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    Published on: December 15, 2008

    Lee Scott, the outgoing CEO of Walmart, appeared yesterday on NBC’s “Meet The Press” as part of a panel discussion about the state of the nation’s economy. (Also appearing were Michigan Governor Jennifer Granholm, former Massachusetts Governor Mitt Romney, former Hewlett Packard CEO Carly Fiorina, and Google CEO Eric Schmidt. The panel was moderated by David Gregory, the new permanent host of ‘Meet The Press.”)

    One of the things addressed by Scott was the trend in consumer spending, at least as seen by Walmart: “In our business we're focused on customers, we're focused on everyday needs of middle-class America, working people,” he said. “And so what we are is in touch with what's happening out there in this economy on an everyday basis. An example would be we're seeing right now these Walmart moms, they're spending their money against their children's needs and their family's needs and deferring their own purchases. We're seeing people buy more and more food, particularly frozen food. In our Sam's Clubs, we're seeing the small business, particularly the restaurant owner, who's visiting the club multiple times a week as yesterday's cash flow allows them to purchase … for tonight's business.”

    At another point in the discussion, Scott talked about consumer concerns in these tough economic times: “What we're seeing is, in our surveys and interfaces with the customers, which we do extensively every month, is that energy costs have clearly dropped. I noticed on my way in here this morning gasoline here is $1.339, so that's moved down. We're seeing, though, that, that our customers have a great deal of faith that government will ultimately take the right action and be successful in addressing the current situation, but the number one issue today is their concern about their job. And that is, that is clear.

    “You can see, across our store, things--in our pharmacy group, we have increases in prescription drugs, but not at the same rate it was. And what we're seeing is an increase in self-treatment. We're seeing an increase in food storage as people are cooking more at home. And, in fact, using leftovers more extensively. So consumers are, in fact, changing their behavior.”

    Scott also called for a contextual approach to addressing the current economic crisis, one that would involve both business and government, and that would acknowledge that there is a linkage among seemingly disparate elements of the national life.

    “Certainly, the next few months, are going to be very challenging,” Scott said. “But we, we believe there's an opportunity here to not just address this challenge and this crisis, but what are we going to do as a country so we emerge from this crisis as a stronger America? So are we going to address comprehensive healthcare reform … or are we going to have a national energy policy? What are we going to do about education? Because if all we do is this one package, and we don't address the rest of it, what will keep us from coming right back to the same situation?”

    And, he added, “Any business or anyone today who's putting their interests ahead of this country, I think, is just on the wrong track. And, and we get, quite honestly, some people who, who say that we shouldn't be pushing for this energy policy and for this reform in health care, that Walmart shouldn't be involved in that. I think they're just wrong. I think today, more than ever, we have a responsibility to participate, and I don't mean on a negative side of participating by just being critical of what's proposed, but by being a partner in these solutions.”

    KC's View:
    Watching “Meet The Press” yesterday morning (a Sunday ritual in the Coupe household), I was taken by the fact that none of the panel participants – and they reflected a broad political spectrum) seemed to disagree very much about the need for contextual, comprehensive government intervention that would, nevertheless, hold companies and industries accountable if they take advantage of taxpayer money. Maybe that’s a good thing – if people of different parties and different political persuasions can agree in principle on what we ought to do, then maybe we really can, as Scott said, “emerge from this crisis as a stronger America.”

    It also was very interesting that when asked about the housing crisis and the role that government ought to play, Scott said, “It's hard for me to be critical of government intervention in the mortgage business, since my wife and I got our first house in the early '70s through a 5 percent tax rebate that came from buying a $30,000 home … And that $1500 we got back from the government was, in fact, our down payment. And I thought--quite honestly, I thought that was a very effective way to give myself and my family the opportunity for home ownership and to do it in a very constructive way. I think back then the interest rate was 8.75, so it wasn't that attractive. But I think there is a role that government can play.”

    There will be some Walmart haters who will disagree with me on this, but I think the maybe one of the reasons that Lee Scott ultimately has done a good job for Walmart – despite some trying times and even some missteps – is that he remembers that first house, that first down payment, those early struggles.

    Not enough people – whether political or business leaders - do. Or maybe not enough of them have had early struggles, which is why they find the current situation so perplexing.

    Just a thought.

    Published on: December 15, 2008

    Excellent commentary in the New York Times over the weekend about the Federal Trade Commission’s ongoing efforts to unravel the $565 million acquisition by Whole Foods of Wild Oats – a deal that was finalized more than a year ago, and that has resulted in virtually every Wild Oats store being converted to the Whole Foods banner.

    “Since the F.T.C. first challenged the merger in June 2007, Whole Foods has increasingly lost its hold on the organic and natural foods marketplace,” the Times writes. “Larger competitors like Safeway and Kroger have vastly expanded their store-brand offerings of natural and organic products, and they are often cheaper than those at Whole Foods.

    “The situation has only accelerated as the economy has soured. Whole Foods has mounted an aggressive campaign to convince consumers that it isn’t so expensive. The store now offers more discounts and store-brand products, which are cheaper. Wall Street, at least, isn’t convinced. Whole Foods’ stock is down more than 70 percent this year.

    “So why continue with the litigation?”

    The analysts questioned by the Times say that at this point, it has become more a question of personalities rather than law, with one lawyer saying that the FTC doesn’t “tend to be terribly flexible in recognizing economic realities.”

    David P. Wales, acting director of the FTC bureau of competition, tells the Times that “the goal is not to drive Whole Foods out of business … Our job is to protect competition and that is what we are doing here.”

    Wales, according to the Times says that “the agency wasn’t contending that Whole Foods and Wild Oats did not have any other competition. Instead, he argues, there is a special level of competition between the two that matters to consumers. He said the F.T.C. would present evidence showing that Whole Foods still maintains a unique spot in the premium marketplace for organic and natural products; he declined to elaborate.”

    The Times argues that the best way for the case to be resolved would be for both sides to take a trip to Safeway: “Whole Foods might learn a thing or two about how to compete against a larger, more efficient rival. And the FTC's lawyers might see that even if they lost the battle with Whole Foods, they were winning the larger war to keep prices down.”

    KC's View:
    I find it interesting that this is the conclusion that the Times reached. From the very beginning, it was argued here on MNB that the reason the original judge in the case ruled in favor of Whole Foods is that he does his own shopping, and knows what the market actually is like. He understood what leads to lower consumer prices, and that there is plenty of competition out there to the Whole Foods model.

    It’s been said here before – the FTC lawyers are acting like rabid dogs hungry for raw meat, and in pursuing their goals have wasted more taxpayer money than can be reasonable sanctioned.

    Published on: December 15, 2008

    The New York Times reported over the weekend on the increasing popularity of private label products:

    “As the economy plunges into a deep recession, grocery stores are one of the few sectors doing well. That is because cash-short consumers are eating out less and stocking up at the supermarket. And store brand products, which tend to be cheaper than national brands and more profitable for grocers, are doing especially well.

    “Led by chains like Trader Joe’s, Kroger, Wegmans and Safeway, grocers have expanded
    their store brands beyond cheap generics and simple knockoffs of Cheerios, Oreos and Coca-Cola. Now, retailers are increasingly adding premium store-brand items like organics, or creating products without direct competition.”

    And, the Times goes on, “Dollar sales of store brands increased 10 percent during the 52 weeks before Nov. 1, compared with a 3 percent gain for branded products, according to the Nielsen market research company.

    “Store brands now account for nearly 22 percent of products sold at the grocery, up from 20 percent a year ago, Nielsen found. At Kroger, store brands account for 26 percent of grocery sales. In this economic climate, the numbers suggest, many shoppers are willing to try the newly developed store brands. They also say it is hard to resist the low prices of store brands for staple goods like milk, sugar and cheese … Besides the weak economy, the growth of store brands reflects a historic shift in the balance of power between packaged food manufacturers and grocery retailers. As grocery chains have consolidated and grown bigger, they are increasingly able to stock their shelves with their own products, which bring higher profits and drive customer loyalty — all to the detriment of major food brands.”

    KC's View:
    This is just another in a whole series of stories that have come out in the past few weeks pointing to the growing popularity of private label during a recessionary environment.

    It is interesting that also in the past few days, the Times ran another story about how Walmart, through its release of albums by the Eagles, Journey, and AC/DC, has created for itself a differential advantage. “The world's biggest retailer has taken bands that seemed well past their prime and put their new releases at the top of the charts,” the Times writes. “That has created a new business model that has opened a new revenue stream for Walmart and promises -- at least for some bands -- a way out of the music industry's download-fueled downward spiral.”

    Essentially, this is the same thing. It is identifying products and services that are going to appeal to shoppers…even if people don’t know that they hunger for them. It is not so much that there was a groundswell of support for new albums by these groups, but that Walmart was able to tap into a latent desire on the part of baby boomers – still a powerful buying force – for the music of their youth.

    Especially today, we all have to be looking for these opportunities, seeking the power of a differentiated offering.

    Published on: December 15, 2008

    The Sacramento Bee reports that the nation’s economic slowdown has resulted in Tesco decided not to open some of the Fresh & Easy Neighborhood Markets that are close to being ready for business in Northern California.

    The reason? “Fresh & Easy's supply chain is based on a single central warehouse and kitchen serving a large number of stores,” the Bee reports. “The chain's 104 locations in the Southwest – from Bakersfield to San Diego to Phoenix – are supplied daily from an 88-acre distribution center in Riverside.

    “That model isn't financially sustainable if the distribution center serves only a handful of locations, several experts said … Fresh & Easy has said it plans to establish a distribution hub in Northern California – rumors point to a Stockton site – but won't give details on progress.” Tesco previously had announced that it would slow down its store opening plans in California because of concerns about the recessionary economy.

    KC's View:

    Published on: December 15, 2008

    Consumer Union issued a press release over the weekend saying that it was “deeply disturbed” by a draft proposal written by the US Food and Drug Administration (FDA) saying that despite concerns about mercury in fish, consumers should eat more than 12 ounces a week of seafood – which is beyond the current limit advised for pregnant women, women of childbearing age, nursing mothers and young children. The Environmental Protection Agency (EPA) has responded to the FDA move by calling them as "scientifically flawed and inadequate" and “short of the scientific rigor routinely demonstrated by EPA."

    Following is the text of the statement:

    “Consumers Union is deeply disturbed that the Food and Drug Administration is contemplating relaxing its fish-consumption advice for vulnerable populations such as women of child-bearing age, pregnant women, nursing mothers and infants. The agency’s recommendation flies in the face of decades of scientific-based concern about the neurological and behavioral effects of mercury from food, especially on the developing nervous systems of fetuses and young children. Our analysis of the agency’s own data in 2006 led Consumers Union to recommend that pregnant women avoid tuna altogether.

    “’Until there is greater scientific understanding of the causes of neurological disorders and diseases including Autism, Cerebral Palsy, Lou Gehrig’s Disease, Alzheimer’s and Parkinson’s, we cannot rule out the health effects of exposures to neurotoxins like mercury, especially during critical periods of the neurological system's development and vulnerability to damage that occurs in the womb and into childhood,’ said Dr. Urvashi Rangan, Senior Scientist and Policy Analyst at Consumers Union.

    “With so many types of fish lower in mercury widely available to consumers—such as wild salmon, sardines, scallops or tilapia—Consumers Union finds it irresponsible for the government to deliberately fail to differentiate among better alternatives and suggest that susceptible people should take unnecessary risk.”

    KC's View:
    The FDA position is difficult to understand, except for the fact that the agency has lost all credibility and therefore most people expect very little from it. I remain cynical and suspicious of pretty much everything that FDA does. And I’m hardly alone.

    Published on: December 15, 2008

    Newsday reports that “the legal outcomes of a fatal nightclub fire in Rhode Island and a deadly stampede at a Bronx concert could serve as model cases for Nassau County prosecutors in their criminal investigation of the Wal-Mart stampede in Valley Stream, legal observers say. ”

    The stampede, which took place on “Black Friday,” resulted in the death of a temporary worker who was trampled by customers looking for a good deal on Christmas presents the day after Thanksgiving.

    According to Newsday, “The owners of the Rhode Island nightclub - where in 2003 pyrotechnics lit during a concert by the band Great White sparked a fire that killed 100 people - pleaded no contest to charges of involuntary manslaughter. In the Bronx case, criminal charges were considered but never filed against promoters of a 1991 AIDS benefit concert at City College where nine people died in a stampede after too many tickets had been sold, according to investigators.

    “The difference, legal experts say, is whether the company could have foreseen the potential for disaster…”

    • Published reports say that Walmart, as part of its plan to build 2,000 new in-store medical clinics over the next few years, plans to roll out a digital signage network that will provide shoppers with medical information, news and other content while they are shopping the clinics.

    KC's View:

    Published on: December 15, 2008

    In the UK, the Daily Mail reports that “research shows that some budget food stores are actually more expensive than the 'big four' supermarkets when it comes to groceries.

    “It found discount chain Aldi charged the most for a basket of basic shopping items, including bread, toilet rolls, washing-up liquid and wine, while Asda worked out the cheapest.

    “Fellow budget stores Netto and Lidl were also left languishing at the bottom of the table behind Tesco, Sainsbury's and Morrisons.”

    The argument seems to be that if shoppers stick with private label brands in the “big four” supermarket chains, they actually can do better than by shopping at so-called discount stores.

    KC's View:

    Published on: December 15, 2008

    • The Associated Press reports that Fred Meyer Stores has settled a sexual harassment suit charging that a store director and store operations director at an Oregon City store “repeatedly subjected women employees to graphic sexual discussions, unwanted touching and requests for sexual favors.”

    Fred Meyer, a division of Kroger, will pay $485,000 to settle the suit. The company said that the managers were in violation of company policy, have been replaced, and that the incidents were isolated.

    • The Wall Street Journal reports that Coca-Cola plans to launch a new diet drink this week that will have “a natural, calorie-free sweetener” that is derived from stevia. The drink will be marketed as part of the company’s Odwalla line, and the journal notes that the product introduction intensifies “a race with PepsiCo Inc. to dominate a new generation of noncarbonated beverages.”

    One potential sticking point – the US Food and Drug Administration (FDA) hasn’t formally approved the use of stevia in foods and beverages, and Pepsi has been waiting to introduce its entries until these approvals come.

    According to the Journal, “The FDA's go-ahead -- in the form of a ‘no objection’ letter -- isn't required under the voluntary notification program through which the sweetener is being evaluated. But an official notice would help the companies assure consumers and retailers -- and ensure that the companies avoid the embarrassment of pulling a product off the market if the FDA does indeed object. Consumer advocates have criticized the FDA's voluntary program for new ingredients as too industry friendly.”

    • Published reports say that Publix plans to open its first PIX convenience store in Atlanta this week, featuring Publix private label grocery items as well as six gasoline bays and 12 pumps.

    Reuters reports that KB Toys plans to close all of its stores and has filed for bankruptcy protection.

    KC's View:
    Most people probably thought KB Toys stopped operating years ago. Which is what happens to retailers that have become irrelevant to shoppers.

    Published on: December 15, 2008

    • BJ's Wholesale Club named its president/COO, Laura Sen, to serve as CEO, succeeding Herb Zarkin, who will continue to serve as chairman. Zarkin, the long-serving chairman of the company, had taken over as CEO in 2006 in order to revive the company’s stock price.

    • Belgium-based Delhaize Group announced that Stéfan Descheemaeker, a former executive at InBev, will join the Company on January 5, 2009 as its new Chief Financial Officer.

    • The Atlanta Business Chronicle reports that CEO Muhtar Kent is slated to become chairman of the company, as the current chairman, Neville Isdell, confirmed that he will not stand for re-election at the April 2009 board meeting.

    KC's View:

    Published on: December 15, 2008

    • Unified Grocers announced net annual sales of $4.105 billion for the just-completed fiscal year, up 31 percent from $3.133 billion during the same period a year ago. Net
    earnings were $17.4 million for the 2008 period, as compared to $14.4 million for the 2007 period, a 20.6 percent increase.

    • The Penn Traffic Company reported that its third quarter revenues were $287.3 million in the third quarter of fiscal 2009, compared to $298.7 million during the same period a year ago; same store sales were down 0.8 percent for the period. The company suffered a Q3 net loss of $5.6 million, compared to a $9.6 million loss during a the same period last year.

    KC's View:

    Published on: December 15, 2008

    Responding to last Friday’s story about the coffee wars between Dunkin’ Donuts and Starbucks, MNB user Brian List wrote:

    I went to a new Dunkin Donuts on my way to work this morning, and while it took a while to get a bagel with cream cheese and a coffee, the coffee was quite good, and I preferred it to McDonalds and Starbucks. But, in the summer, nothing beats a mocha frappacino, albeit once or twice a month with the price being over $4.

    Another MNB user wrote:

    I think that you are drinking the proverbial "Kool Aid" (although in this case, I think that your preference is Starbuck's Verona). Have you tried McD's coffee? Pretty good, fresh, hot, and you don't need a loan to buy a cup. Starbucks often tastes 'burnt' to me. And as I've told my kids, Starbucks cycles their coffee beans so that when they say that they love Starbucks coffee, they actually love the brand (of course that's the point for Starbucks).

    I LOVE the advertising by McD's as it positions both brands fairly (large vs. grande) and lets the customer choose. I've long waged war against ordering a "grande" or "venti". In fact, my best friend chides me by ordering for me, "He'll have a cup of Joe," to which the barista responds by that 'deer in the headlight' look and mumbles a "What?" as my buddy guffaws.

    I think that there is plenty of market for both of these heavyweights, but I'm guessing that as the economy continues to dip, some may forgo that $5 double shot, half caf, triple whip BS, and just swing by the drive-thru for a good ol' cup of Joe!

    You miss the point I was making on Friday.

    The fact is, I have tried McDonald’s specialty coffees…and I find them to be mediocre at best, and don’t like them nearly as much as Starbucks.

    That just means we have different tastes. Not that one of us is right or wrong.

    I do agree with you that Starbucks’ brand identity is at least part of what the company is counting on to help it make it through the recession…even when times are tough and money is tight, there will be people who will find that $4 latte to be an affordable luxury, and the “third place” to be an inviting and even reassuring option. (This isn’t a bad thing, to my mind…it is the kind of brand identity that most retailers should be looking to achieve.)

    Another MNB user wrote:

    While I appreciate Starbucks for taking the high road by not responding to the negative connotations from McDonalds, Chief Marketing Officer Terry Davenport has a fiduciary responsibility to his shareholders and should respond in an appropriate manner, which can be done tactfully without diminishing the overall value of the company. He should use Walmart as a case study on why not to ignore and why to address such assaults head to head. Walmart took a similar stance in the 90's when the labor unions begun their smear campaigns with the intent to improve membership through either unionizing Walmart or slowing their growth to protect their current base. Walmart's inaction, inspired by the same motivation, severely diminished consumer perception and eroded employee morale. Their inaction stagnated stock growth for a decade and it has taken years for Walmart to rebound from their inaction.

    Luckily, Walmart had financial stability to survive through the transition and learn from their mistakes, Starbucks does not have that same luxury. Unless Terry Davenport desires to be the next case study at the Harvard Business School, he would be wise to rethink his decision.

    It never occurred to me that Starbucks was not responding. Just that it was responding by emphasizing its strengths rather than getting down in the mud with the opposition.

    Regarding the questionable efficiency and efficacy of US agencies charged with food safety responsibilities, one MNB user wrote:

    There appears to be significant overlap between the missions of these two agencies. Perhaps it is time to reorganize to better protect the public health.

    USDA Mission Statement - We provide leadership on food, agriculture, natural resources, and related issues based on sound public policy, the best available science, and efficient management.

    FDA Mission Statement - The FDA is responsible for protecting the public health by assuring the safety, efficacy, and security of human and veterinary drugs, biological products, medical devices, our nation’s food supply, cosmetics, and products that emit radiation. The FDA is also responsible for advancing the public health by helping to speed innovations that make medicines and foods more effective, safer, and more affordable; and helping the public get the accurate, science-based information they need to use medicines and foods to improve their health.

    Now there’s a debate topic designed to shake public confidence – is the nation’s biggest problem that these two agencies have too much overlap, or too many gaps?

    Last week, MNB carried a story about the Grocery Manufacturers Association (GMA) hiring Pamela G. Bailey, president/CEO of the Personal Care Products Council (PCPC), to be its new president/CEO.

    In my commentary, I wrote:

    It is interesting that at both FMI and GMA, the new CEOs are women who have long experience in the trade association world. It certainly is a good thing that these jobs have not been filled by the same middle aged white guys who tend to get these gigs, but it is just as noteworthy that the trade association mold is not being broken – there had been some expectation that with so many changes taking place in industry and government, this might be an interesting time for more unorthodox choices. As one person said to me yesterday, “If all you have is a hammer, everything looks like a nail.”

    Not passing judgment here on either of the associations or their CEO choices. Just noting that there are some mutterings out there about direction and innovation…and that it is up to both organizations and their leaders to face the fact that the world is changing in profound ways.

    To which MNB user Bob Aders – the former president/CEO of the Food Marketing Institute (FMI) – wrote:

    Who or what kind of CEO should the associations have chosen that the hammers would not have mistaken for a nail?

    The point I was trying to make was this – that it may be that the role of a trade association in 2008 and beyond is not the traditional role, and therefore perhaps the leadership needs to reflect a less orthodox approach. I am not suggesting that any of these new leaders are incapable of out-of-the-box thinking … but I am saying that there is a constituency out there that believes there is no room in the current environment for orthodox, traditional mindsets.

    MNB user Craig Espelien had some thoughts about last week’s MNB Radio commentary:

    Your radio message on the Kindle really strikes at the heart of several things – relevance, innovation, retailing and complacence.

    In my past, I used a pretty simple two by two matrix (this is called a Johari Window – such a cool name for such a simple concept) to attempt to educate retailers on how to work with the consumer – but too often people fall into the consumer research trap (as the interviewer did with Bezos).

    Consumer needs come in two forms: stated or unstated.

    These needs are in one of two states: met or unmet.

    Most retailers (and manufacturers) focus on the stated, met needs – which is where everybody plays. What the Kindle does (and what Swiffer did I might also add) was fulfill and unstated, unmet need – no one wanted either, no one needs either but – at least with Swiffer – no one can live without it. I think it will be the same with the Kindle.

    Your message is on the money – manufacturers and retailers need to understand what job the consumer has to do and find a better way for them to do it.

    Feargal Quinn said something like this: It takes real courage to choose the unquantifiable option. That is why the Steve Bezos, Steve Jobs and Bill Gates of the world are so successful. They have the courage to try.


    Interestingly, in his Sunday New York Times column about the state of the US auto industry, Thomas L. Friedman wrote, in part:

    “Over the years, Detroit bosses kept repeating: ‘We have to make the cars people want.’ That’s why they’re in trouble. Their job is to make the cars people don’t know they want but will buy like crazy when they see them. I would have been happy with my Sony Walkman had Apple not invented the iPod. Now I can’t live without my iPod. I didn’t know I wanted it, but Apple did. Same with my Toyota hybrid.

    “The auto consultant John Casesa once noted that Detroit’s management has gone from visionaries to operators to caretakers. I would say that they have now gone from caretakers to undertakers. If they are ready to bring in some visionaries and totally restructure — inside or outside of bankruptcy — so they can make money selling cars that people will want to buy, then I say help them. I’d hate to see the Detroit auto industry go under. But if all we are doing is prolonging auto undertakers, then we have to let nature take its course.”

    Makes sense to me.

    KC's View:

    Published on: December 15, 2008

    In Week 15 of National Football League action…

    Tampa Bay 10
    Atlanta 13

    Tennessee 12
    Houston 13

    Green Bay 16
    Jacksonville 20

    San Francisco 9
    Miami 14

    Seattle 23
    St. Louis 20

    Washington 13
    Cincinnati 20

    Detroit 21
    Indianapolis 31

    San Diego 22
    Kansas City 21

    Buffalo 27
    NY Jets 31

    Pittsburgh 13
    Baltimore 9

    New England 49
    Oakland 26

    Minnesota 35
    Arizona 14

    Denver 10
    Carolina 30

    NY Giants 8
    Dallas 20

    KC's View:

    Published on: December 15, 2008

    Just a word of thanks to all of you who wrote to wish me good luck with the knee surgery I had on Friday morning. All went well, and while the knee is stiff and sore, I figure it won’t be too long before I’m back out jogging. It is an itch I’ve missed scratching.

    KC's View: