IN TOUCH or OUT OF TOUCH:
A DICHOTOMY AT THE NRF SHOW
Walking the aisles at the recent NRF Big Show (Jan. 16-17) in New York City, this observer witnessed a whole lot of touching—direct and indirect—going on, that is smart phone- and tablet-savvy registrants viewing and snapping the industry’s latest, sophisticated technological wonders on display. They could also eyeball screens, displayed by exhibitors, inviting them to interact, that is, to touch the virtual imagery of store merchandise—its effect better than that of a high-def wide-screen or 3-D movie, because it’s virtual reality. In some cases, NRF registrants could actively shop for clothes, shoes, or cosmetics in virtual stores or kiosks, dressing, for example, their virtual self projected onto the screen, thus allowing them to pick and choose whatever they fancied.
One truly spectacular high-tech retail solution, going beyond TV and the Internet, was demonstrated at the Intel Corp. booth, a leader in computing innovations. In cooperation with Home Shopping Network, the display featured a massive interactive "touchwall" (some 12 panels), allowing consumers to interact in a virtual cooking class with chef Wolfgang Puck. The display, designed for food and wine events to be staged during 2012, encapsulates all of HSN's digital advancements: mobile, gaming, and social, tying them together into a "fun shopping experience." It showed a game, where the participant could create a pizza by moving food ingredients and food prep implements around--things that a retailer possibly would want to sell to them. (The potential: Imagine a kid in a candy or toy store allowed to taste or test whatever looks good)
Intel also has been innovating with in-store kiosks. With Kraft Foods, Intel has developed the "iSample," which uses Intel's AIM Suite technology, anonymously detecting the average age bracket of the user, then offering samples, such as Kraft's Temptation pudding snacks, appealing to a target demographic consumer. This technology collects this data for Kraft to digest as part of its market research into that target group. It's more effective than the traditional sample tables in stores, where retailers must wait for sales results of that sample item.
Intel also showed off its in-store "Beauty Spot" kiosk now being used by *Macy's at a few of its stores. Customers can interact with this device for a virtual face-lift, which examines their skin tones and offers suggested products for that customer. Since this is all about vanity, the customers can share their product selections with friends on a social network, where they also follow the specific brand, viewing consumer opinions about the products. Once the customer discovers their particular "beauty spot," a store associate can assist them in purchasing the selected products.
The rationale is that retailers no longer have to display all their merchandise on clothing racks, inside glass displays, or even on menu boards. The virtual experience opens up multiple selections— outside any claustrophobic dressing room, where they can discover what matches in a blouse, skirt, and shoes combination, for example. They merely point and move about the desired object on a screen and swoosh, their image interacts with those items. A smart phone or tablet connection can allow for instant purchasing gratification.
Someone at one of NRF show sessions commented, “Retailing is theater.” The electronic wonders on display promise this is spades, if retailers are willing to pay for the technology (it ain’t cheap)—allowing consumers to more than merely browse through merchandise in a store, but to link up with those goods. Like it or not, consumers are being nudged more into this virtual world. It’s fun! The true irony, however, is that as people grow more out of touch with their neighbors (or even their friends, despite social networks), they are becoming more in touch with this virtual reality.
Another impression at the NRF show… While attending different breakout sessions, one of several common threads emerged: the emphasis placed on consumer interests. In one session, two retailers, one from Liverpool department stores in Mexico and one from Sobeys supermarkets in Canada, put this in perspective by reviewing the impact of technological analytics on their business, pointing to this critical change in retailing strategies. Some 20 years ago, one retailer recalled that category-led strategies dominated; that is, brand manufacturers (and retailers) convinced their customers what they should buy. Bottom line: The product sold itself. Today, retailers listen more to what their customers want—right down to the local level—and responding by shaping their merchandise to fit that need. (Technology helps with a more eyes-on experience, so to speak.)
Who are those consumers? A futurist speaker at the NRF show suggested that retailers should keep more in touch with pre-teens and teens— their future customers. What do these potential shoppers want? Well, they don’t want to be bored with endless in-store merchandise displays; instead, they look to be entertained with games, videos, music, and splashy pyrotechnic effects—things that touch their chord. Er, that is, the cool stuff!
So technology slowly appears to be moving retailers onto the right track. The question is: Will the retailers climb aboard?
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SCHLECKER FILES FOR BANKRUPTCY PROTECTION
On Jan. 24, 2012, *Fa. Anton Schlecker, Ehingen, Germany, the third largest drugstore chain in Europe and number 1 in Germany, filed for insolvency, thus gaining a three-month reprieve to stay in business and to restructure its business, according to various media reports. For the past two years, this family owned chain has been closing stores, as its revenues eroded with no profits in sight. Its failure to secure financing led to this recent action. Schlecker reportedly operates some 8,000 stores in Germany plus another 2,000 to 3,000 in six European countries. Its sales have dipped from an estimated Euro 7.2 billion+ in 2009 to somewhere between Euro 6.2 billion to 6.6 billion in 2010. It has recently dealt with labor problems and with a previous over-expansion strategy, which burdening the retailer with many small, outdated stores. Schlecker maintains a strong private label business, representing more than an estimated 15% of its sales.
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SHOREWOOD PACKAGING GOBBLED UP (AGAIN)
*Shorewood Packaging Corp., Stamford, CT, for nearly 45 years has served industry needs in print and paperboard packaging, including a leading role in the private label business. In 2000, International Paper Co. (IP), Memphis, TN, acquired Shorewood, making it part of its Consumer Packaging Group, lately a $2.8 billion business. This month (January 2012), Shorewood was merged into AGI World (a global designer and manufacturer of packaging for entertainment, personal care and food products), owned by the private equity firm, Atlas Holdings, Greenwich, CT. The combined company, which doubled the size of AGI, has been renamed AGI-Shorewood, positioned as one of the largest specialty packaging businesses in the world with operations in North America, Europe, Asia, and Latin America. The company operates 24 manufacturing facilities, covering a wide range of packaging areas: beauty and personal care, cosmetics and fragrances, healthcare and pharmaceuticals, consumer electronics, specialty foods, confectionary, etc. IP, however, has not completely disappeared: It has relinguished all of the U.S. business handled by AGI-Shorewood, but retains 40% of its business outside the U.S. AGI-Shorewood, which is about to close Shorewood's Chinese business, plans a $7 million expansion of its plant in Guangzhou, China.
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PRIVATE BRAND ALLOWS FOR MORE AGGRESSIVE PRICING AT WEGMANS
Just about one year ago, *Wegmans Food Markets, Rochester, NY, froze prices on some 40 products, locked in place from February through December 2011. Keeping prices in check that long proved to be costly, reportedly costing Wegmans more than $8 million; but its customers, a typical family buying those products, ended up saving between an estimated $350 to $400 over that period. Wegmans this year is back again with another price freeze, continuing from Jan. 8 to April 28, this time with 50 commonly used products (some 223 skus)--27 from last year's list plus 25 new items--mostly under the Wegmans brand.
The feedback on the first freeze was very positive, according to Wegmans president Colleen Wegman: "Customers wrote us or stoped us in the store to say how much easier it was to budget and shop knowing they could count on prices for an extended period of time." According to the company, the new freeze excludes some items previously listed, such as coffee, peanut butter, canned tuna, soda, chips, some meats, etc., which now cost the company more; while the new additions address what's purchased during this time of the year. The new 50-item list comprises items almost exclusively under the Wegmans brand, according to Wegmans.
Of course, price freezes are nothing new at retail. One notable example is *Weis Markets, Sunbury, PA, which over the past three years has staged a number of 90-day price freezes, covering thousands of staple items, both store brand and national brand. The latest 90-day freeze came in July 2011, covering 1,600 staple products. It's likely that Weis will ring in 2012 with another price freeze. Understandably, the company is now occupied tuning up for its 100th anniversary celebrated this year.
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SHOPKO RE-EMBRACES PAMIDA
*Shopko Stores, Green Bay, WI, some 12 years ago, at the time a $3.5 billion general merchandise retailer, acquired a discount general merchandise retailer, Pamida, Omaha, NB. Shopko's fortunes since then have been lackluster: In 2005, a private investment firm, Sun Capital Partners, took over a smaller Shopko operation and separated the Pamida business from Shopko. Fast forward to January 2012, and these two retail concepts--Shopko now at $2.2 billion with 149 stores in 13 states and Pamida close to $1 billion in revenues with 193 stores in 17 states--are now being merged again into a nearly $3 billion operation of approximately 350 stores in 22 states. For the past three years, Shopko, operating mostly large, multidepartment stores in the 60,000 square foot range, has been rolling out its Shopko Hometown stores, which range in size from 15,000 to 30,000+ square feet, located in rural communities. Pamida stores will now be converted over to this format, stocking convenience food items, consumable goods, home products, apparel, and including private brand stock.
While the larger Shopko stores carried private brands (mostly in apparel), the emphasis was more on national brand merchandise overall, along with health care services (prescriptions and eyeglasses). The smaller Hometown format responds more to the dollar store competition, as well as the impact of large retailer chains. Shopko's niche will be the small communities, catering to local consumer needs. Shopko's private brands, following the trend of dollar stores into more private label merchandise, promise to play a significant role in the Hometown stores versus Shopko's larger stores.
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DATES CHANGED FOR PRIVATE LABEL SHOW IN TURKEY
The Private Label Istanbul, 11th International Private Label Products & Supermarket Brands Fair, originally scheduled in March 8-10, 2012, has been rescheduled for March 28-31. This event was advertised in Issue #40 of Exclusive Brand Magazine. The venue otherwise remains the same: Sponsored by CNR Holdings, CNR Expo Fair Grounds, Istanbul, Turkey. CNR reports that its Private Label Show held Visit: www.cnrprivatelabel.com. Also see Calendar Page in this Newsletter.
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OPINION/ANALYSIS
BI-LO + WINN-DIXIE = ?
Up front, we hope this latest retailer merger works: Competition is a win-win situation especially for consumers; while fewer competitors threaten a monopoly and higher prices. But we remain apprehensive about this merger for a number of reasons, mainly because the formula in the past, joining two relatively weak retail chains, has proven shaky at best. Remember: Sears + Kmart or A&P + Pathmark. Another concern: This announced takeover (Dec. 20) for $560 million cash by *BI-LO LLC, Greenville, SC, of *Winn-Dixie, Jacksonville, FL, calls for no change in the status quo. That is, BI-LO, once stockholders approve (within four months), will just operate Winn-Dixie as a subsidiary. No store banner changes; no divestments, etc.
Superficially, this combined operation look impressive: Total sales will top $9 billion from some 690 stores total operating in eight southeastern states, making the company the ninth largest grocery operator in the U.S. Yet, each chain has its problems. BI-LO emerged from bankruptcy in May 2010, rescued by private equity investor, Lone Star Funds, Dallas, which specializes to taking over distressed companies. BI-LO, now privately owned, operates some 207 stores in four states with sales estimated at just over $2 billion. The chain has its own brand, Southern Home plus private brands supplied by *Topco, a member-owned cooperative.
Perhaps not coincidentally, Winn-Dixie, too is a Topco member, but with a much more aggressive private brand program, supported by *Daymon Worldwide, a private brand sales and marketing company that provides package design support. Besides the cliché in the lyrics, it’s a small world after all,’ we could add: ‘What goes around, comes around.’ In 1961, former Winn-Dixie executive Frank Outlaw purchased a small chain that became BI-LO. Winn-Dixie also shares the dubious experience of bankruptcy, having escaped its clutches in November 2006. Its success since then has not been impressive: As a publicly traded company, its fiscal 2011 sales were reported to have dipped by 1.4% to $6.9 billion, while the 483-store chain (in five states) suffered a $70.1 million loss versus a $28.9 million profit the year earlier. In July 2010, Winn-Dixie exited 30 stores and let some 120 people (corporate and field personnel) go.
So now, working with BI-LO, Winn-Dixie has come back closer to the stature, at least volume-wise, it had, say in fiscal 1993, with sales of $10.8 billion, but as a much larger chain: 1,165 stores in 13 states plus in the Bahamas in addition to 27 manufacturing facilities. BI-LO and Winn-Dixie will realize synergies—and learn from one another. But they may also need a dramatic change in their modus operandi. The merger came under the scrutiny of Retailwire on its website on Dec. 20, which posted 23 comments, most of them not too enthusiastic about the marriage. The lead comment by David Livingston, a principal of DJL Research, is most telling…
“First neither BI-LO or Winn-Dixie really have any future in grocery retailing. Both are extremely low volume/low sales per square foot retailers that are no match for Publix and Walmart. So I don't expect any kind of consumer level improvements.
“Financially this is a sweet deal for private equity. First raid Winn-Dixie's cash. Then sell the distribution centers to C&S. Then sell everything west of Panama City to C&S retailers, such as Rouses. They have many opportunities to add or consolidate stores. I think the private equity group will come out ahead after taking the cash and selling assets. Too bad Winn-Dixie could not have done this for their shareholders so they could reap those rewards. Look for shareholder lawsuits to follow. Especially if management gets golden parachutes as a reward for keeping the stock price low.”
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ENERGIZER BUNNY GETS ENERGIZED BY PRIVATE LABEL
Don't expect a press release from Energizer Holdings, Inc., St. Louis, about the subtle changes now taking place in its organization. Since 2000, this brand name company has diversified from producing primarily batteries (Energizer) and portable flashlights (Eveready), into wet shaving products (its takeover of Schick-Wilkinson Sword in 2003), to feminine care and infant care products (its takeover of Playtex in 2008), to additional products: shaving preparation, pre-moistened wipes, suncare products, and so on. But its November 2010 acquisition of the bankrupt American Safety Razor Company, Cedar Knolls, NJ, a 136-year-old company with a rich history in the private label business, has noticeably impacted on Energizer's overall business. While the price paid for ASR was only $301 million plus assumption of certain liabilities, the addition of that business (fourth largest producer of wet shave products and the leading private label supplier in razors and blades) further changed the company's profile. Its fiscal 2011 overall sales (ending September 30) were up by 9.4% to $4.6 billion, most of the sales 'energy' coming from its wet shaving business--up by 29%, buttressed by the ASR business and favorable foreign currencies--as well as by the company's other personal care products, together reporting sales up by 19.6% to $2.5 billion. While the Energizer Bunny kept banging away at its drum, overall household product sales (batteries & light products) slipped by 0.2% to $2.2 billion for the year. So while the company still calls itself "Energizer Holdings" and has re-branded ASR as *Energizer Private Brands Group, most of its sales now come from personal care products: feminine care, infant care, skin care, pre-moistened wipes, suncare items and of course its wet shaving business.
