retail news in context, analysis with attitude

Published on: January 9, 2012

by Kevin Coupe

Five years ago today, Apple CEO Steve Jobs stood on the stage at Macworld Expo at and said:

Today, we're introducing three revolutionary new products. The first one is a widescreen iPod with touch controls. The second is a revolutionary new mobile phone. And the third is a breakthrough internet communications device.

And then, he did the big reveal:

These are not three separate devices. This is one device. And we are calling it iPhone. Today Apple is going to reinvent the phone. Here it is...

Five years ago. And I think it is fair to say that with that revelation, and the various iterations of the iPhone and the other smartphones that followed, the communications landscape changed.

Five years. Just 1826 days.

And here’s the thing that we all need to think about.

How will the landscape be different five years from now?

Worth thinking about.

Published on: January 9, 2012

The Wall Street Journal reports that celebrity chef and bestselling cookbook author Rachael Ray has signed a new deal with Atria Books, an imprint of CBS Corp.'s Simon & Schuster Inc., which will allow her to aggressively expand her brand into the digital realm.

According to the story, Ray says she wants to make her cookbooks accessible and "exciting for people using their Nooks or iPads.”

One of the strategies is to put quick response (QR) codes in cookbooks that will link to online sites that will help instruct people in how to do certain things. The concept is modeled on a book authored by golfer Tom Watson, which used QR codes to link readers to videos that had Watson teaching golf swings.

Published on: January 9, 2012

The Seattle Times reports that because of continuing food safety concerns about products exported from China, which are compounded by political corruption issues that seem to enable manufacturers to cut corner and export tainted food, “the U.S. Department of Agriculture's (USDA) organic program has decided to visit China more often.” The central concern is that Chinese producers of organic foods may not have the levels of integrity needed to assure retailers and consumers that they are getting what they are paying for.

Here are three paragraphs that are particularly interesting:

“No one tracks how much organic food China ships to the U.S., but overall Chinese organic exports have rocketed from $300,000 in 1995 to about $500 million in 2008. Most of it goes to Europe, but the number of organic operations — farms, processors and others — being certified for U.S. organic standards climbed from 496 in 2006 to 649 last fall.”

“The U.S. Food and Drug Administration, which is responsible for checking most imported foods, samples less than 1 percent of all regulated products. It regularly refuses shipments of purportedly organic foods because of pesticide residues or unsafe food additives — not because the food does not meet organic standards, but because they do not meet standards for any food. For example, organic soybean meal coming through the Port of Seattle in 2007 appeared to contain ‘a poisonous or deleterious substance which may render it injurious to health,’ according to an FDA report.”

“The USDA's organic program, which ensures that food carrying the organic label is indeed organic, does not examine food as it comes into the country, and it only sporadically tests products that are labeled organic from the U.S. and elsewhere.”

Published on: January 9, 2012

The Erie Times-News reports that Wegmans has announced that it will not “raise prices on 52 commonly used products through April 28 at least. The price freeze takes effect today and comes after Wegmans kept prices the same on 40 similar items in 2011 ... The 2012 list includes 27 of the same items on the 2011 list, including boneless chicken breasts, bananas and pasta sauce. New items include acetaminophen, wheat and whole-grain bread, and frozen fish.”

Published on: January 9, 2012

The Wall Street Journal reports that the population of Americans under the age of 18 fell by 0.3 percent, or 247,000 people, between 2010 and 2011, though it remains up 2.3 percent from 2000.

According to the story, which analyzes US Census data, “The child population is falling because fewer immigrant children are coming across U.S. borders, and because fewer children are being born. Meantime, the so-called millennial generation is moving into adulthood.” Plus, the US fertility rate is down, so it looks like this decline is unlikely to be reversed anytime soon.

Published on: January 9, 2012

Here’s an alarming statistic, compliments of Stores magazine:

“Retail employees out-steal shoppers in North America, where total shrinkage amounted to $45.3 billion in 2011, according to the Global Retail Theft Barometer generated by the Centre for Retail Researching in Nottingham, England.

“Employee theft accounts for 44.1 percent of retail shrink in North America, while customer theft — including shoplifting and organized retail crime — is responsible for 43.2 percent, says Dr. Joshua Bamfield, director of CRR and author of the study. The total cost of theft amounts to 1.45 percent of sales, according to Bamfield.”

Published on: January 9, 2012

Forbes.com features a letter from Best Buy CEO Brian Dunn responding to a criticism of the chain on the site as inevitably, inexorably walking down the path to irrelevance and extinction.

The original piece, by Larry Downes, suggested that “electronics retailer Best Buy is headed for the exits.  I can’t say when exactly, but my guess is that it’s only a matter of time, maybe a few more years.”

(This is a view that has been echoed here on MNB - mostly by folks who had bad experiences with the retailer over the holidays - though there have been a number of people who have leapt to Best Buy’s defense because they had good experiences.)

Among the points made by Dunn in his rebuttal:

“As CEO, I know that criticism goes with the job, and I’m well aware we have some challenges. I also know that errors we make often translate into a poor experience for our customers, and that is simply unacceptable.”

“The cancellation of some internet orders just before Christmas was our fault, and it’s not representative of how we EVER want to treat our customers. I’ll spare you the technical explanation of how and why it happened, but we know we did not deliver a good experience and we’re truly sorry. We’ve worked to make amends with customers whose holidays were made less happy because of our mistake, and we’re working diligently to make sure it doesn’t happen again.”

“Another area where we have received fair criticism is the overall speed of the transformation of our business model – something we are working hard to address. We’ve accelerated changes to key elements of our model already (the significant expansion in the number of products available on Bestbuy.com and the launch of our online Marketplace are two recent examples), but we need to move even faster, particularly in creating a more seamless experience between our stores, web sites, call centers and services teams. We recognize people can and do shop from anywhere, and they expect thoughtful, helpful interactions from us every step of the way. We continue to invest in a number of areas – from employee training, to critical system enhancements – to ensure our customers always receive the kind of experience they deserve and expect from us, wherever and whenever they choose. But, simply put, that work needs to happen faster – and we’re taking significant steps to accelerate the pace.”

“Some believe the internet has made physical retailing (i.e., stores) irrelevant. There’s no doubt that the internet, and the mobile web in particular, have changed the way people shop, but there is strong evidence that consumers continue to value the experience of shopping in stores. A recent study by the NPD Group, a leading market research company, notes that nearly 80% of consumer electronics revenue still moves through physical stores. Additionally, approximately 40% of customer purchases made through Bestbuy.com are picked up in one of our stores. And the truth is, traffic in our physical stores increased in our third quarter and has been trending positively for most of the year.”

Published on: January 9, 2012

• The Los Angeles Times reports that Apple will look to expand its retail footprint by opening “mini Apple Store displays inside select Target locations later this year ... As many as 25 locations in smaller metro areas not large enough for Apple Stores of their own could end up with the in-Target Apple Store set-ups.”

The setup will be similar to one that Apple uses with Best Buy, creating “store-within-a-store” sections devoted to Apple products.

According to the story, “there are 1,752 Target locations and 245 Apple Stores in the U.S.” and “there are also more than 600 BestBuy locations with mini Apple Store displays inside.”

It always has been the argument here that progressive retailers find unorthodox places from which to reach out to shoppers. It is smart for Apple to think this way...

• The Wall Street Journal reports that PepsiCo “is weighing thousands of job cuts as part of a broader review of its beverage and snack businesses, according to people familiar with the matter.” According to the story, the company has confirmed that “it is studying possible payroll cuts but declined to say how many jobs are in jeopardy. The company has about 300,000 employees globally.”

The Journal notes that some critics believe that Pepsi should break itself up into two companies - beverages and snacks - and others say that CEO Indra Nooyi has focused too much on healthier products and not enough on the core soft drink business. But management has rejected both suggestions.

• Crain’s Chicago Business reports that Walgreen is preparing new open a new flagship store in the city’s Loop district that amounts to an aggressive “brand reinvention.”

According to the story, “The new Walgreens will include a sleek cosmetics area that looks like a mini-Sephora and offers $15 manicures and eyebrow-shaping. There also will be a barista, made-to-order sushi, a juice and smoothie bar, self-serve frozen yogurt, upscale wine and spirits and a wide cheese selection—even a humidor. On the pharmacy side, the store will staff a full-time ‘health guide’ to act as a concierge, helping customers navigate health care options. Self-serve kiosks will allow customers to grab prescription refills quickly and there will be private consultation rooms where they can get flu shots, blood-pressure screenings and blood-glucose tests.”

Published on: January 9, 2012

• International Supermarket News reports that Per Bank, Tesco’s commercial director of non-food, “is heading back to his native Denmark to become the chief executive of the country’s Dansk Supermarket chain.” The story says that he will be replaced by Nigel Jones, Tesco’s UK distribution director.

Published on: January 9, 2012

On Friday, we had a story about how Publix had decided to pull out of the e-grocery business for the second time in a decade; in this case, it was after a three store test that in my commentary I suggested might not have been insufficient.

My headline read:

For Second Time, Publix Gets Out Of The Online Shopping Business

One MNB user responded:

I suspect I speak for everyone when I say we would much rather have seen the headline read:

Publix Quits 3 Store Site-to-Store Test of Online Shopping Business

or:

Publix, Not A Smart As Once Thought, Backs Out of Online Shopping Pilot

Or even better:

Proof That Smart Companies Do Dumb Things: Publix Gets Out Of Online Shopping Business; Replaces Cash Registers with Abacuses and Clay Tablets

I have to admit that this email was laugh-out-loud funny. You can have a job writing headlines for MNB anytime...

Another MNB user wrote:

Spoke to a Publix associate and heard that payment of the groceries was a major issues.  I was surprised to hear that you couldn’t pay for groceries on-line.  In fact, given Publix did not want clerks handling money, many customers I believe many customers had to go inside and pay.  Certainly makes this a less appealing offer on many fronts.

MNB user Robert Hemphill wrote:

Online shopping is likely to be part of every grocery retailer's future, but it might not be as pervasive as some would suggest.  There's a number of factors that retailers have to address, including:  which model -  delivery, pickup, or shipping, and whether a warehouse is needed, and whether stores will be the primary source.  If stores, which will participate.  With the pickup model, a store remodel is needed for the storage and refrigeration of orders, and extra labor is needed, with training and QA.  As with any low margin business, high traffic is necessary to gain economies of scale.

The costs of setting up and maintaining the software, web features and email is significant, and there's a high amount of data updates needed so that the many thousands of products and prices are as up-to-date as possible.

As retailers have realized, they will need to invest a significant amount of capital and ongoing expenses to keep this going.  Since in the near term it is reasonable to expect that less than 1% of a store's sales will be done via full online shopping, a retailer needs to weigh the costs of maintaining full online shopping for their stores against other investments.  For example, a very advanced web, email and mobile initiative for the 99% who shop in the store is much less expensive, and will likely drive more sales and profits than online shopping for years to come.

So the better question might be - what digital initiatives will have the greatest impact on the most customers?  For example, the majority of supermarkets today don't have a strong mobile offering, and only a few have an advanced, full-featured app or mobile website, integrated with their other digital initiatives.

It should be noted that Robert Hemphill is CEO of Webstop, which is a longtime MNB sponsor as well as our web provider.

MNB user Jarrett Paschel wrote:

Regarding your observations on Publix’s second withdrawal from the online grocery business (online order, curbside pickup), you suggest that at some point in the future “Publix will find its market share being nibbled away at by someone in the online grocery business.”

From my perspective and experience, it is not at all clear that online will ever be a competitive threat in the food business—even online order, curbside pickup.

Quick recap: It seems like a no brainer, home run proposition. Almost all attempts have failed (other than in non-generalizable instances like Manhattan). But just because everybody has failed doesn’t mean that nobody will ever succeed!

Usually the explanation for failure has to do with logistics, scalability and operational costs. That is certainly the explanation Bezos has given for why Amazon Fresh hasn’t (and will never) be rolled out nationally (trust me on the latter).

But what gets overlooked is the consumer side…The fact that there is something very slippery when it comes to trying to integrate online food ordering into the household on a long term basis. I’ve interviewed many consumers, spoken with a lot of friends, and even myself use Amazon Fresh occasionally and the problem is that food needs change almost hourly, so even if you utilize these services you still find yourself at the store several time per week picking up incidentals. Likewise, it is very hard to think about food preparations and needs while staring at a computer screen. I once watched a consumer walk by the Chef Boyardee canned meatballs and say “Oh, I’ve been meaning to make some meatballs..I should get some beef…” It’s not obvious—and often subconscious—but you just start to lose out on some of the fun about cooking and eating when you are not in those spaces.

So the bottom line is that while a huge swath of consumer get excited about the proposition and try it out, most drop out through attrition during the first six months or so. Not because of a problem with the website or the service, but because it just doesn’t jive with how they operate. And the alleged “convenience”  quickly becomes inconvenient. So what operators are finding is that there are a small number of loyalists (often new moms and the elderly) and a group which oscillates in number as shoppers come and go. But there is never enough growth to sustain the proposition.

In the spirit of optimism, I hope that someone does indeed solve the consumer challenge. And to that end, I think that’s where these discussions should focus.

Another MNB user wrote:

Perhaps, just Perhaps, maybe, just maybe..an occasional online business is just a no go such as the curbside service program. Perhaps, Publix could not make money without charging more than the public would pay in their view.  The Edsel did not destroy the automobile business. Getting out of a losing proposition quickly will save profit.  You presume that the online business has profitability   within its strategic area. I doubt it. Of course there is a market for online grocers and any purchases online will takeaway purchases from everyone else including other online providers but that does not mean the  "takeaway" should be protected at a loss.  Many grocers have tried online service and moved away from it as profit could not be made. I think occasionally you have blind faith in all things online.

Not blind faith. But, I concede, considerable faith.

In part, this is because I fundamentally believe that the next generation of consumers - our kids, who buy everything else online - has little or no allegiance to the traditional shopping experience. They’ll want what is convenient for them, and they will look to shop in ways that suit their lifestyles. To think that this significant shift in consumer behavior will not affect the food business, and that somehow traditional supermarkets will avoid the fate that has befallen companies like Blockbuster and Borders, strikes me as absurd.

And, I believe we are seeing the beginnings of this shift now.

I’m not sure it is fair to suggest that almost nobody is making money in the online grocery business. I’ve talked to a lot of retailers offering this service as part of their portfolio of services (and this is precisely how it should be positioned, IMHO), and a number say that they are doing considerable incremental business - in some cases, it is like having an additional store, without most of the costs associated with an actual unit. One common thread seems to be that the pickup model becomes profitable faster than a delivery model. In addition, the successful ones are the retailers that have made a commitment to it, not just a half-hearted attempt without adequate marketing support.

I’m also not sure I agree with you that Amazon Fresh will never be rolled out nationally. Maybe not soon. But that doesn’t mean the company will stop working on the operational and economic issues. Never does not seem to be a word in the Amazon vocabulary.

One additional thing. A core reason that Amazon is so successful is that it understands that it needs to invest in strategies and tactics that may not have a short-term payout, but will position the company in a positive, compelling, relevant and differentiated way over the long haul. I have a powerful belief (though not a blind one) that this is what all retailers need to do.

Go back to our very first story this morning, our “Eye-Opener.”

It was just five years ago today that the iPhone was introduced.

What will the world look like five years from now? To what extent will consumers be behaving differently, with new tools and expanded capabilities at their fingertips?

Nobody knows the answer to these questions. Not for sure.

But to assume that this march into the future will somehow detour around the food industry is to ignore the realities of what has happened culturally, technologically and demographically over the past five, ten, fifteen years.

IMHO.

Published on: January 9, 2012

It was Wild Card weekend in the National Football League (NFL)...

Cincinnati 10
Houston 31

Detroit 28
New Orleans 45

Atlanta 2
NY Giants 24

Pittsburgh 23
Denver 29

Next weekend, as the march to the Super Bowl continues, it will be...

• Denver vs. New England
• Houston vs. Baltimore
• NY Giants vs. Green Bay
• New Orleans vs. San Francisco