retail news in context, analysis with attitude

Published on: July 8, 2010

Now available on iTunes…

To hear Kevin Coupe’s weekly radio commentary, click on the “MNB Radio” icon on the left hand side of the home page, or just go to:

http://www.morningnewsbeat.com/Radio/Radio_Listen_S.las


Hi, I’m Kevin Coupe, and this is MNB Radio, back from a multi-week hiatus, as always available on iTunes, and sponsored this week by Webstop, experts in the art of retail website design.

While attending the London Summit of the Consumer Goods Forum a couple of weeks ago, one of the things that really intrigued me in the “Innovation Zone” section adjacent to the main auditorium was the L’Oreal booth. Not that I know anything about L’Oreal, nor do I care much about the whole subject of women’s makeup. (I only care when my daughter asks for the credit card so she can go to Sephora or other stores of its ilk. The folks in the L’Oreal booth tried to convince me that makeup for men is the big coming trend, which somehow seems like a story line that people in that business have been peddling for years. I remain unconvinced.)

No, what intrigued me in the L’Oreal booth was a piece of technology. They have this endcap thingamajig that takes the woman’s picture and then allows them to scan any one of their products and show on the picture how it would look in real life. So if the woman wants redder lips or darker eye makeup or blusher cheeks, she can check that out before buying. It actually is pretty cool.

Apparently there are a few retailers that have this contraption, but what isn’t out yet is a similar endcap that allows women to do the same thing with hair coloring products. They get their picture taken, they scan in a product, and see how their hair would look in that shade of whatever. Even guys can use this one...though I wasn’t particularly interested because I figure I’ve earned every one of my gray hairs and don’t need to see what I’d look like without them.

The point here is that while people like me are wowed by these kinds of technologies, it seems pretty clear that people like my daughter will see them with the same kind of awe that I look at a refrigerator or a toaster. Which is to say that they will be completely comfortable with them.

However, this level of acceptance also means that marketers have to start thinking along these lines if they are to appeal to this new generation of shoppers. Because to not offer such technologies as part of the package may mean being viewed as obsolete or irrelevant.

While in London, I saw another example of this kind of technological innovation at the BMW dealership up the street from my hotel, where they had a touch screen computer imbedded in the showroom window so the average passerby could call up various models and check out options, prices and availability. And if you go online, you can see various videos on YouTube where people as young as two and as old as 90 demonstrate a facility with iPad technology.

The bad news, of course, is that the bar keeps getting raised for the “Wow” factor. We all have to work harder to get people’s attention, especially people increasingly hard to dazzle with technological achievement. Doesn’t mean we stop trying, though. Can’t afford to. Because the competition probably won’t.

At least, that’s my story and I’m sticking to it.

For MNB Radio, I’m Kevin Coupe.

Published on: July 8, 2010

The Orlando Sentinel reports that Darden Restaurants, owner of the Red Lobster chain, is getting into the lobster farming business as a way of creating a potentially cheaper supply chain.

The story notes that this is not an easy or quick undertaking, since “lobsters are tough to raise in captivity. They take a long time to grow, eat a lot and are susceptible to a contagious, fatal disease,” but it “could revolutionize the way lobsters get to our dinner plates. Growing lobsters could make them a cheaper commodity, experts say, much like aquaculture did for shrimp and salmon. But it could also create hardship for lobster fishermen around the world.”

The lobsters that Darden will farm are said to be the clawless lobsters that are popular overseas, not the big-clawed lobsters found off the coast of Maine.

Published on: July 8, 2010

Bloomberg reports on a new survey from the International Food Information Council Foundation suggesting that “only one of every eight adult Americans knows how many calories he should consume in a day while almost two-thirds recently changed eating habits, mainly to lose weight.”

Other quotes from the story:

• “Losing weight is the number-one reason why Americans change their diets, with 65 percent of dieters citing it as a factor, the council’s survey showed. Consumers are also becoming more suspicious about sugar, more likely to drink caffeinated beverages and are trying to eat more protein, according to the survey.”

• “The percentage of respondents agreeing that ‘moderate amounts of sugar can be part of an overall healthful diet’ fell to 58 percent from 66 percent last year and 71 percent in 2008, the foundation said. About 72 percent said they consume caffeine in moderation, up from 64 percent in 2008, the first year consumers were asked about the sweetener and the stimulant.”

• “The percentage saying they are trying to consume more protein was 49 percent, while 6 percent said they’d eat less. Twice as many consumers identified the nutrition source as coming from animal sources rather than from plants, 56 percent to 28 percent. This was the first year questions about protein were included.”

The story also notes that the International Food Information Council Foundation’s educational arm includes representatives from General Mills Inc., Kraft Foods Inc. and Mars Inc.

Published on: July 8, 2010

In the UK, the Telegraph reports on a new study showing that people who consumed sugar were better able to perform under pressure than those who did not and those who consumed products made with artificial sweeteners. The study, done by researchers from Australia’s University of New South Wales and Queensland University, suggests that glucose is required for “executive functioning,” and makes it possible for people to control impulsive behavior.

Published on: July 8, 2010

In Minnesota, the Star Tribune reports on what it calls a “super shift” in grocery shopping habits, as the recession has compelled a sizable number of shoppers to buy at least some of their groceries from the likes of Walmart and Target as a way of saving money; they still use stores like Lunds and Byerly’s for fresh foods, but are moving away from Cub Foods for products that they think they can get cheaper at superstores and discounters.

According to the story, “SuperTarget and Wal-Mart have grabbed business nationwide over the past decade by offering one-stop shopping -- everything from pears to pants -- combined with prices that tend to be lower than those at traditional grocery stores ... Share gains by Wal-Mart and SuperTarget have come at the expense primarily of the Twin Cities' largest traditional supermarkets, Cub and Rainbow, analysts say. Still, Cub, a banner owned by Eden Prairie-based Supervalu Inc., commanded a healthy 35 percent of the market last year including franchised stores, according to IRI data.”

Published on: July 8, 2010

The Los Angeles Times reports that California Gov. Arnold Schwarzenegger has signed legislation requiring “that eggs sold in California come from hens that are not crammed into cages. The law requires all eggs sold in the state as of Jan. 1, 2015, to come from hens able to stand up, fully extend their limbs, lie down and fully extend their wings without touching each other or the sides of cages.”

The legislation was supported by the Humane Society of the United States.

Published on: July 8, 2010

• The Wall Street Journal reports that Tesco has sold 41 UK stores in a sale-leaseback deal that will generate the equivalent of around $1.4 billion (US), which it says it will use to “fund new property development projects, both in the U.K. and in international markets.”

Published on: July 8, 2010

Yesterday, MNB took note of press reports that Amazon was getting into the grocery business in both the UK and Germany. Shortly thereafter, we received a press release from the Verdict Research firm that quoted one of its analysts, Joe Robinson, as saying that Amazon was “biting off more than it can chew,” adding:

“Amazon’s foray into the UK food & grocery has been long mooted and thus is unlikely to be an unexpected surprise among the sector’s major players. In addition to short term issues such as lack of website functionality and inflexibility in its delivery options, it faces a monumental challenge to build brand trust and, more importantly, loyalty in a market where such attributes are imperative.

“Nonetheless, its announcement comes at a far from ideal time for pure-play rival Ocado, which is on the verge of a IPO, hoping to raise approximately £200m to fund the next stage of its expansion. Indeed, while Ocado currently has a significant competitive advantage over Amazon, owing largely to its innovative and efficient fulfillment operations, customer loyalty and quality credentials, Amazon, with its huge resources, is likely to seek to erode this competitive gap in the long term.

“The long term potential of Amazon’s food & grocery offer is likely to be in developing a reputation for bulk and niche purchases and offering a platform for smaller food & grocery suppliers rather than cultivating a significant share of the UK food & grocery market.”

Published on: July 8, 2010

The Chicago Tribune reports that McDonald’s is responding to litigation threats from the Center for Science in the Public Interest (CSPI) - which wants the fast feeder to stop including toys in Happy Meals because the toys are designed only “to lure small children.”

According to the story, “Chief Executive Jim Skinner called the Happy Meal a ‘fun treat’ and vowed to ‘vigorously defend our brand, our reputation, our food and our people.’

"His statement was contained in a letter sent to the center, responding to what he called its ‘misinformation’ and a ‘twisted characterization’ of McDonald's as the ‘stranger in the playground handing out candy to children.’ He even asked for an apology.”

Published on: July 8, 2010

• The Detroit News reports that Kroger “is introducing an incentives program to boost its cut of the state's fuel sales.” The retailer “rolled out a program Monday that helps customers save at the pump. Kroger shoppers receive one point for every dollar spent at Kroger fuel stations; 1,000 points would mean $1 off per gallon for each fill-up. Customers can also knock 10 cents off each gallon per fill-up at one of Michigan's more than 150 Shell gas stations.

“The program will help Kroger compete against its two biggest grocery contenders in the state, Meijer Inc. and Wal-Mart Stores Inc. Kroger, which has 30 fuel stations in Michigan, partnered with Shell to increase its presence in the local fuel market.”

• The San Francisco Chronicle reports that “Target is making moves to open its first San Francisco store as part of the company's campaign to occupy urban locations in the Bay Area and across the United States ... Target has considered locations in San Francisco for several years and is widely believed to be discussing with the city the possibility of opening a store in the Metreon mall at Fourth and Mission streets, which despite its busy downtown location has seen numerous vacancies in recent years.
“The company already has scores of stores in the Bay Area, including Daly City, Colma, San Bruno, San Mateo, Albany and Novato. It has acquired sites in Oakland and San Jose for stores that may open as soon as 2011.”

• The Wall Street Journal reports that “the European Court of Justice Tuesday ruled that European Union patent law can't be used to bar imports of products made from biotech ingredients that are patented in the EU but not in the exporting country. The decision could open the door for increased exports to the EU by producers of biotech products in emerging-market countries that have weaker patent protection.”

Published on: July 8, 2010

• Kroger has named Joe Grieshaber to replace John Bays as president of its Dillon Food Stores unit. Bays is retiring.

Published on: July 8, 2010

I was a little cynical yesterday about an SKU rationalization initiative being imposed on Jewel by its parent company, Supervalu.

I wrote, in part:

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 ... 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...

Not that was completely against the intelligent editing of a store’s grocery selection - but I just thought that it needs to be part of a strategic approach to business and customer development, not just a tactical move to cut costs and raise margins through private label sales.

One MNB user offered to put the initiative in context:

I hesitated to respond to this (SV is my customer), but…thought you would enjoy some more “texture”.

The Jewel program is called SHE (Simplify Her Experience).  It was to be ~300 stores total (Jewel and SoCal Albertsons), but has now been reduced to 10 stores each.  SoCal won’t launch until the end of the year (after the Jewels are finished).

Thus far, I think the results have been murky (similar to your observations – reducing a bit too far and causing the consumer to go elsewhere).

The inside definition of the acronym is just that – Send Her Elsewhere.

MNB user Dave Henry wrote:

I agree with many of your points here but think it pre-mature to bury the concept. Problem with many companies is that they do "rationalization" based upon a need to increase private label ( as you mention ), based upon a vertical ranking of sales, or based upon income potential from cpg's ( a pay to play ).  None of them are particularly smart or strategic as you note. True sku rationalization works when the data is examined both vertically and horizontally to understand the true importance of items to a company's overall success. For example, an item may rank third in total sales in the category, yet have strong purchase affinities and be an item that has heavy representation in the basket of that company's best customers. Eliminate that item and run the risk of losing all the sales of the best customers, because they no longer can purchase items that are important to them.

MNB user Steve Panza responded:

From what I've noticed, retailers are focusing on the wrong cuts. They should be cutting multiple sizes, instead of suppliers. Walk into pretty much any category and you will find five different sizes. Cut back the sizes to the three most popular.

MNB user Ken Ferrera wrote:

In many cases "SKU rationalization" is a warehousing initiative. Investing in warehouse expansion is a tough sell and slow mover take up slots/cube, reduce productivity, and tie up dollars. Its aways a challenge for the DC to justify or manage slow movers versus the retail need for variety.

Regarding Walmart’s efforts at SKU rationalization, one MNB user wrote:

Ask the former Walmart CMO how that worked out for him.  I think he was “encouraged” to spend more time with his family after four consecutive quarters of declining same-store sales.

As in most things retail…timing and execution are the big variables.  I think WM had to bring back many “disco’s”, some say it was an attempt to get lower prices; because customers did have brand loyalty and house brands didn’t cut it.

When groceries were a side issue with WM 15 or so years ago, they could sell at lower margins in hopes of selling the higher ticket and higher margin general merchandise.  Even selling all their groceries at 5% margin didn’t affect the bottom line.  Now that grocery sales are over 50% of volume they are having a drag on grosses.  House brands would be attractive.  Good on the computer models but poorly executed where the shoe leather meets the concrete.

Customers can tolerate a few things being disco’d but not if there are half a dozen or more on your shopping list---that are not in the size, flavor or even the brand you want.  Low prices don’t mean much if no one is buying.

Agreed.

About the Walmart exec being encouraged to spend more time with his family ... I always wonder how the families feel about executives spending so much time at home.

MNB user Dave Howald chimed in:

I remember listening to a retired consultant who had worked many years on ECR.  He told me that within consultancy circles ECR was affectionately known as Every Consultants Retirement.  Prior to that there was the DPP flavor of the month known as Direct Product Profit that could track the cost of one item all the way through the system.  It did bring a better understanding to farmers that even though they might only be getting .25¢ for something they grew, a $1.00 retail did not mean the retailer was making .75¢.
 
Keep up the good work and keep challenging us.




Responding to Michael Sansolo’s column yesterday about the death of the founder of Swatch, and what his life teaches us about leadership and innovation, MNB user Will Hsu wrote:

Thank you for the wonderful piece on Nicolas Hayek in today’s Morning News Beat. As a member, by age, of the “generation of consumers that eschews wristwatches, using their ubiquitous cell phones to tell time,” I’d like to proudly state I own six wristwatches and wear them daily. Three I purchased for myself are all Oris brand, Swiss mechanical, automatic movements.  Three were gifts and are quartz or electronic movement (Skagen, Bulova, Seiko).  Were it not for the contributions of Nicolas Hayek in the 1980s, I would be without three of my most prized personal possessions that I wear and use on a daily basis.  There is truly something magical and life affirming about placing an automatic movement watch against your ear and hearing the heartbeat rhythm of all those moving parts.  Ironically, I find the cell phone a more suitable replacement for my alarm clock than for my wristwatch.
 
My fiancée has her shoes and purses, I have my watches.  Keep up the great work!

Published on: July 8, 2010

It will be Spain vs. the Netherlands in the World Cup finals, which will be played in South Africa on Sunday. On Saturday, Germany - which lost yesterday 1-0 to Spain - will play Uruguay for third place.