retail news in context, analysis with attitude

Published on: June 2, 2010

by Michael Sansolo

In a week of big news stories, there was probably none that deserved attention less than Apple surpassing Microsoft in its market capitalization. It’s a story that’s easy to ignore because the wisdom of a market cap frequently has little to do with important business values such as profit, sales and customer satisfaction.

However, it also is easy to argue that this really does matter. Because the real story between the two technology giants isn’t about stock prices or the relative wealth and creativity of Bill Gates and Steve Jobs. Rather, the lesson is about wide-ranging business practices and how two amazing companies have traveled such divergent paths in the past decade.

The simple lessons distilled recently by BNET, a business management website, are best found by studying mistakes made by Microsoft over the past decade. While some are unique to the world of high-tech, many have obvious parallels in other businesses, including the comparatively low-tech world of supermarkets. And that makes them lessons worth considering.

For instance, Microsoft gets criticized for something called backward compatibility, or remaining linked to old and aging features. As BNET says, the pace of innovation in the tech world creates an environment where companies much constantly “eat their young,” in short abandoning successful products to move to the next level. It’s advice well taken by any business. Sometimes the most difficult decision is how to move beyond a product, store, service or practice that has fueled past growth. Done poorly, this could easily wreck a company; never doing it leaves you stuck in the past while competitors go zooming by.

Compounding this problem, Microsoft found itself too often imitating where it should have been innovating. Matching the competition always makes sense, but the breakthroughs come from those who build the new definitions of value.

There are similar parallels in BNET’s criticism of Microsoft’s bureaucratic and feature bloat. The first is a challenge for any business, especially in challenging economic times. All companies need internal administration and procedures, but troubled companies get weighed down when these areas—which rarely improve the final customer’s experience—grow too large and unwieldy. Lean operations move with less friction and cost, creating a win-win situation for the company and its customers.

This might explain why a second news story last week found that Apple - makers of the iPod, iPhone and iPad - spends less on research and development than many of its competitors. It simply gets more bang for the buck. It also may explain why Apple went from facing extinction in the 1990s to hero worship in 2010.

While I don’t consider myself a technology expert, feature bloat is easy to understand. On my computers it’s the glut of programs and choices that I never come close to using just as in a store it’s an overabundance of products that in no way seem to improve my experience. Microsoft’s challenge would seem a great parallel to the struggles many retailers are having to pare down assortment without diminishing the shopper experience.

But the Microsoft sin that seem to resonate most involves the company’s partnership practices. As BNET explained, Microsoft became a partner that other companies needed, but feared. Too often, the Redmond behemoth would work on a solution or product with another company, only to turn on the partner and compete with them or force them out of the business. What Microsoft seems to be learning is that when their partners win, they can win too. It seems as especially appropriate lesson for supermarkets at a time when the balance between national and store brands is becoming so much more complicated.

The bottom line is the lessons are all there. Complacency, arrogance, greed and more are enough to slow even a company like Microsoft. Just imagine what those same sins can do to you.

Michael Sansolo can be reached via email at msansolo@morningnewsbeat.com . His new book, “THE BIG PICTURE: Essential Business Lessons From The Movies,” co-authored with Kevin Coupe, is available by clicking here .

Published on: June 2, 2010

The Washington Post reports that “state governments have become an unlikely ally of the banking industry in a fight against putting limits on the fees that credit and debit card issuers can charge to retailers.

“Treasurers from at least eight states are considering sending a letter to lawmakers this week over concerns that proposed limits on the fees card issuers charge for processing purchases could endanger state programs that use prepaid cards to dispense crucial benefits such as unemployment insurance. The limits are included in an amendment to the overhaul of financial regulations that passed the Senate last month.”

The amendment, which is included in a US Senate financial reform bill but not in the version passed by the House of Representatives, “ allows retailers to give customers discounts for paying with cash and to set price thresholds for accepting cards,” the Post writes. “It also tasks the Federal Reserve with determining whether swipe fees for debit cards are ‘reasonable and proportional’ -- the provision that most troubles the banking industry. Typically, the fees range from 1 to 2 percent of the purchase price, and retailers argue that the amount can wipe out their profit on small sales.”

The two versions of the bill have gone to a conference committee that is charged with coming up with a single version that would have to be approved by both house of the US Congress before going to President Obama’s desk for his signature.

According to the Post story, critics of the amendment argue “that the amendment could result in retailers turning away customers who use government prepaid cards for small purchases, such as a gallon of milk, because they do not meet the minimum spending requirements. Those people would then be required to buy additional items to hit the threshold or use another form of payment.”

Published on: June 2, 2010

BrandWeek has an interview with Melanie Healey, group president of Procter & Gamble North America, in which she talks about the company’s continued focus on research and development. Excerpts:

• “We innovate in everything we do. We define innovation broadly, starting with product and packaging, but also including work process, manufacturing, etc. We are focused on accelerating the pace of innovation, particularly big, disruptive innovations as well as multibranded commercial innovations like P&G’s [new online] eStore and [our sustainability platform] Future Friendly. The simple way to look at how we are leveraging our innovation is how we expand our portfolio vertically, horizontally and into whitespace.”

• “Our commitment to innovation and our willingness to invest behind it has not diminished at all through this economic cycle. We invest nearly $2 billion in R&D and more than $350 million each year in consumer/shopper research to deeply understand our consumers’ needs, so we can innovate in ways that deliver value most relevant for each consumer segment - increasing performance for performance seekers—and reducing cost and price points for price seekers.”

• “Value is not just about price. It is about benefit and how the brand’s purpose fits into our consumer’s life. In tough economic times, you have to be even closer to your consumer and understand what they want and need from the brand. We are changing how we communicate with our consumers. Our objective is to serve our consumers with our brands so that their lives are better. Consumers have high expectations of companies and brands. They want to know what the company stands for. They also have complete freedom and access to information. Brands must be transparent about what they stand for and how they are a force for good in the world.”

Published on: June 2, 2010

The California Grocers Association (CGA) has come out in support of proposed legislation that would “create a statewide standard for single-use carryout bags at supermarkets, chain pharmacies and other large grocery retailers beginning January 1, 2012, and at convenience stores, neighborhood markets and liquor stores beginning July 1, 2013. The bill would require affected stores to provide reusable bags for sale or free distribution and would pre-empt local ordinances that regulate bags at those retailers subject to the state law.” A reusable bag is defined as being “designed and manufactured for 100 uses and made of washable material.”

"AB 1998 creates a uniform, statewide standard to help level the playing field among food retailers," said California Grocers Association President Ronald Fong. "It addresses the issue of single-use carryout bags across all California jurisdictions and provides the most environmental gain with the least competitive disruption for retailers."

Published on: June 2, 2010

There’s a story in The Star up in Toronto that is almost guaranteed to know your socks off. Here’s the lede:

“To succeed in the Internet age, North American retailers need to embrace new ways of doing business, a Canadian retail industry conference heard.

“‘There’s a fundamental shift going on,’ said Dan O’Connor, president and chief executive officer of RetailNet Group, a Waltham, Mass.-based consulting firm.

“Comparing it to the impact of the rise of the chain store in earlier decades, O’Connor told the annual convention of the Canadian retail industry in Toronto Monday that the Internet is changing the way people shop.

“They’re surfing the web and finding the product they want at the price they’re willing to pay before even entering a store, O’Connor said.”

Published on: June 2, 2010

Outplacement consultancy Challenger, Gray & Christmas is out with a new jobs report, saying that “the pace of downsizing was virtually unchanged in May, as employers announced plans to cut 38,810 jobs from their payrolls during the month. That was slightly (1.3 percent) more than the four-year low of 38,326 job cuts announced in April ... May layoffs were 65 percent lower than the same month a year ago, when planned job cuts totaled 111,182. This marks the 12th consecutive month in which the job-cut total was lower than the comparable year-ago figure. It also marks the 12th consecutive month that saw fewer than 100,000 announced job cuts.

“Through the first five months of 2010, planned layoffs announced by employers totaled 258,319, which is 69 percent fewer than the 822,282 announced during the same period last year.”

The consultancy said that these cuts essentially mark a return to “pre-recession levels.”

Published on: June 2, 2010

NamNews reports that Aldi plans to open its first New York City store - in the Rego Park section of Queens - in early 2011.

Previous plans to open a NYC Aldi store in 2009 had fallen through.

Published on: June 2, 2010

The Global Food Safety Initiative (GFSI), managed by the Consumer Goods Forum (CGF), announced yesterday that the On-Farm Food Safety Programme (OFFS) known as the CanadaGAP scheme, managed by The Canadian Horticultural Council (CHC), has been given full recognition by the GFSI Board of Directors. The program consists of national food safety standards and a certification system for the safe production, storage and packing of fresh fruits and vegetables.

GFSI also announced that the Best Aquaculture Practices (BAP) certification scheme developed by the Global Aquaculture Alliance - an international, non-profit trade association dedicated to advancing environmentally and socially responsible aquaculture - has been given full recognition by the GFSI Board of Directors.

Published on: June 2, 2010

• Tops Friendly Markets yesterday celebrated the reopening and rebranding of 15 stores formerly operated by Penn Traffic and recently acquired by Tops.

According to the announcement, “The name change of the stores to Tops Friendly Markets was included in a rebranding effort announced in early May in which all former stores owned by Penn Traffic would be changed to Tops through the end of 2010 ... Included among the store improvements planned that will vary by individual store ... are providing a wider variety and selection of favorite brand products, adding where needed bakery, deli, meat and healthy and organic food department,” as well as Tim Hortons coffee shops.

• As the 2010 Atlantic hurricane season begins, Winn-Dixie said yesterday that it has equipped “109 of its stores with 500-kilowatt, diesel-powered generators so that the stores can operate during a power outage. The stores are in areas that have been affected by power outages associated with hurricanes and tropical storms in recent years ... The company also has equipped its regional distribution centers in Miami, Orlando, Jacksonville and Hammond, La., with generators so that stores can be quickly restocked after any storms.”

• The Atlanta Journal-Constitution reports that “PepsiCo's recent announcement that it plans to invest $2.5 billion in China over the next three years -- on top of a $1 billion investment the company announced in 2008 -- signals a new intensity in competition between PepsiCo and Atlanta-based Coca-Cola Co. for Chinese consumers' business ... Coca-Cola, PepsiCo's main rival in the beverage industry, is similarly focused on China and its 1.33 billion billion people. Coca-Cola gets about 15 percent of its net operating revenue from the Pacific region, including China. The company's sales volume has grown by double-digit percentages in China for the past eight years. In 2009, volume grew 16 percent.”

Published on: June 2, 2010

There’s a nice piece in QSR magazine about Caribou Coffee CEO Mike Tattersfield, who has made customer connections a centerpiece of the company’s strategy since he joined Caribou in 2008.

“The brand always, from its inception, was built on a belief of having the best coffee, but we weren’t delivering that in every single consumer touch point that we have available,” Tattersfield tells QSR. “It was all there in front of us, we just weren’t executing around it. We weren’t living the culture.”

Excerpts from the story:

• “Ultimately, it’s the quality that wins over time,” he says. “An exceptional focus on quality, whether it’s the experience or product, will resonate with customers.”

So at every point in the Caribou experience, Tattersfield has taken the approach of being “extremely passionate about a lot of the nuances.”

“More important than anything is: How does it positively impact the brand experience in the store?” he says. “If it’s easier for them to read the menuboards, it’s easier for them to understand how we’re looking at categories, [and] it helps them in their experience.”

• Caribou also looks for opportunities to connect with customers and the community on deeper levels.

“We do things like have clubs come in on a Wednesday night, for example, and our Caribou becomes their place,” Tattersfield says. “When people can call it their Caribou because it feels like a home to them, those are the aspects of the experience that make you come back. … There are functional things like WiFi or comfortable chairs, but it’s the emotional details that really matter to customers.”

• Tattersfield also would like to step up the brand’s sustainability efforts. Eighty-five percent of Caribou’s coffee is certified Rainforest Alliance. While the company is one of the few to use the sustainably sourced coffee beans in such high numbers, that’s not enough for Tattersfield.

“Our goal in a year is to be 100 percent,” he says. “I don’t believe in doing things halfway, and I don’t believe in playing with numbers to make us feel better.”

Published on: June 2, 2010

On the subject of online data and privacy issues, MNB-fave Glen Terbeek wrote:

Data never seems to be a privacy issue when the shopper gets an advantage.   As an example, most travelers make sure the airline, hotels, and rental cars get their frequent flyer numbers because the travelers get the benefit of free personal travel in the future.  It worked for us, we had many free Hawaii family vacations based on my travel during my working years. Even more importantly, the special services and agents I dealt with at O'Hare made travel much easier due to my Platinum level.  I never felt the data was being misused.

However, when personal information is requested/required with no obvious benefit, it becomes a perceived privacy issue.  Most retailer loyalty programs don't provide real advantage for the shoppers.  Amazon and the new Sam's program may be exceptions.  I am always amused when I check out of Von's as an example.  After hearing, "Did you find everything OK", followed by, " Do you need help out to your car", I then hear "You saved X dollars on your purchases today".  Not because of the frequency or volume of purchases we make, but only because everyone who has a card and identifies themselves gets the same discounts.  At Albertson's, if you don't have a card, they use one they have at the register.   What does the shopper think?

It is time to understand that data must work for the shopper first, if it is going to be effective for the service provider.  More and more, the shopper is in control of the shopping experience, starting with access to information.

Bingo.

MNB user David A. McDougall chimed in:

This is one of the biggest issues for marketers, and has been for quite some time.  I have been involved in data bases since the early 80's and have always maintained a high level of data base integrity.  This means, if the data base is designed for one purpose, it cannot be used for other purposes without violating data base integrity.  The consequences of violation are very high!  We have witnessed an erosion of this principle.  Think Loyalty Cards or "Disloyalty Cards" as I refer to them.  Selling the information to manufacturers opens the door for DB violation and there are many examples of this.  More recently, the issue has shifted to the internet, where Google, Facebook and others have faced the wrath of users for DB violation.  What Amazon is practicing with your information, is "Unobtrusive Marketing," and is acceptable to you, as it falls in line with your relationship with Amazon.  Your information is being used for the perceived purpose intended with the company.

There was an interesting article on eMarketer, "Internet Users Hold Privacy Dear," with "Just 13% willing to exchange personal info for content."  We all know that there is no free lunch and there will be a trade off for exposing personal information for free products or services.  On the internet it can be a virus or spy-ware, SPAM, etc.  Companies need to be alert to any perceived violation of data base integrity, as the result, hurts not only the image of the company or brand, but your very trust to the customer!

As always, you raise some good questions and issues!

I also believe that trade-offs will be viewed differently by the Facebook generation than it will be by their elders. They may be more exacting in their demands, but they also will understand the notion of mutual advantage.

MNB user Hortencia Espinoza wrote:

Wanted to let you know of a customer loyalty card that truly pays attention to its customers shopping patterns.

When I was going to have my second child I signed up for the (at the time) brand new Toys R Us/ Babies R Us rewards card. Having a few already I didn’t see it as a big deal signing up for yet another one. I really only shop there for bulk cases of ready to feed formula and diapers. Every now and then I will get a toy or an outfit for the kids.

Every month I get a “circular” in the mail with a $5 off coupon that usually goes unused. The reason: there are fine print restrictions which state it cannot be used towards the purchase of formula and diapers. If I do not like what’s on the floor as far as clothes or don’t need anything for the girls it goes to waste.

First set of rewards came 3 months ago and it was your standard 10% off of this, get a free bottle of water with purchase, etc.

However, on Friday, in my mailbox was my second set of rewards. I had a $5 off coupon with zero restrictions PLUS a free case of my formula. A case is $34.99, $29.99 on sale. There were 4 other coupons as well; 25% off 1 item from the R Us clothing line Koala Kids and some bedding coupons which I am not going to use (I bought the initial bedding and additional sheets from there.)

I spent a grand total of $35.49 on 2 cases of formula and an outfit for my baby.

So happy to see a retailer is doing this rewards things right. It actually makes me want to purchase other items from them as well. What used to be a quick 10 minute in and out actually turned into a 45 minute “let’s see what else they have” trip.

Wish they were all like that.

Nice to know that Toys R Us has the capacity for growth.