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    Published on: October 29, 2008

    The Wall Street Journal this morning reports that while Walmart said earlier this week that it plans to cut back on US store openings as a response to the current economic crisis, it will continue its international expansion plans.

    According to the story, “Over the next five years, Wal-Mart said it will devote 53% of its international spending to emerging markets such as Brazil and India, up from 33% in the previous five years, with the remainder going to mature markets such as Canada and the U.K. Wal-Mart also said it remains committed to succeeding in Japan, a plan that was criticized by analysts a year ago. The retailer said it is on pace to post its first operating profit in Japan this fiscal year.”

    MSNBC reports that “Wal-Mart has found itself in the right spot as it pushes the right mix of merchandise and marketing to complement its renewed focus on price just as the economic slowdown worsened. The company has also focused on inventory management and has improved capital efficiencies.”

    And, according to the MSNBC story, “Wal-Mart officials noted that their company — considered a barometer of the pulse of the American consumer — continues to see firsthand how the mounting financial crisis, including tightening credit, is putting more strain on its shoppers. Castro-Wright noted that credit card payments as a percentage of total payments is down 7.4 percent so far in fiscal 2009. That means that customers are maxing out on their credit cards, says Castro-Wright. That’s a big reversal from the robust double-digit growth rates in credit cards over the past three year.

    “Wal-Mart noted that it’s focusing on expanding its store-label food business as shoppers look to save more money on their food bill amid soaring inflation. As part of the strategy, the company is reformulating 1,200 food items, including cold cereal, cookies and yogurt, from the 5,000 food items it tested to improve the taste.”

    CEO Lee Scott told an analysts conference in Bentonville, Arkansas, that "this company will emerge from this time a tougher competitor … It is clear in this environment that the customer is more cautious and more thoughtful about what they buy and they’re more thoughtful about when they buy it … We see this as an opportunity to widen our moat. ... This is Wal-Mart time.”

    KC's View:
    There are few companies out there better positioned to navigate the perfect economic storm that we’re all coping with right now. It has both established value and values…and, as reported just a few days ago, has the fifth most powerful brand in the country.

    Doesn’t mean that there won’t be continued challenges, especially in places like Japan. (I’m a little less confident about its future there than the folks in Bentonville are.) Doesn’t mean that it does everything right. (While I admire steadfastness and consistency, I’m not sure that there aren’t better ways to deal with labor issues than just shutting down stores where unionization becomes an issue…though I concede that I have no idea what those better ways are.)

    As has been noted here before, just watch Walmart’s new TV ads. See the simplicity and consistency of message. And then watch how the company delivers on its promises. Daily.

    Published on: October 29, 2008

    The Financial Times reports that Procter & Gamble is “supporting a website, theEssentials.com, that is exclusively selling its brands, with items such as single tubes of Crest toothpaste and bottles of Mr. Clean cleaning fluid, to boxes of its Pampers and Luvs brand nappies and Gillette razors.

    “The move brings P&G into direct brand competition with its retailers, underlining the extent to which e-commerce is contributing to changes in the way the two sides have traditionally worked with each other.”

    Now, technically this is not a disintermediation strategy, since P&G is treating the third party-owned website as a retailer. But it certainly is not a traditional or mainstream retail outlet, and it most certainly is competing with such retailers.

    FT notes that “for consumer packaged goods companies, industry analysts argue that direct online sales are also a way to respond to lower prices from retailers’ private label brands.” Bulk sales of brands are being done by site such as Amazon.com, which can take traditional brick-and-mortar retailers out of the market in specific categories. And, Ft writes, “In another indication of the flux, Wal-Mart, P&G’s largest customer, is hiring a strategy executive whose tasks include assessing the potential effect of direct-to-consumer sales by its own suppliers.”

    KC's View:
    This is something that traditional retailers need to take very seriously, especially because the next generation of consumers – the young people who do not remember a world before Amazon.com or iTunes – is completely open to purchasing products through alternative sources, especially online sources, that will give them what they want, when they want it, where they want it, how they want it, at a price they believe is appropriate.

    To ignore or underestimate this trend is to risk irrelevance.

    Published on: October 29, 2008

    Interesting story in USA Today this morning about the definition of “local,” which has become a powerful marketing term in a lot of areas of the country.

    According to the story, “The ‘locally grown’ label is part of retailers' push to tap into consumer desires for fresh and safe products that support small, local farmers and help the environment because they're not trucked so far. At least one consumer survey has showed that whether something is locally grown is now more important than whether it is organic (which many local products are not).

    “But retailers may have far broader definitions of ‘local’ than consumers do. And while freshness is more likely if food isn't trucked so far, food-safety experts say there's no evidence that locally grown products are safer, especially because small producers often lack the food-safety audits more common among big producers.”

    Examples cited by USA Today:

    • “Wal-Mart, the nation's biggest retailer, considers anything local if it's grown in the same state as it's sold, even if that's a state as big as Texas and the food comes from a farm half the size of Manhattan, as in the case of the 7,000-acre Ham Produce in North Carolina.”

    • “Whole Foods, the biggest retailer of natural and organic foods, considers local to be anything produced within seven hours of one of its stores. The retailer says most local producers are within 200 miles of a store.”

    • “Seattle's PCC Natural Markets considers local to be anything from Washington, Oregon and southern British Columbia.”

    And consumer research specialist The Hartman Group has found that among the customers it has surveyed, 50 percent defined local as within 100 miles; 37 percent said within the same state.

    KC's View:
    Seems to me that there are two components to this.

    First, the store has to clearly define “local” for its consumers – in-store, online and any place else that it can think of. Clarity and specificity always solve a ton of problems…and I’m not sure it matters if one store in a community defines it one way and the store across the street defines sit differently. Assuming, of course, that the definition is credible.

    Second, the definition’s credibility probably is situational. And should be. I’m not sure that “local” will mean the same in Rhode Island as it would in Oregon.

    Published on: October 29, 2008

    Time has a piece this week that focuses on Aldi, noting that it may be the perfect format to appeal to consumers who are “spooked by the gravest economic crisis in decades,” and are migrating from traditional supermarkets and more upscale stores to places where they believe they can get a bargain.

    Aldi is responding to the economic with a spurt of expansion in the US. It “now has about 950 stores in 29 states and plans to open more than 100 stores in the next two years in Connecticut, Missouri and Texas. The company will have opened 100 new stores by the end of the year, double the number opened last year.”

    The operating advantages of an Aldi, according to Time:

    • “Aldi concentrates on selling core, high-volume grocery products, like ketchup, cereal and coffee. Want a choice? Forget it. By offering a single brand, usually a private label, in a single size, Aldi executives say that they can substantially undercut conventional retailers on 90% of the products the store sells.” Plus, it offers “a limited inventory … squeezing out all unnecessary costs, from coupons to butcher shops to fancy displays.”

    • Aldi’s typical small 10,000 square foot size allows it to “penetrate urban markets where real estate is generally more expensive than in suburban locales, and also allowed the company to carve a niche in neighborhoods that supermarket chains neglected. Operating costs are as spare as the rest of the place.”

    KC's View:
    Because Aldi focuses so relentlessly on value, it seems to me that this makes it even more important for the retailers that compete with it to define the values that differentiate them.

    Published on: October 29, 2008

    • Walmart reportedly is testing yet another new format – Mas Club, a Hispanic version of its Sam’s Club membership warehouse stores. The first Mas Club is slated to open in Houston during the first half of 2009.

    According to the Reuters story, “Sam's Club said it is designing new signs and a Mas Club logo. It also said that existing Sam's Club members who want to shop at Mas Club will need to purchase a separate membership.”

    "Our objective is to create an additional shopping choice that provides currently unavailable value for families, restaurant owners, convenience stores and more," Doug McMillon, president and chief executive of Sam's Club, said in a prepared statement.

    • The Hartford Courant reports that Connecticut Attorney General Richard Blumenthal has ordered Walmart to bring itself into compliance with state tax laws, saying that the retailer has been denying consumers a refund of state taxes when they make returns and has been charging state sales tax on even exchanges.

    • The Wall Street Journal reports this morning that Walmart is cutting the price of some of its MP3 downloads, charging just 74 cents for Top 20 songs…a marked financial advantage over the 99 cents charged on Apple’s iTunes site.

    KC's View:

    Published on: October 29, 2008

    Western New York-based Tops Friendly Markets said yesterday that it has implemented a new policy for all of its stores requiring every customer purchasing alcohol and tobacco products to display valid proof that they are of legal age, regardless of their age. The policy, known as “We Proof Everyone,” takes effect on Sunday, Nov. 2.

    It replaces the previous policy, which required cashiers to proof anyone who appeared to be younger than 30.

    KC's View:
    I’ve always thought of this policy as a terrific sales tool. After all, you get to be my age and it is a pleasure to be proofed.

    Published on: October 29, 2008

    • Tesco’s US Fresh & Easy Neighborhood Markets announced that it “has introduced a new line of ready-to-eat products that can be combined to create over 200 meal ideas. The line includes 30 different varieties of fresh pastas, sauces, meat and vegetarian dishes, and sides which pair to create meals for two for about $10.

    “We believe no one needs to sacrifice quality to save money and time,” said Fresh & Easy’s head chef, Mike Ainslie. “The new Mix-and-Match range provides customers with countless restaurant-quality meals at incredible prices. With over 200 different pairings, customers can always find something new.”

    KC's View:
    Smart idea, easily communicated and inexpensive. If they taste good, hey should be a winner.

    Published on: October 29, 2008

    QSR magazine reports that “ready-made lunches and mini meals from New York City–based fast-casual KidFresh are now available at 70 Whole Foods grocery stores in 13 states. Six varieties of the boxed meals began appearing in prepared food sections of the grocery store chain in late September.”

    The move into Whole Foods by KidFresh, which originally sold the lunches out of its own Upper East Side store in Manhattan but has expanded into other retail formats, is seen as a way of gaining new credibility for the products, which feature mostly preservative-free and organic mini-meals for between $4.49 and $5.99.

    KC's View:
    Probably a tough time for products like these, especially since Whole Foods has been suffering its own problems because of the down economy. Not to say that this is a bad idea…in fact, the concept is a good one…but it isn’t any sort of slam-dunk. Not now.

    Published on: October 29, 2008

    MarketWatch reports that Penn Traffic has “reached a non-prosecution agreement with the U.S. Attorney's Office for the Northern District of New York, in connection with its previously disclosed investigation into, among other things, the company's accounting policies, practices and related conduct between 2001 and 2004. As with the company's recently announced settlement with the Securities and Exchange Commission regarding its related investigation, the agreement with the U.S. Attorney's Office imposed no fines or monetary penalties on Penn Traffic.

    “As part of the non-prosecution agreement, the company accepted responsibility for the conduct of its employees during the relevant time period and agreed to provide full cooperation to the U.S. Attorney's Office with respect to its ongoing investigations through the conclusion of any and all related criminal trials. The recent settlement and agreement not to prosecute apply only to the company and do not address the previously disclosed investigations of two former Penn Traffic marketing executives,” who and have been indicted by a federal grand jury.

    • The Washington Post reports on how the increased use of coupons in the US, noting that “with wages not rising as quickly as the cost of basic necessities, coupons are back in favor after many years of steadily declining popularity, experts said. Eager to lure customers into stores, many merchants are not only offering more coupons, but they're also experimenting with creative ways to deliver them, such as text-messaging them to cellphones. Consumers, meanwhile, are becoming more savvy about finding good deals thanks to Web sites devoted to coupon-clipping strategies.”

    • The New York Times reports that there is an increase in the rate of children suffering from kidney stones, a malady more commonly experienced by adults. There are several possible reasons, such as too much salt and/or sucrose in their diets and not drinking enough water. The problem has gotten to the point where some hospitals are opening pediatric kidney stone clinics.

    • The Village Company announced that it has acquired the Mr. Bubble brand, said to be the number one brand of bubble bath, from Ascendia Brands. Terms of the deal were not disclosed.

    KC's View:

    Published on: October 29, 2008

    MNB reported yesterday that California voters will be making a decision in an interesting referendum next week having to do with animal rights. However the decision goes, experts say it will create a national precedent.

    According to the Washington Post, “California voters will decide next month whether the state's farms must afford more living space to veal calves, egg-laying hens and pregnant sows. Under ballot measure Proposition 2, farmers would be prohibited from confining these animals in a way that does not let them turn around freely, lie down, stand up or fully extend their limbs. Cages and crates now commonly used to house them would be banned.”

    The Post explains the two arguments this way: “Proponents say the regulations would improve food safety, protect the environment and end what they call the cruel and inhumane treatment animals suffer when confined in areas barely larger than their bodies. But opponents say the measure would cost California -- the nation's fifth-largest egg producer -- thousands of jobs, sharply increase production costs and ultimately destroy competition with out-of-state producers.”

    My comment: As a city guy with almost animal husbandry experience – actually, I have no animal husbandry experience – I have a little trouble understanding why making animals a little more comfortable would “cost thousands of jobs, sharply increase production costs and ultimately destroy competition with out-of-state producers.” If you were to give these industries a reasonable amount of time to comply with the new law, if it were passed, then perhaps it could be worked out in a way that satisfies most of the players. (Okay, that’s not likely. But I can fantasize…)

    Maybe it raises costs a little bit more, and I’ll grant you that higher costs can be a real issue at this particular moment in time. But can a little humane treatment for animals actually result in Armageddon for the California egg, poultry, and meat producing industries?


    Got a bunch of emails on this one, most of them suggesting that I was either naïve or misinformed. Or both.

    MNB user Ronald Fong, who also happens to be president of the California Grocers Association (CGA), wrote:

    In response to your comments regarding California’s Proposition 2, passage of this controversial initiative WILL drive the egg industry out of California. Look past the proposition’s top line rhetoric and focus on what it really means for both egg producers and consumers.

    Prop. 2 would establish unnecessary and costly hen housing requirements. Most egg producers in California say these costs are too great.

    State and federal animal cruelty laws are already on the books. In addition, the egg industry has established the “United Egg Producers Certified” program that is based on scientific guidelines recommended by an independent panel of leading animal welfare and animal behavior experts.

    Proponents draw heavily on consumer emotion. Their advertisements focus on veal calves and breeding pigs in gestation crates, despite the fact there’s little veal production in California and pig farmers have voluntarily phased out confining sows to breeding crates.

    And because of the way in which it’s worded, Proposition 2 may even ban the production of “cage-free” eggs.

    Every major newspaper in California including the Los Angeles Times, Bakersfield Californian and the San Francisco Chronicle opposes Prop 2.

    For these and many more reasons the California Grocers Association Board of Directors voted to oppose Proposition 2. Not only would it destroy California’s egg industry, it would establish a standard for similar initiatives in states nationwide. How often is it said, “As California goes…


    Another MNB user wrote:

    Kevin, I don't have much animal-raising expertise either, but it's not rocket science to figure out that doubling the space requirement for laying hens would require double the number of chicken houses, which would require more land, higher energy costs (twice as many lamps and ventilators due to the doubled number of houses) and ultimately higher labor costs as a result of productivity decreases from the enlargement of the work area.

    Given that chicken-raising, as opposed to chicken processing, is not a real high-margin business, these increased costs could easily lead to reductions in headcount at the bottom end of the wage scale.

    So, if California implements a unilateral change, their processors would be at a cost disadvantage to producers in other states - more job losses and so on, until the businesses ultimately leave the state - which may be the desired outcome anyway...


    However, another MNB user offered the opposing view:

    The morality of a nation can be judged by how they treat their animals. We are not doing so well.

    And another MNB user chimed in:

    Amen...couldn't have said it better.

    And, ditto on fair treatment of animals. I'm a meat eater and have always loved veal. When I found out what the "plastic pup tents" were at an area farm (and saw the cute calves heads poking out from their chained existence), it made me rethink veal. The nice fat veal chop in the case no longer holds the same allure it used to. Seems to me a bit more freedom is worth it.

    KC's View: