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    Published on: February 19, 2009

    Now available on iTunes…

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    Hi, I’m Kevin Coupe and this is MorningNewsBeat Radio, now available on iTunes and sponsored this week by Webstop, experts in retail website design.

    At the risk of beating a dead horse…

    I spent a fair amount of time last week suggesting – and then defending the suggestion – that the slowing of magazine sales was an early warning that the magazine industry is dying and that retailers might be well advised to get rid of their periodicals sections and replace them with something a little more 21st century. Maybe a little Internet café?

    Yesterday, Michael Sansolo waded into the discussion to suggest that I hadn’t gone far enough…and that virtually every department of the store ought to be open to scrutiny and second thought. He was saying the same thing that Beau Fraser and his co-authors were saying last year when they published a book entitled “Death To All Sacred Cows,” which is available on either in a paper version or for the Kindle, and which I still think is definitely worth a read.

    Now, I got a fair amount of email on this subject last week…some of it from people in the magazine business who suggested that 1) people always are going to read magazines and that 2) magazine titles appropriate to a store’s customer base always will generate sales.

    I understand these objections and the context in which they are made. And I would emphasize that the changes that I suggested last week, that Michael Sansolo mentioned yesterday, and that the Sacred Cow guys talked about in their book, aren’t going to happen immediately – maybe not today, maybe not tomorrow, to paraphrase Humphrey Bogart’s Rick Blaine, but soon…and they’ll affect the rest of your life.

    One word that ought to be eliminated from our vocabularies right now is the word “always.” I hate to break it to you, but people aren’t always going to read magazines and magazines aren’t always going to generate sales. Just as Walmart wasn't always going to be in just the discount store business, wasn’t just always going to be selling books online, Starbucks wasn't guaranteed to always be a success, and…well, do I have to go on?

    There are no guarantees. There is no “always,” at least when it comes to things beyond science, math and physics.

    Sure. People are always going to eat…that’s a basic rule of nature…but there is no always about what they are going to buy their food, or what kinds of food they are going to buy, or even how they will think about food’s role in their lives.

    In Time magazine a week or so ago, former managing editor Walter Isaacson – a product of print journalism – speculated about how the new world order is affecting journalism, and how the profession needs to change in order to survive. He foresees a time when people might actually pay small amounts of money to read individual stories and punditry by the piece…the same as people paying by the song on iTunes…a business model that few people saw coming just a few years ago. Is he right? Maybe…but it is only by considering such business models that we can start to identify ways to be relevant to the consumer of the future.

    Go check out Isaacson’s piece. Then think about your kids, and how they get information. I find myself thinking not about what is possible when it comes to journalism, but rather about how little is impossible. Or, to use a phrase oft quoted here, from Jean-Luc Picard: “Things are impossible until they’re not.”

    We all have to be both cold-blooded and hot blooded when it comes to our business models. Cold blooded in our willingness to cast aside anything that it irrelevant or outdated, no matter how cherished or traditional. And hot blooded in our passion to accept – no, embrace – change.

    For MorningNewsBeat Radio, I’m Kevin Coupe.

    KC's View:

    Published on: February 19, 2009

    The Sacramento Bee reports that a former employee at California-based SK Foods pleaded guilty yesterday of having for three years engaged in the “distribution and mislabeling of tomato paste that contained unlawful levels of mold and was ‘unfit for food’.” She also said in her plea that she had committed the misdeeds at the direction of her employers at SK.

    The woman, Jennifer Lou Dahlman, was dismissed from the company earlier this week. She pleaded guilty to one count of the "introduction of adulterated and misbranded food into interstate commerce with the intent to defraud and mislead."

    According to the story, she “caused the shipment of tomato paste with legally excessive mold content from SK Foods to customers in Wisconsin, Utah, Pennsylvania, New York, Kentucky, Maryland and Ohio. She also admitted attaching false labels to the paste showing mold counts far below the actual levels and percentages of ‘natural tomato soluble solids’ materially higher than the actual percentages.”

    SK, which is the subject of an ongoing federal investigation into bribery and price fixing, continues to maintain its innocence. However, there have been several guilty pleas from purchasing managers at outside companies that dealt with SK Foods.

    KC's View:
    If the corporate bigwigs at SK Foods are proven to be guilty of promulgating policies that led not just to price fixing but of shipping unsafe foods, they ought to end up in the same special circle of hell that the guys at Peanut Corporation of America will be occupying one of these days.

    What has to be concerning to the industry and to consumers is the possibility – even the likelihood – that there are many such cases out there that we will be learning about with increased frequency. All this only undermines confidence in the food industry…which isn’t good for anyone.

    Published on: February 19, 2009

    Fortune has a long and exhaustive piece about former Walmart CEO Lee Scott, who stepped down from the company’s a few weeks ago after eight years in the job. Among the items included in the story, which focuses on how Scott bring modern management techniques to Walmart, and how he had to be pushed into being more conscious of the cultural criticisms levied at the company.


    • “When he took over as CEO in 2000, labor unions and environmentalists had painted Walmart as retail's evil empire. Scott overcame an initial reluctance to engage these detractors, and he wound up transforming the company. But the untold story of his tenure is the internal war Scott waged as he dragged the company into the 21st century from its clannish roots. When a group of executives known as the ‘boots’ - for their love of cowboy boots - threatened to divide management, Scott cleaned house during a 2005-06 purge, even though many of the boots had been friends of founder Sam Walton.”

    • Much of the conflict came down to FOL vs. FOT – or friends of Lee Scott vs. friends of then vice chairman Tom Coughlin. “The FOTs and the FOLs had radically different visions for the company's future,” Fortune writes. “Scott was pushing to modernize how the company was managed, and many of the boots were resistant to change. Scott often complained that despite Wal-Mart's dominance, its management ranks did not resemble those of a Fortune 500 company. He wanted to recruit more college graduates and offer better training for senior management.

    “Scott and Coughlin clashed on issues large and small, including restructuring of store manager contracts and a plan to end layaway, which Scott supported and Coughlin opposed. (It was eliminated in December 2006 because of declining use and increasing costs.) Their differences came to a head during an October 2004 board meeting. Coughlin was frustrated that much of the meeting was spent discussing Wal-Mart's new environmental initiatives, rather than talking about business heading into the holiday season.” (Coughlin, of course, left the company and later pleaded guilty to wire fraud and tax evasion, after having misused company funds, and served 27 months of house arrest.)

    • “Once many of the old-timers were gone, Scott changed the way managers evaluated their staffs and had them eliminate the bottom 20%. Many employees who made the cut had to re-interview for their jobs. Although the restructuring angered a lot of people, it was necessary to push the company forward.”

    Fortune also makes clear that Scott didn’t come easily to some of the socially conscious changes that he ended up engineering at Walmart: “The board backed Scott in his struggle against the boots, but once Coughlin had been dispatched, it grew impatient with Scott's unwillingness to handle Wal-Mart's deteriorating public image. Independent directors, including Jos Villarreal, a partner with law firm Akin Gump Strauss Hauer & Feld, and Roland Hernandez, former CEO of the media company Telemundo, joined with the Walton family in pushing for change. The family controls 43% of the company's outstanding shares - a block worth about $77 billion - and has three out of 16 seats on the board, including the chairmanship, held by Sam Walton's son Rob.

    “Orchestrating much of the criticism were the labor unions, which had tried since the late 1980s, with little success, to organize Wal-Mart employees. By 2005 the unions had changed their strategy. Union-financed watchdogs such as Wakeup Wal-Mart and Wal-Mart Watch started churning out damaging stories, and union officials recruited environmentalists and community organizers to join in the anti-Wal-Mart refrain. Soon consumers who had long benefited from Wal-Mart's low prices were questioning the retailer's practices. The company's runaway growth was stalling … Scott agrees that the board was way ahead of him on this subject. He says he didn't take its concerns as seriously as he should have, believing instead that the negative feedback was coming from blue-state elites who didn't shop at Walmart and therefore didn't understand the money the company saved consumers.”

    KC's View:
    This is a fascinating piece, worth reading in its entirety. In some quarters, Walmart is lionized for its approach to business, while in others it is demonized. But as this story makes clear, neither picture is completely accurate…and at the same time, there is nothing to suggest that the Bentonville Behemoth is anything other than adaptable to its environment.

    Published on: February 19, 2009

    CIES, the Global Commerce Initiative (GCI) and participants in the Global CEO Forum have agreed to “combine their assets and move forward with the founding of a single global consumer goods industry association,” according to an announcement this morning. “The goal is to improve the way the consumer goods industry meets the needs of the world’s ever more knowledgeable and demanding consumers.

    Leading the new effort for the next six months will be Pierre Oliver Beckers, CEO of the Delhaize Group and the current chairman of CIES, and AG Lafley, chairman/CEO of Procter & Gamble, and the current chairman of GCI.

    “This represents a step-change in the way our industry’s trading partners will be equipped to meet the complex challenges of a global value chain,” Beckers said in a prepared statement. “I’m particularly pleased that we are showing as an industry that we can move this forward in the present economic context. Ultimately this will bring more value to consumers, more benefits to all stakeholders.”

    Lafley added, “With this new industry body we shall be able to address non-competitive issues together so that shoppers benefit even more from the wide assortment and the outstanding everyday value this industry can and does bring to the economy and to society."

    The global platform reportedly will be focused on collaborative, non-competitive issues within the consumer goods industry, including:

    • Providing a platform for networking between trading partners and other key stakeholders at both CEO and operational level
    • Identifying industry priorities and developing recommended action plans when and where appropriate
    • Developing processes to improve the efficiency of the industry globally
    • Identifying best practices and supporting their implementation
    • Continuing to meet the unique requirements of retailers and manufacturers
    • And continuing to develop the industry’s portfolio of programmes to educate and promote best practices.

    Next steps will assemble interim governing bodies to lay the groundwork for the launch of the new Association after submitting the project for approval by the GCI Board and CEO Forum participants and the CIES General Assembly.

    KC's View:
    I’ve long been a fan of CIES and its unique approach to industry education, and so I’m not surprised that it is willing to essentially reinvent itself, for a new era.

    Published on: February 19, 2009

    The newest TNS Retail Forward ShopperScape report says that “shopper traffic and shopping frequency is down across most food, drug and mass channels - except supercenters, which is being driven by an increase in monthly shoppers at Walmart Supercenter. Tighter household budgets - due to a variety of factors including food price inflation, concerns about job security and declining home values - are altering the shopping behavior of consumers,” according to the report.

    It goes on: “As the perception of value becomes increasingly important and the number of value-conscious shoppers seeking out retailers where they can realize the most cost- and time-savings across their whole shopping list grows, the low-price leader Walmart reaps the greatest benefits. The retailer’s supercenter format and one-stop shopping appeal allows shoppers to consolidate shopping trips, thereby saving time and gasoline.”

    Other behavior shifts noted by the report:

    • Gas prices may have come down, but last year’s high cost of fuel has created some long-term behavioral changes – “more than a third of shoppers now buy most of their gasoline at alternative outlets, such as supermarkets, supercenters or warehouse clubs.,” not convenience stores and traditional gas stations. “The decline in the monthly gasoline shopper base as well as the pullback on discretionary and impulse purchases by most shoppers do not bode well for c-stores,” the report says.

    • “Despite a monthly shopper base of low-income consumers who are most susceptible to the economic downturn, dollar stores and other small-format value retailers will benefit as shoppers across income brackets turn to the channel for food and other household essentials,” the report says. On the other hand, warehouse clubs may be vulnerable because “further expected cutbacks in discretionary spending, particularly on big-ticket items, won’t help the channel going forward.”

    KC's View:

    Published on: February 19, 2009

    A new study released by marketing company ICOM suggests that 57 percent of US consumers are “self-conscious” about using coupons in the grocery store…but that the nation’s hard economic times have helped them get past their reservations.

    According to the study, “Apprehension tied to using coupons in the checkout line is also waning in key demographic segments. Of the consumers 35 years and younger, 26 percent said that they have reduced inhibitions about coupon usage in the past six months. Nearly 20 percent in this demographic said they used to be self-conscious but are no longer because of the economic benefit and 6 percent said that they are less self-conscious.”

    KC's View:
    We’re in a recession…or at least, that’s what the liberal gloom-and-doom, always looking on the harsh side of life media keeps telling us. (I insert this description here because of criticisms earlier this week that only liberals think that the world is going to hell.) People self-conscious about using coupons – but who need to use them because of financial reversals - should just get over it.

    Published on: February 19, 2009

    In yet another reminder of how close to home food safety issues are, it was reported yesterday that a woman in Tamarac, Florida, was arrested in a Publix store there after she was seen injecting “a black liquid that smelled like ammonia” into baby food and juice containers.

    The woman apparently has a history of mental problems and violent behavior; she told authorities that she was mixing food for her son, but it then was revealed that her son is 21 years old.

    KC's View:
    I’m sure these kinds of stories are reported frequently, and maybe it has gotten to the point where we don’t even pay attention anymore – we just take note and move on, figuring that this is just part of life in the 21st century.

    But, especially in view of the peanut/salmonella scandal, it is important to be reminded of the range of food safety issues that confront the industry.

    Published on: February 19, 2009

    • Bi-Lo has named Michael Byars to be its new president and chief executive, replacing interim CEO Randall Onstead. Byars most recently was president and CEO of Minyard Food Stores in the Dallas/Fort Worth area.

    Onstead has been interim CEO since November 2008, in addition to serving as chairman of the board. He replaced Brian Hotarek, who retired after more than 30 years in the grocery retail industry.

    • In the UK, Retail Week reports that Andy Clarke, retail director at Walmart-owned Asda Group, has been promoted to be the company’s new COO.

    It also is reported that group trading director Darren Blackhurst has been named chief merchandising officer, and marketing director Rick Bendel has chief marketing officer – new titles that bring Asda into line with Walmart’s overall management structure.

    • Cott Corp. has named Jerry Fowden, who has been running the company’s international operations, as its new CEO. He replaces interim CEO David Gibbons, who replaced Brent Willis a year ago.

    Fowden is Cott’s fifth CEO in six years.

    KC's View:

    Published on: February 19, 2009

    CNN reports that Smithfield Foods “plans to close six plants and shed 1,800 jobs, as the world's largest pork processor by revenue battles the liquidity squeeze that already has pushed rivals into bankruptcy protection and widespread restructuring.” Smithfield, the report notes, has “committed to cutting production by 10% for its fiscal year ending in April, mirroring efforts to arrest the U.S. oversupply in poultry that is spilling into exports as overseas demand starts to cool.”

    Advertising Age reports that General Mills plans to maintain and even increase its marketing spending, even in the face of the recessionary economy. According to the story, “The company has staunchly supported consumer-marketing spending increases - 19% in the first half of fiscal 2009, which began in June - while competitors, including Kellogg and Kraft, have begun to scale back on the heady marketing outlays of 2008, instead preaching bundling and greater return on investment. General Mills estimates that its consumer-marketing spending will be up by ‘double digits’ for the full fiscal year.”

    • The Los Angeles Times reports that Supervalu-owned Albertsons plans to close nine stores in Southern California between now and April 9.

    KC's View:

    Published on: February 19, 2009

    • Whole Foods yesterday said that its first quarter net income was down 17 percent to $32.3 million, from $39.1 million during the same period a year ago. Q1 sales were even at $2.5 billion, on same-store sales that were down four percent.

    • Nestle SA reports this morning that annual profit during its just-completed fiscal year was up 69 percent to the equivalent of $16.61 billion (US), on sales that were up 2.2 percent to $93.4 billion (US).

    KC's View:

    Published on: February 19, 2009

    Regarding the likelihood that the new administration will adopt strengthened Country of Origin Labeling regulations, MNB user Kevin Herglotz wrote:

    Let’s face it – COOL is not about food safety – it’s about trade protectionism. As the article points out we have COOL on the table today because some of the powerful farm lobby feared competition from Canada and Mexico, among other countries. COOL does nothing to better protect consumers against a food safety scare. In fact, I would argue that it gives false hope particularly given the political jigsaw puzzle of rules for each commodity that makes about as much sense as a congressional redistricting map. Case in point: COOL was irrelevant during the last several food safety scares we’ve faced. The spinach, tomato, chicken and now peanut incidents were linked to US products (except maybe the tomato issue which FDA blundered terribly and is still unresolved). The COOL label did nothing to help consumers make a better informed decision. What has been evident is that both the USDA and FDA regulatory and inspection protocols have and continue to fail in protecting consumers. When you read that in the most recent case of peanuts that plants were never inspected and at best maybe once a year, something is terribly wrong. A COOL label will not solve these kind of systematic failures.

    Just to be clear, I’m supportive of consumer information on products – it’s important – but the rules need to make sense, be reasonable and made workable for retailers and consumers. The concept of COOL has merit but the law is riddled with inconsistencies in products covered, what products constitute a label, and who is responsible for the labeling. All this said, the industry needs to move beyond the COOL debate – there was a seven year delay in implementation which is about as good as it gets. Many Iowans were big supporters of COOL and there’s an Iowan now as Secretary. If the HHS Secretary is a Kansas Governor (as many expect) then you have some of the same constituency influencing FDA. The focus of the grocery industry in the coming months should not be on the minor changes now being made to COOL but the much costlier and potentially impactful reforms Congress will consider in the areas of food safety. The industry will have to work together proactively, aggressively and in partnership with others, to make sure smart, workable and sensible reforms prevail that actually address the current failures and better protect consumers.

    And another MNB user wrote:

    Consumers want to know where their food comes from because they see it as a food safety issue.

    Do not confuse COOL with food safety. COOL generates the idea with consumers that food safety is part of this, because of their own personal perception of different countries. But on a science based thinking process, COOL has nothing to do with food safety.

    If consumers fully understood this about COOL it would not be needed or wanted except by a few misguided cattle producers.

    In other words, “A lot to do about nothing.”

    Got the following email from MNB user Craig Espelien wrote:

    In Michael’s Sansolo Speaks today, he indicated that you did not go far enough with the suggestion to eliminate magazines. I would throw out for consideration that even Michael did not go far enough. The foundational issue with change in a category is not the category – but the people who review the category in the theoretical interest of the consumer … Too often, SKU’s are chosen for a category not necessarily on what the consumer wants – but on what they have bought to fill an unstated and misunderstood need. In addition, manufacturers know the hot buttons of category managers (think Slotting Allowance) that influences decision making that has nothing to do with the consumer.

    Proactive players in the food at retail space need to re-think how categories are reviewed (if you want to talk about obsolete categories – think canned vegetables – a wildly declining category that still supports as many as 10 brands – none of which are differentiated from each other – they stay not because the consumer wants this many brands – but because each retailer is afraid of the slotting and promotional funding their competitor might get on that brand that would draw consumers away – but this is a topic for another rant…).

    I agree with Michael – but feel we need foundational change in the industry on how we determine how to serve the consumer … Why are consumers in the stores? They need to eat – and what our industry needs to do is figure out how to satisfy that need – not load a consumer’s shopping set with products that vendors want carried on a retail shelf. Continuing this behavior will allow Walmart and other formats to better solve the consumer’s problem and continue the slow trickle of consumers to other venues.

    MNB user Glen Terbeek chimed in:

    I completely agree with what he said, with one exception. In the future, the "category challenge" needs to be done on a store-by-store basis, since the local markets and local competition vary considerably store by store. As example, a store next to a Petco store, might give up or greatly alter the pet section, whereas an isolated store might have a thriving pet section.

    The category challenge store by store is all about maximizing the yield out of each store. I would argue there are few retailers if any that measure that yield or are organized to maximize it. So the category challenge of the future needs to start with the organizational challenge of the future.

    When you ask most retailers "who is responsible for the market performance of a store?", the answer is "we all are, but no one person is."

    KC's View: