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    Published on: July 18, 2008

    The Great Atlantic & Pacific Tea Co. (A&P) this morning released its first quarter financial results, saying that Q1 sales were $2.9 billion versus $1.7 billion last year. Comparable store sales increased 3.2%, which excludes sales for Pathmark stores acquired in December 2007. Comparable store sales for Pathmark, measured during the same period, increased 3.1%.

    According to the statement released by the company, “For the first quarter, excluding non-operating items, adjusted income from operations and adjusted EBITDA were $16 million and $96 million, respectively, and include $22 million of integration synergies. This compares to an adjusted loss from operations of $8 million and adjusted EBITDA of $39 million in last year’s first quarter.”

    Eric Claus, president/CEO at A&P, said that “the first quarter of 2008 clearly demonstrates our continuing progression in operating improvement with the achievement of our fourth straight quarter of comparable store sales of over 3%. Further, Pathmark is already achieving positive results with comparable store sales climbing above 3% for the first time in many years. The Company is also well underway with the completion of the Pathmark integration, as many of the planned milestones have been achieved. As of the end of the first quarter, our annualized run-rate of synergies is approximately $100 million.

    “This quarter was particularly significant in that we announced an integral step in our strategic transformation to improve market share, sales and sustainable profitability – the conversion of the majority of SuperFresh stores in the Philadelphia market to the recently premiered Price Impact format under the Pathmark Sav-A-Center banner and a number of SuperFresh locations retaining the Fresh format with significant upgrades.”

    KC's View:
    I had the opportunity to spend about four hours with Eric Claus earlier this week, and we looked at a number of A&P’s stores – among them an A&P Fresh, a price-impact Food Basics, and a newly renovated Pathmark unit.

    Now, to be honest, I’ve written some far-from-complimentary things about A&P over the years…but I have to say that I was very impressed with what I saw during our store tours. I especially liked the Food Basics store, which strikes me as a sales machine…in the right locations, with this economy, these things can be an enormous source of profit for A&P.

    I also have found through a variety of conversations – both during the store tours and subsequently – that many of the folks at Pathmark are very happy with the way the integration of that chain by A&P has been going. They seem to feel that the management is being responsive and focused, and that there is less bureaucracy to cut through to get things done.

    Much of the credit for this goes to Claus, who pretty much everybody says has been a real game-changer at A&P. (Chairman Christian Haub gets a lot of credit for letting Claus do what needed to be done to turn A&P around, by the way.) And I’ll tell you something else – I liked him a lot. He is serious but not reverent, he seems both hard-nosed and compassionate, he isn’t interested in excuses, he is extremely focused on results, and he has a real authenticity when he walks through the stores talking to customers and the people on the ground.

    All of this is good news for A&P. The game is just beginning, of course, and much work remains to be done, and there will be no dearth of events and competitors that will challenge the company.

    But my sense is that the company is on the right road, headed in the right direction.

    Published on: July 18, 2008

    Remember the announcements last week by both the US Food and Drug Administration (FDA) and the Centers for Disease Control and Prevention (CDC) that they believed tomatoes were responsible for a salmonella outbreak that to this point has sickened at least 1,220 people nationally?

    Yesterday the FDA and CDC made a different announcement that, essentially, boiled down to two words:

    Never mind.

    David Acheson, the top food safety official at the FDA, said that no evidence of contamination has been found in the tomato supply chain, and so the government is changing its advice.

    "We are lifting the tomato warning and we believe that consumers can now enjoy all types of fresh tomatoes," Acheson said at a press conference.

    However, this may be small comfort to tomato growers, who reportedly saw their sales go down 46 percent to the tune of hundreds of millions of dollars.

    FDA and CDC are now focusing on jalapeño and serrano peppers as a possible source of the salmonella contamination.

    KC's View:
    Of course, this could have gone another way. The FDA and CDC could have done nothing because they didn’t know the source of the salmonella, the problem could have been tomatoes, and a lot more people could have gotten sick. Which wouldn’t have been good, either.

    I know you may be getting tired of hearing me say this, but the real problem is the lack of real traceability and transparency in the US food system. Until we fix that, these kinds of problems are going to recur, and shopper confidence is going to be shaken.

    Published on: July 18, 2008

    Demonstrating the increased link between food and health that seems to be emerging in US grocery stores, the Food Marketing Institute (FMI) annual “Supermarket Pharmacy Trends” report says that “nearly half of food retailers (48.1 percent) provide health seminars, disease management programs, health-focused shelf tags and store tours of healthy products in at least some of their stores,”

    In addition, according to the report, 38.5 percent of retailers are offering walk-in clinics, 32.7 percent are providing nutrition counseling, 30.8 percent have health-focused recipes, and 19.2 percent have 340B drug programs (reduced pricing for the uninsured), 19.2 percent.

    The “Trends” report also says that the median number of prescriptions dispensed per day in supermarkets was 126 in 2007, comparable to 125 in 2006 and up from 120 the previous two years, that median weekly prescription sales per store rose to $46,000, from $42,000 in 2006, that prescription sales as a percentage of total store sales held steady at 9.4 percent, compared with 9.5 in 2006, although above the 9.0 percent reported in 2005 and 6.0 percent in 1997, and the generic drug share of prescription volume increased to 63.5 percent, from 58.0 percent.

    KC's View:
    Even in economic hard times, I firmly believe that stores need to heighten the link between food and health, drawing a thick line between the two that allows consumers to make better, more informed decisions. That doesn’t mean that people always will choose the healthiest option…but it does mean that they will be making intelligent, contextual choices.

    This is, by the way, the whole premise of the work being done currently by the Coca-Cola Research Council, the most recent report of which is something that everybody should get their hands on, and use as a template in framing future programs.

    Published on: July 18, 2008

    New research from The Nielsen Company suggests that “more U.S. consumers are taking steps to compensate for rising gas prices … Nearly two-thirds (63 percent) of consumers are reducing their spending, up 18 points since June 2007 and up 14 points in the last six months alone.”

    In addition, Nielsen’s research “also finds that more consumers are combining shopping trips (78 percent), and more than half of consumers are now eating out less (52 percent) and staying home more often (51 percent) … Increased fuel prices are leading nearly one-third (32 percent) of consumers to use more coupons as a way to save money, up from 25 percent in December 2007. Seeking to get the bulk of their errands done while using less gas, 28 percent of consumer report doing more of their shopping at supercenters, where more items are in one store.”

    Other conclusions:

    • Nielsen’s research shows that more consumers (35 percent) are buying less expensive brands, up 12 points since December 2007.

    • “Although a small base, Nielsen’s research shows some consumers are shopping online and carpooling or using public transportation more often.”

    Todd Hale, senior vice president of consumer and shopper insights at Nielsen Homescan & Spectra, fames the business challenge this way: “Retailers can take a creative approach to promotions, pricing and partnerships, such as aligning themselves with gas retailers to reward loyal customers with less expensive gas, while manufacturers can minimize the impact of high gas prices by targeting products and advertising around at-home or at-work meals and at-home entertaining.”

    KC's View:
    One thing seems clear – that retailers and manufacturers that do not integrate these new realities into their marketing and product development plans are not just flirting with irrelevance, but embracing it.

    And let’s be clear. While the shifts may occur in incremental fashion, they signify a broader transformation that is taking place in the American economy, something that is permanent, not temporary or illusory.

    Published on: July 18, 2008

    The Dallas News reports that retail behemoth Walmart and computer giant Dell are teaming up to test an electronics repair and installation service in Dallas.

    According to the story, “Walmart is calling it a small pilot, but the companies may be trying to create their own Geek Squad, a successful service offered by Best Buy Inc. Branded as Solutions Stations, the counters are being installed in Wal-Mart Supercenters on Redbud Boulevard in McKinney; on U.S. Highway 287 in Arlington and FM423 in Frisco. A dozen more area stores will be added to the test soon,” the News reports.

    “The stations will be staffed by Dell employees,” the News says. “Some of the repair and installation services, such as computer networking and HDTV wall mounting, will be performed in customers' homes. The new service will charge $29 to install memory in a PC in the store and $99 at home. To install a wall-mounted TV, connect cables and integrate three video components, it is charging $289.”

    KC's View:
    It is a personal prejudice, but I think Walmart might have been better off teaming with Apple, which has done far more to advance the cause of computer retailing than Dell. But I still think this is a smart test for the two companies, and will be interested to see how it plays out.

    Published on: July 18, 2008

    The Wall Street Journal reports that Starbucks has identified the 600 US stores that it plans to close as it restructures the company. Forty-four states will be affected, with 88 units to be closed in California, 59 in Florida and 57 in Texas.

    According to the Journal story, “The list reads like a cross section of the U.S., with closures planned inside shopping malls, near beach resorts, in college towns and off highways. Las Vegas will lose the most stores of any U.S. city, with 13 expected to close. It is followed by San Diego, with 10; Dallas and Baton Rouge, La., each with nine; and Houston, with eight.

    “Starbucks's hometown of Seattle is scheduled to lose seven cafes.

    “Most of the nation's major cities, including New York, Los Angeles, Chicago and Miami, will lose at least one Starbucks. Although there are economically struggling towns on the list, such as Flint, Mich., there are also affluent suburbs, including Walnut Creek, Calif., and Newton, Mass.

    “The closings will thin out some areas that had a high density of Starbucks. San Francisco's Metreon entertainment complex, located at an intersection the company had determined could support three Starbucks, will lose one of those locations. In towns with fewer Starbucks, city officials have said they will try to persuade the company to reconsider closing their location, and customers have said in Internet postings that they are circulating petitions to save their location.”

    KC's View:
    Not to make this all about me, but the one down the street from my home and office is remaing open. So that sound you heard earlier this morning was me breathing normally again.

    Published on: July 18, 2008

    • The New York Times reports this morning that “catfish farmers across the South, unable to cope with the soaring cost of corn and soybean feed, are draining their ponds … Perhaps nowhere has the rise in crop prices caused more convulsions than in the Mississippi Delta, the hub of the nation’s catfish industry. This is a hard-luck, poverty-plagued region, and raising catfish in artificial ponds was one of the few mainstays.

    “Then the economics went awry. Feed is now more than half the total cost of raising catfish, compared with a third of the cost of beef and pork production, according to a Mississippi State analysis. That makes catfish more vulnerable. But if the commodities continue to rocket up — and some analysts believe they will — other industries will fall victim as well.”

    • The Boston Globe has a story saying that a small bug called Asian citrus psyllid has hurt citrus production in China, Brazil and Florida, and that border agents are concerned that it could find its way from Mexico to California. The problem with the Asian citrus psyllid, it seems, is that it doesn’t just affect the fruit but entire groves – and could wipe out California’s entire $1.3 billion citrus industry.

    • In Advertising Age Starbucks’ Senior VP-Marketing Terry Davenport answers the charge that the company may be feeling desperate as it puts in place a series of promotions and discounts designed to boost trial and traffic: “We're trying some things on value, but again it's more trying to demonstrate to our customers that we're listening to what's going on in their lives. With the price of gas and all of the other economic pressure, for us to just go radio silent on that whole part of their lives wouldn't be a good representation of the brand.”

    KC's View:

    Published on: July 18, 2008

    • Safeway yesterday said that its second quarter net income was $243.3 million, up seven percent from $218.2 million during the same period a year ago. Q2 sales were up three percent to $10.12 billion, on same-store sales that were off 0.3 percent.

    The company's stock plunged 11 percent during the day, or $3.32, to $26.69.

    KC's View:
    Which strikes me as an enormous overreaction by Wall Street…but that’s no surprise.

    Published on: July 18, 2008

    I made a little joke yesterday about profit-strapped airlines weighing passengers, not just bags, and then charging overweight people more money…which led MNB user Anne Henderson to write:

    Weighing airline passengers already happens… in remote parts of the world, at least. I went to Vanuatu (halfway between Fiji & Australia... they filmed a Survivor there) in December 2006. To board my flight to another island, I gave them my bag to weigh and then had to hop on the same scale to register my own weight. Thank God it was in kilos and I felt too lazy to do the math. I weighed a bit more than the chickens that made up my fellow passenger’s carry-on luggage.

    Go figure.

    Another MNB user wrote:

    What a great tie-in opportunity for Weight Watchers: With every X pounds you lose, get Y dollars off on United Airlines flights.

    MNB user Ron Pizur wrote:

    Your NewsBeat Radio piece today actually made total sense. At first when you mentioned that if the airlines take out the video equipment it removes 500lbs and therefore uses less fuel, I thought that won't work because I'll just take my portable DVD player and watch my own movie. If everyone did that then the 500lbs are still on the plane and we're back to square one. But then you had the idea of charging by weight and it made total sense.

    Why shouldn't the airlines start to think that they are in the shipping
    business? We ship envelopes and packages and pay by weight so why not price an airline ticket by weight of cargo (a passenger and his/her baggage) being shipped? I guess it would be hard to compare ticket prices and even harder to buy the ticket on-line, as at that time the airline would not know how much weight they would be carrying on the day of the flight. But maybe this could be solved by charging a basic ticket price that is paid at time of purchase and then topped off when you check in.

    I wouldn't find this offensive, it is just being realistic. If you want to ship more weight across the country then you should expect to pay for it.

    Just remember, when the airlines announce this new initiative…you read it here first.

    One more comment on all the baseball commentary we’ve been doing, this one from MNB user Bill Ziegler:

    Forget about home-field advantage, let's make the American League play real baseball, where men both field and hit! Enough with the t-ball mentality of the "designated hitter". What travesty! And take no truck with the argument that "nobody wants to see a pitcher batting .095 take an at bat." The logical extension of that gem is football; different teams playing offense and defense. Sounds silly, doesn't it.

    I like that saying for a t-shirt:

    Real men don't play designated hitter.

    And finally, responding to yesterday’s story about Food Lion’s private label wines winning an international wine competition held in San Francisco, one MNB user wrote:

    How many people compose the prestigious panel of nationally recognized wine experts and how long did it take to taste 1,150 plus bottles of wine? What a profession!

    Wrong questions.

    The better question would be this one:

    Where do we sign up?

    Though this gives me an idea…for an MorningNewsBeat Wine & Beer Festival…I think it is a natural…all we need is a location an a couple of sponsors, and we’ll get this thing rolling…

    Any takers?

    KC's View:

    Published on: July 18, 2008

    I want to be fuel efficient and free of my addiction to foreign oil. Really I do.

    But I’m not so sure I’m willing to go as far as the Prince of Wales or the US Democratic Party.

    Prince Charles reportedly has begun running his 38-year-old Aston Martin on bioethanol made entirely from wine.

    And the official vehicles at the Democratic Convention in Denver this August reportedly will be running on fuel made from beer supplied by MolsonCoors.

    Kinda makes me want to cry…

    Call it a victory for modern journalism.

    The Wall Street Journal the other day did a 1,200-word piece saying that there was yet another victim of economic hard times.

    Lunch. Not that people have stopped eating lunch altogether – though there may be more than a few former employees of stock brokerages, automakers and airlines that may have to make that life choice.

    No, this story was about the fact that people are making different lunchtime choices, either picking restaurants or fast food that are less pricey, or brown-bagging it from home. In part, they are doing so because of rising prices that are turning expensive lunches into less attractive choices, and in part it is because people are being more careful with their money; this week’s valued employee could be filing for unemployment next week.

    Seems to me that if you are in the food marketing business – especially the supermarket industry – this can be an opportunity. Not just to sell more pre-assembled bagged lunches, though that certainly is a possibility. No, I’m thinking bigger than that.

    Wouldn’t it make sense for retailers to start talking to local businesses about how they can help solve this lunchtime dilemma? In other words, not waiting for customers to find them, but actually going out, hunting and gathering new customers?

    The Journal piece notes that “in some cases, employers who didn't offer much in the way of lunch fare are stepping in to alleviate rising food costs.” This is partly out of compassion, partly because they see it as a way of strengthening the sense of teamwork and building productivity. Either way, any food retailer with a healthy ambition to build sales ought to take advantage of the moment and see if it can use this behavior shift to move some lunch dollars into its cash registers.

    By the way, I practice what I preach here. When I’m not traveling, I eat lunch at home every day. Sometimes it is leftovers, sometimes just a yogurt, and other times it is cut fruit or a simple sandwich or soup. But I can't even begin to imagine how much money I’ve saved over the past decade or so.

    There’s been a lot of discussion about customer service and employee quality the last week or so, and I have to tell you that this is a concept with which I have become extremely familiar over the past couple of weeks. We live in a 60-year-old house with plumbing that may be about that old…and at the moment we have an upstairs bathroom that may be about to collapse into the downstairs bathroom. (I keep waiting to be upstairs taking care of business and suddenly find myself downstairs taking care of business…) Which means that both have to be redone, which in turn means that we’ve been spending a lot of time picking out tile, toilets and sinks. (This was most of my vacation last week.)

    But what has really made the process frustrating is the inability to get contractors to return a simple phone call; apparently they haven't heard that we are heading into a recession. And beyond that, I can’t tell you how many stores we went into where the people who worked there apparently didn’t care whether or not they made a sale. (Also not reading the papers, I’d guess.)

    What this does, however, is really make you appreciate the stores where people are genuinely interested and helpful, who make the process go quickly and smoothly. Before we met such people, it seemed like this was going to be one of the hardest things we’d done in 25 years of marriage. (Which gives you an idea of how easy we’ve had it.) But once we found the right people and the right stores, it was actually a pleasure to take care of business. It makes me think about the conventional retailing experience, and how unusual it is to find pleasant, authentically helpful people.

    Now all we have to do is live through construction…

    (Don't think of the following statement as political commentary. Think of it as a reflection on the state of satire.)

    I thought the Obama cover on The New Yorker this week was pretty funny. And I think that the people who found it offensive need to relax a bit and learn to laugh more.

    I do think it is a shame that so many people could look at the cover and think that The New Yorker actually was trying to say that Obama is a Muslim terrorist. I think it says more about them than it does about the magazine.

    But…what has really interested me is the fact that so many pundits have suggested that because so many people didn’t “get” the joke, the satire was wrong-headed and shouldn’t have been done.

    Which is nonsense. Sometimes people don't get the joke. Which doesn’t mean the joke isn’t funny, or shouldn't have been told. It just means that it didn’t connect with the audience. (I have some experience with humor that some people don't find funny. Happens here frequently. I keep going however, figuring that they’ll get the next one…)

    Humorists and satirists are supposed to push the envelope. If they don't, they might as well get a job scooping vanilla ice cream.

    Good news from the researchers at the Medical University of South Carolina, who say that their studies show that now matter how far into middle age you happen to be, it isn’t too late to have a significant impact on your health and longevity – just by adopting smarter eating habits and getting more exercise.

    And the facts seem to be clear. Get more exercise – at least 30 minutes a day, five days a week – and eat more fresh fruit and vegetables, whole grains, fish and chicken, and it is extremely likely that you can help fight off the likelihood of heart disease and other maladies.

    And it almost doesn’t matter how old you are. It’s never too late.

    The other good news on the personal health front his week came from Japan, where a study revealed that the more physically active you are, the less likely it is that you’ll get cancer. If you are sedentary…well, the news isn’t so good.

    During a month in which it seemed that a number of well-known people roughly my age were dying either of heart problems or cancer, I have to say that these two studies are…well, heartening.

    Which is why when I’m done here, I’m going for a run.

    Just finished reading Robert Crais’ new Elvis Cole mystery, “Chasing Darkness,” and it proves yet again that the author is a worthy successor to the Raymond Chandler tradition – Cole is a tough private eye for the 21st century (though maybe I just like him because he wanders around in Hawaiian shirts and jeans and drives an aging convertible), and he is ably assisted by Joe Pike (think “Hawk” from the Spenser novels) as he attempts to solve an old murder mystery that he may have misjudged years before, setting the wrong man free. In my personal rankings of LA crime novelists, Crais is right up there – not as good as Michael Connelly, author of the Harry Bosch novels, but very good.

    I have a wonderful beer and four wines to recommend to you this week…

    The red wines…

    • 2006 Zero Manipulation Meritage from Sonoma’s Peterson Winery, great with a nice spicy pizza.
    • 2003 Mosaic Meritage, also from Sonoma, perfect with everything from steak to hamburgers.

    The white wines…

    • 2006 Conundrum White Table Wine, still the perfect white wine for almost any occasion.
    • 2006 Girard Sauvignon Blanc, from Napa, which is terrific on a hot summer night.

    And the beer…Toasted Lager, from the Blue Point Brewing Company of Patchogue, Long Island – an excellent and rich beer that is very, very good.

    Only saw one movie during my vacation – “Hancock,” which I didn’t love. I planned to see more, but then the Mets went on that terrific winning streak and it was just too compelling to miss. (It went to 10 straight wins last night, by the way.) I wish I had some flicks to recommend, but I don't.

    But I’m seeing “The Dark Knight” in just a few hours. So that should change.

    Good news for summer television – “Burn Notice” is back…and we get treated to more entertaining capers by “burned” spy Michael Westen, played to the hilt by Jeffrey Donovan. Great stuff, as always.

    That’s it for this week. Have a great weekend, stay cool, and I’ll see you Monday.

    KC's View: