business news in context, analysis with attitude

Wow! We can hardly keep up with the level of email we’ve been getting lately, on a broad range of subjects. So let’s dive right in…

Our stories about the health and well-being of the warehouse club sector continue to generate email from the MNB community.

One MNB user wrote:

“Unfortunately, Costco does an outstanding job with service, merchandising and standards. We bought a TV in Florida for my son's dorm room. We couldn't fit it in the car and 2 employees worked with me for a good 15 minutes until we finally got the TV in the car, then they flatly refused to accept a tip. No way would they take anything. All of their perishable personnel wear hair nets and gloves. As far as their merchandising, I feel they are the best. If I go there on a Monday one thing is by the front entrance way, and Thursday of that week something else is there. They are good, exciting, and give value. All this adds up to the fact that they are scary.”

All excellent points with which we agree.

There’s two ways to view companies like Costco.

With a healthy respect for its approach to the business.

And as a learning laboratory…because it has figured out how to make the shopping experience exciting and different.

Another MNB user wrote:

“People who expect full and consistent selection at Costco are missing the point about the place. There is a core group of items consistently in stock, but most customers know that they can't expect depth of selection. The thing with Costco is the "deal." Special combo packs and bulk packs are great for heavy users of products. These get customers in the mood to spend more money to get better deals so when they come to unusual, gift or gourmet items that are strategically “merchandised, they just grab them. It is the impulse retailer's dream.

Costco makes the most if it with the product samples every other aisle. Once I counted 20 sampling stations going at the same time.

“Checkout can be a problem, just from the sheer volume of shoppers. Costco works constantly to improve the speed. The store I go to has clerks who pre-scan your items on a hand-held while you are waiting in
line. The RF hand held scanner relays the info to the register you are
waiting for and when it is your tern, your list automatically comes up
and you pay. Speeds check out dramatically.

“Unfortunately, you still have to go to the grocery store for things that you don't need a 6 month supply on, or that Costco doesn't carry. But Costco's model is terrific. I for one enjoy shopping there maybe once a

MNB user Peter A. Dencker wrote:

“I have to admit I'm a warehouse club junkie and have been for years. I would agree that you don't always have the best selection, and from visit to visit even that selection may change, but I will disagree with the comment about service. About 2 weeks ago I purchased an air hockey table from the local Cool Springs, TN Costco (Christmas gift for the kids), and went to the area where the tables were displayed with a cart ready to handle the purchase process on my own. When I realized how heavy the boxes were, I asked if someone would be able to help me with the box. After confirming what I wanted to purchase I was problem meet me by the registers. Within 10 minutes 2 of the workers on the floor had the box loaded on a cart walked me through the registers waiting for me to pay...helped me get the box to my Jeep and then helped load it. I'm a former football player about 6', 200 lbs and in great shape...they could have easily taken the attitude that I could have done that myself...but they didn't. This is the type of customer service that spells "success" for a retailer.”

On the subject of Kmart’s continuing travails, one MNB user wrote:

“I firmly believe Kmart has at most 2 years to live and they will totally out of business. There is no holiday season that can save this company. They have not defined a customer for themselves and Wal-Mart is too much to compete with when you’re healthy, never mind while you are in Chapter 11. They just cannot make it. Period.

Jeez…and you folks think MNB is cynical!

We wrote last week about a study that reported that 51 percent of Americans say they will serve at least one organic dish for Thanksgiving, noteworthy because for the first time, labeling requirements will make it clear to consumers exactly how organic the products they are buying happen to be.

MNB user Don Sutton wrote:

“The interesting fact about the new organic designation is not how many people are saying "wow, now I can get real organic food." It's the disgusted look they get on their faces when the find out what a joke the
new "organic" rules really are.”

On the continuing Safeway-Dominick’s saga, one MNB user wrote in to back the long shot that we suggested in our top story this morning:

“Let us please not forget that Safeway paid $1.8 BILLION (that’s BILLION) for Dominick’s. Do you think they are going to just give it away? With the retail environment today, with margins barely covering expenses, how does one show a return on investment? …Safeway will only sell Dominick’s if they get their money back.”

We mentioned recently that strong sales at companies like Williams Sonoma and Crate & Barrel are good signs for the supermarket industry because they suggest that people will be cooking at home. One MNB agreed:

“I suspect more and more people are simply learning how to cook creatively. Using quality cookware and utensils can help transform what has become a routinized chore for many people into a self-satisfying pastime. Indeed, you may quickly discover that meals created at home are more interesting and better tasting than the vast majority of dishes served in upscale restaurants.”

Sometimes, cooking is just being willing to make the leap. The other night we were going to make lamb and artichoke stew, which generally takes about three hours from start to finish. We ran out of time, though, and at the last minute shifted to a lamb and artichoke risotto, which we’d never tried to make before.

It was great…and the leftovers on day two were even better! It had nothing to do with talent, and everything to do with just taking a leap of faith. That is the kind of leap that more supermarkets ought to be encouraging consumers to make, as opposed to catering to the lowest common denominator.

We reported last week about the “Amazing Melting Ice Cream Packaging,” that because of increased costs and an unwillingness to raise prices accordingly, there is a slow move by ice cream manufacturers to shrink the size of the packaging it comes in. Our opinion was that consumers aren’t stupid, and will see this as an indication that manufacturers believe that they are.

One MNB user wrote:

“I agree completely.

“In my book, nothing earns a manufacturer the title of ‘weasel’ more than this kind of behavior. This and the ‘bigger package - fewer contents’ ploy so degrade my perception of these companies that their products forever drop off my shopping list.

“It must be that the quality of these products is so marginal that they have difficulty maintaining fair pricing.

I hope I'm not alone in here!”

Nope. MNB user Dave Wiles wrote:

“I was buying ice cream yesterday, saw the smaller bricks and I also was mad at the hidden price increase and I did NOT purchase their product. So I paid more for another product. We must fight back at the register. If costs force an increase, then increase the price, don't treat us like idiots!”

Another MNB user holds retailers partially to blame:

“The reality is that the retailer does not like to accept price increases. There are probably many schools of thought on this, but the most reasonable to me is that when I go into XYZ store and see that my pasta sauce has gone up $.30, my first reaction is to get angry at XYZ store for raising the price not the manufacturer. I suppose the more intelligent shopper sees through to the manufacturer, but for the most part, we are not really that smart. Can anyone think of an item being taken off the shelf because the manufacturer changed the size? Probably not.

“Secondly, there may be a study on this somewhere, but my guess is that most items that are "resized" are premium brands, leaders in their category, where there is great consumer loyalty. Although the consumer may get angry…

“Do you remember the shrinking candy bar? Where did the 13 oz coffee can come from? These "clever" marketing moves took time and were finally accepted by the public. But one must also look at the competitive set. Candy (chocolate) was basically a three brand business in this country... Nestle, Mars and Hershey. The smaller package allowed consumers to look for alternatives, anger permitting them to pay higher prices. Lindt, Godiva, Ghirardelli, etc profited in distribution, market share and loyalty. The mass brands may have gained margin but permitted creation of and loss of another tier of "luxury product" where they don't compete.

“Coffee was the same. Now we see the continual price wars over 13 oz cans... Folger, Maxwell House regionals dealing and dealing... end aisles rival Coke and Pepsi! But we see in every store new products from Green Mountain, A&P Eight O'Clock in other outlets, Starbucks and others creating and owning the "luxury tier".

“Smaller ice cream containers will gradually be accepted, and the luxury tier is already filled by the Ben and Jerry, Starbucks and Dreamery. But who is to say that in frozen dessert, other small companies can not emerge to challenge the bricks from Breyers, with a slightly better product in a full half-gallon. sounds like the ideal opportunity for store brands! initially, it probably won't force a change in brands. And after a while, most other brands will follow.”

MNB user Lois Bredow wrote:

“This is not the first company, nor will it be the last, to mess with packaging to improve their own bottom line. The consumer always suffers in one way or another when this happens.

“Super-size boxes that are in reality 3/4 full, with the explanation that product settles during shipping, is another method of duping the consumer.

“ Packaging two of something that the consumer only really wanted one of is another way. A case in point was when an interior light burned out in a vehicle we had. We had to buy two bulbs. We no longer own the vehicle, but the second bulb appeared when unpacking from a move, and had to be discarded. As a consumer, if I want two of anything, I am capable of making the decision for myself and purchasing the second one.

“I believe companies that do these things don't care if the consumer is perceived to be stupid by their actions. Their motivations are to force the consumer to do what the company wants, no matter what the perception. It always involves their own bottom line.”

One of our “Balance Sheet” stories from last week got the following reaction from MNB user Missy Carducci:

“Wow! Krispy Kreme had a 56.3% net income increase for the third quarter? Damn, that’s a lot of doughnuts. Maybe K-Mart should be selling them from kiosks. Even a piece of that kind of profit could get them back on track…”

We wrote last week about how Amazon seems to be finding success by emulating Wal-Mart. One MNB user wrote in to quibble with that analysis:

“…From personal experience, Amazon has it all over Wal-Mart. Maybe it's because I'm short, but Wal-Mart is sometimes difficult for me to shop. Displays are humongous and view-blocking and what I want is perched tantalizingly just out of reach, requiring me to trail around in search of someone to help me. Amazon (yes, I know it's because it's on the Internet but stick with me here) is very simple. Navigation is simple (compare to other internet sites) and so are other aspects such as ordering and deciding not to order after all. I can usually find what I want in a few minutes and instructions are clear and plain. Amazon deserves its laurels and can handle further expansion very well.”

See you tomorrow…
KC's View: