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    Published on: March 22, 2005

    One in a series of articles previewing FMI 2005

    Statistics show that people go to supermarkets less than they used to – in part because there are so many more places to buy food. The closing session of this year’s Food Marketing Institute (FMI) show will be focused on helping retailers out-strategize their competitors…lessons that will be delivered by Art Turock, who is one of the most popular speakers and facilitators in the business.

    To get a preview of the approach that he’ll be taking at FMI this year, in the Super Session called “Driving Profits By Making Your Competitors Irrelevant,” we engaged Turock in an exclusive e-interview.

    MNB: You talk about “making the competition irrelevant” and “minimizing the competition.” Does that mean accepting the fact that customers have lots of options, and finding ways to compete in which you are not so much “better” than the other guy, but “different,” offering products and services that are unique?

    Art Turock: To make it worthwhile for attendees who stay until my closing session, I’ve raised the bar. Rather than talking about incremental growth or surviving, my focus is about “make the competition irrelevant.” Competitor-proofing strategy demands three qualities - being customer relevant, being unique from competitors, and being hard or disadvantageous for rivals to copy.

    The strategy of “making competition irrelevant” requires an accompanying phrase--“for your target customer.” Retailers who achieve sharp differentiation begin by deciding what customers they will win and which ones they are willing to lose. Conventional supermarkets attempting to adequately serve the needs of a mainstream shopper are actually attracting more competition.

    My FMI presentation will reveal four minimally contested segments: unwanted customers, underserved niches, neglected mass markets, and specialized shopping trips.

    MNB: Do you think that a key reason supermarkets have trouble differentiating is that executives think tactically rather than strategically, which these days is almost like rearranging the deck chairs on the Titanic? Can you give an example?

    Art Turock: Supermarket executives aren’t rigorous in using these terms. Many FMI attendees will hear an array of marketing tactics and return to their office suffering from conference fever, as evidenced by a compulsion to copy the latest “tactic in vogue.” Notice the tactical reasoning: “Dollar stores are growing, so let’s put in a dollar aisle. Organics are hot, so let’s add 8 feet to our produce department.” All too often, these moves are made without considering the broader strategic issues about whether the tactic fits for the chain’s target customers and core value proposition.

    Strategy is an integrated set of decision criteria for selecting tactics. Tactics are the actionable answers to the questions posed by thinking strategically.

    Make no mistake about it—Wal-Mart and the other alternative formats are thinking strategically as evidenced by their retail format innovations. Conventional supermarkets are never at a loss for tactical moves, but are being out-strategized by the alternative formats.

    My FMI program will offer tools I’ve tested in consulting work for insuring that a senior management team stays focused on discussing strategic issues rather than having the conversation easily drift into the customary tactical matters.

    MNB: You seem to think that one of the best ways for a supermarket to gain is by being willing to lose – lose unprofitable customers, lose poorly performing products and categories, and maybe even lose the “super” in supermarket. True?

    Art Turock: I would frame the issue differently. I don’t mean it in terms of weeding out unprofitable customers and products once the results become apparent. I mean proactively declaring the customers you are determined to win and willing to lose because it serves differentiation.

    I remember interviewing John Campbell who developed HEB’s first Central Market that stocked few national brands was choosing to lose customers who wanted Tide and Coke, etc. Campbell explained that a store differentiates not only based on the products it selects but also by the products it refuses to stock. To preserve the Central Market brand promise of extraordinary fresh perishables and top quality grocery products, many national brands get replaced by superior quality specialty products or local supplier brands.

    This principle is not reserved for upscale stores but price impact as well. Take Save-A-Lot. They violate the conventional wisdom, “We want to be the families’ primary destination for grocery products” by targeting cherry pickers who swoop in for bargains and complete their bakery, deli, and other shopping needs elsewhere. And don’t hold your breath waiting to see an express checkout line at Costco. They don’t want congestion from shoppers who only pick up a few items.

    MNB: There really are three categories of supermarkets out there – national chains, regionals, and independents. In each category, can you name one that is playing the strategic differentiation game right? And, is there one of these categories that you think has a competitive advantage – or at least better odds of survival - in the long run?

    Art Turock: Size and geographic scope aren’t going to ultimately determine competitive advantage. All three supermarket categories have their unique advantages whether it be economies of scale, ability to do regional customization, or being able to move faster due to lack of bureaucracy.

    The real competitive advantage resides in the individual company’s strategic thinking capacity. Most supermarkets practice a style of thinking which fuels head-to-head competition. In contrast, the most profitable retailers focus on solving fundamentally different strategic questions that minimize competition.

    At the national level, Whole Foods, Save-A-Lot and Wal-Mart have made competition irrelevant. All have a definite target customer who their value proposition is perfectly suited for. The Big 3 supermarket chains show signs of moving from the undifferentiated middle ground. Albertson’s is starting to target extremes with the development of a price impact banner, Supersaver, and the acquisition of an upscale chain, Bristol Farms. Safeway is showing a promising life-style store concept.

    Among regional players, Food Lion is remodeling in important target markets, acquiring a price impact banner, Harvey’s, and conceiving a retail format innovation, Bloom, which offers hassle-free shopping. Publix is developing its first dedicated Hispanic stores.

    Mackenthun's County Market, an independent near Minneapolis, stays ahead of competitor’s by addressing consumer trends. To indirectly communicate concern for food safety, they have a shopping cart sanitizer beside the entrance. Many shoppers assume, “If they sanitize the carts every night, they must be sticklers on freshness with perishables.” In capitalizing on the whole health theme, a physician has a satellite office with specific hours of operation, in addition to a large assortment of HBC products.

    In my FMI presentation, attendees will see photos of these innovations and receive my 20-page program handout designed to aid them in taking my idea back to their stores. Bottom line--They will walk out more convinced that making their competition irrelevant is not a pipe dream but a real possibility.

    The annual Food Marketing Institute show is scheduled for May 1-3 in Chicago, Illinois.

    For more information about how to attend, go to:
    KC's View:
    There’s a great phrase here that bears repeating. Turock says that many retailers suffer from a “compulsion to copy the latest ‘tactic in vogue.’ Notice the tactical reasoning: “Dollar stores are growing, so let’s put in a dollar aisle. Organics are hot, so let’s add 8 feet to our produce department.” All too often, these moves are made without considering the broader strategic issues about whether the tactic fits for the chain’s target customers and core value proposition.”

    If Turock can get people thinking differently about this approach to retailing, he’ll have performed a public service. It won’t just be good for retailers, it’ll be good for consumers.

    Published on: March 22, 2005

    The Associated Press reports that a new public relations campaign has been created and is being adopted by small, independent retailers around the country, designed to inform consumers about why they should patronize locally owned businesses instead of national chains.

    While major chains say that that they are not trying to put the little guys out of business and that, in fact, they are perfectly willing to co-exist, small retailers quite naturally have a different perspective. In addition to feeling like they are sitting there with a target on their backs, many of these retailers believe that the unbridled growth of national chains actually leads to the homogenization of US retailing. Hence, the slogan being used in many places – “Keeep (insert name of locality) Weird” – that is positioned to promote the sometimes quirky and individualistic businesses that grow up in communities.
    KC's View:
    We agree with the observation that the growth of national chains corresponds with the growing homogenization of US retailing.

    But we would also suggest that just being local doesn’t make you differentiated. That’s more a matter of attitude than size…and we believe that while a strong public relations campaign is a good start, this same sense of aggression needs to be expressed within the store.

    Published on: March 22, 2005

    • Business Week reports that much of corporate America likely is rooting for Wal-Mart to be victorious in the gender discrimination suit that is pending against it.

      “Wal-Mart's ambitious legal strategy strikes at the heart of what it means to file a class action,” Business Week writes. “The company maintains that its constitutional rights would be violated if the court allows a suit to go forward involving up to 1.5 million of the retailing giant's current and former female employees. Because such a case would deprive the company of its rights to defend itself against each woman's claim, it argues, the courts should allow suits only on a store-by-store basis. If the Ninth Circuit agrees and strikes down the multistate action certified by a lower court, it would likely kill the largest employment class action in U.S. history. More broadly, it would open wide the door for all large companies to make similar arguments.”

      While there are no guarantees that Wal-Mart will be successful making its case, the magazine speculates that the company seems willing to go the distance, even to the US Supreme Court if necessary.

      The question, of course, is how the courts will view Wal-Mart’s efforts – as an attempt to fight off a frivolous and unfair class action suit, or as a tactic that could clog the justice system for years.

    • Wal-Mart’s Sam’s Club division is rolling out a line of private label red wines – a $12 Shiraz and a $13 Rioja – that it says will satisfy a “growing consumer demand for high quality wine at a great value.” The move follows the successful rollout of a private label $9 Riesling by Sam’s that occurred last year.

    • The Teamsters Union Warehouse Division reportedly has launched a web site directed at the employees of the Wal-Mart distribution centers across the United States, designed to provide the company’s distribution center employees a place to go with questions regarding all aspects of their employment.

      And, perhaps, position the Teamsters as a potential organizing entity for the warehouse employees.

    • Wal-Mart’s Asda Group announced yesterday that it will continue the rollout of its nonfoods stores, opening a second and then a third Asda Living store next month. The company also plans to open three new George clothing stores in the next few months, which will bring to nine the number of units in that fleet.

    • in Canada, the United Food and Commercial Workers (UFCW) continues to push Wal-Mart’s buttons, persisting in its efforts to unionize the retailer’s stores there. In this case, the UFCW has filed an application with the Quebec Labour Relations Commission that could lead to the certification of workers at a Wal-Mart in Gatineau, Quebec.

      It is the same union that filed certification applications for Wal-Marts in the Quebec communities of Jonquiére, Saint-Hyacinthe, and Brossard. In Jonquiére, Wal-Mart responded to a vote for unionization by announcing that the store there would be closed, that it was a borderline performer that would be pushed into unprofitability by a union contract.

      Wal-Mart already has been found guilty of harassing employees during an organizing drive at its store in Ste-Foy, outside Quebec City.

      The union hardly is batting a thousand, however. In Windsor, Ontario, workers at a Wal-Mart store voted against forming a union, though each side has filed charges against the other, accusing the opposition of intimidation.

    • If the union keeps pushing Wal-Mart Canada, the retailer also continues to push back. The company has announced that it plans to open between 25 and 30 new stores there this year…and, in a canny public relations move, will donate more than a quarter-million dollars to a fund that will preserve natural habitats and establish community gardens.

    • In another Canada story, Marie-Josée Lemieux, who was president of the United Food and Commercial Workers Union for the Eastern Quebec region and a thorn in Wal-Mart’s side, died of a heart attack over the weekend. He was 40.

    • The Chinese media reports that Wal-Mart plans to move its headquarters there from Hong Kong to Shenzhen in the Guangdong province, effective sometime next year.

    KC's View:

    Published on: March 22, 2005

    The Minneapolis Star Tribune reports on the possible implications of Nash Finch’s decision to issue $150 million in convertible debt in order to finance its acquisition of two distribution centers from Roundy’s, a purchase that will cost it a total of $225 million.

    The problem isn’t that analysts perceive Nash Finch’s strategy of de-emphasizing its retail operations and building up its wholesaler servicing of independent retailers as being flawed; rather, the conventional wisdom is that Nash Finch may be over-burdening itself with debt at a time when winning over and keeping new retailer customers may be problematic.

    "Nash Finch is under unprecedented pressure by Wal-Mart," Burt Flickinger III, managing director of Strategic Resources Group consulting firm, tells the paper. "They are in a tough spot. [Nash Finch] has managed to keep its wholesale business stable, but the challenge becomes greater with every new year. The independent retailer market has shrunk about 3.5 percent from last year. The prevailing trends are not in their favor."
    KC's View:
    We would agree that Nash Finch may be walking a dangerous tightrope, and doing so without a net. It would seem to us that in the current environment, it would make a lot more sense to spread the risk around, working both the retailer and wholesale businesses, as a way of making sure that if the bottom drops out of one, there always is the other to fall back on.

    Published on: March 22, 2005

    The Coca-Cola Co. confirmed yesterday that it will launch Coca-Cola Zero, a new no-calorie version of its flagship brand, this June. It will be sweetened with a blend of aspartame and acesulfame potassium. Coke also will be launching a new, Splenda-sweetened version of Diet Coke.

    These product launches occur as PepsiCo launches a new, reformulated Pepsi One cola sweetened with Splenda.
    KC's View:

    Published on: March 22, 2005

    The Associated Press reports that nutritionists have found that most reduced sugar versions of popular children’s cereals – including Froot Loops and Frosted Flakes – have “no significant nutritional advantages over their full-sugar counterparts.”

    Sure, they have less sugar. But their calories, fat, carbohydrates, fiber and other nutrients are virtually the same.

    "This is about marketing. . . . It is not about kids' health," Marion Nestle, a New York University nutrition professor, tells the AP.
    KC's View:

    Published on: March 22, 2005

    The Wall Street Journal reports that rental car companies such as Hertz, Avis and Budget are starting to look at retailers as a fresh source of new locations for their rental counters as they look for marketing opportunities beyond the nation’s airports.

    “This year, Budget plans to open rental counters in a dozen Wal-Marts nationwide and already is operating in several grocery stores in Nevada and Arizona,” the WSJ reports. “Avis will add about 30 pick-up spots at Sears, Roebuck & Co. this year, and Hertz is expanding in hotels and shopping malls.”
    KC's View:

    Published on: March 22, 2005

    • The bankruptcy courts have given Winn-Dixie approval to borrow as much as $800 million, which will be used to pay bank debt, suppliers and other costs. The retailer said it could not operate without the loan.

    • Advertising Age reports that in an effort to expand support in the Hispanic community for its health care brands, “Johnson & Johnson is sending a 53-foot-long trailer exhibit on a 34-week cross-country tour in partnership with 100 Wal-Mart stores and 20 Hispanic fiestas.”

    • The Scotsman reports on the continuing troubles being experienced by William Morrison Supermarkets since it acquired Safeway Plc in the UK.

      The company has posted profit warnings and, this week, is expected to announce that despite its best efforts, some of the Safeway units it bought have been losing their high-volume shoppers to the competition.

    KC's View:

    Published on: March 22, 2005

    • French retailer Casino has named the company’s former chairman and majority shareholder Jean-Charles Naouri to be its new CEO, succeeding managing director Pierre Bouchut, who is leaving the company.

      Jacques-Edouard Charret and Jacques Tierny have been appointed by Casino’s board to be joint managing directors.

    KC's View:

    Published on: March 22, 2005

    …will return.
    KC's View: