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    Published on: February 17, 2003

    We spent some time last Friday chatting on the phone with MNB users about our choice of stories, with a few of them asking if perhaps we were spending too much time and effort reporting about Kmart and Fleming. (We make a practice from time to time of calling folks who write us emails; it usually is instructive, and it’s just a lot of fun to talk to people with whom we correspond.)

    We mention this because perhaps it is worth reiterating our philosophy about story selection. Sure, sometimes it seems like Kmart and Fleming (and, of course, Wal-Mart) get an awful lot of mention and analysis in MNB. But we think that these stories offer object lessons for other retailers. Last Friday’s story about Kmart, for example, focused on Kmart’s decision to eliminate self-checkout…and we thought it worth some analysis since it suggested to us that the bankrupt retailer was focusing on issues that have nothing to do with creating a unique and transcendent 21st century shopping experience.

    Just out point of view, and certainly open to discussion. But not discussing it would, we think, be a mistake.

    For example, MNB user Tim Anderson disagreed with some of our characterizations of the Kmart experience:

    “This is really to mourn for...and feel sorry for all of those out there who have to suffer through what you all interminably refer to as the "slow...or slower" checkouts and service and Kmart. I would simply like to relate that only this afternoon I was at my local Kmart with a rush of other last minute Valentines Day card shoppers (by the way, there were surprisingly more women in the aisle last minute than men) and, perhaps, not surprisingly, we all seemed to end up at the checkouts at about the same time with our one or two items. This lead to checkout lines growing from three people to six or seven in several lines in no time flat. The upshot was that the checkers immediately recognized it, the call went out and within 60 secs. three more check lines were open and running and getting people through.

    “I know you, and many others, may want to dismiss that as a fluke, or an unusual occurrence. I assure you, at this Kmart it is not. Furthermore, I recently moved to this community from another where we had an equally responsive Kmart.

    “My point is this, it is not all Kmarts, it is not even "corporate" Kmart -- I'm sure the people in Troy would not want to present the type of service to which you keep referring -- it is indeed the individuals in the store, the people who are getting paid to work there, and not unfairly with regard to the rest of their local markets. It starts with the management of the store projecting the image of what they (he or she) want to have happen in that store, in that community, on that day.

    “If you have the bad experiences around you, I would suggest it is a result of the people around whom you live and how they feel about service -- and, I suspect, they would provide the same level of service in any circumstance in your market. The people in Wisconsin, the people in Minnesota care about doing a good job.”



    Of course, not everyone feels that way:

    “Kmart's "self-checkout" (and I use the term loosely) lanes are probably increasing theft, because customers get fed up with trying to operate them and walk out with their merchandise.

    “Last Saturday, I went in to the local Kmart (one slated for closure) and opted for self-checkout, as the TWO lines that were open (out of 15 available) were at least 6 customers long. I walked up to the self-checkout, and scanned my items – no problems there. I scanned a coupon, and the machine blurted that I now had to have someone approve my coupons. A very frantically over-worked clerk came over and was very nice about entering the approval code. Two seconds later, she had to approve my credit card swipe. At the door, I had to have someone inspect my purchase to make sure that the receipt matched what was in my bag.

    “This isn't self-checkout, this is an exercise in trying to accuse the average shopper of theft! While I understand that subcontractors are supervising the closing sales (oh yes, -- clearance sale -- a whopping 10% off the regular price. That's not a clearance sale -- that's not even enough to warrant calling it a regular sale! The signs on the door say up to 50% off -- never did see any discount that big.)

    “Then, to put the frosting on their insult cake -- they printed a $10 savings certificate to be used at another Kmart -- 25 miles away. As if. I have to drive past two Targets and three Wal-Marts to get there. Not likely.

    “Bottom line -- the self-checkouts are not self-propelled in any way, shape, or form -- they're still requiring the full-time attention of someone, but that poor clerk has to divide her attention across FOUR registers, instead of one. They stop just short of accusing you of being dishonest, and then they just flat assume you're stealing by having the receipt check at the door. And all of this in a dirty, poorly lit store that has never, ever had fully-stocked shelves and apathetic employees (who I genuinely feel sorry for.)

    “I've darkened Kmart's door for the LAST time.”



    And MNB user Lew de Seife wrote:

    “I wonder if Kmart’s desire for a speedy emergence from bankruptcy, and the attempt to block anyone else from filling another plan has anything to do with the size of the bonus some one person might collect?

    “Is this really in Kmart's best interest, or rather in that person's best interest?”





    Reaction to our preference for William Morrison Supermarkets, the original bidder, to be the winner in the sweepstakes to acquire Safeway Plc in the UK, as MNB user Bob McMath wrote:

    Your point about the first bidder getting the prize is fine -- unless you are a stockholder. The other companies thinking and coming in with bids are doing it for more money or offering potentially better terms. So, aren't the present owners of the company entitled to the best offer? In fact, if all the bids are looked at and the specific government agencies study the results of the takeover by each bidder, it should be able to set up the terms on which each of the bidders can get the prize, i.e., close or sell some stores, etc., to remain fair and offer the right competition in the market, overall.

    “To do less makes a mockery of the bidding system -- when the government comes in and tells the company they have to take the potentially lowest bid because it was "first" and some of the better bids would cause complications in the competitive marketplace.”


    We were just stating a selfish journalistic preference -- that a successful Morrison bid probably creates a more competitive UK market, which gives us more to write about.

    As for the rest of it…well, that’s the UK’s problem.




    We got some interesting reactions to our article about how Albertsons is using a motivational speaker, Ed F. Foreman, to help managers think positively about their lives and work.

    MNB user Ian Ricketts wrote:

    “I have to say I like this risk that attempts to have managers see the world through a different set of eyes. Although the individual learning styles of many of these managers can and will vary and I consider this a bit of a "Mass Market" approach to creating change, I give Johnston full marks for doing what some might deem ludicrous. It will, however, need follow-up with very aligned top level behavior or it will foster cynical behavior to the very people it was intended to make more affective.”




    MNB user Ed Nalley wrote:

    “Albertson's employees at every level will be very reluctant to embrace this program until a few key executives and customer service managers attend—and very key is HR Managers--who will then Very Positively embrace this Training.

    “I went to Ed Foreman's 3-day program in the Texas Hill Country area after my wife had gone and I know it put us both back on a positive track 14 years ago and this April 12th we will be Celebrating our 40th Wedding Anniversary. It was so good that we sent both our Teenagers(at different times). I have encouraged many other Couples to do same and everyone has positive results.

    “My point is --You change a Family or Company One Person at a time. A quote I received ---- that is posted on my office wall is :

    "THE POWER OF ATTITUDE"

    OUR LIVES ARE NOT DETERMINED BY WHAT HAPPENS TO US, BUT HOW WE REACT TO WHAT HAPPENS:

    NOT BY WHAT LIFE BRINGS US, BUT BY THE ATTITUDE WE BRING TO LIFE.

    A POSITIVE ATTITUDE CAUSES A CHAIN REACTION OF POSITIVE THOUGHTS, EVENTS, AND OUTCOMES.

    IT IS A CATALYST-----A SPARK THAT CREATES EXTRAORDINARY RESULTS"


    “Thanks for a Positive Story in the Business World.


    You’re welcome.

    (It’s a thrill to be thought of as being positive…so many think that we’re jaded beyond redemption. Not that there’s anything wrong with that.)
    KC's View:

    Published on: February 17, 2003


    • Robert J. Harvey has been named Ingles Markets’ new vice president of meat operations, filling a vacancy created by the recent death of Joseph G. Ashley. Harvey has been with ingles for almost four decades, having joined the company in 1965 as a meat cutter; he has been a meat buyer with the company since 1983.

    KC's View:

    Published on: February 17, 2003


    • Krispy Kreme Doughnuts posted fourth- quarter systemwide same-store sales that were up 11.8 percent from a year ago, with company-owned stores showing same store sales that were up 14.3 percent.

    KC's View:

    Published on: February 17, 2003

    CNBC reports that former Kmart COO and president Mark Schwartz, who left the company a week before it declared bankruptcy with a $3 million loan he didn’t have to repay, has started a new company appropriately called Fresh Start. The company has bought some 15 c-stores and gas stations in South Dakota and Wyoming.

    According to the CNBC report, Schwartz is accomplished at fresh starts…he actually has four bankrupt companies in his past, including Hechinger and Big V Supermarkets.
    KC's View:
    Seems to us that guys like this give entrepreneurism and capitalism a bad name. We’re just glad that he has his own company now, and just hope that outside investors aren’t charmed into putting money into it.

    Let it live or die on his own nickel.

    Fitzgerald said that “there are no second acts in American lives.” Schwartz has proven him wrong…but perhaps because Fitzgerald hadn’t considered the possibility of a prolonged soap opera in which accountability just doesn’t seem to be an issue.

    Published on: February 17, 2003

    Nash Finch’s accounting issues seem to be getting worse. In the interest of getting the technicalities right, let’s just give you excerpts from the company’s statement on Friday:

      Nash Finch Company today announced that it was notified on February 13, 2003 by the Trustee for the Company's $165,000,000 8 1/2% Senior Subordinated Notes due 2008, that a default had occurred under the Indenture as a result of the Company's failure to file certain financial reports with the Securities and Exchange Commission and that, unless remedied within the 30 day grace period, such failure would constitute an event of default under the Indenture.

      If the default is not remedied within 30 days, an event of default will also occur under the Company's bank credit facility. The Company is in discussions with its bank lenders concerning a waiver of the potential event of default. There can be no assurance that the Company will be able to obtain a waiver from the bank lenders. Assuming that the Company's trade credit remains substantially unaffected, and given the Company's strong operating cash flows, the Company does not project requiring borrowings under the credit facility for at least the next 30 days.

      Although the Company has not yet filed its financials for the third and fourth quarters of fiscal year 2002, based upon unaudited information prepared under the assumption that the current accounting for Count-Recount charges is determined to be correct, for fiscal 2002 the Company had total sales and revenues of $3.9 billion compared to $4.0 billion for fiscal 2001. While sales were difficult in this competitive environment, based on the same assumption, the Company was able to achieve net earnings… of $29.7 million… as compared to $21.2 million…for the prior fiscal year.

      In addition, for the 16-week period ended October 5, 2002, the Company had net earnings of $7.3 million… compared to $6.0 … for the comparable period last year. For the 12-week period ended December 28, 2002, the Company had net earnings of $8.4 million…compared to $6.7 million…for the prior period…
    KC's View:

    Published on: February 17, 2003

    In view of the obesity epidemic that seems to have captured the nation’s attention of late, Lowes Foods is giving new emphasis to its "Be A Smart Shopper" program for children in pre-kindergarten through sixth grade. The program has the goal of helping kids develop healthy eating habits that will benefit them throughout their lives.

    This nutrition-education program brings kids to a Lowes Foods store for a tour during which they learn about such things as the food pyramid, eating "5-a-Day," and why they should eat a healthy breakfast.

    "Some teachers have noticed a difference in the lunches students choose after they go on the field trip," said Cindy Silver, nutritionist for Lowes Foods. "An added benefit is that the children share what they learned when they go home, so the program has a positive effect on the entire family."

    While strolling through the store, the kids sample foods that make quick and healthy snacks, such as graham crackers dipped in applesauce, tomatoes, yeast rolls and calcium-enriched, fat-free chocolate milk.

    "Because exercise is a critical component of a healthy lifestyle, the children also stop for exercise breaks along the way," Silver said. "The hands-on nature of the tour helps the children remember the things they learn in their trip to the store."
    KC's View:
    More chains should offer these kinds of programs to kids. Not only do children help their parents decide where to shop, but they are the customers of the future…marketing to them early often will mean creating relationships that will last for years.

    Published on: February 17, 2003

    Fleming Cos. has signed an agreement that will have it supplying 114 Conoco branded convenience stores in five states, and generating roughly $35 million in volume for the wholesaler.

    Fleming's Denver, Albuquerque, Salt Lake City and Ft. Worth divisions will supply stores in Utah, Colorado, Missouri, Oklahoma and Texas.

    The deal builds on an existing deal through which Fleming supplies more than 700 stores for ConocoPhillips.
    KC's View:
    Hard to imagine that this deal will make up for the loss of all Kmart’s business. Also hard to imagine that it will put to rest the undercurrent of rumors out there suggesting that a Fleming bankruptcy filing is more a matter of “when” than “if.”

    Published on: February 17, 2003


    • The Rodale Institute, a nonprofit organic research organization, is creating the New Farm Organic Price Index (OPX), designed to be the first wholesale price index of certified organic foods.

      OPX has been set up to allow organic farmers to sell their products using competitive pricing established for the same organically grown or raised food being sold across their marketing region. Organic growers do not receive help from USDA's daily pricing information because organic farming only makes up 1.5% of the country's farming.



    • German discount retailer Aldi announced that it is on track to open seven stores in Melbourne, Australia, before June 2003.



    • Valassis, the marketing services company, has acquired NCH Marketing Services, the coupon processing and promotion information management company, for $60 million.

      "The acquisition of NCH complements Valassis' vision of being an innovative,
      integrated marketing solutions company," said Alan F. Schultz, Chairman,
      President and CEO of Valassis. "NCH and Valassis share similar cultures and
      values. We both strive to continually improve the promotional performance of
      our customers through consultative selling, data analysis and the increased
      use of technology."



    • Fleming Cos. will shutter its Fort Wayne, Indiana, distribution center, opened just two years ago, which will result in the loss of some 300 jobs. The company said the shutdown was a direct result of the dissolution of its supply contract with Kmart.



    • The US Department of Agriculture (USDA) announced that the highly contagious poultry virus, Exotic Newcastle Disease, has infected four more commercial poultry farms in California.

      The disease, harmless to humans but fatal to poultry, has infected flocks in California, Nevada and Arizona and has been described by USDA secretary Ann Veneman as a "threat to the US poultry and bird industries."

      Quarantines have been set up in California to try and prevent the spread of the disease.

    KC's View:

    Published on: February 17, 2003

    Wal-Mart Stores announced that it is forming a new office that will be responsible for exporting US goods to its almost 1,300 stores outside the US.

    "We know that many products made in the United States are already popular with Wal-Mart customers in these countries, products ranging from popcorn to laundry detergent," Ken Eaton, Wal-Mart’s senior VP for global procurement, told The Associated Press. "We think there is a growing market for U.S. exports in the other markets where we operate, and we are excited about the opportunities this new office will create."
    KC's View:
    One can assume those will be products to which Wal-Mart will have exclusivity…which will give it additional advantages in global markets.

    Published on: February 17, 2003

    The New York Times reports that attorneys representing plaintiffs in an ambitious sexual discrimination lawsuit against Wal-Mart will ask a federal court to expand it to include all 700,000 women who worked at Wal-Mart from 1996 to 2001. If the court agrees, it would make the suit the largest employment discrimination class action in American history.

    The lawsuit originally was filed in 2001 in federal court in San Francisco, is built on a statistic put forth by the attorneys: that in 2001, women made up 65 percent of Wal-Mart's hourly employees but only 33 percent of its managers. The suit also claims wide pay disparities depending on gender.

    Wal-Mart officials say that the suit is just an attempt by attorneys to squeeze a company with deep pockets. While they dispute the statistics, Wal-Mart management says it will only provide its own version of the facts when the case goes to court.
    KC's View:
    Wal-Mart may not be named “Target,” but it sure seems to spend a lot of time with a bull’s-eye on its back…

    Published on: February 17, 2003

    Fascinating story from The Associated Press over the weekend about how the toy business is changing, reflecting how the retailing world. Whereas traditional toy retailers such as Toys R Us and K-B Toys, not to mention smaller, independent businesses, used to dominate the arena, that just ain’t the case anymore.

    These days, RadioShack is selling one of the hottest toys on the market, a micro-radio controlled car. Even Starbucks sells board games on an exclusive basis.

    Complicating the marketing landscape even more is the fact that Toys R Us sells toys to supermarkets such as Albertsons Jewel-Osco, and K-B sells to CVS and Sears. Lego Systems sells directly to supermarkets such as Food Lion and Stop & Shop, as well as drug chain Rite-Aid, tripling its business in the process.
    KC's View:
    Everybody competes with everybody. While much attention is paid to the changes that Wal-Mart has wrought in the marketplace, the fact that almost any retailer can sell almost any kind of products has had as much or more impact on how companies compete.

    Of course, you could argue that all these companies have gotten into these disparate areas because Wal-Mart has forced them to find new paths to traffic and profitability…and you wouldn’t be wrong.

    Traditional borders aren’t just breaking down. They’ve already collapsed.

    Published on: February 17, 2003

    Safeway announced that its Vons division will expand by 75 percent its coverage of the Las Vegas market through its Vons.com online service.

    Mitchell Rhodes, president of Vons.com, said, "We continue to receive a positive response from customers, who enjoy the convenience of online shopping and the superior service we deliver. Customers tell us they like the way our personal shoppers select quality cuts of meat and pick the freshest produce available. And our drivers are winning converts left and right with their positive, professional approach to in-home delivery."

    Vons.com offers its service in Las Vegas for $4.95 for orders totaling $150 and higher, or $9.95 for orders under $150. There is no minimum order size. Vons.com offers the entire range of products found on the shelves of a nearby Vons store, and at the same prices, along with the offering the Vons Club Card discounts available in the company’s brick-and-mortar stores.

    Vons.com is operated by GroceryWorks, which is co-owned by Safeway and Tesco. The company operates Safeway.com in the San Francisco Bay Area, Sacramento, Portland, Ore., and Vancouver, Wash., and Vons.com in Southern California and Las Vegas.
    KC's View:
    We love an online success story. Safeway’s US e-commerce operations, along with the efforts of Albertsons, Ahold’s Peapod, and numerous independent operators, continue to reinforce the notion that lone grocery operations are alive and well.

    Published on: February 17, 2003

    Results of “The BIG IDEA Beat” Contest from Glen Terbeek and MorningNewsBeat.com

    Premise:

    Wal-Mart’s supply chain has been envied by the supermarket industry as being both efficient and effective; many in the industry say it is the key to their success. It was the motive for the ten-year ECR movement, in which the industry tried to emulate it. It includes a significant technology investment including Retail Link that shares complete sales and inventory visibility at store level with their suppliers. It operates on the policy of “net, net” costing to the store.

    And now, as reported on MNB, it is rumored that Wal-Mart may offer wholesaling services to independent supermarket operators, leveraging this supply chain.

    Challenge:

    Tell us if you think independent supermarket retailers should use Wal-Mart’s wholesaling services. What are the pros and cons of doing so? What would be the impact on the shopper, the manufacturer, and the retailer of such a decision? Consider this question from the shoppers’ and manufacturers’ view as well as the retailers'. And finally, if Wal-Mart decides to go into the business of supplying independent grocers, what should the current wholesaler class do in response?

    Responses:

    We received many good entries to Challenge #4. I have included excerpts from several that support the conclusion best summarized by Jim Swoboda’s entry at the end of this article. All entries below will receive a copy of Agentry Agenda: Selling Food in a Frictionless Marketplace.


    Richard Lowe writes: What is Wal-Mart doing to our….ability to create and get new and different products into distribution …creation and growth of new small companies supplying creative products, etc, etc.?

    This question is not only true about Wal-Mart; it is true of the industry in general. How many good new items don’t make it into any system because the manufacturer does not have the financial or distribution clout to get it into the store? The problem is that marketing funds are intertwined with logistics, creating inefficiencies in both logistics and marketing productivity. In addition to the trade dollars “corruption”, redundant logistics systems carrying the same national brands does not make economic sense, and limits variety as well.


    J. Boonton adds to the theme: Being an independent retailer and hearing that Wal-Mart is going to start selling wholesale....my first impression is I hit the lottery, and then I start to think just a little. While Wal-Mart no doubt would have the best prices, I believe there will be too many things missing that go into making a successful retailer.

    I am a firm believer that if you don't buy it right you can't sell it right, and we have heard many times especially lately that price does matter; but an independent also needs other services and resources to be successful. I believe that the wholesalers should just do what independent retailers should do and that is taking care of your customer.

    Finally, I am not sure that independents being serviced by Wal-Mart will have any effect on their customers. How is the customer to know that you are serviced by Wal-Mart?

    This entry again talks about the need to separate logistics from marketing to be effective in the future. Wal-Mart does a great job of doing this by “net, net” costing to the store so that they can measure true performance at store level (remember, each store does not perform equally) and share it with their suppliers.

    This entry is right in that it is what happens in the store that makes the difference. Wouldn’t it be nice that any store could get any item the manufacturer wants to market at a “net, net” cost through an independent logistics system so that the store and the supplier can jointly market the item according to the market objects of the store?

    After all, the manufacturer has complete responsibility for an item’s market performance until it reaches the store; at that point, it becomes a joint responsibility. Yet, we have an industry business process that is built around the responsibility transferring when the physical product enters a warehouse. Remember, the finished cost of an item is often 20% or less of the retail price; I would argue that the marketing value is much higher.



    Gene Coleman chimes in: I have never believed in supporting my competition. If I, the private supermarket retailer were to buy my groceries from Wal-Mart, I would be buying from them at their price. I know Wal-Mart made their suppliers “Go Home and sharpen their pencils" and come back with their absolute lowest price, which in fact left no room for the profit they needed. Sure, they had the prestige of having Wal-Mart as their #1 customer, but they had to pass on the "savings" to their smaller customers in the form of higher prices, thus making the little guy even less able to compete with Wal-Mart. So, what makes the small retailer think they're getting the very lowest "wholesale price"? Certainly not from Wal-Mart.

    This argument again demonstrates the barriers and inequities in the current system, regardless if Wal-Mart is involved or not. Wholesalers have always had the conflict between big customers vs. small customers as far as who creates the buying power and who gets the benefit.

    Doesn’t this again argue for the separation of logistics from the ownership of product? If the retailer doesn’t change the product until it reaches the store, shouldn’t each store have the same cost (assuming the same handling) at that point? After all, promotional monies could be paid on true store performance, i.e. based on POS data.



    Ken Robb suggests: The relationship between retailer and wholesaler should involve more than who can provide the lowest cost of goods and highest service levels. This is particularly important for the independent retailer with one to twenty stores, for whom self-distribution is not a realistic option, and whose operations can be the beneficiary of the wholesaler's expertise in store format development, site selection, advertising, and marketing, which the most progressive wholesalers and distributors are providing... To propose that Wal-Mart would attempt to or would even want to replicate this role model is unimaginable.

    This entry supports the truism that in saturated markets, demand activities skills are needed to differentiate and thus sustain a retailer’s success. Can a wholesaler or any retailer have the skills to provide effective demand services to their stores, and still operate a “buying” biased logistics system?


    Albert Furst asks: How can the largest food retailer in the country supply small independent chains that they either are or will soon compete against? With the success WM is having in the food business and the generally higher margins in retail, why would WM want to sacrifice the retail end of the transaction anyway?

    Again, a great argument for the separation of logistics services from marketing; or the “Frictionless” connection of retailers to the products they want to market. The Wal-Mart wholesaler proposition may be an extreme example, but don’t many wholesalers also have retail stores?


    Jim Swoboda (formally co-chair of ECR) sums the debate up very well: Wal-Mart's possible move into the wholesaling arena is such a logical move. The pros of such a move focus primarily on most retailer's stated mission, the old cliché, "the right product at the right cost at the right time"...clearly Wal-Mart can deliver on two of these fronts immediately, the right cost and the right time.

    In a business where the bottom line is measured in single (low single) digits, it is hard to imagine a retailer not wanting to drive their costs down.

    Imagine if today a retailer is getting 2, maybe 3 deliveries per week and because of Wal-Marts current stores and soon to be neighborhood markets, they would be in the area daily. DAILY deliveries to an independent? Their inventories would go down, freshness would go up, in stock conditions would be better. Again, major gains.

    Can Wal-Mart deliver the right product...? In this area, selection has not been a strength of Wal-Mart, although they are getting better in their Supercenters. Time would likely cure this shortcoming.

    What are the downsides? Not many.

    Promotional dollar tracking could become a nightmare for those who build their budgets on shipments since all shipments would be going to Wal-Mart. However, this might force a long needed move to measure and pay promotional dollars bases on consumption. Would that not be a novel idea?

    Additionally, if a manufacturer’s volume began to move through the control on a single distributor, would that cause a significant shift in power that might not be acceptable? One could argue that the retailer would still have the control and that the distributor is just a mechanism by which the product is moved from manufacturer dock to retail dock.

    If this model were to evolve into reality, it is important to begin to think about the fixed costs that would come out of the supply chain by the reduction in duplicative buildings, pools of inventory, back office functions, etc. that would no longer be needed to move goods to retail. The possibilities are amazing to think about.

    Of course, the most difficult challenge of all may simply be that the "gray" matter that would make such decision would simply not embrace the thought of doing business with the competition. Unfortunately, as has been all to often the case in the industry, such thoughts can keep potential great opportunities from happening. Have a large, national distributor controlling the activities in the supply chain could result in the industry realizing things that have only been the topic of conversations for many years. The trick will be for all to realize that logistics do not provide the differentiation that is needed to compete. Lowering costs simply would put more tricks into the bag that would allow creativity and consumer satisfaction to become the true way retail is differentiated.

    Jim is right on except for one point: it shouldn’t be Wal-Mart that provides the logistics; it should be an independent logistics provider open to every one.


    And independent retailer Marv Imus provides another perspective: Should Independent Retailers use Wal-Mart as a wholesaler ? Of COURSE ! I worked on the ECR issue for years trying to get in-line as a supply channel that is efficient, effective, and profitable. One of the issues was on the flow of fast moving products and slow moving products through the supply chain. Fast movers can be maximized very profitably, and efficiently, with little inventory cost. This is the place Wal-Mart excels. They examine what are the top movers in a category and they process the information and flow of those products to minimize cost. Most slow moving products are very costly, inefficient, and have much higher inventory cost. Wal-Mart does NOT handle these products. So, if I am to create a more cost efficient retail outlet, I MUST use the most cost effective supplier.

    What we worked on in ECR with our wholesaler was to make ourselves work as a single unit. Good idea but hard to implement. In recent years, wholesalers have gone into retail in an attempt to get to that single unit look by controlling the retail aspect (believing that the Independent retailer was not “on the team” enough). As we have seen recently, most wholesalers have abandoned this attempt. So as a retailer, I MUST buy from the lowest cost provider I can. BUT I cannot find a single wholesaler that can provide the products at the cost a Wal-Mart could. Of course, Wal-Mart will NOT be able to provide the line extensions that I feel our consumers look for in our store. So, I have to use many different suppliers instead of one. By buying from the lowest cost provider on fast movers, Wal-Mart, and then the specialty/organic/even local products from a variety of other suppliers, I can round out my offering based upon my market.

    Does that mean Wal-Mart knows what I am selling ? Sure . Does it matter ? Not if it’s the blend of products that Wal-Mart doesn’t carry that makes our business.

    If they open a market in our town because of the volume we do, their impact will be minimal if our cost on the products that we carry are within the 10% range of their retails. We cannot do that in today’s environment with our current suppliers.

    What are the negative effects ? Wal-Mart will not work with, or if they do, will surcharge an inefficient operation. So if we buy from Wal-Mart our in-store technology must be at a level that we can provide the information flow required to reduce the cost of buying. Most Independents have not invested anywhere near that level. Also what do we do about private label ? We cannot carry Sam’s Choice (though I doubt Wal-Mart would even let a non-Wal-Mart operation carry such a product) and would not because I do not want our consumer to feel that we are no different than a Wal-Mart ! Private label is a brand of identity for a retailer, not just a “cheaper” offering to the national brands.

    Also we will have to find other types of support that we currently have with a wholesaler. Financial, logistical, and operational support are key support elements a wholesaler provides the Independent retailer. We would have to do it ourselves or pay a third party source, costly either way in our current way of doing business.


    Summary & Conclusions:

    The entries above point out the following key questions that need to be answered by retailers, by Wal-Mart, and by the industry at large:

    • Isn’t store differentiation to match local markets needs the key business process in the saturated future -- even for Wal-Mart?


    • Isn’t the logical point for the transfer of product ownership at the store door at a “standard market” price plus true logistics costs, since that is when marketing responsibility transfers?


    • Doesn’t it make sense to pay for promotional performance at POS?


    • Because of the above points, doesn’t it make sense for networks of independent logistics providers to connect retailers with the items they want in the future? Doesn’t the current redundant buying biased logistics system limit item availability and merchandising flexibility and reduce logistics productivity?


    • Can the industry adjust before it is too late?


    The open, frank discussion of these kinds of issues is key to creating the kind of “frictionless marketplace” that we believe is necessary for many in the industry to survive long-term. It has been our goal over the past month to stimulate this discussion through the “BIG IDEA” Beat Contest, and we’ll return in future weeks and months to reconsider them and provoke new ideas and debate.

    These are, as always, “Big Ideas For Thought Leaders.” We appreciate your ongoing contributions, and hope you’ll continue to do so every morning here on MorningNewsBeat.com.
    KC's View: