Goldman Sachs Predicts The Slow Decline Of Wal-Mart And Target

• ASHLEY LUTZ
 

• JUL. 30, 2014, 12:00 PM

REUTERS/Kevork Djansezian

Customers walk outside a Wal-Mart store in the Porter Ranch section of Los Angeles.

The heyday of big box discount retailers is over. 

Consumers are becoming less interested in retailers like Wal-Mart and Target, according to a recent note by Goldman Sachs. Instead, "consumers appear more focused on some combination of value and convenience," the analysts write. 

The advent of online retailers like Amazon has also contributed to the problems at Wal-Mart and Target, according to the note. Consumers are less likely to make a trip to the stores when they could get free delivery online. Wal-Mart's sales have declined for five straight quarters, leading to shakeups at the executive level.

Target's CEO left earlier this year amid disappointing sales results and a data breach that affected millions of customers. Several sectors are benefiting from widespread lack of interest in Wal-Mart and Target, according to Goldman. Dollar stores, drug stores, and warehouse clubs "are taking share from broad-assortment retailers," the analysts write.While dollar stores have struggled recently, they have been a threat to Wal-Mart since the recession. Dollar Tree's acquisition of Family Dollar puts the retailers in a position to negotiate with suppliers for even lower prices. Meanwhile, drugstores like CVS and Walgreens have spent years expanding their assortments to include groceries, high-end cosmetics, clothing, and accessories.  Costco's strategy of very low mark-ups and quality over quantity also appeals to consumers today. 

Huge Wal-Mart and Target stores lack the convenience of smaller dollar chains and drugstores. They also can't offer the deep discounting of warehouse clubs like Costco. The bank downgraded Wal-Mart's shares to "neutral" from "buy." Target remains a "buy" — but analysts still have reservations about the chain's tepid sales and steepening losses in Canada.

Goldman is concerned with Wal-Mart's current strategy, which involves international growth and investment rather than the quality core customers' experiences. In the past year, Wal-Mart customers have complained about empty shelves in stores. The company has implemented a strategy to fix the problem.

To improve business, Goldman says, these retail behemoths need to adapt to accommodate changing consumer habits.  That includes investing in e-commerce and smaller stores, such as Wal-Mart's Neighborhood Market concept.  Wal-Mart's marketplace-style stores, with smaller store footprints and a focus on fresh produce and groceries, are widely regarded as the future of the brand. 

The company also told Business Insider it is investing in e-commerce  and omnichannel initiatives. "We’re making investments in technology and our multi-format portfolio that will give our customers the resources to shop with us on their terms," the company said. "We’re focused on further growing sales by delivering an enjoyable customer shopping experience across all channels."

Growth Wine Category: Think Inside The Box

A friend of mine, Elizabeth, is a gifted event planner. A few weeks ago, she found herself in a sticky situation. A new client wanted to throw a casual, last-minute cocktail-style party – on the following night – for 75 people on a hot summer night in the southern United States.

She needed easy, cool wines. She needed a lot of them. And she needed them fast. “Why not pick up some boxes of wine?” I suggested when we were on the phone and she was driving from one errand to another.

I heard her put on the brakes. Then, for a long moment, all I heard was silence.Except for the sound of her eyes narrowing. “What?” I said into the pause, starting to smile. “I can’t believe you just said that,” she said. “Boxed wine? Really?”

And so begins the dance that boxed wine companies have been performing for many years now. It’s a three-step dance around issues of convenience, economy, and pragmatism, and the cadence is picking up. With the US being the largest world market for boxed wines, adding an incremental 84 million units between 2012 and 2017*, it’s a dance worth learning for both producers and consumers. (Source: Euromonitor International)

Convenience

Boxed wine companies try to convince the general public – who complain that wine is too complicated – of the convenience and simplicity of the wine-in-a-box system. Boxed wine has many advantages, including its storage. Unlike bottled wine, you don’t have to refrigerate the box once it’s been opened and exposed to air. Refrigerating an open bottle slows down the oxidation process, which helps preserve the wine. But the wine in a box is inside a vacuum-sealed bag. So no exposure to air. And therefore no oxidation to slow down. See? Simple and convenient.

Economy

Boxed wine companies try to convince the general public – who say they don’t want to spend a lot of money on decent wine – of the economy of this purchase. Say you and a friend each drink a glass with dinner one night. With a bottle, you’ve got to recork it and keep it cool until the next day, when it will likely be on its last legs. With boxed wine, you just close the spout and come back to it in a few days or even a week later. Most producers claim their boxed wine lasts up to four weeks.

Pragmatism

Boxed wine companies try to convince the general public – who say they’re turned off by the pretensions of wine – that wine in a box is a pragmatic, environmentally aware option. First, boxed wine is meant to be drunk young and fresh, within a year of packaging. (It’s a statistic that syncs nicely with another statistic from the US market about the extremely high percentage of wine that’s consumed within 24 hours of purchase.) Second, the packaging is often recyclable along with other paper products. Third, boxed wine leaves less of a carbon footprint than wine in glass bottles.

With those three factors in its favor, it’s easier to understand the growth of boxed wines’ appeal. I am not saying that you’ll definitely find an ethereal wine experience inside a box of wine. In most cases, ethereal will be another conversation, another event, and another set of circumstances altogether.

But I am saying that there’s a time and a place for boxed wine too. When the time is a hot summer night, say. And when the place is a casual cocktail-style party where the focus is more on the conversation and interaction than on contemplating the wine. It works out fine. Just ask Elizabeth.

NOTE: Of the boxed wines I’ve tried recently, the Andegavia brand stands out. Named after a wine growing region in western France where wine was once stored and shipped in large barrels or casks, Andegavia calls their higher-priced, sustainably-packaged product “cask wine.” I blind-tasted their Napa red blend (97% Cabernet Sauvignon) against two other bottled, Napa Cab-based blends from the same vintage. The Andegavia was discernibly different, for me, in taste and experience than the other two. But it showed itself admirably, especially weighing additional factors like cost and environmental packaging. I can definitely envision a time and a place for this wine, as well.

Neil deGrasse Tyson To GMO Critics: 'Chill Out'

• LAUREN F FRIEDMAN
 
•   

• JUL. 30, 2014, 5:43 PM

William Wei, Business Insider

Astrophysicist Neil deGrasse Tyson, perhaps the country's most famous scientist, has a message for critics of genetically modified foods: "Chill out."

In a video we first saw at Mother Jones, he answers a question, asked in French, that roughly translates to: "What do you think about genetically modified plants?"

We have been genetically modifying food for "tens of thousands of years," he points out, and there's no reason to fear GMO foods created in a lab any more than seedless fruits created through selective breeding. GMO technology might scare people, he suggests, simply because "people don't fully understand it."

Tyson may not be a GMO expert, but the National Academy of Sciences, the American Association for the Advancement of Science, and the European Commission all agree with him on the safety of GMO foods. So does the research.

Here is his answer, in full:

I'm amazed how much objection genetically modified foods are receiving from the public. It smacks of the fear factor that exists at every new emergent science, where people don't fully understand it or don't fully know or embrace its consequences, and therefore reject it. What most people don't know, but they should, is that practically every food you buy in a store for consumption by humans is genetically modified food.

There are no wild seedless watermelons; there's no wild cows; there's no long-stem roses growing in the wild — although we don't eat roses. You list all the fruit, and all the vegetables, and ask yourself: Is there a wild counterpart to this? If there is, it's not as large, it's not as sweet, it's not as juicy, and it has way more seeds in it. 

We have systematically genetically modified all the foods, the vegetables and animals, that we have eaten ever since we cultivated them. It's called "artificial selection." That's how we genetically modify them. So now that we can do it in a lab, all of a sudden you're going to complain?

If you're the complainer type, go back and eat the apples that grow wild. You know something? They're this big, and they're tart. They're not sweet, like Red Delicious apples. We manufactured those. That's a genetic modification.

Do you realize silk cannot be produced in the wild? The silkworm, as we cultivate it, has no wild counterpart because it would die in the wild. So there's not even any silk anymore. So we are creating and modifying the biology of the world to serve our needs. I don't have a problem with that, cause we've been doing that for tens of thousands of years. So chill out.

5 food writers subpoenaed in 'pink slime' lawsuit

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Posted: Tuesday, July 29, 2014 8:54 pm | Updated: 1:06 am, Wed Jul 30, 2014.

Associated Press | 0 comments

SIOUX FALLS, S.D. (AP) — Several food writers, including a New York Times reporter, have been subpoenaed by a meat producer as part of its $1.2 billion defamation lawsuit against ABC in regards to the network's coverage of a beef product dubbed "pink slime" by critics.

The subpoenas were issued to five writers — three reporters for the online Food Safety News, Times reporter Michael Moss and noted food writer Michele Simon — asking each to supply copies of any communications they had with ABC in 2012.

Beef Products Inc. sued the network in 2012 seeking $1.2 billion in damages for the coverage of the meat product the industry calls "lean, finely textured beef," which critics dubbed "pink slime." BPI said ABC's coverage misled consumers into believing the product was unsafe and led to the closure of three plants and roughly 700 layoffs.

ABC's attorneys say that in each of its broadcasts about the product, the network stated that the U.S. Department of Agriculture deemed the product safe to eat. They say BPI might not like the phrase pink slime, but like all ground beef, it's pink and has a slimy texture.

A spokesman for ABC on Tuesday declined to comment on the lawsuit and the subpoenas. Attorneys for the network and BPI have proposed a February 2017 trial date.

Attorney Bruce Johnson in Seattle is representing the editor of Food Safety News, Dan Flynn, reporter James Andrews, and former reporter Gretchen Goetz. Johnson on Tuesday said the subpoenas were "overreaching" and that the publication would fight the requests.

BPI attorney Erik Connolly said the subpoenas are "appropriate and would be enforced."

A spokeswoman for the New York Times said Moss's subpoena had been stayed.

Simon said she has responded to the request, but did not provide any documents because she doesn't keep emails dating back to 2012.

"BPI's lawyers are engaging in a fishing expedition by spreading the subpoenas so far to every journalist and food blogger that has ever said anything about pink slime," Simon said.

The plaintiffs have also sought subpoenas for two food-safety research labs and a blogger who has written about the meat product.

The product is made using a process in which butchered cow trimmings are heated, lean meat is separated from fat, and ammonia gas is applied to the meat to kill bacteria.

A social media-fueled outcry about the product in 2012 prompted the U.S. Department of Agriculture to offer school districts that get food through the government's school lunch program choices in ground beef purchases.

Manufacturers of the product say sales of the meat have risen since the height of the controversy two years ago.

In addition to ABC, the lawsuit names ABC news anchor Diane Sawyer, correspondents Jim Avila and David Kerley; Gerald Zirnstein, the U.S. Department of Agriculture microbiologist who named the product pink slime; former federal food scientist Carl Custer; and Kit Foshee, a former BPI quality assurance manager who was interviewed by ABC.

Global Demographics May Reshape Supply Chains

By SCMR Staff

July 28, 2014

The era of constrained labor supply is just beginning, and the decreasing share of populations that are in the working age cohort will keep human capital a front-burner issue for goods producers for decades, according to a new Manufacturers Alliance for Productivity and Innovation (MAPI) report.

In “An Aging, Urbanizing World,” senior economist Cliff Waldman wrote that global population growth has been slowing dramatically since the mid-1960s. In the latter half of the 1960s, average growth was 2.07% per year. The rate decelerated over the decades to an estimated 1.15% per year for the 2010-2015 period and is projected to fall below 1% after 2020.

“Population shifts are being felt very much in the present and are having a direct impact on the slow world rebound,” Waldman said in a recent interview. “Manufacturers must understand how dramatic demographic changes intersect with economic activity, and the resulting reshaping of the business climate in ways that would have been unimaginable just a decade ago.”

In an effort to curb the labor shortage, Waldman encouraged companies to think of incoming employees as a raw material rather than a finished product. “They will not come with all the necessary skills to jump right in,” he said. “Instead, you will need to form training programs in your company. Go into schools and tell kids manufacturing is a good career. Not just once a year, but in the context of a real and consistent relationship with educators. Your company has to become a classroom. It’s not going to be easy but it will be increasingly necessary.”

Framing the global challenge to develop talent, Waldman said regional differences are revealing. For instance, for the 2010-2015 period, the average population growth in Africa will be an estimated 2.46% compared with 0.81% in the United States and 0.08% in Europe. “Africa is becoming demographically advantaged, despite social and humanitarian problems,” Waldman said. “With a younger population, Africa can look forward to a growing share in working cohort, in sharp contrast to rest of the world. Once it’s off the ground economically, household formation will kick in, which has tremendous implications for the consumption of goods. Africa might slowly become a manufacturing continent, and what an improvement that would be in the world.”

Waldman said the available labor pool is not the only thing global manufacturers consider, but a demographic advantage is certainly a factor when considering where to locate operations. For the United States, an increasingly educated, single and aging population is putting negative pressure on economic growth. For the world as a whole, the 60 and older cohort share is climbing, from 9.2% in 1990 to 11.1% in 2010. Between 1990 and 2010, the share of this cohort in the more developed regions rose from 17.7% to 21.8%. People in their working years also tend to save more, Waldman noted. If fertility falls, he said, less savings are created and that has consequences for capital creation. Additionally, an increasing lifespan puts encumbrances on the public budget and social services.

“This is why immigration is important, since the U.S. population growth rate is just over breaking even,” Waldman said. “Immigration is actually helping, and is more important than ever. Of course the focus now is on the mess at the southern border, but in in the long term immigration policy will have a huge impact. A falling worker cohort means a falling economy.”

Commensurate with the aging population, people have shown a general tendency to concentrate. In 2011, 52.1% of the population resided in urban areas, including nearly 78% in developed regions. Urbanization is trending up in less developed regions, with the 2011 rate of 46.5% expected to rise to 51.3% by 2020.

“As a result of urbanization, supply chains will need to be increasingly configured for urban labor supply and markets,” Waldman said.

Target testing price matching policy

Retailer will match prices for a list of online competitors

By Canadian Grocer staff  |  July 30, 2014

Target’s making another push to win Canadian shoppers over.

While some analysts have speculated Target’s days in Canada are numbered, the retailer is trying a new initiative: a price match guarantee.

Lisa Gibson, spokesperson for Target Canada, confirmed to Canadian Grocer that the retailer is testing an expanded price match policy “in order to make it easier and more convenient for our guests to be able to find the best possible price for their favourite Target purchase.”

The process is straightforward: show a digital flyer from a list of selected online retailers and Target will match their price. But shoppers must show the flyer on their mobile device and staff can ask the shopper to refresh the page to make sure the offer is current.

The list of online competitors includes Amazon.ca, Walmart.ca, Bestbuy.ca, ToyrsRUs.ca, BabiesRUs.ca, CanadianTire.ca, Futureshop.ca and Sears.ca. Online marketplace sites like Amazon are excluded from the offer.

Gibson said the policy also offers price matching for any local competitor’s flyer or weekly ad–both in print and in digital form. Earlier media reports incorrectly stated the program encompassed Canada-wide price matching.

“We’ll continue to offer price matching if a guest buys a qualifying item at a Target store and then finds the identical item for less in the following week’s Target flyer,” said Gibson in an email.

Walmart’s price-matching policy also offers price matching in local areas, and according to an article from CBC, they will be staying with that policy. “We’ll ad-match with online flyers from other local merchants and as well using their printed flyers,” Alex Robertson, the company’s  director of corporate affairs, told the CBC.

How the weather forecast impacts food supply

Weather is often something people think about as they’re walking out the door in the morning or as they make weekend plans. But, for a food company like General Mills, it’s a much longer-term consideration.

Weather conditions such as drought, floods and excessive heat, can decrease yields on crops like corn, oats and wheat.

Changing weather patterns can also impact our ability to deliver quality products to our consumers and value to our shareholders.

As weather volatility increases, General Mills recognizes the need to mitigate the climate change risks presented to humanity, our environment and our livelihoods. The urgency is clear: science-based evidence points to changes in climate that could permanently alter the atmosphere if action isn’t taken in the near term.

An innovative, holistic approach is essential.

For years, General Mills has been working to reduce greenhouse gas (GHG) emissions in our operations and in agriculture. We’ve had specific GHG targets in place for our direct operations since 2005.

However, given that nearly two-thirds of General Mills’ GHG emissions and 99 percent of water use throughout our value chain occur upstream of our direct operations, primarily in agriculture, we’ve also been focused on advancing sustainable agriculture.

To this end, we’ve made a commitment to sustainably source 100 percent of our 10 priority ingredients by 2020. These ingredients represent 50 percent of our total raw material purchases.

Today, we further our commitment to environmental stewardship and sustainable agriculture by announcing a corporate climate policy that establishes a framework for our efforts to track and reduce GHG emissions across our broader value chain. This includes requiring key ingredient suppliers to demonstrate environmental, social and economic improvements in their supply chains.

In addition, our policy addresses further reductions in resource usage within our own operations; our leadership role in a multi-stakeholder water stewardship strategy; and our continued contributions to food waste reduction.

Read the full General Mills climate policy here.

Climate change is not an issue one company can tackle alone. It takes the collaboration and dedication of many.

General Mills has sought partners with a shared commitment to mitigating climate change.

We recently joined BICEP, Ceres’ Business for Innovative Climate and Energy Policy, in an effort to advocate more closely with policy makers to pass meaningful energy and climate legislation.

Mindy Lubber, president, Ceres, welcomed us to the group saying: “General Mills is showing increasing leadership on climate change and we are proud to welcome the company as our newest member of BICEP. With General Mills’ global commitment to sustainable sourcing and the work it is doing to reduce GHG emissions in its direct operations and in agriculture, the company brings a lot to the table. We are certain General Mills will be an effective advocate for strong climate and energy policies.”

We also have great, long-standing partners including the Innovation Center for U.S. Dairy and Field to Market: The Alliance for Sustainable Agriculture.

And, our collaborative work includes other important multi-stakeholder groups such as the Roundtable for Sustainable Palm Oil and Bonsucro.

The imperative is clear: business, together with governments, NGOs and individuals, need to act together to reduce the human impact on climate change. Government policies that provide proportionate and clear guidance on mitigation and adaptation are essential for large scale progress.

Business investment in innovations that help reduce natural resource use and create energy alternatives is essential to reach scalable practices and technologies. And, helping individual consumers make more sustainable choices is essential to reducing the collective human impact on the environment.

We all have a part to play.

We encourage you – individuals and organizations alike – to join us in the commitment to reduce our collective environmental footprint and improve the overall health of the planet.

As consumers, we can make a difference by reducing food waste, recycling packaging, using less water and energy and by choosing more energy efficient appliances. Together, our combined actions can have a big impact.

Target Picks Pepsi Veteran 

as New CEO

Retailer Turns to an Outsider, Brian Cornell, 

to Help It Regain Lost Momentum

Target Corp. is bringing in PepsiCo Inc. executive Brian Cornell as its new chief executive, turning to an outsider for the first time in its history to repair a battered corporate culture and navigate a sea change in Americans' shopping habits.

Brian Cornell will become chief executive of Target Corp. Reuters

Mr. Cornell, age 55, steps into the role vacated three months ago by Gregg Steinhafel, a Target veteran who left after a revolt by key lieutenants who worried the cheap-chic discount retailer had lost its way.

The PepsiCo executive will have to manage those concerns while coming up with a strategy to reverse more than a year of falling store traffic—a drop caused by internal fumbles; a damaging security breach of its customers' credit and debit cards; and a shift in which consumers are making fewer trips to big-box stores and doing more shopping online.

The executive has spent nearly a decade at PepsiCo, where he was an outside contender to succeed current CEO Indra Nooyi. Not all of his years at PepsiCo were consecutive, but over the past two years he ran PepsiCo's Americas Foods business, whose brands such as Quaker oatmeal and Lay's potato chips are found on the shelves of Target. Before that, he spent three years at Target rival Wal-Mart Stores Inc., where he ran the Sam's Club warehouse chain. He also was CEO of arts and crafts chain Michael's Stores Inc. for two years, after it was taken private.

Target, with more than 1,900 stores in the U.S. and Canada and nearly $73 billion in 2013 revenue, has had a difficult year. A massive data breach derailed sales over the holiday season and kept customers away for months. Sales started to improve in March as the weather warmed and after the retailer cranked up discounts, like offering five 12-packs of Coke for $10, but the company forecasts same-store sales will be flat to slightly up in the U.S. for the quarter that ends Aug. 2.

R

Fixing those problems will require some big decisions. The new CEO is expected to make a call on whether Target should continue a botched expansion into Canada that already has cost the company $1.6 billion. The e-commerce division remains weak, with only about 2% of sales coming via the Internet.

Target is also wrestling with deep-seated cultural issues that factored heavily in the removal of Mr. Steinhafel. Current and former executives have said decision-making slowed down during his six-year tenure, with key decisions frozen in layers of committee meetings.

They also said the former CEO eroded Target's creative flair by focusing more on selling basics like groceries as the country came out of the recession and de-emphasizing the hip housewares that once were central to its appeal. This spring, some top executives told the board that if Mr. Steinhafel didn't go, more talent would leave. Mr. Steinhafel declined previously to comment on those matters.

Target had signaled that it would look outside its walls for its next CEO. Pictured, a Target in Minneapolis.Jenn Ackerman for The Wall Street Journal

Target had signaled that it would look outside its walls and outside of traditional retailing altogether for its next CEO.

In fact, it is bringing someone with a history in the industry, including a stint at Wal-Mart, whose no frills, operationally focused culture contrasts with the design-conscious image Target projects. His most recent experience is in food, which may clash with the preference of many Target executives to re-emphasize more fashionable merchandise like clothing and furniture. He joined the PepsiCo fold in 1998 after the company acquired the Tropicana orange juice brand, where he worked earlier in his career.

PepsiCo said it looked forward to working with Mr. Cornell at Target and would announce his successor soon.

Target is currently being steered by Chief Financial Officer John Mulligan, who is serving as interim CEO, and a group of top executives who have been relocated to common quarters on the 26th floor at Target's Minneapolis headquarters.

Mr. Cornell, who has long sought to run a public company, begins his new job Aug. 12. He first started talking with Target several weeks ago after people in the Minneapolis business community mentioned him as an attractive candidate for the job. He has ties to the city as a director at recreational vehicle maker Polaris Industries Inc. He plans to relocate to Minneapolis and will be at Target headquarters Thursday to meet with the company's leadership team in person. Mr. Cornell has already met with some top executives like Mr. Mulligan, who will be returning to his position as chief financial officer.

"Target is full of talented individuals, and Target guests routinely share stories of their personal love of the brand," said Mr. Cornell, who attended University of California, Los Angeles, and its Anderson School of Management. "These are powerful assets."

Meshing with them will be critical after the deep rifts that developed between top managers and Mr. Steinhafel. The animosity escalated after hackers compromised 40 million credit- and debit-card accounts and 70 million personal records around Thanksgiving. Top managers began to meet regularly without Mr. Steinhafel and lobbied Target's board to replace him, people familiar with the matter have said.

Mr. Cornell's appointment does leave some question marks about some executives. Chief among them is the future of Kathee Tesija, Target's chief merchandising officer who has been viewed a strong candidate to one day become the company's CEO. The Pepsi executive will be chairman as well as CEO, but the company is leaving open the president's title that had been held by Mr. Steinhafel.