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    Published on: January 6, 2004

    Got some interesting reactions to yesterday's piece suggesting that two out-of-the-box business strategies - FedEx's purchase of Kinko's, and Barnes & Noble's differentiation positioning - offer lessons to mainstream food retailers.

    MNB user Dan Raftery of the Raftery Resource Network wrote:

    Love your highlight of two great events in retailing out-of-the [supermarket] box. A thought on each: The FedEx/Kinko's combination of services is a brilliant recognition of the evolving needs of their main customer bases. The current strength of the big book sellers is depth and breadth of product variety, which is often described as a catch-22 for supermarkets.

    I saw something at a local Borders that I haven't seen in years - a checkout line that stretched all the way to the back of the store. And people were actually standing there waiting over an hour to pay for their purchases. It was December 22 and the inventory was decimated. Customers everywhere. Seems like some retailers did just fine this holiday season.


    Another MNB user wrote:

    Another facet of the Barnes & Noble business that really impressed me was the Barnes and Noble University. They offer many free online courses, and others at reasonable cost, covering a wide variety of subjects. Of course, they benefit from the books that are purchased to take the class, and I'm sure I'm not alone in buying a few other titles beyond the course requirements. (Not to mention that for most book purchases the shipping is still free.) And the classes serve the bolster the "community" aspect of their customer base and help to build a relationship with their public that goes beyond a bare commercial transaction.

    And the Barnes and Noble reprints of classics are a great value, usually around 5.95 I think, and hardcover. You can't buy a paperback at that price anymore.

    If you can't have a good independent bookseller in your neck of the woods,
    pray for a Barnes and Noble.


    However, MNB user Glen Terbeek offered:

    Is FedEx's purchase of Kinko's "out of the box" thinking or is it "me too" thinking as a reaction to UPS's purchase of Mailboxes, etc.?

    Good point. But we think of Kinko’s and MailBoxes as being in entirely different businesses. Mailboxes just gave UPS retail locations...Kinko’s, we think, gives FedEx an entirely different presence in the business service game.

    Make sense?



    Not surprisingly, we also got email about the ongoing mad cow disease controversy.

    FMI's Tim Hammonds wrote:

    The USDA has dealt aggressively with BSE and the human food supply. FMI got everything we asked for with the USDA even strengthening some of our recommendations. Now the second act shifts to the FDA.

    FDA has jurisdiction over the animal feed industry. We have resubmitted our recommendations paper to FDA reminding them of the recommendations we made last year before an American case had been found. Our goal is to strengthen the firewalls that keep risk materials out of animal feed and pet food. Why is that important? Because it would remove the temptation on the farm to divert cheaper poultry or hog feed to cattle. (The recommendations paper is on our web site in the public section.)

    Specifically we ask FDA that:

    • At a minimum, brains, spinal cords, distal ileum, tonsils, and eyes should be identified as SRMs (specified risk material).

    • No SRMs should be allowed in any animal feed, including pet food.

    • All dead, dying and down animals, and those exhibiting any BSE signs/symptoms should be tested for BSE. Any animal that is tested for BSE should be excluded from use in any animal feed until it is confirmed negative. Such confirmation should be in writing and should clearly indicate the identification of the carcass with the negative test result.


    Agreed.

    MNB user Bob Vereen wrote:

    I've been a fatalist about a lot of things, but seeing cows unable to walk on TV and then learning I might have been eating their meat has made me a lot more sensitive to food safety.

    Another MNB user wrote:

    It's clear the NY Times and Newsweek are unable to separate their personal political views from factual reporting of the news. Its also clear is that these organizations are out of touch with the American public.

    Beef consumption is holding steady, as it should. American beef is as safe as Japanese or European Beef at a significantly lower cost (if you've been to England or France lately you would be shocked at the cost of a steak, even after you consider the exchange rate).

    I guess the real question is "do we want to know if our cattle contain BSE or do we want to keep it a secret". For years, US farms have purchased animals from countries that had problems with BSE. Do you really believe we were so good or lucky that we didn't end up with some diseased animals? The answer is our ranchers do a better job of preparing and handling our animals. The sick were destroyed and removed from the food chain.

    The Bush administration has taken a stand I don't like but was necessary in light of the dangers we face from around the world. Now we know. Now we will do what we need to do to protect our food supply and our ranches from
    additional contamination.

    Shame on the NY Times and Newsweek for this lame attempt to create a scare.

    I hope my fellow grocers and ranchers recognize what is happening and remember this when its time to renew that subscription.

    And thanks KC for your reporting accuracy. I know a newspaper that needs
    your leadership.


    In all fairness, objectivity suggests that while The New York Times and Newsweek may be exacerbating the perception problem through their coverage, we don't know enough yet to be sure of that. In fact, they could be understating the problem.

    The most important thing, we think, is to keep an open mind, and to be absolutely vigilant.




    Regarding the eternal search for a low-fat doughnut, one MNB user wrote:

    I think that the only way to make a true low-fat doughnut is either fry them in, I believe it was olestra or Splenda not sure which, or the only other way is to bake them. Most of the fat is from the frying in the hydrogenated soy oil (solid shortening), I know this, I have been in the Bakery Business for nearly seven years.

    There are several new developments in the industry with low fat and low sodium, and low sugar, and low carb, we just need to figure out a way to make the same donuts with no or little fat. I've been trying to find a way for a little while now, but to no avail.


    Everybody has to have a dream.

    And another MNB user chimed in:

    If you take your average donut and subtract the fat, sugar, and remaining carbs you’ve got a clean plate to fill up with brie, apples, and leaf lettuce.

    But no fun at all.




    Regarding the growth of the low carb beer segment, one MNB user wrote:

    When I used to tend bar, I worked with a well seasoned gentleman who had particular contempt for light beer and the people who drank it. He loved to tell bar patrons that we actually made our own light beer. To prove it, he would then fill a glass half with beer, then as he filled it the rest of the way with tap water, he'd say, "Just tell me how light you like it!"

    I can only imagine what he would say about low-carb beer.


    We hope that someday someone refers to us as a "well-seasoned gentleman…"




    Not surprisingly, we got a number of emails about our comment yesterday that having now admitted that he bet on baseball while a manager of the Cincinnati Reds, Pete Rose "no doubt believes that by coming clean after all these years, he will be forgiven and allowed back into baseball and finally voted into the Hall of Fame. We have no problem with him being in the Hall of Fame…as long as the plaque notes that he was banned for betting on the game. But under no circumstances should this guy ever be allowed near a professional baseball field again."

    One MNB user wrote:

    If he is voted anywhere, it could only by the Baseball Hall of Infamy. Gambling is an addiction, no doubt about it, but someone who bet on something he had to power to control, should not be given the same recognition as Babe Ruth, Ted Williams or Jackie Robinson, to name only a few true, achievers.

    MNB user Robert D. Reynolds wrote:

    The only new news about Pete Rose is that he is a confirmed liar, not a suspected one.

    If that get him into the Hall of Fame, we might as well tear the place down.


    Yet another MNB user chimed in:

    Surprise, surprise. Something tells me that Rose wasn't / isn't the only professional athlete to be betting on a professional game. They do drugs and play. They get thrown in jail and play. Trust me, they bet and play.

    Ah, cynicism.

    However, not everyone agreed with us:

    No one has ever even hinted that Pete Rose bet against his own team, so this is not an issue like throwing games or point shaving. He appears to be a gambling addict, and he probably was cocky enough to think that he was a better predictor of baseball game outcomes than anyone else. My best guess is that he probably had a net loss from all his baseball betting. It is time to lift the ban. As far as being allowed near any professional baseball field, I doubt any team would want to hire Pete, anyway. If he wants to attend games or the media wants to give him a job as a commentator, what could that hurt.

    And another MNB user wrote:

    Pete Rose bet on baseball, so slap his hand and move on. The man deserves to be in the Hall of Fame because of his talents in the sport. How many times today do we see players suspend for drug abuse, and we let them come back time and time again to play and make millions of dollars per year. The name Daryl Strawberry comes to mind.

    Actually, we would argue that we don't know that Rose didn’t throw games. He says he never bet against his team, but he lied about betting on baseball for 14 years, so why should we believe him? Furthermore, unless he bet on the Reds in every game that he managed, isn’t it fair to suggest that he would manage differently in games where he had money on the line than in games where he did not?

    And by the way, while we have no problem with tougher treatment of drug addicts who play the game, their activities don't seem to us as threatening to the integrity of baseball as gambling. Personally tragic, yes. But different.




    Finally, we got some nice comments yesterday in response to our essay about goals for 2004, entitled "Changes in Attitudes."

    One of our suggestions was that "food retailers should take as an industry goal the idea that every family should enjoy together one more at-home meal a week. Just one more meal, at which they would sit around a table, eat, drink and converse. This is a big idea. It has business implications, but it also could have social/cultural ramifications. And it would position the industry squarely on the side of the family, which is a pretty good place to be."

    MNB user Ted File responded:

    Kevin, much good could come from all your comments. The family sitting down with a home cooked meal and having conversation....WOW ... how many family issues could be solved and just think of the openness of communication.
    Another WOW.


    And another MNB user wrote:

    That's the way to start the new year off right - quoting Jimmy Buffett. Now I fully expect to see a cheeseburger in paradise reference in the next mad cow update.

    We aim to please. See our second story this morning.
    KC's View:

    Published on: January 6, 2004


    • Wal-Mart Stores has hired John Peter Suarez, the US Environmental Protection Agency (EPA) assistant administrator for enforcement and compliance assurance to be the general counsel for the company's Sam's Club division.

      The move is effective January 30.

    KC's View:

    Published on: January 6, 2004


    • Walgreen Co. reported that its first quarter net profit rose to $254.9 million, from $231.6 million a year earlier. Sales for the period sales jumped 16.5 percent to $8.72 billion, while same-store sales were up 11.9 percent.

      The increases were attributed to an early start of the winter flu season, which led to an increased demand for prescriptions and medications.



    • Yesterday, it was speculated that Kmart wouldn't be releasing details about its holiday performance until the end of the quarter, which still is months away.

      But then the retailer announced that it expects to generate net income exceeding $250 million for the key months of November and December despite a 13.5 percent drop in its same-store sales, to $5.1 billion, compared with $6.9 billion in the same period of fiscal 2002.



    • Starbucks Corporation reported consolidated net revenues of $532 million for the five-week period ended December 28, 2003, an increase of 26 percent from consolidated net revenues of $423 million for the same period in fiscal 2003. Same-store sales were up 11 percent.

      For the 13 weeks ended December 28, 2003, consolidated net revenues were $1.3 billion, an increase of 28 percent from consolidated net revenues of $1.0 billion for the same period in fiscal 2003. same store sales for the quarter were up 10 percent.



    • Wal-Mart Stores Inc. announced yesterday that it has authorized a new $7 billion stock repurchase program that is separate from and replaces the previous $5 billion program.

      The company said that under the previous program, it repurchased $3.1 billion in shares through Oct. 31.

    KC's View:

    Published on: January 6, 2004


    • Subway is rolling out with great fanfare two new sandwiches that are said to be low-carb and Atkins-friendly. The turkey and bacon melt and chicken-bacon combination sandwiches are wrapped in wheat-free pita bread that meets Atkins' low carb requirements.


    • The American Academy of Pediatrics has published a new policy statement opining that all soft drinks should be banned from the nation's schools as a way of combating America's obesity epidemic.


    • Gryphon Investors announced the closing of its acquisition of the Eight O’Clock Coffee Company from Great Atlantic & Pacific Tea Company (A&P). While it is now a stand-alone company, the coffee manufacturer will remain headquartered in Montvale, New Jersey, have a roasting facility in Landover, Maryland, and will retain existing employees.

    KC's View:

    Published on: January 6, 2004

    Carrefour announced that it has sold its Chilean assets to that country's D&S supermarket chain for the equivalent of about $126 million (US).

    At the same time, published reports say that Carrefour is preparing to enter Saudi Arabia with three stores opened in concert with its Middle East franchise partner Majid Al Futtaim.
    KC's View:

    Published on: January 6, 2004

    Business First of Columbus reports that as bankrupt Penn Traffic Co. gives up its leases on buildings occupied by its Big Bear stores in Columbus, Giant Eagle is expected to snap up as many as five of them as it expands in central Ohio,

    Giant Eagle already has acquired seven Big Bear locations in an auction of Big Bear's assets last month.
    KC's View:

    Published on: January 6, 2004

    The Toledo Blade reports that A&P-owned Farmer Jack, which just yesterday announced that it was pulling out of the Lansing, Michigan, market, is saying "not so fast" to reports that it also is closing its six stores in Toledo.

    The company and the United Food and Commercial Workers (UFCW) both said yesterday that no final decision has been reached…but that one would be by early next week.

    It was just a week ago that almost 10,000 employees of the chain agreed to take a five percent pay cut effective January 1, 2004.

    The United Food and Commercial Workers (UFCW) agreed to the cut as a way of helping the 105-unit chain to keep most of its stores open in the face of tough competition from Meijer and Kroger.

    The new contract between Farmer Jack and the UFCW says that the cut will be reversed in 2005, with a five percent increase in 2006 and an additional 25-cent-an-hour raise in the last six months of the contract, set to expire in July 2007.
    KC's View:
    The problem with all this dithering is that it portrays A&P as not having a long-term plan, a strategic blueprint for the survival of the division, not to mention the entire company.

    It may well have such plans. But that message is not being communicated.

    Published on: January 6, 2004

    Interesting piece in The Boston Globe about Apple Computer, as the annual convention of Mac users begins in San Francisco and CEO Steve Jobs announces his company's lineup of new products.

    One thing is certain, the Globe reports. "When Jobs begins to speak tomorrow morning, executives of the world's biggest computer and consumer electronics firms will be paying attention.

    "That's remarkable, considering that Apple holds less than 5 percent of the world's personal computer market, and is dwarfed by rivals like Microsoft Corp., Dell Computer Corp., and Japanese electronics titan Sony.

    "But market share is one thing, mindshare quite another. Under Jobs, Apple has positioned itself as the "thought leader" of America's high-technology sector, winning a reputation as one of the world's most innovative firms."

    Examples: Apple's iPod portable music player and its iTunes Music Store, both of which have the rest of the industry playing catch-up.
    KC's View:
    Sometimes, because of economic realities, dominant market share just isn’t attainable. In those cases, the best way to compete and survive is to establish thought leadership.

    Good lesson.

    Published on: January 6, 2004

    There was a fascinating interview on National Public Radio's All things Considered last week with Michael Kinsley, political pundit and the founding editor of Slate.com, in which he discussed Wal-Mart's role as the "new bad guy in American culture."

    Kinsley noted that a series of events seem to have led to the vilification of Wal-Mart: "They hire illegal aliens, they're mean to their suppliers, they're ruthless to competitors. They sort of became a symbol of the downside of capitalism." But, Kinsley said, "I'm not sure that Wal-Mart deserves this. In fact, I think it doesn't deserve this, basically. I love Wal-Mart. I love it when you get to the store and there are those old people they've hired to welcome you. And, of course, I love the prices."

    But he said that there is more than personal preference at work here. "They do push people around for the benefit of consumers. And at some point, you have to say either you like free- market capitalism, with some limits, written into law or you don't. And one of the things that got them into the most trouble this year was allegedly hiring, knowingly hiring illegal aliens. I don't know the rights and wrongs of that. Obviously, they should not break the law, and if they've done that, that's bad. But the fact that they are very tough with suppliers is good, it's not bad. It means there's lower price for us. And nobody has to shop at Wal-Mart."

    Kinsley also addressed the issue of how Wal-Mart sources so much product from abroad, and the impact that this can have on the American economy.

    "This is the eternal dilemma of free trade," he said, "which is that the benefits are very diffuse and the pain, which is very real, is concentrated in individuals who are identifiable. And we all benefit a little bit. And you can prove mathematically, almost, that free trade benefits everybody overall. But in this case, the beneficiaries are the employees and customers of Wal-Mart, who cover the economic spectrum, and especially concentrated among working poor and working lower-middle-class people. So they would be hurt if Wal-Mart didn't do what it does."

    Wal-Mart, Kinsley said, is a distinctly "American scene, and Americans shop there, and they may not like what Wal-Mart has allegedly done or has done to empty out their downtowns, but they shop there. If people weren't shopping there, Wal-Mart wouldn't build these stores just to be perverse."
    KC's View:
    We agree with Kinsley that it is just plain wrong to describe Wal-Mart as a villain in black-and-white terms. Life isn’t that simple.

    Casting the Bentonville Behemoth as a villain is the height of laziness, because it ignores the fact that so many of the company's competitors simply haven’t provided consumers with compelling reasons to shop elsewhere. We remain fervently convinced that people are hungry for new and exciting retailing experiences, and that when presented with real options, they will patronize them.

    That doesn’t mean that they will abandon Wal-Mart. But freedom of choice also is a distinctly American characteristic.

    Published on: January 6, 2004

    The Sacramento Bee reports on the process involved in the mad cow meat recall in Northern California.

    According to the story, "WinCo Foods said it had received and sold meat that since has been recalled by the U.S. Department of Agriculture because it was processed at a Washington state slaughterhouse the same day as a cow that tested positive for mad cow disease."

    The interesting thing is that the meat was sold between December 15 and December 23, but that the public was not informed about the recall until more than a week after the meat was pulled from store shelves. "That's because under a little-known agreement with the federal government, state and county health departments cannot disclose details of a meat recall. The local announcements were made only with WinCo's permission and after negotiations between the state and the USDA."

    The recall, according to the Bee, "is classified as a Class II action, indicating an extremely low likelihood that the beef contains the infectious agent that causes mad cow disease, known formally as bovine spongiform encephalopathy, or BSE."

    Just before Christmas, the US Department of Agriculture (USDA) announced the first confirmed case of Mad Cow Disease on United States soil. The disease has been widespread in Europe and Japan and has been linked to about 153 human deaths, 143 in Britain and 10 elsewhere.

    Since then, all sick or "downer" cattle has been banned from the human food chain. In addition, USDA is banning the use of small intestines and head and spinal tissue from older cattle for human consumption.

    It is known that the cow had lived since 2001 at a ranch in Mabton, Wash., a town 40 miles south of Yakima. The dairy farm is under quarantine, and USDA also has quarantined two other herds in Washington State.

    In other mad cow news…

    • The USDA announced that the month-old offspring of infected dairy cow will be destroyed, along with about 450 other calves as a safety precaution.

      The goal is to reassure both US consumers and trading partners that the government is doing everything necessary to contain any spread of mad cow disease.

      However, the government does not plan to test the slaughtered cattle to see if they are infected .


    • The Australian government expects to tell farmers there to slaughter 350 cows imported from the United States to prevent the spread of mad cow disease, as well as toughening screening of cattle more than 30 months old.


    • The Toronto Globe and Mail reports that pet food shelves in Canada are beginning to empty out as a result of the mad cow crisis - because US beef is a prime ingredient in many pet foods.

      Pet foods, even those derived from pigs or chickens, cannot be shipped from the US because of restrictions set by Canada following the discovery last month of Mad Cow Disease in the US.


    • RFID Journal reports that there is an expectation that radio frequency identification (RFID) tags eventually will be "used to track every domesticated animal from traditional livestock to the family pet. But it will take several years because a number of issues need to be resolved, including data privacy, the potential liability of those who raise the animals, and the cost and performance of RFID tags and readers.

    KC's View:
    Does it strike anyone else as odd that a meat recall like this one is given such low priority that it isn’t immediately brought to the attention of consumers? As someone said, if a trace of some item like milk or peanuts found its way into a product that was not labeled as having it, it seems like there would be a lot more concern among the consumer population.

    And why wouldn’t you test the slaughtered calves to see if they are infected? You're destroying them…why not take the next step?

    Seems to us that the government has the opportunity to take the bull by the horns…but instead, there's a different kind of bull at work here.

    Published on: January 6, 2004

    The Los Angeles Times this morning reports that the United Food and Commercial Workers (UFCW) union has filed a second suit against Kroger's Ralphs chain in Southern California, this time charging that the company has broken federal racketeering laws.

    MNB reported yesterday that the UFCW was suing Ralphs, charging that the company has been secretly hiring back selected workers under false names and Social Security numbers.

    The UFCW says that it has evidence that between 50 to 100 striking worker were secretly hired back and then told to use fictitious names and Social Security numbers or those of their minor children.

    The difference between the first and the second suits is that the latest one was brought under the federal Racketeer Influenced and Corrupt Organizations law, which provides for triple damage awards if the claims are proved.

    The strike/lockout of 70,000 employees of Ralphs, Albertsons, and Safeway's Vons employees, which is over compensation and benefits issues, began in early October. Negotiations have been fractious and infrequent; no new discussons between the two sides are scheduled.
    KC's View:
    The more this story develops, the more we think of the scene in The Godfather where Don Vito Corleone (Marlon Brando) meets with the other family leaders toward the end of the movie and says, "I'd hoped that we could come here and reason together. And as a reasonable man I'm willing to do whatever is necessary to find a peaceful solution to this problem."

    The solution, of course, is wholesale slaughter of the opposition.

    Or, it's like Michael Corleone says to Tom Hagen in The Godfather Part Two, "I don't feel like I have to wipe everybody out, Tom. Just my enemies."

    Hard to imagine the two sides in the grocery dispute smiling and shaking hands when this thing is over - not when each side wants the other to sleep with the fishes.