Isegoria

The Japanese have a reputation for obsessive attention to detail, and that is why everything is made better in Japan:

Japanese chefs are now cooking almost every cuisine imaginable, combining fidelity to the original with locally sourced products that complement or replace imports. When they prepare foreign foods, they’re no longer asking themselves how they can make a dish more Japanese—or even more Italian, French or American. Instead they’ve moved on to a more profound and difficult challenge: how to make the whole dining experience better.

As a result of this quest, Japan has become the most culturally cosmopolitan country on Earth, a place where you can lunch at a bistro that serves 22 types of delicious and thoroughly Gallic terrines, shop for Ivy League–style menswear at a store that puts to shame the old-school shops of Cambridge, Massachusetts, and spend the evening sipping rare single malts in a serene space that boasts a collection of 12,000 jazz, blues and soul albums. The best of everything can be found here, and is now often made here: American-style fashion, haute French cuisine, classic cocktails, modern luxury hotels. It might seem perverse for a traveler to Tokyo to skip sukiyaki in favor of Neapolitan pizza, but just wait until he tastes that crust.

[...]

Though many Japanese foodies and critics deride the Michelin Guide for a perceived ignorance of traditional Japanese food culture, the publication of the first Red Guide to Tokyo just four years ago signaled a tectonic shift in the international culinary scene. In the latest guide, 247 of Tokyo’s restaurants have stars—almost four times the number in Paris, and more than the total number in London, New York City and Paris, pointing to the spectacular appeal of this city to foreign palates. (And it’s not just Tokyo: The Kansai region also has more starred restaurants than those foreign cities combined.)

It’s no surprise to see the top ranks of Japan’s Red Guide populated by tiny sushi bars and extravagant kaiseki restaurants, but each year there are also more and more non-Japanese restaurants earning stars for their creative cooking. One of Tokyo’s three-star establishments—an honor awarded to only 15 restaurants in the main cities of Europe but to 16 in Tokyo alone—is Quintessence, which serves contemporary French food created by a young Japanese chef named Shuzo Kishida.

[...]

According to almost every non-Japanese chef I’ve spoken to, Japanese chefs, even those cooking non-Japanese cuisines, are the most highly trained and technically adept in the world. Patrice Martineau, a French chef now in charge of Peter restaurant in the Peninsula Tokyo, put it this way: “I’m living the dream of every French chef I know. I have an entire kitchen staff of Japanese working under me. There’s no one in the world who works harder, faster, better.”

When Japanese chefs finally return home to cook, the restaurant business gives them a kind of auteur status that’s virtually unheard of in the rest of the world. Cesar Ramirez’s Chef’s Table at Brooklyn Fare, which was recently awarded three Michelin stars, famously seats only 18. But there are hundreds of such tiny non-Japanese restaurants in Tokyo alone, and many thousands more Japanese places.

In a recent speech promoting a jobs bill, President Obama told Congress, “Everyone here knows that small businesses are where most new jobs begin.” Close, but not quite, Michael Ellsberg says:

In a detailed analysis, the National Bureau of Economic Research found that nearly all net job creation in America comes from start-up businesses, not small businesses per se. (Since most start-ups start small, we tend to conflate two variables — the size of a business and its age — and incorrectly assume the former was the relevant one, when in fact the latter is.)

If start-up activity is the true engine of job creation in America, one thing is clear: our current educational system is acting as the brakes. Simply put, from kindergarten through undergraduate and grad school, you learn very few skills or attitudes that would ever help you start a business. Skills like sales, networking, creativity and comfort with failure.

No business in America — and therefore no job creation — happens without someone buying something. But most students learn nothing about sales in college; they are more likely to take a course on why sales (and capitalism) are evil.

Moreover, very few start-ups get off the ground without a wide, vibrant network of advisers and mentors, potential customers and clients, quality vendors and valuable talent to employ. You don’t learn how to network crouched over a desk studying for multiple-choice exams. You learn it outside the classroom, talking to fellow human beings face-to-face.

Start-ups are a creative endeavor by definition. Yet our current classrooms, geared toward tests on narrowly defined academic subjects, stifle creativity. If a young person happens to retain enough creative spirit to start a business upon graduation, she does so in spite of her schooling, not because of it.

Finally, entrepreneurs must embrace failure. I spent the last two years interviewing college dropouts who went on to become millionaires and billionaires. All spoke passionately about the importance of their business failures in leading them to success. Our education system encourages students to play it safe and retreat at the first sign of failure (assuming that any failure will look bad on their college applications and résumés).

There is not one job market in America, but two:

The formal market we always hear about — jobs that get filled through cold résumé submissions in reply to posted ads — accounts for only about 20 percent of jobs.

The other 80 percent get filled in the informal job market. Any employer knows how the informal job market works: you need a position filled, so you ask your friends, colleagues and current employees if they know anyone who would do a good job.

In this informal job market, the academic requirements listed in job ads tend to be highly negotiable, and far less important than real-world results and the enthusiasm of the personal referral.

Copying Trader Joe’s isn’t as easy as it might sound:

Only Walmart comes close to approaching Aldi in size if not global reach, and the efficiency, popularity, and profits of Trader Joe’s have not gone unnoticed by the Walton family. You can’t dash in for a good bottle of chardonnay and a package of fresh chicken enchiladas at Walmart. Aisles stretch the length of a football field, and on entering, one panics like a jungle primate discovering the Serengeti; a sharp longing for the crowded warrens and easy pickings of Trader Joe’s can seize the mind.

In 2009, Walmart tried to duplicate the Trader Joe’s experience. Its homespun prototype was named Marketside by Walmart. Four stores opened in the Phoenix area, each averaging 16,000 square feet—large for a Trader Joe’s but postage-stamp size for Walmart. Marketside turned out to be a failure. Stores reportedly took in less than $70,000 a week, a fraction of what a single Trader Joe’s can earn, and last year Walmart ended its small-scale experiment, shutting down the Arizona quartet.

Fresh & Easy has enjoyed better luck chasing Trader Joe’s. The British-owned company runs 168 stores (more are slated), but Fresh & Easy has encountered setbacks, too. In the past year 13 stores have been closed for underperforming and, making matters embarrassing, Human Rights Watch has issued a 104-page report detailing violations of workers’ rights at Fresh & Easy and at its parent company, Tesco. Aggressive campaigns to avoid complying with U.S. labor laws were cited.

The recent attacks on private equity are anticapitalist claptrap, Jonathan Macey — professor of corporate law, corporate finance and securities law at Yale Law School — says:

Private-equity firms make significant investments in companies, mainly U.S. companies. Most of their investments are in companies that underperform industry peers. Frequently these firms are on the brink of failure.

Because private-equity firms are, by definition, equity investors, they make money only if they improve the performance of their companies. Private equity is last in line to be paid in case of insolvency. Private-equity firms don’t make a profit unless their companies can meet their obligations to workers and other creditors.

The companies in which private-equity investors are able to turn a profit generally grow, rather than shrink. This is because the preferred “exit strategy” by which private-equity firms profit is to take the private companies in which they invest and enable them to go public and sell shares that will help the company grow even stronger. As for turnaround success stories, Continental Airlines, Orbitz and Snapple have all benefitted at some time from private-equity investment.

Or take Hertz. Ford sold Hertz to private-equity investors in 2009 for $14 billion. These investors were able to take the company public less than a year later at an equity valuation of $17 billion. The Hertz success story is consistent with the empirical data that indicate companies owned by private-equity firms typically outperform similar companies that do not have a private-equity investor (as measured by profitability, innovation and the returns to investors in initial public offerings).

Private-equity firms not only help corporate performance, but in the long run they lead to more employment and higher wages as well. The alternative to the leaner, smaller firms created by private equity are bankrupt firms that do not employ anybody. And private-equity firms tend to use more incentive-based pay than other firms. A 2008 Government Accountability Office (GAO) report shows that the companies in which private-equity firms invested had low employment growth relative to their peers, and their employment growth rose after they were acquired by a private-equity firm.

All more-or-less true — but not entirely, as commenter Constantine Gonatas notes:

“Equity investors do not get paid until the creditors do. ”
This is true in bankruptcy, but not necessarily in private equity because what happens is often the private equity owners take on additional debt then dividend the proceeds – frequently paying back their initial equity investment and far more. His statement is technically true but applies only to a particular circumstance (bankruptcy). The implication that it may be generally true appears to be misleading.

Furthermore, his conclusion that private equity owners would never pay dividends if that would put their investment into insolvency, because it’s both illegal and they would get sued, is only really applicable to a situation where the company would become immediately insolvent. It does not apply to the many cases where after the dividend, the company still had enough cash to pay its immediate bills but not enough to cover interest and principal repayments in less than rosy scenarios where the company doesn’t “turn around” as the new owners hoped. This happens very often during recessions. In fact, one banker mentioned to me once that if private equity owners’ holdings don’t go bankrupt a fair percentage of the time, “they are not taking enough risk. (ie. leverage)”

What we have here is a governance and agency problem because the private equity owners are never taking risks with their own money. Heads they win, keeping 20% of the profits (their compensation being taxed preferentially at capital gains rates, unlike the incomes of the poor slobs who toil to make their holdings succeed), tails the employees and debt holders lose. In fact, the debt holders almost always lose because the value of the debt goes down when the company is leveraged – even if the new debt is mezzanine, it still deprives the company of cash to meet future obligations.

Joe Coulombe sold Trader Joe’s to Theo Albrecht back in the 1970s. Albrecht had already lived an interesting life:

Albrecht had wanted to be an architect as a young man. But when he returned home from North Africa following the war, he discovered that the destruction in Essen was almost total. Essen had been home to weapons producers for the Third Reich, and it was the target of a long and intense Allied bombing campaign. As a prelude to Dresden, Essen was firebombed on the evening of March 5, 1943, when 442 aircraft attacked the city, leaving some 50,000 people homeless. Albrecht gave up his dreams of becoming an architect, choosing to stay on with his mother and her struggling corner shop. Eventually he was joined by his brother, Karl. In 1961, the brothers named their newly expanding grocery company Albrecht Discount, Aldi for short. Theo kept a low profile. In fact, the most public thing he ever did was to disappear against his will.

In November 1971, Albrecht was kidnapped at gunpoint. Initially the German police were confused. It was not Baader-Meinhof or Black September that had orchestrated the abduction. Instead it was Heinz-Joachim Ollenburg, a down-on-his-luck lawyer with gambling debts, and his accomplice, a bumbling thief nicknamed “Diamond” Paul Kron. The kidnappers, too, were at first confused: They didn’t believe the man in their possession wearing an inexpensive suit was Albrecht and demanded some form of identification. Albrecht was held captive for 17 days, during which time he reportedly negotiated down his own ransom of 7 million deutsche marks. Later he wrote off the sum as a business expense on his taxes.

By the time of his death last year, Albrecht and his brother had built Aldi into an umbrella corporation that included more than 9,400 stores in 20 countries. Trader Joe’s was not the brothers’ only foray into the American marketplace—there are Aldis across the eastern half of the United States. To navigate German laws of corporate transparency aimed at large organizations, the Albrechts broke Aldi into 66 smaller units. Theo ran Aldi North, and Karl managed Aldi South. “The brothers lived under intense security,” says Coulombe. “They never drove in the same car.” In 1979, Coulombe finally agreed to sell Trader Joe’s to Albrecht for an undisclosed sum. He stayed on, running the company’s operations until 1989, when, he says, “Herr Albrecht and I got into an argument over hiring my successor, and that became the turning point.” Coulombe left his company for good, and his contribution was eventually erased from Trader Joe’s corporate history.

After he’d been released by his kidnappers, Albrecht spoke briefly with reporters. “I am, of course, very, very tired,” he said. “It was a very exhausting business.” That was the last public statement he ever made.

Trader Joe’s enchanted aisles cant to the left, in a chevron pattern:

(Americans, it turns out, move counterclockwise through grocery stores: Our first bias upon walking through the automatic glass doors is to avoid going left, maybe because we shop as we drive, on the right.) The offbeat floor arrangement complements Trader Joe’s unregimented persona: “Hey, we just threw up some shelves, and there they are.” It’s also a retail trick. Angled passageways reveal a store’s contents in profile to arriving shoppers. Rows squared with the walls (see: any supermarket) inadvertently conceal their contents from customers peering into a corridor’s mouth looking for the toothbrush display. At Trader Joe’s, chevroning opens space necessary for the stores’ midsize liquor and produce sections. A fruit and vegetable section running the length of a store, common at Ralphs, is beyond Trader Joe’s needs; the company refuses to move into the perishable fresh produce format, preferring the shelf time and savings that plastic-wrapped organic broccoli crowns offer.

Because Trader Joe’s designs its own packaging, the company can coordinate its aisles into aesthetically pleasing color fields. Walk into a Ralphs or a Pavilions and examine the shelves. Morton Salt blue clashes with La Victoria green clashes with C&H beige clashes with Prego black. It’s a mess. But Trader Joe’s has a unified palette: The ice creams match, the pizzas blend with the masalas, the soups with the stocks. Not that every Trader Joe’s product carries the company’s logo — a branding tool originally thought up by Coulombe. There’s Tom’s of Maine toothpaste, Balance bars, and all that liquor — 20 percent of the stock is estimated to carry another company’s label. But the Sweet Potato Frites, the Brownie Truffle Baking Mix, the Fully Cooked Seasoned Pork Roast with Barbecue Sauce, and the Candy Cane Joe-Joe’s? All are made by businesses that have sealed a relationship with Trader Joe’s. Typically such a pact arrives after one of Trader Joe’s four top buyers — who are said to circle the globe like Predator drones seeking fresh product — lock in on a provider. (Alternately companies pitch Trader Joe’s “category” buyers over the phone.) Often Trader Joe’s chooses regional companies for the price break. The European Style Organic Yogurt found at the Arroyo Parkway store is not cultured by the same dairy that supplies the 14th Street outpost in the East Village — Trader Joe’s would lose money refrigerating and shipping yogurt cross-country. Since those dairies also don’t need to fret over shelling out cash on advertising or supermarket slotting fees, they can offer yogurt to Trader Joe’s at a discount.

The secretive company won’t reveal who makes their products, but inquiring minds want to know:

Trader Joe’s Soyaki sauce is Soy Vay Veri Veri Sauce that has been relabeled; the Vienna Style Lager is Gordon Biersch in a different bottle; the Organic Tofu Veggie Burgers are Wildwood SprouTofu Veggie Burgers in disguise; and This Strawberry Walks into a Bar breakfast bars are really Full Circle Strawberry & Fruit Cereal Bars slumming as tarts in drag. (The coffee you drink them with is probably roasted at the Mountanos Brothers plant in San Francisco.)

Joe Coulombe has worked steadily since leaving Trader Joe’s in 1989.  He has served on a number of corporate boards, including those of Sport Chalet, Bristol Farms, and Cost Plus:

Six years ago he was approached by a man named Jeffrey Lubell, who owned a $3 million jeans company named True Religion. Lovell wanted to expand but didn’t know how. Coulombe assembled a four-person board, raised cash, and True Religion is now a $790 million company with 115 stores.

Although the privately held company won’t admit it, Trader Joe’s was founded by Joe Coulombe 44 years ago:

When Coulombe left San Diego and arrived at Stanford in 1949, he knew two cuisines: His paternal grandmother’s New England boiled dinner and his mother’s take on the diet of Tennessee, where her people were from. “I would call that ‘Southern suicide cuisine,’?” says Coulombe. “It was a lot of bacon fat poured on greens.” At a mixer he met a girl named Alice Steere, whose father was a Stanford professor, and at the Steeres’ table was served foods he’d never encountered: Dungeness crab and sourdough bread, steamed artichokes, jug wine, olive oil. “Think of it,” says Coulombe. “I’d never even seen olive oil.” He earned an MBA at Stanford, which, according to Coulombe, was then a near-worthless piece of parchment. “The degree was new,” he says, “and corporations couldn’t make sense of it.” Palo Alto was a different town. There was no venture capital, no training for entrepreneurs. Coulombe — a risk-taker at heart — tested for a job at General Electric but was told his psychological profile made him a bad fit at the regimented company. It was 1954, and his options, he says, “were none.”

Eventually Coulombe was hired by Owl Rexall and asked to come up with a store that could help stanch the company’s losses. By the 1950s, supermarkets had begun stocking health and beauty aids, killing the profits of drugstores like Rexall. The Stanford grad thought small: Sav-On had combined the drugstore with the supermarket, so Coulombe bred the drugstore with the convenience store and came up with Pronto. Just six Prontos were built in L.A. before Justin Dart, Rexall’s president, went against the unanimous protest from his board and acquired a company called Tupperware. Instantly Tupperware outperformed Rexall, and Coulombe received orders to liquidate Pronto. Instead he left Rexall, buying the Prontos on his way out the door. In the span of several years he built 12 more and, by his early thirties, found himself the owner of a mini fiefdom.

It was around this time, in 1965, that a Texas-based convenience store company named 7-Eleven set its sights on L.A. — and on driving Pronto out of business. Coulombe considered fighting them, but, he says, “I knew eventually they were going to kill me.” 7-Eleven quickly bought out Speedee Mart, a chain of 100 convenience stores, then began converting them to Slurpee dispensaries. Coulombe guessed he had less than a few years to think up a concept that could compete. Luckily, he was an avid magazine reader. In Scientific American he learned that a new class of overeducated, underpaid adults was being produced by the burgeoning college system. Sophisticated shoppers were not necessarily wealthy shoppers, Coulombe theorized; they were educated buyers trapped in economic stasis. He decided to mate the convenience store with the liquor store, and that was Trader Joe’s, “Phase I.” His customers would be the classical musician, the journalist, the teacher, the young doctor. In a different article Coulombe read that the more education a person had, the more they drank, so he stocked 70 bourbons and about 100 scotches. (“I had penciled out what a union journeyman made to figure what I would pay my employees,” he says, “and adding liquor was the easiest way to fund those wages.”) Coulombe read about a jet known as the 747 that promised inexpensive air travel to Europe; Trader Joe’s would need to broaden its tastes to match the new traveler. In another magazine Coulombe discovered that the earth’s biosphere was threatened. Overnight, he says, he became a self-professed “Green” and spliced the health food store and the gourmet store onto Trader Joe’s. This was “Phase II” of Coulombe’s company.

Finally, Coulombe gave Trader Joe’s something most grocery chains didn’t have: a personality. It would have its own take on the world — cultivated but casual, spontaneous, moderately liberal, and smart. When you walked into a Trader Joe’s, you would know the store’s tone and its attitude. The personality that Coulombe conceived remains to this day the company’s voice: The Fearless Flyer.

Coulombe continued to tinker with Trader Joe’s. In 1972, he devised what he calls “Trader Joe’s, Phase III.” At that time the trend in grocery merchandising was bigger. Throughout the ’70s, supermarkets were headed toward becoming the 40,000-square-foot behemoths of today that can carry 50,000 items. Yet such steroidal markets would encounter drawbacks to their muscled dimensions. Eighty percent of supermarket shopping time is spent moving from product to product. Half of all store trips are for five purchases or less, and customers on such trips aren’t searching for sale items — price does not alter the behavior of someone looking for only a handful of things. What did this mean for supermarkets? As their floor plans expanded, their sales volume per square foot shrank. They were forced to invent new schemes to compensate for lost profits, charging fees to manufacturers for store placement and “floating” cash (earning bank interest on the daily take).

So once again Coulombe thought small. Instead of 50,000 shelved items, he would drop his number from 6,000 to 1,000. If supermarkets sold 20 kinds of cat food and 40 detergents, he would sell one of each. In doing so, Coulombe maximized the velocity of dollars entering his registers. Shoppers moving 5 feet between purchases instead of 50 pass through a store more quickly, leaving more cash behind. The average supermarket brings in $10 million to $30 million annually in sales. A Trader Joe’s one-fifth the size of a supermarket can make $1 million in a week’s time. Square foot for square foot, that Trader Joe’s outperforms an average Walmart, which would have to do $30 million in business to match it during the same period.

“I took her down to the rocker arms,” says Coulombe, describing the work he did in the late ’70s. “That’s the Trader Joe’s you know today.”

While discussing the history of Trader Joe’s, Dave Gardetta gives a history of grocery shopping:

For centuries food shopping worked this way: People would go to the produce seller or dry goods store, point to what they wanted, and someone behind the counter would retrieve the items. In 1916, a Tennessee-based dry goods chain called Piggly Wiggly did something revolutionary: It let customers touch the merchandise. Piggly Wiggly was the first to offer handbaskets; shoppers were now expected to gather their own grits and hominy. Like other advanced technologies of the era — speeding locomotives on the silver screen that left moviegoers diving for the aisles — Piggly Wiggly confused people. Some felt they were shoplifting. Soon enough, like a Valentino swashbuckler, the craze went nationwide.

But Piggly Wiggly sold only dry goods. You had to find a butcher for meat, a baker for bread, a greengrocer for produce. Larger cities often had one central municipal public market where these sellers congregated. In 1914 in Los Angeles, a 32,000-square-foot public market called the White Arcade, on the corner of Pico and Main, took that municipal model private and became the precursor to supermarkets.

What food stores lacked at the time, however, was parking. Service stations had parking, and superservice stations — gasoline sellers that incorporated businesses around their perimeters — had parking. In 1924, Glendale’s Ye Market Place fused the superservice station with the public market, combining food providers with a large parking lot. This was news: In one day 11,000 cars visited the Ye Market Place just to see what the future looked like.

By 1929, the Ralphs company had pieced together one of the region’s largest chains of grocery stores, some of which — including a palatial structure at 5615 Wilshire Boulevard on the Miracle Mile and a beacon-topped castle at 171 North Lake Street in Pasadena — could fittingly be called supermarkets. They were the first of their kind in the city. Though their baroque exteriors rivaled the majestic cinema fortresses on downtown’s Broadway, their vaulted interiors were plainly functional. An unusual display arrangement — long rows of uninterrupted shelving along which shoppers could move, picking what they wanted — became an industry standard. But it was the immensity of these food halls’ floor plans that stunned customers — as much as 10,000 square feet in size, or a bit larger than an average Trader Joe’s.

What a leap that was. In the history of commerce, nothing like it has been seen before or since: A transaction model common to Mesopotamia was done away with in 14 years. And Los Angeles was the epicenter. In 1926, the western chain Skaggs Cash Stores merged with the L.A.-based Safeway company, forming a group of 750 stores that would open still more supermarkets. Another chain, Young’s Market Company, decided it would branch away from downtown L.A., bringing elegant foods to the “distant” areas of the city — which in the 1920s meant transporting the ingredients for a Waldorf salad to the corner of 7th and Union in Westlake. (Young’s named the new supermarkets Thriftimart.) The Copenhagen transplant Charles Von der Ahe sold off his line of Vons Grocerterias in 1929; a few years later his two sons rebooted Vons into a supermarket company. By 1937, L.A. had a total of 260 supermarkets, more than most states could then claim. Parking lots were standard. Baked goods were standard. More food was available to consumers than ever.