Volume 29: Where will we pee?

1. Pivot to pickup removes primary benefit of the 3rd place.

Tl;dr: Starbucks to permanently shutter 400 public restrooms.

Over the years, Starbucks has done a spectacular job of turning mediocre-but-consistent coffee into one of the world’s biggest brands through its strategic commitment to being “the third place,” resulting in a consistently pleasant coffee-shop experience that they’ve scaled around the world. I’m sure that when they formulated this positioning, they never anticipated becoming the world’s office for freelancers, or that the primary “third place” benefit would be having somewhere reasonably clean to pee, no matter which country or city you happen to be in. But with the advent of the COVID-19, the world’s freelance office and pee-station has been closed to these essential tasks, costing Starbucks an estimated $3bn in the process. As they pivot to drive-through and pickup as their primary means of commerce, they’ve also announced plans to permanently shutter 400 locations. How much of this is truly driven by CV-19 is hard to establish. Retail businesses typically over-scale in the boom times, taking on poor locations they’d otherwise steer clear of, that they are then unwilling to close them for fear of appearing weak and seeing the stock price drop. With the advent of a pandemic, this is the perfect excuse/opportunity for Starbucks to shutter locations that were likely either underperforming anyway, or tied too directly to office parks that are unlikely to see a major return of workers anytime soon. It’s also unclear what will happen to the Starbucks brand when the “third place” strategy no longer drives. How many of us are really all that keen on a curbside pickup of a mediocre cup of coffee?

2. Professional sports return, stock market drops.

Tl;dr: Day trading replaced sports betting to drive stock market growth.

One of the more bizarre things I read recently is that a major driver of stock market gains in recent weeks hasn’t been the irrational exuberance of Wall Street combined with the sugar high of $6 trillion worth of government intervention in the markets but the introduction of thousands of new sportsbettors looking for a lockdown entertainment outlet.

You see, while professional sports has been on an enforced hiatus, sportsbettors have had nothing to do but twiddle their thumbs watching re-runs and thinking of what might have been, unless…stock market.

It’s not so hard to imagine. After all, many sports betting and fantasy leagues are in fact built on stock trading technologies. The Nasdaq even sells technology to sports betting firms for this exact purpose.

So what’s the data? Well, the stats are pretty eye-opening. Upstart disruptor Robin Hood boasts a customer base that looks almost exactly like the people most likely to bet on sports, who I suppose logically, tend to hold DraftKings in their portfolio. While the four largest online brokerages reported record signups in March and April and recorded more trades in those two months than the entirety of the first half of 2019.

What’s most fascinating is that while sportsbettors look like they’ve flocked to the markets as day trading replaced sports betting for entertainment, professional investors have largely been waiting on the sidelines.

So, I guess that it shouldn’t come as much of a surprise that as sports get back up and running with global soccer leagues, NASCAR and the PGA Tour, that the stock market should drop. Why? Because the sports betters are cashing in their day trades in order to return to their first love.

3. McDonald’s follows Coke lead by re-commissioning CMO position.

Tl;dr: Distributed management of the marketing mix not working out so well after all.

In burger news. This week, McDonald’s decided that after de-commissioning the global CMO position a year ago, they should now re-commission it again in order to help the business come out the other side of the COVID-19 driven recession. A tacit admission that while a brand can skate by on previously built equity in the good times, it needs to be reinvigorated anew when times get tougher.

As previously predicted when Coca-Cola brought back their CMO, this is going to be a theme moving forwards as companies realize that marketing representation at the top levels is a necessity rather than a nice to have perk.

With the digital disruption of marketing, and the sudden onslaught of new CxO’s, marketing departments finally met their business process re-engineering match. And the results were ugly. Rather than simple “rightsizing,” marketing witnessed a wholesale re-distribution of responsibility for the marketing mix across the organization, leaving them with little more than the tactical execution of the promotional P left to call their own, and sometimes not even that.

I’d liken this to taking a sports team, firing the head coach, and then distributing responsibility for results across a slew of offensive and defensive coaches, newly formed coaching specialties, and a crack analytics team.

While everyone might look amazing on paper, the ensuing chaos and fragmentation is unlikely to create a winning team. Instead, you need these specialty skills to be organized and harnessed by the right coach into a winning unit, with a clear strategy and winning mentality.

Far from moving faster, I deeply suspect those businesses that have eliminated their CMO are finding meaningful progress to be slower due to misaligned incentives, internal politicking, communication failures, a lack of unifying strategy, and a generally chaotic environment that confuses activity for progress.

Oh, and on that note, one of the people you most need a CMO to defend against is the high priest of marketing bullshit himself, Gary Veynerchuk, who this week casually re-branded spam as “volume creative.”

4. Cash incinerator Uber Eats misses out as Grubhub looks elsewhere.

Tl;dr: Blatant play for market power goes awry due to regulatory concerns.

Uber and Grubhub are both terrible businesses that struggle to make money.

So, when the two announced plans to merge Grubhub with Uber Eats, the prognosis wasn’t so good for the rest of us, and certainly wasn’t for the restaurants they represent. You see, the only way to make bad businesses like these make money is to combine them and use their monopoly scale to abuse market power and extract value from suppliers (restaurants) and customers (you and I).

It seems that as merger talks continued, there was a genuine fear the deal would attract regulatory scrutiny. No surprise really, given that even the most cynical and paid for politician would likely find it hard to justify a merger that would burden small restaurants with even more financial hardship than they already face due to CV-19.

So Grubhub took the safer path and agreed to merge with the spectacularly imaginatively named “Just Eat Takeaway” instead. To be honest, this is a weird can-kicking exercise. You see the whole point of merging with Uber was to abuse the market scale of the resulting organization, while Grubhub and Just Eat Takeaway don’t really compete at all (Grubhub is in the US and J.E.T. in Europe), so the resulting merger synergies and scale economies/power to abuse the market are likely to be minimal at best.

But what of Uber Eats? Well, the prognosis here really isn’t great. It’s losing around $100m /month with no end in sight. A major merger has already failed due to regulatory concerns, and due to the markets it operates within, it appears to have little capacity for further value extraction by itself. Look for Uber to either try and sell this business completely or just shut it down sometime in the next few months.