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    Published on: October 9, 2007

    by Michael Sansolo

    There are few forces on earth more fearful than unintended consequences. We know all about them: something is done for one reason and causes all kinds of impact in its wake.

    Unintended consequences aren't always bad of course. Consider this silly example. A few weeks back, I managed to badly sprain my ankle playing tennis. Although the injury hasn't fully healed, I had to push it last week when I was invited to play golf at a beautiful course nearby.

    You’re probably thinking this ends with my suffering a more severe injury, but you couldn’t be more wrong. Instead, something miraculous happened. Playing with a painful right ankle, my golf game improved dramatically. Turns out, all I need do to play better golf is twist my ankle.

    Many times, these unintended results work very differently. More often, the result is negative.

    Take the report last week that beer prices are likely to rise soon thanks to higher prices for hops. And as you bemoan the rising prices of both chicken wings and the beer to wash them down, think about unintended consequences of energy.

    What's happening to grain prices these days is simply a matter of economics and energy. The attraction of ethanol as an alternative fuel may or may not help on the nation's energy imports. It's also helped drive up the per bushel price of corn, the key ingredient in ethanol. After that, unintended consequences roll in a series of events like a Rube Goldberg illustration.

    That corn price rise drives up the prices for foods that heavily use corn, including all the animals that feed on corn. In addition, it gives farmers pause about exactly which crop they should plant. The more lucrative price for corn suddenly creates a ripple effect as acres used for wheat or hops get switched to corn. (In 2006, Canada reported a stunning drop in its wheat yield due largely to all the acreage switched to corn.) Suddenly bread and beer cost more too.

    Get used to reports like this. I spent time last week with a group representing the nation’s chicken industry and no issue looms larger for them than ethanol. The growing demand (and government incentives) for ethanol has these farmers worried where they will get the feed they need for chickens. Government officials assured them that such fears are unmerited in 2007, as the corn yield is larger than ever. Yet the farmers wisely pointed out that the weather doesn’t always guarantee a record crop.

    It’s always amazing how many issues concern us. Wherever you are in the industry, you have to stay constantly concerned about changing shopper tastes, competition, food safety, employees and so much more. Energy is an issue too, but usually the discussions surround how to conserve to reduce resources and expenses.

    Yet, every now and then an unintended consequence comes barreling our way. And suddenly, a rise in the price of beer means a whole lot than just a rise in the price of beer.
    KC's View:

    Published on: October 9, 2007

    The New York Times reports this morning that more and more stores are eliminating their film developing services, bowing to reality as digital cameras increasingly dominate the marketplace.

    One anecdote, as related by the Times:

    “Fresh from a family vacation in California, Rick Wallerstein went to the Stop & Shop supermarket in Berkeley Heights, N.J., last month to drop off a roll of film, as he has done for about two decades.

    “But a sign on the familiar drop-box next to the juice aisle informed him that because of the advent of digital photography, film would no longer be accepted at the store … When he returned to the store 10 days later, both the box and the sign were gone … Mr. Wallerstein had stumbled upon a trend that materialized not gradually, as many trends do, but instantly — like, well, an image on a digital camera.”

    According to the story, Ahold-owned Stop & Shop eliminated film developing at all 300 of its stores on September 15, “is hardly the first and it will definitely not be the last to abandon film processing.”

    While the story notes that “some 35,000 locations in the United States still develop film, mostly drugstores, supermarkets and discount retail stores, as well as photo specialty stores,” the decline of the service has been precipitous “since only people who buy film need to have it developed. Over the last four years, the sale of film has been dropping at a rate of 25 to 30 percent each year. In 2006, 204 million rolls were sold, a quarter of the 800 million sold at the peak in 1999.”

    It doesn’t mean that stores aren’t in the photo business anymore – just that many are transitioning to services that specialize in the printing out, duplication and enlargement of digital photos.

    Of course, there are other realities at work here, too. The Times reports: “As for Mr. Wallerstein and his roll of film, he let it languish at home for a couple of weeks, and finally took it to Wal-Mart. He had to go there anyway.”
    KC's View:
    Photo developing falls into the category of a service that people spent a ton of money on, and that now is vanishing, never to be seen again.

    The lesson to be taken from this actually has nothing to do with pictures. Here are the questions I would ask, and that you ought to be asking yourselves…

    • What other departments in my store, sooner or later, will be obsolete? (I think DVD rentals eventually will go the way of film developing – perhaps not as fast, but soon, as Internet downloads take over.)

    • What departments/products/services do I not have in my store that will be absolutely necessary in just a few years?

    Better to answer those questions now and get to work on the transition than to wait for the other guy to do it and achieve greater relevance to the shopper.

    Yes, it will require change.

    But, to use the Tom Peters phrase oft-quoted in this space, “If you don't like change, you’re really going to hate irrelevance.”

    Published on: October 9, 2007

    Interesting piece in the Los Angeles Times that asks a question that a lot of people probably never considered:

    “What has happened to the millions of toys, lunchboxes and other products recalled recently because they contain hazardous levels of lead or lead paint?”

    The answer is unsettling. “No one is exactly sure,” writes the Times. “And that worries some consumer activists, environmentalists and others who caution about weak oversight of the disposal process. Lead-laced products, they warn, could contaminate landfills or groundwater. Even worse, they say, is that some recalled toys and other goods get resold -- both in the U.S. and abroad.”

    And it isn’t just that there are concerns about people not disposing of these lead-laced products the right way. The real problem is that there apparently is no right way – or at least not one universally accepted method of disposing of possibly toxic products.

    “The Consumer Product Safety Commission, the federal agency that oversees the recall of lead-tainted and other dangerous items, asks consumers to return the products to the company recalling them,” the Times reports. “Those companies are then bound by state laws regarding disposal of hazardous materials, an agency spokeswoman said.”

    But in California, for example, the California Integrated Waste Management Board, which oversees issues like these, has no idea what the manufacturers may be doing with the returned items. And companies like Mattel say they are “still evaluating” their options.

    If this isn’t bad enough, consider this paragraph:

    “According to experts, only a fraction of consumers actually return recalled products to manufacturers -- mostly big-ticket items that would be expensive to replace. Mattel, which has issued dozens of recalls of toys in recent years, said that, historically, about 6% of recalled products are returned.”
    KC's View:
    Perfect. Just perfect.

    This seemed like a good companion piece to run in concert with Sansolo Speaks, above, which is about unintended consequences. In matters like these, you have to be right, you have to be fast, and you have to consider the gamut of implications.

    Published on: October 9, 2007

    • In the UK, The Independent has a piece about Tesco’s planned entry into the US next month with a number of 10,000 square-foot stores in Southern California, Arizona and Nevada. Two paragraphs bear repeating:

    “Tesco grew in the UK by copying the pile-it-high-sell-it-cheap strategy of retailers such as Wal-Mart. But it now claims that, after years of careful and secretive research, it can offer US shoppers something they do not already have: "Whole Foods quality at Wal-Mart prices", via local convenience stores.”

    And…

    “Tesco is not trying to compete directly with the so-called ‘big box retailers’, such as Safeway, Wal-Mart, Costco and Target, which operate huge, largely out-of-town supermarkets. Instead, it aims to supply a growing number of shoppers who are eschewing the traditional American weekly drive to a hypermarket in favour of more frequent trips to a local store.”

    And…

    “As well as offering its own products with no artificial colours and flavours and no trans-fats, Tesco is positioning its chain as the ‘good guy’ of US retailing. In an industry where leading players such as Wal-Mart have been heavily criticised for low pay and poor working conditions, it is offering staff benefits such as health insurance, pensions and paid holidays.”
    KC's View:
    MNB is forever preaching that to be successful when competing with the major chains, one has to do something different, whether in terms of product selection, marketing image, locations, whatever. But there has to be a differential advantage, or there is really no advantage at all.

    It would certainly seem that this is what Tesco is trying to do. It remains to be seen whether US customers will appreciate the effort and respond …

    One other note. In chatting with a variety of people the past few weeks, I’ve picked up an undercurrent of “chatter” that suggests Tesco’s US staffers may be approaching the marketplace – and especially the buying function – with an arrogance that may go beyond a healthy self-confidence. If this is true – and it is not, to be sure, a universal reaction to Tesco – then the company may be in for a bit tougher ride than it would otherwise.

    Published on: October 9, 2007

    Brand Week reports that beverage makers are jumping on the “superfruit” bandwagon.

    “Superfruits,” in case you didn’t now, are defined as “being high in antioxidants and other nutrients such as phytonutrients,” Brand Week writes. “The category includes cranberries, blueberries, pomegranates and tart cherries, açai berries, black currants, lingonberries, mangosteen and gogi berries. Experts say their popularity is being driven by baby boomers seeking healthy options.”

    According to the story, Mintel Global Solutions says that there were 8,000 new “superfruit” product introductions last year, and there could be as many as 10,000 during 2007.
    KC's View:
    Here’s the thing. Until I read this story, which says that over a two-year period there have been more than 16,000 new products that contained superfruits, I could not have named one. Not one.

    Granted, I’m a small sample. Maybe I just wasn't paying attention.

    But I’m sort of in the middle of their target consumer – an aging baby boomer trying to be smart about my health. So, yeah, maybe I’m just oblivious. But is it possible that there is so much noise and clutter that this entire category has receded from view…or at least my view?

    Just asking.

    Published on: October 9, 2007

    • The Miami Herald reports that Wal-Mart has just opened a new Neighborhood Market in Coral Springs, Florida, as part of a South Florida expansion of the format that began this summer. Another Coral Springs store is slated to open soon, plus “stores are slated to open later this year or early next year in Plantation, Pompano Beach and two more in Palm Beach County. All the Broward stores are in former Winn-Dixie locations, which Wal-Mart acquired during the bankruptcy process. So far, nothing has been announced for a Miami-Dade expansion, but industry experts believe the openings will eventually move south based on real estate availability.”

    And, the herald writes, “Wal-Mart has moved slowly at expanding the concept nationally, since opening the first Neighborhood Market in Bentonville, Ark., in 1998. Today there are 125 Neighborhood Markets nationally, including 16 in Florida, and some analysts say the format has struggled to generate the return on investment. The first Florida location opened in Oviedo in 2003. Wal-Mart executives have said they expect to open between 15 and 20 Neighborhood Markets a year.

    “John Menzer, vice chairman and chief administrative officer for Wal-Mart, said at a William Blair conference in June that the company has ‘made some changes’ in the Neighborhood Market format, but plans to continue the expansion and is trying to ‘cluster together’ locations.”
    KC's View:
    The Wal-Mart Neighborhood Market of the future may be different from the versions of the past, but I still think that the format could become an enormous growth engine for the company in places where its name is not anathema and where supercenters have saturated the market.

    Published on: October 9, 2007

    • HE Butt has opened a new, 400,000 square foot distribution center in Weslaco, Texas, that it intends to use to service its South Texas stores – but not its Mexican stores.

    • Whole Foods reportedly is eying a Canary Wharf location – right in the middle of London’s financial district – for its second UK store. This is in addition to locations outside the city that the company is considering for new stores.
    KC's View:

    Published on: October 9, 2007

    Yesterday, in a commentary about Walgreens targeting AARP members with catalogs and special discounts, I was a bit of a wisenheimer:

    Being someone who keeps throwing out the AARP solicitations and plans to do so until they put me in a rowboat, light it on fire and send it out to sea…I’d suggest to Walgreens that they avoid spending money on sending me a catalog.

    My feeling is that you join AARP, and before you know it you are wearing black shoes and black socks with your khaki shorts. (I have a friend my age who has started doing this, and I worry for him.) Then you start going to Denny’s for the four o’clock special, twenty year old women start calling you “sir,” and before you know it your kids are discussing assisted living facilities and whether or not they should take away the car keys.

    It’s a slippery slope, and I’m not going anywhere near it.


    Clearly, I have some issues about aging.

    Which is exactly what MNB user Jackie Lembke pointed out:

    I, on the other hand, plan on taking advantage of as many discounts as I get starting whenever allowed so my money can go to fun things like trips. I don't plan on retiring for many years (not even eligible for at least 20 years according to my last SS statement). But that won't stop me from taking all the "senior" discounts I can get. I stopped worrying about the slippery slope and bought shoes with cleats. I figure downhill will only happen as fast as I let it and a few discounts because of my age won't speed or slow that down. Now I also don't plan on eating dinner at 4 unless I skipped lunch and probably not at Denny's. It is all a matter of perspective and my perspective is live life to the fullest no matter your age and take every discount available along the way.

    Jackie has a much healthier attitude about this than I do.




    I also, apparently, have math issues.

    Yesterday, I reported that the Topps Meat Co. had been forced to recall 11 tons of meat because of E. coli concerns.

    MNB user Gordon Kay, among others, wrote:

    Your article … states that the recall was 11 tons. More like 11,000 tons, right?

    Right. The actual number was 10,850 tons. Which is 21.7 million pounds of meat divided by 2,000.

    Just to put the blame exactly where it is due, my father was a math teacher and he often says that he was able to teach math to anyone. Anyone but me.

    I apologize for the error. Mea culpa, ma culpa, mea maxima culpa.




    Another MNB user thinks I have even more issues:

    I know you live on the East Coast so it's easier for you to talk about chains in that area of the country, but of sick of you talking about it so much! I'm so used to hearing you say "Delhaize is great and A&P sucks". How come you hardly give us any love here in the western US? Doesn't Save Mart, HEB, Bashas', Stater Bros, and Winco all deserve more than the occasional mention?

    I feel bad about the Midwest too. People who shop at Schnucks, Marsh and Hy-Vee must be tired of waiting...

    P.S. - I say give retailers like A&P, Winn-Dixie, and Bi-Lo second chances, At least they are trying to fix their problems.


    First of all, I don't think I’ve ever used the pejorative “sucks” in this space. I don't even use it a lot in conversation.

    You do, however, make an excellent point, and one that I will try to be conscious of in the future.

    However, I do think that I have been effusive about chains like HEB, Hy-Vee, Lunds/Byerly’s, and Bristol Farms (none of them on the east coast) in the past. And I have certainly been encouraging about Marsh under the new management, and have said good things about companies like Schnucks in the past.

    I wasn’t being negative about Bi-Lo, just trying to point out its challenges.

    As for Winn-Dixie and A&P…aren’t I supposed to call them the way I see them? The great advantage of this forum is that if members of the MNB community think I’m wrong – and you often do – the podium is yours as well as mine.




    Now, I also apparently have fairy take issues.

    Yesterday, in a commentary about Bi-Lo not being sold anytime soon and with ownership investing in the company (which, come to think of it, doesn’t sound all that negative), I wrote:

    To paraphrase the Wicked Witch of the West, “Better to drive up the price of the company, my dear.”

    To which one MNB user pointed out:

    I think that it was the wolf who told Little Red Riding Hood that his eyes were so large "the better to see you with, my dear." And ended with a mouth that was so large "the better to eat you with, my dear. And he gobbled her up!"

    Of course it was. Not sue what I was thinking. (Maybe I am ready for that AARP membership after all…)
    KC's View:

    Published on: October 9, 2007

    In the fourth game of the best-of-five American League Divisional Series, the Cleveland Indians eliminated the New York Yankees from the playoffs, beating them for the third time in four games and winning 6-4. The elimination may well cost Yankee manager Joe Torre his job, despite the fact that he has gotten the team to the playoffs for 12 straight years and won four World Championships. But Yankee owner George Steinbrenner is nothing if not a “what have you done for me lately” kind of guy, and he is said to be furious that the team has been eliminated during the first round for three years in a row.

    And, in Monday Night Football action, the Dallas Cowboys used a last-second field goal to defeat the Buffalo Bills 25-24. The win leaves the Cowboys undefeated, and sets up a contest next Sunday against the New England Patriots, also undefeated.
    KC's View:

    Published on: October 9, 2007

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    KC's View:

    Published on: October 9, 2007

    SABMiller and MolsonCoors announced this morning that they have signed a letter of intent to merge their US operations – Miller and Coors – into a single joint venture that will, in the words of the announcement “create a stronger, brand-led U.S. brewer with the scale, resources and distribution platform to compete more effectively in the increasingly competitive U.S. marketplace.”

    The new joint venture, which will be called MillerCoors, will have combined annual beer sales of $6.6 billion (US), reflecting approximately 69 billion barrels of beer. The companies estimate that the deal will deliver $500 million in cost synergies and that it will be ”earnings accretive” to both companies by the second full year of combined operations. Closing of the deal is contingent on the two companies reaching a final agreement and getting regulatory approvals from US authorities, both of which the companies hope will take place by the end of the year.

    According to the statement released by the company, SABMiller and Molson Coors will each have a 50 percent voting interest in the joint venture and have five representatives each on its Board of Directors. Based on the economic value of the contributed assets, SABMiller will have a 58 percent economic interest in the joint venture and Molson Coors will have a 42 percent economic interest.

    Pete Coors, Vice Chairman of Molson Coors, will serve as Chairman of MillerCoors. Graham Mackay, SABMiller CEO, will serve as Vice Chairman of MillerCoors. Leo Kiely, current CEO of Molson Coors, will be the CEO of the joint venture, and Tom Long, current CEO of Miller, will be appointed President and Chief Commercial Officer.
    KC's View:
    I think this qualifies as a big deal. It certainly reflects the kind of merger and acquisition behavior that many analysts have been predicting will reshape the marketplace.

    While the combined venture remains in second place to Anheuser-Busch, it certainly is a stronger second place. The beer wars of the past may pale compared to the competition we’re going to be seeing in the near future.