Linda's Marketing Leverage Blog

The Case of the Bay Area's Missing Matzoh

Why was celebrating Passover in northern CA different this year from all other years?

Well, for one thing, because there was an acute shortage of several kosher for Passover staples, including a critical one--matzoh.

Passover matzoh is made from flour and water but must be produced under specific types of conditions to ensure it does not  become leavened, or unacceptable for use during the holiday. Most Jews, even those who are not normally religiously observant, buy and eat matzoh for Passover, so the demand should be fairly constant from year to year.

This year it was the supply that was way off. It appears there was some sort of technical glitch w/a Manishewitz factory on the east coast that severely limited the amount of some types of specialty matzah produced. But that didn't explain why even plain old ordinary matzah,  not just the fancy kinds Manishewitz normally churns out, were MIA.

An article in this week's J, the Jewish News Weekly of No CA, claims this was really a case of confused signals in the distribution channel. For the last several years, chains like Costco and Trader Joes have sold large quantities of matzoh at a significantly discounted price. (The price of matzoh had gone through the roof over the last decade or so. Costco took advantage of this to sell matzoh at a price so so cheap that  one had to wonder if everyone else was gouging consumers or Costco was losing money on every box sold.)

Even though some people eat matzoh all year round, probably greater than 80% of purchases are made for the one-week Passover holiday. So if you don't sell your matzoh supply for Passover, you are pretty much stuck with it afterwards. And there are fewer things harder to get rid of than old, stale matzoh.

This year two things happened here that caused a big disconnect: 

• Most of the retail stores in the area cut way back on their matzoh purchases rather than be forced to "eat"  excess inventory after the holiday
• Costco and Trader Joes decided not to carry matzoh this year at all--eliminating a big source of the product

As a result, it was virtually impossible to find a box of matzoh anywhere in the Bay Area as Passover approached.

Even if you've never been lucky enough to indulge in the ritual consumption of matzoh each spring, what happened here is fascinating. Retail supermarket chains made a rational decision to carry only limited supplies of a product that is both under severe price pressure and has a very short promotional life. The chains causing the pricing pressure, for whatever reason (maybe selling at or below cost finally caught up with them?), decided not to carry the product at all. This resulted in the acute and unexpected shortage.

Who dropped the ball? The manufacturers and distributors take a good share of the blame. One would expect they could make a reasonably accurate forecast of expected annual demand (this is the season when they make most of their profits).  Why didn't someone put 2 +2 together and ask why wholesale purchases of matzoh were so much lower in the Bay Area than usual.

This is also a great example of how markets run based on expectations. We as consumers have been trained to expect a choice of product at both retailers and warehouse clubs/discount chains. The supermarkets had expected to be undercut by the big chains. The manufacturers expected that the market ran efficiently enough that advance orders reflected expected demand. When expectations didn't reflect reality, everyone along the chain, from the producer to the consumer, was caught by surprise, hence the unexpected.

How to prevent this in the future? For one thing, it has been reported that Costco has signaled they will carry matzoh again next Passover in at least some of their larger warehouses. Manishewitz should be expected to have resolved their terribly timed production glitches. And should there be even a hint of a supply/demand inbalance in the future,  some enterpreneur will likely develop a way to exploit and profit from this (maybe a Web2.0 application that lets users track the availability of matzoh on their mobile devices?).

In the meantime, the issue of market expectations has moved to a new front: rice. It appears that Costco and others are limiting the amount of rice sacks that can be purchased by each buyer--because of the expectation that there may be hoarding which would in turn cause a shortage. Except that now consumers are expecting a rice shortage and buying more...

Gee, in any other year, I would have been able to give them my excess matzoh...

Airlines Miss the Boat in Hawaii: How United and American blew a great opportunity to build customer loyalty

The collapse of ATA and Aloha Airlines left many unhappy stranded travelers in Hawaii last week. With virtually no notice, the two carriers shut down and those holding tickets were stuck with paying large amounts of money and/or waiting days to find a flight back to the mainland.

The airline business is a mess in general. Even supposedly well-run airlines can't seem to make much money, and just about all airlines are in the unenviable position of having customers who feel unappreciated, underserved, and often ill-treated. The attitudes are so engrained that they can't even see an opportunity to build goodwill and loyalty when it comes up and hits them in the face.

Here's how. Each of the two big carriers would run an extra plane or two to/from Hawaii to the mainland and make a public offer to carry all of those stranded passengers for a nominal fee (perhaps the $100 normally charged for changed tickets), enroll each passenger in their frequent flier club and give them credit for their entire round trip flight to Hawaii (including the part actually flown on ATA or Aloha), as well as a $100 voucher good on their next trip to Hawaii within the next 12 months.

Would it cost some money upfront? Yes, but with the media attention given to this situation, the amount of PR and free advertising generated would more than make up for the actual costs borne by the airline. Not only that, but the goodwill generated amongst not only these passengers but the general flying public, not to mention the media and regulators, would be incredible. How often does one get the opportunity to come out a hero?

Instead, here's what a spokesman for American Airlines said, as quoted in the Wall Street Journal on Tuesday, April 8, 2008:

"We didn't have a code-share relationship of any kind with any of these airlines, so anything we do to offer people a discount is basically out of the 'goodness of our hearts.' " Mr. (Tim) Wagner said. "Any discount we give is revenue lost, and we won't be getting anything out of their bankruptcies. So in a $100-a-barrel oil environment, anything that any airline does is generous."

Generous? How many people reading this actually thought American's actions here were generous? In fact, this whole approach seems very short-sighted to me. But wait, maybe American didn't have any planes available last week, because they were busy grounding a thousand or so flights to conduct maintenance checks. Their "generosity"  must have been taxed by all the ways the airline was helping the passengers stranded by the MD80 checks, right?

So United where were you? Hawaii has been a key market for you for decades. Instead of gloating about the fact that competitors who have been driving prices downwards (helping consumers) are now gone from your backyard, you could have been building goodwill and customer loyalty instead of more animosity.

Instead, both of you really missed the boat.

A Long, Long Time to Wait

From the sign in front of a financial investment firm in Salem, OR:

6 MONTH CD = 3.4 %
20 YEAR  CD  = 6%

Twenty YEARS? Are they serious?  You'd need a lot more than 6% to hold my money for two decades...