Friday, March 7, 2008

The Friday Fishwrap: End-of-the-Week News, Analysis, Insight and Musings

Retail Whispers: Heard on the Street and Caught on the Net

Not so wacky Mackey: Today's ReasonOnline, the online version of the libertarian social, economic and political journal, has a debate on 'Business and Social Responsibility' between Whole Foods Market, Inc. CEO John Mackey, who calls himself a free-market libertarian, Nobel Prize-winning economist Milton Friedman, the leading proponent of free-market capitalism for at least five decades, and T.J Rogers, the founder and CEO of Cypress Semiconductor, Inc., and the chief spokesman in the high-tech industry for laissez faire economics.

The debate starts with Mackey, who lays out his view on business and social responsibility, and how it's practiced at Whole Foods. Then, Friedman and Rogers respond to Mackey's piece, and argue with his reasoning and conclusions. It's a good read. After all, can you remember the last time you read Milton Friedman and John Mackey in the same piece? [Read the debate piece here.]

It takes a Rainforest: Speaking of Whole Foods', Walter Robb, the supernatural grocery chain's Co-President, recently made headlines (unreported by the trade press we might add) in a odd place: during a hiking trip through a pristine Rainforest in Costa Rica.

Robb, Stephen Brooks of Kopali Organics, Tom Newmark, Co-CEO of Vitamin marketer New Chapter, Jeffery Hollender, founder and president of natural cleaning products' company Seventh Generation, and a couple of other natural products' industry folks, went on a hiking trip together last week to the Monteverde Rain Forest Reserve and the Children's Eternal Rain Forest in Costa Rica. It wasn't a super-private trip for the gang however, since they brought along New York Times' reporter Andrew Martin and a Times' photographer.

The hike was organized in part to help raise $10 million for Costa Rican Rainforest preservation, a good and worthy cause. The hike also was designed in part to allow these veteran members and leaders in the natural products' industry to discuss and debate the current state of the industry; natural products 2.0 if you will.

And, this is where Robb broke some news: The Whole Foods' exec told reporter Martin (for a piece Martin wrote on February 29 in the Times, as well as in the Times'-owned International Herald Tribune), "that he was so frustrated with companies' making their name at Whole Foods and then cashing out that the company is changing its procurement policies. 'We are just not going to be taken for granted,' Robb said, "adding that Whole Foods' might drop brands that had 'migrated in not a sustainable direction.' According to Robb, the grocer is "going to look for people (companies) who want to partner primarily with Whole Foods."

We imagine this breaking news wasn't lost on fellow hiker Hollender, who's Seventh Generation brand of natural cleaning products was built and established to a large degree by being sold in Whole Foods Market stores throughout the U.S. Recently, Seventh Generation and Wal-Mart announced that the brutish big-box brawler from Bentonville would soon start selling Seventh Generation's product line in its Wal-Mart Discount stores and Supercenters in the U.S. [Read Andrew Martin's story on the natural hiker's journey here.] Walter Robb's breaking news quotes are on page two.

Despite this minor point of contention, its good to see Robb and Hollender enjoying the pristine Costa Rican Rainforest together--and especially raising money in partnership for Rainforest restoration. Think there was any light arm-twisting by Robb on Hollender during the hike regarding Wal-Mart?

Safeway: Buyout or bogus: On February 22, Chicago Tribune reporter Sandra Guy wrote a single-source story in the paper's business section titled, "Buyout rumors hit Safeway: Analyst says Dominick's owner is perfect for takeover. The story's source is Sean Egan, managing director at Egan-Jones Rating Co., a Chicago-based stock analysis firm.

The lede of Ms. Guy's piece reads: "Dominick's, the Chicago area grocery chain, long rumored to be for sale by its owner Safeway, could instead be part of a private-equity buyout of the entire chain, one analyst (Egan) speculated Thursday in a report to investors."

Sean Egan told the reporter "a private-equity firm such as Kohlberg Kravis Roberts & Co. (didn't they already buy Safeway once?) Thomas H. Lee Partners or Chicago-based Madison Dearborn Partners would be the likely buyers of Safeway." Egan further said that today's financial market crisis makes buyout money hard to get, but that could change in a few months.

We read the short Chicago Tribune story with interest for two reasons: First, we are always interested in potential supermarket industry buyouts, especially when they involve a major player like Safeway. Second, the story raised a number of red flags to us.

The first red flag is that its a single-source piece about a major corporate buyout. That's unusual. Additionally, the premise of the piece is that Egan wrote the "potential buyout" note to his clients, many of whom we presume own Safeway Stores, Inc. stock. In other words, it's more like a 'hey, this could happen someday' note rather than informed speculation.

With these red flags firmly in mind, we sat on the report and have done three things since it came out nearly two-weeks ago. First, we've monitored the national and international business press daily, looking for other reports on the "potential" buyout of Safeway. Nothing. Not one of the major financial publications--the Wall Street Journal, Financial Times, New York Times' business page--has reported a version of the story that we can find.

Next, we made some phone calls of our own. We called three supermarket industry financial analysts we know--two who work for major New York firms and another who is an independent analyst in the San Francisco Bay Area and watches Safeway closely--and asked if they were hearing anything about a "potential" Safeway buyout.

All three analysts told us something similar: that they have no such buyout on their radar screens, that the liquidity crisis in the financial markets makes it unlikely that such a huge buyout will happen anytime soon in any industry in the U.S. (and that if it does the buyer will likely be sovereign funds' of countries such as Saudi Arabia, the United Arab Emirates or China-which is not likely regarding Safeway), and that of course, anything is possible...but, we doubt it.

Lastly, we placed a call to an executive we know at Safeway corporate headquarters in the Bay Area and asked him off the record if he was hearing any inside gossip about a possible buyout. He said he hasn't heard a word--and he is plugged-in at a high-level.

So, we wonder, is this just mere speculation on behalf of Mr. Egan? Perhaps to get some ink? Perhaps to stir-up some interest in a buyout? Perhaps to influence Safeway to sell Dominick's, which they almost did five or six years ago? Those are all possibilities.

Another thought we have is that perhaps Mr. Egan would like to influence Safeway's stock in an upward direction? It has dropped more than it should have, based on the grocer's fundamentals, of late. In fact, it's at a five-year low.

Fresh & Johnson: As we reported here in Natural~Specialty Foods Memo on February 28, British grocer Tesco has signed leases for 19 store sites in the Sacramento Metro region in Northern California for its small-format, convenience-oriented Fresh & Easy grocery stores. Seven of those 19 grocery markets will be in the city of Sacramento.

The driving force behind one of those Sacramento stores is non other than former NBA basketball all-star Kevin Johnson, who was raised in Sacramento's low-income Oak Park neighborhood. After retiring from the NBA, the ex-Phoenix Suns' guard moved back home to Sacramento and became a real estate developer. Johnson also started a non-profit community development corporation in Sacramento called St. Hope. The main focus of Johnson's St. Hope organization has been to redevelop and improve his boyhood neighborhood of Oak Park.

Johnson has built a combined art gallery and cultural center in the neighborhood, which includes a bookstore and a Starbuck's cafe as part of the facility. Now, in partnership with Tesco's Fresh & Easy, the three-time NBA all-star is bringing one of the grocer's small-format grocery markets to the neighborhood, on a piece of commercial property he owns there. [Read all about the Fresh & Johnson development here.]

Yesterday, at a press conference in that very same Oak Park neighborhood, Johnson announced he would run for Mayor of Sacramento against three-term incumbent Mayor Heather Fargo. It looks like the move could be a "three-pointer" for Tesco's Fresh & Easy. Not only have they hitched their Fresh & Easy star to a former pro-hoops' star, but perhaps to a political rising-star as well. Any guesses who will be the main attraction at the grand opening of the Sacramento Oak Park Neighborhood Fresh & Easy grocery store when it opens next year?

Tesco world: Speaking of Tesco, the retail chain is in many ways the Wal-Mart of the United Kingdom. Like Wal-Mart in the U.S., Tesco--the UK's biggest and the world's number three retailer--is either loved or hated, there isn't much in between. Additionally, like Wal-Mart in the USA, Tesco in the UK controls that nation's retail grocery sales market share (35%). Being the market share leader brings the mega-retailer, just like it brings Wal-Mart in the U.S., lots of accusations of monopolistic tendencies and practices from competitors', politicians and consumer advocacy groups.

Lastly, just like Wal-Mart in the U.S., Tesco in the UK meets frequent opposition from municipalities and community groups when it tries to open one of its big-box superstores in certain cities or neighborhoods. These municipal governments and community groups in the UK, like similar groups do regarding Wal-Mart in the U.S., have been successful recently in preventing some of Tesco's stores from being built in their respective communities.

There's enough serious analysis about Tesco--including ours--around these days to fill four or five 200,00 square foot Supercenters. Such analysis is needed and good. However, sometimes it takes a humorous take on the subject to really get to the essence of a mega-retailer like Tesco.

We think the London, England-based humor publication The Daily Squib, does a pretty good job of getting to the heart of the issue in a piece in today's edition. The piece, "Tesco to open Tesco Store in Tesco Store," is written by Grzegorz Teodozjusz Januariusz. (We haven't used our keyboard's Z key that much all year.) [Read Mr. Januariusz's take on Tesco and its role as the UK's leading retailer here.]

Speaking of Wal-Mart: The Bentonville, Arkansas-based behemoth is on a new-store opening rampage in the U.S. On Wednesday alone, the mega-retailer opened two new Supercenters in Oklahoma; one in Chandler, the other in Checotah. Not enough? A third new Supercenter is opening today in Coweta, Oklahoma. The three new Supercenters are expected to bring about 515 new jobs to the state.

The three new Supercenters opening this week in Oklahoma are part of the mega-retailer's plans to open 76 new big-box Supercenters, three Sam's Club stores and two of its 45,000 square foot Neighborhood Markets in 30 U.S. states this month. Yes, we said this month.

Wal-Mart recently overtook Kroger Co. as the number one national grocery sales market share leader in U.S. The Bentonville brawler should solidify this position with the 76 new Supercenters, three Sam's Club stores, and two neighborhood Market grocery stores it is opening this year.

All in the family: A group headed by Michael Teel, an heir to the Raley's supermarket fortune (the Raley's stores are still there, don't worry) has leased the site of the former Andiamo restaurant in East Sacramento, California, where the new venture plans to build the first of what will be a chain of gourmet foods' markets and bistros called Good Eats.

Teel, a former CEO of West Sacramento-based Raley's, who is married to Joyce Raley Teel, the daughter of Raley's founder Tom Raley, is partnered on the gourmet food and bistro chain project with high-tech company entrepreneur and ex-hedge-fund manager Michael Ashker, who is well-known in the capital city.

Ashker told the Sacramento Bee in today's edition that the first site is merely a part of a larger enterprise the partnership plans on building, indicating that a substantial gourmet retail food chain and bistro could be in the offing.

Teel and Ashker beat out Whole Foods Market, Inc. for the site, according to Barbara Mikacich, who's family owns the property and will lease it to M2 Venture partners, the name of the Teel and Ashker's partnership, which will open and operate its first gourmet food store on the site. Whole Foods had planned to level the existing restaurant building and build a multi-level superstore on the site, according to Milkacich. M2 Venture partners says it will keep the shell of the building, along with its kitchen, then remodel the rest into its new gourmet foods' store and bistro format.

Plans call for the gourmet market and bistro to have an all-star chef, who will serve upscale quality meals in the restaurant section of the market, as well as create a selection of fresh, prepared foods for takeout sales at the store. Additionally, the market's focus will be on specialty and gourmet foods and groceries rather than offering a full selection of grocery products. The market also will offer an extensive selection of wines for sale, and the bistro will have a wine bar offering wine by the glass, along with the gourmet foods in the restaurant.

With Tesco opening seven of its small-format Fresh & Easy grocery markets in Sacramento next year, which sell lots of prepared foods and a generous selection of wines, and now the new venture by Teel, the Sacramento market looks to be getting even more competitive--and more upscale--than it already is.

Whole Foods is looking for other sites in Sacramento by the way, according to our sources. The supernatural grocer currently has one store in the city, and wants at least one more. The grocer also is looking at possible locations for a store in the nearby University city of Davis, home to a campus of the University of California, along with at least two other fast-growing Sacramento region suburbs.

A Supermarket Knight Retires: British supermarket industry legend Sir Ken Morrison--one of at least three UK supermarket chiefs to be given a royal title by the Queen; the other two are Sir Terry Leahy of Tesco and Lord Sainsbury of J. Sainsbury's--will close a major chapter of his life next week when he steps down and retires as Chairman of the Morrison's supermarket chain, which he has been the driving force behind for decades.

Sir Ken joined Morrison, which was founded by his father as a single grocery market stall in Bradford selling eggs, butter and a few other staples in 1952. Post-World War II food rationing was still going on in the UK in 1952, and the notion of a consumer boom and the advent of today's supermarket was merely a glimmer in the eyes of a few young men.

One of these young men was Ken Morrison. Morrison is considered in the British supermarket industry as the grocer who revolutionized how fresh foods are sold in the nation. He's also hailed as a savvy businessman and retailer, who for 35 years has been at the helm of the family-named chain which under his leadership has seen continuous, unbroken sales and profit growth, as the grocery chain grew from a few stores to a major player in UK food retailing, with 370 stores spread throughout the region today.

It is Sir Ken's last major move, however, that first made industry observers think he lost his marbles, but that they now are praising him for the most. That move was the acquisition of the much larger UK Safeway chain, in a bold move which is resulting in Morrisons' becoming a national player, playing in the same ball park as Tesco plc, Asda and Sainsbury's.

The British supermarket and financial industry was surprised to high heavens in the fourth quarter of last year, when post-Safeway acquisition Morrisons' posted the biggest market share and profit gains of any of the UK's major grocery retailers. Suddenly, Sir Ken was once again a food retailing genius. [You can read more about Sir Ken's legacy in this piece in today's London Telegraph by writer James Hall. There's also a link to an opinion piece by Hall about how Morrison did things his way,which often went against the prevailing wisdom of British grocery retailing orthodoxy.

Supply-Side Memo

Hain grows organics' via acquisition: Natural and specialty foods industry manufacturer and marketer Hain Celestial Group, Inc. announced yesterday it acquired natural and organic foods' brands Sunspire and MaraNantha and their nut butter manufacturing facility in Oregon from investment firm American Capital Strategies Ltd. Combined, the two brands do about $40 million in annual sales in the U.S. and Canada. What Hain Celestial paid for the brands is not known at this time. However, it should be identified once the publicly-held company releases the required disclosure forms on the deal.

Both brands are mainstays in natural foods stores in the U.S. and Canada. The brands also have placement in numerous supermarkets in both countries. Hain Celestial should be able to grow the brands' sales considerably by plugging them into its multi-brand distribution network, as well as increasing the products consumer awareness using more aggressive marketing and sales promotional programs.

Additionally, since the brands are sold only primarily in North America, Hain Celestial also should be able to gain international distribution via its global distribution network. Going global, even on a limited scale, could increase annual sales for the two brands considerably.

The new 'green' Coke: Beverage industry giant Cocal Cola, which in addition to its flagship Coke carbonated brand franchise, also owns and markets bottled water, juice (including all-natural Odwalla brand), Samrt Water and Vitamin Water, and a host of other brands of beverages, says its going green and sustainable.

Advertising Age reports today that Coke, which has been accused of being "luke green" in its bottling and marketing efforts, plans on spending millions of dollars to launch a new campaign touting its efforts in the areas of environmental sustainability and personal well being. ad Age has an interview with Coca Cola's chief marketing officer Katie Bayne about the new, ''green' Coke. You can read the interview here.

Marketing Memo

Black (buying) power: Food and grocery marketers and retailers taht avoid the African American consumer market do so at their own loss. A new report from market research firm Packaged Facts, predicts the buying power of 39 million blacks in the U.S. will reach 41.1 trillion annually by 2012. Further, the report, "The African-American Market in the U.S.," says their are 2.4 million African-American households with incomes of $75,000 or above annually, which account for just 17% of black households, but 45% of total African-American consumer buying power. [Read more about the Packaged Facts' study here.]

Consumer vigilantes: Memo to marketers; score consumers at your own risk. There's a growing trend in the United States in which consumers, scorned or done wrong by prodcut or service manufacturers or marketers are striking back, and not merely with words. These vigilante consumers are devising elaborate ways to strike back when they feeled scorned by a small business or large multinational corporation. The vendettas include everything from sophisticated, well-organized anti-brand campaigns, to outright vandalism. Marketers beware. [Read about this new "brand" of consumer in this piece from the current edition of Business Week magazine.]

Food & Society Memo

Hunger in America: East Coast USA-based Wegmans supermarkets has raised a record $1,741, 817 million in customer and employee donations in the grocery chain's annual Check Out Hunger and Care About Hunger Campaigns, which recently concluded. Customers can donate in $1 -to- $5 increments at the grocer's store checkout stands. Wegmans donates 100% of the donations to local food banks. [read more here.]

Sleep and society: Speaking of Wegman's, Jim Ekis didn't know it when he volunteered to work the night shift doing inventory control at the Wegman's building in Rochester, New York so he could stay home with the kids while his wife worked her day job, but that decision would cost him three years' worth of decent sleep, he says. "Those first three years, it was torture," Akis told the Utica (New York) Observor for an article in today's edition. "After that, the hours felt normal; but normal didn't mean feeling rested, "he says. The good news for Jim Ekis is he said he's now back on the day shift, and all is well.

Sleep deprivation is a growing problem in the U.S. It takes its toll on peoples' careers and homelife. It's also a major cause of lost productivity for employers and the U.S. economy. [Read what the article in today's Utica Observor has to say about the human and economic goal of sleep deprivation in the United States here.] P.S.: Don't forget to wake us when you finish reading it.

Green Memo

Green retailing @ Wal-Mart: Are you a "green", or environmental entrepreneuer or established company? If so, mega-retailer Wal-Mart might want to know about you and your service offering. The chain has created an online method of recieving "green" requests for proposals as part of its sustainability program, by partnering with the CleanTech Group, an organization dedicated to create new sustainable technologies.

"The Wal-Mart/CleanTech Accelerator Project" will accept proposals from companies regardles of their size who have services and ideas that can help the retailer become "greener," along with saving it money. The project wants ideas as varied as improving Wal-Mart's lighting efficiency in its stores, to creating more energy efficient forklifts and "greening" its in-store foodservice departments, and more.

The Cleantech group will vet each request for proposal upon recieving it, and then forward those it believes have merit to Wal-Mart with a recommendation that the retailer meet with the sustainable service vendor. [Learn more about the project here. There's also a link to the project's website at this link.]

California's grocers' get greener: A new study by the California Grocers Association, the state's supermarket industry trade association, says the golden states food retailers recycled about 2.3 billion pounds of paper, plastic, cardboard, wood, green waste and animal products from their stores, distribution centers and corporate offices in 2006.

Many of the state's grocers were able to divert 50% of their waste from being dumped in California's rapidly-filling landfills through the recycling programs. The state's grocers also are finding they can sell the recycled cardboard, paper, plastics and other waste products in many cases, which helps recover some of the costs of implementing the programs for their stores and warehouse operations.

Some of us remember when supermarkets didn't have cardboard balers in their backrooms, and the empty cardboard product cases were either broken up and tossed in a dumpster or burned in an incinerator in some parts of the U.S. Additionally, paper, plastic and other packaging wasn't recycled at store level just 15 years ago. And, ten years ago it was only just really getting started in a serious way. Recycling 50% of a store's waste is excellent, and we bet at least another 25% can be kept from going into landfills with just a bit more effort.


Memo from the 'Fatosphere' Movement

If a growing group of bloggers have their way, the natural and healthy foods' industry might find itself a declining rather than fast-growing enterprise. These bloggers are calling for greater "fat acceptance," and have given rise to a movement know as the "fatosphere."

According to a report by writer Roni Caryn Rabin in the January 22, 2008 edition of the New York Times, these bloggers "challenge just about everything conventional medical wisdom has to say about obesity." Further, "the message from the "fatosphere" is not just that big is beautiful," writes Ms. Rabin. Rather, "many of the bloggers--both men and woman-- dismiss the 'obesity epedemic' as hysteria. They argue that Americans are not much larger than they used to be and that being fat in and of itself is not necessarily bad for you."

One star blogger in the "fatosphere," Kate Harding, whose blog is called Shapely Prose, attacks the popular premise that being fat is a choice. "No "fat acceptance" advocate says you should sit around and wildly overeat," she tells Rabin. "What we are saying is that exercise and a balanced diet do not make everyone thin."

Other "fatosphere" bloggers point to scientific evidence that fat people can actually be healthier than thin people. One blogger sites "recent studies on heart patients and dialysis patients that have reported higher survival rates among heavier patients, suggesting the link between body size and health may be more complex than generally acknowledged."

The main argument most of the "fatosphere" bloggers make "is that being fat is not a result of moral failure or a character flaw, or of gluttony, sloth or a lack of willpower, and that it may have more to do with genetics than anything else."

"We accept that some people are short," argues Rachael Richardson who publishes a "fatosphere" blog called The F-Word. "Yet we seem to think all people should be thin--it just doesn't make sense." [You can read Ms. Rabin's article, "In the Fatosphere, Big is In, or at Least Accepted here.]

Although there is humor in this movement and in the word "fatosphere," which the bloggers have chosen to name it, we should listen to what these folks have to say. Obesity is obviously unhealthy, and eating natural and healthier foods makes intuitive sense to most of us. However, there is a difference between being obese and overweight. Anthropological studies demostrate to us that individual variation, including weight differences, are a constant throughout human evolution.

On the other hand, the bloggers in the "fatosphere" shouldn't cut off their own noses to spite their faces. While its true that many people, do to poor motabolisms and other medical conditions, might remain overweight throughout their lives, it's also true that with a regular, healthy diet (not dieting), along with regular moderate exercise, nearly anybody can lose weight over time. And, even if they don't drop mega-pounds, they will be healthier as a result of the healthy diet combined with the regular exercise.

Regarding those of us in the natural and healthy foods' industries, we don't see the "fatosphere" movement really resulting in a decrease in sales growth. Rather, we actually think because the bloggers are so analytical and articulate about the issue, they actually will encourage overweight people to eat healthier. The two things--being overweight and healthy--aren't neccessarily mutually exclusive, as the "fatosphere" bloggers argue themselves.

Have a good (and healthy) weekend!

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