Kroger reverses Wal-Mart strategy

If Wal-Mart can move from general merchandise into grocery, Kroger apparently feels it's fair play to move from grocery into general merchandise. Or, anyway, that's how I interpret this article announcing the expansion of their Kroger Marketplace stores.

Kroger Co. plans to introduce the Kroger Marketplace concept - stores that sell furniture, housewares, stationery and cosmetics - in Cincinnati by the end of summer.

The company said it also planned to have 28 fuel centers in the region by then.

The stores will be similar to the large Kroger in Anderson Township, but unlike that store, the new stores in Lebanon and Liberty Township will not have a Fred Meyer jewelry store.

The stores will dedicate up to 40% of selling space to general merchandise.

It's reminiscent of the situation a couple decades ago, when convenience stores began selling tremendous amounts of gasoline, and the gas retailers retaliated by turning their service bays into convenience stores.

The numbers on the wall

This blog has the details on what the numbers on the wall at Best Buy mean. Apparently they maintain a scoreboard for shrinkage, warranty upsells, and so on.

Speculating about Tesco

Nobody knows exactly what Tesco is going to do in the US, but a lot of people are spending a lot of time thinking about it.

Wal-Mart, Kroger, Safeway, 7-Eleven -- be warned.

U.K.'s largest grocer Tesco is readying an assault on your home turf with a new "mystery" format that analysts say could leave its U.S. competitors "shaking in their boots."

CNN/Money ran an article with some interesting speculation. Tesco has said that the format they will introduce next year will be modeled on their Tesco Express stores -- large convenience stores.

Merrill Lynch analyst Patricia Baker said Tesco's arrival could only be viewed as a "negative" for the conventional supermarket channel.

"The coming of Tesco represents not only a new player but one that is a quite accomplished retail entity with the ability to attack this market in a much more meaningful fashion over the long term, should it choose to do so," she wrote in a recent research note.

CNN/Money seems to think the US stores will be a hybrid:

"I think these [Tesco stores] will almost be a cross between a grocery store and a convenience store, like a small format grocery store of about 5,000 sq. feet that sells plenty of fresh foods," Longo said.

Langdoc agreed. "This type of a small-format grocery store doesn't exist right now in the U.S. This will be Tesco advantage here. Fresh produce like fruits and vegetables, and high quality private-label goods will be a significantly greater proportion of their merchandise mix versus packaged goods."

Del Monte selling private-label operations

According to The Pittsburgh Tribune-Review, Del Monte is trying to sell the private-label baby food and soup operations it bought from Heinz in 2002.

Del Monte's share of the baby food market has dropped badly since they took it over, from 11.7% in 2003 to 7.4% last year. Gerber dominates the category at 70%.

Update, Tuesday 2/28: According to this item, the buyer is TreeHouse Foods.

Lenovo brand entering US

Lenovo, the Chinese computer maker who bought the IBM PC brand, is now entering the US market with Lenovo-branded computers.

They will be marketing low-priced laptops and desktops (desktops as low as $349, laptops starting at $599), targeting small businesses.

I'm a bit surprised -- I'm not sure why someone would buy a brand as powerful as IBM, and then market under another name (virtually unknown in his market). They are, I guess, using a high/low approach, and perhaps don't want to damage the IBM name with low-priced products.

"As a result, the Lenovo 3000 series line is marketed as 'worry-free, great value, exciting/stylish' versus the ThinkPad messaging of 'rock-solid, lowest TCO [total cost of ownership], industrial-strength,'" Yates said.

Iowa sues rebate fulfillment firm

The state of Iowa has filed suit against Young America, claiming that the rebate fulfillment company is sitting on $43 million in rebates due to Iowans. Under escheat laws, unclaimed rebates must be reported to the state that is the last known residence of the intended recipient.

"We view non-compliance by the rebate fulfillment industry with unclaimed property requirements to be an industry-wide issue," [the State Treasurer] said. "We will soon be knocking on the doors of other rebate processors to seek compliance with our unclaimed property laws."

The lawsuit notes that Young America "took as its own revenue" uncashed checks totaling almost $43 million from January 1, 1995, to June 30, 2002. Such funds are called "slippage" - checks issued to consumers that are not cashed.

Young America denies the charges.

Anderson says his company has been checked by two states and found to be doing business properly. He says they've been audited by Minnesota and Oklahoma and he says the department of treasury in both states examined their records and said they were not a holder of unclaimed property. Anderson says they're simply a third-party fulfillment service provider that mails rebate checks for companies.

Anderson would not say if he thought some of the companies that hire Young America are withholding rebates. Anderson says, "We don't take any position regarding our clients and we don't offer them legal advice."

Sears kills "Essentials"

Sears has announced that it's dumping the Sear Essentials experiment and will begin converting the stores into their Sears Grand format (which is, as nearly as I can tell, never having seen one, a Sears store plus a limited range of groceries).

Sears had said that they would convert about 400 Kmarts into Sears Essentials, but apparently they will be made into Sears Grand units instead.

Has anyone kept count of the number of different strategies Sears has gone through over the past couple decades?

Update, Tuesday 2/28: USA Today has a bit more on this.

The Essentials stores, located in converted Kmart buildings, combine Sears goods — such as Lands' End apparel, Kenmore appliances, DieHard batteries and Craftsman tools — with convenience and health and beauty items typically found at Kmart. As Sears Grands, they also will offer milk and other convenience foods, as well as CDs, DVDs, books and magazines.

"The customer has migrated from malls to off-mall sites, so our hope is that the Sears customer will have an option," says Paul Fenaroli, vice president of new store development.

Off-topic: FAA travel info website

For those who travel a lot, this site might be of value -- it's the Federal Aviation Administration's website detailing travel delays at all US airports.

Big marketing turnover at Mitsubishi

The Exec VP-Sales & Marketing, Dave Schembri, and the VP-Marketing, Wayne Killen, at Mitsubishi North America resigned last week. According to Ad Age, that's seven top marketing execs gone since December 2004. Schembri had only been there a year, and Killen only since September. Both were from Mercedes-Benz.

Wal-Mart struggling overseas

Wal-Mart's Japanese division, Seiyu, announced that it lost Y17.8 billion in 2005, against a Y12.3b loss in 2004; this is its fifth consecutive annual loss. To make things worse, they said they expect a Y54.4b loss this year, "because of a change in Japanese accounting laws that require it to lower the estimated value of its stores." Sales were down 3.3% in 2005.

Wal-Mart owns a little more than half the company. Successful as they are in the US (and in Canada and Mexico), Wal-Mart has done poorly in several countries. Asda is getting pummeled by Tesco in the UK, Wal-Mart has had little success in Germany, and Chinese marketers I've spoken with show little regard for Wal-Mart's prowess.

Update Wednesday, 2/22: Asda reported poor results for the fourth quarter:

"In the U.K., Asda's comp[arable] store sales were slightly negative for the quarter end-year, and this resulted in sales and profits being below plan for the quarter and year," Holley said in the company's prerecorded fourth quarter earnings conference call.

Another update, Wednesday night 2/22: Financial Times is reporting that Wal-Mart is closing stores in Germany:

According to a report in Financial Times Deutschland Wal-Mart's German unit will close an additional three stores and drop its presence in the country to its lowest level since it entered the German retail market in 1997/98. Wal-Mart Germany plans to close stores in Sigmaringen, Dusseldorf-Reisholz, and Muehldorf with the newest closures dropping the total number of stores to 85.

Trans World buys Musicland

Trans World Entertainment is buying Musicland out of Chapter 11, "to gain its store locations and provide growth opportunities."

I don't know what growth opportunities there are in music retail, but I wish them well. If some of the record stores don't survive, all we'll have is the miserable selection Wal-Mart and Best Buy offer.

Trans World owns FYE, Coconuts, Wherehouse and some other music retailers.

CMO's come and go

Federated named Anne MacDonald as CMO.

MacDonald will join Federated from Citibank, where she serves as chief marketing officer for Citi's Global Consumer Group. Previously, she was vice president for brand management at Pizza Hut, Inc., a Dallas-based division of PepsiCo. In earlier account management roles with N.W. Ayer, Inc. and Grey Advertising, MacDonald worked with clients including Procter & Gamble, AT&T and Citicorp. Immediately prior to joining Pizza Hut in 1993, she was Ayer's executive vice president and managing director on its Procter & Gamble business.

Federated seems to enjoy vague rhetoric. I mentioned in a post a few days ago their claim that they are seeking to "reinvent" the department store (whatever that means). There's more of it in this press release:

"Anne MacDonald's mission will be to lead us outside of the traditional realm of retail store marketing and to establish Macy's as a leading American consumer brand," Lundgren said. "Her track record with iconic brands will help take Macy's to the next level of strategic marketing insight and innovation at this historic point in the company's history."

Meanwhile, American Eagle Outfitters announced that their CMO, Michael Leedy, had resigned "to pursue new opportunities." They expect to name a successor soon.

P&G sells Gillette deodorant brands to Henkel

Procter & Gamble sold the deodorant brands -- Soft n Dri, Dri Idea, and Right Guard -- obtained in the Gillette merge, as required by US and EU regulators.

The brands brands were sold to the German CPG company Henkel (Bloomberg's headline says Henkel, The Boston Globe headline says Dial, but Henkel owns Dial).

Last year, US and European regulators required the consumer products conglomerate P&G to divest itself of several brands, to address anticompetitive concerns as part of its $54 billion acquisition of Gillette.

Already, P&G has sold off its Crest SpinBrush line to Church & Dwight and Gillette's Rembrandt teeth-whitening products to Johnson & Johnson to satisfy regulators.

P&G also had to shed some deodorant brands because Gillette's Right Guard line and P&G's brands would give the combined company a dominant market share in the men's deodorant category in the United States. P&G owns Old Spice, the number two brand with 19 percent of market share, and Gillette owns Gillette Series and Right Guard, a number one player with combined 24 percent market share, according to a report by AG Edwards analyst Jason Gere. All of these brands together would give P&G about a 43 percent share of the market, compared to rivals Unilever Co.'s 18 percent share and Colgate-Palmolive Co.'s 16 percent share.

In addition to buying Dial and these brands, Henkel has also recently purchased the Combat and Soft Scrub brands from Clorox.

P&G suing private labelers

Procter & Gamble is getting aggressive in suing private label manufacturers for making their packages look too much like those of P&G's branded products.

Last week they settled with McLane, a big distributor, who agreed to change the packaging of four of its products:

As part of the deal, McLane agreed to immediately redesign the packaging of four of its products, which P&G said looked remarkably similar to some of its leading brands.

In a lawsuit filed in December, P&G said that toilet paper called Soft N Plush copied Charmin, paper towels called "Towels" copied its Bounty packaging and over-the-counter cold medicines called DayTime and NightTime Liquid Caps imitated Vicks' NyQuil and DayQuil LiquiCaps brands. The products usually were lower-priced than P&G's.

Simultaneously, they filed suit against Vi-Jon for copycatting P&G's mouthwash, Crest Pro-Health:

The lawsuit specifically alleges that Vi-Jon's packaging of its mouthwash product mimics many aspects of P&G's packaging, including P&G's distinctive "faceted diamond" bottle shape, the precise shade of blue mouthwash rinse, and the shape, metallic finish and general color scheme of the label.

If P&G continues to be successful, watch for other manufacturers to follow suit -- private label market share is getting big enough to really hurt.

India's retail market

The BBC has a report, "Countdown to India's retail revolution", that points out that India now has 70 million people who have incomes above $18,000 annually. That's a pretty substantial middle class -- almost as big as Germany (80 million), and bigger than France, Italy, or UK (each about 60 million). The BBC predicts that the number will reach 140 million in five years and notes, "Many of these people are looking for more choice in where to spend their new-found wealth."

We mentioned last month that India has recently made some small openings in their retail market, and that more are anticipated (Wal-Mart, which is still blocked, has opened an office there to be ready when it happens).

"The recent move was just the first step," says Dr Mohan Kaul, chairman of the Commonwealth Business Council.

"Maybe this time next year there will be a further announcement.

"It's inevitable, there is no way that an open market for retailing will be stopped."

I think it's inevitable too, but he seems a bit optimistic -- I can't see it happening as long as the Communist Party is a part of the government coalition.

Channel-stuffing as an investor's issue

The Motley Fool has an interesting article on channel-stuffing from an investor's viewpoint (they call it "stock doping" as a play on the Olympic issue of "blood doping"). The article focuses on Bristol Myers Squibb and on drug wholesalers, but points out that it crosses all industries:

I needn't pick on merely Bristol-Myers Squibb, which has had a change of management since these past events, or the major wholesalers, which have done nothing wrong as far as I know. Just last month, McAfee finally settled charges relating to (among other things) channel stuffing that dated back to its days as Network Associates. The issue cuts across industries.

More store closings: Radio Shack 700

There have been a lot of large-scale closings by chains since the first of the year. We've discussed Mervyns (80+ stores), Office Max (110), and Toys R Us (73). But the champ appears to be Radio Shack, which "will close 400 to 700 stores in the next 18 months" according to Chain Store Age.

They are also closing a couple distribution centers and making some unspecified changes in their merchandise mix: "The company also said it will replace old, slower-moving merchandise with new, faster-moving merchandise within higher growth categories."

Help wanted: Wal-Mart hiring marketers

According to this article in Ad Age, Wal-Mart is dramatically increasing the size of their marketing staff.

Today Wal-Mart’s CMO, John Fleming, oversees a staff of 200 and a budget nearing the $1 billion mark, and, in unprecedented hiring spree, he plans to grow the marketing team as much as 30% this year, adding up to 60 people. In doing so, he’s looking to build from scratch three new departments -- brand management, a category marketing group and an insight and customer strategy group.

Side note: A billion for marketing is about 0.3% of sales.

The hiring seems to be a response to Target, which has about 1/6 the sales and 900 marketing employees (and whose stock price is doing better than Wal-Mart's).

Not everybody is happy with the changes:

One former insider lamented: “Why do you need all these people? You are going to start doing what everyone else does and pretty soon you are just going to be a worse Target, not a better Wal-Mart.”

Retailers as labels, part 2

A few weeks ago, we posted this item, about Wal-Mart releasing an exclusive Garth Brooks CD set that sold a million copies in fifteen days, and wondered what that might mean to the record labels:

The question is, could Wal-Mart apply the concept of private label to music -- could they, in short, become a label themselves? And the answer is -- you bet they could! In fact, some estimates are that, in country music at least, Wal-Mart accounts for 50% of sales.

Well, we just came across another example of this. Barnes & Nobel has signed an exclusive deal with a 13-year-old "opera prodigy" named Holly Stell. A press release says:

Barnes & Noble ... today announced an exclusive CD and in-store performance agreement with Holly Stell, the 13-year-old Northern California opera singing sensation. Stell, who was recently dubbed "Petite Pavarotti" by Entertainment Tonight, will launch a multi-city tour where she will perform at select Barnes & Noble stores beginning this March. Her 14-track debut album, Holly Stell, includes the hit song, "Go Where Love Goes," a duet with Andrea Bocelli for the soundtrack of the feature film, The Lazarus Child ... Holly Stell is available only at Barnes & Noble and Barnes & Noble.com.

Putting aside the PR hype, it's fairly certain that this deal won't be as big as the Garth Brooks thing -- after all, this is opera, not country. But I think we're seeing the start of something that could become significant. The record industry is looking for new business models, and we're going to see a lot of experimentation.

Foreigners growing in China retail

The Chinese government said that 1160 foreign-owned stores opened last year. This is more than 25% of the total that had existed in China prior to the legal changes at the end of 2004 that opened the retail sector more fully to foreigners. The square footage represented a more than 50% increase.

The 2004 decision scrapped limits on the number or area of stores and the percentage of shares foreign companies are permitted to hold in the stores, Huang said. "They (foreign investors) moved quickly in the past year after restrictions were lifted at the end of 2004 in line with World Trade Organization commitments."

Related news: Carrefour announced that they will open twenty new stores this year – they just opened their seventy-first..

Continuing decline at LA Times

We've written often here on the decline of traditional media, largely due to media fragmentation. One of the major players that is in particularly desperate shape is the Los Angeles Times. Crain's Chicago Business reports here on the efforts of Tribune Company to salvage its biggest property.

In our previous comments, we've noted that newspaper ad revenues (and rates) have continued to climb, even as circulation has dropped, and wondered how long that can continue. If anecdotal data can be believed, it may have something to do with the Times' problems:

"Our ad revenues grew 8% last year and our movie category grew, too," says LA Weekly Publisher Beth Sestanovich, a former advertising director at the Times. "We've got a lot of advertisers defecting from (the Times) and sending a piece of what they were spending there to us."

Ms. Sestanovich attributes the Times' advertising problems to ad rates that have become more expensive relative to the Times' sinking circulation.

Ad buyer Kathy Gardner of Santa Monica, Calif.-based Palisades Media Group shares those pricing concerns: "I don't think the circulation justifies what they charge."

Coke: Channel-stuffing and channel conflict

Coca-Cola's biggest bottler and subsidiary, Coca-Cola Enterprises, has been hit by a combo insider trading and channel stuffing lawsuit, alleging that a consultant and former top executive sold his stock knowing that the stock price was inflated by channel-stuffing.

The claims mirror those filed previously against parent Coca-Cola Co. That case is still pending. According to the new complaint filed in Atlanta: "By concealing CCE's rampant channel stuffing activity, defendants failed to disclose the existence of known trends, events or uncertainties that they reasonably expected would have a material, unfavourable impact on net revenues or income."

To add to the misery in Atlanta, a group of fifty independent bottlers have filed suit against Coke's plans to sell Powerade direct to Wal-Mart.

Coke bottlers fear the move would violate their territory exclusivity and make it easier for the company to move to warehouse distribution with other products. They also contend they’ve had a contract with Coke since 1994 that prohibits warehouse delivery of Powerade to retailers.

Classic channel conflict.

Update Thursday: Here's a more detailed report from Coke's hometown paper, The Atlanta Journal.

Morgan Stanley analyst Bill Pecoriello said the rift is broader than just PowerAde and Wal-Mart.

"While the PowerAde test with Wal-Mart is small, the bottlers worry that other retailers will be next and other product categories will follow, threatening their future relevance," Pecoriello said in a report. "Coke might have to resolve this issue through additional compensation to the bottlers or other structural changes."

Ahold: Ready to grow again?

After more than two years of licking wounds and selling off divisions to pay the debts, Ahold feels that they are ready to "consign a 2003 accounting scandal to history," according to this article.

Apparently they are looking to buy:

"We have around 3,000 stores now. This year will involve buying separate, smaller chains, building new stores, moving stores and investing in current stores in Holland, east and central Europe and in the USA," Moberg said.

Moberg said the group could grow in the United States to the south, west and north and did not exclude Canada as long as the company could become the number one or two in the market within a reasonable amount of time.

Good luck to them -- they've suffered enough.

Macy's will emphasize private labels

Things have been tough for a while for manufacturers who rely on department stores as their principal channel. The channel's share has shrunk and the number of players has followed southward, to the point that it is almost a one-player channel -- Federated (aka, Macy's).

And for the manufacturer, it gets worse, in that Macy's is planning a survival strategy based on private label.

The strategy, detailed in a recent conference call with analysts, will involve the rollout of an estimated $2 billion worth of Macy's private labels to all May stores, as well as the introduction of some of May's brands to Macy's stores.

Further on, after discussing Federated's plan to "reinvent" the department store, the article adds:

The single most important factor of reinvent is Federated's merchandise, an increasing amount of which is one-of-a-kind. About one-third of Macy's 2004 sales of $13.6 billion was generated from merchandise that is exclusive or of limited distribution. That's up from about 25 percent in 2003.

Private label goods, such as INC, Alfani and Charter Club, make up 18 percent of that figure, or $2.3 billion. The balance is exclusive merchandise provided by national vendors such as Tommy Hilfiger.

By adding the May stores, Federated expects in the next year or two to nearly double sales of its private labels and to increase their percentage of total sales to 20 percent.

I tend to be very skeptical of fine-sounding but vague words and phrases like "reinvent". And as an alumnus of the department store biz, I tend to be skeptical of everything they do and say. But I can certainly agree that if there ever was a channel that needed reinventing, they're it.

Happy Valentines Day

Okay, so I'm late -- it's Valentines Night. I've been in trouble several times in my life for forgetting to buy presents on this date, so it should be no surprise that I forgot a post.

Apparently, I'm not alone in having troubles with this holiday. According to this article, in Japan it's women who are expected to buy candy for the men in their lives, and they don't much like the idea.

According to an Internet survey, 70 percent of working women said they would be happy if there was no tradition of giving "obligatory chocolates" to their boyfriends or colleagues.

Nearly 60 percent said they felt unhappy as Valentine's Day approached, citing the cost and time it takes to shop for the gifts, which are finely calculated to express just the right emotions toward a boss, a colleague or a true boyfriend.

Adidas-Reebok: Here's the plan

The management of the newly-combined company says that it will return Reebok to its roots as a performance brand, citing its pioneering role in introducing the first pump shoe.

Speaking at a World Shoe Association forum via satellite from Germany, Adidas Chairman and Chief Executive Herbert Hainer said he was dispelling rumors that the company would position Reebok as an entry-price brand.

"There is no doubt that we will position the Reebok brand more as a performance brand than it has been over the last two or three years," Hainer said.

He added that Reebok, which introduced its "pump" system some 20 years ago, was the first company to bring technology to the athletic shoe market.

"We will keep the brands separate because we do believe both brands have their own identity, their own heritage and their own consumer base," Hainer said.

I liked the idea, which we reported in this post, of positioning Reebok, not as a value brand, but as a fashion leader:

The acquisition of Reebok could allow Adidas to divide and conquer the two major market segments for athletic shoes and clothing — style and performance, Dhar said.

Reebok could focus on the style segment while Adidas could focus more on performance shoes and equipment to expand its market share with a broader offering of products, he said.

It will be interesting to watch the competition in the shoe category over the next few years.

Channel-stuffing

A few years ago, it seems like nobody knew what channel-stuffing was -- I remember having to explain the term. Now it seems to be not only well-known, but a popular basis for class-action lawsuits. I've come across two recently:

In this one, a law firm is soliciting people to join a suit against Amkor, a $2b chip fabricator:

"... the Defendants failed to disclose the following materially adverse facts to be market: (1) that the Company was shipping inventory to customers far in excess of customer demand; (2) as a result of this deliberate channel stuffing, the Company undermined the future demand for its products ..."

And here, a federal appeals court reinstated a suit against Tellabs, a $2b telecoms equipment maker:

In fact, the suit alleged, Tellabs was shipping Titan 5500 products that hadn't been ordered--a practice called "channel stuffing"--in order to inflate the company's sales revenue.

Retailers changing ad strategies

This Reuters article discusses the changing strategies of retailers, in response to the fragmentation of media.

The "new" strategies mentioned didn't strike me as innovative.

For consumers, it means they can expect more direct mail, more targeted e-mail pitching products based on what Web pages they have visited, and more in-store advertising.

You wouldn't kid me, would you? Certainly I'm getting a lot more direct mail, especially catalogs.

Gap Inc., the largest U.S. clothing retailer, did away with television advertising for its namesake brand during the crucial holiday shopping season in 2005 -- a risky move that left some on Wall Street scratching their heads.

Gap instead sent out a greater number of thin catalogs -- known as "magalogs" because they are about the size of a magazine. Retailers are finding that those magalogs can be highly effective because they can showcase more clothes and literally stay in the hands of potential shoppers in a way that no 30-second TV spot can match.

Even so, Gap's sales were down sharply in December, typically the biggest shopping month of the year.

Sounds like a lot of their targeted customers sort their mail like I do. I have to pass my garbage can on the way from the mailbox to my door, so the junk mail never even gets inside.

It's going to be tough finding the mix of media that works, and there will be a lot of trial and error along the way. All the more reason to invest in analytics packages that tell you which media/promo types are working, and under what circumstances.

Killing Joe Isuzu

Really, this post has nothing to do with Joe Isuzu (remember him -- the lying ad spokesman?), I just mentioned him because I always enjoyed those ads. I wondered, however, along with a lot of other people, if they were just amusing and entertaining ads, or if they presented a strong and positive branding and sales message.

I think we have our answer. According to this article in Automotive News, the Isuzu brand has all but gone out of business in the US, dropping 90% in sales from 117,000 in 1994 to 12,000 last year.

"I can't even get anyone to answer my phone calls to tell me what to do about the franchise," says one Isuzu dealer in Florida who asked not to be identified. "When you call, they answer, 'Medium duty.'

"For all intent and purposes, Isuzu is gone," he says.

"But they won't admit it."

The article is interesting (and sad). But of particular interest is that it points up the importance of trade promotion. The dealers' biggest complaint, as detailed in the article, is the mishandling of the Isuzu co-op program:

Dealers say they had to sell at least 10 units a month and spend $10,000 to $15,000 in ad dollars a month to qualify for Isuzu's co-op advertising program.

But Isuzu's top 10 dealerships sold on average fewer than 20 units a month each last year, according to Isuzu's figures. So it's unreasonable to expect all the other dealerships to sell at least 10, many dealers say. Isuzu's 298 dealerships averaged just 2.4 sales in January.

Maloney says, "We feel the criteria are reasonable enough that every dealer can meet them." He says that the co-op program will change this year.

Maloney would not comment on allegations that some dealers receive the co-op money whether or not they meet the targets.

But field rep Seaver has a memo from Doug Guerriere, head of the Western sales region, that Seaver says proves some dealers were given preferential treatment.

In the memo, obtained by Automotive News, Guerriere tells Seaver to remind a dealer in St. Louis that the company bent its own rules several times to pay the dealer co-op money when the dealer did not meet either sales or advertising spending requirements.

Guerriere did not return three calls last week seeking comment.

Larry Goldstein, former general sales manager for Schaumburg Isuzu near Chicago and the M'Lady store, says there was preferential treatment for the bigger dealers.

"Isuzu had a lot of behind-the-scenes programs for years," Goldstein says. "They would generally put the money on the parts statement or in the form of advertising. So when I'm working with ad money, holdbacks and rebates, how could ABC Isuzu who wasn't getting the money compete against me?"

Tesco round-up

The entry of Tesco into the US market (see below, "Tesco to enter US") has generated a lot of commentary. We'll provide links here to some of the items we've read.

The general consensus is modestly positive, although the London stock market pushed Tesco's stock down after the announcement. Several commentators noted that Tesco has good experience in entering foreign markets (they are in twelve countries beyond the UK). On the other hand, they have focused mostly on developing markets, and the US is a very different case for them. In addition, they entered China just last year, and some feel that two big new markets might stretch their management thin.

Almost every story notes that European retailers entering the US market (Sainsbury, Marks & Spencer, Ahold) have had problems.

It has been noted repeatedly that, while they are entering Wal-Mart's home turf, they are also avoiding a direct confrontation by choosing the West Coast, where Wal-Mart is relatively weak, and by starting with a c-store format.

AMR Research says that Tesco's expertise in private label, store execution, and supply chain management will challenge US retailers.

Progressive Grocer: "It's another factor that will accelerate the trend of smaller independent supermarkets going out of business," he said. "It also spells for the convenience store industry another step in the ultimate shakeout of the industry, which, like the supermarket industry, tends to be dominated by smaller, independent chains."

Bloomberg: "The U.S. has been a graveyard for U.K. retailers, so investors are a little cautious…. It could be that it wants to get a flavor for the market through a small operation and then make a massive acquisition to get instant size.''

Convenience Store News: "The move into the United States will mark Tesco's second expansion into a major economy in less than two years. The retailer entered China in 2004, following Wal-Mart and Carrefour SA. Tesco now operates in 12 countries outside the U.K. and has 2,365 stores worldwide. Half of the company's floor space is outside the U.K.

The Sunday Herald: "It has embarked on an ambitious international expansion to fuel the next phase of turnover growth. But thus far, it has stuck to emerging markets like eastern Europe and Asia. Its success has been mixed. It has made significant ground in Poland and Korea. On the other hand, it is pulling out of Taiwan after failing to compete with French multinational Carrefour. And the competition is even greater in its latest territorial conquest. The US is where Wal-Mart reigns supreme; where independent grocers and larger discount goods players have been forced to their knees in its wake. "

The Business: "America is the country that invented big. Everything is supersized, from hamburgers to the girth of its people. So Tesco’s pint-sized assault on the US food retailing market announced last week will either plug the gap for small, or leave its customers feeling undernourished. No-one could accuse Britain’s most successful grocer of rushing into the States. It has agonised over its American problem for 20 years. Only now has it settled on a low risk entrée, launching a stars and stripes version of its successful Tesco Express convenience concept."

LA Times: "Carving out a distinctive identity will be important, said Nate Franke, an Orange County-based analyst with Deloitte & Touche. "It's a brand that is relatively unknown to the U.S. consumer, so I think their strategy has to be to create a niche, something that's different that the consumer isn't currently getting from the existing participants," he said.

The Guardian: "There has been speculation for some time that Tesco was considering a move to the US. The grocer had a team of executives working there throughout last year. They were thought to have been looking for acquisitions, and Tesco's name was linked with several US grocery chains, including Albertsons. That prospect alarmed some City analysts, who questioned the wisdom of moving into Wal-Mart's back yard and a market with the toughest price competition."

The Telegraph: "It will take all of the experience and knowledge Tesco has acquired through years of study in the US if it has any hope of cracking what is reckoned to be the most developed retail market in the globe. Tesco is launching its plans at a time when a host of US retailers have been forced to scale back or put themselves up for sale. Leading operators such as Albertson's have all been through the motions as they face competition from Wal-Mart on one side, and dollar stores on the other."

Food Production Daily: "Verdict predicts the UK retailer's choice to develop organically is the correct decision as it will not be burdened by the problems of a company it takes over nor will it be encumbered by stores which are unsuited to its operation. Moreover, this route will allow the company to manage its capital expenditure and learn from experience as it expands store numbers."

Business Objects releases CPG package

Business Objects has released a new product, Trade Promotion Effectiveness Analytics, that "lets CPG companies measure performance and return on investment of promotional efforts. Customers can use the package to evaluate customer bases, monitor promotions or boost the profitability of promotions taking place at retail firms."

Business Objects has tried to make headway with analytics tools designed for individual industries, particularly retail and CPG. The company launched planning and budgeting software for retailers last year, and it already sells at least three products for CPG other than the one announced this week.

Prices start at $150k.

GM cutting incentives, increasing local

When you lose over $8 billion, you have to cut something, and when you lead the industry in price cuts (aka, "incentives"), maybe that's a good place to start.

Ad Age reports that General Motors will cut $200 million from its ad budget, deemphasizing the incentives, such as the "employee discounts" they pushed so heavily last year.

GM plans to curtail its national incentive programs and, said Mark LaNeve, VP-vehicle sales, service and marketing in North America for the auto giant, significantly cut ad support for the programs.

However, it looks like dealer support will get more funding:

In its shift, GM will concentrate on promoting launch vehicles and put more emphasis on regional dealer advertising and activities, according to two executives close to the automaker.

Bulletin: You haven't been fired yet

I found this item perversely amusing. Would you feel good or bad if your employer issued a press release saying you haven't been fired?

Constitutional challenge to Sarbanes-Oxley

A conservative group has filed a federal suit against the Public Company Accounting Oversight Board, in an action that could invalidate the Sarbanes-Oxley Act.

Although most previous complaints about Sarbox have focused on Section 404, which many companies feel requires excessive reporting, this suit is based on separation of powers:

They are arguing that the makeup of the accounting board violates the separation of powers doctrine because its members aren't appointed by the president and cannot be removed by him, and Congress cannot control its budget. The chairman of the oversight board and the other four directors are appointed by the Securities and Exchange Commission, an independent federal agency; the accounting board is funded by fees on publicly traded companies according to their size.

Sarbox has been described as the Consultants' Full-Employment Act, so naturally I'd hate to see it go, but whether this suit has validity or not is way beyond me.

Update: Here's an article in BusinessWeek that summarizes the suit. It appears to be a reasonably close call, turning on whether the PCAOB board positions are or are not "high-level" positions. It also looks like the purpose of the suit may be to pressure Congress into revising Sarbox.

But the larger goal of the lawsuit, Factor says, is to force Congress to reopen Sarbanes-Oxley, the corporate reform act that created the board. "The lawsuit puts a gun to [Congress'] head and says 'you've got to deal with it,'" Factor says.

Tesco to enter US

Tesco announced today that it is finally entering the US market, in a convenience store format. According to their press release:

Tesco PLC today announces that it intends to enter the United States through the development of a new convenience format, beginning on the West Coast in 2007.

The development of the business will be through organic growth, with initial planned capital expenditure of up to £250 million per year, which will be funded from existing resources, with break-even expected by the end of the second full year of operation. Tim Mason, currently our Marketing and Property Director, will move to the US to run the business, remaining on the PLC Board.

The new format is designed for the American market, following extensive consumer research and modelled on Tesco’s highly successful and innovative Express concept, which we now operate in five countries, with over 800 stores serving around eight million customers every week.

The Express stores, I understand, are bigger than a typical US c-store, and carry about 40% more SKUs. I'd say c-stores are already at the saturation point, but perhaps this format could create a new niche.

It will be interesting to see if this is just a precursor to a wider Tesco entry into the market; they have passed up several opportunities to buy their way in -- most recently, Albertson's.

Here's an AP article with a bit of background and commentary.

Hypocrisy redux

First, take a look at the post below, Wal-Mart: Hypocrisy R Us, which cites a Guardian article in which Wal-Mart's UK arm, Asda, calls on the government to "focus ... on tightening the planning laws to curtail the runaway growth of rival Tesco."

Second, read this article in BusinessWeek, titled "Wal-Mart to open about 1,500 new stores".

Any questions?

For Sale: ConAgra, Pfizer divesting

According to The New York Times, Pfizer is considering selling its consumer products division (Listerine, Benadryl, Rogaine, Rolaids -- $3.9 billion in sales).

Pfizer, the world's largest drug maker, has taken several steps recently to bolster its flagging stock, including raising its dividend and trying to streamline its operations. Spinning off the consumer unit would be another step to please Wall Street, because investors view the division as outside Pfizer's core business of prescription drugs, analysts said.

Meanwhile, Brandweek was reporting that ConAgra is selling its refrigerated meats division, including such brands as Armour and Butterball.

The company said it would sell its refrigerated and processed meat product brands, with annual sales of about $1.9 billion, within 10-12 months. But the sale does not include such growth-drivers as Healthy Choice, Hebrew National, Brown 'N Serve, Slim Jim or Pemmican businesses. It does include Eckrich smoked sausages, lunchmeats and hot dogs.

They will also be moving headquarters for grocery from Irvine, CA to Naperville, IL, and will consolidate retail and food service.

Bud to go ethnic

Anheuser-Busch just announced poor results (sales flat, profits down 18%), and says that it will direct more of its ad spending toward ethnic markets and will localize advertising.

But sports spending will remain huge -- about $300 million this year, with a lot of it this month (Super Bowl and Winter Olympics).

A lot of A-B's problems are related to movement away from beer, a problem they're trying to address by changing beer's image.

Wal-Mart names new marketing exec

Wal-Mart named Julie Roehm, formerly at Chrysler, as SVP-Marketing Communications.

The 35-year-old Roehm, who has spent the past 11 years in the automotive industry, will become the retailer’s senior vice president of marketing communications, a new position. She will report to John Fleming, Wal-Mart’s chief marketing officer.

In her new post Roehm will oversee the development and execution of advertising strategies, creative services and special events for Wal-Mart Stores USA.

Super Bowl

The general consensus at our Super Bowl party (I was the only marketing person there) was that these were, by a long shot, the worst Super Bowl ads ever.

The game sucked, too.

Changing beer's image

I read this item, in Knowledge@Wharton, a few weeks ago, and have seen a few other articles about the effort by the Beer Institute, funded mostly by Anheuser-Busch, to upgrade the image of beer. Apparently they want to build around beer the sort of romance, sophistication, and glamour wine holds for some people.

Well, okay, if that's how you want to spend your money. I thought it seemed sort of unlikely, and the biggest reason was along these lines:

Besides, notes Stephen J. Hoch, chairman of Wharton's marketing department, any money spent on an industry-wide campaign would probably be dwarfed by the amount spent by individual breweries to sell their brands. Companies need to "figure out how they can move away from their old position," he says. "But frankly, they can't move too far away because they have a huge base of customers. This is a business driven by heavy users. How much can [companies] spend on this new ad campaign compared with what they already spend on heavy users?"

Yesterday, I think, proved the point. Apparently the Beer Institute ran an ad on the Super Bowl, which I must have missed. But Bud also ran an ad showing a bunch of beer-drinkers worshipping a magic rerfrigerator, and another showing a bunch of people tearing an office apart looking for hidden beer.

These ads might have been clever and amusing (magic fridge = yes, office riot = no), but I don't think they did much to create an image of sophisticationand glamour for beer. Which message do you think came through yesterday?

Wal-Mart: Hypocrisy R Us

Asda, Wal-Mart's UK division, is complaining (please be sure you're sitting down while reading this) that Tesco is too big and should be prevented from growing any more.

Lee Scott, the head guy at Wal-Mart, made the same complaint several months ago, and now it's Asda's boss doing it, so it appears to be Wal-Mart corporate policy to go crying to the government when competition gets tough.

And then they complain when government intervenes against them here in the US. You can't have it both ways, guys.

A couple quick ones

According to this item in Forbes, Unilever is close to a sale of its frozen food brands -- Birds Eye, Igloo, and Findus.

Bloomberg reports that the Argentine government has strong-armed leading companies -- including Unilever, P&G, Kimberly-Clark, and Nestle -- into agreeing to freeze prices for a year to help fight inflation. I bet it doesn't work.

Yet Another

It seems like only a few weeks ago that TPM Update published a newsletter beginning:

“Ahold
Kmart
Office Max
Saks
… and now, Home Depot.”

Oh, that’s right – it was only a few weeks ago. As we noted at the time, Home Depot was far from the first in the line of retailers with apparent problems about allowances. We also predicted that there would be more to follow (and probably soon). Of course, that’s pretty much like predicting that it will be hot in Phoenix next summer.

On Friday, Penn Traffic, a 110-store grocery chain in the northeast, fired two top execs as the result of an audit committee report. A press release attached to their SEC filing said:

PENN TRAFFIC ANNOUNCES EMPLOYMENT TERMINATIONS AND INTERIM FINDINGS OF ONGOING INTERNAL INVESTIGATION

SYRACUSE, NEW YORK - FEBRUARY 3, 2006 - The Penn Traffic Company announced today that the Board of Directors has terminated the employment of Les Knox, Senior Vice President, Chief Marketing Officer, and Linda Jones, Vice President, Non-Perishable Merchandising, following the presentation by the Audit Committee of an interim report in connection with its internal investigation into the Company's promotional allowance practices and policies. To date, the internal investigation has found certain improper practices relating to the recognition of promotional allowances in periods prior to the Company's emergence from Chapter 11 under the Bankruptcy Code in April 2005.

The Audit Committee's internal investigation, which was suspended as previously announced, has recommenced and is ongoing. Penn Traffic continues to cooperate with the previously disclosed investigations by the U.S. Securities and Exchange Commission and the U.S. Attorney's Office.

The company operates stores under the Bi-Lo Foods, Quality Markets, Riverside Markets, and P&C Foods names, and also operates as a wholesale food distributor.

They’ve been having their problems lately. The company came out of Chapter 11 last April, and then on July 1 announced that the SEC was investigating them over promotional allowances.

The Penn Traffic Company announced today that it has received requests for information in the form of subpoenas from the U.S. Securities and Exchange Commission (SEC) for documents concerning its promotional and allowance practices and policies. As Penn Traffic disclosed in its Disclosure Statement for its recently confirmed Plan of Reorganization, Penn Traffic continues to cooperate with the SEC and the U.S. Attorney's office in their investigation into these matters and will comply with these subpoenas. Penn Traffic's Audit Committee also commenced an internal investigation into these matters which it has suspended while the government investigations continue and the Company has placed an employee on leave of absence pending completion of these investigations.

As a result of these pending investigations, Penn Traffic also announced that it would be delaying the finalization and release of its audited financial statements for its 2003, 2004 and 2005 fiscal years ...

They had gone into Chapter 11 in May of 2003, so the alleged fiddling with promotional allowances apparently coincided with the period of the bankruptcy.

Here's a report from the Syracuse Post-Standard, and a short AP item from Newsday.

We’ll keep an eye on this issue and update when we have additional news.

Oh, and here's another bold prediction: More to come.

More M&A: Tesco/Ahold, Unilever

Rumors are circulating that Tesco could be about to buy Ahold (or at least Ahold's European holdings). Ahold, of course, has been in trouble ever since their trade allowance accounting scandal a couple years ago, and it has been selling divisions ever since. A takeover by Tesco would create a behemoth (I haven't seen any numbers on what the combo would be, but I think it should be enough to overtake Carrefour and move into the #2 slot worldwide.

There's more on the Tesco/Ahold rumor here, as well as speculation that Unilever may be the subject of a leveraged buyout.

Update Sunday: Here's another article with a good deal of analysis on the deal. It mentions in passing that some investors think Tesco may be more likely to go after Carrefour.

Tesco shares fell three pence to 315p yesterday amid market rumours that the company may make a significant acquisition in Europe. Brokers are reported by The Times to have been unconvinced by suggestions that the retailer will join with Kohlberg Kravis Roberts to bid for Ahold, with others suggesting Carrefour as a more credible target.

The prospect of hanging

"Nothing so focuses the mind as the prospect of hanging."

Ben Johnson said that (or something like it -- I've seen the quote in various forms). It can be applied to business quite well, and we see it in action in the newspaper business today. An industry long noted for arrogance, insularity, and absolute disdain for innovation (see Michael Kinsley's column, "Black and White and Dead All Over", which I posted about a couple weeks ago), is suddenly awakening and recognizing the need for change.

Why? Because the noose is tightening every time the latest circulation numbers are posted.

Total newspaper weekday circulation fell about 2.4%, to 54.6 million, from 1999 to 2004. Sales in the 100 largest markets fell 2.9% in the year ending on Sept. 30, according to a Credit Suisse analysis of data from the Audit Bureau of Circulations.

Even worse than declining circulation is declining stock prices:

Growing uncertainty about newspaper companies' prospects contributed to a 20% decline in the collective value of newspaper company stocks in 2005.

USA Today reports on the minds that are slowly opening, part of which is an "initiative by the industry-supported American Press Institute to design a new business plan for companies grappling with competitors on the Internet and other new media."

"Across the industry the message I pick up is, 'Oh my God. It's slipping away. What can I do?' " says Stephen Gray, managing director of the initiative, called Newspaper Next.

So what are papers doing about the problems. USAT lists some approaches:

Extreme local focus: Report in extreme depth ("Recent editions included stories about the new school crossing guard, happenings at the Bluffton garbage dump ...") The idea is to do what no other medium can do.

New media: "We offer content over iPod, cellphones, PlayStation, TV, radio and magazine. We want to be platform agnostic. What's the best way to tell that story? Does it need video or audio?" This is a recognition that they are in the business of conveying information, not in the business of selling ink-covered paper.

Mini-dailies: These are free-circulation tabloids given out in many major markets, and they seem to be successful: "The business model seems to work. For example The Dallas Morning News' 2½-year-old mini-daily, called Quick, should begin generating cash flow this year..."

They're entertainment and gossip rags, to a great extent. "Our consumer-driven society is about a lot of things besides hard news," Decherd says. "Americans spend a tremendous amount of time focused on their lifestyles. We have to listen to our audiences to some extent."

Now there's a really new idea.

The last telegram

It's not a marketing issue, but it's amazing to read that Western Union has announced that it has ended its telegraph service. Not so amazing, of course, when you ask yourself, "When was the last time I sent, got, or heard about anyone sending or getting a telegram?"

The telegraph was the Internet of its time -- the first means of real-time transmission of data.

Western Union has been a significant force in American history. It built the first transcontinental telegraph line during the Civil War, and at the end of the war introduced the stock ticker. It was also a charter member of the first Dow Jones Industrial Average.

Today the company is primarily involved in money transfers, and doing quite nicely at it, with more than a billion in profits last year. Its parent, First Data, announced last week that Western Union will be spun off.