retail news in context, analysis with attitude

Published on: April 22, 2015

by Kevin Coupe

We spend a lot of time here on MNB pointing out the operating and strategic deficiencies at fast feeder McDonald's, especially in the context of shifting American consumption preferences.

And so it makes sense to take not of Chipotle's announcement yesterday that it broke the billion-dollar quarterly sales barrier for the first time ... despite, as the New York Times reports, "a problem with its pork supply that caused some of its more than 1,800 stores to run short on carnitas."

It was a pretty good first quarter for Chipotle - same-store sales were up 10 percent, overall sales were up 20 percent, and profits were up 47 percent. (Stock analysts, being stock analysts, said they were disappointed with the same-store sales number. Oy.)

But, as the Times notes, this is part of something bigger: "So-called fast-casual restaurants like Chipotle, which allow their customers to tailor their meals, and still have them ready in a flash, are booming right now, playing to consumer tastes for customization, speed and ingredients from sources that adhere to animal welfare, organic and other standards."

That's the Eye-Opener. Customers are willing to spend a little more for higher quality, more customized meals ... which reflects the challenge to anyone in the business of selling food.

Published on: April 22, 2015

Dave Lewis, the CEO of Tesco, said yesterday that the market is "still challenging." That may be the understatement of the year, as Tesco reported an annual loss of $9.5 billion (US), which the New York Times described as both the worst in the company's near century of operation and "one of the biggest in British corporate history."

The Times reports that Tesco conceded being hurt on a number of fronts. There was the accounting scandal in which it said that in the past there had been the overstatement of revenue and understatement of costs, as well as heightened competition from discounters such as Aldi and Lidl, which had the dual effect of forcing it to lower prices even as customers were deserting its stores for lower-cost alternatives.

Furthermore, Lewis said that "we are not expecting any let up in the months ahead."

According to the Times story this morning, "Tesco's trading profit was 1.4 billion pounds, in line with company guidance but less than half of the 3.3 billion pounds made the year before and a third straight year of decline.

"The firm also revealed it had net debt of 8.5 billion pounds and a net pension deficit of 3.9 billion pounds. It has agreed a deal with the trustees to pay 270 million pounds per year into the scheme to help make up the shortfall.

"Tesco's property writedown follows similar moves by rivals Sainsbury's and Morrisons and reflects the deterioration in UK grocery market conditions in recent years. It is on top of about 4 billion pounds of charges Tesco has taken over the last three years."

One UK analyst said that this announcement marked "the official end of the Tesco era."

(In perhaps a indication of what was to come, the week started off poorly for Tesco when its consumer broadband service went down, leaving many of its users without service for much of the day Tuesday.)

Published on: April 22, 2015

The Wall Street Journal reports this morning that as Walmart continues to test grocery delivery and click-and-collect models in five US markets, as well as invest millions of dollars in figuring out how best to exploit this market and compete with Amazon, it is using as a resource the more than decade in the segment that its Asda unit in the UK has experienced.

The story notes that "aided by the deep pockets of its parent company, Asda offers online grocery delivery across 97% of the U.K. and is pushing aggressively into 'click-and-collect,' where customers order online and pick up in person at no extra charge. The retailer in February bought 15 gas stations, at which it is installing click-and-collect lockers. Asda offers the service at all of its 592 stores and is targeting 1,000 pickup sites by 2018 as it rolls out the service across stand-alone locations like parking lots."

The Journal concedes that "grocery home delivery is notoriously tough to get right given that different foods need to be kept under various temperatures, while an on-time delivery is essential so as to not alienate hungry customers. It is also widely seen as unprofitable since the delivery fees don’t cover the added costs. Grocery pickups, if they catch on widely, could be a good middle ground, since they are convenient for shoppers and less expensive for retailers."

Which is why Asda is serving as a laboratory for Walmart's e-adventures. Cross-pollination, it seems, is the order of the day.

Published on: April 22, 2015

CNet reports that Amazon is offering a new travel service that allows people to plan and book trips on its website.

According to the story, "The service, called Amazon Destinations, provides lists of locations near a user's home for short-term trips, offering hotel bookings, as well as information on dining and attractions. For instance, for a New York customer, the site provides bookings for hotels in the Catskills, the Hamptons and on the New Jersey Shore. Still, the rollout for now is small, with the service available for only the New York, Los Angeles and Seattle metro areas ... Amazon Destinations expands on Amazon Local, the company's daily-deals hub, which offers discounts for local shops, theater tickets, restaurants and entertainment."

Published on: April 22, 2015

Target's closure of 133 Canadian stores this year after one of the most disastrous international market expansions of any major retailer has left both "gaping holes" in a number of Canadian malls and shopping centers as well as hard feelings among landlords, manufacturers and other creditors who argue that Target is abusing bankruptcy laws to get out of town without paying its bills.

According to a story in the New York Times this morning, " the company stunned some creditors and financiers with its exit plan. It obtained an order from the Ontario Superior Court of Justice granting the company creditor protection under a Canadian law normally used by businesses that need a break as they reorganize their debts to continue in business — much like Chapter 11 of the United States Bankruptcy Code.

"Going that route gave Target much more control over the shutdown than a filing under Canada’s separate bankruptcy law would have offered. But given that Target Canada’s parent company is far from insolvent, several lawyers representing landlords questioned Target’s decision to seek any sort of court protection."

The story goes on to say that "Target said that the court process was the most equitable way for it to treat creditors and the thousands of Canadian employees left jobless. 'Target Canada’s aim throughout has been to conduct the process in a fair and orderly way,' Aaron Alt, the chief executive of Target Canada, said in an email. 'Winding down a multibillion-dollar business with 17,600 employees and almost 150 locations is a complex process involving a broad group of parties'."

Target's decision to leave Canada has resulted in a $4.5 billion corporate write-down.

Published on: April 22, 2015

The New York Post reports on the struggles being experienced by D'Agostino's, the 83-year-old New York City grocer that is finding it tough to survive, "the shelves increasingly bare as suppliers withhold food over the grocer’s late and missed payments ... D’Agostino’s business is getting nibbled away by behemoths like Walmart and grocery-filled drugstores that are undercutting it on price, and also from higher-end players like Whole Foods, Trader Joe’s and Fairway."

According to the story, "D’Agostino’s main supplier, C&S Wholesale Grocers, requires the grocer to wire payments before deliveries because of its poor credit. Those deliveries have been nearly halved, leaving empty spaces on store shelves, with industry experts questioning how much longer the company can last given its high rent in pricey locations and union pay."

Nobody at the company is denying that there are problems. “This is a difficult cycle for us,” Nancy D’Agostino, an executive with the company and the wife of CEO Nicholas D’Agostino III, tells the Post. “But at this point we are absolutely not considering selling the business.”

Published on: April 22, 2015

The Columbus Dispatch has a piece about the supermarket price war in that market, as "Kroger put its competition on notice last week - announcing price cuts on thousands of items, from slabs of baby back ribs and packages of chicken breasts to bunches of organic broccoli."

The piece notes that "there have been myriad price-reduction announcements in the past by Kroger and other chains, but this one might be the broadest sweep that’s not linked to promotions or other gimmicks." Diana Smith, senior research analyst for retail and apparel at market-research firm Mintel, tells the paper that “this is a move to try and protect their territory from future threats."

The Dispatch writes that "since Big Bear’s demise in 2004, a slew of rivals has pressed claims on a piece of the region’s grocery market. Giant Eagle, Meijer, Wal-Mart, Costco and Whole Foods have expanded offerings. The Hills, Marc’s and Weiland’s carved out niches. Trader Joe’s, Aldi, Fresh Market, Earth Fare and Fresh Thyme built stores."

Published on: April 22, 2015

The Associated Press reports that the US Department of Agriculture (USDA) "is moving toward allowing the sale of U.S.-raised organic fish and shellfish," and will "propose standards for the farmed organic fish this year."

However, the story also says that consumers should not expect to see such products in stores anytime soon: "The seafood could be available in as few as two years - but only if USDA moves quickly to complete the rules and seafood companies decide to embrace them."

The AP says that "many in the farmed fish industry say they expect that the requirements for fish feed may be so strict as to be financially prohibitive," and that "environmental groups also are concerned that fish in ocean pens would be able to escape and contaminate their surroundings. They also worry about ocean contaminants."

The story goes on: "Even if some companies do take steps to grow organic fish, the process could potentially stretch beyond two years. The National Organic Standards Board, which advises USDA’s National Organic Program, is still reviewing some vaccines, vitamins and other substances considered essential to aquaculture.

"Linda ODierno of the National Aquaculture Association says that despite some of the challenges, the industry is hoping that organics could help consumers feel more confident in U.S. product that is often already more expensive than seafood produced cheaply abroad. 'It could be good for industry and good for consumers,' she said."

Published on: April 22, 2015

• CNN reports that Kraft has promised to remove "artificial preservatives and synthetic colors from its mac and cheese recipe, starting in January 2016 ... t will use spices like paprika, annatto and turmeric to replace the synthetic colors and promises that its mac and cheese will taste the same as before."

The move follows the company's announcement in November 2013 that it was removing such additives from its kid-friendly mac-and-cheese products.


• The Grocery Manufacturers Association (GMA) announced that it will honor former ConAgra Foods CEO Gary Rodkin, former Walgreens President and CEO Greg Wasson and Chairman of the Board of Flowers Foods George Deese with the GMA Hall of Achievement Award, which "recognizes the service and extraordinary contributions of distinguished food, beverage and consumer packaged goods industry leaders."

The three honorees will be presented with the award at GMA’s Leadership Forum in August at The Broadmoor in Colorado Springs.

Published on: April 22, 2015

I've been traveling this week, which has made keeping up with the email a little more problematic. Let's see if we can catch up a bit this morning...

Regarding the Blue Bell Ice Cream recall, MNB user Rich Heiland wrote:

Having lived for 11 years in Vermont, and now back in Texas, I can tell you Blue Bell is to Texas what Ben & Jerry's always has been to New England. It's an institution and I can tell you folks down here are in a semi-state of shock.

I agree with you that early on Blue Bell was not as forthcoming as it might have been, but maybe that is understandable. It thought it had a problem in Broken Arrow, OK. With the total recall it's obvious that the infection might be in all the plants. That means the most critical next step for Blue Bell, and even other such food producers, is to determine how an infection reached all of the plants at the same time. No doubt they already are looking at the supply chain with microscopes.

I hope they bring the customers and general public into the lab with them and are totally transparent every step of the way.  Ice cream is ice cream. Trust is special.

I agree with you, but I don't have a lot of faith.

And my gut is telling me that when all this is said and done, people are going to lose their jobs, the company's reputation and sales are going to be diminished, and we're going to find out that this wasn't just a mistake, but a systemic problem that could have been addressed a lot earlier but wasn't. I hope I'm wrong.

I don't think this is going to reach Peanut Butter Corp. of America proportions, but ... there seems to be a faint whiff of that in the air. We'll see.



Regarding Walmart and the issue of whether products said to be made in the USA actually are, MNB reader Ted File wrote:

I recall that Sam the man said, "When I say it is made in the USA, it sure as heck will be. If not, you don't sell to me."

Boy, he was the guy. I recall the time when he and I had a meeting with sitting on an old box, and me, too.

The sad reality is there aren't many people left who remember those days.




On the subject of Walmart's seeming preference for a click-and-collect model, MNB reader Dan Graham wrote:

I think the Wal Mart team may be ignoring the rather obvious fact that many (if not most) consumers who order online do not want to go to a store, even if it's only for pickup. Of course I can understand their dedication to trying to get people to come to their stores for any reason - it's hard to dedicate an organization to a alternative that could eventually destroy your core business.

We had a story in which a Walmart executive talked about the company's e-strategy but was "light on the details." One MNB reader responded:

He was “light on the details” kinda like his stores being “light on inventory”, I am continually amazed at the poor inventory positions at Wal-Mart. If he really believes that his 4500 stores are a “competitive advantage” he should fill them up, train workers to care about the consumer and put a few more checkers on duty to reduce the wait times.

A similar point from MNB reader Dan Jones:

Walmart will be at an advantage for on-line orders only if they can keep product in stock.  Think about the thousands of simple decisions we make in-store.  For example, if ketchup is on the my list, I may choose to order a 20 oz. Heinz squeeze bottle.   If this item is out at the local store, what is my preferred next option?  1)  Buy the Heinz 14oz Squeeze?  2)  Buy the Store Brand 20 oz?  3) Buy a Heinz non-squeeze 20oz?  4) Wait until the next order?  Does Walmart invest in a team of people to call me and ask?  This costs the customer time and Walmart money. 
 
It is much easier for Amazon to keep stock with one large regional warehouse instead of Walmart trying to get 100 local stores correct.  Unless Walmart can improve the in-store fundamentals, they will spend a lot more money on customer service than Amazon will spend on shipping.




This response to last week's FaceTime about the mystical level playing field:

In my experience, there is almost never a level playing field – however the slant to the field or the advantage is not always created by or given to the largest player…..Back in the 70’s, California struck down the fair trade law on alcohol beverages. Until that time, selling alcohol was fairly simple…. Generate funding, obtain a license, buy the alcohol, open the state pricing guide, find your item, and set your retails at or above the posted retail – sell enough product and you make a profit and continue on…. With the removal of fair trade, the only guide line was that retailers had to sell at least 6% above cost (and depending on bracket/discounts/distributor – cost was a moving target).

Fresh out of high school, I was fortunate to be cutting my teeth in business at that time because it was FUN (both challenging and educational – as a college freshman I was able to learn that you NEVER know as much as you think you do - and that most seemingly impenetrable obstacles provide an opportunity to get through). We could have closed the doors and moved on, but my mentor (boss and then business partner) had other ideas….

As I mentioned, there was going to be a challenge on cost – so a group of liquor store owners banded together to form a buying group and shared a warehouse rental so that we could generate the same quantity discounts that the larger competitors would.

There was going to be a challenge on the size of the store – Safeway decided to immediately enter the segments and turned some of their stores into “Liquor Barn” with a very similar footprint to their standard store - -so we worked on our customer service. We were a “neighborhood” store and had a great location so we tried to personalize each interaction. Each customer was Tom or Sally or Mr, Miss or Mrs Johnson and each request for an item we didn’t created an opportunity for us to satisfy a specific need.

There was also a margin opportunity – fair trade “guaranteed” a 25%+ margin – The Liquor Barn type competitor began blending out closer to 10%----so we worked on becoming more relevant to our customers- blend our margins to be close on the key items and add items that would help maintain traffic. Sometimes, instead of wine or beer ends, we negotiated great costs and built paper ends (single paper towels or 4 pack toilet paper-fortunately customers weren’t buying 50 packs back then)...

Obviously, there were more opportunities, but bottom line is that by changing with the needs of our customers, we kept that store for another 15 years before we sold it and each year allowed us to grow sales and profit, Liquor Barn closed their doors and our old store is still in existence today…..

Each change provides us with opportunities – opportunities to change and possibly morph into something we had never imagined or sadly opportunities to fail… I believe that many times the choice is ours…

MNB reader Michael A. Stephan had some thoughts about the same commentary:

I agree with your support of the Wine Shop Owner that argues he should have the same opportunity to sell cheese as the Cheese Shop Owner has to sell wine.

I also agree with his argument not to extend hours.  Although you framed his case as "small guy can't keep up with big guy", I see it more as limiting certain commerce to certain days.  Is it really necessary to have wine shops open at all hours of the day?  No.  I little planning and there is no problem.  The problem only surfaces when someone has an unplanned need or last minute desire.

Here in MN, car dealerships aren't open on Sundays.  From a consumer stand point, that seems ridiculous.  Sunday seems like a good time to shop for a car.  But, a better use for a Sunday is to be with family (or friends).

Unless you happen to be someone who works six days a week, and Sunday happens to be the only day you can shop for a car, or buy beer and wine, or even shop for groceries. I remember a time when, where I grew up, supermarkets were not allowed to be open on Sundays.

Saying you want to be closed on Sunday so you and your employees can spend time with family and friends is a perfectly legitimate values judgement ... but it also strikes me as a great example of government overreach to say that this values judgement ought to be codified into law.




MNB reader Pete Grimlund weighed in on the continuing discussion of Amazon's drone program:

The use of drones to speed up delivery service may be just over the proverbial horizon but it is the last mile, or in this case the last 10 feet that poses a challenge.  We just moved into a condominium where there is no concierge to take delivery of packages.  If you take the delivery person out of the equation who has access to the secured foyer, how is that going to improve customer service? 
 
I can envision coming home after being notified of a drone delivery, only to find a soggy box sitting out in the drizzle or worse, nothing at all because some passing individual spotted an opportunity to pick up a little early Christmas gift.  Sarcasm aside, it is believed the sweet spot for drones will need to be in the lower density suburban or even near rural areas where their use reduces logistics costs.  Of course one will need to worry about the occasional wiseacre who looks at drones as a new form of shooting sport.  But that goes with the geography.

All good points.

My only point is this. Just because you or I cannot imagine this happening or making sense does not mean that it won't happen and that it won't make sense.

I'm just trying to avoid epistemic closure on the issue.




On another subject, one MNB user wrote:

I don’t enjoy using mobile loyalty programs while I am shopping because they make me do something else, other than shopping, when I am trying to shop.  I have to balance my device and enter information while pushing a cart and trying to select products from the stores’ shelves.  It is a cumbersome process.  Then, I still have to remember to present my phone at checkout.
 
This process has to be made more seamless.




Regarding the ongoing debate about whether Kroger should sell guns, MNB reader Robin Forgey wrote:

In my town, the local Kroger store, Fred Meyers, sells guns.  How could they ban their customers from carrying them when they sell them?

From another reader:

I agree with Kroger – they are in the retail industry, not politics and if consumers don’t want to shop at Kroger because they are abiding by the law,  I’m sure Kroger will do just fine without their business.

And from MNB reader Dave Wiles:

Kroger is correct on this. Let each state set the laws.

I have never took a hand gun into a food or drug store in Arizona or California. I have never seen anyone else bring in a gun.

It would not effect me if they did unless they wanted to rob the store. It is not the gun, it is the person who holds the gun.

Making laws that will keep weapons from honest people will only let the bad guys win.

I really don't understand those who believe that passing a law to take guns away will keep those who break the law to follow it.

Point tooken.




And finally, this email from MNB reader Dean Balsamo:

Amazon.  Last week’s experiences I had with both Amazon and Staples illustrate why Amazon has become my  destination of choice for so many things.

I recently upgraded my photo printer to Canon Pro 100 to replace the other Canon photo printer I use for work. I used to get all my toner from Office Depot but than about a year ago they made a drastic reduction in their toner offering and instead of being able to buy black by itself…the most commonly used ink…they got rid of the single offering and in order to get black at all from the brick and mortar Office Depot…I now had to buy a whole multi pack with different colors and one black cartridge.

So then I started going to Amazon and ordering five blacks at once because I needed that ratio. So Office Depot lost 90% of my toner business and the bulk of the $200 plus business I was giving them ever six weeks or so because they made this decision.

Recently I upgraded to a Canon Pro 100 which uses different toner. It’s a more sophisticated printer but I still expected Office Depot to have some of the toner. No. They don’t even list it online.

Then I had a challenge as I was running out of black and didn’t have any back up left which caused to me freak out some as I do quite a bit of printing on daily basis for letters and other items I use for work.

So I go Amazon and of course everything was there and I opted for next delivery and there it was by noon the next day.

In addition I thought well I wonder if Staples carries this in their store-since I never go there I wasn’t familiar with their offerings.

No, they don’t carry it in the store but I could order online and have it sent to the store. Okay, I thought I'd give it a try. So I order and it wasn’t even close to the ease of the Amazon experience. The web site was more complicated to get around. It listed “my store” as a store 500 miles away. So I had to correct that.

I found the toner. Ordered and the site told it would be at the store two days later for pickup.
 
I was given no tracking number, no notification outside of the immediate transaction telling me it’ll be there.

Two days later  the UPS man brings a package that he had for me to the door of my home and also expressed some puzzlement because he said he thought he had another one for me but didn’t find it on the truck.

So  I thought somehow that since I get deliveries every week from UPS that somehow my name must have triggered something on the UPS site and confused it with my Staples delivery. I was expecting a call or an email from Staples to tell me my scheduled delivery had arrived. But nothing.

The next day…my wife called the Staples store and no one could tell her anything about the order. They said they’ll ask the manager who then got on the line and told her that he’d call when he found anything.

Meanwhile I never did get any kind of email with tracking info or notification about its arrival.

Later on that day, a day later after they said it was going to be there, the manager calls and says the toner just arrived.

I had to go out of town the next day and my wife was busy…five days later I still haven’t picked up the toner and of course I can’t forget to bring copy of my invoice with me etc.

If they at least communicated I might be prone to give Staples another chance. But since I can buy things like paper and pens at Office Depot there’ s reason for me to go to Staples so rather than a new customer =, Staples has nothing.
 
It may be too late for them to get up to speed.  Amazon’s won my business once again as it has over and over again for the last 10 years.
 
I want the brick and mortar stores to thrive too.  Does Amazon have to do those too to show retailers how to do business?

Good question.




We'll have more emails tomorrow, I hope, as I continue to wade through the in box...