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    Published on: October 14, 2014

    by Michael Sansolo

    Back in 1938, Winston Churchill wrote an amazing book bearing the title of this column today about his nation’s lack of preparation for the rising Nazi threat in Europe. So it’s amazing that the same title can easily be used to describe an apparent lack of readiness today in the UK’s retail environment.

    Hopefully the same comment won’t be made of you or retailers in your area anytime soon. Sleeping or simply not watching developing trends in other markets leaves any business weaker.

    The Private Label Manufacturers Association ran a brief interview on PLMA Live with Andrew Stevens, a retail analyst in the UK, who highlighted some amazing changes in the supermarket industry there. Stevens made a series of significant points that merit consideration.

    Stevens detailed how Aldi and Lidl, two of the most powerful deep discount supermarket operators in Europe, have successfully invaded the UK. As Stevens explained, the invasion was enabled by the gloomy economic climate that’s existed since the 2008 financial meltdown. That has left a significant share of UK shoppers looking for ways to economize on food shopping.

    With their heavy focus on price, Aldi and Lidl are grabbing market share, largely from Tesco and Morrison, two major retailers known for serving all segments of the population. Plus, both discounters are learning how to improve their stores and products to retain customers even as economic times improve.

    As a sign of how differentiation strategies can succeed even against the discounters, Stevens says Wal-Mart’s Asda stores are holding their own thanks to an already established focus on price. Likewise, upscale retailer Waitrose is surviving with a very different group of shoppers.

    But what’s so amazing is that Aldi and Lidl have a long history of using their pricing strategies to successfully grab market share throughout Europe. That raises the question of how the UK retailers were somehow caught unprepared. Were they convinced that market trends would be so radically different across the English Channel or, as Stevens suggested, were they sleeping?

    In addition, when asked whether Tesco’s Fresh & Easy experiment weakened the UK’s biggest retailer, Stevens said it had, but not for financial reasons so often cited by many observers and so frequently written about here on MNB. Rather, he said, the US incursion distracted Tesco’s management from its core business and that contributed to the problems at home.

    Stevens’ final point in the interview was the financial challenges of on-line shopping, a hot topic in both the US and UK. As he explains, on-line shopping is growing in popularity, but profitability is extremely weak. “It’s a service that everyone is offering, but (retailers) are essentially buying that market share by offering the service at a loss.” Without understanding the financial model, most companies can’t succeed.

    On-line or in stores, he says, “The lesson for retailers is to keep it simple. You have to understand what your customers want. It’s a straightforward formula to get right…and too many overcomplicate it.”

    It’s an amazing group of comments: keep your eyes on the horizon for potential threats; keep you focus on your core; and don’t underestimate the difficulties of new business ventures.

    Oh, and don’t fall asleep. Change is all around and the only certainty is that more is always coming.

    Michael Sansolo can be reached via email at . His book, “THE BIG PICTURE: Essential Business Lessons From The Movies,” co-authored with Kevin Coupe, is available on Amazon by clicking here.
    KC's View:

    Published on: October 14, 2014

    Business Insider reports that in a recent speech, Google's executive chairman, Eric Schmidt, said that Amazon is the company's biggest competitor in the search business - not Yahoo! or Bing.

    Schmidt made the comments when explaining why he feels that Google should not be regulated as if it is the "gatekeeper of the Internet." The company currently is defending itself against an antitrust probe in the EU, where it has a 90 percent market share.

    According to the story, "Schmidt also called out Yelp and TripAdvisor, which have complained that Google's de facto monopoly hurts their businesses. Schmidt said the amount of traffic their sites have been getting from Google has actually increased significantly."

    "The reality is that Google works very differently from other companies that have been called gatekeepers and regulated as such," he said. " No one is stuck using Google."
    KC's View:
    Yesterday we had a story about how some think that Amazon has become a monopoly that needs to be more closely regulated. (More on that below.) Now we have this story.

    It makes me wonder whether in a digital age, we are going to need new definitions of what a monopoly is, and whether these behemoth companies with enormous influence over what we see and read and learn need to subjected to a different kind of regulation.

    Published on: October 14, 2014

    The Washington Post reports on how Ahold-owned Giant Food recently created problems for itself when it stopped labeling beef as "choice" or "select," but rather shifted to what is described as "an unfamiliar blue crest that read 'USDA graded' on every package of beef."

    The US Department of Agriculture (USDA) got complaints about the shift, and Ahold and Giant were ordered to change back to the old labeling system (though, according to the story, the change back has not taken place yet).

    Larry Meadows, a USDA official, tells the Post that the new label was "problematic," and while "the label is truthful … it’s also misleading." Virtually all meat is USDA-graded, he said, adding that "one reason a company might use a more generic label is to save money, or to blur the impact of introducing an unusually high amount of lower-quality beef."

    Giant apologized for any confusion created by the new labels, and said that it did not know that the USDA-graded label was not permissible.
    KC's View:
    The Post story suggests that the attempted change by Giant reflects a disturbing tendency these days on the part of both manufacturers and retailers to use labels as advertising vehicles rather than only as ways to communicate ingredient and nutrition information.

    That's true, but I don't think it is the biggest problem. The fact is that other than saying that the label change was part of an overall re-branding, Giant really doesn't have a good reason for being less transparent on its beef labels. Which leads one to believe that, in fact, it did want to dilute the amount of information it was giving to consumers and that it hoped this would have a positive impact on its bottom line.

    Here's the deal. Reducing transparency almost never has a positive impact. It makes companies seem small, rather than large. It makes food companies look as if they are more focused on their own fiscal needs rather than the broader - and ultimately more important - needs and desires of its customers.

    Someone at Giant should have raised his or her hand at some point and questioned this decision before it was implemented. It is like the old Jurassic Park lesson - just because you can do something does not mean you should do something.

    Published on: October 14, 2014

    The San Francisco Chronicle reports that "Google will start charging membership fees for its online shopping delivery service," which is also seeing a name change, from Google Shopping Express to Google Express.

    According to the story, "the service will require a $95 annual or $10 monthly membership fee, which will give members same-day or overnight delivery on orders $15 or more and priority on the order’s delivery time … Customers who don’t get a membership can still get items delivered if they pay a delivery fee that starts at about $5 per order."

    Meanwhile, the Washington Post reports that Google "will expand its Google Express same-day delivery service in D.C., Boston and Chicago, after launching it a year ago in Northern California and expanding to Los Angeles and Manhattan this spring."

    Google Express is designed to compete specifically with Amazon, except that it provides shoppers with access to a wide variety of both national and regional retailers.
    KC's View:
    I was intrigued by one particular sentence in the Post story about Google Express, which said that in the DC market it "will offer goods from nine stores: Giant Food, Costco, Walgreens, Sports Authority, Staples, Babies “R” Us, Barnes & Noble, L’Occitane and Guitar Center."

    Wait a minute.

    Giant Food?

    The same company that offers online ordering, delivery and pickup services via Peapod?

    According to the story, Giant spokesman Jamie Miller says that "trying Google Express alongside Peapod fit with the company’s strategy to try multiple e-commerce strategies to meet customers needs."

    It is an interesting decision, considering that Ahold, Giant's parent company, has spent a lot of time and money to make sure that Peapod was its differential advantage.

    Published on: October 14, 2014

    WCPO News reports that there is speculation that Dunnhumby Ltd., the data mining company that has been a "secret weapon for growth" for both Kroger and Tesco, could be put on the sale block by Tesco, which owns the company and could get as much as $3 billion in a sale.

    Such a sale could make sense for Tesco, which has been suffering from a sales and profits decline at home in the UK and now is dealing with an accounting scandal. While Dunnhumby is seen as one of the company's most valuable assets, its sale could help right its financial ship, at least in the short term.

    According to the story, "Kroger has an exclusive relationship with Dunnhumby USA, thanks to a 2003 joint venture announced in 2003. The company has been widely credited with helping Kroger grow customer loyalty by analyzing purchasing data to give Kroger executives better insight on new products and marketing strategies. Non-grocery clients, including Procter & Gamble Co., Coca Cola, Kellogg’s and Macy’s Inc, have made Dunnhumby one of Cincinnati's fastest-growing companies. The 650-employee joint venture is building a new downtown headquarters, expecting to reach 1,000 employees by 2018."
    KC's View:
    It is hard to know whether this is a real thing, or just the figment of some analysts's overactive imagination and desire for press coverage.

    But here would be my question. Kroger bought Harris Teeter for $2.5 billion. Would it be worth it for Kroger to buy Dunnhumby for just a little bit more?

    Published on: October 14, 2014

    Accenture is out with its annual holiday shopping survey,saying that "amid signs of increased optimism about their personal finances, one-quarter (25 percent) of U.S. consumers plans to spend more on holiday shopping this year compared to 20 percent in 2013, and spending on holiday gifts is expected to average $718.

    While the survey says that 28 percent of those questioned said they have more discretionary income and 22 percent noted that they have greater job security, up from 15 percent in 2013, the survey also says that "holiday shoppers remain keenly focused on discounts and sales. Nearly all respondents (96 percent versus 94 percent in 2013) said that discounts will be important to their purchasing decisions, and more than one in four (29 percent) said that it would take a discount of 50 percent or more to persuade them to make a purchase."

    Accenture also reports that "consumer enthusiasm for Black Friday shopping has reached its highest level in eight years. Two-thirds of respondents (66 percent) said they are likely to shop on Black Friday, compared to 55 percent who planned to do so in 2013 and 44 percent who said the same back in 2007. In addition, 37 percent plan to shop online during that period using a desktop, mobile device or tablet, which is up from 32 percent in 2013. Plans to shop on Thanksgiving Day and evening rose to 45 percent from 38 percent in 2013. Of those consumers planning to shop on the holiday, 47 percent said that they will be shopping in a physical store between 6 PM Thanksgiving Day and 5 AM on Black Friday."
    KC's View:

    Published on: October 14, 2014

    USA Today reports that McDonald's that "in an unusual, perhaps risky, social media campaign that's clearly targeting Millennials, the fast-food chain on Monday rolled out the first stage of a promotional effort dotted with 'behind-the-scenes' webisodes that it's dubbed: 'Our Food. Your Questions.'

    "McDonald's is asking folks - including skeptics - to submit questions via Facebook, Twitter, YouTube and other social media. McDonald's will respond to some of those questions with webisodes and other social content about how the food is produced and prepared."
    KC's View:
    The story makes the point that while McDonald's is addressing questions about how products are sourced, or whether there is 'pink slime' in its hamburgers, it is not talking about things like salt, sugar and preservatives. So maybe it isn't being entirely transparent.

    Still, the impulse is the right one, even if the implementation isn't exactly raising the bar on transparency. Hopefully, they'll do better as time passes.

    Published on: October 14, 2014

    Sheetz, the convenience store chain, has announced that it has made a two-year commitment to deliver more nutritious options across its 475 convenience stores, and has joined the Partnership for a Healthier America (PHA), the organization that described itself as working "with the private sector and PHA honorary chair First Lady Michelle Obama to make healthier choices easier for busy parents and families."

    Sheetz strives to meet the needs of our customers, and providing healthy choices has been an ongoing commitment for us," said Joe Sheetz, CEO of Sheetz. "We have seen the need in the communities we serve for healthy options and we are proud to continue to be a part of the solution. " The company says it has committed "to maintain and build upon healthy food choices; continue to make those choices more affordable; and support healthier options through in-store marketing and promotions to meet the needs of the children, families and communities it serves."

    The announcement was made at the annual NACS show in Las Vegas. The Sheetz commitment almost doubles the c-store industry's commitment to PHA.

    "We are proud that our industry is playing a leadership role in not only improving access to fresh food and healthy options, but in supporting community programs that focus on activity and healthier lifestyles," said Henry Armour, president/CEO of the National Association of Convenience Stores (NACS).
    KC's View:
    During the show, Steve Loehr, the VP of operations support for the Kwik Trip chain, told the audience that "if you haven’t heard by now, Kwik Trip sells a lot of bananas. When I mean a lot I mean about 44 million pounds a year. That works out to about 400 pounds per store, every day of the year. We sell a lot of other produce as well — apples, oranges, lettuce, onions and potatoes."

    We recently had a story about how 7-Eleven is going to be offering healthier foods, and actually sells more bananas than Snickers.

    Maybe the man was right. The times, they really are a'changin…

    Published on: October 14, 2014

    Yesterday, MNB provided a link to what we thought was a thought-provoking piece in The New Republic about whether or not we need a new definition of the concept of "monopoly" in the age of Amazon.

    You can read that piece in its entirety here.

    Now, there are two publications pushing back on that suggestion …

    The Atlantic has a piece saying that Amazon is simply competing the way you have to compete these days: "Savagery begets savagery, and Amazon, in its quest to take over the world, is known for the brutality it exacts on everyone but its customers. It is a consumer-friendly company that is the opposite of friendly to its competitors, suppliers, and even employees."

    Amazon, the story says, is "a behemoth fighting for its life in a world of giants: Walmart's market cap is $100 billion more than Amazon, and Alibaba, China's version of eBay-mixed-with-Amazon, just enjoyed the biggest global IPO ever. There are no monopolies to be found here."

    You can read The Atlantic piece here.

    And New York magazine weighs in as well…

    "Amazon relentlessly drives down prices for goods and services and delivers them fast and cheap. It plows its profits into price cuts and innovation rather than putting them in the hands of its investors. That benefits millions of families — full stop. In the artful phrasing of Matthew Yglesias, it seems like 'a charitable organization being run by elements of the investment community for the benefit of consumers.'

    "None of this is to say that Amazon should not face new regulations to force it to treat its workers better. None of this is to say that Amazon could not become a monopoly by pushing out or buying up more of its e-commerce rivals. None of this is to say that its harassment of Hachette is right or should be legal or should not face some serious pushback from the government and consumers. None of this is to say, either, that our legal framework should not view seemingly benign monopolies, like Google, with anything other than skepticism.

    "But Amazon being a … vicious competitor and Amazon being a monopoly are hardly the same thing."

    You can read the New York analysis here.
    KC's View:

    Published on: October 14, 2014

    Reuters reports that Kroger has agreed to "remove the 'humanely raised' claims from a store brand of chicken to settle a federal lawsuit claiming the retailer deceived consumers because the animals were raised under standard commercial farming conditions."

    According to the story, "The 'Simple Truth' chicken products were packaged with labeling that stated the animals were 'raised in a humane environment' and 'cage free,' according to the lawsuit. However, standard industry practice for broiler chickens is to house them inside large buildings, not cages, according to industry experts.

    "Kroger and its chicken supplier, Perdue Farms, opposed the lawsuit, but last week the retailer and the consumer's lawyers agreed to dismiss the case. As part of that agreement, Kroger said it would remove the 'humane environment"'claim from the packaging of Simple Truth products by October 2015.

    • The Financial Times reports that "the upheaval among senior executives at Tesco continues with two more directors heading for the door as Britain’s biggest retailer continues its investigation into a £250m hole in profits.

    "Jonathan Lloyd, company secretary at Tesco, will leave the retailer next March after serving his notice period. Ken Hanna, audit committee chairman and non-executive director, is also expected to stand down when his six-year tenure comes to an end later this year."

    While the story makes clear that neither departure is specifically related to Tesco's current accounting scandal, "the exit of a figure responsible for advising the board on legal and governance issues as well as a non-executive director with oversight of the company’s financial accounts will add to the perception of turmoil in the retailer’s board room."

    • The Boston Globe reports that Target plans to open its first City Target store on the east coast, in Boston's Fenway area, in a four-story building with 160,000 square feet of space. There currently are City Target stores in Minneapolis, Chicago, Seattle, Los Angeles, San Francisco, and Portland, Ore.

    • The Tampa Bay Times reports that thieves in St. Petersburg, Florida, stole a semitrailer truck carrying 36,000 pounds of Crisco sticks over the weekend.

    No word on what the criminals plan to do with 18 tons of vegetable shortening. (Though the police probably ought to just follow the aroma of cookies baking…)
    KC's View:

    Published on: October 14, 2014

    • JC Penney said yesterday that it has hired Marvin Ellison, executive vice president of U.S. stores for Home Depot, to be its new president/CEO, succeeding Myron Ullman

    Ellison will get the president's title on November 1, and will succeed Ullman as CEO next year.

    Ullman returned to JCP last year after the departure of Ron Johnson, the former Apple Store executive who had been hired to replace him in 2011. Johnson had a much-vaunted plan for eliminating the avalanche of promotions offered by the chain and turning to an EDLP approach, but the strategy backfired and resulted in a loss of sales and profits.

    According to the Wall Street Journal, "Ellison spent the past 12 years at Home Depot, where he has served as the executive vice president of U.S. stores since 2008. He was thought to be a possible CEO candidate at Home Depot but was passed over for the top spot earlier this year when the home-improvement chain named another company veteran, Craig Menear, to the post." Previous to Home Depot, Ellison worked at Target.

    • Delhaize America announced that it has hired Michael Laurenti, the former CIO of Belk Department Stores, to be its new Chief Information Officer. Previous to his tenure at Belk, Laurenti held IT roles at Family Dollar Stores, Linens 'N Things and Toys R Us.

    • In Colorado, the Daily Camera reports that "Alfalfa's on Monday promoted John Varsames to the role of chief operating officer. Varsames, who previously served as vice president of operations for Alfalfa's, has 25 years of experience in food retail and restaurant industry including executive roles at Whole Foods and Wild Oats Markets.

    "Additionally, Alfalfa's hired Paul McLean — also a veteran of Whole Foods and Wild Oats — as the vice president of purchasing, marketing and merchandising and appointed Lisa Fallon to the role of vice president of finance and administration. Fallon, who previously was Alfalfa's corporate controller, has conducted financial planning and reporting and shareholder relations for companies such as Wild Oats, Aurora Organic Dairy and Circadence Corp."

    The company ousted its CEO and co-founder Mark Retzloff last month, saying that it needed different leadership as the company grows.
    KC's View:

    Published on: October 14, 2014

    …will return.
    KC's View:

    Published on: October 14, 2014

    • In Monday Night Football action, the San Francisco 49ers defeated the St. Louis Rams 31-17.

    • And, in the American League Championship Series, Game Three between the Kansas City Royals and the Baltimore Orioles was postponed until tonight because of rain.
    KC's View: