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    Published on: April 1, 2008

    Startling news from the retail front this week as two of the nation’s major retailers make surprising, even unlikely moves to expand their presence, challenge conventional wisdom and confound their competitors.

    • Sources tell MNB that 7-Eleven this week will announce the creation of a superstore division within the company, designed to create what insiders are calling “the ultimate convenience store on a grand scale.” Store designers and marketers reportedly have been working on the concept in a basement office at 7-Eleven’s Texas headquarters for more than a year, and have a crystallized a 180,000-square-foot concept that is said to be a radical rethinking of the term “big box store.”

    While details are not scheduled to be made public until late this week at the earliest, MNB has been told that the new concept will be carved into “pods,” with each pod featuring a separate entrance that will serve shoppers primarily interested in that specific category. Interactivity will be encouraged, with the chain looking to turn customers into partners in the development process, which it believes will then turn them into advocates for the concept to other shoppers. Deliveries will be made to the concept via an underground parking garage that will be specially designed to a) handle large trucks, b) keep the rigs out of sight, and c) allow the company to create an kind of campus-style ambience around the concept, which is being called, for the moment, “7-Eleven On Steroids” (a banner that is for internal use only, though insiders say they indeed expect the concept t be performance-enhancing when it comes to the company’s bottom line).

    Among the offerings scheduled to be part of the new format are a fresh produce section that will be heavily skewed to pre-sliced and packaged fruits and vegetables (with single-serve salads said to be a major component); high-quality single-serve meals that are being branded with the Food Network in order to raise the level of both perceptions and delivery; and a pickup counter for products – including groceries – ordered from The dry grocery selection is said to be edited for convenience purposes, with the emphasis on both reduced brands and sizes; 7-Eleven is said to be working on an extensive private label program in both foods and nonfoods (using Staples’ private label program as a model). One intriguing notion – a pod called “The Men’s Store,” which will feature male-oriented food and nonfood selections, plasma TV screens perpetually tuned to ESPN, and what is being called the “largest men’s specialty magazine selection ever seen in one place.”

    • The other news expected to make waves this week is the expected announcement by Starbucks that it will acquire the Burgerville fast food chain and expand it nationwide, therefore allowing it to battle with McDonald’s on two fronts even as Mickey D’s tries to compete in the specialty coffee arena.

    Burgerville, while not known nationally, is well respected in the Pacific Northwest for its use of local and natural ingredients, including Tillamook cheddar cheese, Walla Walla onion rings, and blackberries in its shakes. Burgerville’s slogan: "Choose Fresh, Local, Sustainable. Choose Burgerville." Art various times in its history, Burgerville has been recognized for its quality products by both the Food Network and Gourmet magazine.

    The company currently has just 39 locations, but Starbucks reportedly plans to quadruple that within two years once the acquisition has been completed.

    One Starbucks insider tells MNB that CEO Howard Schultz has been almost apoplectic about McDonald’s getting any sort of credibility in the coffee arena. “They primarily serve fried, greasy slabs of meat, and somehow have gotten the reputation for having decent coffee,” Schultz reportedly said at a recent staff meeting. “Well, I’ve had it. Not only are we going to do everything possible to make sure that nobody ever equates their coffee offering with ours, but we’re going to show them that ‘fast’ food doesn’t have to be synonymous with ‘substandard’ food.”

    The Burgerville brand, highly familiar to the Starbucks management team because of its geographic proximity, is said to be a natural fit. No word yet on whether the company will offer espresso drinks in the Burgerville locations, though frappucinos seem to be a strong possibility.

    KC's View:
    Y’know what is amazing to me? These kinds of stories always seem to happen on this particular date every year. It must be something about the first of April…

    Published on: April 1, 2008

    The Wall Street Journal this morning reports on how various companies are responding to the ongoing economic tightening that is reflected in the following scenario:

    “Rising demand for meat and dairy products in emerging overseas markets, increased use of grains for alternative fuels, and bad weather in some parts of the world have pushed up the price of every commodity from corn to coffee. That, in turn, led to the biggest jump in food prices in 17 years in 2007. In February, U.S. prices for groceries continued higher, rising 5.1% from February 2007, according to the Bureau of Labor Statistics.”

    So, how are different companies coping with rising costs?

    The Journal writes that even Wal-Mart, which has been emphasizing price cuts and what it calls its own “economic stimulus package” for shoppers, has had to raise prices to cover its costs; at the same time, Wal-Mart reportedly is pressing suppliers “to do more price promotions and to look for ways to eliminate waste, such as making packages smaller and fully loading delivery trucks.”

    At the same time, a broad range of other retailers – including Safeway, Kroger, Meijer, Aldi, and Jewel – are responding to the toughening environment with both programs that emphasize everyday low prices as well as specials.

    And, the Journal reports: “Recent data from traditional grocery stores show that sales growth among large packaged food and beverage manufacturers is starting to slow and volume is starting to decline. Some analysts see that as a sign that high food and beverage prices are starting to turn off consumers who are strapped by high gasoline prices, falling home values and job losses.

    “Consumers have been making fewer trips to supermarkets and certain other food retail outlets, as they combine errands and look for other ways to save money, according to a recent Nielsen Co. report. The number of annual trips to grocery stores declined to 59 in 2007 from 61 in 2006, a drop of 3.3%, according to the report. But trips to supercenters rose to 27 from 26 trips a year.”

    On the manufacturer side, according to the Journal, companies are “looking for their own ways to reduce waste and make up for their increased input costs without consumers noticing. General Mills Inc. recently made its cereal boxes smaller but kept the price the same. PepsiCo Inc.'s Frito-Lay snack unit is raising prices and reducing the number of chips in some of its bags. ConAgra Inc. is considering including fewer kernels in its popcorn bags.”

    KC's View:
    It seems to me that the most important strategic thing a food retailer can do in this environment – and I’m emphasizing “strategy” here, as opposed to “tactics,” which is what price cuts/increases are – is to operate on every level as the agent for the consumer…and to make sure the consumer is confident in this connection. It is the relationship that Glen Terbeek wrote about years ago in “Agentry Agenda: Selling Food In A Frictionless Marketplace.”

    That “we’re on your side” approach has to be more than just a slogan or an ad campaign…it has to be infused into the corporate culture, and practiced by every member of the team, from the store to the executive suite. And it requires a greater, more intimate understanding of evolving consumer needs and desires.

    What will make it difficult at some level, I think, is the fact that while consumers may be tightening their belts, that doesn’t mean that they are any less aspirational in terms of their motivations. So anything retailers can do to balance aspirations with economic realities is a good thing.

    Published on: April 1, 2008

    The Times of London has some commentary about UK market leader Tesco, reporting that as the company’s “bold move into the US has stalled and the mechanics have taken the Fresh & Easy vehicle into the garage for a bit of tinkering,” Tesco also has decided to abandon an experiment in which it was selling clothes online in the UK.

    “True, these may appear trivial glitches,” the Times writes. “But the thing about Tesco is that it does not normally do glitches. While most of its UK rivals have hit road bumps in recent years, Tesco has cruised along, reinforcing its dominant position at home and expanding rapidly overseas.

    “Flushed with this success, it decided to tackle the biggest and ugliest retailing market in the world, the US. Having identified a gap in the market for small stores focused on fresh food, it has so far rolled out 60 sites since November. But the early results are believed to have been disappointing.

    “The US move is modest in relation to the group and low-risk. If it does not work it will be no disaster. In the core UK business, there is little sign that Tesco has lost its magic touch. The problem is that its rivals have finally found theirs. J Sainsbury, Asda, WmMorrison and Waitrose are finally firing on all cylinders … As consumer spending slows, this may leave Tesco squeezed in the middle, fighting to stop foodies from defecting to Waitrose and penny-pinchers from choosing Asda and Aldi.”

    Meanwhile, the Los Angeles Times reports that “financial analysts believe the Brits may be missing their sales targets by as much as 70%, but the company maintains a stiff upper lip” even though “many customers, competitors, grocery experts and financial analysts say they are not convinced that the much-ballyhooed British invasion of Southern California has been a success -- at least so far.”

    And, the Times writes, “Shoppers vary widely in their impressions. Some customers like the selection, the prices and the convenient locations. Others say they can't find the products and brands they want and they see no reason to change their shopping habits.”

    The Times also takes note of reports that “the chain has developed fractious relationships with some suppliers. Representatives of wine and produce companies have said that the chain is difficult to work with. The individuals asked not to be named because they were fearful how it would affect future business.”

    And things are not likely to get easier, as companies such as Wal-Mart and Safeway develop their own small-store formats that are likely to be more ‘American” in their design and function.
    KC's View:
    Everything is cyclical, and nothing lasts forever. So it may well be that Tesco is about to hit a bumpy patch.

    But while it is hard to judge from a distance how it will cope with market shifts in the UK, I continue to believe that it is a show of strength – not weakness – that Tesco is taking a time out in the US. I’d be a lot more concerned about its long-term prospects if it continued opening stores without making adjustments.

    It will be interesting to see what Tesco’s annual report looks like when it is unveiled in a few weeks, though. Very interesting.

    Published on: April 1, 2008

    • Wal-Mart reportedly is rolling out a private label brand of organic, Rainforest Alliance and fair trade certified coffees. The six coffees, marketed under the Sam’s Choice label, are also said to be “carbon neutral” because its suppliers has cut its carbon emissions to virtually nothing. The coffee will be sold at $5.88 for 10- to 12-ounce bag.

    The retailer says that the line is designed to be a differentiating advantage, as well as a way of catering to socially conscious consumers, a growing demographic in 2008 America.

    • The Boston Globe reports this morning that the US Department of Justice is suing Wal-Mart, charging the retailer with violating the Uniformed Services Employment and Reemployment Rights Act of 1994 by failing to reinstate a former airman with the US Air Force in his former job as a cashier after he was discharged.

    Wal-Mart has not yet commented on the suit.

    KC's View:

    Published on: April 1, 2008

    Interesting story by the Star Tribune in Minnesota about how restaurants are coping with the fact that economic tough times are prompting many people to cut back on dining out: “Eating at home increased last year for the first time since 2001, according to a federal government report. In addition, the National Restaurant Association found that 54 percent of restaurants reported declining traffic in January, and 15 percent of restaurant operators said the economy was their No. 1 challenge, up from only 4 percent six months earlier. Another study, by restaurant research firm Technomic, said 59 percent of consumers expect to cut back on how often they dine out.”

    There are certain realities that seem to be at play here:

    • It is the middle-ground, casual grill-type restaurant that is suffering the most, since these place seem to be patronized by the folks who are feeling the economic pinch the most. High end restaurants still have their wealthy customers, and lower end units are doing okay because the middle class folks are trading down.

    • Customers seem to respond to specials…but real specials, as opposed to restaurants that use smaller plates to make entrées look bigger.

    • Restaurants that survive tough times tend to be the ones that continue to focus on their core strengths, but offer extras to lure customers in the front door. When they get distracted from their strengths, they are more likely to go off the rails.

    KC's View:
    Good lessons to learn, no matter what your segment of the food business happens to be.

    It may be that supermarkets will gain market share because of a tough economy, but unless they do something to maintain relationships with consumers, those folks will just go back to their old ways when the economy improves.

    This is a real opportunity for food stores.

    Published on: April 1, 2008

    • The Denver Post reports that the US Equal Employment Opportunity Commission (EEOC) “has filed a second lawsuit against the Albertsons LLC grocery chain for racial bias at its Aurora distribution center,” claiming that the retailer “intentionally retaliated against employees who opposed discriminatory practices. The EEOC claims Albertsons denied workers medical care; rejected promotions and transfers; and taunted, disciplined and terminated employees who spoke out, among other practices.” A similar lawsuit against the company was filed in 2006, according to the Post.

    Crain’s Chicago Business reports that “Sara Lee Corp. CEO Brenda Barnes is hunting for acquisitions, and Interstate Bakeries Corp., the maker of Wonder, as well as Hostess cupcakes and Twinkies, could be a fix for her sagging bread business.” According to the story, Interstate – which is in bankruptcy reorganization – is seeking a buyer for all or part of the company, and such a deal with Sara Lee “would help create a bread company with national reach, giving it more scale in a business with dozens of regional rivals.”

    • The Baltimore Business Journal offers an update on the in-store health clinic business, noting that “more than 900 such clinics are operated by more than 20 companies in 30 states.” And, the Journal suggests, it is an option that “more of us are turning to when we don't feel quite right,” proving to be yet “another door into the American health care system” – one that is both accessible and affordable.

    Reuters reports that Delhaize Group is spending the equivalent of close to $30 million (US) to acquire 14 supermarkets in Bucharest, Romania.

    KC's View:

    Published on: April 1, 2008

    MNB reported yesterday that the federal prosecutor who has been making the case against former Wal-Mart vice chairman Thomas Coughlin has decided not to appeal yet again the home detention sentence given to the man who at one time was a protégé of company founder Sam Walton.

    Coughlin, who pleaded guilty to stealing cash, gift cards and equipment from Wal-Mart, was sentenced to community service, five years’ probation, a $50,000 fine, and ordered to pay $400,000 restitution and spend 27 months of home detention on his Arkansas ranch; the judge agreed with the defense contention that Coughlin was too old and sick to go to jail. He could have been sentenced to 28 years in prison, according to original reports.

    My comment: Would a high school graduate who worked as a stock clerk in a Wal-Mart store, convicted of stealing cash and gift cards from the company, be treated as generously? Dubious, at best.

    One MNB user responded:

    I normally agree with your views. In regard to the Wal-Mart executive, I think the fine should have been $5,000,000. However, I’m not interested in paying his room and board ( and medical expenses) for 20 years. Prisons should be reserved for those who would be a threat to our lives (killers, rapists, etc).

    Make everyone else pay dearly financially – especially those that can afford it.

    Fair enough. Five million bucks seems like a pretty good fine.

    MNB user Clayton R. Hoerauf wrote:

    I would hate to come across as a Wal-Mart “apologist” and I certainly do not mean to take this tragic news lightly but I think we have to give it to them for at least being consistent. The $400,000.00 in restitution Mr. Coughlin is required to pay is right in the ballpark with the amount of money they are seeking in restitution from the ex Wal-Mart employee Debbie Shank who by now all of us are aware, suffered a severe brain injury and is currently in litigation with the Bentonville behemoth.

    It will be interesting to see if Wal-Mart blinks in the case of Debbie Shank (which was reported on MNB some time ago. It is my understanding that MSNBC’s Keith Olbermann has pledged to put Wal-Mart on his “worst person in the world” list every night until the company changes its position on restitution…and while he doesn’t have that big an audience, it is growing and Olbermann is considered at least somewhat influential.

    Our MNB Radio piece last week was about the qualities to look for in new hires…and the characteristics to avoid at all costs.

    To which MNB user Jean Forney responded:

    This article is interesting because it's what we have been trying to communicate to our clients over and over. Qualifying a potential new hire by checking off technical skills on a job description just doesn't do it. Basing the viability of a candidate exclusively on the resume may result in a missed opportunity! Employers who are biased about a candidates skills based on the company they work for is short sighted.... believe in the theory that there can be some great talent at mediocre companies and there can be mediocre talent at great companies. Should the criteria for a really great CEO be past employment with GE?

    #1, turn the resume over, and ask questions that get at who the person is and what they were really able to achieve in the past: What are you most proud of personally and professionally and why? Tell me about your most significant accomplishment-why is it and how was it done? What criteria do you use when evaluating a future employer?

    #2, ask questions that get at where they feel trends in the business are, both in consumer behavior and competitive behavior; if they had complete autonomy to run the business, how they would better compete; examples of being ahead of the curve vs. being a "me too".

    #3, in the Supermarket industry, do less interviewing behind a desk and more interviewing in the store... it doesn't matter if you are hiring an operator, merchant, marketer, real estate or IT professional... shouldn't you know of your candidate's understanding of what goes on within the "4 walls"? Doesn't everything any of these people do impact the stores and thereby consumer at some point?

    #4, continue to ask open ended questions and LISTEN.

    When we review the process with the potential candidate, we learn better than 50% of the time, the interviewer did 90% of the talking; better than 80% of the time the questions asked during the interview were based solely on the information on the resume i.e.: reasons for leaving, promotion (or lack of), reporting structure, etc.; more than 70% of the time, the candidate never gets to see beyond the interviewer(s) office during this process.

    ...and if you are a candidate "interviewing" a potential employer similar questions to the interviewer are important, but don't stop there.... ask others that work for the company the same questions- learn if impressions of the culture, strategy, strengths, opportunities of the corporation are shared by most. There are many times when the executives and the "soldiers" have very different impressions of these things.

    Content Guy’s note…Jean Forney’s company is Samuel J. Associates, which is a longtime sponsor of MorningNewsBeat. It seemed appropriate to mention the connection, but not a good enough reason to post what seems like a very smart email.

    Responding to the news of Tesco’s three-month time out in the expansion of its US Fresh & Easy division, one MNB user wrote:

    First smart thing they’ve done … based on what I've seen, I would be looking for a great realtor next.

    Another MNB user wrote:

    The arrogance of Tesco never ceases. I think they are delighted they opened the stores but are not delighted with the results. Odd how they talk of the number of employees they have added but no mention of the average sales per unit. If they were doing well they would be bragging rather than making up carefully worded excuses.

    Soon a good bit of the industry is about to see these stores for the first time when FMI holds it annual convention in Las Vegas. My guess is the Tesco closest to the strip will be packed with industry observers and they will see for themselves if this king is not wearing any clothes.

    MNB user Mike Griswold chimed in:

    I’m sure this will be additional ammo for those saying Fresh & Easy is dead. My bet is that we see what you described as 2.0 launched after this 3 month hiatus. I would be shocked if Tesco didn’t use this time to add a couple of wrinkles to their model and unveil them when they resurface.

    Finally, responding to our “Sports Desk” report yesterday about the beginning of the baseball season, MNB user Eric Smolin wrote:

    As a Mets fan from Brooklyn now living in Atlanta, I feel your pain of 2007. I have a lot of neighbors who still remind me about the demise of the 2007 Mets. With that said, I will be at Turner Field twice this weekend cheering for the Amazin's to kick the "you know what" out of the Braves. And let's not forget to hope that Jimmy Rollins and the "Sillies" lose many games as well.

    KC's View:

    Published on: April 1, 2008

    Yesterday was Opening Day in Major League Baseball, a day on which the New York Mets, spurred on by great pitching by Johann Santana and timely hitting by David Wright, defeated the Florida Marlins 7-2.

    There were some other games, of course…

    Arizona 4
    Cincinnati 1

    Milwaukee 4
    Chicago Cubs 3

    Washington 11
    Philadelphia 6

    San Francisco 0
    LA Dodgers 5

    Pittsburgh 12
    Atlanta 11

    Houston 0
    San Diego 4

    Kansas City 5
    Detroit 4

    Tampa Bay 6
    Baltimore 2

    Chicago White Sox 8
    Cleveland 10

    Texas 2
    Seattle 5

    LA Angels 2
    Minnesota 3

    KC's View:
    This will probably be the last time I do MLB scores until the playoffs…but I had to do them today, because spring is here and baseball is back….baseball, once described by Bill Veeck as “the only orderly thing in a very unorderly world.”