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    Published on: May 21, 2004

    Safeway’s president/chairman/CEO, Steve Burd, was reelected to the company’s board of directors with 83 percent of the shareholders’ vote, surviving an attempt by dissident shareholders to force him to relinquish at least some of his power.

    The dissidents, led by a number of public pension funds, had been campaigning for some two months to get a non-executive chairman of the company who had no ties to Burd. The company, however, had resisted the entreaties, saying that the pension funds had ties to organized labor, with which Burd and the company have had a contentious relationship.

    A proposal to split the role of chairman and chief executive received only 33 percent of the vote. In addition, two other members of the board targeted by the dissidents - Robert MacDonnell and William Tauscher – were re-elected to the board.

    The dissidents seem unwavering in their belief that changes are needed. "Shareholders will not tolerate board policies and management decisions that delay or obfuscate the serious and substantial corporate governance changes that are desperately needed," a group of state and city officials from New York, Connecticut and Illinois said in a joint statement.

    The Seattle Times reported that the two sides had different spins on the Safeway annual meeting.

    “The outcome shows ‘overwhelming support for Steve's leadership,’ said Chief Financial Officer Robert Edwards. ‘We believe shareholders support the strategy we are pursuing and believe we have the right senior-management team to carry out the job.’

    “Pension funds in New York, Connecticut and Illinois, which are critical of Burd, issued a statement hailing the vote as ‘a victory of substance over illusion.’

    "’I hope the company doesn't go back to business as usual,’ said Bill Atwood, executive director of the Illinois State Board of Investment.”

    And the antipathy between Safeway and organized labor shows no sign of diminishing.

    According to a report from Reuters, Matthew Hardy, a United Food and Commercial Workers spokesman, said “if the company keeps its tough bargaining stance, 30,000 union workers in Northern California were willing to strike when their contracts expire in September.” Hardy said that the Northern California union members are “not willing to accept the kind of cutbacks workers in Southern California recently agreed to” after a four-month strike.

    However, it seems likely that those are exactly the kinds of cutbacks that Safeway will be looking for…which means that the stage is being set for another long and hostile labor dispute.
    KC's View:
    Seems to us that no matter how they spin it, Burd won and the dissident shareholders lost yesterday. The open question is whether Burd’s survival will mean an eventual win for the company and its shareholders, or whether yesterday’s events are a harbinger of continued loss – or market share, of profitability, of stature.

    We’ve never felt that the unions are making legitimate demands of chains like Safeway, since they often seem to be negotiating as if there were no Wal-Mart, were no heightened competitive pressures facing the chains.

    But chains like Safeway seem to be negotiating as if this is the prefect time to redress old wrongs and get as much blood from the unions as possible. Safeway and Burd seem particularly vulnerable to charges that they are scapegoating labor because of the mistakes they’ve made with acquisitions like Genuardi’s and Dominick’s that have nothing to do with labor.

    It’s a tough problem. Safeway and Burd don’t seem to realize that a retailer’s success emanates from the sale floor, not the executive suite; the unions don’t seem to understand that they need to make some concessions in order to help chains like Safeway survive.

    Ultimately, both sides are wrong and myopic and seemingly incapable of making the business model changes necessary for both to survive. But until they forge some sort of new relationship – call it a partnership – the disputes will only get uglier and competition like Wal-Mart will only gain ground at the mainstream supermarket industry’s expense.

    Published on: May 21, 2004

    A front page story in the Wall Street Journal this morning report on the enormous challenges facing companies like Kraft Food, which while a giant of the processed food industry has found it increasingly difficult to match its priorities with consumers’.

    Kraft has to deal price pressures from Wal-Mart, as well as the steady increases being shown by private label brands in mainstream supermarkets. But, as the WSJ makes clear, the real issue seems to be that as consumers moved in one direction, the company was moving in another.

    One example is the fact that Kraft continues to focus on processed foods like its Macaroni and Cheese, while consumers have been looking for low-carb options consistent with the demands of the Atkins Diet and its brethren. In addition, one of the segments of the grocery industry showing the greatest strength is the natural foods category, as evidenced by the numbers generated by companies like Whole Foods and Wild Oats – and yet Kraft does not manufacture many products that appeal to this segment of the population. “To capture a portion of that growth,” the WSJ reports, “the food behemoths are being forced to upend old business models, find new suppliers and rapidly improve the ingredients and quality of their products.”

    The WSJ writes, “For Kraft, the nation's largest food company, keeping up with consumers' rapidly changing tastes has been especially tough. Four years ago, Kraft made a big bet on high-fat snacking when it purchased Nabisco, the nation's biggest maker of cookies and crackers. The timing was terrible: The deal was made just as consumers were becoming obsessed about obesity and other food-related health issues.”

    And, while companies like Kraft have made efforts to buy their way into the health/natural/organic world, their successes have been mixed.
    KC's View:
    Of course, it is hard to feel too sorry for Kraft. The company reported $31 billion in sales last year, and says it still helps fill pantries in 99 percent of US households.

    But the times, they are a’changin. And keeping up with those changes is increasingly difficult for enormous companies that have seen and defined the world one way, but are finding that some of their assumptions and predictions may have been faulty.

    This isn’t just a manufacturer issue, though. The same observations can be made of retailers, many of which are still operating on antiquated views of the consumer world. The one that are doing so are fairly easy to identify – you walk into their stores and see units that have changed only cosmetically over the past decade…there are new departments and categories, but you don’t get the sense that the sensibility has changed.

    Until these changes take place – and for many, they will be seismic in nature – many in the mainstream supermarket industry will continue to find themselves treading water but slowly slipping beneath the water level.

    Published on: May 21, 2004

    The Chicago Tribune reports on how Caribou Coffee is trying to put to rest a two-year-old rumor spread over the Internet that the company is linked to Islamic terrorists.

    Michael Cole, the company’s chairman/CEO, tells the paper that the rumor hurts the company in communities with heavy Jewish populations, and that these kinds of rumors are hard to kill. "Things on the Internet don't go away,” he tells the paper. Some of the company’s stores have seen sales declines of better than a third as the rumor has gained momentum.

    There are some specific issues for Caribou. The company currently has 250 stores, and would like to grow that to 400 by the end of next year – but the existence of the rumor and the innuendo that it creates about the company could threaten those plans.
    KC's View:
    This is the downside of the Internet – the same technology that makes it possible to spread legitimate news and opinion also makes it possible to spread vicious lies and rumor.

    We wrote in a different context yesterday about the problem of differentiating truth from fiction on the Internet, and this is yet another example.

    Our sympathies go out to Cole and Caribou. If we knew how to help them, we would.

    Published on: May 21, 2004

    The Detroit Free Press had an interesting interview this week with Joseph Hansen, international president of the United Food and Commercial Workers (UFCW), in which he observed that “the UFCW sees Wal-Mart as not just a problem for the UFCW. We see it as a problem for all the workers in America. Wal-Mart claims to be about low prices, but when you look hard at what the company is, it's low wages, no benefits, high turnover. It's turning our economy into a Wal-Mart economy. We're going to have a low-wage, no-benefit economy, and we're slowly but surely, and in some cases not so slow, we're being driven down toward the bottom. It's not good for our country.”

    Hansen conceded that consumers want the low prices that Wal-Mart appears to offer, but said that “the regular grocery stores can match them in prices, can match them in efficiency, maybe not in everything. But people have to look at what those low costs bring. They bring lower wages and a lower tax base to the community. Wal-Mart shoves some of the services that other employers provide, particular health care, off onto the community. That's what you get with the low prices. You might save a dollar, but you're threatening your own job and you're certainly creating a worse situation for your own community.”
    KC's View:
    The problem, of course, is that grocery stores can’t match Wal-Mart without help from the unions. Conversely, the unions aren’t going to help the chains unless they’re given compelling reasons to do so. And in many cases – and we’re getting sick of making the same point – both sides continue to fight old battles instead of creating new and mutually beneficial relationships.

    What’s also instructive about the Hansen interview is when he says that the four-month Southern California strike/lockout isn’t really over. “There was so much consumer support for what we were fighting for, and what we were fighting for basically was affordable health care and we think we won that fight,” he says. “But the end result of that is that those companies still have not recovered. That hurts them and it also hurts our workers. So the end result of the strike is possibly a draw, but it's too early to tell. We ended up with a new wage structure for new employees that is less than the current employees. What it really does is build in another problem for the next= contract three years from now.”

    Not to mention the Northern California negotiations later this year.

    Published on: May 21, 2004

    Reuters reports that the Canadian government is considering imposing controls on Internet pharmacies based there that ship US-made medications back to the United States, whether through limits on the specific medications exported or by putting export taxes that would discourage such shipments.
    KC's View:
    It’s interesting that the Canadian government would be considering such controls at the same time as the Bush Administration, facing a potentially tight presidential election, seems to be backing off its long-held objections to reimportation of medicines from Canada.

    At the same time, a major GOP opponent of reimportation, Minnesota Sen. Nor Coleman, has aid that he would favor legalization the import of medicines from Canada if safety provisions are included that would satisfy Food and Drug Administration (FDA) concerns.

    It also comes just after the release of a study suggesting that if the US government were to legalize the import of medications from Canada and all U.S. residents bought their prescription drugs from Canada, that nation's supply would be exhausted in 38 days. In addition, if just half of the elderly in the USA were to buy drugs from Canada, it would have to boost its drug supply by 2.5 times.

    Does anyone else get the impression that this all may be more about politics than safety and cost?

    Published on: May 21, 2004


    • Publix said that consumers who used debit or credit cards at its stores on May 12 were accidentally double-billed because of a computer error, but that all the affected shoppers have been paid back.

      While some consumer advocates said that the chain should have contacted the consumers directly rather than dealing with the credit/debit card companies, Publix responded that it does not track customer purchases or personal information, and therefore needed to work through the financial organizations.


    • Burger King is introducing a series of posters in its restaurants that detail the nutritional content of its various menu items. Analysts say that the posters are the most public such effort by a fast food chain.


    • ”Buy me some peanuts and Cracker Jacks…”

    • The state of New Jersey has ordered Costco Wholesale Corp. to sell gasoline even to members of the public who do not hold memberships to its stores.

      According to published reports, it is against state law to restrict fuel sales to members. Costco has only two gas stations in NJ, while it has 11 stores; it has been selling gasoline at roughly a dime less than most local stations.


    • Except at Yankee Stadium, where the team has replaced the traditional ballpark snack with Crunch ‘n Munch. Yankees management says that they made the change when Cracker Jack became available only in bags, not boxes – and that Cracker Jack “is just a brand name.”

      Which may be like saying that there is no difference between the Yankees and the Mets, and that “Yankees” is just a brand name.

    • Published reports say that a strike by Norwegian brewery workers and truck drivers threatens to dry up the supply of beer in Norway. Not only will there be no domestic beer available for consumption, but it won’t even be possible to get imported beer into bars and onto supermarket shelves.

    KC's View:
    Sounds like the Norwegian winter is going to last longer than expected.

    Published on: May 21, 2004


    • Hormel Foods Corp. posted second quarter net income of $53.7 million up 59 percent from $33.8 million a year earlier. Sales rose 14 percent to $1.14 billion.

    KC's View:

    Published on: May 21, 2004

    The debate about e-grocery continues, and now we hear from someone who knows something about the subject - Joe Devine, who is the chief technical officer for Safeway.com:

    I have only one input regarding negative commentary about e-grocery and it's potential for profitability.

    Tesco.com - they made about $40M in PROFITS last year, most if not all of it from the grocery side of their e-commerce business. Delivering groceries to your home, with all the trials and tribulations associated.

    How people can still debate whether a company can be profitable doing this is beyond my comprehension - perhaps we're too US-centric in our scope.


    We think that this is absolutely true. And besides, the consumers of the future are going to demand online shopping and home delivery



    Also, we got a number of emails yesterday about the introduction by Delhaize of a new line of private label products under the name “365.”

    MNB user Frederic Arnal wrote:

    I imagine Whole Foods Markets will take a dim view of this development. They have a very successful brand called 365 and 365 Organic. They also are in Europe with 7 stores in the U.K. Even the brand's position point is similar. What is Delhaize thinking? Is it possible they weren't aware of this? I hate to think that this is the egregious rip-off it seems to be. Maybe it came to them in a dream.

    Another MNB user wrote:

    365 in Belgium...? Wonder what Whole Foods Market will think about that?

    MNB user Cindy Lee Weber wrote:

    It is true, there is no original thought…Whole Foods has 365…

    And MNB user Denise remark wrote:

    Whole Foods has been doing a "365" EDLP program for several years now. I guess the old saying "plagiarize & localize" works no matter what industry you're in!

    If they didn’t know it before, they know it now.



    MNB user Bill White wrote us a long email, posted yesterday, about the nature of competition and the influence of Wall Street on Main Street.

    Which prompted another MNB user to respond:

    The letter from Bill White is one of those that as you read along, you think this guy "hit the nail right on the head" ! That is until posing the question at the end, How did we as an industry allow this to happen?

    WE as an industry didn't allow it to happen. WE as CONSUMERS allowed it to happen. We can all help "mom & pop" by making the effort to shop at there stores. You don't have to go there and load up the shopping cart with a weeks worth of food to accomplish it either. During the summers here in Wisconsin my wife and I make it a point while traveling to seek out the small independents and stop in and see what we can come up with for a picnic. You might be surprised how relaxing lunch can be, when eaten under a tree in a park instead out of a bag on your lap!

    So, the next time your travels happen take you by a fading IGA or Red Owl sign, stop in, and make a difference ! And don't wait until next time. The next time you go by, it might have already have been replaced by a bright shiny new FOR SALE sign.


    That’s a fair statement, but we would point out that a “fading” sign outside of a supermarket says a lot about the store inside. And that’s often why people don’t stop.




    Finally, in response to our story about the difficulty separating fact from fiction on the Internet, one MNB user wrote:

    I just wanted to acknowledge and thank you for your commitment and willingness to speak up to the importance of not simply passing along information that may or may not be true. Too many people in today's world with the speed of the internet, faxes and day to day life are simply passing along things that are NOT true, which only fuels the fires of mistrust and separation. Taking ownership for what is shared may slow communication down, even eliminate much that is spoken about, but ultimately will enhance the quality of content, relationships, and the world we live in. Thank you for not only upholding this responsibility yourself, but also making it aware to others that we ALL have a choice.
    KC's View:

    Published on: May 21, 2004

    We had the chance to spend a “guy weekend” with our 17-year-old son last week; he’s an actor/filmmaker who is graduating high school in a few weeks and then going off to college, so it was a great chance to drive up to Boston (where David will be going to school) and just hang. And, because he loves the movies, we ended up seeing three of them in about 36 hours…which was just fine with us.

    • Kill Bill Vol. 2 actually is far superior to the blood-fest that made up Vol. 1…it is beautifully photographed (especially the black and white sequences), nicely acted (there are wonderful performances by Uma Thurman and, go figure, David Carradine), and is a very stylish exercise. We still think that director Quentin Tarrantino is a little too in love with style at the expense of story…but he’s still about the most imaginative filmmaker out there. It’s not for the faint of heart, but “Kill Bill Vol. 2” is exciting movie-making.


    • Troy is an old-fashioned epic bolstered by the magic of modern digitization. At one point, it looks like there are a thousand Greek ships sailing for Troy…you know it was done by computer, but that doesn’t make it any less impressive. That said, “Troy” could have been a soulless movie…but it isn’t. It manages to weave an interesting political/military story with some interesting character performances – especially by Eric Bana as Hector, Brian Cox as Agamemnon, and Peter O’Toole as Priam. Brad Pitt manages to bring some life to the central and yet underwritten character of Achilles. It’s not a great movie, but it is good. And since it is a version of the “Iliad” as opposed to being some mindless sequel to a teenie flick, you have to be thankful for small favors.


    • Van Helsing is absolute rubbish. It belongs to the Crash and Smash school of filmmaking…no heart, no soul, no real characters, no story, and no reason to exist.


    Have a good weekend. (We're going to see "Shrek 2.")
    KC's View: