Rundown: Mars explores Kellanova acquisition, ThredUp exits Europe & an Apple store gets its first union contract

0:05Hello, everyone. Welcome back to the Modern Retail Rundown. I'm Gabby Barco, senior reporter at Modern Retail. And I'm here with our managing editor, Anna Hensel, who is back with us this week. Welcome back, Anna. Thank you for having me, Gabby. I am excited to talk with you about one of my favorite topics, which is snacks and other interesting areas of retail. Yes, snacks. Oh my gosh, I'm so excited. I mean, this story kind of just reminds us, Sometimes we forget that there's only a few companies that really own everything. Yes. And so it's one of those stories. But yeah, in today's episode, we're going to be talking about, there's some rumors and reports swirling about Mars, the candy maker, is looking to acquire Calanova, which is a pretty newly formed company that makes Pop-Tarts and Cheez-Its and Pringles, I believe.

1:08So yeah, we will get into that first thing. And then we're going to talk about ThredUp and some of the changes they're making, including pulling out of Europe after a few years of struggling to grow that business overseas. So they'll be focusing on the U.S. moving forward. Lastly, there's a look at how employees at a Maryland Apple store became the first to get a union contract at the company. It's a pretty big deal. So we'll do a check in on that. But yes, first up, let's talk about a new report by Reuters that says that candy maker Mars is considering acquiring Calanova. So Mars is a family owned company and, you know, they make M &Ms, Snickers, a lot of the popular candy we have.

2:02But yeah, this would be the biggest ever acquisition for Mars, given that Kela Nova's current market valuation is about$27 billion. So for those unfamiliar, this is a company that was spun off from Kellogg late last year when the company split its snacks and its cereal business. So Kela Nova is the snack one. It makes, like I said, Pop-Tarts, Rice Krispie treats, all the treats. And so this would essentially, yeah, give away almost half of the portfolio of the original Kellogg parent company. So, yeah, obviously, this is all speculation. But what are your thoughts on these rumors swirling that there could be a potential sale fairly soon after the company was separated?

2:58I think it just goes to show how CPG brands are dealing with so much right now. Inflation, kind of changing consumption habits. And that's why I think you're seeing more interest in these types of mergers. Like, especially when you are a very big company, like both Mars and Kelanova are big companies. sometimes the easiest way to kind of if not change direction but like glom on to a new category is just to acquire another player so I think that you know Mars definitely plays very heavily in like candy but acquiring Kelanova would get them it's so funny talking about this um because like snacks are something I think most people eat every day um but it would get them access to the like salty snacks more, I think, some various chip brands, other brands like Pop-Tarts and Rice Krispies treats, like you mentioned.

4:02So I think it makes sense why we're seeing this. You know, could the two brands live together? That's another question. But I think it makes sense why we're seeing more talks of these types of mergers. And another big question is like, would this ultimately go through? Right. And that's kind of what brings us to this increased scrutiny of food and beverage mergers that we've been seeing the last few years. So yeah, if it goes through, this would be one of the biggest we've had in almost a decade, just valuation wise. Last year, Smucker acquired Twinkies maker Hostess brands for $5.6 billion, just to give context a lot lower.

4:54But yeah, these mega M &A deals in the billions have just become more rare due to regulators blocking them. We see that a lot these days to help keep competition healthy. Because right now, US antitrust regulators are really concerned over these just few corporations and retailers that could potentially control pricing on shoppers. You know, we just saw this with Kroger's and Albertson getting blocked recently. But yeah, the last big food merger was Heinz and Kraft back in 2015. And that was valued at$45 billion. It's just really hard to imagine something like that going through given the current climate of, yeah, just the U.S.

5:42regulators and how they feel about it. Yeah. So the other acquisition you pointed to, which was Smucker's acquiring Hostess brands for$5.6 billion, that is much more indicative of the size of mergers, I think, that we'll continue to go through. And we've seen this in other categories, you know, not in CPG, just these mega mergers and mega acquisitions are increasingly coming under scrutiny. But I think why you are seeing more companies still pursue these types of deals is, especially due to inflation and especially in food and CPG, it's just much harder to operate various brands like these. And the reality is, is that one way to cut costs is to get more of economies of scale to merge or acquire another company.

6:46And so I think that's why we will continue to see companies pushing through deals like these, even if it's unclear if the FTC will allow it. One statistic that was in this Reuters story discussing the potential acquisition of Kelanova by Mars is that according to the Department of Agriculture, food prices jumped 25 % between 2019 and 2023, faster than other consumer goods and services. I mean, and you just think about grocery stores, it's something that you probably visit every week. People see much more sticker shock there. I think they're more likely to make changes in behavior based on the prices you're seeing.

7:37So all these big CPG conglomerates want to get ahead of that. And again, I think that's why you're seeing more deals like this being discussed. Yeah, at this time, the consolidation in just packaged food sector is pretty hot. Like Reuters pointed out, we've seen food makers trying to fend off a lot of threat from inflation, like you said, but also they pointed to weight loss drugs as another just new challenge that could hurt demand for snacks and candies specifically. We've written about this a little bit here at Modern Retail, but that combined with just, yeah, sheer sticker shock on the shelf is just has people buying less.

8:26I mean, the prices are up. So technically, they're still making revenue and profits, but the units are down. And so that's a long term worry, I think for them right now. So yeah, having just more brands under the umbrella naturally is is going to help out with that. Right? I feel like just the through line here is operating a CPG brand or CPG conglomerate has become more complicated. And these mergers and acquisitions are also complicated to figure out. But while there is so much that's challenging about the environment, again, I think we're going to see more companies try to push through deals like these.

9:10Yeah, exactly. And so obviously, like I said, this is all pure speculation at the moment. Though there is, the people familiar with the matter did say that if not Mars, then it could be another company that acquires Kelenova. So yeah, there is reason to believe that it will be a little bit complicated if a merger this big goes through, at least for the FTC. Well, next up, let's move on to ThredUp, which is another company that's facing some challenges right now. So this week, the resale platform said that it's shutting down its European operations. So, you know, ThredUp has been in Europe for a few years, but in their Q2 financial results, they announced a few changes that we're going to go over right now.

10:05But yeah, Ana, what are your thoughts on pulling the plug in Europe after investing, you know, millions of dollars in there? I think that it makes sense. I think that ThredUp is still kind of a startup, honestly. And the reality is, again, it's a very inflationary environment. It is a very challenging environment for a lot of companies to operate in. And so I think it makes sense for them to focus on their U.S. business versus trying to continue to grow this Europe business, which they had been building out for a few years based on an acquisition, which we could get into. Yeah, so this will also entail figuring out what to do with the startup Remix.

10:56It's a Bulgaria-based resale website that ThredUP acquired in 2021 for about$28 million. It operates independently, but that will likely have to be divested. And then ThredUp generally did invest over$20 million in cash over the last six quarters to grow European sales. But like we said, it just couldn't crack the code for a lot of different reasons. One of the biggest ones is just that resale is really hard to do online, as we've seen. And because that demand is down, it's just naturally resulting in slower sales. Right. And there was one, as you mentioned, ThredUp had invested over$20 million in cash over six quarters to grow European sales.

11:48And I think that there was a quote from the CEO in the earnings call where basically, it was kind of like, I think it sounded like the executive team was like, what if we had invested this$20 million in our US business over the past six quarters. And so I think that, again, when we are in a tough business environment where companies like ThredUp kind of have to pick and choose where to focus, I think it makes sense that they would want to invest that$20 million in their U.S. business because there are still things that I think they need to figure out with their U.S. business. I just generally think that resale is a very challenging business to operate because you also have to attract more buyers and sellers.

12:38So it's kind of like a two-sided business. What also makes ThredUp's business challenging is it operates on a consignment model. So like resale can work in Europe. I mean, Depop was started in the UK, but the challenge with ThredUp is that, again, it's a consignment business. And so it's not peer-to-peer. ThredUP holds onto the inventory, whereas a peer-to-peer company like Poshmark, basically if someone buys a piece from you on there, you send it to them directly. So it just added another layer of complexity. I think there's a lot they can still focus on in their U.S. business. So let's look at why ThredUP is having trouble internationally.

13:23We could look at the latest performance to shed more light on their decision. So for the second quarter, it reported revenue of$79.8 million, which is down 3.5 % year over year. U.S. revenue was flat, but in Europe, sales were in trouble. They were down 18 % compared to the previous year. So So that kind of that's that's a big number. So that kind of goes to show how big the losses were. And then the net losses for the quarter did narrow from 18.8 million last year to 14 million. But yeah, I think by by the third quarter, they are expected to present U.S. only results. So this will happen pretty quickly.

14:12As you pointed to, the Europe business reported the biggest drop, but sales in the U.S. were also flat. And so ThredUp has been making other changes to improve sales and profit margins. Some of that has caused negative or mixed results. So one thing they experimented with is they changed the discounting for first-time customers from percentage to dollars off, which it sounds like in the earnings call they didn't have a lot of success with. The challenge with a company like ThredUp also is that sometimes they're selling$20 shirts. And so while promotions can be helpful for bringing in first-time customers, if it's too much, it just like really erodes their margins.

15:06So I think that they still need to figure out, a lot of first-time customers now expect some type of discount, but they have to figure out a way to make it work for them. Um, again, the other challenge with the resale business is just you have to figure out new ways to attract both buyers and sellers. Part of that is through incentives, but also I think part of it is just making the platform more interesting to shop off of. So to that end, one thing ThredUp is really investing in, this week they announced AI-based search and discovery tools. So it would be to basically help customers offer them more solutions for finding different outfits or style types on ThredUp.

15:55And there is this one quote from the CEO that I think really underscores how big of a priority this is. So the CEO, James Reinhart, said, I want to emphasize the most significant product launch we've had at ThredUp in a long time, arguably since we launched the company more than a decade ago. Much of the customer innovation from here will build on top of this foundational technology for merchandising, discovery and inspiration. And so I think the AI stuff is really interesting. And again, it just points to there are so many things that ThredUp can still invest in outside of building this Europe business or investing more dollars to grow it.

16:39And this is just one example of something else that ThredUp can focus on now that it's exiting Europe. But like we said, you know, overall, the business has slowed down, especially since the sort of peak pandemic days when we were writing a lot about there's a resale boom happening. There's just general interest in e-commerce that was trickling down to secondhand apparel. But because there's a cutback also in general spending on apparel, coupled with some of these decisions or mistakes that the companies made in the last few years, there's a lot to course correct right now. And so maybe focusing in, honing in on the U.S.

17:21is that direction that they're going in right now. The thing with public companies also is that it can take a few quarters to establish if they're on the right track. So I think we'll just have to look at, keep an eye on their performance over the next few quarters and see how this decision to exit Europe continues to impact their business. All right. Well, lastly, let's talk about Apple stores. Specifically, there's a group of workers at a Maryland store that became the first Apple store to get a union contract. This has been a years long effort to get this signed. But yeah, let's recap what's been going on at this specific Apple store.

18:07starting with, you know, the employees actually first voted to unionize in June 2022. So a little over two years at this point. That's how long it's taken. Right. Yeah. And so when I first saw this headline, I think I have this moment anytime we cover union news, I was like, wait, didn't they already unionize? But the reality is, is that it takes a while to get a contract signed. So So as you mentioned, employees at this Maryland store first voted to unionize in June of 2022. And then since then, I think there's been a bit of a push-pull between this store and Apple corporate. Apple kind of made a move that I think that we see, if not a lot, like decently, frequently from big retailers after their first employees unionized, which was basically in the fall of 2022.

19:12So after the store unionized, Apple announced some new benefits for store employees. This included new healthcare options, a free Coursera subscription, prepaid tuition at some colleges, but that did not apply to union stores. And so it sounds like as these employees were trying to negotiate this contract, I think there just was some push-pull between changes Apple announced where it was unclear if that would apply to employees at that store. So per the New York Times, negotiations also started to become more contentious over changes that Apple was pushing to the schedule and availability of part-time workers, basically, you know, when do part-time workers need to be available?

20:03And those changes would have reportedly forced some workers at the Maryland store to quit. So in May, workers at the Maryland store voted to authorize a strike. And I think that seemed to kick some things in motion. The two sides were able to agree to a deal. And so the contract will raise wages roughly 10 % over three years for workers at the store. And workers at the store will also receive the same benefits as non-union stores. So let's look at how this compares to other union drives that have been taking place in retail. You know, we had a couple of hot labor summers, a lot of unionization efforts going on.

20:48But what's interesting is that there hasn't been as big of a wave at Apple unionizing stores compared to Starbucks and REI, which have been in the news pretty frequently on this front. In December 2021, the first Starbucks store voted to unionize. Now there are more than 470 union stores in the company, according to Starbucks Workers United. So yeah, Starbucks represents probably the biggest wave of unionization, which makes sense with the baristas. But then there's also, we've been covering REI, our reporter Melissa actually has been covering this pretty heavily, REI Union, where 10 stores have won their election to join the union movement there.

21:37But yeah, Apple has just been a lot slower of a movement. Yeah. So the only other notable unionization effort I could find was at an Oklahoma City store that voted to unionize in October of 2022. But other recent unionization efforts have failed at Apple. So for example, a union vote held at a New Jersey store failed earlier this year. And in all cases, getting the contract signed is a slow-going process, as corporate management remains at odds with many of the union shops in multiple instances. Starbucks has been ordered to reinstate workers that were fired after leading union drives at their stores.

22:28And in February, Starbucks did announce a new framework for negotiating with Workers United, the group representing many of these unionized workers, which some hope will lead to a breakthrough in contract negotiations. But as I think what you're seeing here is a lot of little bursts of progress, a lot of back and forth with corporate after these stores unionize and kind of just this constant push pull until, I mean, this Apple store successfully got a contract, but the reality still is, is that a lot of these stores that have voted to unionize have not gotten a contract. What do you feel like is the next step for unionization in retail after all of this.

23:22Like you said, it's been sort of stop and go for a while. But yeah, even though it can be pretty slow to get these contracts signed like a couple of years at this rate, I don't see them slowing down any time soon, right? It feels like this is sort of a floodgate that's been opened. I agree. And it can be hard to tell why unionization efforts are catching more momentum at some chains like Starbucks compared to others like Apple that is much more slow going. I think that part of it has to do with the fact that retail workers at different stores have more ways to connect than ever before thanks to social media and also to see what their peers at retail stores are doing.

24:10So honestly, like if you if you work at a big chain, historically, you probably only get communication with that store and with corporate, you might not have, say, a Starbucks email. And so historically, workers at different stores, I think, have just been very isolated and not aware of how workers at different stores, the challenges they might be facing, the things they might be doing. But I think that just simply what's happening is as some of these workers are seeing more momentum at different stores, it just kind of has caught like wildfire a bit. And I also think that this comes at a time when the job of a retail worker has become much more tumultuous.

25:02So you have, I mean, just think of everything they went through during COVID where they were deemed essential workers, but also had to manage customers who were coming in without a mask or were yelling at them over toilet paper shortages or something. And then you have inflation, which just has, I think, not just retail workers, but a lot of workers, they are finding that their paychecks don't go as far as they used to. And then just other, I mean, I think of just weird, weird maybe isn't the right word, but just customer behavior, like people filming Chipotle workers making their burrito bowls and like wanting to make sure they get the proper portions.

25:50Like customers are so much tougher, I think, on retail workers than they used to be. And if you're a retail worker, it just like, I think it feels like every day there's just some new challenge you have to deal with. And to them, unionizing represents one way to get stability. So you're also seeing more unions push for things in negotiations that maybe they wouldn't have previously. Again, I think that worker safety is a bigger concern, also as reportedly levels of shoplifting are up. So again, Melissa, our reporter who has covered a lot of the unionization efforts of REI, did a story about how worker safety is coming out much more in negotiations.

26:37Workers are pushing for things like minimum staffing levels at stores to ensure somebody's not working alone or trying to make it have in writing like what their interactions should be with a or what the relationship is with a third-party security company a retailer might employee. So all to say, I don't think that this is slowing down. And I think that you will see more efforts of unionization, but also just workers pushing for different things in these contracts than maybe they would have historically. Yeah, I think, and just as an aside, there seems to be also generally more public interest and, you know, media coverage of a lot of these drives.

27:28I remember like the Amazon warehouse drive a couple of years ago got a lot of national attention. So it just seems like, I guess, a lot of stars aligning. But then, yeah, after the unionizing part, it's like there's always this little period where we don't hear about it and then kind of circles back around. But like you said, yeah, I think we'll probably keep seeing more of these. Right. the question is how many of them like the Apple store will successfully get to the contract stage yeah exactly all right well that's a good place to leave it I think so that is our show you can rate and review us on Apple Podcasts Spotify anywhere else you're listening and don't forget to subscribe to the Modern Retail Podcast to hear interviews with industry leaders on Thursdays hosted by Kale.

28:23And of course, come back on Saturdays here at the Modern Retail Rundown to hear more of our recaps. And thank you for listening.