'Shrinkflation'

It’s a form of retail camouflage that allows companies to raise prices without attracting attention.

Good morning!

Today’s highlights: Basecamp is hiring. Just in time manufacturing is just about out of time. And you can sell almost anything with a subscription model.

BUSINESS MODELS

Subscription-based business models have helped all sorts of businesses, even restaurants: “Subscriptions boomed during the coronavirus pandemic as Americans largely stuck in shutdown mode flocked to digital entertainment and signed up for regular home delivery of boxes of items such as clothes and chocolate. But what really set the past year apart was the increase in subscriptions in the hard-hit services sector. Owners of restaurants, hotels, home-repair companies and others upended their traditional business models to try subscriptions and often found more interest — and revenue — than they anticipated.”

• “Six restaurants in Washington, D.C., joined together earlier this year to sell a subscription supper club. They offered home delivery of a gourmet meal from a different chef each week for six weeks for $360. It sold out in six days.”

• “Subscriptions bring in upfront revenue, strengthen relationships with customers and give companies much deeper data on what sells. Even hotels and car washes have begun offering an enhanced and more exclusive experience — for a monthly or annual fee.”

• “There’s a growing trend of ‘power subscribers’ with 10 or more recurring payments, according to budgeting app Truebill. The app’s users average 17 subscriptions and typically spend $145 a month, according to an analysis Truebill did for The Washington Post.”

• “Last spring during the shutdowns, Truebill users averaged 21 subscriptions, as people tried different entertainment, home workout and delivery services.” READ MORE

PRICING

Companies are raising their prices by shrinking their packages: “It’s a form of retail camouflage known as ‘shrinkflation,’ and economists and consumer advocates who track packaging expect it to become more pronounced as inflation ratchets up, taking hold of such everyday items such as paper towels, potato chips and diapers. ‘Consumers check the price every time they buy, but they don’t check the net weight,’ said Edgar Dworsky, a consumer advocate and former assistant attorney general in Massachusetts, who has been tracking product sizes for more than 30 years.”

• “Walmart’s Great Value paper towels, for example, went from 168 2-ply sheets per roll to 120. The price, at $14.97, remained the same for a dozen rolls despite the nearly 30 percent drop in product. Both versions remained listed on the retailer’s site until last week.”

• “Often, branding experts said, companies pass off shrinking product sizes as packaging innovations. Hershey’s, for example, shaved off nearly 2 ounces from its 18-ounce packs of its dark chocolate Kisses — but kept the list price the same — as part of a 2019 makeover that swapped out its ‘traditional lay-down bags’ for a pricier resealable, stand-up pouch.” READ MORE

MANUFACTURING

Has the pandemic put an end to just-in-time manufacturing? “From fashion to food processing to pharmaceuticals, companies have embraced Just In Time to stay nimble, allowing them to adapt to changing market demands, while cutting costs. But the tumultuous events of the past year have challenged the merits of paring inventories, while reinvigorating concerns that some industries have gone too far, leaving them vulnerable to disruption. As the pandemic has hampered factory operations and sown chaos in global shipping, many economies around the world have been bedeviled by shortages of a vast range of goods — from electronics to lumber to clothing. In a time of extraordinary upheaval in the global economy, Just In Time is running late.”

• “The most prominent manifestation of too much reliance on Just In Time is found in the very industry that invented it: Automakers have been crippled by a shortage of computer chips — vital car components produced mostly in Asia.”

• “Some experts assume that the crisis will change the way companies operate, prompting some to stockpile more inventory and forge relationships with extra suppliers as a hedge against problems.”

• “But others are dubious, assuming that — same as after past crises — the pursuit of cost savings will again trump other considerations.” READ MORE

HUMAN RESOURCES

Twenty-five states have exited the federal government’s enhanced unemployment program: “Maryland on Tuesday became the latest state to announce its withdrawal, effective July 3. The other 24 states are Alabama, Alaska, Arizona, Arkansas, Florida, Georgia, Idaho, Indiana, Iowa, Mississippi, Missouri, Montana, Nebraska, New Hampshire, North Dakota, Ohio, Oklahoma, South Carolina, South Dakota, Tennessee, Texas, Utah, West Virginia and Wyoming.”

• “The affected workers are poised to lose a $300 weekly supplement to unemployment benefits. Most states are also ending benefits entirely for the self-employed, gig workers and the long-term unemployed.”

• “The states — all of which are led by Republican governors — claim enhanced unemployment benefits are causing laid-off workers to stay home instead of looking for jobs.” READ MORE

The Chamber of Commerce calls for federal action: “The labor shortage now represents ‘the most critical and widespread challenge’ to U.S. businesses, the U.S. Chamber of Commerce said in a Tuesday report. Only 1.4 available workers exist for each U.S. job opening, according to government data. That's just half the 20-year average, and the ratio is still falling. In sectors hit hardest by the virus, such as education and government, job openings fully exceed available workers.”

• “The organization announced a new initiative on Tuesday aimed at addressing the shortage of qualified workers and difficulties in developing skills.”

• “The Chamber is calling for a doubling of the cap on employment visas, federal investment in job-training programs, and an expansion of childcare access for working parents.” READ MORE

Jason Fried says Basecamp—which lost at least a third of its employees during its recent meltdown—is hiring: “Over the past few weeks, many people have emailed asking me if we're hiring, or about to hire. Good news: Yes we are! In fact, we're aiming to hire a lot of people across a number of positions. If you're interested in joining our team, I'd encourage you to get your name on the list at basecamp.com/jobs to be notified when we post any public openings. One position we'll be focused on in particular are product designers. And before we post a formal job ad, I thought I'd put a semi-quiet call out right here, on my HEY World. Any excellent product designers lurking?”

• “And while a number of companies that have gone remote, but, unfortunately won't be staying remote, Basecamp is forever remote.”

• “To make sure time zones overlap with our current design crew, we're looking for someone living in Canada, the US, Mexico, Central, or South America.”

• “Further, working at Basecamp means you won't be mired in meetings, shaking your head at burdensome process, or be asked to put in hero-hours. Your nights and weekends are yours, not ours.” READ MORE

VENTURE CAPITAL

The biggest difference between Carey Smith’s Unorthodox Ventures and traditional VC firms is that Smith’s firm didn’t raise a fund; instead it invests Smith’s winnings from selling Big Ass Fans for $500 million: “The firm boasts offices in New York City and Tel Aviv, Israel, in addition to its Austin headquarters. It has made nine investments for a total of $15 million. Some of Unorthodox Ventures' focus areas for investments are medical devices, consumer products and industrial products. Portfolio companies include Tushy Bidets, an environmentally minded Brooklyn startup making bidets, and Shotgun Seltzer, an Austin company making spiked seltzer. The firm invested $1 million last June in Afia LLC, which does business as Afia Foods. Founded by Farrah Moussallati Sibai and Yassin Sibai, Afia makes frozen Mediterranean foods like falafel and kibbeh.”

• “A typical investment for Unorthodox would total anywhere from $3 million to $6 million, though it could rise to $10 million ‘on the edge,’ Smith said.”

• “He said a majority of the firm’s portfolio companies are women-owned. ‘That’s not a conscious decision,’ he said. ‘Women look at things in a way, in general, it so happens, that they are more interested in products that really do change the market. They’re typically longer-term thinkers.” READ MORE

Fawn Weaver, founder of Uncle Nearest Premium Whiskey, has amassed a $50 million fund to seed minority-owned spirits businesses: “In 2017 Fawn Weaver began bottling Uncle Nearest Premium Whiskey as a passion project to honor Nearest Green, the formerly enslaved distiller who taught Jack Daniel how to make whiskey. Four years later, her bourbon has sold nearly 1.5 million bottles, according to a recent report in The Spirits Business. Uncle Nearest is now the nation’s fastest-growing whiskey brand, according to the drinks-market analysis firm IWSR. It’s a testament not just to the quality, but also to the power of an inclusive brand with a compelling story.”

• “‘I am looking for the brands that have the ability to be the next Uncle Nearest,’ she said during a recent video conference call with her staff. ‘What that means to me is, they are not building to flip, they’re not building to sell. They’re building to create generational wealth.’”

• “The fund already has two investments in the pipeline. One is a $2 million stake in Jack from Brooklyn, which in 2012 became the first known Black-owned distillery to open in the United States since Prohibition, but ran out of money and closed.”

• “A second $2 million investment is for the Equiano Rum Company, a British rum brand named for Olaudah Equiano, a prominent figure in the abolition movement who was born in Africa and enslaved in the Caribbean, and bought his way to freedom in 1766.” READ MORE

REAL ESTATE

Since the pandemic, it’s gotten easier to try before you buy: “[Bryan] Conzone, 38, who owns a data analytics-software company, was stuck at home with his family in Las Vegas. His wife, Jenn Conzone, 41, a registered nurse, quit her job to take care of the couple’s son, then 5 years old, and infant daughter. The lease on the family’s three-bedroom townhouse was up in June, and Mr. Conzone—who has run his company, TRFK, remotely for years—was ready to hit the road. ‘I was like, ‘OK, you’re not working; we’ve been talking about moving to Texas; let’s go check out Dallas and Austin,’ Mr. Conzone recalled telling his wife. ‘How can we explore the cities for a month and really get a feel for which one we want to be in?’”

• “That question marked the beginning of the Conzone family’s yearlong, seven-city, eight-stop odyssey across the Southwest and the Pacific Northwest.”

• “Using Landing, a short-term-rental website, the Conzones hopscotched across Texas, California, Oregon, Washington and Utah, staying for four to six weeks in each city before moving on to the next, toting duffel bags of clothing, games and home-schooling supplies.”

• “Real estate developers and internet real-estate startups are offering user-friendly, no-strings rental programs: turnkey apartments that can be leased for a few months and vacated at a moment’s notice; luxury one-bedrooms with flexible lease terms and all-inclusive services; multimillion-dollar condominiums that can be rented with an option to buy at a significant discount.” READ MORE

THE MORNING REPORT WEEKLY WRAP-UP

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