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    Published on: March 6, 2007

    The Great Atlantic & Pacific Tea Company (A&P) will acquire the 140-unit Pathmark Stores for $677.3 million in cash and stock, creating a 550-store chain operating primarily in New York, New Jersey and Philadelphia, as well as in Baltimore, Washington, D.C., Michigan and Louisiana.

    Including debt assumption, the deal is valued at $1.3 billion. A&P has said that it believes that it can realize annual integration synergies of $150 million within two years through cost reductions and efficiencies.

    Germany’s Tengelmann Group, the majority owner of A&P, will be the majority shareholder in the new, combined company. Yucaipa Cos., Pathmark’s largest shareholder, will get a stake in the new entity.

    According to reports, the deal is expected to close during the second half of the year.

    Christian Haub, executive chairman of A&P, will continue in that role at the new company, as will Eric Claus, president and chief executive of A&P.

    In a press release issued yesterday, A&P listed the following benefits it expects to come from the transaction:

    • “Ability to better serve customers in the New York, New Jersey and Philadelphia metro areas.”

    • “Annual integration synergies of approximately $150 million within two years, through cost reductions in overhead, greater efficiencies, increased utilization of support facilities and the adoption of mutual best practices between the two companies.”

    • “Retention of the Pathmark banner, format, customer appeal and sales productivity.”

    • “Combined information systems integration into A&P's modern technology platform.”

    • “Corporate management/administrative consolidation of A&P and Pathmark employees in Montvale, New Jersey.”

    • “Platform for investment in existing and new stores to better compete in the Northeast retail food industry.”

    • “Benefits to the customer through the breadth of offerings available from the combined companies, and the continuation of community outreach efforts.”

    Some analysts say, however, that the Federal Trade Commission (FTC) is likely to raise some objections to the deal because it traditionally has expressed concerns about acquisitions that would result in a high concentration of store sin a single area. There are some expectations that 40 or more stores may have to be sold off to meet FTC concerns.
    KC's View:
    We think that we’re beginning to agree with the MNB user who suggested that there has to be another play here for Yucaipa’s Ron Burkle, who we can’t imagine will be satisfied with just watching A&P and Pathmark just evolve.

    We had another MNB user who wondered why we were so negative about the merger of these two companies…and we can only say that we’ve grown tired of getting press releases from A&P explaining how it is reorganizing and coming up with new strategic plans to make the company more relevant and productive. And the results have been generally underwhelming.

    We wonder if, when A&P has to start selling off stores, it could open the door for either another NY chain (D⊃Agostino⊃s?) or a non-NY chain to make a move on those locations. Wal-Mart Neighborhood Markets? Hannaford? Price Chopper?

    We think if any of those three came into the market and competed head-to-head with A&P, the guys in Montvale wouldn't know what hit them. And, inevitably, we’d be on the receiving end of yet another press release from A&P about a new strategic initiative or reorganization…

    Published on: March 6, 2007

    Time has a cover story this week about how to buy an apple. A 4,800-word cover story.

    The basic question it addresses is this: Is it better to buy organic? Or local?

    It will not ruin the suspense to disclose that Time writer John Cloud concludes that he’d rather eat local produce than organic varieties, in part because he believes that local tastes better because the supply chain is significantly shorter, in part because he believes that “science offers no clear guidelines yet on how beneficial organic food is.”

    Cloud writes, “When it comes to my basic ingredients--literally, my ‘whole’ foods rather than my convenience foods--I would still rather know the person who collects my eggs or grows my lettuce or picks my apples than buy 100% organic eggs or lettuce or apples from an anonymous megafarm at the supermarket. Choosing local when I can makes me feel more rooted, and (in part because of that feeling, no doubt) local food tastes better.”
    KC's View:
    It isn’t entirely fair to try and summarize 4,800 words in 164…so we will suggest that you either pick up the magazine or read it on the Internet. If nothing else, the complexity of the decision-making process is fascinating…though we suspect that a majority of people are simply happy to get apples that are not bruised, and so may not relate to Cloud’s experience.

    But the Time story does suggest how sophisticated some members of the consuming public have gotten, and the direction in which consumer trends could be going.

    We did find one part of the story particularly fascinating – the section about Café 150, a cafeteria on Google’s main campus in Mountain View, Calif., which has committed itself to serving only local products. Cloud writes, “I wanted to see how Café 150's founding chef, Nate Keller, managed to serve more than 400 purely local meals a day. Most chefs simply place orders with suppliers. Good cooks understand that quality and origin are related because of the toll extracted by transportation, but in the end, if Emeril Lagasse wants to serve wild salmon one night, he can just order it from Alaska. Keller, who recently became the chef at another Google restaurant, couldn't do that. Although just a freckly 30-year-old, he had to plan his menus the way preindustrial cooks did, according to whatever local vendors offered that day.”

    Think about that – one of the globe’s foremost technology companies offering food created in a preindustrial context.


    And required reading.

    Published on: March 6, 2007

    The Wall Street Journal reports this morning that Southern California’s three major food retailers – Safeway, Albertsons and Kroger – and the United Food and Commercial Workers (UFCW) have agreed to a two-week contract extension as they continue to negotiate a new labor deal.

    The last contract ended over the weekend, but it has been extended to March 19.

    The Journal writes, “Unions are pushing to reverse a concession they agreed to after a debilitating strike in 2003: a two-tier system they argue has kept most new workers from getting health care benefits.” That 2003 strike/lockout cost the chains as much as $2 billion by some estimates, and roiled the marketplace, sending many consumers to smaller competitors not experiencing labor strife.

    This time around, it appears that both sides want to avoid a repeat of the strike/lockout scenario, with the chains having a new incentive – British retailer Tesco plans to begin opening stores in Southern California later this year, and undoubtedly would benefit from labor problems affecting the big three. Two of the region’s smaller chains, Gelson’s and Stater Bros., already have signed new contracts with the UFCW.

    Unlike the last time around, the three chains reportedly are negotiating individually with the UFCW; last time, they negotiated as a unit.

    Meanwhile, Safeway CEO Steve Burd has been pushing for a new approach to health care that would provide greater coverage for employees while at the same demanding of them a higher level of personal responsibility, though it is unclear to what extent his recommendations have become a factor in the negotiations.
    KC's View:
    We hope that some sort of responsible and comprehensive health care arrangement is part of whatever new deal is reached by management and labor…because it would be a shame to simply put off the inevitable for another three or four years.

    Published on: March 6, 2007

    The Sioux Falls Argus Leader looks at some of the innovations that Hy-Vee is bringing to the marketplace. For example, “when the new Minnesota Avenue Hy-Vee Food Store opens March 20, the store will be the first of the five Sioux Falls Hy-Vees to have an on-site dietitian and a kitchen for classes with cooking demonstrations.”

    In fact, it is more than just a kitchen: “The Hy-Vee Club Room, a first for Sioux Falls stores, is a combination kitchen and meeting room. The kitchen will offer a wide variety of health-related education, plus it gives the dietitian in the store a place to show people how to make foods or use products. …(it) can be a place where customers learn to cook for someone with diabetes or celiac disease, as well as a place to gather for meetings or other events.”

    Analysts tell the paper that Hy-Vee is distinguishing itself with this suite of services, and is doing so in a market where they are largely unfamiliar offerings.
    KC's View:
    We firmly believe that it is offerings like these – that go beyond the products on the shelves – that allow a chain like Hy-Vee to create differential advantages…and to not find such differences is to give into the mediocrity of conventional retailing.

    Conventional isn’t good enough anymore. It is the stuff that goes above and beyond the conventional that determines success or failure.

    Published on: March 6, 2007

    The Wall Street Journal this morning reports that Wal-Mart “has fired a systems technician for intercepting text messages and recording telephone conversations without authorization.” The messages and conversations were between the retailer’s public relations department and New York Times reporter Michael Barbaro, and took place between September 2006 and January 2007.

    Federal officials have been informed of the situation and reportedly are reviewing the findings to see if additional legal action needs to be taken.

    According to the Journal, “Wal-Mart said the phone recordings weren't authorized and were in direct violation of the established operational policy. However, the company said the actions weren't illegal, since all employees agree with company policies state all electronic communications of employees using Wal-Mart communication systems are subject to monitoring and recording. Most states allow the recording of phone calls, as long as one party gives consent.

    “Wal-Mart said in addition to firing the technician, it has taken disciplinary action against two management associates for failure to carry out their management duties.”

    The New York Times story elaborates: “The company did not say what led the technician to make the recordings or why Mr. Barbaro’s conversations were the target.” However, the Times also notes that “over the last year, Mr. Barbaro has written dozens of articles about Wal-Mart, including some that were based on internal company documents that were given to him by union-financed groups that were critical of Wal-Mart’s business practices.”
    KC's View:
    We hear about illegal taping, and we always think back to Watergate…and start to wonder if there is more here than meets the eye.

    Published on: March 6, 2007

    The Toronto Globe and Mail reports that Laval University in Quebec “is poised to set up North America's first so-called "supermarket school" -- a fully functioning retail outlet on or near campus that will be run by one of the province's major grocery chains and double as a research/teaching facility.

    “The proposed store will boast eggheads along with the regular eggs. It will allow researchers in food processing, nutrition, marketing, management, industrial relations and other disciplines to enjoy the benefits of a vast, working laboratory.”

    Among the major Canadian grocery companies considering making an investment in the facility – Loblaw, Metro, and Sobeys. However, the article notes that “the corporate partners don't stand to benefit directly from the research results, which will be in the public domain, but they want to ensure that the grocery business maintains its edge in terms of products, management, technology and a well-trained talent pool.”
    KC's View:
    In an era where management talent is increasingly thin, it makes sense for retailers to invest in programs like these. In fact, there are plenty of programs out there - run by institutions like Portland State University, Cornell University, Western Michigan University, Michigan State University, and St. Joseph’s University – that benefit from the participation of major companies…though we think the companies actually benefit more.

    If your organization is not involved with these or another academic institution, it should be.

    Published on: March 6, 2007

    • Published reports say that Tesco has offered to pay to repair cars damaged when consumers pumped contaminated gasoline from Tesco fuel stations into their vehicles. "We'd like to say how sorry we are. More to the point, we'd like to promise to pay for the repairs," the company said in published advertisements.
    KC's View:

    Published on: March 6, 2007

    • The Arizona Republic reports that Ethos Water, the Starbucks-owned bottled water company that provides grants to help poor communities build their own clean-water systems, “has struck a deal with PepsiCo that will produce and distribute the drink to about 100,000 stores, including supermarkets. Ethos will share shelf space with big, mainstream water brands such as Dasani and Arrowhead.”

    • The Miami Herald reports that the US Food and Drug Administration (FDA) is “reviewing whether popular medicines like Tylenol Plus Cold & Cough and Infant Triaminic Thin Strips are safe and effective in treating children's colds and coughs.” The review is expected to take months, and has been prompted by concerns that OTC medicines may be harming children when taken in improper doses.

    • Ahold’s Giant Food has opened a new “green” prototyope store in Urbana, Maryland, a Super Giant unit that is said to be state-of-the-art in terms of energy efficiency.

    • Marks & Spencer in the UK reportedly is on the lookout for sites where it can open new Simply Food stores that will be about 50 percent bigger than the existing 21,000 square foot stores.

    • The newly remodeled Superquinn stores, described as a “next generation” format being opened in Ireland, must be pretty nice – the first, in Blanchardstown, has won the ‘Store Design of the Year” award from Retail Week.
    KC's View:

    Published on: March 6, 2007

    • Safeway announced that Russell M. Jackson will be joining the company as senior vice president, Human Resources, effective April 1, 2007. He will succeed Dick W. Gonzales who retired at year-end 2006.

    Jackson comes to Safeway from PG&E Corporation, where he most recently served as Senior Vice President, Human Resources,

    • Nash Finch named Dennis Hanley, a vice president with Ahold’s Giant of Carlisle, to be its vice president of retail format development, a new position.
    KC's View:

    Published on: March 6, 2007

    We got the following email from MNB user Jack Flanagan:

    I've enjoyed the discussion of Effectiveness vs. Efficiency over the last several days. It seems to me, however, that casting the debate in these terms misses the larger point. Either approach, done in a shortsighted or excessive manner, can be problematic to a retailer operating dozens, let alone hundreds or thousands, of stores.

    Any organization has a continual race going on between those actions that create value for the customer vs. those that destroy value for the customer. Value is measured by customers’ behavior, not a price point. The trick is to keep moving the organization heavily towards value creation while relentlessly rooting out activities that destroy value.

    Costco, Trader Joe's, Whole Foods and Tesco are just 4 examples of food retailers who clearly stand (and for years have stood) for something very much valued by their customers. They all are, in their own way, both effective AND efficient. They create value that their customers are willing to pay for.


    On the subject of cloned meat and its suitability for consumption, one MNB user wrote:

    The more I think about cloned meat unidentified in the food chain, the more I get creeped out. Sometimes, being in the food business is both a blessing and a curse. The blessing…I know a lot more about where my food comes from than the average consumer. The curse…I know a lot more about where my food comes from than the average consumer.

    But here’s my thought. If the FDA is unwilling to address people’s concerns about cloned animals entering the food supply, then I suppose a good retailer will have to step up. They don’t have to avoid the cloned animals they just have to identify it if they carry it. A creative retailer could even use it as a marketing strategy to create value on a line of “clone-free” meat. Ultimately when this issue ends up on 60 Minutes, retailers will have to answer that question for their consumers. They might as well get in front of the issue and create some trust with their customers.

    We agree. Retailers should insist on providing the labels…though we suspect that the federal government would try and stop them. After all, this is the same government that didn’t want products that have been genetically engineered to be labeled as such, because “it would scare consumers.” Which isn’t just nonsense, but stupid. Consumers need to be informed, not denied information…and we have trouble respecting any entity that tries to deny consumers information or manipulate it.

    Yesterday’s story about cloning focused on a story in the LA Times reporting about a dinner where both traditional and cloned beef were served…and that certain people refused to attend.

    One MNB user wrote:

    I applaud Mr. Schlosser and Mr. Hefter for not attending this PR Circus. Without legislated labeling requirements, these men were smart not to attend and thereby condone this blatant attempt to hide the truth of our food supply from the public. You Mr. Coupe should recognize the implications of such actions and their negative PR.

    And, when was it that selective breeding become old technology? I think I remember Dolly the cloned sheep having a markedly shorter life span. I for one do not want to eat retarded cow no matter how succulent.

    And haven’t you ever heard of the slippery slope? How long before the acceptance of cloned beef for human consumption leads to cloning blonde-haired blue-eyed 7-ft baby boys and girls because hey it worked on the cows? Jurassic Park was fiction wasn’t it?

    I think this technology is not only wrong but dangerous and unnecessary.

    We would disagree. We think that we all have to be conscious of both the practical and ethical implications, but to deny the existence and possible advantages of this technology would be a mistake.

    And we would correct you on one point. This wasn’t a public relations stunt. This was the Los Angeles Times doing a perfectly legitimate story from an interesting perspective…and one that has a significant amount of resonance, to judge from the response. (We wish we’d thought of it!)

    MNB user Dustin Stinett wrote:

    I am consistently amused by folks who might believe that there can possibly be a "difference" in the taste, texture, or any other attribute of cloned beef or milk.

    Given that it is an exact molecular copy, how would such a thing even be possible?

    Whether it's plants or animals, biotechnologists have been fighting scientifically uninformed activists for more than a half-century.

    The funny thing is, I've never seen an activist honored for saving the lives of millions of people from starvation by their contributions.

    On the other hand, Dr. Norman Borlaug is a Nobel laureate for that very reason.

    The only labels these foods need are the ones that are already on them: "Milk" or "Beef."

    Eric Schlosser can go ahead and eat his running shoes. In the mean time folks like Alex Avery and Gregory Conko will continue to talk sense to a world in desperate need of a safe and sustainable food supply. Something of which cloning, with over 70 years of scientific evidence behind it, is a part.

    Another MNB user wrote:

    On one hand you seem to be implying that anyone who refuses to eat cloned meat (despite the fact that the all-knowing FDA has declared it safe) isn’t THINKING.

    On the other hand, you ALSO do not trust the FDA.

    Where does your “consumer confidence” in the safety of cloned meat come from?

    We’re not sure that’s what we’ve been saying.

    True, we do not trust the FDA.

    But our feeling about cloned beef is that we have no particular problem eating it, more because we trust the science…not the FDA. But we also think that it needs to be labeled as cloned, simply because consumers need to be allowed to make their own decisions about it.

    We had a story yesterday about how the United Food and Commercial Workers (UFCW) is trying to stop Tesco from selling alcohol in any of the Fresh & Easy neighborhood Markets that the UK-based retailer plans to begin opening later this year. The UFCW has said that it “is responsible for mailing and dropping off anonymous fliers to Valley homes last weekend that ask residents to protest Tesco's applications for liquor licenses for most of the 20 Fresh & Easy stores it plans to open around the Valley.” The flier “points out that Tesco stores in Britain have been caught selling alcohol to underage teens, a move that, the union says, makes it an undesirable retailer for the Valley. It asks residents to write to the Arizona Department of Liquor Licenses and Control, but the fliers don't say who is behind the campaign.”

    The Arizona Republic noted that “the fliers are part of a larger strategy to persuade Tesco to take part in union negotiations by stunting its launch in the U.S.”

    MNB user Mike Griswold observed:

    This little stunt should not fool anyone. This is solely focused on the issue of organizing future Tesco stores. Maybe a MNB reader from the area can comment on the existing stores track record relative to not selling alcohol to minors. I am willing to bet the local 7-11 and Circle K’s have had their challenges in this area as well.

    MNB user Dean Balsamo wrote:

    As someone who works almost exclusively with food retailers it's always surprising to hear whom the various unions are targeting with tactics like this. For instance even though some of the San Francisco Bay Area's home grown retailers would like the unions to go after specific, existing non-union competition in their market-like Whole Foods and Trader Joe's-the union puts all of their attention on Wal-Mart. Why? Because that's where they get allot of mileage, with the press and in-turn create some crowd-pleasing accolades with union members-to the frustration of the store owners and managers who see the playing field and players with a different perspective.

    Wonder why this union has targeted Tesco when they haven't even opened a store? What are they fighting ? What good does this accomplish-trying to limit business and jobs when the model isn't even up and running?

    Another MNB user wrote:

    The UFCW’s latest attempt to blackmail Tesco in Arizona illustrates its almost comical ineptness. They’re like a satirical caricature of a union. I can almost see the union boss in a smoke-filled room speaking in an Italian accent: “We’re gonna make them an offer they can’t refuse.” It’d be hilarious if it wasn’t hurting so many people. The union agreement in California this year will be pivotal and instead of far-thinking leaders, we have the UFCW representing us.

    I’m an Arizona meat-cutter and, though I’m from a pro-union UAW family, the UFCW’s ham-handed approach to organizing our non-union store left me shaking my head. They tried a similar “blackmail” approach—sending groups of “guerilla” disrupters into the stores, recruiting spies to spot health code violations, and leaking negative observations to the press. All they did harden management’s resolve to keep them out and completely baffle the workers. How is this supposed to help us?

    I work with a meat-cutter who moved to Arizona fleeing the aftermath of the destructive strike in California only to find that companies here, union or not, follow the standard set in California. The two-tiered wage structure is wreaking havoc in the day-to-day workplace environment. We haven’t received a cost of living raise in three years and we’re had to start paying part of our healthcare, all the while our companies continue aggressive expansion plans. We need help, but I’m not optimistic that we’re going to get with the new agreement.

    It’s shame. With declining real wages and a health care crisis, we could use a strong union. But in this day and age, we need a new kind of union—a progressive-thinking union that will work with management to increase productivity, cut unnecessary costs, and reform healthcare while building stronger wages. After all nobody profits if the company doesn’t.

    We recommended yesterday that Starbucks could get a little good press by switching to a free Wi-Fi model, which led one MNB user to write:

    The free Wi-Fi offering is huge. I'm not sure why Starbucks and other retailers don't get it!

    I got in the habit of visiting Starbucks at least 4 times a week to grab a cup of coffee and/or work on my PC as a break from my home office. However, with the opening of a Panera Bread store in my area, I've changed my allegiance. I now frequent Panera a couple of times a week and have dubbed Panera as my new "offsite office". I not only enjoy a spacious dining area and friendly servers, but also FREE HI-SPEED WI-FI. And, I can get a cinnamon crunch bagel (highly addictive, try one) and coffee for less than $3. I would guess that the revenue lost from Starbucks' pay-as-you-go Wi-Fi program would surely be offset with additional product sales from the increased traffic drawn in by the free Wi-Fi. And, it says something about the culture of the company.

    Another thing. Panera offers a loyalty card for coffee drinks. Buy 10, the next one's on them. Safeway has Starbucks kiosks in many stores in my area and they also offer a loyalty program. Why doesn't Starbucks have a loyalty program? Seems like an easy call, unless Starbucks thinks that we are so loyal that we won't go elsewhere..... and that is dangerous thinking!

    But MNB user Ted File disagreed:

    I learned many years ago that "there is no such thing as a free lunch or latte." If I, as a consumer, were to take advantage as many of those who sign in and sit there for hours, and drink one very slow cup of whatever -- I would honestly feel guilty. Those people just don't get it....after an hour get up and go back to work or school. A nominal fee for the ambience of Starbucks is worth it.

    And, regarding the whole "search for Starbucks’ soul” discussion, MNB user Jim Swoboda wrote:

    I cannot applaud Howard Schultz's message enough. They are losing their way from my perspective and it is clearly driven by trying to be everywhere, all the time.

    My personal experience is that the Starbucks stores are MUCH better than the Starbucks stores within a store. As an example, we have Starbucks in many food retailers in our city. The coffee is served from an air pot and they do not follow the 18-minute rule, or whatever time limit it really is, where they throw the coffee out if not sold. The stand-alone stores clearly do it better.

    Having all of the locations in stores where the formula changes "waters" down the brand. Sometimes bigger is not always better. Quality can never be sacrificed for quantity or one runs the risk of losing one's way.

    KC's View: