retail news in context, analysis with attitude

MNB Archive Search

Please Note: Some MNB articles contain special formatting characters, and may cause your search to produce fewer results than expected.

    Published on: March 19, 2009

    Now available on ITunes…

    To hear Kevin Coupe’s weekly radio commentary, click on the “MNB Radio” icon on the left hand side of the home page, or just go to:

    Hi, I’m Kevin Coupe and this is MorningNewsBeat Radio, available on iTunes and brought to you this week by Webstop, experts in the art of retail website design.

    Earlier this week, Michael Sansolo wrote in his column about the appearance of Federal Reserve Chairman Ben Bernanke on “60 Minutes,” which he correctly identified as a model of clarity. In making the appearance, a highly unconventional move for a Fed chairman, Bernanke was taking a chance…but, as Michael wrote, we are living in unconventional times that call for unorthodox measures.

    The other segment on “60 Minutes” last Sunday also was fascinating…though it may be illustrative of something that Michael wrote about the Bernanke profile, and I was actually more interested in the story about food legend Alice Waters of Chez Panisse fame.

    Alice Waters is not just the founder of one of the country’s best restaurants and the author of eight cookbooks, but she’s also a pioneering voice in the movement that preaches about slow food rather than fast food, and fresh, organic, sustainable and local food rather than processed, packaged food.

    Asked about the charge that the foods she loves often are more expensive than so-called mainstream food, Waters said, “We make decisions everyday about what we're going to eat. And some people want to buy Nike shoes - two pairs, and other people want to eat Bronx grapes, and nourish themselves. I pay a little extra, but this is what I want to do."

    “60 Minutes” also ventured into the Oakland middle school where Waters has created a course that teaches kids about food – where it comes from, how to cook it, how to eat it. And it was remarkable to see her interacting with the kids, and watching their eyes light up as they tasted something different, something unique, something tasty. It was sort of like that commercial where the guy says, “I like the taste of taste.”

    The thing I like about Alice Waters is that she pushes us to be better than we are. Sure, she’s a bit of an absolutist, and for many of us, her standards seem impossible to live up to. But that’s a positive quality, because she reminds us that food can be something more than fuel, that stuff that happens to come in those boxes and bags and jars that are bought at the supermarket.

    I can’t help but think that if we allow food to be something more, it actually gives us permission to be something more. It was noteworthy that when Lesley Stahl asked her on “60 Minutes” if we could really afford programs like hers during an economic downturn, Waters’ response was simple: “We can’t not afford it,” she said.

    I think she’s right. I think that providing food that is more than fuel is one way that food stores can distinguish themselves in a highly competitive environment, can establish for themselves a clear differential advantage.

    Will it require taking a risk? Being unconventional? Maybe.

    But that’s something that the Bernanke and Waters stories had in common. They were both about unconventional measures that can be perfect for unconventional times.

    For MorningNewsBeat Radio, I’m Kevin Coupe.

    KC's View:

    Published on: March 19, 2009

    The Los Angeles Times reports on a new study out of the University of Minnesota suggesting that the plethora of choices afforded Americans actually can deplete their mental resources and make it difficult to concentrate – for example, after having made a choice from a wide range of options, some people have trouble performing simple math problems.

    The study backs up conclusions reached by Barry Schwartz, professor of psychology at Swarthmore College and author of "The Paradox of Choice: Why More Is Less." According to the story, Schwartz found that “one of three things is likely to occur when people have too many decisions to make -- consumers end up making poor decisions, are more dissatisfied with their choices or become paralyzed and don't choose at all.”

    And Sheena Iyengar, a professor at the Columbia University Graduate School of Business, notes that she did a study back in 2000 “in an upscale California grocery found that consumers were 10 times more likely to purchase jam when offered six kinds instead of 24. In other words, faced with too many choices, some threw up their hands and opted to buy no jam.”

    Everybody seems to agree: nothing has changed.

    KC's View:
    As a consumer, I’ve already cast my vote on this issue – I do most of my grocery shopping at three so-called “alternative formats” that have limited selections: Stew Leonard’s, Trader Joe’s, and Costco.

    I like the idea that these stores have essentially done the initial vetting for me. It saves me time and, even if it means that I’m not always exposed to all the newest items, that’s just fine with me because I trust the retailers involved.

    Would every consumer agree with my approach? Of course not. But I suspect that more would than you might expect…that a lot of us are simply looking for guidance, recommendations, and even a little product editing by grocers we trust.

    Published on: March 19, 2009

    As part of its new effort to focus more on price – an initiative begun as it realized that its much vaunted market research hadn’t turned its American stores into a raging success – Tesco-owned Fresh & Easy Neighborhood Markets has “launched six new prepared meals which feed a family of four for only eight dollars.” Over the next several months, Fresh & Easy said, it will introduce additional larger sized products to meet growing customer demand, after having already introduced a number of them earlier this year.

    The meals are designed to feed four people for eight dollars.

    “Customers are telling us they are looking for larger sizes to feed their families on a budget. Our kitchen products have been very popular – like our chicken alfredo and macaroni & cheese – so we are introducing portions that are large enough to feed a family of four for only $8,” said CMO Simon Uwins.

    Fresh & Easy’s new family-sized meals introduced today include lasagna with meat sauce, chicken & broccoli pasta alfredo, spaghetti with turkey meatballs, and chicken burritos with green and red sauce.

    KC's View:
    Part of the ongoing problem for Fresh & Easy, it seems to me, is stories like the one just reported by the Arizona Republic that addresses the “serious miscalculations” and “poor timing” that characterized the company’s launch in the US.

    The Republic writes: “Tesco's initial market research in California found that U.S. consumers wanted smaller, more convenient food stores with fresh produce and quality prepared foods.

    “The company concluded U.S. consumers were more interested in convenience than price and developed a strategy based on everyday low prices instead of weekly ad specials.

    “The marketing strategy was to barrage residents with direct-mail coupons and specials for a few months after a store opening, and then stop. Fresh & Easy believed that once consumers experienced the stores' convenience, they would return. But once the mailings stopped, many patrons stopped shopping.

    “The company now acknowledges it didn't realize that, for many, the decision on which supermarket chain to patronize is based solely on weekly ad specials. The company now produces a weekly flier with a handful of deeply discounted specials.”

    The story suggests that Fresh & Easy became irrelevant to shoppers’ needs…and it isn’t easy to overcome that kind of perception once it has set in.

    Not impossible, but difficult.

    Published on: March 19, 2009

    The New York Times reports that Kellogg Co. CEO David Mackey plans to tell the US House of Representatives Energy and Commerce subcommittee today that the government needs to dramatically overhaul its food safety infrastructure, and call for “new requirements that all food companies have written safety plans, annual federal inspections of facilities that make high-risk foods and other reforms.”

    Mackey will tell the subcommittee that Kellogg lost $70 million as a result of the recent salmonella outbreak that has been traced to a plant operated – by all accounts, negligently – by Peanut Corp. of America (PCA).

    ''The recent outbreak illustrated that the U.S. food safety system must be strengthened,'' Mackay plans to say, according to the Times. ''We believe the key is to focus on prevention, so that potential sources of contamination are identified and properly addressed before they become actual food safety problems.''

    KC's View:
    What really worries about the current scenario is that while the case of food safety overhaul is inescapable, we’re simply at a moment in history when it may be tough to find the money for it.

    Published on: March 19, 2009

    At Starbucks’ annual meeting yesterday, CEO Howard Schultz told shareholders that “Starbucks Coffee Co. will not only survive but we will succeed during this environment. I promise you that."

    According to the Business Week coverage, “Schultz said he plans to dispel the myth that all Starbucks coffee drinks cost $4 -- a perception that has helped competitors like McDonald's Corp. break into the espresso beverage market. A tall Starbucks' drip coffee goes for a bit less than $2 a cup, depending on the market, for instance. ‘We've allowed other people to define us,’ he said.”

    “We've become the poster child for excess. ... We are going to dispel this myth about a $4 cup of coffee,” Schultz said, noting that the company is working overtime to be sensitive to consumers’ evolving priorities: “We're being incredibly smart. We're doing everything we can to be sensitive to the needs of our customers. We can no longer sit back and ignore the pressure that our customers are under."

    KC's View:
    It’s funny…and I know I’m probably nitpicking here…but he lost me with the “we’re being incredibly smart” line. That just doesn’t strike me as what one says when sales and profits off and the company’s share price is down 36 percent in the past year. It seems a little tone-deaf.

    Maybe I’m being too harsh. To be fair, Starbucks’ stock price is up 21 percent in 2009. But I keep thinking that Starbucks is responding tactically when it needs to be thinking strategically.

    Published on: March 19, 2009

    The Toledo Blade reports that members of the United Food and Commercial Workers (UFCW) Local 911 have voted overwhelmingly to merge with UFCW Local 1099, members of which will vote on the same merger next week. If they vote the same way, the two locals will combine to create a 30,000-member local that will be among the top five in the UFCW.

    The new Local 75 would have a presence in Ohio, Kentucky, and Indiana, and is expected to expert a greater pressure on retailers in contract negotiations.

    KC's View:

    Published on: March 19, 2009

    Meijer Inc. announced yesterday that it plans to invest $27 million in a “major expansion” of its Newport, Michigan, distribution center, adding close to one-quarter million square feet to the distribution center, increasing the facility's size to nearly 1.2 million square feet. The Newport distribution center ships meat, produce, dry grocery products and frozen foods to more than 45 Meijer stores on a daily basis.

    "I'm thrilled that, as Meijer moves into its 75th year of doing business, we are able to continue our long-standing pattern of growth and investment in the State of Michigan," said Mark Murray, Meijer’s president. "Our Newport facility is a key part of our supply chain, and the expansion of this distribution center is critical to Meijer as we are poised for more growth in the Midwest and Michigan."

    KC's View:

    Published on: March 19, 2009

    Reuters reports that Unilever “is looking to its key brands such as Hellmann's, Dove and Bertolli to drive growth as it expects no early end to the current downturn,” and “expects its top 25 brands, which account for 75 percent of its revenues, to push the group's performance despite recession in many markets.”

    • The New York Times reports that the Chinese government has rejected a $2.4 billion bid by Coca-Cola to acquire China’s Huiyuan Juice Company, one of that country’s largest beverage manufacturers. The Chinese ministry of commerce said that the acquisition would allow Coke to dominate too much of its beverage market.

    • The Chicago Tribune reports that Walgreen will acquire 32 Drug Fair stores, a move made in the wake of 50-unit Drug Fair’s bankruptcy filing this week. Terms of the deal were not disclosed.

    KC's View:

    Published on: March 19, 2009

    Responding to the series of stories that we’ve been doing about the growth of private label, one MNB user wrote:

    The trend you are talking about could ultimately backfire on the private label category itself within traditional grocers. Walmart didn't become (in such a short time) who they are by selling product at large margins. Therefore, the large margins chains now rely on for profit from private label will be under increasing pressure from the Walmart private label program. I would also think many operators will be looking at the ultimate bottom line instead of the bottom line while protecting their private label sales.

    Think about it, Walmart can take an item and make it a national distributed brand in a short amount of time with very little marketing funds. I see this as a strategy to capture more sales from every trade segment.

    I agree that Walmart is doing precisely that – playing a market share game that will work to its advantage in the long run.

    We had a story yesterday saying that the Private Label Manufacturers Association (PLMA) 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.

    My comment:

    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.

    MNB user Bob Anderson wrote:

    First for the record the PLMA number have always been fair and honest. As well Brian Sharoff is a great leader who has always made sure that what he or his team comments on is the correct. Also, all you have to do is go look at the quotes by the CEO of Kraft and General Mills to see that private label is eating into the business. In addition they have stated in may formats that their sales have been rising by raising cost... so no, this gap number looks real good.

    With that said I'm sure the GMA has their own set of numbers.... Their numbers in fact may look "less dramatic " due to all the high low pricing and coupons..... Either way I don't think there is much argument that store brands are gaining sales and share. As my Dad told me, there is their side, your side and then there is the truth.

    I wasn't doubting the veracity of either Brian Sharoff or PLMA…just acknowledging that numbers can be challenged.

    We’ve been writing about Walmart’s new Great Value packaging and graphics, which led MNB user Craig Espelien to write:

    I could do an entire column on label changes but there are a few important points to consider:

    • Most manufacturers amortize the cost of a redesign over three years – so, unless Walmart has a different program, they could have made more changes than once every sixteen years and never impacted cost of goods.

    • Family look design (like what the new Great Value appears to be) screams “value/price” to the consumer and actually detracts from the quality perception of the product (not an issue for Walmart – but sort of an issue for many retailers).

    • Consumers shop each category differently and have a different set of expectations in terms of product performance and labeling/branding that will set up different purchase triggers. A family look design violates a basic marketing tenet – sell the consumer what they want to buy (but in Walmart’s case, this style of design reinforces their price perception – but perhaps they do not need to do that as they already own price).

    • Walmart is large enough to command true product development and have been striving to get there for many years. They have always tended to default back to “me too” national brand style products as too many consumers see a “value” line of private brand as only needed for trading down in cost. Traders Joe’s has done this differently – but again their go to market approach and consumer value proposition is “Innovative Value” while Walmart’s is “Price”

    Anyway, I am, as I think you may have noticed, I am a student of how the consumer says they will behave and how they actually behave. Branding and marketing – especially private branding – are much more complex than just a simple (or even massive) label change.

    Another MNB user wrote:

    I don’t get it… but then WM is smarter than me. Certainly the GV Branding is really plain and generic looking…. surely not to be confused with Safeway’s “O” or Albertsons “Wild Harvest” that was moving away from Generic “Store Brand” to UPSCALE store brand… implying quality + store brand. Perhaps the thinking is that in these stressed economic times, people will look that the generic labeling and think “low cost”, but will they equate it with what we’ve been moving away from in the last 15 years? (Cheap but not quality) As I said, WM is smarter than me. I just don’t get it. OK… personally, it wouldn’t draw me to purchase where “O” and “Wild Harvest” have. PERCEPTION… what an interesting thought!

    I keep thinking that while retailers and manufacturers debate the efficacy of Walmart’s private label program, the Bentonville Behemoth is just going to go out there and sell more stuff.

    Responding to a story yesterday about a study that looked to quantify the impact of the recession on consumer behavior over the next five years, one MNB user wrote:

    >b>Most everything I read indicates we just don’t know what the future will bring and when it will be brought. To do research during these times will surely produce results that reflect current unknown fears about the future, lack of trust, etc…but are they reflective of how the consumer will behave in the future? Let’s retake the consumer’s behavior pulse periodically to determine behavioral changes at various points in time…but, let’s not say that today the consumer knows how they will behave in the next five years. These times are not rational, currently consumers are not rational and we all know business is not rational. I totally agree things will change…we just don’t know how…yet.

    And finally, regarding an observation that bigger manufacturers may be better than smaller manufacturers when it comes to detecting and labeling allergens in their products, one MNB user wrote:

    Bigger companies are no safer than smaller ones. I read this article, too, and thought it looked like another example of needing to look behind the curtain to see who has supported or funded the study just because of the bigger and smaller comparison of safety. I have seen smaller companies put an additional tag on a package where a larger company cannot see this as feasible. I have seen smaller companies reformat labels much easier and quicker than larger companies and I also understand an overhaul of packaging is not cheap and sometimes out of reach for the small company.
    KC's View: