FOOD MARKETING CONFERENCE PANEL SERIES: Retailers positioned for the current economy

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May 05, 2009

FOOD MARKETING CONFERENCE PANEL SERIES: Retailers positioned for the current economy

In the 44th annual Western Michigan Food Marketing Conference, executive forum, the topic of discussion was leading and winning in the new economy. Moderated by Phil Lempert a panel of five key retailers exchanged insights in a discussion on consumers in the wake of turmoil and the challenges and opportunities the food industry is facing. In our second series of these discussions, the panel discusses what retailers have positioned themselves well for the current economy and what mistakes have been made. The five experts on the panel were Jim Wright, Chairman, President and C.E.O of Tractor Supply, Mike Jackson President and Chief Operating Officer of Supervalu and Chairman of NGA, Mark Batenic, Chairman, President and C.E.O of IGA USA, Alex Miller President of Daymon Worldwide, and Craig Sturken, Executive chairman of Spartan stores. Phil Lempert: Let’s talk about retail in general. It doesn’t have to be food specific, but over the past 12 months, lots of different retailers shut their doors. People that we never thought would shut their doors. Is there anybody out there who has repositioned themselves properly that are really set for the next six months, the next 12 months? Jim Wright: I can speak for Tractor Supply since I spend a number of hours there every day. We saw this recession coming and actually called it in January of last year. We saw it because three weeks into 2008, our data showed us that consumers were behaving much more differently than they ever had before. At that point in time we said if I’m wrong we’ll make a lot of money. If I’m right with this, we’ll be okay. And we very quickly began to cut expenses starting farthest from the customer. And to this date, we’ve managed our store payroll as we always do. We’ve had no layoffs with anyone facing the consumer. We cut advertising significantly, and we’ll cut it further this year. I have a point of view I’d like to make later on advertising. But we’re cutting back away from the consumer as far as costs.

In the 44th annual Western Michigan Food Marketing Conference, executive forum, the topic of discussion was leading and winning in the new economy. Moderated by Phil Lempert a panel of five key retailers exchanged insights in a discussion on consumers in the wake of turmoil and the challenges and opportunities the food industry is facing.

In our second series of these discussions, the panel discusses what retailers have positioned themselves well for the current economy and what mistakes have been made.

The five experts on the panel were Jim Wright, Chairman, President and C.E.O of Tractor Supply, Mike Jackson President and Chief Operating Officer of Supervalu and Chairman of NGA, Mark Batenic, Chairman, President and C.E.O of IGA USA, Alex Miller President  of Daymon Worldwide,  and Craig Sturken, Executive chairman of Spartan stores.

Phil Lempert:  Let’s talk about retail in general. It doesn’t have to be food specific, but over the past 12 months, lots of different retailers shut their doors. People that we never thought would shut their doors. Is there anybody out there who has repositioned themselves properly that are really set for the next six months, the next 12 months?

Jim Wright: I can speak for Tractor Supply since I spend a number of hours there every day. We saw this recession coming and actually called it in January of last year. We saw it because three weeks into 2008, our data showed us that consumers were behaving much more differently than they ever had before. At that point in time we said if I’m wrong we’ll make a lot of money. If I’m right with this, we’ll be okay. And we very quickly began to cut expenses starting farthest from the customer. And to this date, we’ve managed our store payroll as we always do. We’ve had no layoffs with anyone facing the consumer. We cut advertising significantly, and we’ll cut it further this year. I have a point of view I’d like to make later on advertising. But we’re cutting back away from the consumer as far as costs.

I’m old enough to have been through a recession before. I was an executive for Kmart Corp. back in 1982 as we went through the recession, and Kmart’s response (in those days they were still a very good company) was that they would shift the focus to C.U.E items. And C.U.E. stood for Consumer Usable Edible.

You may or may not know this about Tractor Supply, but about twenty percent of our sales come from food. Only candy bars for people.  Lots of stuff for large animals, and lots of stuff for pets of all kinds. So we began to shift the frequency of advertising and the position of our stores and emphasis to things not only edible, but things that were useable believing that would allow us to maintain traffic. We also recognized that big ticket sales, which we define as a single SKU over $300 would be under tremendous pressure. That was the case, that is the case, and I see that being the case as consumers put those big ticket items on their charge card to one level or another. We shifted first the expense side. We shifter our consumer facing promotions and placement in stores to C.U.E. items, and then we recognized that we’re going to have a revenue problem because we’re going to have a tough year selling riding lawnmowers. And that proved to be the case for the third year in a row last year. And that industry is saying that will be the case again. I hope at some point down they all wear out and we get this big boost. Some of our people must be buying sheep to cut their grass. So, that’s what we’ve done.

Mike Jackson:  One that comes to mind that I think about when you asked the question “Who really is successful out there and repositioned or reinvented themselves?” I think of McDonald’s as a retailer. Look at what they’ve done with that company over the years back to the inception and the drive-thru. Then they were under a lot of pressure during the health thing and obesity. Look how they’ve responded to and reinvented their menu and come up with healthy options on their menu. And now the whole value proposition and whether or not their relevant in their marketing and the dollar menu and everything else they’ve done. I think they’ve done a really good job of reinventing themselves over the years and really been responsive. I don’t know that they’ve lead all that much, but they’ve certainly been proactive in responding to what they need to do to reinvent that company. And, I know they’ve done a great job ,and they’re running great sales right now.

Phil Lempert:  And, I think two, three years ago, we probably wouldn’t say that because McDonald’s wasn’t doing well. But again, they jumped on it, this whole value thing and really pushed it intelligently unlike Starbuck’s (not to pick on Starbuck’s) who really from the past eighteen months seems to have lost their way. Where they were really focused, similar to the Whole Foods analogy, on the experience and price was secondary now all of the sudden closing stores, coming up with instant coffee that you could buy in their stores, and now it’s just all over the place.

Mike Jackson:  I still get my $4.15 Starbuck’s every morning.

Mark Batenic:  I think Walmart has positioned themselves well. They’ve tried lifestyle three, four years ago, and failed miserably. If they predicted what was going to happen, who knows, but they’re positioned probably better than anybody right now on that value equation, and they still have quality too.  And I believe they’ve established themselves as, them or Costco, they’re either the number one or two electronics merchant in the world. So they’ve repositioned themselves very well, and seem to be the only guy blowing and going right now.

Alex Miller:  I think all the value format stores are doing well. I think all of them that’s concept is value are doing very well. I agree that Walmart is doing a great job.  I think those retailers that are connected to their consumers are doing very well. And those retailers that have good data and are looking at the information are doing very well. I know that Meijer, locally here, is doing very well.

Craig Sturken:  Back to McDonald’s, which I totally agree with your comments. But you know they repositioned themselves not on price. They always had price. What they did is reposition themselves on the product that they offered. By the way I don’t know how they can stay up with the menu they currently have. It’s so vast and so many choices. I think they probably have labor problems in trying to support that menu, but they’ve pulled it off and done a good job, and they’re comp sales are pretty good.

Another company I think of too when I think of their go to market strategy is Target. They’re comp sales are pretty bad. And, Target really went for a different kind of customer. It certainly appears that their timing wasn’t very good. Because they’re struggling right now trying to generate sales vis –a-vis Costco or Walmart. But, as far as McDonald’s, I think they’re a marvelous company, and they’ve done a great job.

Phil Lempert: I’d like to pick up on the Target example for a minute, because I think most people thought of Target as good value, but a little edgy, or a little hip. So even if you’ve got good prices, can you cross over that line and be too hip and people just don’t want to be surrounded by that? Why should Target not be doing well? That I don’t understand because they’ve got good prices.

Mike Jackson: They do have good prices, but I think there’s a difference between them and Walmart. Walmart does much more penetrated in food, and Target is not that much penetrated in food. If you dug into Walmart and Target’s numbers and looked at the mass categories whether it’s the soft lines, the hard lines, everything other than food, they would probably be pretty parallel, but they have had a much better image in food and over penetrated in food. That’s carried them, and I think has really contributed to their numbers.

Jim Wright: Target had become one of the most recognizable brands in the U.S. in the last ten years and clearly stood for cheap sheik. I look at their ads today and think they’re placing their brand at risk. Here’s a brand ten fifteen years into a wonderful brand position, and the front page looks much like a dollar store or a Walmart ad. And frankly, if Walmart had the tenacity they would go in the street and say our comps have been negative four and five, and in retail you only have to live a year. So take the comps, take the brand integrity and come through the backside of this thing with the position that they’ve got. What they’re doing today to chase empty comps I think will in time prove to be a big mistake.

Alex Miller: It seems like Target gets eliminated because the consumer is making less trips to stores trying to save money by not going to as many stores as they went to in the past. And Target loses out because they don’t have the food products to bring them in. So the trip probably isn’t as necessary as it was at one time. As the economy rebounds, two years from now whenever it happens, I think Target will come back because people will have more disposable income, and they’ll be looking to trade up somewhat, perhaps. But it seems like right now they’re out of sorts because they don’t really have a good enough quality image and they don’t have a price image at all.

Phil Lempert:  Let’s talk about Target and food. If you look at everything they’ve done with their own brand with Archer Farms, has that helped them or hurt them?

Check in next week as we pick back up with our panel discussion and dive into what private label should be.