Wednesday, November 30, 2016

Deflation rules in 2016

ERS expects supermarket prices to decrease between 1.25 and 0.25 percent, marking first year since 1967 that retail food prices could reflect annual deflation.

November 29, 2016, 11:46 am By Store Brands, Stagnito Business Information

The USDA’s Economic Research Service (ERS) expects supermarket prices to decrease between 1.25 and 0.25 percent, marking the first year since 1967 that retail food prices could reflect annual deflation.

ERS lowered the forecast because of recent declines in prices for beef and veal, poultry and eggs. Lower transportation costs, a result of deflated oil prices, as well as the strength of the U.S. dollar have placed additional downward pressure on food prices in the first half of 2016, according to ERS.

“A strong U.S. dollar makes U.S. goods less desirable to foreign markets, leaving more potential exports on the domestic market,” the ERS stated in a report on its website.

Supermarket prices remained flat from September to October and are 2.3 percent lower than October 2015 prices, according to the USDA’s Economic Research Service (ERS). Retail food prices were flat or decreased for eight of the first 10 months of 2016.

Meanwhile, restaurant prices were up 0.1 percent in October and were 2.4 percent higher for the month when compared to October 2015.

“[Restaurant] prices have been rising consistently month-over-month due, in part, to differences in the cost structure of restaurants versus supermarkets or grocery stores,” according to ERS. “Restaurant prices primarily comprise labor and rental costs, with only a small portion going toward food. For this reason, decreasing farm-level and wholesale food prices have had less of an impact on restaurant menu prices.”

Looking ahead to 2017, supermarket prices are expected to rise between 0.5 and 1.5 percent, according to ERS.

“Despite the expectation for declining prices in 2016, poultry, fish and seafood, and dairy prices are expected to rise in 2017,” ERS stated. “These forecasts are based on an assumption of normal weather conditions throughout the remainder of the year; however, severe weather or other unforeseen events could potentially drive up food prices beyond the current forecasts. In particular, the drought in California could have large and lasting effects on fruit, vegetable, dairy, and egg prices. Also, a stronger U.S. dollar could continue to make the sale of domestic food products overseas more difficult. This would increase the supply of foods on the domestic market, placing downward pressure on retail food prices.”

Technomic reduces restaurant industry growth projections

Nov. 29, 2016 - by Monica Watrous

Technomic has reduced its restaurant growth projections for 2016 and 2017 based on recent declines in consumer traffic.

CHICAGO — Restaurant industry tracker Technomic has reduced its growth projections for 2016 and 2017 based on recent declines in consumer traffic.

In the limited-service sector, Technomic has lowered its nominal projections to 4.5% and 4.9% for 2016 and 2017, respectively, down from the original forecast of 5.5% and 5.7%. The downgrades reflect a slowdown in fast-casual restaurants, Technomic said.

Erik Thoresen, Technomic principal

“Menu prices at some fast-casual restaurants have risen to a level where the perceived value for a typical consumer has eroded,” said Erik Thoresen, Technomic principal. “Add to that the struggles of Chipotle, which represents a sizeable share of the fast-casual industry, and it was evident that forecast revisions for 2016 and 2017 were necessary.”

Still, Technomic noted, fast-casual remains among the fast-growing sectors of food service.

On the full-service side, nominal growth is expected to be 3.5% for 2016 and 2017, down from 4.9% and 4.3%, respectively, as projected in Technomic’s restaurant industry forecast released this past May. Given inflation is expected to be 2.7% in both years, real growth is estimated at 0.8%, Technomic said.

Joe Pawlak, Technomic managing principal

“Major full-service chains, especially in the casual dining sector of the market, are really struggling,” said Joe Pawlak, Technomic managing principal. “Consumer economic uncertainty, value issues and undifferentiated positions are putting strains on many full-service chains. However, independents seem to be holding their own as consumers are gravitating to these establishments due to their unique offerings, local orientation and strong value propositions.”

The hotel food service segment also has taken a hit, with growth projections reduced to 5.3% for 2016 and 5.1% for 2017 from 7.3% and 6.8%, respectively.

Wegmans declines to pursue Newport News site

Nov 29, 2016Jon Springer

Wegmans Food Markets will not be taking flight in Newport News, Va.

Developers for the Rochester, N.Y.-based company had proposed building a store on property belonging to the Newport News Airport, but a rezoning application filed with the city was withdrawn in June after it failed to win approval of its city council. At that time, developers were expected to resubmit plans but they were discouraged when the Federal Aviation Commission subsequently rejected plans for street extensions around the property that were a part of the site’s original plan, published reports said.

A spokeswoman for Wegmans confirmed to SN Tuesday that the company would not pursue the Newport News site and was turning its immediate attention to other locations.

Wegmans lists 12 future sites at its website, including three expected to open in 2017 (Hanover Township, N.J., Montvale, N.J. and Medford, Mass.) and three targeted for a 2018 opening (Chantilly, Va., Lancaster, Pa., and Natick, Mass.).

Wegmans also has plans to build new sites in Brooklyn, N.Y., and Tysons Corner, Va.; and four sites in North Carolina (Cary, West Cary, Raleigh and Chapel Hill) but has not assigned an opening date for them.

Albertsons Poised to Buy Price Chopper: Report

Pending deal underscores growing industry consolidation

November 30, 2016, 10:40 am

Albertsons Cos. Inc. is said to be in “advanced talks” to acquire the 130-store Schenectady, N.Y.-based Price Chopper for about $1 billion.

Both Albertsons and Price Chopper – whose grocery stores are located in New York, Connecticut and Massachusetts and which has been owned by the Golub family since its founding – declined to comment on the speculative acquisition, with Price Chopper referring to published report as “rumors.”

A Reuters report notes that the deal would be in keeping with the tendency toward consolidation in the U.S. grocery industry, including such well-publicized deals as the Ahold-Delhaize merger this past summer, as regional chains struggle to hold their own against online retailers, mass merchandisers and deep discounters. Such pressures may have induced Schenectady, N.Y.-based Price Chopper to explore a sale.In January 2016, Scott Grimmett become the first non-family member to helm Golub Corp. as CEO. The former Safeway executive, who worked for 37 years at the Pleasanton, Calif.-based chain that has since merged with Price Chopper's would-be new owner, Albertsons, formerly was president of several company divisions, the last of which was Safeway’s Denver division, consisting of 141 stores across a five-state operating area.

The pending deal between Albertsons and Price Chopper follows reports earlier this year that the regional grocery chain was on the block. While Price Chopper's VP of Public Relations and Consumer Services Mona Golub told Progressive Grocer in August that the grocer doesn't "respond to rumor or innuendo," she confirmed that “relative to the tremendous customer response to our new Market 32 stores, we formed a new board finance committee to explore capital partnerships to accelerate the conversion of Price Chopper stores to the new Market 32 banner.”

Golub further noted that family-owned Golub Corp., Price Chopper’s parent, was continuing with its strategy laid out last January: On hiring Grimmett, Chairman Neil Golub said that the company would move ahead with the design, branding and marketing investments it had made in launching the Market 32 banner, as it modernized its store base under the new banner.

Boise, Idaho-based Albertsons, controlled by private equity firm Cerberus Capital Management LP and operating more than 2,200 supermarkets, is the second-largest U.S. grocery chain, after Kroger. In 2015, Albertsons merged with Pleasanton, Calif.-based Safeway, expanding its presence in the central and western United States. Its banners include Vons, Jewel-Osco, Shaw's, Tom Thumb and United Supermarkets.

Fertility Rates Keep Dropping, And It's Going To Hit The Economy Hard

Total fertility rates, which can be defined as the average number of children born to a woman who survives her reproductive years (aged 15-49), have decreased globally by about half since 1960. This has drastically shaped today’s global economy, but as Visual Capitalist's Caitlin Cheadle explains, a continued decline could have much more severe long-term consequences.

If the world has too many elderly dependents and not enough workers, the burden on economic growth will be difficult to overcome.

Fertility Rates Start to Decline

First, it’s important to address some of the reasons for these falling fertility rates.In developed nations the introduction of commercially available birth control has played a large role, but this also coincided with several major societal shifts. Changing religious values, the emancipation of women and their increasing participation in the workforce, and higher costs of childcare and education have all factored into declining fertility rates.

Birthrates Wane, Economy Gains

Initially, reduced child dependency rates were actually beneficial to economic growth.

By delaying childbirth, men and women could gain an education before starting a family. This was important in a shifting labor market where smaller, family-run businesses were in decline and a more skilled and specialized labor force was in demand.

Men and women could also choose to start their careers before having families, while paying more in income taxes and enjoying the benefits of a higher disposable income. Increased spending power creates demand, which stimulates job growth – and the economy benefits in the short-term.

A Global Phenomenon

46% of world population is in countries with rates below replacement

Worldwide fertility rates began to fall substantially in the mid-1960s. While each country has its own underlying causes for this, it is interesting that in developed and developing nations, the downward trend is similar.

Part of this is due to developing countries’ own efforts to rein in their rapidly expanding populations. In China, the One Child Policy was introduced in 1979, however fertility rates had already dropped significantly prior to this. India’s government was also active on this front, sterilizing an estimated 8.3 million people (mostly men) between 1975 and 1977 as a method of population control.

The Age Imbalance

So here we are now, with a global fertility rate of just 2.5 – roughly half of what it was 50 years ago.

Today, 46% of the world’s population lives in countries that are below the average global replacement rate of 2.1 children per woman.

Because these countries (59 to be exact, including BRIC nations Brazil, Russia, and China) are not repopulating quickly enough to sustain their current populations, we are beginning to see a substantial imbalance in the ratio of elderly dependents to working-age people, which will only intensify over the coming decades.

By 2100, the U.N. predicts that nearly 30% of the population will be made of people 60 years and older. Life expectancy also continues to increase steadily, which means those dependents will be living even longer. Between 2000 and 2015 the average global life expectancy at birth increased by around 5 years, reaching an average of 73.8 years for females and 69.1 years for males.

Economic Reversal

What does this mean for the economy?

As this large aging population exits the workforce, most of the positive trends that were spurred by declining fertility rates will be reversed, and economic growth will face a significant burden.

The global increase of elderly dependent populations will have serious economic consequences. Health care costs for the elderly will strain resources, while the smaller working population will struggle to produce enough income tax revenue to support these rising costs. It’s likely this will cause spending power to decrease, consumerism to decline, job production to slow – and the economy to stagnate.

Solutions

Immigration has been a source of short-term population sustenance for many nations, including the U.S. and Britain. However, aside from obvious societal tensions associated with this strategy, immigrants are often adults themselves when they relocate, meaning they too will be elderly dependents soon.

Several nations are already experiencing the effects of a large proportion of elderly dependents. Japan, with one-quarter of its total population currently over the age of 65, has been a pioneer in developing technologies, such as robotics, as a solution to ease strained health care resources. Many countries are restructuring health care programs with long-term solutions in mind, while others are attempting to lower the cost of childcare and education.

Tuesday, November 29, 2016

The Fresh Market Continues Refresh With Charlotte-Area Stores This Week

Posted by Kristen Cloud

Date: November 28, 2016

in: Home Page Slider, Operations, Southeast, Store News

Books, beer, and brisket as Barnes & Noble reopens in the Galleria

The bookseller's "retail-tainment" concept includes a restaurant and bar at its new spot in the Galleria.

By John Ewoldt Star Tribune

NOVEMBER 29, 2016 — 7:37AM

ELIZABETH FLORES, STAR TRIBUNE

Barnes & Noble employees prepared drinks and pastries during a media tour, Monday, November 28, 2016 in Edina, MN.

Barnes & Noble Inc. will open its new-concept store in the Galleria Tuesday, one with a full-service restaurant and bar aimed at getting people to stay longer.

The 21,500-square-foot store on the lower level replaces a 38,000-square-foot store in the upscale mall in Edina.

“It’s clear the community wants retail-tainment,” said David Deason, vice president of development for Barnes & Noble. “It’s more conversational and more customer-focused.”

The 100-seat cafe, restaurant and bar serves breakfast, lunch and dinner, with prices ranging from $5 to $7 for sides such as tabbouleh and potato purée to $16 to $26 for a brisket burger or slow-cooked short ribs.

“We don’t look like a typical restaurant,” said Jaime Carey, president of development for the newly created restaurant division. “It’s more casual seating in the front with a community table and power stations for devices, then a conversational lounge area, and more traditional seating in the back.”

Barnes & Noble executives are counting on people meeting a friend for a drink at the bookstore, social interaction that its online rival Amazon.com hasn’t duplicated.

The Edina location is one of four around the country where Barnes & Noble is testing the idea. It opened one such location in Eastchester, N.Y., last week. Others will open soon in Folsom, Calif., and Loudoun County, Va.

The New York-based retailer partnered with AvroKO and the Branstetter Group to design Barnes & Noble Kitchen. Sheamus Feeley, chef consultant for Branstetter, created the menu, which is standardized at the four locations but may be somewhat localized later.

Deason expects that as many as 100 of the 638 locations could be relocated or revamped to accommodate the smaller footprint with a larger food and beverage section. One candidate: the company’s store at the Mall of America.

Bookstores, including Barnes & Noble, have steadily lost market share in the past 10 years. In the quarter ending Oct. 29, Barnes & Noble’s sales declined 3.5 percent. Nook sales are faltering. The former cafe concept has also underperformed, Deason said, and provided less than 10 percent of revenue. He hopes the new concept will move the cafe above the 10 percent level.

Books generate 60 percent of company revenue. Gifts, music, DVDs, toys and games provide another 20 percent.

The new design, brightly lit with ash and walnut wood accents, includes outdoor views from one wall. Large, southwest-facing windows with a sprawling contemporary chandelier provide casual seating for visitors near the music section. The album selection is slightly expanded but the significantly downsized music department sells only a handful of CDs. Departments for teens and manga, or Japanese graphic novels, have been expanded.

The customer-centric design includes plenty of casual, comfortable seating. “This is a departure for us,” said Deason. “It’s not grab-and-go, but sit-and-stay.” In the spirit of customer service, salespeople will carry sales tablets that can take payment anywhere in the store and also place online orders.

More than 20 wines are listed and six Minnesota craft beers are on tap, including Lake Monster, Surly, Indeed, Bent Paddle, Summit and Brau Brothers. But shoppers won’t be able to carry a glass of wine or beer around the store.

The new store takes over space in the Galleria that was formerly occupied by Len Druskin, California Closets and Bang & Olufsen.

The chain’s former Galleria store closed last week after 25 years in the same spot. That space is expected to be filled by eight to 10 new tenants, including a restaurant. Pirch, a San Diego-based kitchen and bath retailer, is a rumored contender.

Have big consumer brands given up on innovation?

Can big consumer packaged goods (CPG) companies create, launch and grow truly innovative new products anymore? This was my first thought when I read of Dr. Pepper Snapple Group’s $1.7B acquistion of Bai Brands last week. It has always been part of the growth strategy for big companies to find early stage companies with a strong brands in emerging categories and leverage their core competencies of brand building, manufacturing and distribution to take the brand to the next level. And in many ways this strategy makes good sense — it takes significant effort (time and resources) to launch a new brand and as a big company with big quarterly growth projections such gambles typically don’t deliver immediate returns. Conventional wisdom would say that it’s easier to get a ‘deal’ on brand that has proven product-market fit and has solid traction and take it from there. But if acquisition is the sole source of innovation, what’s stopping the upstarts to flip the roles and take over the category — just take a walk down the yogurt aisle at your local supermarket to see how much space Chobani commands and consider the company was founded in 2005.

The Rise of the ‘Foodiecorn’

While Bai Brands was the most recent CPG ‘foodiecorn’ exit (food & beverage startups valued over $1B in case my cheesy naming didn’t make that clear!), over the past years they are becoming far more common occurrences. 2016 alone has seen several massive CPG acquisitions of startups across the consumer products spectrum with Unilever alone shelling out $1.7B for Dollar Shave Club and Seventh Generation ($1B and $700M respectively).

And more interesting to note is the fact that we seldom hear of big companies building their own new and truly innovative successful brand. In fact, it is far more common that we hear about the epic failures of new brand launched after being incubated in a big CPG organization — New Coke or Wow Chips anyone?! And most corporate innovation doesn’t even bother with developing a new brand, but rather focus on close-in innovation like flavor/line-extensions (yet another yogurt flavor) or existing brand expansion into new categories (your favorite chip brand now in the cracker aisle).

Consumer startups are increasingly getting more attention from the investment community and with over $238B in M&A activity in consumer and retail sectors in the U.S. alone last year, this trend doesn’t seem to be slowing down any time soon.

Startups are stealing big CPG’s lunch

Ryan Caldbeck, CEO of CircleUp recently wrote an interesting article on this very topic in Techcrunch. Ryan attributes big companies inability to innovate primarily to lack of R&D investment, the innovation risk in a quarterly results driven culture and lack of talent. While there is no disputing that consumer M&A is heating up and big companies too often prioritize hitting short-term goals over long-term transformation, I see things slightly differently in terms of big CPG company’s innovation challenge.

During my time as a brand manager at General Mills, the company acquired Larabar in an effort to expand build upon their growing natural and organic brand portfolio (comprised of other acquired brands like Cascadian Farm and Muir Glen) and has continued the strategy by bringing on more smaller healthy food companies like Epic Provisions (Annie’s) and Immaculate Baking in recent years. However, even with a healthy corp dev focus, I rarely felt that as an organization we weren’t focused on how consumer needs were evolving and having some of the smartest people I’ve met in my career think about how to meet these changing tastes. In my roles at the company, I was able to help launch the companies first eCommerce DTC offering (the now defunct myfruitrollups.com) and help build FiberOne into a massive brand while working on the FiberOne bar business (which helped deliver classic reddit threads like this).

Original Myfruitrollups.com site; Launched in 2008

However, even with really smart people and world-class leading research, General Mills completely missed the boat on greek yogurt, opening the door for Chobani to take over the category in a few short years before Yoplait knew what hit them. And on this front, General Mills is not alone. CircleUp pulled data from a few notable categories illustrates that big brands are getting beat on market share to emerging brands who simply move faster and often take bigger swings on new products.

It’s not the people, it’s the culture

I don’t believe that big CPG companies lack great talent — i’ve never worked with smarter marketers, food scientists and professionals than my time in the industry. And while the focus on quarterly targets surely leads to a prioritization on step-change innovation, I believe that the lack of a culture that supports the spirit of innovation (test & learn, agile development, lean startup methodology) is the biggest issue — and this problem comes from the top of the organization vs. lacking the talent in the middle.

In my experiences at big CPG companies, we spent most of our time celebrating our wins in a big way and doing our best to quickly move on from our failures. A quick google search of ‘biggest product failures of all time’ brings you to numerous links showing some of best known flops of all time — but most recent examples are found in technology and automotive industries vs. big bets gone wrong in CPG categories.

The real problem is that big CPG companies forget what it takes to nurture and grow a brand from scratch and all the pain, setbacks and yes, failures, that come along the way. If CPG executives want to continue to drive leadership in the categories they compete, a good start would be to get back to the basics and empowering their employees to act like the emerging brands taking them on. If looking for a refresher on what that process is all about, a good place to start would be listening to Clif Bar’s Gary Erikson recount his journey on NPR’s How I Built This podcast.

In the end, the consumer M&A trend will be around for years to come, but if big CPG companies continue to rely on acquisition as their primary source innovation I fear many of these companies may not be around for the ride, either due to consolidation or the emerging brands of today flipping the roles completely and becoming the acquirers of tomorrow.