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    Published on: May 19, 2015

    by Michael Sansolo

    Good fences may make for good neighbors, but stonewalls sometimes only make you look really, really suspicious.

    At least that’s how it appears when a company simply refuses to publicly answer questions that are uncomfortable and ugly, yet positioned as highly necessary. Absolutely no one likes negative publicity or prying reporters looking into difficult situations.

    Like it or not, those situation arise and you need to be ready.

    A classic example of this came up with last week’s airing of “The Trouble with Chicken,” a Frontline show on PBS. From the headline alone it was obvious this show would be challenging and the promise was kept.

    Frontline examined the impact of salmonella, particularly a strain called “Heidelberg.” As with any food safety story, this included intimate examinations of families impacted by food-borne illness and all the resulting nightmares up to and including death. Food safety stories are never, ever happy.

    However, that is not the reason companies need view this one-hour show. Rather they need to watch the response of two poultry companies and consider how both come off by the end of the broadcast.

    Let me start this with a piece of honesty: I really know nothing about this case. I haven’t followed the companies, haven’t tracked their responses or even how consumers have reacted to the problems of infected poultry. In essence, I was watching like any other viewer.

    The show worried me because while I know salmonella is a big problem I had no idea it is commonly found in poultry processing plants. In fact, it seems there are accepted levels of the bug, which means the entire industry must redouble efforts to remind shoppers of the keys to safe food handling.

    The reality is that if salmonella is so common, food safety problems aren’t an “if” but “when. ” Safe food handling knowledge needs to be out there endlessly. And it’s hardly surprising that immediately after the show, politicians were talking up new rules and regulations for poultry recalls.

    But again, consider the reaction of the two companies at the core of the story. Both were at the center of some food safety outbreaks and I’d bet both have taken similar steps toward improving the processes.

    One company, Cargill, came off significantly better. Cargill let the Frontline cameras into a plant and took them through the entire food safety process. What’s more, Cargill supplied a spokesman who seemed straightforward and genuinely concerned about the issue.

    In fact, Cargill came off so well - to my eyes, that is - it makes you wonder why Foster Farms and the chicken producers' trade association both declined to comment at all. Like I said, I know none of the details about this case, but it looked like one company was being open and the other hiding.

    In today’s world, communication is paramount. We understand that today’s shoppers no longer celebrate or suffer in silence. They share thoughts, experiences and commentary on everything they do. That, in turn, challenges companies to be ready to engage, even when the subject is uncomfortable.

    Silence is no longer golden. In fact, it can make you look kind of chicken. And when salmonella is the issue that’s a bad thing to be.

    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. And, his book "Business Rules!" is available from Amazon by clicking here.
    KC's View:

    Published on: May 19, 2015

    by Kevin Coupe

    Speaking of chicken...

    It so happens that John Oliver, on his HBO Sunday show "Last Week Tonight," also decided to train his sarcasm and well-honed sense of the absurd on the chicken industry.

    In this case, he looked at contract chicken farmers, who, it appears, are being exploited by major chicken brands - the big brands own the chickens, but the contract farmers have to take on all the expenses for raising them, which puts many of them below the poverty line.

    And, Oliver went after politicians - by name - who, he suggested, are so much in the pocket of big poultry that they are unwilling to vote against legislation would would simply let the farmers air their grievances without fear of retribution.

    The story is, as usual, replete with salty language that you'll want to be careful about if you're listening in your office or if your kids are within earshot.

    But it is also, as usual, a devastatingly funny piece that cuts right to the meat of the matter. Check it out.

    KC's View:

    Published on: May 19, 2015

    The Associated Press reports that the World Trade Organization (WTO) has rejected a final appeal by the US government of an earlier ruling that prohibited country of origin labeling (COOL) of meat sold in the US.

    The ruling says that any such labels will have to be dropped on the grounds that they put livestock from other countries, including Mexico and Canada, at a competitive disadvantage.

    According to the AP story, "The Obama administration had previously revised labels to try to comply with WTO obligations. Agriculture Secretary Tom Vilsack has said that if the WTO ruled against the final U.S. appeal, Congress will have to weigh in to avoid retaliation — such as extra tariffs — from the two neighbor countries." The story goes on to say that the victory, while it went against the US government, is "a victory for the U.S. meat industry, which has said the labels are burdensome. Meat processors quickly called for repeal of the labeling laws after the WTO decision."

    Peter Larkin, president/CEO of the National Grocers Association (NGA), said he was pleased by the ruling: "Independent supermarket operators are known for delivering top-notch service in their meat departments and are committed to providing their customers with high quality meats as well as information to help consumers make important food choices; however, the COOL labeling mandate has long imposed excessive burdens and costs with no clear evidence of meaningful consumer benefits. In fact, a recent report released by the International Food Information Council (IFIC) Foundation shows that only 15 percent of consumers use COOL labels, which has declined considerably from 26 percent in 2014."
    KC's View:
    Now that the WTO has ruled on this, there's probably not much that can be done about this.

    But ... I do think this is yet another example of a governmental bureaucracy that does not understand the notion of transparency and how the world has changed in this regard. And, of course, business likes to feed on this delusion (though only when it suits business's needs).

    To me, consumers knowing where their food comes from ... not to mention what is in it ... seems like a perfectly reasonable expectation. And I always have to wonder about those who think not.

    Published on: May 19, 2015

    Bloomberg reports that "sales on e-commerce websites increased 3.5 percent in the first three months of the year from the previous quarter, reaching a record $80 billion worth of purchases, according to seasonally-adjusted figures released by the Commerce Department on Friday. Meanwhile, total retail sales declined 1.5 percent, the first quarterly drop in almost three years. On a year-over-year basis, online purchases soared a whopping 14.5 percent, compared with a 1.6 percent increase for total sales."

    The story goes on to say that "since the start of the recovery, quarterly increases in e-commerce sales have averaged 3.7 percent versus 1.1 percent for total sales. Along the way, the share of e-commerce as a percent of total retail sales rose to 7 percent from 0.6 percent in 1999."
    KC's View:
    Every once in a while, I hear a presentation or panel discussion in which someone talks about how someone else has predicted the death of the brick-and-mortar store. Which always sort of amuses me, since I've never actually heard anyone make such a prediction ... it is more of a straw man, giving the presenter or panelist something to react to or argue against.

    I'm not surprised by these numbers. Of course e-commerce is going to grow faster ... it is growing from a smaller base. But the store is not going to go away.

    The question is what the ratio will be, and that will be determined by how many retailers are able to create physical shopping experiences that are relevant, compelling and part of an ecosystem that captures the shopper's loyalty ... and money.

    Published on: May 19, 2015

    MarketWatch reports that Walmart's online growth has not lived up to the company's expectations despite the investment of millions of dollars, and the reason seems to be that its shoppers prefer shopping online at Amazon.

    According to the story, "In April, 56% of Wal-Mart’s supercenter customers said they had shopped on over the past four weeks while just 17% had visited, according to a monthly survey of about 2,300 shoppers on average by consultancy Kantar Retail."

    The story goes on: "Worse for Wal-Mart, the trend is going in the wrong direction. In early 2009, a significantly fewer 32% of its in-store shoppers said they shopped at Amazon. The number who are Amazon Prime members has jumped to 21%, from 10% in 2011. The increases are across all demographics. Among those Wal-Mart shoppers with household income of at least $60,000, 31% of them are Amazon Prime customers, more than double from 13% four years earlier. Among millennials, 32% use Amazon Prime, up from 18% in 2011. Meanwhile, the percentage who said they shopped at has risen only modestly, to 17%, from 14% in 2009."

    Addressing the disparity, Walmart spokesman Ravi Jariwal says, “It’s important to realize the future isn’t just brick and mortar and it isn’t just online. It’s a combination of the two that allows the customer to choose when, where and how they want to shop. Walmart is uniquely positioned to serve customers and make shopping easy and convenient between online, mobile and stores.”
    KC's View:
    Uniquely positioned, perhaps, but Amazon has tapped into the consumer psyche in a way that Walmart's online offerings have not yet been able to. This, by the way, is why Amazon cannot afford to take its food off the gas pedal when it comes to investment and innovation. If it lets up, Walmart potentially could make up some of the distance between them.

    Published on: May 19, 2015

    The New York Times reports that Starbucks "announced a multiyear deal to work with Spotify, the subscription streaming service, to produce playlists for its stores and promote Spotify at its locations ... The partnership, which the two companies said would begin at Starbucks stores in the fall, will let Starbucks employees and customers pick the songs played at the shops, and incorporate Spotify into Starbucks’s mobile app, which Starbucks said was used by 16 million people in the United States."

    For Spotify, the story says, "the deal ... brings valuable in-store promotion just as it prepares to face a major new competitor in Apple, which is expected to introduce its own streaming music service as early as next month."

    The Times notes that "Spotify, which is available in 58 countries, said in January that it had 15 million paying subscribers and another 45 million who listen free with advertising." The Starbucks mobile app has 16 million users in the US, the companies say.

    Terms of the deal were not disclosed.
    KC's View:
    The press releases says that this will essentially allow Starbucks baristas to be DJs in their own stores. Which I suppose is marginally better than getting them to serve as racial strife counselors.

    Published on: May 19, 2015

    The New York Times has a story about the Singapore postal service, which is perhaps toe most radical example of a post office that, faced with the decline in traditional mail, has reinvented itself for the digital age.

    According to the story, "SingPost’s makeover is among the most ambitious. Besides its regular postal duties, it offers a basket of services for companies, including website development, online marketing, customer service and, of course, package delivery. Following the Amazon model, it is building a network of 24 warehouses in 12 countries to stockpile goods for companies. The e-commerce team is staffed with former Silicon Valley executives."

    Fascinating piece ... and a great example of what companies need to do in order to be relevant and competitive as consumer needs evolve.

    You can read the entire story here.
    KC's View:

    Published on: May 19, 2015

    • The Cincinnati Business Courier has a piece about Kroger CFO Mike Schlotman and how he views the current climate for acquisitions ... and he makes an extremely savvy observation that deserves to be repeated:

    "That duck on the pond, the head always looks pretty calm but those feet are going fast, and that’s how mergers typically are when they’re big like that. You have to make sure that the feet moving that fast does not disrupt what you’re trying to do for the customer, and if it does, that’s where it can wind up creating an opportunity for us. We don’t want a synergy number to be the item that drives a transaction because then you get focused on the wrong thing and try to make the merger work. And you’ll get the synergy dollars quickly at the expense of something else."

    • The Sacramento Business Journal reports that Michael Teel is acquiring majority ownership of Raley's, the Sacramento, California-based supermarket chain.

    Teel is the grandson of the company's founder. His mother, Joyce Raley Teel, is transferring her ownership stake in the company to him, giving him a 92 percent ownership stake. His four daughters will equally share the remaining eight percent.

    • Bi-Lo Holdings, parent company to Bi-Lo, Harveys, and Winn-Dixie,said yesterday that it has changed its name to Southeastern Grocers.
    KC's View:

    Published on: May 19, 2015

    Got the following email the other day from MNB fave Glen Terbeek:

    If the chart in today's WSJ article re the Ahold/Delhaize merger is true, what does that say about all of the ECR efforts in the nineties?

    The chart says that from 2000 to 2014 the supermarket share of U S grocery retail spending went from 46% to 36%.  Wow!  The "alternate formats” enemies continue to take share!

    The ECR focus should have been on demand side productivity first, i.e., maximizing the market potential of each store, then supported/enabled by an appropriate supply chain.  ECR got this backwards in my opinion.   It just tried to streamline an outdated “buy for resale” logistics model.  Is this merger just another case of central efficiencies and supply side efficiencies mentality? 

    Remember, the shopper doesn’t care about how big the retailer is, they only care about “their” real and virtual shopping experience.

    As always, Glen nails it.

    Whether it is the potential Ahold-Delhaize merger, the Haggen absorption of 150+ stores, or the Albertsons-Safeway merger, the risk always is that they will be so focused on efficiency that they mistake it for being effective.

    Had a story the other day citing Uber and Airbnb as disruptive influences, and one MNB user responded:

    Kevin - your article about Airbnb is so on point.  My niece got married in Austin last month, and everyone that came in from out of town booked a room via Airbnb and relied 100% on Uber for rides.  It is the future...

    A reaction from an MNB user to Whole Foods' announcement that it plans to launch a new, lower-cost chain with the same sort of organic/natural orientation:

    They are smart. One thing that’s always impressed me is that they have no qualms about trying new things then tossing them quickly if they don’t pay off. I think you’ve said before - don’t underestimate them!

    On the same subject, from another reader:

    Whole Foods is the dominant player in growing organic foods segment of food retailing.  Numerous small discount organic operators have been gaining market share over the last few years; Sprouts, Fresh Thyme, The Fresh Market et al.  The best way for Whole Foods to respond is by competing directly with competitors’ business models.   I suspect that’s what is occurring here.  Whole Foods has just thrown down the gauntlet, regardless of the lofty aspirations avowed in their press release.

    And another:

    The idea to compete at a lower priced level, as you say, isn’t anything new.  But if they can convey some of the mojo that made Whole Foods special in the first place, it might work, if not, that we’ll be saying about that gluten free spaghetti on the wall:  “now it’s garbage”.   (Or is it really linguini on the wall?).

    Regarding the possible Ahold-Delhaize merger, one MNB user wrote:

    Kevin -- as in most cases, your comments on the potential driver behind the merger are spot on, in my view.  Both of these companies have struggled a great deal in America and they would benefit from a focus centric to the U.S. There is also a benefit of scale on the European level, due to the origin of both parent companies.

    To your comment on the decentralization of the U.S. model, I can speak from experience that it's not to make it easier to sell the brands. It's a failure of the original concept to centralize shared services that limped along for several years at a glacial speed. That and the continued shifting and shuffling of the executive teams of both Hannaford and Food Lion has stalled both of those banners. 
    In the process, Sweetbay and the Bottom Dollar formats failed and have been sold.

    Now, the new America CEO Kevin Holt is making more changes. His background ground with Sears has more than a fair share of people concerned. He's appeared to have ousted two successful leaders of the two banners left, Food Lion and Hannaford; Beth Newlands Campbell and Brad Wise, respectively. They were people that knew the markets and had very successful track records.

    They have now been replaced by the two presidents that ran the failed banners of Sweetbay and Bottom Dollar (Mike Vail and Meg Ham).

    Hannaford and Food Lion have become better at creating change than creating outcomes.  Ahold and Delhaize are two mediocre organizations that will create one larger entity of the same caliber.

    Most recently, the initiative was declared at Hannaford to become "a selling organization". That is a bit like General Motors having an epiphany and declaration they are interested in selling automobiles. They would be better advised to become a retail driven organization.  Sources inside the company report that while doing this, they have changed their retail field support to be substantially less robust while adding several jobs to the corporate office. To the retail people in trenches, this feels out of alignment with the strategic intentions of the organization. 

    If this merger goes through,  let's hope you are right on the spin-off of the U.S. banners to someone who can unlock the true value.

    I expressed some skepticism the other day about a survey saying that Trader Joe's is the nation's best supermarket, leading one MNB reader to write:

    I’m with you on Trader Joe’s—I can see people ranking it high in certain areas, but the best grocer in the country…no.  Quick check-outlines, sure…but I’d say the average cart is a fraction of a ‘traditional’ supermarket’s cart.  For one thing, the footprint of a TJ is (at least the few I’ve been to)  tiny in comparison to even a mid-sized Stop & Shop or Kroger.  Another thing, one can’t rely on what will be available to buy.  Between product being wiped out of stock (go early in the day, or don’t bother.  Especially on the weekend, which is the only time I can make the drive to the only store in the area.) and the constantly changing product mix—yes, it’s a “fun adventure”, but I for one hate falling in love with a product (or being elated at finding a more affordable version of a product) and never seeing it again.  All that said, if they opened a store on my side of the river, I might feel differently, and I for sure would shop there more often.  Right now, the only location in my area is just not worth the hassles.

    And from another:

    Thank you for today’s observations on Trader Joe’s produce and prepared foods. I was beginning to think that I was alone in that view. I’ve never purchased produce at their stores that didn’t have to be pitched within a couple of days. I do make certain purchases at Trader Joe’s, but it’s a discreet list of items. Frankly, I preferred their LA area stores of 30+ years ago to today’s stores and products.

    Regarding the layoffs at Blue Bell, and the CEO's stated dismay at having to cut so many jobs, one MNB user wrote:

    Hollow words at best – “we did everything we could.” If they did everything they could, they wouldn’t have found themselves in this position.

    And, in response to another story, one MNB user wrote:

    I agree with you about the “sightseeing” aspect of FAO Schwarz, but it shouldn’t be ignored that the quality of employees and training at the Fifth Avenue store was no better or worse than at many Toys R Us or other retailers, with the same lack of motivation from the top and inadequate results. Meanwhile the Starbucks across the street and Apple Store a few dozen feet away from them create a completely different experience. What’s that thing you say about 'compete' being a verb?

    And finally, regarding Target's decision to focus less on certain CPG brands in favor of fresh foods and own label, MNB user Lyle Walker wrote:

    The issues that Target is trying to address are the issues of all traditional grocers.  The center store is becoming less shopped, as consumers become better educated about processed food, and seek out what they consider are fresher, more healthy options.  If you look at the strong growth in the industry, it's coming from retailers like Sprouts, Whole Foods, Lucky's, Fresh Market and Trader Joe's, as well as the new upstarts like Fresh Thyme.

    The challenge is still that most of these CPG companies are public, and have mastered the science of ingredient manipulation (i.e.. salt, sugar, fat).  These are the products that fill the center store, and are the products that Target will decrease focus on, in an effort to differentiate. It's a smart move by Target and can't help but provide an improved, unique value proposition for them.  Ultimately, the customer will decide if this works, but based off the growth of the retailers above, the future should be bright for Target.
    KC's View: