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    Published on: October 23, 2007

    by Michael Sansolo

    Retailers are great people. Who else could go to Paris and spend more time eyeing the produce aisle in local supermarkets than viewing the Mona Lisa. Then again, Da Vinci had to eat too.

    But seeing stores is really such a wonderful way to see the world and right now there are many reasons to look to the old world. None are that earth shattering, but all matter. Allow me to offer three, gathered from a recent trip to London and Paris.

    First and foremost, consider Tesco. No doubt you have read endless articles about the arrival of Tesco on the American shores and heard all kinds on conjecture about that this may mean. Honestly, this isn’t a Paul Revere moment where we have to run through the streets yelling that the British are coming. We know that. The bigger worry is that we won’t take this magnificent British company seriously enough.

    Walking into Tesco isn’t a “WOW!” moment, like you might have upon entering a Wegmans or a new Whole Foods. In fact, Tesco’s great weapon may be its ordinary appearance. It’s neat and tidy and well thought out, but nothing smacks you in the nose and tells you to worry.

    Not worrying would be a mistake. Tesco is very, very good. The company runs stores of many varieties and sizes. They match up with neighborhoods wonderfully well. Most of all, they do it with quiet effectiveness. And that’s the problem: Tesco could be underestimated. That would be a mistake.

    Keep in mind that this is company that roared into market leadership in the United Kingdom in just the past 15 years through excellent systems, clear goals and listening to the marketplace. Take them lightly at your own peril. As someone said years ago, it’s very easy to go from Wow! to Ow!

    The second lesson comes from the company Tesco displaced at the top of the food chain in the UK: Sainsbury. A few years back, I had a chance to visit Sainsbury and the mood in the store was dismal. Employees seemed unmotivated and the malaise was apparent to visitors and shoppers alike.

    Not anymore. Sainsbury may still have a long way to go to catch Tesco, but not in mood and attitude. The stores look sharp and modern, and staff is clearly focused. I got to speak briefly with the manager of one store about the change, which he readily admitted was true.

    So what got this manager going again, I asked? His answer couldn’t be clearer: It’s all about communication. Sainsbury’s top brass is talking to the entire company, giving them goals, direction and focus. Armed with that the company is coming back strong.

    I heard the same thing at Tesco. Employees there can tell you that it all comes from the top. The commitment of leadership filters right down to the stores. The power of leadership, it seems, is alive and well.

    So is the power of food. The last lesson came from Paris where, as you might expect, food is taken seriously. And what a great concept that is.

    Even Parisians it seems are time pressed and aren’t always ready to prepare the kinds of meals we Americans think they live on. Sometimes they are rushed and that means prepared meals and step savers, just like in our stores.

    But that doesn’t mean they take their food any less seriously. So a Parisian supermarket still finds a way to offer efficiency and time economy in an environment where good tasting food is still highlighted. If we are what we eat, the Parisians are going to enjoy that moment.

    Good tasting food, top-down communications and clear focus on goals. Hardly any rocket science there. But it’s those unremarkably remarkable lessons that sometimes really matter.
    KC's View:

    Published on: October 23, 2007

    The New York Times reports this morning that the US government’s policy of allowing companies to police their own food safety procedures may have led to the E. coli contamination that infected batches of hamburger meat produced by Topps Meat, eventually putting the company out of business.

    The tipping point, it seems, was during the summer, when the company’s New Jersey factory scrambled to produce enough hamburger patties to satisfy its customers, and as a result “was neglecting critical safeguards meant to protect consumers. Three big batches of hamburger contaminated with a potentially deadly germ emerged from the plant, making at least 40 people sick and prompting the second-largest beef recall in history.”

    The Times reports that “five years ago, the government demanded more stringent safeguards against contamination because of a deadly form of the germ E. coli. But federal regulators now acknowledge that the controls are not working in some meat plants. They are trying to figure out what went wrong and how to overcome the dangers.”

    Among the problems cited by the Times: “Topps cut its microbial testing on finished ground beef from once a month to three times a year, a level the department considers inadequate.

    “Federal investigators said they had recently learned that the company failed to require adequate testing on the raw beef it bought from its domestic suppliers, and it sometimes mixed tested and untested meat in its grinding machines.

    “The Agriculture Department acknowledged that its safety inspectors, who were in the Topps plant for an hour or two each day, never cited the company for these problems.

    “Additionally, Topps, like many other beef processors, had bought an increasing amount of meat from overseas. Some types of meat from foreign countries — where E. coli has not been prevalent — are not required to be tested for contamination. But the Agriculture Department said the Topps case had prompted it to consider requiring such checks.”
    KC's View:
    If you asked consumers if they thought that the federal government was either mandating E. coli testing in meat factories, or actually conducting such tests itself, I’m guessing that most of them would believe this to be the case. I think most shoppers would be shocked to find out that the government makes recommendations, and then lets companies carry out the testing themselves, virtually unchecked.

    Once again, the industry may not want government interference…but needs to think about what consumers want – or would demand if they knew the truth or understood basic realities. And the industry may be faced with a choice – be utterly transparent and live up to consumer expectations, or suffer the loss of trust that could come from being too focused on its own priorities and expediencies.

    Published on: October 23, 2007

    Advertising Age reports that a new study by the NPD Group suggests a significant shift taking place in the workforce, one that could have an enormous impact in the way food is sold and consumed.

    “Women's participation rate in the paid U.S. labor force topped out at just above 60% in 1999 and again in 2001 but has fallen since then, Ad Age reports. “Restaurant meals, fueled for decades by the migration of moms to the work force, also topped out at 211 per person per year in 2001 according to NPD and likewise have been bouncing lower since, hitting 207 this year.”
    KC's View:
    The implications seem clear – that if women are staying home in greater numbers, they are more likely to shop in supermarkets rather than use fast food and quick-service restaurants. Of course, for this to work it means that supermarkets are going to have to offer products and services that will appeal to them … and since many of them have no idea how to cook, that means an even greater emphasis on mal solutions programs that work. (As opposed to those that don’t…)

    I have to say that I am a little surprised by this report, especially because there is both a housing crunch and credit crisis taking place right now…and those things generally add up to more people in the workforce, not fewer. I don’t get the sense that the nation is enjoying the kind of prosperity that would allow lots of people to get out of the workforce, though I suppose it is possible that these are values-driven, not economics-driven, decisions.

    If women are ignoring the troubled the economy, and in fact leaving the workforce because they are making a values-based decision, then that means their families may be less prosperous rather than more so…which also will have implications for the food industry.

    Retailers that are seeing all these shifts taking place in their markets need to find out not just that it is happening, but why it is happening. Because depending on the rationale for these shifts, it could have an enormous impact on what these women’s needs are and how they are met.

    Published on: October 23, 2007

    Ad Week reports that “store brands are fighting big brands in several key ways: a new sensitivity to consumers' changing lifestyles; quick-response times (a result of their ability to collect data at point-of-purchase); stylish packaging; and higher-quality ingredients. One new development: U.S. retailers are offering an increasing number of tiered private-label options, a strategy well entrenched in the more sophisticated U.K. private-label market.

    “ National manufacturers, slow to respond to private-label practices, are finally waking up to the changing world order, with some fighting back and, in some instances, even joining the enemy camp. ,” recognizing that private label sales growth, according to some Nielsen numbers, is stronger than that for national brands. “And as those retail brands seek to grab more share,” Ad Week writes, “management consulting firm McKinsey estimates that as much as $55 billion in sales of national brands may be at stake over the next decade.”

    And, Ad Week goes on, “Another measure of the growing credibility of store brands will be on view next month at the Private Label Manufacturers Association trade show in Chicago. For the first time the event will play host to a number of big-ticket store expenditures like financial services and vacations. While retailers like Wal-Mart and Costco already offer those options to customers, the PLMA says that to meet popular demand, regional retailers are also jumping on the trend, from Wakefern Food Corp. in the mid-Atlantic states (offering a ShopRite private-label credit card) to the largest supermarket chain in Texas, H-E-B, which is marketing life and auto insurance with stores inside H-E-B locations.”
    KC's View:
    While I don't want to become too Tesco-centric here, I couldn’t help but think while reading the Ad Week story that much of what is being described has been Tesco’s strategy in the UK for more than a decade.

    Private label has always been more prominent in places like Europe, and foreign companies that have tried to bring that approach to their US stores have generally not been successful, as many Americans have preferred the comfort of the national brands with which they grew up. But that clearly is changing, driven by companies that range from Trader Joe’s to Costco; there even is an argument that the enormous success enjoyed by companies like Starbucks and Dunkin’ Donuts has somehow gotten people more used to the notion of own-brand products, even though this isn’t a direct corollary.

    It may be that Tesco has perfectly timed its entrance to the US, if indeed its new Fresh & Easy Neighborhood Markets have anything approaching the differentiated own-label approach to product that Tesco uses elsewhere. Would anybody be surprised if Tesco had a study somewhere suggesting that the time is absolutely right for its private labels to have a very public impact?

    Published on: October 23, 2007

    The Chicago Sun-Times reports that Trader Joe’s has decided to eliminate all single-ingredient products from its shelves that have been imported from mainland China, a move taken in response to concerns about food safety procedures there.

    “We feel confident that all of our products from China meet the same high quality standards that we set for all of our products," said a statement from the company. "However, our customers have voiced their concerns about products from this region and we have listened."

    The move does not affect products with multiple ingredients, some of which may be from China, according to the report.
    KC's View:
    Once again, decisions like this one highlight why Country of Origin Labeling (COOL) is inevitable, and why industry is going to have to figure out a way to make it work.

    I understand that a lot of you don’t agree with me on this issue, or think that I am oversimplifying it.

    To the latter, I plead guilty. Sort of. I am oversimplifying it, but deliberately, and only because I think that is how consumers will view it. Consumers probably won’t give a damn about the operational challenges involved in creating such labels. They’ll just want to know, and it’ll be up to the industry to figure it out, quickly and seamlessly.

    People, more and more, are going to demand transparency. Fight it, and you are fighting the wrong war.

    Published on: October 23, 2007

    HealthDay News reports that a new study issued by the US Centers for Disease Control and Prevention (CDC) suggests that America’s schools have made real progress in terms of improving nutrition, expanding physical education, and discouraging the use of tobacco, though there is still room for improvement.

    Among the findings, as reported by HealthDay News:

    • The number of states prohibiting junk foods in vending machines in schools rose from 8 percent in 2000 to 32 percent in 2006; the percentage of school districts with such prohibitions rose from 4 percent to 30 percent during the same time frame.

    • Forty-six percent of schools sold water in vending machines or school stores in 2006, up from 30 percent in 2000. Twelve percent of states required elementary schools to provide regularly scheduled recesses in 2006, up from 4 percent in 2000; the percentage of school districts with this requirement rose from 46 percent to 57 percent.

    • Almost two-thirds (64 percent) of schools prohibited tobacco use in all school locations, including off-campus, and school-sponsored events in 2006, compared to 46 percent in 2000. Twenty-five percent of schools had vending machines with cookies, cakes and other high-fat baked goods in 2006, versus 38 percent in 2000. Nearly three-quarters (73 percent) of schools offered salads a la carte in 2006, compared with 53 percent in 2000. Nineteen percent of schools offered French fries a la carte in 2006, down from 40 percent in 2000.

    • Only 4 percent of elementary schools, 8 percent of middle schools and 2 percent of high schools provided daily physical education for the entire year for students in all grades. 22 percent of schools did not require students to take any physical education.

    • Thirty-six percent of schools did not prohibit tobacco use in all locations all the time. Seventy-seven percent of high schools still sold drinks that weren't 100 percent juice, and 61 percent sold high-fat salty snacks in vending machines or school stores.
    KC's View:
    While I think most of us would agree that parents have to take the lead role in these areas, schools play a vital role – and much of this news is good. I hope it gets better.

    Published on: October 23, 2007

    • Wal-Mart-owned Sam’s Club has announced that its stores will open at 5 am on “Black Friday,” the day after Thanksgiving that kicks off the traditional end-of-year holiday shopping season. Not only that, but every Sam’s Club store around the country will be serving its Black Friday patrons a free continental breakfast between 5 am and 9 am.

    And, according to a CNN story, shoppers will be able to use their cell phones to get a preview of the chain’s Black Friday ad specials starting on November 19, four days before the sales kick in.

    CNN notes that this is just the first of what is expected to be an avalanche of special deals and promotions as the holiday shopping season approaches, since “an ongoing housing market slump coupled with credit market woes have left many Americans with less discretionary income to shop. As stores brace for the all-important November-December holiday shopping period, which accounts for as much as 50 percent of merchants' annual profit and sales, retailers are especially nervous about whether or not they'll be able to make their year-end financial targets.”

    • The Financial Times reports that Wal-Mart plans to open two of its Neighborhood Market grocery stores in Southern California next year, at a time when Tesco will be rolling out its Fresh & Easy Neighborhood Market small-format stores.

    The stores will be stores “in the Coachella Valley, a fast-growing irrigated desert valley about 100 miles east of Los Angeles that includes the city of Palm Springs,” FT reports.

    According to FT, “Wal-Mart is also currently exploring additional new formats, reportedly including a smaller local convenience market. It has also recently registered new trademarks including ‘City Thyme’ and ‘Field and Vine’ to cover unspecified ‘retail grocery store services’.”

    • The Wall Street Journal has a long front page piece this morning about how Wal-Mart worked overtime to avoid paying state income taxes whenever and wherever possible, even designating one of its office in its Arkansas headquarters as the “Tax Shelter Room.”

    The Journal writes, “Companies often assert that tax savings are simply happy byproducts of transactions pursued for other business reasons. But documents from the North Carolina case indicate that Wal-Mart, from the outset, had one primary purpose: cutting its state income taxes. Ernst & Young worked to fulfill that goal. In 2002, for example, the accounting firm delivered a 37-page proposal laying out a smorgasbord of 27 potential tax strategies, most tailored to a particular state's tax code. It described one of them as ‘a very aggressive strategy with considerable risk.’

    “Lawmakers and law-enforcement officials have taken a keen interest in tax advice provided by the Big Four accounting firms and other consultants. In August, U.S. Senate investigators sent letters to at least 30 companies asking for details of potentially aggressive tax arrangements, including the names of tax professionals and law firms that advised on the deals. In May, four current and former Ernst & Young partners were indicted for their tax-shelter work. Two years ago, KPMG LLP agreed to pay $456 million to settle government charges that it promoted abusive shelters to individual taxpayers.”
    KC's View:
    This is a fascinating piece that is far too complex to summarize here. But if you’re interested in the subject of how a major corporation tries to work its will, read the Journal piece in its entirety.

    Published on: October 23, 2007

    • The Dallas Morning News reports that Supervalu “has fallen prey to an e-mail scam, losing about $10 million after wiring money to fraudulent bank accounts.”

    According to the story, “The fraud began after the Minnesota-based supermarket chain received two e-mails – one from someone purporting to be an American Greetings Corp. employee and another claiming to be with Plano-based Frito-Lay, according to court documents. Both e-mails claimed the companies wanted payments sent to new bank accounts.

    “Supervalu sent more than $6.5 million to the phony American Greetings account and nearly $3.6 million to the phony Frito-Lay account before realizing it was all a scam. The FBI was able to capture the money before it was whisked away by the scammers, but now American Greetings, Frito-Lay and Supervalu have all laid claim to the money.”
    KC's View:

    Published on: October 23, 2007

    • Supervalu announced that Sue Klug, senior vice president, sales and marketing for the company’s Retail West region, is being promoted to president of its Southern California division. Pete Van Helden, who had held the title of president of the Southern California division in addition to executive vice president, Retail West, will focus his efforts on overseeing Supervalu’s Retail West region. Van Helden had held responsibility for both positions since May 2006.
    KC's View:

    Published on: October 23, 2007

    • The same day that Wal-Mart announced that it was making an $862 million (US) tender offer to acquire the 49 percent of Japanese retailer Seiyu that it does not own, it reported that in the first nine months of the year Seiyu lost the equivalent of $37.4 million (US), compared to $29.3 million (US) during the same period a year ago. Revenue also was down, 0.7 percent, to $5.7 billion (US).
    KC's View:

    Published on: October 23, 2007

    On the subject of Wal-Mart deciding to acquire the 49 percent of Japanese retailer Seiyu that it does not already own, reported here yesterday on MNB, we got the following email from MNB user Julia Hidy:

    Way back when, I believed that Wal-Mart would be forced to pull out of Japan. Well, I'm glad you were right. But, based on the new developments, I believe it will only be a matter of time - say between 4-5 years - and Wal-Mart will be ready to find a buyer for their Japanese 'investment.'

    And I'll bet a quarter that Ed Kolodzieski is not only on a short leash, but that they have a choke chain on him too. I don't envy the man.

    The net net is that Wal-Mart expects to make money on their investment. I'd love to see the ROI that's been projected on the 100% Wal-Mart owned Seiyu. Bet it looks good on paper. I still doubt that a company that has already shown it's having trouble adapting to Japanese cultural mores and societal etiquette vis-a-vis respect for people is going to ultimately be successful in Japan where respect is so crucial and ingrained at every level of society. I think I'll pop some popcorn and wait on the sidelines. It will be interesting to watch the parade as it passes by.





    We had a piece yesterday exploring people’s willingness to spend more money on products they see as socially correct, based on a study conducted by a pair of Harvard researchers. This led MNB user Carla Baughman to write:

    This statement raised red flags for me: “And when Hiscox and Smyth raised the prices of ‘fair labor’ products, people bought even more than before. So, at least for ABC Carpet, being nice is good business.”

    While there is probably a sound argument for "fair labor" products to be priced higher than the "we don't know what kind of labor" products, it is not provided in the context here. I would be concerned that manufacturers/marketers use that label to mark up prices to merely increase their own profit margins - at the expense of the socially minded consumer.


    Agreed.
    KC's View:

    Published on: October 23, 2007

    In Monday Night Football action, the Indianapolis Colts defeated the Jacksonville Jaguars 29-7.
    KC's View:

    Published on: October 23, 2007

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    KC's View: