business news in context, analysis with attitude

Published on: April 19, 2016

by Michael Sansolo

There are really two things that should worry traditional retail when it comes to competition with electronic commerce: the things you can see and all those you can’t.

Let me explain.

Obviously there is a lot of attention focused here at MNB and elsewhere on the looming power of Amazon and other e-commerce specialists. E-commerce offers an entirely new shopping experience, including unimagined simplicity, endless variety and an absurd level of convenience. Shopping in your pajamas may not interest everyone, but it will interest many.

That's just the obvious. There's also the invisible threat that comes when shoppers increasingly move specific trips or just certain items to automatic replenishment services.

This isn’t new. Through the years of competition we’ve seen major categories almost entirely disappear from one channel or another. It’s impacted products like laundry soaps, pet foods or even Halloween candies thanks to competition from clubs, mass merchants and category killers.

E-commerce can do that too and maybe more subtly and painfully.

As it happens, our next-door neighbor’s daughter is getting married in a few weeks and, as is customary, the bride has a registry. However, hers is unlike any I’ve seen before.

It’s on Amazon.

Now think of what that means. First the convenience is amazing. I can easily scan the list to see the price and remaining availability of each item. (As with all bridal registries, Amazon’s tells me how many of a product the couple needs and whether any or all of them have been purchased.)

Better yet, my wife could dispatch me to do this knowing full well that for once I cannot mess it up. If the bride wants a specific skillet or set of towels or whatever, I just point and click. The purchase is made and it will always be correct.

And as the bride-to-be told me, it gives her an added benefit. She can easily get a record of who supplied each gift, which means no more anxiety after the wedding or shower when no one can remember who exactly bought a specific item.

Consider the issue this poses to, for example, Macy’s, which has a pretty robust bridal registry site of its own. At Macy’s, a couple can put a really wide range of items on a registry with great ease.

This is Macy’s sweet spot and suddenly it’s gone.

My neighbor’s daughter, like many of her generation, grew up shopping on Amazon, not at Macy’s, so their inclination is to register with the retailer they know. Plus at Amazon, there is no limit to the items. Want towels and cookware, it’s done; want a backyard fire pit, add it; heck, if you even want "The Big Picture: Essential Business Lessons from the Movies," or "Business Rules! 52 Ways To Achieve Business Success," you could (and should) add them.

Worst of all, Macy’s and other department stores have no easy clue this is happening unless wedding guests like me are writing blogs. Invisibly, the business can just start eroding and maybe disappearing. Forever.

Generationally, we may already have passed the point of no return.

The threats are constant and inevitable. Vigilance must be exactly the same.


Michael Sansolo can be reached via email at msansolo@mnb.grocerywebsite.com . 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.

Published on: April 19, 2016

by Kevin Coupe

Okay, here's one I didn't see coming.

The BBC reports that Mars Food, described as "the company behind Dolmio and Uncle Ben's sauces," is saying that it will begin distinguishing its products as being for either everyday or occasional consumption, and will say both on packaging and on its website which of its products "should only be consumed once a week due to high salt, sugar or fat content."

The story says that in some foods, higher salt, sugar or fat content is necessary to maintain taste, but that consumers should be careful not to overindulge.

There is a sense in the reporting that Mars is trying to get ahead of the wave, raising awareness about certain nutritional realities before the government forces it to, and in accordance with increasing consumer preferences.

This sort of reminds me of the campaign that Patagonia launched a few years ago, urging its customers to "buy less" as a way of addressing the problem of conspicuous and environmentally irresponsible consumption. That campaign resulted in Patagonia sales going up almost 38 percent ... and prompted the company to begin accepting used clothes at its stores, which it reconditioned and sold as "better than new."

I'm pretty sure that Mars Food won't begin selling used sauces; that would be a bridge too far. But the company clearly believes that an act of social consciousness will serve it better in the long run, and that the environment is right for a food company to say "eat less of our stuff."

Go figure. it is an Eye-Opener.

Published on: April 19, 2016

MarketWatch reports that "an analysis of the locations selected for the first 365 by Whole Foods Market Inc. stores shows overlap with not just other grocers, but with Whole Foods Market Inc. itself, raising concerns about cannibalization and competition, according to Oppenheimer."

The story quotes Oppenheimer as saying that "in our investor conversations, sentiment remains quite negative toward the potential success of this concept ... Cannibalization and the risks associated with creating a new concept from scratch with limited testing remain our primary concerns, along with strong incumbent chains including Sprouts Farmers Market and Trader Joe’s in the value space."

Oppenheimer says that "the biggest overlap was with Trader Joe’s, the chain known for its value-conscious private label produce and Hawaiian-shirt-wearing staffers. Ten of the first 13 365 locations are within five miles of a Trader Joe’s. Six 365 stores are just a mile from Trader Joe’s. Seven 365 by Whole Foods Market stores are within five miles of Sprouts Farmers Market, and six are within five miles of a Kroger..."

While the Oppenheimer folks concede that the 365 concept could make Whole Foods more competitive in certain markets and circumstances, “in an ideal scenario we would want the chain to test the concept before going full steam ahead with the launch. We suspect the management team is taking a more aggressive approach given a rapidly changing environment and the desire to retain its market leadership.”

Published on: April 19, 2016

The Philadelphia Inquirer reports that c-store chain Wawa has morphed successfully into "a full-service operation that is part store/take-out restaurant/coffee house, part bakery and gas station - and become a staple of the rush-hour landscape with its signature Wawa coffee."

Here's an interesting passage from the story:

"Wawa's evolution from a general convenience store to a broader restaurant is marked by this statistic: Food and beverage now account for more than 50 percent of Wawa's revenue ... This figure does not include the candy bars at the cash register or peanut butter and bread loaves on its shelves, which are categorized as 'grocery.' Food items are the 'meals' prepared in the back kitchen that customers can customize using electronic touch screens."

Chris Gheysens, Wawa's president/CEO, says that the "differential for our brand has been fresh food. In the last decade, we've been dedicated to quality and assortment, like you would find in a fast casual, or even a sit-down restaurant."

And, the story says, Gheysens maintains that "food's role at Wawa will keep expanding. For the first time the company is hiring both a food and beverage manager and a food and beverage supervisor for each store this year."

Published on: April 19, 2016

The Wall Street Journal reports that Target Corp. is increasing its minimum wage across the US to $10 per hour as it faces "growing competition for lower wage workers."

The story notes that "the new hourly rate will match the minimum implemented earlier this year by rival Wal-Mart Stores Inc. for most U.S. workers. Target boosted starting pay to $9 an hour in 2015, after a similar increase by Wal-Mart."

The Journal also writes that "Target has resisted publicly commenting on introductory wages for its employees. Instead, company executives have said that Target pays competitively and adjusts wages based on the local market. For instance, in high-cost areas like New York and Los Angeles, starting hourly wages are already above $9."

The move also comes as states such as New York and California and some municipalities have begun legislating phased-in minimum wage increases to as much as $15 per hour.

The Journal notes that "the higher introductory pay rates have come with some challenges at retailers, with some longer tenured employees bristling at the fact that new hires now make an hourly rate that took them years to attain."

Published on: April 19, 2016

The New York Times reports that General Mills "has created a venture capital unit that recently led a $3 million investment in Rhythm Superfoods, a specialty start-up that makes kale chips and broccoli crisps," making the manufacturer of Cheerios "part of an increasing number of old-economy companies, including the convenience chain 7-Eleven and the Campbell Soup Company, that have joined a crowd of technology companies to create venture capital funds. Through them, they scout for new products or services and promising potential business partners."

For General Mills, the story says, "which has also invested in the plant-based food maker Beyond Meat and two other start-ups, the venture capital fund is a way to keep pace with the growing number of small food brands that have found consumer success, especially online."

There could be a downside to this trend, as some critics suggest that the increased availability of venture capital money could drive up valuations for companies that have not yet proven themselves; the argument is that eventually these valuations could come back to earth, and that these corporate funds may find themselves disenchanted.

Published on: April 19, 2016

• Advertising Age reports that Coca-Cola is implementing what it calls a "major global packaging shift" that it believes will help its "one brand" strategy.

According to the story, "The new packaging for the entire Coca-Cola trademark will feature the brand's signature 'Red Disc,' which figures prominently in the new 'Taste the Feeling' campaign. The graphic visually unifies Coke, Diet Coke, Coke Zero and Coca-Cola Life. The new design will hit shelves in Mexico the first week of May and then roll out globally throughout 2016 and 2017. Packaging changes won't come to the U.S. until at least next year."

Published on: April 19, 2016

• The Food Marketing Institute (FMI) announced the creation of two new positions designed to strengthen its member services profile. These two new directors of member relations and advocacy "will provide a hands-on physical presence while serving as the primary FMI liaison with key constituencies," and "will emphasize government relations, food safety and articulate FMI’s stance on emerging issues."

FMI’s Lucas Darnell, a director of member services at FMI for the past four years, will represent FMI on the Eastern half of the U.S., and a new hire, Cynthia Brazzel, will cover the Western region. Brazzel is a communication and public affairs consultant "representing clients in the food, beverage and consumer products sector."

Published on: April 19, 2016

Doris Roberts, the accomplished character actress who earned her greatest fame as Ray Romano's meddlesome, intimidating mother on 'Everybody Loves Raymond," has passed away. She was 90.

Published on: April 19, 2016

There's been an ongoing exchange in "Your Views" that I want to come back to here, because I think it is illustrative of some larger truths about competition.

It all started last week when I reported in "FaceTime" from the Amazon Books store in Seattle, and recounted an exchange in which an older man who seemed to want to challenge the store's legitimacy by asking if they stocked "Jonathan Livingston Seagull," and when they said they did not, suggesting that it wasn't a real bookstore if it did not carry that book. (I suggested that nobody has read "Jonathan Livingston Seagull" since 1978, and noted that the store would've been happy to ship the book to him.)

MNB reader Tina Hoerauf saw it differently:

I hope the older gentleman who was looking for a copy of "Jonathan Livingston Seagull" walked out of the Amazon store and into the nearest used book store because if it is like mine in Neenah, Wisconsin, he will no doubt FIND a copy of his beloved book along with other titles by Richard Bach as well. You can sit in your living room/bedroom/bathroom/office and order books from Amazon at any time day or night.  This is true. But if you walk into you local, independently owned bookstore they will be able to help find what you are looking for or something similar.  You are not limited to only what Amazon is selling the most copies of at the moment.  And my guess is Jeff Bezos doesn't not need your $20 as much as that single mom who would dearly love ballet lessons for her daughter if only they could afford to do a little something extra while running a business that they love and that aids their community. I don't blame Bezos for invading the brick and mortar world.  He's a businessman. But if communities want their downtown and small businesses (i.e. neighbors) to survive and thrive, they need to be smart about where they spend their dollars.

I responded that I am not anti-store, just pro-relevance, and wrote, in part:

Anyone who kids themselves that Amazon has any limitations in terms of what it sells is in denial. Like any bookstore, or any store for that matter, walls and square footage create boundaries and limitations ... so Amazon is only stocking the most popular books in its physical location. But it makes it very easy for anyone to buy any book it stocks in its virtual store and have it delivered to one's home or office in a couple of days. Which is, to be fair, what any bookstore can do ... but I can tell you, having had experience with both, that Amazon's processes are a lot smoother.

Just curious about one thing. Exactly how many copies have you sold of "Jonathan Livingston Seagull" in the last year? Get back to me on this.

Well, Tina (I hope she does not mind me calling her by her first name...I like to think we're all friends here) did exactly that:

I have sold one copy of "Jonathan Livingston Seagull" in the last year.  In August during the EAA Fly-In.  Richard Bach has also written about flying his small plane and the gentleman who came in to see what I had by the author also asked if I happened to have "JLS" as he hadn't read it in years.  I had a very nice hardcover copy (along with a couple of paperbacks).  He was thrilled.  

I appreciate you printing my comments.  With attitudes like yours the world will be out of small, family run businesses in no time.  You say "Just how many copies have I sold?" rather than telling people if they are looking for something obscure from years ago to check with their local used book seller.  Shop local.  Support your friends and neighbors.

I know.  It's perspective, it's relevance.  It is make as much money as you possibly can even if you don't like your job and you struggle every day to go in and hate every minute. I will keep struggling along in the shadow of Amazon.  My store has been in business since  1977... there must be something relevant about my business.  I have enjoyed going to work which isn't 'work' to me. Obviously things could be better.  Technology has changed things.  I don't sell e-readers.  But then, not everyone needs technology all the time which is perhaps why my bookstore is still here.

I hope you don't believe that I think that it is all about money, and that I don't think being happy in one's work is important. I haven't lived my life that way, and I hope that's not the message I'm communicating.

I certainly hope that the world never runs out of small, family-run businesses. I believe that most retail segments see much of their innovation in the independent sector; what I resist is the suggestion that because they are small, family-run and independent, they have some sort of divine right to succeed.

You are absolutely right that for that gentleman looking for obscure, old titles written by Richard Bach, you were highly relevant. I didn't ask you how many copies of "Jonathan Livingston Seagull" you sold because I wanted to prove your irrelevance, but because I was honestly curious.

Let me also be honest about something else. I checked, and at least on Amazon, "Jonathan Livingston Seagull" way, way outsells "The Big Picture: Essential Business Lessons from the Movies." So I was wrong when I suggested that nobody reads "Jonathan Livingston Seagull" anymore.

(Also ... I will tell you that it was extraordinarily difficult to get "The Big Picture" into physical bookstores, because we did not have the muscle of a major publisher or influential distributor. Getting on Amazon was easy. So I have some personal experience with this.)

Here's the point I was trying to make. Most businesses can't stay in business carrying lots of SKUs that they only sell once a year. That's really hard ... not because one should only sell the most popular products, but because one needs sales to pay the rent.

I totally respect what you are doing in your business, and I hope you stay relevant and viable and enjoy robust success for many years to come. And ultimately, I'm glad there is a bookstore in Neenah, Wisconsin, where one can get "Jonathan Livingston Seagull." The culture is better for it ... my goal is simply to point out competitive realities and keep businesses in a wide variety of segments from becoming complacent, or think the are entitled. Not that you necessarily need me to do that.




Regarding our recent stories about Whole Foods centralizing and streamlining its processes, one MNB user wrote:

My apologies for this taking so long to get to you since your piece last week, but it took me awhile to write, as you see below, because this is a huge issue for me and in the grocery world.

I’ve been selling to Whole Foods since the ’80’s, back when John Mackey was accessible to vendors. I have brought numerous products to market thanks to Whole Foods. They were always the first place I went because of their openness to new products, accessibility of the buyers, no slotting fees and access to in-store staff (to train), plus once you told other retailers you were in Whole Foods their doors opened wide. I’m sad to say those days are gone and it has a huge bearing on my desire to continue to do business in the grocery sector of the food & beverage industry. This all boils down to the buyers and their lack of time to do their jobs, which is buying.

The entire industry is changing and it is so dramatic that I don’t know what the eventual outcome will be. Are they going to become cookie-cutters (Safeway/Albertsons, (Kroger/Harris-Teeter/Fresh Market), or EDLP stores (which the Northeast has a plethora of)? One great high-end concept for a conventional grocer is Market Street in North Texas; due to consolidation I now see Safeway organic items in Market Street because Albertsons bought United/Market Street and Safeway, so now they are cross-merchandising items and it in the hundreds). The buyer wouldn’t see me because he had no idea what space he’d have until after the re-merchandising with Safeway items, which took months.

The top retailers in the country (most with over 100 stores...Wegmans, Publix, Schnucks, Fresh Market, Roundy’s, Sprouts, HEB, etc.) are virtually inaccessible without use of a broker, because it’s easier to work with someone who will bring you a dozen items at a monthly meeting instead of one (as most vendors will), plus the broker knows your system and how to be the liaison to the manufacturer for the programs you want in your stores i.e. quarterly promotions, demos, free-fills, etc. You can still get an appointment with Gelson’s in LA, Central Market in Texas and other small regional/local chains, but forget national retailers. I get it. Also note the broker is going to increase the shelf price by $0.12 for every $1.00 to the distributor. Example: without broker $1.00 price to the distributor divided by 0.7 (30% distributor margin) = $1.43 to retailer, divided by 0.6 (40% retailer margin) = $2.38 on the shelf; with broker: $1.05 (5% to broker) price to the distributor divided by 0.7 (30% distributor margin) = $1.50 divided by 0.6 (40% retailer margin) = $2.50.

Let’s not loose any sleep over the twelve cents; here is what I’ve lost countless hours of sleep over, I as a manufacturer must have a broker if I am going to see these buyers; I have a new item and do not currently do business with the broker, they will not pick up my line because they have to pioneer the brand!!! I have had three items in the last year (from three different manufacturers that we’re partners with) that four different brokers refused to take-on. Each item was successful in regional chains and were prepared to go national and each broker said either they “...don’t have time,” or “...don’t think volumes will be great enough,” or “We don’t pioneer brands. Come see us when you’re in the stores.” What???? I can’t get in the stores without you. Chicken or egg, cart or horse, Catch 22, pick an analogy, but small visionary/creator/artiest with new cutting-edge, healthy, innovative products is screwed when it comes to building their brand. Buyers and brokers, brokers and buyers...

Let’s take Whole Foods for example, buyers don’t have time to buy:

1.) A regional buyer for Whole Foods is responsible to every store in their region, which is 40-60. This means if a broken case of canned tuna shows up, the buyer gets the email. I have no idea how many items the Grocery Buyer has, but imagine hundreds of SKUs, if not thousands, plus the buyer is not reading one email and they're done, they have to respond to the store, contact the distributor/vendor, followup on credit or replacement, etc, creating dozens of emails. I’ve been witness to buyers getting literally thousands of emails per week.

2.) A buyer is also expected to stock new stores, remodels and relocations, making sure every item is set-up for delivery prior to opening; if your region opens five stores a year this is a lot of work. A buyer will not answer your (vendor) emails while getting ready for, or during the week (sometimes two) prior to opening and I don’t blame them. If an opening goes awry they get tons of grief from all directions, corporate execs and buyers, store management and team leads, and the vendor (who could have arranged a promotion or demo during opening).

3.) Evaluate current items on the shelf. Sales need to be evaluated and not once a year, but two or three times at least and they are lucky to get to do it once. All the buyer has time to do is look at the items they are responsible for, look at the category, take pasta sauce and see who is selling and who is not and what can be done about it; did a price increase cause the decline, did the position on the shelf change, is there a new competitor, did they buy the wrong variety (flavor) and what can be done to fix it if a decline, or what caused the increase if that’s the case. Once they have an understanding of the situation they must then act on it, which could involve dozens of emails…per item.

4.) Oh, they’re supposed to take meeting to buy new items, and now Whole Foods is going to do that via web submissions? I had a very successful product that is now national, that if I had to present it via the web it’s chances of getting picked up were minuscule, but because I could sit across the from the buyer and explain our process (which was unique at the time), taste the product with them, negotiate (right then) the terms for introduction, store count, distribution, promotion and margins, I walked out the door with my marching orders and we grew exponentially thanks to Whole Foods being first. We will never see those days again and that is what has made me change my focus. I loved getting out of bed everyday, excited to share my item with what I knew would be a new customer…today I’m lucky to get a return email within a month.

The last item I got into a Whole Foods region took ten months from the time the buyer saw the item at a trade show until it was on the shelf. The same buyer wouldn’t give me an appointment when contacted by email/phone months prior to the trade show. I counted over two hundred emails between all parties. If she would have seen me ten months earlier I could have been on the shelf within a month “in the old days.” My record from presentation to shelf is one year and 1500 emails (since the item was being developed and was overseas..not for Whole Foods), and it could have been done in one month with FedEx and a telephone.
5.) Forget the phone, those days are gone and it takes three to five times longer to resolve an issue via email since the message isn’t always clear, is misinterpreted, lacking critical information or time lines, on vacation (one of a half-dozen people who can stop progress..distributor sales rep, distributor buyer, distributor data input, data input at the chain, store team lead for getting it on the shelf, etc.), I can go on-and-on.

Now they are going to be buying nationally??? I’m very interested to see how this works for them, and I will from the sidelines, because the world of grocery (specialty, natural and conventional) is no longer one in-which I want to fight the battles that are out of my control. The fun is gone. The only way, from where I sit, to see this change, is by letting the buyers be buyers…be merchants…not typists; the only way to do that is to hire people to do 1, 2, and 3 above, and that’ll never happen with stockholders to beholden to.

Yikes.




Regarding Ahold's bfresh concept, one MNB user wrote:

A Moment I Knew Story……
 
A few months after the opening of the bfresh Fairfield store, while in the area  touring stores we serve for a project we’re doing, I also had a chance to see this location that’s being closed. We work with the bfresh stores so of course I checked in on the Fairfield location having driven down from Boston where I saw the original store as well.
 
First impressions weren’t great. Unlike Allston which seemed perfect in that urban environment, the Fairfield store was tucked in the back-rather than on the main street-of another building. The fact that there was only one little sign (whether town ordinance prevents something bigger I don’t know) pointing towards the parking area in back made me wonder just how anyone was going to discover the bfresh in Fairfield. It really was hidden. There was no way anyone was going to casually find this place. The fact that, unlike Allston it had no windows or entrance on the main street put it in stark contrast to the street shopper friendly nature of the Allston location.  Fairfield is the type of place the potential shoppers are more likely to be tooling around in their Lexus, Mercedes etc than walking the main street of Fairfield.
 
Once in the store there was a constricted feeling to the layout. The site lines were all truncated-blocked by the scratch bakery area or tall shelving. It was nothing like the more expansive feeing in the Boston store or the inviting neighborhood store feeling in Philly. You really couldn’t get the lay of the land due to the broken up nature of the space. The check stand area was hidden done a narrow passage way as if they didn’t want you to find it.  There was just no  natural flow to the store’s layout. Again in contrast to the Allston store’s layout.
 
But the moment that confirmed my feelings about this bfresh location being out of place was when I ordered an double expresso from the young woman at the bakery counter.
 
She was nice and took my order. But after she pulled the espresso she made a face and I saw how sweet and sensitive she was.  She looked at how little coffee was in the larger cup she used and she was embarrassed and apologized for how little coffee was in the cup and immediately offered to put regular coffee in it to top off the cup-basically adding 2/3 regular coffee to the expresso already in the cup.
 
Of course I was surprised but this was so heartfelt on her part- I didn’t have the desire to tell her it was supposed be a small amount-and let her top off my double expresso  with regular coffee.  This was not an “urban” experience. bfresh should be commended for pulling the plug on this store. They have an urban format as their success in Philadelphia and Allston, MA demonstrate so well.

MNB user Philip Herr wrote:

I am not entirely surprised to see the store in Fairfield closing. It is poorly located. At the back of Plan B burgers (really good!) it was a bit of an afterthought. And downtown Fairfield really isn’t that conducive to grocery shopping.  So while I liked what they were doing – and the offer was good – I think the location got the better of them.




Responding to our story about how Amazon is now offering Prime on an a la carte basis, one MNB user wrote:

This is more of an observation than a specific point, but hasn't Amazon essentially become a membership club in the likes of Sam's, BJ's and Costco (only much, much greater and diverse)? They have essentially a tiered form of 'membership' with their Prime, their minimum shipping plan (which has gradually been increasing) and now their 'monthly' Prime plan. Even if you don't want to be member, just like the brick-and-mortar clubs you can pay a 'surcharge' and get the item anyway (via shipping fees) although you don't regularly have to buy 'quantities' of an item. Although unlike the brick-and-mortar clubs they are essentially a 'pass through' retailer where other businesses, companies, manufacturers and even individuals can sell their goods through them rather than strictly a fixed business that buys and owns all (or most) of the product it sells.

It seems like this is what the industry has been wanting decades ago where all facets (including specific customer data) are funneled through one entity. Sam's has it in one element where the businesses that compete with Walmart are buying their supplies from a Walmart subsidiary. Once again, this is mostly an observation.

And a fair one. That's what creating an ecosystem is all about.

Published on: April 19, 2016

Ethiopia did very well in the Boston Marathon yesterday, as Lemi Berhanu Hayle won the men's race, finishing in 2 hours, 12 minutes, 45 seconds, and Atsede Baysa won the women's race, with a time of 2 hours, 29 minutes, 19 seconds.