retail news in context, analysis with attitude

Published on: March 2, 2009

The Los Angeles Times reports on the ongoing tug-of-war between manufacturers and retailers over costs and prices, which the paper characterizing it this way: “The nation's big grocery chains contend that food manufacturers have raised prices too fast and too far, considering large drops in prices for fuel, corn, wheat and other important commodities in recent months. The food companies disagree and say they are still coping with many rising prices themselves.”

In addition to talking about how companies like Safeway and Supervalu are working to pressure manufacturers into lowering their prices, the story quotes Jack Brown, CEO of Stater Bros,, saying that he “recently received a letter from a ‘major manufacturer’ he declined to name ‘outlining the next six quarters of increases. Prices will go up 4% each quarter.’ To counter rising prices, Stater Bros. has increased the number of house brands it offers to give shoppers lower-priced alternatives. Over the last year, Stater Bros. has increased the size of its store-brand offerings to 21% from 17%, but Brown is reluctant to go higher … (he) is hopeful that the greater reliance on house brands by the grocery chains, combined with slowing sales rates for national brands, will force the big food makers to reverse course.

"’When a name brand wants to play ball and lower prices, they will find that we will be the best friend they have ever had,’ Brown said. And he thinks that will pay off for the national brands, his stores and shoppers. ‘I really believe that if you take care of a customer, the customer will take care of you’.”

Published on: March 2, 2009

The Grand Rapids Press reports that The Fresh Market has closed its Grand Rapids store, essentially pulling out of the Michigan market.

"The Fresh Market has enjoyed being part of the Grand Rapids community since opening its store there in 2007,” the company said in a statement. “Unfortunately, the company has made the difficult decision to exit the Michigan market.”

Local experts say that The Fresh Market was hurt by both tough economic conditions in Michigan as well as by competition from Meijer and Spartan Stores-owned D& W Fresh Market.

Published on: March 2, 2009

MediaPost News has an interesting piece saying that more than half of all Twitter users – 56 percent – use the social communication site for business purposes, which the story says “suggests the service's value as a business-to-business marketing platform, alongside its emerging utility for consumer marketing.”

The story suggests that Twitter is being used two ways by businesses that range from Starbucks to Best Buy – they are “reaching out with promotional messages,” and using Twitter as a “listening engine” with which they can gauge consumer reactions and trends.

Twitter also is a way for employees to communicate back and forth – protected by the cloak of anonymity – about the companies they work for.

Published on: March 2, 2009

Meijer said last week that it will expand its green initiatives to include the use of wind power at some of its facilities. Current plans are for six wind turbines to be installed on the roof of the Meijer headquarters facility, with meters placed inside the building; Meijer also reportedly is hoping to expand its wind turbine project to include its stores in the west Michigan lakeshore communities of Grand Haven and Norton Shores.

"This is a very exciting project for Meijer," said Stacie Behler, Meijer’s vice president of communications and public affairs. "We continue to look for ways to decrease our carbon footprint and this wind turbine project is yet another example of how we can apply innovation to be more green."

Published on: March 2, 2009

The Washington Post had a story over the weekend saying that “hundreds of companies that unknowingly bought … tainted products” from the now bankrupt Peanut Corp. of America “now face serious financial troubles of their own, and the fallout is affecting businesses as tiny as Heavenly Candy and as large as Kellogg.”

According to the Post story, “Peanut Corporation made just 1 percent of the country's peanut butter supply, for institutions and private labels. But it also produced various peanut products, including meal and granules, that were purchased by hundreds of manufacturers to make items including cookies, crackers and ice cream. More than 2,200 products have been recalled, many carrying well-known labels such as Martha Stewart, Famous Amos and Little Debbie.”

Heavenly Candy, which made an affected product called Peanut Bliss, has been relatively lucky – its supplier is reimbursing it for the cost of the recalled candy, though not for lost profits.

Forward Foods, which made a contaminated protein bar called Detour, has been harder hit – it has filed for bankruptcy protection because it had to recall 75 percent of its product line.

It isn’t just people food. The Post wrote that “Scotts, the lawn fertilizer giant, sold wild bird seed that contained peanut meal from Peanut Corporation. Bird seed contaminated with salmonella is not considered a significant threat to animals, but it does endanger humans who handle it.

“At the outset of the salmonella illness, Scotts executives said they contacted their supplier, which reassured them that the bird seed did not contain products from Peanut Corporation. Now Scotts is suing the supplier, claiming it lied about the origins of the peanut meal.”

The Post writes, “Federal officials say 666 illnesses and nine deaths in 45 states and Canada have been linked to the contaminated peanut products, and the outbreak is ongoing, although the pace has slowed. Investigators say the company's president, Stewart Parnell, knowingly distributed tainted peanut products. The company is the target of a federal criminal investigation as well as a growing number of civil claims from victims of salmonella illness.”

Published on: March 2, 2009

The Washington Post had a story over the weekend saying that “hundreds of companies that unknowingly bought … tainted products” from the now bankrupt Peanut Corp. of America “now face serious financial troubles of their own, and the fallout is affecting businesses as tiny as Heavenly Candy and as large as Kellogg.”

According to the Post story, “Peanut Corporation made just 1 percent of the country's peanut butter supply, for institutions and private labels. But it also produced various peanut products, including meal and granules, that were purchased by hundreds of manufacturers to make items including cookies, crackers and ice cream. More than 2,200 products have been recalled, many carrying well-known labels such as Martha Stewart, Famous Amos and Little Debbie.”

Heavenly Candy, which made an affected product called Peanut Bliss, has been relatively lucky – its supplier is reimbursing it for the cost of the recalled candy, though not for lost profits.

Forward Foods, which made a contaminated protein bar called Detour, has been harder hit – it has filed for bankruptcy protection because it had to recall 75 percent of its product line.

It isn’t just people food. The Post wrote that “Scotts, the lawn fertilizer giant, sold wild bird seed that contained peanut meal from Peanut Corporation. Bird seed contaminated with salmonella is not considered a significant threat to animals, but it does endanger humans who handle it.

“At the outset of the salmonella illness, Scotts executives said they contacted their supplier, which reassured them that the bird seed did not contain products from Peanut Corporation. Now Scotts is suing the supplier, claiming it lied about the origins of the peanut meal.”

The Post writes, “Federal officials say 666 illnesses and nine deaths in 45 states and Canada have been linked to the contaminated peanut products, and the outbreak is ongoing, although the pace has slowed. Investigators say the company's president, Stewart Parnell, knowingly distributed tainted peanut products. The company is the target of a federal criminal investigation as well as a growing number of civil claims from victims of salmonella illness.”

Published on: March 2, 2009

Thanks to the MNB user who pointed out that while there is much tension between some manufacturers and retailers over costs and prices, Gifford’s Ice Cream – described as a “Washington, DC, institution,” has decided to introduce a new 64-ounce carton that it will sell at the same price as its old 56-ounce carton.

"Gifford's has been crafting ice cream for more than 100 years now, and we're very proud of the quality and value we've consistently offered our customers," Roger Gifford, President of Gifford's Ice Cream, said in a statement. "We're fully aware that today, families are trying to economize. So this year, we decided to increase the volume size of our ice cream without increasing the price tag."

Published on: March 2, 2009

• Published reports say that in the UK, Tesco has decided to shut down its in-store television network, saying that the system was outdated and energy inefficient; local speculation, however, is that Tesco TV had not been successful in luring enough ad dollars away from other venues to make the system profitable.

The company said it is developing “modern and energy-efficient alternative communication solutions” for its UK stores.

Published on: March 2, 2009

MSNBC reported over the weekend that at Stew Leonard’s farm in Ellington, Connecticut, a bull attacked two farm employees, pinning one man to the ground and biting the other man in the head.

The attack took place when the workers were tending to a premature calf. Published reports say that the injuries were not serious or life threatening.

Published on: March 2, 2009

• The New York Times this morning reports that upscale food magazines have gotten the message about how the recession is reshaping priorities and shopping patterns, offering more budget-oriented stories that focus on things like inexpensive ingredients and how to use leftovers in creative ways.

• USA Today reports that a new food safety law has gone into effect in China that “toughens penalties against makers of tainted food” and “establishes a Cabinet-level food safety commission to improve monitoring, beef up safety standards, and recall substandard products.” However, “some Chinese experts and consumers are worried that the country's first food safety law may not be enough to prevent a repeat.”

Published on: March 2, 2009

• Royal Ahold said that its fourth quarter net income was up 9.6 percent to the equivalent of $359 million (US). Total company Q4 sales rose 13 percent to $8.3 billion (US).

US sales grew 15 percent to $4.92 billion (US), with same store sales up 2.3 percent at its Stop & Shop chain and 4.6 percent at Giant.

Published on: March 2, 2009

Randy Roberts, for the past six years the government relations director for Publix Super Markets, died suddenly over the weekend, reportedly of a heart attack. He was 36, and leaves behind a wife and two small children.

Published on: March 2, 2009

MNB took note on Friday of a Wall Street Journal report that Safeway CEO Steve Burd told analysts that if CPG companies don't start lowering their prices, Safeway will respond by pushing its private label lines harder than ever – and that, if necessary, Safeway will “chew up” the CPG companies on price.

According to the story, Burd “told analysts in an earnings conference call that the sales growth gap between national brands and private-store brands has become ‘extraordinary’ and accused food makers of being ‘disingenuous’ with consumers by not dropping their prices to reflect declining input costs.” While Safeway and other retailers have been pushing manufacturers hard on prices, suppliers have been saying that they cannot lower prices because they are locked into higher commodity costs. But in addition to wanting to cater to economically challenged shoppers, Safeway has other reasons for pushing private label – such products earn higher margins for the retailer, and reinforces the company’s brand image.

My comment:

Retailers like Safeway have to position themselves as advocates for the consumer, and holding the line of prices – whenever possible – is precisely what they have to do.

I understand that there are contracts and commodity costs that manufacturers have to deal with, but in the current recessionary environment there are real perils to defending increased prices at a time when 1) consumers have less money to spend and 2) retailers have legitimate and quality private label options to offer an increasingly accepting shopper.

Well, yikes!

This story and commentary generated a ton of email…

MNB user Ken Wagar wrote:

I have to say that I am a bit conflicted regarding the issue of the angst regarding suppliers pricing. While clearly retailers should be advocates for the consumer and while the current economy puts premium priced products at some risk doesn’t any company have the right to price their products as they wish and then take advantage of or be subject to the competitive environment? Retailers have often managed a disconnect between input costs and retail price. They have frequently sold items below cost as a strategy and they have often taken very high margins on other items to fit a strategy and profitably manage a sales mix.

Where is our outrage at the spread between input costs and retail prices on your Kindle or on an iPhone or any of thousands of other consumer items?

It clearly makes sense for the retailer to offer value choices such as private label and to promote them as aggressively as they wish and to offer comparisons of their price to the price of branded competitive products. And those branded suppliers who are high priced with no perceived value or benefit may in fact go away but where and how to fight the battle for consumer dollars is a choice of the supplier.

My problem is that we are yelling at each other again and threatening each other rather than working together to improve the system. Now that certain commodity costs are declining from historical high levels of last year we as retailers want 100% of that returned to us in lower cost of goods but I don’t recall that we encouraged suppliers to quickly raise our prices when the commodity markets shot through the roof last year.

Several years ago the Pork market crashed to the point that Farmers gave their hogs to packers for free and those same farmers were beside themselves when they saw no real reflection of those cheep hogs in supermarket pricing of Pork. We as retailers more or less ignored their plight indicating they didn’t understand the retail business. Now the shoe is on the other foot and we want to be “protected”?

There are tools and methods and data that can allow us to sit with suppliers and attempt to level the impact of volatility in the commodity markets and keep pricing on a more even keel and manage margins more effectively for all in the supply chain but they require strong partnerships and the sharing of “commodity price risk”. The problem is we are not very good at sharing. We want the benefit on both ends of the market.

This discussion reminds me of all of the talk of a “level playing field” 15 or 20 years ago. The fact is nobody really wanted a level playing field, everyone wanted a playing field slightly leaning in their direction.

The continual carping and threats keep us where we have always been. If your comments today regarding “no unassailable advantage” are correct then the shift better include the way we think and the way we work with our suppliers be they private label or branded companies.

One MNB user wrote:

If private label is the end all and be all for Retailers because of higher margins and brand reinforcement, this gap would be a welcome from Burd...but we all know that private label products are only me too products and need the "national" marketing (monies) and innovation to increase category performance...this requires R&D (monies)....these monies do not grow on trees.....Burd is "disingenuous" in this situation.

Another MNB user took note of the fact that Safeway had annual income last year that was up 11 percent, and wrote:

Perhaps Safeway can use some of the extra income they earned in 2008 to reduce their own inflated retails to the customer.

Another MNB user wrote:

I admit I could be biased since I am a product manager for a manufacturer, but I find Mr. Burd's rhetoric about manufacturers being 'disingenuous' about not reflecting declining cost inputs a bit ironic given Safeway's business model.

I would acknowledge that some cost inputs have come down after their historical highs in the summer/fall of 2008. However, costs are still above historicals from the early part of the decade, a time when most manufacturers were not able to recoup escalating cost inputs via price advances. In the end, you are correct, it is about relevance with the consumer. Pricing is a key part of that, and each manufacturer will have to evaluate and justify price/value with the consumer.

My problem with Mr. Burd's commentary is I believe he is being a bit disingenuous himself. Safeway continues to increase its gross margin requirements, and they are also charging suppliers increased lump sum fees to reflect price discounts to the consumer. I find it convenient that those points were not referenced.

I understand what Mr. Burd is trying to accomplish, I just think it would be better to engage in productive dialogue versus his rhetoric.

Still another MNB user wrote:

Don’t be so quick to hail Safeway as the consumer’s advocate. This is double talk.

Safeway has had a laser-like focus on its own brand for over twenty years. Manufacturers are tired of having their ideas, concepts, and even funding (remember S-COP?) used against them to better position the retailers store brand and grow its sales. While Safeway accuses vendors of capturing larger margins, they in turn don’t want to take any less margin themselves. Offering a price decrease is a uphill battle because retailers don’t want to take the retail price back down. Just more reason to funnel more funding to the consumer instead of trade.

Partnering is a two way street.

Another MNB user wrote:

Having Burd publicly chastise the supplier trade on lowering prices has a weird sound to it, since many suppliers are reluctant to offer lower prices to Safeway because Safeway pockets large portions of the newly discounted price and does not pass them on to consumers, this maintaining the large price advantage for their own label while simply transferring profits from supplier to retailer without any volume return for the supplier’s investment.

Trust is a huge issue here. And Safeway already makes considerably more margin than other retailers such as Kroger on the same case prices. If a retailer wants lower prices, it would be easier if they convince their trade partners they will pass it on. Otherwise, the suppliers will leave list prices higher and invest in promotional spending only, where at least they have a chance to get some increase in volume.

Yet another MNB user wrote:

In reviewing our customer results from 2008, I came across one of our customers that refused to take the price increase we were trying to pass through. They said if you raise the price we’ll find another vendor to make the private label item for us. So we ate the price increase. The result: we lost more than $8.00 per case. I don’t mean they didn’t accept an $8.00 per case price increase…I mean we were in the RED for $8.00 per case for over 200,000 cases last year. That is one single customer on a private label item. As a company we only managed to capture about 60% of the price increases we needed to break even on the increased commodity costs…Can you imagine what that cost us?

To be clear, Safeway is NOT the customer being referred to above but the profile fits…large national player who fights for every penny. So my guess is that Safeway (like 40% of the retailers out there) fought or delayed a much needed price increase and now has the gall to ask us to take prices back down. We lost millions of dollars last year due to un-realized price capture. Think about how many people could have been employed for the $1.6 million that single customer cost my single company.

And one last thing: Here’s an interesting question- if Safeway fights so hard to keep the prices down and does what it can to protect the consumer…why is it that their earnings are up $37 million? Maybe they were one of those retailers who refused price increases from the manufacturers and decided to use the opportunity to make a margin grab? I’m just not so sure that I buy the argument that Safeway is a consumers’ rights advocate instead of a public company protecting its stock price.

MNB user Tim Stapleton wrote:

The retailers have continued to expect same supply chain and quality for private label products, which has eliminated most of the private label companies over the last 10 years. Reverse auctions, consolidations, bankruptcies, and poor cost-of-good analysis (from running businesses on the cheap and not having ERP systems to analyze costs, i.e. SAP, Oracle, etc.) have reduced the available companies who could offer competitive products. You will find the challenges on price alone reduce quality, and it is unrealistic in the “peanut supply” to push for significantly lower costs while having full expectations of National Brand Equivalent products. The only area of difference is the Marketing budgets, and those retailers who still want lump sum ad payments, slotting, and other fees have eliminated a significant number of PL manufacturers.

Cutting the cost of doing business and reducing retail prices comes from both ends of the spectrum…no slotting, lower prices. No $20,000 endcap programs, lower prices. It is no secret to manufacturers why they like doing business with Wal-Mart as they truly do push all available pricing discounts and programs to the shelf price. Their overall cost of doing business is not dependant on the supplier to fund their ad programs. They just want to sell more products to more people with the best price available, but not to put suppliers out of business.

It has to be good for all to allow all to stay in business. Not many manufacturers are working retail at Wal-Mart. If their products dictate the need, it is reflected in the price. If I have significant upgrade costs to label my shipments specially, RF tagging, consolidated shipments which required additional handling and warehouses, all have costs in the system. Private label does not have marketing margins to work with, hence the lower prices.

And another MNB user chimed in:

I read w/interest Steve Byrd’s comments about the dastardly CPG companies that sell overpriced products to Safeway. We sell both branded and p/l product to Safeway but predominantly p/l. In 7 years, they have accepted 2.5% in price increases and right now are fighting a 2009 price increase that we absolutely need to keep their line profitable. They scream about falling commodity prices but refuse to acknowledge any chart that shows what those commodities have done over 7 years compared to a 2.5% price increase at their end. And, they make 70% profit on the p/l items they buy from us at present (I’m not making this up; it’s 70%). So, Steve can rant all he wants; the figures are what they are and they don’t make for a compelling story on his end.

It certainly sounds like Safeway and at least some of its suppliers are in need of couples therapy.

But regardless, I would point out that Safeway is positioning itself as the advocate for the consumer as it promotes private label as an alternative to national brands in a recessionary environment. That’s a compelling argument…and manufacturers have to cope with this reality.




On another subject – the inevitable death of the print media - MNB user Bob Anderson thought I was off-base:

I agree with your views a great deal of time. However, you are like several million others in this nation that have a total lack of understanding about rural America, its poverty, and graying population.

Years ago (the 1930’s) the Federal government allowed Electric and telephone companies (the telecommunication of the era) to divide up the countryside into service areas. The for-profit electric and telephone companies all chose the urban areas available. This left the rural areas dark and silent. Rural electric and telephone cooperative funding for construction of the necessary infrastructure was and remains a challenge for these organizations because the for-profit electrics and telecommunications companies have well funded and effective lobbies of Federal (and State) agencies, Congress and Legislatures to minimize the monies directed into those areas. Rural utility cooperatives came about because urban dominated companies don’t want their bottom lines impacted by serving low density areas.

Lack of affordable access to the internet and definitely access to broadband in rural areas remains a significant challenge because of the distances required to reach the people. (also terrain has significant impact.)

This is a real issue for rural American’s. Many also lack access to health and dental care. And if you are a rural Minority ethnic or racial American, your problems are even greater.

Just last year, a Southwest Arkansas community (surrounded by National Forest) was finally able to get PHONE service. It took a rural telephone cooperative and some very imaginative engineering to bring this pocket of less than one hundred people service. (Cable television you can forget. As well as cell phone service.) Yes, the US taxpayer subsidized these people getting a service that is now considered essential, but no for profit company wanted to take on the challenge,.

Kevin, wake up there are millions of American’s who can not use a Kindle or order from Amazon.com because the internet does reach them (at least affordable internet service.)

You may believe printed media communication paradigm is dead but for those rural American’s without basic dial-up internet it is essential.

I certainly hope you are not use Skype or other VOIP protocol service for voice communications. These “services” offer low cost service and do not pay into the Universal Telephone Service Fund that helps subsidize telecommunication services in rural America.

Guilty. Sorry about that.

I don’t dispute any of your observations about certain parts of America…but I honestly think that it doesn’t matter.

If we as a country cannot make affordable broadband Internet service available to every one of our citizens, then we are doomed to devolve into a non-competitive society.

I think we’ll do it, and we’ll get there faster than you might expect, because people are going to demand it…the future is going to demand it.