retail news in context, analysis with attitude

Published on: February 10, 2009

by Michael Sansolo

There’s a small scene in the hilarious movie “Young Frankenstein” that pretty well describes events in our country lately. In this scene, Dr. Frankenstein (pronounced “Fronkunstein”) and his assistant, Igor (pronounced “Eye-gor”), are digging up a dead body that they hope to bring back to life. Knee deep in the mud, Gene Wilder (Frankenstein) comments on the misery of the job. Marty Feldman (Igor) responds: “It could be worse.”

When Wilder asks how, Feldman says, “It could be raining.” Instantly we hear a crack of thunder and, of course, the rain comes down.

It feels like that when I read/watch the news these days. Just as I think “could it be worse?” it is worse. And it makes no difference what part of the news I consider: world news, domestic, political, business, religion…it just starts raining. (Oh, and thank you Michael Phelps and Alex Rodriguez for removing the fantasy that sports could be an escape.)

It can and does get worse and it isn’t likely to stop soon. One troubling aspect of this: with every bad actor on the scene from Bernie Madoff to John Thain, with every corporate misstep from Wall Street to Wells Fargo, the debate becomes less reasoned and the broad brush of bad behavior grows wider. (I’d argue that corporate jets and recognition meetings can both be cost effective and positive, but don’t expect to hear that argument supported widely at the moment.)

The reason the food industry has to fear the descending mindset comes right off the front page thanks to the Peanut Corporation of America. Once again a bad actor—and I’m sorry, but it’s hard to call them anything but—is defining the debate. And the entire food industry and our essential issue of trust—food safety—will now be viewed with skepticism and concern. Could it be worse?

Obviously, yes, but we don’t have to let this one go without a fight. The entire food industry needs to fight this aisle by aisle, giving the shopper every possible assurance of the importance we put on their safety. We need more statements like the ones from Jif and now Peter Pan, putting our reputations on the line and talking to shoppers about how we support food safety.

And we certainly need to provide clear and immediate instructions to staff throughout the industry that this is no time for cutting corners or taking chances. We’ve talked for years about all the work poured into food safety training. Now is the time to make certain every element is working.

The food industry cannot fix poor governmental oversight or conflicting jurisdictional disputes between the Food and Drug Administration and the Department of Agriculture. We can keep fighting for improvement in that area, but that fix remains beyond our control. What we can control is what we must control. And we need to make sure our shoppers know it.

We know someone will ask: could it be worse?

We have to make certain the answer is an emphatic NO!

…And Make it Better

Some anniversaries simply don’t get enough attention, so I have to branch out in a very different direction. Forty-five years ago yesterday, the world as we knew it changed. On Feb. 9, 1964, The Beatles performed live in the US for the first time: on the “Ed Sullivan Show.”

If you aren’t old enough to remember this incredible moment, you have to understand that Ed Sullivan was the king of entertainment television and that The Beatles, established in Europe but largely unknown here, exploded with a force that remade music and culture in ways we still feel.

Here’s a part of the story I didn’t know. Sullivan, who was in his 60s at the time, found out about The Beatles while in a British airport. He ran into a pack of crazed fans awaiting the band’s arrival and asked what was going on. Almost instantly he booked them to a three-show deal.

Think about that. A 63-year-old man catching a flight in London sees the stirring of what would become the biggest revolution in popular music and takes a chance. Makes you wonder what might wait around the corner for all of us, if only we look.

Published on: February 10, 2009

US News & World Report has a story suggesting that there are at least 15 US companies likely to be out of business, or radically altered, by the end of the year – and four of them are familiar companies often covered here on MNB.

According to the story, “Many of these firms are in industries directly hit by the slowdown in consumer spending, such as retail, automotive, housing and entertainment. But there are other common threads. Most of these firms have limited cash for a rainy day, and a lot of debt, with large interest payments due over the next year. In ordinary times, it might not be so hard to refinance loans, or get new ones, to help keep the cash flowing. But in an acute credit crunch it's a different story, and at companies where sales are down and going lower, skittish lenders may refuse to grant any more credit. It's a terrible time to be cash-poor.”

The four companies are:

• Rite Aid, which is described as being the most leveraged drugstore chain in the US that is simultaneously facing tougher competition from Walmart. In the past year, its stock price has declined 92 percent.

• Sbarro, the pizza chain, is dealing with the reality that many of its outlets are in malls, which are suffering from dramatic decreases in traffic. And unlike other fast food chains, Sbarro cannot depend on a breakfast or late-night menu. Add to that the fact that it has more debt and less cash flow than most of its competition.

• Blockbuster, which is facing competition from cable and Internet operators that don’t require people to go to the store, is trying to figure out how to raise prices without alienating customers. It won’t be easy.

• Krispy Kreme has a load of problems – overexpansion, a more health-conscious consumer base, and too much debt. Plus, it hasn’t had a profit in three years.

Published on: February 10, 2009

Media Post reports that the recession is hitting the nation’s magazine business, with newsstand sales down 11 percent in the second half of 2008 compared to the same period a year earlier. The declines seem to be pretty much across the board, with two bright spots - People and Entertainment Weekly.

Published on: February 10, 2009

USA Today reports that Peanut Corporation of America, in addition to owning the Georgia plant that has been linked to salmonella-contaminated peanut butter and peanut paste, also owns a Virginia plant that “was cited last year for inadequate conditions, including mouse droppings in a warehouse, a live bird inside the plant and mold on totes holding peanuts, according to Virginia state inspection records.”

Published on: February 10, 2009

In Toronto the Globe and Mail reports that “The bad economy is turning out to be a good thing for Loblaw. People need to buy food, even in tight times, and the grocer's financial results improved in the third quarter.”

Interestingly, the company also has made headway by deciding to compete with Walmart in the clothing arena even as the giant discounter was expanding into food. Its solution – a low cost brand called Joe Fresh, which “is now the second-largest clothing label in Canada by unit sales; what is more, it's the top brand in children's wear, which it launched only 18 months ago.”

According to the story, “Low-cost chic fashion, while a discretionary purchase, is also a good fit for recession-ravaged consumers. But the stakes are high. Apparel generates profit margins that can be more than twice those of groceries, yet it requires replenishment almost as regularly. The company has set an aggressive goal of $1-billion in annual sales of Joe Fresh by 2010. It's a target that even the line's creator thinks probably can't be met within that period.

“Next month, Loblaw will raise the stakes higher when it launches a cheap-chic cosmetics line - yet another category that is usually recession-resilient.” The paper says that it “is part of its bid to revitalize its underperforming general merchandise section. It aims to concentrate more on high-margin health and beauty items, and less on low-margin furniture and electronics.”

Published on: February 10, 2009

MediaPost News reports that the Every Day with Rachael Ray magazine will launch a new section in April called “Supermarket 101,” described as a monthly look at “what goes into shopping carts to see what turns shoppers on, what products they love and analyzes their receipts.”

According to the story, “Playing off the section's theme, the magazine is introducing content that is designed like a supermarket circular. Topics include hidden grocery shopping costs, the best online grocery services and top-selling sodas. To gather the material, the magazine has hired a network of national stringers to follow consumers as they shop in stores.”

Published on: February 10, 2009

• The Boston Globe this morning reports that Walmart “is making an aggressive push across Massachusetts to double its supermarket business over the next year. The effort to woo more bargain-conscious Bay Staters includes the construction of a new supercenter in Worcester and the addition of markets to stores in Halifax, Hudson, Oxford, Salem, Springfield, and Swansea. A grocery addition already under construction at Wal-Mart's North Attleborough location is expected to be completed this fall.

“At a time of massive layoffs and store closings across the Commonwealth, cities, towns, and residents once dedicated to derailing anything Wal-Mart are rolling out the red carpet for the discounter. Wal-Mart says its efforts will create 700 jobs at Massachusetts stores, and it is actively seeking additional store opportunities in New England, one of the last frontiers for the Bentonville, Ark., company to conquer.”

Published on: February 10, 2009

The Seattle Times reports that Gerry Lopez, who runs the company’s global consumer products group as well as its foodservice business and the Seattle’s Best Coffee division, is resigning from the company effective February 20.

He is being replaced by John Culver, a former Nestle executive who has been running Starbucks’ Asia Pacific business.

Lopez is said to be leaving the company for “personal reasons.”

As the Times writes, “He is the third top executive to leave Starbucks since Howard Schultz reclaimed the CEO spot last year. At that time, former CEO Jim Donald was pushed out, and last fall Chief Financial Officer Pete Bocian departed after a year to become Hewlett-Packard's chief administrative officer.”

Published on: February 10, 2009

• WinCo Foods announced yesterday that it has opened the first of two new 94,000 square foot stores in Spokane, Washington. WinCo currently operates 65 stores and three distribution centers in the states of Washington, Idaho, Nevada, California and Oregon, with a fourth distribution center under construction in Boise, Idaho.

• Albertsons LLC, perhaps best described as the Albertsons owned by Cerberus and not by Supervalu, announced yesterday that it has entered into an agreement for a new store location in Mandeville, Louisiana, a unit most recently operated by A&P.

Albertsons also said that it would make “a significant capital investment in its existing store base,” with remodels scheduled for over 20 percent of the locations in the Dallas/Fort Worth division.

The company currently operates more than 240 stores under the Albertson’s banner in Arizona, Arkansas, Colorado, Florida, Louisiana, New Mexico, and Texas.

• 7-Eleven has announced that in order to cope with the economic downturn, it is suspending 401 (k) contributions to its employees retirement accounts, eliminating 200 jobs in its non-store operations, stopping merit pay increases and reducing bonus payments.

• There is a report out of the UK saying that Tesco CEO Sir Terry Leahy said last week that the company – and the UK food industry – may have been too quick be defined as against genetically modified foods and organisms, and that the industry took up an emotional response rather than a science-based response.

"Maybe there is an opportunity to discuss again these issues and a growing appreciation by people that GM could play a vital role,” Leahy said, referring to the need to grow more food to feed starving populations.

The EU largely has had a zero-tolerance approach to GMOs.

Published on: February 10, 2009

• There may be a worldwide recession, but McDonald’s doesn’t seem to be taking much notice – the fast feeder’s worldwide same-store sales reportedly were up 7.1 percent in January. In the US, monthly same-store sales were up 5.4 percent; in Europe they were up 7.1 percent, and up 10.2 percent in the Asia-Pacific region, the Middle East and Africa.

Total worldwide sales were up 2.6 percent.

Published on: February 10, 2009

Playwright Robert Anderson, who wrote “Tea and Sympathy” and “You Know I Can't Hear You When the Water's Running” died yesterday at age 91.

One of Anderson’s best works also happens to be one of the best movies of 1970 – “I Never Sang For My Father,” which featured anguishing and affecting performances by Melvyn Douglas and Gene Hackman, playing a father and son trying to connect in the older man’s last days.

The best line is one that both begins and ends the movie: “Death ends a life. But it does not end a relationship.”

Published on: February 10, 2009

Continued reaction to the salmonella-contaminated peanut butter scandal…

MNB user Dan Jones wrote:

Here are the uncontested facts of the case so far:

1) Management of this plant is criminally negligent and deserved whatever is coming to them and more
2) Our Food Safety government agencies are not getting the job done

Here is the part of the story that baffles me:

1) Where were the Quality Departments for companies like Kellogg’s, Little Debbie, etc? How can these companies be buying key ingredients for their products without inspecting the source of the product? It is the responsibility of the brands to defend their equity. Manufacturers need to be responsible for the ingredients they purchase.

There is more to a good supplier relationship than price.

Another MNB user wrote:

What's the difference between the thug who shoots someone in a convenience store robbery and the execs of a company who ship a food product with known contamination that can be lethal? I'm thinking not much. Let's treat 'em the same and see highly publicized names, shame and jail for these morons.

MNB user Dale Tillotson wrote:

Kevin, your normally politically correct constructive criticisms were well put aside in your comments on peanut hell.

This brings up another point. What the hell good is country of origin labeling doing to protect us when the country we must fear the most as far as food consumption goes is our own?

I’m politically correct?

MNB user Jeff Koeze wrote:

My view is that all the talk of structural reform and major overhauls of the food safety system are a distraction from the real issue. The existing system, if inspection, inspector training, and some research were well-funded, can work and work well. The fundamental problem is that economic incentives (in the form of downward pressure on prices) to cheat have increased hugely over twenty years at the same time funding for basic food safety has decreased.

To give one example, lots of folks are arguing that food safety activities of the USDA and the FDA should be combined in a new agency. That might be a good idea, but it had no role in causing problems at PCA. My fear is that we will get a combined agency or other "reforms" that will give the impression of fixing the problem but with the same lousy funding. And sad to say, there are plenty of people in the food business who would be fine with that.

And another MNB user wrote:

I agree the FDA and other governmental oversight agencies have been stripped of their ability to protect American citizens…but, even if they were at full strength and capability, they still would not be able to catch all companies that are run by unscrupulous people. America must regain her morals and it starts with every citizen. Where were the whistle blowers at PCA, where was middle management, where was line management? Would anybody have listened to them at the FDA…state of Georgia?

A REMINDER ON THE FOOD SAFETY ISSUE…

Last week, I had the opportunity to premier a new video, Gone Fishing: Food Safety In A Global Supply Chain, at the annual CIES International Food Safety Conference. The folks at JohnsonDiversey, which sponsored the video, have agreed to make a copy available to any member of the MNB community who wants one.

If you’re interested, just send me an email with your name, title, company and address…and I’ll pass that information on to JohnsonDiversey, and they’ll send the video out.