THC intake. If the paper is going to take a big moral stand, it seems like the company's policy should be consistent with it.

July 28 2014 5:19 PM

Did Cuts to Food Stamps Undo Family Dollar?

Two of America's biggest discount retailers merged into a 13,000-store chain on Monday when Dollar Tree said it was buying Family Dollar for some $8.5 billion. The deal is expected to help Dollar Tree better compete against companies like Walmart and Target, which have edged onto traditional dollar store turf with their huge inventories and low prices. What's less clear is whether the merger will help with a more fundamental problem: how to bring low-income shoppers back to stores.

In the years since the recession, dollar stores have been through a boom and bust of their own. For a few years, an influx of cash-strapped consumers buoyed revenue at discount stores. Dollar General, Dollar Tree, and Family Dollar saw annual sales surge by as much as 10 percent as shoppers turned to them for toiletries and groceries. As the number of Americans using food stamps soared from 26 million pre-recession to 48 million in 2013, a significant chunk of those dollars found their way to dollar stores. More than 40 percent of dollar store customers depend on some type of government aid, according to research firm Morningstar.

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Then the boom slowed—and for Family Dollar, it busted. In April, Family Dollar chief executive Howard Levine announced that the chain would be cutting prices, closing "approximately 370 underperforming stores," and slowing new store openings as part of a comprehensive business review. When analysts asked about the impact of the government's $8.6 billion cut to food-stamp spending on the company's second-quarter earnings call, Levine demurred. "It's difficult to quantify, but I would certainly tell you that it's not a positive for our customers," he said.

By the third quarter, however, comparable store sales had declined 1.8 percent and Levine's tone changed. "It's still pretty tough out there," he told investors. "The low-end consumer has not benefited in this recovery at all. Unemployment trends remain high. The government cutbacks continue." Translation: Things aren't looking too good for our core consumer base, which means they aren't looking great for us either.

Some feel that Family Dollar suffered disproportionately from a decline in low-income consumer spending because of its two-tiered pricing strategy—offering steep discounts on some items to raise prices above a dollar or two on others. Dollar Tree, which has fared notably better, sells everything for a buck or less. For the immediate future, though, Dollar Tree plans to keep Family Dollar as a separate brand. With jobs reports and other economic data finally looking up, the wait-and-see attitude makes sense—maybe Dollar Tree purchased its faltering rival just as its prospects were bottoming out.

July 28 2014 4:16 PM

Why Your Uber Rating Shouldn’t Be a Secret

Just as Uber passengers rate their drivers, Uber’s drivers rate their passengers. This fact has been public for a while now—the company published a blog post explaining the policy back in April, titled “Feedback Is a Two-Way Street.” But plenty of customers aren’t aware that they are graded, in part because Uber’s app doesn’t show riders their score (which is on a one-to-five-star scale). To find out, you need to ask a driver or contact customer support.

For a short while last night, however, the digital curtain was torn away and Uber fans were given an easy way to see where they stacked up, thanks to a clever hack published by Aaron Landy on Medium. The trick blew up on Twitter, pockets of which began to seem like a high school hallway where everybody was comparing AP scores. Eventually, though, the company appeared to sweep in and disabled the hack.

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Uber says it is “exploring” ways to make rider ratings public on the next version of its app. But up until now, the company’s squirreliness about the ratings seems bizarre. Keeping rider ratings semi-secret seems counterproductive if the goal is to promote good backseat manners—customers who have a low rating and don’t know it won't have the chance to mend their ways. Plus, allowing drivers to rate their passengers is just a fundamentally decent idea: Between road accidents and robberies, cabbies work in one of America’s most dangerous occupations, confronting all manner of weird, rude, and patently unhygienic behavior from riders day in and day out. Giving Uber drivers the option of avoiding fares with a history of aggressiveness or tactlessness might make the job a bit more humane. As one of my D.C.-based colleagues put it, “If I were a cabbie on U Street, and the person hailing me at 2 a.m. was someone with a history of puking in cabs, I would want to know.”  

Unlike drivers, though, who can be booted from Uber’s network if their score falls below a 4.5, it’s unclear that poorly reviewed riders suffer much in the way of consequences for their lack of etiquette. Here’s how New York’s Kevin Roose described it:

One Uber driver told me that although Uber doesn't normally take action against users with low ratings (though drivers can punish them simply by refusing to pick them up), a driver who rates a passenger lower than a 3 out of 5 stars will effectively trigger a "block" function that keeps that rider from appearing on the driver's app in the future. Drivers who are harassed, attacked, or otherwise harmed by riders can file complaints and, in extreme cases, get the offenders removed from Uber's system. But triggering real consequences requires drivers to take a stand—and few do.

Of course, this doesn't explain or excuse Uber’s lack of transparency when it comes to ratings. Perhaps the company is worried that customers will drop the app once they find out they’ve been stuck with a three-star rating, possibly for arbitrary reasons. (Cabbies can be jerks, too.) If that’s the case, though, Uber should reconsider the ratings in the first place. If a customer isn’t likely to get top-notch service from a company because of a number floating in the digital ether, he should know about it. Uber already occupies a space somewhere between a private business and public utility in the cities where it’s most successful. The larger it gets, and the more people come to rely on it, the more pressing these transparency issues become.

Which brings us to a particularly touchy issue: the potential for discrimination. Uber has fought hard to prove that its drivers don’t avoid pickups in low-income or minority neighborhoods. But if poor or black and Hispanic riders did—for whatever reason—receive systematically lower scores, and received worse service as a result, it would be a problem for the company and for any city that came to depend on Uber as part of its transportation infrastructure. I don’t know if there’s a foolproof way to insure against that possibility. And it ultimately may be a reason to worry about Uber displacing traditional cabs. But keeping ratings out in the open seems like a logical first step. At the very least, if riders began to suspect something was amiss, they could bring it to the attention of regulators.

Sunshine seems like the best policy here. And in case anybody is wondering if I’m writing this article out of a sense of personal grievance, let it be known that my Uber rating is a perfect 5.

July 25 2014 12:48 PM

Lyft Is Launching in New York City Tonight

Two weeks after regulators brought a screeching halt to Lyft's New York City launch, the ride-sharing service has reached an agreement with the attorney general's office to begin serving customers in all five of the city's boroughs. Starting at 7 p.m. this evening, you can expect to see Lyft's pink-mustachioed cars roaming the streets alongside New York's famous yellow cabs.

On its blog, Lyft is heralding the agreement as a victory for ride-sharing services and affordable transit. "This agreement is the first big step in finding a home for Lyft's peer-to-peer model in New York," the company writes. "Community-powered transportation—neighbors driving neighbors in their personal cars—ensures broader access to more affordable rides in places with limited transit options, like the outer boroughs of Brooklyn and Queens."

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As great as that sounds, it's not really a coup for community transportation. A statement on the attorney general's website puts things more bluntly: "In the agreement entered into today, Lyft has agreed to operate in New York State in full compliance with existing laws and regulations. The company will launch in New York City with commercial drivers only and will operate in a manner that is consistent with existing laws and regulations." Beginning Aug. 1, Lyft will also cease its current operations in Buffalo and Rochester.

The deal that the AG's office has reached with Lyft sounds a lot like one it settled on with Uber, the competing ride-sharing platform. Unlike in other cities, where Uber tends to offer a commercial service and a more casual ride-sharing option, its New York operations are purely commercial (their drivers are commercially licensed and their cars commercially insured) to comply with regulation.

Lyft resisted going this route initially because, as co-founder John Zimmer told me recently, asking Lyft to become a commercial car service would be like asking Airbnb to become Hilton or telling eBay to open up a storefront. "That's just not what we do," he says. But for now, it looks like Lyft is willing to bite the regulatory bullet to expand its market into New York.

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