retail news in context, analysis with attitude

Published on: October 23, 2008

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The economy is on everybody’s minds these days, so I thought I’d draw your attention to a couple of recent stories with unique takes on the nation’s financial crisis.

One was in Slate.com, where columnist Daniel Gross sets forth what he calls the Starbucks Theory Of International Economics, which essentially is a cousin to what New York Times columnist has called the McDonald’s Theory of International Relations.

Friedman’s premise was this: that once two countries evolved into prosperous, mass-consumer societies, with middle classes able to afford Big Macs, they would generally find peaceful means of adjudicating disputes instead of resorting to violence. Of course, Friedman’s theory isn’t ironclad, especially in the Middle East. But that may be more a testament to how crazy all those folks are than how flawed Friedman’s logic is.

Gross lays out his Starbucks Theory of International Economics this way:

“The higher the concentration of expensive, nautically themed, faux-Italian-branded Frappuccino joints in a country's financial capital, the more likely the country is to have suffered catastrophic financial losses. It may sound doppio, but work with me. This recent crisis has its roots in the unhappy coupling of a frenzied nationwide real-estate market centered in California, Las Vegas, and Florida, and a nationwide credit mania centered in New York. If you could pick one brand name that personified these twin bubbles, it was Starbucks. The Seattle-based coffee chain followed new housing developments into the suburbs and exurbs, where its outlets became pit stops for real-estate brokers and their clients. It also carpet-bombed the business districts of large cities, especially the financial centers, with nearly 200 in Manhattan alone.

“Starbucks' frothy treats provided the fuel for the boom, the caffeine that enabled deal jockeys to stay up all hours putting together offering papers for CDOs, and helped mortgage brokers work overtime processing dubious loan documents. Starbucks strategically located many of its outlets on the ground floors of big investment banks. (The one around the corner from the former Bear Stearns headquarters has already closed.)

“Like American financial capitalism, Starbucks, fueled by the capital markets, took a great idea too far … and diluted the experience unnecessarily … Like so many sadder-but-wiser Miami condo developers, Starbucks operated on a ‘build it and they will come’ philosophy. Like many of the humiliated Wall Street firms, the coffee company let algorithms and number-crunching get the better of sound judgment: If the waiting time at one Starbucks was over a certain number of minutes, Starbucks reasoned that an opposite corner could sustain a new outlet. Like the housing market, Starbucks peaked in the spring of 2006 and has since fallen precipitously.”

The really interesting thing, Gross notes, is that many of the countries where Starbucks has developed a significant presence are countries where the economies are in trouble.

Now, I think that Gross is onto something here…though clearly we can't blame Starbucks for the world economic crisis. (Though I suspect that if his theory gains any traction, we could see political-style attack ads from Dunkin’ Donuts and McDonald’s accusing Starbucks of exactly that. From there it’ll be just a short jump to ads that accuse Starbucks of palling around with terrorists and being run by socialists.)

Even Starbucks management would concede that the company over-expanded and miscalculated the ability and inclination of people to pay four dollars for a cup of coffee. But the rationale behind the miscalculations – that people are aspirational, and will spend more of their disposable income to buy a product that reflects those aspirations – was sound.

So where are we now?

Well, let me offer for your consideration the Content Guy Theory Of Global Aspirations.

It goes like this. No matter how bad the economy gets, people will neither forget nor give up on the aspirations that they formed when things were more prosperous. They may look for ways to satisfy those aspirations in more cost-effective ways, or they may develop different aspirations in the face of crunching economic realties. But human nature is essentially aspirational, and retailers who remember that will, in the long run, be winners. They will find ways to address those needs and desires in the tough times, and will be well positioned to cater to those same customers when they have more money in their pockets.

Which leads me to the second article that I found intriguing.

It was in the most recent Barron’s, and suggested that while things are tough, they “may not be as bad as you think. The credit crisis, stock-market crash and fall in home prices have raised legitimate fears of a nasty and protracted recession. Yet the economy has often proved more resilient than is commonly thought -- and constructive factors that have gotten scant attention should help the U.S. skirt a deep recession. In fact, it's possible that the downturn could prove to be one of the briefest and mildest on record.”

One of these constructive factors – go figure – is the price of oil. As we all know, gas prices have gone down. A lot. And Barron’s notes that the plummeting cost of gasoline and heating oil will, in fact, put more money in people’s pockets at the end of this year and in the beginning of next year. Which means that the pocketbook crunch won’t be as bad as many people think.

Barron’s says that there are a number of economists who are taking this approach to economic projections…which means, I think, that there must be a cadre of economists walking around singing – either to themselves or in harmony – that famous song originated by Monty Python:

Some things in life are sad
They can really make you mad.
Other things just make you swear and curse.
But when you’re chewing on life’s gristle,
Don't grumble, give a whistle.
And this’ll help things turn out for the best.

Always look on the bright side of life…

For MorningNewsBeat Radio, I’m Kevin Coupe.

Published on: October 23, 2008

A new study by MetLife says that 57 percent of US employers with 500 or more employees say that they provide some sort of wellness program for their staffers, with features such as smoking cessation, weight management or exercise plans. The study says that 70 percent of the employers that provide wellness programs say that they are an important tool for employee retention.

However, just 16 percent of US employers with fewer than 500 employees offer the same kinds of programs.

One other interesting statistic – nine percent of US employers impose financial penalties of some kind of employees who do not meet specific wellness standards.

Published on: October 23, 2008

The New York Times reports that one of the ways in which some shoppers are trying to deal with the economic crisis is by cutting back on the purchase and consumption of prescription medications such as cholesterol-lowering drugs.

“Through August of this year,” the Times writes, “the number of all prescriptions dispensed in the United States was lower than in the first eight months of last year, according to a recent analysis of data from IMS Health, a research firm that tracks prescriptions.

“Although other forces are also in play, like safety concerns over some previously popular drugs and the transition of some prescription medications to over-the-counter sales, many doctors and other experts say consumer belt-tightening is a big factor in the prescription downturn. The trend, if it continues, could have potentially profound implications. If enough people try to save money by forgoing drugs, controllable conditions could escalate into major medical problems. That could eventually raise the nation’s total health care bill and lower the nation’s standard of living.”

Published on: October 23, 2008

Marketing Daily reports that a new survey from Ketchum's Global Food & Nutrition Practice suggests that only about one-third of Americans, and even fewer Europeans, say that brand names play a role in their choice of food products.

Rather, 74 percent of global consumers aid that taste was important, 73 percent said quality was important, and 70 percent said that price was important.

According to Marketing Daily, “There were certainly some variations by country. For instance, price was cited by nearly as many American and U.K. consumers as taste and quality, and price had a slight edge over these other two factors among Germans. But among Argentine and Chinese consumers, price was clearly third or fourth in the pecking order. And whereas health benefits reign in China (78%), followed by taste and quality at about 70% each and price at 60%, health benefits were cited by fewer than half of those in the UK and Argentina, 55% of Americans, and just 34% of Germans.”

Published on: October 23, 2008

Winn-Dixie Stores said yesterday that the current phase of its “Good ‘Til” program, which offers customers reduced pricing on over 1,000 products, will receive increased focus in its weekly circular, along with “Buy One, Get One Free” and “10 for $10” sales that are being promoted on a regular basis.

Robin Miller, Winn-Dixie’s director of communications, said that the focus also will be on “fresh and local.”

Published on: October 23, 2008

In an email to customers yesterday, Starbucks disclosed the parameters of its new Gold Card program, saying that for a $25 annual fee, patrons will get 10 percent off most purchases at US Starbucks cafés.

According to the email, customers who register their Gold Cards online will be entitled to what is described as “top shelf” treatment, though the specifics of the program, other than discounts, are not delineated.

Further details are to be made available next month.

Published on: October 23, 2008

Safeway announced that its popular PowerPump program, which gives gas discounts to its customers, is growing with BP and ARCO stations coming onboard. Since July, Safeway customers in selected regions have accumulated a 10-cent-per-gallon savings on gasoline with every $100 in store purchases, either in one shopping trip or in multiple trips. To expand the program’s reach, Safeway has partnered with BP so customers can go to a BP or ARCO station if their local Safeway store doesn’t have a fuel station. Safeway customers will earn a $1.50 for every $100 they spend. The savings is loaded onto a reward card to be used at the BP or ARCO station and is reloaded each time the customer’s purchases reach $100.

Published on: October 23, 2008

The Daily Green reports that “Safeway will stop selling plastic baby bottles made with bisphenol A (BPA), the controversial chemical that has been linked to a range of health problems.”

In addition, Whole Foods reportedly has come out in favor of legislation that would discontinue the use of BPA in the manufacturing of baby bottles and baby formula containers, saying that the chemical is potentially harmful to infants.

Whole Foods said that the call was consistent with its initiative significantly expanding its current selection of over 1,000 baby products to include an additional 200 new "Eco Baby" items that are described as “safe, healthy and environment-friendly.”

The moves by Safeway and Whole Foods add additional voices to the ongoing debate about BPA. As previously reported here on MNB, there have been a series of studies linking BPA with health problems that include diabetes and heart disease. However, the US Food and Drug Administration (FDA) has published a draft assessment saying that BPA does not pose a health hazard when people are exposed to small amounts, and that conclusion has been confirmed by European Food Safety Authority (EFSA) Authority, Health Canada, the World Health Organization, Health and Consumer Protection Directorate of the European Commission; the European Chemical Bureau of the European Union; the European Scientific Panel on Food Additives, Flavorings, Processing Aids, and Materials in Contact with Food; and the Japanese National Institute of Advanced Industrial Science and Technology, as well as the Grocery Manufacturers Association (GMA) and the American Chemistry Council.

However, that hasn’t stopped the Canadian government, Consumers Union (CU), the Consumer Federation of America (CFA) and Walmart from disagreeing with the FDA decision; in Walmart’s case, it is not selling children’s products containing BPA.

Published on: October 23, 2008

• Reports out of the UK say that Tesco plans to introduce several hundred new discount items in the next few weeks, part of its broader strategy to blunt the impact of Aldi’s expansion in the marketplace.

Published on: October 23, 2008

• USA Today reports that 100 “scientists and physicians have written a letter to the Food and Drug Administration asking for more regulation of increasingly popular energy drinks because their high caffeine content puts young drinkers at possible risk for caffeine intoxication and higher rates of alcohol-related injuries.” Energy drinks have grown into a $5.4 billion business, growing 55 percent annually, in the US, which is the world’s largest consumer of energy drinks.

• The Detroit Free Press carries a story saying that “food allergies in American children seem to be on the rise, now affecting about 3 million kids, according to the first federal study of the problem. But experts said that might be because parents are more aware and quicker to have their kids checked out by a doctor.

About 1 in 26 children had food allergies last year, the Centers for Disease Control and Prevention reported today. That’s up from 1 in 29 kids in 1997.”

However, nobody seems to know what is driving the increase, nor why it seems to be taking longer for some children to outgrow their allergies than in the past.

• Reuters reports that some 800 employees have gone on strike at 13 Loblaw-owned Maxi stores in eastern Quebec, demanding higher wages and benefits.

• Walgreen reportedly has hired consultancy Booz Allen Hamilton to help it reconfigure its familiar drug store format, a move that comes just days after it said it was acquiring the specialty pharmacy division of McKesson Corp. as a way of expanding into new health services areas.

Published on: October 23, 2008

• McDonald’s said yesterday that its third quarter net income rose to $1.19 billion, from $1.07 billion during the same period a year ago. Revenue grew 6 percent to $6.27 billion from $5.9 billion, with global same-store sales up 7.1 percent and US same-store sales up 4.7 percent.

• Amazon.com reported a 48 percent increase in net profit, to $118 million from $80 million during the same period a year ago. Q3 revenue rose almost 31 percent to $4.26 billion.

Published on: October 23, 2008

In a story yesterday about paperless coupons, I made the following comment about coupons in general:

The key to making the shift to paperless coupons work, I maintain, is a greater level of targeting than currently is being used. Without significant targeting, most coupons will simply be seen as clutter.

In the end, without targeting, it won’t matter whether a coupon is paper or electronic. A lot of us simply throw out those useless FSIs that show up in the papers each Sunday, and we’ll also file useless electronic coupons in the trash bins on our computers.

Junk is junk.

One MNB user responded:

Since millions of households save substantial amounts of money redeeming those coupons, it's pretty evident that one man's "trash" is a lot of people's treasure.

And MNB user Kathleen Schartner wrote:

Tend to disagree on coupons being junk. My husband questioned time spent (20 mins on a Sunday), so calculated over the last year – with coupons – saved $1300 over the year – for a household of 2. The use of coupons also allows trial of items that I might not usually purchase and will then turn me into a loyalist or a non-user. My gripe is that internet coupons are not accepted at stores in my area – Cleveland, OH – they will only accept manufacturer ones.

Saving my 2 cents quite happily.

And another MNB user wrote:

I have a feeling that coupons are becoming more relevant than you think, and I believe there may be a more significant jump in usage than we've seen in the past.

Yes, the low price retailers of the world are important. And yes, loyalty card based deals are at a premium these days. However, I tend to think during these economic times, a majority of consumers will make an extra effort and go through just about any avenue to get an even better deal. I have a loyalty card at my local grocer, but I always find myself looking for something extra, whether it be via the Sunday paper, or an FSI, or even an Internet coupon. Granted, you're right about some Internet coupons. Don't think I'm going to use my "Save 10%" coupon at Men's Wearhouse for a suit that already costs $500. But other coupons could go a long way when people are seeing just how much they can save, and then taking into consideration holiday budgets for the year. If I take the extra time to seek out the deals over the next month, that might give me 'x' amount of extra spending money for this holiday season.

I will concede both that a lot of people use coupons and FSIs and that usage is on the upswing in the current economic climate.

But the last numbers I saw suggested that something line one percent of FSI coupons are redeemed.

Which doesn’t strike me as a highly efficient use of marketing power.

MNB user Dave D’Arezzo wrote:

Agree with you 100%, junk is junk. And coupons are junk. Retailers and manufacturers that figure out how to make it easier to buy their products and services are the winners. Rewarding loyalty is still a solid opportunity, but frankly coupons have always been expensive when factored to the per user, and reward promiscuous brand switching activities. And many studies have shown that for the most part they engage a very small segment of the population, who are "heavy users" of coupons.

We're all busy and want streamlined interactions whether it's on the internet, our mobile phones, PDA's or in person. It reminds me of statements made by Dr. Fader at Wharton back in the dot com heyday, that the rules of bricks and mortar business and e-commerce are the same, it's all about trial and repeat (and repeat, etc.). Repeated trial never pays off. And coupons rarely satisfy that in an economical way. And it's gotten to the point where retailers like Macy's, pizza delivery, etc just give you the coupon price without the coupon because it's easier. Wow, there's a new concept at department stores, easier shopping…

And another MNB user chimed in:

Speaking of junk and wasting less paper, when will the phone companies join the green movement and stop dropping phone books in our driveways. Let their customers request phonebooks if/when they need them.

Amen.




Responding to a story and commentary yesterday about retailers and manufacturers engaging in a sustainability summit while government seems to dither and debate, MNB user Cleve Young wrote:

While government dithers business proceeds. This makes me wonder again what are more effective in the long run, government mandates or consumer/economic pressure. While neither is a solution in isolation and there will always be a need for both, at this point consumer and economic pressures are being vastly more effective than government. What’s interesting about this Walmart initiative is it’s doing something that governments could never do, tackling this issue worldwide in one cohesive program (at least for Walmart suppliers). There are sure to be different solutions and requirements Walmart sets up within individual countries and/or regions, but overall they will be under the same guiding principles and structure. Who in their wildest dreams could imagine 100+ different national governments (or even state govts.) agreeing on a set of overriding guidelines, and then actually sticking to them?

It will be interesting to see how much open insight and public exposure Walmart (and other companies) will give to their efforts. I have a feeling they will be much more responsive to openness demands from consumers (who keep them in business) than of government agencies with their often arcane and convoluted rules.




On the subject of voting, one MNB user wrote:

You said, “Democracy only works when you vote.” While I agree with your civic mindedness, your statement was only half true. Democracy only works when you intelligently vote.

You sound like one of my favorite pundits, Peggy Noonan.

You’re right. But I tend to assume intelligence.

One MNB user wrote yesterday that “getting voters out to vote themselves freebies is NOT necessarily a good thing. Spread the wealth sounds like a Socialist plan to me!!"

Which led one MNB user to write:

It always amazes me when the "right" make statements like the one above, you never hear them making the same statements when the money flows from the government to billionaire sport team owners to fund new stadiums or to wealthy corporations to build new offices or retails space. It is still spreading the money around, except it is from everyday tax payers to wealthy CEOs and billionaires.




Finally, yesterday there was an email posted on MNB that was a critique of one Starbucks shopping experience (not so good) vs. that at one Dunkin’ Donuts (much better). It was contributed by an MNB user named Tracy Krogstie…and it prompted the following email from MNB user Michael Core:

Well, it looks like the political "BS" machine has hit the Morning News Beat. I was reading your story about Tracy Krogstie's experience at Starbucks and I couldn't help but hear a familiar ring of Joe "The Plumber". When something sounds too perfect it never is…So I did a Google search of Tracy Krogstie and found out she is the Promotions and Marketing Manager for Jewel Osco. So that started me thinking why wouldn't she shop for those items at a Jewel store? I then did a search with Jewel Osco + Dunkin Donuts. I suggest you do the same and see what pops up.

Come on, Kevin, you are losing it. Before you run such blatant promotions at least apply the sniff test.

To be fair, I knew where Tracy Krogstie was from before I ran her email critique. Maybe I am naïve…but it never occurred to me that she was simply hyping a company with which her company does business. The email struck me as honest and heartfelt, and so I ran it.

Maybe I was wrong. And I suppose there are times when people use MNB to pump up their own companies and clients, and I may miss the subtext.

But I prefer to think that most people who write to MNB are simply engaging in honest discourse. Even if thinking so leaves me open to charges of being naïve.

Published on: October 23, 2008

If you’re going to be attending the Produce Marketing Association (PMA) Fresh Summit in Orlando, Florida, this weekend, plan on stopping by to visit MNB “Content Guy” Kevin Coupe, who will be giving a presentation entitled “Hold On For An Economic Roller Coaster Ride,” Saturday from 9:35 to 10:50 am.

He may even have some limited edition MNB canvas shopping bags to hand out…so stop by and say hello!

Published on: October 23, 2008

In the first game of the best-of-seven World Series, the Philadelphia Phillies defeated the Tampa Bay Rays 3-2.