Why the South Is Falling Behind, Why Millennials Are Renting Everything, and How One Owner Fought Back Against Yelp

Get the Oxford Morning Report every day. Click here for a free subscription.

THE ECONOMY

The Wall Street Journal reports that the South is falling behind despite business-friendly policies like low taxes and low wages: “The American South spent much of the past century trying to overcome its position as the country’s poorest and least-developed region, with considerable success: By the 2009 recession it had nearly caught up economically with its northern and western neighbors. That trend has now reversed. Since 2009, the South’s convergence has turned to divergence, as the region recorded the country’s slowest growth in output and wages, the lowest labor-force participation rate and the highest unemployment rate.

“Behind the reversal: The policies that drove the region’s catch-up—relatively low taxes and low wages that attracted factories and blue-collar jobs—have proven inadequate in an expanding economy where the forces of globalization favor cities with concentrations of capital and educated workers. ‘Those policies worked before, then they became fundamental constraints on the [South’s] long-term growth,’ said Richard Florida, an urbanization expert at the University of Toronto.”

Hiring slowed sharply in May especially in industries affected by President Trump’s tariffs: “The US economy added 75,000 jobs last month, a significant pullback from 224,000 jobs added in April, the Labor Department reported Friday. The slow growth was the biggest red flag yet that the economy is under strain. The unemployment rate remained at a five-decade low of 3.6 percent, but wage growth disappointed, another sign of fading momentum. Manufacturing and construction saw particularly anemic job growth in May, one of the clearest signs that Trump’s tariffs are having a negative impact on blue-collar sectors the president has been trying to boost.”

MARKETING

Davide Cerratini, who owns Botto Bistro, a pizza restaurant in California, is fighting back against Yelp after, he says, his refusal to advertise on Yelp resulted in a flood of negative reviews: “‘Those 1-star reviews were from people who never even set foot in my restaurant,’ says Cerretini. ‘One complained about our waiters… we didn’t even have waiters!’ Cerretini began to realize that Yelp was ‘completely controlling [his] reputation.’ And after mulling things over, he decided it was time for more extreme measures.

“He maintained a Hall of Shame featuring facetious Yelp Eliters (or ‘Village Idiots’). He compiled idiotic customer inquiries (e.g. ‘Do you sell burgers?’) and sent out a newsletter of the ‘Stupidest Questions of the Month.’ He posted an FAQ on his website stating that the customer is not, in fact, always right. … One morning in September of 2014, he placed a simple sign in front of Botto Bistro: ‘Give us a one star review on Yelp and get 25 percent off any pizza! Hate us on Yelp.’ (The discount was later increased to 50 percent.) That Friday, Cerretini did more business than he typically did in an entire month.”

TECHNOLOGY

Because of the price, only 21 percent of small businesses are using artificial intelligence or planning to use it in the next two years: “Potato farmer Andrew Mickelsen says he has observed how large agricultural companies are using AI to sort harvests and make smarter on-farm decisions. But the Roberts, Idaho-based farmer says he doesn’t have the time or money to make AI a priority on his 30,000-acre farm. Instead, the company relies on it is up to 400 full-time workers to separate the rotten potatoes. ‘We can’t afford on our own to go and spend all the time and money to put it together,’ Mr. Mickelsen said.

“Many small firms looking to use AI have to build everything from scratch, said Brad Fisher, KPMG’s US leader for data analytics and artificial intelligence. Even then, the firms may lack the breadth of data to train and test these systems before they are deployed. ‘Deploying AI technologies is a lot more complex than tech vendors would lead them to believe,’ Mr. Fisher said.”

If you were forwarded this newsletter, click here for a free subscription.

MANAGEMENT

A 200-year-old business, King Arthur Flour, has been thriving under three CEOs: “King Arthur’s main business, selling five-pound bags of all-purpose flour and high-protein bread flour to groceries across the country is a tough, low-margin one. Global wheat prices have fallen nearly seven percent a year for the past five years, while American tastes have shifted away from wheat to alternative flours and grain-free diets. And competition is tough in the roughly $10 billion domestic flour market, where King Arthur is up against giants like General Mills and artisan peers like Bob’s Red Mill. …

“Despite that, under the three CEOs’ watch, King Arthur has posted mid-to-high-single-digit growth each year, pulling in more than $150 million in revenue in 2018, and doing so profitably. It excels against General Mills’ Gold Medal brand with its all-natural bona fides—no bleached flours and no bromates (flour-stiffening chemicals that improve rise but have been linked to cancer)—and its ability to churn out consistently high-quality product. The company works with millers to keep its protein content within a tight, 0.2-percentage-point range, while competitors’ flour, Colberg says, can vary by as much as two percentage points. That might sound minuscule, but a few percentage points is all that separates a soft cake flour (10 percent) from a stiff bread flour (13 percent), a switch that would be disaster for any commercial bakery. That allows King Arthur to charge a hefty premium: A five-pound bag of King Arthur’s all-purpose flour costs roughly 25 percent more than the equivalent-size bag of Gold Medal.”

STARTUPS

Young people with money are increasingly happy to rent almost everything: “Fernish, for example, is geared toward young people whose design sense comes straight from Instagram, Pinterest and West Elm’s catalog. The company, founded in 2017, trades in imitation Eames shell chairs, midcentury-style wooden dressers and Art Deco-inspired bar carts, offering brands like Crate & Barrel and more boutique names like Campaign. …

“Here’s generally how these businesses work: Users pay a monthly fee (about $50 for American Eagle Style Drop and $160 for Rent the Runway Unlimited) to borrow several garments at a time, often for as long as they want. They are mailed with prepaid shipping labels, so it’s easy to return them after wear; users can choose new items to rent once the returns are processed. If there’s anything they want to keep, they can often buy it at a discount.

“Behind the scenes of many of these rental services is a startup called CaaStle, which has centralized the inventory of many of the labels and handles cleaning, customer service and delivery logistics. The retailers, in exchange, pay CaaStle a per-subscriber fee. Christine Hunsicker, the founder of CaaStle, said that clothing-rental subscribers are typically 28- to 45-year-olds consumers with jobs and average annual household incomes between $50,000 to $150,000.”

OXFORD STRATEGIC ADVISORY DEAL OF THE DAY

Elliott Management has acquired Barnes and Noble Booksellers. The deal is for $683 million including debt. The deal is for a .2 multiple of revenue and a 2.65 EBITDA multiple. “As a private company, Barnes & Noble will likely be more free to make the changes and investment that can be unwieldy under a public spotlight. Part of the bookseller’s turnaround plan has included closing some of its more than 600 stores across the US and relocating to smaller spaces that receive a fresh and modern look. The company has said its prototype stores encourage shoppers to buy books online or from a tablet.”

VENTURE CAPITAL

VCs are going after “pizzapreneurs” that emphasize convenience and healthier options: “The most heavily funded pizza startups appear to target a similar consumer desire. We want a cheap, fast, custom, fresh pizza that tastes good. MOD Pizza and LeBron James-backed Blaze Pizza are two fast-growing chains with this approach. Both serve fast-cooking thin-crust pies with a wide choice of toppings for a flat price. …

“Most of us do not consume pizza for its health benefits. Nonetheless, there are ways to make pies less fattening, more nutrient-dense or vegan-friendly. Startups and their backers are on to this. Case in point: Caulipower, an Encino, Calif.-based startup that makes cauliflower-based pizzas and other snacks. The two-year-old company has raised just over $10 million in early-stage funding to date. For the vegan crowd, there’s Mooliss Vegan Cheese, a startup that sells plant-based mozzarella exclusively to pizzerias and restaurants. The New York company raised $6 million in May to get more people hooked on its coconut oil- and cashew-based cheeses.”

Swiftly, a developer of an enterprise software that helps people maneuver through cities, raised $11.3 million in Series A Funding. The valuation of the company is $37.3 million.

Step, a financial services company for families and teens, raised $22.5 million in a Series A Round.

OBITUARY

The legendary Four Seasons restaurant, which had lost its lease in Manhattan’s Seagram building but spent $30 million trying to recreate the magic a few blocks away, will close Tuesday: “When the restaurant first opened in 1959 in the Seagram Building, it was a game-changer in New York, if not the nation, for its design and food. The space, which was designated a local landmark in 1989, was the work of the architects Ludwig Mies van der Rohe and Philip Johnson. (Mr. Johnson had a regular table at lunch for decades.) Every element, including the bread bowls, was the product of an important American designer. Over the years, the space was adorned with works by artists like Pablo Picasso, James Rosenquist and Richard Lippold, who made the sculpture that hung over the bar in the Grill Room.

“Under the stewardship of a series of restaurateurs and chefs, most notably Joe Baum, Tom Margittai, Paul Kovi, Seppi Renggli, Mr. Niccolini and Mr. von Bidder, the Four Seasons also set a high standard for American cuisine, which had previously lacked prestige. Long before anyone spoke of farm-to-table cooking, seasonal food drove the Four Seasons. (The concept is embedded in its very name.) Influential figures in the culinary world, including James Beard and Mimi Sheraton, helped shape the menu. The composer John Cage foraged mushrooms for the kitchen. The fact that the famous power lunch was said to have been born at the Four Seasons only cemented the restaurant’s status.”

And that’s what’s ahead.

Please send comments and suggestions to mattg@oxfordcenter.com and lfeldman@oxfordcenter.com.

BECOME AN OXFORD MEMBER