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    Published on: December 18, 2003

    For a story yesterday about the $100 million being spent to launch a P&G product that, in the form of a patch, is supposed to help middle-aged, menopausal women be more interested in sex, we euphemistically called it "Female Viagra" in our headline.

    Well, the good news is we can report that many of you have spam filters that are working. We know this because it never occurred to us that the word "viagra" in the emailed headline would automatically bounce the email back to us.

    Which it did. Hundreds of them.

    For which we apologize. (It was a legitimate story. Really.)

    This also explains why many of you received a second, revised Wake Up Call later in the morning. Once we realized what the problem was, we edited out the offending word and resent it.

    Hope this clears up any confusion. And again, we apologize.
    KC's View:

    Published on: December 18, 2003

    Plenty of reaction to our commentary yesterday about slotting. We wrote:

      There are a lot of CEOs on the retailing side that read MNB every day. When will one of them stand up and say, for example, "Effective January 2005, our company no longer will charge slotting allowances. We will make money on what we sell, not how we buy it."

      Because until someone breaks down that dam, it is hard to take seriously the complaints by so many retailers that they are not competitive with Wal-Mart. It isn’t just the cost of labor…it is because they have created Byzantine financial structures that are out of touch with reality.

    One MNB user replied:

    Amen, strike up the band, you just hit the home run. The truth comes out only in small bites from retailers. Only from retailers who have to compete with Wal-Mart.

    I still want to know how they can bring in all that money and not pay taxes on those funds.

    If the process is an industry standard as some have suggested, lets see some published rates. I am sure the I.R.S. will want a piece of the action. Let the I. R. S. start to subpoena some of these CEOs of these public and private companies. Maybe the new corporate governance laws will loosen some lips. Let the public know which brands pay and which refuses to pay extortion.

    Another MNB user added:

    AMEN! When will retailers wake up a realize that manufacturers can afford to pay slotting because it is built in to the cost of goods. If slotting isn’t charged, prices would drop, allowance levels would increase, and maybe, just maybe, retailers would remind themselves that selling consumer goods is a JOINT effort between themselves and the manufacturers.

    Apparently, our comments inspired a kind of religious fervor…since this email started the same way as the last two:

    AMEN! Slotting, which started as way for retailers to offset the true cost of setting up a new item in their system and as a means to stem the onslaught of new items from manufacturers that had very little thought behind them and even less test marketing, has become part of a huge profit center for retailers. They are absolutely focused on the 'buy' and have completely forgotten about the consumer. How anti-competitive is it if you invent the world's best product in your garage tomorrow and have ZERO chance of getting it on the shelf at the average retailer because you don't have the millions of dollars it would take just to get it 'slotted'. There can't be any clearer definition of 'anti-competitive'.

    We also got some interesting reaction to our piece about the demotion of Betsy Holden at Kraft. We wrote:

      Without passing judgment on either Holden or (new sole CEO Roger) Deromedi, we do think it is a shame when a company that largely sells its products to women decides that it is better off being led by a man.

    MNB user Ron Lunde wrote:

    There are many reasons for change at the top. Often it is not a single reason, but a combination of events and things. Kraft had a rather interesting arrangement of CO-CEO's...which probably baffled just about everyone.

    Another major reason for change is 'nonperformance.' Things have not gone well for Kraft.

    In my opinion, Betsy as CEO and her team did not deliver 'new product growth' and did not manage existing product sales well.

    A lot of the problems appear to me to be caused by the fact that the Kraft team did not seem to grasp the impact of several of the new accounting issues. They continued to press and amplify the MAP tactics of the past...which often resulted in significant volume increases and small revenue growth. This went on until the channels could absorb no more ... and although spending was increased, there was no longer the 'buy' on the part of the trade. And ... they did not deliver any big winners in the new product area.

    Understanding the requirement of new strategies and tactics and marketing metrics disciplines have been a theme of my communications to you over the last two years. Mastery brings rewards...lack of understanding brings changes...even at the top.

    MNB user Jerry Pinney wrote:

    I agree with your thoughts, but unfortunately many business decisions are influenced by Wall Street and although I do not have any hard facts, I believe that Wall Street is very male.

    Another member of the MNB community added:

    If you were aware of the disarray and poor management flowing through Nabisco you wouldn't be surprised by this move. Kraft has to get a handle on this category before it becomes another Dominick's experience.

    Another MNB user chimed in:

    Since Betsy Holden has been in charge of Kraft's overall marketing strategy, supermarkets have seen much less marketing support in just about every area.

    Many of the key categories that Kraft used to dominate (sliced American cheese, sour cream, etc.) saw dramatic decreases in marketing support and competitive products have increased market shares because of that lack of support (and probably a lack of focus, too). Kraft's account executives have complained as late about been handcuffed by increased expectations with less marketing dollars to help drive sales, in addition to having their bonus program's cut dramatically. Many of the key Kraft account executives have either retired (through the many early-out programs offered the past 5 years) or left for better jobs.

    Holden's main focus has seemed to be to make Kraft's marketing spend much more "efficient", which to most retailers and wholesalers equated to less support of their ad vehicles and marketing programs. In addition, her drive to build Kraft's DSD pizza division (which she headed up before her promotion to Co-President) put her at odds with most chains and distributors who felt that the volume would be much more efficient through their own distribution channels to their stores. For the supermarket's, Holden's departure may mean that Kraft has an opportunity to get "back to basics", focus and start supporting their brands like they were several years ago.

    We weren't defending Holden, just pointing out a gender mystery…and MNB user Tina Roberts got it:

    Kudos for pointing out one of the great chasms of the retail, more so, grocery industry today.

    It reminded me of a quote I've used for years when retailers, lead by any gender begin believing they speak for the customer.

    "We slip from our obligation to know what consumers are thinking & into believing they are like us; and from there we slide further into believing we can think for them and understand their actions."

    Since women dominate the primary grocery shopper category at nearly 93%, more companies should open their eyes to focusing internally (on educating and training women into higher positions) and externally on marketing to this very specific group. It's not brain surgery - however it might mean adopting a more feminist approach to their store and marketing strategy. Which might require the other kind of surgery?
    KC's View:

    Published on: December 18, 2003

    • General Mills reported second quarter earnings of $308 million, compared with $276 million in the year-ago period. Sales rose four percent to $3.06 billion, though the company said that most of the increase was because the weaker dollar boosted the value of sales in other currencies.

    KC's View:

    Published on: December 18, 2003

    • Fresh Brands, which owns Piggly Wiggly and Dick's Supermarkets, appointed John Dahly, who had been the company's CFO from 1986 to 2001, to return to the company in the same role. He replaces Pat Plumley, who left the company in September.

      The company also named Louis Stinebaugh as executive vice president - operations.

      Fresh Brands is still looking for a replacement for Elwood Winn, who left the CEO's job last month.

    KC's View:

    Published on: December 18, 2003

    Global notes and commentary from…

    Sobeys has entered into an agreement to acquire all the assets of Commisso’s Food Markets in Ontario. These include 15 grocery stores, six cash & carry outlets and a wholesale business and distribution centre in a deal worth roughly CAD65 million (USD45.4 million). After regulatory approval and due diligence it is expected that the transaction will close early next year. According to Sobeys CEO Bill McEwan, "With the acquisition of these retail and wholesale assets, we immediately secure greater market presence, sales and market share in one of our key regions. With our improved infrastructure and management capabilities in Ontario, we expect a smooth integration.”

    Sobeys stated: “The Commisso’s stores are well known and respected by residents in Southern Ontario, particularly in the Niagara Peninsula, where a loyal customer base has been developed during the past 40 years of operation. Sobeys Inc. intends to operate the stores in the Niagara Peninsula under the Commisso banner for the foreseeable future. In addition, the Commisso’s cash-and-carry and wholesale assets, which includes the former Lanzarotta wholesale operations, significantly expands Sobeys’ wholesale business in the Greater Toronto Area.”

    One of the main effects of this deal will be to intensify the highly regionalised nature of the Canadian grocery sector, with Sobeys beefing up its already considerable presence in Ontario. The Commisso’s chain is a well-respected retailer with a strong brand heritage built up over many years of family ownership and its trades with a proposition that combines quality and value. It has continued to develop the highly credible ‘Our Very Own’ private label range, acquired with the purchase of Lanzarotta Wholesale Grocers in 2000, and trades though an impressive network of large (4,000 square metres +) superstores that will sit well as part of the diverse Sobeys portfolio.

    While Sobeys has pledged to keep the Commisso’s trading identity intact for “the foreseeable future”, this assurance sits a little uncomfortably with the group’s ongoing rationalisation programme with which it hopes to reduce its 20+ stable of food retail brands to just five (Sobeys, Sobeys Express, IGA Extra, IGA and Price Chopper). Against this backdrop, it seems probable that Sobeys will be willing to forgo the brand equity and shopper loyalty in Niagara Peninsular for the sake of converting the Commisso’s banner to Sobeys, or perhaps IGA, in order to conform with its more streamlined ambitions. The Our Very Own brand would most likely be retained for wholesale customers only, while the Commisso’s stores (however they are rebadged) will see the introduction of private label ranges such as Our Compliments and Smart Choice.
    KC's View:

    Published on: December 18, 2003

    Okay, it's not exactly reimportation.

    But it's certainly an interesting spin on what has become an increasingly common practice - importing medicines from Canada into the US because they are less expensive.

    The Boston Globe reports this morning that a Canadian fuel wholesaler, noting that flu shots south of the border suddenly had become extremely scarce, decided there was money to be made. He went on eBay, the online auction house, and offered for sale four vials of vaccine, each good for 10 shots, at $500 per vial.

    While the vaccine is available over-the-counter in Canada, there were other problems with the offer. It is against eBay policy to sell vaccines, as well as against federal drug laws.

    While no bids for the vials actually were made, according to the Globe, eBay removed the offer from its site.
    KC's View:
    Speaking as someone who has been working from home all week because we've been taking care of a nine-year-old stricken with the flu, the only thing that surprises us about this story is the fact that nobody bid for the vaccine.

    Published on: December 18, 2003

    Diageo, the British liquor company, said yesterday that it will put nutrition labels on its products, listing serving sizes, calories, and carbohydrate, sugar and fat content.

    The move comes a day after the Center for Science in the Public Interest (CSPI) and the National Consumers League (NCL) joined together to urge the federal government to mandate liquor companies to put nutritional information on their packages.
    KC's View:
    Not only is this a good move, it is a remarkably fast move.

    Published on: December 18, 2003 has launched two new test categories on its e-commerce site: a "health and personal care" section, and a "jewelry and watches" section.

    The "health and personal care" section will be of particular interest to food retailers, since it offers many of the same HBC products being sold in stores - shampoo, aspirin, toothpaste, etc…

    Amazon is partnering with a variety of HBC retailers to create the site, allowing it to reap the sales without carrying the inventory. This strategy - which has been used in a number of other categories, including gourmet food - has allowed Amazon to become a profitable business, something that many pundits thought might never happen.
    KC's View:
    We still believe that Amazon eventually will expand in the food category beyond gourmet products, and will start selling more mainstream items - possibly through an alliance with a company such as MyWebGrocer and its "Endless Aisle" function. Combine that with the HBC category, and Amazon starts to look like an increasingly strong competitor.

    Published on: December 18, 2003

    The Wall Street Journal reports this morning that the removal of Betsy Holden as Kraft's co-CEO yesterday can be traced to the failure of a strategy at which she was a skilled practitioner: brand extensions.

    According to the WSJ, she "seemed to take the blame for what industry executives say was Kraft's overreliance on brand-extending and lack of new products. Kraft hasn't had a new-brand success of note since it launched DiGiorno, a frozen pizza brand, in the mid-1990s."

    The result, experts suggest, was a product lineup replete with familiar names - Jell-O gelatin, Jell-O pudding, X-Treme Jell-O gel cups and Jell-O Oreo pudding snacks, Mini Oreos, Chocolate Creme Oreos, Fudge Mint Oreos, Mint and Creme Oreos, and Uh-Oh Oreos - but little in the way of real innovation.

    At the same time, the Chicago Sun-Times reports this morning that a kind of mourning period has begun among Chicago-area women executives for the ouster of the area's most powerful female CEO. However, virtually none of them believe that the issue was gender-related, as opposed to performance-related.
    KC's View:
    Some of these women, however, raise an interesting point - are female executives held to a higher standard than male executives? Are there companies where male CEOs keep their jobs despite corporate performances even less stellar than Kraft's? (We all know the answer to that one.)

    As for Kraft, it's biggest job in the post-Holden era will be to realign its products lines so they address the obesity issue, especially through the removal of trans fats from its products.

    Until that happens, it may not matter whether the product lineup is full of new products, line extensions, or favorite old brands.

    Published on: December 18, 2003

    Published reports are that Safeway Plc in the UK plans to institute a broad in-store labeling program that focuses on low-carbohydrate products.

    The Atkins Diet and its brethren reportedly have taken off in the UK, and Safeway wants to make sure that the labeling is in place in time for the inevitable post-Christmas season rash of dieting.
    KC's View:
    Nice to see that Safeway Plc is staying aggressive as even as it waits to see if it indeed will be acquired by William Morrison Supermarkets.

    We did a piece recently for IGA Grocergram in which we interviewed customers about how and where they shopped, and one of the more interesting people we talked to spoke about the need for low-carb labeling in supermarkets.

    This is a smart move by Safeway Plc. Others should follow.

    Published on: December 18, 2003

    Mac Observer reports that at least one businessman in America isn’t cowed by Wal-Mart.

    Steve Jobs, CEO of Apple Computer, reportedly has said that the success of the company's iTunes music download service has been so strong that he is not worried about Wal-Mart getting into the business and being a competitive threat.

    "With over 25 million songs purchased and downloaded to date, the iTunes Music Store is hands-down the most successful online music store," Jobs said. "Music fans are buying and downloading almost 1.5 million songs per week from the iTunes Music Store, which is a rate of 75 million songs per year." Jobs also said that half of iTunes sales are entire albums, not individual songs.

    Mac Observer postulates that one of the reasons Jobs probably is feeling sanguine about Wal-Mart as a competitor is that its customers likely are not Wal-Mart customers…and Apple users tend to be a fiercely loyal bunch.
    KC's View:
    This is an interesting story, especially in view of a Fast Company cover story on Apple Computer and "The Limits of Innovation."

    The piece's hypothesis is that while Apple has been a product/service innovator, it has not been a business model innovator...which has meant that while it creates ideas, other companies are able to quickly crowd it out of any sort of leadership position.

    That's almost certainly what Wal-Mart's goal would be in getting into the online music download business, just like that clearly is its goal in getting into the online DVD rental business and competing with Netflix.

    If we were Jobs, we wouldn’t be nearly as calm about Wal-Mart. We say that even though - or perhaps because - we are avid, passionate Apple users. There is no other computer in the world for us, and our PowerBook means as much to us as…well, as our Miata.

    Published on: December 18, 2003

    The San Diego Union-Tribune reports that more than 5,000 grocery workers rallied in Los Angeles to support the Southern California strike and lockout, and to promote the union's call for a boycott of all North American Safeway stores.

    While negotiations are scheduled to resume on Friday, guided by a federal mediator, the United Food and Commercial Workers (UFCW) has identified Safeway (which owns Vons) as its prime foe in the struggle and is looking for a boycott as a way of ratcheting up the pressure on the company. However, the UFCW did back off the boycott threat a bit yesterday, saying that it was looking for lots of localized boycotts of Safeway stores rather than a single national boycott.

    The paper reports that Safeway characterizes the boycott action as an old tactic that won't impact the negotiations.

    At the same time, the three chains are getting pressure from other quarters. The California Public Employees' Retirement System (Calpers) sent a letter to the CEOs of all three chains this week asking them to settle the strike "fairly and expeditiously."

    The reason? Calpers has a $77 million investment stake in Safeway, a $71 million investment in Kroger, and a $31 million holding in Albertsons.

    However, organized labor may be feeling the pinch as well. The Los Angeles Times reports this morning that "the health fund for union supermarket workers in Southern and Central California could run out of money, jeopardizing medical coverage for about 200,000 people."

    The fund will be gone by the end of the year because Safeway, Kroger and Albertsons haven't made their November and December payments - about $40 million a month. The UFCW has sued the chains to force the chains to keep making payments, but no resolution of this suit has taken place.

    Some 70,000 employees have been on strike against Safeway - and been locked out by Kroger's Ralphs division and Albertsons stores - in Southern California since October 11.

    The major issue, and the one which both sides say they are far apart on, is how health insurance costs will be paid. The union wants the chains to continue to pay for it, while the retailers want their employees to help defray the rising health care costs and help them cut their operating costs.
    KC's View:

    Published on: December 18, 2003

    MNB reported earlier this week that Safeway-owned Dominick's in Chicago plans to close as many as 25 stores in early 2004, though CEO Randall Onstead said that he'd like to build the chain up to the point where it hits the 175-unit level over the next decade.

    Now, the Chicago Sun Times reports that Onstead is laying out his goals for the company.

    At its new 50,000 sq.-ft. Grand Pier store, scheduled to open in early 2005, he plans to have a dry cleaner, pharmacy, "natural" foods section and a Starbucks café. He's also looking to open a half-dozen gas stations at existing suburban stores during 2004. The objective, he says, is to establish a renewed identity for the chain. "This is not a story about retreat," he told a business luncheon earlier this week.

    Of course, Onstead makes these pledges against the background of imminent labor negotiations with the United Food and Commercial Workers (UFCW) in which they will be haggling about compensation and health care benefits - negotiations that are expected to be rancorous at best.

    It was just such a standoff between the two parties that led to Safeway's decision to try and sell Dominick's more than a year ago. After the two sides could not come to an agreement, they decided to reinstate the terms of the labor contract that had expired in return for Safeway trying to sell the company after four years of ownership. The stalemate occurred because Safeway accused the union of making the division unprofitable, while the union said that Safeway's policy of centralization had made the division out of touch with local consumers and driven shoppers away.

    Whichever scenario was accurate, the value of Dominic's clearly was not what it once was. Safeway had acquired it four years earlier for $1.85 billion, and not values it at about $315 million.
    KC's View:
    As we pointed out, opening and expanding stores is the carrot. Closing stores is the stick. (Though there are reports this morning that Dominick's is backing off its stated plan to close 25 stores, saying now that it only plans to close unprofitable units.)

    But we suspect, based on how tough the negotiations have been out in California, that the UFCW will have its own carrot and stick.