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    Published on: February 6, 2003

    Continued reaction to our stories over the past few days about the Fleming-Kmart divorce, Kmart's decision to at least temporarily be a self-distributing for groceries, and our tongue-in-cheek suggestion that since Wal-Mart is considering opening up a wholesale division to supply independents, maybe it could supply Kmart as well…

    One MNB user wrote:

    "It’s hard enough for a food wholesaler who knows how to handle food to supply a poorly run organization like K-Mart.

    "Imagine how hard it will be for a company that has poor logistics capabilities to supply itself with product it has no skill in handling.

    "My conclusion (all along...): KMART is dead as a doornail."

    MNB user Jerry Leonard wrote the following about Fleming's travails:

    "The Retailer wants 3 basic things:
    1. Groceries
    2. The price you told me they would be
    3. Delivered when you told me they would be

    "Fleming, go back to serving the needs of your customers."

    Sometimes, there is elegance is simplicity…

    Another member of the MNB community wrote about the decision by Fleming to stop supplying Kmart:

    "When you are losing money on an account and will never make money, the better managers bite the bullet, take their licks and move on. This is the right thing for Fleming to do and they will be better for it."

    Finally, MNB user George Morrow wrote:

    "Just to set the record straight, McLane is not just c-store business. They also supply goods and services (such as clipstrips) to all 1,200 Wal-Mart Supercenters and 40, or so, Neighborhood Markets. Thought you would like to

    Thanks, George.

    One other comment on this ongoing story, if we may.

    We were reminded yesterday that it doesn't seem that long ago that Jeff Noddle of Supervalu was being excoriated for his failure to land the Kmart business, after the retailer decided it wanted one supplier rather than splitting the business between Fleming and Supervalu.

    At the moment, however, Noddle looks like the smartest guy in the business…

    We also got email responding to yesterday's story about French women spending less time cooking than in the past:

    "I could not resist responding to the reduced time in the kitchen among French women. While it is true that the French marketplace is slowly adopting more convenience foods (and very tasty options, I might add), I have to question whether the French have become more time starved. This is a country that has progressively adopted a more and more reduced workweek. Are they down to 36 hours now? So either the French are struggling with what to do in their time off, or they are working two jobs, or the 36-hour week is a myth. I have long entertained the notion that "time" and "stress" are useful marketing terms to deceive folks into believing that the have no time and therefore ramp up convenience foods markets. I will be very interested (to see) this in the French marketplace. For a good inside look - read "Paris to the Moon," by Adam Gopnik. The French are the only folks on the face of the earth to a speed setting for saunter on their running machines!!"

    And the problem with this is…?
    KC's View:

    Published on: February 6, 2003

    From GMDC…
    GMDC will implement a pilot program partnering with the National Association for Retail Merchandising Services (NARMS) at the fall HBC Marketing Conference. Initially, the plan calls for the creation of a "Solutions/Services Forum" in a room in close proximity to the Controlled Casual Conference (CCC) floor at the conference. Open during the same hours as the CCC floor, the Solutions/Services Forum will enable interested manufacturers and retailers to schedule appointments with NARMS members during CCC breaks, to discuss the merchandising and marketing services they offer.

    NARMS represents the merchandising and marketing services industry and has over 275 member companies.

    According to GMDC President/CEO David T. McConnell, Jr., "We believe this alliance will prove a win-win for our two organizations. Because the NARMS member companies represent the last 10 feet of the product distribution chain, they are a very important part of the process. We believe that our members will benefit greatly from the additional productivity by exploring important merchandising and marketing issues that can now be addressed with the NARMS members in attendance. Of course, the NARMS people have a real opportunity to build their respective businesses."
    KC's View:

    Published on: February 6, 2003

    • Wal-Mart Stores said its January sales at stores open at least a year rose 2.3 percent, with total sales for the four-week period ended Jan. 31 reaching $17.39 billion, up 12.9 percent from the same month last year.

    • Stater Bros. announced that sales for the thirteen week first quarter ended December 29, 2002 increased 2.9% to $681.5 million compared to $662.6 million for the thirteen weeks ended December 30, 2001. Like store sales increased 2.3% for the thirteen weeks ended December 29, 2002 over the thirteen weeks ended December 30, 2001. Net income for the first quarter was 2.9 million compared to net income of $3.9 million for the same period a year ago.

    • Costco Wholesale Corp. reported that total sales in the four-week period ended Feb. 2 reached $2.97 billion, compared with $2.73 billion during the same period last year; same-store sales were up five percent.

    • PriceSmart announced that its net sales increased 11% to $50.6 million for the month of January from $45.7 million a year earlier. For the five months ended January 31, 2003, net sales increased 12% to $299.9 million from $268.6 million in the same period last year.

      For the four weeks ended January 26, 2003, comparable warehouse sales for stores open at least 12 full months rose 2.2% compared to the same four-week period last year. For the 21-week period ended January 26, 2003, comparable warehouse sales decreased 1.1% compared to the same period last year.

    KC's View:

    Published on: February 6, 2003

    • The US Food and Drug Administration (FDA) reports that 386 pigs that had been used in bioengineering research and that were supposed to have been destroyed may instead have been sold to a livestock dealer and could have entered the food supply.

      While they do not represent a public health risk, this does be a violation of FDA regulations.

    • The Cincinnati Enquirer reports that the National Labor Relations Board (NLRB) has filed a compliant against Bigg's, a division of Supervalu, accusing it of unfair labor practices and discouraging employees who wanted to organize workers into a union.

    KC's View:

    Published on: February 6, 2003

    The Associated Press reports that 60 percent of 35 large meat plants in the US have flaws in their plans designed to prevent E. coli.

    The flaws were described as "scientific design issues," with most plants not doing well in the record-keeping arena.

    If plants don't comply with national regulations requiring them to have written prevention plans that are adhered to, the federal government plans to take action against them.

    There have been some enormous meat recalls over the past year, and the new federal budget proposed by President Bush spends $675 million on food safety, with $5.5 million of that training plant inspectors, and $4.3 million to hire 80 new ones. In addition, $18 million would support the US Department of Agriculture's Office of Food Security and Emergency Preparedness, which deals with terrorism-related issues.
    KC's View:

    Published on: February 6, 2003

    Content Guy's Note: We thought this piece from the folks at was particularly interesting because it provides a European perspective on issues and trends occurring here in the US.

      While it remains fair to say that for the bulk of US grocery retailers‚ business is
      still taken up by the sale of grocery goods, stores are now stocking an increasing array of non-food goods and customer services alongside their mainstream grocery offer in attempt to broaden their customer base and maximize sales and margins. Here are some specific areas in which we are seeing development:

      o Private label: In the USA, as in Europe, retailers are busy developing segmented own-brand ranges that are targeted at different ends of the market. For most retailers‚ general own-brand strategies have consisted of
      two-tiered or three-tiered product ranges, comprising standard and premium
      lines, or economy, standard and premium. For example, Kroger has implemented a three-tier program comprising FMV (For Maximum Value), Kroger and Private Selection.

      o Ethnic formats/products: Recent Census Bureau estimates have revealed that Hispanics are now the largest (and fastest-growing) minority group in the USA, and there have been a number of initiatives by US grocery retailers as they attempt to capitalize on this demographic trend. Examples in 2002/03 have included Albertsons rolling out its Super Saver format, Nash Finch opening several Avanza units, H.E. Butt reportedly planning to open an
      outlet in Houston targeted at Hispanic and African American shoppers and Kmart introducing cosmetics and accessories endorsed by Latin pop star

      o Organic/natural lines: Another way in which grocery retailers are attempting to bring themselves a degree of differentiation and a wider consumer base is through the introduction of product ranges and in-store areas devoted to 'natural', environmentally friendly and organic lines. Clearly, it is specialists in this field such as Whole Foods Market and Wild Oats that are leading the way, but research showing that around 40 percent of organic foods are purchased in conventional supermarkets. For example, Weis Markets has introduced dedicated organics areas instore; Wegmans has rolled out Nature's Marketplace departments; Well for Life areas group together up to 200 natural and organic products in Raley's stores and Kroger is rapidly expanding its Nature's Market instore areas. This is a trend that is likely to intensify.

      o Food-to-go: Food retail and foodservice are becoming increasingly blurred, and grocery operators are having to become providers of food rather than sellers of food. This evolution is manifesting itself in a number of ways.

      One fairly low-risk and low-cost being taken by a number of retailers is the
      installation of third-party foodservice units within a retailers store, e.g.
      Stop & Shop/Dunkin‚ Donuts, Wal-Mart/McDonald‚s, Target/Taco Bell, Giant
      Eagle/Starbucks. This strategy enables retailers to enhance their shopping
      experience without expending too much capital or labor costs in addition to
      being able to capitalize on a brand that is already well known. US food retailers have also added their own foodservice facilities into their stores, varying from fairly typical food counter and café areas (e.g. Giant Eagle's The Kitchens and Hy-Vee's Kitchen) to full service upmarket restaurants (e.g. Wegmans' Tastings).

      Perhaps the most common approach, however, is to combine food retailing with foodservice and offer hot or prepared foods that can be consumed instore (with seating areas) or at home. There are numerous examples of this approach, a selection including Stop & Shop's Boston Market, pizza ovens at P&C, food-to-go counters at Harris Teeter stores and Café on the Run departments in HEB's Central Market stores.

      o Instore banking: Following events in late 2002, which saw the collapse of instore banking agreements between retailers Winn-Dixie and Safeway and the Canadian Imperial Bank of Commerce (due largely to financial problems experienced by the bank), there has been a shadow of doubt over the
      sustainability of the proliferation of banks within US supermarkets. Even so, it remains a valid comment to suggest that nearly all significant grocery and mass merchandise retailers have instore banking partners operating in some or all of their stores. Most have chosen not to emulate Safeway's choice of opening own-branded (Safeway Select) bank departments, but instead have let one or more banking partners establish a presence within stores.

      It is also worth noting that regulatory issues have prevented Wal-Mart from
      acquiring an existing bank in order to introduce its own financial services.
      Another observation is that the relationship between grocery retailing and
      banking is not as advanced in the US as it is in Europe; in the UK, for example, Tesco is able to offer its consumers Tesco-branded savings, loans, investments, mortgages, insurance, credit cards and bank accounts. Although the banking arm is operated as a joint venture with a high street bank, it is marketed as an extension of the Tesco business, an effective brand-building and loyalty-generating exercise.
    KC's View:

    Published on: February 6, 2003

    A new report from Jupiter Research says that while it is likely that a sales tax on e-commerce purchased will be imposed sometime in the next three-to-five years, it will not serve as a "significant impediment to the growth of the online retail channel."

    This despite the fact that many online retailers and politicians argue that online sales taxes could kill the channel, and believe that the current moratorium on such taxes needs to be extended. In fact, according to the Jupiter study, most people don't shop online to avoid taxes.

    The report concedes that given the current state of the economy and the need for federal and state governments to find new sources of revenue, avoiding online sales taxes is something of a pipe dream. Jupiter notes that a report by the University of Tennessee last year estimated that all 50 states could collectively lose more than $45 billion in Internet sales tax revenue in 2006.
    KC's View:
    Since we are in the contingent of people who believe that Internet sales taxes are a bad idea, we're actually surprised by this. Of course, our sense has always been that the combination of sales taxes and delivery fees would make products bought online more expensive…but if the Amazon-inspired trend toward free delivery continues to spread, maybe that won’t be as much of an issue anymore.

    Published on: February 6, 2003

    Bon Appetit magazine has released its sixth annual "How America Eats" survey on the subject of eating, drinking and entertaining. Some interesting tidbits emerge:

    • Seventy four percent of Americans believe comfort food is a rising trend, while 61 percent feel that way about health food and 59 percent about organics. More than two-thirds of respondents said they felt fast food was a waning trend, though the responses here depended to an extent on age -- people older than 50 were less likely to believe fast food is on the way out and the healthy stuff is here to stay.

    • The magazine reports that when no one is watching, Americans can't resist ice cream (15%), chocolate (13%), cake (7%), cheesecake (6%), and potato chips (5%).

    • Pasta (69 percent) is the comfort food Americans can't live without. Pizza (57 percent) comes in second, closely followed by ice cream (54 percent). A surprising 43 percent of respondents said they could do without macaroni and cheese.

    • Only two percent of respondents said they could barely boil water, while almost two thirds said they were almost as good in the kitchen as a professional, and another third said they do "an okay job" in the kitchen. Men seemed to think more of their own culinary skills than women, and more people (54 percent) said their mothers were lousy cooks than did not.

    • For the sixth straight year, San Francisco (97%) is rated top restaurant town in America. New York (96%) and New Orleans (93%) also top the list. When it comes to restaurants beyond US borders, Tuscany (96%), Provence (95%) and Paris (92%) are tops.

    • Asked about food preferences, people seemed to like tomatoes, asparagus, rice, polenta,, soy sauce and salsa a lot more than they liked turnips, figs, apricots, barley, and chutney.

    KC's View:
    Since this survey is of the magazine's readers, we're not surprised by the upscale nature of some of the responses; it's actually reassuring to know that uptown men delude themselves about their own abilities as much as blue collar guys.

    We weren't surprised by one result: Brussels sprouts were identified as a "yuck" food.

    Published on: February 6, 2003

    From the International Mass Retail Association…
    While 86 percent of American adults and 82 percent of American children plan to buy Valentines gifts this year, those surveyed by IMRA expect to spend an average of $71.50 this year, down from last year's average $94.50. Men expect to spend $89.90 this year, while women will spend less than men, $55.90.

    "Valentine shoppers are focusing on value and convenience this year more than in the past several years," said IMRA President Sandra L. Kennedy. "The great majority intend to purchase something this year, but they are relying more on the value oriented retailers and the Internet."

    Just over a third (34 percent) plan to buy most of their gifts at discount department stores, up from 33 percent last year. Specialty stores are a distant second (15 percent); department stores are third (13 percent). This year, four percent are using the Internet for most of their Valentine's gift purchases, up from one percent in 2000 when IMRA last surveyed on-line shopping for this occasion.

    Cards, candy, flowers, gift cards/certificates and stuffed animals lead the list of Valentine's gifts in 2003.
    KC's View:
    Cards are a gift?

    Zowie. We might be able to save some serious money this year…

    Published on: February 6, 2003

    Reuters reports that Royal Ahold NV is negotiating the sale of its 97 percent stake in Chilean supermarket chain Santa Isabel to Cencosud. The estimated value of the chain is roughly $220 million.

    Ahold said it was part of the company’s desire to divest non-core businesses and assets.
    KC's View:

    Published on: February 6, 2003

    The Boston Globe reports that as 7-Eleven introduces its new doughnut program, called the Dreammm Doughnut to a waiting and salivating world, it is redefining the competition that it sees as most threatening in the coming years.

    ''The future model sees Dunkin' Donuts, Starbucks, and Subway as future competitors,'' said James W. Keyes, 7-Eleven CEO, not the run-of-the-mill c-stores that the company traditionally has battled.

    The new doughnuts debuted at a 7-Eleven in Randolph, Mass, and are emblematic of the company's desire to provide both convenience and fresh food to its customers.

    The doughnuts are being made off-site and, once the program is in full swing, will be delivered to 7-Eleven units twice a day to keep pace with the likes of Dunkin' Donuts and Krispy Kreme.
    KC's View:
    The doughnut program isn't really new news; we first reported on that months ago. But we bring this up because of Keyes' comment about the competition, which resonates with implications for everyone in retailing.

    Our mantra in such things is pretty simple:

    Everybody competes with everybody.

    And if you’re not checking out all the competition to see how they might be nibbling away at your sales and margins while simultaneously considering ways in which you might be able to nibble away at theirs, well, then you’re not really in the retailing business.

    Published on: February 6, 2003

    A new study from ACNielsen suggests that while people buy more candy during the week preceding Valentine's Day than during any other single week, this appears to be a more a testament to last minute thinking than romance run amok.

    While the week before Valentine's Day is bigger for candy sales than the weeks before Easter, Halloween and Christmas, in that order, the total Valentine's Day season (defined as the six weeks leading up to the holiday) actually ranks fourth on that list of four holidays. People actually buy more candy during the six weeks leading up to Christmas, Easter, and Halloween, in that order.

    "It appears that people tend to plan ahead when buying candy for Christmas, Halloween, and Easter, whereas Valentine’s Day generates more last-minute candy buying," said Phil Lempert, food trends editor for NBC’s Today Show and spokesperson for ACNielsen. "Manufacturers and retailers start promoting Valentine’s Day candy well in advance, but, for the most part, people tend to wait until the actual holiday draws closer. I don’t think that takes away from the romantic sentiments of Valentine’s Day candy buyers; lets just call them 'last-minute romantics.'"

    According to the ACNielsen study, while throughout the year 62 percent of all candy sold is chocolate, during Valentine’s Day week that figure grows to 70 percent.

    Much of the chocolate candy sold Valentine’s Day week is boxed. While holiday and boxed chocolate candy represents 32 percent of all chocolate candy sold throughout the year, it jumps to 72 percent of all chocolate candy sold during Valentine’s Day week – most of it packaged specifically for Valentine’s Day, such as that sold in heart-shaped boxes.

    Valentine’s Day week is also unique in that it is the only week during the year when candy sales in drug stores outpace those of grocery stores. Throughout the year, grocery stores account for a little over half (53 percent) of all sales in grocery, drug, and mass merchandise stores (excluding Wal-Mart) combined. For the week of Valentine’s Day, however, those percentages are reversed. "Primarily, it’s a matter of candy assortment," Lempert explained. "Drug stores tend to stock a broader selection of boxed holiday-themed candy than grocery stores. As a result, drug stores have become the go-to destination for heart-shaped boxed candy."

    One of the fastest-growing types of candy no matter what time of year is chocolate dietetic candy. While the $73-million dollar segment represents just one percent of all candy sold in the combined grocery/drug/mass merchandise channel, dollar volume was up 79% in 2002 while sales of all candy declined by one percent.
    KC's View:
    So, once again we've learned that traditional retailing instincts may be wrong when examining issues like selling candy for Valentine's Day. Clearly, a retailer doesn’t have to start marketing and merchandising around the holiday until a week or two before.

    However, we wonder if this is as much a gender thing as a shopping preferences thing. After all, we'd guess that most of the people buying that candy for Valentine's Day are guys…and guys don’t tend to do things like this very early. (We're more likely to get to the office, glance at the calendar and go, "Damn, today's Valentine's Day…")

    It also sounds like if grocery stores go after these holiday candy sales aggressively, especially by focusing on dietetic candy, they should be able to make some headway. (Though we wouldn’t want to be the husband who brought home dietetic candy for Valentine's Day…we'd probably get hit in the head with the heart-shaped box…)

    Published on: February 6, 2003

    In the second of a two-part article, the folks from The Hartman Group offer a look at the consumer and wellness trends that will have an impact on retailers and manufacturers in the coming year.

    Organic Going Mainstream...Still.

    The Transformation of Organic from Specialty to Ordinary. Many people are talking about the mainstreaming of organics, but there's more afoot. We're convinced that "organic" will become so commonplace that consumers will no longer pay much attention to it as an important product attribute. Just as we have seen "no preservatives" and "nothing artificial" go from a handful of products to practically everything, we'll see organic ingredients added to nearly every processed food. The only thing that will prevent organic from becoming the price of admission is, well, the price of admission. Organics will be cheaper, but they will never be as cheap as non-organics for obvious reasons. Because availability and cost will always be an issue, not every manufacturer will be able to incorporate them and not all consumers will be able to afford them. The demystification of organics in processed foods, however, will not necessarily extend to unprocessed foods, such as produce and meats. These will continue to command price premiums and to differentiate themselves from their alternatives in terms of higher quality/health perceptions, despite numerous studies and official pronouncements to the effect that organic does not imply higher quality/health products.

    As organic brands are beginning to strengthen in the food world with consumers already looking to various leading brands in the organic milk, yogurt, frozen food, and beverages, for example, conventional retailers will capitalize on this decade-long organic growth trend and roll out private label organic lines to increase both their category offering and share of organic sales. Established store brands that develop organic lines can emerge as new competition for branded lines, bringing new users to the category, particularly if they are able to keep the cost to the consumer down.

    Wellness-izing the World.

    Wellness-izing of Convenience Stores. Convenience stores are and will continue to offer more healthy alternatives to the fatty lunches and fast breakfast meals consumed by millions of on the go workers. 7-Eleven, for instance, is now beginning to offer fresh lunches in the five-dollar range in an effort to frame itself as a healthy and even quasi-gourmet destination. This move illustrates a trend in the channel toward health and wellness, which will continue as long as Americans are proactive about their health. The wellness-izing of the convenience channel is an especially interesting trend in that it illustrates the fact that even within an industry which has become omnipresent in lunch decisions by selling high fat low nutrition meals, health and wellness are taking hold among managers and at the shelf.

    Wellness-izing of the Fast Food Industry. As consumers, researchers and now litigators continue to communicate the woes of obesity, fast food restaurants will be offering more healthy alternatives. McDonalds, for instance, positioned in the middle of the "burger wars," has acquired small chains that offer inexpensive, fast and convenient meals in an apparent effort to test viability in the wellness market. While McDonalds and others are hesitant to move away from the core business -- fast and fattening meals -- the acquisitions and menu changes speak to industry willingness to at least attempt to offer choices that are appealing to the millions of Americans who are becoming increasingly more concerned about their health and wellness. The growing health concerns of Americans, combined with double digit growth in, for instance, the organics segment of the wellness market is indeed enticing -- especially in a rough economy -- and hence we will see more convenience restaurants offering healthier higher margin meals in an environment that promotes health and wellness.


    The trends presented on Tuesday and this morning -- "wellness-izing" industries that were once anything but wellness-like, the price elasticity of specialty niche markets as our economy continues to struggle, and the continued growth of all things organic -- demonstrate that consumers today are looking beyond the physical sense of what's "good for you" or healthy. Consumers in 2003, much like last year, are seeking a balanced lifestyle in the products and services they choose to combine the mental, emotional, spiritual and physical wellness.
    KC's View:
    You can read part one of this article at: