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    Published on: February 17, 2006

    The New York Times reports this morning that Wal-Mart CEO Lee Scott operates a confidential, internal website called “Lee’s Garage,” that he “uses to communicate his tough standards to thousands of far-flung managers.” In transcripts from the site provided to the NYT by the activist group Wal-Mart Watch, it appears that Scott may be facing some of the same challenges internally that he is facing from outside critics.

    For example, when one store manager wrote in to ask why "the largest company on the planet cannot offer some type of medical retirement benefits?", Scott responded:

    "Quite honestly, this environment isn't for everyone. There are people who would say, 'I'm sorry, but you should take the risk and take billions of dollars out of earnings and put this in retiree health benefits and let's see what happens to the company.' If you feel that way, then you as a manager should look for a company where you can do those kinds of things."

    The Times writes, “The Web site shows many sides of one of the nation's most powerful executives. He denounces managers who complain about the company or their subordinates. He frets about the success of his discount rival Target. He exhorts employees to act with integrity. He mocks General Motors for problems caused by its generous benefits. He rejects a manager's suggestion that Wal-Mart has created ‘a culture of fear,’ and he hails Wal-Mart's performance in responding to Hurricane Katrina.” In addition, he derides the media for making a living by focusing on the negative, and suggests that legislative remedies being sought by its competitors are merely a way of continuing to provide lousy service at high prices.

    Scott also makes the point on the site that the company has to be a lot stricter about toeing the line in terms of rules and regulations. The NYT writes:

    “Responding to a manager's question about attacks on Wal-Mart's image, Mr. Scott wrote in an April 2004 posting: ‘Your value to Wal-Mart is outweighed by the damage you could do to our company when you do the wrong thing.

    "’If you choose to do the wrong thing: if you choose to dispose of oil the wrong way, if you choose to take a shortcut on payroll, if you choose to take a shortcut on a raise for someone — you hurt this company,’ he added. ‘And it's not unlikely in today's environment that your shortcut is going to end up on the front page of the newspaper. It's not fair to the rest of us when you do that.’”

    The Times continues, “In his postings, Mr. Scott tries to strike a chummy, ‘in the trenches’ tone, reminding managers how frequently he visits stores — at least once a week — and pops into meetings unannounced ‘to make sure there's not a filter keeping me from hearing what's really important.’

    “But his responses often serve to remind managers of the gap between them and their chief executive, who earned more than $17 million last year, including stock options, who hops around the globe on Wal-Mart's fleet of jets and who lives in a gated community called Pinnacle.

    "’I recently had dinner with the prime minister of the U.K., Tony Blair, and his wife; my wife and I had a meeting with Prince Charles to talk about sustainability; and I met with Steve Case, the founder of AOL, and talked about health care,’ Mr. Scott wrote in a two-week-old entry describing how he represents Wal-Mart around the world.”
    KC's View:
    It always is a risk to be honest with people in a forum where almost anyone can see it…even if you have expectations of a limited audience.

    It is a little surprising, though, that Scott’s attitude toward managers with legitimate questions is to say, essentially, “If you don’t like it, leave.” Seeing as Scott worked his way up through the ranks, one of these managers could be a future CEO…though maybe that likelihood becomes more remote as the company gets bigger and more investor-focused.

    Clearly there is some dissent in the ranks. This is a good thing, by the way, since a company full of “yes men” is a company staring into the abyss. And keep one other thing in mind – it had to be a Wal-Mart employee who gave Wal-Mart Watch access to the site, which then provided transcripts to the New York Times.

    Published on: February 17, 2006

    The Miami Herald reports that a bill has been proposed in the Florida state senate that would require employers with more than 10,000 workers in the state to spend at least nine percent of their payroll costs on health benefits, or pay the difference to a state administered health care fund.

    The bill is similar to one passed in Maryland, and that was aimed specifically at Wal-Mart. Concerns have emerged in a number of states about workers who are unable to afford health care coverage and are ending up on public assistance even though they have jobs.

    Meanwhile, in Washington State – where a legislative committee that was considering a bill requiring businesses with 5,000 or more employees in the state to spend at least 9 percent of their payroll costs on employee health care, or pay the difference into the state's health care fund, essentially killed the bill by failing to send it to the full House of Representatives for a vote – the governor has promised to reintroduce and pass the bill next year.

    Speaking to a meeting of union groups, Gov. Chris Gregoire said, "If we didn't get it this year, we're going to get it next year. Let's work together to make it happen.”

    After the meeting, Gregoire told the Seattle Post-Intelligencer, "There are a lot of really good employers who want this done and have reached out to me and said, 'We need to make this happen.’ We need a level playing field in the state of Washington, and we're not going to reduce our health-care benefits in order to make that a level playing field.”
    KC's View:
    If so-called red states start considering and passing these bills, this may gain a kind of momentum that even Wal-Mart may find difficult to fight.

    Published on: February 17, 2006

    In the UK, The Mail reports that news of Tesco’s planned entry into the US marketplace with a chain of convenience stores built from the ground up on the west coast has started the rumor mills churning about how the effort will affect the company’s succession plans.

    “Success or failure could decide who will take over from Leahy, who is only 50 this year but is expected to seek a fresh challenge long before retirement,” The Mail writes. “Two men are tipped as possible successors. Tim Mason, former marketing and planning director, has been given the opportunity of glory as head of the latest venture, while Richard Brasher, the ambitious commercial and trading director, will be confirmed as the successor to Mason in the marketing role within days.”

    What seems to be of interest to some analysts is the possibility that this apparent line of succession may create on the part of other Tesco senior executives a willingness to go elsewhere for greater challenges, which could weaken Tesco’s bench strength. In just the last few months, at least two senior executives have jumped ship to other retailers.

    The Mail writes, “Clearly, Mason's chances of succeeding Leahy will hinge on making the breakthrough in the US. But it will not be easy. As number one in Britain, Tesco usually gets its own way. In America, it will be a tiny start-up operation, unsupported by the vast buying power of a national chain.

    “His first job will be to unravel Tesco's £16m stake in a home shopping joint venture with US giant Safeway. And should Tesco start to grow, it will soon attract the enmity of larger retailers, not least Asda owner Wal-Mart, which has huge clout in the supply chain. For Mason, it could be an American dream. Or a nightmare.”
    KC's View:
    The interesting thing about this is that we think it is the first time we’ve seen any reference to Tesco planning to disengage itself from the home shopping business in owns with Safeway in the US; to be honest, we figured that it might try to find a way to leverage that e-business so that it could serve two masters. But maybe that’s too complicated.

    We always wonder if these sorts of machinations actually are taking place back in headquarters, or if they are simply the kinds of things that consultants and analysts think up and members of the press are more than willing to print. The US endeavor is going to generate enough work and opportunity for glory to satisfy almost everyone, we expect…it seems a little early to start figuring out how success or failure will affect the executive suite down the line.

    Published on: February 17, 2006

    Nash Finch Co. announced that it had communicated the results of an internal probe of stock trading by officers and directors of the company to the US Securities and Exchange Commission (SEC), and that the company’s chairman of the board, Allister P. Graham, was taking over the company as interim CEO.

    Graham replaces Ron Marshall, who announced last September that he was retiring pending the naming of a replacement. The search for a permanent replacement continues.

    Graham is the former CEO of Canada’s Oshawa Group.

    Nash Finch also announced the immediate resignation of Kathleen E. McDermott, senior vice president, secretary and general counsel of the company. She will be replaced on an interim basis by Kathleen M. Mahoney, currently vice president and deputy general counsel of the company.

    According to a prepared statement, Nash Finch “has offered to provide certain documents and the SEC has accepted the offer. The Company will continue to fully cooperate with the SEC.”
    KC's View:
    The company reportedly is not commenting on whether there is a connection between the executive moves and the stock trading investigation. But you have to assume that this isn’t a coincidence…that if there were no connection, it would be a lot easier to say so. To say “no comment” is to speak volumes.

    Published on: February 17, 2006

    The San Diego Union-Tribune reports Safeway-owned Vons has decided to stop doubling the value of manufacturers coupons accepted at its San Diego stores and some of its Orange county stores.

    The company said it made the decision because fewer coupons are being redeemed at checkout. Analysts say that by eliminating the double coupon policy, Vons can save money, which will allow it to improve margins as it competes with nonunion chains such as Wal-Mart and Costco.

    Kroger-owned Ralphs reportedly will continue its policy of doubling coupons.

    KC's View:
    If Safeway is serious about its Lifestyle stores and changing its image, one the ways they can do that is by eliminating gimmicks like double couponing – which make it all about the price.

    Published on: February 17, 2006

    The Wall Street Journal reports on nonbinding guidelines issued by the US Food and Drug Administration (FDA) covering when products can be labled as being made from “whole grain.” According to the WSJ, “food companies can label bread or other products as ‘whole grain’ if they are in fact made of whole grains such as rye, oats, popcorn and wild rice, but not if they are made of substances such as soybeans, chickpeas and pearled barley. It also recommended that pizzas be labeled as ‘whole grain’ only if the crust is made entirely from whole-grain or whole-wheat flours.”

    The nonbinding guidelines also discourage manufacturers from using the phrases “excellent source” and “good source” because they may imply a greater percentage of whole grain than actually exists.

    KC's View:

    Published on: February 17, 2006

    MSNBC reports that a new study known as the Women's Health Initiative suggests that calcium and vitamin D supplements “offer only limited protection” against broken and fractured bones, though the supplements do seem to help women over 60 reduce the risk of broken hips.

    According to MSNBC, “osteoporosis touches an estimated 10 million Americans, making their bones prone to break. One of two women will suffer such a fracture in her lifetime. For women over age 50, federal guidelines recommend 1,200 milligrams of bone-building calcium and 400-600 international units of vitamin D daily from diet and, if needed, supplements.”

    This new study suggests that these recommendations may not go far enough.
    KC's View:

    Published on: February 17, 2006

    The Pittsburgh Post-Gazette reports that while Wal-Mart’s aggressive expansion in the market could get it to the point where it has a 20 percent market share, “Giant Eagle's aggressive use of price cuts and gas discounts” have kept that company far out ahead of the competition with a 51 percent market share.

    Meanwhile, the Post-Gazette writes, “grocery distributor Supervalu, which had 26.6 percent last winter in its Shop 'n Save, Foodland and Save-A-Lot operations, dropped to 22.1 percent by year-end.”
    KC's View:

    Published on: February 17, 2006

    The US Securities and Exchange Commission (SEC) said yesterday that the two KPMG auditors responsible for overseeing Ahold’s US Foodservice unit had not acted upon numerous “red flags” that would have pointed to the company’s $30 million accounting fraud. Administrative proceedings have been commenced against Kevin Hall, a KPMG partner, and Rosemary Meyer, a senior manager.

    "This case is an example of our continuing efforts to hold auditors and other gatekeepers responsible for failing to fulfill their professional obligations," said Scott Friestad, associate director of the SEC's enforcement division.
    KC's View:

    Published on: February 17, 2006

    • Dick Bergman, the president of Indiana-based and Supervalu-owned Scott’s Food & Pharmacy, has been named president of Supervalu-owned Shoppers Food & Pharmacy in Maryland. He succeeds the retiring Bill White.

    • Albertsons Inc. named Judy Spires – currently president of its Dallas-Fort Worth division, to be president of its eastern division, which includes its Florida stores and the Acme Markets in the Philadelphia region (which are being acquired by Supervalu).

    She replaces Carl Jablonski, who has been named president of the company's Shaw's and Star Market division in New England.

    • John Burgon, the three-decade veteran of the grocery business who is a Kroger senior vice president, is retiring effective Feb. 25, the company said in a news release.
    KC's View:

    Published on: February 17, 2006

    • Target Corp. reported fourth quarter revenue of $16.95 billion, up 12 percent from $15.19 billion a year earlier. Same-store sales were up 4.2 percent. Q4 profits rose to $939 million, from $825 million the year before.

    Annual revenues rose 12.3 percent to $52.62 billion, while annual income dropped to $2.41 billion from $3.2 billion in 2004, when a $1.24 billion gain from discontinued operations boosted its results.
    KC's View:

    Published on: February 17, 2006

    Responding to this week’s MNB Radio commentary about independent grocers, MNB user Ted File wrote:

    Your comments on the independent are excellent...right on the nose!!! Even as a small independent businessman I often find myself kidding and saying "what's wrong with my proposals, is it just the people on the other end who don't want to know?" Then we hear that they are using another firm, or went to a larger company with more people who hopefully can deliver more options than I can? Yes as an independent I (we) need to differentiate ourselves from the "big guys", those who have more assets. So, the bottom line?-----We need to re-invent ourselves and demonstrate to our prospective clients that we too know and understand how to find those gold nuggets that provide more exciting opportunities for the client.

    MNB user Chris Tjersland wrote:

    You are right on with your comments on the independent grocers. I live and shop in an area where chains dominate the landscape and I would love to see an independent with an innovative twist enter the market.

    Problem is, many of the successful independent retailers who made their money prior to Wal-Mart started to sit back and enjoy their success. Meanwhile, many other successful grocers decided to reinvent themselves to keep up with a changing marketplace. Most of them are still strong today and have developed a niche with their customers that makes them
    irreplaceable.

    Last week I had a chance to hear Bob Harmon (Harmon's - Salt Lake City) speak at our national sales meeting and it was obvious to me that they are built on innovation. They have found their place in a strong Wal-Mart market and have continued to evolve into a first class retailer that exceeds the customers expectations…

    Lets hope the independents continue to use their strength, their ability to change quickly in this competitive marketplace.





    An MNB user yesterday suggested that if Wal-Mart is not willing to carry state approved medications such as morning-after pills in its state-licensed pharmacies, then it ought to use those licenses. To which MNB user Gary Cohen responded:

    I took some prescriptions to Costco and gave them to the woman at the counter. When I was done shopping, and I went back to pick them up, they didn’t have one of the drugs, and another – they only had the national brand and not the inexpensive generic equivalent that the prescription called for, so it wound up costing me more to buy it there than it would have at any other pharmacy. Now, should Costco lose its pharmacy license in the state of California because they didn’t have a legally prescribed drug that my doctor prescribed?

    Seems to us that there is a difference between being out of stock and refusing to carry something.

    But we’re not sure exactly how we feel about this, though we are concerned about where the lines get drawn and by whom.

    Another MNB user wrote:

    I am a licensed but inactive Pharmacist. Some years ago a store where I worked decided not to stock any narcotic drugs because of (a) the security and record keeping requirements, and (b) the risk of being held up by addicts wanting to steal those drugs. I wonder if Massachusetts would go along with that business decision? Also, our medical insurance is provided by the Catholic Diocese. They won't even pay for birth control pills, let alone the morning after pill. Wonder how that would set with State of Massachusetts?

    Another MNB user wrote:

    I don't think government should have the right to tell a retailer what to sell. However, if a physician prescribes a legal drug, a licensed pharmacy should be required to disperse that (and all) legal drugs.

    Over the counter medication (and damn near everything else in the store) should be up to the retail what they want to sell. All prescription drugs should be a requirement for a pharmacy. Out-of- stocks may happen, but most of the time they should be provided.





    We wrote yesterday that we thought it was good for the industry for Ahold to start getting more aggressive and expansion-=minded, but MNB user David Livingston disagreed:

    KC, do you really think we are better off having Ahold expand in the US? Their ineffectual store performance has forced them to close or sell hundreds of stores. They sold Bi-Lo and Bruno's off in desperation and Tops stores are dropping like flies. Compound this with the financial scandals. Ahold needs to fix their existing stores first before they buy more stores and infect them with the same problems they have now. Albertsons tried to do the same thing. As they were getting murdered in Florida, Louisiana, Texas, Oklahoma, Tennessee, Colorado, etc, they were trying to buy their way back to prosperity with Shaws and Bristol Farms. Soon Albertsons will be no more. My guess is that Ahold does not have the cash to pay for top quality chains and they would have put the company at risk and borrow the money.




    On the subject of interchange fees and policies set by credit card companies, one MNB user wrote:

    It’s hard to believe that the credit card companies would act like the old Soviet Union by not allowing anybody to see the rules that they require their members to follow. Of course the rules are 100% in favor of greed for the credit card companies and nothing of value for the merchants.

    However, another MNB user wrote:

    I will agree with the retailers whining over interchange fees when the retailers stop charging “slotting fees” and the newest one: “marketing/advertising fees” to their suppliers of fresh fruit & vegetables. There’s also the back-billing issue that in fresh produce that is imposed on the suppliers. So the retailers need to quit being hypocrites.
    KC's View:

    Published on: February 17, 2006

    Monday is President’s Day here in the US…a national holiday that we will be observing by taking the day off. We’ll be back Tuesday with an all-new edition of MNB
    KC's View:

    Published on: February 17, 2006

    You know the world has gone a little crazy when, on Valentine’s Day, Willie Nelson makes headlines by releasing a song that was written almost a quarter-century ago by Texas-born singer-songwriter Ned Sublette: “Cowboys Are Frequently, Secretly (Fond of Each Other)”.

    We’re a long way from “Momma, Don’t Let Your Babies Grow Up To Be Cowboys,” “My Heroes Have Always Been Cowboys,” and “Always On My Mind”…though suddenly, those song lyrics seem ridden with subtext.

    Somewhere there’s a joke in here about last weekend’s goings on at the Armstrong Ranch down in Texas…but I think I’ll just leave well enough alone.

    Which isn’t easy to do. (Just wait for “Saturday Night Live” this week…)




    There was a story in the Boston Globe this week about how Apple Computer is building a new store in the Back Bay that will put even its best stores to shame – it will be four stories tall, will be open 24 hours a day, seven days a week, and will “feature an iPod bar - a paradise for insomniac, gadget-loving bar flies.”

    Wow.

    Wonder if the iPod bar will be as popular as the Genius Bar?




    I had a chance to see the new Harrison Ford flick, “Firewall,” last weekend, and have to admit I had a pretty good time. It is the story of a security guy who works for a bank, and what happens when a bunch of bad guys kidnap his family and threaten to kill them unless he helps them commit computerized bank robbery, transferring millions of dollars to an offshore account.

    Ford could play the role of the beleaguered security guy in his sleep…which actually is sort of the problem. We’ve all seen this movie before – it has a little bit of “Patriot Games,” and little bit of “The Fugitive,” and a little bit of “Air Force One,” all much better movies from Ford’s resume. The movie plays like “Harrison Ford’s Greatest Hits,” which is fine while you’re watching it but sort of leaves a bad taste in your mouth when the movie is over.

    Word is that sometime in the next year, Ford and Steven Spielberg will get together to make the long-awaited “Indiana Jones 4,” which hopefully won’t diminish the considerable pleasures of the first three. When you think about it, Ford is enduring what happens to most leading men in the movie business (and usually happens much earlier and younger to actresses). There’s a point at which the old stuff isn’t working anymore and good new stuff doesn’t seem so readily available. Some guys seem to do a better job than others about moving into latter stages of their careers – think about Burt Lancaster, Michael Caine, Paul Newman and especially Clint Eastwood. (On the other end, consider the careers of Burt Reynolds and Richard Dreyfuss, who seem incapable of capturing the old magic.)

    Almost everybody likes Harrison Ford, but it is time for him to do something new, something unexpected. (After all, “Firewall” had a pretty dismal showing its first weekend.)

    And by the way, there is a pretty good metaphor for retailing in here.




    One of the best things about being away for three weeks and not having any time to watch television was that I got to watch three episodes of “24” back to back to back…and boy, is this series on top of its game. More than being an above-average thriller with some terrific performances, though, it is fascinating how it keeps presenting ethical dilemmas – such as, is it better to allow a few thousand people to die if you know that it might help you track down a weapon that could kill millions?

    Luckily, it isn’t a choice that most of us will face. We have the estimable Jack Bauer to do it for us.

    Next up…about four hours of “Lost” that I haven’t seen…




    Wine of the week: a wonderful 2002 Beaune Greves Pinot Noir from France…light and lovely going down.




    Four words that make today a better than average day:

    Pitchers and catchers report.

    On days like today, everything seems possible.

    Ya gotta believe!




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