Bitter Fight Over Sugar

Despite the scoffing of most experts, several large CPG companies have warned the Obama administration they will raise prices drastically and lay off workers if the government doesn’t relax restrictions on tariff-free imports of sugar.

Kraft Foods Inc., General Mills Inc., Hershey Co., Mars Inc. and Krispy Kreme insist their profits are in jeopardy— oops, I meant to say they see shortages unless regulations are relaxed that aid the domestic sugar industry. Sugar beet farmers in the Northern Plains and cane-sugar farmers in the South have used lobbying and political muscle to prop up U.S. prices to more than 2x the world level.

Adding to the problem: sugar prices, both in the U.S. and globally, have soared in the past year and show no signs of declining.

Price increases have the most direct impact on candy and other sweets, but sugar is ubiquitous in the processed foods industry. Gonnella Frozen Foods, for example, has raised prices for its rolls, hamburgers and hot dogs because of sugar used in the dough. Sugar makes up 1%, 6% and 8%, respectively of costs for ConAgra Foods Inc., Kraft, and Hershey.

Major sugar exporters like Brazil and India are barred from selling their sugar in the U.S. without high import tariffs. One big factor in the rise in prices is the diversion by Brazil (the world’s largest sugar producer) of large amounts of its crop to making ethanol, much as ethanol production has driven corn prices up here. Getting congressional buy-in for raising the amount of tariff-free sugar (50% demanded by the food industry) will run square into Rep. Collin Peterson (Dem., Minnesota), chairman of the House Agriculture Committee, and whose district is a major beet-sugar producer. The American Sugar Alliance, the trade group for cane and sugar-beet farmers, is “absolutely opposed” to relaxing sugar-import quotas, since it would lower prices paid to growers here.

The association claims each one-cent drop in sugar prices costs U.S. farmers $160MM in revenue. The lobbying group also points out allowing more foreign sugar into the U.S. will likely not show up as price reductions for consumers. So far, the large soda manufacturers Coke and Pepsi (who mostly use high-fructose corn syrup) have shied away from this fight.

Most recently, the American Bakers Association has come out in favor of lifting the quota numbers. The trade association cited the historic high prices of sugar reached this past February as evidence of how the quotas hurt consumers. Recent domestic raw sugar futures stood at 31.1 cents/lb, down 25% from the peak of 42 cents this past Winter, but still more than 50% above the 2000-07 average of just under 21 cents. The current Tariff Rate Quota (TRQ) is 1,139,195 tonnes (1,256,000 short tons).

This blog includes excerpts from a weekly round-up of food industry & food licensing news provided free to Broad Street Licensing Group's clients, and as a paid subscription service (6 months $695; 1 year $1,125).

Too busy to keep up with the news wires & publications about the food business? If you or your company would like to subscribe to our news service, call Danielle Foley at Broad Street Licensing Group (tel. 973-655-0598) and ask for your free sample or click on our website.

Dean Foods Under Scrutiny

Many in the food industry have welcomed the greater activism by the Obama administration into areas like food safety.

But now there is growing pressure to look at some of the anti-competitive practices: Senator Bernie Sanders (Democrat from Vermont) has asked the U.S. Department of Justice to investigate mega dairy company Dean Foods for what he contends are monopolistic practices that harm dairy farmers.

According to the senator, Dean Foods buys approx. 70% of the fluid milk in New England, recording historic profits of $184MM while farmers are scraping by. Dean hasn’t limited its activities to the US, either. Dean recently purchased Alpro, the European soy-based beverage and food arm of Vandemoortele, for €325m. Europe’s farmers want the milk quota increased by 5% to go along with several measures already enacted by the EU government, including reintroducing export subsidies. The US, Australian, and New Zealand governments are angry at this move, saying it runs counter to the G20 agreement to avoid protectionism during the current financial crisis. Protectionism is widely believed to have significantly worsened the Great Depression of the 1930s.

As Dean’s profits have soared, milk prices are tumbling from $19.50 per 100 pounds one year ago to below $11 by June of 2009. Dean’s profits for the quarter shot up from $30MM in 2008 to $76.2MM during the same period. The company denies anything illegal, pointing out the USDA (Department of Agriculture) usually sets milk wholesale prices, and that "supply and demand" are keeping the price low.

The senator is also pressuring U.S. Agriculture Secretary Tom Vilsack to prop up the price paid to dairy farmers. More than the cost of milk is at stake, both in the US and Europe, where dairy farmers have demonstrated in Strasbourg at the EU Parliament demanding action against low prices and deregulation that has hurt farmers while aiding large middlemen.

This blog includes excerpts from a weekly round-up of food industry & food licensing news provided free to Broad Street Licensing Group's clients, and as a paid subscription service (6 months $695; 1 year $1,125).

Too busy to keep up with the news wires & publications about the food business? If you or your company would like to subscribe to our news service, call Danielle Foley at Broad Street Licensing Group (tel. 973-655-0598) and ask for your free sample or click on our website.

News from the Great Recession

Envirosell keeps tabs on what shoppers are buying.

According to them, chocolate, lipstick, fishing equipment, running shoes, wine (but cheaper vintages), gold coins, seeds, tanning lotion, Dinty Moore canned stew & Spam (the edible variety, both from Hormel Foods Corp.) are all up. Cars and major appliances are (surprise!) way down. Hershey’s profits were up 20%, and Kraft saw double-digit sales increases in the ultimate “comfort food,” mac & cheese. No one is quite sure if romance is up or folks are putting off kids, but the spike in condom sales reported here in an earlier edition reached 5%. Perhaps romance is the reason, since Match.com had its best year in the past seven. Not all staples that increased were the positive kind: laxative liquids and powders jumped 11.5% and stomach over-the-counter remedies such as Pepto-Bismol surged 8%, probably as investors watched their portfolios crumble. Wal-Mart Stores Inc. continues to be a winner, but for the first time ever Dollar Tree Inc. made the Fortune 500 (# 499). Luxury retailers like Saks Inc. saw their sales tumble (32%); Goodwill Industries International had a rise of 7%.

In the foodservice channel, fast casual is king this month. As many as 700 new chains will debut in 2009, and sales of the Top 100 fast-casual restaurant chains grew 10.8% last year ($16.7bn total). The National Restaurant Association has predicted sales will fall by 2.5% across the restaurant category during the same period. Career women are the reason the chains are doing well by providing quality in an upscale setting, with top performers Chipotle Mexican Grill, Panera Bread and Cosi, Inc. Twenty-five per cent are working women, while only 15% are homemakers. Career men make up just 18%.

In the grocery biz, sales increased 5.2% in 2008 with identical-store sales up 4.5% according to the most recent report released by the Food Marketing Institute (FMI). After adjusting for inflation, sales actually declined 0.5% (identical-store sales falling 1.2%). Industry net profits dropped to a slim 1.43% percent (down from 1.82%) due to intense competition, as well as increases in the cost of goods, health insurance and credit card interchange fees. Highest profits were from independent retailers (1-10 stores) with net profits and identical-store sales going up by 1.90% and 5.11% respectively. In order to meet consumer demands for lower costs and added value, stores are lowering prices and offering more private label products (up to 9.7% of all good carried from 7.5% in 2007).

Last year 69.9% of stores focused on a lower price strategy, rising to 78.4%. More than (93% of retailers now plan to increase private label products, which account for 15% of their sales (up from 11.5% two years ago). Full-service supermarkets were identified by 56 percent of shoppers as their primary store, down from 60 percent last year. Customers are loyal to their primary store, with just 6 percent saying they changed stores to save money on groceries, but when it comes to making a secondary trip, 42 percent of shoppers occasionally shop at other stores, such as supercenters and warehouse stores, to take advantage of specials. Supercenters have 27 percent of the market share when it comes to grocery shopping, and are steadily raising their share from 22 percent in 2005.

FMI has outlined the way consumers shop with most using a full-service supermarket (75%), followed by a distant second with supercenters (39%). The average number of trips per week was 2, though slightly more for the most price-sensitive shoppers. More than ¾ said they “almost always” check the price of a product before buying it the first time. Spending on groceries averaged out at $98.40 per week, up marginally from 2008’s $97.80. Over half claim to be preparing more meals at home than previously, with 92% believing they eat healthier at home, despite admitting their choices at home could be healthier than they are (57%). Apparently they believe less-healthy foods are better for them if prepared at home. Time-saving, affordable and healthy choices were stressed as highly desirable with “easy-to-make” listed by 48%, “meals for $10 or less” 44%, and “convenient placement in the store” 28%.

Retailers who provide information online and in stores to help make healthy choices at the supermarket got high marks (71%), along with in-store pharmacists who provide health-and-wellness advice (70%). In-store health clinics have been a topic of much discussion in the grocery business, but only 8% listed them as important. Most shoppers indicate they are relatively confident with food safety, though 31% indicated they had stopped buying a specific food because of a safety concern or recall. Not surprisingly shoppers are more confident purchasing food grown in the U.S. (90%) while less than half are comfortable with imported foods. They gave higher marks to supermarkets to insure food safety than the government.

Local products continue to be important with 72% claiming to buy them on a regular basis. Reasons for this popularity include freshness, supporting the local economy, taste, and “concern about the environmental impact of transporting foods across great distances.” Recycling and sustainability initiatives were important to over half of those surveyed, with up to 40% of shoppers now bringing their own bags. Data for the survey was collected by Harris Poll Online among a nationally representative sample of 2,040 U.S. shoppers.

FMI also reports new product launch rates continued to rise in 2008 with 35,999 (up 9.3% but slower than 2006’s 11% upturn). The total new food & beverages category reached 18,244, a slight increase (2.3%) and far below the 11% jump in 2006 (17,828 total new products).

And finally, the 100 calorie package is another victim of the recession. Consumers are turned off by the expense and what many see as extraneous packaging that is a threat to sustainability. The solution? Measuring out their own 100-calorie servings. Not to be left without a “hot button issue,” the marketing crowd and consumers are both abuzz over “safety.”

Does anyone recall trans fats?

This blog includes excerpts from a weekly round-up of food industry & food licensing news provided free to Broad Street Licensing Group's clients, and as a paid subscription service (6 months $695; 1 year $1,125). Too busy to keep up with the news wires & publications about the food business? If you or your company would like to subscribe to our news service, call Danielle Foley at Broad Street Licensing Group (tel. 973-655-0598) and ask for your free sample or click on our website.

Target: Expect More, Get Less

Despite its media reputation as a marketing innovator and gross-profit margins in years past of 30% (vs. Wal-Mart’s 24%), Target has found itself under siege both from the marketplace and an activist investor.

William Ackman’s Pershing Square Capital Management is trying to stir up a hornet’s nest among stockholders after sales at stores open at least 1 year fell 2.9%. Ackman wants Target to be more like its Bentonville rival and stress food sales during these lean retailing times, so he put forward a dissident slate of nominees for the company’s May 28th board meeting. Target got into food retailing in 1995 when it opened 245 SuperTargets offering a full array of groceries in response to its Arkansas adversary. But these large (175,000-square-foot) retail footprints are expensive to operate, and the company has had difficulties finding profitable locations. And with its dominance in non-food products like bedding and fashion, the company held off adding more groceries to its retailing mix. Until now.

Most non-food chains like Sports Authority and Best Buy are staring at cutbacks or even possible Chapter 11. Most grocery chains are hiring workers on a regular basis and reporting profits. In addition, Target has seen its once-unique fashion-forward, trendy template copied by J.C. Penney Co. and Kohl’s Corp. Even dowdy Wal-Mart is taking away market share in bedding with its combination of value and improved style. Wal-Mart’s non-food sales are off, too, but unlike Target, it derives 59% of its revenue from food (which includes groceries, pharmacy products and HBA), while Target gets only 37% of revenue from grocery.

The company is trying to play down any potential shareholder insurrection, even as Ackman taunts them with web conference calls (Pershing Square is Target’s 6th-largest stockholder). Target CEO Gregg Steinhafel is clearly moving to quell the insurgency y announcing the company will open 100 new or remodeled grocery units this year, with the potential to take the plan to all of its 1,300 outlets if the move proves successful. But he sniffs at any comparisons with Wal-Mart, calling his rival “a grocer that happens to also sell general merchandise.”

Don't you just love arrogance?

Excerpted from BSLG's weekly subscription news reader service Food Business News. To subscribe or for information about licensing, contact Broad Street Licensing Group (tel. 973-655-0598)

Health News

• The current epidemic of obesity has inspired what some might characterize as a witch hunt mentality with blame going to a wide and growing list of “villains,” including the fast food industry, high-fructose corn syrup, TV and school lunches. Now researchers from the Mount Sinai School of Medicine think they may have found a clue: endocrine disruptors such as phthalates used in food packaging. Kids in New York City’s East Harlem are 3x more likely than other children in the U.S. to be overweight, and perhaps not coincidentally high levels of these chemicals have turned up in urine samples. The researchers think the mechanism for promoting obesity may result from disruptions in hormones controlling growth and development. A study of 400 girls found the heaviest had the highest concentration of phthalates metabolites in samples of urine. A second study of East Harlem residents 6-8 years old showed higher levels of phthalates than the national average. Phthalates are primarily used as plasticizers in polyvinyl chloride (PVC) and polyvinyliden chloride (PVDC) polymers to increase flexibility in a variety of food packaging products, including films. The US Food and Drug Administration (FDA) is conducting research into phthalates and has said “there are no studies in humans that are adequate to serve as the basis for regulatory decision-making.” Not exactly a ringing endorsement of the chemical’s safety.

• Alfalfa sprouts are the latest produce item to be infected with salmonella with 7 outbreaks across 35 states. Will it ever end?

• Other chemicals on the scientific community’s radar screens are perfluorinated chemicals (PFCs), found in grease-resistant microwave popcorn bags and pizza boxes which has been linked to infertility, and especially, bisphenol A (BPA). BPA is component of polycarbonate plastic and epoxy resins used in the manufacture of reusable beverage containers (e.g., infant formula bottles) as well as the linings to soda cans. Green Century Capital Management, an investment group that targets environmentally-friendly companies for its financial services clients, has issued a report on 20 large publicly-traded manufacturers denouncing their inaction in removing BPA or in implementing meaningful reductions. Most baby bottle manufacturers have vowed to phase out BPA usage, but only for bottles sold in the U.S. Of the fourteen companies queried by Green Century that responded, only four had implemented alternative formulations with less BPA, and only one had found a substitute. Hain Celestial, Heinz, and Nestle all received top scores. The other companies contacted included Campbell Soup, Coca-Cola, ConAgra, Chiquita, Dean Foods, Del Monte, General Mills, Hershey, Hormel, J.M. Smucker, Kellogg, Kraft, McCormick, PepsiCo, Sara Lee, Sysco, and Unilever. Chemical industry lobbyists concede that “small” amounts of BPA leach into foods and beverages from polycarbonate bottles and can liners, but so far the National Institute of Health (NIH) has not shown more than “some concern” about the chemical and that only for its possible deleterious effects in baby bottles.

• Acrylamide, a chemical that has been bedeviling potato chip and French fries makers, got a bit of a pass with the release of a study of 120K Dutch men and women that uncovered no increase in lung cancer rates in men and a decrease among women. Acrylamide forms during high-temperature cooking processes, and has been linked in some studies to certain cancers. The substance is also present in coffee and baked goods, including bread and cookies. Animal studies have shown acrylamide to be a carcinogen; human studies have shown some non-conclusive links to and renal, ovarian and endometrial cancers. But a lawsuit by the California Attorney General has led to a consent agreement from Yum! Brands, owners of KFC, to list the carcinogenic danger from French fries in restaurants. Several snack food companies and restaurant chains were defendents in the suit, and are dealing with the fallout from it.

• French writer, Marcel Proust may have just been hungry: a new study by researchers from the University of California, Irvine published in the Proceedings of the National Academy of Sciences says when we eat foods rich in fat, our brains memorialize the experience and generate cravings later on. Damn. Apparently the small intestines transform oleic acids from fats into the compound oleoylethanolamide (OEA), which then sends our signals of satiety to the amygdala, the portion of the brain that controls our memory of emotional events. Scientists think this process helped our ancient ancestors remember their favorite outdoor restaurants on the vast plains of Africa, or whether a Mastodon-burger made them feel better than a salad. Since we no longer hunt and gather on those vast plains, the overabundance of fatty foods results in cravings that bring on obesity. And here you thought that dream you had of a big dish of chocolate ice cream was a moment of weakness and not a deep-seated memory.

• A study of almost 40K Swedish men aged 45-79 followed from 1998-2004 showed the eating fatty fish containing omega-3 fatty acids slashed their risk of heart failure. Heart failure occurs when the organ cannot pump enough blood, and is the leading cause of hospitalization in men over 65. Symptoms include fatigue and weakness, difficulty walking, rapid or irregular heartbeat, and persistent cough or wheezing. Omega-3 fatty acids include DHA (docosahexaenoic acid) and EPA (eicosapentaenoic acid), and have been linked to a wide-range of health benefits ranging from lowered risk for cardiovascular disease (CVD) and some cancers, all the way to improved joint movement and even better moods.

• As electronic prescription companies jockey for dominance in this fast-growing retailing segment, Allscripts ranked #1 for the second straight year. Their 203% increase in the number of end-users is somewhat deceiving, since the category hardly existed a few years ago. But with a provision in the American Recovery and Reinvestment Act that will pay physicians $44K-$64K over the next 5 years to deploy and demonstrate “meaningful use” of a certified Electronic Health Record system, the category is attracting big players like CVS and Wal-Mart (Physicians who fail to implement the process after 2014 will be penalized). Benefits from electronic prescriptions are thought to be eliminating the storied illegible doctor handwriting, as well as alerting health care professionals about dangerous drug interactions, incorrect dosages or patient-specific problems such as previous bad reactions. Advocates insist the process will make the health care system more responsive to patient needs and lower costs, though skeptics add that a huge Federal feeding trough is being implemented, and the response by the large retailers would seem to confirm that assessment.

Excerpted from BSLG's weekly subscription news reader service Food Business News. To subscribe or for information about licensing, contact Broad Street Licensing Group (tel. 973-655-0598)

Economic Downturn Curbs New Product Introductions

According to research giant Mintel, new product launches in the food & beverage category are off 51% from last year.

New product launches in the first quarter are generally lower than other times of the year, but this first quarter looks quite sober. Among those categories singled out for reporting were:

1.) non-alcoholic beverages (down 56%)
2.) chocolate (-55%)
3.) confections & chewing gum (-64%) and
4.) dairy items (off 60%)

The media feeding frenzy about the recession has even sparked some clever gimmicks, including Information Resources, Inc.’s “Downturn Generation” nametag that supposedly applies to the New Shopper in the New Economy. Their report “Dissecting the Downturn Generation: Recognizing and Leveraging Permanence in Today’s Transformational Economy,” makes the absurd claim that changes in shopping habits are now “permanent” and “irreversible.” Eager to justify their research budgets, they claim to have identified three “new” categories of shopper:

Optimists, who believe “things will get better during the next 12 months” and are cutting spending selectively and as a last resort

Maintainers, who believe “the economy won’t get worse, but it won’t get better either,” and

Pessimists, who are just this side of digging a shelter and stocking it with guns and canned food.

One stat emerging from the study is how economic storms can have lasting impact on shoppers, at least in terms of their mental state: gas prices are 50% below their height in 2008, yet 73% of surveyed shoppers feel gas prices had an impact on their financial picture during the last 6 months. Not surprisingly, 75% thought the same thing about food prices, despite a leveling off or decline in many foodstuffs since last Summer.

Excerpted from BSLG's weekly subscription news reader service Food Business News. To subscribe or for information about licensing, contact Broad Street Licensing Group (tel. 973-655-0598)

Private Label vs. National Brands

Private Label has peaked in our estimation.

But the media hasn't gotten the message.

Despite all the hoopla from the Private Label Manufacturers Association (whose position is, guess what? that private label is the Next Big Thing), the increase in private label purchasing has leveled off or even declined. And in some categories like personal care and children's products, it never really caught on. Seems when it comes to our appearance and our kids, we're worth the extra money for the brand name.

Another reason for the stall is that private label products are primarily about lower prices. Despite all the bull, most consumers say they buy house brands because they're cheaper. The co-packers who supply the stores with their products are under the same cost pressure as the national brands, hence a flattening-out of the price differences. The brands have also responded to the PL threat in a variety of ways, including couponing, price cuts and increasing the amount of product in packages without increasing the price (see Frito-Lay's recent move).

But a recent request from a reporter to comment on a proposed story about Private Label included these questions:

1.) How can a brand prevent this switch from happening? Brands have to offer value. Those who don't will be marginalized and even dropped (supermarkets don't carry products that under-perform). Also brands have the advantage of "deep pockets" when it comes to marketing. Some large chains like Safeway are putting significant ad dollars behind their private label products, so that's not a universal. And with Wal-Mart having recently re-launched its PL line, all bets are off!

2.) How can a brand win back these consumers once the recession ends? Offer value (see above #1).

3.) How can a store develop its own brands into a brand (for example
Safeway's organic food line to be sold in other stores)? The Safeway example is over-hyped. They've had limited successes with getting other chains to buy their O-Organic line, though they’ll tell you otherwise. Let's be realistic, folks: Kroger, for example, isn't going to buy their products, at least not in any significant numbers. The ones who do are mostly the smaller chains and indies. The "white spaces" for store brands are in innovation: the large CPG houses won't usually move into a product category or line unless there is a SIGNIFICANT payday ($100MM+ for foods). A store brand can be profitable in a smaller category if it offers innovation.

4.) How can leading consumer brands offer low priced items to retain these
consumers? Tide recently did this by offering a low price point basic
detergent. The brands need to stop being greedy. Last year, they started shrinking net weights on many packaged foods to compensate for a sharp spike in commodity prices. Stores were howling about those price increases, but the CPG houses were being squeezed by the costs of things like wheat (which was driven up by speculators), and the steep increase in fuel costs that made transportation a significant factor in P/L. Now with commodity prices having leveled off or even dropped, and fuel costs much lower, the brands are offering more net per package while keeping the price the same. I think they can go further, but many are more interested in protecting their profit margins because of investor pressure.

5.) Is there anything else that you are seeing that should be noted as it
relates to this issue? The national brands need to get their heads out of the sand. Private Label has succeeded to a large part because those brands have soaked up extra production capacity making often identical house-branded products. Private Label is a threat to their business, so stop manufacturing for a "competitor," make sure the brand has distinctive value points that will keep consumers choosing the national brand over the store brand, and as always, make proper use of food licensing! It's one of the best ways to tackle the supermarket challenge. Call me if you want to know how!

Excerpted from BSLG's weekly subscription news reader service Food Business News. To subscribe or for information about licensing, contact Broad Street Licensing Group (tel. 973-655-0598)

The Food & Flower Marketplace

A study by Battelle Technology Partnership, the world’s largest nonprofit independent R&D organization, has measured the U.S. fruit, vegetable and mass-market floral industry for the first time, concluding it measures $275bn annually with a "ripple effect" to the economy raising that total to $554bn. The study included produce and mass market flowers, local farms, organic production, farmers markets, conventional production, all types of grocery stores and restaurants. The industry's total impact on the nation's economy is 4.23% U.S. gross domestic product (GDP), and 1/3 total U.S. animal and crop production. Impact on employment is 1.9% of the national total, translating into 2.7MM full-time positions, and nearly $72bn in wages.

The full report can be purchased from the Produce Marketing Association for $499.

Excerpted from BSLG's weekly subscription news reader service Food Business News. To subscribe or for information about licensing, contact Broad Street Licensing Group (tel. 973-655-0598)

Pushing Back on Private Label

The rise of private label products produces an unfair competitive advantage with retailers who end up competing against manufacturers and marketers.

Or so claims a white paper by the CIAA (the trade association for agricultural and food companies in Europe). The paper is in response to the European Commission's paper denouncing high food prices (both papers are available to BSLG clients and subscribers). With private label purchases as high as 40% in some countries of the EU, manufacturers are objecting to the pressure they're under from stores looking to pad their bottom lines with private label products. They claim that the existing laws on competition are inadequate, and cite other retailer abuses, including late payments, pressure to deliver product at prices set by the retailer (welcome to Bentonville, now please check your wallet and your dignity), and the move by large retail chains into non-food areas such as banking & financial services, insurance and travel, all of which strengthen their bargaining position and make them able to drive unfair bargains.

Other forms of anti-competitive activity cited by the CIAA include cartels, purchasing agreements between competing buyers, resale price maintenance, certification schemes, tying, and single branding. Some of this anti-competitive activity is barred by law in the U.S., though recent administrations have shown no inclination to prevent or take on monopolies or mergers that reduce competition. Grocery retailers in the U.S. have also looked at non-food retailing and services, especially in the area of health & wellness. The in-store pharmacy is nothing new, but recently chains have begun moving beyond just another department to focus them as central to their overall marketing strategy by setting up "wellness programs," lobbying prescription drug customers (e.g., courting Medicare patients), offering generic drugs at below-market prices, etc.

The Wal-Mart strategy of courting both consumers and doctors through cheap electronic prescription systems is having a ripple effect: the retail chain Wegmans has announced a rollback in prices on 400 generic drugs. Safeway has said it will push its O Organics and Eating Right house brands if food marketers don't bring down prices faster now that energy and commodity prices have dropped. But Safeway's righteous anger is diluted by the fact that they have been trying to get traction for their O Organics private label business with other retailers, so far with little success, though some movement has been reported recently. BI-LO is promoting house brands by saying they will discount them 30% because buying locally saves transportation costs for the Spartanburg, SC chain.

Back in the U.K., Tesco and ASDA are playing a game of one-upsmanship by slashing more prices in order to lure in the other's customers. Tesco began by reducing prices on 3,000 items, so ASDA has raised the ante to 5,000 of its SKUs.

For information about licensing, contact Broad Street Licensing Group (tel. 973-655-0598)

Companies Headed for the Boneyard?

With household names like Circuit City and Linens ‘n Things already gone, chances are they will be joined this year by up to 15 other major names, including Chrysler and Dollar Rent-A-Car . Even Donald Trump’s casino & resort group is on the skids. Among the food companies facing the headsman’s ax are:

• Rite Aid (about 100,000 employees; 1-year stock-price decline: 92%). The debt load from acquiring Eckerd in 2007 makes it the most-leveraged drugstore chain in the U.S. With Wal-Mart selling prescription drugs, the prospects aren’t good.

• Sbarro (Privately owned; about 5,500 employees). Many of this chain’s 1,100 storefronts are in malls, where traffic is way down, and mall hours prevent Sbarro from adding a breakfast or late-night menus. Competitors Domino’s and Pizza Hut have less debt and stronger cash flow.

• Krispy Kreme (about 4,000 employees; stock down 50%). The chain over-expanded during the donut heyday of the 1990s, taking on a lot of debt, and requires high volumes to meet expenses and interest payments. Despite slashing costs and closing stores, the company has not earned an operating profit in 3 years.

• Landry’s Restaurants (about 17,000 employees; stock down 66%). This restaurant chain, which operates Chart House, Rainforest Café, and other eateries, needs $400 million in new financing to finalize a buyout deal dating to last June. At least two banks have already balked, leading to downgrades of the company's debt and the prospect of a cash-flow crunch. Landry's has managed to sell $295.5 million in senior secured notes in February 5, but this may only be a reprieve for their death sentence.

For information about licensing, contact Broad Street Licensing Group (tel. 973-655-0598)

The Downturn Generation

According to research giant Mintel, new product launches in the food & beverage category are off 51% from last year. New products debuted in the first quarter are generally lower than other times of the year, but this past quarter looks quite sober. Among those categories singled out for reporting were non-alcoholic beverages (down 56%), chocolate (55%), confections & chewing gum 64%), and dairy items (off 60%).

Of course, the media feeding frenzy about the recession has even sparked some clever gimmicks, including Information Resources, Inc.’s "Downturn Generation" nametag that supposedly applies to the New Shopper in the New Economy. Their report "Dissecting the Downturn Generation: Recognizing and Leveraging Permanence in Today’s Transformational Economy," makes the absurd claim that changes in shopping habits are now permanent and irreversible.

Yeah, until the next economic bubble.

Eager to justify their research budgets, IRI claims to have identified three "new" categories of shopper:

Optimists, who believe "things will get better during the next 12 months" and are cutting spending selectively and as a last resort

Maintainers, who believe "the economy won’t get worse, but it won’t get better either"

Pessimists, who are just this side of digging a shelter and stocking it with guns and canned food.

One useful stat emerging from the study is how economic storms can have lasting impact on shoppers, at least in terms of their mental state: gas prices are 50% below their height in 2008, yet 73% of surveyed shoppers feel gas prices had an impact on their financial picture during the last 6 months. Not surprisingly, 75% thought the same thing about food prices, despite a leveling off or decline in many foodstuffs since last Summer.