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    Published on: April 20, 2009

    In the UK, the Guardian reports that when Tesco unveils its annual results this week, it is expected to concede that its US operation, Fresh & Easy Neighborhood Markets, will not make it to profitability in 2009 as had previously been predicted.

    The recession is blamed for the continued red ink.

    According to the Guardian, when the Fresh & Easy chain was launched in autumn 207, CEO Tim Mason “said he expected to open 200 stores by February of this year and outlined plans for 1,000 stores on the west coast, stretching from Seattle to San Diego. One vast warehouse and ready meal factory had been built in Segundo, east of LA, and the Fresh & Easy bosses were already looking at another site in the Bay area of San Francisco to serve 500 more of the 10,000 sq ft shops.

    “The first signs of a slowdown in the planned rollout of the brand came last spring, and the chain currently operates only about half the stores originally planned by this time. The Fresh & Easy chain has been hit by its location: the three areas it chose for start-up - southern California, Las Vegas and Phoenix - have been among worst hit by the US downturn.”

    In addition, the Guardian notes, Tesco misread the marketplace – focusing on fresh foods, private label groceries and an EDLP pricing strategy that together failed to attract shoppers from other venues; Tesco has adjusted its pricing strategy to be more “down and dirty” and focused on specials.

    KC's View:
    You’d think that in a recession the combination of private label and every day low prices would be a pretty compelling offer – but the problem may be that the Fresh & Easy stores simply were too antiseptic and maybe even (dare we say it?) foreign to capture enough people’s imaginations.

    The bet here … though I’m not nearly as confident about it as I used to be … is that Tesco will get it right eventually. But it is going to take a lot more time and money than the folks back in the UK expected.

    Published on: April 20, 2009

    As food safety issues continue to capture public attention largely because of current worries about salmonella contamination of peanuts and pistachios, the New York Times reports that “Congress and the Obama administration have said that more inspections and new food production rules are needed to prevent food-related diseases, but far less attention has been paid to fixing the fractured system by which officials detect and stop ongoing outbreaks. Right now, uncovering which foods have been contaminated is left to a patchwork of more than 3,000 federal, state and local health departments that are, for the most part, poorly financed, poorly trained and disconnected, officials said.”

    And, the Times notes, the problem is getting worse because of recession-related budget crises that have affected government’s ability to oversee the food industry and react swiftly and effectively to contamination scares.

    Meanwhile, the Washington Post has a similar story, saying that “Congress must reengineer the national (food safety) system, according to an analysis by the George Washington University School of Public Health and Health Services, based on consultations with health experts, consumer groups and food executives nationwide … The study urges Congress to invest at least $350 million over five years to bolster underfunded state and local agencies and ensure a basic level of food safety in each state.

    “The analysis describes a fractured collection of food safety professionals all trying to do the same thing -- prevent illness from contaminated food -- but their efforts are hampered by weak coordination, poor communication, varying abilities, inconsistent methods and a lack of federal leadership. The report urges Congress to create a single cohesive food safety network composed of local, state and federal agencies and accountable to the secretary of health and human services.”

    KC's View:
    It’s interesting. Rutgers University released a study last week suggesting that while eight out of 10 Americans pay close attention to news about food recalls, half of those polled believed that these recalls had no direct impact on their lives.

    In other words, they think they are bulletproof.

    Well, we all know that they aren’t bulletproof. And the numbers are pretty staggering – that an estimated 76 million US residents getting sick from food every year, with 325,000 sick enough to go to the hospital and 5,000 dying from food poisoning.

    There also was the report last week that food safety procedures haven't improved at all during the past three years. And certainly it feels like things are getting worse, that there are more and more headlines about food safety issues.

    Published on: April 20, 2009

    The New York Times this morning has a piece about how traditional marketing theory – that young consumers (say, between the ages of 18 and 40) are to be valued because they have more money, a willingness to try new products and a greater ability to show though leadership – is yet another victim of the recession.

    The reason? These same young consumers may be among the first people to be laid off by the companies for which they work, while their elders – the baby boomers born between 1946 and 1964 – are in a position where they may have paid off their mortgages and may be keeping their jobs…which puts them in a better position to actually buy things than younger shoppers. These aging baby boomers also tend to be more aspirational and active than their parents were at the same age, which makes them a riper target for marketers.

    This means that advertising is being created that focuses on this demographic by companies that range from Kraft to Procter & Gamble to Target, and that networks like CBS, which appeals to older viewers with shows like “CSI” and “NCIS,” now consistently wins the ratings wars.

    KC's View:
    As someone who was born smack in the middle of the baby boom – 1954 – I’d like to think that this argument is completely true. But I’m not entirely convinced by the suggestion that baby boomers are keeping their jobs longer than younger people…simply because I know a lot of people my age (mostly buy not exclusively guys) who wish that their age and seniority had worked in their favor.

    Still, it is nice to be appreciated.

    Published on: April 20, 2009

    The New York Times had an interview over the weekend with Nell Minow, co-founder of the Corporate Library, a provider of corporate governance research, in which she discussed the art and science of managing people. Some relevant excerpts:

    • “One thing that helped move my thinking forward was that I noticed in my first job that there was something very definitional in who was included in somebody’s ‘we’ and who was included in somebody’s ‘them.’ I found generally that the more expansive the assumptions were within somebody’s idea of who is ‘we’ - the larger the group that you had included in that ‘we’ - the better off everybody was. I started to really do my best to make sure that my notion of ‘we’ was very expansive and to promote that idea among other people.”

    • “You’re constantly trying, whether you’re raising children or dealing with employees, to get them to take responsibility for their own issues. I’m not saying that in a maternalistic way, just in a way of trying to get people to take responsibility for themselves, to do the best that they can and to learn as much as they can. In both cases, you’re trying to make people more independent and bring them along.”

    • One common thread among poor-performing companies, Minow suggested, is that “all of them had C.E.O.’s who took an enormous number of steps to make sure that no one would ever question them or second-guess them. At one of the companies we were involved in, we talked to a number of employees who all used the exact same phrase — that if you disagree with the boss, you get fired on the spot.”

    • On what she looks for when hiring people, Minow says, “I really look for a kind of a passionate curiosity. I think that is indispensable, no matter what the job is. You want somebody who is just alert and very awake and engaged with the world and wanting to know more … Another thing that’s important to me in hiring somebody is the ability to become very fully engaged with the company, and that is a real challenge when you get past a certain number of people. The fourth person you hire is just a different kind of person than the 25th person you hire … And this is where it starts sounding like I’m looking for someone to date, but I also look for a sense of humor, because that’s really the best indicator of some kind of perspective about the world. And ultimately I won’t hire anybody who can’t write … It’s just tremendously important, their precision, their vocabulary, their sense of appropriateness of communication.”

    • On time management: “Well, it helps that I’m A.D.D. I think there are a lot of qualities that are not conducive to doing well in school but are conducive to doing well in management. And so I’m very impatient and that kind of propels me and prevents me from getting too caught up in one thing or another.

    “I like to have a lot of different things happening at once. I like having a life that has a lot of contrast, and I find that alternating right brain and left brain is tremendously energizing, and that if I try to do one thing too much that I start getting bogged down. So that way, what really is important rises to the top.

    “I also delegate as much as I can and I jettison as much as I can. I try to ask myself, do I need to do this? Is this something that is really going to help?”
    KC's View:
    Smart thinking about smart management.

    Published on: April 20, 2009

    “This is a different economy. We are definitely seeing average sales (per customer) going down," Stew Leonard Jr., president and chief executive officer, told the Westport Rotary Club last week, according to a story by the Stamford Advocate. "People aren't spending as much per purchase, but our customer count is going up."

    The paper writes that “in response to a downturn in the sale of large packages of file mignon steaks -- the most expensive cuts in the meat department -- Stew's butchers have reduced the sizes, and sales have improved. ‘We're making packages pocketbook-friendly,’ said Leonard, who noted that presentation and packaging can create a more user-friendly environment for cash-strapped shoppers.

    Leonard also told the meeting that “he has seen a change in consumers' shopping habits at the company's seven wine stores. ‘The stuff that's really selling is everything under $20. That's where the market is," he said.

    One other impact of the recession: Stew Leonard’s has put any expansion plans beyond its current four stores on hold.
    KC's View:
    The point that Stew Leonard made in his speech is one that MNB has been emphasizing since the beginning of the recession – that even in the economic downturn, aspirational customers have not lost their aspirations…it is just that they have to make harder choices. Retailers that can help them resolve their issues – saving money while fulfilling desires – are the ones that will be long-term winners.

    Published on: April 20, 2009

    Fortuneis out with its annual list of the nation’s 500 top publicly traded companies, and Walmart is in second place this year with $405.6 billion in revenue, despite having been in the number one position for six out of the last seven years.

    Retaking the top spot: Exxon Mobil, with $442.8 billion in revenue.

    Among the other top performing retailing and food industry companies on the new list are:

    • CVS/Caremark, # 19, $87.5 billion in 2008 revenue.
    • Procter & Gamble, # 20, $83.5 billion.
    • Kroger, # 22, $76 billion.
    • Costco, # 24, $72.5 billion.
    • Target, # 28, $65 billion.
    • Johnson & Johnson, # 29, $63.7 billion.
    • Walgreen, # 36, $59 billion.
    • Safeway, # 50, $44.1 billion.
    • Supervalu, # 51, $44 billion.
    • PepsiCo, # 52, $43.3 billion.
    • Kraft Foods, # 53, $42.9 billion.
    • Coca-Cola, # 73, $31.9 billion.
    • Tyson Foods, # 89, $28.1 billion.
    • Rite-Aid, # 100, $24.4 billion.
    • Publix Super Markets, # 101, $24.1 billion.
    • McDonald’s, # 107, $23.5 billion.
    •, # 130, $19.2 billion.

    KC's View:

    Published on: April 20, 2009

    The Denver Post reports that contract negotiations between the United Food and Commercial Workers (UFCW) union and the area’s three major supermarket chains – King Soopers, Safeway and Albertsons – are currently focused on pension and benefits cuts proposed by the chains.

    The chains are arguing that they need pension and benefits cuts because of the economic recession that is putting pressure on their operations; the union says that it is not fair to ask workers to take cuts when profits actually are increasing.

    The existing five-year contract expires next month.

    KC's View:

    Published on: April 20, 2009

    • There are numerous press reports that Walmart plans to cut the shelf space for major branded bottled water – such as Pepsi's Aquafina and Coke's Dasani - in its stores, preferring to devote the space to low-price brands and its own private label water.
    KC's View:

    Published on: April 20, 2009

    • The Food Marketing Institute released the following statement from its president/CEO, Leslie G. Sarasin, objecting to an increase in interchange fees levied by Visa: “At a time when consumers and retailers are fighting for their economic survival and just a few days after they paid their taxes, Visa’s interchange fee increases are deplorable. Interchange is, in effect, a hidden tax on every plastic transaction, fixed by the credit card companies and banks in an anti-competitive market.

    “In a truly competitive market, companies offer consumers the best value for their dollar. We see this principle at work every day in the supermarket industry. Consumers deserve the same value when they use their credit card.”

    FMI is one of a number of retail trade associations engaged in a protracted battle over interchange fees, which have tripled from $16.6 billion in 2001 to a $48.8 billion in 2008, despite being largely invisible to the consumers who pay them through the cost of goods and services.

    • Not surprisingly, the Sugar Association sent out a congratulatory note today to PepsiCo, lauding it for introducing Pepsi Throwback and Mountain Dew Throwback, which use natural sugar as a sweetener rather than high fructose corn syrup. The association framed the argument largely in economic terms, saying that “the introduction of these two new products, using all natural sugar rather than high fructose corn syrup is a boon to local economies, supporting local sugar growers and processors. The sugar industry employs over 146,000 workers, contributes $10 billion to local economies and provides community support on the local level across the United States.”

    • PepsiCo said this morning that it is offering to spend $6 billion to acquire the shares in its two main bottlers, Pepsi Bottling Group and PepsiAmericas – that it does not already own. The move would give PepsiCo control of 80 percent of is North American beverage volume and would, according to CEO Indra K. Nooyi, “significantly improve our competitiveness and our growth prospects.”

    Marketing Daily reports that Frito-Lay’s SunChips brand “is rolling out compostable, organic-based packaging bit by bit this year, with a fully compostable bag due out on Earth Day in 2010.”

    Crain’s Chicago Business reports that “Sara Lee CEO Brenda Barnes said commodity costs remain high and gave no indication that consumers will see price cuts in the grocery aisle anytime soon … Her statement about commodity costs runs contrary to many analysts’ expectations that prices could begin falling later this year.”

    While supermarket chain executives – including Safeway CEO Steve Burd and Supervalu CEO Jeff Noddle – have been calling on manufacturers to lower their prices in response to the economic downturn, Barnes said that “pressure from grocers to lower prices is not new and that the company is always looking at ways to reduce costs and increase efficiency for themselves and grocers.”
    KC's View:

    Published on: April 20, 2009

    Got the following email from an MNB user:

    I read with interest your comments on Steve Burd’s address regarding Health Care at Safeway. As a participant in the Safeway Healthy Measures program I can testify to how powerful the empowerment piece is in managing your own health. Since starting the Healthy Measures approach I have lost 100 pounds & now weigh the same as I did in college. I have done that by exercise, change in diet & making better choices when it comes to my overall health. I knew I needed to make the change, but the implementation of Healthy Measures was the nudge I needed to make the needed changes. Ownership has been a key to my success.

    I was a little negative about KFC last week, and was unimpressed by the idea of its new Kentucky Grilled Chicken offering. One MNB user offered the following story:

    I opted to try some of the "Kentucky Grilled Chicken" from KFC this afternoon. I should have taken the order receipt process as a bad sign. The "Restaurant General Manager" was who put the order together. I ordered white meat. First, I received dark meat. When I noted this to him, he threw the box in the trash, got a new box, and put two pieces of original fried white into the box. When I again told him that was not correct, he said he was out of grilled white and it would be a couple minutes. I waited. I received the order; very hot in temperature. The flavor was almost non-existent. Not salty, but not seasoned either. The odor emitting from this product resembled a bad TV Dinner. I tried to taste it; near tasteless. I hope the cat enjoys it.

    Regarding Walmart’s apparent success during these recessionary times, one MNB user observed:

    Ah, don't count your chickens quite yet. It seems that besides selling groceries all they can sell are televisions and Rx ( both with slim profits and hopefully they picked up some market share from Circuit City.. ). What I heard their CEO say is the 1st and 15th are the busy days.. which means to me food stamps and a customer who has little to no extra money to spend. Old retail trick, stand up by the checkouts and see what the customer is buying. I did and it’s not hard lines or soft lines, and that is where the profits are. One thing this Bentonville Behemoth DID NOT want to become is a grocery store selling general merchandise vs. a general merchandise store selling groceries.

    Seems the marketing folks are getting a lot of high praise, I would just love to see at the end of the day just how much they have spent vs. the ROI.... Buying market share is not all that tuff, just ask the cola guys, keeping it is a different story...

    Walmart CEO Mike Duke said last week that he expected no quick end to the recession, prompting one MNB user to write:

    Regarding Mike Duke’s comments about the recession: I didn’t see the interview so maybe this is just out of context so you may think I’m being too cynical but….There has been a lot of talk about the possibility that the economic crisis perhaps bottoming out, if not improving just yet. I’ve seen numerous comments about the mental aspects of the recession. It seems to me that it is in Walmart’s best interest to perpetuate the dour mood and even to prolong the recovery. If I was making profitable lemonade out of lemons, I’d want to keep the lemons coming so to speak. Going on national TV and telling everyone how bad things are but if you’ll only shop with us, we can help seems pretty shrewd but self serving.

    I don't think you are too cynical.

    On another subject, MNB user Tom Kroupa wrote:

    I would take issue with you calling the new FTC attorney David Vladeck "anti business". When a business does not serve its customers well --as so many have done in these past years-- wanting them to change does not make us consumers "anti-business" does it? For example, if I don't like shopping at K-Mart I can choose another retailer to five my business to. But what if all the other retailers are like K-Mart? This is what has happened to certain industries in our country for the past twenty years such as the financial industry, food companies and credit card issuers. In this way, David Vladeck could be said to be "pro-business" because he was chosen to make business more accountable to consumers than they have been. Being pro-business is being pro consumer in my mind!

    For the record, MNB reported that “By almost any measure, Vladeck is perceived as potentially one of the most consumer-oriented people to serve in the FTC post, and he is expected to pursue an activist agenda in areas of consumer and advertising issues especially when it comes to the food industry, marketing to children, privacy issues and financial products.

    And I commented: This was to be expected from the Obama administration. The anti-business mood of the country right now is bound to create an even tougher atmosphere for some industries, which no doubt will find the next four years to be long ones.

    I never said that Vladeck was anti-business. I in fact said that he was “consumer-oriented,” and that the country is in an anti-business mood.

    To be clear about this, if MNB has been about anything for the past eight years, it has been about the belief that being pro-consumer is good for business.

    We had an email critical of Tesco’s Fresh & Easy last week, which led MNB user Tom Murphy to write:

    If anyone wonders about the viability of Fresh & Easy and their ability to impact competitor sales in a market place, I suggest they contact Bashas in Phoenix. They are being hurt by Fresh & Easy (in full disclosure also by Frys, Safeway, Wal-Mart, Whole Foods, and Sprouts Farmers Markets) in terms of sales and gross margin. By no means is Fresh & Easy killing competitors, just eating away at their sales and profits. As an industry, we have to realize that anyone who sells food, and this includes CVS, Walgreens, 7-Eleven & various restaurants, is our competitor.

    And finally, I want to thank everyone who wrote in on Friday to say that they didn’t know what “tea bagging” was, either.

    I feel better now.
    KC's View: