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    Published on: March 4, 2010

    Now available on iTunes…

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    Hi, I’m Kevin Coupe and this is MNB Radio, available on iTunes and brought to you this week by Webstop, experts in the art of retail website design.

    I’ve been on the roads for the past 10 days in the Pacific Northwest, which is my idea of heaven - longtime readers of MNB know that when it comes to this part of the country, I have lust in my heart. So spending 10 days here on various business projects has been no problem at all.

    Earlier this week, I have the opportunity to spend some time at the “Today’s Managers, Tomorrow’s Leaders” conference run by Portland State University’s Food Industry Leadership Center. I was speaking at the event, but also hung around to attend an excellent session on social networking that was being run by Craig Ostbo of the Portland, Oregon-based marketing firm of Koopman Ostbo. (I had some selfish motives here - I’m doing a session on social networking and the internet at the annual Meat Conference next week, and I’m always willing to learn from how other people approach the subject.)

    One thing I did come out of the session thinking more about is the extent to which some people in the industry are in some level of denial about the enormous shift that is taking place in our business culture, and how it is going to affect all of us in the long run. We are entering a time, I firmly believe, of what can be called “the transparent corporation,” in which a strong light will be directed on how our companies treat our employees and customers, source our products, and even handle our finances.

    There will be some who will say, “we don’t want to go there.” Some who will say, “it will be too expensive” or “too intrusive.” Some will blame the liberal media for pushing for something that nobody else wants. Some of these people will be older executives with fond memories of earlier, less complicated times. And some will be people far younger than I, but who have been forced into narrow thinking by bureaucracy or bottom lines or a corporate emphasis on tactical rather than strategic thinking.

    None of which we can afford.

    Yes, we must listen and watch carefully as social media continue to evolve. We cannot be caught unawares. The strong light of transparency can often be a harsh light.

    Just ask Domino’s Pizza, where a YouTube video showed employees deliberately contaminating product they were selling. (A garlic crust sounds good, but boogers...not so much.)

    Or ask United Airlines, where they apparently like to break guitars ... and there is an online video that highlights the company’s lack of customer service.

    Or Southwest Airlines, where they seemingly don’t like fat people, and we know this because film director Kevin Smith wrote about it to millions of people on Twitter when he got bumped off a plane because of his girth.

    Or A&P, where a YouTube video showed a couple of employees rapping and doing unpleasant things with the produce, including pretending to urinate on it.

    Now, all of these companies responded to their problems to varying degrees - some more successfully and competently than others.

    But I would argue that they all were playing defense ... and that they would have been better off if they had created a transparent corporate culture that actually played against the accusations being made about them. You can’t just listen to what people in the social media world are saying about you, but have to engage with it...having an extended conversation that goes beyond monolog or even dialog, but actually creates an environment of trust that envelops customers, employees, and business partners.

    This is going to be hard for some. It goes against so much that they have been taught.

    Some people and companies won’t adopt this model, or can’t. And that’s actually okay, because the customers to whom they cater won’t demand or expect it.

    But this group of customers will shrink, I believe, as the next generation of shoppers becomes a larger percentage of the total, and they bring with them new and specific expectations of the businesses and people with whom they interact.

    It won’t even be easy for many of the companies that want to adopt the model, simply because it seems to run counter to how the world works and how rewards have been handed out.

    The transparent corporation. It is both a goal and a work in progress. The important thing is this - the world in which we all work and live makes such a notion not only desirable, but inevitable. And done right, even profitable.

    For MNB Radio, I’m Kevin Coupe.
    KC's View:

    Published on: March 4, 2010

    The New York Times reports that the US Food and Drug Administration (FDA) “released 17 warning letters to food manufacturers, making good on a vow to crack down on misleading labels on food packages. The agency accused the companies of pumping up the nutritional claims of their products or masking contents like unhealthy fats. The letters went out to the makers of a broad array of products, including Gerber baby food, Juicy Juice, Dreyer’s ice cream, POM pomegranate juice and Gorton’s fish fillets.”

    The Grocery Manufacturers Association(GMA) issued the following statement regarding the letter, which was sent by FDA Commissioner Margaret Hamburg:
    “The food and beverage industry is committed to providing consumers with the products and information they need to achieve and maintain a healthy lifestyle.  GMA agrees with and supports federal laws requiring food labels to be truthful and non-misleading.  As Commissioner Hamburg noted, the examples cited are not indicative of the food industry as a whole.  Separately, GMA and its member companies support, and are working with, the FDA to enhance our ability to convey nutrition information clearly and consistently to consumers.”
    KC's View:
    The bottom line here is that clear and unambiguous food labels are good for business because they engender trust. We live in a world where trust in various systems - including the food chain - is eroding, little by little. It hurts everyone when some companies walk as close to the line as possible.

    Now, I don’t even have a great deal of faith in the skepticism level seems to get higher with every passing day. But I’m willing to be convinced...and I think this letter is a step in the right direction.

    One other note. A lot of companies like to complain about over-regulation, and they have a point. But they lose the right to make that point if they don’t do the right thing voluntarily.

    Published on: March 4, 2010

    There is an interesting interview in CFO Magazine with Costco CFO Richard Galanti, in which he makes a number of salient observations about the membership warehouse club. Some excerpts:

    • “There were two questions for us at the beginning of the downturn. One, were customers still willing to pay a fee to shop? Two, would they still come to Costco, which is a little farther away from the local supermarket, discount store, or drugstore? In fact, the one thing that increased dramatically over the last 12 or 14 months was the frequency of shoppers. Were people spending less? Yes. Were they more discriminating in terms of what they were buying? Yes. Were categories like jewelry, home furnishings, and bigger-ticket discretionary items the weakest? Absolutely. But whatever the level of sales decline, it was less than it was for traditional retailers.”

    • “Years ago, when we stubbed our toe and announced that we were going to miss earnings for a quarter, an analyst put out a report on Costco with the subtitle, ‘It's better to be an employee or a customer than a shareholder.’ [Laughs] Wal-Mart is a great company and gets picked on more than it deserves. Certainly it has a lower wage structure and lower benefits, but that's improved some. We have a different [business] model. It's based on high volume, catering to businesses and more-affluent customers. We've figured out an efficient way that we can pay our people more and still drive down expenses as a percent of sales.”

    • “Our average hourly wage in the United States is a little over $19 an hour. Our lowest starting wage in the U.S. is $11. If you're a full-timer, you hit the top of the scale by the end of your fifth year ... If you provide a living wage and affordable, quality health care, you'll get the best employees, which in the long term makes business sense as well.”

    • “I doubt if we will ever be in all 50 states, at least not in the next five years ... There are some states that are smaller, where if somebody else is already there, there's not a whole lot of opportunity left. We're not rushing to go to Arkansas, where Wal-Mart is headquartered.
    That being said, we think there are still a lot of possibilities to increase penetration in many of the markets that we're in, and we will probably be in two or three more states over the next few years.”
    KC's View:
    One of the best things you can say about Costco is that it seems to have successfully resisted the siren song of Wall Street, preferring to do the right thing for employees and customers and believe that in the end, this will turn out right for investors. Of course, this works better if you are a long-term investor interested in long-term sustainable value than one interested in the fast profit and the quick flip.

    Personally, I think this the responsible approach. It’s that short-term approach that got so many companies into trouble and helped create the financial environment that brought us to the brink of economic disaster.

    Maybe we could get Costco CEO Jim Sinegal to run the economy. I might have a lot more faith in government...

    Published on: March 4, 2010

    In Kentucky, the Herald-Leader reports that Kroger Co. is testing a nutritional initiative at 23 stores that includes “easy-to-understand nutritional shelf tags on a majority of products, dietitians on site to assist customers and a new health station — think the old-style blood pressure machines but with many advances.”

    The labeling system is the NuVal program, which evaluates every product in the store and rates them on a scale of 1-100 based on a proprietary algorithm.

    The story notes that “Kroger is bringing registered dietitians in to offer scheduled tours with shoppers to help determine their individual needs. Some tours to be scheduled will focus on children. Kroger also is organizing monthly events including ‘Healthier Meal Maker’ in April and ‘Cruising the Aisles with Kroger’ in May.

    “The program also includes what Kroger has dubbed LUCY. That's the LC600 Health Station, a machine that allows customers to determine weight, body mass index, blood pressure, pulse, blood oxygen and more.”

    The story says that if the “Health Matters At Kroger” program is successful, the retailer could roll it out nationwide.
    KC's View:
    It seems to me that creating clear synergies between food and health - and reinforcing it at every turn in the food store - is one of the best ways to create a sustainable business model that will thrive as the economy improves. I’d be surprised if Kroger does not make this work and does not expand it throughout the country.

    Published on: March 4, 2010

    In Boulder, Colorado, the Daily Camera reports that “Whole Foods has signed agreements to sell two of its stores -- including one in Boulder -- as part of a settlement with the Federal Trade Commission over the Austin grocer's 2007 acquisition of the homegrown Wild Oats, according to documents made public Tuesday by the FTC.

    “The sale proposals awaiting the FTC's approval involve the former Wild Oats stores at 1651 Broadway in Boulder to A-M Holdings LLC, an entity run by local natural products industry veterans, and the store at 4301 Main St. in Kansas City to Healthy Investments LLC.

    “The FTC is accepting public comments on the sales petitions until April 2, officials said.”
    KC's View:

    Published on: March 4, 2010

    Yesterday, MNB reported that a lawsuit filed in a California court maintains that some fish oil capsules sold as health supplements for their Omega-3 fatty acids content have illegally undisclosed and unnecessarily high levels of contamination with polychlorinated biphenyl (PCB) compounds. The defendants include retailers CVS, General Nutrition Corp. (GNC), and Rite Aid.

    Now, there is a response from Andrew Shao, senior vice president, scientific and regulatory affairs, at the Council for Responsible Nutrition (CRN):

    “Fish oil supplements are among the safest, most beneficial health products on the market. Today’s announcement of a lawsuit against companies manufacturing or selling popular products is just that—a lawsuit looking for media attention, not a public safety concern for consumers.

    CRN believes the suit was filed in California in order to take advantage of a state law, Prop 65, which has conservative standards that are not law in the rest of the nation. Further, the information disclosed during the press conference danced around the details, offering a lack of specificity to the general public about the levels of polychlorinated biphenyl (PCB) compounds found in the fish oil products that were tested. Though the lawyers suggest that the levels of PCBs found in these products far exceed what is acceptable by Prop 65 standards, the actual levels of PCBs found in the majority of these products do not appear to exceed the Prop 65 limit (90 ng/day). Furthermore, they fail to mention that the Food and Drug Administration’s (FDA) tolerance level for PCBs in fish (2,000 parts per billion) far exceeds the levels of PCBs found in fish oil.

    It is important to put this into context. PCBs are ubiquitous within the environment, which means that all fish—whether fish found in oceans and rivers or fish oil supplements—contain at least trace amounts of PCBs. In fact, conventional food forms of fish contain higher levels of PCBs than fish oil supplements in part because supplement fish oil products go through a refining process which reduces PCBs and other contaminants. The FDA has established a tolerance level for PCBs in fish, which is 2.0 parts per million (ppm, also expressed as mg/kg) or 2,000 parts per billion; in comparison, the Prop 65 daily limit for PCBs for a cancer warning is 90 ng/day, which is significantly lower than what FDA deems safe. The lawyers are using California’s Prop 65 statute to bring attention to their case by attempting to frame this as a public health concern, when in reality, fish oil has enjoyed decades of safe use.

    The bottom line is that consumers, whether they live in California or elsewhere, should continue to feel confident in the safety and efficacy of their fish oil supplements. This lawsuit does nothing to change the strong science supporting the many health benefits of fish oil, which range from cardiovascular health to cognitive development of infants and young children, and the very low thresholds of PCBs which apparently trigger a labeling requirement in California cannot be extrapolated to demonstrate any actual risks at those levels. The health benefits for fish oil far outweigh any suggested, and unsupported, risks.”
    KC's View:
    Well, I certainly feel better about all the seafood I’ve been consuming over the past 10 days...

    It seems worth sharing an email I got yesterday from MNB user Matt Weeks about this issue:

    My 9 year-old heard the radio coverage of this yesterday, and was upset. We take similar products, and her primary cause of concern is *also* that she feeds a similar product to our 2 year old Golden Retriever.  Clearly she thinks it may be "too late" for us but not for the dog.  Now at least I know where I stand in the hierarchy.

    Please follow this story, and help us sort the smoke from the fire.  We buy products like this from trusted brands, some of which are house brands from trusted retailers.  This is a story that all consumers need to understand.  If our "trusted" are putting due diligence in their buying practices above our health, we must hold them accountable, all the way up to the executive suite, including sanctions for executives if appropriate.  There is no amount of profit that allows convenient ignorance of quality and safety.

    If indeed these products are determined to be full of dangerous contaminants, perhaps we should insist the executives of the retailers in question force-feed said products to their children and grandchildren.  I suspect that would get their attention.  At least via their spouses, if not the appropriate regulatory agencies.  Remember it takes a village.

    (I know of no better way to force a recalcitrant executive into good behavior than to engage them through the ire of their spouse...)

    It seems to me that this is illustrative of the broader problem - not just in the fish oil story, but also in the earlier story about good labeling. This is about Matt’s nine-year-old daughter growing up in an environment where she may not feel a high level of confidence about the products she buys and the claims they make.

    That’s bad news for an industry that depends on its credibility for sustainable success.

    Published on: March 4, 2010

    First there were “tall” drinks. Then “grande.” Then “venti.”

    Now, Starbucks is testing 31-ounce “Trenta” drinks - iced teas and iced coffees - in Phoenix and Tampa, hoping to compete successfully with 32-ounce sweet teas being marketed by McDonald’s.

    The company maintains that big size does not mean high calorie - unsweetened Trenta drinks are said have fewer than five calories, while sweetened versions have fewer than 200 calories.

    The move by Starbucks is part of continued sniping between it and McDonald’s, as the latter company recently introduced frappes to compete with Starbucks’ Frappuccinos.
    KC's View:
    At my age, just reading the words “31 ounce drink” makes me look around for a men’s room.

    Published on: March 4, 2010

    Crain’s Chicago Business reports that in New Zealand, Weight Watchers has struck a deal with McDonald’s that will allow the fast feeder to use the Weight Watchers logo on its menu boards for certain appropriate products. However, some nutritionists are criticizing the arrangement as a pure marketing ploy that really doesn’t promote healthy eating.

    Bloomberg Business Week reports that Nestle SA has completed its $3.7 billion acquisition of Kraft Foods’ pizza business.

    • Guiding Stars, the Delhaize-developed nutrition navigation system - evaluating every product in the supermarket and then assigning one, two or three stars to products that meet the standards of a proprietary algorithm and are determined to be good, better, best - has struck a partnership with the schools of Regional School Unit (RSU) #14 Windham Raymond School District in Maine. Guiding Stars will now rate every product sold in the systems schools - starting at the high school level, and working down into the elementary schools - as a way of educating students about nutrition.
    KC's View:

    Published on: March 4, 2010

    • Dutch-owned Royal Ahold says that its fourth quarter net profit was the equivalent of $365 million (US), down 8.2 percent from the same period a year ago. Q4 sales were up 3.3 percent to the equivalent of $9.3 billion (US). The company said that Q4 sales were down one percent to $5.73 billion in the United States.

    • Village Super Market, Inc. reports that its second quarter net income was $6.7 million, down 15 percent from the same period a year ago. Q2 sales were $315.3 million, up 0.8 percent from a year ago, on same-store sales that were down 1.7 percent.

    • BJ’s Wholesale Club reports that its February sales were up 12.8 percent to $755.2 million, from $669.6 million during the same period a year ago, on same-store sales that were up 7.7 percent.

    • Walgreen Co. said that its February sales reached $5.31 billion, up 3.2 percent from $5.14 billion during the same month in 2009, with same-store sales up 0.4 percent.
    KC's View:

    Published on: March 4, 2010

    MNB reported yesterday on a proposal made by US Postmaster General John E. Potter to to adjust delivery schedules, raise prices and control labor costs - including the elimination of Saturday mail delivery in the US - in order to stem the tide of financial losses facing the system.

    I commented:

    Cutting a day of mail delivery is putting a band-aid on the problem, and not addressing the real issue, which is that digital mail and information delivery is replacing the physical version. I have no idea what the fundamental business proposition ought to be...but I’m pretty sure that cutting out Saturdays ain’t it.

    You could cut deliveries to three days, and people under 30 would be unlikely to care. Or notice.

    MNB user Jeff Folloder wrote:

    I think you and I are on the same page.  That said, my approach may be even more dramatic.  The Post Office is the poster child for what is wrong with government and most political interaction: subsidizing a process that has no direct benefit to the public at large.  There is no need for mail delivery on 6 out of 7 days of the week.  Since most "business" communication has migrated to electronic formats and the couriers have a good grip on "critical" delivery, the Post Office has resolved into an enterprise used mostly by advertisers and promoters.  And that system is a government jobs program employing more people than it needs (or can afford) at rates controlled by union contracts that do not benefit the public.  Did I mention that this "system" is not cost effective?  The couriers make money without government support; perhaps that is a good model.

    Knock the delivery days to just two (I vote for Monday and Thursday).  Slash the jobs and render the fat or just turn it over to private enterprise.  Raise the rates to reflect the true cost to serve.  Eliminate the subsidized rates offered to select groups.  About the only downside is that bills would need a bit more latitude.  I get very few of those, as it is, though.  Between paperless billing, electronic banking and auto-pay, I rarely write checks anymore.

    Another MNB user wrote:

    While you're correct that the move to eliminate Saturday deliveries will not come close to solving all the issues with what is supposed to be a net zero government operation, it needed to be made in anticipation of the lower volume at least 10 years ago.  Think about 100 million deliveries, 6 days per week in a business model that's going the same direction as Blockbuster.  They probably should cut it to 3.  While many my age (48) and older would freak out at the thought, what do I really see when I check the mailbox?  Some bills (which I could get online) and a lot of stuff for the land fill that never even makes it to my kitchen.

    As with many government operations, this is now a jobs program more than a service.  Don't believe this will get traction any more than closing some of the 38,000 locations.

    MNB user Tim Heyman wrote:

    Great minds think alike, cutting mail to either Monday – Wednesday – Friday or Tuesday – Thursday – Saturday would have little or any affect on most peoples/companies’ lives.  The Democratic congress and the employees union, who have little concern for what “the bottom line” means will be totally opposed to this idea.

    I love how easy it is sometimes for folks to move from addressing a problem and developing a solution to making political talking points. I would argue that there is a lack of political courage on this issue on both sides of the aisle.

    Another MNB user wrote:

    I think you are dead right about people under 30 not caring or noticing if mail delivery was reduced to 3 days.  I'm under 30 and one of the most annoying parts of my day is going to the mail box and sorting through all the worthless crap that comes through there.  EVERY WEEK its the same adds that I NEVER care to look at.  If it comes from pretty much any retail store, guess what, they have the same add right there to grab as you enter the store - no need to send it please.

    And then there's the credit card offers, my gosh.  I've had to open and shred offer after offer after offer, I literally get the exact same thing twice a week and it always goes straight through the shredder and into recycling.  I am beginning to resent those companies so much if I did decide I needed a new card I would probably not get one of those just due to the sheer annoyance I've had to deal with.  I always prefer anything that comes through the mail to come electronically if possible.

    The labor unions need to realize that these postal jobs are useless anyway.  I get the fact that people need to be working but seriously cut loose the wasted jobs in our economy and replace them with jobs that are actually productive.  I think as a nation we can - (let me re-phrase that) - the free market in this nation, not the government, can come up with better jobs for these people and many others in similar obsolete industries.

    Another MNB user wrote:

    It’s a shame to know that a limited delivery schedule would mean job losses, but I completely agree.  A Monday, Wednesday, Friday home delivery schedule would work just fine for me and I am well over 30.  I could even envision having alternative delivery options, similar to UPS or Fed Ex for large or certified mail.  The US Postal Service model of business is out-of date for today’s personal and business needs.  If it wasn’t out-of-date you wouldn’t see the need for so many specialized package carriers.

    Still another MNB user wrote:

    If the Post Office can't figure out how to adjust, they need to shut down. I'll bet the other companies in the delivery business can figure out how to fill the void profitably.

    MNB user Blake Steen wrote:

    You are DEAD on about the postal service being a dead business model.  It amazes me that people actually think that the government can run health care and can’t even deliver mail efficiently.

    MNB user Mark Delaney wrote:

    Your point about those under 30 not noticing is fair, but even those under 30 use the USPS for holiday cards and such. More important I think is that while the USPS was made an "independent" organization in the 80's it hardly operates that way. Second only to Walmart in terms of employees the USPS maintains exclusive access to our mailboxes - keeping the likes of Fedex and UPS from infringing on the ability to deliver "non-urgent" mail (whatever that means ). The board that runs the postal service is largely presidential appointees and so if your "long term" view is four years - it's unlikely you'll be able to craft the vision needed for long term viability. Rather you'll do what they've been doing - close locations, curtail hours and continually raise the price of stamps - all "band aids" to your point. Many have argued for privatization but the Supreme Court has ruled they can't be challenged as a monopoly. Surely if Fedex or UPS were allowed a crack at it and long term plans were put in place of short term knee jerk solutions we'd understand whether the entire system is still viable or not. And as for those companies arguing that their business of delivering advertisements on Saturdays would be decimated - in our house that's known as the recycling pile - those catalogs and flyers are about as relevant to me as the pay phone ( and I'm slightly north of 30 :>)

    What’s a pay phone?

    MNB user Jenni Francis wrote:

    If anything, from a service needs standpoint, I offer for consideration that cutting Saturday service is the worst day to choose. It's difficult in many cities to get to the PO M-F around a standard 8-5 workday. Lines over lunch breaks are horrifically long, usually longer than an allotted lunch hour! I live in Portland, OR, where there's no desk service on Saturdays now - you can only pick up undelivered packages. It's a big frustration, and plays a large role in my aversion to using the Post Office for packages.

    Why not take Mondays off? Postal workers get a 2 day weekend, and it's easy to remember (i.e. Favorite Japanese restaurant and the PO are closed on Monday). Regardless of the reduction in processed mail volume, we do need a physical mail system. My rent check is not getting to my landlord any other way. Legal agreements needing wet signatures, small packages to friends and family, even the occasional postcard - for me, all are best sent through the postal service. While FedEx and UPS are great companies, they have distant service centers, hours of operation when most are at work, and high prices for individuals sending packages. These factors do not make them a reasonable replacement for the USPS in an average American resident's life, no matter how crummy the service is.

    And MNB user Randall Mahon wrote:

    Your comment of "You could cut deliveries to three days, and people under 30 would be unlikely to care. Or notice." rings true. I send my 24 and 27 year old daughters birthday and holiday cards, and they may or may not go to the mailbox to get them. They receive all their bills on IPhones and set up auto bill pay for several others. They are already used to 5 day/week deliveries from Amazon from UPS or Fed EX.
    KC's View: