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    Published on: October 22, 2002

    In Monday Night Football action, the Pittsburgh Steelers defeated the Indianapolis Colts 28-10.
    KC's View:

    Published on: October 22, 2002

    We posted a story yesterday about Spartan Stores separating its wholesale and retail functions because the previous combined structure “wasn’t working.” We received the following email from a member of the MNB community who asked to remain anonymous, but who has a clear perspective on the Spartan situation:

    “Was not working" is such an understatement. Those who deal with the organization have never seen it in such a state of disarray. People have been clearly frustrated and concerned with lack of direction and when direction did come, the apparent conflicts that were apparent within the direction.

    “What this company appears to be suffering from more than anything else is a lack of strategic focus and leadership. One cannot expect those in positions to make or break a company, e.g., merchandising, to be able to move forward when the forward always appears to be changing, indeed, almost daily.

    “This company has gone through at least a dozen Vice Presidents in the past five years. That kind of change at the top does not allow for the building of a solid, cohesive team that can drive a company forward. That is not to say that those who were at Spartan should have stayed, quite the contrary. The
    very problem was caused by those departed.

    “On can only hope that those in place now can become a high performing team and turn this company around. The potential is incredible even in the face of Wal-Mart and other competitors. Spartan is perfectly positioned to be a solid regional performer. The next year will one of the most critical in their history. We can only wait and see if they can make it happen.”


    Sounds like tough-love to us…




    In response to our story yesterday about a new interactive shopping cart system being tested at Ahold’s Stop & Shop, we got an email from MNB user Charles Young:

    “Smart Cart, Klever Kart, all these carts that talk to us. Palm Pilots and other PDAs, Symbol Technologies all offering mobile information sources in the stores. These tests seem endless!

    “For years people have been trying to wire and "wireless" stores to give consumer in-aisle information. This includes people like ERS and electronic shelf labeling. So far no go, why? It costs money to wire these things and the benefits to the retailer have not been enough to warrant the expense. But more, technology is not the answer; it is a means to an end, an undefined end? What is the consumer need being fulfilled?

    “I am sure the model justifying the new cart includes revenues from advertising and promotion, the same bottomless pit that gave us the dot com revolution. I don't know what makes retailers or technologists think that they will get a larger share of these dollars if they have a new technology. I believe all they do is split the same budget into more media, reducing the profit for all media in general.

    “Seems to me that the store needs to be wired for multiple applications and then managed.”


    MNB user Richard B. Oakley had a slightly different take:


    “I feel like a soothsayer! I described this exact item some 2 years ago at a California Grocers Association Board of Directors meeting during a discussion of shopping cart theft.

    “I opined that when the carts got "smarter" we would need to really keep track of them and not let them become food transports for the trip home. I guess next time I should patent my ideas and keep my opinion to myself!”





    We reported yesterday about Home Depot testing a smaller format that it believes will be more attractive to women customers, a story that generated a number of emails. One MNB user wrote:

    “If the new format retains the lackluster customer service of their primary locations, it won't matter what color the racks are or where the kitchen displays are. Service is the problem that needs to be addressed.”

    Good point. And we agree wholeheartedly.

    Another MNB user wrote:

    “I haven't been in enough Home Depots to really judge their store size vs. a Lowes, which has had a store in my home town for years and just built a new store right behind the Wal-Mart I work in. To me they appear to be about the same type and size store. I wonder what they're talking about every time I read the statement about HD down-sizing to compete with Lowes.

    “To me they appear very similar; just like a 200,000 sq. ft. Supercenter is very similar to the smaller size ones of 150,000 sq. ft. I know they carry a little more merchandise in the bigger ones, but, all in all, having a little more room in all areas of the store is the biggest difference I see. If square footage is the only basic difference in a HD and Lowes, then that's not much difference.

    “Now, when you go to 80,000 sq.ft., you're talking about eliminating categories of merchandise from the smaller store. You're not going to get every size nail that's made.”


    We got an email from another MNB user who highlighted the Home Depot-Lowes differences:

    “While new shelving in the stores might be a step in the right direction, I still think Lowe's has the better approach for women.

    “Case in point, this evening when I checked my mail, I had a sample from Lowe's in the mail for a new line of cabinet hardware. What in the world would I want with a sample piece of cabinet hardware? At least that was my first thought.....

    “Inside, complete with a satin trimmed blue jewelry bag, was a beautiful oak leaf and acorn drawer pull that had been turned into a pin from their new Betsy Fields Design Collection.

    “They also included enough information about the new line to spark my interest in redoing some of my cabinet hardware as part of a remodeling project I am in the process of doing.

    “New shelves may help Home Depot, but beautiful free jewelry....now
    that's the way to attract women's attention.”


    Bingo.




    On the subject of the USDA’s new organic rules, we got an email from a member of the MNB community:

    “I would rather eat organic than not. These new labeling rules are fabulous. They will help retard those who try and take advantage of customers like myself. However, there will still be the select few who will get away with lying to the public. Hopefully, these shady types will be put out of their misery by this law.”



    Following our story yesterday about private label SKUs increasing, but private label sales not showing any increases, we got several emails. MNB user Richard A. Cognetti Jr. of Kinney Drugs wrote:

    “We are seeing a wiser consumer. Value packs, bonus packs etc. are doing extremely well in Nutrition and also household for our Kinney Brand line. Calcium, Vit E, C and Multivitamins are growing in the 500 cts. and slowing in the 100 cts. Paper Products and detergents fly on ad.

    “Private Label sales and units slower when compared to 2000/2001.”


    And MNB user Paul Schlossberg chimed in:

    “What we might be seeing is a channel shift by shoppers away from supermarkets...to chain drug, mass merchandisers, etc. Perhaps consumers have decided that their time can be used better by consolidating fill-in shopping at another type of outlet. That allows them to pick up a prescription and a half-gallon of milk without making another stop. The real question behind that data is whether or not the shift includes weekly shopping trips too.

    “It's obvious that supermarkets are responding by adding other services. We wonder if it might be the issue of smaller stores being preferred for quicker in/out cycles.”


    And finally, we got this email from MNB user Missy Maguire:

    “I have a question regarding Krispy Kreme that came up while visiting my sister over the weekend... She wants to know what they do with all of the doughnuts that they pull off the line and throw into bins (apparently not meeting quality control specifications). Of course, I understand the need to pull substandard products, but if one in ten doughnuts are thrown out, that is A LOT of food. I certainly hope that this is not the case... Please let me know your thoughts.”


    Well, Missy, we checked, and found out from Aaron Richard, a spokesman for Krispy Kreme, that it is policy to donate all leftover doughnuts to local charities, soup kitchens, and shelters. While it is up to individual franchisees to identify and work with these organizations, Richard said that this is standard operating procedure.
    KC's View:

    Published on: October 22, 2002


    • Wal-Mart Stores Inc. said that October same-store sales growth was in line with its target of 2 percent to 4 percent, but that sales at its Sam's Club warehouse stores have been disappointing.


    • Gristedes Foods reported that third quarter sales rose over the same period a year ago, up 12.9 percent to $60.5 million; same-store sales for the period were up 11.8 percent. The company reported a quarterly net loss of $777,264, compared to a net loss of $472,895 in the previous third quarter. Year-to-date, sales increased 6.9 percent to $182.2 million, and same-store sales rose 8.7 percent, while year-to-date net income was down a whopping 40.6 percent to $189,245.


    • Safeway PLC in the UK posted second quarter same-store sales that were up 1.1 percent, while total sales were up 1.3 percent. In the first half, same-store sales grew 1.9 percent, with total sales up 2.2 percent.

    KC's View:

    Published on: October 22, 2002

    The Grocery Manufacturers of America has endorsed the U.S. Department of Agriculture's national organic program as a way to provide consumers with accurate labeling information about organic foods and ingredients.

    "For consumers who choose organic products, we believe the USDA organic standards bring a much needed uniformity to organic food labels," said GMA Director of Scientific and Nutrition Policy Alison Kretser. "The labeling and marketing standards laid out by the USDA will ensure that consumers will be able to easily identify organic foods and ingredients while choosing their groceries whether they live in California, Kansas or Georgia.

    "GMA also believes the USDA's strict national standards for growing,
    harvesting, shipping and storing organic foods that will maintain consumer
    confidence in the quality of organic products," Kretser said.

    GMA's member companies will comply with these standards for existing
    organic products and as they develop new product lines to meet consumer
    demand for organic foods.
    KC's View:

    Published on: October 22, 2002

    The White House’s Office of Management and Budget has approved federal rules permitting the irradiation of imported fruit and vegetables
    KC's View:
    Wish we’d bought stock in some of these irradiation companies a couple of months ago…

    Published on: October 22, 2002

    Beginning today, Office Depot Inc. is using the Internet to host a six-week seminar for small businesses at www.OfficeDepot.com/promo/webcafe, featuring a number of speakers who will address the needs and challenges faced by small businesses,

    The webcasts will take place from 4-5 p.m. Eastern time, every Tuesday through Dec. 5. Each presentation will be about 30 minutes, followed by live-chat Q&A. There is no cost to attend, although attendees will have to register their attendance.
    KC's View:
    This is a very smart idea, because it reinforces the company’s whole reason for being, and targets its core audience.

    We believe that more food stores ought to do the same thing -- have specific times for open forums on specific topics, whether it is childcare or cooking fish or how to buy produce. Can you imagine if a food retailer put a pediatrician online for an hour or two a week to answer questions from new moms?

    So many retailers have web sites that are under utilized, and this would be a great way to drive traffic to them and establish a company’s reputation for being a resource for information, not just a source of product.

    Published on: October 22, 2002

    Retail Week reports that Tesco.com has revamped its online appearance to cater to Christmas shoppers, using the tagline “Christmas made easy.” There are sections designed especially for buying presents for women, men, and teens.

    Tesco.com CEO John Browett said: "We want to drive people to the site and have approached it so it is easy to use while offering real depth of product."

    Tesco.com also revealed that it is engaged in discussions with potential partners that would bring its online business model to nations such as France, Germany and Canada, though it wants its US arrangement with Safeway to prove out before it expands further
    KC's View:

    Published on: October 22, 2002

    TheDeal.com reports that Kroger Co.'s proposed acquisition of 18 Raley's supermarkets in Las Vegas continues to face a tougher-than-expected review by the US Federal Trade Commission (FTC).

    It is possible, though not a foregone conclusions, that investigators will subpoena more details about the transaction. Some sense of what the government will do should be reached in the next two weeks, according to insiders.

    The problem is that Raley's entered the Las Vegas market in 1999 by acquiring 18 Albertsons stores that the company had to sell in order to get its acquisition of American Stores approved by the government. The FTC had rejected the possibility of Albertsons selling the units to Kroger for competitive reasons.

    So now, if Raley’s were to sell the stores to Kroger, it would require the FTC to approve a sale it previously rejected.

    Antitrust experts told TheDeal.com that the decision reached by the FTC will illustrate whether the agency intends to maintain a “hard line on retail mergers or is willing to soften its position and permit greater consolidation.”
    KC's View:
    We think the deal will go through, in part because Las Vegas is such a fast-growing region that there are bound to be new competitors going in there. It doesn’t strike us as a city light on competition…

    Published on: October 22, 2002

    Fascinating story in The New York Times earlier this week in which the newspaper interviewed a number of restaurant and management experts to find out how they would fix McDonald’s, a company that is suffering from slowed growth, customer defections and a tarnished image. Among the comments:

    • Wolfgang Puck, the celebrity chef, said to improve the product, especially the hamburgers. (The fries are just fine the way they are.) Puck said that the company shouldn’t be so concerned about branching out into chicken sandwiches and the like. Just use better beef and better rolls, and improve the cooking methods. “They are a burger house, and they have to do a better burger,” he said.


    • Alex M. Susskind, an assistant professor of food and beverage management at Cornell University's School of Hotel Administration, said that McDonald’s should expand aggressively into new brands such as Chipolte, and should the core franchise into new venues, like Home Depot. And, he said, it shouldn’t worry about serving healthier food. “If I want a healthy meal I'll have steamed vegetables at home,” he said. He also suggested that the company phase out the “Made For You” program that provides made-to-order product.


    • Allen J. Bernstein, chairman, the Morton's Restaurant Group, and a former Wendy's franchisee, suggested that the company give greater emphasis to the “Made For You” program, and cut back on the menu options. He also suggested that the company close a lot of locations, and grow at a slower pace, emphasizing food quality.


    • Michael Hammer , a management consultant and author of "The Agenda: What Every Business Must Do to Dominate the Decade,” said that “maybe McDonald's should run corporate and school cafeterias, hospital food services, all sorts of food service operations…”

    KC's View:
    No wonder Mickey D’s is confused…all this high-priced talent, and not much agreement on what the company should do.

    While we agree with Puck’s recommendation that McDonald’s should make a better burger, there’s a risk there. Our kids like the burgers the way they are…and if they were different, they might not appeal to that demographic.

    McDonald’s is faced with both business problems and food problems. It is unlikely that one fix will solve both.

    Published on: October 22, 2002

    The Wall Street Journal reports that the enforcement staff of the US Securities and Exchange Commission will recommend filing civil securities fraud charges against Martha Stewart.

    The charges concern what the staff believes was Stewart’s trading in insider information when she sold her ImClone Systems stock late last year.

    These charges could be just the beginning of legal problems for Stewart. The style maven and CEO of Martha Stewart Living Omnimedia is also being investigated by the US Department of Justice for the stock sale.

    Former ImClone CEO Samuel Waksal already has pleaded guilty to some insider trading charges.
    KC's View:
    We could make jokes about “blue light specials on hacksaws and prison garb,” but it’d be too easy.

    And we’d never go for the easy joke…

    There has been rampant speculation that the fortunes of Kmart and Stewart were inextricably tied, that for both to survive their troubles long-term, they each had to get past their short-term difficulties. We’re not sure we entirely believe that; after all, Stewart didn’t use insider information to sell her any Kmart stock she might have owned. (At least, we don’t know anything about it…)

    Kmart is faced with a tough decision. It’s not as cut-and-dried as one might think, because there will still be legions of folks out there who believe that Stewart is getting a raw deal from the government, or that she’s just being targeted because she’s a successful woman. It’s entirely possible the brand could survive a prison term or a major fine (and we’re betting she only gets hit with the latter).

    In fact, if we had to bet, we’d guess that Stewart’s business still has a better chance of surviving than Kmart’s…

    Published on: October 22, 2002

    The Associated Press reports that while Kmart Corp. ‘s sales for the five weeks ending October 2 were down 6.9 percent from the same period a year ago, management plans to file a reorganization plan to the bankruptcy court by February 24, and to emerge from bankruptcy by next June.

    ``This timeline is aggressive and will require a lot of hard work in a relatively short period of time, but should be doable,'' CEO James Adamson said in a statement. ``I am as confident as ever that Kmart can emerge from Chapter 11 as a strong and viable competitor with a clearly defined niche in the discount retail sector.''

    Kmart had sales of $1.97 billion for the four-week period
    KC's View:
    We think this is what our ancestors would have called chutzpah…predicting an emergence from bankruptcy even as sales continue to be lousy, and even as expectations are low for the coming holiday season.

    Maybe it is the company’s abiding faith that Martha Stewart will come through for it…

    Published on: October 22, 2002

    The San Francisco Chronicle reports that a new analysis of the economics of growing genetically engineered crops indicates that at least in California, farmers who grow them may be saving as much as $17 million dollars a year.

    If these savings were seen nationally, the savings could be as great as $1 billion annually -- if regulators approve all the possible uses of biotechnology and farmers embrace the technology.

    However, environmental groups have criticized the report, saying that the extra cost of bioengineered seeds usually does is not offset by bigger harvests by growing the controversial crops.
    KC's View:
    It seems to us that there are a ton of questions that need to be answered about bioengineered crops, but we continue to be frustrated by groups that simply plant their feet and defend their positions. The study that revealed the savings was, predictable, done by biotech supporters, just as questions about its legitimacy were raised anti-biotech groups.

    But the questions never seem to get answered…or, at least, the answers never seem to get communicated in a clear, concise, conclusive way. When it comes to something as potentially as significant as using technology to feed people more effectively and grow crops more efficiently, it just seems to us that everybody ought to have an open mind -- open to the positives, open to the negatives, and trying to work through them in a meaningful, intellectually honest way.

    Published on: October 22, 2002

    Market saturation and intensifying competition could pose significant challenges and decelerate the pace of growth for warehouse club stores over the next five years, reports Retail Forward in a new study, Warehouse Clubs Industry Brief.

    “The warehouse club sector has strung together several years of strong sales gains,” said Sandy Skrovan, author of the report and Vice President of Retail Forward. “New stores have been opening at a rapid clip and same store sales gains have been strong. But the party could be ending soon,” she said..

    Retail Forward forecasts sector sales to grow at an average rate of 7.6 percent a year through 2006 (7.3 percent in real dollars) vs. 10.5 percent a year over the past five years (9.9 percent in real dollars).

    The challenges that exist for the warehouse club sector, according to the Retail Forward report, include:

    Market Saturation – The industry is approaching market saturation and the land rush is on. Retail Forward projects the number of warehouse clubs to cap at about 1,150 units by 2006, barring a big change in concept or competition. This translates into the addition of about 250 net new units over the five-year horizon.

    Intensifying Competition – Head-to-head competition and three-player markets are on the rise, resulting in some cannibalization of each other’s businesses. The three club store operators, Costco, Sam’s and BJ’s, are each deploying defensive location strategies, filling in existing markets than entering new markets in an effort to defend or raise market share..

    Sustaining Same Store Sales Growth – Following near double-digit same store sales gains in the growth economy of the late 1990s, warehouse clubs have demonstrated remarkable resilience in sustaining a solid level of comparable store sales growth. The addition of ancillary businesses and services, new categories, and more big-ticket items has been key contributors to the incremental sales gains. Going forward, this ongoing string of solid comparable periods will become tougher to sustain.

    “Club store operators are reevaluating their businesses, revisiting location strategies, and reinventing stores to increase appeal to both the consumer and small business segments and tap future growth opportunities,” said Skrovan. “As the warehouse club industry nears market saturation, future revenue streams will be harder won than in the past. But the warehouse club sector has proven its ability to break through ceilings before. As players actively test new categories, new concepts, and new market opportunities, perhaps this time will be no different.”
    KC's View:
    The key to future growth, as Retail Forward rightly suggests, will be for the major players in this segment to reinvent themselves, coming up with new formats, new product selections, new services and new marketing messages with which to lure shoppers.

    That seems to be what Costco, especially, is doing, as it experiments with stand-alone warehouse furniture and gourmet grocery stores. Sam’s seems to be taking a different approach, retrenching and refocusing its efforts on selling to small businesses. Quite frankly, the Costco approach seems more interesting to us, if only because it gives us more to write about. But there’s also something to be said for companies that use their marketing power to try to come up with new concepts and recreate the form; they seem, in some small way, more courageous than companies that just protect their turf.

    (This is, by the way, an argument we’d make about all forms of retailing, not just the clubs. As powerful as Wal-Mart’s Neighborhood Market potentially is, we’ve always thought it a shame that the company didn’t use its power and strategic intelligence to really advance the supermarket concept, as opposed to just recreating a more efficient neighborhood store.)

    For more information, go to:

    www.retailforward.com