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    Published on: June 19, 2003

    …will return.

    KC's View:

    Published on: June 19, 2003

    • Delhaize Group announced that Shelly Broader, vice president of business strategy at its Hannaford Bros. chain, has been named president and COO of its Kash n' Karry division. Broader replaces Michael Byars, and will continue to report to Ron Hodge, who is CEO of Hannaford and has the senior responsibility for Kash n' Karry.

    • Bob Spengler has been named president and COO for Save Mart, reporting to chairman and CEO Bob Piccinini. Spengler formerly was Save Mart’s Vice President of the Food Maxx Division.

    KC's View:

    Published on: June 19, 2003

    Interesting story in the Atlanta Journal-Constitution about Michael Coles, the new CEO at Caribou Coffee.

    Privately held Caribou currently has 200 coffee shops in nine states, and is dwarfed by Starbucks, which has more than 6,500 locations around the world.

    Coles wants to change that. "During the next five years, he hopes to increase the number of Caribou locations to 500, possibly by franchising the company -- a model that is absent from the coffee business," the paper reports. Coles also is thinking about getting into co-branding deals with other strategic partners, though he remains concerned that quality not be sacrificed in the name of growth.
    KC's View:

    Published on: June 19, 2003

    Safeway's Canadian division announced that it will eliminate 104 administrative positions as a way of cutting costs.

    The move comes a week after the US part of the company announced it would cut 940 administrative jobs, also to cut costs.
    KC's View:

    Published on: June 19, 2003

    Eagle Food Centers, Inc., which owns and operates 59 supermarkets in Illinois and Iowa, announced today that it will commence a sale of substantially all of the assets of its operating units through competitive bidding procedures under Section 363 of the U.S. Bankruptcy Code.

    "Since the Company's voluntary Chapter 11 filing in April, management and the Board of Directors have been exploring various alternatives that would result in maximum recovery to our creditors and, at the same time, have the least impact on the jobs of our employees," said Eagle Chairman, Chief Executive Officer, and President Robert J. Kelly. "After careful consideration, it was determined that an evaluation of a sale of the Company's stores, either individually or as a whole, may yield the optimum results on behalf of Eagle Foods' employees, customers, suppliers and creditors."

    At the same time, the Company will continue to develop a stand-alone plan of reorganization to maintain and operate Eagle Food stores.
    KC's View:

    Published on: June 19, 2003

    Reuters reports that Wal-Mart Canada is conducting an internal investigation to find out why one of its stores in Montreal sold as many as three copies of the new Harry Potter novel nine days before it is scheduled to go on sale.

    A company spokesman speculated that an employee may simply have made a mistake in putting the book on shelves early.

    The book, "Harry Potter and the Order of the Phoenix," is scheduled to go on sale this Saturday at 12:01 a.m., and its issuance has been wrapped in heavy security. However, in certain cases, copies of the book have apparently been sold by mistake.
    KC's View:
    We had a story last week about a small UK chain that isn't being any copies of the new book to sell because it broke the embargo on the last Potter novel. But somehow, we suspect that Wal-Mart will not face the same sort of penance…

    Published on: June 19, 2003

    MSNBC reports that The National Bureau of Economic Research, the official arbiter of US business cycles, is preparing to declare the recession over.

    Jeffrey Frankel of Harvard’s Kennedy School of Government, a member of the bureau, told the network that there is a “pretty strong case” that the recession ended in late 2001 and that the economy is in “expansion mode.”
    KC's View:
    Feel better?

    Published on: June 19, 2003

    The Seattle School District is considering a ban on soft drink sales to middle school students during the school say, according to a report in the Seattle Times. Soda sales already are banned at the city's elementary schools.

    However, there is some resistance to the move on the part of some principals because of concerns that they will be unable to replace the tens of thousands of dollars in funding that they say they get from the machines each year. Coca-Cola has an exclusive contract with the district that expires in late August, and that guarantees the district hundreds of thousands of dollars.

    The issue is whether concerns about obesity will outrank concerns about money. A vote is scheduled for July 2.
    KC's View:

    Published on: June 19, 2003

    Companies that include PepsiCo, General Mills, Ford and Honeywell have announced that they will combine their efforts to create a campaign to convince obese and overweight employees to go on diets.

    The move, they say, is taken because weight-related costs add $12 billion a year in costs to employers throughout the country, citing absenteeism, reduced productivity, and higher insurance premiums.

    A new group, the Institute on the Costs and Health Effects of Obesity, has been organized by the Washington Business Group on Health, a group of 175 large employers that provide benefits for 40 million people.
    KC's View:
    Gee, we didn't see where any of the fast food companies were part of this effort. Coincidence?

    Published on: June 19, 2003

    USAToday reports that John Banzhaf III, a lawyer at George Washington University, is sending a certified letter to the six major fast food chains demanding that they display warning notices in their stores saying that fatty foods can be addictive. Banzhaf said that the letters are the first step in an process that will result in the chains being sued within the next six-to-nine months.

    Banzhaf is not someone to be trifled with; he is one of the attorneys generally credited with developing the strategy that attacked big tobacco.

    The letter says that "a growing body of evidence" indicates fast food "can act on the brain the same way as nicotine or heroin."

    However, the US House of Representatives is currently considering a bill that would ban lawsuits such as the one being prepared by Banzhaf.
    KC's View:
    We've said for some time that this issue is going to get a lot more serious…and we think the Banzhaf strategy could have some legs. And while we don't think the litigious nature of our society is a positive development, we're not sure that Congress should be in the business of saying which lawsuits can be filed and which cannot.

    While the fast food chains don't want to be seen as knuckling under, maybe they should just make their food less fatty and more nutritious…

    Published on: June 19, 2003

    The Washington Post reports that Greg Lee, Tyson Foods' chief administrative officer, has told an agricultural conference in the Netherlands that he expects a US ban on Canadian beef to be lifted "soon."

    "There is no scientific reason for it to go on for a protracted period of time... we would expect that the borders could open fairly soon," he told the group.

    Last month, Canada identified a single cow as having mad cow disease, which led to the closing of export of its beef to the US, the slaughter of hundreds of cows in Canada as officials sought to make sure it was not more widespread, and an effort to trace the background of the cow.
    KC's View:

    Published on: June 19, 2003

    The Atlanta Journal-Constitution reports that the Coca-Cola Co. has conceded that one of its high level employees spent up to $10,000 to boost demand for Frozen Cokes as part of a test conducted at Burger Kings in Richmond, Va.

    Burger king has admonished Coke for the actions, which the soft drink company's president and COO, Steve Heyer, has apologized for as being "inconsistent with the values of the Coca-Cola Co."

    The revelation came about because another former employee, Matthew Whitley, has sued Coke, saying that he was fired for raising issues about the company's fountain unit. Coke has confirmed part of Whitley's charges, saying that former Coke executive, John Fisher, signed off on a plan to fake the test results.

    The Securities and Exchange Commission (SEC) is now looking into Coke's accounting practices as a result of the flap.
    KC's View:

    Published on: June 19, 2003

    The New York Times reports this morning that a National Labor Relations Board (NLRB) judge has ruled that Wal-Mart broke the law when it refused to bargain with meat department workers at a Jacksonville, Texas, store three years ago, and instead announced that it would phase out meat cutting operations and use prepackaged meat in all its units.

    Wal-Mart's move came after a majority of meat cutters at the store voted to unionize, which made them the only group in the company to do so. By phasing out meat cutting operations and reassigning the employees as meat stockers, Wal-Mart argued that it no longer had to bargain with the butchers.

    The judge said that while the move to prepackaged meat was not illegal retaliation against unionization, because most of the butchers had stayed with the company, Wal-Mart was legally required to deal with them because the decision had ramifications on their careers and compensation. The judge ordered Wal-Mart to reopen the Jacksonville meat cutting department and immediately negotiate with the workers.

    Not surprisingly, the United Food and Commercial Workers (UFCW) union described the decision as "historic." Wal-Mart said it would challenge the ruling.

    However, Wal-Mart said it was satisfied with another ruling by the judge, which said that the company had not improperly influence a union vote at another store, in Palestine, Texas.

    The UFCW said it will appeal the Palestine-related decision.
    KC's View:

    Published on: June 19, 2003

    Several stories have emerged on the biotechnology front…

    • The New York Times reports this morning that the Center for Science in the Public Interest (CSPI) has released a report, drawn from government data, that says close to 20 percent of farmers growing genetically modified products (mostly corn) are violating government rules that govern its planting.

      To this point, the biotechnology industry has maintained that it has a 14 percent noncompliance rate.

      These farms are required to plant at least 20 percent of their acres with corn other than the modified variety, but CSPI says that they are not, and urged the government to stop relying on the companies to regulate themselves.

      According to the NYT, "one reason for the discrepancy was that the industry surveyed only large farms. The center also looked at small farms, which had a higher rate of noncompliance."

      The Environmental protection Agency (EPA) reportedly is evaluating the CSPI study.

    • The US Food and Drug Administration (FDA) said yesterday that it opposes a Clinton-era proposal that would require biotech companies to notify the FDA before putting their products on the market, saying that such introductions already are regulated by the Department of Agriculture (USDA) and Environmental Protection Agency (EPA).

      However, the Center for Science in the Public Interest (CSPI) endorses the regulation, saying that such companies should not be able to regulate themselves.

    • The reports that the European Union plans to lift its ban on new genetically engineered foods but increase labeling requirements.

      The EU's moves are partly a response to a US complaint to the World Trade Organization, seeking to force an end to the EU's 5-year-old moratorium on approving new biotech farm products for planting or import. Officials from the United States and the EU are meeting this week in Geneva to negotiate a settlement.

    KC's View:

    Published on: June 19, 2003

    The US House of Representatives voted yesterday to permanently eliminate the nation's estate tax, by a vote of 264-163, with 41 democrats joining the GOP majority to approve the measure.

    However, experts say that the bill is unlikely to pass the US Senate, where it needs a 60-vote majority to survive.

    If it were to pass, the end to the estate tax would fulfill a long held goal of organizations such as the Food Marketing Institute (FMI) and the National Grocers Association (NGA), which have argued that family businesses often are dissolved in order to pay huge tax bills after an owner's death.

    Democrats had suggested an alternative bill, immediately exempting from taxation all estates of $3 million for an individual and $6 million for a couple, which its sponsors said would exempt 99.65 percent of all estates from taxation, including all but 400 farms. But Republican majority rejected the compromise.
    KC's View:
    We have a feeling that on the day we retire, three or four decades from now, the last story we're going to write will be about how the US Congress is squabbling over the estate tax…

    Published on: June 19, 2003

    Sources told MNB yesterday that a new series of layoffs have begun to take place at Fleming Cos., including close to 100 people being eliminated from the company's IT department in Oklahoma City.

    Company officials did not respond to requests for comment.

    The layoffs come in the wake of last week's announcement that it is looking into the possible sale of the company, "in response to interest from potential financial and strategic buyers." The company also said that by the end of July 2003, it will shut down its operations in Geneva, Alabama; Lafayette, Louisiana; and Superior, Wisconsin.

    Since that announcement, a number of the company's customers reportedly have begun the process of moving to Fleming's competitors: Miner's and Ogle's in Minnesota to Supervalu, and others to a variety of local wholesale cooperatives.
    KC's View:
    If Fleming is going to sell the company, the question is what will be left for someone to buy…

    Published on: June 19, 2003

    Reporting in from the 2003 CIES World Food Business Summit…by Kevin Coupe
    BARCELONA -- As the 2003 CIES World Food Business Summit opened for business here on Wednesday afternoon, there were two subjects that clearly seemed to hang over the proceedings.

    It was, after all the first Summit to take place since the somewhat ugly rift began to form with a number of European nations and the United States over the war in Iraq, and subsequent trade-related arguments over issues like genetically modified food. What started as a rift shows signs of becoming a chasm.

    At the same time, it was the first time the Summit has convened since the "financial irregularities" that forced the resignation of former Ahold CEO Cees van der Hoeven; so far, Ahold's accounting issues add up to a $880 million overstatement of profits, and the investigations aren't over yet.

    Unfortunately, the reality and potential consequences of both issues were not addressed in the forceful manner that might have expected.

    Rather, the moment that seemed to perfectly symbolize the avoidance of specifics was when Daniel Bernard, CEO of French retailing giant Carrefour, announced that while last year he spoke in English because CIES was in Atlanta, this year since it is in Europe, he would speak in his native French. (The comment earned some applause.) And then, as he delivered his remarks, the English translation stopped working, and those of us who do not speak French were left without a clue of what he was talking about. Ten minutes or so into his talk the translation returned, but the implied message, however accidental, was clear. (Actually, it may not have mattered; it seemed to us that the speech was similar to the one he delivered last year in Atlanta. Perhaps next year, when CIES is scheduled to be in Rome, he can give it again but in Italian…)

    As for the ethical and financial issues, there was some acknowledgement of the problems that have plagued the retail food sector. Bernard at one point said that "we live in a whirlwind" that can cause companies and executives "to lose track" of ethical landmarks and make short-term decisions with long-term consequences. "I won’t mention the name of my competitor," he said, leaving the audience to wonder why he didn’t just come out and say "Ahold," which is dealing with an overstatement of $880 million in profits.

    To be fair, CIES didn't promise a head-on approach to issues of US-EU rifts and ethical/financial malfeasance, so perhaps it is unreasonable to demand it of the conference. Rather, the theme of the three-day event is "Success in an Age of Skepticism"…though, of course, we would make the argument that consumers are skeptical about business leaders and companies precisely because of the headlines and news reports they see each day. It's hard to be optimistic and trusting when it sometimes seems that the world is going to hell in a handbasket.

    Pierre-Olivier Beckers, CEO of the Delhaize Group and chairman of CIES, framed the issues in excellent opening remarks:

    "In the last 18 months, skepticism towards society and business has reached unprecedented levels.

    "For example, the Word Economic Forum has recently interviewed 34,000 people across 46 countries to assess their trustworthiness of 17 different types of institutions. The result was that companies are today among the least trusted of any of the 17 institutions. In fact, only national legislative bodies like Parliament or Congress are seen as less trustworthy by citizens. Isn't that frightening…

    "Indeed, the years of euphoria, of excesses of all kinds for society, companies, and stock markets have been replaced fairly abruptly by a display of great skepticism by citizens and consumers all over the world," and he noted that political and economic uncertainties fuel the lack of ease among consumers.

    "If we now look at the corporate environment, one must admit that the corporate and financial scandals of the recent years have seriously eroded the confidence of the investors towards companies. We must also say that the high multiples paid for the acquisitions of the last 4-5 years have led to a general decrease of the returns on invested capital.

    "And when we look at our sector more precisely, we can see here too a situation that creates skepticism :

    • A saturation of stores in many markets
    • A slow natural growth of the total sales of the industry
    • A competition based on very aggressive and costly promotions in order to capture the remaining consumer spending
    • And the extension of competition to retailers who traditionally were non-food retailers resulting a significant amount of channel blurring.

    "The short term consequences of skepticism to this very challenging situation of the corporate world are understandable but as very often, probably extreme in their own sense. Indeed, all kinds of legislations are being born to regulate everything and some of them can even send executives in jail. By trying to stop the few crooks, these legislations could at the same time, I am afraid, slow down the entrepreneurial spirit."

    For Carrefour's Bernard, the answer to issues of skepticism seemed to be to teach the world that capitalism begets choice and low prices, and that the ability to choose results in a yearning for democracy. He stressed that the real power of globalization is that it brings retailing choice to people who never had it before, and instills in them a desire for that which they have not had. "It’s not a question of whether globalization will take place, but what kind of globalization it will be," he said.

    Not surprisingly, considering Carrefour's commitment to the hypermarket format, Bernard said that "small retailers are no longer connected to the local market," because understanding the local market requires global systems they do not have. "Size is good," he said, sounding remarkably like Gordon Gekko in "Wall Street," who quite memorably said that "greed is good."

    "You can't build a global economy on corner shops," he said.

    (We didn't get a chance to ask them, but we suspect that men like Norman Mayne of Dorothy Lane Markets and Feargal Quinn of Superquinn might have disagreed. Both are here at CIES, and both have built world-class retailing businesses by being small and in touch with the consumer. It would be our perspective that all the global systems in the world don’t necessarily put you in touch with the consumer, no matter how big and well financed you are. For us, "size is size." It's what you do with it that counts.)

    It may seem like we are slamming CIES, but that certainly is not our intention. We have great respect for both its people and its mission, and have consistently appreciated its willingness to deal with tough issues at the Summit.

    In fact, CIES has launched an initiative dealing with the Image of the Food Business that is designed to focus on a wide variety of key image-related issues facing the food retail industry today. These range from food quality and safety through sustainable development and corporate responsibility, community relations, and functional issues of human resource management (low wages, boring jobs, no career opportunities.

    CIES's stated goal is to build a global web-based knowledge resource center with best practice information and cutting-edge campaigns that can enable CIES members to improve their public image and relations with both political
    and civil society and to enhance their ability to attract and retain talent.

    All of which makes absolute sense, and is laudable for its "big picture" approach to the industry.

    We would be remiss if we didn’t point out, however, that the stated emphasis on ethics and consumer skepticism was leavened somewhat by the introduction of Juan Antonio Samaranch, the former president of the international Olympic Committee (IOC), who was here to listen to remarks by his successor, Jacques Rogge. The question we heard a number of people asking at the evening cocktail party was, "Didn't Samaranch leave the IOC under a cloud?" (The answer is yes; he was in charge of the IOC during a bribery scandal centering on Salt Lake City's bid for the 2002 Winter Games; 10 IOC members were ousted for receiving cash, gifts and other favors.)

    More tomorrow from Barcelona, as MNB continues to be the only US food retailing publication on location at the CIES Summit.
    KC's View: