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    Published on: February 5, 2003

    We got a lot of response to the Tuesday morning piece we had about the power of category management to corrupt the way retailers ought to be running their stores…by allowing vendors to determine selection and inducing retailers to focus only on efficiency and not marketing innovation.

    MNB user Rick Cognetti wrote

    "I have found that the power companies love to category manage. They all push the 80/20rule. 80% of the profit is done by 20% of the SKUs. This style certainly is not conducive to being a full line destination point in a particular category but is a very good start to a complete set. I prefer to use my top 2-3 suppliers in a category as managers, have them evaluate and recommend goods. I follow their results up with an independent consultant and compare results. This concept has enabled me to stay ahead of the curve in Nutrition and Diet. We carry the top lines but also cater to a broad spectrum of consumer. You have to carry Centrum, but also need to have a full line of fish & flax oils. It all is great fun!!"


    MNB user Andy Leebrick wrote:

    "If a retailer completely turns the category management controls over to a manufacturer then they deserve to lose. The retailers who see success while collaborating with the manufacturer during the cat man process are the ones who play an active role. The manufacturer has access to vital information that the retailer may not. The art is in discerning what information is critical to drive that particular retailers business objectives and then applying it to a business plan that is actionable."



    Another MNB user chimed in:

    "The natural evolution of all players in a market reviewing syndicated data (or what everyone else is doing), is a homogeneous, offering with little or no innovation.

    "The overused practice of retailers handing this process to key vendors only accentuates the myopic results: What better outcome could the large national manufacturers (usual category partners due to staffing, data access and category consumer research) hope for than everyone with the same, fast-moving, efficient, nationally distributed assortment.

    "Food retailing can't afford to get any more "efficient". We are saving our way to extinction.

    "Retailers first need to take ownership of this process. Period. Secondly, we must approach this with a true customer focus; not to be mistaken with "Efficient Consumer Response" (ECR), maybe instead Interesting Consumer Response. We have allowed Wal-Mart's success with price and the associated efficiencies to completely dictate our business strategies. How many times have we all said, "We're not Wal-Mart and we can't beat them at their game". The problem appears that we have so long competed against each other on item and price that all we know is Wal-Mart's "game". We had better re-focus on our own customers (who by the way usually rank price about 5th on their list) and figure out our "game" plan. It certainly isn't copying each others assortment, price, marketing and formats until the customers choice is Wal-Mart or anybody else with a convenient location.

    "Essentially category management can't help if the strategy around our tactics is flawed. Category management can and should only create tactics to support a clearly communicated (to both employees and customers), differentiating mission."



    MNB user Frederic Arnal added:

    "I have always equated category management with putting the fox in charge of the hen house. But this practice really shouldn't be surprising given the role of most supermarketers. They like to think of themselves as merchants but, in reality, they are part of the manufacturer's distribution chain. True merchants (and we all know who they are) create assortments and unrealized needs for target markets leaving the distribution game to others. As you frequently point out, they brand themselves."




    In our lead story yesterday about Kmart and Fleming deciding to go their separate ways, we noted that if, as rumored, Wal-Mart decided to get into the wholesaling business, maybe it would want to supply Kmart.

    A number of people wrote in to point out that Wal-Mart is, in fact in wholesaling through its ownership of McLane. We appreciate the effort, and should have been more specific in our commentary. In referring to Wal-Mart's wholesaling plans, we were in fact talking about a story that came out a couple of weeks ago about Wal-Mart considering the possibility of opening a full grocery wholesaling division that would cater to independent operators, which is different than the McLane c-store business.

    However, while we were not misinformed we were, at the very least, imprecise in our language. Sorry about that.

    We also had a number of emails on the same story asking us if we were kidding. (We think these members of the MNB community just needed to be reassured that we hadn't completely lost our mind…)

    We haven't. And we were kidding.

    Unless, of course, Wal-Mart actually does decide to supply Kmart…in which case we're a cross between the Amazing Kreskin and Harry Houdini.


    Actually, one member of the MNB community, Richard Harding, seemed to think that Wal-Mart supplying Kmart wasn't such a bad idea:

    "If Wal-Mart was in the wholesale business; why wouldn't they? They obviously would not build their wholesale business around K Mart as a client, so K Mart's uncertain future would not affect a major company like Wal-Mart Mart. If Wal-Mart Mart was able to obtain a contract with Kmart to be its supplier, then Wal-Mart Mart could possibly control what it
    supplies Kmart and could can gain further leverage in the market they are competing for. On top of that, a deal of that nature would be a major deal and would hit main stream news which would give Wal-Mart Mart free positive PR especially because it could be an easy spin for competitive nature even though in essence they are controlling the competition.

    "The only down side for Wal-Mart Mart is knowingly supplying its competitor and Wal-Mart Mart has first hand knowledge that it is possible that Kmart could possibly bounce back and be just fine in the years to come, but then Wal-Mart Mart would have their supply agreement and they would be just fine with that.

    "The other possible downside is similar to that, the free PR could promote Kmart in a sense as being a part of Wal-Mart Mart and the uneducated or uninformed buyer might then say the two stores are the same, so why not shop at K Mart. In my opinion, if this situation were to happen then only those people who are more conveniently located to Kmart would shop there; if they are currently a Wal-Mart Mart customer. To answer your question with a question: what are three reasons why Wal-Mart Mart would not want to supply Kmart?"


    See folks? It isn’t just us…




    We wrote yesterday about how Kmart is bringing out a new print supplement to its print ads called Urban Direct, hoping to attract a new demographic. Our observation was that this makes sense if the in-store offering matches the supplement's editorial.

    One MNB user responded:

    "Haven't we all been disappointed by a retailer who's print image (catalog, FSI) didn't match the store experience.

    "I believe that one of the reasons for Target's success is they know how to match these experiences."





    We posted a fascinating email the other day from an MNB user who overheard an elderly couple in the supermarket saying that it was cheaper for them to eat at a local family-style restaurant than to buy food at the supermarket and cook it at home.

    Another member of the MNB community responded:

    "Until now, I never really thought about my parents doing the same thing after my father retired (we live in different states). For $6 to $8 each, they get soup, salad, entree, vegetables, dessert and beverage. The portions are so big that they take home enough of the entrees for lunch the next day. In addition, they split one dessert at the restaurant and take the second to go. Fortunately for grocers, not all parts of the country have these kind of family style restaurants that are prevalent in areas like the Chicago suburbs where my parents live.

    "With an aging population, this may just be the beginning of a trend. People are finding time to enjoy retirement and hobbies instead of shopping for groceries, preparing meals, cleaning pots and pans as well as dishes and all the energy involved in doing that. The restaurant also absorbs the shrink for perishables that to go bad more often in a house with fewer mouths to feed. My mother has even commented about how is it hard to adjust to cooking smaller portions after having fed three active sons and a father who worked construction. When my mother does shop, she prefers the prices at Aldi and the quality/value at the local independent grocer. She also agrees with their decisions to remain closed on Sunday."





    Got a lot of reaction to yesterday's story about the Hooters restaurant chain going into the airline business. One of the creative steps the company is taking is to separate job functions that traditionally have been combined; for example, trained flight attendants will handle boarding and safety issues, while stereotypical "Hooters girls" will handle most of the hostess and food functions.

    This comment from an MNB user was typical:

    "Try explaining the Hooters girls flight uniforms- tight orange shorts and even tighter white T shirt- to your 7 year old son or daughter next time you fly Hooter Air. Even better, try explaining why you chose to fly Hooter Air to your wife.

    "I can see it now, 'Honey, I swear this was the cheapest flight. And, I didn't know that our flight from Chicago to New York had a stop in L.A.' This is certainly one way to get everyone to pay attention during pre-flight instruction."


    And MNB user Earl W. Engleman added:

    "While I would expect to see the Hooters girls on a Southwest airlines flight, I'm sure this one will bring out the opposition group you had to the
    Miller's Super Bowl commercial…"


    Clearly, if Hooters gets the same reaction that Miller did, it will have hit a home run.




    Continuing reaction to the dual subjects on the need for better school lunches and the trend toward teenaged vegetarianism.

    MNB user Mark Shukwit wrote:

    "Teenagers and children are very much like the rest of us. When we exercise and live an active lifestyle, our eating habits naturally move toward quality choices. Rather than having these councils fighting each other for position, maybe we should focus our efforts at getting these kids away from the TVs and concession stands!

    "As far as school lunches are concerned: as long as Ketchup is considered a portion of vegetables, my children will be packing their lunch!"



    MNB user Don Sutton added:

    "Bottom line, guys - homo sapiens evolved as an omnivore. One educated glance at our teeth alone makes that point.

    "Making a complete break from either meat or veggies means that the organism will suffer without adding a lot of vitamins and other supplements. It's a whole lot easier to add a few meat portions than to carry around a bag of pills, etc. And in a retail environment that is driven by an increased emphasis on speed and convenience, I wouldn't bet on a long term commitment to vegetarianism on the part of a significant share of the population. When the beef, pork and poultry people figure that out, a modicum of science-based advertising should cool down the knee jerk fear reaction and inform the public what's really happening and how much money and hassle is involved in a meatless diet."



    And another MNB user wrote:

    "Nothing ever made me hungry for red meat more than pregnancy! Some of the girls who think that vegetarianism is "cool" now may abruptly abandon that (hopefully in several more years) when there's a baby on board demanding a steak. Protein, iron, yum!"

    Or, looked at another way, if your teenaged girl starts to crave meat, it's time to pull out the home pregnancy test.
    KC's View:

    Published on: February 5, 2003

    The Christian Science monitor reports that a new study by a French organization suggests that the amount of time that French women spend in the kitchen cooking is dropping.

    In 1988, the average French woman spent 42 minutes preparing a weekday dinner; the most recent figures showed women in France now spending about 36 minutes preparing the evening meal.

    In part, this shift has occurred because more French women have jobs; in part, it is because there are more options available to time-stressed shoppers there.
    KC's View:
    We've always labored under the premise that French women are mysterious, gorgeous, fabulous cooks, utterly charming and completely unattainable.

    Ah, well…four out of five ain't bad.

    Published on: February 5, 2003


      The Grocery Manufacturers of America (GMA) welcomed the proposed U.S. Department of Agriculture budget increases for child nutrition programs such as the Women, Infants and Children (WIC) and school lunch programs. However, according to GMA, proposed new user fees to be levied against meat and poultry plants are unnecessary costs that penalize companies.

      The USDA budget for fiscal year 2004, released yesterday, includes a record $42.9 billion budget for domestic food assistance programs. This budget request would provide additional support to nutritionally at-risk WIC participants and an estimated 29 million school children in the daily school lunch program. The USDA has also increased funding for WIC obesity prevention programs by $5 million. Additionally, the USDA has requested an increased budget for the Food Safety Inspection Services that includes $122 million in new user fees levied against meat and poultry plants for USDA inspections in addition to the $102 million generated by existing user fees.

      "GMA supports USDA efforts to fully fund programs that benefit a vast majority of Americans," said GMA Director of Federal Affairs David Stafford. "Increased funding for nutrition and obesity prevention programs for children and families will help improve the overall health and well-being of our nation."

      "However, controversial user fees for mandatory USDA meat and poultry plant inspections penalize the very businesses that provide products to all Americans," added Stafford. "USDA plant inspections help prevent the spread of bacteria that can cause potentially fatal reactions such as E. coli and listeria. As a national health service, these inspections should be funded by general appropriations rather than user fees."
    KC's View:

    Published on: February 5, 2003


    • Walgreen Co., the number one US chain drug chain, reported that January total sales increased 12.6 percent to $2.68 billion, from $2.38 billion during the same period a year before.

      Pharmacy sales were up 16.3 percent for the period.



    • CVS Corp., the No. 2 U.S. drugstore chain, posted fourth quarter earnings of $200.1 million, up from $98.2 million a year earlier.
      Fourth-quarter sales rose 6.6 percent from a year earlier, to $6.34 billion, with same store sales up 6.7 percent for the period.

    KC's View:

    Published on: February 5, 2003

    We wrote yesterday of reports that Spartan Stores was considering try to sell all or part of its Food Town retail supermarkets. Later in the day, Spartan chairman, president and CEO James B. Meyer sent the following email to all of the company's associates:

      "In an effort to keep you apprised of our business developments, we are announcing today that we are working with an investment banking firm specializing in the food industry to explore alternative strategies related to our Food Town supermarkets. As you are aware, we continue to face significant challenges in our northwest Ohio and southeast Michigan retail grocery operations. We are considering a number of options intended to more rapidly return our overall retail operations to profitability. We are hopeful the outcome of this exploration process will occur by the end of the fiscal year. Pharm operations are not part of this review process.

      "In a separate issue, we are also announcing the planned closing of our Ohio distribution operations. This plan is part of our continuing efforts to reduce operating costs and improve the operational efficiency of our distribution business segment. The plan calls for all products and services currently provided from the two Ohio facilities to be consolidated into warehouses located in Grand Rapids and Plymouth, Michigan by the end of the fiscal year in March. We expect the transition to be smooth with no disruption in service to our stores.

      "As I shared with you in our recent associate forums, Spartan Stores is working diligently to strengthen our financial position, and will continue to look at appropriate strategies to improve operating performance and adjust our cost structure so that it is more in line with our business activity.

      "Lastly, your painstaking efforts and dedication during this transitional period have not gone unnoticed. I would like to personally thank each of you for your dedication and I believe that your continued support and hard work will play an instrumental role in establishing Spartan Stores as a leading retail grocery and distribution business. We will continue to provide you with additional business development updates as they occur."
    KC's View:

    Published on: February 5, 2003

    In Belgium, Delhaize reportedly has decided to scrap plans for a chain of all-organic stores -- not because it wasn't working, but because it proved to be so popular that the company now will integrate the concept into its mainstream stores.
    KC's View:

    Published on: February 5, 2003

    USAToday reports that Delta Air Lines has set as its primary goal the elimination of ticket counter lines at 81 airports that it serves, and the promise of 90-second check-in -- all by this summer. Currently, check-in can take as long as two hours, depending on the airport -- and that doesn't count the new security procedures now in place.

    In Delta's case, this will mean doubling the number of automatic check-in machines available, and redeploying personnel so they are there to greet and help fliers before they even get to the check-in experience.

    "While other airlines are also rolling out dozens of check-in machines, none have been as bold as Delta in pledging to eliminate lines. And none have vowed to flood lobbies with legions of agents to aid customers," USAToday reports. "The change underscores how airlines' financial crisis is forcing them to rethink how they've operated for decades and find ways to fix airport hassles."
    KC's View:
    It also means that while airlines like United are in the news for making cuts and trying to stave off bankruptcy, Delta makes headlines for trying to improve the passenger experience. That isn't insignificant.

    Seems to us that it is this kind of big thinking that ought to be embraced by the supermarket industry. Where is the chain -- or independent -- making the same kind of commitment to its shoppers? Sure, there are lots of logistical reasons why this kind of strategy might be difficult or impossible to achieve, but that ought not to matter.

    We were talking to someone yesterday who was telling us how when Southwest Airlines wanted to figure out how to speed up airplane turnaround, it didn't go to se United or American; instead, it went to see the pit crews at the Indianapolis 500, who know a lot about fast turnaround.

    It is that kind of creative thinking that needs to be adopted by the food industry. It could be the key to survival.

    Published on: February 5, 2003

    MNB continues our newest feature: "The BIG IDEA Beat" Contest, in which the thought-leaders who make up the MNB community have the opportunity to share their perspectives on critical issues facing the industry and win a signed copy of Agentry Agenda: Selling Food in a Frictionless Marketplace, by Glen Terbeek.

    Each week, we offer both a Premise and a Challenge to MNB users. The Premise will seek to state either a fact of life for the food industry as it currently exists, or a trend that seems to be developing as retailers and manufacturers seek a better way of conducting business.

    Your Challenge will be to respond by identifying the best ideas and examples that typify where the industry ought to be heading.

    Entries should be emailed to kc@morningnewsbeat.com.

    "The BIG IDEA Beat" contest will be featured each Monday, and repeated Tuesday and Wednesday…answers must be submitted by 11:59 p.m. on Wednesday. Winners will be picked and featured on MNB by Friday. Some weeks there may be single winner…other weeks, there could be multiple winners. Selection of the winners will be solely at the discretion of Glen Terbeek and MNB Content Guy Kevin Coupe.

    Premise:

    The supermarket industry grew up through leveraging central buying and distribution to a "standard" store in a Greenfield marketplace. However, the marketplace dynamics have changed, through the saturation of like stores and products, exasperated by a slow growth marketplace (population growth of less than 1 percent a year) that make this model less effective. Accordingly, significant false economics have developed using the current business processes, often estimated at 15% of the manufacturers' sales or 7.5% of retailers’ sales. And new "alternative format" competitors have taken market share by exploiting these discontinuities. It therefore can be concluded that the current organizations, measurements, and business processes are out of touch with the marketplace realities of today and tomorrow.

    Challenge:

    Focus on the organization issue. What are your ideas for the organizational design of the future supermarket chain that will enable it to compete successfully in the very competitive marketplace of today? (Hint, you might want to review the responses of the first two Big Idea Beat Challenges.)
    KC's View:

    Published on: February 5, 2003

    The New York Times reports that despite recent warnings that the US would present a legal challenge to the European Union's four-year old ban on genetically modified food, the Bush administration has decided not to press the case at this time.

    The reason: a lawsuit against the EU would manage to antagonize the very nations that the US is trying to get to support it on the issue of whether to invade Iraq.

    However, US trade representative Robert B. Zoellick told the NYT that US could change its mind and go ahead with a suit, and he reiterated his position that GM food could help alleviate starvation.
    KC's View:
    The best part of this story is the fact that this is exactly what we recommended a couple of weeks ago. After all, why alienate the very people you're hoping will support you?

    The war against Iraq and terrorism seems to us as a lot more important that the conflict over GMOs…

    Published on: February 5, 2003

    One of the points of this series of stories is to help retailers identify new and different ways to market the products already in their stories, based on editorial pieces in some of the magazines being published by Rodale. For example, in perusing the March 2003 edition of Prevention, we learned that:

    • Eating sauerkraut can help prevent cancer. (Page 68.)

    • There are numerous products on the market that can boost one's fiber intake, which, in addition to helping with regularity, can be a real benefit to people with diabetes and/or high cholesterol. (Page 70.)

    • A concoction called "Russian tea" can be a great help in battling colds and sore throats. (Page 114.)

    KC's View:
    Good stuff, and all pieces of information that can help consumers see products with a fresh perspective.

    Which seems to be a sensible way to go into the marketplace.

    Published on: February 5, 2003

    The US Securities and Exchange Commission (SEC) approved a formal investigation into the accounting practices at Nash Finch, the company announced yesterday. Up to this point, the inquiry had been an informal look at the company's policies toward vendor allowances.

    Nash Finch also announced that its accounting firm, Deloitte & Touche, had resigned over a disagreement about whether the company had provided specific and sufficient evidence that would have backed up certain accounting practices.
    KC's View:
    Sounds like Nash Finch may not be bidding for that Kmart business anytime soon.

    Published on: February 5, 2003

    The hot rumor this morning is about the possibility that the Great Atlantic and Pacific Tea Company (A&P) may decide to sell its Wisconsin-based Kohl's grocery stores.

    A&P has been looking to sell some of its assets in order to bolster its bottom line.
    KC's View:

    Published on: February 5, 2003

    In the wake of yesterday's announcement that Fleming and Kmart were severing the contract that had the wholesaler supplying groceries to the troubled discounter, Kmart said that it would launch "a previously prepared contingency plan that would immediately transition us to a self-distribution process," according to a spokesman.

    The Kmart executive would not speculate about the company’s long-term plans for grocery supplies.

    The companies cancelled their agreement because it no longer was in either of their best interests to continue it; Kmart is in the process of closing more than 300 stores as it struggles to emerge from bankruptcy protection. While there has been some speculation that Kmart would get out of the supercenter business altogether, and therefore would have less need for a grocery wholesaler, the company has to this point said it plans to keep operating the format, albeit fewer of them than in the past.
    KC's View:
    Suggestion to any company that might decide to take on the Kmart grocery supply business…

    Get paid in advance, and make sure the check clears before you deliver so much as a cookie.

    Published on: February 5, 2003

    Dow Jones reports that Fleming Cos. CFO Mark Shapiro has scoffed at the possibility that the company could be facing bankruptcy in the face of its divorce from Kmart, its largest customer.

    "That notion is ludicrous," he said, noting that the company's cash flow is positive and that it has paid down $200 million in debt over the past six months.
    KC's View:
    Maybe Fleming won’t be seeking bankruptcy protection, and maybe the Kmart business was becoming less of a factor as the retailer sold off more and more of its stores. But it seems like Fleming faces the possibility of being a shadow of its former self…which will create real issues about whether or not it can service its independent and regional chain customers with the alacrity and innovation that they deserve.