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    Published on: September 20, 2010

    Every now and again there are news stories that just seem startling, even in tough times like this. So it was with the news last week that some 44 million Americans are now living below the poverty line. That’s one in seven Americans.

    For a single person, the poverty line falls at an annual pretax income of $10,830; for a family of four, at $22,050. In 2009, 14.3 percent of Americans were living below that line, while 50 percent of the country is living in households with income below $49,777.

    It strikes me as important to run those numbers because for people at the lowest levels the usual discussions we have about buying new computers, enhanced meals, gourmet cupcakes or any other non-essential use of money is probably far from commonplace. At that level of income, getting by is all that matters. For the 50 percent living on less than $50,000 the discussions are different, but the emphasis on value will be just as high.

    For food industry the numbers are stunningly important. Because all of these people need food on a daily basis, and with the percentage of the population living in poverty rising to its highest level since 1959, five years before “the War on Poverty” was declared by President Lyndon Johnson, this promises ongoing change for the food industry. It means likely growth among extreme value formats like Aldi or Dollar stores, which means additional pressure on conventional supermarkets. It means continued emphasis on reduced cost products, including value-priced private label.

    Most of all if reminds us that we have lots of different shoppers with lots of different needs. And those who serve them best will likely win, in good times and bad.

    And that’s my Monday Eye-Opener.

    - Michael Sansolo
    KC's View:

    Published on: September 20, 2010

    The Dallas Morning News reports that Aldi is “lowering the price for a gallon of its Friendly Farms private-label milk to 99 cents,” a move that seems designed to put pressure on the large chains that have stores in the region, and that is far below the nation average cost of a gallon of milk - $3.31.

    According to the story, Aldi has promised that the promotion will stay in place at least until October 6, and has increased its milk order from suppliers by 85 percent to handle the expected increased traffic.

    The story notes that Aldi often uses items like milk and steep price cuts to establish its credentials in markets where it has major expansion plans. In North Texas, the German-owned retailer has 29 stores, with at least a dozen more planned...and it also has designs on the Houston and San Antonio markets.

    The price cut also reflects another market reality. The writes: “For Dallas-based Dean Foods, the nation's largest dairy processor, Aldi's strategy doesn't have a direct impact since Dean doesn't supply Aldi, a Dean spokeswoman said.

    “However, Dean has complained recently about the impact of lower-priced private-label milk, in general, on sales of its more profitable branded products. Aldi's move shows the increasing importance of bargain-priced milk as retailers try to woo recession-weary consumers.”
    KC's View:
    ’m more interested by this last part of the story - the notion that private label milk may be having a significant and lasting impact on the sale of national brand varieties.

    Published on: September 20, 2010

    Bloomberg reports that the United Food and Commercial Workers (UFCW) and the National Farmers Union have joined forces to try to convince the Obama administration that Walmart is large and pervasive enough that its efforts to cut supply chain costs amounts to an antitrust violation that is unfairly holding down prices in the agriculture industry.

    According to the story, “Wal-Mart’s critics said they anticipate, after years of government reluctance to regulate farming, that President Obama will inject more competition into the food-producing business ... Wal-Mart’s detractors argue that the retailer’s power is so great that it can underpay for goods, threatening suppliers.”

    Walmart tells Bloomberg that its goal is to work with farmers to keep prices low for consumers, not undercut them.
    KC's View:
    First of all, Walmart is just one company, and while it is a behemoth, the government hasn’t stopped growth that, best I can tell, has been entirely legal, even is discomfiting to those who have to compete with it. Not sure how the government could step in and force Walmart to rise prices.,..though to be sure, I’m not a lawyer and what I know about antitrust law could be contained in a thimble with plenty of room for lots else.

    But let’s look at this story in context. Walmart is being accused of inappropriately keeping prices low in an economy where one of seven Americans is living below the poverty line. It’ll be hard to generate much sympathy for folks who want Walmart to charge higher prices (though the irony is that probably some of the folks doing the complaining may be below the poverty line precisely because Walmart pays less for their products). Is Walmart using its size and power to drive down prices? Sure. And most of its shoppers probably are thankful for the effort.

    It’s also hard to accuse Walmart of having too much power when it also is being reported in Dallas that the much smaller Aldi is undercutting it on milk prices.

    You have to keep accusations like these in context. Life is rarely as simple as the union workers, farmers and ranchers seem to be suggesting.

    Published on: September 20, 2010

    The Financial Times has an interview with Colin Smith, a former Tesco executive who worked on the company’s US research project that led to the opening of Fresh & Easy Neighborhood Markets in Southern California, Arizona and Nevada, in which he says that Tesco CEO Sir Terry Leahy originally wanted “to have 10,000 small convenience stores on every junction, in every major city in the USA.”

    However, the company scaled back those ambitions considerably, in part because of the recession: “Tesco’s only pledge on the roll-out of Fresh & Easy stores was to have 200 outlets by the end of 2009. To date it has opened 168, and this month it expanded into northern California, a new market for the retailer.” And critics say that Tesco’s plans have been inhibited more by a misconceived format than by a tough economy, and that it may never be able to live up to expectations.

    The other interesting note in the story is Philip Clarke, who will take over the CEO job from Leahy next year, has not committed to remaining in the US...though Leahy continues to say he believes that Fresh & Easy will be successful. Clarke says he will visit the stores next year after he takes over the company and will make up his own mind.
    KC's View:
    The oddsmakers probably would say that the change in CEOs gives Tesco the ability to pull out of the US without Leahy having to preside over the dismantling of his dream. And while that probably a pretty good bet, I’m still not convinced that this is going to happen. It probably is equally possible that the company will double down...but perhaps change its US management and bring in someone (like an American) with a better feel for how the US shopper acts.

    Published on: September 20, 2010

    The Wall Street Journal reports that is testing a new approach that it hopes will expand its big city penetration - allowing people to buy products online and then pick them up free-of-charge at urban FedEx locations.

    According to the story, “The tests, which started this summer in Los Angeles and Boston, allow customers to direct purchases made on to FedEx Office outlets at no cost, mimicking a Wal-Mart offering called Site to Store that lets online buyers send items to the retailer's stores free. Wal-Mart has no stores in Boston and only two in Los Angeles, but FedEx has many locations in both ... the company is still collecting feedback from the tests, which began in L.A. in June and Boston last month, and had no immediate plans to broaden the program.”
    KC's View:
    This is very, very smart. It also illuminates an approach that could be taken by other retailers looking to create effective coalitions. What if Amazon teamed up with 7-Eleven for a similar program, for example?

    Creative solutions like these could have enormous implications for all sorts of companies, making them increasingly relevant in a fragmented marketplace.

    Published on: September 20, 2010

    Aldi has announced that it will open its first store inside a regional mall, in Westfield Chicago Ridge, an 800,000+ square foot regional shopping center outside of Chicago.

    The store is scheduled to open in May 2011. According to the announcement, “Designed for convenience, the 20,000 square foot ALDI will feature an interior entrance, five spacious check-out lanes and plenty of parking. Plus, shoppers will enjoy a special ‘loading zone’ at the mall entry for enhanced convenience when loading groceries into their cars.”
    KC's View:
    This is a typical move in Europe, but not so much in the US. But these days, you have to go to where the customers are ... and that’s what Aldi is doing. If it works, expect Aldi - and lots of its competitors - to start aggressively moving into the empty real estate that can be found in so many of America’s regional malls.

    Published on: September 20, 2010

    • The Financial Times reports, “Commercial real estate brokers say Walmart has begun scouting for sites for smaller- format stores in a range of urban markets, including Sacramento and the San Francisco Bay area in northern California, as well as in Reno, Detroit and other cities ... Bill Simon, chief executive of Walmart’s US business, has said the expansion plans, to be outlined next month, will include convenience stores similar to those it runs in Mexico and elsewhere in Latin America ... Walmart’s small-format ambitions will open a new competitive front in its battle with the traditional supermarkets such as Kroger and Safeway.”

    USA Today this morning reports that Walmart is expected to announce today that it will “almost double the number of locations to have solar, with a next-generation solar technology planned for many of them.”

    According to the story, “In 2005, Wal-Mart set the goal of being 100% reliant
    on renewable energy. It didn't give a time frame and hasn't said how far it's come. But given Wal-Mart's 8,400 locations worldwide, it's barely made a dent in the goal.

    “Nonetheless, the world's biggest retailer is running real-world tests on green-energy technologies. Because of its heft, it could quickly deploy winning technologies and propel them into the mass market while proving to other companies that the economics work, renewable-energy experts say.”

    Bloomberg also reports that the India government may decide within three months whether to allow foreign retailers such as Walmart and Carrefour to open retail stores within its borders, a move that could have enormous implications for retailers hoping to set up shop in Asia’s third largest economy.

    The companies currently have wholesaling joint ventures in India, but have yet to be able to get into the retail business.

    • The Chicago Tribune had a brief piece over the weekend about one of the most popular guys in Chicago, at least among those who would like to rent, sell or build real estate. His name is L.B. Johnson, who is in charge of Walmart’s real estate efforts in the Windy City, where the company has plans to build several dozen stores of varying sizes.

    “Now that the City Council appears open to an unprecedented urban expansion from the retailer, commercial brokers and developers are ‘coming out of the woodwork,’ according to a source,” the Tribune writes.
    KC's View:

    Published on: September 20, 2010

    BrandWeek reports that Coca-Cola, IBM and Microsoft have ranked first, second and third in Interbrand’s annual ranking of the 100 Best Global Brands, which is formulated based on what the company calls ““a unique methodology analyzing the many ways a brand touches and benefits an organization, from attracting top talent to delivering on customer expectation.”

    According to the story, “Among other highlights, BP fell off the list and Hewlett-Packard jumped into the top 10 for the first time ... Toyota, No. 11 on the list, lost 16 percent of its value after its recall PR disaster earlier this year. However, it only fell three places. Goldman Sachs, despite its well-publicized troubles, actually rose from No. 38 to No. 37 ... Google’s brand value jumped 36 percent, making it a solid No. 4, while Intel (7) and HP (10) had a strong showing, as did Apple (17).”

    Other notable inclusions: McDonald’s was ranked number six, Gillette was number 13, pepsi was number 23, ), Budweiser was number 30, and Kleenex was 71 - all in the same positions they had a year ago. Kellogg’s went from 34 to 35, went from 43 to 36, Heinz went from 48 to 46, Colgate from 52 to 51, Nestle from 58 to 57, Danone from 60 to 58, Johnson & Johnson from 80 to 75, and Starbucks from 90 to 97.
    KC's View:
    How does McDonald’s make the list and not Walmart? It makes no sense. Walmart has a name and brand equity that stands for something very specific, and that resonates around the world. Hard to believe it doesn’t make the top 100. Hard to believe it doesn’t make the top five.

    Published on: September 20, 2010

    Bloomberg reports that “the Thomson Reuters/University of Michigan preliminary index of consumer sentiment fell to 66.6 from 68.9 in August ... Flagging optimism with unemployment close to a 26-year high may increase the risk consumers will cut back on their purchases, which account for 70 percent of the economy.”

    However, “The University of Michigan’s gauge of current conditions, which reflects Americans’ perceptions of their financial situation and whether it is a good time to buy big-ticket items such as cars, rose to 78.4 from 78.3 in the prior month” - a marginal increase at best that hardly heralds a robust recovery.
    KC's View:

    Published on: September 20, 2010

    • The Charlotte Business Journal reports that Publix may be about to open its first North Carolina store, near Charlotte, as it continues its expansion efforts in the southeastern US. The story notes that Publix seemed to be considering such a move more than 15 years ago, but changed its mind.

    USA Today has a piece about the benefits of a gluten-free diet, which are being trumpeted even by people (including celebrities like Gwyneth Paltrow and Isaiah Mustufa, the Old Spice Guy, who may not be gluten-intolerant, but say that eliminating it from the diets has given them more energy and helped them control their weight.

    According to the story, “U.S. sales of gluten-free food has more than doubled since 2005 to over $1.5 billion, according to the market research company Packaged Facts. And the growth spurt is expected to continue at least through 2012.”
    KC's View:

    Published on: September 20, 2010

    ....will return.
    KC's View:

    Published on: September 20, 2010

    In week two of National Football League action ...

    Pittsburgh 19
    Tennessee 11

    Philadelphia 35
    Detroit 32

    Miami 14
    Minnesota 10

    Tampa Bay 20
    Carolina 7

    Chicago 27
    Dallas 20

    St. Louis 14
    Oakland 16

    New England 14
    NY Jets 28

    Baltimore 10
    Cincinnati 15

    Arizona 7
    Atlanta 41

    Kansas City 16
    Cleveland 14

    Buffalo 7
    Green Bay 34

    Seattle 14
    Denver 31

    Jacksonville 13
    San Diego 38

    Houston 30
    Washington 27

    NY Giants 14
    Indianapolis 38
    KC's View: