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    Published on: March 3, 2005

    MNB reported yesterday that Brown & Cole, the Bellingham, Washington-based supermarket chain, announced that it will sell off eight of its 31 stores, or almost 25 percent of the company, because of an inability to compete effectively with an expanding Wal-Mart presence.

    "This is in large part due to two things," company president Craig W. Cole said in a prepared statement, "health care costs and the deliberate saturation of the market by Wal-Mart." Cole, saying that the company plans to keep its remaining 23 stores open, also said that “the American worker and local businesses are becoming road kill in Wal-Mart's march toward the worldwide domination of commerce.”

    In the last 24 hours, we’ve had a chance to think about the Brown & Cole situation. We sympathize. Feeling like road kill, or like you have a target on your back, can’t be pleasant.

    These are incredible challenges that small, family-owned retailers face - the difficulties of competing with enormous entities such as Wal-Mart, especially for folks like Craig Cole, good and decent citizens who have always tried to do the right thing for their employees and communities, even when it might have been easier or more profitable to take another path.

    Here’s what we think Craig Cole has to do now.

    Look at his employees, and say, “Okay, we cut the chain by 25 percent. It wasn’t easy, and it wasn’t our preference. But to compete in 2005 and beyond, that’s what companies such as ours have to do, like it or not.”

    Cole has to say: “But a far harder – and more important – decision is what we are going to do with the 23 stores that we’re keeping. Because we have to change these stores in significant ways if we are to survive and thrive.”

    It won’t just be lowering prices, or spending more money on marketing or customer service. It’ll be something else – something radical and innovative and completely unexpected.

    It will be that vision – and implementation of those changes – that will fuel Brown & Cole’s future.

    It will, in fact, require vision. And imagination. Something that we’ve always believed that Craig Cole has. Something that he must have, and that all independent-minded retailers must have.
    KC's View:

    Published on: March 3, 2005

    Lone Star Funds announced yesterday that it will close 20 Bruno’s units, a decision that the new management says will reduce costs, improve profitability, and allow the company to focus on stronger, core stores.

    The decision will leave Bruno’s with 148 units in Alabama, Florida, Georgia and Mississippi.

    At the same time, the company announced that it will close nine of its stores in North Carolina, South Carolina, Georgia and Tennessee, which will leave the company with 278 units. The same rationale was cited by management.

    Lone Star bought Bruno’s and Bi-Lo from Ahold earlier this year for $660 million.
    KC's View:
    Retrenchment is taking place everywhere, as everyone tries to figure out how to position and differentiate themselves.

    Not easy, not pleasant, but almost always necessary.

    In the end, though, the moves made toward differentiation will be far more important that the closings.

    Published on: March 3, 2005

    The Bush administration’s plan to reopen the US border to Canadian cattle under the age of 30 months was dealt a blow yesterday when a federal judge in Montana granted a request for a temporary injunction blocking the move. The judge said that the government and the cattlemen who called for the injunction had to agree within 10 days on when a hearing should take place on whether he should make the injunction permanent.

    The cattlemen objected to the opening of the border because of fears that the Canadian cattle would expose their own cows to mad cow disease, which has been diagnosed in four Canadian cows over the past two years.

    Secretary of Agriculture Mike Johanns described the ruling as a mere “procedural delay,” but said he was disappointed by it. USDA has not decided on whether to appeal the ruling.

    It also isn’t yet known whether the injunction will affect negotiations with Japan, which has closed its borders to US beef because of one mad cow case discovered in Washington State more than a year ago.

    The Wall Street Journal reports that the cattlemen may not be entirely altruistic in their motives, since the closing of the border to Canadian cattle has raised beef prices in the US.

    Meanwhile, Business Week reports on the frustrating search by scientists for an understanding of how and why mad cow disease is transmitted.

    While only 159 people worldwide are known to have died from eating BSE-infected meat, Business Week reports that “each new case is a painful reminder of the unanswered questions that swirl around mad cow and similar scourges in sheep, deer, and elk. Despite a decade of intense investigation, scientists still disagree about how these diseases are transmitted, how long they can incubate without symptoms, if they can be cured, and what steps should be taken to lessen the toll. In recent months scientists have made some startling discoveries. Yet they are dismayed that mad cow is so slow to yield its secrets.
    KC's View:
    And yet, some people remain convinced that we’re doing enough to trace and track mad cow disease, that because we’ve only identified one case in the US there has only been one case in the US.

    Published on: March 3, 2005

    A new survey sponsored by the Grocery Manufacturers of America (GMA) says that women are three times more likely than men are to choose fruits, vegetables and/or salads as their favorite foods.

    Thirty percent of women declare fruits, vegetables and/or salads as their favorite food, while 25 percent of men identify red meat as their top choice. Only eight percent of men put fruits and vegetables at the top of their list, while the same percentage of women name red meat as their favorite food.

    “The fact that women are more likely to choose fruits and vegetables as their favorite food is great news considering the Dietary Guidelines’ focus on increasing fruit and vegetable consumption,” said Alison Kretser, GMA’s director of scientific and nutrition policy. “As the primary shoppers in most households, women can set an excellent example for their families. But the reality is that convenience often takes precedence when it comes to preparing meals. The food industry’s challenge is to make fruits, vegetables and other healthy options more convenient and appealing for everyone.”
    KC's View:
    The problem, of course, may be that they are trying to get men to change eating habits established thousands of years ago.

    But women have the last laugh because they outlive us.

    Published on: March 3, 2005

    • The Maryland State Senate is considering legislation that would force large employers that don't provide a proscribed level of health care benefits to pay a tax that would be used to provide those benefits to uninsured employees, according to the Baltimore Sun.

      Wal-Mart is fighting the proposal, calling charges that it does not offer sufficient coverage to enough people “myths.”

    • Wal-Mart is facing yet another unionization move in Canada, this one taking place at a Windsor, Ontario, store.

      Ironically, this same store won union certification back in 1996, becoming the first North American Wal-Mart to become unionized. However, the unionization effort ultimately collapsed when the two sides could not reach a contract agreement.

      A vote by the store’s employees on union certification is expected next week. Wal-Mart is contesting the application for a certification vote, saying that some 50 employees were excluded from the proposed bargaining unit.

      Two Wal-Mart stores in Quebec have voted for union certification. Wal-Mart has announced that one of them will be closed because of what it described as borderline performance that would only be worsened by a collective bargaining agreement with the United Food and Commercial Workers (UFCW). In the other Quebec store, Wal-Mart has been ordered by labor officials to stop harassing workers trying to unionize.

    • The Staten Island Advance reports that Wal-Mart, having lost the opportunity to open its first New York City store in Rego Park, Queens, now is looking at two sites on Staten Island for possible store locations.

    KC's View:

    Published on: March 3, 2005

    • The Montreal Gazette reports that if A&P decides to sell its 237-unit Canadian operation, as has been widely rumored, it is likely to prompt a bidding war between Metro and Sobey’s.

    • The Wall Street Journal reports that the Sears-Kmart merger is expected to be completed by the end of this month, and that a possible bid for Sears by another company is not likely to materialize.

    KC's View:
    We keep wondering the same thing about the Sears-Kmart merger as we do about the acquisition of May Co. by Federated.

    These combined companies are going to be bigger. But are they going to be better? Are they going to be companies that are so compelling and different that they reverse the negative trends that have been hurting these companies’ performances?

    Somehow, we doubt it. But maybe we’re just jaded.

    Published on: March 3, 2005

    • Costco Wholesale Corp. reported that second quarter earnings rose 35%, to $305.5 million from $226.8 million in the year-earlier quarter; the company said that part of the increase was due to accounting changes. Quarterly revenue jumped 9.6% to $12.66 billion from $11.55 billion, and same store sales were up seven percent.

    • Nash Finch Company announced 2004 annual earnings of $14.9 million, compared to $35.1 million for the pervious fiscal year. Total sales for fiscal 2004 were $3.9 billion versus $4.0 billion in fiscal 2003.

      For the fourth quarter of 2004, total sales were $920 million compared to $1.011 billion in the prior-year period. Net earnings were $11.2 million for the 12 week period of 2004, compared to $13.0 million in the year-ago period.

    • Walgreen Co. reported that its February sales were up 13.9 percent compared to the same month a year ago, to $3.44 billion. Same-store sales were up 9.3 percent.

    • Longs Drugs reported that sales for the fourth quarter dropped 2.4 percent to $1.19 billion from $1.22 billion a year ago, but generated earnings of $17.7 million, 32 percent higher than the earnings of $13.4 million in the year-ago period. Same-store sales were down 2.8 percent.

    KC's View:

    Published on: March 3, 2005

    • Cassian Cheung, the president of Wal-Mart China, resigned from the company, saying he wanted to spend more time with his family.

      He will be succeeded by Rene Mang, who has been president of Wal-Mart Korea for the past five years.

    KC's View:
    Y’know what we always wonder when these executives say they want to spend more time with their family?

    We wonder if their families want to spend more time with them.

    We always have a vision of their wives smacking their heads, saying, “What the hell is he thinking about? Stay at work! Stay at work!”

    Not that this is the case with Cheung.

    We’re just thinking…

    Published on: March 3, 2005

    CNN reports that Bubba, a 22-pound lobster recently pulled out of the waters off Nantucket, Massachusetts, and shipped to a Pittsburgh fish market, is now being sent to the Pittsburgh Zoo & PPG Aquarium.

    Differing estimates suggest that Bubba is between 50 and 100 years old. Once he was shipped to Wholey’s Fish Market, where he promptly received a lot of attention from customers and the local media.

    He also got other sorts of attention. People for the Ethical Treatment of Animals (PETA) wanted Bubba to be released back into the ocean. Another group, calling itself People For Eating Tasty Animals (PETA), offered the store $14.98 a pound for Bubba.

    But Bubba is going to the zoo, where, if not completely free, he will at least not have to face the fate of a really, really big pot of boiling water and lots of melted butter.
    KC's View:

    Published on: March 3, 2005

    We got a number of emails yesterday about our story about Brown & Cole closing eight of its stores because of competitive pressures.

    One MNB user wrote:

    I agree with your general comments regarding the piece on road kill and Wal-Mart, however it is important to also say that grocers, especially the independent grocer, maintain and grow their own business as well. I love the independent grocer and many are doing well, however many also lack the passion and the hands-on example that their company's founders had when they started the company. In all my encounters with these smaller businesses I stress the importance of thinking like the big boys do, but take a all the advantages that the small players have. It does not come automatically.

    Independents must maintain a lean structure with as little layers of management as possible, they need to train their staffs continually and re enforce this training by example, make meetings effective (I found that some independents had more meetings and initiatives than the larger companies), and above all create a culture/team that operates the stores to that high example…

    And another MNB user wrote:

    What possible motivation would Wal-Mart have for changing the way they do business. Eric Berger was right on the money when he said " the customer chooses which business survives". The only motivation they would have to change is if stopped shopping at Wal-Mart. Their customers say, we only care about ourselves, give me low prices no matter who it hurts. Unfortunately they have a lot of customers that don't realize who is being hurt. The hardest thing to teach young people is that when they buy anything, they are voting for the way they want business done. People have to learn that Wal-Mart is not giving them lower prices, they are just moving costs and quality around to look like lower prices. As long as people continue to buy, Wal-Mart will continue business as usual.

    One of the cited by Craig Cole in his announcement of the closings was the rising cost of health care.

    One MNB user wrote:

    Consumers could give flip about the health care employees for a Wal-Mart or a Neiman Marcus receive. Although they probably believe that the folks at Neiman’s have a better plan because heck, look at the prices Neiman’s charges. All consumers care about is paying a fair price for the service/quality of product they receive; however they may define that equation. If consumers cared about the altruistic objectives in a retail organization, or the community it serves, then downtown Athens Texas, Jackson Alabama, and Macon Georgia would still have the quaint feel of Americana they had a decade ago. BUT they don’t. What amazes me is that food retailers today still have not figured out how to compete with Wal-Mart. Especially in the rural south where price of goods is king. For the most part, food retailers still cling to high/low pricing so they can run BOGO’s, Ten with Ten, Red Tag sales, Green Tag sales and what ever else they can call some weekly ad event. They continue to charge slotting, co-op, rebate, and store product placement fees. All created to generate “other income”.

    Even loyalty card programs are entitlement programs that offer no real benefit other than receiving ad prices. It’s a me too game that few have figured out. It’s ironic that loyalty cards were originally created to move away from running ads that promote cherry picking, to a more targeted marketing program that speaks to loyal customers and provides those customers the best prices along with other benefits for being loyal. But food retailers today are addicted to the perceived traffic generation that a weekly ad generates, and cards are a bother to the consumer. It was a wasted opportunity.

    If main stream food retailers today are going to compete with Wal-Mart, then they need to stop doing business the same way they did it in 1960, 70, 80, or 90. They need to learn how to model their procurement processes after the best model out there. Retailers need to quit adding to the cost of goods and partner with suppliers to reduce those costs. If they did that and then really took a look at what the average selling price and margin of a can of green beans is on an annualized basis, they might be surprised just what their retails structure could look like.

    But then again my dad always said if a frog had wings; it wouldn’t bump his (rear end) every time he hit the ground.

    MNB user Gary Loehr wrote:

    Perhaps Wal-Mart should become a health insurance provider for their employees and customers. They could bring hospital administrators, pharmaceutical companies and malpractice attorneys into Bentonville and ask them to justify the costs of their services. Eliminate all those providers who don't lower their rates. We could all go to doctors who received their diplomas from internet based medical schools in China. Washington hasn't made much headway against this issue, perhaps it's time for the boys in Bentonville to take a shot at it.

    Another MNB user wrote:

    Agree that the health care system in the country is out of control, maybe the elected officials should do something...but wait, what are they paying for their health care?

    We wrote the other day about lousy advertising, and MNB user Warren Thayer responded:

    I must emphatically agree. I’m forever trotting out David Ogilvy’s remark about advertising: “It’s not creative unless it sells.” It’s hit home to me even more lately, as I’ve taken to watching old “I Love Lucy” episodes (thank you, Netflix) every day for a half hour on my treadmill. Often, the old ads from the 1950s are included. They were memorable, they sold the benefit, and they sold the brand. It’s not rocket science. Why can’t we do that today?

    We had a piece yesterday about Borders’ declining CD business and how they are responding to it. In our commentary we noted that this isn’t just a marketing and merchandising problem – that the digital revolution is changing consumer behavior in profound ways, and the downloading of music simply is preferred by young people. (We also noted that, ironically, retailers that got into the CD and DVD business because of concerns about book sales may find that books actually will be their salvation.)

    This prompted a number of emails.

    MNB user John Hennessy wrote:

    Borders need only look as far as its CD prices to understand the cause of its declining music sales. I'm a huge music and book consumer, but Borders isn't getting any of my music dollars. They price CDs in the stratosphere. $18.98 for one title than can easily be found for $13.49 on and in that range at a number of other on and offline retailers. Around half that if you pick it up used.

    Anyone who purchases a CD at Borders likely knows they overpaid - a lot - and vows not to be taken by them again. While immediate gratification can justify a small price premium, their uncompetitive pricing levels are at the heart of their poor music sales.

    MNB user Rob Wilson wrote:

    Regarding the 3/2 MNB "Borders" commentary...

    As one of the dwindling number of music mavens who'd rather own and enjoy an old-fashioned "hard copy" of a professionally-produced music CD/DVD - complete with artist and production credits, attractive graphics, readable lyrics, et al) - I enjoy browsing through the CD/DVD racks at my local Borders outlets, for the sheer breadth and variety of titles and artists the chain offers, along with searching for the attractive, reasonably priced Borders-branded sampler albums they'll occasionally feature.

    However, my fortnightly Borders browsing usually turns into actual purchasing only when I find select releases that I know I'll seldom find elsewhere - typically lesser-known musicians in limited release on smaller or "indie" labels.

    This is simply because Borders' demands stratospheric retail prices for most audio/video product. Charging $17.99 or $18.99 for a single compact disc is not uncommon, whereas most CD purveyors ask for $3-$5 less - in exchange for keeping a far more limited selection on-hand.

    I strongly believe in store brand loyalty - but for impulse purchases on a skintight budget, sometimes price sensitivity must remain a mitigating factor when approaching the checkout counter.

    Another MNB user wrote:

    Some years ago, I did a consulting project for a company that was contemplating an investment in the supply chain for books. They were concerned that the book market might disappear in a wave of digitization. We did extensive research and delivered 50-ish page presentation arguing that there are many reasons why books won't go away and that those categories of books (mostly references) that were high probability candidates for digitization in fact were digitized in about the first five minutes of the Internet age. The punchline of the presentation was, "If you don't believe us that the book is alive and well, just visit the Michigan Avenue (Chicago) Borders at 11:00 PM on a Friday night."

    And MNB user Glenn Cantor wrote:

    I am 43. Just last night, I downloaded a 3-disc, live Grateful Dead CD (from the great, Dick's Picks collection) off I-Tunes.

    The suggestion to download came from an internet newsletter, and link directly to the I-Tunes section with the CD.

    So, I did not have to leave my house, the suggestion was customized to my music tastes (based on an e-mail newsletter that I elected to receive), I was able to listen to samples in my home, and I can listen on both CD's (in the car) and on my I-Pod. I did not have to go anywhere, I did not have to find a store that actually sells the Dick's Picks collection, and I did not have to deal with some kid with safety pins hanging from her nose.

    This process is only going to get better, quicker and cheaper as computer applications evolve.

    Welcome to the 21st century, courtesy of Apple.

    You think that’s great, wait until you get the gadget that allows you to plug your iPod into your cigarette lighter in the car and play its selections through the car radio.

    It’ll change your life.
    KC's View: