A Venture-Backed Ice Cream Chain Tries Again

The couple behind Ample Hills’ epic failure say they have forsworn venture capital this time around. Did they learn the right lessons?

Good Morning!

Here are today’s highlights:            

• Who’s really to blame for those surprise fees?.

• Retailers are bracing for the resumption of student-loan payments.

• A new law requires support for pregnant workers.

• Thanks to the pandemic, many recent grads are unprepared for office life.

PROGRAMMING NOTE

On Monday, 21 Hats will observe the federal holiday of Juneteenth. We will not publish a Dashboard podcast, and the Morning Report will return Tuesday.

MANAGEMENT

A venture-backed ice cream chain that became an epic failure is trying again: “It was a sad day in Brooklyn when Ample Hills Creamery closed its doors. Just before last Christmas, the beloved ice cream parlor in Prospect Heights — and all 12 of its remaining scoop shops across the country — shut down after a decade-long roller-coaster ride of brand-building, bankruptcies and heartbreak. As summer has approached, a constant stream of neighbors has peered hopefully into the darkened flagship on Vanderbilt Avenue, where the holiday lights are still up and the case is still labeled with last year’s Hanukkah flavor: cream-cheese ice cream swirled with chunks of locally baked raspberry rugelach. ‘We made every mistake it is possible to make,’ said Brian Smith, who founded Ample Hills with his wife, Jackie Cuscuna, in 2011.”

• “At the beginning, Ample Hills was just a cartful of hand-cranked ice cream in Prospect Park with an appealing mom-and-pop back story: The couple lived nearby with their two young children, and were making up the business as they went along. Ms. Cuscuna had been a teacher; Mr. Smith, a screenwriter of B-movies and an ice cream hobbyist on the side.”

• “They consulted a neighbor (Charlie O’Donnell, a founder of Brooklyn Bridge Ventures) for financial advice, and the fund became an investor, along with other firms that normally funded tech start-ups, not food businesses. By 2019, Ample Hills had raised nearly $20 million. But the couple lost control of the company in early 2020, when the costs of all that expansion swamped revenues.”

• “​​The couple declared personal bankruptcy, moved into a smaller apartment and worried about what would come after ice cream. ‘What else were we qualified to do?’ Ms Cuscuna said. To find out, she enrolled in an online ‘pivot workshop’ held by the North Brooklyn Chamber of Commerce. That led them to Whiskey Wednesday, a regular networking event held by Norm Brodsky, a high-profile New York entrepreneur whose career had begun with a boom and bust.”

• “‘I like to help people with moxie, who get back up after a hit,’ said Mr. Brodsky, who advises many small-business owners but invests in few. He said he has invested ‘nearly seven figures’ in Ample Hills. ... ‘They built a brand that’s already been through bankruptcy twice and still exists,’ he said. ‘That doesn’t happen unless you’re doing something pretty special.’” READ MORE

PRICING

Who exactly is to blame for all of those surprise fees? “Add-on fees are driving consumers crazy. From restaurants and hotels to concerts and food delivery, we are increasingly shown a low price online, only to click through and find a range of fees that yield a much higher price at checkout. Everyone says they hate these fees, but four experiments illustrate why ‘drip pricing,’ as it’s called by researchers and regulators, is so effective at getting us to pay more. Note that this isn’t about emotional blackmail, as with tipping: Drip pricing isn’t negotiable.”

• “The experiments explain why the fees proliferate. The conclusion: Consumers themselves are to blame. ‘Even when we know the fees are coming, we underestimate their magnitude,’ said Vicki Morwitz, a marketing professor at Columbia University who studies consumer psychology.”

• “A grocery store let the authors tag some products with the familiar pre-tax price and some with the total price including tax. For example, a hair brush’s price tag showed $5.79 before tax, and beneath that $6.22 with the tax. Store managers predicted the transparency would be a disaster, and permitted the experiment for only three weeks and three product groups. The managers were right. Sales volume dropped about 8 percent for products with price tags that included the tax than a control group without the tax.”

• “In 2013, the website StubHub, which resells event tickets, attempted to do away with hidden fees, citing research about how hated they are. Its new ‘all-in pricing’ prominently displayed the total ticket cost from the beginning of searches. The strategy failed to boost business or attract more customers.”

• “In 2015, shortly before abandoning all-in prices, StubHub did an experiment—described several years later by economists who obtained the data—where half of shoppers saw all-in pricing, and half saw the lower base price with taxes and fees only added at the end. The latter strategy boosted revenue 20 percent.” READ MORE

Kroger says higher income consumers are undeterred by higher prices: “Continued spending among middle- and higher-income customers is helping offset reduced spending by lower-income shoppers at the nation’s biggest grocery-store operator by sales. Higher-income customers tend to be more profitable because they make bigger purchases, Chief Executive Rodney McMullen said in an interview. Such shoppers are seeking out higher-end store brands and using personalized coupons, he said, and Kroger is streamlining its supply chain to improve products’ availability and freshness.“

• “Lower-income shoppers are making more changes to how they buy food, he said, including purchasing fewer items and cheaper products including smaller packages partly because of declines in food-stamp benefits.”

• “Discounts have been hard to score at U.S. supermarkets since the Covid-19 pandemic, partly because of supply constraints. Cincinnati-based Kroger now is offering more discounts, executives said, as the supply chain improves and food brands fund more promotions.”

• “Kroger is using algorithms and artificial intelligence to provide more targeted deals to shoppers, executives said. The owner of the Ralphs and Dillons chains is looking at other ways to harness AI, like providing more accurate substitutions for customers and improving search results when people order online.” READ MORE

RETAIL

It’s not just people with student debt who are bracing for the resumption of student-loan repayment: “The government’s pandemic-era pause on student-debt payments allowed millions of Americans to forget about a big monthly bill for more than three years. Now some Americans face a serious reckoning—and so do the places where they spend their money. Around 43 million people in the U.S., some 17 percent of the adult population, have federal student debt. Out of those borrowers, roughly 26.6 million—or about 10 percent of the adult population—had loans in forbearance as of the first quarter, according to the National Student Loan Data System.”

• “Estimates vary, but even on conservative expectations, borrowers are set to collectively resume paying $5 billion to $8 billion a month once the pause is lifted. Some research outfits, including J.P. Morgan and TD Cowen, place the number closer to $10 billion a month. For context, Americans collectively spend about $35 billion a month on clothing and department stores, according to data from the Census Bureau.”

• “Apparel was the category on which student-loan borrowers said they most often deferred purchases. Apparel is especially worth watching because consumers with student loans tend to be core customers of many clothing brands, says Jay Sole, a UBS analyst.”

• “Its survey shows that consumers with student debt are more brand-conscious. Those shopping for women’s clothes were more likely than the average consumer to say that they shop most often at online clothing retailers Shein and Fashion Nova, Old Navy, Victoria’s Secret, Nike, and Lululemon. For men’s clothing, student-loan borrowers favored Nike, Gap, Old Navy, American Eagle Outfitters, and Under Armour.” READ MORE

REGULATION

A new law spells out required support for pregnant employees: “When the Pregnant Workers Fairness Act goes into effect on June 27, 2023, employers with at least 15 employees will be required to provide reasonable accommodations to workers who are pregnant or experiencing related medical conditions. The accommodations can include closer parking to their workplace, additional break time, being excused from strenuous activities, more opportunities to sit or drink water, and time off to recover from childbirth. The Civil Rights Act of 1964 previously made it illegal for employers to fire or otherwise discriminate against pregnant workers under the Equal Employment Opportunity Commission.”

• “Covered employers can't require employees to receive accommodations without first discussing it with them, and can't deny a job or other employment opportunities to a qualified employee or applicant based on the person's need for accommodation.”

• “Employers also can't require pregnant employees to take leave if a reasonable accommodation could allow them to keep working. Special accommodations for pregnant workers were previously required only in cases with significant complications that qualified as a disability under the Americans with Disabilities Act.”

• “‘Most companies that do implement accommodations for employees report that employee engagement, productivity, and job satisfaction all improve,’ [Hannah Olson, CEO of Disclo, an Atlanta-based software company that manages such requests through a health disclosure system] says. ‘Accommodations are almost always a win-win for the employer and the employee.’” READ MORE

HUMAN RESOURCES

Employers are finding that recent grads aren’t necessarily prepared for office life: “Many members of the class of 2023 were freshmen in college in the spring of 2020, when campuses shuttered due to the Covid-19 pandemic. They spent the rest of their college years partially in virtual mode with hybrid internships and virtual classes. Students didn’t learn some of the so-called soft skills they might have in the past by osmosis on the job, from mentors and by practicing on campus. To address deficiencies in everything from elevator chitchat to presentation skills, companies, universities and recruiters are coming up with ways to train new hires and give them clear advice.”

• “The missing piece for young professionals who have graduated since 2020, in fact, has been no real proximity to mentorship and leadership, recruiters say. ‘This is so much more important today,’ said Sandy Torchia, vice chair of talent and culture at KPMG, whose full-time hires this summer and fall will go to the firm’s training facility in Florida where they’ll get new presentation training.”

• “Key tips include maintaining eye contact, taking pauses, and avoiding jargon. It is also best to listen carefully to others, and to adjust your introduction to highlight pieces of your background that will be most interesting to them.”

• “Michigan State University’s business-school career center has urged companies to be explicit about what students should expect at work, to over-communicate details about how a first day will play out, what to wear and what people typically do for lunch.” READ MORE

THE 21 HATS PODCAST

This week, Hans Schrei and Shawn Busse talk about why they put their businesses through accelerators, and Paul Downs explains why he might have done the same thing if accelerators had existed back when he started his business—“although,” he says, “I was probably too dumb to realize the value of it.” Hans, who just completed a 13-week accelerator program with his partner, Luis, also tells us how Wunderkeks fared while he and Luis were in the program, what they got out of it, and why they felt it was worth giving up the equity that was the price of admission. Plus: why Shawn went to an employee’s college graduation and how Paul managed to take a vacation. Oh, and Paul also talks about what surprised him about the recent 21 Hats event in Chicago.

• You can subscribe to the 21 Hats Podcast wherever you get podcasts.

Thanks for reading, everyone. — Loren