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    Published on: August 28, 2015

    by Kevin Coupe

    Supplier sources are telling MNB this morning that Haggen continues to suffer from severe sales problems, and now is facing the possibility of a cash shortfall - leading to expected meetings with manufacturers in which they will be informed that the retailer no longer will be able to pay for delivered merchandise.

    These same anonymous sources are saying that there is a strong belief in the marketplace that Haggen could file for bankruptcy protection at any time, and that layoffs and store sales and/or closures - in addition to those already announced - are an almost certainty.

    Haggen's problems stem from its decision, largely fueled by investment capital from private equity sources, to expand from being an 18-store Pacific Northwest-based supermarket chain by acquiring 146 former Albertsons and Safeway stores that need to be divested when those two companies merged operations. Because of regulators' requirement that Haggen convert the stores quickly, the company was never able to put any sort of differentiated stamp on the properties, and almost from the beginning, sales and profits were much lower than expected, leading to reduced hours, employee layoffs, and the announced closure and/or sale of 27 units. In addition, Haggen has been consistently criticized for too-high pricing and too wide margins.

    MNB was unsuccessful in several attempts to contact Haggen executives this morning to get them to comment on these reports.
    KC's View:
    Rumors to the contrary, it gives me no pleasure to report this story. And while I generally don't like the idea of using anonymous sources, in this case I decided to make an exception ... the reports have the ring of truth about them, and I was persuaded of their accuracy. (I also waited to post MNB this morning as I worked the phones.)

    This is one case in which I wish I'd been wrong in my commentary for the past few months. When the case studies of Haggen's issues are written, there will be plenty of blame to go around ... but in the end, I believe, this story comes down to the business lesson from Jaws:

    Haggen simply didn't have a big enough boat, and the competitive waters were filled with sharks. Big sharks. Hungry sharks.

    Published on: August 28, 2015

    Green Zebra Grocery, the small-store, healthy food-driven format launched two years ago by former New Seasons CEO Lisa Sedlar in Portland, Oregon, said yesterday that it plans to open a second store in early 2016.

    The store will be in Portland's Lloyd District, will be a little over 8,000 square feet, and comes after the company raised $2.5 million in capital to fund its expansion. The announcement also says that Green Zebra plans additional store openings in the near future, including one in Portland's Richmond neighborhood.

    "We love the Lloyd neighborhood and we’re super enthusiastic about the opportunity to bring healthy, local, organic foods to eaters in the neighborhood," Sedlar says in a prepared statement. In addition to serving the residents of Hassalo on Eighth and the Lloyd District, our small format store will be convenient for our neighbors in Sullivan’s Gulch, Irvington, and the Central Eastside, as well as the thousands of folks who work in the neighborhood."

    The announcement defines the original Green Zebra this way: "The store employs nearly 50 people, with a minimum wage of $11.10/hr and offers health insurance to both full­ and part ­time staff members and their dependents. They purchase sustainably ­raised, local and organic products from over 60 Pacific Northwest growers, ranchers, fishers and grocery vendors."
    KC's View:
    I'm very happy to hear this. Not only did I like the original Green Zebra - which I revisited when I was in Portland this summer, and was even more impressed by - but I like Lisa Sedlar a lot, and hoped only that Green Zebra would be a success. I talked to a number of people out there who said that the store is doing extremely well, performing ahead of projections ... and so there is a lot of confidence in its ability to scale up.

    It is a terrific format - compact, accessible, but also aspirational. And the prepared foods taste great.

    BTW ... Lisa did a terrific interview with MNB a few years ago ... she's a unique individual ... and it is worth reading here.

    Published on: August 28, 2015

    The Los Angeles Times reports that the National Labor Relations Board (NLRB) has ruled that "companies using workers hired by another business - such as staffing agencies, contractors or even fast-food franchises - are still on the hook for labor violations and could be required to bargain with unions representing those employees."

    The Times goes on to say that "the decision will have far-reaching effects on the relationship between corporations and employees in America, especially at a time when many businesses are turning to temporary workers instead of hiring full-time employees. It's also a striking change from past labor laws, which doled out responsibility only to companies with direct control over hours, wages and working conditions for employees."

    The decision was cheered by pro-labor groups, and attacked by business groups and Republican politicians, who said it was politically driven.
    KC's View:
    There are lots of cases in which companies outsource various functions because they want to avoid having responsibility for things like labor violations, health care costs, etc. They think it gives them deniability.

    But the thing is, there really is no such thing. Not anymore. We live in a transparent world, and even if there is a good business reason for outsourcing, it may not matter when the customer decides to hold someone or something accountable for actions they find to be objectionable. The bottom line is that everybody has to take responsibility, even if it isn't fair.

    Think about the movie Roxanne, which is itself a modern retelling of "Cyrano de Bergerac." It offers a vivid illustration of how you can't outsource important functions, even if you think that's the best and most effective way to achieve your ends. Things end up backfiring, and things don't always end well.

    Published on: August 28, 2015

    USA Today reports that in the wake of the release of "gruesome video footage that appears to show operators of the Tennessee poultry farm clubbing small and sickly birds to death," McDonald's has cut ties with the company - which was a supplier to Tyson, which provides chicken to McDonald's.

    According to the story, "The video taken at T&S Farm in Dukedom, Tenn., which the activist group Mercy for Animals says was secretly recorded by one of the group’s investigators, appears to show a man and woman at the farm pummeling the birds using a pole with a large spike attached to the end of it. The graphic video ... also shows the workers standing on the birds heads and pulling their bodies to break their necks."

    Tyson also said that it would no longer no business with the farm, though it stressed that it does not believe that the thousands of farms with which it does business treat chickens in such a manner.
    KC's View:
    If this is proven to be accurate, I have some thoughts about what the punishment should be for the people responsible for this abuse ... and it involves a pole and a spike. Not that I'm calling for violence - which I'm not - but there ought to be some way to make sure that the punishment fits the crime.

    There are a couple of larger lessons here. One is that companies have to be careful about their marketing ... since it was just a few years ago that McDonald's decided to talk more openly about how it sources its chicken ... which means that now it has to be extremely responsive to abuse charges.

    The other lesson is simply this - that these kinds of reports take on a life of their own, and that any company, faced with such publicity, has to move quickly and decisively to address them.

    Published on: August 28, 2015

    In the UK, the Guardian reports that Philip Clarke, the former Tesco CEO who was forced out a year ago as the company endured plummeting sales and profits, is scheduled to be questioned by the British Serious Fraud Office "as it nears the conclusion of an investigation into a multi-million-pound accounting scandal at the retailer."

    The subject: an accounting scandal that emerged when it was revealed that the company had been understating costs and overstating supplier payments.

    The story says that Clarke "will be interviewed under caution by the SFO, meaning that any testimony he gives can be used in evidence. Tesco’s former commercial director, Kevin Grace, has also been called in ... The issue is also being investigated by the grocery market watchdog – the Groceries Code Adjudicator – and the accountancy watchdog, the Financial Reporting Council."
    KC's View:
    I'd like to see these regulators also question the guy who preceded Clarke in the job - Sir Terry Leahy. The culture that existed under Clarke almost certainly was created during Leahy's reign, and it seems to me that he has a lot of culpability for Tesco's continuing problems.

    Published on: August 28, 2015

    • The Harris Poll is out with the results of new survey saying that "'handmade/handcrafted' tops the provided list as a mark of quality, with nearly six in ten (59%) adults saying it strongly or somewhat communicates that a product is high quality. 'Artisan/artisanal' and 'custom' are the next best messengers of high quality, with 46% of adults saying each communicates this, followed by 'craft' at 44% and 'limited edition' at 41%. Just 31% say the same of 'small batch'."

    However, the survey also suggests that Americans may believe that these terms are being abused. "Nearly two-thirds (64%) believe this term ('limited edition') is over-used in marketing for food or beverage products. Half of adults say the same of 'handmade/handcrafted' (52%), 'craft' (51%), 'artisan/artisanal' (51%), and 'custom' (50%), while smaller percentages say the same of 'small batch' – only one-third (32%) feel the phrase is over-used, while 37% say it is neither over- nor under-used."


    • The Dallas Morning News reports that WinCo has opened its sixth Dallas-area store, in Garland, and has plans for at least two more, in Arlington and Fort Worth.


    • The New York Times reports that the Coca-Cola Co. has announced that "by the end of the year, it and its bottlers would reach its goal of returning water to the environment and to communities around the world. Coca-Cola uses roughly 300 billion liters each year to produce about 160 billion liters of “finished beverages” — Coke, Sprite, Fanta and hundreds of other brands.

    "The company announced this goal in 2007, promising to replenish the amount of water equivalent to its sales volume — the 160-billion-liter figure — by 2020. Tuesday’s announcement stated that it would reach this goal five years early."


    • The New York Times reports that a Delaware judge has ruled that when billionaire David H. Murdock took the Dole Company private in 2013, he and an associate "fraudulently drove down the company’s stock price so he could buy the business at a cheaper price in its 2013 leveraged buyout."

    The court ordered "Murdock and the company’s former chief operating officer, C. Michael Carter, to reimburse other shareholders $148 million. That is one of the largest amounts awarded in a lawsuit tied to a merger.

    "The decision, after a trial in February initiated by investors in the company, highlights the increase in appraisal lawsuits, in which investors who contend a takeover undervalued their shares demand further payment."
    KC's View:

    Published on: August 28, 2015

    There's a terrific blog posting by Erik Wolf, executive director of the World Food Travel Association, in which he writes about food tourism, noting about how important the eating-and-drinking experience is the most important factor in any travel experience:

    "Literally all visitors to a destination eat, no matter if they come as tourists, to visit friends and relatives, or for a meeting/convention. Eating and drinking involve all five human senses and because of that, tend to make a longer lasting impression on visitors and customers than any other experience they might have. We appreciate beautiful stained glass in a cathedral and we add our voices to the roar of football fans as the winning goal is made, but those memories eventually fade for the most part. Memories of food and drink stay with us literally forever, and as an added bonus, foster strong word-of-mouth promotion. Destination marketers and business owners alike can let visitors return home with memories of chain hamburgers and coffee, or they can make a powerful impression with local food and drink specialties. Food and drink tourism is a powerful tool for economic development that can surge visitor numbers, create jobs and increase tax revenue."

    It's a piece worth reading, in part because it ties into a longtime bias here on MNB - that food stores that create a more compelling food culture give themselves a competitive and differential advantage. And you can read the entire blog posting here.
    KC's View:

    Published on: August 28, 2015

    Responding to yesterday's FaceTime piece about changing consumer behavior, as illustrated by the fact that more people than ever are reading books on their smart phones, one MNB user wrote:

    Most mornings I Read you either on my phone or my tablet.  When I travel, I no longer bring my laptop.  I have learned to read spreadsheets on my tablet - why lug the laptop.  And I fall into the "older" demographic.  Fast, fast moving world.

    From another reader:

    I so agree with you on reading. I've always been a reader - I've always had to have a book or newspaper or even cereal box to satisfy my need to read. When my husband was diagnosed with stage 4 non-Hodgkins lymphoma in November, reading (mostly fiction) became a way for me to escape the stress. I have read so much these past nine months - dozens of books - nearly all on my iPad or iPhone. It's been much easier to transport books digitally than to lug physical books. They've gotten me through the seven hospital stays, uncountable doctor visits and the many hours in the middle of the night when I can't sleep (and reading on my iPad at night doesn't wake my husband up - a lamp or flashlight to read a physical book would).

    I'm grateful that I have had my digital books to help me through this ordeal. We find out tomorrow if the cancer is gone. I am sure I'll be up tonight reading my latest book, Fahrenheit 451, on my iPad.

    One other thing - the new ways of delivering books extend to audio. For a couple of books, I would read on my iPad or phone and then switched to the audio version that I bought through Amazon for the long drives back and forth to the hospital (it's more than an hour from our home, but thank goodness we have access to a world-class research hospital fairly near us). They synced seamlessly.

    Thanks for listening.


    Thanks for sharing. You and your husband are in our thoughts; we've been there, and we have some sense of how you feel.

    Cancer is a bastard, and it is extraordinary the degree to which it affects almost everybody's life.




    Yesterday, MNB took note of a Reuters report that as part of its broader effort to combat foodborne illness, the US Food and Drug Administration (FDA) is calling on manufacturers "to contribute samples of pathogens found during their own plant inspections. Some contamination is common in food plants. When it is found in the manufacturing facility, but not in food products, companies generally are required only to clean it up without recalling products."

    MNB reader George Denman responded:

    Wouldn’t the food industry be safer tomorrow if retailers required manufacturers to provide copies of annual third party food safety audits?  You cannot imagine how many companies are out there without food safety protocols put in place, pathogen testing, and even lot tracing. This should be a prerequisite to protect the consumer. There are laws requiring seat belt usage in every state but nothing that requires food safety protocols are out in place. now that is an eye opener….

    Absolutely.
    KC's View:

    Published on: August 28, 2015

    Last weekend, I saw two movies that vividly illustrate the fact that it is incredibly difficult to make a good romantic comedy these days. I'm not entirely sure why. Maybe it is because we live in a technological world where romance sometimes seems hard to find, and where comedy more often is harsh, not romantic. And maybe it is because filmmakers take more easily to movies with explosions and action sequences than those with real emotions and characters.

    The one that hurt the most was She's Funny That Way, a movie by famed movie director Peter Bogdanovich that is meant to emulate the screwball comedies of the 1930s. The setup is that the director of a new Broadway play (Owen Wilson) also has a thing for prostitutes, though after sleeping with them he likes to give them enough money to start a new life. When he sleeps with a Brooklyn hooker (played by British actress Imogen Poots, affecting a really bad accent), the next day he finds her auditioning for his new play, and acting across from his wife. From there, there are an enormous number of coincidental and not-so-coincidental encounters, as the director's life spins out of control.

    The problem is that the script is lame, the acting mostly hammy and the direction uninspired - not a great combination. What made it hard to watch was my memories of Bogdanovich as one of the mid-seventies most impressive directors, with films such as The Last Picture Show, Paper Moon and What's Up, Doc? to his credit ... since then, his directing output has been uneven at best, and he's worked more as an actor in other people's projects (most notably as Dr. Elliott Kupferberg in "The Sopranos"). Bogdanovich also remains one of his generation's foremost film scholars, but in She's Funny That Way, that knowledge does not transfer to making a movie with any panache at all.

    The other film was less disappointing, if only because I had fewer expectations. In Some Kind of Beautiful Pierce Brosnan plays a libidinous Cambridge professor who gets his college student girlfriend (Jessica Alba) pregnant, and then marries her and moves to Los Angeles to raise their child together. For all sorts of reasons, their marriage disintegrates, and Brosnan's character finds himself attracted to his wife's sister, dealing with alcohol issues and facing the immigration authorities all at the same time ... which is meant to be funny but isn't.

    The shame of this one is that the filmmakers could've made a different kind of movie of they've focused more on the relationship that actually provides the emotional core of the movie, as Brosnan's professor finds himself completely captivated by his young son, in a way that he never expected since he had a more tumultuous relationship with his own father (played by Malcolm McDowell). If the love story had been more about fathers and sons, and what the definition of being a man is, it would've been a much different movie ... and, I suspect, a better one.

    Two final points on this. As I sat down to write this, I found myself unable to remember which movie was which. Their titles are almost completely interchangeable - vanilla, vague, non-specific, of the sort that used to be featured on Matthew McConaughey movies (before his recreated his career).

    My daughter, Allison, also had an interesting take on the state of the romantic comedy - that it takes movies like Trainwreck to break through, simply because it has such an unusual perspective on the form. I agree with her on that ... though I'd point out that my idea of a romantic comedy is one that I can watch with my kids, and I'm really glad I didn't see Trainwreck with her. Funny, original movie ... but not one, in my view, that was suitable for father-daughter viewing.




    On a somewhat happier note, we were sitting around the kitchen last Saturday night talking about best sports movies, and my son, Brian, threw out Happy Gilmore ... and I had to admit that I've never seen it. (I generally hate Adam Sandler movies.) He was shocked by this hole in my cultural knowledge, and so we sat down, rented it on iTunes, and watched it.

    I must admit, I laughed at much of it. The supporting cast is terrific - I loved Carl Weathers, Christopher McDonald, Bob Barker and even Richard Kiel ... an eclectic cast if I've ever seen one. I thought Julie Bowen seemed impossibly young - she's a favorite actress of mine, but I have to admit I didn't even recognize her at first. But, in the end, I thought that Sandler was Sandler ... this was relatively early in his career, so the act hadn't gotten old yet, but it is all pretty recognizable.

    At the end, my son made an interesting observation - that Sandler's lousy recent movies actually make his older movies seem less funny, because he keeps mining the same basic material over and over.

    I was glad I saw it, but only because I need to fill the gaps in my education. I won't need to watch it again.
    KC's View:

    Published on: August 28, 2015

    As is my custom at this time of year, I'm taking the week before Labor Day off ... though I promise that Michael Sansolo and I will be monitoring the news in case any major news stories occur. (Like anything to do with Haggen...)

    MNB will be on hiatus until Tuesday, September 8, when we'll return with all new stories and commentaries. Between now and then, the MNB archives will, of course, be open. And, I may post the occasional note or picture on Facebook if the spirit moves me … You can keep up with me here.

    Thanks, as always, for your patience … I hope you enjoy the last few days of summer.

    Slàinte!

    KC's View:

    Published on: August 28, 2015

    Supplier sources are telling MNB this morning that Haggen continues to suffer from severe sales problems, and now is facing the possibility of a cash shortfall that could affect its ability to pay suppliers. The supplier community also is said to be concerned about the possibility of a Haggen bankruptcy filing.

    However, in a prepared statement provided to MNB, Haggen said that it "is in regular communication with its suppliers and we fully expect that they will be paid in full. We are working diligently to resolve any outstanding issues related to our supply chain as a result of recent store closings. Our stores are receiving shipments from suppliers, and the flow of goods has been adjusted."

    Haggen did not address on-the-record the reports of bankruptcy concerns.

    Haggen's problems stem from its decision, largely fueled by investment capital from private equity sources, to expand from being an 18-store Pacific Northwest-based supermarket chain by acquiring 146 former Albertsons and Safeway stores that needed to be divested when those two companies merged operations. Because of regulators' requirement that Haggen convert the stores quickly, the company was never able to put any sort of differentiated stamp on the properties, and almost from the beginning, sales and profits were much lower than expected, leading to reduced hours, employee layoffs, and the announced closure and/or sale of 27 units. In addition, Haggen has been consistently criticized for too-high pricing and too wide margins.
    KC's View:
    Rumors to the contrary, it gives me no pleasure to report this story.

    One of the reasons that MNB is late this morning is that I waited to post it until I had a chance to work the phones and email. I wanted to give Haggen management every opportunity to address the story before posting it, and it took several hours and an internal conference call for Haggen management to come up with that carefully parsed 55-word statement.

    (In journalism-speak, this is known as a "non-denial denial," which London's Sunday Times defines as "an on-the-record statement ... repudiating a journalist's story, but in such a way as to leave open the possibility that it is actually true.")

    I get the sense of some internal turmoil at Haggen, though, to be fair, there would be something wrong if there weren't a lot of tsouris about the circumstances in which the company finds itself.

    If nothing else, this story illustrates the degree to which the perception of Haggen has been damaged in the supplier community, and that's not exactly conducive to positive retailer-supplier relationships.

    This is one case in which I wish I'd been wrong in my commentary for the past few months. When the case studies of Haggen's issues are written, there will be plenty of blame to go around ... but in the end, I believe, this story comes down to the business lesson from Jaws:

    Haggen simply didn't have a big enough boat, and the competitive waters were filled with sharks. Big sharks. Hungry sharks. Relentless sharks.