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    Published on: November 23, 2004

    Bloomberg reports this morning that Wal-Mart Stores has indicated that it will allow its employees in China to set up and join organized trade unions.

    ``Should associates request formation of a union, Wal-Mart China would respect their wishes and honor its obligation under China's Trade Union Law,'' the company said in a faxed statement. “Wal-Mart is currently in full compliance with China's Trade Union Law, which states that establishing a union is a voluntary action of the associates, Currently, there are no unions in Wal-Mart China because associates have not requested that one be formed.”

    Wal-Mart, which views China as an enormous potential market, has faced criticism from trade unions in China for what has been perceived as an anti-union stance…which, of course, is consistent with the company’s position elsewhere in the world.
    KC's View:
    Could this be the first domino to fall? After all, if Wal-Mart workers in China can be unionized without resistance, why not its Canadian employees? Or California workers?

    Actually, we doubt that this will have any pervasive impact on Wal-Mart’s operations. The difference between China and elsewhere is that trade unions are a significant factor, deeply entwined in the work life of the nation…as opposed to his country, where they are to a certain extent disorganized and to a great extent struggling for relevance.

    Published on: November 23, 2004

    The Seattle Post-Intelligencer reports that Kroger-owned Fred Meyer is the target of a lawsuit alleging that it has been manipulating its weighing procedures and overcharging customers for years for meat, seafood and poultry. The suit says that the overcharging, while taking place in minute amounts, could add up to $1 million or more a year.

    The suit was filed in King County Superior Court and seeks class-action status.

    In a statement released yesterday, Fred Meyer officials said: "We consider honesty and integrity to be our company's most important assets. We are committed to a 100 percent price accuracy for our customers. Fred Meyer has strict guidelines and policies in place for ensuring that the price per pound charged to customers is accurate."
    KC's View:

    Published on: November 23, 2004

    Charlie Bell, who ascended to the CEO job at McDonald’s last year when Jim Cantalupo died unexpectedly, has himself resigned from the company because of the need to focus on his battle against cancer.

    Jim Skinner, currently vice chairman, has been elected Chief Executive Officer and a member of the Board of Directors, effective immediately.

    Mike Roberts, currently CEO of McDonald's USA, was named to the position of President and Chief Operating Officer and a member of the Board of Directors. Roberts will report to CEO Skinner, also effective immediately.

    McDonald’s Chairman Andrew J. McKenna said in a statement, “Charlie is a remarkable leader and well loved by the McDonald's family, and we fully understand and respect his decision. On his behalf, he has asked me to thank everyone who is reaching out to him with thoughts and prayers. Your support and empathy are sources of inspiration and courage to Charlie, and to all of us at McDonald's.”
    KC's View:

    Published on: November 23, 2004

    Interesting piece in the Sacramento Bee about two California companies - Raley’s and Nugget Markets – that are working hard to create stores that will appeal to consumers who have an ever-expanding number of choices from which they can buy their food.

    “Eric Stille, president of Woodland-based Nugget Markets, thinks romance will sell peanut butter,” the Bee reports. “Design grocery stores with a rustic European feel, zero in on fresh foods, then entice customers with fine wines, rare cheeses and trendy fare prepared by in-store chefs.

    “Bill Coyne, president and chief executive officer of Raley's in West Sacramento, thinks targeting families is the ticket. Design bright, friendly stores, tout quality meat and produce, then top it off with hearty grab-and-go meals.”

    The key, according to the Bee, is for companies like Raley’s and Nugget not to focus on Wal-Mart as the source of their problems, but rather to understand that everyone is getting in to the grocery business, and that they have to make supermarket shopping a more meaningful, relevant experience. “Forward-thinking grocers are asking what their customers need, not merely what they will buy,” the paper writes. “High on the list: convenience, healthy foods, low prices and a pleasant store experience.”

    “We want to make the shopping environment fun," Nugget’s Stille tells the paper. “Coming here needs to be more of an event than a chore." The Bee writes, “At Nugget Market in West Sacramento - the newest of six in the chain - customers stroll through a two-story atrium into a produce section lined with striped awnings and hand-painted murals on rustic brick. Wine connoisseurs seek advice from steward Rico Morisi about the 1,200 varieties in stock, including a $300 bottle of French Bordeaux” – while trying to stay competitive on basic groceries.

    Raley’s takes a different approach, emphasizing “its community ties with its Play Centers for children and free event centers for community gatherings. The company moved into the convenience sector last year with its Aisle 1 minimart, fuel station and car wash. "One of our key focuses is to stay in sync with needs of our customers. It's the big reason we started that program," Coyne tells the paper. "And it's a continual challenge, because customer needs change very rapidly."
    KC's View:
    The great thing about this story is that it makes the point that a $300 bottle of Bordeaux isn’t the only way to differentiate the shopping experience – which is a mistake that too many retailers make.

    Differentiation can come in a wide variety of colors, flavors and forms. What it takes is ingenuity and ambition, not an upscale customer base. And it takes retailers who respect and understand their customers, appreciating the fact that the bottom line is best bolstered by happy customers, motivated employees and a compelling shopping experience – not by labor cuts, edited grocery selections and a belief that one can save one’s way to prosperity.

    Too many retailers think that the green eyeshade is the symbol of the modern supermarket. They should toss away the eyeshades and remember than an apron is a far better, more productive symbol.

    Published on: November 23, 2004

    The National Institute on Aging has released a new study suggesting that the number of obese Americans has doubled over the past two decades – meaning that childhood obesity isn’t the only weighty problem facing the nation.

    The number of Americans between the ages of 65 and 74 was 18 percent in 1980, and hit 36 percent by 2002. People of that age who are just plain overweight also increased – from 57 percent in 1980 to 73 percent in 2002.

    Despite the increase in older people’s waistlines, they seem to be healthier than ever. In 1900, the average 65-year-old was expected to live to 77; a century later, that same 65 year-old was expected to the early eighties. The average 85 year old in 1900 was expected to live four more years, while a century later was expected to live six or seven more years.
    KC's View:
    (Apologies to Dean Wormer for the paraphrased headline…)

    What strikes us about this study is that in more than 100 years, with all the medical advances and technological changes that have taken place, all that has been achieved is an extra four of five years at the end. Can’t we do better than that? If you’d asked us before we read the story, we would have guess that the average lifespan would have been a dozen years longer, or more.

    Of course, when you’re 77, another three or four years probably sounds like a pretty good deal.

    Published on: November 23, 2004

    The Wall Street Journal reports on the major trends affecting the beverage industry and the major players within it:

    • Both Coke and Pepsi seem to believe that there remains a role for mid-calorie colas such as C2 and PepsiEdge, even if the category is a long-term niche as opposed to a short-term blockbuster.

    • Sucralose, a sugar substitute marketed as Splenda, is the hot sugar substitute of the moment.

    • Alcohol marketers are looking into ways to make their products lower in fat – ranging from low-carb wine to diet White Russians.

    • Consumers are increasingly paying attention to health claims made by manufacturers.

    • Coke is depending on its new upper management to reverse the company’s fortunes.

    • Expect an increase in advertising spending, as Coke and Pepsi are both depending on new ad campaigns to improve their images among consumers.

    • There seems to be a declining interest among consumers in beer, which will provoke beer companies into finding ways to reverse this trend.

    • High-end products are where the money is.

    • Major manufacturers are expected to engage in a period of corporate and global consolidation.

    • At a global level, consumers can expect to see new and expanding government restrictions on alcohol sales and consumption.

    KC's View:

    Published on: November 23, 2004

    American food shoppers are increasingly focusing on their diets to achieve good health, and they believe healthful eating is the best way to manage illness and prevent health problems later in life, according to a new report released today by the Food Marketing Institute (FMI) and Prevention magazine.

    The study, Shopping for Health 2004, also shows that consumers are paying more attention to nutrition labels, purchasing more organic foods for health benefits and taking a greater interest in health and nutrition news.

    More than one-third (34 percent) of shoppers surveyed believe they have a healthful diet and 55 percent say they are trying “a lot” to eat more healthfully. Fifty-nine percent want to lose weight, but they have different objectives for doing so. The majority (77 percent) wants to prevent health problems later in life. Other reasons: manage current health problem (54 percent); boost self-confidence (44 percent); and to look younger (20 percent).

    In addition, more than half of shoppers (56 percent) strongly agreed that eating healthfully is a better way to manage illness than taking medications and 59 percent claim to be eating healthfully so they can avoid health problems later in life. In fact, 74 percent report treating themselves first before seeing/calling a doctor. Interestingly, forty-six percent report that they have become less trusting of the advice of health professionals in the past year.

    Forty-six percent of shoppers surveyed said want their store to offer a greater quantity of nutritious prepared foods; 45 percent are seeking more foods without trans-fatty acids; 40 percent want more low-fat foods; 39 percent want more low-carb choices; and 36 percent would like their store to provide more information about weight loss.

    “This country’s obesity crisis has alerted shoppers that they need to take control of their health by taking charge of their diets,” said FMI Director of Research Anne-Marie Roerink. “In addition, they are increasingly looking to their local supermarkets and other food retailers for effective, long-range solutions.”

    Prevention Corporate Director Advertising and Trends Research Ed Slaughter said, “Today’s consumers are more aware of diet and nutrition, and they express a strong desire to live a healthier lifestyle than they do now. Trouble is, they remain confused by the numerous claims about what exactly healthy means.”

    Other results from the survey: 83 percent of shoppers regularly look at the Nutrition Facts chart when buying a product for the first time, and 91 percent will make a purchasing decision based on this information. More than one-fourth (26 percent) has decided against a purchase in recent months because of product labeling information. Sixty-three percent seek food promoted as “low fat”, 62 percent seek food promoted as “whole-grain”, 52 percent seek foods promoted as “low-calorie”, and 48 percent seek food promoted as “low-salt-sodium.”

    While consumers appear to have specific needs and interests in this area, there also is a certain amount of frustration, with nearly 60 percent of shoppers believe there is too much conflicting information in coverage of nutrition issues, particularly what constitutes a healthy diet, and 30 percent feel the confusion contributes to an unhealthy diet.

    Perceived high cost also is an issue: 34 percent claim the high cost of healthful foods is a major reason their diets are not better.
    KC's View:
    These are all enormous opportunities for retailers and manufacturers. These numbers portray a consumer who is smart and wants to be smarter, and who is looking for greater amounts of information and insight that can guide them in their shopping and eating habits.

    Somebody tell us why, if 83 percent of shoppers regularly look at the Nutrition Facts chart when buying a product for the first time and 91 percent will make a purchasing decision based on this information, putting Country of Origin on a label isn’t a good idea?

    Some will say that it isn’t that Country of Origin Labeling (COOL) isn’t a good idea, but that mandating it – as opposed to allowing it to be voluntary – is a bad move. Which raises the question we keep asking – if COOL isn’t mandated, how many companies actually will do it?

    Published on: November 23, 2004

    • Starbucks Corp., which has owned 18 percent of its German operations, reportedly has acquired the other 82 percent of the venture from KarstadtQuelle AG, which has decided to focus on its core department store business.

      Terms of the transaction were not disclosed.

      Starbucks now operates 37 stores in 15 cities in Germany and plans an “aggressive” pace of expansion.

    • Krispy Kreme, which until recently was the darling of the investor class and the Holy Grail for folks who liked hot glazed doughnuts, announced that disappointing financial results were causing it to scale back its expansion plans for the coming quarter, cutting back the number of new stores planned to 10, or 61 for the whole year. Its original plans called for 120 new stores for the current fiscal year, which was then trimmed back to 75.

      Krispy Kreme said that its third quarter earnings were $2.4 million, down from $14.5 million in the year-earlier period. Sales for the quarter rose 1.4 percent to $170.1 million, with company-owned store sales increased 9.6 percent to $121.2 million.

    KC's View:

    Published on: November 23, 2004

    • Despite the hopes of many in the food industry, a voluntary approach to Country of Origin Labeling (COOL) – which would replace the current mandatory regulations that go into effect in 2006 – was not included in the 2005 omnibus spending bill. The shift in approach now is targeted to be dealt with by the new Congress next year.

    • There seems to be a movement afoot in the city of San Francisco to begin charging supermarkets as much as 17 cents per paper or plastic bag used, as a way of cutting back on the some 50 million bags that are used each year, most of which end up in local landfills. If such a tax were imposed, one option for grocers would be to pass that charge on to consumers.

    • A new poll suggests that high-definition televisions, flat-panel TVs and plasma TVs are at the top of holiday wish lists this year, with 24 percent of respondents telling the Computing Technology Industry Association that this was what they want for Christmas.

      The next most popular choices were digital cameras (15.6 percent), MP3 or other digital music players (11.8 percent) and wireless home networks (10.6 percent). Other wish-list products that made the holiday shopping list included digital video recorders (8.1 percent), smart phones and personal digital assistants (7.9 percent), tablet PCs (7.7 percent), and portable media centers (2.2 percent).

    KC's View:

    Published on: November 23, 2004

    • Marsh Supermarkets announced that its second quarter revenues increased to $524,892,000 from $510,769,000 during the same period a year ago. Net income for the second quarter increased to $1,304,000 from $683,000 for the second quarter a year ago.

    KC's View:

    Published on: November 23, 2004

    • The Us House of Representatives has approved a four-year ban on Internet access taxes as well as “prohibiting States and localities from imposing multiple and discriminatory taxes on electronic commerce,” according to a statement released by House Judiciary Committee Chairman F. James Sensenbrenner, Jr. (R-Wis.).

      The US Senate already has approved the legislation, which now goes to the White House for President Bush’s expected signature.

      This four-year extension actually is retroactive to November 1, 2003 and will expire on November 1, 2007.

      Sensenbrenner noted that the legislation does not exempt Internet retailers from collecting and remitting sales taxes to the States.

    KC's View:

    Published on: November 23, 2004

    MNB had a story yesterday about the Bush administration’s proposed tax code overhaul, which could include scrapping the business tax deduction for employer-provided health insurance.

    We commented, “If the administration and the Congress agree to eliminate the business tax deduction for employer-provided health insurance, we have to believe that there will be a lot of employers out there that will stop offering it. After all, getting a tax break is one of the reasons these companies offer health insurance…

    “We believe that this is a prescription for labor chaos in retailing, setting the stage for angrier confrontations between chains trying to cut their costs and organized labor trying to remain relevant. In such a confrontation, labor will lose…chains will lose…and customers will lose.”

    One MNB user wrote:

    Few want to hear this. The two biggest federal income tax loopholes are (1) the standard deduction, and (2) employee tax free medical and dental benefits.

    A person that pays nary a dime in mortgage interest, and contributes sparsely if at all to charity, still gets a standard deduction of about $5,000. A married couple $10,000.

    Whether paid by the employer, or paid by the employee on a pre-tax basis, an employer can get the employee virtually unlimited medical benefits on a tax-free basis. The rest of the citizenry gets a tax benefit only if they itemize deductions, and only to the extent that their medical costs exceed 7.5% of their adjusted gross income.

    A legitimate use of tax law is to influence behavior. We get to deduct mortgage interest and real estate taxes in large part because the government wants to encourage home ownership. We pay high taxes on booze and cigarettes because the government wants us to reduce consumption of those products. The tax breaks for medical benefits can be said to cause us to consume excessive medical and dental goods and services because it lowers the real cost of those purchases. Is that a behavior the government should encourage?

    Many are able to time their charitable contributions and payments of state and local taxes in a way that saves them a couple thousand dollars by taking the standard deduction in one year and itemizing deductions the next year.

    In a rational world we would eliminate the standard deduction, and make the 7.5% of adjusted gross income test for deductible medical and dental costs the same for everyone. Of course income tax is a political world, not a rational world.

    MNB user Bill Nace added:

    Kevin, Your trepidation at the thought of businesses eliminating health care coverage of employees is logical, and you're right about the potential for chaos. But this is an idea whose time has come. Let me explain (though I'll risk over-simplifying and be brief). The model of employer-funded health insurance and its favor in the tax code can be traced back to the WWII-era wage freeze. Employers started offering fringe benefits as a differentiator when they could no longer offer higher wages. This model has a fundamental economic flaw, in that it removes the purchasing decision for health care from those with the primary interest in it, that is, the employees, in favor of those with a secondary interest, the employers. It's basic economics, but I suggest that the market for health care will never function well in the long run with such a model.

    Fixing the economic model for health care insurance funding is an idea whose time has come. It's the same reason many have favored medical savings accounts. I'm no MBA, but what if businesses losing their tax breaks turned that health care expense, even net of the tax increase, into higher wages or paid them out in the form of medical savings accounts? Perhaps due consideration should be given to this tax code change, and to how it could be implemented with the most stability, for example, by phasing it in over time.

    It's a good idea, but there are many political implications with such a large-scale change to the current system. This is just as big or bigger than significant Social Security reform. You can't fault the President for thinking big; it's going to be interesting to watch whatever happens.

    The thing is, if companies were to eliminate health care coverage as a way to cut costs, it seems unlikely that they would then raise salaries to compensate.

    We reported yesterday that "President George W. Bush made a commitment over the weekend to Canadian Prime Minister Paul Martin that he would reopen US borders to Canadian live cattle imports. The border was closed after a case of mad cow disease was found north of the border."

    To which one MNB use responded:

    How about making a commitment to the American people to keep the food supply safe?

    We had a story yesterday about how Tesco is being accused of censorship because it is asking magazine publishers to submit their publications for approval before they are put on sale. The Tesco policy seems to mostly be affecting so-called “lads” magazines that feature scantily clad women and suggestive headlines on their covers, though some satirical magazines also reportedly have been affected. Tesco has been requiring that some of these publications change their cover copy if they want to be sold at the store.

    One MNB user responded:

    This hardly suggests Tesco is telling the 'Guardian' what to publish. It is a decision by a company deciding what type of products they will buy and sell. That is not censorship. How is it "bad" Kevin when this kind of garbage is available anywhere? That is like you telling us if we don't watch Monday Night Football it is bad for democracy, bad for consumers, bad for the NFL, bad for television because someone chooses not to watch? How absurd! A company has a right to choose what to buy and sell. It is their company.

    That is democracy, the other is communism. It would be censorship if the UK government was telling the Guardian what to publish. Ultimately, the consumer will decide whether or not they patronize Tesco. If I can't find what I want at one store, I go look for it somewhere else.

    You miss our point. We have no problem with retailers deciding not to sell certain magazines, videos, games or books based on content. That certainly is within their rights…just as it is within our rights to decide whether or not to shop at that store based on such positions.

    What we think is wrong – for lots of reasons – is for retailers to try and influence the content and tone of editorial coverage. And, by the way, we actually hold the publishers and editors a lot more responsible for such scenarios than we do the retailer…but together they are going down a slippery slope that can lead to a dumbed-down and mediocre media.

    Finally, we got the following email from MNB user Michael F. Parker:

    I really like your info. As the former President and COO of Trader Joe’s for 10 years during the critical growth phase, I find it very difficult to believe how many retailers don’t get it. “Consumers” is an insulting term, it treats customers like pigs. Customers are intelligent, informed, wise people and most retailers don’t get it to their demise. I’d love to find a retailer that respects the customer and understands that our customers pay our bills.

    As to the Kmart-Sears combination, I believe that combining two losers is a recipe for disaster except for the financial community that will benefit at the expense of the average investor. I learned long ago that two wrongs don’t make it right. As a long term follower of Sears, I’m saddened to see how badly it has lost its way.

    What always has distinguished Trader Joe’s is the fact that shoppers feel smart just for having entered the store, and that the company treats them as being smart and wanting to be smarter. That’s a unique approach in US food retailing…
    KC's View:

    Published on: November 23, 2004

    In Monday Night Football action, the New England Patriots defeated the Kansas City Chiefs 27-19.
    KC's View: