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    Published on: February 24, 2004

    Notes from IRI's Reinventing CPG Summit 2004

    SAN DIEGO -- The extent to which the rapid rate of change has affected the consumer packaged goods business and the retailers that it serves was best displayed in a presentation by 7-Eleven CEO Jim Keyes, in which he described how his company has become extremely proactive in the creation, development, and even manufacturing of new products that reflect his company’s view of consumer needs.

    Keyes told the Reinventing CPG Summit, hosted here by Information Resources Inc., that while 7-Eleven has dramatically improved its data gathering capabilities, "leveraging the power of technology for store operators," the company's real goal is to "leverage our strengths for cutting-edge, best, first, and only products."

    Remarkably, Keyes said it wasn't just being able to analyze historical data, but also being able to "make hypotheses about the future." He said that just such a case could be seen in the low-carb business, which 7-Eleven saw coming some two years ago. Keyes said that he pushed beer companies and health bar manufacturers to come up with new products that were focused on this growing trend, and while he got some resistance, these companies came around - and that the benefits are clearly seen today.

    A similar example, he said, was the creation of a Diet Pepsi Slurpee, which nobody outside the company thought was a good idea. But 7-Eleven kept track of how many kids came in and bought traditional Slurpees while their moms bought diet soft drinks…and made the leap to the notion that a diet Slurpee could be a big idea. Which it has proven to be.

    However, Keyes was careful to emphasize that these were collaborative efforts with manufacturers - and that the ability to analyze real time date while at the same time making the occasional leap of faith was critical to long-term success.

    This was a point made from a different angle by IRI chairman Dr. Romesh Wadhwani, who said that in the current environment, CPG companies "need to build lifelong relationships with consumers." Manufacturers, he said, must shift "from treating the consumer like a transaction to treating the consumer like a relationship." And that, he said, means that CPG companies have to start thinking like retailers.
    KC's View:
    It also means, of course, that retailers have to start thinking like consumers…which is hardly a done deal.

    One of the things that struck us during the first day of this Summit is how much technology is driving the business…even in ways that were perhaps unintended.

    One of the more anticipated speakers was Ron Moser, RFID Strategy Analyst at Wal-Mart, who explained to the group what his company's commitment is to RFID technology and how it will create "total supply chain visibility."

    But what caught us up short was the fact that everyone in the room was wearing a name badge equipped with an RFID tag, and that our names were being flashed on the screen as we entered the room at the beginning of the day's session.

    We didn't know that this tag was on our badge…and we couldn’t help but think that this parlor trick actually illustrated one of the major concerns raised by privacy advocates about RFID. (We talked to a number of people who felt the same way; this isn't just us going all "Number Six' on you here.)

    There's no doubt that RFID provides enormous benefits for the industry. But when technology drives change - as opposed to being the method by which effective consumer change can be implemented - that's when we believe that the industry risks getting itself into trouble.

    Published on: February 24, 2004

    For the second year in a row, ten thousand executives polled by Fortune magazine have named Wal-Mart America's most admired company, "despite a year of bad press and lagging stock price."

    Following Wal-Mart on the top list are Berkshire Hathaway (No. 2); Southwest Airlines (No. 3); General Electric (No. 4); Dell (No. 5); Microsoft (No. 6); Johnson & Johnson (No. 7); Starbucks (No. 8); FedEx (No. 9); and IBM (No. 10).
    KC's View:
    This will surprise some MNB user who view us as being rabidly anti-Wal-Mart, but we would have to agree with this ranking if it is meant to reflect how a company grows, lives up to its mission and promise, and delivers profit to shareholders.

    The problem for us is that there are other ways to measure excellence. They generally don't include court cases alleging gender bias, or charges that the company knowingly allowed illegal immigrants to be hired to clean its stores in order to save money, or that the company systematically tries to find ways to pay its employees less than other retailers and give them less in the way of benefits.

    But many of these issues remain allegations, not proven facts. And Wal-Mart is sort of like the New York Yankees - it may be pushing the limits, but it is playing by the rules…just doing a better job than a lot of other companies.

    Simply because of its size, Wal-Mart is going to generate hate and mistrust. That's inevitable.

    And it will take time to judge the long-term impact that this behemoth is having on the nation's economy and culture.

    Published on: February 24, 2004

    Japanese officials have confirmed that a new case of mad cow disease has been found there, the tenth to have been identified in that country since September 2001.

    The Japanese have a policy of testing all cows for the brain wasting disease, a policy that it wants the US to adopt. Only one case of mad cow disease has been identified on US soil. In the meantime, Japan continues to ban all American beef and says it will do so until the US starts testing all of its cows.
    KC's View:
    You have to wonder about the math. Japan has a lot fewer cows than we do, and yet it has identified ten times as many cases of mad cow disease.

    How could that be? Do we have better cows? Or do they just have better testing?

    Published on: February 24, 2004

    The Houston Business Journal reports that a number of chickens in Gonzales County, Texas, have been found to be infected with an H5N2 strain of avian influenza, also known as the "bird flu."

    The US Department of Agriculture (USDA) says that this strain of bird flu, while "highly pathogenic," is not known to have any human health implications, and is different from the strain that has killed 22 people in Asia.

    The farm where the infected chickens were found in South Texas is under quarantine, and more than six thousand broiler chickens have been destroyed. However, the Associated Press reports that two birds from the flock that has been destroyed had already been sent to live bird markets in Houston, where chickens are now in the process of being destroyed to prevent further spread of the disease.
    KC's View:

    Published on: February 24, 2004

    The Arizona gasoline market has heated up lately, as food retailers invest in gas pumps as a way of competing with similar operations set up by Wal-Mart and Sam's Club.

    In addition to Safeway and Albertsons, both of which are using gas to generate traffic, Basha's Stores have now joined the fray by using a program that rewards its customers with free gasoline at Chevron stations.

    The Business Journal of Phoenix notes that Basha's program differs from many others. The usual procedure is for the chain to absorb the cost of the gas discounts themselves, but Basha's actually is connecting its discounts to the purchases of specific products, passing on the cost of the discount coupons to those manufacturers.
    KC's View:
    We know that retailers such as Basha's are desperate to find ways to compete more effectively with the Nation of Wal-Mart. And sometimes you have to match the Bentonville Behemoth's moves.

    But you have to believe that smaller, regional chains such as Basha's are better served by the things that they do that Wal-Mart does not.

    Published on: February 24, 2004

    The Washington Post reports that the US Food and Drug Administration (FDA) is planning its response to a website operated by the state of Minnesota that sends its residents to Canadian pharmacies where they can buy prescriptions cheaper than from US pharmacies.

    The state of Wisconsin plans to launch a similar site this week, and FDA has expressed concerns about it as well.

    FDA takes the position that such 'reimportation" of drugs from Canada or other foreign countries is illegal and unsafe. However, while it has moved to close down US companies that import such drugs, FDA's response to states and cities encouraging such activities has been largely rhetorical.

    In related news, a new group - the Pharmacy Alliance for Canadians - has been formed there to look at the drug reimportation issue and its long-term implications. The companies involved with the new group include A&P Canada, Canada Safeway, Loblaw Supermarkets, and Super Thrifty Drugs.
    KC's View:
    We've felt all along that FDA is waiting until after the November elections to get aggressive on this issue, simply because it would prefer not to draw attention to the discrepancy between US drug costs and Canadian drug costs during an election year.

    We'll see if we're proven wrong on this.

    Published on: February 24, 2004

    A lawsuit has been filed in Chicago's Cook County Circuit Court charging that Walgreen Co. "systematically defrauded customers" by putting expiration dates on prescription drug bottles that were earlier than those recommended by manufacturers, thus forcing customers to pay for new prescriptions earlier than necessary.

    Attorneys in the case are seeking class action status for the filing.

    Walgreen has conceded that its policy was to mark all such drugs as expiring one year from the date of sale, regardless of the manufacturer recommendation. Now, it says, if the medicine has not been repackaged, it has adjusted its policy to simply refer to the manufacturer's recommended expiration date.
    KC's View:

    Published on: February 24, 2004

    • Ahold-owned Stop & Shop reportedly plans to expand its Peapod online grocery/home delivery service to new sections of Rhode Island this April, and is in the final stages of converting a 7,000 square foot mezzanine in its North Smithfield store to process Internet orders.

      Stop & Shop plans to offer the Peapod service to 90 percent of its stores within the next two to three years, according to reports.

    • The US Department of Commerce reports that c-commerce sales, which are defined as purchases over the Internet, e-mail or other electronic networks, increased to $17.23 billion in the fourth quarter of 2003, a 29.7 percent increase over the third quarter, far outpacing the overall retail sales growth during the period of 5.2 percent.

      However, the growth was less than the 31.6 percent sales growth seen from the third to fourth quarters of 2002.

      E-commerce purchases for the fourth quarter of 2003 were up 25.1 percent compared to e-commerce purchases for the fourth quarter of 2002.

    KC's View:

    Published on: February 24, 2004

    • Minute Maid has launched a line of low-calorie juice drinks called Minute Maid Light, "designed to appeal to the consumer unwilling to sacrifice taste while counting calories or carbs."

      The new beverages add three new flavors - Minute Maid Light Raspberry Passion, Minute Maid Light Mango Tropical and Minute Maid Light Guava Citrus - to the Minute Maid Light Lemonade already on the market. The products are made with real fruit juice and contain 5 calories per 8 fl oz serving.

    • Crain's Cleveland Business reports that a proposed Wal-Mart Supercenter in Ohio's in Geauga County has some unusual design elements - "about 40 hitching rails for horses and buggies belonging to members of the area's substantial Amish community."

    KC's View:

    Published on: February 24, 2004

    • Campbell Soup Co. reported a 2 percent increase in second quarter profits, with net income of $235 million, up from $231 million in the same period a year ago.

      Sales increased 10 percent from $1.9 billion in the second quarter last year to $2.1 billion this year.

    KC's View:

    Published on: February 24, 2004

    Trader Joe's is recalling its Trader Jose's brand of guacamole sold throughout Southern California, because a company supplier said it could be contaminated with listeria.

    While the product has been pulled off shelves, some contaminated food may have gotten through to consumers. No illnesses have yet been reported.
    KC's View:

    Published on: February 24, 2004

    In our commentary yesterday about Albertsons' restructuring and decision to employ a Six Sigma approach to the business, we noted that "while we don't want to overstate this…does it seem to anyone else that Larry Johnston essentially is betting the house on these moves? This would appear to be his ultimate play - that if these steps don't work in making Albertsons better positioned for the future, it means either than it cannot be done or that he's not the guy to do it.

    We wish Albertsons luck…though we have to admit that we wouldn’t be willing to bet our house on Johnston's ability to make good on his gamble. It's just an enormous task, and we're just not sure it all can be accomplished."

    MNB user David J. Livingston responded:

    You got that right KC. Albertsons is living in a dream world. They are almost 30% higher priced that Wal-Mart and their answer to problem is cut back on labor and turn out the light in the stores so shopper must shop in the dark. Any move they make now is too little too late and will at most be only a lateral move.

    MNB user Jack Moffett chimed in:

    If I were Mr. Johnson I would also subscribe to KISS, (keep it simple -). Spend large amounts of time in the stores talking to the customers and store staff. Go where the rubber meets the road and find his answers there.

    The nearest store to my home is a very nice Albertson’s in a great location, very clean, professionally stocked, manned with a super helpful and friendly staff. But, I and many others like me have many buying choices, so we drive a little further and buy every thing we can at Costco and Winco and only go to Albertson’s as a last option now.

    Why? We don’t want to use a PREFERRED SAVINGS CARD and we don’t want to be charged more than those that do. And we don’t want to be lied to about how much those savings REALLY are.

    Sam Walton figured out ways to make shopping fun and created ways to encourage people to come in, not set up barricades and alienate his customer base. Respect your customers don’t treat them like they are dim-witted.

    P.S. Mr. Johnson, when you get rid of the card, also get rid of the people who recommended it. Consider giving your great company a little less “Six Sigma” and take away a few hundred “Black Belts” and give it a little more “KISS”. We are not building jet engines here we are just selling a few apples and toilet paper to few million bright and wonderful CUSTOMERS.

    MNB user Steve Grossman wrote:

    What is sad about this, that over the last 10 or 15 years, this company's culture has been consolidated and changed every two to three years. What is the price of upheaval that the company and the employees must pay? This would be a great college case study of how not to grow a potentially great retailer. I believe they, over the years have been their own worst enemy.

    Another MNB user wrote:

    Do not use my name, but I work for Supervalu and the article (about Albertsons) almost sounded like a recap of the ways we go to market.

    Supervalu employs a national customer service center for all of our retailers rather then the regional models and it is many time better then what could be offered in the past. The training is better, the spend on technology is higher to better to assist the CSR with the customer, and professionalism on the phone is excellent. Supervalu also offers their version of the Price Impact Division ( Save-A-Lot).

    We are also structured into regions, I work in the Eastern region with goes from NY to North Carolina with two distribution hubs in Harrisburg Pa and Richmond, VA.

    We are not following Six Sigma, but maybe we can steal this from them.

    Regarding the rumors that Publix might bid for Ahold's Bruno's and Bi-Lo divisions, one MNB user wrote:

    I find it very ironic the difference 24 short months can make. Not 2 years ago, the rumors were rampant that Ahold was trying to buy Publix. Now, Publix is trying to buy Ahold. Slow and steady wins the race.

    Words to live by.

    Another MNB user wrote:

    This is bad news for a lot of Winn Dixie stores. They had it easy competing against the lame attempts of Ahold. If Publix gets hold of those stores, all that bold talk recently from Winn Dixie will sound like a death cry.

    Another member of the MNB community wrote:

    This would be great for the employees of both Bruno's & Bi-Lo. Publix in my opinion is the best managed grocery store chain in the US. They have the knowledge and the experience to make money at these two un-performing chains. Publix is in for the long haul and the benefits for current employees will be greater.

    Responding to all our stories about drug reimportation, one MNB user wrote:

    Finding a way around stupid laws to make a buck is capitalism in action. Using the legal system to force customers to spend more money than they should have to is pretty much the opposite. It's interesting how the conservative party is the big supporter of capitalism when it's convenient and ready to cram unfair laws down our throats when it's to the advantage of major campaign contributors. I grew up in a conservative, Baptist, republican home, but the administration's actions don't sound at all close to what I learned conservative capitalism was all about. The government should stay clear out of this one as long as the drugs coming from Canada were okayed by the FDA in America before they were shipped to Canada in the first place. If they were good the first time they were sold, they're good till they're gone.

    No matter what the Bush Department of Justice does now, the word is out. If you are a senior citizen, or anyone else who is dependent on prescription drugs, GW is starting to look more and more like the enemy, no matter which party he comes from.

    And believe me, we'll remember who was there for us and who stabbed us in the back in November. We're not the fastest walkers, or drivers, but we get there and we vote.

    Responding to our story yesterday about the effects of the California grocery strike, one MNB user wrote:

    Gee: I was wrong when I wrote after 3 months the stores would start to pick up because people would return for the convenience of locations. Thanks for the report and setting me straight.

    Hey, we're just reporting what we saw.

    We noted in our commentary yesterday that when we visited some stores over the weekend, "the view from inside them tends to be pretty depressing - service departments closed, shelves spotty with merchandise, and the aisles as active as a morgue on a slow day. And these stores were viewed on a Saturday afternoon.

    And then, you go to Trader Joe's, to Stater Bros., to Bristol Farms…and you see tons of customers, lots of sales, and a hubbub of activity."

    One MNB user didn’t think much of our perspective:

    Tell us, please, what's the point of your "view" on the Cal. grocery strike. Should we be surprised that stores on strike look empty or out of stock while those not being struck or not under a labor contract look better or busier?

    The strike has taken its toll on both sides and no one will come out unbattered. The "view" here should not be the obvious or trite but who, when the strike is done and the chains management prevails, will be the long-term winner. ownership with more favorable labor packages, labor with less to show in weekly wages but with more secure positions in face of non-union competition or the customer with better prices and convenience.

    My "view"....all three.

    Fair enough.

    We certainly weren't trying to be trite in our view. On the contrary, most of our usership doesn’t come from Southern California, and can only depend on press reports for a sense of how the chains are doing there. It was our first trip there since the strike began, and we were just trying to share our perspectives.

    We'll try and do better next time.

    Another MNB user wrote:

    Winco has plans for the southern California market also. If Safeway, Albertson and Kroger are worried about Wal-Mart wait until they have Winco across the street form them. Check out Winco's present markets and you will see they are very competitive in grocery. Winco has a distribution center in center California and plans to build over 40 stores in California.

    Not surprisingly, we got a lot of comments about the proposal up in Maine for a doughnut shop with topless waitresses that would compete effectively with Dunkin' Donuts and Krispy Kreme.

    One MNB user wrote:

    Re: that bold thinker/free enterpriser up in Maine, I'm slightly surprised at your response...

    Are you testing our "with it" quotient on a Monday AM to see if we're awake or get it??

    What should he think of in Maine in February, snowplowing? Ice fishing? Seeing how pitcher's and catchers have reported this past week, if I may, I think you mis-swung on that

    Maybe. But sometimes it's better to simply tell the story and let you folks fill in the jokes…

    MNB user Lisa Everitt wrote:

    You've probably heard this from a zillion people in and around Fort Collins, Colorado, where some guy opened a topless bakery just off I-25 called "Debbie Does Donuts."

    This would have been 1989-1990. I was working for the paper in Greeley and refused to cover the story, but I believe we sent our columnist and a photographer. It's been gone for years, but good God, did it ever get national press. I think Geraldo did a show from there.

    Man, we would've killed to have covered that story.

    And MNB user (and Maine resident) R. St.Clair wrote:

    Ain't gonna happen...the townsfolk (especially the female variety, methinks) and, more importantly, the guy's wife are all against him.

    Even though the Madison town authorities could find nothing "illegal" about his proposal, Mrs. Doughnut Guy will lay down her version of the law... at that point, would it surprise anyone to see him change his mind?

    After all, I don't think sleeping at the topless doughnut shop will be allowed under the town's occupancy laws.
    KC's View: