retail news in context, analysis with attitude

Responding to Albertsons’ quarterly numbers, one MNB reader wrote:

Not exactly big numbers, but at least they're out of the red. Enough to raise an IPO? Not in my opinion.

On the subject of plastics, one MNB reader observed:

Let me preface this by saying I am among those that are trying to reduce my use of plastic as much as possible. But, this piece made brought to mind another great visionary, George Carlin. Perhaps one of his most amazing bits was about saving the planet where he expounds about how the planet will be fine and perhaps one of our sole purposes in life is to create plastic. As we enter this new chapter where industry is starting to take notice of our impact on the planet, I wonder how or if his views would change.

"If it’s true that plastic is not degradable well, the planet will simply incorporate plastic into a new paradigm: the earth plus plastic. The earth doesn’t share our prejudice towards plastic. Plastic came out of the earth. The earth probably sees plastic as just another one of its children. Could be the only reason the earth allows us to be spawned from it in the first place: it wanted plastic for itself. Didn’t know how to make it, needed us. Could be the answer to our age-old philosophical question, “Why are we here?” “Plastic.” - George Carlin

In the headline about the plastics story, I referenced Benjamin Braddock, which prompted MNB reader Louis A. Scudere to write:

Love the Graduate reference...wonder how many younger than 60 will get it.

And, from another reader:

Wow another sly tip of the cap to The Graduate. Twice in less than a year…

Can’t make too many Graduate references. But as for people under 60 … well, I’m afraid that in most cases, all I get back is the sound of silence…

We had a story the other day about how Wakefern is getting into the micro fulfillment center business, with plans for one in New Jersey that will be designed to serve online customers of fewer than a dozen ShopRite stores operated by member Inserra Supermarkets. The mini-warehouses will fulfill both pickup and delivery orders, and are said to be able to robotically assemble orders of 60 SKUs or fewer in a matter of minutes.

I commented:

This is how you compete. You find ways to exploit your local connections, to take advantage of proximity and speed up your operations in a way that gives you a differential advantage.

This is one of the things I love about Wakefern and its retailers. They do the hard work, they play all the angles available to them, and they see a few angles that nobody else does. No whining. Just hardball competition.

Prompting one MNB reader to write:

I agree with everything you said, KC - one need only look at their average sales per store to see what a great job they do in a highly competitive market.

We also had a story the other day about the Seattle soda tax, which has been bringing in far more money than expected … in part because it doesn’t seem to have done what it was intended to do - discourage people from drinking soda. In fact, consumption seems to be going up, as it also has in other markets where a soda tax has been imposed.

I commented, in part:

Naturally, even as people debate the health implications of all this, local politicians are fighting about what to do with all the money … I personally don’t have a huge problem with soda taxes. I think that over-consumption can create health problems, and health problems can create public policy issues, and so it makes sense to craft a nuanced response to them. But it looks like this response wasn’t nearly nuanced enough.

Which makes me think, maybe we ought not to take this approach. Not that we should ignore potential health and public policy issues, but maybe, just because the world is a tough place to live in, we ought not be too worried if people want to have a Coke. It makes them feel better, and feeling better is something that these days shouldn’t be underrated.

One Seattle retailer and MNB reader wanted to challenge me on this:

The city council did not knowledge of actual sales of soda drinks when they made their projections. The tax revenue surplus that they have been experiencing was due to an initial low estimate of sales, not that sales haven’t changed.

As a grocery retailer doing business in Seattle, I think that there are a number of things wrong with the city’s taxation.

First, it’s not a soda tax. The official ordinance language is Sweetened Beverage Tax. The tax applies to any non-alcoholic beverage with any ingredient in any form of caloric sugar-based sweetener including but not limited to sucrose, glucose, or high fructose corn syrup. So the list of products is huge, and goes way past carbonated soda. It’s not just Coke, it’s hundreds of products that have increased. Gatorade is an example. Ironically, all Starbucks sweetened drinks have an exemption.

The tax has doubled the retail shelf price in many cases. Since it raises the cost per ounce by 1.75 cents, the lower the retail price was before the tax, the higher the retail percentage price jump. For retailers that are located just outside city limits, they have a huge price advantage for what is a significant category. The small mom and pops that often have a large sales mix of sweetened beverages had the largest disadvantages.

To make matters worse, Seattle has one of the highest sales tax rates in the country, and sodas are taxed at 10.1% on top of the Seattle “Soda Tax” . Double taxation if the term I believe. One of the most well known Seattle retailers that has locations just outside the city (and internationally) encouraged their customers to buy their sweetened beverages in their outlying stores. Smaller Seattle retailers don’t have that option, and have no choice but to charge as much as double the market price.

Finally, Washington State has been said to have one of the most unfair tax systems in the country, with the hardest hit being the lower income population. The “Soda Tax” revenue is driven by a higher proportion attributed to this group. While the intent of the tax was to reduce consumption and direct revenue to educate consumers to improve health, much of the funds made its way to Seattle’s general fund.

As a Seattle retailer, I can tell you this. The higher prices have definitely pushed purchases of sweetened beverages from Seattle stores to outlying retail locations. The tax effect simply moved the purchases out of town. It’s double taxation, and targets the most vulnerable group in a very expensive city. So I can’t agree with you and say I have no problem with so called soda taxes. It’s a much larger problem than you see on the surface.

Finally, regarding last week’s piece about the problems that private equity can create in retail, MNB reader Carol Elliott wrote:

I was lucky enough to be present during a Wal-Mart annual meeting for their top 500 suppliers. CEO's and their seconds in command were present. David Glass took the stage and started his address to the group with this sentence: "The people who have affected all of the LBOs in this country ought to be taken out and shot."  He detailed, in his view, the ill effects of a "massive wealth transfer" that was the result of LBOs and cautioned the group to guard their companies against "these predators". He reassured the audience that Wal-Mart would never be party to an LBO and that they had put "measures in place" to specifically guard against them.

Given that Wal-Mart was expanding almost exponentially at the time and had very aggressive growth plans that they outlined, I couldn't help but to be somewhat skeptical. However, they actually exceeded their expectations. And yes, they caused a lot of disruption as Amazon has more recently.  In my estimation, here's how both Wal-Mart and Amazon achieved success: laser focus on their customers, prudent financial management, superlative inventory management, aggressive adoption of technology, and in Wal-Mart's case, focus on their front line managers. Put simply, they both know what business they're in and execute accordingly.

However, retailers like Sears destroyed themselves from within. Failure to anticipate consumers' changing preferences, horrible inventory management, poor store management, lack of technology infrastructure, etc. plagued Sears and others. Private equity just hastened their demises. So, while it's a complicated issue, as with most business issues, it comes down to simply understanding what your "purpose" is. Sears, especially, lost their way long before they went bankrupt. I feel for all of the dedicated people who worked there and who tried to do their best, only to lose their jobs and pensions. 

Thanks as always for your great content. It's been a "must read" for years…..
KC's View: