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    Published on: June 9, 2003

    Regarding the US Surgeon General's comment last week that he's support a total ban on all tobacco products in the US, one MNB user wrote:

    The increasingly loud anti-tobacco lobby may get some reassurance from the Surgeon General's remarks, but they'll still have a very long wait for a tobacco ban. Politicians see huge tax bucks on tobacco and therefore will be dancing a delicate ballet between decrying the substance loudly and keeping the revenues from smokers rolling in.

    Last week we reported that Kmart was dumping its self-checkout systems, blaming it for security and shrink problems. This generated a number of different responses.

    One MNB user wrote:

    Kmart is blaming everything on everybody and anything except themselves. Until they get serious about service will they be able to turn it around. Self-checkout is here to stay - that's like saying ATM'S won't work.

    Sure, some customers prefer to be physically checked out but not everybody.


    Another MNB user was somewhat more sympathetic:

    The secret is in the security. I have used these systems and can testify "they encourage theft." If the company doesn't have a top notch security program it will end up experiencing a substantial drop in gross margin. The perceived (and I question if there really is any) labor advantage can be offset by lost gross in a flash.

    I like the systems but they are a real risk to the average retailer.

    The problem is that some retailers seem these systems as a labor advantage. In fact, the people who normally would be at checkout should be elsewhere in the store…maybe even at the exit, where they could say "goodbye" to shoppers, ask them if they had a good experience, and even give them a subtle once-over to see if they look larcenous.

    We wrote last week about how Smart & Final is selling its Florida operations to Gordon Food Service. One MNB user, who asked not be to be identified, offered some context:

    Gordon Food Service is a technologically advanced company with labor practices that we always found to be way out in front the pack. Their warehouse staff will pick multiple millions of cases annually - usually without errors. When they accomplish various stair-step hurdles without errors, their hourly pay can increase dramatically. After all the cost avoidance of fixing errors is a big plus to the bottom line. The company is willing to share its savings with the employees who deliver the savings. This sort of thinking should be practiced everywhere.

    They post a variety of performance and productivity measures for all to see (including suppliers and customers). This is so that everyone is aware of what drives results - everyday.

    Sounds like enlightened management. (We were once a part-owner in a small Internet company, and didn't get that kind of consideration…)

    Responding to our story last week about Ben & Jerry's beginning to test a new line of organic ice creams, one MNB user wrote:

    I’d scream for organic ice cream.

    Us, too. We can't wait to try it.

    Finally, in response to our commentary last Friday in which we described Krispy Kreme's new Key Lime doughnut and noted how just thinking about it made our mouth water, MNB user Richard Lowe (who seems to enjoy scolding us about our eating habits) wrote:

    Does your mouth water over a juicy, succulent, soft, sweet, rosy red peach with a freestone in the center?

    KC's View:

    Published on: June 9, 2003

    Published reports say that John Catsimatidis, who runs Gristedes and Red Apple stores in New York, is considering a campaign to be New York's next mayor.

    The New York Observer reports describes Catsimatidis as "a 53-year-old grocery-store mogul" who is "is planning to spend $250,000 on the new ad campaign, which will introduce him to New Yorkers and assail (Mayor Michael) Bloomberg's performance on a range of issues." The paper notes that Catsimatidis is "a former grocery clerk who went on to own the Gristedes and Red Apple supermarket chains and is worth more than $400 million."
    KC's View:
    Catsimatidis may have tons of money, but campaigning against him ought to be easy. Just take voters into virtually any Red Apple store and ask them if this is their vision of New York.

    He wouldn't get a vote, except those that may be for sale.

    Published on: June 9, 2003

    The Los Angeles Times reports that Krispy Kreme "has no intention of scaling back its aggressive expansion plans, which include Southern California."

    According to the report, Krispy Kreme currently has 22 locations in Southern California, and hopes to have another 50 there in the next five years. Among the target locations: Santa Monica, Newport Beach, Laguna Beach and La Jolla. "The company also is thinking of building a West Coast distribution plant, possibly in California, within three years," the LAT reports.

    It isn't the easies market to break into, with competition coming from chains such as the 200-unit Winchell's Donut House, not to mention hundreds of mom-and-pop independents. Krispy Kreme currently accounts for fewer than two percent of the doughnut shops in Southern California, but it promotes aggressively, using outposts in supermarket chains such as Stater Bros. and Albertsons as a means of creating brand awareness.
    KC's View:
    Clearly, Krispy Kreme is doing for doughnuts some of what Starbucks did for coffee. Will the bloom eventually fall from this retailing rose? Of course it will…it always happens that way.

    But our sense is that we're closer to the beginning of the ride than the end.

    Published on: June 9, 2003

    As expected, the trial of two former Rite Aid Corp. officers was postponed on Friday, after the company's former CFO pleaded guilty to conspiracy to commit accounting fraud.

    In his plea agreement, Frank Bergonzi admitted guilt and agreed to cooperate with the government in the case against former Rite Aid Chairman and CEO Martin Grass and former Vice Chairman and General Counsel Franklin Brown - at which point, attorneys for Grass and Brown requested and were granted the delay.
    KC's View:

    Published on: June 9, 2003

    Reuters reports that the shareholders of Indonesian retailer PT Hero Supermarket have approved the acquisition of 23 stores and two distribution centers owned by Dutch retailer Ahold. Cost of the acquisition: the equivalent of $14 million (US).
    KC's View:

    Published on: June 9, 2003

    The Milwaukee Journal Sentinel reports that "almost one-third of all corn planted in Wisconsin this spring will come from genetically-altered varieties. Among soybeans, nearly 80 percent of the crop will be genetically modified." And, according to the paper, "Nationwide, some 40 different crops are approved for commercial use, according to the Council for Information," and are being consumed by Americans in a wide variety of products.

    Of course, the growing presence of such foods in the national diet does not mean that concerns about them have lessened. "Some opponents are dead-set against it on principle and believe that dickering with genes is wrong," reports the paper. "Others say that the technology is another way of exacerbating a trend toward large-scale farming. Others worry about food safety and the long-term effects. What happens to both animals and humans over a lifetime of eating gene-tweaked food? Will insects become resistant to these brave new crops?

    "Another issue is how the integrity of organic food can be protected as wind-blown seeds move from one field to another."
    KC's View:
    The irony, of course, is that even as GMOs in food become more plentiful, one of the fastest growing venues in the business is the organic/natural segment.

    Which only means that there is wide spectrum of consumers in the US, all of which have different needs and desires.

    Published on: June 9, 2003

    NACS Daily reports that Cumberland Farms will expand its branded retail petroleum business in the Northeast by acquiring 200 Exxon-branded service stations from ConocoPhillips. The purchase price was not disclosed.

    The Exxon-branded stations being purchased by Cumberland Farms are located in Massachusetts, New Hampshire and New York.

    Cumberland Farms already owns and operates more than 900 outlets in New England, the Mid-Atlantic states and Florida.
    KC's View:

    Published on: June 9, 2003

    Published reports in Japan suggest that French retailer Carrefour is negotiating an agreement with Daiei there, hoping to expand its presence in a market where it has only opened four stores since 2000. The deal reportedly would allow for the joint purchasing of products and create a co-management structure for Daiei's retail stores,

    While Carrefour is not commenting on the reports, Daiei has confirmed that the French retailer has made an offer.

    At the same time, Costco has announced that it will open four new stores in Japan by August 2005, doubling its store count there.
    KC's View:
    And, of course, we all know that Wal-Mart is fast expanding its Japanese presence through its expanding ownership of Seiyu, which puts pressure on Carrefour and Costco to find their own engines for Japanese growth.

    Published on: June 9, 2003 reports this morning that German discounter Aldi is looking to build 80 new stores in Ireland, and has mounted an aggressive campaign to identify and obtain sites in a number of different venues.
    KC's View:

    Published on: June 9, 2003

    The Associated Press reports that Albertsons has decided to expand a test of hand-held scanners at its Jewel-Osco division in Chicago.

    The eight-month old test allows shoppers with a store loyalty card to scan and bag their own groceries as they walk through the store, keeping a running total of the purchase and paying at the end of the shopping trip. The company said the test will be expanded to five more stores, but it did not say where or when.
    KC's View:
    And the self-scanning trend marches on. We just hope that Albertsons is heightening the human-contact quotient in other parts of its stores and not using the scanners as a way of just cutting costs out of the system.

    As we've said before, depersonalizing what already is an impersonal shopping experience plays right into the hands of companies like Wal-Mart, and doesn’t help companies like Albertsons in the long run.

    Published on: June 9, 2003

    This morning's Facts, Figures & The Future e-newsletter from Phil Lempert, ACNielsen, and the Food Marketing Institute (FMI) offers a number of features:

    • In a feature on "Channel Blurring," it is noted that "relative to household size, big box retailers (i.e., Mass, Grocery, Club & Supercenters) draw a disproportionate percentage of their heavy shopper dollar sales from large households. On the other hand, retail channels like Club Stores, Convenience/Gas, and Drug Stores draw a disproportionate amount of their heavy shopper sales from smaller households." These are important distinctions to understand, since "knowing the demographics of loyal or heavy retailer shoppers should be common language in the halls of retailer organizations and in the minds of all of the supplier reps who call on those accounts. With this knowledge, a retailer and their suppliers can look for the categories, brands, and items that have the best demographic fit against the shoppers who visit their stores. Also, under-developed demographic segments provide insight into sales opportunities for both retailers and their suppliers."

    • Two growing retail segments -- natural/organic retailers and limited assortment stores -- are profiled, with specific looks at the demographic and marketing appeal of the main practitioners in each segment -- Whole Foods and Wild Oats, and Aldi and Sav'-A-Lot.

      "While U.S. Grocery chains look for ways to stop the erosion of shopping trips to other channels, they can look to the successes of these four retailers as they modify their offerings and target the needs of the diverse set of U.S. consumers," the newsletter writes.

    • In "The Importance of Knowledge," FMI's Michael Sansolo writes, "How many consumers really understand anything about "Mad Cow" Disease? How many have a real sense of how it is transmitted, how it occurs and how it could impact them? More importantly, how many of them would actually answer any of those questions correctly?

      Sadly, the last question is probably the most problematic for the food industry. News of a problem cow in Canada grabbed headlines in recent weeks and caused a ripple of stories throughout the media. No doubt, it also caused a ripple of concerns among consumers. Here's hoping it also caused a new level of education for store employees and consumer so that shoppers can better know what should actually concern them."

      Sansolo adds, "This is one case where misinformation and poor communication by the industry can only hurt us…On food safety issues, the power of information is always made very, very clear. What's made even clearer is the impact of the lack of information. That's a situation the industry simply can't abide."

    • An "Economic Snapshot" offers analysis of whether or nit current market advances are signs of a prolonged rally or just a tease; there is a piece about concerns that deflation may be on the horizon, and that it "can be much more damaging than inflation as it results in a continuous price-only consumer mindset"; and a look at future economic trends.

    To get your copy of Facts, Figures & The Future
    KC's View:

    Published on: June 9, 2003

    Next week, CIES will convene its annual World Food Business Summit in Barcelona, Spain, describing it as the "annual rendezvous of food business leaders who understand that anticipating the future is key to success." CIES has long one of the most interesting events of its kind - convening only the top leadership of the world's major food companies, considering issues and providing thought-leadership that is provocative and timely.

    There may be no better time for food issues to be considered in a global environment, considering some of the tensions that continue to be felt between the United States and some of its brethren in the world community. And especially now, in an environment where companies like Ahold, Fleming, Kmart and others have given consumers reason to doubt their integrity, the ideas and strategies being expressed at CIES should have enormous resonance.

    (MNB will once again be providing reports from CIES this year, with news and commentary about the people, the presentations, and the visions of the future of the food industry that can be found there…not to mention reactions to the sights, sounds and cuisines to be found in Barcelona.)

    To get a preview of some of what we'll be seeing and hearing at CIES this year, we conducted an exclusive e-interview with Richard Fedigan, president and CEO of CIES.

    MNB: CIES will begin this year with a series of sessions that deal with "success in an age of skepticism." Clearly, the skepticism that the financial markets may be having about the food industry is greater now than a year ago, and there may be some evidence that this could be seeping into the consumer response as well. What are the essential financial and ethical challenges that food retailers must face up to in 2003 and beyond?

    Richard Fedigan: I think it's appropriate to look at the recent financial and ethical questions about the food sector as an extension of a general climate of uncertainty and disillusionment about business and the development of global political, economic and moral society.

    We decided on "Success in an Age of Scepticism" as the title for our Barcelona Summit before the Iraq war, the Ahold revelations, and SARS.

    As you know, our Summit is not intended to be a conference in the sense that our members attend, spend a few days and fly back to life as usual.

    We try to crystallize the main issues challenging our business from within and without, and this sometimes makes for a Summit experience that is not only provocative, but even a little uncomfortable for some global leaders of our business. We make no apology for this and in fact, it took some gentle persuasion from my more diplomatic colleagues to talk me out of calling Barcelona "Success in an Age of Cynicism"!

    I think the key message we're trying to get across here is that on a number of fronts, from corporate social responsibility all the way through to marketing and electronic languages, the food sector needs to speak with a new vocabulary of reassurance and responsibility to assuage the sometimes irrational fears of the global community of consumers. This language must be spoken and the message delivered with confidence, but not with complacency or defensiveness. The only way we can really do this is to embrace it with honesty and do what it takes to deliver.

    If a cynic is someone who already to knows the price of everything, the only thing we can do is deliver true value.

    MNB: Is it your sense that now, more than ever, just being big isn't enough to survive -- that, in the words of one of your planned sessions, "that number one has to think like number two in order to survive"?

    Richard Fedigan: Actually, big may be necessary, but it certainly isn't enough.

    You'll find us coming back to the "trust" issue again and again in Barcelona, for retailers and suppliers, big and small companies.

    The Barcelona programme already features some retailer and supplier behemoths, from Carrefour to Wal-Mart, Starbucks to Coca Cola.

    However in addition to the latest, and very concrete developments with the Global Food Safety Initiative, our "Image of the Food Business" Initiative launched in Atlanta last year, and the presence on the programme of the President of the International Olympic Committee and the Secretary General of Amnesty International, we have also added, in the last week or so, Sir Bob Geldof, founder of "Live Aid", and José Maria Garcia, Secretary of the agency responsible for supervising Spanish and European stock markets."

    Global Scepticism will be tackled head on in Barcelona.

    Coming back to the "big isn't enough" question, downward pressure on growth has been such that discount giants like Wal-Mart and Target have seen same-store sales slow sharply in March. Wal-Mart's decision to sell its McLane food service distribution unit in order to concentrate on its core retail business illustrates how tough this context is. However, the rewards are also considerable for companies that can match scale with expertise in local operations and clear communication with stakeholders. Wal-Mart, Tesco, Loblaw and Whole Foods are good examples. Elsewhere, Wegmans, H.E. Butt, SuperQuinn in Ireland, and NTUC Fairprice in Singapore still get the mix right for their customers in the face of stiff competition from the big "space invaders".

    In China a few weeks ago, I saw at first hand (without a mask!), how the locals are perfecting not research and development, but "copy and development" adapting best international practices to local market requirements, and doing this very successfully, thus raising the stakes for the big boys in the biggest market on earth."

    In other words, food retailers are on a steep learning curve as they continue to expand and diversify.

    To handle this extra strategic and operational complexity, retailers and their suppliers need more than ever to work together to promote a responsible image for the sector on the one hand, and increased effectiveness on the other.

    One very good and increasingly urgent aspect of this last point is vastly increased cooperation between associations and industry bodies around the world.

    Beginning with the co-organisation by AIM, CIES, FMI and GMA of a series of global CEO Forums a couple of years ago, and now involving GCI (the Global Commerce Initiative), and a newly-invigorated EAN International (including UCC), we are now on the verge of having and using a common global eCommerce language and standards, as well as being well- positioned for the introduction of the Electronic Product Code and RFID standards.

    A lot done, and still some way to go, but we are convinced that we are entering a new era of global co-operation that will make life more coherent for sector companies large and small.

    One size does not fit all, and we have been very careful in our food safety, sector image and ECommerce standards initiatives to ensure that there is a place at the table for companies from all around the world, large and small.

    Efficiency and effectiveness are laudable objectives, but ensuring that consumers can still choose what type of outlet they shop in is critical also, and we must let the market make this choice rather than favouring the big players."

    MNB: It sounds like one of the things you are going to try and do is drive home the importance of food to the food retailing experience -- a connection not always made by retailers that sometimes believe they are selling boxes and cartons and bottles. Why, in your mind, is this an important connection to make?

    Richard Fedigan: Let me answer this in a few words, and they're not new either. This business is not about selling ingredients at the lowest price.

    It's about providing value solutions to complex consumers who don't have to give their money to us if we don't give them good reasons.

    They can fill their stomachs or get their value somewhere else, or in some other way.

    It's up to us to figure them out, not the other way round.

    MNB: The differences between US policymakers and EU policymakers on the issue of genetically modified food never seems to have been greater, what with the recent complaint filed by the US in the WTO. What bridges need to be built in order to find common ground between the US and EU on this issue?

    Richard Fedigan: This issue is a political and cultural mess, and I'd rather stay out of it!

    However, here's a few points, and you'll note I'm using some terminology not for the first time:

    In Europe, consumers are, at best, sceptical about GMOs. They don't believe the case has been made for the advantages of using them. Retailers have no choice but to respond to this scepticism until the debate is resolved.

    The US seems to be objecting to the EU position that US exports to Africa, for example, be GMO free!

    Better qualified people than me are working on resolving this.

    My own personal view is " Stop all agricultural subsidies, Now!"

    MNB: What are the top two or three strategic imperatives facing global food retailers in 2003 and beyond?

    Richard Fedigan: We need to get the cake growing again, not just pick up someone else's crumbs.

    Create! Invent! Imagine!"

    Specific issues like food safety, nutrition and obesity, the right and privilege of communicating with the consumer, GMOs, globalization, unemployment, security and cultural identity will grow in importance.

    However, the single critical challenge for our sector is how to step forward collectively and address a pervading mood of scepticism before it turns into entrenched cynicism.

    This will require a positive new vocabulary that projects confidence, competence, reassurance and responsibility, without complacency and defensiveness.

    This represents a step-change for the sector, and to succeed, we have to co-ordinate our efforts much more closely. Nothing less than the credibility of the sector is at stake.

    As CIES celebrates its 50th anniversary in a few weeks, we have already begun the process of becoming much more issues-based, and our role going forward will be more and more about global sector and top-level network orchestration, concertation and communication, above and beyond the organisation of top-class international conferences. (Faithful Summit fans should not be alarmed. The CIES World Food Business Summit will remain the global "gold standard"

    Published on: June 9, 2003

    Wal-Mart convened its annual shareholders meeting in Bentonville, Arkansas, last week, with a number of news items emerging from the sessions:

    • Wal-Mart CFO Tom Schoewe said that the company will continue its traditional growth rate by increasing sales in existing stores, expanding those locations, building new stores, and buying other businesses.

      An example of at least part of this policy: this year, Wal-Mart is adding 48 million square feet of retail space as part of an $11 billion investment in growth. Last year, the company spent between $9 billion and $10 billion on expansion, adding 396 units in the United States and abroad.

      Wal-Mart said that it plans to build 278 stores in the United States and 113 abroad this year, and hire about 800,000 people, including 120,000 managers.

      Lee Scott, Wal-Mart's president and CEO, said that if same-store sales throughout the company can grow between three and four percent, and the company adds eight percent to its retail square footage, Wal-Mart should be able to add to its annual sales by between $25 billion and $27 billion.

    • Scott specifically addressed charges that the company was unfair to its employees and lawsuits alleging that employees were forced to work unpaid overtime and that women do not have the same chances for promotion as men.

      Scott said that for the company to keep growing it had to be an attractive place to work, and emphasized that the company insists on fairness, equal access to pay and promotion and that all workers must be paid for the hours they work. "Any manager who doesn't understand the prior points no longer has a career at Wal-Mart Stores Inc.," he said, urging employees who knew of improprieties to come forward.

    • Shareholder initiatives in a number of areas were voted down, including proposals that would have disclosed how many women and minorities hold management positions, and forced the company to comply with United Nations' International Labor Organization standards on factory working conditions.

      All seven shareholder proposals reportedly were rejected with at least 78 percent of shareholders opposed.

    • Company executives also described new productivity strategies, such as a wireless paging system allowing cashiers request information from managers directly from their cash registers, which will save managers more than 12 trips to the register per hour.

    • John Menzer, Wal-Mart's head of international operations, disclosed that he was dressed head-to-toe in Wal-Mart wear, including $1.43 Wal-Mart underwear. The whole ensemble cost just $94.66.

    In other Wal-Mart news…

    • Wal-Mart announced that it has created magazine racks that will obscure magazine covers with racy headlines and pictures. The new racks will be used at Wal-Mart checkout lines so that "provocative" covers do not upset the customers.

      The magazines will be in full view in the stores' publications section.

      The announcement by Wal-Mart came just weeks after it decided not to sell a number of men's magazines that it deemed to have inappropriate content.

    • The company agreed to pay a $200,000 fine and stop selling realistic-looking toy guns in its New York locations.

      The New York State Attorney General's Office announced the settlement on Friday. The company is now barred from selling toy guns that do not have a non-removable orange stripe along the length of the barrel, or that come in realistic colors such as black, blue, silver, or aluminum.

      Wal-Mart has sold more than 42,000 toy guns in the state during the past two and a half years, according to the state Attorney General's Office.

    • And, the company is expected to announce that it will expand its DVD rental business, which it started last year to compete with

    KC's View:
    Certainly a busy Friday for Wal-Mart, though we could have lived without knowing the price of Menzer's underwear.

    The bottom line: the Wal-Mart machine keeps moving unabated. World domination is almost in reach.

    Published on: June 9, 2003

    The Milwaukee Journal Sentinel reports that Fleming's planned sale of four Milwaukee-area Rainbow Foods supermarkets to Festival Foods has collapsed. The reasons for the sale not going forward were not disclosed.
    KC's View: