business news in context, analysis with attitude

We got several emails about our story about Jeff Noddle’s defense of Supervalu’s long-term strategy, especially the asset swap that had the company leaving New England. One MNB user wrote:

The investment community has a very short term perspective in its evaluation of companies. Seems to me it was this same group that sold off Supervalu stock when Noddle decided to "pass" on the Kmart business and let Fleming have it. And we all know how that worked out! Noddle continues to guide his company for the long term without regard to the short-term consequences.

And another MNB user wrote:

I was displaced by this asset swap, and like many others lost a great deal because of it. The asset swap also left several retailers in a difficult position because many of them were extremely happy with the New England Region and were not excited about having to change wholesalers. What is Jeff saying to the balance of his employees and independent customers when he says "I only hope we can find more opportunities like that asset exchange"?

And another MNB use chimed in:

It seems that to many grocery chains are being driven more by what they think the investor wants rather than what the customer needs or desires, it is actually good to see someone take the company and the future into their hands and decisions, rather than just higher stocks and bigger dividends now.

This isn’t a new thought, but the single worst influence on the supermarket industry is the stock market. It makes retailers think that analysts are the customers, not the shopper…and retailers rarely recover from that sort of mistake.




On the subject of Target’s decision to stress low prices in the Minneapolis-St. Paul market, one MNB user observed:

While everyone loves good prices, Target's typical customer is less price driven than Wal-Mart's. As much as the Target customer appreciates Target's differentiation in design, etc. in non-food items, the customer is also more niche-driven than Wal-Mart's, i.e. the lowest price on "average" name brands might not cut it -- their food needs are more specialty-brand and product type driven.

MNB user Bob Vereen wrote:

Near where I live, we can choose between these 3 supercenters, Wal-Mart
having recently opened its unit.

Price-wise, Wal-Mart and Meijer are the leaders. Their presentations seem more exciting; Target's a bit more stylish.

Traffic-wise, Target is a poor third. The non-food side of Target continues to do well, but the food side is really lacking traffic.

Don't know if where we are is typical, but I'd say Target's hurting from the food standpoint.


And another MNB user wrote:

In an effort to improve pricing, Super Target has been utilizing a "reverse auction" process for many of its produce items. This is ultimately self-destructive. It is worth noting that Wal-Mart has never used this process.

Super Target essentially lists a produce item and then waits for producers to bid the price down. Lowest bidder wins.

While this might work in grocery, paper or possibly even frozen foods, in perishables, especially produce, it is a perfect guarantee that Super Target will ultimately disappoint consumers. Obviously, produce is highly perishable and farmers are not stupid. If a producer is must take the lowest price to get the Super Target bid, what product will they send? The freshest product? The product with the highest sugar levels? The product with the best internal qualities, including shelf life? Not likely. What happens is the low bid becomes the opportunity to send Super Target the produce that barely meets the minimum standards...and is far more likely to deteriorate during the supply chain process, ultimately shrinking on the shelf or in the home of the consumer shortly after purchase.

What message will the consumer get after a period of time. "Low prices, but at what cost?" Given that produce quality remains the number 1 factor that consumers use to select a store, this process is way out of character. As noted above, you won't see Wal-Mart utilize this approach as they are close enough to the suppliers to understand the consequences.


And another MNB user wrote:

Here's a trench level view of "Groceries by Super Target" from a grocery industry observer & Super Target shopper:

For a real eye opener on everyday store conditions the consumer experiences when shopping for groceries, go to about any non-Minneapolis market area store on a Sunday afternoon or Monday morning to see the extensive out of stock conditions, "lost sales" and "lost loyalty" from Super Target grocery shoppers because they can't buy their "normal" purchased brands due to out of stock conditions, whether in dry groceries, bread, dairy or frozen foods!

WHY?

1. Supervalu, their grocery wholesaler, services all stores based on average weekly sales volume that dictates the delivery frequency per week to each store / market area served.

2. The farther a store location is from the supplying Supervalu distribution center, the longer lead time between ordering & receiving each replenishment delivery, meaning the order clerk is ordering "in the blind" more often than not. The best grocery chains & mass merchants have a 24 hour turn-a-round time between ordering & receiving products which translates into maximizing sales, not losing them due to out of stocks.

3. The caliber of what I'll call "experienced" grocery help is "average" at best & most times the few full-time grocery clerks at a store only work Monday - Friday & not the peak weekend shopping days so as best selling products sell down & run out they do not get re-stocked, causing lost sales & lost grocery dept. shoppers. (No Grocery Dept. management on duty to direct the troops...)

4. When products are put "on sale" to attract new shoppers, this will generally cause high out of stocks to occur late week during an ad due to lack of additional product ordered to support the sale price.

5. Pricing integrity is not what it should be, i.e. some product SKUs / flavors within the same "family" of line priced grocery products are incorrectly priced at usually less than what the correct "line" price should be, causing "lost" profit because what the shelf price reads is what it will scan thru the register at. There is a disconnect between price file maintenance of "line priced" SKUs at Corp HQ & what is for sale at store level.

BOTTOM LINE:

Until Super Target "sharpens up" its grocery skill set throughout the chain, from HQ down to store level, there will continue to be lost sales & lost consumer loyalty for the "all-in-one-box" format they are offering their current dry goods customers. Striving to achieve "Best Practices" in grocery operations & merchandising is what sets apart the winners from the losers in the grocery business as well as traditional dry goods merchants today. Wal-Mart, Kroger & the other major grocery chains strive to improve every day - Super Target has a ways to go....


But not everyone agrees. MNB user Gary Lehman wrote:

Target is very competitive on grocery pricing!! I think the general population thinks that style is expensive. Target has married style and low price together in a very effective manner. I think that if the company can drive the low price image they will be successful.




Regarding Pathmark going up for sale, and the speculation about what company might be interested in acquiring it, MNB user Ted File had an unorthodox thought:

Why a supermarket?....maybe Starbucks...Just think about that. Jim Donald comes back in and with all his experience in retail and as president of Starbucks, they have the money, the talent and other resources. Hmmmm..

We obviously need to work on our imagination, because we never would have come up with this one.

We had wondered how many Pathmarks might be worthy of conversion to a Wal-Mart Neighborhood Market, though…

Another MNB user wrote:

Odd how the Pathmark stores do nearly $600,000 per week yet can't make money. And they even have the benefit of competing against the ineffectual A&P. But competing in a heavy urban environment is difficult for everyone where it is often difficult to keep merchandise from "walking out the door" without being scanned at the cash register. I doubt a chain like Safeway or Albertsons would be up to the task. They both have a long history of failure with acquisitions, especially Safeway. Perhaps it could be chopped up and sold into pieces to the various Wakefern supplied Shop Rite stores. The other major NYC metro area competitors such as Stop N Shop (Ahold), A&P, and Pathmark all have stock prices that seem to be getting closer to zero] everyday. In this war there seems to be heavy casualties on all sides.

MNB user John R. Fugazzie added:

My sense is that with Wal-Mart and alternative formats looming in the NY market, the only real successful approach is for the top two chains in NY to merge to be able to gain marketshare into the 30% range. The higher costs of operating in NY metro create the need to have scale.

National chains do not have the local expertise to turn around a stuggling chain with a 12-14% market share. Most markets where the leader chain is successful financially they have at least a 28-30% market share.





We continue to get emails about the battle between Georgia and Michigan to see where Kmart will locate its headquarters.

MNB user Nick Leno wrote:

With regard to Kmart and Georgia's interest in offering a home, two things come to mind. One's rather obvious in that it's a significant feather in those 'dawgs' collars toward attracting other business and the other has to do with whether or not Georgia's financial resources are as a result of their $3Billion dollar tobacco settlement piece.

If Georgia is using the tobacco money to line the pockets of Kmart’s ownership, we’d have a serious problem with that. We can’t imagine that’s the case.

MNB user David J. Livingston wrote:

I think after the election, there will be less incentive for Michigan to want to try to keep Kmart. The politicians are probably assuming when people think of Kmart, they think of a retail chain that existed in the past. While Kmart does still operate retail stores, they are nothing more than retail zombies. The lights are on but nobody's home and there are few customers. Kmart just seems to be going through the motions.

Obviously Kmart cannot continue to employ 1,500 people averaging $70,000 when all you need is an administrative staff to handle the disposal of real estate…


And another MNB user wrote:

Don't "over think" this one. After all that’s not "real money" we're talking about here. It's just Tax dollars!

That’s real money to us.




Regarding the acquisition to 10 Winn-Dixie stores by independent retailer EW James, one MNB user wrote:

The addition of 10 Winn Dixie stores to the EW James portfolio will be a lot for them to handle. I'm concerned because these are some of the lowest volume and unprofitable stores, most of which compete against Wal-Mart Supercenters.

…I'm sure their thinking is they can do better than Winn Dixie, who has done more to run off customers in the south than a hurricane evacuation. It took E.W. James 70 years to work up to 25 stores. And now they go to 35 stores overnight. I wish them luck.


And another member of the MNB community wrote:

Winn Dixie is going to have to make many more of these tough decisions in order to survive. Pulling back in to their core Southeastern markets is their best alternative. Most shoppers in these states know WHO Winn Dixie is - they just don't know WHAT Winn Dixie is. Their identity is unclear. A start may be for W/D to concentrate on selling groceries while opening up the store perimeter with increased offerings in the Deli, Cheese, Seafood and Bakery departments. They still have good meat and produce for a solid foundation. They should meet with their top suppliers, ask for 2% 60 day terms and the BEST possible net cost for the next 6-12 months. In return, offer the suppliers no slotting, free ads and displays and work on a reduced margin to drive down prices across the store.

Then spend the money to tell the consumers WHAT they are doing and invite them back to their stores. Offer REAL customer service - don't try to cut costs by reducing store employees or their hours. Don't let anyone stand in line more than 5 minutes - Ask for consumer input and store personnel input and then listen to it. Give the shoppers and the Winn Dixie employees a sense of ownership to the process.

Be the real deal - A low cost, customer service driven GROCERY store - Most shoppers want to buy name brand groceries at the best price and have a store perimeter that offers quick, convenient and thrifty meal solutions. Their go to market strategy as it currently exists does not lend itself to longevity.





Responding to our report that Albertsons executive Pam Powell told the Portland State University Food Industry leadership Conference that Wal-Mart needed to watch out because her company was on the ascendancy, MNB user Mark Heckman observed:

Given Albertsons’ overall track record and recent move to deplete customer service in order to compete with Wal-Mart in the Dallas/Ft Worth Market, I find Pam Powell’s warning to Wal-Mart a bit shallow. Before you can be number one in anything, you have to beat number one. Albertsons has not demonstrated that capability in any market that I am aware of.

Yes, but it is good to get up in the morning like your hair is on fire.




Regarding what seems like a steady decline by Wild Oats, one MNB user wrote observed:

Perhaps their new model might help them move quicker vs. slower and lead to a re-invention of their business model. I think their future is in focusing on procurement ala Trader Joe's with a smattering of retail openings to maintain their brand visibility throughout the country.

Maybe. But that seems like a shame.




On the subject of a slowdown in the growth of low-carb foods, one MNB user wrote:

I am waiting to make a judgment until after Christmas when people begin dieting again. I am still purchasing low-carb products. I think there will be a surge of purchasing again when holiday pounds are attacked by dieters. I, for one, hope that they continue to market these products. It can continue as another niche.

Excellent point about post-Christmas attitudes. The issue is whether low-carb downshifts into being a niche…which strikes us as inevitable.

MNB user W. Alan Burris wrote:

I suspect that you have been confusing low carb “category” with low carb diets. The category has deservedly been stalling, but that does not mean that low carb dieting is declining. I have been very happy with the South Beach diet (loss of 21 lbs. and 20 cholesterol points) but I don’t buy any of the expensive, tasteless, high calorie products advertised as low carb. I simply avoid products with refined carbohydrates and high glycemic indexes. Instead I eat veggies, fruit, whole wheat, fish and lean meat that would not show up in low carb “category” sales statistics.

Also an excellent point.

MNB user Kantha Shelke wrote:

You are right on.

Something about Statistics, Lies, and Damn Lies comes to mind when one sees the mass media headlines – of “Low Carb” once being greater than sliced bread and more recently, a mere fad and on the decline. Such sensationalism can be very confusing to those who don’t realize that these indicators apply primarily to mammoth outfits such as Wal-Mart and Kraft. Those in the know are increasingly aware of a dedicated and growing segment of the population – diabetics and those who wish to manage their intake of simple carbohydrates and increase their consumption of dietary fiber – that is still in the quest of well formulated low-carb foods. These consumers have sound fundamentals of reliable nutritional labels, a discerning palate to buy only that which taste good, and the means to pay for the worthy. Consumers complained not about the cost of low-carb foods but about their poor taste and inability to deliver the promised health benefits.

Additionally, at the start of this year manufacturers could meet only two thirds to three-fourths of the market demand for low-carb foods. Opportunistic marketers rushed to create meet this demand and the market was soon flooded with more than it could handle and often with poorly developed products. Simple statistics fail to illustrate the actual happenings! The approaching Holidays and the subsequent “guilt-ridden days” for the over indulgent sinners are bound to be good for marketers of good tasting low-carb foods that deliver.





Responding to our piece about the coming Beaujolais Nouveau, one MNB user wrote:

Shame on you....getting in line for a product from France.

Their exports may rebound, but it will not be because of this wine enthusiast. I've only got forty of fifty years left to live, but it will take a major mea culpa from the country that can be bought by terrorists and rogue nations before their product passes over this palate. It appears to be becoming a faint memory for some that this could be a fine German vintage.


On the other hand, if they hadn’t helped us out during the Revolutionary War, we all might be eating a lot more fish and chips…

This is an argument that won’t be resolved because we all have differing attitudes. We heartily endorse anyone’s right not to drink Beaujolais Nouveau…as we would hope you would endorse our right to drink it.
KC's View: