Big Companies Are Having Little Trouble Raising Prices
Many consumers accumulated savings during the worst of the pandemic and are willing to pay more for familiar brands.Good morning!
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Here are today’s highlights:
A case study in DIY branding.
A restaurant startup tries variable pricing.
The man who used his PPP loan to buy a Pokémon card.
And a cult favorite burger chain that offers neither quality nor consistency.
MANAGEMENT
When Georges Kern took over Breitling, he got a lot of Instagram comments about his plans to reposition the Swiss watchmaker: “What Mr. Kern did next might have surprised his more conservative colleagues in the Swiss watch industry: He invited a few of those Instagram commenters to join a new advisory board. The group, which ranges from 25 to 30 people and includes journalists, clients and collectors, gathers in Switzerland once a year; its most recent meeting was in late August in Geneva. ‘We show them new products, concepts or ideas one to two years in advance,’ Mr. Kern said. ‘And here and there, we change our mind or our approach to designs, and test designs in other directions.’”
“As a platform for discovery, connection and, increasingly, commerce, Instagram has become the backbone of the luxury watch industry since its introduction in 2010.”
“The degree to which the photo-sharing app shapes design, however, is a delicate subject. Bound by centuries of heritage, most watchmakers insist that what happens, or doesn’t happen, on the app has no bearing on the look and feel of their products.” READ MORE
BRANDING
In a Twitter thread, Michael Girdley explains how his team re-branded its drive-thru coffee business—without paying a consultant $50,000. READ MORE
PROFILE
Burger Baron, a Canadian burger chain, has somehow amassed a cult following despite poor quality and controls: “Albertans will often find themselves wondering, How do they still exist? It’s not quality—even die-hard fans will admit that—and it’s certainly not consistency—no two Burger Barons are alike. The truth is, Burger Baron maintains a cult following to this day partly because it’s a s----show. To begin with, the logo—a colourful fat knight with double-Bs in his shield—often appears on signs as a crudely drawn copy of the original. The mascot sometimes looks emaciated or downright mutilated, if he appears on the sign at all. The restaurants themselves range from drive-thru burger shacks to sprawling steakhouses. Depending on the location, the kitchen might also serve pasta, souvlaki, spring rolls, or bannock.”
“Burger Baron was founded in Calgary by Jack McDonnell, a serial entrepreneur who moved his family up from Montana on a hunch that he could beat the other ‘Mc’-owned fast-food chain to Canada.”
“Burger Baron exploded to over 30 franchises in six provinces and two states in just over three years, before burning up in its own forward momentum and declaring bankruptcy in 1961.”
“While original Burger Baron franchises vanished from Quebec, Ontario, California, and even Calgary in the 1970s, a new generation bloomed in and around Edmonton. More than just a means of feeding Albertans, the restaurants fed and sheltered a generation of Arab immigrants.”
“Here’s how Barons are born, according to my dad, Ahmed: First, you need a building. After that, you need to put up a sign that says Burger Baron. That’s it, you’re a Baron now.” READ MORE
PRICING
A former hedge fund trader is betting big on quinoa bowls and sliding-scale pricing: “The chicken tinga is the same in both Los Angeles establishments: It’s a bowl of pasture-raised chicken, lentils, quinoa and black beans. At the University Park outpost of Everytable, it costs $5.10. In Monterey Park, a 15-minute drive away, it’s $8.35. That variable pricing — less in an area with students and working-class families, more in a spot with prime real estate — is part of Everytable’s Robin Hood-esque pitch to make healthy, fresh food affordable to everyone. It has won Sam Polk, its founder and chief executive, plaudits and millions of dollars in investment in the five years since he started the company.”
“Everytable’s meals are prepared in a kitchen with pots big enough to cook 50 gallons of chicken tinga at a time.”
“Its stores are small, usually 500 to 700 square feet, just big enough to house a wall of refrigerated cases, a microwave and two employees to stock shelves and work the checkout.”
“Mr. Polk also assembled a fleet of refrigerated trucks to deliver food to stores and to customers at home. These decisions, he explained, allow him to sell meals at whatever price a neighborhood could afford.” READ MORE
Big companies have had little problem convincing customers to pay higher prices: “Price increases so far have paid off for makers of household staples as shoppers, particularly in the U.S. and Western Europe, have remained loyal to big-name brands. Now companies are counting on customers to lift sales and offset higher costs that have stressed their bottom lines, even as broader inflationary pressures mount and some analysts question whether shoppers will start to seek cheaper alternatives. ‘We have not seen any material reaction from consumers,’ P&G finance chief Andre Schulten said last week, referring to a string of price increases that went into effect in September. ‘So that makes us feel good about our relative position.’”
“Many consumers accumulated savings amid the pandemic and are benefiting from higher wages, leaving them with extra cash as the highly contagious Delta variant of the coronavirus keeps them home and lessens the appeal of dining out, staying in hotels and traveling by air.”
“Companies benefiting from the dynamics have told investors to expect solid sales and profitability in 2022 even as rising costs tied to supply-chain woes show no signs of letting up.” READ MORE
STARTUPS
Two companies, one owned by Mark Cuban, are launching PBMs to control the cost of drugs: “The Mark Cuban Cost Plus Drug Company PBC and the Purchaser Business Group on Health, a nonprofit coalition of nearly 40 large public and private employers, said they are each starting new pharmacy-benefit management companies. PBMs work on behalf of employers, labor unions and governments to decide which drugs are available to patients, negotiate rebates on the prices paid for those drugs and process payments to pharmacies. The PBMs pass along much of the savings to their customers.”
“Yet some employers have criticized PBMs for failing to disclose all the rebates and keeping too much of the savings.”
“The aim of the new pharmacy-benefit managers, their executives said, was to be more transparent about drug costs and share with their clients more of any negotiated savings.” READ MORE
THE COVID ECONOMY
The states with the highest rates of workers quitting their jobs, according to a new report, are Georgia, Kentucky and Idaho: “The report from the Bureau of Labor Statistics builds out a portrait of August’s labor market, with historic levels of people leaving jobs and a near-record number of job openings showing the leverage workers have in the new economy. It offers the first detailed insight into the state-by-state geography of this year’s Great Resignation.”
“As the Delta wave grew in August, the states with the most new infections also saw hotter job markets than the country as a whole.”
“Employees quit or were hired at rates matching or exceeding the national average in the ten states with the highest rates of new infections that month: Alabama, Arkansas, Florida, Georgia, Kentucky, Louisiana, Mississippi, Oklahoma, South Carolina and Tennessee.”
“The phenomenon is being driven in part by workers who are less willing to endure inconvenient hours and poor compensation, and are quitting to find better opportunities.” READ MORE
HUMAN RESOURCES
A shortage of child-care workers is sidelining women who would otherwise remain in the labor force: “Household survey data released Wednesday by the U.S. Census Bureau shows more than seven million adults had to make adjustments in the past four weeks when children under age 5 were unable to attend daycare due to safety concerns, consistent with recent months. Experts say the shaky child-care situation is contributing to the lowest labor-force participation rates among women in the U.S. since the 1970s.”
“ In September, more than 300,000 women ages 20 and over dropped out of the workforce, according to an analysis of government data by the National Women’s Law Center.” READ MORE
Retailers are paying big bonuses to land seasonal workers: “Kohl’s is offering signing bonuses of up to $400, while Macy’s is delivering up to $500 in referral bonuses to staff who help it land a hire. Meanwhile their well-heeled rival Amazon, which wants to hire 150,000 seasonal workers, is outdoing the competition with $3,000 enticements to sign on. ... Cash upfront isn’t the only way retailers are attracting workers for the season, when many chains earn 20 percent of their annual sales.”
“Some are giving workers extra hours and offering the prospect of a job beyond the holidays, framing a Christmastime position as the cornerstone of a career and not just a short-term gig.”
“We are far from the days of recruiting a greeter to work 10 hours a week for minimum wage.” READ MORE
LOGISTICS
Alternative ports aren’t the answer to the supply-chain storm: “Smaller ports don’t have dozens of ships stacked up off the coast waiting for berth space, as do Los Angeles and the neighboring Port of Long Beach, Calif. The sites have drawn long looks from shippers and freight forwarders, and even brought them chartered ships from the growing number of retailers who are hiring vessels to get around the backups to get goods in stores for the holidays.”
“But most don’t have enough dock workers to unload cargo or a steady supply of truckers or warehouse space to handle a big jump in cargo volumes, said Anthony Hatch, a rail transportation analyst and principal at ABH Consulting.”
“‘They make for nice stories,’ Mr. Hatch said. ‘But they are all on the margin.’” READ MORE
EVENTS
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FINANCE
One man spent most of his PPP loan on a Pokémon card: “Vinath Oudomsine may be the only person accused of using his small-business loan on a single Pokémon card. Prosecutors say the card cost the Georgia man $57,789 — more than two-thirds of his federal aid, which officials say was based on false information. The wire-fraud charge brought last week against Oudomsine is part of a federal crackdown on alleged misuse of massive relief programs that threw lifelines to businesses during the pandemic but also raised concerns about scams and waste.”
“This year, the SBA inspector general concluded that the federal agency rushed out billions of dollars in loans through the Paycheck Protection Program ‘at the expense of controls’ that could have blocked inappropriate aid.”
“Defenders of the SBA’s pandemic-relief programs have also argued that flagged loans and grants represented a small fraction of hundreds of billions of dollars in aid.” READ MORE
THE 21 HATS DASHBOARD
How Much Can You Fake It Before You Make It? Every Monday, Gene Marks and I discuss what we learned the previous wee that can prepare us for the week to come. We’ve all heard the expression “Fake it until you make it.” But how much faking can a business get away with before it makes it? Plus, Gene has common sense suggestions that can help business owners cope with both the supply chain mess and the labor shortage. And we also talk about where owners can turn when they feel they need a sounding board and it doesn’t feel right to talk with employees, friends, or significant others.
You can find Dashboard in your 21 Hats Podcast feed, wherever you get podcasts.
If you see a story that business owners should know about, hit reply and send me the link. If you got something out of this email, you can click the heart symbol, you can click the comment icon below, and you can share it with a friend. Thanks for reading, everyone. — Loren