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    Published on: May 1, 2008

    Also available on iTunes…

    Hi, I'm Kevin Coupe and this is MorningNewsBeat Radio, brought to you by Webstop, experts in the art of retail website design.

    Right now, there is a lot of debate and concern about the rising price of food and energy, with people wondering where it is going to end and even, in particularly dark moments, if it is going to end. The increased cost of living, especially here in the United States, where we have gotten used to relatively cheap food and fuel, has of course become a political football in this election year. It would be my perception that practically everybody who either holds or is seeking public office is trying to figure out how to triangulate his or her position to generate the most votes, not how to address the challenges in strategic and sophisticated ways.

    But what if the problems ahead are even tougher than we think? There was a fascinating interview in Business Week the other day with an author named James Howard Kunstler, who suggests that our biggest problem isn’t the rising cost of energy, but the simple fact that oil is a finite resource…eventually, it is going to run out. The era of cheap fuel is behind us, he says, which will create fundamental changes in how communities evolve. Kunstler believes that the US will be forced to move away from the concept of suburban sprawl, which has defined much of the nation's growth over the past decades – it will mean the decline of strip malls, big box stores and eventually, the car-centered society around which most of us have centered our lives.

    According to Kunstler, "Virtually anything organized on a grand scale is liable to fall into trouble—government, finance, corporate enterprise, agribusiness, schools. Our gigantic metroplex cities will prove to be inconsistent with the energy diet of our future. I think our smaller cities and towns will be reactivated. We are going to be a far less affluent society."

    Now, there is a bit of Chicken Little about these predictions. Business Week correctly notes that Kunstler was one of those predicting a technological Armageddon at the turn of the century, saying that Y2K had the potential to destroy many of society's foundations. He was wrong once, and he's certainly capable of being wrong again, especially because when you hear and read his words, Kunstler does seem like a glass-half-empty kind of guy who would be pretty depressing to have at a party.

    That said, there is something about his essential premise that does seem to make sense. Last time I checked, oil is a finite resource. I was at a conference this week where a senior executive at a major restaurant company got a round of applause when he suggested that people concerned about the environment were basically alarmists and obstructionists who are getting in the way of drilling for all the oil we could ever want. I'm not quite so ready to rape and pillage the environment as he seemed to be, but let's concede his point for a moment. He's certainly right that we need to wean ourselves off foreign oil, but I'm still waiting for a kind of Manhattan Project that will put the pursuit of alternative and environmentally preferable energy sources front and center as a global goal. That has to be the strategy…everything else is just a tactic, and a short-term one at that. (Short term might mean 10 years, or might mean 100. But in the life of the planet, 100 years happens in the blink of an eye. We have to think bigger than that.)

    As I was putting together this commentary, I got an email from a MorningNewsBeat user who addressed the broad issues we face in exactly the right way:

    He wrote that if in fact we are going through a transformation of our economy, rather than just a temporary recession, "things will be uncomfortable - but America will be a better place. We will lose some things and will gain some things - but we won't become less, just different."

    I couldn’t agree more. But to get there, we have to face the real issues, not just the ones that create headlines and votes. And for once, we have to get in front of them…and not just hope that we survive them so that they become someone else's problems.

    For MorningNewsBeat Radio, I'm Kevin Coupe.

    KC's View:

    Published on: May 1, 2008

    Tesco's Fresh & Easy chain of stores in the western US, despite mixed critical reaction from industry experts and the media, has a better consumer image than either of those two segments might expect, according to new figures released by Nielsen Online.

    "Fifty-nine percent of sentiment toward Fresh & Easy was positive with consumers citing competitive pricing and convenience as purchase drivers," the report says. "Consumers generally view Fresh & Easy as a supplement rather than a replacement for their current grocers, and express a willingness to add Fresh & Easy to their shopping rotation to stock up on meat, inexpensive organics and other convenience-oriented products that might otherwise prove cost prohibitive in the current economic climate."

    These views are not unanimous, however. "Thirty percent expressed negative or mixed sentiment toward Fresh & Easy. These consumers typically compared Fresh & Easy to the product assortment and prices of Trader Joe’s, Whole Foods and Wal-Mart," and apparently found the Tesco entry to be wanting.

    KC's View:
    This isn’t surprising. I've always felt that while many of us were disappointed by Fresh & Easy, it was entirely possible that the format might strike a chord with consumers looking for something different. Is it possible that Tesco is hearing things that the rest of us are missing? Certainly possible.

    That doesn’t mean that Fresh & Easy is perfect, not by a long shot. But it may not be the disaster that some folks thought it was. Fresh & Easy is a work in progress….emphasize the word "progress."

    Published on: May 1, 2008

    The Wall Street Journal reports this morning that "even as rising food prices have triggered protests in developing countries, Americans are rediscovering the economic virtues of a well-stocked food pantry and storage freezer, and embracing discount and wholesale retailers for cut-rate meals.

    "Stockpiling staples such as rice, meats and canned soup is coming into vogue again as food inflation and $3.60-a-gallon gasoline have consumers cutting the frequency of shopping trips -- and loading up carts when they do shop. Sometimes shoppers are prodded by fears of impending food shortages, though none have yet materialized in the U.S."

    KC's View:
    It is sort of like living in Connecticut or New York, and always knowing that if you have to go to New Jersey, you wait and try to buy gasoline there…because the gas taxes are so low there that it is always cheaper.

    I wonder if freezer and basement refrigerator sales are going to go up? I'm guessing yes…and I wonder how food retailers could take advantage of this trend.

    Published on: May 1, 2008

    In the UK, the Competition Commission is recommending that a "competition test" be created that would ensure that communities not be dominated by just one or two major supermarket chains, and would give local governments a yardstick with which they could control development. The test, if implemented, would restrict retailers from using real estate covenants to prevent competitors from entering a market, and would specifically mandate that no single retailer could have more than 60 percent of grocery sales in a market.

    The recommendation is viewed as being the biggest problem for market leader Tesco, and CEO Terry Leahy said yesterday that he was "not sure that the main recommendations will improve the life of the British consumer."

    The "test" would be administered by the UK Office Of Fair Trading (OFT).

    The Competition Commission also recommended the appointment of an independent ombudsman charged with governing and mediating the relationships between retailers and suppliers.

    KC's View:
    In the UK, four chains control more than three-quarters of the market. Not sure how you legislate against that …because the law can't make other companies more competitive.

    Published on: May 1, 2008

    The National Restaurant Association and the Global Food Safety Initiative (GFSI), managed by CIES, yesterday announced a new alliance that is designed to allow the two organizations to "work closely together to strengthen food safety systems and increase consumer confidence."

    According to a statement released by CIES, "Working together, with one voice, the restaurant industry and food retailers will be stronger and have better traction working towards shared goals and objectives of convergence between food safety standards. This will be done through maintaining a benchmarking process for food safety management schemes, improving cost efficiency throughout the food supply chain through the common acceptance of GFSI recognised standards around the world. The alliance will provide a unique international stakeholder platform for networking, knowledge exchange and sharing of best food safety practice and information."

    CIES announced that effective immediately, Cindy Jiang, Director of Worldwide Quality, Food Safety, and Nutrition, McDonald's Corporation, Oak Brook, Illinois, USA will be joining the GFSI Board of Directors.

    “Food safety is one of the restaurant industry’s highest priorities, and we believe the goals and objectives of the Global Food Safety Initiative provides a consistent framework to strengthen food safety systems along the foodservice supply chain and increase consumer confidence,” said Dawn Sweeney, president and chief executive officer of the National Restaurant Association.

    KC's View:
    I'm guessing that this means that the always-excellent CIES Food Safety Conference, scheduled for next February in Barcelona, will have strong representation from the foodservice side of the business, which should only make the content more compelling.

    Published on: May 1, 2008

    • PepsiCo announced yesterday that it has acquired V Water, a British vitamin water brand. Terms of the deal were not disclosed.

    • Connecticut-based Stew Leonard's, which traditionally has given shoppers a free ice cream cone for every $100 they spend in the store, now is giving away a cone to shoppers who use at least one reusable cloth bag for their groceries.

    KC's View:

    Published on: May 1, 2008

    • Kraft Foods reported that its first quarter net revenue rose 21 percent to $10.37 billion, though its Q1 net profit was down 13 percent to $608 million, which the company blamed in the surging cost of raw materials.

    • Kellogg Co. announced Q1 net income of $315 million, down 1.9 percent compared with $321 million a year earlier. Net sales were up 10 percent to $3.26 billion.

    • Starbucks this morning reports that its Q2 profit was down 28 percent to $108.7 million, from $150.8 million in the same period last year. Total sales were up 12 percent to $2.53 billion.

    The company said that it would curtail its US store opening plans in response to the disappointing numbers.

    KC's View:

    Published on: May 1, 2008

    Good piece in Slate noting that while poor people in some countries are rioting over the rising cost of food, and even middle-class Americans are struggling with the price of trying to feed their families, there is another, under-reported phenomenon taking place.

    The food crisis, Slate writes, also is taking "a heavy toll on another class, much less deserving of our sympathy, whose members also devote a disproportionate share of their incomes to food: food snobs.

    "You surely know some food snobs … We food snobs buy dried Italian pasta rather than Mueller macaroni, artisanal fizzy lemonade from France, not Hi-C. And then we prattle on about it ad nauseam. Of course, our organic, imported, steel-cut, Meyer lemon products taste better than their domestic, industrially processed analogues. But they're also important cultural markers. The foods we buy signal to others that we don't just subscribe to Gourmet; we ingest its message of seeking out the finest ingredients. Food snobs know that food isn't simply fuel to get you through the day: It's an expression of taste, refinement, and global consciousness. And thanks to the expansion of trade, the construction of superefficient supply chains, and the Internet, the opportunities for being precious about food have never been greater.

    "Alas, the cost of being precious about food has also never been greater."

    KC's View:
    The writer does note that there may be some relief for food snobs – he says that the local Balducci's has begun including $5-off coupons in its newspaper advertisement.

    Maybe we could take up a collection…or run a benefit. Something, so that we can ease the pain…

    Published on: May 1, 2008

    The rising cost of food and energy – and the connection between the two – clearly has been top-of-mind for MNB in recent days, which is why we welcomed the following email from Lou Scudere:

    At the risk of being called an "elitist" because I am going to try to give more than a three-word answer on the intricacies of the relationship of food prices and ethanol…here goes nothing. For those who do not wish to wade through the supporting data I have provided below I will start with my conclusion. For those who need the two word answer to the question what is causing most of our commodity inflationary issues, the answer is: The weak dollar.

    Some conclusions and observations based on the supporting information below:

    First the conclusion: The production of ethanol is NOT the root of all food inflation. Rather, I would respectfully suggest that the issue is not as simplistic as it first appears. Based upon the research below, a combination of adverse weather, increasing global demand and domestic economic policies which have resulted in a weakened dollar (which one can either agree or disagree with, an entirely different conversation) have combined to put us in the inflationary position that we are in. The weak dollar has forced the cost of all of our domestic production inputs higher. It is the reason we have $120/bbl oil and $12 soybeans. However, in the rest of the world, due to favorable exchange rates, the $12 soybeans are effectively $9 a bushel and the $120-bbl oil is effectively about $90-95/bbl.

    Next the observation: A point which no one seems to bring out when this topic is discussed is if the blending of ethanol was discontinued, there would be an annual increase in demand for domestic gasoline. In 2008, that would be on the order of approximately 5.4 billion gallons. I am sure the major oil companies would love that...can anyone say $5.00/gallon gasoline? Ethanol blending reduces domestic gasoline demand, domestic demand on foreign oil and, moves the country in the direction of sustainability, which, forget about environmental arguments, in my humble opinion, is ultimately a good business decision in the context of a global economy. It allows us to change the= rules.

    Now, as radio commentator Paul Harvey says "the rest of the story"…

    Some facts I pulled down from the USDA Economic Research Service:

    • Corn production from 2003 to 2007 increased from 10,089 million bushels to 13,075 million bushels in 2007.

    • Corn used for ethanol production increased from 915 million bushels in 03 to 3,200 million bushels in 2007.

    • Domestic net bushels available for feed and food increased from 9,174 million bushels in 03 to 9,875 million bushels in 2007. (This does not include the bushels of distiller’s grain, a by-product of ethanol production, which is used as high protein animal feed.)

    While it is true that domestic wheat production has dropped from 2,344 million bushels in 03 to 2,065 million bushels in 07 domestic production is up from 1,812 million bushels in 06 (a drought year). Domestic wheat demand in 07/08 is projected to be the same as 06/07. However, exports for 07/08 are expected to increase 1,225 million bushels due to a weakened dollar and because several other exporting nations will be exporting less due to adverse weather conditions and/or due to governmental restrictions by some exporting countries as they attempt to hold down their own domestic food prices.

    Domestic Soybean production from 03 to 07 remained flat 2,545 million bushels 03 to 2,585 million bushels in 07. However, a freeze in China damaging its rapeseed crop, has forced China to import soybeans for industrial oil production.

    That's at least the way I see it.





    Respond to yesterday's RIP, MNB user Steve Traun wrote:

    The industry has lost a true visionary, leader and merchant. Zeke Goldman was beyond brilliant. What I remember most is how willing he was to share his knowledge with people just getting started in the industry, and how he did it with such passion and care - never condescending. He will be missed.




    This week's "Sansolo Speaks" column prompted the following response from MNB user Brian Anderson:

    I truly am not intending to fill up your e-mail box, however I worked at McDonalds for four years in high schools and college and I feel the urge to comment. I can point to a few people and ‘events’ that helped shape my career and McDonalds is clearly on the list. I started working there when I was 16; as soon as I was old enough to work in NY State. I learned the very first hour that the job was a lot more than flipping burgers… McDonalds has thought about and then implemented every aspect of what makes a crew member successful and consequently, McDonalds successful. You’re on the team!

    I often mention to folks in the supermarket industry the very first thing I did as a McDonalds crew member… they had me watch the video “Kids are People Too!” It drove home the point that most adults were in there because they wanted to treat their kids… if we didn’t make their kids experience a treat, we failed the customer. Big concept for a 16-year old to think about. I truly loved working there even though my friends were making more money at their summer jobs. I was awarded a stainless steel McDonalds ring that was just like a school class ring… honest! I was thrilled when I got it because I received it in a little ceremony right after close one day in front of the rest of the crew and it was recognition for my hard work there over the years. Although I did not pursue their offer of management (sending me to Hamburger U) I still learned a tremendous amount about management of people and customer expectations.

    I have a 10-year-old son and I would encourage him to work at McDonalds when he is old enough for that experience alone. I periodically speak with the managers or crew when we go to McDonalds… some are lifers and some are working their way through school with other aspirations. Invariably, they are happy with their lot at McDonalds. "Would you like fries with that?"

    A well run McDonalds has mastered the art of making their crew members feel important and good about performing even the most menial of tasks. That is something that I have never forgotten over the years as I have managed people… they do a much better job when they know that someone is noticing!





    And the emails keep coming about best sports movies…with all the "Rudy" fans coming out in force yesterday. (I'm embarrassed to ay I've never seen 'Rudy"…I'll have to add it to my Netflix queue.)

    KC's View: