retail news in context, analysis with attitude

Published on: June 10, 2010

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

Something’s been eating at me since it came up on MNB earlier this week. I want to return to it, if you don’t mind, because I think it illustrates a broader issue.

No, it isn’t the subject of gender discrimination. I think we’ve exhausted that particular item for the moment...unless of course David Livingston decides to write me another email that I cannot resist posting. (I didn’t even post the messages in which he told me that many of his friends are wealthy women, that none of them have ever “played the victim,” but that out of a sense of male guilt he was going to take one of his female contractors to lunch...at Hooters. Oops. I guess I just did post it, didn’t I?)

No, the email I want to refer to is the one that accused me of “unabated adulation of Walmart.”

I hope that I put that illusion to rest the other day when I listed some of the things I like about Walmart and some of the things I don’t.

But the more I think about it, the more I think that this email reflects something other than general antipathy towards Walmart - it points to a willingness (and I think we’re all guilty of this to some extent) to draw the easy conclusion, to find the easy answer, to paint with the broadest brush and the starkest colors.

There’s no room for context, for nuance, for the shades and more muted colors with which most issues should be and are painted. It is more and more often true these days in business, in politics, in religion, in culture. None of us are the better for this trend.

The problem, of course, is that our society often feeds at the trough of easy answers, simplistic thought and the convenient sound bite. Radio and television stations feast on such things for fun and profit, consultants and self styled gurus love to paint one side as wearing white hats and other wearing black, and, quite frankly, we all respond to such stuff because it is easier to embrace an ideology than actually consider the possibility that things aren’t as simple or black-and-white as we’d like them to be.

Y’know, Walmart has plenty of good ideas, lots of terrific people, and has made - and will continue to make - some important contributions to American and global commerce. That doesn’t make the company good or bad and certainly not perfect. And saying so doesn’t mean I am guilty of “unabated adulation” of the company. It just means that I am willing to consider the possibility that life and business are not simple constructs, and that there is something to learn from almost everyone.

For MNB Radio, I’m Kevin Coupe.

Published on: June 10, 2010

CVS plans to double the size of its food offering in about 3,000 of its 7,000 stores by the end of the year, believing that it can “stake a claim for a bigger piece of the nation’s trillion-dollar food budget,” the Quincy, Massachusetts, Patriot Ledger reports.

While at least part of the strategy is tied to the company’s desire to become more of a one-stop shopping experience for customers, there also is a financial incentive - the Patriot Ledger reports that CVS hopes to get a piece of the slotting allowance budget that many food manufacturers use to get prominent placement in supermarkets.

The move also is seen as a way to strike back at supermarkets, which have been nibbling away and the health and wellness business with expanded HBC departments and pharmacies.

Published on: June 10, 2010

The Richmond Times Dispatch has a nice piece about Bobby Ukrop, who despite having sold the family supermarket chain to Ahold several months ago, remains in the food business via a manufacturing venture that makes “prepared foods and baked goods, including the famed White House Rolls, rainbow cookies, the triple cheese macaroni and cheese and the chicken salad.”

Right now, Ukrop’s Homestyle Foods is selling product to Ahold-owned Martin’s, which is operating the old Ukrop’s stores under its banner, and hopes to sell to other chains as well. A major selling point - because of its years on the retail side, Ukrop’s has a strong appreciation for what will work in stores and what customers want in terms of freshness and quality - two hallmarks of the product lines that the company is developing.

Published on: June 10, 2010

The New Haven Register reports that Stew Leonard’s, which has owned property in Orange, Connecticut, for more than a dozen years and has been trying to get the necessary approvals to build a store there, has decided to call it a day.

“It’s over in Orange,” Leonard told the Register. “It’s done, finished. We’re going west.” The paper writes that “for Leonard, west means New York and New Jersey, which is where the dairy mogul is looking to expand. He said there are no plans to add another store in Connecticut.”

Stew Leonard’s currently operates three stores in Connecticut - in Norwalk, Danbury and Newington - and one in Yonkers, New York.

Published on: June 10, 2010

The Los Angeles Times reports on how Southern California convenience stores have evolved into food purveyors to be reckoned with. Here’s how the Times frames the story:

“In Woodland Hills, saleswoman Danielle LaRocca checked on her order: a chicken salad, dressing on the side, fried crunchy wonton noodles on the top. Over in Westwood, Laurie Tynan wanted a pulled-pork sandwich. In Santa Monica, paninis were on the grill.

“Tasty food is nothing new in Los Angeles, a city where restaurants dot every block. But these made-to-order meals are being served up at gas stations, where cheap hot dogs and warmed-up pizza are starting to be replaced by freshly baked croissants for breakfast and Cobb salads for lunch.

“Welcome to the evolving urban gas station ... Today, corner stations are increasingly looking more like restaurants, as slim profit margins on gasoline have forced owners to search for new ways to make money. Along with higher-quality food, some are even offering printed menus, home delivery and catering.”

The reasons behind this evolution are simple. One, selling gas ain’t as profitable as it used to be. Two, supermarkets and big box stores have begun opening filling stations that are competing with traditional gas stations. And three, in fighting for customer traffic - and in this case, “traffic” is meant literally - these small format stores have found that exceptional food can serve as a powerful lure and differential advantage.

Published on: June 10, 2010

There is a terrific story in QSR about one of MNB’s favorite burger places, the Shake Shack, which started as a one-off in a New York City park and now has grown to two other NYC locations (one of them in CitiField, home of the NY Mets), with plans to open new outlets in Miami and Kuwait.

The piece looks at the five essential decisions that the folks at Union Square Hospitality Group have made in order to maintain the concept’s quality and cachet.

• Better to make slow, good decisions than fast, bad decisions. “It’s really easy to make bad decisions as you grow because they’re generally more efficient,” says Randy Garutti, COO of Shake Shack.

• “Shake Shack is known for its Black Angus burgers, Vienna all-beef Chicago-style hot dogs, and custard made from premium ice cream. ...“It’s really doing whatever it takes to make sure it happens, even if it means financially in the short run it’s not as advantageous,” says David Swinghamer, Shake Shack’s CEO. “It’s understanding that, in the long run, quality wins.”

• “Despite slight tweaks to the menu and store design at each location, Shake Shack executives want to keep the brand as consistent as possible as it expands. That’s why the director of operations for Miami spent two months training at the original location in Madison Square Park before he could set foot in his own store. His entire management team also was required to spend between two and four weeks working at the first location.”

• Connecting to local communities is seen as extremely important, and is perceived as just as critical as identifying the best locations. “We focus first on really understanding it,” Swinghamer says. “We look for a really prime site where we believe that our guests will feel like it’s very identifiable, where we can really express the Shake Shack brand through its architecture and design.”

• “Once a store’s crew is in place, Shake Shack makes an effort to keep them happy and motivated. In addition to paying higher-than-average wages, the company has a program called Shack Dollars through which it gives the hourly team 1 percent of sales off the top line every day ... That way the whole crew is invested in the store’s success and Shake Shack attracts employees who are happy—not annoyed—when the store is busy.”

“It’s not our intention to open hundreds of Shake Shacks a year,” Garutti says. “When a Shake Shack is coming to town, we want people to say, ‘Wow, we’re getting a Shake Shack in our neighborhood!’ There are few brands out there where people have that reaction. That’s what we’ve been able to do so far, and we want to continue doing that.”

Published on: June 10, 2010

• Reuters Health reports on a new Swedish study saying that the saturated fats in dairy foods could have the benefit of lowering cholesterol and/or blood pressure. “The researchers found that people with the highest levels of milk fat biomarkers, suggesting they consumed the most dairy fat, were actually at lower risk of heart attack; for women, the risk was reduced by 26 percent, while for men risk was 9 percent lower,” the news service writes.

• The Los Angeles Times writes about a new Japanese study that suggests coffee - or, at least, caffeinated water - may help people stave off the development of type 2 diabetes.

Published on: June 10, 2010

New Hope Natural Media’s Nutrition Business Journal (NBJ) is out with its annual “Healthy FoodsReport,” and here is the top line:

“The healthy foods market in the United States kept pace with overall food industry growth in 2009, but this is far from good news. Annual growth rates continue to slip for healthy foods, which has seen its star dull and tarnish in the protracted economic malaise. Data does suggest, however, that we may have hit the bottom, and growth rates should improve modestly in coming years. As growth takes meaningful hold, healthy foods should increase its share of the total foods market, reaching 23% penetration by 2017. The trends toward natural and organic food and beverages as safer and healthier consumer choices remain particularly strong.

“The total U.S. food market grew 1.6% in 2009, reaching $628 billion in sales, while healthy foods grew 1.8% to reach $143 billion in sales. NBJ includes four product categories in the healthy foods market - organic, natural, functional and lesser-evil foods.”

Published on: June 10, 2010

• The New York Times reports that CVS Caremark said yesterday that “anyone now enrolled in its drug benefit plans would have to stop filling their prescriptions at Walgreen within a month.” The move followed by two days an announcement by Walgreen that it would no longer “participate as a prescription drug provider for customers in new drug benefit plans administered by CVS Caremark.”

One industry observer described the current scenario as “a game of chicken” between two HBC giants; the story suggests that all this posturing could lead to further antitrust probes into the power that the two companies wield.

• The Detroit News reports that Kroger and the United Food and Commercial Workers (UFCW) continue to negotiate even as the contract covering 14,000 Michigan employees expired at midnight. No strike vote has yet been taken, but the union is saying that may change if the company does not back off its demand for reduced health care benefits and a cap on hourly wage increases.

The News reports that “Kroger disputed the union's characterization of its proposal. It includes bonuses for top-rated workers based on tenure and performance.”

• Business First of Columbus reports that Kroger is selling its credit card portfolio to US Bank, a portfolio that includes “funds from Kroger’s personal finance products, including credit monitoring, identity theft protection, gift cards, money services, pet insurance, credit cards and prepaid debit cards. Kroger Personal Finance will continue to offer the same services. Customers shouldn't notice any immediate changes.”

The portfolio previously was owned by RBS. Terms of the deal were not disclosed.

• The Chicago Tribune reports that Mead Johnson Nutrition Co. has decided to “stop production of a controversial chocolate-flavored toddler formula that critics claimed potentially promoted childhood obesity.” The debate about obesity issues, the company said, distracted people from the product benefits.

Of course, critics said that the 19 grams of sugar per 7-ounce serving was a lot more than a distraction.

Published on: June 10, 2010

• Wal-Mart Stores announced that Executive Vice President and General Counsel Jeff Gearhart is being promoted to assume the additional role of corporate secretary, reporting to CEO Mike Duke. The company also announced that Executive Vice President and Corporate Secretary Tom Hyde will retire from the company after nine years of service.  These changes are effective August 1.

• Family Dollar Stores announced that it has named Scott Zucker, the company’s Vice President – Merchandise Operations, to the position of Vice President – IT Solutions Delivery. Mr. Zucker will report to Josh Jewett, Senior Vice President - Information Technology, CIO.

Published on: June 10, 2010

Michael Sansolo wrote a piece earlier this week about what appears to be a growing concern in some circles - that a large chunk of the current recovery to date could be fueled by consumers simply refusing to pay certain bill - primarily their mortgages? Which would suggest that there is less to the recovery than many would hope.

One MNB user responded:

I think it may be a bit of fear mongering. This 5 percent not paying their mortgage are the ones probably upside down in it to begin with. Many of these loans should have never been made in the first place, and to skip a house payment to make that one time purchase, give me a break! Yes this so called recovery is on shaky ground, but we will be paying the price for very poor banking practices for several more years to come. I feel truly sorry for the people who lost their homes because of losing their jobs, not for the ones who over extended because they felt they owed themselves a bigger and better house payment.

Another MNB user wrote:

Let’s say 1 million home owners are not paying their mortgage, but, instead are paying their “other Bills”…

The average home cost $300,000 with a monthly mortgage of 1500.00…that’s $1.5 billion per month…or $18 billion per year…hardly economic shaking numbers…AND…would they be paying their “other” bills if they were paying their mortgage???

Your point is well-taken…at least by me…we are far from “out of the woods” both economically and socially. I can only see that we have postponed a disaster…and unless we can alter how we do business…alter how we do consumption…alter how we do social contract…alter how we think of our environment and natural resources, we are in big trouble.




Regarding the decision by Walt Disney Co. to shut down its ESPN Zone chain of restaurants, MNB user Clay Dockery wrote:

While the economy has been difficult on many businesses, it seems to me that too many business closures are blamed on the economy because it is the easiest causality to point to failure.  However, the few times I visited ESPN Zone I saw something inherently wrong with their business plan.  As they are all about sports, many patrons come in to watch their favorite team.  This means that tables are occupied for periods of 3 – 4 hours (inclusive of the hour before the game starts if you want a seat!).  Consequently, the tables don’t turn and the revenue stream can’t be supported by the folks that will nurse their favorite beverage while watching the game.  Most popular sports chains have a larger bar area where people can and do settle in for the games and they leave the tables to the folks who want to eat!





On another subject, one MNB user wrote:

You mentioned a receding economy in your column today.  I believe it to be inevitable in our current political climate, tea parties notwithstanding.

I would agree that no one on either side of the aisle has a plan or the political will to tackle the hard issues of our growing entitlement programs, border security, national security, education, and the myriad of complex issues facing our nation and economy.

The root cause in my  humble opinion is that the Congress and Senate are parochial by nature.  I’ll never forget a few years ago when Senator Robert Byrd of West Virginia and then chairman of the Transportation committee was asked very directly why more money was spent on highway projects in his state than any other …his reply, “what’s good for West Virginia is good for the country!”  That in a nutshell is what is wrong with Washington.  Throw in all the corporate campaign donations and it’s hard to tell the good guys from the bad?

We all know the problems faced by Greece which has a debt to GDP ratio of 115.1%.  The US isn’t that far behind with a ratio of 94.3% projected for 2010.  The warning signs are all around, but nobody seems to be doing anything about it.  Oh yeah we added health care to the mix this year.  Brilliant!

The question then is what do we do about it and how do we prepare for it.

I was just reading about Argentina when their economy was repeatedly faced with periods of HyperInflation.  As a hedge against inflation the people there invested in real assets like gold, rice, land, and foreign currencies.  Maybe one would be wise to do the same.  Cause the future looks pretty scary.

The other problem that you don’t mention is gerrymandering. There is a lot of criticism out there that many congressional districts in this country have been gerrymandered to the point where only extremists can win...and centrists, who are more likely to negotiate and compromise, can’t get into public office.




On the subject of plastic bag legislation in California, one MNB user wrote:

The plastic bag issue in California is nothing but politics....Again, this state shows its ignorance when it comes to capturing costs and jobs. Plastic bags are 100 percent recyclable, which has created another industrial stream of jobs, some in California. The cost of this product is half that of paper bags and alternative cloth bags (which have now been exposed to developing bacterial contamination over time used). Litter is the issue, and instead of supporting the recycling efforts already underway in the state, and successful up to now, the politicians are posturing themselves as green crusaders who are saving us from big oil....which by the way, 85% of all plastic bags in the US are from Natural Gas. This is all bunk...and a perfect example of why California is in the dire economic position they are in. They have no understanding of what makes sense and what doesn't. Instead of creating markets, the are destroying them....along with jobs. I lived in California for 15 years, they did not get it then, and they don't get it now.




Regarding Walmart, always a subject of discussion and debate here on MNB, George Morrow offered:

I have been reading you for over 10 years, even before MNB!!!  I believe it was you and I who coined the phrase "Bentonville Behemoth" and I wanted to comment, if I may.  I started presenting my items to Walmart in 1999 and became a supplier in 2001 of some of their Great Value products.  I was never "beat up" or grinded on pricing because I knew the pricing I had presented was fair and would probably be accepted.  I was questioned a few times on this subject and my answer was always the same-"that is the best that I have".  I was a supplier for 8 years only to lose out last year to their new bid program.  My point is that the difference I see today versus 10 years ago is that Walmart was more willing to experiment with suppliers and item selection than they are today.  They have gotten so big I believe they are losing their flexibility,  Forty years ago A&P and Sears were #1, where are they now?  20 years ago KMart was #1 where are they now?  Walmart, in my 10 years treated me with respect and civility,  and my concern is they are losing the flexibility that made them great. As you stated, it is tough being the biggest  and that does not necessarily guarantee your success.




And finally, from another MNB user:

Regarding Steven Strasburg's major league debut Tuesday night: yes, 14 strikeouts in a 7-inning performance is definitely a spectacular entrance, but we have to bear in mind, it was, after all, against the Pirates.  Before we just hand the NL Cy Young over to young Steven, let's see how he fares against a real baseball team...maybe the Brewers, for example.

Eventually he’ll have to face the Yankees, the Red Sox and Tampa. Let’s see how good he is then.

That said, Strasburg seems like he’s got real stuff...and even more importantly, he seems like he’s a team-first kind of guy who was raised right. I’m actually more in awe of his parents.

Published on: June 10, 2010

In the NHL championship series, the Chicago Blackhawks defeated the Philadelphia Flyers 4-3 in overtime to win the best-of-seven series and bring home the Stanley Cup for the first time since 1961.