Wednesday, January 30, 2008

Retail Memo: [Heard on the Street]: Will SuperValu, Inc. Be Supermarket Industry Investor Ron Burkle's Next Play

Ron Burkle, billionaire supermarket industry investor and former bagboy for Southern California's Stater Bros. supermarket chain, is taking a long, serious look at making a major investment in fledgling grocery retailing and wholesaling giant SuperValu, Inc. we've learned.

Burkle, who founded and runs investment firm Yucaipa Companies, LLC and is a close personal friend of former President Bill Clinton (Bill's also an investor in Yucaipa and stands to make about $8 -to- $9 million when he cashes out of one of its funds soon) and a major financial supporter of Hillary Clinton's Presidential campaign, likes what he sees in SuperValu.

What is it he likes? In SuperValu, Inc., Burkle sees a major, multi-banner, multi-format grocery retailer and wholesaler that's stock share price is lower than it should be, has tons of valuable assets, has what looks like a viable turnaround plan, and could benefit from an infusion of cash to help with that restructuring and a large-scale store remodeling program it's in the middle of. SuperValu, Inc. currently has about $44 billion in annual sales.

These are similar attributes, assets and liabilities Burkle has spotted, and liked, in numerous supermarket chains in the past, leading him to invest, acquire, merge, restructure and then sell, making billions as a result.

Burkle's biggest deal with Yucaipa Companies (founded in 1986), which netted him a couple billion dollars of personal profit, began about 20 years ago and involved mutiple acquisitions over an eight year period (1987-1995).

Beginning in 1987, Yucaipa Companies bought Falley's Food-4-Less of Kansas City, Mo. for $35 million. Two years later in 1989 the company acquired long-time Southern California grocery chain Boy's Markets for $375 million. In 1991 Burkle added Alpha Beta, a leading California supermarket chain, to his fast-growing food retailing empire, paying $271 million for the grocery chain.

Then in 1994, the company acquired Phoenix, Arizona-based Smitty's for $138 million. That same year (1994) also saw Burkle making his biggest acquisition to date, the $1.5 billion purchase of Southern California grocery chain Ralph's Grocery Co. He wasn't finished yet though. The following year (1995) Yucaipa Companies acquired Chicago-based supermarket chain Dominick's for $750 million.

Over this eight year period, Burkle and a senior management team operated these various supermarket chains (acquisition-by-acquisition) as an integrated company of sorts, but yet each kept it's own identity, format and positioning in its respective markets. From 1995-1997, Burkle and his team integrated the desperate operations, slashed costs, closed poorly-performing stores, built some new stores, remodeled a number of others, and improved sales and profits as a result.

In 1997, Burkle merged Ralph's/Food-4-Less with Oregon-based Fred Meyer, Inc., creating the number two food retailing company in the Western U.S. after Safeway Stores, Inc. The combined company was named Fred Meyer, Inc.

Then the selling began. In 1998 Burkle broke the Dominick's chain off from Fred Meyer, Inc. and sold it to Safeway Stores, Inc. for $1.85 billion. Yucaipa paid just $750 million for the chain less than three years earlier. Then the BIG DEAL came: Kroger Co. agreed to buy Fred Meyer, Inc. for $8 billion. You can do the math; add up what Burkle paid for all the chains above, then subtract that from $9.85 billion, the combined sale price he fetched for Fred Meyer and Dominicks, and as you can see, he made a tidy profit.

After selling Fred Meyer, Inc. to Kroger Co.--the purchase which made Kroger the number one supermarket chain in the U.S.--Burkle focused primarily on making major investments with Yucaipa, both in and outside of the supermarket industry, rather than acquisitions.

He also nurtured his close friendship with Bill Clinton. In fact, when President Clinton left office after serving his last term, he joined Yucaipa Companies' board of directors at Burkle's invitation. He also became an investor in Burkle's various investment funds--hence the $8 -to $9 million payday the former President is due when he cashes out soon, according to experts who are aware that he plans on doing so.

Burkle's most recent payday came from the acquisition of Wild Oats Markets by Whole Foods Market, Inc., a merger Burkle helped to engineer as the largest private investor in Wild Oats, as well as being its most influencial member of its corporate board of directors.

Burkle netted a couple hundred million dollars from the sale of Wild Oats in September, 2007. That money has been burning a figurative hole in the pockets of the former bagboy, who later became an executive at Stater Bros. in Southern California.

From what we hear, Burkle is close to making a major investment in SuperValu. The grocery chain and wholesaler has been having rough times since the fourth quarter of last year. Sales have been down, although profits have actually been up slightly. The company also has been struggling for well over two years to integrate its huge acqusition of Albertsons, Inc. into its culture and operations. SuperValu's stock share price has been hovering near its all-time lows, which is perhaps its biggest problem, at least in the eyes and investment portfolios of Wall Street.

Just this week however, SuperValu, Inc. CEO Jeff Noodle announced a major restructuring and store remodeling plan that Wall Street analysts might like. Burkle loves to invest large sums of cash and then become a partner with company CEO's and senior executives in restructuring and streamlining operations as a way to increase a company's value. Noddle told investors on January 24 the company is on track to remodel 165 more stores under its "Premium, Fresh and Healthy" format model between now and next year.

At the January 24 investors meeting Noodle also announced additional new initiatives for the company's Sav-a-Lot small-format discount stores and for other parts of its retail operations. He also announced the closing of Supervalu, Inc.'s Sunflower Market stores, a three year-old experimental five-store chain of small-format natural foods stores with an emphasis on low prices.

Such initiatives are music to Burkle's highly-tuned investment ears. We aren't saying the billionaire will make a sizeable investment in SuperValu, Inc. for sure. What we are saying is he's looking very closely and seriously at doing so. Further, if he does make a major investment in the company, look for him to participate in an advisory capacity to Noodle.

SuperValu, Inc. is a huge grocery industry corporation with $44 million in annual sales. As such, Burkle isn't going to gain five or six percent ownership in the company like he did with Wild Oats, which was bought by Whole Foods Market, Inc. for less than $1 billion dollars. However, a cash investment of say $1 billion by Burkle would go a long way right about now in helping SuperValu with it's massive store remodeling program.

Even more important, a Burkle investment would be a positive signal to Wall Street and the company's institutional and private investors and stockholders. In fact, such an investment, especially with Burkle attached to it in some way, would likely give SuperValu, Inc.'s stock a nice per-share boost in the short term. Stay tuned.

Retail Memo: A Peak Inside a New Trader Joe's Store


On Friday, February 1, a new 13,000 square foot Trader Joe's market will open in the Kercheval Avenue business district in Grosse Pointe City, Michigan, a wealthy city of about 7,000 people in Wayne County, Michigan.

Grosse Point City, often referred to by locals merely as "the city," is a suburb of Detroit, and is about 8 miles from the motor city. It's one of six similar-sized cities--Grosse Pointe Farms, Grosse Pointe Park, Gross Pointe Shores , Grosse Pointe Woods and Lake St. Clair--that are located literally right next to each other in Wayne County. The region is often collectively called "The Pointes."

These six wealthy Detroit suburbs together should make for a healthy market for Trader Joe's and its eclectic selection of specialty and natural foods and products.

Trader Joe's stores are small-format, but are packed with everything from fresh produce and meat departments, wine and craft beers areas, to extensive selections of perishables, frozen foods and fresh, prepared foods, along with shelves of specialty, ethnic, gourmet, natural and organic gorcery products. About 75-80% of the grocery items in the stores are branded under Trader Joe's various private labels. The new Grosse Pointe City TJ's even has an in-store food sampling kiosk where shoppers can taste all kinds of foods and beverages.

Amy Salvagno, a writer for G& G Newspapers, a Michigan chain of publications that serves readers in many cities in the area, got a peek inside the yet to open store, and has a piece in today's paper about what she saw.

We like the piece--it's interesting, descriptive, consise and fairly brief--so decided to share it with our readers. You can read Ms. Salvagno's article here.

Trader Joe's, which is headquartered in Southern California and owned by the German retailer Aldi, currently has about 300 stores in the U.S. All Trader Joe's banner stores are in the USA.

The specialty grocer is expanding rapidly, building and opening new stores throughout the country, from California to New York, and nearly everywhere in between. The grocer is so popular in fact that numerous cities and neighborhood groups, such as those in Albany, New York and Nashville, Tennessee to site just two examples, have launched sophisticated lobbying campaigns to try and convince TJ's to open stores in their towns.

Trader Joe's is the leader in what we've termed the small-format food retailing revolution in America. It's quirky stores, full of specialty, natural and organic products, do so well in part because they make shopping fun. Store associates wear funky tropical island-print shirts, and all the in-store signs are hand-produced works of art, done with colored chalk on black or green chalkboards, rather than ink on paper signs like most grocery stores. All Trader Joe's stores have at least one--and often more than one--employee who's only job is to hand-create in-store product signs.

Trader Joe's private-label branded products also are a big hit with customers. They love the product names, quality, varieties and prices. And of course, TJ's famous "Two-Buck-Chuck" line of $1.99 bottle wines, which have won many awards over wines that cost ten-times the price, are another big hit with shoppers.

The specialty grocer also extends its fun-filled merchandising philosophy to its new store grand openings. The new Grosse Pointe TJ's grand opening, like all new store openings, will begin with a Hawaiian lei cutting (rather than a traditional ribbon) ceremony at 8:45 in the morning. As store officials cut the lei, a live band will play tropical music for those in attendance. Employees will, of course, be dressed as if they just returned from a tropical island vacation.

The grand opening fun also features clowns and face-painting for the kids, lots of free food and drink, and tons of free ballons and stickers, for both real children and children at heart.

Retail Memo: Breaking News: Tesco's Fresh & Easy Confirms it will Open 18 Stores in San Francisco Bay Area


As our regular readers know, we were one of the first publications to report and write about Tesco's Fresh & Easy Neighborhood Market's plans and strategy to launch a retail invasion into Northern California, with its small-format, convenience-style Fresh & Easy grocery markets.

We can now report that Fresh & Easy Neighborhood Market has formally announced and confirmed 18 "done-deal" store locations in the San Francisco Bay Area region of Northern California.

Those Bay Area store locations are:

San Francisco (2 stores), San Jose (2 stores), Hayward (2 stores) and Antioch (2 stores). Additionally, single-stores will be opened in the Bay Area cities of Oakland, Concord, Walnut Creek, Danville, Oakely,Vallejo and Farfield. These seven cities (and stores) are all located in the East Bay Area.

Further, single Fresh & Easy stores will open in the Bay Area cities of Mountain View, Sunnyvale and Napa. Mountain View and Sunnyvale are just a few miles from San Jose in the South Bay Area; Napa is about 30 miles north of San Francisco in the North Bay Area.

Fresh & Easy also will open four stores in the Sacramento metropolitan region. The grocer has applied with the state of California for liquor licenses for these new stores. Two of the stores are located in Sacramento, the other two in Folsom, which is right next door to Sacramento.

The locations of these stores are:

Sacramento:
>3311 Northgate Blvd.
>3615 Bradshaw Road

Folsom:
>25000 Blue Ravine Road
>9522 Greenback lane

Fresh & Easy Neighborhood Market isn't confirming the four Sacramento region stores at this time.

We identified most if not all of these cities in previous pieces. Additionally, Fresh & Easy is looking for more locations in the Bay Area and elsewhere in Northern California for its grocery stores. Some of those locations are in these same Bay Area cities, others are in other cities in the region.

Additionally, as we reported over a month ago, Fresh & Easy plans to build a distribution center in the Northern Central Valley city of Stockton. Stockton is about 30 miles from Sacramento and about one hour from San Francisco. The location is well situated geographically to serve the retailer's Northern California stores as far north as Napa and as far south as Fresno.

As we've reported before, Fresh & Easy would like to have as many as 40 -to- 50 grocery markets in Northern California by the end of 2009. These first 18, which are far from the only stores the retailer will open in the region, should begin opening in mid-to-late 2008, with many of them not opening until 2009.

Eventually, Fresh & Easy plans to have stores throughout Northern California, primarily in the Bay Area and Central Valley regions. The Bay Area is the grocer's prime target market. These additional new stores would be located as far south in the Central Valley as Bakersfield, which is about half-way between Northern and Southern California, with other potential locations in the Central Valley cities of Merced, Turlock, Modesto, Manteca, Stockton and Tracy. Tracy is only about 15 miles from the most far-eastern Bay Area city, Livermore. (By the way, our commercial real estate sources tell us Livermore is on Fresh & Easy's store location radar, as is nearby Pleasanton and Dublin.)

By focusing primarily on the Bay Area, and secondarily on the Central Valley as we describe above, Fresh & Easy would be able to ring the Bay and the Valley with its small-format grocery stores, which average about 13,000 square feet and feature a selection of reasonably-priced basic, everyday grocery items, a large selection of fresh-prepared foods, fresh meats and produce, and specialty, natural and organic packaged goods. The stores are sort of a neighborhood grocery store meets Trader Joe's in terms of design and format.

The confirmation of the 18 Bay Area stores by Tesco's Fresh & Easy Neighborhood Market will further activate the competitive DNA of such local food retailers as Pleasanton, California-based Safeway Stores, Inc. Safeway already plans to open at least five new, small-format stores of its own in the San Jose region. The stores will be about 20,000 square feet. Based on what we know so far, the new mini-Safeway stores will offer basic grocery items like Fresh & Easy, with a major emphasis on Safeway's private label items, which are hugely-popular in its Bay Area supermarkets.

The new, mini-Safeway's (we haven't learned the actual name yet, although some sources have told us it will be Safeway Express) also will feature a strong selection of fresh, prepared foods, in addition to other offerings.

We will be providing further analysis on the Northern California market and Fresh & Easy's potential to succeed in the region in the next few days.

Fresh & Easy Neighborhood Market Northern California Linkage:
Read a number of recent pieces we've written on Tesco's Fresh & Easy Neighborhood Market and Northern California here.

Tuesday, January 29, 2008

Food & Community Memo [Interactive]: Davis, California Debates Small-Format and Locally-Owned Grocery Stores vs. Chains and Big-Box Stores

A regular reader of Natural~Specialty Foods Memo informed us via an email of a lively debate currently going on in the city of Davis, California, via a blog called The Peoples Vanguard of Davis, about small-format, local neighborhood grocery stores vs. chain supermarkets and big-box stores for the city.

Davis, home to the Davis campus of the University of California, is a city of about 65,000 people. It's located about 11 miles west of Sacramento.

Davis is well-known for both its educational achievements and social and environmental consciousness. For example, it's ranked as the number two city in the U.S. in terms of the number of its residents who have graduate degrees.

Environmentally, Davis is home to one of America's first comprehensive solar energy housing developments called Village Homes. The innovative solar-energy powered subdivision was built in the 1970's, at a time in the U.S. when most city's and private developers hadn't even though about community-based renewable or alternative energy solutions.

The bicycle is one of the primary means of transportation in Davis. The city has the highest per-capita bicycle ownership of any city in the U.S., and its residents use the two-wheeled, pedal-powered vehicles regularly, and for far more than exercise. The city's official logo, pictured at the top of this piece, even features a bicycle graphic.

Davis also has a iconic public transportation system, thanks in large part to a partnership between the University of California campus, which houses about 30,000 students, and the city. Modern, energy-efficient buses, and older, English-style double-decked buses bought from Britain, traverse the entire city nearly 24 hours-a-day providing low-cost public transportation and eliminating the need for the use of private cars for many residents.

The University of California at Davis is one of the top research universities in the U.S. in the areas of agriculture and food distribution. It's a leader in both the areas of large-scale agribusiness research (including biotechnology) and sustainable, or green, agriculture.

The campus also is the number one research university in America in the areas of enology and viticulture (wine growing and making). Additionally, it's become one of the foremost research centers in the U.S. in the fields of alternative and renewable energy, electric and hybrid car development, and other cutting-edge green technologies.

The city has experienced lots of growth and change over the last 20 years, including a more than doubling of its size. That growth has brought lots of new housing, and many new residents who prefer to live in a University town but commute to their jobs in nearby Sacramento, a city of 500,000 people.

The small-format neighborhood grocery store debate taking place on the local blog is lively, interesting, intelligent and timely.

As our readers know from our numerous pieces, there's a small-format food retailing revolution happening in the U.S. The Davis debate is similar to many of those happening in cities across America. The issues include: locally-owned independent grocery stores vs. big-box stores and Supercenters, small-format, more convenient stores vs larger ones, and the affects these formats have on the environment and local, community economies, just to name a few.

Join The Discussion:

We invite you to read the article that got the debate started on The People's Vanguard of Davis Blog, along with the numerous comments and opinions on the blog regarding the issue.

After you've read the blog article and the reader comments, we also invite you to weigh in , using our comments link below, with your thoughts about small-format vs. big box stores, local food retailers vs. chains, and any other thoughts and opinions you have. We look forward to reading what you have to say.

Green Memo [Interactive]: Should Farming Return to its Roots?

In an opinion piece in today's Green Room at BBC World.com, writer Graham Harvey, author of the book "We Want Real Food," argues farming should return to its roots of pasture-fed cattle and other traditional farming methods. Intensive farming methods should be replaced with the traditional ones, Harvey argues in his "green" viewpoint article.

By going back to more traditional farming methods, Harvey says the food industry can deliver more sustainable and healthier food, as people become more aware of what ends up on their plates.

Read Graham Harvey's BBC World Green Room opinion piece here. Below Harvey's piece are numerous reader comments (opinions) as well.

Join The Discussion:
After you read Harvey's opinion piece here, we invite you to feel free to offer your opinions on his argument that it's time to return to the roots of farming, using our comment box below. We look forward to hearing what our readers think.

Monday, January 28, 2008

Monday Marketing Memo: Cost-Plus World Market Restructuring: We Think Specialty Foods and Beverages Can be the Key to a Successful Repositioning

Cost Plus World Market, with corporate headquarters in Oakland, California, and 299 stores throughout the U.S., is a national leader in specialty food and drink merchandising, although that leadership has diminished considerably in recent years from its once top-level standing.
World Market stores, which are positioned as an international retail bazaar under one roof, and sell everything from furniture, household items and imported, upscale kitchen supplies, to specialty and natural foods, wines and craft beers, coffee, teas, toys, garden supplies and more, were among some of the first retailers in the U.S. to offer extensive selections of imported and domestic packaged specialty foods, confections, quality coffees and teas, wines and craft beers.

World Market's eclectic mix of retailing with an international flair began in the 1960's with one store located in San Francisco's famed Fisherman's wharf area. The store sold whole bean premium coffee before Starbucks was even a vision, and offered specialty and natural packaged foods before Whole Foods Market, Inc. existed. The store also offered little known premium wines from the Napa Valley, and throughout the world, when most people were still drinking Gallo Hearty Burgundy.

Cost-Plus (its original name for decades until it changed it to Cost-Plus World Market in the late 1980's) also was one of the first retailers to introduce craft beers for sale on a large scale in the U.S., and is partly responsible for bringing the micro-brews to the attention of consumers nationally.

The retailer also is a pioneer in selling imported specialty, gourmet and ethnic packaged foods from all over the globe. Before specialty foods were sold in even upscale supermarkets, Cost-plus offered them. Brands like Knorr (soups, dips, sauces) and Lindt (chocolates) were first introduced nationally in the USA through Cost-Plus before they eventually became popular in major supermarkets much later on.

Specialty foods and beverages, wines and craft beers as a department are the number one sales category in Cost-Plus World Market stores.

Despite this legacy, Cost-Plus World Market has fallen on some hard times of late. This is largely do to the slumping housing market in the U.S. Much of the retailer's sales come from furniture, household goods, upscale kitchen supplies and the like. And, most of these goods are premium, fetching higher prices at retail than discount store furniture, which in the current economic climate isn't proving to be a winning merchandising scheme.

On Thursday, Cost-Plus executives announced the chain would layoff 10% of its entire workforce and would close about 18 stores located in underperforming markets. The retailer also announced it has been conducting a restructuring for the last 18 months, which is designed to streamline retail operations and change some of its positioning.

Among these changes we've learned will be lower prices throughout the store, offering more lower-priced furniture and other household goods, and a significant reduction across the board in the amount of inventory the retailer holds at any given time. This inventory reduction includes foods, beverages, wines and craft beers.

Cost-Plus is already known in the trade as a retailer that keeps a close eye on inventory and uses automatic replenishment systems in its specialty food and beverage categories. This further reduction will put suppliers on notice, and require them to be much more responsive in terms of meeting the retailer's strict inventory and replenishment standards. It's likely going to cost vendors and distributors more money as they will have to deliver less product, more often to the retailer's distribution centers.

In terms of Cost-Plus World Markets' specialty foods/beverages, wine and craft beers focus, we don't expect to see any radical changes in terms of the type of items the stores sell. However, we do know the retailer's buyers have been negotiating hard with vendors, asking for price reductions and more promotional buys.

We do expect to see Cost-Plus offer more lower-priced, or value-priced specialty foods items in its stores however. The retailer already has it's own private label brands of specialty and natural foods, mineral waters and other beverages, and we expect to see more of these, which offer higher margins for the company. We also expect to see more store square footage devoted to specialty foods, beverages and wines.

Gross margins have never been a problem though for Cost-Plus in the specialty foods and beverage categories. On average, the retailer wants to earn a minimum of a 43% -to- 45% gross margin on branded domestic and imported specialty foods items. It will take less on high-volume items, but not often. However, as a way to help steer a more profitable overall course, we see the retailer trying to increase its gross margins on food and drink items by a couple percentage points, largely through making better deals with vendors.

We believe specialty foods and beverages, wines, and craft beers will in fact be the categories Cost Plus World Market relies on to help get it out of its sales and profit slump. Even in recessionary times, specialty food and beverage items tend to do well in the U.S. By offering more items, at lower prices, and making-up the margin in part on the back of the vendor, the retailer can boost sales without lowering margins. Cost-Plus is a publicly-traded company, and its stock price has fallen considerably since mid-2007, so it also has to show results to Wall Street, as well as main street.

In the coming months, we expect to see less extremely high-end specialty foods like imported oils and vinegars on store shelves, although we aren't saying they will eliminate higher-end gourmet items completely. Instead, we expect to see more specialty items in fast growing categories like confections (especially chocolate), coffees, teas, natural and organic foods and the like. These will be domestic and imported quality items selling at more affordable prices, in order to grow sales while keeping gross margins about steady with where we described them historically.

Look for specialty foods, beverages, wines and craft beers to play a major--if not the major--role as the retailer attempts to steer a new path in the retail marketplace. Its origins are in these categories, and despite the fact that overall sales have come largely from an expanded mix of furniture, housewares and the like over the last three or four decades, food and drink have always remained the top categories on a store-sales basis.

We see a "back to its specialty foods and drinks origins" move being key for Cost-Plus as a way to rapidly increase sales and profits in light of its declining furniture and related goods sales, especially in the current economic climate where the housing market looks to not be improving for some time.

Some sharp food and drink category buying, along with some smart pricing and savvy marketing, could go a long way towards helping the retailer reposition itself--still as an international retailer, but one with a renewed focus on being a specialty foods and beverages, wine and craft beers category leader nationally.

Ethical Retailing Memo: What Wal-Mart CEO Lee Scott Left Out of His Social and Ethical Manifesto

On Saturday we wrote about what we termed Wal-Mart CEO Lee Scott's corporate social and ethical policy manifesto speech, which he delivered last Wednesday to over 7,000 store managers at corporate headquarters in Bentonville, Arkansas.

Today, we would like to offer some constructive criticism (and positive encouragement) to CEO Scott regarding three key issues in the areas of social ethics and economics, health, and the environment we feel he left out of his social and ethical policy speech, and encourage him to address the issues we describe below.

Store-level employee wages

First, CEO Scott addressed a wide-range of social and ethical policy issues for Wal-Mart in his Wednesday speech. However, he left out one glaring and important one: The wages Wal-Mart pays its store-level associates.

Although it's the largest food retailer in the U.S., Wal-Mart pays it associates, particularly entry-level ones, less per-hour than all the other big chain supermarket retailers in the country. In the case of unionized retailers like Kroger Co., Safeway Stores, Inc. and a number of others, that hourly-wage disparity is huge.

We strongly suggest to CEO Scott that at a minimum, Wal-Mart immediately increase it hourly wage for entry-level associates by at least two dollars hour. Additionally, the retailer needs to bump-up its hourly pay-scale so that retail associates who've been with the company for one year also are making at a minimum two dollars hour more than they currently are paid.

As a comparative example, retail supermarket clerks in California who work for Kroger Co.'s Ralph's chain, Safeway Stores', SuperValu's Albertsons, Save Mart, Stater Bros., Raley's Superstores and others, make about $20.00 hour after one year of full-time experience. By contrast, a Wal-Mart Supercenter clerk with the same amount of experience makes about $13.00 -to- $14.00 hour in California.

Employee health insurance

Second, CEO Scott also failed to address Wal-Mart's employee health insurance plan in his Wednesday speech. This is not only an ethical issue, its a health and economic one as well. In a conference call with members of the media a couple days before the social manifesto speech in Bentonville, Wal-Mart announced that for the first time in the company's 45-year history, more than half of its employees had enrolled in the company health insurance plan. (Read our January 22 piece on the topic here.)

However, among the many statistics shared by Wal-Mart as part of the announcement, was the fact that over 7% of Wal-Mart workers have no health insurance at all. Further, over 25% of the company's employees are insured by a spouse or parent's health plan. Additionally, many others are on government programs like Medicaid.

We urge CEO Scott to improve Wal-Mart's health insurance plan significantly. When compared to the plans made available to store clerks who work for the California chains mentioned above for example, Wal-Mart's health plan is an embarrassment. These unionized clerks, who work for Safeway Stores, Kroger Co. and the like, have one of the best health plans in the United States. Co-pays are low, employee contributions are reasonable, and coverage is excellent. Further, where in the case of Wal-Mart, which has only half of its U.S. employees enrolled in its corporate health plan, Safeway Stores has nearly 100% of its store associates enrolled in its plan.

Increasing hourly wages for store-level associates and dramatically improving its corporate health plan are two social, ethical and health issues Wal-Mart must address. As a wise woman once told us, get your own house in order before you go out and try to save the world. We applaud Scott's larger social and ethical vision for Wal-Mart, but encourage him to get his house in order at the same time.

Superstores and the environment

The third issue CEO Scott left out of his social and ethical policy manifesto speech on Wednesday has to do with Wal-Mart's Superstores and the environment. Wal-Mart has made some great strides in the area of sustainability in the last few years, in our opinion. Further, the commitments Scott made in his speech Wednesday to store managers goes even further towards helping to make the company a "greener" and more sustainable one.

The one glaring issue Scott didn't address at all however are Wal-Mart's Supercenters in general from an environmental and sustainable perspective. Although the company has a few "green" prototype stores built (4-5) and is building a handful more, the vast majority of their Superstores are conventional ones. These stores leave much to be desired in terms of energy conservation elements and green design principles. We are talking about 98% of its Supercenters here.

By their very nature, Supercenters (or big box stores in general) which average about 200,000 square feet, are energy hogs. They're filled with electric lights, have hundreds of feet of perishable products' display cases that suck electricity, and require lots of energy to heat the huge stores in the winter and cool them in the summer. Big box stores also are by their very design located almost always away from the central city. This means customers have to drive some distance to get to them, requiring more energy use in the form of gasoline. The huge stores also have massive paved parking lots, which aren't friendly either in terms of reducing energy use.

Wal-Mart needs to do two things in our analysis: First, the retailer needs to make the "green" prototype stores the norm, rather than a cut-and-paste format that they use in a limited way. All new Supercenters should be "green" and sustainable Wal-Marts. Additionally, the company needs to embark on a major effort to remodel--say over a 5-year period--all of its U.S. Superstores so they meet at least the sliver (we would like to see the gold) standard for energy conservation set by the U.S. Green Building Design Council.

In his speech, CEO Scott revealed he has talked to automobile industry companies about having Wal-Mart sell electric and hybrid cars. He further said he envisions the retailer having wind turbines in its store parking lots where customers could recharge the electric and hybrid cars they buy from Wal-Mart.

We like this type of visionary thinking from Scott. However, we want to see some practicality combined with it. Its a long way off before electric and even "plug-in" hybrid cars are going to be on the market for Wal-Mart to sell, and for it to build wind turbines in its parking lots to recharge those renewable energy-powered vehicles.

However, it's not too far off at all for Wal-Mart to install those same wind turbines in its store parking lots--but use them to provide renewable energy to help power the store. Other retailers throughout the world are beginning to do this. It's time for Wal-Mart to let those wind turbines bloom in the parking lots CEO Scott. Then, when you do sell the electric and hybrid cars, they can be used not only to help power the stores, but to recharge those cars you will sell as well.

Wal-Mart recently completed the installation of solar panels on about 20 stores in California and Hawaii, along with putting solar panels on a new distribution center in the western region. We congratulate the company on that development, and suggest to CEO Scott that he dramatically excellerate the company's store-level solar power initiative.

It's feasible that a Wal-Mart Supercenter, with a full solar panel roof array and two or three modern wind turbines in its parking lot, could be able to obtain about 40% of the store's energy from those renewable sources. What a huge achievement that would be for the world's largest retailer.

Conclusion

By increasing the hourly wages of entry-level and one-year-plus store-level associates, enhancing the employee health insurance plan, and "greening" its Superstores in a more-rapid fashion, CEO Scott and Wal-Mart would demonstrate that on the socio-economic, ethical, health and environmental fronts, Wal-Mart is a company that not only does walk-the-walk, but believes in putting its own house in ethical order, along with embarking on a larger corporate social and ethical policy.

Saturday, January 26, 2008

Retail Memo: The Blair Wal-Mart Project

Tony Blair taking a tour of an Asda supermarket after Britain's number two retailer was acquired by Wal-Mart in 1999. "Value Tony" was a champion of low prices for British consumers during his many years as PM.
Call him the "Pro Low-Price Prime Minister." London's Telegraph.co.uk is reporting in tomorrow's edition that the details of a secret meeting between former British Prime Minister Tony Blair and a senior Wal-Mart official just months before Wal-Mart bought UK supermarket chain Asda have finally been released, nine years after the acquisition deal by Wal-Mart was finalized. The meeting occurred in February, 1999. Wal-Mart bought Asda in July, 1999.

The Telegraph reports that Bob Martin, the Wal-Mart senior executive, complained to Blair at the meeting about Britain's restrictive planning rules. The minutes of the secret meeting, released under the Freedom of Information Act, show that Martin told a not unsympathetic Blair that "the main obstacle to Wal-Mart in entering the UK market was zoning and planning controls." As a result, Martin told Prime Minister Blair, Wal-Mart concluded that the only way the mega-retailer could come into the UK was via an acquisition of an existing company.

The minutes are at odds with the Prime Minister's administration, which at the time told the UK press there were no discussions with Wal-Mart at any time about planning and zoning issues.

The minutes also describe an exciting round of lobbying by Wal-Mart officials prior to and surrounding the company's acquisition of Asda, one of Britain's "big four" supermarket chains, along with Tesco, Sainsbury's and Morrisons. Asda is Britain's second largest retailer, after number one Tesco.

The Telegraph report says Wal-Mart's Martin let on in the meeting with Blair and his key aides that "a big deal in the UK might be in the offing." Martin sensed no objection to such a deal from Blair. In fact, the Prime Minister even seemed a bit excited about it.

Later, when the deal was made and Wal-Mart acquired Asda four months after the secret meeting, word of the Tony Blair, Bob Martin meeting became public, although the minutes were not released at the time. When that happened, Blair defended his meeting with Martin, and in fact was happy and pleased with the deal. Regarding the meeting and the Wal-Mart's acquisition of Asda in general, Blair said: "I make no apologies for it whatever. We (British consumers) pay too much not just for our basic goods, but across a range of services."

It appears we can now add the title of "Pro Low-Price Prime Minister" to Blair's growing list of titles and achievements.

Read the full Telegraph.co.uk story here. There's also a link on the Telegraph story to a pdf file of the minutes from the Blair, Martin meeting so you can read them in their entirety if you like.

Supply-Side Memo: A 'Bare-Naked' Success Story

Bryndon Synnott and Kelly Flately outside Stew Leonards' in Norwalk, Connecticut. (Photo: courtesy Bare Naked, Inc.)
Early one morning about five years ago, famed independent grocer Stew Leonard Jr., founder and president of the Stew Leonard's chain of superstores, came upon two young people--Brendan Synnott and Kelly Flately--waiting for him in the lobby of his Stew Leonard's Dairy store in Norwalk, Connecticut. The pair were holding a serving tray, which contained their Bare Naked brand granola, milk and a banana. They were waiting in the lobby to catch Leonard and pitch him on their homemade granola.

Leonard tasted the granola and loved it, talked briefly to the two young entrepreneurs, and ordered 20 cases of the hand-baked granola created by Kelly Flately for his store.

As mentioned, that was just five years ago. Late last year, Synnott and Flately sold their company, Bare Naked, to the Kashi division of food industry giant Kellogg Company in a $122 million dollar deal that also included Kellogg's purchase of natural foods company Gardenburger, which shared an investor with Bare Naked. Bare Naked is the number 1 selling granola brand in natural foods stores, and the number 2 selling brand in supermarkets.

In an article in today's New York Times, Stew Leonard says when he heard the two granola empire builders had sold Bare Naked to Kellogg's, and made bank on the deal, he was thrilled.

Just five years ago when the pair of struggling entrepreneurs got that 20 case order from Mr. Leonard, they had to spend the entire night baking enough granola just to fill the order. Just five years later, when they sold Bare Naked to Kellogg's last year, the company had sales of $65 million, and was growing by double-digits annually.

As the Times' piece explains, the company became a local success story in Fairfield County, Connecticut. This is do in large part to the way the pair marketed their granola products: lots of personal product sampling in local grocery stores, word of mouth advertising, community-event support, and using humor to create their brand, first among the locals and then nationally.

That humorous, fun approach has been key to the company's success. For example, there's a huge sign outside their corporate headquarters building in Norwalk, that reads: "Do You Get Bear Naked?" Additionally, their website is packed with puns on the "Bare Naked" name, such as "Get Bear Naked" and "Live Bear Naked." They also sell "Bare Naked Gear" like 100% percent organic cotton "Live Bear Naked" Tee-Shirts and similar themed items like hats and sweatshirts.

By using local and community marketing techniques, as well as having a quality product, Bare Naked has built up much support in the towns where they make their granola and have their headquarters.

Of course, with the sale to Kellogg's there's a bittersweet taste in the mouth's of many locals (and it isn't from eating Bare Naked Granola), who've followed the pair's story and route to success. However, any bittersweet feelings about losing the company headquarters and the 90 jobs that go with it (Kellogg's plans to close the production facility), pale compared to the abundance of good will expressed locally for the two and their success.

For Kelley Flately, who created the granola, and Brendan Synnott, the marketing and sales chief who gained its distribution, there's some uncertainty as to what the future will hold for both of them as well. Both are under contract with Kellogg's until February 1 as part of the buyout deal, according to the Times' story. After that, they're on their own.

We aren't worried about them though. They should have enough Kellogg's money to put a roof over their heads for a bit while they figure out their next venture. There are second acts for entrepreneurs, especially for those who aren't afraid to work hard and get "Bare Naked" in the process.

Friday, January 25, 2008

Ethical Retailing Memo: Wal-Mart CEO Lee Scott Issues a Social and Ethical Manifesto

Leaving a massive collective carbon footprint in their wake, more than 7,000 Wal-Mart store managers flew to Bentonville, Arkansas on Wednesday to hear Wal-Mart chief executive officer H. Lee Scott Jr. talk to them about the future of the company and the social and physical environment Wal-Mart does business in. [Watch a video of or read the full-text of Scott's speech here.]

While the store managers knew Scott would mix philosophical issues with economic ones, what they didn't know was that on this particular Wednesday morning the company's chief executive would be far more social and ethical policy philosopher than he would be corporate CEO, in his talk.

In his talk to the store-level executives on Wednesday, Scott laid out a corporate social manifesto in which he pledged that Wal-Mart would cut the energy used by most of the products it buys for sale in its stores by 25%, force the mega-retailer's suppliers to meet stricter ethical standards and use it's corporate cost-cutting model to help other companies deliver health care for their employees.

In a speech in which Scott sounded as much social philosopher as he did corporate chieftain, Scott told the store managers "We live in a time when people are losing confidence in the ability of government to solve problems." But, Wal-Mart, he said, "does not wait for someone else to solve problems." (Could we be seeing the start of the sovereign state of Wal-Mart, with Scott as its Philosopher-King? A multinational corporate nation-state with the economic clout to not only move corporations to follow its lead, but perhaps sovereign countries as well? But we digress.)

In his corporate social manifesto, Scott laid out a massive agenda for the company on numerous social, ethical, health and environmental issues, many of which were a complete surprise to the assembled store managers. For example, he announced that Wal-Mart is talking to leaders of the automobile industry about selling electric and hybrid cars. He added that the company might even install wind turbines in its store parking lots so customers could recharge their cars with renewable "Wal-Mart" energy.

Scott also laid out a new corporate goal of working with the chain's suppliers to make Wal-Mart's most energy-intensive products 25% more energy-efficient within three years. He also said Wal-Mart would take the lead on informing customers about the energy required to make and use more energy-intensive products.

As an example of the retailer's energy conservation product program, Scott said Wednesday that Wal-Mart has already sold 145 million compact fluorescent light bulbs (CFL's) to date, which he said saved enough electricity to avoid building three coal-fired power plants in the U.S. And, he added this is just the tip of the iceberg in terms of CFL sales. The company introduced a private label line of CFL's late last year, and Scott said plans are for Wal-Mart to sell the bulbs for even less than they currently are retailing them for--and to work to make them the norm in terms of its customers' home light bulb use.

Scott also explained to the store managers that Wal-Mart will launch a retail industry effort to significantly improve social, ethical and environmental standards in suppliers' factories, including in China where the retailer sources an ever increasing amount of the goods it sells in its stores. Wal-Mart will be working in partnership with other retailers and consumer products' companies through the CIES network on the new initiative, which will work towards requiring suppliers to meet specific environmental, ethical, social and quality standards, certifying supplier compliance with those standards, and favoring suppliers that meet them.

On the health care front, Scott said Wal-Mart would start working with major American employers to help them manage and pay prescription drug claims. He said Wal-Mart will apply its proven cost-cutting model to this business and eventually be able to save companies billions of dollars. For example, Scott estimated that in 2008 alone, Wal-Mart's first year tackling this business, it will be able to save companies at least $100 million.

CEO Scott also told the store managers Wal-Mart will attempt to fill eight-million electronic drug prescriptions this year, a four-fold increase from 2007. Electronic prescriptions are considered safer than handwritten ones from doctors, and when widely implemented are believed to be able to help keep prescription drug costs from soaring even more than they already are.

Elaborating on the electronic theme, Scott said Wal-Mart also is launching a major initiative in the area of electronic health records for its employees. The company's goal is to provide electronic health records to all of its employees and their dependents by 2010, Scott told the store managers. These records are designed to give doctors a full picture of a patient's medical history, help to prevent treatments that may conflict with each other, and save on employer and employee health care costs.

Like a good social philosopher, Scott didn't just read his long list of social, ethical, environmental and health goals for Wal-Mart--and the world. Rather, he infused his talk with a combination of church preacher inspiration and sociology professor zeal.

Scott came back to the "Wal-Mart as leader" theme many times. For example, in explaining Wal-Mart's cooperative social, ethical and environmental initiative through CIES, Scott said he believes an industry-wide effort is needed, as well as a corporate one by the retailer. However, Scott said with emphasis, "If an industry-wide effort falters, Wal-Mart will in fact lead; we will move forward by ourselves."

The various Wal-Mart stakeholders--the store managers who were at the meeting, Wall Street, industry analysts, media, anti-Wal-Mart groups, competitors, environmental and social welfare organizations and others--are still analyzing Philosopher Scott's Wednesday speech. However, regardless of where one stands vis-a-vis Wal-Mart, it was a BIG speech. It was as much about macroeconomics as it was about microeconomics. Its scope was global, its focus social, ethical and environmental, as well as bottom line.

With his Wednesday speech, Scott has made it clear he isn't afraid to lead, nor to have his bold ideas and leadership judged, which it will be now even more since he has laid down his most comprehensive social manifesto to date for Wal-Mart.

In fact, Scott's social manifesto really isn't just for Wal-Mart. Rather, its for corporate America--and global industry. Its for his retailer peers and competitors; a benchmark or set of standards they will have to eventually meet. In many ways, it's also a sort of socio-ethical-environmental shot across the bow to President Bush and the U.S. Congress.

When Scott said near the beginning of his speech that " We live in a time when people are losing confidence in the ability of government to solve problems," he was at least figuratively looking in the general direction of Washington, D.C.

When he added, "[But Wal-Mart] does not wait for someone else to solve problems," it seems he's saying he and Wal-Mart are taking the lead for corporate America and even globally. Further, that the company will lead not only on the sales front, but in terms of the social, ethical and environmental aspects of business as well.

Such leadership is a tall order, and we will watch with great interest, provide encouragement, and criticize strongly when we believe it's warranted and needed. But for today, we're impressed by Scott's willingness to issue such a social and ethical manifesto in current times.

Breaking Retail News: SuperValu, Inc. to Close Sunflower Market Stores

Eden Prarie, Minnesota-based SuperValu, Inc., is closing all of its Sunflower Market natural and organic foods' format stores in Ohio, Indiana and Illinois, Natural~Specialty Foods Memo has learned.

There are five stores in the small chain: three stores in Ohio, and one each in Indiana and Illinois respectively. (See store location addresses here.) All five stores will be closed the week of February 18, 2008, according to Haley Meyer, a SuperValu, Inc. spokesperson. The format will cease to exist once the stores are closed.

Meyer said the Sunflower Market units are being closed because the stores' performance wasn't meeting the company's goals. "Sunflower Market was an innovative approach to the national organics market and we'll take the learnings from that format and apply them elsewhere in our organization," she said by way of explaining the Sunflower Market format experience.

The Sunflower Market format, which we've written about here before, is a fairly no frills, price-impact, natural and organic products' category-killer concept. The stores are small-format, and offer a limited but strong selection of fresh natural and organic foods, groceries and non-foods' natural products. The markets' have all the departments of a supermarket: fresh meat and seafood, produce, grocery, perishables and non-foods. They also have an attractive in-store combination bakery/cafe which has table and bar seating for customers as well as offering takeout foods and beverages.

Sunflower Market's everyday prices for fresh and packaged natural and organic foods, groceries and non-foods are about 15-20% cheaper than Whole Foods Market store prices and prices at upscale supermarkets' that offer broad selections of natural and organic products. This is the "category killer" aspect we referred to.
As we've written before, we believe the format has lots of potential. We even suggested in a piece that SuperValu consider taking the concept national after the acquisition of Wild Oats Markets by Whole Foods Market, Inc. created what we see as an opening in the supernatural food retailing category for a limited assortment, national natural products retailer that offered considerably lower retail prices on organic products than Whole Foods does.

In fact, towards the end of last year SuperValu announced it planned to expand the chain, saying it would build about 50 stores over the next four -to- five years. Apparently the grocer changed its corporate mind.

SuperValu, Inc. has seen its stock share price fall dramatically in the last two quarters, and has had its hands full integrating the Albertsons stores it acquired when it bought Albertsons, Inc. a few years ago.

Further, the retailer has been reorganizing, and its our opinion that as part of this reorganization SuperValu executives felt Sunflower Markets was just too far from their core business--large, full service supermarkets, discount stores and grocery wholesale distribution--to continue trying to nurture the small natural and organic products' chain, which the retailer has had to continue putting funding into without taking any profits to date.

That fact, combined with the performance issue Meyer described, resulted we feel in the corporate decision to shutter the five stores and eliminate the format.

We're sorry to see it go. Perhaps another major food retailer will pick-up on it, as we see a market for such a natural products chain nationally. There is another sunflower actually; Boulder, Colorado-based Sunflower Farmers' Market.

This retail sunflower is an independently-owned chain which operates a format very similar to SuperValu's Sunflower Market. Sunflower Farmer's Market recently announced plans to grow rapidly, and its stores are doing well. We think this proves the format is solid. Perhaps its more at home all by itself, rather than as a tiny part of a huge multi-format, multi-billion dollar grocery distribution and retailing corporation?

Sunflower Market Linkage: Below are some articles we've written about, and relating to, SuperValu, Inc.'s Sunflower Market:

Thursday, January 24, 2008

Food, Economy and Environment Memo: Is the Era of Cheap Food Over?

Food prices have soared throughout the world in the last year. For example, retail prices for staples such as bread, milk and eggs have increased by 20 -to- 30% in just the past 12 months in the U.S., and continue to rise this year.

Writing in the Christian Science Monitor, staff writer Peter Ford says all the experts, analysts and others he talked to for his story all say there's no end in site in terms of rising food prices. Rather, they say it's just a matter of how much the price of retail goods will increase and how fast that increase will be.

Ford says there are two primary causes for this global rise in food prices: the fact that fast-growing and developing countries China and India are buying and eating more food, especially meat, which is resulting in soaring feed grain costs and is reflected in retail price hikes in all grain-based foods and meats internationally.

The second primary cause of soaring food prices is the fact that a greater percentage of land is being used to crow crops like corn, sugar cane, grasses and other feedstuffs to make biofuels.

There is a finite amount of farmland in the world. If 15% or 25% more of that land is being used today to grow biofuel crops than it was two years ago, for example, that means 15% or 25% less land is being used to grow grains, which not only are used to make bread and other foods, but are the primary feed for cattle, pigs, poultry and other animals.

The result is, according to the experts Ford talked to for his piece, a steady diet of increasing food prices for the foreseeable future.

The implications for the food industry are clear: higher costs for ingredients for food manufacturers and marketers, price increases at retail for grocers, and a fear by both that consumers will express their displeasure at constant price hikes in new found ways to an industry that's generally succeeded in keeping the overall cost of food reasonable for consumers.

Read the full Christian Science Monitor article here.

Tuesday, January 22, 2008

Food Legislation Memo: 'Juiced' Chickens That Wear an All-Natural Label

A coalition in the U.S., led by the California Poultry Federation, a number of chicken producing and marketing companies, and over 30,000 consumers, has formed an organization called the Truthful Labeling Coalition. Their goal: To get the U.S. Congress to change the current laws which allow chicken producers to call their birds "all-natural" even though in many cases the chickens are pumped-up by as much as 15% with additives like sodium, saltwater, seaweed and other added ingredients.

The coalition says these pumped up birds--or chickens on steroids--don't deserve the prized label "natural" because they aren't. The poultry companies who are part of the coalition--like California-based Foster Farms, the largest poultry producer in the west, and Perdue Farms, a well-know eastern USA company--don't add anything to their "all-natural" birds. These poultry marketers feel not only that it's wrong to inject the birds with sodium, saltwater and other additives, but that allowing these pumped-up birds to go by the same "natural" label as their really natural chickens puts them at an unfair competitive disadvantage.

It's hard to argue with the member-poultry companies and the coalition about that. There are some issues--like this one--that just are right on the face of it. After all, if added sodium, saltwater and other foreign ingredients can still result in a chicken being called natural, what's next? Perhaps human growth hormone? Supplements to build stronger tissue in the birds? Maybe "supernatural" is a better label in those cases then.

Although the definition of natural is stretched, overused and simply abused in the food and beverage industry, in the case of chickens it appears rather clear cut: Add sodium, saltwater, seaweed or other foreign ingredients and you shouldn't be able to call your chicken "natural." Perhaps "juiced" would be a better term. Further, poultry producers and marketers who do this "juicing," do it at their peril we believe. As more and more consumers find out about this practice, they're going to stop buying these companies' birds. And if these companies produce other meat or grocery products, they could feel the affect of potential boycotts there as well.

In terms of the U.S. Congress, it seems like changing the law so that putting "natural" on a label at least more closely resembles something that really is natural when it comes to chickens, is a no brainier. However, numerous Senators and members of the U.S. House of Representatives, who represent districts where these "juiced" poultry producers are based, have thus far avoided the issue, not wanting to offend major district employers--or lose campaign contributions. (We aren't saying these poultry-producers are doing anything wrong, by the way. Rather, we're merely saying they shouldn't be able to label their "juiced" birds as natural. But until the law is changed, they aren't breaking any laws.)

This looks to be changing however. With more "natural-oriented" poultry producers joining the coalition, it's branched out nationally from its beginnings as a western U.S. phenomenon. Further, the group was wise to begin enlisting consumers on its side. Currently, with about 30,000 of them, the coalition is more broad-based and thus is gaining greater credibility.

Meanwhile, one wonders what the companies who juice their birds with sodium, seawater and the like are thinking. The key trends in food consumption in the U.S. are all healthier-oriented, including a move away from additives, increased sodium and the like.

On the economics front, these companies can charge less for a "juiced" bird. But, even if consumers pay less per-pound for one than they do for a real "natural" bird, it isn't a fair comparison. In other words, is a chicken that sells for $1.49 pound, with 15% of its content comprised of sodium and water, a better deal than one that sells for $1.99 pound but is pure bird--no water, no sodium, no seaweed? We sure think the latter chicken is its a better value--both in economic terms as well as in health, taste and nutritional terms.

Bill Mattos, who is the president of the Modesto, California-based California Poultry Federation, and is the chief spokesman for the Truthful Labeling Coalition, wrote an Op Ed piece last week, which was published in a number of McClatchy Co.-owned newspapers. His piece summarizes the natural poultry labeling issue fairly well, and offers the coalition's reasons and arguments for working to get Congress to change current labeling laws, so that "natural" at least more closely resembles what "natural" really means. (You can read Mattos' piece here.)

We believe that as more and more consumers find out about this chicken-juicing process, they will become angry and demand that it stop, or at least many will stop buying the birds.

It's true that in most cases, the really cheap birds--those you see on sale for 79 or 99 cents pound--are these "juiced" birds. For many consumers, its hard to pass up these type of prices. However, if many of these consumers actually knew that the birds they are buying for these low prices have as much as 15% of their total weight comprised of water, sodium and other additives, we think it's likely they would be willing to pay a slightly higher premium per-pound for more natural birds without these additives.

By allowing poultry producers and marketers to slap the "all-natural" label on these "juiced" birds, the Federal Government is doing a disservice to U.S. consumers. When these shoppers see that "all natural" label on the chickens it serves as an assurance--a false one in this case--that the U.S. government is assuring that nothing has been added to the birds. (Perhaps the coalition should also consider a legal challenge to this law in court. It smacks of untruthful labeling in many respects.)

Lastly, by allowing this practice to remain law, and to continue in the marketplace, the Federal Government also is stacking the deck against those poultry producers who don't "juice" the chickens they sell. They deserve to be able to call their birds "natural" if they really are. On the other hand, those who choose to add sodium, water and other additives to their chickens have the right to do so--and shoppers have the right to buy them--but they shouldn't have the right to falsely label them as "all-natural." Take that label off, and then let the market sort out the choices.

Read a related story, "FDA refuses to define natural," from today's Natural Foods Merchandiser online.

Ethical Foods Memo: Chef Jamie Oliver and Sainsbury's Both Winning in the Famous Factory Farming Flap

A Bird in the Hand is Worth Two in the Bush: It looks like celebrity chef Jamie Oliver and UK supermarket chain Sainsbury's are both coming out winners in their recent spat, which found chef Oliver, who's also Sainsbury's TV commercial pitchman, slamming the grocery chain and other British supermarkets on his TV documentary, "Jamie's Fowl Dinners," for not sending representatives to debate him on the issue of factory poultry farming following the airing of the program.

[Read our three previous pieces on the issue here (January 7), here (January 11) and here (January 12, 2008).]

British grocery retailer Sainsbury's said today's its stores are reporting a huge surge in sales of battery-free-farmed, free-range and organic chickens following chef Jamie Oliver's TV documentary on factory, or battery, poultry farming which aired in the UK recently.

The program, called "Jamie's Fowl Dinners", investigated and discussed the conditions in which battery-farmed chickens are raised and kept in the UK. (As mentioned above, Oliver wanted a representative from Sainsbury's, along with executives from the other major British grocery chains--Tesco, Morrisons and Asda--to appear on a debate with him after the documentary aired. None of the "big four" supermarket chains sent representatives. However, Sainsbury's did provide a company executive who was interviewed by Oliver for the documentary.

Today, a Sainsbury's spokesperson says sales of free-range, organic and chickens adhering to the RSPCA's Freedom Food program have soared by 50% since Oliver's program aired. (You can learn more about the RSPCA Freedom Food program for poultry here, and here.)

Perhaps ironically, the Sainsbury's spokesperson also said sales of battery, or what is also referred to in the UK as intensively-raised chicken, increased over the same time period as well.

For example, Sainsbury's Basics chicken line, a value-line of intensively-raised birds, increased by a modest 1 to 2%, according to the spokesperson. What's significant--and rather interesting in light of the 50% sales increase of the free-range, organic and RSPCA-approved chickens--is that the Basics line didn't have a drop in sales, especially following the airing of chef Oliver's documentary, which is being attributed to the sales increase of the non-battery birds.

Sainsbury's isn't the only British grocery chain to report a substantial rise in sales of free-range, organic and RSPCA-approved birds. Upscale supermarket operator Waitrose, which doesn't sell battery-farmed chickens at all in its stores, reports a 31% rise in sales of organic chickens for last week. Further, the grocer said sales of free-range birds increased by 24% during the same time period.

About 95% of chickens and 63% of egg-laying hens are raised using the battery, or factory or intensive-farming, method in the UK. The issue regarding this method has been a hot one--and is growing hotter on the heels of Oliver's program and a similar one by chef Hugh Fearnly-Whittingstall which also recently aired in the UK..

The RSPCA animal welfare group also has been popularizing the anti-intensively-farmed poultry issue with its model set of guidelines for raising fryer-chickens and egg-laying hens. Both Waitrose and British chain Marks & Spencer have adopted the group's guidelines and no longer sell intensively-farmed chickens in their food stores.

Sainsbury's CEO Justin King announced a couple days after the chef Oliver flap that the grocery chain would stop selling the battery-farmed birds as well. Sainsbury's hasn't given a specific date regarding when that will happen. Tesco and Asda also have said they are willing to stop selling the factory-farmed birds as well. However, they haven't definitively said they will do so, nor given a time-line for phasing out the sales of the battery birds, or to stop selling eggs that come from hens farmed using that method.

Chicken is Britain's most popular meat, with 855 million pounds of the feathered bird being produced in the UK every year, according to government agricultural statistics. Those figures also show that the Brits consume 12 times as much chicken as they did just 30 years ago.

Meanwhile, chef Oliver, who is paid $1.3 million annually to be Sainsbury's TV commercial pitchman, seems to be coming out a winner thus far over the whole fowl flap. After an intense phone conversation with Sainsbury's CEO King last week, during which Oliver apologized--and then did so again in a letter--he still remains under contract with the grocery chain.

Sainsbury's seems to be coming out a winner as well. Following the airing of Oliver's program, the grocer went on a PR offensive. It ran full-page advertisements in Britain's major daily newspapers touting its positive animal rights positions. Sainsbury's also sent letters to all of its loyalty card members touting the same message. And of course, King announced the chain's decision to stop selling intensively-farmed chickens last week on a popular London radio show.

Now, this week, as the dust settles, Sainsbury's finds itself selling 50% more free-range, organic and RSCPA-approved birds than it was selling before Oliver's documentary. It also says sales of battery-farmed chickens haven't dropped, and actually have increased slightly.

It appears no harm has been done to Sainsbury's business over the fowl flap with Oliver. In fact, the opposite seems to have happened from a sales standpoint.

It also appears Oliver has had his desired effect. In fact, he's had double the desired effect: not only has he dramatically increased awareness of the factory poultry farming issue, he seems to have gotten his employer, Sainsbury's, to join Waitrose and Marks & Spencer as grocer's who won't sell the intensively-farmed birds any longer as well. It will be hard for Sainsbury's not to do so, since King announced the grocery chain would on a popular network radio show that has a couple million listeners.

Oliver still remains the TV pitchman for Sainsbury's. He hasn't resigned, nor has the grocer made any move to fire him. In fact, doing so would likely result in lots bad press for Sainsbury's at this point in time.

So, if we were keeping score, which we aren't of course, at this point in time we would have to call it a 10 for chef Oliver and a 10 for Sainsbury's. (That's a 10 on a 1-to-10 point scale by the way.)

Further, it seems the big winner in this fowl flap is the anti-intensive chicken farming movement itself, led by the RSPCA organization. They've received much publicity, obtained a commitment from Sainsbury's to stop selling the battery birds, and likely will soon see Tesco, Asda, Morrisons and other British grocers follow the three chains in a policy of no longer selling the intensively-farmed birds in their stores.

Already, with just Marks & Spencer and Waitrose no longer selling the chickens, there's been an increased demand for RSPCA-approved birds in Britain. That demand will grow once Sainsbury's joins the other two grocery chains. Should Tesco, Britain's number one supermarket retailer with about 32% of the nation's total food dollar market share, stop selling battery-raised chickens anytime soon, it would likely be enough to put an end to raising birds in that manner in the UK.

We believe this story is far from over. Stay tuned.

Ethical Retailing Memo: Today's Wal-Mart Health Care Announcement

As we wrote yesterday, Wal-Mart, Inc. notified the media that it planned a major health care announcement this morning via a news-conference call.

That announcement, made this morning by Wal-Mart's head of employee benefits Linda Dillman, is that for the first time in the company's 45-year history more than half of its employees had enrolled in its corporate health insurance plan. Twenty percent more employees enrolled in the plan over previous numbers.

This just-published story in the New York Times describes the announcement fairly well. You also can read Wal-Mart's written press announcement here.

In essence, Dillman said after the company revised and improved its health plan last November (2007), the number of workers who signed up reached 690,970, or 50.2% of Wal-Mart's 1.4 million U.S. employees. This is up from 45.5% of Wal-Mart employees who were enrolled in the corporate health benefits plan five years ago, before changes to the plan were made last November.

For a good overview of the changes to the health plan Wal-Mart made last fall, and the issues surrounding those changes, read this November 13, 2007 article from the New York Times.

We aren't sure the fact that only half of Wal-Mart's employees are now covered by the corporate health care plan is exactly news for the retailer to crow about. That leaves the other half not participating in the company's plan.

In the news conference, Dillman explained, with statistics to back it up, that all but 7.3% of the retailer's employees have health care plans.

Those not in the Wal-Mart health care plan are in plans through a spouse's place of employment (22.3% of employees) or in a parent's/school or college plan (4.2%) , or are in government-sponsored plans like medicaid or medicare, she said.

here is a breakdown of those statistics, according to Wal-Mart: 4.3% of employees are on medicare, 1.9% are on state medicaid plans, 1.2% on state plans other than medicaid, 2.3% on military or Veterans' Administration plans, and 2.4% have an individual health insurance policy. The company's statistics show 0.7% having health insurance from "another source." We aren't sure what that means, but it can be a margin of error type statistic we suppose.

This is a good-news, bad news scenario. We're glad these folks are covered. However, one has to ask that if such a high percentage (the 22% in spouse plans) of Wal-Mart associates choose plans other than the company's, why that is? It's likely it's because those plans through their spouse or parent are either more affordable or better, or both than the plan through their employer--Wal-Mart. Frankly, this isn't an impressive fact for Wal-Mart. However, we're pleased that 20% more associates have now got health care coverage through Wal-Mart.

Further, the fact that more than 3% of Wal-Mart employees are on state medicaid plans suggest there still remains an affordability gap at the bottom of the income -scale for company associates.

We strongly encourage Wal-Mart to identify this 3% of its associates who are on state health care plans and do everything the company can to help them get into the retailer's plan. Of course, that's only if the Wal-Mart plan is better than the state medicaid plans are. And the fact is, these workers may be at such a low-income level that they are better off personally to be in the state plans, based on a cost-benefit analysis of the corporate plan. It would also mean Wal-Mart needs to improve its plan, especially for those at the bottom of the income scale.

Lastly, 7.3% of 1.4 million employees is remains a high percentage of workers without health insurance. Dillman said in the news conference that Wal-Mart wants those associates in the health care plan, and is launching a study to find out why they aren't participating. We hope the retailer conducts that study and determines why they aren't in the plan, and does something more to make it affordable for them to join. We think affordability is the primary reason they aren't participating.

The group Wal-Mart Watch, which is funded in part by the service-employees' labor union , issued a statement saying they are surprised Wal-Mart would be proud to report that half of its associates chose not top participate in the company's health plan. Read today's full Wal-Mart Watch statement here. (You also can read a statement here Wal-Mart Watch made in November, 2007, when Wal-Mart made its changes and enhancements to its corporate health plan.)

We think Wal-Mart has made some important, positive steps in changing its corporate health care plan so that more employees are participating, as is evidenced by the statistics. However, there remains that 7.3% who are not only not covered by the company plan, but have no health insurance at all. We encourage the Wal-mart to make getting them insured its top priority. There's also the issue of the current policy cost vs. coverage quality in the company's health plan. At the lower-end of the plan's options, employee costs and co-payments are rather high.

Let's keep in mind its only one measure of health care to say more associates are enrolled. The other equally important measure is how high of a quality and affordable of a plan do the associates have available to them. We think Wal-Mart has more work to do in that regard.

We congratulate the retailer for signing up more employees--but strongly encourage them to make the workers' plans better and more affordable. There is more work to be done on its health care plans by the world's largest corporation, and the country's number one employer.

Monday, January 21, 2008

Ethical Retailing Memo: Wal-Mart Says it Has Major Health Care Announcement Tomorrow

Wal-Mart, Inc. says it has an important announcement to make regarding its corporate health care plans, and has called a conference call with members of the media for tomorrow, Tuesday, January 22, at 11:00 a.m. eastern time to make the announcement.

The mega-retailer has said only that the conference call announcement will reveal new information, with supporting statistical data, about Wal-Mart and employee health care. Linda Dillman, the company's executive vice president of benefits and risk, will lead the media conference call.

The announcement about the conference call was just sent out by Wal-Mart this afternoon. Generally, such an announcement, with such short notice, historically means a company has something important it wants to announce.

Since the conference call announcement states new information will be announced during the media event, we suspect it either has to do with new changes Wal-Mart mentioned it would be making to its health plans, or some new information regarding employee health coverage all together. However, we don't know anything more at this point in time.

Wal-Mart's health care policy is a major ethical topic of debate in all quarters in the U.S. Should the world's largest corporation and retailer announce some major, enhanced changes in health care coverage for employees, for example, such news could be significant not only for Wal-Mart, but to the current high-intensity health care debate going on in the U.S.

Presidential candidates of both parties are intently debating health care in the U.S. The top three Democratic party candidates--Hillary Clinton, Barack Obama and John Edwards--have each put out different but similar proposals for forms of what is being referred to as National Health Insurance.

On the Republican side, the issue is being debated as well. Things like tax credits and deductions and other incentives are being debated as ways to keep America's private health insurance system in place, but also to bring more of the 47 million Americans who are uninsured into the system.

We'll report tomorrow on what Wal-Mart's announcement is. And, if it is big, you'll be hearing about it everywhere, including on all the coverage of the U.S. Presidential party nomination campaigns.