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    Published on: January 14, 2014

    by Michael Sansolo

    SCOTTSDALE, Arizona — Good timing can never be taken for granted. And good timing is the reason why the For Marketing Institute (FMI) Midwinter Executive Conference took on special significance and importance by focusing heavily on Big Data and the challenges of cyber security.

    Both issues are increasingly central to business discussions, but never more so than now as news stories focus on the massive data spill at Target and subsequent reports that Neiman Marcus and other retailers may have been impacted. As a result, a program heavy on data use and management, a topic that once would have been consigned to a technology meeting, had unusual relevance for the food industry’s leadership.

    Charles Wheelan, author of "Naked Statistics: String the Dread from Data," took the group through a review of Big Data, highlighting what it is, the values it produces and also the pitfalls it creates. As Wheelan explained, Big Data enables companies to combine massive amounts of findings from multiple sources and studies to create an unheard of level of insight on many topics including consumer behavior.

    Such data driven insights produce benefits as divergent as the improved safety of automobiles to the sophisticated valuation of baseball players as documented in the book and movie Moneyball. Armed with Big Data, the food industry can make connections that could lead to improved shopping experiences by target marketing to expected and unarticulated customer needs.

    But Wheelan offered those benefits interspersed with the downsides of Big Data. He explained the obvious, but frequently overlooked necessity of blending data with common sense and experience to help produce better decisions.

    Robert Mueller III, who in September stepped down as head of the Federal Bureau of Investigation (FBI), examined a different angle on data management with his review of how terrorism, technology and cyber crime have changed the nation’s top law enforcement branch. Mueller took office shortly before the terrorist attacks of September 11, 2001, and he explained how, not surprisingly, that incident altered the FBI’s role and priorities.

    Mueller’s experience had an especially strong parallel to management challenges. He explained the FBI’s pivot from reacting to crime to preventing it, in order to stop future terrorist activities. Mueller’s experience, as well as his admitted difficulties in adjusting to the new world of technology-based crime, demonstrated the growing complexity of the world.

    In many ways, it was a message similar to that from Kevin Davis, the president and CEO of Bristol Farms and also chairman of the Midwinter Conference. Davis opened the conference talking about the enormous scale of issues industry leaders must focus on these days. “ We have to know more than we ought to know,” he said, paraphrasing Mark Twain, adding that there is really no option.

    The first day of the meeting also featured:

    • A update on FMI activities across a broad spectrum from FMI Chairman Fred Morganthall, the President and COO of Harris Teeter, and Leslie Sarasin, the president and CEO of FMI. Sarasin also examined some of societies changes, especially population and technological shifts, and how those changes impact supermarkets.

    • Panel discussions of industry professionals followed the presentations by Wheelan and Mueller to add real world experiences to the topics of Big Data and cyber security.

    • Dina Howard of Saatchi and Saatchi examined the human connections company must make to build great customer loyalty and experience in stores or with products.

    • FMI also ran a special program geared to independent operators examining the changing customer; the importance of heightened focus and opportunity in fresh products and meal solutions; and methods to improve communications between suppliers and smaller buying operations.

    Michael's View: Without putting too much importance on a single meeting, it’s possible to see the data-dominated discussion as a sea change for a topic once widely avoided by CEOs. In many ways the Midwinter discussion of data was reminiscent of past discussions of food safety, which thanks to news events grew into a prime industry concern.

    Clearly both the topics of data security and Big Data require some broad industry thinking. On data/cyber security, recent events have shown the vulnerability of retail and there is no possibility that the problem will disappear anytime soon. Just as with food safety, the companies not directly impacted by a problem might consider themselves lucky, but will likely still suffer from the same loss of confidence by customers.

    In other words, marketing against another company’s misfortune would look mean-spirited and short sighted because no company can believe itself immune from this topic. It suggests that FMI is on the right path to elevate this topic and produce an environment for sharing of both problems and solutions.

    A similar approach came up in the panel discussion on Big Data, featuring representatives of Safeway and Hershey. Here again the ability to gain the largest benefits of these enormous data gathering efforts might come from mutual efforts between trading partners.

    One personal note: as someone who , while working at FMI used to spend a lot of time on this Midwinter event and a technology show, Marketechnics, it was amazing to see this topic move so clearly to center stage. But as former FBI director Mueller made clear, the nature of crime is very different today thanks to technology and the situation will likely get more, not less complex, in the future.

    Problems and challenges constantly evolve, tasking top management to evolve with them or risk getting overwhelmed.

    KC's View:

    Published on: January 14, 2014

    by Kevin Coupe

    Speaking of timing…

    It is ironic that at a time when data security is on there front pages of every newspaper and a lead story on many newscasts, Google has announced that it is spending $3.2 billion to acquire Nest, described by the Washington Post as a company that "produces learning thermostats that adjust their programming to your daily routine, as well as smoke alarms that communicate with the company's other devices."

    One of the things that is interesting about this is that the Post story notes that "while Nest insists its customer data will be used only for improving its services, it didn't rule out sharing that data with Google — prompting some critiques from civil libertarians … The concern is more than simply academic. By monitoring customers' thermostat use, Google would be able to determine when a user is at home and when they're out. It would know the limits of your comfort zone, and perhaps even combine it with information gathered from your cell phone to make even deeper determinations."

    Now, both Google and Nest say that they have privacy policies in place that would prevent such sharing and exploitation of personal data, but skeptics point out that privacy policies can be changed with a couple of keystrokes.

    In many ways, this story highlights the points that Michael Sansolo made in his report from FMI Midwinter. It isn't hard to see the positives in the connected home, where appliances are not just linked together, but also to some sort of central intelligence that can make them work in a way that is more relevant and helpful to our lives. But, it also doesn't take a lot of imagination to think that the central intelligence might be akin to Skynet.

    It is an Eye-Opener.
    KC's View:

    Published on: January 14, 2014

    MarketWatch reports on an IBM survey suggesting that while "showrooming" is a growing trend, it is still not one being used by a majority of shoppers.

    Showrooming is the act of going into a store and using a smart phone or other mobile device to ascertain whether the desired product is available online, and then buying the product using the device.

    IBM says that a survey it conducted at the end of last year suggests that just eight percent of respondents engaged in showrooming, an increase from six percent a year earlier but hardly a daunting percentage. However, while nearly 50 percent of online purchases in 2012 came as a result of the practice, that number fell to 30 percent in 2013.

    According to the story, "the IBM survey found that price consistency across retailers’ Web and store channels is the most important thing for consumers out of about 40 capabilities they’d like to see from a retailer. The other top priorities also include a retailer’s ability to ship items that are out of stock in the store directly to their home, the option to track the status of an order, consistent product assortment across channels and the ability to return online purchases in the store.

    "The survey also found that 36% of shoppers said they are willing to share their current location with retailers via GPS navigational device. That rate about doubled from the prior-year percentage. Meanwhile, about a third of shoppers said they are willing to share their social network 'handles' with retailers and about one-fifth said they would be willing to give retailers their mobile numbers to receive text messages."
    KC's View:
    think the statistics matter, but not all that much. It seems to me that we continue to be in a transitional time, but it is inevitable that over the long term, more people are going to use their mobile technologies to access information - including but not limited to pricing - about the products they are seeing in stores.

    Bricks-and-mortar retailers would be foolish to think that this trend won't continue to grow. All this means is that they have to figure out where they fit on the omnichannel continuum, and how to make sure that when people come into their stores, the most compelling thing to look at is not a smart phone screen.

    Published on: January 14, 2014

    Reuters reports that Democrats in the House of Representatives have called for hearings by the House Financial Services Committee into the recent hacking of credit and debit card data of tens of millions of Target customers. The request mirrors a similar call in the US Senate, where the Senate Banking Committee already has said that it will hold hearings into the breach later this month.

    Hearings, lawmakers say, should examine current consumer protection laws to see if they are adequate as well as explore whether new laws need to be written that would expand financial security regulations.

    Investigations already have been launched by several federal agencies, and a number of state probes also are seen as likely.
    KC's View:
    This is how it starts. Expect lots of hearings, lots of executives being questioned under oath, and lots of stories that highlight the holes in the system. As Michael said in his piece above, this makes it more critical that retailers take an industry-centric approach to protecting data …. and communicating the shoppers that the retail business is looking out for them.

    Published on: January 14, 2014

    The New York Times reports that GE Capital Retail Bank, which offers branded credit cards for numerous retailers, is getting into the loyalty marketing business.

    According to the story, "GE Capital and a partner are teaming up on a new product, to be announced this week, to help retailers set up and maintain loyalty programs that will create a unified profile for shoppers. That means they can be monitored across any platforms they might use to interact with the company, like Facebook, Foursquare or an app, and their purchases can be integrated into that profile regardless of how they pay.

    "The product is called Integrated Multi-Tender Loyalty and is being developed with Kobie Marketing, a company that builds loyalty programs. It will allow customers to sign up for a credit card that feeds into the program and for which the retailer can devise reward programs."

    Both partners in the program say that the launch comes as more and more retailers are looking for effective loyalty marketing strategies.
    KC's View:
    It is possible that this could work, but I suspect that GE Capital and Kobie may find that crossing retail segments may be more complicated than they suspect.

    A couple of decades ago, if I'm remembering correctly, Citibank decided to get into the loyalty marketing business … and the people running the program believed fervently that they would own the data and could sell it to other customers. This ignored the basic fact that most retailers feel proprietary about their data - these are their customers, not the bank's.

    GE Capital may not make this mistake, or it may figure out a work-around. But I tend to be suspicious of companies define loyalty in a way that is different from how retailers define it. (Or ought to.)

    Published on: January 14, 2014

    Supervalu announced that Gerald Storch, the former CEO of Toys R Us and current CEO/chairman of Storch Advisors, has been elected to be the company's new board chairman.

    He succeeds Robert Miller, CEO of Albertsons, who became Supervalu's chairman last year as part of the deal that sold hundreds of Supervalu-owned supermarkets to an investment group, reuniting the Albertsons chain under one ownership.

    Miller reportedly will remain as an unpaid advisor to Supervalu's board.

    The news came as Supervalu announced that it is closing its Milton, West Virginia, distribution center, moving its customers to a warehouse in New Stanton, Pennsylvania.
    KC's View:
    First of all, let's stipulate that the newly slimmed down Supervalu is showing greater profitability, if lower revenue.

    But I have to question the election of Storch, a man who while running Toys R Us once said that he believed that bricks-and-mortar retail would eventually trump e-commerce because ordering online would be perceived as "ungreen," or bad for the environment.

    This from a guy running a company that routinely dumps tons of FSIs into the market, all of which end up in the trash. Not to mention a guy running chain that is positively awful … I'd rather get a colonoscopy than go to a Toys R Us.

    When he was at Toys R Us, Storch would say stuff that made me wonder whether he was working at a 21st century retailer or at Fort Courage, Kansas.

    I would take his guidance with a grain of salt.

    Published on: January 14, 2014

    • The Financial Times reports that Nestlé is saying that it committed a strategic error when it went into India and ignored "more affluent consumers as it pursued those spending pocket change on sweets and noodles."

    According to the story, "Nestlé is now being forced to redraw its strategy in the face of depreciating local currencies, deceleration in economic growth, the impact of inflation on input costs, and rising domestic competition. Such factors are especially punishing on cheaper mass-oriented goods, as L'Oréal, like Nestlé, has discovered."

    FT goes on to report that Nestlé "is now switching tack in India to cater to rapidly growing demand from more affluent Indians, whose household budgets are more immune to the country’s rising inflation and faltering economy … Nestlé’s difficulties reflect how tough it is for large global consumer goods companies to devise a strategy for a market characterised by vast disparities between wealth and poverty."

    • The New York Times reports that Beam Inc., maker of Jim Beam and Maker’s Mark bourbon, is being sold to Japan's Suntory for $13.6 billion.

    The story describes Suntory as a "privately held concern whose beverage empire already encompasses Yamazaki Japanese whisky and Bowmore Scotch. If completed, the deal will add not only Jim Beam, but also pricier higher-end brands like Baker’s and Knob Creek bourbon, Laphroaig and Teacher’s Scotch and Courvoisier cognac."

    • The Wall Street Journal reports that "Dunkin' Brands Group Inc. plans to open about 400 of its trademark doughnuts-and-coffee restaurants in the U.S. this year, extending its expansion outside its traditional base in the Northeast.

    "About 15% to 20% of the 380 to 410 net new Dunkin' Donuts stores planned for this year will be in new markets in the West … That is part of a push into states including California, Colorado, and Texas where it sees big opportunities but where the chain is far less well-known and has faced challenges maintaining the level of profitability and smooth distribution it has in more established regions."

    • NuVal, the nutritional ranking and labeling company, announced a new partnership with the Northeast Texas Public Health District, that will allow it to provide a broad range of wellness information to local residents.

    NuVal currently has its materials in more than 1,600 supermarkets around the country, including those operated by Hy-Vee, Brookshire's and Super 1 Foods.
    KC's View:

    Published on: January 14, 2014

    Bloomberg reports that HJ Heinz Co. has named Eduardo Luz as president of its North America division. Luz succeeds Brendan Foley, who is leaving the company after having just been named president last June.

    Luz was previously managing director of Heinz’s North America consumer products business.
    KC's View:

    Published on: January 14, 2014

    Some thoughts about the Target data breach…

    One MNB user wrote:

    I think the Secret Service and Justice Department need not open an investigation into Target, but instead open investigations on the Financial Industry that caused our economy to tank.  Should Target be fined because hackers got into their system In my mind, no.

    They need to do everything they can to ensure it doesn't happen again and make their customers whole again if their information was stolen and possibly add some goodwill gift cards.  Not only did Wall Street and Big Banks screw our economy, but they also received tax payer money for bailouts and then used that money to pay out bonuses.  Something is terribly, terribly wrong with this picture.

    From another reader:

    Kevin, the issue of credit card data theft is rampant, not just limited to Target. Due to their footprint of stores and the fact that their guest is more likely to use credit cards, they will be the poster child for credit card reform. What I don’t understand is why the credit card companies don’t take it upon themselves to change standards which are already in place worldwide.  For example, I do work in Africa and my credit cards issued there have tight but user-friendly security levels. Every transaction requires me to use a PIN number. I have to change my PIN every 3 months. If I leave the country, I notify the issuer so that my transactions will be processed while overseas. I get an immediate text message indicating the transaction amount, merchant and location for any money charged to my credit or debit card. (When I say immediate, I mean that, nearly always, if I’m in the store and the card is swiped, I have a text before I get out of the store.)  These standards have existed in Africa for many years. Why? Because the credit card issuers had to change or risk extinction because of creative data theft. I’m not saying this is the gold standard but it is at least a step above where issuers in the US play. Nearly 2 years ago, I asked AMEX when they would issue my US card with a PIN and they told me this was consideration and they would put my name on a list due to my international travels. They did send me an AMEX with a (still) unactivated PIN chip.  I can’t get the attention of my Visa or MasterCard provider on this topic. I’m lucky to not have had an issue but I feel much more secure with my Africa issued cards than my US issued credit cards.

    Credit / debit card fees have long been an issue for retailers as they measure the impact on their bottom line. You’ve written much about this in MNB; it also became a legislative topic. However, what gets missed is the cost of credit card fraud, which has also been quantified. In June, Symantec reported that the global cost of a compromised record was USD $136 per record, whilst the cost in the US alone sitting at around $194 per record. Anyone can do the math to realize the enormous costs of a data breach.

    There is no doubt Target can do more to protect guest credit card information (just as any other retailer can). However, if the credit card issuers just do what they do in other parts of the world that have long dealt with this issue, it will begin to give shopper confidence that using credit cards is safe and secure.

    And another:

    Before we start fining retailers, perhaps we should look at the financial institutions issuing the credit cards. There is a pretty simple solution that would dramatically increase the safety  if the banks would get on board. We could move to encrypted credit cards that rely on microchips vs. magnetic card strips, which have been standard in Europe since 2002.  And the likely reason why we don't have them - costs the banks too much.  Makes you wonder why the cyber criminals target US retailers, doesn't it?

    And still another:

    Government put into effect a broadly sweeping healthcare privacy act (HIPAA) with high monetary fines for violations. Policies and procedures were put in place by healthcare agencies and insurance companies, training was implemented. Still, there have been on-going privacy leaks in the health care industry. Point is…there is nothing private once it is connected to the Internet…and no manner of regulation will disturb this truth. Privacy has not been an important issue with the individuals, companies that developed and are developing the Internet communication/connection medium. Is this scary, no, unless your life is tuned upside down. Can we do anything about it, no, unless we log off…and that’s not going to happen. We need to find a new way to fight a new crime. I can only imagine how rich class-action attorneys will get off this debacle.

    Responding to yesterday's piece about Maine passing GMO labeling legislation, MNB user Bob Bartels wrote:

    GMO transparency can be achieved much more efficiently by labeling GMO free items.  It works for gluten free.  Given the overwhelming number of items with some GMO connection, it might be better communicated with the perceived  benefit being emphasized.  Just a thought.

    As I've often said here, I am agnostic on the subject of whether GMOs can be a good thing, and I'm frankly agnostic on whether the label should say "contains GMOs" or "GMO free." Whatever works best and easiest. It doesn't really matter much to me … I'm flexible.

    The other day, we had a story about how McDonald's is vowing that it will slowly begin purchasing verified-sustainable beef in 2016, with the goal of eventually buying all its beef from sustainable sources.

    I commented:

    Seems to me that McDonald's burgers always have been sustainable, in that you leave the meat out for decades and not have anything happen to it.

    Which prompted one MNB user to write:

    I am sure you will receive emails stating you are taking a cheap shot at McDonald's, but I thought it was funny. Don't ever stop expressing these comments.

    Trust me. I won't. Even when people accuse me of only being half as funny as I think I am.

    Finally, yesterday when writing about the departure of A&P CEO Sam Martin, I noted that I'd been getting some email criticizing me for a positive column that I wrote last summer about Martin. (You can read it here.)

    I continue to believe that the column's focus was right …and I got an email from a reader that agreed:

    I reread the column…Key phrase, “The number one enemy of any new culture is the old culture…”

    How true…how sad…and how many CEOs have lost because they couldn’t change a toxic culture.

    KC's View: