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    Published on: May 17, 2004

    Thursday is an important day for Safeway and its CEO, Steve Burd. The company will hold its annual meeting in Pleasanton, California, this Thursday, at which point the level of shareholder unhappiness about Burd’s tenure will become clear.

    Concerned about poor financial performance and alleged conflicts of interest at the board level, five separate state pension funds have called for shareholders not to vote for Burd’s re-election as chairman, president and CEO. The funds believe that between 25 and 30 percent of shareholders could side with them, which could force Burd to step down from the chairman’s office – which would then precipitate the appointment of a non-executive chairman of the company.

    It was just a development at the Disney Company that forced the resignation of Michael Eisner from the chairman’s office there, though he has stayed on as president. However, Eisner lost the support of 43 percent of his shareholders…a level of discontent that is not expected to be equaled at Safeway.

    The retailer is not commenting on the upcoming vote.
    KC's View:
    It is instructive to note that just weeks after Eisner stepped down as chairman, Disney registered second quarter profits that were up 71 percent. So go figure.

    We suspect that Burd will still hold all three jobs at the end of the week…but we think that while it may be time for some sort of change at Safeway, there are both long-term issues and short-term issues that need to be resolved at the company.

    Our friend Glen Terbeek says that the problem with most retailing companies is that they spend much time, effort and money determining who the CEO should be, and precious little time worrying about who is running the stores and manning the checkout lanes – and it is the store manager and checkout person who has the most impact on the shopping experience.

    Published on: May 17, 2004

    Reuters reports that Target Corp. plans to have as many as 200 new format stores – dubbed P2004 – in operation by the end of the year, noting that these stores are more focused on consumables than its traditional supercenters.

    The P2004 units will be both new stores and remodels.

    The new format was first unveiled by Target in Colorado last October. Most of the 25 stores that Target opened in March were also P2004 units, according to the company.

    The stores are designed to offer a broader, more easily accessible selection of consumable items such as milk, packaged food and paper supplies. In addition, the format brings together items like diapers with baby furniture and baby clothing in a single department, and creates an expanded “entertainment department” that brings together electronics, music, videos, toys, and sporting goods.

    Reuters notes that while Wal-Mart has more supercenters than Target, the latter company’s sales have been growing faster than Wal-Mart in recent months. Target’s belief is that by expanding its consumables, it can continue to make up ground on Wal-Mart because it will draw people into its stores more often.
    KC's View:
    “P2004.” Sounds like the name of Arnold Schwarzenegger’s character from the “Terminator” movies.

    Target can only hope its brand of terminator is equally ruthless and efficient.

    Published on: May 17, 2004

    The Associated Press reported over the weekend about the continued expansion of the Internet grocery business, noting that “it's no longer a question of whether Internet grocery can be successful, but rather of how big it will become.” This is a marked change over the atmosphere surrounding the online grocery business just a few years ago, when was collapsing under its own weight and people were saying that the Internet would never be a factor in how food was sold.

    Among the success stories cited:

    • has doubled its business over the last 24 months, and expects it to double again this year.
    • Ahold-owned Peapod reports that it has 150,000 active customers in its system, which includes Chicago and the East Coast; by 2006, according to the report, Peapod expects to nearly double its reach, to areas serving 14 million potential households.

    • New York-based pure play Fresh Direct says that it now has 100,000 active customers, four times the number just a year ago.

    Challenges remain. The companies involved in online grocery businesses need to develop enough volume at low enough delivery changes that customers are wooed and the economics work. And not everyone is convinced: neither Wal-Mart nor Kroger have online sales capabilities in food.

    Still, Jupiter Research is predicting that online grocery sales will hit $2.4 billion in 2004, 0.4 percent of the total grocery market of $570 billion. By 2008, online groceries are expected to be worth $6.5 billion – just one percent of the estimated total market of $641 billion, but reflecting an annual growth rate of 42 percent.
    KC's View:
    The fact is that e-grocery isn’t going to take over the world…but for companies that embrace it as a weapon in their stratetic arsenals, Internet grocery shopping is going to be a strong long-term weapon.

    We’ve often thought that it is ironic that in an industry where big often slaughters small, e-grocery was to a great extent kept alive by smaller retailers – Harris Teeter, Lowes, Dorothy Lane, and the like – that saw the possibilities and didn’t lose faith.

    That’s a good lesson.

    Published on: May 17, 2004

    McDonald’s CEO Charlie Bell – who only moved into the company’s top spot with the recent death of James Cantalupo – has announced that his surgery for colorectal cancer last week was not entirely successful, and that the cancer has spread, requiring him to undergo chemotherapy.

    However, Bell said his prognosis is “very good” and that he should be back to work full-time soon.
    KC's View:
    Besides the fact that this kind of news is sobering for anyone, it has put extra pressure on Bell to create a succession plan for the company. It also has opened investors’ eyes to the drawbacks of investing too much corporate power in a single individual.

    We wish Bell the best of luck. And urge everybody in the MNB community to get a cancer screening at the age-appropriate time. We know we’re facing one later this year…and strange as it sounds, we wouldn’t miss it for anything.

    Published on: May 17, 2004

    The Denver Post looks at the expanding dollar store category, pointing out that:

    • Both Family Dollar and Dollar Tree are opening stores at the rate of one a day.

    • Analysts expect these kinds of companies to experience sale growth of better than five percent a year through 2007.

    • Two-third of US households shop at dollar stores, making an average of 13 trips per year – up from 55 percent of households making 10 trips a year just four years ago. And almost half of households with annual incomes of $70,000 and higher report shopping in dollar stores.

    • Wal-Mart has launched "Pennies-n-Cents" stores inside 20 of its supercenters, and other retailers also are launching dollar store-style sections within selected units, testing whether the concept will give their sales a jump start.

    KC's View:

    Published on: May 17, 2004

    The Wall Street Journal reports that PepsiCo’s Tropicana Products is eliminating more sugar and calories from its expanding line of Light 'n Healthy reduced-calorie orange juice. At the same time, Coca-Cola Co. is rising to the challenge, introducing a Minute Maid orange juice with less than half the calories and sugar of regular juice.

    The goal of both companies is to appeal to health-conscious consumers concerned about the sugar and calories in OJ, while simultaneously reversing a four percent decline in chilled orange juice sales over the past year.
    KC's View:
    What can you say about a society that celebrates a bunless bacon cheeseburger as healthier for you than a glass of orange juice?

    Published on: May 17, 2004

    A law firm has filed suit against Krispy Kreme Doughnuts Inc. on behalf of investors who bought shares in the company between August 21, 2003 and May 7, 2004, charging that the company failed to disclose the fact that sales were being hurt by the low-carb craze.

    The suit is aimed at both the company and its top executives.
    KC's View:
    Maybe the suit should be amended so that it only represents investors who did not read newspapers, magazines, or have access to any of the millions of media reports on the low carb craze.

    Do that, and maybe we’ll be sympathetic.

    This is just utter nonsense. Krispy Kreme has been a terrific market performer for years, but it is entirely predictable that the company might see some reverses because of current obesity concerns. Anybody who bought shares in the company over the past year had to know they were taking a risk…

    The lawyers are being greedy opportunists, and the shareholders they represent are nothing but whiny crybabies.

    Published on: May 17, 2004

    The University of Michigan's preliminary survey of consumer
    confidence for May 2004 reportedly held at 94.2, unchanged from the final readings for April.

    However, the university’s expectations index declined again to 85.8, from the
    87.3 level last month. The new expectations index is the lowest this year.
    KC's View:

    Published on: May 17, 2004

    A new study by German researchers suggests that nonalcoholic beer may offer some of the same cardiovascular benefits associated with moderate alcohol consumption. The suggestion is that that health benefits don’t come from the alcohol, but rather from other substances that are contained in nonalcoholic beer and that seem to have an impact on factors leading to heart disease.
    KC's View:
    There’s always someone out there trying to ruin everybody else’s fun.

    Published on: May 17, 2004

    The Canadian Press reports that McDonald’s Restaurants north of the border has admitted that it has not achieved its targets for reducing trans fats from its French fries, chicken McNuggets and other products, leading one legislator there to accuse the company of “poisoning” its customers.

    "It's the biggest public health risk since the war on tobacco," said minister Pat Martin. "Another generation of children is being poisoned as we speak. We've got doctors with 10-, 12-year-old patients presenting with high cholesterol. It's madness."
    KC's View:

    Published on: May 17, 2004

    • Bloomberg reports that Wal-Mart is expanding its check cashing business to 44 states, charging $3 to cash preprinted payroll and government checks up to $1,000.

      The reason for the rollout is that Wal-Mart found that when it cashed tax refund checks, it saw sales gains at its stores. The company believes that by cashing payroll checks, it can continue to build sales at its stores that reflect monthly pay cycles.

    KC's View:

    Published on: May 17, 2004

    • CVS announced that it is voluntarily re-filing the paperwork for its $2.15 billion acquisition of more than 1,200 Eckerd stores from JC Penney with the US Federal Trade Commission (FTC).

      The reason for the refilling is that the FTC apparently has some additional questions about the purchase, and needs more time to review the paperwork.

    • The US Justice Department reportedly has joined an internal investigation at Chicago’s Commodity Futures Trading Commission into whether advance information about a single US cow afflicted with mad cow disease was leaked so that traders could profit from the information.

      Investigators are looking closely at commodity trades that took place in the weeks before December 23, the date on which the announcement was made by the US Department of Agriculture (USDA) that the first case of mad cow disease on US soil had been identified in Washington State.

    KC's View:

    Published on: May 17, 2004

    • Ingles Markets announced that Robert Ingle II has been elected as chairman of its board of directors, succeeding his father and the company’s founder, Robert P. Ingle, who will continue as chief executive officer of the Company and as the chairman of the executive committee of the board of directors.

    KC's View:

    Published on: May 17, 2004

    We often have objected to the idea that Wal-Mart, the world’s biggest and richest retailer, gets tax breaks from communities when existing business get no such consideration. One MNB user has a similar thought:

    Just the other day, during a corporate meeting, we were lamenting the fact that a Wal-Mart was given tax breaks to come into a suburban neighborhood already flush with retailers. Naturally, we are one of them. If the Wal-Mart were building and creating jobs in a market where jobs were hard to find and there was a need for additional retailers, I suppose the tax breaks would make sense. However, to give breaks to the giant and no breaks to the long-established community retailers makes no sense. To give incentives to create jobs in a market that is struggling to find enough good employees as it is makes no sense.

    If Wal-Mart wants to come into our community we feel confident we are differentiated enough and good enough to compete with them. However, for government to load the giant with extra ammunition in the form of tax breaks flies in the face of all logic.

    And another member of the MNB community offered:

    It is understandable that community leaders would be concerned about losing the opportunity for economic development if in fact the cost to garner the development presents a reasonable return on investment. The curiosity that these situations stir is in understanding what firm written commitments are being made by the benefiting businesses to the communities that "invest" in their business. After all, the communities are firmly committed to their financial incentives and in fact, in many cases, are required to sink cost into the project before the actual business does. For instance, are these businesses committing back to the investor communities that they will:
    • Operate the business for a certain minimum number of years with community resident payrolls to exceed a certain minimum amount annually;
    • Utilize community based contractors and labor in construction work where such arrangements can be worked out;
    • Provide training to the community's residents so that they can qualify for the jobs to be created;
    • Provide a preference to retailers in the community for the routine procurement of their various needs such as office equipment, supplies, etc.;
    • Participate in the community's charitable causes at a certain minimum amount;
    • Provide the community with arrangements that will allow the community to participate in the growth and success of the business just as any other "investor" might enjoy?
    It would be interesting to review the actual ROI evaluations performed by our communities and the post-project evaluations that ensure that what was perceived to occur actually did occur - counting related offsetting job losses and business declines.

    On a personal level, these arrangements continue to create and perpetuate in the general public's mind an appearance of corporate greed and audacity. An odd odor is created when those who have extreme amounts of resources expect those who have little to be "charitable" in assisting them in furthering their prosperity. There was a time I believe when the equation was in reverse.

    Agreed. And “odor” is exactly the right word.

    Though MNB user Dan Jones had a different perspective:

    Paying to have Wal-Mart come to town is not all that unreasonable. Think of the local incentives like trade funds in our grocery industry. You need to spend this money to get your fair share of activity. The fact is, if St. Lucie did not spend this money, Wal-Mart could just as easily locate 15 miles away, and provide a tax base and job base somewhere else.

    Now, just like in grocery, every penny you spend in trade is not ideal. But wishing it away will not change anything. As for spending it on the company with the most money. Do you want to help Kmart, so you can have a blighted, empty warehouse in town four months after they shut the doors? Heck no - invest in Wal-Mart and the jobs will be there for years and years.

    We’re not sure that comparing tax incentives to slotting allowances is the best way to go. After all, slotting allowances and promotional fees are corrupting the retailing business in ways from which the industry may never recover.

    Regarding hikes in dairy prices, MNB user Rosemary Fifield wrote:

    I find it interesting that the responses to the rise in milk prices never mention the impact of Monsanto's cutback on the availability of recombinant bovine growth hormone. The use of rBGH to flood the market with cheap milk also put many farmers out of business; now the remaining ones, short on their artificial milk booster, aren't meeting demand.

    In response to our story about Sears coming up with a slightly less grand version of its Sears Grand format, MNB user Bob Vereen wrote:

    Sears Grand had a crazy mix of merchandise. Very powerful tool and paint sections, but hardly any hardware, electrical or plumbing--so it wasn't quite a hardware store or home center. Scattering of food, milk (in a store next to a big mall?), some clothes. As you commented, they aren't sure what they are, and in a one-story layout ala Target or Wal-Mart, they are 25 years too late.

    Sad to see.

    Responding to our piece about UK consumers saying they’d pay more for “ethical” foods, MNB user Jeffrey Johnston wrote:

    For years, a disproportionate amount of consumers surveyed have indicated they would pay more for "green" packaged goods and services, yet those percentages have never transferred to the cash register. Altruism is often trumped by price point and will not resonate any differently with the newly categorized "ethical" foods.

    And, in one of the funnier letters we got last week, one MNB user wrote the following email in the wake of our reprinting of the lyrics of “Short People” by Randy Newman:

    Okay, so let's see . . . comments about gay supermarkets bring angry letters to MNB, the printing of one reader's Spanish language swear word brings angry letters to MNB, comments about cell phone usage bring a series of rants and raves to MNB, comments about the behavior of certain executives at struggling grocery chains bring a series of arguments and virtually any comment about Wal-Mart (positive or negative it seems) brings out readers calling The Content Guy "Wal-Mart obsessed." However, not one person was offended by the reprinting of a song about how short people are horrid little creatures who have no reason to live? Yeah, I realize the song is done tongue-in-cheek. But then again, you have written other things jokingly, with clearly no ill will intended, and still some people reacted with ire. Consider me baffled. Could it be that The Content Guy is finally catching a break? Oh, right, about the short people issue . . . for the record, I'm around 6 feet tall. Didn't want to seem like I was wailing away here backed by some kind of Napoleonic Complex.

    Hey, we’re all trying to have fun here while discussing the big issues. Entertainment and enlightenment in relatively equal measures…and not necessarily in that order…that’s what we’re after.
    KC's View: