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    Published on: June 1, 2006

    The Memorial Day holiday may mark the beginning of summer, but that doesn’t mean putting your brain and creativity on hold until Labor Day. This week, the Hartman Group offers a variety of insights about the consumer condition:

    • Do consumers view packaged goods as value-added or value-less?
    • Five enduring myths about consumer shopping behavior.
    • Separating facts from fictions about Wal-Mart.
    • The truth about organic branding.

    Want to know more? Click on the “Consumer Pulse” tile ad on the right hand side of the page, or go to:
    KC's View:

    Published on: June 1, 2006

    The San Francisco Chronicle reports on what it terms the “explosive” and ‘extraordinary” growth experienced by Earthbound Farms, which “started two decades ago as a three-acre roadside farm” 90 miles south of San Francisco and “has grown into the country's largest grower of organic produce, with more than 100 types of fruits and vegetables on 28,000 acres in the U.S. and abroad.

    “Earthbound's extraordinary growth is only the most visible example of how organic farming is changing,” the Chronicle writes. “Small family farms created as an alternative to conventional agriculture are increasingly giving way to large-scale operations that harvest thousands of acres and market their produce nationwide.

    And with Wal-Mart, Safeway, Albertson's and other big supermarket chains expanding their organic offerings, the transformation may only be in its early stages.” The big concern in some quarters is that what sometimes is called “Big Organic” is becoming increasingly industrialized, and that the shift will “lower food quality, weaken standards and hurt small family farms. As organic goes mainstream, critics say, the movement loses touch with its roots as an eco-friendly system that offers a direct connection between consumers and the land where their food is grown.”

    Of course, the folks at Earthbound Farms and their brethren do not share these concerns, saying that they follow the same organic procedures as smaller farms, and that the greater availability of organic produce can only grow the category, not diminish it.
    KC's View:
    It seems to us that the first line of defense against the weakening of organic standards is to make sure that the federal government resists any high-priced lobbying by bigger companies that might result in lower standards. Indeed, if the organic category is to thrive and survive long-term, it may be that standards will have to be strengthened and made even more stringent.

    One other thing. The food industry has to be concerned that stories like this one by the Chronicle are going to become more and more commonplace. They cannot help but undermine confidence in the organic sector, and the industry has to fight back with specific and credible consumer information.

    Published on: June 1, 2006

    BrandWeek reports on a new study by Information Resources Inc. (IRI) that looks at Wal-Mart’s strengths and weaknesses. Here are six things you may not know about Wal-Mart:

    1. Wal-Mart saw sales increases in 12 of 15 of the fastest growing CPG categories during the year ended March 19, 2006.

    2. Among the best performing were sports drinks (+22.4 percent) and coffee (+11.3 percent).

    3. The three fast-growing categories in which Wal-Mart saw sales decreases, despite the fact that national numbers were up significantly, were bottled water (-0.2 percent), hand and body lotion (-0.1 percent), and eye cosmetics (-1.7 percent). Because Wal-Mart is emphasizing food products over nonfood in its supercenters, the retailer also is seeing declines in categories that would be considered discretionary, such as kitchen storage, by its lower-income customers.

    4. BrandWeek writes that “The rising cost of fuel, and consumers being pressed for time, has contributed to Wal-Mart shoppers making fewer visits per month (down by 1% from 2004 to 2005) but spending more per visit (up nearly 3%).”

    5. The IRI study concludes that 80 percent Wal-Mart's sales are generated by just a third of its shoppers, most of them in the lower-middle income range. But because these shoppers are vulnerable to budget squeezing because of rising fuel costs, Wal-Mart is moving into other areas such as organics to attract a different customer with more disposable income.

    6. And, Wal-Mart is emphasizing in-store health care clinics to attract older consumers being squeezed by health care costs.
    KC's View:
    In some ways it seems like Wal-Mart realizes that it may have peaked when it comes to selling traditional Wal-Mart merchandise to its traditional customer demographic…which is why it is expanding its offerings, looking to sell non-traditional Wal-Mart merchandise to non-traditional Wal-Mart customers.

    Published on: June 1, 2006

    The Washington Post reports that “many Washingtonians who favor foods from back home are finding that more and more supermarkets are stocking shelves with products they want and brands they recognize. Supermarket owners see the buying power of Hispanics -- the fastest growing segment of the American population and the largest ethnic minority, with 576,000 members in the Washington area, according to the most recent Census Bureau figures.”

    In addition to chains like Giant Food stocking more Hispanic products, other companies actually are coming up with formats friendly to Hispanic customers. “In December, Shoppers Food Warehouse Corp. opened El Primero Mercado, a sprawling supermarket on Route 28 in Manassas with 10,000 products from Mexico and Central America as well as concepts, such as a fresh tortilla bakery, not found at a typical Shoppers Food & Pharmacy store.”
    KC's View:

    Published on: June 1, 2006

    • The Wall Street Journal reports that the US Food and Drug Administration (FDA) plans to recommend that restaurants “advertise healthier foods instead of high-calorie offerings and do more to give customers nutrition information.” The goal is find new ways to help Americans deal with the nation’s ever-widening obesity crisis.

    Not everyone thinks this is a good idea. "It's certainly important to offer healthier items, but I don't think that people out there should be telling restaurants what to advertise," Sheila Cohn, director of nutrition policy for the National Restaurant Association (NRA), tells the Journal.

    The 136-page report does not suggest government mandates. Yet.

    • The Wall Street Journal reports that Carlos Sanchez, after having held the same food industry job for 37 years, is retiring.

    You may not know the Sanchez name, but you almost certainly know his face. Sanchez, 71, has played Juan Valdez for the Colombian National Federation of Coffee Growers for almost four decades. He says he is retiring because he feels he is getting too old and fat to be the character, which is a national symbol for Colombia.

    The Colombian National Federation reportedly is looking for a replacement – a man with a mustache in his mid-thirties who can get along with donkeys.

    • The Austin American-Statesman reports that HE Butt Grocery Co. plans to begin offering corn-based ethanol at five of its gas stations. "It just gives you a choice," James Aulds, vice president of petroleum marketing for H-E-B, tells the paper. "The timing is right relative to . . . the high cost of fuel right now."

    There are numerous reports this morning, by the way, that Wal-Mart is strongly considering a similar move and could shortly decide to offer ethanol at all 383 gas stations that it operates around the country.

    KC's View:
    Applause for H-E-B, which actually is trying to do something to help customers deal with the nation’s fuel crisis.

    New York Times columnist Thomas Friedman had a great column yesterday in which he wrote, “Like a crack dealer looking to keep his addicts on a tight leash, G.M. announced its ‘fuel price protection program’ on May 23. If you live in Florida or California and buy certain G.M. vehicles by July 5, the company will guarantee you gasoline at a cap price of $1.99 a gallon for one year — with no limit on mileage. Guzzle away.”

    In other words, instead of trying to improve gas mileage or come up with vehicles that are more efficient, General Motors is trying to get people to buy gas guzzling vehicles with a promise of temporary low prices on fuel…knowing full well that prices are likely to go up and that their customers will have to foot the bills.

    Published on: June 1, 2006

    • The Oklahoman reports on how an independent office supplies store in the town of Edmond called McLain-Chitwood Office Products has managed to compete successfully with an OfficeMax that opened across the street seven years ago.

    “There are no invoice numbers, minimum orders or online ordering at McLain-Chitwood,” the paper reports. “Merchandise on the front counter has hand-written prices on them. The owners aim not to be high-tech but to offer easy service for customers…”

    Most of the retailer’s customers don’t come through the front door, but rather are regular accounts that it has nurtured among the state’s lawyers and businesses, being willing to deliver a single pen or binder if that’s what the customer needs.

    The approach, devoid though it may be of fancy marketing techniques or high tech gizmos, seems to be working. The OfficeMax has closed, unable to compete with McLain-Chitwood.

    • Office Depot announced this week that it will test the offering of Best Buy’s Geek Squad computer support services in 10 of its Florida stores. The goal for Office Depot is to expand its range of services, while it gives Best Buy greater access to the small business market.
    KC's View:

    Published on: June 1, 2006

    • The National Association of Convenience Stores (NACS) announced that Matt Danzig has joined its staff on as supplier membership and sales manager, responsible for supplier membership recruitment and retention, sales of advertising and membership opportunities and cultivating relationships with current and prospective customers.
    KC's View:

    Published on: June 1, 2006

    The Atlanta Business Chronicle reports that Home Depot CEO Robert Nardelli, much criticized over the past week for what appeared to arrogant behavior at his company’s annual shareholders meeting, has been named chairman of the Business Roundtable’s Partnership for Disaster Task Force.

    The appointment was made because of what is viewed as Home Depot’s leadership during last year’s hurricane disasters on the Gulf Coast.
    KC's View:
    On the other hand, Nardelli is experiencing a series of disasters in his job at Home Depot…and there seem to be some whispers that he may not be able to survive the public relations disaster he’s created for himself.

    Published on: June 1, 2006

    Lots of reaction to the legislation being considered by the city of Chicago that would create a higher minimum wage for “big box” stores larger than 75,000 square feet and owned by chains generating more than $1 billion a year in sales.

    MNB user Thomas D. Murphy wrote:

    While I have a deep appreciation for a true "living wage & benefits", nothing good ever comes from the government (at any level) trying to help out on this. They can only convolute the process resulting in an eventual mess, unexpected (usually negative) economic impacts, and often multiple & contradictory rules, e.g., your example of multiple minimum wage guidelines

    It usually takes longer for the market to balance itself out, but really, Wal-Mart is having no problems getting new hire the wages and benefits must be in balance with the market forces. In truth, I believe most of these efforts are the result of union-sponsored lobbyists working at all levels...and that is never good!

    MNB user Joe Fraioli wrote:

    I am no fan of Wal-Mart and their business practices; however things need to be fair across the board for all companies. This proposal does not seem fair as it is targeting bigger companies simply for the fact that they are bigger. What’s next if a company does over $5 Billion in sales all employees must get a company car?

    Another MNB user wrote:

    The city just can't help itself. It's a big union town and since W-M won't throw in the towel, they are going to punish them and others by writing rules that will apply only to big retailers. Well, the big boxes can always go outside the city, then the city council can get something new...that big sucking sound as those highly prized tax dollars start flowing out...this will match the sucking sounds from Orlando and Las Vegas that are capturing the convention business. Extortion is can run in both directions.

    MNB user Douglas F. Gray wrote:

    Last time I checked we were still a capitalist society. Enough is enough and these cities and States have no business dictating what business needs to provide what level of wages and benefits.

    If like South Florida, folks in Chicago cannot afford basic necessities on the minimum wage than I would support a change. This change needs to be applied to all companies, not just the strongest. We have McDonald's paying starting wages of $12.00/hr in areas where minimum wage workers will not work in what my son calls "the Burger mines". That is the way it should be and for the record they still serve up the full Dollar Menu.

    How does the average person reconcile shopping at Wal-Mart to save money and yet feel it is fair to make them pay a different wage and benefits package than another business.

    This is just one more example of why trade associations need to Boycott this corrupt city.

    Wake up America! If you don't like Wal-Mart's business model you can simply vote with your own hard earned money and spend it somewhere else. As for me, I'll take, low prices, clean stores and average customer service.

    Yet another MNB user wrote:

    I worked for Wal-Mart for 11 years ( it put me through college, sent me to Australia, paid for me to do studies in Marine Biology, and has paid for my trips all over the world!) and I loved working for the company by the time I left I was at 15 bucks an hour, but I truly loved the managers I worked for and they treated everyone very well. I understand what Chicago is doing but I can not accept that the city would rather watch people suffer instead of giving them the opportunity to work for a good company.

    We got an email yesterday from an MNB user about our story on Costco’s quarterly results, and it ties into all the stories we’ve been doing about absurd executive compensation schemes:

    I can't quote the source, but I read onetime a CEO's remark, "I don't pay good wages because I have a lot of money…I have a lot of money because I pay good wages." I always remember that anytime I read about Costco.

    Agreed. We wrote yesterday that Costco CEO Jim Sinegal, who has an annual salary of $350,000 a year, is a bargain. Which prompted one MNB user to argue:

    No bargain, window dressing. (His) probable earnings have to be far more, in my opinion.

    Of course they are. Most of us probably would be thrilled with one percent of his Costco stock position.

    But our point is that Sinegal’s earnings are tied to the performance of the stock...and, in fact, Wall Street continually devalues the Costco stock price because it feels Sinegal pays his people too much money and keeps his margins too low. In other words, catering to actual customers rather than to the stock market...even though his personal revenue is tied to the stock price.

    Isn’t that the kind of CEO you’d want for a retail company?

    We had a story yesterday about a study suggesting that we Americans are an impatient breed, and that we hate grocery checkout lines most of all – even more than the post office or motor vehicles bureau.

    One MNB user responded:

    I do find myself growing impatient while on line at a store but only if there are not enough registers open, the associate is not working hard, they do not acknowledging I am waiting ,etc. If all is well then I don’t mind waiting a few minutes because they are doing their best. A good retailer in this scenario is Trader Joe’s, they are fast, friendly, and I don’t mind the wait when there is one. Waiting in line at the bank is where my blood starts to boil, it is like they don’t even want your money!

    Another MNB user weighed in:

    What's even worse is calling a retailer and getting the phone tree. It infuriates me to go through three or four levels and finally find out how to talk with a real person. Oh I try to circumvent the system with using the * or # or 0 but that only works once in a while or only if you are on the proper level. Yes I'm a baby boomer leader and yes I hate lines. (Retired
    military might have something to do with it,,,)

    We’ve been writing recently about the decision by the California community of Hercules to try to use the power of eminent domain to take over property where Wal-Mart wants to build a store. We noted that we’ve never been to Hercules, so don’t have a real sense of how such a store would affect the area…but the good news is that there are MNB users who seem to know the region well.

    One MNB user wrote:

    Hercules is not a small rural town but rather a small community in the middle of the very urban San Francisco Bay area. This is all about a community having the right to create a vision for their town. The town has grown rapidly in the last few years in an area where housing prices are routinely reach the $800,000 to $1,000,000 price range and the residents want to create an atmosphere that is small town oriented. The most common reference they use is that they want to create an environment like Sausalito across the bay where small business reigns supreme. The town feels that a Wal-Mart in any format would create a huge amount of traffic and detract from the overall ambience they are trying to create. Bottom line is the Anti Wal-Mart sentiment in this area is so strong that unless the courts get involved this store is doomed.

    Wanting to be like Sausalito is one thing. Actually being like Sausalito is another…which is the point made by another MNB user:

    I was born in the SF Bay Area and currently live in the city of SF. For my entire life, the northeast shore of the bay from Richmond to the big Chevron refinery at the Carquiniz Strait has been a pit with crappy schools, crappy homes and high crime.

    Over the hears there have been some "new" developments that were going to "turn things around", but as long as the Chevron Refinery is there and the area (almost) always smells things will never get better. There are a few new residents who paid a lot of money for new homes that think the area will be the "New Sausalito"…

    We gather you aren’t one of them…

    Continued email about the Albertsons sale, from a number of perspectives.

    MNB user Mark Heckman wrote:

    I have generally good feelings about Supervalu and have respect for their recent track record. However, there is no doubt that they are entering into uncharted waters with the Albertson’s deal. I am not at all sure that they have right corporate culture or even business acumen in the area of integrating new stores, new people and new marketing areas into their mix so quickly.

    Many accomplished retailers have shown in the past that while they may be very good at being who they are, they have no idea how to create synergy and growth from an acquisition. Time will tell, but the numbers and the bravado that Jeff Noddle is reverberating now, will be much harder to execute than to articulate.

    Another MNB user wrote: we all know what Supervalu will be doing to their stores. Now what about the other 655 other stores that are here in what we all call the Rocky Mountain Division? We’re all still kind of shaken up some what that the company has split up and this end got Cerberus & Kimco...Basically as we see it a salvage company and reality company. Do I need to say more....But we all still wake up and head off to work everyday. Loyalty. Some stores sit on prime land that Joe (Albertson) would buy instead of leasing back in the day and some are leased. Life does go on. There's just a curve in the road to a future is all. One that everyone has taken in their life's, except for Larry. He still has a job sitting on the board of Home Depot.

    Another MNB user chimed in:

    My wife works for Shaw's Supermarket's and she received a letter in the mail yesterday stating that Albertson's was moving all Shaw's associates over to the ABS 401K plan and at the same time would be enacting a "cessation" of all future ABS contributions to the Shaw's pension plan.....albeit putting an end to the long standing, lucrative pension plan at Shaw's (Shaw's had, a few years back, stopped allowing new entrants into the plan but had still been contributing to existing plan member's plans)....

    I understand this is a trend for larger companies......but no meetings with ABS HR people with opportunities for comments, Q/A......just a strategically written letter that showed up in associate's mailboxes.....

    I guess we can blame Larry Johnston for this one too.....

    It is the near-anonymous letter that is both dispiriting and illustrative about how these organizations function.

    We know a guy who worked for the same food industry organization for more than a half-dozen years, and was, as far as we could tell, both professional and effective in his job. He recently got laid off when his supervisor sent him a letter, which arrived at his home while he was on vacation.

    Now, this guy will move onto bigger and better things. He’s young and talented. But what the organization involved doesn’t realize is that while the letter went to one person, it sent a message to almost everyone who works there about how they are viewed as people and valued as professionals.

    We received several emails about the new and higher bid made for Marsh Supermarkets, and the possibility that the board might accept it – even though the original bidders want to keep the stores operating and the new bidder may be more interested in the real estate.

    MNB user David Livingston wrote:

    Generally when a company accepts a lower offer there is usually some extra financial consideration given to the senior staff. Often it is cheaper for the acquiring company to pay a lower share price but to offer a few million more in golden parachutes to the executives. Why do you think these lowball offers are so easily accepted?

    Another MNB user wrote:

    I would hope this difference between the bidders WOULD make a difference to the "folks at Marsh".

    Given the fact that Sun Capital intends to continue to operate supermarkets-actually, not just operate, but run good supermarkets that the community will strongly support and the with the type of leadership that fosters positive morale and employee retention- perhaps Marsh stockholder's will accept the bid because (and forgive me if this sounds a bit naive) while it may not reap the greatest financial gain, it's the right thing to do.

    Don’t hold your breath.

    We had a story earlier this week about how Tesco’s insurance arm in the UK was offering lower life insurance rates to people who quit smoking, and we idly speculated that it might be interesting – and even a little scary – if it linked its systems so that if someone getting nonsmoker insurance rates from Tesco would be flagged if they bought tobacco products at a Tesco retail store.

    At least one MNB user – David Diamond – thought that this wasn’t such a bad idea, especially if people could opt into such a program so that the threat of being caught smoking actually served as a way to keep them from buying and using tobacco.

    However, MNB user Philip Herr sort of has a problem with this logic:

    I am sitting here asking, what are you smoking? I feel both incredulous and deeply disturbed by this possible invasion of privacy. Weren't we just raging against the phone companies for supplying data to help root out potential terrorism, while in the next breath happily allowing our behavior to be monitored for "improper" purchases? Where does it stop, our church or synagogue asking for reminders if we purchase "The DaVinci Code"? Our spouses if we rent an X-Rated movie?

    The argument has always been that consumers will happily give personal information if it benefits them. I have not subscribed to that view -- even if I trust the retailer. Who is to say the information won't fall into other hands? I haven't felt this degree of paranoia for quite some time.

    By the way, in a Your Views exchange yesterday, one MNB user noted that such a system would not work because people often buy tobacco for friends, not necessarily for their own use…and asked (rhetorically, we think) if we’d ever done so.

    We responded (not rhetorically): Never. We’ve never smoked, and have never bought cigarettes for anyone. Not even for our mother, who was a two-pack-a-day smoker for most of her life, and wasn’t pleased when we refused to buy her what she wanted. (She died of lung cancer of a few years ago, proving that we were right, which doesn’t make us feel any better about it.)

    If we burn in hell, it’ll be for other reasons. It won’t be for providing anyone with cigarettes, and we won’t be in the smoking section.

    To which MNB user Al Kober responded:

    What a shame you do not know for sure that if you die (and you will) that you would not be going to Hell. It is possible to know and if you don't know for sure, without a single doubt that you will spend eternity in Heaven you probably are not. The problem is you are somehow or some way trusting in your own efforts or hoping your good out weights your bad. It doesn't, because the only people going to heaven are those whose sins have been forgiven, totally. Even one small sin is enough to keep you out of heaven. Why not be sure and live with the absolute assurance that if I would die today, I will spend eternity in Heaven with Jesus Christ, who paid the price for my sin and I can stand before God clothes in the righteousness of Christ. It all about what Jesus did, not what you did or didn't do.

    You need to be sure not hope when it come to something this important.

    “If we burn in hell” actually was just meant to be a clever turn of the phrase. But now you have us worried.
    KC's View: