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    Published on: September 18, 2003

    Lots of email to catch up with this morning, as members of the MNB community continue to sound off on a broad range of subject…

    In yesterday's lead story about Supervalu and C&S Wholesale Grocers finalizing their asset swap between New England and the Midwest, we said in our commentary that "the word we hear is that there are an awful lot of independent retailers in New England who are concerned and dissatisfied with the asset swap, and who are reconsidering their options. Part of the problem seems to be that C&S has a strong reputation as a distributor, but not as a service/support organization - and independent retailers believe that they need those kinds of services in the current competitive environment.

    Another factor - we've heard from a number of independents in New England that they read about the asset swap in MNB and elsewhere before ever hearing a word from Supervalu…and they're not pleased about it. The conventional wisdom seems to be that the big winner in New England is going to be Bozzuto's, which is perceived as being strong in the service area. Indeed, the biggest problem that many believe Bozzuto's will have is the ability to take on all the new business that may come its way."

    This generated a number of emails…

    MNB users Steve & Kimberly Brackett wrote:

    You've hit the nail right on the head. We are a one-store operator in
    ath, Maine, supplied by Supervalu. My phone is ringing with people wanting to talk, but it's too soon to see what will happen. Bozzuto's has meetings scheduled next week, and following that, A.G. of New England (Manchester, NH) wants to speak with us.

    Supervalu's available services will be hard to beat. From equipment purchasing, to store design & project management, they are indeed a full service wholesaler. As you said, C&S , while a large wholesaler, does not have that reputation. They are telling the Supervalu employees (as they extend them job offers) that they "want" to come up to that service level. Only time will tell, I guess. As a one-store operator, we rely heavily on SUPPORT from our wholesaler. I am not just looking for the lowest priced groceries delivered to my dock.

    Speaking only for us, we'll listen to all wholesalers that want to talk and make a decision from there. C&S is not an "automatic" option for us.


    And we're hearing this same story from a number of independents.

    We also got the following email about the swap:

    As an independent Northern California retailer, we are wholly disappointed that C&S didn't sell to Supervalu. We are NOT looking forward to dealing with C&S "customer service". Apparently, they were looking this word up in the dictionary, trying to figure out how it applied to their business, when we called in with a problem last week. Not that Fleming had stellar customer service, but we had worked with them for many years and had developed relationships with their people. Who knows if Supervalu would have been much better, but at least their reputation is not as tarnished as C&S. I can only hope that they were at least looking the right spelling of service and not at the word "servitude."

    Are you listening, C&S?




    We got a number of emails about the report this week that there seems to be softening of Krispy Kreme sales around the country, especially at new locations opened by the company and its franchisees.

    MNB user Bill Wright wrote:

    Why are sales off in the new locations? Easy, in our neck of the woods you can buy Krispy Kremes in virtually every gas station and supermarket within the distance of a Barry Bonds homer from the KK bakery. If I owned a franchise and saw the proliferation of KK placements all around me, I would be P-----!

    We assume he meant "perplexed."

    And another MNB user wrote in with the following Krispy Kreme-related travel advice:

    Too many people on vacation in spots not near a KK and/or not familiar enough with the vacation location to know where the nearest KK is located. First rule for vacationers: Print out a list of KKs near your vacation location and map them out for when you get there to save time.

    Advice noted. When we travel to unfamiliar locations, we always try to have advance knowledge of the 1) great local restaurants, 2) local brewpubs, 3) nearby major league baseball teams, and 4) nearby minor league baseball teams.




    We also continue to get email about the moving of traditionally American jobs to offshore locations, which has the impact of hurting the US economy in ways we may not even yet understand. One MNB user wrote:

    I don't mind wearing underwear or shoes made outside US borders, but I DO mind that IT departments will no longer exist in many companies, and will be serviced by non-Americans outside our borders.

    Someone should be saying, "Stop the insanity". Our computer systems being operated, maintained and controlled by people who do not have loyalty to the US and even live outside our country?? The vulnerability of this is frightening. With more and more financial business being conducted on-line and sensitive information being stored in computers with greater and greater frequency, our country is opening the door and motioning trouble right in. Surely terrorists have figured this out already.

    These concerns do not even come near to other obvious problems like trying to communicate with the fixer about a computer problem when the fixer does not speak clear English. We had such an experience when we signed up for SBC Yahoo. The pleasant woman from India on the other end of the line had to repeat things three and four times because we were unable to decipher her heavy accent. She clearly understood what we were saying, but our untrained
    ears needed a second, third, or fourth try at the words to be sure we got the intended message.

    All of these changes are being made so that companies can continue to operate with profits, profits, profits. A flat bottom line would be a small price to pay for security and the promise of being in business in the future. When the wolf has entered and devoured the children, it will be way too late.


    If nothing else, sounds like a great concept for a conspiracy thriller…




    Regarding the past and future of Kings Super Markets in New Jersey, where CEO Alan Levitan resigned this week, one MNB user recalled:

    It wasn't in my shopping area, but it was a very high-class store. The prices were high, but it had a very 'don't care' attitude. It was one of the first stores to put in electronic shelf tags, which were very costly at the time. They were removed, I am sure due to cost, but I always felt rich when I shopped there. Silly, I am sure, but I liked the experience. If it were closer to me, I would have shopped there more often.

    For a long time, we thought that kings offered consumers the experience not so much of feeling rich, but of feeling smart - that they were superior to people who shopped elsewhere because they were patronizing a better class of a store. That is a rare and valuable feeling for a consumer to have, and has nothing to do with the prices being charged. It is also a feeling that many would say that Kings got away from in recent years…and that it must recapture if it is to regain its former glory.

    And, about Alan Levitan, MNB user Dave Hurley wrote:

    Alan Levitan is a good man with much experience. It seems that the decision makers are only shooting from the hip.




    We wrote earlier this week about a new treatment for meat that will help alleviate food borne illnesses, which prompted one MNB user to write:

    So, what is this new "treatment" meat will be sprayed with? I'm a bit suspicious. We seem to come up with things that are meant to protect us that in the end really do us more harm than good.

    Besides, does the rate of food borne illnesses really merit this? Seems like using fear to bolster sales/consumer confidence - something Americans are
    becoming all to familiar with.


    True. It does seem at times that we have a fear-driven economy: fear of terrorists, fear of being overweight, fear of being unattractive, fear of not getting the girl, fear of not having the most money, fear of not having the coolest car, fear of not getting our kids into the best college, and so on…

    We'd quote FDR on this issue, but it would seem trite. So maybe instead we should refer to the great line from 1983's "Risky Business," used by the Tom Cruise character. (We can't quote it here for fear of offending too many people…but if you know the movie, you know what line we're referring to…)




    One MNB user wrote in to us about Ahold CEO Anders Moberg's extravagant pay package:

    How is the job Moberg is supposed to do worth $10 mil? If the guy does not care what effect his salary has on the corporation? How many stores does it take to generate $10 mil in gross profit in one year? Maybe he could cut the compensation of all the other employees to generate that $10 mil salary and improve morale and productivity in the process?

    It remains to be seen whether Moberg's decision to reduce his compensation and base all his bonus money on performance will have the desired effect of quieting outraged shareholders. It may be too little too late, simply because by negotiating the package - and at one point threatening to quit if he didn’t get it, no matter what the impact on the company - Moberg showed his true colors.

    On the other hand, $10 million seems like such small potatoes when compared to the outrage over $140 million in compensation that forced NY Stock Exchange CEO Richard Grasso to resign yesterday…




    We had a story earlier this week about Mickey D's hiring Bob Greene, Oprah Winfrey's trainer, to help promote a new healthy happy meal for adults. One MNB user responded:

    I note that the version of the Happy Meal that Greene would be promoting does not have a burger, simply a salad. You have to wonder if the cattle ranchers will go after Greene for intended omission of their products? You also have to wonder if the salad dressing contains hydrogenated oils and since Greene is McDonald's spokesperson -- whether this legally links him to their artery-clogging fare despite the lettuce, water, pedometer, and even book with exercise tips!? We all have to look beyond corporate hype to determine what is truly beneficial to our short AND long-term health. Bet Oprah uses olive oil on her salads...




    Yesterday's story about a man suing Wal-Mart for $1 billion for conspiring to drive him out of business generated a number of emails, especially about our comment that "this is going to turn out to be one of two things: somebody trying to take advantage of Wal-Mart's enormous deep pockets, or someone filled with righteous indignation about Wal-Mart's arrogance."

    One MNB user wrote:

    You point out that it has to 1 of 2 things. I find myself saying several times a day, and now it seems appropriate as ever, the truth is always somewhere in the middle.

    Are you kidding? We live in the middle…

    Another MNB user wrote:

    Unfortunately this is all too common these days in retail. As a retail buyer for over 30 years I have seen retailers either steal ideas from one vendor and ask a preferred vendor to manufacture it, or by-pass the manufacturer altogether to have it produced in a third world company. As the retail industry continues to consolidate this will become more common and the loser will be the consumer.

    And another MNB user asked:

    Isn't arrogance a little strong for a "I said, he said" type situation at this time?

    We'll live with that term. Hell, Wal-Mart is arrogant. Any company that has reached the level of achievement that it has almost has to be…even if it prefers to display an "aw shucks" down-home demeanor to the planet.

    A little bit of arrogance can be a good thing, if properly directed. It fosters self-belief as opposed to self-doubt…and can make you operate from conviction, not fear.




    Finally, we wrote yesterday about a new Costco coming to downtown Vancouver…but clearly the fifth cup of coffee hadn't kicked in yet, because we almost treated it as if it were in a vacuum. Which was incorrect.

    MNB user Stuart Silverman wrote:

    I can't imagine a more urban Costco than the one sitting in Brooklyn. It has a large multicultural, varied socioeconomic population with large families buying in bulk. It's perfect.

    Okay, we forgot about Brooklyn.

    And then MNB user Robert Reynolds wrote:

    Costco has been in downtown San Francisco probably for 10 years or more.

    Okay, we forgot about that one, too.

    Anybody else?

    (There goes our claim on perfection. Damn…)
    KC's View:

    Published on: September 18, 2003


    • In the UK, William Morrison Supermarkets reported that pre-tax profits grew 10.2 percent to the equivalent of $203.1 million (US) for the quarter ended August 10. The retailer also reported sales growth of 9.6 percent in the first five weeks of its second half, even better than that posted by market leader Tesco.

    KC's View:

    Published on: September 18, 2003


    • Raley's named David D'Arezzo, the former executive vice president for merchandising at Office Depot as well as a former Wegmans executive, to be its new COO. He succeeds William Coyne in the role, though Coyne remains president of the California supermarket chain.

    KC's View:

    Published on: September 18, 2003

    A fascinating, 296-page document started showing up in American mailboxes this week.

    The 2003 LL Bean Christmas catalog.

    That's right. It isn’t even officially autumn, and LL Bean is selling Christmas presents.

    Talk about trying to drive sales…the Maine retailer is even offering free gift boxing on any product found in the first 29 pages if shipped to the US - and if purchased by October 5.
    KC's View:
    We know this will be just the first of many Christmas catalogs…but we were astounded when we found it in the mailbox.

    On the other hand, there's an Adirondack Barn Coat on page 17 that looks pretty nice…

    Published on: September 18, 2003


    • The King County Journal reports that the Puget Sound area of Washington State will soon get its biggest supermarket, as Idaho-based WinCo plans to build an almost 93,000 sq. ft. unit on the site a former driving range.

      The store is expected to be open by midsummer 2004.


    • A new study from the University of Georgia suggests that a cup of coffee may be more effective at reducing pain during a workout than aspirin, according to FoodNavigator.com.

    KC's View:
    We don't know about during a workout, but we certainly can vouch for coffee's pain-reducing qualities when we're writing MNB at 5 in the morning…

    Published on: September 18, 2003


    • The Atlanta Journal-Constitution reports that a number of bottled waters sold under a range of brand names - including Dannon Fluoride to Go, Pure American, Enon Springs, Alhambra Junior Sport Drinking Water and Sparkletts Junior Sport Drinking Water - and manufactured y a joint venture of Coca-Cola and Danone Waters North America are being recalled because their "sport cap" spouts could pose a choking hazard to children.

    KC's View:

    Published on: September 18, 2003

    Published reports say that Tesco will begin opening its North Dublin store 24-hours-a-day, making it Ireland's first round-the-clock supermarket.

    Tesco says this a test, and will determine whether it makes sense to extend the policy to the other 76 stores that it has in Ireland.
    KC's View:

    Published on: September 18, 2003

    Global notes & commentary from PlanetRetail.net…
    Leading Indonesian retailer Matahari is to open two up-market supermarkets later this month, under the banner Matahari Marketplace, as the company attempts to entice back its upper/middle class customers who have transferred their patronage to rival stores.

    The new outlets are part of Matahari's plan to open eight supermarkets, including six Matahari Marketplace stores, as well as six department stores this year. Matahari will spend a total of $45 million (US) on the expansion. The retailer opened its first Matahari Marketplace in an up-market shopping mall in north Jakarta last week. The concept is a development of the traditional Matahari supermarket with more imported and higher quality products on offer as well as the introduction of food courts.

    This announcement shows that Matahari recognizes it has to adapt if it is to retain its leading position in Indonesian retailing. With the presence of the major foreign retailers increasing, Matahari attempted to launch its own Mega M hypermarket format in the 1990s to fight the likes of Carrefour head on. However, the experience of the failed Mega M stores, which were simply unable to compete with the more advanced and experienced foreign players has undoubtedly taught the company a valuable lesson. The Matahari Marketplace format is clearly an attempt to target the small, but gradually increasing, numbers of upper/middle class customers in Indonesia.

    The move also comes against a backdrop of renewed ambitions at Matahari. The group has been closing unprofitable stores over the past year, the result not just of a management restructuring (which saw the company split into two operating divisions), but also the economic uncertainty following the Bali bombing in late 2002. However, in early 2003, the retailer announced it was to pursue "aggressive" expansion during the coming year in order to maintain its position “as a leading national retailer."

    We will have to wait and see if Matahari Marketplace proves a success. One thing is certain, however – the influence of the foreign invaders is only going to increase. In April 2003, Dairy Farm announced that it had reached an agreement with under-fire Ahold to acquire the Dutch group’s Tops operations in Indonesia. The deal will allow Dairy Farm to close the gap on its major competitors in the market, such as Matahari. It seems as if Matahari will have to fight increasingly hard to hold onto that top spot it is so proud of.
    KC's View:

    Published on: September 18, 2003

    The Los Angeles Times reports that federal and California agriculture officials say they have eradicated the poultry virus known as exotic Newcastle disease, and therefore have lifted the and lifted the remaining quarantine that restricted shipments of poultry in Southern California.

    No California birds have been found with the virus since May. Once authorities determined last month that the virus was largely under control, the quarantine was lifted in most of the state. Eight counties had been put under quarantine and more than 3 million birds were destroyed, mostly at commercial egg farms.
    KC's View:
    And now, if officials could only do something about the other virus sweeping California - recallitis, which has turned its political system into a punchline.

    Published on: September 18, 2003

    Wine Spectator reports on the unusual harvest conditions that have taken place in California this year.

    A cold and rainy April in Napa and Sonoma led to a delay in grape development, and the harvest there could be a month later than normal this year. On the Central Coast, however, an unusually hot summer meant an early picking season, with some vineyards finished picking before they normally would have started.

    "It's been a fascinating kind of year. We have no idea what we're really in for," Tom Rinaldi, winemaker for Provenance Vineyards in Napa Valley, told Wine Spectator.

    In general, according to the magazine, "the vintners who were interviewed shared cautious optimism about their prospects. At present, the grapes are healthy, and the vines look strong. If the next five weeks are warm and dry, results could be excellent."
    KC's View:
    We're counting on it. And we'll be in Napa and Sonoma next week, so we'll be checking in to make sure everything is going okay…

    Published on: September 18, 2003

    A pair of new studies from ACNielsen reveals that private label growth around the world continues to be on the upswing, reaching a total of $85 billion last year in 36 countries and 80 categories - up four percent from the previous 12 months.

    However, while private label sales in North America have a 16 percent market share, they didn't really grow at all during 2003…a marked contrast to other areas of the world.

    In Europe, where private label has a 22 percent market share, it grew six percent; in Asia/Pacific, it has a four percent market share and grew 14 percent; in Latin America, it has a one percent market share and grew 16 percent; and in "emerging markets," where private label has a four percent share, it grew 48 percent.

    Globally, ACNielsen estimates that private label has a 15 percent market share, with 2003 growth of four percent.

    In two-thirds of the markets studied, the growth of private label products outpaced manufacturer branded products, according to the studies, perhaps due to the better than 30 percent price differential between private label and branded products.

    While the US may not be the fastest area for private label growth, the studies also noted that while branded products still constitute the majority of all CPG sales, private label products are not only enjoying faster sales growth, they are expanding into an increasing number of categories, becoming the share leader in more categories, and gaining an increased presence in more retail channels.

    In terms of dollar volume, private label growth between 1997 and 2003 was 38 percent, while branded products were up just 19 percent. Since 1997, private label products have grown from having a presence in 69 percent of the categories tracked by ACNielsen to 75 percent, entering 88 new categories in that time. In 2002, private label had the dollar volume share lead in 25 percent of the categories in which it competed – up from 21 percent in 1997.

    Gail Zielinski, ACNielsen Homescan account director and author of ACNielsen’s annual U.S. private label study, said the vast majority of private label’s overall growth is coming from expanded sales in established categories.

    The grocery channel owns the largest share of total private label consumer packaged goods sales. However, its lead is decreasing as other retail channels add private label products to their shelves. The dollar store, warehouse club store, and supercenter channels are generating the strongest growth in private label sales, albeit off of sales bases that are still relatively small.
    KC's View:

    Published on: September 18, 2003

    MSNBC reported this week about the economic impacts of the low-carb Atkins diet.

    Sales of traditional diet products such as Unilever's Slim-Fast are down. Wheat and bread sales are off. Beef sales are up. Bacon and egg consumption are at 10-year highs. Beef jerky sales are up 40 percent over the past two years. And pork rinds have tripled their market share.

    New businesses are being born out of the Atkins craze. In addition to Atkins Nutritionals, which makes everything from ice cream to snack bars, there are dozens of other companies coming out with low-carb versions of traditional products. The Atkins market is estimated to be worth $11 billion in annual sales.

    However, there is some skepticism among economists about the role of Atkins in some of the numbers. For example, while there have been studies suggesting that 12 percent of American adults have tried the Atkins diet, the questions actually reveal that 12 percent of Americans have tried to drop some weight by foregoing bread for a few days - which is not exactly the same thing as going on Atkins.

    And some of the shifts in eating patterns may be simply cyclical. MSNBC reports, "Those who note the surge in Atkins-friendly food tend to ignore an equally vigorous countertrend: Sales of Krispy Kreme donuts grew an amazing 25 percent last year, to $492 million, with cookies, potato chips, and other Atkins-verboten products following suit.

    Economists say that one of the things driving heightened meat consumption may, in fact, be the ease and convenience of meat, rather than any long-term dietary trend.
    KC's View:
    Even before this story ran, we got a great email on this subject from MNB user (and new product expert) Bob McMath:

    "We heard during the recent Healthy Products Show in Washington, DC that pasta and rice manufacturers exhibiting there were seeing a marked decrease in sales, and were quite concerned about the downturn. People, at present at least, are taking the carbohydrate thing quite seriously. With every level of government making loud noises about obesity, etc., as well as all the marginal groups that like to see their names in print, it may be a long term thing for such foods.

    "On the other hand, people are fickle and will turn after a while to something new. Nothing ever lasts too long in this country although I think the basic problem will be the subject of controversy for some years to come. Add to this the threats of law suits and we are in for a long term upheaval in the traditional foods we eat which may never recover when they are identified as culprits in the weight problem."


    Agreed.

    Published on: September 18, 2003

    Troubling story in USA Today this week about how many employees in this country who have not lost their jobs remain both burned and burned out by small or nonexistent raises and tougher productivity demands - and plan to leave their jobs as soon as there is an economic turnaround.

    And because the recent tough economic times have forced employers to get rid of the lesser performers and low-priority personnel in their companies, this means the people planning to jump ship are the top performers and managers who are critical to their companies' businesses.

    The only upside for employers is the fact that despite mixed feelings about current economic growth (that will become even more mixed as the 2004 presidential campaign picks up steam), the employment situation doesn’t seem to have gotten any better. Unemployment hovers around six percent, and there still are hundreds of thousands of jobs that have simply vanished, and companies have gone out of business or moved those positions offshore.
    KC's View:
    Still, this suggests that too many companies are not showing the proper appreciation for the people who make them tick, believing, perhaps, that in the current environment these folks ought to be happy to be getting a paycheck.

    Well, that's nonsense.

    And part of differentiates a company from the competition is the quality of the people who work there, and the fact that great employees will have an emotional investment in the place where they work. And there's nothing more upsetting to someone who has an emotional investment in their place of business than when an employer doesn't respect those feelings.

    Published on: September 18, 2003

    The Boston Globe reports that the US Food and Drug Administration (FDA) is working to stop the city of Springfield, Mass., to stop importing less expensive Canadian medications, saying that it is in violation of US law.

    The FDA has sent a formal warning to CanaRx Services, the company that is arranging for the shipments, as well as told Springfield Mayor Michael Albano that it objects to the city's policy. However, according to the Globe, Albano told the FDA "that the city saves $4 million to $9 million a year by purchasing prescription drugs for its employees from Canada, that he has full confidence in their safety, and that he has no intention of cutting off the Canadian shipments." Albano promised that he will find another provider if the FDA shuts down CanaRx.

    This story emerges during the same week that the state of Illinois said that it was looking into importing Canadian pharmaceuticals as a way of dealing with budget-busting increases in prescription drug bills of more than $340 million.

    And, the federal government is trying to shut down Rx Depot, a retailer that sells less expensive Canadian medications in a number of states.
    KC's View:
    Suddenly, it isn’t just the businesses that are promoting the import of cheaper drugs from Canada. It is governors and mayors…which makes one think that this issue will be coming to a head fairly soon.

    Published on: September 18, 2003

    A new report from Retail Forward, Wal-Mart Food: Big, and Getting Bigger, suggests that over the next five years, Wal-Mart's growth in the food business will be nothing short of unprecedented, topping $162 billion by 2007, giving the company a 35 percent share of supermarket industry sales and 25 percent of drug store industry sales. Wal-Mart Supercenters will continue to be the company's primary growth vehicle domestically and increasingly disrupt the marketplace.

    This new report from retail Forward actually is a follow up to its 2002 report, The Age of Wal-Mart, which identified food as one of two major growth categories for the company (the other being apparel).

    Sandy Skrovan, Vice President with Retail Forward, and author of the new report, said that it won't just be supercenters that drive this food growth. It is entirely likely, Skrovan said, that Wal-Mart will continue expanding the Neighborhood Market concept, and even open dollar stores, freestanding drug stores, and gasoline/c-store combos.

    "Wal-Mart will continue to steamroll the competitive landscape by building a portfolio of formats that capture all consumer food and drug trips," said Skrovan. "The company's aggressive expansion will continue to wreak havoc and steal share away from conventional food, drug, and mass retailers at an alarming pace."

    For more information about this report, go to www.RetailForward.com.
    KC's View:
    Well, retailers competing with the Bentonville Behemoth have two choices - fold up their tents, or identify and execute a strategy of clear differentiation.

    Retail Forward's Skrovan put it well: "For competitors to survive in the Wal-Mart world, the key is to be what Wal-Mart is not. Retailers will be required to adopt distinct positioning strategies that will clearly set them apart."

    These kinds of numbers are, to be honest, scary. They also are the kinds of numbers that tend to attract attention from regulatory authorities concerned about antitrust issues. This level of growth will present its own set of challenges to Wal-Mart, not just in terms of infrastructure, but also in terms of culture, and in terms of the human resources needed to staff all these stores (which already, by some reports, is being stretched thin).

    But if you’re the competition, you can't count on Wal-Mart imploding, or on the government launching a Microsoft-style investigation into the ways in which it does business. You have to present a clear option to the consumer, and offer compelling reasons beyond price for walking in your front door.