Published on: September 5, 2006
Sometimes you go on vacation, and not much happens. Sometimes you go on vacation, and suddenly Pluto isn’t a planet anymore…and Wal-Mart embraces the gay and lesbian community. (Which of these events is more momentous sort of depends on your point of view. But we’re pretty sure that the occurrence of both things in one week suggests that, indeed, hell has frozen over.)
Just as a recap, here’s some of what happened while we were on holiday…with some brief commentary in italics
• There were numerous stories over the past few weeks about how Wal-Mart seemed to be taking a new approach to business and politics.
The Wall Street Journal
, for example, reported that Wal-Mart “is wooing some core Democratic constituencies as part of a strategy to fend off another round of election-season attacks from labor unions and politicians.
“In particular, the retail giant is giving to African-American and Hispanic lawmakers on the theory that many of their constituents are satisfied Wal-Mart shoppers and workers. More than 10% of the company's 1.4 million U.S. workforce is Latino and more than 16% is African-American.”
At the same time, Wal-Mart has joined Wal-Mart Stores has joined the National Gay & Lesbian Chamber of Commerce, hired a gay-marketing firm, and is even in discussions about extending domestic-partnership benefits to its employees.
Meanwhile, the Los Angeles Times
reported that “as the world's largest retailer tries to reach out to more diverse shoppers in its bid to keep expanding beyond its rural and Southern roots, it risks alienating loyal and long-standing patrons.”
So-called “pro family” organizations such as the American Family Association characterized the decision as rejecting the legacy of founder Sam Walton, and said that it showed the company was more interested in profits and stock prices than in traditional values. And even some members of the gay and lesbian community argued that the National Gay & Lesbian Chamber of Commerce was being hypocritical by doing business with a company with which it disagrees on many issues.
The retailer also reportedly is hiring Democratic Party-affiliated lobbying and public relations firms to represent its interests, even as it changes its health care benefits policies in the hope that it will make the company’s culture more palatable to a broader range of people.
Company CEO Lee Scott has hosted dinners for both the Congressional Black and Hispanic Caucuses. According to the WSJ
, “Ten years ago, 98% of Wal-Mart's political donations went to Republicans. Now, 70% go to Republicans, who control Congress and the White House, and 30% to Democrats.”
In addition to all these moves, Wal-Mart also has been making a lot of noise on the environmental front, working to cut pollution generated by its stores and vehicles and even going so far to invite former vice president Al Gore to its Bentonville headquarters to talk about global warming…and then gave him, no pun intended, a warm reception.There are a couple of different ways to read this, in our opinion. Some people seem to think that Wal-Mart is becoming more inclusive in its approach, while others think that it is trying to create fissures in traditionally Democratic constituencies.
We think it means that Wal-Mart has read the tea leaves, and realizes that everything is cyclical…and that, just maybe, the country’s conservative bent of the past quarter-century may be moderating somewhat. We’re not sure that it means liberalism will suddenly be in vogue, but everything changes over time and the pendulum swings and consumer attitudes shift.
Wal-Mart isn’t stupid. Consumer attitudes are an irresistible force, and when it runs into an immovable object, it isn’t good for anyone…including the immovable object.
• The Democratic Party-controlled California State Legislature last week passed the California Global Warming Solutions Act, which requires major industrial producers of such gases to reduce emissions 25 percent by 2020, and makes California the first state to tackle global warming by forcing caps on carbon dioxide and other gases. The bill is supported by Republican Gov. Arnold Schwarzenegger.
In an opinion piece run by Time
this week, John Doerr, a founder of the Greentech Network and a venture capitalist at Kleiner Perkins Caufield & Byers, wrote:
“The economic benefits are large and calculable. In California, the world's sixth largest economy, the Climate Action Team determined that global-warming reduction would increase income by more than $4 billion while providing 83,000 new jobs. Growth will come from several sources: innovative green technologies will create high-quality jobs and new revenue streams. In addition, companies will have increased purchasing power once they decrease energy costs and reduce imports of fossil fuels. The notion that businesses will leave the state is flawed because all suppliers that sell to California are affected, not only California-based suppliers. The doomsayers just don't get it: we can harmonize economic growth and environmental benefits.”
However, not everybody agrees.
A coalition called Sustainable Environment and Economy for California (SEE California) – of which the California Grocers Association (CGA) is a member – maintains that the law is a big risk to the state’s economy while providing little benefit for the environment. In a letter to the California State Senate, SEE California wrote that the bill “increases costs for California businesses, makes them less competitive, an discourages economic growth with little or no proven environmental benefit by adopting an arbitrary cap on carbon emissions. While we share your concerns regarding climate change, it is important that all strategies used to address greenhouse gas emissions ensure the infrastructure needed for advancing cleaner technologies, the availability of an adequate energy supply over the long-term, a strong manufacturing sector, and a thriving state economy.
“SEE California is committed to finding solutions and shares your desire to develop and implement a policy framework that will enhance California’s already strong leadership in the area of climate change, however…without the proper framework, the ambitious goals contained in this bill may never be realized and the political will to follow through will be weakened by an anemic economy.”The cold reality that SEE California must face is that the Governator never would have supported this bill if he didn’t think that it would help him get re-elected. Which means that the people of the state of California probably believe in the legislation…which is going to make it very difficult to battle.
We also think that you’re going to see more of these kinds of bills popping up in statehouses all over the country, as the global warming issue gains greater currency among the population. And when venture capitalists start supporting them, accusing the mainstream business community of being “doomsayers” who “just don’t get it”…well, that can have a major impact on the substance and style of the debate.
Al Gore may have lost the battle for the election. But by playing a major public role in bringing the global warming debate to the forefront (which will happen yet again when, like it or not, his documentary, “An Inconvenient Truth” starts getting end-of-year notice and awards), he may up winning the war.
• The US Food and Drug Administration (FDA), after years of debate that at times seemed more political than health-focused, ruled that the Plan B morning-after contraceptive pill can be sold over-the-counter to women older than 18 years of age. People under 18 will require a prescription.
The decision was cheered by reproductive rights advocates, who say that the availability of the Plan B pill will reduce the incidents of abortion in the US. It was decried by anti-abortion forces who argue, in essence, that use of the Plan B pill is abortion. While the decision may have been made by FDA, the political firestorm is not expected to die out. President George Bush said at a press conference that he agreed with the FDA ruling, which enraged many in the conservative wing of his party who form his base, and did so at a time when the mid-term elections are just months away, with Republicans already concerned about losing their majority in the Senate, House of Representatives, or both.
It is expected that Andrew C. von Eschenbach, acting commissioner of the FDA, now will be approved by the Senate and can take the word “acting” out of his title; the nomination had been held up pending an FDA ruling on the Plan B pill. However, questions continue to be asked by reproductive rights advocates about whether the three-year delay in approving the drug – even after a scientific review had deemed it safe – was politically motivated.
In a move that suggests how political and cultural winds may be shifting, Wal-Mart announced that it will carry the Plan B emergency contraceptive pill for over-the-counter sale, possibly by the end of the year.
• The New York Times
reported that coupon clipping “is a way of life, at first glance, that seems especially vulnerable to the relentless advance of the Internet, with its ability to aim at narrow groups of consumers and measure results. An estimated 99 percent of the roughly 300 billion coupons distributed annually in the United States — mainly in Sunday newspapers — end up in the trash, unused and unredeemed.”
However, “while the cool logic of efficiency suggests the traditional paper coupon is in imminent peril, the marketplace tells another story — at least so far. The coupon business is a case of new technology confronting a deep-seated commercial culture. Market practices, business relationships and consumer expectations developed over decades are not likely to be quickly swept aside.”Maybe not quickly, and maybe not completely.
But it seems to us that marketers have to start thinking about young people, who have little or no allegiance to traditional shopping patterns, and who will represent core consumers in just a few years. This is the generation that doesn’t remember a time without Amazon.com…and they don’t have to clip coupons to get deals on that website. Furthermore, they are used to highly targeted offers from Amazon, offers keyed to previous shopping behavior, offers that have nothing to do with the massive selection of coupons found in magazines or in freestanding inserts.
The Promotion Marketing Association says that the use of online coupons is rising rapidly, by more than 50 percent a year, but that they still account for less than 1 percent of the consumer goods coupons distributed.
This is going to change. It is inevitable. And the marketers that start preparing now for these shifts in consumer behavior are the ones that will, in the long run, win.
• The Pittsburgh Post Gazette
reported that “fresh evidence shows that high energy prices and sagging home values are pinching the main driver of the of the U.S. economy - the Average Joe's wallet. Retailers and economists say many Americans are waiting to buy big-ticket items and cutting back on frills. Homeowners are shelving plans to remodel kitchens. Families are dining out less and tightening their budgets.” And, at the same time, “homeowners are seeing a key source of their wealth lose value as housing prices fall in some parts of the country.”
The impact is seen across the board, in a variety of retailing venues, with even Wal-Mart – which normally might be expected to the beneficiary of tightened finances – finding that sales are being affected by fuel prices.
• Ahold continues to maintain that rather than meeting with the dissident stockholders that want to see the company sell off its US operations as a way of maximizing shareholder value, it will continue focusing on its own review of existing businesses, expected to be completed later this fall.
Meanwhile, the dissidents – hedge funds Paulson & Co. and Centaurus Capital – reportedly are looking to line up additional support for their position among other major shareholders.
• The Florida Times-Union
reported that Wal-Mart has passed bankrupt Winn-Dixie to become the second largest grocer serving the northeastern Florida counties of Baker, Clay, Duval, Nassau and St. Johns counties. Publix remains on top.
The difference, according to the paper, is that Winn-Dixie has been closing locations or hasn’t had the cash to improve the ones that it is keeping open; both Wal-Mart and Publix “are opening new locations or improving existing ones. They're focused on each other and the remaining competition while Winn-Dixie focuses on its sheer survival.”To us, the real issue isn’t whether Winn-Dixie has the money to spend. It is whether it has the vision to create compelling shopping experiences that are relevant to the modern shopper. We remain unconvinced that this is in the cards.
• The Los Angeles Times
reported that the California Korean American Grocery Retailer Association has filed a lawsuit against Wal-Mart and former United Nations Ambassador Andrew Young, who worked as an advocate for the retailer among minority communities. Young recently resigned after being quoted as saying that Jewish, Korean and Arab grocers "ripped off" African Americans by overcharging them for "stale bread, and bad meat and wilted vegetables."
The Association is seeking $7.5 million in general and special damages and an unspecified amount in punitive damages.Let’s see. Young has been disgraced in the public arena. Wal-Mart has been tarred by his stupid comments. And we suspect that nobody has stopped shopping at Jewish, Korean and Arab grocers because of the Young comments.
The Korean Grocers Association should take the high road and make sure that its members are doing a good job of serving their customers – all their customers. A lawsuit here has no purpose that we can see other than to drag out and give greater publicity an already ugly incident.
There must be a better way for the association to serve its members and to help them serve their shoppers.
• The Associated Press
reported on a study by Trust for America's Health saying that 31 out of 50 US states actually showed an increase in obesity rates last year, despite all the media attention paid to the country’s expanding waistline.
Mississippi is the heaviest state, with 29.5 percent adults there classified as obese – a 1.1 percent increase over a year ago. It is followed by Alabama, at 28.7 percent, West Virginia at 28.6 percent, Louisiana at 27.4 percent, and Kentucky at 26.7 percent.
The nation’s leanest state is Colorado, at 16.9 percent – slightly up from a year ago, but not enough to be considered statistically significant. About 18.2 percent of Hawaii’s population is obese, followed by Massachusetts at 18.6 percent, and then both Vermont and Rhode Island, each at 19.5 percent.
"Obesity now exceeds 25% in 13 states, which should sound some serious alarm bells," according to Jeff Levi, executive director of the Trust. "Quick fixes and limited government programs have failed to stem the tide.”
Among the recommendations being made by the Trust:
- Employers should offer employees nutrition counseling and subsidize health club memberships.
- The government should require health screenings for people on the public dole, with incentives for those who achieve and maintain good health.
- Local governments should adopt zoning regulations that encourage the creation of walking and bicycling paths and jogging routes that will help people get into shape.We agree with these recommendations. Sure, how much one eats and exercises is a matter of personal choice. But the strain on the health care system is enormous, and as a culture we ought to make it easier for people to make the choices that will help them live longer and more productively.
• The Wall Street Journal
reported how the retail wine market “is in upheaval because its many barriers are starting to crumble.” Not only are legal barriers preventing the direct interstate sale of wine to consumers being taken away, but companies like Costco are pushing for legislative reforms that would eliminate the protected status that many wholesalers enjoy in certain markets.It can’t happen soon enough. However, retailers need to be planning for the long-term, because as the
WSJ notes, once the playing field is level on a national basis, it will create an environment where a major retailer can look to make a coast-to-coast play – similar to how Starbucks has dominated the coffee business or Home Depot has worked the do-it-yourself business.
Establishing tight relationships with consumers that can survive such a competitive onslaught ought to be something that is done now…not later. Later inevitably will be too late.
• The Boston Globe
reported that despite a ruling by India’s health minister that Coca-Cola and Pepsi products did not have unsafe levels of pesticides – as has been alleged by a non-governmental research organization in that nation – seven Indian states have continued their partial or complete bans on the sale of those companies’ soft drinks because of health concerns.
However, analysts say that while some are emphasizing health concerns, the real issue is politics – with opponents of the soft drink companies really acting out of ideological motives that are focused on a kind of nationalism that rejects foreign investment and cultural influence.Go figure. Politics taking precedence over science and health. We’re shocked.
• Ad Week
reported on a Nielsen Media Research study saying that “consumers for the most part enjoy watching ad-supported media while grocery shopping and their buying decisions are often influenced by such messages.”
According to the study, more than two thirds of consumers questioned said that they would change their buying decisions based on information provided by an in-store ad supported media.We believe this is utter nonsense.
Okay, maybe that’s a little bit strong. But we think that how big an impact advertiser-supported media has in a supermarket largely depends on what message is being delivered and who the customer is that is being targeted. While there may be markets where two thirds of the customer base pays attention to such ads, we suspect that there also are markets where virtually nobody pays attention to them, and where the incessant droning of advertising becomes just more noise.
We continue to believe that one of the real flaws in the whole notion of in-store TV networks is that they become a “me, too” option…used by supermarkets to generate ad revenue rather than to increase their own brand equity.
We do think there is one advantage to them, however – they tend to have really cool flat screen monitors that look good. We were in a supermarket the other day that was broadcasting messages in the produce department on a 13-inch monitor with a built in VHS player. We have no idea what the message was (we think it was about different kinds of apples), but the damn thing looked like a hostage tape.
• As expected, Rite Aid Corp. announced its acquisition of Eckerd and Brooks drug store operations of Canada’s Jean Coutu Group Inc. for about $2.55 billion in cash and stock – a move that makes the company the largest chain drug store operator on the east coast, though it remains in third place nationally behind Walgreen and CVS.
“Adding these stores to our company gives Rite Aid scale comparable to our major drugstore competitors, and we believe this enables us to compete more effectively in a highly competitive business,” Rite Aid President and CEO Mary Sammons said in a statement.
• The Washington Post
reported on a new store opened by Ahold-owned Giant of Landover in Dunkirk, Maryland, the first of six stores that will be opened or renovated by the end of the month, designed “to turn Giant from a local grocer into a one-stop-shopping destination housing ‘stores within a store’ that sell items as varied as piñatas and pet leashes.”
For better or worse, the Post
notes that the new Giant looks a lot like Super Stop & Shop stores in New England…which perhaps was inevitable since many of Giant’s operations has been absorbed by Stop & Shop in an effort to consolidate, create efficiencies and save money. What remains to be seen is whether traditional Giant shoppers will embrace the new format – or whether they will see it as yet more evidence that the “local grocer” that they loved is but a distant memory.
• Trader Joe’s announced that it will open a store in the metro Atlanta, Georgia, market later this year.
Meanwhile, the Milwaukee Journal Sentinel
reported that Trader Joe’s will open its first stores in the Wisconsin market later this fall, but already is generating considerable buzz…even though it has done virtually no advance marketing.You need to read Len Lewis’s book, “The Trader Joe’s Adventure,” to get a good look at the strategies and tactics that TJ’s has made work for it. It wouldn’t take a lot of digits to count up the number of supermarket chains that can create this kind of anticipation…and we think that this needs to be the goal of every organization. Not necessarily with the same approach as Trader Joe’s, but definitely with the same desire to create a differential advantage that defines its place in the marketplace…and in the consumer’s heart.
• The Canadian Food Inspection Agency (CFIA) reported last week that the dairy cow from the province of Alberta that was found last month to have bovine spongiform encephalopathy (BSE), better known as mad cow disease, probably got it from eating feed contaminated with banned material.
The report came as Canadian officials confirmed that an eighth case of BSE had been identified in that nation.Which is remarkable, because US officials have pretty much declared that it is impossible for that many cases to even exist in our country.
A claim that, in our view, has much more to do with bull than cows.
• Ben & Jerry’s Homemade announced last week that it will stop using an egg supplier accused of mistreating its chickens. Company CEO Walt Freese said that it “seemed like the right thing to do.”
The moves comes after the Humane Society of the United States criticized Unilever-owned Ben & Jerry’s for buying eggs from Minnesota-based Michael Foods, which has been accused of keeping chickens in cages so small they can’t spread their wings, of having hens dying of starvation as well as dead chickens kept in the same cages as live ones, and other general mistreatment of their poultry. Ben & Jerry’s was informed of the infractions, according to the Humane Society, and promised to make a switch to another farm for eggs to be used in its products. Then Ben & Jerry’s apparently changed its mind, which caused the Humane Society to go public with its criticism.The thing about having a company tied to ethical issues and high-minded values is that you have to be consistent every step of the way. Especially these days, one misstep and everybody knows about it.
• The Indianapolis Star
reported that BML Investment Partners, the fourth largest shareholder in Marsh Supermarkets, has filed an objection with the US Securities and Exchange Commission (SEC), claiming that the sale of Marsh to Sun Capital does not reflect the full asset value of the food chain.
However, analysts do not believe that the BML filing will hinder the sale of troubled Marsh, which is scheduled to close later this month.
• Associated Grocers of Seattle has agreed to buy the Redmond, Washington, located operated by Larry’s Markets for about $430,000 and continue to operate it under the Larry’s banner. The store will be kept open while AG makes improvements in its various departments.
“We see a great opportunity to re-establish the Larry's Redmond Town Center location as one of the prominent supermarkets on the Eastside. It is our intention to make the store a key member of the Redmond Town Center business community, working with the store's customers, employees and neighboring businesses to provide an exceptional shopping experience," said John Runyan, AG's President and CEO.
Larry’s Tukwila store will be sold to an independent company, Tukwila Trading, for $200,000.
And, Larry’s North Seattle store will be sold for $500,000 to Hop Thanh Supermarket.
The Seattle Times
reports that these sales essentially close the books on the recent, sad history of Larry’s Markets, which once had a national reputation for innovation and strong foodservice excellence.
Larry's other stores that were bought last week by Metropolitan Market and a real-estate firm called TRF Pacific.
• Safeway announced that it has awarded its $200 million advertising account to Omnicom Group's DDB of Chicago. The decision came after Safeway decided to put its ad business up for review just a year after adopting the “Ingredients for Life” campaign that was engineered by Dailey & Associates, its longtime agency.
• Crain’s Chicago Business
detailed how McDonald’s believes its future is in chicken sandwiches, salads and healthier fare, while the opposition – notably Burger King, Hardee's, Carl's Jr. and Jack in the Box – “all have introduced bigger hamburgers in the past couple of months, tapping into a rise in burger sales across the fast-food industry.”
The basic issue seems to be whether the core product offered by all these chains is the hamburger – or whether the core product is speed and convenience, and that the kind of food served is more a matter of cycles and trends.We’d vote for the latter approach. We think that the food itself isn’t as important as the convenience and the kinds of toys and incentives offered to kids. If taste were important, nobody would go to any of these places. (Except to our favorite, Burgerville, out in the Pacific Northwest, where taste and nutrition actually seem to be a priority.)
We’ll tell you this. During our drive to Chicago while on vacation, we tasted McDonald’s new tortilla chicken wrap…and think that if this is the best they can do, it is time to hire a new chef. We’ve tasted cardboard with more flavor.
• Wal-Mart announced that it will not challenge the city ordinance in Turlock, California, that prevents the construction of big-box stores bigger than 100,000 square feet that devote at least 5 percent of their space to groceries.
Wal-Mart already appealed the ordinance to the US District Court, but lost. Turlock has been the center of attention in California, one of several communities that have sought to stop Wal-Mart from opening planned supercenters throughout the state.We think that Wal-Mart is right to drop its challenge and move on. They should go where they are wanted.
• Crain’s Chicago Business
reported on how Starbucks is doubling its expansion pace in the Windy City, planning to add as many as 250 stores in the next five years.
writes, “Starbucks is saturating the U.S. with more locations to boost its yearly sales 20%, even as concerns about slowing consumer spending linger. The aggressive expansion — 2,400 new stores planned around the world next year — comes as the company faces new rivals in the market for specialty coffeehouse sales, which was $10.6 billion in 2005. In recent years, Dunkin' Donuts and even McDonald's Corp. have moved in on Starbucks' turf.Forget calling Chicago the “Windy City.” Now it’ll be “Seattle by the Lake.” Which is okay with us, since it means wherever we’re there, a venti skim latte will always be just a block or two away.
• Crain’s Chicago Business
reports that “a group of Starbucks employees in Logan Square have joined a union, the first group outside of New York, despite the coffee company’s refusal to recognize organized labor.” The workers have affiliated themselves with the Industrial Workers of the World Starbucks Workers Union “in an effort to increase hourly pay, have a guaranteed number of work hours per week and to reinstate employees who they claim were fired for union organizing activity. Union representatives declined to disclose membership numbers.”
The union is demanding a pay increase to $10 an hour for entry-level workers from the current $7.50 an hour, as well as guaranteed minimum hours and healthcare benefits.
• Couche-Tard has acquired 54 company-owned c-stores under the Holland Oil and Close To Home banners in Ohio from Holland Oil. Terms of the deal were not disclosed.
• In a move reminiscent of Wal-Mart-owned Asda’s strategy of opening stand-alone George clothing stores in the UK, Loblaws reportedly will open two Joe Fresh Style clothing stores in Toronto, looking to expand the equity that it has built up in the clothing line currently cols in its superstores. The decision is seen as a way of girding for Wal-Mart’s expansion of its supercenter business into Canada.
• The Carnival Supermarkets chain, based in Dallas-Forth Worth, opened a 24th store that it described as a flagship unit unique positioned to serve the area’s fast-growing Hispanic population.
• Target announced that it will launch at least 18 new in-store medical clinics this fall, partnering with Medcor in opening the new facilities. Target used to work with MinuteClinic, but abandoned that relationship when it was acquired by CVS.
The new arrangement, according to the Minneapolis/St. Paul Business Journal
, will give Target more control over the clinics than it had in the past.We still think that you’re going to see retailers like Target, Wal-Mart and Walgreen making moves like CVS did – acquiring companies that operate these clinics so that they have more control and can take advantage of the long-term growth potential.
• Meanwhile, Wal-Mart announced that it has contracted with Healthy Access to open in-store health clinics during the third quarter in a number of markets, including Texas