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    Published on: July 31, 2003

    …will return. Soon. We promise.
    KC's View:

    Published on: July 31, 2003

    • Organic grocer Whole Foods Markets reported third quarter net income of $28.7 million, up from $22.1 million a year earlier, a gain that reflected some new store openings as well as the inclusion of Easter in the third quarter results. Sales rose 15 percent to $749 million from $648.8 million a year earlier. Comparable-store sales rose 7.6 percent.

      Management said it plans to double the number of Whole Foods units by 2010 in an attempt to generate $10 billion in annual sales.

    • Spartan Stores reported that first-quarter consolidated net sales increased 2.3 percent to $502.0 million from last year's first-quarter sales of $490.8 million and 5.6 percent from fiscal 2003's fourth-quarter sales of $475.6 million

      Spartan also reported a first-quarter operating loss of $348,000, compared with operating earnings of $8.0 million in last year's first quarter. The first-quarter loss, however, represented an improvement over the $5.2 million operating loss reported in fiscal 2003's fourth quarter, the company said.

    • CVS Corp. reported that second quarter net income was $199.8 million, up from $176.4 million during the same period a year ago.

      Total quarterly sales rose 7.6 percent to $6.44 billion, while same-store sales were up 5.5 percent.

    KC's View:

    Published on: July 31, 2003

    • In Argentina, Ahold is challenging the move by a court to seize more than $16 million (US) worth of shares that it owns in Disco, a local retailing concern. Ahold currently is trying to sell its shares in Disco, and Wal-Mart has been mentioned as a prime potential buyer.

      The shares were seized back in June, but Ahold said it believes the seizure will be lifted within a few days and that it can get on with the sale of the company.

    • McDonald's announced that it will expand wireless Internet service to another 75 New York area stores, after the success of a small pilot program in New York City.

      The fast feeder also has a test of wireless Internet access ongoing in some 75 San Francisco area units.

    • Food Lion announced that it has introduced Healthy Delight "No Sugar Added" Premium Lowfat Ice Cream - which it said is the grocery industry's first private-label brand sweetened with sucralose (Splenda® Brand Sweetener) and formulated to contain no gluten.

      Healthy Delight Premium Lowfat Ice Cream contains 70 to 80 percent less fat and 30 to 40 percent fewer calories than standard ice cream.

    • Reuters reports that Kraft Foods has decided to split its European Union business into two separate units, one for Western Europe (UK, Ireland, France, Benelux, Iberia, Italy, Greece and Nordic countries) and one for West Central Europe (Germany, Austria, Switzerland).

      The goal is to allow the company to give more attention to Germany, as well as "enhance growth" elsewhere in the EU.

    KC's View:

    Published on: July 31, 2003

    Home Depot announced yesterday that not only will it expand its testing of Dunkin' Donuts shops inside its home improvement stores, a program that has been successful in three New England units, but now is testing small-scale McDonald's operations inside its stores as well.

    The McDonald's tests are taking place inside Los Angeles Home Depot stores, though there is no word that it will be expanded.
    KC's View:
    We know that Home Depot will do almost anything to generate more traffic and sales, but we think that more knowledgeable and friendly people in orange aprons will go a lot farther than donuts and golden arches.

    Published on: July 31, 2003

    The Conference Board, a New York-based business-research group, reported that its monthly index of consumer confidence fell to a reading of 76.6 in July, down from 83.5 in June. The consensus seemed to be that jobs were harder to get and that expectations for an economic revival, stoked in the immediate aftermath of the war in Iraq, have fallen off.
    KC's View:

    Published on: July 31, 2003

    As originally reported yesterday on MNB, Fleming Companies has officially announced that it received no qualifying bids to compete with the offer submitted by C&S Wholesale Grocery to acquire Fleming's wholesale grocery business. As a result, no auction will be held. The company will seek approval of the C&S asset purchase agreement by the U.S. Bankruptcy Court in Delaware during the hearing scheduled for August 4, 2003.
    KC's View:

    Published on: July 31, 2003

    The Cincinnati Enquirer reports that by the end of the summer, Cincinnati will see two new Meijer stores featuring design innovations that include:

    • Starbucks coffee shops.

    • Drive-through pharmacies.

    • The relocation of the pharmacy to the front of the stores.

    • More of an emphasis on electronics.

    While the supercenter approach by Meijer remains intact, the company is working to update its image and offering to more successfully compete with the likes of Wal-Mart and Target.

    Just last week, the company announced that it has hired New York architect David Rockwell to update the company's "look," though that move does not seem to be part of the Cincinnati openings.
    KC's View:
    Since Meijer invented the format to begin with, it only makes sense that with all the competition out there, it has to reinvent its approach to the format.

    Published on: July 31, 2003

    Crain's Chicago Business reports this morning that Safeway, endeavoring to sell its Dominick's chain at a time when the United Food and Commercial Workers (UFCW) was looking to open contract negotiations and the chain itself seems to be spiraling down in terms of value, has resolved at least one of the two issues.

    In a deal with the UFCW, Safeway agreed to a day-to-day contract extension with two union locals.

    It includes a requirement for 48-hours notice before either side can terminate the agreement, a provision that could be invoked in the event of a sale.

    The contract expired July 26.

    Safeway acquired Dominick's in 1998 for more than $1.8 billion, but now it expected to sell the chain for less than half that amount. There had been speculation that Supervalu was about to buy the company, but the union now is reporting that Safeway has gone back to all possible bidders - including Yucaipa and Roundy's - for more discussion.
    KC's View:

    Published on: July 31, 2003

    Global notes & commentary from…
    In a bid to stave off the relentless assault by Wal-Mart owned Walmex, Mexico’s three largest domestic retailers, Gigante, Soriana and Comercial Mexicana (CCM), have recently announced a joint buying and operational alliance as a means of cutting costs and boosting profits.

    According to a statement from the retailers, the joint efforts of the combined chains will enable them to seek alliances with suppliers, better operations, economies of scale and improved technology and logistics. Overall, this will result in greater competitiveness and will enhance the growth of each company whilst maintaining their independence. Although the exact details of the nature of the joint venture has yet to be concluded, it will almost certainly involve joint buying and the exchange of technology.

    Finally, the Mexican retailers have formed an alliance to counteract Wal-Mart’s increasing dominance of the market. The Mexican retailers have been talking for some time (a year and a half ago there were rumors about a possible merger between CCM and Soriana, as well as a rumor about a foreign retailer taking over one of the Mexican retailers to fight Wal-Mart’s leadership), but this is the first time that they have achieved concrete results. With this buying alliance, the three retailers will be able to compete on a more equal footing with Wal-Mart domestically, in particular for local food purchasing. However, in terms of non-foods, Wal-Mart’s international buying clout still makes it unbeatable.

    Nevertheless, this buying alliance could prove too little too late. Wal-Mart’s aggressive expansion strategy in recent years, coupled with low prices, has enabled it to make massive inroads into the Mexican market. In terms of sales, Walmex is already bigger than the other three retailers put together. Walmex saw record gross sales of USD10.7 billion last year despite an economic downturn, while its rivals struggled to maintain sales growth.

    Furthermore, the retailer’s access to its parent company's sophisticated technology, along with aggressive expansion and low prices, indicates that this is not going to be a short war, and further consolidation will have to take place in Mexico in order to meet Wal-Mart’s challenge.

    Although the three retailers have stressed that they wish to remain independent, it is difficult to believe that the companies will not be moving towards consolidating other operations in the future. In fact, the success of this enterprise will largely depend on the willingness of its members to share information and deepen their ties beyond joint buying.
    KC's View:

    Published on: July 31, 2003

    The San Francisco Chronicle reports that at a convention now taking place in the Bay area, United Food and Commercial Workers (UFCW) union leaders predicted that Wal-Mart will control half of the U.S. retail-food market by 2008, and said that it was critical that the world's largest retail chain be unionized.

    UFCW President Doug Dority, calling Wal-Mart one of the most union-busting companies in the country, noted that while the union added 82,000 members last year, Wal-Mart plans to grow by 800,000 employees in the next five years.

    At that rate, Wal-Mart's non-unionized labor force soon will be bigger than the entire membership of the UFCW.

    The UFCW believes that it may have its first and greatest immediate success in Canada, where a province like Manitoba has liberal labor laws. The union also is battling Wal-Mart expansion plans in California, criticizing the retailer for not paying competitive wages.

    Wal-Mart, of course, maintains that it offers competitive wages and benefits appropriate to the markets in which it has stores, and says that its employees do not want the union meddling in their affairs.
    KC's View:
    While most big retailers would be hard-pressed to admit that they're rooting for the UFCW, you have to wonder if late at night, when they are all alone, if there aren’t a few supermarket executives who would love to see the UFCW succeed in its battle with Wal-Mart. Sure, it would empower the union…but it also might level the playing field a bit.

    Published on: July 31, 2003

    It's official.

    Sainsbury, long the UK's second-ranked grocery chain behind Tesco, has fallen to the third position. The number two slot is now owned by the Wal-Mart-owned Asda Group.

    New market share figures give Tesco 27 percent of the market, Asda 17 percent, and Sainsbury 16.2 percent.

    Asda has 260 UK stores compared with Sainsbury's 500.

    In other Sainsbury news, the chain learned that its offer to acquire 171 Somerfield supermarkets as been referred to government antitrust authorities, who will examine the proposal for its impact on local competition.

    Sainsbury, of course, also is one of the companies that would like to acquire Safeway Plc in the UK, a move also being examined by the competition regulators.
    KC's View:
    Sainsbury management responded to the news by pointing out that much of Asda's sales growth has been in the nonfood areas where Wal-Mart excels, and that Sainsbury remains the number two food retailer.

    Which, we suppose, falls into the "whatever rationalization gets you through the night" category.

    Hard to know what kind of impact this market share shift might have on deliberations about the future of Safeway Plc; our feeling is that the Asda ascension to number two has been a foregone conclusion for quote some time…though the shock of a colonial company like Wal-Mart having that much power in the UK might make a few stiff upper lips tremble.

    An Asda spokesman told Reuters, "We're obviously pleased we've just nipped ahead of Sainsbury though that has never been our goal," and that Asda would never become complacent.

    We believe both statements. There's no way Asda will get complacent, and being number two has never been the goal.

    Which means that things are only going to get tougher and nastier between Tesco and Asda.