2009-03-07 (Saturday) by Gregory Tucker.

Business rags consistently report on the market share Starbucks is ceding to McDonald’s McCafe. I have a love-and-hate relationship with Starbucks, which a year ago I started calling McStarbucks in honor of its sterile, flavorless coffee drinking experience. Once consumers started preferring the McCafe experience over Starbucks, they should have known they were in trouble.

But I believe returning CEO, Howard Schultz, is devoted to fixing the Starbucks brand. I am not a big fan of their Tea Time focus, which I believe is failing, but other moves to improve the quality and flavor of their coffee are welcome. Their attention to timing of delivery has provided me a few free cups of decaf–just make sure to ask if the pot is fresh.

Despite the firm’s shortcomings, I am still a loyal customer. My preferred coffee drinking experience is Stumptown Roasters, a Portland-based company with a location near the kids’ school. But Stumptown is often inconvenient from home or at the Portland airport. In both locations I have a choice of Starbucks and Seattle’s Worst. That choice is easy.

Nevertheless,  on two occasions I decided to try McCafe. The first was on a hiking trip. The coffee was just so-so, not very good tasting, and $0.20 more than the same size cup from Starbucks. The second time I was waiting while Aya attended a classmate’s birthday party. The decaf I received was lukewarm, almost cold, and another disappointment.

So I ask, how is McCafe competing with Starbucks? It is not on price. It is certainly not on quality. It is not on product consistency, which is what I always associated with McDonalds. My advice to Schultz is to avoid overrating the competitive threat of McDonalds. Spend instead more time at Stumptown, where the coffee is real and the experience is palpable, if low-budget. McCafe cannot compete with a revitalized Starbucks brand. And while Schultz is working on revitalizing the brand, take a second look at Organic–why Starbucks doesn’t yet own the Organic market I have no idea.

Posted in Business, USA | Print | 2 Comments »

2008-12-29 (Monday) by Gregory Tucker.

http://www.businessweek.com/magazine/content/08_52/b4114024610745.htm?chan=magazine+channel_news

I believe Businessweek has come up with an answer to a previous question: why don’t we allow the bankruptcy courts to sort out this mess, while taxpayers guarantee the loans that allow the companies to restructure.

1. Bankruptcy does not automatically modify the contracts with workers.
2. Bankruptcy does not automatically renegotiate the agreements with dealers
3. Creditors can scuttle bankruptcy proceedings if they choose, forcing full foreclosure and sales of assets.

I still believe Chrysler should be killed, but it is too late for that now.

Posted in Economics, USA | Print | 1 Comment »

2008-12-26 (Friday) by Gregory Tucker.

Today, while reading Natural Capitalism, I ran across the following excerpt that nicely sums up the state of the automobile industry today:

The automobile industry of the late twentieth century is arguably the highest expression of the Iron Age. Complicated assemblages of some fifteen thousand parts, reliable across a variety of conditions, and greatly improved in safety and cleanliness, cars now cost less per pound than a McDonald’s Quarter Pounder. Yet the industry that makes them is overmature, and its central design concept is about to be overtaken. Its look-alike products fight for small niches in saturated core markets; they’re now brought on price via the Internet like file cabinets, and most dealers sell new cars at a loss. Until the mid-1990s, the indusry had become essentially moribund in introducing innovation. As author James Womack has remarked, “You know you are in a stagnant industry when the big product innovation of the past decade is more cupholders.” Virtually all its gains in efficiency, cleanliness, and safety have been incremental and responded to regulations sought by social activists. Its design process has made cars ever heavier, more complex, and usually costlier. Thes are all unmistakable signs that automaking has become ripe for change. By the 1990s, revolutions in electronics, software, materials, manufacturing, computing, and other techniques has made it possible to design an automobile that would leapfrog far beyond ordinary cars’ limitations.

The fact this was written in 1999 and still holds true today makes it all the more important. Since then the industry’s greatest innovations are the Flex Fuel and hybrid engines, both of which are still just incremental improvements over the traditional car design premise. The Prius is a minor departure that hasn’t yet changed the basic paradigm of car design.

Patrick Emerson, Prof. of Economics at OSU, suggests we should allow Chrysler and GM to enter bankruptcy, and limit government assistance to guaranteeing loans in bankruptcy. This mechanism is well-established, does not require any major feats of political courage, and contains the legal authority to renegotiate agreements with the unions and suppliers. I agree, but I am concerned about the downstream effects on the entire ecosystem of parts suppliers and contractors. The government, in this case the Federal district courts, would become overburdened with bankruptcy cases and will instigate the government to a much greater degree than can be accomplished otherwise.

BusinessWeek recommends  the end of Chrysler. We should either allow the company to fail, or have GM absorb it. I would allow Chrysler to fail, for the simple reason of moral hazard–Cerberus Capital Management is well-capitalized and could save the company, but is refusing to do so, in order to get a free handout from the government. Let it fail. My only concern is a repeat of the prior–what would happen to the ecosystem of upstream suppliers if Chrysler went into bankruptcy? How would that affect the viability of Ford and GM? Otherwise the move would be positive for Ford and GM.

Natural Capitalism: Creating the Next Industrial Revolution. Paul Hawken, Amory Lovins, and L. Hunter Lovins. 1999.

http://oregonecon.blogspot.com/2008/12/detroit-and-chapter-11.html

http://www.businessweek.com/bwdaily/dnflash/content/dec2008/db2008128_251483.htm

Posted in Economics, USA | Print | 1 Comment »

2008-11-14 (Friday) by Gregory Tucker.

LA Times reports Rush Limbaugh is already spinning the recession, and possible depression, as all the fault of President-elect Obama.

“The Obama recession is in full swing, ladies and gentlemen,” Limbaugh told his radio audience of 15 million to 20 million on Thursday. “Stocks are dying, which is a precursor of things to come. This is an Obama recession. Might turn into a depression.”

The logic is that the markets have been anticipating Obama’s tax cuts and lost confidence, even before Obama has taken office. The problem of course is using this pathetic logic, you can blame anybody for anything. Bush’s tax cuts improved economic growth causing more Mexicans to come to the United States–illegal immigration is Bush’s fault. To Rush, this statement is perfectly legitimate.

When facts don’t suit Limbaugh, he makes them up. From the same article:

“They’re going to take your 401(k), put it in the Social Security trust fund, whatever the hell that is,” Limbaugh woofed. “Trust fund, my rear end.”

A slight problem with Limbaugh’s report: Obama and the Democrats have proposed no such thing.

Knocking down Limbaugh is like fishing in a barrell, so I will stop here. What is most amazing is that 15 to 20 million Americans even bother to listen to Rush Limbaugh any longer. What a pathetic waste of braincells.

Posted in USA | Print | 1 Comment »