retail news in context, analysis with attitude

Why "The Steve McCroskey Report?", you may ask.

Well, it's because of a movie. Naturally.

While I pretty much went off the grid for the past two weeks, there were stories happening upon which I normally would have commented.

And when I came back, I could not help but think of the movie "Airplane," in which at various times the great Lloyd Bridges, playing an air traffic controller named Steve McCroskey, dealing with one crisis after another, says, "Looks like I picked the wrong week to give up drinking … to give up smoking … to quit sniffing glue …to quit amphetamines."

Which would be exactly how I would have felt, if I hadn't been enjoying the break so much.

So in honor of Steve McCroskey, here is a quick rundown of some of the stories that caught my eye as I was returning to action … with occasional and sometimes even gratuitous commentary in italics.


Haggen Plants Magic Private Equity Beans, Grows From 18 To 164 Stores.

Haggen, the Bellingham, Washington-based retailer that in recent years has closed stores and flirted with bankruptcy, said that it will use funding from the Comvest Partners private investment firm to acquire "146 stores as part of the divestment process brought about by the Federal Trade Commission’s (FTC) review of the Albertson’s LLC and Safeway merger. With this acquisition, which remains subject to FTC approval, Haggen will expand from 18 stores with 16 pharmacies to 164 stores with 106 pharmacies; from 2,000 employees to more than 10,000 employees; and from a Pacific Northwest company with locations in Oregon and Washington to a major regional grocery chain with locations in Washington, Oregon, California, Nevada and Arizona."

According to the announcement, "The company will be led by CEOs John Clougher and Bill Shaner. Clougher, CEO, Pacific Northwest, will have primary responsibility for the northern division of Washington and Oregon. Shaner, CEO, Pacific Southwest, will have primary responsibility for the southern division of California, Nevada and Arizona."

Before joining Haggen in August 2014, Clougher was the CEO of Andronico's Community Markets and Northwest regional president for Whole Foods Markets. Shaner is a highly respected 27-year Supervalu veteran who ran its Save-A-Lot division from 2006 to 2011.

"With this pivotal acquisition, we will have the opportunity to introduce many more customers to the Haggen experience. Our Pacific Northwest grocery store chain has been committed to local sourcing, investing in the communities we serve, and providing genuine service and homemade quality since it was founded in 1933,” said John Caple, chairman of Haggen's board of directors and partner at Comvest. “We will continue our focus on sourcing and investing locally even with this exciting expansion.”

in its coverage of the story, Fortune wrote that "the new chain might represent the future of the grocery business … Haggen will transform the stores it is buying into the very kind that are posing major competitive challenges to the likes of Albertson’s, Safeway, and Kroger. As consumers continue to eschew mid-market grocers in favor of stores with more of a natural (Whole Foods) or specialty (Trader Joe’s) image, the big, traditional supermarkets have been slow to respond.

"Haggen, which had been family-owned since the 1930s, sold itself in 2011 to the private-equity outfit Comvest Group, a Florida-based buyout shop. That firm immediately embarked on a rebranding campaign, renaming the stores Haggen Northwest Fresh, remodeling stores and giving them more of a local focus, and adding fresh and prepared products, many of them locally sourced."

The Los Angeles Times wrote that "landing in the highly competitive Southland grocery market will be a challenge for Haggen, especially as traditional grocers are squeezed by local favorites like Trader Joe's and deeper competition from the likes of Wal-Mart Stores Inc. and Target Corp., which have both expanded their grocery offerings, analysts said … Haggen will face the challenge of introducing its unknown brand in places such as Los Angeles, where shoppers have different preferences and a multitude of supermarkets to choose from. Competition is fiercer than ever before, with newer rivals such as dollar stores increasing their produce aisles and online retailers such as Amazon.com testing grocery delivery."

The Times went on, "Shaner said Haggen has distinguished itself with a heavy emphasis on fresh produce and quality meats and seafood. That focus will be reflected in the new stores once they are re-branded as Haggen starting in 2015, he said." The paper noted that "aside from Haggen, other buyers include Associated Wholesale Grocers/Minyards, which is picking up 12 locations in Texas, and Associated Food Stores, which is buying eight stores in Montana and Wyoming." The sale of all these stores should clear the way for regulator approval of the Albertsons-Safeway deal.

And, in a related story, the Idaho Statesman reported that Albertsons expects to close on its $9 billion acquisition of Safeway in January.

It is so often reported that small companies like Haggen are an endangered species - usually because they are actually endangered - that it is nice to see a company like this one do something that I think can fairly be described as unexpected, daring and a little bit outrageous.

The thing about Haggen is that it is not that long ago that the company was in serious trouble - closing stores, dealing with a precarious financial situation, trying to redefine itself to a marketplace that seemed to have decided that in some ways it was irrelevant. Over the past few years, the company seemed to have established a certain amount of stability … previous management got the numbers right, and current management was doing a good job with the Northwest Fresh format.

But … I have to admit to feeling a certain amount of skepticism about whether this deal creates a sustainable and viable retailing entity. It strikes me that there us not a lot of room for error; pretty much everything has to go right for Haggen - financially, competitively, culturally, and from a branding perspective- for this deal to work. They have to do it while being funded by a private equity group, and sometimes deals like these create a need to raise margins just a bit, and that can be the worst decision a chain can make. And somehow, the whole enterprise seems potentially unwieldy to me.

From day one, Haggen is going to have to make its case to a lot of shoppers about why these new stores should be their best, first option for food shopping. And it is going to have to do so in a cauldron of tough, hardball competition.

I hope it works. I've always sort of liked the Haggen stores, and the people who have run them, from the front office to the folks in the stores. But I think they have an enormous challenge in front of them, and I can't shake my skepticism. Everything has to go right … and that almost never happens.



Kroger Expands Click-and-Collect Test In Cincinnati

The Cincinnati Enquirer reported that "Kroger is expanding its testing of an e-commerce service in Greater Cincinnati.

"It allows a shopper to buy groceries online then collect their bags at a pickup window without entering the store. Available only at a Liberty Township store, Kroger has invited dozens of customers to try the service.

"So far, Kroger has only allowed store employees at the 7300 Yankee Road Marketplace to use the service in early testing that began in September. The service allows shoppers to buy thousands of items … The test program is modeled after a "click and collect" service used by 150 Harris Teeter stores, which Kroger acquired for $2.5 billion in January."

MNB exclusively reported on the original piloting of an e-commerce model by Kroger back in September, and you can read that story here.

We also had a story a few weeks later about how Kroger is prepared to go to the mattresses with other e-grocery purveyors, and you can read that story here.



Report: E-Grocery Likely To See Big Growth In Next Few Years.

Business Insider came out with a new report about online grocery shopping, noting that while it is "the category that has been the least disrupted by e-commerce" with "less than 1% of food and beverage sales currently occur online," it also is a category expected to see a lot of growth in coming years. The Business Intelligence report says that "between 2013 and 2018, online grocery sales will grow at a compound annual growth rate (CAGR) of 21.1%, reaching nearly $18 billion by the end of the forecast period. For comparison, offline grocery sales will rise by 3.1% annually during the same period."

Among the advantages that could help drive this growth, the report says, are convenience and selection: "Only 15% of U.S. adults have purchased general food items online, but 25% said they have bought specialty food and beverages online, which are hard to find elsewhere." New startups and existing e-grocery businesses, the report suggests, will "focus on concierge shopping and subscription prepared meals … that really are differentiated from traditional grocery shopping," And, big tech names investing in online grocery shopping and same-day delivery - like Amazon and Google - also could drive traditional grocers to make greater investments in online capabilities.

I totally believe this. I think that all the momentum is on the side of e-grocery … it has to do with technology, cultural trends, demographics and competition. It isn't like bricks-and-mortar stores are going to die. But offering an online experience is going to be as critical to being a modern retailer as having scanners.


Amazon: Primed And Slimed.

Amazon said that during the just-passed holiday season, its Prime membership grew by more than 10 million new people who were able to get access to what it likes to refer to as "unlimited free two-day shipping," pus get access to free video streaming and access to a Kindle lending library for 3-books.

In addition, Amazon said that close to 60 percent of its customers "shopped using a mobile device this holiday.  Mobile shopping accelerated as customers got later into the shopping season."

However, Amazon also came under attack for the ebook lending program, dubbed Kindle Unlimited, described in the New York Times as "a new Amazon subscription service that offers access to 700,000 books — both self-published and traditionally published — for $9.99 a month."

The Times had a story last week about how the service results in authors making less money than they would if the books only were sold.

The story noted that "the program has the same all-you-can-eat business model as Spotify in music, Netflix in video and the book start-ups Oyster and Scribd. Consumers feast on these services, which can offer new artists a wider audience than they ever could have found before the digital era." But once artists start developing an audience, their feelings can change: "Taylor Swift pulled her music off Spotify this fall, saying it was devaluing her art and costing her money. 'Valuable things should be paid for,' she explained."


Study Casts Doubt On Click-And-Collect Efficacy

Reuters had a story about a study conducted by retail-intelligence firm StellaService suggesting that click-and-collect options for online shoppers "often saves little, if any, time over in-store shopping … in-store pickup saved shoppers just 96 seconds on average compared with searching for items on their own. In a few cases, in-store pickup took longer."

According to the story, "Shoppers spent an average of 5 minutes and 24 seconds in a store when trying to pick up their online orders. Those who did not use the in-store pickup feature spent an average of 7 minutes in the store, according to the study." The conclusion is that, at least based on the tests conducted, the amount of time saved is virtually insignificant.

I think the mistake of this study is that they equate speed with convenience. They're not always the same thing. In the same way that "value" does not always been the same thing as "low prices." Sometimes, convenience has more to do with a seamless integration of the shopping experience into our online lives … it allows for focus and a lack of distractions.


New Congress To Push Back Against Federal Nutrition Regulations.

Politico had a story about how the new Republican-controlled US Congress plans to push back against Obama administration regulations "requiring school children to be served fruit to eliminating trans fats in doughnuts … As the opening bell sounds for the 114th Congress, don’t be surprised to see GOP lawmakers take on school nutrition. The $1.1 trillion omnibus this month included provisions to allow states more flexibility to exempt schools from the Department of Agriculture’s whole-grain standards if they can show hardship and to halt future sodium restrictions.

"But that was only the opening salvo in the long-running fight over new reforms championed by first lady Michelle Obama … Battle lines will … be drawn on new nutrition standards on all food sold in schools, including vending machines and a la carte lines — standards that in some cases have led to lost revenue for schools — and debate will continue on whole grain and sodium requirements."

To get a sense of the GOP game plan click here.


Worth Reading: The Power of Authenticity.

There was a terrific piece in the New York Times about the power of authenticity, suggesting that "consumers see three dimensions to brand authenticity: heritage, sincerity and commitment to quality."

You can read the entire story here.

I would point out that in addition to these three dimensions critical to both real and perceived authenticity is something else incredibly important - the ability to tell the story.

“It’s storytelling,” one retailer tells the Times. “It’s people getting to feel that connection and wanting to be part of it.”

Exactly. And a key factor that Michael Sansolo and I try to point to at every juncture, because the ability to tell a story is the thing that often differentiates great retailers from also-rans.



Walgreen Gets The Boot, And It's A Good Thing.

The Wall Street Journal reported that "its shareholders approved the company’s planned acquisition of the rest of European drugstore chain Alliance Boots GmbH and the subsequent reorganization into a holding company structure.

"The move expands Walgreen, the largest American drugstore chain by number of stores, from a U.S. operation with 8,200 locations to a one with business in more than 10 countries and over 11,000 total locations. Alliance Boots runs the U.K. drugstore chain Boots and has a vast drug-distribution business in Europe."


Publix Expands Health Insurance Coverage To Cover Same-Sex Married Couples

Publix announced that it "plans to offer its gay and lesbian employees who are legally married health insurance coverage for their spouses beginning Jan. 1."

"We are offering this benefit to associates who are married in any state where same-sex marriages are legal, regardless of the associates' state of residence," spokesman Brian West wrote in an email, as reported by the Tampa Bay Business Journal. "We hope this change makes spouse coverage decisions simpler for our associates."

I think that not offering these kinds of benefits is going to be a competitive disadvantage for companies looking to attract good people. And that's part of the calculation that Publix has made.


Hacking, Though On A Small Scale.

Time reported that hackers claimed "that they leaked data associated with 13,000 accounts on Amazon, XBox Live and other sites. The hackers, who claim an affiliation with the group Anonymous, reportedly uploaded a now-removed document with credit card numbers, passwords and other data to the site GhostBin."

According to the story, "Amazon and Microsoft, the maker of XBox Live, both denied that at a hack occurred on their end … Regardless, even if the 13,000 figure pales in comparison to the hundreds of millions of people who use these sites, the news should underscore how important it is to change your passwords frequently."


Instacart Raises $210 Million From Investors

Bloomberg reported that personal shopping service Instacart has "raised $210 million from investors, as it vies with Amazon.com Inc. and others to win consumers too busy to shop in person.

"Instacart has an option to raise as much as $220 million, according to a filing with the U.S. Securities and Exchange Commission … Google Inc., Amazon and some supermarket chains are getting into the grocery delivery business, creating increased competition for Instacart especially in urban areas. Amazon this month debuted its own one-hour delivery option for household goods like shampoo, starting in Manhattan. Instacart, which uses personal shoppers, partners directly with grocers such as Whole Foods Market, a strategy it plans to expand with the funding round."


Walmart Gets Into Gift Card Trade-In Business

Fortune reports that Walmart followed the 2014 end-of-year holiday season by "offering to exchange gift cards from over 200 merchants, and says it can give back up to 97% of the face value when exchanging for a Wal-Mart card. Customers can retrieve estimates here … The offer could potentially have broad appeal: 62% of shoppers earlier this year said they would like to receive a gift card, according to the National Retail Federation. The average person buying gift cards will spend $172.74 this year, the NRF said, with total spending expecting to reach $31.74 billion … And while a majority of Americans want to get a gift card, it doesn’t necessarily mean they’ll be happy with that they receive, leading to a lot of waste. Americans have reported left $44 billion in gift cards go unused since 2008, according to a study published at the beginning of this year."
KC's View: