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    Published on: September 6, 2006

    Ahold announced that its Giant of Carlisle subsidiary will acquire 14 suburban Philadelphia stores from Clemens Markets, converting 13 of them to the Giant banner and leaving one of them under the upscale Foodsource banner. While terms of the deal were not disclosed, the Clemens units are said to generate about $190 million in annual sales. The deal is expected to close in the fourth quarter of the year.

    “This is an excellent fit for Giant and will provide an opportunity to reach many new customers in Greater Philadelphia," said Tony Schiano, president/CEO of Giant, in a prepared statement. "The Clemens stores have experienced staff and great customer service. We will do everything we can to make sure they are warmly welcomed into the Giant family.”

    The move comes as Ahold is under pressure from several of its stockholders to sell off its US operations as a way of maximizing shareholder value.

    At the same time, Clemens will sell an additional eight stores to C&S Wholesale Grocers Inc., its affiliates or its customers. Terms of this deal also were not disclosed.
    KC's View:
    So this is the end for Clemens Markets, a retailer that can trace its beginnings back to the early days of the last century, and which says on its website that its "’Employee Family Team’ strives to meet the needs of your family with quality products, and fast friendly service in a comfortable clean shopping experience. Clemens Family Markets is the best value for your time and money.”

    And now, it’s history.

    Published on: September 6, 2006

    Good piece in the Los Angeles Times profiling 162-unit Stater Bros., which, according to the piece, has “spent $15 million over the last two years on refrigeration and expanding its produce sections from 450 items to more than 800.” That’s just symbolic of a broader investment program focusing on low prices and customer service that CEO Jack Brown believes allows his company to compete effectively in Southern California against the likes of Ralphs, Albertsons, Vons, Wal-Mart and Costco.

    There’s no retreat in Brown’s Stater Bros., which plans to open five more stores this year and 10 next year, even while opening a new $250 million headquarters and distribution center.

    The Times writes, “Brown looks at each store as an admiral might view ships in a navy. Everything must be neat and tidy, and the staff must remember that it works for the customers…There's (even) a boot camp for newly hired checkers, even if they have worked at another chain.”

    And according to the story, Brown has no plans to either give up his command or sell the company.

    "I have no plans to leave," Brown tells the paper about the job he has held for a quarter-century. And, regarding a possible sale of the company, he says, “"I have no interest at this time” – even though he regularly received inquiries about the chain’s availability.
    KC's View:
    We’ve always thought that one of Stater’s big advantages – and one of the reasons that it also is on the Consumer Reports list of the nation’s top ten supermarkets this year – was reflected by the fact that Brown always uses the words “Inland Empire” like his middle name. It defined where he lived, where he worked, who the people are that are served by his company.

    We do think that the Times has the imagery wrong, though. When we think of Brown, it’s never with him as an admiral. It’s usually leading the Cavalry, and Brown’s always on a horse.

    Published on: September 6, 2006

    In the UK, The Independent writes about a British trend that may soon find its way to the US – the entry by supermarket retailers into the financial services business.

    “Supermarket shelves are already well stocked with financial products; soon they will be positively groaning,” the Independent writes. “As they struggle to win new customers, foster loyalty and gain market share, a number of high- street names are pushing into new areas in financial services or revamping their existing reward schemes.” These services include real estate, travel agencies, mortgages, insurance and credit cards – a wide variety of products that have little or nothing to do with their traditional offerings.

    Analysts say that the loyalty that consumers feel to their supermarket seems to transfer to these stores’ financial services – even though they rarely offer the best deal.
    KC's View:
    It is, of course, worth noting that two of the more aggressive practitioners of the financial services arts in the UK are Tesco and Wal-Mart-owned Asda.

    We won’t be surprised if at some point this competition plays out on US shores…and we’re also pretty sure that if this happens, it will be very good for consumers.

    Published on: September 6, 2006

    The Chicago Tribune reports that Supervalu-owned Jewel-Osco “is testing a program that examines a customer's purchases and allows the store to offer significantly larger, targeted discounts on products they have purchased in the past, hoping it will be a new weapon in its battle with discount giants like Wal-Mart Stores Inc. and Costco Inc. that have been luring away customers for decades with low prices.” In addition, the program “offers discounts on items the store believes customers might try based on their purchasing history (and) will offer regular shoppers a discount coupon they don't have to clip.”

    The discounts are made available when shoppers enter the store and swipe a “Jewel-Osco Preferred Card and receive a sheet of paper containing discount offers for a dozen items they have purchased or might be interested in. Discounts are automatically processed at the checkout when the Preferred Card is scanned.”

    According to the story, “The company is using an information resource that has been virtually untapped since Jewel-Osco introduced its loyalty program more than 20 years ago.” And it is specifically designed to address the fact that only three percent of the retailer’s shoppers were redeeming coupons delivered through more traditional methods.
    KC's View:
    We just hope they’re using it for more than just offering targeted discounts.

    The problem with so many loyalty marketing cards is that they are have little to do with loyalty – they’re just another way of providing coupons or coupon equivalents.

    You can only foster so much loyalty by lowering prices, because you’re creating or feeding into an environment in which anyone can succeed just by charging less. And you can always charge less, depending on how much you’re willing to lose.

    At some point, it isn’t loyalty. It’s just bottom feeding.

    Loyalty marketing ought to be something completely different. It ought to be a way of proving to customers that the store is loyal to them in ways that have nothing to do with price. And the data generated by transactions can be used to create programs that demonstrate that loyalty.

    Published on: September 6, 2006

    Wal-Mart announced yesterday that what it calls a “fully integrated multiplatform agreement for ESPN's Monday Night Football and its surrounding programming and content for the 2006-07 season. The new association will facilitate the transformation of the traditional three-hour primetime football game telecast into a 24-hour multimedia event.”

    Not only will Wal-Mart be advertising on Monday Night Football – which is moving from ABC-TV to ESPN this year – and on the network’s “SportsCenter” broadcasts, but it also will be promoting the shows in-store – and using the promotions and the ads to sell the high definition televisions that it is now selling in its electronics departments.
    KC's View:
    One of these days, now that prices are coming down, we’re almost certainly going to look into the purchase of a nice 42-inch flat screen high definition television for the house.

    Maybe we’re wrong about this, but we’d have trouble making such a purchase at Wal-Mart, no matter how low the price and no matter how much it advertises on Monday Night Football. We’d also have trouble doing it at Costco, and it would be one of the items we wouldn’t even considering buying online.

    Best Buy or Circuit City would be a possibility, but we’d probably be most likely to go to a local store, Consumer TV & Appliances, where the salesmen also are experts, they can explain the whole plasma vs. LCD issue, and where we’d feel confident returning looking for support after the purchase was made. They’ve established their expertise with other purchases we’ve made there, we trust them, we know they are in business for the long term…and it just would seem to be the sensible choice.

    Published on: September 6, 2006

    MSNBC reports on a new University of Georgia study about the growing economic power of the Hispanic community.

    “Hispanics are expected to have buying power of $863.1 billion, compared with black buying power of $847 billion in 2007,” MSNBC reports. “Hispanics - the nation's largest and fastest-growing ethnic minority - will comprise about 8.5 percent of the nation's total consumer market next year.”

    According to the study, in the past 15 years Hispanics' economic power has grown from $212 billion to $798 billion this year, while blacks' buying power has risen from $318 billion in 1990 to $799 billion this year.
    KC's View:

    Published on: September 6, 2006

    USA Today reports on a new study by the US Department of Agriculture (USDA) saying that people don’t eat enough fruits and vegetables.

    USDA originally recommended that people eat at least five servings of fruits and vegetables a day, and then amended that recently to suggest that people consume 2 to 6-1/2 cups of fruits and vegetables daily, depending on age and gender.

    According to USA Today, roughly 40 percent of US residents are eating the recommended allotment of fruits and vegetables, with men aged 51 to 70 eating the most (60 percent of this group eats as much as they should) and girls aged four to eight eating the least (only 10 percent eat the government’s recommended allotment).
    KC's View:
    Our headline may be a little harsh.

    While we’re not surprised that most people don’t eat enough fresh produce, and wouldn’t even be surprised if most people don’t know how much they should eat, we were surprised to find out that we’re in the demographic group that seems to be in the best shape from a producer consumption perspective.

    Go figure.

    Published on: September 6, 2006

    Published reports say that Robert Hey Jr., a former Wal-Mart executive who pleaded guilty in federal court in November to three counts of wire fraud and was sentenced to one day in prison and six months of supervised release, has sued former vice chairman Thomas Coughlin for emotional distress.

    Hey admitted writing fake vouchers to get money and Wal-Mart gifts cards for Coughlin, his superior, who since has been sentenced to home detention after pleading guilty to defrauding and stealing from the retailer.
    KC's View:
    Emotional distress is what we feel when we think about these guys continuing to clog up the court system…

    Oy.

    Published on: September 6, 2006

    • Target has announced that during the coming month it will open two Jamba Juice stores inside two units – one in La Mesa, California, and the other in Kannapolis, North Carolina. The results of the tests will be evaluated early next year to decide whether to expand the program.

    • The Business Journal of Phoenix reports that when Tesco comes to that market next year, it plans to open at least 50 stores by autumn 2007 – and could eventually have twice as many in the area.

    • Supervalu-owned Shaw’s Supermarkets reportedly plans to close three stores in Connecticut and three in Massachusetts, citing “a variety of factors” for the closings.
    KC's View:

    Published on: September 6, 2006

    • Walgreen reported that its August sales were $4.18 billion, up 17.2 percent from $3.57 billion last year, with same-store sales up 10.6 percent.

    • CVS said that its August sales were up 23.4 percent to $3.4 billion, from $2.8 billion in the year-ago period. Same-store sales were up 8.9 percent.
    KC's View:

    Published on: September 6, 2006

    We wrote yesterday about a US Centers for Disease Control & Prevention (CDC) Prevention (CDC) study saying that about 50 percent of advertisements for alcoholic beverages on the radio are broadcast during youth-oriented programs. It was just three years ago that the alcohol industry pledged not to run ads on any program for which 30 percent or more of the audience is under 21 years of age.

    However, representatives of the alcohol industry disputed the CDC findings, saying that the numbers were inaccurate and that they didn’t take into account advertising contracts that had not expired.

    Our comment: The legal drinking age in the US is 21. There is no excuse for advertising alcoholic products to people under 21. None. Unexpired advertising contracts be damned.

    Don’t these people realize that they have a responsibility to someone other than their shareholders?


    MNB user Philip Herr responded:

    Can't agree with your position on this. I teach a course in contemporary issues in marketing and specifically use this example to help my class develop critical thinking. If the CDC can prove that alcohol advertisers are buying space in "Highlights for Kids" or placing booze in Barney, then I can agree, marketers are egregiously guilty. However, much more likely is their media plans include magazines such as Sports Illustrated or FMH (contemporary version of Playboy when I was a teen). And because those publications happen to draw underage drinkers, the CDC beats up on alcohol marketers. So where do you draw the line. Allow alcohol advertisers access only to publications kept behind a counter?

    The answer to rampant underage drinking doesn't lie in legislation or regulation. The answer lies in the home where values and appropriate consumption of alcohol should be modeled. But don't get me started on that!


    The problem, of course, is that the alcohol industry already agreed to not run ads on any program for which 30 percent or more of the audience is under 21 years of age...which strikes us as a little different from agreeing not to advertise booze on Barney. They struck the agreement, and now are violating it.

    Another MNB user wrote:

    The more visible damage done the more stink is raised. It is easy to attack alcohol and cigarettes to protect the underage. What I'm starting to see is a broader problem.

    I remember back in 2005 wanting to take my 5 year old to see the new “Star Wars”; it a PG-13 movie, so I decided I would watch it first to see if my 5 year old can handle it, and I'm glad I did, because it was way too intense for him. My kid was crushed at not being able to watch it. Everywhere we went there was something that reminded him that he didn't get to see the movie. Every box of cereal reminded him about the movie. He saw commercials for kids meals, toys, and other stuff that he wanted that was tied to the movie that he was not old enough to see.

    Earlier this year he really wanted to see the “Pirates of the Caribbean” movie. The marketing was so good for this movie that he can recall the movie by its full title. He got the happy meal toys, but that movie was way too intense for him so he didn't get to see it. How many 13 year olds still buy happy meals?

    I know I have the primary responsibility to protect and educate my children, but there are a lot of marketing/corporate forces working against me. While this practice is abhorred with cigarettes and alcohol, it seems of little consequence with other marketing campaigns aimed at customers who don't meet age requirements established by the equity being marketed.

    Don’t these people realize that they have a responsibility to someone other than their shareholders?


    Being a parent is never a popularity contest. And you can immediately tell which parents think it is, because their kids usually are impossibly screwed up.

    It’s tough job, but somebody has to do it.

    By the way, if you didn’t take him to the new “Pirates of the Caribbean” movie, you did him a favor…because it is a long, bloated piece of crap.




    We also got a number of emails about the Consumer Reports annual rating of the nation’s supermarkets, saying that the best chains in the country are Wegmans Food Markets, Trader Joe's, Publix Super Markets, Raley's, and Whole Foods Market. The five achieved their rating by getting high marks in service, quality of perishables, price and cleanliness.

    Next on the list were Harris Teeter, Costco, Lowe’s Foods, Hy-Vee and Stater Bros.

    MNB user Tom Drummond wrote:

    As I have been in every one of the 'best' 5 supermarket chains named, this so called group making this judgment call have evidently not visited or considered a Byerly's or Lund's in Minnesota. They exceed by 'far' the high marks in service, quality of perishables, price and cleanliness than 80% of the 5 named winners.

    After judging Raley's on the west coast they evidently caught the 'Red Eye' to the east coast, and miss stopping in the Midwest ...with the exception of Iowa's little hometown stores, Hy-Vee.


    Another MNB user wrote:

    I do believe that at least 4 out of the top 5 "Best supermarkets" don't require slotting to bring new items in.

    Could that also mean that they run a better house?

    Food for thought supermarket industry.


    And another MNB user chimed in:

    Can we just say that these are the best CHAIN supermarkets? I find that the best markets I've ever visited aren't chains at all, but instead are the markets that celebrate their locale. And these are the same markets that chains visit to harvest ideas. But I suppose that's not what Consumer Reports can do...

    The reality is that most consumers don’t give a damn whether a store is owned by a chain or is independent, just as they never say “I’m going down to the c-store” or “I’m going to the supercenter.” They go to the stores that serve their needs and speak to their aspirations.




    We also had a discussion yesterday about a government proposal to change the definition of “grass-fed beef.”

    According to the story, the US Department of Agriculture (USDA) wants to change the definition so that only 99% — rather than 100% — of a cow's diet come from grass forage, and by defining forage more broadly to include things such as corn stalks left over from harvests and silage, which is fermented grasses and legumes. The rationale for the change is that the current rules penalize geographic areas of the country where cows cannot graze outside full time.

    Critics argue that “grass fed” ought to mean “grass-fed,” and that there should be no room in the definition for compromise; if the definition is changed, they say, it would let more conventional ranchers slap a grass-fed label on their beef, too.

    We agree. A reduction in standards is never a good thing.

    MNB user Dana Ehrlich, who happens to be CEO of Verde Farms (which we mention because it is relevant to his email), wrote:

    As a marketer of 100% grass-fed organic beef, watering down the standards does not help the consumer understand an already cluttered, confusing marketplace and reduces the profit incentive for farmers. Without that incentive, farmers will not increase supply which means ultimately the consumers lose out as they are 'forced' to purchase conventional beef from the 4 large meatpackers that control 84% of the US market.

    One MNB user responded:

    For readers not familiar with the importance of the “grass fed beef” distinction, I recommend Michael Pollen’s new book Omnivore’s Dilemma. Pollen describes clearly and graphically the difference between healthy cattle eating their natural diet of grass versus the near disease state brought on by forcing them to eat corn (and other things too disgusting to mention). The book is required reading for anyone involved with the food industry. Thanks for your column Kevin.

    Our pleasure.



    On the subject of Tesco’s US plans, we’ve written that we believe it will redefine the notion of what a convenience store is…and MNB user Frank Gleeson responded:

    The Tesco c-store concept may well redefine the offer for this segment but they may well struggle with the implementation, it's not all about design and concept, The human thing must also be right, so the Employees will be key.

    No argument.



    We had a story yesterday about a new piece of legislation in California that would require local governments to consider an economic impact report before approving the building of any so-called big box store larger than 100,000 square feet. The bill has been approved by the legislature and sent to Gov. Arnold Schwarzenegger for his signature. We thought this is a good thing, and wrote that “any local government that does not require an economic impact statement when any major business development is proposed is guilty of dereliction of duty. Doesn’t it make sense that all proposals ought to be seen within the context of how they will affect the community – for better and for worse – before they are approved?”

    To which one MNB user responded:

    The big question is "who does the study"…

    Do we hire a firm like McKinsey and pay $1mm (and triple taxes to pay for an expensive study before every decision)

    Do we let the unions pay for a report (that will say any business with non union jobs will be horrible)?

    Do we let the business pay for it (so we get reports that says all new development is good)?

    Or do we hire a complete idiot do it (like the guy who wrote the report that says California Global Warming restrictions will be good for the economy)?


    Are we now to the point that we classify anyone who disagrees with us as “complete idiots”? That doesn’t seem like a good way to encourage legitimate discussion and debate…though it certainly seems typical of political and cultural discourse in the US these days.

    As for who does the study…you make a good point. However…that doesn’t mean that communities shouldn’t evaluate how new stores, especially big stores, will affect the local economy and environment. Making these kinds of decisions in a vacuum result in communities that often seem ugly and unworkable.

    Want proof? Someday check out the skyline of Stamford, Connecticut, which looks like the local authorities simply handed the keys to a bunch of developers and then went on vacation. Instead of being a uniquely modern and attractive city, it is an eyesore.




    We had a story yesterday recounting a fascinating piece in Business Week about a battle taking place now between Wal-Mart and Apple Computer, a battle that has had the company confronting Hollywood’s studios over the possibility that they may make their films available to consumers via its iTunes online music and video store.

    The problem for Wal-Mart is that the online purchase of movies could erode its sale of DVD sales – and Wal-Mart currently accounts for four out of every ten dollars spent on DVDs in the US. (About $17 billion in DVDs are expected to be sold this year.)

    Wal-Mart reportedly wants the studios to delay making their films available over the Internet until it has its own download site ready, and also would like to see the wholesale price of DVDs reduced so it can lower its costs and prices.

    Which prompted MNB user Jim Swoboda to write:

    This is precisely why big is not good...threats around that stops competition simply because they feel they can. It was precisely has derailed many a good idea over the ages, but inevitably, the correct business models win and movies over the Internet is part of the distribution system of choice for consumer. Here is an excerpt from the WSJ on the topic:

    Recently, for example, the major studios opened negotiations to provide movies to be played on Apple Computer Inc.'s video iPod -- an important step toward Hollywood's digital future. Then Wal-Mart, the biggest seller of DVDs, disrupted the talks when it delivered a pointed warning to the studios not to give Apple a better deal for digital movies than the retailer gets for physical copies.

    "Our conversations with the studios are about what Wal-Mart has always been about -- giving our customers the best value and selection," said a Wal-Mart spokeswoman in an email response.


    How does their official email response fit with "delivering a pointed warning"....customers having access to the best value and selection will always be fulfilled when EVERYTHING in movie catalog is available virtually. As for giving Apple a better deal, if one does not have to physically produce, package and distribute a hard copy of a movie, is there not inherent savings that can be passed on to a distributor and ultimately the customer.

    Isn't this what Wal-Mart is all about, lowering the costs of doing business? How ironic that they are trying to prevent exactly that.


    Self-interest will almost always trump principles…especially if the principle seems to benefit somebody else.

    KC's View: