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    Published on: February 17, 2009

    The University of Michigan’s quarterly American Customer Satisfaction Index (ACSI) is out this morning, and reports that despite the recession, “customer satisfaction with the goods and services that Americans buy improved in the fourth quarter of 2008,” climbing to 75.7 on the ACSI’s 100-point scale, up 0.9 percent from the previous quarter.”

    Relevant excerpts from the report:

    • “Customer satisfaction with the retail sector, which includes department and discount stores, specialty retail stores, supermarkets, gas stations, and health and personal care stores, gains 1.3 percent to 75.2.”

    • “Supermarkets are unchanged with an ACSI score of 76 even though food prices remain high. Publix is on top with a score of 82, the fifteenth straight year the supermarket chain has led the category. Safeway gains 4 percent to 75, its highest score since 2002. The chain is upgrading stores to its new Lifestyle format featuring more square footage for expanded offerings of organic food and other merchandise.”

    • “Discount store giant Wal-Mart has mixed results, falling 4 percent for its supermarket business to an ACSI score of 68, well below the industry average, but rising 3 percent for its non-grocery discount business to 70. Wal-Mart’s Sam’s Club also rises 3 percent to 79.”

    • “Deep discount store Dollar General drops 4 percent to score of 75, not from a decline in service, but from a migration of a higher socio-economic group of consumers to the retailer – another effect of the recession – a group that tends to be harder to please.”

    • “Among specialty retail stores, Costco is up 3 percent to join Barnes & Noble at 83 for the best score in the category.”

    • “The ACSI score for e-commerce falls 2.0 percent to 80.0. Online retail declines 1.2 percent to 82, driven mostly by drops for Amazon and eBay. But with a small dip, Amazon (-2% to 86) remains the second highest scoring firm of all companies in this release.”

    The analysis released with the scores notes that “close to the end of the 2001 recession, an uptick in ACSI signaled that a rebound in the economy was near. But as the current recession has deepened, consumer behavior has changed much more than in earlier economic slowdowns. Consumer spending has continued to weaken while savings have gone up, suggesting that at least for the short term there will be less revenue for sellers and more pressure on profit margins and for cost reductions … Customer satisfaction becomes even more important to individual companies, as they need to prevent customer defections and compete for shrinking dollars.”

    KC's View:
    To be honest, I find these results a little surprising. There seems to be so much public discontent out there, it is a little strange to see a study suggesting that consumers actually may be more satisfied with many retailers than they were just a few months ago. (There aren’t many other institutions about which one could say that.) That’s a good sign for retailers…and a public trust that, in many ways, retailers need to re-earn every day.

    It also suggests that if people actually had more money, they’d be willing to spend at least some of it with the retailers they trust. So maybe there’s a light at the end of the economic tunnel after all.

    Published on: February 17, 2009

    Last Friday’s bankruptcy filing by the Peanut Corporation of America (PCA), the company that has been implicated in the salmonella outbreak that has sickened hundreds and killed nine people, has generated an angry response from Consumers Union.

    The New York Times on Friday reported that the filing was under Chapter 7 of Virginia bankruptcy laws, which would allow for “orderly liquidation of the company,” according to a lawyer representing PCA.

    “It is unacceptable for corporations to put consumers' health at risk, and then simply declare bankruptcy and go out of business when they get caught,” said Jean Halloran, Director of Food Policy Initiatives at Consumers Union. “We must have an FDA that can oversee food processors so that unscrupulous behavior can be detected, prevented and deterred.

    “PCA’s declaration of bankruptcy will, among other things, shield it from liability suits filed by consumers who became sick or whose loved ones died as a result of eating PCA's peanut products. If we are going to have legal deterrents against other companies shipping tainted products, the government must be able to hold corporate officials responsible for their actions. Currently, shipping tainted products is only a misdemeanor under the Federal Food Drug and Cosmetic Act. The Act must be revised so that there are stronger penalties.”

    There have been numerous reports that not only did PCA ignore reports about salmonella contamination at its plants, but that its behavior was egregious in a number of ways. Last Friday, for example, it was reported that at the company’s Texas plant officials found “a filth-infested crawl space” and an air handling system that “was pulling debris from the crawl space into areas where dry roasted peanuts, peanut meal and granulated peanuts were processed.”

    KC's View:
    Consumers Union is correct in its assessment that companies like PCA ought not be able to use bankruptcy filings to avoid legal culpability…but it has to be assumed that even if the company is able to avoid lawsuits, the management and ownership of the company will not be able to wriggle out of prosecution for what seems like obvious cases of negligence.

    Let’s face it. Consumers don't want an orderly liquidation. They – especially the victims of the salmonella outbreak and their friends and families – want blood. And they seem entitled.

    Published on: February 17, 2009

    The Chicago Sun Times has a story saying that one of the results – and benefits – of the current economy is the path upon which a number of companies are embarking –may be clogging up the nation’s supermarkets.

    According to the story, “Food companies from Sara Lee Food Corp. to H.J. Heinz Co. are trimming their offerings to focus marketing dollars on their higher-margin, best-selling brands and retain consumers, who are trading down in the recession.

    “Those top brands are more likely to hold their own, and getting rid of lesser-performing brands helps companies showcase top products as retailers cut inventory.”

    Examples cited in the story:

    • “Heinz aims to remove two items for each one it introduces.”

    • “Sara Lee hopes to cut its offerings 8 percent this fiscal year.”

    • “Kraft Foods … will no longer sell Handi-Snacks pudding to retail customers. At the same time, it's pushing new flavors of its more lucrative Jell-O pudding.”

    Some companies are selling off less profitable lines that are not considered part of their “core businesses,” while others are trimming sizes, flavors and styles of products that less popular with consumers. It isn’t an easy process – consumer research can take up to a year in some cases. But experts say that the overarching goal – saving money during an extended recessionary period that doesn’t seem to be close to ending – makes the effort worthwhile.

    KC's View:
    Okay, on the one hand, consumer packaged goods companies are trying gain efficiencies by cutting back on SKUs, which reduces both marketing and operational expenses.

    But this doesn’t mean that CPG companies are going to gain any sort of advantage in the balance of power struggle between retailers and suppliers. And that’s because a lot of retailers are taking tings into their own hands. See our next story…

    Published on: February 17, 2009

    In New York, the Democrat and Chronicle reports that Wegmans and Tops customers are joining “the legions of others who are making store brands — sometimes called private label or corporate brands — serious contenders for consumer dollars. According to Nielsen Co., which tracks consumer trends, private label sales grew 10.2 percent in 2008, while brand name sales increased only 2.6 percent.”

    According to the story, “Wegmans spokeswoman Jo Natale said the company has seen increased sales of Wegmans brand products, especially over the last year, but she wouldn't give specific figures. At Tops, sales of the chain's two store brands, Tops and Clear Value, were up 5 percent to 15 percent in 2008, said spokeswoman Katie McKenna.”

    Both companies plan to increase their private label distribution, the paper reports: “Wegmans, which has about 7,000 Wegmans brand products, makes some of its own, including baked goods, Natale said. The chain is always expanding its offerings, she said, and recently added a revamped line of 18 canned soups.” And Tops’ McKenna “said the chain is in the process of expanding both lines, which now have a combined total of about 3,100 items, to offer consumers more choices.”

    KC's View:
    When private label works best, it seems to me, it is when it reinforces the overall brand message being communicated by a retailer. (Wegmans may be best-in-class at this.) When private label doesn’t work up to its potential, it is when it is just another/cheaper alternative on the shelf.

    Published on: February 17, 2009

    Good piece in Business Week about how CVS/Caremark CEO Tom Ryan has as his goal “to help transform America's expensive and often ineffective health-care system. Seeking to take advantage of President Barack Obama's commitment to health-care reform, Ryan wants to use CVS's vast prescription database and burgeoning network of in-store clinics to treat patients with chronic diseases and help keep them out of the hospital, where most medical costs are incurred … Ryan believes CVS could help solve this problem and, in the process, boost its own bottom line.

    “As a pharmacy benefit management company, the Caremark unit handles drug coverage for large employers and health plans, negotiating discounts with drugmakers. It owns a treasure trove of prescription drug data, as does CVS. The merged company is thus an info tech Goliath, filling or managing more than a billion prescriptions a year. It can use that information to figure out which customers require a gentle reminder to come in for a refill. As a result, customers would buy more drugs, make ancillary purchases in the store, and maybe even visit the clinic. Ryan's challenge is convincing CVS customers that such refill reminders aren't just marketing tactics. He is encouraged that the Obama Administration recognizes the importance of drug compliance and will support private sector initiatives. As debates over health-care reform heat up this spring, Ryan will argue that his aggressive strategies also make good medical and economic sense.”

    KC's View:
    This sort of ambitious, broad view makes a lot of sense right now, I think, because there seems to be receptiveness to alternative solutions to various problems. Retailers in this business who can address things like the health care crisis and the obesity crisis may find themselves in a very good position when we finally dig ourselves out of the economic hole we’re in.

    Published on: February 17, 2009

    Fascinating piece in the Wall Street Journal about how Procter & Gamble “began using genomic instruments in a laboratory near its Cincinnati headquarters about 10 years ago, trying to incorporate the technology in the development of its consumer staples as well as its health-care products. Now, those efforts are starting to hit store shelves, most recently with last month's launch of Olay Pro-X, a new line of skin creams sold through drug stores and other mass-market retailers.

    “In the increasingly competitive realm of beauty-product innovation, bragging rights are important, particularly with antiaging treatments. P&G claims to be one of the first consumer-products companies to use the gene chip, a tool that allows scientists to analyze gene expression in response to stimuli.” P&G also is applying genomic research to everything from toothpaste to shampoo, working to come up with products that will offer a variety of differential advantages.

    Of course, P&G isn’t the only company incorporating human genome research into the research and development of commercial products. According to the Journal, “P&G's chief beauty competitor, L'Oreal SA, claims its Lancome Génifique is the ‘first to apply protein testing to skin care,’ involving the analysis of 4,400 genes. In addition, “Estee Lauder Cos. uses gene-expression technology and collaborates with prominent scientists in genomics, a spokeswoman says.”

    Not everyone is convinced, of course. Alan Guttmacher, acting director of the National Human Genome Research Institute, an arm of the National Institutes of Health, tells the Journal that for the moment, “it seems that the marketing tends to be ahead of the science … Right now the genomic frontier is much like a wonder world of snake oil."

    KC's View:
    In a world where most of the news seems to be about cutbacks and layoffs, it is oddly heartening to read stories like this one. Hopefully, it means that even as companies and governments wrestle with the implications of a recessionary economy, there still are places where scientific research I being conducted …even if it isn’t being done for entirely altruistic reasons.

    After all, the scientists who originally mapped the human genome may not have been thinking about shampoos and anti-aging creams. But that doesn’t mean that creating them out of legitimate scientific theory is a bad thing.

    Published on: February 17, 2009

    The Chicago Tribune reports that People for the Ethical Treatment of Animals (PETA) is planning to relaunch its “McCruelty” campaign against McDonald’s as it looks to get the fast feeder to pressure its chicken suppliers to kill their chickens more humanely.

    According to the story, there are two ways to kill a chicken before slaughter. One is to knock it unconscious with an electric jolt before cutting its throat, and the other is to gas it – which is the more humane practice preferred by PETA.

    PETA and McDonald’s called a truce back in 2000 when the fast feeder agreed to pressure its slaughterhouses to use more humane ways to kill cows that eventually were going to be turned into Big Macs and Quarter Pounders. But PETA apparently isn’t satisfied with progress on the chicken front, and plans to expand a campaign it has been using – with limited success – against KFC.

    McDonald’s, for its part, maintains that its research shows that gassing isn’t necessarily more humane than electric shocks and throat cutting…and there are at least some animal experts who agree.

    KC's View:
    Readers of this site know that I take a certain perverse pleasure in tweaking PETA, mostly because we all know that its ultimate goal is to turn the world into a spinning globe of vegetarians. But I have to admit that the various descriptions of how chickens are out to death – the Tribune writes that “in most U.S. chicken slaughterhouses, birds are plucked from bins by workers and hung upside down on an assembly lines … their heads are dragged through brine and a shock is administered, which if done properly knocks the bird senseless … a whirring blade then cuts its throat” – certainly goes into the “you really don't want to know how sausages are made” file.

    Published on: February 17, 2009

    The BBC reports that the Scottish Crop Research Institute has created a new breed of potato being described as “environmentally sound” because it needs less water and requires less fertilizer than other varieties.

    Tesco already has announced that it will carry the Vales Sovereign potato in its UK stores.

    KC's View:
    No dilithium crystals were used in the creation of this product. Or so they claim.

    Published on: February 17, 2009

    Bloomberg News reports that a San Francisco federal appeals court has agreed to review a lower court ruling that permitted a gender discrimination suit against Walmart to be given class action status, representing as many as two million current and past female employees of the company.

    The original suit was filed in San Francisco in 2001 on behalf of six women, was expanded by a federal judge in 2004 to include 1.6 million women, and then was expanded again in 2007 to include up to two million women.

    The story notes that this is a suit that Walmart has not settled, despite the fact that the retailer “agreed to pay as much as $640 million in December to settle 63 federal and state class actions claiming the company cheated hourly workers and forced them to work through breaks.”

    KC's View:

    Published on: February 17, 2009

    • The Kansas City Star reports that a US District Court has granted class action status to a lawsuit against Tyson Foods claiming that the company denied workers overtime pay and other compensation. If eventually successful, the suit could result in the workers being awarded millions of dollars in back pay.

    According to the story, “At issue is whether Tyson should be required to pay the workers for time they spend donning and doffing protective gear; cleaning equipment; walking to and from changing, work and break areas; waiting for production lines to operate; and performing production work during unpaid meal periods.”

    KC's View:

    Published on: February 17, 2009

    • The Los Angeles Times reports that Toys R Us has acquired, an online toy seller, from its bankrupt parent company…which, ironically enough, is called Parent Co. Terms of the deal were not disclosed, but it is expected to help Toys R Us expand its Internet portfolio and online sales figures.
    KC's View:

    Published on: February 17, 2009

    • Walmart announced that it has promoted Jeff Gearhart to be executive vice president and general counsel.

    Tom Mars, the company’s former general counsel and a former personal counsel to Mike Huckabee when he was governor of Arkansas, has been promoted to chief administrative officer.

    KC's View:

    Published on: February 17, 2009

    …will be posted on Wednesday this week.
    KC's View:

    Published on: February 17, 2009

    Responding to all the stories about the salmonella outbreak connected to the factories operated by the Peanut Corporation of America (PCA), MNB user Mark Monroe wrote:

    The people in this country have been worshipping at the alter of the almighty dollar for almost 3 decades…it shouldn’t be a big shock that someone chose profits over safety and as you said, shouldn’t be a shock at all when more stories like this come to light. The “free market capitalists” have no idea what’s about to hit them…seems like the populace is finally waking up.

    We made reference last week to a Washington Post story suggesting that advances made by Walmart in the health care arena may offer some hints about where the country needs to go. Which led one MNB user to write:

    This article, while being great for the Wal-Mart PR machine does not give any details as to what Wal-Mart’s employee heath care insurance is. Would you be willing to give up your plan for this one? I wonder if it is the same for all employees. What percentage of take home pay will the average employee have to pay for the plan?

    And MNB user Jon Townsend wrote:

    You have got to be kidding me! Do you take all of Wal-Mart’s press releases for fact? All but 5% of their employees on health care. Not Wal Mart’s program. If their employee is covered by their spouse’s health care program, or a retired employee covered by Medicare they count it as covered. They just leave covered by whom out of the quote.

    As you can tell I am not a fan of Wal-Mart, yes they are the world’s biggest, just not the world’s best.

    MNB user R. Dale Blotter chimed in:

    I believe the real key to Wal-Mart’s approach as outlined in the Post article and a lesson perhaps for other US companies is their push to offer their workers more low-premium, high-deductible plans. Some analysts are critical of that in saying that it provides less coverage for preventive and primary care but I believe that we’ve got to move away from an over reliance on employer funded health care in the US if we’re going to slow the inflationary price spiral of health care. As long as health care cost decisions are out of the individual’s hands and belong to 3rd parties then people will continue to make bad choices in their healthcare expenditures and the lifestyles that often drive their long term medical needs (i.e. obesity, smoking, and exercise). We need a system that’s more like auto insurance where you have a policy for the big catastrophic situations but the day to day stuff is out of pocket. Then I believe people would make more informed health care purchases and there would be more competition amongst health care providers on price. Doctors would surely like to spend less time working with insurance carriers to get paid and more with patients. The last thing we need is a government run system.

    MNB reported last week that Starbucks is scheduled to announce that it will begin selling soluble coffee…which sounds like a better kind of instant coffee. (The actual announcement is slated for today.) One MNB user saw a connection to an earlier Starbucks story:

    Maybe with their recent announcement to brew decaf coffee in the afternoon, on-demand with a 4 minute wait, they should focus on creating an instant decaf product. Regardless, like you said, it still makes them look desperate.

    This connection seemed to be a theme…as another MNB user wrote:

    The good news is….maybe the Starbucks baristas can use an instant decaf to serve in the afternoons, so that customers won’t have to wait for a pot to be brewed! (Or will that make a bad situation worse?)

    Finally, in “OffBeat” on Friday I took note of a WSJ story about how fiftysomething journalist Michael Precker, married and with a couple of kids, began to get tired of the daily grind and the career worries of the newspaper game.

    So he got a job running a Dallas business that might best be described as a “gentleman’s club.”

    I suggested that I found this story to be hopeful, since it means there could be career options open to me if MNB doesn’t work out.

    And, I joked, since Precker used to cover the Middle East, I was surprised that he hadn’t changed the name of the club to the “Gaza Strip.”

    Which prompted one MNB user to go one better:

    A gentlemen's club named the Gaza Strip? Great Idea...

    Think of all the dollar bill deposits made to the West Bank!

    We’ll be here all week…

    KC's View: