business news in context, analysis with attitude

In response to yesterday’s story about Safeway Plc in the UK moving to electronic shelf labels, we got the following missive from MNB user Tim Ouimet, the founder of KhiMetrics. (While it is self-serving and just a wee bit of a commercial, we thought it was worth posting because it makes a valuable point about the technology.)

“Electronic Shelf Labels, when combined with Retail Revenue Management (RRM), price and promotion optimization, will become a powerful medium that enable a retailer to create new price offerings that shift price sensitive demand to hours when the store is slow and provide higher levels of service during peak hours to satisfy time-sensitive shoppers. The same is true of different days of the week. This will not happen overnight.

“The part that is real today is that ESLs remove the friction associated with changing prices. It is generally accepted that the labor and paper associated with re-ticketing a price tag on the shelf edge cost between $0.25 and $0.50 per store. For this reason, many retailers won't pass through to the consumer "sub-nickel" increases or decreases in cost.

“Creating an ROI for ESLs using volume-related Activity Based Costing. Most activity costs are item related and therefore easy to burden directly onto an invoice cost. Other costs, such as re-ticketing costs, are volume-related and need to be factored into the financial modeling process. For example, if a price change is forecasted to increase profit for the next period by $0.20 and it costs $0.25 to re-ticket a price at the shelf, it can be counter-productive to make the change. Re-ticketing costs are generally the most significant activity costs confronting a retailers' pricing process and need to be based on forecasted volume (item-based ABC is not capable of predicting ROI for ESLs).

“In turning on RRM for a new category using a volume-related activity cost of $0.25, we generally see 30% of the category's prices change in the first time period. As a retailer's pricing is evolved from its current to its optimum state, that number will decrease to approximately 10% (note: this can be limited to a retailer's capacity). Our clients are generally experiencing a 5% - 15% improvement in profit and a 1% - 5% improvement in sales using a $0.25 activity cost. It's important to note that the profit is coming from a mix of price increases and decreases. Using a volume-related activity cost of $0.00 (i.e. using ESLs), the optimization engine sees new opportunities to increase sales and profit by changing more prices in response to subtle changes in demand, cost, competition, season, recurring events and a retailer's financial objectives. From this the ROI picture improves. Generally, when we run these numbers, we'll see an additional 0.5% to 3% improvement in both sales and profits by combining ESLs and RRM.

“Another less known value lies in creating better demand data. Price execution lag times and compliance can significantly degrade the quality of demand data. With ESLs, you have a precise record of when a price change was implemented. This enables a Retail Revenue Management solution to more accurately measure the impact a price change had on unit sales movement, providing better information about what shoppers really want. This information can then be used to give shoppers lower prices on the items they want most while offsetting discounts on leader items with incremental margins on other items.”

Responding to an email we posted yesterday on the subject of recycling plastic bags, we got the following email from an MNB user:

“For many Americans, the [recycling] process has to start somewhere – and if it's only thin plastic bags, so be it! Recycling has been around for years and the majority of Americans still will not and do not recycle as much as they could because (and this is just one factor of many) it's not convenient enough - if they have to separate it into different containers rather than one catch-all recycle container, if they have to physically take it to a recycling center rather than have it picked up at the curb, or if they have to rinse food out of cans, bottles,'s just too much work and many recyclables end up tossed out with the rest of the garbage. Reusable bags are an introductory step toward other recycling habits - it's so easy, they don't have to do anything other than bring their [canvas] bags to the store, just like you'd bring a wallet or a purse - and if they are charged for the plastic each time they forget their canvas, I'll bet they will be more apt to remember the canvas on the next shopping trip. I think the bag tax is an excellent start to stir people's awareness and increase their recognition of landfill issues.”

We mentioned the subject of food courts yesterday, and how the food there generally isn’t worth a damn…, which elicited a few responses.

MNB user Bob Richard wrote:

“Try IKEA (Swedish Furniture Stores) Swedish Meatballs......... incredible. My in-laws go to IKEA just for the Swedish Meatballs .... who would of thought a furniture store with ethnic food for an attraction.”

And MNB user Paul Schlossberg wrote:

“When you are next in Paris...go Le Carrousel de Louvre...connect to it from the Louvre lobby area. That is what a food court should be.

Also recall an Auchan super store in Tours, had a nice group of food choices in the entry court leading to the store.”

Gee…Paris or Ikea? Which one should we go to?

Another member of the MNB community chimed in:

“I totally agree with you about the quality of food at the big box food courts and wouldn't stop there for a meal myself. But I am constantly amazed at how busy the small food court at our local Target is and how it seems someone is eating no matter what time of day I go there. And it's not just people grabbing a cup of coffee but families eating meals. In most instances there are kids involved, often multiple kids, so I guess this may be one way to keep them placated while shopping. Although I couldn't contemplate eating there, I do think that it is a good idea and yet another way for a retailer to keep people in the store and differentiate itself.”

We wrote yesterday about price wars breaking out in Texas, and that prompted an email from MNB user Mark Macedonio of Strategic Marketing Consultants:

“With respect to your report of a Texas price war, it is my experience that HEB routinely lowers prices on thousands of items every year or two. They do this in an effort to guarantee their customers that they are the lowest priced and most competitive food retailer in their marketing area. They work with their vendors to achieve this competitive advantage, while insuring that margins are maintained. Therefore, ultimately it is a good thing for consumers. It is just one of many ways HEB builds its brand and rewards its consumers for their loyalty.

“In these hard economic times, I am the most loyal to the retailer who guarantees me the lowest prices, the highest quality, the greatest selection and the most pleasant shopping experience. HEB has its competition beat!”

We referred yesterday to the USDA getting tough on E. coli…, which generated an email from MNB user Al Kober:

“What is meant by the USDA getting tough? More inspections to detect the problem? We all know it is there and won't go away. They can test and test and it will never solve the problem. Getting tough is deciding to implement technology that will get rid of it. Retailers across the country are beginning to take the Bull, so to speak, by the horns and have begun to offer their customers a choice of irradiated ground beef. Is now the time for the USDA to also make a positive move in that direction as a effective solution to the problem?”

And finally, responding to our announcement of an MNB contest that will allow folks to win hats and t-shirts, we got the following email from MNB user Ryan Kane, who asks questions that we never would:

“I like the idea of the MNB contest for free hats and shirts, but here's the ultimate question: When and how can we buy T-shirts and hats? Mugs? Coasters? Pens? Kevin Coupe bobble-head dolls? Bring it on.

“How about a Kevin Coupe doll that has a pull string, and when you give it a tug, you hear any one of the following ten phrases:

1. Hey, don't shoot the messenger, folks!
2. Kmart to emerge from bankruptcy next July?! Ha ha ha ha heee ha hee hee ha! Oh man, that's rich.
3. Wal-Mart's expanding. No big surprise from the "Bentonville Behemoth."
4. Mrs. Content Guy took away my acrylamides!
5. “Bull Durham” IS the best sports movie of all time, hands down!
6. I ran into Charlton Heston the other day . . . he was pheasant hunting with Kim du Toit!
7. Phil Lempert ruuuuuuuules!
8. I was in Krispy Kreme and PETA took away my bear claw.
9. 4 hours sleep + 6 cups of coffee + 20 phone calls plus countless e-mails = your morningnewsbeat.
10. (and of course) Big ideas for thought leaders.

Ryan, we think you have too much time on your hands.

But we like it.

Have a great weekend.
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