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    Published on: April 1, 2004

    Wal-Mart announced today that it has decided to significantly cut back on its SKU count in nonfood sections where, according to one senior executive, "it just doesn’t matter."

    The Bentonville Behemoth said that starting today, April 1, it will only carry two brands of laundry detergent - Tide, and a new private label brand, "Roy's Best Shot," which is named after founder Sam Walton's dead dog. These two brands will be carried in just two sizes apiece - a two-gallon jug, and a one-gallon jug.

    Once this roll out is completed, the anonymous executive said, the same philosophy will be applied to other categories in the traditional supermarket mix where taste is not an issue: toilet paper, paper towels, napkins, dishwasher detergent, and the like.

    "It's really very simple," the executive told MNB in an exclusive interview conducted in the deserted parking lot of a Kmart. "We think there are simply too many products out there, so we're just going to carry the number one national brand in these non-taste categories, and our own label. Do you seriously think for a moment that anyone will stop shopping at Wal-Mart because we have an edited selection in these products? No way. They will choose between the national brand and our brand, which will be about half the price."

    Asked if the company was concerned about the impact on all the other laundry detergents that counted on Wal-Mart for a significant percentage of their sales, and now could be facing financial ruin, the executive snorted. "Heck, no," he said. "If it weren't for us, they'd have been out of business years ago.

    "What none of these manufacturers seemed to comprehend," he added, "was that while everyone was worried about us putting a lot of smaller retailers out of business, they should have been figuring out how to keep us from putting manufacturers out of business."

    The spokesman said that Lee Scott, the Wal-Mart CEO, has made it a priority to apply this philosophy to taste categories such as cookies and cereal, where customers are used to a lot more choice and where taste is a prime motivator. "Lee told us that he only eats private label cookies, and doggone it, the rest of America might just have to learn to live the same way." And if that goal cannot be achieved, the spokesman said, there remains one more alternative: "We might just have to buy Kraft."
    KC's View:
    With any luck, everyone read the headline on this story and realized what today's date is.

    If not…well, we're probably gonna get a lot of angry emails.

    Happy April Fool's Day, everybody.

    Published on: April 1, 2004

    The US General Accounting Office (GAO) has called for a single food safety agency that would consolidate and streamline functions held today by both the US Department of Agriculture (USDA) and the US Food and Drug Administration (FDA).

    Calling the current setup a "patchwork system" incapable of dealing with food safety and security issues. Lawrence J. Dyckman, director of natural resources and environment for the GAO, told the House Government Reform Committee's subcommittee on agency organization that USDA and FDA don;lt feel like they have clear authority in food security areas. And he said, the system gets confused when it allows the USDA to manage the system that identified that single cow in the US that had mad cow disease, but FDA is in charge of containing the disease through the management of cattle feed issues.

    Dyckman said that if a new agency isn’t created, then Congress should consider consolidating food safety issues under the umbrella of FDA.
    KC's View:
    We would remind everybody that FMI's Tim Hammonds made this same proposal several years ago, long before there were concerns about terrorism and food safety. He didn’t get a lot of takers then, though we agreed with him almost as soon as he said it.

    The current system just doesn't seem conducive to maximum efficiency and effectiveness. Just because it isn’t broken doesn’t mean you can't make it better.

    Published on: April 1, 2004

    Global notes & commentary from…

    This last week has not been the most auspicious start for Justin King, who has just taken up the helm as Sainsbury’s new CEO, having vacated his post as head of food at M&S. Just three days before his arrival, Sainsbury’s delivered a triple whammy: the sale of its US business to Albertsons, disappointing trading results for 2003 and the resignation of Deputy Managing Director Sara Weller.

    On 26 March, Sainsbury’s announced that it had sold its US supermarket subsidiary Shaw’s to Albertsons, the fourth-largest grocery retailer in the US, for $2.5 billion. The sale will generate an exceptional pre-tax profit in excess of USD409 million in the fiscal year to the end of March 2005, with the disposal due to take place in early May. Shaw’s operates 202 stores, largely hypermarkets and superstores, around New England. The acquisition will enhance Albertsons position within the US, with an additional GBP3 billion USD5.5 billion worth of sales enlarging its business to around $42.5 billion (taking it ahead of the rapidly-shrinking Ahold and giving it a stake in the prosperous northeastern seaboard.

    Sainsbury’s has stated that it will use the proceeds from the sale to invest in its UK business with around half of the money going towards the cost of acquiring 20 stores from three retailers and the rest towards further investment opportunities, particularly in the convenience store sector.

    On the same day, Sainsbury’s revealed a disappointing set of trading results for the fourth quarter and full 2003 fiscal year. Total sales for its UK supermarket business, grew by just 1.4% last year with sales in its fourth quarter up by just 0.8%. Like-for-like sales were down 0.2% for the year and down 0.9% for the quarter, making it the worst performing grocery retailer in the UK, and the only major grocer to experience negative like-for-likes.

    Sir Peter Davis, who stepped up to the role of Chairman at the end of March, attributed this failure to attract sales to the “resumption of the Business Transformation Programme”. However, time is running out for the retailer to hide behind this weak façade, with the much vaunted three-year programme coming to an end this summer, having resulted in an overhaul of the supply chain, the implementation of new IT infrastructure and a store modernization programme.

    To top it all, Sainsbury’s is struggling to keep its top management with Sara Weller, Deputy Managing Director of Sainsbury’s Supermarkets, the latest to jump ship. Sara has been with the business for three years and was instrumental in developing a highly complex customer segmentation system designed to enable the grocer to develop new store formats based on shopping behaviour. Many of these store definitions have since been dropped with the Savacentre fiasco being the highest profile u-turn.

    Sara joins a growing list of notables to quit the company – Keith Evans, trading director for non-foods, left earlier in the month, not long after the shareholders’ revolt over a new chairman, as did Christophe Roussel, head of sourcing for non-food, who joined Tesco in December.

    Strategically, the sale of Shaw’s has been on the cards for some time now. With a US market share of 0.3%, Shaw’s represented just a toe in the water for Sainsbury’s. However, although it was never going to be more than a small regional player in the context of the entire US market, it was a key local operator, holding the number two position in New England behind Ahold’s Stop & Shop with a market share of 20%. Moreover, it accounts for a significant (16%) of Sainsbury’s total business.

    In addition to missed revenue, the sale of Shaw’s also represents a loss of shared expertise with the two companies exchanging ideas on merchandising, own labels and product ranges. Shaw’s is an aggressive and dynamic retailer, enjoying relatively good trading activity on the back of a spate of acquisitions since 2000. Whilst the acquisition represents a positive move for Albertsons’ national ambitions, for Sainsbury’s it signals a retreat from the international arena, following its withdrawal from Egypt in 2001, and a loss of status from being the 18th largest grocery retailer in the world to the 23rd, along with a resultant loss in buying power. Whilst its compatriot Tesco is busy expanding, Sainsbury’s is retreating.

    So what of the future for Sainsbury’s? It shouldn’t be forgotten that, although the retailer has lost its way over the last few years, it still has a very strong store portfolio with 307 superstores and hypermarkets, over 100 supermarkets and a growing network of convenience stores. What it needs to do is really assert itself to the consumer and carve out a clearly defined image with improved stock availability across the estate. If it is to focus on price, as Justin King has previously stated it should, then it faces the superior buying power and stronger price-led brand image of Wal-Mart’s Asda, Tesco and Morrisons. Conversely, if quality is to be its mantra then it competes with a resurgent Marks & Spencer and Waitrose, both of which are enjoying sales growth at the premium end of the market. At the moment, it is stranded somewhere in between with consumers voting with their feet to Sainsbury’s detriment.

    Although Sainsbury’s has stated that it sees plenty of opportunities in c stores, these cannot be wholly viewed as its saviour. Even for Tesco, which has stolen the lead in this market, c-stores represent just 6% of its UK business, and it is still the larger store formats which drive the operation with their potential for non-food sales and value added grocery. With its poor track record of late, King has the opportunity to turn the business around and reposition it, but the question remains can he do it whilst Davis is in place and the founding family still has such a high stake?
    KC's View:

    Published on: April 1, 2004

    The Oregonian reports that ranchers in that state who have begun marketing their beef under a brand name are experiencing strong sales increases, as consumers react to the recent discovery of a case of mad cow disease in Washington State.

    Nationwide, the paper reports, there are between 40 and 60 beef brandsm, ranging from well known names such as "Certified Angus Beef" to regional brands that are "naturally raised" without added hormones or antibiotics, to boutique labels such as Kobe Beef America.

    "The US Department of Agriculture's Economic Research Service recently launched a study to learn the proportion of beef sales that occur under specialized brand labels," the paper reports. "Agricultural economists expect that the number of brands will grow as consumers indicate they're willing to pay more for branded beef over generic."
    KC's View:

    Published on: April 1, 2004

    Starbucks has announced that it plans to open about 1,300 new stores this year, an expansion rate that is about three-and-a-half units per day, with chairman Howard Schultz saying that "the power of the brand is more evident now than ever."

    However, as The Financial Times notes, it hasn’t all been easy for Starbucks outside the US, with negative same store sales reports coming out of Japan, and conditions in Israel that forced it to pull out of that country.

    "In the US,<'' FT reports, "Starbucks's performance has been strong. It is attracting more customers by introducing new drinks and speeding up service. It is also expanding out of pure retailing by selling its branded coffees through other retailers and restaurants."

    The year seems to have started off in the right direction. February chain-wide same-store sales were up 13 percent, while total sales were up 32 percent to $288 million.
    KC's View:
    You realize just how ubiquitous Starbucks has become when you’re out of the country. When we were in London earlier this week, it seemed like there was one on almost every corner, and they all seemed to be crowded.

    Published on: April 1, 2004

    The Evening Standard reports that Wal-Mart's Asda Group, happy over the success of its first two stand-alone George clothing stores - which sell only the branded cheap-chic clothing lines that it popularized in its mainstream superstores - now plans to open two more clothing-only units.

    And, there are reports that Asda could take space in as many as 21 "Big W" stores operated by Woolworths, which is actively soliciting tenants in a large number of stores.

    The paper reports that "Wal-Mart declined to comment directly on its British expansion plans but Andy Bond, managing director of Asda and head of George, said earlier this month that the company was 'looking forward to bringing our flair for fashion and affordable prices to even more customers'.

    "Wal-Mart is flush with funds and, having recently lost the battle for Safeway, is eager to extend its UK presence."
    KC's View:

    Published on: April 1, 2004

    Knight Ridder reports that Target, which has been selling a $4 "wine cube" in select California and Florida stores (none of that annoying glass and cork to worry about), is so satisfied with sales that it plans to expand the product into stores elsewhere around the country…a move that builds on the popularity of Trader Joe's Two-Buck Chuck.

    The Wine Cube - available in Chardonnay, Pinot Grigio, Merlot and Shiraz - will also now be available in more varieties.

    In addition, the news service reports, Wal-Mart has its own cheap wine label (Alcott Ridge, made by Gallo),

    According to the Wine Institute, 35 percent of all bottles of wine sold in the United States cost less than $3. Another 35 percent, she says, are those priced between $3 and $7. Bottles that sell for more than $7 make up only 30 percent of the market - though 62 percent of the revenue.
    KC's View:

    Published on: April 1, 2004

    The Cincinnati Post reports that Procter & Gamble is "ardently courting" dollar store retailers because of statistics that show two-thirds of Americans do some of their shopping there.

    About 11 percent of the goods sold at Dollar General, for example, came from P&G - worth about $517 million in sales for P&G. And Dollar general is growing at a rate of about 13 percent per year.

    Family Dollar, which is second only to Dollar General in the category and is growing at a rate of 14 percent annually, says that six percent of its goods came from P&G, worth more than $180 million in sales.

    While these numbers pale in comparison to what P&G does at Wal-Mart - $7.8 billion last year alone - the Post< notes that the dollar store category is growing at an even faster rate than Wal-Mart, and therefore is deserving of attention.

    "It's definitely a place of growth," P&G spokesman Doug Shelton tells the Post. "It's not a place where we've focused in the past, but we plan to give it more attention in the coming years. There are some unmet needs in that category of customer and we'd like to meet some of those needs."
    KC's View:
    We would guess that the only real problem with this category is the possibility that it will drive down margins. But in the current environment, that may be the cost of doing business.

    Published on: April 1, 2004

    • The Associated Press reports that the European Union has decided to lift its ban on most US and Canadian poultry imports, which was put in place because of concerns about avian flu. However, the EU decided to keep in place restrictions affecting Texas and parts of British Columbia because of continued concerns about outbreaks there.

    • Supervalu announced it will sell its minority ownership interest in WinCo Foods, Inc., a privately-held regional grocery chain that operates stores in Idaho, Oregon, Nevada, Washington and California. The deal is expected to net Supervalu after-tax profits of about $150 million.

    • While JC Penney hasn't yet sold its 2,700-unit Eckered drugstore chain - it continues to negotiate with the likes of CVS, Rite Aid, and Canada's Jean Coutu Group - it has decided what it considers to be a fair price for the entire chain: $4.37 billion.

      Penney disclosed its valuation of Eckerd in a filing with the US Securities and Exchange Commission (SEC).

      The possibility remains that Penney could sell the chain in pieces to achieve maximum value.

    KC's View:

    Published on: April 1, 2004

    Regarding Albertsons' new self-scanning system, we got the following email from an MNB user:

    Went to the Albertsons in Richardson, TX today and tried the new scan system, it was a good experience. Let me say that I am a distribution type so I embrace technology in a more positive manner than the marketing people. (Could not resist that cut.)

    The employees that get you started did a very good job of explaining the process, I was comfortable in using the process. Produce was cumbersome but then produce has been cumbersome my whole working life. You have to enter a sku at the scale station and it will determine if it is by the pound, or each, and issue you a bar code to be scanned. All of the safeguards seem to be in place, but who knows.

    And MNB user John B. Lightfoot wrote:

    It may be news that Albertsons is testing the concept but the concept isn't new. The Albert Heijn organization, in the Netherlands , tested the idea of consumer self scanning on shopping carts at a then-wonderful 'new idea' filled supermarket in Tilburg,in the late 1980's.

    True. Superquinn in Ireland also is using it. But it's fairly new for the US market.

    MNB user Betsy Fiske of Lodi, California, ha dsome thoughts about a favorite topic around here:

    I'm appalled by Wal-Mart's business practices. They are currently trying to strong arm their supercenter into our city of 60,000 people. They already have a regular store (approx. 120,000 SF) on the corner opposite of where they want to build the 220,000 sq. ft. Supercenter. There is a Food4Less grocery store in the same shopping center as the current WM store. The owner told the city council that he will be closing that store if the WMS opens. That would leave a huge empty space in that center, especially when you consider that once the superstore opened, the current WM would be closed too (or used as a warehouse).

    My group, the Small City Preservation Committee, filed an initiative petition with the city clerk yesterday. We want to limit retail building size to 100,000 sq. ft. We're hoping to get the initiative on November's ballot but we're working against the clock.

    WM plans to open at least one supercenter in Stockton, just 11 miles or so away from Lodi. Talk about world domination!

    In response to Kmart's suing 500 towns, cities and governments over property tax issues, one MNB user wrote:

    This sounds to me like nothing more than what they have done to the vendor community; wear them down with abusive claims and deductions. See what "sticks against the wall and what doesn't."

    And another member of the MNB community wrote:

    You're comment is right on the money. However, you missed one other point. While K-Mart's actions are wrong with suing these small municipalities, a lot of the blame goes to the attorneys who just keep "churning" the fees. Their job is to advise their client. What they advise their client is to keep suing so it lines their pockets. Very similar to Kirkland & Ellis law firm in the Fleming case. At the end of the day the only winners are the attorney's, accountant's and so-called re-structuring specialist.

    We got a couple of responses to our OffBeat column piece about Delhi Brasserie in London. MNB user Lisa Everitt wrote:

    Husband and I wandered into Delhi Brasserie entirely by chance, back in 1999, and had an excellent meal. Good to hear it's still in top form. Did you notice the Blue Plaque on the house across the street? John Logie Baird invented television there….

    Hoist a pint of Guinness for me.

    And another MNB user wrote:

    A good meal in London? That may be your most shocking statement yet!

    Hey, don't knock the Brits. We actually like the food there.

    Yesterday, we ran an email from MNB user John Phillips that was critical of our attitude. It said: Maybe the fact that you are in London is the reason you continue to have trouble understanding and appreciating what Wal-Mart has done for the U.S. economy.

    Well, another MNB user has leapt to our defense. Sort of.

    Note to John P…

    It's not that kc doesn't appreciate what Wal-Mart has done for the economy because he does. He just has trouble understanding that they did it by doing everything that the Jesuits taught him were wrong to do. And believe me, it is very deep. He even read "Made in America" and that teaching made him miss most of what Sam said in his book. So, just feel pity on poor KC and keep reading the column so we can keep him on his toes.

    As long as y'all keep reading…
    KC's View: