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    Published on: May 5, 2008

    by Michael Sansolo

    Content Guy's Note: This morning, at the annual Food Marketing Institute (FMI) Show in Las Vegas, outgoing FMI CEO Tim Hammonds will present the association's annual "Speaks" report on the state of the industry, which includes data on industry trends and consumer concerns that was gathered in a number of separate research studies. Michael Sansolo, who delivered the "Speaks" presentation for the past dozen years while he was a senior vice president at FMI, authored a summary of this year's industry trends report for FMI, and shares a version of that summary – in essence, a preview of the "Speaks" report – here.)

    The crystal clear results found by FMI for the year just past stands in stark contrast to the cloudy, complex and confusing face of the future. In a time of such incredible volatility of prices and economics, the questions about the future in many ways tower over the results making them less significant than in most years. Let’s consider some of the most important questions.

    Will sales gains keep pace with price hikes? Although industry wide sales gains roughly equaled the rise in the Consumer Price Index in 2007, it’s hard to know if that situation will continue at all into 2008. The concerns about economic conditions—both price and lack of growth—accelerated with such speed in the early part of 2008, that the results from the previous year tell us almost nothing. Only recently have retailers and restaurateurs—begun reporting evidence of trading down both in products bought and a reduction in shopping trips.

    The bigger question is whether this is good or bad news. For many retailers, rising prices will enable them to report the highest level of sales growth in decades, even if those gains are largely illusionary. Plus, there is speculation that a worsening economy might push consumers to eat home more often. Both cases are more complex. The ability to pass along price increases will grow ever more difficult as the economy worsens and shoppers get more price sensitive. And the movement of meals back home is not guaranteed either. It’s also likely that shoppers will simply trade down among restaurants.

    Inside the store, the shape of sales might provide some interesting questions. Given all the attention to improved private label products, will worsening economic conditions fuel a flight to these products (and potentially improved profits) or will consumers suddenly be put off by the more premium look given these same products? Let’s keep in mind that the CPI is a limited gauge of how consumers change shopping patterns year to year. The government’s market basket tracks the same products as if shoppers show no reaction whatsoever to varying prices of different commodities.

    Will new competitors or formats emerge? One of the most interesting findings in "Speaks" this year is the lowering level of anxiety about many formats, including supercenters, clubs and limited assortment stores. The competitive power of all three grew significantly during previous economic downturns and all three might be well positioned to do so again. Of course, there’s always the potential of new formats or competitors emerging thanks to today’s economic conditions. The downturn of the 1970s accelerated the growth of barebones warehouse stores. The late 1980s gave us the explosion of supercenters (run by mass merchants) and clubs. And the brief downturn in the early part of this decade helped fuel the growth of dollar and limited assortment stores. Who knows what’s next?

    Why is this fuel crisis different than previous ones? Sudden price hikes in fuel prices have happened before, but the current run up in prices is different. In the past, the price hikes were largely caused by changes in supply thanks to the volatility of the nations containing most of the world’s fuel oil supplies. (Remember OPEC?) Though that volatility remains, this time the hikes are more heavily linked to growing global demand, especially due to the booming economies of the world’s two most populous countries, China and India.

    Rising fuel prices impact shoppers’ moods and spending power, which both hit the industry. In addition, the rising cost of fuel raises the cost of moving products through the supply chain. What’s different today is the impact on the food supply thanks to the growing use of grain-based bio-fuels. In the US, the appetite for ethanol is increasingly tied to price hikes on everything from chicken to bread, raising the question of the long-term impact on food prices.

    The questions don’t stop there. The industry faces new challenges from the demographic time bomb of the looming mass retirement of Baby Boomers to the growing challenge to data security thanks to increasingly sophisticated hackers. As the "Speaks" worry chart shows, many other challenges also loom.

    The great baseball philosopher, Yogi Berra, once commented that something felt like “déjà vu all over again.” When it comes to the raft of issues facing the supermarket industry today, just the opposite may be true. Many of these factors have been around before, but never as they are today. The lessons of the past may tell us less than ever about the years to come.

    The entire FMI Speaks report can be purchased at www.fmi.org/store/.

    Other FMI notes from the Content Guy…

    • In Sunday's keynote session, Andrew Winston, author of "Green To Gold," made the case that "green" business strategies can lead to enhanced profits, and used Wal-Mart as an example of a company that has done a remarkable job of synergizing environmental attitudes with the profit motive. Another example - concentrated detergents that use less water, and require less packaging, less cardboard for cases, and, ultimately, less gasoline for transportation of the product.

    Another compelling statistic – Winston suggested that 92% percent of undergraduates surveyed say they want to work for "green" companies.

    And, Winston pointed to the connection between transparency and "green" attitudes, using as an example the way Stonyfield Farms lists a code on the lids of its yogurts that gives customers a way to get information on environmental rankings for many companies. The bottom line is that someone else can make you transparent, regardless of what you want.

    KC's View:

    Published on: May 5, 2008

    The Lakeland Ledger reports on how Winn-Dixie has transformed 47 of a total 520 stores since a broad remodeling program began about a year ago, with another 50 or so will be finished by the end of June.

    The emphasis is on a "brightly-lit produce section and its new exotic offerings, the beefed-up selection of organics and wine, the vibrant color scheme … new Hispanic and natural food sections, expanded produce and floral departments, an additional entrance and remodeled bathrooms."

    The question seems to be whether this is all too little, too late, and of the company will be able to get past its reputation for "messy, poorly managed stores."

    KC's View:
    Hard to do, especially in the current environment, when economic pressures are forcing customers to make hard decisions. Seems to me that the real issue is whether there are real cultural changes taking place within Winn-Dixie…and if these changes can be effectively implemented in-store and effectively communicated to shoppers.

    Hard to do.

    Published on: May 5, 2008

    In the UK, the Sunday Telegraph reports that when the Office of Fair Trading (OFT) launched an investigation into price fixing by retailers and major CPG companies in the food and HBC segments, it was operating on information provided to it by Wal-Mart and its Asda Group chain there.

    According to the story, "The investigation has embroiled some of the world's largest consumer goods manufacturers such as Unilever, Procter & Gamble and Reckitt Benckiser, as well as UK retail giants, including Tesco and J Sainsbury.

    "In blowing the whistle, Wal-Mart, which owns the Asda chain, has guaranteed itself immunity from a fine should the OFT discover any cartel activity. Any company found guilty could be fined up to 10 per cent of its annual worldwide sales … The move is likely to make the US retailer deeply unpopular with the companies involved, many of whom are its largest suppliers."

    The Telegraph emphasizes that the other retailers and CPG companies have denied that any price fixing took place.
    KC's View:
    Wal-Mart may end up being unpopular with some CPG companies, but it isn't likely to make any difference, since it also represents an enormous percentage of sales for these suppliers.

    Published on: May 5, 2008

    Greencore Group, an Ireland-based manufacturer of prepared and convenience meals, has acquired a US manufacturer, Home Made Brand Foods of Massachusetts, saying that the purchase will give it entry "into the growing chilled convenience food market in North America."

    One of Greencore's major UK customers for its products is Tesco, which also is in the middle of a North America foray with its Fresh & Easy stores in California, Arizona and Nevada.

    The deal reportedly will cost Greencore $44 million at the outset, which could increase by as much as $10 million depending on 2008 financials.

    KC's View:

    Published on: May 5, 2008

    Healthnotes announced today that it is changing its name to Aisle 7, a move that it says reflects growth in its "storewide solutions and expansion beyond its original vitamin and supplement focus to include products across every aisle of the store - driven by the mainstreaming of health and wellness, and the simultaneous growth of emerging forms of shopper marketing." Healthnotes began expanding into storewide marketing solutions in 2006, and has seen over 40 percent annual growth in this segment of the business, according to the company.

    As part of the transition to the new brand and company direction, company COO Jeffrey P. Beyer will become CEO; while Dr. Skye Lininger will continue in his Founder and Chairman roles.

    KC's View:
    This was an odd story to report this morning, for several reasons. For one thing, Healthnotes/Aisle 7 is returning as a sponsor of MNB, and so I want to make sure that I offer full disclosure on that fact. However, I would have written this story even if the company were not a sponsor, so it didn’t seem fair to penalize it; I've always been a big fan of its approach to the business and the products it offers, because it focuses on consistent and comprehensive information that allows shoppers to make more intelligent decisions. That's sort of the sweet spot around here.

    The other slightly awkward part of the story is Aisle 7's announcement that Michael Sansolo, with whom I work in a number of areas and who contributes a weekly column to MNB, is joining the company as a member of its board of directors. There's no problem with that, though it all does start to look a bit incestuous. So I figure that the best I can do is be open with you and fair to all parties involved…and that you'll trust me to make the right decisions.

    Published on: May 5, 2008

    • The Charlotte Business Journal reports that this week Harris Teeter will open a new store in south Charlotte defined as an "eco-store with an environmentally friendly refrigeration store and energy efficient lighting in the freezer cases one of 34 stores with Energy Star certification, a list expected to grow to 60 by the end of the year.

    • Starbucks reportedly will introduce a new branded energy drink into the marketplace – Starbucks DoubleShot, developed with PepsiCo and marketed both in its stores and in supermarkets and other retail formats. The move, according to CEO Howard Schultz, "represents Starbucks' entry into the energy beverage category, which is a multi-billion dollar market segment. Our entry offers a significant opportunity for us to complement our current customers’ lifestyles and reach out to new customers."

    • The Wall Street Journal reports that Coca-Cola and PepsiCo "are testing alternatives to a convenience-store icon: the 20-ounce bottle." Coke reportedly is testing both a 16-ounce and 24-ounce bottle, and PepsiCo is trying out 12-ounce and 16-ounce bottles.

    The smaller sizes are designed to address consumers' health concerns and "waning thirst for giant-size sodas," while the larger size is priced in such a way as to be a "cheaper option to cushion the blow of high food and energy prices."

    KC's View:

    Published on: May 5, 2008

    …will return.
    KC's View: