Safeway converting private labels to national brands

Safeway is going to make its organic store brands (O Organics) available through competitors.

"We're working with partners that want to take pieces of the organic offer to other markets," Burd said during the call, "and we expect that by the end of this year you will see O Organics and Eating Right at other supermarkets besides Safeway."

The brand sold $310 million last year and was up 50% in the first quarter.

I'm beginning to see a number of cases (including the Dell-Radio Shack rumor noted in the item below this) that we might call "brand-blurring" -- where it isn't clear if something is a national brand or private label.

Is Dell buying Radio Shack?

There have been rumors recently that Dell might be considering buying Radio Shack.

On Monday and Tuesday, an unusually high number of RadioShack stock options were traded, which could be the result of "unsubstantiated rumors" that the Austin computer giant is planning to purchase the retail chain, the Star-Telegram reported Wednesday.

The idea isn't as far-fetched as some analysts might think. In a May 2007 article, BusinessWeek suggested the acquisition of RadioShack's 4,000-plus stores would give Dell "a meaningful retail footprint" in which to sell its PCs.

If so, would Dell become a private label product?

Mars buying Wrigley

The big news today, which I'm sure you've heard, is that Mars (with help from Warren Buffett) is buying the Wrigley Company. In Chicago, the significance is that thousands of drunken Cub fans are wondering if their favorite bars are now in Marsville.

(Answer: Probably not).

To the rest of the world, the point is that this creates the world's biggest confectionery company:

Combined, Wrigley and Mars controlled 14.4 percent of the global confectionery market in 2006, compared with 10.1 percent for Cadbury, according to the most recent market share data from Euromonitor International.

Cadbury (which is in the midst of spinning off its soft drinks as a separate entity) may now be looking at trying to buy Hershey, although the linked article says that state law in Pennsylvania may prevent Hershey being sold (which seems a bit strange).

This sort of transaction represents the flip side of the increasing concentration of retail channels. As retailers grow, their suppliers have to grow to be big enough to sit at the same table on terms of some sort of equality.

Newspaper biz continues collapse

The latest circulation figures for US newspapers are as bad as all the rest of the news for that industry over the past few years. Of the twenty largest papers in the country, eighteen posted declines; the two largest papers, USA Today (+0.3%) and Wall Street Journal (+0.4%) posted modest gains.

Some of the declines, by contrast, were substantial. The worst being:

Dallas Morning News -10.6%
Atlanta Journal-Constitution -8.5%
Boston Globe -8.3%

Such losses would be bad, but not necessarily crippling, for any business as a one-time thing; as part of a long-term trend, where these losses are being compounded year-on-year, the end result is a bit frightening.

Macy's reverses field

... or maybe, for us Chicago folk, it would be "reverses Fields".

A good many Chicagoans would like to reverse everything Macy's has done since taking over the local iconic store, as would the folks in Baltimore who miss Hechts, and the folks in a lot of other places.

It looks like there has been a sudden onset of common sense at Macy's HQ, though I suspect it will ultimately make little difference.

But Macy Inc.'s same-store sales were 1.3 percent lower last year than in 2006, and Chief Executive Officer Terry Lundgren is changing course, ditching the nationwide cookie-cutter approach in favor of tailoring merchandise at the world's largest department store chain by targeting local tastes.

"What the consumer wants in the Galleria of St. Louis is different from what the consumer wants in State Street Chicago, or what the consumer wants in Portland, Oregon," Lundgren says. He wants 15 percent of the merchandise in stores to reflect local preferences.

"People aren't all the same." Gee, Terry, you really think so?

There are a few things worth noting here. One is that national standardization, and the cost savings and buying power associated with it, was pretty much the raison d'etre behind the May Company buyout. They've now abandoned it, which means that Macy's has acknowledged that it shouldn't exist. Okay, a bit harsh, but I enjoy mocking department stores.

The next is that a good sign of a business that has no clue is that they make violent 180-degree changes in strategy on a regular basis (Sears used to do this a lot).

And finally, this was totally predictable. I mentioned in a post a week or two ago that every time the economy sneezes, the department store biz gets pneumonia. This is a dead channel that just hasn't been buried yet.

FTC digging in vs. Whole Foods

The Federal Trade Commission is not giving up on their opposition to the Whole Foods / Wild Oats merger.

Oh, you thought that was a done deal, completed last year?

So did everybody else, everybody except the FTC.

The U.S. government, in an unusual move, will ask an appeals court Wednesday to stop Whole Foods' takeover of Wild Oats, even though the deal closed last year.

The Federal Trade Commission tried to block Whole Foods' acquisition of Boulder, Colo.-based Wild Oats after the transaction was announced last February, arguing that it would stifle competition and harm consumers.

But a federal judge rejected the agency's request in August and Whole Foods and Wild Oats closed the deal later that month. Antitrust regulators usually throw in the towel after the courts allow a deal to go forward, because acquisitions can be difficult to unwind.

In this case, however, the FTC is continuing the fight. The agency argues that the companies haven't yet finished combining their operations and Whole Foods hasn't closed all the Wild Oats stores it plans to close. The entire process could take up to two years, the agency said in court papers ...

It's tough to figure what the FTC is going to say now that would cause the court to stop a half-completed merger when the same court rejected their arguments pre-merger.

But the really curious thing is why the FTC is getting so tough on this particular merger, which is pretty small potatoes (organic potatoes, no doubt), when there have been much larger mergers passed with little comment. Perhaps they're tired of the criticism from many quarters (including here) that they are sometimes a bit toothless.

Shopper Marketing and Trade Promotion

I was reading an article about trade promotion in Advertising Age yesterday, something I generally do with trepidation, because that magazine repeatedly demonstrates a total lack of understanding of the topic.

Nonetheless, being a glutton for punishment, I read the article, which contained this paragraph:

A study by Deloitte Consulting for the Grocery Manufacturers of America last year found shopper marketing, formerly known as trade promotion, is growing faster than any other medium for package-goods marketers, including digital advertising. Deloitte estimated package-goods companies spend 8% of their marketing budgets now on shopper marketing, but that percentage could be well over 35% if all forms of trade promotion are included.

Putting aside the mention of “well over 35%” spending – I suppose somebody may be in that category, and I wish them well, but that’s about double the norm in CPG/grocery and even farther off for other categories – putting that aside, I’m wondering about that line, “shopper marketing, formerly known as trade promotion…”

Huh? Did somebody change the name and forget to tell me? Is my book Trade Promotion Marketing already out of date? (It wouldn’t be the first time – my previous book was called Co-op Advertising – though in that case, I knew the title was outmoded, but the publisher insisted on it).

So I contacted a few people who know whereof they speak. Rob Hand replied to my inquiry with his typical pithiness:

They have no clue...never did. Aren't they the ones who first coined high tech trade promotion as "soft dollars?"

Shopper marketing...that's a good one.

Andrew Wilson was a bit more diplomatic:

If they're referring to In Store Shopper Marketing (ISSM), this only covers a small (but significant) sub set of the total Trade Promotion activity. Why replace a perfectly good term with one that's more limited in reach?

It's taken us long enough to gain recognition for Trade Promotion as a discipline. Let's not confuse matters by rebranding it so quickly!

And Mike Kantor of the Trade Promotion Management Association indicates that they have no plans to change their name:

I appreciate the attempt by the publication (recognizing the strategic role of Trade Promotion), but to refer to Trade Promotion as Shopper Marketing is like calling Wal-Mart a drug store. Although Wal-Mart has pharmacy departments as part of their mix, it does not solely define their business. Same is true here – Shopper Marketing is an integral part of Trade Promotion, but we all know Trade Promotion as inclusive of integrated sales and marketing, demand planning, category management, brand management, account management, retail execution, and related back-end processes including settlement and analysis.

Actually, even the study they quote makes the point that shopper marketing is only a piece of the total trade promotion budget – an important and growing piece, but still just a piece.

Having indulged myself in a bit of Ad Age-bashing, the subject of shopper marketing is one that is worth some attention. It is a very fast-growing area of spending, because it is effective; because retailers demand such funding and retailers have power; beccause the mass media are fragmenting and in-store marketing is one of the most effective replacements* … and probably for numerous other reasons.

That Deloitte/GMA study also indicated that trade promotion (exclusive of shopper marketing) is anticipated to decline by 2% annually. To which I say: Good – since the portion being cut is presumably mostly pricing actions (TPRs, trade rebates, etc).

I think the subject of shopper marketing and how it should be integrated with and differentiated from the pricing aspects of trade promotion is the most interesting and important area of this subject, and worthy of a fuller exploration, so the next issue of TPM Update will feature some thoughts on how to approach shopper marketing in terms of strategy, tactics, planning, budgeting, and management.

But for now, my first reaction is that if the trend in trade promo is to move money away from price cuts and toward brand-building activities, then that’s a very positive development.

Regardless of what you call it.

--
* I commented on this point three years ago (ironically, in response to an article in Ad Age).

Asda wants foreign suppliers excluded from ethics rules

The UK's Competition Commission has recommended creation of a set of ethical guidelines to prevent retailers from using their clout to mistreat suppliers. Asda has said they want foreign suppliers excluded from the rules.

The UK's second biggest grocer has included the demand in its response to the Competition Commission's remedies report, published in February after a two-year inquiry into the £125 billion grocery market.

The Commission provisionally recommended that grocers set up an ombudsman service to help protect small suppliers and farmers and said supermarkets may be forced to appoint compliance officers to ensure they treat suppliers in accordance with a new and wide-ranging code of practice, the Groceries Supply Code of Practice.

If I were a foreign supplier to Asda, this request would make me a bit nervous: What exactly does Asda have in mind doing to me that they don't want the ombudsman to know about?

Marks & Spencer expanding in India

Marks & Spencer has agreed to terms to open fifty stores in India, working with Reliance Retail.

The joint venture will have an initial value of £29 million. M&S will take a 51 per cent stake, with Reliance – part of India's giant Reliance Industries conglomerate – holding the rest. Both parties have agreed to provide further funding in the future.

The stores will sell men's, women's and children's clothing plus homewares. The existing 14 M&S stores operated with franchisee Planet Retail in India will continue unaffected.

It seems just about everybody is jumping into India. I wonder how things will work for M&S; having what appears to be two operations, seems a bit unwieldy.

Follow-up on pre-pricing

A couple weeks ago I posted about a trend by manufacturers away from printing prices on packages. I mentioned Kraft and Kellogg as discontinuing such pre-pricing. Now Pepperidge Farms has joined the parade.

Retailers don't want to be locked into shrinking profit margins by stocking products with a suggested retail price, and they also don't want to be perceived as ripping off costumers by sticking their own, higher price tag on prepriced products. For that reason, some retailers are resisting stocking snacks prepriced by the manufacturer, which could jeopardize a brand's space on store shelves.

Digital shelf pricing

New technology could enable retailers to change prices daily (or hourly, for that matter):

With the click of a mouse, the local grocery store could drop prices for a happy hour sale, and just as easily, with another click, return prices back to normal in time for the dinner rush.

That turnaround is currently impossible because thousands of paper price tags line the shelves. San Jose-based Altierre Corp. is trying to change that with digital-label technology.

The company is one of many that has developed electronic shelf labels (ESL) to help grocery stores reduce costs and maximize sales by going digital. Altierre's wireless pricing system is scheduled to line grocery shelves later this year.

Cool. Hook it up with an RFID-enabled shopping cart, I scan my loyalty card when I come in, and the store changes prices as I walk down the aisle, setting prices based on my degree of price-sensitivity as demonstrated by my past purchases.

OK -- maybe we're not there yet. There are more mundane reasons for it -- like saving a bunch of time on price changes, and having the same price on the shelf and at the cash register, and matching competitive prices quickly.

The Candy Biz Ain't Sweet

The largest candy companies are under attack on multiple fronts for alleged price-fixing:

Giant Eagle filed a federal lawsuit last week that accuses major chocolate makers of conspiring to fix prices to limit competition, according to published reports. The Hershey Co., Mars Inc., Nestlé and Cadbury Schweppes are defendants in the suit that alleges that the companies fraudulently claimed higher material costs and raised prices by more than 15% around the same time period. The suit cites the Canadian Competition Bureau’s ongoing investigation of the companies. The bureau allegedly uncovered communications between executives at the chocolate makers as they made plans to jointly raise prices, according to reports.

In addition to the Canadian investigation and Giant Eagle's suit, I've seen reports of suits by other major retailers (CVS, Meijer, Kroger, etc) and also consumer groups.

That there would be price increases at the same time would not be surprising, given that the product price is dependent to a great extent on commodity prices for ingredients. If though there are memos, as alleged, then that's another matter.

The accelerating effect of a slow economy

We often hear, at time like these, statements like, "So-and-so was driven into bankruptcy by the recession."

Putting aside whether we're in a recession or merely facing a slowing economy, I'm often tempted to reply that strong companies seldom go under because of a recession. A small, underfunded business may be ruined by having a bad year, but the major corporations that go under during a recession generally do so because they had serious weaknesses before the economy went south. The bad economy merely exposed their weaknesses and/or accelerated their decline.

They may be in trouble prior to the recession because of poor management or because of weaknesses in their sector or for other reasons, but in any case they are in a position where circumstances that would normally merely call for some belt-tightening instead prove far more serious.

In thirty-plus years of watching the department store channel (it's where I started in this business, though I got out as soon as I could), I've noticed that when the economy slows, the channel drops lower than the economy; then when the economy improves, we see news stories proclaiming that "The Department Stores Are Back!" But come the next downturn, the department stores once again drop, and each time the drop is lower than the last. In March, a bad month for retail in general, the department store channel was -- surprise -- the worst of all, down 11%.

I think we'll see something similar with newspapers over coming years -- a slow decline generally, accelerating each time the economy sours.

Bye-bye, Linens 'n Things

It looks like Linens 'n Things may be going Chapter 11 soon, and probably closing a bunch of stores.

Linens parent Linens Holding Co. said Tuesday it deferred a $16.1 million interest payment and is in talks with debt holders regarding a capital restructuring.

Several analysts believe the announcement is a precursor to a prepackaged bankruptcy filing for the struggling home-goods retailer, which has been caught by an increasing debt load and weak sales amid a shrinking housing market. Such a move would likely involve closing some of privately held Linens' 589 stores, according to analysts.

It's tempting to attribute this to the Two (or perhaps only one) Per Channel Theory, but I'm not sure if this case really fits. The difference between home furnishings and many other categories is that the "category killers" in this channel are really not all that large: Linens 'n Things represents only about 2% of the home furnishings market, and even the leader, Bed Bath & Beyond, is only 5%.

iTunes is #1 retailer

An important milestone has been passed as for the first time an on-line retailer has taken first place in a major product category, as Apple has surpassed Wal-Mart to become the top music retailer in the US.

But success inevitably brings increased competition:

Apple Inc. said the iTunes online store, not quite 5 years old, has become the nation's leading music retailer, surpassing music sales at the world's largest retailer, Wal-Mart Stores, Inc.

Also Thursday, MySpace.com said it would expand digital music offerings on the social networking site to include three major labels—Universal Music Group, Sony BMG and Warner Music Group—to go along with the numerous indie labels that already offer music on MySpace.

That means two of the Web's biggest players—MySpace, the top social network, and Amazon, the top online retailer—will try to chip away music sales from iTunes. Amazon launched digital music sales late last year.

Tesco says F&E doing OK

Tesco seems to have successfully allayed investors' concerns about the launch of Fresh & Easy, based on most reaction to their annual report yesterday:

In the U.S., Tesco claimed it is 'very encouraged' by the start that Fresh & Easy has made.

Tesco entered the U.S. in November last year and opened 60 stores in under five months. However, it recently called a temporary three-month halt to the expansion programme, leading to widespread speculation that it had missed internal targets -- a claim the retailer firmly denies.

Tesco said Fresh & Easy's sales are ahead of budget and sales densities are already higher than the U.S. supermarket average, with some stores exceeding $20 per square foot per week.

Those are decent numbers, though Tesco also reported that it has lost $125 million thus far on F&E, and expects to lose about $200 million in the coming year.

Although a temporary halt to store openings was called earlier this month, they say they will resume the openings in July and will open 150 stores this year (60 have been opened thus far).

C-stores sales rise, profits drop

This press release from the National Association of Convenience Stores has some interesting stuff in it.

Sales were up last year, to $577 billion. Although that was only a 1.4% increase, the channel more than tripled sales, from $174 billion, in the ten years from 1997. Pretty impressive.

Pretax profits dropped from $4.8 billion to $3.4 billion (which is only a bit over 0.5%). Not so impressive. The NACS points out that rising credit card fees account for most of the profit drop. Fees were up $1 billion, to $7.4 billion -- more than double the profit figure.

Lots of interesting stats, in case you're wondering how your local Kwik-E-Mart makes its money. (Hint: It isn't from gas -- gross margins are ten cents a gallon).

Blockbuster wants to buy Circuit City

Blockbuster has made an offer to buy Circuit City for $1.3 billion, although there's some question as to whether they have the money.

These are two struggling retailers -- Blockbuster's core business has been destroyed by Netflix and video downloads, while Circuit City hasn't been able to keep up with Best Buy and Wal-Mart. I can't recall a case where two weak stores adds up to one strong one. I recall saying when Kmart and Sears combined that it reminded me of two drunks thinking they can walk home successfully by leaning on each other.

Apparently, I'm not alone in my opinion:

Sanford Bernstein analyst Colin McGranahan called Blockbuster's strategic rationale "vague" and pointed to the "oddness" of the combination.

"Strategically the deal appears to us to be a long-odds attempt by Blockbuster to address its deep structural issues; we do not see significant synergies," McGranahan wrote in a research note.

Blockbuster says otherwise, of course:

Blockbuster said a merger of the two struggling retailers could cut costs, exploit the growing convergence of media content and electronic devices, and bring benefits from selling complementary products.

Could be. Blockbuster is going to have to come up with a very good story, though, to get the money. Their cash-on-hand is more than a billion short of what they're offering.

Private labels going national

I posted a couple of weeks ago about some recent cases of movement away from private label. One of the items I cited was that Sears is apparently considering selling some of their private brands through other retailers. Here's another case, with one of India's leading retailers doing something similar:

To create a separate identity and create national brands of its private labels, Pantaloon Retail has transferred some of its private labels to Future Brands. Pantaloon private labels will now move out of Pantaloon stores and probably have their own exclusive shops or will retail through multi-brand outlets.

"We will use in-house labels in the beginning and then launch pan-India brands at a later stage," Santosh Desai, CEO, Future Brands, said in a statement.

Interesting -- still not a trend, but worth watching.

84 Lumber: Two years later

I've only once before posted anything about 84 Lumber, and it was almost exactly two years ago -- on April 4, 2006 I posted this:

84 Lumber closing/opening stores

84 Lumber announced that they're closing 67 stores, but planning to open 125 others.

Stores in “no-growth” and rural markets will be closed, as the company tries to boost its annual sales to $10 billion by the end of 2009, 84 Lumber said in a statement.

The company had 521 stores and reported sales of nearly $4 billion in 2005.

“We determined that we needed to make some tough decisions regarding underperforming store and close them,” said company president Maggie Hardy Magerko.

84 markets exclusively to contractors and professionals, a segment that Home Depot has been targeting lately, including making significant acquisitions.

It's not much of an anniversary present, but now we have this item:

84 Lumber Co. said Monday it is closing another 30 stores across the country, citing the slumping housing market. [ ... ]

Last month, 84 Lumber consolidated nine stores into other facilities.

84 Lumber has 368 stores and 13 manufacturing facilities in 37 states. Several stores and plants are "mothballed" and will reopen when conditions allow, the company said.

I don't doubt that the poor housing market is having an effect, but let's do the math: Two years ago, when the housing market was still strong, they had 521 stores and said they were closing 67, but opening 125, which would bring them to 579. But now they have 368 and are closing 30. Most of those missing 150-200 stores must have been lost before the housing market went bad.

It's no mystery, of course: the problem isn't the housing market, the problem is Home Depot and Lowe's, and the two-per-channel theory.

Coupon usage to increase?

This press release from a consulting firm says that a tough economy will likely lead to dramatically increased usage of coupons.

Of the 1,529 U.S. consumers who responded to a recent ICOM survey, 67% said they are much more likely, or somewhat more likely, to use coupons during a recession. The breakdown was 45% percent much more likely and 22% percent somewhat more likely.

I've never been impressed with consumer surveys of this type. Asking people what they will do if such-and-such happens seems likely to elicit responses based on what the consumer thinks is expected. It seems more appropriate to look at actual consumer behavior, which shows steadily decreasing rates of coupon usage (now about 1%), regardless of economic conditions. I see no reason to think there will be much change this time.

Eliminating pre-pricing

Increases in commodity and shipping costs are causing more retailers to be resistant to goods with prices printed on the packaging.

Kraft, for instance, removed the $1.99 suggested retail price from 12 Planters SKUs, ranging from 3 to 7.5 ozs., that are hitting stores now. "Doing so allows retailers more flexibility and [retailers] like the control they have over pricing," said a Kraft rep.

Kellogg salespeople have told convenience store buyers and wholesalers that it too will phase out pre-priced single-serve packs, at least for Cheese-It snacks and Famous Amos cookies, by year's end.

One distributor related that a Kellogg rep explained to him that not only are retailers resisting, but maintaining the 99-cent price point will be difficult for Kellogg too if costs continue to climb. Kellogg did not comment.

Under antitrust laws manufacturers cannot enforce MSRP in most cases, but few retailers are going to want to put a sticker on a product that is higher than the printed price.

I believe the original rationale behind pre-pricing was simply as a convenience for retailers -- saving them the trouble of putting price stickers on multitudes of high-volume / low-price items. If the practice doesn't please the retailers, why do it?

Detroit seeks fewer, bigger dealerships

The Big 3 US automakers are seeking to decrease the number of dealers selling their products, as an offset to their declining market share. This article deals primarily with Chrysler, but references similar initiatives by Ford and GM.

Having done away with Plymouth and Eagle a few years back, Chrysler now has three nameplates: Chrysler, Dodge, and Jeep. The idea is to reduce the number of models and have Chrysler concentrate on cars and minivans, Dodge on trucks, and Jeep on SUVs.

Another part of the plan is to consolidate dealerships so that all dealers carry all three lines, and the number of dealers is reduced so that the surviving dealerships are healthier and are competing against the competition instead of against each other.

"They're really trying to stop this internecine warfare among metropolitan dealers five, 10 miles apart," said Sheldon Sandler, managing director of Bel Air Partners, a Princeton, N.J., firm that helps car dealers find options when they want out of the business.

Toyota Motor Corp., for example, had about 1,400 U.S. dealerships last year, about 40 percent of the combined number selling Chryslers, Dodges and Jeeps.

Toyota dealers each sold an average of 1,766 vehicles last year, while the average Dodge dealer sold only 374, according to J.D. Power and the trade publication Automotive News.

Because of declining market share, many Detroit Three dealers are losing money. Last year, 28.6 percent of Chrysler, Ford and GM dealers broke even or lost money, according to the National Automobile Dealers Association. The compares with only 14.5 percent of foreign-car dealers.

The Big 3's share of US auto sales has dropped from 74% in 1984 to 51% last year.

I find it interesting how different the channel problem is in this industry. Most manufacturers are concerned about the way the consolidation of their channels is making their customers too big and powerful. Here the manufacturers are concerned that they have too many customers and that the customers are too weak.

Irrational behavior

One of the cornerstones of economic thinking in recent decades has been that consumers, companies, and markets are driven by rationality. Each player acts in its own interests, and the result is to the overall benefit of all. And it mostly works.

Some economists, however, point out that not all behavior is rational. Or that behavior that is rational in one role might be irrational when a player shifts roles. This mostly comes from a school of thought called behavioral economics and popularized in the book, Freakonomics.

We can see this happening in our business in, for example, channel-stuffing. We all know that channel-stuffing makes no sense. What value is there in selling 100,000 units to a major customer who doesn’t need them? Certainly you make your numbers for this quarter, but at great cost (customers aren’t going to take units they don’t need unless you cut them a great deal), and you’ve just put yourself in a really big hole for the next quarter.

Totally irrational, right? Yes, to the supplier. But not necessarily to the employee who made the deal. His or her interests may be very different – e.g., quarterly bonuses. And the longer-term negatives might be of less interest to someone who may move along to another position or another company (with a record of meeting tough objectives).

Corporate policies in trade promotion are also sometimes not entirely rational, either. As long ago as the early nineties, I recall advising clients and readers that rather than slanting their trade promo programs entirely toward their biggest customers, they should consider taking steps to try to ensure the survival of smaller customers. A sharply diminished customer base, after all, would be likely to result in lower prices.

Totally rational: Fewer customers means increased bargaining power for those customers means lower prices. I’m not claiming to be a genius for seeing this – it was apparent to anyone watching the scene unfold. Which means that everybody did what I was suggesting, right?

Er … no. Actually, they did the exact opposite, because it was in their short-term interests to build sales the quickest, easiest way – through bigger customers.

None of which is to say that analyzing markets and making plans based on assumptions of rationality is necessarily wrong, simply that we must remember that companies are made up of people, and that people are sometimes … irrational.

The Euphemism Hall of Fame

The former CFO for Bristol-Myers Squibb is on trial for alleged channel-stuffing, and this article tells us that the judge has narrowed the government's case. Good news for the defendant, but what attracted my attention was this part of the story:

Defense attorneys plan to argue that this is not “channel-stuffing,” but rather a business strategy for “selling ahead of demand ...”

Oh, it was just selling ahead of demand -- why didn't you say so? That makes it all OK!

Gravity works for Campbell's

Campbell's is having success with its "gravity-feed" shelf units, first introduced in 2002. The units are now in 23,000 stores, and are now to be rolled out (if that's the term) in Wal-Mart. The company reports sales increases in stores installing the units:

Joe Ruiz, director-merchandising strategies at Campbell, Camden, N.J., said when the company installed the systems in 2002 it saw an initial sales lift of 5% and a 3% sustainable lift. "It's driven by where we put the system and what the customer base is," said Ruiz. "We've seen lifts [as high as] 5-8% [but as low as] 1-3%."

When I first saw the gravity-feed system in a store, it appeared to me to take more space per SKU, but that just shows how little I know, it seems. McCormicks also has gravity-feed systems for spices, according to the article, although I must admit I don't recall ever seeing one.

Will Barnes & Noble buy Borders?

Here's another indication that the two-per-channel theory may overstate the number of survivors in each channel -- Borders is considering putting itself up for sale, and Barnes & Noble might be interested in buying:

Borders said it earned $84.7 million for its fourth quarter, down slightly from $87.7 million in the period a year ago. It is also pursuing “strategic alternatives,” a phrase that often includes a potential sale of parts or all of a company. [...]

Wall Street has speculated for more than a year that Borders might sell itself to its larger rival, Barnes & Noble. A combination of the biggest and second-biggest booksellers has long been believed to be an invitation for regulatory scrutiny.

But some analysts point to the clearance given other mergers, like that of Whole Foods Market and Wild Oats Markets, the two largest sellers of organic foods, as a possible sign that a Borders-Barnes & Noble tie-up would pass muster.

On a conference call Thursday, Barnes & Noble’s chief operating officer, Mitchell S. Klipper, said his company had not been approached by Borders. But he added: “We’d certainly take a good look at the company and put it under review.”

B&N is also facing decreased earnings, though. Bookstores can't match the inventory of Amazon, and they can't match the prices on best sellers offered by mass merchants. This is reminiscent of the squeeze that has been destroying department stores slowly for the past several decades -- specialty retailers in the mall have deeper selections in each category, while discounters have better prices on high volume basic stock. As for the bookstores' other big category, music, the less said the better (Borders' CD sales were down 14.2% last year).

Unique store-siting criteria

Dick's Sporting Goods is expanding its relationship with Major League Soccer:

Dick’s Sporting Goods has enhanced its relationship with Soccer United Marketing, which now names retailer as the official sporting goods store of Major League Soccer, the U.S. Men’s and Women’s National Teams, as well as 10 of 14 teams playing in the league.

The five-year agreement expands an existing relationship the retailer has with the sport. The larger partnership aligns with the company’s growth plans to open stores in the markets where teams play and are located. Dick’s will also sponsor the remaining four MLS teams when it opens stores in those markets.

There's nothing unusual about relationships between sports franchises or leagues and marketers, of course. What's different about this is that Dick's is apparently planning to use the presence of MLS franchises as a driver in their decisions on which markets they will move into.

Reversal in private label trend?

Probably not, but there have been a few straws in the wind recently -- a few more and we may be able to declare a trend.

I noted here a few weeks back that Wal-Mart was decreasing its shelf space allocated to private label soft drinks, in favor of Cadbury Schweppes' products (much to the discomfort of Cotts). There is also the case of Sears, which is considering selling some of its powerful private labels through other retailers. And now we have Britain's Marks & Spencer, which has long sold only its own brands, but is considering introducing brand names onto its shelves.

The trend toward increasing market share for private label is so long established and so strong, that it seems impossible that it will ever stop. But everything stops somewhere (or so we all believe). Whether that point has been reached for private label is impossible to know (and a weak economy seems an unlikely time for a slowdown in private label), but a few more straws and maybe I'll believe.

TPM optimization survey

Consumer Goods Technology sent out an email requesting people to take a survey on trade promo optimization. If you haven't already taken it, I recommend you do -- here's the link.

I guess it could be worse ...

... but it's hard to imagine how.

The bad news is not only continuing for the newspaper biz, the situation calls to mind a cartoon snowball rolling downhill -- getting bigger and picking up speed as it descends to its tragicomic collision.

But nobody's laughing at Gannett or Tribune Company or any of the rest.

According to Editor and Publisher, the average US paper has lost about 10% of its circulation in the past four years, with a few (SF Chronicle is the worst) going 20% or higher.

But circulation is only part of the problem. Here's another article from E&P, headlined NAA Reveals Biggest Ad Revenue Plunge in More Than 50 Years. Does that sound bad? Well, it should, but unfortunately, the headline actually understates the case. Ad revenue was down 9.4% last year, which was the worst ever recorded (the records date back to 1950).

I don't know whether we are in or approaching a recession, but certainly the economy is slow and it seems hardly likely that ad revenue is likely to pick up soon; most projections are for a roughly flat year for advertising overall, and it seems reasonable that newspapers will lag other media, with most gains being on-line. And circulation losses are almost certain to continue, as older readers die off, the middle-aged continue to drop subscriptions, and the young continue to ignore the medium.

Sooner or later, of course, the snowball reaches the bottom of the hill. But that's usually a long way down.

A trade promo tactic I don’t recommend

Anytime I’ve worked on helping a client set up their trade promotion management system, one of the first questions is, “What are the promotion types you will need to track?” The answer is usually a fairly predictable list: Ad (sometimes broken down by media type), Display, TPR, maybe Signage, sometimes Slotting, and so on.

Occasionally, there’s a surprise, but to date I’ve never come across “Bribes” as one of the spending categories. I hope I never will, but it looks like a possibility.

According to this article, Home Depot has recently fired a few buyers who were living quite nicely on the largesse of some of their suppliers:

A $53,000 cashier's check to buy a 2006 Infiniti SUV. A $33,500 check to pay off a 2004 Cadillac Escalade. Home improvements worth $98,000, complete with a home theater and Sub-Zero appliances. And $400,000 in cash.

These were the tools allegedly used by at least five flooring manufacturers from China to Venezuela to hoist their products onto the shelves of home improvement giant Home Depot.

The cars, cash and renovations detailed in court records allegedly were taken as kickbacks by two former Home Depot flooring buyers, among four fired last summer for violating company policies.

What prosecutors say happened at Atlanta-based Home Depot — the world's second-largest retailer — is an example of the cutthroat nature of gaining what's considered prime real estate in the retail industry: big-box shelf space.

In case it sounds tempting (might be cheaper than slotting), it appears that the suppliers have been bounced or are being reviewed. It wouldn’t surprise me if the DoJ decided to join the review.

Update to "Could It Happen Here?"

I should have mentioned in my post a few weeks ago, on the likelihood of stronger enforcement of laws regulating trade promotion in the US, that what clearly can happen is private lawsuits by aggrieved parties. We’ve seen a number of such private actions in recent years, some of them resulting in significant penalties (e.g., LePages/3M, Conwood/US Tobacco).

Now a new suit has been filed by a Kia dealer, alleging that his supplier has been offering larger advertising allowances to other Kia deales in his market. Shocking!

According to the lawsuit, dealership vice president Jim Barnett discovered the advertising program in December 2006 when he "inadvertently" opened a Federal Express envelope that had been misdirected to his dealership.

Inside were letters addressed to some of Barnett's competitors, showing that Kia Motors had been providing them with advertising incentives of $10,000 to $35,000 a month in a "Regional Marketing Fund program."

Just a reminder: If you’re sending out a notice about a special program, make sure you don’t mail it to customers who are excluded from the program.

More seriously, even though the article states flatly (and truthfully) in regard to Robinson-Patman that "the government no longer enforces the law," the possibility of suits by customers or competitors is still very real, and potentially (ask US Tobacco, who got hit for $1 billion) very expensive.