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    Published on: September 10, 2003

    We got a number of emails reacting to our criticism of the McCafe concept in yesterday's MNB. Kevin Graff, a member of the MNB community, wrote:

    Your review was based on your experience 3 years ago. Seems a little unfair. They may not be any better today, but I'm certain they deserve a current and fair evaluation. Just a thought.

    Good thought, and a fair point.

    It's just that we can still taste that damned coffee…

    MNB user Dave Tuchler added:

    It has always puzzled me how McDonald's seems to miss opportunities they
    might have through coffee.

    With a zillion locations, many with drive-thrus, it seems that with a better-tasting coffee (and a good sip lid) they could steal a lot of volume from other vendors, and probably draw a lot of customers to boost their breakfast sales.

    As it is, I prefer the more robust taste of Starbucks (or comparable) coffee over McDonald's bitter/inconsistent offering -- even though I pay a premium. And because their sip tops are fairly useless to travelers, I'll go out of my way for an alternative when I'm on the road.

    I actually wrote Oak Brook a few years ago asking why they can't just offer the sort of sip top that Starbucks and Costco have, and got a form letter response about it 'being in test market' or something like that. Still can't figure that one out...

    As for the coffee itself, I don't think that I would advocate their upgrading all coffee, but offering a better quality alternative for a premium couldn't be that hard. Seems to be a pretty active arena for Dunkin' Donuts, Krispy Kreme, etc.

    Regarding the asset swap by Supervalu and C&S, which we reported on yesterday, one MNB user wrote:

    Three or more independent wholesalers in the same region isn't going to last. Chain presser is going to whittle this down to one or two at the most. The independent is probably better off having one major wholesaler to develop efficiencies in the supply line. Independents are famous for using small specialty suppliers and will continue to regardless of who their major supplier is.

    The threat to independents isn't other independents, it's the chains. There is ample opportunity to differentiate yourself from chains and other independents buying from the same independent wholesaler if that wholesaler knows its business.

    I know little of the C & S operation. If they are the right fit for independents they will grow; if not, the money spent…will be a poor investment.

    Mergers and buy-outs will happen, some will work, but most will be a bust. Let's worry less about the number of suppliers and more about the flow of creative juices. After all, that's what you do best.

    We continue to get email on the subject of cost-cutting and efficiency drives by retailers. One MNB user wrote:

    I think that cost cutting is important but only a small part of the challenge. Nobody is ever going to match operating margins with Wal-Mart. It’s a fool’s errand. The best they can do is create value with what they’ve got, and pay attention to their customers and employees while watching their margins—not hacking at their organization to try to see what happens next.

    “No sacred cows” type of cost-cutting is the first sign of a death-spiral. It presumes a cost-approach instead of a business approach. It also telegraphs (rightly or wrongly) a message that your business operation is currently out of control. By nature, mainstream grocery has tiny margins (in comparison with “Premium” grocery—and any other business for that matter). No amount of cost-cutting will ever substitute for customer-focus and expansion of share-of-wallet. There is just not enough there to “cut your way to profitability” absent dramatic revenue growth.

    An interesting thing happened the other day; I went into an Albertson’s on my way home immediately after having visited a Safeway in the same town (same super-store layout). I was disappointed not just because the floor plan is confusing, and not just because the items I enjoy seeing are not on the shelves, and not just because the staff seems to shrug their shoulders and say “that’s all they send us, sorry…” It was all of those things combined, plus the fact that none of the “regular” employees I know (this store is very close to my home) seemed to know who the heck Larry Johnston was, or what he was trying to do. I brought up his name when the topic came up of a recently closed Albertson’s super-store in our area. Employees from that store were being sifted into the local stores. Seems that after a complete remodel to compete with a Safeway across the street, they stayed open for all of six months, then closed for good.

    It is rumored that a Whole Foods will be moving in. My wife, for one, is thrilled. We now have Whole Foods in two semi-convenient locations, three Draeger’s, two Molly Stone’s, two Piazza’s and several Andronico’s. This is in the San Francisco Bay Area market in the Peninsula area, near Palo Alto.

    It demonstrates the challenges ahead for Albertson’s. Their selection is already a far second to Safeway, and neither are anywhere close to the others that I mentioned, in the “premium” category.

    Safeway continues to dominate due to convenience, abundance of selection, quality of produce and meats, and a lot of staff that operate more as roving “sales people” – always asking if we have found all we need, and always open to running back to see if some item is there. If something is lacking or desired, they personally take up the issue and get back to us if we give out our phone number. Case in point: organic “Rocky” brand chickens. We received a call when they came in. That’s a four-dollar ++ per pound chicken item. Keeping premier customers in the store with such attention is what protects Safeway from the four super-premium stores in the area. We still go to those other stores, but not for staples, and we frequently spill over and pick up premium items at Safeway. So they’re doing a lot right. Poor Albertson’s seems like a ship without a rudder. The people seem to want to do the right thing but are not given the tools, or the empowerment to do so. And please, let them know who is running their company. It’s kind of embarrassing for them. Apparently Larry still has layers left to dig through.

    Interesting commentary. We would be remiss, however, if we didn’t point out that many people we speak to have exactly the opposite evaluation of Safeway and Albertsons - that Safeway is the one struggling, and that Albertsons is in better shape.

    The truth probably lies in the middle somewhere - it depends on the market, and even the individual store.

    Which is a great object lesson, when you think about it. That no matter what cuts you make, or efficiency drives you promote, or advertising campaigns you commence - it all comes down to the experience you have in the store. And in this area, the food industry can be judged guilty in many cases of being too lazy and complacent, and of settling for "me, too" stores when they should be striving for "only me" stores.

    We got a number of reactions yesterday to the email from Gristedes CEO John Catsimatidis that lambasted (we think that is a fair word) Fleming's management and culture. It's fair to say that a number of people were outraged - a number didn’t want their emails used, but expressed vehement disagreement with his sentiments (and that's putting it mildly).

    We have to be honest here. Before posting Catsimatidis' email, we thought long and hard about "Roshomon," the 1951 Akira Kurosawa film about the subjectivity of truth. And we talked to a number of former Fleming people about his recollections, just to understand them in context.

    A debacle like Fleming - and debacle may be too mild a word - quite naturally will inflame passions on all sides.

    Not everyone disagreed with Catsimatidis' sentiments. One MNB user wrote:

    I loved the note from John Catsimatidis about Fleming & Pantry Pride. In my tenure at Fleming I was involved in working with Pantry Pride in it's Fleming incarnation as Hyde Park Markets and it, like every other Fleming owned retail operation, was run into the ground by Fleming senior executives who possessed ego far out of proportions to their ability and who were congenitally deaf & dumb to any input other than that provided by their coterie of junior coat holders, boot lickers and fawningly obsequious yes men on the corporate staff. Honesty, objective facts and critical thinking were rare and unwelcome visitors at the Fleming corporate office, especially in the isolated fourth floor aerie where the wise owls of the wholesale industry resided in their vast, thickly carpeted, wood paneled and fireplace equipped offices.

    You have to remember that Fleming grew from its Topeka origins by buying competition as they grew from coast to coast. Unfortunately Fleming ran out of wholesalers to buy and the bigger chains and Wal-Mart moved into Fleming's rural markets. Fleming turned to "buying" retail business with foolish high risk loans, lease subsidies, and ridiculous over commitments to retailers which inevitably ended up with Fleming in court and losing big time or holding the keys and bills to lots of dark stores.

    Fleming was never a competitor or an innovator. Fleming never saw technology as a tool for strategic and competitive advantage, instead years of Fleming CEO's viewed IT solely as an expense to be relentlessly minimized like copier paper or janitorial services.

    The corporate retail strategy was raise retails and cut labor hours, period. None of the series of wonder boys who ran corporate retail could tell an end cap form a pallet jack. And they all spelled merchandising R E B A T E.

    The wholesale strategy was never, ever to reduce cost of goods to customers instead it was to maximize internal margin. The corporate manager who, for example, presented a program where Fleming would obtain Chocolate Frosted Sugar Coated Twinkie cereal at 40% discount and pass only 2% to the retailer was praised, even though retailers could obtain the same product from smaller competitive wholesalers at, say, a 5% discount.

    When sales in the category predictably tanked the blame was placed on dullards at the divisions for poor execution. Retail customers quickly and angrily realized that Fleming's "national volume buying power" only guaranteed low prices for Fleming and not its retailers.

    Its hard to tell who was more responsible for Fleming's demise, its decades long series of overmatched and overpaid executives whose haughty attitudes would make Marie Antoinette look like Mother Theresa or the completely inert Fleming Board of Directors whose lack of measurable action could probably qualify them as being legally dead in several states but they both were on watch as a Fleming culture that was not capable of competitive reaction or innovation and focused on internal margin flourished and ultimately destroyed the company. And it all started years before Mark Hansen and his obscenely oxymoronically named "Servant Leaders" arrived to stick their snouts in the Fleming trough.

    You mentioned in your column: "And you have to wonder if some of the former senior executives at Fleming are shaking their heads, wondering how they missed so badly."

    The former senior executives would devoutly prefer that everyone blame the debacle on the vendors, the unions, Kmart, fluctuations in Euro or sunspots , anything other than where the blame solely and personally belongs - with the former senior executives themselves. And the only thing they shake their heads about is that they are no longer on the Fleming gravy train.

    Like we said…passions get aroused.
    KC's View:

    Published on: September 10, 2003

    The National Research Council reports that as many as one-fourth of cats and dogs in the Western world are overweight. The study, Nutrient Requirements of Dogs and Cats, says that there are more overweight pets today than in the past, and that the problem seems to be occurring at younger ages.

    It is recommended that, in order to stave off this animal world obesity epidemic, that pets get more exercise and eat less.
    KC's View:
    We can see it now: "Atkins For Pets," in booksellers everywhere.

    Published on: September 10, 2003

    Published reports say that an uproar is taking place in France over a proposed nickel-a-bottle tax on wine that has been proposed by the government to close a billion-dollar budget deficit.

    Some observers say that such a measure will not help a wine industry already in trouble because of decreasing consumption.
    KC's View:
    Latte taxes in Seattle…wine taxes in France…next thing you know, they'll be putting an extra tax on bagels in New York, scotch in Edinburgh, sushi in Japan, and cocaine in Hollywood.

    Published on: September 10, 2003

    The new peach-colored US $20 bill will be introduced at U.S. banks and businesses on October 9, and some 900 million of the new notes will flood the marketplace next month.

    The bill's front features the familiar Andrew Jackson portrait, with a new peach background and without its old oval border. The bill also sports a new blue eagle and a green tint near the right and left edges. The back of the bill features a similar multihued scheme.
    KC's View:
    Somehow, Andrew Jackson just doesn’t seam like a "peach" kind of guy.

    Next thing you know they'll be saying that J. Edgar Hoover liked to wear dresses.


    Published on: September 10, 2003

    • Canadian retailer Sobeys Inc. announced first quarter net earnings of $47 million (US) for its first quarter ended August 2, 2003; a decrease of 8.7 percent compared to the first quarter of last year. First quarter sales reached $3 billion (US), up 4.7 percent from the same period a year ago.

    • Wal-Mart de Mexico SA posted total August sales that were the equivalent of about $875 million (US), up almost 13 percent over the same period a year ago.

      Same-store sales grew 7.3 percent in August.

    • Rite Aid Corp. reported that total sales for the five weeks ended Aug. 30 rose 5.4 percent to $1.55 billion from $ 1.47 billion a year earlier. August same-store sales rose 6.2 percent, boosted by higher results at its pharmacy department. Pharmacy same-store sales rose 6.6 percent for the month, while front-end same-store sales rose 5.5 percent.

      For the second quarter ended Aug. 30, Rite Aid's total sales for the second quarter rose to $4.04 billion from $3.84 billion a year earlier.

    KC's View:

    Published on: September 10, 2003

    • FreshDirect, the New York-based e-grocer, announced that it has raised $31 million in a private placement. Which it plans to use for operational and capital improvements and future geographic expansion. After its first year of service delivery, FreshDirect says it is generating annualized sales of over $75 million.

    • The Penn Traffic Company, currently operating under bankruptcy protection, announced staff reductions of 100 administrative and supervisory employees, with reductions in virtually every administrative department. In addition, the company is not filling another 25 open positions. No job reductions are being made in any of Penn Traffic's 211 supermarkets.

    • Laurus, the Dutch grocery retailer, announced yesterday that it will eliminate 360 jobs in its Netherlands warehouse and headquarters operations. The move is part of a restructuring program connected to the company's partnership with Casino, which became its major shareholder last year.

    KC's View:

    Published on: September 10, 2003

    The City of New York has signed a five-year $166 million deal with the Snapple beverage company that will make Snapple the city's official beverage - and will give Snapple exclusive rights to place vending machines in the city's 1,200 public schools. Starting on Jan. 1, the deal will extend to other city properties, including office buildings, police stations, and even sanitation depots.

    The deal is the first to be made since Mayor Michael R. Bloomberg hired a chief marketing officer for the city in April.

    The New York Times reports that "as part of the deal, Snapple is developing four new 100 percent juice drinks — Green Apple, Orange Mango, Grape and Fruit Punch — to comply with the city's recent ban of soda, candy and other sugary snacks from school vending machines."

    The NYT also reports that there are a few other cases of cities making such deals. San Diego has an arrangement with Pepsi, and Oakland has a deal with Coke.
    KC's View:
    Pretty soon, it'll be like baseball stadiums. Instead of reflecting the character or history of a team or city, stadiums now carry the names of corporate sponsors (which became pretty embarrassing for what used to be Enron Field down in Texas…).

    Soon, the signs will be going up: "Welcome to Snapple's New York City."

    By the way, we're open to naming an official MorningNewsBeat beverage. (We're willing to carry soft drinks, and we'll even install a vending machine in MNB World Headquarters.) Just make us your best offer…

    Published on: September 10, 2003

    The Canadian Council of Grocery Distributors announced that the industry has agreed that while there will not be mandatory labeling of products containing genetically modified organisms (GMOs), food producers have agreed that they will be able to substantiate claims that they make on their labels.

    The goal was not to mandate labeling, but to crate a formula that allows for consistency. Some observers question the efficacy of the rules since they are not mandatory, and any product with less than five percent GM doesn't have to classify itself as containing GM ingredients.

    About 70 percent of processed food in Canada is believed to contain some GM ingredients.
    KC's View:
    What's disturbing about this is that the Canadian Council of Grocery Distributors thought it was necessary to establish voluntary rules to try and get everyone to tell the truth.

    Just think about the irony of that for a moment. It speaks volumes for why some people don't trust the manufacturers on this issue, and believe that products containing GMOs ought to required to say so.

    The way this Canadian thing is phrased, it sounds more like a marketing strategy than a statement of principle…

    Published on: September 10, 2003

    Reuters reports this morning that Wal-Mart Stores Inc. is embroiled in a battle with Chinese trade unions over whether the company should contribute two percent of existing wages to fund union activities such as setting up an office and to pay for potential expenses in settling disputes.

    Wal-Mart, which currently has 27 stores in China and is growing, is assiduously and so far successfully anti-union, despite efforts on numerous fronts to organize its employees. It is not commenting on the Chinese union issue.

    The All-China Federation of Trade Unions (ACFTU), a state organization with more than 130 million members that controls virtually every union in the country, says that Wal-Mart has "rebuffed" every attempt to establish a trade union at its China stores. "They keep saying they have their own internal channels to deal with labor disputes," the union said.
    KC's View:
    The ACFTU should get used to the idea of getting rebuffed by Wal-Mart on this one.

    Though this should be fun to watch. Imagine, Wal-Mart against a Chinese union with 130 million members…that might actually be a fair fight.

    Published on: September 10, 2003

    The Associated Press reports that Supervalu Inc. announced it is closing the former Fleming Companies warehouse in Massillon, Ohio, that it bought from C&S Wholesale Grocers.

    The move puts about 850 people out of work. It takes effect this Saturday.
    KC's View:
    And the dominos continue to fall…

    Published on: September 10, 2003

    Dow Jones reports that the two largest Dutch pension funds are protesting the pay package given to Anders Moberg, Ahold's new CEO. The companies say that they have a problem with both the size and structure of the compensation and the way it was revealed to shareholders.

    Moberg will receive at least the equivalent of $6.5 million (US) over the next two years, making him one of the highest paid CEOs in the Netherlands. The compensation package was announced at last Thursday's shareholder's meeting, and when investors asked for a delay in Moberg's official appointment to the CEO job, he threatened to quit if he didn’t get the title and the money immediately. The pension funds say that they then supported Moberg only because they were concerned about the impact on Ahold if it suddenly lost its new CEO.

    "We consider such a procedure to be careless. This creates bad will among shareholders," the pension funds said in a joint letter to the company. "A lot of trust has been lost and restoring it must be given a high priority. Given last week's events, it is doubtful whether Ahold is giving this priority."
    KC's View:
    We agree.

    There's a lot of skepticism about Ahold in the marketplace right now, and this didn’t help its prospects. Rather, it just reinforces the notion that the company may have its eye on the wrong ball.

    We don't mind people making a lot of money. (That's one of our goals.) But we think that maybe people ought to get compensated when they've delivered, not before they've even done the job.

    Add to that the fact that Moberg's vision for the future seems to be more reliant on scissors than brick-and-mortar, and it doesn't make us want to run out and buy Ahold stock.

    Published on: September 10, 2003

    The Atlanta Journal-Constitution reports this morning on the newest trend in soft drinks - creating extensions that are only on shelves for a relatively short period of time, trading on consumers' constant desire for something new.

    A perfect example, according to the story, is Pepsi's Mountain Dew Live Wire, which was introduced around Memorial Day and is now vanishing from store shelves. However, its success was strong enough that experts believe it will be reintroduced at some point.

    The in-and-out approach to marketing soft drinks is highly popular in Japan, but in the US has not been a major category driver. Until now.
    KC's View:

    Published on: September 10, 2003

    The European Union's high court has ruled, in a dispute between Italy and Monsanto, that EU member states can place temporary prohibitions on genetically modified foods if they suspect the foods pose a threat to public health or the environment.

    According to the ruling, any European nation "can as a preventive measure ... temporarily restrict or suspend the marketing of those foods in its territory," the court was quoted by The Associated Press as saying. There should be no "relaxation of the safety requirements that must be met by novel foods."

    However, countries looking to ban GM foods must supply evidence to support the move.
    KC's View:
    The Bush administration isn’t going to be happy about this one…

    Published on: September 10, 2003

    The Justice Department has ordered Rx Depot, a retailer that helps USA citizens import cheaper drugs from across the Canadian border, to shut down its operations, charging that the business violates federal law that says that only manufacturers are allowed to import drugs from abroad.

    However, Rx Depot president Carl Moore told the Associated Press that he had no intention of complying with the order, and that he looks forward to his day in court.

    Prescription drugs from Canadian pharmacies often can be as much as 50 percent cheaper than they are in the US, and companies like Rx Depot can seem attractive to senior citizens on fixed incomes. When the US Food and Drug Administration (FDA) warned Rx Depot that its activities were illegal, the company not only ignored the warning, but expanded its operations.

    The government maintains that it is not just an issue of commerce, but one of public health. "FDA has uncovered a disturbing pattern of actions by these companies resulting in potentially hazardous errors," the agency said in a statement posted on its Web site later Tuesday.

    The AP reports that Rx Depot operates storefront businesses in half a dozen states including Florida, Oklahoma and Arkansas. Four states have attempted to close the company's stores, but only Montana has succeeded.
    KC's View:
    While issues of public safety clearly have to be addressed, maybe somebody ought to pay attention to the underlying problem - that senior citizens are having trouble paying for the prescriptions they need.

    Published on: September 10, 2003

    The next six years will bring about extraordinary change in the nature and shape of retailing, according to Twenty Trends for 2010: Retailing in an Age of Uncertainty, a new report by Retail Forward, sponsored by Intel Corporation.

    "Consumer targets, retail categories, channels of distribution, and retailers and suppliers alike will undergo radical transformation through the end of the decade," said Tom Rubel, president of Retail Forward and contributing author of the report.

    Among the trends predicted by the report:

    • "Wal-Mart will be even more successful by 2010 as it extends its reach with customers into a variety of new businesses, products, and service offers. Wal-Mart's push into the grocery business is changing the way we shop. As consumers search for greater shopping efficiency, their store preference is shifting away from traditional supermarkets and discount department stores toward supercenters. This shift will have a significant impact. Retail Forward forecasts supercenter sales to nearly triple by 2010."

    • "E-kiosks, smart cards, and RFID-enabled checkout will be powerful tools for customers in stores while mobile devices are expected to be a major technological change driver in consumer products distribution over the course of this decade - with the most significant opportunity in B2B applications. The Internet will transform many aspects of the shopping process, but the online action will include relatively few transactions. Even though e-commerce sales are expected to continue to grow through 2010, they will remain a relatively minor slice of overall retail sales. Retail Forward forecasts annual e-commerce retail sales to reach $230 billion by 2010."

    • As retailers grow and become more global, they will seek alternative sources of supply. By 2010, Retail Forward predicts, many suppliers will find their biggest competitors are their retail customers. "As retailers look for new ways to grow and differentiate their offer, many will become brand managers, some will pursue innovative store-within-a-store, or brand-sharing, partnerships, and still others will become "über retailers"- leveraging their brand identities, customer relationships, and scale to move from share of market and share of wallet to share of life," said Rubel.

    • "Suppliers that survive the decade will be best-in-class category consultants as they take on an increasing number of activities that traditionally have been the responsibility of the retailer. And, as more suppliers get locked out of traditional retail channels, expect supplier direct-to-consumer to be a more viable scenario in the future."

    • "Retailing 2010 will be much more personal as retailers adopt a more robust portfolio approach to the market to appeal to the multi-dimensional consumer mindset. Technology is changing the dynamics of the buyer-seller relationship, giving consumers unprecedented control in the marketplace.

    "We will see a new customer-driven business model by 2010, built around greater customer intimacy - where every touch point becomes a moment of truth and customer relationships become the key competitive assets of the business," Rubel said..

    Twenty Trends for 2010: Retailing in an Age of Uncertainty is available to download at no charge at
    KC's View:
    So, let's get this straight…

    Wal-Mart is going to become even more ubiquitous and powerful. E-shopping will become transformative but not an enormous category. Retailers will compete with manufacturers. Manufacturers will become retailers. And retailing will become more customer-driven.


    It seems to us that mainstream retailers other than Wal-Mart have limited choices if all these prognostications are accurate. (Limited, that is, even beyond closing up shop, moving to an island somewhere and subsisting on margaritas…)

    As challenging as it might be, perhaps it is time for mainstream retailers to rip up the traditional playbook for how to compete. After all, this report suggests that not only is Wal-Mart going to become even more formidable, but that mainstream retailers are going to end up competing with the very people who supply them product. How do you compete with that?

    The only way, we think, is to embrace Rubel's final point about the customer-driven business model. It is the same gospel that our friend Glen Terbeek has been preaching for years - that to survive in the current environment, retailers must become agents for the consumer and pursue an agenda that is far different from the cut-and-streamline philosophies that drive the business today.

    By the way, six years is just 2,190 days. So there isn’t exactly a lot of time left…