business news in context, analysis with attitude

Responding to yesterday’s piece about the new class action suit charging Wal-Mart with human right violations, MNB user Jory Gromer wrote:

Whether the allegations of sweat shop type conditions exist or not, the fact is that Wal-Mart's purchasing practices and those of other major retailers are one of the major causes for the erosion of manufacturing in the US. We are now buying most of our products manufactured in countries that resent our lifestyle. Some are communist nations and some support terrorist organizations. Why we continue to buy oil and other products from countries that take our money and then use is to pay suicide bombers is beyond me.

When manufacturing goes away, so does most of the jobs and virtually all of the capital investment supported by the manufacturing processes. It is not a government problem, it is a moral problem. Maybe when we get tired of swapping $15 per hour manufacturing jobs many of which provide opportunity for growth into other areas of expertise for $7 per hour distribution center pick and pack jobs with little or no future, we will then realize the low price is not necessarily the god of the universe.

Buy American made products. The job you save may be yours.

On the subject of a likely purchase of A&P’s Farmer Jack stores by Spartan, one MNB user wrote:

Kevin, did you know that Craig Sturken the CEO of Spartan is the guy who built Farmer Jack/A&P Detroit into a real power house in the] 90s? Craig knows those Farmer Jack stores and trading areas like the back of his hand and he knows what they are capable of. He will likely drive good deal for Spartan because he knows what he is buying.

We did know. But thanks for reiterating the point.

On the subject of gas price gouging, one MNB user wrote:

I don't mind the price of gas if it is coming from US wells and I do NOT support price controls. I was around the last time that was tried. The long lines to buy gas often for cash only were a bummer. I do mind the retailers raising the price the instant that the futures price goes up and long before the higher priced fuel is in their tanks. That ought not so to be.

Another MNB user disagreed with one of these points:

Kevin, the problem is price gouging. Companies taking full advantage of hiking up prices. I believe Connecticut has the most intensive consumer laws, and if I am not mistaken-price hikes can only occur when a vendor/retailer is invoiced accordingly.

What happened in your state? We are aware that the oil and gas industry stockpile fuel inventories for quite a few months. Funny how fast everything went up and how slow it will take for prices to come down.

The litmus test will be next quarter’s financial numbers-expect record profits. This was so true in the 1994 when wholesale coffee pricing shot from .70/lb to over $3.00 (Feb-July) in a mere six months and retailers saw case costs triple in that time. Yet these were for beans that wouldn't be delivered until after the harvest-August. I recall seeing a case production date (Feb) on Maxwell House in a Star Market in Boston on a display in July retailing at double the retail in the Spring. Kraft and P&G posted some of their largest financial gains in 1994. Same is true for oil futures. It may take a few tough congressman to enact price controls to help us withstand these disasters. Travel back to the 70's, the Nixon era and price controls -maybe it is time this message is sent to corporate America. Enforce price controls during this short period of time, and it will allow the economy and American public to weather the storm.

MNB user David J. Livingston had some thoughts about the Albertsons situation:

For thing for sure, whoever buys Albertsons will most likely pull out of those extremely underperforming markets. This will probably mean hundreds of stores will close. No investment firm will have the wherewithal, nor the incentive to want to hold on to these stores. Sure, Albertsons still has many good stores, but they are still bogged down with several hundred operating at "Winn Dixiesque" levels.

I admire Albertsons for making the decision to sell out before they quickly become the next Winn Dixie. It’s also a smart move because Ahold and Safeway are in the same sinking boat and the demand for failing supermarket chains will probably decline. I think all this talk about these chains having real estate value and being another Kmart is nonsense. Even Kmart sold off very little real estate, mostly to Sears and ended up buying it back. If what is going on with the UFCW and Farmer Jack is any indication what might happen at Albertsons, union members might want to dust off their resumes. In the end, after closing stores in the weakest areas, Albertsons will probably be better off selling store groups off to successful regional operators. Remember how good Shaws, Bristol Farms, and Jewel were before Albertsons ruined them?

And MNB user Mark Heckman wrote:

Looking at the line-up of potential suitors, if I were a senior executive at Albertsons, I would be updating my resume’. These financially-based organizations have a simple model, cut costs, grow EBITDA, and re-sell (in chunks if necessary) for a profit. They will bring in their own executives with their cost-cutting machetes in hand. It is also unlikely that any of the mentioned acquiring companies would be interested in buying just the non-core assets. They would want ACME, Shaws, and Jewel.

The emerging opportunity is for the regional-based mid-sized traditional supermarkets which have an opportunity to grab market share during and after this process, as the cost-cutting accountants that will be running the show have shown no ability to grow top line business after the acquisition.

We had a piece the other day about how Anheuser-Busch was going to try marketing sweeter beers – like blueberry beer - as a way of appealing to twentysomething consumers. We suggested that maybe A-B should set up a whole new division for these beers – like Toyota did with Lexus – as a way of bringing in new customers without alienating core consumers. To which one MNB user responded:

I think they need to be concerned about channel blurring if they don't create a new segment that dwells on the "funky" brews. I think your suggestion of separating that concept from their main line is right on the mark.

And, on the subject of Wal-Mart’s extraordinary response to the Gulf Coast disaster – especially when compared to the government’s response - one MNB user wrote:

That's the magic of our industry. We do very hard things. We move raw food from field, to plant, to warehouse, to store, to table. No other industry operates so closely and so frequently to both the raw product and the consumer. In other words, we are logistical wizards! Frankly, FEMA would be better served by acting as a coordinator between the various distribution companies. We are the ones with the equipment, and the know-how. We do this kind of thing every day. And think about it: We operate under the daily demand of profit and efficiency. While I in no way mean to diminish the horror of life for the people on the Gulf Coast in the aftermath of Katrina, Wal-Mart's emergency response was, really, little more than a daily operation. The points of delivery changed, the line of cash registers was replaced by a another type of line. Wal-Mart simply set up instant necessities stores right where they were needed.
KC's View: