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    Published on: December 9, 2002

    In Sunday National Football League action…

    NEW ENGLAND 27 Buffalo 17
    CAROLINA 52 Cincinnati 31
    Cleveland 21 JACKSONVILLE 20
    KANSAS CITY 49 St. Louis 10
    Houston 24 PITTSBURGH 6
    TAMPA BAY 34 Atlanta 10
    TENNESSEE 27 Indianapolis 17
    NY Giants 27 WASHINGTON 21
    San Francisco 31 DALLAS 27
    Philadelphia 27 SEATTLE 20
    New Orleans 37 BALTIMORE 25
    ARIZONA 23 Detroit 20
    NY JETS 19 Denver 13
    Oakland 27 SAN DIEGO 7
    GREEN BAY 26 Minnesota 22
    KC's View:

    Published on: December 9, 2002

    Last week we wrote about the sale of eatZi’s, and remembered its high profile as well as some of its failed efforts. MNB user Paul Schlossberg of D/FW Consulting responded with the following email:

    ”Here is an example of inappropriate strategy and poor tactics based on exceptional early success at store #1. They never built and executed a replicable model.

    “The Macy's site was dumb, and dumber. This was an error in location strategy - the concept never had a chance. Not locating closer to population centers (Zabar's as an example) doomed the store there. It forced them to end up with Macy's employees (and shoppers) as their prime customers...not a large enough draw for prime evening dinner hour purchasing. In New York at the end of the day, homeward bound commuters rush for the subway or commuter trains or buses. NYC retailing is a neighborhood business...building a monument was a mistake. That site was a zero from day one.

    “The Long Island site, if I recall, didn't have a license to sell wine. Hence part of the successful formula was wiped away before they opened. Not bringing the full concept to that store doomed the location.

    “The right strategy would have been to "conquer Dallas" first. Go read military strategy books like "The Art of War." They should have set up a network of satellite stores serviced from the main store with a limited selection and a (well-conceived) rotating menu. That would have established a model to be replicated in other markets. This formula could still be executed and might take them further down the path to success. .

    “As and aside...I loved Eatzi's when it opened and went out of my way to go there. But HEB's Central Market is about one mile from my home. Eatzi's could have been in this area first. Can't remember who said it..."You want to be first, best, or different." They certainly should have been first and best - because at that time in many markets they would have been different.”
    KC's View:

    Published on: December 9, 2002

    In this month’s Facts, Figures & The Future newsletter, produced by Phil Lempert, the Food Marketing Institute (FMI), and ACNielsen, a number of critical issues are addressed:

    • Speed of Life: In a survey designed to monitor and predict how today's ‘speed of life’ will impact tomorrow's purchases, ACNielsen found that 63 percent of its Consumer Pre*View Panel agreed "strongly or somewhat strongly" that they are seeking new ways to get their shopping, cooking and cleaning done faster.


    • Warehouse Club Demographics: In 2001, the Warehouse Club Channel sales reached $70 billion and are expected to increase by 9-10% in 2003. While “Club retailers now face competition from other retailers selling "club" packs... along with other big-box retailers adding gasoline pumps…the Warehouse Club Channel now has 900 + stores, and ACNielsen reports that about half of all U.S. households shop in this channel.” Interestingly, "While U.S. Grocery retailers are scrambling to react to the expansion of Supercenters, the demographics of Warehouse Club shoppers are actually more similar to heavy Grocery channel shoppers than they are to heavy Supercenter shoppers.


    Plus…

    • The Hispanic Consumer - Prepared Foods Opportunity.


    • An “Economic Snapshot” as 2002 comes to an end.


    • Produce: Is Random Weight Dead?


    • The “Real Growth” in Private Label


    And much more…all of which you can learn about by clicking on the “Facts, Figures & The Future” button on the right hand side of this page, or by going to:

    http://www.factsfiguresfuture.com/
    KC's View:

    Published on: December 9, 2002

    Dow Jones reports that Wal-Mart Canada, plans to open 17 new stores during its next fiscal year, which is consistent with its recent rate of expansion there.

    The 17 new store openings are in addition to the previously announced 4-6 new Sam’s Club openings planned for Ontario next year.
    KC's View:

    Published on: December 9, 2002

    Tesco, the leading UK food retailer, said that it has reached the equivalent of $16 million in weekly online sales through its Tesco.com division, selling an average of about $160 worth of merchandise to some 100,000 households.

    "These figures show that supermarket shopping online has finally turned the corner," Tesco.com CEO John Browett said in a statement. "A proportion of last week's sales are from customers taking our advice to stock up early for Christmas - but it's mostly down to people doing their regular weekly shop with Tesco.com, rather than instore."
    KC's View:

    Published on: December 9, 2002

    The US Department of Labor reported that new claims for unemployment benefits hit their lowest level in 21 months last week.

    While there was some speculation that the drop was because of a holiday week in which people were too busy to file, there is an alternative suggestion from analysts that the drop was consistent with recent indicators.
    KC's View:
    Hate to be either cynical or pessimistic, but it still seems like an enormous number of people we know are out of work or in danger of losing their jobs. It’s hard to take this kind of government statistic too seriously, because we’re convinced the numbers are cooked somehow…

    But maybe that’s just us being cynical..

    Published on: December 9, 2002


    • The bankruptcy judge overseeing Kmart Corp. has approved the company’s request that depositions being taken in a management probe be assured confidentiality. These depositions, which are being taken in an internal investigation into past management practices in the company, are still being taken, though Kmart expects the probe to be completed by year’s end.

      Both the US Securities and Exchange Commission (SEC) and department of Justice also are conducting investigations into Kmart’s management practices, but they are likely to take longer to complete.



    • The Pittsburgh Post-Gazette reports that Giant Eagle has opened up two redesigned "Kitchens" at stores in Robinson and Ohio Township that take “aim at the quick-casual restaurant chains taking off around the country. Places such as Panera Bread, Chipotle Mexican Grill, even Boston Market, offer a more upscale selection in a cozy setting.”

      "Basically we want to be a stand-alone restaurant that happens to be in the grocery store," Lou Coppola, director of prepared foods for Giant Eagle, told the paper.

      The company is looking to double its current two percent distribution figure for its prepared foods departments.

    KC's View:

    Published on: December 9, 2002

    Supervalu Inc., the No. 2 U.S. grocery supplies distributor, said that its quarterly earnings will be below Wall Street forecasts. Third quarter same-store sales reportedly are down 2.3 percent

    "As retailers vie for consumer dollars with promotional activities during the important holiday shopping period, the competitive environment intensified during the quarter," Jeff Noddle, Supervalu chairman and CEO, said in a statement. "The good progress we are making in retail and distribution was not sufficient to offset both economic and deflationary forces.”

    Supervalu operates more than 1,300 retail stores, and is facing the same issues as companies like Safeway and Albertsons, both of which also have said their quarterly earnings will be below expectations.
    KC's View:

    Published on: December 9, 2002

    A Superior Court judge in Puerto Rico temporarily blocked Wal-Mart's $225 million acquisition of 35-store Supermercados Amigo on Friday, saying that the purchase could violate the island’s antitrust laws.

    The decision by the judge came despite the fact that the US Federal Trade commission (FTC) had approved the sale.

    The decision prohibits Amigo from transferring its holdings to Wal-Mart until the courts issue a final decision in the matter.

    Wal-Mart already owns 19 stores in Puerto Rico
    KC's View:
    Now, if only Wal-Mart could get this case transferred to an Arkansas court, we suspect that these silly antitrust laws would somehow become less onerous…

    Published on: December 9, 2002

    Last week, we wrote about the ill-fated decisions made by Safeway several years ago to acquire smaller companies, believing that such moves would allow it to continue to dominate the retail scene and compete more effectively with Wal-Mart. As has been well-documented here and elsewhere, decisions to buy chains like Dominick’s and Genuardi’s have not worked out, as the challenges of serving local community interests have outstripped the efficiencies of scale that Safeway brought to the party.

    In response to this piece, we got a thoughtful email from MNB user Glen Terbeek, author of Agentry Agenda, addressing these same issues:

      ”When I conducted strategy sessions for retail clients during my career, the following question always came up: Should we be centralized or decentralized? Being a typical consultant, my answer was always "YES!”", not to avoid the question, but; YES because there are two business processes required to make any retailer successful in today's marketplace.

      “Since saturation, Wal-Mart's threat, increased Wall Street's ‘influence,’ and of course the encouragement of the manufacturers (efficient customers and trade dollars), the industry has been on a growth, consolidation, globalization, scale, and standardization track. This has resulted in an intense fascination with supply chain efficiency best documented in all the ECR rhetoric; at the expense of local marketplace productivity. Centralization became the ‘easy and comfortable’ way to manage this trend, since it is an extension of how most chains grew in the non-saturation, "virgin marketplace" era anyway.

      “Unfortunately, the marketplace has changed since then, but the organizations and measurements of the past have not. Remember, the shopper's shopping decision is always based on what's best in her/his trading area, not the size of the chain. Centralizing after consolidation is particularly damaging because of the demoralizing effect on the local management, the very people competing in the individual shopper's trading area.

      “It is more and more obvious (Safeway, Albertson's, Kmart as examples) that a retailers need to be both centralized around supply side issues, and decentralized around local market place performance. Somehow, many in the industry have forgotten the shopper in the last several years, chasing the last possible efficiency dollar out of the supply chain. Meanwhile, sales per square foot and market share of the supermarkets continue to drop. Why? As I have said before, the shoppers and the store's associates know!

      “There is one opportunity for scale on the demand side, but it is rarely used. A large retailer has a natural marketplace exchange opportunity, in which stores with similar demographics and or competition could exchange successful ideas. This would be a demand side infrastructure that enables local market management (defined as similar type of stores, not necessarily geography) to beat the others in their market without it. There would be no need for headquarters involvement ("management") after the infrastructure is set up. The organizations and measurements built around a store's marketplace productivity would sustain its effectiveness.

      “In the same strategy sessions mentioned above, two comments were always very self-incriminating. ‘We can't do that, we're too big!’ and ‘The franchise stores are always the better market performers!’ And when asked: ‘Who is responsible for a store’s market performance?", the answer always was, "Everyone is, and no one is!"

      “It's time to change the organizations and measurements!

      “I rest my case!”

    KC's View:
    Read Glen’s book, Agentry Agenda, available from Amazon.com. (We don’t make a dime from these plugs, We just think it sketches out a common sense business approach for the food industry that needs to be followed if it is to remain vital and viable in the 21st century.)

    Published on: December 9, 2002

    Information Resources Inc. recently released a report on the fast-growing dollar store segment, evaluating and analyzing the segment’s development and potential -- especially as they relate to other formats and venues in the retail business.

    MNB found it to be fascinating reading, and so we conducted an exclusive e-interview with Kali Klena, IRI’s VP of Retail Analytics, to get some further perspective on the dollar store format:

    MNB: To what extent is the growth of the dollar store format keyed to the poor economy? What is the likely performance of the format if the economy were to once again turn robust?

    Kali Klena: While the study didn't specifically address economic motivations for shopping the dollar channel, dollar stores have been experiencing double digit growth for several years even prior to the dot-com shakeup and the September 11th tragedies. Approximately 55% of Americans shop Dollar stores – enjoying the benefits the channel delivers. While many Dollar shoppers come from lower income households, more interesting is that many Dollar Store shoppers are quite involved with the channel, shopping multiple times a month, more often than they shop Drug stores. Those dollar store shoppers are also characterized by their love of the "hunt" for bargains not only in Dollar stores, but also across all channels.


    Dollar stores would seem to exist to create doubt about the concept of 'one stop shopping,' suggesting that most people except high-end shoppers) have more time than money. True? And, if true, would this suggest that the major chains' desire to become one-stop shopping experiences is a faulty premise?

    Kali Klena: There are a lot of shoppers who like or “need” to bargain hunt regardless of economic status. While many Americans would describe themselves as “time pressed”, the fact is that today’s consumers are shopping multiple outlets and more frequently. They are willing to pay more for those convenient, quick trips to c-stores, Drug stores, and Food stores. Conversely, they are also willing to travel further to save on a stock up trip at the club, supercenter, or Mass Merchandiser. On average, consumers are already making over 120 shopping trips a year to key channels. Dollar stores are simply offering convenience and price benefits with a narrower selection...a bargain browser’s paradise.


    Because the dollar stores don't deal in perishables, does this suggest that grocery stores are less vulnerable to them than, say, Drug stores or discount stores?

    Kali Klena: The Dollar store represents a threat to the Drug and Convenience channels and both are likely to lose traffic in their shelf-stable food and non- edible aisles where consumers were traditionally paying more for items like soup and laundry supplies in other channels. However, I would not discount the impact on grocery. The perishables department for most Food retailers remains a nearly uncontested area of strength. It is an area that has to be leveraged to enhance retailers’ relationships with shoppers, but perishables alone cannot hold off competition. With so much channel blurring already for non-edible and shelf-stable items, shoppers browsing Dollar stores will find items to pick up that will dent sales in Food stores and other channels.


    As dollar stores' sales increase, will this primarily be because more people shop there for the products they carry now, or because they expand their product selection?

    Kali Klena: We’re seeing multiple trends – first, the Dollar channel is adding new shoppers. Second, Dollar’s selection is being expanded, quality is improving and name brands are more readily available. These trends are fueling the growth. We expect these trends to continue in the near future. The expanded selection appears to be the trend with the longest life span. As the channel achieves further consumer penetration, Dollar stores will be seeking growth opportunities within their existing customer base. One of fundamental ways to achieve this is through offering expansion. Manufacturers have already begun to recognize Dollar channel’s potential by brining special versions or sizes of name brand products currently available in other channels of trade to Dollar stores.


    Are there geographic areas or demographic areas more vulnerable to dollar stores' appeal than others?

    Kali Klena: The study did not examine geographical impact. Demographically speaking, many lower income shoppers have already recognized the channel's benefits and improved selection and will continue to pre-empt purchases from other channels’ shopping baskets. Shoppers from middle-income households are just beginning to embrace the Dollar channel. As the Dollar channel continues to expand selection, offer better quality, and increase retail presence, the middle-income shopper will undoubtedly find more items to purchase.


    What tends to be the impact of dollar stores on warehouse clubs and discount stores?

    Kali Klena: Both channels are vulnerable to Dollar competition: Findings indicate the heavier the Dollar shopper; the less involved the shopper is with Club. Both Club and Discount are also subject to the “browsing factor.” As consumers find acceptable health and beauty products, non-edibles, and shelf-stable products, the likelihood of these items coming off another channel’s shopping list increases.


    Based on the study's findings, what's the best way to compete with a dollar store?

    Kali Klena: Dollar stores are approaching shoppers on two basic premises: convenience and price. With channel blurring on the rise, we’re seeing significant overlap between these value propositions. Looking towards the future, each channel must exploit their unique strengths to protect against encroachment from the Dollar channel.
    KC's View:
    In other, words, dollar stores have been successful because they have identified a marketing message that resonates with the consumer, and an approach that differentiates them from other retailing venues.

    Contrast this with many other retailers that all are seeking survival through the same kinds of strategies…being all things to all people.

    Which makes sense to you?

    Published on: December 9, 2002


    • Albertson's Inc., the second-ranked US supermarket chain, reports this morning that third quarter net income was $192 million, up from $176 million in the same period a year ago. Quarterly sales decreased to $8.66 billion from $9.04 billion, while same-store sales fell 2 percent. The earnings figures were in line with the most recent projections by Albertsons, which had diminished expectations because of the nation’s continued “economic weakness and heightened levels of competition.”

      Larry Johnston, Albertsons’ CEO, said the chain will both be more aggressive in its marketing and its goal of $750 million in cost cuts.



    • The Great Atlantic & Pacific Tea Co. reportedly will convert just 120 of its A&P stores to the Food Basics banner over the next year and a half, not the entire chain as had been reported in the German media. Whether that number grows over the long term will be dependent on how the first 120 do.



    • PlanetRetail.com reports this morning that Wal-Mart’s Asda Group will stop rolling out its Asda At Home shopping service until it gets the business model to the point where it will support further expansion. At present, Asda reaches about a third of the UK population with its online service, compared to Tesco’s 90 percent coverage and Sainsbury’s 74 percent.



    • The New York Times reports this morning that a growing number of people would prefer to give or receive gift certificates for the holidays this year.

      One survey, by America's Research Group, reported that the number of people who wanted to give cash or gift certificates had increased from 39 percent last year to 51 percent this year, an all-time high.

      American Express did a survey suggesting that 69 percent of people will give money and gift certificates, up from 41 percent five years ago, and that 72 percent wanted to receive them.

      According to American Express, the overall cash, check and certificate market is $70 billion, and retailers particularly are appreciative because an estimated 10 to 15 percent of the recipients never even cash them in.

    KC's View: