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    Published on: October 10, 2002

    The Anaheim Angels beat the Minnesota Twins, 6-3, in Game 2 of the American League Championship Series, tying the best-of-seven series at 1-1.

    And Barry Bonds hit a two-run triple to lead the San Francisco Giants in a 9-6 opening-game victory over the St. Louis Cardinals in the National League Championship Series.
    KC's View:

    Published on: October 10, 2002

    Responding to our piece about the consumer desire for healthier, better tasting fast food, in which we cited Corner Bakery as one of the chains looking to exploit this trend, MNB user Dan Raftery of Prime Consulting sent us the following email:

    “I've watched Corner Bakery experiment with a location in the dungeon area of O'Hare for about two years now. At first they ran the operation very much like a regular location, but the service was not fast enough for this group of transient consumers. They are now offering pre-packaged items from a front access case, just like all the other sandwich and salad vendors.

    “The difference is of course the quality of their product versus competitors, which is how they were able to pull traffic into a bad location in the first place.

    “Two observations/questions: How much impact does the first operating method have on the consumer's positive image of freshness? (I'll answer that one with a wager that it has a significant image impact.) Does this impact carry
    over now that their offering looks essentially the same as competitors?”

    We can answer that with a personal reaction. For a long time, there was a Starbucks inside the United terminal at O’Hare that made fresh sandwiches to go – you choose the bread, the meat, the cheese, and all the trimmings, and the price was always the same. While there was precious little creativity in putting together the sandwich, you got the feeling that it was fresh, and we almost always bought a sandwich there to eat on the plane.

    Recently, however, they’ve been selling the same, pre-packaged sandwiches that everyone else sells at O’Hare – and we don’t buy sandwiches there anymore.

    So our answer would be that the first approach cited by Dan Raftery has an enormous impact on perception, and that the image doesn’t carry over when a switch is made. At least, that’s our perception.

    On this same subject of healthy fast food, we got an email from one MNB user that read:

    “Just returned from vacation in France, where healthy fast food is pretty easy to find at good prices. Loads of little restaurants make killer sandwiches on bread from this morning, all packaged and ready to take away -- good ham, RED tomatoes, CRISP green lettuce (no brown wilty iceberg here), and cheese with actual flavor (as opposed to that orange stuff) for around EUR3.50 to EUR 4.00 -- $3.50 to $4.00 here -- certainly competitive with any fast food joint. Additionally, the deli departments of nearly any supermarket sell prepared dishes (couscous, stews, casseroles) to take home and heat up -- and they're *GOOD*. Even McDonald's gets in on the act -- their Salad Shakers are delicious -- definitely a lesson for the folks here. (And don't get me started on the killer paella from a street vendor, made with just enough rice to hold all the seafood together. Three of us ate all we could hold and still had leftovers, for less than one order of paella anywhere in Florida.)

    “Bottom line is -- it's not that difficult, but the chains have to make the choice (e.g., Wendy's great salads, and Burger King's veggie burgers, which I liked).”

    We agree that the most important element is real, long term commitment -- and that may be the most difficult ingredient to find.

    Though we have to admit that while we love gastronomic adventures, we might have drawn the line at paella from a street vendor…

    In response to our lack of understanding about the continuing appeal of the Kohl’s department store chain, we got the following email from MNB user Doug Gammage, senior director of market development at Watt International:

    “In a recent visit to Fayetteville, Arkansas, I found within a half mile area a Dillard's, Target, Wal-Mart, Old Navy and Kohl's, each with a very specific demographic target, and in terms of fashion, little overlap.

    “Over stored? Perhaps, but speaking as a consumer from Canada, where we have a more homogenous selection, I appreciate the opportunity when I visit the U.S. to find exactly the type of merchandise that meets my needs in each category. In retailing, democracy (i.e. consumer relevance) will determine survival. The better defined your brand and the better you are at communicating and maintaining the brand promise, the better your chances.

    “ It is clear that Kohl's has found a niche that consumers are responding to.”

    We absolutely agree.

    Regarding Wednesday’s story about E. coli victims looking for some sort of compensation from ConAgra, MNB user Pat McCarthy wrote:

    “More than likely, this type of lawsuit will become the rule rather than the exception. The beef industry most likely be forced to irradiate all ground meat in order to clear themselves of all potential liability. Even though they are mandated to put safe handling instructions on all packages, that doesn't prevent the consumer from not handling or cooking the product properly. As long as our courts and juries award ridiculous judgments against manufacturers for consumer ignorance( i.e.: recent tobacco judgments) the beef industry will be forced to go to ‘electronic pasteurization’ to protect themselves without regard for the increase in cost. Instead of 99-cent/lb ground beef in an ad, we will likely see $1.99/lb and like all price increases, gradually become accustomed to it.”

    Responding to our story about the National Association of Convenience Stores (NACS) show and the apparent lack of nutritious foodservice options on its exhibit floor, we received the following email from MNB user Tom Stenzel, president & CEO of the United Fresh Fruit and Vegetable Association:

    “C-stores will get there eventually with healthier convenient fresh fruits and veggies. Yeah, I'm biased, but there's a competitive advantage to the c-store that can offer and merchandise fresh-cut fruit cups, baby carrots and dip, etc. as snacking options. It's also good margin business if you can get it right. But. it's still plenty tough to get the cold chain and quality right, and move enough volume to account for the daily shrink. But, it's coming. Look at the early adopters to see how it's done.”

    We wrote the other day about McDonald’s testing the idea of putting associates outside the store to help speed up traffic through the drive-through window. In response, we got this email from an MNB user Down Under:

    “In Australia, McDonalds have developed what they call ‘Face-to-Face,’ which involves installing a second drive-thru window -- allowing someone to take your order & money, and then someone to pick & deliver your order. In some of the larger stores, they even have a third window -- allowing this person
    to collect your money (the idea being the first person tells you the amount, you drive to the next window to get it ready & to pay). It has been years since I ordered through a microphone at McDonalds here.

    “As another innovation, we now have a Macca's (that's Australian for Mickey D's) that have "fresh for you" -- a process where they make the burger as you order it. The system works well, and we noticed no delay --- in fact if anything, maybe an improvement in speed. I guess if you think about it, they have standard ingredients that get mixed & matched to make the burgers.”

    Sounds like an improvement to us.
    KC's View:

    Published on: October 10, 2002

    • "USDA's new country-of-origin labeling guidelines for fresh and frozen produce, meat, seafood and peanuts will only generate an endless paper trail, require massive labels that may cover an entire package of meat, and create confusion for consumers without providing them any real benefit," said Tim Hammonds, president and CEO of the Food Marketing Institute (FMI). "In addition to being extraordinarily difficult to implement, adhering to the guidelines will be extremely expensive for food producers, which will ultimately increase the cost of food for consumers."

      Hammonds was responding to guidelines issued late yesterday by the U.S. Department of Agriculture (USDA) to implement a new law calling for voluntary country of origin labeling for two years. After that, labeling becomes mandatory. FMI believes that the guidelines place an excessive burden on the entire food production and distribution chain, and that they will actually discourage voluntary labeling by retailers.

      "Food retailers are being asked to keep records of the country of origin of more than 500 products in each store for two years. The country in which each processing stage occurs for every single fresh or frozen vegetable, every fresh or frozen piece of fruit, every fresh or ground cut of beef, pork or lamb, every piece of fish, and every peanut will need to be identified and documented," said Hammonds.

      He added, “All of the documentation required by the program places a particularly unfair burden on the smallest operators."

      FMI noted that it is gratified the guidelines require the entire food production chain to be engaged to implement the program. Suppliers could be asked to utilize USDA's new user-fee-based advisory audit system to verify the accuracy of the country of origin information suppliers are required to provide retailers under the law.

      "In addition to the endless paperwork, retailers will incur higher costs from the additional labor, signage and displays required for country-of-origin labeling. The average produce department alone carries more than 400 items year-round, and displays change constantly due to supplies and produce perishability. Retailers will face a nearly impossible task putting and keeping the right label or sign in place at the right time.

    • “It is time to bring reforms to the prescription drug marketplace and provide consumers with more choice of and greater access to affordable medications,” said John Motley III, senior vice president of public and government affairs at the Food Marketing Institute (FMI). “Currently, brand-name pharmaceutical companies are able to unfairly delay less expensive generic drugs from reaching the nation’s pharmacies.”

      Motley’s comments were included in a letter to members of the House Energy and Commerce Health Subcommittee, which is currently reviewing proposed drug reform legislation (H.R. 5311 and H.R. 5272). Specifically, the proposal would reform the Drug Price Competition and Patent Term Restoration Act of 1984 (P.L. 98-417) by closing loopholes in the Hatch-Waxman law. The purpose of the 1984 statute extends patent protection for new brand-name medications for up to an additional five years to compensate pharmaceutical manufacturers for the time lost in obtaining market approval from the Food and Drug Administration (FDA).

      The proposed reforms to Hatch-Waxman would accelerate generic drug introductions and expedite resolutions of patent disputes. The Federal Trade Commission (FTC) has endorsed the reforms, and the Congressional Budget Office (CBO) estimates that the changes to the 1984 law will save consumers and employers approximately $60 billion over the next 10 years. The reforms would not discourage pharmaceutical companies from making future investments in the development of the next generation of innovative drugs.

      “As an industry that has approximately 3.5 million employees, our members are becoming increasingly concerned over the runaway costs for prescription drugs, which are increasing by a much as 10 to 20 percent annually,” Motley said. “If this disturbing trend continues unabated, it will undermine the ability of self-insured companies to provide their associates with health care coverage, and it may in fact force many companies to increase employee premiums, raise their co-payments or reduce benefits in order to offset these rising costs.”

    For more about the FMI positions, go to
    KC's View:

    Published on: October 10, 2002

    • Walgreen announced that Jeffrey Rein, the company’s executive vice president of marketing, will become president and COO of the drugstore chain, effective Jan. 8. Current Walgreen President and CEO David Bernauer will retain his CEO title and take on the additional role of chairman in January.

      The company said the moves were part of succession planning keyed to the retirement next year of company Chairman L. Daniel Jorndt.

    KC's View:

    Published on: October 10, 2002

    • Winn-Dixie Stores reported net income in the quarter ended Sept. 18 rose to $34.8 million, from $22.4 million a year earlier. Total quarterly sales increased to $2.83 billion in the latest quarter, while same store sales were up two percent.

    • Costco reported that its fiscal 2002 full year net sales were $37.99 billion, an increase of 11 percent over last year, whilst same-store sales increased by 6 percent. Net income was up 16 percent to $700 million. The company posted fourth quarter net income that was up 30 percent to $247.4 million from $190.7 million during the same period a year ago. Quarterly total revenue rose to $12.3 billion from $11.13 billion.

    • Wal-Mart de Mexico (Walmex) posted September same-store sales that were up just 1.2 percent in September. The company blamed a weak peso that caused consumer uncertainty for the poor performance. Walmex total sales in September were the equivalent of $783 million (US), up 11 percent from September 2001 after adjustment for inflation.

    • 7-Eleven, Inc. reported a 2.7 percent increase in its U.S. same-store merchandise sales for September 2002, on top of a 5.8 percent increase in September 2001. Total merchandise sales for September 2002 were $633.1 million, an increase of 3.7 percent over the September 2001 total of $610.7 million. Gasoline sales for September 2002 were $245.2 million, a 6.2 percent increase compared to $231.0 million in the prior-year period.

      The following results compare year-to-date results through September 2002 to the same period last year: U.S. same-store merchandise sales have increased 3.1 percent, on top of a 4.9 percent increase for 2001. Merchandise sales total $5,504.7 million, an increase of 3.8 percent. Gasoline sales total $2,078.5 million, a decrease of 4.5 percent.

    KC's View:

    Published on: October 10, 2002

    • The Wall Street Journal reports that the US Department of Agriculture (USDA) has asked Pilgrim's Pride Corp. to recall nearly 300,000 pounds of frozen, fresh, and deli turkey meats, sold under the Wampler brand name. Samples of the company’s turkey pastrami reportedly tested positive for Listeria monocytogenes. However, the positive tests could not be directly connected to a listeria outbreak in the Northeast US that killed 20 people and made more than 120 ill.

    KC's View:

    Published on: October 10, 2002

    Reuters reports that Wal-Mart Stores has entered into a joint venture with the China International Trust and Investment Corp (CITIC) that will have them opening stores on China's booming eastern coast, especially in and around Shanghai, China’s biggest city.

    Details of the deal were not available, though Chinese law will allow foreign companies to own only up to 65 percent of any retail joint venture.

    Wal-Mart has 22 stores in China, but this is the company’s first move into the eastern part of the country. Competitors such as Carrefour already have a presence in the region.
    KC's View:
    Possibly just as important as the new stores will be the procurement center that Wal-Mart will operate in eastern China, allowing it to source new and inexpensive merchandise for its divisions elsewhere in the world, and ultimately to undercut everybody else on price.

    Published on: October 10, 2002

    • BusinessWeek reports that Kmart CEO James B. Adamson is being pressed by the company’s creditors to come up with a reorganization plan for the company by early 2003, or at least six months before the company said it would emerge from bankruptcy protection.

      While Kmart is said to have made some progress by closing 283 stores and cutting $130 million in annual overhead, the outlook for holiday season sales is not promising, and the company has lost some $2 billion since it declared bankruptcy last January.

    • The Chicago Sun-Times reports that Kmart President and COO Julian Day says that the company will roll out new initiatives for the 2002 holiday season, including “a higher priority on customer service and giving greater decision-making power to store managers in such key areas as inventory control, merchandise layout and deployment of staff.”

      These initiatives have been tested successfully at 10 Chicago area stores, Day said.

    • The New York Times reports that these days, Martha Stewart may need Kmart as much as the management of the bankrupt retailer needs here.

      When Kmart filed for Chapter 11 protection, the general consensus was that Stewart might eventually leave for greener pastures, and the corporate honchos at Kmart seemed to be going out of their way to assuage her and convince the style maven that she had a future at Kmart.

      Now, however, with Stewart facing many legal questions about insider trading activity, she may need Kmart to remain viable as a place where her products can continue to sell.

      Kmart has been reporting that Stewart’s various lines continue to perform well, though Kmart itself has not been able to stanch its financial bleeding. The big questions are about what happens if Stewart is indicted or convicted of a crime. Will her product lines collapse around her, or will they maintain a life separate from her legal woes? And, if they do suffer because of the style maven’s legal problems, what will the impact be on Kmart?

    • Fortune magazine reports that no matter what happens to the company, “Kmart CEO Adamson will still walk away with a shopping cart full of cash. He has already received $2.5 million--the company calls it an ‘inducement payment’--just for coming aboard as CEO, and his annual salary totals $1.5 million. Then there are the perks guaranteed in his contract--weekly private plane service between his residences in Detroit, New York, and Florida; a car and driver in Michigan and New York; and temporary accommodations at the swanky Townsend Hotel near Kmart headquarters. A standard room there costs $320 a night.”

      The magazine reports that Adamson’s critics are particularly annoyed by the fact that he was on the board of directors during the time that the company was committing what now are called “accounting irregularities.” Which means that Adamson is “in the incredibly awkward, deeply conflicted position of heading up Kmart even as his own role in its collapse is being scrutinized,” Fortune reports.
    KC's View:

    Published on: October 10, 2002

    The US Food and Drug Administration (FDA) has ruled that food companies can petition the agency to use alternative language such as “cold pasteurization” to the word “irradiation” on labels of foods treated with the disease-killing process.

    Irradiation, which exposes food to low doses of electrons or gamma rays to destroy deadly microorganisms, has been on something of a roll of late, with a number of retailers deciding to sell irradiated beef as a way of insuring food safety to their customers.

    However, historically retailers have been reticent about irradiation because of worries about the name and its impact on the consumer. Some groups have expressed concern that radiation in food products could have negative effects on consumers.
    KC's View:
    Considering the bad run of luck that the industry has lad lately in terms of meat safety issues, anything that gets irradiation used more frequently and effectively sounds like a good idea to us.

    We assume that by allowing such petitions, the FDA is pretty much saying that it will rubber-stamp any reasonable request.

    Published on: October 10, 2002

    In the Cornwall region of the UK, shoppers at Wal-Mart’s Asda stores are now able to find signs in both English and Cornish, the local language that appears to be undergoing a revival.

    According to the BBC, the translations have been provided by the Cornish Language Fellowship, which says there are several thousand people in the area who are conversational in the language. Among the phrases included on the signs are "Welcome" (Dynnargh), "Always happy to help" (Lowen pup-prys dhe weres), and "Information" (Derivadow). And tutors from the Fellowship are helping checkout personnel with their understanding of Cornish.

    Asda told the BBC that it also has signs in Welsh in its Wales units, and signs in Urdu and Punjabi in stores where appropriate.

    Cornish, according to the BBC, is a member of the Celtic family of languages which includes Irish, Scots, Welsh and Breton.
    KC's View:
    This is very smart, and not necessarily the kind of move that one would associate with Wal-Mart’s broad-strokes approach to retailing. What it means is that this is a company quite willing to market to local tastes and demographics where necessary and appropriate, which is the sort of thing that independent retailers have always believed they are superior at.

    Published on: October 10, 2002

    The Detroit Free-Press reports that lawsuits are on the books in some 30 states charging Wal-Mart with widespread wage abuses of its workforce. The suits claim that “Wal-Mart holds labor costs down by forcing employees to work through breaks, and before or after their shifts. The lawsuits also allege that Wal-Mart doctors time cards to avoid paying overtime, and keeps clocked-out, graveyard shift employees locked in the stores until a manager lets them out.”

    Wal-Mart denies the charges, and is vigorously defending itself in all the cases. A company spokesman told the paper, “Our associates are central to our business success, and it makes no sense from a business standpoint to mistreat or cheat the people we depend upon to provide the service our customers expect.”
    KC's View:
    Obviously, Wal-Mart has a long history of wrangling with the unions, and these cases are just more evidence that this ongoing battle is unlikely to subside anytime soon.

    For the unions, unionization of Wal-Mart’s employees is the big pot of gold at the end of the rainbow; for Wal-Mart, it may be a fate worse than death.

    We keep wondering if the bigger downside for Wal-Mart isn’t these specific kinds of court cases, but the ultimate problem of some sort of Congressional investigation into the company that might take on Microsoft-style proportions. It wouldn’t be good for the image or the bottom line, but we suspect that this has to be a long-term concern for the retailer.

    By the way, this is the first of several Wal-Mart mentions in today’s MNB. Don’t shoot the messenger, those of you who believe we should mention Wal-Mart as little as possible in this space…we can’t help it if the world’s biggest retailer happens to be in the news a lot today!

    Published on: October 10, 2002

    The US Food and Drug Administration (FDA) has taken what USAToday calls an “unusual move” by sending a letter to the governor of Oregon warning that if the state’s voters pass a ballot measure requiring that products containing genetically modified organisms (GMOs) be labeled as such, it would “impermissibly interfere with manufacturers’ ability to market their products on a nationwide basis.”

    Oregon voters will go the polls on November 5. If they pass the measure, the state will become the first in the union to require such labeling. The Bush Administration has said that such labels would scare consumers, and therefore should not be mandated.

    The letter from the FDA says that the agency is not promising that will take action against the state, but rather just informing officials about its views. The FDA has said that there is “no significant difference” between products that contain GMOs and those that don’t.

    Food manufacturers believe that if the measure pass in Oregon, it will both arouse unnecessary concerns on the part of consumers as well as lead to other states passing similar measures.
    KC's View:
    We believe that mandatory GMO labeling is inevitable, and that manufacturers ultimately will regret the time, energy, and money they spend on trying to defeat it.

    If consumers want it, resistance on the part of manufacturers is futile. It just creates the appearance that they have something to hide, and that there is something in the truth that would scare consumers.

    Published on: October 10, 2002

    Reporting in from somewhere over the American Midwest…

    • As we travel home after three weeks on the road, we find ourselves perusing the Wednesday edition of The New York Times, which featured a cover story in its weekly food section about the perils and pleasures of shopping for a New York-style dinner party at “big box” stores like Costco or Stew Leonard’s. Now, we love the NYT and find it difficult to survive without it, and its food section is a pleasure to read each week because it is a good barometer of trends that are occupying the outer edges of the food world.

      The writer’s conclusions, after two separate shopping trips at these two stores, are that neither store is ideal for this particular purpose. In some cases, the sizes are too big and unwieldy; in others, they don’t necessarily carry the specific items she was looking for. The quality generally is good, and the pricing fair though not always exceptional.

      So what else is new?

      As regular shoppers at both stores, we have to say that we weren’t surprised by her findings. In fact, we would have been surprised had they been otherwise. In reading the story, we think that our treasured NYT has fallen victim to the same malady that affected The Wall Street Journal a few weeks ago when it reported about how eating out can be cheaper than cooking it yourself, and then listed entrees and ingredients that would challenge all but the most accomplished amateur cooks. (Actually, maybe that’s not fair. We’re not an accomplished cook, but we do most of the cooking at home and have for 20 years. What we are pretty good at is getting supper on the table – and suspect we share that ability with a lot of moms and dads around the country. All we know is that we’ve never made any of the items that the WSJ reported as being near staples of a New York kitchen, nor do we have any intention of doing so.)

      Going to either Stew Leonard’s or Costco and expecting to find everything you need for a New York dinner party is roughly akin to going to Brooks Brothers and expecting to find an Armani suit. It ain’t gonna happen.

      Stores like Stew Leonard’s and Costco aren’t built with this kind of shopping trip in mind. Especially not Stew Leonard’s, which has just 1,200 SKUs or so – and yet, we’ve been doing our weekly shopping there for almost 20 years. They aren’t really built for the shopping dilettante who wanders in for the first time.

      Costco requires a membership, which means that most people who go there have been before. They’re part of a community, a club, knowing where most things are, being willing to be surprised by what is in stock or not, and accepting the limitations of the format. It seems silly to criticize the format for just carrying large sizes or too few SKUs. That’s why those of us who go there keep our memberships up to date. It’s the whole point of the experience.

      Stew Leonard’s doesn’t require a membership, but those of us who go there regularly are part of an informal community of people who enjoy the atmosphere (and even depend on it to keep our kids entertained), and understand and even embrace the limited SKUs. We actually sort of like the fact that we don’t have to puzzle through hundreds of SKUs in each department. We know that the crack buying staff at Stew’s has made some of those choices for us, and we go from there.

      There also are Stew’s own-label products, ranging from the bakery to the milk to the ice cream, that become proprietary lures impossible for other competitors to replicate. Our kids don’t like milk from anyplace other than Stew Leonard’s. Is that product excellence, or just good marketing? Who knows? Who cares? It creates the kind of store loyalty that many stores would love to have and that too few achieve.

      In each case, the key word is “community.” Without being cloying or overt, these stores make their choice of products and their approach to merchandising proof positive that they are loyal to the community of people who shop there regularly. They create a differentiated shopping experience that keeps us going back again and again. (One can only imagine how Costco will achieve this when it opens its gourmet food-only store near Seattle…but we can’t wait to find out.)

      Okay, Stew’s doesn’t have crème fraiche, an item that the NYT writer describes as something “plenty of New York cooks cannot live without.” And Costco only sells heavy cream in two-gallon containers.

      We can live without either of those products. But Stew Leonard’s and Costco have, for different reasons, become part of the fabric of our food shopping lives. And that seems a lot more important.

    • Visiting stores and talking to retailers over the past few weeks has proven to be a fascinating, energizing experience. Far from being exhausted by the long airplane rides, the changing time zones and the odd-hours reporting for MNB, we’ve found ourselves really enjoying these weeks on the road.

      The reason, we think, has to do with the passion and joy that the people we visited had for their businesses. Feargal Quinn in Ireland, Jeff Gietzen in Michigan, and Ron Hodge in Maine -- all have a unique ability to translate their passion for retailing into operational strengths in their stores, Superquinn, D&W Food Centers and Hannaford.

      In our store tours at the National Association of Convenience Stores (NACS) convention, we found what we think is an ambitious and aggressive approach to an industry under siege from all sides, as some retailers there shift from being in the gas and convenience business to being in the food business. This is not a shift to be taken lightly by those who compete with c-stores.

      Passion. Joy. Ambition. Aggressive marketing instincts. These days, you have to have all of these just to be in the game.

      The stores and retailers I visited have all of them. And instead of being tired of traveling, we find ourselves looking forward to the next trip, the next store.

    KC's View: