business news in context, analysis with attitude

So let’s get to it…

Last week, we noted a CBS.MarketWatch report that among the retailing companies that are on the list of top 10 US employers, at least some of them are looking at significant hiring moves during the coming year as they continue to grow their businesses. Part of that report included a list of the nation’s top employers, which had McDonald’s at number one and Wal-Mart at number two.

One MNB user wrote:

“On ‘Who Wants to be a Millionaire,’ primetime Thursday night (no jibes about watching it, please - I was bored!) the $32000 question was who is the #1 US employer, and the answer was Wal-Mart…Just wondering if they used to be swapped, with Wal-Mart #1 at any time.”

Actually, we suspect that the TV show’s numbers are more up to date than the CBS MarketWatch numbers. Because if Wal-Mart is number two at the moment, if you blink they could move into the top position.

Regarding Kmart’s ongoing problems, MNB user D. Paulson wrote:

“I was shopping at a Kmart Big K store yesterday during my lunch hour. About fifteen other people were shopping. This is a store that is scheduled to remain open. When I proceeded to the checkout, there was only one lane open and five people waiting in line as the cashier was requesting a price check. The cashier requested help three times, without anyone responding and the line grew to twelve people. A couple of customers went to the photo-center cashier, and he turned them away because they had more than 10 items in their cart. Every customer was complaining was they waited. I waited in line close to ten minutes. To ensure everyone leaving the store left disgruntled, they had a security guard checking everyone's receipts at the door to make sure nobody slipped out without paying. The poor employees are obviously following orders that make no sense in the environment in which that store was operating, and they appear satisfied with totally alienated the few customers that are left.

“One more thing....This time of the year, I bet the Lost 'n Found at my children's elementary school has a bigger clothing inventory with a better selection than Kmart.”

Again, despite our abiding cynicism about Kmart’s long-term chances, it is important to note that this is one store, one experience.

Except that we keep hearing more and more of these stories…so maybe it really is one chain, one recurring consumer nightmare.

For example, take this email from an MNB user:

“Unfortunately, my local Kmart seems to have entirely given up. Prices and products are haphazardly mixed on the shelves. The cashiers and "customer service" do not know their own sale items and don't believe their own circular if it is picked up from the pile on the counter and shown by the customer. Perhaps clean and well-managed Kmarts exist that have caring and knowledgeable staff, but the one near me isn't a good example of that. The store and the people in it exude an empty air of doom that isn't going to attract customers. I now drive an extra 10 or 20 minutes to shop elsewhere which is too bad because that Kmart used to be quite pleasant.”

In response to our story last week about Fleming’s troubles, one MNB user wrote:

“I am totally amazed how Fleming, once the gem wholesaler to any independent retailers, have gone down hill and I personally see them out of business in the very foreseeable future. I am also amazed how the executives of this company…sugarcoat the real problems within this company. Lets start about a year and a half ago. Kmart says they wanted only one distributor so they negotiate between Supervalu and Fleming. Mike Wright and Supervalu have enough intelligence to walk away and say we cannot make money for our shareholders at this fee. Fleming takes the deal, ignores their independent retailer totally, spends millions building warehouses and an infrastructure to serve Kmart, goes and tells the investment community how great the Kmart business is going to be for Fleming so the stock goes sky high.

“And then we all know not six months into the agreement, Kmart files and what does (CEO Mark) Hansen say, ‘this will have minimal effect on our performance.’ No mention of the millions spent, no mention of casting aside the independent etc. Mr. Hansen would have to explain how getting this business would be so beneficial but losing it has no effect. I believe that Mr. Hansen's days at the helm of Fleming are numbered but I don't think we need to take up a collection for him as he probably will get millions.

“I also believe Fleming’s days are numbered as well. Now we will only be left with Supervalu as a major wholesaler for independents and some regional wholesalers that I feel in many cases are very good.”

We had a piece last Friday that reported on an IRI study about what people in Tampa Bay and Oakland buy, keyed to last night’s Super Bowl contest. One MNB user questioned some of the results…

“I cannot begin to imagine who is buying pool chemicals and suntan lotion in Tampa this week. This morning, it's a frosty 28 (a new record, and chilly even by Connecticut standards!) We'll manage to get up to about 63 by game time Sunday, they're promising, but those of us who live here (and have suffered through twenty years of really awful football) will still probably be wearing sweaters under our jerseys. Beaches are reporting water temperatures in the low 50's -- brrr! Suntans attained this time of year are awfully odd-looking -- it's hard to get an even tan if you only tan the tops of your goosebumps.

“A bit of insight on the pre-prepared food data from your survey: Tampa's favorite and most traditional game time goodies – Cuban sandwiches, deviled crabs, black beans and yellow rice, and pizza from the legendary Alessi's bakery (a local, one-location bakery!!!) are all things that are *extremely* time consuming to make, and range from tricky to downright difficult to make. (Cuban sandwiches aren't hard to assemble, granted, but the roast pork that goes into them is an all-day affair.) Everyone placed their platter orders with their favorite sandwich place Monday morning -- and even the grocery chains make these goodies in their delis.”

“Even the grocery chains.” Not the phrase that many in the industry would want to read…

More commentary on the Miller Lite “mud wrestling” commercial…

MNB user Glen N. Foresman wrote:

“I guess Miller knows it's market…”

Another member of the MNB community wrote:

“I suspect Miller execs are less concerned with how women view the ad and than how their target demographic does, which is males probably 21-34 in age. And I would be willing to be that this group either likes the ad and got the joke or dismisses it as just another ad selling them beer. I doubt many of them are outraged and will now stop buying Miller products.

“What amuses me about this whole uproar is that the majority of the people I see or hear objecting are female or older males - the demographic that Miller could care less about. Not to dismiss the points of views of these groups nor the fact that some do purchase the brand/category. But they account for a small amount of Miller's share and aren't the folks that Miller really worries about. My guess is that Miller is loving this – they get millions of dollars in free advertising in exchange for some backlash from groups outside their target. The publicity has likely raised awareness within their target demos to levels they would not have gotten otherwise and may have improved their image as the brand with a sense of humor, that knows what guys like and that sticks to their guns while being criticized by people not like them. Is there a more perfect way to identify with males 21-34? I would be surprised if Miller's usage levels don't spike and stay at levels higher than before the controversy. If they are smart they also working on similarly themed ads (though perhaps not as risqué) that will build on this momentum and take them into the key summer season. I doubt Miller could have scripted this any better.

Besides, even if Miller had the two women in the ad dressed in suits, calmly discussing the finer points of the beer in complex legal terms I'm sure 21-34 year old males would still have them undressed and wrestling in the mud in their mind anyway.”

And maybe the 35+ males, too…

Another MNB user wrote:

“It is fascinating that bad ads can increase sales the same way that
great ads can....just by keeping the brand name remembered. I think you are right that the Miller Lite Ads were probably effective even though half the people found them distasteful. It would be interesting to have an analysis of the differing sales impacts of ads like Coors "Rock On" featuring "The Twins" vs. the Coors "Just Like" commercials featuring football stars like John Elway. I am sure the analysis exists somewhere but is probably irrelevant because both kinds of ads keep coming back and this gives some indication that they actually do increase sales.

“What I object to is when an advertiser a) takes an ad, which might have been good the first ten times you saw it, and runs it a thousand times. This just says to me that the Advertiser doesn't care in the slightest about the consumer...just about getting the most bang for the buck; b) creates advertising that has absolutely no redeeming social or intellectual value....i.e. the Coke Polar Bears or any Dr Pepper Ad. or c) creates ads that make their customer out to be a fool. This includes most ads that depict women caring about nothing but clean toilet bowls or men as couch potato slobs watching sports on TV. What I like is good clean fun and entertaining. Don't patronize me. Don't manipulate me. Don't waste my time.

“And don't waste your money.....A good example of completely wasted advertising dollars is the NFL's "5 Seconds ads" which are obviously targeted at increasing viewership of NFL Playoff games. Where did they
run these? During Playoff games. Got a lot of new viewers that way. Some people like me resent such a brazen waste of money when you have to pay $150. for a ticket to a regular season game. As a consumer, bad advertising says to me....I'm wasting at least some of my money when I buy that product.”

MNB user Norma Gilliam wrote:

“Whenever I hear anyone complain about a commercial ad I usually state the fact that the advertising agency had accomplished just what it set to do....grab your attention...and make you recall the ad. The more bizarre the message, the more it seems to attract the younger population. I read a piece not long ago that stated that advertising agencies would continue to create ads like this because they were targeted to the younger people. Obviously, in this case (Miller), they are getting attention.”

And another member of the MNB community added:

“I would just like to say that as a female, the Miller Beer commercial really doesn't bother me. Look at what's offered on prime time TV these days - this ad is rather tame compared to some of the so called entertainment the networks offer. I would much rather have the 'bleep every other word' Osbourns gagged and banned from public viewing than worry about a 30 second beer commercial.”

Another MNB user wrote:

“Just a thought: would you want your daughter (if you have one) growing up associating beer with sex? I, for one, do not. It's not that I am offended as an adult, but I am concerned about the impact of such images on my seven-year-old daughter, as she learns about social behavior.”

We do have a daughter, and this is an excellent point. (We hate it when people make arguments that make sense even though we disagree with them…)

We got the following email in response to our stories that have noted the economic problems that seem to be bedeviling the nation at the moment:

“Let’s set the record straight, although that is impossible in a short message. The economy is growing; we have had 5 consecutive quarters of GDP growth. Unemployment is at historical norms, not highs. One of the many issues is that people seem to view the 90’s as a baseline, when in reality it was quite an anomaly. FACT- The Clinton-Gore administration passed the largest tax increase in history, increasing the individual tax burden from $4,625 to $6,690, a 45% increase. That was a major, albeit not the only reason, the recession began in their administration and was handed to President Bush. Of the many other factors, Sept 11th and homeland security were at the forefront and we need to pay for that.”

Let’s accept everything you say as fact…and then allow us to play devil’s advocate for a moment.

1. If the Clinton/Gore years were an economic anomaly, they were an anomaly that people liked. Ethical and moral questions aside, people didn’t spend a lot of time worrying about those issues where their dividend checks came in. (In fact, we’ve now learned how many business leaders who may have been taking the high ground in public were actually guilty of some pretty sleazy business dealings. There seems to be an argument going around that they were only sleazy because Clinton made it acceptable. We just think that is nonsense…and suggests that somehow they are less than fully culpable for their failings.)

2. We understand and accept the fact that the events of the past eighteen months have changed everything, including the economic realities within which government must operate. Higher expenses have meant deficit spending. However, we think that it is ironic that you hear members of the GOP now saying that deficit reduction isn’t important…which is a slightly different song than they were singing just a few years ago.

3. These are all arguments that will be played out on the national stage very shortly. The reality probably is that if the economy improves and there are no new terrorist attacks, President Bush will win in a walk. But if the domestic situation is uncertain from both an economic and national security perspective, it is going to be more competitive…assuming, of course, that the Democrats come up with a credible candidate, which is by no means a certainty.

We had a story last week about how the Hispanic population in the US now outnumbers the Black population, and now is the dominant minority in the country. One MNB user wrote:

“It is interesting in your article that research reported is highlighting the Black minority with no comments about Hispanics. We were talking in the office as to why Hispanics have a much lower profile than the Black community…partly media support or non support?”

It certainly wasn’t our intention to highlight the Black minority at the expense of the Hispanic minority. And in any case, as the Hispanic population of the US grows and becomes a greater force politically and culturally, we think you’ll see a lot more attention being paid by everyone.

Regarding the ruling last week that tossed out the so-called “obesity suit” against McDonald’s, one MNB user wrote:

“Kevin, it looks as though the customer-facing employees in fast food restaurants are going to have to go through similar training as those who serve alcohol in a bar or restaurant. If you didn't know, there are 25 states that require bartenders to be T.I.P.S. certified if they are going to be serving alcohol. (T.I.P.S. is a nationwide alcohol awareness program based out of Washington D. C. The program shows effective intervention strategies and guidelines to avoid getting patrons intoxicated.) In the fast food industry they will have to focus on intervening before the customer becomes obese. For the protection of the fast food industry, it may be time for our cashiers to step up and say "I'm sorry sir, I would love to serve you, but it appears that you may have had a few too many Big Macs already." Sorry for the sarcasm…

“Now for a quick thought from a different perspective. If a bar can be held legally responsible (in the case of an accident) for serving a patron beyond his limit, then why shouldn't a person be able to hold McDonald's responsible for over serving them? In the bar incidence, much like the McDonald's incident, the customer is well aware of the averse effects of over indulgence.”

The argument might be that the guy who gets drunk in a bar has the potential of going out and killing other people, while the person who eats too many Big Macs is just going to kill his own taste buds and circulatory system…

Another MNB user wrote:

“You say ‘consumers deserve to have better tasting, more nutritious, less fatty food’ - we have plenty of options today for that you just have to make an effort to find them. What we deserve is the choice to eat whatever we want whenever we want.

“We also deserve to have complete information about what we are eating.

“The rest is up to us. We shouldn't have companies regulating what kind of food they give us because they are afraid of litigious lawyers.

“Your insinuation that restaurants have to change their menu because we 'deserve' one thing or another is completely contradictory with your 'personal responsibility' point. The latter is the solution to the obesity problem in America not the former.”

We misspoke. We weren’t suggesting that McDonald’s or any other fast food restaurant has the responsibility to offer such food…just that we believe consumers demand such food, and that if the fast food chains want to stay in business they ought to start rejiggering their menus.

MNB user Al Kober wrote:

“I have never understood the Government's role in this. In my opinion, the Government was instituted to protect its citizens. They have every right to tell us what the consequences of our actions will be but they have no right telling what decisions or actions we MUST take. That is one of the blessings of living in the USA, we still have freedom of choice. We still have the opportunity to exercise our Free Will bestowed upon us by God when He created us. If we choose to take a peculiar action and know the consequences of that action may be detrimental to us, and we do it anyway, we pay for it. If I over eat and get fat, or my health is effected, that my fault. Please restore personal responsibility to every one's actions and stop providing the opportunity or even the right to blame others for the natural consequences of my actions.”

On the subject of who will buy Safeway Plc in the UK, MNB user Yair Esrubilsky wrote:

“I would give the KKR offer more credit. If I were a Safeway PLC shareholder thinking (as all shareholders should) about how to get the most for my investment I would sit down and negotiate with KKR - from a purely financial perspective they are bound to be able to offer the best deal. Why?

“Lets assume that they will indeed break the company and sell stores to all the other parties (Tesco, Sainsbury, ASDA, Wm Morrison)- that is the best way to maximize the value of those assets. If one of the big chains buys it they will have to sell stores that overlap to get regulatory approval. The market will know they have been forced to sell the stores and invariably price them lower - it’s negotiating under duress for the seller. KKR can put all the stores on the block and run an "auction" maximizing the return for the bits. Each of the big players will bid just for those stores that are interesting to them. The entire Safeway network will get maximum price.”

We got a number of emails about Kmart’s decision to pay a million dollars to its new CEO, plus an equal bonus when the company emerges from bankruptcy.

One MNB user wrote:

“Why is the Kmart Board of Directors rewarding their new CEO so lavishly upfront? Where is the leveraged performance incentive for Julian Day? As a new leader in trying times, shouldn't he be setting an example for other employees to follow? How does the average Kmart employee, who is waiting for the axe to fall any day, get behind a leader who already has his financial future guaranteed?

How about this scenario:

Provide the new Kmart CEO with a $100,000 annual salary (comparable to a store General Manager), a potential $ 1,000,000 bonus if he successfully brings Kmart out of bankruptcy. Then divide the $4,000,000 in other performance related incentives amongst all vested employees as a reward for achievement of targeted objectives, their loyalty and effort. Long term: Provide up to 3% equity in the company if 20 consecutive quarters of above average industry growth and profit are achieved. Get rid of the jet, it only adds to the expense line.

“CEO Day's contract should require a full review of his performance after year one. Should targeted objectives not be met, terminate the CEO and provide a severance package comparable to what rank and file employees would have received during the bankruptcy (based on salary and weeks/years of employment). It seems to me that this type of performance incentive would be more equitable to employees and stakeholders.

“Hopefully, Julian Day will be as adept at leading Kmart out of bankruptcy as he is in negotiating his "over-the-top" compensation package.”

Another MNB user wrote:

“With regard to the big bucks bonus for the new CEO. Amen, Kevin.....Pay him when he gets it right. Not before.”

On the broader issue of Kmart reorganization, one MNB user offered:

“I say the odds on favorite is this re-organization doesn’t work. With Wal-Mart and Target both carving out distinct shopping experiences, there’s little room for a Kmart. (Interesting note here, it’s almost the same thing people were saying about J.C. Penny a few years ago.) That being said, I think the only way that Kmart survives is to downsize into a regional player. If they try to stay national, they might as well put the blue light on in front of the store.”

Finally, in a commentary last Friday, we wrote that if Fleming is getting out of the retailing business because it can’t compete with Wal-Mart, and many, if not all, of its retail customers are having trouble competing with Wal-Mart, and if Wal-Mart is serious about starting up its own wholesaling business that could cater to independents, maybe the Bentonville Behemoth should just buy Fleming…

This prompted some emails.

Our favorite was from an MNB user who wrote:

“Wal-Mart buy Fleming??!!! Would BMW buy Yugo?”
KC's View: