BrandWatch by Michel Gutsatz

The future of retailing is at Carrefour Planet

Carrefour has just opened its new Planet concept in two of its stores in Lyon. I would like to take this occasion to analyze the essential elements of the concept - which will fundamentally change the very notion of a hypermarket: the increase in the number of brand shop-in-shops.
Two brands have entered with force: Apple, with a space selling the iPod and Mac, and Virgin with a cultural space. In both cases, Carrefour has drawn conclusions from its relative disappointment in essential non-food categories. I would summarize its reasoning in five points:

1. The future development of hypermarket sales will come about through non-food - the categories that are not the core business of supermarkets.
2. These are categories in which large specialty stores (Sephora in beauty / Decathlon in sporting goods / Leroy Merlin in DIY ...) have carved out very strong positions, and against which the large supermarket retailers have been impotent up to now. 
3. These are also categories where national brands could remain very strong (such as in beauty, fashion or electronics).
4. Carrefour has therefore drawn the obvious conclusion:  They must ally with the strongest national brands to re-invigorate entire shelf spaces… and attract a flow of customers.  What we are seeing is a real cultural reversal (at least in France): making the national brand a true partner, and not an adversary.
5. The cultural sector is a special case: Carrefour noticed the development of the Cultural Spaces at Leclerc and failed to duplicate them. The company was therefore obliged to join forces ... with a specialized retailer!  This is another cultural rupture: a distributor installs its brand in the midst of the shelves of another distributor!

The French supermarkets have reached a new turning point: the powerful national brands, and the specialized retailers that were until today confined to shopping malls, now enter the hypermarket.  In a certain manner the new model is a combination of the traditional supermarket and a department store.  Supermarkets will gradually become renters of commercial space in their stores, and entrust their partners with the management of their own floor space (stocks, personnel).  Consumers and brands will find this really advantageous: several of my clients, who "reclaimed" spaces previously managed by department stores, have greatly increased their sales by optimizing their replenishment, responsiveness and service levels. In this new model - which is also being implemented in the USA (Sephora at JC Penney and CVS Boots at Target and CVS...) - each partner finds its advantages, in terms of image, as well as traffic and sales. This can only spread to other categories: When will we find an H&M shop-in-shop at Carrefour Planet?

 

Belorigine: Danone goes "local"

In April, Danone launched a new brand of fresh products, but only in the Belgian market: Belorigine. It is, in my view, an important innovation that is worth analyzing. Belorigine is a range of yoghurts and milk-based desserts that have adopted local flavours (speculoos, Belgian chocolate, Liege syrup, cherry) and manufactured in Belgium (www.belorigine.be).
Belorigine is a real anti-private-label weapon, based on two strong consumer trends that we have already discussed on BrandWatch (particularly in my analysis of Eataly):

• The desire to find local or regional brands – specializing in specialties and particular tastes ... with a strong sentimental dimension;
• The appeal of locally manufactured products (the "locavore" trend).

More than this, Belorigine has been given prominence in supermarkets with stands carrying the signature of the brand that present the entire range: one wonders whether this initiative concerns only the launch (as was the case with Essensis) or a true innovation accepted by distributors. Will we soon see brands taking floor space in supermarkets?

 

 

 

 

Brand and advertising: the Chipotle case

Chipotle is an American fast food chain, specializing in burritos, owned by McDonald's since 2000.  In 2010 its 976 restaurants generated an annual turnover of $ 1,574 million (for the year ending March 31), almost doubling over 4 years with a pre-tax margin of 14.2%.
Chipotle represents a very interesting case of disconnection between the values of the brand and the messages conveyed in its advertising – an inconsistency that stopped earlier this year. Chipotle's vision lies in its slogan: "Food with Integrity".  Wishing to change the dominantly fast food concept, Chipotle's founder (in 1993), Steve Ells, introduced an innovative offer in terms of ingredients and manufacturing: "demonstrate that food served fast doesn’t have to be a traditional “fast-food” experience".

• All the pork, chicken and 60% of the beef used in its restaurants are from animals raised in their natural habitat.
• All the meat is guaranteed free of antibiotics and hormones; the animals are reared without using food of animal origin.
• Each of the restaurants have to meet a target of 35% of products of local origin.
• Emphasis is placed on ingredients derived from organic farming (40% of beans for example).
• Most of the dishes on the menu are made on the spot, and not pre-prepared.

Traditionally Chipotle's advertisements highlighted, with a touch of humour ... the size of their burritos. These ads disappeared this year, much to the disappointment of fans of the brand, who have even complained on the internet.

Chipotle decided to rethink its marketing strategy, creating a post of Marketing Director and launching a communications campaign highlighting its vision of "Food with Integrity". The burritos disappeared!  Instead, we find a discourse on hormone-free meat, ingredients, farmers ...

There is reason to wonder whether this campaign, created in-house, will last beyond one season. Even if we find here a theme that closely resembles the new Domino's Pizza strategy (which I detailed in my post of July 11), that of a meta-discourse, we are far removed from the two fundamental elements of the brand's message: humour, and huge burritos (which highlighted the quantity/price ratio).

This campaign is too intellectual - even if it puts forward the vision of the brand. One could have imagined other themes - more consistent with the brand and its usual message – as we find in some previous campaigns...
Chipotle was much more inspired when the question of packaging came up, and recognized that this medium of communication was totally underutilized: Indeed, the new packs provide all the information that consumers can expect in terms of know-how, commitment, local production... and therefore "Food with Integrity"!  I think that a brand should coordinate the various media of communication it employs - and they should certainly not all convey the same message.

 

 

 

 

 

 

Starbucks has 11 million fans on Facebook!

Starbucks is the No. 1 brand on Facebook, with 11 million fans. How did it happen? It is a strategy that Howard Schultz, its CEO, has just explained in the latest issue of the Harvard Business Review (July-August 2010) under the revealing title "We Had to Own the Mistakes".
In 2008, when he was recalled to lead the company facing difficulties, he found himself with a problem for which he was unprepared: a crisis on the Internet. "I woke up one day and went to my desk, and I had 75 to 100 e-mails and phone calls about an issue I had never heard of. There was a sensational story in the Sun, in London, that Starbucks was wasting water through something called the 'dipper well' (....) The lesson was that the world had changed. Something that had happened in London had created a worldwide story that positioned Starbucks with venom and disrespect. And we didn't know how to respond."
Starbucks drew two key lessons from it:

1. In the new world around us, we should not set up a tool, but adopt a new way of behaving.
2. A brand should be proactive in order to become a source of trust and not just a seller of products or ideas.

This has led Starbucks to develop a real Internet and social media strategy - comprising a method, a language, tactics and tools...

• A website, mystarbucksidea.com, helps to gather suggestions and ideas from customers - in terms of products, experience, service, commitment of the brand. These are discussed, shared and implemented. The brand also accepts that its customers tell it where it went wrong, and to acknowledge it: the brand becomes more "open and vulnerable."
• The Facebook page also keeps contact - and maintains a dialogue with customers.
• A partnership with Foursquare is underway to test a "customer rewards system: clients that access a café ("checking in") using Foursquare (a programme of geo-location and contact among friends) earn points on their loyalty card and personalized gifts (according to The New York Times)
• It has developed highly innovative iPhone applications: the first one (MyStarbucks), helps one find the nearest Starbucks, provides information on coffee in the world as well as nutritional information / the second, (Starbucks Mobile Card) allows customers to manage their loyalty card themselves AND use it as a means of payment. 
 

  
   
  


The results are evident (11 million fans!!). Howard Schultz believes that Starbucks has, not only a far lower cost for acquiring new customers than most other brands, but also its operational culture has changed: "it has changed our go-to-market strategy - how we communicate, unveil, and innovate, and ultimately how we arrive in the marketplace"

The repositioning of Domino's Pizza

In little over a year Domino's Pizza has done a rethink on its products, its communication AND broken out of the "pizza" category codes. A review - in pictures - of an amazing story that deserves reflection.
April 2009: The management of Domino's discovered to their amazement that there was a video on YouTube made by two employees of one of its stores, where you see them boasting about doing nothing or "enhancing" a pizza to be delivered with pieces of cheese previously stuck into their noses (among other amusements...). The video was viewed by more than one million Internet users.
The Chairman of Domino's Pizza immediately reacted and posted a video himself – apologizing to clients and reiterating that, "There is nothing more sacred to us than our customer's trust ... We work to regain your trust".

The brand could have stopped there and tell itself that it had overcome a crisis.  But a public commitment had been made: to regain the confidence of its consumers. It therefore started an effort that goes well beyond hiring procedures, cleanliness of the premises or crisis communication. It thus brought together "focus groups" to understand whether the relationship of trust still existed. Disaster: the consumers surveyed questioned the products, their quality, their taste. The real breach of trust was elsewhere - especially when, in the video in question, the Chairman of Domino's Pizza said: "We take tremendous pride in crafting delicious food".

The brand has decided to rethink its products completely: its ingredients, its formulas, its processes ... and make it known. This has led it to two fundamental ruptures:

• A rupture with regard to communication: it depicts the negative reactions of its consumers and the actions taken to remedy the situation. It therefore shows transparency - one of the core values of the new "Age of Responsibility" in which we have just entered. 

  
• A rupture with the codes of the profession: the brand (exactly as Dove has been doing in its "Campaign for Real Beauty" through the film "Evolution") shows the reverse side of wonderful advertisements for pizza.  Mannequin's hands, pizzas screwed on to make the portion shown stand out better, preheating to melt the cheese perfectly, spotlights and lights, 120 people mobilized ... all this to, in the end, say nothing about the taste of the product.
  

Domino's Pizza then invested the web in order to establish a direct relationship with its consumers:

• A real crowdsourcing operation – in order to place consumers at the heart of the brand: "We use YOUR pizza pictures in our advertising...."
• The creation of mini-sites, to accompany all these initiatives: www.pizzaturnaround.com to illustrate the repositioning of the brand / www.pizzaholdouts.com to help develop their taste / www.showusyourpizza.com to persuade clients to participate in brand communication.

The results are out: Domino's Pizza saw its sales and margins increase. Unlike some sceptical analyses (see brandchannel.com "Is The Domino's Rebrand Too Honest?"), I see in this example a superb example of strategic success: the brand adopted two core values of the Age of Responsibility - Commitment and Transparency (Note: contact me if you want more information). It has truly reinvented itself and its consumers are really thankful.

Marketing vs. Michael Pollan: 1-1

For over 20 years, Michael Pollan has been carrying out the passionate work of deconstruction of food industry abuses, and their consequences in matters of health and nutrition. He sees himself as a defender of "real foods", and critic of "food-like products".  The defenders of organic and natural, the "Locavores", the proponents of "slow food" are among his most assiduous readers. Now he has a new category of readers: marketers of food brands.

In his book "In Defense of Food: the Myth of Nutrition and the Pleasures of Eating" (2008), Michael Pollan warns us: "Avoid food products containing ingredients That are a) Unfamiliar b) unpronounceable c) more than 5 in number, or that include d) high-fructose corn syrup". Marketers of several brands have taken it literally. Here are three examples:
Häagen-Dasz launched a new range of ice cream, "FIVE" in 2009: "All-natural ice cream crafted with only five ingredients for incredibly clean, balanced flavour and ... Surprisingly less fat!". A huge success, it already represents approximately 10% of sales of the brand.
 


Let's look more closely at the nutrition claims for this range of ice cream.

• The first point is clear: the five ingredients are presented on the front of the pack - and not in an incomprehensible table on the back of the packaging.
• The nine varieties are mono-products (vanilla, caramel, lemon, mint, etc.). The brand has therefore taken precautions against introducing complexes combinations such as "Banana Split" or "Caramel Cone", which contain up to 17 ingredients, some "unpronounceable" and including "corn syrup". 

  
  
  
• Four of the varieties are actually a reformulation of the traditional range of the ice-cream brand (chocolate, vanilla, strawberry, coffee) – already made from ... 5 ingredients! 
 
 

  
  
  
  
• The essential difference lies in the efforts made on the fat content - hence the calorie content - of the ice cream. The vanilla ice cream therefore was brought down from 290 to 220 calories, and total fat content from 27% to 17%.

Frito Lay calls attention to its Classic Potato Chips - by advertising the fact that they are composed of just "three simple ingredients: potatoes, natural oil and a pinch of salt" ... one can even enter a code found on the packaging on their website and identify the producer of the potatoes.

Pillsbury offers a new range of cookie dough 'Simply' - using "recognizable" ingredients and the manufacturing process "just like home-cooking".

What can we learn from these recent examples (there are others such as Starbucks, Campbell, Kraft ...)?

Hong Kong has become the third most expensive city in the world for retail

"Out of China...."

It is with pleasure that I welcome Laurence Ouaknine on BrandWatch. Laurence is the creator of "Au Coeur du Luxe" ("At the Heart Of Luxury"), a company specializing in luxury brand retail based in Paris, Hong Kong and Shanghai. "Au Coeur du Luxe" is one of the partners of The Scriptorium Company - and an important associate for the Asian market.

According to CBRE's latest report published this month, Hong Kong has become the third most expensive city for renting retail space at 974 US$ / m2 a year. New York still ranks first with the most expensive rental rates at 1,725 US$ / m2 a year, followed by Sydney at 1,155 US$ / m2 per year.
Last year, the rents in malls climbed 250% (from 250HK$ to 625HK$ / m2). The record was reached in Causeway Bay in street-level shops, where the price reached a high of 1.800 HK$ / m2 a month. The challenge for luxury brands coveting space in the most dynamic areas in Hong Kong, like Tsim Sha Tsui, Central, or Causeway Bay consists of firstly, being able to find it, and then making it profitable.

Hong Kong is still the most attractive Asian city for luxury brands; 90% of them have been implanted there. This momentum should continue, driven by the number of Chinese tourists who have made Hong Kong their primary tourist destination.
New initiatives flourish in order to attract consumers, who are already in demand. This can be seen in the latest sensory marketing animation currently displayed at the busy Causeway Bay station: when the subway rouses the senses of users.

The subway corridors are generally uninteresting; they are just a series of underground tunnels through which a flow of passengers transit daily, often in a hurry to get out.   

Nevertheless, a brand selling instant noodles decided to make these unloved alleys more attractive by providing users with very appetizing advertising. With their giant stickers, the underground corridors are suddenly transformed into a real supermarket display piled high with the famous noodles and its whole range of flavours.

While you pass by the shelf, you hear the sound of soup being slurped down, followed by the smell of chicken. We find ourselves, not in the subway, but as though transported to a restaurant, at least until the end of the corridor!
The animation is really surprising; it attracts the attention of adults and particularly influences children who certainly will ask parents for the noodles they see, especially if mealtime is near. The sight, smell and hearing of users are attracted, promoting impulse buying, and which is meant to satisfy the five senses, including that of taste.
Poly-sensory marketing is still rare, but is proving to be very successful with young targets, like children. As the subway is an enclosed area, with a high footfall rate it is propitious for this kind of promotion - that one expects will be amplified in the coming years.

Health Allegations: Kellogg and Others

April 2009: The FTC (Federal Trade Commission) pulled up Kellogg (see decision here), which had proclaimed, on its packaging and in its advertisements, that its "Frosted Mini Wheats" cereal was "clinically shown to Improve kids' attentiveness by Nearly 20%".  Although only 11% of the children involved in the study in question showed a 20% improvement in concentration as claimed...

May 2009: FDA bans General Mills from claiming that their Cheerios lowers the rate of cholesterol (see the article in the WSJ blog).
November 2009: Kellogg is obliged to delete the claim that cereals build the immune defence system of children from its Cocoa Krispies packaging (see my post of November 7, 2009).
June 2010: FTC prohibits Kellogg from claiming that its Rice Crispies has health benefits...
 ... and the company decides, in order to settle this dispute, to avoid asserting the benefits relating to, "cognitive health, process or function provided by any cereal or any morning food or snack food", except if these claims were scientifically validated.

Actimel UK: Of course, this might lead us to think that all these examples only concern the U.S. - and that the new European regulations regarding health claims and nutrition claims will protect us from these marketing excesses. However, one of the major consequences of these issues was the withdrawal of Danone's Actimel and Activia files last April. Danone had also been targeted last October by the Advertising Standards Authority (UK) that banned an Actimel advertisement, stating that the health benefits claimed for the product had not been proven.

However, the most serious indirect consequences lie elsewhere: consumers lose confidence in brands, in advertisements and in their "green", "health" or "nutrition" claims (see the paper presented at the Sustainable Brands Conference 2010). By resorting to greenwashing and claims that are misleading, brands are merely feathering the nests of private brands.

The Rationalization of Product Ranges: the American Debate

At the end of 2008, Walmart announced the launch of a three-year growth plan, "Project Impact", one aspect of which was setting up a new merchandizing strategy, 'Win, Play, Show":

• Strengthen the categories "Win" and "Play" (major categories and those with high potential), by increasing the range and improving the visual display of the shelves.
• Maintain the category "Show" (low importance and reduced potential) - and whenever possible, rationalize the assortment... in other words, reduce it.

The debate on "SKU Rationalization" was launched. Walmart was pleased with the results: "Our 'win, play, show' merchandising strategy has resulted in greater clarity of our offerings across the entire store and therefore cleaner assortments. We will continue to accrue benefits from 'win, play, show', strategy this year". (Eduardo Castro-Wright, Vice Chairman, Wal-Mart Stores, Inc.)... and announced reductions in the number of references of as much as 18% in some categories. This is reflected by both a net reduction in varieties, and for the first time, by the disappearance of entire ranges of products. U.S. retailers have put forward the fact that increasing the ranges and new product lines did not create any value - and therefore unlisted them in order to increase the productivity of their shelves. After Walmart, most of the other distributors did the same: Kroger created a similar programme with dunnhumby, Walgreen launched its "Customer Centric Retail Program".

This movement was accompanied ... by the development of their own private brands: Walmart thus unlisted the Glad and Hefty packaging products and replaced them with the Great Value references. The reasoning is simple: "I un-list brands that are non-leaders - keeping the two or three most important brands for the most part... and I replace them with a private label".
The results were diverse - and largely depended on the category:

• Wal-Mart just announced they were reintroducing 300 to 400 grocery references: "There were some examples when we thought we could take a product out of the assortment and the consumer would substitute something [else], and We made a mistake...".
• Giant Food Stores (a subsidiary of Ahold) have made public some of the results of the experiment they conducted on 20 categories since 2009: in frozen vegetables (where they reduced the selection by 13% - from 217 to 188) sales stagnated in value but the margin, sales volume, and number of customers increased / cooked chicken (which was reduced from 69 to 63 references) saw increases in value, volume, margin and number of customers / on the contrary, the fruit juice category yielded poor results.
• A recent study by Nielsen ("Too Much Choice and Variety: Assortment Realities") shows that in 2009 the market share of private labels increased at the expense of entry-level national brands and new products; "premium" national brands remained stable.
  
  

I am convinced that the process of rationalization of product ranges is just beginning and will spill over U.S. boundaries:

• Retailers will learn how to manage their references better and will gradually reduce the number – by fine-tuning their market tests.
• They will use the opportunity to durably install their private labels.
• The secondary national brands, variants like the "me too" ranges without real added value will be the first victims of this rationalization.
• The leading national brands have already reacted on seeing the opportunity that this movement offers them - and their flagship products: "We're pushing it because it will make room for our power items that are out-of-stock all the time and have to be continuously replenished, and we're trimming our own portfolios and seeing productivity enhancements". (Survey conducted by Bishop Willard among vice presidents of sales in 25 companies).

A&P's Private Brand Strategy

In less than three years, The Great Atlantic & Pacific Tea Co., a distributor in northeast America, has completely revamped its private brand strategy (see Store Brands Decisions for the complete document). It deserves a detailed analysis.

1. A&P has 435 stores, with four different formats (and 6 store names): Fresh (A&P, Waldbaums, Superfresh) / Gourmet (The Food Emporium) / Discount (Food Basics) / Price Impact (Pathmark). The choice of private brands was made by adapting to the format, the ensign, the store itself and the profile of its catchment area - in a completely flexible manner: "We don't change the strategy of own brands based upon store format. We also don't take a carte blanche approach and put items everywhere. What we do is provide that portfolio of brands within each one of those formats and we determine what best suits what best suits their customer base".
2. To implement this strategy, A&P hired Doug Palmer who successfully launched the "O Organics" private brand at Safeway (which I have several times spoken of on BrandWatch): This is a private brand that is today the leading organic brand in the USA.
3. The private brands (which represent 18% of sales volume) were structured in a conventional 3-level manner (Hartford Reserve as a private label Premium / America's Choice as core range / Smart Price as entry-level) with the creation of two transversals that are completely new: Green Way, an organic private brand and Via Roma, an Italian private brand.
   
   
   
   
   
   Each of these private brands was structured like a real national brand: they carry a story, have a strong graphic identity ... and are presented mostly as independent sales displays, giving them even more impact. Via Roma is in this respect, a real success: it conveys authenticity, proximity, fun ... and not the nth 'Italian brand" of the market (all the visuals are pictures of the inhabitants of an Italian village).
   
   
   
4. There is no mention of the retailer and its stores on the private labels. If one considers the "O Organics" case (which is now present in several stores in the U.S. and abroad), the objective is clear: distribute these private brands at other retailers.

A strategy that is comprehensive and sophisticated - modern design, proximity to consumer expectations: this is in complete contrast to the French strategies where private labels are all standardized under a single store name. Will the sole French distributor who can develop such a strategy (Intermarché) take inspiration from it?