business news in context, analysis with attitude

We reported yesterday that Nash Finch is moving ahead with a series of tests to see if consumers will respond to a supermarket format in which products are sold at cost plus 10 percent, a story that prompted a number of emails.

MNB user Ted File wrote:

For many years in Salt Lake City, a company was know for its Honest to Goodness Cost plus 10% program. The name of the company was Reams. Many will remember the founder and the community supporter he was, as well as a benefactor of many worthwhile philanthropic organizations.

But alas, times have changed and although he was ahead of his time for some things like allowing the customer to scan their own order....and based on the weight of the shopping cart less of course the weight of the cart. Did the items scanned match the weight of the items determined by the cart less the tare? Sure, he had problems but it was sure exciting to watch. Oh yes, this was in the late 60's and early 70's. And another oh, yes, he had service meat, warehouse shelves, was one of the largest seller of western boots, jeans, shirts, etc.

Another MNB user wrote:

This is not such an odd idea. Costco operates on the premise of an 11-14% gross margin on all items. Management views its job as keeping operating expenses under 7% to produce a cash margin of 4 7%. A very simple business model. I remember when I first heard Jim Sinegal explain this how he personally hears about all items that sell outside of this range, including store made items such as muffins and deli platters. I'm a Wall Street analyst and I knew this guy had a winning business model - the stock analysts who complain about Costco don't know what they're taking about. I'm now a proud Costco member and happy shareholder...

But another MNB user wasn't so easily convinced:

It might have some validity if it was a true cost plus 10%. Removing all of the hidden accruals, distributor programs , etc.....

But even then why would a retailer want to lower margins (which affects operating capital) in the face of higher energy, labor and occupancy costs?

I think rather then putting their efforts into lowering margins for the retailer they should look at way in helping the retailer differentiate themselves from the competition.

Oh, I'm sorry - if you lower your margins you move more cases, does Nash lower their (margins) as well?

Sounds like a win for the distributor to move more cases of empty profit for the retailer.

You can put lipstick on a pig and it's still a pig!

We had a piece yesterday about a study suggesting that small independent stores in poorer sections of California may be guilty of ignoring or not complying with sanitation regulations.

One MNB user responded:

As I read this story two issues came to mind that were discussed to some degree in the last two paragraphs. First, most inner city stores in low income areas are independent operators, and second, in many of these stores sanitation is not a priority. Problem is the Sacramento Bee should look a little deeper into this issue to find out why this is the case.

The reporter in this article mentions that these independent operators don’t have the resources to comply with health department regulations. That’s a bunch of bunk. Many, many of these operations net over seven percent, more than enough profit to adhere to health codes. I worked for an upscale grocery chain in Dallas for many years, we had a store in a low income area of town that we were struggling with and it just so happened that there was an independent operator that had a store in a very well to do part of town experiencing the same issues. It made sense to swap, so we did. The first thing that happened was that the city health department swooped down on the store we took over and forced us to make thousands of dollars in changes to the building before we could reopen. It was perfectly fine for the independent to operate in that building, but not for the major chain. Talk about a double standard. Why is that?

There are many issues in operating stores in depressed areas and they are compounded when city governments force standards on chain store operators that are not equally applied to independent operators in the same area.

There is something wrong when the message “Our prices are so low that we can’t afford to clean the floor” actually works.

And, responding to our story about a survey suggesting that it is the price of fresh produce, not the availability of fast food joints, that leads to child obesity, MNB user David J. Livingston wrote:

I am often surprised just little food does cost. I stop by my local Kwik Trip C-store and bananas, baking potatoes, and onions are always 29 cents a pound. For just $1 I can get well over 3 lbs of fresh produce. Just $1 a day could keep someone healthily for a long time. Aldi and Save-A Lot blanket the low income inner cities across our nation providing the poor with low cost fresh produce. Bakery outlets sell loaves of bread for just a few cents. No one should ever complain about the cost of food. A person could easily survive in this country and not have to spend more than $10 a week on food. The walnut trees in my yard have dropped their fruit for the year. I often am temped to pick up the mess after seeing what walnuts sell for in the supermarket, however I leave them to the squirrels. I am very grateful that we live in a country where food is so inexpensive. Because I know in time of disaster it could come to a halt.

It depends on how you define survival.

We think it is pretty easy to write a sentence like “a person could easily survive in this country and not have to spend more than $10 a week on food” when you don’t actually have to.

Regarding our piece on fad marketing and the failure of Atkins Nutritionals, MNB user John DeRoche wrote:

I have lost 30 pounds on the low carb diet and kept it off. I have never used any of the Atkins products on a regular basis because they tend to be very expensive and do not taste very good. I believe that is the major issue.

And, responding to our piece yesterday about a woman who charges that the government has covered up or ignored what she believes are a number of cases of the human variant of mad cow disease, one MNB user wrote:

This sounds suspiciously like the response that the Red Cross had over AIDS in the blood supply in the early 80's. Isolated deaths. One in a million chance. No verifiable link. And so on.

I am not a scientist, but it seems like a poor idea to mix dead animal parts back into the feed supply for live animals.

Your email made us think about the best book we ever read about the AIDS outbreak, “And The Band Played On,” by Randy Shilts – an extraordinary, landmark and ultimately heartbreaking piece of journalism.

The book has not yet been written about the US response to mad cow disease. But it will be.
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