Target plays hardball

Ad Age has an interesting article that offers a contrarian viewpoint of Target and Wal-Mart. While Wal-Mart's Asda is being the tough guy in the UK (see the item immediately below this one), in the US, it's Target who's beating up the suppliers.

Suppliers of both large and small brands said Target has demanded unprecedented price concessions during the past year, in addition to beefing up what some call an uncompromising strong-arm tactic not even seen in Bentonville: an online reverse auction buying system considered by some suppliers as a margin-busting, no-win option for them.

The reverse auctions seem to be a particular sore point with suppliers:

The auctions, they said, tip the scale in favor of private-label manufacturers ahead of branded manufacturers by forcing suppliers to blindly bid on price alone.

The thought of some suppliers is that Target is concerned that Wal-Mart may catch up to them on the cheap-chic front, which would force Target to compete on price.

There's also a lot of grumbling about Target's poor logistics and inflexibility:

“The problem is the barriers,” said one frustrated supplier. “If you had found the cure for cancer and wanted to sell it over-the-counter, it would take you five years to get it on the shelf at Target.”

This can't be pleasant reading in Minneapolis.

Asda demanding huge payments from suppliers

And I mean HUGE -- like tens of millions of pounds each, and as much as 25% of suppliers total sales. One estimate said the total was at least GBP368m, and possibly a half-billion.

Suppliers yesterday said the payments could be from 10 mln to 60 mln stg, with one claiming that the payments were in some cases equal to 25 pct of a suppliers' annual business with Asda.

These are not sone sort of MDF payment, or contingent on any sort of performance apparently, but are simply up-front fees:

Meanwhile, suppliers said they would be willing to make the payment for something in return, such as preferential treatment over other brands.

Reuters also has an article on it, in which Asda claims these payments are nothing new:

"The programme is business as usual, but it has been reinvigorated to make sure the benefits of our growth are shared by everyone," spokeswoman Rachael Fellows told Reuters.

"We've got a great reputation for being fair with suppliers but we do want to grow and take our suppliers with us," she said.

That's disputed in the Forbes item, which says:

However, suppliers yesterday said such deals were extremely unusual in the UK industry, adding they were 'against such a payment'. Meanwhile, a rival supermarket executive said it was 'not normal' industry practice ...

Mobile video marketing

eMarketer reports on relatively high levels of interest in mobile video marketing.

The full potential of mobile advertising is still a little way off, primarily because the restricted audience size. However, this will change quickly and eMarketer projects that the number of 3G phone users who watch video worldwide will exceed 500 million by 2009. Even the more specialized audience within this group, those who watch broadcast TV on their phones, will grow to more than 100 million by 2009.

I'm wondering when the spammers will get into this and mess it up for everybody. A fair number of people (perhaps a great number of people) will be happy to accept advertising as a reasonable price to pay for content. But having unsolicited video messages sent will drive people even crazier than email spam -- and if there's a lot of it, it will discredit the medium.

The return of Bazooka

Bazooka bubble gum is coming back! The Topps Co. is bringing back the famous pink gum, since gum is a hot market -- gum sales were up 3.4% last year.

The Bazooka relaunch is Topps’ No. 1 priority over the next two years, Mr. Cherrie said, because it is the “strongest and most under-leveraged brand franchise we have,” and because gum is currently outperforming many of the other segments Topps plays in within the non-chocolate confectionary category.

Actually, it seems it never totally went away, but it disappeared from advertising and seems to have dropped to the bottom shelf at retailers. I wonder if they still have the incredibly stupid Bazooka Joe comics in the package?

Update: Yep, the comics are still around. And that's not all -- great prizes, too!!

Tuesday quick notes

Marketing jobs are expected to increase by 5%. "The region with the greatest growth was the South, where 80% of companies polled reported that they planned to hire marketers in 2006. The East Coast reported the weakest growth, with only 50% of companies hiring this year..."

Kosher and halal foods are increasing sales. "Demand for kosher food is swelling because a growing number of non-Jewish consumers are using the label symbol that denotes kosher certification as shorthand to discern which products are vegetarian or contain dairy ingredients."

Bertelsmann exiting music biz?

Financial Times is reporting that Bertelsmann is looking to get out of the music biz (and who can blame them? I commented on the poor prospects for the industry in this TPM Update).

Four people familiar with the company's plans said a sale was under preparation, though still at an early stage. The group is examining the sale of its 50 per cent stake in Sony BMG and of its wholly-owned BMG Music Publishing division, which has the rights to more than 1m songs from artists including Christina Aguilera, Keane and Coldplay.

Together, the music companies reported revenues of €2.1bn last year, down 16.5 per cent as CD sales fell. Operating earnings before interest and tax were up from €162m to €177m. Bertelsmann declined to comment.

The prospect of the third largest music publishing company being sold is likely to prompt keen bidding. Vivendi Universal, owner of the largest recorded music company, wants to build up its music publishing assets.

Top candidates for buyouts

CNN/Money lists the top retail chains that are likely to be bought out by private equity firms.

Retailers are attractive buyout prospects because they typically carry relatively low levels of debt on the balance sheet relative to their sales turnover, therefore providing a quick influx of cash to private equity firms...

Among their picks:

Borders: "Borders essentially is like a library with a cafe," said Crawford, adding that a buyout firm could help make Borders more current and competitive. "Barnes & Noble offers so much more to its customers. It's a social space, it's a gift store that sells higher margin products and the merchandising overall is better, " he said.

BJ's Wholesale Club: "BJ's owns the Northeast market but Costco and Sam's Club are making inroads in that region," Crawford said. "Time is not a friend to BJ's and I think it needs to look for a strategic partner to improve the business."

Pier 1: "Pier 1 can't hope to merchandise its way out of this situation," Crawford said. "The company has lots of cash and great brand cachet. This makes it attractive to a buyout firm. It would make sense to dramatically shrink its store base, liquidate part of the inventory and better integrate its online and store operations."

Rite-Aid: "Consumers tell us that the service they receive at Rite Aid is below their expectations and its difficult to shop in its stores. The brand is losing relevance with consumers today," he said. "I think a buyout firm would focus on improving these two areas, particularly the redesign of the stores."

Weekend quick notes

Campbell Soup said it's considering selling its UK/Ireland businesses ("Our portfolio in the U.K. and Ireland includes some strong brands, but it is highly fragmented and has not met our company's growth expectations") and is interested in getting into Russia and wants to expand in China.

Jones Apparel Group may be up for sale soon, another victim of retail consolidation. "The merger last year of Federated Department Stores and May Department Stores, Jones's two biggest retail clients, threatens to cut into the company's sales. Federated accounts for 19 percent of the total Jones Apparel revenue, a high level of exposure should the department store cut back on orders." And Federated is likely to cut back, since private label is believed to be part of their plan. Possible buyers mentioned include VF Corporation, Oxford Industries, and private equity firms.

Michaels is reported to be up for sale and Sears may be interested. "Michaels, a company with more than 1,000 stores and a market capitalization of $4.61 billion, is steadily profitable and could provide Sears with "softer side" diversification..."

Marketers losing confidence in TV

A survey reported at the ANA's TV Ad Forum says that 78% of advertisers "have less confidence today in the effectiveness of TV advertising than they did two years ago." Those surveyed were significant advertisers, so the findings have weight:

The study asked 133 national advertisers representing more than $20 billion in ad dollars about their attitudes toward TV advertising and how new technologies such as digital video recorders and video on demand will have on their TV ad budgets.

Among the findings:

70% believe that DVRs and video-on-demand will destroy the effectiveness of the 30-second spot.

80% are planning to spend more on web advertising (and 68% on search engines).

Other alternatives are branded entertainment within TV shows (61%), TV program sponsorships (55%), interactive TV advertising (48%), on-line video ads (45%), and product placement (44%).

With DVRs projected to go from 10% penetration today to 43% by 2010 according to Forrester, the problem is a real one. Media fragmentation is having a huge impact on marketers (and society) already, an effect that is only going to grow.

I loved the summary presented by Kia's CMO: "“Don’t get up and bitch and moan and then do the same thing you’ve always done."

Blatant self-promotion

The new HoukTPM website is finally up. Please visit and look around -- past issues of TPM Update are available there, and you can sign up to join the mailing list, if you're not already a subscriber.

The opposite of channel-stuffing

Wal-Mart is making an effort to reduce inventories, and their suppliers are feeling the pain. P&G, for whom Wal-Mart is 16% of their business, has had to inform Wall Street that it may not make its numbers this quarter as a result:

On March 13, Procter & Gamble, the largest U.S. household products maker, said this quarter's "organic" sales -- which exclude the impact of acquisitions, divestitures and foreign exchange -- should rise 5 to 6 percent, after previously saying it expected growth of as much as 7 percent. The revised range stemmed in part from "recent customer inventory reductions."

Other suppliers are impacted similarly, especially those for whom Wal-Mart is an even bigger customer, e.g., Playtex (28%), or Clorox (27%).

This seems likely to have only a short-term impact since, once the inventory adjustments are made, shipments should return to normal.

A marketer with its own team

How would you like to own a sports franchise and name it after your brand? Say hello to the New York Red Bulls (nee Metrostars) of Major League Soccer. They just bought the franchise for $100 million (I didn't say it was cheap) and announced the renaming (they bought naming rights to the stadium too).

Although this sounds peculiar to American ears, it's common in soccer. Red Bull owns a team in Austria, and I have a jersey for Cruz Azul -- a popular Mexican soccer team named for the cement company that owns it. Closer to home, NASCAR has been known to display a logo or two.

This will almost certainly get other marketers thinking:

It is enough to make some companies salivate at the advertising opportunities. "Any company that does significant sports marketing and sponsorship has to be looking at this very closely," said Tim Westerbeck, a branding expert and the managing director and principal at Lipman Hearne in Chicago.

Tuesday quick notes

Liz Claiborne is getting deeper into the retail market -- they'll be opening a chain this summer to promote their Lucky Brand Jeans. "Faced with limited wholesale opportunities and a shrinking department store market, manufacturers are increasingly turning to retailing to give them a higher profile -- and additional business."

Media fragmentation continues apace, and Ad Age points out that advertisers have a lot at stake in the move by the FCC to order the unbundling of cable TV packages.

GM is planning to make more profit by selling fewer Impalas. They're going to cut production of their most popular model from 310,000 last year to 250,000, but sell them at higher prices by, among other things, limiting fleet sales, which accounted for 50% of Impala's volume last year.

A marketer with its own channel

Many marketers have at one time or another owned their own programs -- most famously the soap operas owned by P&G, et al.

But how about owning your own channel? That's what Universal Music is planning, apparently. They're trying to work a deal with EchoStar that would both settle a lawsuit between them and create a channel, called International Music Feed (IMF), to promote Uni's music:

Record executives have long dreamed of owning a music-video channel on which they’d showcase their artists and address music fans’ hunger for the videos that MTV has moved away from. Previous efforts have been snagged by antitrust issues and the fear that labels would put the best videos on their own channels ahead of rival networks.

IMF will feature an array of international artists, including Latin and Indian, and a hefty dose of American artists on various Universal labels, such as Black Eyed Peas.

Price wars coming to France

France has decided to allow more price competition in its retail sector, and is expecting an intense war among the country's hypermarkets -- especially Carrefour and Casino. Loss-leaders, for example, were formerly outlawed, but are now legal.

Loss-leading by big retail chains can squeeze out small shops. In practice, however, the restrictions created a cozy relationship between the biggest suppliers of branded goods and the biggest retailers. Protected from the tooth-and-claw discounting occurring in more open retail markets such as the U.S., they were in effect able to raise prices at will.

Grocers now have the flexibility to give back to the consumer at least some of the inflated profits formerly split between supplier and retailer through a byzantine system of backdoor fees. But the extent to which they will share the spoils in 2006 is not yet clear because annual pricing negotiations between suppliers and retailers have been protracted, delaying the effect of the law change. However, there have been plenty of bellicose rumblings since the start of the year that suggest prices of many well-known products are set to come down.

The government is hoping that prices will fall enough to help its candidates in the upcoming elections: "In the run-up to the election next year, a wave of hypermarket discounting would help the ruling UMP party blunt accusations that it has made consumers poorer. That could be good news for Chirac's most ambitious colleagues — Dominique de Villepin, prime minister, and Nicolas Sarkozy, interior minister, who both harbor presidential ambitions."

Another high-end c-store?

Tesco hasn't even arrived in the US, and already they have competition in their chosen niche -- from a group that crossed the Pacific before they could cross the Atlantic. FamilyMart, a Japanese company with 10,000 convenience stores in Japan, South Korea, China, and Thailand, has opened two "premium" c-stores in California and plans to have 250 by 2009.

The stores have been opened under the Famima banner and promise to bring a new community lifestyle experience to the west coast, offering a cross between delicatessen, quick-service restaurant and traditional convenience store.

The shops also provide a banking service, a stationary department, newsstand and internet terminals. And they stock fashionable Japanese delicacies, such as sushi, noodles and a selection of imported groceries to appeal to middle-income shoppers.

Tesco hasn't spelled out its own plans, but most analysts think they will be going for a similar high-end niche with stores of about 5000 square feet or less. Previous comments on Tesco's plans are here, here, and here.

Tesco's entry into the US already looked interesting -- this could make it more so. Are analysts correct in thinking this is the market Tesco is going after? And, if so, is it big enough to support two entrants, one of which has a good head-start on Tesco?

This will be fun to watch.

Tuesday Update: The Sunday Times ran an interesting piece outlining how Tesco approaches foreign markets. I suggest you read the whole thing -- there's too much info in it to adequately summarize it here. But the gist is that they initially use joint ventures to get to know the market (which they aren't doing in the US), they adapt to local customs and tastes, and they give local management great freedom.

“You cannot manage people on a day-to-day business. Leadership has to be in the hands of local people. You need strong leadership teams on the ground that carry the ethics and values of Tesco,” he said.

The case against Sarbox

The Free Enterprise Fund has a Wall Street Journal opinion piece praising Nancy Pelosi. Surely a first. What caused hell to freeze over? "In the recent 'Innovation Agenda' that the House Democratic leader and her party unveiled, Ms. Pelosi acknowledges specifically the need to 'ensure Sarbanes-Oxley requirements are not overly burdensome,' and endorses reform." If that's not enough, the next sentence praises Eliot Spitzer for criticizing Sarbox's "unbelievable burden on small companies" and its possible role in "preventing some initial public offerings."

The Fund is the group that filed suit against Sarbox on separation of powers grounds. Whatever the merits of that suit, there appears to be a growing consensus that Sarbox may be unduly burdensome, at least on small business:

Based on a growing body of theoretical and empirical research, the SEC's Advisory Committee on Smaller Public Companies concluded that Sarbox places a disproportionate compliance burden on small public companies, making it more difficult for them to compete with foreign companies and to a lesser extent with larger U.S. companies. Consider the survey by the American Electronics Association, which found that companies with sales of $100 million and under are spending 2.6% of their revenues on Sarbox compliance--enough to tip many of them from profitability into unprofitability. This makes it something of a challenge for these companies to innovate, compete or grow--or even survive.

Efforts to lighten that burden might be the most likely area for changes in the Act.

Weekend quick notes

Whirlpool's takeover of Maytag is apparently likely to get the thumbs-down from the Department of Justice on antitrust grounds, according to rumor. "Lawyers in the department's antitrust division 'have made it clear' to the antitrust chief, Thomas Barnett, that they believe the $1.7 billion deal would hurt competition, said the source, speaking on the condition of anonymity."

L'Oreal is buying the Body Shop retail chain, which will presumably help their distribution, and also help to further blur the line between retail and manufacturer, as we commented on, just a few days ago.

ConAgra seems to be going through some tough times, with sales down 46% (!) since 2001. They're responding by cutting dividends and selling a bunch of brands: "ConAgra ... said last month that it will sell its Butterball turkey and Armour meat brands. The company, which has 70 brands, said Thursday that it will sell its Singleton seafood unit, which had $290 million in sales last year, and the Swissrose cheese unit, which had $200 million in sales." On the plus side, the company is planning to bump up advertising by 21%, concentrating on stronger brands.

Wal-Mart in India

Wal-Mart (and Tesco, Carrefour and other top international retailers) are very hot to get into India, which has opened its door to international retailers recently, but thus far only a crack.

It looks like Wal-Mart may be using the promise of their immense buying power as a carrot to get the Indian government to open up all the way. This article says that Wal-Mart currently buys almost $2 billion in goods from India annually ($630m directly, $1.2b indirectly) and plans to increase that about 35% annually. But, they say, that could rise much more rapidly if India were to open its retail market.

Wal-Mart Stores Inc., the world's top retailer, sees sourcing from India growing rapidly, but says this growth could accelerate further if foreign firms were allowed to set up retail chains in the nascent market.

"India is already our fastest growing market for direct importing, or exporting to other countries," Mike Duke, vice chairman and head of Wal-Mart International, told Reuters on Friday.

"The growth of the market here is already very significant. With retail stores here, it will grow even faster, and we've seen it (happening) in other markets."

Plans to grow India that much must sound ominous to Wal-Mart's suppliers in other countries, especially the US and China.

Thursday quick notes

Del Monte is buying Milk Bone and other pet food brand from Kraft (which is in one of those "dispose of non-core businesses" moods that companies get in from time to time). Del Monte bought Meow Mix just a couple weeks ago, so it looks like pet food is becoming very much core for them.

If you think I'm negative about the newspaper industry, read this guy. "It was just a year ago that I predicted ... that most major newspapers would be dead or dying by the end of this decade. Apparently, I was being conservative."

A lawyer posts on the British supermarket investigation.

The soft drink decline is going to continue, according to this audio report from Ad Age, mentioning a 1% annual drop in sales.

Sears goes for the profit

Sears announced its fourth quarter results -- mixed, to say the least. Down 12% in same-store sales, but double the profit.

I'm a big believer in profit -- I often question companies, retail or manufacturing, who put excessive emphasis on market share. So I should be lauding Eddie Lampert when he says, "Success must include profitable growth. We are not focused on sales or sales growth as an end in itself."

I totally agree. But I also look at that -12% and wonder how much of that anyone can take. A positive even in the comp sales area, though, was that Kmart was up by 0.9%, their first increase in that metric since the second quarter of 2001. It's not much of an increase, but after a seventeen-game losing streak, any win is big.

Sears is going to be fun to watch.

Wednesday quick notes

Wal-Mart and Tesco are both considering buying Carrefour's South Korean operation. "Analysts believe that the French group is committed to selling its 31 stores in South Korea because of their relative underperformance against domestic rivals and after its withdrawal from Japan last year."

P&G has filed another suit against private-label copycats -- their third in the past several months. "P&G claimed First Quality ... was manufacturing and distributing products that copied Tampax Pearl packaging..." A previous post on this subject is here.

CVS announced that a couple top execs, treasurer and controller, had resigned and that the SEC is investigating the company over a 2000 inventory transaction. "An internal review launched in December found that various aspects of the company's accounting for the transaction were incorrect, CVS said, though no adjustments to its financial statements are needed."

WSJ on the future of newspapers

The Wall Street Journal offers an excellent piece, occasioned by the sale of Knight-Ridder, that offers an optimistic view of the future of the newspaper business.

Gathering news, reporting stories and making editorial decisions about what is important and of interest to readers -- these are the core competencies of newspapers. And the Internet hasn't changed those jobs at their fundamental level. Both the skills required to do them well and the newspaper brands with reputations for integrity remain valuable in the information marketplace. The news aggregators, such as Google News, are just that -- collectors of other companies' news products. Without news outlets to generate the material that Google searches and collates, there is no Google News.

This is the core of their argument, and it's a good one. But it basically amounts to an argument for some organization to collect and edit news. It is not an argument in favor of spraying ink on paper and throwing the result on my driveway. I remain unconvinced that newspapers, in their present form, have much of a future.

Unilever rethinking advertising

Unilever has created a team to try to rethink the way the company advertises. Traditionally dependent on TV advertising, they see that medium as increasing ineffective, and have cut its share of their budget from 85% to 65% since 2000.

"The ad industry is struggling at the moment in . . . pulling all the components of brand communication together," Mr Rutherford said. "There is a struggle to have traditional media and digital and content and public relations all brought under one roof under the agency side."

Mr Rutherford said Unilever was stopping well short of setting up internal agencies, but was trying to spur change in its outside agencies. He said Unilever had assigned six people to help work on devising integrating campaigns for leading brands. Five were charged with finding new digital advertising ideas.

I think media fragmentation may be the biggest marketing issue of the next few years. At the national level, it's caused by the decline of network TV, and at the local level by the decline of newspapers (see the next post -- above).

A letter from Eddie

Sears chairman Edward Lampert's quarterly letter to investors is being eagerly awaited, according to Financial Times, who cite the 12% drop in same-store sales in November-December, the 10%+ drop in stock price since the merger, the abandonment of the Sears Essentials format, and the departure of several key executive merchandisers. "Over the past six months, it has lost the head merchants for its clothing, electronics, and hardware departments. Luis Padilla, the chief merchandising officer who joined Sears from Target in 2004, left in October and has not yet been replaced."

The performance has dismayed some industry observers. "We don't think that the direction that Sears is headied in under its current management makes any sense from a retail perspective," says Will Anders, senior partner at McMillan Doolittle, the retail consultants. Sears, he argues, is being run as a holding company focused on its shareholders, and has lost its touch as a retailer.

So far, though, Mr Lampert has not pursued widesread store closures to realise potential real estate value that he used during Kmart's bankruptcy, or other asset sales that some Wall Street analysts had expected.

Tuesday quick notes

Federated settled with New York, paying $725,000 to resolve claims of false advertising and sales promotion. "Kaufmann's ... used small print in ads to exclude many items from sales, featured photos of items not eligible for sales, and used misleading in-store signage. It also created false senses of urgency to buy with such promotions as "Biggest Sale of the Year" and "One Day Only Super Sale," only to retain lower prices after the sales were supposed to end..."

Best Buy is reported to be looking to buy a piece of Five Star, a Chinese consumer electronics retailer. Best Buy had said they were entering China this year, and it appears they want to buy into Five Star as a way of creating a strategic alliance.

Hain is rolling out an organic baby formula product as part of its Earth's Best line of infant and children's foods. This is in line with the health trend we commented on here.

Retail/manufacturer lines are blurring

VF Corp plans to open 400 new stores in the next five years, and increase the share of its sales represented by retail from 13% to 18% -- which would make it a $1.4b retailer.

"What's been happening with retailers developing their own private-label lines and going for direct sourcing, as well as apparel manufacturers also expanding their own retail lines, is that there has been a blurring of distinctions between what is an apparel retailer and what is an apparel manufacturer," said Peter Kilduff, associate professor of strategic management and marketing in the Textile Design & Marketing Department at UNC-Greensboro.

Carter's, the kidswear manufacturer makes 14% margins when it sells through retailers, but 22% selling through its own stores.

The potential for channel conflict is obvious, if a manufacturer reaches some point of critical mass as a retailer. By the same token, manufacturers and retailers are also competitors when retailers reach critical mass as private labelers -- Wal-Mart's Old Roy dog food is, I have read, the #1 dog food brand on a volume basis.

Weekend quick notes

Knight-Ridder is expected to announce this week who won the auction to buy the company. McClatchy (Sacramento Bee, Minneapolis Star-Tribune) was reportedly the high bidder, which is a bit of a surprise, since K-R is twice their size. Didn't take long to need an update for this. An hour after the original post, I read that it's a done deal -- the NYT says nice things about McClatchy.

The Ant Farm is fifty years old. They've sold twenty million of them, including one to little Bobby Houk, although my ants (dug up in the back yard) had very short life spans.

Food marketers are supposedly trying to target aging Boomers with, according to the subhead "smaller portions, placement, ads." Hmmm ... how about trying larger fonts on the label directions?

Myers department stores in Australia are being sold by Coles-Myer to a group including the Myers family, but primarily backrolled by Newbridge. Newbridge is owned by Texas Pacific, which owns Neiman-Marcus in the US and Debenhams in the UK.

The department store shuffle continues

Watching the department store biz has a certain similarity to being a baseball fan in the free-agent era -- you show up on Opening Day and wonder who these guys are wearing the home jersey.

The same with department stores -- they used to be independents, then they became parts of groups, then the groups consolidated, and now they keep shuffling the stores around among each other.

The latest, according to The Chicago Tribune, is that Saks (which used to be called Proffitts), having sold its northern stores group to Bon-Ton, and most of its southern stores to Belks, and having offered to sell its remaining southern stores (Parisian) to whomever, is now thinking about buying Lord & Taylor, which used to belong to May before May was bought by Federated.

But stay tuned -- I'm sure the story will change next week.

GM: More local, fewer incentives

General Motors' new VP-Sales, Brent Dewar, on the job for a week, laid out some of the troubled company's plans:

• Combine dealerships: Group Pontiac/Buick/GMC and Cadillac/Hummer/Saab for more efficiency.
• Advertise the brands.
• Cut incentives.
• Focus on local advertising in key markets, which presumably will mean funneling more spending through dealer groups.

XM to carry ads on some channels

XM satellite radio announced it will carry ads on four channels programmed by Clear Channel (which owns a piece of XM). The move may be necessary because of the company's heavy losses (competitor Sirius is bleeding even more heavily), but I wonder how much the move might hurt the image of satellite radio as an ad-free zone (although the vast majority of channels will still have no ads).

At one time, one of the advantages of movie theatres over TV was the lack of ads. The movie business threw away that edge, but it took decades before they did so. Satellite radio seems to be moving much more quickly in the same direction.

Thursday's quick notes

Lianhua, Wal-Mart, and Carrefour are all reportedly bidding to buy Trust-Mart, a Chinese chain of 100 stores in 20 cities. Lianhua is China's largest supermarket chain and is "indirectly controlled" by the Shanghai city government.

Carrefour's net income dropped 16% last year, but they are planning to spend aggressively (see the China note above). "The company said it plans to open 100 new "hypermarkets," huge stores that combine elements of grocery and department stores, in 2006, or more than twice the average number of openings between 2000 and 2004."

Network TV spending was down slightly in 2005. "The tallies are in line with last May’s upfront, when advertiser commitments fell to $9.1 billion from $9.3 billion the prior year. That drop-off is logical, because the comparison is to 2004, an Olympics and election year. Still, the final tally is surprising to industry-watchers. Veronis Suhler Stevenson and PriceWaterhouseCoopers projected a 2% increase in ad revenue for network TV for 2005 even after factoring in the loss of the Olympics."

Britain's supermarkets now sell as much non-food items department stores, according to the BBC. "According to Verdict Research, supermarkets generated non-food sales of £13.5bn in 2004 - just £1bn behind that of department stores. That fact marks the relentless rise of the supermarket, so much so that almost half of the people reading this will have bought an item of clothing from a supermarket this year."

UK government investigating supermarkets

Britain's Office of Fair Trading has asked the Competition Commission to launch an investigation of the supermarket industry.

The Office of Fair Trade (OFT), in a statement to the London Stock Exchange, cited concern about a number of factors among them the country's planning system and supermarkets' increased buying power which may be presenting barriers to new entrants.

It added that there was evidence that the rapid development of the convenience store sector may be harming consumers in local markets in terms of product variety and choice of fascia.

"The convenience sector has changed rapidly, and given our evidence and the importance of this market for consumers, our provisional view is that it would be appropriate for the Competition Commission to investigate," chief executive John Fingleton said.

There was an investigation in 2001, which found no problems. However, an article in Bloomberg notes that "specialist food retailers in the U.K. such as butchers and bakers closed at a rate of 50 a week from 1997 to 2002 ..." As important, no doubt, there is political pressure to investigate, coming from (among others) a 32,000-member trade group of small retailers.

The top four UK supermarket chains control 75% of the market.

Healthy eating

There have been several items recently indicating that health-consciousness among consumers is having a significant effect on both retail and manufacturers. Two days ago, we posted about Whole Foods' prediction that they will more than double their sales in the next few years, from $4.7b to $12b. Yesterday we posted that Wal-Mart is planning to double the space they devote to organic products.

Today, two more such items. First, this, a report that US cigarette sales dropped last year to their lowest level in 55 years (and, since US population has almost exactly doubled in that timespan, that means that per capita consumption of cigarettes has dropped to half what it was).

And then, this: Soft drink sales in the US dropped last year for the first time in 20 years.

"The carbonated soft drink business in the U.S. has basic fundamental problems," said John Sicher, editor of Beverage Digest. "This is the first generation of children that are going to grow up not viewing soft drinks as the ultimate treat. They're growing up on things like sports drinks, water and noncarbonated drinks. As these little kids move into late teens and early adulthood, their drinking habits are going to be different than past generations."

Among the five leading brands, Coke/Diet Coke and Pepsi/Diet Pepsi were all down, but Mountain Dew was up. Corporately, Cadbury Schweppes was up slightly, while both Coca-Cola and Pepsico were down.

Asda offending vendors?

Asda (Wal-Mart's problem child in the UK) is launching a new format called Asda Essentials (hmm, what is it with "essentials"? -- Sears just killed theirs). The stores will carry limited selection, and will be 95% private label. The article in The Telegraph said that Asda was risking offending some vendors (including Pepsi) by not including them, but I don't think the risk offending vendors is something that will keep Wal-Mart awake at nights.

Quick notes

Wal-Mart is doubling its organic food selection. Coupled with the item posted in yesterday's Quick notes about Whole Foods' aggressive plans, this is confirmation of the tremendous growth of this category.

St. Patrick's Day will generate $2.69 billion in spending this year, according to the National Retail Federation, up substantially from last year's $1.94 billion. When did this become such a big deal? I saw a TV ad (for Guinness) that referred to the "St. Patrick's day season."

Kellogg's Corn Flakes are celebrating their 100th birthday. This article discusses many of the company's marketing and advertising practices through the years.

More bad news for hockey

Relating to the "Olympic Reflections" post below, Ad Age reports that hockey's TV ratings are down 21% on NBC, compared with two years ago (before the strike).

And get them back watching. Although Nielsen Media Research figures show the 21% drop, to be fair, NBC has had only four telecasts so far this season. On Comcast’s OLN, the league’s new cable partner, ratings are flat with that of ESPN2 two years ago, but are down more than 60% from games on ESPN in the 2003-04 season.

Interest is so low that one national TV writer quipped in a syndicated column that OLN no longer uses Nielsen ratings for games; it simply asks viewers to sign in to its guest book.

And then there's the gambling problem ...

Best Buy entering home improvement category?

According to Chain Store Age, Best Buy has bought Pacific Sales Kitchen & Bath Centers, a 14-store chain in Southern California.

"Pacific Sales extends Best Buy's reach with high-end home improvement products," said Brian Dunn, Best Buy's president and COO. "This acquisition enhances our ability to grow with an attractive customer base and premium brands.”

I don't get it. Is Best Buy planning to compete with Home Depot?

Quick notes

Whole Foods expects to more than double its sales, from $4.7 billion to $12 billion, by 2010. To do so they expect to begin opening 30 new stores per year (last year they opened 12).

Bon-Ton has completed its purchase of Saks' northern stores. Consolidation will begin with merchandising and marketing, which will be centered in Milwaukee, where the Saks stores had been headquartered.

Mike Kantor takes over TPMA

The Trade Promotion Management Association announced today that Mike Kantor has been appointed as Executive Director, replacing Deb Kuhns, who resigned a few weeks ago.

Replacing Deb is a tough job, but I’ve had the pleasure of knowing Mike for several years, and working with him, and I’m confident TPMA has made a good choice.

Pfizer sues P&G

Pfizer is suing Procter & Gamble, alleging that P&G is making false claims for its Crest Pro Health mouthwash, causing harm to Pfizer's Listerine.

Pfizer said in the lawsuit that P&G falsely claims that four out of five dentists recommend Crest Pro Health for reasons related to the product's efficacy, superiority or other characteristics. Yet, it added, P&G ''has no substantiation for either claim and neither statement is true.''

Rebirth at Penney's?

JCPenney has been reporting some good numbers lately, and USA Today reports on some of their new initiatives.

(Unfortunately, USAT's headline writer chose "J.C. Penney sells with an attitude". Is there a tireder cliche than "attitude"?)

Among other things, JCP is putting a temporary showcase store in Times Square, sponsoring the Academy Awards show, and putting a 12-page spread in People, Vogue, InStyle, and other mags.

While trying to update their image, JCP execs are quick to say their not moving up-market.

Just don't use the "u" word, as in "upscale," executives stress. Says Cape: "We're not moving upscale."

Says Boylson: "I don't want to leave the impression that we're going upscale — because we're not."

Adds Chairman and CEO Myron "Mike" Ullman: "We are not ashamed of Middle America."

Good thing. As "attitude" is to creative writing, moving upscale is to retail thinking. It's what everybody does when they lose their way, and it practically never works.

Retailers have been "trying to drag Middle Americans upscale in one direction or downscale in another," he says. "We don't think there's anything wrong with being 42% of American consumers."

It's an interesting article on one of the few department store chains that is doing well.

Toshiba announces channel rebates

According to CRN, Toshiba is making changes in its pricing and rebates structure to even the playing field for indirect purchasers.

[Toshiba] said the higher margins create “absolute parity” with direct market resellers for independent Toshiba partners buying from distribution. “Resellers will now be able to compete with mail order,” he said.

Toshiba is also ratcheting up rebates: Entry-level Silver partners will get rebates of 1 percent, vs. zero previously; for Gold partners, rebates will rise to 2 percent, from 1.5 percent; and for Platinum partners, rebates will increase to 3 percent, vs. 1.5 percent.

It sounds like there may also be changes coming in other channel programs.

Kevin Murai, president of distributor Ingram Micro, Santa Ana, Calif., said the price parity changes are important but don’t always equate to brand preference. “To gain momentum quickly, Toshiba is working with us to develop and execute on an effective partner program that offers VARs the support and resources they need to move the needle and drive sales,” he said.

Quck notes

A few items we've come across today:

• Procter & Gamble says they are planning on more lawsuits against private-label imitators. We reported on this previously in this post.
• Metro, the German supermarket giant, is planning to enter the Pakistani market, with stores in Islamabad/Rawalpindi, Lahore and Karachi.
• Walmex, Wal-Mart's Mexican division, announced that it will open 120 new stores in 2006.

M&S demanding extra funding

Marks & Spencer, the troubled UK retail chain, is demanding extra discounts from suppliers, mostly to fund new marketing, according to The Times.

The retailer has informed all its suppliers in home furnishings, clothing and food that it requires a 0.5 per cent discount on the cost price from next month to help to pay for the latest marketing campaign as well as improvements to its stores and its internet site.

Meanwhile, “direct” suppliers that provide goods straight from factories mainly in the Far East — about a quarter of all M&S’s suppliers — have been asked for a 5.5 per cent discount.

This is not the first such call for additional discounts. The Times says M&S demanded cuts in September 2004 and April 2005. The article wasn't clear if those discounts are cumulative, but it appeared so.

M&S’s suppliers gave a 3.75 per cent discount in September 2004 and another 2.5 per cent from last April in order to deliver £140 million in savings as part of the plans of Stuart Rose, chief executive, for a turnaround of the business.

A spokeswoman for M&S said: “We have reviewed our terms with all of our suppliers. We are continuing to invest heavily in marketing and on our store remodels and online programme.

“As a result volumes are increasing and we are getting quicker turnaround on product, which is benefiting suppliers with better cashflow and higher revenues through their business with M&S.” Suppliers confirmed that M&S’s trading had held up since the new year.

DoJ investigating music industry

The Department of Justice announced that it's investigating the music industry -- apparently in regard to possible collusion in pricing of music downloads.

...two music industry sources said on Thursday the DOJ's probe appeared to be focused on ... whether the labels colluded to set wholesale pricing for song downloads.

The investigation also could be related to licensing renegotiations with Apple Computer Inc.'s, maker of the wildly popular iPod digital music player, for its iTunes music store, industry sources have said.

The major players in the industry were smacked down a few years back by the Federal Trade Commission for collusion in regard to minimum advertised price policies in their advertising programs, which the FTC said amounted to price-fixing. One wonders if (in the event the allegation pan out) the previous case would cause this to be viewed as a "repeat offender" situation.

Del Monte buying Meow Mix

We've had some notes below about Del Monte's current activities -- speculation that they would be selling the private-label operations they bought a few years ago from Heinz. That is now confirmed. In addition, they announced today that they are buying Meow Mix -- to be added to their curent pet food lines, which include 9Lives and Kibbles 'n Bits.

By the way, in case you are (as I was) unfamiliar with TreeHouse Foods, the company that is buying Del Monte's private-label operations, they are a spin-off from Dean Foods created last year.

Olympic reflections

NBC must be breathing a sigh of relief. Or perhaps a couple sighs. One is that the Olympics are over. The other is that they managed to scrape through with a 12.2 -- since they had promised advertisers a twelve to fourteen share, they just barely managed to avoid the embarrassment of makegoods. What they didn't avoid is the embarrassment of the lowest-rated Olympics ever, topping (or bottoming) the previous record-holder, 1968. And in four years, they aren't going to avoid the embarrassment of trying to explain why they're trying to sell spots for the 2010 games for two hundred bucks each to used car dealers and CD collections of Jose Feliciano's Greatest Hits.

NBC wasn't helped, of course, by Michelle Kwan withdrawing from the Games, by the US hockey team turning into a whiny bunch of losers, and Bode Miller being, well, Bode Miller.

But I think what NBC forgot is that viewers aren't willing to watch 1994 TV in 2006. One of my friends was complaining about trying to watch the women's figure skating finals -- the showcase event. She had to watch numerous secondary skaters, with numerous cutaways to other events (ski jumping, biathlon) she didn't care about, until the featured stars came on, near bedtime.

This is the way Olympics have always been broadcast, of course -- we were expected to watch what the network wanted to show us, whenever they felt like showing it. But NBC has forgotten that viewers have changed, and TV needs to change with them. We now want to watch the events we choose, at a time we choose, and if NBC isn't willing to go along, then a sizeable portion of their audience is prepared to say, "Okay, we'll watch American Idol instead."

NBC got record traffic to their website during the Games, and maybe that gave them the message.

But there are people even unhappier about the Olympics than NBC:

The National Hockey League: They were hoping that the US hockey team might help make people forget about the lost season. Not likely. And when you go 1-4-1, it's best to leave town quietly in the middle of the night, rather than mouthing off to the press with whiny complaints about accomodations. The Canadian team didn't do a lot better. This is not what the NHL needed.

Bode Miller's agent: He came to town no doubt dreaming of multi-million dollar endorsement deals. He left trading his first-class ticket in for an economy seat and hoping the difference would help pay Bode's bar tab.

New CMOs at Hummer, American Eagle

A couple quickie personnel announcements:

• Hummer named Megan Stooke as CMO. "Prior to joining the Hummer team, Stooke was director of advertising and sales promotion for GM's Chevrolet division since May 2005. In that capacity she was responsible for Chevy national advertising and sales promotions."
• American Eagle's new CMO is Kathy Savitt. Savitt was formerly with Amazon.com, where she was VP-Strategic Communications.