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Commenting on stories about Mariano's growth in the Chicago market, I wrote:

Love the Mariano's stores. But I continue to find it hard to believe that the model is economically sustainable, mostly because the prices seem so low that there's no way that the company won't have to raise them at some point. But they're great stores, making a dent.

One MNB reader wrote:

I would agree with your comment about the economic sustainability of Mariano's concept. The stores are very nice and for obvious reasons, remind me of Dominick's in the pre-Safeway years. Two are opening near my home soon.

But there are real local concerns about Mariano's labor practices, particularly among the wealthier consumers that they wish to attract. There are also constant rumors that prices will increase once their market position is better established.

The Chicago area remains a highly competitive market, but there are many established local grocers and ethnic markets that serve their communities well.  Many of us will continue to support them, despite Mariano's aggressive expansion plans.


From another reader:

I can tell you from being a vendor of Roundy’s that Mariano’s is only able to work because the margins are different for Pick ‘n Save and Copps than Mariano’s. I joke that the PNS and Copps charge Chicago prices so the Mariano’s can charge WI prices.

And another:

Kevin, you may want to do a little research regarding Bob Mariano's Dominick's history. When he led the Dominick's operation prior to its takeover by Safeway, in a far less competitive environment than exists today, Bob introduced an upscal-ish makeover of a number of Dominick's stores - modified store name, sophisticated graphics package, distinctive merchandising. The concept was pricier, and it failed. Price was at least a critical issue if not the only one. It was the last straw in the pre-Safeway effort to overcome a rapidly declining market share in Chicago.

Those of us who competed with Dominick's (I worked for Jewel's broadcast advertising agency at the time) predicted that the effort wouldn't succeed.

I think Bob was in love with his idea, and that the Mariano's stores are a better executed version of the scaled up Dominick's that he introduced perhaps 15 or so years ago. I love the Mariano's format. I live within a mile of the store near Grant Park and visit it occasionally. I think your comment today about pricing is spot on. I'm hardly infallible but I'd bet that when the time comes to boost prices, we're likely to see a repeat of Bob's original outcome.


And still another:

Couldn’t help but weigh in on the Mariano’s story, since several have recently popped up where I live in suburban Chicago. This is anecdotal of course, but when the closest Mariano’s opened, their prices were so low (even cheaper than Walmart in many cases, if you can believe it), that shopping there was a no-brainer, especially given the quality. They decimated the local Jewel and Dominick’s, and after building up a loyal customer base, many of the items that used to be cheaper increased significantly.
 
The local Mariano’s is still packed, but I’ve since switched back to Jewel. And I’ve noticed that Jewel has been a little busier too. On a slightly related side note, my local Jewel is in the middle of a huge renovation that’s made it look suspiciously similar to Mariano’s…


Still another MNB user wrote:

You commented that at some point the prices at Mariano's would have to increase. You would be correct about that. I gave too many years to that organization and saw their flagship stores start out the same way and succumb to higher prices and lower labor presence. You can be assured that Mariano's will suffer the same fate.

So, how will this affect the customers you ask?  I witnessed lower customer counts, lower sales volume, lower market share, and lower employee moral.

They know how to put up great stores, but have a real problem with the people side of the business.





Because life has symmetry, we also have emails about Safeway deciding to sell off its Chicago-area Dominick's division.

From one:

Safeway’s acquisition of Dominicks from the outset was a disaster.  Classic example of a National Account seeking National efficiencies, thirsting for National reach at the expense of a Local flavor.  Unlike Kroger, who left major local leaderships in place when acquiring chains (i.e. Ralphs), Safeway chose to run all their operations out of Pleasanton.  Their cookie cutter approach and homogeneous clean store format alienated Chicago residents in droves.  I knew it was over in 2002 when all the Private Label was converted to “Safeway Select” which confused consumers, as the nearest Safeway banner store was 800 miles away!  The last ten years was a long, somber death march.

From another, addressing the possibility that Safeway itself could be on the market:

Safeway will be around here on the west coast in Seattle, Spokane, Portland, Southern California, Arizona, and Northern California for a long time.  They have great locations, and they have upgraded all their stores to Lifestyle Stores. The real key for them to have an identity with the customer. For the most part, they have really clean stores, friendly employees, low out of stocks on their key ad items, but they still must do a better job convincing the customer about improving a lower price image. They are still having problems with this issue, especially against Kroger banner stores like Fred Meyer in the NW, Fry’s in Arizona, and the likes of Winco and Walmart. Safeway can procure their goods at costing similar to the low price chains, but they still are stuck in the high-low game on too many highly consumable items. Safeway will still be a viable entity here on the west coast for many years to come.

Still another MNB reader wrote:

It would not be surprising to see Safeway sell or close the Randall’s division in Houston.  What seems apparent is that they are not even trying to compete in the market, as Kroger, HEB and good independents have crushed them with superior merchandising and pricing focused on the Texas Consumer .  The stores have become irrelevant in the market, and will not be missed when they are gone.

And another:

It wasn't Bird's inhibition that kept him from selling Dominick's it was his ego. A couple companies - including Willis Stein were interested a few years back and from what I understand, made fair offers. Bird feeling that he overpaid for it to begin with wouldn't sell-especially NOT to Mariano.  Steve  seemed to not want to admit that when he replaced all execs at Dominick's , Genuardi's and Randall's that their inability to grasp how to run more unique/upscale operations through "Safewayization" wasn't working out so well. When decision making starts with maximizing shareholder value at the top of the pyramid the results can't be a shock. The poison pill offered Safeway some immediate protection against a takeover, however, the continued sale of assets is probably imminent… Randall's should start packing boxes.

And another reader wrote:

My guess is that Ron Burkle will make strong bid for the Dominick’s stores, despite his recent Fresh and Easy transaction with Tesco.

A reader who serves as a Safeway vendor wrote:

Regarding the Dominicks’ sale or closure:  This was a customer we made a great living on until Safeway came in and purchased them.  I’ll never forget a comment from a senior Safeway person:  “We didn’t buy Dominick’s to learn from you and we’ll tell you how to operate a successful grocery chain”.  About 60 days later they pulled all of the ethnic deli products out that shoppers had been buying for 40 years, and there was outrage at the counter….IMHO Safeway alienated exceptionally loyal shoppers, and did nothing to understand the Chicago consumer. The stores are like Stepford Wives—great looking with nothing going on inside them….

And from still another reader:

This has been coming for a long time.  It did not take long to see that Safeway was out of their league when they bought Dominick's, Randall's and Genuardi's.  All three have been disasters, although not as big as the SUPERVALU/Albertson's disaster.  Safeway proved it did not have the merchandising know-how to operate in these three new markets and that their success in CA is primarily due to their long history there.  They are a distant second in Baltimore/Washington DC and their position will continue to erode as Wakefern and Harris Teeter/Kroger continue to make inroads into those markets.  I agree that they will get sold and the longer they wait the lower the value will be.




We had a couple of stories recently about the increase in tablet ownership and usage, which led MNB user Christopher Gibbons to write:

Interesting stats on US tablet ownership. I found the numbers to be surprising and was sure they were somewhat inflated, as no one in my household, including my college-age daughters, have one. However, after a brief survey among my peers, it appears the numbers may be correct, esp. when you include Kindles, Nooks, etc.

So in a little over three years since the first iPad was introduced, tablet market penetration has reached 40% of all US adults. Amazing.

My wife and I were recently discussing this phenomenon, the speed of "technology adoption" in the new era we live in. We wondered about its effect on the household budget. We thought back to 15 years ago when almost no one we knew owned a cellphone, few had a computer and households were just signing up for the latest innovation: satellite TV.

In 1997, the average US household spent about $50 -$70 per month for "technology, entertainment  & communication services" ($30 phone, $20 basic cable television.) Few were paying for internet services at that time and if they were, it was likely $20 per month for AOL. So $70 monthly was on the high end.

In 2012, the average US household spent closer to $300 per month for these services ($175 phone, $70 basic cable television, $50 internet.) In many cases, they spent much more.

That's a 400-600% increase in 15 years. Or $3000 more annually in out of pocket costs!

This doesn't include the costs for devices that most US households didn't have in 1997 - computers, laptops, cellphones, smart TVs.

And now tablets.

The average household likely spends $1000 or more on these devices annually.

Fifteen years ago, you purchased a phone or a TV and it would last you 20 years or more. Today, consumers replace or upgrade these devices every few years. 

So, US households today are spending $4000-$5000 (or more) annually on these services and devices that fifteen years ago, they may have spent $1000 on. For the median household, that equates to 8-10% of their take home pay. 

And during that time, US household income has gone down.

In 1997, the median household income in the US was $51,704. In 2011, it was $51,017. 

This begs the question: how are people able to pay for these products and services? 

In 1997, our family's income was at the median household level for the time. After paying our bills and putting some away in savings, there was a little left over for discretionary use. We chose to spend our discretionary income on the things we valued most: outings, travel, vacations, family time. We went on vacations every year, usually 3 or 4 weeks spent traveling; always by car or train. Our daughters had visited over 30 states (and Canada) by the time they were in middle school. There was little left to spend on new technologies (or as my wife would call them, "the shiny things.") We were OK with that. Our money, our choices.

So what lifestyle choices have people made to their budgets to afford all of these new innovations? Cutting back on eating out? Eliminating travel/vacations? Reducing savings? Getting a second job? Or a third? Going into debt? There has to be a tipping point. Are we already there?

And what will these budget choices mean to the food industry? We all know the correlation between the price of gasoline and retail spending. As little as 50 cents per gallon increases can have devastating effects on consumer spending and retailers' bottom lines. Imagine the effects of a $500 purchase for an iPad on a household's spending.

There are always going to be trade-offs. People will always have to make choices about spending and prioritizing. Those choices are getting harder all the time as consumers try to find money for new innovations that rapidly become "indispensable" necessities.

I have no illusions. Consumers have voted with their pocketbooks. They love their laptops, smartphones and iPads and they are not giving them up. It's a brave, new world.

We have crossed the Rubicon.

But I do wonder what life experiences present and future generations may miss out on because of those tough choices.

One last thought: What will the next big thing be?

The new technology that will come along in the next three-five years that most of us have never heard of, but that marketers and society will tell us we can't live without? ("Look! The shiny thing!")

The one that we will likely adopt even more quickly (50% penetration in two years?)

And how much will it cost?


I think I don't agree with the notion that the technological advances that you describe as just "shiny objects" that distract us from life experiences. I actually think that as a culture, we are more mobile and informed than many earlier generations ... people want to go more places, see more things, and go through more experiences precisely because technology makes all these things seem more available and accessible.

Will people have to make choices sometimes? Sure.

But I think that broadly speaking, we are better off for these advances.
KC's View: