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    Published on: May 29, 2009

    Target Corp. shareholders yesterday rejected the call by hedge fund founder and shareholder activist William Ackman to replace five of its incumbent directors with an independent slate of candidates that Ackman said would be better positioned to help the company compete with Walmart in a tough environment. Shareholders also supported the company’s call to keep its board to 12 members.

    According to the Wall Street Journal, Ackman “had nominated five candidates to the board, including himself, and backed a 13-person board. He estimated his company spent more than $10 million to mount the 2½-month proxy bid, launched after the retailer spurned his proposals to turn company property into a real-estate investment trust.”

    After the vote, Ackman said that he believed that his efforts would end up having a positive impact on Target since it forced management to deal with tough issues; he also said that the battle would have a broader impact on other companies that now will be forced to consider their corporate governance.

    Ackman called Target a "great company that I still believe is undervalued” and said he expected to maintain his investment, though he said that could change.

    Target CEO Gregg Steinhafel said after the meeting that he would continue to evaluate suggestions made by Ackman. The Journal writes that Steinhafel “was reluctant to describe the proxy fight as a distraction. ‘In the last couple of months, I spent a lot of time with shareholders. As a new CEO, I think that is a good thing over time’.”

    KC's View:
    Target might be doing better if Steinhafel spent more time in stores and less time with shareholders. But I guess that you could argue that this set of priorities was dictated in part by the challenge mounted by Ackman; since I was in favor of the dissident slate, especially because it included former Starbucks and Pathmark CEO Jim Donald, I guess I can’t be too critical in this area.

    Target has been losing both market share and stock market value during the recession. If it addresses the first issue, the second will work itself in the long run.

    Published on: May 29, 2009

    The Denver Business Journal reports that members of the United Food and Commercial Workers (UFCW) who work for Safeway in Colorado have agreed to a contract extension to June 15 that gives management and labor more time to resolve their differences. However, unionized employees of Kroger-owned King Soopers have rejected a similar deal, leaving the labor situation there in flux as the current contract extension comes to an end this weekend.

    The journal writes, “The biggest issues on the table remain pay levels, health care and pension benefits. King Soopers and Safeway have offered salary freezes for most workers and cuts in pension benefits while tentatively agreeing to a preventative health care package that will pay for things like annual physicals and smoking-cessation programs for the first time.”

    Negotiations have been ongoing since April 9 as the two sides – which includes Albertsons on the management side – have been working on a new five-year deal.

    According to the Journal, the King Soopers employees rejected the deal accepted by their Safeway brethren because the company “would not remove a clause that would allow the company to lock out workers after giving them 24-hour notice. King Soopers then rejected the union’s proposal for a 10-week contract extension … Despite the extension of the Safeway contract, that chain could still lock workers out with one day’s notice if King Soopers employees go on strike, according to an agreement signed between the two grocers in April.”

    Reports say that Albertsons workers, having rejected the last offer made by their employer, are working without a contract since May 9, but operations at the store continue as usual.

    The Denver Daily News writes that life got more complicated last week when Colorado Governor Bill Ritter “vetoed legislation that would have extended unemployment insurance benefits to locked-out employees. Also complicating matters for the union is the fact that the grocery chains have been flooded with applications from applicants seeking temporary jobs if a strike becomes reality.”

    KC's View:
    You have to think that in this economic environment, and plenty of people ready to take available jobs, the big three Denver grocery chains have a much stronger hand in this fight. And labor just has to hope that it doesn’t push the three chains to the point where there is a lockout.

    Published on: May 29, 2009

    As expected, Procter & Gamble yesterday announced that it would “boost its offerings of lower-priced products, signaling an important shift in its cherished strategy of introducing increasingly sophisticated -- and increasingly costly -- household staples,” according to a story in the Wall Street Journal.

    CEO A.G. Lafley said at an investors conference yesterday that the company would fight back against the gains being made by private label brands by insuring that “every business at P&G is working to reach more consumers by widening the price range of its products,” the Journal writes. “He cited the recent success of the company's bargain-priced Gain detergent and Luvs diapers. In recent quarters, both products have outpaced the sales gains of their premium-priced sister brands, Tide and Pampers.”

    "You have to see reality as it is," Lafley said. "In every recession there are hosts of compensating consumer behaviors as they manage a more modest budget. We have to expand our portfolios to serve the needs of those consumers. I think a lot of that is going to last."

    However, Lafley emphasized that super-premium products would continue to be a part of the P&G portfolio. "The whole game for us is to manage the premium and super-premium segments in a way so we can deliver affordable entry a way that grows revenue and margins," he said.

    KC's View:

    Published on: May 29, 2009

    The New York Times reports this morning that “as the trend toward organic food consumption slows after years of explosive growth, no sector is in direr shape than the $1.3 billion organic milk industry. Farmers nationwide have been told to cut milk production by as much as 20 percent, and many are talking of shutting down … in New England, where dairy farms are as much a part of the landscape as whitewashed churches and rocky beaches, organic dairy farmers are bearing the brunt of the nationwide slowdown, in part because of the cost of transporting feed from the Midwest. The contracts of 10 of Maine’s 65 organic dairies will not be renewed by HP Hood, one of the region’s three large processors. In Vermont, 32 dairy farms have closed since Dec. 1, significantly altering the face of New England’s dairy industry.”

    And it gets worse: “For many farmers, the changes coincide with crushing debt resulting from the cost of turning organic, which can run hundreds of thousands of dollars. In addition, the price of organic feed has doubled in the last year. Credit has dried up for some, and others say it is nearly impossible to sell cows and so thin their herds.”

    The Times notes that “some farmers are considering selling their organic milk on the conventional market just to make some quick money. Others are looking to sell raw, or unpasteurized, milk directly to the public.”

    KC's View:

    For a lot of people, organic milk is where they decided to draw the line as they were trying to decide how to reorient shopping and food consumption priorities during a recession. What’s hard to know is how this gets walked back if/when the economy gets better…how difficult it will be to reinvent a decimated industry.

    Published on: May 29, 2009

    The Seattle Post Intelligencer reports that at the company’s annual meeting yesterday, CEO Jeff Bezos addressed the state of AmazonFresh, the online grocery service that has the company delivering both fresh and packaged products to homes in the Seattle area, and said that a geographic expansion is not in the immediate future.

    "For the foreseeable future we're going to keep doing those experiments only in Seattle," Bezos said.

    KC's View:
    What Amazon is doing is trying to figure out the financial model for a service that actually allows people to place orders as late as 11 pm and have them delivered to their doorsteps by 6 am. I can understand why this is going to take time and effort to make work…but it is this kind of availability and instant gratification that the 21st century consumer is going to demand.

    Amazon’s grocery competitors – and because Amazon delivers packaged grocery products everywhere in the US, that means that everybody is competing with it at some level – need to be paying attention to what the online pioneer is doing.

    Published on: May 29, 2009

    BIGresearch is out with its May 2009 Consumer Intentions & Actions (CIA) Survey, suggesting that McDonald’s is making gains in the ongoing coffee war that it is waging against Starbucks.

    According to the survey, Starbucks remains number one among consumers, but McDonald’s is making gains … and the fast feeder’s current $100 million ad campaign promoting its McCafés is expected to grow sales even more.

    According to the BIGresearch analysis, there are some fairly stark demographic differences between the two retailers’ shoppers:

    “McDonald's coffee drinkers (those who purchase coffee most often from McDonald's) tend to be older than Starbucks drinkers with an average age of 47.7 (vs. 39.2 for Starbucks drinkers). 46.8% of Starbucks drinkers are in the 18-34 age range, compared to 25.8% for McDonald's. More Starbucks coffee drinkers are single at 29.1% (vs. 19% of McDonald's drinkers) and a higher percentage hold professional/managerial positions at their place of work (27.2% vs.15.7%). They also report a higher annual income of $67,487 vs. $55,572.”

    There are some other differences between the two customer bases:

    • 33.7% of McDonald's coffee drinkers are confident/very confident in the economy, vs. 30.3% of Starbucks drinkers.
    • 72.7% of McDonald's drinkers are focusing more on needs over wants, vs. 65.7% of Starbucks drinkers.
    • 44.2% of McDonald's drinkers are buying more store brand/generics vs. 36.2% of Starbucks drinkers.
    • 26.4% of McDonald's drinkers feel better about their economic situation, vs. 34.4% of Starbucks drinkers.
    • 20.8% of McDonald's drinkers are starting to spend more on discretionary items, vs. 21.4% of Starbucks drinkers.

    KC's View:
    None of this is huge surprising, but it is interesting to see it in sharp relief.

    The problem for Starbucks is that, having created an entire generation of latte and cappuccino drinkers, it is seeing McDonald’s peel off the demographic that is more comfortable with Mickey D’s pricing, image, etc… And in a recession, McDonald’s target consumer demographic actually is getting bigger.

    It is hard for the company that creates an industry to keep innovating at the kind of level that prevents competitors from stealing market share…and this proves, yet again, that there is no such thing as an unassailable advantage. There are only a series of assailable advantages, and you have to keep coming up with them. In the always wise words of my friend Norman Mayne, “you have to innovate faster than the competition can steal from you.”

    Published on: May 29, 2009

    • Supervalu announced yesterday that its board of directors has approved a $70 million stock buyback plan, which replaces a similar plan announced a year ago.

    • Winn-Dixie is trying to reason with hurricane season, and is out with recommendations to Florida and Gulf Coast shoppers, urging people to “have a ‘hurricane kit’ with enough bottled water, canned and non-perishable foods, paper products, flashlights and batteries to last at least three days in case a tropical storm knocks out power. Experts suggest keeping on hand one gallon of water per person per day, along with food and first aid supplies.”

    And, Winn-Dixie announced that it “has equipped its regional distribution centers in Miami, Orlando, Jacksonville and Hammond, La., and 82 stores throughout its operating area with 500-kilowatt, diesel-powered generators in areas that have been affected by power outages associated with hurricanes and tropical storms in recent years. All of the generators have been tested and are ready for use.”

    Bloomberg reports that Starbucks is pushing some of its U.S. landlords “for as much as a 25 percent reduction in lease rates, taking advantage of a declining real estate market to save on rent.” The move is part of the company’s broader effort to cut expenses.
    KC's View:

    Published on: May 29, 2009

    MNB took note yesterday of a Washington Post report saying that there are at least some in Washington, DC, who are pushing for a national sales tax. Such a tax – called a Value Added Tax (VAT) in other countries – has long been “politically taboo” in the US, but the Post writes that “advocates say few other options can generate the kind of money the nation will need to avert fiscal calamity.”

    The Post writes, “A VAT is a tax on the transfer of goods and services that ultimately is borne by the consumer. Highly visible, it would increase the cost of just about everything, from a carton of eggs to a visit with a lawyer. It is also hugely regressive, falling heavily on the poor. But VAT advocates say those negatives could be offset by using the proceeds to pay for health care for every American -- a tangible benefit that would be highly valuable to low-income families.”

    Not surprisingly, this generated a lot of email.

    One MNB user wrote:

    The fiscal calamity has already taken place and the more you try to fix it with your taxing ways, the more people(actual people) will suffer and become poorer.

    MNB user Cal Sihilling wrote:

    You think at some point it might occur to someone to stop increasing spending?

    Another MNB user wrote:

    With regards to this blurb about the national sales tax, could you do a follow up mentioning that a national sales tax has been called many names but has many variations? The way I perceive this blurb, one would associate a value added tax is the only definition of a national sales tax. However, the most progressive and fairest definition of a national sales tax is the proposal in congress today (HR Bill 25) supported

    I am trying to create a state Fairtax in New York similar to the federal program. I love New York but I hate being taxed to death and after death (i.e. the estate tax)! We live in a society that wants representation without taxation instead of taxation with representation! Taxes are a necessary evil, but I just want to be taxed “fairly!”


    MNB user Steve Lutz wrote:

    Absolutely! What we need in this economy is not only more taxes but new ones! That’s sure to help get our U.S. economy back on the fast-track of growth. Of course, any VAT needs to be made “fair” so as not to unfairly burden any particular group of people. Perhaps it could be modeled on our highly desirable federal income tax system where the top 10% pay 70% of all the taxes and 40% of people pay nothing at all! How great would that be! We just have to figure out a system to help merchants identify the fat cats at retail so we can make sure they start paying their fair share. Color coded ID cards might work, but I’m open to other ideas like armbands and window stickers for high earners. Let’s get out of this economic malaise together!

    By the way, where do we sign up for the free health care?

    MNB user Jose Cannon wrote:

    Welcome to Canada, long live socialism and subpar health care.

    Finally, I liked this email from MNB user Geoff Harper:

    In case you missed this in the Boston Globe story about the Dow chairman supporting Democrats in their climate change bill:

    "The crass political answer is that you're either at the table, or on the menu," said Peter Molinaro, a spokesman for Dow.

    Sounds like the circle of life.
    KC's View:

    Published on: May 29, 2009

    There is a lot of discussion here on MNB about transparency. Probably so much that some of you are getting sick of me bringing it up.

    Well, here I go again.

    There was an interesting piece in Fast Company that took note of a recent speech given by Supreme Court Justice Antonin Scalia at Fordham University, in which he dismissed privacy concerns as not being a legal matter of any real consequence. Afterwards, teacher specializing in Information Privacy Law decided to have his students do a quick search to see how much information could be found about Scalia…and were able to see, in fairly short order, his home address and phone number, his wife’s personal email address, photos of his grandchildren, and a list of movies that he liked.

    This struck me as interesting since it was just a couple of weeks ago that we noted here on MNB that when doing some cursory research about a petition signed by Walmart CEO Mike Duke, I was quickly able to find his Arkansas home address … which I thought was a pretty good example of exactly how exposed executives and companies are these days.

    As Fast Company correctly notes, this can be a troubling situation to consider … even if one thinks, as I do, that sunlight is the best disinfectant. Because in this case, “exposed” is precisely the right word to describe a world in which your identity is vulnerable to being stolen, in which every decision you make can be made public, and in which privacy is an increasingly rare commodity. It’s also a world in which people expose themselves routinely via Twitter and Facebook and assorted other sites…assuming that people are actually interested in their lives.

    It is an odd juxtaposition, a world in which there are both people who see transparency as an invasion of their privacy and people who relentlessly expose themselves and build lives and communities out of it.

    The thing is, I’m not sure that is much anyone can do about it. This is reality. We just have to deal with the downside, and delight in all the advantages that transparency can bring us.

    Now, here’s a continuing education class I can get into.

    The Boston Globe reports that there is one weekend a year when Lobster College convenes near Boothbay Harbor on the Maine coast, attracting folks from as nearby as New England and as far away as Australia.

    According to the Globe, “Along with retirees and other curious fans of the crustacean, there have been restaurant owners and students of marine science for whom this is a serious hands-on learning experience. Instructors are University of Maine faculty and lobster fishermen and dealers who serve up generous lessons on lobster biology and ecology, stock management, branding and marketing, and related environmental issues. Students learn to bait traps and go out on a working lobster boat. They hear about lobster products and taste recipes at breakfast, lunch, and dinner. Last year they ate at least ten lobster dishes in four days. ”

    Does this sound like fun or what?

    Robert B. Parker is out with the third book in his series of westerns, “Brimstone” (Putnam, $25.95), which continues to follow the adventures of gunslingers Virgil Cole and Everett Hitch as they bring order and some level of peace to lawless towns in the Old West. Like “Appaloosa” (which became a terrific movie starring and directed by Ed Harris) and “Resolution,” you can almost feel the wind and the sun and hear the sagebrush rolling across the prairie as you read Parker’s spare but evocative prose; the language and tone are comfortable and familiar to those of us who have looked forward to his Spenser novels over the years.

    There’s a lot going on in “Brimstone,” especially as Cole tries to reconcile his heart and head as he deals with Allie French, the woman he loves but with whom commitment seems to be a bad bet. The central conflict is between Cole and Hitch and a charismatic fire-and-brimstone minister who may have a hidden agenda as he preaches what he calls a “militant Christianity.” There are as many metaphors in this story as you choose to find; it’s fine if you just want to read it as a yarn about men who do what they have to do, who find more solace in guns and horses and their own company than they do in women who seem almost beyond understanding.

    “Brimstone” was a delight. Do what I did, and read it while listening to the wonderful soundtrack to “Appaloosa” that was composed by Jeff Beal.

    A couple of weeks ago, I recommended to you the 2007 Bramble Bump Red from JM Cellars in Washington State, which was a particularly nice find because I’d never hard to the winery before.

    Now, compliments of a friend of mine, I’ve had the opportunity to taste the 2006 Red Mountain JM Founder’s Reserve, a red wine that I can only describe as a “wow!” This wine is so pleasingly mouth-filling and robust that I cannot say enough good things about it. It is just fabulous…and I look forward to trying more of this terrific winery’s products. They are a real find.

    I thought “Terminator Salvation” was interesting but ultimately a disappointment. The production values are strong, and there is a compelling performance by Sam Worthington in a supporting and pivotal role…but Christian Bale is sort of one-note as John Connor and the whole thing was sort of predictable and relentlessly bleak. Which I guess is sort of the point, but it just didn’t work for me.

    The good entertainment news this week is that “Burn Notice” is back this week on USA…and if you haven't seen any of the previous seasons, you should try to catch up with them on iTunes or on DVD. (I think USA is running a marathon of episodes on Thursday before the summer season launches at 9 pm.) This tongue-in-cheek spy thriller has winning performances, stylish locations in Miami, and smart writing that elevates it beyond typical TV fare. Sue, it is popcorn TV…but really good popcorn TV. Watch it, and thank me later.

    That’s it for this week. Have a good weekend, and Let’s Go, Mets!


    KC's View: