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    Published on: April 27, 2007

    Anders Moberg, the CEO of Royal Ahold who joined the company four years ago in the wake of a major financial scandal that forced the ouster of the company’s previous CEO, announced this morning that he will leave the company effective July 1, a year before his contract was scheduled to expire.

    Analysts quoted in numerous stories suggest that Moberg’s departure could mean that the company shortly will be sold or broken up, though such speculation has been taking place for some time. The company already has put its US Foodservice division up for sale.

    He will be replaced on an interim basis by CFO John Rishton, and a final decision on a permanent successor is scheduled to be made later this year.

    The financial scandal that Moberg was hired to help the company survive centered on overstated earnings, mostly at US Foodservice. Bloomberg notes that Moberg has been largely successful at regaining investor confidence; Ahold shares have doubled since Moberg took the CEO job.

    However, there have been dissident shareholders – a pair of investment firms pushed for a break up of the company last year, saying that it was the best way to maximize shareholder value. There also reportedly were negotiations taking place that could have led to an acquisition of Ahold by Delhaize, though no deal ever came to fruition.
    KC's View:
    It was a little less than a year ago that Moberg spoke at the annual CIES Summit, and we reported on his comments that 1) he was working to create a more integrated company, 2) was interested in the long-term future of the company, not a short-term sale, and 3) believed that eventually Ahold would end up acquiring other companies in an effort to grow.

    At the time, a number of people with whom we spoke expressed real skepticism that Ahold would exist in its current state five years from now…and even wondered how long Moberg would continue in his job. And certainly there have been plenty of questions about Moberg’s integration strategies, especially in the merger of Stop & Shop’s and Giant’s operations in the US…which a number of experts believe has undermined Giant’s differential local advantages in the Baltimore-Washington marketplace.

    We’ll know a lot about how the board sees Ahold’s future based on who they hire to run the company. But we wouldn’t bet against the likelihood of a breakup or sale in the not too distant future.

    Published on: April 27, 2007

    Empire Co., the family holding company that owns more than two-thirds of Sobeys Inc., Canada’s second largest supermarket chain, plans to take the company private by purchasing the 28 percent that it does not own. The cost of the purchase is the equivalent of $980 million (US).

    Bloomberg reports that “Sobeys is going private after posting its first drop in net income in five quarters last month. The company has lowered prices to fend off Wal-Mart Stores Inc., which opened seven Canadian supercenters last year, and its stock was down 7.7 percent this year through yesterday.” The story goes on, “Sobeys went public in 1998 after it agreed to buy the Oshawa Group, allowing it to expand beyond eastern Canada and triple its revenue.”

    The acquisition is expected to close by mid-June.
    KC's View:
    It sounds like this is the right move for Sobeys, which is picking the right moment to buy back stock and now can compete with Wal-Mart and other chains without worrying about shareholders and the stock price.

    Published on: April 27, 2007

    The Boston Globe reports this morning that the US Food and Drug Administration (FDA) is saying that “up to 6,000 hogs in California, Kansas, New York, North Carolina, Oklahoma, South Carolina, and Utah that ate pet food tainted with industrial chemicals cannot be safely sold to humans…and should be euthanized at the farms where they have been held from the market.” However, FDA also cautions that while “several hundred of the swine have already entered the human food supply…the concentrations of contaminants in the hogs was likely too low to harm humans.”

    The contaminants in question are the chemicals melamine and cyanuric acid, which were added to food ingredients imported from China. Melamine, identified as being responsible for the deaths of an unknown number of cats and dogs, has been found in ingredients imported from China, and there have been suspicions that it might have been added on purpose as a way of artificially boosting nitrogen levels and the selling price of the wheat gluten and rice protein to which it was added.
    KC's View:
    We had a lot of trouble with high school chemistry, so much of this is over our pay grade.

    But the steady drumbeat of stories about contaminated pet and human food simply serves to undermine consumer confidence about food safety. And that’s not an abstraction – it is something very real and very serious.

    Published on: April 27, 2007

    Business Week has an interesting piece about how Wal-Mart decided to cut the price of a Panasonic 42-inch flat screen television to $988 during the holiday shopping season during late 2006, causing “a freefall in prices of flat-panel televisions at hundreds of retailers - to the glee of many people who were then able to afford their first big-screen plasma or liquid-crystal-display model.

    “Now, it is becoming apparent that Wal-Mart's calculated decision to break the $1,000 barrier for flat-panel TVs triggered a disastrous financial meltdown among some consumer-electronics retailers over the past four months.” Circuit City, Tweeter and CompUSA are among the retailers that are shutting down stores in the wake of sales declines.

    “The carnage has one phrase written all over it: the ‘Wal-Mart effect,’” Business Week writes. “For many electronics competitors, the experience with flat panels has been a replay of what happened in other businesses over the past two decades as Wal-Mart's business stature grew dramatically. The Bentonville (Ark.) juggernaut's entry into the grocery business in the late 1980s and its ability to offer deep discounts led to the bankrupting of dozens of regional supermarkets over the next 15 years, including Florida-based Winn-Dixie Stores, Eagle Foods from Illinois, and Penn Traffic in Pennsylvania.”
    KC's View:
    We paid a little more for our 42-inch flat screen, but we did it after going to Wal-Mart and being unable to find anyone in the electronics department who knew anything about flat screen televisions. (One guy was surprised to find out that Sony made flat screen HD televisions, which really tore it for us.)

    The one-store independent retailer from which we purchased our TV used knowledge and service as its differential advantage. That won’t matter for every customer, but it will matter to some (like us…because we are insecure enough about our knowledge that we were looking for a security blanket).

    The problem for Circuit City and CompUSA, it seems to us, is that there wasn’t enough special about their stores to make going there worth it. Wal-Mart exploited those flaws, but it didn’t create them.

    So rather than referring to this as “the Wal-Mart effect,” maybe it should be called “what happens when you aren’t competitive.”

    Published on: April 27, 2007

    The Cincinnati Enquirer reports on how various supermarket chains are focusing on shopping bags as a key component of their “greening” tactics. For example:

    “In March, when San Francisco passed a measure to ban ‘check-out’ bags that are not compostable plastic, recyclable paper or reusable cloth, the bag issue moved to the forefront. Surprisingly to many, several local groceries already had bag programs in place.

    “Kroger will give you 5 cents off your bill for every bag - plastic, paper or cloth – that you bring in and use to carry out your groceries.

    “Bigg's recycles any plastic bags customers bring in and turns them into neighborhood benches.

    “Remke Markets will begin in June to sell, at cost, 99-cent biodegradable cloth-like bags that can be reused.

    “Wild Oats gives you the option of taking 5 cents off your bill for each bag you bring in and use or getting a wooden nickel for each bag, which can be donated at the door to a local charity.

    “Trader Joe's has a monthly gift certificate drawing for those who re-use their bags.”
    KC's View:
    The consensus seems to be that switching from plastic to paper, or better yet, moving to reusable bags, is a simple way for customers to have an impact on the globe’s environmental health.

    And we think it makes sense to find ways for customers to help move the needle on environmental health.

    Published on: April 27, 2007

    • In addition to the contract talks going on in Southern California, the Seattle Post Intelligencer reports, “Negotiations are under way for 20,000 grocery workers in the Puget Sound region with three large grocery chains ... Safeway, Kroger and SuperValu ... for better contracts. Kroger owns Fred Meyer and QFC stores, while SuperValu is the owner of Albertsons.

    Safeway CEO Steve Burd has been quoted as describing the progress in the Southern California negotiations as "slow but steady,” predicting that a deal can be reached without acrimony and a strike/lockout.
    KC's View:

    Published on: April 27, 2007

    • Safeway reports that its first quarter net income was up 22 percent, to $174.4 million, from $142.9 million during the same period a year ago. Sales rose 4.8 percent to $9.32 billion, with same-store sales up 4.8 percent.

    • Nash Finch reported first quarter sales of $1.032 billion, down 0.2 percent vs. $1.035 billion in the first quarter 2006, with same store sales down 0.3 percent for the quarter. Net earnings for the first quarter were $5.3 million, up from $3.9 million in the prior year.
    KC's View:

    Published on: April 27, 2007

    …will return.
    KC's View:

    Published on: April 27, 2007

    So when I got here to my hotel in Oslo, the place was blocked off by barricades and there were heavily armed policemen and soldiers everywhere. (Actually, many of the soldiers were women – and you haven’t lived until you’ve seen a blonde Norwegian woman strolling along carrying a machine gun…)

    That’s when I found out that there is a NATO meeting in town, and that US Secretary of State Condoleeza Rice was saying in my hotel, just a couple of floors above me.

    Somehow they weren’t amused when I said that it was okay to let me through: “After all,” I said, “she works for me!”

    Must have been a language thing.

    This is my second trip to Oslo, and once again I’ve been wowed by the cuisine. Last night we had dinner in a wonderful place called Ekebergrestauranten, up on a hill overlooking the city and the harbor. The meal started with asparagus served with bacon and veal sweetbreads, which was just melt in your mouth good. The main course was an amazingly succulent duck served over what appeared to be fava beans, and then we finished with these wonderful little cocoanut and key lime tarts that were the perfect finish. The beer was Ringnes, which was excellent, and the wines were both wonderful and plentiful…though I have no idea what they were.

    It’s been a good week for food. Monday night I was in Miami Beach for a speech, and I dropped by Emeril’s for a quick bite of dinner. In this vase, that consisted of andouille crusted redfish served with roasted pecan-grilled vegetable relish, creole meunière sauce and shoestring potatoes (amazing!), preceded by flash fried creole marinated calamari with New Orleans olive salad, smoked tomato sauce and parmigiano-reggiano cheese. I got the name of the wine in this case…in part because it was the current vintage of an old favorite, the 2005 Caymus Conundrum – which continues to be a spectacular white wine that you should definitely try. Not cheap, but worth every penny.

    I also had two other amazing wines this week…a 2005 Domaine du Bagnol Cassis, which was perfect with lobster ravioli…and a 2003 Gerard Bertrand Minervois (Syrah-Carignan blend) from France, which was about as smooth a red wine as I can ever remember drinking.

    All in all, a good week.

    I finally had the chance to catch up with “A Good Year,” the Russell Crowe movie that pretty much tanked when it came out. I actually sort of liked it, though I was glad that I’d rented it as opposed to spending 10 bucks to see it in theatres. The movie is sort of a guy’s fantasy, about an insufferable and self-centered London banker (Crowe) who inherits a French vineyard from his idiosyncratic uncle (Albert Finney, wonderful in a series of flashbacks) and learns to love the land and the act of winemaking…as well as a pretty French girl who can’t stand him. Hardly a masterpiece, but tasty in spots and great to look at.

    That’s it for this week. Have a great weekend.

    KC's View: