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    Published on: March 3, 2009

    by Michael Sansolo

    There’s an old saying that what gets measured, gets done. But what if there is a problem with the measurement?

    Think about all the way we judge whether someone has done a good job and then ask, do we really know? What if the way we measure success somehow warps what we think?

    A recent on-line article on hockey, of all things, shed some interesting light on this. Hockey fans know of a statistic called plus/minus. In short, a player gets a plus whenever their team scores when they are on the ice; they get a minus when the other team scores. Seems pretty simple, doesn’t it? By following the stat, you might get a sense of who is playing well.

    Or you don’t. In hockey, players rotate on and off the ice constantly with non-stop substitutions. Frequently, a coach will carefully deploy his team to get certain players on the ice in specific situations. For that reason, a good defensive player finds himself on the ice against the opponent’s best offensive players with great frequency. And over the course of the season, that good defensive player ends up with a poor plus/minus stat simply because he always played in the hardest situations. In contrast, a poor defensive player might have better stats because he only gets used in easier situations.

    The New York Times Magazine ran an article along a similar vein recently, profiling Shane Battier, a player for the Houston Rockets basketball team. Battier, it seems, has a record of posting modest statistics, except for this: when he plays, his team is always more likely to win because Battier does little things that make that happen. Even when guarding a superstar like Kobe Bryant, Battier finds a way to make Bryant work harder for his points, diminishing his team’s offense in the process.

    Like it or not, in business we have the same situation. Frequently, we grade people based on measures of performance that provide an incomplete picture at best and a misleading one at worst.

    For instance: manager A runs a store that produces paltry profits year after year. Manager B’s store, in contrast, always racks up splendid profits. However, if manager A’s store has virtually every problem known to exist - a tough neighborhood, an older unit, you name it - it’s possible that manager is actually doing stunningly great work. And, in contrast, manager B might have a store with every possible advantage and actually could produce even stronger profits.

    Michael Sansolo can be reached via email at .

    KC's View:

    Published on: March 3, 2009

    Interesting piece in the Wall Street Journal about the story reported here and elsewhere last week – that Tesco is conceding that its US-based Fresh & Easy has not performed up to expectations, and that it is cutting prices, creating a new value-driven private label, ramping up its advertising and even giving some its stores a new coat of paint to make them look less antiseptic.

    Because its expansion plans met resistance in the form of a recessionary economy that has had an impact on consumer spending, Fresh & Easy reportedly has met the new circumstances head-on by marketing directly against the recession, moving away from an EDLP approach to more deeply discounted specials. The Journal notes that it also has created a “Buxted line, a budget brand in the meat aisles of its stores with black and brown labeling,” that is cheaper than other offerings.

    According to the story, it isn’t just Fresh & Easy’s advertising and pricing philosophy that is being reconsidered. CEO Tim Mason tells the paper that he’s considering carrying a bread that contains preservatives because it is cheaper than the breads that the company has been carrying…even though such a product would work against the pure quality message the company has been trying to sell.

    KC's View:
    It so happened that the WSJ headline was, “Tesco Tries To Hit A US Curveball,” which I found ironic.

    Because I would guess that it would be almost impossible for a population raised on cricket to actually hit a major league curveball.

    But let’s put that aside for a moment. The question is whether, with one strike against it, Fresh & Easy can hang in there and turn its stores into a hit. The answer here, to be honest, is that it is hard to tell.

    When I read about the new Buxted brand, I have to wonder whether another new private label is really what Fresh & Easy needs to differentiate itself. And I wonder if it is diluting an important part of its message if it brings in products (like bread with preservatives) that would have been anathema to its value proposition just a few short months ago.

    Then again, I have a lot of respect for Tesco’s ability to focus and adjust to a new situation. The company has deep pockets, and I suspect has plenty of patience.

    We’ll see.

    Published on: March 3, 2009

    The New York Times this morning reports that this is the day that Starbucks will begin rolling out a value-driven breakfast menu, offering both coffee and a choice of a breakfast sandwich, oatmeal or coffee cake, for just $3.95.

    The move is part of a broader effort by Starbucks to rebrand itself and change popular perceptions that the company only sells $4 lattes.

    According to the Times, the company is changing its signage to focus on less pricey drinks, and is even training its people to understand and be able to communicate about its new value orientation.

    “If we are a premium brand, it doesn’t mean we can’t provide value,” Starbucks CEO Howard Schultz tells the Times. “We believe when we come out of this, we will be stronger because we maintained our core customers and, through providing value, will bring on new customers.”

    KC's View:
    I thought it was sort of interesting this morning to read a blog on the Orlando Sentinel website that noted that Schultz had visited Orlando for an invitation-only event at which he listened to customers…and the blogger suggested that “it's good to see high-profile CEO's out there talking to their front-line workers and directly to customers. More CEOs need to be doing this sort of thing at a time when the recession shows no sign of letting up and public outcry against executives and anyone in a corner office is mounting.”

    All of which is true…as far as it goes.

    But it is the “invitation-only event” part of the story that caught my eye. Because that’s not always the best environment for a CEO, or any senior executive, to gauge how customers really are feeling. They need to be in the stores at crunch time, standing on line with other shoppers, getting a real feel for the customer experience.

    I’m not suggesting that Schultz does not do this. I am trying to make a larger point…that if you are in retailing, there is no substitute for actually being a customer if you want to be a better retailer.

    One other quick note. I tasted Via, the company’s new instant coffee. (It isn’t available in my market yet, but an MNB user was kind enough to send some along.) And it actually is pretty good…better than I can ever remember instant coffee tasting.

    I had my doubts about Via, and wondered if it would hurt the company’s brand message. But having tasted it, I’m a lot less concerned about that.

    Published on: March 3, 2009

    Cookbook author and celebrity chef Rachael Ray was profiled by ABC’s “Nightline,” and she suggested that unlike many others in her profession, she has always been focused on “affordable, accessible” meals, and that her business “is built for a recession.”

    "The magazine, the daytime show, we've always tried to write affordable, accessible [recipes]," Ray told “Nightline.” “Those are key words for us, and I do mean us, a huge staff of people at the magazine who love to cook affordable, friendly food that helps families eat better for less. So I think this is really a time for all of our team to shine. ... You know, food is such -- it's a hug for people."

    It must be working: “Nightline” reports that Ray’s daytime talk show “is about to tape its 500th episode and there are 190,000 people waiting for tickets.”

    KC's View:
    Good food is too often thought of as being something beyond the reach of ordinary people….and that average folks have to put with mediocre sustenance.

    Which is, of course, nonsense. Yesterday, there was a piece in the New York Times that we took note of, suggesting that even the gourmet magazines were using the b-word (“budget”) and finding new uses for leftovers.

    You sense a trend here?

    I sort of like the idea that Rachael Ray is unapologetic, even for the things that she’s been roundly criticized for…like her endorsement deal with Dunkin’ Donuts, which some thought was on the wrong side of the obesity debate.

    "I'm an all-things-in-moderation kind of person," she told “Nightline.” "I do eat a warm donut occasionally. I especially enjoy a cider donut when I'm apple picking. I don't think there's anything wrong with that."

    That’s as good an eating philosophy as I can think of.

    Besides, I really like her cookbooks.

    Published on: March 3, 2009

    • In Chicago, CBS News reports that local unions are gearing up to fight Walmart, which is hoping that it will be able to convince local political leaders that the current recession is a perfect time to open up more Walmart stores within the city limits; there is only one at the present time, owing largely to the opposition of organized labor.

    Variety reports this morning that Christy Walton, the widow of John Walton – an heir the Walmart fortune and son of company founder Sam Walton – is getting into the movie business. According to the story, she has created a company called Tenaja Productions to finance and executive produce a movie entitled "Bless Me, Ultima,” described as the turbulent coming-of-age story of a young man growing up in New Mexico during World War II, who “develops a relationship with Ultima, an elderly medicine woman who helps the young man navigate the battle between good and evil that rages in his village.”

    KC's View:

    Published on: March 3, 2009

    • The US Commerce Department said yesterday that consumer spending in the United States was up 0.6 percent in January, the first time it has increased after falling for six consecutive months. At the same time, the personal savings rate increased to five percent, the highest it has been since 1995.

    Most stories about the consumer spending increase quote analysts as saying that the trend is unlikely to persist into February, and that consumer spending is almost certainly going to continue to tighten in coming months.

    HealthDay News reports that new research suggests that a person’s battle against obesity may actually begin before birth. According to the story, “About 40 percent of the children born to mothers who were overweight or obese in early pregnancy were overweight by age 3, whereas just 24 percent of those born to mothers whose pregnancy weight was normal or below normal were overweight by age 3.”

    The research shows that American infants are 59 percent more likely to be overweight than babies born two decades ago…and the suggestion is that patterns set in motion by their mothers long before the child is born are actually making them weight-challenged once they emerge from the womb.

    • The Eagles and even Bruce Springsteen may have offered certain products exclusively through Walmart, but Prince has decided to release his newest CD – a three-disc set – exclusively through Target. The set is scheduled to go on sale at the end of the month, for $11.98.

    KC's View:

    Published on: March 3, 2009

    • Weis Markets announced that Kurt S. Schertle, most recently president/COO at Tree Top Kids, a specialty toy retailer, has joined the company as Vice President of Sales and Merchandising. Schertle is a former executive with Shopper's Food and Pharmacy.

    • Walgreens announced that George J. Riedl, who currently heads the company’s merchandising division, has been named senior vice president of pharmacy innovation and purchasing in the pharmacy services department.

    Bryan Pugh, vice president of store format development, has been named vice president of merchandising; he will retain his store format responsibilities while adding merchandising to his portfolio. Before joining Walgreens earlier this year, Pugh helped to launch Tesco’s Fresh & Easy concept on the US west coast.

    • Thomas J. Connolly, a divisional vice president with Walgreens, has been promoted to vice president of facilities development.

    KC's View:

    Published on: March 3, 2009

    • Publix Super Markets said yesterday that its fourth quarter sales were $6 billion, up 2.6 percent from the same period a year ago, on same-store sales that were down 0.9 percent. Q4 net earnings were $249 million, down from $311 million a year ago.

    Publix said that its annual sales for the 2008 fiscal year were $23.9 billion, up four percent from last year's $23 billion, on same-store sales that were up 1.3 percent. Net earnings for 2008 were $1.1 billion, compared to $1.2 billion for 2007, a decrease of 8 percent.

    KC's View:

    Published on: March 3, 2009

    More email on the subject of prices and costs, and the growing tensions that seem to exist between retailers and manufacturers.

    One MNB user wrote:

    The retailers contention that the manufacturers have raised prices too far too quickly is absurd. The costs of manufacturing, shipping and raw materials continue to increase. Some costs have come down, but not far enough. BUT, the real absurdity of it is the statement by the CEO of Stater Bros. "’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.”

    Really? So, now in an effort to reduce prices to the consumer, the supermarket industry, especially Supervalu and Safeway, are ready to drop all of their program accruals, deductions, hidden fees, slotting and such? Where do they expect the manufacturers to come up with the money to pay for all of the programs but to build it into the costs. This is the single largest reason Walmart has a price advantage, no programs, net net cost.

    Here is the typical scenario. I am the manufacturer and I have a product to sell at retail, assume the product at wholesale is $1.00. The GM requirement is 35% for the retailer and freight is built in to the cost already at .04. I walk into Walmart with the item. They will look at the value proposition, estimate the sales and absolutely negotiate for the best cost. They will look at the raw materials, freight, etc. If the volume is enough and can reduce freight or I can achieve other efficiencies, I will reduce the price. Let’s assume I reduce it to $0.96 per unit. Walmart will then sell the item to the customer for roughly $1.34 per unit. Additionally, I will be required to use Retail Link to help WM manage the sales, inventory flow and shrink. Cost to access Retail Link? $0.00.

    Now, l bring the same item to a traditional grocer. First there is slotting. Let’s assume that to be $2,500 for the item, which we all know is low. Then the retailer wants free goods, ad dollars, a 10% ongoing rebate, plus an additional 5% every time the ad runs for the week prior and the week of the ad. Let’s assume that all of this adds up to an additional 25% in costs. That $1.00 base cost item now has a base cost of $1.25. But wait! Now we need to have access to the business portal in order to set the item up. That will be an additional cost of $10,000 annually. But this cost will be evaluated based upon the percentage of sales I do with this company. So, as the manufacturer, I am going to cover myself from other unknown deductions and charges. The cost of the item has now gone up to $1.45. Add the 35% margin requirement and the product will sell to the customer for approximately $2.25 per unit.

    Then, after a few weeks, the retailer will call me up and ask me how Walmart can sell the same item for almost $1.00 less and he wants Walmart's price. Ok, Mr. Brown and every other grocery retail CEO, if you are serious about reducing costs to the customer, providing value and really taking care of the customer, get rid of the back end costs and focus on making a profit by “selling” products to the customer rather than trying to procure your way to profitability. Then, you can have Walmart pricing.

    Anyone want to dispute this version of the manufacturer sales experience?

    MNB user Todd Hale – who also is the senior vice president of Consumer and Shopper Insights at The Nielsen Company – sent us the following email:

    I have written an article for next week’s Facts, Figures & the Future titled – “Watch What You Wish For.” Below is the last paragraph in the article. Coming off of an inflationary year, many retailers are going to have a difficult time driving same-store sales growth – particularly with all of the focus on store brands and then the added pressure retailers are applying on manufacturers to lower prices:

    “Our research shows that most categories have a category price elasticity of far smaller than -1.00, with most in the -.30 and -.70 range. For a category with a price sensitivity of -.40, a category price decrease of 10% would result in a unit sales increase of 4.3%, but a dollar sales decline of 6.1%. Retailers must keep in mind that manufacturer price changes would be market-wide and would therefore not result in consumers switching retailers for better prices. While price decreases would benefit consumers, both manufacturers and retailers would be rewarded with lower sales.”

    Thanks for the preview.

    Another MNB user wrote:

    Just some thoughts on the whole manufacturer / retailer pricing debate. After 35 years in the business and dealing with a number of customers in a variety of levels, I find it amusing that the retailers are trying now to take the high road and throwing the manufacturers under the bus so to speak. Just some random thoughts:

    Where would most of the retailers recent earnings be without the benefit of improved dollar sales and margins due to the manufacturers price advances. In many cases the manufacturer is trying to recoup losses and expenses they have been forced to swallow over the last several months or years for that matter.

    Retailers continue to increase the cost to do business with them by increases in margin requirements, increased fees, new "fines" for any variety of reasons as well as numerous other revenue generating tactics with no regard or justification to the manufacturer. Some have even had the nerve to make these costs retroactive.

    Margin "creep" has been rampant with all retailers in the last several years even without price advances.

    Retailers want reductions in cost. No one has stated that they will take immediate reductions in retails. In the past cost reductions have been met with immediate demands for full stock protection, long lag times from the cost reduction to the retail reduction (if it occurs at all) and margin improvements with a minimal retail adjustments.

    As far as private label proliferation, retailers tend to forget the main reason that they have a viable private label item is because a manufacturer built and developed national brands and products through extensive and expensive product development, marketing and merchandising the brands. Without that retailers have no private label item to sell. Are the retailers willing to invest in the specific categories like a manufacturer would? I doubt it. Once the manufacturers are gone then the burden (and cost) will need to be borne by the retailers.

    I guess my final thought would be that just like the retailers are free to charge what they feels is needed to the consumers, so to do the manufacturers. Make it work together instead of pointing the finger at us.

    Yesterday, I was taken to task by an MNB user because of my consistent argument that in a digital world, print is dying…and that retailers need to integrate this reality into their plans. The email suggested that I didn’t understand the needs of rural, poor and aging citizens, who do not have access to the broad-band Internet services that I say companies should increasingly be relying on.

    And I responded:

    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.

    To which another MNB user responded:

    I've been demanding high-speed internet for 20 years. I live 20 minutes outside of a major metropolitan area & cable TV is to within a mile. I get paged at all hours of the day & night, & require on-line access for my work. I can't get cable, or DSL, & Satellite is cost prohibitive.

    Fortunately, unlike the Arkansas folks, I do have dial-up.

    However, most of today’s web sites are so graphic intensive, that my connection times out before they load.

    About 5 years ago, AT&T ran a fiber optic cable "trunk line" right past my house, but I can't connect. I even offered to dig the hole & make the connection myself. They said "it'll be some time yet". I was ready to do it some dark night. 😉

    Now, (last month) I was able to get a Verizon cellular modem & life is somewhat improved, but to think we "rural geeks" can just demand & receive, is not always the case. I hate to think what the next 10 years would have been like, had I lived in a "really remote" place.

    If you are right and I am wrong about our ability to make these kinds of communications and technology services available to every American, then my comment above stands … we are doomed to devolve into a non-competitive society.

    And, chiming in on our continuing discussion about disposable vs. non-disposable bags, one MNB user wrote:

    I have a couple of reusable grocery bags in my car, one for each store I shop at. I only use them when I go through the self-check line. Why? Because if I ask a bagger to use them, first I get a blank look. Then I get half a dozen items wrapped separately in their own individual plastic bags before they’re put into my quasi-cloth bag. I walk out of the store with more plastic than if I just let them do their thing! And if I try to interrupt them and ask them not to use all the plastic, the common response is “that’s how we’re trained to do it.”

    In the self-check line, I put my bag on the floor (since it weighs enough to trigger the error sensor if I put it on the bagging pedestal) and just pile my groceries on the pedestal until it’s processing my payment. Quickly shift stuff into the bag, and I’m off. And you know what? Never once has my shampoo leaked onto my cheese!

    In short, it’s not just the customer who has to be “re-trained” when it comes to reusable bags. The entire thought process from top to bottom needs to change.

    Credit where credit is due: not only does the Woodman’s chain in southeastern Wisconsin have a reusable multi-bottle wine bag available in their liquor departments, their liquor cashiers know how to use them. That’s probably the bag in my collection that gets the most use.

    Love your column—keep up the good work. Every industry needs a gadfly.

    My pleasure.

    But another MNB user wrote:

    I just had the (dis)pleasure of walking about 1/2 mile in moderate rain carrying some items in a standard major chain grocer .99 Made in China Reusable Shopping Bag. The items in the bag are soaked; rain came in through the top and also through the front and back sides of the bag.

    With standard plastic bags, this would not have happened as the bags could have been tied shut.

    I guess next time I will pack an extra coat/cloth/towel to put in the top of the bag once all of the items are inside to prevent the rain from soaking the contents. This is sure a lot more difficult than just letting the store provide plastic bags.

    You can't please all the people all the time…

    Finally, I thought it was terrific last week that Michelle Obama was seen having lunch at a Five Guts burger joint in Washington, DC, even though she often talks about using quality, local products to achieve good nutritional balance. I wrote:

    I don't know about you, but I love the idea that the First Lady was eating burgers at a place that was high on the MNB “Best Burgers In America” list. That kind of balance, in which one goes from locally grown produce to Five Guys burgers and fries, is a healthy trend.

    To which one MNB user responded:

    Her husband has her beat. Generally a very restricted healthy diet for President Obama. But when he went for vacation in Hawaii last August he told the secret service detail there were two must-visit places. One- the sight where his mothers ashes where cast upon the waters of the Pacific Ocean. Two- where, as a child, he used to go to get that delicious "Hawaiian plate lunch." at Rainbow Drive-In. Sticky rice------ teriyaki beef/chicken or curry stew or meat loaf/gravy or sweet sour spare ribs or kalua pig and terrific macaroni salad/heavy on the mayonnaise. "Fatty, greasy and delicious" quoted the The New York Times as they had to send a reporter to find out what it was all about.

    Maybe MNB could do some research on this and come up with the "Best plate lunches in Hawaii"???

    Sounds like my kind of story. I’ll have to see if I can get that assignment…

    KC's View: