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    Published on: December 16, 2003

    In Monday Night Football action, the Philadelphia Eagles defeated the Miami Dolphins 34-27, severely dampening Miami's hopes of making the playoffs this year.
    KC's View:

    Published on: December 16, 2003

    To be honest, we weren't entirely surprised that we got a number of emails in response to a note that we posted yesterday from an MNB user who noted that they "took a field trip to Wal-Mart last night" and "was appalled at how filthy it was..." The note went on to describe in detail why Wal-Mart operates awful stores…

    MNB user Larry Soza responded:

    This seems to be the mantra of the Wal-Mart haters. I went to Wal-Mart last night too, and yes, it was a mess. There was also about 8,000 Christmas shoppers (and their kids) climbing over every square inch of the store, picking things up and setting them down anywhere they pleased. And yes, the floor was dirty because that many pairs of shoes tracks in a mountain of debris. But tell me, what did the store look like at 6 a.m. the next morning?

    There are three Wal-Marts within 20 minutes of my home. Consistently I have found the stores to be well stocked and clean in spite of the large amount of traffic through them. I will however concede that the stores tend to reflect the neighborhoods they're located in. One of the stores, in a somewhat sloppy neighborhood, brings in people who do not even attempt to hang up a piece of clothing after they're done looking at it - they just drop it on the floor. Meanwhile, their kids are treating the toy department like their own personal playground. Conversely, the store in the better part of town has a correspondingly neater appearance.

    I'm sick of these people that seem to want Wal-Mart prices but expect a Nordstrom's shopping experience. What's next, are they going to complain about the selection of laundry soap at the 99 Cents Store?

    You make a legitimate point. We would agree that one of the reasons that Wal-Mart stores often look abused is because they do so much business, often with people who don't give a damn.

    That said, some of these stores do age better than others, and some of their staffs are more motivated than others. But those are faults shared by a lot of other retailers.

    And MNB user David Livingston chimed in:

    In defense of Wal-Mart having dirty floors…of course they do. What do you expect when the store is busy 24 hours a day in sloppy December weather? I doubt its top priority to shut the store down and clean the floors. Also have you ever noticed that some of the lowest volume unsuccessful retailers are often the cleanest. Why? Because no one is shopping there to mess them up.

    Maybe. But we shopped last night at a food store that does $2 million a week in sales, and that is dealing with pretty sloppy December weather. We checked, because we were curious. And the floors looked pretty clean to us.

    Another MNB user responded to the original email by saying it was "straight from a union leader's diary," and offered some additional perspective:

    If the "floors looked like they hadn't been cleaned in a while" and being that the "(the aisles were filled with pallet upon pallet of unstocked product)", then I can only surmise that the visit was late in the evening before the night cleaning crew (made up of ex-Ivy League newsmen now out of work) got to their daily job of cleaning them and the night receiving crew had only finished unloading their trucks and hauling the merchandise stacked on pallets to their respective areas of use, before working towards finishing their duties of putting the stock on the shelves.

    I, too, drove down the street Saturday night (It was enough to make me drive down the street to Target. (The Target, for the record was its usual clean and bright self) and shopped at a North Fulton County, GA Target. It was bright, clean, but…almost completely empty of shoppers. This was a Super Tar-jay, the first I had visited in quite a few months and if the shopper count, less than two weeks before Christmas, wouldn't make any of Wally's store managers have nightmares, then I don't know what would.

    We think that "ex-Ivy League newsmen" crack may have been aimed at us. (Though we're neither 'ex" nor "Ivy League.")

    This same correspondent noted, quite correctly, that while we made a crack about the floors being dirty possibly because the company was having trouble finding legal immigrants to clean them, in fact Wal-Mart has not been charged with employing illegal immigrants.

    And we repeat what we said yesterday: it was a joke.


    We also had a piece yesterday about slotting allowances that earned a lot of response…

    MNB user Al Kober wrote:

    Slotting fees are just one of the many additional costs for manufactures. The retail industry has created this system, which is crippling the efficiency of many buyers and sellers. When the placement of item into the retail market place is more dependent on the up front money and not on the intrinsic value of the item, we are going to experience conflict. It is not unusual for buyers to be so pressured by their companies for additional funding on the buy side that they make poor decisions on products that do not deserve to be on the shelf.

    Creative buyers should take a page from Wal-mart on this issue. Buyers should base their buying decisions: First on the needs of the consumer. What do they want and what do they need? How can I help meet that need, and do it at the lowest cost to the consumer and still make sufficient profit. When buying decisions are made more on, how much money can I get on this buy, everyone looses. The manufacturer, because he has to increase his cost to cover it. The retailer has the potential for "dead" merchandise on his shelves, and the consumer pays more for lower quality that what it is worth. All this takes up time and energy working through exercises that benefit no one. Sure, these extra funds might provide some short term cash flow, or temporarily help a buyer look good to his boss, but in the long term, it is an exercise in futility

    Every manufacture knows the cost of the raw material, add production costs, labor, etc, distribution costs, add a reasonable profit, and stop there. No slotting fees, no ad money, no discounting, no nothing else. The most efficient method is net, net, net, bottom line cost. Remember there is no free lunch. There is no bottomless pocket in manufacturing. Anything you "get back" from a manufacture is your money. That had to build it into the cost of goods. Where else can they get it?

    So, the seller adds additional money to the cost of goods. The buyer beats up the seller in order to get his own money back. This additional money goes around and around, changing hands through manufactures, producers, distributors, banks etc, and eventually ends up back where it started, in the hands of the buyer. Why go through all of that. Everyone else in the whole process uses the buyers money to make money off the buyer's money, meanwhile the buyer is not able to use those funds until it get back to him.

    And we sit back and complain about Wal-Mart, who allows the seller reasonable profits, high volume sales, they provide sales information that others make them pay for, with as little hassle as possible, except to get them to product the product at the lowest cost. Sounds like a fairly good plan. Maybe the industry should start learning from them and stop complaining about them.

    Funny how it always comes back to the Bentonville Behemoth…

    MNB user John Welsh added:

    When greed gets involved, things always change...for the worst.

    Originally, some 25 years ago, slotting allowances actually bought a "slot" on the steel racks where a new item would be located within the warehouse's picking line. This was at a time when new items were swamping distribution centers, already very tight for space. Distributors also had an ongoing cost with new items because they had to relocate items to make room for new ones.

    Manufacturers and suppliers were not opposed to slotting allowances at that time because they were usually less than $500.00 per slot per distribution center. In due time, major distributors recognized a "cash cow" in slotting allowances, kicked up their "slot" charge big-time, and stuck the money in their pockets.

    We should not be so naive to think Wal-Mart and Costco don't "have them." They may not call what they get "slotting allowances," but you can bet they get similar (or larger) funds in lieu of them.

    It always has been our impression that the reason they don't get such funds is that Wal-Mart and Costco simply make money on the sell. Does someone else want to disabuse us of this notion?

    Another MNB user chimed in:

    I am a buyer for Lunds and Byerly's in Minneapolis and we see that our supplier's like Supervalu and Gourmet Award offer free cases on only some New Items to our stores but only products from small or new companies. In most cases the big companies like P&G, Unilever, Nabisco offer nothing !

    Only the small companies have to offer this or they will not authorized by most grocery stores. On top of the free goods there are warehouse slotting fees into the thousands of dollars for each item for the little guy but no cost to the big guy. This makes it very hard or even imposable for the little guy to bring a New Item to the market. I should know this because in the last ten years I have entered the market with products of my own and it was very difficult to obtain distribution for my products with out paying for slotting fee or offering free goods. Being on both sides of the fence, I can clearly see that this is commercial bribery at the cost to the consumer. Manufacturers have to build this into their cost creating inflated retail prices.

    And yet another MNB user wrote:

    Not only had slotting become a "drug" to Fleming, once the company "centralized" to Lewisville, Texas, slotting became budgeted. The Category Managers and Directors were directed to bring in "x" dollars per month; higher at the end of the budget quarters, and especially at the year end. How you budget what previously have been an unknown was never explained, except, it became a way to reach the necessary bottom line.

    Category management? No, it was merely harvesting every dollar available without any regard to the sales potential or contribution to growing a category. I've been around long enough to remember the pre-slotting days when the decision was: "will the item sell." What a concept!!

    We also had a piece yesterday about a new credit card technology that used RFID to allow cards to be read without being swiped. One MNB user responded:

    Hmm..."faster and safer because the customer never actually has to hand over the card"? Does this mean some enterprising people could, hypothetically, develop a reader, have it in a pocket in the "general vicinity" of my wallet--say while sitting in a restaurant or hailing a cab or something--and walk away with whatever vital information is maintained in this computer chip? Perhaps (I know, I know, it could never happen because people are altruistic to the core), but perhaps without our knowledge because we never had to hand over the card?

    Am I alone in being just a bit frightened of RFID technology?

    Not alone. Nope.

    Another MNB user weighed in:

    The swipeless credit cards using RFID technology sound interesting…they also sound like possible high-tech pickpocketing when RFID readers become more common.

    But not everyone was worried:

    Sounds great to me! I hate those swipe machines, either they do not work or you have to try another way. This is an area where standards should be used to keep from confusing the customer.

    And finally, in a story about a new category of mid-calorie soft drinks, we wrote that "we've never thought of the diet drinks that we consume as being

    One MNB user wrote:

    I disagree, and I think millions of other people do, too. If diet drinks were better tasting, there would be much higher, nearly total consumption. If Diet Coke tasted like Classic Coke, I would drink it everyday. Instead, to my palate, it tastes like chemicals. It's hard to describe exactly what is wrong, it just has no flavor appeal for me. The same is true of most diet drinks. The only one I can tolerate is Diet Dr. Pepper. When the manufacturer claims that it tastes more like the original than other products taste like theirs, it is true. I think the market for mid-cal drinks could be huge, if the flavor profiles and the marketing are done properly. I will certainly give them a try when I see them available in my area.

    Fair enough. That's why they call it "taste."

    The thing is, if Diet Coke tasted like Classic Coke, it'd probably be too sweet for us.

    Then again, we still like to drink Tab.
    KC's View:

    Published on: December 16, 2003

    USA Today reports that in response to the current low-carb craze, both Hardee's and Carl's Jr. are introducing new low-carb burgers that come wrapped in lettuce leaves instead of being served on a bun.

    Prices are the same as the same size conventional burgers.

    The idea, according to the chains, came from consumers, who increasingly were ordering burgers without the bun.
    KC's View:

    Published on: December 16, 2003

    Jim Cantalupo, McDonald's chairman and CEO, announced that the company will sell its Donatos Pizzeria division back to its founder as part of the company's effort to focus on core, profitable businesses.

    However, in something of a surprise, the company said that it will retain its profitable Chipotle and Boston Market divisions, but focus only on their expansion inside the US, discontinuing any growth of these brands outside the country. The company also will retain its minority investment in the Pret A Manger sandwich chain.

    Cantalupo said these decisions will eliminate "distracting and unprofitable operations," reallocate resources to McDonald's restaurants, and provide "a more focused growth platform for Chipotle and Boston Market."
    KC's View:

    Published on: December 16, 2003

    The New York-based Conference Board is predicting that the United States will see a 5.7 percent real growth in gross domestic product next year, which would build on a 3.1 percent increase this year, and would be the fastest growth rate in two decades.

    However, there are caveats. The Conference Board also predicts that productivity growth will be down slightly next year, to 3.6 percent, from 4.3 percent this year. And, the Board says that key to a full economic recovery will be job growth, which still seems to be sluggish.

    And the economic outlook wasn't helped yesterday when Wal-Mart announced that the number of shoppers at its stores last week declined from a year earlier, and that it expects December same-store sales to reach only the lower end of its forecast for three percent to five percent growth.
    KC's View:

    Published on: December 16, 2003 reports that a study out of the University of Guelph suggests that in specific instances, consumers preferred foods produced through genetic engineering over traditionally produced varieties.

    In the case cited by researchers, consumers believed that the taste and quality of GM corn was better than conventional corn, with the latter being outsold by a ratio of three-to-two.

    In addition to taste and quality, the study said, consumers were attracted to the GM corn because there was less use of pesticides in its production. "The majority of consumers interviewed said they were more concerned about pesticides than genetic engineering, taste and quality also had a strong influence on purchasing decisions," the study said.
    KC's View:
    We think that the industry has to be careful not to over-interpret these findings. While we've always been sort of agnostic on the subject of foods that contain GMOs, we believe that the key to acceptance of biotech foods is effective and comprehensive communications programs. That sounds like what happened here…but to try and force GM foods on the public without such an effort with be foolhardy.

    Published on: December 16, 2003

    The Wall Street Journal reports this morning that the federal Food and Drug Administration (FDA) is looking to shipping and credit card companies to help it clamp down on the practice of reimportation, in which US state and city governments bring in inexpensive medications from Canada.

    The FDA is setting up meetings with companies like FedEx, United Parcel Service, Visa, and MasterCard to help it stop the flow of imported drugs. While the FDA doesn't have regulatory power over these businesses, it is hoping it can convince the companies to voluntarily help. While representatives of these companies told the WSJ that they would meet with FDA, they did not say that they would help, in part because of privacy concerns.

    Reimportation is illegal, and the FDA warns that medicines imported from Canada are not as safe as those bought in the US. However, a number of states and municipalities are engaging in the practice as a way of closing budget deficits.

    The US Congress has instructed the Department of Health and Human Services (HHS) to review whether drugs can be safely imported from Canada.
    KC's View:
    It is sort of interesting that since the FDA appears not to have the political will to go after the governments that have made the apparently popular decision to bring drugs in from Canada, they want to cut off the supply routes.

    If the practice is illegal and FDA wants to stop it, then go after the importers. Right?

    Published on: December 16, 2003

    Dominick's CEO Randall Onstead Jr. says that the Safeway-owned chain plans to close as many as 25 stores in early 2004, though it is not being specific about the closures until employees are informed. The company currently operates 110+ stores in the Chicago region.

    The announcement comes as Safeway prepares for a new round of negotiations with the United Food and Commercial Workers (UFCW), and the declaration that the company plans to shutter such a large percentage of its units would appear to be an opening gambit as negotiations begin.

    Safeway, which also is dealing with a two-month-old strike in Southern California, has said it will be looking for "wide ranging labor concessions." The UFCW, on the other hand, says its position on what is acceptable and unacceptable in Chicago has been pretty clear to this point, and it is not adjusting its position.

    It was just such a standoff between the two parties that led to Safeway's decision to try and sell Dominick's more than a year ago. After the two sides could not come to an agreement, they decided to reinstate the terms of the labor contract that had expired in return for Safeway trying to sell the company after four years of ownership. The stalemate occurred because Safeway accused the union of making the division unprofitable, while the union said that Safeway's policy of centralization had made the division out of touch with local consumers and driven shoppers away.

    Whichever scenario was accurate, the value of Dominic's clearly was not what it once was. Safeway had acquired it four years earlier for $1.85 billion, and not values it at about $315 million.
    KC's View:
    The threatened store closures is the stick. The carrot is Onstead's pronouncement that over the next decade, he'd like to build the chain to the point where it has 175 stores.

    It'll be interesting to see how much Chicago resembles Los Angeles in January.

    Published on: December 16, 2003

    A federal mediator has requested that representatives of the United Food and Commercial Workers (UFCW) and Southern California's three major supermarket chains resume negotiations this Friday as they try to resolve a strike/lockout that started back on October 11.

    "Our goal in the mediation process is to build understanding and to move the parties toward an agreement," said mediator Peter Hurtgen said. "In this case we are dealing with particularly difficult issues."

    Both sides have agreed to resume negotiations.

    The major issue, and the one which both sides say they are far apart on, is how health insurance costs will be paid. The union wants the chains to continue to pay for it, while the retailers - Albertsons, Vons (owned by Safeway), and Ralphs (owned by Kroger) - want their employees to help defray the rising health care costs and help them cut their operating costs.

    The last round of talks was suspended on December 7.

    Some 70,000 employees at 900 stores are affected by the dispute.

    The Los Angeles Times reports that labor leaders from all over the country are meeting in Los Angeles this week to gauge the impact of the strike and devise a broad strategy to deal with the current fractious state of labor-management relations.

    The LAT notes that some local labor leaders would like to engage in a more militant strategy, believing that the traditional methods followed to this point have done nothing to weaken the chains' resolve.

    The implications of the Southern California situation are seen as national in scale. "What happens to us is obviously going to impact everybody," Rick Icaza, president of UFCW Local 770 in Los Angeles, told the LAT. "If we lose here, no contract will be sacred."
    KC's View:
    All talk. No movement. Little surprise.