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    Published on: January 11, 2006

    American Demographics reports that US citizens are the world’s greatest spendthrifts, as a group spending more each week “than the annual gross domestic product of Finland.”

    During 2005, in fact, the average American household spent $1500 each week – adding up to a whopping $78,000 in expenditures for the year. Of course, not all of that spending was in cash, which also accounts for people’s expanding credit card debt.

    “Some fraction of that consumer spending is, of course, the result of our basic need for food, clothing, shelter and transportation,” American Demographics writes. “But really, how many households need two homes, three vehicles and four TVs? It’s clear that a great deal of, if not most, consumer spending is driven by desire, not need.”

    Of course, this level of spending has helped to keep the US economy relatively healthy, the magazine notes. “Real - after inflation - consumer spending in the U.S. rose 23% in the past 10 years, while the number of households was up only 14%. If spending had risen at the same rate as households, those families or other household types would have spent $109.50 less a week than they in fact did in 2005. That seemingly small sum, when added up, would have subtracted more than $640 billion from consumer spending, and the U.S. economy would now be in a deep funk.”

    The magazine suggests that there are three trends that can be worrisome when considering future growth of the economy: 1) lower income households are growing at a faster rate than their more affluent brethren, 2) while there is rising affluence, there also is rising poverty in the US, which means that the middle class is shrinking and the health of the economy becomes almost completely dependent on the upper middle class and upper class, and 3) not enough men go to college, and the fact is that people without college educations make less (and therefore have less to spend) than college graduates.

    However, there also are three positive signs: 1) women have increasing economic power, which tends to be good for consumer spending, 2) so-called “mass affluence” is expanding, with more people willing to spend lots of money for stuff they want and/or need, and 3) baby boomers are aging, which means they will tend to have more discretionary income to spend and, in all likelihood, longer lives during which to spend it.

    The other healthy sign is the fact that the US population continues to grow, which means that anything can happen. American Demographics predicts that on September 15 of this year, the US population will hit 300 million.

    While “stagnant wages, rising poverty, lack of health insurance and the growing army of undereducated men are serious problems,” the magazine writes that “increasingly wealthy and influential women combined with more affluent and aging baby boomers will look at the problems described above and craft solutions in new and creative ways.” The best news of all, it says, is that the US economy is increasingly knowledge-based…and knowledge can help a society analyze and overcome its problems.
    KC's View:
    These are our customers. Understanding them is the first step in serving them. And that means understanding them in fundamental ways that are both tangible and intangible, not just seeing their reflection in a spread sheet with sales numbers.

    It means going beyond demographics.

    We remember what we heard a speaker say recently: Demographics is the study of what makes people the same. Psychographics is the study of what makes them different…and ultimately, we believe, is a better tool for figuring out a pathway into consumers’ souls.

    To us, that may be the greatest challenge of serving the American consumer. We’ve become a culture that is able to generate enormous data on almost every customer we have, and yet we take refuge in mass marketing because it is ultimately easier and cheaper. For many companies, though, catering to the mass no longer is the best option – there are other companies that do it better and more pervasively…which means another, more nuanced approach has to be taken.

    It is time for the knowledge-based retailer to serve the knowledge-based society. Some technologies, such as RFID, will make this easier…which is one of the reasons Wal-Mart is so committed to it, by the way. (Think of the powerful, knowledge-based marketing engine that Wal-Mart will have once its RFID efforts really get traction, and it owns banks and can issue credit cards/smart cards to its customers.)

    But there also is a cultural leap for many retailers to make. This ties into something that we often speak about in this space – the need for retailers to become not just a source of product, but a resource for information. This means understanding not just what information the consumer wants and needs, but also really, really understanding the consumer.

    Retailing only gets harder. But the upside potential, for thought leaders and agents of change, seems enormous.

    Published on: January 11, 2006

    Marian Burros of the New York Times writes this morning about the so-called healthy cereals that are coming on the market, noting that “nearly all of the current ones are organic or ‘natural,’ and their labels crow about specific benefits like helping the environment, managing weight and promoting peace. Their ingredient lists include green tea, omega-3 fatty acids, hemp, cardamom, flaxseed, gobs of antioxidants and evaporated cane juice. They claim to be low-fat, high-protein, low cholesterol, wheat-free, vegan. Just as prominently displayed is what they don't contain: artificial colors, flavors and preservatives, refined sugar, hydrogenated and tropical oils, trans fatty acids, not to mention sulfites and monosodium glutamate.”

    However, there is one thing that Burros says most of the cereals don’t have: good taste.

    She pretty much eviscerates the category: “One thing few of them can boast about is taste. I sampled about 100, and words like cardboard, sawdust, soggy and stale often came to mind. And natural dried berries don't taste any better than artificial ones.” And, she writes, while “75 percent of these cereals deliver on their basic nutritional promises - more fiber and less sugar - but the amount of whole grains in them may not be greater than in conventional cereals. So reading the fine print on their labels, though taxing, is essential.”
    KC's View:
    We only want to eat things that taste good. We daresay that most consumers feel the same way.

    Which makes you wonder why there is so much food in the world that tastes like crap.

    The natural/organic category only will grow in the long run if the stuff tastes good. The segment has come a long way, but at least in the judgment of the New York Times, it still has some work to do.

    Published on: January 11, 2006

    A new study by Northwestern University suggests that people who are overweight, but because they have normal cholesterol and blood pressure levels believe they are healthy, are deluding themselves.

    According to reports, this isn’t quite the statement of the obvious that it appears to be.

    The fact is that most previous scholarship suggested that because fat people often had high blood pressure or high cholesterol, those were the risk factors for heart disease, not the excess weight. But this new study says something different – that if you are overweight you are at greater risk for a heart attack, stroke and diabetes, even if all the other signal factors are normal.

    The study, published this week in the Journal of the American Medical Association, contradicts another study that came out last year suggesting that people can be overweight and perfectly healthy.
    KC's View:
    People love to kid themselves about this stuff. We remember seeing some video shot by the Hartman Group of a series of overweight people who maintained steadfastly that they were the pictures of health; one guy who was the size of a Volkswagen said (no kidding), “I’m not fat, I’m just big-boned.”

    One of the more controversial aspects of this study, however, will be the efforts of researchers to make people believe that obesity all by itself is a disease – as opposed to just a contributing factor to other diseases. This has enormous implications, especially when it comes to issues of insurance and medical care.

    Published on: January 11, 2006

    • Wal-Mart issued a press release yesterday saying that it created 125,000 new jobs last year and that its average full-time hourly wage increased last year from $9.68 to $10.11.

    “This is the result of our company growing to meet the demands of our customers and our total commitment to attracting and retaining the best associates possible," said Lawrence Jackson, executive vice president for the People Division for Wal-Mart Stores, Inc. "When we open a store, we often receive thousands of applications for just a few hundred jobs. That's because working men and women know that our jobs pay competitive wages, and offer quality benefits, including affordable health insurance, and career growth opportunities."

    In some markets, Wal-Mart said, it was paying full timers even more: $11.58 in Denver, $11.49 in Boston, $11.11 in Atlanta, $11.05 in San Francisco, $10.78 in New York, $10.98 in San Diego, and $10.29 in Los Angeles.

    However, not everyone was buying.

    Paul Blank, campaign director for WakeUpWalMart.com, released a response that read, in part:

    "Wal-Mart is a company speaking out of both sides of its mouth. Recently, Wal-Mart pledged to Wall Street it would reduce labor costs and an internal memo, authored by senior management, confirmed their intention to shift to more part-time employees. Now, Wal-Mart's spin machine thinks we will just believe their average hourly wage has increased. Wal-Mart's figures are questionable at best and are more likely attributable to a reduction in the number or redefinition of full-time associates than a desire to do the right thing. Wal-Mart should release its full wage and benefits data for public review so that it can be thoroughly analyzed and verified. Real working families in America understand Wal-Mart's business practices drive down wages, lower benefits, and ship U.S. jobs overseas."

    • The Wall Street Journal this morning reports on the tensions that exist between two major anti-Wal-Mart group: “WakeUpWalMart.com and Wal-Mart Watch have two things in common: They criticize Wal-Mart, and they criticize each other.”

    WakeUpWalMart.com seems to be more focused on generating community support for its anti-Wal-Mart efforts; it has taken the somewhat controversial approach of getting religious leaders to author a letter suggesting that Jesus would not shop at Wal-Mart. Wal-Mart Watch, on the other hand, is more focused on unionizing activities, which may be a result of the union funding that got it started.

    Wal-Mart tells the WSJ that it doesn’t see much difference between the two. "To us, these are both campaigns directed by union leadership intended to criticize a company trying to help working families," Wal-Mart spokeswoman Sarah Clark tells the paper. "There are well-meaning critics out there. These two organizations don't fall into that category."

    KC's View:

    Published on: January 11, 2006

    The Wall Street Journal reports that Coca-Cola imported from Mexico “is a big business, fueled by the Hispanic population, the fastest growing minority group in the U.S., and soda connoisseurs drawn to its taste and the old-time look of the iconic bottle. Fans insist the Mexican cola, made with cane sugar, has a better ‘mouth feel’ than the U.S. formula. U.S. bottlers switched from cane sugar to high-fructose corn syrup in the 1980s to cut costs.”

    The problem is that Coke’s management calls the imports “the work of bootleggers,” and is annoyed by the underground importation of the Mexican product. While it investigates cases of US stores selling Mexican Coke, the company also “quietly started a limited test program to allow the authorized distribution of a small amount of Mexican Coke through one of its U.S. bottlers.”
    KC's View:
    We understand the sensitivities here, but the bottom line ought to be that if customers want the Mexican version and are willing to pay for it, somebody ought to make it possible for them to get it.

    Published on: January 11, 2006

    • Supervalu CEO Jeff Noddle told an analysts conference call this week that the company’s recently opened Hispanic format store, El Primero Mercado, “is performing very well.” And, he said, this week the company will open its natural/organic Sunflower Market, one of the programs that he believes will generate long-term success for the company.

    • A&P CEO Christian Haub reportedly told an investors conference call this week that he believes that A&P’s revitalization is “off to the best possible start. He said that the company is working on expanding a fresh store concept, developing a new, high end version of its Food Emporium format, and that the company will consider consolidation opportunities in the US.

    • Reports in the Chinese media say that Tesco will open its first store in Beijing in 2007, and hopes to be in a position to capture some of the new business that will be generated by the 2008 Olympics, which will be held in Beijing.

    • A study by New York-based Marketing Evolutions says that the M&M’s characters are the best-liked brand icons in the US.

    Runners up were, in descending order: the Pillsbury Doughboy, the Aflac Duck, Tony the Tiger, the Geico Gecko, the Energizer Bunny, Frito’s Chester the Cheetah, the Kool-Aid Man, Trix Rabbit, Snap! Crackle! Pop!, Snuggle the Bear and Willy Wonka.

    • Atkins Nutritionals, the commercial arm of what used to be called the Atkins diet empire before low-carb went out of style, emerged from bankruptcy protection yesterday. The company has a reduced line of SKUs that it believes will be high performers.
    KC's View:

    Published on: January 11, 2006

    • Supervalu reported third quarter profit of $75.2 million, up almost 16 percent from the $64.9 million generated during the same period a year ago. Sales were up to $4.7 billion, from $4.6 billion a year ago.

    • Rite Aid reports that its December sales were up 26.2 percent to $1.8 billion, with same-store sales of 3.9 percent.
    KC's View:

    Published on: January 11, 2006

    MNB reported yesterday that retailers continued to have strong representation on this year’s Fortune “Best Companies To Work For” list, with Wegmans garnering the number two spot on the list. Other retailers making the list are The Container Store (#6), Whole Foods (#15), Starbucks (#29), Nugget Markets (#33), Nordstrom (#46), Publix (#56), Stew Leonard’s (#58), Men’s Wearhouse (#92), and Ikea US (#96). Other food industry companies making the annual list were JM Smucker (#8), SC Johnson (#10), Valassis (#69), and Wrigley (#95).

    However, we made a few accidental omissions.

    MNB user Adam Dill wrote:

    For food industry companies, you missed General Mills (which was ranked #98). As one of the Top CPG companies, we have made the list again. As an employee of General Mills, I appreciate the commitment they make to listening to employees and addressing the opportunity areas. As many companies have walked away from employee surveys, GMI continues to conduct full surveys every two years. Action plans are put in place to address the areas employees identified needed help and they follow-up to ensure we are making progress against the objectives.

    MNB user Jeff Lenard of the National Association of Convenience Stores (NACS) wrote:

    There is more than 10 percent representation on Fortune’s “Best Places to Work” list. You omitted two companies: Valero (#3) and QuikTrip (#21).

    In addition to its refining operations, Valero also owns and operates more than 1,00 convenience stores – and manages a branded dealer and jobber network of another nearly 2,000 stores -- under brand names including Valero, Diamond Shamrock, Shamrock, Ultramar and Beacon.

    QuikTrip operates more than 400 convenience stores and has been on Fortune’s list each of the past four years.


    The folks at NACS were all over our case yesterday, as the organization’s Elizabethe Bogart wrote:

    I hope you adjust not only you numbers, but your understanding of c-stores. With nearly 140,000 retail locations in the US, we serve every community and employ over 1.4 million people.

    You’re right. We goofed. And we apologize to the good folks at General Mills, Valero and QuikTrip.

    We also got an email from MNB user Phyllis Palmer:

    Thanks for mentioning SC Johnson in your article on the Fortune piece. Interesting on the “What makes it so great? part on the Fortune website:

    “They just won't budge. The family-owned consumer-products manufacturer has a devoted workforce, witnessed by an incredibly low turnover rate of 2%. Part of the reason: profit-sharing that added 19% to pay last year.”

    This is really true. I’ve been with SCJ for 20 years, my boss has 39 years, almost all my peers in the West have at least 15+. It’s a very interesting and rare situation. That said, “they won’t budge” ALSO means we won’t move…. which in itself presents another issue for our company when the rare job opening DOES come up. Very fascinating concern and commentary on our generation vs. our daddy’s generation’s views on family life. More / most of us are reluctant to uproot our families. The “voluntary turnover” mentioned in the article usually means, someone left the company instead of having to move vs. someone left the company because of negative circumstance.

    KC's View: