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

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."

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.

Poll Results: 'Boost Zones'

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.

Quick M&A Notes

Pinnacle Brands is buying Birds Eye.
Nestle joining the Cadbury fight.

What Are ‘Boost Zones’?

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.”

Poll Question: Will the ‘boost zones’ strategy result in significant share gains for Coca-Cola in 2010?