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    Published on: August 3, 2006

    Companies looking for an edge in today's competitive marketplace would be well-advised to not make false assumptions about moms – because to do so will put their products and services at risk.

    New research from the Hartman Group points to the many differences between today’s moms and their mothers, and looks at the cultural lifestyles both inside and outside the household have a direct impact on shaping the product worlds that serve them.

    Want to know more?

    Click on the “Consumer Pulse” tile ad on the right hand side of the page, or go to:

    http://www.hartman-group.com/products/CP/new.html
    KC's View:

    Published on: August 3, 2006

    According to the New York Times, there is exactly one Fortune 500 company CEO who engages in regular blogging. MNB “Content Guy” has some thoughts about that, and why blogging is a wonderfully unfiltered way of getting a company’s message to consumers and employees and enhancing the sense of community.

    To listen, either click on the “MNB Radio” icon on the left hand side of the home page, or just go to:

    http://www.morningnewsbeat.com/Radio/Radio_Listen_S.las
    KC's View:

    Published on: August 3, 2006

    The Indianapolis Star reports that an Indiana judge has ruled that Marsh Supermarkets must go ahead with its agreement to sell the company to Sun Capital Partners, a private equity firm, for $88 million, even though the company got a higher bid from another suitor.

    The judge ruled that the original sale agreement specified that Marsh, which has been troubled by crushing debt and declining sales and profits, could not entertain other offers.

    "We appreciate the Court's prompt response in this matter," said Don E. Marsh, Chairman of the Board and Chief Executive Officer with Marsh Supermarkets, Inc. "We expect to file revised proxy materials with the SEC as quickly as possible so that we can call a special meeting of shareholders for next month to consider and vote on the all cash offer from MSH Supermarkets."

    KC's View:
    Marsh also has been troubled by the profligacy of its family management, which seemed to forget somewhere along the line that there were shareholders depending on their competence and ethical compass.

    We just hope the damn deal gets closed quickly, so that this particular chapter on what has turned out to be a sad story can be closed.

    Published on: August 3, 2006

    Advertising Age reports this morning that Kellogg Co. plans to increase prices and reduce package sizes in the cereal category, a move that is expected to be followed quickly by competitors General Mills and Kraft.

    The increased prices are tied to higher commodity costs, according to the company, but the move is being made in order to maintain Kellogg’s heft marketing budget in this highly competitive category.
    KC's View:
    Speaking purely as a consumer here, we don’t mind when prices go up a bit. It is the simultaneous shrinking of package sizes that it hard to swallow and that may cause some blowback against the cereal companies.

    Besides, we can imagine that the private label manufacturers and retailers like Trader Joe’s would be able to make some hay out of the fact that they are keeping their prices and package sizing the same (if indeed they are).

    Published on: August 3, 2006

    The New York Times reports that a new study conducted by Thomson Medstat, a health care research firm, suggests that more than 75 percent of obese people say that they have healthy eating habits, and more than four out of ten say they get vigorous exercise at least three times a week.

    The study also suggests that the responses of obese people tend not to be that different from those of people of so-called normal weight.

    Only 28 percent of those surveyed said that they snacked two or more times a day, compared with 24 percent of people of normal weight who say they snack that often.

    For example, the Times writes, “about 19 percent of obese people said they always read nutritional labels on food packages, compared with 24 percent of normal-weight people. And about 29 percent of obese people said they eat out at restaurants three or more times a week, compared with 25 percent of normal-weight people.”

    Dr. David Schutt of Thomson Medstat thinks he has the answer: “There is, perhaps, some denial going on. Or there is a lack of understanding of what does it mean to be eating healthy, and what is vigorous exercise.”

    KC's View:
    Denial and lack of understanding certainly seem like the two most likely culprits.

    Published on: August 3, 2006

    The Real Deal reports that Starbucks, which has more than 200 stores in New York City, with 175 of them in Manhattan alone, plans to close stores that aren’t meeting the company’s profitability standards.

    The strategy isn’t being called a retrenchment or even a retreat, but rather a conscious decision to avoid over-saturation and the cannibalizing of sales by its own stores. “Industry sources said Starbucks is looking to close locations that cannot maintain a 25 percent profitability margin,” Real Deal writes. “That will vary from store to store, as the Seattle-based retailer can often adapt to unusual spaces with smaller footprints than other food and beverage retailers.”

    Still, in real estate circles, where Starbucks has had a relentless pace of growth, this is seen as an almost tectonic shift – especially in New York City, where sometimes one will see multiple Starbucks operations in just a few blocks.
    KC's View:
    There’s certainly nothing wrong with demanding performance from stores, and with deciding to make changes if there are individual units not doing sufficient business…especially if, in many cases, there’s another Starbucks around the corner or down the street. Which, in NYC, there often seems be.

    Thank goodness.

    By the way, this may only be a NYC issue, since Starbucks also said yesterday that it plans to open plans to open 2,400 stores in fiscal 2007, including its first stores in India and Russia.

    Na zdorovje!

    Published on: August 3, 2006

    • Still stymied in its attempts to open an industrial bank in the US, Wal-Mart de Mexico (Wal-Mex) has filed an application to get a banking license in Mexico, which, if granted, would make it one of several retailers in the financial services business there.

    In Mexico, retailers are said to generally go after low income banking customers that are shunned by bigger banks, and Wal-Mex is expected to be a big player in this arena.
    KC's View:

    Published on: August 3, 2006

    • McDonald’s announced that it is getting into the snack food business, developing smaller and less expensive products that can be consumed between meals. The goal is not just to generate more sales, but also to increase store efficiency by making better and more profitable use of what traditionally has been slow time.

    • The Los Angeles Times this morning reports that the casual dining segment of the restaurant business is experiencing “small but discouraging sales declines,” mostly because people are choosing to eat out less because of the soaring cost of gasoline. The Times notes that analysts believe that increased credit card debt also is contributing to the spending slowdown.

    • The BBC reports that in India, the non-governmental Centre for Science and Environment (CSE) is saying that testing has revealed that Coca-Cola and PepsiCo products are showing 30 times more pesticides than was found in a previous study three years ago.

    “Soft drinks are completely safe,” the Indian Soft Drink Manufacturers Association (ISDMA) replied in a statement disputing the findings. “The soft drinks manufactured in India comply with stringent international norms and all applicable national regulations.”
    KC's View:

    Published on: August 3, 2006

    Advertising Age reports this morning that Foster’s, the Australian brewing company, has decided to switch all of its advertising budget in the US to the Internet, looking to target a consumer demographic that is watching less television and spending more time on their computers.
    KC's View:

    Published on: August 3, 2006

    • Starbucks reported third quarter earnings of $145.5 million, up 16 percent from $125.5 million during the same period a year ago. Sales for the period were $1.96 billion, up from $1.6 billion a year ago, on same-store sales that were up just four percent – the slowest quarterly growth rate since 2001.

    In a conference call with analysts, CEO Jim Donald said that part of the problem may be too much popularity – long lines in certain locations at peak hours that may be causing it to lose some espresso and blended drink business. He said that this problem is being addressed through the introduction of improved blending equipment, better employee training and new cold beverage stations that are being rolled out throughout the company.

    • Costco Wholesale Corp. reported that its July sales rose 11 percent to $4.48 billion, on same-store sales that were up seven percent.

    • Walgreen Co. reported that its July sales rose 16.1 percent to $3.98 billion, with same-store sales up 9.7 percent.

    • Procter & Gamble reports a fourth quarter earnings of $1.9 billion, up 36 percent from the $1.39 billion in earnings reported during the same period a year ago. Q4 sales grew 25 percent to $17.84 billion.
    KC's View:

    Published on: August 3, 2006

    •Harrison Lewis, vice president of information technology at Haggen Inc., has been promoted to be the chain’s vice president/chief information officer.

    • UK-based Tesco announced that it has promoted Ian Crook, its trade and brand planning director, to be its new corporate marketing director. He succeeds Simon Uwins, who moved across the pond to become marketing director of Tesco’s US operations.

    KC's View:

    Published on: August 3, 2006

    We got an email the other day from MNB user Joe Cannon about Meijer’s new price-driven marketing program:

    I can tell you that in Columbus market, Meijer is not getting it done. In addition to severe OOS on ad items, there appears to be a lack of training on what true customer service is all about... They are missing the mark early and often and cannot win the price battle with Wal-Mart. To dumb their operation down is to become like the Bentonville Behemoth, and is the direction Meijer is heading from the once great operator they used to be.




    We had a story yesterday about how Home Depot is going to sell video streaming commercial apace on its website to generate revenue, and we suggested that this was a new kind of slotting fever that would clutter up its site and hurt the retailer in the long run by diluting its message.

    MNB user Philip Herr responded:

    Kevin, I can't agree with you on this issue: I believe the practice of selling ad space on a website is different from slotting allowances. This will allow advertisers with specialized products (power drills, flooring, etc.) to reach a narrow audience as well, or better than TV channels carrying renovation programming (H&GTV for one). It will allow those advertisers to reach their audience when they are closer to purchasing and as such is very valuable. And rather than diluting Home Depot's message, I see it as complimentary and probably reinforcing it.

    MNB user Danny Raulerson also disagreed with us, but took it from a different perspective:

    Hmmm…Kind of like another web site that I am currently responding to?

    Fair point. And we actually thought about that after we wrote the commentary.

    The difference is, we think, that we sell is information...that’s the currency around which MNB is built (and we work real hard not to clutter it up). Retailers are selling something beyond that – their own products and services - and we are concerned that it could clutter up their sites to turn them into billboards for other companies.

    Does this make any sense, or is it just a first class rationalization?




    Responding to our piece the other day about questions raised regarding organic labeling, MNB user Holly Cooper wrote:

    Many conscious consumers of organics do not necessarily trust the USDA anyway, and are more likely to look for a certification from a different non-governmental organization such as Oregon Tilth. On the other hand, if the category faded away, it makes it easier for mass-producers, as consumers return to conventional products.




    We questioned Winn-Dixie’s strategy in a piece the other day, wondering about statements by CEO Peter Lynch that tried to pull the company out of the middle and more into competition with Publix, while simultaneously creating new price promotions. We thought Lynch’s most damning statement was: “What we're starting to see now is more customers saying, ‘Hey, I didn't shop there for a long time but I went back and it's not a bad deal.’

    In our mind, ‘not a bad deal’ hardly sounds like a ringing endorsement of either Winn-Dixie’s store offering or Lynch’s stewardship.

    MNB user David J. Livingston wrote:

    Your comments are right on with Winn Dixie. I think Peter Lynch is delusional thinking they can compete with Publix. Winn Dixie could not compete with Publix when Winn Dixie had money. Now they are bankrupt, Publix is stronger, and he thinks that somehow magically he can get Winn Dixie in the same class as Publix? That would be like me trying to train a mule to run in the Kentucky Derby. Well, what do we expect him to say? A lot of people want to believe him. Maybe Publix will be a good sport and let Winn Dixie catch up ----NOT! He says he has all these good deals that Winn Dixie has negotiated with its vendors that will not show up for some time. Seems to me Publix is in a position to negotiate even better deals, so who is he fooling?

    MNB user Lin Lauve thought we were a tad harsh:

    I think Mr. Lynch might agree with you (privately) that W/D can't compete effectively with Publix on quality and service. What I interpret him as saying is that given the choice to focus more on low price or more on quality/service (because W/D can't simply stand pat), W/D is choosing the latter.

    I do disagree with Mr. Lynch about escaping the middle, even though in his shoes I might say the same thing. If W/D really intends to be a significant player, it has to be in the middle -- ideally owning the middle. Kevin, you yourself said W/D can't compete with Publix on quality and service, and you have pointed out many times the folly of trying to compete with Wal-Mart on price. Its only alternatives to being in the middle are: 1) out-Wal-Mart Wal-Mart, 2) out-Publix Publix, 3) take off in a completely revolutionary direction; 4) quit.

    I know there is an axiom that being in the middle is always bad. But I don't think all Southeast shoppers feel compelled to shop at one end of the price/quality/service continuum or the other. W/D may or may not survive to become a successful "middle" chain, but I believe survival and even success in the middle are possible. Being in the middle does not preclude a business from innovating and differentiating in any number of ways.





    Responding to our coverage of Wal-Mart’s pulling out of Germany, MNB user Bob Vereen wrote:

    I spent a little time over a period of two years in Wal-Mart's Dortmund store, one of the 95 it bought from two German companies. It was one of the better stores under previous ownership, with a decent but not spectacular location. It did have a great manager, and that store turned out to be a good one for WMT. WMT's major problem in German was that it bought two very weak companies, some with marginal locations and old store units. Its own operational mistakes didn't help. "Hard" discounters like Aldi control 20% of the German food business and are in more convenient locations for most German customers. Remember, fuel there is twice our cost.

    What many people do not realize--and you touched on it by pointing out WMT's international efforts--is that European chains are VERY active internationally. B&Q and Castorama home centers, both divisions of the UK's Kingfisher, are in some 15 or more countries. Carrefour and Metro, the world's second and third largest chains behind WMT, also are in dozens of countries. Castorama recently opened a store on the outskirts of Moscow and during its grand opening, it was wall-to-wall with customers.

    When eastern Europe opened up a dozen or more years ago, western European chains--hypermarkets, supermarkets and home centers--jumped into those markets. Poland was the first big target because of its population and the western chains now dominate the retail scene there. Same is true for Czech Republic, Hungary and others. And European chains early on looked to Asia as their next area of growth.

    While America is a huge market, foreign chains may one day be more dominant on the world stage than our domestic chains simply because they recognized international opportunities and adjusted their strategies to meld with local conditions. I think WMT's German experience was a good thing for the company's future international ambitions.

    In the home center industry, only Home Depot is active internationally, and only in Mexico and Canada, plus Puerto Rico, having opened and failed in Chile. Lowes is only now planning an entry in Canada, with nothing mentioned about Mexico, where Depot is now dominant.


    One of the things that Wal-Mart apparently has learned is that it shouldn’t put its name on every store outside the US, a lesson addressed by MNB user Pat Patterson:

    Our experience base has continually repeated the stories of GM's attempts to market the Nova name in Spanish speaking countries, the Gerber problem with a picture of a baby on the front of jars sold in Africa and many others. Whether the stories are true or not, they should at least make us stop and think, not everyone in the world thinks or reacts as Americans do. Nor do we understand how other cultures function. Did Wal-Mart miss this very basic message? Obviously not, because they still think the world can't wait to have one of their big boxes around the corner. Just look at Chicago's new anti-big box ordinance requiring a $10 minimum wage with a $3 benefit package for operators with sales in excess of a billion dollars with stores larger than 98,000 - 99,000 gross square feet.

    MNB user Greg Seminara wrote:

    The real lesson from Germany (& Argentina/Korea) is that the Wal-Mart magic does not work well at building a leadership position from a marginal base. WM was the #10 player in Germany and could never grow from that small position.

    UK/Mexico represent WM’s biggest international success stories. In both cases, Wal-Mart bought a strong player and built from strength. International now represents around 20% of Wal-Mart’s sales and represents Wal-Mart’s best growth engine for the future, as USA sales mature. In the past, Wal-Mart made acquisitions ( Japan, Brazil, Germany) just to gain a foothold in large countries. WM’s stock is down 17 % in the last two years. It looks like they are trying to show more discipline to the investment community by exiting lackluster markets. One thing for sure, WM will continue to aggressively pursue international deals. My bet is that future acquisitions will be #1 or #2 in their market.


    We joked yesterday that “the German experience has forced Wal-Mart to eat an enormous amount of crow, and that a little humiliation sometimes is good for the soul. (Only a product of Catholic education would make a statement like that…)”

    To which MNB user Rush Dickson responded:

    Those of us Protestants who have had our portion know the Church of Rome does not have a monopoly on crow.

    HOORAY for Wal-Mart, a true innovator in a brain dead industry. The point is they tried something, not that it did not work.


    And finally, an interesting and cautionary email from an MNB user:

    Kevin...I fear that you have become a Wal-Mart apologist..this might not fit well with your client base ...think about it and review your recent writings..your decision!...

    This is an interesting observation, though one that we suspect that the folks in Bentonville might disagree with. We have and will continue to subject ourselves to relentless self-examination, on the premise that we don’t want to be an apologist for anyone or anything, regardless of their size, strategy, culture or country of origin.

    We like to think of ourselves as an equal-opportunity provocateur (which fits in with our reader base, by the way, which consists of more than 16,000 people from virtually every major food retailer and manufacturer in the country, as well as a ton of what we would call “independents” and a healthy international base).

    But thanks for keeping us on the straight and narrow. It always is good to remember that we are being held accountable for the things that we say and write.
    KC's View: