retail news in context, analysis with attitude

Published on: July 31, 2012

by Michael Sansolo

Based on the e-mails coming to MorningNewsBeat, some of you don’t always agree with Kevin’s wide-ranging opinions. And today it’s my turn.

KC, this time I think you may have gotten it wrong.

In yesterday’s edition, Kevin reported on the government studying the speed at which cash seems to be going away. Then he commented: Hard to imagine going completely cashless, at least not in my lifetime, but at the very least I hope that the government asks the right questions and tries to get ahead of this curve, as opposed to the way it has handled the US Postal Service.

My response to that is simple: Things change and like it or not, the world of money could be vastly different really fast and certainly in your lifetime - especially since we are about the same age and aren’t going anywhere fast.

There are a couple of ways to look at this. For any of you with a parent or grandparent who lived through the Great Depression you know that cash is or was their thing. Studies have shown that Boomers carry significantly less cash then their parents and are far more reliant on credit and debit cards. We obviously would be seeing all the fuss over transaction fees if the way we buy everything hadn’t migrated so rapidly from cash and checks to credit and debit.

Based on that, it’s easy to see how the next generation could take us to an entirely new place where cash is unnecessary. In fact, almost daily we see stories of digital payments taking over. Paying bills that way is old hat. Now, as was just announced in the area where I live, even parking meters no longer need coins or cards. Phones now work just fine.

A couple of months back AARP magazine, (and yes, neither AARP or a magazine seem the likely places to find cutting edge trends) ran a fabulous article about machines and objects that have disappeared, are disappearing or will soon disappear from our lives. Since I began my career armed with a rotary phone and an IBM typewriter, I was curious.

Among those items that are largely gone: televisions with tubes, phone books, deposit slips for banking, Rolodexes for our connections, incandescent bulbs that produce more heat than light and, of course, film. It’s really not that long ago that all of those items were necessities of life. Now we barely use any of them and we can’t imagine people under the age of 30 caring much about them, unless they are in the pursuit of nostalgia.

AARP went further, predicting which currently essential items are likely to soon vanish. Home phones topped the list, which makes sense especially to the generations growing up on mobile. No longer will an area code tell you where someone is located because the phone number will move with us forever. Stamps are becoming as passé as letters, which harkens back to Kevin’s comment about the USPS. When people aren’t sending letters or bills anymore, stamps are a waste and the Post Office seems increasingly useless. And while I like analog clocks, my life, like yours, is dominated by digital.

Some of AARP’s predictions may shock you. Gas pumps may become less prevalent as electric cars grow in number. Already we see recharging stations appearing and we’re only at the start of the electric era. Language barriers may fall away as technology enables instantaneous translation in much the way Star Trek imagined some 40 years back.

Most shocking of all - certainly to a group I recently addressed - toilet paper may be going, pardon the pun, down the drain. Ask anyone who has visited Japan in the past 10 years about the wonders of toilet seats that heat, wash and provide air-drying. I’ve had the experience and it’s incredibly cool. (To use the seat that is. The air, thankfully, is warm!)

Why does all this matter? Because what we know today is no guarantee of what we need to know tomorrow. What we consider essential today might be meaningless overnight.

The past teaches us tons about the future, but not everything. Not by a long shot.

Michael Sansolo can be reached via email at msansolo@morningnewsbeat.com . His book, “THE BIG PICTURE: Essential Business Lessons From The Movies,” co-authored with Kevin Coupe, is available by clicking here .

Published on: July 31, 2012

by Kevin Coupe

I was really looking forward to writing OffBeat this week, in part because I had a fabulous book to recommend to you - "Imagine: How Creativity Works," by Jonah Lehrer. It was one of several books that my Portland State University class had the option of reading for the course I was team-teaching, and many of them chose it and talked enthusiastically about it when they were done. (I expected nothing less - these were really engaged students.) I found their enthusiasm to be infectious, and I re-read several portions of the book, especially taken by how Lehrer addressed individual innovation vs. collaborative innovation, using examples such as Bob Dylan's approach to writing music to illustrate his points.

Yesterday, it all fell apart ... and what happened teaches us an important lesson.

It was reported that Lehrer had to resign from his post as a staff writer for The New Yorker because it had been discovered that he had fabricated many of the quotes that he had coming out of Dylan's mouth. The book seems to have been pulled from Amazon's site by the publisher, and I get the impression that the publisher is recalling all unsold copies. They are, to be sure, mortified.

I feel the same way, and I have no connection to Lehrer other than as a fan of his writing. I feel betrayed - not just because I bought into pretty much everything he wrote, but because I recommended it to my students, have suggested it to a number of other people, and was prepared to tell you about the book.

There has been a suggestion that the lie does not invalidate the larger mission of the book, but it is hard for me to accept that right now. He fabricated quotes from Bob Dylan. Who knows what else he made up, who else he lied about?

I trusted Jonah Lehrer. He betrayed me. And for some reason, I feel that betrayal very personally, even though we never have met and this is the first book of his that I have read.

There is a Latin proverb that I have used here on MNB from time to time that seems appropriate here:

Trust, like the soul, never returns once it goes.

Customers, like readers, want to trust the people and companies with which they do business. In the food sector, in fact, it isn't just "doing business." It is acquiring the products we put in our mouths and stomachs, that we feed to our children and friends, that we depend on for pleasure and nourishment.

The Jonah Lehrer betrayal teaches us how fragile that trust is, why it is critical to be transparent in our sharing of information, and to never be caught protecting ourselves at the expense of the shopper.

There is no more important asset for most retailers and suppliers - the trust of the customer. Everything else just supports that.

The Jonah Lehrer story is a sad one, but I don't feel sorry for him. Neither should you, and neither should my students. Rather, we must learn from his betrayal.

It is an Eye-Opener.

Published on: July 31, 2012

As reported yesterday on MNB, Supervalu has ousted its president/CEO Craig Herkert, the former Walmart executive hired in 2009 to reshape the company as a low price retailer, and replaced him with the company's chairman, Wayne Sales, who now will hold all three titles.

Sales has been non-executive chairman of the company since 2010 and on the board since 2006.

MarketWatch offers some background on Sales, reporting that he "once had to fight the invasion of Wal-Mart and Home Depot onto his home turf when he ran Canadian Tire, a general merchandise retailer that also sells financial products ... Sales drew praise from stock analysts and the Canadian media for his 2000-2006 reign as CEO at Canadian Tire. Revenue climbed  60% to $8.3 billion, while profit more than doubled to $355 million. Gross margin steadily inched up to 8% from 6.4%. More importantly, Canadian Tire’s stock price tripled (Supervalu shares are down 85% since mid-2009).

"The former college drop out from Lynchburg, Va. is credited with spearheading a big-box format at Canadian Tire when Wal-Mart pushed into country in the mid-1990s.

"According to Canadian news reports, Sales, 62, is known for his gregarious personality. He would wander off during store tours to chat up customers and examine inventory. He’s obsessed with details, too. Apparently he could reel off stats on shelf-widths in particular stores. Sales is an avid fisherman who got his start in the retailing world unloading trucks and stocking shelves at Kmart in his hometown of Lynchburg."

In Minnesota, the Star Tribune reports that the analyst community did not seem surprised by Herkert's ouster, and that it probably was necessary for the company to be able to find a buyer or buyers. There also is the suggestion among analysts that Sales could simply be a place-holder while a more long-term CEO is identified.

Yesterday, however, Supervalu sources told MNB that Sales' "appointment today is a not an interim assignment.  He is fully committed to these roles.  In fact, he indicated that he is resigning from the Boards of Discovery Air and Georgia Gulf to devote himself to the successful turnaround of Supervalu."

The Supervalu source also told MNB that Herkert recently "was provided long-term stock options with a three-year vesting period. Per our severance plan, these newly granted options will not vest."

That severance plan could be generous. One source with knowledge of Supervalu's executive compensation policies said that Herkert could walk away with more than $2.8 million, plus benefits, for "termination without cause."

Supervalu has not released the terms of the separation agreement because it has not yet been filed and formally executed. Supervalu's Proxy Statement does call for severance payments of "2 times for the CEO and 1.5 times for the other NEOs of annual base salary at time of termination," and "2 times for the CEO and 1.5 times for the other NEOs of the average of the performance results (expressed as a percentage) used to determine the NEOs’ bonus amounts under the annual bonus plan for the preceding three years (or all bonus amounts, if the NEO has been employed fewer than three years), multiplied by the NEO’s current target bonus amount."

Published on: July 31, 2012

In yesterday's email to Supervalu associates, the company's new president/CEO wrote the following:

"Hi, Team. This is Wayne.

Today the Board of Directors announced my appointment as president, CEO and chairman, replacing Craig Herkert. Craig took the helm during a time of great challenge for SUPERVALU, and I want to thank him for his service over the past three years. I have attached the press release we issued today and a copy of my biography so you can learn more about me. I look forward to meeting as many of you as I can in the coming weeks, and I will host an all-associate meeting tomorrow at 10 a.m. CT.

I have served on the SUPERVALU Board of Directors since 2006, and like you, I have been disappointed with our results. I am well aware of what our critics have said about us. You are all familiar with our continued decline in sales, profitability and share value. I have spent most of my professional career working with and leading retail and non-retail companies through a variety of difficult situations. I see a number of similarities between what I find as I join the SUPERVALU leadership team today and what I found upon joining Canadian Tire, a multi-billion-dollar, publicly owned retailer that was anticipating large, fierce competitors who were expanding into Canada. I served as president and CEO of that company from 2000 through 2006. We were faced with high prices, a high cost structure and no defined point of differentiation. But guess what? By all accounts, we were successful. I am here to lead SUPERVALU forward, and as I step into my new role, I am focused on accelerating our progress in four areas:

1. We must generate profitable sales. During my tenure on the Board, I have met many talented front-line team members who serve customers directly and back-line team members who support and enable the front line. Together, we will take immediate steps to profitably improve sales and create points of sustainable differentiation in the marketplace. This will happen while we continue to roll out long-term price improvements. Our goal is to be competitively priced, and we will move as quickly as possible to achieve this.

2. We must take significant costs out of the business. Today, we are doing many things that are not business critical, are of low value or are not focused on driving sales or profitability. Tough decisions will be made to change this reality. That said, I promise you we will be acting with the right objectives in mind. We will position ourselves for the future and we won’t take steps that impede our ability to serve customers. Simply stated, we must implement initiatives that take cost out of our business faster than we make our price investments.

3. We must grow SAVE-A-LOT. Our go-to-market strategy is unique, and among our greatest assets are our store directors, licensees and independent retailers. We will strengthen our engagement with our SAVE-A-LOT licensees – leveraging their expertise, enhancing our collective performance, and ensuring our ability to grow a nationwide network of hard discount stores.

4. We must build on our strong legacy of serving independent retailers. We will work with our independent retailers to reinforce their confidence in our ability to provide the superior service they need to increase sales and profitability.

As we go forward, time is our biggest enemy, and we are accountable for the keys to our success. Many of our customers and investors have lost confidence and patience with SUPERVALU; I know some of you may have, as well. I am excited to be part of the team and you have my personal commitment to do everything I can to ensure our future.

Will you join me in this transformation? We will prove the naysayers wrong.

Sincerely, Wayne

Published on: July 31, 2012

The Idaho Statesman reports that Supervalu has said that 20 employees in Albertson’s Boise administrative office "will be laid off at the end of August as part of a reorganization of Supervalu’s information technology department across the company."

The story goes on to say that "Supervalu has reduced its Idaho payroll several times since its 2006 acquisition of Albertsons, the Boise-based chain founded by Joe Albertson in 1939 when he built his first grocery store at 16th and State streets.

"Albertsons had more than 2,000 corporate employees in Boise in 2006. Supervalu didn't keep all Albertsons executives after the purchase, and it soon reassigned about 400 Boise jobs to its headquarters outside Minneapolis. Supervalu has continued to trim the Boise payroll since, including 130 layoffs last winter across various departments including IT and finance. The company says it now employs about 1,000 people at its Boise offices. Supervalu also says it employs more than 2,300 employees at 33 Albertsons stores around the state."

Published on: July 31, 2012

• The Newark Star Ledger reports that a Secaucus, NJ, Walmart had to be evacuated yesterday "after a bomb scare similar to nearly a dozen other such threats at Walmarts throughout the country in the past week." Police searched the premises for more than two hours but were unable to find any explosive devices.

Police have said that while they have not yet established a direct link between this threat and others that have taken place, the incident is similar to those that have occurred in Kansas and Missouri.

Published on: July 31, 2012

The Oakland Tribune reports that in the San Francisco Bay Area, "Sprouts Farmers Market is attempting to beef up its efforts though acquisitions of rival grocers Henry's Farmers Market and Sunflower Farmer's Market.

"Sprouts, with sales in the $2 billion range, has sites in Dublin, San Jose, Sunnyvale and Fremont, and will open additional stores in San Jose and Walnut Creek."

Shon Boney, Sprouts co-founder and CEO, tells the paper that "when the economy slowed down, that created a bunch of real estate vacancies. We were finally able to make an entry into the market. We created a base of stores that we could grow over time. The lifestyles in California really work well for us."

Boney defines the company's format this way: "We are somewhere in the middle between Whole Foods, Trader Joe's and the conventional supermarkets. Usually our customers are more of an everyday food customer, not the health foods supermarket customer. We do everything at a discounted price. Our produce is more of what you would find at a farmer's market, but we aggressively price our produce. Our vitamins are like you would find at Whole Foods."

Published on: July 31, 2012

• The New York Times this morning reports on how Frito-Lay, Walmart, Samuel Adams and other companies are turning social media sites like Facebook and Foursquare " into extensions of market research departments. And companies are just beginning to figure out how to use the enormous amount of information available ... companies using data from social media said the ability to see what consumers do, want and are talking about on such a big scale, without consumers necessarily knowing the companies are listening in, was unprecedented."

You can read the entire piece here.

Published on: July 31, 2012

• The Merchants Payments Coalition has criticized the Federal Reserve, saying that new rules make "merchants pay for fraud prevention even if banks don't prevent fraud.

"Although the Fed found that merchants bear 41 percent of signature debit fraud losses and 74 percent of such losses for 'card-not-present' transactions, its rules now require them to pay fees that cover 100 percent of fraud-prevention costs incurred by issuing banks.

"Under debit-card reform that took effect in October, the Fed was to ensure that banks actually take effective steps to prevent fraud and decide how much of the cost of preventing fraud the merchants and the banks should bear. Instead, the Fed rule rewards banks with more merchant funds if they self-determine that they prevent fraud. That will not be effective and regulators should have to find that the banks actually reduce fraud before they get more funds."

The Coalition says that "it is unfair for the Fed to saddle merchants with the costs resulting from this purposely outdated technology. Instead the Merchants Payments Coalition believes that with this ruling the Fed is abdicating its regulatory role and simply allowing more money to flow to banks that issue debit cards."

• Reuters reports that "ConAgra Foods Inc. struck a deal to buy Unilever Plc's North American frozen meal business for $265 million, adding the premium Bertolli and P.F. Chang's brands to its frozen foods portfolio." The deal is ConAgra's fifth acquisition in 12 months.

Published on: July 31, 2012

• The Coca-Cola Co. has announced a corporate restructuring that it says will streamline the business and organize it into three units - Coca-Cola Americas, Coca-Cola International and a bottling division that will oversee bottling operations outside North America.

According to the LA Times, "Currently, the heads of various regions — such as North America; Latin America; and Europe, the Middle East and Africa — report directly to Kent. The new structure splits global operations about evenly; roughly half of Coca-Cola's sales volume comes from the Americas, while the rest comes from other parts of the world.

"The Atlanta company said Monday that Steve Cahillane, 47, will head the new Coca-Cola Americas unit, which will include Latin America. He currently heads Coca-Cola Refreshments in North America, a position to which he was named in 2010.

"The new Coca-Cola International unit will be headed by Ahmet Bozer, 52. Bozer, who joined the company in 1990 as financial control manager, currently oversees the region encompassing Europe, Africa and the Middle East.

"Irial Finan, 55, will continue as president of the bottling unit, Bottling Investments Group."

The reassignments are seen as the beginning of the horse race to see who will eventually succeed current CEO Muhtar Kent.

Published on: July 31, 2012

As promised, the emails about Supervalu...

One MNB user wrote:

I've been reading the column daily and occasionally contributing for 10 years.  I am a middle manager at SVU but I don't speak for the company.

It seems you have really been rooting for Supervalu to fail.  I'm sure it's juicy content but I really don't think you're treating the story fairly.  I'm not saying everything has been totally off base but it certainly slants toward the negative.  Morning News Beat, the TMZ of grocery!  It's always more fun to talk about the train wreck than the train that ran on time.

Anyway, I'd ask you to check your facts on one comment you made today.  Maybe I'm the one confused here, but I don't believe Craig Herkert had received one of the retention bonuses.  He was granted some restricted stock options in lieu of bonus but no cash to stay the way I read/understood it.

Also, regarding the retention bonuses that were granted, maybe now we see the rest of the story.  The board may have granted them because they knew what they were going to do with Craig and cannot afford a complete turnover.  IMHO, the 4 who got them were not the ones who caused the problems as you and others have suggested.  Janel Haugarth, for example is highly regarded by many and I suspect could emerge as CEO when the new "hatchet man" is gone (after a major downsizing/refocusing on wholesale and maybe Save-A-Lot).  The problem at SVU was created by Jeff Noddle and Craig inherited it.  Granted, he didn't move appropriately to fix it and got what he deserved.  If you really want to know what caused the whole mess it was buying a failing company in Albertsons and then allowing the Albertsons people to run the whole business.  I won't name names but I could.  There's probably 6 people, some of whom are still there, who thought they knew it all because that's "how we did it at Albertsons".  The road to this mess started in Boise.

MNB user Ken Fobes wrote:

While it may be a "day late and a dollar short" for Supervalu, if anyone can turn the company around it is Wayne Sales.  I had the privilege of helping Canadian Tire develop a retail support strategy during Mr. Sales tenure as CEO.  The initiatives taken at Canadian Tire, under his leadership, were successful in keeping Canadian Tire one of the most successful retailers in North America.  I wish him well as he takes on this daunting assignment.

From another reader:

First, a thank you for your sharply honed commentaries on the continuing flow of events that has catapulted SVU to the top of the Twin Cities’ list of dysfunctional retailer regimes, leaving the Best Buy leadership fiascos at least temporarily forgotten.

As somewhat of a punster I couldn’t help but notice a pun that was created as the result of a ‘typo’ in your BREAKING NEWS ALERT:  CEO Herkert Fired by Supervalu.

You noted Craig Herkert…has been fired, effective immediately.  He will be replaced for the time being by Wayne Sales, the Supervalu chairman, who will now take on the additional titles of president/CEO. The change comes after a tumultuous few weeks for Supervalu, highlighted by underwhelming quarterly sales and profit numbers, the announcement that all or part of the company was for sales..

I assume you meant that all or part of the company was for sale, or was it that all or part of the company was for Sales?  I assume the former though the latter makes for an appropriate play on words.

I do give you credit on questioning whether ‘the ironically named Sales is the answer’ and insightfully noting the often overlooked responsibilities and culpability of corporate boards in overseeing the successful moves of executives as well as failed policies.  When a company’s leadership is embarrassing itself we expect the governing board to check and if necessary correct aberrant behavior.  Here the board went along with policies that crippled employee morale and made the company a laughing stock in the eyes of many, including investors.

I eagerly anticipate that the Herkert firing portends a rapid changing of the guard and one that requires a lot less time than neighbor Best Buy seems to require to find a new CEO.

The pun was an accident. I was writing fast and I goofed.

Another MNB user chimed in:

Instead of earnings trajectories, how about, "Folks I need your help to get this train wreck back on track... and here's my e-mail address and here's my phone number."?

That would have been refreshing.

Another MNB user wrote:

In your comments about the firing of Craig Herkert and the new role of Wayne Sales, you state that Wayne’s first order of business should be to bring back free coffee and plastic utensils. As a current employee of the company, I would prefer we save a job or two by spending that money on our employees instead of giving everyone the free incidentals. Saving money is saving money. If we save it on the unimportant things that result in keeping a couple of employees in their jobs, I say that’s what we do. By the way, I don’t drink coffee so I’m not used to getting my free doses of daily caffeine – I have to pay for it in the vending machines. I also believe that those at the top need to start relinquishing their perks.

That is an absolutely legitimate point. I agree that hiring people back is more important than free coffee. But I also think that morale is, to be blunt, in the crapper. Symbols count ... and this might have been a good one to send.

From yet another reader:

Interesting that he was fired so quickly after receiving the bonus and I doubt highly that it was because of his comments - although ridiculous, short sighted, callous, etc. probably not grounds for termination. I wonder if it has to do with the Walmart suit or some gross misconduct because he has basically run SVU into the ground and they didn't fire him for that…they gave him a retention bonus…after all, someone has to throw dirt on the casket…

No evidence that I've seen that the Walmart situation that Herkert's implication by the New York Times in the Mexico bribery scandal had any impact on his Supervalu tenure.

Another reader wrote:

I know many good people, at Supervalu, that have endured the lack of leadership, direction, focus – operationally & merchandising, and the utter distain for front end employees, from leadership, in this organization since Herkert was hired.  This organization has one leg in the ground and other firmly planted in quicksand.

Still another MNB user wrote:

Either the board couldn't handle the negative press or a sales is pending and he was in the way? Or maybe Both! Just a thought.

Wishful thinking, I expect.

And from another MNB reader:

A lot of speculation that this was to slow down the bleeding and that he is keeping seat warm, as you say. Leading candidate on the rumor mill is Peter Lynch.

We'll see. I take Supervalu at its word - that it sees Sales as the long-term answer. Now he has to deliver.




On an entirely different subject, I laughed out loud at this email from an MNB user who wrote in about yesterday's story about how Jeff Bezos gave $2.5 million to support a Washington State ballot initiative legalizing same-sex marriage, and how there apparently are a number of wealthy Republicans who also support gay marriage.

These folks are all Republicans?

What’s next…conciliatory & open dialogue about other important issues such as gun control, tax reform, etc.?

I don't think either side is particularly open to such dialogue. Pandering to your base is so much easier.

The other problem is that a lot of these folks then get defined as RINOs. Which sort of reduces the likelihood of civil discussion and compromise.