Consumer Reports Ranks Raley's, Wegmans, Publix As Nation's Top Supermarket Chains
The September 2003 edition of Consumer Reports magazine ranks Northern California-based Raley's as the nation's top supermarket chain, based on more than 25,000 responses to a poll questioning consumers about their food shopping experiences during 2001 and 2002.

Rounding out the top ten are Wegmans, Publix, Harris Teeter, Hannaford, H-E-B, Hy-Vee, Meijer, Stater Bros., and Vons.

Among the other major chains included in the rankings, Safeway ranked 14th, Wal-Mart Supercenters came in 25th, Kroger was 27th, and Albertsons was 30th.

Of the Ahold-owned chains, there clearly was inconsistency in the shopping experience: Giant of Maryland was #21, Bi-Lo was #28, Stop & Shop was #32, Giant of Pennsylvania was #34, and Tops Markets was #35.

The same inconsistency could be seen in other divisions of major chains. For example, while Safeway was 14th ranked, Vons was 10th, Tom Thumb was 23rd, and Dominick's was 33rd. (So much for centralization delivering a consistent shopping experience.)

Of the warehouse clubs, Costco was ranked above Sam's and BJ's, in that order.

Trader Joe's was ranked as the top "specialty/limited assortment" store.

The chains cited as having the best prices: Wal-Mart, Trader Joe's, Aldi, and Costco.

The best chains for meat: Raley's, Wegmans, Harris Teeter, Whole Foods, and Costco.

The best chains for produce: Raley's, Wegmans, Harris Teeter, H-E-B, Meijer, and Whole Foods.

Consumer Reports notes that "no store was great in every respect. Readers praised Raley's and Wegmans for checkout speed, service, cleanliness, the quality of meat and produce, and variety, but prices were judged no better than average. Wal-Mart won high marks for prices but fell short in other areas."

KC's View: Well, of course chains that have fast checkouts, strong service, clean stores and strong perishables and selection also tend to have "no better than average" prices - all those positives, after all, cost money.

And of course, Wal-Mart is able to maintain low prices by not offering much else.

That's how the business works.

From a business perspective, this is proof positive that companies like Raley's and Wegmans and the rest of the top-ranked chains are doing something right that will help them compete with the big price/value chains. They've defined how they are going to be different, and they are doing their best to deliver on those promises.

It probably isn't a coincidence that companies flirting with competing with Wal-Mart on its terms don't tend to get the top rankings; they may just not be differentiating themselves.

That said, it has to be pointed out that while these rankings are interesting, an inherent flaw in the reasoning is the fact that almost nobody is able to compare all of the chains food chains and make an objective comparison. They are all different, and are competing in widely varying markets.

But they are interesting nevertheless, because the top chains provide a consumer benchmark by which all food retailers can be measured.

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Face-Off Over Principles: Wal-Mart vs. Contra Costa County
Election officials in California's Contra Costa County announced that Wal-Mart has collected enough petition signatures to force a public referendum on a county ordinance that would restrict retailers with stores in excess of 90,000 square feet from devoting more than five percent of their floor space to non-taxable items such as groceries.

The countywide referendum could take place as early as this November.

KC's View: This is going to be interesting.

While Wal-Mart says that it has no current plans to build such a store in the county, management said it has to fight the ordinance on principle.

But the Arkansas retailer isn�t the only one with principles. Local officials say that it is important that they be in charge of their destiny, not Wal-Mart, and some citizens seem energized by the promise of a face-off with the world's largest retailer.

Like we said, it's gonna be interesting�we love the small of napalm in the morning...

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Debit Card Fees Down, But Credit Card Fees Raised By Visa And MasterCard
The New York Times reports this morning that while Visa and MasterCard are charging retailers less for debit card transactions than in the past, part of the deal reached when they settled a retailer-filed "honor all cards" class action lawsuit last April, they also have begun charging retailers about one percent more for credit card transactions.

Both card companies say the near simultaneous increase and decrease are not linked.

In addition, the NYT reports that not all retailers are getting the same break on debit card transactions. "Visa and MasterCard intend to give the steepest cuts, as much as 70 percent, to select merchants, while the price break for some will be less than 10 percent," the NYT writes. "Merchants with the most modern payment systems will get the smallest discounts because they often already pay less."

Hostilities could break out between the card companies and retailers once again, especially because "the debit-rate reductions apply only to this year. Visa and MasterCard have yet to determine what their debit card rates will be next year, when, as part of the settlement, retailers will be allowed to reject the companies' debit cards in favor of cheaper alternatives. Until then, merchants must accept Visa and MasterCard's debit cards if they want to accept their credit cards," the NYT writes.

KC's View: You�d think that MasterCard and Visa would be a little more delicate in their dealings with retailers, knowing that next year these retailers could simply dump the debit cards. All the retailers would need to do is mount a solid PR campaign explaining how people get ripped off by the card companies, and suddenly they would start looking like consumer advocates.

Which ain't a bad place to be.

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Editorial continues after a word from our sponsor(s)...

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Sale of Chilean Division Generates $77 Million For Ahold
Dow Jones reports that Cencosud, a Chilean holding company, will pay Ahold $77 million (US) to acquire its Santa Isabel chain there.

The figure is about much less than the $150 million (US) that Ahold originally hoped to get for the company.

Ahold also plans to sell the rest of its South American holdings. Cencosud reportedly is interested in its Argentinean company, Disco SA.

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Dole To Place FDA-Endorsed Health Message On Packaging
Dole Food Company announced that it would begin instituting a series of steps to address growing national concerns about obesity and nutrition in this country, including the placement of message on all of its packaging:

"Diets rich in fruits and vegetables may reduce the risk of some types of cancer and other chronic diseases."

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Coming Soon: A New Calorie-Free Fat Substitute
The Chicago Tribune reports this morning on an Illinois company, FiberGel Technologies Inc., that is marketing a new calorie-free product known as Z Trim that can be substituted for fat in foods.

Z Trim "is based upon many years of research at a US Department of Agriculture lab," the paper reports, and is "by processing corn hulls. The hulls are put in an alkaline solution, heated and sheared until they break down into simpler bits of insoluble fiber that can attract water.

When mixed with water, the processed hulls produce a gel without taste or odor."

The company is licensing Z Trim from the USDA, and says it is currently negotiating with several food companies that want to us it to cut down on calorie and fat content in their products.

KC's View: Based on obesity trends, the USDA may be able to retire the federal deficit if this thing catches on�

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FastNewsBeat

• The Chicago Sun-Times reports this morning that McDonald's is considering the creation of an adult Happy Meal that will come with a salad and a pedometer; is making its hamburger buns a little sweeter, cooking them a little longer, and adjusting the grill so the burgers get seared; is simplifying its menu boards so there are fewer words and more pictures; and believes that the future is in "robotic french-fry machines, burger-flipping grills and self-serve kiosks."
  
  
  
• Published reports say that the European Union will fund 24 food quality and safety research projects, at the cost of some $20 billion over a four year period. The goal is to focus on food-related diseases and allergies and the impact of food and nutrition on health.
  

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The Balance Sheet

• Ruddick Company, owner of Harris Teeter, reported that consolidated sales for the third fiscal quarter rose 2.8 percent to $685 million from $666 million a year earlier. For the nine months ended June 29, 2003, sales of $2.05 billion were 3.5 percent above the $1.98 billion for the comparable period last year. The company said that the increases were attributable to the opening of new supermarkets and comparable store sales increases at Harris Teeter.
  
  The company reported consolidated net income of $16.1 million in the third fiscal quarter of 2003 compared to net income of $16.5 million in the prior year third quarter. For the first nine months of fiscal 2003 consolidated net income was $43.5 million, compared to $35.7 million in the same period of fiscal 2002.
  
  
  
• The Great Atlantic & Pacific Tea Co (A&P) reported first quarter net income of $20.3 million, compared to $1.9 million during the same period a year ago. Quarterly sales were $3.2 billion, compared to $3.1 billion a year earlier. Same-store sales fell 0.1 percent.
  
  
  
• Delhaize reported that second quarter sales decreased by 12.5 percent to the equivalent of $5.1 billion (US). Organic sales growth was up 2.8 percent due to: the improving sales trend at Food Lion and Kash n' Karry and continued strong sales at Hannaford, resulting in a comparable store sales growth of Delhaize America by +0.7 percent.
  
  Net earnings decreased to $10.4 million (US), impacted by an exceptional charge and the 19.2 percent weaker U.S. dollar.
  
  
  
• Convenience-store giant 7-Eleven Inc. reported second quarter net income of $39.3 million, compared with $33.4 million in the same period last year.
  
  Revenue climbed 8 percent to $2.81 billion from $2.61 billion.
  
  
  
• Procter & Gamble posted profit before restructuring items of $1.22 billion, compared with $1.09 billion for the same period last year. P&G posted net income for the fiscal fourth quarter ended June 30 of $955 million, compared with $910 million a year ago. Sales rose 7 percent to $10.92 billion.
  

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Executive Suite

• Albertsons Inc. announced that it has hired Sean McKinless, formerly a senior director for supply chain management at Dell, to be its new procurement chief, responsible for "creating a sourcing operation while developing new systems and processes to generate savings to the company's bottom line."
  

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Your Views: The "If" Economy, And Much More
We've had several reports this week about a union convention in San Francisco at which there has been significant discussion about how to face off against Wal-Mart.

One MNB user responded:

I was appalled by the July 30, 2003 FastNewsBeat section detailing Union activity aimed at slowing down Wal-Mart. It seems that unions have still not shed themselves of their past affiliation with the mob, unless of course they feel extortion and racketeering are not mob related. It is sad to think that the only thing that is going to slow down Wal-Mart is not the competition, but potentially its own workforce if these thugs get their way.

While I am not a big fan of Wal-Mart (nor are my accounts), I can appreciate the business as a whole and how it has managed to stake out a dominant position in the retail world. Unions need to wake up and accept the fact that innovators wait for no one. I still recall my uncle telling me how his union had grandfathered in their contract caboose riders long after railroads got rid of the caboose or how about the dockworkers being afraid of using computers to track inventory. Unions need to wake up and get out of the dark ages. Why would Wal-Mart want to deal with organized labor elements that are indirectly helping the competition with their activity?

We suggested at one point that it is possible that some US retailers would root for the union against Wal-Mart because a union victory might level the playing field. But MNB user Glenn Cantor disagreed:

In many ways, trade unions are, themselves, in business. With their business in decline, and many US union jobs being lost overseas, the impetus is strong for trade unions to target Wal-Mart's many million strong US work-force fast and heavily.

And, no, it would not be a good thing for US business to allow unions to help them knock down Wal-Mart. That would only perpetuate the lack of creativity and segmentation in the US retail industry.




We also received an email from MNB user Steve Panza about a customer experience related in an earlier email:

You had a comment by Ed Nalley regarding a return of an item to Wal-Mart because parts were missing. I have found the same is true for Target. Unless somebody at the returns desk is diligent, the item that is broken or is missing parts will end up back on the shelf.

And a comment by Brad Morris where he said "Wal-Mart, generally speaking, is very protective of their shelf real estate, and rightly so. The chances of a new product getting on shelf broadly are actually very slim unless the manufacturer can show Wal-Mart that there will be demand..." Isn't this true for any retailer? If a retailer doesn't think an item will have any demand/make enough profit to pay for the space on the shelf, why should they purchase it? Buyers are always under the gun to make sure their categories are making a profit. On the other hand, we have been very successful in bring in new items with very little sales history or marketing and making them successful at Wal-Mart. You have to have a good, unique item along with a good sales and support team.




We had a story earlier this week about the growing Oklahoma wine industry, to which MNB user Westall Parr responded:

You asked: Is the day too far off when we'll be ordering a nice Tulsa chardonnay?

And I respond: It is as close as the day you enjoy a fine New Jersey Reisling.




We had a story earlier this week about the growth of e-commerce, which prompted several emails. MNB user Robert Hemphill wrote:

I'm very much in agreement with your point about Internet growth not being the grandiose variety, but rather that it will be linked to traditional commerce. Unfortunately, nearly every article and opinion piece implies that the Internet EQUALS ecommerce, an extremely limited point of view. The reality is that perhaps 2% of a typical grocery retailer's customers will be willing to buy their groceries online this year. The costs of building a robust, complete, customer-friendly ecommerce offering and running it is still very high. And although third party web offerings lower the up front costs, it may still cost $5,000/year per store just for website capabilities. Assuming 10,000 regular customers per store, 2% of the shoppers equals 200 customers, so the web investment would be roughly $25 per customer.

But what are retailers doing with the Internet for the other 98% of their customers? Grocery websites that provide savings, information value, customer assistance, sweepstakes, community programs, loyalty good news is that the costs for even the most advanced website features that focus on such website features as recipes, personal shopping lists, web only specials, weekly ads, email newsletters and so on is very low cost in comparison, especially on a per customer basis. Behind the scenes, some retailers have web-based community programs that in the past were a paper and administrative nightmare.

So the trends we're seeing in growth of ecommerce is the little story - the big story is that retailers are instead investing where it makes sense - websites for the vast majority of their customers, who happen to shop in their stores.


And MNB user Gary Savoy wrote:

On-line will always be a challenging sales channel for CPG's. The important metric to consider is the direct impact that on-line representation has on off line sales. Research has shown a major increase in off line sales due to effective on-line brand representation. "Destination Branding" is becoming more and more essential for Manufacturers to connect with their current or potential consumers.

Many CPG's have been slow to jump into the online market, those that have are seeing incredible brand lift and increased market share. While I agree that "slow and steady wins the race" when it comes to growing a successful and sustainable business model, marketers that continue to take a wait and see attitude as it relates to on-line marketing will be pay a major price of reduced market share.

Agreed.




We had a story earlier this week about RFID tagging, and in our commentary suggested that the "industry has to do a good job of educating the public about how the RFID tags will be used, and how they will not be used. Don't let the anti-technology advocates control the debate and the spin. Be aggressive, be upfront, and be factual."

MNB user Jim Swoboda responded:

KC is right on target. To often, in any endeavor, we allow the pundits and the naysayers to have the loudest voice. Of course, the technology could be mis-used. However, so could many of the technologies that we use today be used in ways that they were not intended to and yet people use them without giving it a second thought.

Take cell phones for instance. Not many people understand that while one is "on" it is constantly broadcasting to the network, "here I am" so a persons movements can be tracked if that were something someone wanted to do. Does it happen, probably in some limited circumstances, but with hundreds of millions of them, we all get lost in the digital noise.

The ID tags are no different.

However, the industry totally is aware of the concern and has already defined steps the will "destroy" the tags when they are purchased. Our industry does need to take the offensive and educate and share along the journey what the benefits are and work to alleviate the concerns of shoppers. The technology will be embraced once the fear is put to be and the benefits are apparent.

Let's not let the naysayers kill a very promising revolution in how the supply chain is managed.




Home Depot announced that not only will it expand its testing of Dunkin' Donuts shops inside its home improvement stores, a program that has been successful in three New England units, but now is testing small-scale McDonald's operations inside its stores as well; we suggested that the company would be better served by more knowledgeable and friendly people in orange aprons than donuts and golden arches.

MNB user Bill Gardner wrote:

I think the folks working at Home Depot are, for the most part, friendly and knowledgeable. It's the number of folks working there that's the problem. Their "sales equals hours" policy just isn't working. How can they generate sales when there aren't enough people? Store associates, especially the specialists like kitchen designers, are constantly having to cover for someone else and can't get their work done. And management wonders why sales aren't what they'd like them to be. I'm afraid the big orange box ain't what it used to be. They've lost the employee loyalty that the founders worked so hard to build. Sad.

MNB user Brian Richardson added:

In regard to your story (and commentary) about Home Depot's experimentation with new offerings, I couldn't agree with you more. Being an avid Home Depot shopper, I often question the cause of my loyalty. It has been reduced to location. I have an HD about 1 mile from my house and a Lowe's about 8 miles. Inevitably, I find myself at Home Depot at least once a weekend. My question is this: in these test marketing stores, do people have to stand around and wait for a key-lime donut or a quarter pounder, because I sure as @#$! have to wait about 15 minutes to get a stinking key made, or to ask a question (in which I often end up giving the sales person on the floor a lesson in plumbing or whatever), or even find someone to have them get a load of 4 X 4's down from the rack, because they only have 1 and a half and both pieces are dog-legged beyond recognition.

What ever happened to their strategy last year about increasing customer service? If you ever find the stuff you need, you can usually count on 2 out of the 15 lanes being open (no matter the time of the day) and another 15 min. wait�

Can you say "@#$!" on a family website?

Another MNB user put a cap on it:

Have you been to a Home Depot lately? I don't know about the rest of the country, but in Dallas all the Home Depots have bird infestations. Every several feet there is a bird's nest in the ceiling supports. It's like a Hitchcock movie! Now would you like to buy a donut or a burger in a place like that?! YUCK! Can you say health department?

We thought those were sprinkles on our donuts�

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The Content Guy's Summer Weekend Recommendation # 8

Movies. "Seabiscuit" is a very good movie. Not a great movie, but a very good one.

Watching it, it seemed to us that in a lot of ways it closer to being "The Natural" than "Bull Durham" - beautiful to watch, a wonderful evocation of Depression-era America, but not having the kind of texture that it might have had. The book on which it was based did all of that - told a great story, but also crated a portrait of a period that you could feel and smell.

That's not to denigrate the movie. One has to be thankful for any movie without explosions, aliens, mutants, cartoon characters, monsters and special effects. "Seabiscuit" is the story of the legendary racehorse and the impact it had on three very different men. It is terrifically acted by Tobey Maguire, Chris Cooper, and especially by Jeff Bridges - who delivers a characterization reminiscent of but even deeper than the role he played in "Tucker: The Man & His Dream," a vastly underrated movie directed by Francis Ford Coppola back in 1988, and still one of the best movies about business we've ever seen.

"Seabiscuit" lives up to one of the general rules of filmmaking - that the movie almost never is better than the book, simply because movies need to be visual rather than internal, and usually are limited in the number of plot lines it can pursue. There are, of course, exceptions: "Jaws" and "The Godfather" are instances where the movies were vast improvements. And we've always thought that all of the movies based on Tom Clancy novels have been better than the books, simply because they strip away all the techno-babble.

Wines. Groth Vineyards makes a very nice, smooth 2001 Sauvignon Blanc that is perfect for sitting outside on a summer evening, eating pasta salad and nibbling on shrimp. Yummm�..

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