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.