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Friday, February 22, 2008

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Tesco’s Fresh & Easy Reaches 50 Units: Are Magic Numbers Ahead?

Tesco announced that it opened its 50th Fresh & Easy Neighborhood Market in the US this week, a rollout that began last November with the company’s first American store in Hemet, California.

“Opening our 50th Fresh & Easy is an important milestone for us,” said Fresh & Easy CEO Tim Mason. "We are very encouraged by the response from our customers and new neighbors. We are excited to continue bringing fresh, wholesome food at affordable prices to all types of neighborhoods."

In addition to Southern California, Tesco also has been opening the small-format (10,000-15,000 square foot) stores in Arizona and Nevada; it is slated to start opening stores in Northern California later this year or early in 2009.

KC's View: It hasn’t been all fresh and easy for Tesco this week, with the announcement by one analyst that based on his research, most of the company’s US stores were doing just a fraction of the sales numbers that they needed to do in order to make money. This has added fuel to the fires being stoked by naysayers, many of whom believe that Tesco has finally bitten off more than it can chew in the US, and will in short order be forced from our shores.

To which I’d offer the following profound, concrete response: Maybe. But maybe not.

First of all, I think that Tesco is extremely good at managing the information released about its sales performance; the months leading up to the debut of the US stores were filled with all sorts of disinformation and misinformation, and I don't completely believe anyone. (And I almost never trust financial analysts, except of curse the ones who agree with me and/or read MNB.)

I also think that the US food industry has more than its share of cynicism. Many people believe that Tesco is an arrogant foreign interloper that cannot possibly succeed, and they are rooting for its demise.

My feeling is this.

It only has been four months. Tesco is actually trying to do something different in the US by challenging conventional wisdom about how people shop (especially with a store offering a limited assortment and a lot of private label)…and that isn’t always the best way to generate early and consistent sales numbers. Tesco also is extremely smart, and learns from its mistakes….it is unlikely that the stores it opens in late 2008 will simply replicate the stores it opened in late 2007.

Now, this creates its own challenges. To adapt its stores to what it learns from consumers, Tesco could be forced into being more conventional. But, if it is more conventional, some of the qualities that differentiates it from the competition could be diluted, which would make Fresh & Easy harder to justify.

Is this going to be easy? No. Was it ever going to be easy? Of course not.

But I’m rooting for Tesco to succeed, not because I have any dog in this hunt, but because I think new competition with fresh ideas pushes the industry ahead, forces other people to be innovative. We’re already seeing that, with Wal-Mart preparing to confront Tesco in Arizona with its own new small-store format.

The battle may be bloody, but it almost certainly will be illuminating. And no matter what segment of the business you are in, there is much to be learned by Tesco’s American adventure.

Addition By Subtraction: Getting A Starbucks Fix

Starbucks announced yesterday that as part of its retrenchment, it will eliminate 600 jobs. About 220 of the positions are corporate-level employees in Seattle, and the others are open positions that will not be filled.

No in-store positions are slated to be eliminated, according to reports.

Starbucks has been having a hard time of late, with consumer spending down and commodity costs up – which combined to cut into its sales and profits. Meanwhile, amid concerns that it may have over-saturated the US market, the company is slowing its domestic expansion plans while putting a greater focus on the in-store experience and the quality of its coffee.

In a related article, Business Week has an interesting story in which it talks to a series of market experts about how they would re-energize the Starbucks brand.

Some excerpts:

• "Starbucks really needs to refocus on the luxury coffee experience; the smells, the sounds," says Dean Crutchfield, a senior vice-president of marketing at Wolff Olins, a branding firm with offices in New York and London. "And they could mix up the retail presence to be less cookie-cutter, perhaps using a modular system of bars and furniture. A different store design could give different locales their own sense of richness."

• “Andrew Zolli, founder of the Brooklyn (N.Y.) innovation firm Z + Partners, agrees, noting the company needs to ‘embrace a radical localism.’ Zolli says while there are thousands of ‘local Starbucks, most stores aren't embedded in the local culture.’”

• “Thomas Pridham, senior vice-president of the San Diego-based Service & Support Professionals Assn., an industry trade group, thinks the company should make more of its existing support of numerous fair trade and charity programs.”

• “Brian Collins, chief creative officer of New York's Collins design research firm, thinks ‘technology seems underleveraged at Starbucks.’ Collins says the company could better use its digital resources to learn the tastes of regular customers. ‘Somebody call Facebook,’ he jokes, suggesting the company should create social networking tools to foster communities and facilitate social interaction at individual Starbucks stores.”

• “Rinat Aruh, a principal at Aruliden, a New York brand strategy and design firm, warns the biggest threat to Starbucks' brand is a decline in the quality of the company's coffee. ‘One-dollar coffee will not save them,’ she says. ‘They need to reinforce the message that the product is getting better…to grow what's in the box, not the number of boxes’.”

• “Geoff Vuleta, CEO of New York innovation consultancy Fahrenheit 212, says he has a radical solution that will solve the chain's problems even as it soothes Wall Street's jangled nerves: Open a chain of microstores devoted solely to making coffee. ‘No travel cups, no music, no machines, just amazing beans and a narrow range of the best-in-the world coffee drinks,’ he envisions. Such microstores, he says, could hone the Starbucks experience—and result in a smaller, less costly footprint than regular stores which change at a slower pace.”

KC's View: I really like the idea advanced by an MNB user some weeks ago – that Starbucks ought to have 4-6 pm “happy hours” at its stores, with discounts on drinks, live music playing, and plenty of incentives for people to congregate there.

That said, all of these ideas are interesting ones…and every retailer ought to be considering these and other options for their own operations.

It doesn’t matter whether or not you think your brand needs re-energizing.

Trust me, it does. Even if you don’t know it.

The fact is, every brand needs to be constantly re-energized. And it is better to do so before you have to start laying people off, and the headline writes start questioning whether you have lost your focus.

HEB Looks To Catch The Wind

The Dallas Business Journal reports that HE Butt will test vertical axis wind turbines at one of its retail support centers, in Weslaco, Texas.

“The spot was picked because of wind conditions and because of other factors,” the Business Journal reports. “The grocery store operator aims to find out how much electricity Wind Energy's turbines will supply.”

KC's View: I hope they work. Nothing says “we’re serious about energy” like a windmill in the backyard.

Besides, the more these kinds of technologies get tested and explored, the more we’re all going to find out about the viable options available to us as we seek alternative sources of energy.

Editorial continues after a word from our sponsor...

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Now back to regularly scheduled editorial...

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Now back to regularly scheduled editorial...

Underage Binge Drinking Gets Attention Of Major UK Retailers

As a response to concerns in the UK about underage binge drinking, Tesco is calling on the British government to pass legislation that would essentially set a floor for alcohol pricing, prohibiting retailers from selling such products at cut-rate prices.

Lucy Neville-Rolfe, executive director for Tesco, has been quoted as saying that since “competition law prevents businesses discussing anything to do with price with each other and imposes severe penalties on anyone who breaches it. The only safe solution is for the Government to initiate and lead those discussions and to bring forward legislative proposals which Tesco and others in our industry can support.”

Press reports in the UK say that both Wal-Mart’s Asda Group and William Morrison Supermarkets have signed on with the Tesco suggestion.

KC's View: Not to be overly idealistic here, but is it really necessary for retailers to depend on the government to legislate them into doing the right thing?

It seems to me that if low-cost alcohol really is seen as playing a major role in underage binge drinking, then retailers ought to simply say, “We’re not going to sell cut-rate alcohol anymore. It doesn’t matter what the competition does.” And then live with the results and repercussions.

Again, my feeling is that this would end up creating enough pressure that other retailers would have to fall in line.

Most people know what the right thing is to do. Doing the right thing often is a lot harder.

Beef Recall Update

The Wall Street Journal this morning reports that the US Department of Agriculture (USDA) is “still tracing 15 million of the 143 million pounds of beef involved in the nation's largest-ever meat recall, but the meat industry appears to be pressing the agency to scale back the recall.

“Just days after the recall was announced, industry representatives were talking with federal food-safety regulators about narrowing its scope, according to a legal memo reviewed by The Wall Street Journal. The USDA has said much of the recalled beef, which was produced by Hallmark/Westland Meat Packing Co., of Chino, Calif., probably has been consumed. No illnesses from the meat have been reported.

“In two conference calls this week, industry and USDA officials discussed the possibility of excluding from the recall Hallmark/Westland beef that was mixed with other suppliers' meat and sent to retail and wholesale customers, according to a memo written by an employee of Olsson Frank Weeda Terman Bode Matz PC. The Washington law firm represents several food companies. The department appears to have since decided against narrowing the scope.”

Editorial continues after a word from our sponsor...

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Now back to regularly scheduled editorial...

E-conomy Beat

• In Pennsylvania, the Morning Call reports that a King’s Supermarket in Dorneyville, Pennsylvania, that is owned by Weis Markets is testing an e-commerce service that is being managed on the technology side by MyWebGrocer.

Dennis Curtin, a Weis Markets spokesman, tells the paper, “We're test-marketing the program at this single location to see if customers want it and if we can do it profitably. If results are positive, we'll make it available at more stores.”

KC's View: There are some folks who believe that in most markets, it will be the first adopters who make these services work, and that not every retailer should attempt to have an e-commerce component.

I’m not sure I’d agree. I believe that not all e-commerce offerings need to be equally robust, and that while some folks will focus on prepared and fresh foods, others would be better served by offering basic replenishment services online; some will do it themselves, and others will do it in concert with service providers.

But I do believe that virtually every retailer needs to have some sort of e-commerce service…that because almost all consumers are going to want what they want, when they want it, how they want it, at a price they think is appropriate…it is critical for retailers to have a menu of shopping options.

The Department Of Permanent Financial Anxiety

• Safeway reported fourth quarter net income OF $301.1 million, down 2.2 percent from year-earlier net income of $307.9 million. Q4 sales rose 6.8 percent to $13.4 billion, better than analysts' average estimate of $13.03 billion.

In a conference call with analysts, Safeway CEO Steve Burd said, “We are clearly observing a cautious consumer … I think some of that caution stems from the fact that they are a little concerned about the economy. Everybody is forecasting some kind of recession.”

Meanwhile, the Chicago Sun-Times reports that “Dominick's, the Chicago area grocery chain, long rumored to be for sale by its owner Safeway, could instead be part of a private-equity buyout of the entire Safeway chain, one analyst speculated Thursday in a report to investors.

“Sean Egan, managing director at Egan-Jones Ratings Co., said a private-equity firm such as Kohlberg Kravis Roberts & Co., Thomas H. Lee Partners or Chicago's own Madison Dearborn Partners would be the likely buyers of Safeway.”

Executive Suite

• Golub Corporation/Price Chopper Supermarkets announced that Donna Almeda has been hired to be the company’s new Director of Floral Merchandising, reporting directly to Jon Strom, Vice President of Floral and Lifestyle Merchandising.

Donna comes to Price Chopper with many years of experience in floral merchandising and worked for Acme Markets as a buyer, was the sales manager for Garden State Growers and most recently as Floral Director for Pathmark.

Your Views: Under My Skin

I try not to take emails personally, and I endeavor to have as open a mind as possible towards other people’s attitudes.

But I have to admit, this one got under my skin.

Yesterday, MNB ran the following story:

Think of it as a necessary – if unfortunate – lesson in tolerance and appropriate discourse.

The Associated Press reports that Wal-Mart has issued an official apology to a Muslim woman who said she was insulted by an employee in one of the retailer’s Utah stores.

The insult, according to reports, came when the cashier looked at the woman, who was wearing a face veil, and said, “Please don't stick me up.”

Wal-Mart promised that the employee would undergo sensitivity training, and the Council on American-Islamic Relations applauded the retailer for taking “appropriate action.”


And I commented: It is important not to take this incident out of context, but also to use this event as an object lesson. In today’s world, greater sensitivity is called for by all parties … as well as tolerance when people make mistakes. Even dumb mistakes.

And an MNB user sent in the following observation:

The "object-lesson" is that, if you want to go around looking ridiculous in public, you ought to expect to be ridiculed. This lady is the moral-equivalent of a guy with green hair, tattoos, and a nose-ring.

I am appalled.

A Muslim woman wears a veil, and you equate that with a nose ring or tattoo?

Would you say the same thing about a person wearing ashes on Ash Wednesday? Or a yarmulke?

I have no problem with the argument that we’ve all gotten too politically correct, and that sometimes we bend so far backwards to be tolerant that it creates a different kind of intolerance.

But to say that someone wearing a veil “looks ridiculous,” when that person is almost certainly wearing the veil for religious reasons, strikes me as particularly cancerous sort of prejudice, especially in 21st century America. (You think we have problems in the Middle East now? Just keep it up and see how things evolve. Or devolve.)

Now, this wasn't the only email I got on this story.

MNB user John T. Bowler wrote:

I guess it depends if you've ever actually been held up at gunpoint, which I was in a previous retail job. I'm still cautious around people not showing me their full face.

I do realize that's likely not what happened here, it was probably just callousness or bad humor. I wouldn't get spooked by a simple veil. But, I thought I'd add the personal "perspective".

And,....It's a shame that what used to be simple rudeness is now "harassment" or an "incident"…


I think you’re right. I’d prefer to think it was just a bad joke, rather than any sort of specific and mean-spirited bias. And it probably would have been better if the woman had simply explained to the checkout person why she was wearing a veil, rather than turning it into an incident that ended up in the news.

On the other hand, maybe this was the tenth time it had happened to her in a week, and she simply got tired of it…and figured that if she didn’t stand up and say something, people would never learn.

Another MNB user wrote:

Think of this instance potentially as behavioral profiling rather than racial or religious profiling: Certain stores (and banks I think), refuse to allow anyone in to the store if they are wearing a "hoodie" sweatshirt and it covers their head. Their presumption is that this person is up to no good and attempting to disguise their identity. Possibly the Wal-Mart employee made that presumption.

Perhaps. But guess what? In a world where not everybody dresses as we do, and where a lot of people adopt certain styles of dress because of deep-rooted religious and cultural beliefs, a lot of us are going to have to rethink our presumptions. Because “presumption” and “presumptuous” have the same root.

And another MNB user wrote:

The flip side of the coin is tolerance and a sense of humor. I'm sure the comment was not meant to insult the woman, who needs to remember that she is not in her native country. Sensitivity rubs both ways. If she's not sensitive to -- and willing to participate in – the culture around her she should reconsider her choice of residence. After all, that's what is demanded of foreigners in her home country.

I agree that sensitivity has to go both ways.

But I would refer you back to the original story. It said that the woman was a Muslim. It never said where she was from.

She could’ve been born in Iraq or Iran. But she also could have been born in Kansas. Or Utah.

To assume otherwise is presumptuous.

(Who would’ve thought a decade ago – even five years ago – that today there would be at least a 33 percent chance that our next president could be named Barack Obama?)

We live in 2008 America. Our streets and stores are going to be filled – if they are not already – by a vast number of customers who don't resemble each other, don't share the same religious beliefs, don't wear the same clothes or headgear, and don’t even eat the same food. And yet, they will be bound together by a desire to live without prejudice against them…even if they bear some prejudices toward others.

As people, we have to be above all this. As companies, we have to more tolerant, more accepting – even embracing – of diversity.

In many ways, I think, this could be the ultimate differential advantage.

Rant over. For now.

OffBeat: A Few Days In Margaritaville

I’ve been writing this week from what I henceforth will refer to as the MNB Winter Office…visiting friends who live near Orlando while Mrs. Content Guy and our daughter have the week off from school. And I started the visit by going someplace I’d never been before…I went with a buddy down to Key West for a couple of days, where life quite literally seems like a party at the end of the world.

Here’s the retailing lesson I learned from the visit – that you can sell almost anything, as illustrated by the fact that there were so many people setting up little stands from which they were selling shells. Selling shells, I hasten to add, from tables that were set up just yards from the beach.

I don't get this, just as I don't quite understand how many stores selling apparently useless products manage to stay in business along the avenue known as A1A. But retailing is a funny business, customers are funny people, and there are a lot of things about it that I will never understand. (How many tattoo parlors can Key West keep in business? Quite a few, it appears…)

But between my visit to Amsterdam last week, and my visit to Key West last weekend, I’ve certainly seen more than my share of unusual retailing ventures.




I will tell you this. The Yellowtail Tuna BLT that I ate at Conch Republic Seafood, washed down by a wonderfully cold Kalik beer imported from the Bahamas, was once of the best lunches I’ve ever had.

And the jambalaya at Caroline’s Café on Duval Street was unbelievably good – thick and rich and plentiful...so plentiful, in fact, that I could eat only about half the bowl, which doesn’t happen much to me.

The original Margaritaville, also located on Duval Street, was utterly delightful…with one night there devoted to Landshark beer, and another to a series of Hurricanes. (Don't ask. Key West was once home to Ernest Hemmingway – and his house is a great place to be toured – and I tended to imitate his consumption habits once getting onto the island.)

Also worth visiting if you ever make it to Key West – Captain Tony’s Saloon (made famous in a Jimmy Buffett song), and Sloppy Joe’s, which I suspect is nothing like it was when Hemmingway used to go there.

One moment struck me as really funny - when the band playing at Sloppy Joe’s made a passing reference to “The Guns of Will Sonnett,” and my buddy and I had the impression that we were the only people in the room who knew that it was a late sixties western TV series that starred Walter Brennan. (I actually knew that it also starred Dack Rambo and Jason Evers, but that would qualify as almost an embarrassing level of knowledge.)




My wine of the week is the 2006 MacMurray Pinot Noir, which was wonderful the other night when we made grilled grouper with a butter/lemon/caper sauce. Just yummy.




That’s it for this week. When I’m done here, I think I’m gonna try to recall the whole year…but I promise not to ponder the question too long, because I’ll almost certainly get hungry and will go out for a bite. And I’ll keep laughing, because if I don’t…well, you know the rest.

Have a good weekend.

Sláinte!!

PWS 59