Archive for February 9th, 2009

My Take: Another mis-step … delaying the announcement of the bank bailout plan

February 9, 2009

According to Obama’s economic adviser Lawrence Summers,  Barack-O decided to delay unveiling the administration’s new bank bailout plan until Tuesday, in an effort to keep Washington’s focus on the stimulus package now before Congress.

In other words: to keep the spotlight on the President’s prime time press conference tonight.

My prediction: the market will tank today because of the bank plan delay — the delay prolongs uncertainty and creates doubt that the administration — with an avowed policy of “big & fast” over “deliberate & right” —  has figured out what to do.

All the chatter today will be about the market slide and bank plan.  Maybe that’s the strategy — take people’s eyes off the (un)stimulus package.

WSJ article:
http://online.wsj.com/article/SB123410527886060705.html?mod=article-outset-box

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The case for (some) economic optimism …

February 9, 2009

Ken’s Take: With the stock market down and politicos running around saying that the sky is falling, it’s easy to tailspin into pessimism.  While everybody feels some worry about job security and older folks fret about retirement … the fact is that more than 9 of 10 folks are still doing pretty well, and there are some signs that things have bottomed out.

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Excerpted from Rasmussen Reports, “Jobs Down, Stocks Up?”, Lawrence Kudlow, Saturday, February 07, 2009

Broad stock indexes are up 15 percent to 20 percent from their November lows. How can this be? Well, the stock market is telling us that the economy’s future is a lot brighter than its past.

For the 92.4 percent, or 135 million workers, still employed, wages now stand nearly 4 percent higher than a year ago. With zero inflation, that’s a real increase in worker purchasing power

The Federal Reserve has pumped almost $600 billion to the money supply to offset credit and asset deflation … a 20 percent annual rate of increase. Increases in the money supply historically kick in (to help the economy) somewhere between six and 12 months. Money growth could well produce the biggest economic surprise this year.

And while the quantity of money is rising significantly, the quality of credit is improving, too. All the credit-fear indicators — from LIBOR all the way out to corporate-bond spreads — have declined substantially.

And, there’s the simple fact that marginal tax rates will not be raised. Obama seems to have shelved that notion — at least for 2009.

So cheaper energy, bundles of new money creation, zero inflation and no tax hikes could very well combine to produce a stronger economy as the year progresses — to the great surprise of the majority of economic pundits. 

Full article:
http://www.rasmussenreports.com/public_content/political_commentary/commentary_by_lawrence_kudlow/jobs_down_stocks_up 

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Who says a cup of latte is 4 bucks? … Starbucks fights back.

February 9, 2009

Ken’s Take: Uh-oh. Premium brands shouldn’t try to shift focus to price … cheapens the brand and plays to the other guy’s advantages. Starbucks is flailing …

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Excerpted from WSJ, “Starbucks Plays Common Joe”, Feb. 9, 2009

Starbucks — built a coffee empire on its premium image — wants to convince customers that its drinks aren’t that expensive.

Soon, it’ll be selling discounted pairings of coffee and breakfast food for $3.95, a type of promotion long used at fast-food chains. It’s the first move in an aggressive campaign to counter the widespread perception that Starbucks is the home of the $4 cup of coffee.

The Seattle-based company is training its baristas to tell customers that the average price of a Starbucks beverage is less than $3, and that 90% of Starbucks drinks cost under $4.

For Starbucks, the effort is also an attempt to fend off McDonald’s … whose advertising includes billboards saying “Four bucks is dumb.”

Few companies embody the consumer spending boom of the 1990s and 2000s like Starbucks … it  transformed  coffee from a commodity drink into what he billed as an affordable luxury … but sales have been in steep decline during the recessionary era of penny-pinching … so, executives began plotting a new strategy to portray the company as offering value.

Research uncovered what executives describe as a disconnect between the company’s actual prices and consumers’ perception of those prices.

“The myth of the $4 latte … is not true” … the average price of a Starbucks latte is $3.25 (before tax).

Pinning down the price of the drinks is more difficult than it may seem. The price tag climbs when customers add flavoring or additional shots of espresso, and sales tax also makes the tab higher. Prices also vary depending on the city.

Indeed, the price gap has narrowed  and some sizes and varieties of Starbucks are cheaper than Dunkin’ Donuts coffee when adjusted for size differences. McDonald’s is still cheaper than Starbucks.

Dunkin’ Donuts says, “We believe we are the faster and more affordable alternative” to Starbucks.

McDonald’s says “everyone’s looking to get more from a dollar … our customers know that’s what they’ll get at McDonald’s.”

Asked whether Starbucks is considering simply reducing drink prices: “Today, no. But never say never.”

Full article:
http://online.wsj.com/article/SB123413848760761577.html?mod=testMod#printMode 

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Value is the name of the game

February 9, 2009

Excerpted from the Progressive Grocer, “Nielsen Consumer Insight Report Offers Ways for Retailers to Navigate Rough Economic Seas“, January 8, 2009

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How to Cope During Difficult Economic Times,” a Nielsen Consumer Insight report provides value programs and dramatic cost-reduction strategies to help retailers struggling to attract beleaguered shoppers.

While declines in discretionary expenditures have been taking a toll on low-, mid-, and high-end department stores, select retailers within grocery, dollar, club, and drug stores fared better. Retailers carrying more “need-to-have”, not “nice-to-have,” assortment have registered positive same-store sales growth. 

Consumers — protective of their spending power — learned to trade down to value channels, reduce purchase frequency, move from on-premise consumption to off-premise purchasing, and downscale from premium to mid-tier or value brands.

Fully 40 percent of shoppers think that food and personal care prices have increased over the past three months.

When offered some ideas for coping, consumers expressed a preference for larger sizes with a lower price per serving (47 percent of shoppers) over smaller pack sizes at lower prices (17 percent).

Nielsen research shows that shoppers are increasingly happy with private label products, calling them a good alternative to name brands, at parity with or better than national names on quality criteria, while offering good pricing and value. The social stigma is gone, along with boring generic-looking packaging. Many retailers treat private label and exclusive brands as an integral part of their corporate brand image.

Forecasts call for continuing tough times and economic instability that filters throughout the economy. In short, we can brace for more of the same, and expect existing behaviors to intensify. Shoppers will first meet their basic needs and forgo discretionary purchases.

At-home opportunities will climb. Variety and convenience will take a back seat to value. Trading down will become an acceptable way to stretch budgets. Local sourcing gains traction, not as a green activity, but rather as a strategy for controlling costs, delivering value, and maintaining product freshness.

Edit by NRV

Full article:
“http://www.progressivegrocer.com/progressivegrocer/content_display/features/center-store/e3i9953839003c11ce8daf4ca7117546a38?imw=Y 

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GM’s Reputation gets a jolt … oops, I mean Volt?

February 9, 2009

Ken’s Take: It will be interesting to see how the Detroiters position hybrids when they grovel back to Washington in a week or so with their economic viability plans.  Zero chance that they make any money from hybrids in the next couple of decades (if ever).  But, they’ll have to play “emporer’s new clothes” to get their government money

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Excerpted from Fortune, “Chevy Volt: Marketing meets technology” By Alex Taylor III, Jan 13, 2009

Whenever you ask General Motors CEO Rick Wagoner what he needs to do to revive the troubled automaker, he invariably replies, “Make great cars and trucks and achieve technology leadership.”

Despite GM’s financial troubles, he is arguably making progress … But one piece of a GM revival has consistently eluded Wagoner and frustrated its executives: restoring the tattered company’s good name. Until GM improves its reputation with potential customers, all the improvements it makes in its product line go for naught …

Indeed, GM’s determination to improve its standing with the public dictated the creation of the Chevy Volt as the company’s technology flagship. The Volt was chosen to be a leading-edge image booster rather than an immediate moneymaker for the cash-strapped automaker … And its capabilities were designed at least as much to grab attention as to make a big impact in the marketplace.

Due to reach the market in late 2010, the Volt is a vehicle unlike any other in the world. It consists of an elaborate battery pack and a small gasoline engine … GM calls it a “range-extended electric vehicle” and it may price around $40,000.

According to GM executives, the Volt was conceived in the spring of 2006 as a way for the automaker to leapfrog the technology edge that Toyota gained when it made a success of the hybrid gas-electric Prius …

GM decided it needed an electric car. But it faced another decision when it tried to figure out how capable it should be. The range and cost of an electric car are directly related to the size of the battery pack. Use a few batteries and you limit the electric diving to a few miles, but you also hold down the cost.

GM figured that it needed a lot of batteries – and hence a higher sticker price – to give its image the needed lift. “It was an engineering solution to a marketing problem,” says Burns. It settled on a 40-mile all-electric range because it would satisfy the commuting needs of a majority of the population. The Volt’s $40,000 price tag, which will sharply limit its sales volume, was given less weight, as was the fact that GM would lose money on the car. Pizzazz outranked practicality …

By comparison, Toyota is pursuing a sharply different strategy. It plans to introduce a plug-in version of the Prius that will only go 12 miles on a charge of electricity … As a result, the Prius will be significantly less expensive than the Volt, perhaps $10,000 or less, and it could be expected to sell in much larger numbers.

GM executives say that so far the Volt has been successful at raising the automaker’s profile and helping to refurbish its image. Whether it continues to do so once it arrives on the market with its high price tag and limited number of potential customers will be another question.

Edit by SAC

Full Article:
http://money.cnn.com/2009/01/13/autos/motor_world.fortune/index.htm

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