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."
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?
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.
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.
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.
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.
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.
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.
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.
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?
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?
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."
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."
The recession is not yet ending in the luxury sector, it appears. "Sales in the luxury sector declined 7.3% in November, their first drop since August after gains in September and October, according to MasterCard Advisors SpendingPulse…"
A related report on a study by the American Affluence Research Center (honest – there really is such a thing) says that "9 percent said they would spend 'nothing' this December on holiday gifts, and those who do plan to spend anticipate laying out 5 percent less on average than they did last year."
Wal-Mart will have World Cup shops within its stores around the world next year, offering licensed merchandise customized to each local market. The last World Cup in 2006 had more than 26 billion cumulative viewers (which means that each person in the world watched four matches on average). By the way, TPMA Outlook's sports department reports that the USA got a good draw for the World Cup – we're in the same group with England, Slovenia, and Algeria, and will be favored to make it through the group stage to round two.
Recently, we discussed Coca-Cola's 'boost zones' strategy – intensive marketing efforts to inundate key urban centers as a counter to declining market share, and asked, "Will the 'boost zones' strategy result in significant share gains for Coca-Cola in 2010?"
23%: Yes – large gains
46%: Yes – some gains
15%: No – but it will stop their share losses
15%: No – they'll continue to lose share
There's a strong consensus that the strategy will pay off, but most think the gains will be relatively small.
Follow-Ups: Amazon/Wal-Mart and Stores-within-Stores
The Amazon/Wal-Mart battle has expanded beyond price-cutting on a few bestsellers, and neither side shows any sign of backing down. Which makes the web traffic reports for Black Friday of particular interest:
Amazon not only maintained their top spot in terms of traffic, but also showed the biggest gains over the previous year. Not a bad performance.
A surprisingly strong entrant is Sears, at #5. We commented a few weeks ago that we thought they had played the Amazon/Wal-Mart battle well, and this would indicate we may have been right. Their showing is especially strong if you combine the Sears and Kmart numbers, in which case they move ahead of Best Buy into fourth. Many people (including me) frequently criticize Sears and Kmart, but they may be doing something right online.
J.C. Penney has had a lot of success with their Sephora stores inside many Penney locations, as we discussed a few weeks back, and is planning to take another shot at the stores-within-stores concept by inviting in European 'fast fashion' retailer Mango.
In 2010 the new line, MNG by Mango, will be in 75 locations as well as being available online; by Fall 2011 it will be in 600 stores. Penney will also be adding 75 additional Sephora locations to the 155 now open.
Sephora shops have higher sales per square foot than the rest of the store and create a "great halo effect," bringing in new shoppers who then explore other departments, said Liz Sweney, executive vice president and general merchandise manager of women's apparel at J.C. Penney.
"Our ability to attract Mango had to do with our success with Sephora," she said.
Mango is one of Spain's largest women's apparel chains, with sales last year of $2.2 billion from 1,300 stores in 94 countries, including 12 in the U.S.
It appears Penny is taking aim at younger women who would not normally be attracted to them, but may come in for Sephora or now for Mango, and perhaps stick around to shop other sections of the store.
I read two articles last week that come together to make an important point about how brands are built and maintained.
The first was this article, by the chief research officer of the Advertising Research Federation, which argues that suppliers are destroying their brands by diverting funding from national advertising to trade promotion.
He bemoans the shift of national advertising funds to trade promotion over recent years, arguing that the move diminishes brand image by emphasizing pricing. He also notes that the shift is in part due to the measurability of the effectiveness of trade promo spending through scanner data, and argues for the development of better measures of brand value and the effect of advertising in maintaining and growing that value. An excellent article.
The other was this article in Advertising Age, which notes that Wal-Mart is partnering with some of its suppliers to produce innovative ads that don't have the traditional retailer-centric look.
The Advertising Age article makes several interesting points, among them, an estimate that Wal-Mart collected about $100 million in vendor funding for this initiative last quarter, enough to merit attention on the quarterly analysts' call:
In an earnings call Nov. 12, Wal-Mart U.S. CEO Eduardo Castro Wright said vendor funding accounted for about two-thirds of the retailer's increase in ad spending for the fiscal third quarter and a substantial portion of the around $480 million increase in his unit's gross margin…
But of greater interest is the nature of the ads themselves. In this ad for Unilever's Dove products, the Wal-Mart logo is shown only briefly in the background as a shopper crosses the parking lot, and in the close, with Dove's logo. There is no mention of price. Of particular interest is that the ad was jointly produced by Wal-Mart's agency (Martin) and Unilever's (Ogilvy & Mather).
The connection between these two articles, I think, is that while the point of the first is valid (it is essential that manufacturers invest in their brands), it makes the assumption that brands can be built only through traditional national advertising. The Wal-Mart article brings up one way in which that assumption may be false; national ads need not be traditional, an ad that promotes both the retailer and the supplier's product might also support the brand's image.
Additionally, it's important to consider shopper marketing and other in-store promotion; with the decline and fragmentation of traditional media, the best medium for promoting your products may in many cases be the store. Too often, we think of in-store promotion as an endcap with a big "SAVE!!!" sign on it. But there's no reason innovative marketers need to be any more limited in the store than they are in print or broadcast.
A&F has been the poster child for maintaining brand integrity in the face of overwhelming pressure to cut prices, but it appears they are finally giving up the fight. After a 22% sales drop in the third quarter – the eighth consecutive down quarter – the chain has finally begun taking major markdowns (30%-40%) and putting clearance signs in the windows. Will it be too little, too late? Stay tuned.
Supervalu is undergoing a lot of changes under its new leader, Craig Herkert, formerly President/CEO of Wal-Mart Americas. Probably the biggest change is the plan to double its current 1200 Save-A-Lot stores, but the chain is also, like many others, cutting back on SKUs.
Citing an example he saw recently at a Supervalu store in Chicago, Herkert said one category in the store's health and beauty section had 108 SKUs.
"And I think that makes it more difficult for our consumer to make a decision with ease and clarity when she's shopping," said Herkert. "She's got a couple of kids with her, she maybe has a baby in the cart. To stand in front of that category and now decide, 'Do I want brand A or brand B, both of which are great brands, but within those brands I've got 60-odd flavors. ... We've got an obligation, I believe, to do a better job of making it easy for her to shop at our stores."
Herkert believes in simplification, and plans to simplify the corporate structure as well:
… as a company, Supervalu, which has some historical separation between its retail, wholesale and Save-A-Lot divisions, should speak with one voice, he said. "Frankly, the world moved beyond us. We have been too complex for our vendor partners to talk to," he said. A vendor can make one call to speak to Supervalu's competitors, but might have to make as many as 13 calls to reach all of the banners under Supervalu's corporate umbrella. "We need to make that easier for them and then use the leverage we have as a $40 billion-plus retailer when we're talking to our vendors," he said.
Albert Boscov, head of the Pennsylvania department store chain, offered help to struggling newspapers in a recent address to the Pennsylvania Newspaper Association. Boscov suggested allowing newspapers to have a table offering subscriptions in the stores, giving a Boscov’s gift with subscriptions, and sending subscription offers in Boscov’s mailings.
I was struck by the story for a couple interrelated reasons. The most obvious point being that it reinforces a point I’ve made often, about how the collapse of the newspaper industry creates problems for the retail categories that have so long depended upon print as their primary means of communication with their customers:
A survey the department store conducted found that 50 percent of its best customers (those who hold a Boscov’s credit card) buy Sunday newspapers, and 42 percent buy daily papers.
The other reason it’s interesting is because the offer for help comes from a category that is having its own problems. As newspapers and department stores have prospered together for a long time, so too, they are declining together. Boscov’s is itself just emerging from bankruptcy; its sales have declined from $1 billion to $845 million in the past few years, and will drop another few points this year.
Nonetheless, Boscov is optimistic: “Despite these numbers, Boscov says his company has been through three recessions, ‘… and we’re going to get out of this one, too.’”
Coca-Cola has begun introducing in the US a concept they developed in Europe, called ‘boost zones’. A boost zone is an urban area (maybe just a few blocks to a few square miles) where Coke and their local bottler work to maximize the visibility (and hence the sales) of Coke.
The idea has been in practice for five years in Europe, with prominent areas targeted:
“Walk around Windsor Castle. It’s red,” Coca-Cola Enterprises CEO John Brock said at an investor conference in May. “And every account up and down the street you’re going to see, is going to have our brands there.”
There are now 300 such zones in Europe. Coca-Cola has thus far developed fifty in the US, with plans to double that next year. The examples cited in the article are restaurants and fast food places, but the concept could be applied to retailers. Coca-Cola takes a highly collaborative approach to working with customers in a boost zone, to the point of helping small restaurants redo their menus:
Coca-Cola spent at least $5,000 to make over Hovan Mediterranean Gourmet, a walk-up food court counter at Lenox Mall, in its own image, said owner Ahmed Darrar. The soda maker spent several weeks helping Darrar develop a new menu, including combo meals with a sandwich, side and drink. “My business increased 25 percent to 27 percent in the month after Coke did this,” said Darrar, 55, wearing a white Coke visor and a red Coke shirt with Hovan embroidered on one breast. “I’m happy to wear their logo if I get that increase.”
A nice ROI. Other figures cited are even nicer: “The Lenox zone [in Atlanta] has 250 outlets, from vending machines to hotel bars. Annual volume sales at the mall itself grew 90 percent after the boost zone was put in place …”
The price of such success may be higher than some customers are willing to pay, though. Another small restaurant threw out the Coke paraphernalia after a single day, saying that it added to clutter (the owner also noted that she wasn’t willing to give up selling competitive products).
The effort seems really exciting, and it will be interesting to watch how it plays out, and how it is applied in supermarkets, discounters, and c-stores. And clearly something has to be done: “Coca-Cola and PepsiCo Inc., the world’s second-largest soft-drink maker, both lost share of the U.S. soda market in 2008 as soft-drink sales fell for the fourth straight year, according to industry newsletter Beverage Digest.”
Confused by the complexity of cellular service plans? You’re not alone -- so are economists. The plans, in which a service provider’s best customers are punished with exorbitant per-minute charges for going over their limit, make little sense at first glance – until you realize that the point is to get customers to buy bigger plans than they need. Lots of interesting insights in this article, including this example: “When Apple and AT&T started offering the iPhone for $199, plus $30 a month for Internet access, sales shot up, even though the previous deal — $399 for the phone and $20 a month — cost less over a two-year contract.”
With the bankruptcy of CIT, the factor for many suppliers, this offer will look good to a lot of companies. Wal-Mart is offering to allow their suppliers to get payment from banks for Wal-Mart invoices at 10-15 days instead of the usual 60-90. Wal-Mart then pays the bank. Currently the offer is good only to Wal-Mart’s clothing suppliers (about 1000 companies), but one assumes it will spread if successful. What isn’t known is what the suppliers have to give Wal-Mart in return for the use of Wal-Mart’s credit rating.
Save-A-Lot currently has 1200 stores in the US and plans to double that over the next five years. Parent SuperValu has said that Save-A-Lot will be a priority for the company, and it would seem that now is the time to grab as much market share as possible. Aldi is also expanding aggressively.
Evian Roller Babies Makes Guinness Book of Records
I suspect this is a record that will be broken quickly, as online video ads grow in popularity, but it is certainly a coup for Evian to get such a tremendous amount of exposure at relatively little cost. If you are not one of the forty-five million people who have already seen it, click on the link. Speaking of which, the Guinness Book of Records has also done well for its parent company – it was originally developed as a giveaway to bartenders to help them settle disputes in pubs.
Last week, we discussed the deep and early discounting we’re seeing this holiday season, and wondered what effect it will have on next year, so we asked, “When will the deep discounts begin in the 2010 holiday season?”
26%: Starting at Halloween, like this year
21%: Even earlier than this year
53%: Retailers will start moving back toward black Friday
There’s not much consensus. Just over half think the discounts will come later, but almost half think retailers will start cutting prices at Halloween again, or perhaps even earlier.
A few of our readers noted that there may be a downside to the clever barcodes that are becoming popular in Japan, as we discussed last week. One wrote: “The reason not to get creative with barcodes is because a lot of times, they don't scan or they don't scan as readily as they should if they weren't doctored.” Good point, but it does seem like there ought to be some way to work around the problem.
A few weeks ago, we discussed the heavy load of catalogs so many of us receive in the mail – especially this time of year. Well, it looks like one holiday mainstay will be disappearing.
The J.C. Penney Co. Big Book is dead – a victim of shoppers' growing reliance on the Internet.
Plano-based Penney confirmed that its fall/winter 2009 catalog is its last semiannual, telephone-book-size volume.
The Internet has made the 1,000-page shopping venue obsolete, and printing and transportation costs have been rising annually.
The Big Book was once over 1500 pages. Though it has slimmed down to 900, I think the adjective ‘big’ still applies. However, J.C. Penney now does $1 billion per year at jcp.com and that (and smaller, more targeted catalogs) will be the company’s focus.
Costco has taken the unusual step of throwing one of the world’s most popular brands out of their stores.
Costco customers may have to look elsewhere for Coca-Cola products now that the retailer has stopped carrying them because the pair are fighting over prices.
The public squabble between one of the nation's largest wholesale club operators and the world's largest soft drink maker is likely to fizzle quickly. But it reveals real tensions as retailers and product makers square off on prices.
As shoppers continue to grapple with the recession, retailers want to win their favor by giving them low prices. However, this has been creating tension between product makers like Coca-Cola Co., who are working hard to maintain profit margins while meeting retailer demands.
We don’t know the details of the dispute, of course, but it must be pretty serious to go public with it. As the article notes, the matter will be settled reasonably quickly; the two sides need each other. The interesting question for onlookers is who will blink.
There was a time when my money would have been firmly on Coke to win such a battle – it has long been an absolute ‘must-have’ brand for any grocer. Few Costco customers will stop shopping there over Coke’s absence from the shelf, but some will make an extra stop on the way home to get their 12-pack of Coke. Others, however, will substitute a Pepsi, RC, or private label product and may never return to Coke.
I’m not sure anymore which needs the other more – the iconic brand or the behemoth retailer.
Do Retailers Deliberately Withhold Deduction Data?
I was recently on a call with a food manufacturer when the subject of deductions (trade promotion deductions and other types) was discussed. One of the participants in the discussion expressed his frustration with retailers who, he says, refuse to provide coding for their deductions to help their suppliers quickly identify them. He indicated that he was fairly certain that this was deliberate on the retailers’ part – that they were trying to make it difficult to clear the deduction.
Initially I agreed with him. Certainly we know that such things happen, and it’s a refrain I’ve heard repeatedly over the years from a multitude of manufacturers. But is it true?
As I thought about it, I began to wonder if more than a few rogue retailers are deliberately making it difficult to clear deductions. If nothing else, wouldn’t Sarbanes-Oxley prevent such actions (or at least make a retailer think twice about it)?
So, I checked with Jessica Butler at Attain Consulting Group who knows a lot more about deductions than I do. Jessica agreed that Sarbox should stop most retailers from taking deductions as a way to improve their books (if a supplier disputes a deduction, the retailer cannot include it in their quarterly reports), and added that many retailers are supplying more data on deductions than their suppliers think. However, it is often coded in ways the supplier doesn’t recognize. The solution being, therefore: talk with your retailer and clarify what information you need and get them to explain what they are sending. Even if the trading partner is being somewhat vague ‘by design’, often reaching out and opening the lines of communication can really help.
However, I also talked to another food supplier who readily agreed with his colleague, saying that some retailers absolutely obscure deduction info. He agreed with Jessica that Sarbox prevents them from claiming disputed deductions on their financial statements, but said he suspects they are doing it not to improve their financials, but for cash flow reasons. He cited a distributor who provided scandown information in line-item paper format as an example of an attempt to make it as difficult as possible to check documentation.
So what’s the truth of the matter? I can’t pretend to know. I suspect there are as many versions of the truth as there are retailers who take deductions – some will work closely with suppliers to clear up any questions, and some will, er, be difficult to work with.
We’ll make this a poll question this week and see what our readers think. We’ll also add a small commercial message, and mention that our sister organization, Vendor Compliance Federation, is having a one-day deduction conference on Thursday, December 3, 2009.
