Efficiency Is No Cure for Phony Baloney

The Wall Street Journal: “Over the past 2½ years, thousands of workers lost their jobs, and iconic Kraft buildings, including the original Oscar Mayer headquarters in Madison, Wis., have been shuttered and sold. The cost-cutting project is now wrapping up, giving Kraft Heinz Co. the highest operating profit margin among its peers in the U.S. food industry.”

Troy Shannan, Kraft Heinz’s head of North America supply chain, comments: “We look at pretty much any opportunity we have to drive efficiency. And we use the savings from those efficiencies to reinvest in our brands and our businesses and back into our supply chain.”

“Still, Kraft Heinz is grappling with a problem that can’t be solved by increasing efficiency: U.S. sales of cold cuts and other processed meats slipped to $21.3 billion last year, from $21.9 billion in 2015. Oscar Mayer’s market share dropped to 17.5% from 18% five years ago, according to Euromonitor. Natural and organic brands, as well as small labels buying from local farms, have nibbled away at sales. ‘Consumers are looking for something they think is handmade or looks handmade,’ said Chris Fuller, a consultant to meat processors.”

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Retail Theater: The Shellfish Spa

Supermarket News: “Retailers say making the shopping trip an experience is one way they can drive traffic into their stores. And a little theater in the seafood department is actually helping to drive sales, according to one Northeast retailer, Shoprite, which has added the Shellfish Spa. The device preserves live product such as clams, oysters, mussels, steamers and cockles while presenting them in an eye-catching display. The container bathes shellfish in a continuous stream of saltwater and maintains an ocean-like environment for peak freshness.”

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‘Stealing’ at the Amazon Go

Nick Wingfield: “There were a little over 3.5 million cashiers in the United States in 2016 — and some of their jobs may be in jeopardy if the technology behind Amazon Go eventually spreads. For now, Amazon says its technology simply changes the role of employees — the same way it describes the impact of automation on its warehouse workers … Store employees mill about ready to help customers find items, and there is a kitchen next door with chefs preparing meals for sale in the store. Because there are no cashiers, an employee sits in the wine and beer section of the store, checking I.D.s before customers can take alcohol off the shelves.”

“At Amazon Go, checking out feels like — there’s no other way to put it — shoplifting. It is only a few minutes after walking out of the store, when Amazon sends an electronic receipt for purchases, that the feeling goes away.”

“A big unanswered question is where Amazon plans to take the technology. It won’t say whether it plans to open more Amazon Go stores, or leave this as a one-of-a-kind novelty. A more intriguing possibility is that it could use the technology inside Whole Foods stores … There’s even speculation that Amazon could sell the system to other retailers, much as it sells its cloud computing services to other companies. For now, visitors to Amazon Go may want to watch their purchases: Without a register staring them in the face at checkout, it’s easy to overspend.”

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When Whole Foods Shelves are Half Empty

Business Insider: “Whole Foods is facing a crush of food shortages in stores that’s leading to empty shelves, furious customers, and frustrated employees. Many customers are blaming Amazon, which bought Whole Foods in August for $13.7 billion. Analysts have speculated that the shortages could be due to a spike in shopper traffic in the wake of the acquisition. But Whole Foods employees say the problems began before the acquisition. They blame the shortages on a buying system called order-to-shelf that Whole Foods implemented across its stores early last year.”

“Order-to-shelf, or OTS, is a tightly controlled system designed to streamline and track product purchases, displays, storage, and sales. Under OTS, employees largely bypass stock rooms and carry products directly from delivery trucks to store shelves. It is meant to help Whole Foods cut costs, better manage inventory, reduce waste, and clear out storage. But its strict procedures are leading to storewide stocking issues, according to several employees. Angry responses from customers are crushing morale, they say.”

“Whole Foods gets stores to comply with OTS by instructing managers to regularly walk through store aisles and storage rooms with checklists to make sure every item is in its right place and there is no excess stock. If anything is amiss, or if there is too much inventory in storage, the manager in charge of that area of the store is written up. After three write-ups, they can lose their job … Whole Foods has called it a cost-saving approach and says it has improved stocking issues … The company has also said OTS frees up employees to focus on customer service … Some Whole Foods customers who have noticed stocking problems say they are looking to shop elsewhere.”

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Circular Logic: Paper Fliers Beat Banners

The Wall Street Journal: “One old-school retailing trick has survived the e-commerce shakeout—the lowly advertising circular. Some grocers and other retail chains have learned they risk losing business without a steady flow of paper mailings nudging shoppers to stores. Even online startups that don’t have physical shops are embracing the idea.”

“For now, paper fliers keep piling up on doorsteps because most people still read their mail, even as they easily ignore most online banner ads and many emails.”

“The biggest retailer, however, has cut back on circulars. Wal-Mart is sending out about a dozen mailings a year, down from a hundred two years ago. The retailer has asked suppliers to spend the marketing dollars that used to go into circulars on lowering their prices and chose to send out fewer circulars, a spokeswoman said.”

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Ling Shou Tong: How Alibaba Helps Mom-and-Pops

Quartz: “Alibaba has its sights set on a new goal: to bring its cloud-computing technology to all of China’s 6 million mom-and-pop convenience stores. In the process, it’s building out its physical footprint to tap into the 85% of the country’s retail sales that don’t yet happen online. Alibaba is using a retail-management platform called Ling Shou Tong (which roughly translates to ‘retail-integrated’) to help store owners optimize product procurement and boost sales.”

“Ling Shou Tong’s app gives store proprietors recommendations, based on sales analytics, on what to buy and how to display goods in their stores. In the background, it uses Alibaba’s cloud-computing and logistics businesses to create a digitally connected inventory-management system. Store owners can also use the app to place orders, fulfilled by Alibaba and shipped directly from its warehouses, eliminating the need for middlemen.”

Mom-and-pops have given mixed reviews about the impact Ling Shou Tong has had on their bottom line so far. Some say the storefront decorations and in-store training accompanying the platform’s adoption provides a cosmetic facelift to their stores and makes running them easier. Others worry that relying on Alibaba’s product selection forces them to directly compete with the convenience of online shopping.” However, Alibaba CEO Daniel Zhang comments: “We’re working to make the net in the sky and the net on the ground. We will cover all consumers seamlessly.”

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Chickens Rule The Retail Roost

The Wall Street Journal: Rotisserie chickens “emerged as a supermarket staple in the 1990s, paving the way for the array of prepared foods that grocery stores sell today. Now they are many grocery stores’ best-selling hot food item and a rare bright spot in an industry struggling to adapt to a shift away from packaged foods … To continue selling them for $5 to $7 each, executives are working to trim supply-chain costs, cook chickens more efficiently and throw fewer of them away unsold.”

“One reason executives say it is so important to hold down rotisserie prices is that shoppers often buy higher-margin side dishes and beverages to round out a meal … Grocers also are tweaking their marketing strategy to make their chickens stand out. Some have introduced lemon pepper and barbecue flavors, as well as organic and antibiotic-free chickens. Others are placing stocked chicken warmers in checkout aisles to inspire last-minute purchases.”

“While Kroger and Mariano’s display their chickens near the front of the store, Costco puts them at the back, hoping people will add to their carts on their way to getting a chicken. Costco has sold rotisserie chickens for $4.99 since 2009. When a bird flu outbreak prompted higher prices for ready-to-cook chickens in 2015, Costco took a $30 million to $40 million profit hit to keep its rotisserie prices steady … Some stores sell deboned rotisserie-chicken meat at a higher price.”

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How ‘Ankle-Biters’ Nip Big Brands

The Wall Street Journal: “Consumers in rich countries once embraced the consistency, convenience and affordability of their offerings, from disposable razors to ready-to-boil ravioli. In other parts of the world, a growing middle class clamored for many of the same trusted, Western brands.”

“Today, that isn’t good enough. Shoppers have gravitated in droves toward smaller, niche or locally made products. In many cases, they are seeking out healthy alternatives and more natural ingredients. Manufacturing costs have fallen, allowing small players to seize quickly on trends. Social media and e-commerce have made marketing and distribution easier.”

RBC analyst James Edwardes Jones comments: “We think big incumbents—however well managed—are going to continue to struggle against the depredations of the ‘ankle-biters’.”

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