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    Published on: December 17, 2003

    Interesting reactions to the ongoing debate about slotting allowances.

    One MNB user wrote to respond to another MNB's missive decrying slotting fees:

    With regard to the Byerly's/Lund's Buyer's comment about slotting fees... if he/she would check their SUPERVALU retailer statement they would find that when there are slotting fees available from the manufacturer on new items SUPERVALU passes those monies through to the stores that order the new items as a "first-time" buy. The slotting money is prorated on a per case basis to provide a lower cost of goods incentive for stores to order the new item for the first time.

    Without knowing the specifics, it would appear that these details at the very least are not being effectively communicated with at least some buyers.

    Another MNB user wrote:

    Re the response yesterday, where someone said "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."

    I can only say this - Wal-Mart and Costco DO NOT have slotting. I have had multiple clients selling both of these retailers over many years, and slotting has never been charged. They merely ask that you net out the trade funding (not all marketing support) held back for these purposes for other customers.

    As for 'similar (or larger funds)', our experience is simply this - Wal-Mart charges NOTHING else once you agree on a dead-net price and promotion levels and frequency. At that point, an item is 'sink or swim' at Wal-Mart. If it sells, it stays; if not, it goes. Manufacturers may choose to run media in Wal-Mart markets to support sales, but Wal-Mart requests nothing more from a trade fund perspective. Costco, after agreeing to a dead net price per item, will request the manufacturer 'build back' some funds for introductory demo's at store level to get the product selling. If, after demo, the product doesn't sustain sales growth, it is deleted. Both of these customers are incredibly fair to deal with, having virtually no hidden charges after the sale, and no 'strong-arming' of additional funds after a deal has been struck. They will resist price increases unless it can be shown that there was a real increase in the cost of goods or transportation.

    It appears to me at least, that they make their money by selling items at a fair price and deleting items that fail to sell, replacing them with new items regularly.

    Slotting is the 'poop in the punchbowl' in our industry. It's the 'Emperor's New Clothes'.....everyone except Wal-Mart, Costco and a handful of other retailers seem to see it for what it is, or if they do see it, they refuse to tell the truth about it. Let's tell the item sold to Wal-Mart for $1.00 sells to 'slotting' customers for $1.20 or more. Why? So inefficient retailers and wholesalers can buck up their bottom lines and underperforming stores and warehouses while ignoring stagnant topline sales strategies, and manufacturers and brand marketers can 'buy' distribution for items that consumers eventually reject. Let's "JUST SAY NO" , people.

    MNB user Andy Gromen chimed in:

    A little further "Clarity" on your comment that Wal-Mart and Costco focus on making their profits on the "sell", not slotting allowances.

    The general tenet of Sam's Club and Costco is that it costs them roughly 10% of sales to operate ... their profit margins, all categories combined, are roughly 10% ... (Obviously, some items/categories bring low single-digit margins and others make up the difference.) ... their profit is to be derived from membership fees. When their profits exceed their cost of operations, clubs are urged to reduce prices to their members. Buyers, DM's, Club Mgrs, etc., can actually be reprimanded for being too profitable on the "sell" side.

    MNB user Ken Fobes added:

    When will the industry learn that until a customer buys the product, it is all "funny" money. I am still amazed at the number of category managers and buyers who boast of all the "money" they made for their chain through their buying prowess. What happens when these new products don't sell? I question whether chains generating income of their buying, truly understand their true COS.

    One of the key competitive advantages companies like Wal-Mart and Costco have is that "they take the garbage out" of their purchasing decisions, while most traditional retailers continue to "put the garbage in!"

    Here's the deal.

    There are a lot of CEOs on the retailing side that read MNB every day. When will one of them stand up and say, for example, "Effective January 2005, our company no longer will charge slotting allowances. We will make money on what we sell, not how we buy it."

    Because until someone breaks down that dam, it is hard to take seriously the complaints by so many retailers that they are not competitive with Wal-Mart. It isn’t just the cost of labor…it is because they have created Byzantine financial structures that are out of touch with reality.
    KC's View:

    Published on: December 17, 2003

    The tomato, the eating of which has been said to help in the prevention of certain cancers, now has been identified by Japanese researchers as helping to prevent "thrombotic activities" such as stroke and myocardial infarction.

    The research, originally done at Japan's Kobe Gakuin university has been published in the British Journal of Nutrition.
    KC's View:
    Which is going to make tonight's fresh sauce taste even better…

    Published on: December 17, 2003

    Advertising Age reports that Procter & Gamble is going to spend $100 million promoting a "transdermal testosterone patch" dubbed Intrinsa that is designed to get women more interested in sex - assuming, of course, that it passes late-stage clinical tests that lead to approval by the US Food and Drug Administration (FDA).

    P&G believes that Intrinsa is a "potential blockbuster." Mark Collar, president of global pharmaceuticals for P&G, notes that there is no current approved drug for female sexual dysfunction. P&G is licensing the patch technology from Watson Pharmaceuticals, and says that it is critical for delivering the drug in even amounts without side effects.

    While the patch was originally designed for middle-aged, post-menopausal women, P&G executives believe it could have broader, more recreational appeal. This belief probably is borne out by the article in The New York Times last Sunday reporting that Viagra no longer is being used just by middle-aged men with erectile dysfunction, but also by much younger men with demanding girlfriends and performance anxiety.
    KC's View:
    : If you think it is weird seeing words like "sexual dysfunction,"
    "erectile dysfunction" and "performance anxiety" in MNB, you should try writing them.

    On the other hand, we're probably going to get a record number of "hits" today…though not necessarily from our core audience.

    That said, we have to wonder why P&G is going to spend $100 million advertising the launch of this product to women. We think all it really has to do is tell a couple of guys, and trust us, men will find a way to get Intrinsa into Christmas stockings all over the world. (And if the thing gets approved in mid-summer, well, we'll find a way to distribute this stuff.)

    Hell, just think of all the women who will think that they're using the patch to quit smoking, and suddenly they get the urge to…well, never mind.

    This could be the easiest sale ever made.

    By the way, what a great day for MNB. We find out that, according to the story above, Guinness actually has fewer carbs than Budweiser, Coors, or Corona. And now there's a "transdermal testosterone patch" for middle-aged, post-menopausal women.

    Not that we're married to a middle-aged, post-menopausal women, nor do we drink a lot of Guinness.

    It's just good to know these things.

    Published on: December 17, 2003

    Dow Jones reports this morning that negotiations have fallen apart between Royal Ahold and Chilean retailer Cencosud SA regarding the sale by Ahold of its Argentinean supermarket company Disco SA

    The two companies were in exclusive talks, but the exclusivity period ended last Friday. Ahold reportedly is seeking other potential buyers.

    Disco has 237 stores in Argentina and has a 19.2 percent market share. Cencosud's Jumbo chain has a six percent market share in Argentina.

    Cencosud recently bought Ahold's Chilean Santa Isabel supermarket chain for $94.5 million (US).

    The sale of Disco and Santa Isabel by Ahold is part of its strategy of divesting non-core businesses as a way of getting its books in order in the wake of a multi-billion-dollar accounting scandal.
    KC's View:

    Published on: December 17, 2003

    The Contra Costa Times reports on a University of Florida survey saying that "employee theft amounts to about half of inventory losses, while shoplifting makes up about a third." Retailers took a $15 billion hit from dishonest employees in 2002, according to reports.

    The best way to fight this trend, according to experts, is to be more vigilant about hiring practices, to train employees in ethical issues, and to be public about a company's strategies for combating employee theft.
    KC's View:
    On the one hand, you have to wonder about a culture in which a company has to teach employees why theft is wrong.

    On the other hand, you have to wonder how companies are going to find the time to educate employees about such things when they have a hard enough time finding halfway decent employees to man the checkouts and aisles.

    We think the key is finding ways to make employees feel that they have a stake in the business - both an emotional stake and a financial stake. Make them feel and act like owners.

    That's something that too few companies do.

    Published on: December 17, 2003

    The Business Journal of the Greater Triad Area reports that Family Dollar Stores is seeing a sales boost this holiday season not just from the 475 stores that it has opened over the past year, but also from middle-class families who are turning to the value retailer as a source of cheap holiday presents.

    The paper quotes a study from ACNielsen saying that almost two-thirds of American shoppers visited dollar stores in 2002, up from about 50 percent of buyers in 1998.
    KC's View:
    Even as the economy appears to be rebounding on some fronts, it seems to us that a lot of consumers are holding a little tighter to their wallets this holiday season. The world situation just seems too fragile to engage in a frenzy of celebratory buying.

    Published on: December 17, 2003

    Interesting story in USA Today this morning about employees being concerned about being overworked, especially as companies pressure them to work harder and longer in the face of tougher competition.

    In fact, there even is a grass roots movement called Take Back Your Time designed to focus attention on the issue of overwork. This organization urges employees to take stock of their lives and make choices about what they are willing and not willing to do.

    Some economists, USA Today reports, even believe that many of the productivity gains of the last decade can be traced to overworking employees, not the use of better and more efficient technology.

    At the same time, corporations - Wal-Mart would be one of the more notable examples, though hardly the only one - are facing lawsuits from employees over alleged overtime violations in which they create environments in which workers put in overtime "off the clock."
    KC's View:
    The result of all this activity is a kind of backlash against the nation's work culture…though we can't say that we believe it will have any sort of impact.

    We have a sister-in-law who recently complained about having to work 8-to-6, which we found amusing. "It isn’t an 8-to-6 world," we told her. "It's a jungle out there."

    We don't necessarily think that it is a bad thing that productivity increases are being made by people, not technology. In fact, it sorts of warms the heart.

    But, of course, people need to be paid fairly for the work they put in.

    Published on: December 17, 2003

    The New York Times reports this morning that "the United States is the third largest wine consuming nation in the world and will almost certainly become the largest by the end of this decade."

    The US, in fact, ranks only behind France and Germany in this area, according to statistics gathered by the Wine Institute. US consumption is on the rise - up 14 million cases last year to 250 million cases - while it is on the decline in traditionally wine-consuming nations.
    KC's View:
    Much of the increased consumption has come in value brands such as "Two-Buck Chuck," which means that while sales are up, profits are down.

    Which isn’t good news.

    However, some in the industry are heartened because they believe that as wine drinking becomes more mainstream, people inevitably will trade up.

    Which will be excellent news.

    Published on: December 17, 2003

    Betsy Holden, the co-CEO at Kraft Foods, has taken the hit for the company's struggling performance of late, and has been demoted to an "unspecified global marketing position." The company's other co-CEO, Roger Deromedi, now has sole possession of the job.

    Company spokesman Michael Mudd told the Associated Press that the move was not a short-term response but rather one with long-term implications.

    "We just went through a very unusual period in the company's history when we went public (in 2001) and at the same time were integrating Nabisco (acquired in 2000)," he said. "With that phase behind us, the board reached the conclusion that a single CEO, Roger, was the best way for Kraft to elevate its performance and achieve its full growth potential."

    Holden was one of just a few women CEOs at major US corporations.

    Until today, Holden was in charge of North American operations, while Deromedi ran international operations.
    KC's View:
    Tough timing for Holden, who was trying to build sales in categories that no doubt are being hurt by the anti-obesity craze that is sweeping the country.

    Without passing judgment on either Holden or Deromedi, we do think it is a shame when a company that largely sells its products to women decides that it is better off being led by a man.

    Published on: December 17, 2003

    The Wall Street Journal reports this morning that the Center for Science in the Public Interest (CSPI) and the National Consumers League (NCL) have joined together to urge the federal government to mandate liquor companies to put nutritional information on their packages - including alcohol content, serving sizes, calories and ingredients.

    And, of course, carbohydrates.

    Ironically, except for the fact that many manufacturers would rather not have yet another government mandate to contend with, this may be a quest that falls into the marketing sweet spot for a number of liquor companies.

    The WSJ also reports this morning that the success being seen by beer makers in plugging specific products as low-carb is being emulated by makers of vodka, whiskey and other hard liquor products.

    The interesting thing is that looks can be deceiving. Guinness, the WSJ reports, actually has fewer carbs than Budweiser, Coors, or Corona. A serving of clear Smirnoff Ice, on the other hand, has about the same number of carbs as "a baked apple pie from McDonald's." And rum, vodka, gin, whisky, and tequila contain no carbs or fat at all.

    "People are unaware of the calories and ingredients, and don't know how to compare between types of beverages," CSPI's George Hacker told the WSJ in arguing for the nutrition labels.
    KC's View:
    Hate the idea of more government regulation, but it's never made sense for liquor to be excluded from the requirement for nutrition labeling.

    Do it.

    Though we have to admit, when we're choosing between that cabernet and the pinot noir, we're probably not going to be comparing nutrition labels.

    Published on: December 17, 2003

    Cees van der Hoeven, the Ahold CEO who was forced to resign in the wake of an accounting scandal at the company in which it turns out that profits were overstated by more than a billion dollars over a two-year period, reportedly has started arbitration proceedings against the company looking for a financial settlement.

    When van der Hoeven left the company last February - along with then-CFO Michiel Meurs - it was agreed that any severance package would be determined by an impartial arbitration panel.

    Ahold's current management says it will not comment on the proceedings until they are completed.
    KC's View:
    What was it that van der Hoeven said a few months ago?

    That he had responsibility but no guilt? Or was it guilt without responsibility?

    Either way, now what he's looking for is, in essence, gilt.

    Which seems roughly like giving a severance package to the ferry captain who recently drove NY's Staten Island Ferry into a dock and killed a bunch of people.

    How many people lost their jobs or have been thrown into economic disarray because van der Hoeven was asleep at the switch? How many retirement funds have collapsed? How many reputations have been sullied?

    Investigations continue in both sides of the Atlantic into Ahold's corporate behavior, and the effect that a culture created by people like van der Hoeven had on sales, profits, productivity…and, oh yes…honesty and integrity.

    We think it is way too early to start handing out money to people who have resigned in disgrace. Let's first find out exactly how much responsibility AND guilt he has in this mess.

    Published on: December 17, 2003

    Just days before stalled negotiations are to resume between the United Food and Commercial Workers (UFCW) and Southern California's three major supermarket chains, the union is raising the ante by calling for a nationwide picketing of all Safeway stores.

    The UFCW says that the picketing is a way of supporting the 70,000 employees who have been on strike against Safeway - and who have been locked out by Kroger's Ralphs division and Albertsons stores - in Southern California since October 11.

    The UFCW, which represents some 1.4 million workers in the US, said it would ask consumers not to shop at Safeway stores, and that it could broaden the protests to include "acts of civil disobedience by supporting religious groups," according to a union spokesman.

    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 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.
    KC's View:
    It actually is sort of interesting to watch from three thousand miles away and see how much of the union's animosity seems to be aimed at Safeway and its CEO, Steve Burd. Safeway clearly has been taking the toughest stand against the union, and organized labor is fighting fire with fire.

    Which ought to make the soon-to-begin negotiations between the UFCW and Safeway's Dominicks division in Chicago high in entertainment value.

    Published on: December 17, 2003

    The Los Angeles City Council's Housing, Community and Economic Development Committee is scheduled to meet today and consider a draft ordinance that would establish strict limitations on big box store development - an initiative that seems squarely aimed at Wal-Mart's plan to build 40 supercenters in California over the next five years.

    Details of the ordinance have not yet been released, though its supporters almost certainly will cite a recent study in LA saying that supercenters can be detrimental to local economies. It is seen as likely that the LA initiative would require Wal-Mart to pay a prevailing wage to its employees, one that is comparable to the wages paid by unionized grocery stores that it competes with.

    While some communities in California have welcomed the building of supercenters, others - such as Oakland and San Diego - are either considering or have passed ordinances that either prohibit new big box stores or set specific guidelines for their operation.

    Wal-Mart has pledged to fight any legislation designed to inhibit its ability to operate, and has commissioned study designed to counteract the negative report. It managed to get a ballot initiative in Contra Costa County to try and overturn a ban on supercenters there; the voters will address that issue next March. It hasn’t decided what it will do about the Oakland ban yet.
    KC's View:
    While we think that communities ought to have the right to say that retailers of a certain size cannot operate within their boundaries, we have to say that we thought there already was a law saying how much employees have to be paid.

    It's called the minimum wage.

    We're not sure that governments ought to be saying that in selective cases, minimum wage is too minimal. That doesn’t seem fair.