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    Published on: November 7, 2011

    by Kevin Coupe

    Fascinating story in Bloomberg Business Week that touches on part of what makes Apple so competitive - and it has nothing to do with design or software innovation.

    In fact, it has to creating supply chain barriers that prevent other companies from getting some of the components they need.

    For example, it signed an exclusivity agreement with the manufacturer of customized lasers that poke holes in aluminum, allowing users to see a small light whenever the camera is being used.

    Bloomberg writes: “Most of Apple’s customers have probably never given that green light a second thought, but its creation speaks to a massive competitive advantage for Apple: Operations. This is the world of manufacturing, procurement, and logistics in which the new chief executive officer, Tim Cook, excelled, earning him the trust of Steve Jobs. According to more than a dozen interviews with former employees, executives at suppliers, and management experts familiar with the company’s operations, Apple has built a closed ecosystem where it exerts control over nearly every piece of the supply chain, from design to retail store. Because of its volume—and its occasional ruthlessness—Apple gets big discounts on parts, manufacturing capacity, and air freight.”

    Air freight, in fact, is a terrific example of how Apple thinks.

    In 1997, the story says, “most computer manufacturers transported products by sea, a far cheaper option than air freight. To ensure that the company’s new, translucent blue iMacs would be widely available at Christmas the following year, Jobs paid $50 million to buy up all the available holiday air freight space, says John Martin, a logistics executive who worked with Jobs to arrange the flights. The move handicapped rivals such as Compaq that later wanted to book air transport. Similarly, when iPod sales took off in 2001, Apple realized it could pack so many of the diminutive music players on planes that it became economical to ship them directly from Chinese factories to consumers’ doors.”

    One constant refrain that we sing here on MNB is the need for retailers to define themselves not by the items that also are sold by the competition, but by the products and services that are unique to them, that are not or cannot be offered by the store down the street or across town. While we concede that there is no such thing as an unassailable business advantage, there is such a thing as creating barriers to entry. While the story makes clear that Apple is cutthroat in its approach - some might say unscrupulous - the reality is that this is hardball, and you can’t play with anything less than total commitment.

    And it is ironic that when Apple CEO Tim Cook talks about the need for supply chain efficiency, he uses a grocery metaphor: “Nobody wants to buy sour milk.”
    KC's View:

    Published on: November 7, 2011

    Acosta is out with its annual “The Why? Behind The Buy” survey, concluding that the so-called “new normal” in shopper behavior now is standard behavior: “It’s clear the shift in shoppers’ behavior is permanent. Just as economists describe a ‘new normal’ economy, there’s a “new normal” shopper. We call the new normal shopper: Shopper Inc. Whether he or she realizes it, today’s conservative, educated and prepared Shopper Inc. is approaching shopping much like a business approaches financial decisions. Today’s shopper is researching, planning, weighing options, making decisions, and even looking for ROI.”

    Among the conclusions reached by the survey:

    • “Shoppers have not seen an improvement in their financial situations over the last six months.”

    • “Shoppers are prepared. 72% make lists for their routine shopping trips. Major decisions on what to buy have moved from in-store to at home.”

    • “85% of shoppers say store circulars influence them and almost half clip coupons from the circulars.”

    • “33% of shoppers surveyed go online or use apps to save money.”

    • “To save money, shoppers consolidated trips due to rising gas prices, traded down to store brands, traded out of categories, and 54% bought more items on sale.”

    • “The primary reason 33% of shoppers go online is to save money. They are using online coupons, retailer and brand websites, and email subscriptions.”

    • “The younger shoppers do not pre-plan as much, but they are more likely to use online resources, apps and social media for shopping.”

    The big conclusion: While consumers have retrenched because of ongoing economic concerns, they also have more information on which to act on those concerns, and a greater willingness to take a strategic approach to shopping.
    KC's View:
    Which means, IMHO, that retailers need to take a more strategic approach to selling - catering not just to consumers’ shrinking or stagnant bank accounts, but also to their desire to shop based on values as well as value. Engaging in an ongoing dialog with shoppers - creating a community with them - is part of the investment that the modern and savvy retailers must make in order to be relevant in 2012 and beyond.

    Published on: November 7, 2011

    Reuters reports that Walmart and McDonald’s executives “say new U.S. rules limiting debit card processing fees will not cut their costs as much as they hoped, and could actually boost their expenses ... that debit card processing costs, or interchange fees, were not low enough despite the new limits to have a real impact on retailers.”

    As part of broader financial reform, hidden swipe fees charged by banks on a per-transaction basis have been limited to between 21 and 24 cents, which is about half what the banks used to charge; the original proposal was that they should be cut to a maximum of 12 cents, but the Federal Reserve backed off such strict limitations.

    According to the story, “Banks have said the new rule is a windfall for retailers, moving as much as $8 billion in revenues off lenders' books.”

    Robert Donovan, U.S. assistant treasurer for McDonald's, says that his company “and other U.S. retailers that rely on a high volume of small dollar transactions could see an increase in their debit card processing costs, because prior debit costs for smaller purchases had lower fees.”

    An example: Redbox, which recently raised its rental fees from $1 to $1.20, blaming the increase in part on an increase in small transaction debit card fees.

    However, Richard Peck, 7-Eleven's senior director for corporate finance, tells Reuters that while some fees may go up, there at least will be certainty about what the fees are, which will allow his company to be more precise in its projections.

    And Michael Cook, treasurer for Wal-Mart, “said the discounter viewed the debit fee overhaul as a precursor to overhauling credit card processing fees,” therefore making it “a good start,” Reuters reports.
    KC's View:
    You want to make an omelette, you have to break a few eggs. Debit card fee regulation was a critical first step in forcing the banks to be more transparent about their fee structures. Consumers - and citizens - ought to have an enormous problem with hidden and usurious fees. Banks - like the dinosaurs in Jurassic Park - will “always find a way” to come up with new revenues, but the law ought to be that they can’t hide them.

    Published on: November 7, 2011

    Walmart has opened two small format “pop-up” stores - one 3,000 square feet, the other 1,000 square feet - in a pair of Southern California malls, using the locations to display hot holiday items that can be ordered and either picked up at local Walmart stores, delivered to shoppers’ homes, or picked up later at the mall stores, which are called “Walmart.com.”

    The selection is focused on toys and electronics, and the stores do not feature food or convenience items.

    The local NBC News affiliate in San Diego notes that “it is a typical store front space with big screen TV's on the wall, some computers and tablets on the desks and toys on a shelf. But the idea isn't to sell the TV's and toys in the store but to direct customers to shop online.”

    One of the stores is in West Los Angeles, and the other is in San Diego. Walmart has been clear about the fact that these are just small tests.
    KC's View:
    Actually, I think while these may be tests, they actually reflect a broader strategy, which is to expand the company’s footprint and become ubiquitous enough that it overcomes some of the image problems from which Walmart has recently suffered.

    Think about these tests in a different concept. In essence, the Tesco test of a virtual store using QR codes in the South Korean subway system is a technological pop-up store, and what Walmart is doing is a kind of lower tech version of this. If the broader strategic approach works, Walmart could conceivably decide to test other approaches, some of them as high tech as what Tesco has been playing with - and that could help it compete more effectively with Amazon. And that’s the long-term play.

    Published on: November 7, 2011

    The Great Atlantic & Pacific Tea Co. (A&P) has announced that it “has entered into an agreement to receive $490 million of debt and equity financing from private investors comprised of The Yucaipa Companies LLC, Mount Kellett Capital Management LP and investment funds managed by Goldman Sachs Asset Management, L.P. The agreement is subject to approval of the U.S. Bankruptcy Court for the Southern District of New York.” Ron Burkle, the supermarket magnate who runs Yucaipa, will become the chairman of A&P; the investment will propel the troubled retailer out of bankruptcy.

    "This investment commitment is a very important step in A&P's financial and operational turnaround," says Sam Martin, A&P’s president/CEO. "It positions us for a bright future with solid financial backing from sophisticated investors who know our company and industry well, and who also share our vision for A&P's future."

    A&P has been in bankruptcy protection since December 2010.

    The Bergen Record reports that organized labor appears to be viewing the development favorably.

    “We're enthused that people are showing interest in the company and they want to invest money in the company," said John T. Niccollai, president of United Food and Commercial Workers Local 464A, based in Little Falls.

    And, the Record writes, “Harvey Whille, president of Local 1262, based in Clifton, which represents 2,800 Pathmark employees in New Jersey, said that ‘it's still a little early for us to make a call, to say that there's anything that's absolutely certain in this matter.’ But, Whille said that if Ron Burkle ... ends up in charge of the turnaround, it could be good news for workers, because Burkle has been willing to deal with unions at other supermarkets he has a stake.”

    The story goes on: “Niccollai said Burkle ‘is someone that knows the business, and of course that's an asset.’ Niccollai said Burkle was in New Jersey seven or eight years ago when he took over and operated the Grand Union Co., and sold stores to other operators. ‘That was a success story and obviously we like dealing with success stories,’ Niccollai said. ‘Hopefully it's going to work out to everyone's advantage’.”
    KC's View:
    I’m a little less sanguine about A&P’s prospects, simply because I’m simply not convinced that the brand has not been so damaged that it may not be worth saving. (I’m know there are some double negatives in there, but you get my point.)

    I think Yucaipa is going to sell off stores. That’s the long-term goal.

    Published on: November 7, 2011

    • Tesco-owned Fresh & Easy Neighborhood Markets in the western US has opened its first Fresh & Easy Express store, on the corner of La Cienega Blvd. and 18th Street in Los Angeles - a 3,000 square foot unit that is roughly a third of the size of the standard Fresh & Easy, carrying just 2,700 SKUs.

    The company is reportedly looking to expand the concept to other locations that would be amenable to a more convenient version of the Fresh & Easy format.
    KC's View:

    Published on: November 7, 2011

    Meijer announced that it has launched a chain-wide effort to increase its pharmacy expertise in the diabetes space by training more than 200 pharmacists as diabetes specialists; the goal is “to train and place a diabetes care pharmacist in each one of its stores throughout its five-state footprint. This extensive training will enable a Meijer pharmacist to provide an added element of expertise to those battling diabetes, as well as those looking to avoid the disease,” according to the company.

    "A community pharmacist is an important first line of defense for diabetes and other diseases," says Effie Steele, clinical services manager for Meijer. "So it was imperative that we placed more trained experts within our pharmacies for the benefit of our customers. Diabetes is a disease that has hit the Midwest hard, and there truly is an urgent need to take a much more active and aggressive role in combating it."
    KC's View:

    Published on: November 7, 2011

    ...with brief commentary in italics.

    • Fairway, which has gone from being a New York City-based specialty grocery store to a company fast expanding into the surrounding suburbs, is scheduled to open a new store next week in Douglaston, Queens - a community perhaps best known as the hometown of tennis legend John McEnroe. The 56,000 square foot unit is slated to open on November 16.

    The company says it expects to have 11 stores open by the end of the year, driven largely by investment capital from Sterling Investment Partners, which took a majority ownership position in the company in 2007, pledging to open as many as two stores a year.

    The open question, in my view, is whether Fairway may be growing too fast. I’m simply not sure that the company will be able to sustain its product and service quality levels and still expand this quickly ... and I know people who have been disillusioned by the experience at its new Stamford, Connecticut, store.

    • The Boston Globe reports that Supervalu-owned Shaw’s Supermarkets “is launching a holiday giveaway that gives its shoppers a chance to win a share of more than $15 million in prizes and money-saving offers, including two $250,000 cash prizes ... customers can earn a game piece with qualifying purchases each time they shop, and they can earn additional game pieces by using their Shaw’s Rewards Card and purchasing participating products in the store.”

    Shaw’s president Mike Stigers says that the goal is both attracting new customers and driving sales.
    KC's View:

    Published on: November 7, 2011

    Andy Rooney, who retired from his longtime job as a cranky and curmudgeonly commentator on “60 Minutes” just a month ago, passed away on Friday. He was 92, and CBS News said he died after complications following minor surgery.
    KC's View:
    To be honest, I was never an enormous Andy Rooney fan. Too many of his diatribes - against women’s shoes and handbags, and chocolate chip cookies, for example - just struck me as specious. Just not my thing.

    Sometimes, he was trenchant and pointed, especially when writing and talking about war; he’d covered World War II, and he had credibility on this issue. Sometimes, when writing about gay rights and Hispanic baseball players, he showed himself to be hopelessly out of date.

    But here’s what I admired about him. Pretty much every day, for more than five decades, he showed up for work, sat down at the keyboard, and wrote. Jokes for Arthur Godfrey. Documentaries for Harry Reasoner. Newspaper columns. Books. Commentaries for “60 Minutes.” Countless words and sentences and paragraphs, delivered with consistency and wit and on deadline.

    In my world view, that is getting to done.

    Published on: November 7, 2011

    I got criticized last week by a reader who thought that my enthusiasm for online shopping betrayed a lamentable lack of support for local brick-and-mortar businesses.

    MNB user Karyn Chenoweth had a thought about this:

    Someone commented today on online shopping being the antithesis of buying local – while that may be true for some sites – others also encourage small businesses and enable reach that otherwise wouldn’t be possible.  Etsy is a great example of that.  I can log on and immediately find handmade options for gifts, which can be customized and delivered quickly with a personal touch.  They may not be shops in my immediate hometown, but they are small businesses nonetheless and ones I love to support.




    On another subject, MNB user Mark Wilkerson wrote:

    In response to the person who said “Nobody lies on their death bed wishing they would have been at the office more.”

    …I’m pretty sure its entirely possible Steve Jobs was laying on his death bed upset that he didn’t finish his fully integrated Apple TV.


    Though he apparently cracked the code, according to the biography by Walter Isaacson. He just didn’t live to see it completed and on the market.

    Another MNB user wrote:

    I have been reading the commentary on the Steve Jobs bio with interest.  I was taking the kids to the Apple store in Bethesda not that long after his death and my kids saw the photos and wanted to know who he was.  I explained that he had been the person behind much of the success of Apple and was a real genius.  My nine-year-old looked at me and asked, “But was he nice?”  Having grown up in Cupertino, I knew the answer to that one and had to say, “Nope, not nice.”  To which my kid responded, “Then what’s the point?”  Hmm.

    I might have replied that he was “complicated.” But point taken.

    And, from another MNB user:

    Bill Gates may have once been a jerk, but he seems to have transformed his life to one of service and philanthropy. Not too bad, and I give Melinda a lot of credit for the change--never underestimate the power of a great wife.

    Actually, I never underestimate the power of a great spouse. Which isn’t just a semantic difference.
    KC's View:

    Published on: November 7, 2011

    It’s Week Nine in the National Football League...

    NY Jets 27
    Buffalo 11

    Seattle 13
    Dallas 23

    Cleveland 12
    Houston 30

    Atlanta 31
    Indianapolis 7

    Miami 31
    Kansas City 3

    Tampa Bay 16
    New Orleans 27

    San Francisco 19
    Washington 11

    Denver 38
    Oakland 24

    Cincinnati 24
    Tennessee 17

    St. Louis 13
    Arizona 19

    NY Giants 24
    New England 20

    Green Bay 45
    San Diego 38

    Baltimore 23
    Pittsburgh 20
    KC's View: