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    Published on: June 1, 2009

    Crain’s New York Business reports that FreshDirect, the New York City-based pure play online grocer, has undergone a financial turnaround, spending “the past year honing its technology and developing loyalty programs that have helped it become solidly profitable for the first time in its six-year history. The company even plans to hand out year-end bonuses to salaried employees.”

    CNYB notes that “the grocer's journey from a wobbly startup launched after the dot-com bust to an established business employing 1,800 was nearly derailed last year. Fifteen months ago, the federal government launched an investigation into FreshDirect's hiring practices, looking at whether it employed undocumented workers. At the same time, the company was being targeted by unions, which tried to organize its 925 warehouse workers, claiming that they were underpaid.”

    CEO Richard Braddock, according to the story, “has focused on cultivating stronger relationships with FreshDirect's core customers. This group, which totals just 35,000, uses the service about once a week and spends as much as $160 each time. FreshDirect now generates 60% of its revenues from its ardent fans, up from 25% a year ago … He also homed in on reducing the number of complaints about everything from late deliveries to missing or broken items. A year ago, 30% of orders had problems. Today that number is 15%.”

    Profitability, efficiency and effectiveness have combined to give FreshDirect the ambition to grow beyond the New York metropolitan area, perhaps to a major city on the east coast such as Boston or Philadelphia.

    “This will be a lessons-learned expansion,” Braddock tells Crain’s.
    KC's View:
    There’s no doubt that FreshDirect also has benefitted from a recession that has gotten more people to think about eating at home. And, it has a pretty nifty online interface that strikes me as pretty intuitive.

    I love stories like this one. Online grocery shopping lives! Retailers who believe that this isn’t a growing segment simply aren’t paying attention to shifting demographics and a young customer base that doesn’t remember a world before iPods and

    Published on: June 1, 2009

    The New York Times had a long 3,000-word piece over the weekend about the financial travails of the Archway & Mother’s Cookie Company, which wasn't just forced into bankruptcy last year and had most if its assets sold off, but now is embroiled in an accounting scandal and a “multitude of lawsuits” that “have been filed in connection with Archway’s collapse, including suits brought by former employees as well as independent distributors.”

    It is a fascinating story, and one worth reading. The gist of it seems to be that Archway is accused of having lost its bearings when private equity deals done during boom times led to the company being operated not for the customers who bought the products, but rather as a purely financial investment that had to meet certain numbers. When the results fell short of what was being demanded, some people say, results were fabricated so that loans and credit lines would not be withdrawn.

    “As accounting scandals go, Archway is no Enron,” the Times writes. “Not in the size of the possible accounting fraud itself — sales were probably overstated by a few million dollars — or in its sophistication or ingenuity. Yet what court documents filed in Delaware describe as a fairly simplistic fraud went on for months, seemingly missed by the company’s lenders as well as its savvy, private-equity stewards.”

    KC's View:
    The piece that really stuck out to me in this story was the accusation by some that one of the company’s worst crimes was to change recipes and ingredients to cut down on costs…which, if it happened, seems like such an accountant-driven thing to do. (Not that I’m picking on all accountants here. I’m not. But let’s face it, skimping on quality to make the numbers isn’t the kind of decision usually made on the marketing or creative side of a business.)

    Do this kind of stuff, and you alienate your customer. And then it almost doesn’t matter how big your shovel is, or how much money you’re willing and able to throw at a problem. You’ll never dig yourself out of the hole you’re in.

    Published on: June 1, 2009

    In Arkansas, the Morning News reports that a number of shareholder-generated proposals are expected to be offered up for a vote during Walmart’s annual shareholder’s meeting this week in Bentonville, Arkansas. Among the proposals – none of which is expected to pass - that are scheduled to be made:

    • A formal policy that precludes discrimination on the basis of gender. (The paper says that Walmart says it already has such a policy, and therefore a new one is not needed.)

    • A new rule that would allow shareholders to cast advisory votes on executive compensation.

    • A new policy that would pay executives based on how the company performs relative to “the median performance of a retail peer group.)

    • Some shareholders want a list and rationale behind every political contribution…something that Walmart says it already files with the Federal Election Commission (FEC).

    • There also is a move to allow any shareholder owning 10 percent of the company to cal a shareholders’ meeting.

    The Morning News writes that “Wal-Mart shareholders’ proposals likely won’t pass if the founding Walton family does not approve. Walton Enterprises owns 1.68 billion shares of Wal-Mart stock, or about 43 percent of the 3.91 billion shares outstanding as of March 31, according to the proxy filed with the U.S. Securities and Exchange Commission in April.”

    KC's View:
    A special note here…MorningNewsBeat will be in Arkansas this week to attend the shareholders meeting and report on the special media days hosted by Walmart.

    Published on: June 1, 2009

    Costco Wholesale announced that it will accept food stamps at an East Harlem, New York, location currently under construction when that store opens.

    The move expands on a previously announced test of a program that will accept food stamps at Costco stores in Queens and Brooklyn, NY. Costco, under attacks from NY Attorney General Andrew Cuomo because of its unwillingness to accept food stamps at the East Harlem location under construction in a neighborhood where some 30,000 local residents use them, said last week that it would accept them at the two stores in a test that will commence as soon as the appropriate technology can be installed.

    CEO Jim Sinegal had resisted accepting food stamps, saying that he was not convinced “that there was sufficient demand among our membership to justify the expense and possible inefficiencies.”

    In a statement over the weekend, Sinegal said, "Our announcement earlier this week of the food stamp test in our two existing New York City locations was apparently misunderstood by some. It was always our intention to include the new 116th Street location, either as part of the ongoing test or as a permanent fixture depending on the exact opening date for East River Plaza. When we announced that the test, if successful, would result in adding food stamp acceptance to all New York City locations, we did not mention 116th Street specifically because we wanted to be inclusive of all planned locations, some of which have not been publicly announced. As a result of a phone call I received from Congressman Charles Rangel, we now understand the special sensitivity in New York to this long-awaited project in his district. So, to remove any doubt we may have inadvertently caused, Representative Rangel asked that we make this clarification.”

    KC's View:
    Costco is smart to just get this minor controversy behind it and move on.

    Published on: June 1, 2009

    In Connecticut, the Stamford Advocate reports that private label broker Daymon Associates found an unusual way to incentivize employees to buy what they sell.

    According to the story, “three Daymon workers recently earned a $500 bonus for walking the walk in stocking their pantries with private brands from Stop & Shop, CVS and other retailers.

    “A ‘Daymon Private Brand Prize Patrol,’ made up of five company executives, showed up unannounced on a recent Saturday morning at the houses of employees Wendy and John Colbert of Stamford, Jenn and Gig Wailgum of Greenwich and Don Lisa Mastronardi of Norwalk, all of whom had entered into a drawing for the contest.

    “The ‘Prize Patrol’ agents, in full Publishers Clearing House-style with balloons, cameras, party favors and a ‘Prize Patrol' vehicle, then went through the employees' cabinets and awarded them $25 for every private label item they found, as much as $500.

    "If we extended the limit, they would have won a million dollars each," said Tim Davis, Daymon's director of corporate communications. "Their cabinets were full of private labels."

    KC's View:
    This is both clever marketing and smart management on the part of Daymon. Kudos.

    Published on: June 1, 2009

    In the UK, the Sunday Times reports that Tesco plans to start providing charging stations for electric cars in two of its London parking lots, with plans to roll the program out if customers respond positively.

    CEO Sir Terry Leahy tells the paper that the move is part of a broader environmental strategy, and quotes California Governor Arnold Arnie Schwarzenegger as saying, “You have to make it cool to be green.”

    Leahy goes on, “Businesses have to show how the consumer can make a difference.”
    KC's View:
    Memo to Sir Terry Leahy…considering the depth of California’s problems right now, this might not be the best time to be quoting the Governator.

    That said, this is a good move by Tesco. Some of the technologies out there right now for battery-powered vehicles are fascinating, and it makes sense to make some measured first steps in this direction.

    Published on: June 1, 2009

    • Starbucks, which has long eschewed traditional television advertising, reportedly has committed as much as $10 million to become a primary sponsor of “Morning Joe” on MSNBC. According to the New York Times, “along with several Starbucks graphics and mentions during each hour of the 6 to 9 a.m. program … the anchors and the coffee company may team up on charitable initiatives. And the program may be broadcast from Starbucks locations when it travels, as it did last year for the political conventions and this year for the inauguration.”

    When the show began this morning, there was a new title card: “Morning Joe…brewed by Starbucks.”

    The Times writes that “Howard Schultz, the chief executive of Starbucks, said in an interview that the deal indicated that ‘the rules of engagement in marketing and advertising have changed quite significantly.’ He called it an opportunity to ‘align ourselves with, in my view, one of the smartest morning shows that air on TV’.”

    MNB got an email over the weekend from a reader pointing out that McDonald’s seems to be taking its McCafé program on the road…and has been parking a mobile McCafé in the parking lot of his office park. This comes as Don Thompson, president of McDonald's USA, said at the company’s annual meeting that McCafé sales have been “beyond expectations.”

    • Starbucks has announced that it will no longer accept checks or traveler’s checks at its US locations, and now will just take cash and credit/debit cards.

    KC's View:
    First, about the Starbucks-Morning Joe deal…this makes perfect sense, since co-hosts Joe Scarborough and Mika Brzezinski, along with regular panelists such as Willie Geist and Mike Barnicle, have been seen guzzling from Starbucks cups since the program debuted a few years ago. Even the name of the show suggests coffee.

    (I’m with Schultz in his assessment of “Morning Joe,” by the way…it is the best morning show on the air, filled with interesting discussions and lively personalities. It’s always on in the background as I write MNB…and I almost always learn something. Sometimes the lesson comes from Pat Buchanan, and sometimes from Gene Robinson. Which is one of the things that makes “Morning Jo” so unique…there’s a lot more light than heat, and both sides of every issue get a fair hearing.)

    All I know is this. I’d drink Starbucks for a lot less than $10 million. (In fact, I have.) And the MNB audience is at least as smart and sophisticated as the “Morning Joe” audience.

    As far as the ban of checks and traveler’s checks goes, my first reaction was that this violated my rule about never doing anything that makes it harder for the shopper. But then I thought about it, and couldn’t remember the last time I’d even seen a traveler’s check or carried my checkbook with me. So maybe it is much ado about nothing.

    Published on: June 1, 2009 reports that the Federal Trade Commission (FTC) has at long last filed a motion to dismiss the two-year-old court case it brought against Whole Foods, bringing to a close its efforts to derail the retailer’s acquisition of Wild Oats.

    The two sides came to an agreement several months ago that will have Whole Foods selling 31 Wild Oats stores, 19 of which are closed, in exchange for the FTC stopping its legal actions against the retailer.

    KC's View:

    Published on: June 1, 2009

    The Detroit News reports that former Kmart CEO Joseph Antonini, who was ousted by the retailer in 1995 as sales and profits declined, is being sued by five banks that accuse him of defaulting on more than $2.3 million in loans.

    In addition to Antonini, two of his businesses are named in the suit - JEA Automotive Group and JEA Enterprises – but published reports say the two businesses do not seem to have addresses or contact information.

    When Antonini’s tenure at Kmart ended, he got a severance check for $1.3 million plus an annual pension of $527,000 for life.

    KC's View:

    Published on: June 1, 2009

    • The Houston Business Journal reports that Kroger “is planning to open its two largest stores in Texas — both first-of-their-kind prototypes for a new concept — just 10 miles apart in the far-flung Houston suburbs.” The Kroger Marketplace store in Richmond is slated to open in November, while the Rosenberg unit will open in December.

    According to the story, “Both Kroger Marketplace stores will feature a Fred Meyer Jewelers’ store as well as a large home furnishing section with Ashley Furniture. The stores will also offer grocery and deli products, a large floral section, gourmet and chef prepared foods, a wine shop with a wine steward, a drive-thru pharmacy and a Kitchenplace area with upscale kitchenware and place settings.”

    • Supervalu announced that its Design Services Group (DSG) subsidiary is changing its name, effective today, to Store Design Services.

    “As we thought about our image and our position in the industry, the name Store Design Services just made sense,” said Edward Parker, director of sales & marketing. “It more accurately describes what we do, and helps us communicate the value of integrating all of our services into one package.

    • In the UK, the Mail reports that Aldi plans to open as many as 1,000 stores in Europe next year, with “many” of them in Britain.

    The Wall Street Journal this morning reports that Unilever has begun testing “a new technology that lets consumers redeem digital coupons by having a supermarket cashier scan their cellphones. The test, being conducted at a ShopRite store in Hillsborough, N.J., will include discount offers for some of the Anglo-Dutch packaged goods company's most popular brands, including Breyers ice cream, Dove soap, Hellmann's mayonnaise and Lipton tea … To get the coupons, customers must visit the Web site, from which they can transmit the Unilever discount offers to an Internet-enabled cellphone. At checkout, the cashier scans the bar code on the phone's screen, redeeming the coupon and deleting it from the phone.”

    KC's View:

    Published on: June 1, 2009

    • Price Chopper Supermarkets/Golub Corporation announced that Paul White, a former executive with Office Depot and Cingular Wireless, has been hired for the position of Director of Talent Acquisition.
    KC's View:

    Published on: June 1, 2009

    This isn’t the kind of press release that MNB normally would pick up, but somehow this one seemed like it was worth making an exception for…

    Brookshire Grocery Co. announced that one of its drivers, Alan Worster, last Friday passed the one-million mile mark as a company trucker…and that in all those miles, he’d never had a preventable accident.

    According to the statement, Worster “will receive a specially designed
    ‘million-mile’ ring and have his portrait displayed at BGC’s corporate office in Tyler, Texas … A regular competitor in the Truck Driving Championships, Worster has won at the local level twice and state level three times. He is the first BGC driver to have advanced to the National Truck Driving Championship three times.”

    KC's View:

    Published on: June 1, 2009

    Responding to last week’s discussion about a possible national sales tax, one MNB user wrote:

    I have chosen on purpose to stay out of commenting on political issues due to the nature of the adversity it creates. However, in this instance I do have one thought. Rather than having people write in their complaints, why don't they instead offer honest and viable alternative suggestions? There are plenty of folks out there who find it easy to complain but have nothing to offer. What I keep hearing from the administration is a willingness to entertain better ideas. It's time for such a noble dialogue rather than simply saying no.

    I think the complainers would respond that they do have a suggestion – stop spending money. Which always seems to be easier said than done.

    On the subject of the coffee wars, MNB user Sue DeRemer wrote:

    It would be interesting to know if McDonalds coffee drinkers are already McDonalds customers (now buying coffee there too), or if McDonalds is picking up Starbucks coffee customers. Nothing in these study results specifically answers that question. Given the large difference in demographics and opinions, I'd guess the former.

    I make my own (fair-trade organic) coffee, so I'm neutral.

    Another MNB user wrote:

    I am not defending Starbucks…but comparing demographics, purchasing behavior and attitudes does not reveal the strategic psychographic differentials between McDonalds and Starbucks customers. McDonalds is still the hero of Fast Food Nation and the star in section one of The Omnivore’s Dilemma. And McDonalds is the villain in the “Slow Movement.” McDonalds is a driving force in childhood and adult obesity and the destruction of the family eating together. McDonalds sustainability and social responsibility must be questioned as they promote, through usage, inhumane slaughterhouses or the deprivation of farmers and farm workers a decent wage. McDonalds shiny little roadside stops are the antithesis of what many Starbucks customers feel business corporate responsibility is all about. Me…I make my coffee at home using fair trade organic coffee using reverse osmosis filtered water.

    Reacting to last weeks story about speculation about Amazon’s interest in physical locations, and my endorsement of the AmazonFresh test, MNB user Glen Syvertsen wrote:

    I have long held the opinion that the large centralized distribution model for online grocery shopping is the problem. Does anyone remember Webvan or Even and tried and abandoned the model for something more decentralized. Transportation costs must be enormous. I believe as e-commerce becomes more prevalent, the independent grocer will be entering the market in increasing numbers. Given a similar online grocery shopping website that is a well-designed, easy to use and competitively priced from my neighborhood grocery, that would be compelling.

    MNB user Paul Schlossberg had some thoughts:

    What’s important is that Amazon is looking at ways to expand their business.

    They’re a successful “clicks” company – with their powerful on-line presence. Will they now become a successful “bricks” company – with retail stores? If this is a retail venture, how will Amazon maximize their “clicks” knowhow in a retail setting?

    It is a distinct possibility that a company like Amazon will deploy an automated shopping solution. Automated convenience stores are already up and running in many countries, including the United State. Vending solutions dispense iPods and other tech products at retail; some sell at $200 or more.

    Retail brands, convenience stores and vending operators should pay attention to what develops if Amazon moves ahead with a “bricks” strategy. Amazon’s own evolution offers some clues. The Kindle, Amazon’s wireless reading device, allowed them to move from selling books to selling how you read books.

    What advances might Amazon make in automated retail? Technology could be deployed to make the shopping experience fast, easy and simple (uncomplicated). Odds are it would be a cashless system.

    The lessons to be learned are clear. Don’t be limited by the strict boundaries of the business you’re in today. Find new ways to reach the shoppers you serve. What you’re after is a bigger “share of wallet” – the money shoppers spend in your category.

    Amazon might soon be leaping from your computer screen to a location down the street.

    Words and ideas worth taking very seriously, methinks…
    KC's View: