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    Published on: July 2, 2008

    Starbucks, the onetime darling of the gourmet coffee business that has fallen on tough times because of over-expansion and what the New York Times aptly referred to as “a cavalcade of economic troubles” that have pinched consumer spending and reduced the appeal of $4 lattes, announced yesterday that it plans to close 600 US stores and eliminate as many as 12,000 jobs within the company. The move is a dramatic increase over the 100 stores that Starbucks previously had announced would be closed.

    The soon-to-be-closed units represent about 8.5 percent of the company’s global fleet of 7,100 units and five percent of its US stores. It was not that long ago that the company had a stated goal of having a total of 40,000 stores, with half in the U.S. and the rest abroad.

    Starbucks said that it would open fewer than 200 new stores in the US during the 2009 fiscal year, down from the 250 originally slated to be opened.

    The Seattle Times notes that Starbucks actually will open 350 new stores in the US during the coming fiscal year, but that only 200 of them will be owned and operated by the company; the other 150 will be operated by outside firms in places like bookstores and airports.

    The stores that will be closed between August 2008 and April 2009, according to the company, have been identified as being unprofitable. While specific units were not identified by the company in the announcement, they are said to be in virtually every major US market, and 70 percent of them have been opened since the beginning of fiscal 2006 – a clear sign that Starbucks believes that its onetime strategy of domination through ubiquity no longer is viable.

    In its coverage, the Wall Street Journal noted that “the closings are bad news for commercial real-estate developers who have relied on the cachet of Starbucks to attract other tenants. Starbucks said the sites earmarked for closure include those that aren't profitable at the moment or aren't expected to provide the company with acceptable returns on its investment.”

    CEO Howard Schultz said in a prepared statement that the company’s new focus will be on improving efficiency, the customer experience, and boosting shareholder value. Once the stores have been closed, he said, it is expected that the move will boost earnings by as much as $100 million.

    Starbucks shares are down about 40 percent over the past year. While Schultz retook the CEO’s office earlier this year with the intention of reviving the company’s fortunes in the stock market, that has not yet happened…and the new announcement clearly is an effort to demonstrate that the company is serious about its new path.

    KC's View:
    One of the nice things about MNB has been that the audience always has been generous about sending along tips and links about stories that it thinks are worth making the cut each day…but I can’t remember ever having gotten as many emails about a single story as I did yesterday when this news broke.

    In part, I think, this was because we’d had a Starbucks story on MNB yesterday that talked about the balancing act the company was attempting between satisfying its core customer and attracting new patrons with coffees that are less, shall we say, robust. (Got a number of emails on that one, which you can read in “Your Views.”) And, I think it is because I’ve been sort of fixated on the Starbucks story…in part because I’m a regular customer, in part because my son has worked at the local store as a barista, and because they were wondering if my local store would close, leaving me bereft and doomed to buying my coffee at Dunkin’ Donuts. (I doubt it…my store has been there a long time and is always busy, so I’m guessing that it is profitable. But thanks for your concern.)

    I do think that this probably is a smart move by Starbucks. It is like being willing to cut off a cancerous limb before it metastasizes to the rest of the body. Economic realities have changed since Starbucks management – and I would suggest that this would include Schultz, the entire board, and deposed CEO Jim Donald – envisioned the “domination through ubiquity” strategy that would have had the chain at 40,000 stores worldwide. And it is up to management to deal with changed realities, not to go blindly forward as if nothing has changed.

    What we don’t know at this point is whether this will be the definitive move that puts Starbucks on more solid ground, able to move forward more deliberately, productively and profitably, or whether this is a desperation ploy that masks greater ills that we don't know about. I don't think it is the latter; there would seem to be too much residual affection and loyalty to the brand for this to be the case. But I don't know for sure.

    If indeed this is the masterstroke that puts the company on firmer ground, I hope that management takes the time to let this play out, and that they don't make other, desperate moves if the stock market doesn’t reward this right away. After all, this is a long-term play, and a company has to be both viable and sustainable for years, not months. So this remains a delicate balancing act.

    I remain convinced that Starbucks continues to be a great American brand…and that it is by no means beyond salvation. But I also think it has become a cautionary tale for marketers.

    At the end of the day, you can't just dominate by being ubiquitous. You have to dominate by being great and by being relevant.

    Published on: July 2, 2008

    In Minnesota, the Star Tribune reports that a district court judge has ruled that “Walmart broke Minnesota labor law more than 2 million times over six years by forcing some employees to work without breaks and without full pay … The violations carry a penalty of up to $1,000 each, adding up to a potential $2 billion fine.”

    According to the story, “The suit was filed in 2001 on behalf of 56,000 current and former Walmart and Sam's Club employees in Minnesota. In addition to the penalties, Walmart owes workers at least $6 million in back wages,” according to plaintiff's attorney Jon Parritz.

    Walmart said that it is reviewing the judgment and considering its options.

    KC's View:
    A potential $2 billion fine?

    I’m guessing we’re going to see a appeal by Walmart.

    Just a wild guess, but there it is.

    Published on: July 2, 2008

    The Los Angeles Times reports this morning that Tesco will open its newest Fresh & Easy Neighborhood Market today in Manhattan Beach, California, the 62nd store that the company has opened in the United States since late last year but the first to be unveiled since the company took a self-imposed three-month time-out to “tweak” the concept.

    The Times notes that “Fresh & Easy plans a rash of openings, starting with the store on Rosecrans Avenue. It will be the chain's 32nd store in the region; 70 more are planned for Southern California this year.”

    Tweaks aside, the new Manhattan Beach store may also pose the biggest challenge for Fresh & Easy, since it is located just across the parking lot from the format with which it has been most – and often unfavorably – compared: Trader Joe’s.

    “The rival stores are on the same street corner, separated only by an Office Depot, and that allows customers to check out both, make direct comparisons and -- with a little chutzpah -- even use the same shopping cart,” the Times writes.

    KC's View:
    I actually saw the proximity of these two stores last week while in Southern California to give a speech, and would note that there is another major player in the immediate vicinity – Bristol Farms, which has a terrific store just two-tenths of a mile west of Fresh & Easy and Trader Joe’s. (Bristol Farms is a much bigger and more ambitious offering, and so isn’t going after the same customer as the other two…though it does have a strong prepared foods business that could be impacted by the new store.)

    I would make a couple of points about the new Fresh & Easy. One is that from peering in the front window, it is hard to see any major adjustments in the format; however, this isn’t a completely fair observation since I couldn’t walk the floor and most of the shelves were still empty.

    The other is that whatever changes they may have made in the Fresh & Easy format, Tesco better bring its “A” game. The Trader Joe’s with which it is competing is a vibrant, vital and enormously popular store. When I wandered in, late afternoon last Friday, it was packed. (So was the Bristol Farms, by the way.) Nothing else than an exceptional offering will do if Fresh & Easy is going to be competitive.

    Another point about Fresh & Easy…when I visited an Anaheim unit last Wednesday at about 4:45 pm, it was pretty empty…not just of customers, but also of a lot of product. Walk up to the sandwich and sushi case, and there were just a couple of sad looking sandwiches and one container of sushi that certainly didn’t get my heart racing. And the prepared foods case wasn't exactly brimming with product, either.

    Now, maybe the argument here is that to make sure that all the product is fresh, when it’s gone, it’s gone.

    On the other hand, if someone were to walk into that store looking for sushi or a sandwich for dinner, they were going to be disappointed.

    In sort, it didn’t seem like the Anaheim store was bringing its “A” game. Fresh & Easy has to do better in Manhattan Beach, I think.

    Published on: July 2, 2008

    In the wake of recent E. coli and salmonella cases directly connected to the food chain, Consumers Union yesterday called on the US Congress “to mandate traceability for fruits and vegetables and for the Food and Drug Administration (FDA) to establish strong safety standards for produce.”

    According to the statement released by Consumers Union, it is calling “for more funding for the FDA to perform yearly inspections of processing plants, for the agency to develop operating plans for food processing facilities that insure safety, and for domestic and foreign food producers to be required to be certified as in compliance with these safety plans and with U.S. food safety standards. In addition, trace-back systems that include package identifiers allowing each product to be traced back to the field in which it originated are needed to further protect consumers from contaminated food. CU has also called for consolidation of the 15 agencies that oversee our food safety system.”

    “The FDA should not have to spend its modest resources trying to track down the source of food contamination for weeks and even months, while more consumers continue to get sick," said Jean Halloran, director of food policy initiatives at Consumers Union. “When foodborne illnesses do occur, it shouldn't be so hard to trace them back to the source. Congress should require modern electronic recordkeeping systems that go from farm to table. If Fed Ex can keep track of all its packages moving around the country, the produce industry should be able to do the same.”

    KC's View:
    Maybe the US government should ask FedEx founder Fred Smith to consult on the whole traceability question. In fact, maybe the government ought to pull together a panel of three or four top business executives – people on the level of Bill Gates, Steve Burd, and Smith – who could examine this issue and recommend a new system that wouldn’t just patch up an old and outmoded system that clearly doesn’t work.

    Because some new and clear-eyed thinking is needed here as we look for the greater transparency and traceability that consumers – and the food industry – deserve.

    Published on: July 2, 2008

    Reuters reports that Kroger has “expanded its voluntary recall of all ground beef products sold in Michigan and certain Ohio stores between May 21 and June 8 because the meat has been linked to recent outbreaks of E. coli bacteria,” and now is including “ground beef products in Styrofoam tray packages wrapped in clear cellophane or purchased from an in-store service counter from certain stores … The company is also recalling Private Selection Natural ground beef, which was available at all Kroger stores, sold in 16 ounce packages from the self-service meat case.”

    The move comes as the US Department of Agriculture informed Kroger that Nebraska Beef has been identified as the supplier of ground beef products linked to E. coli illnesses in Michigan and central and northern Ohio. The illnesses were reported between May 31 and June 8. The Centers for Disease Control and Prevention have not reported any additional illnesses related to this outbreak.

    Nebraska Beef Ltd. is recalling nearly 532,000 pounds of ground beef produced in the last two months because the meat has been linked to an outbreak of E. coli illnesses. Much of the beef that Nebraska Beef is recalling was sold to wholesalers or other processing companies, so it may be difficult for consumers to determine if they have any of the beef.

    KC's View:
    Just more heartwarming news for an already jittery consumer population.

    Published on: July 2, 2008

    The Washington Post this morning reports that the US Food and Drug Administration (FDA) and the Centers for Disease Control and prevention (CDC) are saying that “tomatoes still lead the list of potential culprits” for the salmonella outbreak that has sickened 869 people in 36 states in the past three months, “but they are expanding their probe to include other types of produce that are commonly served with tomatoes.” However, the Post writes, “Despite a bigger focus on other fruits and vegetables, FDA officials said they are not changing their warning that consumers avoid red plum, Roma and red round tomatoes not on the vine that were grown outside certain areas.”
    KC's View:
    Ditto on the previous “KC's View.”

    Published on: July 2, 2008

    The Center for Science in the Public Interest (CSPI) is charging that Kraft Foods’ Crystal Light Immunity Berry Pomegranate is making “bogus claims” about its ability to help consumers maintain a healthy immune system, and it is asking the US Food and Drug Administration (FDA) to stop Kraft from continuing the practice.

    According to Crain’s Chicago Business, CSPI also is questioning claims made by General Mills’ Green Giant vegetables, Dole’s tropical fruit and Welch’s grape juice.

    “This is nonsense, because there is no good evidence that adding a small amount of vitamins to a food product will have any positive impact on immunity,” David Schardt, a senior nutritionist for CSPI, tells Crain’s. “We want the companies to stop making such claims.”

    Kraft denies the charges and says that its claims are based on legitimate and proven science.

    The FDA is not commenting because, it says, it has not yet seen the official complaint.

    KC's View:

    Published on: July 2, 2008

    • Safeway announced yesterday that it has hired Diane M. Dietz - formerly of Procter & Gamble, where she is said to have rejuvenated the Crest brand – to be its new executive vice president and chief marketing officer.

    Her broad experience running one of the most valuable brand portfolios in the world and her demonstrated ability to drive sales at retail are well-suited for her responsibilities at Safeway," Safeway CEO Steven A. Burd said in a prepared statement.

    KC's View:
    The supermarket world needs more people who see the retailer as a distinct and marketable brand that goes beyond the brands that are sold in-store. Smart move by Safeway to hire someone from this world.

    Published on: July 2, 2008

    • Published reports say that Meijer, Stater Bros., Ukrop and United Supermarkets have all begun offering paperless coupons, using the EZ-PICTM that already is available at chains that include Bi-Lo, Big Y, Food City and Kings. EZ-PICTM is described as a “paperless coupon advertised on retail store shelves and redeemed electronically at check-out—eliminating the hassle of paper coupons.”

    • The Wall Street Journal this morning reports that Belgium-based InBev is pressing Anheuser-Busch to accept its $46.35 billion unsolicited bid for the company, which has been rejected as being inadequate, and is now saying that it will push for A-B’s shareholders to be allowed to have “a direct voice in the process.”

    According to the Journal, “This latest volley from InBev … places the ball back in Anheuser's court, and industry analysts say Chief Executive August Busch IV has two options: to convince shareholders that the plans it announced last week to cut costs and raise beer prices will boost earnings, or to sit down with InBev and negotiate.”

    Anheuser is perceived as being in a weak defensive position, and nobody seems to be betting on Busch’s ability to ability to pull this one out.

    • The Chicago Tribune reports that Campbell Soup has acquired Wolfgang Puck’s soup business from Country Gourmet Foods, giving the company what Denise Morrison, president of Campbell’s North American soup division, says is an additional way of expanding into healthy and premium foods. Terms of the deal were not disclosed.

    KC's View: