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    Published on: January 26, 2007

    Members of the MNB community know that there’s been a lot of discussion on the site this week of the healthcare crisis afflicting both the nation and the retailing business, a discussion that was instigated by Safeway CEO Steve Burd’s remarkable presentation on the subject at the Food Marketing Institute (FMI) annual Midwinter Executive Conference this week.

    Now, Safeway has made this presentation available online in an audio format – you can listen to it on your computer, or can download it to your iPod and listen to it while driving, jogging or whatever.

    The presentation is available at:

    > http://shop.safeway.com/superstore/default.asp?page=about

    If for some reason this link doesn’t work, go to the bottom of the Safeway home page and click on the “About Us” button…and that will take you to the speech.
    KC's View:
    Download it. Listen to it. And discuss it within your company, because it is one of the most important issues facing the industry and the nation.

    We hope that when FMI creates the educational component of its May show in Chicago, it will persuade Burd to give this presentation again. Because it is a message that deserves to be heard.

    Published on: January 26, 2007

    Sen. Christopher Dodd (D-Connecticut), chairman of the Senate Committee on Banking, Housing and Urban Affairs, held hearings yesterday into “the Billing, Marketing, and Disclosure Practices of the Credit Card Industry and Their Impact on Consumers.”

    In a statement, Dodd promised heightened oversight by the now Democrat-controlled Congress, and said that banks need to “cease and desist" any practices that harm consumers. "Irrespective of the current legality of such practices, you should take a long, hard look at how you treat your customers," Dodd said in promising extensive hearings.

    Following the hearing, the Merchants Payment Coalition (MPC) released a statement lauding Dodd’s calls for “heightened scrutiny into the credit card industry” and especially hidden interchange fees.

    “The credit card companies have long profited from placing hidden fees and practices on unsuspecting merchants and consumers,” MPC said in its statement. “The interchange fee is the biggest fee consumers have never heard of and accounts for more than the total of all other consumer fees such as late fees and over-the-limit fees.

    Last year, Visa and MasterCard generated more than $30 billion in credit and debit card interchange fees – a fee set in secret by Visa and MasterCard and imposed on merchants and consumers by the credit card industry and completely hidden from consumers.”
    KC's View:
    Not only is Dodd right, but he’s motivated – he’s running for President. And this is just the kind of issue, properly highlighted, that can capture consumers’ imaginations.

    Published on: January 26, 2007

    Wal-Mart has reached a agreement with the US Labor Department and will write a check for $33.5 million to cover back wages and interest to settle charges that it violated overtime laws, not paying time-and-a-half where appropriate to more than 86 thousand employees. The retailer also was charged with violating the Fair Standards Act by not properly calculating base pay when determining time-and-a-half payments.

    However, the federal settlement does not get Wal-Mart off the hook completely, since there are dozens of state lawsuits still pending that cover some of the same sorts of accusations.

    In reaching the multi-million dollar settlement, Wal-Mart continued to deny wrongdoing and liability, though Sue Oliver, senior vice president of Wal-Mart’s human resources division, released the following statement: “We want our associates to know that the situation has been fixed, that overtime calculations now are being done correctly, and that we’ve added safeguards to our payroll processes to make sure these types of errors don’t happen again.”

    Oliver also said Wal-Mart showed its good faith by volunteering to pay five years of back wages, while the Labor Department often seeks just two years of back wages. “We are committed to our associates, and we apologize to them for this error,” Ms. Oliver said. “We work very hard to make sure associates are compensated correctly.”

    While about 75 employees will get more than $10,000 in back wages, some reports put the average compensation for most of the 87,000 employees at about $375.

    KC's View:
    Luckily, we’ve never had any personal experience with this, but we’re curious.

    Is it easier or harder to write a $33 million check when you aren’t guilty or liable for anything?

    Just curious.

    Published on: January 26, 2007

    In Omaha, Nebraska, KETV News reports that a local gas station is differentiating itself by promising only to sell gasoline sourced from countries that do not sponsor, finance or otherwise support terrorism.

    The move is linked to the Terror-Free Oil Initiative, which says on its website that it believes "the majority of Americans would prefer to fill up at gas stations that display signs stating that their oil does not come from the Middle East and the customer's money will not be financing terrorism.”

    In addition, the Initiative’s website identifies brands that do not import oil from the Middle East, brands that do not import oil from the Persian Gulf, and brands that “finance terrorism by importing oil from the Middle East.” (The third list is a lot longer than the first two.) And, the site identifies companies that it is currently researching, including a number of well-known retail names.
    KC's View:
    It is worth checking out the Terror-Free Oil Initiative’s website, if only to find out which list your company happens to be on.

    This might be a blip on the publicity chart, but it also might be the start of something more lasting in terms of public attitudes.

    Published on: January 26, 2007

    Safeway announced that it has become the first retail grocer in the state to have joined the California Climate Action Registry, described as “California’s only official registry for Greenhouse Gas (GHG) emissions reduction projects.”

    According to the statement released by the company, “Joining the registry requires Safeway to follow a stringent program to annually monitor, report and certify its greenhouse gas emissions…Safeway has implemented several clean energy initiatives to reduce its carbon footprint across California and North America. The company was a strong supporter of AB 32, California’s new law to reduce carbon emissions by 25 percent by 2020. In September 2006 Safeway joined the Chicago Climate Exchange and committed to reduce its carbon footprint from the base year 2000 by 390,000 tons of carbon dioxide. The company also announced the purchase of an additional 174,000 megawatt-hours of wind energy, making it one of the largest corporate purchasers of green wind energy in California and the nation.”

    “Joining the California Climate Action Registry was the next logical step in demonstrating Safeway’s continued leadership in protecting the environment,” said Safeway CEO Steve Burd. “We have committed ourselves to a companywide clean energy initiative that is already having a positive impact on our business and the communities in which we operate.”
    KC's View:

    Published on: January 26, 2007

    The Los Angeles Times reports that a new plan by the California Department of Food and Agriculture “calls for processors of the leafy greens to sign a ‘marketing agreement,’ meet a set of still-unspecified health regulations, undergo compliance inspections and contribute as much as 5 cents a package to fund the program.”

    However, the program was derided by the United Fresh Produce Association as not strong enough, according to the Times piece. United Fresh reportedly believes that marketing programs and voluntary certification are not sufficient to achieve the level of protection deemed necessary, and is calling for federal oversight.
    KC's View:
    We didn’t write about it the other day because it sort of slipped through the cracks, but in his presentation at the Food Marketing Institute (FMI) Midwinter Executive Conference, Tim Hammonds made a chilling statement – that lettuce and spinach supplies from California are no safer today than they were during the E. coli outbreaks last year.

    He’s right. And that’s unacceptable.

    Published on: January 26, 2007

    • Published reports in the UK say that Wal-Mart’s Asda Group there has begun selling a DVD player for the equivalent of $17.70, or less than the cost of some DVDs.

    The announcement comes just weeks after Asda announced that it is currently selling what is billed as the least expensive suit that one can buy in the UK – a black, single breasted three button number that goes for the equivalent of about $37.

    • Published reports say that a Sam’s Club in Tampa got hit by two thieves on Tuesday night – and got away with a $263,574 necklace encrusted with 82 carats of pear-shaped diamonds.
    KC's View:
    Probably an easy decision for the thieves to make. It was either one necklace or something like more than 14,000 DVD players. The DVD players would be easier to fence, but you need a bigger truck for the getaway…

    Published on: January 26, 2007

    • The Los Angeles Times reports that a new study to be released at the 2007 California Childhood Obesity Conference suggests that “about half of the most aggressively marketed children's food with pictures or names of fruit on the packaging contains no fruit at all.” According to the Times, “Of the 37 products examined, 19 contained no fruit ingredients and six had only minimal amounts of fruit juice. Two contained 100% fruit juice, and 10 contained actual whole fruits, which have less sugar and more fiber and nutrients than juice alone.”

    • Delhaize-owned Food Lion announced this week that it has broken ground on three new Food Lion units in South Carolina, while almost simultaneously opening a new Bloom store in the same region of the state.

    “We are firmly committed to our South Carolina customers and are excited to be making a big entrance in the Upstate region,” said Ruth Kinzey, Food Lion LLC director of corporate communications.

    • The Washington Times reports that “about 40 grocery stores are under construction and scheduled to open in the Washington area -- nearly twice the number of stores that opened last year.” The new sores run the economic and format gamut – from Whole Foods and Harris Teeter to Safeway, Giant and Food Lion.

    • The Wall Street Journal reports this morning that Procter & Gamble is putting a new emphasis on industrial accounts, “increasingly reaching out to janitors, fast-food workers, maids and launderers.”

    According to the Journal, “P&G senses a big business opportunity: The U.S. market for janitorial and housekeeping cleaning products is a steadily growing one, currently totaling about $3.2 billion, according to Kline & Co., a consulting and market research firm. That's up from about $2.8 billion in 2002. The food-service cleaning supply market, which includes dish soap, disinfectant and other surface cleaners, totals about $1.8 billion, while the laundry services business is $850 million.”

    • The Washington Post reports this morning that Smithfield Foods will “require its producers to phase out the practice of keeping pregnant pigs in ‘gestation crates’ – metal and concrete cages that animal welfare advocates consider one of the most inhumane features of large-scale factory farming. Activists hailed the decision as perhaps the most significant voluntary improvement ever made in animal welfare.”

    KC's View:

    Published on: January 26, 2007

    • Food Lion has named Ken Mills, formerly Red Lobster’s VP-marketing, to be its vice president of sales and marketing.
    KC's View:

    Published on: January 26, 2007

    More discussion of the healthcare crisis and Safeway CEO Steve Burd’s market driven approach that forces employees to take greater personal responsibility.

    MNB user Richard Lowe wrote:

    Steve Burd is NOT right on!

    The Insurance companies are the first stumbling block. They need to be eliminated. Steve Burd's model of car insurance is flawed. There are still a lot of people without it who cannot afford it. Why do I carry uninsured motorist coverage? The cost of car insurance is insignificant when compared to health insurance and the losses are the same boat.

    Why do we need a whole additional bureaucracy in the insurance industry for salaries and benefits and high paid executives trying to rip us off? The Medicare program is already way larger than the health insurance industry so why not make it total so all can benefit? Canada has proven that it works well!!!!


    Except that we know people in Canada who, when they come down with anything serious, immediately head south because care is so much better here.

    Another MNB user wrote:

    The Dallas Division of Kroger is in the second year of a healthcare program for management employees that is very similar to Burd's.

    The program is much more affordable and probably great for many employees but you can't afford a major illness the first year you are on this plan. The HSA money is put into the employees account in 12 monthly installments. If you are sick in March you will only have 1/3 of your HSA money but you will owe the entire $1500 deductible.


    MNB user Jack Flanagan wrote:

    Kudos to Steve Burd for doing what he can do to control spiraling healthcare costs while improving the health of Safeway employees.

    John Mackey of Whole Foods has been another innovative leader in this
    regard.

    However, the proverbial elephant in the corner of the room is not controlling the rate of growth - it is the documented waste inherent in the current level (i.e. 1/6 of the American economy) of healthcare 'system' expenditures. Numerous studies by respected professionals in the medical field as well as disinterested parties have documented waste in the range of one third to one half of expenditures.

    What is waste ? Expenditures that either don't improve (or in many cases actually worsen) patient outcomes, detract from quality of work/life of healthcare providers, provide perverse incentives that inhibit progress, etc.

    Is there a CEO in business in general, much less in the retail business, that would accept that 50% of his or her company's total costs are waste and allow that situation to continue, defining success as 5 years out the waste is now only 60% of total costs as opposed to the projected 70% ?

    The solution is not to simply try to restrain the rate of growth nor is it to 'socialize' the cost across all employers. The solution is to start attacking root causes of scandalously high level of wasteful expenditures, many of which causes are eminently capable of being solved.

    Medical benefits (or lack thereof) in retail is a huge issue that will only continue to get bigger. It's long past time for all retail CEOs as well as the major associations (FMI, RILA, NRF, NACS, NACDS, etc.) to come together in giving this issue of wasteful expenditures inhibiting, if not imperiling, the growth of the US economy.




    On the subject of Wal-Mart’s marketing and merchandising staffing moves, MNB user Al Kober wrote:

    Marketing should never lead Merchandising. They must work side by side. Marketing and Merchandising have different goals as their mission. Marketing's main goal is brand awareness, advertising, media impressions, etc. where as merchandising uses the efforts of Marketing to merchandise for sales and profit. Different goals. One is impressions the other is sales and profit.

    These two should work together and if ever one is required to "report to" the other, it should always be Marketing reporting to Merchandising, not the other way around.


    We commented that Wal-Mart may be dealing with the same sports of silos as other retailers, which led MNB user Andy Casey to observe:

    What is interesting is…the people in Bentonville are apparently taking steps to break down their silos - how many traditional supermarket companies can make the same claim?

    True. Good point.




    And, regarding the breach of contract lawsuit filed against Wal-Mart by deposed marketing executive Julie Roehm, one MNB user wrote:

    As long as Wal-Mart lives up to the employment contract I think she has no case. I believe a company should be able hire and fire people at will, with no valid reason. We allow our customers to hire us and fire us so why shouldn't employers have the same right? She just sounds like an immature crybaby who got her feelings hurt and is looking for a fast buck. Maybe she should try being self employed and see what its really like to depend on yourself instead of depending on using some corporation as a crutch to give her a job. Suing an employer because you got fired shows a complete lack of class and will probably make her unemployable. Nobody wants to hire someone who might sue you if you fire them.

    Maybe filing the lawsuit will make her unemployable, but could it be worse that being fired by Wal-Mart and accused of unethical behavior and having an inappropriate relationship with an employee? If she’s guilty, then she’s foolish for going to court. But if she is innocent, she has every right to try to get her good name back…not an “immature crybaby.”

    By the way, from all reports Julie Roehm is fairly brilliant, even if her Wal-Mart tenure was undistinguished. She’ll have no problem getting a job and making a living.
    KC's View:

    Published on: January 26, 2007

    This is sort of an embarrassing admission to have to make at the ripe old age of 52, but I did something this week that I’ve never done before.

    I ate at a Denny’s.

    I was in Orlando and was with a friend on Wednesday morning and we were looking for a place to grab some breakfast and there it was, standing on the side of the road, beckoning us to join them for an all-American breakfast.

    Now, I eat breakfast every morning, but it generally is on the order of either cold cereal or hot oatmeal with fruit. I’m sure I could have had that at Denny’s, but no…there were other options shouting out to us from the menu like sirens calling us from the rocky shoals of a distant shoreline. I don’t know what came over me, but I found myself ordering some sort of Grand Slam breakfast that had eggs and hash browns and pancakes and bacon and it when it showed up at the table it was piled so high it reminded me of the mountain of mashed potatoes that Richard Dreyfuss built in “Close Encounters of the Third Kind.”

    The good news is, I didn’t finish it. Couldn’t finish it. I ate maybe half of it and felt like I had to go out to have a medical procedure to have my arteries cleaned out. Either that or a quick trip to Roto Rooter.

    The better news is that even though there was a ton of cholesterol and trans fats going into my body the other morning, I was certainly better off than the Fed Ex drivers at the next table who were sucking down Budweisers at 9 o’clock in the morning.

    The best news – I won’t be going back. At least not for another 52 years. I don’t think my heart can stand it.




    It didn’t get a lot of recognition when the Oscar nominations came out this week, but I think that “Children of Men” is a remarkable piece of filmmaking, and certainly one of my favorite movies of 2006. The story is set in 2027, a time when it appears that virtually everything that could have gone wrong in the world socially, politically and economically has gone wrong – and the worst thing is that humans are no longer able to have babies. As the movie opens, the youngest person in the world, age 18, has just died, and the world seems both desperate and hopeless. Clive Owen plays a former activist turned disconsolate bureaucrat, but who is asked to help transport a miraculous cargo – a pregnant woman – out of dystopian England and to a place where she may be able to raise her baby in peace.

    Directed by Alfonso Cuarón, “Children of Men” is as fully realized vision of a possible future as I can remember seeing in a movie – completely original, and yet with touches of ‘Blade Runner” and “A Clockwork Orange.” And it has wonderful actors – Owen is terrific in a kind of Bogart role, Julianne Moore is wonderful as the woman who appeals to Owen’s better nature, and Michael Caine gives a spectacular performance as an aging hippie who remembers better times and refuses to let his spirit die.

    “Children of Men” is thoughtful, complex and contains no easy answers. It is my kind of movie.




    My wine of the week: the 2002 Mosaic Merlot from Sonoma County, which just seemed a little more elegant and complex than the average merlot. Wonderful, and probably available for around eighteen bucks a bottle.




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

    Sláinte!!
    KC's View: