Follow-Ups

The Trend to Smaller Stores
Last week we noted Meijer’s new down-sized store format, and here’s an article about Wal-Mart and Target doing much the same thing.

Target and Wal-Mart have both told analysts they are creating smaller stores that could fit in the heart of densely packed cities where they have no presence. But analysts warn that creating a small store doesn't just mean shrinking a big one. Big box retailers need to whittle their merchandise to suit shoppers who live in smaller spaces, use public transportation and prefer eating at coffee tables to large dining sets. They also need to figure out how to make money if they cannot stock as many high-profit margin goods, like clothes, to offset brisk sales of low-margin items, like pasta sauce. "When you have a big box mentality, your orientation is toward lots of SKUs (items) across lots of categories," said Leon Nicholas, director of retail insight at Kantar Retail. "When you try to move into a small box the question then becomes do you cut SKUs or do you cut categories so far ... that you lose that one-stop-shop kind of mission?" Or, he said: "Can you be Wal-Mart in a small box?"

Online: Pricing, Conversion
There has been discussion and commentary concerning online retailers who hide their prices, apparently in response to manufacturers who don’t want to facilitate comparison shopping that would lead to eroded margins. As a consumer, I hate it when I can’t find the price – online or in-store – but as a marketer I understand the suppliers’ sensitivity.

The missing prices are part of a larger battle sweeping the world of e-commerce. Wary of the Internet’s tendency to relentlessly drive down prices, major brands and manufacturers — and now, book publishers — are striking back, deploying a variety of tactics and tools to control how their products are presented and priced online. “You are seeing firms of all types test the waters” with strategies to control online pricing, said Christopher Sprigman, associate professor of intellectual property at the University of Virginia School of Law and a former antitrust lawyer at the Justice Department. “They feel they have more freedom to do it now.” In many cases that freedom stems from a 2007 Supreme Court ruling in the case of Leegin Creative Leather Products v. PSKS. The ruling gave manufacturers considerably more leeway to dictate retail prices, once considered a violation of antitrust law, and it set a high legal hurdle for retailers to prove that this is bad for consumers. Ever since that decision, retailers say manufacturers have become increasingly aggressive with one tool in particular: forbidding retailers from advertising their products for anything less than a certain price.

I’ve mentioned before that I wonder how much longer the Leegin decision will stand before Congress overturns it.

In Australia, the two giant retailers who almost totally dominate that country are taking the opposite tack – putting more pricing online as proof of their price-cutting:

Woolworths' move to put the price of 5000 products online has been cautiously welcomed by consumer advocates, and has its major rival looking at following suit. The grocery giant yesterday took what it called "the first step in the journey" by posting the information online, but admitted it had some way to go. Its move follows criticism … of recent claims by both Woolworths and Coles that they were lowering prices, without providing hard evidence. […] Woolworths earlier said it was permanently reducing prices of 3500 products - but provided just 16 examples - while Coles said it was committed to uniform statewide pricing.

And our interesting factoid of the week: Here’s a chart of the top ten online retailers by conversion rate. Interesting that most (except Amazon) are relatively smaller niche sites – but that may explain why they convert relatively higher percentages of shoppers.

Private Label
There’s always more news in the private label arena. Wal-Mart is experimenting with private label spices, a move that must have folks at McCormick tossing and turning all night:

McCormick generates 11% of its revenue from sales to Wal-Mart, mainly by selling brand-name spices. But Wal-Mart has considered switching to private-label spices, testing the idea by replacing McCormick products with generics in some stores. True, McCormick's sales at Wal-Mart may not be wiped out altogether if such a switch gathered pace. The company also produces private-label spices that could replace some of its brand-name products on Wal-Mart's shelves. Even so, McCormick's margins could take a big hit. The company's generic spices sell for 30% to 40% less than its regular products.

Family Dollar is also looking to increase its private label share:

Kenneth Smith, Family Dollar's chief financial officer, said the company sees an opportunity to increase consumable private-label sales from current levels of 10% of sales to 15% to 20%. Storewide, Smith said Family Dollar plans to increase private brand penetration from its current 19% level to 25% penetration.

The Sports Desk: Super Bowl Advertising
As we mentioned last week, the Super Bowl came in second last year in viewers to the European soccer championship. We’ll see how it does this year against the Olympics and the World Cup, but it broke all previous records – not only for viewers, but for number of ads run, and a Doritos ad is said to be the most-watched ad ever:

A fourth-quarter Doritos commercial featuring two men attacked in a gym for stealing someone else's Doritos, was seen by an estimated 116.2 million viewers during the Super Bowl, making it the most watched television commercial of all time, according to Nielsen.

In other Super Bowl news, I understand Drew Brees had a good game, too.

Upcoming Webinar Reminder
I’ll be moderating a webinar for DemandTec next Wednesday, Finding True North in Trade Analytics Adoption, and on March 10, we’ll be hosting a webinar by MEI, What Does ‘Trade Promotion Optimization’ Really Mean? Click on the links to get more information and to register.

Return of the Soaps?

In the last few years, one of the side effects of media fragmentation (and a host of other social and demographic trends) has been the decline of TV soap operas. Several have disappeared – Guiding Light, which started on radio in 1937, was cancelled last year, and it was announced recently that As the World Turns will be discontinued soon.

The soaps got their start as advertising vehicles for companies marketing laundry, dishwashing and related products, thus the genre’s name. Now, just as they shuffle off to wherever old TV shows go to spend their sunset years, it looks like they may be replaced by another form of sponsor-created programming – this time with a trade promo twist.

The world's biggest retailer, Wal-Mart Stores, and the world's biggest consumer-products maker, Procter & Gamble, are jointly creating a made-for-TV movie, in an effort to promote "family-friendly" alternatives to what they say is increasingly risqué TV fare. The two advertising heavyweights have teamed up on the two-hour "Secrets of the Mountain," to be broadcast in April on NBC. The movie, which focuses on a single mother who brings her family to a mountainside cabin, highlights values—such as generosity, honesty and togetherness—that Wal-Mart and P&G executives say are in short supply on television. Ads for both companies will run during commercial breaks, and the film will include product placements for both, their executives say. P&G is spending more than $4.5 million to produce the film, says a person familiar with the matter. It also paid for airtime for the broadcast. Wal-Mart paid some of the costs, including a fee to P&G for the right to be "presenting sponsor.

BusinessWeek said that the movie “features a single mother and her three children who use P&G’s Duracell batteries for flashlights and feed their dog the company’s Iams pet food ... The family eats breakfast cereal from Wal- Mart’s Great Value private-label brand …”

We salute Wal-Mart and P&G and wish them well in their efforts to create family-friendly TV programming. Both companies say they plan additional programming, though it’s not clear whether there will be further production partnerships.

From our perspective, the interesting thing here is that the old idea of advertiser-produced programming has been given the new twist of a supplier and retailer joining together to do the production jointly – that is something that (as far as I know) has never happened before. It adds interest that it is one of the original ‘soap companies’ that pioneered the idea in the earliest days of radio that is also one of the partners in this latest iteration.

Here at TPMA, we’ve been debating whether Wal-Mart and P&G will be sufficiently successful that this will lead to future similar efforts by other major retailers and suppliers, so we’ll make that our exit question: Will it become common for retailers and suppliers to jointly produce programming as advertising vehicles, just as Wal-Mart and P&G are doing?

Quickly Noted

Remembrance of Candy Bars Past
Ever had an Idaho Spud? No, not the potato, the candy bar, described as a “marshmallow center covered with dark chocolate and coconut sprinkles.” It’s one of the few remaining regional candies, along with Abba Zabba, Cherry Mash, Mary Jane, and the best known of the group, the Goo Goo Cluster. The Kraft/Cadbury merger brought to mind the demise (for the most part) of the many small candy companies that once existed in virtually every town of any size: “…in the years between the World Wars, 30,000 different brands were introduced in the United States alone.”
Wall Street Journal, 30 January 2010

Zale Turns to Vendors to Raise Cash
Zale is asking their suppliers to buy back merchandise in return for promises of future purchases. Well, at least diamonds aren’t perishable like food or seasonal like fashion apparel, but nonetheless one suspects that their suppliers may be as cash-challenged as Zale is. “The weak market for some segments of jewelry claimed a number of victims last year. Finlay Enterprises Inc filed for bankruptcy protection in August, while regional luxury retailer Fortunoff filed for Chapter 11 in February.”
Reuters, 4 February 2010

WSJ’s Metro Section: It’s the Advertising, Stupid
The Wall Street Journal is creating a ‘metro’ section carrying local New York news of general interest – the NY Times being their obvious target. One of my thoughts concerning possible outcomes of the current crisis in the newspaper business is that we might end up with national newspapers with local sections. It’s possible WSJ is experimenting with that, and that we might see Chicago and LA versions soon.
Forbes BizBlog, 29 January 2009

India’s PM Signals Further Opening of Retail Trade to Curb Price Rise
India may begin further opening of its retail sector, according to recent statements from the prime minister expressing concern about rising food prices. “He stated that greater competition was necessary in the wake of the retail prices having shot up more than the wholesale prices.” With the prospects of huge growth in India, major international retailers, including Wal-Mart and Tesco, have recently entered the market, but have been limited in what they can do by laws limiting foreign companies to protect smaller retailers.
The Hindu Business Line, 6 February 2010

Meijer's New Approach Focuses on Groceries, Niches
Meijer recently opened a new smaller (100,000 square feet) store in Niles, Illinois focused on grocery and eliminating its usual assortment of hard goods and apparel. They claim the new format is wildly successful, and they will soon open another in Orland Park (at the other end of metro Chicago) and plan to roll out more throughout their Midwest market area.
Indianapolis Star, 1 February 2010

Outlook Sports Desk: Champions League Final Tops Super Bowl in TV Survey
Numbers aren’t in for this weekend’s Super Bowl, but last year the Big Game came in second internationally to the finals of the European soccer championship, the EUFA Cup. The Super Bowl had an average audience of 106 million (90% in the US), while EUFA Cup had 109 million. A distant third was the Bahrain Grand Prix car race.
Reuters, 31 January 2010

Poll Results: The eReader Market

Recently, we have discussed the coverage of Apple’s new iPad, and we asked our readers, “In three years, who will dominate the eBook market?” We got a lot of responses, and there wasn’t really a consensus, but a narrow majority felt that Apple would be dominant:

• 35%: Amazon
• 53%: Apple
• 3%: Sony
• 8%: Other

Follow-Ups

The eBook Battleground
Following last week’s report on the Apple iPad media frenzy, there has continued to be a lot of press, with the focus shifting mostly to one part of the fallout – the battle between Amazon and Macmillan over eBook pricing. After Amazon briefly yanked all Macmillan titles (not just eBooks) off their site, they caved and accepted Macmillan’s terms.

Under Macmillan’s new terms, which take effect at the beginning of March, the publisher will set the consumer price of each book and the online retailer will serve as an agent and take a 30 percent commission. E-book editions of most newly released adult general fiction and nonfiction will cost $12.99 to $14.99. Those terms mirror conditions that five of the six largest publishers — Hachette Book Group, HarperCollins Publishers, Macmillan, Penguin Group and Simon & Schuster — agreed to with Apple last week for e-books sold via the iBookstore for the iPad. For more than a year, publishers have been fretting about the price of digital books, which Amazon, as the dominant player in the fast-growing market, had effectively been able to set.

The setting of prices by the manufacturer has led some to question the legality of the arrangement:

Individually, Macmillan may be able to prevail under Leegin standards. A supplier can refuse to deal with retailers who do not follow suggested pricing. Further, Macmillan is only one publisher. Should all six follow suit, however, and attempt to enforce a retail price minimum across the board, Amazon would be in a much better position to argue that the publishers have tacitly created a horizontal cartel to artificially set prices above market conditions.

However, it appears that Macmillan is basing their position not on the Leegin case, but on establishing Amazon as their agent for eBook sales, rather than as their retailer.

SKU Rationalization: Glad & Hefty Get the Boot at
Wal-Mart
Among the latest victims of SKU rationalization are Glad and Hefty, whose sandwich bags have been rationalized right out the door at Wal-Mart.

The move follows a shootout in a series of store tests starting late last year, which appear to have prompted the Glad, Hefty and Ziploc brands to hike ad spending dramatically, despite a deep recession and flat to falling category sales, in efforts to stave off de-listings. The contests had high stakes for the brands, given that Wal-Mart makes up a third or more of their sales. Walgreens and CVS, too, have significantly pared their trash and food bag brand lineups in recent months. In food bags, Wal-Mart has consolidated nationally with one brand, SC Johnson's Ziploc, and its own private label, Great Value, wiping Glad and Pactiv Corp.'s Hefty off its shelves, according to a person familiar with the matter. (Pactiv confirmed the move for its brand, while spokespeople for Wal-Mart, Clorox and SCJ declined to comment.)

Digital Signage
A few weeks ago, we discussed an initiative by Intel and Microsoft to develop software and hardware for interactive digital signage that would, among other things, identify physical characteristics of customers nearing the sign. NEC has announced a similar device:

The company embeds a camera into their monitors, allowing them to constantly film people walking by. NEC takes that footage and applies a program that can automatically scan each person's face, calculating the individual's rough age and gender. While not accurate to the year, the program is fairly good at placing a person within a 10-year range. Incredibly, an NEC official contends "that the system is designed to be anonymous." The program tracks a person's age and gender and throws out the footage, keeping only the macro data, he told the Journal, adding that no individuals are singled out. And I believe this just like I believe that when Marisa Miller steps toward one of those new full-body airport scanners, there won't be a stampede of security guys into the screening room.

While I don’t think most people will react as strongly as the author of that article, there clearly will be privacy concerns about these devices, which must be addressed by anyone developing or deploying such signage.

Webinar: What Does ‘Trade Promotion Optimization’ Really Mean?

Over the past several years, price and promotion optimization have become the hot topics among Consumer Products manufacturers looking to get a bigger bang for their buck.

Especially in a tighter economy, few can afford to gamble and lose on their price and promotional tactics. But while the concept has become mainstream, the definition, requirements, and scope remain unclear, especially for small and midsize manufacturers with fewer available resources.

This webinar explains why a solid foundation of transactional systems, data collection, and sound investments can move you in the right direction without draining your IT budget in the process. Get practical ideas and concrete suggestions on how to define Trade Promotion Optimization, identifying the real costs, building a solid foundation, and getting the biggest bang for your buck.

Wednesday, March 10, 2010
2pm EST / 11am PST

Click here to register.

Are There Too Many Stores?

The number of stores the country (or a given area) ‘needs’ is always going to be a matter of opinion, to some extent. What might reasonably be objectively calculated (or at least estimated) is how many stores can be supported, though this number will constantly change, depending upon economic and demographic factors. Many people argued, even before the recession, that US retail was seriously overbuilt.

Now Bloomberg has attempted to put together a series of interactive charts to illustrate what has happened in retail over recent years and to examine some of the factors involved in determining whether we have too many stores. Here’s one of their charts, demonstrating rising mall vacancy rates.

They also created a simple predictive modeler based on four factors that would impact the amount of retail space that could be supported – GDP, employment, consumer spending, and net worth – and came up with an estimate that, as of Q3 2009, the US had 10.9% too many stores.

It is not shocking that we would be over-stored in the midst of a recession – though that number is high. The question remains, though, how much growth would be required to absorb that overage in the short term?

An ‘average’ growth rate yields a 9.7% excess of retail, a bullish forecast still leaves a 5.7% overage. The charts and predictive modeler are available here. Play with the numbers yourself, and then answer our exit question: Does the US have too many stores?

Quickly Noted

News Corp Pays $500M to Valassis in Price-Fixing Lawsuit
News Corp’s in-store marketing arm, News America Marketing, had lost a $300 million judgment to Valassis Communications in July, but settled that, and other suits, for $500 million. Valassis alleged that News America had used predatory pricing and package deals with retail suppliers that had the effect of freezing Valassis out of the market. “It has become evident to our legal advisors from pre-trial proceedings over the past couple of weeks that significant risks were developing in presenting this case to a jury.”
The Wrap, 30 January 2010

MP3/iPod Ownerships Soars among Teens, Radio Falls
In the last five years, the percentage of teens who own a digital music device has soared from 18% to 76%. Meanwhile the number of radios in their homes has dropped from 3.3 to 2.5, with a devastating effect on the amount of time they spend listening to the radio: teens spend over three hours per day listening to music, but only 37 minutes of that is via the radio. When I started in this business, one simple rule for marketers was that if you wanted to reach teens, you advertised on radio. Not so simple now.
Media Daily News, 26 January 2010

Coupon Use Skyrockets
For the first time in seventeen years, since 1992 (when we were in a recession), coupon use rose last year. According to Inmar, there were 3.3 billion coupons redeemed last year for packaged goods products, up 27% over the 2.6 billion redeemed in 2008. Also of interest is the distribution/redemption patterns – 90% of coupons are distributed via FSIs, and 50% of the redeemed coupons came from FSIs. "Despite the readership decline in newspapers, people are still willing to go back to their Sunday newspapers for coupons."
Brandweek, 28 January 2010

Poll Results: CPG Online

We discussed Alice.com last week, and the idea of selling CPG products online, and we asked our readers, “In three years, what percentage of CPG products will be sold online?”

• 9%: Less than one percent
• 15%: One to two percent
• 15%: Two to three percent
• 61%: More than three percent

Our respondents are pretty optimistic about the prospects for online retail – I think it will take a bit longer, so my own guess was about one percent, but overall responses were very much to the higher end of the scale. Even 1% of the CPG market would be a huge number.

Follow-Ups

Music and Book Pricing

Most people who buy digital music think it’s overpriced, and it appears some judges agree. So does a recent study by the Wharton School of Business, although their perspective is that the labels would be wise to lower prices because it would increase profits:

The music labels "seem to be charging much higher [fees] than they should," Iyengar says. "If I compare what their profits are when a record company charges a retailer 60 cents a song, I find that [the current] overall profits for the entire channel, which is the label and the retailer, are almost 50% lower than what they could optimally be when the record label charges lower wholesale prices."

This has an impact on the iPad/Kindle discussion above, since book publishers seem intent on following the same path as the recording companies.

In negotiations with Apple, publishers agreed to a business model that gives them more power over the price that customers pay for e-books. Publishers had all but lost that power on Amazon.com’s Kindle e-reader. With Apple, under a formula that tethers the maximum e-book price to the print price on the same book, publishers will be able to charge $12.99 to $14.99 for most general fiction and nonfiction titles — higher than the common $9.99 price that Amazon had effectively set for new releases and best sellers.

We wish them well, but copying the music business, considering how things are going for them, does not seem like a really great idea.

Private Label
Procter & Gamble and Colgate-Palmolive both reported better than expected results, leading to optimism about the resurgence of brands after the tidal wave of private label growth during the recession.

P&G’s sales were up 6.4%, though profits declined slightly, because the increased sales came with heavy marketing costs. Colgate did even better, with sales up 11% and a good profit increase.

"This idea that this economy is causing everyone to trade down is a little bit overly general and too broadly applied," P&G Chairman and Chief Executive Bob McDonald said during a conference call.

But, on the other hand, there’s this: “Unit sales of private label goods have jumped 8 percent since 2007, while brand names have declined roughly 4 percent, according to Nielsen Co.”

Impressive Line-Up at May Conference

It’s becoming clear that the May event for Trade Promotion Management Associates will be filled with powerful speakers presenting innovative and solution-oriented topics around the theme of Recovery 2010: Trade Promotion in the New Decade

Among companies presenting will be Microsoft, Alice.com, Hunter Douglas, and the Category Management Association. Among confirmed retailers who will be speaking are Delhaize and Family Dollar.

We’ll be following up with more info on speakers and their presentations soon, reserve your seat today.

Webinar: Finding True North in Trade Analytics Adoption

On February 24th, we’ll be hosting a webinar sponsored by DemandTec. Polly Rowland, formerly of Kraft Foods, as Director of Sales Strategy and Strategic Growth Initiatives, and Armen Najarian, Senior Director of CP Industry Marketing at DemandTec, will look into how organizations should prepare for and embark upon the trade analytics journey.

Empowering an organization with a predictive trade analytics capability can be a game changer on many levels. Consumer goods companies report more efficient marketing spend, stronger market share and improved retail customer relationships among the benefits.

But getting there from here is a journey in itself. Organizational fit, technology and service partner selection and user rollout and training require careful orchestration.

In this webinar, the TPMA’s Bob Houk will moderate a discussion on establishing True North as your company embarks on the trade analytics journey. The panelists will draw from experiences working directly for and with consumer goods companies that have navigated the road to predictive analytics success. Please click here for more information, and to register.

All iPad, All the Time

You’re not alone if you feel the title expresses what the media, including the marketing trade publications, have been like for the past week. TPMA Outlook will play along, with the exception that we’ll try to cut through the hype a bit and examine some of the points we’ve been reading about, in light of trade marketing issues.

Ready for the Splinternet?
This interview on American Public Radio examines the idea that the internet, which has been based on standards for the past fifteen or so years, is splintering into various non-compatible formats (similar to the early days of CompuServe and AOL), based on the devices used for access – computers, smartphones, and now iPad and other tablets to follow.

For advertisers, tablets have a very obvious advantage – they simply have a much bigger screen than other mobile devices:

…the new device will give advertisers and agencies a larger canvas for creating messaging and content for consumers on the go. That's the early takeaway from digital advertising executives and analysts… A consensus was that the iPad is essentially a bigger iPod touch - with all the advantages that implies, as well as the drawbacks - chiefly, the lack of Flash support for powering rich media ads, video and games.

The failure to support Flash is the complaint I’ve heard most often about iPad, and it will be a big problem for advertisers. But the ‘Splinternet’ problem is more general – content or ads created for iPhone may not work with Android, things that work on laptops may not work on iPad, and so on – what’s a marketer to do?

The Effect on Print Media
Some newspaper and magazine publishers, desperate to find a savior, have been hoping that the iPad might be it. Probably not – this analysis in Media Daily News does the math on what might be reasonably generated by tablet subscriptions, and advertising to reach those subscribers, and comes up with a figure, far short of what newspapers are currently bleeding:

Adding it all up, very successful newspaper subscription and advertising sales on various e-reader devices including the iPad, Kindle, and others might produce new circulation revenues of $325 million and new advertising revenues of $150 million, for a grand total of $475 million for the entire industry. While every little bit helps, this is still a small sum compared to the roughly $24.5 billion in circulation and ad revenues the industry has lost since the middle years of this decade, the almost $10 billion it lost in 2008-2009 alone, and the additional $2.2 billion it is projected to lose in 2010.

To look at it another way, though, I think the newspaper industry has figured out (belatedly) that nothing is going to save it – in its present form. What tablets may give them is another format in which to sell their content, and another way to reach the news consumer.

Of course, they still haven’t figured out a way to monetize their existing digital audience, and another means to grow that audience is meaningless until they solve that problem.

A Battle Looming with Kindle?
Steve Jobs had nice things to say about Kindle, praising it for creating the eBook market, but then warned that iPad was intended to be the next step.

At first glance, the multimedia iPad - with its fast, colorful touch screen and built-in Web browser and video player - would seem to outshine the slower Amazon device.

On the other hand, Kindle "is optimized to do one thing and do it very well, and that is reading. If the user is interested in buying a device for books, the Kindle is a no-brainer." Plus, Kindle costs $259, while iPad starts at $499. Kindle has a long battery life, and for now at least, a much larger inventory of books. Apple, of course, counters with marketing genius and their legions of crazed fanatic followers.

This is going to be fun to watch for marketers, and the consumer will probably be the winner, as companies battle to offer better features at better prices. The parallel is the iPhone/Android battle in the smart phone space.

Gadget Overload?
How many devices can we handle? This article says the average household has twenty-four, and points out that it isn’t just a matter of paying for all of them (and their associated monthly fees):

For others, it's also a matter of scarcity, not of money but time - time to set up and really learn how the things work. "Every new device is an investment in time," says Marchenese, 36. "The whole power of the device is that you can set up all these apps - but that doesn't happen by itself. And if you're not going to make the most of it, why have it?"

But that may be part of the power of an iPad, or of future refinements of the tablet-style device, under whatever brand – if it can combine laptop, music player, reader, and phone into a single device.

In any case, it has been an interesting week, and it will be fun to watch the developments, and how they play out for us as marketers and consumers.

Exit Question: In three years, who will dominate the eBook market?

Follow-Ups

The Kraft/Cadbury Merger
After playing hard-to-get for a suitable period of time, Cadbury finally came around when Kraft upped the ante a bit. Mergers/acquisitions may be ready for a comeback. “While mergers involving food companies dipped somewhat last year — preliminary data from the Food Institute, a trade organization, showed 58 acquisitions in 2009, versus 130 in 2008 — analysts expect deal-making to pick up again as companies seek greater scale and presence in developing countries.”

Beer: Prices Up, Sales Down
We mentioned this one last October, when the price hikes were announced, and commented then, “Their logic is that because demand is down and the economy is weak, it must be a good time to raise prices. Huh?” The result: “U.S. beer sales volumes fell 2.2% last year, the highest rate since the 1950s, with demand worsening late in the year …” Of course, the two big breweries need to pay off the costs of their mergers, and perhaps the increased prices will offset the decreased sales.

Sears Emphasizing Online
Sears/Kmart comp-store sales have declined every year since their merger. But their online business has been growing strongly, reaching $2.7bil last year – 6% of total sales, and significantly more than walmart.com’s $1.7bil. An analyst’s comment: "If they can do this right, it may save the company. There is a sea change happening in retail right now and it is not clear what stores are going to look like in 10 years, so why spend money now? It may make sense for some companies, like Wal-Mart, as a defensive posture, but that is not the position Sears is in."

The Channel That Gets No Respect

Convenience stores are the butt of a lot of jokes – and not just on The Simpsons. As consumers, most of us think of them simply as a place to buy some gas and a cup of coffee on the way to work. As marketers, too often, we don’t think about them much at all – when I talk to marketing people, most of the conversation is usually about big boxes of one type or another, and c-stores are, by definition, little boxes.

The thing about c-stores, though, is that there are so darned many of them; about 144,000 – a number that is holding fairly steady despite the recession – and that means, collectively, a huge market. By comparison, that’s about twice the number of supermarkets and drug stores combined.

Somebody who thinks there aren’t enough of them, and who thinks they deserve more attention, is Sir Terry Leahy. And his opinion matters, because he’s the head guy at Tesco, and therefore rather interested in their US operation, Fresh & Easy.

"Convenience is the fastest-growing sector of retailing around the world. One exception, interestingly, is the U.S.," he said, according to a report in Supermarket News. "We felt there was an opportunity in the U.S. [in] this broad area of convenience, so we invested in Fresh & Easy. We believe—hope—this will be a sector that will grow into the future."

The emphasis is on ‘hope’ and ‘future’. To say that Fresh & Easy has been a disappointment would be an understatement. They lost a quarter of a billion last year – it’s not easy to lose almost two million bucks in each of 135 or so small stores. And part of the problem is that there are only 135 stores. The plan was to have 200 by now, then it became 150, but things were steadily scaled back because of the economy. But Tesco isn’t giving up.

In October, Tesco said the Fresh & Easy division would lose about $259 million in 2009, or about $2 million for each of its stores, as previously reported in CSP Daily News. Fresh & Easy was said to be struggling with the overhead of a large infrastructure designed to support hundreds of stores and a price war that has broken out in the supermarket industry. At that time, Leahy put a positive spin on the losses. "We have been making good progress in developing the Fresh & Easy business, despite the prolonged weakness in the California, Nevada and Arizona economies," he said in a statement.

Have you ever given any thought to the idea that Walgreens is a big c-store with a pharmacy attached? Probably not, but that’s a thought that occurred to me as I was reading last week that Walgreens is planning on providing fresh food and prepared meals in their stores.

The drugstore chain has been talking with food makers including Unilever NV, Nestle SA and Sara Lee Corp. about creating private-label and branded products, said Bryan Pugh, vice president of merchandising. “Everyone is time-starved and we have the most convenient 7,000 locations in the U.S.,” Pugh said in a Jan. 11 telephone interview. “They’re on-the-way-home destinations that are easy to get in and out of and will provide a good value.” He declined to say when the project will be implemented or how much it costs.

I recall a discussion with a senior Walgreens marketing executive a few years ago, in which he said that Walgreens chooses its locations to be on the corner of major intersections that represent right turns in and out of their parking lot, based on home-bound traffic patterns. The idea being, obviously, commuters can call in prescriptions and pick them up on the way home. It sounds like the new thinking is: Why not sell the customer dinner at the same time?

CPG Online

This could fit into our ‘Follow-Ups’ department, since that is where we regularly discuss online issues. Just last week we carried an item about Procter & Gamble’s eStore initiative, which is also discussed (along with a similar move by General Mills) in this Advertising Age article.

Despite the tremendous growth of online retail in a number of categories (I do a fair amount of my own shopping online – books, music, video, and electronics for the most part), I have been skeptical about the viability of online for CPG. I’m still not 100% convinced, but I am sufficiently intrigued by the business model for a venture called Alice.com that I am willing to be convinced.

The full purchase price of products at the site goes to the suppliers, meaning that they get their own margin plus the retailer’s margin on all sales. Where Alice makes her money is on marketing support funding from the suppliers:

[Alice] is collecting $10 to $12 in marketing dollars from manufacturers for coupons, loyalty programs and free samples on a typical shopping cart, which has 10 to 11 items and a ticket just less than $50.

This is really not as new as it sounds. After all, a traditional supermarket has net profits in the low single digits – which means that most goods are sold at a loss, offset by income from the 15%-20% trade promo funding the stores receive on most purchases.

Two benefits for suppliers selling through Alice.com (there are already more than a hundred, including some very big names) are that they set their own prices and that Alice, who makes her money from them, has no incentive to introduce private label.

The big names will of course garner the most attention, but I also think sites like this might be a way for second-tier suppliers and niche products to maintain distribution as they see their shelf space diminished by SKU rationalization.

The concept is certainly not proven yet, but the site, which was launched in June 2009, is already getting two million unique visitors per month, a pretty impressive total. This is a development worth watching. Last fall, I bought a new GPS from Amazon. This past December, I bought most presents online; perhaps soon I’ll be buying my tea there as well.

Exit question: In three years, what percentage of CPG products will be sold online?

Quickly Noted

Deep Discount on Space Shuttles
NASA is offering used Space Shuttles at a discount price of $28.8mil, marked down from $42mil. Look, if you’ve cut price by 30% and that doesn’t work, do you think maybe you should try an end-cap?
New York Times, 16 January 2010

On Second Thought, Maybe the RIAA Did Conspire to Fix Prices, Appeals Court Finds
An antitrust suit against the leading music labels and distributors was re-instated upon appeal. "The complaint alleges specific facts sufficient to plausibly suggest that the parallel conduct alleged was the result of an agreement among the defendants," said the court, specifically mentioning that “none of the defendants dramatically reduced their prices for Internet Music (as compared to CDs), despite the fact that all defendants experienced dramatic cost reductions in producing Internet Music.”
BetaNews, 13 January 2010

Mobile to Outpace Desktop Web by 2013
Gartner predicts that within three years, more people will be accessing the web from mobile devices than from desktops. “But the firm warns that many sites still are not optimized for the mobile Web, even though cell users expect to make fewer clicks on their phones than on a PC. To successfully expand into mobile, publishers will have to reformat sites for the small form-factor of handheld devices.” By 2014, Gartner says that three billion adults will be able to make transactions via internet or mobile technology.
Online Media Daily, 14 January 2010

Tesco Loses Place in Global Top Three of Retailers
Tesco has been, for the past several years, third in the global retail standings behind Wal-Mart and Carrefour. But (as the chart above notes), Germany’s Metro has pulled ahead of them.
The Times (UK), 11 January 2010

Poll Results: Optimization Tools

In last week’s TPMA Outlook, we discussed how the continuation of tight inventory policies among retailers points up the need for collaboration by suppliers on pricing and promotion optimization, and asked: “Does your company have the tools you need to collaborate with your retailers on pricing and promotion optimization?” The results were a surprise:

• 16% Yes - we have a good toolset
• 47% We have some of the tools needed, but not all
• 37% We lack the proper tools

I guess I sometimes get so close to an issue that I think we’re a lot farther along than we are, but that only 16% say they have all the tools and 37% say they don’t is a bit shocking.

Follow-Ups

Regulatory/Law: UK to Have Supermarket Ombudsman
Last week, we mentioned that the Conservative Party in the UK had promised to appoint an ombudsman to oversee disputes between supermarkets and suppliers. Almost immediately, the governing Labour Party pre-empted the promise by doing so:

The U.K. Competition Commission recommended the establishment of a body with the ability to penalize grocers in August after an inquiry found they were passing on “excessive risks” and “unexpected costs” to suppliers. The opposition Conservative Party, which leads in opinion polls, has also recommended the appointment of a supermarket ombudsman citing so-called “retrospective discounting,” where retailers reduce the price of products at a later date when they fail to sell.

Online Marketing: P&G Opening eStore
Procter & Gamble is creating an ‘eStore’ to sell its products online. They say they are doing so to research consumer buying habits and will share data with its traditional retailers, but the new outlet may also be an effort to overcome lost shelf space as many of their retailers cut assortments.

Media: Magazines Lose 25% of Advertising
The bleeding has not eased at all in the media space – the latest report is on magazines, who lost 25% of their ad pages in 2009:

Between 2008 and 2009, magazines lost, on average, one-quarter of their ad pages — the worst drop in the decade of data that the bureau, which measures virtually all major American magazines, had readily available. It is significantly worse than even 2001, when pages declined by 17.2 percent from the previous year. And magazines ran only about 170,000 ad pages last year, versus about 238,000 in 2001.

SKU Rationalization: Supervalu Cutting Assortments
We mentioned a month or so ago about Supervalu’s plans to reduce assortments. The Wall Street Journal provided an update, summarized in the opening paragraph:

Supervalu Inc. said it will be reducing the number of items it offers per store—in some cases by as much as 25%—in a move intended to more prominently feature store-branded items and extract lower prices from vendors.

Is Wal-Mart in 'Stealth' Mode Internationally?

The Guardian (UK) reports that Wal-Mart has “embraced something of a ‘stealth’ approach to growth” as it expands outside the US, though the evidence seems to consist primarily of the use of different names: “Maxibodega in Costa Rica, Todo Dia in Brazil, Despensa Familiar in Honduras and the awkward-sounding Best Price Modern Wholesale in India.”

This is part of a Guardian series on “Companies to Shape the Decade.” This graph demonstrates why Wal-Mart was chosen:

Overheated rhetoric aside, the article does a great job of looking at issues related to Wal-Mart’s policies and exploring how Wal-Mart is leveraging its strengths globally, while learning from past experience to avoid trying a cookie-cutter approach to international consumers:

During earlier decades, the firm's approach to expansion was simple. It built US-style out-of-town discounting superstores around the world and expected shoppers to flock there for bargains. But this didn't always work. Travel patterns, family roles and shopping habits vary. Ventures into Germany and South Korea came to a sticky end with expensive exits in 2006. Under the new approach, the "front end" of Wal-Mart's stores can look like enlarged family-run convenience stores. The contents, to some extent, are locally focused. Chinese stores offer live crustaceans, while South American outlets are heavy on spicy beans. But the "back end" is a duplicate of the US model. "From the customer point of view, it might appear to be a certain brand," says Slape. "But everything that is 'back of house' – systems, processes, buying – we can leverage a lot of that globally."

And of course it is generally accepted that it is Wal-Mart’s systems and processes that have propelled it to the top of the global retailing heap, so customizing the front end to national tastes while employing proven back room techniques, seems more like common sense than stealth.

Digital Smart Signs: The Revolution Begins

Intel and Microsoft showed new technology at NRF and announced a partnership to develop it – the technology being a form of in-store digital signage that will identify characteristics of customers and display merchandise accordingly.

Signs equipped with cameras and specialized software could recognize the age, gender and height of people in front of them, and tell what products and images received the most attention, the companies said. By gathering information about which messages are more effective, they add, traditional retailers could develop marketing approaches that better counter Web-based competitors.

The trade promotion possibilities are obvious. In a department store environment, if the technology determined that the proper product to show was women’s jeans, the choice of which brand of jeans could of course be determined by whether Levi’s or Lee was paying.

I noted mention of privacy concerns in the comments to articles about this, but I also noted that the technology is intended, to some degree, to help bricks & mortar retailers battle their online competitors. Amazon knows a lot more about me and my buying habits than these signs/cameras could ever discern, and it doesn’t bother me a bit, because Amazon very ably uses that knowledge to offer advice that makes my shopping quicker and easier. While retailers will need to be careful how they use such technology, I don’t see why customers would object to being presented messages that are meaningful to them.

In addition to the customer-recognition feature, the signage will also be interactive, allowing the customer to ‘tour’ different areas of the store and download coupons connected to merchandise of interest. Here’s an Intel video demonstrating the product.

NCR and Hewlett-Packard are mentioned as working on products, and software is expected to be available by the second quarter.

This seems revolutionary to me – taking in-store promotional possibilities to a totally new level. Perhaps I’m going overboard (I have a well-known capacity for over-reacting to ‘gee-whiz’ products), but it appears to me that this allows stores and their suppliers to present the right product to the right customer more effectively than ever before, while (keeping customer-centricity in mind) helping the customer better use their limited shopping time by identifying their interests quickly and presenting the sort of choices the customer is likely to be seeking. It also, as is clearly intended, brings some of the advantages of online shopping to the real world (though it won’t match the advantages of online unless it can help me get a good parking spot at the mall).

But what do you think: Revolutionary or ho-hum? Will advanced digital signage revolutionize in-store marketing in the next few years?

Olay Highlights P&G's Push to Extend Brands

Procter & Gamble plans to fight back against private label incursions into its market share by increasing new product introductions, and by using trusted brand names on many of the new products. “P&G ... plans to introduce 30% more new products this year than last, hoping to avoid price cutting by tempting recession-weary shoppers with new product features. Among the planned introductions is a body wash that purports to fight wrinkles. P&G will roll out the product officially next month, adding it to Olay's Total Effects line of anti-aging face creams."

Supermarket Tsar Could Push up Food Prices

As the election nears in the UK, the opposition Conservative Party says that it will put into place an ombudsman to make sure that supermarket chains treat suppliers, especially farmers, fairly. “The watchdog will have teeth by naming and shaming supermarkets that fail to comply with the code of practice and issuing fines, although the level of the punishment has yet to be decided.” Retailers say it will drive up food prices. The Conservatives are currently favored to win the election.

Apple to Acquire Mobile-Ad Network Quattro Wireless

Apple has bought a mobile-advertising network two months after Google did the same. This would appear to be setting up another front on a growing battle: “Apple's latest play heats up the already contentious relationship between the two companies. Google is playing on Apple's turf as [the] internet search giant is looking to deliver an integrated software and hardware experience via its own upcoming smart phone, the widely hyped Nexus One, while Apple is flirting with Google's domain, advertising.”

Poll Results: Analytics and Goals

We discussed analytics and goals, and wondered if our readers’ analytics packages are aligned to measure the things they have set as goals for their programs: “Are the measurements generated by your analytics systems aligned with your program goals?” It appears not, in most cases:

• 36% We measure well
• 14% We can measure well toward some goals, but not all
• 29% We have inadequate or non-existent analytics
• 21% We have difficulty with defining goals

The largest number said they are doing well, but most are not. I think it’s interesting that 21% indicate that the problem isn’t with the analytics – the problem is setting goals.

Follow-Ups: Online Retail, Regulation/Law

We’ve had numerous items on the Wal-Mart/Amazon battle, and this article goes into depth on some of the challenges facing Wal-Mart as they try to fulfill their goal of being “the Wal-Mart of the web.” Wal-Mart’s pricing challenge to Amazon on best-sellers garnered a lot of attention, but it also pointed out a problem for a company that is primarily bricks and mortar:

The price competition highlights one of the key challenges facing any store-based chain selling online: how to reconcile prices in stores and on the web. Low web prices could undercut store visits, while high web prices mean the e-commerce site can’t compete.

Wal-Mart, after all, wants you to come into the store, where they can sell you a bunch of other stuff, not just a few loss-leader books. That same issue shows up in shipping, where Amazon emphasizes the free-shipping option of Amazon Prime, while Wal-Mart wants to persuade us to use their ship-to-store option.

The article also mentions the problem for a bricks and mortar retailer in opening up its website to other merchants – Amazon has done so very broadly, while Wal-Mart’s efforts are limited thus far to retailers who sell non-competitive products.

Speaking of which, Sears also has opened its website to other sellers, leading to this criticism from the Chicago Tribune:

Keeping quiet may work when operating elite hedge funds, but it's usually not a great strategy when running a retailer. For the past six months, Sears Holdings Corp. has been operating an online marketplace that allows third-party vendors to sell goods on its Web site. But few consumers knew about it. Sears waited until Thursday to unveil "Marketplace at Sears.com," disclosing that its Web site carries more than 10 million products, including furniture, art, cosmetics, appliances, sporting goods and shoes.

I’ve never had any problem criticizing Sears, but I think it’s the Tribune that’s at fault here. Sears has made no secret of this effort – we mentioned an item about Marketplace back in October.

On a separate note, we mentioned regulatory actions against Intel, and Intel’s settlement of its lawsuit with AMD not long ago. Now the Federal Trade Commission has announced an investigation of Intel, but is basing it on graphics chips rather than on CPUs.

To date, the antitrust actions of regulators worldwide toward Intel have focused on sale practices for central processing units, or CPUs, a market over which the company has fought heavily with Advanced Micro Devices. On Wednesday, however, the FTC spelled out a litany of allegations about Intel's alleged anti-competitive behavior in the market for graphics-processing units, or GPUs, in which Nvidia is a major player. […] Why graphics, and why now? "It would be really hard to sell the public on expending resources to take Intel through administrative proceedings when it had already paid over a billion dollars to AMD," said Joshua D. Wright, a professor at George Mason University School of Law and a scholar in residence at the Federal Trade Commission until 2008. "[The FTC] needed to be seen as doing something new."

Intel sounds rather annoyed about it:

This lawsuit is not based on claims that Intel violated the existing antitrust laws. Instead, the FTC is advocating new rules regulating business conduct. Those rules would harm, not help, competition and would reduce incentives for companies to invest in research and development and other pro-competitive activities.

And several months back, we mentioned a decision that greatly broadened the definition of ‘competing customer’ for Robinson-Patman purposes. The decision in that case, in which a distributor sued Michaels Foods for selling at different prices to food service company Sodexho, has been reversed on appeal:

The case, Feesers, Inc. v. Michael Foods, Inc. and Sodexo, Inc., was filed in 2004. In the suit, Feesers, a regional food distributor based in Pennsylvania, claimed that it competes with Sodexo, Inc., a multinational food service management company, and that Michael Foods was required to sell its products to both companies at the same price. The Third Circuit Court of Appeals today rejected Feesers' claim, holding that Feesers and Sodexo are not competing purchasers.

Presumably there will be further appeals.

A Side Note on Credit Laws

The artcle cited in the previous post had a comment about new credit laws having an impact on manufacturer support programs that I hadn’t considered before. The new law puts restrictions on those “no payments/no interest for X months” promotions we often see on big-ticket items, such as furniture. The law, among other things, forbids the charging of deferred interest when payments are a day late.

This new act will drastically affect how furniture sellers do business. More than half of all furniture purchases are made because of these deferred-interest promotions, Beemer says. Once the act goes into effect, furniture suppliers may continue to offer zero-percent interest promotions but with a reduced down payment on a monthly basis, with possibly a lump sum due after a set time, Beemer says.

Retailers Still Keeping Inventories Tight

2009 was the Year of Tight Inventory, but suppliers who have been hoping retailers were planning to re-load the shelves in 2010 are likely to be disappointed.

Retailers want to get out of the deep discounting trap they found themselves in this time last year, forced to cut prices to unsustainable levels in order to clear out overstocks. According to NPD’s chief analyst:

Cohen says retailers will start a "discount detox" process this year, trying to wean consumers off deep discounts by offering fewer of them. "This year will be more about the planned discount rather than the panic discount," Cohen says. The panic discounts of 2008 occurred because of excess inventory going into the holidays, while 2009 featured retailers selling to manage inventory. Cohen predicts retailers in 2010 will focus on planned discounting and promotions as well as non-discounting on new and innovative products.

The good news is that the year ended strong, with December showing decent increases. Bernard Sands’ Comp Store Sales Analysis quotes the International Council of Shopping Centers as reporting a 2.8% increase. John Walsh of Sands adds that, “because inventories were better aligned with demand this year, many chains didn’t have to slash prices in order to sell goods.”

So how does this net out? I look back up a couple paragraphs to what Mr. Cohen from NPD says: “[R]etailers in 2010 will focus on planned discounting and promotions.” It is always essential that planning be done well, but well-done planning in 2010 will be planning based on optimization of pricing and promotions. Key suppliers will be expected to collaborate with their retailers in accurately forecasting demand on promotions to avoid creating new overstock problems, and in setting price points that minimize the need to constantly cut prices and assist in the "discount detox" process.

Rabbit Ears Make Comeback in Digital TV Era

Maybe broadcast TV isn’t quite as doomed as it has appeared. With the advent of digital TV, viewers can receive a great many more channels (for free) over the air than used to be available – according to this article there are now three times as many broadcast signals available in the LA area (as many as seventy), many of them broadcasting programming targeted to ethnic groups. What is needed is just an old-fashioned set of rabbit ears, which can cost as little as a dollar, and which now produce a high-quality picture.

P&G Sales Drive Targets Hispanics

Procter & Gamble is increasing efforts to reach Hispanics in the U.S. by offering brands and packaging familiar to recent immigrants. They are, for example, offering their Ariel brand at Wal-Mart, and present it “packed not in the cardboard boxes favored by U.S. consumers, but in the 1.5kg and 3kg flat-bottomed bags familiar to Latin American immigrants.” The product had to be reformulated for the U.S. to removing phosphates that the Latin American product contains, but which are banned in the U.S.

Online Retail Sales Set a Single-Day Record by Topping $900 Million

On December 15th online sales totaled $913 million. Each day of that week through Thursday, the last day to order with assurance of delivery by December 24th for many sites, topped $800 million, and total sales for the holiday season reached almost $25 billion, up 3.7% over 2008. I bought just about everything online this year (anything to avoid the malls), and everything arrived on time.

Poll results: Year-End Economic Forecast

For our year-end poll, we asked our readers to play economist and forecast what 2010 will look like. As with economists, the answers were all over the lot, with the only consensus being that a boom is pretty unlikely.

• 5% There will be strong growth - could be a boom by next Christmas
• 39% No boom, but it will be an OK year
• 32% Not good - pretty much flat with maybe a bit of weak growth
• 24% The second dip of the recession is coming

The largest single group of our respondents was cautiously optimistic – 39% think the year will be ‘OK’. But overall, the forecasts were downbeat – a slight majority felt that there will be weak growth at best, and perhaps we’ll see the dreaded double-dip recession. Let’s hope these forecasts are no more accurate than the economists have been lately.

Follow-Ups: Private Label and E-books

The increasing quality of private label products was the subject of an item here a few weeks ago, and tests in San Francisco confirm that store brands are often equal to or better than comparable branded products:

Our five experienced panelists - local chefs, cookbook authors and food professionals - test products blind, concentrating solely on texture, appearance and, most importantly, taste. Time and again, they find that grocery store brands come out on top. In fact, in the 44 tastings from 2009, more than one-third of the winners were grocery store brands.

A steady stream of articles like this will begin to put greater pressure on brand name marketers to find ways to justify their price differential.

We also discussed, just before Christmas, the growing popularity of e-readers and the concerns they are raising among publishers, who are looking for a way to battle the downward pressure e-books will put on prices for ‘real’ books. We suggested that this might be the year when e-readers reach critical mass. Looks like we may have been right:

Amazon's Kindle hit an important and startling milestone yesterday: On Christmas, the company sold more Kindle books than physical books. Yes, this is obviously the result of everyone who got a Kindle for Christmas (lots of folks) firing it up and ordering a bunch of eBooks on a day in which most physical-book readers weren't shopping. But it's still important and impressive.

I’m waiting to see if publishers will have a strategy for digital books that works better than the record labels’ response to digital music.

What are We Measuring and Why?

Every once in a while I read an article and completely agree with it, but still come away with the feeling that it isn’t quite right. This article is one such case. It isn’t that anything is wrong with either the general theme of the article, nor with any of the particular points it makes. The problem is with something that isn’t there.

The article is titled “How to Balance Brand Building and Price Promotion” and is about, well, exactly what the title says. Is anybody here opposed to balancing brand-building and price promotion? Of course not – both are necessary for just about every company, and it is vital that a balance be found. It’s particularly important now, as we begin to climb out of the recession – for the past year or more, most marketers have necessarily emphasized price, but now the balance must be restored.

What is the principal suggestion offered? Again, something that will get no argument from me: analytics.

Powerful business insights aren't built like widgets; they require analytics that are constantly realigned to address the latest business challenges while remaining in lockstep with current marketplace dynamics.

I couldn’t agree more. The writer goes on to suggest three specific steps, suggesting that marketers:

1. Track changes in their business, key business drivers and competition at the level at which consumer and market dynamics vary.

2. Frequently (and efficiently) update analytics to understand changing consumer attitudes and behaviors.

3. Conduct cross-functional, forward-looking simulation exercises.

Here I’ll begin to quibble a bit. Not with these three suggestions, but with what was left out, and is so often left out of many analytics discussions, whether cross-functional as in this case, or specific to trade promo: What are our goals – what are we measuring and why?

I’ll leave aside the article now, because it’s unfair to criticize a short piece for what it leaves out. And what the goals might be are very much individual to each company, and couldn’t be addressed in that article (or this one). But the determination of goals is too often left out in analytics implementation projects and in the utilization of the analytics systems.

Yes, you can use analytics to help you determine the effects of your brand-building efforts and your promotions, and to forecast what the effects of future efforts will be. But how does that help you balance the two? In this instance, analytics will only be of help if you first set goals, and then use the goals to help design the system so that it is measuring and forecasting the appropriate outcomes.

To focus on trade promotion alone: what are the goals of your trade promotion programs, and what are your partners’ goals? And are you measuring promotions in a manner that determines whether they achieve those goals? Many of the analytics and forecasting packages available today can provide you with marvelous information, but they will only help you achieve your goals if you first define the goals clearly and then set the appropriate measures for those goals.

Changes, Challenges Drove Decision to Sell Ukrop's

As mentioned in a post below, Virginia's Ukrop's chain was sold to Ahold last week, after being on the selling block for several months. This may be the first of several acquisitions for Ahold. The Ukrop's stores, highly respected in Richmond, are victims of the changing nature of retail – they are simply not big enough to compete with Wal-Mart and other chains that have moved into their market. "Our model was not working. It wasn't sustainable," said one of the brothers who ran the business. The other added, "Going forward, there were going to be some headwinds."

Developer of Big-Box Stores Supersized the Art of Retail

Sol Price passed away last week. Price deserves to be much more famous than he is, as he was one of the great retail innovators of the second half of the twentieth century. He started Fed-Mart, a chain of discounters in San Diego and spread it throughout the west. His idea was copied by a guy in Bentonville, Arkansas. After selling Fed-Mart to a group who drove it into the ground, Price developed Price Clubs, a warehouse store concept that was also copied by that guy from Arkansas, and was eventually merged into Costco (which was founded by a former Fed-Mart employee). Sam Walton acknowledged his debt in his autobiography: "I guess I've stolen -- I actually prefer the word 'borrowed' -- as many ideas from Sol Price as from anybody else in the business."

Britain Bounces Checks after 300 Years

I guess it's inevitable, but I didn't see this one coming. The UK's bank regulators have decided to phase out paper checks over the next several years, with an end coming in 2018. "There are many more efficient ways of making payments than by paper in the 21st century, and the time is ripe for the economy as a whole to reap the benefits of its replacement." The number of checks written daily in the UK has fallen from almost eleven million to 3.8 million. Can the same move be far off in the US?

Poll Results: Co-Branded Private Label

Last week, we discussed the idea of co-branded private label, and asked "Will brand marketers soon begin offering co-branded private label products with their key retailers?"

• 14% Yes – and it will become a significant share of sales for those who do
• 38% Yes – but it will be limited in the next few years
• 48% It's not going to happen to any meaningful extent

It seems that our readers think co-branded private label is unlikely to have much impact in the short term.

2009 Was a Terrific Year

Okay, so maybe the economy wasn't so good. But we at TPMA are pleased with how the year went. We had a successful conference in San Francisco in July, we broadened our base to include more suppliers and retailers in the consumer durables and B2B categories, we redesigned our website, began a webinar program, started this blog, and redesigned and expanded this newsletter to increase its value to our members and friends.

We will be building on these gains in 2010, with more webinars, two conferences (May in Chicago, November in Phoenix), significant additions to our website, and several other new initiatives planned.

It's coming out of tough times that the greatest gains are made, and we plan on making great gains in 2010, and we hope to see those same great gains for our members.

All of us at TPMA want to take this opportunity to wish great joy to all our readers, and great prosperity in 2010.

Trends and Predictions

This is the time for New Year's resolutions, and the time for people who do newsletters to make predictions about the coming year. The resolutions, as we all know, are usually broken and forgotten, and those of us who make predictions sometimes hope earnestly that these will be equally forgotten.

We actually got started on this last week, using Phil Lempert's prediction about co-branded private label as our subject. I'll take the easy way out again and use somebody else's predictions as a starting point. Here's a blog entry by Todd Hale of Nielsen, in which he makes a few predictions about consumer goods in 2010.

1.	Restraint remains the new normal: American confidence has been slower to rebound compared to other parts of the world. The need to save money, unemployment and other economic issues continue to be top of mind, suggesting that any return to past behavior may take some time—if at all.

We've had repeated discussions here on the whole subject of "the new normal." I'm on record as a skeptic. My thinking is that this recession, bad as it has been, has been nothing close to the Great Depression, which truly did alter behavior for an extended time (through 1945 at least). It is more like the extended weakness of the late seventies and early eighties – which had little effect on consumer habits once the economy recovered in 1983.

That said, Hale is probably right that consumer restraint will last well into, and maybe through 2010. Employment is the last area to recover usually, and consumers will lack confidence until they see unemployment levels drop significantly.

2.

Value is a top priority. With no signs of readiness to open wallets, a focus on low prices at the expense of all other variables threatens margins. Value messaging must also include some point of differentiation beyond pricing. Manufacturers and retailers that "drive the recession wave" and take an active role in innovation and ad spending are likely to be the big winners.

This really goes along with #1, although I'd add that value is always the top priority – it's just that each of us defines value differently, and our definitions change as our circumstances change. I agree completely with Hale's points about the need to offer something beyond low prices and to innovate and promote.

3.	Store brand growth continues. Even with year-end 2009 softness in store brand dollar share growth as retailers cut prices across the store to be more competitive, unit share growth continues and retailer focus has never been stronger.

I think the growth rate of private label will slow as the recession eases (at least that has always been the pattern in the past), but there will still be growth, in large part because of the next prediction. There is an absolute correlation between retail concentration and private label share.

4.	Grocery consolidation intensifies. Local and regional players, unable to drive profits in the soft economy, will become acquisition targets and some larger national and regional grocers will divest unprofitable formats and banners to strengthen investments behind their winning formats and banners.

And not just grocery. Retail consolidation has driven many of the most important trends in trade promo for longer than I care to think about – most obviously the swing to retailer power. There's no reason to think it will reverse anytime soon. The consequences of recessions, which drive weak businesses over the edge, simply speed things up. I don't know if 2010 will see the trend intensify, as Hale thinks, but it will certainly continue. Recently we've seen Basha's, the top independent Arizona grocery chain, go into Chapter 11, and last week the Ukrop family sold their Virginia chain to Ahold.

5.

Assortment wars escalate. Retailer efforts to simplify the consumer shopping experience by eliminating aisle and shelf clutter will cause market share land grabs for small and medium-sized brands in pursuit of elusive revenue growth. Retailers may lose sales as they shift away from in-store merchandising that drove impulse buying and built shopper baskets. Look for brands caught in the trap of greater store brand focus and assortment optimization to forge alliances with key retailers; enter or step-up efforts as store brand suppliers; and/or explore direct-to-consumer sales.

This could be the most important story of all in 2010, and the one with the most unpredictable outcomes. I see smaller brands as very vulnerable, with retailers likely to keep only one or two top brands and their own brand. If that happens, how many third-place brands will simply disappear? The alternative for some may be, as Hale hints, to become exclusive brands for retailers. But this trend is happening so quickly, and involves so much new territory, that there are almost certain to be major unforeseen consequences.

One more prediction about prediction: In the area of TPM, I think 2010 will be the year of critical mass for predictive analytics and forecasting tools – the year we finally, after much talk, begin to optimize, on a large-scale basis, trade promotion programs.

The recession should have convinced enough retailers and suppliers of the dangers of poor (or no) forecasting, that their resolution for the coming year will be to use the slightly loosened budgets of the recovery to implement tools to generate meaningful forecasts and to optimize their trade promotions.

Let's hope that's a resolution they keep.

NCR Boosts Challenge to Redbox, Adding 1,300 Kiosks

So maybe the Blockbuster brand won't disappear as predicted above, it may instead morph into a label on vending machines. NCR is the #1 maker of ATMs (anybody else remember when the letters stood for National Cash Register?) and seems to want to branch into retailing, of a sort. They bought DVDPlay, who has 1,300 video rental machines, and will re-label them as Blockbuster Express, via a licensing deal, and will soon have 3,800 machines operating, compared to Redbox's 22,000.

Editor & Publisher Closing after 108 Years

As bad as the newspaper and magazine businesses are, possibly the worst possible thing is to be a magazine that reports on the newspaper biz. Nielsen is selling off other publications, such as Billboard and The Hollywood Reporter, but presumably they figured there would be no takers for E&P. Too bad.

Ten Brands That Will Disappear In 2010

Sorry to be negative at a festive time of year, but when I saw the headline, I couldn't resist clicking. Some of the choices, whether right or not, are obvious (Sun Microsystems, Blockbuster, Newsweek), and a few I would disagree with (Motorola, Kodak), but it's an interesting read.

Amazon in Secret Plan to Open High Street Shops (or Maybe Not)

The Times says that, according to real estate sources, Amazon is searching for sites in London to facilitate pick-up of merchandise by their shoppers. "Amazon wants to cash in on rising customer demand for click and collect services where shoppers buy online and then pick up their goods from a nearby store." Amazon, however, firmly denied that it had any such plans in the UK or elsewhere. It seems to me that utilizing existing outlets, such as c-stores or Kinkos/FedEx locations makes more sense than opening their own stores.

Poll Results: Brand-Building at Retail

We recently discussed Wal-Mart's partnership with leading brands to create co-op advertising with the look of national ads. In our poll, we asked, "How effective can co-op ads and in-store promotions be in building a supplier's brand image?"

• 29% More effective than traditional national advertising
• 29% About as effective as traditional national advertising
• 33% It can be done, but it's less effective than traditional national advertising
• 8% Not effective at all

Only one in twelve respondents said brand-building can't be done through joint promotions with retailers. But while there was a big consensus that such promotions can be effective in brand-building, there was no agreement at all on how effective, with an almost even split among less effective than national ads, as effective, and more effective.

Follow-Ups: Social Media, 'Project Impact,' and Costco/Coca-Cola

A busy week on a number of topics we've addressed here before. There was an interesting article in UK's Observer titled "Facebook now has 350m users, and there's no point in advertising to them." The author notes that Facebook is ostensibly valued at $10 billion, but has only $500 million in revenue. Twitter is valued at $1 billion and has revenues of...zero.

We've debated online advertising often here, this writer thinks it's not effective, especially in social media:

The truth is that investing in social networking represents the triumph of hope over experience. The optimism comes from a feeling that it's impossible to gather, say, 350 million people in one place and not somehow make money. In the real world, one would charge them admission and sell them hot dogs and overpriced T-shirts. But that doesn't work in cyberspace. If Facebook started to charge for membership, its population would dwindle to the number of people who think that its services are worth paying for, probably not that many... ComScore also concluded that a hard core of 8% of all internet users, christened "Natural Born Clickers," are responsible for 85% of all banner clicks on the web. Everyone who uses the web has experienced the ineffectiveness of online advertising. If it's obtrusive, it's an irritant that gets between you and the content you're seeking and you hit the "Click here to skip this advertisement" button. If it's unobtrusive, you ignore it. Either way, it's ineffective.

Target's hometown paper did a mostly positive article on how Wal-Mart's Project Impact is reshaping the rival's stores.

The strategy aims not just to make stores look cleaner and more open, but to fine-tune vast product offerings and reframe the way Wal-Mart markets itself to consumers. In many ways, Wal-Mart has become more like its top competitor — Minneapolis-based Target Corp. The strategy comes at a key time. As the recession has widened, Wal-Mart has continued to outperform nearly all retailers, including Target, as well as stores that aim for a piece of its business, such as Best Buy, Toys 'R' Us and even smaller specialty chains such as Michaels crafts store. Now the fight is on to keep those shoppers.

The article notes that, while customers like the new look of the stores, and sales have been good (especially compared to retail as a whole), Wall Street seems unimpressed:

"No doubt, Wal-Mart is executing," said Lauri Brunner, an analyst who covers Wal-Mart and Target for Thrivent Investment Management in Minneapolis, who said the stores have "never looked better." But, stock prices indicate "Wal-Mart has been a big underperformer," Brunner said. "Wal-Mart doesn't win when everyone is fighting for the lowest price, as they are now. Wal-Mart wins when prices are going up and people want to go to the low-priced outlet." Wal-Mart's stock hit an all-time high of around $70 just before the beginning of this decade, and since then, it's been trapped mostly between $45 and $60 a share.

And a final note: Costco and Coca-Cola have declared a halt to their fight. No word yet on who gave up what to get the product back on the shelves.

"Our program aligns Coca-Cola's brand and package offerings with the needs of Costco's members in a way that is fair and equitable for both Costco and Coca-Cola," (a Coke spokesperson) said.

Publishers Like E-books, But Not at Ten Bucks

Book publishers are wondering how to respond to the pricing pressures they are going to increasingly face from retailers as e-books grab more market share. At present, e-books represent a small portion of the market (sales in September were up 171% over the previous year, but that was still less than $16 million, in a $23 billion annual market), but with readers such as Kindle coming down in price and up in consumer acceptance, the pressure is building. Some observers think this Christmas may represent the point at which e-readers reach critical mass.

Amazon is pricing e-books at $9.99, and publishers are getting antsy about what that will mean to sales of their thirty-dollar hardback bestsellers.

"As e-books grow as a category, there will be cannibalization," Epps says. "The early adopter buying an e-reader device happens to be the same customer who would have bought a hardcover book."

A big problem is that publishers can't afford to annoy Amazon. They have a channel with only three significant players (Amazon, Barnes & Noble and Borders make up 70% of the consumer book market) and one of them, Borders, is facing major difficulties. Nor is B&N willing to concede the e-market:

"Books are sold in thousands and thousands and thousands of outlets in America, and more than 50% of the books sold are outside of bookstores," Barnes & Noble CEO Stephen Riggio told analysts last month. "We believe that digital content will be much, much less fragmented than that, and we've established a strong position in order to gain a sizable market share as this market develops."

One approach publishers are considering is delaying e-book sales by several months, as they have long done with paperbacks.

What frightens publishers is that they may go the way of the record labels, which have proven incapable of dealing with the disruption to their business model caused by digital music: plummeting prices, piracy, and the almost total disappearance of the music store channel.

The iPod was introduced eight years ago, at which point digital music took off. We seem to be at the takeoff point for digital books and the question is whether book publishers have learned from the music industry's experience and will come up with a better strategy for dealing with change. Where will book publishing be eight years from now?

Where is Private Label Going in 2010?

National brand manufacturers have been growing increasingly nervous about private label. Throughout the recession there has been a constant stream of articles and predictions about the growth in PL sales (especially in consumer packaged goods, but also in many categories of durables) and about where the future might lead.

In the food category, PL growth this past year was more than double that of branded products, and "a reasonable estimate is that private label accounts for roughly 20% to 25% of food sales across categories for most retailers (more in retailers that emphasize store brands)." To make things worse for the brand manufacturers, the stores that are showing the greatest growth, the discounters and limited assortment stores such as Save-A-Lot and Aldi, are the ones that emphasize private label, with Wal-Mart and Target having redesigned and expanded their Great Values and Up&Up lines in 2009.

Now an industry pundit, Phil Lempert, has predicted that 2010 will see branded food manufacturers producing co-branded private label products with key retailers. I'll be honest; I'm not sure what "co-branded private label" means, canned peaches at Wal-Mart being sold under the 'Great Values by Del Monte' label?

I don't see what Del Monte would gain. Yes, they would get some incremental sales, but they could get that by providing ordinary private-labeling services to stores, as many brand manufacturers have been doing for years. But I can sure see what they lose, their brand name soon would be worth little.

However, as you'll see in the article, while they agree it's a bad idea, industry observers think that some brand name suppliers will go for the quick buck.

Another approach to private label is being taken by Meijer. The Midwestern supercenter chain is re-launching its Meijer Gold line with eighty new products, focusing on smaller manufacturers who can provide innovative recipes such as Sugar-Free Maple-Praline Syrup, Smokey Mozzarella Cheese Spread, Porcini Truffle Tortellini, Crab Puff Pastries, Biscotti Munch Chocolate Caramel Cookies and Michigan Apple Cheesecake.

The new Meijer Gold products, released Nov. 15 at all 190 Meijer stores, are original recipe items either made by a local company within the Meijer footprint or by a family owned business. The line also features interesting foods endemic to a particular place or country. That cocoa I loved comes from a Pacific Northwest family known for producing luscious chocolate recipes. There is also lemonade from an original family recipe in France, mustard from an age-old German recipe by a long-time Midwestern company, salsa from an acclaimed family-owned southern California producer, and cream pasta sauces from the legendary Chicago restaurateurs, the Mugnolo family.

This approach may represent an even bigger threat to manufacturers of brand name products. Until recently PL products were copycats, and the brands could stay ahead by innovating; and until recently, PL products were generally inferior. But now many stores offer products under their own name that are roughly at parity with the brands, and some of the retailers are beginning to innovate.

The threat of private label is one that has been talked about for years, but thus far I haven't seen a solid strategy for overcoming it. The growth of private label has come unevenly, speeding up during recessions and easing a bit when times are good. But the ever-increasing concentration of the retail marketplace means that the growth will continue, good times or bad. How will suppliers respond?

How 'Modern Warfare 2' Vanquished 'Harry Potter'

It's another sign of the new media vanquishing the old – Modern Warfare 2 racked up $550 million in sales in its first five days on the market, while the latest Harry Potter movie had a comparable box office of $394 million. Clearly video games have replaced movies as the primary entertainment medium for young males, but they are now moving beyond that demographic: "We have managed to market the game to a wider base," said Brad Jakeman, Chief Creative Officer of Activision Publishing, who leads the company's marketing efforts. "We're starting to see what used to be a niche form of entertainment rise to challenge theatrical audiences."

Airline Tests Retail Sales at 35,000 Feet

You're already paying for a pillow, for your baggage, for extra legroom, and for a snack box, so I guess the airlines are running out of things to sell you. Never fear, American has decided that they're already doing such a great job of customer service that they should become retailers. "In the past, customers could browse the SkyMall catalog, but placing an order could be done only after the plane had landed. With the addition of what SkyMall's president, Christine Aguilera, calls 'a cash register in the air,' sales can be completed on the plane."