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    Published on: January 16, 2012

    by Kevin Coupe

    There was an intriguing piece on the New York Times website over the weekend that dealt with the recent decision by Starbucks to increase prices in the northeast - but did so from an unusual perspective, focusing on how decisions can affect consumer perceptions in unexpected ways.

    What has happened in New York City is that the price of a tall coffee has increased to $1.85. With tax, it now comes out to $2.01.

    So much for the death of the penny, something that often comes up when people try to figure out how to cut money out of the federal budget. (It costs 2.41 cents to make a penny, the government says.)

    “It’s the stupidity of it,” one customer tells the Times. “It’s what I’d call ‘the annoyance factor.’ It’s ridiculous. Why the extra penny? Who has pennies? Didn’t anyone think this through? Couldn’t they round down or even up? Why leave it at a penny?”

    Which is a good point. Except that a Starbucks spokesman tells the Times that the company is aware of what a tall coffee costs in New York City, and that it “wasn’t an accident.” In addition, the company says that “only a small proportion of customers buy just a tall coffee when they visit a Starbucks, and that an even smaller proportion pay in cash.” So it isn’t really much of a problem.

    Except for the people who want a tall coffee and want to pay cash.

    I have no idea what the right thing is to do here. Charge $1.84 for a tall coffee? Eat the penny on every sale?

    But the larger point is an interesting one. Call it the law of unintended consequences, but it is fascinating to see the turn that this story took. Starbucks raises prices, and the complaint seems to be less about the increase and more about the fact that it inconveniences some shoppers ... a complaint that no doubt is being vocalized on various websites and now in the New York Times.

    It is just a penny. But really, it can be much more than that. And that’s what marketers have to think about these days.
    KC's View:

    Published on: January 16, 2012

    The Associated Press reports that Peter Lynch, the CEO of Winn-Dixie, will step down from that position sometime in the next 120 days as the chain merges with Bi-Lo.

    Lynch reportedly made the announcement to Winn-Dixie employees via a letter that was sent to them on Friday.

    Replacing Lynch as Winn-Dixie’s chief will be Randall Onstead, currently Bi-Lo’s chairman.

    Lynch became Winn-Dixie’s CEO in 2005, and notes in his letter that he “helped the chain return to profitability after it emerged from Chapter 11 bankruptcy protection in 2006.”
    KC's View:
    This was inevitable. The two companies may be merging, but Bi-Lo is seen as the dominant partner. The writing was on the wall for Lynch.

    Published on: January 16, 2012

    The New York Times reports that since “giant e-commerce companies like Amazon are acting increasingly like their big-box brethren as they extinguish small competitors with discounted prices, free shipping and easy-to-use apps ... little sites are fighting back with some tactics of their own, like preventing price comparisons or offering freebies that an anonymous large site can’t. And in a new twist, they are also exploiting the sympathies of shoppers ... by encouraging customers to think of them as the digital version of a mom-and-pop shop facing off against Walmart: If you can’t shop close to home, at least shop small.”
    KC's View:
    It seems to me that Amazon probably has to be a little careful about allowing the “bullying” narrative to gain too much traction in the media. Then again, maybe it doesn’t really matter in the end, because the ultimate battle is going to be between Walmart and Amazon, and pretending to be anything other than a behemoth simply would be disingenuous.

    The story remains the same for the small guys. you have to offer something different from the big guys. Differentiated products, differentiated services, and a differentiated experience. Doesn’t matter if you;re talking about big box retailers vs. independents, independents vs. online retailers, or small online businesses vs. big online businesses. You’ve got to offer something different.

    I’m a little guy. I get this. There are plenty of bigger sites out there, with more resources. But I like to think that it is the attitude at MNB that sets us apart - we say things that the other guys never will say, we think that entertaining the reader is as important as illuminating the reader, and we know that if we keep pushing the envelope in terms of “news in context and analysis with attitude,” it will keep us growing in terms of readership, which helps in terms of sponsorship.

    And that’s what I think small retailers have to do, in their own way.

    Published on: January 16, 2012

    • In London, the Sunday Times reports that Tesco CEP Philip Clarke says that he plans to respond to declining same-store sales in the UK by spending the equivalent of more than $600 million to renovate stores and hire additional employees.

    “What we’ve seen over time is Tesco’s underperformance against the market in like-for-like terms -- the lifeblood of the retail business, the real measure,” Clarke is quoted as saying. “I want to put that right.”

    Meanwhile, the Observer reports that Tesco is facing some tough problems, mostly because of declining store standards that have resulted from pushes for greater productivity from fewer people, and a sense that it has cut too much from store budgets to live up to its reputation.
    KC's View:
    Yet another example of how companies - even great companies like Tesco - can get sidetracked by misplaced priorities. From the days of Ian Lord MacLaurin through the tenure of Sir Terry Leahy, Tesco was a constantly evolving company with an eye trained on consumer needs and desires as well as operational efficiencies. But sometimes, those priorities can get out of balance ... and a reputation decades in the making can quickly begin to suffer. It is up to Clarke to move quickly to plug the holes and get Tesco back on course.

    Published on: January 16, 2012

    Retail industry sales will rise 3.4 percent to $2.53 trillion, according to new projections from the National Retail Federation (NRF), slightly lower than the growth experienced during 2011, in which sales grew 4.7 percent. It would, however, be greater growth than projected real U.S. GDP for 2012, which many economists say will be between 2.1 and 2.4 percent.

    NRF President and CEO Matthew Shay is scheduled to announce the projections this morning at the organization’s annual convention and expo in New York City. According to the announcement, “Shay will discuss how continued growth in the retail industry will result in additional jobs, greater innovation and increased consumer value. But he will warn that the private sector can’t do it alone and Washington must take steps to support growth, including reforming our corporate tax system to enhance U.S. business’ competitiveness, enacting sales tax fairness to level the playing field between brick-and-mortar and online retailers, and reforming our visa system so more foreign travelers can come to the U.S. to spend money and help spur growth.”
    KC's View:

    Published on: January 16, 2012

    French women may not get fat, as the best-selling book advised is not that long ago, but that doesn’t mean they don’t want help shedding extra pounds from time to time.

    The best evidence of this? Bloomberg Businessweek reports that Jenny Craig has set up a business operation there.

    According to the story, “The California-based chain has found success in France by pushing a diet method that combines prepared meals and regular counseling. The country has become one of the brand’s biggest growth engines less than two years after parent Nestle SA introduced the weight loss program there ... Its timing was propitious. The number of overweight adults in France climbed about 11 percent from 2006 to 2009, and about one in three people is now overweight, according to a 2009 study by the national health research institute.”
    KC's View:

    Published on: January 16, 2012

    • The Seattle Times reports that “the Internet is Nordstrom's fastest-growing channel and, with $1.5 billion in cash on hand, it's spending heavily to support that growth ... The 111-year-old company is working on new mobile shopping options and personalization features, so that visitors to its website might soon receive recommendations based on their online and in-store buying habits.

    “It's also testing a local same-day delivery service for a possible broader rollout, and it's expanding its merchandise assortment online to give customers more selection.”

    "If you're listening to customers, they're telling you that their expectations around how they want to shop are evolving," Jamie Nordstrom, who runs the company’s website business, tells the Times. "Many customers today don't have several hours to shop like maybe previous generations did. They're looking to be efficient, and they're looking for help.”
    KC's View:

    Published on: January 16, 2012

    • The National Retail Federation announced that Whole Foods Market is the recipient of its prestigious annual Innovator of the Year award. Walter Robb, Co-CEO, will accept the award on behalf of Co-CEO and Founder John Mackey during the Annual Retail Industry Luncheon at NRF’s 101st Annual Convention and EXPO on January 17.

    • Dollar General has announced that it “is expanding its eCommerce offering with the addition of photo services to its retail site.” The company said that it is now offering, via its website, such services as printing and customizing photos online, including photo books, custom greeting cards, canvas printing, and video transfer, such as from VHS to DVD.
    KC's View:

    Published on: January 16, 2012

    • The Associated Press reports that Gary Hirshberg, CEO of Danone-owned Stonyfield Farm, is stepping down and and handing over responsibilities of the organic yogurt company to Walt Freese, the former CEO of Ben & Jerry's.

    Hirshberg reportedly is remaining as chairman of Stonyfield, but wants to spend more time focusing on national food and agriculture policy, as well as working on the Obama re-election effort.

    • Remember Julie Roehm, who went from being a marketing wiz at Ford and Chrysler to what can generously be called a tempestuous and short tenure at Walmart? Well, Advertising Age reports that she’s landed her first full-time gig since the Walmart debacle, as senior VP-marketing at business-software company SAP.
    KC's View:

    Published on: January 16, 2012

    Last week, MNB took note of a Wall Street Journal report that “a strategic review at PepsiCo Inc. is more likely to result in a renewed marketing push for its core soft drinks business—and sharp cost reductions to pay for it—rather than a rebuke of CEO Indra Nooyi or any drastic move such as a Kraft-style breakup.”

    Nooyi reportedly has been under pressure from the investor class because of a perception that she has focused on healthier products at the expense of the soft drinks portfolio, a charge that she has rejected as being inaccurate.

    According to the story, it seems likely that Pepsi will “slash hundreds of millions of dollars in costs, including the elimination of thousands of jobs, and increase the marketing budget for its flagging North American beverages by around 20% this year, to pump life back into brands such as Pepsi after being heavily outspent by Coke in recent years.”

    My comment:

    When I talk to people in the industry, there are two words often used to describe Indra Nooyi’s situation: “thin ice.”

    MNB user Tom Redwine responded:

    I read with interest this story on PepsiCo's strategy review. Maybe they do need some better and stronger marketing. But the problem I'm seeing is distribution.

    Pepsi Max, their challenger to Coke Zero, just tastes better to me. I'd prefer to buy a 12oz. can of PMax than a Coke but rarely do I have the choice. Maybe I'm just living in a bad area for PMax distribution. Maybe Coke's better packaging blinds me to PMax opportunities. (My wife and I have a recurring joke about "male pattern blindness" when it comes to my occasional inability to find items in stores or in the fridge. That's right, I said "occasional...")

    Re-energizing the brand marketing to get Pepsi in back into consumers' minds is all well and good, but will it matter if I can't get a can in my hand?

    Another MNB user wrote:

    As a former PepsiCo (not Frito, not Pepsi, not Quaker) employee that found myself on the wrong end of one of Indra’s more recent reengineering efforts I can confirm that there has been internal concern of Indra’s focus on H&W at the expense of core CSD for a number of years.  More importantly she has transformed the culture, losing many of the intangibles that originally attracted talented professionals to PEP in the past.  Gone is the belief that PEP employees work for a company with the heart of a warrior, gone are the days when local managers could manage layoffs to protect talent and prune the chaff,  gone are the days when new ideas from the field were embraced by corporate. 

    Now decisions come from the ivory tower at Purchase without field input.  Indra’s MO has been to centralize and disassociate from the field sales organizations.   From the Tropicana debacle to HR  to  Gatorade Indra’s team has bypassed wisdom from the sales field to make corporate decisions in a sterile vacuum.   To your comment.  That’s what’s under today’s thin ice.

    From another MNB user:

    No surprise here. This is PepsiCo doing what they do best: make poor long term marketing decisions and then have the rank and file employees, good people who have executed the misguided plan flawlessly, pay for it with their jobs.

    I speak from experience. I was a Director of Sales for Naked Juice in 2007 when PepsiCo bought the company and immediately folded it into their Tropicana division. I was at a meeting in Chicago later that year where Indra Nooyi got on the stage and talked almost exclusively about PepsiCo's laser focus on the health and wellness segments of the industry. I left that meeting, and over the next 18 months, I executed the sales and marketing objectives laid out by the executive leadership of PepsiCo flawlessly. Begrudgingly because I knew the plan was misguided, but flawlessly.

    Apparently I did such a good job executing their plan that I was handed my pink slip, along with  every other Naked Juice employee, in late 2008. The problem was that PepsiCo executive leadership knew nothing about how to operate a niche business like Naked Juice. They forced it into the mold of their Tropicana business and subsequently destroyed the #1 market position Naked Juice had achieved.

    The point: Nooyi is now reaping the seeds of what she has sewn. The poor direction she has provided PepsiCo over the last 5 years is coming home to roost. And of course she is in denial. The biggest shame is that once again we'll see thousands of good mid-level managers who executed a misguided marketing plan like good soldiers lose their jobs while Ms. Nooyi and her top brass move on to destroy the next successful small company that PepsiCo purchases and we'll be reading in 18 months about another 3,000 folks being put out of work. Very sad.

    Specifically regarding Nooyi’s focus on healthy foods, MNB user John Rand wrote:

    Coming in a week when the maker of Twinkies and Wonder Bread re-enters bankruptcy, and everyone agrees it is at least partly because they missed the shift to healthier breads and snacks, one has to wonder whether “the investor class” should have its collective head examined.
    KC's View:

    Published on: January 16, 2012

    In the National Football League Divisional Playoff series...

    New Orleans Saints 32
    San Francisco 49ers 36
    ...a game that proved yet again that it ain’t over until it’s over.

    Denver Broncos 10
    New England Patriots 45
    ...proving that sometimes you need more than divine intervention to win a football game. BTW...if you haven’t, check out this sketch from “Late Night with Jimmy Fallon, which has a musical take on quarterback Tim Tebow.

    Houston Texans 13
    Baltimore Ravens 20

    NY Giants 37
    Green Bay Packers 20