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    Published on: May 30, 2007

    We were at Staples the other day, and noticed that an enormous number of products there seemed to be private label. Then, we went to Costco, and saw that its private label tuna fish was actually more expensive than the national brand positioned next to it. Later that day, we shopped at both Trader Joe’s and Stew Leonard’s, two retailers that do an extraordinary business in packaged and fresh private label products, respectively.

    Coincidence? We think not.

    The simple fact is that private label is one of the chief weapons in a retailer’s ability to differentiate itself. And so it was timely when we received “over the transom” (a phrase, we should note, that is so completely out of date that it clearly defines us as an old guy simply for using it) a report from management consultant W. Frank Dell on private label strategies. Dell’s premise is that the most common approaches to private label lack any foundation in economic theory, which results in millions of sales and profit dollars being lost each year.

    With this in mind, we decided to engage Dell in this exclusive e-interview:

    MNB: Traditionally, Private Label has been priced attractively compared to National Brands…and yet Costco seems to always have its Private Label tuna priced higher than the comparable National Brand, What does this tell us about Costco both strategically and economically?

    Frank Dell: To start with you have picked one of the few retailers that actually has a Private Label Strategy. Costco started their Private Label program by co-branding with National Brands, which established their quality quotient in the consumer’s mind. They were then able to expand their Private Label line as a truly National Brand equivalent and therefore did not require the large price discounts you have traditionally observed.

    Recently, Costco was selling Kirkland Albacore tuna (8 pk, 6 oz) for $8.99, Bumble Bee Albacore tuna (10 pk, 6 oz) for $10.99 and Chicken of the Sea chunky light (16 pk, 6 oz) for $8.99. On a per unit measure Kirkland is the highest, yet on a transaction measure they are $2.00 less than Bumble Bee and equal in price to Chicken of the Sea. This illustrates two points we make in our most recent edition of Dellmart Perspective. First, retail pricing tactics are different by consumer shopping trip. Pantry loading (club) is a different shop than fill-in or immediate consumption (supermarket). Second, competitive type Private Label products should be priced based on true quality and strategic achievement. Excessive price discounts equate to lost sales and profits.

    MNB: Is it your sense that when Tesco starts opening stores in the US, it will use Private Label – especially in the prepared food arena – the same way as it has in the UK? How do you think Tesco will differentiate itself both in terms of Private Label and Prepared meals? And how should competitors in California, Arizona and Nevada respond?

    Frank Dell: Prepared food, fresh meat and produce are all store branded by the consumer, yet typically are not Private Label. This is a missed opportunity and an indication of not having a Private Label strategy. Private Label prepared food was started by UK retailer Marks & Spenser, followed by Tesco and Sainsbury.

    American retailers are facing a very real competitor in Tesco, as they are one of the world’s best merchants. They were early to learn and now excel at target consumer marketing. Further, Tesco has correctly identified that the American shopper is trending towards the European pattern. Meaning weekend shopping is for pantry loading and daily is for immediate consumption.

    I anticipate Tesco will open these stores with 30% to 35% Private Label including prepared food. Over time Private Label will increase to over 50 percent. Just like with Wal-Mart, local retailers will require a plan to effectively compete. It starts with target consumers. When a retailer’s target consumer shops Tesco, it loses sales. One hint: the Tesco shop will be a fast one, thus consumer time from entering the store to leaving will be a factor.

    MNB: Something we noticed recently while in a Staples was how much product it has converted to Private Label…the numbers seem to grow with every visit. From a pricing perspective, what are the advantages of Staples making such a move? And what is the “below the surface” strategic point that most people may not be seeing?

    Frank Dell: Non-food retailers are classified as good, better or best based on their merchandise quality. Staples would be classified as “good” since they sell lower quality merchandise. This achieves a low price image for Staples, which helps capture the sales of traditional stationery stores. Staples’ founders were from the grocery industry and their Private Label program reflects this. Initial Private Label items were basic or core items of lower quality or second tier aggressive priced. This re-enforced their low price image.

    As we point out in our Dellmart Perspective, consumers purchase based on value, which is the ratio of quality and price. Quality is defined as how a consumer expects the product to perform. Low quality and low price do not always equate to high value. Too low a price can be detrimental to sales.

    I have observed the same increase in Staples’ Private Label items and space allocation for them. It is now to the point where a consumer must hunt for a name brand item. Staples appears to be following the Ann Page plan so named for A & P’s failed Private Label program. Their Buyer/Merchants appear to have a case of Gross Margin infatuation. They are so thrilled with the Private Label Gross Margin percent they just keep adding items and space. This lacks a true customer focus and a real Private Label strategy.

    Activity Based Costing studies have shown excess space allocation turns even high gross margin items into negative profit contributors. Slow selling Private Label items are rarely profitable. All too often, Gross Margin infatuation leads to low volume Private Label items. Over loading Private Label works when you are the only store in town, but long-term consumers will seek alternative sources.

    MNB: What do you think is the biggest missed opportunity today for mainstream retailers that may have Private Label products, but aren’t using them effectively?

    Frank Dell: The single biggest missed opportunity is not having a comprehensive Private Label strategy making the store a customer destination and achieving a significant competitive point of difference. Most retailers’ rationale for Private Label is as a profit improver. Meaning their objective is to increase their gross margin percent. New traditional retailers pull customers into their store with their Private Label. In the real world most retailers have outsourced their Private Label program to a broker and use rebates as a profit center. Dellmart’s Private Label Buyer Survey tells us retailers stock on average 2,300 Private Label items. The vast majority of these items are National Brand equivalents. They are rarely, if ever, aggressively promoted or featured. If Trader Joe’s can utilize Private Label to make their store a true destination, why can’t mainstream retailers achieve more from their Private Label program?

    MNB: What advice would you give to retailers that have a Private Label but are looking for a way to use it better both strategically and from a price point perspective?

    Frank Dell: There are a number of steps retailers should be taking. Retailers should start taking control and committing the resources for a Private Label strategy that is fully integrated with the company, its format and target customers. They need to rationalize the number of store brands. Too many store brands is as bad as too few. Next, utilize their strategy to rationalize the Private Label items. Discontinue the dogs and items that don’t support the strategy. Now it is time to rebuild by creating labels that are current and convey the desired image. Retailers should not cheapen on quality as their name is on the product. High quality is always is good decision. Create and execute a promotional program that achieves their strategic objectives. Monitor progress and adjust the plan as results dictate. Retail space should be allocated based on the items’ volume with minor adjustment for the sections visual presentation. Continue to re-price Private Label items as they progress in achieving their strategic objectives. Always keep an eye on what is happening outside the company for trends and ideas. The fastest way to obsolescence is an internal only perspective.

    MNB: Finally, what companies do you think do the best job with Private Label, and why?

    Frank Dell: There are many great examples of what can be accomplished with Private Label. The top of the list must be Trader Joe’s. They have created unique products that consumers want and have made their store a destination trip. Duplicating their strategy is not the answer for most retailers, but it does set the bar as to what can be accomplished with Private Label. Wild Oats developed such a good Private Label program that some traditional retailers are stocking the line. This is not unlike what Loblaw’s achieved with its President Choice line. Safeway’s “O” Private Label line is an excellent tactic to reduce target customers shopping at the natural/organic formats. Ukrop’s store branding of their prepared food was way ahead of its time. Publix’s “buy a National Brand and get their Private Label for free” promotion shows commitment and faith in their Private Label. This creates trial with side-by-side comparison, what more can one ask for. Meijer’s Food Club promotions are legendary. I have watched consumer not buy just a few cans, but case after case of their Private Label.

    NOTE: To get a copy of Frank Dell’s report on Private Label, just shoot him an email:
    frank@dellmart.com

    KC's View:

    Published on: May 30, 2007

    The New York Times this morning reports that in 2006, GSD&M Advertising prepared a 55-page report for Wal-Mart in which it suggested that it would be difficult for the retailer to move into upscale merchandise because it would require delivering a message inconsistent with its traditional strengths of discounts, one-stop shopping and broad selection.

    According to the Times story, the reports says that Wal-Mart “is not seen as a smart choice” in product areas such as “clothing, home décor, electronics, prescriptions and groceries.” The report goes on, “The Wal-Mart brand was not built to inspire people while they shop, hold their hand while they make a high-risk decision or show them how to pull things together.”

    The problem, the Times suggests, is that it is product areas such as clothing, home décor, electronics, prescriptions and groceries that the company has defined as being critical to its future growth plans.

    Which means that Wal-Mart could have a problem. The document, the Times writes, “offers a candid, wide-ranging explanation for why Wal-Mart, the No. 1 seller of everything from laundry detergent to underwear, has stumbled badly when it comes to higher-end merchandise like silk camisoles and shag accent rugs.”

    According to the story, “A copy of the 55-page report…was provided to The New York Times by WakeUpWalMart.com, a union-financed group highly critical of the retailer. The group said that a person outside of Wal-Mart gave it the report.”
    KC's View:
    For people who are paying attention, this report will not come as a surprise. It has been a main and recent challenge for Wal-Mart: having sold as much typical Wal-Mart merchandise to typical Wal-Mart customers as it can, it has to venture beyond its comfort zone…but that ain’t easy.

    The question – and it seems to us that this is going to be asked a lot more in coming days – is whether current management is the right management to help the company make this shift.

    The other question is whether there is another option.

    Published on: May 30, 2007

    The Louisville Courier Journal reports that the city’s Metro Council is working on an ordinance that could ban the use of trans fats in restaurant foods there, following in the footsteps of New York City, which already has instituted such a ban, and Chicago, which is considering one.

    The measure, as it moves through the legislative process, is expected to be controversial, which proponents saying that it will have a significant impact on public health, and opponents saying that people who don’t want to eat trans fats should simply patronize restaurants that don’t use them or order foods that don’t contain them.
    KC's View:
    While there’s no doubt that the elimination of trans fats is a positive for the nation’s public health profile, it seems to us that we are rapidly reaching the point where such legislation is being seen as the magic key that will unlock the nation’s dormant health and vitality…which, of course, is a vast overstatement. People have to eat better, make more intelligent choices, exercise more and not expect legislators to do it for them.

    Interestingly, the Associated Press reports that the New Jersey Health Department – cognizant that the Garden State has the highest percentage of obese and overweight children in the country – is “escalating the battle against the bulge by starting a new Office of Nutrition and Fitness to better coordinate programs aimed at preventing obesity.”

    This isn’t the only solution, certainly. But it does seem a more comprehensive approach to the problem.

    Published on: May 30, 2007

    The New York Sun reports on a new online grocery service in the Big Apple, Bread-n-Brie, “which combines food delivery services similar to those of FreshDirect and social networking opportunities of sites such as Facebook…On the site, customers can get store credit for sharing their favorite recipes, and chat with other customers on the site's ‘BnBuzz!’ message board.”

    According to the story, “Bread-n-Brie's two delivery trucks now make just three stops in Manhattan — two on the Upper East Side, and one downtown — and then dispatches its pushcart-wielding staffers, called ‘BnButlers’ to hand out the packages on foot…FreshDirect, whose delivery trucks are a city staple, began making deliveries nearly five years ago, boasts 100,000-plus regular New York-area customers, and has fulfilled more than 5 million orders to date.”
    KC's View:
    We’ve always endorsed the notion that the online shopping experience ought to encourage, at some level, the notion of community…and so we hope that Bread-n-Brie is successful with its combination of community-building Internet infrastructure and an eco-friendly approach to delivery (which certainly sounds good now with very little business, but could get challenged if and when it develops some mass).

    One quick note. The folks at FreshDirect.com must love it when a newspaper describes their trucks as “a city staple.” It speaks to the success of their business model, which is good for all of us in the Internet biz.

    Published on: May 30, 2007

    Reuters reports on a study by TNS Retail Forward suggesting that “U.S. men are doing more and more grocery shopping, both for themselves and their families, but retailers are still not doing much to make the trip any more enticing.”

    Mandy Putnam, a vice president at Retail Forward, tells Reuters, “Men do represent a large part of grocery shopping dollars and they aren't being very well accommodated ... sales are being lost.”

    The numbers suggesting that men are an expanding segment of the shopping population are persuasive. In 2002, 41 percent of men said they did at least some of the family grocery shopping, and by 2006 that was up to 71 percent.

    Men, Putnam says, are “great at picking out the stuff that they bought before. It's the new stuff, or something new and different that a manufacturer is trying to promote, that they have trouble with.”
    KC's View:
    We’ve been banging this drum for a long time, so none of this surprises us.

    It makes sense that retailers need to do a better job of marketing and merchandising to men.

    Though we’d suggest that most retailers could do a better job of target marketing in general.

    Published on: May 30, 2007

    The Orlando Sentinel reports that Wal-Mart has extended to all of its Florida stores a promotion that offers free shipping to all of its online customers – as long as they have their products shipped to one of its stores instead of to their homes.
    KC's View:
    Sounds good for Wal-Mart, but we’re not sure why this makes life easier for consumers. If we order via the Internet, we generally are doing so in part because we want to avoid the teeming mass of sweaty, bargain-hunting humanity that congregates in big stores. Making us go to the store and probably wait on line to pick up said item just seems counter-intuitive.

    Amazon’s “Prime” shipping program, which has an annual fee that guarantees two-day shipping on any item ordered from the online retailer, is a much better deal for e-shoppers…and it works for Amazon, too, because it encourages frequent shopping.

    Published on: May 30, 2007

    The New York Times reports that Zheng Xiaoyu, the former commissioner of China’s Food and Drug Administration, has been sentenced to death “after pleading guilty to corruption and accepting bribes.” According to the story, the former bureaucrat “received the unusually harsh sentence amid heightened concern about the quality and safety of China’s food and drug system after several scandals involving tainted food and phony drugs.”
    KC's View:
    Gee, under normally circumstances we’d suggest that this seems a mite harsh.

    But on the other hand…maybe the US bureaucrats would be a little more vigilant about things like mad cow disease and other food safety issues if they knew that their heads, quite literally, were on the chopping block.

    Just a suggestion.

    Published on: May 30, 2007

    The New York Times reports that “the Supreme Court on Tuesday made it harder for many workers to sue their employers for discrimination in pay, insisting in a 5-to-4 decision on a tight time frame to file such cases. The dissenters said the ruling ignored workplace realities.” According to the story, “The court held on Tuesday that employees may not bring suit under the principal federal anti-discrimination law unless they have filed a formal complaint with a federal agency within 180 days after their pay was set. The timeline applies, according to the decision, even if the effects of the initial discriminatory act were not immediately apparent to the worker and even if they continue to the present day.”
    KC's View:

    Published on: May 30, 2007

    • The Wall Street Journal reports that “despite earlier suggestions that it might scrap its struggling online entertainment channel,” Bud.TV, “Anheuser-Busch has decided instead to revamp the Web site to make it edgier.”
    KC's View:

    Published on: May 30, 2007

    We reported yesterday that fired Wal-Mart advertising executive Julie Roehm, accused by the giant retailer of unethical behavior and even adultery, has done her own share of mud-slinging, charging Wal-Mart CEO Lee Scott and other executives of a range of violations of the chain’s ethics standards.

    We commented: We read all the charges and countercharges, and we have to say that we’re sure Roehm and her lawyers are going to try to get as many Wal-Mart executives as possible to be deposed under oath. Which they are going to do to her as well.

    But at this point, Roehm doesn’t have nearly as much to lose as Lee Scott and his fellow executives. After all, she’s already been fired amid charges of infidelity and questionable relationships and payments – none of which is going to shock anyone in the ad biz. We can’t imagine Roehm not getting a job because of all the original charges with any company that thought she could help it.

    At Wal-Mart HQ, however, it is a different story. High moral and ethical standards have always sort of been the coin of the realm, and they aren’t supposed to be arbitrary and about positioning – they go back to founder Sam Walton’s basic approach to life and business, and as such are sacrosanct.

    Roehm may be shooting at everything that moves without ammunition. But if she’s right on just 25 percent of what she’s charging, then her 42-page document could have enormous implications for the company and its leadership.

    At Wal-Mart, management’s noses have to be completely clean, because the numbers haven’t been all that great lately.


    MNB user David Livingston responded:

    Boring. I get tickets for ball games, dinner bought for me, and even a free trip now and then. But I'm self employed and get to make my own rules.

    As for Mr. Scott at Wal-Mart, he is CEO and he should have the authority to apply the ethics rules on employees as he sees fit. If he wants to give someone a waiver or a pass, then so be it. Trying to apply the rules equally on all employees is nonsense. The rules should be used as a guideline. For example, the executive who had an affair with a subordinate. Maybe he was well liked and a rainmaker. Maybe it was in the best interest of the company that this man stay on. Seems Ms. Roehm was not so therefore she cannot expect the same treatment. Believe me, if Ms. Roehm was good for Wal-Mart they would have given her some slack as well. Complaining about it shows a lack of class even if it is justified. If the stockholders don't like it they can vote Mr. Scott out or sell their stock. If the stockholders are willing to put up with it then they can vote to keep him and hold on to their stock.


    We cannot say how strongly we disagree with this sentiment.

    We believe that in any company or organization, it is senior management’s sacred responsibility not just to adhere to all of the same rules as everyone else, but actually to show greater fidelity to moral and ethical standards. It ought not just be about rainmaking and profits, but about meeting and exceeding standards. Leaders who believe they are immune from the same rules they set for their subordinates are not leaders at all, but simply self-serving, ego-driven managers who have no right to lead anyone or anything.

    Sure, society is filled with people who think they don’t have to behave the same way as the people they are supposed to be leading. They can be corporate executives, politicians, priests, military officers, journalists.

    And we are tired of all of them. And even more tired of people making excuses for them. It is inexcusable. And intolerable.

    What does it profit a man if he gains the whole world, but loses or forfeits his own self?
    KC's View:

    Published on: May 30, 2007

    There are reports this morning that the Bush administration, through the US Department of Agriculture (USDA), will challenge a federal court ruling that would allow meatpackers to test their own products for bovine spongiform encephalopathy (BSE) commonly known as "mad cow disease.” The ruling came in a case brought by a small meat packer, Creekstone Farms Premium Beef, which wants to do its own testing.

    The USDA will argue that such private tests could create so-called “false positives” that could alarm the public. In addition, USDA is siding with larger meat packers, which apparently feel that they will be at a competitive disadvantage if they don’t do the same kind of testing as Creekstone.

    The US currently tests less than one percent of the nation’s cows for BSE.
    KC's View:
    This isn’t as much about false positives and false negatives, and the USDA trying to protect itself from the embarrassment of finding out that just maybe it has been underestimating the level of mad cow disease in the US. The Bush administration isn’t taking the scientific approach, but rather a “CYA” approach that has far more to do with commerce – and its efforts, we believe, in the long run will not be good for consumers, for the meat industry, or even public confidence in the government.