Starbucks New Ad – It’s About You!

Starbucks has opened its first Global Brand Campaign “Meet Me at Starbucks”.  What’s interesting is that this “documentary” style video is not about them.  It’s about you.  It tells your story.

Starbucks filmed a 24 hour day in 59 Starbucks stores, in 28 countries. That is a lot of Starbucks!  This  5 minute video is offered along with shorter portrayals of different groups that have decided to meet at Starbucks.

Say what you want about Starbucks – but this advertising is nothing about their coffee and all about YOU – the consumer.  Starbucks is so far in the background, yet, you know precisely where the people are and why they are there.  They have all decided to meet with each other for various reasons, yet they all chose Starbucks as their destination.    They are interesting people and have different lives, yet they are all connected through Starbucks.

Many of us at some point have met up with friends, family, acquaintances at a local Starbucks.  Perhaps we met because it was close or centrally located.  Maybe it was because everyone enjoyed the coffee, or the pastries.  Or maybe it was because the atmosphere was inviting and you could sit on a comfy chair, have a coffee and chat.

This video doesn’t say  – “Come to Starbucks and have some coffee!” Instead, it says “Hey, we know you like to come to Starbucks for various reasons – we just thought we would have a video of you here”.  It’s all about you.

Nespresso and Nestle’

About a year ago I attended a semi-reunion party at a dear friend’s house. After dinner, she asked us if we wanted a Nespresso. I had heard of Nespresso’s before, but never actually tried one. One cup later I was hooked on this deliciously bold coffee! I told everyone about this fabulous machine and a few months later received one as a gift from my family. It now sits proudly on my counter top with family members asking me if they can make a “fancy” coffee for themselves. Since the capsules need to be purchased online, I am careful not to waste any of them.


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I am not always the biggest fan of Nestle’. All you need to do is read the recent news about Nestle’ and you will find enough to complain about the company from recalling Haagen-Dazs ice cream to pulling some of their California Pizza and DiGiorno Frozen pizzas. However, they do have a superior product in their Nespresso maker. This machine is spot on when making a perfect cup of coffee. The design is sleek, simple and has an ample water container along with a container to house the used capsules.

What I don’t understand (or perhaps I do) is why Nestle’ is so adamant to fight against a free market on the capsules. I know they have the market share lead and don’t want to give that portion away, but with a company like Nestle’ and a superior product like the Nespresso maker, you would hope they would do the right thing and allow the open market to compete.

Recently a watchdog group found that Nestle’ repeatedly modified its machines so that competitor’s capsules would not fit properly and it was constantly warning consumers that they should only use Nespresso capsules. Really Nestle’? A French competition regulator agreed and Nestle’ was basically forced to “lift the barriers to entry and development” and are required to provide information on changes to its capsule interface components.

I don’t know why I am so surprised at this. Even Keruig, who launched a new Keurig 2.0


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which allows you to brew one or a four cup carafe, can only be used with Keurig 2.0 pods.
If companies like Nestle’ publicly state they are committed to “fair and open competition”, they need to act like it.

Whole Foods Market Moving Forward

English: Entrance to offices at Whole Foods Market Headquarters (Photo credit: Wikipedia)

Another quarter has passed and while Whole Foods Market sales increased 9.7%, its comparable store sales came in lower than the historical average of 8.3%.  This is the third quarter of a trending decline.  Wall Street, as usual, is pulling away from Whole Foods.  Everyone is talking about strong competition and how Wal Mart is adding to its organic offerings by bringing in Wild Oats (ironically a brand that was previously owned by Whole Foods).

Español: Un Wal-Mart remodelado en la Ciudad de México,México. (Photo credit: Wikipedia)

While Wal Mart may be increasing its organic product offerings, I am not sure that is the main competitor that Whole Foods needs to be watching.  As Whole Foods Market, CEO Walter Robb recently stated to CNBC “Historically, of all the competitors in the market, their customers overlap the least with ours“.  The organic industry is fragmented and their are several stronger competitors that Whole Foods Market needs to be aware of including Kroger, Trader Joe’s, Sprouts Farmers Market and Marianos, to name a few.

Trader Joe’s (Photo credit: JeepersMedia)

I just do not feel this is the “panic” time for Whole Foods Market but rather a time for strategy change.  CEO, John Mackey stated on their recent Q2 investor call “Our business model still generated a healthy 15.6% return on invested capital and produced $282 million of operating cash flow.  We invested $143 million in new and existing stores, returned $45 million in dividends to our shareholders, repurchased $55 million of stock and ended the quarter with $1.5 billion in cash and investments.”

While these are strong numbers, there were questions and concerns from the investors on this call regarding the increase in competition.  Mackey seemed to rely on a long-term growth strategy aiming for increasing sales by $11 billion over the next five years and seeing demand for 1,200 Whole Foods stores. When pushed on what management is doing differently than they were a year ago, the answer was making investments on price.  Well, all I can say to that is…Where?  I am a Whole Foods Market shopper and frequently read their flyer.  I have not seen much of any additional price reductions. I have asked a few co-workers who are also Whole Foods Market shoppers if they have seen prices reduced – they have not.  If they have been investing on price, it either hasn’t reached my area or the reductions are so insignificant – no one has noticed.

It is obvious John Mackey knows how to grow a company that started with less than 20 employees.  He has vision, a strong management team  and can develop long-term growth.  The development of this company was made with very little, if any competition.  They were the only ones in the game.  That has changed.  Management for Whole Foods Market will need to do more than making investments on price to manage the change market now while still keeping an eye on the future.

Can Netflix be REAL TV?

Netflix has integrated its streaming player in many consumer electronics devices including the XBox 360 (Photo credit: Wikipedia)

The Washington Post last night reported that Neflix reached an agreement with three cable companies that basically allows users to watch streaming video on an ordinary cable channel.  The agreement was made with RCN, Grande Communications and Atlantic Broadband.  You can utilize this offer if you are a customer of one of these cable companies and a subscriber to Netflix.

This follows a recent deal Netflix brokered with Comcast to be able to offer smoother, faster streaming on its network.  The details of this deal are not public and are being questioned heavily due to the federal regulators transparency rule on broadband providers.  Basically Comcast gets paid by consumers and Netflix for the same content or in other words – double dipping.  Consumers are looking for alternatives to the “cable bundles” not only due to the heavy monthly pricing but the incessant amount of commercials one is forced to deal with to watch any type of show while ultimately paying for these commercials.

There are a few alternatives that Netflix should be watching.  There is Blockbuster which went from brick and mortar to Blockbuster online, there is Amazon Video-on Demand, Google and Apple’s iTunes.

While Red Box is not streaming video, they have made it very convenient for consumers to purchase a video and return it by having their kiosks at strategically advantageous locations such as grocery stores, Walgreens, etc.  Their pricing of $1.25 is affordable

Google (Photo credit: warrantedarrest)

Google has a beta version of Google TV which allows consumers to combine their regular TV with the ability to access music, videos and photos anywhere on the Internet.  They are looking to work with manufacturers to equip new model televisions, Blu-ray players and other compatible boxes with Google TV software so consumers wouldn’t even have to download its software.

Apple TV is also becoming a more popular choice for consumers looking to enhance or even eliminate their local cable company.  However, Apple still needs to work on its fee structure as a number of studios rejected Apple’s proposed fee arrangement.

Hulu at OSCON (Photo credit: Garrett Heath)

Many people have left their local cable and have joined other services for their TV viewing.  A combination of Amazon and Hulu allows someone to watch their favorite shows, movies and still be able to catch their nightly news all without the large cable bill.

It will be interesting to see how far Netflix can go with its Open Connect – Netflix’s own take on content delivery. Open Connect allows ISPs to connect networks or provide caching for its content without payment.  A number of the larger ISPs in the US (Comcast included) declined to sign on to Open Connect which led Netflix to work a different route as they now have a direct deal with Comcast.

Who would have thought that turning on the nightly news or a good Friday night movie would be so complicated and costly.

 

Apple’s business strategy=success

In one of our recent discussions, the following question was posed:  What are the key elements of a company’s strategy that have  yielded success? 

Apple struggled for many years with their PC market until 1998/99 when it introduced the iMac and the iBook.  The iPod was introduced and once it was paired with iTunes, this was the turning point for Apple.

The iPod/iTunes partnership is one of the strategies that makes Apple a leader in the industry.  With licensing of the “i” names and the holdings of iTunes, Apple shows itself as the leader in digital music players.  The iPod became the generic term when referring to digital media players.  They also continued to improve the iPod with more storage space for music, videos, screen changes, etc., in its later models iPod Shuffle, iPod Nano, iPod Classic and iPod Touch.

Apple moved quickly to market with iPhone knowing that they had renewed interest in their company and that they needed to bring more innovative products to their consumers.  They also continued to improve this product with the iPhone 3G, iPhone 3Gs, and iPhone4.  The iPod and iPhone success created a “halo” effect and drew consumers to switch to Apple computers.  They doubled their PC market share from 4% to 8% from 2005-2008.

The strategy of creating innovative products and continually improving on them has definitely been successful in its core business products – PCs, digital music players and smartphones.

Today Apple is still creating innovative products and bringing them to market quickly.  While Apple TV is moving out of its infancy and becoming more popular , especially for gamers, they need to keep the R&D alive on this device as, I am sure they are well aware, their competitors – Google, Roku and now Amazon, are not far behind with their own models seeking the same customer base.

 

English: The iPod family with, from the left to the right : the shuffle 4G, the nano 6G, the classic 6G and the touch 4G Français : La famille des iPod, avec de la gauche vers la droite, l’iPod shuffle 4G, l’iPod nano 6G, l’iPod classic 6G et l’iPod touch 4G (Photo credit: Wikipedia)

Whole Foods – The Leader in Natural Foods

Whole foods (Photo credit: parislemon)

Yesterday,  Supermarket News announced that Whole Foods was acquiring four stores from New Frontiers Natural Marketplace.  New Frontiers Natural Marketplace, who advertises “We’re all about your quality of life” provides high-quality nutritional foods and are supporters of organic foods .  They also have a company culture where they “empower team leaders to run their area of responsibility as if it was their own little business.”

 

 

These characteristics make New Frontiers Natural Marketplace a natural fit for Whole Foods.  As Accenture recently stated in their Energizing Global Growth report, “Whole Foods Market understood consumers’ growing emphasis on healthy living at an early stage and carried out numerous merger and acquisition deals to become the world’s market leader in natural foods”.

 

 

It doesn’t appear that Whole Foods Market’s desire to grow and continue to be the leader in natural foods is slowing down any time soon.

 

 

Vertical Integration vs. Whole Foods

An interesting article was recently posted on Time.com (in partnership with Forbes.com) -” Time to Say Goodbye to Your Supermarket”.  The article discusses the recent $9.4 billion acquisition of Safeway by Cerberus Capital Management, who also owns Albertson’s.  The combining of these two supermarkets gives Cerberus Capital Management 5.4% of the international grocery market share.  Kroger has 9.6% and Wal-Mart has 30%.

English: Marina Safeway in Hamilton (Photo credit: Wikipedia)

A 2011 report on the grocery industry by the Treasury Department’s Community Development Financial Institutions Fund paints the picture: The top 10 grocery chains in the United States accounted for about 35% of the total number of stores, but about 68% of total industry revenues. The disparity there is almost entirely because of Wal-Mart, which is able to stock many more products in each of its huge stores than most of its competitors. (Costco is also a factor.)

English: Wal-Mart location in Moncton (Photo credit: Wikipedia)

It appears that vertical competition is given way to vertical integration.  Corporations that dominate the grocery market also take control of other areas of the food supply chain including agriculture production.  They dictate what is to be produced based on what is most profitable for them, eventually limiting choices that are available to consumers.  The question is, Are these corporate strategies, ecologically sustainable when utilizing, soil, water, and air?

Whole Foods Market, Interior (Photo credit: Wikipedia)

Whole Foods is in a similar situation with the organic market.  I am hoping that they strive for sustainability and keep true to their words when they say they envision

Businesses will harness human and material resources without devaluing the integrity of the individual or the planet’s ecosystems.

Smucker’s – The King of the Center of the Store?

Smucker’s Goober Grape (Photo credit: El Negro Magnifico)

Recent I had a chance to study  J.M. Smucker Company’s 2011 Expanded business lineup.  Below is one of the questions posed:

What is J. M. Smucker Company’s corporate strategy? What common strategy elements are shared across its brands? Did it make sense for Smucker to expand its business lineup beyond jams, jellies, and preserves? Why or why not?

Their corporate strategy is to own and market the number one food brands in North America.  Their corporate strategy was comprised of three main components:

1. Growing the market share of its existing brands;
2. Introducing new products; and
3. Making strategic acquisitions

The common strategy elements that are shared across its brands is that they are “center-of-the-store” brands.  Smucker’s increased its advertising by 70% to increase market share and sales growth.  They entered into license agreements with Dunkin Donuts branded coffee to allow Smucker’s to sell Dunkin Donuts coffee in supermarkets and agreements with Green Coffee Roasters and Keurig that allowed Smucker’s to sell Folgers Gourmet Selections and Millstone coffees in containers compatible with Keurig machines. They also reduced their manufacturing plants and blended the manufacturing operations of their acquisitions with the operation of various business segments.

It made sense for Smucker’s to expand its business lineup beyond jams, jellies and preserves.  The processed food industry was highly consolidated and with the slower growth rates in the food sector, rapid construction in retail grocery chains and enhanced competition between branded food and private-label, Smucker’s needed to expand to become the leader in its 11 food categories so that it had larger bargaining power for shelf space which in turn would bring more brand awareness.  Their sales increased from $632 million in 2000 to $4.6 billion in 2010.

English: Smuckers sign (Photo credit: Wikipedia)

Whole Foods Market – Foreign Growth?

English: Entrance to offices at Whole Foods Market Headquarters (Photo credit: Wikipedia)

Even though Whole Foods Market  reported $4.2 billion in its first quarter revenue, up 10% from first quarter revenues last year, investors weren’t happy.  Same store sales were up 5.4% and Whole Foods Market ended with $158 million in net income.  Even though this showed growth, they did not hit Wall Street analysts expected earnings.

Whole Foods Market CEO, Walter Robb said “We are very confident in our future growth potential and are moving aggressively to take advantage of that opportunity. Over the longer term, we see demand for 1,200 Whole Foods Market stores in the U.S. alone.”

With that said, I am wondering why Whole Foods Market is not as concerned with its foreign market participation.  My analysis shows that Whole Foods Market’s international sales (they have stores in Canada and the UK) have accounted for 3% of sales since 2011.  One of Whole Foods Market competitors, Safeway, has seen their international sales at 15% for the same periods.  Perhaps Whole Foods Market should seriously consider not only expanding in the U.S., but expand it’s international footprint to capture a larger market share.

Sara Lee – After the split-up

Recently, Crain’s Chicago Business wrote an article about checking in with 10 companies who split-up within the last year – Sara Lee being one of these companies.  Below is an analysis of Sara Lee including some insight into past decisions, why they needed this break-up and recommendations of moving forward.

Courtesy of Sara Lee Corp.

What is Sara Lee’s corporate strategy? How has its retrenchment strategy changed the nature of its business lineup?  Sara Lee’s corporate strategy during Brenda Barnes’s leadership was to divest some of its businesses (a total of 8) that had been targeted as nonstrategic, and retrench to a narrower diversification base.  The strategy is to concentrate on building stronger positions in a smaller number of core businesses and industries.  After selling these businesses they will turn their attention to increasing sales, market share and profitability of its remaining businesses.  The retrenchment strategy changed the nature of its business into a six-division structure built around product similarities, customer types and geographic regions – North American Retail, North American Fresh Baker, North American Foodservice, International Beverage, International Bakery and International Household & Body Care. (As a side note, Sara Lee decided in 2009 to divest the entire International Household & Body Care division) The second phase of Barnes’s plan was to develop three competitive capabilities in all of its remaining businesses – competitive pricing, innovative new products and brand-building capabilities.  Category management and size was also necessary.  Operating excellence was the third element of its corporate strategy.  Operations initiatives included lean manufacturing, centralized purchasing and the implementation of a corporate-wide information systems platform.

2. What is your assessment of the long-term attractiveness of the industries represented in Sara Lee Corp.’s. business portfolio?  Sara Lee is recognized in the foodservice division and its partnership with Sodexho, U.S. Foodservice and national chain restaurants will keep its name recognition and market share even during times when consumers choose to eat at home rather than eating out as many of their food service products are low cost alternatives to eating out.  I agree with Kevin Dreyer’s comments in a Sara Lee video that if Sara Lee can avoid prosecution from patent infringement from Nestle, its L’or espresso brand could good be a new avenue of growth.  There is definite public support and interest in wellness and nutrition and Sara lee’s expected increase to emphasize wellness and nutrition could increase profits in its meat and bakery products.

3. What is your assessment of the competitive strength of Sara Lee Corp.’s different business units?  I think the fact that Sara Lee has smaller divisions should assist it with a better ability to manage.  The fact that they narrowed their focus on a smaller number of global branded consumer packaged-goods segments should allow them to sharpen their business focus.  Their food service division benefited from innovations developed by Sara Lee’s retail divisions since the food service trends mirrored those in the grocery industry – i.e., sliced deli meats.  Lean manufacturing, centralized purchasing and a corporate wide information’s systems platform all enhance Sara Lee’s competitive strength of their business units.

4. What does a 9-cell industry attractiveness/business strength matrix displaying Sara Lee’s business units look like?  The advantages of matrix structures are that they facilitate the sharing of plant and equipment, specialized knowledge and other key resources.

Sara Lee

 Attractiveness/Strength                              

North American Retail                                  Strong                   Strong

North American Fresh Bakery                    Strong                   Strong

North American Foodservice                     Strong                   Weak

International Beverage                                 Strong                   Strong

International Bakery                                      Weak                    Weak

5. Does Sara Lee’s portfolio exhibit good strategic fit? What value-chain match-ups do you see? What opportunities for skills transfer, cost sharing, or brand sharing do you see?  Their portfolio now does exhibit good strategic fit.  Keeping their portfolio more food centered is a good fit as the Sara Lee brand is known for food products, not necessarily household or body care goods.  The value-chain match ups that I see are supply chain management, distribution, operations and sales and marketing.  Dealing mainly with food service, I do not see Service as a primary value chain activity.  By narrowing their product lines, there should be many opportunities for cost sharing, skills transfer and brand sharing especially between the International and North American lines.

6. What is your assessment of Sara Lee’s financial and operating performance in fiscal years 2008-2010, the period following the divestitures that were the core of Sara Lee’s retrenchment strategy?  None of the divisions have yet to show exceeding or even “strong” growth.  North American Food Service and Bakery divisions both posted lower net sales in 2010 compared to 2009 and 2008.  In fact the International Bakery continues to post losses; however, these losses have decreased significantly since 2008.  The North American Retail and International Beverage have shown to be steady with minimal signs of growth.

7. What is your overall evaluation of Sara Lee’s retrenchment plan? What evidence and/or reasons support a conclusion that Sara Lee’s shareholders have or have not benefited from the company’s retrenchment strategy?  The financials do not look good.  They did not make any money off the divestitures so I am wondering what happened with the sale of these divisions and why they did not negotiate better deals to make a profit off the sales.   They need to boost sales in all divisions and strictly watch costs in order to obtain highest net income.  They did not meet their estimated goals and their forecasting is not effective.

8. What actions do you recommend that Sara Lee management take to improve the company’s performance?  and boost shareholder value? Your recommended actions must be supported with convincing, analysis-based arguments.  The divestiture was a good plan but it cost money.  I think Sara Lee has focused quite a bit on improving market share and now they will need to start acquiring businesses to increase that share.  They also should increase their international sales.  Right now they are only in beverages and bakery.  There is great potential in the global market for them to introduce food service products and many of their products from the retail division.  I also think they need to evaluate their forecasting.  Understanding what the market wants is key in their growth.  The fact that they did not understand that Europeans prefer fresh bread over frozen could have easily been calculated using current market data.