business news in context, analysis with attitude

Published on: March 27, 2013

by Kevin Coupe

When retailers take political or cultural positions, it can have an impact on sales. While there's nothing necessarily right or wrong about taking a stand that can bolster support in some communities while raising hackles in others, it is critical that business leaders understand that such actions have consequences.

That's what Chick-fil-A found out when its CEO, Dan Cathy,. was quoted as saying he personally supported only the "Biblical definition" of marriage, which means between one man and one woman. This put Chick-fil-A right in the middle of the gay marriage debate, irritating some consumers but also leading to considerable support for the company in conservative circles.

Since then, Chick-fil-A has emphasized that it does not discriminate against anyone, and there have been reports that the company has stopped funding groups opposed to same-sex unions.

Well, a similar case has occurred, raising exactly the same issues ... though from the opposite political/cultural perspective.

Last week, at Starbucks' annual shareholders meeting, CEO Howard Schultz was questioned by stockholder Thomas Strobhar, the founder of the Corporate Morality Action Center, which opposes gay marriage. Starbucks last year endorsed a Washington State proposal that would have legalized gay marriage, and Strobhar criticized the endorsement, saying that it hurt sales and profits because of a small-scale boycott of the company organized by the National Organization for Marriage.

Schultz essentially told Strobhar to take a flying leap: "If you feel, respectfully, that you can get a higher return than the 38 percent you got last year, it’s a free country. You can sell your shares of Starbucks and buy shares in another company. Thank you very much."

It was, the Washington Post notes, "language one rarely hears from corporate executives," though the story notes that it garnered much applause from the shareholder audience. And, it can be argued that while Starbucks' position may be cultural, it also can be seen as having an economic calculation:

"Schultz’s support of same-sex marriage is very much about dollars and cents — or at least about brand value and employee retention, which both affect the bottom line. For many big companies, the fear of losing out on talented employees or loyal customers who support gay rights is even greater than the fear of losing out on the dwindling number of those who don’t.

"That’s especially the case for a company like Starbucks, with its coffeehouse roots, its urban customer base and its touchy-feely talk about employees (it calls them 'partners' and offers benefits other fast-food restaurants do not). And Schultz is not alone in voicing his support for same-sex marriage; CEOs including Goldman Sachs’ Lloyd Blankfein, Amazon’s Jeff Bezos and Microsoft’s Steve Ballmer have as well."

It is, of course, a subject that is very much top of mind this week with the Supreme Court hearing arguments in two different same-sex marriage cases. And it illustrates two things - the degree to which American mainstream opinion seems to have shifted on the issue, and the calculations that sometimes go into the taking of political positions by corporate executives.

Published on: March 27, 2013

Supervalu, just days after it sold off five banners to a consortium led by Cerberus Capital Management, said yesterday that it will eliminate 1,100 positions nationwide, including 600 - or almost 40 percent of the total - from its Eden Prairie, Minnesota, headquarters.

According to Supervalu, the layoffs will start in late May and run through October, "based on the needs of the business and the areas they support." The cuts are said to "include both current positions and open jobs that will not be filled."

The announcement said that the move "affects nearly all company offices and crosses most departments within the organization. In general, store level employees and Save-A-Lot, the company’s hard-discount retail chain, are not affected by this announcement. Employees whose positions are eliminated will be offered severance and outplacement services based on Supervalu’s eligibility guidelines.  "

"The decision to reduce our workforce, although difficult because of the impacts to our people, is the necessary next step in the rebuilding of our business,” said Sam Duncan, the new CEO at Supervalu. "This move is an important part of our strategy to be more focused and efficient in our operations, including how we staff and support our three business units going forward."

In a memo to employees yesterday, Duncan said that "leaders will begin meeting with employees, both impacted and non-impacted, this morning. It may take several days to conduct all of the meetings, depending on the size of the department."

Published on: March 27, 2013

Walmart, looking to find ways to make the "last mile" between its online store and the shopper smoother and more convenient, currently is "testing the use of lockers to hold goods ordered on the Internet until shoppers pick them up," according to a story from Reuters.

The program is similar to one being implemented by Amazon, though there are important differences. For one thing, Amazon is putting its lockers in a variety of third-party locations, such as 7-Eleven convenience stores, retailers such as Staples, and parking lots; while the company does not seem to be saying how many locker installations it has, there would appear to be dozens, maybe hundreds in the US and the UK.

Walmart is installing lockers in six of its own stores.

However, the upside for Walmart would appear to be pretty high if it were to install lockers in many, most, or all of its 4,000+ US locations.

This development suggests that the battle between Walmart and Amazon is moving to the next level, with both companies maneuvering to find ways to dominate the e-commerce business.

While Walmart does $466 billion in annual sales, it is expected that it will only do about $9 billion of those sales online this year. Amazon, which only operates online, had $61 billion in revenue last year, though when you include Marketplace sales by third party retailers operating on its site, that annual sales number probably is closer to $100 million.

Published on: March 27, 2013

There is a fascinating piece in The Atlantic about how some retailers manage to pay cashiers wages way above minimum wage and still manage to be prosperous, and why this can be a good idea.

An excerpt:

"The average American cashier makes $20,230 a year, a salary that in a single-earner household would leave a family of four living under the poverty line. But if he works the cash registers at QuikTrip, it's an entirely different story. The convenience-store and gas-station chain offers entry-level employees an annual salary of around $40,000, plus benefits. Those high wages didn't stop QuikTrip from prospering in a hostile economic climate. While other low-cost retailers spent the recession laying off staff and shuttering stores, QuikTrip expanded to its current 645 locations across 11 states.

"Many employers believe that one of the best ways to raise their profit margin is to cut labor costs. But companies like QuikTrip, the grocery-store chain Trader Joe's, and Costco Wholesale are proving that the decision to offer low wages is a choice, not an economic necessity. All three are low-cost retailers, a sector that is traditionally known for relying on part-time, low-paid employees. Yet these companies have all found that the act of valuing workers can pay off in the form of increased sales and productivity."

You can read the entire story here.

Published on: March 27, 2013

Boston magazine has a piece suggesting that the likelihood that Wegmans will open a downtown Boston store will force Shaws - now owned by Albertsons LLC, after having been sold off by Supervalu - "to come up with additional offerings in order to maintain a competitive edge in the Boston neighborhood." where it would be competing with Wegmans. The sale to Albertsons was only finalized last week.

According to the story, "Shaws has recently been struggling on the corporate side as customers have lost interest in shopping at some locations based on higher prices compared to the competition. According to the Boston Globe, 'once one of the region’s dominant grocery sellers,' customers continue to flock to different chains to get the basic necessities from grocery retailers. The report claims that Shaws 'lost its way' and analysts place the blame on Supervalu Inc., a Minnesota-based supermarket agency that purchased both Shaws and its affiliate, Star Market, more than a decade ago. The Globe cites this eye-popping statistic: Shaw’s sales have eroded by about $1.5 billion since 2006 and its New England market share has dropped from 19 to 11 percent."

If there is good news for Shaws, it is that it "still has time to do some advanced planning, since the Wegmans announcement is still in its first stages, and the company has yet to finalize a deal on a location," Boston reports.

Published on: March 27, 2013

CNBC reports that "craft beer is the rolling like a runaway train. The Brewers Association, the trade group which represents small and independent brewers, is out with its final numbers for 2012 and the growth in the craft beer segment continues unabated. According to the Brewers Association, craft brewers saw a 15 percent rise in volume and a 17 percent increase in dollar growth in 2012. Helping to drive the growth? A proliferation of new players entering the market. 409 new breweries opened in 2012, bringing the total brewery count at the end of 2012 to 2,403."

Published on: March 27, 2013

• Yahoo Finance has a story saying that Walmart's efforts to reduce its labor expenses have resulted in having too few employees to to essential tasks like stock shelves, a problem that leaves merchandise "piling up in aisles and in the back of stores ... A thinly spread workforce has other consequences: Longer check-out lines, less help with electronics and jewelry and more disorganized stores ... Last month, Wal-Mart placed last among department and discount stores in the American Customer Satisfaction Index, the sixth year in a row the company had either tied or taken the last spot.

"The dwindling level of customer service comes as Wal-Mart has touted its in-store experience to lure shoppers and counter rival Amazon.com Inc."

The story follows up on an earlier Bloomberg piece detailing the same issues, and suggests that it is a kind of vicious cycle: "Too few workers leads to operational problems. Those problems lead to poor store sales, which lead to lower labor budgets."


• Reuters reports that Walmart conceded yesterday that its internal costs related to the investigation and defense of allegations that it committed systemic and systematic bribery of officials in Mexico will probably assure that it will incur financial losses.

The bribery of officials, report say, allowed the company to speed up its Mexican expansion. The investigation already has cost the company $157 million, and the number is growing.


• The Chicago Tribune reports that "online car-insurance retailer Esurance is launching a pilot program on Friday to market coverage within 150 Illinois Wal-Mart stores." According to the story, Allstate-owned Esurance "is setting up unmanned kiosks at which shoppers in the world's biggest retailer may pick up a savings card to buy coverage. Customers may then use a code on the card to get a discount on car insurance. They may either call a toll-free number on the card to speak with an Esurance agent, who will ask them a few questions and give them a quote, or they may go to the Web site mentioned on the card to complete the process." Policies will not actually be sold in Walmart stores.

Published on: March 27, 2013

Reuters reports this morning that troubled retailer JC Penney has "resumed a marketing strategy of raising prices and then discounting them on its own brands in a move to protect profit margins and win back the bargain-conscious shoppers it lost last year" when it moved to an EDLP strategy that resulted in a 25 percent drop in sales.

CEO Ron Johnson, who came to JCP from the Apple Stores and hoped to bring some of that magic to a business that had severe problems, has conceded that his approach was a mistake and has made things worse, though he has reiterated that JCP "will stick with the everyday low pricing approach at in-store branded boutiques" carrying names such as Sephora and Izod.

There was, by the way, a terrific piece in The New Yorker recently by James Surowiecki in which he looked at the Ron Johnson tenure at JCP, noting that Johnson wanted to not just revolutionize Penney, but seemingly the entire discount department store business. "Fourteen months later, J. C. Penney is America’s favorite cautionary tale. Customers have abandoned the store en masse: over the past year, revenues have fallen by twenty-five per cent, and Penney lost almost a billion dollars, half a billion of it in the final quarter alone. The company’s stock price, which jumped twenty-four per cent after Johnson announced his plans, has since fallen almost sixty per cent. Twenty-one thousand employees have lost their jobs. And Johnson has become the target of unrelenting criticism."

While Johnson was successful in previous jobs at Target and Apple, Surowiecki wrote, "the circumstances at Johnson’s previous companies were radically different from those at Penney. Target was a thriving company that had already positioned itself as a trend-aware, fashionable store, so Johnson had plenty of support in the effort to make it cooler. And, while the Apple Store is a brilliant retail concept, its success was surely helped by the fact that it has been home to three of the best-selling consumer products ever.

"At Target and at Apple, Johnson was running with the wind, not against it. At Penney, he’s trying to do something very different: remake a company’s DNA ... if Johnson isn’t as good as he looked at Apple, he’s probably not as bad as he looks at Penney. Indeed, his biggest mistake may simply have been taking the job in the first place. He’s become a living example of one of Warren Buffett’s keenest observations: 'When a manager with a reputation for brilliance tackles a business with a reputation for poor fundamental economics, it is the reputation of the business that remains intact'."

Published on: March 27, 2013

• Walmart and American Express yesterday announced that their Bluebird debit/checking accounts now will be eligible for insurance provided by the Federal Deposit and Insurance Corporation (FDIC), expanded security that the companies say will give Bluebird accounts "the ability to receive direct deposit of government payments, such as social security payments, military pay, and tax refunds."

The companies also said that Bluebird customers "can also balance their Bluebird checkbook in real-time with pre-authorized check writing, add checks to their Bluebird Account by mail and add funds up to $100,000 annually."

Bluebird has been designed by the two companies to appeal to the unbanked and under-banked segment of the US population.


• The Conference Board said yesterday that its monthly index of consumer confidence dropped 8.3 points to 59.7 in March, a drop that it blamed on federal budget cuts forced by the sequester earlier this year.


• The Wall Street Journal reports that "protein is the buzzword that is helping sell many kinds of foods. Food companies are placing more prominent protein labels on packaging and adding protein to such products as drinks, bars and cereals ... A label that says protein has what researchers call a 'health halo effect' that goes beyond just the promise of protein. When people see the word, they also believe the product will make them feel more full or give them energy."

The irony, according to the Journal, is that "health organizations including the Centers for Disease Control and Prevention say that the average meat-loving American actually eats more protein than needed, which adds to the daily caloric intake."

Published on: March 27, 2013

Albertsons LLC, the company owned by a consortium led by Cerberus Capital Management and operating former Supervalu banners that include Acme, Albertsons, Jewel-Osco, Shaws & Star Market, made a number of executive appointments yesterday.

• Mike Massimino to the new position of Senior Vice President of Marketing & Merchandising; Massimino served as President of GM/HBC at Albertsons Inc.’s Scottsdale office prior to joining Albertsons LLC in 2006 as Group Vice President, Center Store.

• Rick Bunnell to the new position of Senior Vice President of Supply Chain; He joined Albertsons LLC in 2006 in that same role, and was promoted to Group Vice President of Supply Chain in 2012. 

• Justin Ewing to the new position of Senior Vice President of  Corporate Development and Real Estate; Ewing joined Albertsons LLC in 2006 as Vice President of Corporate Development, and in 2011 took on the role of VP Real Estate and Development.

The company also announced that it has selected the Division Vice Presidents for new and legacy operating divisions:

• Acme Markets: Dennis Clark, most recently Vice President of Merchandising for the Acme division of Supervalu, "will retain his role at the division going forward Dennis began his retail career with Safeway in Utah and started with Albertsons Inc. in 1988. Acme is also retaining Dan Croce as Vice President of Operations, who joined Acme in 2005."

• Albertsons Northwest Division: Dennis Schwarz, most recently a district manager in the Seattle area for the Intermountain West division of Supervalu, and previously Vice President Sales & Merchandising for the same area, has been named the Northwest Vice President of Marketing & Merchandising.

• Albertsons Intermountain Division: John Colgrove, most recently Sales Merchandising Manager for the Intermountain West division of Supervalu, and previously a Vice President of Marketing & Merchandising for the Dallas Fort Worth Division of Albertsons Inc., has been named the Intermountain Vice President of Marketing & Merchandising.

• Albertsons Southern California: Greg McNiff, most recently Sr. VP Operations in the Southern California division of Supervalu, has been named the Vice President of Marketing & Merchandising. Additionally, Wendy Oliver, most recently Area Vice President of Operations, has been named Vice President of Operations for the division.

• Albertsons Market Southern Division: David Urby, most recently a District Manager for the Southern Division’s West Texas stores, has been named the Southern Vice President of Marketing & Merchandising.

• Albertsons Market Southwest Division: Greg Matteri, most recently Meat Sales Manager for the Southwest division, has been named the Southwest Vice President of Marketing & Merchandising.

• Jewel Osco: Ken Diehl, formerly Vice President of Marketing & Merchandising of the Southwest division of Albertsons LLC, has been named Jewel Osco’s Vice President of Marketing & Merchandising.

• Shaws & Star Markets: – Paul Gossett, most recently Senior Director of Merchandising at Nash Finch, has been named Vice President of Marketing & Merchandising.

• Pharmacy Division: Tom Rousonelos and Stewart Edington have been named Vice President of Pharmacy Operations for the company’s NAI and Albertsons LLC divisions, respectively. Rousonelos most recently was Vice President of Pharmacy Operations for Jewel-Osco, Albertsons Intermountain West, Cub and Shop N Save. Edington joined Albertson’s LLC as the division pharmacy manager and was promoted to Vice President of Pharmacy in 2011.

Published on: March 27, 2013

...will return.