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    Published on: July 29, 2003

    We had a story yesterday about how business schools across the country are using Wal-Mart as a way of illustrating important concepts to students. In our commentary, we noted that "worth consideration is what happens to innovation and creativity when so much of the retail marketplace is driven by price, cost-cutting and overall efficiency. Not that Wal-Mart shouldn't focus on such things. That's fine. Our bigger concern is what happens to creativity when so many of the competitors decide that they will be driven by the same key motivations as Wal-Mart…

    "It's lowest common denominator marketing. Which is fine or some. But if everyone engages in lowest common denominator, the higher denominators get ignored, and there is no lift to creativity, to spirit, to innovation."


    This prompted some response from members of the MNB community.

    MNB user Paul Schlossberg wrote:

    There is an evolutionary thing going one here. Low-price with low-service is one dimension. High-price with high-service is at the other end of the spectrum. All of those fighting for the middle are at risk of trading dollars with one another...by not moving to a defining dimension of their business models. Don't recall where I read it - "In retail the middle is dead." What a great line.

    We recently saw a quote by a Wal-Mart executive saying they are really in the distribution business. Did we see it at MNB? That shows a deep understanding of how they are defining their business model.

    Consumers evolve and so does their shopping behavior. The question at hand is whether existing and emerging channels evolve fastest to meet their customers' needs.

    If supermarkets try to play the middle they will lose out to better business models. And the same goes in almost any other retail category.

    But...the really big question is: "What will the next evolutionary shift be in consumers and their shopping behavior?" We think it will increasingly be about unattended (i.e., automated) shopping, especially for routine and immediate purchase needs.


    Another MNB user believed that we were being too pessimistic in our world view:

    "What happens to innovation and creativity when so much of the retail marketplace is driven by price, cost-cutting and overall efficiency?" Try to become an eternal optimist and think, believe, there will always be someone around the next corner with a better idea.

    MNB user Richard Lowe agreed with our perspective:

    You have hit the nail on the head! The other problem is the social mentality they drive of always looking for the low price. That becomes the mantra of every major retailer. The other problem is they only want to do business with big companies that can immediately supply the whole network.

    There is no way to grow a business with them. They want to take existing products and brands and them make a private label commodity out of them.


    Isn’t lowest-common-denominator retailing essentially the complete commoditization of the business?

    Another MNB user offered a different perspective:

    I read your comments in Wal-Mart 101 about how lowest common denominator marketing could hurt creativity, spirit and innovation. I would argue that a bigger barrier to this (which we've heard here numerous times) is slotting, which Wal-Mart does not engage in unlike many in the industry. I've often wondered how many truly new, innovative products never make it to the consumer because the slotting fees to roll out nationally are too high.

    Eliminate non-value adding fees and maybe, just maybe, you could create an environment where you could compete with Wal-Mart for the mind of the consumer.


    Slotting is a different problem, with the same result - the death of innovation and the homogenization of the food industry. We agree.

    MNB user Stuart Silverman saw an upside to the Wal-Mart business school courses:

    What I find much more interesting is that schools are teaching Retail in the light of arguably the most successful company in our generation. In my day, kids went into retail because they started by bagging groceries or picking cases in a warehouse. This could result in a whole new generation of kids who grow up to be much better prepared to compete against Wal-Mart.

    Maybe.

    MNB user Carolyn Larimer seemed to believe we were being a little elitist in our thinking:

    But if the consumer wants low price, they are the ones driving the sales for that particular market. If someone else wants a high end product, I suppose they could still obtain that. But the vast, vast majority wants/ needs low prices. If the majority wanted expense, they would go that route. It's all about the customer and what he wants/ needs.

    And finally, MNB user Pat Rodda suggested that the answer is in biology:

    If you have a basic understanding of systems thinking, you'll see that it goes to the very roots of biology. Our bodies are made up of systems upon systems living in a symbiotic relationship. That's how we live, that's how we continue to adapt and survive. Take this concept and play it out to families, communities, governments, and business and you'll see where the breakdowns are and where they will come from in the future. Wal-Mart needs those innovative marketers and competitors in order to survive. To your point, the larger they grow and destroy the competition and if they continue to knock off and source from abroad, they will destroy the very systems that will support their ultimate survival. In addition, all of those innovative start ups who gain attention after gaining market share will do well to keep their companies intact and not sell off to the highest bidder so they can make their millions and ride off into the sunset.

    The imagination and passion that make those companies successful is muted if not killed when integrated into the company who ultimately purchases them. I've seen it time after time. So much of the focus today is on financial capital. We need leaders of companies who see the value in human capital - a resource we're destroying in our technological, numbers based mentality. So much of our culture is around domination and destroying our competition. This mentality does not bode well for our future. Think of it as a board game, why do I have to take over the whole board to win the game? Wouldn't 51 percent be enough? If you want to read more about this pick up, "The Hidden Connections: Integrating The Biological, Cognitive, And Social Dimensions Of Life Into A Science Of Sustainability," by Fritjof Capra.





    The subject of Wal-Mart's relationship with its labor force also continues to come up in email, especially as it faces a number of lawsuits.

    One MNB user wrote:

    I recently heard a radio commercial featuring a Wal-Mart employee speaking in glowing terms about Wal-Mart as a good place to be employed because of great working conditions and strong chances for advancement. The voice was that of a mid-twenties to thirty female. I did not hear any other advertising for the store and/or its products in that commercial. That says to me that the company is trying to beef up its image in that department. Must be they think they need that.

    MNB user Bob Vereen wrote:

    Over the weekend, I thought about your item late last week about 36 law suits being brought against Wal-Mart for alleged labor grievances.

    I think these need to be put into perspective. As I recall, the company
    employs 1.3 million people.

    If they have only that many bad apple managers and sub-managers causing
    problems, they deserve praise, not condemnation.


    We agree, but we do have one thought.

    Why is it automatically assumed that the people challenging the status quo are bad apples?

    And another MNB user wrote:

    Are we looking at a mountain or a mole hill in these labor disputes as it pertains to the number of unhappy employees? How many law suits are being bankrolled by labor organizations?

    That's the only aberration I see in them!





    We had a story yesterday about how the guy who started Pete's Wicked Ale now has created Cocoa Pete's Chocolate Adventures, European-style chocolate without a premium price, now available only in Northern California. One MNB user asked:

    Why not offer these superb chocolates on line for the benefit of those who don't happen to live in the Bay area ? My wife and I learned about "real" chocolate when a friend sent an assortment from Germany.

    Actually, it looks like you can. Go to:

    http://www.cocoapete.com




    Our stories about Safeway's ongoing efforts to sell Dominick's and the Chicago chain's rapidly diminishing value prompted a number of emails:

    One MNB user asked:

    With Dominick's sale price dropping daily, why doesn't the union purchase it? Then they can see first-hand what it takes (in personnel and finances) to run the operation? Who knows, with the employees running the ship, Dominick's may again become successful.

    Good idea.

    Another MNB user said that the eyes of Texas are on the Dominick's situation for a very good reason:

    Hey - Texas (Randalls - Tom Thumb) is waiting in the wings to see what fate has in store for them - next.

    And another MNB user wrote:

    Safeway has the inability to be able to accept the blame for any of their actions. Every mistake on their part was blamed on others. The centralization was blamed for years, the soft economy is blamed, the fact the employees were paid too much or received benefits.

    The bottom line is, Safeway does not know how to generate new business, and they have alienated the customers, thus losing the regular customers.. They will not offer items that the consumers want, instead they push the Safeway Select product, they still are, even though they promised to repair the business for sale. They have done absolutely nothing to repair the business, to bring in customers. Now the union gets blamed for Safeway's troubles. The union SCARED away a potential bidder. Excuse me, if Dominick's is for sale shouldn't Safeway be blamed for scaring away the bidder, they are the ones handling the offers. It is their decision who they sell to, not the unions.

    The contract extension was voted on in November. Why did Safeway wait until January to start accepting bids?





    We had a story yesterday about how Wal-Mart was considering buying the old Tiger Stadium in Detroit to put in a retail unit…but suggested that anything having to do with the Tigers, the most pathetic team in baseball, smacked of bad karma.

    Needless to say, this prompted some response:

    While no one could deny the Detroit Tigers are pathetic, one of the main reasons for the decline is partly a "Wal-Mart" mentality. Somehow, building a bigger and better stadium, something that could be all things to all people, took precedence over a quality team. As the news of the old stadium's demise became reality, all the local businesses continued to close, leaving the area desolate--much the way Wal-Mart clears out the local businesses in the areas it invades. So, how nice if Wal-Mart were to actually come in and rebuild a community. Seems like a little justice, to me.




    And finally, in response to our story about seemingly improving unemployment numbers, one MNB user wrote:

    President Bush and his staff can tout all they want about the drop in unemployment but I am in week 7 of unemployment. It is the first time in my adult career that I have been out of work. Because I was an independent contractor/consultant for over a year and my previous company would not lay me off (software company that eventually went out of business after I left), I am not entitled to unemployment.

    I have applied to all types of industries that might be able to use my skills plus have contacted all my friends and have asked them to submit my resume to their company with a recommendation. I am even willing to relocate. My luck so far has been zero. I can't even get a position in a fast food restaurant as an assistant manager because I haven't worked in a fast food restaurant before. At least that is what the Wendy's recruiter told me. That job was for $19,000 a year.

    I am not bitter or upset. I had planned for the cutback but it is still tough out there and unless you are unemployed you don't know how tough it is. I met a VP of HR while taking a class to upgrade my skills. He had been out of work for 11 months. He thought he had 2 opportunities after 11 months, both requiring a move.

    No one should let the numbers fool them. I believe unless President Bush can get business to start spending money and hiring people he will not be re-elected President. The consumers have been keeping the economy going. I don't believe the tax cut and checks to the consumers will make a difference in the economy.


    Our heart goes out to you….and we wish you good luck. If you’re not bitter or upset, you’re a better person than we would be…
    KC's View:

    Published on: July 29, 2003

    In case you missed it (and it would have been hard, considering all the coverage), Bob Hope died yesterday at age 100.

    Somewhere, Bing Crosby is smiling.
    KC's View:

    Published on: July 29, 2003


    • The Dial Corporation announced the appointment of Shari Brickin as Vice President - Innovation, with responsibility for Dial's new product innovation efforts.

      Brickin has an extensive background in the consumer products industry, having held positions of Co-marketing Director and Group Marketing Manager at The Pillsbury Company and a variety of marketing positions at The Quaker Oats Company. She joins Dial from The Snapware Corporation, an entrepreneurial housewares company located in Fullerton, Calif., where she was Marketing Vice President.



    • The Dial Corporation named Elizabeth M. Harvey as Senior Vice President & General Manager, with responsibility for Dial's Air Fresheners business. Harvey joins Dial from Procter & Gamble, where she served most recently as Marketing Director -- Global Antiperspirants/Deodorants.

    KC's View:

    Published on: July 29, 2003


    • Ingles Markets reported that third quarter net sales increased by 4.3 percent to $503.6 million, with comparable store sales up by a respectable 2.8 percent. Net profits remained flat at $3.6 million.



    • Kellogg Co. posted second quarter earnings that were up 17 percent, to $203.9 million compared with $173.8 million in the year-ago period.

      Sales increased 5.8% to $2.25 billion.

    KC's View:

    Published on: July 29, 2003


    • British authorities reportedly are considering proposals that would allow UK supermarkets to offer basic legal services in their stores, including the drawing up of wills and accident compensation claims. The new law is referred to as the "Tesco law" - which offers some idea of where the first such instore law office might open up.



    • Alimentation Couche-Tard Inc. has signed a deal to acquire 43 stores from bankrupt Clark Retail Enterprises for $24.5 million (U.S.).

      The 43 units reportedly generate annual sales of about $140 million. The deal gives Canada-based Couche-Tard a total of 680 stores in the American Midwest.

    KC's View:

    Published on: July 29, 2003

    USAToday reports this morning that US supermarkets increasingly are using department store-style devices to combat shoplifting, even imbedding sensors in product packaging that will set off an alarm if taken out of the store illicitly.

    The story notes that a recent Food Marketing Institute (FMI) study showed that employee theft is up 17 percent, with the total value of items stolen from supermarkets up more than 70 percent last year.

    HBC products are the most coveted by thieves, followed by meat.

    In related news, Ahold's South Carolina-based Bi-Lo division reportedly is piloting a new biometric identification system for check cashing in 26 of its stores, hoping that it will prove effective in combating fraud. The biometric system was developed by BioPay.

    And, it is reported in USAToday between one-quarter and one-third of US grocers are using pre-employment screening tests to determine how honest candidates are.
    KC's View:

    Published on: July 29, 2003

    Wal-Mart Stores reportedly has filed a development plan with the city of Chicago, as it looks to open a 150,000 square foot store on the city's west side.

    The goal is to open the unit by spring 2005. It would be replace a now-vacant former Unilever shampoo factory, and would mark a major beachhead in Wal-Mart's continuing battle to expand its discount/superstore empire into urban markets.

    Wal-Mart already has 48 stores around Chicago.
    KC's View:
    You have to figure that Chicago, a city where they practically issue you a union card at birth, could end up being a new battleground between organized labor and the assiduously anti-union Wal-Mart.

    There also could be resistance from local residents concerned about the impact a superstore will have on their neighborhood. On the other hand, the current estimates are that Wal-Mart will generate something like $600,000 a year in tax revenues for the city - an important consideration for any local government facing fiscal pressures.

    We would suggest to the city, however, that if Wal-Mart happens to make any effort to get tax abatements, it be greeted by a Bronx cheer - or whatever the Chicago equivalent happens to be. While we believe that Wal-Mart has the right and even the responsibility (to its shareholders) to continue to grow, we continue to be amazed how often the world's largest and most profitable retailer demands and gets preferential treatment from local governments.

    Published on: July 29, 2003

    The Puget Sound Business Journal reports on the merchandising magic that seems to keep Costco ahead of the pack. Among them:

    • Its stores are better laid out to promote impulse purchases, with "in-and-out" items at the back of the unit so that consumers have to pass dozens of hot and compelling products in order to get to them.


    • Ample free food samples promote a party atmosphere, encourage tasting, and promote sales of items that people might otherwise never have tried.


    • Costco is willing to promote both national brands and its Kirkland private label, as well as to focus on a product range that goes from champagne to gasoline.


    While the recessionary economy has helped the company by putting people in the mood to bargain hunt, its customer base is by and large more upscale that that of Wal-Mart's Sam's Club; even when prosperity returns, there is no reason to believe that these upscale shoppers will abandon Costco, since it appeals to their imagination and sense of aspiration as well as to their pocketbooks.

    "While Costco is said to compete with Wal-Mart Stores Inc.'s Sam's Club, and with third-place Northeast regional chain BJ's Wholesale Club, on a per-unit basis there is simply no competition," the newspaper reports. "The average Costco store rings up $114 million in sales a year, while Sam's takes in just $64 million, BJ's $44 million. Costco is so much more efficient than Sam's that it earned some $6 billion more than Sam's last year, even though Costco had just 345 warehouses and Sam's had 525."
    KC's View:
    People are always asking whether there is anyone out there who can compete with Wal-Mart for the long haul. Clearly, Costco has to be considered as a prime contender - because it delivers a differentiated shopping experience, because it has a clear and unambiguous message, and because it operates not just to be efficient (which it is), but to be innovative and aspirational as well.

    Published on: July 29, 2003

    United Press International reports that Canadian officials are saying that as many as one-third of the country's 5.2 million head of cattle - or more than 1.7 million cows - may have to be slaughtered because of the ongoing beef embargo put in place after a single cow there was diagnosed as having bovine spongiform encephalopathy, or mad cow disease.

    The US closed its borders to Canadian beef, followed by more than 30 other countries. The closure remains in place, despite the fact that the Canadian government said the food chain was safe.

    UPI reports that it is believed in Canada that the reason the Bush administration is keeping the border closed is in part to retaliate because the Canadian government did not support the war on Iraq.
    KC's View:

    Published on: July 29, 2003

    Gary Sargeant, who was loaned by the UK's Tesco to help develop its online co-venture with Safeway in the US, told the East Bay Business Times in an interview that their business, Safeway.com, could become a $1 billion annual business within five years.

    Sargeant would seem to have some credibility on the issue. He came to the US after Safeway acquired GroceryWorks.com, and was given three years to get the business into shape.

    He's going back to the UK after two years. Mission accomplished.

    Not that Safeway.com necessarily is profitable. The company won't comment on how much has been spent on the online business, nor specifically on whether or not it is making money. But it is expanding - which these days is definitely a good sign.

    Sargeant also is credited with developing Tesco's online business in the UK, which is said to be profitable for the mother company.

    In the interview with the newspaper, Sargeant said that Safeway.com has been successful because it uses a store-pick model - just like Tesco does, and unlike the model used by Webvan before it went out of business.

    "Webvan was a good thing, a great experiment," Sargeant told the newspaper, saying that "it gave us a chance to see what works and what doesn't in this business."
    KC's View:
    It may eventually be said that the smartest thing that Safeway has done in the past decade was entering into a partnership with Tesco.

    Certainly their co-venture in online retailing has been one of the bright spots for the company - and who might have predicted that a few years ago?

    Safeway and its management have been taking a lot of hits lately - about Genuardi's, Dominick's, about their Texas operations. Could it be that some sort of broader merger or partnership with Tesco is in the cards…?

    If so, Tesco's US mission may have only just begun.