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    Published on: May 14, 2008

    A new survey conducted for the National Retail Federation (NRF) suggests that compared to just a few months ago, consumers plan to spend most of the government-issued economic stimulus checks on necessities such as food and gasoline, rather than on discretionary products such as furniture, clothing and electronics.

    According to the NRF-issued report, "Due to the rising cost of fuel, the largest leap in rebate spending will come at the pump, as 17.2 million people plan to use some of their tax rebate check to pay for gasoline, up from 12.1 million people who planned to do so in February. The rising cost of everyday items like milk, bread and rice also means that more consumers plan to spend the checks on groceries, with 21.2 million people using a portion of the check for food, up from 20.4 million people in February.

    "As a result, fewer people plan to spend rebate checks to buy furniture (2.7 million vs. 4.0 million in February), purchase a vehicle (2.4 million vs. 3.2 million in February), or use it for “me” time at a salon or spa (2.9 million vs. 3.5 million in February) … The survey reinforced February estimates on how consumers would spend the $105.7 billion being distributed in tax rebate checks. According to the findings, consumers as a whole plan to spend 39.9 percent of their tax rebate checks, providing a $42.2 billion boost to the economy. Consumers will also use the money to pay down debt ($28.1 billion), save ($20.1 billion), invest ($3.4 billion) and pay medical bills ($4.9 billion)."

    KC's View:
    In just three months, consumer attitudes toward the economy and their own circumstances have worsened to the point where instead of making discretionary purchases with their government checks, they are now going to use the money to feed their families and fuel their cars.

    Probably not exactly what the government had in mind when it decided the checks were a good idea … an idea that always seemed more political than economic in my view. (Not that I'm sending my check back, mind you.)

    What worries me is where we are going to be three months from now. In some states, you just know that gasoline is going to be over $4.50 a gallon, and probably heading toward five bucks. You know that food is going to be more expensive, and that consumers are going to be further changing their purchasing decisions and attempting to compensate for the tough times.

    And what really worries me is that, best I can tell, the underlying issues aren’t being addressed. People talk about stimulus checks and gas tax holidays, and they'll be talking about other band-aids in three months, especially as the presidential elections draw closer.

    But they won't be talking about real and long-term solutions.

    Published on: May 14, 2008

    The Wall Street Journal this morning reports that Wal-Mart is mandating that its toy suppliers "meet a new set of children's-product safety requirements by this fall that goes far beyond existing government regulations.

    "The standards include strict limits for lead and a broad array of other heavy metals and chemicals that have been linked to various medical and developmental problems in children." Wal-Mart also is looking for greater traceability information to be available for imported toys; 80 percent of all toys sold in the US are made in China, and just last year there were significant lead levels found in toys imported into the US.

    Industry expectations are that the Wal-Mart requirements will increase the costs of toys by between five and seven percent, but that consumers will not mind bearing the brunt of these increases because it essentially is a child safety issue. In addition, it seems to be expected that Wal-Mart's mandates will become the industry standard in fairly short order, and that they will make government standards obsolete and irrelevant.

    KC's View:
    : Some critics note that Wal-Mart hopes to reduce its own legal liability by imposing more stringent safety standards, but I don't see how that is a bad thing. After all, good business practices should be good for the business, too.

    Now I wish that retailers would take the same approach to food safety issues. Make the government standards obsolete by going farther and faster than government can. Take the offensive, rather than just reacting to what government agencies mandate. (Of course, this is tough when the government tries to stop things like mad cow disease testing by private companies…)

    Published on: May 14, 2008

    Reuters reports that a new study by Wake Forest University suggests that obesity continues to be a problem for Americans, and that the nation's weight problem is having specific and dramatic effects on a variety of other health issues.

    "Among 6,814 middle-age or older adults participating in the Multi-Ethnic Study of Atherosclerosis, or "MESA" study, researchers found that more than two thirds of white, African American and Hispanic participants were overweight and one third to one half were obese.," the report says. However, not every ethnic group is impacted to the same extent: "Obesity rates were far lower in Chinese Americans in the study, with 33 percent overweight and just 5 percent obese."

    Reuters writes, "The investigators also found that obese adults, compared with normal-weight adults, had higher rates of high blood pressure (up to more than twice as high), abnormal lipids (two- to three-fold higher), and diabetes .. Obese adults also had more silent vascular disease (blood vessel disease that causes no symptoms); they had more atherosclerosis (hardening of the arteries) and thicker heart walls, even after adjusting for 'traditional' risk factors like high blood pressure and high cholesterol levels."

    The report also notes that these conditions are becoming far more evident despite the fact that enormous sums of money are being spent on a wide variety of medications. Which reinforces the notion that there is a significant economic impact as well.

    KC's View:
    I went public a few weeks ago with what I thought was a pretty good story about my own weight loss of about 35 pounds, and a change of lifestyle that has gotten me into pretty good shape.

    But I have to tell you that there were two encounters that I had at the recent Food Marketing Institute (FMI) Show that were really inspiring, and put my own loss into perspective.

    One was with Chef Paul Prudhomme, who I interviewed for our new FoodWireTV program. Prudhomme told me that he spent much of his life between 400 and 500 pounds, and now is about to dip below 200. "I eat anything I want, I eat everything I want," he said with an enormous smile. "I just eat less of it."

    And I also bumped into Mike Julian, who has run a number of retailers around the US and currently is president/CEO of McLane International's import/export business. I don't Mike would mind my saying that he has lost an enormous amount of weight, and that I didn’t even recognize him when I saw him – it was only his name badge that gave him away.

    These guys are inspirational. They speak to what is possible.

    Published on: May 14, 2008

    USA Today reports that not only are some supermarket chains such as Wegmans and Andronico's deciding to stop selling tobacco products, but now there are a few states that want to stop pharmacies from selling such products.

    According to the story, "This month, San Francisco Mayor Gavin Newsom proposed an unprecedented city ban on drugstores selling tobacco products, including cigars, pipes and smokeless tobacco … Others are on the same track. Bills are pending in New Hampshire, Illinois and Tennessee to bar pharmacies with walk-in clinics from selling tobacco, and a bill in New York would apply to all pharmacies, including those in big stores such as Wal-Mart."

    KC's View:
    I'm sort of torn on this one.

    On the one hand, not enough bad things can happen to tobacco companies. (My bias on this one has been stated here many times.) I have no problem with the whole industry going away because demand shrinks to the point where it is simply not viable.

    And, I actually think it makes sense for retailers that are in the business of selling health and wellness to decide that they ought not be selling products like tobacco that are designed to addict and kill you. (Don't tell me that liquor is the same thing. It isn’t.)

    But for the government to step in and say which retailers can sell tobacco and which cannot…that strikes me as needless government intervention. Let the market decide. (Though, I have to admit, I agree with government bans on tobacco advertising. So maybe I'm being inconsistent here.)

    Published on: May 14, 2008

    • In the UK, the Telegraph reports that Tesco has been named Britain's most valuable brand by an organization called Intangible Business, which does market valuations on major British business. The report says that Tesco's brand equity should prove to be a boon to the company in the coming economic slowdown because it will create a level confidence in a consumer class that may be feeling rattled and uncertain.

    • Tesco reportedly is acquiring 36 Homever hypermarkets in South Korea for the equivalent of about $1.9 billion (US). The goal is to convert the stores to Tesco's Homeplus format, already operating in South Korea.

    KC's View:

    Published on: May 14, 2008

    • The Dallas Morning News reports that a week after Wal-Mart expanded its $4 generic drug program – covering 90-day prescriptions and additional medicines – "Kroger Co. says it will implement identical changes to its $4 drug plan today … Before the recent changes, both retailers included more than 300 generic drugs to treat common conditions such as diabetes, asthma, depression and heart disease on their lists of drugs costing $4 for a month's supply."
    KC's View:

    Published on: May 14, 2008

    • Whole Foods reports that its second quarter profit was down 13 percent to $40 million, from $44 million during the same period a year ago., a decline that the company attributed to the costs associated with the integration of Wild Oats into its business. Q2 sales were up to $1.87 billion, from $1.46 billion a year ago, on same-store sales were up 6.7 percent.

    • Unified Grocers reports that its second quarter sales grew 31.6 percent to $991.9 million, up from $753.6 million during the same period a year ago, an increase that was largely attributed to its acquisition of Associated Grocers of Seattle. Net earnings for the quarter were $7.4 million, up from $7 million a year ago.

    Year-to-date sales grew 33 percent to $2,044.4 million.

    • Carrefour, the world's second largest retailer, said that its first quarter sales were the equivalent of $36.2 billion (US), up 10 percent from the same period a year ago. According to the company, sales excluding acquisitions rose 6.8 percent.

    KC's View:

    Published on: May 14, 2008

    Responding to yesterday's "Sansolo Speaks" column that used hitting a curveball as a metaphor for business and life, one MNB user wrote:

    Great metaphor! Great players, even mediocre ones, spend thousands of hours yearly practicing for that .2 of a second decision.

    That's called planning and researching the competitors, market, industry and all the outside influences and technological breakthroughs. It's the planning and researching that makes great players hit the curveball 3 out of 10 times and the mediocre players only hit the curveball 2 out of 10 times...but its the difference between winners and losers.

    Got a lot of email about the piece the other day concerning the Bush administration
    urging a federal appeals court to stop Creekstone Farms, a Kansas meatpacker, and other companies from testing all of their animals for bovine spongiform encephalopathy (BSE), or mad cow disease. Creekstone already has won the case in the lower courts, but the Justice Department appealed.

    Less than one percent of all slaughtered cows are testing for BSE under current federal guidelines. Larger meatpackers also have objected to Creekstone's plans, saying that it could create unfair pressure on them to test all their animals for BSE, which could result in higher costs and, ultimately, higher consumer prices.

    The White House opposition to the Creekstone plan is hinged to the notion that broader testing does not guarantee food safety and could result in a false positive that scares consumers.

    My comment was that "it is easy to understand economically why some folks would be against more widespread testing. It might cost some more money…though I’d wager that if you asked consumers, they'd be willing to pay a few more cents per pound for that kind of reassurance. But it is impossible to understand this point of view from an ethical and public policy perspective. Wider testing is good because it gives both the industry and consumers more information. More information is good because it allows people to make more informed decisions. Better-informed decisions lower the risk of people getting wick and dying.

    "And yet, this logic seems to be anathema to the Bush administration and the meatpackers that are fighting Creekstone."

    MNB user Don Brandt responded:

    Doesn’t the administration have enough to do without sticking their nose into this? What about free market and capitalism? What is the problem…maybe a meatpackers campaign donation?...if Creekstone wants to test and if I’m willing to pay for it, just what is the governments interest?...certainly not ours!

    MNB user Chris Esposito wrote:

    Regardless of the health issues or trade export ramifications, to me this is a pure market driven issue. I don't see how this is any different than organic veggies or free-range chicken. If the consumer is willing to pay the extra for the testing, then the consumer is sending a message to the producers, "I want it, do it, I'm willing to pay for it". Isn't that how a free market is supposed to operate? If, in turn, no one wanted to pay extra for the knowledge that the beef they were buying was free of mad cow disease, then Creekstone wouldn't stay in business very long.

    And another MNB user wrote:
    If Creekstone does test all animals (which I think is a good idea), it would put to ease our fears about eating beef. Maybe if the large companies started testing, say 25% of animals and the results are the same, than the government would say they were correct and maybe, no additional testing is required. However, if there is a larger number that tests positive, then the government would have no leg to stand on for not testing all animals.

    Remember, one of your favorite phrases - compete is a verb. So the large companies are afraid of a small company. Interesting, I wonder if Wal-Mart is afraid of a small company.

    Maybe retailers should give the large companies an edict and say we will only buy animals that have been tested for BSE. I wonder what retailer(s) will step up to the plate and move this issue forward since the government does that have the nerve.

    This is my argument above in the story about toy safety standards. If Wal-Mart or Kroger or Safeway or another big retailer stood up and said, "We will only buy beef tested for BSE," it would change the world.

    Also got email about the story noting that celebrity chef Gordon Ramsay, known for television programs such as "Hell's Kitchen" and for a personality that might generously be described as pugnacious, has told the BBC that he is pushing for legislation in the UK that would require that fruits and vegetables only be locally sourced and only sold when in season.

    According to the BBC story, Ramsay has spoken to British Prime Minister Gordon Brown about his proposal. In addition to providing people with better food, he says, "it would cut carbon emissions as less food would be imported and also lead to improved standards of cooking."

    Brown says, "There should be stringent laws, licensing laws, to make sure produce is only used in season and season only. If we don't restrict our movements within this industry of seasonal-produce only, then the whole thing will spiral out of control."

    My view was that while Ramsay's idea may seem fanciful – legislation seems a little over the top, and I can't help but think that the British Parliament has better things to do - his essential notion is actually an interesting one.

    It probably is fair to say that the quality of food has suffered because of year-round availability. Let's face it – green grapes and corn on the cob may be available in February, but it isn't nearly as good as when you get it in season. It is a kind of lowest-common-denominator approach to food marketing…the short-term immediate gratification of having these items available all the time takes precedence over actually having food that tastes better.

    It may be impossible to go backwards on this, though the whole idea of eating local is a good move in that direction. But I still think, especially because of the carbon footprint issue, that it makes sense for food retailers to start thinking about how they are going to wean shoppers off their addiction to year-round availability to certain products.

    MNB user Dan Murphy wrote:

    Mr. Ramsay’s point about the carbon footprint of making sure suburbanites have year round access to produce of all sorts is a sound one. I cannot help but agree with you that while it may be difficult to turn back the clock entirely, the supermarket business (and agricultural industries in general) would benefit from capitalizing on this teachable moment and taking its case to the public rather than pressing ahead with business-as-usual (read: bring-it-in-on-a-boat-and-stack-it-up. They-will-buy-it-off-our tan-colored-lozier-fixtures-because-what-else-can-they-do). This is a real chance to lead, not follow.

    Another benefit beyond the carbon footprint of moving so much material around the globe may quite directly be one of public health. If we are able to make significant shifts in where our produce comes from, we might well be able to decrease the hazards associated with wide ranging food recalls since the dependence on a limited number of enormous, often foreign, suppliers to multiregional shopping chains would be radically decreased.

    I wonder if this change in demand for produce might over time allow some shift in production in developing countries away from capital- and petrochemical- intensive production of produce, by what is normally a handful of politically connected companies, in what is essentially a cash-crop model (for sale to the international markets), to land use and production patterns that may favor domestic consumption and economic development. Given the interplay of self interest and quick wit this may in time create in these producer nations more widely distributed surpluses of food, then money and then importantly, time. All of which would contribute mightily to the general welfare of these same countries. Even a small shift of this sort would seem highly desirable.

    As Gordon himself might say !@#*!&# brilliant.

    But another MNB user wrote:

    Are you crazy? Don't you think each consumer ought to get to make the decisions about "immediate gratification" and "tasting better"? It really lies in the taste-buds of the beholder, I should hope.

    MNB user Doug Galli chimed in:

    Just a note, that if this becomes legislation, which I believe would never happen, what is the financial impact on the growing areas that export the food around the globe? Most notably Chile. I would think it would have an economic impact on this country and the many growers and farm workers. At times what many people think are the best plans, have far-reaching implications that are not well thought through, but when they make these outrageous statements, play well in the press.

    On another subject, MNB-fave Glen Terbeek had some thoughts about the continuing discussion of Starbucks' travails and its former CEO, Jim Donald:

    I have no doubt that Jim is a great leader and person, with so many people supporting him. I would like to meet him. But just maybe the "central buying and distribution" mind set he learned and led at Wal-Mart and Safeway isn't the right model for local coffee houses to win their local markets. Like you, I have been in many Starbucks in the US and other countries, and the markets sure are different. Each
    has a personality. As an example, the one at the beach here in San Diego has a much different customer set than say the one I frequented in Chicago. And I have also been in locally owned coffee shops, including the one across the street from the San Diego store and shops in Starbucks' home town of Seattle that are doing a great business and maybe even winning the local marketplace.

    There is no question that Starbucks created the gourmet coffee category, actually helping the local competitors as a result. Now they need to focus on winning the "unique" local marketplaces that each store operates in. The only way to achieve continued same store sales increases is by doing just that.

    KC's View: