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A multi-million dollar ’supermarket of the future’ featuring new technology to Australia has been unveiled in Adelaide’s North Eastern suburbs.

The Fairview Park Foodland IGA, part of the Adelaide’s Finest Supermarkets group, has been designed to be one of the greenest in the nation, with a range of Australian-first initiatives that aim to reduce its environmental impact.

Drawing on inspiration from supermarkets in Italy, France and the UK, Fairview Park Foodland IGA also has a number of interesting new features beyond environmental attributes including side-by-side checkout pods with electronic pay stations and a leading chef to produce restaurant quality meals and run cooking classes.

Adelaide’s Finest Supermarkets General Manager, Mike Rutherford, believes the store will set a new benchmark in creating an enticing experience for customers.

“We love what we do and are proud to be in a position to set such a high benchmark, especially as an independent South Australian owned supermarket,” he said. “We truly believe this supermarket will redefine Australian supermarkets in the future.”

That last bottle of wine left on the shelf must be good, mustn’t it? Otherwise it wouldn’t be the only one left.

Consumer research from Wageningen in the Netherlands has discovered that half-empty shelves in the supermarket are a strong driver of sales.

Experts call this the bandwagon effect. The average consumer goes for products that are in demand, Dr Erica Van Herpen, of Market Research and Consumer Behaviour, concluded in an article published in the latest issue of the Journal of Consumer Psychology.

Van Herpen bases her claim on experiments in which consumers choose under controlled conditions between wine from full shelves and wine from half-empty shelves. The results are clear: supermarket customers follow the herd. Not only do they take the wine from the half-empty shelf, but they also think it is better.

Dr Van Herpen doesn’t believe that people are misled by half-empty shelves, however.

“No, why? It gives you some information to go on if you are standing in front of a shelf and you don’t know what to choose,” she noted. “You piggyback on the collective knowledge of others. Because among those others there are always one or two people who do know which wine is good.”

Nor does Van Herpen think that supermarkets deliberately keep shelves a bit empty to boost demand. “No, they try to keep them as full as possible,” she said. “That looks nice. And anyway, there’s a risk attached to almost empty shelves. The demand can be so big that the product sells out, and then you get disappointed customers.”

The bandwagon effect applies much more in supermarket than other retail outlets, with the opposite effect at work for cars, shoes and clothes.

It is true to say that if and when the Rudd broadband plan is delivered in some form, Australian retailers have an incredible opportunity to re-write their business strategies and current store formats to cater for ‘the connected consumer’.
Smart Australian retailers will have less costs of doing business and therefore make more money.
There will be an opportunity to slash retailers’ costs and stock holdings by using super fast connectivity embedded in the supply chain.
The Australian Shopping Centre Industry should be watching this initiative; interactive on-line Shopping Centres; a new marketing tool to beat the current crop of disconnected flat Shopping Centre Websites.
Super fast retail connectivity attached to RFID ‘bar-codes’ + EAS will provide retailers with the opportunity monitor sales and stock from order to production to sale visually in real time; that is a WOW!
We sympathise with the Opposition, they have been caught napping.
The Liberal Party is lucky to have Malcolm Turnbull fronting the party at this time; the inaction by the coalition over twelve years has caught up with them but Malcolm Turnbull has a tough argument on his hands.
OK it is a fair and usual political ploy for Oppositions to criticise Governments but on this occasion Rudd’s thinking is absolutely right and smart Australian retailers will be one of the winners.
Funding has been identified as a problem, particularly in these times but the same arguments arose when the Australian rail network was in concept launched in the 1800’s; same applied to the Snowy Mountain scheme; the Opera House and numerous other infrastructure initiatives.
It is amazing when you read history how the Australian nation comes behind visionary infrastructure initiatives; this will happen with the Rudd broadband initiative.
It is true the funding has to be defined, but TELSTRA is now back into the equation with all of its resources; the good news, the new TELSTRA will be spilt into a retail and wholesale division; about time.
The huge puddle of Superannuation Money has something solid with government backing to invest in.
Smart business, hopefully the Australian retail sector will also want a share of the action.
Wireless will also be an option but to say that cable is not safer and secure is a furphy.
Wireless will always be more prone to security breaches; optic is the mainstream way to go.
Australian retailers should look carefully at the Rudd Broadband initiative; it has the potential to bring face to face interactive retailing into customers’ homes.
Connectivity as proposed also brings to shop floor permanently visually connected to home offices for layout reviews; promotional activity; training and loss prevention.
No more time lapse clunky video; pure high quality visibility of all shop floor activity in real time.
Customers will be able to communicate in real time with the shop floor; what a way to cut advertising costs and have that quality one on one relationship with the customer?
We have indicated on several occasions that retailers without an on-line revenue are disadvantaged; without a ‘bed-rock’ functioning ‘selling’ Website those retailers will be behind the progressive on-line retailer pack without a 2009 aggressive on-line strategy.
It will be catch-up big time for those retailers without a current selling Website; the good news retailers without a selling Website have an opportunity to rock hop over their competitors.

SunChips, a line of multigrain snacks within PepsiCo’s Frito Lay division, announced today that in 2010 it will introduce the first fully compostable snack chip bag made from plant-based materials.

The first step towards this transformational packaging will be made this month when the outer layer of packaging on SunChips snack bags will be made with a compostable, plant-based renewable material, polylactic acid (PLA). By Earth Day 2010, PepsiCo’s Frito-Lay North America division plans to rollout a package for its SunChips snacks where all layers are made from PLA material so the package is 100% compostable.

“We know environmentally-friendly packaging is a priority for our SunChips consumer,” said Gannon Jones, Vice President of Marketing at Frito-Lay North America. “Today’s launch of packaging made with 1/3 renewable materials is an important first step towards having a fully compostable chip bag in market by Earth Day 2010.”

Current snack food packaging has three layers: a printed outer layer with packaging visuals/graphics, an inner layer, which serves as a barrier to maintain the quality and integrity of the product, and a middle layer that joins the other two layers. When the packaging is 100% compostable, it will fully decompose in about 14 weeks when placed in a hot, active compost pile or bin. NatureWorks LLC is providing PepsiCo with the PLA, which is trademarked under the Ingeo name.

“Packaging is clearly the most visible interaction consumers have with Frito-Lay’s brands,” added Jay Gehring, Vice President, packaging R&D, Frito-Lay North America. “To make packaging that would interact differently in the environment we had to change the composition of packaging and invent key technologies. Using plant-based renewable materials, we have a promising solution that will transform packaging and significantly impact the billions of snack food bags produced annually.”

Once the 100% compostable bag is introduced, the company anticipates the switch will lead to reduced greenhouse gas emissions in the production of the packaging and the elimination of petroleum-based packaging material.

Frozen food is increasingly considered a wise choice by shoppers as they seek better value in the current economic downturn, according to new research from the UK.

Research carried out for the Food and Drink Federation’s Frozen Food Group shows that half of consumers (49%) believe that frozen food will help them through the credit crunch. The good news for frozen food in the current climate is that 70% of consumers understand the main tangible benefits of frozen food, which are that it minimises waste, and that they need to shop less often.

Over 80% of consumers also value the key attributes of frozen food - storage, convenience and quality - while 75% agree that quality is better than it used to be. A total of 73% of consumers think frozen food offers a good range of premium products.

“Consumers appreciate that there is less waste with frozen food and, in fact, over two-thirds (67%) choose frozen food because it minimises food wastage,” Norman Soutar, Chairman of the Frozen Food Group, and Managing Director of William Jackson Food Group, said. “Less wastage means that money is saved, which is obviously of concern to people in these tough times. Another advantage is, of course, the benefit to the environment.”

“Consumers also find frozen food convenient to use, with good nutritional value, which is good news for manufacturers and retailers alike as the industry responds to changing consumer needs with innovative NPD and marketing campaigns.”

“We saw good sales growth in frozen food last year, and we expect to see continued growth over the coming months,” he concluded.

Fourteen brands will be entitled to place the ‘whatsnew? Product of the Year’ label on their products after coming out on top in a survey of Australian consumers.

In its second year in Australia, 5,000 consumers were queried as to the best new products in 14 different categories. The consumer decision was made after an expert panel of judges from marketing, advertising and design, agreed on a short list of finalists. Consumers were then asked in an online survey conducted by Roy Morgan, on behalf of branding segment What’s New?, to judge the best products based on a set of criteria.

A similar ‘Product of the Year’ award has really taken off in the US, with 100,000 shoppers lodging votes to judge the 2008 winners.

Senior Researcher at Roy Morgan Research, Steven Braddon, said that the awards offered brand managers the opportunity to gain further insight into the consumer mindset.

“Products that make it into the shops are the result of enormous series of consumer studies that try to find out what people’s needs are, and how they behave in the real world,” he explained. “Marketers want to help make people’s lives simpler, easier, faster, and healthier. It’s much more about addressing unmet needs than convincing people to buy what they don’t really need.”

Mr Braddon advised that the leading trend implied by the consumer selections was, not surprisingly, one toward convenience.

Nestlé’s focus on becoming a health and wellness food group is resonating with consumers, their CEO has told investors at their Annual General Meeting in Switzerland.

“The main force behind our performance is our brands,” CEO Paul Bulcke explained. “Their success is increasingly derived from their inherent nutritional credentials. Our Company’s commitment to growing our brands towards consumers is demonstrated by a 7.5% increase in consumer-facing marketing spend in constant currencies.”

Innovation and renovation continued to rise as the company sought to tackle the impact of private label growth and a global economic downturn.

“Taken together, our annual R&D expenditure has increased by 10%, and we are constantly looking to maximise leverage of our R&D platform,” Mr Bulcke said.

“The billionaire brands, more than 70% of our food and beverage sales, remain the key drivers of growth,” he added. “In 2008 many outperformed their markets, driven by our continuing focus on nutrition, health and wellness; by our accelerated targeting of the particular needs of consumers in different economic circumstances; by our significant presence in emerging markets; by around 10% growth with our top 10 customers; and by our multi-channel distribution and multi-price point strategies.”

The world’s largest food group had managed to navigate last year’s inflationary environment by predicting the price hikes before many of their competition, the company suggested.

“On the efficiency side, in 2008 we saw the benefit of our accelerated focus on cost savings,” Mr Bulcke said. “Earlier than others, we anticipated the increase in commodity prices and implemented rigorous cost controls. This helped compensate the impact of these effects on our cost of goods sold. It also benefited our distribution, marketing and administration costs. Through this anticipatory action, we were prepared for a more difficult environment, whilst concentrating our efforts on growth generation.”

The company told investors that they were not prepared to rest on their laurels despite the troubled economic times, planning to accelerate efforts to become a leader in health and wellness.

“Our Company is constantly accelerating and evolving,” Mr Bulcke stated. “We don’t wait for bad times to redeploy our resources, or to otherwise adapt, but we try to anticipate coming trends. This means that we are better positioned to face turbulence, and even storms, and see them through. We are constantly finetuning and engineering our organisation for optimal performance.”

Nestlé remains supremely confident about the future of their business, identifying four growth drivers for the years ahead: nutrition, health and wellness; emerging markets and consumers; the out-of-home market; and premiumisation.”We believe that our strategy places us in a good position, and is all the more appropriate in difficult times. Not only does it give us excellent defensive characteristics, it also creates a platform for profitable growth that has proven itself to be one of the most vigorous in the industry. This will continue to guide and inspire our success through the present economic downturn,” Mr Bulcke concluded.

Oil refiner and marketer Caltex Australia Ltd says it is still keen to grow its marketing business.

"We've been looking at opportunities to grow the business. We've been incorporating and buying a number of regional resellers recently and bringing them into the business," chief executive Des King told Sky News' Sunday Business program.

"We've been looking at how we can expand further the retail network - lots of good opportunities both (in) the retail fuel sales and convenience store sales."

Mr King said that Caltex was mostly a wholesaler of fuel in Australia and that its retail presence was quite small.

"A lot of the Caltex signs you see out there are run by Woolworths or franchisees - they're the retailer, not Caltex," he said.

"I'm keen to expand our retail network and keep growing and opportunities to expand our commercial sales," Mr King said.

He said Caltex was looking at expanding its terminals in the mining regions to take advantage of the mining recovery when it comes.

"Then we'll be better positioned with more terminal capacity to actually increase our diesel sales yet further to commercial customers," he said.

Mr King also said there were projections that global oil consumption would be down two to three per cent this year, compared to last year.

There was also more refining capacity coming on in the next 18 months or so, which would put some pressure on refining margins in US dollar terms.

However, the weaker Australian dollar this year would boost Caltex's margin in terms of Australian dollars.

Private label share has risen dramatically across retail channels and product categories during the past two years as consumers struggle with high food prices and other economic pressures, new research from America has indicated.

According to the latest research from Information Resources, Inc. (IRI), “The 2009 Private Label Report,” this trend is expected to continue through 2009 and beyond, representing an unprecedented opportunity for retailers and a threat for branded manufacturers.

“With budgets strained to the breaking point, shoppers are scrambling for ways to save money,” IRI Consulting and Innovation President Thom Blischok noted. “Shoppers are looking through a lens of affordability and have a re-invigorated interest in private label since the economic turmoil began. The need for affordable packaged goods solutions is high, and private label products are going a long way toward answering that need.”

“Since many private label products are truly becoming mainstream these days, IRI refers to these products as private brands, such as Target’s Archer Farms, Safeway’s O Organics and Supervalu’s Wild Harvest to name a few,” Mr Blischok explained. “The retailer halo is now foundational, and private brands are becoming as familiar and relevant as national brands in some categories.”

The report discovered private label’s strongest growth performance tended to be in such categories as cream cheese/spread, paper napkins, refrigerated entrees and shortening and oil. While pet supplies, cold/allergy/sinus tablets, refrigerated salad/coleslaw and salad dressings were listed as developing categories. In personal care categories, branded manufacturers have successfully differentiated themselves in the minds of shoppers, which has made it difficult for retailers to successfully penetrate these categories with private label.

Four out of five shoppers in America are now “sold” on private label quality indicating that product marketing during the current recession is successfully expanding the positive reputation and reach of these products. This figure is up from 73 per cent in 2007, although dollar and unit shares in the US have not risen dramatically - still hovering below 25 per cent. In Australia, private label has closer to 22 per cent of the market.

“The evolution of the U.S. private label market has accelerated in the face of growing financial turmoil,” Sean Seitzinger, senior vice president, IRI Consulting and Innovation, concluded. “As shoppers opt out of some products and stores, they will opt into others. It is critical for the ongoing success of CPG manufacturers and retailers to not only react to, but anticipate these trends and be ready with products, assortments and store layouts that meet the shopper’s changing needs.”

On 2 April 2009, Coca-Cola South Pacific Pty Ltd entered into court-enforceable Undertakings with the Australian Competition and Consumer Commission (ACCC) whereby the company was compelled to concede that its ‘Myth-busting’ advertisements potentially misled or deceived consumers, potentially breaching Section 52 of the Trade Practices Act 1974. This article explores the ACCC action and highlights the key differences between Sections 52, 53 and 55 of the Trade Practices Act, discussing the relationship between advertising and compliance by food companies.

The ‘Myth-busting’ campaign
In October 2008, Coca-Cola South Pacific Pty Ltd published several advertisements featuring Kerry Armstrong allegedly busting several ‘myths’ that exist in relation to Coca-Cola, namely:
“Myth. Makes you fat.”
“Myth. Rots your teeth.”
“Myth. Packed with caffeine.”

The Undertakings negotiated by Coca-Cola South Pacific Pty Ltd and the ACCC listed the following representations that could arguably have been misinterpreted by the reasonable consumer from the Myth-busting advertisements:
“Coca-Cola cannot contribute to weight gain and obesity.”
“Coca-Cola cannot contribute to tooth decay.”
That 250ml of Diet Coca-Cola only contains half the amount of caffeine as 250ml of tea; and
“A responsible parent can include Coca-Cola in a family diet without any regard whatsoever to the potential weight gain or tooth decay arising from consuming Coca-Cola.”

These alleged representations could be deemed to be in breach of Part V of the Trade Practices Act 1974. However, it must be noted that the Undertakings do not contain any admission by Coca-Cola South Pacific Pty Ltd. The Undertakings state the ACCC’s concerns and even describes them as the ‘Alleged Representations’.

Before the matter came to the attention of the ACCC, several complaints had been made to the Advertising Standards Board, which assessed the advertisements against the advertising industry’s own voluntary Codes of Conduct (in this instance the AANA Food & Beverages Advertising and Marketing Communications Code).

The role of the Advertising Standards Board
The AANA and its Advertising Standards Board are self-regulatory. This means the advertising industry itself regulates compliance with its own Codes of Conduct. When several complaints were made in relation to the Myth-busting campaign, the Advertising Standards Board dismissed the complaints on the basis of it finding the campaign did not promote “excessive consumption” of the product and that the advertisements being complained of had included extra detail about oral and dental hygiene.
However, Clause 2.1 of the AANA Food & Beverages Code states [emphasis added]:

Advertising or Marketing Communications for Food or Beverage Products shall be truthful and honest, shall not be or be designed to be misleading or deceptive or otherwise contravene Prevailing Community Standards, and shall be communicated in a manner appropriate to the level of understanding of the target audience of the Advertising or Marketing Communication with an accurate presentation of all information including any references to nutritional values or health benefits.

Therefore the concerns expressed by the ACCC, if true, would also be clear breaches of the AANA Food & Beverages Code. However, even if the Advertising Standards Board had deemed an advertisement to have been in breach of the Code of Conduct, it would have no powers to enforce such a determination should the advertiser in question continue with its campaign.

Mitigating damages when dealing with the ACCC – The difference between Sections 52, 53 and 55 of the Trade Practices Act
The risks involved in breaching Part V of the Trade Practices Act have been made clearer by this case. Coca-Cola South Pacific Pty Ltd agreed in the Undertakings to engage in a detailed corrective advertising campaign, to review its advertising procedures, and to engage in extensive Trade Practices compliance obligations. These obligations were agreed to under the ACCC’s power to enter into court-enforceable Undertakings under Section 87B of the Trade Practices Act.

It needs to be noted that Section 52 can be breached where a company has engaged in conduct that is likely to mislead or deceive – this means no one actually needs to have been misled in order for a company to have engaged in misleading or deceptive conduct.

Where a corporation has been deemed to have breached Section 52 of the Trade Practices Act, there are only limited remedies available to the ACCC. This is because Section 52 creates a norm of conduct and to breach Section 52 only constitutes a civil offence. When a corporation breaches Section 52 alone, the ACCC only has the power to negotiate Undertakings or to seek an injunction under Section 80 (which could even result in a product recall such as occurred in the Harvey Fresh case (2008)). If a private person has incurred losses as a result of a corporation’s misleading or deceptive conduct, that person can also seek damages under Section 82.

By contrast, Sections 53(a) and 53(c) of the Trade Practices Act forbid companies from falsely representing a quality of a product or representing that a product has a performance characteristic that it does not in fact have. Unlike Section 52, Sections 53(a) and (c) can only be breached where a company has made a false representation as opposed to a representation that is “likely” to mislead or deceive.

Section 55 of the Trade Practices Act also forbids companies from engaging in conduct that is “liable” to mislead consumers as to the nature or characteristics of a product.

It is arguable that some of the representations made by the Myth-busting campaign could have breached the abovementioned sections as well as Section 52. For example, the corrective advertisement published by Coca-Cola South Pacific Pty Ltd as a result of the Undertakings admits:
Finally, we said that 250ml of Diet Coca-Cola contains 1/2 the amount of caffeine as in 250ml of tea. We made an error - 250ml of Diet Coca-Cola contains about 2/3 the amount of caffeine as in the same amount of tea brewed from leaf or tea bag.

When a representation contains an error of fact, it is a statement that is not true. If it is not true, it must be a false representation. Arguably it would also be misleading. In this case, the ACCC did not allege that the Myth-busting campaign contained false representations about the composition of a product (in this instance caffeine content) in breach of Sections 53 and 55 of the Act.

This raises the significant issue of the importance of being able to distinguish between breaches of Section 52 and Sections 53 and 55 of the Trade Practices Act.

Breaching Section 53 or Section 55 can result in criminal convictions, large fines (up to $1.1 million per offence) and representative damages under Section 87.

ACCC Chairman Graeme Samuel stated (in a radio interview with presenter Jon Faine on Melbourne’s ABC Radio 774) that pursuing fines for a breach of the Trade Practices Act is a complex process, as such processes would involve the Commonwealth Director of Public Prosecutions or the Federal Attorney-General’s office. The Coca-Cola case has highlighted how negotiating Undertakings can mitigate your legal liability once the ACCC has approached your company. Anyone approached by the ACCC over allegations of breach of Part V of the Trade Practices Act ought to immediately contact a lawyer to discuss the legal arguments available to limit one’s legal liability.

The corrective advertisements which have since been published make few admissions and remain consistent with the theme that Coca-Cola regrets the potential for any misunderstanding by consumers. These corrective advertisements are expressed in positive terms and would be helpful in providing the public with new information in the manner of a re-launch of the product.

Actions proposed to strengthen ACCC powers and sanctions
On 17 February 2009, Federal Minister for Consumer Affairs Mr Chris Bowen had announced that the Trade Practices Act would be amended to strengthen the powers of the ACCC to improve further sanctions on any company accused of engaging in misleading or deceptive conduct. These amendments are currently scheduled to take effect nationally by January 2010.

These new powers may include disqualification orders, infringements notices, substantiation notices and public warning notices. Further, the ACCC would be able to seek civil monetary penalties up to $1 million. These new powers will significantly increase the legal risks for food businesses. If these powers had been in place already, the consequences for Coca-Cola South Pacific Pty Ltd may have been substantially different as the ACCC’s approach may have differed.

The need for food companies to be pro-active
The failure by the Advertising Standards Board to take action was criticised by ACCC Chairman Graeme Samuel in the abovementioned radio interview, particularly for the failure of the industry body to recognise a breach of Part V of the Trade Practices Act, which has been in operation since 1974.

The common practice in the food industry to allow marketers to develop an advertising campaign or product label without full consideration of the Trade Practices Act implications is fraught with legal risks.
Reproduced with the permission of Food Legal, a legal firm that has developed a highly successful training course in Food Marketing Law and Trade Practices Act Compliance that can provide those responsible for designing food advertising campaigns with the necessary skills to identify and mitigate legal risks under Part V of the Trade Practices Act.

Brand Finance, a leading independent brand valuation consultancy, has revealed their list of the 500 leading global brands, with Australia’s two largest supermarkets the only Australian brands in the food industry to make the list.

All sectors were hit in 2008 by commodity price rises, the credit crunch, rising unemployment and tumbling share prices, the consultants noted, with an overall drop in brand value across the Global 500 for the year of 24%.

The world’s most valuable brand was found to be American retailer Walmart with a brand value of US$40.6bn (A$57.3b), rising three places to replace Coca-Cola as their “Save money. Live better” slogan resonated with consumers. Coca-Cola took the second spot on the list, with other food and beverage brands to make the Top 100 including McDonald’s (12), Budweiser (19), Tesco (20), Pepsi (21), Heineken (43), Walgreens (59), Carrefour (60), Nestlé (61), Nescafé (63), Kellogg’s (71) and Sainsbury’s (97).

Australian supermarket chain Woolworths was the first locally-owned brand on the list - soaring 57 places to 143, with a brand value of US$4.638b(A$6.55b). Coles also made the Global 500, entering the list at 316 after not appearing in 2007. Their brand value stands at around A$3b.

Unsurprisingly, the US is the world’s branding powerhouse, contributing 44% of the Global 500’s total value, 29 of the Top 50 brands and the world’s six most valuable brands. Other Australian brands making the list were: all four major banks, Qantas, Telstra and BHP.

“This year’s Global 500 shows that strong branding is the key to negotiating the downturn since customers revert to brands they trust,” David Haigh, CEO of Brand Finance, commented. “Walmart, McDonalds and HSBC have repositioned themselves in tough markets and are reaping the rewards. Marketing departments must make the case to their Finance Directors to win the cash needed to keep their brand alive; cutting costs may not just be a blinkered short-term solution, it may be fatal in the long-term.”

Two years ago, when the potential bidders for Coles were traipsing through its data room, one key metric in its performance staggered them. Its on-shelf availability of groceries was remarkably low.

Not only did that indicate a dysfunctional supply chain, but it highlighted a massive opportunity. Simply ensuring that the group managed one of the basics of retailing – getting the products customers wanted onto the shelves – would add dollars to the value of each basket going through its check-out counters and hundreds of millions of dollars to its revenues.

Coles’ relatively new managing director, Ian McLeod, told a Wesfarmers investor briefing this morning that 18 months ago there were more than 400 gaps on Coles’ shelves. That number has now halved. Not surprisingly, he said the group was generating basket value growth.

That signals that the massive overhaul of Coles’ sprawling supply chain – it has closed 18 distribution centres and opened nine – is having a positive effect on the flow of products into the stores. It is a validation of the re-engineering of the supply chain that has been occurring since Wesfarmers took control.

Another measure of better basic retail management is that McLeod said Coles had cut its aged overstocks by two thirds, from about $120 million in January last year to about $40 million today.

And yet another is that a rationalisation of house brands has seen a significant reduction in stock keeping units but higher sales and double-digit sales growth – greater growth than Coles is generating from branded product.
Those are all indicators that the new team at Coles have a decent grasp of the basics of grocery retailing and can execute them.

As McLeod says, however, that is just a few of a myriad of challenges the new management is confronting.

The focus on meeting what started as an "aspirational" five-year target during John Fletcher‘s term and morphed into a forecast and millstone created a legacy of major under-investment in the business. He also says the culture at Coles was centralised, slow-moving and high-cost.

Thus the planned recovery program isn’t about quick fixes but is expected to take five years. The most visible aspect of the renewal, the roll-out of new store formats, will start next financial year although it won’t properly scale up until 2010-2011.

Encouragingly for Coles, and more particularly Wesfarmers, is that Coles is starting to generate some sales momentum, with food and liquor sales up 8.3 per cent (adjusting for Easter) in the March quarter, with the rate of growth accelerating through the first three quarters of the year.

While that is still well below the 10.8 per cent growth experienced by Woolworths for the same period, for the moment, at this phase of its recovery, comparisons with Woolworths are less relevant than benchmarking Coles against its own performance history.

Interestingly, however, there was a slide in McLeod’s presentation that referred to a "circle for success."

While it had different element in it to the "productivity double loop" that drives Woolworths success, there was a similar under-pinning to it where the value proposition drives volume over improved productivity to create a virtuous cycle.

Coles might be some way off entering that self-reinforcing cycle but getting the basic right and generating some sales momentum are the initial pre-requisites for establishing it.

WESFARMERS impressed the market yesterday with strong quarterly sales from its flagship Coles supermarket chain, but it warned the 6.6 per cent rise in same-store sales, adjusted for Easter, may not be sustainable.

"The quarterly performance was reasonably encouraging," said the Coles managing director, Ian McLeod. "The caution I would add is it is still early days in the turnaround. I suspect there will be quarters where I am standing here and the numbers aren't quite as strong as they are now."

Mr McLeod said the growth was driven by an increase in fresh food sales - likely to be at the expense of speciality retailers - and an increase in customer numbers.

Last Friday the other major supermarket owner, Woolworths, reported an even stronger 8.8 per cent quarterly rise, but Coles also managed to outpace market expectations.

Its other retail divisions, including Bunnings, Officeworks, Target and Kmart, reported higher than expected sales.

The Target boss, Launa Inman, said her division was stocking more of its cheaper ranges due to changing tastes during the downturn and was stealing market share from David Jones and Myer.

Coles has introduced six revamped supermarkets in most states - including one at Chatswood Chase in Sydney - to demonstrate a new format with a greater focus on fresh foods.

Mr McLeod said the changes would not prove suitable to all 760 stores, but may be appropriate for about 200, based on demographics and geography.

"The sales achieved by Coles is well below Woolworths," said Hugh Giddy of Cannae Capital Partners. "If they can get higher sales volumes on the same sites, a lot of that goes down to profits."

Wesfarmers' total capital spending target for this year has fallen to about $1.5 billion from an initial estimate of $2 billion.

"The issue is timing," said the company's incoming finance director, Terry Bowen. "There has been no compromise made whatsoever [for] any division in capital required for turnover or ongoing growth in their businesses."

Mr Bowen warned of an expected $135 million of losses from interest rate hedges in the second half since it had repaid debt earlier than forecast. Its resource division will report $83 million of losses on currency hedging.

Mr Bowen refused to rule out additional write-downs in the second half, after $125 million of impairments in the first half. He declined to be specific about possible write-downs, but singled out property values and the Gresham private equity business as areas that would bear close examination.

The company's chief executive, Richard Goyder, said Wesfarmers was not likely to seek major acquisitions at the moment, despite receiving more funds than expected in a recent equity raising. "Nothing is going to cause us to weaken our balance sheet position," he said. "We want to be bullet-proof until we are very confident that credit markets have reopened and things like that."

But he did not rule out smaller bolt-on acquisitions, particularly in resources and insurance.

■ Coles has quarterly sales rise of 6.6 per cent as fresh food sales increase.

COLES owner Wesfarmers has taken a step backwards in its attempt to sell pharmaceuticals in its supermarkets, selling its online medicines business Pharmacy Direct at a large loss.

The deal will also end a three-year legal battle brought on by the Pharmacy Guild of Australia against Coles on the basis that the company was in breach of rules surrounding pharmacy ownership. The guild won the case, but an appeal by Coles was to have been heard in the NSW Supreme Court in June.

Coles bought the business for $48 million in 2006, before the supermarket chain was acquired by Perth-based Wesfarmers, in an effort to ready itself for regulatory change allowing supermarkets to sell pharmaceuticals. It is believed the business was sold for less than $20 million.

The next five-year pharmacy agreement between government and the industry, which covers the period until 2015, is not considering allowing supermarkets to sell prescription drugs, leading to the realisation that any regulatory change is still some time away.

Guild president Kos Sclavos said Coles' sale of the business "vindicates our position" on supermarkets being prevented from selling prescription medicines.

"When the biggest-selling product in a supermarket is a cigarette brand, and the biggest supplier is a cigarette company, the last thing they should be doing is being in the health professionals space," he said.

Pharmacy Direct, with annual turnover of about $35 million, is Australia's largest online seller of pharmacy products.

It is believed that Wesfarmers never had much interest in Pharmacy Direct, significantly writing down its carrying value after it took over Coles.

Coles managing director Ian McLeod said the divestment represented the best business outcome for Coles and for Pharmacy Direct staff, who will be kept on by the new owners.

The buyer is RX Direct, a company owned by members of the Terry White Chemists Advisory Board. Group founder Terry White said the board was planning to allow all the approximately 120 pharmacist franchisees in the group to buy a stake in Pharmacy Direct, which is intended to grow organically.

"We've been trying to get our online business going for years, and we haven't been, frankly, very successful at it, principally because we didn't have a facility and we had a limited range of product we could make available." Mr White said. "We believe online will be a big part of the market in the future. Having a facility that's already established makes it a lot easier."

Woolworths has reported third quarter sales growth of 6.5 per cent, surpassing analyst expectations.

Woolworths’ Chief Executive Officer, Michael Luscombe, suggested the $12.3 billion sales result highlighted a resistance to the downturn.

“We are pleased to report another strong overall sales result,” he said. “Woolworths continues to reinvest in all its businesses to improve our stores, create jobs, add services, deliver value, and create an even better experience for our customers. This result reflects the continued positive response from our customers to these reinvestment strategies.”

Sales growth slowed compared to the first two quarters of the 08/09 financial year, largely due to petrol price declines. Their Australian food and liquor division, however, was particularly resilient, with sales up 10.0%. When accounting for the later Easter - which fell in the fourth quarter this year- sales escalated by 10.8%.

Comparable store sales in Food and Liquor also strengthened, recording an increase of 7.9% in the third quarter* (8.8% Easter adjusted) - notably above the 7.1% recorded in the second quarter.

Greg Foran, Director of Food, Liquor and Petrol, believes extensive investment in their supermarkets, which led to 18 refurbishments for the quarter, was a key to the ongoing strength of the business.

“The strong momentum that has continued in the third quarter is a direct result of a number of key strategic initiatives focused on our customers, including the accelerated rollout of our 2010c format, our Everyday rewards program and continued price reinvestment,” he stated. “Our accelerated refurbishment program is continuing to deliver strong returns through improvements in both sales and gross margin. We are on track to have approximately 40% of our supermarket network in our new refreshed format by the end of this financial year.”

Once again their New Zealand supermarkets lagged their Australian counterparts, with a mere 3.2% Easter adjusted sales growth despite food inflation of approximately 6.0%.

Woolworths expects sales growth to remain in the upper single digits for the rest of the year despite a troubled economy. “We are mindful that discretionary spending continues to be influenced by macroeconomic factors and by the recent events in global financial markets,” a Woolworths statement advised. “Factors such as inflation, fluctuating petrol prices, interest rates, rising unemployment and consumer confidence levels are very difficult to predict in the current environment.”

“Subject to the uncertainty regarding these factors, we expect sales from continuing operations to grow in the upper single digits (excluding Petrol Sales) on a 52 week basis.”

The news was well received by the market, with Woolworths shares soaring over 4 per cent to $26.64 in morning trade.

Arnott’s, Australia’s largest biscuit supplier, is threatening legal action against donut chain Krispy Kreme for alleged violation of their “Iced Vo-Vo” trademark - which they first registered in 1906.

Arnott’s lawyers have sent a request to Krispy Kreme to cease the use of the “Iced Dough-Vo” for one of their new range of donuts by no later than 5pm today, the ABC reported. The Iced Dough-Vo is one of a range of Australian flavours the donut retailer is using as part of an “Australiana” theme running until June 8.

The campaign has not been well received at Arnott’s though, with claims that Krispy Kreme are being misleading as the donut resembles the Iced Vo-Vo biscuit and the Iced Dough-Vo tag is phonetically similar.

Arnott’s, which has been working with the Retail Food Group (the owner of the Donut King franchise) to create a range of products linked to Arnott’s brands, alleges a breach of the Trade Marks Act and Trade Practices Act. They are consequently contemplating seeking injunctions, damages, orders for corrective advertising and/or an account of profits.

Krispy Kreme appears unconcerned by the threat, however, advising that they will not remove the Iced Dough-Vo from their menu.

“We did receive a request from lawyers representing Arnott’s that we withdraw these from the shelves in our stores because we were allegedly in breach of various trademarks,” CEO of Krispy Kreme Australia, John McGuigan, told the ABC. “We’ve taken advice on that of course, and that advice is, that’s not the case, and that Krispy Kreme customers are pretty smart and they can tell the difference between a doughnut and a biscuit.”

Arnott’s has indicated they may not take any action if the products are withdrawn from sale today.

Tesco has announced the financial results for the 53 weeks ended 28 February 2009, saying that group net sales rose by 15.1% to GBP54.3 billion (USD99.6 billion) during the period, while underlying profits before tax rose by 10.0% to GBP3.13 billion (USD5.74 billion), and group profit before tax by 5.5% to GBP2.95 billion (USD5.41 billion). Net profit rose by 1.7% to GBP2.17 billion (USD3.99 billion), but the retailer’s net debt also increased to GBP9.6 billion (USD17.6 billion) – around 20% higher than forecast in September. Commenting on the results, group CEO Terry Leahy said: “At a time when customers everywhere are feeling the economic strain, we are responding to their changing needs in all our markets by lowering prices, introducing more affordable products and offering even sharper promotions. These actions, combined with our core strengths – in selling food and everyday essentials, owning our own property and having a broad business base – are helping us to cope well with the effects of the downturn.”

The better-than-expected results cam despite higher-than-anticipated losses from the fledging US operation. However, American contributions were more than offset by business in Asia, as well as the UK home market where comparable retail sales grew by 4% during the year. In the first six weeks of the current financial year, UK like-for-like sales growth (excluding petrol) was 3.4%, and 4.4% on a VAT-adjusted basis. Meanwhile, international progress has been “robust”, according to Tesco, “given the economic environment”, with sales growth of 21.5% at actual exchange rates, and 11.9% at constant rates, as “sales grew significantly more rapidly in Asia than in Europe, helped by the early success of the Homever acquisition.” Looking at the current financial year, Tesco said that, across the group, “we have made a good start to the new financial year with total sales up by 9.2% in the first six weeks – and 12.0% excluding petrol”.

In the US, Tesco reported hitting choppy water with its Fresh & Easy stores venture, losing GBP142 million (USD261 million) there during the year, up from the GBP100 million (USD184 million) it had forecast previously. The retailer said it expected losses in the current year to be broadly the same as last year, blaming the higher-than-anticipated losses largely on the stronger USD. However, Tesco also admitted that it was forced to adjust its product range at the 115 stores and engage in vigorous promotions. "Given the scale of the economic downturn, particularly in Las Vegas, Phoenix and the Inland Empire region of California, we are also seeing increased demand from customers looking to make stretched household budgets go further - through more affordable products, larger pack sizes and additional range in some categories, such as grocery and frozen food," Tesco said. Despite the difficulties, the retailer said it was planning to open about 60 more US stores this year, matching last year's expansion volume.

Poll officials have signed up international fast-food chains to stimulate first-time voters to cast their vote for the ongoing general elections in India. Branches of McDonald's and Pizza Hut in New Delhi will host promotional campaigns aimed at stressing that "voting is a fundamental right and duty." In particular, McDonald's is finalising plans for a series of advertisements with catchy slogans to be displayed in its 35 restaurants throughout the Indian capital. McDonald's Regional Managing Director Vikram Bakshi said: “The restaurant chain was keen "to support the task of building awareness amongst citizens and remind them of exercising their right to vote."

PepsiCo has proposed to acquire all of the outstanding shares of common stock it does not already own in its two largest anchor bottlers, The Pepsi Bottling Group and PepsiAmericas, in a move that has surprised analysts.

The offer, which represents a premium of 17.1 per cent over the closing price of each company on April 17, has been made to provide the world’s second largest non-alcoholic beverage group with greater control over distribution and to cut costs.

Upon acquiring the outstanding shares of the two bottlers, PepsiCo would handle distribution of about 80 per cent of its total North American beverage volume, including both its direct-store-delivery and warehouse systems.

If completed, the acquisitions “would create a leaner, more agile business model and provide a stronger foundation for PepsiCo’s future growth,” the company suggested.

“Our operating environment has evolved dramatically in the last decade,” PepsiCo Chairman and Chief Executive Officer Indra Nooyi advised. “Retailers have continued to consolidate. New competitors have emerged. And non-carbonated drinks, which have different economics and different distribution systems than carbonated soft drinks, have become a much bigger factor in the industry and in our own portfolio. We believe that by reshaping our business model we can significantly improve our competitiveness and our growth prospects.”

Analysts have suggested that the move would make the company more flexible to changing market conditions by enabling decisions to be made without the need to consult bottlers.

“Consolidating the bottling businesses with our franchise company would create many benefits,” Ms Nooyi added. “We could unlock significant cost synergies, improve the speed of decision making and increase our strategic flexibility. We would be able to present a more unified face to our retail and food service customers, which would better position us to provide customized solutions, as we do at Frito-Lay, and to take to a new level our ‘Power of One’ program of bundled food and beverage offerings.”

Pepsi’s plan to consolidate its bottling system is in stark contrast to their earlier strategy and that of the entire drinks sector.

“Strategically, this represents a major about-face for PepsiCo and the entire beverage industry,” JPMorgan analyst John Faucher said, according to Reuters, with the offer coming as “a shock”.

The consolidation would create annual pre-tax synergies estimated to be more than US$200 million, the soft drinks firm added, while reducing the time lag between idea and execution.

PepsiCo’s move could spark a similar decision by The Coca-Cola Company, who has at times had a strained relationship with their bottlers, particularly if it results in PepsiCo can execute the plan effectively.

Ms Nooyi added that the decision was not made due to a fractured relationship with bottlers and expected a “seamless integration” should the deal go ahead.

PepsiCo also announced their sales figures for the first quarter overnight, with six per cent net revenue growth on a constant currency basis. The result was dragged down by their US beverage division but their Africa/Middle Eat and Asia division continued to show resilience as did their American snacks division - led by Frito Lay.

“I am pleased with PepsiCo’s overall performance in the quarter. Our portfolio breadth, geographic reach and operating agility enabled us to deliver strong performance in a challenging global macroeconomic environment,” Ms Nooyi stated. “Worldwide, our teams adapted their operating models - from refreshing our beverage lineup, to devising new value initiatives, to enhancing revenue management and expanding Power of One initiatives.”

McDonald’s announced a resilient 4.3% increase in global comparable sales for the first quarter as they continue to attract financially stricken consumers.
Chief Executive Officer Jim Skinner said a focus on convenience and value were the drivers of their success. “McDonald’s continues to deliver a relevant restaurant experience that provides consumers with a broad range of quality menu choices, affordable prices and unmatched convenience,” he stated. “Our underlying business performance remains strong. In constant currencies, first quarter results reflect higher revenues, operating income and earnings per share over the prior year.”

The greatest growth rate of their three regions was in the Asia/Pacific, Middle East and Africa (APMEA) sector, where they anticipate to derive significant benefit from in the years ahead. In constant currencies, APMEA’s first quarter operating income soared by 11%, driven by strong performances in Australia and Japan - which were partly offset by weaker sales in China. The strong US dollar had an impact, however, with sales rising 5.5% in USD terms.

The US region outshone Europe, with sales up 4.7% despite the deep recession in their home market. The company said they had managed to take market share as consumers sought out core products like the Quarter Pounder, and were drawn to convenient locations and operating hours. Increased sales of chicken, breakfast and beverages contributed to the robust results.

“McDonald’s business remains strong, despite the economic concerns around the world,” Mr Skinner added. “Our well-known value proposition and unparalleled convenience continue to resonate with customers. In fact, the momentum has continued with April comparable sales trending at least as strong or better than first quarter sales in every area of the world.

“I remain confident that we have the right strategies in place to grow the business and provide value into the future,” he concluded.

Will Gau holds his glass of ruby chinon to the light and tastes. "It's strict, a little dusty, a little jagged," says the wine connoisseur. But his disappointment may not be down to bad selection or the bottle being corked but to an altogether more cosmic force: the moon.

The idea that the taste of wine changes with the lunar calendar is gaining credibility among the UK's major retailers, who believe the day, and even hour, on which wine is drunk alters its taste. Tesco and its rival Marks & Spencer, which sell about a third of all wine drunk in Britain, now invite critics to taste their ranges only at times when the biodynamic calendar suggests they will show at their best.

Marks & Spencer has gone a step further and is advising customers to avoid disappointment from the best bottles by making sure not to open them on "root" days.

The calendar has been published for the last 47 years by a gardening great-grandmother called Maria Thun, who lives in rural Germany. She categorises days as "fruit", "flower", "leaf" or "root", according to the moon and stars. Fruit and flower are normally best for tasting, and leaf and root worst.

This weekend happens to be root, from 8am today to 10pm tomorrow. Those who believe in the theory admit it has overtones of "druids dancing in the moonlight" but believe the effect can be explained by considering the wine in a bottle as a living organism which responds to the rhythms of the moon in a similar way to human biology.

The concept is an extension of biodynamic farming in which decisions about when to sow and prune are made according to patterns of lunar and cosmic rhythms. It was developed from a series of lectures given in 1924 by the Austrian philosopher-scientist Rudolf Steiner.

Tesco has used the calendar for more than two years to decide on times for its thrice-yearly critics' tastings, but has not shared its belief with customers for fear it will add yet more mystique to wine.

"Our first choice is a fruit day," said Pierpaolo Petrassi, Tesco's senior product development manager. "We seek to avoid root and leaf days. It may be a little step beyond what consumers can comprehend. We have so many other things to educate consumers about. So many remain confused about screw caps, for example. We don't want to make it more complicated."

Jo Ahearne, winemaker for Marks & Spencer, became convinced of the theory when she sampled more than 140 wines over two days. "Before the tasting, I was really unconvinced, but the difference between the days was so obvious I was completely blown away." The Guardian tested the theory this week and tasted the same wines on Tuesday evening, a leaf day, then again on Thursday evening, a fruit day. Five out of seven bottles showed a marked improvement.

"I was sceptical but I think the evidence was overwhelming," said David Motion, the London wine merchant who hosted the tasting. "I live in the city and don't think much about nature but it is clear it has an influence. The cosmos is forcing its way in."

In other quarters, doubts remain. Waitrose's wine department has investigated the idea and cannot see a correlation. Many scientists have little time for biodynamic wine, pointing out that the movement's guru, Rudolf Steiner, claimed to have conceived the concept after consulting telepathically with spirits beyond the realm of the material world. Among his other works are claims that the human race is as old as the Earth and descended from creatures with jelly-like bodies, and a belief that men's passions seep into the Earth's interior, where they trigger earthquakes and volcanoes.

Biodynamic winemaking is well established in France, Germany and the USA, and it mostly means avoiding chemical fertilisers and pesticides and encouraging biodiversity.

It also involves spraying the vines with preparations which sound more like witches' potions than agricultural aids. One involves fermenting cow manure in a cow horn, buried underground over winter. In another, oak bark is fermented in the skull of a domestic animal.

Tesco in the UK is set to re-launch its Clubcard loyalty scheme in the next few weeks, in an effort to further build brand loyalty. The re-launch is reportedly likely to be based around the things customers can do with Clubcard and features a significant investment by Tesco’s own admission. The move is part of the retailer’s strategy to get a balance between price and loyalty programmes, as a means of rewarding customers. The chain will likely be looking to ramp-up both its marketing communications of Tesco Clubcard, as well as the analysis of its shopper behaviour data. Industry sources suggest Tesco will need to expand its Clubcard marketing to digital channels as part of the re-launch.

UFCW-organised WalMart Workers for Change, a new campaign of thousands of Wal-Mart’s 1.3 million associates across the country who are standing up and demanding a voice in the workplace, have released a video that “highlights the sorts of anti-worker tactics they are facing” from the world’s largest retailer. “The associates are afraid,” said Cynthia Murray, a Wal-Mart associate in Laurel, Maryland. “They’re intimidated, and they are afraid. My family and other families have paid the price for freedom. And when you tell me I can’t talk about a union, you’re taking my freedom from me.” Workers in more than 100 stores in 15 states across the country have joined together and signed union representation cards, citing a lack of respect from the company, as well as poverty-level wages and sub-par benefits as reasons they need a union voice on the job. “Wal-Mart’s slogan is ‘Save Money, Live Better,’” said Vikki Gill, a former Wal-Mart manager in St. Louis, Missouri. “Wal-Mart is saving money and living better at the associates’ expense.” Wal-Mart Workers for Change is a new campaign made up of thousands of Wal-Mart workers joining together to form a union and negotiate better benefits, higher wages, and more opportunity for a better future. The campaign is a project of the United Food and Commercial Workers (UFCW) trade union.

Rewe Group is confident it will open more than 120 new Rewe supermarkets, as well as 160 Penny discount stores this year in Germany, sticking with its original plans despite the economic downturn. According to Lebensmittel Zeitung, the crisis has not yet been felt in the German grocery sector. However, Rewe is now focusing more on own projects than those of external developers. "Some developers are finding it increasingly difficult to convince their banks to finance new projects," a source said. During 2008, Rewe opened around 200 new supermarkets in Germany.

HMV is opening a chain of arthouse cinemas as it looks to expand beyond high street retailing. HMV has formed a partnership with cinema chain Curzon Artificial Eye and will open a pilot cinema which will be called hmvcurzon in London next autumn. The 200 seat, three screen cinema will be situated above HMV's store in Wimbledon. HMV Chief Executive Simon Fox said that the cinema format has the potential to be rolled out to "wherever we have larger stores", including above branches of Waterstone's, the book retailer that HMV also owns. The cinema will include a café bar, luxury seats and a merchandise area selling films. It will be accessible via the HMV store during the day but will have its own dedicated entrance outside of normal trading hours. The move is part of an effort by HMV to diversify away from selling low margin CDs and DVDs and extend its reach into new areas of entertainment. The cinema venture also allows HMV to utilise unused space above its stores.