business news in context, analysis with attitude

Just a few quick notes about stories that occurred while we were on holiday - with occasional commentary included in italics…

• Less than a week after Kraft CEO Roger Deromedi gave a speech at the CIES World Food Business Summit in which he suggested that the food industry needed to embrace a higher calling, only to imply later in his speech that part of his definition of “higher calling” was lower sugar prices, his company’s board of directors fired him and replaced him with Irene B. Rosenfeld, who worked at Kraft for 22 years before departing to become chairman/CEO of Frito-Lay North America.

The board apparently hopes that Rosenfeld will bring greater marketing and new product pizzazz to the struggling company, which has been grappling with increased costs and a restructuring effort begun by Deromedi.

We’re not suggesting that Deromedi’s speech was in any way responsible for his getting the old heave-ho. However, we would be less than honest if we said that his speech in Paris gave the impression of greater leadership skills and surpassing vision. In fact, compared to Coke’s Neville Isdell and Procter & Gamble’s AG Lafley, both of whom spoke at CIES, Deromedi seemed singularly unimpressive and vanilla.

Advertising Age reports that instead of conducting a single search for a new advertising agency, Wal-Mart actually is conducting four searches, looking for different agencies to handle its mainstream advertising business, its African-American/urban business, its Asian business and its Hispanic business. The feeling at Wal-Mart seems to be that if its is going to create a more localized approach to store development, it also should have a more demographically sensitive approach to marketing.

• Published reports out of Canada say that the Ontario Information and Privacy Commission (IPC) has issued guidelines that will govern the use of radio frequency identification (RFID) technology. Among the suggestions are the requirement that RFID tag be deactivated at point of sale so that they cannot be tracked to the consumer’s home, and that any personal customer information cannot be linked to RFID technology without the express consent of the individual shopper.

While RFID advocates may argue that such guidelines are unnecessary – especially because retailers have been so bad at even using frequent shopper data – we think that it makes sense for the industry to embrace these guidelines as a way of taking some of the starch out of the opposition’s argument.

• Ralphs, the Kroger-owned chain based in Southern California, reportedly has agreed to pay $70 million in restitution and fines for rehiring hundreds of employees during the 2003 lockout/strike and then paying them under false names. The deal involves Ralphs pleading guilty to conspiracy and identity fraud, but will keep the company from having to endure a jury trial.

• Costco reportedly plans to open a third Costco Home store sometime in the next year at a location yet to be disclosed. The Costco Home concept uses a warehouse club format but only sells furniture and other home-oriented products.

• Roundy’s reportedly will close three Rainbow Food stores, all in the Minneapolis area, that it has deemed to be unprofitable.

• As the US Food and Drug Administration (FDA) celebrated its 100th birthday, the agency came in for criticism from Public Citizen's Health Research Group and the Center for Science in the Public Interest (CSPI), which charged that it does almost nothing to reduce the impact of diet-related and drug-created diseases in America.

"FDA was our country's first consumer protection agency and Americans have relied on FDA to ensure the safety of their food and drugs for 100 years," said Representative Henry A. Waxman (D-California). "Under the Bush Administration, FDA has undermined enforcement and betrayed its consumer-first legacy. FDA must start enforcing the law and return to a culture that places public health concerns ahead of industry profits.”

"The FDA's centennial is not so much a time to celebrate, but to mourn the FDA's gradual descent into irrelevancy," said CSPI executive director Michael F. Jacobson.

Which led the Grocery Manufacturers Association (GMA) to issue the following statement by its president/CEO, C. Manly Molpus:

“FDA’s reputation as the world’s leading food safety agency has been earned through 100 years of vigilant stewardship when it comes to the safety and security of America’s food supply. It continues to attract the world’s leading food safety and scientific experts from around the globe, and is renowned for its rigorous scientific and academic standards.

“GMA and its member companies have consistently worked to support efforts to ensure the FDA has the resources and expertise to meet the challenges facing the food supply and American consumers in the 2007 fiscal year and beyond.

“As for the obesity issue, the food industry has moved aggressively in recent years to confront rising obesity rates among children and adults. We embrace and promote the approach taken by the U.S. Dietary Guidelines for Americans and MyPyramid, which were developed by the federal government. In addition, food companies have introduced a plethora of new or reformulated products with reduced calories, saturated and trans fats, sodium, and sugar; and enhanced nutritional qualities such as whole grains.

“The FDA is doing a first-class job in protecting America’s food supply and providing consumers with the information they need to make informed dietary decisions for themselves and their families. We salute the FDA on its 100th anniversary; and GMA and its member companies will continue to call on Congress and the Administration to ensure FDA remains the best food safety agency in the world.”

The problem, of course, is that even if FDA is doing a first-class job – and some legitimate arguments can be made that its priorities are not what they should be – any erosion of the public trust creates a bigger problem for the agency and the government.”

• A lawsuit filed on behalf of shareholders in Marsh Supermarkets has charged the company’s senior management and board of directors with filing “false and misleading” annual reports that deceived stockholders into believing that the company was in good financial shape. The suit also charges that despite being a public company, the Marsh family operated the chain as its own “private fiefdom,” overpaying family members and using company assets for their own private purposes.

Somebody ought to ask the folks at Marsh why they were taking trips to Cuba.

“Viva La Revolucion!”


Meanwhile, Marsh posted a 10 percent decline in fourth quarter revenues, to $377.5 million compared with $419 million in the year-ago period. Marsh also reported that the fourth quarter resulted in a $28 million net loss, vs. $1.4 million in the same period a year ago.

• Tengelmann CEO Karl-Erivan Haub told the Financial Times Deutschland that the company would considering selling part of its A&P chain in the US to another company, though it would not sell the entire chain.

No offense, but if we had any money we’re not sure that A&P would be the company we’d be anxious to partner with…

• China agreed to allow the import of US beef, which has been banned for two and a half years since the discovery of bovine spongiform encephalopathy (BSE), better known as mad cow disease, in the US.

• Wal-Mart owned Asda Group in the UK announced that it had averted a strike by its warehouse personnel by agreeing to use collective bargaining to deal with its workers there – which some saw as a significant softening of the company’s long-standing antagonism toward organized labor.

Wal-Mart understands that sometimes it has to move the line, but above all it realizes that there has to be a line. We wouldn’t bet that this agreement has any applicability beyond the UK; Wal-Mart knows that it has to be careful about the deals it makes, since the world knows about it instantly and precedents are to be avoided at all costs.

• The Financial Times reported that Tesco plans to open as many as 100 stores in southern California during its first year of operation there, and that all the stores are expected to be between 10,000 and 12,000 square feet.

Not to set the bar too high, but we expect that these stores also will go a long way to redefining the notion of “convenience retailing” in the US.

• The Puget Sound Business Journal reports on the efforts by Associated Grocers CEO John Runyan to turn the company around. “After evaluating AG's strengths and weaknesses during his first 90 days on the job, Runyan developed 21 initiatives to right the company, which posted revenues of $1.03 billion in 2005,” the Business Journal writes. These include eliminating contracts with outside consultants, reducing the number of members of the company’s board, getting back to basics and fundamentals by getting out of businesses (like foodservice supply) that were distracting management and members.

• Workers represented by the United Food and Commercial Workers (UFCW) came to an agreement with management at Pathmark, King Kullen and Ahold-owned Stop & Shop for a four-year contract. The agreement ended concerns about a possible strike, which had been authorized by organized labor.

• The Columbus Dispatch reports that Wal-Mart plans to build 1,500 new stores over the next five years with almost two-thirds of them to be supercenters. Wal-Mart also reportedly plans to remodel 1,800 stores in the next 18 months.

• The Orlando Business Journal reports that “Publix Super Markets has been named the highest-ranking supermarket for customer satisfaction for the 12th year in a row, according to the American Customer Satisfaction Index.”

• PetSmart, the national pet care retail chain, reportedly plans to add “pet hotels” to 300 of its locations as a way of being more competitive with discounters trying to undercut it on price. The belief seems to be that these “hotels” will help create a relationship with owners that will survive even low-price advertising by the likes of Wal-Mart.

Okay…but no room service and no on-demand movies. We have to draw the line somewhere.

• The Cincinnati Enquirer reported that not only is Kroger doing well with the 600 gas stations that it operates adjacent to stores around the country, but that CEO David Dillon wants to add them as quickly as possible to other units where the company owns the land and has the space.

• The Philadelphia Inquirer reports that to some people shopping at the new 125,000 square foot Wegmans in Cherry Hill, New Jersey, the store takes some getting used to and is “too much of a good thing.” But that’s hardly true of everyone, since there are significant numbers of people who seem to be embracing the Wegmans’ approach to fresh food and service .

Furthermore, the new Wegmans is forcing the competition to raise their games, according to the Inquirer. Chains such as ShopRite and Whole Foods are improving their offering on a number of levels to stem the tide of shoppers deciding to give Wegmans a look.

• Food Lion has opened three new Bloom stores in South Carolina, describing these units as having “unique convenience like state-of-the-art technology, lower shelves, uncluttered aisles, and an intuitive layout, as well as provides exceptional product quality and variety.”

We remain impressed, as much as anything else, by the mission statement created by Food Lion for the Bloom stores – to create “a sensible, uncomplicated, hassle-free experience that leaves the customer feeling smart, relaxed and confident...” Words to live by, in our book.

• William Morrison Supermarkets in the UK, which itself succeeded in the takeover of Safeway Plc there for in excess of $5 billion (US) more than two years ago, may be the target of a takeover attempt by a consortium of private equity firms. The expected price tag: more than $10 billion (US).

Live by the sword, die by the sword.

MSNBC reports that a new cookbook, the “Twinkies Cookbook,” offers about 50 recipes for different ways in which to use the snack food. Among the offerings: a Twinkie Burrito and a Twinkie Lasagne.

And we wonder why so many cultures question whether America is made up of heathens…

• And someone named Star Jones Reynolds apparently got fired from “The View,” an event that dominated the news for days and still shows no sign of abating.

Which, if nothing else, explains why a number of people hold the media in such low regard…
KC's View: