Tuesday, July 28, 2015

Why Niche Markets Shouldn't Lobby for Ideology

Politco's Morning Agriculture memo this morning thought it stumbled on something interesting this morning when it led it's daily e-mail with the following:

'GOOD FOOD' INDUSTRY ESCHEWS LOBBYING: "The leaders of the so-called good food sector - including Chipotle, Whole Foods and Applegate - are winning big in the marketplace with health-conscious consumers. But the industry's current lobbying strategy - largely ignoring Capitol Hill - may be a recipe for disaster in the long run, some of its other leaders say," reports Pro Agriculture's Helena Bottemiller Evich.
"The inertia already has cost the fast-growing sector: Just last week, the House approved a bill to block any state-level mandatory GMO labeling 275-150, a mostly party-line vote that picked up 45 Democrats. There's a growing list of good food industry leaders who are worried that remaining aloof could mean missing opportunities to fight several hot-button issues in Congress, including the future of federal dietary recommendations and school lunch reform.
"Yet neither Whole Foods nor Chipotle and Applegate, companies that serve up antibiotic-free meats, nor Hain Celestial Group, which owns Arrowhead Mills, Spectrum and Celestial Seasonings, have a single registered lobbyist between them, according to a POLITICO review of disclosure records. Their involvement on Capitol Hill, on issues from the farm bill to nutrition labeling, has ranged from limited to nonexistent."
So some healthy food providers are not lobbying Congress to mandate GMO labeling or push other policies enhancing nutrition in America. I don't understand why this should be thought of as surprising - Whole Foods and Chipotle only stand to lose if they do so.

Whole Foods is not some ideologically pure group seeking to make everyone in the country a hippie, natural-food loving consumer. It's a billion-dollar corporation bilking customers who bought into the organic craze. Its CEO lambasted the Affordable Care Act a couple years ago, clarifying Whole Foods is not some instrument of the left.

The only lobbying Whole Foods should be engaging in is to prevent labeling of GMO foods. As a niche market, it enjoys being able to charge a premium to claim the purity of its products. Once Price Chopper, Wal Mart, and Kroger are forced to similarly label their foodstuffs, consumers may be less likely to patronize Whole Foods as they're comfortable in being able to find non-GMO products anywhere. Lobbying against the Pompeo Bill obviously risks too much backlash from consumers to pursue the strategy, but Whole Foods should be comfortable in sitting back, not throwing millions at the problem, and enjoying its nicheness.

Whole Foods is the chain store that serves up organic food, while Chipotle is the chain fast-food restaurant promising all-natural meat products. So why doesn't Chipotle want everyone to be forced to eat that way? Same reason - as long as all-natural food consumption is held out as some sort of unique product, Chipotle can capitalize on its scarcity. Any bureaucratic move to reduce scarcity denies Chipotle to charge a premium. (FYI, it's interesting that while McDonald's divorced itself from financial interest in the chain about a decade ago, Chipotle has been crushing it while McDonald's is getting hammered.)

I'd never heard of Applegate before the article, but it appears to be a line of meat products in grocery stores such as chicken nuggets and hot dogs. Most of its products are red meat, and the company appears to operate under the guise of healthy because its products are organic while simultaneously clogging your arteries (see product line here). This is the company that stands to lose on a labeling bill for the same reasons - right now the company markets itself as organic, and there are enough customers who care enough to pay a premium for the label. Forcing everyone to label will push more companies to ensure they can meet the same standards. This may be good for consumers, but bad for Applegate because increased supply will lower prices at the checkout aisle. That means more money in your pocket, and less than theirs.

Still not convinced? An analogy is fuel-efficient cars. While people are aware they'll save money on gas purchases if they buy a more fuel-efficient car, some care more than others. A company specializing in making a great fuel-efficient car can target those people that care, but there may not be enough for all auto manufacturers to really target this market (think Toyota v. GM at the turn of the 21st century).

But if Congress requires companies to label the gas mileage a car receives and installs CAFE* requirements, other companies see greater incentive to enter the small-car market. This is good for consumers of small cars because choice equals lower prices, but the niche for efficient cars previously filled by a single company no longer makes that company as much money. It doesn't make sense for Toyota to lobby Congress to increase GM's presence in the small-car market in this example. It similarly doesn't make sense for Whole Foods to lobby Congress to increase competitors in the market.

*Corporate Average Fuel Economy

Monday, July 27, 2015

Which League Increases Pitchers Salaries?

It was announced yesterday that the Royals have acquired Johnny Cueto; a necessary move if they hope to win the World Series this year (that's how the organization felt, and I'm of like opinion). And as an NL pitcher (Cueto played for the Reds) sheds the responsibility of batting in his new AL home, I question which league most impacts the salaries of pitchers.

I used to believe the NL made pitchers marginally cheaper for AL teams. The American League doesn't care if a pitcher can hit. But in the National League, a guy with 92 mph heat who carries a .350 OBP could be more valuable than a slightly harder slinger who strikes out the majority of his at-bats. Obviously the arm is the most important function of a pitcher's value, but batting is a consideration that NL personnel offices must pay attention to. That makes pitchers who can manufacture hits worth more, and those that can't worth less. AL teams then have the opportunity to swoop in and acquire those pitchers that can't hit, because they ascribe a different value to hitting (essentially, zero).

However, the pendulum swings the other way too: AL teams have an opportunity cost NL teams don't concern themselves with in the designated hitter. Using Kansas City as an example, the Royals acquired Kendrys Morales this year to be their designated hitter. Morales should never be playing first base for the Royals - while he's technically the backup to Eric Hosmer, expect a quick call-up from Omaha for Balbino Fuenmayor to play the position.

So what do the Royals pay for the privilege of having Morales on the roster, despite the fact he should never field the ball? His current deal is worth $17 million* over two years, and that's not at the high end of the spectrum. Alex Rodriguez obviously pulls in the most dough (due $21 million cash money in 2015), while David Ortiz will make $16 million, and Nelson Cruz and Nick Swisher will pull down $15 million this year. Only two teams (Houston and AnaheimLA) aren't paying at least $3 million for the position. Morales makes the median salary for DHs in the MLB at $8.5 million.

What does an NL team gain in avoiding the opportunity cost of carrying a designated hitter on the roster? The average NL payroll this year is $124 million (inflated by the insane spending of the Dodger), and the median payroll is $105 million (Milwaukee Brewers). That means if the Brewers were the Royals of the AL, 8.1% of their payroll would be going to Kendrys Morales. In this scenario, Ryan Braun is probably gone from Milwaukee. Unless they can develop one for cheap (doesn't happen), the Brewers would have to make a major decision in whether to be competitive by overpaying for a DH (I consider DH the most overpaid position in the league), or having a guy hitting .210 in the line up.

Or maybe not. If all NL teams are subject to the DH rule, the cost of pitchers would likely decrease. Cruz could command more money because 30 teams want him rather than 15, but all other positions would take a salary hit because NL teams would have less money to spend on non-DH positions. And that includes pitchers. Finite resources and all that jazz. I guess the takeaway is, blame the DH rule for inflated payrolls. And go Johnny Cueto.

*For consistency, all numbers should be in 2015 cash, not payroll hit.

Friday, July 24, 2015

The Best Polling Spot in the Republican Primary

It's July 2015, and America has already checked out of the Presidential election set to take place November 2016. Or maybe they never check out, because election season never ends. Or maybe they're permanently checked out because election season never ends. I don't know. Here's what I do though: a candidate currently outside the top ten is going to be one of the top finishers in the Republican primary, and there's some game theory that encourages this positioning.

As of the RealClearPolitics polling aggregate published yesterday, the list of candidates outside the top ten includes Rick Perry, Carly Fiorina, Rick Santorum, Bobby Jindal, and Lindsey Graham. Some of these candidates we know will be written off at the end of the day: Santorum might not actually understand how the constitution works and fails to exhibit any critical thinking ability on foreign policy. Jindal probably can't defend the direction he sent Louisiana in over the course of a campaign. I feel like Graham isn't seriously running, he just wants to push the party in a more hawkish direction (and in that is succeeding). But each of these could mount a noticeable campaign along the way, while Perry has worked hard to redefine himself, Fiorina could grab all sorts of suburban soccer moms, and some other candidates such as Chris Christie and Ben Carson may still take flight.

We get it, there are a lot of candidates in the field. So what's the best spot? I'll take #12 (give or take one). That's money.

Being top dog early on carries great peril. During the 2012 primaries, the Republican field systemically destroyed each candidate that took a lead until Romney finally held on. Ignoring Donald Trump, Jeb Bush presently leads all candidates. That puts a target on his back, and he'll be attacked in the coming months by all comers. Yet how does a candidate distinguish themselves to eventually overtake that top spot in the first place?

Our Presidential debates are travesties of democracy that cable news relentlessly covers. The news doesn't cover the issues, it covers the horse race. Who won? Who lost? Who best positioned themselves for the next round? And that's where a #12 distinguishes themselves. Fox and CNN have stated the top ten polling candidates will have one debate, and the leftover candidates get a secondary platform (interestingly, while CNN has clearly established rules for defining top ten, Fox does not, leaving the door open for them to choose which top ten they actually want on stage to a degree. Think the refusal to acknowledge Ron Paul in 2012 from Fox). And the winner of the secondary tier is due for attention and fawning: "Which candidate from tonight could we see on the main stage next time," and "who among the second tier looked like a serious contender?" With the spin cycle of our 24-hour entertainment news industry, that's phenomenal press. I guarantee the media will devote hours to the second tier debate outcome, and if one actor clearly outperforms the others, that's money. Even better, it doesn't carry the target of winning the big boy debate. 

I've been chewing on this idea for a couple months, and it just seems right. Candidates polling at #8 or 9 have little chance of distinguishing themselves and will likely drop out. If you're not in the top five, there's one way to hope to win: beat everyone else polling outside the top ten.

Wednesday, April 22, 2015

The NFL Still Can't Get Scheduling Right

The Kansas City Chiefs 2015 schedule was released last night (the opponents have been known for some time, but not the dates). Some excitement awaits: a Thursday night home game against Denver (who has NFL Network and wants to let me use it?), Monday Night Football at Green Bay, and a Sunday night game at San Diego. Plus the London game against Detroit (which I still plan on making my first visit to Europe to see). Oh, and the Thursday night game against Denver is the home opener to boot.

Two issues. The first is that the bye (November 8) immediately follows the London trip, as it should. And it falls at an appropriate time - halfway through the season. That's fine, but it's still a load of bull that other teams have their bye in September. All byes should take place after a team has played 7-10 games. Does the NFL lose revenue because it has fewer games to show during these weeks? Possibly. But that's when teams need the time off before the playoff push, not after week four when injuries haven't had as much time to pile up. It just makes sense. From a team's perspective.

The second issue is that the final three games of the season are: at Baltimore, CLEVELAND, OAKLAND. The final game is fine. In fact, that's the way it should be - Kansas City/Oakland and San Diego/Denver to end every season. But where are the Bolts and Broncos? While very plausible that the Chiefs could be jockeying with the Ravens and Browns for a wildcard spot, I guarantee the greater intrigue would reside in a season-ending round robin against the other division opponents. Going into the last three games, the majority of divisions should have three (or even four) teams still in the playoff mix assuming they must still all play each other. That should be the goal for every division, and its disappointing the NFL doesn't make it a higher priority.

Sunday, March 29, 2015

Typing For the Sake of It

It's a noon on Sunday and there's some downtime for me I'm not sure what to do with. Most of my waking hours this past month have been spent preparing budget analyses in my office, arguing over language minutia in the capitol, or shuffling between the two. I've also been eating a lot, because that's what happens when you sit around at work for hours on end. However, with downtime that I feel should be spent doing something, I find myself at a lazy loggerhead. Clean my office? Meh. Catch up on some reading? Maybe next month. Address something else needing a productive eye? I'd really rather not. Yet after a decent time devoted to Netflix, I feel that maybe I can compromise with myself and write. Because that's productive. I think.

I've never been one to assemble an outline before sentences flow - I remember in middle school were were always required to turn in an outline, rough draft, and final version of papers. My outline was often completed after I'd already written what I wanted. I'm too disorganized to plan. Too ADD too.

I started dating someone. It's been an experience I'm still trying to figure out. Have you ever dated someone clearly out of your league? Yet she acts as though it's not the case. I'll sort this out someday.