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    Published on: April 28, 2004

    The Seattle Times reports that the United Food and Commercial Workers (UFCW) union and the representatives of Safeway, Albertsons, QFC and Fred Meyer have all agreed to an extension of the existing and expiring labor contract, hoping that this will allow them to come to an agreement on a new deal without a strike or lockout.

    While the existing contract was scheduled to expire May 2, the two sides have scheduled negotiating sessions for May 5, 13, 14, 19 and 20. According to the paper, “The extension is on a meeting-to-meeting basis; each side has the right to terminate the contract with 72 hours' notice after any of those meetings. Talks could also be extended again.”

    The UFCW represents some 16,000 employees at the four chains. The issues, as always, are compensation levels and health benefits.

    Both sides are hoping to avoid a repeat of the four-month strike that affected the Southern California market.
    KC's View:
    Good. As long as people are talking in good faith, and have reasonable expectations and respect the opposite side, it means that progress can be made.

    Published on: April 28, 2004

    Shelf management is the key to maximizing profitability and maintaining satisfied customers, but the question that retailers need to answer is whether their companies are tapping into the potential product category increases through efficient distribution and in-store speed to shelf activities.

    Next Tuesday at the annual Food Marketing Institute (FMI) Show in Chicago, Brian Harris – a pioneer and thought leader in the field of category management – will be part of a Learning Lab that will examine these issues in detail. Both retailer and supplier perspectives are expected to be addressed, as both sides seek to gain a better understanding of today's shelf management partnership challenges and opportunities.

    The Learning Lab, entitled “Whose Shelf Is It Anyway?”, is scheduled for Monday, May 3, from 8:15 to 11 p.m.

    To get a preview of this session, we engaged Brian Harris in an exclusive e-interview:

    MNB: Why do you think that most retailers are not tapping into potential product category increases through efficient distribution and in-store speed to shelf activities? At this point in the supply chain continuum, it would seem to be an obvious goal and top priority?

    Brian Harris: Key reasons are 1) lack of responsibility and accountability at store level to get new products to shelf as quickly as possible and to keep these products on the shelf; 2) a "wait until someone else (broker, supplier, third party service) shows up to do the work to get the product set on the shelf" mentality; 3) lack of information to set priorities among the continual flow of new products so that the highest opportunity new products are clearly understood and get the quickest attention; 4) lack of well defined procedures at store level for how new products are ordered, received, handled and shelved (for many retailers this work is performed on a "get it done as best you can" basis); and 5) slow, antiquated communication procedures used by many retailers and wholesalers to get the right information more quickly to the right place.

    I'd also add that this is an area in which there is not a lot of knowledge of "best practices".

    MNB: Are there different strategies that need to be employed by companies of different sizes?

    Brian Harris: The short answer is that there shouldn't be.

    Slower than acceptable speed-to-shelf rates for new products costs all retailers -- big and small.

    Obviously one real difference is that smaller retailers need to rely more on the wholesaler's support to be successful in getting new products to the shelf faster. This extra link in the chain requires tighter communication, clearer priorities, and more integrated business processes between the 3 parties involved -- the supplier, the wholesaler, and the retailer. (In a study we did a couple of years ago, we found that on average it took retailers served by wholesalers almost twice as long to reach similar shelf availability levels for new products compared to larger chain retailers. The lost sales and profits for all parties are substantial. This finding has been a wake-up call to the wholesale-supplied channel and we have seen some definite improvements in this area in the past year or two).

    For all retailers, big and small, the performance benchmarks keep getting higher as other channels and competitors develop systems capable of getting new products to the store and shelf faster.

    MNB: Do retailers and manufacturers have different priorities in pursuing these same goals? Or are the goals different in some sort of fundamental way?

    Brian Harris: Getting new products to the store and shelf faster is one area where all parties gain. The disadvantages of being slow to shelf with new products are obvious. These include missed sales and profit opportunities when products are their "hottest", inability to fully leverage the early marketing support, and most of all, dissatisfied consumers. (One study found that the consumers most unhappy about a retailer's failure to deliver on new product availability are the retailer's most loyal customers!).

    This is an area where poor performance hurts everyone!

    Therefore, while their will always be differences in goals of the supplier and retailer arising from different strategies with respect to issues such as how much variety is needed in a category, the right timing of the new product, and which consumers are the key target for the new product, the overall strategy of getting new products available for purchase on the shelf as fast as possible is a shared goal.

    MNB: What do you want retailers and suppliers to walk away from your Learning Lab knowing and able to accomplish?

    Brian Harris: The key objectives of the Lab Session are 1) to reinforce the sales and profit benefits possible from improving performance in two key assortment management areas -- faster speed-to-shelf for new products and better integrity levels for shelf planograms; 2) to expose attendees to several very practical tools that can be used to improve performance in each of these areas; 3) to present some "best practices" as benchmarks in each area; and 4) to share the experiences of a retailer (Blue Goose Super Market), a wholesaler (AWG Kansas City), and a supplier (Clorox) in each of these areas.

    The Lab will also feature two workshops in which the attendees will have an opportunity to work with these new tools and begin to see the value of their use in their business operations.

    For more about FMI 2004, go to:
    KC's View:

    Published on: April 28, 2004

    The Miami Herald reports that as space becomes more and more scarce in Broward County, residents are looking to formerly abandoned downtown areas as a source of new and expensive housing. Which means that retailers used to building large-scale stores, such as Publix and Home Depot, are developing smaller footprints that they can use to cater to this upscale and desirable demographic.

    Sometimes the available space can be half as much as the retailers are used to filling, but by reducing the number of SKUs and targeting what is available to the specific needs and desires of the customer base, these companies seem to be connecting with the shopper.
    KC's View:
    Anything that forces a retailer to do a better job of using data to develop a more targeted shopping experience is a positive development.

    Nothing like forced innovation.

    Published on: April 28, 2004

    Nutritional issues have forced a number of companies to offer new menu options…

    • KFC announced that it will shortly begin selling oven roasted chicken in addition to its familiar fried chicken, looking to assuage consumer concerns about the impact that fried food can have on health. The oven roasted chickens will be available in boneless strips, wraps, and salads.

    • Wendy's announced that it will begin actively promoting bunless sandwiches as a menu option, featuring either a cheeseburger or grilled chicken breast on a bed of Romaine lettuce, topped with slices of tomato and red onion; a Caesar side salad; and a medium Diet Coke.

    • General Mills’ Yoplait is introducing Yoplait Ultra, which it describes as having 70 percent fewer carbohydrates and less sugar than regular low fat yogurt.

    KC's View:

    Published on: April 28, 2004

    Published reports say that the test that McDonald’s has been conducting with Speedpass over the past three years – allowing consumers to use the technology to pay for their burgers, fries and shakes – will come to an end. The option will not be rolled out nationwide.

    At its height, more than 100 McDonald’s in the Chicago area were using the technology, as well as a number of units in California.
    KC's View:
    Ah, well. It seemed like a good idea…

    Published on: April 28, 2004

    Figures released yesterday by the National Association of Convenience Stores (NACS) show that sales in the industry strongly rebounded from a three-year slump, with 2003 sales surging 16.0 percent over those of 2002 to reach a record $337 billion; pretax profits increased a robust 54.6 percent to reach $4.04 billion.

    NACS said that the increase in revenue dollars from those of 2002 -- $46.4 billion, the largest one-year gain ever reported -- was driven by both strong increases for in-store sales and motor fuels sales.

    The industry’s 54.6 percent increase in pretax profits reversed three years of declines: -24.3 percent in 2002, -24.6 percent in 2001 and -4.1 percent in 2000.

    The industry’s motor fuels sales jumped 21.8 percent to reach $220.8 billion, a figure that exceeds total industry sales from as recent as 1998.

    For the first time ever, the industry’s merchandise sales topped $100 billion ($101.0 billion in 2003). Total in-store sales were up 6.3 percent to $116.2 billion, driven by foodservice, which went up 13.3 percent to reach a record $15.2 billion, making foodservice the number-two in-store category.
    KC's View:

    Published on: April 28, 2004

    Mad cow disease-related developments…

    • Mexico announced that it will maintain its partial ban on U.S. beef imports, saying that it believes that the US is not taking sufficient steps to prevent the potential spread of mad cow disease.

    • The US Department of Agriculture said it will use $18.8 million this year to fund the start-up of a National Animal Identification System that is designed to identify and track animals involved with the outbreak of specific diseases.

    • In Montana, a federal judge reportedly has ordered the US Department of Agriculture (USDA) not to allow the import of shipments of bone-in beef and hamburger from young Canadian cattle.

      The judge made the move after an activist group of US farmers filed suit to prevent any relaxation of US policy.

      Not only was mad cow disease detected in Canada, but the cow in the US identified as having the malady reportedly had Canadian roots.

    KC's View:

    Published on: April 28, 2004

    • A bankruptcy court has approved a Penn Traffic request for three more months to file a reorganization plan. The move allows Penn Traffic breathing room until July 28.

    • Published reports say that UK-based Tesco’s Japanese subsidiary, C-Two Network, is in the process of acquiring yet another food retailing chain there, Fre'c.

      Tesco only acquired C-Two last year, but has been looking to expand its Japanese holdings.

    KC's View:

    Published on: April 28, 2004

    • McDonald's reported a first quarter net profit of $511.5 million, up 56 per cent over the same period of last year. Revenue for the period was up 16 per cent to about $4.4 billion.

    • Seiyu Ltd., the Japanese retailer that is 37.8 percent owned by Wal-Mart, posted a net loss the equivalent of $43.28 million (US) for the most recent quarter, a remarkable improvement over the losses during the same period a year ago, which were ten times as great.

    KC's View:

    Published on: April 28, 2004

    • Safeway Inc. announced that its Seattle division is recalling half-gallon cartons of Lucerne Chocolate Ice Cream that may contain peanuts. The company said the recalled cartons were distributed to fewer than 85 Safeway stores in Washington, Alaska, Idaho, Montana and Oregon, between April 16 and April 27.

    KC's View:

    Published on: April 28, 2004

    Yesterday, we posted a letter from an MNB user about Hispanic marketing. That letter’s last line was in Spanish, and what we didn’t know (because we don’t speak Spanish, and didn’t check) was that the last word was a profanity.

    We got several emails yesterday informing us of this, and frankly are mortified that this one got past us. To be honest, it never even occurred to us that we need to check foreign phrases for vulgarity…but we suppose that this particular illusion is gone forever. (Next thing you know, we’ll be getting a letter from the FCC…)

    Anyway, our profuse apologies to the MNB community for not catching this unfortunate use of language. We believe in spirited, passionate discourse…but not that sort of thing.
    KC's View:

    Published on: April 28, 2004

    We had a piece yesterday commenting on the ongoing federal investigation of how promotional allowances are paid by manufacturers to retailers, and said in our commentary that anything that the federal government can do to rip the promotion money heroin needle out of the arm of the supermarket industry would, in the long run, be a good thing. It’d be tough to live with in the short term, but it is in our view the only way that food retailers can get themselves to the point where they really can compete on cost and price.

    This prompted quite a bit of email. Excerpts follow…

    MNB user Fred Horowitz found the placement of our story about slotting to be particularly ironic:

    It was fascinating to me that you had the federal investigation of the institutionalized bribery system of slotting featured under the Wal-Mart piece. Although there were many valid points about how Wal-Mart leverages the lack of long-term thinking of local communities, the fundamental business opportunity that they have taken advantage of in the past 15 years is that the food industry thinks it is in the real-estate industry due to slotting, whereas Wal-Mart is committed to merchandising. Slotting is the heroin of the food industry. The best performers in the industry are “slotting” free. No matter how “even” the economic playing field becomes through local ordinances or labor law, Wal-Mart’s strategic advantage is that its competitors are not even in the same business.

    And another MNB user wrote:

    Don't you find it somewhat bizarre that Wal-Mart does exactly what you are preaching?

    We don’t think it is bizarre at all, and as usual, we find ourselves in synch with Fred Horowitz’s thinking on such matters.

    The fact that Wal-Mart makes money on the sell and virtually every major company in the entire mainstream supermarket industry makes money on the buy is one reason that we find it difficult to feel sorry for them in their battle against Wal-Mart. They handicap themselves with these payments, and refuse to do what is necessary to change the rules of the game.

    And it isn’t like they’d get any resistance from manufacturers if they decided to eliminate slotting. Suppliers would, in fact, want to hold a parade. But they keep on putting their hands out for money, stocking stores with items that are attractive because of the allowances that come with them, and wonder why they have become largely irrelevant to the shopper.

    MNB user Al Kober wrote:

    This has always been my position as a Retail Meat Director. When retailers demand money from manufacturers, where does the manufacturer get it? They can't print it. The only place they get it is from the buyer. The money goes around and around, changing hands many times. The producer has basic costs, the cost of goods, the costs of production, and their profit, needed to stay in business. That's it. Then if a buyer wants additional money the producer has to add additional cost to the product.

    That extra money goes through the distribution chain, all he way back through the system and then, maybe, back to the buyer, using many other channels, that have many different names. (Advertising funds, Bill backs, Promotional allowances, accruals, slotting fees, failure fees, trade funding, demo fees, introduction incentives, and many other phony names which do nothing more than make the system bog down and become less efficient)

    This money changes hands many times and eventually, some of it reaches all the way back to the buyer. Any extra money the buyer gets is only his own money coming back to him, only he was without the use of it for several weeks and sometime several months. Many other hands benefit from the use of that money as it circulates through the system. When the buyer finally get the money back, he thinks he did a great job buying, when in fact all he did was provide additional funds for the system to use his money, gain from it, and then return it with no interest. The buyer would be better off to just put that extra money into the bank and at least get some interest.

    The best and most efficient buying is on a net, net basis with a reputable vender. Determining true cost can be difficult, especially when the buyer and the seller do not trust each other. So it begins with selecting the right partner, building relationships built on trust, integrity and loyalty. Work on net, net, buying, allowing all the parties in the chain to stay in business by allowing each to make a reasonable profit.. It only works if every one in the entire supply chain wins. If any one loses, every one else in the chain will eventually loose too.

    The days trying to be successful at the expense of others by trying to bleed them to death is over, (or at least it should be).

    Another MNB user concurred:

    I agree this has to stop. The retailers will and must change their habits now.

    MNB user Bobby Thompson wrote:

    I totally agree with the Feds getting involved, but isn't it too little - too late? Where were the Feds while promotional dollars were being shifted to the big accounts like Wal-Mart over the last 10 years?? That's where the Feds need to start…

    We disagree. Wal-Mart doesn’t take promotional allowances. (Hell, the folks in Bentonville won’t even let you buy them a cup of coffee…) It just demands the lowest possible cost.

    Y'now what’s telling, by the way? With all the email we got on this subject, not one person wrote to defend the practice of slotting or the integrity of the promotional allowance system.

    Not one.

    Which speaks volumes.

    On to other subjects…

    Your "hardly a part of the computer generation" commentator is full of it. Most of the innovation in the industry since 1984 has come from Apple, especially in user interface: overlapping windows, icons, the mouse, true multitasking, clickable menus, color. None of those things existed in the PC world until the Mac OS.

    The best thing to come out of Steve Jobs' return as CEO was Apple's recommitment to design. Its machines and software do cool things and look cool. The Apple hallmark is the ability to make someone stop dead in front of a product and say, "WANT THAT." The Mac's core constituency remains the design/creative community, and they care about these things. You see it in the Apple Store as well.

    I mean, I want a mini iPod and I already have a regular iPod.

    User friendliness. Differentiation from the competition. Devotion to the needs of the core audience. Where have we heard this before.

    Full disclosure: I'm married to the best Mac OS consultant in metro Denver, who has been in love with the Mac since the original 128 in 1984. So it's kind of a religious issue at our house. They make me use a PC at work, but I don't have to like it.

    And another MNB user wrote:

    If they didn't (innovate), who would?

    We’ll never argue that Apple Computer will ever be Dell. On the other hand, nobody ever talks about Apple going out of business these days, thanks to Steve Jobs, who has succeeded in making Apple highly relevant to people’s lives and needs.

    That is no small success.

    On the subject of Safeway’s new prototype stores, one MNB user wrote:

    In my opinion Safeway has a long way to go to try and catch up to Wegmans or Whole Food. I’m not sure why they would even consider spending money in that market…

    And MNB user Glen Terbeek wrote:

    Isn't this just another case of a big supermarket chain defensively reacting to a competitive threat from outsiders? Safeway was one of the market leaders in the DC area years ago; why didn't they do the remodels then to keep the competitors out?

    Incidentally, I was in a Safeway store in an upscale area of Seattle last week, and it was the most unexciting store I have seen in a long while. Apparently, there was no land available for a competitive threat to challenge it! However, the "food oriented" independent grocery store in the next block and the independent meat/fish store down the road, look like they were doing very well, based on the traffic in their stores. Apparently, only other national chains are considered threats, maybe due to the fact that market share is defined at the city or regional level by financial analysts, not at the store level as defined by shoppers.

    Regarding Roundy’s looking for traction in the Minneapolis/St. Paul market, one member of the MNB community wrote:

    Not to worry, I truly believe that Roundy’s will conquer that market, I have been to Minneapolis, I have seen the stores “WOW” what a difference from what they were before Robert Mariano and his new team entered the picture. Remember if it was easy, Roundy’s would not have pursued this challenge.

    And another MNB user wrote:

    We have to give Roundy's a break on this one. Roundy's has had only 10 months to rebuild what Fleming spent years tearing down. However will Costco, Target, Aldi, Lunds Byerly's, and Cub continually adding stores while at the same time Roundy's closed 5, its going to take a while regain lost market share. Wal-Mart has its eyes on the Twin Cities also.

    Look for Roundy's to build a couple of stores so the retail development community doesn't keep them out of the loop. Recent sales figures at Rainbow indicated they are still performing somewhat below the same level they were 18 months but the bleeding has stopped. Considering Roundy's bought these profitable stores for pennies on the dollar, even with sales in purgatory they should help the bottom line.

    One MNB user wrote in about the Food Marketing Institute position on permanent repeal of the estate tax:

    FMI's comment on permanent repeal of the federal estate tax echoes the improbable dream of the Republican party. The Democrats were willing to agree to a much higher threshold, say an immediate increase to $5 mil, but not total repeal. The Republicans were greedy and insisted on total repeal or nothing. I wonder how this is sitting with family businesses adversely affected by the $1,000,000 exemption for persons dying in 2002 and 2003, or the current $1.5 mil exemption for 2004 and 2005. Perhaps the Republicans really didn't want to forgo the revenue from a $5 mil exemption and used the all or nothing position to keep the revenue while still being able to place the blame on the Democrats.

    Wasn’t it Shakespeare who once wrote, “There is nothing so rare as a Democrat at a food industry convention?”

    In response to Kmart and Martha Stewart extending their marketing deal, MNB user David Livingston wrote:

    Extending the pact until 2009 to me is meaningless. I don't think there is anyone who believes Kmart will even be around in 2009. With sales dropping at double digit rates, Wal-Mart opening stores on top of the best Kmart units, and all the free product Kmart got by filing bankruptcy disappearing, competition expanding while Kmart is stuck in the mud, etc., I seriously doubt they will be in operation for more than a couple of more years.
    KC's View:

    Published on: April 28, 2004

    As you know, we’ll be attending and providing MNB’s unique coverage of the Food Marketing Institute (FMI) Show in Chicago from May 2-4 this year…and on Sunday, May 2, we’ve decided that we’re going to be hanging out at the bar at one of our favorite Chicago bistros, Bin 36, from 6-7:30 p.m. If any members of the MNB community would like to stop by, say hello, and chat for a bit…well, the first couple of bottles of wine will be on us. (After that, you’re on your own…)

    It’ll be a great opportunity for all of us to put faces and voices with the names and words that appear on MNB, plus an excuse to drink good wine. (Not that we need an excuse…)

    Bin 36 is located at 339 North Dearborn at Marina City in downtown Chicago.

    See you there. Slainte!
    KC's View: