Trade Promo Tactics and Processes for Shopper Marketing

A couple weeks ago, I discussed an article about Shopper Marketing that in turn referenced a Deloitte/GMA study from last fall. It was a thought-provoking study, and I'd like to present a few of the things that crossed my mind while reading it.

Definition

The study made the point that there is no generally accepted definition of Shopper Marketing (a fact that calls into question their efforts to measure it). I'm not too hung up on tight definitions, but a description in general terms of what I'm talking about is a necessary starting point, I think. I'm not suggesting that others follow my definition, and I'm perfectly willing to accept another if a consensus forms.

A definition is especially important for manufacturers when they get to the question of budgeting, as I discuss below - what is included in which budget is a point that will require very tight definitions indeed.

I'm inclined to say that Shopper Marketing is limited to in-store promotion, because I'm of the opinion that definitions that become so broad that they exclude nothing (e.g., "TV advertising is directed to shoppers, so it's shopper marketing") become meaningless. I can see an argument that mailings to loyalty card members are Shopper Marketing, but for now I'll stick with saying that Shopper Marketing is limited to in-store promotions. An important question is whether pricing actions are included. For now, I'll say no (for reasons I detail later), but I can see combo price/image promos being Shopper Marketing. Further refinement of the definition will be needed, but let's leave that for later.

For now, my working definition is: "Joint manufacturer-retailer in-store promotions that are focused primarily on building or maintaining brand image."

Applicability across Categories

The study was entirely concentrated on the CPG/grocery category, which is hardly surprising, given that it was sponsored by the Grocery Marketing Association. Nor is it a surprise, given that the biggest trade promotion expenditures are found in that category.

But a growing share of consumer durables sales is going through channels using CPG tactics (and many of the leading retailers in durables channels are adopting CPG tactics). So, although this study may be less applicable to consumer durables, the subject of Shopper Marketing is not without interest even in those categories.

In addition, much of the attraction of Shopper Marketing is not channel-specific. It is based on the growing awareness that, as mass media fragments and the channels consolidate, it is becoming much more efficient to reach mass markets in the store than through traditional broadcast and print media.

It is harder to see applications of the study or of Shopper Marketing in general for business-to-business or non-retail marketers (e.g., financial services).

Funding/Budgeting

In order to create trade promotion programs that facilitate effective Shopper Marketing, a number of changes are necessary. The most important are in the areas of budgeting and in the control of the programs and budget.
Because we're talking about control of large budgets, I don't think I need to tell you that these changes will meet with opposition by those who see their empires threatened.

The vast majority of trade promotion budgets in CPG/grocery are under the control of the Sales department. This is hardly surprising, since the purpose of the programs has long been seen as driving immediate sales. If, however, we are examining an initiative whose purpose is less focused on immediate results, and more on maintaining or building brand image, then it makes little sense to have Sales in charge of the budget, because Sales is not responsible for nor measured on brand-building.

I will state the obvious: Sales is not going to like this.

I can hear the VP-Sales right now: "If Marketing wants to do in-store activities to build the brand, I'm all for it. But the funding needs to come out of the national ad budget."

I don't entirely disagree. To the extent that Shopper Marketing is intended to supplement or replace brand-building efforts such as national TV or magazine ads, it should be funded from the budget that currently pays for those activitiesd. But the fact remains that a portion of the trade promo budget has always gone for endcaps, signage, and similar activities. If we are to say that those items are now to be paid for by Marketing, with no offsetting decrease in the budget controlled by Sales, the effect would be to increase the amount of spending on price promotion - not, I trust, what anyone wants to do.

What needs to happen is that both the Sales-controlled trade promo budget and the national advertising budget are cut, and a new Shopper Marketing budget created.

The logic behind the split would be that if the primary intent of an in-store promotion is to lower price to the retailer (and, perhaps, the consumer), it comes out of what I am calling the Pricing Promotions Budget, which is controlled by Sales. If the primary intent is to build the brand in concert with the retailer, then it comes out of the Shopper Marketing Budget, which is controlled by Marketing; traditional consumer-directed advertising run by the manufacturer alone stays in the national advertising budget.

Not covered in this description is out-of-store joint promotions (e.g., newspaper or radio run by the retailer promoting the brand). This category is substantial in durables, and not insignificant in CPG/grocery. Although it is not (in my definition) Shopper Marketing, it should be in that budget because it fits the same intent and function - that is, it is a joint supplier-retailer effort that is primarily brand promotion rather than price.

This split moves budget authority and responsibility where it belongs - Marketing has responsibility for the brand, and Sales for pricing.

This does not mean that there will be no conflicts and gray areas (many promotions, inevitably, involve both pricing and branding), but if managements understands and endorses the principles, then resolution of such questions should be possible.

Allocations

There are two ways I can think of immediately that a manufacturer might look at these budgets. One is to establish an overall budget figure (say 15% of sales) for price promos and Shopper Marketing, and base the breakdown largely on the retailers' demands for pricing money This might end up looking like:

• SuperValu -- 9% on price promo, 6% on brand-building
• Kroger -- 8% price, 7% brand
• Wal-Mart -- 15% price

It might also be that Sales sets a particular percentage for price, while Marketing allocates whatever budget they have based simply on which store is the best vehicle for the brand activities they want to carry out. In some cases that might lead back to something close to the above, since the retailer whose emphasis is totally on price may not be the best environment for building a brand image (depending on the image you're trying to build).

I imagine we'll end up with these two, blendings of these two, and various other approaches, before any sort of consensus approach is reached.

Systems, Processes, and Administration

Splitting of the trade promotion budget will require modifications to the systems and processes that currently control and monitor trade promotion activity and spending. If Sales and Marketing go their separate ways and use separate systems, it will not only be wasteful and inefficient, it will obscure management's view of overall channel spending.

TPM systems currently exist that can (in some cases, with moderate tweaking) separate control of budgeting and allocation processes, while rolling up to a single expenditure total. Without such systems and accompanying processes, a manufacturer will end up with Sales having budgetary control over an area (brand-building) that is Marketing's responsibility, or Marketing having control over Sales's pricing functions. Neither approach will work.

The administrative processes currently in place (e.g., for documentation and settlement) can probably be continued with few changes, with the exception that it would be best to move them to a "neutral" dpartment (Customer Service or Finance, perhaps) to avoid the turf wars that may erupt between Marketing and Sales.
Shopper Marketing and Collaboration

The Shopper Marketing paradigm described here is very dependent upon a strongly collaborative relationship with retailers - a relationship that manufacturers may need to limit to key accounts or even a subset of their key accounts, both because of their own resource constraints and because of the inability or unwillingness of some retailers to participate.

Several years ago, Dale Hagemeyer of Gartner produced a slide depicting several collaborative scenarios, a slide that many (including me) have stolen for their own presentations. In simplified format, it looks like this:

Successful Shopper Marketing efforts will require collaboration that looks like the diamond on the right. At present, brand-building trade promotion efforts generally follow the butterfly scenario and look like this (based on a chart in the GMA study): A successful Shopper Marketing collaboration will look like this:

In regard to planning, the Deloitte/GMA study made a recommendation with which I strongly agree:

Follow One Strategy. Manufacturers should not put strict boundaries between trade promotions and shopper marketing programs. Both are stimuli that influence shoppers in the store. First, manufacturers should start aligning trade promotion with shopper marketing programs. Then, they should approach retailers with one plan/calendar that has all the programs that influence a specific shopper segment.

The trick, of course, will be getting Marketing and Sales to step outside their silos long enough to agree on a single go-to-market plan and coordinate their efforts to implement it. This will be tough - we don't often enough see coordination between two efforts today (national advertising and trade promotion), how much harder will it be to coordinate three - national advertising, Shopper Marketing, and pricing promotions?

However difficult it is, I would submit that the rresults are likely to be more than sufficient to justify the effort.
Even after divisions are overcome within the manufacturer, it will be necessary to build relationships with the retailers' marketing departments. Promotions that run through the retail buyer face problems similar to those created on the manufacturer side if Sales is in charge of the Shopper Marketing budget: The retail buyer's job performance ratings and other incentives are not affected by how much brand-building goes on in the store; he or she is judged on pricing and sales measures.

Because of the complexity of these relationships, and the obstacles to them, it is almost certain that Shopper Marketing programs will be rolled out over time, beginning with only a few key accounts, and will probably vary in important ways between accounts. Account-specific marketing will be supplemented by account-specific Shopper Marketing.

Measurement and Analytics

Shopper Marketing is greatly dependent upon data and analysis, and will require both new measures and new tools.

This is where Nielsen's PRISM (about which I have expressed some skepticism in the past) and similar initiatives may prove to be of great worth.

Part of the reason for segregating Shopper Marketing and pricing promotions, in addition to the points made above, will be the need to apply separate measures to them. Pricing promotions will be subject to the trade promotion metrics that have been developed in recent years - lift, cost per incremental case, and other volume and profit measures derived from scanner data.

Shopper Marketing will be subject to measures more similar to print and broadcast media - reach, frequency, cost per thousand. Ideally, though, combo measures will be developed so that we will see what percentage of the shoppers who saw the display bought the product. These will be similar to direct mail conversion measures, or perhaps will mimic the movement of Internet advertising metrics, which moved in a few years from gross impressions to cost-per-click to cost-per-sale.

Shopper Marketing also offers opportunities to use retailer data insights. Wal-Mart's Retail Link, for example, segments stores into clusters based on demographic characteristics of their customer bases, such as ethnicity or age. At present, relatively few manufacturers take advantage of such data in designing promotions for their retailers. I believe (though I certainly can't prove) that Shopper Marketing programs run by Marketing would be more apt to utilize such data than trade promotion programs run by Sales.

Conclusion and Summary

None of these proposals are certain to happen, nor are they certainly the best way to approach Shopper Marketing. What I've presented here is intended simply as a starting point for a discussion on how best to deal with an approach that involves both Marketing and Sales, that is attempting to accomplish both immediate sales lift and longer-term branding, that involves both advertising/promotion and pricing actions. My tenttive prescription is to separate budgeting, authority, and responsibility based on intended goals, while blending the planning and reporting, and both separating and blending the measurement and analysis.

OFT investigating price-fixing in British supermarkets

The UK's Office of Fair Trading has launched an investigation of British supermarket chains and leading suppliers over allegations of price-fixing.

The OFT is understood to have made visits to the head offices of Tesco, Asda, Sainsbury's and Morrisons and to some of their suppliers. The supermarkets are understood to be co-operating with the investigation.

Tesco said in a statement: "We understand that the OFT has asked for information from a wide range of suppliers and retailers. We are working with them to provide what they require. At Tesco we are confident that we always act in the interest of consumers."

The move comes just days after the OFT announced it was looking into allegations that 11 retailers, including Asda, Sainsbury's and Tesco, and manufacturers were working together to fix cigarette prices.

I will update this post later because The Economist has an excellent article that I read on the plane today, and I want to add some of its info (but at the moment I don't have the time).

Update: The Economist adds the names of several suppliers who have been asked to provide pricing info: Britvic, Coca-Cola, Mars, Nestlé, Procter & Gamble, Reckitt Benckiser and Unilever. They also refer to it as rather a big deal:

(This) may turn out to be one of the world's biggest and most widespread investigations into the possibility of price-fixing. The investigation involves thousands of products, from soap to cola, and some of the world's largest consumer-goods companies.

They also make two interesting points. One is that the American antitrust tactic of encouraging whistle-blowing by offering immunity seems to be spreading to Europe, a point partially confirmed by an article in today's Daily Telegraph, which names Asda/Wal-Mart as the whistle-blower:

In blowing the whistle, Wal-Mart, which owns the Asda chain, has guaranteed itself immunity from a fine should the OFT discover any cartel activity. Any company found guilty could be fined up to 10 per cent of its annual worldwide sales, which in Wal-Mart's case would be $37bn (£18.7bn).

The move is likely to make the US retailer deeply unpopular with the companies involved, many of whom are its largest suppliers.

The other interesting point is that what is alleged is price-fixing on brands, rather than the more classsic commodity pricing:

Every economics student learns that cartels are most likely to crop up when firms have least protection from cut-throat price competition. The typical cartel product—vitamins, paper, petrol, glass, bulk chemicals—is a commodity offering scant opportunity for the branding that might create some pricing power. The industry is usually mature, with stable market shares and little innovation. This dullness has a virtue for a would-be cartel: it makes it easy to check if rival firms are sticking to the market-rigging plan.

They point out that the UK supermarket category appears to compete aggressively on price (although this is the third major probe of price-fixing, a dairy products investigation resulted in over 100 million pounds in fines recently, and only a few weeks ago OFT announced an investigation of tobacco price-fixing).

What they failed to bring up is that a highly-concentrated retail sector increases the likelihood of price-fixing. The four big UK chains have a combined 75% share of market -- coordinating among four is much easier than if a market has many significant players.

They do mention that buyers may have a motivation to fix prices even if their employer doesn't: "Often they are free to set selling prices and are paid bonuses linked to targets on sales and profits relating to the products they manage."

This will be interesting to follow, and I'll try to post additional info as it becomes available.

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.

Martha leaving Kmart 2010

Martha Stewart's licensing deal with Kmart, which at one point was generating $1 billion anually in sales, expires in January 2010, and it's pretty clear it won't be renewed.

“Right now we do not believe Kmart is our likely partner going forward,” president and ceo Susan Lyne said during the Bank of America 2008 Consumer Conference here. “However, as of January 2010 we can be in any other mass retailer,” and the company is free to pursue new deals now, she added.

If that wasn't clear enough, she added this zinger, "What is important for us is to be with someone who is investing in their business.”

Borders displaying more, stocking less

Borders is taking a different approach to displaying its books -- one that will result in better display of some titles, but fewer overall being stocked.

The approach is a simple one: Display more books with the cover facing out, rather than in the traditional bookshelf approach of showing only the books' spines. The CEO of Borders says he learned as a young buyer at Dillards that dresses sell better if fully displayed rather than hanging on a rack.

In a radical move aimed at jump-starting sales, the nation's second-largest book retailer is sharply increasing the number of titles it displays on shelves with the covers face-out. Because that takes up more room than the traditional spine-out style, the new approach will require a typical Borders superstore to shrink its number of titles by 5 percent to 10 percent.

That makes the strategy a big gamble for Borders. Reducing inventory goes against the grain of booksellers' efforts over the past 25 years or so. Chains like Borders and Barnes & Noble Inc., the nation's largest book retailer, became household names with superstores that stocked as many as 150,000 titles or more. The rise of Amazon.com Inc., which offers a vast selection online, made it even more important for stores to offer deep inventories.

"We always had face-out titles on the shelves and on tables, but they were used as punctuation and tended to focus on popular titles," says Anne Kubek, senior vice president of Borders U.S. stores. "Today we're showing the front of books even when we only have two or three copies."

More titles facing makes sense to me. I often buy books I wasn't planning to simply because they caught my eye (as my overflowing bookshelves at home will attest), and a cover is more likely to catch my eye than a spine with text running sideways. The downside, though, is that the new policy is likely to result in a reduction of five thousand or more titles from the typical Borders inventory of about 93,000 titles. Borders already stocks fewer than Barnes & Noble in most cases.

And the effect on suppliers?:

The Borders push may affect small publishing houses, which can often place a debut novel in Borders because it has such a broad selection. Whether that will be more difficult in the future is unclear, says Alexander Chernev, associate professor of marketing at Northwestern University's Kellogg School of Management in Evanston, Ill. "If Borders carries fewer titles, then they may prefer larger publishers that have more marketing push," he says.

Could it happen here?

There seems to be a quickening pace of regulation on issues relating to trade promotion, with most (though not all) the activity taking place outside the US. The question for us Yanks is what, if anything, it means domestically, and what the foreign developments mean to our international operations.

I’ve mentioned in the past the international investigations of Intel regarding pricing and rebate (e.g., Intel Inside) issues. Investigations are ongoing in Japan and Korea, and recently there have been raids on several European retailers and on Intel offices, in connection with the EU’s investigation. In the US, AMD is suing Intel as a private action under the Robinson-Patman Act. In addition, last month the state Attorney General in New York served a subpoena for a state investigation.

But that’s (mostly) old stuff. What is new is a government study of retail concentration and excessive retailer power in the grocery industry in the UK, and calls for a similar study in the EU.

In the UK, the Competition Commission, similar to the FTC in the US, has been investigating retail concentration for the past couple years and has released its preliminary findings.

Suppliers are to get more protection in their dealings with big supermarkets in a bid to ensure fair competition.

An ombudsman will be appointed to resolve disputes between retailers and their food suppliers, the Competition Commission recommends. [ … ]

The commission also said it was concerned about retailers being able to transfer unexpected costs to their suppliers.

Shortly after the report was released, there were calls in Brussels for a similar study on the continent:

In the wake of the Competition Commission's remedies report on the UK market, 439 MEPs have signed a written declaration on investigating the power exerted by large supermarkets in Europe.

The declaration calls for the European Commission to look into “the impacts that concentration of the EU supermarket sector is having on small businesses, suppliers, workers and consumers and, in particular, to assess any abuses of buying power which may follow from such concentration”.

So, the question arises: Is there likely to be anything similar happening in the US? Six months or a year ago, I would have said absolutely not (in fact, I think I did say so in my book). Now I’ll still say “absolutely not” in the short term, but modify it slightly to “probably not, but maybe” in the medium- to longer-term.

The reason for the change is only partially the international tide toward greater scrutiny of trade channel practices. There is also a populist tide running in American politics, and Robinson-Patman is nothing if not populist legislation. In addition, local politicians have found that there are points to be scored by bashing the big boxes (especially Wal-Mart).

There was once a belief that R-P was more vigorously enforced in Democratic administrations than by Republicans. Recent decades have offered little support for that idea – the FTC under Carter and Clinton showed only marginally greater enthusiasm for R-P than the Republicans who preceded and followed them – but the way the leading Democrats have talked in debates might lead one to believe that they would favor at least some increase in enforcement activity. Or that could just be campaign talk.

Even if a new president wished to push the FTC toward a more activist role, it would take some time, since only one commissioner can be replaced each year, and a balance must be maintained between the parties in making appointments.

As a related item, the FTC chair has just resigned to take a job as head counsel for Procter & Gamble. Hmmm … maybe P&G is trying to stay prepared.

TPMA: April 20-22

The next Trade Promotion Management Association conference is coming soon in San Francisco. The agenda is posted here. The whole thing looks good, but I think I’m most interested in the second day keynote:

Integrating Marketing Mix Modeling and Trade Promotion Management
Learn to model the effects of marketing investment strategies on consumer demand and link them to the tactical trade promotional vehicles that drive shipments and warehouse depletions.

Sounds good – I seem to recall having a conversation or two along those lines. And it’s followed immediately by Dale Hagemeyer talking about Seven Key Considerations When Choosing a TPM Solution. That means I have to behave myself Monday night so I can get up early for the Tuesday sessions.

Food Lion intros tiered collaboration

The Food Lion grocery chain has introduced a new vendor collaboration program:

“Each tier requires a certain level of data sharing, a certain amount of collaboration, and a certain amount of resources to understand and share insights with each other,” Food Lion’s chief operating officer, Cathy Green, said .... Describing the effort as a way to help Food Lion become more customer-centric, Green said participating manufacturers will collaborate with the chain on segment-specific marketing and merchandising; store-cluster specific assortments; and banner-specific manufacturer programs.

It appears Green is well aware of what most vendors' first reaction is to any new retailer initiative:

She stressed that the effort is not an attempt to build a profit center. “We want to grow sales,” she said. “We believe this model will do exactly that.”

Is Wal-Mart considering a UK pull-out?

The Telegraph says that Wal-Mart has recently considered (but rejected for now) a sale of their UK Asda division:

... Wal-Mart president Lee Scott became so dismayed at the failure to crack the UK market and the constraints on future growth that last year he ordered a strategic review that could have seen Wal-Mart float a minority stake in Asda or even pull out of the UK entirely.

According to sources the strategic review has - for now - been shelved. Asda refused to comment.

Wal-Mart has recently posted better-than-expected results, but a year ago things were looking a bit bleaker. That may have some bearing on the question. Still, added to the German and Korean pull-outs, and the continuing poor performance in Japan, it raises questions about Wal-Mart's international strategy.

Do-Not-Mail?

For a variety of reasons -- email, online billing/payment, and a slowing economy -- the US Postal Service is anticipating a billion dollar deficit this year.

"We cannot afford, literally or figuratively, to begin [the year] . . . more than $1 billion in the red," Postmaster General John E. Potter testified before a Senate subcommittee yesterday. "We would never be able to dig out of that hole."

The one area of growth for the USPS is what they call "standard mail" (recipients are more likely to call it "junk mail" or something less printable).

... standard mail -- advertising circulars, catalogues, fundraising appeals -- has grown to 104 billion pieces in 2007 from 101 billion in 2005.

I'm surprised it's that little, actually. It only works out to about three pieces of mail per day per household -- not all that much really (I suspect I get more than that, but who has time to count before dumping it in the garbage?)

In any case, this mail is very profitable to deliver. Unfortunately, to add to the postal service's woes, eighteen states are considering "do-not-mail" lists, patterned on the popular "do-not-call".

At yesterday's hearing before the Senate subcommittee, Potter talked about the Postal Service's lobbying efforts against "do not mail."

"We're working very hard to inform people about the role that mail plays in the economy, as an employer of millions of Americans," said Potter, adding that it is unclear whether states have the authority to create laws that affect the Postal Service. "Fortunately, no legislation has passed."

There may be some traction to this. Most consumers hate junk mail (though not, I suspect, anywhere nearly as much as they hate telemarketing calls). Marketers should keep an eye on the issue, since the effects on all of us would be huge.

Wal-Mart wants tiered pricing for CDs

Wal-Mart is pushing the record labels to come up with a tiered pricing plan for CDs, according to an article from Billboard:

The major music companies have been resistant to lowering their price on CDs, but now they may be dragged to that point: Wal-Mart, the largest retailer of music with an estimated 22 percent market share, has proposed a five-tiered pricing scheme that would allow the discounter to sell albums at even lower prices and require the labels to bear more of the costs.

The tiers would be:

• Top 15-20 titles: $10
• Hits and current titles: $12
• Top catalog: $9
• Midline catalog: $7
• Budget items: $5

The article quotes a Wal-Mart exec as saying:

"When you look at sales declines with physical product, and you have a category declining like it is, you have to make decisions about what the future looks like," he said. "If you have a business that is declining and you want to turn it around, it really takes looking at it from all angles."

The fascinating item is that there is apparently consideration of dropping music altogether, or at least cutting back to a couple racks, if the labels don't come around. This is a great case study of an industry in crisis. I'll bet there will be a bunch of MBA papers written on the music industry in a few years.

The Great Fresh & Easy Controversy

I was not going to post on this, because I've probably done more on Fresh & Easy than most people care about and it's probably time to just wait and see how it does.

But I saw this item in the Arizona Republic and read it -- just a short item saying that Tesco is planning to open ten more stores in the Phoenix area than originally planned :

Fresh & Easy Neighborhood Markets is adding 10 stores to the 27 it previously had announced would open in metro Phoenix, the company announced Wednesday.

Brendan Wonnecott, spokesman for the grocery chain, said Fresh & Easy always had wanted to open more stores in the Valley, and it recently had been able to firm up the real estate deals.

A positive sign, it would seem, but not exactly earth-shattering news. What got me was that I glanced at the comments at the bottom of the article, and then I noticed that there were 13 pages (!) of comments. Over 130 comments in one day -- about a store!

Something's going on here.

Craftsman and DieHard at Wal-Mart?

As things continue to get uglier and uglier for Sears, Eddie Lampert is looking for ways to monetize assets. Among the best assets he holds are Sears' strong private labels:

With no sign of a sales pickup in sight, Sears Holdings Corp. Chairman Edward Lampert is making a radical suggestion: Sears should consider selling its proprietary brands such as DieHard, Craftsman and Kenmore through other retail outlets.

The notion of expanding Sears brands outside the company has been tossed about the Hoffman Estates-based headquarters for years, long before Lampert arrived. But Sears never followed through for fear that without the exclusive brands, shoppers would have little reason to visit a Sears store.

Of course, most retailers are going the other way -- trying to build up their private label products as a way of distinguishing themselves from competitors. But no one can accuse Lampert of following the crowd.

But it's easier to justify going against conventional thinking when you can point to results. And not to results like this:

January was a particularly bad month for sales and hurt Sears' fiscal year-end cash position. The company had cash and cash equivalents of $1.6 billion, down from $3.8 billion one year ago.

iTunes is #2 music retailer

iTunes is now outselling Target and Best Buy, moving into second place in the music retailing biz.

The survey, compiled by New York-based market researcher NPD Group, showed that Cupertino, Calif.-based Apple Inc.’s online iTunes music store edged to the number-two music retailer, ranking behind Bentonville, Ark.-based Wal-Mart Stores Inc.

According to NPD, legal downloading accounts for 10% of music sales in the US.

FTC chair resigning to join P&G

Deborah Platt Majoras, who has chaired the Federal Trade Commission for the past four years is resigning.

Majoras, 44, will join Procter & Gamble in June as vice president and general counsel, with primary responsibility for its global antitrust and litigation practice areas, company spokeswoman Robyn Schroeder said.

The White House has not named a replacement, FTC spokeswoman Nancy Judy said. A successor will likely be one of the two other Republican commissioners, William E. Kovacic and J. Thomas Rosch. Commissioner Pamela Jones Harbour is an independent, and Jonathan Leibowitz is the panel's lone Democrat.

The FTC is the agency responsible for enforcing the Robinson-Patman Act. The amount of time they spend doing so can be judged from the fact that it is totally unmentioned in the Washington Post article I've linked to.

How Is Wal-Mart Like Booze? -- Part 2

About a year ago, I did a post with this title, the point of which was that a little bit of Wal-Mart might be good for you, but going overboard can leave you with quite a hangover.

Cott is learning the lesson the hard way. Wal-Mart has apparently decided to switch out its soft drink assortment, bringing in more Cadbury Schweppes (RC, Diet Rite, etc) and less Sam's Club. A bit unusual, when mostly we hear about more private label rather than less. But not something earth-shattering -- unless you're Cott, and you make Sam's Club, and Wal-Mart is 40% of your volume.

Shares in Cott Corp. were crushed yesterday, after the company confirmed Wal-Mart Stores Inc. will reduce the amount of shelf space it devotes to the company's carbonated soft drinks.

The company's stock dived about 38% on the Toronto Stock Exchange to $2.50. The drop came on the heels of a 20% decline the previous day amid rumours the Arkansas-based retailing giant would cut space and marketing support for Cott brands.

EU continuing on Intel probe

The European Union is continuing with its investigation of Intel:

Electricals giant DSGi had its headquarters in Hemel Hempstead raided yesterday, as part of the European Union's investigation of chipmaker Intel.

The EU is investigating allegations that Intel abused its dominance of the market for central processing units.

Intel's own offices in Munich and other retailers' offices were also raided. The investigators are looking for information related to allegations of excessive rebates.

Similar investigations are in progress in Korea and Japan, and a lawsuit has been brought in the US by AMD. In addition, last month the state Attorney General in New York served a subpoena for a state investigation:

Attorney General Andrew M Cuomo of New York issued a wide-ranging subpoena to the Intel Corporation on Thursday as part of an investigation into whether the company violated federal or state antitrust laws in the way it priced and sold microprocessors.

The investigation follows a preliminary look at Intel by Mr. Cuomo’s office over several months and is the latest in a string of legal challenges the company has faced around the world.

Coupon boss indicted

The former head of International Outsourcing Services, the big El Paso coupon clearing house, has been indicted.

For years, Chris Balsiger ran the nation's biggest clearinghouse of discount coupons redeemed by consumers at supermarkets. But he still didn't care too much for the industry.

"It's a lying, cheating, dirty business," he says.

Now the 54-year-old multimillionaire is facing a 27-count federal indictment, charged with leading a scheme that bilked some of the nation's largest coupon-issuers out of at least $250 million. He denies the charges.

He's also being sued by several grocery/CPG companies, including Kraft and Pepsico.

Some of the things they are alleged to have done (such as "gang-cutting") are things I have heard about for years from friends in that side of the business (I have very limited experience with couponing). The article linked here has a lot of fascinating information, like throwing coupons into a cement mixer to make them look used.

Fresh & Easy not meeting goals?

This isn't the first time I've heard about it, but this Supermarket News report seems pretty credible.

... the 52 Fresh & Easy stores that have opened since November are averaging weekly sales volumes of $50,000 to $60,000, or about $5 a square foot — below the goal of $200,000 a week and $14-$22 in sales per square foot the company had projected. A spokesman for Fresh & Easy declined comment when contacted by SN. Prevor said the volume estimates are based on discussions with competitors, vendors, industry observers and Fresh & Easy store managers, "who all confirm each other."

Nonetheless, they are still planning to open 18 stores in the SF area, although they may be delaying the opening a bit, and there's even a rumor they may come to Chicago, although I'm not sure I take it too seriously.

I doubt Tesco will be too greatly discouraged by a slow start. I can't imagine they came in for anything other than the long haul.

Update 2/28: Financial Times reports that Tesco is denying any problems:

Tesco said in a statement on Tuesday that the stores were “proving very popular”. It added: “What we are seeing is growing sales, growing customer numbers.”

The FT report also quotes another analyst as saying the Fresh & Easy stores are short of goal, but this analyst's numbers are wildly different from the one quoted above:

He wrote in a note to clients that the 50 stores opened so far around Los Angeles, Las Vegas and Phoenix could be averaging sales of $170,000 a week, against what he said were planned initial sales of $200,000.

$170k a week is certainly short of goal, but it's also a heck of a lot better than the $50k-$60k the other guy is claiming. Damages my faith in analysts, because one or both of these guys is way off.

End of the road for the Albuquerque Tribune

Another one bites the dust. The Albuquerque Tribune has ceased publication. I was surprised to learn it was still around -- a city the size of ABQ can't support two papers (at the end, circulation had dropped below 10,000). The Cincinnati Post went under as of New Years Day, and I'm sure most of the rest of #2 papers in mid-sized markets will be gone soon.

I understand The owners of the Chicago Sun-Times are having a hard time finding buyers, although I believe Chicago is still big enough for two papers, at least for a while.

Dillards seeking a niche

Dillards has decided to build smaller stores, and seek a more fashionable customer base.

As part of its turnaround strategy, Little Rock, Ark.-based department store chain Dillard's plans to offer more fashionable merchandise in smaller stores, in hopes of positioning itself above Macy's and Belk, and below Nordstrom and Bloomingdale's, according to WWD.com.

The new stores will be around 170,000 square feet, compared to current stores of 200,000 (which doesn't seem like much of a change to me), and will be located in "lifestyle centers" instead of traditional malls.

The company is "trying to evolve from moderate to better prices and update from traditional, basic product to more enticing fashion assortments," said William T. Dillard III ...

They're planning nine new stores this year. I wish them well, but how big a niche is there "above Macy's and Belk, and below Nordstrom and Bloomingdale's"?

Yet another medium

A couple interesting items from the video game biz. In one piece of news, we learn that Guitar Hero has racked up over a billion dollars in sales. I think that one of the factors that is too often ignored in discussions of the decline of the music and movie business is how much time and money their core audience spends on video games. A billion dollars is a lot of money diverted out of teens' entertainment budgets.

In another item, we find that EA is going to be making on-line games available for free, in an ad-supported format:

Electronic Arts is to release a free online version of the popular Battlefield game to be supported by adverts and micro payments.

The PC game, Battlefield Heroes, will be available only online later this year, and will not be sold in shops.

The move marks EA's first major attempt to tap into new sources of ad-driven revenue in Western markets.

The firm has a free version of its Fifa game in South Korea, earning more than $1m a month through in-game sales.

An inevitable development, I suppose, but also another contributor to media fragmentation. If you want to reach teen and young adult males, should you advertise on radio and TV, or on Battlefield Heroes?

Gannett's going back to school

Gannett is looking to buy another paper. Mildly interesting in an age when most folks are looking to sell them, but not earth-shaking news considering that Gannett already owns about a gazillion or so.

What's different is that this is a college paper:

The Coloradoan, a Gannett property, is negotiating with Colorado State University to create a strategic partnership with the Rocky Mountain Collegian, the state school's main student newspaper. In effect, Gannett would be buying the paper. As the rest of the newspaper industry takes a beating, Gannett's interest reflects the continued popularity of campus papers--and their importance to advertisers targeting young adults.

The negotiations are at a very early stage, according to a Colorado State spokesman, who said the university had not planned to sell the paper or otherwise enter new partnerships. Nonetheless, it's part of a broader Gannett push to acquire campus newspapers, including the Florida State FSView and Florida Flambeau in 2006, and University of Central Florida's Central Florida Future in 2007.

We commented here over a year ago that campus papers were one of print's few bright spots, since they are tightly targeted on a desirable demographic. But the idea of school papers being owned by media conglomerates still seems a bit strange.

Wal-Mart goes small against Tesco

It looks like Phoenix's East Valley is going to be the main front in the Tesco v. Wal-Mart showdown. Wal-Mart is opening small grocery outlets this summer in a direct challenge to Tesco's Fresh & Easy:

Wal-Mart will open small-format grocery stores in Arizona this year under the trade name, “Marketside”, going head to head with the new Fresh & Easy markets being rolled out in the US by Tesco, the UK grocer.

The new pilot stores are about 20,000 sq ft, a 10th of the size of the Supercenters that have been driving Wal-Mart’s growth over the past two decades.

The retailer has secured leases on four properties south-east of Phoenix, some of them only a mile from locations where Tesco is setting up its 10,000 sq ft discount grocery stores.

The stores, likely to be open by the summer, are the first new concept launched by the retailer in the US for a decade, and are being developed as the company slows its planned growth of Supercenters.

Too bad I don't still live in Phoenix -- this could be fun to watch.

Tesco enters department store biz

Tesco is planning to open large-format stores emphasizing hard goods:

Tesco is plotting an assault on the high street with plans to build department store-style shops to take on the likes of Debenhams, BHS and Marks and Spencer.

Britain's biggest retailer is looking for big sites in town centres to house its fast-growing non-food ranges - from jewellery and watches to household goods - alongside its groceries.

In a marketing document describing the multi-level town centre store as a "whole new concept", Tesco said the shops would sell food, televisions, clothing, homewares and toys over two or three floors, with escalators linking the levels.

Combined with the news (next post) about Wal-Mart opening small-format stores, it emphasizes the point that continued growth for the biggest retailers requires multiple formats and multiple categories.