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    Published on: May 16, 2016

    by Kevin Coupe

    CNet has a story reporting that Amazon has come up with yet another iteration of the "Dash" buttons that it introduced last year, which were designed to be placed in convenient places - a Tide button by the washing machine, a Pampers button by the changing table - and allow people to easily reorder commonly used items.

    "Amazon wants its Dash Buttons to do more -- specifically, its newest Dash Button, the AWS IoT Button. The AWS bit stands for Amazon's Web Services, while IoT is an acronym for the so-called 'Internet of Things,' the ever-growing landscape of cloud-connected devices and services. Put that all together, and you're looking at an Internet of Things that's powered by Amazon's cloud, with a repurposed Dash Button as the sole interface ... The Wi-Fi connected AWS IoT Button is fully programmable and able to trigger all sorts of things with a single press or combination of presses. Amazon pitches it as a potential control point for smart home lighting. Or a way for your AirBNB guests to check in and check out. Or a quick way to call a cab. Or a way to track medicine usage."

    It is designed to be a "Do Anything" button, the story says.

    While this story happens to be about Amazon, I think it is important to think about this in a broader sense - that a lot of companies will be looking for ways to bringing all sorts of functionality together, creating the ability to control our lives from a single point ... no matter where that point happens to be. (We'll be able to control our homes and offices remotely as we're traveling in cars that drive themselves.)

    Companies have to be aware if this trend, creating infrastructures that will not just allow for this trend, but embrace it. Shopping inevitably will change, and the places where people will shop have to as well.

    It is an Eye-Opener.
    KC's View:

    Published on: May 16, 2016

    Amazon plans to roll out a multitude of new private lines over the next few weeks, encompassing categories ranging from fresh food to diapers, coffee to detergents, according to a story this morning in the Wall Street Journal.

    The piece says that the new brands could start popping up on Amazon within a month, and are the result of a development process that has taken several years. The program "is aimed at winning sales in niches with generally higher profit margins, as well as giving the Seattle retailer a potential edge in crafting new products ahead of its own vendors," the story says. At this point, it is unknown whether Amazon will identify the own-label items as being upscale or value-oriented products.

    There is some expectation, the Journal writes, that Amazon will use its more than 50 million Prime members as an engine to drive the private label initiative, either offering them exclusive access to the products or better prices; it is an approach that Amazon is uniquely able to take since virtually every person who signs onto its site sees a different home page and different featured offerings. It also is possible that Amazon will somehow connect the private label items to either its Prime Now same-day service or Amazon Fresh - or both.

    While private label has a growing presence in US supermarkets - the Private Label Manufacturers Association (PLMA) estimates annual private label sales at more than $118 billion last year, up $2.2 billion from the previous year - the Journal notes that "Amazon has stumbled in private labels before. Its Elements line, which promised greater transparency about where and how goods were made, initially included diapers, but Amazon pulled them weeks after launching in late 2014, citing design flaws." That said, its Amazon Basics line is said to be up to more than 900 SKUs.

    And, the story notes, "Food production carries particular risks. For its new brands Amazon will depend on manufacturers that may have varying quality controls. Any health-related recalls could damage Amazon’s reputation."
    KC's View:
    I can see both advantages and pitfalls in the private label strategy, but in the end, I think, long-term success will depend on the degree to which Amazon can develop products with a clear differential advantage over national brands beyond just price. If these are just national brand-equivalent with a small price advantage, I'm not sure that'll be enough to make them game changers. But if Amazon really is trying to be innovative and make these items better than national brands, then it'll be able to move the needle.

    I'd suggest that Amazon has to think like Costco in terms of private label strategy; Costco, after all, has such a strong private label that in some cases its own-label items are priced higher than national brands. Or, Amazon needs to emulate its own private label strategy in the video segment - coming up with a variety of offerings ("Transparent," "Catastrophe," "The Man in the High Castle") that is is clearly different from what others are offering.

    Private label groceries is something that Amazon has been flirting with for years, but it seemingly has been unable to come up with the secret sauce that would make it work on a broad scale. It'll be interesting to see if they get it right this time ... though, as Jeff Bezos has said, Amazon is nothing if not a place where it is possible to make big bets and fail, because that's how big successes are achieved.

    Published on: May 16, 2016

    The Tampa Bay Tribune has a long and detailed investigative report charging that Walmart stores in that area essentially use local police forces to provide store security, an approach that costs taxpayers money and eliminates the amount of time that police can spend on crime prevention and other law enforcement activities.

    An excerpt:

    "Law enforcement logged nearly 16,800 calls in one year to Walmarts in Pinellas, Hillsborough, Pasco and Hernando counties, according to a Tampa Bay Times analysis. That’s two calls an hour, every hour, every day.

    "Local Walmarts, on average, generated four times as many calls as nearby Targets, the Times found. Many individual supercenters attracted more calls than the much larger WestShore Plaza mall.

    "When it comes to calling the cops, Walmart is such an outlier compared with its competitors that experts criticized the corporate giant for shifting too much of its security burden onto taxpayers. Several local law enforcement officers also emphasized that all the hours spent at Walmart cut into how often they can patrol other neighborhoods and prevent other crimes."

    According to the story, "Walmart said it is doing what it must to thwart thieves and protect its merchandise. Spokesman Aaron Mullins said the company’s specialists do 'a really great job of identifying people who are breaking the law' and they 'partner very closely with local law enforcement.'

    “'Any type of criminal activity that might be happening in our stores we take very seriously,' he said, 'and we have processes in place to address that aggressively'."

    You can read the entire story here.
    KC's View:
    This is a fascinating story, and I encourage you to read it ... if I were either a competitor to Walmart or a taxpayer bearing the brunt of this, I think I'd be a little upset.

    But, as the story points out, it results from a take-no-prisoners approach by Walmart to any and all legal infractions at its stores, and if someone breaks the law, well, who ya' gonna call? After all, Walmart is paying taxes, too ... and if someone breaks the law on its property, there are no other options. (Imagine the stories if they took the lawbreakers out back and just beat them up...)

    Maybe what this really suggests is that communities have to take a different public policy approach to how they provide law enforcement services to private companies. Not sure what it is, but I suppose that one thing they could do is require retailers of a certain size to install and pay for a small police substation on the property, with them taking on the financial burden for the cops who staff it.

    Published on: May 16, 2016

    Just a week after announcing that it has agreed to be acquired by investment group JAB Beech in a deal that has an equity value of $1.35 billion, Krispy Kreme announced a partnership with TSW Foods "to bring Krispy Kreme® brand packaged sweet treats such as snack bags, honey buns and single serve pies to convenience stores across the United States."

    “We are thrilled to offer a line of Krispy Kreme snack items, many of which are differentiated with our Original Glaze flavor,” said Mark LaBrecque, VP Domestic Marketing, Licensing and Consumer Packaged Goods for Krispy Kreme Doughnuts.
    KC's View:
    Wow. I feel like I've seen this movie before. It wasn't that many years ago that Krispy Kreme, then a niche retailer with a high level of buzz and growing sales, decided that it wanted to be ubiquitous - and it ended up with doughnuts being available pretty much everywhere. The problem was that they weren't nearly as good as the fresh doughnuts it sold in its stand-alone stores, and the brand suffered. (It also wasn't helped by franchisee issues and the low-carb trend.)

    It seems like lately that Krispy Kreme has gotten some of its mojo back, but if these new packaged products are not as good as its doughnuts, the risk is that in search of new revenue, it could once again damage the brand. Companies have to be careful to nurture their brands, not exploit them without worrying about the long-term implications.

    Like I said, I've seen this movie before. Last time, it didn't end well.

    Published on: May 16, 2016

    Reuters reports that "a Delaware judge on Friday dismissed a lawsuit by Wal-Mart Stores Inc. shareholders who accused the board of the world's largest retailer of trying to cover up bribes paid by company executives in Mexico.
    Chancellor Andre Bouchard of the Court of Chancery in Wilmington said an earlier dismissal by an Arkansas judge of a nearly identical lawsuit by another group of shareholders precluded the Delaware case from going forward."

    The suit essentially charged that Walmart was not forthcoming about the bribery probe, which meant that investors were making decisions based on less-than-complete information.

    The story notes that "the litigation stemmed from a 2012 New York Times investigation that found Wal-Mart had engaged in a multi-year bribery campaign to build its Wal-Mart de Mexico business." However, it appears that multiple federal investigations into the allegations came up relatively empty, concluding that there were "few major offenses, and that Wal-Mart might be able to settle with a fine and no criminal charges being brought."
    KC's View:
    I'm a member of the media, but I think that it is absolutely essential at this point for the New York Times to do a follow-up story at this point explaining how and why the conclusions it reached in its stories about Walmart's bribery issues were so different from those reached by federal investigators. That is a story that simply cries out to be written.

    Published on: May 16, 2016

    Agence France-Presse reports that "Aldi, Germany's original discount supermarket chain, is getting a major facelift -- spelling the end of an era, at least in design terms, for the traditional first-stop shop of the thrifty German housewife." It is "out with the cardboard boxes, rough forklift crates and no-frills warehouse look -- in with cozy wood panelling, natural light and chilled fruit smoothies at the breakfast bar," all as "rising competition has pushed the retail giant to move away from its 'hard discount' industrial look that promised savings toward a luxurious customer experience."

    Certain things aren't changing - like the low SKU count (roughly 1,200 items) and the low-prices being charged for those products. But, the story says, Aldi is giving greater attention to organics, healthy ingredients and higher quality fresh foods, while "a cafe area will offer fair trade coffee, fresh smoothies and other chilled beverages."

    And it isn't just Aldi. Rival discounter Lidl also is making similar moves.

    "The two German market leaders are now looking across the Atlantic to expand," the AFP story says. "Aldi plans to open 2,000 stores in the United States by 2018, the year Lidl also plans to inaugurate its first US store."
    KC's View:
    If Aldi and Lidl can successfully soften their images, expand their appeal and still retain the discount image that have driven their appeal and upended most of the markets in which they operate, that will be a pretty compelling competitive argument. I continue to believe that these two players have the potential of doing enormous damage to many of the retailers with which they compete ... and retailers that underestimate this appeal are making a potentially fatal mistake.

    Published on: May 16, 2016

    The Washington Post reports that McDonald's "has ended a controversial practice of giving nutrition advice to students in schools, pulling back on a program that critics said was a subtle form of fast-food marketing that could imperil kids’ health and understanding of nutrition."

    The fast feeder had hired John Cisna - a formerly 280-pound Iowa teacher who ate McDonald's for 540 straight meals, got regular exercise, and lost 56 pounds - as a "brand ambassador."

    According to the Post, "McDonald’s had said the program, carried out by local franchises, was intended only to educate students about nutrition and good habits at a time when fast food is a key part of many diets. But critics, including some parents and health experts, complained that it sent a confusing message that left kids thinking that burgers and fries could be a regular part of a healthy diet."

    McDonald's said in a prepared statement that Cisna now is "focused on internal and local community events, and he is not appearing at schools.”
    KC's View:
    The idea that McDonald's was offering nutrition advice to anyone is a joke. The fact that schools were letting them do so, to kids they are responsible for educating, is malpractice.

    That said, I've never been surprised that Cisna was able to lose 56 pounds after eating McDonald's for 540 straight meals. Eat that much of anything - but especially McDonald's - and you're gonna spend a lot of time throwing up.

    Published on: May 16, 2016

    The New York Times yesterday took note of the 500th birthday of Germany's beer purity law, described by a historian as "the oldest law still in force anywhere in the world regulating a consumed product," essentially decreeing that only hops, water and barley should go into beer ... though yeast was added to the list of permissible ingredients in the 17th century.

    However, like many institutions around the world, the law is under attack from people who say that it is more marketing ploy than reasonable legislation, and that "it has stifled invention and imagination." But change is tough for such an entrenched industry - there are, in fact, about 1,250 breweries in Germany.

    There about to be one more, because San Diego's Stone Brewing is opening one near Berlin, and founder Greg Koch is hoping that locals will embrace his beer - though Koch cannot call his beer "German beer," even though it is made there, because it does not meet the legal standard. Koch reportedly is betting $25 million that he'll be successful.

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

    Published on: May 16, 2016

    • The Cincinnati Business Courier reports that Nick Hodge, Kroger's VP of corporate real estate, said last week that the company wants to be "an urban player," noting that it is this impulse that has driven its acquisition of Harris teeter and Roundy's, which gave it the Mariano's format to play with.

    According to the story, "Hodge said there are a lot of costs that go into urban developments. Kroger is constantly monitoring the situation, looking to get in at the right time, before real estate values go up but after there are enough customers to warrant a location. 'We will do it when it’s economically viable,' Hodge said. 'It’s a balance'."

    It isn't just Harris Teeter and Roundy's. It also is Kroger's development of the Main & Vine format south of Seattle, and its investment in Lucky's Market, and its interest in The Fresh Market (which didn't pan out). Kroger is focused on the re-urbanization of America, looking for the opportunities that inevitably will present themselves.

    • In Canada, the CBC reports that "a computer glitch forced the temporary closure of some grocery stores in the Loblaw chain on Thursday." The company says that the issue was fixed, and all its stores are back up and running normally.

    According to the story, "Mark Boudreau, director of corporate affairs for Atlantic Superstore, told CBC News that all computer systems with Superstores and Dominions are backed up overnight, but somehow during that backup a corrupt file was downloaded. Boudreau said the file shut down all cash registers, leaving them unable to complete sales, affecting all Atlantic Superstores in the Maritimes and the 11 Dominions in Newfoundland Labrador."

    • JC Penney said Friday that it plans to reduce its dependence on clothing sales and instead will "follow where the shoppers are spending their money: services and other products like appliances," the Associated Press reports.

    The AP story goes on: "While part of the move has to do with being less reliant on Mother Nature, Penney is waking up to the overall seismic shift in consumer spending that is started to wreak havoc on mall-based retailers. It comes as Penney reported an unexpected drop in sales for the first quarter, joining a chorus of major department stores including Macy's, Nordstrom and Kohl's that reported weak first-quarter sales results."

    Among these moves has been a previously reported return to the appliance business.

    I'm not sure what I'd be less likely to buy at a JC Penney - a shirt or a washing machine. And it is hard for me to imagine that retail trends doing damage to far better retailers won't be a huge problem for a mediocre retailer like JC Penney.

    • The Northwest Herald reports that "the Algonquin location of family-owned grocer Joe Caputo & Sons will continue to operate after the Wisconsin company that operates Piggly Wiggly and Butera Market bid $32 million for it and two other northwest suburban locations, real estate officials said. Piggly Wiggly Midwest acquired the assets as well as the combined 267,000 square feet of retail space on 30 acres in Algonquin, Palatine and Des Plaines during an auction Thursday in Rosemont, according to Paine/Wetzel TCN Worldwide, one of the commercial real estate firms that handled the auction."
    KC's View:

    Published on: May 16, 2016

    We've gotten a number of emails about the judge's decision to block the Staples acquisition of Office Depot, which I though flew in the face of modern competitive reality, which is that one of the two is likely to go bankrupt because of an inability to compete effectively with online retailers.

    One MNB user responded:

    I have been reading and enjoying MNB for a long time… but this time you and many in the media have got this decision all wrong… both Staples and Office Depot / OfficeMax have been building large and viable B2B businesses that utilize thousands of highly trained “on line” sales personnel… this shift started over five years ago and is based on utilizing state of the art technology to train, equip and manage these B2B sales personnel… fact is they sell significantly more on line and via B2B than by traditional Brick and Mortar retail sales…

    Both organization know that their brick and mortar business has been and will continue its steady decline…their future is being built on a sophisticated direct to the buyer / decision maker model…  fact is their B2B direct sales business has been larger than their on line consumer business (that competes with the likes of Amazon) for several years…  

    Both companies depend on these sophisticated sales teams to sell billions of dollars of profitable technology, business services and office furniture and equipment…. Merging these companies would have impaired both their “on line” and direct competition and cost thousands of jobs at each of the companies as well as at their suppliers… not to mention the billions of dollars of duplicate inventory sent and credited back to the suppliers… something the FDM channels know all too well…

    The only ones benefiting from this deal were highly leveraged Hedge and PE firms and a small group of corporate shareholders… while I am not a fan of government intervention in the private sector this time they did get it right… despite what the headlines might indicate… in the era of ZIRP and cheap money not all mergers make sense…

    And, from another reader:

    I have enjoyed your daily for years however this is the first time I have felt compelled to respond to one of your pieces.

    I completely understand your argument that there is indeed competition in the online space for Office Depot and Staples in Amazon, and based on that this merger should have been allowed.
    However I believe that in the current environment the Brick and Mortar space and Online space need to be considered separately as it relates to monopoly consideration.

    With that I completely agree with your perspective that there is a long list of regulators who do not understand the online space, if they did Amazon would not be allowed to exist as it is today and continue to grow.

    Keep in mind I stated the Online Space should be considered separately from the Brick and Mortar space for this purpose.

    Given that, Amazon is clearly creating an environment where NO-ONE else can compete in the space.

    Even the retailing behemoths who have supply lines that are comparable to Amazon cannot compete.
    Anyone who does not believe that Amazon’s Jeff Bezos intent is to monopolize all things online is naïve.

    I am not denying they are a great customer service based organization or that their rate of innovation is astounding or that they do not deserve their rapid rise as one of the biggest retailers in the world.

    I just believe we need to be careful to not allow them to become the only online retailer.

    The other day, I wrote about a new Walmart online tactic with the headline, "Walmart Primes E-Commerce Pump With Two-Day Shipping Service."

    Which prompted MNB reader David Hegle to write:

    From the turns-of-phrase department, my pattern-searching subroutine has noticed this:
    1/15: Priming The Pump For Consumer Loyalty
    1/28: Amazon Continues To Prime The Sales Pump
    4/2: Postmates Looks To Prime The Profit Pump With Subscription Service
    5/12: Walmart Primes E-Commerce Pump With Two-Day Shipping Service
    Couldn’t find any headline examples before this year, so I think it’s a 2016 trend...

    You're right. It is time for me to retire that phrase. Or maybe kill it entirely. Though I cannot promise that at 5:30 in the morning at some point, I won't forget and use it again.

    But I'll try not to.
    KC's View: