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    Published on: March 2, 2004

    Notes and commentary from FMI's MarkeTechnics 2004

    SAN FRANCISCO - Would it be inappropriate to suggest, even before FMI's annual MarkeTechnics Show is over, that it is too much defense, not enough offense?

    This isn't to insinuate that the conference is without merit. Certainly there were items of interest - on Monday, a workshop by Metro AG's Dr. Gerd Wolfram, in which he described the various innovations being implemented by his company in its Future Store, and another session in which Kathryn Cullen of Kurt Salmon Associates in which she discussed what companies need to do to position themselves for Radio Frequency Identification (RFID) technology. (Though we kept thinking about the MNB user who suggested once that RFID is part of Wal-Mart's plot to take over the world - the investment is just pocket change for it, but it manages to overwhelm and bankrupt everyone else who tries it. That seems a little "conspiracy theory" for us, but it's hardly the craziest idea we've ever heard.)

    Certainly there were pockets of ingenuity on the exhibit floor. We really liked, for example, a new Personalized Offer Page (POP) product developed by MyWebGrocer, which essentially creates a customized emailed promotional circular that is linked to frequent shopper data; it can be used to develop a shopping list that can either be taken to the store or to buy online if a store offers that capability. We continue to believe that Notiva is offering the industry a common-sense and yet uncommonly smart reconciliation tools that drive costs out of the trade settlement process. And we thought that Coinstar is doing some really interesting things with its technology, upgrading its coin-counting kiosks so that they offer prepaid cash cards, prepaid wireless airtime, bill payment, and even the ability to download games to one's cell phone.

    But as we walked the show floor and spoke with retailers, we had the sense that many of these folks were playing defense, looking for ways to backfill their operations to prevent you-know-who from getting too great an advantage. And that, quite frankly, makes us crazy.

    Defense, you see, is a matter of preventing the opposition from scoring points, or at least not too many points. Defense doesn't score points.

    This industry needs retailers that score points.

    We believe the time has come for the Food Marketing Institute to bring back its Meal Solutions conference. FMI won't be able to use the Meal Solutions name, of course, because it probably has too much baggage. Too many retailers see Meal Solutions as a failed initiative, not realizing that it probably wasn't done right or wasn't given enough time or had too many expectations attached to it.

    Maybe we could call it "FMI's FMI: Fresh Marketplace International," and let’s create an innovative showcase that helps retailers be more creative about developing programs that appeal to consumers. Let's find ways to help retailers differentiate themselves from all their competition, to give them the tools to do things that connect to the customer.

    While Henry Chesbrough Ph.D. of the University of California at Berkeley was talking about technology when he made the comments in his presentation Monday morning, it struck us that his "chess vs. poker" metaphor backs up our conclusion. Chess, he told the audience, requires the players to "think far in advance" in an environment where the board is well defined and the rules clear-cut and unchanging; poker requires the player to continually bet on new business models and strategies, to play move-by-move, and to know-when-to-hold-'em-and-know-when-to-fold-'em. (Who knew that Kenny Rogers was a retailing guru?)

    Again, this isn’t to suggest that MarkeTechnics doesn't have a significant role to play in the food industry.

    But enough defense already. Let's play some offense.
    KC's View:

    Published on: March 2, 2004

    The Sacramento Business Journal reports that the cities of Sacramento and West Sacramento are considering legislation that would prevent Wal-Mart from opening supercenters there.

    While Wal-Mart is not mentioned in the laws currently under consideration, the rules would ban big box stores that sell groceries. Meaning Wal-Mart.

    The moves come as Wal-Mart plans to open 40 supercenters in California over the next few years. At least one of those is planned for the Sacramento area.
    KC's View:
    Wal-Mart, of course, objects to the legislation.

    However, it probably won't make any moves until the laws actually are enacted…and until it sees what happens in the Contra Costa County ballot initiative that takes place today. In Contra Costa, voters are considering whether to uphold a ban on supercenters, and Wal-Mart has been spending big bucks to overturn the ban.

    Stay tuned.

    Published on: March 2, 2004

    Now that the unionized employees of Southern California's three major supermarket chains have ratified a three-year contract that ends a more than four-month strike/lockout, the process has begun to bring them back to work.

    Albertsons, Kroger's Ralphs, and Safeway's Vons asked employees to call in for schedules. The employees were being asked to submit a form to their employers that would establish that they were ready to return to work.

    In addition, the chains' temporary replacement workers were being let go.

    It was expected that all the old employees would be back to work by the end of the week, with some back as soon as tomorrow.

    On Ralphs' website, the company posted a letter that said, in part, "We want you to know how much you were missed and how glad we are to have you returning to work. We are proud to have you as part of the Ralphs team, and we look forward to seeing you back in our stores."
    KC's View:
    It'll be interesting to watch the inevitable price war break out in Southern California. The three major chains are going to have to do something to bring people back into the stores, and they will all look at low prices as the fastest, easiest solution.

    Which means that the cycle continues. Prices down, margins down, profits down…and Wal-Mart a'comin'.

    Meanwhile, the UFCW has its own problems, and is meeting to figure out how to handle contract negotiations in Arizona, Baltimore-Washington, Seattle, and Northern California.

    Published on: March 2, 2004

    The Milwaukee Journal Sentinel reports that Fresh Brands Inc., which reported a quarterly loss of almost $5 million last week, plans to close a half-dozen stores.

    "Although the news may sound bleak, I believe that it actually foretells a brighter future," the company's executive vice president and chief financial officer, John H. Dahly, said in a conference call. "We are hopefully putting behind us all the skeletons in our closet in one fell swoop."

    Fresh Brands, which has been under intense competition from Wal-Mart, currently has 73 franchised and 29 company-owned supermarkets. While the specific stores to be closed have not been identified, the company said that five of them will be company-owned units, as management plans to focus more on wholesaling.
    KC's View:

    Published on: March 2, 2004

    Mexico's Federal Competition Commission has ruled that an alliance of three major Mexican retailers - Gigante, Soriana, and Comerci - that was designed to help them fight Wal-Mart de Mexico (Walmex) is illegal and must be disbanded.

    The three retailers had hoped that the alliance would allow them to do joint purchasing that would get them prices similar to those gotten by Walmex.
    KC's View:

    Published on: March 2, 2004

    Marks & Spencer has announced that it plans to completely overhaul the company's stores in line with the new Lifestore housewares shops. One of the goals will be to build walls separating different departments within the stores, eliminating the free flow now employed by the stores.

    The Guardian reports that the effort is being spearheaded by Vittorio Radice, who told the paper that "we do not have a retail environment for the year 2010. The biggest problem is the adjacencies - selling bras next to bananas. So we will build walls, with doors, to break them up."

    Radice also said that there remains some resistance to his views within the company. "Some people here refuse to recognize that the formula which worked 20 years ago is not right for now. We need to improve."

    In addition, Radice said he wants to expand M&S's Simply Food chain of stores onto the European continent.
    KC's View:
    It sounds like Marks & Spencer realizes that to survive against the likes of Tesco and Asda, not to mention a possibly revitalized Morrison-Safeway combo, it has to make dramatic moves.

    Won't be easy. But nobody ever said it would be.

    Published on: March 2, 2004

    Kmart is asking a number of vendors to return some $300 million in preferential payments that it made to them two years ago when the retailer was in bankruptcy protection.

    The request has been made after the US Court of Appeals ruled that the payments - made because Kmart maintained that they were necessary to keep its stores running, and approved by the bankruptcy court - were inappropriate.
    KC's View:

    Published on: March 2, 2004

    Apparently believing that the pitched battle between Dunkin' Donuts and Krispy Kreme leaves a hole for yet another doughnut retailer, Canadian retailer Tim Hortons has signed a conditional deal to buy 48 Bess Eaton coffee shops in Rhode Island, Connecticut and Massachusetts.

    Terms of the deal were not disclosed.

    Tim Hortons is a division of Wendy's international. The Bess Eaton stores are part of the larger Bess Eaton Donut Flour Co., which is in bankruptcy protection.
    KC's View:

    Published on: March 2, 2004

    Published reports say that Tyson Foods plans to consolidate its poultry processing operations in Jackson, Mississippi into its facilities in Carthage, Mississippi.

    The shift will eliminate some 900 jobs.
    KC's View:

    Published on: March 2, 2004

    • Ahold has finally sold its Brazilian chain, Bompreco, to Wal-Mart and its Hipercard credit card operation in Brazil to Unibanco. The deals reportedly combined to generate a half-billion US dollars for Ahold, which has been struggling to reduce debt and consolidate operations in the face of a billion-dollar accounting scandal.

      Ahold's other Brazilian asset, G Barbosa, is not included in the deal.

      With the acquisition, Wal-Mart Brazil will now operate 143 units there.

    • MNB yesterday that the tags were being used only to identify the ages of people looking to buy DVDs so that age restrictions were observed, and that the suspension would have little impact on the store's operations.

    • The Chinese government has decided not to draft new rules to regulate how foreign retailers operate there. The decision reportedly means that foreign retailers will be able to set up wholly owned companies in China, and will aid the expansion plans being developed by Wal-Mart and Carrefour.

    • Sainsbury reportedly will begin selling a new breed of black tomato, called the Kumato.

      The Kumato, which originated in the Galapagos Islands, is said to be extremely sweet. According to one report, some consider it an aphrodisiac.
    KC's View:

    Published on: March 2, 2004

    MNB had a piece yesterday about Georgia's "PeachCare" program, which provides health insurance for uninsured children. A survey in Georgia showed that 10,261 of the 166,000 children covered by "PeachCare" have a parent working for Wal-Mart. According to the paper, the next largest employer mentioned in the survey was Publix - which employs parents responsible for 734 kids,

    MNB user Ted Wakabayashi responded:

    I have enjoyed reading your materials everyday. I would like to comment on Wal-Mart phenomenon in which the common argument is that Wal-Mart is lowering the living standard in the US. It is, however, the only one side of the story and I wonder if those under-paid people are not working for Wal-Mart they may be receiving public welfares anyway. I know many Wal-Mart associates who are single mothers or minority youths who cannot find the adequate job otherwise and are happy working for Wal-Mart. They seem to work harder and I think they are the essence of Wal-Mart's success. Sam Walton wrote in his biography that "Ordinary people doing extraordinary things..."

    Another MNB user observed:

    Let’s see the employers for all 166,000 kids or at least the ones with over 100 kids on the list. Might be shocking. The let’s ask why they are on the list.

    Perhaps the parent has not qualified for benefits at Wal-Mart yet. These accusations merit a full understanding, not just an anti Wal-Mart sound bite.

    MNB user David J. Livingston wrote:

    Wal-Mart employees have such a large number of kids on the state sponsored health plan because they are such a large employer. Probably their ratio is per number of employees is no different than any other discount department store. What about Kmart and Target? What was their ratio? What about McDonalds?

    Perhaps the taxpayer is footing the bill, but the taxpayer makes it back when they buy products at discounted prices at Wal-Mart. Also don't forget a lot of those taxpayers own Wal-Mart stock directly or indirectly in retirement or pension accounts and have certainly benefited. Doesn't Wal-Mart pay taxes too? It's impossible to compare Wal-Mart to Publix. If not for the grace of Wal-Mart, many of their employees would have no job at all and would be on welfare. Wal-Mart does an excellent job in hiring people who are considered unemployable. Working for a company like Publix would be beyond the abilities of most Wal-Mart employees. What a lot of these Wal-Mart bashing articles never mention is the fact that most Wal-Mart employees do not have the skills or physical presentation needed to be able to work in higher paying positions. Unfortunately that is a fact that is too politically incorrect for Wal-Mart to use themselves as an alibi.

    Let's just take the notion that the money taxpayers spend to cover these kids' insurance costs is made up by the lower prices they get at Wal-Mart.

    Couldn't you take it from the opposite direction? That Wal-Mart's low prices aren't as low as it would have you believe because there are higher compensating costs elsewhere? That these low prices can be, in fact, illusory?

    Yet another MNB user chimed in:

    Let's ask some more questions and look at another, somewhat different answer.

    What's the cost to Georgia taxpayers if Wal-Mart hadn't employed the parents? What's the ratio of children per employee at Wal-Mart vs. Publix?

    No matter what is the cost, as long as the employees had lived in GA, some taxpayers would have picked up some of the cost.

    We have trouble with this logic. Public funds pay to keep these kids insured, and we're supposed to think that's okay because if the parents didn’t have jobs at Wal-Mart, the same public funds would be spent to cover them?

    We understand that there are different ways to look at this thing. But it used to be that jobs in retailing were a way to enter the middle class, a way to make enough money to eventually have a home, raise a family, get your kids an education, and keep them healthy.

    That seems to be changing. And that isn’t a good thing by any measurement.

    We wrote yesterday that the new issue of The New Yorker has a couple of intriguing articles about the nature of choice. Which prompted MNB user Glen Terbeek to write:

    Maybe The New Yorker ought to be required reading for the industry!
    There is no question, that if the retailer is to be successful in the future, then they need to be AGENTS for their local shoppers; winning their loyalty by selecting and recommending the products that anticipate their desires and wants, while eliminating clutter. In other words, creating value above and beyond distribution value. There are many examples of very successful food and other retailers that do just that.

    But wait a minute. The New Yorker obviously doesn't understand slotting allowances, other trade dollars, supply chain productivity, centralized organizations, difficult labor problems, competition from the "Big Guy", and ..............! How could they ever become Agents for their shoppers?

    I would suggest that the supermarket industry, in general, has abdicated its shoppers Agentry responsibility; and in fact, have become the Agents of the manufacturers in stead. The fact that trade dollars are about twice the pretax income of the supermarket industry pretty well summarize the argument.

    No argument.
    KC's View: