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    Published on: March 20, 2003

    The Washington Post reports this morning that as an accounting scandal enveloped Dutch-owned retailer Royal Ahold, the company’s six US supermarket chains went into “triage mode” to assure employees, customers, and suppliers that they were healthy and responsive.

    William J. Grize, president and CEO of Ahold USA, told the Post that the company became a bit more “frugal” as it trimmed some of its remodeling plans, and that it communicated in writing with its employees in order to keep them informed as vents unfolded, as well as to allow them to be better able to answer customer questions.

    At Giant in the Washington, DC, area, for example, a survey has revealed very little customer concern about the Ahold situation.

    Grize also said that just two of 40,000 suppliers have asked for “modest adjustments” to payment terms, and that all vendors have been paid on time. He denied the notion that the company’s retail chains -- Stop & Shop, Bi-Lo, Tops, Bruno's, Giant of Carlisle, Internet grocer Peapod, and Giant Food of Landover – would have to raise prices to help deal with financial pressure on the company.

    According this morning’s edition of The Wall Street Journal, Ahold’s creditor banks have approved a capital spending plan that will allow the US company to build or replace between 60 and 70 stores.

    The accounting scandal with which the company is dealing revealed a half-billion-dollar overstatement of profits, significant issues regarding vendor allowances at the company’s US Foodservice division, and forced the resignation of the company’s CEO and CFO. The company is now being investigated by the FBI, the US Securities and Exchange Commission (SEC), and the US Attorney’s office, not to mention various Dutch entities.

    Reuters reports that lawyers for US shareholders have filed at least 13 lawsuits against Royal Ahold.

    And in other, related news, Royal Ahold confirmed it will seek arbitration to resolve financial demands being made by ousted CEO Cees van der Hoeven and departed CFO Michiel Meurs. Both men reportedly are demanding large settlement packages, and Ahold opted for arbitration to settle their claims.

    In the US, Grize told the Post, "We went through this wide range of emotions, anywhere from shock and concern to denial and anger and ultimate resignation and acceptance, like you do when faced with death or a severe illness,"

    Grize described the company’s US retail chains and the US Foodservice business as “two totally separate businesses in the way they are run,” and said that the synergies that had been expected when US Foodservice had been acquired never developed.

    While Royal Ahold’s US chains have been listed as collateral in a recent financing deal, Grize said that all this means is that the stores have access to cash, not that they will be sold off. And he told the WSJ that he did not expect any of the US chains to be sold.

    “I wish I could tell you that by this summer everything will go away,” Grize told the Post. “I believe that's highly unlikely. It's just a very, very complicated situation.”
    KC's View:
    It certainly is true that the markets are going to pay more attention to Ahold’s problems than customers will; one of Ahold’s great strengths in the US has been its near invisibility as an entity, allowing its chains to do business with as much local control as possible.

    Grize has always struck us as a good guy. He’s certainly always been forthright and direct in his dealings with us, and you can’t say that about a number of executives in the industry. We think he probably has the kind of tough-minded approach that will see the US chains through these difficult times, which should be possible unless there are more surprises lurking out there.

    As for the speculation about what chains might be sold off…well, there’s not much anyone can do about that. Witness our guest analysis from, below…

    Published on: March 20, 2003

    Guest commentary and analysis from…
    Despite the impending fire sale, Royal Ahold’s ICA venture is unlikely to be relinquished.

    Scandinavian retail joint venture ICA is one of Ahold’s most prized acquisitions from its 1990s international shopping spree and represents one of its strongest and most sophisticated store networks in Europe. ICA is present in Sweden, Norway, Denmark, and the Baltic republics and its sales growth in 2002 outperformed many of Ahold’s other divisions. For Ahold, ICA is therefore of substantial value in terms of sales volume and pan- European credentials.

    Despite these attributes, ICA constitutes something of a poisoned financial chalice. It potentially threatens more trouble for Ahold’s balance sheet next year, as the agreement signed in April 2000 states that all involved parties have the right to sell their shares after April 2004. If ICA decides to sell shares in its joint venture with Ahold, it is first required to offer the shares to Ahold. Should the Scandinavian partners fail to reach agreement, Ahold is obliged to purchase the shares at a price reflecting the market value of ICA. This would put Ahold again into the position of having to raise a rather large sum of money to buy the shares, precisely the sort of transaction that has contributed to its current malaise: hefty acquisitions with borrowed money.

    Still, Ahold is unlikely to sell its stake in ICA at present while there are other possessions to sell off first. For the same reason that the company is unlikely to dispose of its US chains like Tops, there seems little point in selling the crown jewels while there’s some family silver left to raise some cash. Given the worth of ICA to Ahold, the company would have to be hard-pressed by debtors and devoid of other credible options before it considers selling it.

    We can expect the South American and South-East Asian operations to go overboard as soon as a half decent price is offered for them. While the potential problems of April 2004 do not provide Ahold with an easy decision, it seems more likely that Ahold will adopt a wait-and-see approach. If ICA is sold before then, the fat lady has finished clearing her throat and is about to sing.
    KC's View:

    Published on: March 20, 2003

    A new survey conducted by Bowne DecisionQuest, a litigation research firm, says that a majority of potential U.S. jurors believe that parents, not fast food chains, are to blame for obesity in children.

    The poll was conducted after a lawyer refiled a lawsuit against McDonald's charging that consumers have not been properly informed about the dangers of eating too much fast food.

    Almost eight out of ten respondents blamed parents for childhood obesity, not fast food restaurants.

    Just over 56 percent of those surveyed said they would find for the fast food companies in such a case, while about a quarter said they’d side with the parents in a jury trial.
    KC's View:
    Aside from the fact that the jury pool has now been corrupted a bit, this is an interesting survey. We suspect it will hold true as long as no evidence comes to light suggesting that the fast food companies lied about their ingredients or manipulated their recipes to addict people to burgers and fries.

    Published on: March 20, 2003

    The British government has ordered its Competition Commission to investigate four out of the five companies that are looking to acquire Safeway Plc there. The probe is scheduled to be completed by mid-August.

    Affected by the ruling are Tesco, Sainsbury, Wal-Mart, and William Morrison Supermarkets. Only retail magnate Philip Green, who does not own any supermarkets, was given the go-ahead to acquire the company straight away.

    The ruling came as a surprise to many who believed that Morrison, the nation’s fifth largest retailer and the company that got all this started with its bid for Safeway, was likely to escape scrutiny. While Safeway seemed to prefer the Morrison bid, this turn of events makes it possible for Green to swoop in and grab Safeway.

    Morrison’s bid is lapsing, and the company said it is reviewing its options.

    The probes are designed to make sure that too much retailing power does not reside in too few companies. Analysts quoted in the British press seem to believe that of the four companies being investigated, Morrison remains the only company that could get a go-ahead for a Safeway acquisition.

    “I am not surprised by this decision,” said Tesco CEO Sir Terry Leahy in a statement. “We have always understood that competition policy limited consolidation of the four national players in our industry.”

    There was some speculation in the media that US buyout firm Kohlberg Kravis Roberts might get back into the bidding war in the wake of this decision, but there is no evidence of the company planning such a move at this point.
    KC's View:
    We hope the Morrison folks stay in it. That still seems like the best fit, and the one that promotes healthier and broader competition.

    Published on: March 20, 2003

    Nihon Keizai Shimbun reports that Wal-Mart plans to focus on supply chain issues, including the introduction of its Retail Link information system, as it builds on its business relationship with Japanese retailer Seiyu, in which it has a 37.8 percent ownership stake.

    Wal-Mart International CEO John Menzer told the publication that Wal-Mart would decide within five years whether or not to open its own stores in Japan; the company has an option to own a majority of Seiyu by the end of 2007.
    KC's View:

    Published on: March 20, 2003

    USAToday reports that the US Bureau of Engraving and Printing has decided to delay the introduction of the redesigned $20 bill because of the war with Iraq and security concerns in the US.

    The bill was ready to be introduced next week, but now will go into circulation in May.

    The makeover was designed to thwart high-tech counterfeiters. The new version of the bill introduces color to US currency, and $20 bill is first in a series of redesigns because the $20 bill is the most counterfeited note in the United States.
    KC's View:
    It is also soon to be the most used bill in the US, since the way things are going it’s going to $20 for a gallon of gasoline…

    Published on: March 20, 2003

    • Albertsons, the No. 2 U.S. grocer, reported that net earnings for fiscal year 2002 increased 15.6 percent to $579 million before the effect of an accounting change, versus $501 million on the same basis in the prior year. Reported net earnings, including the accounting change and one-time items, totaled $485 million for the year, three percent lower than the $501 million in the year earlier on the same basis.

      Sales for the year totaled $35.6 billion, 2.7 percent lower than the prior year.

      Reported net income in the fiscal fourth quarter ended Jan. 30 was $205 million, down from $290 million in the same period of the prior year.

      Quarterly sales decreased to $9.1 billion from $9.3 billion, while same store sales were off 1.2 percent.

      Albertsons’ gross profit margin fell during the quarter to 28.56 percent from 28.88 percent, which CEO Larry Johnston said was because of aggressive promotions and price cutting aimed at boosting sales.

      Johnson expressed optimism to Reuters, saying, “Our average baskets were up from $24.50 in the fourth quarter of last year to $24.93 in the fourth quarter of this year.”

    • Family Dollar Stores reported net income of $72.7 million for the quarter ended March 1, up from $63.8 million a year earlier. Sales rose 14 percent to $1.26 billion from $1.11 billion. Same-store sales rose 2.9 percent from a year earlier.

    • General Mills Inc. reported that quarterly net income nearly tripled on lower costs and strong growth in core brands and line extensions.

      Net sales rose 11 percent to $2.65 billion, while net sales from US operations were up 14 percent to $1.91 billion. Operating profit nearly doubled to $449 million.

      Net income rose to $240 million, from $82 million a year earlier.

    KC's View:

    Published on: March 20, 2003

    The Associated Press reports that the US General Accounting Office (GAO), the auditing body that reports to the US Congress, says that the nation’s food supply is vulnerable to terrorist attacks and that the government cannot guarantee the security at food processing plants.

    Both the US Department of Agriculture (USDA) and the Food and Drug
    Administration (FDA) have warned food companies, retailers and farmers to increase security because of the heightened security alert. Related to the war against Iraq.
    KC's View:

    Published on: March 20, 2003

    McDonald's Corp. reportedly is test-marketing a lower-fat, all white meat version of its Chicken McNuggets in New York City and Columbus, Ohio.

    The new version has 14 percent fewer calories and 15 percent less fat than the traditional McNuggets.
    KC's View:
    It seems like every day it is something new about McDonald’s. It’s just hard to know if the company is getting anywhere, or if this is just all movement without a firm destination.

    Published on: March 20, 2003

    For a brief time yesterday, a Hewlett Packard pocket computer that retails for $299 on in the US was selling for the equivalent of just $10.95 on Amazon’s UK site.

    The low price generated a ton or orders – all of which Amazon cancelled once it discovered the error. The company said it would offer the computer at its proper price to the folks who had their orders cancelled.

    The UK site was shut down for just under an hour yesterday while the company fixed the problem, and UK shoppers were directed to Amazon’s international site.
    KC's View:
    We’re huge fans of Amazon, but we disagree with its actions in this case. It should bite the bullet and sell the computer for the low listed price…and make sure such a thing never happens again.

    Published on: March 20, 2003

    Yesterday, we reported that the Atkins Diet is proving to be bad for business for many packaged goods manufacturers, and that the deans of 28 public health schools have backed a “meatless Mondays” concept designed to reduce Americans’ consumption of saturated fat. In our commentaries, we expressed a certain skepticism about any diet in which bacon is considered to be healthier than bananas, and noted that Mrs. Content Guy is shedding pounds on the Atkins Diet while making the rest of us at home nuts.

    These reports generated a fair amount of email…

    MNB user Marc B. Lynn wrote:

    “I must tell you that Atkins really works for weight loss and it lowers triglycerides and total cholesterol. I started on Atkins and had a blood test on 1/23/2003 (my birthday). My total Cholesterol was 173 (well within normal range), and my Triglycerides were 282. Triglycerides should be under 150 to be considered at normal levels. When I had a new blood test on 3/5/2003 my total Cholesterol dropped to 142 and my Triglycerides dropped to 126. So far there has been no significant change in HDL or LDL. During this timeframe I lost 23 pounds and I feel the best I have in years.

    “The Food Companies have a great opportunity to increase the number of products that are supportive of the Atkins lifestyle. The reason this is so important is that Atkins followers will continue to eat reduced carbohydrate foods well beyond the period of weight loss to maintain their weight at desired levels. The shift to lower carbohydrates is not a temporary thing for those who become believers. This is a great opportunity for the Food Companies.”

    This perspective was echoed by another member of the MNB community:

    “As the low carb lifestyle gains momentum, I hope that more food manufacturers will look for solutions that will meet low carb dietary needs and still give us the satisfaction of great taste.”

    MNB user Annette Chilson concurred:

    “Over the past weekend, my parents and I discussed the merits of the Atkins diet - that they are currently on. My mom has already lost over 10 pounds on this diet. I've known other people who have lost around 30. I told my parents that I had attempted the diet twice, but found it too difficult to stay on it since I find the low carb diet limiting. Meat, cheese and nuts - I go crazy wanting some variety. I'm not that imaginative a cook - hence going for the high carb prepared meals. If my local grocery stores had an extensive low carb section, they'd certainly find a new customer in me - and I would gather, many more. This is a trend that has got to pick up some steam because we've all got to stop eating so many products that process down into sugar.”

    And MNB user Ed Nalley added:

    “My wife and i have been on the "new eating program-"-not a diet-- for 2 months. We are buying much larger amounts of Fish--Pork products- Chicken--Turkey--Fresh Veggies--Fresh Fruit--some wine—a lot of high protein power bars--with only 2 or 3 Carbs--Result: More energy--4" less on the waist--30lbs less--New Clothes--plus doing more exercise daily—Extra Natural Nutritional supplements are also being purchased.
    “Perhaps mainstream Food Stores should do a little extra marketing on the Foods we are now buying and offer the variety we are looking for--so we don't spend 2/3 of our higher food budget in Whole Foods.-- and when we eat out--we have no problem ordering less carbs and getting extra Protein Veggies and Fresh berries.”

    Sounds like a trend here…

    However, another MNB user had a different opinion:

    “Is there anybody in the world who really believes that replacing a healthy rounded diet with a protein and fat laden substitute is something that will not have long-term detrimental effects on their health? Think about it people! The net secret to Adkins is that although you eat a diet that is full of all the bad things, you ultimately consume fewer calories.

    “Pretty simple math here. Consume fewer calories than your body needs to maintain its base weight and you lose. Consume more and you gain.

    “However, adherents of Atkins are very likely to see their cholesterol go up as the scale goes down. Additionally, when they revert to a more normal diet (and they will), they will have developed no eating maintenance skills for managing their caloric intake. Adkins is bad news and bad for you! I personally have lost over 15 pounds in the last month by doing a little more aerobic exercise and eating more fruits and vegetables, cutting down on processed foods and only eating bread products made with whole grains. I can maintain these health habits. Can Mrs. Content Guy live on proteins forever?”

    The answer to that last question is “no.” As soon as she reaches her goal, our prediction is that she’s going to reward herself with a Milky Way. A big one.

    We reported yesterday how the state of Maine’s Education Committee voted unanimously to reject a bill that would have banned candy and soft drink sales in public schools, a move that virtually guarantees that it will be rejected by the full state legislature. We noted that there’s a basic public policy question here, asking whether government be in the business of regulating food consumption, at least in places where taxpayer dollars help underwrite the foods that are served? But we also asked if anyone in Maine teaching public school kids about nutrition and healthy eating (as opposed to just trying to regulate food choices)?

    One MNB user responded:

    “No matter if the kids are taught about proper nutrition or not, if there's a vending machine there, they'll use it. How many school age kids do you know, given a choice between an apple & a candy bar will choose the apple if not pushed by a parent? Most kids don't make wise eating decisions. After all, they're going to live forever so why worry about what they eat now. That can wait until they're old. Probably about 30, in their opinion!”

    A final note, if we may, about the ongoing discussion we’ve had this week about the growing boycott of French foods, and the associated socio-political issues that it has brought up, ranging from what we call our French fries to whether or not we listen to the Dixie Chicks (who made some politically incorrect remarks about President Bush and are paying the price in terms of their immediate popularity).

    We love discussions like these, and this one clearly took on a life of its own. One the one hand, the discussion got a little political, even for us, but we felt a responsibility to guide it and fairly represent the varying opinions without stifling it or telling you all what you are and are not allowed to talk about. We hope that one of the things that makes MNB unique is the fact that together we’ve created an online community; the evidence would suggest that many of you view MNB as your site, not just ours.

    (In the time since MNB was launched, we’ve had great discussions about industry issues, major league baseball, movies, books and even shared recommendations about restaurants, beer and wine. That’s called diversity…and we love it.)

    This past week has generated strong usership numbers, site traffic, new subscriptions and a record amount of email...all of which is good, we think, and nothing to be afraid of.

    We just wanted to say thank you for your involvement and your passion, especially to those of you who wrote yesterday saying that you agreed with our comment that the ultimate and most radical form of expression is to vote.

    Your emails, however, did make us think. And we got curious about something, and checked it out…

    Just FYI…

    Did you know that, according to the French National Institute of Statistics, in the first round of voting in the last presidential election in France almost 73 percent of eligible voters cast ballots? And that in the second and final round, 81 percent of those eligible voted?

    In the last US presidential election, of course, 51 percent of voters cast ballots, which actually was up from 49 percent in 1996.

    Just something to think about…

    See you tomorrow.
    KC's View: