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.

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 Café 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.

At Last! Competition for TicketMaster

A bit of a personal rant: Of all the companies that I patronize regularly, TicketMaster is certainly the one I most despise and most want to see brought down.

Unfortunately, there is often no alternative to paying TM's absurdly inflated 'convenience fees' when buying tickets for many types of events -- if you want to buy a ticket to see 'Wicked' here in Chicago this week, a $92.50 ticket will cost you $106.71, an upcharge of more than 15%.

They are an unregulated monopoly, but it looks like perhaps they are about to get some competition.

ScoreBig Inc., which has raised $8.5 million from investors including private-equity firm Bain Capital and media executive Shari Redstone, has been quietly testing a system that aspires to do for concert and sports tickets what Priceline.com does for airline seats and hotel rooms: Allow customers to buy them at cut-rate prices, while avoiding the whiff of desperation that typically accompanies discounts.

Unsold seats are a major problem for the music and sports industries alike. "We have 35% to 50% of total industry capacity that goes unsold each year," said ScoreBig Chief Executive Adam Kanner, "and fans that can't afford" the events. 

Granted, it's only the left-over seats, but it's a step in the right direction. Anything that puts pressure on pricing, even in one area, should (I hope) have the effect of bringing down prices overall.

A Year-End Visit to the Corporate Graveyard

A listing of companies that went bankrupt and brands that disappeared in 2010 includes a number of retailers -- Blockbuster and A&P most notable, but also Urban Brands and Jennifer Convertibles. A lot of car brands on the list, as carmakers downsized -- Mercury, Pontiac, Hummer ...

I was also struck by not just the number, but the variety of media listed. There was Affiliated Media, which publishes a bunch of major newspapers (San Jose, Denver, etc), but also Penton Media, a trade press group (Nation's Restaurant News and Farm Press among them), and trashy tabloid publisher American Media (National Enquirer, Star). And then there was mainstream magazine Newsweek, which didn't exactly go bankrupt, but when you're sold for $1, it's pretty much the same thing.

Most of course are just companies that over-expanded or got over-leveraged in buyouts when things were good. That's usually the story in a recession. But the broadness of the media category of failures is a reminder that there's a systemic element to this. We all are conscious of the effect of the internet on local newspapers and broadcast (though there were no big broadcasters on the list), but trade press is equally damaged by the changing dynamics of news delivery. And as for gossip -- who needs to read it in the checkout aisle anymore?

Michael Vick as Product Pitchman

Has Michael Vick's on-field performance been so good that the public has forgotten his dog-fighting past? He hasn't gotten any serious endorsement deals, but a Philly area Nissan dealer hired him for this spot:

This is a dreadful ad, in my opinion, although I don't know if it's much worse than most local car-dealer spots. But I guess Vick had to start somewhere on the endorsement comeback trail. I just can't see a spot like this making Nike sit up and take notice.

Best Buy Takes on Dick's and Sports Authority

When a category killer has finished killing off its category, what's the next step in growth? Moving into somebody else's category, it seems.

Best Buy is introducing health and fitness equipment, stuff that would seem more appropriate at Sports Authority.

A 30-foot-long in-store health and fitness presentation area enables consumers to sample many of these devices before they buy. On display are state-of-the-art heart rate monitoring watches, pedometers, special MP3 players, ear buds, headphones, yoga mats, scales, blood-pressure monitors and other products from leading manufacturers such as Gaiam, GoFit, H2O Audio, MIO, Polar, Sportline and Yurbuds.  

They are concentrating on techie sports equipment, which lends some logic to their actions, but it does beg the question of what the next move might be.

A&P Declares Bankruptcy

Not exactly a shock, this has been expected for a long time -- helped along by the most recent quarterly report, which showed losses of over $150 million.

This article says that Ahold may bid for A&P's Pathmark stores, but I'm sure there will be lots of such speculation over the next few months.

Video Game Sells $650mil in Five Days

I continue to be stunned by the extent to which video games have displaced movies as the most important entertainment medium for a substantial portion of the public, and more generally by video games as a money-maker.

The latest release of Call of Duty, Black Ops, generated $650 million in sales in its first five days of release. By comparison, the biggest movie of all time, The Dark Knight, had a box office of less than a third of that, $200 million, in its first five days.

I wonder what the star game designers are making compared to movie personnel?

Mail-In Rebates Continue Decline

According to this article in USAToday, mail-in rebates on Black Friday promotions have declined dramatically the past few years:

The number of Black Friday promotions from major retailers with mail-in rebates has dropped from about a third a few years ago to just 10% so far this year, says Brad Wilson, founder of BradsDeals.com.

I'm not sure what the statistical basis is for his numbers, but I think it's unquestionable that many suppliers and retailers are avoiding mail-in rebates. The decline began several years ago when the public clamor about practices that were often deceitful and sometimes flat-out fraudulent reached a point where the Federal Trade Commission began investigating. Fines and public shaming followed, and some retailers (Best Buy most prominent among them) began eliminating the practice.

I see a lot of ads indicating 'instant rebates' -- prices reduced at the cash register. Is there any research indicating that this is more effective than a TPR? -- which is what it is.

US Ad Biz to Recover Slowly

Projections of the advertising market over the next few years are that the recovery is going to be slow. According to ZenithOptimedia:

... ad spending in the U.S. will grow just 2.5 percent next year to $155 billion, and a total of just under 9 percent between 2010 and 2013 to $164.8 billion, an increase that the agency termed “disappointing.” The Olympic-Election year of 2012 will see growth of just 3 percent to $159.6 billion. 

Global growth will be a bit better, with Brazil, China and India expected to lead, and China surpassing Japan to become the second-biggest ad market.

The hold-up in the US?: "... corporate concerns about debt, unemployment and government spending."

Zombie Brands

I've been interested for years in examples of old brand names being revived -- I recall being intrigued in the late 1980's when the Packard Bell computer was introduced. As a kid, our family's first TV in the early 50s was a Packard Bell, and I briefly thought it was from the same company. Which was, of course, the idea -- the computer company had bought up a respected brand name that was in disuse and thus gained a measure of credibility.

There was an auction of such brand names in New York recently:

It featured names in categories like beverages (Meister Brau beer, Snow Crop frozen orange juice) financial services (the Kuhn Loeb and Shearson brokerage firms), packaged foods (Allsweet margarine, Lucky Whip dessert topping), personal care (Mum and Stopette deodorants), publishing (Collier’s, Saturday Review) and retail (Computer City, Phar-Mor).

The Victrola brand name was sold for $1000 -- I wonder what it might be used for?

Are Sales Associates Passe?

A survey by Accenture finds that most smartphone users would rather consult their device to get basic shopping information than ask for help from a store employee:

73% of shoppers with smartphones favor using their smartphone to handle simple tasks in stores compared with 15% who favor interaction with an employee, the survey says. Similarly, 71% favor using their smartphone to identify a store with a desired item in stock, while 17% would prefer to get that information by speaking to an employee.

My first reaction was that the issue isn't asking a store employee a question -- it's finding a store employee to ask.

Which gets to the core of the issue: employees are expensive, so stores have cut back. They can cut back more if they improve their digital service offerings. Which means it will get even tougher to find a store employee when we need one, I guess.

But opportunities are there, as always. One obviously is offering a suite of services via mobile devices that make it quick and easy to find help that way; another is to differentiate oneself by offering good in-store service from human beings; a third might be offering the best possible combination of both forms of customer service.

Is Borders Going to Buy Barnes & Noble?

More than two years ago there were rumors that Barnes & Noble might buy Borders (we mentioned it here), and those rumors have persisted. Now the hot rumor is that the tables might be turned:

A hedge fund managed by Borders investor William Ackman is now offering to finance a bid of $960 million in cash, or $16 per share, for Borders to buy the much bigger Barnes & Noble, which put itself up for sale in August. Mr. Ackman, whose Pershing Square Capital Management LP holds 37.3% of Borders shares, made his offer in a regulatory filing that became public Monday.

A marriage of the two book behemoths could lead to some significant cost savings through economies of scale. Barnes & Noble also has proven to be a more adept operator, with skills that it could be applied throughout a single, combined chain. But a combination of the No. 1 and No. 2 bookstore chains in the U.S. would face headwinds, including antitrust scrutiny and Borders' own shaky finances.

Very shaky -- Borders' market capitalization is less than one-eighth of B&N's.

Whichever way the merger goes (if there is any merger) I would wonder about its chances of success -- it seldom works out that combining two weak companies creates one strong one (e.g., Sears and Kmart). And a merger wouldn't solve the real problem, digital books, which was just exacerbated by Google's entry into the market. As a hardcore bibliophile, I fear that book stores are following record stores into oblivion.

Barnes & Noble recently cited studies that suggest consumer spending on new physical books will fall to $19 billion in 2014 from $20.5 billion in 2009.

Are iPad apps killing newspapers?

As if the newspaper biz needed more bad news (here's yet another report on declining ad revenues), a survey says that heavy iPad users are more likely to cancel their newspaper subscriptions: "The survey showed that 58 percent of respondents who use the Apple tablet at least an hour a day for news are very likely to cancel their subscription in the next six months."

Actually, I wasn't all that impressed with this result after I pondered it. iPad users -- early adopters of new technology -- are probably younger than the populace as a whole, and therefore more likely to discontinue newspaper subscriptions (and less likely to subscribe in the first place). In addition, it seems hardly surprising that anyone who reads an hour of news per day online (via any technology) would be contemplating unsubscribing.

A few thoughts on channel-stuffing

I've seen several articles recently alleging that General Motors has engaging in channel-stuffing -- shipping out more cars to dealers than the dealers could sell -- in the months preceding their IPO. I have no idea if it is true, though the graph accompanying this blog post would seem to provide some evidence to support the idea -- though it may also merely be proof of poor forecasting (another point of some interest, of course).

Regardless of the merits of the charge against GM, something that I notice is that such charges are being made with more frequency, to the point that the term 'channel-stuffing', once used only among channel marketers, has become fairly common.

Channel-stuffing has always been a stupid tactic, in my opinion, at least for the company involved, though not necessarily for individual employees involved. (The employees may benefit from incentives based on short-term sales goals, and figure on having moved on to another position before the consequences hit). But the growing knowledge of the practice among the general public (read, 'customers') and the frequency with which the charge is (fairly or not) being leveled, means that companies can suffer a PR hit -- whether the real problem is channel-stuffing or bad forecasting. A good reason to avoid both, it seems.

What do you think? Is channel-stuffing just commented about more these days, or has it actually becoming more common?