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    Published on: September 7, 2006

    This week’s all-new MNB Radio commentary by “Content Guy” Kevin Coupe examines what he says is a “dumb strategy” by school districts to get kids to change their eating habits – banning all sugary and fatty foods from school property, which means that little kids won’t even be able to celebrate birthdays with cupcakes in the classroom. This creates kids who are paranoid about food rather than smart about it, he says…

    To listen to his rant, either click on the “MNB Radio” icon on the left hand side of the home page, or just go to:
    KC's View:

    Published on: September 7, 2006

    Australian retailer Coles Myer has rejected an $11 billion (US) takeover bid by a Kohlberg Kravis Roberts (KKR)-led consortium.

    The rejection came as company chairman Rick Allert said that the bid undervalued the company and isn’t in the best interests of its shareholders. However, it is unknown whether KKR will respond with a higher offer, or whether another suitor – such as Tesco or Wal-Mart, both of which have been mentioned as possibly interested in Coles Myer – might emerge with a sweeter bid.

    KKR has not commented on the rejection, but it has been reported that the private equity firm was not interested in pursuing a hostile takeover.
    KC's View:
    We’d bet that this isn’t over. Not by a long shot.

    Published on: September 7, 2006

    The Seattle Post-Intelligencer reports that MasterCard Worldwide has pledged to “establish a cap on the fees gas stations pay to clear consumer credit cards and will publish a complete list of its so-called interchange fees, which merchants pay for the processing of card transactions.”

    The announcement came as pressure builds on MasterCard – and Visa – to reduce the fees paid by merchants to card issuing banks and to be more transparent about their fee schedules. The debate has even reached the US Senate, where the Judiciary Committee held hearings about allegations that they have colluded to fix fees.

    “We have heard the merchant concerns loud and clear," Joshua Peirez, group executive of MasterCard's global public policy, said in a statement. "The merchant community believes that having access to our rate schedule will provide additional transparency to the process, so we are pleased to be able to accommodate their request."

    Visa has denied any wrongdoing, and said that it practices full visibility in it practices, though it did release a statement saying that it will "continue to seek opportunities to increase clarity into all parts of our business and strengthen the organization's structure."
    KC's View:
    Visa’s idea of transparency is a brick wall lined in lead, and with gun turrets positioned at appropriate intervals.

    We just hope that MasterCard is being genuine in its stated desire to be more open with retailers about interchange fees. We’re dubious, but hopeful.

    We can only imagine the consternation in the Visa executive suites when they found out that MasterCard blinked in the face of public outrage and Senate inquisitions.

    We can imagine it. And it makes us smile.

    Published on: September 7, 2006

    Anheuser-Busch reportedly will launch an online entertainment network the day after the next Super Bowl next February. BTV – or “Bud TV” – is designed to “offer computer users six channels of comedy, reality, sports and talk programming created for and by Anheuser-Busch,” according to a piece in the New York Times. “The tentative names for the channels include Comedy, Happy Hour and Reality.”

    The branded content provided by A-B on the new network is designed to be a more streamlined way to reach audiences and consumers, without having to deal with networks and other corporate middlemen. A-B currently devotes five percent of its marketing budget to the Internet, but plans to double that amount – and spokesmen say that the company believes that the Internet eventually will be bigger than television.
    KC's View:

    Published on: September 7, 2006

    Crain’s Chicago Business reports that deposed Kraft CEO Roger Deromedi will get a severance package worth almost $14 million in cash, stock and benefits.

    According to Crain’s, Kraft “will send him paychecks until February, then pay him another 16 months worth of salary in a lump sum, according to a securities filing made Wednesday. The total: $2.4 million.

    “Kraft will also give him half the 2006 bonus he would have received if were he still CEO. Last year the ‘incentive award,’ as the bonus is called, was $1.4 million. Kraft will also pay most of a three-year long-term bonus that was scheduled to end in December. The last time he earned such a bonus, in 2003, it was $3.7 million.”

    Deromedi has agreed not to work for any Kraft competitors until June 26, 2007.

    Kraft fired Deromedi in June and replaced him with former Kraft executive Irene Rosenfeld. He was named co-CEO in 2001 and became the sole CEO in December 2003.
    KC's View:
    And when he sleeps at night, Deromedi probably dreams of growing up to become Larry Johnston.

    Published on: September 7, 2006

    The Des Moines register reports that discount chain Aldi has closed four stores in Iowa – in Indianola, Oskaloosa, Washington, and Newton – since the end of June.

    The units were closed, according to the company, because they were not meeting corporate sales expectations.

    Aldi said earlier this year that it will close a distribution center in Burlington, Iowa, this fall, and will move its operations to an existing Minnesota facility.

    Despite the closings, Aldi says that it still has 26 stores in Iowa and will open more if the right sites come along.
    KC's View:
    We did a quick check and found that it just so happens that Hy-Vee happens to have stores in all the communities where Aldi has closed units.

    Coincidence? We think not.

    Hy-Vee is a company that nobody should want to compete with.

    Published on: September 7, 2006

    • The Wall Street Journal reports this morning on a story that has been fairly well documented on MNB and elsewhere – that Wal-Mart is looking “to jump-start sluggish sales gains by abandoning its one-size-fits-all approach to retailing. In place of cookie-cutter stores stocked with largely the same products, the retailer is custom-fitting its merchandise assortment to reflect one of six demographic groups. Besides African-Americans and the affluent, it is targeting empty-nesters, Hispanics, suburbanites and rural residents.”

    According to the Journal, “Wal-Mart's attempt to break its approximately 3,400 U.S. stores into six different models is a huge shift for a company that grew to be the largest retailer in the world on the strength of standardization. By buying products in giant volumes, Wal-Mart was able to relentlessly lower prices, forcing other retailers to adapt or go out of business. But with comparable-store-revenue growth slowing and the stock price falling, the company now thinks aiming at specific types of customers will boost sales.”

    The strategy has forced Wal-Mart to adopt a less centralized organizational approach, in the hope that this will allow it to be more “in touch” with local shoppers. But as the Journal notes, the risk is that Wal-Mart could lose its ownership of the low-price segment of the business, diluting its image and alienating core customers.
    KC's View:
    We think it is pretty clear that Wal-Mart has come to the conclusion that it has sold about as much typical Wal-Mart merchandise to typical Wal-Mart customers as it can…and that growth requires an entirely new approach. The question is whether it should be trying to diversify under the same banner, or perhaps should be trying something different to appeal to these new shoppers.

    Published on: September 7, 2006

    Earlier this week, we reported on how Subway Restaurants is finding unorthodox locations – such as hospitals and even churches – in which it can open stores that will help it drive sales growth.

    Now, the Naples Daily News reports that the company is rolling out self-ordering kiosks that help expedite and streamline the ordering process. “The kiosks have started to take Subways by storm,” according to the Daily News. “There are 44 Subways using them across the nation and they’re now available at some restaurants in the United Kingdom, New Zealand and Australia.”

    There are some reports that the stores using the kiosks have experienced sales increases of between 15 and 40 percent since installing the systems.
    KC's View:
    Our kids are huge Subway fans, and we suspect that the existence of self-ordering kiosks in our local outlet would only encourage them to patronize it more often.

    Which is the point, we expect.

    Published on: September 7, 2006

    The CBC reports that A&P Canada plans to challenge a national law that bans large retailers from staying open on major federal holidays. The challenge stems from speculation that Ontario police may charge the company with violating the province’s Retail Business Holidays Act for keeping its stores open on Labor Day.

    The law says that only certain kinds of stores can stay open, including booksellers smaller than 2,400 square feet with three or fewer employees, pharmacies smaller than 7,500 square feet, flower shops, gas stations, or stores designed to cater to tourists.

    A&P says that the law puts it at a competitive disadvantage and that if the authorities charge it with violating the law, it will go to court to challenge the legislation. Federal authorities reportedly haven’t made up their minds about whether to pursue the case.

    According to the CBC, “Ontario isn't the only province that is facing controversy over provincial restrictions on store openings. In Nova Scotia, the grocery chains Sobeys and Atlantic Superstore recently took the province to court, in a challenge to a provincial law that requires most retail outlets larger than 4,000 square feet to close on Sundays.”
    KC's View:
    The reality is that in a world where almost everybody seems to work all the time, keeping stores closed on holidays gets more and more difficult because those may be the only times when certain people can go shopping. We’re assuming, of course, that store employees are given a choice about working on such days and are properly compensated for their efforts.

    Published on: September 7, 2006

    The Wall Street Journal reports that the European Commission has warned that European food companies importing genetically modified foods illegal under EU rules are at risk for legal prosecution. The warning comes as evidence has been discovered that a strain of biotech rice from China has been sold in the UK, Germany and France.

    Two advocacy groups, Greenpeace and Friends of the Earth, have called for a ban on all Chinese rice.

    "The presence of traces of unauthorized GMO food in the EU is illegal and it is the responsibility of food operators to ensure that they do not place on the market food that doesn't comply with EU law,” EU food and consumer protection spokesman Philip Tod tells the Journal.
    KC's View:

    Published on: September 7, 2006

    The Washington Post reports this morning that “Dunkin' Donuts will announce plans today to add 325 stores in Washington and Baltimore by 2010, marking the region as a focal point of its effort to open more than 10,000 new stores around the country by 2020. A similar announcement has already been made in Chicago, and several more are in the works around the country.”

    The goal is to establish Dunkin’ Donuts more as a coffee chain than doughnut chain, and to position it better in its battle against Starbucks for coffee dominance.

    Michael Coles, CEO of Caribou Coffee, tells the Post that he believes that Dunkin’ Donuts serves as a good entry point for people wanting to expand their coffee tastes, and expands the market – but that “once they are introduced to gourmet coffee, they are going to look to other places to expand their horizons.”
    KC's View:

    Published on: September 7, 2006

    • Safeway chairman/president/CEO Steve Burd told a Goldman Sachs Global Retailing Conference yesterday that the retailer will not consider a second format to supplement its new Lifestyle stores until it has “exhausted our ability to take business with that format.” He also said that the company will not try to compete with Wal-Mart as a price-driven operator, and that the company wants to “differentiate ourselves in the middle segment and grow our business.”

    • The Wall Street Journal reports this morning that Coke wants to sell a “proprietary brewing system for premium espressos, chai teas, cappuccinos and lattes to its vast clientele of existing stores and restaurants that already sell its trademark sodas and other drinks,” and will test the system in company-owned “concept stores” that are being tested in Canada, Norway and Singapore.
    KC's View:

    Published on: September 7, 2006

    • Royal Ahold reports that its second quarter net income reached the equivalent of $281 million (US), up 60 percent from the same period a year ago.

    • Pathmark Stores reports a second quarter loss of $8.8 million, compared to a $5.1 million loss during the same period a year ago. Q2 revenue was flat at $1 billion, and same-store sales were up 0.5 percent.
    KC's View:

    Published on: September 7, 2006

    Responding to our piece yesterday about Stater Bros., MNB user Ted File wrote:

    I have known Jack Brown like most of your readers for many years. The Stater Family (the expression so often used) consists of each and every employee of the organization and even includes those who have retired. Jack's leadership is to be admired!! He is highly involved in the community, in the industry trade associations, and, of course, his own family. Over the years he has attracted people like Gayle Paden, Don Baker, and Jim Lee to mention just a few. As Don is soon retiring but staying on in a consulting capacity, much of the leadership will now go to Jim Lee--an extremely capable and knowledgeable individual who is highly regarded in the industry as well as the California market. All of us hope that Stater's will never sell out and will always continue to be the market leader that consumers can trust.

    Yet another MNB user wrote:

    I remember this chain from my childhood in Hemet, California and I still search out their banner when shopping in California today. They always featured the freshest produce and I most remember the friendliness of the cashiers. I love this store.

    Another MNB user wrote:

    Every time I read about the positives that come from Stater Bros., I often wonder how Marsh Supermarkets would have ended up had Jack Brown not left so many years ago...

    We wrote yesterday about the end of Clemens Markets, which is being broken up and sold to Giant of Carlisle and C&S Wholesale Grocers.

    MNB user David Livingston responded to the notion that Ahold-owned Giant is acquiring stores at the same time as Ahold is under pressure to sell its US operations as a way of maximizing shareholder value:

    Buying Clemens at the same time the company will probably be split up? Well Albertsons did it with Shaws and Bristol Farms right before they announced they were throwing in the towel. Maybe they just want to add to their portfolio of stores in hopes of getting a better price. However look for Ahold/Clemens to raise prices, cut labor, and replace the butchers with "generic" case ready meat. Then blame the weather when sales go down.

    MNB user Brendan Haslam wrote:

    Well….as a former bagger, former deli counter worker, and longtime shopper…it was disappointing to see that Clemens is being sold. It did have the family atmosphere as an employee and as a shopper…what Genuardi’s was also like at one time.

    I thought about how many super markets I’ve been in where the workers openly complain about management, or family members who work in that industry and complain about ‘how it use to be’. I never heard this from a Clemens employee. Unfortunately, over time, I now assume this is going to change. I just hope Ahold doesn’t repeat with Clemens what Safeway has done with Genuardi’s.

    Another MNB user wrote:

    The Good News on this acquisition, if there is any, is that Giant Carlisle in taking Clemens over and not Stop N Shop. This is a well-run company with excellent customer service. Please DO NOT Ahold these stores.

    Another MNB user wrote:

    I'm an avid MNB subscriber/daily reader who also happens to work with Giant Food Stores, owned by Ahold. While it's certainly no secret our parent company has had its share of challenges (that we, in the larger sense of Giant-workplace family, totally had no control over but suffered throughout the industry from and financially as employees/stockholders), at the end of the day, we must be doing a lot of things right. Whereas, in the face of Wal-Mart Supercenters, we not only survive, but thrive.

    I see our acquisition of the Clemens Markets stores not a tragedy to be mourned, but an alliance to be celebrated. The Clemens Markets customers expect quality and value for their hard earned food dollars and whenever any other food retailer figures out how to provide that while paying their associates a living wage WITH health benefits, no tragedy has taken place.

    We also had some coverage of a report saying that alcoholic beverage companies continue to market to underage drinkers, despite their promises not to…a practice that we abhor.

    MNB user Brian Hayes had a thought:

    The timing of your article is interesting. It was just earlier this week that I saw a Bacardi "drink responsibly" commercial and had considered the inherent problems when trying to measure the success of that ad campaign. Do you think a CFO for an alcoholic beverage company would see a negative sales trend and say, "Yes! That "drink responsibly" campaign is really taking hold around the country!"

    Just a thought.

    At least the “drink responsibly” campaigns have a certain level of credibility…as opposed to the tobacco companies’ ads saying that they are out to help stop teen smoking.

    Talk about blowing smoke.

    They launch these educational programs because they have to, and then continue to do everything they can to poison the American public and entice young people to get addicted to their products.

    Don’t get us started…

    Finally, we reported yesterday 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.

    One MNB user wrote:

    This seems to be consistent with the typical 7 year old's defense for misbehavior of blaming an older sibling...."It is not my fault - he made me do it"

    Mr. Hey should be sent to his room and told to think about his actions and his own responsibility in making the decisions he did.

    And another MNB user wrote:

    I can't believe that this man got 'home detention" - good grief! I wouldn't mind having "home detention" at his house! He should have gone to prison.

    Agreed. Or, as we wrote at the time, forced to perform extensive community service, teaching underprivileged kids how to be entrepreneurs.(Maybe he could even have taught Katrina refugees about how to start up their own businesses…how’s that for an idea?)
    KC's View:

    Published on: September 7, 2006

    The bargain hunting mindset is prevalent among American consumers nurtured by a proliferation of sales, discounts and promotions characteristic of an intensely competitive, largely undifferentiated and overcrowded marketplace, the Hartman Group reports in this week’s in this “Consumer Pulse.” From mass discounters to the now ubiquitous dollar stores, which offer up their own blend of everyday bargains, consumer attitudes and behaviors vary. Within the competitive landscape of bargains and sales, what do shoppers say about why they shop for deals?

    To find out, click on the “Consumer Pulse” tile ad on the right hand side of the page, or go to:
    KC's View: