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    Published on: April 9, 2007

    During the next few weeks, MNB will present an occasional series of previews looking at some of the cutting edge topics and speakers who are on the agenda for the 2007 Food Marketing Institute (FMI) Show, scheduled for May 6-8 in Chicago, Illinois.

    This morning, we start with an exclusive e-interview with Rajiv Lal, senior professor of retailing at the Harvard Business School, who will be part of a Super Session on Tuesday, May 8, at 8 a.m., looking at “Filling The Management Talent Gap.” The premise of this session is that the food industry – along with much of the business world – is suffering from a lack of ‘bench strength” in the executive suite that could result in a shortage of innovation and leadership in just a few short years. Lal, along with a number of senior executives from the food industry, will engage in a panel discussion designed to examine the problem and formulate responses that can help companies deal with this serious issue.

    MNB Content Guy Kevin Coupe will serve as a moderator and presenter for this Super Session...and promises to introduce into the discussion issues raised here by the MNB community. So read on, and then, if you wish, ask the question that you think nobody else will ask and tell him what you think the real ground-level problems are and the challenges that need to be dealt with by industry executives.

    MNB: In simple terms, explain the basic scenario that has led to a lack of executive talent not just in the food industry, but throughout the business community?

    Rajiv Lal: I think the fundamental reason for lack of talent in the food industry is due to several reasons. But it is important to note that this not the case with the manufacturers and vendors that supply to food retailers.

    First and foremost is the focus on products, distribution, systems and costs and a lack of appreciation for the role of people.

    Second is related to the state of the economy; whenever there is a downturn or a need to cut costs to improve profitability, retailers often look to reduce manpower to achieve these goals.

    Third, retailers often view people as COGS rather than exploiting the ingenuity of people to deliver value. I guess it alludes to their inability to take advantage of the creativity and flexibility of human beings.

    As one student in my class said, if all you sell is undifferentiated product, then the only source of differentiation and competitive advantage has to come from your people. I am not sure if most food retailers agree with this point of view.

    MNB: How much time and money should be spent nurturing executive talent? Is there are formula or ratio that senior executives should be using?

    Rajiv Lal: I am not sure if there is a formula for time and money that should be spent on developing talent because it will vary on the level within the organization. For example, district managers and regional manager probably spend 40-50% of their time dealing with these issues. However, senior managers at HQ often spend very little time developing people/talent. I would like to suggest 5-10% as a goal.

    MNB: Is it fair to say that most HR departments are so focused on cutting costs and managing problems that they are unable to deal with personal and professional development?

    Rajiv Lal: I agree. There are very few HR departments that are really focused on talent development. By that I mean recruiting good talent and making careful choices in terms of their assignments and training to develop their full potential.

    MNB: We hear a lot of lip service about diversity, but to what extent has the inability to really accept woman and minorities in leadership positions helped to create this problem?

    Rajiv Lal: I am sure companies that do not fully exploit the opportunities afforded by having a diverse workforce are going to fall short on the talent pool. As one HR manager observed, if more than 50% of the graduates from fine universities are women, then you can not get a fair share of the talent pool if the work environment is not hospitable to women.

    MNB: We think part of the problem is that industry is more focused on creating managers rather than developing leaders. Do you agree? Why or why not?

    Rajiv Lal: I agree. Companies continue to be in the mold of defining their business in terms of tasks and therefore seek managers who can manage those tasks. However, in the retail industry that employs armies of people, as Brad Anderson at Best Buy says, you should be able to unlock the full potential of human capital, to make the most of your employees.

    For that we need leaders, who can coach, motivate, and empower people to do what is needed rather than wait for instructions.

    MNB: We also think that many businesses, because they are essentially conservative, tend to look for people who fit neatly into specific slots as opposed to trying to identify really talented people are creating jobs that utilize their skills and passions. Would you agree, and do you think that companies tend to be frightened/threatened/intimidated by really talented people?

    Rajiv Lal: I tend to agree with this assessment. Since most companies are organized functionally, they look for functional experts who are knowledgeable about tasks and functions. While that expertise is very important in running a business, retailers often lose sight of the need for integration of these different functions and the trade-offs that are required to run the different aspects of the business. For example, while we need the most cost effective distribution system for dry groceries, I am not sure that approach will completely satisfy the needs of perishables. The most cost effective distribution for perishables might lead to significant waste in the form of shrink/perished goods.

    MNB: What has made Tesco so exceptional at identifying and nurturing talent within its organization?

    Rajiv Lal: I think Tesco is so exceptional because the CEO of Tesco, Sir Terry Leahy, fully recognizes the value added to the business by its people: all the way from the front line employees to the most senior managers in the company. In most retail businesses, the largest fraction of employees are devoted to the front lines and the stores. These are the most critical employees when it comes to delivering the customer experience. Yet, these are the same employees that are often paid the least and often viewed as costs. Most of these employees are hourly employees who are likely to have little loyalty to the company if the retailer likes to treat them as a necessary cost that have to be controlled. Sir Terry Leahy has a very different attitude towards his employees. He fully recognizes the need for an attitude of respect, meaningful work and training throughout the organization. He has developed an organizational structure that hires the right kind of people (with the right attitude), trains them well, empowers them to make decisions that are in the best interest of the customer and the firm and rewards and recognizes them for their hard work. He is also very deliberate with the management style of his senior managers by forcing them to make things simple so that they can be easily understood by the rest of the organization. Finally, it is all about leadership. He walks the talk when it comes to communicating and delivering the values and principles of the company.

    MNB: Outside the food industry, what company would you point to as a model of effectiveness in this area?

    Rajiv Lal: There are many companies who are effective in this area. Southwest Airlines, Citizens Bank, Starbucks and Nordstrom are all excellent examples of this philosophy.

    MNB: Effecting the kind of cultural change that must be required in order to create an organization that identifies and nurtures executive talent can’t be an easy or quick process. So, what is step one in getting companies to put as much emphasis on the human equation as the financial factors that go into making a business successful?

    Rajiv Lal: The most important issue is for the leaders to recognize the potential of their employees and the fact that the full potential of employees can only be realized through great leadership. I often asked executives as to how much time they spend interacting with their customers and their employees and the answer is always not as much as they would like to. But the mere fact that this is a persistent answer suggests that the issue is not perceived to be important enough to change behavior. Hence the change has to start at very top if retailers are to move away from being only good operators to fully leveraging the armies of people that they employ.
    KC's View:
    For the past four years, during the annual FMI Show, we’ve hosted a little wine party at Bin 36 for members of the MNB community…and we’ll be doing the same thing this year.

    If you’re coming to the FMI Show, mark Sunday, May 6, from 6-7:30 on your calendars. As usual, we will be hanging out at the Bin 36 bar…and if any members of the MNB community would like to stop by, say hello, and chat for a bit…well, the first couple of bottles of wine will be on us. It’ll be a great opportunity for all of us to put faces and voices with the names and words that appear on MNB plus an excuse to drink good wine. (Not that we need an excuse…)

    And there will be a special guest appearance this year – for the first time, Mrs. Content Guy will be joining us!

    Bin 36 is located at 339 N Dearborn on the west side of Marina City, between the river and Kinzie.

    We’ll see you in Chicago.

    Published on: April 9, 2007

    The Wall Street Journal this morning reports in a page one story that Wal-Mart has sued Bruce Gabbard – the security employee who was fired for surreptitiously taping phone calls between company executives and a reporter for the New York Times - accusing him of leaking information to the Journal last week about the extent of its corporate espionage activities. A judge granted a temporary restraining order barring Gabbard from disclosing confidential information.

    However, this morning’s Journal contains some remarkable tidbits, such as:

    • Gabbard was responsible for taping board of directors meetings at Wal-Mart after CEO Lee Scott was excused from the room.

    • Wal-Mart had a “secret plan,” called “Project Red,” which considered spinning off the company’s Sam’s Club warehouse stores. “So secret was Project Red that its reports were encrypted, and consultants who worked on it last fall toiled in a locked office that was swept for electronic bugs,” the Journal writes. “But this weekend, it turned out that computer hard drives Wal-Mart believes contain Project Red information” were in Gabbard’s car.

    • Wal-Mart’s board reportedly debated – and ultimately rejected – a proposal that would have had the company settling a multimillion-dollar gender bias lawsuit.

    But the general focus of the Journal story is not so much on the information that Gabbard had access to, but how he got that access…and the implication that he may just be the most visible cog in a much more sophisticated and complex operation.
    KC's View:
    Where is Rose Mary Woods when you need her? (And if you are too young to get the relevance of this joke, keep it to yourself…)

    We were amazed by the number of emails we received last week saying that Wal-Mart is only doing what a lot of companies do, and that it shouldn’t be held to a higher standard.

    It is true that there shouldn’t be a double standard, but we are, quite frankly, appalled by what appears to be acceptable in today’s business climate. And the measure of how atrocious some of this behavior is can be seen when the activities are exposed to daylight. In the shadows, where ethics and transparency seem less important, executives may be able to convince themselves that such behavior is acceptable. But when on page one of the Wall Street Journal, it doesn’t look all that good. In fact, it looks shameful.

    Published on: April 9, 2007

    The Los Angeles Times reports that Southern California’s three major grocery chains – Albertsons, Ralphs and Vons – are expected to return to the bargaining table with the United Food and Commercial Workers (UFCW) on April 16.

    The talks between management and labor were suspended last week when the three chains signed an agreement calling for the lockout of employees from all three companies within 48 hours of a strike against any one company, as well as providing for the companies to provide financial assistance to whatever chain is targeted by the UFCW. That agreement came after the UFCW members employed by Albertsons voted to authorize a strike without setting a date.

    The contract that was agreed to three years ago after an extended labor outage in Southern California ran out on March 5, but was extended to at least today, though nothing is expected to happen until the talks resume next week.

    The Times suggests that both sides are downplaying the likelihood of a labor outage, and notes that none of the chains are hiring replacement workers in the event of a strike/lockout.

    Albertsons is owned by Supervalu, Ralphs is owned by Kroger and Vons is owned by Safeway.
    KC's View:
    In other words, the two sides seem to be playing a game of chicken.

    We wonder, though, if in this climate it will be possible for the two sides to come to the kind of agreement on fundamental health care changes that have been advocated by Safeway CEO Steve Burd.

    Because if they don’t, it may just be delaying the inevitable.

    Published on: April 9, 2007

    The Cincinnati Enquirer reports that Kroger CEO David Dillon said on Friday that the company plans to remain an independent public corporation, and is not interested in an leveraged buyout by a private equity firm.

    The Wall Street Journal reported on Friday that private equity firms were interested in Kroger.

    Dillon denied the WSJ piece in a memo to employees that was circulated late Friday. “I want you to know neither management nor our Board of Directors has any interest in pursuing a leveraged buyout transaction," he wrote.
    KC's View:
    Maybe not Kroger. But certainly one gets the sense that the phrase “private equity firm” is going to be used a lot here on MNB in the coming months.

    Published on: April 9, 2007

    The New York Times on “a new kind of labor battle: union workers versus corporate do-gooders,” noting that socially conscious retailers such as Starbucks and Whole Foods are being labeled as anti-union, though they don’t seem to be suffering the same sort of negative publicity that affects Wal-Mart – also assiduously anti-union – on a regular basis.

    In the case of Starbucks, it is a company perceived in many circles as politically correct because “it provides health care benefits and stock options to many part-time employees. It says it is committed to paying coffee growers in impoverished companies above-market prices for the beans. And its chief executive, Howard Schultz, called for universal health care coverage long before it became popular for corporate chieftains to do so.”

    At Whole Foods, the Times writes, “the organic foods supermarket maintains what it calls socially responsible sourcing guidelines and supports alternative energy,” but it also “has a chief executive, John Mackey, who is hostile to organized labor. In 2003, he told Fortune magazine that unions are ‘highly unethical and self-interested’.”
    KC's View:
    The big problem for unions is that an increasing number of Americans seem to be agreeing with Mackey’s assessment of unions. Even if people believe that unions have an historical role, the general consensus seems to be that union organizers tend to be more interested in their own power and prerogatives than in their memberships. Certainly that seems to be the case with the union approach to Tesco – the unions aren’t even waiting to find out what the pay scales and benefits will be when the UK-based retailer comes to the US before attacking the company. It’s nonsense.

    We do think that cynics – and both journalists and pundits tend to fall into this category – have to be careful when they use phrases like “corporate do-gooders.” For some, that seems to have a slightly derisive tone…but for many people, we think, the idea of corporate do-gooders is a positive notion in a world where companies like Enron are seen as more emblematic of the business world.

    Published on: April 9, 2007

    Kohlberg Kravis Roberts (KKR), the private equity firm, reportedly has dropped out of a consortium of companies that was considering making a play for J. Sainsbury, the UK’s second largest supermarket chain.

    KKR apparently has decided to focus on its pursuit of UK-based pharmacy chain Alliance Boots, and believed that doing both deals at once might represent a conflict of interest.

    The consortium with which KKR was working includes private-equity firms CVC Capital Partners, Blackstone Group International Ltd. and TPG Capital. The group was said to be in the “preliminary stages” of launching a bid for Sainsbury, though no such offer has been made and no price has been mentioned.
    KC's View:

    Published on: April 9, 2007

    • Published reports in the UK say that Tesco has decided to begin posting signs in its checkout lanes warning shoppers that abusive behavior toward employees will not be tolerated…a move designed to curb a rising trend toward customers being mean to staffers. One union representative estimates that 95 percent of his members have been verbally abused during their supermarket careers.
    KC's View:
    Tough crowd, those Brits. You think they’re all manners and teatime and “stiff upper lips,” and then you find out that they’re being nasty to those poor supermarket workers.

    Published on: April 9, 2007

    The National Retail Federation (NRF) and the Retail Industry Leaders Association (RILA), in collaboration with the Federal Bureau of Investigation (FBI), have teamed up to launch the Law Enforcement Retail Partnership Network (LERPnet), a secure national database that it says will allow retailers to share information through its unique web-based design.

    According to a release issued by the organizations, “With LERPnet, retailers will be able to communicate with other companies and law enforcement about crimes occurring in their stores. Companies can report the theft and include information about suspects, getaway vehicles, and identification numbers of stolen products. In their report, retailers can also include photos and video footage to assist in the detention of and prosecution of criminals. Immediately, retailers and law enforcement should be able to connect the dots and suspect that these incidents were related.”

    “LERPnet allows retailers and the Law Enforcement community to create a true public/private partnership to address significant criminal activity that not only costs consumers and retailer’s billons of dollars, but causes a significant life safety issue,” said Tim O’Connor, RILA vice president of asset protection. “LERPnet is a proactive and an analytical tool that allows retailers to collaborate with each other as well as law enforcement officials; we can better protect our stores, our brands, our employees and most importantly, our customers.”
    KC's View:

    Published on: April 9, 2007

    • The US Centers for Disease Control and Prevention (CDC) has issued a new study saying that just one out of seven Americans consumes enough fruits and vegetables (five servings a day) and gets sufficient exercise. That’s about 14.6 percent of all Americans, and breaks out to 12.4 percent of men and 16.6 percent of women. The study says that 12.6 percent of white men and 17.4 percent of white women reached both benchmarks, compared to 11.2 percent of black men and 12.6 percent of black women and 11.7 percent of Latino men and 14.8 percent of Latino women.

    • In the UK, the Sunday Telegraph estimates that since the Competition Commission there began an investigation into the grocery industry last year, the country’s top four supermarket chains – Tesco, Sainsbury, Wal-Mart’s Asda Group and William Morrison Supermarkets – have launched 52 different supplier, environmental and consumer-friendly initiatives designed to emphasize the benefits of self-regulation and preempt whatever recommendations the commission might make.
    KC's View:

    Published on: April 9, 2007

    • Wal-Mart has named Bill Simon, who spearheaded the company’s $4 generic prescription drug program, to be its new COO of the US stores division.

    The company also named Pat Curran, vice president of store operations, to be executive vice president of people, a new position that reports to Susan Chambers, who holds the same title but reports to CEO Lee Scott.

    • Walgreen named David A. Van Howe, head of the purchasing department’s health and wellness division, to be its vice president of purchasing, replacing Robert M. Kral, who left the company to pursue other opportunities.
    KC's View:

    Published on: April 9, 2007

    • CVS/Caremark reported March revenue that was up 23.3 percent to $4.8 billion, on same-store sales that were up seven percent, compared to the same month a year ago. The numbers exclude results from Caremark, which CVS bought during March.
    KC's View:

    Published on: April 9, 2007

    As mentioned above, we got a number of emails about Wal-Mart’s surveillance activities…

    Here is a typical response from one MNB user:

    Wal-Mart's actions make perfect sense. They are no different than any other retailer. I have been called up by security personnel from various retailers from time to time wondering how I found out about something. One of my former employers did almost exactly what Wal-Mart is doing, even as to go so far as to hire ex-FBI personnel. Private investigators would follow employees in question. That's what the police do to criminal suspects in the public sector. A $300 billion company should probably have a security force of several thousand people. If a state has a $300 billion budget, think about how much state police would be hired along with crime investigators? A company the size of Wal-Mart surely has many serious ongoing crimes taking place. No different than society in general.

    Employers need to know what is going on with regards to information being sent in and out of their company in emails and on the Internet. The same with phone calls. If employees want to make a personal call, payphones are generally provided.

    Gosh you would be appalled if you knew the what extreme measures some of my former employers took just to spy on the competition!

    Y’know, there are a lot of people out there who wonder why company employees may not be fully committed to their jobs and employers…but maybe it is because employers aren’t doing anything to engender loyalty.

    If we had employees, we’d trust them. We’d believe in them. And we’d do everything possible to create an environment in which they could not just do their jobs, but live their lives.

    Is that such a silly and naïve concept?

    MNB user Ken Chadwick wrote:

    The first thing that popped into my mind was the movie "The Firm".

    Perhaps Tom Cruise could make a sequel, employed as a corporate lawyer for a large CPG company who stumbles into shadows, scandal, and intrigue involving the sale of the Plan B pill at corporate pharmacies, falls in love with his legal assistant, lets his NRA membership lapse, and stops going to the gym in favor of long mornings eating sensual, high-calorie, non-organic breakfasts in bed.

    Another MNB user wrote:

    I agree with your statement from your April 4 MNB edition, Wal-Mart appears to have gone "completely nuts" when it comes to security.

    I read an article in The Blade April 1, 2007 edition that detailed Wal-Mart’s past security programs. The head of that department is Kenneth Senser a former top official from the CIA and FBI.

    We pointed out last week that even as management and labor negotiate in Southern California, Tesco keeps moving ahead with its plans to open dozens of stores later this year. MNB user Thomas Murphy responded:

    Your points are accurate, however your comment on Tesco may be a little off. You are correct that Tesco is moving forward, but you failed to point out that Tesco is trying to avoid unionization. We could chose to chastise either the union or the chains on this one, but the real story is that Tesco must not feel that a unionized workforce does anything for them. It will be interesting to see how the communities respond...the we vs. they mentality is a killer for all concerned!

    You’re right, we didn’t mention that…though we have said in numerous other stories that Tesco seems intent on avoiding unionization.

    Our guess: if Tesco has a truly innovative offering, consumers won’t give a damn whether its employees hold a union card.

    We keep pushing for companies to define loyalty marketing in different ways, which led MNB user Duane Kolsrud to write:

    Here’s something to think about that was told to me by a client that has had a loyalty program in place for more than 30 years at his stores:

    1. If starting a loyalty program today, do not expect to see results from it for at least five years. It is not a short-term solution.

    2. For every one loyal customer you lose (for whatever reason), it takes five brand new customers to make up that person’s volume in your store. Basically stated, concentrate on customer retention- it costs less and is much more profitable.
    KC's View:

    Published on: April 9, 2007

    Zach Johnson, a virtually unknown 31-year golfer from Iowa who was ranked 56th in the world, won the 2007 Masters Golf Tournament.
    KC's View:
    We made an enormous mistake – an omission, actually – last week in this space on MNB.

    On Tuesday, we reported that the Florida Gators defeated the Ohio State Buckeyes 84-75 to win the NCAA men’s basketball national championship for the second year in a row.

    Which was accurate.

    But then, we received the follow email on Thursday:

    It's a well-known fact that once baseball season starts, you're a happy guy and MNB Sports Desk will be busy reporting. Never quite understood the connection to the grocery industry, but I often enjoy your musings about non-business stuff.

    However, while you're spending a little extra time with Mrs. Content Guy this weekend, perhaps it will become evident that the Sports Desk reported on the results of the NCAA Men's Basketball Finals, but somehow neglected to cover the results of the Women's Final. Surely an oversight on your part (Tennessee beat Rutgers, btw).

    It was an oversight, but an inexcusable one – not least because we’ve used this platform on numerous occasions to try to raise people’s consciousness about business issues related to women. We have a 12-year-old daughter, and she’s our touchstone for all these kinds of stories. In this case, we blew it.

    It’s a week late, but here it is:

    In the NCAA Women’s Basketball Finals, the Tennessee Lady Vols defeated Rutgers 59-46 to claim a seventh national championship.