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Notes & comment from the FMI Midwinter Executive Conference

SCOTTSDALE, Arizona – Two examples – one global, one industry-specific – of why the time is right for fundamental change in the food industry were on display yesterday in the final hours of the 2006 Food Marketing Institute (FMI) Midwinter Executive Conference here.

Now, “fundamental change” is a phrase that probably has been uttered too many times to too little effect over the years. But the evidence as presented yesterday seemed to suggest that the clock may be ticking…and that at least one strategy exists to fix a flaw in the retailing system.

The day started with a presentation by Fortune magazine’s senior editor-at-large Geoffrey Colvin, who offered a perspective on the changes taking place in the global economy, and how it affects US workers and businesses. The outsourcing of high-paying jobs to other countries with lower pay standards is creating a scenario in which “the stakes are huge,” Colvin said. He noted that while the problem often is painted as “can America compete?” the real problem is “can Americans compete?”

“It is more than just that manufacturing jobs that are leaving the US,” Colvin said. “That is not the issue. Manufacturing jobs actually are evaporating worldwide…and the trend is not going to turn around. We are simply getting better at producing more and more stuff with fewer people.”

The issue is that other kinds of jobs are being moved overseas – jobs in medicine, engineering, and accounting, to name just a few. “All kinds of service jobs that we used to think had to be done here in the US now can be done offshore,” he said. “A half million tax returns this year will be done in India.” And, Colvin said, “The level of work being done overseas is increasing, and it is going to keep rising to higher corporate functions. There is no reason in the world to believe that it is going to stop where it is right now…all of us have to ask ourselves if someone on the other side of the world could do our job as well as we do for a lot less money.” Depending on the study, Colvin noted, it is predicted that between three million and fifteen million jobs could be outsourced from the US to other countries by 2015.

“The effect of this is very powerful,” Colvin said. “When people lose their jobs here, most of them look for another job. All industries are affected.” Between the availability of low-cost offshore labor and the surfeit of workers here, US wages tend to be held down. Colvin said, “For the first time, the standard of living in the US could stop going up. It could even decline. That could have cataclysmic effects, even political effects.”

Colvin also went out of his way to say that despite what a lot of people believe, Wal-Mart is not a cause of this situation but rather a result – a company that has read the tea leaves and is positioned to take advantage of an economy in which disposable income is tight. The situation has not been incited by a single retailer, he said, but by “giant forces in the global economy.”

If you accept the premise advanced by Colvin – and it has been made persuasively by a number of other economists and analysts, perhaps best by Thomas L. Friedman in his book The World Is Flat - then you have to accept the possibility that retailing competition in the US is only going to get tighter. With Wal-Mart well positioned to dominate the low-price segment, that means that other retailers are going to be looking for ways to differentiate themselves beyond price (though most certainly will not be willing to concede the price crown to Wal-Mart without a battle).

Which is why another discussion at the conference had such resonance. A preview of the latest study done by the Coca-Cola Research Council looked at how to develop top-notch store managers, and how best to benchmark best practices in this area.

A panel made up of Don McGeorge, president/COO of Kroger, Russell T. Lund III, president/CEO of Lund Food Holdings, and Richard A. Anicetti, president/CEO of Food Lion, agreed that part of the problem of identifying great store managers is the fact that the job description has changed so much and become so complex in recent years. “When I was a store manager, I prided myself on being able to operate every piece of equipment in the store,” Anicetti joked. “Today, I couldn’t even sign on to most of them.”

The study has several unifying themes that seem to make sense, especially in light of Colvin’s global analysis:

1. Store managers in most cases are being over-burdened with logistical, operational and functional details.
2. These details are, in fact, pulling store managers away from taking care of the customer.
3. Store managers need to be chosen and trained based on their ability to connect with the customer, to be the store’s brand identity, and not based on their technical skills.
4. Store managers need to be more than managers. They need to be leaders.

Lund said that in his company’s performance reviews of store managers, they have begun to “strip out the functional and financial issues, and started layering in leadership qualities.”

A perfect example, according to Anicetti, is when he asked why store managers were not doing “store walks” to the extent that they were expected to…and found out that while they were doing the walks, they weren’t filling out the 35-page documents that they were supposed to afterwards. What companies have to realize, he suggested, is that those kinds of documents actually get in way of a store manager’s effectiveness…and cultural changes have to be made to reduce bureaucratic burdens. And it has to be more than lip service – companies can’t create these new expectations and then have these managers “checking locks on doors in the backroom.”

McGeorge put it another way – that chains of every size have to find a way to create a sense of ownership for store managers. ‘they have to act like it is their store, their customer, their associates, and their performance,” he said.

What connects this discussion to the global outsourcing issue is the fact that as America’s standard of living comes under attack from global forces, it has the potential to change the workforce, the customer, and the competitive climate. More and more – especially as chains look for ways to distinguish themselves from Wal-Mart – the quality of the store experience will become differentiating factor. And the quality of the store experience should be directly attributable to the quality and passion of the store manager and the people he or she leads.

It will be an environment in which the store manager becomes a lynchpin that determines success or failure.
KC's View:
Three days ago, Raley’s CEO William Coyne began the conference by urging retailers of all sizes to create what he called “compelling connections” to their shoppers, employees and communities. “The result can be magical,” he said.

This is not an alternative. It is not just an option that retailers ought to consider making part of their mission statement or strategic plan.

“Compelling connections” can mean a lot of things. It can be the connection that a store manager makes with a frequent shopper, putting a face on the store brand. It can be helping consumers find a way to have one more at-home meal with their families a week. It can be creating a culture that forges new and healthier relationships with employees.

But one thing seems clear. Creating “compelling connections” is a fundamental requirement for being a successful retailer in 2006 and beyond, for differentiating oneself in a cutthroat marketplace.