Nationalization of banking came at the expense of local communities

There is a section in Death and Life of Great American Cities, where Jane Jacobs describes driving on a US route across the Northeast coast, going through town after town in decline.  

She describes being shocked at seeing a successful community.  Later she learned that it still had a remaining community-based bank committed to making business and building loans, whereas the other neighborhoods she passed through had been redlined--areas determined to be less viable, and therefore too risky to lend money to.

I remember the period of bank consolidation in Detroit.  National Bank of Detroit (NBD) merged with Bank of Chicago, later to be gobbled up by what is now JPMorganChase.  Comerica is the merger of a bunch of Detroit banks, the company moved its headquarters to Texas although it still has interests in Detroit, naming rights for the baseball stadium, Comerica Bank.

Many cities went through a similar process, to the point where most city center regional banks have been acquired by JPMorgan Chase, Bank of America, or Wells Fargo, although there are still some large center city banks here and there.

And studies generally show that as corporations consolidate and leave former headquarters cities, their financial and philanthropic commitment declines 

-- "The geography of giving: The effect of corporate headquarters on local charities," Journal of Public Economics (2010)

It's not clear these days how well local banks function compared to what Jane Jacobs described.  Banks have community reinvestment requirements, but I don't think the reporting is very good.  In fact I think that branches should have to publish infographics each year, detailing their local operations.

This isn't the best example of an infographic, but the best I could find.  I picture one say showing 5 and 10 mile radii from where the branch is located, with information about residential mortgages made, business loans made, and personal loans made.  With demographics breaking down loans by income, race, etc.  I suspect most of the deposits are used out of the area.  Source: BECU.

Philadelphia Inquirer business columnist Joseph DiStefano has a piece, "How Philly lost its big banks, and a little survivor that’s grown in the vacuum," about two books about the history of Philadelphia's banks, most of which have met similar fates to those of Detroit, St. Louis, Chicago, etc.  From the article:

Philly’s big banks lived for generations. That includes Girard and Fidelity, Provident and PSFS, and especially the grandest and toughest, PNB and First Pennsylvania, whose combination as CoreStates was designed to keep Philadelphia in business as the nation’s oldest financial center.

These big banks funded factories, transport, and trade, taught school kids to save, guarded fortunes, decided who in the divided city got to buy property and who had to rent, intervened in public crises, and hired armies of workers, many of them low-paid women with little power but vast responsibilities.

These banks all vanished in the merger mania of the 1980s and 1990s, amid mass layoffs that emptied Center City office towers. The biggest bank still based in the metro area is now Delaware’s WSFS, which bought its way into the vacuum left by the passing of the big lenders after enduring its own near-death experiences.

As it happens, Charles Coltman III, the No. 2 executive at CoreStates when it vanished in a $20 billion 1997 merger, and Marvin “Skip” Schoenhals, the man who saved WSFS from a near-shutdown, then a threatened takeover, have now published memoirs giving their insider accounts of the news events of more than a quarter century ago. What can we learn?

... a tough but supple credit culture that he argues has been stripped, leaving promising businesses without hope of healthy funding, by rigid regulators captive to the Wall Street mega-banks.

 ... Beyond the scope of the book is the larger question of why Philadelphia bankers, so strong for so long, lost public influence, their sense of personal responsibility, and the moral will to excel, leaving a hole in the city’s leadership.

... Schoenhals’ book, cowritten with Brittany Kriegstein, is, like Coltman’s, part life story. It goes on to recount the rescue takeover of the badly over-extended former Wilmington Savings Fund Society by canny investors who put the well-connected, straight-arrow manager in charge. And it shows how he avoided their plan to resell the bank for a fast profit, won time to rebuild the staff and its credit culture, and boost its stock to stay independent.. 

Then again, one of the criticisms of too locally focused banks, especially those cozy with developers, is that the bank's loan portfolio can be especially risky, if economic conditions change. That's driven many banks to failure.  From the article:

While WSFS recovered as Philly’s banks vanished in the ‘90s, there’s a more recent moral lesson, in WSFS’s eclipse of Delaware’s once-dominant Wilmington Trust Co. At a reception in Wilmington on Dec. 12, Schoenhals recalled how he had limited developer loans to just over 10% of his bank’s portfolio on the eve of the Great Recession — vs. Wilmington Trust’s 40%, enough to sink that bigger company when land values fell. But that story isn’t in this book; he plans a sequel.

A tale of three supermarket companies and innovation: Kroger; Safeway; Albertsons

There was an article in my newsfeed that Kroger, the largest supermarket company, is going to buy Albertsons, the second largest supermarket company ("Albertsons merger with Kroger could be announced this week," CNBC.

A few years ago, Albertsons bought Safeway and its banners.

Kroger.  While Kroger is an impressive company, I have an entry about how they are a great example of what I call "stranded best practice" in that, with a couple of exceptions, they aren't very good at transferring and adapting best practice from one chain to another.

-- "Problem solvers vs. possibility thinkers (and Kroger) ," 2017

Photo: Dave Rossman for the Houston Chronicle.

Besides loyalty programs, the primary exception is the Marketplace format ("Big or small? Retailers take different tacks on store size," Supermarket News), based on Fred Meyer, and like Target and Walmart, which adds general merchandise to the grocery store.  It's not necessarily "every day" low price, as the image of Walmart and Target is, and the range of items isn't quite as large, but they have frequent sales which makes it a viable competitor.

But I think the primary purpose is to make it harder for Walmart and Target to open stores in areas where Kroger operates. (It also helps that your general merchandise purchases can tally up points to save money on gasoline.)

They also bought the New York City based Murray's Cheese store and ported it as the specialty cheese section to their stores across the country.

Kroger is also a leader in store brands--we prefer for example their store brand beans or chicken broth to other store brands, and to national brands.

But while some of their divisions have augmented stores with specialty departments, like "Fresh Fare" in Texas slowly being ported to other markets but seemingly only for banners named Kroger ("Kroger opens another Fresh Fare store in Ohio," Drug Store News, 2008), or the store by their headquarters in Cincinnati ("Inside Kroger’s New Downtown Grocery Concept and Eatery," Cincinnati Magazine) which has a food hall featuring locally owned restaurants, and they bought more upscale chains like Harris-Teeter and Mariano's (Chicago), those practices don't end up in other chains, definitely not the way that Giant-Eagle (Market District) and HEB (Central Market) have a small set of upscale stores, and Giant-Eagle has branded its convenience store-gas stations as GetGo, featuring Market District and Giant-Eagle brands.  (In fact, Kroger had a massive set of convenience stores, didn't learn from Giant-Eagle, and sold most of them off).

Some people report that under Kroger, Mariano's is even being "dumbed down," becoming less special.

Safeway.  To me, Safeway is most impressive for its destruction of shareholder value.  It bought chains in Chicago ("How Dominick's Lost its Way in Chicago," Chicago Business Journal) and Philadelphia, running them out of business, and chains in Texas (Randall's and Tom Thumb) are less successful than when they bought them.  From the article:

Perhaps the key reason why Dominick's ultimately was doomed is something much trickier to quantify — a failure of zestful imagination across the boards. To put it bluntly, Dominick's had become an immensely boring grocery shopping experience. Nothing in the way management designed or merchandised the stores made them distinctive enough to engage shoppers and build loyalty. Any sort of "wow factor" was totally absent.

It cost the company billions of dollars.  How did that not end up with the CEO getting fired?

But they've been very successful with their private brands, like what was called Safeway Select, now Signature Select.  I miss some of those products, like Asian Stir Fry frozen vegetables and seltzers here.  Plus, their loyalty program and coupon doubling (they probably don't do that now).

Petworth, DC.

And earlier than some of their competitors, they began opening new stores in center cities, starting with Portland in 2003. DC has a couple of those stores, Downtown at CityVista, and the Petworth store, which became the ground floor of a multiunit apartment building, which they repeated in Capitol Hill.

The company always remained committed to DC proper, having the most stores of any chain in the city (although they closed small neighborhood stores in favor of larger stores serving multiple neighborhoods to which residents "had" to drive.)

Albertson's today isn't really the same company it was 20 years ago.  It went through an iteration of independence, then it was bought by Supervalu--now no longer in existence itself, a wholesaler and supermarket chain owner, but they sold off a huge amount of stores to private equity (Cerberus) and then the private equity company fixed those stores and bought the rest.

One of their moves was to buy United Supermarkets in Texas, a small company, but one with two specialty divisions, a Hispanic oriented market, and an upscale market, like HEB's Central Market, called Market Street.

Then they bought Safeway, allegedly for their management prowess, but really for their private brands.  They took off the Safeway name--now it's Signature Select, etc. and ported them to all the Albertson's chains, the way that Kroger uses the Kroger brand across chains (although maybe not at H-T and Mariano's).

One of the amazing things Albertson's has done is to take the Market Street format and slowly apply it to other banners.  

For example, there are two stores in Boise--where the company is headquartered, and I guess one now in Montana that are basically Market Streets, super stores.  

Patio furniture displayed in the parking lot of the Broadway Albertson's, Boise.

I was blown away by the one in Boise, next to Boise State University and Downtown, except for the high prices ("Albertsons Market Street Store is a Food Paradise" Progressive Grocer).  It has a second story bar, a ground floor cafe, grass fed beef featuring ranches from the region, creative displays even outside the store.

Conclusion.  So unlike Kroger with what I call stranded best practice, and unlike Safeway in how they destroyed store banners they bought losing billions in the process, the latest iteration of Albertson's under private equity shows innovation.

If Kroger buys Albertson's my sense is that the innovativeness of Albertson's will be left to die.  And I doubt that Kroger will adopt Signature Select instead of the Kroger brand, thereby destroying lots of value and brand equity there.  Although it's possible they'd let those brands continue being offered in the Albertson's banners.

I don't think the acquisition will result in better choices and options for grocery patrons.  But it probably won't hurt.  And outside of some markets, like California and Texas, they don't really compete.

It's possible, with Kroger as the buyer, that they will reduce prices in Albertson's chains, which tend to be higher than Kroger chain pricing.

A Lime dockless electric scooter on 6th Street NW, Washington, DC

Rather than update the entry on e-scooters again, here is a photo of one ready for use in Downtown DC.  I don't think I made it very clear in the previous post that the investors in Bird ought to claw back their investments while they still can, because the firm will be outspanned by the dockless bike share companies adding e-scooters to their mix/platform.

Brief update on dockless scooters (and bike sharing)

Earlier in the week I wrote about dockless scooters in Santa Monica, "Dockless scooters as an example of a lot of money sloshing around in venture capital."

Somehow I missed the roughly simultaneous news that LimeBike is adding e-scooters and electric bikes to its mix. 

It's likely doing this across their entire portfolio, although there are reports about this in Dallas ("LimeBike Plans To Add Electric Scooters And Bikes This Spring," KERA/Public Media) and DC ("First the dockless bikes, now scooters," Washington Post).

As far as e-scooters go, it means that an exclusively e-scooter operation like Bird is likely to be "lapped" by multi-mode sharing operations.

OTOH, Bird can, too, expand into bike sharing. But that requires a lot more capital than $100 million, especially as dockless bike sharing is in its "wild wild west" mode of expansion disconnected from business considerations.

I didn't write about it, but I was thinking about dockless bike share's business story as being comparable to the start of the railroad or interurban electric railway sectors, with various attempts at creating competing services, many of which either never really got off the ground, or ended up merging into other firms.

Apparently, in business schools this is called the "Consolidation Curve" (Harvard Business Review). From the article:

Everyone knows that most new industries are fragmented and consolidate as they mature. But how does that work exactly? Our long-term analysis of mergers around the globe has found that most industries progress predictably through a clear consolidation life cycle—and that companies can plot with some precision where they fall in the cycle.

Although the article's research is on larger companies and tends to occur over a much longer period of time than is likely for dockless bike sharing.

Similarly, with e-bikes, this development by LimeBike and Spin ("Bike-sharing startup Spin is getting into scooter-sharing," TechCrunch), which likely will be copied by other market participants, especially the better capitalized firms like Mobikes and Ofo, makes the e-bike exclusive dock sharing firm, Jump, similarly vulnerable to the firms with multi-pronged sharing platform.

The big question is how many users, who they are, and whether or not they switch from automobiles.  The Wall Street Journal ran a positive article about dockless bike sharing ("Bike share brings promise, and pitfalls"). 

I am still generally leery because the issue isn't access as much as it is willingness to use.  Lack of access to bikes or transit or shoes isn't why most people don't walk, bike, or use transit.  Although with the WSJ writer, he switched to the bikes instead of using ride hailing cars.

These systems tend to appeal to occasional users, rather than regular adherents to sustainable means.  Whether or not the widespread availability of dockless bikes shifts people from primarily using the automobile to sustainable modes is the key question.

And in terms of dockless systems adding functionality to the "sustainable mobility platform," it comes down to whether or not you want to use public funds to do so.  One can argue that the participation by for profit firms means public monies aren't required. 

But because there doesn't seem to be a good economic model for the business, especially with multiple firms participating in the market, it's hard to see a long term future for this element of the sector.

Switching from "all you can eat" pricing to paying by the ride raises the cost.  Note too that by switching from bike sharing membership systems to payment on a per ride basis, users of dockless systems pay 10x more, were they to ride at least twice daily, compared to membership in a traditional bike sharing system.

The Spin program has a monthly membership fee comparable to traditional bike share, but it's almost 4x the price of an annual membership in most places, and still more than double the highest priced system, Citibikes.

Paying more for electric propulsion. With e-scooters, the pricing is by the minute, plus a per use fee of $1.  By an e-scooter then, the cost for a 30 minute trip would be $7, while on a regular dockless bike the cost would be $1 and on a Jump e-bike, $2 for the same length of time.

Conclusion. It still makes more sense to own your own bike, as it's a lot cheaper and provides far more trip flexibility. However, in a place like NYC with high rates of bike theft and difficult storage conditions, alongside relatively short distances between activity centers, bike sharing can be a smart alternative.

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I haven't used a dockless bike.  I don't see a need, since I use an owned bike.  But I "found" a LimeBike discarded in a neighborhood alley and so I rolled it out to a location on a nearby street, by picking it up and rolling it on the front wheel.

It started chirping at me to rent the bike or it would notify the police...