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    Published on: November 16, 2009

    The Arizona Republic reports that Safeway and Kroger-owned Fry’s reached a last-minute tentative settlement with unionized employees who had threatened to walk off the job last Friday night.

    Terms of the deal were not disclosed. The United Food and Commercial Workers (UFCW) will submit the agreement to its membership for approval.

    Both retailers had hired temporary workers to fill in of a strike had taken place.

    According to the story, “the union and companies have been negotiating for more than a year and had been stalled over health-care costs. The companies, citing soaring medical expenses, wanted the employees to pay part of their health-insurance premiums. The union contended employees had forgone raises and accepted lower wages in the past in exchange for the coverage.”
    KC's View:
    Good to see that the two sides sipped from the cup of common sense in Arizona. Now, if they can ship it up to Denver...

    I remain convinced that at this point in the recession, it is hard to imagine people who actually have jobs walking away from them. However, I also hope that management isn’t using the recession as an excuse to squeeze employees in a way that does long-term damage to he relationship between the two sides. For an example of how retailers should view their employees, see the Costco / Jim Sinegal story, below.

    Published on: November 16, 2009

    The New York Times reports that AFA Foods - the New York ground beef producer that was linked to an E. coli outbreak that killed two people and sickened some 500 others - “stopped testing its ingredients years ago under pressure from beef suppliers.” These suppliers, the story suggests, seek to limit E. coli contamination by testing at their facilities, but “have resisted independent testing by grinders for fear that it would cause expanded recalls.”

    According to the story, “AFA Foods has defended its testing protocols, saying they meet the beef industry’s ‘best practices’ guidelines. Company officials said that their plants, including the one in New York, a subsidiary known as Fairbank Farms, require slaughterhouses to test their trim and that the company then tests samples of its finished ground beef as frequently as every 10 minutes.” However, the company also says that it is “re-evaluating its testing procedures.”

    In the case of the AFA outbreak, the Times writes that it “has fueled a growing concern among grocers that not enough is being done to protect their customers. Trader Joe’s, an upscale chain, said this week that it had stopped buying ground beef from the New York plant and was initiating discussions with other suppliers to have grinders test the trimmings they use in making ground beef. Trader Joe’s, a privately held company with more than 325 stores in 25 states, said it would consider conducting such tests itself, through a third party, if the grinders refused.”

    Costco is cited by the Times as one of the few retailers “to insist on such testing by its grinding facility as an added consumer protection.”
    KC's View:
    More and more, the perception keeps emerging of a beef industry that wants less testing, not more, and of an industry where at least some of the players are more interested in profit than safety. Unless the industry addresses both the reality of the situation and the issues of perception, things are only going to get worse.

    Published on: November 16, 2009

    by Kevin Coupe

    Timed to coincide with the late November 40th anniversary of the opening of the original Stew Leonard’s, the legendary founder of the Connecticut-based fresh food stores is out with an autobiography (co-written by Scotty Reiss) that for many of us has been much-awaited.

    The reason for the anticipation, to be honest, is that Stew has a great story to tell. (It seems somehow inappropriate to call Stew by his last name, and as a matter of full disclosure I’ve known him - not well - for years) Not just his entrepreneurial adventure, which in its own way is as much a unique American retailing story as Sam Walton’s or, more recently, Jeff Bezos’. But there is what Stew would call the 800-pound gorilla in the room - his conviction and four-year incarceration on federal tax fraud charges back in the early nineties.

    Stew does the absolute right thing in dealing with his fall from grace almost from page one; he uses his crime and time in prison as a framing device and weaving it in and out of his story in a way that is frank, and yet turns it into a redemptive experience. That’s important not just to his story, but to the way in which Stew deals with life: this is a guy, to use just one of many aphorisms that he employs in the book, who whenever life has handed him lemons, has turned them into lemonade.

    The outlines of the Stew Leonard story are well known. When his father’s milk delivery business and dairy farm were being put out of business by changing customer tastes and the construction of the New England Thruway, Stew opened a small dairy store that has turned into a four-store limited assortment chain doing in excess of $400 million a year in sales. But Stew, with frank and unadorned language, takes us through the process - explaining the business decisions he made, describing how close to failure he came time after time, and featuring the unambiguous and compelling optimism that even in tough times got him through.

    I’ve been shopping at Stew Leonard’s for more than 25 years, and even I was surprised at some of the details and anecdotes described in the book; he talks about how to accomplish growth while maintaining the company’s culture, he offers insights about the branding of the store, and he writes with great affection about his family and the succession issues that all companies such as his must face. One of my favorite anecdotes is how poultry legend Frank Perdue didn’t want to sell Stew chickens because he was concerned about a two degree differential in the company’s refrigerators; Perdue is just one of the luminaries that Stew has been lucky enough to encounter in his travels, and in each case, he describes what he learned from them and how he implemented those lessons - which makes the book terrific reading for extant and would-be entrepreneurs.

    This doesn’t surprise me. Let me digress for a moment to tell you a little story. About 10 years ago, Stew Leonard, Jr. was celebrating his 45th birthday at about the same time that the company was ready to open its third store in Yonkers, NY. For some reason, my wife and I were lucky enough to be invited to a big birthday party at the new store, which was scheduled to be unveiled to the public in just a few days. One of my most vivid memories was bumping into Stew Sr. by the dairy case, and how he sat me down to find out what stores I’d seen lately, what impressed me, and what I’d learned from recent travels.

    That kind of unrestrained enthusiasm and curiosity is, I think, the best part of Stew’s autobiography. He’s a merchant, he’s a marketer, and he’s a student of the business. And frankly, he’s just a lot of fun to spend a couple of hours with in the pages of this book.

    FYI...for the moment, at least, “My Story” is only available at a Stew Leonard’s store, or on the company’s website: www.StewLeonards.com.
    KC's View:

    Published on: November 16, 2009

    The Seattle Times has an interview with Costco co-founder and CEO Jim Sinegal, in which he addresses how the company has dealt with the recession.

    “We knew how difficult the economic times were last October and November,” Sinegal says. “It's certainly one of first times in my life I can recall fear in people relative to economics. We said two things: No. 1, we want to drive our business to succeed, so we're going to lower prices and try to drive more business into our buildings. And in addition, our employees deserve our loyalty. So we said, let's see how we can get through this thing without having layoffs.

    “We thought we could conduct our business in a fashion that attrition would handle whatever reduction in force we wanted. And we had some new warehouses coming up also, so it enabled us to transfer some people. We feel good that we were able to accomplish it, and I think our people appreciate that and understand an effort was made to make sure everyone kept their jobs.”
    KC's View:
    There are a lot of companies that view employees as movable and even disposable parts, and that have used the recession as an excuse to make deep labor cuts. Contrast that with Costco, where Sinegal talks about employees deserving the company’s loyalty.

    Where would you rather work?

    One of the things that is remarkable about Costco is its laser-like focus on the things that matter to its brand. That’s why Sinegal refuses to raise prices, despite the calls of Wall Street analysts to do so on the premise that this will raise its stock price. And that’s why the company understands that to be a sustainable enterprise, the best long-term bet it can make is on its own people.

    I love, by the way, how Sinegal talks about the $1.50 hot dog that Costco has long featured: “It's amazing how creative we have been to keep the price down. It's a drink and a free refill on the drink for a buck fifty. It's the same quality hot dog, all beef, the best ingredients that you can imagine. I know it sounds crazy making a big deal about a hot dog, but we spend a lot of time on it. We're known for that hot dog. That's something you don't mess with.”

    That’s called having the right priorities.

    Published on: November 16, 2009

    • Tesco’s Fresh & Easy division in the US has announced when it will open its first four Fresno, California, area stores - one on December 2, and the others on January 13. The company has said that it has 12 Fresno-area locations set for Fresh & Easy units, and that half of them should be open by the end of February.

    The stores are being portrayed as a boon to local hiring in a tough economy as well as an investment in a downtown area that has been seen better days.

    • In the UK, the Sunday Times reports that Tesco wants to as much as double the size of its convenience store fleet - growing it from 1,000 to 2,000 units over the coming years.
    KC's View:

    Published on: November 16, 2009

    Interesting story in Business Week about how the blogosphere is humming with complains from Starbucks baristas that they are under considerable pressure from top management to sell the company’s new Via instant coffee product.

    According to the story, “Starbucks sees great potential in Via: Instant coffee is a $21 billion global market. And Starbucks made a significant investment in Via, the biggest product rollout in its history. Naturally, executives set ambitious sales goals. There, perhaps, lie the roots of the problem. Starbucks baristas typically think of themselves as akin to bartenders, not salespeople.”

    Not only are some baristas complaining, but some customers also have been taking to their computers to complain, saying things like the hard-sell sales pitches are “annoying” and “completely out of line with Starbucks' vibe.”

    Starbucks has responded to the complaints by saying that it believes they are largely situational, and that some stores and baristas are going to find Via easier to sell than others. The company has not yet said how much Via it has sold since the product rollout.
    KC's View:
    There are several lessons to be taken from this.

    One is that it is a gift when customers and employees are so in-tune with a retailer’s vibe that they are willing to invest time and energy complaining. They could, after all, just go somewhere else to shop and work.

    Another is that companies have to be careful about their brand equity. They cannot stretch it too thin, lest it break.

    Finally, there is no such thing as “privately complained” anymore. Let’s just retire the phrase right now. Because when people aren’t happy, the discourse is very public, and eventually it ends up in Business Week or someplace else.

    All of which means that the pressure is ever-higher on retailers to do the right thing...and when they do the wrong thing, to instantly make course corrections and address the issues.

    Published on: November 16, 2009

    • Walmart said last week that it has informed the more than one thousand clothing vendors with which it does business that it is willing to pay them within 15 days - instead of the usual 60 to 90 days - if they are willing to give the retailer better deals. Walmart, however, did not say exactly what it would ask for from the vendors.
    KC's View:
    A pound of flesh, perhaps?

    Nah. Walmart doesn’t need a pound of flesh from anyone. But it is a reasonable bet that Walmart does know precisely what it needs and wants from these vendors. And it’s going to get those things, because most vendors these days would kill to get paid in two weeks.

    BTW...while Walmart only has offered this option to clothing vendors, it sounds like the door is open to offering similar terms to suppliers in other areas.

    Published on: November 16, 2009

    The Wall Street Journal reports that the US Food and Drug Administration (FDA) has sent letters to more than two dozen companies that manufacture caffeinated alcoholic beverages, “giving them 30 days to provide evidence that their drinks don't pose health or safety risks.” If they do not offer sufficient proof, the FDA says, it may pull those products off the market.

    The Journal notes that “the FDA's action came after 18 state attorneys general sent a letter to the agency in September, raising concerns that the drinks appeal to young people and can foster drunk driving.”
    KC's View:
    I have long thought that these beverages, along with some of the energy drinks, are a nightmare...a disaster waiting to happen. Maybe the FDA will get this right and get some of this stuff off the market before it does any real damage.

    Published on: November 16, 2009

    • The Wall Street Journal reports that Ahold says that it is ready to use its cash reserve of $3.7 billion (US) “to make targeted acquisitions, a move analysts say is meant to boost a lagging share price and ward off would-be buyers ... An Ahold spokesperson said that the company will look at growing in its existing continents, and that a combination of acquisitions and organic growth is possible in markets where it is already active, or adjacent new markets. He declined to comment on whether the company is currently in takeover talks.”

    • The Atlanta Business Chronicle reports that Supervalu-owned Save-A-Lot “plans to double its 1,200 U.S. store count in five years, and metro Atlanta is one of the markets it will target, said Rick Meyer, vice president of market development.” The company currently has seven stores in the Atlanta market.

    The story quotes Supervalu Craig Herkert as saying that his “expectations are that we will roughly double the size of the hard discount network over the next five years or so. While we presently are anticipating opening 50 new Save-A-Lot stores this year, we will have over 100 projects in the pipeline for next year ... Our best returning business is Sav-A-Lot. We think there’s a huge opportunity to grow that business.”

    • The National Association of Convenience Stores (NACS) said late last week that it “has introduced a new credit card processing program that reduces credit card processing fees to 3.9 cents per transaction (after interchange) for member companies in the program. The NACS member-only Card Processing Program (CPP), developed with First Data, is designed specifically for small, unbranded retailers who can benefit most from the aggregation of their transactions with NACS members and others in the industry.”

    According to the announcement, the NACS CPP was first introduced in 2005 with a rate of 6.5 cents per transaction, which lead the industry at the time. This low rate also drove down processing rates across the industry. As rates continued to drop, so did the rates for the NACS CPP.”

    • The New York Times reports that the US Department of Justice is investigating “why New York farmers are getting record low payments for milk and consumers are seeing just a fraction of the savings ... Christine Varney, the assistant attorney general in charge of the federal Antitrust Division, will meet with farmers in coming weeks to investigate potential anticompetitive behavior in the dairy production system.”

    Reuters reports that Starbucks has “announced two major energy-saving initiatives. First, they will be replacing traditional incandescent and halogen bulbs with more efficient light emitting diodes, or LEDs, in 8,000 of its stores worldwide ... a move that Starbucks projects will cut energy 7 percent per-store in energy use and reduce maintenance costs. Second, the company announced it is moving forward with a plan to obtain LEED certification for 100% of new company-owned stores.” Together, the two initiatives are expected to help the company reach its goal of cutting Starbucks’ energy use by 25 percent by the end of next year.
    KC's View:

    Published on: November 16, 2009

    • Arden Group, which owns Southern California’s Gelson’s Markets, reports third quarter earnings of $4.7 million, which was up 13.5 percent compared to the same period a year ago. Q3 sales, however, were down 9.1 percent to $103.8 million, on same store sales that also were down 9.1 percent.
    KC's View:

    Published on: November 16, 2009

    The Toronto Star reports that Missy, a three-year-old dairy cow, was sold at auction during the annual Royal Agricultural Winter Fair for a whopping $1.2 million.

    According to the story, Missy apparently has perfect DNA, and could have as many as 75 calves during the course of her life - and those calves, based on the quality of the bulls involved, would produce superior milk.
    KC's View:
    Here’s the really amazing part. Missy is the second cow in Canada to fetch more than a million bucks.

    I knew they had mad cows in Canada, but I had no idea that they also had cash cows there...

    Published on: November 16, 2009

    Last week, MNB user Glen Terbeek offered a long critique of the announced plan at California-based Save Mart Supermarkets for chairman/CEO Bob Piccinini to “reward 10 employees with cash prizes of $10,000 each during his annual six-week tour of all 252 of the company’s stores, distribution centers, warehouses, and offices. The 10 employees are being recognized through the company’s Customer Connection program for delivering excellent customer service and fostering a friendly shopping experience for their customers.” Piccinini said that helped him to “personally reconnect with our employees.”

    Terbeek wrote, in part:

    Unless my math is wrong, Piccinini's holiday visits amount to over 6 a day, assuming he uses all 7 days of the six week period.  It would be hard to believe that he can meaningfully "reconnect" with his employees in that amount of time per visit, once a year.  Do the employees at all levels in the store or warehouse, really feel they can tell him what would make their store or warehouse better?  In fact, I would bet that his visit is somewhat a pain to the employees, since they have to get their location in "inspection ready" condition in anticipation of his visit.

    The reality is that after a chain reaches 20 or so stores, the CEO starts becoming irrelevant to the needs  of the local stores fighting in their local marketplace.  But in most retailer organizations, the CEO, 252 stores away from the local marketplace in this case, is the only person who is responsible for the local store's market performance, and the shopping experience in the store.  Every other position up the organization only has a piece of it ... It is time to reorganize around market modules of about 20 stores, where the market module CEO, staff  and store personal have complete responsibility for the market performance of each store in the module.  They would be relevant, connected all the time; they wouldn't have to "reconnect" annually.


    MNB user Dave D'Arezzo responded:

    OK, Glen Terbeek makes some good points.  But if Bob Piccinini didn’t go out to see the stores, he’d be criticized as out-of-touch, or in the “ivory tower”.  Cut him a break.  Again, Glen’s math is right, but he makes the assumption that Bob is disconnected from his employees and feedback the rest of the year.  I’m sure that’s not the case.  And as for it being a “pain” and having to “paint the flag pole” because the CEO is visiting…many in retail view the “holiday visit” as a reminder, or time to “spring clean” to insure the stores are ready for the important Thanksgiving and Christmas shopping season.  And if it takes the CEO to visit to make sure the store is cleaned up and standing tall, so be it.

    Glen doesn’t need me to defend him, but...

    I’m pretty sure that his comments were not meant as a personal attack on Bob Piccinini or his company. Rather, they reflect his long-held philosophy that the organizational structures of most companies in the supermarket industry are designed to be ineffective when it comes to being in touch with what consumers want and how employees feel. And I tend to agree with him on this one.




    MNB had a story last week about Blockbuster’s lousy financial results, which I used as an excuse to once again dump on a company that I see as having a 20th century mindset in a 21set century world. My comment was short: “Dead company walking.”

    This prompted MNB user Tom Murphy to write:

    Your comment on Blockbuster, “dead company walking” got me to thinking about their demise.  It seems to me that they got too comfortable in their own business model, pooh poohed new business models like Netflix and movies on demand, and then waited until too late to invest in the necessary business changes and technology to succeed.  This is a story that is playing out (played out at Albertsons, playing out at Bashas) in the grocery industry in a number of chains.  It reminds me of my golf game…just when I think I have it figured out…wham!  This is a great reminder that there really is no such thing as long-term customer loyalty and there is no forgiveness for failing to change with the times!

    Agreed.




    Following a story about new UK price wars, I commented last week that with all the price cuts by supermarkets there over the past few years, it is amazing that people can’t simply walk into a Tesco or Asda and get their groceries for free. Which led MNB user Chris Anstey to write:

    Not sure the price cut comment is fair! I have seen that it is supply chain efficiencies driving the UK price war. Oh – and supplier’s margins of course!




    Responding to last week’s announcement of an iPhone application for ShopRite that allows shoppers to download specials and functions “as a portable circular and invites consumers to ‘start saving’ before they even arrive at the store by browsing hundreds of items instantly,” one MNB user wrote:

    Dr. Pete Fader from The Wharton School of Business (of which I’m a proud alum) spoke in the late 90’s, prior to the dot com bubble burst, that the same rules of business applied to the net that apply to bricks and mortar retailers.  That being in part, it’s too expensive to prospect new customers all the time, and that you need loyalty, in the form of customers coming back and buying again.  There were many examples he cited that stood the test of time.  So in this case, aren’t ShopRite just perpetuating a consumer buying pattern that seems to be losing favor hand over fist?  Haven’t the successful retailers proven that high low is dying?  If I want to buy Heinz ketchup tonight, and it’s not “on sale” am I irritated that it’s half as expensive at Walmart or Target, or etc.  Do I in today’s retail landscape really have to buy it that one week of the quarter it’s on sale at ShopRite to be competitive?  Do I need the hassle of having to read another email and plan my day just because what I like is on sale THAT DAY?  What if I’m busy that night?  Even though I love food shopping, I do have other things to do than time my demand around when the grocery store wants to put it on sale.  So big deal the ShopRite’s High/Low prices are now delivered to my phone.  I need laundry soap tonight.  Do I wait to wash my clothes until it’s on sale?  Do I have to switch brands to a brand I don’t like because it’s the only brand that reasonably priced that week…and chances are if it’s a hot special it’s out of stock too! (Or I have to ask a clerk to get me some out of the back room).  When will grocery stores learn high/low is D-E-A-D DEAD?
     
    P.S. Do ads still sell product?  Of course.  But the same people who driving to ShopRite this week for cheap tuna, will be driving to Walgreens next week for cheap cereal.  There will always be people that migrate to the lowest possible price.  Can you afford to merchandise your business to please them at the cost of the rest of us?


    All of this sounds really good, except...

    My impression has been that at this moment in time, people actually are responding to coupons and high-low advertising more than they were pre-recession. So in that sense, the ShopRite app would seem to be well-timed.

    Now, if and when the time comes when shoppers stop behaving as if the recession is ongoing, the ShopRite app, as is, may have less relevance. But I’d be surprised - shocked, in fact, if the app is a finished product. These kinds of technologies always are evolving and changing, and it is a pretty good bet that it won’t be long before there are new features that have nothing to do with sale prices. And habits will have been created that will serve the app and the stores well.

    Full disclosure here: the ShopRite app was developed by MyWebGrocer, which continues to be a long-term and valued MNB sponsor.
    KC's View:

    Published on: November 16, 2009

    In Week 10 of National Football League play...

    Carolina 28
    Atlanta 19

    Miami 25
    Tampa Bay 23

    Minnesota 27
    Detroit 10

    Jacksonville 24
    NY Jets 22

    Cincinnati 18
    Pittsburgh 12

    New Orleans 28
    St. Louis 23

    Tennessee 41
    Buffalo 17

    Washington 27
    Denver 17

    Kansas City 16
    Oakland 10

    Arizona 31
    Seattle 20

    Green Bay 17
    Dallas 7

    San Diego 31
    Philadelphia 23

    New England 34
    Indianapolis 35
    KC's View: