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    Published on: July 7, 2010

    by Michael Sansolo

    Time has run out for Nicolas Hayek, and we’re all the poorer for it.

    Now, truth be told, I had never heard of Hayek until I read his obituary last week. But instantly it hit me that this was the kind of person that every business should have. At least, businesses that are facing competition, economic news, struggles with employees, etc...

    The odds are that you, like me, never heard of Hayek, even though we know his legacy. In the 1980s, Hayek was hired by a group of Swiss banks to preside over the shutdown of the Swiss watch industry. Long dominant in the world of watches, the Swiss had fallen into irrelevance thanks to the rise of Japanese time pieces and consumers’ growing preference for digital.

    Hayek failed miserably at his assigned task. Instead of shutting down the industry, Hayek revived it by creating a company and a product known as Swatch. His obituary, as written by the New York Times, explains the change Swatch brought about.

    “Lightweight, with vibrantly colored bands and breezy novelty faces, (Swatch) was remarkably inexpensive to produce. (It had 51 parts, as opposed to the nearly 100 needed to make a traditional wristwatch.) It retailed for less than $35 when it was first marketed in the United States later that year. The Swatch quickly became a sought-after collector’s item worldwide. It was very likely the first time that ordinary people had even considered owning multiple watches.”

    In short order, Swatch led a resurrection of the entire Swiss watch industry, leading to a resurgence of even high-end brands. The company Hayek formed became a huge part of that high-end market, producing watches today under names including Tiffany, Omega, Tissot, Calvin Klein and Longines.

    Now, this story doesn’t have an entirely happy ending. Today, the watch industry is threatened by a generation of consumers that eschews wristwatches, using their ubiquitous cell phones to tell time. But we shouldn’t skip by Hayek’s passing too quickly at all. After all, this is possibly the best story ever of taking lemons and creating highly profitable lemonade.

    Hayek’s lesson reminds us that creativity, marketing, a sharp eye on cost-cutting and savvy management can sometime move mountains. Break down what he did. He took a fresh look at a dying industry and remade it by cutting costs, embracing simplicity and finding a vastly underserved market even though his product was extremely old.

    Remember, Hayek wasn’t in the watch industry. He was a consultant - an outsider - brought in to provide ideas (albeit on the closing of an industry.) However, his fresh eyes saw dawn where everyone else saw dusk. It happens and can happen again.

    More importantly, he knew how to recognize and harness talent. As The Economist wrote: “Mr. Hayek achieved greatness not for his particular talent as an innovator or as a marketer, but for the fact that he excelled at harnessing the ideas and talent of others.”

    In other words, creativity still works, fresh ideas can still succeed and occasionally, old products can be brought back to life with a new approach. And what’s more, leadership and recognizing the talents of a team can lead to revolutions. Certainly there’s no guarantee of success, but failure isn’t a certainty either.

    Nicolas Hayek showed us what is possible.

    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 .
    KC's View:

    Published on: July 7, 2010

    Crain’s Chicago Business reports that Supervalu-owned Jewel is embracing SKU rationalization - the fancy name given to what used to be called “editing your grocery selection” - as a way of competing more effectively with Walmart and increasing profits.

    According to the story, Jewel “ is testing a new store format in Bolingbrook that cuts out 15% to 25% of products. Jewel says it plans to take the Bolingbrook design to more stores under a mandate from parent company Supervalu Inc. to reduce clutter, cut costs and make room for more of its own brands.” However, CCB also notes that Jewel “risks alienating shoppers by removing their favorite brands,” especially because selection traditionally has been one of its differential advantages.

    Both Walmart and Walgreen have recently embraced inventory reduction strategies, Crain’s reports, but had to bring back a number of items because of a consumer backlash. Jewel, which has long prided itself on offering a wide selection, risks alienating shoppers by removing favorite brands.

    Not surprisingly, Crain’s reports mixed reaction to the changes in the Bolingbrook store - people who still find their favorite items are positive about it, and those who cannot are annoyed.
    KC's View:
    Go figure. People not affected by changes have no problem with them, and those who are tend to be irritated. I, for one, am shocked.

    In so many ways, this whole “SKU rationalization” trend seems like a flavor-of-the-month response to competition. It just strikes me as the kind of initiative that was cooked up by some consultant - probably the same guy who sold the industry on the notion that Efficient Consumer Response (ECR) and Meal Solutions represented answers to all their problems.

    As in all answers, they only work if you do them right. And if they reflect some a strategic vision, not just a tactical reaction.

    It doesn’t require an advanced degree to know that in order to be successful at retailing, you need to have the right products for your target customers. Getting the right balance - that’s what requires the advanced degree (or at least experience and a strong retail instinct that probably are even more valuable in the long run).

    Retailers that expand their private label range because such products carry with them better margins run the risk of alienating their customers because they are making the decision for the wrong reason. Seems to me that in making such a shift, one better establish the fact that private brands are a reflection of whatever brand equity the retailer has established in the consumer’s mind. If a retailer has largely served as a place where national brands are sold, then suddenly creating a private brand strategy and expecting it to change the economics of the business may simply be asking too much.

    Companies as diverse as Wegmans, Dorothy Lane Markets, Byerly’s/Lunds, Trader Joe’s, Whole Foods, Aldi, Stew Leonard’s - they’ve been successful at private label because these brands are integral to and a reflection of their broader marketing and merchandising strategies. They are not just a tactical response to competition and a profit crunch.

    In the case of Supervalu and Jewel, one has to ask whether top management has the time and the commitment to make this strategic shift work...or whether it simply reflects a feeling at the top that the Save-A-Lot discount/limited assortment model is the answer to all their problems.

    Ultimately, these kinds of tactical moves can misfire, I think, because in the final analysis many retailers do not really know their customers and have not established the kind of credibility necessary to lead them in new directions.

    Those are the issues I would be addressing before I started eliminating products and brands, looking for a quick fix.

    Here’s a pretty good bet. Within two years, “SKU rationalization” will be a phrase that will have cobwebs hanging from it, and there still will be retailers out there looking for magic answers that will solve all their problems. Somebody will be selling them magic answers, of course, and there will be another flavor-of-the-month. But the magic more likely will be sleight of hand...

    Published on: July 7, 2010

    The New York Times reports this morning that experts are mystified about why Walmart has spent more than a million dollars in legal fees to fight the imposition of a $7,000 fine by the federal Occupational Safety and Health Administration (OSHA) that was related to the trampling death of a part-time employee on the day after Thanksgiving in 2008.

    Here’s how the Times frames the story:

    Before OSHA assessed the fine, “Wal-Mart, seeking to avoid criminal charges, reached a settlement with the Nassau County, N.Y., district attorney that called for the company to adopt new crowd management techniques in all 92 of its stores in New York State. At the time, Wal-Mart also agreed to create a $400,000 fund for customers injured in the stampede and to donate $1.5 million to various community programs in Nassau County.

    “More recently, the company announced improved crowd-control policies for all its United States stores to try to prevent such an accident from happening again.

    “But in fighting the federal fine, Wal-Mart is arguing that the government is improperly trying to define ‘crowd trampling’ as an occupational hazard that retailers must take action to prevent.

    “Wal-Mart’s all-out battle against the relatively minor penalty has mystified and even angered some federal officials. In contesting the penalty, Wal-Mart has filed 20 motions and responses totaling nearly 400 pages and has spent at least $2 million on legal fees, according to OSHA’s calculations.”

    The problem, according to federal officials, is that every time Walmart files a motion or puts up a fight, government lawyers have to do corresponding work, which takes time and costs money. Five full-time lawyers have spent 17 percent of all available attorney hours in the Labor Department’s New York office, according to the story.

    David Tovar, a Wal-Mart spokesman, tells the Times that there is a larger principle involved: “OSHA wants to hold Wal-Mart accountable for a standard that was neither proposed nor issued at the time of the incident. The citation has far-reaching implications for the retail industry that could subject retailers to unfairly harsh penalties and restrictions on future sales promotions.”

    The Times writes: “Wal-Mart officials worry that if the OSHA Review Commission upholds the $7,000 penalty and concludes that surging crowds are an occupational hazard, then OSHA will then be free to look over Wal-Mart’s shoulder whenever it has a big sale to make sure that it has taken adequate steps to control crowds. The company is also concerned that it could face far larger fines if OSHA ever concluded that it again violated its crowd-control responsibilities. Under OSHA rules, $7,000 is the maximum fine for a serious violation, but it can impose a $70,000 fine for a willful violation.”
    KC's View:

    Published on: July 7, 2010

    The Kansas City Business Journal reports that in that market, Hy-Vee has decided to forego its traditional method of advertising in the Kansas City Star and instead use the US Postal Service, working with other companies to develop so called “marriage mail” programs.

    According to the story, “In a marriage-mail program, advertisers mail ads together and share the cost of postage. Mail-Sort packages the ads as one item, and an arrangement with the Postal Service sees that the pieces arrive in mailboxes each Tuesday.

    “Hy-Vee had been advertising with The Star for nearly 20 years. The new mailing program is not a cost-saving measure but a way to make sure the ads get to customers, said Rob Eslick, assistant vice president of operations for Hy-Vee.”
    KC's View:
    Talk about going from the frying pan into the fire. Newspapers would seem to be in a race with the US Postal Service to see which will be obsolete first.

    In the end, neither will be the best way to talk to shoppers. They may work now, but they become less relevant with every passing day.

    Published on: July 7, 2010

    • The Washington Business Journal reports that Bobby Flay, known for writing cookbooks, hosting programs on the Food Network as well as operating three Mesa Grill restaurants and several other concepts, is looking to expand his Bobby’s Burger Palace format.

    The celebrity chef reportedly is looking for locations in Washington, DC, where he can bring his concept of 10 signature burgers that can be “crunchified” - which means that potato chips are added between the burger and the bun.

    • The Wall Street Journal has an interview with Mario Batali, who plans on opening his first grocery store, a 50,000 square foot operation called Eataly, in New York later this year.

    “It's a tough margin,” he tells the Journal. “You buy things and then sit around waiting for them to go bad. But I think New York needs a gastronomic destination like Harrods in London or Fauchon in Paris. [Eataly will be an American version of a gourmet food store in Turin, Italy.]

    Batali adds, “We're trying to preserve the great ingredients in Italy that would be otherwise diminished. We're flying in canned, preserved products, like San Marzano [canned] tomatoes. We'll have 10 kinds of stone-ground polenta, for example. The fish, meat and produce will be from America. We'll have six restaurants in there.

    “It's a smaller margin than we're used to, but we're predicting $50 to $100 million in annual sales. Of course, we'll do a lot of work. I hope it will benefit our restaurant businesses - hopefully it will help us source new products.”
    KC's View:
    What I love about these guys is that whether they are talking about hamburgers or stone ground polenta, they are embracing the notion that people want something more than lowest-common-denominator food.

    In my view, there is almost never any excuse for shooting for the lowest common denominator. In the end, it does not benefit anyone ... and in this business, the result is almost always crappy food.

    Published on: July 7, 2010

    HealthDay News reports on a new study out of the University of Chicago saying that, with some exceptions, American kids are seeing fewer TV commercials for candy and beverages while seeing more ads for fast food.

    According to the story, “Between 2003 and 2007, daily exposure to food commercials decreased by 13.7 percent among children ages 2 to 5 and 3.7 percent among children ages 6 to 11, but increased by 3.7 percent for youngsters ages 12 to 17 ... Exposure to ads for sweets decreased 41 percent for children ages 2 to 5, 29.3 percent for those ages 6 to 11 and 12.1 percent for those ages 12 to 17. Exposure to ads for beverages decreased 27 percent to 30 percent across all age groups, including a sharp drop in ads for previously heavily advertised sugar-sweetened beverages.”

    At the same time, “exposure to fast food ads increased 4.7 percent for children ages 2 to 5, 12.2 percent for those ages 6 to 11, and 20.4 percent for those ages 12 to 17, according to a news release from the publisher.”

    However, the study also found that “in 2007, black children saw 1.4 to 1.6 times more food ads per day than white children, and their rate of exposure to fast food ads was more than double that of their white peers.”
    KC's View:

    Published on: July 7, 2010

    Convenience Store News reports that 7-Eleven plans to celebrate its 83rd birthday on July 11 by giving away “roughly 5 million 7.11-ounce Slurpee frozen carbonated drinks to customers at its more than 8,200 convenience stores in America and Canada.

    “The drinks, served in special birthday cups while supplies last, will be accompanied by ‘Slurpee-brations’ and 7-Eleven birthday parties to be held around the country with music, entertainment, prizes and food sampling, according to the company.”

    Celebrating 7-Eleven Day on 7-11 has become an annual event for the c-store retailer.
    KC's View:

    Published on: July 7, 2010

    The Los Angeles Times reports this morning that the US Department of Agriculture is preparing to establish new standards to make it more likely that products labeled as “100 percent extra virgin olive oil” is, in fact, 100 percent extra virgin olive oil.

    According to the story, the new rules are “propelled by complaints about slippery food purveyors selling low-end product as high-end goods, or olive oils being doctored with cheaper canola, safflower or peanut oils.”

    The Times writes: “Demand for the greenish-gold oil is surging in American kitchens. Consumers here sopped up 79 million gallons in 2008 — up from 47 million gallons a decade earlier. And according to a trade group, consumers annually spend about $720 million on the stuff at supermarkets.

    “But a lack of strict standards means the U.S. is awash in low-quality, adulterated and even dangerous oils that have made some consumers ill, according to experts. The new rules are voluntary — not mandatory — so the prospect of more slick shenanigans continues.”
    KC's View:
    This is one of those times when MNB’s editorial coverage actually converges with sponsorship interests. California Olive Ranch, which produces a wonderful olive oil that is both pure and completely transparent about its production process, is a longtime and valued sponsor of MNB, but here’s what I would say even if it were not:

    From my POV, standards ought to be mandatory, not voluntary. One hundred percent extra virgin olive oil ought to be precisely that...and companies that attempt to pass lesser oils off as something they are not should be penalized.

    This is one of those cases where transparency is so important. Consumers will know that they can trust companies that are completely up front about what they make and how they make it. And they should avoid companies that are less so.

    Published on: July 7, 2010

    USA Today reports that as expected, the US Postal Service (USPS) has requested a two cent increase in first class postage, to 46 cents. According to the story, the deficit-plagued USPS has “proposed mitigating the problem with an average 5.6% increase on a range of services that include first-class mail, advertising mail, periodicals and packages. The increase, about 13 cents a month for the average household, would go into effect Jan. 2.”

    The Postal Regulatory Commission has three months to approve or veto the proposed rate increase.
    KC's View:
    I was actually in the post office yesterday and tried to buy “forever stamps,” which can be used for first class postage even if rates go up. Needless to say, they didn’t have any.

    I asked the clerk about the proposed increase, but he didn’t know anything about it. however, he conceded that the post office has been facing tough times, saying that the reason is “that internet thing.”

    No kidding.

    Published on: July 7, 2010

    • Amazon continues to move slowly into the grocery space, with various reports saying that it has launched internet grocery shopping services in both Britain and Germany, replicating to some degree the services it offers nationally in the US.
    KC's View:

    Published on: July 7, 2010

    • Bodega Latina Corporation, doing business as El Super, announced that it has entered into a definitive asset purchase agreement with Fiesta Mexicana Market, LP and Fiesta Warehouse, LLC, to purchase Fiesta’s’ eleven stores in California, ten of which are currently open. The transaction is expected to close in early August and also includes the lease assignment of Fiesta Foods’ Distribution Center.

    El Super currently is a twenty-two store supermarket chain which specializes in serving ethnic communities in California, Nevada and Arizona.

    • Procter & Gamble said that it has completed its acquisition of the Ambi Pur Brand from Sara Lee Corporation, at a cost of about $403 million (US). Ambi Pur is described as “a leading global air care brand with presence in 80 countries, and also has several toilet care products, with strong presence in Western Europe and Asia.”

    • Alfred A. Plamann, president/CEO of Unified Grocers, has been selected as vice chair of the Federal Reserve Bank of San Francisco's Economic Advisory Council (EAC). Plamann became a member of the EAC in January 2009. The Council said that its members “provide information on current and pending developments in the regional and national economies” to the Federal Reserve Bank of San Francisco, which “provides wholesale banking services to financial institutions throughout nine western U.S. states.”

    AFP reports that “India kicked off a public debate Tuesday on opening up the country's giant retail sector to foreign investors, a move which has been strongly opposed by the nation's millions of small family-run stores. The Congress-led government sought public comment on permitting foreign direct investment (FDI) in multi-brand retail, a reform seen as one of the key measures for India to open up its economy.”

    Among the global companies that would benefit from a change in policy would be Walmart, Carrefour and Tesco.

    • NuVal, the nutritional scoring system that has been adopted by a number of major supermarket chains including Hy-Vee, announced yesterday that Griffin Hospital in Derby, Connecticut, is adopting the program and applying it to all of the institution’s vending machines, ranking everything from soft drinks to bottled water to sandwiches and ice cream.

    NuVal scores are determined by using a proprietary algorithm that calculates the existence of more than 30 nutrients in each food. The more “positive” attributes a food contains (vitamins, protein, fiber) as opposed to “negative” attributes (sugar, sodium, fat), the higher the NuVal score. Products are given a score from 1-100, with the highest scores being the healthiest to consume.
    KC's View:

    Published on: July 7, 2010

    • DunnhumbyUSA announced that it has promoted COO Stuart Aitken to CEO, succeeding Simon Hay, who has returned to Dunnhumby’s London offices.
    KC's View:

    Published on: July 7, 2010

    On the subject of Walmart’s growth plans, MNB user Bob Vereen wrote:

    Two weeks ago, I was in a Walmart supercenter in York, Nebraska, a town of 7,000.   Busy as blazes, and why not?   It brought low prices on food and all other products to a community and county and saved consumers from driving miles to a bigger city to enjoy the same selection and pricing.

    Seeing Walmart in suburbia, one sometimes forgets that Sam Walton built the business by bringing assortment and value to small town America.


    Which suggests that urban America is the last big battle that Walmart has to fight. Only time will tell if it is a bridge too far.




    Regarding possible increases in US mail rates, and my suggestion that the US Postal Service (USPS) is an obsolete business model, one MNB user wrote:

    The demise of the mail system can also be seen as the triumph of private enterprise innovation over bureaucratic sloth. It is basically getting squeezed by digital technology on one side...think e-mail and electronic checking and package delivery systems that take on time delivery seriously. They really couldn’t do much about the digital revolution. It took away their traditional high margin First Class mail business . I imagine that the sending of post cards by the younger generation is almost non existent. They can send actual vacation movies by their iPhone or post them on Facebook. And if you want to make sure that the birthday gift gets there by the birthday, Fedex would be the delivery service of choice. I agree that jacking up the price of a stamp will no doubt accelerate the demise... may help sell Kindles and iPads for magazines . And the USPS will join the telegram and fax as communications relics of the past.

    I certainly “get” the postcard reference. When I was in Australia, all I did was send pictures home via email, and post photos on Facebook (and even here on MNB).




    On another subject, one MNB user wrote:

    Discussing the "dirty tricks campaign" against Wal-Mart which has gotten a lawsuit against SuperValu initiated, you noted maybe Wal-Mart could launch a marketing campaign around the theme "what are they afraid of?"  This is a lot more than merely a rhetorical question, I think.  Back in the 1990s, I worked in a supermarket real estate department, and one of the observations made about Wal-Mart's way of competing for choice real estate locations was the notion that they "asked for no exclusives and granted none."  Which meant, for example, if they were a potential tenant in a proposed shopping center, they wouldn't ask the landlord for the exclusive right to offer a certain class of products within the center (general merchandise, for example), even if such an exclusive right would seem to accrue in their favor, nor on the other hand would they agree as a covenant of the center to allowing any other retailer in the center to secure an exclusive for themselves (on grocery products, for example).  Basically, unabashed, unbridled, bare knuckles competition.  Bring on all comers; we'll take you on in a fair fight.

    Not a seemingly unreasonable competitive position to take, I thought (speaking there from the consumers' point of view), although if it meant, as a contrary viewpoint, that SuperValu’s Shaw's division decided to opt out of a potential center because it couldn't secure the grocery exclusive in the center, all consumers would be without the option of that new Shaw's, simply because they decided competing unprotected against Wal-Mart in the same center wasn't a task they were up to.  We could label Shaw's as being "scared away" by Wal-Mart in such a case, but so what?  Is there no value to consumers in having Shaw's as a grocery option, even if it meant Wal-Mart might have to compete against them for the grocery business in the center, with "one tiny arm tied behind their back"?

    At the root of this debate, I believe, is the win-one/lose-one dynamic that permeates so many issues involving economics.  We can support higher rank & file wage levels as employees, but we won't like the resulting higher product prices as consumers; we can like fair-trade protectionism as employees because our employers become more stable & sustainable, but we won't like the higher prices on imported (and domestic) goods that result as consumers; we can like a higher value of the dollar, as consumers, because of the reduced import prices we enjoy, but we won't like it as employees, whose companies' export business suffers competitive disadvantage, thereby making our jobs less secure. Win one, lose one.  Economics.  Pick a side.  I think that's why it's called the dismal science.

    Maybe the one overarching thing I have learned about business economics over the years is that we are all consumers, and we are all employees (those of us that have jobs anyway), and our personal vested interests under these two "hats" are usually in conflict with each other.  Absolute wins or losses on policy issues frequently are only visible when wearing one or the other hat; when one attempts to wear both hats at the same time, absolute wins or losses usually negate each other & disappear.  This ever-present tension between my personal economic interests as a consumer and my personal economic interests as an employee, thus, have often led me to a balanced, centrist position that essentially seeks to optimize my gains -- some realized in my role as consumer, some realized in my role as employee -- as opposed to stridently advocating one polar-extreme position over another.





    Regarding yesterday’s story about Publix taking over the number one position in the Atlanta market - in which MNB quoted the Atlanta Journal-Constitution, which used numbers from the Shelby Report, we got an email from Dan Mayer, client director at The Nielsen Company:

    As I respect you as a journalist, I thought you might want to know more about an article's excerpts than what is on the surface.  The Shelby Report, noted as reference in your notes below, once purchased market share information from Nielsen's TDLinx service; they no longer do so.  The data they now use represents forecasted shares based on "sales potential".  This is not the same as the market share estimates once provided to them by Nielsen.

    Fair point. Forecasted sales are not the same thing as actual sales.

    Thanks for sharing.
    KC's View: