In The Headlines

Is Online Grocery Shopping Ready to Go Mainstream?

If any industry is ripe for disruption by online shopping, it should be the grocery business. Once a week or more, shoppers must drive to stores, traipse through aisles hunting for what they want, and stand in lines, consuming a great deal of time, patience, and gasoline. Grocers, which stand between food producers and consumers, must maintain chains of stores, and each store must be serviced by a complex logistical and transportation infrastructure. But despite the fact that we now routinely order everything with a click, from books to beds, most people still do not get their groceries online.

Big companies like Amazon, Trader Joe’s, and Wal-Mart are, to one degree or another, experimenting with grocery delivery. And venture capitalists are starting to shower money on various startups like Relay, GoodEgg and Instacart. Online groceries generated more than $15 billion in sales last year. That represents big growth, but is still a tiny fraction of the $1 trillion grocery market.

In the past, investors have shied away from online grocery delivery businesses. The logistics are difficult. It is hard enough to deliver goods to the home in one day or less; it is exponentially harder when those goods are perishable. Also, until recently, investors were not convinced that enough people would be comfortable with someone else picking out their produce to make for a big business. That means that any business getting into delivering groceries must put quality at the top of its priority list. Further, the margins in the grocery business are razor thin, which means that economies of scale are needed before profits can even be achieved. And, of course, there are still memories of the massive bankruptcy of Webvan, the dotcom era online grocery startup.

Now that grocery delivery seems potentially viable again, all eyes are on Amazon. The company is rumored to be preparing to expand its AmazonFresh service this year from Seattle, Los Angeles, and San Francisco to another 10 and 20 new cities. AmazonFresh charges $299 per year in return for free delivery and all the other benefits of Amazon Prime membership. The service and the food are pricey, but it is helping the company pay for the experiment while it learns what works and what does not. After a major roll-out, prices might fall. A major reason for Amazon getting into the business is that the company is investing heavily in the infrastructure that will allow near-instant delivery of everything it sells. Even if it does not make much on the groceries, it could be made up for by all the higher-margin goods customers might order along with their eggplant and endive.

Whole Foods is also experimenting on a small scale. However, during an earnings call in November, CEO John Mackey said: “We haven’t seen a business model that really works. Lots of people have tried in this area, and I haven’t seen anybody come up with a business model that is profitable and successful.” And even in the long term, he said, he does not believe that food will be disrupted to the degree that other retail categories have experienced.

For now, most traditional grocers like Kroger and Albertson’s are moving slowly. It is a quandary for mainstream grocers. Move too quickly and they risk huge capital losses. Move too slowly, and they risk giving up big chunks of market share. However, Wal-Mart, like Amazon and Whole Foods, is testing a pilot delivery service, and it alone has the resources and patience to compete head-to-head with a full deployment of AmazonFresh.

The oldest player, Peapod, launched in 1989 and went public in 1997. In 2000, it was purchased by the global grocery giant Royal Ahold, and it now mainly serves that company’s U.S. chains, which include Giant and Stop and Shop. It is hard to know what place it will have in the future, but if the business really takes off, it is well positioned for growth.

The Not so Sweet War of Words between Big Sugar and Big Candy

The American Sugar Alliance has been posting stories on its website about the recent good fortunes of America’s candy makers. It ran a story earlier this year looking back at 2013 under the headline “Big Candy Profits Impress,” in which the sugar industry trade group heralded “a sensational year for America’s candy makers. Sales were up. Profits were high.” A more recent feature on the website included an entire page of news stories on “expansions and job growth coming out of the candy business.”

While that might seem like a nice thing to do for a key customer, the alliance’s intentions toward candy makers are anything but sweet.

As it turns out, Big Candy and Big Sugar have a lot of animosity for each other. This stems from the federal government’s policies governing home-grown sugar. Candy makers say it forces them to pay too much for sugar, costs American jobs, and puts them at a competitive disadvantage. They point out that the government’s sugar program includes price supports, production limits, and import quotas, all designed to boost the price for American growers of sugarcane and sugar beets. Groups supporting free trade hate it almost as much as the candy makers.

“Largely as a result of government subsidies to the sugar industry, many food and beverage companies have found it extremely difficult to obtain adequate supplies of sugar,” says Larry Graham, chairman of the Coalition for Sugar Reform, in an open letter on the group’s website. “In years past, the anti-competitive effects of sugar subsidies have forced some of these companies to reluctantly move their facilities overseas.”

The American Sugar Alliance counters saying the program is necessary because other countries heavily subsidize their own domestic sugar industries. In addition, they maintain that the candy makers’ arguments are hard to swallow at a time when candy makers, such as Hershey and Mars, are posting big profits or expanding their facilities. A key reason is that a provision in the North America Free Trade Agreement allowed cheaper Mexican sugar to flow into the U.S., starting in 2008, says Phillip Hayes, spokesman for the American Sugar Alliance.

Hayes sees the candy makers’ complaints about being forced overseas as ancient history. The price of refined sugar was 56¢ per pound in 2011 and it was 27¢ last year, according to the U.S. Department of Agriculture. “They are expanding in the United States,” he says of the candy companies. “They still go up to Capitol Hill and say sugar policy is driving them overseas.” On the candy industry’s recent success, he adds: “That’s great. Good for them. But don’t poor mouth on Capitol Hill.”

The candy makers aren’t amused by the alliance’s good-news-about-candy website posts. “What other ingredient supplier spends most of its PR time lambasting its main customer for making a profit?” Graham asked on Confectionery News.com. Susan Smith, a spokeswoman for the National Confectioners Association, said in an e-mail: “It’s a distraction from the reality that sugar processors make their profits off the backs of taxpayers. The fact is that candy companies are forced to compete in an unfair and government-controlled marketplace.”

Sources:
1. http://bit.ly/1e3Uiav
2. http://buswk.co/1oFsuOe

The Good News Is . . .

• Nonfarm payrolls for March totaled 192,000, slightly below the 200,000 forecast, and the unemployment rate was 6.7%, slightly above the expected 6.6%. However, revisions to January and February showed stronger job growth, with January higher by 15,000 to 144,000 and February at 197,000, better by 22,000 jobs, the Labor Department said Friday. The report seemed to indicate that the recent slowdown in job growth was mostly weather related. With the March number, the Fed is not expected to accelerate the winding down of its monthly bond buying program.

• Monsanto, Co., a leading provider of agricultural seed stock and in-the-seed traits technology, reported earnings of $3.15 per share, a 15.4% increase over year-ago earnings of $2.73. The firm’s earnings topped the consensus estimate of analysts by $0.08. The company reported that revenues were $5.8 billion, an increase of 6.6%. Management attributed the company’s performance to growth from its core seeds and traits business, including expansion of its global corn and soybean businesses.

• The French media conglomerate Vivendi announced that it would sell its mobile phone unit, SFR, to Altice in a deal worth $23.3 billion. Vivendi chose Altice, a cable and mobile service provider based in Luxembourg, over Bouygues, the owner of Bouygues Telecom, the third-largest mobile provider in France. Under the terms of the sale, which is subject to regulatory approval, Vivendi will receive a large cash payment and a 20% stake in a combined entity made up of SFR and Altice’s Numericable, which Vivendi intends to sell in installments at a later date. The deal comes on the heels of a round of consolidation by Europe’s cable and telecommunications providers.

Sources:
1. http://www.cnbc.com/id/101555078
2. http://bit.ly/1gNXJBF
3. http://www.cnbc.com/id/18080780/
4. http://bit.ly/1khmBVN
5. http://nyti.ms/1hjQ0fW

Planning Tips

Tips for Saving on Vacation Air Travel

The summer travel season is rapidly approaching and many Americans will fly to their vacation destination. Over the years, airfares have become far less predictable, so it pays to shop around for the best deal. Below are some tips to help you find a better price for your air travel.

Fly at the right time – Flying at the right time can literally save you hundreds of dollars. Many destinations have a high season, with elevated visitation and expensive airfare, and a low season, with more moderate visitation and cheaper airfare. When planning your trip, shoot for the “shoulder season,” or the time period between the two seasons. Once you choose the time of year, you can focus on the day of the week. Tuesdays, Wednesdays and Saturdays are generally the cheapest days of the week to fly, and trips without a Saturday night at the destination can sometimes be more expensive. If you really want to cut costs, schedule a red-eye flight. These flights typically have deep discounts due to the inconvenient time.

Know when to shop for your tickets – Timing is everything when it comes to buying airline tickets. Fares are typically highest from eight to 10 weeks and two to three weeks in advance. The “sweet spot,” so to speak, is four to six weeks before you travel, so try to purchase your tickets then. It’s also a good idea to avoid shopping for airfare on the weekends. Airlines often announce sales in the middle of the week, so look for good deals on Tuesday, Wednesday and Thursday.

Research the fees – It is important to be aware of any hidden or additional charges when you are researching airfare. Some taxes and fees are mandatory and are tacked on to the price of every ticket. However, airlines are not always upfront about these additional costs. Prices quoted in advertisements or in the initial stages of a fare search are often base rates that do not reflect taxes and fees. When comparing airfare prices, ensure that the amount you’re quoted is the final price; taxes and fees can add 30% or more to the base price of an airline ticket. Do not forget to factor in the baggage fee. All American carriers charge between $15 and $33 for the first checked bag with the exception of Southwest and JetBlue, which charge nothing. Since checking just one bag can cost you an extra $50 on a round-trip flight, consider traveling with only a carry-on.

Sign up for alerts – Another way to save money on air travel is by signing up for online alerts. These are designed to inform you about deeply discounted fares on a few seats. Most carriers allow you to sign up for these messages on their web sites and customize them to your favored airport. Alerts are delivered by e-mail, as well as social media outlets like Facebook and Twitter. You can also receive alerts through third-party web sites, which send you alerts about low prices on a variety of airlines. Whichever method you choose to receive alerts, remember that cheap tickets typically go quickly, so it is important to act fast.

Shop around for other airports – You can also save money by shopping around at different airports. The closest airport to your home or destination may not always have the cheapest flights. For example, if you are flying to San Francisco, check the prices in San Jose. The difference in price may more than pay for any additional transportation you need once you get there.

Sources:
1. http://onforb.es/1b5mGoT
2. http://bit.ly/1fU8ZM5
3. http://bit.ly/1h5MsNg
4. http://bit.ly/1fU8ZM5
5. http://bit.ly/1mRVAFD
6. http://bit.ly/1ekrq8N

Please don’t hesitate to give us a call if you need help with any component of your financial planning.