retail news in context, analysis with attitude

MNB Archive Search

Please Note: Some MNB articles contain special formatting characters, and may cause your search to produce fewer results than expected.

    Published on: October 20, 2008

    The Wall Street Journal reported over the weekend that while grain and soybean prices have dropped by 50 percent in the last few months, consumers should not expect grocery prices to follow suit.

    Here’s how the Journal put it: “Food companies are typically quick to pass along higher commodity costs on the way up, slower to reduce prices on the way down. That could bring a continuing run of profits for packaged-food companies even as consumers add higher food prices to the pressures they face from falling housing values and shrinking credit.”

    And, the Journal notes, “The U.S. Agriculture Department expects food prices to increase as much as 5% next year, following an estimated 6% gain this year.”

    At the same time, the Washington Post carried a similar story, saying:

    “Worries over a global recession have pushed the price of oil to its lowest in over a year. Don't expect the same for a bottle of beer, a tube of toothpaste, or a box of cereal.

    “You can blame ‘sticky’ prices. That's what analysts call it when companies slap higher prices on products and keep them there even though the rationale for the price hikes - such as soaring oil prices - is gone.

    “The falling cost of oil could help companies pad their profit margins as they pay less to make and transport goods. But it won't mean a break on the average grocery bill.”

    The Journal also writes that “Food companies have outperformed the broader stock market in the last three months, with their shares down 18% versus a 29% decline for the Dow Jones U.S. Total Market Index.”

    The Post piece says that “the one factor than can drive prices down is a drastic drop in demand, but few economists expect the global economic downturn to be so severe it would cause widespread deflation, he said. More likely is that inflation will slow or possibly flatten.”

    There is some rationale for the continuing high prices. For example, according to the WSJ, “Some food companies' costs remain higher than this week's commodity prices because the companies locked in contracts this summer when, for example, corn was selling at more than $7.50 a bushel. This week, corn dipped below $4 a bushel for the first time since last December. It closed Thursday at $3.84 a bushel.”

    KC's View:
    I can certainly relate to the corn scenario. In the Coupe Household, thinking that oil prices would continue to rise, we locked in a heating oil price about three month ago…and now, as oil prices drop, that looks like a pretty stupid move. Who knew?

    We’re going to see a lot of this. It probably is a pretty safe bet that few if any of the airlines will be reducing their luggage surcharges now that fuel prices have dropped. In some ways, they’re probably thrilled to have found a pricing model that works.

    It seems to me that food retailers and manufacturers may have to be more sensitive to the mood of consumers on this issue than in the past, because shoppers will be better able to communicate their discontent among themselves via the Internet. Shoppers may actually be able to apply some pressure on the food industry to be more reactive to lowered commodity costs.

    Just a thought. Be prepared.

    Published on: October 20, 2008

    BrandWeek reports that Walgreen is launching a new advertising campaign highlighting its in-store health clinics, positioning the clinics as “quality family health care build around you" and stressing that the clinics require no appointments, are open seven days a week, and welcome most insurance plans.

    According to the story, “The campaign will run in 33 markets and eventually expand to target consumers in other scenarios. Spend for the campaign was not disclosed.”

    KC's View:
    The story also notes that the Convenient Care Association projects that 1,500 retail clinics will be operating by the end of 2008, up from 800 last November – and it would be my suggestion that many of these clinics, not just the ones operated by Walgreen, will benefit from the campaign.

    At a time when so many people are worried about health care – especially at a time when people are losing their jobs and medical benefits – innovative options may be more welcome than ever before. In-store health clinics are part of the equation, and deserve to be promoted aggressively.

    Published on: October 20, 2008

    • The Wall Street Journal reports that “Wal-Mart Stores, accounting for more than one-fourth of U.S. toy sales, has sent a clear message that it doesn't plan to be undersold when it announced 10 well-known toys, including some Barbie dolls and Hot Wheels car sets, for $10.” The cuts reportedly put the toys on Walmart’s list “25 percent to 40 percent below the prices of Toys ‘R’ Us and Amazon.com, Target began matching prices on three of the four toys it shares with Wal-Mart's $10 list.”

    The goal is to get a head start in the upcoming holiday sales race, during which “cash-strapped consumers may favor no-frills basics over flashier merchandise,” the WSJ writes.

    • In New Zealand, the Herald reports that Walmart “is making an aggressive push into China's smaller markets as economic growth spreads to the hinterlands. Only three of the 30 outlets Wal-Mart Stores opened in China last year were in what it calls major cities: Shanghai, Beijing and Shenzhen. The rest were in provincial capitals or other smaller cities.

    “The expansion is a key part of Wal-Mart's attempt to gain a bigger foothold in what could become the world's largest retail market. Faced with saturated markets at home, Wal-Mart and other Western retailers are increasingly looking to emerging economies such as China to drive sales growth.”

    An example of China’s potential and importance to Walmart’s bottom line: the retailer recently reported that its Q2 China sales were up 32.2 percent, compared to the 16.9 percent increase reported for its overall international stores.

    KC's View:

    Published on: October 20, 2008

    On Friday, MNB took note of a story in the Canadian Press reporting that Walmart has closed down a Quebec store’s automobile center where the employees recently voted to form a union and seek a collective bargaining agreement.

    Walmart said yesterday that the five employees who wanted to unionize were seeking salary increases that would have forced it raise prices by 30 percent, which it deemed unacceptable and that it said would make the automotive center unprofitable.

    MNB’s phrasing left out a piece of the puzzle. In fact, the employees voted to unionize, but after management and labor were not able to come to an agreement, a government arbitrator imposed a 33 percent wage increase – which Walmart said would lead to the price increases.

    "We have participated in good faith in every step of the process asked for by the union, including an extensive bargaining and arbitration process," Walmart Canada spokesman Andrew Pelletier told Dow Jones. "Our hope had always been to achieve a contract that would keep the Gatineau TLE open and in a position to deliver low prices to our customers."

    KC's View:
    I continue to think that Walmart’s decision to close the automotive center subverts much of the work it has been doing to improve its reputation in a lot of areas. But the government-imposed solution certainly makes the decision more understandable.

    Published on: October 20, 2008

    In the UK, the Herald reports that a new study says that white wine may be just as healthy to drink as red wine, offering many of the same heart-healthy benefits.

    According to the story, “The study undermines the conventional wisdom that red wine is better than white due to the chemical resveratrol, an antioxidant, found in grape-skin. White wine, made from the pulp of a grape but not the skin, does not contain resveratrol, which is said to protect against heart disease and cancer.

    “However, the researchers found that other polyphenols - health-giving chemicals, of which resveratrol is the best-known example - were present in white wine, and bore similar benefits.”

    KC's View:
    Yippee!

    Published on: October 20, 2008

    • MyWebGrocer announced that it has developed widgets that can be used on the websites of its retail customers that highlight sale items. ShopRite is said to be the first of its customers to use the widgets on its site.

    Curt Alpeter, senior VP of sales for MyWebGrocer described widgets as a “new and creative internet tool” that will “benefit both the retailer and their consumers. The use of widgets has exploded over the past year and they have already proven themselves to be valuable for online consumers. I am very excited about the first of what will be numerous widgets to come.”

    KC's View:
    Last week, it was Pizza Hut launching an application on FaceBook. This week, it is MyWebGrocer offering widgets on its retailer sites. Next week…

    The point here is that fast and systematic use of all the various options offered by the Internet is a prerequisite for doing business and being relevant in the current retail environment. You snooze, you lose.

    Published on: October 20, 2008

    BrandWeek reports that Kmart “has launched a campaign that positions the company as the only mass discount retailer to offer a layaway service. The hope is to drive sales at Kmart stores this holiday season, as consumers search for penny-pinching options during the recession.”

    It was two years ago that Walmart decided to drop its layaway program, saying that it cost too much and wasn't being used enough by customers to justify keeping it alive.

    • JM Smucker shareholders have approved the company’s $2.95 billion acquisition of Procter & Gamble’s Folgers Coffee brand. The deal is now expected to be concluded next month.

    KC's View:

    Published on: October 20, 2008

    • Weis Markets reports that its third quarter sales increased 6.9 percent to $603.9 million, on same-store sales that were up 6.2 percent. Q3 net income totaled $8.1 million compared to $10.8 million in 2007.
    KC's View:

    Published on: October 20, 2008

    Last week, in my MNB Radio commentary, I spoke about the importance of transparency, and offered a specific example – a company called Terra Creta that specializes in traceable estate olive oil from Greece:

    “Every bottle of Terra Creta has a lot number, and you can go on the Internet – either from a home computer, or from a handheld carried into the store itself – and see what the company calls the product’s traceability tree. I can almost instantly get information about the packaging, the expiration date, and can get information about the various inspections the product has gone through. I can find out when and where it was produced and bottled, and I can the results of all the lab tests performed on the olive oil. I can even see a map of the specific field where the olive oil came from and watch a video of the process. In short, it is utterly, completely transparent. No secrets here.”

    MNB user Steven Ritchey responded:

    I like the idea of being able to go to a web site and see where the ingredients in a product were grown and processed. This is not hard for a relatively small company.

    What I want to see is how you do this for Heinz Ketchup, Del Monte Cut Green Beans or something a bit more complex with several ingredients in it like canned chili. I’m not saying it’s worthwhile as a project, and the consumer may demand it at some point, but I can see this being a nightmare for a company with several different product and a lot of different suppliers.


    Maybe. But it may be a cost of doing business.

    MNB user Elizabeth Archerd wrote:

    I could not agree with you more about the need for transparency in food production and marketing. The natural food business started in the 70s due to concerns about processing and additives.

    A domestic company that offers that kind of transparency is Equal Exchange, the Fair Trade importer that has added Fairly-Traded domestic goods to its line of products in recent years. Each package of their branded dried fruit and nuts has a code that you can enter on their web site to learn about that batch - what grower, etc.

    Food co-ops have made a point of telling the whole story about food for a long time. And (pssst) most of us are doing better than fine during this recession.


    Noted.

    However, another MNB user thought that I’ve taken leave of my senses:

    Get a life!!!

    Maybe you’re right.

    But to be honest, I’m not sure how anyone can look at a technology like this and not find it to be kind of cool.

    People talk about eating local, about being connected in fundamental ways to the places where we get our food.

    In this case, the olives may be grown in Greece. But the world is not only flat, but highly visible. I can see the fields, and I can watch the olives being harvested.

    I feel connected.

    It may not be a great life. But it’s mine.




    Responding to last week’s story about Walmart closing the automotive center where unionization had taken hold, one MNB user was sympathetic to the Bentonville Behemoth:

    Bad PR comes and goes. Unionization is like a tattoo. Fine for some, not so much for others. But once you have it, good luck getting rid of it.

    Another MNB user wrote:

    Your comments … brought back memories of my time as one of the 3 non-French executives in Auchan's Chicago operation.

    The French executives were overjoyed when they discovered they didn't have to allow Unions in the Hypermarket, which they basically had to back in France in those days -- Wal-Mart has the reverse situation in China.

    Interestingly, while we were picketed in our early days, we offered better wages & benefits -- especially health benefits -- than were not achievable in a comparable union shop.


    Another MNB user chimed in:

    I wonder how the customer that had to pay 30% more would feel about the unionization? I know I wouldn't be happy, but I suppose I'm biased, as I'm anti Union.

    But another MNB user was less thrilled:

    The evil empire raises its ugly head and shows us again how powerful and unscrupulous they are.




    Referring to the ongoing debate about reusable canvas bags vs. disposable paper and plastic bags, one MNB user wrote:

    For what it is worth; never give up your views either in your speeches or especially your MorningNewsBeat. We all need a consistent voice of reason for this. We all want to do the right thing but many often don’t for various reasons. I am a staunch advocate of the reusable bags and have several from the various places I shop. I have more than I really need because I usually forget them in the car or at home. Some of these places have signs but either are too small or do not ‘grab’ my attention. Now I have been transferred to the home office and have begun to get a others because the other ones are packed away somewhere. So begins the cycle of the purchase of reusable bags once again…

    I won’t. I promise.

    If I’m not reasonable, I’ll at least be consistent. And if I’m not consistent, I’ll at least be loud and annoying.

    KC's View:

    Published on: October 20, 2008

    The American League finally has a pennant winner – the Tampa Ray Bays, a last place team just a year ago, defeated the defending world champion Boston Red Sox 3-1 last night to win the seventh game of the best-of-seven series.

    The Rays play the National League champs, the Philadelphia Phillies, in the World Series, which begins Wednesday night.




    In Week Seven of National Football League action…

    San Diego 14
    Buffalo 23

    Minnesota 41
    Chicago 48

    Tennessee 34
    Kansas City 10

    San Francisco 17
    NY Giants 29

    Detroit 21
    Houston 28

    NY Jets 13
    Oakland 16

    New Orleans 7
    Carolina 30

    Pittsburgh 38
    Cincinnati 10

    Baltimore 27
    Miami 13

    Dallas 14
    St. Louis 34

    Indianapolis 14
    Green Bay 34

    Cleveland 11
    Washington 14

    Seattle 10
    Tampa Bay 20

    KC's View:

    Published on: October 20, 2008

    • In the UK, the Sunday Times reports that Tesco “is locked in a battle with suppliers this weekend after allegedly demanding one-off cash payments and keener terms to help fund its price war with rival Asda and discount supermarkets Lidl and Aldi.”

    According to the story, Tesco has given its suppliers until November 2 to agree to the terms, which the retailer says it needs to maintain profit margins during a economic slowdown.

    KC's View: