Five Below Performs Well Above Expectations

The Wall Street Journal: Five Below, “which sells everything from Spalding basketballs to Bluetooth headphones and yoga mats for $5 or less, might be the most successful retailer you’ve never heard of. By the end of this year, Five Below’s store count will have nearly quadrupled to 750 locations since its 2012 initial public offering … Five Below uses a formula that has largely insulated it from competition from Amazon.com Inc. The chain keeps prices low by creating products from scratch with hundreds of suppliers around the world and sells them in an environment where children want to hang out. Its own e-commerce sales are so negligible the company doesn’t break them out; shipping often costs more than the entire purchase.”

“At 8,000 square feet, its stores are relatively small, making it easy to wander the mazelike floor plan grouped around eight categories: sports, technology, party, candy, style, create, room and now—the latter filled with seasonal products such as Halloween costumes or Christmas decorations … Shelving is no higher than 5 feet, creating a comfortable space for preteens and teenagers who have outgrown traditional toy stores and are Five Below’s core customers. They are encouraged to bounce the basketballs, test-drive radio-controlled cars and participate in slime-making contests—anything that will help them spend their allowance money.”

“Five Below also has items for grown-ups, including cucumber face-masks, yoga mats, storage bins, greeting cards and vintage candy from Mike and Ike fruit-flavored chews to Goetze’s Caramel Creams. Unlike other bargain stores like Dollar Tree or Family Dollar that focus on necessities such as laundry detergent and toothpaste, Five Below is the place to come to find things you didn’t know you wanted, such as squeezable foam toys called ‘squishies’ that have gone viral on YouTube .. It also is testing ‘Ten Below’ sections in four stores that offer items such as wireless home speakers and skateboards for $10 or less.”

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The Doughnut That Ate Dublin

The Washington Post: “It looked like closing time at the county fair or the week before Christmas at the mall: cars just sitting there, bumper to bumper, waiting their turn to inch along. Dozens of vehicles lined up and down the aisles of the parking lot, honking as if every single driver in front of them was staring at their cellphone while stopped at a green light. It sounded like the traffic jam of the century. But, in fact, it was the Krispy Kreme drive-through at 1:30 a.m. in Dublin — the first to open in the country.”

“Neighbors complained to local government and Krispy Kreme executives that the noise from the doughnut drive-through had kept them awake for days, they told the Irish Times.After just one week, Krispy Kreme had to shut down Dublin’s 24-hour drive-through … Krispy Kreme has been around in the United States since 1937 and has more than 300 locations nationwide. It’s been called a ‘cult’ favorite in the past, inspiring ‘pilgrims’ to ‘pile into the car and drive for hours just to have a couple of Hot Nows,’ as Pittsburgh Post-Gazette writer Marlene Parrish wrote in 2001.”

“But Ireland’s reception appeared to be in a league of its own … As of Friday morning, the Irish Times reported a wait time of 30 minutes for the doughnuts, with metal barriers set up to control the queue like those found at a theme park.”

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Seltzer Hackers Pop SodaStream’s Bubble

The Wall Street Journal: “SodaStream’s popular countertop machines helped lower the cost of sparkling water by allowing users to make their own. For a hard-core group of fizzy-water fans, it’s still not cheap enough … In an effort to save more on each pour, these customers are hacking into their SodaStream machines by attaching their own canisters of carbon dioxide, often purchased at welding-supply or paintball stores … These gambits allow the hackers to avoid the roughly $15 fee the company charges for refill gas canisters—which fit into the back of the machine and can carbonate 60 1-liter bottles of water.”

“The practice of SodaStream hacking has become so popular that a small cottage industry has sprung up to support it. Vendors sell special adapters to support unofficial carbon dioxide canisters on the SodaStream, while others offer to refill the SodaStream canisters in ads on Craigslist and Facebook … In one popular video, the poster points to a 5-pound aluminum carbon dioxide tank and says, ‘You can steal these from landfills pretty much anywhere’… Israel-based SodaStream International Ltd. discourages the hacking and said tampering with the gas canisters violates its terms of service. It added it isn’t responsible for any ‘bodily harm that could be caused by misuse’.”

“Deviant Ollam, 42, of Seattle, said he bought a special adapter that allows him to attach a 20-pound carbon dioxide tank directly to his SodaStream machine … He said he purchased ‘food grade’ carbon dioxide from his local gas-supply store, which some SodaStream customers consider to be safer than the grade of carbon dioxide welders use. For him, the appeal is less about saving a few cents than using his wits to get ahead. His family is drinking far more sparkling water than they did before, just because they can, he said. ‘Why drink regular water again when you can have the ‘I’m sticking it to the man’ feeling?’ Mr. Ollam said.”

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Consumers are ‘High’ on Seltzer

The Wall Street Journal: “Sparkling water sales are soaring in the U.S. as consumers … ditch soda for healthier, more natural beverages. And with that explosion has come a wave of variants: caffeinated and alcoholic versions, sparkling coconut water and coffee, even seltzer laced with cannabis. Americans will buy an estimated 821 million gallons of sparkling water this year … That is nearly three times as much as 2008.”

“Jess Faulstich, 36, of Los Angeles is so hooked on flavored sparkling water that she takes one to bed in case she’s thirsty during the night. She loves coffee but drinks caffeinated sparkling water to keep her teeth white. A technology trainer by day and a stand-up comedian by night, she gained several pounds in the past year from drinking alcohol at clubs. Now she drinks hard seltzer, when she can find it, because it’s light on alcohol and on calories. ‘I’m surprised my bloodstream is not carbonated,’ she said.”

“Heineken NV, for its part, has a different type of buzz on tap. The company’s Lagunitas brand in July launched an IPA-inspired sparkling water line infused with cannabinoids. Its name: Hi-Fi Hops.”

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Online Feels ‘Off’ to Most Shoppers

Supermarket News: “Going by the trends in retail grocery, online ordering of groceries and meal kits likely stand near the top. But by the numbers, the vast majority of Americans are doing neither, a new Gallup poll finds. Of 1,033 U.S. adults surveyed, 84% said they never order groceries online and 89% never order meal kits, according to Gallup, which released the study results this week.”

“The small percentage of consumers that do order groceries or meal kits online don’t do it very often. Just 11% reported they order groceries online for pickup or delivery twice a month or less, and 4% said they do so once a week or more. Meanwhile, 9% of respondents order meal kits for home delivery two times monthly or less, and only 1% do so once weekly or more.”

Lydia Saad of Gallup comments: “Services like PeaPod, Instacart, Shipt and Amazon Fresh that cut out the trip to the grocery store appeal mainly to those short on time: parents with children younger than age 18 and employed adults. Higher-income Americans are also bigger adopters of grocery delivery, either because higher income means they can afford more groceries or they have greater access to mobile technology like smartphones and tablets that make ordering online easier.”

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The Price is Right — Or is It?

The Wall Street Journal: “A simple mathematical error leads shoppers to make mistakes when evaluating offers that promise to save them money. Sometimes they inadvertently pick the priciest option. Sometimes they overestimate the benefit of a bargain. And sometimes they don’t recognize that competing promotions offer identical savings. The problem involves percentages.”

“Instead of comparing unit prices, shoppers tend to judge offers based on the size of the benefit. Getting 50% more of a product must be better than knocking 33% off its cost, right? Wrong. The savings are identical, but on the fly, even savvy shoppers make mistakes … Consider a pound of coffee beans that normally costs $15. If a shopper receives 50% more free, the price is $5 for each half-pound. A discount of 33% reduces the original cost to $10, which is also $5 per half-pound.”

“One of the most common ploys used to sway consumers is the double discount. A 40% discount on a $1,000 suit drops the price to $600. Marking the suit down twice, first by 20% and then by an additional 25% decreases the cost to $800 before shrinking it to $600. The deals are identical, but the double discount feels more generous … To test responses to offers of discounts or bonuses along with shoppers’ ability (or willingness) to calculate percentage change, .. several experiments revealed that consumers generally favor product bonuses over price discounts, reduced quantities over increased prices and double discounts over single discounts.”

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Yes, The Cow Had a Name: Dinner

The Wall Street Journal: “The menu at chef José Andrés’s Bazaar Meat in Las Vegas notes that its Vaca Vieja steak is made from a “hand-selected working cow.” The beef comes from a meat company called Mindful Meats, where, on the cow’s ‘final day,’ employees ‘look each cow in the eye and say thank you as they load onto the trailer,’ its website explains. Welcome to the final frontier in the discussion about transparency in food: meat … The challenge for restaurants and food providers is to give information without turning stomachs.”

“It’s a fine line between transparency and oversharing. At Blackbelly Restaurant in Boulder, Colo., servers are coached to let customers take the lead in discussing the provenance of the meat, says chef and owner Hosea Rosenberg. On a typical evening, about one-third of customers will want to order without much discussion, says Mr. Rosenberg. Another third is interested in more specifics—like cuts of meat, or particular breeds of animals—before their eyes glaze over, he says. The last third is interested in even more details, such as types of grasses or grains the cow was fed, what it weighed, and what farm it was from. Sometimes they ask if it had a name. (‘We named it Dinner,’ he says).”

“Randy Golding, a retired chemical engineer in Cedar City, Utah, orders steaks, chicken and ground beef every three months from Firefly Farms in North Stonington, Conn. He says he has spoken directly with the farm manager, Dugan Tillman-Brown, for at least an hour, asking questions such as how the animals were treated (‘They have names. They have personalities,’ says Mr. Tillman-Brown) to how they are slaughtered (a quick shot to the head with a steel bolt) … Mr. Golding says those details help him and his wife, Lisa, feel better about eating meat knowing the animal wasn’t mistreated. “

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ConAgra: Fresh in Frozen

The Wall Street Journal: “Last year, Conagra freshened up of three of its frozen brands: Healthy Choice, Marie Callender’s and Banquet. Healthy Choice, a diet brand launched in 1989, rolled out new microwavable meal bowls with trendy ingredients like edamame, kale and quinoa, and exotic flavors like Cuban pork and Korean beef. Banquet, a value-oriented brand with frozen basics like chicken fingers and meatloaf that typically sell for around $1 each, also got an upgrade, including Buffalo Chicken Mac ‘N Cheese bowls that sell for $2 or more.”

“The results have been clear. Comparable sales for Conagra’s refrigerated and frozen-food segment went from declining sharply last fiscal year to rising for three quarters in a row, reaching 2.6% growth in the quarter ended Feb. 25. Conagra Chief Executive Sean Connolly summed up his approach at a Goldman Sachs conference in May: ‘When you take legacy, well-known brands and bring modern elements into the food and packaging, you will have a winner’.”

“Consumers are shying away from carbohydrates and processed foods, preferring fresh meat and vegetables. But these take more effort to cook and can look less than fresh by the end of the week. For busy, health-conscious families, picking up proteins and vegetables from the freezer aisle makes sense. Perceptions of the health properties of frozen vegetables have also improved after studies showed they can retain nutrients better than vegetables that have sat for days in delivery trucks or grocery shelves.”

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Decibel Diet: Loud Music is Fattening

The New York Times: “Behavioral scientists who ran a series of lab studies and real-life field experiments found participants selected more unhealthful or calorie-laden items like red meat and cake when the ambient music was loud, and were more likely to choose healthful items when softer music was played in the background. The genre of music did not appear to influence the choices, the researchers said: They found the same effects whether the background music was classical; a mix of pop, rock, soul, R&B and alternative music; or heavy metal.”

Dipayan Biswas, a professor of business and of marketing at University of South Florida in Tampa and lead author of the paper, comments: “High-volume music is more exciting and makes you physically more excited, less inhibited and more likely to choose something indulgent. Low music makes us more relaxed and more mindful, and more likely to go for the things that are good for us in the long run.”

“Loud background music in a supermarket similarly nudged customers toward less healthful purchases, compared with softer music … Dr. Biswas, whose earlier research found that patrons are more likely to order healthful items when restaurants are brightly lit and more likely to indulge in dimly lit restaurants, said the findings can help consumers be aware of unconscious factors affecting their choices.”

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Retail Math: Ladder of Causation

The Wall Street Journal: “Suppose, for example, that a drugstore decides to entrust its pricing to a machine learning program that we’ll call Charlie. The program reviews the store’s records and sees that past variations of the price of toothpaste haven’t correlated with changes in sales volume. So Charlie recommends raising the price to generate more revenue. A month later, the sales of toothpaste have dropped—along with dental floss, cookies and other items. Where did Charlie go wrong?”

“Charlie didn’t understand that the previous (human) manager varied prices only when the competition did. When Charlie unilaterally raised the price, dentally price-conscious customers took their business elsewhere. The example shows that historical data alone tells us nothing about causes—and that the direction of causation is crucial.”

“Machine-learning systems have made astounding progress at analyzing data patterns, but that is the low-hanging fruit of artificial intelligence. To reach the higher fruit, AI needs a ladder, which we call the Ladder of Causation … To reach the higher rungs, in place of ever-more data, machines need a model of the underlying causal factors—essentially, a mathematics of cause and effect.”

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