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    Published on: May 21, 2007

    Wal-Mart, the world’s biggest and – in some quarters – most feared retailer, has been the subject of much speculation in recent days, in part because a number of strategic moves, such as its urban and high fashion initiatives, seem to have been less successful than the company hoped.

    To get a sense of the company’ prospects and perspective, we turned to author William H. Marquard, who, as a consultant with Ernst & Young, established and ran Wal-Mart's first-ever strategic planning process. His recently published book, “Wal-Smart: What It Really Takes to Profit in a Wal-Mart World,” is a fascinating look into the company, what one can learn from it and how to compete against it…and we thought he’d be an interesting person with whom to speak.

    MNB: Watching the goings-on at Wal-Mart reminds me of the old days when Kremlinologists would try and figure out what was happening in the Soviet Union...especially with people changing positions and Lee Scott last week seemingly trying to downplay his role in things like choosing store locations and choosing marketing plans. What’s your sense of the internal climate at Wal-Mart these days?

    William H. Marquard: One of the characteristics of a “strong-process organization,” which I describe in detail in Wal-Smart ( , is cross-functional mobility. Strong-process organizations can cross-train their leaders by rotating them through a variety of positions – the processes are strong enough to support and teach the leader in the rotation. For example, Lee Scott started in distribution, and then led merchandising before rising to the CEO role. Therefore, many of the current moves at Wal-Mart are part of an intentional plan to cross-train leaders and bring fresh thinking to departments.

    That being said, Wal-Mart is clearly the target of a number of external forces, including unions, environmentalist groups, governmental organizations, and NGOs. As CEO, Lee Scott needs to run interference on these issues in order to give John Menzer, Eduardo Castro Wright, and Mike Duke the air cover they need to run the core business.

    MNB: Our feeling is that Wal-Mart has reached the point where it has sold about as much typical Wal-Mart merchandise to typical Wal-Mart customers, which has necessitated it moving into new (urban, upscale) markets. But do you think the company might be better served by developing new formats to serve its existing customers, rather than trying to use tried and true formats to appeal to new customers?

    William H. Marquard: In Wal-Smart, I cite that in today’s environment, the battle for retailers is over trips, not loyalty. For example, the average family purchases grocery products five times per week. That includes everything from the stock-up trip to SAM’s CLUB or Costco, the weekly fill-in trip at Kroger, and the convenience trip to the c-store to pick up milk or bread.

    Gone are the days when a consumer was loyal to just one primary grocery retailer. Each family assembles its own virtual “shopping mall” with the combination of stores it needs to serve the varying tastes and needs of the family.

    Although supercenters are a “one stop shop” for a variety of food, general merchandise, and soft goods, they may only fit one of those five weekly shopping trips. SAM’s CLUB and Neighborhood Markets each fit other types of those five trips. Therefore, an expansion of formats to meet those other weekly trips would intercept more of the target customers’ shopping dollar.

    In the U.S., there is a wide-open niche to be the relevant retailer for needs-based urban consumers. Target won’t go there because it doesn’t fit the “target” customer demographic. Kmart should have gone there five years ago because its base of well-positioned urban real estate was a strong competitive advantage. (In fact, as the executive vice-president of Kmart’s largest supplier in 2001-2002, I encouraged them to embrace this market.) Although that customer best fits Wal-Mart’s household income demographic, unions will continue to fight hard to sustain wage levels that don’t necessarily match the price points of Wal-Mart customers.

    MNB: You write in your book about the importance of Wal-Mart’s sense of focus, and yet it seems to have lost that lately with its foray into “upscale marketing,” its legal issues with Julie Roehm, and its seeming preoccupation with improving its public image. Is this a fair characterization? And do you think that losing focus is inevitable when a company gets as big and successful as Wal-Mart?

    William H. Marquard: When looking at focus, one needs to separate core business execution from “tests.” Focus is most important in executing the core business and making sure that every employee in the company is executing against the productivity loop: reduce costs, reduce prices, increase sales, increase profits (and repeat).

    Yet Wal-Mart is constantly testing new ideas, new products, new lines of business, new formats, etc., consistent with the “correction of errors” and “we can make it better” elements of the culture I also discuss in Wal-Smart.

    Almost twenty years ago when the hypermarket experiment at Wal-Mart was shut down, it received scant attention. (By the way, what Wal-Mart learned from that experiment became today’s supercenter growth engine). Yet today, every “test,” like upscale marketing, gets the same scrutiny as the paparazzi chasing Brangelina’s newest adoptee.

    The critical element for Wal-Mart is not losing focus on the execution of its core business and its core value proposition. With 1.8 million employees worldwide, that is a daunting challenge.

    MNB: When Wal-Mart does things like hand out lots of bonuses, get involved with sustainability, etc., do you think that it is cosmetic or a real attempt at a cultural shift?

    William H. Marquard: Consumer marketing guru Leo Shapiro likes to tell the story about an ugly and curmudgeonly prince. In order to attract a beautiful woman, he has to wear a mask that projects handsomeness and honor. He ultimately begins to act like the mask, becoming the person he aspires to be. He assumes the mask of the good prince.

    What Wal-Mart is embracing is a concept I call “Find the AND” in the book. The winning corporations in today’s economy are the ones who realize that their community, environmental, and social strategies can actually drive shareholder value. Those social and philanthropic activities, once considered a “necessary cost of doing business,” are in fact a portfolio of investments that actually improve shareholder value. Company executives must intentionally align their social and philanthropic activities with their business strategies, going narrow and deep to create a noticeable difference in the communities in which they operate.

    MNB: Do you think that because if its size, Wal-Mart may be easier to compete with today than it was, say, five years ago?

    William H. Marquard: Former CEO David Glass used to say “if our competition only knew how many mistakes we make.” On the one hand, Wal-Mart has a 10% share of the U.S. retail market. On the other hand, that means they have a 90% rejection rate every day: 90% of Americans choose to shop somewhere else than Wal-Mart each day.

    One of the key messages in Wal-Smart is that as competitors in any industry with a giant player, we have to make three smart choices: to differentiate, to emulate, and to dominate. Differentiate away from the giant; emulate that subset of the giant’s best practices that fit your differentiated business strategy, and dominate the major portion of the market the giant doesn’t or can’t play in. The market is wide open for many retailers to fulfill a differentiated position and coexist with Wal-Mart.
    KC's View:

    Published on: May 21, 2007

    The Miami Herald reports that the US Food and Drug Administration (FDA) has ruled that farmed fish that may have eaten food imported from China that was contaminated with the toxic compound melamine is in fact safe to eat.

    According to the story, the fish were “raised at Kona Blue in Hawaii and American Gold Seafoods in Washington state” and “were found negative for the chemical melamine.” The FDA also noted that while the questionable feed was also sold to 196 fish hatcheries, those fish are so small that there are no health concerns about humans who might eat them.

    The ruling is similar to one made last week by the US Department Of Agriculture (USDA) which said that some 56,000 pigs that ate feed tainted with industrial chemicals such as melamine – which originated with wheat gluten imported from China – can be slaughtered and allowed into the human food chain. USDA said that the toxic compounds are so diluted as to be harmless to people who eat meat from the pigs.

    However, the Chinese government continues to deny any culpability in the contaminated feed, which nevertheless has resulted in the pulling of more than 150 brands of pet food from US store shelves; dozens of animals reportedly have died from having consumed the tainted pet food.

    The Washington Post notes that “the highly publicized contamination of U.S. chicken, pork and fish with tainted Chinese pet food ingredients and this week's resumption of high-level economic and trade talks with China -- has activists and members of Congress demanding that the United States tell China it is fed up.”
    KC's View:
    We hope the folks down in Washington don’t spend too much time congratulating themselves. While the contamination may be so limited that it won’t hurt anyone, there are still a bunch of pet owners who are ticked off, and plenty of consumers wondering how good our nation’s food security is…since, after all, the contaminated feed got into the US to begin with.

    Published on: May 21, 2007

    The Reuters/University of Michigan Surveys of Consumers reported on Friday that its preliminary May index of consumer sentiment index rose to 88.7 from April’s 87.1.

    The suggestion is that consumers have not been bothered by surging gasoline prices, and have been heartened by a strong stock market and a sense that the job outlook is strong.
    KC's View:
    All this proves is that the American stomach for high gas prices is stronger than we might have thought. If three dollars a gallon doesn’t frustrate people, maybe four dollars per gallon will. Because it is coming, and there are plenty of analysts who believe that five and six dollars per gallon may not be far behind.

    Published on: May 21, 2007

    • Coincidence or not, both the New York Times and the Los Angeles Times had stories over the weekend focusing on Sen. Hillary Clinton (D-New York) and her service on the Wal-Mart board of directors from 1986 to 1992.

    The Los Angeles Times writes: “Former Wal-Mart Stores Inc. board members and executives recall Clinton as a politically nimble insider who cautiously tried to nudge the company toward hiring more female executives and environmentally friendly practices, to limited effect, while remaining silent as Wal-Mart pursued anti-union strategies.”

    The LAT goes on: “Crowded with the others around metal folding tables in the kitchen of a converted warehouse — a no-frills board room selected by ‘Mr. Sam’ himself — Clinton assumed the role of loyalist reformer, making the case for measured change without rocking the boat.

    “She voted on company policies and joined several advisory committees during a period that was a turning point for the firm as it transformed rapidly from a regional chain of cut-rate stores to a worldwide retail powerhouse. Her Wal-Mart tenure exposed Clinton to the inner workings of a mega-corporation, and foreshadowed an impulse in her political career to both prod and accommodate big business.”

    The New York Times reports: “According to fellow board members and company executives, who have rarely discussed her role in Wal-Mart, Mrs. Clinton used her position to champion personal causes, like the need for more women in management and a comprehensive environmental program, despite being Wal-Mart’s only female director, the youngest and arguably the least experienced in business. On other topics, like Wal-Mart’s vehement anti-unionism, she was largely silent, they said.

    “Her experience on the Wal-Mart board, from 1986 to 1992, gave her an unusual tutorial in the ways of American business — a credential that could serve as an antidote to Republican efforts to portray her as an enemy of free markets and an advocate for big government.”

    The Observer reported in the UK that Wal-Mart-owned Asda Group plans to open as many as 300 homeware stores, called Asda Living, in coming years, with CEO Andy Bond saying that this will be a key “avenue of growth.”

    • The Wall Street Journal reports that Wal-Mart is working with a discount brokerage, ShareBuilder Corp., to offer low-cost investment services under the name Wal-Mart Easy Investing by ShareBuilder. The move comes two months after it withdrew its application to open an industrial bank, an effort that was opposed by many in the traditional banking business because of concerns that Wal-Mart would develop a larger financial services portfolio.

    Because of legal restrictions, Wal-Mart won’t get a percentage of trading fees, but will get a straight payment by the brokerage. The service is already being offered on its website, and will now be offered in stores as well.
    KC's View:
    It is all about angles. If one doesn’t work, Wal-Mart tries another. But the momentum is almost always forward, and there is no such thing as complacency.

    Published on: May 21, 2007

    • The Las Vegas Business Press reports that when Tesco opens its US stores, the company will employ non-union personnel…though this conclusion seems to be drawn from statements being made by organized labor.

    “At the recent Ward 5 town hall,” the Business Press writes, “a representative of United Food & Commercial Workers Union Local 711 spilled the beans. Secretary Treasurer Mike Gittings told the crowd Tesco would be picketed from day one because it was freezing the union out of its stores. In a later interview, he was less dogmatic, saying the picket lines were ‘possible’.

    “Gittings told the meeting the American unit of Tesco was hiring human resources staff and telling them ‘to use union-avoidance tactics’.”

    Tim Mason, who is running Tesco’s US operations, was not quoted in the story.

    • In the UK, The Mail reports that Tesco plans to launch a website later this year that will enable consumers to compare the financial services that it offers to those offered by other companies.
    KC's View:

    Published on: May 21, 2007

    The Boston Globe reports on Rep. James P. McGovern (D-Worcester) and his efforts to demonstrate that the food stamp allocation in the US “is inadequate and forces the poor to make impossible choices among food, rent, heat, gasoline, and healthcare.” To do so, McGovern existed last week on the same amount of money that food stamp recipients do.

    “From breakfast last Tuesday morning (a banana and tap water) to dinner Monday night (whatever he has left), the Democrat from Worcester is eating on a total of $21, or $1 per meal,” the Globe writes. “Nationally, the average monthly food stamp benefit in fiscal 2005 was $94.05, or about $3 a day, according to the US Department of Agriculture. (It ranged geographically from $76.39 in Wisconsin to $163.85 in the US territory of Guam.)”

    "Our point in doing this was to get attention, to get people talking, and to raise awareness," he told the Globe. "It was also for us to learn. That's happening."
    KC's View:
    We have long felt that the nation’s representatives aren’t very good at representing us since they don’t have to deal with the same sorts of issues in supermarkets and airports, to name just two places, that the rest of us do. We applaud Rep. McGovern’s experiment…and hope the empathy extends past the time when he returns to a more privileged lifestyle.

    Published on: May 21, 2007

    • Meijer Inc. has opened a new “green store” prototype in Michigan, which CEO Hank Meijer described as embodying “design and construction practices that significantly reduce or eliminate the negative impact on the environment and on our customers." The store is built on a former landfill and includes efficient heating and cooling systems and illumination systems as well as low-irrigation landscaping. It will reportedly be certified as a LEED building (Leadership in Energy and Environmental Design) by the US Green Building Council.

    • The Cincinnati Enquirer reports that Marsh Supermarkets, which is converting two of its Cincinnati-area LoBill stores to its Marsh Hometown Market format, also plans to convert four Indianapolis-area stores to from LoBill to the Marsh banner.

    • In Ireland, Superquinn reportedly has sold six of its properties and will now lease them back – a move that the company estimates will bring it close to $200 million (US). Simon Burke, the company CEO, said the funds would be used to pay down the debt acquired when the chain’s ownership. Select Retail Holdings, acquired Superquinn from its founder, Feargal Quinn, in 2005.

    • The Cincinnati Enquirer reports that Kroger will build a private label soy milk processing plant in Hutchinson, Kansas.
    KC's View:

    Published on: May 21, 2007

    • The Great Atlantic & Pacific Tea Co. (A&P) announced that it has hired Douglas Palmer, most recently vice president of Consumer Brands at Safeway, to be its new vice president of Own Brands.
    KC's View:
    This could be significant in predicting A&P’s future direction, since the press release announcing the appointment notes that at Safeway, Palmer “led the development of the company’s brand rationalization and consolidation initiative, the redesign of its own brand labeling, and the launch of its corporate organic products brand. Under his direction, Safeway’s Consumer Brands program garnered numerous packaging and product awards in connection with its O Organics, Safeway Select and Eating Right product lines.”

    Though we think it is fair to say that A&P isn’t Safeway when it comes to vision and implementation.

    Published on: May 21, 2007

    Last Friday, in “OffBeat,” we wrote:

    “I keep reading that people in the US automobile industry are worried that improved mileage standards will hurt the car companies and cost jobs.

    “I don’t get it. What jobs? And why?

    “If the US automobile industry banded together on a major project to create a car that would, say, get a minimum of 50 miles per gallon, and did so with the same kind of dedication and declaration that President Kennedy brought to sending a man to the moon, wouldn’t this create jobs? If there were some sort of incentive – like a multi million dollar prize – wouldn’t this get all the country’s great minds working on a solution that would both address the environmental problem and help address the issue of energy dependence on foreign and sometimes unfriendly governments?”

    Well, an MNB user directed us to a website promoting something called “the Automotive X Prize, which is designed “to inspire a new generation of viable, super efficient vehicles that help break our addiction to oil and stem the effects of climate change.”

    In terms of the judging criteria, the winning entrant will:

    • Be simple to understand and easy to communicate.
    • Benefit the world - this is a global challenge.
    • Result in real cars available for purchase, not concept cars.
    • Remain independent, fair, non-partisan, and technology-neutral.
    • Provide clear technical boundaries (i.e., for fuel-efficiency, emissions, safety, manufacturability, performance, capacity, etc.).
    • Offer a "level playing field" that attracts both existing automobile manufacturers and newcomers.
    KC's View:
    We wish all the entrants well, and hope they change the world.

    Published on: May 21, 2007

    In “OffBeat” last Friday, we wrote about how the County Legislature in Rockland County, has passed legislation that would make it illegal to smoke a cigarette while driving a car with children in it. We wrote:

    Now, let’s be clear about this. You will find no person who is as anti-smoking, and anti-tobacco company, as I am. They all ought to burn in a particularly hot corner of hell, choking on their own product. And I think parents who expose their kids to this stuff can be accused, at the very least, of being negligent…That said, this legislation in nuts. At what point does the government stop sticking its nose into people’s personal business and decisions?

    The chief health official in Rockland was quoted in the story as saying that case law has shown that a person’s car is not his or her own domain, that a person’s car is a public place and therefore this legislation is both appropriate and constitutional…This is craziness. There has to be a point at which people actually are allowed to make decisions for themselves, to act on the information that is available to them. I think it is fair to say that pretty much everybody knows that smoking kills and that secondhand smoke is almost as bad. Anybody who thinks otherwise is, to put it kindly, a moron.

    But until the day that smoking is made illegal in this country, I think you have to allow people to do it in places that are specifically theirs. Like their homes and their cars. And if their actions hurt their children, well, I’m not sure that arresting and ticketing them is the best solution.

    We may have to settle for knowing that the circle of hell reserved for tobacco executives is going to be a little more crowded.

    This generated some fairly diverse reactions.

    MNB user Bret Sharp wrote:

    In your reaction to the anti-smoking legislation, I think you go too far in defense of “people’s personal business and decisions”. Most of our criminal laws are intended to protect the innocent from other people’s decisions. Children in the cars of these irresponsible people, making these life-threatening decisions, are the innocent victims of a crime. Much like the drunk driver who makes a personal decision to get behind the wheel of a car and jeopardize the lives of every other vehicle on the road around them is considered a criminal, so should these parents.

    You mention in your comments, “…everybody knows that smoking kills and that secondhand smoke is almost as bad”. Why then shouldn’t innocent children be defended and protected, by our government, from the life-threatening circumstances these irresponsible parents impose upon them? What’s more important to you…the government imposing it’s will on the people, or irresponsible criminals being allowed to impose their will on the innocent? History has proven that we need someone to police our society and try to protect the innocent and punish criminals when their “personal business and decisions” make others their victims. Your “little circle of hell” for the tobacco executives won’t bring back an innocent child, whose life is cut short, by a disease caused by secondhand smoke.

    On behalf of myself and the innocent victims in the car with these people, I say, “you are way Offbeat on this one”.

    Another MNB user wrote:

    Long time subscriber, usually agree enough not to feel the need to write.

    Smoking in the car with your children is child abuse, plain and simple. When people are defenseless, it's up to the community to help defend them. I know you will get a lot of e-mails on this one so I won't beat you up over it (my initial reaction was pretty angry at your perspective).

    MNB user Richard Thorpe wrote:

    You stated “And I think parents who expose their kids to this stuff can be accused, at the very least, of being negligent.”

    If the parents are negligent for smoking around their children, wouldn’t they be negligent for smoking in the car, or in the house or subjecting their children to smoke anywhere.

    I am not sure I agree with this legislation either BUT, in winter, windows closed, 30 minute drive, 2 cigarettes, kids in the car, round trip?? Small apartment, windows closed, pack a day, kids exposed all day long…

    Sounds horrible. Is horrible. But we fear that this is an extraordinarily slippery slope.

    We agree that smoking and tobacco are horrible, addictive, lethal habits. But the solution here isn’t to ban parents from smoking around their children. The solution is to simply ban tobacco altogether. Plow up the tobacco fields and plant corn, which can be used for ethanol. Or vineyards, which will trade one vice crop for another, albeit one that doesn't by its very use almost guarantee an early death.

    Another MNB user wrote:

    While no supporter of smoking either, the city, county and state governments are going off the cliffs in droves. In Central Illinois, Champaign and Urbana, home of the gutless University of Illinois, passes smoking bans. Then watched as bars and restaurants of long standing started laying off workers and several even closed.

    At the recent municipal election, the issues were not, education, taxes, public safety; nope, either for or against the smoking ban. The smokers won and the ban is under consideration to be revoked.

    Now the State of Illinois, home of an obscure state legislator---who introduced very minor bills, even with his party in the majority, Barack Obama, wants to outlaw smoking statewide, because the smoking ban cities are getting killed with people crossing city lines and taxes going down and business people up in arms. If you are a woodworker and make cabinets in your shop with no employees, you can't smoke in your own building. Your workplace is no longer yours even if you own it?

    If there ever was a time, when the markets can determine something, this is a text book case. Not a smoker, just don't go to where they smoke. Smokers go to where they do. Each owner can set his or her own policy. Isn't this how democracy is supposed to work, why get the government intruding if the free flow of markets will settle the issue with out rancor?

    Wait a minute. We don’t want to be misinterpreted here.

    Smoking bans in the workplace, and in public places like bars, restaurants and sporting arenas are a very good idea, and have made such places far more palatable. These are, after all, public places. What we object to is the government creating regulations for private spaces. Like our car. Or home.

    By the way, we are so anti-smoking that we will go on the record as saying that if we ever go out and hire someone else to work on MNB, we will only hire nonsmokers. Call it discrimination if you like, but there it is.

    We wrote nice things about Publix last week, and its new meal assembly pilot program, which prompted MNB user Jackie Lembke to respond:

    To the best of my knowledge there are no Publix in Kansas, but I can hardly wait until one of the grocery stores in Wichita starts offering meal assembly on site. I think this is the way to compete against Wal-Mart (unless they do it first). The shopper is in your store using your products. Not only are you competing against other grocery stores but also any operator that sells food. Great idea.

    We picked on the Culinary Institute of America (CIA) last week, suggesting that perhaps its desire to be a money machine and obtain corporate sponsorships may have led it to take its eye off the ball, resulting in a restaurant experience on its Hyde Park campus that was mediocre at best.

    To which one MNB user responded:

    You deride CIA for its corporate sponsorships, yet almost all of your news sections are punctuated by corporate sponsorships.

    True. But we don’t think anyone would accuse us of being less trenchant or cranky or sardonic because of those sponsorships. In other words, we don’t think we’ve stopped saying and writing the stuff that other sites don’t say precisely because they don’t want to annoy their sponsors.

    FYI…every sponsor of MNB has signed up because the executives at those companies read the site and figure that if they think of MNB as must-reading, then so must the companies with which they are trying to communicate. And they sign on knowing that we have the potential on any given day to be politically incorrect.

    But always, we hope, readable.

    Which is sort of what MNB user Bruce Christiansen seemed to be saying in his email about last week’s “OffBeat”:

    First, another story of government run amok. Getting more and more concerned that the “land of the free and home of the brave” continues to move ever closer to an Orwellian Big Brother culture. Not a partisan problem, as it seems that one party is going to tell us everything to do, the other party is simply going to do what they want to and make us pay for it…both approaches equally dangerous, and I can’t think of a single problem where more government involvement has been a constructive part of the answer.

    Second, energy practices and policies. You correctly point out that government taking a leadership position and providing vision, and then creating infrastructure designed to help facilitate solutions (like Kennedy did in stating we should put a man on the moon within the decade, and later forming NASA to facilitate and coordinate all of the related science and engineering required) is the correct role for government to play…interesting this came up in the same issue where you point out that Safeway has taken a novel approach to energy acquisition and development. Capitalism will solve 100 times the problems that bureaucracy will (see above). Can you imagine all of the breakthroughs and economic opportunity if we were to say that within a decade we will no longer import a single barrel of oil?

    Third, Jackie Robinson. Haven’t read the book (about his first season in the major leagues), but ordering it from Amazon today. As a baseball fan, and a bit of a history buff, you are the only other person I know who believes Jackie was so important to this country. In 1947, baseball was America’s pastime. The afternoon double header was part of culture, kids (of all races and socioeconomic groups) played every afternoon, business schedules were finagled around game times, etc., etc. What made Jackie so important was that he was such a gifted player in America’s game, and he made it OK for white fans to cheer for a black player (granted, not all fans cheered for him, but many did). That, I believe, allowed for the ugliness of the treatment of blacks to become part of the social conversation, to say nothing of the leadership of Branch Rickey and the dignity of Jackie to stand tall during this period…yes, leadership and dignity really do matter (see paragraphs one and two above).


    The book is “Opening Day: The Story Of Jackie Robinson’s First Season,” by Jonathan Eig. If you’re interested in baseball, or just the period of the late 1940s during which Robinson broke baseball’s color barrier, you should go right now to and order it.


    KC's View: