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    Published on: August 4, 2008

    The Boston Globehad a story about supermarket competition over the weekend that looked to quantify what the major chains in the region are doing to lower prices and be competitive in a time of economic decline.

    Examples:

    • “Several chains are offering a discount at the pump when customers buy groceries. Some stores also are trying to lure shoppers with deep price cuts on everything from ice cream to coffee … And it's becoming increasingly common to see coupons offered only on store websites and discounts you can only find in a grocery flier in the newspaper or by mail.”

    • John Rand, a grocery store analyst with Cambridge-based Management Ventures Inc.,
    “noted that many grocery store chains are moving toward a pricing model that shuns big-sale discounts in favor of lower everyday prices. The message the stores are trying to send to consumers, Rand said, is that they can count on their overall shopping trip being less expensive than it had been.”

    • “Shaw's, which started its program offering discounts on fuel purchased at Irving Oil stations in New Hampshire, has since expanded to Massachusetts stores in Worcester County and in suburbs north and south of Boston. Stop & Shop, with some 70 stores with their own gas stations in New England, is offering discounts on its own brand of gas. And smaller Price Chopper, which has several Central Massachusetts locations, is partnered with Sunoco.”

    And, the story detailed the various pricing strategies that various chains such as Hannaford and Stop & Shop are using to lure shoppers.

    The Globe essentially summed it all up this way: “These are the latest tactics grocery stores are using to compete for customer loyalty at a time when shoppers now are paying near record prices for food and fuel.”

    KC's View:
    It was this last sentence that really caught my attention in this article, and it is the construction of this summation that is worth challenging – though, to be fair, the problem may be with the way the Globe perceived the current situation rather than with how supermarkets are approaching it.

    Though I don't think so. The fact is that these indeed are “the latest tactics grocery stores are using to compete for customer loyalty.” That’s the problem. Because I don't think that anything close to customer loyalty comes out of such tactics.

    What comes out of low prices – whether on food or fuel – during a recessionary economy is a decision on where to shop that day. Not loyalty. Not by a long shot. At least not most of the time.

    This isn’t to minimize the importance of value at this time. Far from it. Demonstrating an understanding of the plight in which many shoppers find themselves, and an ability to be relevant to these shoppers, is critically important.

    But this doesn’t necessarily create loyalty…because almost every retailer is looking to make the same argument. Some weeks you’ll win, some weeks the other guy will win, and the margin may be pennies.

    This isn’t loyalty.

    Loyalty, I think, transcends price, transcends the ad or the email that looks to entice the consumer into the store. And it is a major miscalculation for retailers to mistake a choice made because of a sale price for the more enduring quality of loyalty.

    Published on: August 4, 2008

    The Seattle Times reports that “as budgets get tighter and food gets more expensive, American shoppers are increasingly switching to store brands - even upper income consumers who may not have been inclined to give them a try before.

    “The nation's biggest grocery-sellers, Wal-Mart, Kroger, Supervalu Inc. and Safeway Inc., all report that sales of their own brands are jumping, as customers can't stop regularly buying food and household items but need to reduce spending … That shift comes as the chains are offering more store-brand products of better quality.

    “Gone, for the most part, are the gray, no-frills cans with nondescript labels such as ‘peas,’ packaging that evoked cheap, bland taste. Many now sport colorful labels with names like Kroger's ‘Private Selection’ and ‘Naturally Preferred’ that don't shout ‘store brand!’ The stores have been pushing their own brands in areas such as dairy products, meats and breads where prices have risen especially fast, and are also tapping into increased demand for organics and natural foods.”

    KC's View:
    People in the food industry, of course, know that the “gray, no-frills cans” have been gone from most chains for a long time, and that the shift toward private label – following a pattern set in Europe years ago – has been taking place for some time. Of course, the American taste for private label items has never been anything like that in Europe, though the evolution has picked up the pace as the economy has slackened.

    This is a place where retailers can really develop customer loyalty…as opposed to just advertising price. A private label product is, by its very definition, proprietary…the guy across the street or down the block doesn’t have it. And so, by working with savvy companies to develop own-label items that speak specifically and uniquely to shoppers, a retailer can create a connection to the consumer than cannot be precisely duplicated.

    And, if done correctly, such an ongoing program also forces the retailer to think more specifically about the broader store brand … identifying the role and presence that a store must have beyond being a place that houses other companies’ brands.

    I say all this, by the way, as a shopper who for the last 25 years has been doing most of his food shopping at a store that always has emphasized store brands – Stew Leonard’s. And I supplement my purchases there by going to two other stores that are uniquely strong in private label – Trader Joe’s and Costco. So I’m seeing this trend from both sides of the marketing fence.

    Published on: August 4, 2008

    Costco reportedly has been hit with a shareholder lawsuit that charges the company with manipulating its stock option grants to executives between 1997 and 2002 so that profits could be maximized.

    An internal investigation into the company’s options grants during that period of time concluded that there was no evidence of fraud or any departure from standard accounting practices, though last year Costco did say that its records had been subpoenaed by a federal grand jury looking into the matter.

    KC's View:

    Published on: August 4, 2008

    The US House of Representatives has approved by a vote of 326-102 legislation that would allow the Food and Drug Administration (FDA) to regulate the tobacco industry, a move that has long been encouraged by anti-smoking forces and battled by the cigarette business.

    According to the Washington Post, the legislation, if passed into law, “would give the agency broad authority over cigarette makers, including the power to ban marketing of cigarettes to children, require disclosure of tobacco ingredients and mandate larger, more specific health warnings. It would also enable the agency to require tobacco companies to reduce or eliminate harmful ingredients and ban candy- and fruit-flavored cigarettes.”

    However, the probability that the bill actually becomes law seems minimal, at least according to the Post, since President Bush has said that he will veto the measure and the US Senate is unlikely to pass it by the 60-vote margin that would enable it to override his veto.

    KC's View:
    One MNB use commented to me over the weekend that this may not be the best move in the world since the FDA seems utterly incapable of handling the matters that are on its plate right now, much less take on any new responsibilities. Which seems about right … though I have to say that anything that restricts or hurts the tobacco companies is okay with me. Maybe it would serve them right to get tangled up in FDA bureaucracy…though based on the agency’s apparent preference for commerce interests over health concerns, it’ll probably end up that the tobacco companies will be able to take the warning labels off their cigarette packages.

    Or maybe that’s just my cynicism talking…

    Published on: August 4, 2008

    The Washington Post this morning features a page-one story about how, “from Atlanta to Minneapolis to Seattle, people are reacting to the stagnant economy and the high cost of produce by planting their own fruits and vegetables, say garden store owners, bulk seed sellers and industry analysts.

    “In the skyscrapered canyons of New York City, increasing numbers of people are growing their food on fire escapes, on rooftops, in back yards and in community gardens … The reasons vary but include increasing interest in the quality and environmental impact of food. Recently, money has become a bigger factor.”

    Bruce Butterfield, the market research director of the National Gardening Association, tells the Post that last year, “about 22 percent of U.S. households – including many in cities and suburbs -- grew vegetables, spending an average of $58 to do so, up from $48 per household in 2006. Butterfield anticipates that number will be significantly higher this year.”

    KC's View:
    I’ve always sort of envied people who have the time, interest, inclination and talent to grow plants, fruits and vegetables. Maybe it’s laziness, and maybe it is just my brown thumb…but Oliver Wendell Douglas I’m not and will never be.

    Published on: August 4, 2008

    The New York Times over the weekend reported that “Whole Foods Market is on a mission to revise its gold-plated image as consumers pull back on discretionary spending in a troubled economy. The company was once a Wall Street darling, but its sales growth was cooling even before the economy turned. Since peaking at the beginning of 2006, its stock has dropped more than 70 percent.

    “Now, in a sign of the times, the company is offering deeper discounts, adding lower priced store brands and emphasizing value in its advertising … Whole Foods’ makeover comes amid a tumultuous time in the grocery industry, as customers struggling to pay for higher-priced fuel and food are trading down to lesser products and discount oriented stores.”

    KC's View:
    This article ought to be exhibit one for the retailer as it goes into court to prove that its acquisition of Wild Oats – which took place a year ago – has not resulted in a monopoly that has created higher prices, as the federal regulators continue to allege.

    Of course, other sentences in the Times piece may not be so supportive of the Whole Foods position, such as:

    “Told of the company’s budget pitch by a reporter, some Whole Foods customers said they had not noticed cheaper prices; a few laughed.”

    Oh, well. The fact is that times are tougher than they used to be in the natural/organic foods business, and the economy is forcing consumers to make choices about priorities that they didn’t have to make before. Which for the moment, at least, is hurting Whole Foods…which has to tack into the prevailing winds so that it can offer lower prices and value perceptions in such a way that does not diminish its broader brand equity. Not easy to do, but certainly possible.

    Published on: August 4, 2008

    Giant Eagle reportedly is expanding a gasoline savings program that it piloted in Columbus, Ohio, last year. The program, which offers shoppers a four-cent-per-gallon savings if they use a Giant Eagle credit card to buy $100 worth of food and fuel, will be expanded to the Akron market. The savings are in addition to those discounts offered at the pump via its Fuel Perks scheme.
    KC's View:

    Published on: August 4, 2008

    In an interview with the Milwaukee Journal-Sentinel Roundy’s chairman/CEO Robert Mariano addresses the company’s planned expansion into the Chicago market, saying that “it's kind of been slow because of the financial markets. It's a little challenging for developers to get financing right now. There will be one store in '09. That's likely to be on North and Clybourn. We have several sites in the Chicago area.”

    By 2010, Mariano hopes, Roundy’s will have between two and four stores in Chicago: “We'd like to crawl before we run, simply because we don't have an established employee base down in the Chicagoland area. In our business, the people in the store make all the difference in the world. We want to make sure we're delivering to our customers what we want to before we just kind of willy-nilly expand.”

    And, asked about consistent rumors that the company could be sold, Mariano says, “there's no current announcements to be made or think about. These are tough times right now and we have our hands full with everything we have to do to make sure we provide the best possible services to our customers.”

    KC's View:

    Published on: August 4, 2008

    Brookshire Grocery Co., announced that at the 23 Super 1 Foods units that it operates with gas stations in Texas, Louisiana and Arkansas, shoppers are being offered grocery discounts when they fill their tanks.

    "When customers purchase $35 or more in gasoline at a Super 1 Foods fuel center, they can present that fuel receipt in the store and receive a five percent discount on their grocery purchase," said Rick Rayford, president/CEO. "Everyone has been hit hard by rising energy costs–businesses and individuals alike. This is one way we can help."

    KC's View:

    Published on: August 4, 2008

    The Financial Times reports that Carrefour has hired a search firm to find a replacement for CEO Jose Luis Duran, who was removed from the board of directors last week though kept on in the CEO position.

    Carrefour is denying that it has hired a headhunting firm.

    According to FT, the Carrefour board is divided about Duran’s future, with some wanting him dismissed immediately and others willing to give him six months to turn things around in a global economy that is shaky at best.

    KC's View:
    If this were “Jeopardy,” the question would be:

    “What does Jose Luis Duran have in common with Willie Randolph?”

    While the economy is tough, it seems to me that six months pass in the blink of an eye. Either the board has to buy into Duran’s strategic vision for the company, or not. If not, they ought to replace him.

    But if they do, then six months sounds like an unfair deadline … and it almost encourages the company’s leadership to think and act tactically rather than strategically.

    Published on: August 4, 2008

    • The Associated Press reports that Japan has decided to lift a ban on the import of North American lobster, a ban that was put in place last week after the US Food and Drug Administration (FDA) advised consumers not to eat tomalley, the green substance that is found in lobsters, because it believed that the tomalley had been contaminated by red tide.

    Rather than an outright ban, Japan has decided to test lobsters from affected areas for what is called “paralytic shellfish poisoning.” If a lobster passes, it goes to Japan and is ruled safe for consumption. If not, it goes to that large boiling pot in the sky.

    • In the UK, the Observer reported over the weekend that Walmart-owned Asda and Waitrose are expected to testify during hearings held by the nation’s Competition Commission Tribunal that is looking into whether a competition test should be established for planning and zoning purposes. Such a test would ensure that a retailer could not have a market share greater than 60 percent in any single market.

    The Tribunal was sought by Tesco, which wanted to prevent the establishment of such a test, but Asda and Waitrose are expected to take issue with Tesco on this matter.

    • Clorox said last week that it plans to raise prices on roughly half of its brands – including Clorox bleach and Glad trash bags – to compensate for higher costs.

    • The Wall Street Journal this morning reports that as costs rise, McDonald’s is testing various permutations as it prepares to change its popular Dollar Menu next year. According to the story, “the company has tested ways to make the burger less expensive to make. Some restaurants are selling it with one slice of cheese instead of two, and billing it as a ‘double hamburger with cheese.’ Others are offering a double hamburger without cheese. Some are selling the traditional double cheeseburger at prices ranging from $1.09 to $1.19. The company is also considering expanding what it considers the middle tier of its menu, items ranging from about $1.30 to $2.”

    Forbes reports that H.J. Heinz Co., Frito-Lay, Kettle Foods Inc., and Lance Inc. have all settled a lawsuit brought against them by the state of California, and have agreed “to pay a combined $3 million in fines and reduce the levels of acrylamide in their products over three years.” California Attorney General Jerry Brown sued the manufacturers in 2005, charging that they were in violation of state law saying that companies must post warning labels on products with carcinogens.

    KC's View:

    Published on: August 4, 2008

    • Delhaize Group, which operates Hannaford, Food Lion and Sweetbay Supermarkets in the US, reports this morning that its second quarter net profit was up 43 percent to the equivalent of $181.3 million (US), on Q3 sales that were down 7.5 percent to $6.9 billion (US). The company said that sales fell due to a slowdown in consumer spending and the euro's strength against the dollar.

    • Publix Super Markets reports that second quarter profit was down 3.5 percent to $295.8 million compared with $306.4 million for the same quarter a year ago, on sales that were up 3.5 percent to $5.9 billion. Same-store sales were up 1.3 percent.

    Content Guy’s Note: Not sure if it was an editing error or writing imprecision, since the same person (me) does the writing and editing, but apparently Friday’s rendition of the Ruddick/Harris Teeter numbers was not quite accurate. So I’m going to try it again…

    Ruddick Corporation reported that consolidated sales for the fiscal third quarter ended June 29, 2008 increased by 9.8 percent to $1.01 billion from $0.92 billion in the third quarter of fiscal 2007. For the 39 weeks ended June 29, 2008, consolidated sales of $2.97 billion were 10.0 percent above the $2.70 billion for the comparable period of fiscal 2007. The Company reported that consolidated net income increased 15.6 percent to $24.5 million for the third quarter of fiscal 2008, from $21.2 million in the prior year third quarter. For the 39 weeks ended June 29, 2008, consolidated net income increased 20.9 percent to $71.9 million, from $59.5 million in the same period of fiscal 2007.

    Harris Teeter sales increased by 10.8 percent to $926.3 million in the third quarter of fiscal 2008 compared to sales of $836.4 million in the third quarter of fiscal 2007. For the 39 weeks ended June 29, 2008, sales rose 11.4 percent to $2.72 billion from $2.44 billion in the same period of fiscal 2007. Same store sales were up 1.73 percent for the quarter and 3.11 percent for the 39-week period.

    • Clorox said that its fourth-quarter earnings fell 3.7 percent to $158 million, from $164 million in the same quarter last year. The company had fewer shares in the 2008 quarter than last year. Q4 revenue rose 11 percent to $1.49 billion from $1.34 billion.

    For the fiscal 2008 year, the company's profit fell eight percent to $461 million, from $501 million, as annual revenue rose 8.7 percent to $5.27 billion from $4.85 billion.

    KC's View:

    Published on: August 4, 2008

    • Alexander Solzhenitsyn, the Russian author and dissident who, in the words of this morning’s Moscow Times, “shook the foundations of Soviet rule with his monumental work "The Gulag Archipelago," died of heart failure yesterday. Solzhenitsyn, a Nobel literature laureate, was 89.
    KC's View:

    Published on: August 4, 2008

    Plenty of comment about last week’s story in Wall Street Journal about how Walmart is working very hard to tell all of its US store managers and department managers that if Sen. Barack Obama (D-Illinois) defeats Sen. John McCain (R-Arizona) for the presidency, it may well end up in the passage of legislation that will result in the unionization of Walmart’s stores. While the retailer apparently walks right up to the edge of what is legal and proper, not actually telling people how to vote, the company also reportedly leaves little doubt about where it stands on this issue.

    Walmart, by the way, has denied that it has done anything improper and isn’t telling its people how to vote.

    According to the story, “Wal-Mart's worries center on a piece of legislation known as the Employee Free Choice Act, which companies say would enable unions to quickly add millions of new members.”

    The act “would simplify and speed labor's ability to unionize companies. Currently, companies can demand a secret-ballot election to determine union representation. Those elections often are preceded by months of strident employer and union campaigns.

    “Under the proposed legislation, companies could no longer have the right to insist on one secret ballot. Instead, the Free Choice, or ‘card check,’ legislation would let unions form if more than 50% of workers simply sign a card saying they want to join. It is far easier for unions to get workers to sign cards because the organizers can approach workers repeatedly, over a period of weeks or months, until the union garners enough support.”

    One MNB user wrote:

    The so-called “Freedom of Choice Act” being sponsored by Obama is not only very anti-business; it flies against our democratic free market principals. Unions would be allowed to promise, cajole and scare employees into signing union authorization cards.

    Getting 50% plus one would certify union representation for all employees without a secret ballot election. These cards would be allowed to be collected over a 12-month period without employer notification. Once an employee signed the card, it could not be withdrawn by the employee. This process would only be used for union authorization. If employees wanted to decertify their union, this could only be done in a secret ballot election conducted by the NRLB. How is that for basic fairness? As undemocratic as that may sound, it gets even worse. If the union and company don’t reach a contract in the first 90 days, it would then go to binding arbitration. A federally appointed outside arbitrator would be vested with the authority to impose a 2 year contract without even a ratification vote among the employees to approve the terms.

    This arbitration would be the antitheses of free collective bargaining. What would be the odds of an arbitrator imposing terms that would be more favorable to the employer? Passage of this legislation would be ultimately guaranteed with all three branches of the federal government controlled by the Democrats. This would have disastrous consequences to the economy, job growth and our ability to compete in the global marketplace. The unions plan to spend up to one billion dollars to make this happen. Do we want the future of our American life and economy in the hands of union leadership? What is their track record of doing what is best for either their members or the company? If anybody needed one reason to vote for the Republican nominee, this would be it!


    It defies logic why the Democratic party would support a measure that is inherently undemocratic.

    Another MNB user wrote:

    It is perfectly correct to accuse some union leaders of being “…more concerned with power than benefits for members…” but disingenuous when you leave out and therefore imply that corporation management cares. One would have to agree that there are a few (very few) corporations that show they care by their wage AND benefit package – COSTCO for one – but not many more in our industry or in this country.

    Outsourcing, full time to part time to avoid medical and retirement benefits, reduction in hours, removal of pension plans all have helped to reduce income levels for more Americans than not. Perhaps the pendulum has swung back and the NEED for unions has returned, perhaps not. I am not educated enough in finance to know if unions will be more beneficial to workers than not but let’s not pretend that our corporations will be more beneficial. My guess would be that there would be far more union reps caring more for their members than corporate managers caring about their employees.


    I never meant to suggest that management is always on the side of the angels. No way. There are plenty of companies that deserve to face down a tough and demanding union…but there also are plenty of companies that do not. Adopting legislation that would penalize the latter simply does not make sense.

    Another MNB user wrote:

    It is pretty clear that Wal-Mart doesn’t want to end up like the US Car companies, with their labor costs making them uncompetitive and without the funds to invest in modernization. I’m not sure what the hue and cry is all about. It is appropriate for a company to meet with its management teams and prepare them for possible changes in the operating landscape. Obviously, if Walmart ends up with unionized labor, they will have to cut labor costs through efficiency moves. These managers will have to make it happen. Maybe your neighborhood Walmart will become an Aldi-style warehouse format with fewer shelf stockers... and a greater emphasis on self check out.

    MNB user Mel Mann wrote:

    It's been my personal observation that companies (regardless of industry) with unions have found ways to deserve them. It's all about treating people the way you want to be treated.

    And MNB user Keith Holzmueller wrote:

    Wal-Mart has just flushed all of their efforts to moderate their image down the toilet.




    MNB took note last week of a USA Today story saying that new research shows that the current economic downturn has caused 37 percent of Americans to reduce spending on their credit cards, and only 10 percent to say that they will increase spending, “as oil and food prices soar, home prices sink and lenders tighten credit.”

    Which led me to comment:

    Maybe retailers will have to worry less about usurious interchange fees if people spend less using their credit cards.

    This trend also opens the door, it seems to me, for retailers to do some creative “cash-only” promotions…trying to get people to use their cards less.

    The big question, of course, is whether people will go back to their old/bad habits when the economy rebounds. But at least for the moment, there seems to be a silver lining to the dark cloud of recession.


    One MNB user responded:

    The credit card companies have a clause in their contracts prohibiting retailers from "disenfranchising" the cards by offering discounts for other forms of payment, including cash. Another part of their evil plan, but you gotta hand it to 'em! Pun intended.




    MNB user Rob Johnson had thoughts about another story:

    I've enjoyed your views on obesity and how they relate to cost, first airfare cost and now a proposed "fat tax" in the UK. But perhaps the views are being looked at an incorrect bias. I would propose that rates (both air fare and the proposed tax) be raised and then a reduced price for those who are "fit". This creates an incentive to be fit and healthy opposed to a tax to being overweight and unhealthy.

    Just (low-calorie) food for thought.





    I raved last week about Five Guys Burgers, which was anew discovery for me…but not, apparently, for the legion of fans who wrote in.

    One MNB user wrote:

    I eat at Five Guys at least once a month. The food is fresh, they cook the food ‘after’ you order it. The small burger is quite large, lots of toppings, they seem to encourage you to add more, and the fries are ‘fresh’. Not sure if the Dulles location offers the ‘free’ peanuts, open boxes of peanuts to enjoy. They do post signs about the peanuts. The one by my house has a sign by the door to the tables outside that says, please enjoy the peanuts inside the store as some people are allergic to peanuts.

    In my opinion, this is not Fast Food. They are a franchise operation.


    MNB user Mike McCabe wrote:

    If you have reason to come that way, there is a Five Guys on Route 25 in Newtown, Ct., maybe a mile north of the Monroe line, almost across from the Stop & Shop. While I can bemoan the lack of commercial development in Newtown, not having any fast food restaurants is OK… keeps my kids from frequenting them. I don’t know that Five Guys is any healthier than a McD’s or BK, but the food is certainly fresher, tastes better and is made to order. We approach it as a family treat and the occasional calories and cholesterol is worth it. Maybe we’ll see you next time you pass through town.

    MNB user Stan Barrett wrote:

    Welcome to the “Five Guys Nation”. On another note, for anyone who is gluten intolerant, Five Guys uses fresh potatoes fried in peanut oil and keeps the buns off the burger griddle. They don’t guarantee or advertise gluten-free, but it comes close enough for us. The downside is that if you are allergic to peanuts, the oil and in-shell peanuts will keep you away. Indulge and hope that they keep the quality as they expand. As a frequent traveler also, when will some CA airports bring us the In-N-Out burgers—the Ontario airport has one at the exit, but how about past security!

    And MNB user Ally Lee wrote:

    I have to start off by saying I look forward to your column everyday and especially look forward to your "OffBeat" section. I just wanted to say I'm happy that another Five Guys fan has been created! I, too, do not eat fast food but it's pretty hard to beat their burgers (especially with their cajun fries). I went to school in the DC metro area and was introduced to the chain by friends and your description of the burger was perfect! I'm now working in Manhattan and there is one 4 blocks from me so I have to hold myself back! I'm sure you look forward to more of them in the future!

    And finally, one MNB user took note of the fact that in an earlier story, I had commented that I believe that people who do not take care of themselves should be charged higher insurance premiums than those who do, and then went to Five Guys for a cheeseburger with fried onions, tomato and barbecue sauce:

    Ok, maybe it's just me but you might be paying those premiums soon yourself 🙂

    In my own defense, I would point out that I didn’t order fries and I drank bottled water instead of soda. I’m a firm believer that moderation is always preferable to denial...though I’m having to deny myself a little more than I like lately because of a bad case of tendonitis in my knee that has stopped me from running and boxing.

    But thanks for the warning...

    KC's View: