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    Published on: August 3, 2004

    A new University of California, Berkeley, study suggests that Wal-Mart’s employment policies are costing just California’s taxpayers $86 million annually paid in public assistance to company employees.

    The study, released yesterday, says that Wal-Mart workers in California, because they make insufficient salaries and get inadequate benefits, rely on the state for about $32 million annually in health-related services, and $54 million a year in other assistance such as subsidized school lunches, food stamps and subsidized housing.

    “When workers do not earn enough to support themselves and their families through their own jobs, they rely on public safety net programs to make ends meet," said the report, which was written by Arindrajit Dube of UC Berkeley's Institute for Industrial Relations, and Ken Jacobs of its Center for Labor Research and Education.

    The estimates made by the study – which researchers described as “conservative” - say that the approximately 44,000 workers at 143 Wal-Mart and Sam's Club stores in California earn about 31 percent less than workers in large retail as a whole, and that “23 percent fewer of the company’s workers generally are covered by employer-sponsored health insurance than workers in large retail.”

    The report concludes that Wal-Mart essentially "is shifting part of its labor costs onto the public.”

    Wal-Mart is quite naturally disputing the study and its conclusions, saying that its numbers are out of date. For example, Wal-Mart says that its more than sixty thousand California employees are paid an average of $10.70 per hour, not the $9.70-per-hour figure used by the researchers, which came from 2001 figures released as part of a gender discrimination suit. (Whichever number is accurate, the study also notes that at other large California retailers with at least 1,000 employees, the average hourly wage is $14.01.)

    Wal-Mart also defends itself by saying that it “relieves public assistance burdens by giving jobs to many people who otherwise would not be employed,” according to a story in this morning’s Los Angeles Times.
    KC's View:
    This story probably isn’t going to do a lot for Wal-Mart’s community relations efforts in California, where it has been getting a mixed reception at best.

    It must be noted that Wal-Mart isn’t accused of doing anything illegal. Just of taking advantage of situations wherever and whenever possible. The question is how communities will react to this study and what they will choose to do about it.

    The thing is, these figures don’t even take into account the tax concessions that Wal-Mart gets from communities, and the money plowed into the public infrastructure so that Wal-Mart can operate. And it also doesn’t factor in the 49 other states that likely are facing some of the same problems to varying degrees.

    These numbers don’t include the people who may have to go on public assistance because the competitors they work for wither go out of business or have to lay off employees in order to tighten their bottom lines. They don’t include the tax dollars lost when other businesses go belly-up because of the tough competition from Wal-Mart.

    Wal-Mart’s defense is not unexpected, but strikes us as a little weak. Let’s say the company’s average hourly wage is 10 percent higher than it was in 2001. And then let’s assume for a moment that this means that the amount of public assistance paid to Wal-Mart employees in various forms also is off by 10 percent. That would mean that the actual amount is just shy of $80 million…less than claimed, to be sure, but still a pretty big number (especially in a state that has been perilously close to the edge financially).

    Ultimately, when you see studies like these, you have to decide whether the apparent logic behind them passes the “smell test.” This one does.

    As a consumer, we have no interest in subsidizing retailers with anything other than the dollars we spend in their stores.

    Published on: August 3, 2004

    We finally had a chance to read the cover story in the June 2004 issue of Wired, which profiled Pixar, the computer animation company that was responsible for such hits as “Toy Story,” “Toy Story 2,” and “Finding Nemo.” The article looks at the company through the eyes of Brad Bird, who joined the company and is directing a new animated film, “The Incredibles,” that is due out later this year.

    Now, you’re probably wondering what this might have to do with retailing. But in reading the piece, there were phrases that leapt out at us, making us think about how retail businesses – or any business, for that matter – operate.

    For example, the article notes that Bird, who was partially responsible for animated projects such as “The Simpsons” and “King of the Hill” on television, and “Iron Giant” in theatres, came to the company as an outsider – the first director ever recruited from outside the company. Wired notes that this is exactly why Steve Jobs, Pixar’s chairman, and other top talents at the company wanted Bird – they wanted someone who would keep them from being complacent, who would make things unsettled.

    Bird says, “So I was brought here to cause a certain amount of disruption. I've been fired for being disruptive several times, but this is first time I've been hired for it.”

    While you might think that the company would position itself as a “creative workplace,” it ends up that this is a term that CEO Jobs hates. He prefers that it operate as a “team sport,” in which people have to function together – succeeding and failing publicly, and honoring failure because “failure is just the negative space around success.”

    There’s also a real commitment to pushing boundaries, according to Wired, which reports that every film is designed to push the art and science of animation forward is discernible ways. And when things aren’t working out, there’s a willingness to toss out expensive work in pursuit of the larger goal – quality work that resonates with viewers. “Toy Story 2” originally was supposed to be a direct-to-video project, but its mediocrity led the producers to toss out that version and create a more compelling story.

    "It was brutal, but ‘Toy Story 2’ was the defining moment for the studio," says Pixar president Ed Catmull. "We decided we could never fall into the trap of thinking, ‘Oh we'll produce crap and great movies.’ Making two kinds of films is bad for your culture. You can't do great work in the long run if you think that way." Released in late November 1999, “Toy Story 2” went on to earn $120 million more than the original.
    KC's View:
    We just thought that there were so many parallels for the retailing business in the Pixar story.

    It’s important to have unsettling influences that keep everyone from being complacent.

    Business is a team sport, and both success and failure are part of the equation.

    Every project should push the boundaries, and you can’t do great work if you are ever willing to accept mediocrity.

    Great article. And a good example of how it is possible to find inspiration and relevance in businesses that have very little to do with retailing…except, of course, it is worth noting that a retailer’s customers are, in fact, its audience.

    In other words, if you do it right, with panache and ambition and a commitment to great work, it can be “to infinity and beyond…”

    Published on: August 3, 2004

    The Business Journal of Milwaukee reports that two former executives with now-defunct Kohl’s Food Stores - Bill Koberstein, who was senior vice president of store operations and merchandising, and Dave Wojciechowski, who was director of construction and maintenance – are planning to start up a chain of 30,000 square foot stores that will focus on customer service.

    The stores will be called Country Market USA. The first is to be opened in August in Racine, and the two men hope to have five more opened by the end of next year, and have long-term hopes for 25.

    “We're going back to the neighborhoods, where Kohl's started, when Kohl's had 50 percent of the market share,” Koberstein told the Journal. “All of the small, corner grocery stores are gone. We're going to bring that back to the marketplace.”
    KC's View:
    Good for them. Nice to see this kind of ambition is still alive and well.

    Published on: August 3, 2004


    • Wal-Mart reportedly is testing 24-hour pharmacies in five stores in Arkansas and Texas.

      The company, which operates more than 3,000 pharmacies throughout the country, says it is testing the concept to perfect it before expanding it to more locations.


    • The Quebec Federation of Labor announced yesterday that it has accredited the United Food and Commercial Workers there to represent 180 employees at a Wal-Mart store in Saguenay.

      “The union represents the large majority of the store's employees,” Marie-Josee Lemieux, president of the UFCW local, said in a statement. “We hope that Wal-Mart will accept this decision and negotiate a labor contract with the union.”

      Andrew Pelletier, a spokesman for Wal-Mart Canada, said, “We are reviewing the decision. There was no vote held in the store. This appeared to be an automatic certification, and employees were not given the opportunity to vote on the issue on unionization in a democratically held election, which is of enormous concern.”

    KC's View:
    Wal-Mart won’t take this well.

    Hate to say it, but if we have to make a pick in this horse race, we’d pick Wal-Mart...just because it always seems to have the greater will.

    Published on: August 3, 2004

    The Washington, D.C.-based Center for Individual Freedom has accused Subway, the sandwich chain, of being unpatriotic because its tray liners in Germany show an overweight Statue of Liberty. The headline on the liner: "Why are Americans so fat?"

    The liners are designed to promote the German release of “Super Size Me,” the documentary that shows what happens if you only eat McDonald’s food for 30 days.

    "It is appalling that Subway, a U.S. company, would attack Americans and the Statue of Liberty, our most recognizable symbol of freedom, in a time of war just to gain market share," the Center's executive director, Jeffrey Mazzella, said in a statement.

    U.S. Rep. Tom Delay of Texas, the House Republican leader, also criticized the Subway campaign in Germany.

    Subway's president and founder Fred DeLuca pointed out that the German franchisees are anything but anti-American, considering that they spent a lot of money bringing an American brand back to their country. But Subway has ended the promotion early in the interest of blunting the criticism.
    KC's View:
    Remarkable. The nation is at war, dealing with terror threats of a highly specific nature, and yet some people seem to have enough time to criticize place mats in a German fast food restaurant.

    After this, Germans are going to be sure of two things: that many Americans are fat, and that at least some of us don’t have a sense of humor.

    Published on: August 3, 2004

    A new study from Retail Forward suggests that small format value retailing, including dollar stores, will remain a “high-growth darling of food, drug, and mass retailing over the next five years.”

    “The small format value retailing sector is on a rapid expansion trail and market saturation is more than a decade away,” says Sandy Skrovan, author of the report and a vice president with Retail Forward. “We expect market leaders to continue their rapid growth course, extending their appeal as a convenient, easy-to-shop value alternative to big box stores,” she adds.

    Retail Forward projects 8,000 more stores to open in the next five years and anticipates the pace of sales growth for small format value retailers to be as strong in the coming years as it has the last five.

    Small format value retailers grew nominal sales at an average annual rate of 6.1 percent (5.6 percent after removing inflation) over the last five years. Retail Forward forecasts sales growth of 7.5 percent in 2004 and an average annual pace of 6.2 percent through 2008 as the channel continues to benefit from continued rapid expansion, same store sales growth, and efforts to increase shopper traffic, shopping frequency, and average ticket size.

    Next to supercenters, according to Retail Forward, dollar stores remain the fastest growing channel among food, drug, and mass retailing. And while the weak economic climate of recent years may have initially driven shoppers to “try” small format value retailers, leading players in the channel are extending their appeal to multiple consumer segments. According to Retail Forward’s ShopperScape™ consumer survey, over one-third (36 percent) of all US households regularly shop the format on a monthly basis.

    As for the future, “Rapid growth will likely strain the existing infrastructure of leading dollar stores and other small format value retailers,” Skrovan says. “Players in this sector will need to continue investing in infrastructure – e.g., distribution and logistics network, inventory controls, and other information systems – to stay ahead of the expansion curve.”
    KC's View:

    Published on: August 3, 2004

    A Texas-based genetics company has concluded that at least some of the “certified Angus beef” sold in this country isn’t actually Angus beef at all.

    Angus beef generally costs more because it is considered to be more flavorful.

    The scientists tested 560 cuts of beef labeled as Angus to see if their genetic lineage was at least 50 percent Angus. The results were all over the map, with some cuts not even 50 percent Angus.

    The folks at certified Angus Beef tell USA Today this morning that they have never claimed that beef given the label is a “pure breed,” and that the criteria for certification include marbling and age.

    This story comes just weeks after a study conducted by scientists at the University of North Carolina said that of 22 samples of red snapper from eight states - Delaware, Florida, Illinois, Massachusetts, New York, North Carolina, South Carolina and Wisconsin – only five were actually red snapper.
    KC's View:
    We’re not sure that ultimately this is a big deal. After all, does it really matter if beef is 50 percent Angus or 75 percent Angus if it tastes good?

    But there could be consumer questions that need to be answered, especially because a lot of shoppers (us included) just assumed that an Angus cow was an Angus cow. Mixed breeding never even entered our mind.

    Imprecision can be viewed by some as deception, and the folks at the various companies that sell Angus beef are going to have to be willing and able to answer consumer queries.

    Published on: August 3, 2004

    Starbucks Corp. reportedly is considering raising its prices next year, the first time it has hiked the cost of a latte since it had a seven percent increase in August 2000.

    There are two reasons for the possible increase. One is that higher milk and green coffee bean prices have put a crimp in its margins.

    The other: Many of Starbucks’ competitors reportedly are charging more, and the company is convinced that a price increase won’t bother consumers.
    KC's View:
    We actually think that people won’t mind Starbucks’ price increase, but we wonder about the “other companies charge more” logic.

    The thing is, how many people regularly patronize both Starbucks and its competition, and therefore are able to easily compare prices? We only know how expensive a venti skim latte is at Starbucks, and we’ll only know how much the price goes up.

    Published on: August 3, 2004


    • Krispy Kreme may be the subject of a US Securities and Exchange Commission (SEC) investigation, but that doesn’t mean that it is slowing down.

      The company announced yesterday that it is preparing for its first stores in Asia, opening later this year in the Republic of South Korea. The company plans to open approximately 25 stores there over the next five years.

      And apparently it isn’t too committed to the low-carb lifestyle. Its “Doughnut of the Month” is an Apple Cobbler doughnut, which has an unglazed, yeast-raised shell stuffed “with real apple filling, coated with creamy white icing, and topped with oat crisp krunch.”


    • While the United Food and Commercial Workers Local 781 has authorized a strike against Shaws now that the contract between the two has expired, published reports say that the two are continuing to negotiate over health care issues.


    • The Wall Street Journal reports this morning that Frito Lay has settled a federal lawsuit brought against it by Chicago-based Jays Foods that charged Frito with doing comparative advertising that was false and misleading. The settlement was sealed and not made public.

    KC's View:

    Published on: August 3, 2004


    • Publix Super Markets reported that second quarter net income grew 23.5 percent to $199.4 million, compared with the second quarter a year ago. Sales were up 10 percent to $4.5 billion, and same-store sales were up 4.9 percent.

      For the first half of the year, Publix had sales of $9.2 billion, up 9.1 percent over a year ago, and income was $402.8 million, up 15.5 percent.


    • Procter & Gamble Co. reported fourth quarter earnings of $1.37 billion, up from $955 million in a same period a year ago. Sales increased to $12.96 billion from $10.92 billion a year earlier.

      For the fiscal year, P&G earned $6.48 billion on sales of $51.4 billion, up from 2003 earnings of $5.19 billion on sales of $43.3 billion. It was the first time that P&G’s annual sales topped $50 billion.

    KC's View:

    Published on: August 3, 2004

    Interesting email from a member of the MNB community:

    Not pertaining to anything specific you have written lately.....

    I live in a neighborhood served by Safeway, Albertson's and a high quality independent. For convenience I might shop any of the three.

    Larry Johnston puts out high-minded communiqués regarding his company's strategy, but he has yet to figure out how to make his store employees be courteous, much less helpful. I defy you to find any employee who will even make eye contact with a shopper.

    At Safeway, every person from the box boy to the manager greets you with eye-to-eye contact, asks if you have found everything, and personally guides you to an unfound item. Some anecdotal research tells me this contrast is not limited to the stores I frequent.

    Idealistic jabbering from a company's chief is not nearly as effective as being nice to the folks paying the bills. Albertson's seems to truly dislike customers.


    Not a good sign when an actual customer makes these kinds of observations.




    We had a piece yesterday about the tough competition taking place in Cincinnati, to which MNB user Glen Terbeek replied:

    Isn't it interesting that the answer to competition is to throw more stores at the problem? Is the Cincinnati market growing that fast to support 10 supercenters and six new Krogers, plus every other format selling food? But I guess that is what happens when management is centralized and regional market share is the measurement.

    On the other hand, Dorothy Lane and Jungle Jim's focus on winning the loyalty of their targeted shoppers in each stores trading area. I would guess that their return on space and return on loyal shoppers is better than the big guys. Space and true loyal shoppers; the two key assets of any retailer.

    That is hard to achieve from a central, regional market share organization and measurement attitude.


    And MNB user Dan Raftery offered:

    Good slugging it out analogy. Maybe add to it this: A wise person, caught near a brawl, minds their own business, rather than joining the fray. Only one side can win the brawl, but both could lose. And afterward, the wise person could be stronger than both, regardless of who wins.

    Another MNB user wrote:

    One difference for the Cincinnati area, is that it is the national headquarters for Kroger. If Kroger cannot hold the market share in its backyard, then things are not looking good for them.

    Also, Wild Oats is starting to become a player in this area as well.





    Responding to our piece about the USA Today survey suggesting that more people want low-calorie foods than low-carb foods, MNB user David Foreman wrote:

    It is mentioned that of those seeking to LOSE weight, “just 37 percent were cutting carbs.” Hmmmm 37%, I wonder why that is preceded with the word ‘just’? Another source in today’s news has the Hartman Group citing that 160 million Americans (not necessarily looking to lose weight) are ‘watching carbs’.

    Of course, 58% are looking for higher fiber. Those of us who do watch carbs (not trying to lose weight) keep a close eye on fiber content, as we know that higher fiber = lower bad-carb impact. Wonder why they didn’t ask the fiber watchers if they were ALSO carb watchers??

    Strange that trans-fats did not come up in this one…..

    As a manufacturer of organic, trans-fat free, higher fiber and reduced carb snacks, somewhere between ‘just 37%’ and 160 million sounds like a pretty decent market to us! We’ll take it!


    We think the “just” really was in comparison to low-calorie. Clearly, 37 percent is a sizeable percentage.




    We recently reported on a column in the Seattle Post-Intelligencer by writer Bill Virgin, in which he noted that despite the fact that there was a certain amount of outrage a few years ago surrounding privacy concerns connected to loyalty marketing cards, it has ended up being much ado about nothing.

    Virgin wrote that the cards have become ubiquitous despite concerns because consumers learned to live with them, figured that retailers weren’t learning anything about them that wasn’t public knowledge already, and realized that they need the cards to get the best prices. And besides that, these same consumers often had loyalty cards for numerous stores and used them to cherry-pick products, meaning that they weren’t really loyalty cards at all.

    These days, he wrote, the challenge for retailers is to figure out how to attach special products or services to the cards so that people actually will be more loyal to specific stores.

    To which one MNB user responded with a certain level of skepticism:

    The Seattle Post-Intelligencer and writer Bill Virgin (and others) are stirring the pot. Privacy concerns are alive and well for good reason. When consumers are lulled into providing sensitive information they experience issues like today's internet, in boxes so full of junk mail you have trouble finding the mail you need, or worse. Privacy has been and will be abused if consumers agree to provide "sensitive information" to business. Wish we could trust them but the papers are full of examples of trust abused. When will retail decide they don't need your information but provide you with a card based on store data only. They can track my purchase as long as they wish but don't send me unwanted mail, e-mail or phone messages. It sad, I'm in the business but don't trust my brothers and sisters.

    Another MNB user wrote:

    The story that grocery executives would have you believe is that these loyalty cards "reward" the card holder. Nothing could be further from the truth. All stores that use these cards raise all their retail prices to the roof before starting the loyalty program and then give the cardholder some meager pittance discount off the already stratospherically high shelf retail. Loyalty marketing is a scam, pure and simple, whose only goal is to raise retails and gouge the shopping consumer. The cardholder only gets gouged a little less than the poor unfortunate shopper who comes into the store without a card.

    The idea that these cards are the basis of information gathering that lets the store get to know their customer better and tailor promotions for them is bunk, too. That kind of marketing data analysis requires expensive computer power and human expertise and even more importantly a customer centric focus that few of the major chains posses or have any interest in obtaining. The only analysis that might be performed on the data is to find elasticity information on frequently co-purchased items. In other words the chains are looking for information to help them RAISE prices and not to do anything remotely resembling rewarding the frequent shopper. Anyone who doubts this should review the procedures for obtaining a loyalty card from their local grocer. In 99% of the cases no ID is required and no one even pretends to give a cursory glance at the data you provide. The number of shoppers named Elvis, Tupac or Bill Clinton must be enormous. Why don't the chains care about the quality of this data? Because they don't care about the customer. The card gives them a tracking number to track basket orders and that's all they care about since there was never any intention to give the individual customer an individually tailored reward the quality of the personal data is immaterial.

    Ask your readers if they have ever received any "rewards" for the use of these cards. As consumers and shareholders we should be asking the executives of these grocery companies why they go to such great and expensive lengths to bamboozle the shopper instead of just passing the monies spent on these technology boondoggles on to the customers in the form of lower prices.


    And MNB user Joel Warady chimed in:

    The issue is not with the concept of loyalty programs; the issue is with the execution of the programs by the retail groups who have initiated the programs. As stated previously, loyalty cards have become nothing more than a method of offering discounts on products. Discounts, and low prices, do not evoke loyalty. They, in fact, do just the opposite. They train the shopper to always shop based on price, as opposed to service, selection and quality.

    On the other hand, if the execution were better, here is what the program could provide the consumer. As the consumer shops, and the massive amount of shopping data is collected, the retailers would begin to understand the consumer better, and understand the consumer's shopping habits, and ultimately allow for a better shopping experience. Here is where I see the programs going within the next few years. Currently, the retailers do not ask for the card until the shopper is done shopping, and is ready to pay for their groceries. This will change. I believe that the retailers' shopping carts will have card readers installed, with small flat screen monitors. A shopper walks in, takes a cart, swipes their card, and the customer's profile is now loaded onto the screen. In addition, all of the customer's past purchases are available for the customer to review, along with what they paid for the product in the past. If you give more information to the customer, you help the customer become a better and more informed shopper, and ultimately a more loyal customer. The loyalty program will make purchasing suggestions specific to that customer while they are shopping, and this mass customization of marketing will also result in additional loyalty to the retailer, if in fact the recommendations are meaningful and relevant. Finally, and this is most important, the loyalty program, if done correctly, should and will create a 2 way dialogue between the customer and the retailer. When retailers start to ask customers what they want, and then they give it to them again and again, the customers will remain loyal. But you need to constantly talk and listen to the customer.

    No retailer will gain 100% of the customer's wallet share, but the goal of the retailer in using a loyalty program is to gain as large of a customer's wallet share as possible, by satisfying each customer's needs on an individualized basis. This is what is supposed to happen, and when a US retailer gets it right, they will have the best chance of winning.

    By the way, a great book to read on this subject is Scoring Points by Clive Humby. It takes your through the origins and execution of Tesco's (UK) Clubcard program, which is one of the best loyalty programs in the world.


    Yet another MNB user wrote:

    The only thing loyalty cards did was add expense to conventional supermarkets--increasing the difference in pricing between-Wal-Mart, Costco, WinCo's, etc. who have opted not to use this marketing? tool.

    In addition, having to pull out the rolodex of cards at each store decreases convenience--which is one of the most basic advantages the supermarkets have over the Big Boxes.

    I am not sold yet.


    And another MNB user offered:

    My wife has every Loyalty Card made, making her wallet the size of a day planner. The bottom line is price reductions are funded primarily by the manufacturers. You can generally buy "XYZ" brand at 2/$5.00 with the card, or shop at a retailer with out a card program and also pay 2/$5.00. As a consumer, I refuse to carry all the cards (or key tags). I will purposely
    shop retailers with out them, because I hate being forced to pay full retail because I don't carry a card.

    Secondly, to maximize the data available, retailers need to share with manufacturers and ask for their support. Target marketing is costly, with a slow rate of return. Instead, many retailers have turned this opportunity to build their consumer base into a profit center, and they wonder why most manufacturers don't participate. "Hello, is anybody home?”


    And another member of the MNB community wrote:

    KC, you make good point about retailers not mining the specific data and keeping the data cleaned. I worked for a retailer once that issued a frequent shopper card. Over the years they never updated the data base using change of address information provided by the post office. They misspelled addresses making them almost impossible to geo-code. It resulted in useless information. In fact, if they had uses the information for marketing purposes, it could have resulted in making expensive mistakes from using the flawed data.

    I've worked with other retailers who have kept the data clean and updated with a 93% accuracy rate of geo-coding customers. This results into having near perfect market share information by neighborhood. We can then monitor where we are improving or losing sales. We can accurately define our primary trade area and improve the accuracy of our sales projections and sister-store impacts.

    When a new competitor opens we can define which customers have reduced shopping with us and target market those customers to get them back in our store.
    KC's View: