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    Published on: June 25, 2003

    We continue to get grief about our commentary the other day about ephedra.

    MNB user Edward A. Levien wrote:

    While it's true that "ephedra" can cause problems, and indeed even serious problems when the product is misused...

    First and foremost, in any discussion of "ephedra" it would be helpful if you had your facts straight. And once you get the facts, you'll then see that an industry is being targeted, NOT a product.

    Here are a couple of things to think about:
    1. How many deaths have been DEFINITIVELY attributed to ephedra in the past ten years? None.

    2. Other than the weight loss category, does ephedra (ephedrine) appear in any other products? Yes.

    3. Which ones? Virtually every cold remedy product that contains pseudoephedrine.
    4. Is pseudoephedrine and ephedrine the same? The FDA says they are.

    5. What is the AVERAGE amount of ephedrine/pesudoephedrine found in cold remedies? 30mg per tablet (the suggested dosage is two tablets)

    6. What is the AVERAGE amount of ephedrine/pesudoephedrine found in weight loss products? 12mg per tablet (the suggest serving size is one-to-two tablets)

    So, if everything I've said is true (which it is) the weight loss industry should not be the ONLY target of this mass hysteria.

    MNB user Stephen Quigley added:

    In the article on the growing litigation against supplement manufacturers and the retailers that carry them you mention the death of a baseball player this year. That gained much negative publicity against Ephedra as the cause of his death. The facts were reported to a much lesser degree as they were not as sexy a story for the media. What I saw of the facts from various news sources was that the person in question took more than the recommended dose of the product and that he had various medical conditions that were listed on the bottle as being a cause of problems if the supplement was taken with out a medical doctors advice.

    You cannot legislate against stupidity. I took a product with Ephedra in it and it helped me lose weight. My understanding is that there have been ample studies that this supplement, when taken as directed, works as claimed by most reputable manufacturers.

    Regarding the Harry Potter buying experience last weekend, one MNB user wrote:

    I had a similar experience as your Wal-Mart example in today's MNB trying to get the Harry Potter book. On Saturday we went into the local Borders. If you hadn't pre-reserved it, they told you that you couldn't get one, and you might be able to get one on Monday. They were nice enough to offer, however, that they heard that the Zany Brainy at the other end of the shopping center had some. So we went there. They had a lot of them for sale prominently behind the counter, and were selling them at a fast clip. And as I bought two (that's right, two) I was wondering how a big "Book" chain like Borders couldn't have the hottest product this year in stock for walk-ins, and was giving up tons of sales to a non-book competitor. They'll never get those lost sales back, because none of us is going back on Monday when they "may" have it in.

    We'd offer two observations about this. First, Borders should have had enough books, but that probably isn't the fault of the people who work at the store. Second, we think they did exactly the right thing sending you to Zany Brainy…because they satisfied your need for the book, even at the cost of a sale. Long-term, that should be good for their business…

    Regarding Marshall Field's decision to lease out departments at its flagship Chicago store, MNB user Paul Schlossberg wrote:

    Don't think that is new...many departments (cosmetics for one) are leased in some manner to the brands being featured. This is simply a new variant on branding placements...

    It wasn't just the lease that fascinated us. It was that Yahoo! was taking out department store space.

    On the subject of the acquisition frenzy in the UK over Safeway Plc, one MNB user wrote:

    I don’t understand the Safeway discussions. The owners of Safeway want to sell their property presumably for the highest price. UK politicians are restricting the bidders and delaying the sale thus arbitrarily reducing the value of the property and forcing the owners to absorb the loss. In effect, the politicians are confiscating people’s property for political gain and trying to justify this by unsupported economic speculations. Why has this basic fairness issue not received any attention?

    Well, that's one way of putting it. You also could argue that government is stepping in to make sure that one entity does not have too much market power, because such a development could affect consumer choice and consumer prices.

    Finally, we had a story yesterday about CPG companies opening their checkbooks for school districts, even funding contests in which kids would make up commercial jingles for their products. In our commentary, we wrote that "Mrs. Content Guy, who happens to be a second grade teacher, has been under the mistaken impression that she is supposed to be teaching English, math, and Social Studies, as opposed to bologna jingles. (Though she does teach money by opening a classroom store and getting the kids to make budget choices as they acquire snacks and drinks.)"

    MNB user Marv Imus wrote:

    Not to give offense to Mrs. Content Guy, but why NOT teach the kids a “bologna jingle” ? As for teaching math, English, Social Studies, don’t you have to use all three of those, and more, in the creation ? I cannot think of a better learning tool than having a real world experience in the creation of this jingle AND a real world reward ! Don’t the kids have to know how to reach other kids with their message ( SOCIAL studies ), the cost of the creation and delivery of the message ( math … now they may not have had to do that but it could have been a great learning tool ! ), and even the proper verbiage, or even the current slang of their target market ( English ) … I see this as a tremendous opportunity to grow a child’s thought process in the real world.

    I know MANY “learned” individuals who have college degrees and more, are tremendous book learners, yet can not “step out of the box” … who knows, maybe 20 years from now Oscar Mayer may be in financial trouble and one of those kids may say to himself “I remember in third grade writing a jingle for them and I’ll bet I can rebuild that NAME back up” Warren Buffet style! Or may even give a child some reason for continuing his education so he/she can pursue a career in writing jingles ! Making education fulfilling and exciting is a sure way to beat the morass of budget cuts and un-inspiring teachers (which I am SURE Mrs. Content Guy is NOT ) …

    Actually, Mrs. Content Guy (and you can imagine just how thrilled she is to be reduced to that name and have her career choices bandied about on the Internet like this) would agree with much of what Marv wrote…and she does her best to connect the classroom education to real-world events and issues.

    As for being inspiring…well, all our kids should have teachers like Laura Coupe, who gives us hope about the educational system every day.
    KC's View:

    Published on: June 25, 2003

    • Kmart executive vice president William D. Underwood, who came out of retirement last year to handle sourcing and global operations for the company as it endeavored to emerge from bankruptcy, has decided to go back into retirement.

      Kmart would not comment on a possible replacement for Underwood, who handled key merchandising duties.

    • Affiliated Foods Southwest named Randy Arceneaux, former director of the Lafayette, Louisiana, division of Fleming, to be general manager of its southern division.

    KC's View:

    Published on: June 25, 2003

    • Kroger Co. reported first quarter net income of $351.5 million, up from $321.7 million a year earlier.. Sales for the quarter were $16.3 billion, compared with $15.7 billion a year ago.

    • Spartan Stores, Inc. reported that consolidated net sales from continuing operations for fiscal 2003's 12-week fourth quarter decreased 4.4 percent to $475.6 million from $497.6 million in last year's fourth quarter. The sales decline was due to under-performing promotional programs in the retail segment, a weak industry sales environment, and the early Easter holiday in last year's fourth quarter. Fourth-quarter grocery distribution sales declined 2.9 percent to $286.9 million from $295.6 million in fiscal 2002's fourth quarter. Fourth-quarter retail sales decreased 6.6 percent to $188.7 million from last year's $202.0 million and comparable-store sales declined 9.5 percent.

      "Our fourth-quarter results were disappointing, but do not reflect the numerous and substantial fundamental changes made to our business model beginning late in the fourth quarter," said Spartan Stores' President and Chief Executive Officer, Craig C. Sturken. "During the quarter, we continued to make steady progress reducing our working capital and long-term debt balance. Improvements in working capital and proceeds from non-core real estate sales and non-strategic business units have allowed us to significantly de-leverage our balance sheet."

      The company's net loss for the fourth quarter totaled $20.9 million, compared to a $5.0 million net loss, during the same period last year.

      For the 52-week fiscal 2003, Spartan reported a loss from continuing operations of $34.0 million, on sales of $2.1 billion.

    • Rite Aid reported that revenues for the 13-week first quarter increased 3.1 percent to $4.0 billion versus revenues of $3.9 billion in the prior year first quarter. Same store sales increased 4.3 percent during the period.

      However, the company also reported that the net loss for the quarter was $38.8 million compared to net income during the same period last year of $2.6 million.

    KC's View:

    Published on: June 25, 2003

    The Puget Sound Business Journal reports that Jamba Juice, the smoothie and juice chain, plans a big expansion in the Seattle area, with 11 stores slated to be open there by year's end.

    Over the past year, Since that time the privately held company has grown to 360 company and franchised stores in 24 states from 340 stores in 22 states.
    KC's View:
    We mention this because we've always been impressed with Jamba Juice. Not just the products that it serves, but the way it educated consumers about nutrition in the store, helping them understand how certain kinds of ingredients address specific needs.

    We've had a bad cold since we got back from Spain, and if there were a Jamba Juice nearby, we'd be lined up a couple of times a day for one of its Coldbuster smoothies.

    (You can check out the company online at

    Published on: June 25, 2003

    The St. Louis Post-Dispatch reports this morning that a new study, released by the Washington, DC-based National Center for Food and Agricultural Policy, says that European farmers could increase their earnings by a billion dollars a year - if only their governments would allow the planting of genetically modified potatoes and sugar beets.

    While the US allows the planting of GM corn, soybean, canola, and cotton crops, and reports that their boost yield and resist certain diseases and pests, the European Union has resisted - and, in the process, has come under fire from the Bush administration, which has filed a complaint with the World Trade Organization (WTO) saying the EU position violates trade agreements.
    KC's View:
    There was a lot of discussion of this issue last week at the CIES World Food Summit in Barcelona, and we did not get the impression that the EU resistance is just about money. There are real cultural differences here, and there were a number of Americans we spoke to and heard from who seemed to believe that the EU certainly was within its rights to resist.

    At a time when there seems to be such a rift between the US and much of Europe, we're getting tired of us trying to bully them into accepting GMOs - and doing so, apparently, just because it would be a bonanza for US-owned biotech companies.

    In this case, at this time, we think gentle persuasion and continued research would be a better course of action.

    Published on: June 25, 2003

    The Financial Times reports that John Banzhaf, the George Washington University law professor who is at the forefront of anti-obesity litigation movement, has said that "schools abused their duty of trust" if they signed contracts with CPG companies that allowed them to sell potentially unhealthy products to students on an exclusive basis.

    Such contracts are fairly common between school districts and companies like Coca-Cola and Pepsi, especially as cash-strapped boards of education have sought alternatives to program cutbacks and austerity budgets.
    KC's View:
    The feeling seems to be that public authorities may be more immediately vulnerable to lawsuits than major corporations - in part, we would guess, because they will be less able to finance a defense than a major conglomerate. Besides, if you can't force CPG companies to stop making deals with schools, maybe it will be easier to stop schools from making deals with CPG companies.

    We remain conflicted about this trend. On the one hand, we hate to see the commercialization of the classroom. The classroom is supposed to be free from that kind of stuff.

    On the other hand, financial realities need to be dealt with, and allowing major corporations to fund necessary programs that might not be available otherwise doesn't seem like such a bad deal.

    We suppose the line will be crossed when some high school gets named after Coca-Cola, or when football players start wearing a Pepsi logo on their jerseys.

    Published on: June 25, 2003

    Dunkin' Donuts and Ahold USA's Stop & Shop Supermarket Co. announced that tomorrow's opening of a Dunkin' Donuts inside a Framingham supermarket will be the 100th such installation.
    KC's View:
    Seems like just yesterday that we were reporting the test…and now it seems to have been rolled out into quite a successful little partnership.

    Score one for strategic alliances.

    Published on: June 25, 2003

    An aboriginal activist in Australia has charged McDonald's there with using culturally offensive references to people indigenous to that continent.

    Activist Stephen Hagan lodged a complaint with the Australian Advertising Standards Bureau about a commercial that uses common local terms for different kinds of coffee - a filter coffee is termed a "flat white" and various forms of espresso are known as a "long black" or "short black". At various times in the commercial, African Americans and Europeans are shown while those terms are used.

    Hagan said he has heard numerous complaints about the ad; McDonald's said it hasn't received a single one, but is willing to discuss the issue with the activist.

    "I think this is just another case of a big corporation trying to make humor out of something that Aboriginal people don't believe is funny," Hagan said.
    KC's View:
    Sounds to us like this is a case of political correctness gone nuts…though it is a lot easier to take that position when you’re a white guy living in Connecticut.

    Published on: June 25, 2003

    Wal-Mart announced that it will open four Neighborhood Market stores in the Las Vegas area next year.

    Las Vegas is already home to six Wal-Marts, a half-dozen Wal-Mart Supercenters, and four Sam's Clubs.
    KC's View:
    It would be far more poetic story if the number of stores that Wal-Mart has in Vegas added up to seven or 11…

    Published on: June 25, 2003

    If you are looking for an "economic safe haven" in the middle of a tough economy in which a half-million jobs have disappeared, where do you go?

    Reuters reports that these days, you really have two very different choices.

    Fayetteville, Arkansas. And Las Vegas, Nevada.

    These two communities were at the top of an annual ranking of U.S. cities based on job creation and local economic growth, done by the Santa Monica, California-based Milken Institute.

    The reasons? Well, Fayetteville is near Bentonville, the home of Wal-Mart, the world's biggest private sector employer.

    And Vegas is…well, Vegas.
    KC's View:
    One assumes that this economic health isn't just being experienced by elderly greeters and nubile young strippers…

    The interesting thing is how the two communities mentioned in this story converge in our next story…

    Published on: June 25, 2003

    There is new research out of Australia that suggests that cheese and meat are addictive. The Australian Telegraph reports that these two food groups have been added to the list of foods that release morphine-like opiate compounds during digestion, causing some people to become addicted against their will.

    There is, of course, a difference of opinion on this. A different Australian study offers the opinion that while people can be addicted to different kinds of food, the addiction is driven more by their fragile emotional state as opposed to the biological makeup of certain foods.
    KC's View:
    The people who did the first study on biological food addictions will, we suspect, be getting lots of frequent flyer miles when they come up from Australia to testify at the inevitable US lawsuits and Congressional hearings.

    However, we suspect that these two competing points of view will serve only to confuse the situation and consumers.

    We know we're confused…except that the ongoing craving for a Tommy's Original Double Chili Cheeseburger from the best burger stand on the planet - at the corner of Rampart and Beverly in Los Angeles - suddenly makes sense…

    Published on: June 25, 2003

    Fortune, in its July 7 cover story, reports on Krispy Kreme, a 66-year-old company that has become a hot stock and a retailer that has "shrieking fanatics lining up around the block in the middle of the night to buy its products."

    Key to Krispy Kreme's success is the power of its brand, reports Fortune editor-at-large Andy Serwer. The company spends nothing on advertising - yet its "retro red, white and green logo is rapidly becoming part of American culture," he says.

    Ironically, the Boston Globehad a story this morning that started:

    "Two television reporters rushed to go live from the parking lot, just after dawn. Three harried police officers directed traffic on Route 16, as motorists slowed to gaze across the road at the line forming. The crowd, which numbered in the hundreds, fidgeted anxiously.

    "At 5:30 a.m. yesterday, Krispy Kreme Inc., the highly profitable, highly caloric doughnut chain, finally opened the doors to its new franchise in Medford and entered the Massachusetts market. As the curious throngs streamed into the store -- and reporters bore down on them like flies on a fresh glazed doughnut -- the store's new managers extolled the marketing strategy that has propelled the company far beyond its humble Southern beginnings…

    "Krispy Kreme's strategy is based on ''perceived scarcity,' strict franchising agreements, tight quality control, and a focus on a consumer 'experience'…"

    Ultimately, says Fortune's Serwer, there are two related questions to ask about Krispy Kreme: Is the stock too high? And where does the company go from here? "Unless the fat police run riot across this land, Krispy Kreme is here to stay," concludes Serwer. "It isn't some fly-by-night dot-com. There's 66 years of history here. It's a product that people not only love but understand." In other words, don't bet against it."
    KC's View:
    We don't, and we won't.

    Krispy Kreme has been both calculated and lucky in its development into a cultural icon, but we think that there is one thing that will keep it on top - and it has nothing to do with IT systems, frequent shopper programs, Internet retailing, or any other strategic initiative.

    The thing is, the doughnuts taste great. And that, above all is the key - and the lesson that other food retailers should learn. The quality of the food ultimately is what will sink a food retailer or make it buoyant.

    We should, however, note that Krispy Kreme has a helluva website - entertaining and informative. Check it out:

    Published on: June 25, 2003

    Frank Curci, the chairman of Ahold USA's Tops Markets in Buffalo, has resigned from the company because of "accounting irregularities" that had been discovered at the chain.

    It was the eighth resignation of a senior official at the company in the last week. Seven executives were dismissed last week, among them Thomas Heine, the company's senior vice president of store operations.

    Heine also was a member of the management team slated to run Tops when a previous restructuring moved Curci, to Ahold Giant Food division in Maryland. As of last week, Ahold was saying that Curci's promotion to Giant was not affected by the accounting scandal, a position that obviously changed. Curci's promotion meant that Tops no longer would have its own CEO, a role that would be absorbed by the CEO of Giant of Carlisle, Pa., another Ahold division.

    The scandal involved $29 million in "intentional accounting irregularities" at Tops, which were discovered by an internal probe after it was revealed that the company's US Foodservice division had overstated profits by some $880 million over a two-year period.

    When the Tops accounting issues originally were discovered, the company's then-interim CFO, Dudley Eustace, labeled the Tops overstatement as "fraud," and said that some other retail operations in the United States also are implicated.

    Henk-Jan Ten Brink, Ahold's head of investor relations, said that the people who "executed the fraud will face the consequences."

    There were a number of stories two weeks ago saying that Ahold was about to announce the results of its internal investigation. However, no such results have been announced to this point.

    In addition, official investigations into Ahold's accounting practices continue on both sides of the Atlantic.
    KC's View:
    The most serious problem for Ahold is that it would have preferred to keep problems like these slotted as anomalies, a position that it seems to us will be harder and harder to maintain.

    One has to wonder when the next shoe will drop…and how many shoes there may be. It is hard to believe that the overstatements by US Foodservice and Tops were anything other than behavior that was sanctioned by a corporate culture that stressed growth and profits at all costs. Behavior that, it seems, now is catching up to the company.

    One other thing. Isn’t "fraud" a criminal offense? We suspect that this is a question that NY's hard-charging Attorney General Elliot Spitzer will be asking, and the answers are almost certain to generate headlines.