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    Published on: May 1, 2003

    …will return tomorrow.
    KC's View:

    Published on: May 1, 2003

    • Boots PLC, the UK HBC retailer, has named Wal-Mart’s Asda group COO Richard Baker to be its new CEO.

    KC's View:

    Published on: May 1, 2003

    • The Great Atlantic & Pacific Tea Company (A&P) reported a first quarter loss of $21 million, down from last year's profit of $20.4 million during the same period. This week, Standard & Poor's placed the company on "CreditWatch," citing worries about its weak operating performance, cash flows, and rising debt.

    KC's View:

    Published on: May 1, 2003

    Dow Jones reports that there may be a split in the management ranks at California-based Safeway Inc. over whether it should take on new debt in order to buy back the company’s stock.

    The issue seems to be whether a series of stock buybacks would shore up the stock’s sagging share price, or whether it instead would only increase the company’s already considerable debt load of more than $8 billion.

    These internal discussions take place in the shadow of serious competition for the company, as it has warned that first quarter profits will be well short of projections because of serious competition from Wal-Mart.
    KC's View:

    Published on: May 1, 2003

    Published reports say that supermarkets and other food stores in New York State are hoping to attach an item to the state budget bill that would allow them to sell wine, an option that they never have had to this point.

    While liquor stores that sell wine would see this as a disaster for their businesses, it is said that such a move could bring in $130 million to state government in the first year, in licensing fees and sales taxes. The size of this dollar figure could make the change in state law more attractive, since New York -- like many other states -- is wrestling with budget issues this year.

    New York is one of 11 states that do not allow food stores to sell wine, though it does allow those stores to sell beer.
    KC's View:
    We think this would be a highly civilized change in state law, and think it would be exciting to see what a chain like, say, Wegmans, could do if it could merchandise wine with its terrific fresh foods.

    Of course, some food retailers already sell wine out of separate units; Stew Leonard’s, for example, sells wine and liquor out of a store adjacent to its Yonkers location, though it had to jump through a number of hoops (some might call them loopholes) to make sure it kept the businesses separate. On Long Island, where the family will open a new food store in a couple of years, there’s already a Stew Leonard’s wine store (albeit under separate ownership), testifying to the power of wine sales for a food-oriented operation.

    Published on: May 1, 2003

    Terry Halverson, chief executive officer and president of Food Markets Northwest, Inc., announced yesterday that the company’s Queen Anne Thriftway, Queen Anne Thriftway at Proctor and Admiral Thriftway stores and all future store location names will become Metropolitan Markets. Halverson then unveiled three new store locations: Hawthorne Hills, Dash Point, and pending approval, Mercer Island.

    The name change reflects both branding and growth. "We offer a unique product selection that has deviated from the Thriftways not owned by Food Markets Northwest, Inc., so the Metropolitan Market name will allow us to tell our story more effectively," Halverson said. "The name will eliminate a longstanding confusion between our stores' operations and that of other Thriftways; we can move forward with consistency for our vendors and customers."

    Halverson said that the Company's ownership and core operating philosophy will not change., maintaining a commitment to excellent customer service, superior quality, and both local and imported product selection.

    Some of the region's biggest retailers, such as QFC, Larry's Markets, Top Foods, Brown & Cole, and Olsen's, evolved from the Thriftway Group. Halverson credited the Company's foundation with Associated Grocers, of which FMNW, Inc remains a shareholder, as a contributor to its success.
    KC's View:
    The Halversen Thriftway stores have always been some of the best grocery stores in the country, if not the world. The names may change, but we have every expectation that its excellence will continue.

    Published on: May 1, 2003

    USA Today reports that almost 20 percent of the American consuming public that used to purchase French products now refuses to buy such items because of the French government’s opposition to the US war on Iraq.

    France reportedly will lose some $500 million in tourist dollars this year because of the boycott, and the consumer backlash has affected everything from wine and cheese to French restaurants to shares in French companies.
    KC's View:
    Once again, we respect people’s right to make buying decisions based on political motivations. Just as we respect other countries’ rights not to always follow American initiatives. Freedom of speech and choice is supposed to be that which we were over in Iraq promoting.

    But we still maintain that not all French people and businesses necessarily agreed with the positions being taken by their government…so maybe we’re taking this all out on the wrong people.

    Published on: May 1, 2003

    The Los Angeles Times reports that Toys R Us is testing “Geoffrey” stores, named after its giraffe mascot, that build on the chain’s traditional toy selection game with groceries, barber and beauty parlor services for kids, party rooms, photo studios and play areas.

    The goal, according to the company, is to make the stores more of a year-round destination, with less reliance on holiday periods for sales and profits.

    Four versions of the stores exist, all between 40,000 and 45,000 sq. ft. in size. The company plans to expand the concept to other existing stores during 2003, though no specific target numbers were given.
    KC's View:
    We were in a Toys R Us the other day for the first time in a long time (we leave that duty to Mrs. Content Guy), and noticed that it has totally reorganized the mix to be more thematic and age-oriented, rather than following the traditional aisle pattern it used to employ. It’s a much better layout, though a little tough to navigate the first time in.

    That said, we think that if Toys R Us is going to start developing grocery sections targeted at kids, that is a pretty clear signal that maybe supermarkets ought to be following the same logic – creating sections that offer kids products specific to them, and even teach them about nutrition, food preparation, and other related issues.

    If the supermarket industry doesn’t do it, some other venue will. And then the grocery folks will start whining about how “alternative formats” are taking away their business.

    Alternative formats only work because supermarkets don’t offer consumers alternatives.

    Published on: May 1, 2003

    The Associated Press reports that the attorney who filed suit against Safeway, Kroger and Albertsons, maintaining that the chains ought to tell consumers that the flesh of the farm-raised salmon they sell has been turned pink via the use of nutritional supplements, has said that Albertsons has agreed to be specific about this practice on its labels.

    This follows yesterday’s announcement by Kroger that it would change its labeling on salmon and trout.

    Safeway reportedly has not made any move in this matter.

    However, lawyer Paul Kampmeier said that all three chains still face lawsuits over the practice. "Millions of consumers were damaged by the grocery stores' practice of failing to label, and we intend to prosecute," Kampmeier said.

    According to the AP, wild salmon is pink because of what it eats. Farmed salmon has naturally grayish flesh.
    KC's View:
    You have to figure that Safeway will be under pressure to change its policies.

    The interesting thing is that Kroger and Albertsons changed their policies even while knowing the lawsuit persists…which makes you wonder if that makes them more liable to be found guilty.

    Published on: May 1, 2003

    News & Commentary from…
    On 30 April 2003, the UK’s Competition Commission inquiry on the Safeway bid received presentations from the major trade bidders, as well as other interested parties. The following summarizes the main thrust of the arguments presented by a selection of the speakers:

    • Morrisons: Sir Ken Morrison pointed out that a successful bid by his company would be the only way that it could hope to challenge the big three players in the UK, as its current rate of organic growth is not enough to mount a credible assault on their leadership. He stated, not without strong
      justification, that Morrisons had the best geographic fit with Safeway without harming local competition. “To this day we are loyal to our founding principle of low prices for everyone,” he commented, before adding, “if we
      get Safeway we will take on the big three.”

    • J. Sainsbury: Sir Peter Davis noted that the competitive landscape should not be based on price alone. Somewhat wistfully, he asserted that Tesco and Asda had built their success on global buying power and non-food product development and that a successful bid by either would create a “duopoly (that) would be very much against the interests of both customers and suppliers.” With respect to local competition, Sir Peter acknowledged that
      Sainsbury would be happy to divest stores as required. With regard to competition in general, he stated that Sainsbury offers greater choice in terms of groceries and that a successful Asda or Tesco bid would lead to increased price competition and reduced range and choice for shoppers, leading to a grocery sector similar to that found in Germany. Sainsbury, he added, would lead to both lower prices (a 4.7 percent reduction was mentioned) and more choice. He concluded by saying: “We feel a Sainsbury’s/Safeway merger is in the best interests of both consumers and suppliers. Ours is a serious offer, and it is the option which will underpin most effectively a balanced, competitive UK retail market.”

    • Tesco: Tesco’s approach was focused on price reductions and job creation. Sir Terry Leahy told the inquiry that a Tesco takeover would see Safeway’s prices fall by 11 percent and would create 5,000 net new jobs as Tesco improved Safeway’s efficiency and sales densities. There was also an element of Tesco wishing to spread its own brand of retail joy, with Sir Terry arguing that: “It would be perverse to deny a wider group of consumers the chance to have access to what Tesco has to offer for customers. It would send a signal that successful firms in a competitive market face a regulatory hurdle not shared by their rivals. This could chill the very competitive endeavor that competition policy exists to preserve and to encourage.” A successful Tesco bid would see more people, particularly the less affluent, have access to Tesco‚s affordable products, he added. Sir Terry concluded by noting that, “Uniquely, Tesco would deliver substantial consumer benefits, universal appeal to all types of customer, experience across a wide range of store types and world class managerial team to the benefit of customers,
      communities, staff, and suppliers.”

    • Asda: Asda’s chief Tony DeNunzio argued that Wal-Mart-owned Asda has a smaller national store network than its larger rivals Tesco and Sainsbury, especially in the Safeway strongholds of the South-East, London and East Anglia. A successful Asda bid would therefore enhance competition, he added. Another key benefit highlighted by Asda was that it would be able to bring much lower prices to Safeway shoppers.

    The retailers were not the only voices to be heard, however. A spokesman for the National Farmers' Union told the assembly that it “would be gravely concerned if any deal resulted in the UK food retail market being further dominated by two main companies. A situation where two companies account for 50 percent of the retail food market would not be in (consumers’ or farmers’) interests. If the further concentration of food retail power continues and competition is reduced, the effect on farmers could be catastrophic.”
    KC's View:
    We spoke to someone from another company who attended the commission hearings, and were told (in colorful terms not fit for a family website) that the overwhelming impression was of food companies far more interested in their own competitive positions than in consumer benefits. Which isn’t at all surprising, though one has to wonder if the odor of pure self-interest was as evident to the commission.

    Ironically, the Competition Commission announced yesterday that it would expand its probe to include how supermarket competition in the UK is affecting areas like nonfoods…just as Tesco announced that it has cut prices by between five and 63 percent on over 1,000 products, many of them nonfood.

    And the competition rages on…

    Published on: May 1, 2003

    In the end, despite its protestations that it would fight the legal battle to the end and even keep its appeals going to the latter part of the decade if necessary, Visa USA knuckled under the pressure of being all alone against Wal-Mart and some four million other retailers in the debit card antitrust suit that was scheduled to go to trial this week.

    It was announced last night that less than three days after MasterCard settled with the retailers for a reported $1 billion, Visa USA had agreed to a tentative $2 billion settlement, and to a change in policies that will result in lower transaction fees and the retailers’ ability to decide whether or not to accept branded debit cards.

    While as of this writing the deal has not been signed not approved by the judge in the case, it is believed that is just a matter of a few formalities being settled. The general outline of the deal is said to be similar to that agreed to by MasterCard.

    "We believe this settlement is a reasonable and responsible resolution that serves the interests of consumers, merchants and our member financial institutions," said Daniel Tarman, a vice president for Visa, based in Foster City, Calif.

    The deal reportedly includes an immediate $25 million payment to retailers, with terms to be determined for how long it will take for the remainder of the money to be paid.

    There had been some estimates that damages in the case could have been found to be as high as $39 billion, had the case gone to a jury and the credit card companies had lost.

    Wal-Mart, Sears, and millions of other retailers had charged that the “honor all cards” policy held by Visa and MasterCard forced them to accept their debit cards by requiring their acceptance as a condition for continued use of their credit card systems. The debit cards issued by MasterCard and Visa had higher transaction fees, and therefore, the retailers said, they cost both the retailer and the consumer more money.
    KC's View:
    There was little doubt that once MasterCard cracked, it was going to be near impossible for Visa to maintain any legitimate defense.

    While we doubt that suddenly we’re going to see dramatically lower prices for consumers because of the lower transaction fees, we do hope that this will set some sort of precedent for fairness in how these kinds of card programs are set up. Ultimately, the branded debit card deal was a scam…and the card companies got nailed.

    Justice prevailed. For once.