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    Published on: June 10, 2004

    Just a month after he lost out on the CEO job at the Coca-Cola Co., president/COO Steven Heyer announced that he is leaving the company.

    Heyer came to Coke as the second in command to Douglas Daft, and was generally perceived as being the heir apparent. But when Daft announced his retirement, Heyer was only one of many people considered for the job, which eventually went to Neville Isdell.

    When Isdell got the job, Heyer said he planned to stay at Coke and work with Isdell, In addition, it was believed that if Heyer quit immediately, he would receive a smaller severance under the terms of his contract than if he is pushed aside.
    KC's View:
    Conventional wisdom seems to be that Isdell wanted his own team in place, and Heyer was ready to move on to a company where he could occupy the CEO’s office – which inevitably led to a parting of the ways at mutually acceptable terms.

    Published on: June 10, 2004

    We finally got around to reading a piece in the New York Times Magazine section from last Sunday that profiled John Mackey, CEO of Whole Foods, and man who “on a scale of CEO complexity…would be off the charts.”

    According to colleagues who spoke to the NYT, Mackey is “both spiritual and calculating, forthright and aloof, humble and arrogant, good-natured and prickly. And Mackey himself does little to dispel the contradictions. He says he is pro-employee but is avowedly anti-union. He calls himself pro-customer but acknowledges that he runs a store with higher profit margins (and prices, often) than almost any other grocer.”

    The interesting thing about Whole Foods, according to Mackey, is that its shoppers are largely not counter-cultural people living “alternative lifestyles,” nor are they defined by any particular ethnicity or geography, “other than highly educated people who are willing to spend more on what they eat.”

    Rather, they are shoppers who seem to appreciate the fact that Whole Foods is trying to keep food shopping from being a chore, treats them as intelligent and discerning individuals, and understands that it needs to targeted to how people actually live as opposed to how some people think they should live.

    And perhaps equally important, according to Mackey, the company is focused on redefining how the business is perceived by both the public and the investment community. The NYT writes:

    ''’Business is always painted as the bad guys,'’ he remarks. '’They're the ones who are greedy, selfish, the ones who despoil the environment. They're never the heroes. Business has done a terrible job of portraying itself as invaluable. And it never will be accepted by society as long as business says it has no responsibility except for maximizing profits.’ Mackey's efforts at rehabilitating the good name of business have involved speaking to college students and talking up the Whole Foods ‘stakeholder’ philosophy, which emphasizes the importance of satisfying customers and employees before shareholders. His argument is that a responsible business benefits all its stakeholders, including the local community and the environment; he also asserts such a business will naturally enjoy a higher stock price.”
    KC's View:
    This is a fascinating argument, not least because it plays into the whole “business responsibility” discussion we’ve been having on MNB over the past few weeks.

    We have to say that we find Mackey’s argument compelling – that a business should be able to communicate values beyond simple value, and that contributions to the community can go beyond paying taxes and employing citizens.

    That’s not to say that every business has to take such a position. But we feel strongly that a business should not be penalized by the public markets for feeling higher responsibilities.

    It is worth noting that CIES, the global food retailing organization, has made identifying and communicating retailer values as a major priority, sponsoring a session in Dublin earlier this year on the subject and promising to focus on it some more next week at its Summit in Rome. So the argument is gaining some currency…

    Published on: June 10, 2004

    The New York Times reports on Dr. Jeffrey Friedman, an obesity researcher at Rockefeller University, who believes that concerns about the obesity epidemic in America have been overblown.

    According to Friedman, while fat people are indeed getting fatter, thin people aren’t – which means that corpulence really is any greater problem than it used to be. While he acknowledges that there is a tremendous amount of information out there about increasing obesity rates, he says that much of it is misinformation and disinformation, and is not supported by the data.

    However, there is dissent from his opinion.

    Dr. Marion Nestle, a professor of nutrition, food studies and public health at New York University, tells the NYT, "It' s one thing to talk about statistics and another to talk about what's happening to individuals. Everyone notices that there are more overweight people now."
    KC's View:
    Nestle obviously spends more time than Friedman at water parks…where it certainly seems clear that there is a growing number of fat people.

    Published on: June 10, 2004

    The Pioneer Press reports that Bob Mariano, CEO of Roundy’s, has defended the company’s Rainbow Foods operation in the Twin Cities against rumors that its sales and market share are declining.

    Since last Thanksgiving, our market share has been consistently around 20 percent,'' he told the paper, noting that "everything that I have read about our (Rainbow's) sales is off base.''

    Mariano said Rainbow plans to open at least two new stores within the next year and will renovate some of its 31 stores.

    It’s been a tough week for Mariano. He’s been dealing with the rumors about Rainbow’s sales figures as well as coping with reaction to the resignation of Dale Riley, who was running the Twin Cities operation for the company.

    Riley said he resigned for personal reasons, but the rumor mill has suggested he either quit or was fired because of the division’s poor performance in the face of competition from the likes of Cub Foods, Wal-Mart and Target.
    KC's View:

    Published on: June 10, 2004

    Bloomberg reports that HE Butt Grocery Co., which has been successful at maintaining a high growth level in Texas and fending off the advances of Wal-Mart, is planning to double its outlets in northern Mexico by building 20 new ones – which will bring it into direct competition with Wal-Mart de Mexico’s growth plans.

    “A lot of the tastes are the same on both sides of the river,” CEO Charles Butt tells Bloomberg. “Having been in the region an extended period of time and having a feel for the customer enables us to be competitive.”

    However, Wal-Mart doesn’t seem worried. “We're fully committed to continue growing in the northern part of Mexico because it's one of the most affluent areas of the country,'' Walmex spokesman Raul Arguelles tells Bloomberg. “Now that the American economy is moving and the Mexican economy is also growing again, the numbers clearly show the north is pulling the country ahead.”
    KC's View:
    It’s good for everyone…consumers, the competition, and even Wal-Mart…when healthy, vigorous competition exists. And there is no better competitor out there than HEB.

    Published on: June 10, 2004

    Global notes and commentary from

    Target has announced that it has reached a definitive agreement to sell its Marshall Field's business unit and nine locations in the Twin Cities currently operated as Mervyn's stores to The May Department Stores Company for approximately USD3.2 billion in cash. Marshall Field's is described as “a traditional department store that emphasizes fashion leadership, quality merchandise and superior guest service.” The Minneapolis-headquartered chain operates 62 stores and employs around 25,000 team members in eight states in the upper Midwest. In 2003, Marshall Field's generated revenues of USD2.6 billion.

    Target Corporation will sell nearly all of the assets directly involved in its Marshall Field's business unit, including 62 Marshall Field's stores, three distribution centres and around USD600 million of Marshall Field's credit card receivables. All workers will be offered employment by May Department Stores. Alongside this main deal, Target stated that it will close nine Mervyn’s locations in the Minnesota market and also sell these stores to May. The deal will leave Mervyn’s with 257 stores up for sale, probably (but not necessarily) as an ongoing business. Mervyn's posted 2003 sales of USD3.6 billion.

    Aside from an initial financial gain for Target and its shareholders (the Marshall Field’s sale is expected to produce an estimated after-tax gain of around USD1 billion), the disposal of Marshall Field’s is an important milestone as Target progresses on its way to becoming a more focused retailer concerned only with its rapidly growing discount store and supercentre operations. Bob Ulrich, Chairman and CEO of Target, said, "Our decision to sell Marshall Field's, though not easy, reflects our long-term commitment to create substantial value for our shareholders over time, combined with our responsibility to our team members, our guests and the communities we serve. We believe that the sale of Marshall Field's to The May Department Store Company as an ongoing business enhances the opportunity for all of our stakeholders to enjoy continued success for many years."

    The Target chain has been one of the fastest growing operations in the US general merchandise and grocery sectors and has seen Target grow to take a 1% share of the US grocery market (this may sound meagre, but Kroger only has a 4.3% share in what is a very fragmented and regionalised food sector). The freeing up of funds and management attention enabled by the sale of Marshall Field’s and the impending sale of Mervyn’s - in whole or in part - should be the catalyst for an acceleration in the development of the main Target chain in addition to the embryonic (in comparison to Wal-Mart) SuperTarget supercentre portfolio.

    Target has been impressed with its P2004 store model for its main Target chain, which has a greater share of groceries and other consumables in its product mix, and all new stores will adhere to this concept, while existing stores will be gradually retrofitted with the alignment. The extended P2004 grocery range consists of staples such as cleaning products, paper products and chilled and ambient foods, although it does not include the fresh produce or meat ranges that can be found in a SuperTarget outlet. The new format stores also feature more extensive ranges in areas such as entertainment and babycare. Combined with the ongoing growth of the SuperTarget chain – from zero in 1995/96 to around 120 units today - it seems inevitable that Target will be growing its share of the grocery market at a decent tempo in the coming years.
    KC's View:

    Published on: June 10, 2004

    • A federal lawsuit has been filed by a pair of Starbucks managers who say that the company has denied them overtime by classifying them as management but using them primarily to do the same tasks as hourly employees – saving money in the long term.

      Starbucks has denied the charges.

    • IGA announced that it has become a member of Topco Associates LLC, the privately held Skokie, Ill., based cooperative that supplies procurement, quality assurance, packaging, and other services exclusively for its member-owners, which include supermarket retailers, wholesalers, and foodservice companies.

      Topco serves as a vehicle to leverage its members' collective volume to lessen product costs and to increase effective competitiveness. Other members include companies such as Meijer, Ukrops’ Super Markets, Haggen, Schnuck Markets, Stater Bros. and Hy-Vee.

    • Kraft Foods has signed a deal with diet guru Dr. Arthur Agatston that will allow it to sell products bearing the South Beach Diet label. Terms of the deal were not disclosed.

    • As expected, Vittorio Radice, recently promoted to head Marks & Spencer’s group's menswear, childrenswear and home divisions, is leaving the company. The move, which comes as the company grapples with a takeover attempt and a new senior management, is described as a “mutual decision.”

    KC's View:

    Published on: June 10, 2004

    • Smithfield Foods announced net income for the fourth quarter of $122.7 million, versus net income last year of $5.1 million. Fourth quarter sales were $2.5 billion versus $1.8 billion last year.

      For fiscal 2004, the company reported net income of $227.1 million, versus $26.3 million in the prior year. Sales were $9.3 billion versus $7.1 billion a year ago. Fiscal 2004 included 53 weeks, while the preceding year included 52 weeks.

    KC's View:

    Published on: June 10, 2004

    We had a story yesterday about a recent poll revealing that while the public debate over outsourcing of US jobs to overseas locations has been front and center of the presidential election campaign and in the headlines, it doesn’t seem to be having much of an impact on people’s shopping behavior.

    Only about a third of respondents said they checked labels regularly to see if something is made in the US. About 54 percent of those polled said they would buy a product made in the US even if more expensive; 40 percent said they would buy the lower priced product no matter where it was made. And the “made in America” argument seems to be resonating more with older Americans than younger citizens.

    Our comment was that it used to be that younger people were the idealists, the ones who marched and protested and didn’t eat grapes and committed acts of civil disobedience while seeking a better world; their hair was long and their expectations of the world were broad…and it sounds like it might be some of these folks who are more concerned about outsourcing. On the other hand, it might be simple self-preservation, rather than an awakened sense of activism and civil responsibility, that is molding their behavior.

    MNB user Phil Censky wrote:

    As one of these so-called "younger folks" having grown up in a time of unprecedented global communication, my ideals lie somewhere with The New York Times' columnist Thomas Freedman's borderless world. The goal is an age where financial interdependence renders nuclear weapons obsolete, not an expensive defense shield; a time when we defeat bin Ladenism with economic opportunity. Especially at a time when it's "unpatriotic" to question the White House, many young idealists find the "Buy American" sentiment hypocritical and xenophobic.

    Another MNB user responded:

    ...Or maybe its "SHOW ME THE MONEY". Being 29, married to a stay-at-home mom, two kids, living hand to mouth every month, money is an (THE) issue. My wife and I made the decision to go-without to allow her to stay at home with our children. We prioritize, and right now, money (value) is more important to us. We do try to make our big purchases "Made in America", but even that is a euphemism..... I've only purchased "American" cars, but I probably would be shocked to know how many components are not made here.

    Having said all that, in several years when we are not living hand to mouth, I do anticipate the "Made in America" to have of an impact on our buying decisions.

    MNB user Charles Bartell wrote:

    Consumers need to understand the ripple effect on their household buying power from the loss of jobs. Until the media educates the public on the consequences of foreign production consumers will continue to value price over patriotism. Once consumers understand the impact, they will lobby for legislature that encourages domestic production. The pressure from the financial sector has left manufacturers little choice but to seek the lowest cost suppliers and stock to survive.

    And MNB user Brian Richardson wrote:

    Yes, Kevin, it USED to be that the younger generations were more idealistic and motivated to protest. "Used to" being a key phrase. See, now that younger generation has become the older one now, having raised the now younger generation. The now younger generation recalls growing up watching their parents protesting apartheid, while living in their white neighborhoods, wearing their Calvin Klein jeans and drinking their Rum and Cokes. They remember the protests over dolphin 'n tuna salad, while being carted around to Sea World to see the captive raised sacred cows that were once the idols of worship. They remember the Hostages in Iran, the controversy of the Berlin Wall and when people actually knew about the space program, but were then told to watch television sitcoms and not interrupt "grown ups talking".

    I don't think the new mindset is as much as "self preservation" as much as it is as preserving the family's resources so that they may be applied in a more effective way. This generation faces more credit card debt, knows less about investing and has paid for their educations on their own, many times for years after finishing school. They were taught less about finances and are focused on learning and teaching to the generation they are bringing up. There is a renaissance happening now in which we are all learning to free up our resources to reach out to our neighbors and actually help them to overcome their adversities.

    We had a story yesterday about a little town in Arkansas that can’t seem to get Wal-Mart to build a store there, which prompted MNB user Richard Lowe to come up with a good idea:

    Somebody should be enterprising in that little town. Buy their products from Sam's Club and open a store!

    We had a piece yesterday about how Safeway is using a “Mercado” store-within-a-store concept to attract Hispanic consumers in the Washington, DC, area, which prompted a member of the MNB community to write:

    You might be interested to know that a local grocery chain in this area, Harp's, is the first to turn its entire store in Rogers, Ark., into a Super Mercado to tap into the large Hispanic population here. The management said they would see how this one did before deciding whether to turn more of their stores into mercados. They are having to compete with Wal-Mart, which is in their backyard. Harp's also owns Price Cutter grocery stores and operates here and in the surrounding area.

    Interesting. You have to find a different angle on the consumer if you’re going to compete with the Bentonville Behemoth.

    In a piece about the expansion of Supervalu’s Save-A-Lot stores, we noted that stores offering an edited grocery selection seem to growing in appeal. Which prompted one MNB user to observe:

    Whole Foods says its primary advantage over Wild Oats is a broader assortment (40k SKUs vs. 10k), but I guess even 40k is relatively edited.

    Actually, “edited” doesn’t necessarily mean “less.” It just means shaped to the needs and desires of the local consumer.

    And, we finally received an email about a comment we made about watching golf on television. (We implied it was roughly like watching paint dry.)

    MNB user Jeff Davis wrote:

    Your comment on how boring golf is to watch tells me that you haven't spent much time actually playing the game. You don't have to be very good (trust me, I know) to understand and appreciate the countless nuances of the game.

    No other sport demands so much of its athletes both mentally and physically as golf does. As remarkably skilled as Tiger Woods is, it is his mental toughness and creative shotmaking that puts him above all others.

    To watch the final round of a tournament (especially a major) where two or more world class golfers are battling for the title is some of the best theater in sport.

    Not only haven’t we spent much time playing the game, we’ve never actually picked up a golf club.

    What we’ve always admired in golfers is their ability to carve out the time to play. Now, that’s mental toughness.

    Somehow on weekends, we’ve always been so busy going to kids’ baseball games, doing the grocery shopping, making a dump run, stopping at the dry cleaners, etc…that we’ve always been thrilled just to find an hour to play tennis.
    KC's View: