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    Published on: July 30, 2008

    The Court of Appeals for the D.C. Circuit ruled yesterday that the lower US District Court of Appeals in Washington, DC, made a mistake when it allowed the $565 million acquisition of Wild Oats by Whole Foods to go ahead without issuing a preliminary injunction that would have halted the process pending a hearing.

    The case now goes back to the US District Court of Appeals, which is charged with reconsidering the antitrust implications deal – even though the purchase of Wild Oats was completed a year ago, and Whole Foods has closed 12 stores and sold off 35 others, while rebranding many Wild Oats stores as Whole Foods.

    The Federal Trade Commission (FTC), in challenging the deal, has consistently maintained that it was against the best interests of consumers and would result in a near-natural/organic monopoly that would inevitably raise prices. The FTC has defined Whole Foods and Wild Oats as being the dominant players in the small natural/organic segment.

    “We are pleased by today's decision of the appeals court in the Whole Foods matter and are looking forward to future proceedings before the district court, leading to a full trial,'' Jeffrey Schmidt, director of the FTC's Bureau of Competition, said in a statement.

    The opposing argument, made by both Whole Foods and Wild Oats, is that they are small players in a much bigger supermarket segment, and that organic/natural food sales are expanding to such an extent in so many formats that any kind of monopoly is impossible. Whole Foods said that it will consider an appeal if the new court decision does not go its way. “Meanwhile,” it said, “it’s business as usual.”

    In its coverage of the matter, Bloomberg reports that while analysts seem to feel that the courts will not try to undo a year-old deal – likening it to unscrambling an egg – it is possible that the courts could try to force Whole Foods to divest some stores.

    KC's View:
    I heard about this ruling when I got off a plane yesterday afternoon, when a newspaper reporter called me looking for a reaction. I almost dropped my iPhone.

    From the beginning, I have felt that the FTC was completely wrong in how it assessed this deal and the role of Whole Foods and Wild Oats in the broader supermarket industry. The FTC clearly doesn’t understand that everybody and his brother has started selling natural and organic foods. The guys at the FTC probably don't even shop. (I’ve always believed that the judge who decided against the preliminary injunction does his own shopping, and therefore knows exactly what he’s talking about.)

    Furthermore, the FTC has always alleged that the deal would cause the cost of natural and organic foods to go up, and therefore hurt consumers. While indeed food prices have gone up, the news reports that I’ve been reading have said that all food prices have gone up. And Whole Foods’ reputation for high prices – earned long before it tried to buy Wild Oats – actually has hurt its sales, and the company has been trying to promote its deals as a way of attracting customers. (Of course, it chose a slogan already being used by Stop & Shop, and then it had to change course again.) And Whole Foods’ stock price is down something like 45 percent.

    In other words, it isn’t like the deal to acquire Wild Oats turned Whole Foods into a impervious and unavoidable organic juggernaut. Far from it.

    I am reminded of something George Bernard Shaw once said: “Better never than late.”

    It’d be nice if the guys at the FTC spent their time reading a little Shaw, rather than engaging in a series of legal maneuvers that are ill-advised and chaos-inducing.

    Last time I checked, the federal government was forecasting a deficit of more than $482 billion. I know that the amount of money being spent to prosecute this case is a mere drop in the bucket compared to that number, but hell, you’ve got to start somewhere. Cut off the purse strings to the guys at the FTC who have taken an irrational view of the Whole Foods-Wild Oats deal…especially because these are the same dolts who decided not to challenge Rupert Murdoch’s purchase of the Wall Street Journal, which strikes me as a lot more harmful to competition and the public good than Whole Foods buying Wild Oats.

    Published on: July 30, 2008

    The US Department of Agriculture (USDA) has issued what it calls an “interim final rule” for Country of Origin Labeling (COOL) that mandates labeling for beef, chicken, goat meat, lamb, produce, peanuts, pecans, ginseng and macadamia nuts, effective September 30, 2008.

    However, these items are excluded from mandatory COOL if they are an ingredient in a processed product. And, USDA reduced recordkeeping retention requirements for suppliers and centrally-located retail records to one year and will not require that retail stores maintain the records.

    KC's View:
    I don't know why, but here is the only thing I want to know about this story…

    What is the difference between an “interim final rule” and a “final interim rule”?

    Published on: July 30, 2008

    The Australian reports that Starbucks has decided to close 61 of the 84 stores that its has been operating in Australia, with reports saying that the company has lost well over $100 million since it began opening stores there. The 681 people who will lose their jobs are not getting a lot of notice – the closures are slated to take place this weekend.

    The 23 surviving stores are said to be in the east coast cities of Melbourne, Sydney and Brisbane.

    The company said yesterday that the moves were part of a broad geographic re-examination of its business that resulted in the elimination of money-losing or under-performing operations, and reflected specific “business challenges unique in the Australian market.” Some analysts said that Australian consumers never developed a taste for the Starbucks brand of coffee, and that prospects were dim that they ever would.

    Meanwhile, even as Starbucks was closing more than 72 percent of its Australian locations, the company announced that it will eliminate 1,000 non-store positions and realign its top management. Falling into the latter category – James Alling, who is leaving the company and his post as president of Starbucks Coffee International. Alling will be replaced by COO Martin Coles, who used to run international for the company.

    CEO Howard Schultz said that the executive changes were designed to give him a “direct line of sight” into the company’s various businesses and functions. “As we have continued to execute our strategy,” he said in a statement, “it became increasingly more evident that a razor-sharp, unrelenting focus on our business is vital to our success. As CEO, I understand this is a non-negotiable requirement.”

    KC's View:
    Starbucks’ quarterly results are scheduled to be released later today…and I think it is a pretty good bet that they are not going to be good.

    But what would concern me even more if I were a shareholder in the company, or an employee there, is the perception that Starbucks is behaving tactically rather than strategically, is being reactive instead of proactive, and seems to be making moves out of desperation as Schultz looks to recapture the magic of the company’s early growth days. He may want a “direct line of sight,” but this begins to sound ever so slightly like micro-management. Which probably isn’t good.

    Here’s a question that occurs to me: Why not just close all the Australian stores? After all, if you’re going to deal with the agony of defeat, why not just make the big move and be done with it? Is it really worth it for Starbucks to keep 23 stores open there, or would it make more sense to just cut its losses completely and move on?

    It seems the same sort of approach that had the company announcing that it was getting back to its coffee roots…and then announce a line of smoothies. Announce that it as closing 600 stores, and then let the news leak out that it would be replacing Dunkin’ Donuts in more than a hundred Stop & Shop stores. Or say (precipitously, in my mind) that it was eliminating breakfast sandwiches, and then change its mind because the sandwiches are being reformulated to be less aromatic (which I hope doesn’t translate to being less tasty).

    Here’s the thing. I continue to root for Starbucks. Love the coffee. Love the shops. Venti skim lattes are an important part of my diet.

    But few of the company’s recent moves seem like they are part of a broad strategic plan where the final picture is being clearly envisioned by management.

    I’d like to be proven wrong.

    Published on: July 30, 2008

    The Seattle Times reports that the City Council there has voted 6-1 to approve a 20-cent charge on all disposable paper and plastic shopping bags that are provided by supermarkets, drug stores and convenience stores.

    According to the Times, “City officials estimate Seattle citizens use 360 million paper or plastic bags each year. By a vote of 7-0, the council also approved a two-part ban on certain Styrofoam containers. The bag fee and a ban on foam containers for food from takeout restaurants will take effect in January. A ban on foam trays used for raw meat and seafood at grocery stores is set to take effect in July 2010.”
    KC's View:
    It would be better if the nation’s stores and consumers moved away from disposable bags on their own and adopted, en masse, the practice of using non-disposable bags that won’t wreak havoc on the environment. Better, but unlikely. So while I’d rather these things evolve without legislation, I’m willing to accept that such regulations may be necessary…and think that the industry needs to accept that this trend has momentum and cannot be stopped.

    Published on: July 30, 2008

    The Wall Street Journal reports that the San Francisco Board of Supervisors has voted 8-3 to approve a measure crafted by Mayor Gavin Newsom to bar pharmacies, chain drug stores and any retailer that has either a pharmacy or an in-store health clinic from selling cigarettes or other tobacco products.

    The argument is that stores positioning themselves as carrying health care solutions ought not be in the business of selling products proven to be both addictive and deadly.

    According to the story, “Supporters of the sales bans say they are trying to reduce tobacco-related illnesses by limiting access to cigarettes, which have established health hazards. By ratcheting up the social unacceptability of cigarettes, supporters believe they can deter young people from starting tobacco habits.

    “Opponents portray the efforts as selective legislation that will have little impact on smoking rates, while making retailers choose between selling what customers want and offering affordable health care.”

    "The only discussion (before the vote) was why the proposal wasn't broader [to] include a ban at supermarkets and (bulk-sale) warehouses, too," said Mitch Katz, director of San Francisco's Public Health Department.

    San Francisco law requires that the Board of Supervisors approve it one more time before it becomes law; if that vote takes place, as expected, the bill will become law on October 1.

    Similar measures have not been successful in places like Rhode Island, New Hampshire, Tennessee, Illinois and New York, according to the Journal, though the sense seems to be that passage of a ban in San Francisco could give new traction to efforts elsewhere in the country.

    The move also comes as selected retailers such as Wegmans decided to stop selling cigarettes because they felt it was at odds with their broader brand message about health and wellness.

    KC's View:
    As noted in this space in the past, I have no objectivity when it comes to tobacco-related stories. I agree with the city of San Francisco that there is a serious disconnect between the selling of health and wellness products and the peddling of tobacco … though I tend to think it ought to be up to retailers to make that determination.

    That said, anything that can make it harder for people – especially kids - to buy cigarettes works for me.

    Published on: July 30, 2008

    Crain’s Chicago Business reports that the Windy City “will ban vendors from using plastic shopping bags at Chicago-run farmers markets starting next year in an effort to reduce landfill waste. Vendors at the city’s 24 farmers markets will be told later this week that they can’t use plastic bags if they want to participate in next year’s selling season … The city is encouraging shoppers to bring along their own bags and will ask vendors to carry biodegradable bags made from corn.”
    KC's View:
    I could be wrong about this, but I’d have to guess that the plastic shopping bags distributed by Chicago’s farmers market vendors has to be a drop in the bucket compared to all the disposable bags handed out by the city’s supermarkets, drug stores and convenience stores.

    I’m not advocating broader legislation – as I’ve said before, I’d prefer for retailers and shoppers to get to this point on their own (though I’d also like them to hurry up). But if you’re going to regulate bag usage, Chicago ought to go after businesses where it would make a difference. Going after farmers market vendors seems sort of wimpy…as opposed to the more muscular bans put into effect by San Francisco, say, or the tax just voted on by Seattle.

    Published on: July 30, 2008

    The New York Times reports that the US Federal Trade Commission (FTC) issued a report yesterday “detailing the pervasiveness of food marketing to children,” saying that “food companies had spent $1.6 billion to market their products to children and teenagers in 2006,” expenditures that contributed to the nation’s burgeoning childhood obesity rate.

    However, an industry coalition called the Children’s Food and Beverage Advertising Initiative responded by issuing its own report showing that self-regulation rather than legislation was the best way to battle childhood obesity. While the FTC credited the industry group for making progress, the Times notes that one government concern is “the lack of industry wide definitions on what advertising to children entailed and on what ‘better’ food meant.”

    According to the Wall Street Journal story on the subject, “While the commission noted that most major food marketers have made significant strides to create healthier products and promote good nutrition, it said the industry still has a long way to go. Beverage and fast-food marketers in particular will likely face some of the harshest scrutiny going forward, as the two sectors represent some of the biggest ad spenders targeting kids, analysts say.

    “In a separate statement, FTC Commissioner Jon Leibowitz said there needs to be a better way of figuring out which shows children are watching. While much of the outcry until now has been directed at shows on youth-focused networks such as Nickelodeon, he says other shows also have significant youth viewership’s,” such as “American Idol.”
    KC's View:

    Published on: July 30, 2008

    Advertising Age reports that Walmart is readying what it is describing as the “second generation” of its in-store digital TV and signage network.

    According to the Ad Age, “Wal-Mart is preparing to unveil more details of its next-generation network, dubbed the Wal-Mart Smart Network, to marketers and advertising and media agencies at dual presentations in New York and Northwest Arkansas on Sept. 3, said a sales executive for one of its partners in the project, the analytics and technology firm DS-IQ. He said he was otherwise sworn to secrecy on the plans.

    “Another executive recently briefed on plans for the network said the concept involves moving TV screens–or digital signage–much closer to eye level, incorporating them into product displays, and creating interactive ‘virtual assistants’ from which shoppers can get product information or refine choices in key categories such as health and beauty aids. The idea resembles a project Wal-Mart began testing earlier this year in which it adapted Procter & Gamble Co.'s Olay for You online recommendation engine for use in stores.”

    KC's View:
    It is remarkable that Walmart, even as it enjoys the fact that a toughening economy has revived its fortunes, still manages to find ways to innovate, to keep raising the bar in ways that jibe with its broader brand equity.

    One other point. I’ve always been a little skeptical about in-store TV networks because it seems to me that so many of them look alike, are produced by the same content providers, and quite frankly become just more noise and clutter that do not improve or enhance the shopping experience. That’s something that Walmart seems to have avoided…the company seems to realize that to be on the leading edge in this area, it actually has to lead.

    Published on: July 30, 2008

    BrandWeek reports on the annual Gallup Consumption Habits survey, which reveals that more than four out of 10 US drinkers (42 percent) say that beer is their beverage of choice, up from 40 percent a year ago, with 31 percent saying wine is their favorite alcoholic drink. However, while it has become conventional wisdom that wine is gaining popularity in the US, the Gallup poll says the opposite – that wine is actually down, with 39 percent saying it was their favorite alcoholic drink in 2005 and 34 percent saying so in 2007.

    Hard spirits were said to be the favorite of 23 percent of respondents, up one percentage point from a year ago.

    However, the Gallup poll also points out that beer’s numbers are down from a decade ago, when it was described as preferred by almost 50 percent of respondents.

    KC's View:

    Published on: July 30, 2008

    • The Sacramento Bee reports that Corti Brothers, described as a “landmark” gourmet grocer serving that city, is being forced out of the location it has occupied since the early seventies. According to the story, the store is being replaced by “Good Eats, a gourmet bistro-market planned by a partnership that includes Michael Teel, former chief executive of West Sacramento-based Raley's Stores.”

    Corti Brothers has been in business at various locations since 1947; at one point it had four stores, but in recent years only had the single location.

    Company president Darrell Corti tells the Bee that he is seeking a new location.

    • The Chicago Tribune reports that Supervalu-owned Jewel-Osco plans to introduce a new program called Prescription Plus that will reward pharmacy customers with a 10 percent discount on grocery purchases for every five prescriptions filled in its stores.

    • The Conference Board's July index of consumer confidence rose slightly to 51.9 from 51 in June, leading some analysts to suggests that concerns about the economy may be easing. A bit.

    • The Dayton Business Journal reports that Dorothy Lane Markets “is withdrawing raw ground beef that may be contaminated with E. coli and is warning customers to check their freezers.”

    The contaminated meat was processed in the same facility that has been implicated in the broad beef recall that has affected Kroger. The sJournal writes that “Dorothy Lane's ground beef supplier, Golden, Colo.-based Coleman Natural Meats, has used the processing plant on a temporary basis.”

    • Delhaize-owned Food Lion said yesterday that it has begun a mobile marketing tour to support its launch of the Guiding Stars nutritional labeling program.

    “Along with the interactive 18-wheel trailer retrofitted in the Guiding Stars’ signature lime green color, the entire vehicle and crew are part of an exhibit designed to engage potential shoppers and community members in making better food choices for proper nutrition and wellness,” the company said, noting that “the exhibit’s exterior activity features the ‘Star Sprouts Kid Zone’ with kid-friendly activities to help educate and entertain children and their families. With nutritious snacks to a coloring station and temporary tattoos for the younger family members, the kid zone also provides a cool resting place for parents.”

    Guiding Stars evaluates every product in the store and then awards one, two or three stars to products that meet certain nutritional criteria for being good for you, better for you and best for you.

    • Restaurant chain Bennigan’s will close its approximately 200 company-owned units as it files for bankruptcy. Franchise units will remain open for the time being.

    Mervyn’s, the 176-store mid-tier department store chain, also has filed for bankruptcy, though it remains in business while it reorganizes.

    • The New York Times reports that Dunkin’ Donuts will introduce a new line of healthier items called DDSmart, which will “include all current and new items that either have 25 percent few calories, sugar, fat or sodium than comparable products or contain ingredients that are ‘nutritionally beneficial,’ the company said. Current products that will join the new sandwiches on the menu include a multigrain bagel and a reduced-fat blueberry muffin.”

    • Published reports say that Kroger has been hit with a second lawsuit related to an E. coli outbreak connected to ground beef sold by the company.

    • The Atlanta Journal-Constitution reports that the Coca-Cola Co. has for months “been working quietly to perfect prototype beverages using Chinese herbal cures,” a project that some say could be as important to the company’s future as the original Coke formula was to its beginnings 122 years ago. One analyst says that Coke is looking to create “the new product for the new millennium.”

    KC's View:

    Published on: July 30, 2008

    • Campbell Soup announced that its CFO, Robert A. Schiffner, plans to retire from his position on Aug. 3 and will retire from the company in January 2009.

    The Wall Street Journal reports that Anthony P. DiSilvestro, the company's principal accounting officer, will be interim CFO until a search is completed for a new CFO.

    • Andrew Higginson, Tesco’s finance director, reportedly will become the company’s chief executive of retail services, a newly created position designed to oversee, among other things, the company’s personal finance business.

    KC's View:

    Published on: July 30, 2008

    Responding to yesterday’s piece about Aldi’s success in the US, MNB user Lisa Malmarowski wrote:

    I confess, I hadn't been in an Aldi store for years...not since, in my opinion, they were grubby with an uninteresting mix of items. My mom, who's 86, loves Aldi's and asked me to take her recently. I was pleasantly surprised. After feeling a bit like an idiot not being able to figure out how to get my quarter to unlock a cart, it was smooth sailing after that. The store was super clean, very organized and offered a good mix of items at really great prices. I have to say I liked it better than a Trader Joe's - it seemed more 'honest', in that I always feel like Trader Joe's is pandering to natural and organic food interests without the authenticity. At least at Aldi's, I felt like I knew the 'no name' stuff was what it was. It doesn't mean I'd shop at an Aldi's (or Trader Joe's) but I'm now keenly aware of the competitive advantage they bring to a market especially in lean economic times. We can all learn something from them.

    Another MNB user had some thoughts about the value-oriented Sunflower Markets:

    KC, I've been shopping Sunflower Market for about six years now in Colorado. I'm lucky because they are in expansion mode, and one opened about a year ago fairly close to me. Closer than Wild Oats or Whole Paycheck. Another one is opening on a close by bus line, a boon to those who are driving less, if at all. It happens to be next to a mall, and while there is a Super Target on the opposite side, the under-interior-finish Sunflower building already says " friendly food."

    Much of the produce is from Mexico, but with distribution starting in Arizona, that can be more "local" than California's Central Valley.

    Sunflower mixes conventional and organic produce. Good bulk bins, a bit of a warehouse feel, despite being the size of an average late 60s grocer.

    Bad layout. I feel like it is three or four distinct stores, and some aisles cut off traffic in odd ways.

    Some brainpower on a complete store circuit would be appreciated.

    Needs to court local producers, such as Denver tofu in my area. If King Soopers (Kroger) can do that, I'm sure Sunflower could.

    I'm waiting for Sunflower to make its real identity move. Why should we go there compared to the farmer's market, in season? The price is not always "Walmart" level.

    I'm truly comparing to King Soopers, but Sunflower can be heftier, even for non-organics.

    Secret scores: Sunflower's in store hummus, Amy's burritos.

    So what does Sunflower need to be?

    Whole Paycheck for the rest of us. We ARE foodies, and we do read labels. We are vegetarians and short on time. We are parents and retirees. We are looking to support a smaller company, or avoid a larger one. It's better to have a positive motivator.

    Got the following email from an MNB user:

    Traceability, transparency, government agencies that serve the public are all great things! Challenging the private and public sectors to improve is a US tradition that has made us great. Are traceability and transparency important? Without question! Does the industry need to lead here? Yes! And the companies that do, in my opinion, will have a competitive advantage until such traceability and transparency become two of the "costs of entry" into the marketplace. Then the advantage, if any, will be for those who have efficiencies built into their systems so that they do it better.

    When it comes to food borne illness investigation, an incredible number of variables in addition to tracing back product to its source must be sorted out. The problem of food borne illness investigation is complicated.

    The CDC has a world-class system, PulseNet, for pinpointing organisms that cause illness to the molecular level, and linking illnesses caused by the same organisms in different locations. The system links state and local agencies with federal agencies (FDA and USDA), and serves these agencies in monitoring food borne illness, and
    identifying the bacterial or viral agent that causes illness with a high degree of specificity and accuracy.

    Food borne illness symptoms can occur, depending on the type of illness and the individual, hours to days or even weeks after the causative agent is consumed. The definitive tests to determine the agent then can take several more days for a conclusive result. Then, the illness and agent is reported. The CDC gathers reports from
    around the nation, looking for "outbreaks," or multiple "cases" from the same causative agent. Today this all happens with lightening speed compared to just 10 years ago! These steps can happen somewhat faster in individual states, but for a multi-state outbreak all this data collection takes days.

    Once the outbreak is recognized, the investigation begins. The investigation requires those who became ill, or in the worst cases family members of those who became ill because the ill are too sick, to provide diet histories. These diet histories ask for everything the person has eaten in the last seven days, or longer, including where the food was purchased, how it was prepared, what brand it was, etc. etc. Then the histories of all the ill are evaluated for similarities. This data collection and comparison also takes time.

    I don't know about you, but I have a hard time remembering everything I ate yesterday, let alone seven or fourteen days ago. In other words, a very precise system tells us something is wrong, and then a very inexact system tries to find the source of the problem. On top of that, the global source of the food supply, the complexities of
    manufacturing, the variables that enter from the fragmented distribution system, and the handling of product all introduce potential for contamination that must be investigated.

    And as exact as the science of identification is, there still is much that is unknown when it comes to the ecology of bacteria that make people sick. The job of knowing exactly where to look takes some detective skill. And then if the bacteria are found, determining the path of the agent from its source to making people sick still may not be easy (the spinach outbreak is a good example of these phenomena).

    This long e-mail is to say that while food borne illness identification is precise, the investigation into that illness is not an easy endeavor.

    I applaud your push for traceability and transparency to serve the consuming public (you and me included). I encourage you to continue raising questions about how the government is serving the people.

    Finally, we got the following email about one of our MNB sponsors…actually the second one that we’ve received making the same observation about the tile ad for the book, “Death To All Sacred Cows”:

    Given the gun violence in our society as well as the increased awareness of animal cruelty, I feel the ad could have been in better taste. I am not a reactionary of any kind, but--a handgun pointed at a cow's head? Not so good.

    I’m going to disagree on this one.

    First of all, the graphic is a book cover designed to make a larger point. Nobody is actually really killing actual cows.

    Second, it is a joke, and I think most people get that.

    Finally, and perhaps most important, it is a guiding tent here at MNB - coming right after the point on our mission statement that says “no long pants to be worn at the office between Memorial Day and Labor Day” – that things need to be as irreverent as possible whenever possible. And it is gravy when even the ads reflect that perspective.

    Go read the book. It’ll make you smile while making some important points about business.

    KC's View: