Saturday, November 29, 2008

Global Food & Agriculture Memo: Afghanistan Expanding Pomegranate Farming, Launching $12 Million U.S.-Funded Marketing and Export Program

Ali Akbar, an Afghan pomegranate seller, arranges his product during the World Pomegranate Fair in Badam Bagh Farm in Kabul, Afghanistan, Thursday, Nov 20, 2008. Afghan officials have launched a marketing and export campaign for the fruit in the hope that it will give farmers an alternative to growing poppies. (Photo Credit: AP Photo/Rafiq Maqbool.)

Afghanistan has been producing the ancient fruit, the pomegranate, know as the Anar in the various regional tribal language spoken there, for about as long as the ancient country has existed in its many forms, from Kingdom to colony and now potentially budding Democracy.

The fruit however has historically been produced by Afghanistan's farmers primarily for national consumption and limited export to neighboring countries, despite the country's capacity to produce enough of the fruit for export.

Today many government officials and others in the country believe and hold out hope that exporting pomegranates could be a positive replacement for Afghanistan's current number one export crop -- the opium poppy.

And such an initiative was announced last week in Afghanistan.

With the help of a $12 million initiative funded by the United States, Afghanistan's government, farmers and others are planning to improve and expand pomegranate farming and processing in the country and launch a global export industry and marketing program designed to sell lots of Afghanistan-produced pomegranates throughout the world, as well as to attempt to position the ancient fruit long-grown in the ancient land as the best pomegranate on the planet.

Last year, Afghanistan exported its first pomegranates to outlets of the French hypermarket chain Carrefour in the Kingdom of Dubai, according to a report by the Associated Press. The fruit, larger and redder than many pomegranates imported from Turkey or North Africa, was a hit. Carrefour, which is the world's second-largest retailer after Wal-Mart Stores, Inc., quickly placed orders for all its Middle East stores, according to U.S. funders and Afghan officials.

This successful effort served as the impetus for the newly launched $12 million, U.S.-funded improvement, marketing and export plan.

Read the story, "Afghanistan markets its brand of pomegranates," from the Associated Press here

Opium production and export has long plagued Afghanistan. And in recent years the production of the crop has soared because the now re-emergent Taliban group is using the growing and sales of the poppy to fund there attempted return to power in the country and war against the elected government and U.S. and NATO troops.

The government under elected President Hamid Karzai has been reluctant to launch a mass poppy eradication program in the country because like it or not, without the poppy crop not only would there be millions more impoverished people in already impoverished Afghanistan, but the central government's major source of revenue besides U.S. aid, taxes paid by citizens, (few people pay taxes in the country but without the poppy crop even fewer would) would likely disappear.

President Karzai has long been arguing for financial assistance to build Afghanistan's agricultural sector. At one time the country was a solid agricultural producer in the region, before the war in the 1980's with the then Soviet Union, before the Taliban took over following that war, and before the current war following the September 11, 2001 attacks in the U.S. But that's been decades ago now -- decades of war and destruction of the country's infrastructure, which wasn't exactly good before that.

Many analysts and others are skeptical is an agricultural improvement, exporting and marketing program can work in the war-torn country, as you can read in the AP piece. However, Natural~Specialty Foods Memo believes it is well worth the $12 billion effort.

We also think the west, the U.S., Canada and Europe, where pomegranate sales have soared in the last few years, should do everything the nations can to open the door to the Afghanistan-grown fruit. After all, it is in the U.S. and Europe where most of the illegal drugs produced from Afghan poppies are bought and used.

The U.S. government under current President George W. Bush has been very vocal about wanting programs to eradicate the opium poppies in Afghanistan. Therefore both the U.S. and Europe should become part of the potential solution, the building of Afghanistan's agricultural and food industry starting with the pomegranate, by doing all that can be done to speeding up the process of allowing Afghanistan-produced pomegranates into the western markets.

Earlier today we wrote and published this piece, " about California-based Paramount Farms and its success in branding and marketing fresh pomegranates and value-added pomegranate products like fresh juice teas and other items under the POM Wonderful brand. William Phillimore, the company's executive vice president, was in Kabul, Afghanistan last Wednesday for the launch of the pomegranate export and marketing program, a marketing effort the California company might play a part in.

Phillimore, who works for the company most responsible for boosting consumer demand for pomegranates and pomegranate-based products in the U.S., said at the kick off event: Afghan pomegranates are "as good as anything I've tasted," adding that he thought there is plenty of room in the U.S. market for pomegranates exported from the country, despite the fact Paramount Farms is the largest U.S. grower of domestic pomegranates.

While Afghanistan remains a war-torn country, and in fact all signs are that things are about the worse they've been in the ancient land since the now resurgent Taliban were defeated in 2002, we think it important that initiatives such as the $12 million pomegranate marketing and export plan be initiated. Afghanistan needs economic development programs like this to build not only its economy but also its civil society. The people need reasons not to support the Taliban, and jobs, a decent economy and the civil society that comes with those things are just as important as winning in combat in terms of the outlook for and ultimate state of the country.

After all, it was such a vacuum that was created not so long ago right after the former Soviets were driven out of Afghanistan that paved the way for Taliban rule, which not only created a totalitarian state but also wiped out any economic progress the country had made prior to the war with the former Soviet Union, which of course we all know today as Russia.

Therefore we cheer the pomegranate export and marketing program. And having eaten an Afghanistan-produced pomegranate, we can tell you they indeed are delicious and of a very high quality, which is distinguished by the bright purple color and smoothness of the ancient fruit produced for so long in the ancient land of Afghanistan.

Additionally, on average, Afghanistan's farmers make about $2,000 per acre with pomegranates, versus $1,320 per acre growing opium poppies, according to currently available data. Therefore, if the west opens its markets to pomegranates grown in Afghanistan, the economic premium of producing the fruit over the poppies could, with this expanded export market and thus increased demand for pomegranates, serve as an economic incentive to get the country's farmers to switch from growing poppy to pomegranate. It's worth a try.

Marketing Memo: Paramount Farms Creates Sales of Hundreds of Millions Annually By Branding the Pomegrante and its Essense

Just a few years ago the probability of finding fresh pomegranates, sometimes called the "ugly fruit," in the produce department of the average American supermarket or natural foods market was low. Many stores would offer the hard-skinned fruits for sale seasonally, devoting a small area in the produce department to displaying pomegranates, but that was about it. The demand for the fresh, purple fruit in the U.S. was minimal, except in areas where there were substantial populations of immigrants from the middle-east and Asian or Mediterranean countries, where pomegranates are a staple fruit.

However that situation started changing about five years ago, primarily because of the savvy and aggressive marketing efforts of California's Paramount Farms, which began branding fresh Pomegranates with its then newly-created POM Wonderful brand, along with creating its popular POM Wonderful fresh pomegranate juice.

The catalyst or opportunity for this branding effort by Paramount Farms were numerous scientific research reports, followed by lots of popular press attention in the form of news stories and broadcast reports, about the amazing antioxidant properties of fresh pomegranates and pomegranate Juice.

Many people are calling the pomegranate the "new cranberry" for its combination of good taste and health benefits. The cranberry and pomegranate also have something in common commercially as well: both were niche, commodity items until branded as fresh produce products -- Ocean Spray fresh, bagged cranberries and POM Wonderful fresh pomegranates -- and had juices produced from them. The latter development, the development of cranberry juice decades ago and now pomegranate juice, is when sales started to soar for both previous commodities.

Paramount Farms/POM Wonderful was able to jump on this positive health news, gaining widespread retail and foodservice distribution for its branded, fresh pomegranates and POM Wonderful pomegranate juice in nearly every natural foods store and supermarket in the U.S.

The company focused the distribution of its POM Wonderful juice at retail in supermarket and natural foods market produce departments because it had already established strong relationships with chain and independent store produce buyers in addition to the fact that by doing so it was able to avoid expensive slotting and pay-to-play fees required to get the juice on supermarket grocery shelves.

Along with gaining mass distribution in retail stores, Paramount Farms launched a heavy promotional and advertising campaign, focused primarily at first on obtaining free media publicity via public relations efforts, for its Pom Wonderful pomegranate juice, playing up the health benefits to consumers of drinking it, which has seen the sales of the POM Wonderful brand pomegranate Juice soar from $12 in 2003 to $100 million in 2007. And sales are currently growing in double digits over last year.

Distribution and sales of Paramount Farm's fresh pomegranates have also soared. Thousands of supermarkets that just a few years ago didn't even sell the ancient fruit now do so. The company also has created numerous recipes designed to feature pomegranates, which has dramatically increased the sales of the healthy fruit.

Numerous higher-end restaurants also today feature dishes using pomegranates, ranging from meats to desserts, which has helped give publicity to and make the healthy fruit increasingly popular. America's newspaper food sections and food and lifestyle-related television shows also have fell in love with the pomegranate, featuring it and recipes using it at every turn. The result: more awareness of and increased popularity for the ancient fruit.

Paramount Farms also introduced a line of branded pomegranate teas two years ago. Sales of the teas are soaring as additional research has demonstrated the healthy properties of the ancient fruit, along with the fact consumers have discovered how tasty the POM Wonderful Pomegranate juice and now the teas are. The company is introducing additional pomegranate juice-based value-added products (and other types of products using the fruit, including a recently introduced dietary supplement tablet and liquid extract under the brand) and continues to gain additional distribution, both in the U.S. and abroad, for its branded fresh pomegranates.

Paramount Farms recently expanded its POM Wonderful pomegranate juice plant near Fresno, California, which is in California's Central Valley. The Fresno Bee newspaper recently profiled the company, which has created a brand out of what just a few years ago was a niche fruit commodity product, as well as developed a $100 million brand in its POM Wonderful juice.

Numerous other companies are now marketing fresh pomegranates and juice aggressively. However, none has come as close to creating a brand near as strong as Pom Wonderful.

Pomegranates also are increasingly becoming used in other value-added food products. For example, we've recently seen two premium milk and dark chocolate chocolate bars featuring Pomegranate, one under the World Market store brand (Cost Plus chain) and the other under the Trader Joe's brand.

There's an explosion of products featuring the pomegranate in fact. These include teas, confections, ready-to-drink beverages, breakfast syrups and many others.

We love marketing stories in which a company or individual is able to create a strong brand from a commodity which previously was at best a niche crop that others didn't see the potential in. Paramount Farms has done that -- and continues to build on the Pom Wonderful brand franchise by introducing new lines like the teas and others.

Read the Fresno Bee profile of Paramount Farms and its Pom Wonderful brand here. The profile offers marketing and branding lessons for all food companies, particularly those looking to establish brand identity (and soaring sales) in the natural and specialty product segments.

Paramount Farms, which is the creator and parent of Pom Wonderful, is a large, vertically integrated processor and marketer of almonds and pistachio nuts -- the largest in the world in fact.

The company is currently looking to brand and add value to those nuts like it has to the pomegrante with its POM Wonderful subsidiary and brand. The company is following a similar model in doing so to its POM Wonderful apprach with the once commodity fruit the pomegrante. It promises to be an interesting marketing and branding development in our analysis.

Thursday, November 27, 2008

Food & War Memo: A Thanksgiving Day Feast On the Front Lines in Afghanistan

Natural~Specialty Foods Memo Editor's Note:

American soldiers (and those from numerous NATO nations), both volunteer, full-time military and volunteer members of the National Guard, have been fighting the war in Afghanistan for about eight years now, following the terrorist attacks of September 11, 2001. As former U.S. Secretary of Defense Donald Rumsfeld once said about the two wars in Afghanistan and Iraq, they are "going to be a long, hard slog." They have been and are. It was one of the few things former Secretary Rumsfeld said about both wars that's turned out to be true in fact.

As America celebrates the Thanksgiving holiday today, we feel it important to take some time to think about the nearly 200,000 active-duty, full-time soldiers and volunteer National Guardmen and women currently in Afghanistan and Iraq, along with the tens of thousands more serving in other parts of the world. We offer a 'Thanksgiving' to each and every one of them, along with our hopes and prayers for their safety while serving, as well as for safe return home when their respective tours of duty are over.

Ann Marlowe is a New York writer who is currently on her fourth tour of duty as an embedded (traveling with the troops) correspondent in Afghanistan. published an excellent piece today, Thanksgiving Day, written by Ms. Marlowe, about the soldiers serving in Afghanistan and the food they eat, particularly today on this American holiday centered so much around food and family.

It warms our hearts to see, based on Ann Marlowe's report, that the American troops in Afghanistan are eating pretty well this Thanksgiving Day. While a good holiday meal in that far away and dangerous land hardly compares (or compensates for) to the fortunes of most of us who are able to be spending the holiday at home with family and friends, it does offer our troops a touch of home in the form of food and celebration as they serve bravely and proudly in a land that has known war for centuries. Good food can help warm the heart after all.

Godspeed to the brave. And Happy Thanksgiving.

Below is Ann Marlowe's story:

Lobster In Kandahar
By Ann Marlowe
November 27, 2008

Dinner on the front line.

CAMP WALTON, Kandahar Province, Afghanistan-- Blackened trout with a squirt of fresh lemon, orange rice, and spinach leaves, followed by a Granny Smith apple and an ice cream sundae--that probably isn't your idea of an Army meal, particularly on a base in Afghanistan. But it was what I ate a couple of weeks ago at the DFAC (dining facility) at Forward Operating Base (FOB) Salerno, though I was able to resist the sundae bar at the last minute.

A few nights later, I enjoyed excellent barbecued chicken, turkey wings and mashed potatoes, courtesy of Sgt. Felipe Vega at Tani District Center. This base holds only a couple of platoons of American troops who live alongside the Afghan National Police and guard the local government center. Most of the food here is canned or frozen, and there isn't any fresh fruit.

Laboring under severe supply constraints, Vega rustled up a breakfast of delicious scrambled eggs and hash browns from the unpromising pre-packed dehydrated eggs and hash browns the Army provided. Sgt Vega is the most talented cook I've encountered in three visits to Khost's district centers, though Terzayi's cook merits praise as well

Army food was something I'd dreaded when I signed up for my first embed in summer 2007. I'd grown up on my dad's World War II Army stories featuring his constant state of hunger and the wretchedness of the rations…when he had them at all. He was proud of the Bronze Star he won for being in one of the first boats to cross the Rhine into Germany, but the downside was being ahead of the supply lines for a month in a Germany near starvation.

When I entered the DFAC in the small, remote base at Mehtar Lam in eastern Afghanistan for my first embed, I was amazed to find four entree choices. And usually one was pretty good. There was lobster and king crab on Fridays, and I hadn't even seen king crab claws since my childhood--where does the Army get them?

Then I got to the DFAC at the mother of all American bases in Afghanistan, Bagram, where they served lobster every day. (I haven't seen it at Bagram or Salerno during this embed--maybe it's seasonal? Apparently the Army is offering lobster because it's cheaper than steak these days.)

By now, on my fourth embed, I'm as familiar with Salerno's DFAC as I am with the restaurants near my West Village home in New York City. My friend Kim Barker of the Chicago Tribune recently noted that embeds have spa-like elements (early rising, encouragement to exercise, no alcohol and a culture of constant hydration.) Only the food is the opposite of spa cuisine--heavy, permeated with red meat, low on greens and high in carbs and refined sugar. In other words, what most Americans eat.

Predictably, given the heavily Southern demographics of the U.S. military, the best entrees tend to be Mexican or Southern food. Any barbecued avian is a good bet, the chili is delicious and the taco meat tolerable. I first realized how good turkey wings can be at Tani. In a considerate gesture to Afghan employees at Salerno and the frequent visits by local Afghan government figures, kebabs appear every few days and rice nearly daily. As a rice eater myself, I am grateful. Other ethnic foods are in scant supply. There are occasional egg rolls, which I've avoided, and no sushi or kimchi--this will probably have to wait another 10 years.

The DFACs are best on breakfast and dessert. At the district centers, soldiers sometimes are left to fend for themselves at breakfast--think Pop Tarts and dry cereal. (Ever read the list of ingredients on a Pop Tart? I made that mistake and have been unable to eat one since.)

The big FOBs offer a carb minefield, so to speak, including delicious buttermilk biscuits, french toast, waffles and sometimes extras like chocolate chip pancakes with chocolate sauce. After staring at them at Salerno for a couple of days, I broke down and tried one, but luckily it was dry and hard.

My favorite combination is a two-egg omelet with cheese and peppers, one biscuit and a piece of fruit. The fruit, like everything else, is flown in, not bought locally, so you find incongruities like rock hard American cantaloupe at a time when superlative Afghan melons are ripe. But fears about poor sanitation, tampering and corruption mean that all purchasing is done centrally.

If you're not a 20-year-old soldier going out on air assaults carrying 130 pounds of equipment, food and water, the DFACs can be a severe threat to your weight. Both Bagram and Salerno feature sundae bars with several flavors of Baskin Robbins, whipped cream and chocolate and caramel sauce at every lunch and dinner. I can skip the sugary fruit pies, but there's one dark chocolate pie that's competitive in the civilian world, and the cookies are pretty good.

I told my host at Mandozai and Tani, Capt. Ricardo Bravo, that I found the Salerno desserts tested my willpower, and he replied with some asperity, "A soldier is supposed to have self-control."

At the Kandahar DFAC that the British and Canadians use, on the other hand, the cakes look dicey and don't taste very good--and there's no ice cream. No self-control necessary.

The worst features of Army food are dairy and vegetables. None of the American bases have decent cheese--it's either Yellow or White. They don't even have yogurt at every breakfast. But chunks of excellent blue cheese are, mysteriously, available at lunch and dinner at Kandahar, alongside the usual Yellow and White. Apparently it alternates with Camembert. I found that crumbling it over the spaghetti from the pasta bar, and mixing in some surprisingly tasty sauteed spinach, produced the sort of dish I might have enjoyed fixing for an evening in at home.

Vegetables at American DFACS are usually dreadfully overcooked and bathed in oily liquid, with the exception of some perfectly cooked, sprightly broccoli I recently had at Salerno. (The corn niblets probably don't have much more nutrition, but they bring back childhood memories.)

Salads are pathetic, 1970s era artifacts like tomato and cucumber in too much dressing, and coleslaw is counted as a vegetable. Kandahar has a larger, fresher selection of vegetables, although there's a tendency to off-key combinations--chopped green beans, kidney beans and onions, anyone?

The best base for coffee lovers is far and away Kandahar, which not only offers free espresso drinks from machines in the DFAC, but boasts a Tim Horton (Canadian) and two Green Beans (the American equivalent, found at all the big FOBs). In the district centers you are usually going to be drinking bad, watery American coffee unless someone has invested in an espresso machine--or unless you have a cook or soldier from Puerto Rico who will make thick, dark coffee.

Needless to say, you will not find a selection of wines or beers at any base in Afghanistan; U.S. soldiers are forbidden to drink while deployed. They can order non-alcoholic beer, though, and last night at FOB Walton in Kandahar Province, home to a polyglot, multinational team of 30-some soldiers mainly involved in training the Afghan police, some men drank fake beers while eating a credible Tex-Mex dinner (rice, refried beans, barbecued beef, carrots.)

I asked the night's chef how he made the canned carrots so palatable. Sgt. "Top" Burek explained, "The key is to drain all the water and bake them. At the FOBs they boil them." FOB Walton is run by Col. John F. Cuddy on highly democratic lines, where even lieutenant colonels share dishwashing duties and the men who are the more popular cooks rotate duties. Besides Burek, Capt. Matthew Ryan is one of the favorites.

For Thanksgiving, Ryan says he will prepare cornbread, squash if possible, and assorted pies, in addition to the classic turkey provided to all American bases. He will use as many fresh ingredients as he can. Ryan, a New York state National Guardsman from Buffalo who serves both as an intelligence officer and Civil Affairs chief, explained, "I did a reforestation and some wells at Blickkilli Bazaar--so I feel confident sending my men there."

Ryan, a part-time tree farmer, is used to making from-scratch meals. His Thanksgiving meal last year featured a 41-pound free range bird raised by a friend. But he has had to adapt to local conditions. "Usually it's like Rachael Ray's cooking--she doesn't start with anything raw. You start with Triscuits and Cheez Wiz and you make a meal."

[Ann Marlowe, a New York writer, has just completed her fourth "embed" in Afghanistan.]

Wednesday, November 26, 2008

Supply-Side Memo: From a Near-Heretic Product to a Near-Mainstream One, Turtle Island Foods' 'Tofurky' Will Grace Many a Thanksgiving Table Tomorrow

When Oregon USA-based natural foods company Turtle Island Foods first launched its non-meat, soy foods-based Tofurky whole turkeys and turkey roasts over a decade ago, many retailers and consumers met the Thanksgiving holiday center of the plate alternative to the great bird with shock and trepidation. After all they exclaimed, a real turkey, that once living bird, is a sacred Thanksgiving holiday dinner centerpiece.

Vegetarians and vegans praised the Tofurkey though. And today, with many more vegetarians and vegans in the U.S. and throughout the world (not to mention people looking for alternatives to animal fats), Turtle Island Foods' Tofurkey mock-turkeys not only continue to get praise, and more of it, but sales of the products for the Thanksgiving holiday particularly continue to soar.

For example, Last year, the company sold 275,634 of its Tofurky Turkey roasts (pictured at left), an increase of 37 percent over 2006 sales. Many of the roasts are sold throughout the year, not just for the Thanksgiving and Christmas holidays. The Thanksgiving holiday is the single-biggest sales period for the turkey roasts though.

Turtle Island said today that it expects 2008 revenues to grow by about 20 percent over last year's sales, adding that a significant part of the company's growth comes in the fall from Tofurky sales for the twin holidays.

That's exceptional growth in these tough times. Any time for that matter.

Turtle Island, and the Tofurky, has some heavy weights in the animal rights, vegetarian and vegan movements behind it.

Virginia-based People for the Ethical Treatment of Animals, or PETA, is a supporter of the company and encourages vegans and vegetarians to buy Tofurky meals during the holidays, for example.

In addition, natural foods retailers and many supermarkets devote substantial space in their stores to the Tofurky birds and roasts, particularly in the fall. When the products were first introduced it was difficult to get a single facing in a store's refrigerated or frozen foods case.

In addition to its mock turkey center of the plate products, this year Turtle Island Foods is marketing a value-added special holiday meal geared specifically geared toward vegetarians. The meals include a Tofurky roast, giblet and mushroom gravy, wild rice and mushroom stuffing and cranberry apple potato dumplings. There are additional variations, different side dish combinations, as well.

And of course, Turtle Island Foods' markets a complete line of meat alternative foods, in addition to the mock-turkey items. These include: mock deli meats, chicken, sausage, hot dogs and other non-meat meat analog products. All of the mock-meats are made using a combination of organic tofu and wheat gluten. Today, natural foods stores and most supermarkets devote an entire section, featuring multiple brands, to meat-alternative products like those produced and marketed by Turtle Island Foods.

The natural foods company was founded in Oregon in 1980 by Seth Tibbot. It's seen growth each year since then, including the double-digit sales growth described earlier over the last few years.

In recent years many non-vegetarians and consumers who aren't anti-animal eating also have been serving the Tofurkey mock-turkey roasts at their Thanksgiving tables, along with the real birds, offering an alternative to their guests who are vegetarian. This has opened up an entire new holiday sales avenue for the natural foods company.

Similarly, sales of its complete line of organic tofu and wheat gluten-based mock-meats benefit not just from consumers who don't eat meat, but also from those looking for healthier foods. With people wanting to eat meat and animal fat less these days but still enjoy a meat-like taste, Turtle Island's products have filled this niche for many consumers, opening another new market niche for the company's products.

the sales growth and success of the Tofurky brand hasn't been lost on the advertising industry trade publication Advertising Age. It named the brand one of its "Top 50 Brands of 2008" in the publication this year. That's a major achievement for any company, in any industry.

Retail Memo: Woolworths, An American Chain Imported to the UK and Embraced By the Brits as Their Own Dear 'Woolies' Puts its 815 Stores Up For Sale

'Shopping in Woolworths (in the UK) of late has left a sickly taste in the mouth - and not just from the fizzy cola bottles,' says The Independent's Tim Walker.

The Woolworths variety store chain was founded in the United States in 1879 by Frank Winfield (FW) Woolworth, a 27-year old former sales assistant. He borrowed $300 to open his first "five cent" store in New York. The venture failed, but a second, "five-and-ten-cent store" in Lancaster, Pennsylvania was a hit.

In 1909 FW Woolworth Company opened its first British store in Liverpool, England. Like the U.S. stores the first British Woolworths merchandised lots of bulk food products, especially snacks and confections, along with all sorts of general merchandise items. (In later times the stores sold lots of packaged foods and grocery products.)

By 1919, the year Frank Winfield Woolworth died, there were already 1,000 Woolworths' stores, the chain having annual sales of about $65 million.

The FW Woolworth headquarters building in New York City, which was built in 1913, also had become the tallest building in the world when it was completed. A tower befitting a then towering retail chain.

Among Woolworths' in-store features in the U.S. was a lunch counter, which in post World War II America was a popular place for people to have lunch while shopping in the stores as well as making the lunch counter a lunch time destination.

Woolworths' lunch counters also became famous (or perhaps infamous) in the 1960's in the U.S., particulary in the chain's stores located in the south. In those days, the Woolworths' lunch counters, along with those in every other chain and independent store (and there were many), as well as every restaurant, served only white people. One of the first places civil rights leaders, both black and white, and others attempted to integrate where the variety store lunch counters in stores such as Woolworths in the south.

Woolworths closed its last 700 stores in the U.S. in 1997. The parent company owned the Footlocker sports shoe and accessory chain, which is where it put its retailing focus after ending the long era of Woolworths in America.

However Woolworths remained popular in the United Kingdom. In fact, for most of its modern history, the chain actually was far more popular in Britain than it was in the U.S., even being given the affectionate name "Woolies" by the British.

But by 2005 sales were off, and the company's, owned by an entity called Woolworths' Group, was seeing a progressive drop in its stock share price. This month, Britain's Woolworths went into bankruptcy.

Now, just as the Woolworths era closed in the U.S. for good in 1997 (its best days ended really in the 1970's), they appear to be doing the same in the United Kingdom. "Woolies" is putting its 815 UK stores (where it employees 30,000 workers) up for sale. Perhaps they will be bought and a new owner will keep the Woolworths name, operating the stores in a way similar to how they are now. We rather doubt it though.

Tim Walker, a columnist for the United Kingdom's The Independent newspaper agrees with us in that regard. In a piece in tomorrow's The Independent, Walker writes a farewell to Woolworths, a farewell he calls a bittersweet one.

We remember being in San Francisco, California when the Woolworths store on Market Street in that city closed. It was one of the very last of the remaining 700 U.S. Woolworths to close. Unlike most of the remaining 700 U.S. stores, the Market Street Woolworths was popular, in large part because there were few general merchandise type stores in that part of town, we remeber the locals telling us.

There for a few days during the San Francisco Woolworths' last couple of days before closing in the late 1990's, we recall the closing being the talk of the city. There were articles in the papers, spots on the local television stations, and talk in the cafes about the end of an era of "five and dime" store retailing. The feeling was bittersweet in the city.

Reading and hearing the news, we visited that Market Street Woolworths, which at the time was holding a huge "everything must go" closing sale. We still remember talking to regulars, people who had shopped at the store for decades. Most were very sad to see it close. We even recall a few tears. All expressed a bittersweet feeling.

With that memory, Tim Walkers piece about the end of an era of Woolworths' retailing in Britain caught our eye. Below is his farewell to "Woolies" piece:

Chain store massacre: Tim Walker bids a bittersweet farewell to Woolworths

No more pick'n'mix. No more £2.99Al Green CDs. No more Woolworths. As it passes from high street to memory lane, Tim Walker pays his respects

UK - The Independent
By Tim Walker
Thursday, 27 November 2008

On a lonely shelf at the back of an understocked store in a south-east London shopping centre, a big, blonde, half-price teddy bear sits staring glumly at his paws. "Is this what it's come to?," he seems to be asking himself. Just shy of its centenary year, in the last month before Christmas – when business ought to be booming –Woolworths, the poor bear's employer, is going out of business altogether.

Let's pause to consider the colossal significance of that. Despite its American roots, Woolworths managed, from the moment it arrived on our shores, to assume a quintessentially British identity. Unlike McDonald's incongruous golden arches or GAP's preppy khakis, "Woolies" seemed to be the perfect fit for the British high street. Its enduring contribution to our national consumer culture could be the pick'n'mix counter, which still dominates the front of every branch. To stand on the store's peeling linoleum beneath strip lighting and scoop jelly babies into a paper bag is to enjoy an experience familiar to every generation since 1945. The chain survived the austerity of the post-war years, the Winter of Discontent, the boom and bust of the Eighties and Nineties.

But the global financial crisis has finally brought the faltering retail giant to its knees. Last week, Woolworths put its 800-plus UK stores up for sale, in the hope of saving its other business interests from ruin. Close to £400m in debt, its share price down to 1p and locked in talks with dissenting shareholders, banks and potential benefactors, Woolies yesterday acknowledged that it was going into administration, and would soon have to tell its 25,000 employees whether they'll still be in work by the new year.

The news will have come as a particular shock to millions of baby-boomer Brits, for whom Woolworths was a childhood paradise of sweets, Chad Valley toys and seven-inch singles. In 1965, for instance, as part of a modernisation programme for its inner-city stores, Woolworths became one of the first high-street chains to stock "Top 20" singles and chart albums. The year's annual report cheerily stated that the Leicester branch's "gay 'Record Corner' [was] fully-equipped to meet the demands of the most 'with-it' teenager."

According to the company's own figures, earlier this year the chain still attracted four million shoppers per week – and, despite its lack of profits, boasted annual sales of £1.7bn. The cherished Ladybird range of children's clothing was still ranked third overall in its market. Yet shopping in Woolworths of late has left a sickly taste in the mouth – and not just from the fizzy cola bottles. Instead of the sort of focused product range you might find in any of its high-street neighbours, Woolies stocks an unruly jumble of sweets, toys, clothes, entertainment and household goods. At this time of year, a good portion of the store is given over to seasonal tat, like three-for-two tins of Quality Street, Santa-socks ("Jingle my bell!") and furry reindeer antlers (see cover).

The Woolworths branch in Lewisham, south-east London, is typical. I find the place quiet but for a few pram-pushing young mothers and conscientious grandparents on an early hunt for children's gifts. The tired retro neon sign announces the store's presence. The layout is disorganised. Products lie strewn across the shelves, empty boxes stacked haphazardly. The CD chart is not so much Top 20 as "The five we have left", while the rack of Disney DVDs is near-empty. There's just one copy of Mary Poppins in stock – less than a month from Christmas.

A dwindling band of red-sweatered staff man the cash registers, while security men circle to prevent us taking photographs as I work my way through the uninspiring product selection. On the only working television set in the store, an advertising loop proclaims the merits of "Toaster Pockets" (cook anything from cheese sandwiches to salmon fillets – in your toaster!) and "Keep Fresh" freezer bags (cheap and eco-friendly!). The syrupy voiceover drifts across the store, mingling with background reggae.

Shoppers here aren't necessarily loyal to the store, but have an affection for the brand. Sally Barnard, a local office worker, says she rarely visits Woolworths; "I just came in to buy cheap Christmas decorations for work! But it's been around so long that I'd be sad to see it go. I used to come and buy pick'n'mix here as a kid." Marcia Facey and her sister Julie have been Christmas shopping for their children, and found themselves emerging with bargain household items, too. "It'd be sad to see it go," says Marcia. "It's always been a great one-stop shop."

But being a low-rent, high street Harrods is hardly enough in the modern shopping mall. In a market where even budget brands such as Primark have fashionistas queuing up to get their hands on cheap "Primani" fashions, where Marks & Spencer has its own "Per Una" quality Italian range, and where Argos and the internet offer a more easily negotiable discount shopping experience, Woolworths offers neither the illusion of glamour, nor the most attractive budget range of products. The most glamorous item in the store is a "Glamour Barbie" toy set. And it ain't cheap enough.

Next year will mark the somewhat melancholy centenary of the first British Woolworths opening in Liverpool. Yet the story of Woolworths began well over a century ago in Lancaster, Pennsylvania, where, in June 1879, Frank Winfield Woolworth opened his first successful five-and-dime store. Its great innovation was not only to sell general merchandise at a discount, but to allow shoppers to choose products for themselves, rather than handing their shopping list to a clerk behind a counter.

Woolworth, mindful of his Cambridgeshire ancestry, exported the brand to Great Britain personally in 1909, writing in his diary during a visit that "a good penny and sixpence store, run by a live Yankee, would be a sensation [in Britain]." During the ensuing decades, as Woolworths popped up on high streets and main streets on either side of the Atlantic, the chain found itself accused of driving local, independent stores out of business with its aggressive sales model; ironically, the same powerful consumer forces later saw Woolworths struggling against Walmart and Tesco.

During the 20th century, the Woolworth brand was a strand of the American cultural fabric. The Woolworth Building in New York was the tallest building in the world between 1913 and the construction of the Chrysler Building in 1930; a section of the lunch counter from a Woolworths branch in Greensboro, North Carolina, still resides in the Smithsonian Museum in Washington, DC, testament to the civil rights sit-in that took place there in 1960. In 1979, on the company's 100th anniversary, it was named the largest department store chain in the world by the Guinness Book of Records.

None of this could save Woolworths from a steady decline in popularity, and in 1997 the remaining US branches were closed in favour of speciality stores. By 2001, the company's name was changed to match that of its biggest selling retailer, Foot Locker – the same Foot Locker that now competes with its next-door neighbour, a British Woolworths, in Lewisham's shopping centre.

The British branch of Woolworths split from its American parent company in 1982 and has since experimented – unsuccessfully – with out-of-town shopping. In 2004, some of the chain's out-of-town superstore sites were sold off to sassier competitors such as Asda and Tesco. Business experts suggest that Woolies' woes might have been mitigated had it not been for its decision, some years ago, to sell off much of its property portfolio. While most major supermarkets own the majority of their freehold sites, Woolworths pays rents costing around 10 per cent of the company's sales.

But in the end, it's not necessarily poor business decisions that are responsible for Woolworths' demise. The store might be beloved by generations of consumers, yet most of them haven't shopped there for years, and would be shocked by its decline if they returned. Who wants a one-stop shop when there are so many well-stocked niche retailers? Who wants cheap clothes that look cheap, when you can buy cheap clothes that don't? Seriously, does any "with-it" teenager really give a monkey's what's in the Top 20 any more?

Sandwiched between TK Maxx and Foot Locker, the Lewisham Woolworths' profit margins face attacks on every flank from its specialist rivals. There's a greater range of clothes in TK Maxx, more sophisticated sweets across the courtyard in Sainsbury's, budget household goods in Poundstretcher, stationery in Clinton Cards and WH Smith, videogames in Game. Where once the variety of its product range was a strength, it is now Woolworths' curse. The store is stuck as an afterthought at the bottom of the shopping centre map key, under the redundant qualifier: "General".

Woolworths A history on the high street

>1879 At the age of 27, Frank Winfield Woolworth, a former sales assistant, borrows $300 to open a "five cent" store in New York. The venture fails, but a second, "five-and-ten-cent store" in Lancaster, Pennsylvania is a hit.

>1909 FW Woolworth opens its first British branch in Liverpool. Nothing is priced over sixpence and sweets sell out on day one.
1913 The Woolworth Building is completed in New York City, becoming the tallest building in the world.

>1916 Winfield Hall, Frank Woolworth's Long Island mansion, is finished. It features a $2m pink marble staircase.

>1919 FW Woolworth dies, aged 67, leaving behind more than 1,000 stores and a $65m corporation.

>1925 A boom in Britain sees a new store opening every 17 days.
1929 Worldwide, the chain sells a million mousetraps, 90 million lunches and 33,000 miles of garter elastic.

>1931 Woolworths floats its British arm on London's Stock Exchange.

>1932 The store places an order with the Ladybird brand of children's clothes for "eight thousand dozen units of Directoire Knickers". (Woolworths buys the right to the Ladybird name in 1984.)

>1939 Inflation during the Second World War forces the chain to drop its "Nix over Six" (nothing over sixpence) price pledge.

>1944 In one of the worst bombings of the war, 168 people are killed when a German V2 rocket destroys the New Cross branch in south-east London

>1953 The coronation range of gold foil crowns, flags, bunting and mugs makes Woolworths No 1 for budget memorabilia

>1954 Embassy Records, Woolworths' label, releases its first cut-price compilation of British pop hits. The chain remains the UK's leading music retailer into the Nineties.

>1955 The first self-service store (with aisles and tills) opens in Cobham, Surrey, heralding the age of the DIY pick 'n'mix.

>1963 The Winfield premium brand is launched, but includes drain cleaner and ant killer alongside bras and perfume. It never takes off and disappears in the mid Eighties.

>1970 During the Seventies, 15 UK stores are closed each year, in part to finance the 1980 purchase of the B&Q chain of home improvement stores.
1982 Paternoster Stores, later the Kingfisher Group, buys British Woolworths, cutting links with America.

>1997 Woolworth America closes its last 700 stores and concentrates on its sports shoe arm, Foot Locker.

>2001 After parting company with Kingfisher, Woolworths Group is floated on the London Stock Exchange. Shares are priced at 32p.

>2005 Shares peak at 55p before falling to 15p by January 2008.

>2008 In November, Woolworths goes into administration, putting 30,000 jobs in 815 stores under threat.

Related articles about Woolworths from The Independent:

>Recession claims a giant of the high street
>Leading article: Farewell, Woolies
>Jeremy Warner: Don't blame the economy for the demise of Woolies

[NSFM Editor's Note: Click here to read a number of comments from readers of The Independent about Woolworths'-UK closing.]

Tuesday, November 25, 2008

Consumer Behavior Memo: 'Uber-Cocooning' -- Many American Consumers Staying 'Home For the Holidays' Out of Forced Economic Necessity

Yesterday we wrote and published this piece, "Consumer Behavior Memo USA: 'Life, Liberty and the Pursuit of Frugality' - America's New Consumer Frugality," about a trend we are calling the "new, frugal American consumer."

Jennifer Waters, a staff writer for the news and business Web site has a well researched and written article today, "Be it ever so humble: Cash-strapped consumers embrace 'home for the holidays,'" which we think serves as a good companion piece to our frugal consumers story linked above from yesterday.

Ironically, the old saying, "There's no place like home for the holidays," has always evoked warm thoughts and feelings among Americans because it reminds them of being home for the holidays as a child -- hearth and home and other such feelings of comfort. And many Americans do stay home for the holidays even though they don't have to. Having that choice makes doing so evoke even warmer thoughts and feelings, after all.

But this year, cash-strapped, house-poor, near 401-K retirement account-less U.S. consumers are in most cases staying home for the holidays not out of choice but because they need to from a financial standpoint. Home is not only where the hearth is this year, but it's where the money savings is.

In her story, Jennifer Waters uses a term we like to explain the stay-at-home 2008 holidays --"a forced rendition of cocooning." It appears the CIA isn't the only user of forced rendition these days -- so is the U.S. economy.

Cocooning of course is that popular term thought up a number of years ago by trend-forecaster Faith Popcorn to explain why at the time increasing numbers of consumers were staying home more rather than going out. The trend was towards more meals at home, renting videos and watching them at home rather than going to the movies, and other related at-home behaviors.

Ms. Popcorn is quoted in the article in, calling the 2008 version of staying at home "uber-cocooning," attributing it not to choice but to economic realities this holiday season.

Read the article, "Be it ever so humble: Cash-strapped consumers embrace 'home for the holidays,'" here.

"Uber-cocooning," or economically-forced home rendition, fits with our concept of the new, frugal American consumer. And while this new frugality poses challenges for food and grocery manufacturers and retailers, it, along with the fact consumers are spending more time at home -- and eating more at home than ever in recent times -- favors grocers as well as food manufacturers and marketers more so than any other consumer products and retailing industries. After all, even "Uber-cocooners" must eat.

In fact, sense many more consumers are spending the holidays (and the non-holidays) at home, this means fewer will be eating holiday meals out at restaurants. Instead more consumers will be cooking their holiday meals at home, meaning shopping at the supermarket, discount store or natural foods market for food and groceries this year. The upside to cocooning or hibernating of any kind is cocooners need provisions. The grocery store is where they must go to get them.

The challenge of course for food manufacturers and marketers, especially those in the natural, organic and specialty foods sectors, is to get these home for the holidays (and regular days and nights as well) consumers to buy their brands. With a huge surge in store brand purchases right now its advantage retailers. Of course many of these manufacturers produce the private label brands for the retailers so there's some saving grace there at least.

But overall, this year's home for the holidays trend should be good for the food and grocery industry as it will mean more shoppers, perhaps buying less, and since the Thanksgiving holiday for example is a four day holiday, cocooning consumers will need to stock up for those four days at home. The same should be the case for the rest of the year -- not just the holidays.

Monday, November 24, 2008

Retail Memo: Customer-Owned Retail Food Cooperative Stores Gaining New Popularity in Reccessionary America

Seattle, Washington USA-based PCC Natural Markets operates 10 modern cooperative natural foods supermarkets in the Seattle Metropolitan region. The photo collage above shows the exterior and interior of one of those stores, [Photo credit: PCC Natural Markets.]

Food retailing and consumers in trying economic times

The retail food cooperative movement in the United States was brought across the Atlantic, like many other things, from Europe, where beginning after the second World War the cooperative, customer-owned food stores started to blossom in the United Kingdom, France, Germany and other parts of Europe.

In the U.S. retail food cooperative stores began to blossom in the 1960's and early 1970's as part of the counter-cultural movement, when mostly younger consumers began forming cooperatives as a means to both save money and have greater political control over their food purchases, as well as an attempt to create a greater sense of community for themselves

The retail cooperatives sprung up rapidly from California, the Pacific Northwest and Colorado in the west, to the Midwest and eastern USA.

There were some retail food coops prior to the 1960's in the U.S., but they were mostly informal operations.

The 1960's versions were in many ways the first U.S. natural foods markets, and unlike the American retail food cooperatives before them put an emphasis on healthy and natural food products, as well as collective customer-worker relationships. These coops thrived in the 1970's and into the early 1980's

Beginning in about the mid-1980's, retail food cooperatives began to lose business in the U.S. (along with closings like the once very popular multi-store Berkeley, California food coop), to a large degree because new, modern for-profit natural foods markets were springing up throughout the land. These stores included Whole Foods Market, Wild Oats, Alfalfa's and many modern, independent natural foods stores. Additionally, numerous independent grocery stores throughout the U.S. started selling a decent selection of natural, organic and healthy foods in the 1980's, which also led to the decline of the cooperatives.

Many retail coop stores continued to thrive in the 1980's and beyond though, including the popular Davis Food Co-Op in Davis, California near Sacramento and the Sacramento Natural Foods Co-Op in Sacramento, which is building a second store; the four-store Bloomingfoods market coop in Indiana; and the 10-store PCC Natural Markets coop chain in Washington state, for example, along with many others in the west, Midwest, south, Mid-Atlantic and eastern U.S. The movement was much smaller however -- and the retail cooperatives that tended to survive and thrive were those that adopted a more modern natural foods store retailing model, such as the Pacific Northwest's PCC and others like it.

If you set foot in many of these thriving retail food cooperative stores today, you would have no idea they aren't for-profit natural and organic food stores. The look is modern and even upscale in many cases. The departments are the same, and the brands no different than those found in Whole Foods Market stores. Of course, few are as upscale or elaborate as Whole Foods, which is a positive for the coops today.

The big difference is that the retail coops are owned by members who buy shares in the cooperative as well as work in the stores for no pay in return for being able to purchase food and groceries at a substantial discount, often at the wholesale cost or slightly above.

It is this model, savings and value, that retail cooperatives were created to serve primarily after all. Pay a small annual fee of say a couple hundred dollars and/or volunteer a few hours a week working in the store, and in return receive a substantial discount on all the food and groceries you buy at the store -- with all the profits going back into the operations. The coops also are run by the owner-employees-customers, and generally feature a board of directors that makes policy, with the "owners" voting on major initiatives and policy changes.

The retail cooperative model is ripe for bad economic times such as the U.S. and most of the world finds itself in. And it's no surprise that as a result the retail food coop movement is gaining fast in a new popularity. After all, for people aged 18 -to- 40 retail food cooperatives are really a completely new thing in many ways. They were either small children or not yet born in the 1960's and 1970's. And for those older than say 50 who remember retail cooperative stores, or belonged to one while attending college for example (college towns were popular coop towns), its can be for them a perfect money-saving solution to the current recession, as well as a way to increase their sense of community in these difficult times.

One of the regions in the U.S. where coops are gaining popularity and members, as well as expanding, is in New York.

A story in yesterday's New York Daily News, "Shoppers work for food as co-ops surge," describes the growing popularity of a number of retail food cooperative stores in the New York region.

"There's been a steady growth in co-ops, with a spurt in the past few years,"Barry Smith, manager of the Flatbush (New York City) Food Co-Op, which opened in 1976 and requires its members to invest $200 - no labor involved, says in the New York Daily News story. "We're definitely in an upswing," Smith says.

Like we said, retail food cooperatives have never went away -- but they are on an upswing throughout the U.S.

For example, the National Cooperative Grocers Association, which operates 109 co-ops in 32 states in the U.S., recently reported annual sales of more than $945 million. That would be strong annual sales for a for-profit natural foods store chain of 109 stores. Rather impressive. The association is setting a goal to achieve sales of $3 billion annually in its stores by 2020.

In New York City's South Bronx, five New Yorkers started the South Bronx Food Co-Op last year. Now there are 120 members and the store recently expanded its hours to five days a week from just one, according to the Daily News' story.

"I'm shocked to see how people have gotten into it,"says South Bronx Food Co-Op Director Zena Nelson. "People want to be part of something. And we're saving money."

That wanting to be a part of something is what we mean by the political and community-based motivation, along with the economic, that's always been a central part of the retail food coop movement in the U.S., as well as in Europe.

We believe in addition to the current recession, the surge in the food coop movement in the U.S. is tied to the recent activism evidenced in the Barack Obama Presidential campaign in which literally millions of Americans of all ages, and particularly young people, got out in their communities and organized in a grass roots way for President-elect Obama's victory. The Obama campaign and the retail food cooperative movement both have the grass roots or "bottom up" organizational concepts very much in common.

Participating in a retail food cooperative store, particularly if one volunteers as well as just pays a membership fee, is a form of community. And saving money is part of that benefit. In fact, sometimes bad economic conditions serve as a catalyst for such change. Motivated by saving money consumers try something new, in this case joining retail food cooperatives. Once a member, they find additional benefits such as a greater sense of community and greater involvement with the food they consume in the process.

For example, read what Jamie Principe, an architect for a Manhattan design firm says about her "second job" as a shift manager at the Park Slope retail food coop store in the city neighborhood of the same name as the store in the Daily News' story: "I think it's terrific,"says the 38-year-old mother of two, who says she saves her family about 30% on groceries. 'The co-op even provides child care while she works.'

One can tell in her quote that she loves the economic benefit (the savings of 30% on her groceries) of being involved with the Park Slope retail coop store. But you can also tell she loves the sense of community it brings her. Otherwise why would a hard working, well paid architect work a "second job" as a shift manager at the store?

Here's the second part of Jamie Principe's quote from the story: "It's being part of a community," she said. "It's kind of a back to basics."

Architect Principe isn't alone in her views: 'The Park Slope Food Co-Op, which opened in 1973, said its membership has grown to 14,7000 - including a 10% spike in the last year alone - from 5,700 in 2001, according to the story in the Daily News'. Most for-profit supermarkets and natural foods stores would be very pleased with a 10% spike in a one year period of time.

Read the full story, "Shoppers work for food as co-ops surge," by New York Daily News staff writer Stephanie Gaskell here.

The growing retail food cooperative movement is giving that sign, "Will Work For Food," a whole new meaning in these trying economic times in the U.S.

We believe the movement will continue to grow. Not just because of the savings on food and groceries it offers consumers but also because of the sense of community it brings, as described by Jamie Principe.

There are changes brewing in America around the sense of and definition of community. As we mentioned, bad economic times usually serve as a catalyst for change. These can be good or bad changes.

But often they are positive ones because generally the things that brought about the bad economic times were negative, such as greed and excess. A greater sense of community, along with the financial need to save money, often has been the response to periods of bad economic times in America. And often these behavioral changes last long after the bad economy goes away.

Marketing Memo: How Persuasive is the Case For Your Brand?

Brand marketing in trying economic times

Hard evidence is critically important to any brand case, and an evidentiary overlay can be a tremendous asset in building and communicating a uniquely compelling brand position, according to Tony Barr and Gary Kopervas, the authors of a paper, "How Persuasive is the Case for Your Brand?

An "Evidentiary Brand" structures its case on a set of distinguishing truths that project a brand's virtues in a meaningful way and play to the emotions of the jury—the target audience—thereby improving the odds of a favorable brand verdict, the authors write in the current (Fall 2008) edition of

Their paper demonstrates how success in winning the hearts and minds of skeptical consumers can be improved by taking a closer look at what it takes a trial lawyer to win the hearts and minds of a jury, the authors argue in the interesting and practical paper.

The information and arguments in the white paper are useful ones for food marketers of all sorts, regardless if they're a brand marketer for a huge global consumer packaged goods company or a medium to small natural or specialty foods company.

You can download and read the interesting, informative and useful brand marketing white paper at the Web site here.

Retail Memo: What's Next For U.S. Retailers if the Economy Picks Up in 2010?

Retailing in trying economic times

The Kiplinger Business Resource Center, which has been forecasting business, economic and consumer behaviors and trends in the fields of agriculture, retailing, finance and other sectors for many decades in the U.S., and writing about these forecasts and trends in its popular Kiplinger Letter newsletters, is out today with a retail forecast for the U.S. for 2010. The premise of Kiplinger's forecast is what retailers in the U.S. can expect if and when (as optimists we say when) the economy picks up in 2010.

Among the trends Kiplinger suggests could stick after the current severe economic recession include consumers sticking to value and continuing to trade down to discount retailers like Wal-Mart Stores, Inc., a current phenomenon we wrote about earlier today in this piece: "Consumer Behavior Memo USA: 'Life, Liberty and the Pursuit of Frugality' - America's New Consumer Frugality."

Additionally, Kiplinger sees quality making a comeback -- but it must come with value. Again this is something we've been saying in regards to upscale, specialty and natural foods stores in terms of the need to offer a value proposition even on organic, higher-end and premium food and grocery products. For example, Whole Foods Market, Inc. has learned that lesson and is trying to do just that -- create and communicate a value proposition for its stores.

The Kiplinger 2010 forecast also suggests consumers will do much less frivolous buying than they did before the current recession (American consumers have been buying frivolously from about the mid-1980's to 2007 in fact, with the exception of a couple years during the recession of the early 1990's), even if the U.S. economy comes roaring back strong in 2010.

This consumer behavior change (less frivolous buying, trading down, searching for value) which is happening right now is something we've suggested could last after the recession is over. We see a deep recession all through 2009. Consumers will trade down even more because they have to all of next year, we believe, and once the economy improves (hopefully by 2010) will have developed some learned behavior in this regard, which we think will prevent them from going right back to the old shopping patterns.

However, we also think there is going to be some pent-up buying desire among consumers once the recession is over. We think that will be good for upscale-oriented food retailers because it's our analysis the first things consumers will start buying again in significant volume are affordable luxuries like organic, specialty and premium food products. They won't be able to buy a new car perhaps, and certainly not a new house, but can afford to spend a little extra at the grocery store, and receive the gratification doing so brings, once the recession ends and things look more optimistic.

Additionally, as we've suggested previously, if the recession lasts all of next year, which we believe it will, consumers will have had nearly two years worth of trading-down and penny-pinching retail shopping behavior. They likely are going to expect value even when the economy improves. After all, the loss in home values and retirement savings, for example, will still be there in 2010. Much of the meager wealth, which was mostly in housing equity, of the middle and upper-middle classes in the U.S. has been wiped out already.

Other 2010 forecasts from Kiplinger include a continuation of retailers building smaller stores -- what we call the "small-format food and grocery retailing revolution" in the U.S -- a beefing up of customer service by retailers of all formats, and retailers developing a whole new set of coping strategies in order to deal with the challenges ahead.

On the small-format store front, Kiplinger agrees with Natural~Specialty Foods Memo that retailers like Wal-Mart who build and operate huge stores won't stop doing so. Rather, as we often write, they will continue what's already been started, which is building smaller-format, sibling formats and stores to go with the mega-stores like Supercenters and Sam's Club formats. We think other chains will join the small-format sibling store club as well in 2009-2010, despite the recession.

Read the latest retailing forecast, written by Laura Kennedy, from Kiplinger: "What’s Next for Retailers? What can retailers expect when the economy finally picks up in 2010? here.

The Kiplinger forecast in our analysis is a good snapshot of some likely consumer and retailer behavioral trends come 2010, assuming the U.S. economy improves by then. If it doesn't improve though, all bets are off, as a recession still strong in 2010 is going to result in some serious changes not only in consumer and retailer behavior, but in the entire structure of the U.S. economy, we believe.

And the government, corporate and individual debt load by 2010, even if the economy comes roaring back by then, still is going to alter retailing as usual for some time, in our analysis.

Just look at what's happening across the board already in terms of consumer debt and lack of credit. Now unemployment and job insecurity has been added to those negatives. In just two months many middle class consumers have gone from cutting back to not knowing if they can even afford the basics in food and groceries each week or month.

For these reasons we believe all food and grocery retailers, regardless of format, must develop and communicate their own unique value proposition now. We strongly believe doing so is a matter of survival as things continue to first get worse then shake out in 2009 and beyond.

We even believe high-end specialty-gourmet food retailers like Dean & DeLuca, which tend to cater to upper middle-class and wealthy consumers, need their own unique value propositions. As an example, in the quarter just ended Wal-Mart Stores, Inc. reported the average income of the shoppers in its stores has increased considerably in the last six months. That's because higher income consumers are trading down to the retailer.

Retailers must remember the upper middle-class and even many of the wealthy are hit hard by dramatic losses in the value of their homes and retirement savings. Housing values are down by 25-50% in many parts of the U.S. And down by at least 10-15% even in the best regions. Retirement accounts are down for many people by as much as 40-50% because of the poor performance of the stock market.

As a result, the upper middle class and even many of the wealthy (or we should say the recently former wealthy) are in growing numbers looking for value, even at Dean & DeLuca and other upscale and specialty food and grocery retailers.

Consumer Behavior Memo USA: 'Life, Liberty and the Pursuit of Frugality' - America's New Consumer Frugality

Beginning in the first quarter of this year, when unemployment was still slightly under 5% in the U.S., the housing foreclosure crisis was just starting to become serious (at least publicly), food inflation was only beginning to emerge, the price of gasoline hadn't come close to hitting $4-plus a gallon (its back down but will go back up again), and the political pundits thought now U.S. President-elect Barack Obama's change mantra was at best interesting, Natural~Specialty Foods Memo started writing in the Blog we were beginning to see signs of a "new frugality" or a beginning of a pronounced thriftiness among U.S. consumers.

We suggested the first signs of consumers trading down -- including at the food and grocery store -- were beginning to emerge; signs that we said would lead to even more shopper frugality as the year went on and the economy worsened, which it certainly has.

Many analysts were saying it was a 50-50 chance the U.S. would enter a recession in 2008. We were already using the terms "pre-recession" and "recessionary U.S. economy" in the first quarter of 2008 in Natural~Specialty Foods Memo.

The signs we sited as observing this rapidly emerging "new frugality" among American consumers, including at the food store, were an increase in the use of manufacturer's "cents-off" coupons, the beginnings of what looked to be a significant percentage shift from national brands to store brands or private label grocery products, a trading down among shoppers from upscale supermarkets and stores such as Whole Foods Market to more value-oriented grocers (including natural foods retailers like Sunflower Farmers Market and specialty grocers like Trader Joe's in the natural and specialty retailing sectors), along with a movement among consumers away from eating away from home at restaurants (medium-range and higher-end sit down restaurants) and to cooking more at home.

Then came the financial markets meltdown in September, also a time when the price of gasoline averaged over $4 a gallon in the U.S., more housing foreclosures were happening, when increased unemployment was starting to look like it was the beginning of a trend rather than an statistical blip, and food inflation, which has been soaring since the first of the year, continued to do so. These equal a perfect storm of negative economic indicators.

It was then that the mainstream media started sounding more like Natural~Specialty Foods Memo. Stories started appearing about a new thrifty ethic taking root among consumers -- perhaps only because they had no choice because housing values were down by double digits, gasoline still high, job security non-existent and the price of everything from food to home energy costs was soaring.

We don't mention our track record to pat ourselves on the back, nor to suggest we had a crystal ball. Rather we do so because we observe and analyze such trends closely, as do many others who were saying similar things in the first quarter. Among those others was Safeway Stores, Inc. CEO Steve Burd, who told us back in the first quarter he hadn't seen food inflation soaring as fast as it was in the 15 years he's been CEO of the supermarket chain. He was spot on.

Now, at the near-end of November, 2008, just a week before the Thanksgiving holiday, we're observing an even stronger and more widespread "new frugality" among American consumers, including their grocery shopping behavior, that we haven't witnessed since the 1970's in the U.S. It's survival being turned into "cheap chic" perhaps.

Coupon use has soared, shoppers, even upper income consumers, are flocking to Wal-Mart and other discount stores; people are making coffee at home instead of going to Starbucks, store brand sales growth is soaring by double digits; consumers are reporting they make fewer trips to the grocery store just so they can avoid the impulse to purchase more then what they need; and loyalist shoppers, who previously professed love for and spent lots of money at retailers like Whole Foods and were dedicated buyers of organic and premium foods, are finding even they, despite still having jobs with good incomes, also must trade down.

After all, even if you make over $100,000 a year, when your house has dropped in value by 40% and your 401-k retirement account by more than half, you too feel the need for a little frugality. Add to this job insecurity even among highly paid professionals, and it certainly can be called a "new frugality," and not just among the lower income and middle classes in the U.S.

The Associated Press has recognized the "new consumer frugality" trend we first started writing about in the first quarter of this year. Late last week the AP published a comprehensive trend-oriented piece by staff writer Dan Sewell, "The New Frugality: Americans return to thriftiness," that looks at this emerging "new frugality" among American consumers.

Below are the first four paragraphs of the AP story, which features observations and analysis we agree with:

'Frugality is making a comeback.

Fearful that economic conditions could get worse and stay that way, Americans are showing an enthusiasm for thriftiness not seen in decades.

This behavioral shift isn't simply about spending less. The New Frugality emphasizes stretching every dollar. It means bypassing the fashion mall for the discount chain store, buying secondhand clothes and furniture, or trading down to store brands.

There's more business for repairmen and less for salesmen. Consumers are clipping more coupons and swiping their credit cards less.'

The AP story also discusses further how American consumers are applying this new thriftiness to grocery shopping, including mentioning some of the indicators such as increased store brand sales and coupon use we've been discussing in Natural~Specialty Foods Memo since early this year.

A serious of recent stories in also demonstrates this "new frugality" among American consumers, as do the sales and profit numbers of the companies reported on in those pieces by Forbes.

In fact, just the headlines alone of the Forbes' stories offers a good overview of the seriously bad state of the U.S. economy and the "new frugality" shoppers are employing in order to survive what looks to be a long recession. We think it will last all of next year, and is going to get much worse -- more foreclosures, increased unemployment, more corporate failures -- before it begins getting better.

There are two positive signs currently for consumers however -- the fact the price of gasoline has dropped by 50% in just the last month, averaging about $2 a gallon at present nationally in the U.S., along with the fact food inflation should slow down considerably beginning in 2009 because the commodity prices of corn, wheat and soy beans are coming down, which should is already leading to lower prices on the shelf.

Additionally, the new consumer frugality is resulting in less of a demand for many food items. This is helping to lower the retail prices of dairy products and other food consumers have cut back on purchasing because of the double-digit price increases since January of this year.

The potentially negative macro-economic aspect to this price deflation however is that if prices drop too much across the board the U.S. economy could enter into a period of deflation rather than inflation, neither of which is good. Depressed retail prices, and thus margins for companies, also could mean more business failures, including in sectors beyond banking, durable goods retailing and the auto industry.

Next up for bailouts we predict will be certain insurance companies; especially those that insure financial instruments like AIG does. The giant insurance firm AIG has already received over $100 billion of the $700 billion U.S. government, taxpayer-funded financial services industry bailout money allocated last month by the U.S. Congress and the Bush Administration.

We also expect to see more durable goods retailers file for bankruptcy And of course if one or more of the big three Detroit auto companies goes bankrupt there will be a cascading financial crisis among suppliers and related businesses that could put millions out of work in a scant couple months.

There's a silver lining in this new consumer thriftiness for grocers though -- since consumers are eating out less that means they are cooking and eating at home much more often, which is why publicly-traded supermarket chains, with a few exceptions such as upscale Whole Foods and a couple others, are holding their own. Discounters that sell lots of food and grocery products, like Wal-Mart with its Supercenters and BJ's Wholesale Club with its food-centric membership club stores, are even thriving in the recession compared to others. Further, supermarket chains like Safeway Stores, Inc. who defined and promoted their value propositions early this year also are doing well.

In the foodservice sector, McDonalds is benefiting strongly from the "new American consumer frugality," while Starbucks is struggling mightily: Consumers are trading down to $1 cups of coffee and items off the dollar food menu at McDonalds, from the fancy $5 coffee drinks and $8 panini sandwiches they used to buy at Starbucks.

Below are a series of recent stories from that tell the story about the current winners and losers in this new frugal consumer world. Just click on the title link to read the story:

For upscale and natural foods retailers, along with supplier companies in the natural, organic, premium and specialty foods spaces, this new consumer thriftiness means getting tough -- keeping costs down and offering value even on natural, organic and specialty food and grocery items.

At present the majority of U.S. consumers aren't going to pay a premium in terms of the cost of products in these categories just to shop in a fancy supermarket or to buy a prestige brand. There still are plenty (less though) of shoppers buying natural, organic and specialty food and grocery products but they want value -- and will seek out those brands that offer it as well as shop in those stores that offer lower prices on natural and organic produce, meats and grocery items. It's all about the value proposition right now -- even on products that normally sell for higher prices than conventional food and grocery items do.

Upscale supermarket chains like Wegmans on the east coast and Raley's in California have got this message, as has Safeway Stores, Inc. with its Lifestyle supermarkets located across the country. All three of these chains for example have been and are increasing their value propositions (lower prices and creating value-based promotions), including in the areas of organic, specialty and premium prepared foods, as well as in the basic food and grocery categories, which is where they are putting most of the emphasis overall.

Whole Foods Market, Inc. has been working hard to up its value proposition since earlier this year when it saw its quarterly profits tumble by 40%. For example, its-recently reported drop in quarterly profits, as reported in the Forbes story linked above, was less than that 40% reported in the previous quarter.

Discount-oriented natural, organic and specialty retailers like Trader Joe's, Sprouts Farmers Market and Sunflower Farmers market are doing better. In fact since earlier this year they have been taking share away from Whole Foods stores in the U.S. markets where they compete. This is another reason Whole Foods has and is focusing on creating and communicating a value proposition, including for the first time in its history offering deep discount coupons periodically, which are good for $5 off total purchases of $25 or more at its stores.

We see this new consumer thriftiness continuing for some time, since we see the severe recession first getting worse than it is at present, then continuing for sometime. Additionally, if the current recession continues throughout 2009, which as we said we think it will, then starts improving say in late 2009 or early 2010, that will have given U.S. shoppers a long period of time to practice this "new frugality." As such it's possible there could be some longer term behavioral changes -- a long term new thriftiness -- among middle and even upper income American consumers long after the current recession ends. Such behavioral shifts aren't uncommon.

The good news however for the retail grocery industry, as well as for most sectors on the supple side compared to other consumer products makers, is that the food and grocery sectors are in the main benefiting from the eat-at-home trend that's part of the "new American frugality" among consumers.

However, as we said above, it will be those retailers and manufacturers-marketers who focus on the value proposition regardless of what sector of the industry they are in, including natural-specialty foods, that will survive the downturn, living again for a better day, which also might include a return to more indulgent food spending because of a pent-up desire among shoppers to splurge on natural, organic, premium and specialty foods once this current severe economic recession ends.

Meanwhile, it looks like the motto of the average American consumer right now is: "Life, Liberty and the Pursuit of Frugality."

Sunday, November 23, 2008

Global Food & Agriculture Memo: Will Parts of the Underdeveloped World Become the New Breadbaskets for Companies and Nations in the Developed World?

The practice of tenant farming primarily by family farmers was a common practice in the United States and elsewhere in the western more-developed world until the Dust Bowl years and the Great Depression of the 1930's, which when over ushered in what we see today as modern family-owned farming and corporate agribusiness in the west.

The tenant farming practice (also referred to as sharecropping, which in the U.S. was a common practice during the long period of slavery but also included poor whites), in which farmers rent land from landowners and then share a major portion of the profits from the sale of their crops with the landowners, still goes on in parts of the underdeveloped world. However, in nearly all of these situations the landowners, who reap the majority of the benefits from the arrangement, and the farmers, who are poor and willing to crow crops on land they don't own because they basically have no alternative, are local landlords and poor folks living in the countries where this practice continues today.

This practice, which most people would like to eliminate altogether and replace by giving the tenant farmers in these underdeveloped countries a helping hand to buy the land they work, is making a major comeback though -- but in a corporate way, including the new landowners being corporations and even nation's (Kingdoms mostly) based far away from the underdeveloped countries where the practice is starting to occur.

For example, South Korea's Daewoo Logistics this week announced it had negotiated a 99-year lease on some 3.2 million acres of farmland on the dirt-poor tropical island of Madagascar, off southern Africa's Indian Ocean coast. That's nearly half of Madagascar's arable land, according to the U.N.'s Food and Agricultural Organization, and Daewoo plans to put about three quarters of it under corn. The remainder will be used to produce palm oil - a key commodity for the global biofuels market, according to a story in Time magazine today.

According to the piece in, 'A Daewoo manager, Hong Jong-wan, told the Financial Times newspaper recently that the crops would "ensure our food security," and would use "totally undeveloped land which had been left untouched."' 'Land is scarce and expensive in South Korea, which makes it the world's third-largest importer of corn. Daewoo says the Madagascar land will be leased for a price of around $12 an acre, which is a fraction of the price for farmland in the corporation's home country,' according to Time.

South Korea's Daewoo, a huge conglomerate which might be best known for the automobiles of the same name, isn't the only entity looking to acquire mass-acreage outside its own nation to grow and then export food back to the country where the company is based.

Time magazine reports in today's article that 'Africa's fertile soil certainly appeals to the countries of the oil-rich Persian Gulf, whose vast deserts force them to import most of their food.'

"The Gulf states have an incredible surplus to invest and now that the old economies are facing recession they are looking at Africa," says Marie Bos, an analyst at the Gulf Research Center in Dubai. 'Although such wealthy countries as South Korea and the Gulf states are easily able to pay for food imports, this turmoil on global food markets may have increased the incentive for food-importing countries to secure their own sources of supply,' writes Vivenne Walt in Time.

Read the full article, "The Breadbasket of South Korea: Madagascar," from today's here.

This new development in global agriculture, should it become widespread, could change the way crops are grown and food is marketed over time in the world.

For example, if foreign corporations based in Asia like Daewoo, and Kingdoms like those in the middle east mentioned in the story, acquire tens or hundreds of millions of acres of land in underdeveloped countries like Africa and then grow crops for exportation exclusively back to their respective home nations, such a practice could seriously hamper the underdeveloped nations' ability to produce food for its own peoples as well as to eventually develop an agricultural exportation industry which would create jobs.

On the other hand, if it is true like Daewoo says that in its case the 3.2 million acres of land its acquired is otherwise useless land for farming, then the practice would seem to use to be much more benign. We find it hard to believe though that most corporations and foreign nations would be searching for useless land to create their overseas farming programs on. The logic of doing so goes counter to common sense and would seem to result in vastly higher expenses in initial and ongoing land improvements than any for-profit company would want to make, although in the case of Daewoo it is subsidized by the South Korean government. Time will tell if this is the case or not we suspect.

Most important though for Africa and other similar underdeveloped countries is being able to feed their own peoples through a domestic agricultural industry, something they aren't even able to do at present, despite an abundance of land. The mass ownership of land in these countries by foreign corporations and nations also makes it much less likely tenant farmers in these places will be able to own the land they farm anytime in the future.

This emerging new form of corporate and nationalistic global agriculture also could have implications for changes in food exportation. For example, it's likely a giant company like Daewoo would for example sell any surplus product, either in commodity or value-added form, it produces in Africa beyond what the South Korean market doesn't demand, especially if selling it globally to say European countries brings in a significant financial premium.

Many corporations already produce crops on lands outside the countries those firms are based in. However most operate on a corporate agribusiness model rather than using tenant farming practices. And the practice is nowhere as widespread as it would be if other corporations follow the Daewoo model of grabbing massive acreages in one fell swoop.

It's also qualitatively different because the corporations like Daewoo, and the middle eastern nations looking to do the same thing, aren't producing crops in these lands to then sell in these same countries and globally. Instead the express purpose of this overseas farming practice is to bring most if not all of the crops back to their respective home countries.

If such a practice were to prove successful, we could see numerous other corporations copying it. After all, land and labor is far cheaper and much more available in these underdeveloped countries than it is in Europe and even North America. Crops could be produced in Africa and elsewhere using super-low labor (tenant farmers) and then sold at reduced prices globally. This practice also has the potential, if it became widespread, of undercutting agribusiness company's and family farmers in places like the United States, Canada and Europe -- and even Mexico and Central America -- which in all cases likely have higher costs of labor and certainly higher land and production costs for the crops they produce.

This emerging new global farming practice is one worthy of watching closely in our analysis.