The Market for Gluten-Free Groupies

December 12, 2014 by Alyssa Dunham Leave a Comment

It’s a protein, it’s found in plants, and it’s the most hated ingredient in the food industry right now. No, it is not sugar that leads to a high risk of diabetes, and it is not sodium that is linked to prevailing rates of heart disease – it’s gluten. Absurd at it seems, gluten has become public enemy number one, and is getting kicked out of households across the country. Because of media outlets spreading news of gluten like wildfire, gluten has been transformed from an ordinary ingredient to the culprit of a variety of health issues. The consequence of this has grown an anti-gluten passion into a multibillion-dollar market.

Found in wheat, barley, rye, and a couple other grass-grown grains, gluten is formed when two molecules (glutenin and gliadin) are conjoined during the germination cycle of a plant. The bond of these two molecules allow for elasticity in food products, an element that is essential for cooks to create desirable cuisine for their customers. Gluten can be manipulated to form different textures for food; however, it is essential to keep in mind the origin of this protein molecule.

A depiction of the gluten forming process. (Source: http://pieinthewoods.files.wordpress.com/2012/11/gluten.jpg)

The beginning of the gluten-free tale came about in 2011 when Peter Gibson, a professor of gastroenterology, published a double-blind research study indicating the detrimental affects gluten has on an individual’s health. When his subjects did not eat gluten, their health improved. When gluten was added into their diet, they immediately reported pain and other gastrointestinal issues. As astonishing as the results seemed, it was noted that all thirty-four-test subjects had irritable-bowel syndrome – but the public overlooked this defining detail.

This study raised the awareness of a “gluten anxiety” phenomenon, initiating a new group of people to develop an interest in the topic. To add fuel to the fire, two books about the malicious acts of gluten were released not too long after Gibson’s study was published in the American Journal of Gastroenterology. William Davis penned “Wheat Belly” in 2011, and David Perlmutter followed suit with his book “Grain Brain: The Surprising Truth About Wheat, Carbs, and Sugar – Your Brain’s Silent Killer.”

Celebrity endorsement of the gluten-free movement further pushed along the awareness of this new trend. With the likes of Oprah, Gwenyth Paltrow, and other influential leaders in the social media realm, the notion to ditch gluten slowly crept into the minds of individuals from all different age groups. Soon, this newfound awareness of gluten warped into a trendy diet, initiating the demand for gluten-free food. The magnitude of the gluten free market has astonished both doctors and investors alike, whom are both struggling to keep up with the changing landscape for ditching gluten.

The market value for gluten free products provides evidence for the growing mass of consumers that are vying for gluten free food. With a $10.5 billion dollar price tag in 2013, a 48% increase is expected for gluten free products, leading to a $15 billion dollar estimated market by 2016. Investors have picked up on this development, hoping to get their own piece of the gluten free pie. In 2011, Smart Balance, an investor in small food companies, turned their attention to Glutino. With a price tag of $66.3 million, Smart Balance purchased this gluten-free baking operation.

A year later, the same investment group acquired another gluten-free establishment called “Udi’s” that was about twice the price. It seems the investment paid off, as sales for these two gluten free establishments are up 50%. The Chief Executive of these companies, Stephen Hughes, explained the motive of his purchases in an interview with the New York Times. “Three years ago, we could have bought a Greek Yogurt Company, but instead, we bought Glutino…we think this is a trend with long legs because there is some insulation from the big players- it’s hard to produce gluten free.” Hughes brings up a valid issue with this booming market – and that is the ability to honestly produce a gluten free product.

Glutino’s approach at marketing its gluten free food at a local convention. (Source:https://c1.staticflickr.com/9/8093/8592803563_aa7851d752_z.jpg)

The Food and Drug Administration (FDA) was prompted to take action with the labeling of gluten-free foods when just about any company could slap on a label indicating it was free from the feared food product. Years ago, the primary reason companies would make gluten free food was for the population with Celiac’s disease – an autoimmune disorder that produced a dangerous enzyme in the body to make up for the lack of being able to digest gluten. The smallest bit of gluten can set off this chain of response for a Celiac’s patient. The importance of correctly labeled food is vital, and their trust in food companies could potentially be a life-or-death matter.

Deception amongst companies who mislabeled their food “gluten-free” became a highlighted issue for the Celiac community; however, the new boom in this market was not looking to attract this group of consumers. The driving force of this market is the population with a self diagnosed gluten intolerance – where believing they were eating gluten free was “good enough.” The FDA cracked down on many inaccurate claims of foods supposedly having gluten-free ingredients.

Surprisingly, the FDA set a gluten limit of 20 parts per million. It is controversial whether or not this is a low enough limit, but this was not the only discrepancy. The FDA requires food products to declare any possibility of cross contamination with wheat, nuts, dairy, and soy; however, gluten is not yet included on this list. A company may not be able to have a “gluten-free” label on their product, but they still do not have to report any possible added gluten.

The barrier the FDA inflicted upon the gluten-free market put a dent on the pace of growing food products, but this did not negatively impact the social influence of eating gluten-free. Almost 30% of Americans reported they wanted to reduce or eliminate their intake of gluten last year, shedding light on the public opinion of pursuing this type of diet. It became a norm for an overwhelming amount of people who jumped on the “gluten-free bandwagon” to diagnose themselves as having non-celiac gluten sensitivity. Conveniently, this type of diagnosis does not involve the approval of a specialist; people have simply taken it upon themselves to play the role of health care provider.

Beyond this, other health care providers are beginning to play along with the gluten-free blaming game. In an interview with the New Yorker, Peter H. R. Green, the director of the celiac-disease center at Columbia University medical school talked about the impact of this growing issue. “A life coach is now prescribing a gluten-free diet. So do podiatrists, chiropractors, even psychiatrists…we are now seeing more and more cases of orthorexia nervosa. First, they come off gluten. Then corn. Then soy. Then Tomatoes. Then milk. After a while, they don’t have anything left to eat…”

This withdrawal of eating that Peter Green refers to highlights the hidden foundation of a fad diet – taking away an element of food that is supposedly “bad.” The point of the diet is to stop eating a harmful ingredient for his or her body, but this is not the same mindset for the patrons of the self-diagnosed gluten-free clan. Losing weight is the main marketing strategy for gluten free food, and the individuals are more concentrated on how many pounds they have lost since (supposedly) giving up gluten. Yet another trick the gluten-free market has cooked up is keeping up this notion of associating “gluten free” to being healthy, no matter the food product. The industry attempts to cater their food items to people who want an exact replacement of the food they ate, just without gluten. Without this pesky ingredient, their once junk food has instantly become healthy. Unfortunately, this is usually the opposite case. Green stated, “Often, gluten-free versions of traditional wheat-based foods are actually junk food…our patients have jumped on this bandwagon and largely left the medical community wondering what the hell is going on.”

(Source: http://kbia.org/post/gluten-free-popular-demand)

The bona fide gluten-free customer is treasured by grocery stores; they spend about $100 per grocery trip compared to $33 for the average consumer. It does not pose as a coincidence that the individuals who are diagnosing themselves as gluten intolerant are also able to afford this price hike. Stores like Whole Foods and Trader Joe’s specialize in supplying large supplies of gluten-free foods, knowing their clientele will purchase it. Trader Joes even joked to sell “Gluten Free Greeting Cards” at a surprisingly low cost of 99 cents each. This notion that the gluten-free lifestyle is aimed at the middle to upper class adds to the hyped up culture of the diet.

To successfully sell gluten-free food to a consumer base with money, it is necessary to “know your audience.” The farmer’s market every Wednesday at the University of Southern California attracts vendors who wish to sell their goods to its students. This is where the “CaveGirl Cupboard” first caught my eye – an all-natural bakery that creates treats with ingredients you can pronounce. They also pride themselves on being gluten-free, non-GMO, low-carb, soy free, dairy free, grain free (and the list goes on). Leia Blanco, one of the founding partners of the company had some time to talk about the vision of the CaveGirl Cupboard, and the success they have found in the Los Angeles area. When asked about the production of their food, Leia made it clear that they bake the products themself.

“At CaveGirl, we make the items in our own kitchens and buy our own ingredients to ensure there are no cross-contamination issues we have to worry about.”

Leia Blanco, on left, at a farmers market. (Source: http://www.cavegirlcupboard.la/about-us/)

Leia noted that they stick to a gluten-free diet, and she has already lost a significant amount of weight from this. She does not have a medically diagnosed gluten allergy herself; however, she insists that she has more energy because of ditching gluten. When I asked about her customer base and how many of them had Celiac’s disease, she hesitated, and said, “Most of our customers love our cookies and other food because it is delicious and fits with their diet. I do not know how many specifically are medically allergic to gluten, but I do not think it is too many.”

CaveGirl Cupboard tables at different farmers markets around Los Angeles, and has built a significant following since their start in 2013. It seems that they have started their company in the appropriate location to flourish in this industry, as their prices seemed a bit steep. “We keep our prices competitive with other products like ours, we know there are customers out there who do not mind paying more for baked goods they can trust.”

CaveGirl Cupboard markets their product to reach out to the stereotypical self-diagnosed gluten free customer, which has brought them success in this industry. As I walked away with a box of four poker-chip sized cookies for five dollars, it dawned on me how much potential companies like this have with prices like that.

The opinion of social media on the topic of gluten has taken a turn for the comedic side. Talk show hosts have taken advantage of the ridiculous growth for gluten free products and services – such as gluten free dog food, gluten free dating services, and the sudden onset of banning gluten from households. A popular show on Comedy Central, “South Park,” illustrated this humor during a recent episode by comparing it to the anxiety of Ebola.

With a firm group of believers in the gluten-free trend, this industry is only expected to continue to grow. Although the endless misconceptions about gluten have doctors shaking their heads, the consumers that can afford this lifestyle are supposedly feeling all sorts of positive effects. Although these same customers believe they can have their gluten free cake and eat it too, the reality is that it is still a cake – and the long-term benefits are not going to pan out.

Shifting Consumer Habits during the Holiday Season

December 3, 2014 by Alyssa Dunham Leave a Comment

The day after Thanksgiving, otherwise known as “Black Friday,” was anticipated to reach record sales. The economy is improving, gas prices are low, and the savings were enticing; however, in the end, consumer spending disappointingly did not satisfy the hype for retail profits. Although there are multiple ways to analyze consumer habits during the holidays, Cyber Monday came out on top as the big money maker during the weekend shopping frenzy.

The one-day shopping event of the year has morphed into a week of savings. Thanksgiving has become “Gray Thursday,” then there is the penultimate “Black Friday,” followed by “Small Business Saturday,” and “Cyber Monday.” Although the intention is to initiate the spending spree early, the result may be less spending overall because the consumer expects better savings for a later day.

The Black Friday crowds at Macy’s (photo credit: Marketplace)

According to the National Retail Federation, spending on Black Friday was approximately 11% less than a year earlier. Consumer spending was $50.9 billion over the Thanksgiving weekend, compared to $57.4 billion in 2013.

The competition for retail stores to get consumers in their doors is increasingly difficult as shopping online is both easier to scope out deals, and can be done in one’s pajamas on the couch. With the lower price of gas, expectations were higher for in-store traffic, but this was not the case. According to IBM Digital Analytics, sales grew 8.5% on Cyber Monday, making it the largest online shopping day of the year. Holiday shopping online rose 17% to a record $2.04 billion – shedding light on consumer habits.

Although sales faltered on Black Friday, the amount consumers plan to spend on gifts has slowly increased the last couple years, showing the “gift-giving” is still alive in the American economy. The American Research group quantified a series of consumer habits for the holidays, including the trend for spending more money on gifts for 2014.

Screen Shot 2014-12-02 at 6.41.01 PM As consumers are shifting from in-store spending habits to online, it is evident that shopping overall is down from previous years. This, in part, could be due to shifting consumer priorities for their dispensable income. In an interview with Macy’s CFO, Karen Hoguet, she stated, “Shoppers are spending more of their disposable dollars on categories we don’t sell, like cars, healthcare, electronics and home improvement.” This seems to show that even though the economy is improving, it doesn’t mean consumers aren’t entirely comfortable with spending their income on nonessential goods.

There are many other trends to size up the economy during the holidays, including the amount of money consumers are willing to spend on Christmas trees. The desire to bring some holiday cheer to one’s home can be used as an economic indicator. For example, spending money on a fake tree tends to be more economical when you can put up the same tree (with the same pre-hung lights) for many years to come. Although the sales of real trees still dominate this market, the trend to buy a fake tree has increased while the sales for real trees is on the decline.

A final last thought to wrap up the economics of the holidays– need help picking out a Christmas gift for a loved one? According to Joel Waldfogel, author of the books, “Scroogenomics,” people value gifts about 20% less than the price tag number. In his own words, Waldfogel believes, “The choice to buy presents turns out to destroy a lot of value.” It does sound a bit scrooge-like, but maybe giving a gift card isn’t impersonal after all – it’s just economical.

A Friendship with Benefits – Seniors and Technology

December 1, 2014 by Alyssa Dunham Leave a Comment

Technology has an ageist connotation – it signals new changes in society and has become an obsession to newer generations. It is not common to link the older population to the technological craze; however, as of recently, this association has been challenged.

The United States population aged 65+ will increase from 40 million to 80 million in the next thirty years. The desire to market products for this age group has become increasingly popular, and investors are starting to eye the types of services they can tap in to. One such market of interest is new technology to cater to the aging population, which has proven to be no easy feat.

Take GeriJoy for example, a tablet-based “pet” avatar that can have human interactions– intentionally designed for a patient with dementia or other cognitive disease. Victor Wang previously worked in research for the human machine program with NASA’s telerobotics platform, but changed career paths when this concept of his took off. On a seven-inch tablet, an animal can watch over an older individual, and have 24/7 conversations with them as if it were a real human. The product is marketed as “the benefit of pet therapy without any smells, allergies, cleaning up, bites, or food and veterinary bills.” The pseudo-pet can also remind your older loved-one to take their medication or call an emergency contact if they fall. The idea has caught the interest of many, however, the resistance of a senior to feel comfortable with new technology still serves as a barrier.

Examples of the avatars for GeriJoy

The numbers game is a bit up in the air to label the market of technology for an aging population. According to BCC Research, elder-care technology products were valued at $2.7 billion in 2012. With a compound growth rate of 17.7% a year, this market is projected to reach $7.2 billion by 2018. With growing awareness of the aging Baby Boomers, the efforts to allow these individuals to “age-in-place,” rather than moving into a nursing home, has given life to this sector of the market. It’s a well-publicized issue that our society does not have enough caregivers to provide services for the 68% of Baby Boomers who are confident they will not leave their house, so companies are viewing this as an opportunity to come up with some type of answer. Other projections are claiming there is a $30 billion technology opportunity to allow seniors to age-in-place, but this can only be reached if the stigma of “confusing technology” for elders can change.

Here enters Google and the Aging2.0 Academy, a partnership that is bringing new innovation to the field of technology and the aging population. Google for Entrepreneurs will support the efforts of the Academy both financially and through mentoring. The Aging2.0 Academy is a yearlong program that guides startups in the field of long term care. In the upcoming “class,” GeriJoy is one of the companies to embark on this experience. Based in San Francisco, the startups will have opportunities to network with key players in the gerontology and technology fields, hopefully establishing new relationships that will produce game-changing products.

The start ups for the most recent class

The Aging2.0 Academy was founded by a trio of entrepreneurs and investors, all with the same goal to introduce technology to the aging-in-place industry. Although their background in gerontology is not robust, their determination to ignite new technological innovation to this market consequently brought awareness to the business of caring for seniors. Although it will take time to introduce the older generation to different forms of technology, with the new innovations, this industry could live up to its hypothetical potential. With a lot of risk on the line for the start-ups, there could be many rewards for the investors.

A “Giant” Success for San Francisco

November 18, 2014 by Alyssa Dunham Leave a Comment

It happened. The San Francisco Giants clinched the World Series for the third time in five years. A miracle? Perhaps, but also astounding is the economic impact its local baseball team has brought to the city.

The even-numbered years were the golden years, as the Giants won the World Series in 2010, 2012, and 2014. San Francisco experienced a drought of national sports championships until the Giants took reign, consequently bringing in larger crowds for local businesses.

In 2010, the city embraced the worldwide brand recognition of San Francisco as a new sports hotspot. Advertising costs during home games skyrocketed, and local tourism was at an all time high. From hotel and other sales taxes, the city felt the economic boon of winning its first World Series since 1954. According to Staci Slaughter, the Giants spokeswoman, sales at the ballpark store were about 150 percent higher than normal.

The exposure of the 2010 title also caught the attention of Larry Ellison, chief executive of Oracle, to choose San Francisco as the host city of America’s Cup – the sailing event of the year. To everyone’s surprise, this baseball fame was not a one-time event, as the city geared up for yet another wave of Giants fans in 2012.

The San Francisco Giants “swept” the Detroit Tigers to take the 2012 title – and during the two days the city hosted the World Series games, baseball fans added about $17.3 million into the local economy. Local restaurants were better prepared for the massive crowds, and the city embraced the incoming visitors with open arms. Although the numbers aren’t in for the 2014 winning season, it is expected that San Francisco was successful in bringing in record-breaking revenue.

Hosting World Series games is bound to bring in large profits, but it is still important to consider the costs associated with such an event. There is a parade put on by the winning city to celebrate the World Series title, and this is no cheap affair. For the 2012 celebration parade, the Giants dished out approximately $1 million for the set up, and the city itself paid $225,000 for security and transportation costs. Because of the excitement of the parade, attendance at local schools dropped 20 percent, resulting in a loss of $150,000 from the state (educational funding). This does not begin to cover the costs of damage to the city from rowdy crowds, or the cost of a large portion of its labor force on “sick leave” to watch the game; however, in San Francisco’s case, the benefits seem to outweigh the costs.

The San Francisco Giants parade turnout.

In addition to the crowd-drawing holiday season, San Francisco has persistently accumulated profits during “Orange October,” a phenomena that will hopefully continue throughout the Giants legacy. The baseball team is also riding their wave of success, as plans for a new enticing neighborhood near the ballpark is in the works. The $1.6 billion “Mission Rock” project would bring in thousands of new jobs, and another outlet for retail stores and restaurants to expand.

Design plans for “Mission Rock.”

The Giants have put San Francisco on the map as a sports celebrated city, and the profits provide evidence for this success. Just a tip – because of increasing costs, it wouldn’t be a bad idea for fans to start booking their hotel rooms for 2016.

Student Debt for the Aging Population – an Issue to Last a Lifetime

October 9, 2014 by Alyssa Dunham Leave a Comment

Rosemary Anderson owes the federal government $152,000 due to accumulated student debt. Hundreds of thousands of students find themselves in similar straits. However, it is her age, 57, that leads to an alarmed reaction.

Rosemary Anderson

When the Great Recession plagued the nation in 2008, unemployment spread quickly throughout the middle-age workforce. In 2010, approximately 3.9 million individuals aged 35 and older were pursuing a degree, a 20% increase from 2006. Pursuing a college degree as an older adult became more common as the few jobs available were increasingly competitive to acquire. The payoff for going back to school was not clear for everyone in this cohort, and the repercussions of this have spilled into saving for retirement.

Social Security, a government entitlement program, would typically serve as the safety net for a person with diminished financial resources in later years. One of the purposes of Social Security is to assist older Americans with the transition from a working salary to retirement. Approximately 45% of people 48 to 64 will not have enough money saved to cover basic needs once in retirement. This translates into a disproportionate part of the population depending on Social Security as their major money lifeline.

Unfortunately, this option is starting to fade for people like Rosemary. She went back to school for her bachelor’s degree at the age of 37, and a master’s degree at the age of 44. Rosemary has been able to put off loan payments because of claiming unemployment and sorting through a divorce, but this period is soon to end. Beginning April of 2015, she is mandated to pay $699 a month for the next 24 years (until she is 81) – or else she will default on her loans. With a $3,400 monthly income and a $2,200 mortgage payment, if she were to pay her student loans, this would leave her with $500 a month to live on. With car payments, utilities, and other bills still to pay, the security of old age is quickly slipping away from Rosemary’s grasp.

In 1995, the Higher Education Technical Amendments Act was approved to remove any time limits the federal government had to collect money from student loan borrowers. A year later the Debt Collection Improvement Act passed, allowing the federal government to garnish Social Security checks in order to collect this debt. Once a monthly Social Security check drops to the value of $750, the government cannot collect more money until the subsequent month. The Supreme Court upheld these provisions in 2005. This monthly value is below the poverty line, likely due to the fact that it has not been adjusted for inflation since 1998.

Rosemary could start receiving Social Security payments in as little as four years, but because of the debt that hangs over her, relying on these checks is unrealistic. If she were to retire, her reduced monthly Social Security check would only cover about a third of her mortgage payment. With health implications already a concern, the amount of time she has left to remain employable is questionable. With no source of income to look upon in later years, her future options appear to be bleak.

According to Rosemary, “I incurred this debt to improve my life, but the debt has become my undoing.”

Although statistics show that a college degree leads to an overall higher salary than those with only a high school diploma, it is important to consider how many viable working years are left to pay off school loans. Adult students are also less likely to receive private scholarships that help alleviate the burden of student loans. The aid most available to the older students consists of Perkins Loans and Stafford Loans – both administered through the federal government.

According to a report from the Government Accountability Office, the aggregate federal student loan debt in 2005 was approximately $400 billion. By 2013, this number more than doubled as it reached $1 trillion dollars. The current population aged 65 and older account for $18.2 billion of the total student debt (compared to $2.8 billion in 2005).

The amount of student debt is projected to grow, even with the recovery gaining traction. A visible growth in employment during the recovery has been in the low-paying job sector. Since the height of the recession, many high and middle-wage occupations have been replaced with positions available in lower-wage industries. This shift in job openings did not create a favorable environment for the middle-aged population with new degrees. The consequence of this has become a battle with unpaid student loans and a low salary, ultimately leaving these individuals in a crippled financial state.

With the economy still in a delicate state, the growing amount of people who are caught in this financial predicament are negatively impacting the future growth of the recovery. Because of unpaid student loans, from January to August of this year alone, 115,00 Social Security checks were garnished from the federal government.

Senator Elizabeth Warren introduced a bill early in 2014 to allow individuals in this predicament to refinance their loans, consequently alleviating some of the financial distress; however, the bill was blocked in June.

As Rosemary sees it, “If I had taken out a loan with a loan shark, I would have been better off.”

On September 10, 2014, Rosemary shared her personal story at the United States Senate Special Committee on Aging in hopes of reaching out to lawmakers to take action upon this occurrence.

In an interview with columnist Rodney Brooks, Senator Bill Nelson, chairman of the U.S. Senate Special Committee on Aging, emphasized the importance of Rosemary Anderson’s situation that has become all too familiar nowadays.

When questioned about the magnitude of this issue, Nelson said, “Some may think of student loan debt as just a young person’s problem. But increasingly that’s not the case. Right now, student loan debt among seniors is fairly small, but it’s growing quickly and much faster than other age groups.” As for the reason the aging population is facing large amounts of debt, the Senator indicated, “Many of these folks are going back to school later in life, but are then unable to find jobs that will allow them to pay off their debt before they hit their retirement years.”

Senator Bill Nelson at the US Senate Committee on Aging (photo: Lauren Victoria Burke, AP)

Because of the Senate Committee meeting, the Senator wants to push forward new legislation to protect Social Security checks. He intends to index the $750 reduced check payment for inflation to prevent the aging population dependent on Social Security checks from poverty.

Aaron Hagedorn, clinical assistant professor at the USC Leonard Davis School of Gerontology, explained the repercussions of an absent savings to depend upon in later years.

Aaron first highlighted the idea that the population is severely unaware of how much money an individual would need to save for a comfortable retirement.

Aaron Hagedorn, pictured on the left, with the USC Davis Dean, Gerald Davidson on right.

“If you make about $100,000 per year and your mortgage and other various payments are dependent upon this fixed income, then for a 20 year retirement (assuming a person will be alive for 20 more years), you would need to have at least $2 million saved.” Aaron laughed after this statement, bringing to light that the nature of planning ahead of this magnitude is not common, and simply not realistic nowadays with the amount of debt the population incurs. Aaron exclaimed, “For most of the population, planning for retirement is not possible. Even if an older person stashes away a bit of money hoping it is enough to cover them in old age, with increasing interest rates, the value of their already small savings decreases as time continues.”

Aaron emphasized the importance of Social Security in retirement, and how necessary this money is to keep up with not only the increasing health issues that transpire in old age, but also to simply keep food on the table.

“Getting another loan on top of already built up student loans is not an option for these people, and this is truly an issue that needs to be addressed, but unfortunately, the future does not look certain for them,” Aaron lamented.

An attorney at the National Consumer Law Center, Deanne Loonin, proposed to forgive debt for seniors such as Rosemary Anderson who cannot sustain a minimal standard of living, as they are the most vulnerable debt-holders of the population. Because there is no limit for the government to collect student debt, Deanne summarized the situation in terms that reflects the realistic nature of the issue:

“In human terms, that means, literally, that it follows them to their graves.”

The Wells Way – Building a Family Construction Company

September 15, 2014 by Alyssa Dunham Leave a Comment

“We Listen. We Collaborate. We Build.” – These three sentences lay the foundation for Wells Construction, a family originated company since 1989. The business is located in Roseville, California, approximately 25 miles outside of the state’s Capitol. Three generations of Wells family members have received employment from the company, creating a tight bond for the family – and inevitably, bound with its challenges as well.

When the recession hit in 2008, the demand for construction services took a turn for the worse, as the figure below shows. With this knowledge, I anticipated that Wells Construction wrestled to get through the economic downturn. A small, family run construction business does not have the reserve of resources that major construction companies have to get through an economic downturn like the Great Recession. This led me to inquire how Wells Construction found success to get through the rough times.

CJ Wells, the Training and Development Manager of Wells Construction, agreed to have a conversation with me about the impact the changing economy has had on their business. The first topic brought up was the big question of the day – how did they find success in an otherwise pessimistic market for construction? He began to explain that their business sources two main facets for revenue: general construction and Starbucks. One of the first bids (agreement to build) that Wells Construction acquired was Starbucks – an international chain of coffeehouses. This set the stage for a long relationship with Starbucks, one of the factors that kept Wells Construction alive through the recession. Through time, the construction company was able to take over all the planning and building services for Starbucks throughout the Sacramento area. CJ explained, “Although the construction industry has a lot of risk, Starbucks seemed to be recession proof in Sacramento, allowing us to keep our employees in employment and our office buzzing.” When asked whether cyclical or secular shifts have affected the family business, CJ explained that there have been more cyclical changes for the company. Approximately every five years they experience a period of growth, followed by a time of decreased demand for construction services (riding the “economic rollercoaster”).

Besides their relationship with Starbucks, their other source of revenue is in general construction – the other industries that choose to use Wells Construction for their planning and constructing needs. A certain tactic they employed to get through the recession was to focus on developing relationships with certain industries that were expanding. Currently, the veterinarian industry is growing in Sacramento; therefore, Wells Construction has placed a group of employees to strategize multiple methods to become “the” veterinarian construction group in the area. Another industry that was expanding despite the recession was private medical offices; therefore, Wells Construction also put attention towards this avenue of development. CJ made a point to exclaim that 80% of their general construction services are with repeat companies, or recommendations within the same industry. This percentage reveals that their company not only builds for their customer, but they also put effort into maintaining this relationship. For example, one of their recent projects was to build an “Orange Theory” gym in Roseville. After this was completed, Glen (the owner of Wells Construction) paid for a year membership to the fitness center for all of his employees.

Two generations of the Wells Family: (from left) CJ Wells, Clinton Wells, Glen Wells (CEO), and (not part of the Wells Family) Tim Brockway (President/CEO of ASG).

Although it appeared that the recession has not impacted Wells Construction as much as I anticipated, there are still challenges present with the construction industry. The first issue at hand that CJ revealed was the continuous struggle to balance cost, quality, and time when it comes to placing a bid on a new project. Taking on the perspective of the customer, it would be ideal to have the construction project completed fast, with high quality, and in a timely manner; however, this is simply not realistic. CJ explained that you can ultimately have two out of three aspects, and not having the right balance offered on the bid could lead to losing a potential customer. Another concern Wells Construction is dealing with is the capability to control the amount of growth the company is experiencing. This is where CJ plays a vital role in the company – handling the growth and trying to keep up with the demand for their services. At first I was perplexed to hear that this incident was considered an issue, but CJ explained that if the company did not handle the growth well, it could be a swift death sentence to Wells Construction. The employee turn over rate is extremely high right now, and that also poses as an issue. Hiring employees to keep up with the projects they are accepting is risky, especially when this growth period eventually slows down and they are forced to re-evaluate the size of their team. Amidst this growth, the construction company recently decided to open a new office in Irvine, CA, which comes with a big potential for increased profits, although the stakes are evidently higher as well. Developing the infrastructure and work force to maintain this office is up to CJ – not only is their money invested in this new office, but so is their credibility as an upcoming force in the construction industry.

If Wells Construction can use this time of growth to their advantage, CJ anticipated that the company could begin to accept larger projects (right now the projects are no more than a couple million with a range between 8-20% profit). To take on a large-scale project worth more money, the company would need to acquire additional insurance, and consequently, take on more liability. The company is not ready to make this move; however, with time and positive development – it could be in the near future.

A snap-shot from the Wells Construction website.

Wells Construction, the family construction company from Roseville, California, has worked its way up the business ladder to increase its profits, hire a larger workforce, and open a new office location. The recession was not a complete blow to the company as Starbucks was the lifesaver that kept them through the storm; however, their growth from this new era of demand for construction seems to be the ultimate test of the company’s strengths.

Sources:

California Commercial Construction

http://clients1.ibisworld.com/reports/us/bed/default.aspx?entid=84

The Plastic Surgery Indicator – More Money, More Procedures

September 3, 2014 by Alyssa Dunham Leave a Comment

Plastic surgery (otherwise known as cosmetic surgery) for elective reasons is an industry that profits from the will of the people to improve their appearance by going under the knife. This type of surgery is not commonly covered by healthcare – which leaves the patient having to pay the pricey penny for a new appearance. Having disposable income to cover the costs of the surgery, and the ability to take off time from work to recover, are two important factors for this procedure – and the industry took a negative hit when the height of the recession was felt, leading to a downfall in 2009.

As the figure shows, the revenue of the plastic surgery industry was negatively affected from the recession, as less disposable income was available in the economy. This type of negative change proves to be an economic indicator as this type of surgery relies on the willingness and availability for the population to pay for pricey appearance improvements. As the “dominoes” game analogy would describe it, once the revenue of the plastic surgery fell down, this immediately led to the downfall of employment for plastic surgeons. Once the recession showed signs of improvement and more disposable income was available, there was a positive percent change in revenue and employment. The growth in the plastic surgery field indicated as a beneficial sign for the economy – more money to spend in plastic surgery also meant that the population was feeling confident enough to spend more money on their appearance.

As the figure shows, the growth of plastic surgery was 2.3% from 2008 to 2013; however, this number is expected to further incline as annual growth from 2013-2018 is predicted to be 5.5%.

To understand the entire picture, it is important to consider other changes in the economy that help fuel this increase in growth. First of all, the aging population (specifically the Baby Boomers) will account for a larger portion of the population. With a large section of the population in this age group, services that the older population will desire may create a shift in demands for different industries. The plastic surgery industry will feel this change in a positive manner as aging commonly has a negative connotation in society – but paying for a quick procedure to look a little more youthful will become more of the norm.

Another factor for the positive growth is the increase in technology for less evasive plastic surgery procedures. The money that is available for this type of research is on a different pedestal versus life-saving medical technology – it doesn’t have as much priority. With this in mind, there are still vast efforts for this exploration, which indicates that there are more resources available in the economy for cosmetic purposes as well.

Plastic surgery is a growing field, and signifies the willingness and ability for consumers to pay out-of-pocket costs for appearances. As this industry has grown, so has the public perception of undergoing such surgeries to become more of a common occurrence. Although superficial, this industry is a solid indicator of disposable income that is available for the population to spend.

Source: http://clients1.ibisworld.com/reports/us/industry/ataglance.aspx?entid=4157

MMM

Money Marks & Media - Spring 2014