business news in context, analysis with attitude

The Ahold accounting scandal certainly has inspired its share of emails. One of the lengthier missives came from Katherine Albrecht, founder and director of Consumers Against Supermarket Privacy Invasion and Numbering (CASPIAN). Excerpts follow:

“Last April CASPIAN reported that ‘in the past 9 years, 252 supermarket chains (representing thousands of individual stores) have been swallowed up by the big guys.’ As you know, the grocery industry has seen enormous consolidation over the last decade, as Giants like Kroger, Ahold and others ruthlessly bought up regional, home-grown food chains around the country (and, in the case of Ahold, around the world). Now we are beginning to see the results.

“The newcomers, smug in their executive offices thousands of miles away, have gutted these stores' local character, imposed much-hated card programs, and ignored the outraged reactions of local shoppers. It's little wonder these chains have been doing poorly in recent years, considering the amount of consumer resentment they have engendered.

“Ahold has been one of the worst offenders (and has been) one of the more voracious of the grocery conglomerates, helping fuel the merger and acquisition frenzy of the '90's that has harmed the competitive grocery marketplace for consumers around the world.

“For all the clamor over Ahold's shareholder and employee victims, this aspect of Ahold's malfeasance has been all but ignored. Propped up with shady money and accounting tricks, Ahold's financed acquisitions it should never have made, and advanced the use of discriminatory, privacy-invading shopper cards on the customers it inherited. Coupled with Ahold's "cutting edge" use of surveillance, data collection, and CRM technologies, Ahold's unchecked growth served to introduce those technologies into parts of the globe where they had been practically unheard-of before.

“MorningNewsBeat has praised Ahold's expansion strategy in the past, but now admits those acquisitions played a major role in the company's current troubles. We concur wholeheartedly.

“Executives operating under a mandate of ruthless worldwide expansion eventually develop a "whatever-it-takes" mentality and a correspondingly Nietzschean code of ethics. We've seen it reflected in how they treat their customers (viewing us as "prey"), and have felt the ill wind that has so taken analysts by surprise blowing for some time.

“So why did analysts not see it coming? MorningNewsBeat's response is
fairly typical of the industry. "We have to admit that we’ve been surprised by the allegations coming out about Ahold this week," you write. "We find that lack of honor and integrity to be distressing [and] keep wondering, what the hell were these people thinking? At what point did their ethical compasses stop working? Or when did they decide that they were going to ignore what their consciences were telling them?"

“Wake up, MNBeat. Any alert consumer can tell you that the supermarket industry is drowning in a sea of broken ethical compasses. Companies operating under the ruthless and deceptive set of principles that characterize today's grocery industry are bound to get caught in the web eventually. What amazes us is not that Ahold has been caught in its dirty dealings (which extend far beyond its financial troubles), but that it's taken the rest of you so long to figure it out.

“CASPIAN believes that much of the industry should take a long, hard look into the Ahold mirror. If you don't like what you see, you'd better turn it around before your company is next on the skewering block, be it for accounting fraud, privacy violations, or deceptive practices in dealing with your customers.”

We’re not here to be an apologist for anyone or anything, and we certainly don’t mind being taken to task for either our opinions or our attitude. There’s plenty of room on this site to criticize us for both.

That said, we find Katherine’s email to be a complete and utter crock.

“Any alert consumer can tell you that the supermarket industry is drowning in a sea of broken ethical compasses?” That is, to be honest, the biggest load of hooey that anyone has sent to us since MNB came into existence. (And we’ve seen our share.) The supermarket industry has made its share of mistakes over the years, and we’ve been critical of companies and executives on numerous occasions. Companies are run by people, and people are fallible. But to suggest that somehow the entire industry is suffering from an ethical cancer and that “any alert consumer” thinks so is preposterous at best.

We believe that most consumers would look at Ahold’s problems and relate them to lapses at the top of the corporate ladder having nothing to do with the way the stores operate. And as far as the consumer is concerned, this would be true.

Consumers trust their supermarkets because supermarkets by and large have done very little to violate that trust.

Big companies “ruthlessly bought up” small ones? That depends on your definition. In many cases, those smaller companies couldn’t have survived without being acquired. That’s not to say every acquisition has been smooth and problem-free. Far from it. But it’s entirely possible that some jobs have been saved and stores kept open because of the acquisitions cited in such dire terms.

Groups like CASPIAN love to paint with a broad brush, and everything evil in the industry seems to get related back to loyalty marketing cards. Which is, to our way of thinking, just nonsense. We’d be far more critical of food retailers for not using the cards to accumulate and mine data, and instead using them as simple discount cards.

As for destroying the local character of companies, there are chains that could be accused of that. Certainly we’ve pointed them out here, and there’s even some evidence that some have learned their lesson. But Ahold isn’t one of them. In fact, Ahold has largely been admired for allowing local management to “do their thing” as long as “their thing” got results.

We like to think that MNB is very much awake. We also like to think that we’re intelligent enough to understand that these are complicated events in which there are both villains and victims. We’re as outraged as the next fellow by what went on at Ahold, a company we have long admired. But let’s be careful not to let righteous indignation become irrational.

Better to take the approach of our friend and MNB user Glen Terbeek, who send us the follow email about the Ahold situation. It is highly critical, but rooted in fact and reason:

“I hope the unfortunate situation at Ahold becomes the wake up call for the industry before the industry completely self destructs. Whereas the Ahold (and others) situation has become public, legal and basis of SEC probes; most of the other grocery chains, wholesalers and suppliers must understand that the way they "bookkeep" for allowances is completely disconnected from the reality of their stores and items performance, even if it is done under GAAP. It’s like driving a car using a map from another country.

“It is no secret that allowances and the way they are offered and accepted vary by category, supplier, retailer, and manufacturer. As example, HBC is different from greeting cards and produce. Yet the performance of these items need to be measured on a level playing field within each store, if a company is to maximize its performance store by store. Big checks at headquarters, after the fact, doesn't do the job!

“Promotions and allowance money are a necessary part of the industry, it is the way that they are executed and measured that is wrong. As late as the 60's, there were relatively few deals being offered at any one time. But even then, pre-technology, many of the allowances were offered on a "count and recount" basis. The retailer would count their inventory before the deal period, keep track of their purchases, and subtract the ending inventory to determine the quantity sold during the deal period. It was the basis for a performance based promotional allowance, the retailer was rewarded for true performance. The quantity and frequency of deals due to saturation, made this impractical. And of course, it was also subject to "interpretation."

“But 40 years later, with all the investment in technology, partnership discussions, and ECR, you have to ask:

“Why aren't promotional dollars paid based on POS sales? Why don't IRI, ACNielsen, Catalina, or someone else become the third party promotional dollar clearing house? Why is Wal-Mart's "net, net" cost model (which provides complete item sales and inventory visibility) working when the others aren't?

“We all know the answer. Its time to fix the problem.”

We had several stories and commentaries last week about Target, which some feel may be losing its edge, and which has announced that it will be cutting costs to more effectively compete with Wal-Mart.

One MNB user wrote:

“Target has done a great job with carving their niche and building a brand. Head-to-head with Wal-Mart the worst thing Target could do is play by Wal-Mart's price game.”

And MNB user Bob Sgarlata wrote:

“A critical variable to consider when evaluating Target's strategy to engage in an "aggressive cost-cutting program, working to reduce the price of the products it buys by aggressively working on supply chain management" may be their ability to strike a delicate balance that allows for a lower cost of goods, yet does not compromise their unique selling proposition nor disenchant core customers.

“While Target has offered a unique proposition other than price that distinguished them from Wal-Mart, it is evident that a 'non-value' proposition alone cannot win in today's competitive market place. Yet, an aggressive focus on 'supply chain management', in other words, beating down the cost of goods, often leads down the path to being what I refer to as a 'Type B" retailer ... one that focuses more on buying the product and making gross profit dollars on the invoice rather than a 'Type A" retailer -- like Wal-Mart, that focuses on selling product, and generating gross profit dollars at the cash register.

“This dilemma can be complicated further when a retailer has an army of talented, but very young and inexperienced buyers that are too quickly moved from one department to another. Given senior management direction to pursue an 'aggressive cost-cutting program' and the lack of time and opportunity to fully understand a category enough to drive sales and profit, these folks ultimately focus too heavily upon skills that do not require category knowledge -- that is, negotiating cost of goods and terms of sale, instead of marketing and selling product.

“History seems to show that an executive level focus on cost and terms can often take on a life of its' own within an organization. Too often, it is interpreted as a black and white directive and becomes the dominant focus of the young and aggressive buyer determined to meet or exceed their bosses’ expectations. Cost reductions and renegotiations become a rallying cry with buyers being acknowledged for such achievements.

“Auctions, shootouts, what's next -- caged supplier wrestling matches? Don't get me wrong, reducing cost of goods is a good thing ... but be careful what you wish for -- is it improved margin or will it lead to one of the toughest environments for a retailer to grow -- deflation. This all changes of course, if you are Wal-Mart. Here, the flying smiley face has made a career of chopping down retails -- but behind that smiley face is also Wal-Mart's SG&A and an unquenchable thirst to not merely be a one-stop shopping experience, but an only-stop shopping experience.

“The concern is balance -- because a too powerful focus on cost and terms ultimately affects quality and differentiation and leads to a greater emphasis on entry-level price points. This in turn has an affect on assortment and sales composition, which shapes category profit, average unit retail and total transaction size. Over time, all of these factors, especially diminished quality and differentiation, can serve to contradict Target's consumer marketing, causing a disconnect between their slick electronic media message and the realities at store level, and over time, have a devastating impact on brand integrity, uniqueness and value.”

Bob, we think you’d get along with Glen Terbeek.

Though we have to admit we find the idea of caged supplier wrestling matches intriguing. Maybe at FMI this year…?

In a story about Staples’ new marketing campaign last week, we commented that while we shop at Staples, it is because of proximity, not because it offers any sort of differentiated shopping experience MNB user MaryJo Mortensen replied:

“I agree with your Staples comments.

“Staples is closer to me. But they are ALWAYS out of what I need. They also have lousy hours. They close at 8:00 PM (they do open at 7:00 am, but I am still dealing with getting my kids to school at that hour). Their parking lot is virtually empty whenever I drive by. Office Depot stays open later. Their parking lot is full. I haven't been inside a Staples in a year and you wont find me returning soon. I keep wondering why the store is still around.”

On the general subject of why putting financial people in charge of retailing companies that ought to be led by marketing people, MNB user Richard Pace wrote:

“Amen concerning financial people in charge. You have to have people that worked in the stores to appreciate what really drives a retail organization to succeed. If I'm not mistaken, most of the successful retail chains were started by marketers who knew what people wanted.”

In a commentary last week we compared the financial machinations that seem to go in the food industry to the hilarious plot points of Mel Brooks’ “The Producers.” We then suggested that there could be “Slotting Allowances: The Musical.” And that maybe the Kmart situation could be turned into a series for HBO that could replace “The Sopranos.”

One MNB user had a better idea for what series a Kmart epic might resemble:

“Six Feet Under would be far more appropriate.”

Good line. Wish we’d written it.

In a brief about New Jersey looking to become a template for biosecurity, we wrote that “anyone who thinks New Jersey is biosecure has never driven the northern part of the turnpike with the top down on a hot summer day.”

Marty Gillen, a member of the MNB community, took offense:

“Not funny at all and shame on you.

“At least New Jersey is making an attempt to protect the population from bio-terrorism. Your comment about the air quality is totally unwarranted. Have you ever driven with the top down on a warm summer day on I-95 in south Georgia or on one of North Carolina's "scenic" back roads running parallel to a pig farm? Now that's what I call bio insecure!!”

Okay, we’re not going to debate the difference between the smell of manure and the smell of all the oil tanks that line the Jersey Turnpike. We were just joking, trying to have a little fun on a Friday at the end of a long week…

We wrote about the emergence of wines from Australia and New Zealand last week, and noted that one of our current favorite wines is a 2000 Barossa Shiraz by Grant Burge, which is particularly wonderful with our “Shrimp-It’s-All-Greek-To-Me” recipe.

Go figure…we got a number of emails saying things like:

“With references like that, we would encourage Mr. Content Guy to perhaps post a recipe on his highly regarded site now and then.”


“So, when are you going to publish your "Shrimp It's All Greek to Me Recipe"? That would a nice change from all the depressing news.”


“Come’ on can't whet our palate if you don't share the recipe...I enjoy Shiraz with many spicy and full-flavored things, though prefer a Gewurtz. with spicy shrimp, crab and the like...but of course depending on the other ingredients...? At least give us a perspective on the ingredients without the ratios, unless you're inviting us to dinner?”

Okay, okay…here’s the recipe:

    Shrimp “It’s All Greek To Me”

    Sautee two large yellow onions in olive oil in a large frying pan until golden. Add a dash of Emeril’s original Essence to taste.

    Add four large chopped tomatoes.
    (You can adjust for size, but the ration should always be twice as many tomatoes as onions.)

    Cook on high heat for 5 minutes or so, until mixture gets saucy. Add 1/2 or 3/4 cup of white wine, plus a little salt and pepper. Keep cooking and stirring until wine cooks off. (You can add a little more Emeril’s Essence if you like…we do.)

    Add pound of shrimp. (It can be fresh or frozen. For sake of keeping things easy, we like Trader Joe’s frozen, cooked, tail-off shrimp…but it’s up to you.) Cook and stir until nice and hot.

    Add half-pound of crumbled feta cheese. Stir until meted through…then serve over a bed of pasta or rice pilaf.

KC's View: