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    Published on: August 6, 2008

    There’s an excellent piece in the Chicago Tribune that explores the tensions that can take place within retail businesses during tough times, when sales and traffic are down and management is looking for a way, any way, to drive the numbers in the right direction.

    There often is the inclination to expand into new product categories, on the theory that new products will prove attractive to existing customers and therefore generate a higher average transaction. There are numerous examples of such efforts: drug store chain Walgreen has begun selling a clothing line called Casual Gear in its stores, just as home improvement chain Menards set up grocery aisles in a number of its stores and electronics dealer Best Buy decided to sell musical instruments in selected locations.

    This trend, it seems, is supported by a recent report from TNS Retail Forward and PricewaterhouseCoopers, which predicts that many existing retail formats will come to the end of the “expansion runway” by 2015, and will be forced to enter new markets, come up with new formats, or expand the range of products they sell from existing stores.

    However, as the Tribune correctly notes, it doesn’t always work. Home Depot, for example, “went too far off base when it opened a handful of convenience stores that sold candy bars, cigarettes, coffee and fuel in the parking lots of its stores in Georgia and Tennessee. The sixth and last store opened in June 2007 and there are no plans to open any more,” according to the story, which notes that Starbucks may also have gone too far when it started selling books and CDs in its cafés, an extension that may have gone farther afield than the customer was willing to go.

    "The limits of what these big boxes are leads retailers to continue to want to find a way to experiment," Neil Stern, senior partner at McMillan Doolittle LLP, tells the Tribune. "The question from the consumer is, what do you accept from the brand and what feels foreign."

    KC's View:
    The other approach to a business downturn, of course, is the famous “we’ve got to get back to fundamentals” speech, which in my experience often reflects both a lack of imagination and a fear of the unknown. (And, sometimes, a fear of losing one’s job because that can happen when you tick your neck out too far.)

    The whole notion of “fundamentals” is that you’re supposed to be doing them every day…if you have to “get back” to them, there probably are deeper problems in the business that a pep talk about “back to basics” won’t solve. And it could be too late for a return to fundamentals to get you over the rough patch, anyway.

    To return to a song I’ve been singing a lot lately, mostly because it seems so relevant to the moment, the key to whether these expansionist efforts work will no doubt be whether they are strategic or just tactical moves…if they are organic to the broader business plan, as opposed to just an idea that may sell a few more SKUs, then they may pan out. But if not…well, we all know what happens then.

    Published on: August 6, 2008

    The Sacramento Bee reports that California supermarket chain Raley’s has pulled all of its television advertising off the air, and instead is relying on radio and print ads to communicate with shoppers.

    While the company is not discussing the specifics of the decision, spokeswoman Nicole Townsend tells the Bee that Raley’s “is re-evaluating how it connects with shoppers.”

    The Bee speculates that one reason four pulling the TV commercials is the high cost of ad time; another could be that Raley’s wants to get away from its image advertising, even though it has been highly lauded in local markets, and focus more on item and price ads that can more directly drive sales.

    KC's View:
    It is a truism of the business that it is easier to sell more products to existing customers than it is to bring in new customers, just as it is cheaper to keep a shopper than it is to attract a new one.

    So maybe what Raley’s is doing – or ought to be doing – is focusing on how to do these two things.

    I always go back to the great Norman Mayne, of Dorothy Lane Markets, when it comes to these sorts of marketing questions. Years ago, Mayne made the decision to pull virtually all of the company’s mass advertising efforts and focus exclusively on marketing to members of the DLM Club…and I know that he’s never looked back, and has built the DLM Club into a vibrant and, yes, profitable, community.

    I’m not saying that this all-or-nothing approach is for everyone. But I do know how much useless and ineffective supermarket advertising comes my way every week, and I can only guess how much is spent on it by a variety of companies. And yet, at no time am I ever given compelling reasons to visit these stores.

    Published on: August 6, 2008

    The New York Times this morning has a long story by the estimable Marian Burros about how mainstream supermarket chains and agribusinesses are changing the way they operate, in part to cater to consumers’ increased desire for “local” foods and in part to cope with the higher costs of transportation that threaten their profitability. “Supermarkets are beginning to catch on that stocking corn and tomatoes grown nearby is not enough for customers,” the Times writes. “ Now they are competing with farm stands and farmers’ markets for a wider variety of fresh fruits and vegetables.”

    In some cases, the Times writes, “growers like Dole and Nunes have contracted with farmers in the East to grow products like broccoli and leafy greens that they used to ship from the West Coast. Because of fuel costs, in some instances the cost of freight is more than the cost of the products.”

    And chains such as Hannaford and Wegmans are finding that while they have had a long commitment to local growers, shoppers are pushing them to find more local sources for their foods. However, it isn’t always easy. “Big retailers have even more work to do,” the Times writes. “Used to making just a few phone calls to large produce distributors, often thousands of miles away, they do not have the setup or the personnel to deal with individual farmers who deliver to the back door. Some of them are reluctant to do so and small farmers either have to join a co-op or find a distributor who can deliver to the supermarket’s warehouse.

    “The chains also have to change their purchasing practices to make room for seasonal local produce instead of being locked into a year-round contract with one source in order to insure the lowest prices.”

    “Some of the early attempts by retailers have shown that local does not always mean better,” the Times reports. “In New York last week there was no discernible difference between blueberries from New Jersey and those from California at Food Emporium, both priced the same. Jersey tomatoes at Whole Foods were barely more flavorful than those from away. Packaged plums and apricots at both stores were hard as rocks, and the corn was not really fresh.”

    KC's View:
    The general consensus seems to be that while there will be potholes along the way as this new way of doing business evolves, the fact is that a transformation is taking place in how food is sourced.

    What I’m interested in seeing is what the next iteration will be.

    Published on: August 6, 2008

    The Minnesota Star Tribune reports that Lund Food Holdings plans to build a new supermarket in downtown Minneapolis, its second in the city. Construction on the 30,000 square foot unit will begin this fall; the store will be in a mixed-use project that could include housing, office space and a hotel.

    The store will replace another planned location that had been announced a few years ago, but eventually was deemed to be too close to another unit.

    “While our location has changed, we have never wavered on our commitment and vision for a second Lunds in the downtown area," said Tres Lund, chairman and CEO. "There is a tremendous need for a full-service supermarket in downtown Minneapolis."

    KC's View:
    Making people who live and work in that area very lucky, since Lunds is one of the real class acts in US food retailing.

    Good times in the Twin Cities. Not only is Lunds opening a new store there, but the Twins are tied for first place in the American League Central Division.

    Published on: August 6, 2008

    There was a good piece the other day on about West Virginia’s Mountain People's Market Co-op, which has been looking at declining sales for more than a year, at least in part because of increased competition from new stores such as a Kroger with a large natural foods selection.

    According to the co-op’s new general manager, C. Lee Martinec, differentiation more than ever will be the key to survival. The story says that the co-op “is going to stop giving shelf space to things that competitors sell for less. They are going to stock more things big stores can't or won't sell such as bulk foods, specialty items and locally - produced vegetables, meat, eggs and cheese. They're going to continue to offer personalized customer service.” And, the co-op plans “to expand its gluten-free products and will continue to sell miso and West Virginia-made Spring Creek Tofu and the increasingly popular Kombucha tea.”

    All of these tactics are going to be critical for the co-op to survive, but none so important as the continued buy-in of local consumers, who, if they pay a $30 annual membership fee, not only get discounts and profit-sharing, but also get a say in how the co-op is run.

    KC's View:
    I don't have a co-op near me, at least not to my knowledge, so I have limited personal experience with the concept. But people I know who belong to co-ops swear by the experience, saying that the prices are better and the experience more relevant to what they want out of a food store.

    Still, it has to be tough going at a time when mainstream supermarkets have sort of discovered that the things that made co-ops unique – especially things like local produce – can also serve as marketing tools for them. Which only means that the co-ops have to work harder and be smarter and more innovative, I suppose.

    Published on: August 6, 2008

    The International Herald Tribune reports that US prosecutors “have charged 11 people with stealing more than 41 million credit and debit card numbers, cracking what officials said on Tuesday appeared to be the largest hacking and identity theft ring ever exposed. The thieves focused on major national retail chains like OfficeMax, Barnes & Noble, BJ's Wholesale Club, the Sports Authority and T. J. Maxx — the discount clothes retailer that first suggested the existence of the ring early last year, when it said its systems had been breached by hackers.

    “Underscoring the multinational, collaborative aspect of organized crime today, three of the defendants are United States citizens, one is from Estonia, three are from Ukraine, two are from China and one is from Belarus. The name and whereabouts of the final defendant are unknown.”

    KC's View:
    Multinational. Collaborative.

    Let’s call it the new ECR: Efficient Criminal Response.

    If we can get traction with this acronym, there will be seventeen consultancies building business plans around it by noon next Tuesday.

    Published on: August 6, 2008

    • Tesco’s US Fresh & Easy Neighborhood Markets division said yesterday that it has received more than 10,000 applications from prospective employees during the past month, a number that has almost quadrupled since May.

    There will be a lot of competition among those applicants. Fresh & Easy is hiring – but just 750 additional employees are expected to be hired for its stores through the end of next month.

    KC's View:
    There’s nothing like a recession when it comes to deepening and widening the available labor pool.

    Published on: August 6, 2008

    • Whole Foods yesterday said that its third quarter earnings were $33.9 million, 30 percent lower than in the same period a year ago. Q3 revenue was $1.84 billion, up from $1.51 billion a year earlier, on same-store sales that were up 2.6 percent.

    According to a story in the Austin Business Journal, CEO John Mackey said, “"Our business model has been highly successful, and we remain very bullish on our growth prospects as the market for natural and organic products continues to grow ... however, the challenging economic environment appears to be negatively impacting our sales. This, combined with our commitment to maintaining financial flexibility and investing prudently in our long-term growth, has led us to take a more conservative approach to our growth and business strategy over the short term."

    According to the New York Times, Mackey was even more blunt in a conference call with analysts: “We’re going through a tough time here,” he said. “I’ve never seen our comps this low in the 30 years I’ve been with the company.”

    Mackey also “speculated that high gas prices have reduced the number of trips that shoppers make to Whole Foods, which he said attracts consumers from a wider geographic range than most grocery stores,” the Times> writes.

    • Procter & Gamble said yesterday that its fiscal fourth quarter sales were up 10.4 percent to $21.3 billion, as earnings grew 30.4 percent to $3 billion.

    • Wendy’s International reports that its second quarter earnings were $19.9 million, down from $29.3 million during the same period a year ago. Q2 sales were slightly lower, to $632 million from $633 million a year ago.

    KC's View:

    Published on: August 6, 2008

    • New research from The Nielsen Company says that “consumers won’t be skimping on
    supplies, despite widespread concerns about a pending recession. Nielsen forecasts 2.6 percent growth or more than $1.57 billion in school and office supply sales in U.S. grocery, drug and mass merchandiser stores during the core Back to School season of mid-July through early September. Back to School sales represent more than a quarter (28 percent) of the school and office supply category’s annual sales of $5.5 billion.”

    Nielsen also projects that supermarkets could be a big winner in this back-to-school season, as customers with money worries look for one-stop-shopping options. And, Nielsen suggests, a lot of parents will wait for end-of-season sales to buy their back-to-school supplies, hoping to cash in on deals whenever possible.

    • Supervalu-owned Shaws Supermarkets announced that a new five-year contract covering 5,200 employees working in its southern Massachusetts and Rhode Island stores has been ratified by the union membership.

    • Ralcorp Holdings announced this week that it has completed its $2.6 billion acquisition of Kraft Foods’ Post cereals business.

    China Daily reports that Starbucks, while it has announced plans to close more than 600 stores in the US and Australia, still plans to expand its Chinese operations – where it already has more than 102 cafés in Shanghai and has made aggressive opening moves in the central part of the country.

    "China is now the fourth largest market of Starbucks outside the US, following Canada, Japan, and the United Kingdom," said Li Jing, Starbucks' public manager in Greater China, adding that the company aimed to extend its expansion into more second and third-tier cities in China later this year.

    KC's View:

    Published on: August 6, 2008

    • Caribou Coffee has named Michael Tattersfield, a management veteran with Limited Brands and the YUM! Brands restaurant company, as its new president/CEO. He succeeds Rosalyn Mallet, who has been serving in the job on an interim basis since the resignation last year of CEO Michael Coles.
    KC's View:

    Published on: August 6, 2008

    …will return.
    KC's View: