retail news in context, analysis with attitude

MNB Archive Search

Please Note: Some MNB articles contain special formatting characters, and may cause your search to produce fewer results than expected.

    Published on: June 18, 2004

    Notes and commentary from Day Two of the 2004 CIES World Food Business Summit

    ROME – Never let it be said that events such as this one don’t occur in the real world, and don’t focus on significant and immediate issues.

    After all, in the “real world” this week, there was a report in the Wall Street Journal that concerns about the obesity epidemic may in fact be having an impact on the number of cookies consumed by Americans, as “the number of bar-coded cookie boxes sold last year fell 5.4%, the third consecutive year of decline.” Sales of Kraft’s Oreos alone dropped nine percent, according to the report.

    This puts tremendous pressure on cookie manufacturers, who are torn between two imperatives – they have to satisfy investors by constantly expanding profits, and they have to be sure not to alienate consumers by ignoring constantly expanding waistlines.

    It is this tension – both real and perceived - between commercial concerns and societal issues that was front and center during Day Two of the annual CIES World Food Business Summit here. Coming after an initial set of sessions during which it was argued that capitalism and moral behavior are not mutually exclusive, the day’s discussions about obesity issues were a reminder that sometimes they may be exactly that.

    Not that any of the speakers would have conceded the point. But the passion of their messages suggested that they are resolute in their commitment to their positions.

    Take, for example, Dr. Marion Nestle, author of “Food Politics” as well as a professor of nutrition, food studies and public health at New York University, pointed out that in a highly competitive market, food marketers have only two choices – “to get customers to choose your product instead of someone else’s, or to get people to eat more food.” In such an environment, she said, “obesity is collateral damage.”

    Nestle castigated the food industry for its “eat more messages,” for making health and nutrition claims that she suggested were scientifically indefensible (even though current US law allows them), and for spending $34 billion a year market foods that, for the most part, make up the smallest part of the food pyramid as the foods people should eat the least.

    She specifically cited Tropicana’s new “Light and Healthy” orange juice, which claims to have less sugar than traditional juice; she noted that the company seemed to achieved this simply by adding water. And she noted that when Kraft came up with a low-calorie version of its 53-calorie Oreo, they managed to get the per-cookie calorie count down to 47. (Nestle may have been the only person in the room who would have seen the WSJ story about the drop in Oreo sales as good news.)

    Portion size also came in for criticism. “Studies show that if you put large portions of food in front of a person, they’ll eat more, even if they’re not hungry,” she said. And Nestle accused the industry of “crossing an ethical line” in its marketing to young people, which she said encourages them to pester their parents for specific brands and products that simply are not healthful.

    Nestle suggested that industry players “are on the wrong side of the issue” if they oppose governmental actions to deal with obesity, but also said, “You are in a terrific position to be part of the solution.” The key, she said, is to serve smaller portions of healthier foods, and create price breaks so that such products are not more expensive that their less healthy counterparts. (She even suggested, in a comment that left most of the business people in the room incredulous, that retailers and manufacturers ought to be reducing their portion size. “Why do companies have to grow?” she asked. “If you are a company that makes $20 billion, why isn’t that enough?”

    The two speakers who followed her work for companies that have specialized in growing sales – E. Neville Isdell, the new chairman/CEO of the Coca-Cola Co., and Mats Lederhausen, managing director of McDonald’s Ventures for the McDonald’s Corp.

    Their response to Nestle’s proposition was to suggest that their brands’ power was in offering consumers a wide variety of choices. “A portion for every appetite” was how Lederhausen put it. And Isdell noted, “Fifty years ago, Coke made one product that came in one bottle. Today, we make 400 different beverages in thousands of different packages.” There has been, he said, “an explosion of consumer choice” that puts the responsibility for making informed choices squarely on the individual.

    Indeed, Isdell noted that “there is a very good argument” that the industry in general has done enough in this area, creating a wide range of choices of high quality that are both affordable and available. And he said, “It is well worth reflecting on the magnitude of this sector’s accomplishments.

    And Isdell seemed to put the onus squarely on consumers’ preferences when he quoted 20th century economist Joseph Schumpeter, who once said, “It is not enough to produce satisfactory soap. It is also necessary to induce people to wash.”

    Lederhausen framed McDonald’s approach to the problem also as providing choice, but also as creating educational tools that focus consumer priorities on the issue. And he seemed to want to cover all his bases when he said, at one point, “Isn’t it interesting that every conversation about responsibility ends up being about someone else’s responsibility?” Later, though, he conceded, “We have to recognize our enormous responsibilities.”

    So what to do? For a food company, how much attention to this issue is enough? And how much is too much, because it may inhibit the profit motive?

    In some ways, it seems an insurmountable tension, especially when put into context by speaker Charles Handy, a social philosopher and management scholar, who suggested that in what he termed “a relationship economy,” it is the connection between brand and consumer that allows certain companies to escape the curse of commoditization.

    And the chairman of Vodafone, Lord MacLaurin of Knebworth – who was just Sir Ian MacLaurin when he was chairman of Tesco – certainly seemed to echo these sentiments. “Increasingly, the balance of brand success is shifting to things you cannot touch, to the intangible qualities of a brand,” he said. “You have to get the balance right between the tangibles and the intangibles,” and he suggested that “the intangibles create the context within which people relate to the brand.”

    So maybe the question isn’t “How much is enough?”

    Maybe the question is whether the obesity question is a tangible or an intangible issue for the food industry.

    In all likelihood, this question wouldn’t generate any more agreement among Nestle, Isdell, Lederhausen and the rest than any other question. After all, Nestle noted at one point that the things she heard the food industry saying “are very much like what we used to hear from the cigarette companies when they were under attack,” denying culpability while pushing for choice, personal responsibility and lack of government intervention.
    KC's View:
    To be honest, while we agree with many of Nestle’s points, that seems a little harsh. Even if the food industry hasn’t made all the right moves in dealing with the obesity issue, it can be fairly said that many companies are trying to find their way through a complicated maze made up of conflicting science, public attitudes, and investor pressures.

    That’s no easy thing.

    But Lord MacLaurin made an excellent point when he said that brands need to stand for consistency (something he was largely responsible for during his tenure at Tesco), and that it is critical that marketers “understand the underlying significance of the business you’re in.”

    Is the food business responsible for helping consumers to eat healthy? To help the shopper make informed, intelligent decisions? To provide a plethora of choices appropriate to the consumer base? And to even allow for consumer indulgence?

    We would say “yes” to all of the above. And that the industry is not there yet.

    The key to making this happen, it seems to us, is forthright communication based on honest information.

    Not easy. And sometimes, a perilous course.

    Just this week, for example, it was revealed that Subway has created a series of advertisements that focus on childhood obesity, featuring actual children who lost weight through a combination of diet and exercise. But the ads haven’t run yet, in part because the networks won’t play them.

    Of concern is the recent Federal Trade Commission (FTC) ruling that KFC broke the rules when it suggested in commercials that fried chicken was a low-carb, healthy food that could help you lose weight. Nobody wants to be on the wrong side of a federal ruling, so everybody is walking carefully.

    “Honest information,” it appears, may be in the eye of the beholder.

    Published on: June 18, 2004

    Albertsons announced yesterday that it is getting out of the Omaha market, disposing of its 21 stores in Omaha, Bellevue, Grand Island, Nebraska and Council Bluffs, Iowa.

    According to reports, in Nebraska, five stores in Omaha and Bellevue will be sold to No Frills, six in Omaha and Grand Island to Bag 'n Save Inc. and the patient prescriptions from nine Osco drug stores in Omaha to Walgreen Co. The one Osco drug store in Council Bluffs, Iowa, is being sold to Hy-Vee.

    The terms of the various deals were not disclosed.

    The move is part of Albertsons’ strategy to be number one or two in all the markets where it operates, or to get out.
    KC's View:

    Published on: June 18, 2004

    • At a three-day RFID meeting this week in Springdale, Arkansas, Wal-Mart reportedly told its top 100 vendors that the January 2005 deadline – by which time their products being shipped to three distribution centers and 150 stores must be tagged – remains intact.

      By June 2005, three additional distribution centers and another 100 stores will be included in the RFID loop, and by October 2005 another 800 stores will be added to the list.

      Tier two suppliers – made up of another 200 companies, have until January 2006 to meet the tier one companies’ October deadline.

      Wal-Mart also reportedly promised to share movement data with the companies, apparently in the hope that improved information flow will encourage the vendors to meet the established deadlines.

    • One hot rumor coming out of CIES was that Wal-Mart has its corporate eye trained Down Under, looking to acquire a major retailer there.

      Sources tell MNB that John Menzer, CEO of Wal-Mart International, was telling folks at CIES that he has a trip planned for Australia, and is looking at Woolworths (also known as "Woolies") there – which operates . some 1,500 supermarkets, general merchandise, and electronics stores.

    KC's View:
    Put another retailer on the barbie, mate…

    Published on: June 18, 2004

    Global notes & commentary from…

    The past few weeks have certainly been tumultuous for clothing-to-food retailer Marks & Spencer. First it was forced to deliver a poor set of annual results, then it was the target of a takeover bid by Philip Green's Revival Acquisitions, which in turn prompted the hasty removal of its beleaguered CEO Roger Holmes and chairman Luc Vandevelde, followed by the appointment as CEO of veteran retailer Stuart Rose along with his long-time colleagues, Charles Wilson and Steven Sharp.

    The task facing the new management team is quite considerable. Primarily, it needs to arrest dwindling sales in the retailer's key sectors (Clothing, Home and Food). This will involve taking a close look at branding, merchandising, quality, price and fashionability, all of which have been heavily criticised. Rose has already stated that his first priority is to take the retailer back to basics taking "the best elements of the past and updating them". Further, he is to halt the expansion of the standalone food stores while he assesses the viability of the chain.

    As part of this process, decisions need to be made about the store environment and the product range. With the much-vaunted Lifestore failing to meet initial sales expectations, Vittorio Radice's little experiment in furniture retailing is beginning to look like a costly white elephant.

    Furthermore, a question mark continues to hang over the viability of the US King's business. Accounting for just under 3% of total turnover (GBP390 million), Rose is likely to see it as an unnecessary distraction which should be= disposed of, even if at a knockdown price.

    Even though there has been much hype about the success of the new '&more' combined credit and loyalty card, there has been no appreciable increase in sales through the Financial Services operation. Further, operating profits for the business unit have tumbled by 41% largely reflecting launch costs.

    In the background is the ongoing rationalisation process both in terms of the supply chain and the culling of head office staff numbers, which are set to fall by 1,000 in the next two years.

    These decisions are unlikely to occur without casualties. The first took place on Wednesday 9 July with the departure of Vittorio Radice (previously executive director - clothing, home and store development) to be replaced by Maurice Helfgott, director of food. Other positions that could be on the line include Yasmin Yusuf (director - creative director for clothing) and Laurel Powers-Freeling, CEO of Marks & Spencer Money.

    In February 2000 when Luc Vandevelde joined M&S he was charged with the job of turning around the company's fortunes. Sales for UK Retail had been progressively falling and within the first year of joining the business they staged a comeback with turnover growing by 4.5% followed by 6.8% the following year. However, the recovery now looks short lived with retail sales in the UK last year growing by a muted 1.8%.

    Overall, Home has seen the largest decrease in year-on-year sales growth; this happened despite the introduction of new ranges and a new concept furniture outlet, Lifestore, which opened last February in Newcastle. Lifestore is the brainchild of flamboyant Italian Vittorio Radice and was designed to herald a new concept in furniture retailing featuring a unique full-sized, two storey house enabling the retailer to showcase new lifestyle ranges. However, sales for the second half of the year were down on last year with the product deemed too contemporary for traditional M&S customers. As a result the offer is being repositioned in an attempt to broaden its appeal, with a second modified store set to open in Kingston later this month.

    In clothing, women's and childrenswear have been the main areas for concern with sales down on last year, although menswear and lingerie have performed well. The core womenswear range has been criticised for its lack of fashionability and poor value for money. The company has tried to address flagging sales with the introduction of numerous sub-brands (such as Per Una and Blue Harbour) over the past few years, which segment and more accurately target M&S' diverse customer groups. Although these moves have been successful, it is the core M&S brand that is having problems and needs addressing. Catering for a broad customer group creates difficulties in targeting specific age and income groups, making sub-brands a more successful formula but leaving the generic brand hanging in the balance.

    In order to address criticisms about merchandising and the store environment, earlier this year a new store format was rolled out in Speke, Liverpool. The new outlet features a new store layout, improved fixtures, an instore cafe and internet ordering, and is designed to reflect a sense of fun and new branding. Rose must now decide whether to extend the learnings from this store to other outlets.

    Food is the other key area that is struggling. Growth has been driven over the past year by new store openings with the business showing weakening like-for-likes. The retailer has been aggressively expanding its new Simply Food convenience business, with 40 stores opened last year alone, as well as the rebranding its 26 traditional neighbourhood stores as Marks & Spencer Food. It had proposed opening 50 to 60 Food stores and 150 Simply Food stores over the next few years. However, over the past year these food-only branches have suffered from their lack of clothing with average customer spend lower in these standalones than in their traditional combined stores.

    Furthermore, competition within the grocery market has intensified both in terms of price and product range, with customers drifting away. Combined with higher costs from these smaller stores than in larger outlets, Rose has decided to halt their expansion until further analysis is undertaken.

    Rose has a huge job ahead of him sorting out both operational and logistics issues across the company. However, he is unlikely to be able to make any significant changes to the clothing lines before next year, with Christmas ranges having already been bought in. Nevertheless, some big decisions may be made regarding peripheral businesses such as Home, Food, Financial Services and the US, enabling him to concentrate on the core clothing offer.

    Additionally, he is likely to have to fend off further advances from Philip Green (the latest occurring this week) to acquire the company. If Green succeeds in his ambition, no one doubts the ferocity with which he will cut costs in the supply chain and change the shape of this behemoth forever.
    KC's View:

    Published on: June 18, 2004

    Advertising Age reports that at a conference in New York City, McDonald’s chief market office, Larry Light, said that the company was moving away from mass marketing and toward a technique that he termed “brand journalism.”

    "Any single ad, commercial or promotion is not a summary of our strategy. It's not representative of the brand message," he said. "We don't need one big execution of a big idea. We need one big idea that can be used in a multidimensional, multilayered and multifaceted way." It is, he said, “the end of brand positioning as we know it.”

    Light said that whereas two-thirds of McDonald’s ad budget used to be devoted to mass marketing, that amount has been cut to one-third.
    KC's View:
    It is a measure of how companies like McDonald’s want to create the illusion that their spin on the facts are actually factual that they use terms like “brand journalism.”

    What they are doing has nothing to do with journalism. It is propaganda, pure and simple.

    Targeted marketing, fine. That’s a more accurate portrayal. But let’s not call it journalism.

    Published on: June 18, 2004

    • In Seattle, the United Food and Commercial Workers (UFCW), calling the most recent contract proposal made by Albertsons, Safeway and Kroger - which owns QFC and Fred Meyer – “unacceptable,” has decided to ask consumers to pledge not to shop at those stores if they refuse to provide affordable health-care coverage.

      The contract between the some 17,000 unionized employees and the chains expires on June 25.

    • The Newark Star-Ledger reports that Kings Super Markets may be back on the sale block, a victim of the corporate turmoil at its parent company, Marks & Spencer.

      As Marks & Spencer fends off takeover bids and tries to develop a strategy that will allow it to remain independent, speculation is that Kings may become disposable – even at a loss.

      Marks & Spencer has tried to sell Kings several times, but the deals ultimately have collapsed. Then the company said that it would keep the grocer and allow new management to turnaround its fortunes.

    • Supervalu announced that 30-store Haggen Inc., a longtime customer of the wholesaler based in Washington State, will be transitioning its business to another, unnamed wholesaler later this year.

      Jeff Noddle, Supervalu’s chairman/CEO, said, "We always regret the loss of a valued customer and will work diligently as we transition this business. As capacity issues still loom in our industry, the challenge is to determine the best economics for both parties and allocate our resources accordingly. Unfortunately, the economics to maintain this account were not satisfactory."

      The loss of business volume is not expected to have a material impact on Supervalu’s fiscal 2005 earnings.

    • Following on the heels of Coke’s ands Pepsi’s introductions of mid-carbohydrate colas, Cadbury Schweppes reportedly is eyeing the segment, prepared to bring out its own mid-carb drink if the initial results look promising.

    KC's View:

    Published on: June 18, 2004

    • 7-Eleven Inc. posted May 2004 sales of $1.09 billion, up 16.8 percent over the May 2003 total of $930.3 million. Total merchandise sales for the month reached $699.5 million, up 7.8 percent over the May 2003 total of $648.9 million. Same store sales were up 7.8 percent for the period.

    KC's View:

    Published on: June 18, 2004

    • 7-Eleven Inc. posted May 2004 sales of $1.09 billion, up 16.8 percent over the May 2003 total of $930.3 million. Total merchandise sales for the month reached $699.5 million, up 7.8 percent over the May 2003 total of $648.9 million. Same store sales were up 7.8 percent for the period.

    KC's View:

    Published on: June 18, 2004

    We probably wouldn’t take note of this story ordinarily, but since we’re just blocks from St. Peter’s…

    The Vatican actually created some news this week when it announced that while it regrets the Inquisition – a time during the 15th and 16th centuries when people were burned at the stake because of alleged infractions against Church law – it needs to established that in fact fewer witches were burned at the stake and fewer people tortured into religious conversions than previously believed.

    In fact, one spokesman said that “torture and sentences of death were not as frequent as have long been thought," and described such circumstances as “relatively modest.” And another Vatican theologian described images of the Inquisition as “more myth than reality.”

    Well, this former altar boy is glad they’ve cleared that up. Though we’re glad they waited until after Mel Brooks’ “History of the World, Part One,” a terrible movie that has one great scene – a Busby Berkeley-style song-and-dance number called, naturally, “The Inquisition.” (We were going to reprint the lyrics, but thought better of it - they might offend even more people than usual.)
    KC's View: