Wednesday, January 05, 2011

Rite Aid Pleased with Save-A-Lot Combo Stores

Rite Aid and Save-A-Lot have been involved in a pilot project in several South Carolina locations, in which Save-A-Lot has sold groceries in the front end of underperforming Rite Aid pharmacies. Apparently it has worked well:

"The stores have done extremely well since opening and as a group are comping up over 100% on the front end with pharmacy running consistent with the trends before the conversion,” John Standley, Rite Aid’s chief executive officer, said in a conference call discussing the retailer’s quarterly financial results Thursday.

Reportedly there are negotiations between the firms to expand the project. It's an interesting approach, and at this point any good news has to be welcome for Rite Aid.

Sunday, January 02, 2011

Sticking with the Trade-Down

It looks like a lot of the people who traded down to the dollar store channel are sticking with it, even if things are improving. Dollar General, for example had same-store sales that were up 7.4% in the most recent quarter.
Rick Dreiling, chairman and CEO of Dollar General Corp., told an investor conference last week that upper-income shopper are still turning up at the stores, and promise to stick around.
"For the second year in a row," he said, "95% of our trade-down customers are saying that, regardless of what happens to the economy, they're going to continue to shop with us."
Growth for the past several years has been impressive:

But can it continue? The companies seem to think so, and are adding lots of stores.
The long-term outlook for dollar stores could dim as the economy recovers but the chains are pressing ahead with plans to add hundreds of stores to the thousands that they already have.

To hold on to higher-income customers, many of the stores have stepped up their game in terms of what's on the shelf and how it's displayed. There's a new focus on nationally known brands and frequently purchased items like snack foods and cleaning supplies. 

I wonder, though, if they can continue to offer huge savings if they are selling national brands. And if they don't, will they alienate their core customers (and give someone else the opportunity to steal those customers away)?

Gillette Axes Tiger

Gillette is cutting ties with Tiger Woods, although it appears to be part of a broader cutback in athletic endorsers.
The company will not renew its relationship with Woods as part of a plan to phase out its Gillette Champions marketing program in the first quarter of 2011, Norton said in an interview earlier today with USA Today.

Gillette also will cut ties with soccer players Thierry Henry, Kaka, Rafael Marquez and Lionel Messi and other athlete endorsers around the world, Norton told the newspaper. Gillette will retain endorsement ties with athletes including tennis’ Roger Federer and Derek Jeter of the New York Yankees.

I guess the people in Cincinnati have completely taken over. Can you imagine a Boston-based company cutting most of its athletic ties, but keeping the Yankee?

I'm skeptical about endorsements in general -- whatever benefit there may be (and part of my skepticism is that I can't see many people buying something because of the endorser) seems small compared to the risk of a Tiger-like situation. Butthis is way out of my area, and the people who should know keep doing it, so I guess it works.

Note: Yes, I know Axe is a Unilever product.

Yes -- The Other Lane Really Is Faster

According to this scientist, you're not imagining things. The other checkout lane really is faster than yours.

Poll Result: 2011 Economy

Our year-end poll asked readers to look into their crystal balls and forecast the economy: “At this time next year, will we be in the midst of a strong recovery?” The consensus was that there was no consensus:
  • 35% Yes
  • 48% No
  • 17% Too many unknowns
Our readers tend a bit to the bearish side, as summarized by one of our comments: “I want to believe it’s turning around. I really do. But we’ve had this ‘green shoots’ talk a bunch of times already. There are some things that are looking good – we had a very good holiday season. But there are also a lot of ugly obstacles in front of us. Europe makes me very nervous.”

Will 2011 Be a Year of Supplier-Retailer Pricing Conflicts?

If, as some economists argue, large government deficits will result in inflation, then suppliers will have no choice but to increase prices. If consumers, having become used to heavy discounting, resist the increases, then fights between suppliers and retailers will become commonplace.

Here we see reports of ConAgra and General Mills seeking price increases. General Mills is seeking to cut $1b from its costs to offset commodity price increases, but will nonetheless have to pass some increases on:
The company posted earnings and sales on Thursday that missed Wall street estimates, hurt by higher commodity costs and spending on promotions.
The story was similar at ConAgra:
ConAgra Foods Inc is looking to price increases to help boost results in coming months after reporting quarterly profit that fell due to rising commodity costs and weak response to promotions.
And the issue is not limited to the US, of course. In China, the leading supplier of noodles, Ting Hsin, stopped shipping to Carrefour after Carrefour rejected a price increase of 0.2 yuan (about three cents) per unit.
Ting Hsin International told the Hong Kong Stock Exchange in October that it was raising the retail price of each package of instant noodles from 2 yuan (30 cents) to 2.2 yuan due to an increase in raw material prices.

Two months after the announcement, the Taiwan-based food and beverage maker halted shipments of instant noodles to Carrefour stores in the mainland. A company official told First Financial Daily that the reason for the halt is that Carrefour wants to cut 0.1 yuan from the suggested 0.2 yuan price hike.

Whether these attempts to raise prices succeed will depend in large part, of course, on the strength of the supplier. ConAgra and General Mills have some very strong brands, and Ting Hsin’s Master Kong brand has over 40% of the noodle market. Other suppliers recognize that they may not be able to do the same:
"Only large suppliers such as Ting Hsin can negotiate with the retailers. For small suppliers like us, it is always take it or leave it," said Yang Lei, general manager of a food and beverage distributor in Beijing. […]

"We have little bargaining power over the purchasing price of the big retail chains. Because they have extensive sales channels with high sales volume, suppliers can't afford to lose this business relationship," said Yang, whose company supplies to Carrefour and Wal-Mart.

Also in China, Kraft recently stopped shipping Oreos to local chain Lianhua in a pricing dispute.

Exit Question: Are you expecting to see an increase in supplier-retailer pricing fights this year?

Is Groupon Too Good to Be True?

The amazing growth of Groupon is certainly one of the biggest business stories, and biggest social marketing stories of the year. But is being featured on Groupon necessarily good for a business? The answer seems to be, as it so often is, “It depends.”
But the inevitable backlash began this fall, with a blog post from the owner of Posie's CafĂ© in Portland detailing how its Groupon offering was a financial disaster for the company. In particular, the post took issue with Groupon for not capping how many coupons can be sold and taking too large a cut of sales. "There came a time when we literally could not make payroll because at that point in time we had lost nearly $8,000 with our Groupon campaign," the owner wrote. 
Groupon responded that 97% of participating businesses want to be on Groupon again. But a study by Rice University finds that the truth may be somewhere in between.
Of the 150 businesses it surveyed in 19 cities, 66 percent said Groupon promotions were profitable, while 32 percent said they weren't. More than 40 percent of the companies wouldn't run a Groupon offer again.

Rice’s suggestions for retailers doing Groupon promotions seem sensible: “Use deals for building relationships rather than just creating one-time buys; don't offer discounts on a total bill but for specified products or services; and use Groupon to sell slower-moving items.” I would add that, given the discounts Groupon consumers expect, that the coupon better involve an extraordinarily high-margin item or service.