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    Published on: August 13, 2008

    CVS Caremark Corp. announced yesterday that it will acquire Longs Drug Stores, which operates 521 stores in California, Hawaii, Nevada and Arizona, for $2.54 billion.

    CVS does not currently operate in Hawaii.

    The company said that the acquisition will give it access to Longs’ eight million prescription drug customers serviced through its Rx America benefits management subsidiary, not to mention more than a billion dollars worth of real estate.

    KC's View:

    Published on: August 13, 2008

    There is a story in US News & World Report that is worth reading about “the end of credit card consumerism,” suggesting that the current economic crisis could cause a fundamental change in the way people shop and how they pay for things.

    “Only twice since 1965, despite half a dozen recessions, have Americans spent less in a year than the previous one,” US News writes. “Indeed, it often seems that we have defined ourselves by our ability to buy supersized everything, from McMansions to tricked-out SUVs to 60-inch flat-screen televisions—all enabled by decades of cheap credit.

    “On the surface, it may seem that there's nothing wrong with all that conspicuous consumption, especially for the biggest, most productive economy on the planet. After all, our undying love of stuff has helped fuel a global economic boom. Yet today, America finds itself at a once-or-twice-a-century economic tipping point. A sharp slowdown, record-high gas prices, high consumer debt levels, a plunging real estate market, and the growing green movement all seem to be conspiring to dethrone King Consumer and transform the economy and the American way of life for years to come.”

    At least part of the problem is that as credit card debt has increased (up 50 percent in just the last eight years), personal savings rates have plummeted and incomes are no longer climbing at past increments. And rising inflation is likely to cause an increase in interest rates, which will push people into even more debt.

    And, US News suggests, the environmental movement has fostered a kind of life simplification mindset that has begun to gather some traction, offering a clear rejoinder to the profligate ways of old.

    This isn’t all bad: “Even if Americans do curtail their spendthrift habits, the result would probably be a healthier and more balanced American economy. Next year, the federal budget deficit is projected to reach almost $500 billion for the first time. America couldn't afford such a fiscal shortfall if foreign investors, such as the Chinese, didn't buy our debt—U.S. treasury bonds. If as a nation we bought a bit less and saved a bit more, economists say, the result would be stronger long-term economic growth. And depending on the kindness of strangers to perpetually finance your lavish spending sure seems risky. If the foreign appetite for U.S. dollar assets abated, says T. Rowe Price chief economist Alan Levenson, the dollar would probably weaken further, reducing Americans' standard of living.

    “Besides, there is more to the economy than just the consumer. The economic boom of the 1990s was led by business investment, especially in technology, aiding a boost in productivity that continues today. While businesses are holding back on investment because of recession fears, they are likely to beef it up after that threat passes, says Robert Brusca, chief economist at Fact and Opinion Economics.”

    However, the magazine also asks the obvious question: “What happens when budgets aren't so tight? Plenty of hardheaded economists say we'll go right back to our prodigal ways. Alan Blinder, economics professor at Princeton University and former Federal Reserve vice chairman, thinks that optimism and the drive to spend are hard-wired parts of America's cultural DNA. Blinder expects that even baby boomers will continue the spending spree that has defined most of their lives, buying medical care and golf vacations instead of new cars and larger homes.”

    US News concludes, “With baby boomers' habits well ingrained, it may instead be generation X and generation Y who decide to embrace a simpler, less wasteful lifestyle, rebelling against the conspicuous consumption that their parents helped make the American way of life.”

    KC's View:
    I wouldn’t overrate the desire for simplicity on the part of American young people. They are, after all, the ones carrying around cell phones and iPods and spend a phenomenal amount of time linked to each other via technologies that cost money.

    That said, I hope they learn from our mistakes. What’s the old line? “Those who do not learn from the mistakes of history are doomed to repeat them?”

    What retailers and suppliers are going to have to do, I believe, is start seriously thinking about these new realities…and figuring out how to create and communicate both value and values to the shopper.

    And maybe get bigger cash drawers.

    Published on: August 13, 2008

    The first lawsuit stemming from the salmonella outbreak that has sickened 1,319 people, hospitalized 255 and caused the death of two in 43 states, the District of Columbia and Canada has been filed in Colorado against Walmart and an unidentified supplier. The litigation charges that the plaintiff bought raw jalapeno peppers at Walmart, ate them and subsequently suffered from salmonella poisoning.

    The law firm representing the plaintiff describes itself as having “represented thousands of victims of foodborne illness outbreaks since the landmark Jack in the Box E. coli case.”

    KC's View:
    Let the games begin. You have to figure there could be dozens, even hundreds more lawsuits before this is done.

    I will say this, tough. It appears that this law firm was able to find and identify jalapeno peppers with salmonella contamination faster than the Food and Drug Administration (FDA).

    Published on: August 13, 2008

    In Minnesota, the Star Tribune reports on a new survey by Rasmussen Reports saying that almost three quarters of Americans - 73 percent – believe that Starbucks coffee is overpriced. Six percent of those polled said that it isn’t overpriced, and 21 percent said they were unsure.

    The same survey reveals that:

    • 76 percent of American adults say that they rarely or never visit Starbucks, and 14 percent say they only visit occasionally.

    • 38 percent gave Starbucks coffee a favorable rating, while 27 percent had an unfavorable view of the chain.

    • “Younger adults have a more favorable view of Starbucks than older adults. Just under 50 percent of respondents 18 to 29 give the chain high marks, while only 28 percent of seniors shared that view. And those who make more than $100,000 a year view the chain more favorably than those who make less than $20,000 a year,” the Star Tribune writes.

    • “Two-thirds of Starbuck's visitors say they get their joe and go. Only 20 percent say they stay around to socialize or use free wireless internet offered in most stores.”

    Meanwhile, the Denver Post has a story about Starbucks that takes note declining sales and traffic, and reports on a pilot promotion being run in Denver and Vancouver “called Starbucks Gold Card, in which customers who have registered their Starbucks cards are invited to sign up to get perks such as a free birthday drink and friends-and-family discounts.”

    The story quotes one pundit (someone with a clearly overdeveloped ego) as saying, “They're trying a lot of different things…it's like throwing spaghetti against the wall to see what sticks, and they're just hoping that something will."

    KC's View:
    It should be noted here that the Rasmussen survey was of 1,000 people. I’m guessing that if I really tried, I could find 1,000 people who haven't seen or didn’t like “The Dark Knight,” which has only made $450 million in about a month. So the idea that Rasmussen found 7630 Americans who think Starbucks is overpriced, or 760 Americans who never or rarely visit the chain, isn’t all that surprising. After all, the steady drumbeat of negative news about Starbucks has been pretty deafening of late, and it can be fairly observed that the brand has become a little tarnished.

    That said, it is worth pointing out that Starbucks did generate $9.4 billion in sales last year. And I can't remember the last time I went into a Starbucks when there weren't at least a few people on line in front of me, and at least a few other people scattered around the store drinking coffee, chatting with friends, reading a book or newspaper, or perusing their laptops.

    We should all have such problems.

    Business is cyclical, and right now Starbucks is on the downside of a cycle. It wasn't that long ago that Whole Foods seemed to be able to do very little wrong, but over the past couple of months it has hit a rough patch, and things aren’t so rosy. The same thing has happened to almost every major brand out there, and in almost every case the brand can be saved through careful nurturing, strategic planning and effective tactical implementation. (I say “almost” every major brand because there probably are some that cannot be saved. Like at least one of the major American car companies, which seem utterly unable to cope with reality.)

    Both Starbucks and Whole Foods are suffering in part because of economic conditions that they cannot control. Both have too much brand equity not to survive, assuming that management at both places doesn’t screw things up by thinking tactically instead of strategically and by making short-term moves that put the long-term health of their companies in jeopardy.

    Both companies provide a good object lesson for marketers, teaching us all that the good times rarely last forever. The leadership at both companies ought to use Apple and Steve Jobs as a kind of reference point as they look to reinvigorate their brands. There was a time, not that long ago, that Apple seemed both irrelevant and on the brink of extinction. And now, more than any other computer company, it can be argued that Apple sets the benchmarks by which its competitors measure themselves. And it certainly can be described as a vigorous and relevant company, with highly effective leadership.

    Maybe what both Starbucks and Whole Foods have to do is steal a line from the first major ad campaign that followed Jobs’ return as CEO of Apple.

    “Think different.”

    Published on: August 13, 2008

    Reuters reports on a new study by the National Institutes of Health (NIH) that says if people maintain a healthy lifestyle – not smoking, exercising regularly, eating healthfully, drinking alcohol in moderation and maintaining an ideal weight – they are 80 percent less likely to suffer a stroke, in addition to being less likely to suffer from cancer, heart disease and diabetes.

    The odds are apparently even better for women than for men if they maintain a healthy lifestyle.

    KC's View:
    Coming next week, a multi-million dollar study funded by our tax dollars that will reveal that if you smoke, eat and drink too much, never exercise and let yourself go, the odds will improve that you are going to die sooner rather than later.

    Published on: August 13, 2008

    The other day, MNB reported on a restaurant in Australia that is serving waters of various kinds with the same care usually reserved for wine – choosing certain water-food pairings, being careful about temperatures, and even rating the terroir of various waters.

    Now, the New York Times reports that ice is getting the same treatment in some quarters, where “the idea of consuming generic ice is enough to raise goose bumps and not the good kind.”

    The Times writes: “There are those — and don’t wear yourself out looking for statistical surveys on this one — for whom water in chunky frozen form is a source not merely of interest but also obsession. You can find them, of course — alongside every other compulsive with an affinity group or microcohort — on the Web.

    “They post recipes for making ice with a level of internal clarity greater than that of a D-flawless diamond. They make YouTube videos of a deliberately Captain Kangaroo-style naïveté that demonstrate the beauties of cubes formed by boiling distilled water once to release any trapped air molecules and then boiled again and frozen before being plunked in a glass.

    “They forego refrigerator ice altogether in favor of the commercially produced kind, ordering products like the Air AI-100S portable ice cube maker, capable of producing fresh ice in 10 minutes, up to 28 pounds of it a day. Some aficionados, like the country singer Vince Gill (who has a Scotsman), even raise the ante by installing commercial grade ice machines in their homes. And some set out on a kind of gourmet ice hegira (Safeway to Gristedes to Fairway) whenever friends come to drink.”

    KC's View:
    Some people clearly have too much money and too much free time.

    Published on: August 13, 2008

    India Express reports that the Indian Supreme Court plans to hear a case that could determine whether the country impose a complete moratorium on genetically modified crops until an independent testing facility can be established there. GM crops have proven to be problematic on the international trade scene, with the US pushing countries to accept them and some nations pushing back because of concerns that they create environmental hazards, especially for conventionally grown crops.

    • The Rainforest Action Network is threatening that “2,000 concerned citizens across the nation will descend on their local supermarkets” today to apply stickers reading, “Warning! Product May Contain Rainforest Destruction,” on any items they find that contain palm oil. According to a statement released by the organization, the action is “targeting U.S. agribusinesses ADM, Bunge and Cargill for establishing soy and palm oil operations in many of the planet’s most threatened tropical rainforests.”

    • The Los Angeles Times this morning reports that “the U.S. corn crop looks to have escaped heavy damage from massive flooding in the Midwest in June, the U.S. Department of Agriculture said Tuesday in issuing a rosier-than-expected projection for this year's harvest.

    “The USDA said that farmers would harvest 4.9% more corn than its estimate in July and that market prices would be lower than projected. Some analysts said that would help ease food price inflation and reduce the financial pressure on ethanol refiners, which are becoming an important segment of the U.S. fuel market.”

    KC's View:

    Published on: August 13, 2008

    Responding to various commentaries written by Michael Sansolo and me this week about companies getting ahead of the curve when it comes to things like environmental initiatives, MNB user John Rand wrote:

    I read the news and your combined comments over the last several days and couldn’t agree more. I have spoken for several months to supplier audiences about what the changing scale of values that shoppers use to make decisions and a concept we at Management Ventures call the New Premium – the idea that for at least some shoppers, a key part of what makes a product more valuable is not in the product itself, but in the values of the company that makes it and the way it aligns to a host of personal and community values that shopper believes are important. New Premium products and New Premium retailers are those who learn how to be consistent and authentic in their message around one of the many areas of concern – it might be wellness, it might be environment, it might be ethical behavior – but in so many cases, the product – and the store - is viewed as more than just “what’s inside.”

    On the subject of Walmart’s environmental decisions, though MNB user Rick Heineman had an different perspective:

    There can be many motives for a companies policies. It should be noted that the estate of John T. Walton (Sam’s son) owns 46% of FSLR First Solar corp. These shares are worth over $9 billion. While I agree with everything that you have said about the advantages of being environmentally correct, one should not overlook the greed of Sam Walton’s children. They are also huge contributors to the Republicans in order to avoid estate taxes.

    If John Walton can make a gazillion dollars in the solar energy business, that’s okay with me.

    Though I would agree that motivation can be a tricky thing to assess.

    On the subject of the ongoing food safety crisis involving meat and E. coli, one MNB user wrote:

    The Country of Origin (COOL) legislation is about to go into effect in the next few weeks for many food categories. While there will surely be many issues with the initial implementation, it's certain that having this information readily available will be appreciated by many consumers - and will likely impact what they choose to purchase. It's a small but significant step.

    With the disgusting revelations regarding the meatpacking industry in the past few months, I wonder why the consumer is not entitled to know where the meat they buy was initially processed. When you think about it, a customer comes into a store, picks up a package of store-brand meat or chicken and has absolutely no clue how it got in the case. The same goes for many items, particularly in the fresh departments. It is mind-boggling that we blindly entrust our well-being to a supply chain that is a completely black box. We have organizations that protect wildlife, fight for the preservation of our waterways, and fund research to cure thousands of different diseases....why not one to address the safety of our food supply? Government agencies don't fix these problems, sad to say, even though there are bureaucrats in agencies all over Washington who are, on paper, responsible for our land, animals, air, diseases, etc.

    Truth is, the FDA is no more capable of ensuring a safe food supply than the EPA has been able to clean up the environment or the Center for Disease Control has been able to eradicate communicable diseases. We as citizens need to take a more active and responsible role in the redesign of our food supply and to understand what the costs and benefits will be. No one manufacturer, distributor, retailer, or trade association is going to be able to move this mountain or volunteer to be the sacrificial lamb. This state of affairs will never improve without intervention and education of the public.

    Eating will never be without risk and the supply chain will never be truly transparent, so information is the first step.

    I look forward to the day that the formation of a Food Safety Association is announced - unfortunately, the events leading up to this will probably be tragic and widespread. I would gladly make a donation to the cause if it means that my family and friends will have more information about their food choices and that the food we eat is handled with the caution and respect we all deserve.

    I was buying ground beef at a retailer yesterday and it occurred to me to ask a manager where it came from. So I did.

    “Not a problem,” he said. “That’s only at Whole Foods.”

    Not exactly, I replied. And you didn’t answer the question, I pointed out.

    He told me where the beef was from, which left me satisfied…and then I suggested to him that maybe a sign in the meat department that would reassure customers would be in order.

    He looked at me aghast. ‘No, no, no,” he said. ‘You don't want to draw attention to it either way.”

    Which in my estimation was the worst comment he could have made. Either way.

    On the same subject, MNB user Elizabeth Archerd wrote:

    The Nebraska Beef mess is an example of the USDA serving two masters. The agency is supposed to both protect the public and promote the agriculture business. Regulate and promote at the same time. This can't be done in a reliable way.

    The government needs to break out the two functions into separate agencies that do not ultimately report to the same cabinet secretary.

    Responding to another story, MNB user Jeffrey D. Minister wrote:

    The article about customers of convenience stores purchasing more traditional supermarket items speaks as much to the lowly state of urban grocery retailing as the weak economy or gas prices. In many DC neighborhoods, it is quite a trip to a Giant or Safeway store, which are effectively the only choices in this market. For the right retailer, there is money to be made in grocery retailing in urban markets.

    On the subject of technology, MNB user Richard Thorpe wrote:

    In today’s paper, I read an article about a “Computer Hackers Convention” where all sorts of devices to steal information was available. I am sure that undercover “cops” were there as well. Makes one wonder if one should do business on the internet at all? Too late to stop I guess.

    The article was written by Jordan Robertson, Associated Press. The first two lines: “Want to break into the computer network in an ultra secure building? Ship a hacked iPhone there to a nonexistent employee and hope the deice sits in the mailroom, scanning for nearby wireless connections.”

    Of course the article was in the business section.

    Yesterday, MNB noted that Stop & Shop had decided to stop selling certain over-fished species because of environmental concerns, which prompted MNB user David Livingston to write:

    I really wonder if anyone at Ahold really cares about the supply of Chilean Sea Bass or Sharks? Customers will simply go to other stores that give the customer what they want. Another blunder by Ahold. And they wonder why their stores are losing market share forcing them to close and consolidate divisions.

    I don't know about that. Sometimes, I think, people and companies actually make decisions for the right reasons.

    And if you buy into John Rand’s comments above about “the New Premium” – and I do – then the argument can be made that this is both a good business decision as well as an ethical choice.

    Last week, I made a passing reference to Jimmy Malone…and had to come back the next day to explain who that was. (The highly quotable Sean Connery character in “The Untouchables.”)

    Yesterday, it happened again. After reporting that Stop & Shop was going to stop selling shark, I commented: “Matt Hooper would approve. Martin Brody, not so much.”

    And again the email came:

    Who the hell are they?

    They are, of course, the Richard Dreyfuss and Roy Scheider characters in “Jaws.”

    I’m feeling soooo old.

    Here’s the deal, MNB fans. If you’ve never seen “Jaws,” your homework assignment before the end of August is to rent it and watch it, since “Jaws” remains one of the best thrillers ever made by mainstream Hollywood.

    Once that’s done, we may have to move on to some other movie assignments. Just so we have some of the same cultural references…

    KC's View: