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    Published on: June 6, 2006

    The Wall Street Journal reports this morning on how Tesco has managed to keep Wal-Mart’s Asda Group at bay in the UK: “Its big weapon is information about its customers. Tesco has signed up 12 million Britons for its Clubcard program, giving cardholders discounts in exchange for their name, address and other personal information. The Clubcard has helped boost Tesco's market share in groceries to 31%, nearly double the 16% held by Wal-Mart's Asda chain…”

    Not only does the Tesco approach seem to be effective in the UK, but it also seems to be working in Central Europe, where Tesco is strong and Wal-Mart would like to establish a presence. And the open question is how Tesco will use its Clubcard system in the western US, where it will begin opening small stores next year – pitting it once more against Wal-Mart.

    According to the WSJ, one of the strong points of the Tesco system is that it looks for more than the obvious. For example, the easy play is to send baby-oriented coupons to families that, based on shifts in their buying patterns, have clearly just had a baby. But Tesco also sends beer coupons, because its research indicated that new fathers often forgot to buy beer because of the pressures of new parenthood.

    The Journal writes: “Tesco has used its knowledge of shoppers to fight Wal-Mart's core appeal: low prices. After Wal-Mart bought Asda, Tesco searched its database and singled out shoppers who buy the cheapest available item. They were most likely to be tempted by Asda, Tesco figured. Tesco then identified 300 items that these price-sensitive shoppers bought regularly. One was Tesco Value Brand Margarine. Tesco lowered the price of the margarine, along with other products with similar profiles. As a result, shoppers didn't defect to Asda, says Clive Humby, chairman of Dunnhumby, a British research firm that is majority-owned by Tesco and analyzes customer data for the retailer.”
    KC's View:
    The only way to compete in today’s market is with a degree of specificity that looks at customers in an entirely different way, trying to align marketing and merchandising approaches with customer needs and desires. This isn’t easy. Customers are, as a group, living proof of the chaos theory.

    The coming battle in the US between Tesco and Wal-Mart seems like it is going to be enormously entertaining, if nothing else. And we remain convinced that Wal-Mart will turn to its Neighborhood Market format as a way of blunting the Tesco impact.

    We’ll see.

    Published on: June 6, 2006

    The New York Times this morning reports on how curbside takeout services offered by family style restaurants have “become one of the fastest-growing areas of the $511 billion restaurant industry. Largely thanks to the new service, takeout sales at casual dining chains have grown about 10 percent annually over the last three years — double the annual rate of their overall growth, according to Technomic, a restaurant consulting firm in Chicago.

    “Unlike fast food, which is commonly consumed in the car, curbside meals are typically eaten at home, allowing restaurants to capitalize on the twin consumer trends of Americans eating dinner at home more often and the decline in meals actually cooked in the home.”

    The Times reports that systems have gotten a lot better. “Restaurant employees field cellphone calls from customers and monitor the designated curbside parking spots through a video camera. When cars pull up, employees match the car model and color to the order, dash out with the food and then hurry back inside to run a credit card or make change.”

    In some ways, according to the Times the family restaurants are taking advantage of the perception that their food is healthier than that sold by fast food restaurants, but studies suggest that this may not always be true – and that such food is almost always less healthy than food prepared from scratch at home.
    KC's View:
    This is a fascinating paradox – consumers simultaneously want to cook less and eat more together at home.

    The shame is that the supermarket industry largely continues to miss the boat on this one. As an industry, supermarkets seem to have decided a few years ago that the so-called “meal solutions” business wasn’t a long-term solution for what ailed the industry, and so tossed it out.

    The fact is that most supermarkets simply did meal solutions badly, creating systems that reflected their own needs, not those of customers. And when they failed, they blamed it on the concept, not the implementation.

    This will only change when supermarkets decide that quality food is the most important weapon they have in their arsenals – not low prices, not promotion gimmicks, not payments received in the form of slotting allowances.

    Published on: June 6, 2006

    The Chicago Tribune reports that the US Department of Agriculture (USDA) is considering a change in regulations that would allow beef producers to use a special “grass fed” label on certain kinds of beef. “To be eligible for the new label,” the Tribune writes, “a cattle's energy source would have to be 99 percent grass or other forages under the rules proposed this month.”

    A change in regulations would, in fact, toughen the current rules. “As it stands now, any producer can label his or her beef grass-fed. Even once the regulations are finalized, producers will be able to label their beef grass fed, but the new regulations will cover labels with the imprimatur of the USDA,” the Tribune writes. “Nutrition activists were disappointed with rules proposed in 2002 that would have allowed the grass-fed label for animals whose diet consisted of 80 percent grass.”
    KC's View:
    This is where we tend to get lost in all this bureaucratic meandering. Either a cow is grass-fed or not. The rules ought to say that manufacturers can only claim what is true, and that to do otherwise is to try to deceive consumers.

    At the same time, manufacturers ought to realize that even the perception that they are deceiving customers does not help their companies specifically and the mat industry in general.

    Published on: June 6, 2006

    Former Ahold CEO Cees van der Hoeven reportedly will appeal his conviction last month in the fraud case related to the accounting scandal that roiled the company.

    Both van der Hoeven and former Ahold CFO Michiel Meurs were fined the equivalent of $287,000 apiece and were given nine-month suspended sentences; they will not have to serve any actual jail time. Meurs also reportedly will appeal his conviction.

    No specifics were given as to the grounds for the appeals.

    However, this is the second appeal planned in the case. The prosecutors who had been seeking prison terms for the two men have said that they will appeal the sentences and look for tougher penalties.
    KC's View:
    When we think of van der Hoeven appealing his conviction, the image that immediately comes to mind is that of Lady Macbeth, scrubbing her hands and saying, “Out! Damned spot!” – hoping that she can somehow remove the blood that will forever be on her hands.

    He can appeal forever, but it will not remove the stain of shame that attends his tenure at Ahold. To paraphrase another line from “Macbeth”: In many ways, “the attempt and not the deed confounds us.”

    And, as a simple plea to van der Hoeven, still another line from “Macbeth”:

    “Shut up in measureless content.”

    The context is different, but our sentiment sincere.

    Published on: June 6, 2006

    • The Wall Street Journal reports that Wal-Mart is backing away from its previous “cannibalization” strategy that had it opening a third supercenter even in markets where two already are operating, the theory being that three stores – even if they stole sales from each other – helped to develop and dominate markets.

    John Menzer, vice chairman of the company, told analysts that the company will delay the opening of third stores because “we have plenty of projects to pick from.” Menzer conceded that the old strategy both hurt same-store sales and return on investment – two things that hurt its stock price and image in the investor community.

    Presumably, the new approach will improve both same-store sales and ROI…which will make investors happy.

    • Less happy, in all likelihood, are manufacturers that supply Wal-Mart. Forbes reports that the company plans to “become increasingly offensive in merchandising, procurement and inventory management. This means longer-term risk of inventory rationalization and more private-label purchasing.

    “Wal-Mart is also pushing environmental sustainability to vendors, which could be an additional cost and risk to the group…”

    MediaWeek reports that Time Inc. has decided to extend the exclusivity deal with Wal-Mart that has put All You, a women’s magazine, at checkouts throughout the retailer’s system. The magazine was launched in August 2004, and this year had the option of either expanding the distribution to other chains or to extend the exclusivity agreement with Wal-Mart.

    MediaWeek writes that All You publisher Diane Oshin says it is good business sense to stay put. “The relationship has allowed us to develop unique marketing and cross-promotional programs based on our editorial product and they’ve worked very well for marketers who have participated in them,” she said.
    KC's View:
    One of the points that Forbes makes is that “supermarket operators have…been reducing their own inventory levels since the second quarter of last year” in an effort to compete more effectively with Wal-Mart.

    Which strikes us as a mistake, because it means that these retailers may be falling into the trap of trying to compete with Wal-Mart on its terms. They should be focusing on having a broader and deeper selection of relevant products, not on cutting back.

    Published on: June 6, 2006

    Walgreen Co. announced yesterday that it is acquiring Happy Harry’s, the privately owned drugstore chain with 76 stores in Delaware, Pennsylvania, Maryland and New Jersey. The company plans to keep the Happy Harry’s name in most markets.

    Terms of the deal were not disclosed. The sale is slated to close later this summer, pending regulatory approvals.
    KC's View:
    So, CVS buys Albertsons’ stand-alone drug stores. Walgreen buys Happy Harry’s.

    Wonder which one is better positioned?

    Published on: June 6, 2006

    The Washington Daily Herald reports that since the Everett, Washington, school district decided to eliminate soft drinks from school vending machines, replacing them with water and fruit juice, it has taken a “huge financial hit” because of the loss of revenue from soda sales. Without soft drink revenue, beverage sales dropped 97 percent – and that’s money that normally would have gone to student government and after school activities.

    The cold reality, it seems, is that at this point it is unknown whether the action taken by the district actually is helping to prevent obesity, since kids can get access to soft drinks in a wide variety of ways.
    KC's View:
    We read stories like this one, and we have to admit being conflicted. On the one hand, we hate to see the kids victimized…but we continue to believe that it is our responsibility as adults to encourage and model positive nutrition-oriented behavior.

    Tough call.

    Published on: June 6, 2006

    CBS News reports that a St. Louis-area minor league baseball team, the Gateway Grizzlies, is selling in its concession stand a food item rapidly becoming known as the world’s unhealthiest hamburger - a burger with cheese and bacon, sandwiched between a Krispy Kreme doughnut.

    Ketchup not recommended.

    KC's View:
    Some foods that are awful for you still sound like they’d be pretty good to eat. But this one just sounds repulsive.

    Guess it’s better to be known for something awful than not to be known at all.

    Published on: June 6, 2006

    • Kroger announced that it will begin selling ethanol at one of its gas stations in Houston – the first of 18 Kroger gas stations in Texas that will sell the alternative fuel.

    • The Philadelphia Business Journal reports that c-store chain Wawa, which operates more than 500 stores in the mid-Atlantic region, will open a new 5,700 square foot store at the Northeast Philadelphia Airport that will sell everything from deli and bakery products to gasoline.

    KC's View:

    Published on: June 6, 2006

    • Published reports say that William Morrison Supermarkets will name Marc Bolland, COO of Heinken, to be its new CEO, replacing Bob Stott. The Sunday Times writes that while insiders had hoped this appointment months of bitter boardroom infighting about the company’s leadership, there seems to be evidence that the strife will continue; Sir Ken Morrison, chairman of the company, remains under pressure to resign.
    KC's View:

    Published on: June 6, 2006

    We got a number of comments about yesterday’s review of the 60m Minutes piece about Whole Foods and John Mackey. We wrote that correspondent Dan Rather seemed preoccupied that Mackey might be a little nuts because he combines capitalism with strong social consciousness, though we did think that Rather’s questions made sense about why it matters to treat lobsters humanely before plunging them into boiling water and then eating them.

    One MNB user wrote:

    I agree with Mackey. The lobsters might not have the thought process to worry about quality of life, but they can feel pain. Humans do have the capability of thought and choice, and the responsibility that comes with those abilities. Most of us will continue to be carnivores, but we don't need to be unnecessarily cruel about it. I want to have the choice to be more humane. (I must admit that as much as I enjoyed lobster, I gave them up when I found out about how they were killed...)

    MNB user Ryan Bass wrote:

    I find it highly ironic that the views of John Mackey regarding quality of life, corporate stewardship, philanthropy, etc.... were characterized several times as "wacky" by Dan Rather (a traditionalist to say the least). I felt the overall tone of the interview was somewhat condescending to the entire approach Whole Foods takes into the business world (one that I find refreshing, inspiring, and even heroic).

    What I found most ironic was in one question Rather posed, he seemed to indicate he believed that philanthropy, good wages & benefits, and good quality of life for employees were actually mutually exclusive to creating a well-performing publicly traded company as he eluded to the "responsibility" Whole Foods has to its shareholders. Mr. Rather (and many, many people in the business world today) needs to realize that the culture Mackey has created IS THE WAY to creating a well-performing publicly traded company.

    Focus is key! "Focus on the results, not the components (i.e. employees & customers)" is the old school of thought, and really is a recipe for disaster....."Focus on the components, and the results will follow" is the new (and correct, in my opinion) school of thought - and one that Mackey obviously understands to perfection.

    Case in point - Albertson's & Marsh vs. Whole Foods & Wegman's - There is no other explanation.....

    Another MNB user wrote:

    Thank you for the synopsis of the 60 minutes-Whole Foods interview. I missed it (traveling), but would like to comment. Having been around the natural foods business for several years, and having worked at WF - after a lifetime in the conventional retail food arena ... they are a complicated lot.

    However, I do not feel there is any less of a pure motive from top to bottom, in that organization. I've seen it in John Mackey's eyes – and throughout the company. It is in the fabric of every weekly team (department, store, region, and company) meeting The seeming contradiction in making money, and being socially responsible is this.

    Infuse pure capitalism with a steady dose of Whole Foods standards, so the message has financial legs to carry it to the greatest number of people. It is also all of the dreadlocked hippie associates beating the corporate types at their own game (and they DO love it). And ... the concept of "chemical free, organic, free range" chicken, as an opiate of the healthy masses.

    Overall situation being equal - I'd work there again in a minute - and will always encourage my daughters to work there…

    And MNB user David Livingston wrote:

    Mackey might fairly be characterized as a “little wacky.” KC - I've gone to hear you speak and think you are a bit wacky too. But that's a good thing. I have heard people in this industry call you a nut, but I have never heard anyone say you were boring. Nuts get hired to speak. Boring people sit in the crowd. If I wasn't a little wacky, I wouldn't be able to do my job either.

    Have you ever heard of a successful company that did not have someone a bit wacky in charge? Sam Walton? The man was a lunatic driving around in an old truck, obsessed with saving pennies, and worth billions. It’s these boring guys who talk like Ben Stein with high foreheads and $2,000 suits running companies who scare me. Do you think 60 Minutes would get ratings interviewing them? Of course not. Sometimes I think we should just substitute the word "wacky" with "passionate" and I think it would better define certain people.

    Wait a minute. Who said we were nuts?

    Guess it could be worse.

    After all, considering today’s date – 6/6/06 – they could think we’re the devil.

    KC's View: