retail news in context, analysis with attitude

Published on: February 19, 2013

by Kevin Coupe

Last week, the company that manufactures Maker's Mark bourbon announced that because of a raw materials shortage, it would begin watering down the product, reducing it from 45 percent to alcohol to 42 percent alcohol, without, it said, affecting the taste.

In the blog post acknowledging that the move was risky, Chairman emeritus Bill Samuels Jr. said that he hoped people would "allow us to prove that we didn’t screw up your whisky."

He got that wrong. Almost as wrong as he got the whole decision-making process.

Over the past week or so, the outcry from committed Maker's Mark drinkers was enormous - they did not believe the raw materials shortage story, they thought the company was trying to pad its bottom line, and they were willing to drink other bourbons to teach Maker's Mark a lesson.

The outrage reached such a fever pitch that over the weekend, the company posted the following letter on its site:

Dear Friends,

Since we announced our decision last week to reduce the alcohol content (ABV) of Maker’s Mark in response to supply constraints, we have heard many concerns and questions from our ambassadors and brand fans. We’re humbled by your overwhelming response and passion for Maker’s Mark. While we thought we were doing what’s right, this is your brand – and you told us in large numbers to change our decision.

You spoke. We listened. And we’re sincerely sorry we let you down.

So effective immediately, we are reversing our decision to lower the ABV of Maker’s Mark, and resuming production at 45% alcohol by volume (90 proof). Just like we’ve made it since the very beginning.

The unanticipated dramatic growth rate of Maker’s Mark is a good problem to have, and we appreciate some of you telling us you’d even put up with occasional shortages. We promise we’ll deal with them as best we can, as we work to expand capacity at the distillery.

Your trust, loyalty and passion are what’s most important. We realize we can’t lose sight of that. Thanks for your honesty and for reminding us what makes Maker’s Mark, and its fans, so special.

We’ll set about getting back to bottling the handcrafted bourbon that our father/grandfather, Bill Samuels, Sr. created. Same recipe. Same production process. Same product.

As always, we will continue to let you know first about developments at the distillery. In the meantime please keep telling us what’s on your mind and come down and visit us at the distillery. It means a lot to us.

Now, there's no question that the Maker's Mark folks have to get some credit for being willing to back off its announced decision, though it would have been a completely unsustainable strategy to ignore all the protests and forge ahead. However, Maker's Mark also has created suspicion about its commitment to a) the quality of its product, and b) its longtime customers.

Last week, we had an email on MNB from a Maker's Mark "Ambassador," who had for years enjoyed his role preaching the gospel of why his bourbon was getter than other bourbons ... and who, in the face of the watering down, planned to change brands. It was practically a case study in how to disenfranchise a customer, and we continue to get emails on the subject. For example:

Your response to the comments of the Maker’s Mark Ambassador reminded me of one of the business building rules of David Ogilvy that I read years ago in Fortune magazine… “Stop cutting the quality of your products in search of bigger margins.  The customer always notices – and punishes you.”

And from another reader:

While I am NOT a bourbon drinker I DO buy it for people as gifts…I used to buy Maker’s Mark. Now, based on the ‘enlightenment’ from the ex-Marker’s Mark brand ambassador, I will purchase W.L. Weller and/or Blanton’s.

This all adds up to a powerful lesson in brand management and brand equity, and in how fragile these things can be when the people "in charge" behave in a way that seems to ignore their customers' priorities.

Great brands share something important - the fact that customers feel a sense of ownership.

Brand managers forget this at their own peril. It is an Eye-Opener.

Published on: February 19, 2013

Don Marsh, the former CEO of the Indianapolis-based supermarket chain that bears his family name, has been ordered by a federal jury there to pay Marsh Supermarkets $2.2 million, the result of a trial that accused him of using corporate assets for personal gratification.

The charges specifically were that he defrauded the company by using corporate funds to finance extravagant trips to places like China, Russia and Cuba - allegedly to check out products and investigate the possibility of exporting his own private label products - as well as to hand out gifts to family and friends, including several mistresses that he was keeping on the side, including one in a New York City apartment.

Marsh got away cheap in the verdict - the plaintiffs were asking that he write a check for $7 million. However, as the Indianapolis Business Journal reports, the judge in the case still has to decide whether Marsh should receive his entire $4 million severance payment, or if he will have to return the $2 million in severance that he already has received.

It was revealed at the trial that Marsh also owes the Internal Revenue Service (IRS) more than a half-million dollars in back taxes.

According to the Journal story, "The company paid him roughly $2 million in severance before halting payments after it said an IRS audit found 'disallowed deductions' for personal expenses he racked up from April 2004 to September 2006. The company ultimately paid the IRS a $616,000 penalty.

"Don Marsh's attorneys insisted the trips were business-related and within the bounds of his employment contract, prompting the former CEO to countersue the supermarket chain. He claims the company wrongfully halted severance payments following its sale to Sun Capital Partners in September 2006, shorting him $2 million."

Marsh's attorneys argued during the case that Sun Capital bought the company, it established a code of conduct but never informed Marsh that they applied to him, and that he felt that, as CEO, the rules did not apply to him.

The severance ruling is expected to come fairly soon. Marsh's attorneys have left the door open for a possible appeal.

Published on: February 19, 2013

The Financial Times reports that Europe's "escalating horsemeat scandal has ensnared two of the biggest names in the food industry, Nestlé, the world’s number-one food maker, and JBS, the largest beef producer by sales."

According to the story, "Switzerland-based Nestlé on Monday removed pasta meals from shelves in Italy and Spain and suspended deliveries of all processed products containing meat from German supplier, H.J. Schypke, after tests revealed traces of horse DNA above 1 per cent. Nestlé said it had informed the authorities.

"H.J. Schypke was subcontracted by JBS Toledo, part of Brazil-based JBS, which claims on its website 'to supply the ready meals and catering industry with only the highest quality processed meat without concessions. From the selection of animals to the final packing, every facet of the production flow meets the most exacting requirements.'

"JBS late on Monday moved to distance itself from the scandal, saying none of the tainted products came from its factories and clarifying that H.J. Schypke 'is not in any way part of the JBS Group'."

Published on: February 19, 2013

It may not be a good month for Walmart ... since one of is executives, Jerry Murray, has been quoted in a Bloomberg story as writing an email that said:

"In case you haven't seen a sales report these days, February [month-to-date] sales are a total disaster."

Randy Hargrove, a spokesperson for Wal-Mart, followed up on the Bloomberg story by saying that "as with any organization, we often see internal communications that are not entirely accurate, that lack the proper context and represent individual opinions."

Published on: February 19, 2013

Bloomberg reports that Google may soon open retail stores in the US that would sell Google-branded hardware, "in another sign the company is studying Apple Inc.'s playbook for building a consumer-electronics brand." Apple has about 400 stores worldwide, generating about $10 billion in annual sales.

No timetable has been set for the store openings, though a 2013 launch is not out of the question.

According to the story, "There would be a lot for Google to display in its own retail stores. Google's Android division has been developing home-entertainment devices, and in recent years it has worked closely with hardware manufacturers to build Android-powered smartphones and tablets under the Nexus brand that Google has sold through its website.

"Google has also developed low-priced Chromebook laptops, powered by its Chrome operating system and built by hardware makers such as Samsung ... Google could also use retail stores to show off Google TV software that is embedded in some TV sets and set-top boxes, allowing people to browse Web video content from their televisions."

Published on: February 19, 2013

Bloomberg reports this morning that Best Buy "will make permanent its holiday price-matching policy to get shoppers to stop using its stores for scouting products they later buy online elsewhere." At the same time, Best Buy will reduce its return policy from 30 days to 15.

“We are going to a low-price guarantee,”says spokesman Matt Furman. “There is no doubt that this new policy ends showrooming for Best Buy customers.”

Published on: February 19, 2013

• The Washington Post reports that "after months of delays, Wal-Mart has three stores under construction in the District, and developers are re-working plans for a fourth and fifth store on East Capitol Street and New York Avenue NE.

"Of the three stores under construction, two are part of mixed-use projects the likes of which the retailer shied away from until a few years ago. Two are scheduled to open later this year."

Walmart originally hoped to open four stores in Washington, DC, last year, but that timeline "proved too optimistic," the Post writes.

• The Hartford Courant reports that Walmart will open its first Neighborhood Market in New England tomorrow, in the Bishops Corner section of West Hartford, Connecticut - a 60,000 square foot unit that is almost twice the size of the usual Walmart Neighborhood Market.

According to the story, "Competitors in the Bishops Corner area have been preparing since Wal-Mart announced last year that it would open a neighborhood market in a long-vacant supermarket space in the Marshall's plaza.

"Springfield-based Big Y Food Inc. has poured $1.7 million into renovations at its store diagonally across North Main Street from the new Wal-Mart store. The updates to the West Hartford store debuted last week ... In addition to Big Y, Bishops Corner has Whole Foods and Crown, a kosher market, both of which cater to specialized customers."

There are now 267 Neighborhood Markets in the US.

Published on: February 19, 2013

...with brief, occasional, italicized and sometimes gratuitous commentary...

• The Chicago Tribune this morning reports that Office Depot and OfficeMax are in merger negotiations, with a deal possible by the end of the week.

Neither company is commenting on the report. A possible merger has been rumored for years, as both companies have struggled to gain market share against Staples.

• The Wall Street Journal reports that "Reader's Digest Association and six affiliates filed for Chapter 11 protection late Sunday night, the publisher's second bankruptcy filing in 3½ years and another example of the pressures on media companies still relying on their print publications."

According to the story, Reader's Digest "emerged from its last bankruptcy 'on a very healthy and viable basis' ... but even a lighter debt load couldn't save the company from the pressures on print publishers."

I know I get into trouble when I write this, but Reader's Digest just strikes me as a completely obsolete business model.

• The Los Angeles Times reports that hackers took over Burger King's Twitter account late last week and changed it so it would look like McDonald's. By Sunday, Burger King had taken its Twitter account offline.

According to the story, "The hackers claim to be a part of the LulzSec group, which since 2011 has gone after a number of high-profile targets including Sony and several government agencies."

Could have been worse ... could have been a unit of the Chinese Army, which, as the New York Times reports this morning, has been responsible for "an overwhelming percentage of the attacks on American corporations, organizations and government agencies" that have been perpetrated online over the past few years.

Published on: February 19, 2013

• Weis Markets announced it has promoted Rick Seipp to Vice President of Pharmacy. Prior to his promotion, Mr. Seipp was the Company’s Director of Pharmacy Operations.

• Global Organic Specialty Source named Jeff Patterson, the former Sales Manager of L&M Cos., as its new Director of Sales and Business Development. Global Organic is a wholesale distributor of certified organic produce, serving large supermarkets, retail stores, restaurants, resorts, and buying clubs/co-ops.

Published on: February 19, 2013

• MarketWatch reports that "Otto Beisheim, the billionaire co-founder of retail group Metro AG, was found dead Monday at his home in Bavaria." Beisheim, who was 89, "reportedly committed suicide after being diagnosed with an incurable illness."

Published on: February 19, 2013

...will return next Tuesday.

Published on: February 19, 2013

Last week, we reported on the sad story of John Alleman, a 52-year-old man who died of a heart attack the other day. In some ways, the heart attack was unexpected - Alleman was 180 pounds and at least from outward appearances, in decent shape.

Here, in part, is what I wrote on Friday:

What made the heart attack so ironic was that for more than two years, Alleman ate at least once a day at a Las Vegas restaurant called the Heart Attack Grill, which has as its slogan, "taste worth dying for," and sells high-calorie, high-fat meals including Double Bypass Burgers, Flatliner Fries, Full Sugar Cokes, and Butterfat Shakes. Reports also are that the Heart Attack Grill would give free meals to customers weighing more than 350 pounds.

Let me be clear about this. I think that Alleman had the right to eat anything he wanted.

I think that the Heart Attack Grill has the right to sell anything it wants - and you certainly cannot accuse it of misleading labeling.

There are some who are saying that the Heart Attack Grill should be shut down. I'm not sure why. The restaurant didn't kill this guy. If anything, he committed suicide ... though it certainly was complicit is his death.

But what really bothers me about this is something that cannot be legislated. It is the exploitive nature of this restaurant, that it seems to delight in catering to lowest common denominator instincts. The restaurant certainly isn't alone in this - we live in a culture that does so. Think reality television. Think Donald Trump. Think anyone named Kardashian.

The best that the owners of the Heart Attack Grill could do with their lives is sell, among other things, a three-pound hamburger that had more than 9,000 calories, and give away food to people who are morbidly obese.

Heaven knows what these people would do for a living if heroin were legal. Probably open a store and sell it to most people, but give it away to people with track marks on their arms ... I think people should eat what they want, and I'm all in favor of gastronomic indulgence.

But there is something about this story - and what it says about our culture - that just makes me sick.

Lots of emails responding to this story and commentary.

One MNB user wrote:

There are many who say the place should be shut down, but if that was the case then any place in the USA can be shut down as well. The stores that sell Cigarettes, Alcohol, Fattening Foods, Sweets …. Fast food joints that serve horse meat, Denny's Grand Slam Breakfast….Yes the list goes on and on…. Sorry, except for the people who die with a bad heart or set of genes, we are in charge of our own destiny most of the time. Do we ban everything that is bad for us?…. NO….. You make the choice how much is right for YOU…. And get credit or pay the price for what happens…. Even after you are gone…. 

MNB user Tom Dobat wrote:

Really??????

You stooped so low as to compare the owners of a this restaurant to that of a drug dealer? Certainly the idea of serving these huge burgers and marketing themselves they way they do may not be in the best taste but are they really any different than a liquor store or a casino or the fast food hamburger chains for that matter?

They are in business giving people the choice, nobody is forcing these people to eat there! Why are we all so quick to place blame on everything but ourselves these days! We all make choices and some of us make bad choices and some make good ones.

If a man looses everything he has time after time at a casino is the casino no better than a heroin dealer?

If we are going to try and prevent people from doing the wrong thing then we better prevent business's from selling fast cars, motorcycles, cigarettes, alcohol, and close every casino in the world! Because if any of these things are not used with moderation and caution then they are as deadly if not more so than a huge hamburger!

From MNB user Dennis Barthuly:

OK – so the guy eats food that’s not the most healthy. As you stated, it was his choice…

We are Americans – we delight in our ability to make unfettered choices as free citizens.
Same holds true for having a cocktail or glass of wine – we make the choice on whether we partake or over-indulge.

While we can hold manufacturers/purveyors responsible for the quality and transparency of what’s in their products, we can’t hold them responsible for the level of our consumption.

Is GM responsible for the guy that drives his new Corvette at an excessive speed and causes a fatal accident?

There are too many people in this country ready and willing to blame someone other than themselves for the choices they make.

We all need to stand up and take responsibility for OUR actions.
 
MNB user Mark Delaney wrote:

Normally right with you on these stories but have to say I’m not sure I agree on this one. No one in their right mind can enter an establishment with a name and menu like that and think they’re doing something good for their body and being in Sin City one could argue it’s marketed to folks that are not there for business but rather to celebrate something or just ignore life for  a brief period of time as that’s certainly what the Strip is built for. ( too much time anywhere on the strip will likely kill you ) His regular patronage of the place – while a shame – was completely in his control and his choice. Would I sleep soundly owning a place like that – no – but I don’t push my moral code on anyone else ( as warped as it is ). In a sense, this is similar to Mayor Bloomberg’s efforts – while I think 64 oz. of soda a day is a fast track to an early grave I didn’t agree with that either – but the Styrofoam ban I can get behind as that affects the planet we leave for our kids. Same with smoking in bars and restaurants – those habits affect others nearby so I guess that’s where I draw the line. My sympathies to his family but I’m quite sure that the majority of the strip would disappear if we started to legislate common sense…..
 
Don’t eat beignets – too much sugar and dough…..

From another reader:

He died of a heart attack.  That’s all we know.  Right now this is nothing more than headline.  Assumptions are being made that it was caused by his diet i.e. eating at the Heart Attack Grill.  He may have had a history of heart disease in his family.  Heck, he may have been married and dating two woman on the side, owed $300k to a loan shark for covering his gambling debt, and he was under water and 4-months behind on his mortgage, all of which could create enough stress to kill you.  If these were true, the question is what put him over the edge….the burger or the mistresses.  Now we went from a headline to an NBC Dateline special.
 
And another:

The Heart Attack Grill found a niche and is enjoying some success. You reported yourself that its burgers are fantastic.
 
People are put off by the name and the fact that they give free food to the obese, but it can be argued that both would encourage healthier lifestyles through the use of reverse psychology. People, who are put off by this company,  are latching onto this story because they seem to believe it supports their claim that The Heart Attack Grill is responsible for people’s poor choices, or as you stated are complicit in the man’s death.
 
I’m sure that if the media wanted to they could find several examples of people who lived ‘ideal’ lifestyles and died young of heart attacks or heart disease. My brother-n-law is an example of this. He was 56, ate right and was in great shape. Last year, he literally died on his bicycle while on one of his regular rides.
 
I’m tired of all the push to regulate everything. Talk about lowest common denominator. I’m in favor of education but leave me alone to live and die as I will.

A funny line from MNB user Scott Svarrer:

It’s a shame he died so young, but no one put a bun to his head.

I did get one email from someone who actually seemed to have read my commentary:

Your piece on the Heart Attack Grill reminded me of one of my favorite sayings, ‘just because you can, doesn’t mean you should.’

Apparently, when I wrote last Friday that I wanted to be clearabout the fact that "Alleman had the right to eat anything he wanted" and that "I think that the Heart Attack Grill has the right to sell anything it wants - and you certainly cannot accuse it of misleading labeling," I wasn't nearly clear enough.

So let me re-=emphasize those two points.

I was not calling for the legislation or regulation of anything. And I noted that the Heart Attack Grill certainly was honest about its labeling.

But I am perfectly happy to stand behind my essential argument - that we live in a culture that seems to exploit people's weaknesses. I'm not so much talking about Alleman here as I am about the stated policy of free food to anyone over 350 pounds.

To me, that is just appalling. It shouldn't be legislated, it shouldn't be regulated. But it seems morally and ethically reprehensible. And yes, sort of like giving free heroin to an addict. (A bit of hyperbole? Sure. But defensible hyperbole.)

There's a broader issue here. It just seems to me that sometimes as a culture, we don't strive to be the best we can be and to appeal to the highest common denominators. Instead, we prey on people's foibles, we celebrate and ridicule them on reality TV shows, we give free, fatty food to morbidly obese people ... and then we call it entertainment, we call it free enterprise, and then we wonder why some people think that American exceptionalism may not be as exceptional as it used to be.

(I use as my guide in this area my friend Norman Mayne, who once told me that while he appreciates the fact that his Dorothy Lane Markets are so highly thought of, and even legendary in the business, the most important thing to remember is that each day they have to earn those adjectives all over again. So it goes, I think, for the notion of exceptionalism.)

I know it sounds like I am on my moral high horse here, and I don't mean to be. I'm as capable as being petty and negative as anyone, and I do it with a little bit of a soapbox.

It's just that I read the Heart Attack Grill story, and it makes me think that we can do better.

Not because we have to. Not because we are forced to. But because we can. And maybe, because we should.