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    Published on: October 3, 2007

    That’s the question essentially posed in a page one story in this morning’s Wall Street Journal, which suggests that while Wal-Mart has changed how people shop, how suppliers manufacture products, and forever altered the landscape of American retailing, the company’s “influence over the retail universe is slipping. In fact, the industry's titan is scrambling to keep up with swifter rivals that are redefining the business all around it. It can still disrupt prices, as it did last year by cutting some generic prescriptions to $4. But success is no longer guaranteed.

    “Rival retailers lured Americans away from Wal-Mart's low-price promise by offering greater convenience, more selection, higher quality, or better service. Amid the country's growing affluence, Wal-Mart has struggled to overhaul its down-market, politically incorrect image while other discounters pitched themselves as more upscale and more palatable alternatives. The Internet has changed shoppers' preferences and eroded the commanding influence Wal-Mart had over its suppliers.

    “As a result, American shoppers are increasingly looking for qualities that Wal-Mart has trouble providing.”

    This means that some manufacturers are going elsewhere to test market products or roll out new lines. It means that companies such as Procter & Gamble has seen the percentage of its sales done in Wal-Mart stores drop from 18 percent to 15 percent in just four years. It means that the retailer has backed off, at least in part, its RFID plans, simply because it couldn’t get manufacturers to fall into lockstep. And it means that Wal-Mart’s fleet of big-box supercenters have actually become part of the problem, so big that they are unable to respond to trends and consumers shifts with the kind of facility and nimbleness shown by other entities.
    KC's View:
    Stories like this make me nervous, because they sort of remind me of the little kid who keeps poking at the bear with a stock through the bars of the cage. Eventually the bear is going to get annoyed, and it isn’t going to go well for the kid.

    Part of my concern is that there may be some retailers out there who will read this story and believe that the war is over, that Wal-Mart is in an inevitable and irreversible decline. I doubt that. That doesn’t mean that there won’t be some fundamental changes taking place in Bentonville – and I keep hearing whispers about how Lee Scott may have to go, though it is hard to know how much credence to give such rumors.

    However, the reality is that the whispers are out there, and some of the issues are being debated on the front page of the Wall Street Journal. That must be at least a little troubling to Wal-Mart, and it must ramp up the pressure for the big, game-changing move. I’m not sure what that it, but you know that the company’s leaders have to be looking for it.

    Published on: October 3, 2007

    Coming on the heels of the report a month ago that Hannaford Supermarkets’ “Guiding Stars” program helped “starred” (and therefore, more nutritious) edible grocery items to grow 2.5 times more than products that were not given stars, a new study offers yet more evidence that information sells product.

    This study comes from Healthnotes, which markets a kiosk-driven “Fresh Ideas” program that provides shoppers with seasonally relevant point-of-sale articles, recipes, and product information for key departments throughout the store—including meat & seafood, produce, wine, pharmacy, and nutrition. It showed that stores with the Healthnotes “Fresh Ideas” program had nearly two percent higher sales growth and were 16 percent more likely to outperform control stores.

    The Healthnotes “Fresh Ideas” program was implemented in 67 stores of a major retail chain.
    KC's View:
    First of all, full disclosure: Healthnotes has been a sponsor and supporter of MNB.

    However, I mention this study not to offer the company free advertising, but because it strikes me as relevant to an argument often made here on MNB: that retailers need to be more than a source of product for consumers, but also a resource for information. And I’m talking specific, cogent and actionable information that builds the store’s brand as well as promotes the sale of products.

    The Hannaford results showed that. The Healthnotes test says the same thing.

    I think that these kinds of programs require greater commitment and even a kind of cultural shift for some of the companies that may adopt them; they require a recognition that the supermarket needs to be something different, something more, to its shoppers. But the long-term benefits should be tangible. They may not have the glitz and the short-term bump that, say, leasing out wall space to an in-store television network may have, but I tend to think that the results could be far more meaningful.

    Published on: October 3, 2007

    The Los Angeles Times this morning reports that a new study by the Santa Monica-based Milken Institute suggests that better prevention, early detection, and healthier lifestyle choices by Americans could save the nation more than $1 trillion in treatment expenses and lost productivity.

    The conclusion is that the current health system in the US, which is largely oriented around treatment, “no longer serves the nation because the population is aging and because the incidence of obesity and preventable diseases among Americans of all ages, including children, has risen alarmingly in recent years … It says a reorientation toward prevention could avert 40 million cases of seven chronic diseases -- cancers, diabetes, heart disease, hypertension, stroke, mental disorders and pulmonary conditions -- in the year 2023.”

    And, the Times adds, “The report recommends making rewards for prevention a part of any healthcare overhaul, and it urges a renewed commitment by policymakers to achieving a ‘healthy body weight.’ Reducing obesity alone to reasonable and achievable levels, the report says, could trim the incidence of disease by 14.8 million case in 2023, saving $60 billion in treatment costs and improving the nation's economic output by $254 billion.”
    KC's View:
    I know that people’s lifestyle choices are their own, but this report – and I see no reason to disbelieve its conclusions – suggests that there are lager issues involved here. How can a nation be competitive if its productivity is so hampered by disease? How can it not try to create a culture of health when these diseases are so preventable, and when it could mean so much to the nation’s future.

    Isn’t this, in essence, the Steve Burd argument when it comes to heath care? That there are much larger stakes in this game than ever before, and that people need to be made more accountable for their decisions and given greater incentives for making changes in their lifestyles?

    To paraphrase the late Sen. Everett Dirksen, a trillion dollars here and a trillion dollars there, and pretty soon you’re talking about real money.

    Published on: October 3, 2007

    California’s Inland Valley Daily Bulletin reports on the moves being made by a single-store independent food retailer in the face of toughening competition.

    According to the story, Claremont, California’s Wolfe’s Market is dealing with a new Sprouts Farmers Market and a soon-to-be-opened Trader Joe’s. And so, the company is dramatically reducing its dependence on packaged grocery, eliminating most of the grocery aisles and focusing more strenuously on lunch, dinner and deli services, as well as an expanded seafood selection. The goal, he said, will be to focus on the things not offered by the competition.

    "Wolfe's started out as a cafe, a little market, and a gas station, a service station," said owner Tom Wolfe said. "It's changed so many times over the years, adapting to the various business climates, changes in technologies, distribution systems for groceries."
    KC's View:
    Another Thomas Wolfe once wrote a novel called “You Can’t Go Home Again,” which is sort of a metaphor for the inevitability of change and the importance of moving forward. That’s what Wolfe’s is doing – and I’m intrigued by the idea that it will virtually abandon much of its grocery business because it knows that’s not where it is truly competitive. I wonder how many other stores should make the same decision. I wonder how many would have the courage to do so.

    It is worth pointing out, by the way, that Wolfe’s sounds like an important element in that community. The paper writes that “City officials have long recognized the importance to the community of Wolfe's Market, and been careful not to make planning decisions that threaten its economic health. The market, which was constructed in 1927, is listed on the city's Register of Sites of Historic or Architectural Merit.”

    That’s a pretty good starting point.

    Published on: October 3, 2007

    The Wall Street Journal this morning reports that a number of manufacturers – including Dean Foods, Wrigley, Sara Lee, and McCormick – are struggling to maintain their profit margins in the face of rising raw materials costs.

    The Journal writes that “several factors are driving up ingredient costs. A growing middle class in Latin America and Asia can afford more meat and milk, driving up demand for grain to feed cattle and hogs. Demand for grain-derived ethanol, driven by government incentives, has helped push up corn and soybean prices. And a drought in Australia last year reduced the supply of milk available to Asia.

    “High grain and soybean prices have raised the cost of the many products derived from those crops, including oils and high-fructose corn syrup, a sweetener used in everything from soft drinks to ketchup.”
    KC's View:
    It will be interesting to see how these shifts affect consumer behavior and the economy in general. Will price become even more important to shoppers, with value-driven stores such as Wal-Mart taking on an even larger role in the American consciousness? And how will this impact companies such as Whole Foods that have tied themselves to the notion that people have disposable income and are willing to spend it on upscale food products?

    Published on: October 3, 2007

    Bloomberg reports that Wal-Mart considered spinning off its Sam’s Club membership warehouse division last year, but decided against it because remaining a part of the mother company would give it “access to its vendor relationships, logistics and customer information.”

    Sam's Club CEO Douglas McMillon said the possibility of a spin-off was never discussed with investors, even though the general perception is that such a move would be good for Wal-Mart’s share price.

    “After looking at it for a while, we decided that the best place for Sam's Club is to be part of Wal-Mart,” McMillon said, though he offered one caveat: “I can't tell you that it would never happen.”

    • Wal-Mart announced yesterday that it has passed its goal of selling more than 100 million compact fluorescent light bulbs (CFLs) – three months earlier than planned. Originally, the goal was to sell 100 million of the energy-efficient bulbs by the end of the year.

    Wal-Mart had previously announced that CFLs account for 15 percent of light-bulb sales at Wal-Mart, up from five percent nine months ago.”

    “Selling 100 million CFLs in such a short timeframe is a significant achievement on behalf of our customers,” said Andy Barron, Wal-Mart senior vice president of hardlines merchandising. "In reaching this goal, we are grateful that our customers and members have seen the economic and environmental benefits of CFLs. With their support, we can continue to have a positive impact on the environment with energy-saving bulbs and other affordable, eco-friendly products at Wal-Mart and Sam's Club."

    The announcement also suggests that Wal-Mart knew what it was doing a couple of weeks ago, when it announced that it plans to unveil a private label line of the bulbs, having them in three quarters of its US stores within a few weeks.
    KC's View:

    Published on: October 3, 2007

    The New York Times reports that a new study out of the UK suggests that the earlier the better when it comes to cholesterol testing – and that means even testing children before they are out of diapers.

    But interestingly, the early testing wouldn’t mean treating high cholesterol in children – though certainly a positive test might lead to specific dietary choices for children. Rather, the British researchers who wrote the study say that because high cholesterol is genetic, a positive test for a child would help doctors to know to screen the parents – who then could be treated if their cholesterol is above normal levels.
    KC's View:
    Because I’m a cynic, I checked to see if the study was underwritten by the makers of Lipitor. But I couldn’t find any.

    Published on: October 3, 2007

    The Austin Business Journal reports that Whole Foods has completed the sale of its 35 Henry's Farmers Market stores and Sun Harvest Market stores – acquired when it bought Wild Oats - to a subsidiary of Los Angeles-based grocer Smart & Final for $166 million. According to the story, “Whole Foods will continue to sell some of its products in Smart & Final stores, and will also provide certain services in 35 of Smart & Final's stores over the next two years.”
    KC's View:

    Published on: October 3, 2007

    The Food Marketing Institute (FMI) has released its “Distribution Center Benchmarks 2007” report, which includes the following revelations:

    • In 2006, the typical distribution center shipped 28.3 million cases or 611 million pounds of food — enough for nearly half a billion meals.

    • Strategic concerns “among distribution center executives include the increasing variety of products or stock-keeping units (SKUs) and rising energy costs. Distribution center executives ranked the impact of both on their operations at 7.0 on a 1-to-10 scale with 10 being the highest.”

    • Human resources, according to the report, “the top strategic concern as companies need higher-caliber employees to operate today’s fast-paced and sophisticated distribution centers. Executives gave the quality of labor an 8.0 impact rating and the shrinking labor pool 7.7. Companies are responding with increased training and employee recognition programs. Some are realigning working hours and reducing shifts so that most work can be performed during the day.”

    The full report can be purchased from FMI.
    KC's View:

    Published on: October 3, 2007

    • The Wall Street Journal reports this morning that Kimberly-Clark has developed a new mobile testing unit that creates virtual shopping aisles within which companies can see how their products look on the shelves of actual supermarkets. “Kimberly-Clark hopes these virtual shopping aisles will help it better understand consumer behavior and make the testing of new products faster, more convenient and more precise,” the Journal writes, noting that the “studio allows researchers and designers to get a fast read on new product designs and displays without having to stage real-life tests in the early stages of development. Doing the research in a windowless basement, rather than an actual test market, also avoids tipping off competitors early in the development process.”

    Crain’s Chicago Business reports that Kraft Foods will sell its Fruit2O water and Veryfine juice brands, which generate about $135 million in annual sales, to Sunny Delight Beverages Co. Terms of the deal were not disclosed.

    • PepsiCo has acquired a Brazilian snack company, Comercio de Doces Lucky Ltda. Terms of the deal were not made public, and completion of the sale is dependent on approvals from Brazilian regulators.
    KC's View:

    Published on: October 3, 2007

    • It was announced yesterday that Penn Traffic president/CEO Robert R. Panasuk has resigned for “personal reasons.”

    He will be succeeded by Gregory J. Young, who has been the company’s executive vice president/COO.

    • McCormick & Co. said yesterday that its COO, Alan Wilson, will become CEO on January 1 with the retirement of the current CEO, Robert Lawless. Lawless will remain with the company as chairman of the board.

    • Hershey announced yesterday that its COO, David J. West, will succeed Richard H. Lenny in the CEO’s job. Lenny announced his retirement on Monday.
    KC's View:

    Published on: October 3, 2007

    MNB reported yesterday that McDonald’s plans to launch a “frontal assault” on Starbucks and “turn itself into a Starbucks-style destination for customers looking for something to drink,” offering lattes, cappuccinos and other specialty drinks at all of its 14,000 restaurants in the US.

    My comment: This could make sense, though I cannot imagine under any circumstances choosing McDonald’s over Starbucks, no matter how Mickey D’s prices its coffees. That’s just me, though I suspect that a lot of people would agree.

    Lots of reaction to this one…

    MNB user Denielle Christensen wrote:

    Here's a perfect example of why McDonald's is bound to struggle with their coffee campaign. I was chatting by email with a co-worker about your newsletter today (the original topic of conversation was the commissary article), but after mentioning lattes our conversation went like this:

    Me: So, will you be getting your lattes at McDonalds?

    Her: Um, no. They don't offer pumpkin spice with the most amazing whip cream ever. Something to be said about quality.

    Me: Maybe they WILL offer those things, but hell, I'm not willing to risk 400 calories on a McDonald's latte instead of Starbucks!

    So McDonald's is already at a disadvantage because their brand does not imply the same level of quality products. Good luck to them, but here you have two Starbucks drinkers that won't be switching over.

    Thanks for the great daily news, it inspires some great office discussions.

    Thank you…and between us, we actually have three Starbucks drinkers who won’t be switching.

    MNB user Joe Fraioli wrote:

    Don’t make me laugh so early in the morning or worse spit out a sip of my Starbucks coffee. This is just as amusing if not more amusing than Dunkin Donuts declaring the same thing a while back, at least the Dunkin coffee blend is good but that’s where the thing ends. McDonalds is an amazing business that constantly tries to reinvent itself however to me it is like them stating they now have a steak sandwich so they are going to compete against Ruth Chris steak house.

    That’s a great metaphor.

    Now, to be fair, not everyone feels that way. We did get one email from an MNB user that said:

    Personally, I like Mickey D's coffee better than Starbucks.

    But the email that really made me laugh out loud was the one that observed

    Now we know where to get 10,000 espresso machines in about two years.

    We’ve had some ongoing discussion here about my rant last week about wine advertising that I felt insulted people who know something about wine or want to, and I suggested that “this is a particularly American attitude, I think - it casts suspicion on people who are educated or want to be, it belittles nuance…”

    A number of you thought that I was just being a defensive wine snob, which I don't think is true – my comments had more to with advertising and attitudes than with wine. And MNB user Frederic Arnal joined in:

    Your comment is unfortunately all too true. Part of our educational malaise is the comparatively low esteem in which we hold our teachers and successful students. Other countries revere teachers and are as proud (if not more so) of their students' achievements as their athletes. It's a mystery to me why we consider the intellectually curious or sensitive to be "European" and the non-articulate to be more "American".

    Your MNB user who disparagingly called wine "decayed fruit" betrays a certain bias of their own. Knowledge of wine may or may not correlate to intelligence but it certainly points to being intellectually curious. Wine is not only fermented grapes but has been an important part of human culture from the beginning of civilization. To be interested in the world around us and trying to bring a little civility to our everyday activities makes the difference between existing and living.

    Couldn’t agree more.
    KC's View: