business news in context, analysis with attitude

Got a number of emails last week from MNB users who questioned our coverage and conclusions regarding a story out of Pennsylvania…
The Philadelphia Inquirer reported that the Pennsylvania Department of Agriculture has ruled that the state’s retailers and milk processors cannot label dairy products as not being from cows treated with artificial growth hormones.

According to the story, the state’s change in labeling guidelines “is part of a broader effort … to crack down on labels that highlight what is not in a product, such as ‘antibiotic-free’ and ‘pesticide-free’.” State officials say that “the problem with the claim that cows are not treated with synthetic hormones is that there is no way to distinguish between the natural growth hormone in milk and the artificial version,” the Inquirer writes.

One company surprised by the announcement by c-store chain Wawa, which, the paper writes, “just last week joined the rush of retailers and milk processors that say their milk will not be produced with the aid of artificial growth hormones, which are used to boost production … Wawa's label says that the farmers it buys raw milk from have pledged not to use rBST, or recombinant bovine somatotropin.”

My view was that this was not smart regulation:

Just because federal and state officials say there is no difference between milk from cows that have taken artificial growth hormones and those that have not, I don't think that consumers should be denied this sort of information. People who take words like “natural” and “organic” seriously ought to be able to find out if the cows producing their milk are on artificial “juice,” and it seems completely unreasonable to deny them that information.

This strikes me as the same sort of logic that forbids meat processors from running their own, government-approved tests for mad cow disease and then labeling their products “certified BSE-free.”

Just who gets protected by such rulings? Certainly not the consumer…

One MNB user wrote:

I appreciated your comments on the changes made by the PA Dept of Ag regarding the claim of bst free milk. Through the late eighties and mid nineties I managed a cultured dairy processing plant in PA which also coincided with the roll out of Monsanto's bst products. The issue then and now with a bst free claim is that bst from what I recall is a naturally existing hormone in cows and that there is no test that can distinguish between natural and supplement bst. How can a dairy farmer or processor validate the claim?

I have been away from the dairy business for four years so there may be new developments but I don't believe the intent was to indicate whether bst was good or not but to provide confidence to the consumer that what is stated on the label is indeed truthful and not an assumed or an implied truth. Having said this I am sure the effort to get this change implemented was supported by the major co-ops and large independent producers and processors and not organic or all natural groups. But still the reality is how can you say something is not being used when you can't test for it. A sincere promise when dollars are involved no longer seems to stand the test of time.

MNB user Amy Buttery wrote:

I too found it weird and counterintuitive that milk producers cannot label their milk as free of BGH. But I read the article you quoted a little differently. You quoted it as saying:

State officials say that “the problem with the claim that cows are not treated with synthetic hormones is that there is no way to distinguish between the natural growth hormone in milk and the artificial version,” the Inquirer writes.

Then in your comments you say “state officials say there is no difference between milk from cows that have taken artificial growth hormones and those that have not.” I think you’ve made a leap here. I believe they are saying that there’s no way to TEST for the difference, thus no way to (easily) verify the claims. In other words, every manufacturer could use the same “BGH-free” claim on its label and state health officials couldn’t assure the public that the claims are true and verifiable. Maybe the officials don’t think there’s any difference, but that’s not what they said.

And although I’m in favor of transparency, I do make a distinction between food labels that inform and those that manipulate the shopper’s ignorance. I recently saw a bag of marshmallows labeled “fat-free” (marshmallows are all fat-free as far as I know—they’re pure sugar, so these were no different than other brands on the shelf) and I’ve overheard shoppers saying “ooh, I want that fat-free kind of marshmallows.” I suppose that’s just good marketing, but it plays on the ignorance of shoppers rather than informing them. It’s possible that the state officials, in refusing to allow labels based on what’s NOT in products, are in part reacting to this trend. The problem, of course, is that most people are still relatively unaware of BGH in milk but would care about it if they knew more, so labeling milk as BGH-free—if it can be verified—would constitute transparency and information rather than any kind of manipulation.

Another MNB user wrote:

I think you may have missed a key point. The story says “there is no way to distinguish between the natural growth hormone in milk and the artificial version” therefore if the labeling was allowed there would be no test in the world that could determine if the label were valid. Consumers could not be confident that the milk they were buying was actually artificial hormone free.

Another MNB user, however, saw things somewhat differently:

So, will PA efforts "to crack down on labels that highlight what is not in a product" also include removing "unleaded" from gasoline communications? Granted you could argue that "unleaded" has a functional purpose in the communication, but for me, so does "rBGH-free".

Also got a lot of criticism for a piece on Friday about Winn-Dixie. MNB reported on a Forbes piece saying that Winn-Dixie seems to be doing much better in New Orleans even if it still is having problems in Florida (where the bulk of its stores are). And, Forbes quoted Burt Flickinger III of Strategic Resource Group, a New York-based supermarket consultancy, as being dubious of Winn-Dixie’s long-term prospects: “Winn-Dixie's turnaround would have brighter prospects if it had begun it a year or two earlier, but Florida's troubled economy will drive shoppers to bigger chains with the resources to charge lower prices for meat and produce of the same or better quality,” he said.

My comment was simple: As usual, Burt Flickinger finds exactly the right words to describe the Winn-Dixie conundrum. The retailer may have been able to use one disaster to revive its fortunes in one place…but it may be facing a much bigger and unavoidable disaster down the road.

MNB user Roby McNeely, who identified himself as a longtime Winn-Dixie employee, expressed his disgust with the coverage:

I have sat here long enough and let you and the people who write to you slam my Company and our CEO. I have been with Winn-Dixie almost 30 years and we are in the best shape of my career. Peter Lynch has been the best thing that has happened to Winn-Dixie in a long time. His attitude towards the associates at retail and the way he treats us here at headquarters makes us want to stand up and be proud that we work for Winn-Dixie. I can honestly say it has been 10 years since I have been able to feel this good about our company.

We are making strides everyday to remodel all of our stores and we are not going away! We are improving all facets of our operations and we are seeing the results. So everyone, including you, will just have to get over it. We have been here a long time and we are not going to let anyone put us down.

I try to make it a policy never to argue with that kind of passion.

And another MNB user wrote:

I know you’re not a fan of Winn-Dixie, which is why I'm not surprised at all that you posted a non-positive outlook. However I looked up that Forbes article (which is actually by the Associated Press) and I read in that one of Winn-Dixie's problems is that shoppers are still unaware of recent improvements and "are still driving past Winn-Dixie locations to get to competitors like Publix and Wal-Mart". I think you are in that category. When was the last time you were in any Winn-Dixie? Have you been inside a remodeled Winn-Dixie? If not, then it's people like you that have been scared by Winn Dixie in the past (and I will admit there was a time when the company was a bad operator not long ago) to give them a second chance.

Yes, winning one battle doesn't win the war. Yes, there is still a lot of work ahead of Winn-Dixie with Florida's troubled economy not helping things. Yes, both you and the AP article bring up very good points, but the Peter Lynch and his team can only do so much. You and others out there have to give them a chance.

And as for your long standing love of Delhaize, I point out to you that not only is Sweetbay still #3 in the Tampa behind Wal-Mart and Publix, but their turnaround is still on-going and they have hit some trouble.

P.S. Florida is going into a recession, not a depression, there's a difference. Both Winn Dixie AND Sweetbay could resurface as dominate players in Florida (it's a huge long shot, but anything can happen).

And MNB user Jimmy Ducey wrote:

If you've ever driven any of the back roads in the South you're bound to have come across a bumper sticker that read "We don't care how you did it up North".

Well that's kinda how I feel every time I read something a "New York Analyst" wrote about business in the Deep South. I remember one of those New York analysts saying that Katrina would be the death of Winn-Dixie, the end of a once proud Southern Grocer.

Well that statement couldn't have been further from the truth.

I agree that the economy will affect Grocers in Florida but that means Publix, Sweet Bay, Albertsons and Independents as well, not just Winn-Dixie.

While Publix is a VERY good grocer it is ramping up its expansion efforts. As for the rest of the list they have their own issues.

Who's to say Winn-Dixie couldn't use Publix's expansion plans outside of the state as an advantage in Florida just like it used Katrina in New Orleans.

Definitely not apples to apples but you get my point.

Speaking of apples, I'll bet the farm that Burt Flickinger III has never bought any at Winn-Dixie.

Come on, did analysts really believe Winn-Dixie would move ahead of Publix and Wal-Mart in Florida one year out of bankruptcy?

If that's true, tell those boys to come on down, we've got more than groceries we want to sell 'em when they get here.

Let's be fair when judging Winn-Dixie. It has made tremendous strides as a retailer. Mainly because it has quit listening to the analysts and started listening to the customer.

Wow, that sounds like something you would say, Kevin. I guess you can count me a disciple.

As not just a Northerner, but one who was born in New York City and lives in New England, I am humbled.

I also was a little skeptical about announced plans for Giant of Landover to overhaul about 100 of its stores over the next three years. In this case, one MNB user agreed with me:

Like you, Giant's announcement does not impress me. Sounds remarkably like what has been heralded in the past few years...perhaps not "100 stores" but certainly breaking with the news of a significant number of planned major remodels/replacements. So?

Don't you wonder if anyone really analyzes the impact of an initiative like this? So much money is poured into the project but can/does anyone honestly attempt to evaluate the results? Perhaps no one wants to face the possibility of finding out that someone's great idea, for which committees and focus groups have been marshaled, may not have produced the desired results. It happens - I daresay many experiments fail but that's how good companies learn and move on. And when you pile multiple new programs one on top of another, no one can sort out what has worked or not - if you're in the midst of a big price reduction program, can you measure the return on a remodel? It's amazing that retailers still believe that sprucing up a facility will address all of the issues when the numbers aren't being attained. What about analyzing assortment, addressing staffer training/morale, improving marketing and customer relations? Yes, these are more complicated and require a depth of knowledge and commitment and entail many unknowns that make designing and constructing yet another store look formulaic. But if you ask your customers (novel concept, I know) why they come into a store, is their first response "love the fixtures"? It borders on disrespecting your customers to think they will be seduced by a pretty store - once they step inside and are disappointed by the service, prices, out-of stocks, assortment, quality, whatever - it's doubtful that they'll come back. Changing the day the ad breaks, building new stores, and lowering some prices all at the same time have the scent of desperation.

Word to Giant - it's been said many times before - pick one thing, devote your resources to it, be great at it, communicate it clearly to staffers and customers, and let everything else support that vision. Try and if it doesn't work, find out why and move on. No one can be all things to all customers anymore.

Another MNB user wrote:

Interesting to read about Giant attempting to overhaul stores, reducing prices, etc. to try to regain shoppers…I deal with some of their decision makers on a regular basis ( we provide them produce) and not once in four years has any conversation had to deal with quality, flavor or value to the consumer. It's all about price, price, price and ad fees and accrual programs. If these guys spent half the time they did focused on buying and re-focused on selling they would be in a much better place.

Dinosaurs are making the real decisions that affect the shopping experience at Giant.

Also got a very interesting email on this subject from MNB user Julia Stewart Daly:

Your coverage today of Apple’s associate training and Giant’s overhaul plans struck me as being variations on a theme. In your coverage of Giant’s plans to overhaul stores in an effort to re-connect with customers, I didn’t see anything about associate training – but nor was I surprised. Contrast that with Apple’s commitment to associate training that you also wrote about today. Giant doesn’t seem to grasp the primary reason why at least this customer has fled its stores after 20 years: nonexistent customer connection and service. Most Giant associates go out of their way to avoid customer contact – once you get past the customer service desk, good luck getting one to make eye contact much less greet you or offer assistance. The only Giant associates who interact with me are the ones I took the effort to cultivate, and even that took some doing. I’ve fled to Wegmans and Bloom, Wegmans for its encyclopedically knowledgeable, helpful associates and broad variety, and Bloom for its small, easy-to shop footprint. When I have lots of time I shop Wegmans, when I don’t I go to Bloom. Pretty stores won’t solve Giant’s problem, what will is taking care of its associates so they will take care of the customers.

Which leads us to Apple.

MNB noted on Friday that the new Fast Company has an excerpt from Alex Frankel’s new book about his experiences working in retail. By far, Frankel writes, the best experience he had was working at the Apple Store.

But not everybody is as enthused about Apple these days.

One MNB user wrote:

I dare say the bloom is off the Apple blossom. It seems to me the “legions of devoted Apple enthusiasts” have thinned appreciably. Perhaps it’s the company’s recent high profiles faux pas about discount pricing and its approach to the unauthorized unlocking of iPhones.

As far as the personnel in the Apple Stores—the problem is mathematical. The number of Apple retail outlets increased exponentially while the number of retail ready Apple devotees did not. Yes, once upon a time they represented the gold standard of retail employees: knowledgeable, friendly and efficient. But no longer. (American Eagle is one retail chain that continues to impress me with quality and training of their retail staff.)

Apple, like Google and Starbucks, is adept at riding the long tail of a stellar brand.

And another MNB user wrote:

An Apple fan boy landed a job with Apple retail. The difference between Apple users and the workers at the retail store? One drinks the Apple kool aid while the other bathes in it.

Cupertino tells its employees only what they need to know and nothing else. The Apple retail employees have no idea what products Steve Jobs will announce at the next Apple cult gathering. If you want to know what the future hardware and software, then read the Apple rumor web sites. They contain more accurate information then all the Apple retail employees put together.

Apple does a horrible job of listening to its customers. Most of the time, Apple appears, at best, to take its customers for granted. Its tabletop computers are horrible. The battery generates sufficient heat to burn the computer. The cases crack constantly.

If Apple's employees are not information sharers, and its service is lousy (see Oct. 22 issue of BusinessWeek), then what is Apple's secret sauce for success? Lawyers.

Apple's legal team will drop the hammer of a lawsuit on anyone who tries to install Macintosh OS on anything other than a Apple built computer. Contrast that with Microsoft's attitude. Of course, I write that statement while legal copy of Windows XP runs in the background on my MacBook.

I find it fascinating how some people take such umbrage at those of us who love Apple products and have a great deal of loyalty for the company. I have a brother like that – like this MNB user, he thinks we are all victims of a cult mentality, and actually gets sort of irritated about it. Which I sort of find funny.

First of all, I’m not sure it is fair or accurate to say that the legions of Apple enthusiasts has thinned appreciably. The fact is that our numbers are growing, which is why Apple’s sales keep growing. And from my personal point of view, I’ve never been dissatisfied with the service offered to me by the company (and I own two Mac laptops, three iPods, Apple TV and an iPhone…and that doesn’t count all the various Mac products owned by Mrs. Content Guy and the Content Kids).

(Also, I will take exception to the suggestion that Apple’s “tabletop computers are horrible. The battery generates sufficient heat to burn the computer. The cases crack constantly.” I have used Mac laptops and desktop computers exclusively for almost two decades, and none of those things have happened to me. Not only that, but I once accidentally had a Mac laptop fall out of my backpack in an airport and crash to the hard cement floor. Not only didn’t the case or screen crack, but the computer worked until I finally replaced it with a new model.)

That said, it also is fair to suggest that all Apple’s success may be straining the company’s cultural priorities. Mrs. Content Guy was in a Best Buy over the weekend, where they have installed a small Apple Store manned by an Apple employee…and she was pretty much appalled by his attitude and approach. These kinds of instances will happen more and more as the company grows, and maintaining both discipline and attitude will be an enormous challenge. I’m not sure how big a company can grow by being anti-establishment…and at some point, a company has to make a choice. Do we stay a niche provider with an attitude? Or do we risk everything by taking the next step?

It wasn't that long ago that many Mac users wondered if the company we loved would go out of business because it simply couldn’t sell enough computers to stay viable. For many of us, the new success of Apple is a mixed blessing. It may not be the company we used to love, but at least it remains in business, strong and getting stronger, and still making elegant products with enormous appeal.

Will Apple make missteps? Of course. Every company does. The bad ones wither from a kind of creative and fear-driven paralysis. The good ones learn from them, and aren’t afraid of mistakes. One can criticize the iPhone pricing debacle. I prefer to think that they screwed up and tried to fix it. And while I would have preferred to have my choice of cell phone services when I got the iPhone, I’m not smart enough to second-guess Steve Jobs on this one. The phone works, and it is wonderful. Apple wants to control the software on it? Good enough for me.

The issue of cultural priorities hardly is unique to Apple. I know an independent grocer who has told me that his biggest challenge as the company grows is to establish certain disciplines without losing the company’s core values and ability to innovate. I’d guess that many of the companies that I admire – such as Apple and Amazon and Starbucks – deal with these issues on an ongoing basis. But they deal with it. The great companies understand the issue and confront it head-on. Which is one of the things that make them great.

Finally, I made a crack on Friday about National League (non-designated hitter) baseball being a “purer, superior version” of the sport.

Which led MNB user Kevin P. Nolan to write:

Referring to anything in baseball as “pure” is like suggesting that Madonna should wear white to her next wedding!

Point taken.

KC's View: