retail news in context, analysis with attitude

MNB Archive Search

Please Note: Some MNB articles contain special formatting characters, and may cause your search to produce fewer results than expected.

    Published on: April 28, 2008

    The New York Times reported over the weekend on consumers finding numerous ways to save money on groceries as they cope with the economic downturn, including:

    "In Ohio, Holly Levitsky is replacing the Lucky Charms cereal in her kitchen with Millville Marshmallows and Stars, a less expensive store brand … and in Michigan, Jennifer Olden is buying Gain laundry detergent instead of the full-price Tide …(and) Holly Levitsky, a 56-year-old supermarket cashier in Cleveland, buys a brand of steak sauce called Briargate for 85 cents and surreptitiously pours it into an A1 steak sauce bottle she keeps at home." The Times notes that while in some cases people are trading down in terms of brand names, there also are times when people are simply choosing less expensive options – like pasta instead of red meat. And, as they do so, it forces "retailers, restaurants and manufacturers to decode the tastes of a suddenly thrifty public."

    It isn’t just in supermarkets that people are making such decisions, of course. This same trend is seen when people choose an airline, a hotel, a brand of clothing or a restaurant. It means, according to various measurements, that people are drinking less booze (or the cheap stuff when they are drinking) and less Starbucks, while Wal-Mart's "always low prices" promise suddenly seems exceptionally timely.

    "Behind the belt-tightening — and brand-swapping — is the collision of several economic forces that are pinching people’s budgets or, at least, leaving them in little mood to splurge," the Times writes. "The price of household necessities has surged, with milk topping $4 a gallon in many stores and regular gasoline closing in on $3.60 a gallon nationwide. Home prices are sliding, wages are stagnant, job losses are growing and the Standard & Poor’s 500-stock index, a broad measure of stock performance, is down 6 percent in the last year. So consumers are going on a recession diet."

    KC's View:
    The Times piece got my attention when the great Burt Flickinger was quoted as saying, “It hasn’t gotten to human food mixed with pet food yet, but it is certainly headed in that direction."


    Read on…

    Published on: April 28, 2008

    The Chicago Tribune reports that "pork and beef prices are expected to see increases as producers struggle to pay more for feed. The era of corn-based ethanol has warped a food chain that links remote farms to city diners, costing consumers more and causing many farmers stuck in the middle to suffer massive losses on each animal they raise.

    "The corn and soy meal devoured by hogs is worth $30 more than the animal itself, while feedlots lose $150 on every head of steer sold to meat packers. Of the 13 billion bushels of corn harvested last year, about 46 percent became animal feed and 25 percent became ethanol. Organizations such as the National Corn Growers Association say the country has enough corn to meet its needs, but supply and demand meet at an imperfect angle for their livestock peers. Unless corn dips below its $6-a-bushel plateau, and soybeans prices sink beneath the teens, the livestock industry likely will take steps to further raise prices."

    USA Today reports that "the government says egg prices have soared 34.8% in the past 12 months, to an average $2.20 a dozen." Why? Well, start with the cost of the feed used for the chickens that lay the eggs – it is made up of 57 percent corn, and 26 percent soybeans.

    Corn is getting progressively more expensive because of global demand and pressures from biofuels, the paper notes, and "soybean prices have risen even more than corn prices in the past 12 months, in part because many farmers switched from planting soybeans to corn last year. Many farmers are rotating back to soybeans this year, Elam says, in part because it costs less to produce an acre of soybeans than an acre of corn. But that, in turn, will push up corn prices this year."

    KC's View:
    When I was growing up, it used to be that eggs were an inexpensive dish when money was tight and my parents had to feed me and my six younger brothers and sisters. But not anymore. In fact, the number of products that would seem to fit in the "inexpensive dish" category seems to be shrinking precipitously.

    What happens when suddenly low cost options don't exist anymore? Is this when we get to the point that Burt Flickinger was making about people combining human food with pet food?

    This isn't a partisan political statement, because it seems to me that there is more than enough blame to go around. But do you have the same sense I do, that while there is sort of a "perfect storm" quality to all the issues that have come together at this point in time, there also is a case to be made that as a nation we have mismanaged our way into this crisis through a short-term, immediate gratification approach to governing and nurturing our resources?

    Published on: April 28, 2008

    The Washington Post reported over the weekend that "the Bush administration and Congress have been caught flat-footed by rapidly escalating global food prices and are scrambling to respond to a crisis that they increasingly view as a threat to U.S. national security, according to government officials, congressional staffers and human rights experts." The national security aspect, the story says, comes because " many of the affected countries -- including Egypt, Indonesia and two of the world's nuclear powers, India and Pakistan -- are of strategic interest to Washington."

    The Bush White House already has released $200 million (US) in emergency wheat stores for developing countries, and reportedly plans "further steps to help ease the burden of rising food prices on the world's neediest people," with options that include "building more overseas storage facilities and roads to reduce food spoiling, and making the food crisis a top priority for the G-8 summit of industrialized nations in July."

    Addressing the problem is difficult, however, in part because the US government is coming to it late, but also because the US is in the middle of a presidential election cycle that is likely to make it difficult for Congress and he White House to agree on anything.

    And, the cost of food around the world gets even more complicated as nations attempt to come to grips with the impact of a global supply chain on the environment. The New York Times reported over the weekend that "food has moved around the world since Europeans brought tea from China, but never at the speed or in the amounts it has over the last few years. Consumers in not only the richest nations but, increasingly, the developing world expect food whenever they crave it, with no concession to season or geography." But now that the carbon footprint left by the global supply chain can be measured, the Times writes, "many economists, environmental advocates and politicians say it is time to make shippers and shoppers pay for the pollution, through taxes or other measures."

    KC's View:
    They say that one of the biggest problems that the modern food industry has to face is shopper expectations, that people in most industrialized nations have grown to expect that every food they want will always be available…and that we are rapidly approaching the time that this may no longer be the case.

    Published on: April 28, 2008

    The Sunday Telegraph reports that the UK Office of Fair Trading (OFT) raided – some press reports use the word "visited" - the offices of Tesco, Wal-Mart-owned Asda, Sainsbury and William Morrison Supermarkets last week as the OFT looks for new evidence of alleged price fixing in the areas of grocery and HBC.

    The move by the OFT, which comes as the UK Competition Commission prepares to publish the results of a separate two-year investigation into the supermarket industry, is said to be a response to rising food prices in the UK. On the other side, numerous retailers in the UK accuse it of abusing its power and essentially going on a fishing exhibition as it looks for any and all infractions.

    The supermarkets told the BBC that they were "happy to assist" the OFT.

    KC's View:
    I hope the OFT has more to go on that just rising food prices in the UK. Because perhaps they haven't noticed, but they're going up pretty much everywhere.

    Published on: April 28, 2008

    Interesting piece in the Minnesota Star Tribune in which it notes that while Pay By Touch, the biometric payment company that filed for bankruptcy last month, got a lot of attention for its futuristic notion that people could pay for groceries using their fingerprints as a payment tool, what got less attention was that the company's founder, John P. Rogers, had a questionable resume.

    "Rogers, who did not return phone calls for comment, has filed for bankruptcy, as has Pay by Touch," the paper writes. "Investor lawsuits claim his mismanagement was the reason the company burned through $300 million in financing while building a network of 3,000 locations and 3.6 million customers, striking agreements with Discover Card Services, Citigroup and Supervalu along the way." Rogers has left in his wake "a trail of tax liens and civil and criminal judgments," the story says, and had a "history of criminal offenses in Minneapolis (that) included traffic violations, misdemeanor charges of disorderly conduct and domestic assault. He also faced civil judgments for unpaid bills, including liens in 1992 and 1996 of $23,198 and $7,382 for unpaid state taxes and about $12,000 from three separate judgments between 1992 and 2001."

    And, Rogers "first came to prominence in Minnesota as a whistle-blower in one of the largest tax fraud cases and insider-trading rings ever prosecuted in Minnesota."

    KC's View:
    Just curious. If someone had Googled this guy's name when he was starting up the company and looking for investors, would they have found out this information? I'm guessing that at least some of it had to be available…

    Published on: April 28, 2008

    Numerous published reports this morning say that Warren Buffett's Berkshire Hathaway Inc. and Mars Inc. are teaming up for a $22 billion acquisition of the Wm. Wrigley Jr. Co. in a deal that is likely to be announced as soon as today.

    The Wall Street Journal notes that the deal "would unite two icons of the U.S. candy business: Wrigley, maker of the eponymous chewing gum, and Mars, the closely held company behind Snickers chocolate bars and M&M's" and would "expand Mars's already considerable global reach. Wrigley generates the majority of its sales outside of the U.S. In recent years, it has expanded its offerings well beyond chewing gum. Mars is the world's largest maker of chocolate by sales, with a market share of 15%."

    KC's View:
    Longtime MNB readers knew that I was going to point this out…that it is poetic for someone named Buffett to have an ownership position in the company that makes Juicy Fruit.

    A bathin' suit
    Chew a little Juicy Fruit
    Wash away the night…

    Published on: April 28, 2008

    BrandWeek reports that "Hearst Magazines has sold its new magazine supplement called '30 Days of Home' exclusively to Wal-Mart," which in turn will use the home design publication to promote its new line of home furnishings called Canopy … The 34-page pub will come with June issues of Country Living, Good Housekeeping; House Beautiful, O at Home, O: The Oprah Magazine and Redbook (and) also will be distributed for free in Wal-Mart stores."
    KC's View:

    Published on: April 28, 2008

    • Goldman Sachs has issued a report suggesting that in the next six months, supermarkets could reap the benefits of the government-issued economic stimulus checks to the tune of almost $2 billion.

    • The Washington Post reports that the US Securities and Exchange Commission (SEC) has completed its investigation into Whole Foods CEO John Mackey's anonymous web postings in which he criticized rival Wild Oats, a company that his company later acquired. The SEC reportedly has recommended that no action be taken against Mackey or Whole Foods.

    KC's View:

    Published on: April 28, 2008

    • Weis Markets reported that its first quarter sales increased 4.2 percent to $595.7 million, on same-store sales that were up 3.9 percent. Q1 net income was down to $9.1 million compared to $13.4 million in 2007.
    KC's View:

    Published on: April 28, 2008

    Lots of response to the piece last week about the move by Blockbuster to acquire Circuit City.

    MNB user Chuck Lungstrom wrote:

    The purchase of Circuit City may turn out to be a good move by Blockbuster in the long run. What ever they can do to expand their base may help. However, the real question is how can the business model that is currently Blockbuster survive? It seems obvious that the idea of going out to a retail outlet to look over the available selection of videos is an activity that is very quickly disappearing.

    Instant downloads are quickly replacing the time consuming and sometimes aggravating task of seeking out entertainment. Not only is the instant download more convenient, but there are no so called 'late fees'. Why would the modern high tech consumer waste all that time and effort when they can simply log on to Apple, Amazon, or their cable or satellite TV and get their entertainment immediately?

    Remember the 8 track tape? Blockbuster is apparently on a quest to remain relevant by diversifying their base. Good luck and best wishes. I'll be watching my movies from my Apple TV from my most recent my convenience. My time, my pace, no late fees, no hassles. Sounds like the future now to me. Good luck Blockbuster.

    One of the offerings that Blockbuster is making in some its newer experimental stores is free Wi-Fi, which led one MNB user to write:

    Free Wi-Fi! I look for it every time I travel, which is often! I'd be a better Blockbuster customer if I got free Wi-Fi - absolutely. It is one main reason I look for Panera Bread locations when "on the road' - free Wi-Fi, I buy lunch or dinner. Win win!

    And another MNB user wrote:

    Since the Internet has eliminated Blockbuster's current distribution value, while creating a greater shopper experience (i e search, customer reviews, greater election, on line distribution, no shopping trip) what choice do they have? Maybe private label movies?

    Blockbuster might be the first type off retailer to suffer because of the above, but they won't be the last; it applies to all retailers; yes even supermarkets. All retailers should be asking the following questions today: What value do we create above and beyond
    distribution value? Why would a shopper want to come to our store? Price and national brands alone won't work be enough.

    Absolutely agreed.

    On the subject of whether imported foods ought to be forced to meet US food standards, one MNB user wrote:

    A simple answer: this is not a simple issue. At this point in time, many imported foods do meet and/or exceed domestic standards. Others do not. I think we should all be careful not to play the scapegoat game and make statements that imply "of course imported products do not meet US safety standards." Any more than have all trade agreements been bad for the US worker and economy. Broad brushes paint widely, but not necessarily effectively. Let's face it, retailers will not exist in the future unless they create a differentiating value above and beyond distribution value. They have to create a reason that shoppers want to go to the store.

    Another MNB user wrote:

    What is the evidence imported foods have a greater risk of food safety infractions than domestic supplies?

    I have represented and imported fresh berries from Chile for many years. The systems deployed to assure the safety of the Chilean produced berries are equal to or exceed what I have observed in the US. It is my opinion the Chilean berries are equally as safe and healthy as US/Canada produced berries.

    MNB user Jerry Jewett had some thoughts about reported food shortages:

    Part of the cause of the shortage is the public reaction to the media reports.

    Remember in the 70s when we had a gas shortage?

    On the Friday night news there was a report of a shortage of pulp to make toilet paper. The next day we sold every package of toilet paper in the store. Within a week the warehouse ran out & we were out of stock for about two weeks before the pipeline got filled up.

    Another time there was a report on the Friday night news that beef was going up 20% Monday morning. My meat department could not keep meat in the case all day. People were standing at the counter as soon as we opened. I saw one lady take packages of steak out of another customer's shopping cart.

    I don't know what the answer is but sometimes the reporting is our worst problem.

    I would respectfully disagree. There's a lot about journalism that I can criticize, but it seems to me that right now, the quality of the reporting is the least of our problems.

    Another MNB user wrote:

    I know of a farmer in Southern Wisconsin that for the last 8 years was being paid not to grow anything (due to the low prices on corn, etc). Even though the price of corn has increased (2x, 3x, 10x’s?) he is still being paid not to grow anything this year. We have the best farmland in the country, we have a rising commodity market, looks like we are having shortages, and we are paying farmers not to grow. It only makes sense because it’s the government. Actually this farmer probably doesn’t want to grow anything anyhow. He’s now in his 70’s and the physical demands of farming are probably a little too demanding.

    Finally, I made a comment last week in "OffBeat" that, as I've said before, "Bull Durham" is the best sports movie ever made.

    Some disagree.

    MNB user Cynthia Gridstaff wrote:

    You are completely wrong about "Bull Durham"...

    The "best sports movie ever made" is actually "Field of Dreams."

    "Field of Dreams" would probably make my top 10. But not number one. Sorry.

    And one MNB user came up with one that I've heard of and actually seen, but never in the "best sports movie" category:

    "Fighting Back," with Robert Urich.

    If I remember correctly, that was a pretty good movie with Urich playing Pittsburgh Steelers star Rocky Bleier, who was seriously injured in Vietnam but worked his way back into professional football. (Didn't the great Art Carney play the team's owner?)

    Good movie, but I wouldn't rank it that high.
    KC's View: