Stop&Shop: A Failure of Customer Service

One of the larger grocery stores in my area is a Super Stop&Shop. I'm uncertain as to the ownership of the chain. It's based in the Boston/Rhode Island area, but I cannot find it as a publicly-listed company.

(Author's note: I have since verified that Stop&Shop is a division of Royal Ahold, the Dutch-based food retailer.)

In recent years, the chain has upgraded stores, adding departments and various services. Recently, it took a giant step to distinguish itself by adding hand-held scanners. This product allows a customer to scan bar codes while shopping, including using custom-printed produce bar codes generated by electronic scales. The result is potentially the quickest possible checkout experience, bar none.

Not only does a customer not have to re-scan each item, but, due to having nothing to scan, s/he may use the express lane. The only significant activity at checkout is paying for the merchandise.

Due to this technology, I had shifted nearly my entire food purchasing activity to Stop&Shop, from a local, smaller chain, Kings. That chain had been owned by British-based Marks&Spencer for years. I'm not sure of its ownership status now, but I believe M&S at least reduced their stake, if they did not succeed in divesting themselves of their entire interest.

The Stop&Shop hand-held scanner is apparently a third-party provided solution, as I learned this summer.

One evening, having successfully sped around the store scanning away, I was checking out in the express lane, when the monitor announced that I "needed help," and suspended checkout. I was the victim of a cart audit.

Understandably, the hand-held scanner system generates "random" audits of shoppers, at which a S&S employee comes over to randomly scan items from the customer's purchases, confirming that each re-scanned item matches an originally-scanned item.

However, this became a problem when I was subjected to this so-called "random" event at least 4 times this summer.

Since the entire purpose of the combination of self-checkout lanes and a hand-held scanner is to deliver a speedy shopping experience to the customer, being stopped for an interaction with a low-paid, low-skilled clerk defeats the entire purpose. A well-designed audit program would balance stopping theft through unscanned items with truly random, or, better, system learning, so that customers who are audited, and not found to be stealing, are rated a lower risk, and subject to fewer random checks over time.

After the third audit this summer, I demanded to see the manager on duty at the time. In a long conversation, I explained that I did effectively all my grocery shopping at that store, because of the self-checkout and hand-held scanners. And that it was difficult for me to believe that I was "randomly" audited 3 times in, at most, as many months. That each audit was, to me, as a customer, a pending accusation of theft.

I told the employee, actually the store's assistant manager, that if I was subjected to one more audit within the next three months, I would stop patronizing his store. I didn't care how he would arrange it, but this was my promise.

Last week, I was stopped again for a cart audit. This time, as I loudly asked if the audit did not mean the store management suspected me of theft, and, when I passed the audit, was I not innocent of said assumption, I demanded to see the on-shift manager. This time, it was the store's manager, and he was standing only a few feet away. With him was the man I recognized, from my earlier conversation, as the store's assistant manager.

That's when the real fun began.

By now, a short line of people were queued up behind me in the express lane. I had a heated conversation with the manager, who tried to excuse the situation by claiming that the system was not under his control. That a third party was managing it.

I retorted that, as a customer, that made no difference to me. I was in a Stop&Shop store, so I had a reasonable expectation that the store's manager was responsible for my treatment. We went on like this for some minutes, with the manager incredibly contending that if I were to contact his corporate management, it would have more impact than his own complaint.

I replied that I had better things to do with my time, and that, if his statement were true, his firm is in more trouble than they probably realize. And that, as promised to the assistant manager, who had not recognized me, I was now returning to Kings to do all of my grocery shopping.

When I tried to check out, after the employee had done the required cart audit, the monitor froze, then came back up blank. The manager was horrified. Because my purchase used the scanner, the hand-held unit was needed to restart the checkout process.

But the audit employee had taken it. She, and it, were nowhere in sight.

I then had the pleasure of an event of which many of us have probably dreamt, but few have done.

I announced loudly that the store's system and management were totally inept, and could not even check out my purchases.

And then, I began to unload my very full canvas shopping bag onto the floor.

Again, clearly and loudly, to the manager, explaining that I did not even want the merchandise I had just selected and tried to buy, I placed various produce items and packaged goods in and around a small hand-basket, then left the store. Again, announcing my next stop- the rival grocery chain store down the street.

This is a store manager's worst nightmare. The cost of reshelving items is pretty high. Basically, with 1% sales margins in grocery stores, it effectively wipes out profit on those items, and then some. Not to mention the produce, which might have to be discarded.

Then there is the visual of a customer dumping items back onto a floor in full view of other customers. It's the ultimate repudiation of a retailer.

Honestly, I'm surprised the manager let me do this, and didn't offer almost anything to prevent it.

Ironically, as I processed what had just happened, with this post in mind, I realized that Stop&Shop's failure in this case was not its use of technology. Or the technology's failure.

No, the real culprit was the store's manager, assistant manager, and staff.

The assistant manager had never taken my name or contact information during our initial conversation in July. I clearly warned of the consequence of my experiencing another cart audit within the next few months.

Had the assistant manager been alert and competent, he would have taken my contact information, and at least begun a communications process that would lead me to believe, and, more importantly, feel that the store's management sympathized with my plight, and was doing something about it.

Even during my second conversation, with the store manager, he, too neglected to take any identification or contact information whatsoever.

Here, he had a disappointed, angry soon-to-be-ex-customer loudly denouncing his store in front of several lines of other customers at the checkout lanes. You'd think he would take the opportunity to exhibit maximal empathy and a show of action calculated to defuse my frustration and demonstrate real concern for his customer.

Instead, he appealed to me to contact his own senior management, though offering no advice as to how to do that, or whom to contact.

If that store manager had taken my contact information, apologized for the occurrence, and promised to 'do something,' he would have kept my business for at least a week or so, and have put on a wonderful show of positive, caring customer service in front of several dozen other customers.

This is, I think, a rather important lesson. Blaming the technology that a firm chooses to provide in its stores for its customers, for a bad shopping experience, is hardly productive or effective.

But almost any bad customer experience can be, at least temporarily, assuaged by genuine attention, collection of the customer's name and contact information, and a promise of imminent contact and communication to remedy the situation.

As I have mulled over this experience for the past week, I become more and more amazed at the lack of training, sophistication and innate instinct for good customer service that was displayed by the store manager of the Stop&Shop. What's sad, of course, is that if this constitutes "leadership" at the store, imagine how inept and ineffective customer service must be among the lower-level employees.

Isn't it ironic that Stop&Shop has invested substantial sums of money to become a leader in allowing very fast shopping trips, with no interaction with the store's staff, only to blunt this potentially important competitive advantage through poor control and oversight, and integration, of the technology with the store's management. And, then, compounding this error with poor customer service.

Customer service really is the first- and last- line of defense for a retailer. It can at least temporarily blunt and offset a poor customer experience with the store. But if this line of defense fails, the retailer is lost.

Cadbury's Stitzer's Key Customer Insights

Tuesday's Wall Street Journal featured an article detailing a supposed "softening" of Cadbury CEO Todd Stitzer.



However, buried deep within the story were two refreshing and insightful quotes by Mr. Stitzer. The first was,



"I completely respect the fact that we would be attractive to someone else, but the world of large conglomerates has passed," he said. "Shareowners recognize that focused businesses, and focused in an area that has commercial and operational synergies, is a very good space to be."



This is a rare, honest admission for a CEO. Granted, Stitzer's Cadbury is the prey, not the hunter. So it's self-serving. But it's also true. Contrast his candor with both parties' words in the recent Dell-Perot Systems deal.



This was followed by the article's noting,


By buying individual confectionery brands, Mr. Stitzer said Cadbury has tried to grow bigger within the category, rather than by teaming up with a bigger food company.



Stitzer's focus, via that strategy, becomes more evident with the next passage. The piece then quoted Cadbury's CEO again,



"I think scale works to a [point]," he said. "There's a confectionery buyer in retailers and I think you can focus on that buyer, and if you can offer chocolate, gum and candy, I think that's an advantage. What more can you offer to the confectionery buyer in the grocery store? They don't necessarily and are not generally responsible for anything but confectionery."



Putting these two views together, one what seems to be a really non-delusional, focused, in-touch CEO. One that understands his direct customers, the retail food merchant's buyers.



With them in mind, he's built Cadbury out within the scope of his current customers' pervue. But he rightly notes that Kraft primarily markets to other buyers, albeit within the same grocery store.



After the requisite administrative costs are shed, what then? What organic, post-merger accounting growth will be realized?



If anything, Stitzer is really making the case, by omission, for another approach entirely.



Why doesn't Kraft offer to sell its confectionary businesses to Cadbury for stock, and a seat (or however many make valuation sense) on the British firm's board?



That way, Kraft gets the value of scale within confectionary products, but avoids the curse of oversized conglomeration. Irene Rosenfeld's management team can focus on food products, while reaping the benefits of Cadbury's economies of scale within their category. In time, subject to deal terms, Kraft can sell its stake in the market, or to Cadbury, for a premium, while relinquishing board presence.



The nearby price chart for Cadbury, Kraft and the S&P500 Index shows an interesting picture. Over the period, though moving in similar patterns, Cadbury has substantially outperformed Kraft. In fact, Kraft ended down, in absolute terms, about even with the index, while Cadbury managed to have gradually, consistently bested Kraft's performance.

It argues for Cadbury's management to handle the commonly-held confectionary businesses, not for Kraft to get a larger collection of assets to mismanage.

Granted, Irene Rosenfeld has shown promise. But as I noted in this post from early 2007, Kraft has been plagued by management lethargy for years.

Looking at the price chart again, while mystified how Kraft could have a stock price prior to 2007, when it was part of Altria, I can't help but think that my idea would be better for shareholders of both firms than Ms. Rosenfeld's attempt to take over Cadbury.

Art Laffer's Recent WSJ Piece

Noted economist Art Laffer wrote a sobering piece in yesterday's Wall Street Journal. I would have gotten to his piece later yesterday, but a number of searches which brought people to my blog were about Laffer and the Journal, so I knew he must have written a new editorial.

There are quite a few economists who write on the pages of the WSJ from time to time. Brian Wesbury, one of my favorites, has been absent for some time. But those who still contribute include Robert Barro and Alan Reynolds, to name two more.

While not a degreed economist myself, I have studied the discipline with great interest since my freshman year in college. I've read a number of basic texts, including Keynes' work, and one of his contemporary critics, Michael Hutt.

I've come to feel comfortable reading and evaluating various economists' monographs. In this vein, Laffer's recent piece is very troubling.

Without going into details, Laffer addresses the 1930s as the milestone by which current fiscal and monetary powers that be are measuring themselves. Laffer begins by discussing the initially too-tight monetary policy of the Depression, and current Fed Chairman Bernanke's determination to avoid making that mistake again.

At this point, Laffer takes a turn into tax policy. Framing Smoot-Hawley as a tax, which it most assuredly was, he provides evidence of enormous increases in a myriad of tax rates. He observes,

"The damage caused by high taxation during the Great Depression is the real lesson we should learn. A government simply cannot tax a country into prosperity. If there were one warning I'd give to all who will listen, it is that the U.S. federal and state tax policies are on an economic crash trajectory today just as they were in the 1930s."

Laffer then cites the current slated rise in state tax increases at 3.1% rate, the highest in almost twenty years. Further, he notes the 'cap-and-tax' legislation and health care levies as heading in this wrong direction.

He then turns to Milton Friedman and Anna Schwartz on the subject of gold.

Following the twists and turns of the period's gold policy, Laffer notes two rather obscure facts. First, FDR forcibly took gold from the US populace at $20.67/ounce, then, less than a year later, devalued the dollar to $35/ounce. He both seized assets, and unintentionally sparked inflation, with two gold-related actions.

And this was technically fiscal policy, because, as Laffer points out, it was FDR's doing, not the Fed's.

Laffer concludes with a rather astounding statement of facts. The consequence of FDR's actions, in concert with the Fed, by mid-decade, produced consumer price inflation of roughly 15% from 1933-37, during a period of double-digit unemployment.

He finishes his editorial with these words,

"The lessons here are pretty straightforward. Inflation can and did occur during a depression, and that inflation was strictly a monetary phenomenon.

My hope is that the people who are running our economy do look to the Great Depression as an object lesson. My fear is that they will misinterpret the evidence and attribute high unemployment and the initial decline in prices to tight money, while increasing taxes to combat budget deficits."

There's no getting around what Laffer is saying. He bemoans the fact that fiscal tax policy can easily exist with lax monetary policy, ushering in a lethal economic brew of stagflation. That is, high unemployment, deficits, and high inflation. Because economic management is split between an administration and the Fed, this is a perennial risk.

As Laffer notes, Bernanke is already doing his part to over-inflate money supply. The current governments, state and federal, are repeating the mistakes of FDR's administration during the Depression, raising taxes to new heights.

This is the type of economic piece which causes me do dispute James Grant's recent cock-eyed optimism.

I had lunch earlier this week with my friend, B. He is a PhD with a focus on the history of monetary systems. He is currently concerned about inflation. As a member of a prominent think tank's board, he frequently participates in conferences and discussions of selected topics. Recently, he presented a paper concerning the sources and consequences of the recent financial debacle. B, and his colleagues, all fear hyper-inflation far more than a Depression.

And they are all pretty convinced we are headed in that direction. As Laffer notes, just because we have retarded economic activity today does not in any way mean we can't, or won't, also manage to ignite serious inflation.

The Fed had doubled the monetary base in the past year, as Laffer pointed out early in his editorial. The Fed is buying Treasuries, monetizing our own debt, too. The financial markets have responded by using the printed money and Fed cash to push up asset prices and keep interest rates low. Laffer remarked on this yesterday afternoon, on Neil Cavuto's Fox News program. With so much government liquidity flooding markets, he explained, of course equity prices are on a tear, as are commodities. But Laffer sees this sparking inflation within a few years.

Laffer quoted the esteemed late Milton Friedman,

"Inflation is, everywhere, a monetary phenomenon."

And monetary policy is probably the easiest in our Republic's history. Printing presses wide open and Congressionally-legislated deficits doubling through the next decade.

We have, as Laffer noted, a nearly-exact replay of the Great Depression's monetary and fiscal mechanics now in full swing. Monetary easing combined with fiscal irresponsibility that is resulting in higher tax burdens.

This is why I don't see an imminent, nor prolonged real economic recovery underway in the US at this time.

About Dell's Purchase of Perot Systems

Yesterday morning's big corporate news was Michael Dell's computer making company buying Perot Systems. For a hefty $30/share, a hefty premium to the $17 or so Perot closed at on Friday. A price the consultant/system integrator hasn't seen in ten years!

I'm sure Dell shareholders are thanking Michael profusely for squandering their money so unwisely.

I happened to have lunch with my friend and former/sometimes business partner, B. He noted that all of Ross Perot's companies had now been purchased, i.e., EDS by HP, and Perot Systems by Dell.

I added that a third, GM, was now owned by the US government. We both laughed. For those too young to recall, GM once purchased EDS, making Ross Perot the largest single shareholder, and a gigantic thorn in the side of then-CEO Roger Smith. Eventually, they paid Ross to go away. And spun off EDS, as well.

But, back to Dell.

The nearby 5-year price chart for Dell, Perot Systems and the S&P500 Index clearly displays the folly of Michael Dell's move. For the past five years, Dell has been on a long, slow decline. My many posts discussing the firm's fall from its prime, and Michael Dell's inability to recover its lost ability to generate consistently superior total returns, provide background on this.

With a loss of 50% of its value over the past half-decade, Dell is headed toward the graveyard of Schumpeterian dynamics. There's just not that much juice left in manufacturing, selling and distributing computers the Dell way.

Compared to Dell, Perot Systems have performed spectacularly well. It's managed to remain even, and even slightly outperform the S&P over the whole period, though not consistently.

For Dell to buy Perot is essentially a bid to diversify into a different business, using spare cash. It's a classic example of the financial theory argument that investors can more cheaply diversify for themselves. At a premium exceeding 50%, that's certainly true in this case!

In fact, the nearly $4B acquisition begs the question of what Dell is doing with some $10B in liquid assets on its balance sheet while its value decays?

The Wall Street Journal opinion piece lauded Dell for diversifying. Personally, I don't see it that way. Instead, Michael Dell, like so many other CEOs, can't let go. He should just sell or merge Dell to create a larger PC manufacturer. Let his shareholders buy a pure systems integrator play, or HP, if that's what they desire.

Michael Dell is using his shareholder's money to continue having a company to run. How he is going to make Perot something it can't be on its own should worry Dell shareholders. Perot could have borrowed money, were its business opportunities sufficiently attractive. If Michael Dell better knows how to run a systems integrator than do the senior management of Perot Systems, Dell could have grown its own unit, for much less money.

Finally, as usually occurs in these situations, Dell seems to be buying the weakest of the breed of remaining systems integrators. The better ones, such as EDS, were already picked off.

There's nothing about this deal that makes sense, except prolonging Michael Dell's personal joyride running a Fortune 500 company.

Much as I suggested for Kodak's shareholders, Dell's should be bringing a lawsuit over this egregious use of their money. Or, better yet, just sell Dell immediately and take the recent loss as a lesson in being more judicious investors when the company is run by the guy it's named for, but the firm is over the hill.

James Grant on An Economic Recovery

This past weekend's Wall Street Journal edition carried a prominent, long piece by respected market observer James Grant.

The Grant piece, which comprises the very long lead in the last section of the edition, is surprisingly positive. Given Grant's recent scepticism, he is unfailingly optimistic about an imminent economic recovery of monumental proportions.


In a way, it's too bad that Grant spent so much ink on something that, to sane, informed business professionals with any economics education, is so obvious. I don't disagree with him that really deep recessions produce really strong recoveries.

The question is when.

On that, I don't see Grant providing compelling evidence, despite his assertion that said recovery will be much sharper and sooner than many pundits now believe and forecast.

Grant omits any evidence as to why recent political changes are not different than prior ones, or, if the same, why. The truth is, today's more powerful government interventions are built upon FDR's original interventions, not instead of them. And the exit of the US from the Great Depression had more to do with rearming for WWII than it did with a magical, sudden change in consumer spending and subsequent employment.

Personally, from my reading of many economists and related pundits, I simply feel that Grant is, in a word, wrong. Too optimistic about the timing of a recovery.

What if one had been similarly optimistic at Carter's election in 1976? One would have been waiting a long time for the Reagan recovery, strong as it ultimately was.

Instead, I found this morning's article by E. S. Browning in the Money & Investing section of the Journal more useful and credible.

Browning is much more convincing, in my opinion, in his/her detailed assessment of the risks of this period of "economic instability."

Absent a major war, it's unclear what consistent, steady demand will arise very soon in the US economy to fuel all the economic recovery currently forecast by Grant and others.