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Wednesday, June 14, 2006

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More Albertsons Closings Announced

The Fort Worth Star-Telegram reports that Albertsons LLC, the company stores now owned by an investment team headed up by investment firm Cerberus Management, has announced that it will close 25 Super Saver stores, or all but two of the deep-discount units that were created as a stand-alone unit of the company back in 2004. The closing units are in addition to the 100 other closings that were announced by company management about a week ago.

In a letter to vendors, John Boyle, vp-merchandising with Extreme Inc./Super Saver Foods, wrote:

“Extreme Inc, the company that operates the Super Saver Food Stores, has made the decision to close all of the company’s 25 stores operating in Louisiana, Texas and Florida. The two Super Saver Food stores in Salt Lake City will continue to operate and will be transferred to Extreme’s investor company, Albertson’s LLC. These two stores will be managed by the Rocky Mountain Operations team of Albertson’s LLC.

“Our Louisiana, Texas and Florida stores will continue to operate for at least 14 more days and will all close by August 1, 2006.”

Boyle also writes that the stores “intend to continue to replenish certain categories for a period of time so that we can fulfill the needs of our customers.”

According to the Star-Telegram, “no severance pay will be given. But hourly employees would receive an additional $1 per hour if they continue to work until their stores close.” And, the Star-Telegram writes, “workers were told the incentive, payable on closure, would be forfeited if they took a job with an Albertsons supermarket beforehand. Management workers were given their own incentives to continue working until the closings but must wait six months before applying for work with an Albertsons.” However, the paper writes, Albertsons management workers obviously are “free to pursue jobs at the chain’s competitors during that waiting period,” but if “they apply for an Albertsons job before their Super Saver closes, salaried workers will forfeit the incentive bonus accrued to that point.”

KC's View: Huh?

It doesn’t sound, based on the Star-Telegram story, that a lot of value is being ascribed to the Super Saver employees.

Though, when you think about it, it also doesn’t sound like a lot of value is seen in the whole Super Saver experience, which now stands as yet another Larry Johnston mess that has to be cleaned up by the company. We suppose that the message here is that just calling a store “Super Saver” doesn’t make it either super or a place where you can save a lot of money compared to the competition.

NY Grocery Workers Approve Strike Authorization

Newsday reports this morning that employees at both Pathmark and Stop & Shop represented by the United Food and Commercial Workers (UFCW) have voted to authorize a strike starting June 25; unionized employees of King Kullen are scheduled to vote on the strike authorization proposal later this week.

The three chains’ contract with the UFCW expires June 24. A federal mediator reportedly has been brought into the negotiations.

“Both the union and the companies say that they are continuing to negotiate and want to work out a fair deal before the four-year contracts expire,” according to Newsday. “Supermarket representatives declined to discuss specifics about the ongoing negotiations, but Patrick Purcell, UFCW director of organizing, said that the major contract disputes were proposals to reduce the Sunday premium pay for new hires and initiate payroll deductions for health insurance.”

"We're hopeful that after continuing meaningful negotiations, we'll come up with a solution that's fair for both parties," said Stop & Shop spokeswoman Faith Weiner.

"Pathmark is in a very competitive environment, trying to sustain revenues and control expenses and continue as a good employer to work for," said Pathmark spokesman Rich Savner.

"Historically, King Kullen and Local 1500 have enjoyed a good relationship and have always come to a settlement in their negotiations," said Thomas K. Cullen, a vice president at King Kullen. "We have every reason to believe that the same will be true this year."

KC's View: Sounds like there will be some saber rattling, but not much blood spilled over this one.

Kroger’s Stock Price Conundrum

In its “Heard On The Street” column this morning, the Wall Street Journal notes that Kroger is enjoying a time of strong performance despite all the competitive pressures:

• Its net income last year was $958 million, compared with a loss of $104.2 million the year before.

• “Ten of 18 industry analysts polled by Thomson Financial rate the stock a ‘buy’ or ‘strong buy’.”

• "If you're going to invest for growth in the supermarket sector, look to Kroger," Burt Flickinger, managing director of Strategic Resource Group, tells the Journal. "Nationally, Kroger is the one company investors can count on to deliver the volume. At the others, there's too much uncertainty."

And yet, the WSJ writes, “Kroger's stock price has dropped more than 2% in the past three months, while the stocks of food retailers and wholesalers generally have remained flat. Based on the profits it generates, Kroger's stock is cheaper than shares of its main rivals.”

The reason is simple, the paper reasons: Wal-Mart.

“Even though Kroger has been successful competing in markets that Wal-Mart has invaded, some question whether Kroger can ultimately withstand the Bentonville, Ark., titan's price-slashing presence,” the paper writes, though it concedes that Kroger has done a good job reducing prices and cutting costs, and now is in the process of improving services.

And, while the recent past may not be rosy in terms of share price, the bigger picture is not quite as gloomy. “Kroger's stock has risen nearly 18% in the last year, while Wal-Mart has slipped about 4%,” the Journal writes.

KC's View: This may be naïve, but we have to believe that the worst decision Kroger could make would be to manage the company with en eye on the stock price. Take care of the customers coming through the front door, and we think that the share price eventually will take care of itself.

We also think it will be instructive to see how Kroger competes with Tesco’s new stores on the west coast that are scheduled to open next year. This will be a new threat from a new competitor…and will end up being a proving ground for both Tesco and Kroger.

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Now back to regularly scheduled editorial...

Boutique Beers Showing Sales Strength & Big Brewer Appeal

MSNBC reports that much of the action in the beer business these days is in smaller, boutique beers that are seeing their sales increase even as major brewers are seeing sales declines.

So, the big brewers – which account for 82 percent of US beer sales – are responding by trying to acquire some of these smaller beer manufacturers. “For example, Miller owns Lienenkugel’s, Blue Moon now shines for Coors and Rolling Rock rolled into the Anheuser-Busch family, helping the king of beers reach buyers who want something besides a Bud,” MSNBC writes.

However, one of the tricks of making these acquisitions work is assuring that consumers never find out about them, according to the report. The concern is that if beer aficionados find out, for example, that Coors owns Blue Moon, the smaller brand may lose some of its appeal.

KC's View: We can understand the concern about boutique beers losing their mystery, but we wonder if maybe, just maybe, beer drinkers are being underestimated by marketers.

Blue Moon happens to be one of our favorite beers, and we had no idea that Coors made it. When we found out, it made absolutely no difference.

Coffee Said To Counteract Liver Disease

A new study by the Kaiser Permanente Medical Care Program in Oakland, California, and published in the Journal of the American Medical Association's Archives of Internal Medicine, suggests that coffee consumption may help prevent cirrhosis of the liver.

In essence, the study suggests that by drinking coffee, people may be able to counteract the effects of long–term and heavy alcohol abuse, which can destroy healthy liver tissue.

However, there are some caveats to the study. For example, the study concedes that there could be other substances or genetics that helped the subjects of the study avoid liver disease. And the physicians involved said that they would not go so far as to recommend coffee as a treatment for cirrhosis.

KC's View: Gee, and we thought that coffee was only good for creating the illusion of sobriety.

AMA Considers Call For Sodium Reduction In Prepared Foods

The Chicago Tribune reports that the American Medical Association (AMA) is expected this week to issue a call for food manufacturers and restaurants to reduce by 50 percent the amount of sodium in the foods they sell, with the stated goal of reducing hypertension and cardiovascular disease.

In addition, the AMA is expected to urge the US Food and Drug Administration (FDA) to improve product labeling so that sodium levels are more clearly identified. According to the Tribune, “Some AMA members are urging the agency to go so far as revoking a regulation that considers salt to be ‘generally recognized as safe’ and permits food manufacturers and restaurants to use it without limits.”

The AMA cannot force any action, of course, but such a stance would have a kind of influence over policymakers and with the general public.

“Strict sodium rules could have huge implications for foodmakers, many of whom are still retooling products to reduce the amount of transfat, the last dietary villain to join the band of outlaws that includes fat, carbohydrates and cholesterol,” according to the Tribune.

“The dietary guidelines introduced last year by the government call for a maximum of 2,300 milligrams of sodium, or a generous teaspoon of salt, per day for most adults. Someone who eats one of McDonald's new premium crispy chicken club sandwiches has reached 80 percent of their allowance. American adults average 4,000 to 6,000 milligrams daily.

“The guidelines set an even lower limit of 1,500 milligrams of sodium per day for people with high blood pressure, blacks and middle-age and older adults.”

The Center for Science in the Public Interest (CSPI) has endorsed the AMA proposal.

The Salt Institute has responded to the AMA proposal by telling the Tribune that there is no evidence that a reduction in sodium consumption will have any beneficial effect on public health.

KC's View: We suspect that maybe the Salt Institute wants to rethink this last statement.

After all, it seems to be a fairly well established fact that salt exacerbates high blood pressure. And it is hard for even a layman to accept the idea that a reduction in salt can’t help the general public health.

At the very least, truth – meaning “clarity” and “accuracy” – in labeling seems like a good idea.

P&G, Wal-Mart Bail Out Of POP Study

Advertising Age reports that Wal-Mart and Procter & Gamble have each decided not to participate in a study of in-store marketing efficacy.

“The delay not only highlights the daunting task of persuading major marketers and retailers to share confidential data but also throws into question whether Point-of-Purchase Advertising International -- which was undertaking the multi-million dollar initiative along with the Association of National Advertisers -- can lead the charge to bring the metrics used in TV and radio to the retail-advertising medium,” according to the Ad Age study.

The story suggests that while it was not enormously surprising that Wal-Mart wouldn’t participate – the retailer is known for keeping its information to itself – the P&G decision was something of a surprise because the manufacturer helped to initiate the study.

The MNB Wal-Mart Watch

• The Chicago Sun-Times writes this morning that a new Wal-Mart Supercenter opening today in Country Club Hills “is the company's first in the Southland, stocking groceries along with general merchandise.” While the company operates 52 supercenters in Illinois, it has just “a handful” on the fringes of the city – though it plans to convert a number of existing discount stores to the supercenter format.

• Also this morning, the Sun Times writes that Chicago Mayor Richard Daley opposes legislation being proposed by 33 of the city’s 50 aldermen that would, if passed, require stores of 75,000 square feet or larger, owned by companies with $1 billion or more in gross revenues, to pay any employee who works more than five hours a week at least $10 an hour, plus $3 an hour in benefits.

"They have to say: What is their alternative? OK. We're not gonna build these. What is their alternative? That is the issue," Daley said.


• The Center for Science in the Public Interest (CSPI) has filed a class action suit aimed at getting KFC is stop using trans fats, instrumental in the development of heart disease, in the cooking of its fried chicken.

"KFC knows this, yet it recklessly puts its customers at risk of a
Kentucky Fried Coronary," Michael Jacobson, executive director of CSPI, said in a release.

A spokesperson for KFC said that while the suit was frivolous and without merit, the company was looking for alternative cooking oils that would not change the taste of the product. This is a similar situation to the one in which McDonald’s finds itself; it promised to change cooking oils for its French fries years ago, but says it has been difficult to find one without affecting the taste of the product.

• Wendy's International has announced that it is getting rid of the “Biggie” and “Great Biggie” names that it has used for its fries and soft drinks.

Of course, there is something of a sleight of hand taking place here.

Servings formerly called “medium” now will be called “small.” “Biggie” servings will be called “medium,” and “Great Biggie” sized portions will be called “large.”

Executive Suite

• CVS Corporation announced that it has promoted Carol DeNale to the position of Vice President and Corporate Treasurer. DeNale joined the Company in 1997 and most recently served as Assistant Treasurer.

Your Views

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