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    Published on: September 21, 2015

    by Kevin Coupe

    Today is the day when the chickens come home to roost. Metaphorically speaking.

    The Associated Press reports that one year after Stewart Parnell, the former CEO of Peanut Corporation of America (PCA), was convicted in a jury trial "of crimes behind a salmonella outbreak blamed for killing nine people and sickening hundreds more," he faces a judge in his final sentencing hearing.

    According to the story, "A sentencing hearing was scheduled for Monday in Albany, Georgia, for the 61-year-old former owner of Peanut Corporation of America. Due in U.S. District Court with Parnell were two co-defendants — his brother and a plant manager — also found guilty in what experts called the first food-poisoning trial of American food processors.

    "Parnell was convicted Sept. 19, 2014, of knowingly shipping salmonella-tainted peanut butter from his plant in Blakely, Georgia, to Kellogg's and other customers who used it in products from packaged crackers to pet food. The jury also found Parnell and his brother, food broker Michael Parnell, guilty of faking results of lab tests intended to screen for salmonella."

    The story notes that "Parnell faces a possible prison sentence of 9,636 months — which comes to 803 years. The U.S. Probation Office, which prepares pre-sentencing reports to help guide federal judges, recommended the stiff sentence based on the number of illnesses as well as estimates that the outbreak, which triggered one of the largest food recalls in U.S. history, cost Parnell's corporate customers $144 million."

    The judge in the case has the authority to impose a more lenient sentence.

    But whatever the judge does, the case should serve as a shot across the bow of every food industry company and senior executive, since the new Food Safety Modernization Act (FSMA) provisions create a regulatory environment in which C-level executive scan be held personally culpable for their food safety misdeeds. And when those actions are as baldly premeditated as those at PCA, then the government seems likely to throw the book at those responsible.

    It is an Eye-Opener.
    KC's View:

    Published on: September 21, 2015

    Time has a piece about the Amazon vs. Walmart throwdown, writing that "as online retail growth surpassed that of Walmart’s traditional retail model, a rivalry emerged between Walmart and Amazon, as price wars broke out. Today, Walmart’s revenue is still much larger–although only 5 times larger now–and Amazon’s revenue per employee ($623,000) is nearly three times that of Walmart.

    "More noticeably, Amazon’s market cap this summer surpassed that of Walmart’s. Amazon is currently valued at $244 billion to its rival’s $206 billion. As much as that news was seen as evidence of Amazon’s unstoppable rise, it had just as much if not more to do with a slow decline Walmart has been trapped in."

    Here's the passage that captures the competitive moment perfectly:

    "It’s not just that Amazon is soaring this year while Walmart is sinking. It’s that one of them is a prized growth company and the other an aging, struggling giant that is paying billions a year in dividends to keep investors from selling. Put in retail terms, Amazon is the high-end product that people are willing to pay a crazy premium for, while Walmart is now something you might find in the bargain bin ... One is seen as a growth stock, the other as a value play that might be recovering in a couple of years. One is investing in new ambitious projects, the other in steady payouts to today’s shareholders. And of course, one has been rising while the other has been declining in recent months."
    KC's View:
    Which is not to say that Walmart is complacent. It is testing new and smaller formats, plowing tons of money into online, investing in higher wages and working hard to rehabilitate its sometimes questionable reputation.

    But there is a sense, the story suggests, that Walmart is trying to address the issues of the past, while Amazon is addressing the issues of the future. It doesn't mean that both cannot survive, but "from an investment standpoint, these are two very different ventures."

    Published on: September 21, 2015

    The Seattle Times reports that "Albertsons has agreed to buy back the prescription records and customer base of 13 of the in-store pharmacies Haggen is closing, according to court filings.

    "The deal would put some $9.4 million in Haggen’s pockets, not counting the $3.6 million Albertsons is expected to pay for inventory. The idea is to transfer the business of those pharmacies, in various California, Arizona and Oregon locations, to nearby Albertsons stores."

    And the Puget Sound Business Journal reports that "the transfer deal could still fall through. Although Albertsons' LLC vice president Bradley Beckstrom has signed the agreement filed in court, as has Haggen CFO Blake Barnett, the agreement itself states the transfer date is yet to be determined, and if the parties do not agree on transfer dates by Oct. 15, the deal will automatically terminate."

    As reported on Friday, Haggen has told its employees that it has gone to the Federal Trade Commission (FTC) asking that it vacate a previous ruling that for one year prevented Albertsons from hiring away any Haggen employees that used to work for it.

    These are just the latest moves as Haggen tries to dig itself out of the hole in which it finds itself. Almost from the moment that it acquired 146 stores in California, Oregon, Nevada and Arizona that needed to be divested when Albertsons bought Safeway, Haggen has faced a series of increasingly difficult challenges. The stores were perceived as being high-priced, with the emphasis seemingly placed on high margins rather than competitive prices. As a result, Haggen experienced a serious traffic, sales and profits problems in the new stores, which created cash flow issues, which resulted in slowed shipments and increased out-of-stocks, which in turn led to even lower sales ... and, finally, the decision to file for bankruptcy protections and sell off as many stores as possible - perhaps even the entire chain.

    Haggen reportedly owes its creditors more than $270 million. It is being sued by Albertsons for inventory that the chain claims Haggen did not pay for when it bought the stores, and is suing Albertsons for more than $1 billion, charging that Albertsons sought to undermine its ability to compete.
    KC's View:
    Some of the numbers are big. But some are small, yet no less consequential.

    Central Coast News has a piece about Ray's Own Brand Jerky and Sausage, a California company that sold product to Albertsons and Vons stores for years, and stayed with Haggen when it took over stores from those companies. The owner says he worked out seven-day credit terms with Haggen, and all was going well until Labor Day weekend, when Haggen placed an unusually large order, took delivery...and then declared bankruptcy. Ray's got checks from Haggen, but they were returned by the bank ... and now, as an unsecured creditor, Ray's is at the mercy of the bankruptcy proceedings.

    "You're going to hear its not personal, its just business", says owner Raymond Cattaneo, "but the old reply is it may not be personal to you, but it is personal to me, I don't do business that way."

    MNB is hearing that Smart & Final, Stater Bros., Gelson's, Bristol Farms, and a number of other, smaller food retailers are moving aggressively to bid on some of the Haggen sites; they have to believe that if they move quickly they'll be in a position to get a great price, while at the same time believing that they can offer consumers differential advantages that Haggen could not.

    We're also hearing that there are a number of suppliers who are likely to be announcing layoffs in the immediate future, as they've been hit hard by financial reversals related to the Haggen bankruptcy.

    This situation will continue to unravel, and it ain't gonna be pretty.

    Published on: September 21, 2015

    Publix announced that it is expanding its grocery delivery service - outsourced to a startup called Shipt, which started out making deliveries for Target, Best Buy and Home Depot - to the Atlanta market.

    The company previously delivered to Publix customers in three Florida cities, as well as to kroger customers in select other markets.

    Shipt notes on its website that "delivery is free for members on orders over $35. Smaller orders are welcome, but a $7 delivery fee will be added to help cover the costs of shopping and delivery. We never charge our members any additional fees."

    Shipt says it hopes to be 100 cities by 2018.
    KC's View:
    It sounds like Shipt is being more focused in targeting food retailers ... and if it is able to live up to consumer expectations, maybe this will work. But Publix has to keep in mind that if Shipt happens, it'll be Publix, not the delivery firm that it outsourced the business to, that will be culpable.

    Published on: September 21, 2015

    Reuters reports that a group of Target pharmacy employees in a Brooklyn, New York, store "have won a vote to form a microunion, making it the first unionized store at the retailer since its inception in 1902."

    The vote was sanctioned by the National Labor Relations Board (NLRB). Target said in a statement that it was disappointed by the vote and "will appeal the NLRB's decision to allow the vote to proceed." Target, in fact, is in the process of selling its pharmacy business to CVS.

    There is a legal backstory to all this positioning by both sides:

    "The National Labor Relations Board in 2011 ruled that so-called micro unions are appropriate within a company's operations when their members share 'a community of interest.' That decision was upheld by a U.S. appeals court, spurring the board in 2014 to extend the standard to retail stores in a case involving fragrance and cosmetic department workers at Macy's Inc.

    "The National Retail Federation and other industry groups have said the decisions would wreak havoc on stores, pitting groups of employees against each other and forcing companies to negotiate with multiple unions that could have competing interests. Union groups say the NLRB ruling in favor of microunions is appropriate to the modern-day workplace, where employees often are asked to staff multiple departments."
    KC's View:

    Published on: September 21, 2015

    In Minnesota, the Pioneer Press reports that Hy-Vee is set to make its debut in the Twin Cities tomorrow with a 90,000 square foot supermarket in Oakdale. "Hy-Vee is entering a crowded Twin Cities grocery market," the story says, "competing with Lunds & Byerly's, Kowalski's, Whole Foods, Trader Joe's, Cub Foods, Target, Walmart, Aldi and more -- all with significant locations near Oakdale. It's a buyer's market for food shoppers."

    The story notes that Hy-Vee is hoping that its focus on customer service, fresh food, and nutritional issues will help it stand apart from the competition.
    KC's View:
    Hy-Vee is a tough competitor ... but to be honest, there is nothing in the story that makes me think that they'll put Lunds/Byerly's at any sort of disadvantage. Lunds/Byerly's is one of my favorite retailers around the country, and I think they do an extraordinary job ... as do a number of other retailers in the marketplace. The area has a robust co-op community ... I'm a particular fan of the Wedge Co-op, ... that also will offer Hy-Vee tough competition.

    Let the games begin.

    Published on: September 21, 2015

    ZDnet writes that "online scrapbooking platform Pinterest announced this week it had surpassed the 100 million monthly user mark, with 45 percent of users outside of the United States.

    "The five-year-old startup from California, valued at $11 billion, said it was blown away by how many users got on board the platform that allows individuals to 'pin' images based on their interests ... Based on the latest figures, Pinterest remains well behind Facebook-owned photo-sharing app Instagram, which claims about 300 million users."
    KC's View:

    Published on: September 21, 2015

    • The International Business Times reports that "outages from Amazon Web Services (AWS) caused major disruptions Sunday morning for customers using Amazon services as well as users of Netflix, entertainment database IMDb and a number of others ... AWS provides cloud computing services to many companies and applications ... Amazon has data centers around the globe, which are used by companies for their information technology needs. Many companies choose to use such a service so that they do not have fund their own data centers. As Sunday’s outages showed, the major downside for companies is that if anything goes wrong they, like their customers, have to wait."

    • The Chicago Tribune reports that Peet's Coffee & Tea is rolling out a plan to offer all-day warm breakfast options - ranging from bacon and cheddar breakfast sandwiches to kale and goat cheese flatbreads - in all of its stores nationally. The story notes that the program has been offered in 17 Chicago units in recent weeks, expand to other markets by the end of the year, and then "eventually to all of the company's 243 locations."

    • The Associated Press reports that Coca-Cola has been notified by the Internal Revenue Service (IRS) that "it owes $3.3 billion more in federal taxes, as well as interest, for 2007 to 2009 ... The Atlanta-based company said in a regulatory filing that it believes the assessments from the Internal Revenue Service are without merit and plans to pursue 'all administrative and judicial remedies necessary to resolve the matter'."
    KC's View:

    Published on: September 21, 2015

    We had a story last week about a survey saying that consumers this holiday season will once again put a premium on free shipping, which led MNB reader Andy Casey to write:

    I couldn't agree more. As an Amazon Prime shopper the first thing I do on any product search is set the filter to "prime only".  it isn't only a cost issue (although obviously that makes a difference) but really about removing uncertainty from the delivery. Just makes the whole process easier.

    Regarding the new emphasis on private label by Kings Food Markets, MNB user Richard Layman wrote:

    I now nothing about King's but like you believe that store brands are a potential differentiator for supermarket chains.

    However, in my experience as a consumer, the biggest problem is that traditional supermarket chains are weak on sampling generally and promotion of own products specifically, at least in the DC market.  Only Harris-Teeter has sampling in produce and deli as a key element of marketing.  By comparison Safeway and Giant do almost zero sampling.  Although Safeway has been a bit innovative in at least producing grocery bags that promote its brands.  e.g., just last week I saw someone with a bag promoting Lucerne, and they promote the Open Nature health brand the same way.

    Both companies have decent own brand products.  Some items in fact I prefer to traditional CPG items.  But I sample them (by buying them) as an effort to save money. Some products are particularly good, especially the Safeway Select line.  Some are substandard. e.g. I bought Harris Teeter frozen yogurt and it sucked.  I alerted them to this via their website, suggesting they reach out to Kroger, and they were defensive. But while I go out of my way to buy Safeway Select jams and jellies, the basic Safeway brand for jellies is not very good either, no flavor at all.

    If supermarket companies are going to make store brands a fundamental element of their offer, they are going to have to market and promote the goods just as if they were Procter & Gamble.

    We had a story last week that took note of an Oregonian report that Haggen has asked the bankruptcy court overseeing its business "for approval to pay an investment banking firm more than $1 million to explore selling the company and its assets, including stores." That firm is Sagent Advisors, described in the story this way: "The firm oversaw the 2011 purchase of Haggen's majority stake to private equity firm Comvest, as well as the grocer's purchase of 146 stores from Albertsons earlier this year."

    Which prompted one MNB user to write:

    Seems to me that the advice so far has been bad; why would they go back to the company that helped get them into this mess?

    On Friday, we wrote about the comedian who lost his gig as a commercial spokesman for Buffalo Wild Wings because it came out that he'd been lying for years about being in New York City's World Trade Center on 9-11 and narrowly escaping after the terrorist attacks there.

    MNB reader Tom Murphy wrote:

    In general, if you wouldn’t tell your mother about it, it is best not to do it in this day and age!

    From another reader:

    I think this analogy is showing forth in the current debates.  I think part of the reason that some candidates  (Trump especially) are getting attention is because they are telling it like it is,  they aren’t covering up, they aren’t trying to make us believe that we have a great system, and they aren’t afraid to call out the ones that are not being transparent.
    This need for transparency by America is creeping into several areas and I think it’s  GREAT!!!  It’s sad/embarrassing at times to hear the truth of how things have been done in the past but it’s needed and I hope it prompts our government to change.  I still have hope!

    I do think one has to be careful here. There are candidates on both sides of the aisle who say they are telling it like it is ... but in fact are just telling it the way they think voters want it to be, and there's really no there there. There are times when transparency is actually transparency, and times when it is just another form of posturing.
    KC's View:

    Published on: September 21, 2015

    It's Week Two in the National Football League...

    New England 40
    Buffalo 32

    Tennessee 14
    Cleveland 28

    Houston 17
    Carolina 24

    Arizona 48
    Chicago 23

    San Diego 19
    Cincinnati 24

    Detroit 16
    Minnesota 26

    Tampa Bay 26
    New Orleans 19

    Atlanta 24
    NY Giants 20

    San Francisco 18
    Pittsburgh 43

    St. Louis 10
    Washington 24

    Baltimore 33
    Oakland 37

    Miami 20
    Jacksonville 23

    Dallas 20
    Philadelphia 10

    Seattle 17
    Green Bay 27
    KC's View: