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    Published on: February 24, 2003

    The BBC reports that Safeway Plc says that despite the acquisition frenzy currently taking place in the UK, it still prefers the strategic fit offered in the bid made for the company by William Morrison Supermarkets.

    In late-breaking news this morning, Kohlberg Kravis Roberts, the US buyout firm, said that after performing due diligence it was pulling out of the bidding for Safeway, though it would continue to monitor the situation.

    It was Morrison’s original bid for Safeway that set off the frenzy; Tesco, Sainsbury, Wal-Mart, and several other bidders said they would get into the fray with higher offers. Safeway even said it could no longer recommend the Morrison’s bid to its own shareholders.

    However, a Safeway spokesman told the BBC that the advantage of the Morrison’s bid was that it would preserve the integrity of the chain’s stores, allowing them to continue to exist in pretty much the same configuration as they do currently, which would be good for shoppers and healthier for the UK’s competitive climate.
    KC's View:
    We would agree with that assessment. Unfortunately (or fortunately, depending on how you look at it), it isn’t just the stores and the customers who are of concern here. Shareholder value is a huge issue, and could well be the determining factor in whatever decision is made.

    The interesting thing about the KKR pullout is that many analysts thought that an acquisition by KKR and sell-off of assets to the various players represented the best opportunity for high shareholder returns. For the moment, at least, that possibility is gone.

    Published on: February 24, 2003

    Dow Jones reports that the state of Illinois has decided to join a lawsuit against a number of major retailers, including Wal-Mart and Target, charging that they owe the state back taxes from online sales made there since they also have brick-and-mortar stores in the state.

    Most of the companies with online operations set them up as separate corporations to avoid this problem, but an increasing number of states see this as an insufficient rationale for not paying the sales taxes.

    Several retailers, including Wal-Mart, have begun collecting sales taxes on Internet sales as a way of assuaging states like Illinois.

    According to Dow Jones, several more states are expected to join the suit.
    KC's View:

    Published on: February 24, 2003

    The local NBC station in the Dallas-Fort Worth market has reported in the evening news that Wal-Mart shoppers who buy six identical items at different area stores can find as much as a $5 discrepancy in their total bill.

    Wal-Mart responded to the story by explaining that local stores can adjust prices for competitive reasons, in essence saying that this is a kind of informal “zone pricing.”

    The station shopped at eleven Wal-Mart Supercenters and bought the same six items: One 100-fluid ounce bottle of Tide, one box of Claritin with five pills, one package of Pampers Baby Dry Diapers, one can of Campbell's Chunky Soup, one tube of Maybelline mascara, one bottle of Opti-Free contact lens cleaner

    Wal-Mart also said that if a customer finds a discrepancy in pricing, the store manager can make the adjustment.
    KC's View:
    This is sort of a “mountain out of a molehill” story, but it is interesting because it shows that there can be a downside to ubiquity. Virtually every retailer of any size probably can be fairly accused of zone pricing, but Wal-Mart gets hit with the “pricing discrepancies” label on the local news.

    All retailers -- not just Wal-Mart -- have to be cognizant of how these kinds of practices can look, even if they are entirely legitimate and common.

    Published on: February 24, 2003

    The Home Depot is embarking on a new advertising campaign keyed to its do-it-yourself educational clinics that teach people to build and fix things. The tagline: "you can do it, we can help."

    Recently, Home Depot’s approach has been to emphasize price and value, but declining profits and a shaky reputation for customer service led the company to retool its efforts.
    KC's View:
    Good idea, though we have several thoughts…

    On the one hand, it is an approach that ought to emulated by the food industry, where retailers ought to emphasize training and education of consumers, not price wars that they cannot win.

    However, fixing Home Depot’s problems requires a lot more than a marketing program. It requires a cultural shift that brings it back to its consumer-focused origins.

    And that will be a lot tougher.

    Published on: February 24, 2003

    Content Guy’s Note: Starting today, each Monday for the next two-and-a-half months will feature an article previewing some aspect of the annual Food Marketing Institute show, scheduled for May 4-6 in Chicago.

    The point of these articles is to focus on some aspect of the industry that will be addressed at the show, to put into sharp relief the critical changes taking place in the industry and the “change agents” who are making them happen and creating a context through which they can be understood.

    This week, we offer a look at one aspect of a three-hour Learning Lab that will be offered on the morning of Monday, May 5: “Size Matters: The Smaller, The Faster,” which will use an interactive format to examine and recommend specific approaches smaller operators can use to compete successfully by balancing strategies to grow sales with cost controls. The discussion will examine ways to build a reputation for quality and freshness in perishables, describe how to brand the store by building a niche in the community, ways to use the web to build business, and taking customer loyalty beyond card programs. This session -- which, coincidentally, we will be privileged to moderate -- is designed to be a real-world, feet-on-the-ground idea session from which retailers can walk away with action-plans for their stores.

    One aspect of this session will be to examine a unique approach to creating strategic alliances:

    Recently, a group of independent retailers in California recognized their common need to differentiate themselves; it was, they believed, an absolute necessity if they are to survive in the highly competitive 21st century marketplace,

    To that end, this group of retailers created an entity called Raise The Bar, which serves as a vehicle through which it could share best practices in the areas of merchandising, customer service, and sourcing unique products; it even has created a series of videos that are used as educational tools within the member stores, all of which pay a fee to belong to the group.

    Raise The Bar currently consists of 37 stores with five applications pending, and with roughly $400 million in annual sales among them. To get a better sense of how the group works and what its goals are, we conducted an exclusive e-interview with Bennett A. Robinson, who has been hired by Raise The Bar’s retailers as its administrator.

    MNB: What specifically led to the creation of Raise The Bar? Was it a slow dawning that this sort of mechanism was needed by independents, or a sudden event that just woke everybody up?

    Bennett A. Robinson: It was at the invitation of John Sutti, an architect and builder who works almost exclusively with independent grocery stores. John saw that the independent grocers were falling away if they didn’t grow with the times and create an identity that was clearly different from the chains who were playing the size and price game. As the grocers began to meet regularly, they discovered that were indeed allies and could join together to solve some common challenges among them.

    How do you define your mission?

    Bennett A. Robinson: Raise the Bar’s mission is to help the independent grocers, throughout the United States, grow their business by continuing to raise the level of service within their stores to create retail customers for life. By improving the level of service within their stores, the overall result will be increased sales and profits for the stores. The Raise the Bar organization is an essential component for independent grocers to grow their business.

    Are there criteria for membership...for example, size of company in sales or stores, location, etc...?

    Bennett A. Robinson: The following excerpts from our bylaws describe the most basic of criteria: “owning a retail grocery business… which is not publicly traded… which serves the public market.” The original idea was to limit the possible members to those independently owned stores that did not exceed four stores in any one company. The concern was that the bigger players might unduly sway (or control) this group of smaller independents. The Raise the Bar history has shown that every time we have voted and debated our way through a policy change or some other organizational concern, that it has always been “one owner, one vote.” So, long story made shorter, the number of store criteria is being reconsidered while the independently owned requirement remains solidly in place.

    How does Raise The Bar interfere with or complement a retailer’s relationship with his or her wholesaler?

    Bennett A. Robinson: This is an interesting question. The nature of RTB is to ask the grocer to make buying decisions for their customer. We ask the customer what they want us to sell and then we bring it in for them. Our goal is to put one more item in our existing customers’ basket. These items are often specialty, natural foods based, or come from the value-added food service departments of the store. Therefore, the vendors we need to interact with are the like-minded specialty vendors who are as responsive to us as we are to our customers. While the big wholesalers are still big players, they are too slow and too bereft of original ideas to satisfy the real-time needs of our growing clientele. The wholesalers seem to be offering only truckloads and pallets of things they and the big manufacturers want to sell. We are not encouraging our grocers to put up end displays of laundry soap, mayonnaise, and soda to enter into a price war on a commodity, non-destination grocery item with the big chains.

    Can you give a couple of examples of how Raise The Bar has had an impact on how a retailer manages or operates his store?

    Bennett A. Robinson: One of our grocers is a very busy man. He is very likeable and is a student of the grocery business. He was amazed when survey results from his own employees revealed that they thought he was “aloof, arrogant, and didn’t carte at all about us (his employees).” He was unaware of the effect his rushing in the door, hurrying in to the office and getting his work done was having on employees. Even though he made time to work with his various department heads, the message they heard was that his employees did not have time for him. He made the decision to change his way of being on the floor. He slowed down, chatted with employees he usually didn’t and started morning “Huddles” where he helped to energize and direct the staff. At the last year end review in his store, the biggest positive change the employees saw was their owner “cares more about us.” By the way, his turnover has slowed down now, too.

    Another retailer liked to check every day because he liked to get the pulse of the day. He made himself the lead checker on Mondays. This practice is not bad in its own right. Every grocer has their own flair and you know that his customers are going to tell him what they really feel if he is on the registers. However, it is hard to lead when you are “chained” to a fixed position, like conducting a band if you play tuba. This grocer began to see that he could modify his checking time, still stay in touch and be able to lead his store team from a flexible management position. Frankly, I think no one ever mentored this man in how to be a leader and now he had the example of the other grocers (who didn’t check groceries) and the guidance of a consultant who could help him see the forest for the trees because his external perspective.

    Actually, it seems that in some ways, you’re trying to get retailers not so much to be operators or managers, but leaders. True?

    Bennett A. Robinson: Absolutely. All of the owners are good grocers, very hard workers and skilled in the various aspects of running a retail store. They have inherited the job from a family member or have grown their way up in the business. They have probably not had a lot of true management and leadership development education along the way, they were too busy. We have helped them to be students of each others’ successes. We have introduced management concepts that are universal. RTB has put together training and education materials so that the grocer can get back to leading their business. If you spend your day putting out fires, you will never get to (what I feel is) the most important job of the executive of a large company: leading your store and staff forward to a continuing and lasting success while exemplifying the highest of standards.
    KC's View:
    Knowing how fragile much of the independent grocery sector is these days, we think that Raise The Bar is exactly the kind of mechanism that independents need to develop in order to address the big picture of retailing, as opposed to becoming mired in the day-to-day operational details that, while they must be addressed, prevent them from being strategic thinkers. Taken in concert with the other issues that will be addressed during this Learning Lab, we think that this session will be highly productive for those who attend.

    Note that all the Learning Lab sessions are limited seating. You can get more information about this Learning Lab and all the sessions taking place at FMI 2003 by going to the organization’s website,

    Published on: February 24, 2003

    Reporting In from the FMI MarkeTechnics Conference…
    DALLAS -- Okay, so what exactly does a discussion of the mapping of the human genome have to do with food retailing technology?

    It’s simply really. And it isn’t specific just to industry technologists.

    In a fascinating discourse Sunday morning, Juan Enriquez, senior research fellow and director of the Harvard Business school Life Sciences Project, told attendees at the Food Marketing Institute annual MarkeTechnics conference that it was as simple as understanding the science of map making. “We are,” he said, “in the mapping of the human genome where Columbus was in terms of mapping the world,” which is to say we know very little compared to what there is to be known.

    But, he said, starting the process of mapping the genome is critical because it creates power in a knowledge-based economy. The fortunes of nations and cultures are shifted based on their willingness to map out new territories and express what they know in language; it is why, Enriquez pointed out, Europe became dominant five hundred years ago, despite the fact that until that point China was a far more thriving culture. It is why, he suggested, the US dominates today -- because it has been literate in the digital language of the time.

    “Some people still want to say that evolution is just a theory,” he said, suggesting that this reflects a willingness on the part of some people to stop learning. Today, Enriquez said, we know that 1.27 percent of the gene code is the only difference between humans and monkeys -- and understanding what goes into that 1.27 percent and why it evolved that way is critical to remaining fluent in a knowledge-based economy.

    “The rich nations aren’t the oil-rich nations of the world,” he said, suggesting that he could take a couple of thousand people from a few US zip codes and move them to Barbados, and turn that island nation into a world power (and one, we’d assume, in which all the smart guys would have beachfront property).

    Focusing on the implications for the food business, Enriquez said that “an orange is like a floppy disk,’ with a code that, if properly understood, can be rewritten so it has immense practicality in creating a health-enhancing, disease-fighting fruit. Addressing concerns about this technology, Enriquez painted a portrait of inevitability -- this will happen, he said. The only question is whether the US will be literate in the language and aggressive in its willingness to map and explore. If it does not, he suggested, the alternative is to become irrelevant.
    KC's View:
    While the Enriquez presentation did not specifically go in this direction, we think his message about the need to expand the knowledge base and explore all possibilities needs to be heard in all sectors of the business. While these issues are not as profound as those he addressed, they do have a day-to-day applicability that requires consideration.

    Too often in the food industry, retailers give initiatives just a few months to succeed before pronouncing them successes or failures. Think of meal solutions. Loyalty marketing. Or e-commerce.

    These issues, and others like them, are viewed as ends, and ends that need to be achieved quickly or not at all.

    But they really aren’t that. Done right, they should be constantly evolving explorations that never end. Sure there’s a cost. And sure, the return on investment isn’t always immediate.

    But not to explore, not to invest, means that companies and the industry run the risk of becoming irrelevant, of becoming illiterate in the language and knowledge base that really mean something to consumers.

    In this case, the power may not shift to Barbados. It may shift to Arkansas…or to some other entity and place not yet on our radar screens.

    So how is mapping the human genome critical to the food industry?

    Two ways, really.

    It is critical because it will forever affect the way food is grown and manufactured, and its impact on the human race.

    And because it illustrates the power of the knowledge economy, and fragility of the position held by any company or industry that does not embrace its importance.

    Published on: February 24, 2003

    Dutch retailer Ahold announced this morning that its longtime CEO, Cees van der Hoeven, and its CFO. Michael Meurs, will resign from their positions after accounting irregularities were found at the company’s U.S. Foodservice unit.

    The company also said that its 2003 net profit is expected to be "significantly lower" than expected -- possibly by as much as $500 million (US) -- because the company had overstated recent earnings in the U.S. Foodservice business, which is the second-largest food distributor to restaurants, hotels, healthcare institutions and sports facilities in the United States after Sysco Corp.

    Ahold reported its first net loss in almost 30 years in the second quarter. The company now says that it will have to restate earnings for 2000 and 2001, as well as 2002’s interim results. Van der Hoeven reportedly tendered his resignation last spring after the profit warning, but it was refused by the board.

    The company said it would delay the scheduled March 5 announcement of last year’s results until after its internal investigations by “forensic accountants” are completed.

    Supervisory Board Chairman Henny de Ruite has been named Ahold’s acting CEO. He said that the company also is investigating the legality of “certain transactions” made at its Disco subsidiary in Argentina.

    All of these issues, de Ruite said, were discovered in the course of the 2002 audit. He declined to say whether other board members will be forced out as a result, but did say that some U.S. Foodservice executives have been suspended.

    "My priority will be to stabilize the business and get to the bottom of the problems,” de Ruiters said. “I am not in the least bit pessimistic about where we will be in a year from now.” He said that the company recent secured $3.4 billion (US) in new financing, leaving it fully funded and liquid.
    KC's View:
    The local Dutch media jumped on the story, with headlines like, “Is ‘Ahold’ Dutch For ‘Enron’?”

    For the moment, it is hard to say whether this was avarice or just corner-cutting that created problems for Ahold and its top executives. That’ll be up to the forensic accountants to decide, and perhaps legal authorities; these days, the public sentiment against corporations and their “accounting irregularities” pretty much guarantees that there will be governmental probes into the Ahold situation.

    Two heads have rolled. It isn’t hard to imagine that there will be more.

    It also was ironic that this took place less than 24 hours after there was a presentation at the Food Marketing Institute MarkeTechnics conference about ethics in business, in which one of the recommendations (made in a different context) was that companies need to have a Chief Integrity Officer, who guarantees that they develop the language of ethics internally, maintain ongoing ethical fitness, and articulate those ethics externally.

    Sadly, Ahold seems to have a lot of work to do. It is a profound disappointment when a company admired in so many quarters is found to be wanting in the ethical arena.

    Certain Ahold executives may be guilty of avarice, or may be guilty of lousy judgment.

    History, we suspect, will prove that at the very least, they were guilty of hubris.

    Published on: February 24, 2003

    Starbucks announced that it will introduce a new Starbucks Visa card, which can be combined with its highly successful stored-value card, which currently is used for roughly seven percent of total store sales.

    In addition to offering latte drinkers a line of credit, the new credit card also will create a reward component that will allow users to earn free products and rebates when using it.

    "Unlike airline tickets, these rewards can be immediate," Howard Schultz, Starbucks chairman and CEO, told The New York Times. "We are doing something that has never been done before, which we think is compatible with our brand and what our customers have come to expect from us."
    KC's View:
    This new venture has some pitfalls, it seems to us, simply because the coffee retailer runs the risk of being grouped in with all the other annoying companies that deluge American consumers with credit card offers. In addition, if Visa takes it on the chin in the lawsuit that has been filed against it by Wal-Mart and thousands of other retailers, having a Visa alliance may not be the most reputation-enhancing place to be.

    That said, it isn’t like Visa is going to vanish. And, judging by how successful the stored value card has been for Starbucks, this combination does suggest some intriguing marketing possibilities.

    Published on: February 24, 2003

    We continue to get reaction to our essay last week about the need for the food industry to develop new formats that cater to a new generation of consumers, as opposed to depending on traditional formats to lure this new demographic target.

    One MNB user wrote:

    “The problem with the major grocery chains is they can only do one thing at a time. They have gone to central buying in all depts. Central advertising. Central merchandising. Headquarters controls everything & the local store manager can't merchandise to his local customers needs. Can't buy local grown produce.

    “How could they be expected to have enough imagination to focus on 20 to 40 year olds without completely doing away with their present format?”

    Jeez. And you folks think we’re cynical?

    Actually, we sort of agree. Except that you see innovation from a major chain -- like HEB’s Central Market -- and you can’t help but feel that everything is possible in an industry where possibilities are embraced, and exploration is encouraged. (Sort of what we were writing about in our second story this morning about the human genome.)

    We had a story last week about how farmers In China, India, and Indonesia -- Asia’s three largest countries -- are getting into the biotech business in a big way, planting millions of acres of genetically modified cotton, and creating an environment in which production of genetically modified food can be a big business. (Embracing the knowledge economy, in the words of Juan Enriquez at MarkeTechnics.) In our commentary, we wrote that while the US is squabbling with the EU over products that contain GMOs, the real battle may be fought and won on the other side of the globe. “We don’t believe in the inherent goodness or evil of GMOs. We simply believe that research must be exhaustive and careful, and that the existence of non-GMO crops and products must be carefully nurtured as well.”

    MNB user Westall Parr responded:

    “Food is both cultural and political. Are you convinced that the research done in China will be exhaustive and careful?

    “I'm not. I think they will take massive risks and in the process put the whole
    food chain at risk.

    “Human life isn't seen or treated the same way by many of the emerging countries (we will avoid the way Americans seem to have to execute so many of its citizens for the moment) and food is looked upon as strategic as much as it is nourishment.

    “This needs very careful consideration and will call for much more from the Food people at the UN.”

    At the moment, the UN seems to be having enough trouble on other issues…

    But let’s leave that aside for the moment. Essentially, we agree that there are political and cultural issues in play here. But that’s the best reason to not act in a unilateral way, to have open and honest dialogues with other nations, to respect other cultures and opinions, and to embrace the fact that global economy is truly global…not just the US vs. everybody else.

    Isn’t it?

    We wrote last week about some of the troubles Target seems to be having, and that elicited some email.

    MNB user Bob Vereen wrote:

    “If you have gone into a Target supercenter, the food section nearly always appears pretty empty. From what I have seen, the prices are high; the presentation not much different, if any, from that of Wal-Mart or Meijer, the other two big supercenter chains.

    “Doesn't seem like they have a different, winning formula yet.”

    That opinion was echoed by MNB user Richard Lowe:

    “I don't see where Target has anything to offer in their Supercenters. Just fancy ads and high prices.”

    And, in our ongoing discussion of the obesity epidemic and its impact on the food industry, we continue to get emails. One MNB user wrote:

    “You know, my mom was a single working mother who didn't get home until 6:30 or so each night. We kids grew up on Happy Meals from McDonald's. And yep, I was fat as a kid, and have to work hard to keep my weight under control. My brother is a big guy, too. Anyway, what do you think - should I sue my mom for giving me so much greasy fast food as a kid? (just kidding)

    “To those parents who filed the lawsuit against McDonald's, I say 'Stop The
    Madness!' and take responsibility for your own actions. Admit that common sense told you your kids would get fat by eating fried foods - there's no one to blame but yourself.”

    We’ll be back tomorrow with more from FMI’s MarkeTechnics conference…
    KC's View:

    Published on: February 24, 2003

    The US Department of Agriculture (USDA) announced that US consumers should expect record high prices this year for sirloin steaks and hamburgers, because of tighter-than-usual supplies and higher feed costs. In addition, the USDA said that beef production in the US is not likely to increase until 2006.
    KC's View:

    Published on: February 24, 2003

    • Published reports say that Wal-Mart Stores is slated to open three Neighborhood Market stores in Arizona next year.

    • Two former Jitney Jungle stores in Mississippi that were acquired by Winn-Dixie about three years ago have now been closed, according to published reports. A third former Jitney store acquired by Winn-Dixie has been acquired by a subsidiary of Affiliated Foods Southwest.

    • The Newark Star-Ledger reports that the Great Atlantic & Pacific Tea Company (A&P) has laid off 50 headquarters personnel, primarily from its information services department.

    KC's View: