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    Published on: March 18, 2009

    The Private Label Manufacturers Association (PLMA) has released a new study saying, not surprisingly, that shoppers can save roughly 30 percent on the average supermarket bill by purchasing own label products rather than national brands.

    The 43-item market basket examined by PLMA included cereal, soda, pasta, orange juice and cookies, facial and bathroom tissue, cold and flu medications, dog food and aspirin. The top five products in the study found to have the largest gaps in pricing by percentage were aspirin, sinus spray, soda, saltine crackers and body lotion.

    National brands cost a total of $147.21, according to the study, and equivalent private label items cost a total of $100.82.

    “Prices may vary from market to market, but the savings that consumers will achieve will follow the same pattern across the country,” said PLMA President Brian Sharoff.

    KC's View:
    Not be overly cynical here, but it seems likely that if the same study were conducted, say, by the Grocery Manufacturers Association (GMA), the price differential might be a little less dramatic.

    Still, the trend seems clear, both from this story and reports like the one we had yesterday about Walmart upgrading its Great Value line. Private label is gaining momentum…and one wonders to what extent retailers are going use this trend to build their own margins and heighten their leverage over manufacturers.

    Published on: March 18, 2009

    HealthDay News reports that a new study scheduled to be presented this week at the annual meeting of the American Academy of Allergy, Asthma and Immunology says that “a small number of food products with a ‘may contain’ label actually do contain an allergen, while about 2 percent of foods products without such a claim also contain allergens.”

    As explained by HealthDay News, “The Food Allergen Labeling and Consumer Protection Act of 2004 (FALCPA) required new labels on packaged foods containing ‘major food allergens,’ which were defined as milk, eggs, fish, crustacean shellfish, tree nuts, wheat, peanuts and soybeans, or any other ingredient that contains protein derived from one of these foods or food groups. Among other things, the labels had to include plain-English descriptions of ingredients and possible allergens. For example, ‘milk’ is used instead of ‘casein.’

    “But the issue of ‘may contain’-type labels was not addressed. Such warnings can include ‘may contain peanuts,’ ‘processed on shared equipment,’ or ‘manufactured in a facility that processes peanuts or milk’.”

    One of the conclusions reached by the study is that foods manufactured by smaller companies seem to be more risky than those made by big companies – apparently because small manufacturers don't have the kind of oversight provided by their larger brethren.

    KC's View:
    It occurred to me when reading this story that this is one of the potential pitfalls facing private label products, which are going to have to be very careful that as they offer a less expensive yet “equivalent” experience to shoppers, they also offer an “equivalent” level of safety.

    Published on: March 18, 2009

    Target Corp. has been informed by its third-largest investor, Pershing Square Capital Management, that it intends to nominate five alternative candidates for the retailer’s board of directors that it describes as “highly qualified nominees with extensive experience in key areas of Target's business, including retail, credit cards and real estate.” Pershing Square says that its alternative slate is a marked contrast to the incumbent non-executive directors put up by Target, which it says do not have “comparable executive experience in the company's main lines of business.”

    Pershing owns 7.8 percent of Target’s outstanding common stock, through shares and options, and has been pushing for Target to sell off non-core assets and maximize shareholder value.

    Bill Ackman of Pershing Square said, "We believe that our nominees will bring insight, accountability and fresh and relevant perspectives to the Target board. If elected, we believe they will substantially improve Target's ability to navigate through the current economic environment while increasing shareholder value over the long-term." If elected, Pershing Square's nominees will hold five of the thirteen seats on Target's board.

    Among the nominees being put up by Pershing Square is Jim Donald, the former CEO of Starbucks and Pathmark who also has served in senior executive positions at Safeway and Walmart.

    The other nominees are Michael L. Ashner, Chairman and Chief Executive Officer of Winthrop Realty Trust; Professor Ronald J. Gilson, a professor at Stanford Law School and Columbia Law School and a leading scholar in the law of corporate acquisitions, finance and governance; Richard W. Vague, the former Chief Executive Officer of First USA, Juniper Financial and Barclays Bank Delaware; and Pershing Square’s Ackman.

    "Pershing Square has had no previous business relationships with these nominees. Our nominees are well qualified, highly experienced and are committed to working as independent fiduciaries to maximize Target's value. Each nominee's accomplishments and reputation speak for itself. Their collective expertise is directly relevant to the businesses that will help Target build long term value," Ackman said.

    Target has recommended that shareholders re-elect McDonald’s executive Mary Dillon; Wells Fargo chairman Richard Kovacevich; Telstra CEO Solomon Trujillo; and George Tamke, a partner at private equity firm Clayton Dubilier & Rice.

    Target has announced that it plans to open roughly 75 stores this year, down from 114 new locations in 2008; it also has said that it expects its 2009 earnings to be significantly below those of 2008.

    KC's View:
    I have a bias here, simply because I think that virtually any company would be better off with Jim Donald involved. (Oh, if only I could get him here at MNB…)

    That said, it does not seem like an enormous leap of faith to suggest that Target is not living up to its potential these days. Let’s face it – Walmart, its major competitor, is firing on pretty much all cylinders with a far more targeted approach to marketing and merchandising, but Target seems to be having trouble getting into gear or even focusing on how best to respond to changing consumer needs in a recessionary environment, while maintaining a long-term strategy that will serve the company well when times get better.

    Someone once said that “a little revolution, now and then, is a healthy thing.” It seems to me that this is what Target needs.

    However, someone else once said that “the most radical revolutionary will become a conservative the day after the revolution.” Which is something that Target (not to mention a bunch of other companies) needs to avoid.

    Over the past few years, Walmart seems to have become expert at fomenting small revolutions from within, changing the way it does business, sometimes making mistakes, but always maintaining momentum. That’s got to be the model, and it sounds like this is what Pershing Capital is after with its alternative slate of directors.

    Published on: March 18, 2009

    A new study from BIGresearch suggests that nine out of 10 consumers say that the current economic crisis is affecting their lifestyles and will do so over the next five years, with more than half of those surveyed saying that they will consider each purchase more carefully or will be more conscious about price. More than 46 percent say that they will be sticking more carefully to a budget, and more than 43 percent say that they plan to avoid large credit card debt.

    While more than 49 percent of those surveyed believe that the economy will rebound to previous levels, 21 percent say that it will not and 28 percent say they remain uncertain.

    “Marketers will need to understand that this ‘new’ consumer is one that focuses more on needs over wants, purchase price and an increased level of personal savings,” said Gary Drenik, President & CEO of BIGresearch.

    KC's View:
    Needs over wants. Focusing more on personal responsibility. And close to half of consumers have little or no faith in the economy’s ability to rebound.

    Drenik is right. Attention must be paid, in the words of Arthur Miller.

    Published on: March 18, 2009

    The Dallas Morning News reports that Wild Oats founder Mike Gilliland is opening his newest organic food store in East Dallas in a former Carnival store location, positioning it as a low-price operator that undercuts Whole Foods in the segment. The story notes that Gilliland “looks for real estate bargains and uses refurbished equipment, cases and fixtures whenever possible. Like Whole Foods, its cash registers use double sided receipts to reduce paper waste 40 percent.” The stores are uniform in nature, about 28,000 square feet, with about one-third of the footage devoted to produce, and features the slogan, “Serious food at silly prices.”

    The store is called Newflower Market, and is Gilliland’s third in Texas; according to the story, the chain is called Sunflower in other markets where it operates. “It goes by the different name because the Sunflower brand, owned by Minnesota-based Supervalu Inc., would have been too expensive to acquire for use in Texas,” the Morning News writes. Gilliland is allowed to use the name in five states: Colorado, Arizona, New Mexico, Nevada and Utah.

    Gilliland tells the Morning News, by the way, that the recession is forcing him to scale back his 2009 expansion plans to eight stores instead of the originally planned 12; three or four more Texas stores are expected to be opened in 2010, probably in Austin and/or Dallas.

    KC's View:
    I saw a number the other day – and I wish I could remember where I saw it – that suggested organic sales are not as down as might be expected during a recession…which suggests that core advocates have not lost their enthusiasm for the category. If this is true, Sunflower/Newflower may have precisely the right positioning.

    Published on: March 18, 2009

    Published reports that Roundy’s Supermarkets is expanding its reusable bag program, giving shoppers a five cent credit not just for the retailer’s own reusable bags, but also for similar bags from other retailers.

    “We take our cues from our customers,” said Robert Mariano, Roundy’s chairman and CEO. “Many of them who have long made a practice of shopping with reusable bags asked if those bags could be included in our new program. We considered their requests and decided to update our program.”

    KC's View:

    Published on: March 18, 2009 reports that Walmart, responding to a city council vote last week in Salinas, California, that prevents big box stores from devoting more than five percent of their floor space to non-taxable items such as food, is sponsoring a consumer group devoted to challenging the vote via referendum.

    Salinas Consumers for Choice have been circulating petitions, hoping to get the issue on the November ballot.

    KC's View:

    Published on: March 18, 2009

    • Gelson’s Markets parent company Arden Group reports that its fourth quarter net income was up 0.7 percent to $7.4 million, on sales that were up 2.6 percent to $129.5 million. Annual net income was down 15.5 percent to $24.7 million, with sales down 1.4 percent to $479.1 million.
    KC's View:

    Published on: March 18, 2009

    MNB took note yesterday of a Wall Street Journal story about Starbucks’ tactical approach to fixing its problems:

    The Journal reported that “on Friday, Starbucks opened a store in downtown Seattle featuring wood décor that is reminiscent of the company's first location, at Seattle's Pike Place Market. It is an environmental design that features recycled materials, including a large wood table that once was used at a local restaurant and inside a Seattle home. … Prices aren't listed alongside the beverages, except for a small selection of high-end coffees made in a Clover brewing machine … Instead, baristas direct patrons to disposable paper menus if they want to buy one of the sweet blended drinks or learn the price of the other beverages. A Starbucks spokeswoman said the changes were aimed at making the store feel more like a coffeehouse.”

    I commented:

    I’m pretty sure that not posting drink prices on the menu boards isn’t the best way for Starbucks to counter the conventional wisdom that it is too high priced to be enjoyed during an economic downturn. And doesn’t a disposable paper menu actually work against the notion of an environmental design?

    I may be wrong about this, but there seems to be a lack of consistency here. And that’s a marked change for a company that used to have a laser-like focus on its own strategic imperatives, a finely honed sense of what the customer wanted, and an enviable golden touch.

    One MNB user responded:

    My ohh my!! Aren't we a little bit (what's another word for pissy) about Starbucks. They test something new and wow what a bad choice. Walmart or Tesco do different formats and you are all for it. MNB continuously wants innovation ...... as long as they agree. Perhaps you are too young to remember coffee shops in the 60's … maybe Starbucks will test poetry reading or musicians playing ballads. Might be good for certain demographics as the old coffee shops were back in the time of "Leave it to Beaver."

    Hey dude......... peace .......

    Listen, everyone is entitled to their opinions. I don't think I was being “pissy.” I think I was trying to be objective. (Ironic, too, since for a long time I was accused of being in the bag for Starbucks. Oh, well…you can't please all the people all the time…)

    Let’s see if that new format is successful creatively. Maybe more important, let’s see if it is successful financially. (It sounds like it might have been more expensive to build and run.) But I still think there are some inconsistencies here.

    One other thing. I’m a fairly old guy (born in 1954), so I do remember old-fashioned coffee shops…and I used to love going to them down in Greenwich Village. But I’ll tell you this – if Starbucks starts turning to poetry readings and ballad singers as a way of turning around its fortunes, anyone who still holds Starbucks stock ought to sell it. Quick.

    MNB user Dave Howald had some thoughts:

    I think Starbuck’s has a great opportunity to reach out to many of the people who have been laid off. We all know that Starbuck’s likes to position itself as your “third space” after the office and home. Starbuck’s could offer free/reduced price resume writing services or even on-line via their free Wi-Fi for its customers to entice people into their stores. Getting them to buy more than a small cup of coffee and hanging around for hours could be a challenge, but I’m sure there are ways to work around it.

    I think they are crazy not to post prices. It smacks of the old style upscale restaurants that would only give the “man” the menu with the prices on it. We live in a world where we want transparency and not posting your prices in clear view smacks of trying to hide something. I still love the consistency of a Starbuck’s drink, but admittedly I don’t go as often as I used to due to economic uncertainty.

    MNB user Doug Campbell wrote:

    When I am in a store that is too embarrassed to print the prices, either they are saying "If you have to ask, you can't afford it" and I usually can recognize that kind of business, or they are simply ashamed of the price for what they are selling. That usually means I turn around and go spend my money elsewhere. Not posting the prices for a cup of coffee is telling me that it is too expensive for what I'm getting. The other day I got a large coffee at McDonalds for $1.79. It was perfectly acceptable and wasn't burned. The price was posted.

    Regarding the full implementation of Country of Origin Labeling (COOL) regulations, MNB user Dale Tillotson wrote:

    Reading Ag. Sec. Vilsack's comments concerning COOL, I wonder if he is aware of the following issues with COOL.

    No labeling, on salad bars and buffets in stores, how about Sushi, any labeling for all the ingredients indicating COOL. No, it’s too complicated.

    Without fixing the complications and doing it correctly where all Produce and Meat is COOL labeled everywhere we might as well as SUTRAF COOL labeling.


    But MNB user Steve Hensley disagreed:

    This has been talked about within mainly the food/grocery industry for quite some time now, and it’s good to see it finally coming about. Most of our customers are food retailers or distributors and use our technology to track movement and information within their supply chain from beginning to end, including COOL. The majority of them started thinking about and acting on COOL quite some time ago.

    Finally, one MNB user had a not-so-enthusiastic reaction to Walmart’s new Great Value private label design:

    Looking at these new label design reminds me of what generic ( black and white ) labels of the 70's looked like. Walmart had the leading national store brand, so why now, with Store Brands sales on the rise would you think of risking sales ( and profits ) by changing the look ? The cost of this new look surely will be added to the cost of the goods at a time when you should by Walmart standards be lowering cost....

    The marketing team is being given a great deal of credit for the sales increase at Walmart, when in fact all that has increase is food sales. Given that many concede that Walmart has the lower prices ( be carful here, the price gap is getting less as Walmart raises retails..), I would say that all that marketing money would truly be better spent by lowering cost / retails and gaining LONG TERM PROFITABLE MARKET SHARE.

    So I as a customer would NOT give them a high rating for this label change as it seems to me their sales were pretty good before going through all this hype....

    We’ll see. As I said yesterday, I like the new design and think it will be a winner.

    KC's View: