The Free Ride (Share) Is Ending

The changing economy means urban consumers are going to have to start paying what things actually cost.

Good morning!

Here are today’s highlights:

• The odds of a recession just got a little better.

• There are signs that leverage is shifting back toward employers.

• A tweet prompts an outpouring of customer support for Chewy.

PRICING

As startups start caring about profits, urban consumers are forced to confront reality: “For the past decade, people like me—youngish, urbanish, professionalish—got a sweetheart deal from Uber, the Uber-for-X clones, and that whole mosaic of urban amenities in travel, delivery, food, and retail that vaguely pretended to be tech companies. Almost each time you or I ordered a pizza or hailed a taxi, the company behind that app lost money. In effect, these start-ups, backed by venture capital, were paying us, the consumers, to buy their products. It was as if Silicon Valley had made a secret pact to subsidize the lifestyles of urban Millennials. As I pointed out three years ago, if you woke up on a Casper mattress, worked out with a Peloton, Ubered to a WeWork, ordered on DoorDash for lunch, took a Lyft home, and ordered dinner through Postmates only to realize your partner had already started on a Blue Apron meal, your household had, in one day, interacted with eight unprofitable companies that collectively lost about $15 billion in one year.”

• “These start-ups weren’t nonprofits, charities, or state-run socialist enterprises. Eventually, they had to do a capitalism and turn a profit. But for years, it made a strange kind of sense for them to not be profitable.”

• “With interest rates near zero, many investors were eager to put their money into long-shot bets. If they could get in on the ground floor of the next Amazon, it would be the one-in-a-million bet that covered every other loss.”

• “The Millennial Consumer Subsidy is over, and for the foreseeable future, metro residents will have to go about living the old-fashioned way: by paying what things actually cost.” READ MORE

FOOD & BEVERAGE

Do QR code restaurant menus represent the end of civilization? “A physical menu sets the stage. It highlights the fact that this is a special occasion, even if it’s simply a quick bite at a local diner. The menu signifies that it’s time to take a break in a busy day, that this meal is something separate from the normal course of events. It also pushes us to interact with others. We share menus. We point to things; we ask the wait staff questions about the meal and what they particularly like. It’s like opening a program at a theater, for a show you and your companions are about to experience together.”

• “Whipping out a phone to check the menu, on the other hand, is hardly conducive to setting a mood, unless you want to dine in the metaverse.”

• “Smartphones are endlessly distracting, and it takes discipline to put them away after checking a menu, a bit of self-control many can’t always muster.”

• “A recent tweet asking ‘what do we, as a culture, have to do to kill QR code menus’ received more than 300,000 likes.”

• “And a poll conducted late last year by the National Restaurant Association found two-thirds of all adults preferred paper menus over the online version.”

• “So why do QR code menus persist? They do offer short-term business advantages.” READ MORE

THE ECONOMY

The odds of a recession just got better: “The Federal Reserve approved the largest interest-rate increase since 1994 and signaled it would continue lifting rates this year at the most rapid pace in decades to fight inflation that is running at a 40-year high. Officials agreed to a 0.75-percentage-point rate rise at their two-day policy meeting that concluded Wednesday, which will increase the Fed’s benchmark federal-funds rate to a range between 1.5 percent and 1.75 percent. New projections showed all 18 officials who participated in the meeting expect the Fed to raise rates to at least 3 percent this year, with at least half of all officials indicating the fed-funds rate might need to rise to around 3.375 percent this year.”

• “‘We’re not trying to induce a recession now. Let’s be clear about that,’ Fed Chairman Jerome Powell said at a news conference.”

• “But he said it was becoming more difficult to achieve what is known as a soft landing, in which the economy slows enough to bring down inflation while avoiding a recession. That represented an implicit concession that the risks of a downturn could rise as the economy digests tighter monetary policy.”

• “‘Powell told us policy is going to create a recession, but soft-peddled it enough to leave markets to figure that out for themselves,’ said Steven Blitz, chief U.S. economist at TS Lombard.” READ MORE

Mark Zandi thinks the Fed went too far: 

Mark Zandi @Markzandi

The Fed’s 75-bps hike in the funds rate was unnecessary, as 50 bps would have sufficed. That would have been enough to slow the economy’s growth so it doesn’t blow past full employment, and keep inflation expectations anchored. Both are a must to getting inflation down.

READ THE WHOLE THREAD

HUMAN RESOURCES

Concerns about the economy are driving workers back to work and back to the office: “Though the labor market remains tight and many people still have leverage to negotiate high salaries and remote accommodations, some are bracing for a day when things won’t be so great. As unemployment claims tick higher and business leaders like Elon Musk try to reassert their in-office dominance, workers are showing a little less swagger and looking for more stability than they did just a few months ago. It’s a strange limbo. Working conditions are about as good as they’ve ever been for many people, and office workers’ complaints can seem petty by historical standards. (Imagine your 2019 self griping about being required to work in an office a few days a month.) Yet a loss of total remote freedom, coupled with sobering economic forecasts, can make it feel like workers’ power is slipping away.”

• “The national office occupancy rate hit 44 percent last week, according to an estimate by Kastle Systems, which tracks building-access-card swipes. That’s the highest since the onset of the pandemic.”

• “Employers’ fear that workers will flee for other jobs if told to return to their desks is beginning to subside.”

• “Lately, the conversations have changed. ‘Now, what candidates are asking is if the company has the financial posture to survive a recession,’ he says. ‘It’s quite telling. They’re thinking about security over flexibility.’” READ MORE

MARKETING

Sam’s Club is introducing an advertising platform: “Sam's Club MAP will include ads that appear on the company's website and app and eventually ones on outside sites. The platform is predicated on harvesting data from members' purchases and searches for Sam's Club merchants and suppliers to create targeted sponsored product ads for brands and other companies to reach customers more likely to be interested in their products. On top of the new name, Sam's Club is rolling out new ad products, including:”

• “Sponsored product ads in search results.”

• “A self-service platform for advertisers to buy sponsored product ads in an automated way, starting July 1.”

• “A programmatic partnership with the data companies LiveRamp, IRI, and The Trade Desk that will allow advertisers to buy ads beyond Sam's Club's properties later in the year.” READ MORE

In Russia, McDonald’s has reopened with a new brand and under new ownership: “McDonald’s holds symbolic importance in Russia. It was among the first Western brands to open its doors amid the crumbling of the Soviet Union, offering Russians their first taste of Western consumerism. In 1990, about 30,000 people lined up for the opening at Pushkin Square. Thirty-two years later, the company is now a trailblazer again in Russia, as one of the first Western brands to transfer its operations to local ownership. The new chain in recent days released its new logo, replacing McDonald’s Golden Arches. It resembles the letter M, formed by a red dot and two slanting yellow lines. The new owners unveiled the chain’s new name on Sunday: ‘Vkusno & tochka,’ which translates to ‘Tasty & that’s it.’”

• “Some products, such as the Big Mac and McFlurry, won’t return to the menu at all. ‘These names, these brands, their appearance and production technology’ are too directly related to McDonald’s, Mr. Paroev said.”

• “He promised a ‘worthy replacement’ for them in the future.” READ MORE

CUSTOMER SERVICE

This tweet prompted an outpouring of support for Chewy: 

Anna Brose, MSc @alcesanna

I contacted @Chewy last week to see if I could return an unopened bag of my dog’s food after he died. They 1) gave me a full refund, 2) told me to donate the food to the shelter, and 3) had flowers delivered today with the gift note signed by the person I talked to?? 😭🥹

THE 21 HATS PODCAST

I Think You Need to Hire a PR Firm: This week, we welcome a new regular to the 21 Hats Podcast crew: Sarah Segal, founder and CEO of Segal Communications, a public relations firm based in San Francisco. First, Sarah tells Jay Goltz and Liz Picarazzi how she built her firm. Then, Jay and Liz ask Sarah all of their questions about public relations: What can they do themselves? Should they hire a PR specialist or a full-service agency? Should they approach journalists directly or through a publicist? And most important, how much should it all cost? Plus: Why Sarah’s still figuring out how to attract new business.

• You can subscribe to the 21 Hats Podcast 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