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    Published on: July 28, 2006

    Wal-Mart announced this morning that it will sell its 85 stores in Germany to Metro Group there, ending its ultimately misguided attempt to break into the mainland European marketplace. Terms of the deal were not disclosed, and the sale is subject to approval by German antitrust authorities.

    "As we focus our efforts on where we can have the greatest impact on our growth and return on investment strategies, it has become increasingly clear that in Germany's business environment it would be difficult for us to obtain the scale and results we desire," said Mike Duke, vice chairman of Wal-Mart, in announcing the sale. "This sale positions us to increase our focus on the markets where we can achieve our objectives. We appreciate the contributions our German associates have made to build up our business in Germany. We will work closely with Metro to have a smooth transition."

    Wal-Mart’s German stores were estimated to be generating annual sales that were the equivalent of $2.5 billion (US), but the company’s path there has been notoriously rocky as it faced resistance from consumers who seemed immune to the chain’s charms, legal obstacles created by the government, and competition that was able to outflank it because of what seemed to be a better knowledge of local shopping habits.

    Metro said it would integrate Wal-Mart’s operations into its Real hypermarket group.
    KC's View:
    While admitting defeat isn’t something that Wal-Mart is particularly good at – after all, it hasn’t had much practice – the bailing out on its German operations has long seemed to be more a matter of “when” than “if.”

    It ends up, to our surprise, that the whole world doesn’t necessarily want the American version of discount shopping, and that there are considerable numbers of people out there for whom Wal-Mart is not a positive force for good.

    Go figure.

    Give Wal-Mart credit for knowing that it had to end this particular venture. The leadership there knew that it simply makes more sense to try to turn its Japanese operations around as well as try and make up ground on Tesco in the US – two tasks that hardly are a walk in the park.

    Published on: July 28, 2006

    The Wall Street Journal reports that the US Federal Trade Commission (FTC) is issuing a consumer alert saying that at-home DNA testing kits lack scientific validity and “aren't a suitable substitute for a traditional health-care evaluation.”

    The kits – which are manufactured by companies like Sciona and Genelex, and have been sold in retailers such as Byerly’s and Ukrops – purport to offer health and nutrition advice based on information gleaned from a questionnaire and a DNA sample provided by the consumer.

    The FTC is acting on information provided by the US General Accounting Office (GAO), which conducted an investigation into the kits. According to the WSJ, “In the report prepared by the GAO, the investigative arm of Congress, DNA from one woman and one man was submitted for testing to several companies operating Web sites offering testing services. The report said the health advice and information that investigators received back was inconsistent, ‘medically unproven’ and appeared to have little to do with the DNA submitted for analysis.”

    The Journal notes that at-home DNA testing is only loosely regulated by federal authorities, but that this could change as a result of the GAO report, the FTC alert, and an investigation expected to be conducted by the US Congress.
    KC's View:
    : It so happens that we’ve had five of these at-home DNA tests done, and we couldn’t tell you if the information we were given by the company (Sciona, in this case) was based on the questionnaire or the DNA sample.

    (We were just glad that the reports we got back didn’t urge us to make out our will…)

    If the tests are either fraudulent or misleading, these manufacturers deserve to have the book thrown at them.

    But it is important that the notion of at-home DNA testing – and the customization of personal diets based on genetic factors - not be dismissed as some sort of fiction. The technology may not be there now and/or these companies may not be doing it. But this strikes us as an idea with some real and tangible benefits and applications.

    If it isn’t workable now, it will be. Soon.

    Published on: July 28, 2006

    The New York Times reports that the federal government has unveiled a voluntary program that is designed to “induce employers to stop hiring illegal immigrants and to report those they find on their payrolls.”

    The program would give compliant companies a kind of seal of approval from the US Immigration and Customs Enforcement agency.

    In the program, according to the NYT, “employers must pass a series of hurdles to demonstrate that no illegal immigrants are among their employees and will then be certified as clean. They would have to submit to an audit of their employee records by immigration agents and join the Basic Pilot Employment Verification Program, a federal database that companies can use to confirm that employees’ identification documents are not fraudulent.

    “Companies would also be expected to name a compliance officer to monitor the status of immigrant workers and to train their staff to verify documents.”

    Experts suggest that the program’s biggest problem is the fact that it is voluntary – there are no teeth to the program that would mandate enforcement or compliance, and few employers are likely to join up.
    KC's View:
    Sounds to us like the only thing this program will do is get employers to look over their shoulders a bit more. But actually reducing the hiring of illegal immigrants?

    Doubt it.

    Published on: July 28, 2006

    The Seattle Post-Intelligencer reports that the US government is considering new regulations that would require alcoholic beverage labels to list possible allergens that might be in them.

    “Other than wheat,” the P-I reports, ‘the list of allergens that would trigger the labeling requirement are things one wouldn't typically expect to find in wine, distilled spirits or malt beverages like beer and ale: fish, shellfish, milk, eggs, tree nuts, peanuts and soybeans. However, the rules also apply to ingredients that contain proteins derived from the list of allergens, which are more commonly used. Fish protein, for instance, is often used to clarify wine or beer before bottling.”
    KC's View:
    While we think it is important that allergens be listed on any consumable product, we could have gone a long time without needing to know that fish protein is often used to clarify wine or beer before bottling.

    Sometimes, there is such a thing as too much information.

    Here is something we would like to know, however:

    When was the last time someone with a seafood allergy got an allergic reaction after drinking a beer or glass of wine?

    Just curious.



    Published on: July 28, 2006

    MSNBC reports that Mark Riley, an assistant professor of agricultural and biosystems engineering at the University of Arizona, has invented a sticker that detects the presence of ethylene gas in fresh fruits and vegetables.

    This may not sound like a big deal, but ethylene gas is what fruits and vegetables release as they ripen – meaning that this new sticker will be able to tell consumers and produce department employees when these products are under-ripe or ripe.

    The stickers are expected to cost about a penny apiece, and should be available on the market within the next couple of years. The only thing holding up distribution is the fact that they don’t work on all fruits and vegetables, and they don’t indicate when a piece of fruit is over-ripe or rotten.
    KC's View:
    Then again, a squishy exterior and/or an ugly brown color ought to be able to expose over-ripeness.

    But that’s old-world thinking.

    Published on: July 28, 2006

    • California-based Stater Bros. announced that it has introduced a new line of natural and organic products called “Full Circle,” consisting of 110 SKUs that include cereals, pastas, pasta sauces, peanut butter, fruit preserves, canned vegetables, rice, soymilk, coffee and teas. By the end of 2007 the company expects to virtually double the size of the line to include milk, eggs, yogurt, orange juice, frozen vegetables, and dried fruit.

    • Kraft Foods announced yesterday that it will sell its Minute Rice business to Spanish rice producer Ebro Puleva S.A. for $280 million.

    "While Minute Rice is a great brand, our focus is on businesses in which we believe we have a sustainable competitive advantage," said Dave Johnson, president, Kraft North America Commercial.

    • Reports from the Netherlands say that the Dutch government has decided to allow Ahold to keep its royal title as ‘Koninklijk’ Ahold, despite the financial scandals that have roiled the company.

    In a statement, the government explained: "It has become apparent that the company has undertaken sufficient measures to prevent repetition of the accounting irregularities and to restore its reputation."

    • ACNielsen announced that it has “formed a global loyalty-marketing business unit that will provide end-to-end loyalty solutions.” The goal, according to a prepared statement, is to “enable retailers and their key manufacturer partners to work with the data generated by retailer loyalty programs to better understand consumers' shopping behavior and preferences, develop targeted, loyalty-building marketing and merchandising programs and track their impact on shoppers over time.”

    • A coalition of Detroit community, religious, and labor organizations that includes the Teamsters is urging Michigan consumers not to shop at Kroger stores until the chain reverses its decision to transfer work from a Livonia warehouse to an Ohio warehouse – a move that the coalition says will cost Michigan 250 jobs immediately and perhaps as many as another 250 by the end of 2008.

    • Ahold has come to an agreement with the union representing 4,000 employees at its Dutch distribution centers for a 1.5 percent raise payable immediately and back-dated to April 2006, and then for another 1.5 percent raise next April.

    The unions were looking for a two percent raise.
    KC's View:
    Next time that unions in the US complain about their raises, they ought to take a look at Holland, where a 1.5 percent raise is deemed acceptable and a two percent raise is said by management to be insufficient. And then, management wins.

    Sometimes, the grass isn’t greener.

    Published on: July 28, 2006

    • Schnuck Markets announced that Gary Meyer, the company’s vice president and treasurer, has been named vice president of finance.

    Succeeding Meyer as treasurer is David Bell, who has been serving as the chain’s director of financial planning and assistant treasurer.
    KC's View:

    Published on: July 28, 2006

    Lots of reaction to yesterday’s story about The Chicago City Council voting in favor of legislation that will require big box retailers such as Wal-Mart to pay their employees a minimum wage of $10 per hour plus $3 an hour in added benefits. The vote followed a debate that ran for more than three hours, and the margin of victory ensures that the council could override any veto by Mayor Richard Daley, who has opposed the measure. In our commentary, we were extremely critical of the legislation, saying that tiered minimum wages are bad public policy and don’t level the playing field the way they are intended to.

    Not everyone agreed. One MNB user wrote:

    Chicago is the city that works. When it comes down to it the big boxes will be able to enter but it will not be at minimum wage with no benefits. Why should the City Council not try to negotiate the economic market of Chicago? The ordinance is a nice political debate on current issues. Maybe if Wal-Mart executives did not contribute 90% of their contributions to Republicans…

    MNB user Mark Monroe wrote:

    I think it is time to dismount from your ideological high horse. Since when has legislation in this country been fair to everyone it affects? Please.

    Your commentary on this issue fails to recognize the practical realities that we face in this country and the fact that we still (although just barely in some regards) live in a democracy. We have a middle / lower middle class that has been hung out to dry by what has become in many was a “shareholder society” over the past decade. You can argue all you want about whether it is “fair” in your opinion, but at some point this disenfranchised group (which represents the vast majority of the people in this country) will get sick and tired of being taken advantage of and use their collective power to effect change. In my opinion, these are the early signs of such a shift. Time will tell how much momentum it gains and the impact it ultimately has.


    Another MNB user wrote:

    After reading the article concerning Chicago's City Council making a bold decision and then reading your response I just had to put in my 2 cents.

    Even though what they did may not be exactly what is needed in Chicago I think the bigger picture is that they are trying to make a point that someone needs to stand up to these big box stores and make them pay their share of their employees benefits instead of making the tax-payer responsible for it. They are making billions of dollars at the expense of everyone else picking up the tab for the majority of their employees who cannot afford to pay for their medical. Wal-Mart tricked people in the beginning by making us think that here is a company
    that is going to carry "Made in the USA" items and actually support the economy here in our own country. But we all know now that there is hardly an item in their stores that was "Made in the USA". If they and the other "Big Box" stores can't support the working people in the United States by buying our products the least they can do is pay their employees a decent wage... Which by the way would force the "mom & pops" to up their ante to be able to keep good employees that they may lose to the "Big Box" stores. And unfortunately we see the same response from Wal-Mart again.... If they don't get their way they will make Chicago suffer instead of just moving on to their next victim.


    But, there were a number of people who agreed with our assessment of the regulations.

    MNB user David Livingston wrote:

    KC, this sort of reminds me of a similar situation out in your part of the country. A while back I did a market study on the New Hampshire/Massachusetts border. New Hampshire has no sales tax and Massachusetts had some thing like 8%. It was no surprise, there were no supermarkets in Massachusetts for the first few miles south of the border. In New Hampshire I saw two Shaws almost across the street from each other and two DeMoulas within blocks as well. The three big clubs stores - Sam's, Costco, and BJ's all located within close proximity just north of the New Hampshire border and thriving. With just an 8% perceived savings, this turned Nashua, New Hampshire into a retail Disneyland and turned northern Massachusetts a retail desert. Keep in mind this affects all retailers in this area and Chicago is only focusing on a few businesses. But I think the affect will be noticeable.

    There is just no way Wal-Mart is going to open stores and pay people $10 to start out. Stores will not get built. I was in New Orleans where the real minimum wage now is $10 an hour due to the labor shortage. And Wal-Mart still will not pay that!! Low wage workers just laugh at their $8.50 per hour starting pay. They are willing to shut down Supercenters at 10pm or midnight due to losing laborers to fast food restaurants who are paying $10 an hour, $15 per hour overtime, and up to $500 a month retaining bonuses. I'm sure Wal-Mart has good reasons for not paying the market rate on wages. Why should they? They are open 6-8 hours less per day and sales are up 15% at many stores. If the city of Chicago thinks Wal-Mart will give in----- think again.


    another MNB user wrote:

    I have lived in Chicago all my life and I'm wondering if we are living in a capitalist or a socialist city? Hmmmm, unfortunately most people probably don't understand the difference between the two so even though they should be furious about this decision they will not be. How unfortunate.

    MNB user Carol Edinger wrote:

    As much as I intensely dislike so much of the Wal-Mart way of doing business, the action of Chicago's City Council could be seen as flagrant, in-your-face discrimination. Even though the intentions of the Council may be defensible, if anyone questions the "legislative intent" of this measure, there will be little question. This sounds like a case of trying to use an old tool to fix a new problem...one that requires a whole new methodology. Unfortunately, the rapid growth of Wal-Mart, while it was still under the radar, eliminated any chance of a gradual learning curve for the cities and communities now feeling they're being sucked into a giant vat to be homogenized by Wal-Mart.

    Another MNB user wrote:

    A very sad day for Chicago citizens. A very happy day for the legal community.

    As a former Fortune 100 corporate attorney, I predict that after a long and expensive (for all sides) legal battle, which is likely to involve appeals, this legislation will be ruled unconstitutional. If they lose, I hope the City of Chicago is forced to pay damages that includes the additional wage and benefit expenses paid by any and all companies affected by this legislation. Politically that's not likely to happen, but in the meantime I'd not be a buyer of Chicago City bonds. Wal-Mart et al probably have a good shot at getting an injunction delaying the effectiveness of this legislation until the case is decided.


    MNB user Al Kober wrote:

    It is difficult to understand this decision. I would assume the decision makers on the board are not business people. The ones who will be negatively effected the most are the very ones they are trying to help. When costs go up for retailers the number one place they can go to get it back, is higher prices to all customers. The employees will make a little more but it will cost more for what they buy. The only ones getting a benefit will be the those who benefit from more taxes, the local government, and the board that passed this bill. As income goes up, taxes go up, The employees pay more taxes, more for the goods they buy, and the only ones who may comes out ahead is the local government. So what else is new?

    But the other bad news for those other business in the effected area will be that other big stores, like Wal-Mart will still build, but just outside the effected area, which will pull those customers out of the Chicago market. It will also lower the sales in that area as well as the sales taxes that the government would have gotten. We live in a free enterprise market place and the system will works best when it is free.


    MNB user Robert J. Wheaton wrote:

    The real issue is not City/State/Federal mandated minimum wages, i.e. Chicago, but a "living wage" which is far different. Levels the playing field for everyone. Several companies both public and private have taken bold steps moving in this direction. Good wages and well-trained employees do wonders to increase efficiency, productivity, reduce turnover and on going training costs. (one big box retailer comes immediately to mind)

    It seems there are many economic reasons to keep wages etc. at a competitive level, but generally speaking "are you just getting what you pay for"? Differentiation sets leadership companies apart in every aspect of their business and I believe bestows a competitive edge - until the world catches up and onto to you.


    And MNB user Dan Raftery wrote:

    The biggest losers here are the people who can least afford to make the trip to the suburbs for groceries. Many live in Chicago's south and west sides, in areas that have been dubbed "retail deserts." If a Chicago retail ring develops, shoppers will make the trek, probably using mass transit or some other creative pooling of resources. The taxi industry will likely benefit from this shopping exodus.

    I experienced an extreme example of this type of provisioning a few years ago on the island of Grand Cayman, which was void of mass retailers at the time. When I asked the cabbie where she shopped, she described how she and her neighbors would chip in for a plane ticket to Miami periodically. One traveler/shopper would buy clothes, small appliances, etc for everyone in this informal buying club. The savings more than paid for the plane fare.

    If this law stands, Chicago risks becoming even more of a retail desert, not for the high-end merchandise found on the magnificent mile, but for reasonably-priced necessities. The current dearth of reasonable retail outlets is a black eye for this great city. The new legislation could be another staggering blow. Its ironic that the damage is coming from the city council.


    And MNB user Jim Swoboda wrote:

    What's fair for one, is fair for all. The day we start imposing restrictions or rules on one class of retailers and ignore all others weakens our great economic system. Shame on the Chicago vote. It might be right politically, but is it not creating a level playing field.




    We also got a lot of reaction to the Birds Eye decision to get out of the private label business and focus instead on branded and value-added products, and to our comment that the decision seemed to underestimate the value of private label as a differentiated experience.

    MNB user Lin Lauve wrote:

    Maybe it's not as risky as it sounds, for two reasons. First, there's a lot the article doesn't tell us. Second, there may be factors other than brand focus and unit margins that are driving the decision.

    We don't know how much of Bird's Eye's volume or revenues come from private label. Maybe its private label business was struggling.

    We know that private label margins are lower, but we don't know how much. We do know that none of its branded competitors sell private label, meaning they don't experience the same drag on unit revenues and margins.

    We don't know what percent of its capacity Bird's Eye is selling off. Maybe the plants up for sale are inefficient and/or require heavy investment. We do know that Bird's Eye's financial statements are likely to benefit from a smaller asset base.

    Maybe Bird's Eye's branded competitors are proving that a single-brand focus works better.

    I can't disagree with anything you said, except that I thought the "abandoning" headline was a little strong. Makes Bird's Eye sound like a negligent parent.


    MNB user Mark O’Brien wrote:

    Maybe Birdseye is getting out of PL vegetables because the trade has driven prices and margins so low that they no longer find it profitable? If so they will not be the first company to exit a category for this reason.

    Another MNB user wrote:

    I do not know the Birds Eye business intimately, but this is a dramatic strategic change. I was very involved in pasta manufacturing for years, and we went through a similar change. There are two huge benefits I see in the future for Birds Eye:

    1) Return on Invested Capital (ROIC) – vegetable production facilities are lousy assets – they work 24/7 for about 8 weeks, then sit empty and underutilized for the next 44 weeks. Keeping several facilities open to manufacture product that ultimately you do not control (imagine having the Albertsons PL business these days) cannot be very comfortable.

    2) Organizational focus will increase. The Birds Eye company now knows that it is in business for the Birds Eye brand. Production people and sales people that manage both the brand and the Private Label are inherently torn. The account cares more about PL than Birds Eye, and that preference leads to conflict in the organization.

    In all, I think this change is bold and will provide organizational clarity. Will it lead to growth? Boy that is tough. What are the new products opportunities in frozen vegetables?


    And finally, the last word on this subject (at least for this morning) comes from MNB user Warren Thayer, who also happens to be editorial director/associate publisher with Refrigerated & Frozen Foods Retailer.

    The frozen veggie business is brutal, and has been for a long time. In private label, margins have been practically non-existent. On the surface, it would seem there should be a good niche here, what with overall private label being so strong and veggies being “good for you” at a time when Americans are purportedly more interested in health. Reality is that most HQ buyers see frozen veggies as commodity – especially private label. There are exceptions, but there have just not been enough of them. As a result they tend to shop on the cheap side of cheap, use online auctions for their PL business and offer no loyalty, and fail to promote.

    Birds Eye has sharp marketers, who know both the branded and PL sides of this market really well. They’ve researched this far better than companies ordinarily do in this industry before making this decision. They’ve also recently come out with some good value-added product that offers differentiation in the freezer case, and I think they’re wise to focus their attention there. So while it may be counterintuitive, Birds Eye made the right call in my book.


    And we trust your book. As we said yesterday, we know little about this end of the business, and depend on the kindnesses of both strangers and friends for intelligence that we – and the rest of the MNB community – can use.

    Thanks.
    KC's View:

    Published on: July 28, 2006

    It is a good week when you can say that not only did you experience one of the highlights of your year, but maybe one of the highlights of your career.

    That’s what happened to me this week.

    As some of you may know, in addition to doing MNB each day, I also write columns for a number of other outlets Chain Store Age and SupermarketGuru, for example) as well as run a small communications company that, among other things, produces videos for a number of clients. This summer, as I have every year for most of the last decade, I’ve been producing a Japanese documentary about the best in American retailing.

    And this week, I got to spend time at Wegmans.

    In addition to interviewing Danny Wegman for the documentary, I was also privileged to spend time with a bunch of great people from the company – because they were nice enough to invite me to a little wine gathering and then a dinner at the chef’s table at Tastings, the wonderful restaurant that Wegmans operates in Rochester. This was a remarkable evening, because they were all MNB readers, and I got the opportunity to listen to them tell me their stories, tell me why they were proud of where they worked, tell me why Wegmans is the gold standard for American supermarkets.

    I came away more impressed with Wegmans than I was when I showed up, and that is hard to do.

    There is a connectivity that exists at Wegmans that, I think, exists at few other businesses. It is how the people work there feel connected to their fellow associates, feel connected to the company and its values, and even feel connected to the shoppers who walk through the front doors every day. It helps, of course, that Wegmans has the tangible advantage of great food…but it also has the somewhat – though not completely - intangible advantage of deeply committed people.

    Tell you a story about Wegmans’ people.

    One of the features of the Rochester store is a counter in the seafood department where not only can you buy fish to take home and cook, but also can sit down and have it cooked so you can it there. Always being a sucker for a new experience, I did just that. The menu board had about six different kinds of fish and as many different sauces, so I ordered the salmon and asked what would go better, the remoulade or the red pepper sauce. The guy at the counter didn’t think twice: “Have the citrus soy,” he said. So I did. And it was delicious.

    My point is this. It took a certain amount of courage for this guy to contradict my choices and suggest something else. But he had product knowledge, he had the courage of his convictions, and he obviously believed that by steering me in the right direction, he would strengthen the store’s connection with me, the shopper.

    Win. Win. Win.



    Speaking of winning…

    At the Wegmans wine event, we enjoyed two wonderful wines that are worth trying.

    • A 2003 St. Verain, a white wine that was light and fruity and perfect for a hot summer night.

    • A 2004 Camille-Giroud, a red wine that seemed a little bit deeper than a Pinot Noir, but versatile enough to go with both salmon and lamb.

    Just terrific…and a testament to the terrific wine staff at Wegmans (where they can only sell wine in their Virginia and New Jersey stores, unfortunately).




    Since I wrote earlier this week about beer beginning to regain some lost popularity, I should also tell you about a neat little brew I enjoyed last weekend – Whale’s Tail Pale Ale, made on Nantucket in Massachusetts.

    Yummmm…..it was perfect with mussels. Hell, it probably would have been perfect with anything, but I just happened to have it with mussels.




    Move recommendation for the weekend; “The Devil Wears Prada,” which Mrs. Content Guy dragged me to. It has a positively great performance by Meryl Streep as the “devil” of the title, a charming turn by Stanley Tucci, and a good and knowing script about selling your soul for business success. Mrs. Content Guy says I should mention that it wasn't as good as the book, but still worth a look.

    Done.

    Having done my duty, now maybe I can go see “Miami Vice”…




    That’s it for this week. Have a great weekend, and I’ll see you Monday.

    Sláinte!
    KC's View: