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    Published on: March 16, 2015

    by Kevin Coupe

    This morning, I'd like to bring your attention to a couple of CEO statements that I saw over the weekend.

    One was in a Crain's Chicago Business story about Aldi's broadening assortment and appeal. At the very end of the piece,Ken Diehl, CEO of the Strack & Van Til Food Market chain, is quoted as saying that indeed, Aldi is a tough competitor. And here's the comment that grabbed my attention:

    “Aldi's low prices do seem to be resonating with certain customers.”


    Now, I recognize that one does not want to offer too much praise to the competition, but I think it also is important not to sound too removed from reality. The entire Crain's story - which you can read here - is about how Aldi is opening more than 100 stores a year, has expanded its assortment from knockoff brands to organics and fresh foods, and is driven by an ambition to get beyond its low-end roots ... though, to be sure, it remains a discount format. (Though so are Walmart and WinCo and Costco, and go into any of their parking lots and you're likely to find a BMW, Audi, and a Lexus ... saving a buck is not just the purview of the poor and middle class.)

    To be sure, Aldi seems to be counting on the fact that persisting economic unease in the country, including stagnant wages, will give it considerable and sustainable momentum. In other words, it ain't just poor people shopping at Aldi anymore, and pretty much anyone in the food business better be prepared to deal with a format and competitive strategy that seem awfully strong and getting stronger.

    It's not just low prices. It isn't just "certain customers." And putting it that way would not give me a great deal of confidence that the person saying it has a compelling competitive response.

    Maybe he does. But words matter. And these seemed way too diffident for comfort.

    The other quote was in an Oregonian story about Haggen's efforts to convert more than 140 stores that it has acquired following the merger of Albertsons and Safeway to a new banner. In the story, which you can read here, John Clougher, CEO for Haggen in the Pacific Northwest, is quoted as saying that the grocer studied the prices at the Safeway and Albertsons stores and hopes not to "disrupt the apple cart.”

    Now, I know that Clougher was talking specifically about prices. And the story makes the fair point that Haggen "will need to retain stores’ old customers or bring in new ones, and it will have to stand up to tough, entrenched competition. And in California, Nevada and Arizona, where shoppers likely have never heard of Haggen, it will have to create a brand image from scratch."

    So here's my thinking: Haggen absolutely must upset the apple cart. It has to upset it, throw it aside, and engage in radical new retail thinking if it is to succeed as it grows almost overnight from 18 to 164 stores.

    I keep going back to that great line from an Amazon ad: "Normal just begs to be messed with."

    I think that the folks at Haggen - smart, experienced, time-tested leaders working with, at least for the moment, the deep pockets of private investment group Comvest Partners - have to challenge every traditional grocery tenet, every sacred cow, every entrenched attitude within the organization. I think they have to communicate a kind of fundamental dissatisfaction with the food shopping experience to the consuming public, and make guerilla-style attacks on those fundamentals a core part of the business model.

    For Haggen to succeed, I think, it will have to present a really, really good reason for people to give them a shot. And I'd worry, if I were them, that any governing philosophy that looks to keep the apple cart rolling - to do business as usual - simply won't be the kind of game-changing strategy they need it to be.

    Again ... I recognize that I am taking two very specific statements by two executives and drawing some broader conclusions about their approach with which they might differ.

    But words are important. In these two cases, they may be an Eye-Opening window into strategic thinking and tactical plans that could be problematic.
    KC's View:

    Published on: March 16, 2015

    The Charlotte Observer reports that Dollar Tree is now saying that when its acquisition of rival Family Dollar is completed, things may not be quite as rosy as presented when it was arguing that it was the better suitor than Dollar General, which was offering more money.

    According to the story, Dollar Tree now says that the Federal Trade Commission has identified some 250 stores that will have to be divested for competitive reasons, and that “key employees” could lose their jobs. And, it says that the company's "'substantial indebtedness' could 'materially and adversely affect' its financial position by requiring that a bigger portion of its cash be directed to debt payments rather than capital expenditures and acquisitions."

    The story goes on to say that "Combining the two companies may be 'more difficult, costly or time consuming than expected' and the anticipated benefits merger may not be realized, Dollar Tree said, citing the challenges Family Dollar has been recently experiencing as a stand-alone company."
    KC's View:
    Hard to imagine that this really is much or a surprise to the folks at Dollar Tree. The bigger question, I suppose, will be whether, when Dollar Tree is done acquiring Family Dollar, it will be so loaded down with debt that it is able to be competitive within the space. Dollar Tree has to hope that though it has won the battle, it is still able to win the war.

    Published on: March 16, 2015

    NPR reports that in Oregon, an organization called Clean Water Services, described on its website as a "water resources management utility committed to protecting water resources in the Tualatin River Watershed," has come up with a new way to save water.

    It wants to turn purified sewage water into beer.

    This isn't likely to happen anytime soon. The story says that Clean Water Services has to get permission from the state before it can even start testing the concept, which calls for a three- step process involving ultra-filtration, reverse osmosis and enhanced oxidation to make the water pure enough to turn into beer.

    And, of course, there is the question of what beer made from purified sewage water will taste like ... though concerns about the scarcity of water, especially if a predicted decades-long megadrought affecting the Central Plains and the Southwest come to fruition, makes the possibility somewhat more appetizing.

    If appetizing is the right word.
    KC's View:
    To be honest, I've tasted beer that well could've been made from purified sewage water. (It was back in college. Desperate times require desperate measures.) But I'm not sure it actually was made from purified sewage water.

    This is one of those cases where I think truth in labeling is going to be absolutely necessary. And I'm also pretty sure that this is one of the cases in which the label will, in fact, cause me to choose a different product. There must be other places where we can cut back on water.

    We could stop watering the Brussels sprout and beet crops, for example. I don't like 'em, so let's stop watering them. (I grant you that this is a highly subjective, "if I were king" sort of reaction.)

    But I do think that if there's gonna be a megadrought, we're going to need lots of good, cold beer to get through it. So let's not be shortsighted in our choices.

    Published on: March 16, 2015

    Internet Retailer reports that Amazon has acquired 2lemetry, described as "a 4-year-old Denver company whose technology helps power the so-called Internet of things, a phrase to describe web-connected refrigerators, cars, consumer goods and other products."

    Terms of the deal were not disclosed.

    The story notes that "last year, another giant in e-commerce, Google Inc., paid $3.2 billion for Nest Labs Inc., a seller of web-connected smoke alarms and thermostats that was co-founded by Apple Inc. executive Tony Fadell, widely regarded as one of the executives who birthed the iPod."
    KC's View:
    The whole connected home space is going to get crowded and interesting ... and we're going to learn a lot just based on the names of the players investing money in it. The implications for the food industry from things like web-connected refrigerators, it seems to me, are potentially enormous.

    Published on: March 16, 2015

    The Wall Street Journal had a good piece over the weekend about Patrick Doyle, CEO of Domino's, in which he discusses the steps that have allowed the company to grow from $2 billion in annual sales to $9 billion, in part because of a global strategy and in part because the company decided to bite the bullet and admit publicly that customers didn't like its pizza very much ... and then improved it.

    Another interesting innovation: "Domino’s is also riding the digital revolution. 'In a lot of ways we’re really a technology company,' Mr. Doyle says. 'We’ve adapted the art of pizza-making to the digital age. Globally, we’re already at a run rate of about $4 billion of digital sales.' He adds that digital drives sales by making ordering easier and more efficient, and saves money on bad orders because customers 'take their own orders so they make fewer mistakes'."

    Worth taking a look ... and you can read it here.
    KC's View:

    Published on: March 16, 2015

    The Wall Street Journal reports this morning that Walmart "has struck a deal to be the exclusive carrier of a new, premium-priced laundry-soap brand in the U.S. And it has stacked the brand, Persil, on store shelves right next to the reigning champion of high-end laundry detergent: Tide."

    The story says that this move is noteworthy because it is a way for Walmart to gain leverage over Tide and the broader laundry detergent category.

    Tide's "dominant position has helped insulate P&G from pressure to cut prices or take other steps that might give Wal-Mart a bigger edge over rivals when it comes to laundry essentials. Last year, P&G was able to effectively raise prices on some Tide varieties by reducing the amount of detergent and number of loads per container." By giving high-profile space to Persil, Walmart gets both a carrot and a stick in dealing with P&G.

    "The latest move over detergent is a wrinkle in what has been one of corporate America’s most lucrative relationships," the Journal writes. "The two companies have worked closely over the years to reduce costs in their supply chains and on joint marketing efforts. Wal-Mart and its affiliates account for 14% of P&G’s $83 billion of annual sales. Meanwhile, Tide and other big P&G brands like Pampers diapers, Crest toothpaste and Dawn dish soap help drive shoppers to Wal-Mart’s stores."
    KC's View:

    Published on: March 16, 2015

    Starbucks said late last week that it plans to introduce "a higher-priced, small-batch iced coffee" that it says will be steeped in cold water for 20 hours, as opposed to simply pouring hot coffee over ice.

    The Los Angeles Times writes that "each store will make one batch per day, which means about 40 grande-size 16-ounce cups will be available per day, per store."

    The new coffee is said to be "smooth and rich," with "chocolate and light citrus notes," and less roasted and nutty than coffee brewed with hot water.
    KC's View:
    What interests me about this is the idea that Starbucks will only be making limited batches available, with the whole ideas being that the early bird will actually get the worm. That's an interesting approach - it works against the mass-marketing, make-everything-available-all-the-time instincts that most such chains would have ... and I think it is a smart way to drive traffic. Nothing like built-in shortages to create interest, especially if the product is tasty.

    I have to say that this story made me smile a bit. My late father-in-law, even when he was in assisted living and not having very good days, would love it when we'd bring him coffee, especially iced coffee during the summer months ... he craved taste (which you get very little of from institutional food), and it provided him with some happy moments even when things were tough. And I found myself thinking that he probably would've liked this product, and I'm sorry he's not around to taste it.

    Published on: March 16, 2015

    The Los Angeles Times reports that the US Department of Commerce "is launching a fish tracking system that would eventually tell consumers where their fish was caught, processed and stored ... While seafood industry groups are skeptical about potentially onerous and expensive tracking mandates in some fisheries where there are no problems, environmental organizations lauded the new rules that will roll out over the next few years."

    The story notes that "an Oceana study found between 20 to 32 percent of wild-caught seafood imported to the U.S. comes from illegal fishing, either fishing in closed areas, catching threatened or endangered species or using banned gear, that damages marine ecosystems. The illegal takes cost an estimated $32 billion a year."
    KC's View:
    This is just part of a broad trend that increasingly is going to demand that we are able to know where our food is from, how it has been created and/or raised, and what is in it. There simply is no good excuse for anybody in the food industry to resist complete transparency.

    Published on: March 16, 2015

    • The musical chairs in Walmart's management ranks, continues, with Tony Airoso, currently Senior Vice President, Dairy and Fresh Business Model Strategy, being "transitioned" to Senior Vice President, Global Food Sourcing – West and Dairy Upstreaming.

    In addition, Carmen Bauza, Senior Vice President, Health and Wellness, "will serve in the newly-expanded role of Senior Vice President, Household Chemicals, Paper Goods, Baby, Over the Counter and Optical," the company said.

    And, Walmart said, Debra Layton, Senior Vice President, Layouts and Space Productivity, now will lead its "Better Buying" initiative.

    Walmart also announced that Jack Sinclair, Executive Vice President in the Grocery Division has announced his intention to retire from the company, effective this Friday.
    KC's View:

    Published on: March 16, 2015

    • The New York Times reports that the city's sanitation officials are dismayed by the growing use of wet wipes - traditionally used for babies, but growing more popular with adults - because they are clogging up the city's plumbing networks. According to the story, "The city has spent more than $18 million in the past five years on wipe-related equipment problems, officials said. The volume of materials extracted from screening machines at the city’s wastewater treatment plants has more than doubled since 2008, an increase attributed largely to the wipes."

    And now, "A City Council bill, which has the backing of the administration of Mayor Bill de Blasio, was introduced last month to prohibit advertising certain moist wipes as flushable. The environmental department has begun work on a public awareness campaign concerning the importance of proper wipe disposal: throwing them in the trash."

    • In Canada, the Financial Post reports that Loblaw "has launched a program to sell blemished, misshapen or undersized produce under the No Name Naturally Imperfect brand.

    "Bags of Naturally Imperfect apples and potatoes are already being sold in select grocery stores across Ontario and Quebec and cost up to 30% less than other fruits and vegetables. In the past, the produce selected for Naturally Imperfect products might have been used for juices, sauces, soups or dehydration."
    KC's View:

    Published on: March 16, 2015

    • Reasor's, the Oklahoma-based supermarket chain, announced the retirement of Allen Mills, an almost five-decade long employee of the company who started as a part-timer and eventually became the president and chief strategy officer. No successor has been named.
    KC's View:

    Published on: March 16, 2015

    ...will return.
    KC's View: