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    Published on: August 1, 2006

    The Miami Herald has an interview with Winn-Dixie CEO Peter Lynch, who talks about the specific challenges inherent in keeping the chain afloat and trying to nurse it out of bankruptcy protection.

    Among the sound bites:

    On paying close attention to the numbers… “You get those numbers at your fingertips and you can make decisions right away. We understand the business. It's not going to be roses every single day and there are going to be challenges. But we will deal with those appropriately as we go forward.”

    On Winn-Dixie’s continued losses… “It's actually appropriate for where we've been. A lot of what we've done is going to start to show up in the future. A lot of contracts we've renegotiated with vendors for example with substantial savings, you'll start to see that as we move into the future. Things have been getting better. It's exactly where I thought it would be…We will be profitable by fiscal '08.”

    On getting out of the middle… “It's going to end up being Publix, Wal-Mart and Winn-Dixie as the major players. In the lower quadrant is where Wal-Mart has positioned themselves. It's all about cost. In the upper quadrant is where Publix has positioned themselves and it's more about service and quality. In the past a lot of retailers tried to get in the middle. You don't want to be in the middle. You've got to pick one or the other. We're going to move closer toward where Publix is. There's plenty of room in this upper quadrant for the consumer that's looking for quality, service, variety and convenient locations.”

    On gauging consumer response… “What we're starting to see now is more customers saying, ‘Hey, I didn't shop there for a long time but I went back and it's not a bad deal.’ As people start to talk, the momentum will build and then our traffic will start to come back more and more.”
    KC's View:
    Good luck. Lynch is going to need it.

    We would suggest that there are some inconsistencies with Lynch’s statements about how the company is being repositioned. First of all, is there anyone out there with any degree of objectivity who would maintain that Winn-Dixie can compete effectively with Publix on the service and quality front? Don’t think so.

    And at the same time that Lynch says that Winn-Dixie is taking aim at Public, the company is announcing a new “Good ‘Til Fall” price promotion that has lowered prices on more than a thousand items for people who use their loyalty marketing card.

    Besides, when he talks about how consumers are reacting, he says they are saying things like “not a bad deal.” That doesn’t sound a thrilling endorsement of the company’s service and quality initiatives to us. It doesn’t sound like Winn-Dixie is trying to create an innovative, differentiated and compelling shopping experience.

    If we were trying to pull a chain out of bankruptcy, we’d want employees and customers alike to walk into our stores and say “Wow!”

    It sounds like Winn-Dixie is a helluva long way from “Wow!”…and we’re not sure that it is even traveling in that direction.

    Published on: August 1, 2006

    The Federal Deposit Insurance Corporation (FDIC), the banking regulator, has decided not to accept any new industrial bank applications or to rule on existing applications until at least January 2007 – a move that buys it time in deciding how to deal with Wal-Mart’s application for an industrial bank charter.

    The Wal-Mart application has generated considerable debate and controversy. While the retailer has said it wants the charter so it can process sits own credit card and debit card transactions and save millions of dollars in fees, opponents have said that Wal-Mart really wants to get into the financial services business and compete with traditional banks.

    As analyzed by the Wall Street Journal, “Wal-Mart's application, filed last summer, put the FDIC in an awkward position. It had already approved deposit insurance for 61 companies that weren't banks, including Target Corp., and experts said the FDIC would face a quick lawsuit if it treated Wal-Mart differently.”

    Wal-Mart issued a statement responding to the FDIC decision: "We respect the FDIC's decision to consider these matters carefully. The FDIC's action does not change our commitment to move forward with our application. We will continue to work constructively with the FDIC."
    KC's View:
    The FDIC can run but it can’t hide. We suspect that putting off the decision until January will allow it to gauge the political climate in the country after the November elections and figure out which way the wind is blowing.

    This kind of protectionist approach to the banking business is utter nonsense. Let the banks compete with Wal-Mart the same way everyone else does. If they compete effectively, consumers will win. If they don’t, that’s their fault…

    Published on: August 1, 2006

    The Dallas Morning News reports that despite the hoopla surrounding organic labeling standards imposed by the federal government, “the U.S. Department of Agriculture does not know how often organic rules are broken and has not consistently taken action when potential violations were pointed out.”

    The paper says it has conducted an independent investigation into the marketing and labeling of organics and “found that shoppers may not be buying what they think.” TheMorning News writes that:

    “A review of 216 internal USDA audits shows several examples of violations at organic farms and production plants. Reports about problems that are supposed to filter up to the agency from on-the-ground monitors are incomplete.”

    “Much organic food is produced overseas where there is even less oversight. Inspectors in China, for example, note obvious violations that are not well-tracked or known by the agency.”

    “Vague rules leave much to interpretation, especially about treatment of animals.”

    Jim Riddle, former chairman of the National Organics Standards Board and a former advisor to USDA, tells the paper, “"The USDA has failed to enforce the regulations. There have been no prosecutions of violations for the organic law yet.”

    And even USDA official Barbara Robinson, who oversees the national program, concedes that no fines have been assessed for violations of national organic standards and that the agency struggles to keep up with developments in the business.

    Organics, of course, are a major growth category for the food business, with annual sales increases roughly five times as high as mainstream food products.
    KC's View:
    Lax compliance and lax enforcement will end up killing the organic goose, because if consumers cannot trust labeling claims – regardless of whether they are made by big or small suppliers – then they will simply turn their backs on the category.

    Published on: August 1, 2006

    MSNBC reports that beginning today, “WakeUpWalMart.com, launched last year by the United Food and Commercial Workers union, will visit 35 cities in 19 states for 35 days of rallies, town hall meetings and state fair visits to back its calls on Wal-Mart for higher pay and better health insurance for workers.”

    The organization seems to be tying itself to Democratic Party political fortunes, scheduling appearances with politicians including Ohio Senate candidate Sherrod Brown, Connecticut Senate candidate Ned Lamont, Iowa Gov. Tom Vilsack and former vice presidential candidate and probable 2008 presidential contender John Edwards.

    • The Dallas Morning News reports that “Wal-Mart's Dallas-area grocery market share increased to 31.1 percent in June, gaining 3.6 percentage points since January, or just slightly more than SuperTarget's 3.2 percent total…in the four-county Fort Worth area, Wal-Mart's share jumped to 36.5 percent from 33 percent in January.”
    KC's View:

    Published on: August 1, 2006

    The Houston Chronicle reports on a University of Pennsylvania study saying that people tend to eat what’s available and what they’re given – which is at least one explanation for why people tend to get super-sized from eating super-sized portions.

    It is what researchers call a “unit bias” – people thinking that a single unit of food or drink, no matter how big or small, is actually a single serving. When, in fact, this often is anything but correct.

    Among the examples cited by researchers:

    • “Yogurt containers in French supermarkets are a bit more than half the size of their American counterparts. Yet French shoppers don't make up the difference by eating more containers of the stuff.”

    • In one experiment, researchers “put a large bowl with a pound of M&Ms in the lobby of an upscale apartment building with a sign: ‘Eat Your Fill ... please use the spoon to serve yourself.’ The candy was left out through the day for 10 days, sometimes with a spoon that held a quarter-cup, and other times with a tablespoon. Sure enough, people consistently took more M&Ms on days when the bigger scoop was provided, about two-thirds more on average than when the spoon was present.”
    KC's View:
    This study would seem to contradict research surrounding the new 100-calorie packs that have become so popular, which has suggested that a lot of people are actually eating two or three of them rather than only eating one.

    Published on: August 1, 2006

    • The Triangle Business Journal reports that unionized workers at Kroger stores in North Carolina are voting this week on a company proposal that labor officials say will make health care unaffordable. If an agreement cannot be reached, a strike could be authorized for later this month.

    According to the Business Journal, “The debate stems from a corporate proposal that would reduce the amount of money in Kroger's company-wide health care fund and increase the amount the employees pay for their health care coverage, according to a written statement released by the union Monday.”

    • Smithfield Foods, the largest global pork processor, will spend about $5675 million to acquire most assets of the branded meats business of ConAgra Foods, including Armour, Butterball, Eckrich, Margherita, Longmont and LunchMakers.

    • The Washington Post reports that the US Food and Drug Administration (FDA) is advising consumers not to eat raw oysters harvested in Washington State because of more than 70 cases of vibriosis – a bacterial illness - that have been reported this year in people who ate oysters from the state.

    • The New Mexico Business Weekly reports that “more than 20,000 restaurant workers in Albuquerque would be required to take mandatory food safety courses under a revised food safety law that is being prepared by city officials and the New Mexico Restaurant Association (NMRA).” According to the story, “the law would affect restaurants, supermarket delis, bakeries and butcher shops, gas stations, bars, and push-cart vendors.”
    KC's View:

    Published on: August 1, 2006

    • Whole Foods reported that its third quarter earnings were up 33 percent to $53.9 million, compared to $40.4 million during the same period a year ago. Q3 sales were $1.34 billion, up 18 percent from a year ago, and same-store sales were up 9.9 percent.

    Whole Foods CEO John Mackey told analysts that the company is looking to create a greater sense of value for its organic and natural foods, in part through a more aggressive private label program. While private label current accounts for 16 percent of sales, Mackey would like to get that up to as much as 20 percent.

    Whole Foods also must deal with Wal-Mart’s natural/organic ambitions; the discounter has said it wants to dramatically expand its SKU count in these areas and make prices more accessible to consumers.

    • Ingles Markets reported that its Q3 net income increased 109 percent to $13.8 million, from $6.6 million during the same period a year ago. Sales for the period increased 16.3 percent to $659.2 million compared to a year ago, with same-store sales up 15.2 percent.

    • The Lakeland Ledger reports that “Publix Super Markets Inc. stock rose to $18.25 per share, company officials announced today. The new price is up 60 cents, or about 3.4 percent, from $17.65 in July… Publix stock split 5-for-1 on July 1, when it was valued at $88.25 per share.”

    Publix’s stock is only sold to company employees and members of the board of directors. The price is determined by independent appraisals.

    • Tyson Foods reported a third quarter loss of $52 million, compared with a profit of $131 million generated during the same period a year ago. Third-quarter sales dropped 4.8 percent to $6.38 billion, compared with $6.71 billion a year earlier.

    • Metro AG, the Germany-based retailer that just announced its acquisition of Wal-Mart’s stores there, announced second quarter net profit that was the equivalent of $335 million (US), up more than 88 percent compared to a year ago. Q2 sales rose to $17.9 billion.
    KC's View:

    Published on: August 1, 2006

    • Nash Finch announced that Leanne M. Stewart, its CFO and treasurer, is leaving the company for undisclosed reasons; Stewart will stay on until a replacement is hired.

    In addition, Nash Finch named Calvin S. Sihilling, the former chief information officer for AmeriCold Logistics, to be its executive vice president/chief information officer.
    KC's View:

    Published on: August 1, 2006

    Yesterday, MNB reported on a survey being conducted by the Food Marketing Institute (FMI) as it tries to generate ideas for the education-only conference that will replace the annual exhibition on an alternating year basis starting in 2008.

    If you got to the site early in the morning, the link we provided to the survey wasn’t working right. We’ve fixed it (we think), and here it is:

    > http://www.zoomerang.com/survey.zgi?p=WEB225GFL56BTU

    KC's View:

    Published on: August 1, 2006

    MNB user Frederic Arnal had some thoughts about our review of Chris Anderson’s book, “The Long Tail”:

    As an ecommerce retailer, I was interested in your comments regarding the "Long Tail" hypothesis of Chris Anderson. You might enjoy an article by John Cassidy in The New Yorker issue of July 10/17 titled "Going Long".

    Cassidy points out that the phenomenon (marketers riding the tail) is pretty much concentrated with what he calls "long tail aggregators" in e-commerce... Netflix, Amazon, Google, iTunes, eBay, etc. These mega-sites are contributing to what soon could become ecommerce oligopolies. And data shows that the 80/20 rule is still alive and well. Speaking personally, the majority of our sales and gross margin dollars are still generated by less than 20% of our assortment. The Wall Street Journal also published a critique taking issue with the data in the book.

    Finally, Cassidy makes a terrific comment regarding the state of this New Economy, "... it depends on whether you're looking at the long tail - or at who's wagging it".


    We think it would be a mistake to suggest that we are anywhere but at the beginning of the “long tail” economy. It is a phenomenon that is just in the beginning stages for most businesses…but we think Anderson’s projections make a compelling case for how things will change in the future.

    We also had a related email from an MNB user who is a dedicated Amazon’s customer:

    I’ve experimented with buying more than books and movies from Amazon, with great results: paper goods, household cleaning supplies, even liquid laundry detergent – low prices, freight free, and – no waiting in lines or hassling with driving and parking –or unpleasant cashiers……! Sure I had to wait for my stuff to arrive, but I ordered quantities and planned ahead.

    The search system they have is so idiot proof, and I find myself typing in “wonder if they have THIS” – whatever – “contact lens solution? Baking soda? My favorite meal replacement bar? ” – and finding that – they do!

    I like their program of emailing me “if you bought this, you might like this” and have gotten ideas and ordered more items, because they make it so EASY. Sure, I’m giving them market data they can track, but they’re giving me ease, convenience and eliminating stressors from my grocery shopping. I’ll still go to brick and mortar stores for instant gratification (such as the fan I bought from Target when the A/C was out during the heat wave!) – but I am sold on Amazon’s expanding grocery biz…





    One MNB user had some thoughts about our Wegmans comments from last week:

    As a vendor for Wegmans, we have been invited to their “vendor appreciation” event they hold yearly. Only certain vendors are invited, and I don’t know the reasons why, but here is what Wegmans does each year with this event:

    1) Invite selected vendors to attend a one-day table top show in a unique location (one year, it was in an art gallery, surrounded by sculptures of all shapes an sizes, all around and above the tables!).

    2) All staff are required to attend, and are paid to do so.

    3) Each group of staff meet with vendor reps for 20 minute intervals, hearing the selling points of each product line, then in an organized fashion, move from table to table, sampling, learning, meeting, greeting and otherwise engaged in getting more familiar with the products, manufacturers and some of the people behind them, that grace their store’s shelves

    4) Wegmans hosts a fine dinner in a local restaurant, as a way of saying “Thank You” to their vendors. That Wegmans pays for!!

    I can assure you, after years in sales, taking customers to lunch, dinners, flying them in for plant tours, etc., i was very unique and refreshing – and so very Like-like! – to have the customer thank US for what we do for them! This, to me, speaks volumes of why they are so successful, and have been voted twice in the past two years as the #1 place to work. If how they treat their vendors is an indication of how they treat their staff – it is no surprise they are as successful as they are.

    We refer to them internally as “our dream account” and wish that all our accounts were as delightful to work with….WIN WIN indeed! We appreciate all our accounts, but to have an account appreciate us….WOW! They really walk the talk of “what you send out comes back to you” and “as you sow, so shall you reap”.


    Amen.
    KC's View: