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    Published on: May 16, 2011

    by Kevin Coupe

    Nick Carraway was right when he said, in F. Scott Fitzgerald’s The Great Gatsby, “The rich are different from you and me.” And he remains right today.

    (Ernest Hemingway is reputed to have replied to that line by saying, “Yes, they have more money.” He may or may not have actually said it. But if he did, he was right, too.)

    The Wall Street Journal had a story the other day about how affluent consumers have been changed by the recession, even though many of them did not lose their houses, jobs or retirement savings. Or even much sleep, or at least not as much as their less moneyed brethren.

    According to the story, “What's showing up in the latest research is a broad-based caution—a sudden aversion to salespeople, a tepid response to ads focused on brand images, and a new interest in price-shopping. In Harrison Group's first-quarter survey of consumers with a median income of $275,000, 38% said they wait for items to go on sale, versus 31% in 2010. Indeed, obtaining discounts on luxury goods has become a competitive sport among many well-to-do consumers...”

    The story goes on: “In fact, one time-honored tenet of the luxury industry—that discounted prices lower products' prestige—appears to no longer be true, according to several studies. A survey released in April by the American Affluence Research Center, a luxury consultant based in Alpharetta, Ga., found that 60% of respondents said discounts didn't affect their opinion of brands.

    “Items the rich do value at full price are one-of-a-kind clothes and accessories and experiences that create fond memories. Weekend getaways and vacations were the top two things the wealthy intended to spend more money on, Harrison Group says. The new luxuries are things that are in limited supply and have an emotional quality, rather than just a high price tag...”

    The study by Harrison Group found that 41 percent of so-called “affluent consumers” said that they believe the brands they wear say a lot about who they are, compared to 51 percent three years ago, before the recession hit.

    It is an interesting study, suggesting that the rich intend to hang onto their money and, when they spend it, do so with greater discretion. Which means that even retailers that focus on more upscale markets will need to focus with greater alacrity on their differential advantages.

    There was, by the way, another story on the subject of consumer spending that caught my eye...

    The Washington Post reports that new statistical studies show that people are more willing to default on their mortgages than they are to stop paying their credit card bills. In other words, “a significant number of Americans are now willing to lose their house to save the stuff that’s in it.”

    The shift in priorities is fascinating: “Under the new payment hierarchy,” the Post writes, “their homes have become a liability and the consequences of skipping a mortgage payment seem far away, especially as legal wrangling over foreclosure can stretch for months. A credit card, on the other hand, can help them satisfy the immediate demands of paying for food or keeping the lights on. In addition, lax lending standards allowed many to buy a home with little financial investment - now manifesting itself as a lack of emotional attachment as well.”

    Two eye-opening shifts in consumer attitudes taking place in the new, post-recession economy.
    KC's View:

    Published on: May 16, 2011

    CNN reports on Walmart’s efforts to re-establish its “buy American” roots, which was a major theme when the company was started by Sam Walton a half-century ago, and was resurrected recently when CEO Mike Duke said publicly that a majority of the retailer’s products are now made in the USA.

    To a great extent, the story suggests, the shift is more practical than philosophical, and “is more likely a matter of the mix of the products it's selling and how Americans are shopping, industry observers say, than a sign that it's returning to its patriotic roots.

    “Lately, Wal-Mart shoppers are focused on buying basics like groceries, which often come from the U.S. They're not really spending on other goods, like foreign-made electronics and clothes the discounter used to be known for ... It's no longer the destination of choice for cheap T-shirts and televisions. It's now mainly a huge supermarket where shoppers are loading up on fruits, vegetables and household products produced in the U.S.

    “Wal Mart says 54% of its total sales currently come from groceries and household goods such as detergent and paper towels. And most of those goods are American-made, said Wal-Mart spokesman David Tovar.”

    Burt Flickinger, managing director of retail consulting firm Strategic Resource Group, expresses a certain skepticism that Walmart has made any sort of concerted philosophical shift:

    "Low price is paramount to Wal-Mart, especially now that it is under immense pressure to improve profits. Wal-Mart is still aggressively buying low-priced foreign goods," he tells CNN.
    KC's View:
    I try never to disagree with Burt Flickinger, and this case is no exception. It seems unlikely that at this moment in time, Walmart would do anything - including sourcing products domestically rather than abroad - that would raise prices.

    The larger story, which speaks to the shift in Walmart’s product offerings, is that the company may be changing in profound ways, especially in terms of format focus. Whether this will work is anybody’s guess.

    Published on: May 16, 2011

    In a page one story in Sunday’s New York Times, there was a long three thousand word story about the proliferation of so-called “functional foods” in the supermarket, reporting that “in aisle after aisle, wonders beckon. Foods and drinks to help your heart, lower your cholesterol, trim your tummy, coddle your colon. Toss them into your cart and you might feel better. Heck, you might even live longer.

    “Or not. Because this, shoppers, is the question: Are all these products really healthy, or are some of them just hyped? ... Food giants like Dannon, Kellogg and General Mills don’t claim these products actually prevent or cure diseases. Such declarations would run afoul of federal regulations. Nor do they sell them as medical foods, which are intended to be consumed under a doctor’s supervision.

    “Rather, food companies market functional foods with health-promoting or wellness-maintaining properties. Such claims are perfectly legal, provided that they are backed up by some credible science.”

    The whole piece is worth reading, but what it comes down to is this: Food companies stand by their claims. Critics, such as Marion Nestle, professor of nutrition, food studies and public health at New York University, say that their claims are more about marketing than health. Consumers may be confused by some of the claims, but they have turned functional food into a big, $37 billion business in the US alone. And, it seems possible - or even likely, depending on the nation’s political shifts - that the federal government will get more involved in regulating and challenging some of these corporate claims.

    The Times story can be read here.
    KC's View:
    It has long been my contention that companies making even questionable health claims run the risk of killing the golden goose and eroding consumer confidence. It may be smart in the short term, but in the long term it could be an enormous mistake. So they should all be very careful about whatever claims they make.

    Published on: May 16, 2011

    USA Today reports that “a March poll sponsored by the Merchant Payments Coalition, a group representing retailers, found that 70% of likely voters favor a reduction in swipe fees, once the rule was explained to them. But a survey by Javelin Strategy & Research, a bank consulting firm, found that 60% of consumers don't expect prices to fall if swipe fees are reduced.”

    In other words, while consumers don;t have much faith in the banks, they’re not all that wild about retailers, either.

    The story makes clear that if swipe fee reform goes through as planned this summer, consumers are likely to see a barrage of credit card promotions, as banks look to move usage away from suddenly less-profitable debit cards. And it also is possible that consumers will see retailers pushing for debit card usage, through discounts, loyalty promotions and other perks and enhanced services.
    KC's View:
    I’ve always found it hard to believe that market pressures won’t force retailers to lower prices in response to lower swipe fees ... all it takes is one national retailer to begin marketing around such an initiative and it will force everyone else to follow suit. But the survey certainly is right about the fact that consumers will need to be convinced - by credible, transparent and consistent communications efforts.

    Published on: May 16, 2011

    ForeSee Results is out with its annual assessment of customer satisfaction with the top 100 online retailers, noting that not only is total satisfaction at an all-time high, but that “nearly one-third of the rated e-retailers score 80 or higher (which is the threshold to be considered a top performer in the Index) up significantly from 2007 when only four websites were considered top performers. Moreover, not a single e-retailer scores below 70. Just two years ago, 15 percent of the top 100 retailers scored 69 or lower.”

    In a prepared statement accompanying the survey results, Larry Freed, president/CEO of ForeSee Results, said, “Over the last seven years, we’ve really seen an industry mature from a huge range of satisfaction scores to a relatively narrow range.”

    Amazon maintains its top raking with a score of 86, followed by Netflix with an 85. other top performers were Avon.com and QVC.com (each with an 84), Newegg.com (83), BassPro.com, HSN.com, and Shutterfly.com (each with an 82).

    Other well-known national e-commerce names and their rankings include LLBean.com and Cabelas.com (each with an 81), Staples.com. Costco.com, Apple.com, and BestBuy.com (each with an 80), Walmart.com, Walgreens.com, Drugstore.com, and Peapod.com (each with a 79), Target.com and CVS.com (78 each), and Safeway.com (73).

    Two other interesting points made by Freed:

    “It’s important to remember that these scores are for only the Top 100 e-retailers, and a lot of smaller retailers still struggle with prioritizing the online customer experience. Understanding the relationship between customer satisfaction and purchase behavior should be a powerful motivator to measure and improve online customer satisfaction.”

    “Time and again our research shows that customer satisfaction drives loyalty, positive word of mouth, and future purchase intent ... Even as this economy slowly recovers, competition for the consumer dollar has never been tighter, so companies cannot afford to be complacent with their single most important consumer interface: the website.”
    KC's View:
    No surprise here. The best are getting better. And the companies not in the game are risking the possibility that they eventually will be made irrelevant.

    Published on: May 16, 2011

    The Times of London reports on rumors that Tesco, at least partially in response to Walmart’s international moves, has been talking to the Shoprite and Pick n Pay retail chains in South Africa about a possible acquisition.

    However, spokespersons for Shoprite and Pick n Pay deny that any such discussions are taking place.

    According to the story, market analysts say that Pick n Pay is “the most appropriate business partner for Tesco in terms of store formats, private labels, loyalty marketing, trading style, positioning and potential synergy.”
    KC's View:

    Published on: May 16, 2011

    • Walmart Canada opened its first Supercentre in Manitoba last Friday, its 131st in the country. Four more Supercentres are scheduled to open in the province next month.

    The company says that it now has Supercentres in Ontario, Alberta, British Columbia, Saskatchewan and Manitoba, and will open its first Quebec Supercentre this summer.
    KC's View:

    Published on: May 16, 2011

    The Financial Post reports that Amazon.com CEO Jeff Bezos has been quoted as saying that consumers should “stay tuned” for a multi-purpose tablet computer being developed by the company to compete with Apple’s iPad.

    To this point, Amazon’s primary focus has been on the Kindle, which has been an enormous success despite being single-use, reading-dedicated technology. But the story notes that “there are those who would argue that Amazon is the only Internet player positioned well enough to seriously challenge the dominance of Apple in what is still very much an iPad-centric tablet market.”
    KC's View:

    Published on: May 16, 2011

    Bill Simon, president/CEO of Walmart’s US business, put out a confidential memo on Friday detailing personnel changes within the company. “Across the company this year,” he wrote, “we have been focused on adapting to the changing needs of the business while leveraging our leadership talent where it is needed the most. Today we have a number of alignment and leadership movements within our organization to share with you ... Our ability to make these types of alignment and leadership changes ensures we are positioned to serve our customers and deliver on business strategies now and in the future.”

    On the merchandising side of the business, Simon wrote:

    • “Debra Layton has been promoted to Senior Vice President - Store Formats, Layouts, and Space Productivity, a new Merchandising strategic business unit. Debra joined Walmart in 1986 as a part-time hourly associate. During her Walmart career, Debra has held various positions in Walmart U.S. Operations, Merchandising and Store Planning, as well as in International roles that included sourcing, technical services and most recently as the Chief Merchandising Officer for Walmart Chile. Debra will report to Duncan Mac Naughton, Chief Merchandising Officer.”

    • “Jay Mitchael, Vice President of Store Layout and Space Productivity and the Store Layout team will move to the Store Formats, Layouts and Space Productivity strategic business unit, reporting to Debra. The proto and non-proto architectural, mechanical and systems/engineering functions will remain in Real Estate under the direction of Rob Bray, Vice President – Real Estate, Design and Construction.”

    • “David Redfield has been promoted to Vice President – Store Formats, and will continue to manage Neighborhood Markets. David will assume the added responsibility for other small formats, including the Walmart Express. He will report to Debra.”

    • “To allow for an even greater focus on the Walmart Express format,Anthony Hucker, Vice President – Strategy and Business Development and the Walmart Express team will move to the new Store Formats, Layouts and Space Productivity strategic business unit.  Anthony will report to David.”

    Simon wrote that “the merchandising and operations of the Walmart Express project will move to Merchandising while the design and construction elements of this and all other formats will remain in Real Estate. Carl Muller, Vice President – Real Estate and Strategy, will assume responsibility for mergers and acquisitions, research, strategy and field support functions, as well as management of the Real Estate Committee process. Consumer Services and New Business Development will report to Rick Kinnard, Vice President – Realty, Disposition and Appraisal.”

    Simon also announced some divisional geographic alignment changes affecting the company’s western operations.

    And, Simon wrote, Jose Antonio Fernandez has been promoted to become the Chief Operating Officer at Walmart Chile. He previously served as vice president in the division.
    KC's View:
    Pieces around the board, indeed.

    Published on: May 16, 2011

    The Wall Street Journal reports that the bankrupt Borders bookstore chain could begin selling itself in parts, that it is in negotiation with an unnamed bidder interested in acquiring roughly half of its 400 remaining units. The company already has closed about 200 stores as it reorganizes.

    The story notes that Borders wants to “emerge from bankruptcy protection by summer's end. But the company needs publishers to relax terms under which they ship books to the retailer. So far, publishers have been demanding cash-on-delivery for books shipped to the chain, squeezing Borders. The firm owes the six largest publishers $182 million, according to court papers.”

    There is one report that Barnes & Noble wanted to buy 10 stores, Borders’ website and its customer lists ... but that Borders “wasn't keen on the offer.”
    KC's View:

    Published on: May 16, 2011

    • Kroger announced that a tentative agreement for a new contract has been reached by its Central Division with United Food and Commercial Workers (UFCW) Local 700. The tentative agreement covers approximately 2,400 associates working in Kroger, Scott’s and Owens stores in Northeast Indiana. The union plans to vote on the new contract on May 19.

    • The San Antonio Business Journal reports that over the weekend, HE Butt convened “a Childhood Obesity Summit in Austin as part of a statewide effort to reverse the rising rate of obesity in Texas ... The summit is being held in conjunction with the H-E-B Excellence in Education Awards program. Each year, H-E-B recognizes the achievements of outstanding educators, schools and districts across Texas with cash incentives ranging from $5,000 to $100,000. Individuals and schools were nominated from regions where H-E-B operates stores.”

    • Wakefern Food Corp. announced Friday that “on behalf of its ShopRite and PriceRite stores, it will donate 1,000 personal hygiene kits to those affected by the recent tornados in Alabama. With a value of nearly $20,000, these kits will provide personal care essentials such as shampoo, soap, toothpaste and toothbrushes to displaced Americans suffering in the nation’s South. Wakefern associate volunteers gathered Monday evening to assemble the 1,000 kits which will be loaded onto a ShopRite trailer headed to the West Alabama Food Bank for distribution to those affected by the disaster.”

    • The Wall Street Journal reports that General Mills expects its costs to be up 4-5 percent this year, and as much again next year, and that the company is not only raising prices for its products, but is not meeting significant customer resistance, which it sees as “ a sign that the operating environment is improving.”

    Bloomberg reports that “it seems likely” that ConAgra will increase its bid to acquire Ralcorp Holdings from the current $4.9 billion, which itself was a billion dollars more than its original bid.

    According to the story, “While Ralcorp has spurned both of ConAgra’s offers and adopted a ‘poison pill’ strategy to prevent hostile takeovers, ConAgra Chief Executive Officer Gary Rodkin signaled that he intends to take his proposal directly to shareholders. Buying St. Louis-based Ralcorp would hand Rodkin, who has rewarded owners with a gain of less than 4 percent since becoming CEO in 2005, control of a company that almost tripled its profit in the past five years. Ralcorp may be worth $104 a share, 27 percent more than ConAgra’s initial bid, BMO Capital Markets said.”

    • The Wall Street Journal has an interview this morning with Doug Conant, CEO of Campbell Soup, in which he talks about how the company plans to reverse stagnant sales in a post-recession environment.

    “We have to rebalance our marketing mix, and make sure we are spending properly,” he says. “Moving away from discounting, we are emphasizing innovation and advertising. We expect better earnings-per-share performance in the second half. But we still have issues to work through ... We recognize we are competing in this broader simple meal arena. We have to be more aggressive at developing other capabilities. To drive meaningful sales growth implies more incremental innovation in our core categories - simple meals, healthy beverages and baked snacks. It implies leaning into smart acquisitions and partnership activities.”

    Conant is scheduled to be succeeded by current COO Denise Morrison when he steps down this summer.
    KC's View:

    Published on: May 16, 2011

    • Wallace McCain, who with his brother Harrison McCain founded the french fry company that bears the family name and that turned into a multi-billion dollar frozen food empire, passed away over the weekend. He was 81, and had been battling pancreatic cancer for more than a year.

    Bloomberg reports that Laurence J. "Larry" Carr, founder of the Carr’s grocery chain in Alaska, which later merged with another company to become Carr-Gottstein Co., which was eventually sold to Safeway, has died. He was 81.

    • Murray Handwerker has passed away at age 89. If you don’t know the name, you certainly know his products - his father opened a Coney Island hot dog stand called Nathan’s in 1916. And Murray Handwerker helped to grow the hot dog stand into a brand with national appeal, and that he eventually sold in 1987 to investors.
    KC's View:

    Published on: May 16, 2011

    Reaction to Friday’s story about Supervalu’s announcement that Bill Shaner, a 27-year company veteran who has been running its Save-A-Lot division since 2006, is leaving the company, to be replaced by Santiago Roces, most recently a senior vice president and general manager at Walmart.

    Roces also worked for Walmart as senior vice president of new business development and customer experience, president/CEO of Wal-Mart Korea, and chief merchandising officer of Wal-Mart Argentina. Craig Herkert, the Supervalu CEO who engineered the change, also is a former Walmart executive.

    MNB noted that “the move is replete with irony, since presumably Shaner’s Save-A-Lot efforts were sufficient to lead Herkert to say that he wanted to build much of Supervalu’s turnaround process around the division, which combines low prices, limited assortments and mostly private label products. There are some 1,200 Save-A-Lot stores currently, and the company has said it wants to double that number in the next few years.

    “Shaner has not commented on the situation. Supervalu only said that it appreciated Shaner’s work and that he was moving on to other opportunities.”

    One MNB user wrote:

    SAL has had a great run, they have a particular niche and have been exploiting it.  Bill Shaner is one of the reasons.  As a former SAL independent operator, I've had some disagreements with Shaner; but he generally proved to be correct.

    It is a different mind-set at SAL and an outsider is going to have a steep learning curve.

    SV can't decide if it is a retailer or wholesaler.  They were an outstanding wholesaler but a generally below average retailer.  If they have a strike in California SV will be heading for Fleming as a housemate.


    Another MNB user wrote:

    This is just one more example of leadership without conscious, credibility and cultural understanding.  Craig Herkert and Dave Pylipow have turned a company that was once one to be so proud of being affiliated with, to one that you don't even want to acknowledge was in your past.  I spent ten very proud years there and I never would have believed that our board or any of our leaders would allow Herkert to drain the ethics, values,  integrity, pride, and profitability of this organization into the deepest, darkest mud he can find.  I find it astonishing that once respected and intelligent leaders are so afraid of losing their own jobs that they are sitting by and allowing things like this latest move to happen.  Shame on all of them.  Shame on them.

    I’ll repeat what I said here on Friday - from what I can gather, there seems to be no logical, market-driven reason for this change, and it sounds very much like Bill Shaner - with whom I have no personal relationship - got a raw deal. He helped to build a division that Herkert said was the future of the company, and now is being tossed aside in favor of a former Walmart executive ... which is of questionable merit since it isn’t like Walmart’s supermarket business has been such an enormous success.

    In Supervalu’s top management building value? Hard to say that at the moment.

    My sense is that Supervalu took a major morale hit over the weekend with this announcement, with a lot of folks trying to figure out what upper management is doing on the retail side. Real leadership, it seems to me, requires an ability not just to act, but to explain one’s actions and get people within an organization to follow. By that measure, Supervalu has some work to do.




    I think a lot of people will relate to this email:

    I am a buyer. A buyer with a relatively small desk ($21M/yr) . I work in a workplace that is relatively flat, meaning we all do many levels of detail as well as big picture thinking. I am not micromanaged, I have a clear sense of what needs to be done, am self-motivated, and I work for a retailer that is flexible and ready to change to stay at the front edge as needed.

    But here is what is on my mind – I am tired.

    There is no let-up or down time. Meeting with brokers, vendor reps, private label manufacturers, or other buyers, everyone says the same thing – “I am doing the work of 3 to 4 people.”, “There is so much falling through the cracks.”, “I just cannot keep up with it all.”, “Something has got to give.”, and “Did I get back to you on that? I don’t remember.”

    We are all delighted to have jobs, so are not complaining, but OMG!


    I feel your pain.




    On another subject, one MNB user wrote:

    Thought the parallels between Michael’s piece and yours on Citizen Kane were intriguing – Kane loses touch with the people and Acosta attempting to perfect an outmoded business model.  I see far too many companies (many of them retailers) who are so heavily invested in the way things used to be that they are missing what is going on around them.  A case in point is the fact that most retailers feel they know their consumers but if you poll the retailer and the leadership, the line associates and consumers themselves, you typically get three separate perspectives on what the consumer wants and the overall perception of how the retailer delivers on those “wants”.

    For many years I have been concerned about what outside influence would disrupt the supermarket business model and was an early fear-monger that the likes of Webvan and Home Grocer would take over the world – if they could figure out the all important last mile (which clearly most online retailers have not really been able to do).  I still firmly believe that a “Bricks & Clicks” model is the “next” – but not the final – step in the death of the retailer as we know it today.  With Walmart moving to an online/pickup play and Amazon getting into the food space in a big way, I am fearful that in 100 years someone will look back and say:  “2010 – the year the supermarket industry fell”.  Sort of like the Roman Empire, we will not be able to set the date until well after when the world has fundamentally changed.

    Retailers need to figure out how to embrace consumer’s changing needs, wants and shopping habits and develop a scalable and portable way to leverage that.  The heavy investment in the current infrastructure is designed to deliver exactly the results we are getting – a (mostly) average experience for a (mainly) redundant set of products and programs.  The stores were created to provide a way for manufacturers to get product to the consumer more efficiently and effectively and the wholesaler was created to enhance the efficiency of carrying a broad array of items.  If we can put a person on the moon, we can probably figure out how to remove lots of cost from this model and still provide the consumer choice and a more pleasant experience.




    MNB user Steve Panza wrote in about our story detailing how the first two In-N-Out burger joints in Texas are prompting incredibly long lines...

    Being a former Angeleno, I never understood the reverence In-and-Out had until I moved out of state. When I lived there, In-and-Out was okay (I'm more of a Tommy's fan) and would go occasionally. After I moved away, whenever I headed West to anyplace there was an In-and-Out, I would stop in for a visit. I have an In-and-Out future site near me (Arlington TX), so unless I happen to be in Frisco or Allen, I will just wait a few more months for a Double-Double, fries and strawberry shake.

    To add to the DFW burger wars, I have tried Kinkaid's and feel they are a greasier, overpriced version of In-and-Out. Five Guys is pretty much the same, while Smashburger is a frou-frou version. Since the Heart Attack Grill just opened in downtown Dallas this week, I haven't had a chance to clog my arteries there. If you ever get a chance to head to Fort Worth, I do recommend the burgers at Love Shack - they are worth the high price.


    Another MNB user wrote:

    I witnessed over 100 cars in line for the drive-thru and just as many people waiting to get in the door at noon on opening day. Police were directing traffic. Most ironic to me was how yesterday numerous other fast-food chains miraculously had “Customer Appreciation Day” where they gave out free meals. I can’t believe these guys didn’t know what effect the opening would have on their business and be pro-active instead of reactive…too little too late in my opinion.

    And MNB user Bill Welch wrote:

    My mouth is watering for a Double-Double Animal Style, Well Done Fries and a Strawberry Shake.
    KC's View: