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    Published on: October 15, 2004

    A couple of stories caught our eye yesterday, suggesting how progressive and aggressive retailers should be thinking about the marketplace.

    Best Buy, for example, announced that it will be opening 68 stores in California that will take liberties with its traditional consumer electronics format. Two dozen of the units will be geared to small business owners, a dozen will be targeted at suburban moms, 16 will focus on family men, another 16 on affluent professionals, and 11 will play to the whims of young, ‘early adopters’ of technology. (Yes, we know that ads up to more than 68…but some of the stores will have more than one target customer group.)

    Best Buy is calling this approach “customer centricity,” and it represents a $50 million investment this year alone.

    At the same time, Apple Computer announced that it would build on its successful retail strategy by opening six smaller stores that can be placed in locations that would not support the larger version. Apple CFO Peter Oppenheimer said the smaller stores will allow Apple to reach more people in more places, though he was not specific about what features the smaller locations would have and not have. (We fervently hope they include some version of the “Genius Bar,” a wonderful innovation that serves as a place where one can both get one’s computer fixed and get unlimited access to really, really smart people.)

    The point here is pretty obvious. Customers are becoming more and more diverse, and it simply makes sense for retailers to create diverse formats that cater to different need states in different locations. It so happens that best Buy and Apple share a general category, consumer electronics, that can confound and intimidate consumers, so finding new and innovative ways to appeal to those shoppers is an intelligent way to go.

    The same, it seems to us, could be said of food – another category that can confound and intimidate consumers. It is critical that food retailers begin to take this challenge more seriously, and to start creating a greater variety of formats that appeal to different customer demographics. Too many food retailers, when asked, will say that they still want or need to be all things to all people…which strikes us as an almost certain path to irrelevance in today’s marketplace.

    The challenges of changing demographics also were made clear this morning in a Chicago Tribune story about how time-constrained women often are too busy to shop for clothes, and so are buying their clothing in at-home parties that used to reserved for products like Tupperware and cosmetics.

    These parties are designed for women to get in quickly, pick out a bunch of outfits, and get out…no muss, no fuss, and no time wasted, with thousands of bucks sometimes being spent in just a few minutes.

    Think about that for a minute, and its implications for every kind of shopping. And then think about whether the food retailers you know (or the food retailer that you are) are preparing themselves to deal with these remarkable shifts in priorities.
    KC's View:
    Incidentally, we’re privileged to have been asked to speak at the opening general session of FMI’s upcoming Retail Store Development Conference, scheduled for October 24-26 in Orlando, Florida…a conference at which we fully expect these kinds of issues will be discussed in detail and context.

    If you’re attending the conference, we hope you’ll come up and say hello; if you would like to attend but haven’t yet made arrangements, just go to:

    Published on: October 15, 2004

    Four former Ahold executives – including former CEO Cees van der Hoeven and former CFO Michiel Meurs – have been officially charged with fraud and forgery by Dutch prosecutors.

    The officials charge that by taking their actions, the former Ahold executives artificially inflated the company’s sales, thus artificially increasing the company’s stock price.

    A court date will be set next year.

    The executives avoided similar charges in the US, but apparently only because US officials bowed to Dutch prosecutors, allowing them to take the mead in indicting and prosecuting the case.
    KC's View:
    We got a lot of email on the lack of US indictments yesterday. See “Your Views” below…they said it better than we did.

    Published on: October 15, 2004

    • In Cincinnati, Kroger and the United Food and Commercial Workers (UFCW) have agreed to a contract extension, delaying any possibility of a strike.

      The old contract, which covered some 8.500 employees in the region, expired last weekend, and had been extended to today. The new extension was agreed to because of what the union described as “substantial progress.”

      The sticking point has been the cost of health care benefits.

    • The Wall Street Journal reports this morning that Safeway and Kroger-owned King Soopers have ended contract talks with the UFCW in Colorado, saying that the negotiations weren’t making any progress.

      The chains say they are preparing a "last, best and final" contract offer.

      The old contract expired on September 11, but both sides had agreed to extend it in the hope that they could come to an agreement.

      UFCW spokesman Dave Minshall told the WSJ, “This is progress...The workers have been asking for their last, best and final offer for more than a month. The fact that this offer is forthcoming means the negotiations are working.”

      Five days notice is required before a strike can begin.

    KC's View:

    Published on: October 15, 2004

    Japan has confirmed that it has identified a 14th case of bovine spongiform encephalopathy (BSE), better known as mad cow disease, in that country. It is the second case to be found in just a month.

    The announcement comes as the US and Japan negotiate over the possible relaxation of the Japanese ban on US beef imports, imposed when a single case of mad cow disease was found in the US. Japanese officials have been concerned that the US testing standards don’t live up to the Japanese standard; in Japan, every cow is tested, while in the US, only 40,000 out of 36 million cattle are expected to be tested this year.
    KC's View:
    We’ve said it before and we’ll say it again.

    The math doesn’t add up to smart policy. Japan tests every cow, and finds 14 cases to date. We test a small fraction of our cows, and remain convinced that only one cow in the entire country was infected.

    Sorry. We’re not buying.

    Published on: October 15, 2004

    The Tampa Tribune reports that when Kash n’ Karry Food Stores opens its first rebranded unit as Sweetbay Supermarkets, the new format will not accept the loyalty marketing cards that the company has used in the past.

    This is not a small change. Over the next four years, all the more than 100 Kash n’ Karry units in Florida will be shifted to the new brand identity, and the intention is to eliminate the card program as the chain focuses on freshness and variety, touting itself as a “lifestyle marketer.”

    This isn’t to suggest that the company will have higher prices in its new incarnation. Rather, according to executives, it will make its competitive prices available to everyone, not just card holders.
    KC's View:
    It is curious that some of the stories that we’ve read about this decision seem to suggest that this is a subtraction. This proves only that they don’t get it…that in fact, this is a positive move and a statement of confidence.

    It takes the courage of your convictions to make a move like this, and we applaud the effort.

    The best way to encourage loyalty in a consumer is to offer a compelling shopping experience with the products and services and, yes, even prices that the customer wants. This isn’t to say that cards are a bad idea, but for many retailers they’ve been a distraction, convincing the chains that they were doing loyalty marketing when they were just using a new method to offer coupons.

    Published on: October 15, 2004

    Starbucks has announced that it is introducing a new hot chocolate beverage dubbed Chantico (named for the Aztec goddess of the hearth), which is made from steamed cocoa butter and whole milk.

    A 6-ounce cup of Chantico has 390 calories, 21 grams of fat and 51 carbs, and Starbucks says it is a “drinkable dessert.”
    KC's View:
    And for an extra 75 cents, Starbucks will sell you a Lipitor chaser.

    Published on: October 15, 2004

    The number of overweight Americans has leveled off at 62 percent, the second year at which it has been that number, after seven years of steadily increasing percentages.

    These numbers come courtesy of the NPD Group, a market research company.

    The reason? Well, it looks like all the publicity given to the obesity problem in America actually had the effect of making people more conscious of what they consume, while at the same time creating an atmosphere in which manufacturers have started reducing product sizes and being more specific about ingredients and serving sizes.
    KC's View:
    You mean the media actually did something right?

    Go figure.

    Published on: October 15, 2004

    • Goldman Sachs has published a report saying that as Wal-Mart opens supercenters in California, its grocery prices have been consistently lower than most supermarkets, often by 10 percent or more, even as these supermarkets have cut prices to better compete.

      The study says that Wal-Mart was priced 19.5 percentage points below Stater Bros., 25.4 percentage points under Kroger, 32.8 percentage points lower than Albertsons, and 37.6 percentage points cheaper than Safeway.

      Wal-Mart’s goal is to open 40 supercenters in California by 2007.

    KC's View:

    Published on: October 15, 2004

    “Gotta dance,” the great Gene Kelly sang in “Singing In The Rain,” and the evidence seems to be that retailers today think that Kelly was playing their song.

    Take for example, Wal-Mart. Rolling Stone reports that “Wal-Mart wants every CD you buy to cost less than ten bucks. And the nation's largest retailer -- which moved a quarter of a trillion dollars' worth of goods last year -- usually gets its way. Suppliers who don't accede to Wal-Mart's ‘everyday low price’ mantra often find their products bounced from the chain's stores, excluded from being sold to the 138 million people who shop at a Wal-Mart store every week.”

    Wal-Mart currently sells one out of five albums sold in the US, though it stocks far fewer than most music stores – an average of 5,000 CDs compared to the 60,000 or so that might be carried by a Virgin Records or Tower Records.

    Or take Starbucks, which has announced that it is following through on plans to install CD-burning stations in stores in Washington State and Texas, offering latte and cappuccino drinkers a chance to create their own CDs from some 200,000 available songs. Starbucks is offering this capability through its Hear Music division, which it bought back in 1999.

    Starbucks has already been pretty successful in the music business. It recently brought out Ray Charles’ last album of new material, “Genius Loves Company,” and turned it into the nation’s number two selling album.
    KC's View:
    What’s interesting about this is that while both companies are working to make music more available to the masses, they’re coming at it from different perspectives. Wal-Mart wants to sell cheap music from a limited catalog, while the Starbucks offerings will be more expensive and the selection far more extensive. Nothing wrong with either approach…it’s just an interesting difference.

    As for us, we’re sticking with iTunes.

    Published on: October 15, 2004

    Franklin Brown, the former vice chairman of Rite Aid and one of the few former executives not to cop a plea in the government probe of conspiracy and witness tampering, has been sentenced by a federal judge to 10 years in prison, plus two years of probation and a $21,000 fine.

    The former executive’s lawyers called it a “death sentence,” noting that he is 76 years old and unlikely to survive the prison term.
    KC's View:

    Published on: October 15, 2004

    Wine Spectator reports that Yellow Tail wines from Australia have become the largest selling imported wine brand in the US – the first time an Australian wine has earned that distinction.

    Yellow Tail replaces Chile's Concha y Toro in the top spot, which it had occupied since 2000. Previous to that, Italy’s Riunite had been the best selling imported brand for a quarter-century.
    KC's View:

    Published on: October 15, 2004

    • Spartan Stores reported that consolidated net sales for the 12-week second quarter were $486.7 million compared with $491.4 million in the corresponding 12-week period last year, while second-quarter retail comparable store sales increased 1.4 percent.

      Operating earnings increased by more than 80 percent to $13.2 million from $7.3 million in last year's second quarter. The operating earnings improvement, according to a company statement, was due to a higher gross margin rate and lower operating expenses.

    • CVS Corp. reported that September total sales increased 31.6 percent to $3.28 billion from $2.49 billion in the prior year period. Pharmacy same-store sales climbed 7.9 percent, while front-end same store sales increased 2.1 percent.

      For the third quarter, total sales rose 24 percent to $7.91 billion, compared with $6.38 billion a year ago. Same-store sales for the quarter increased 5.2 percent year-over-year.

      Year-to-date, total sales were up 13.2 percent to $21.67 billion from $19.14 billion in 2003. Same- store sales year-to-date increased 5.9 percent.

    • Longs Drug Stores reported that total sales for the five weeks ended Sept. 30 increased 2.7 percent to $423.9 million from $412.9 million a year ago.

      Year-to-date, total sales rose 3.9 percent to $3.08 billion from $2.96 billion in the year-ago period, as same-store sales increased 2.2 percent.

    KC's View:

    Published on: October 15, 2004

    • Raley's announced the promotion of Kevin Curry to the position of Senior Vice President, Sales & Merchandising, responsible for managing and directing all produce, floral, meat, seafood, general merchandise, pharmacy and advertising activities. He previously served as Vice President Non-Perishables.

    • Nash Finch Co. announced that CFO Robert B. Dimond has resigned and will be succeeded by LeAnne Matthews Stewart, who was named senior vice president, chief financial officer and treasurer, effective immediately.

    • Family Dollar Stores Inc. announced the promotion of Elizabeth M. Austin, the company’s Divisional Vice President - Information Technology Operations, to the post of Vice President - Information Technology Operations.

    KC's View:

    Published on: October 15, 2004

    We got a number of emails yesterday about the US government’s decision not to seek financial penalties against the former Ahold executives who have been implicated in that company’s accounting fraud.

    One MNB user wrote:

    AMEN! That's for your comments regarding Ahold getting a walk on their fraud and negligence. Thousands of people lost their jobs and their retirement because of what these people did. It was a select few people who made the decisions and were responsible for the scandal. They should be held accountable.

    Martha Stewart can go to jail for being a little naughty...but these arrogant, selfish and greedy executives get a free pass. I am not saying that Martha was innocent, but the scope of her crime was much smaller and the people hurt were minimal.

    It's an outrage.

    And another MNB user wrote:

    WHAT???!!!!!! And Martha is IN jail???!! I am stunned speechless.

    Isn’t anyone going to revolt?? What message is the SEC trying to send us???

    Talk about a double standard!
    We agree.

    We never made the Martha Stewart connection, but it strikes us as a legitimate one.

    Economic hardship was perpetrated upon US investors, and continues to foisted upon US employees of the company. (Just ask anyone at Bi-Lo or Bruno’s, who are facing new ownership because Ahold needs to reorganize to compensate for its problems.)

    The US should have prosecuted this bunch, just as it did the former Rite Aid executives.

    And, we continue to get email about the importance of the pharmacist, a subject that was widely discussed here on MNB yesterday.

    MNB user Michele M. Bunn wrote:

    I loved the stories about the pharmacists! Using the pharmacist is extremely helpful and is a service that should and must be utilized. In MOST cases these days however, a pharmacist rarely even sees the "client" because we do not have very many "locally owned and operated" pharmacies.

    When I visited in Winnipeg, I was informed about their pharmacy practices and was truly amazed at their level of commitment to "patient care" and safety. They told me that the average rate of error on prescriptions coming into was 15% - much of it doctor error in writing the prescription, dosage levels, contraindications with other drugs, and with other over the counter medications.

    Buying prescriptions from may not only save money, but buying from a reputable Canadian pharmacy may also save your life.

    MNB user Denise Remark-Lundell wrote:

    When you come to NE Ohio to visit West Point Market, I'll take you to the Ritzman Natural Health Pharmacy in Wadsworth, OH, as well. The Ritzman family has owned and operated local pharmacies for several generations. The sons & sons-in-law of the founders are pharmacist-owners. The shop's not fancy, but the warmth of the staff and great customer service are the reasons for patronizing it.

    Several years ago they adapted parts of several stores to meet the growing requests for dietary supplements and related categories. My parents and I have shopped there for years and although I do not purchase prescriptions there anymore ( I live in another city), every time I am in town & stop there for vitamins or personal care, the pharmacists greet me & ask how my dad is, or mention that he was just in & how well he get the picture. Everyone should be so lucky to have such a terrific pharmacy with people who clearly care about each individual. For that it is worth a visit!

    Another MNB user chimed in:

    I have an excellent and long-term relationship with my Pharmacist and I still pay, on average, 50% less for my medication than my friends in the United States. What's wrong with this picture? Who says you can't have both? The drug manufacturers perhaps?

    MNB user David J. Meador wrote:

    I wish I had a nickel for every time a patient has told me he trusted my judgment because I knew more about him, his condition and the drugs he was taking than anyone else. Even with all the modern technology, that professional knowledge of what our patients are taking, their history, compliance, habits and personal aspects have yielded far better results. That's why a pharmacist is so important!

    We see people much more often in their real life environment not in a sterile, time restricted setting. Like some of the other readers said, a good working relationship with your pharmacist is essential for good health. Often times they are pressed for time, but if your pharmacist won't take the time to explain or answer questions that you need to ask, get a new one.

    And MNB user Bob Hodgin wrote:

    Not sure, but this may be one of the best blasting you have had. I’m a lot like you as I really don’t care about whom really fills my scripts. All that said, I have to admit I have been loyal to our local King Soopers pharmacy because they are just so darn nice and always wanting to help out; they have even stayed open as we were “on our way”- twice. Not only do they remember my name, many times they will have the scripts ready as they see me walking towards the counter – perhaps I visit too often, as I am either over medicated or have too many kids getting sick too often. Although, it does seem like there are 20 different people who work behind the counter which lessens the relationship value and my ability to know their names.

    Putting all the fuzzy stuff aside, if we think about the practical aspect of this, it makes valuable sense for pharmacist to nurture relationships. According to FMI/ACNielsen, HH’s filling prescriptions at a supermarket spending $3,403 annually for other products, versus $2,414 for non-fillers. Time for a smile; what retailer does not want that shopper?
    KC's View:

    Published on: October 15, 2004

    In the National League Championship Series, the St. Louis Cardinals defeated the Houston Astros 6-4, taking a 2-0 lead in the best-of-seven series.
    KC's View:

    Published on: October 15, 2004

    There’s a terrific little program on the Food Network this Sunday: “John Cleese’s Wine for the Confused,” designed to demystify the creation and selection of wine, and to do so with the kind of irreverence that you expect from one of the founders of Monty Python. We’ve had a chance to preview the show, and he does a wonderful job visiting wineries, tasting wines, and explaining the terminology that often confuses and intimidates consumers. But more importantly, he communicates the passion that many people feel for wine without ever letting it get snooty or self-important. Good stuff.

    As for what we’ve been tasting…

    The wonderful folks at Niebaum Coppola have brought out a new Rosso wine in the Francis Coppola Presents… line – a 2003 Shiraz that is quite interesting. It is lighter than a lot of other wines that go by the same name, and it took a bit of getting used to. The first couple of sips seemed rather sharp, but then it quickly mellowed out and got a much smoother texture…tasting of both vanilla and some nice spiciness. It always fascinates us to experience a single glass of wine changing as we drink it…it is constant reminder that winemaking is as much art as science, and always one of the great pleasures at the end of the day.

    Have a terrific weekend. Sláinte!
    KC's View: