How One Publisher Ditched Amazon and Succeeded
Ask Randall White, the 72-year-old CEO of the Educational Development Corporation, an Oklahoma-based book distributor, why he decided pull his company’s 2,000 titles—including the acclaimed potty bestiary, Everyone Poops—from Amazon.com, and the longtime publishing executive makes reference not to a book but to a movie.
“Remember Butch Cassidy and the Sundance Kid, when they’re on the cliff and getting ready to jump and one guy says, ‘I can’t swim?’” asks the folksy 72-year old, referring to the classic Robert Redford–Paul Newman film. “And the other guy says, ‘What are you worried about? The fall’s going to kill you.’”
That was essentially the situation White found himself in, watching helplessly as EDC’s revenues were steadily eaten away by competition from world’s most successful—and most aggressive—online retailer. “We were selling more to Amazon but our business kept declining,” he says, describing a dip of some 40 percent in one division alone. “I’m thinking, ‘What can I do here? This is crazy.’ You had to fix it, or you’re going to die anyway.”
With no real choice, White took the leap in 2012—becoming one of the only publishers in the country to spurn the “everything store.” Distributors who resell books to Amazon, including Ingram and Baker & Taylor, also soon found their supplies of books like The Gas We Pass and Sticker Dolly Dressing Dream Jobs cut off. For good measure, EDC also ditched other big-box discount stores, including Sam’s Club, Costco and Target.
In a turn of events that might offer some solace to other publishers, White recently announced that EDC has not only survived the leap into the unknown but just had its best year ever in net revenues. July sales were up 28 percent over the same month last year, and first quarter revenues came in 20 percent higher than 2013’s numbers.
This isn’t to say there weren’t some nervous moments around EDC’s Tulsa offices. Indeed, White’s audacious move meant forgoing $2 million in annual sales in one go. “That caused a little pucker in my drawstring, so to speak,” he admits. “It was a gut-wrenching decision. Most people thought I was crazy.”
One concerned observer was Peter Usborne, founder and CEO of Usborne Books, the U.K.-based publisher of children's books, for which EDC has long held U.S. distribution rights (EDC also owns the small California publisher Kane/Miller). “We weren’t involved in the decision,” says Usborne, who continues to do business with Amazon in the UK and elsewhere. “Randall just told me he’d done it. He quite likes a fight, and I think he was looking down the wrong end of a shotgun. It looked pretty grim for awhile, but now it seems he's the wind in his sails.”
EDC’s stockholders also initially found the decision alarming. “They weren’t happy,” White says. Shares had already drifted down from a high of around $12 to something like $2.50. “Fortunately, I own enough that I don’t get fired,” he notes with a laugh. “When someone complains about the price and they own 1,000 shares, I say, ‘Well, I got 800,000. I feel your pain, brother!’” The stock has since notched a partial recovery, recently hitting $4.75.
The success of EDC is a rare piece of good news for book publishers, who have spent most of the last two decades watching helplessly as the Seattle-based behemoth relentlessly came to dominate the industry. Although Amazon now sells more books than every other outlet combined, the entire division represents just 7 percent of the company’s annual revenue, according to an educated guess by the New Yorker. In his 2013 book The Everything Store, Brad Stone reports that Amazon’s aggressive attempts to squeeze small companies like EDC for better terms came to be known internally as “The Gazelle Project,” after Amazon CEO Jeff Bezos suggested his team negotiate with publishers the way a cheetah might negotiate with a vulnerable gazelle.
At the moment, Amazon is locked in a hard-fought battle with the French-owned Hachette, among others, over the pricing of digital books. Its hardball tactics have included delaying shipments of some print books, shutting down pre-orders, and removing Hachette’s titles from its recommendation algorithms. As a sign of how critical the issue is for both sides, 900 writers, including Stephen King, Nora Roberts, and John Grisham, recently published a letter in the New York Times complaining about Amazon’s policies, prompting the characteristically tight-lipped tech company to publish its own open letter to book buyers, explaining how its goal of making e-books less expensive would mean more sales, benefitting readers, publishers and writers.
Rallying the Mom & Pops
In the office of Mary Arnold Toys, a beloved local toy store on Manhattan’s Upper East Side, Ezra Ishayik says he was thrilled by White’s decision to dump Amazon. “It’s an admirable position to take,” Ishayik declares. “Fight the beast!”
Mary Arnold Toys is one of 6,000 or 7,000 retail shops that carry EDC’s books, many of which have watched in dismay as sales increasingly migrated online, where rivals like Amazon tend to offer more convenience and lower prices. What they don’t offer, Ezra’s daughter Judy points out, is the old-fashioned experience of shopping in a favorite store.
The fact that EDC’s books can no longer be purchased on Amazon makes coming into the toy shop even more special, she says. And sales have increased as a result. While the company used to place orders with EDC every two months, it now replenishes the stock every three weeks.
The enthusiastic response of stores like Mary Arnold was critical to EDC’s survival. “They were ecstatic,” White recalls. “They called, they blogged, they rallied. We made up that $2 million loss that first year, and this year set a record.”
Ezra, 75, who immigrated to the U.S. from Iraq in 1965, has spent decades as a neighborhood shopkeeper in New York. He’s not optimistic about the future of small local businesses. “I tell you something: retail in 5, 7 years is a dinosaur,” he says. “There will be Amazon, and that’s it. Either you fight today, or you’re gone. That’s what Bezos is aiming at—he wants to put everyone out of business. And when all the stores are closed in your neighborhood, you will see him raising prices.”
An Army Of Home Sellers
EDC has a few advantages that publishers like Hachette don’t. For one, the company does not acquire titles or deal with writers—except indirectly through Kane/Miller, the publisher it acquired in 2008. As a result, it does not have to fear a wholesale defection of worried authors to rival publishers the way Hachette does.
Its publishing division sells not only to bookstores but also to museum shops and toy stores like Mary Arnold, which cater to kids—a demographic that is at once less price-sensitive (they're not spending their own money) and considerably more impatient.
Perhaps most important, EDC has Nancy Ann Wartman, a mother of five living in Taylor Mill, Kentucky. Wartman is a stalwart of the distributor’s home business division, known as Usborne Books & More (UBM), an army of some 7,000 sales “consultants” who sell Usborne and Kane/Miller books directly to their friends and neighbors, mostly through book fairs and Tupperware-style home parties (a root-beer float night is one surefire winner).
The home division is a multi-level marketing organization, in which amateur sales reps around the country not only peddle books but recruit new representatives into the program. Wartman signed on 20 years ago with a goal of providing books for her own children and maybe springing for pizza a few times a month. Gradually, she rose through the ranks, from team leader to senior team leader, executive leader to senior executive leader. She is now one of a handful of directors, with a salesforce of a few thousand in her “downline”—all passionately devoted to EDC and its titles. In a good year, she pulls in a six-figure income, she says, money she and her husband credit with helping them adopt their daughter Adelie, a special needs child from China. (Unlike some MLMs, such as Herbalife, which have drawn criticism for profiting from recruits who never actually manage to sell any goods, “Nobody at EDC gets paid until someone sells a book,” White says.)
EDC’s home reps were among the most enthusiastic about the decision to ditch Amazon, which they considered unfair competition. Many had been burned by spending an afternoon talking up various titles to a school librarian or teacher, for instance, only to have the would-be customer make the order on Amazon to save a few dollars.
After a few such experiences, many of the “ladies,” as White likes to call them, were beginning to lose heart. A number dropped out of the program. Since White stopped doing business with Amazon, however, the division has reversed nine years of decline, posting 13 consecutive months of growth. Recruitment is up.
Is EDC Unique?
Whether Hachette and other publishers can duplicate EDC’s success is by no means certain. Creating their own MLM divisions would seem to be out of the question (it’s hard to picture buying the latest Malcolm Gladwell over root-beer floats), though experiments with select imprints might be worth a try. The more important lesson may be to align themselves more aggressively the few local bookstores that still remain in business—probably the only entities more threatened by Amazon than publishers are. A strong alliance accompanied by a noisy publicity push might at least put them in a more advantageous negotiating position the next time Amazon comes around looking for better terms.
“Hachette has taken a stand, and other people need to stand with them,” White says.
But the real takeaway, he hastens to add, is something he’s been saying for years. “I’ve been around a long time, and I can tell you, you better be careful before you hand your business over to someone else,” he says. “A few years ago, one publisher told me, ‘You know, we love Amazon.’ And I said, ‘You’re going to rue the day you said that. Amazon is not your friend.’ And now, they’re back at him, just like with Hachette, wanting a bigger piece. They’re not making any money, so they want to take it out of the suppliers.”
Looking back, he says, going his own way was probably his only real option. “It was like when you finally know you have a deadly disease and you have to have major surgery,” White says. “Since we made the decision, it’s been nothing but healing and improving.”
Disclosure: Jeff Bezos is an investor in Business Insider through his personal investment company Bezos Expeditions.
See Also: The Challenge to Amazon from Dropbox
Levi’s Wants to Make Jeans More Like Yoga Pants
Levi's is facing its biggest crisis in years: athleisure attire. The denim brand says it has been challenged by the fashion trend of wearing exercise gear instead of jeans. The company's profits fell 76 percent in the second quarter.
In an attempt to revive popularity, Levi's is trying to make pants feel more like those purchased from Lululemon or Under Armour, writes Kim Bhasin at the Huffington Post. “Today’s consumer is on a quest for casual comfort, whether it's jeans or yoga pants,” James Curleigh, the president of the Levi's brand, told HuffPo.
Levi's has looked into using comfortable fibers like Dyneema in its jeans. The brand also released a line of jeans with flexile coatings. It is also advertising the Commuter Jeans, writing on its Facebook page that the pants are built for “mobility, comfort, and durability.”
The rate of growth in athletic apparel is soaring, even as American participation in sports declines, according to the Wall Street Journal.
Barclays estimates that the market will increase 50 percent to more than $100 billion by 2020. Meanwhile, denim sales fell 6 percent last year, according to NPD Group. The new athleisure trend is the latest chapter in Levi's identity crisis. Levi Strauss reached its peak in the 1980s, but has struggled to reach that level of ubiquity sense. Another trend challenging the brand is men favoring tailored pants over denim, The Economist wrote in July.
Meet the New Yorker Who Makes $1,000 an Hour SAT Tutoring on Skype
Every morning Anthony Green wakes up in his Manhattan apartment and walks around the block to get a cup of coffee and maybe an omelet from the diner that he tells me makes the “best in the East Village, maybe even New York.”
Then from 7:30 a.m. to 5 or 6 p.m., he's sitting at his kitchen table in front of a computer helping high school kids master the verbal and mathematical skills they'll need if they want a shot at being admitted to the country’s best colleges.
Green is one of the premier SAT and ACT tutors in New York. His company, Test Prep Authority, serves some of the richest kids in America. Using a student's PSAT, the practice exam, as a benchmark, Green promises he can help raise scores an average of 430 points on the SAT (and 7.8 points on the ACT)— “higher than any other tutor, class, or program in the country,” according to his website.
That promise seems to be enough for his well-heeled clientele. And for this very small but wealthy minority, money is truly no object. Green charges $1,500 for 90 minutes of one-on-one tutoring, and he insists on a minimum of fourteen 90-minute sessions, with very rare exceptions. What's more, the sessions happen exclusively over Skype. Green's pupils have never stepped foot inside of his eclectically decorated townhouse.
Green, who as a teenager got his own tutor after bombing the PSATs, ultimately scoring in the 99th percentile, got his start in the test-prep industry while a sophomore at Columbia University.
A year later, he started his own business, hiring 50 independent tutors to work for him. “I had no idea what I was doing,” Green acknowledges. “I thought, ‘Hire people who are smart.’ ”
But he soon realized not every genius he hired could effectively impart his or her knowledge to a restless teenager. Green scaled back his business goals and began focusing on perfecting his own technique. “I’m not a manager,” he acknowledges.
Fast-forward to 2014. Green tutors, quite literally, the spawn of the 1 percent. His students are the offspring of financiers, hedge funders, CEOs, and mostly entrepreneurs. Each student must commit to two weekly sessions and begin three months before the exam. Demand has been so high, he says, that he often has to turn away new clients, leading some to book his services up to four years in advance. Green’s secret, he told me, is using his intuition to quickly identify a client’s weaknesses.
Could Green really be as good as he says? SAT tutoring can be had for a fraction of his rates. Not to mention online institutions, like Khan Academy, which offers step-by-step instructions free. Seeking proof of his talents, I ask Green to teach me how to solve a math problem from an SAT practice book. Full disclosure: I am terrible at math. I am impressively awful at math.
I point to a problem at random. “Find v in terms of w,” it says. I immediately find myself just as bewildered, if not more so, than I was during my last high school math class more than 10 years ago. But Green, who at 26 has been an SAT tutor in various capacities for nearly eight years, doesn’t flinch.
“This is where people tend to freak themselves out,” he says, showing me various ways students tend to work themselves into a panic. He tells me to pick a number to substitute for v and test it out on all of the answers. In five minutes I have a solution and the correct answer. I try a similar problem on my own, get the correct answer in three minutes, and I feel confident I can do it again and again. A big part of my success, he says, is that I actually wanted to learn.
For comparison’s sake, I then visit Khan Academy online and search for a problem with a similar level of difficulty: simplifying rational expressions. I click around and land on the following problem, with options on the right side for anyone needing hints.
Flummoxed, I ask for all five hints, which just confuse me more.
Khan Academy offers a video, which I watch in earnest. But then my phone rings and I answer it. I check my email. I talk to a co-worker. When I come back to the problem, with no confidence that I am retaining the information being presented to me, it feels as if I'm essentially teaching myself how to do math. The validation from someone who understands is an important component of the learning process, which tends to be lacking when using a service like Khan Academy.
Clearly, having a one-on-one tutor like Green works better for me. Not that I could afford him. Indeed, neither can most students or parents. By cashing in on the anxieties—and disposable income—of an elite clientele, Green is capitalizing on a system that is clearly skewed in favor of those students who already have a tremendous advantage. Far from helping to foster a meritocracy, as many of us would like to believe, colleges that base their admissions on standardized testing just as easily reinforce the inequality of American society.
Not that there's much Green can do about the system as a whole, something he readily acknowledges.
The SAT “is a blatant class indicator,” Green tells me. “The entire system of standardized tests and higher education is completely ridiculous and ludicrous. But colleges haven’t found any other way to objectively evaluate the merits of a student. You have thousands of students applying to your school—there has to be a way to compare them to one another in terms of math and language and writing skill.”
Any objective system like this can and will be gamed, he says, and yes, doing so can be expensive. “It's a free market economy,” he says. “These people find me on their own and they want to work with me, and I am happy to work with them. But the system itself is completely broken.”
For those who can't afford Green's hourly rates, he has created software that students can use on their own. Additionally, he works with Young Eisner Scholars, an organization that helps gifted kids in financially disadvantaged communities, by gifting free copies of his software to every child who goes through the YES program.
I'm still curious about his use of Skype. Isn't it hard to tutor a kid from behind a screen?
Not at all, he insists. Even through Skype, Green says, he has developed a clear sense of whether his students’ full attention is on him or wandering to another open window on their computer, or to their cellphone, or maybe their cat.
If attention is a persistent problem, Green will drop the client.
“I guarantee I can work with you to improve your scores,” he says, “but if you don’t want to be there in the first place and you’re shut down to the idea of really attacking the test, then I can’t help you.”
Green says his favorite students are the ones who have a goal in mind. Unfortunately, that goal is often getting into a specific school. Parents, too, often have their sights set on the Ivy League, preferably Harvard. “I can't promise that,” he said. “I can promise that with improved scores your college options will absolutely open up.”
Green's job will become even harder in 2016, when the SAT returns to a 1600-point test, discarding the essay section that has been part of the College Board’s exam since 2006. “I’ve spent thousands of hours mastering [the 2400 point] test,” he says with a sigh. “But I have time to rework my strategies.”
One strategy that is certain to remain is Green’s pricing policy. After all, students with wealthy parents tend to have had top-notch educations and therefore be the most likely to succeed. As with so many status items, it is impossible to tell whether Green’s services are worth the premium. Does he charge more than his rivals because he's the best? Or is he simply perceived to be the best because he's so expensive?
Anyone who can answer that one probably deserves a shot at Harvard.
See also: How to Ace Your College Classes
Why You Should Always Ask for Advice
People are often afraid to ask for advice, because asking for help “implies incompetence and dependence, and therefore is related to powerlessness.” But a new Harvard Business School–led study suggests that asking for advice makes you look more, not less, capable. “Individuals perceive those who seek advice as more competent than those who do not seek advice,” the authors write. The reason: When you ask someone for advice, you validate his or her intelligence, experience, and expertise. And because you've made a person feel good, he or she feels good about you.
Similarly, the easiest way to win people over in conversation is to get them to keep talking about themselves. In other words, flattery—in the form of giving people time in the social spotlight—will get you everywhere.
[R]esearchers paired participants with an unseen partner that they could only communicate with over instant message.
The participants were then asked to do a brain teaser, before handing the task off to their partner. Once they'd finished the task, they received a message from their "partner" that either read, "I hope it went well. Do you have any advice?" or "I hope it went well." Later, when asked by the researchers, people rated the partners who asked for advice as being more competent than those who had simply wished them well. What's more, the harder the brain teaser, the more competent the advice-seeking "partners" were rated.
The carryover to office life: When you encounter a particularly woolly problem, don't hesitate to grab someone who has dealt with similar cases. There is a good chance they will actually think more of you afterward. “Not only is advice seeking beneficial for the spread of information, but it may also boost perceptions of competence for advice seekers and make advisors feel affirmed,” Brooks and her colleagues write. “By failing to seek advice, individuals and their organizations miss opportunities to share knowledge and improve interpersonal outcomes.”
There's another bonus: By seeking advice, you expose a little bit of vulnerability, which scholars say is the currency people use to build relationships that predict greater well-being, better health, and better ideas.
See Also: The 15 Most Common Presentation Mistakes
Scientists Have Created a New Top Predator—The Coywolf
Humans are not newcomers when it comes to messing around with nature. While we haven't created Frankenstein's monster yet, what we do messes with the natural world. One recent example is the creation of the coywolf—a hybrid of the coyote and the wolf that is also known as the Eastern coyote.
These animals have a completely new genetic make up: Their genes are about 1/4 wolf DNA and 2/3 coyote DNA, the rest is from domesticated dogs. They were created when previously separate wolf and coyote populations merged in the land north of the Great Lakes.
Here's the coyote, which traditionally maxes out at 75 pounds and has pointier features, and readily populates cities:
And this is what a wolf looks like. Wolves are usually bigger, weighing in at about 100 pounds, and prefer more wild habitats.
While the grey wolf and the coyote are each other's closest living relatives, the two animals separated evolutionarily 1 to 2 million years ago. These hybrids have only really emerged en force during the last few decades, as wolves were hunted and forced north and coyotes moved east from the Great Plains.
According to the New York Times' Moises Velazquez-Manoff: "[The coywolf] can be as much as 40 percent larger than the Western coyote, with powerful wolflike jaws; it has also inherited the wolf's more social nature, which allows for pack hunting."
Specifically, this genetic combination of the two animals seems especially well suited to its northern habitat—better suited than either parent species. The wolf genes allow the coyote to take down bigger prey, while the coyote genes let them adapt to cityscapes and other metropolitan areas.
To study the hybrids better, scientists went ahead and made some 50/50 hybrids in the lab, mating female coyotes with male grey wolves. That's not exactly like the wild coywolves, but it's similar. And gives scientists a better idea of how successful a mating between the two species would be. While two pregnancies didn't result in live offspring, one litter created six puppies.
Here's the result:
Generally the hybridization of species gives evolution something to work with to deal with tough times. When food is low because of climate change or your habitat is being destroyed by humans, these animals can turn out to be tougher or more adaptable than their parent species (though many aren't and many turn out to be sterile).
So, how did these hybrids come to be? Well, as Velazquez-Manoff writes in the New York Times Magazine:
The emergence of the Eastern coyote, however, shows how human activity can break down the barriers that separate species. Perhaps the most obvious way in which humanity is altering the natural world is through climate change. The Arctic, where its effects are especially evident, is warming between two and four times as fast as the rest of the planet. Spring thaws now arrive weeks earlier; winter freezes come weeks later. Shrubs are invading once-barren tundra. Animals at high latitudes—where related species tend to have diverged more recently and can therefore interbreed more easily—are shifting their ranges in response to rising temperatures and melting sea ice. As they do, they may encounter cousins and hybridize.
This is what a wild coywolf looks like. This one was spotted in West Virginia.
See Also: A Changing World of Hybrid Animals
How McDonald's Conquered France
Fifteen years after farmers infamously ransacked one of its restaurants to protest its "bad beef," McDonald's has conquered France.
Le Figaro calls it the "model student": France is the suburban Chicago-based chain's most profitable country outside the U.S. Sales were up 4.8 percent through the first seven months of the year, and CEO Jean-Pierre Petit, who is rounding his 10th year as McDonald's France's CEO, has said 2014 will be its greatest absolute sales year ever. In 2013 sales reached 4.46 billion euros.
The company now hires 3,000 workers a year and employs more than 69,000 workers in the country. Last year it announced it was going to invest 200 million Euros in expanding further. There are now more than 1,200 locations, including ones at the Louvre and Sorbonne, two on the Champs-Elysees, and all up and down the French Riviera. It has the most locations per capita in Europe and the fourth-highest rate in the world. The success has been so exemplary that Wharton students did a study about it.
But France is supposed to have an uneasy relationship with American culture at best, and a militant disgust at worse. How did this happen?
McDonald's first came to France in 1972, after a French restaurateur convinced Chicago that he could solve the firm's European growth woes. Soon after the first store opened, just outside Paris, a reporter wrote that the American chain would have difficulty catching on as it would have to persuade "the French to eat with their hands."
That correspondent would end up eating his words as the restaurateur, Raymond Dayan, had opened 14 restaurants by 1978, serving six million meals a year, according to L'Express' Benjamin Neumann. A correspondent for Le Point said the chain seemed to be "prospering," thanks, it seems, to the then-novelty of fast food and the lack of competition—"Quick," a Belgian chain and Francophone Europe's first homegrown one, didn't come to France until 1980.
But sometime between 1978 and 1982, Dayan refused an offer from Chicago to buy out his group, which had licensed his franchises at 1 percent commission instead of the usual minimum of 5 percent. Chicago also began accusing his restaurants of being filthy. Dayan later attempted to sue, but he lost. McDonald's never forgave him, having been forced to shut down its operations throughout the country for 13 months. The company's official history now dates the first McDonald's in France to 1979.
But by 1988, enough interest had returned that they were able to open the country's first drive-thru ("McDrive") in suburban Paris. The New York Times reported that the French officials had realized the key was to go after families and young adults who had spent time in the U.S. or the U.K.
Rise Of The Sheep Farmer
As the chain slowly expanded into France's breadbasket—and the U.S. and EU negotiated lowering food tariffs—demonstrations picked up.
In 1992, protesters lit a bonfire outside a McDonald's to protest the signing of the Blair House Accord, which made it easier for American agricultural products to enter the continent.
Things culminated in 1999, when José Bové, a sheep farmer and activist, lead a group of fellow growers in dismantling a location under construction in the south of France.
Bové was protesting retaliatory sanctions the Clinton administration had imposed on imported Roquefort cheese and foie gras after the EU banned American beef treated with hormones (the mutual good feeling of the Blair House Accord had not lasted). He was sentenced to three months is prison.
The stunt made Bové a star of the anti-globalization movement and cemented for some the idea that McDonald's remained intolerable to France. Even Prime Minister Lionel Jospin called the demonstration "just."
Yet even as he sat in jail, France was already approaching 1,000 locations.
"The French like to be a little disruptive, provocative," Dennis Hennequin, the former chief of McDonald's France who in 2005 jumped to the head of McDonald's Europe, told the New York Times in 2006. "Yet at the same time they vote with their feet."
I Sold My Soul To McDonald's
The Bové incident may have actually proved the key to unlocking McDonald's France's stunning decade-long takeoff, as it was now under more pressure than ever to correct national misperceptions as well as address valid criticisms.
So, Hennequin said, the company began emphasizing that most of its ingredients were locally grown and touting its employment opportunities for young people.
"Without any cynicism, I thank Bové for helping us grow into that role," he said.
Hennequin spent 20 years with the company and helped guide the firm through the Bové incident, but another man may deserve even more credit for McDonald's recent spectacular growth. In 2004, Jean-Phillipe Petit, the founder of one of France's most successful ad agencies and who served under Hennequin through much of his tenure, took the reins after Hennequin left to run Accor hotels.
Under Petit, McDonald's focused on homegrown products, including doubling down on Charolais beef, locally certified cheese, and potatoes for fries grown by McCain Group's French affiliate. He also expanded the company's product line to include more traditional French items like baguettes and pastries. And he has brought the restaurants into the 21st century: It's possible to order online, or on one's phone, and many now have Wi-Fi.
"'McDo' has succeeded in synthesizing its American DNA with French culture," he said recently according to Le Figaro.
Last year, Petit published a book, I Sold My Soul to McDonald's, in which he discussed his 20 years in the company's marketing department and 10 as chief, despite not even having eaten his first hamburger until age 30.
"I came to know McDonald’s system to adapt to our own society, say 'No' to received ideas, and lead the change," he writes. "I couldn’t have done it without McDonald's own guidance and without the confidence always accorded to me by American and French shareholders, as well as franchise owners spread out over 958 French communities."
Marketing has played a key role in earning back the French psyche. Petit was able to persuade the home office to change the country's logo to green, as well as open McCafés that serve French macaroons.
Finally, he positioned the company as a cornerstone of the lives of young people. The group says it will create 9,000 net jobs between 2012 and 2014, a pace it says it will maintain between 2015 and 2017, although most of the entry-level positions are minimum wage. Petit recently told an audience that besides school, McDonald's was now the most important source of socialization in France. Having never graduated from college, Petit also touts the chain as a stable source of employment for young adults without diplomas.
Investigation Into Books
McDonald's growth is unquestionable. How it has come up with the money to do so, however, is now an open question.
Earlier this year, L'Express reporter Emmanuel Paquette broke the story that McDonald's had allegedly been using a Luxembourg corporation to avoid paying French taxes. McDonald's has denied any wrongdoing and said the inquiry was routine. It did not respond to numerous requests for comment.
"There doesn't seem to be any doubt that the American firm has engaged in actions that could link to fiscal evasion, as opposed to an 'optimization of tax planning,'" David Lair, a French attorney who has studied the case, told Business Insider in an online exchange. "But the fiscal authorities will have to prove it."
The Luxembourg entity reported profit of $172 million and taxes of $3.2 million, according to Bloomberg, and it has received more than $1 billion in royalties. Bloomberg also notes the company reported a 4.1 percentage point drop in its 2012 tax rate thanks to “tax benefits related to certain foreign operations.”
If found guilty, Lair said, France would have to pay back what it is owed plus a 0.4 percent interest rate for each month of liability.
McDonald's faces other challenges, too. Its share of France's "commercialized dining out" sector, which includes any chain restaurant as well as schools and hospitals, stands at just 12.5 percent and has begun to stagnate, according to Le Figaro. France's dining-out frequency, at one in seven meals, remains far below the U.K.'s one in three and America's one in two. French people average only about 60 fast-food trips a year, compared with 150 for Americans.
And, according to Le Figaro, McDonald's has not released data showing what the average performance per restaurant looks like.
For now one can find evidence everywhere that McDonald's has become a highly sophisticated operation whose economic presence is not only immovable but critical to France. Demonstrators recently protested against a local town that had barred the construction of a McDonald's. This November the company became the official partner of Paris Saint-Germain, France's most important soccer team.
Nor has it entirely had to shed its American attributes to achieve its status. The company actually ran a contest called "American Summer," its version of the popular Monopoly giveaway in the U.S. Certain foods came with tearaway sheets that could be redeemed for prizes like a Frisbee, headphones, a GoPro, or a Florida beach towel.
Flipping through the company's Facebook page, which has 1.3 million likes and more 772,000 visits, one discovers the same amusing combination of English words and "Euro" concepts first poked fun at in "Pulp Fiction."
McDonald's Corp. needs all the help it can get. Shares have fallen sharply in the past two months after suffering its worst monthly sales drop in over a decade, and it is currently fighting through a tainted beef scandal with recalls in China and Russia, two other major markets.
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Mid-Calorie Sodas Seem Destined to Fail—So Why Are Coke and Pepsi Launching Them?
For consumers who think that regular soda has too many calories and diet soda tastes weird, big beverage companies have started manufacturing what's known as "mid-calorie sodas." These sodas are destined to fail.
As the name suggests, these products contain fewer calories than a regular can of soda. For example, "Coca-Cola Life," which was piloted in select South American markets and will hit the United Kingdom in September, has around 89 calories per can versus 140 calories in regular Coke. Life is sweetened with a combination of sugar and stevia leaf extract, a natural sweetener derived from the stevia plant (which some people think tastes bad).
Pepsi has also entered the mid-calorie market with Pepsi NEXT. In markets outside the U.S., Pepsi NEXT contains a blend of sugar and stevia. However, in the U.S. market the soda contains sucralose, an artificial sweetener sold as Splenda. PepsiCo has not responded as to why the ingredients in American Pepsi NEXT are different than other markets. We will update this post if we hear back.
Destined to fail?
According to beverage industry analysts, these mid-calorie sodas ventures haven't been successful.
"We believe stevia-sweetened Coke Life may not see a launch in the US, as we do not believe it has performed well in tests and consumers have not responded to mid-calorie colas (as shown by failures of Pepsi NEXT and Dr. Pepper TEN)," analysts wrote in a July 2014 report by CLSA, an Asia-based independent brokerage and investment group.
Paddy Spence, CEO of Zevia, a zero calorie soda brand sweetened with stevia and monk fruit that is gaining traction in the US market, agrees. He shared some of his ideas on the psychology of diet soda and why mid-calorie sodas are failing with us in an interview.
"Increasingly we look to the products we're consuming for functional benefits," Spence told Business Insider. The "functional benefit" of diet soda is that it has zero calories. He says there is tradeoff between taste and this functional benefit.
"In soda what we find is that people are looking for either a full calorie soda that is going to optimize taste or they're looking for a zero-calorie product," Spence says. "So why would you ever have something with the taste of a diet soda with 10 or 60 or 80 calories? To those consumers, it's kind of the worst of both worlds. That's why we've seen products in the mid-calorie space really not capture the imagination of consumers."
Coke could have ulterior motives in rolling out Coke Life in the U.K. According to the CLSA report, mid-calorie sodas are being launched in the European market not because they will do well, but because Coke has promised the U.K. government it would to lower its average calorie count.
"In the UK, Cola-Cola is a signatory to the government's controversial responsibility deal, which aims to improve public health, and has committed the company to reduce the average calories per litre in its range of sparkling drinks by 5 percent by the end of 2014," according to the Guardian.
It's not likely Coke will get the same regulatory pressure from the U.S. government because of the large influence of the beverage industry.
We don't know if Coke Life will ever even get a chance at the U.S. market: A Coca-Cola spokesperson wouldn't give us a straight answer. They provided the following statement for an earlier published story: "As we continue to innovate and expand our portfolio to meet consumers' evolving needs and preferences around the world, we will explore the roll-out of Coca-Cola Life in other markets."
There's a Shortage of Truck Drivers in the Country, and It's Going to Get Worse
America is facing a shortage of truck drivers, and that problem is expected to get worse. The current shortage is estimated to be at 30,000, and a new regulation will help drive that higher. A mandate requiring commercial vehicles to have an electronic logging device is likely go into effect in early 2015. This will make it harder for drivers to fudge the numbers and work more than the legally mandated limit on hours.
Right now 75 percent of the industry does not have these logging devices. Analysts expect 100 percent compliance within a year or two of the rule going into effect. "Anecdotal comments have suggested that drivers will go to carriers that essentially, turn the eye if you will, at the hours of service regulation, because of manual logs," Brad Delco, an analyst at Stephens, told Business Insider in a telephone interview. "As a result they can essentially make more money, running more miles."
The Federal Motor Carrier Safety Administration (FMCSA) conducted three million driver inspections in 2012 and found 950,000 violations. Of these, 450,000 were hours-of-service violations. "In our view, drivers are motivated to drive as many miles as possible, as driver pay is based on a 'per/mile' pay scale," Delco and Ben Hearnsberger at Stephens write in a note. "As a result, we believe carriers without ELDs have an advantage in recruiting/retaining drivers as less strict adherence to HOS regulations equates to higher driver pay and therefore helps attract/retain more drivers." The American Trucking Associations expects the estimated U.S. shortage of 30,000 to surge to 239,000 by 2022.
Driver Churn Will, However, Decline
Electronic logs are however expected to lower the turnover rate, which at large truckload carriers was 92 percent annualized in Q1, according to the ATA. Turnover refers to the rate at which drivers leave the industry and are replaced.
"One-hundred percent turnover doesn’t mean that every driver left," ATA chief economist Bob Costello previously told Business Insider. "If you keep a driver for 90 days, the rate generally drops in half. However, there are a group of drivers that churn, and they generally stay at a carrier for a short length of time (just weeks or a couple of months). Many drivers stay with a carrier for years." Delco and Hearnsberger, however, think this could help lower the turnover rate among truck drivers.
Truck drivers we spoke to, one of whom, Jeff, had driven for 10 different companies, pointed to safety concerns, namely trucking companies asking them to run over hours, time away from home, and low pay as major reasons the industry faced high turnover." The reason you have such high driver turnover now is there are a lot of different jobs competing for these drivers," Delco said. "Whether it's local construction or work in the oilfield business, it's basically competing for these drivers, which causes them to always look at where the grass is greener."
It isn't just other industries, though—even within trucking some companies offer a signing bonus, and some offer more miles or load than others, and drivers moving more miles make more money. Enforcing the use of ELDs on all carriers could reduce supply by 4 to 8 percent, Delco and Hearnsberger write. They believe that universal use of ELDs will level the playing field, "which would give no carrier/driver a distinct advantage over another due to falsifying log books,” they write in a note. “We believe this would result in a more rational pricing environment where best-in-breed carriers would win based on service/value.”
The good news for truck drivers is trucking companies are beginning to take note of their troubles and working toward improving pay and overcoming other obstacles in their way. For companies, however, the shortage will get worse before it gets better.
See Also: The Ultimate Survival Vehicle
How James Foley Fell Into the Hands of ISIS
Following the grisly murder of an American journalist by extremist militants, one key question remains: How did ISIS abduct James Foley, who was widely considered to be in the custody of groups loyal to Syrian President Bashar al-Assad?
In the words of Mic politics editor Stefan Becket: "The prevailing assumption was that Foley was being held by pro-Assad forces, or by the regime itself. How did he get from there to ISIS?"
The FBI believes an “organized gang" abducted Foley, who was working for GlobalPost, shortly after he left an internet café on Nov. 22, 2012. In May 2013, GlobalPost President Philip Balboni released the following statement on behalf of himself and Foley’s parents: “We have obtained multiple independent reports from very credible confidential sources … that confirm our assessment that Jim is now being held by the Syrian government in a prison … under the control of the Syrian Air Force Intelligence service. "[I]t is likely Jim is being held with one or more Western journalists," Balboni added, "including most likely at least one other American.”
On Tuesday, ISIS released a grisly, 4-minute video apparently showing Foley's beheading. The video, and claims that ISIS also holds American Time contributor Steven Sotloff, are being investigated by U.S. intelligence services, and Foley's family stated that James "gave his life trying to expose the world to the suffering of the Syrian people."
What is unclear is if previous investigations into Foley's whereabouts were inaccurate, if ISIS militants somehow captured Foley from some of the regime's most elite security, or if the Assad regime provided Foley to ISIS. "Until recently, James Foley was thought to be in hands of pro-Assad forces. If Assad is handing over Westerners to ISIS to be killed, it indicates Assad feels cornered, looking for leverage," BBC's Kim Ghattas tweeted, adding that the assessment jibes with what her sources in Damascus have told her recently. Ghattas added that Assad providing Foley to ISIS "would confirm Assad tacitly working [with] ISIS and silence any suggestions Assad is the better alternative. "
Assad and ISIS
Bashar al-Assad helped create ISIS by releasing many of its original members from Syria's notorious Sednaya prison on May 31, 2011. He then let the group metastasize over three years to build a narrative that if the U.S. wants to choose sides in the Syrian war, it has to choose between the regime and ISIS as both squeeze mainstream rebels. Bassam Barabandi, who served as a diplomat for several decades in the Syrian Foreign Ministry, explained the strategy in the Atlantic Council:
"Assad first changed the narrative of the newborn Syrian revolution to one of sectarianism, not reform. He then fostered an extremist presence in Syria alongside the activists. Further, he facilitated the influx of foreign extremist fighters to threaten stability in the region. ...The Islamic State in Iraq and al-Sham (ISIS) emerged as one of those facts created to ensure Assad’s survival as he and his Iranian backers seek to frame this conflict as a regional sectarian issue, with a classical choice between military powers and Sunni extremists."
And as the U.S. drops bombs on ISIS in Iraq to curb an offensive in the north of the country, Assad is bombing the de facto ISIS capital of Raqqa, Syria, to show America that he can be a valuable counterterrorism partner. "Now that ISIS has fully matured, the Assad regime and Iran offer themselves as partners to the United States," Barabandi wrote. "For the first time, Assad is striking ISIS in Raqqa and locations inside Iraq, in a perverse harvest of the terrorist seeds he planted to quash the civilian-led reform movement."
Given such a cynical plan, it is well within Assad's means and motives to give Western captors to the extremists that he helped make strong. "This is now the key question: Was Foley taken by the Assad regime?" Middle East analyst Kyle Orton writes. " If he was, then those who believe that Bashar al-Assad is a bulwark against [extremist jihadists] have yet another question to answer about their thesis."
[UPDATE 8:46 EDT] Foreing Policy Middle East Editor David Kenner tweeted James Foley's last interview, "given in Idlib Province in 2012, describing Assad regime attacks on civilians."
See Also: Should Obama Work With Assad?
I Moved to San Francisco—and Now I Have an App for Everything
When I left New York for a three-month business trip to San Francisco, I exited my Upper East Side apartment at 5 a.m., held my hand out on First Avenue, and had a cab to Kennedy Airport within seconds.
It’s the kind of convenience I’ve become accustomed to after living in New York for over six years. I can get just about anything I want, whenever I want, all within a few blocks of my home. There’s a Starbucks 184 feet away from my front door. There’s a classy Italian steakhouse across the street. If I’m feeling adventurous, I can go to the other Starbucks about 1,000 feet away.
It’s not like that in San Francisco, a city where I now have to walk at least 15 minutes up a steep hill to get to my nearest grocery store. Plus, everything closes early. If I want a pint of Ben & Jerry’s at 2 a.m., I can’t just walk to my corner 24/7 bodega like I could in New York. I’m left unsatisfied and ice cream-less.
But San Francisco is also the largest incubator of tech startups in the country, a place where every entrepreneur with even the most basic coding knowledge is trying to turn some industry on its head through an app. Increasingly, that has applied to real-world tasks like cleaning, shopping, and eating. In my time here, I’ve still felt right at home by outsourcing a lot of what I do to others by using my smartphone.
New Yorkers are probably already familiar with the food-delivery service Seamless, but in San Francisco there’s a Seamless-like app for everything. Your laundry. Housekeeping. Groceries. Car rides. Even booze. And it all comes almost instantly.
Many of these services are so new that they’re being tested in just a few markets. And since a lot of them are based in San Francisco, they're available only here. Over the last few weeks I decided to satiate my need for instant gratification using as many of these apps as possible.
Food was the obvious first step. Seamless and its sister app, GrubHub, are also in San Francisco, but many delivery places don’t work with those apps, and if they do, they charge you an absurd minimum before you can even place an order. I just can’t eat $30 worth of Chinese takeout.
A friend told me about Sprig, a startup that delivers gourmet meals to your door within about 15 minutes. Each day, there’s a limited menu of three or four dishes cooked up by the startup’s own executive chef. You tap what you want, enter your credit card information, and your food is on its way. I ordered a Thai noodle dish with pork, and it was at my door 12 minutes later, much faster—and healthier — than ordering a pizza. The delivery person handed me my order along with a free truffle for dessert and that was it. No need to exchange cash. The tip was included. And it was only $12.
I also tried Washio, a service that will pick up your dirty laundry and dry cleaning and have it back to you within 24 hours. Like Sprig, you manage Washio through a smartphone app to schedule your pickup and drop off times. Washio has an army of contractors—or, in startup parlance, “ninjas”—who swing by your place to get your dirty clothes. They also give you a free cookie with every pickup. The first time I tried Washio, my ninja gave me a bonus—a free pair of underwear as part of a cross promotion with another startup. (Yes, you can also get on-demand underwear in San Francisco.)
There are others. I used Handybook to hire someone to clean my apartment. I used Postmates to hire someone to pick up food for me when a certain place couldn’t deliver. And, of course, I frequently used Uber and Lyft to call a car whenever I needed to go somewhere because San Francisco’s public transportation system is notoriously awful. There are so many of these services that I had to create a special “On Demand” folder for all of them on my iPhone.
It’s worked out well so far. My laundry comes clean, ironed, and perfectly folded. The food is yummy. I never have to fumble with cash to pay a cab driver. Plus, many of these services are cheaper than or at cost with what I’d normally pay in New York. In many cases, using these services for the first time felt as transformative as using the iPhone for the first time. Everything just worked. “Why didn’t anyone think of this sooner?” I thought as I munched on my free Washio cookie.
The only negative experience I’ve had so far was with Instacart, an app that sends a personal shopper to a nearby grocery store to pick up whatever you need and deliver it to you within an hour. It works as advertised, but the prices are marked up, and customers run the risk of not being able to get what they want because the store is out of stock. Instacart’s shoppers try their best to find similar items, but in my case I couldn’t justify buying a five-pound package of bananas instead of a normal bunch. It feels less like Instacart isn't so much a handy service but a way to hack a grocery store to make money by marking up yogurt and eggs through an app.
To Instacart’s credit, a representative told me the company has agreements with the stores its contractors shop at. Plus, contractors will go out of their way to get you what you want, even if that means going to a second or third store to find it.
But it does demonstrate the downside to the so-called sharing economy and on-demand services. The customer gets what she wants, but many of these startups still rely on a network of contractors who are paid only on commission and tips. TaskRabbit, an app that lets you hire a worker to do anything from mow your lawn to dress like an elf and dance in front of your coworkers, recently tweaked the way it assigns tasks to its contractors, which caused many to complain that they had essentially been put out of work.
It’s an imperfect system, and one I doubt will be able to properly scale in many industries, especially in suburbs and rural areas where it’d be tough to find contractors willing to be glorified personal assistants for strangers. Then there's the thorn of labor issues—benefits, appropriate pay, and so on. Plus, there’s a notion here that everything, even basic stuff like fixing a leaky faucet can and should be disrupted by technology. Based on my experience so far, I don't think that's the case. But boy is the VC money flowing to startups trying to disrupt normal industries anyway. Those frothy times aren't going to last forever.
Still, it works in San Francisco, and likely will in other dense urban areas. I think something like it is a taste of things to come.
See Also: Thirteen Things Siri Can Do For You