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    Published on: March 29, 2005

    The East Bay Business Times reports that Safeway, having opened 142 “lifestyle” stores since the beginning of last year, plans to convert at least another 300 of its stores to the format by the end of 2005.

    “The new-look stores feature such unusual grocery store touches as subdued lighting, produce departments with faux hardwood floors, rich wood-veneer display cases and small home-merchandise departments,” according to the paper.

    The Business Times notes that Safeway has been cornered into this ambitious plan by the actions of its competition. Big box chains such as Wal-Mart are tough on price, while “regional upscale chains such as Andronico's Market focus on quality and variety”…and ”specialty stores, including Whole Foods Market, tap into customer concerns about personal health and sustainable agriculture, while Trader Joe's appeals to both price-conscious and quality-seeking shoppers.”

    The paper also reports that “Safeway appears to be gaining the upper hand with its supermarket rivals, although all still fear the growing clout and presence of Wal-Mart in their urban strongholds.”
    KC's View:
    The East Bay Business Times may be suffering from a case of hometown boosterism when it makes the statement that Safeway is “gaining the upper hand” compared to how Kroger and Albertsons are faring. In fact, when we talk to retailers and manufacturers, there seems to be broad agreement that of the three major food chains, Kroger is the one headed in the right direction, while Safeway has been listing badly.

    But we can forgive the paper a little hometown loyalty. And maybe it is fair to say that its aggressive plans for the “Lifestyle” format actually will jump-start Safeway’s long-term strategic goals.

    However, we don’t think it is just an accident that when Safeway’s strategies are discussed, it is in terms of how management is trying to find a position in a market crowded with competition. Indeed, there is a sense about Safeway that it sometimes defines itself in terms of the companies it competes with, rather than having a clear picture of what it is and who its customers are.

    There also is a sense here – and it comes from the many emails we receive about Safeway – that there is a great deal of discontent within the ranks that stems from a disconnect that many feel exists between headquarters and the stores. That is a disconnect that is hard to finesse when trying to revive a company.

    Maybe that’s changing. But at the very least, the company has a perception problem that it needs to address. And some would say that it is a far worse situation than that.

    Published on: March 29, 2005

    Nice profile in Investor’s Business Daily of upstate New York-based Price Chopper, which “has found the best way to compete is with unique offerings,” including “a sharp focus on perishables, an area where few players excel.”

    Jerel Golub, vice president of perishables with the company, tells the publication that the idea is to “present perishables, including produce, baked bread and deli items, in a way that really wows customers,” and “show an abundant variety of colorful, fresh products displayed in a way that maximizes impact” – and in doing so, compete in areas where Price Chopper, not competition like Wal-Mart, can excel.

    This strategy, according to Investor’s Business Daily, “has helped the privately held firm enjoy steady sales growth and favorable same-store trends compared with the industry as a whole. In 2004, its revenue rose 19% from the prior year. The percentage of sales stemming from perishable items, which carry slightly higher margins, has grown significantly over the last few years.”
    KC's View:
    We’ve written of Price Chopper before in this space, and lauded the company for carving out a distinct and profitable share of the marketplace despite competition from the likes of not just Wal-Mart, but also Wegmans and Hannaford.

    It’s being sharp on price while not playing Wal-Mart’s game. It is having perishable and private label products that are unique to the chain. And it is fostering a culture that makes the company special.

    It isn’t easy, but it also isn’t an impossible task. It just requires dedication, perseverance and a willingness to innovate.

    Published on: March 29, 2005

    The Detroit Free Press reports that an email has been sent by the management of the new Sears Holding Corp. – which combines the old Kmart and Sears chains – to employees saying that layoff announcements will be made throughout the month of April.

    The paper writes that “for those who make the cut, they will find out in April how much their pay and benefits may fall as the newly merged Sears Holdings Corp. works to cut costs. The cuts would not take effect until 2006, the e-mail stressed.”

    One interesting shift: the new management seems to be focused on creating a performance-based compensation model for employees, with “best performers” promised "significant career-growth opportunities."

    Lesser employees presumably will be shown the door.
    KC's View:
    We still think that there will be a lot more cutting at Kmart/Sears than there will be building. But the notion of a compensation plan that rewards the best employees certainly is a positive sign.

    Published on: March 29, 2005

    The Food Institute reports that “while the number of food-industry deals completed in 2004 declined five percent from the 2003 tally, activity was on par if one counts 17 major acquisitions announced but not completed in 2004.”

    In fact, the largest announced deal of the year – Wrigley’s plan to acquire Kraft’s Life Saver and Altoids business – was not consummated in 2004.

    Food Institute President Brian Todd noted that one reason there hasn’t been a rash of new deals is that “increased competition from alternative retailers such as supercenters and warehouse clubs may have kept supermarket players from expanding via acquisitions.”
    KC's View:
    Calm before the storm, we expect.

    Published on: March 29, 2005


    • Local press reports say that more than seven thousand Safeway employees in Colorado and Wyoming have approved a new contract that cuts wages for new hires, health care benefits for both employees and retirees, and increases workers' health care premiums.

      Kroger’s King Soopers employees approved a new contract on March 5. Albertsons has not yet reached an agreement with its unionized employees.


    • The US Department of Agriculture (USDA) has confirmed that beginning next week, US retailers must provide country-of-origin labels for the fish and shellfish they sell, a requirement put in place by a 2002 labeling law.


    • PepsiCo announced that it will bring its popular apple-flavored Mexican soft drink, Manzanita Sol, to the US, selling it in markets that have a large Hispanic population. The company also will roll out its orange-flavored Mirinda soft drink in heavily Hispanic markets in the US; Mirinda is Pepsi’s third-largest brand in Mexico, and has been test marketed successfully in Dallas and a few other US cities.


    • The Associated Press reports that the Japanese Food Safety Commission has ruled that opening that nation’s borders to US beef will not put its consumers at significant risk of contracting the human variation of mad cow disease, despite the fact that the US tests a much smaller percentage of its beef population for the malady than Japan does.

      This conclusion is seen as a precursor to Japan deciding to once again allow the import of US beef, which has been banned since a case of mad cow disease was found in the Pacific Northwest in December 2003. However, Japan has been flirting with opening its borders for some months now, but has yet to pull the trigger on a decision.


    • Krispy Kreme Doughnuts says that its lenders have agreed to push back a deadline before the company defaults on its $150 million credit line. At the same time, the Wall Street Journal reports this morning that the troubled doughnut retailer is nearing an agreement to obtain as much as $225 million in new financing, which would at least give it some breathing room.

    KC's View:

    Published on: March 29, 2005

    Business Week reports that while “plenty of companies have detailed systems for tracking customer habits, critics and boosters alike say Amazon is the trailblazer, having collected information longer and used it more proactively. It even received a patent recently on technology aimed at tracking information about the people for whom its customers buy gifts.

    “Amazon sees such data-gathering as the best way to keep customers happy and loyal, a relationship-building technique that analysts consider potentially crucial to besting other online competitors.”

    Critics, however, believe that Amazon is getting “dangerously close” to Big Brother territory, using personal and financial information gathered about its shoppers in ways that many would find to be objectionable. The trick for the retailer is to exploit its information without alienating the customer…and in fact to use its substantial database in ways that the shopper finds to be rewarding.
    KC's View:
    As a rabid Amazon user and enormous fan, we have to say that we’ve been perfectly willing to accept the company gathering information about our shopping habits because it results in promotional emails that have some resonance for us.

    For example, we love westerns. So the other day, we got an email saying that Lawrence Kasdan’s wonderful “Silverado” will be coming out next week on a special edition DVD…and since we don’t own it, we immediately placed the order (at a discount as deep as we’d get anywhere). There’s nothing to object to there, at least not for us.

    By the way, not only does Amazon collect information about us…but it also makes a lot of information available to users. We can go back and see that our first-ever order from Amazon was on March 7, 1997…and see every order that we’ve ever placed with the company. Ever.

    This is something that more retailers ought to do…but the key is to make sure that the information is used in a way that is relevant to the shopper and that enhances their lives. This usually isn’t seen as intrusive…it is viewed as a valuable service.

    Published on: March 29, 2005

    The Cincinnati Post speculates that the acquisition of a 9.2 percent stake in Wild Oats by Ron Burkle’s Yucaipa Cos. is likely to result in a sale of the company.

    Burkle’s history is that he buys supermarket chains (such as Fred Meyer), improves them, and then sells them (Fred Meyer was sold to Kroger).

    Indeed, it seems likely that Burkle will try at some point to gain a controlling interest in Wild Oats, which would facilitate his long-term plans for the chain.

    Likely purchasers for Wild Oats would be the nation’s big three supermarket chains – Kroger, Safeway and Albertsons.
    KC's View:
    While Ahold currently would not be seen as a likely buyer for Wild Oats because of its own financial difficulties, you may be able to add it to the list…simply because it already is working with Wild Oats on “store within a store” concepts and is selling Wild Oats products online via Peapod.

    What’s really interesting about Burkle is how he has interests in both ends of the market – at the same time as he buys nine percent of Wild Oats, he buys 40 percent of Pathmark.

    That’s what you call a diverse portfolio.

    Published on: March 29, 2005

    Fast feeder Burger King announced yesterday the introduction of a new breakfast item – the Enormous Omelet Sandwich, which is made up of two omelet eggs, sausage, three strips of bacon, and two slices of melted American cheese on a specialty bun, and designed, according to the company, “to satisfy the heartiest of breakfast appetites.”

    Russ Klein, Burger King’s chief global marketing officer, said that customer surveys showed that “they wanted to have breakfast on-the-go, but were tired of less-than-satisfying breakfast sandwiches.” And Denny Post, chief concept officer at Burger King, said, “The Enormous Omelet Sandwich is everything people love in a breakfast sandwich, but twice the size and twice as satisfying.”

    The company also introduced yesterday the comparatively tiny Western Omelet Croissan’wich, which features "fire-grilled onions, ham, and melted American cheese layered inside a folded egg all on a croissant."
    KC's View:
    One can only imagine the cross-promotional ideas that can be applied to this new product introduction.

    For example, Burger King could figure out some way to partner with a law firm, requiring customers to sign a document promising not to sue it when they gain weight from eating a sandwich that is only slightly smaller than a Volkswagen.

    Or, it could strike a deal with Pfizer to hand out special OTC samples of Lipitor to sandwich consumers.

    Or maybe it could just garnish the sandwich with hemlock. Because the result, inevitably, will be the same.

    Didn’t these guys get the obesity memo?

    Published on: March 29, 2005

    The Times of London reports that there are a number of new flavors that seem to be reaching supermarket shelves there – including lavender-flavored custard, ice cream with a hint of green tea or chili, and bacon-and-egg ice cream – as manufacturers look for new ways to entice consumers.
    KC's View:
    Maybe Burger King could serve that bacon-and-egg ice cream with its enormous breakfast sandwich…

    Published on: March 29, 2005

    Tim Hortons, the ubiquitous Canadian doughnut retailer owned by Wendy’s International, is looking to the US as a major source of growth, according to the Toronto Globe and Mail.

    The company currently has 250 franchises in the US, and wants to double that by 2007.
    KC's View:
    Having spent a lot of time in Canada recently, we’ve done some first-hand research on this story.

    The verdict: Doughnuts are pretty good. Coffee needs work.

    Published on: March 29, 2005

    Colorado used to be considered one of the healthier places in the US, filled with people who were bursting with good health and fitness because of their proximity to the Rocky Mountains.

    Things are changing.

    The US Centers for Disease Control and Prevention (CDC) reports that while in 1990 just 6.9 percent of Colorado residents were considered obese, by 2002 that number rose to 16.5 percent.

    The CDC notes that Colorado is still the thinnest state in the union, with 47 percent of adults overweight or obese - compared to the national average of 65 percent.

    But the trend is not good.
    KC's View:
    Wait until the enormous Burger King breakfast sandwich comes to Colorado. It’s bigger than a few of the mountains they have there, and can only hurt the state’s obesity statistics even more.

    Published on: March 29, 2005

    Yesterday, we had a report that Wendy’s was seeing some decline in sales in Northern California when a bowl of chili there was reported to have a human finger in it.

    Now, from Auckland, New Zealand, comes word that a KFC there served a hamburger with a cockroach inside it.

    New Zealanders apparently being hardier folk than Northern Californians, KFC sales reportedly have not been adversely affected to any significant extent.
    KC's View:
    Think of it this way. The burger with the cockroach actually had measurably more fiber in it than the enormous breakfast sandwich being sold by Burger King.

    Which makes the cockroach a selling point.

    Published on: March 29, 2005


    • Walgreen Co. reported a 14 percent earnings increase, as its second quarter net income rose to $490.9 million from $431.6 million during the same period a year ago. Sales for the quarter rose 12 percent to $11 billion from $9.78 billion, and same-store sales were up 7.7 percent.

    KC's View:

    Published on: March 29, 2005

    …will return.
    KC's View: