business news in context, analysis with attitude

We got a fascinating email from a member of the MNB community last week about the decision by Wal-Mart to sell its McLane division to Berkshire Hathaway:

"Curiosity led me to some information on the McLane acquisition that I thought would interest you. I wondered how much Wal-Mart paid for McLane in '90.

"The annual report is vague; it refers to an issue of $275,000,000 in stock, assumed liabilities of $513,000,000 and some portion of the $1.4 billion capital expenses for the year. Let's assume, that the cash portion was small - even though' that seems like a stretch, and Wal-Mart paid at least $800,000,000 for a company with sales of $2.8 billion (of which $.6 billion was to Wal-Mart).

"Thirteen years later, McLane has sales of $22 billion ($7 billion to Wal-Mart) and is sold for $1.5 billion, with no assumed debt.

"In other words, the company is seven times bigger, but sold for less than twice as much. Just strikes me as odd."

We got a number of emails like this one last week, and had several phone conversations that trod on similar territory. The general feeling seems to be that Wal-Mart wanted the money in order to fund its retailing expansion (especially outside the US, with further investment in Japan's Seiyu a major priority), and that it wanted to put some distance between it and the wholesaler economics that have driven companies like Fleming and US Foodservice to distraction.

Of course, Wal-Mart isn’t addressing any of this specifically. But our experts on these issues are usually pretty well informed.

We had a story last week about women feeling they are being given short-shrift by many retailers, which prompted an email from a male MNB user who pointed out that a majority of retailers bend over backwards to appeal to women.

Needless to say, the discussion didn’t end there, as one MNB user wrote:

"The degree to which your point went sailing over the head of your correspondent did not surprise me. Yes, the lion's share of retail is directed at women. Everybody wants to sell to women. A pitiful few seem to have taken the initiative to actually, y'know, TALK TO WOMEN or promote women high enough in their organizations to influence policy.

"How else to explain the boneheadedness of those mini shopping carts for kids? I have to be the Bad Mean Mom and tell my 8-year-old daughter "no" every time she asks for one -- not because I'm afraid of her impulse purchases but because I'm afraid one of those Queen Mary shopping carts that seat 12 will come around a corner and squash her like a grape. Who came up with THOSE? Put a couple of preschoolers in there, plus a grocery order, and you're talking a big load for even a big peasant woman like me to push around.

"How else to explain the many clothing stores that impose a limit of six items to try on? My time for personal shopping is limited to lunch hour. I want to make one pass through the store and then one pass through the dressing room, without having to get re-dressed in between. Ditto when buying clothes for my kids. I want to load up with the range of possible pants sizes, strip the kid down in the dressing room and have at it. While we're on the subject, why don't more stores do like Gap Kids and have unisex, oversized dressing rooms so that moms can supervise their sons? Am I ready to trust my 11-year-old to make his own clothing choices? Nope.

"Why does Nordstrom make me remember what kind of clothes are in Encore, Point of View and their other ambiguously named departments? Is that why I only buy accessories there? Why play word-association games instead of just saying weekend wear, career wear, designer?

"Kmart and Wal-Mart feel low-rent and depressing to me. Target, on the other hand, is a fun place to be, even if you're only buying Tylenol and underwear. And the fact that I always come out of there with lots more than the Tylenol and underwear I went in for tells me that the people in Minneapolis are spending a lot of time thinking about the kind of stylish yet inexpensive stuff that catches my eye. I don't feel overworked and underpaid at Target, whereas I often do at the supermarket, chain drug and other discounters."

Excellent points. Catering to women is one thing. Listening to them and understanding them is something else entirely.

Responding to our story last week about Fleming closing a general merchandise distribution center in King of Prussia, Pa. and grocery wholesale divisions in Phoenix; Salt Lake City; Warsaw, N.C.; and Northeast, Md., one MNB user wrote:

"Fleming essentially is the only wholesaler serving the Phoenix market. Unified Grocers out of Los Angeles has a very small percent of the business but will now have to service the IGA group in Arizona. There is definitely an opportunity for a wholesaler to set up shop here but with a cost basis and operating costs that would allow it to profitably service the small group of independents in need of that service. Fleming's Phoenix Division was once the largest division in the company and as it's customer base shrank or disappeared, they did nothing significant to reduce their overhead accordingly. It proves once again that nothing in the food business is constant except change...."

In response to our story about McCormick buying the Zatarain's brand, MNB user John Wynn wrote:

"McCormick will restore focus and stability to this great brand."

We wrote a bit last week about some new favorite wines we've tasted, and MNB user Brad Zemick responded:

"With your recommendations of Australian wines today I have to suggest Yellowtail Merlot and Chardonnay for you. These retail for $5.00 and taste better than that. We were introduced to these in Washington D.C. and we drink these over "Two-Buck Chuck" with exponentially more taste.

"Living in California we have lots of choices here but Yellowtail is a
favorite everyday choice."

Regarding some of Kmart's travails, we got the following email over the weekend:

"Your reader who related his wife's experience at Kmart (from the perspective of an employee) reminded me of my experience years earlier in New England with (the now defunct) Bradlee's. I had just transferred to New England from the Western US (with a large consumer products company) and was appalled at the lack of service or caring on behalf of the Bradlee's employees. At that time, I decided it was only a matter of time when that chain would cease to exist, unless the management changed their approach and people skills. As evidenced by Wal-Mart, a retailer (or any company for that matter) is only as good as the people employed (at all levels) and, more importantly, their attitudes. It appears that Kmart may be headed in the same direction."

Just what Kmart needs - to be compared with Bradlees.

MNB user Bob Vereen wrote last week about comparisons between Home Depot and Lowes, which led us to bemoan the fact that so many independent hardware stores have bitten the dust over the past few years. Vereen wrote in to clarify:

"You said there aren't many independents left to offer alternatives to Depot and Lowes.

"Can I set the record straight?

"Yes, there are fewer independents than there used to be. When I started my career in hardware retailing as an editor, there were about 50,000 hardware and lumber dealers. That's probably cut in half. (I have not kept up on the census.)

"But let me make a couple of points:

"Ace Hardware, owned by its member dealers, has about 5,000 retailers. Do It Best, owned by its member dealers, has about 3,000 TruServ, owned by its member dealers, has about 5,000. Many of these dealers own two or more stores, so the count among those alone is about 15,000 or more.

"Emery-Waterhouse Co. of Portland, ME, Orgill Bros of Memphis, and
several dozen other active wholesalers supply thousands of retailers who
choose not to belong to the dealer-owned firms mentioned first.

"Independents have suffered, but the patient isn't dead."

Point taken.

And finally, in response to our list of the ten best things we tasted at the Food Marketing Institute (FMI) show, MNB user Glen Terbeek wrote:

"Maybe in stead of trying to list the top ten new items you thought likely to be innovative and successful in the consumers mind, maybe you should rank the top ten new items based on the allowance money supporting them. After all, isn't that how new item decisions are made in today's world?"

True. Sad, but true.
KC's View: