Food for Thought
To Upscale Or Not Upscale?
The high price of fuel coupled with the slowdown in housing is affecting consumers' desire for upscale and luxury products. The prosperity of the last 10 years to upscale purchases has increased the appeal of Whole Foods Market, Williams-Sonoma, Pottery Barn and others among middle-class shoppers. Now, many of these types of retailers are experiencing disappointing sales.
People are prioritizing before they spend. Especially surprising is data suggesting the spending habits of households earning $75,000 or more are also changing. Right now the slowdown seems to be squarely affecting middle-income shoppers. The richest shoppers continue to spend on luxury items while low-income shoppers, the most vulnerable to high fuel prices, have already been spending less, evidenced by slowing sales at low-cost chains.
Isn't this middle-income shopper your main customer? Does your program for 2007 address the possibility that she will be more conservative with her purchases? As buyers become more choosey, you will need to evaluate the perceived value of your products. A Boston consulting group says middle-income shoppers are still trading up for high-end items but are making more deliberate choices. So don't be scared off by the rumors that upscaling is dead; it might be harder to capture, but consumers are still buying oversized plantersÉbut only when there's real value in them.
Time is on Your Side
In advance of its quarterly earning announcement, which analysts are expecting to top last year's figures, Wal-Mart has been giving insight into customer buying patterns. According to the retail behemoth, customers who live paycheck-to-paycheck are shopping at the store more frequently and showing a more pronounced paycheck cycle. A market watch.com report states that Wal-Mart is seeing the highest customer traffic around the 1st and 15th of each month, with fewer shoppers in between those times. Higher customer counts are obviously an opportunity for higher sales. If you have not already adjusted your shipments to take advantage of these traffic patterns, now might be the time.
How Krafty are Consumers?
If you're having trouble deciding what your next new promotion or product should be, you're not alone. To help fuel growth and revive profits, Kraft Foods is turning to a previously untapped source for inspiration and ideas: its customers.
The nation's largest food comp-any is launching a program to evaluate unsolicited ideas from its customers and others, quite a change for Kraft (and most large marketers). Kraft has its own research and development departments charged with creating the kinds of products that have made the company famous, products like Oreos and Miracle Whip, but the company has not had an in-house-developed hit product since DiGiorno pizza more than 10 years ago.
Details of the program are still being finalized, but links on the Web site along with a toll-free number will facilitate the submission of ideas. In part, the program was inspired by the success of Procter & Gamble's Crest SpinBrush, which originated from outside the comp-any. Who should know what type of products consumers want and the form they would like to purchase them in better than the consumers themselves?
Floriculture producers and retailers desperately need innovative new products — not just another new white petunia. Those who will be successful in creating these new products and product forms are the producers who figure out how to ask and listen to consumers.
Pepsi Updates Delivery Systems
In 2002, executives at Pepsi Bottling were hearing from unhappy retailers and even some of the company's 30,000 U.S. employees. An outdated ordering system and the inability of field personnel to receive instant data prohibited smooth, efficient delivery of products, leaving some store shelves empty too long. These "out of stocks" were particularly frustrating to retailers on the weekends because Pepsi employees were not available to immediately replenish supplies. Pepsi Bottling, PepsiCo's largest bottler and distributor, got the message and immediately began a supply chain overhaul.
The new program went into effect across 41 states in early 2006. Warehouse workers now wear headsets and have barcode scanners on their wrists to create 100-percent-accurate "certified pallets" that contain exact orders. Out of stocks are almost impossible to completely eliminate, but detecting problems in the supply chain sooner has reduced them drastically and increased sales.
A computer program sorts orders and generates a voice instructing workers which drinks to load. A worker then affixes a barcode to the pallet attesting to its accuracy. Demonstrating to Wal-Mart that its orders are largely error free has given Pepsi delivery trucks priority status at the retailer's loading dock, meaning they face fewer time-consuming audits and can have additional stops added to some trucks.
Previously, the handheld computer used by stockers and merchandisers didn't have wireless capabilities; that meant they had to find a fax machine to transmit the orders before the 2 p.m. deadline. Now, orders are zapped to the warehouse throughout the day, which allows more time to pick and load orders.
This change has also freed time for merchandisers and sales people, thereby increasing productivity. To improve weekend service, the company now offers some type of weekend service in 97 percent of its stores, up from 60 percent. The system's results are too early to quantify, but all indications are that sales and, more importantly, customer and consumer satisfaction will be dramatically increased.
The bottom line? Complaints can be helpful — if you listen to them. Pepsi heard what its retailers and employees had to say and implemented changes that resulted in improvements across the board. Being open to criticism and benefiting from it is a good lesson for all businesses.
The Coke Wars Continue
We reported on the battle among Coca-Cola, Coca-Cola Enterpris-es (CCE, the company's largest bottler) and independent bottlers in the April issue of GPN's Big Grower. The dispute dealt with a possible change from store delivery of Coke products to warehouse delivery for Wal-Mart. The contract between Coca-Cola and its bottlers allows the bottlers to deliver to stores and merchandise the product in those stores, giving the bottlers control and influence on sales.
Coca-Cola and CCE (owned by Coke) wanted to change this practice for Powerade delivered to Wal-Mart in CCE territories. In a June court filing, Coca-Cola Co. said it faced a serious risk because Wal-Mart Stores Inc. would launch a private-label rival to Powerade if Coke didn't agree to ship directly to Wal-Mart warehouses.
Internal CCE documents filed as part of the suit show Wal-Mart officials criticized the traditional Coke distribution system for failing to keep Powerade on the shelves. Coke and CCE said the new system was working well but had no plans to expand warehouse delivery to other drinks or retailers.
In July, Coca-Cola and CCE began shipping some Minute Maid drinks to a Texas warehouse run by Valero Energy Corp., which has more than 5,000 gas station/convenience stores. Valero sought the change to supply its stores faster and more frequently, said a Valero spokesperson. Valero also said it would like to expand the direct shipments to include other Coke drinks in states besides Texas.
What you do for one customer doesn't escape the scrutiny of your other customers: Are you providing all the services your customer requires? Are you adding value to your products for your customer?
Housing Slump Jumps
Some analysts feel that big retailers may feel quite a chill as America's hottest housing markets cool. It is widely accepted that housing strength (which makes consumers feel flush and gives them additional cash in the form of rising home equity) has helped support retail sales growth of about 8 percent annually instead of the more typical 4 percent. As housing weakens, marquee retailers such as Target, Home Depot and Lowe's may experience a weakening in sales growth.
Which markets are most at risk? Areas where housing prices are up 20 percent since 2001 and where mortgage debt is more than 30 percent relative to income are most likely to feel the pinch. Las Vegas, Nev., Washington, D.C., Florida and California all fit the criteria. Consider factoring this information into your marketing plan for 2007-2008.