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    Published on: May 19, 2009

    by Michael Sansolo

    Is the world changing yet again and if so, is it a bad thing?

    In just the past week, signs of this change were everywhere.

    • The New York Times ran a story (picked up in different fashion by media everywhere) about consumers returning to a frugal mindset, tracked through a substantial uptick in the national rate of savings.

    • The Washington Post had a short article about spaving, a hip new word meant to describe when shoppers buy a lot of an item to stock up on a cheap price.

    • Conservative columnist Michael Medved weighed in on the “silver lining” of the economic downturn in USA Today, citing the increased savings rate and a reduction in divorce and families moving.

    The connection of these changed circumstances to the world of food retailing was summed up by a General Mills executive, who weighed in with an interview about the possibility that eating-at-home really is back to stay. Which begs the question of whether the economic downturn created a perfect storm of opportunity for the supermarket industry?

    The answer is: it’s possible.

    After all, consumers looking to save money have clearly returned some spending to the supermarket and in the process might have found that cooking can be much easier these days; that stores are more convenient to shop; and that buying less expensive store brands doesn’t necessarily mean poorer quality. What’s more, shoppers may have found that meal time around the kitchen table actually provides some unexpected benefits of family bonding.

    Clearly, the economic events may have given supermarkets the marketing opportunity of a generation. The question is: now that the door is open, what will everyone do?

    Shoppers, as we know, can be fickle. The advantage frugality has over frivolity today could switch in a second when the economy returns to more solid ground. The opportunity is there only if the industry keeps making the sale on all the facets of value.

    Likewise, shopper concerns are likely to move in many new directions, some very challenging. The Times also wrote recently about “The Story of Stuff,” a viral video that boasts millions of views. It’s a 20-minute critique of America’s consumption habits and challenges shoppers to rethink exactly how and why they buy so much. Whether you agree with the argument is irrelevant if consumers’ feelings on frugality and values extend in new directions.

    And then consider McDonald’s. In the past few years, the fast food giant resurrected its image, sales and profitability with a host of unorthodox moves. Blending low price and perceived quality with offers as divergent as the dollar menu and the McCafé drinks and angus burgers, McDonald’s is building powerful new links to its shoppers by changing the nature of value in its stores.

    The challenge for supermarkets is how do to the same: how to blend the relatively inexpensive prices of food products with the benefits of healthier eating, convenient meal preparation and more. What’s more, can we seize this opportunity with élan, educating shoppers on how to improve their cooking, using new recipes, new flavors and new products to make family meals more exciting than ever? And there is so much more.

    At least until new normal shifts again.

    Michael Sansolo can be reached via email at .
    KC's View:

    Published on: May 19, 2009

    The Cincinnati Enquirer has a long story about how and why Kroger develops private brand products.

    “For Kroger, the epicenter of the company's private-brand initiative is in downtown Cincinnati in a laboratory and test center tucked away in the first floor of the corporate headquarters,” the Enquirer writes. “Few of those thousands of products make it to store shelves without first passing muster with consumers who come to the laboratory to sample items each week.

    “Three afternoons a week, anybody who works in the building - many if not most are Kroger employees - line up to rate a variety of foods on a bank of computers. On one recent afternoon, the offering was a cranberry, mango, vegetable and fruit medley in honey-lime seasoning. All of the potential brands are judged with a rigorous survey. Testers cannot talk. They must rank foods across a number of detailed categories, such as overall liking, flavor, appearance and texture … Testers are paid with chocolate candy, cookies and free coupons for their trouble - as well as the free plate of food being tested.”

    The Enquirer notes that “Kroger has invested heavily in its roster of private brands; the company has 41 food manufacturing plants spread out across the nation. Kroger has so much confidence in its products that the company makes a bold offer to consumers: Try it, like it or get the national brand free.”

    The investment is paying off. The paper also reports that “a typical Kroger store stocks about 14,400 private-label items - nearly double the 7,800 items stocked in 2003 … During 2008, 26 percent of Kroger's grocery sales came from private brands, and Kroger brands reached a record-high 34 percent of grocery unit sales. Also, Private Selection, the company's premium tier of store brands, exceeded $1 billion in sales in 2008.”
    KC's View:
    It is worth noting that this is important not just because Kroger is doing it, but because papers like the Enquirer are reporting it…which expands the degree of acceptance that private brands have. It becomes a self-fulfilling prophecy, which is a good thing for companies looking to expand their private brand distribution levels.

    You can't just talk about private brands, however; you have to invest in quality. Positive coverage follows quality.

    Published on: May 19, 2009

    The Arizona Daily Star has a piece about how Bashas’ is fighting wars on two fronts – “coping with a surge of Wal-Mart Supercenters, which predictably have grabbed market share at the expense of incumbent grocers,” and “waging a bruising fight with the United Food and Commercial Workers International Union, which wants to organize more Bashas' employees. The union drive has generated negative publicity about the company that may have weakened the desire of some consumers to shop with Bashas'.”

    The good news is that despite some competitive disadvantages, the paper reports that “according to Nielsen Co., the Chandler company's share of the Phoenix-area Valley of the Sun market has only dropped from 16.8 percent in the fourth quarter of 2002 to 15.2 percent in the fourth quarter of 2008, the latest figure available. In comparison, the market shares of Fry's (owned by Kroger, another industry giant), Safeway and Albertsons have fallen by greater percentages while Wal-Mart has increased dramatically. The data indicate that Wal-Mart's growth has come primarily at the expense of the other three.”

    KC's View:
    Nothing wrong with being an underdog in a dog fight…as long as you bring different weapons and expectations to the battle.

    Published on: May 19, 2009

    7-Eleven Inc. reportedly plans to open 200 new stores this year, 30 more than the 170 opened during 2008, a number that will be reached through ground-up units and conversions from other banners, locations in urban and suburban locales, and both freestanding and shopping center locations.

    The goal is to grow the company aggressively at a time when many retailers are cutting back.

    “7-Eleven is expanding amid the gloom of retail retrenching,” says Dan Porter, 7-Eleven’s vice president of real estate. “There is opportunity for our company to fill the void at once vibrant locations that are going vacant. We are flexible in that we will buy a site and remodel, sign 10-year shopping center, building or ground leases with options to renew or purchase a site at the right location and build a ground-up store.”

    KC's View:
    Traditional food retailers should be concerned not just about the store expansion, but the ways in which 7-Eleven is expanding its definition of its role in the marketplace…selling more and differentiated products.

    Published on: May 19, 2009

    The New York Times reports this morning that “while Home Depot has emerged from the credit crisis strong enough to borrow at attractive rates now, it has chosen not to do so. (CEO Frank) Blake has charted a course away from expansion, one that he holds out as a template for running a big company in post recession America. In his view, the hard times and the less generous credit are restricting consumption and undermining the corporate expansion that drove economic growth in recent years. The best response, he decided, is to focus on Home Depot’s most profitable core business: the existing retail outlets.

    “If Mr. Blake is right, a streamlined Home Depot will emerge stronger than its rivals. And if he is wrong, the company could risk losing its dominant position as the nation’s favored shopping destination for do-it-your-selfers as well as contractors who build and refurbish homes.

    “In fact, Home Depot’s closest competitor, Lowe’s, is taking the opposite tack, continuing to open outlets at a brisk clip in hopes of closing the gap with its much bigger rival.”

    KC's View:
    This gets to the core of what Michael Sansolo was writing about in his column, above. There is a new normal, and different companies are placing bets on how the economy and consumer spending are going to shake out.

    I will say this. The last few times I have been in a Home Depot store I’ve found employees there to be more available and helpful that in past years…maybe that’s because they’re incentivizing employees differently, or maybe it is because there are fewer customers to serve. Whatever.

    We won’t know for some time which bets pay off.

    Published on: May 19, 2009

    • Walmart announced that its Sam's Club division “is making it easier for small businesses to lower their costs by simplifying the requirements for its Business Membership by eliminating more than a dozen required documents including permits and licenses formerly needed to join. Under the new guidelines, small business owners can obtain a Sam's Club business membership simply by providing a current business card, letterhead or other documents they may use to promote or manage their business.”
    KC's View:
    It is all about moving aggressively to expand market share in a down economy. Whatever it takes.

    Published on: May 19, 2009

    • Gladson Interactive has appointed Edward Franczek as senior vice president, database business unit leader and Steve Cole as vice president, marketing. Both are newly-created positions and report to Gladson’s president and chief executive officer, Mark Shapiro.

    Franczek also has been executive vice president of marketing and sales for Goliath Solutions, senior vice president and chief marketing officer for W.W. Grainger, and vice president, marketing and general manager for a $600 million unit of Kraft Foods.

    Cole comes to Gladson from SPSS, Inc., a provider of predictive analytical software, where he had been vice president, solutions marketing. Previously, he had held senior marketing positions at Click Commerce, Forrester Research, i2 Technologies and Information Resources.

    KC's View:

    Published on: May 19, 2009

    To repeat a request made yesterday…

    On June 3, I am going to have the opportunity to participate in a panel discussion at the annual GS1 US "U Connect" Conference in Orlando, moderating a panel discussion about supply chain issues with a distinguished panel of retailers: Gary Maxwell, senior vice president, International Supply Chain, Walmart; Ramesh Murthy, vice president of inventory replenishment at CVS Caremark; Mike Mabry, executive vice president of logistics and distribution for Lowe’s; and Peter Longo, president of logistics, Macy’s.

    We’ll be discussing a lot of issues, focusing mostly on how their individual supply chains are changing to cope with an evolving global business climate. But what I’d like to know is this:

    What do you think I should ask them?

    It’s pretty simple. Since we’re going to have four supply chain experts from four very different retail models all sitting together on the same stage, I’m curious what you'd like to know. Send me your questions, and I’ll do my best to fit them into the discussion…and will report back on the answers I get here on MorningNewsBeat.

    KC's View:

    Published on: May 19, 2009

    On the heels of the highly successful release of the new “Star Trek” movie, Fast Company has a piece suggesting that there are great leadership lessons to be learned on the bridge of the USS Enterprise. “Apply the wisdom of Starfleet's finest to your strange new world of business and you too will manage well and prosper,” Fast Company writes.

    Among the best examples from various “Star Trek” incarnations cited by the magazine:

    • “One of the advantages of being Captain is being able to ask for advice without necessarily having to take it." - Captain James T. Kirk

    • "The man on top walks a lonely street; the 'chain' of command is often a noose." - Captain Kirk

    • “We must anticipate, and not make the same mistake once." - Captain Jean-Luc Picard

    • “Genius doesn't work on an assembly line basis. You can't simply say, 'Today I will be brilliant.'" - Captain Kirk

    • "A meeting is an event where minutes are taken and hours wasted." - Captain Kirk

    • "Intuition, however illogical, is recognized as a command prerogative." - Captain Kirk

    And, of course, Fast Company cites that great old chestnut from Captain Picard, oft quoted here on MNB:

    "Things are only impossible until they're not."

    KC's View:
    Words to live by.

    BTW…I’m a huge Trek” fan but I didn’t remember the line about meetings … great stuff.

    Published on: May 19, 2009

    Yesterday, MNB took note of a Sunday Times report in the UK that Andy Bond, CEO of Walmart-owned Asda Group, plans to make a speech this week attacking what he sees as a growing nanny state, restricting what people are able to buy and how they behave through expanded regulation.

    Which led one MNB user to write:

    I would have to agree with Mr. Bond, although I never thought I would agree with anyone from Wal-Mart. It always seems to be a small minority of people who “push” their views on the vast majority. And since they are politically active, they end up being the driving force for the entire population. I’m frustrated by this myself, since I see so much being “rammed down our throats” in the US as well, what with being forced to use recyclable bags, eating healthier foods whether we want to or not and putting higher taxes on alcohol and cigarettes. For example, I don’t drink or smoke, but it’s by choice and I’m not for taking away anyone else’s right to do so themselves. But if they choose to, one thing a company can do is to make their health deductibles higher, since these people are so obviously hurting their health and driving up the cost of insurance for everyone. I end up paying higher insurance costs, too, and trying to decide what I can do without in order to pay for it is difficult. As for the Recyclable bags, I think educating people and making them available instead of forcing people to buy them is enough. Let them make the decision. Finally, I cannot stress enough that more people need to let their voices be heard by the government as well. Write to your congressman, fill out petitions or start one yourself, vote…. Do whatever it takes to make sure that your own rights are not taken away by those small minority groups who DO make THEIR voices heard.

    In my commentary yesterday, I wrote:

    This needs to be said, if only because both government and business need to understand that they cannot force-feed socially responsible attitudes to consumers. If people don’t want to eat healthy foods, all the regulation in the world won’t help. What is important – and hopefully more effective because people actually integrate the healthier foods into their lives – is providing actionable information about why some choices are better than others.

    I would argue, however, that there are some ways in which business can and should lead. If, as I believe, it is concluded that the use of non-disposable canvas bags is better for the environment than the use of disposable sacks, then I don’t think there is anything wrong with a retailer adopting marketing and operational practices that move the company and its shoppers away from the latter through a variety of means. There are limits to the validity of the “I was just following orders” defense, even if the orders are coming from the shopper.

    Besides, I would also argue that the shift to canvas bags is good for a retailer’s bottom line, which would ordinarily be reason enough to make the move and nobody would be discussing the nanny state; it’s only when you use words like “the environment” that people suddenly get suspicious and cynical about motives.

    Another MNB user chimed in:

    “If people don’t want to eat healthy foods, all the regulation in the world won’t help.”

    And like your car insurance, if you are in an accident and you are not using your seatbelt…you are not covered. SO…if you make lifestyle choices and eating choices known to be harmful…your health insurance policy does not cover your resulting chronic disease. People can make all the “questionable” lifestyle choices they want…just don’t expect me to pay for the repercussions through…higher health insurance premiums…etc. That is what I would like to say…but…you know we all will be paying for the other peoples’ lack of judgment, poor lifestyle choices…and lack of intelligent decisions about…(topic inserted here)

    And still another MNB user wrote:

    Do I detect a change in your long term view of government regulation?

    That's a good thing.

    We have not only been inappropriate by allowing legislative backed behavioral models, but also intruded upon by class action and other irresponsible law suits. Throw in behavioral inspired taxes and consumers are fast losing freedom of choice.

    Yes, business should lead and set the example, but government at all levels should leave it at that.

    On the other hand…I was reading a story this morning about how the city of San Francisco is thinking adding to the city’s already ample tobacco tax so it can fund the extra money estimated spent to clean up the butts and tobacco refuse left by people on sidewalks and streets. Tobacco users and tobacco companies are saying “enough, already,” while others are saying that this seems to be a fair assessment of cost and blame.

    I would side with the latter.

    I would always prefer that the market drive change, innovation and progress. But the simple fact is that this doesn’t always happen.

    The automobile companies have been fighting increased national mileage standards for years…and that fight – rather than an embrace of greater efficiency – has brought the US car companies to the precipice of obsolescence. If the government had paid attention to this problem during the first great oil crisis back in the seventies and forced greater efficiency in the use of a limited natural resource, American car companies might be on the leading edge today, rather than just bleeding.

    I would argue, quite simply, for common sense and long-term thinking in both the private and public sectors.

    KC's View: