Numerous provisions in the massive $790 billion comprehensive economic stimulus package approved by a U.S. House-Senate Conference Committee and set to become law possibly as soon as tomorrow, offer significant sales-growth potential for the U.S. food and grocery industry -- retailers, food-makers and marketers. Many of the package's provisions also provide much needed help for American consumers.
It's not by any means a perfect package -- but it could be the nation's best hope right now. And if it builds some real business and consumer confidence, something that's most-lacking in the U.S. economy right now, that accomplishment in and of itself will go a long way towards making the package a successful piece of legislation.
But after all is said about which provisions of the stimulus package help which business sectors -- which we say below in terms of the food and grocery industry -- the most important thing to say is that we are all in this together. United we succeed, overly divided we fail.
It's apt that today we celebrate the real birthday of perhaps America's greatest President -- Abraham Lincoln -- the great unifier. Lincoln staked his Presidency and the country's future on what to him was a crystal clear premise and certain in his soul article of faith -- that America's best hope for the future was as a united nation -- not a confederacy or as a series of blue and red states, as President Obama likes to say, but as a "United States."
President Obama echoed Lincoln, the President he takes as his role model, in his speech today at the annual Lincoln Day event in Illinois. Both Presidents -- both from Illinois -- are right in having that crystal clear premise and certain article of faith that America's last best hope has and always is when her citizens are united. Let's not foget that in these bad economic times, especially.
The $790 billion economic stimulus package agreed upon by a conference committee of the U.S. House of Represenatives and U.S. Senate yesterday -- and which will be voted on and passed by the House today and is set to be voted on and most likely passed by the Senate tomorrow -- includes as one of its provisions a 14% increase in the amount of food stamps the U.S. Department of Agriculture (USDA) will distribute to the millions of Americans who are receiving the food assistance vouchers (food stamps actually come in the form of an EBT debit card these days) in this recessionary (or depression, you choose) economy.
The House-Senate bill allocates $20 billion out of the $790 billion package to increase the food stamp benefits by the 14% for the rest of this year. This is money that will go right into the economy as fast as it is received by food stamp users.
A 14% increase may not sound like much (or perhaps to some too much) but for consumers who are say surviving on say $300 a month in food stamps, that added $42 (14% increase) a month in benefits can go a long way in stretching what is an already very thin food budget.
The 14% increase in food stamp benefits also is good news for America's food and grocery retailers, as well as food manufacturing companies.
By there very nature food stamps can only be used to by food and grocery products, and there are limitations on certain things people can purchase using the stamps, such as alcoholic beverages, tobacco products and a few other products. As a result, consumers spend the food stamps at supermarkets, natural foods stores and other food and grocery format stores almost exclusively, which means added sales for grocers. And because it is food and grocery products in which the extra 14% ($20 billion extra) will be spent on, that offers some very significant added sales for manufacturers and marketers of consumer packaged goods as well.
Additionally, there is no saving of food stamps by users. They spend them as soon as they get them. This is the point of including them in the economic stimulus package -- along with doing so because the human need is so great -- because they are spent as soon as obtained, thereby hopefully provided a cash stimulus to the dead economy.
According to recent figures released by the USDA, there are currently about 31 million Americans, about 10 percent of the total population, (and growing) who need food stamps in order to be able to put food on the table each month.
And with about 1.7 million American workers having been laid off from their jobs from just November, 2008 -to- January, 2009, and likely another 500,000 -to- 7000,000 for February, applications for food stamp assistance are flooding USDA offices, according to the agency. Many Americans are receiving food stamps for the very first time in their lives at present, in large part because in this serious economic downturn it's becoming increasingly likely that both household bread winners in a family are losing their jobs, where as in more recent passed recessions that didn't happen to the degree it is happening now.
CNN newsman launches a food stamp survival experiment
As a way of offering readers a flavor for what it's like to reley on food stamps in order to put food on the table in these bad economic times, CNN's Sean Caleb, who appears on the cable news network's "American Morning" morning news program, has launched an experiment in which he is using the current government allocated amount of food stamps as his only source of food and grocery purchases for a month.
CNN's Caleb is then chronicling his food stamp experiment in his Blog -- Blog: Living On Food Stamps -- at the CNN Website. He has learned much about what it is like to have to get by with just food stamps so far in his month long experiement and is sharing his self-insights in posts on the Blog. Of course, at the end of his one month experiment newsman Sean Caleb gets to go back to using the fine salary provided him by CNN to purchase his food with -- assuming he keeps his job. None of us are immune from losing our jobs in this economy, except perhaps CNN's iron horse of interviewers and network cash cow Larry King.
[You can read Sean Caleb's Blog posts about his life living on food stamps so far at his CNN Blog here.]
Food retailer and food-maker stimulation
The $790 billion economic stimulus bill, which could land on President Obama's desk for his signature as soon as tomorrow, contains a number of other provisions in it that should benefit America's food and grocery retailers, and food and grocery product manufacturers and marketers.
These provisions of the package are the most direct cash-oriented benefits and most immediate tangible ones to consumers, that also it is hoped will begin providing some immediate stimulus to the overall economy shortly after they are distributed.
The provisions of the $790 billion House-Senate economic stimulus package pushed by President Obama we think will benefit the food and grocery industry the most, and the most rapidly, are:
1. AID TO POOR AND UNEMPLOYED
$40 billion to provide extended unemployment benefits through Dec. 31, and increase them by $25 a week; $20 billion to increase food stamp benefits by 14 percent; $4 billion for job training; $3 billion in temporary welfare payments.
The extended unemployment benefits (and $25 a week increase), food stamp increase and $3 billion in temporary welfare payments are likely to provide the biggest and most immediate benefits to food and grocery retailers and food makers. The reason is because people on unemployment, food stamps and welfare spend pretty much every cent they get right away on basic needs like food and groceries. The fact consumers in all three of these categories are getting extensions and increases means more money will be spent, and rapidly, at America's food and grocery stores. The job training provision is a good one but won't have any immediate direct benefit to the food and grocery industry in terms of sales increases.
2. DIRECT CASH PAYMENTS
$14.2 billion to give one-time $250 payments to Social Security recipients (per receipient), poor people on Supplemental Security Income (SSI), and veterans receiving disability and pensions.
Folks receiving SSI benefits are among the poorest of the poor. They spend pretty much all the income they receive. They also spend most of that income on the basics like food and groceries. We suspect they will spend most of the $250 payment on food and groceries, along with using part of it to pay things like the utility bill. Additionally, a great majority of retired folks on Social Security get most of their monthly income from the retirement program. They tend to spend what they get each month, also primarily on the basics like food and groceries, as do veterans living off of disability payments.
There are many people collecting social security who also have substantial additional income from pensions, 401-K plans and investments. The federal government estimates about 40% of retired Americans today obtain all or nearly all of their monthly income from Social Security. Another about 30% rely on Social Security for 50%-75% of their total monthly income. So even if just 40% and 50%-75% of America's about 30 million Social Security receipients spend half of their $250 check on food and groceries, that will provide a nice shot in the arm to grocers and food makers. (Note: People receieving Social Security have to pay income tax if their adjusted gross income is over $30,000 a year. Those folks in that bracket qualify in the stimulus package for the higher tax rebates listed below, rather than the $250 check.)
3. TAX CREDITS
About $116 billion for a $400 per-worker, $800 per-couple tax credits in 2009 and 2010. For the last half of 2009, workers could expect to see about $13 a week less withheld from their paychecks starting around June. Millions of Americans who don't make enough money to pay federal income taxes could file returns next year and receive checks. Individuals making more than $75,000 and couples making more than $150,000 would receive reduced amounts.
This is much needed money in the pocket for most Americans. We suspect consumes will do three things with their $400 (single filers) and their $800 (joint filers). First, we think they will take about one-third -to- half of the total check amount and use it to pay off past do bills: credit cards, utility bills, cable TV, ect. Many consumers are a month or two behind in these areas, and the utilities and companies are letting them make payments. Therefore we think this is one area where many Americans will first apply their tax rebate monies to.
Second, we think people will then use a third or more of the check amount to buy mostly basic items (read food and groceries and related items) that they've been doing without, along with buying a few more endulgent food items they have been avoiding because of the bad economy. Consumers spending a third or half of their rebate checks at the grocery store will be a big shot in the arm for food retailers and a good one for many food makers and marketers.
Lastly, we think most Americans will attempt to save about a third of their tax rebate checks for emergencies. They know they are going to need it the month after they get it, or the month after that, for example.
4. ALTERNATIVE MINIMUM TAX
About $70 billion to spare about 24 million taxpayers from being hit with the alternative minimum tax in 2009. The change would save a family of four an average of $2,300. The tax was designed to make sure wealthy taxpayers can't use credits and deductions to avoid paying any taxes. But it was never indexed to inflation, so families making as little as $45,000 could get significant increases without the change. Congress addresses it each year, usually in the fall.
This provision will put money in the pockets of a number of tax payers. It won't be enough to buy a new car, or perhaps even a new big screen television. But it will be enough to pay off some bills, buy better and more groceries, and perhaps have a little left over for clothing and a blender or new toaster for the kitchen. It's important to note that this provision only effects a small percentage of America taxpayers. But it still helps.
COLLEGE TUITION TAX CREDIT
5. About $14 billion to provide a $2,500 expanded tax credit for college tuition and related expenses for 2009 and 2010. The credit is phased out for couples making more than $160,000.
Those consumers who can take advantage of this tax provision will end up with more cash in their pockets. That means a bit more disposable income. That's good for grocers and food makers. Many of these folks are married couples with a kid or two at college. They've been really cutting back because of the added tuition and related college expenses. They might take some of the tax savings and buy some premium organic and gourmet foods items, along with some higher-priced wines and craft beers, for example. A little affordable indulgence.
6. CHILD TAX CREDIT
About $15 billion to provide the $1,000 child tax credit to more families that don't make enough money to pay income taxes.
Again, not significant, and not applicable to all consumers. But the amount those who can take advantage of it save is good news to grocers and food makers in that it's not enough to make a major purchase but is enough to spend a bit more at the supermarket.
7. EARNED INCOME TAX CREDIT
$4.7 billion to expand the Earned Income Tax Credit for low-income families with three or more children.
This provision also puts cash into the hands of those consumers who quilify can take advantage of it. And added benefit to grocers and food makers is that those people it applies to are in the lower income segment. This means they tend to spend most of the income they take in. Therefore they are a consumer segment most-likely to spend much of this money at the supermarket for basic needs and essentials like food, groceries and houshold items. They will spend most of the savings rather than save it.
The end-game: Get private sector moving once again
Our focus in this piece is on the provisions of the $790 billion economic stimulus package that in our experience and analysis offer the best opportunity to food and grocery retailers and food markers to gain some increased sales in an overall industry sense . Adding increased profits and income will be tough because retail price and thus margin pressure is intense. And it will get even more competitive and intense.
We say overall because even with the extra cash in their hands consumers will choose where they shop and what brands they buy carefully, as they've been doing for months now. We suspect most shoppers will also continue to shop at food stores that offer them the best value. We also believe shoppers will continue to buy the brands (including store brands increasingly) that also offer them the best price and value.
They also will continue to seek out the best deals and promotions available at retail.
As a result, while the extra cash and food stamps consumers get from the stimulus package provisions will increase sales overall for food retailers and food makers, it won't for all of them. Consumers will continue to go where they perceive the value is, in our analysis.
Aggressive promotion even more important with stimulus
Aggressive marketing and promotion for both food and grocery retailers and food-makers and marketers is even more important now that an economic stimulus package with all of the benefits offered the industry is at hand. Why? because as we mentioned above, shoppers with a little extra cash in their hand don't have to shop at your store or buy your food product brand.
Additionally, consumers have learned some very frugal food and grocery shopping habits over the last six months to a year and they aren't about to dump those money saving habits just because of some extra cash, unemployment benefits or food stamps in their pockets. In our analysis it's the complete opposite in fact. We think shoppers will be looking for even better deals and prices so they can stretch their new found cash from the economic stimulus package.
Therefore, it will be the retailers and food marketers that aggressively launched promotions and related programs tied to the benefits from the stimulus program that will be the winners.
For example, retailers that offer consumers 10% bonuses if they cash their tax rebate checks at their stores, like Wal-Mart, Safeway, Kroger Co, and a few others did with the Bush Administration tax rebate checks, will be the ones that get the lions share of those dollars. Cash the $400 check, get an extra $40 in the form of a store gift card. Cash the $800 check, get an $80 gift card. That's big money to consumers right now.
Wal-Mart, Safeway and Kroger cashed many extra checks than they otherwise would have had not they offered that 10% stimulus bonus package of their own last time around. And most of those conumers who cashed their checks in the stores spent money on food and groceries at the stores.
Retailer's also need to launch promotions with an economic stimulus theme. Disocunted prices under the tag line "An economic stimulus package from Whole Foods," for example. Or "Deals to stimulate your pocketbook," from Safeway, as another example. These need to be product promotions, line drives, in-ad coupons, all sorts of "stimulus" croos-promoted means to get more of the dollar then your competitor.
Food makers and marketers need to do the same, even more so since many shoppers are buying store brands rather than manufacturer brands. Companies need to offer coupons tied to when the tax rebate checks come out. Call the product "cents off" coupons "stimulus extenders," or "stimulus helper," for example.
Additionally, create store-specific product or item promotions with various retailers; the promotions timed with when the rebate checks hit. Play up the "stimulus extender" theme. Do so with item price disounts but also on the company Web site and in public relations efforts. Make it real and it will work. Offer real value not just hype. Get creative. Let the bad economy and the promise the added cash will bring to consumers be your canvas. Encourage confidence with good deals.
It's all about grabbing a share of the extra dollars and doing so by giving consumers a better deal. Help them extend their stimulus money and they will reward you with their business.
We are all in this together. Retailers and food makers can't survive without consumers who have money to buy the goods they offer. Consumers can't survive without jobs. Business can create them with drmatically reduced sales and profits.
The end-game of the mega economic stimulus package is to put some money in the hands of hard-pressed Americans, create some added business for companies, start to improve consumer and business sector confidence, create jobs, and jump-start the private sector so it can get the nation's economic engine going again. It's a social as well as economic package in reality.
Below is a summary of the other provisions in the $790 billion House-Senate economic stimulus package bill that's set to become law, perhaps as soon as tomorrow:
HOMEBUYER CREDIT
> $6.6 billion to repeal a requirement that a $8,000 first-time home buyer tax credit be paid back over time for homes purchased from Jan. 1 to Nov. 30, unless the home is sold within three years.
AUTO SALES
>$1.7 billion to makes sales taxes on paid on new cars, light trucks, recreational vehicles and motorcycles tax deductible through the end of the year.
RENEWABLE ENERGY INCENTIVES
>About 20 billion in tax incentives for renewable energy and energy efficiency over 10 years, including extending tax credits for energy produced from wind, geothermal, hydropower and landfill gas; grants to build renewable energy facilities; tax credits for purchases of energy-efficient furnaces, windows and doors, or insulation; tax credit for families that purchase plug-in hybrid vehicles.
BONUS DEPRECIATION
>$5 billion to extend a provision allowing businesses buying equipment such as computers to speed up its depreciation through 2009.
BANK CREDIT REPEAL
>Repeal a Treasury provision that allowed firms that buy money-losing banks to use more of the losses as tax credits to offset the profits of the merged banks for tax purposes. The change would increase taxes on the merged banks by $7 billion over 10 years.
HEALTH CARE
>$24.7 billion to provide a 65 percent subsidy of health care insurance premiums for the unemployed under the COBRA program; $86.6 billion to help states with Medicaid; $19 billion to modernize health information technology systems; $10 billion for health research and construction of National Institutes of Health facilities; $1 billion for prevention and wellness programs.
INFRASTRUCTURE
>$46 billion for transportation projects, including $27.5 billion for highway and bridge construction and repair; $8.4 billion for mass transit; $8 billion for construction of high-speed railways and $1.3 billion for Amtrak; $4.6 billion for the Army Corps of Engineers; $4 billion for public housing improvements; $6 billion for clean and drinking water projects; $7.2 billion to bring broadband Internet service to underserved areas; $4.2 billion to repair and modernize Defense Department facilities.
ENERGY
>About $50 billion for energy programs, focused chiefly on efficiency and renewable energy, including $5 billion to weatherize modest-income homes; $6.4 billion to clean up nuclear weapons production sites; $11 billion toward a so-called "smart electricity grid" to reduce waste; $6 billion to subsidize loans for renewable energy projects; $6.3 billion in state energy efficiency and clean energy grants; and $4.5 billion make federal buildings more energy efficient; $2 billion in grants for advanced batteries for electric vehicles.
STATE BLOCK GRANTS
> $8.8 billion in aid to states to defray budget cuts.
EDUCATION
>$44.5 billion in aid to local school districts to prevent layoffs and cutbacks, with flexibility to use the funds for school modernization and repair; $25.2 billion to school districts to fund special education and the No Child Left Behind law for students in K-12; $15.6 billion to boost the maximum Pell Grant by $500 to $5,350; $2 billion for Head Start.
HOUSING PROGRAMS
>$4 billion to repair and make more energy efficient public housing projects; $2 billion for the redevelop foreclosed and abandoned homes; $1.5 billion for homeless shelters; $2 billion to pay off a looming shortfall in public housing accounts.
SCIENCE PROGRAMS
>$3 billion for the National Science Foundation for basic science and engineering research; $1 billion for NASA; $1.6 billion for research in areas such as climate science, biofuels, high-energy physics and nuclear physics.
LAW ENFORCEMENT
>$4 billion in grants to state and local law enforcement to hire officers and purchase equipment.
HOMELAND SECURITY
>$2.8 billion for homeland security programs, including $1 billion for airport screening equipment.
DEBT LIMIT INCREASE
>Increases the statutory limit on the national debt by $789 billion, to $12.1 trillion.
The whole must be greater then the sum of its parts
A number of these provisions also offer benefits to the food and grocery industry, albeit more indirect ones. The Renewable energy, bonus depreciation, energy and health care provisions particularly offer some strong benefits to the food and grocery industry on the investment and expense side of the balance sheet.
But our main focus in this piece is on the provisions that in our analysis offer the most direct benefits to food retailers and food makers on the sales and income side of the ledger. That's why we have separated the various provisions the way we did.
And, of course, overall the goal and hope of the $790 billion comprehensive economic stimulus package (the whole) is that once the spending in its various parts starts happening, all of the provisions (the total sum of the package's parts) will work together and began stimulating the economy, thereby giving a jump-start to the private sector, and to consumers, so that eventually job creation can begin on the business side and increased consumer confidence will start coming back so that people are more willing to spend (of course they have to have the money to spend it). And key to all this is that the credit markets must thaw -- and if and when they will is the $64,000 question?
Lastly, this all comes at an obvious cost -- a bigger deficit and more national debt. Notice the very last provision of the package we listed above -- the Debt Limit Increase -- which increases the statutory limit on the national debt by $789 billion (an interesting number), to $12.1 trillion. That provision, and the $789 billion, is needed in order to create the new government securities (debt) and print the money so the federal government can pay for this $790 billion spending package.
Notice how the debt increase amount is $1 billion less ($789 billion) than the total $790 billion stimulus package? We hope that's because the federal government has that extra billion on hand to apply to the $789 billion to get to the $790 billion, rather than being yet another example of how the government gets the math wrong when it comes to government spending, even on the stimulus package, which we approve of as just about the only alternative available right now to keep the U.S. economy from going all the way over the cliff. But it must be nice to be able to create a line item in your spending plan that pays for your deficit spending.
And once this $790 billion is spent and the debt added to the deficit and the already multi-trillion dollar national debt, President Obama and Congress are going to need going to ask the American people and business community, to paraphrase former President John F. Kennedy: "Ask not what your country can do to stimulate you, but ask what you can do to stimulate your country."
Showing posts with label food retailing. Show all posts
Showing posts with label food retailing. Show all posts
Thursday, February 12, 2009
Monday, November 24, 2008
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.
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.
Friday, November 21, 2008
Retail Memo: Wal-Mart CEO Steps Down; Head of International Operations Mike Duke to Lead Retail Giant; USA Chief Castro-Wright Promoted
In a move today that took nearly everybody by surprise, Wal-Mart Stores, Inc. replaced CEO Lee Scott with Mike Duke (pictured at left), the head of the mega-retailer's international operations. Duke will take over as CEO of Wal-Mart in February, 2009. Wal-Mart's investors responded to Duke's appointment by sending the stock up $2.26, or 4.5%, to $52.92 on Friday. The consensus among analysts is that Duke is a good retailer and deserved the CEO's job.Duke, a former department store executive, only joined Wal-Mart in 1995. he was named to head the company's international division in 2005, making his three year rise from that key position to CEO a meteoric one. Prior to joining Wal-Mart, Duke's 23-year retail career included work for Federated Department Stores and May Department Stores.
When he joined Wal-Mart in 1995 Duke first led the company's logistics divisions and U.S. Wal-Mart stores before being named international chief in 2005.
Wal-Mart also today promoted the CEO of its Wal-Mart USA operations, 53-year-old Eduardo Castro-Wright, to vice chairman of the corporation, effective immediately. He's slated to take on additional responsibility in global procurement.
The announcement paved the way for what some say is his eventual ascension to the top job at Wal-Mart Stores, Inc. Many believe Castro-Wright, who is considered an extremely excellent retailer, is ready now to be CEO. However, his promotion is a pretty clear sign he's next in line for the position if he wants it whenever Mike Duke leaves. Duke held the same vice chairman position Castro-Wright was just promoted to, as did Lee Scott, before being named CEO. Duke and Scott were responsible for different aspects of Wal-Mart's business though as vice chairman.
Current CEO Lee Scott, who has worked at Wal-Mart for three decades and served as CEO for the last nine years, isn't going away anytime soon though. He will continue as chairman of the executive committee of the board and as an adviser to Mike Duke through January 2011, Wal-Mart spokesman David Tovar said today.
The timing of the announcement caught most people in the retail industry and on Wall Street by surprise. Changes at the top for huge corporations like Wal-Mart generally don't come towards the end of the year or before the holiday season. Additionally, such changes are usually made at the beginning of a major corporation's fiscal year, which isn't the current case at Wal-Mart.
"Lee (CEO Scott) decided the time was right for him to retire and approached the board about doing so," Tovar said. "The board has an ongoing and rigorous succession plan process. We think the right time is now. It's a time of strength for us."
Wal-Mart didn't name a successor to Mike Duke today as part of the changes at the top for the world's largest corporation and retailer. Duke is Wal-Mart's most senior international executive, which is a key post. Some are suggesting the fact a replacement wasn't named today for Duke could mean Wal-Mart might make an outside hire to replace Duke for its most senior global executive position.
Lee Scott's nine years as the head of Wal-Mart Stores, Inc. has been overall a very successful tenure.
Under Scott's leadership, Wal-Mart has put a relentless strategic and operational focus on value that has clicked with shoppers facing myriad economic concerns. He has also put a major emphasis on revamping merchandise assortment, improved store layouts and shored up Wal-Mart's environmental and labor image, positioning the chain as a Wall Street darling after a prior streak of criticism by the media, labor and environmental groups. Wal-Mart currently is the only company on the Dow Jones listing that's up for the year, for example.
Additionally, Wal-Mart has also become the number one seller of food and grocery products in the United States in terms of overall national market share. Prior to Scott's taking the helm as CEO nine years ago Wal-Mart wasn't even close to achieving that distinction.
As CEO Lee Scott launched a massive new store opening program in the U.S. and internationally, focusing mostly on the retailer's mega-Supercenters and Sam's Club warehouse format club stores, but also on its discount stores and Wal-Mart Neighborhood Market supermarkets.
The CEO also has led an aggressive new format development program at Wal-Mart. All of the new Wal-Mart formats in the United States for example -- the small-format Marketside grocery and fresh foods stores; the "Community Market" Hispanic prototype store, the first of which opened in Texas earlier this year, the new smaller (100,000 square feet) Sam's Club prototype; the new Supercenter prototype design, and the new hybrid, smaller Supercenter located in vacant buildings (the first one, at 100,000 square feet located in a former big box supermarket building, opened in Modesto, California on November 12 -- have one basic thing in common: They all offer lots fresh foods and groceries for sale in them.
That all these new formats sell food and groceries as a primary or key feature isn't an accident. What likely could be seen historically as one of the two most important contributions Scott has made during his nine year run as CEO at Wal-Mart could very well be his decision to put the retailer on the path to becoming the dominant seller of food and grocery products in the United States -- and eventually the world. In fact it's this ficus on consumables that most analysts attribute to Wal-Mart's current success in the U.S. and globally during the severe economic recession and financial meltdown.
Scott's relentless pursuit of consumers' food and grocery dollars also led to a decision earlier this year at Wal-Mart USA to start converting scores of its Wal-Mart discount format stores throughout the U.S. in hybrid Supercenters by adding 15,000 -to- 50,000 (depending on the available space) square feet to the discount stores, all of it and then some being devoted to consumables, including fresh produce and meats.
Most of these ideas and concepts for the U.S. came from Eduardo Castro-Wright, who yesterday was the CEO of Wal-Mart USA and today is the company's new vice chairman. However Lee Scott gets CEO credit just like he gets faulted for the negatives, as it should be.
Lee Scott's other major historic contribution has been push as CEO to make Wal-Mart an even bigger global retailer than it was when he took over the head office eleven years ago.
Under Scott's leadership Wal-Mart acquired the Asda chain in the United Kingdom, making it that nation's second-largest retailer after Tesco.
The company grew business in Latin and Central America dramatically.He did a joint venture deal bringing Wal-Mart into India, which has the world's second-fastest growing economy after China.
Scott grew Wal-Mart-China in a huge way, even saying it will someday in the not too distant future become the retailer's largest market, eventually surpassing the United States in terms of sales.
Most recently Scott inked a deal to bring Wal-Mart stores to Russia, which also has one of the world's fastest-growing economies, although that growth has slowed considerably since oil dropped from $142 per-barrel to $50 a barrel in just the last couple months. But it will rise once again -- the price of oil that is.
By naming Mike Duke, the head of its global business, as the new CEO, Wal-Mart is clearly sending a message that it plans on becoming an even bigger international retailer. The retailer's international division, which Duke heads, accounts for more than a quarter of Wal-Mart's $400 billion in annual sales. The company's future growth is globally. Although there's still room to grow sales in the U.S., it's the retailer's most mature market and pales in comparison to the opportunities internationally.
During his tenure as head of international operations, Duke had some hits, but also some big misses. For example, In 2006, Wal-Mart withdrew from Germany and Korea, two big setbacks for the company. And despite taking control of its Japanese business in 2007, Wal-Mart continues to struggle there.
Successes though include Brazil, which has experienced phenomenal growth and serves as a model for Latin America, and India, where Wal-Mart scored a coup by forming a partnership with Bharti Enterprises to expand in that country despite local opposition from mom-and-pop retailers. Add China to the list as well.
And Asda in the United Kingdom is doing extremely well despite that country's economic recession and its position as a distant number two to Tesco. Tesco has a 31% UK market share to Asda's about 17% share. But Asda has consolidated its lead over number three Sainsbury's, which was neck-to-neck with Wal-Mart-owned Asda just two years ago for number two, but now has about a 14.5% share to Asda's about 17%.
Beginning next year when he takes over Mike Duke will have a much different political agenda to contend with as CEO than Lee Scott did during the last eight years of the Republican Bush Administration. With a new Democratic President, Barack Obama, and a Democratic majority in both the U.S. house of Representatives and U.S. Senate, issues such as unionization, which Wal-Mart has been able to keep at bay, are going to become much more pressing for the company -- and for the new CEO.
If organized labor can get the Employee Free Choice Act passed, a provision of which ("quick check") allows workers to merely check a box if they want to be represented by a union rather than going through the current and sometimes elaborate secret ballot voting process, it will make it much easier for unions like the United Food & Commercial Workers (UFCW) to organize store-level Wal-Mart employees, something the union has failed to do for decades. President-Elect Obama and a majority of House and Senate Democrats support the Employee Free Choice Act. Therefore its prospects for passage in 2009 currently look strong.
New CEO Duke also will have some political fences to mend globally; fences he has yet to mend as head of Wal-Mart's international operations.
For example, in September, Mexico's Supreme Court chastised Wal-Mart for paying employees partially in vouchers that could only be used at company stores. The court compared Wal-Mart to the Mexican dictator Porfirio Diaz, who ruled the country from the late 1880s to 1911.
Wal-Mart is now Mexico's number one retailer of food and grocery products. As such it can't afford to get on the wrong side of the government.
Other global issues include its Asda chain in the United Kingdom. That nation's top three retailers -- Tesco, Wal-Mart's Asda and Sainsbury's -- have been involved in a multi-year battle with the British government involving charges of anti-competition and price fixing. Earlier this year Asda CEO Andy Bond directed executives of the chain to cooperate with British government authorities against competing chains in return for a promise that the retailer wouldn't be prosecuted or fined. The issue is still taking shape but Asda isn't completely in the clear yet either.
It will be extremely interesting to see who Wal-Mart names to replace Mike Duke in the key position of head of international operations.
Additionally, with Eduardo Castro-Wright moving from CEO of Wal-Mart USA to his new position as vice chairman of Wal-Mart, that opens up the key position of head of U.S. retailing, which remains Wal-Mart's single-largest division in terms of annual gross sales.
We will be watching this closely because since so much of Wal-Mart USA's strategy is focused on selling consumables, and developing new formats that feature food and grocery products, we would expect a person with a food and grocery retailing background perhaps to assume Castro-Wright's position.
Of course that's far from a given since Wal-Mart is fairly deep with food and grocery sector talent below the USA CEO position. However, naming a person with extensive food and grocery retailing experience, either from inside or from outside Wal-Mart Stores, Inc., would send a strong signal that Wal-Mart is even more serious than ever before about becoming the dominant force in food and grocery retailing in the U.S.
[Photo Credit: Wal-Mart Stores, Inc.]
Thursday, November 20, 2008
Retail Memo: Here Comes Wal-Mart USA -- Again and Again and Again
Mega-retailer Wal-Mart Stores, Inc.'s Wal-Mart USA division (it's largest in terms of annual sales), which now is the number one seller of food and groceries nationally in the United States, has big plans for its 2009 and 2010 fiscal years despite the current financial crisis and recession. We detail those plans below in a special report...
Eduardo Castro-Wright, CEO of Wal-Mart USA, was feeling his retailing oats a bit on Tuesday at the Morgan Stanley retail conference in New York City. He also made news at the conference, which is something Castro-Wright seems to enjoy doing despite Wal-Mart's generally tight-lipped culture. Tuesday's Morgan Stanley retail conference was broadcast over the Internet.
"I've read and heard most of the (retail) industry is struggling," Castro-Wright said to a few laughs from attendees during his presentation at yesterday's retail conference.
"But Wal-Mart is seeing positive trends," the head of Wal-Mart Stores, Inc.'s North American operations told analysts and others attending his presentation . "Customers now are shopping more frequently (primarily because of cheaper gasoline) and there hasn't been a significant change in how much they spend during each visit," he said.
Earlier this month Wal-Mart reported a nearly 10% rise in quarterly profits as consumers appear to have flocked to the discounter's stores. This despite the severe economic recession, and despite the fact other combination grocery and general merchandise mass merchandise retailers like Target and Costco are struggling. Target Corp reported a near-24% drop in income on Tuesday and Costco reported a 1% quarterly loss a couple weeks ago.
Holiday food and grocery price reductions every week
Castro Wright said Wal-Mart is rolling back prices on many food and grocery items for the Thanksgiving and Christmas holidays, meaning numerous (particularly holiday-related and staple items) grocery prices in all of the retailer's stores beginning this week are even lower overall than they were last week, he said. The rollbacks will remain in place for the Christmas holidays as well, Castro-Wright said.
In addition, every week between now and Christmas Wal-Mart will do additional price rollbacks on food, grocery, general merchandise and holiday-oriented items and products, Castro-Wright said.
Addressing the current cutback in consumer spending across the board in the U.S., including on food and groceries, the Wal-Mart USA CEO said: "The consumer will spend when you have the right prices and offerings. So with Christmas coming, I thought I would give you a little confidence."
More new formats
Eduardo Castro-Wright also talked about Wal-Mart's expansion in the U.S. for the company's 2009 (current) and 2010 fiscal years at yesterday's Morgan Stanley retail conference.Breaking a little news he said the mega-retailer is currently working on developing a new "high efficiency" retail format that would have higher sales per square foot than some of its current stores. According to our sources this is a smaller version of the Supercenter.
The executive said Wal-Mart also is looking at using smaller-sized stores to enter markets where it does not have a presence today, this includes its new 100,000 square foot smaller Sam's Club prototype store it's been testing, along with its new small-format Marketside fresh foods and grocery stores (four open so far in the Phoenix, Arizona region as we've reported), its 43,000 square foot Wal-Mart Neighborhood Market supermarkets, and its new hybrid Wal-Mart Supercenters, the first of which opened in Modesto, California last week.
We've been suggesting most of this year that Wal-Mart will use its new small-format Marketside and other new, smaller-format stores to penetrate market regions such as the San Francisco Bay Area in California, as well as urban regions in the state like Los Angeles and San Diego, where it has little opportunity to locate mega-Supercenters because of both geographical limitations and objections by city governments and community groups to the giant stores.
At about 100,000 square feet that Supercenters, which is in a remodeled vacant retail building, is about 80,000 square feet smaller than the average-size Wal-Mart Supercenter. It's "hybrid" because it's in a formerly vacant building rather than being built from the ground up which is what Wal-Mart historically does with its Supercenters. Despite the smaller size the Modesto hybrid Supercenter has a full supermarket inside, offering a complete assortment of fresh foods and groceries. About 40,000 square feet of the total 100,000 square feet of the store is devoted to food and grocery items. The remaining 60,000 square feet contains general merchandise products just like a larger Supercenter.
Adding food and grocery items to Walmart.com
Castro-Wright didn't address it during the conference on Tuesday but Natural~Specialty Foods Memo has noticed Wal-Mart has listed thousands of food, grocery and non-foods items on its Walmart.com Web site, indicating the retailer will soon be offering food and groceries at its online store, along with all of the other products it sells there.
There are no prices on the food and grocery items at Walmart.com as of yet. However we're told by a good source the prices are coming soon. Our source also tells us Wal-Mart will ship the items via UPS and Federal Express, just like it ships all of the general merchandise products it sells via its Web site. Amazon.com sells a huge selection of food, grocery and beverage products on its Web site, and ships them via these same carriers as well, for example.
Add another national format -- actually more of a product line extension to Walmart.com -- to the mega-retailers multi-format food and grocery retailing empire: online grocery retailing. Its cheap -- no stores, cheaper marketing costs and the like -- and its national. More importantly it will provide Wal-Mart with yet another niche or piece of the multi-format puzzle in its all out battle to dominate food and grocery retailing in the U.S., where it now is the national market share leader.
Hundreds of new U.S. stores in FY 2009 and FY 2010
The Wal-Mart USA CEO also said on Tuesday that despite the fact the company has cut back the number of new stores across all formats it plans to open in the U.S. in its 2009 (current) and 2010 fiscal years, it doesn't mean the retailer plans to be merely playing around the edges in terms of new store openings.
In fiscal year 2009 (the current fiscal year) Wal-Mart plans to launch 191 new stores of various formats -- Supercenters, Sam's Club stores, Neighborhood Market supermarkets, Marketside small-format food stores and others -- according to Castro-Wright. That compares to the 218 new units Wal-Mart opened last fiscal year (2008).
In fiscal year 2010, Castro-Wright said Wal-Mart will launch between 142 -to- 157 new units in the U.S.
Considering the size of most of the Wal-Mart format stores, particularly Supercenters and Sam's Club stores, that's still a whole lots of retail square footage for the 2009 and 2010 fiscal years. Additionally, that's a whole lot of new square footage in what many say is a mature retail market, the United States.
Castro-Wright said Wal-Mart would focus the majority of these new stores on what he called 15 "opportunity markets" in the U.S. that the retailer has identified and says account for nearly 40% of total retail sales. He didn't detail these 15 regions on Tuesday. However, we are working on our sources to find out the 15 market regions and will report the information when we get it.
Eduardo Castro-Wright, CEO of Wal-Mart USA, was feeling his retailing oats a bit on Tuesday at the Morgan Stanley retail conference in New York City. He also made news at the conference, which is something Castro-Wright seems to enjoy doing despite Wal-Mart's generally tight-lipped culture. Tuesday's Morgan Stanley retail conference was broadcast over the Internet.
"I've read and heard most of the (retail) industry is struggling," Castro-Wright said to a few laughs from attendees during his presentation at yesterday's retail conference.
"But Wal-Mart is seeing positive trends," the head of Wal-Mart Stores, Inc.'s North American operations told analysts and others attending his presentation . "Customers now are shopping more frequently (primarily because of cheaper gasoline) and there hasn't been a significant change in how much they spend during each visit," he said.
Earlier this month Wal-Mart reported a nearly 10% rise in quarterly profits as consumers appear to have flocked to the discounter's stores. This despite the severe economic recession, and despite the fact other combination grocery and general merchandise mass merchandise retailers like Target and Costco are struggling. Target Corp reported a near-24% drop in income on Tuesday and Costco reported a 1% quarterly loss a couple weeks ago.
Holiday food and grocery price reductions every week
Castro Wright said Wal-Mart is rolling back prices on many food and grocery items for the Thanksgiving and Christmas holidays, meaning numerous (particularly holiday-related and staple items) grocery prices in all of the retailer's stores beginning this week are even lower overall than they were last week, he said. The rollbacks will remain in place for the Christmas holidays as well, Castro-Wright said.
In addition, every week between now and Christmas Wal-Mart will do additional price rollbacks on food, grocery, general merchandise and holiday-oriented items and products, Castro-Wright said.
Addressing the current cutback in consumer spending across the board in the U.S., including on food and groceries, the Wal-Mart USA CEO said: "The consumer will spend when you have the right prices and offerings. So with Christmas coming, I thought I would give you a little confidence."
More new formats
Eduardo Castro-Wright also talked about Wal-Mart's expansion in the U.S. for the company's 2009 (current) and 2010 fiscal years at yesterday's Morgan Stanley retail conference.Breaking a little news he said the mega-retailer is currently working on developing a new "high efficiency" retail format that would have higher sales per square foot than some of its current stores. According to our sources this is a smaller version of the Supercenter.
The executive said Wal-Mart also is looking at using smaller-sized stores to enter markets where it does not have a presence today, this includes its new 100,000 square foot smaller Sam's Club prototype store it's been testing, along with its new small-format Marketside fresh foods and grocery stores (four open so far in the Phoenix, Arizona region as we've reported), its 43,000 square foot Wal-Mart Neighborhood Market supermarkets, and its new hybrid Wal-Mart Supercenters, the first of which opened in Modesto, California last week.
We've been suggesting most of this year that Wal-Mart will use its new small-format Marketside and other new, smaller-format stores to penetrate market regions such as the San Francisco Bay Area in California, as well as urban regions in the state like Los Angeles and San Diego, where it has little opportunity to locate mega-Supercenters because of both geographical limitations and objections by city governments and community groups to the giant stores.
At about 100,000 square feet that Supercenters, which is in a remodeled vacant retail building, is about 80,000 square feet smaller than the average-size Wal-Mart Supercenter. It's "hybrid" because it's in a formerly vacant building rather than being built from the ground up which is what Wal-Mart historically does with its Supercenters. Despite the smaller size the Modesto hybrid Supercenter has a full supermarket inside, offering a complete assortment of fresh foods and groceries. About 40,000 square feet of the total 100,000 square feet of the store is devoted to food and grocery items. The remaining 60,000 square feet contains general merchandise products just like a larger Supercenter.
Adding food and grocery items to Walmart.com
Castro-Wright didn't address it during the conference on Tuesday but Natural~Specialty Foods Memo has noticed Wal-Mart has listed thousands of food, grocery and non-foods items on its Walmart.com Web site, indicating the retailer will soon be offering food and groceries at its online store, along with all of the other products it sells there.
There are no prices on the food and grocery items at Walmart.com as of yet. However we're told by a good source the prices are coming soon. Our source also tells us Wal-Mart will ship the items via UPS and Federal Express, just like it ships all of the general merchandise products it sells via its Web site. Amazon.com sells a huge selection of food, grocery and beverage products on its Web site, and ships them via these same carriers as well, for example.
Add another national format -- actually more of a product line extension to Walmart.com -- to the mega-retailers multi-format food and grocery retailing empire: online grocery retailing. Its cheap -- no stores, cheaper marketing costs and the like -- and its national. More importantly it will provide Wal-Mart with yet another niche or piece of the multi-format puzzle in its all out battle to dominate food and grocery retailing in the U.S., where it now is the national market share leader.
Hundreds of new U.S. stores in FY 2009 and FY 2010
The Wal-Mart USA CEO also said on Tuesday that despite the fact the company has cut back the number of new stores across all formats it plans to open in the U.S. in its 2009 (current) and 2010 fiscal years, it doesn't mean the retailer plans to be merely playing around the edges in terms of new store openings.
In fiscal year 2009 (the current fiscal year) Wal-Mart plans to launch 191 new stores of various formats -- Supercenters, Sam's Club stores, Neighborhood Market supermarkets, Marketside small-format food stores and others -- according to Castro-Wright. That compares to the 218 new units Wal-Mart opened last fiscal year (2008).
In fiscal year 2010, Castro-Wright said Wal-Mart will launch between 142 -to- 157 new units in the U.S.
Considering the size of most of the Wal-Mart format stores, particularly Supercenters and Sam's Club stores, that's still a whole lots of retail square footage for the 2009 and 2010 fiscal years. Additionally, that's a whole lot of new square footage in what many say is a mature retail market, the United States.
Castro-Wright said Wal-Mart would focus the majority of these new stores on what he called 15 "opportunity markets" in the U.S. that the retailer has identified and says account for nearly 40% of total retail sales. He didn't detail these 15 regions on Tuesday. However, we are working on our sources to find out the 15 market regions and will report the information when we get it.
Tuesday, November 18, 2008
Retail Memo: Canada's 'Coffee Culture Cafe & Eatery' Plans to Open First Stores in the U.S. in Early 2009 - Recession or Not
Neighborhood Retailing -- Foodservice Style
Natural~Specialty Foods Memo is familiar with, and rather impressed by, the Canadian coffee house/cafe/food service chain Coffee Culture Cafe & Eatery (a store in Canada pictured above), which is based in Mississauga. That's why when we heard today the Canadian retailer of coffee drinks, meals, deserts and related food and beverages is planning to set up shop in the United States we became very interested. And, of course, decided to write about it here.
The development interests us for two reasons. First, as mentioned above, we are familiar with the chain, having visited a couple of its cafes in Canada. Second, we think it's a vote of confidence both for the chain and the long term "fundamentals" of the U.S. economy that Coffee Culture would dare prepare to open its first U.S. store in the village of Williamsville near Buffalo, New York during what is a very bad economic recession, and likely to get worse before it gets better, in the U.S.
Coffee Culture Cafe & Eatery told us today it's planning to open its first store at 5590 Main Street in Williamsville, New York in March or April of 2009.
But that's not all. Peter Karamountzos, the president of Coffee Culture, says the company also is in negotiations for a second location in downtown Buffalo, New York.
Karamountas says Coffee Culture Cafe & Eatery has been researching and planning to launch its first stores in the U.S. for about 18 months to two years. The company decided to pick New York for its launch across the Canadian border rather than the other border state of Michigan because it felt at this time New York offered better opportunities.
"We’d like to open 10 to 12 location in and around Buffalo," Karamountzos says. "We like to be in village settings or downtowns, where there's strong neighborhood foot traffic. We also like being on corners where we can have a physical presence."
According to Coffee Culture, it's also considering sites for its cafe/restaurants in the Buffalo, New York region cities and towns of Orchard Park, East Aurora, Hamburg, Ellicottville, Batavia, and Rochester, along with planning to open stores in the next door Ontario, Canada cities of Niagara Falls and Niagara-on-the-Lake.
Despite the fact Starbucks is closing hundreds of its cafes in the U.S., Coffee Culture Cafe & Eatery thinks it can offer consumers something Starbucks isn't -- primarily a more restaurant experience within what is still a cafe setting and experience.
Coffee Culture, which currently has 45 cafe/coffee houses/restaurants in Canada, was founded just two years ago in 2006 in Woodstock, Ontario, Canada. The company operates mostly company-owned cafes but also offers franchise opportunities.
Coffee Culture stores average about 2,000 square feet. They are of an upscale but not ultra-fancy European-design style. The interior features lots of wood fixtures, soft colors, warm design elements and leather chairs. The retailer also customizes each store to the local neighborhood it is located in, resulting in all 45 of its current units in Canada looking similar but not alike.
The European-style cafes feature a complete selection of coffee drinks and other beverages, regular and panini sandwiches, breakfast items, breakfast, lunch and dinner crepes and other related foods. Natural and premium ingredients are used. However the stores are not high-price-positioned. You can view the menu here.
Coffee Culture's focus is to get people to come inside and spend time in the cafes, which is how Starbucks began under founder Howard Schultz and now is trying to get back to under the founder, who once again is CEO of the struggling chain as well as its chairman.
For example, Coffee Culture stores don't have drive-up or drive-through windows. Customers have to come inside the stores even if they want food and drinks to go.
"Our theme is 'Come for a taste, Stay for a visit,'" Karamountzos says. "We know people are in a hurry, but that doesn't mean they have to settle for a sterile fast-food experience."
Another interesting aspect of the Coffee Culture cafe/restaurants is they don't use disposable (paper or plastic) plates or eating utensils. Instead, all of the food offered in the stores is served on real china plates and bowls, and the utensils used are real silverware. Not only does this add a quality and homey touch, it's also "green" because reuse is far more environmentally sound than even 100% recycling is.
And since the U.S. is a "coffee culture" just like its North American cousin Canada is, we suspect the cafe and eatery's name should resonate well with U.S. consumers in the Buffalo, New York region when the first stores open early next year.
It isn't going to be easy to be a success in the current recessionary economy, which is hitting Canada like it is in the U.S. But the good news is, if Coffee Culture can make it through its first year in the U.S., 2009 -- and we hope the economy turns around at least starting in early 2010 for all of our sake -- then the cafe and eatery chain's first U.S. stores should be well positioned to do even better when times get better.
We like the company's spirit of being willing to enter a new market in what are the worst of times. It shows entrepreneurial optimism at its best.
Natural~Specialty Foods Memo is familiar with, and rather impressed by, the Canadian coffee house/cafe/food service chain Coffee Culture Cafe & Eatery (a store in Canada pictured above), which is based in Mississauga. That's why when we heard today the Canadian retailer of coffee drinks, meals, deserts and related food and beverages is planning to set up shop in the United States we became very interested. And, of course, decided to write about it here.
The development interests us for two reasons. First, as mentioned above, we are familiar with the chain, having visited a couple of its cafes in Canada. Second, we think it's a vote of confidence both for the chain and the long term "fundamentals" of the U.S. economy that Coffee Culture would dare prepare to open its first U.S. store in the village of Williamsville near Buffalo, New York during what is a very bad economic recession, and likely to get worse before it gets better, in the U.S.
Coffee Culture Cafe & Eatery told us today it's planning to open its first store at 5590 Main Street in Williamsville, New York in March or April of 2009.
But that's not all. Peter Karamountzos, the president of Coffee Culture, says the company also is in negotiations for a second location in downtown Buffalo, New York.
Karamountas says Coffee Culture Cafe & Eatery has been researching and planning to launch its first stores in the U.S. for about 18 months to two years. The company decided to pick New York for its launch across the Canadian border rather than the other border state of Michigan because it felt at this time New York offered better opportunities.
"We’d like to open 10 to 12 location in and around Buffalo," Karamountzos says. "We like to be in village settings or downtowns, where there's strong neighborhood foot traffic. We also like being on corners where we can have a physical presence."
According to Coffee Culture, it's also considering sites for its cafe/restaurants in the Buffalo, New York region cities and towns of Orchard Park, East Aurora, Hamburg, Ellicottville, Batavia, and Rochester, along with planning to open stores in the next door Ontario, Canada cities of Niagara Falls and Niagara-on-the-Lake.
Despite the fact Starbucks is closing hundreds of its cafes in the U.S., Coffee Culture Cafe & Eatery thinks it can offer consumers something Starbucks isn't -- primarily a more restaurant experience within what is still a cafe setting and experience.
Coffee Culture, which currently has 45 cafe/coffee houses/restaurants in Canada, was founded just two years ago in 2006 in Woodstock, Ontario, Canada. The company operates mostly company-owned cafes but also offers franchise opportunities.
Coffee Culture stores average about 2,000 square feet. They are of an upscale but not ultra-fancy European-design style. The interior features lots of wood fixtures, soft colors, warm design elements and leather chairs. The retailer also customizes each store to the local neighborhood it is located in, resulting in all 45 of its current units in Canada looking similar but not alike.
The European-style cafes feature a complete selection of coffee drinks and other beverages, regular and panini sandwiches, breakfast items, breakfast, lunch and dinner crepes and other related foods. Natural and premium ingredients are used. However the stores are not high-price-positioned. You can view the menu here.
Coffee Culture's focus is to get people to come inside and spend time in the cafes, which is how Starbucks began under founder Howard Schultz and now is trying to get back to under the founder, who once again is CEO of the struggling chain as well as its chairman.
For example, Coffee Culture stores don't have drive-up or drive-through windows. Customers have to come inside the stores even if they want food and drinks to go.
"Our theme is 'Come for a taste, Stay for a visit,'" Karamountzos says. "We know people are in a hurry, but that doesn't mean they have to settle for a sterile fast-food experience."
Another interesting aspect of the Coffee Culture cafe/restaurants is they don't use disposable (paper or plastic) plates or eating utensils. Instead, all of the food offered in the stores is served on real china plates and bowls, and the utensils used are real silverware. Not only does this add a quality and homey touch, it's also "green" because reuse is far more environmentally sound than even 100% recycling is.
And since the U.S. is a "coffee culture" just like its North American cousin Canada is, we suspect the cafe and eatery's name should resonate well with U.S. consumers in the Buffalo, New York region when the first stores open early next year.
It isn't going to be easy to be a success in the current recessionary economy, which is hitting Canada like it is in the U.S. But the good news is, if Coffee Culture can make it through its first year in the U.S., 2009 -- and we hope the economy turns around at least starting in early 2010 for all of our sake -- then the cafe and eatery chain's first U.S. stores should be well positioned to do even better when times get better.
We like the company's spirit of being willing to enter a new market in what are the worst of times. It shows entrepreneurial optimism at its best.
Wednesday, July 9, 2008
Retail Memo: Sacramento,California-based Raley's Testing New, Smaller Format 'Raley's Fresh Market' Banner Store in Oakdale, California
West Sacramento-based Raley's Family of Fine Stores is trying out a new, smaller-format (about 40,000 -to- 45,000 square feet) supermarket concept under the new "Raley's Fresh Market" banner in the northern San Joaquin Valley city of Oakdale, in Northern California's Stanislaus County, Natural~Specialty Foods Memo has learned. Previously the supermarket chain has only used the Raley's name on its superstore format stores.
Oakdale, which calls itself the "Cowboy Capital of the the United States" because it holds one of the largest annual rodeos in the U.S., as well as has the most national competitive rodeo champions in the nation, is a small city of about 20,000 residents, located right next door to Modesto, which has a population of about 210,000. Stanislaus County currently has a population of about 500,000. The three-county northern San Joaquin Valley region, comprisedof San Joaquin, Stanislaus and Merced counties, has a population of about 1.4 million residents.
As we reported in our Retail Whispers column on June 11, Raley's, which currently operates about 129 supermarkets and warehouse stores under the Raley's, Bel Air Markets, Nob Hill Foods, Food Source and now Raley's Fresh Market banners, is looking for new store sites throughout Northern California and in the Reno/Sparks/Lake Tahoe region in northern Nevada.
The new Raley's-owned store in Oakdale, called Raley's Fresh Market, is at 40,000 -to- 45,000 square feet much smaller than most of the modern day Raley's banner stores, which range from about 55,000 -to- about 75,000 square feet. It's also unique in that the "Fresh Market" banner store is located in a former supermarket building the retailer remodeled for its Oakdale store.
For example, nearly every new Raley's, Bel-Air, Nob Hill Foods and Food Source store the grocery chain has opened in recent years has been a brand new, built from the gound up supermarket, or in the case of Food Source, a discount warehouse format store.
The Oakdale store also is the first time Raley's has used the "Fresh Market" name along with its Raley's name on a supermarket.
The Oakdale store previously housed an independent supermarket named Oak Ridge Fresh Market, which was a spin-off by the owners of the building's previous grocer, Richland Markets, which built the building and operated a Richland Market banner supermarket in it for a number of years.
Richland Markets, a long-time family-owned area multi-store independent, has been selling off most of its seven supermarkets in the cities of Modesto, Turlock, Ceres and Oakdale over the last few years due to family succession and competitive issues, according to a Modesto-area food broker, and regular Natural~Specialty Foods Memo reader.
Just recently, Richland Markets agreed to sell two of its remaining three supermarkets to another locally-based multi-store independent, discount grocer Cost Less Foods, leaving Richland left with only its flagship supermarket in Turlock, which is a city of about 75,000, located 10 miles from Modesto, according to the local area food broker.
Richland Markets was one of the first retailers to expand into the natural and specialty foods categories in a serious way in the Northern San Joaquin Valley in the 1980's.
The decision to locate the store in a vacant supermarket building and to try out the new Raley's Fresh Market banner name was made for a couple of different but related reasons.
We've learned Raley's decided to acquire the vacant building this spring--the Oakdale Raley's Fresh Market just opened a few weeks ago--and turn it into a new format using the Raley's Fresh Market name for three primary reasons.
First, the store is located right across the street from a Save Mart supermarket. Savemart, which is headquartered in Modesto and operates supermarkets throughout the Central Valley under the Save Mart banner and warehouse stores under the Save Maxx banner--along with supermarkets in the San Francisco Bay Area under the Lucky banner (it acquired those stores in its 2006 acquisition of Albertson's, Inc.'s Northern California Division)--is the market share leader in the northern San Joaquin Valley.
When Save Mart acquired Albertsons Inc.'s Northern California stores in 2006 (close to 200 supermarkets), for the first time the Modesto-based chain entered Raley's home turf market of Sacramento. Prior to that, Save Mart had never opened a Save Mart banner supermarket in the Sacramento market, even though its only about 65 -to- 70 miles from Modesto. The retailer always had stores as close as 20 miles from Sacramento, so going into Sacramento would not have been unusual.
Additionally, Raley's only operated a handful of stores (literally two or three only) in Save Mart's home market region of Stanislaus, San Joaquin and Merced counties.
Further, Raley's and Save Mart are partners in a grocery distribution warehouse located in the Northern San Joaquin Valley city of Lathrop. The two chains even shared the same private label, Sunny Select, as their respective store brand, until Raley's started converting most of its store brand items to the Raley's label a couple years ago.
Raley's also uses the Nob Hill Foods brand for store brand specialty and premium foods items. Raley's still sells items in certain categories under the Sunny Select brand. Save Mart continues to use it as its primary store brand across all categories.
However, with Save Mart's arrival with multiple supermarkets in the Sacramento regional market following its acquisition of Albertsons Northern California Division, Raley's got its competitive juices flowing and decided to hit Save Mart a bit harder than in the past in its home base. In the last year, Raley's has opened brand new Raley's banner superstores in Modesto and in Riverbank, which is a right next door to both Modesto and Oakdale. Raley's now has three Raley's superstores in Modesto, one in Riverbank and now the Raley's Fresh Market in Oakdale.
The Oakdale location right across the street from the Save Mart supermarket was too good to pass up for Raleys as part of its upping the competitive ante on Save Mart on its home turf.
Second, since the Raley's Fresh Market store building is smaller than a normal Raley's banner superstore (and is more a supermarket), Raley's decided it would have to limit the assortment it normally puts in its Raley's banner stores. Therefore, the retailer wanted to differentiate its name by adding "Fresh Market" to it, among other reasons fro choosing the name.
Additionally, Raley's wanted to go head-to-head with the Save Mart across the street on price and value, which meant offering lower everyday prices than it does in its Raley's superstores, along with deeper store-specific promotions. Therefore, the format tweaks required by the smaller store footprint, along with the name change, are allowing the retailer to focus more on price and price promotions in the Raley's Fresh Market in Oakdale, without creating confusion in terms of its merchandising and pricing in the Raley's superstore format stores.
Lastly, since the store is in a smaller footprint as well as existing building, its overhead and operating costs are much lower for Raley's than is the case with its newer Raley's banner superstores, which at about 55,000 -to- 70,000-plus square feet not only are bigger, which consumes more energy, but also feature lots of refrigerated and frozen cases in them.
Therefore, it can offer lower everyday prices and hot promotions, which it is, designed to undercut the Save Mart across the street. In general, Save Mart supermarket prices tend to be a bit lower everyday than Raley's supercenter prices are.
Since the supermarket's previous tenant, the Oak Ridge Fresh Market, used "Fresh Market' in its name, Raley's also decided to use it as part of its new banner (or hybrid Raley's banner perhaps is a better way to phrase it) because the supermarket chain felt it allowed for some consistancy in the tranistion from the previous grocer to Raley's.
The Oakdale Raley's Fresh Market is a conventional supermarket essentially with a few twists. For esxample, it puts a much stronger emphasis on fresh foods--meats, produce, prepared foods--than a traditional 40,000 square foot supermarket does.
Price and heavy promotion also are part of the store's focus. Since opening, the store has been conducting numerous hot, store-specific promotions, which have included heavy couponing, free gasoline cards to customers who spend a certain amount of money per-purchase, deep discounts on fresh foods and groceries, and other heavy price and value-oriented promotional campaigns.
The Oakdale Raley's Fresh Market also is offering customers a $5 back on every $25 spent promotion currently, along with coupons for free items like fresh eggs, meats, produce items and other food and grocery items throughout the store.
Save Mart hasn't stood still though. It recently fired back with a thick coupon book specific to the Oakdale Save Mart location across the street, offering higher coupon values on many of the same items the Raley's Fresh Market offered in its coupon book. Save Mart also last week launched a special promotion in which it gave a gas rebate of $40 in the form of a gas card to the first 500 customers to spend $40 on groceries in the store.
Raley's has now come out with another thick coupon book for the store; which no doubt will be met by another similar one from Save Mart. Oakdale shoppers, and from what we are told those from surrounding towns, are definately benefiting from the competition between the two across the street situated grocers.
A Raley's spokesperson recently told Natural~Specialty Foods Memo it's possible the grocery chain may open more Raley's Fresh Markets of approximately the same size as the Oakdale store in other cities, in vacant supermarket buildings. However, she said the Oakdale store currently isn't any sort of test for rapidly rolling out a smaller-format, Raley's Fresh Market banner chain of stores anytime soon. However, the retailer isn't ruling out more, similar stores.
Raley's and Save Mart are far and away the current market share leaders in their respective headquarter regions. Additionally, Save Mart, with its acquisition of Albertsons Northern California divsion, the stores of which it now operates under the Lucky banner, is the number two market share leader in the San Francisco Bay Area, after number one Safeway Stores, Inc.
Raley's is a pioneer nationally in natural and specialty foods merchandising. It was one of the first supermarket chains to sell organic food and grocery items in a big way, as well as one of the first to build large store-within-a-store natural foods departments in its Raley's banner superstores.
Those departments include natural and organic foods and beverages, dry grocery, perishable and frozen, vitamins and supplements, huge bulk foods sections, natural body care sections, and natural products in numerous other categories.
Raley's also is a premier specialty, ethnic and gourmet foods and grocery products retailer, in its Raley's, Bel-Air and Nob Hill Foods banner stores. In recent years, its introduced its own gourmet foods store brand under the Nob Hill Foods label, which it continues to expand into dry grocery and perishable categories.
Save Mart is more of a conventional supermarket operator than Raley's. However, over the last few years the retailer has gotten deeper into natural and specialty foods, including putting natural and organic food and grocery store-within-a-store departments in many of its newer stores.
With it's acquisition of Albertsons Northern California Division, most of thes tyores of which are located in the Bay Area, Save Mart also has become far more of a natural, specialty and ethnic foods retailer since those stores, which it operates under the Lucky banner, serve a Bay Area customer base in which items in these categories are in a high demand.
Raley's however remains much more of an upscale grocer than Save Mart in the main, including its focus on the natural and specialty foods segment. However, it isn't a specialty grocer. Rather, its position across all its banners--the Raley's and Food Source retail brands more so than the Bel-Air and Nob Hill banners though--is as a value grocer, specializing in quality and premium foods as part of its everyday proposition ,as stores shoppers "should choose" to do their primary shopping because of the combination value and specialty propositions.
With the Raley's Fresh Market experiment in Oakdale, California, the retailer is showing it can up that value proposition when it desires or feels the need to, as well as maintain its specialty and natural foods category focus along with it.
Oakdale, which calls itself the "Cowboy Capital of the the United States" because it holds one of the largest annual rodeos in the U.S., as well as has the most national competitive rodeo champions in the nation, is a small city of about 20,000 residents, located right next door to Modesto, which has a population of about 210,000. Stanislaus County currently has a population of about 500,000. The three-county northern San Joaquin Valley region, comprisedof San Joaquin, Stanislaus and Merced counties, has a population of about 1.4 million residents.
As we reported in our Retail Whispers column on June 11, Raley's, which currently operates about 129 supermarkets and warehouse stores under the Raley's, Bel Air Markets, Nob Hill Foods, Food Source and now Raley's Fresh Market banners, is looking for new store sites throughout Northern California and in the Reno/Sparks/Lake Tahoe region in northern Nevada.
The new Raley's-owned store in Oakdale, called Raley's Fresh Market, is at 40,000 -to- 45,000 square feet much smaller than most of the modern day Raley's banner stores, which range from about 55,000 -to- about 75,000 square feet. It's also unique in that the "Fresh Market" banner store is located in a former supermarket building the retailer remodeled for its Oakdale store.
For example, nearly every new Raley's, Bel-Air, Nob Hill Foods and Food Source store the grocery chain has opened in recent years has been a brand new, built from the gound up supermarket, or in the case of Food Source, a discount warehouse format store.
The Oakdale store also is the first time Raley's has used the "Fresh Market" name along with its Raley's name on a supermarket.
The Oakdale store previously housed an independent supermarket named Oak Ridge Fresh Market, which was a spin-off by the owners of the building's previous grocer, Richland Markets, which built the building and operated a Richland Market banner supermarket in it for a number of years.
Richland Markets, a long-time family-owned area multi-store independent, has been selling off most of its seven supermarkets in the cities of Modesto, Turlock, Ceres and Oakdale over the last few years due to family succession and competitive issues, according to a Modesto-area food broker, and regular Natural~Specialty Foods Memo reader.
Just recently, Richland Markets agreed to sell two of its remaining three supermarkets to another locally-based multi-store independent, discount grocer Cost Less Foods, leaving Richland left with only its flagship supermarket in Turlock, which is a city of about 75,000, located 10 miles from Modesto, according to the local area food broker.
Richland Markets was one of the first retailers to expand into the natural and specialty foods categories in a serious way in the Northern San Joaquin Valley in the 1980's.
The decision to locate the store in a vacant supermarket building and to try out the new Raley's Fresh Market banner name was made for a couple of different but related reasons.
We've learned Raley's decided to acquire the vacant building this spring--the Oakdale Raley's Fresh Market just opened a few weeks ago--and turn it into a new format using the Raley's Fresh Market name for three primary reasons.
First, the store is located right across the street from a Save Mart supermarket. Savemart, which is headquartered in Modesto and operates supermarkets throughout the Central Valley under the Save Mart banner and warehouse stores under the Save Maxx banner--along with supermarkets in the San Francisco Bay Area under the Lucky banner (it acquired those stores in its 2006 acquisition of Albertson's, Inc.'s Northern California Division)--is the market share leader in the northern San Joaquin Valley.
When Save Mart acquired Albertsons Inc.'s Northern California stores in 2006 (close to 200 supermarkets), for the first time the Modesto-based chain entered Raley's home turf market of Sacramento. Prior to that, Save Mart had never opened a Save Mart banner supermarket in the Sacramento market, even though its only about 65 -to- 70 miles from Modesto. The retailer always had stores as close as 20 miles from Sacramento, so going into Sacramento would not have been unusual.
Additionally, Raley's only operated a handful of stores (literally two or three only) in Save Mart's home market region of Stanislaus, San Joaquin and Merced counties.
Further, Raley's and Save Mart are partners in a grocery distribution warehouse located in the Northern San Joaquin Valley city of Lathrop. The two chains even shared the same private label, Sunny Select, as their respective store brand, until Raley's started converting most of its store brand items to the Raley's label a couple years ago.
Raley's also uses the Nob Hill Foods brand for store brand specialty and premium foods items. Raley's still sells items in certain categories under the Sunny Select brand. Save Mart continues to use it as its primary store brand across all categories.
However, with Save Mart's arrival with multiple supermarkets in the Sacramento regional market following its acquisition of Albertsons Northern California Division, Raley's got its competitive juices flowing and decided to hit Save Mart a bit harder than in the past in its home base. In the last year, Raley's has opened brand new Raley's banner superstores in Modesto and in Riverbank, which is a right next door to both Modesto and Oakdale. Raley's now has three Raley's superstores in Modesto, one in Riverbank and now the Raley's Fresh Market in Oakdale.
The Oakdale location right across the street from the Save Mart supermarket was too good to pass up for Raleys as part of its upping the competitive ante on Save Mart on its home turf.
Second, since the Raley's Fresh Market store building is smaller than a normal Raley's banner superstore (and is more a supermarket), Raley's decided it would have to limit the assortment it normally puts in its Raley's banner stores. Therefore, the retailer wanted to differentiate its name by adding "Fresh Market" to it, among other reasons fro choosing the name.
Additionally, Raley's wanted to go head-to-head with the Save Mart across the street on price and value, which meant offering lower everyday prices than it does in its Raley's superstores, along with deeper store-specific promotions. Therefore, the format tweaks required by the smaller store footprint, along with the name change, are allowing the retailer to focus more on price and price promotions in the Raley's Fresh Market in Oakdale, without creating confusion in terms of its merchandising and pricing in the Raley's superstore format stores.
Lastly, since the store is in a smaller footprint as well as existing building, its overhead and operating costs are much lower for Raley's than is the case with its newer Raley's banner superstores, which at about 55,000 -to- 70,000-plus square feet not only are bigger, which consumes more energy, but also feature lots of refrigerated and frozen cases in them.
Therefore, it can offer lower everyday prices and hot promotions, which it is, designed to undercut the Save Mart across the street. In general, Save Mart supermarket prices tend to be a bit lower everyday than Raley's supercenter prices are.
Since the supermarket's previous tenant, the Oak Ridge Fresh Market, used "Fresh Market' in its name, Raley's also decided to use it as part of its new banner (or hybrid Raley's banner perhaps is a better way to phrase it) because the supermarket chain felt it allowed for some consistancy in the tranistion from the previous grocer to Raley's.
The Oakdale Raley's Fresh Market is a conventional supermarket essentially with a few twists. For esxample, it puts a much stronger emphasis on fresh foods--meats, produce, prepared foods--than a traditional 40,000 square foot supermarket does.
Price and heavy promotion also are part of the store's focus. Since opening, the store has been conducting numerous hot, store-specific promotions, which have included heavy couponing, free gasoline cards to customers who spend a certain amount of money per-purchase, deep discounts on fresh foods and groceries, and other heavy price and value-oriented promotional campaigns.
The Oakdale Raley's Fresh Market also is offering customers a $5 back on every $25 spent promotion currently, along with coupons for free items like fresh eggs, meats, produce items and other food and grocery items throughout the store.
Save Mart hasn't stood still though. It recently fired back with a thick coupon book specific to the Oakdale Save Mart location across the street, offering higher coupon values on many of the same items the Raley's Fresh Market offered in its coupon book. Save Mart also last week launched a special promotion in which it gave a gas rebate of $40 in the form of a gas card to the first 500 customers to spend $40 on groceries in the store.
Raley's has now come out with another thick coupon book for the store; which no doubt will be met by another similar one from Save Mart. Oakdale shoppers, and from what we are told those from surrounding towns, are definately benefiting from the competition between the two across the street situated grocers.
A Raley's spokesperson recently told Natural~Specialty Foods Memo it's possible the grocery chain may open more Raley's Fresh Markets of approximately the same size as the Oakdale store in other cities, in vacant supermarket buildings. However, she said the Oakdale store currently isn't any sort of test for rapidly rolling out a smaller-format, Raley's Fresh Market banner chain of stores anytime soon. However, the retailer isn't ruling out more, similar stores.
Raley's and Save Mart are far and away the current market share leaders in their respective headquarter regions. Additionally, Save Mart, with its acquisition of Albertsons Northern California divsion, the stores of which it now operates under the Lucky banner, is the number two market share leader in the San Francisco Bay Area, after number one Safeway Stores, Inc.
Raley's is a pioneer nationally in natural and specialty foods merchandising. It was one of the first supermarket chains to sell organic food and grocery items in a big way, as well as one of the first to build large store-within-a-store natural foods departments in its Raley's banner superstores.
Those departments include natural and organic foods and beverages, dry grocery, perishable and frozen, vitamins and supplements, huge bulk foods sections, natural body care sections, and natural products in numerous other categories.
Raley's also is a premier specialty, ethnic and gourmet foods and grocery products retailer, in its Raley's, Bel-Air and Nob Hill Foods banner stores. In recent years, its introduced its own gourmet foods store brand under the Nob Hill Foods label, which it continues to expand into dry grocery and perishable categories.
Save Mart is more of a conventional supermarket operator than Raley's. However, over the last few years the retailer has gotten deeper into natural and specialty foods, including putting natural and organic food and grocery store-within-a-store departments in many of its newer stores.
With it's acquisition of Albertsons Northern California Division, most of thes tyores of which are located in the Bay Area, Save Mart also has become far more of a natural, specialty and ethnic foods retailer since those stores, which it operates under the Lucky banner, serve a Bay Area customer base in which items in these categories are in a high demand.
Raley's however remains much more of an upscale grocer than Save Mart in the main, including its focus on the natural and specialty foods segment. However, it isn't a specialty grocer. Rather, its position across all its banners--the Raley's and Food Source retail brands more so than the Bel-Air and Nob Hill banners though--is as a value grocer, specializing in quality and premium foods as part of its everyday proposition ,as stores shoppers "should choose" to do their primary shopping because of the combination value and specialty propositions.
With the Raley's Fresh Market experiment in Oakdale, California, the retailer is showing it can up that value proposition when it desires or feels the need to, as well as maintain its specialty and natural foods category focus along with it.
Saturday, May 3, 2008
Independent Grocer Memo: 'Romancing' Food and the Stores, Innovation and Customer Care Keys to Success for Vancouver Island B.C.'s Quality Foods
Independent grocer-partners John Briuolo and Ken Schley want their customers to share their love of food, their 10 supermarkets, and new, innovative and quality food products.
The owner-partners of Vancouver Island B.C., Canada's 10-store Quality Foods upscale supermarket chain share this love by as they put it, "romancing food and the store." The QF food stores are basic full-service supermarkets as well as specialty-oriented markets
This act of romancing food and the stores includes finding new and innovative specialty food and grocery products the partners can be the first to introduce to shoppers in their 10 stores' market regions.
The romance also includes the entire experience of food, food shopping, and how the 10 Quality Food stores are designed and merchandised, which is always with the customer in mind.
For example, one of the 10 Quality Foods supermarkets has a child care area in it where shoppers can leave their kids under supervision while the shop. The child care area has a theatre area where the children can watch educational and animated videos. There's also a games room where the kids can play various games, and a computer room where they can use the computers under the watchful eye of a store employee, or member of the Q-team.
The stores also have comfortable in-store cafes with big chairs similar to those in Starbucks' cafes, where they serve premium quality coffee drinks and baked goods.
Another innovation is the "Daily Special" in which customers are allowed to choose a group of products--whatever they want within a limit--and get them at a special price for the day. Shoppers can choose their "Daily Special" each time day they shop in the store. It's shoppers' choice.
Even though it's only a 10-store operation, Quality Foods offers full online or Internet grocery shopping, and was the first grocer in Western Canada to do so when it began its online grocery store in 1997.
Quality Foods, or the Q-guys as they're called, also was the very first grocer in Canada to introduce a customer loyalty card program, which nearly ever Canadian supermarket chain now has. Of course... their's is called the "Q-card."
Quality Foods also fills its colorful, weekly advertising circulars (like the one pictured at the top of this piece) with lots of natural-organic and specialty fresh food and grocery products, along with basic foods and groceries at affordable special prices. The ad fliers also are available on the grocer's website so shoppers can download them to make a grocery list, print and take with them to the store, or use when shopping online.
Quality Foods also has amazing employee loyalty. About 70% of all its employees have been with the grocer for five years or more. This is do to two things: the employee wage and incentive package the Q-guys offer is superior to what most other grocers--chains and independents alike--offer in Canada, and that package includes a generous profit-sharing plans for every company employee, regardless if they are part time or full time.
As part of the "romancing the store" philosophy, Quality Foods supermarkets also excel in merchandising.
The goal say the partners is to make the stores as easy to shop as possible. This includes grouping products together throughout the stores in a "meal centric" manner--a display of pasta, specialty and natural pasta sauces, gourmet cheeses, fresh-baked breads, cookbooks and the like, for example. When a shopper sees the display, they have a immediate meal solution before their eyes, and even a cookbook that tells them how to cook the premium foods.
The 10 Quality Foods markets also carry lots of natural and organic produce, meats, perishable foods and grocery products, and keep adding more, according to the partners.
Along with a good selection of basic groceries--the stores aren't just for specialty shoppers--there's an extensive selection of specialty, gourmet and ethnic food and grocery items. Many of the specialty and ethnic items are from small, artisanal producers who sell only to Quality Foods basically in the market.
Cheese is another category Quality Foods romances. basic, premiem, domestic and international cheeses are merchandised in super-inviting ways that tease shoppers eyes. The store staff also loves cheese, and that knowledge is something shoppers love as well.
Local foods merchandising is increasingly becoming central to Quality Foods' merchandising philosophy and practice. The stores sell lots of fresh and packaged products produced locally, as well as offering even more that are grown throughout Canada. Local and Canadian-wide food products sold in the stores include fresh meats and produce, grocery products, refrigerated and frozen foods and more.
All 10 Quality Foods supermarkets are on Vancouver Island, and the partners tell Natural~Specialty Foods Memo that although there is demand for them to expand outside the Island, they have no plans to do so in the immediate or near future.
The partners really know Vancouver Island well: the culture of the island and its residents, the demographics, food preferences and more.
The Q-team nurtures and cares for the island's residents (and their customers) with superior service in their stores.
The word you here over and over from the partners and store employees is comfort; that they want to make their customers shopping experience the most comfortable of any store the shoppers have ever spent their hard earned money in.
Like all successful independent grocers, Quality Foods' knows their customers as family--and see themselves and the stores as the purchasing agents and key food education source for customers.
And, the Q-team does both tasks with lots of love for both food in general, how it's presented in their stores--and for their customers.
Retail Memo: Loblaw's New President Charts A Course to Return the Grocer to Its 'Glory Days' of Being Canada's 'Best' as Well as Biggest Food Retailer
Loblaw Cos. Ltd., founded by Theodore Loblaw in 1919 as Loblaw Groceterias Ltd., has a long and storied history in Canada. Above is one of the very first Loblaw grocery stores, circa 1920-1921.Canada's Loblaw Cos. Ltd., which has been having trying times of late with decreased sales and a dropping stock price, is adding 1,000 employees at store-level in its conventional supermarkets as part of a strategy to return the grocery retailer to its former past as Canada's premier food retailer.
Loblaw has named its strategy "Back to the Best," as a road map to the future which includes strategies and business practices designed to go "back to the future" to the days of food and grocery retailing when the retailer was Canada's most innovative as well as the nation's leading grocery chain.
As part of its "back to the best" strategy, Loblaw will hire more produce clerks, cashiers and other store-level workers for 20 of its stores in Ontario, Canada to start. Those 20 stores are in the process of getting a makeover and upscaling, which will result in expanded fresh produce and meat departments, along with new and expanded ready-to-eat and ready-to-heat fresh, prepared foods items. departments and in-store venues.
Fresh, prepared foods
As part of its expansion and upscaling in the fresh, prepared foods category, Loblaw recently hired Allan Leighton as its new president and deputy chairman.
Leighton is from the United States and is a veteran of North American food and grocery retailing, including having experience at Whole Foods Market, Inc., where he learned a thing or two about the fresh, prepared foods and produce categories.
President's Choice store brand
Loblaw also is in the process of improving, upscaling and expanding its long-popular President's Choice brand private label food and grocery product line.
President's Choice was essentially the first upscale store brand of premium, specialty, gourmet, natural and organic food and grocery products from a major food retailer in North America, when the brand was introduced in the stores over 20 years ago.
At its height, the President's Choice brand was so popular, Loblaw sold it to supermarket chains and wholesalers throughout the United States, who at the time didn't have their own upscale or premium store brands like they do today.
Loblaw has increasingly positioned the President's Choice brand as a "green" or sustainable brand, including reusable shopping totes and other related products under the brand banner, along with natural, organic, specialty and premium food and grocery products.
Increased competition, falling sales and stock value
Loblaw's sales, profits and stock share value have been falling over the last few years.
Additionally, increased competition from Wal-Mart Supercenters in Canada, on the price and value side, Whole Foods Market and Planet Organic Markets on the upscale, natural and prepared foods' fronts, have made the iconic supermarket chain less relevant to Canadian consumers than it has ever been before.
Increased first-quarter profits
The hiring of Leighton as president however seems to have invigerated Loblaw. The supermarket chains first quarter profit, which it reported on April 30, grew by a healthy 15%. This strong profit report gave the grocer's stock its biggest jump in two-decades following the 15% profit increase report.
The first quarter numbers were the first time the grocery chain had met stock analysts targets in a very long time. Loblaw Cos. Ltd. stock closed on April 30 at $31.83 share, which was up $2.28 on a per-share basis. Loblaw Cos. Ltd. had sales of $C.29 billion in 2007.
Leighton's new inititatives
Since taking over as president of Loblaw, Leighton has launched a series of other new initiatives with his management team in addition to the upscaling of the 20 Ontario stores, the increased focus on fresh produce and prepared foods, the revamping of the President's Choice brand, and the hiring of 1,000 new store-level employees, which is designed to beef-up the grocer's service levels, as detailed above.
These other additional new initiatives include:
>a chain-wide refocus on food, including merchandising much more locally-produced Canadian fresh produce, meats and other products. Local foods is a major consumer hot button in Canada. In fact, last year, Wal-Mart launched a major initiative in its Canadian Supercenters to bring in as much locally-produced meats, produce and grocery products as it can.
>A complete overhaul of Loblaw's discount supermarket format stores in Western Canada. Western Canada is where Wal-Mart is killing the supermarket chain's discount grocery store format stores with its Supercenters the most.
To compete with this challenge from Wal-Mart, Loblaw plans to remodel 25 of its Real Canadian Superstores and convert more of its discount format Extra supermarkets to its No Frills deep-discount format. Rather than open any new No Frills stores in Western Canada, which it had planned on doing in the past, the company will gain more of the stores by converting many of the Extra supermarkets to the deep-discount format.
>Leighton also plans to have the supermarket chain return to a more decentralized or localized purchasing and marketing program. The supermarket centralized those functions over the last two years or so and Leighton believes that process hasn't worked. The local approach--which makes good sense to us--allows the retailer to better tailor its stores to the particular region, community and even neighborhood they are located in.
Serious logistics problems, in-store out-of-stocks
One of Loblaw's biggest problems and weaknesses has been a failing purchasing, logistics and distribution system for its stores. Some analysts in Canada argue this problem has been caused primarily by the centralized purchasing and marketing system the retailer instituted about two years ago.
Other analysts, the majority, say it's merely a part of the grocer's long-deteriorating operations capacity and it's general malaise prior to Leighton assuming the president's position. Leighton was hand-picked by the Weston family, controlling shareholders of Loblaw Cos. Ltd., and they consider him a trusted advisor.
Getting products to the shelves is the most basic of functions for a food retailer, and Loblaw has lost numerous customers over its failure to do so.
At the April 30 press conference announcing the quarterly sales and profits numbers, Leighton told analysts and reporters that the situation is till not good, but it's far better than it was a year ago.
In-store tags flag out-of-stock items
Under Leighton's leadership, the food retailer has started to put green and pink tags on the shelves in all of its stores in order to flag out-of-stock grocery items. The tags tell shoppers when the product should be back in stock for example.
However, the tags offer a "good" and "bad" result. For example, a correspondent in Canada recently checked two Loblaw-owned supermarkets for Natural~Specialty Foods Memo. In one store there were 375 green and pink tags when he checked, meaning the store was out-of-stock on 375 items. The second store had 275 green and pink tags, slightly better than the first but still very poor.
Leighton said in the April 30 press conference that any store with less than 300 green and pink tags (meaning out-of-stock on less than 300 items store-wide) was being considered good by the supermarket chain at this point in time.
Grocery 101: Shoppers hate out-of-stocks
Shoppers tend to differ with that assessment though. A 62 year old, life-long Loblaw shopper named Joseph Chesterson in Western Canada recently told us he switched to a Wal-Mart Supercenter after being a regular customer for over 30 years.
"Why should I not shop at the Wal-Mart store, which has plenty of everything I need, rather than at the Loblaw's, which is always out of many of the things on my grocery list," he told us.
Another Canadian reader of Natural~Specialty Foods Memo, a professional woman and mother of two in her mid-forties, told us she and many of her friends no longer shop at Loblaw banner stores but rather at Wal-Mart for basics and at Whole Foods and Planet Organic for natural-organic, specialty and prepared foods.
Solving the logistics and out-of-stocks problem
To his credit, Leighton inherited the logistics and out-of-stocks' mess, and it was clear at the press conference it's priority one in solving to him.
Further, he was straight-forward about the problem still being present, saying it would be fixed but will take some time. This honesty will earn him lots of street credit with stock analysts and the Canadian business press, even though it will cause a continued loss of customers in the stores until its fixed.
High employee turnover in stores
In part, this also is the reason for the hiring of an additional 1,000 store-level workers. Canadian vendors tell us that often there's lots of grocery product in the stores back rooms but not enough employees to put the goods on the shelves.
These vendors and suppiers also tell Natural~Specialty Foods Memo Loblaw has had lots of staff turnover in the last couple years because of all the problems its had.
Leighton and Chairman George Weston admitted this was the case at the April 30 press conference. In fact, they said the retailer is instituting some new policies designed to reduce this employee turnover, including giving all store-level workers a 10% discount on any and all grocery purchases they make at the stores.
The grocer will need to do more than that to reduce staff turnover in our experience and estimation. But its a small start.
With Wal-Mart's rapid new Supercenter building program throughout Canada, Loblaw also has lost store-level employees to the chain.
Additionally, both Canada-based Planet Organic Markets and U.S.-based Whole Foods Market, Inc. are opening new stores in Canada. Both retailers offer attractive packages to store level employees, along with a more modern culture which is especially appealing to younger workers. As a result, Loblaw will have to sweeten its worker policies and benefits in order to not lose more staff members to these two popular natural foods retailers.
Still number one: But biggest isn't always best
Loblaw is still Canada's number one food and grocery retailer, with 1,100 corporate and franchised stores, 800 associate stores, and supplies almost 9,000 independent grocery stores. The company says it currently has about 139,000 employees in Canada.
The retailer operates ten retail banners: Loblaw's, Real Canadian Superstore, Atlantic Superstore, Dominion, Fortino's, Maxi, No Frills, Provigo, Zehrs, and Your Independent Superstore.
Loblaw Cos. Ltd. also operates the Real Canadian Wholesale divsion, which is a multi-banner club store operation that focuses on selling to foodservice, business-to-business and small retail business customers. The club and wholesale stores also are open to the public at large.
Loblaw, by virtue of its size, also still has the strongest store brand program in Canada with its President's Choice brand.
Loblaw Companies also is diversified at retail, offering Canadian consumers financial services, home, auto, travel and pet insurance, and mobile phone and Internet services.
The company's stores don't just sell food and groceries as well. Many of the banners are one-stop shopping venues and sell hard goods, general merchandise and soft goods, including Loblaw's own Joe's Fresh Style private label brand of clothing.
However, being the biggest hasn't proven it's the best in the last few years. And, with mega-retailer Wal-Mart, which is becoming very popular among Canadian consumers, growing rapidly in Canada, Loblaw and new president Leighton have to turn thing around fast.
At the April 30 press conference, Leighton said the companies turnaround is going to take at least five years to complete. Five years is a long time in food retailing, especially with Wal-Mart, the world's largest corporation and retailer, nipping at your heels.
Going forward
As a result, in our analysis, the food retailer has to show strong, continuous improvement in key areas like solving the out-of-stocks problem, increasing service-levels in its stores and other basic functions in the next year in order to not lose thousands more customers to Wal-Mart and other food and grocery retailers.
The road map Leighton has laid out seems to be a good step in this direction. However, the grocer must do numerous things all at the same time in order to show improvement. Most stock analysts believe the company has seen its bottom, and is now moving up. We tend to agree.
However, pleasing the stock market is only one part of the equation. Job-one is winning over lost customers, keeping current shoppers from defecting, and bringing in new customers, including those who remember the glory days when Loblaw was at the top of Canada's food retailing heap. "Back to the Best" seems an appropriate road map strategy then.
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