ebrands restaurants

new food for the brand managers’ and product managers’ brains vol. I no. 8 december 1, 2001 New consumer study offers a glimpse into how to effectively build e-brands by defining the purchasing needs and preferences of specific online market segments. p. 4-5 TESCO IS THE MOST SUCCESSFUL ONLINE GROCER Tesco prepares to extend successful U.K. business model across challenging U.S. online grocery market. p. 20 CENSUS CONFIRMS: BUSINESS SURVIVAL WILL DEPEND ON MULTICULTURAL MARKETS Census 2000 gives businesses new reason to embrace multicultural markets and begin developing plans to attract ethnic consumers. p. 24-25 B2B EXCHANGES ARE STARTING TO REALIZE GOALS Individual companies seek to reduce additional overhead, further improve processes and satisfy consumers through increased supplier-to-retailer activity. p. 27 INCREASING PRODUCTIVITY AND REDUCING COSTS THROUGH OUTSOURCING As markets and industries rapidly change, the pressure to outsource services, save money and focus on core business, continues to grow. p. 30-31 Segmentation Builds E-Brand Value, Customer Preference and Profit E D I T O R ’ S P E R S P E C T I V E T A B L E O F C O N T E N T S Will I be able to customize my coupon redemption & fulfillment programs? I recently attended the GEMCON (Global Electronic Marketing Conference) in San Diego and one of the speakers was Richard Kochersperger, Director of the Food Marketing Group, a group of consultants that focus on education in the food industry. He said during his presentation “The consumer makes the rules, not the retailer or manufacturer, and they want to buy their food their way, anytime and anyplace. Most decisions are made by CFOs to satisfy financial analyst rather than their customers.” Kochersperger believes that Wal-Mart will continue to dominate the grocery industry and I agree with him. Wal-Mart announced that they were adding eight new distribution centers covering 40 million square feet in 2002, which is an 8 percent increase over 2001. Richard indicated, “Each distribution center will support 90 to 120 supercenters that average $55 to $65 million in annual sales. Wal-Mart ’s strategy is to target those in rural and suburban areas with incomes of $25,000 to $45,000 and represent 70 percent of the U.S. population. Dave Diamond of Catalina Marketing presented results of a GMA/Catalina study on New Brand Acceptance. During his presentation he said, “Consumer Product Goods manufacturers are required by shareholders to grow and that growth is achieved through new product introductions.” The study revealed that 80 percent of market research dollars are spent before the product reaches the grocery shelves and that 85 percent of new products fail. Kevin Aston, Director of the Auto ID Center gave a presentation on the Electronic Product Code, which was developed to identify and facilitate tracking throughout a product ’s life cycle using standards, protocols and languages to facilitate worldwide adoption of the network. The goal is to develop an intelligent infrastructure, which automatically and seamlessly links physical objects using the Internet. Unlike conventional barcodes, this system will inexpensively network physical objects without human intervention or manipulation by automatic machines. Electronic tags wirelessly transfer data from tagged objects to electronic readers wirelessly. Radio Frequency Identification (RFID) tags transmits information using a radio frequency over a short range. I believe RFID technology will be used in a number of applications in several industries including the supermarket industry and I will be writing an article on this technology in the coming months. James Santella Editor Cover Story . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4-5 Segmentation Builds E-Brand Value, Customer Preference and Profit 4-5 Acquisitions & Mergers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6-7 Food Mergers and Acquisitions Decline In 2001 . . . . . . . . . . . . . . . . . .6 News & Views . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8-11 Ad Spending Estimated to Drop 3 Percent in 2001 . . . . . . . . . . . . . . . .8 New Stacked Bar-Code Compresses More Data . . . . . . . . . . . . . . . . .10 Legal Briefs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12-13 P&G and Unilever Reach Settlement . . . . . . . . . . . . . . . . . . . . . . . . . .12 Financial Updates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14-17 Ralcorp Holdings Reports 3rd Quarter Results . . . . . . . . . . . . . . . . . .14 The Internet World . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20 Tesco Is the Most Successful Online Grocer . . . . . . . . . . . . . . . . . . . .20 Retailer News . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22-23 Wal-Mart to Open 210 Stores In 2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . .22 Brand Marketing and Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24-25 Business Survival Will Depend on Multicultural Markets . . . . . . . .24-25 Business-to-Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .27 B2B Exchanges are Starting to Realize Goals . . . . . . . . . . . . . . . . . . .27 Article . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .29-30 Increasing Productivity and Reducing Costs Through Outsourcing 29-30 Around the World . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .32-33 Price War Expected In the United Kingdom . . . . . . . . . . . . . . . . . . . .32 People on the Move . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .34-35 Industry Calendar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .back cover Without a doubt. In fact, Lees Marketing Services designed two proprietary internet-based systems, PARIS (Promotion And Redemption Information System) and SAFARI (Secure Advanced Fulfillment And Refund Interchange), with manufacturers in mind. Combined with the latest in service and technology, each system provides clients with optimum efficiency, including 24-hour access to customized reports. For over 29 years, Lees Marketing Services has taken the guesswork out of coupon redemption and fulfillment by making sure each project is successfully completed. By offering customizable programs to companies of all sizes, including Kellogg® Bayer Consumer Care and Ralston Purina® , , we are able to provide our clients with the best service in the industry. Don’t leave your next coupon redemption or fulfillment program to chance . . . after all, no program is over ‘til it’s over. Marketing Promotion News is published by S & A Publications, LLC 7819 Westwood Drive Elmwood Park, IL 60707-1811 For information on how to subscribe or to receive additional copies, contact Jim Santella at 708-456-5394 or e-mail Santella@msn.com. 3 Designed to be Different Coupon Redemption • Promotional Fulfillment For more information on Lees Marketing Services, contact us at sales@leesmkt.com, 800-752-4478 or via fax at 847-824-1421. vol. I no. 8 december 1, 2001 C O V E R S T O R Y Segmentation Builds E-Brand Value, Customer Preference and Profit A study by Accenture of the offline buying habits of 2,000 U.S. consumers across 17 industry segments was performed in order to determine brand value online. The objectives of the study were to determine: • What is “value” in an Internet brand? • How is value built? • Does an e-brand add or detract from an offline brand? • How important is price? • What are the best e-brand strategies? The study found that price was a minor consideration in most online purchases. Only one in five online market segments make buying decisions based on brand familiarity. Most frequent online buyers are between 35 and 44 year old and most online shopper want speed and convenience. According to Accenture, online consumers fall into five defined segments, each defined by a unique set of purchasing needs and preferences. Each segment contains consumers from across all demographic groups. The three most important needs for online consumers are price, brand selection and NETIZENS site functionality. Accenture defined the five VARIETY segSEEKERS ments as follows: The Cherry Pickers segment or bargain hunters is the largest group at 26 percent with price as their highest priority, followed by brand selection, category breadth and brand reputation. Forty-seven percent are under 35 years old and have the highest proportion of college graduates (42%) than any other segment. Twenty-two percent of consumers belong to the Brand Reliant segment. They equally value price, privacy and brand reputation. The Time savers segment includes 21 percent of online shoppers with price being the most important factor followed by site speed, site functionality and brand reputation. Convenience is more important than brand reputation or product selection. Variety Seekers comprise 16 percent of online shoppers who value brand selection, category breadth and brand reputation. Site speed is more important than price. by Jim Santella Netizens, consumers at home on the Internet, include 15 percent of online consumers. Their most important priority is privacy, followed by site speed, interactive experience and site personalization. The study indicated that 5 to 8 percent of online shoppers spend more than $250 a month and 19 to 24 percent more than $100 a month. The percentage did not vary among the five segments. The study concluded that pricing contributes no more than 10 percent to e-brand value in the aggregate. While pricing was more important in some segments, it never was more than 13 percent for any segment. Investing in brand selection, site speed is more important. • Brand familiarity, accounting for only 7 percent overall, ranks tenth among the top ten buying needs for the total market and in some segments ranks even lower. 15% CHERRY PICKERS 26% BRAND RELIANTS 16% TIME SAVERS 21% 22% • Consumer’s value product more than price, placement or promotions. E-brands can build more value by enhancing the consumer’s experience. • Online consumers are indifferent to a brand’s presence offline and ranks last among buyers needs. • Individual consumers behave differently depending on what they are buying. • Interactive technology ranks eight of thirteen buying needs with Netizens ranking it in the top five. • Site speed is one of the most important assets for an e-brand. • Site personalization is second to last among all buyers’ needs studied and only Netizens rank it higher than ninth. • Forty-four percent of heavy spenders online are over 35 years old and another 35 percent are over 25 years old. • Ten percent of the U.S. population accounts for 70 percent of online buying. • Broad brand selection is one of the most important buyer needs in the market across nearly every segment. The Accenture study concludes that segmentation is a sound, prudent first-step in building e-brand value, customer preference and profit. The online market segments are defined by needs and preferences, not just demographics and behaviors. Companies seeking to build brand value online have three options according to Accenture: 1. Develop one brand to target one segment. 2. Target several segments with a different brand (and experience) for each. 3. Offer different experiences under the umbrella of a single brand. 4 marketing promotion news www.santella.com vol. I no. 8 december 1, 2001 5 A C Q U I S I T I O N S & M E R G E R S Food Mergers and Acquisitions Decline In 2001 AHOLD ACQUIRES ALLIANT AND BRUNO’S Royal Ahold announced that it would spend $2.7 billion to purchase Alliant Foodservice and Bruno’s Supermarkets. The bulk of the funds, $2.2 billion will go to pay for the acquisition of Alliant, which distributes foodservice products and supplies to over 125,000 restaurants, hospitals and institutions. Ahold will also assume $750 million of debt in this deal. Alliant’s 2000 sales were $6.6 billion. The deal for Bruno’s has Ahold paying $500 million for the operator of 184 stores in the Southeastern United States. Bruno’s sales last year topped $1.6 billion. Bruno’s will be added to Ahold’s successful supermarket acquisitions that have linked most of the East Coast, including Tops, Stop & Shop, Giant and Bi-Lo. To finance the deals Ahold will issue 2.3 billion shares of stock. Both deals require regulatory clearance and are expected to be completed sometime next year. KRAFT FOODS ACQUIRES BORDEN PASTA LINE Kraft Foods Incorporated announced that it has purchased the It’s Pasta Anytime! convenient meal business and certain assets from Borden Foods Corporation. The brand was introduced in April 2000, and year one retail revenues were about $36 million. The brand will become part of Kraft’s Cheese, Meals & Enhancers group and terms were not disclosed. “The It’s Pasta Anytime! line is an exciting addition to our convenientmeal portfolio, joining such items as Easy Mac microwaveable maca6 AHOLD MAY CONTINUE WITH ACQUISITIONS Ahold NV said it continues to eye acquisitions but chances of large foodservice takeovers, such as the $2.2 billion offer for U.S.-based Alliant Foodservice is unlikely. Chief Executive Cees van der Hoeven expected future takeovers in Europe, the United States and South America, where Ahold is already present. “There are several acquisition candidates especially in retail in the United States and Latin America, but the scope for mid-size and large foodservice acquisitions has practically ended,” van der Hoeven said. Ahold, the world’s third largest supermarket after Wal-Mart and Carrefour, said it would buy Alliant and Bruno’s Supermarkets for $2.7 billion combined. After completion of the deal in the first quarter of 2002, Ahold’s foodservice activities will serve about 95 percent of the U.S. population. “The next step in the U.S. foodservice market is to buy smaller regional businesses in areas where we are under-represented and to buy specialist stores,” he said. Potential takeover targets, valued at about $2 billion to $10 billion in sales were mainly located to the east of the Rocky Mountains. Ahold saw foodservice and retail takeover possibilities in Europe, where Van der Hoeven did not exclude further “large takeovers,” defined as companies with sales over $10 billion. HEINZ AND MCCAIN ACQUIRE ANCHOR FOOD H.J. Heinz and McCain Foods Ltd. have jointly acquired Anchor Food Products, the world’s largest maker of frozen appetizers. Heinz will buy the company’s branded products sold to retail outlets, including supermarkets and club stores and McCain will get its food service business. The purchase price vol. I no. 8 december 1, 2001 roni and cheese dinners and Stove Top Oven Classics,” said Betsy D. Holden, Co-CEO, Kraft Foods, and President and CEO, Kraft Foods North America. “The brand is right on target in meeting the growing need for fast, nutritious, great-tasting meals. Consumers can make a delicious pasta lunch or dinner in less than three minutes in the microwave.” DIAL SELLS TWO UNPROFITABLE BRANDS The Dial Corporation announced that it has sold off its unprofitable Sarah Michaels and Freeman Cosmetics brands of body and bath products to the Hathi Group of Chicago for an undisclosed price. Dial said it expects to write off about $200 million in after-tax losses from the sale and plans to use the cash proceeds to pay down debt. Dial Chairman Herbert Baum, said “The sale was in line with the company’s strategy to fix or dump underperforming businesses. With the sale, we have jettisoned our most troubled business and will now be able to better focus on growing our core brands and lowering our operating costs and interest expense.” It bought the Sarah Michaels and Freeman brands in 1998 for $260 million, joining them with its own Nature’s Accents line to create a $175 million personal-care products business that it hoped would bring faster sales growth and higher profit margins. But sales never met expectations, and the Specialty Personal Care division became a drag on Dial’s finances. The com- According to the Food Institute, during the first six months of 2001 there were 295 food business mergers and acquisitions, a 16 percent drop from 350 recorded during the first half of 2000. The number also was down 24 percent from the 386 tracked during the first six months of 1999. was not released. Anchor had sales of $503 million (U.S.) in 2000, up from $47 million in 1991. Anchor produces specialty cheese, vegetable and rolled appetizers, onion rings and stuffed jalapeno peppers. Anchor president and CEO Bill Raaths will lead the appetizer business of McCain, reporting to Gilles Lessard, chairman and CEO of McCain Foods USA. “The three-party agreement is ideal,” Mr. Raaths said in a statement. “McCain has a great track record internationally with world class manufacturing in the U.S., and Heinz has the resources to quickly expand the retail business.” MOTT’S ACQUIRES REALEMON AND REALIME BRANDS Mott’s Incorporated, a wholly owned subsidiary of London-based Cadbury Schweppes plc, announced that it has agreed to acquire the ReaLemon and ReaLime brands and related assets from Eagle Family Foods Inc. for $128 million. The acquisition includes the global rights to the ReaLemon and ReaLime trademarks. ReaLemon and ReaLime are the leading shelf-stable lemon and lime juices in North America. “We see increased potential for this category as adjacent categories such as fish and seafood sauces, salad dressings and meat marinades are experiencing healthy growth trends,” said Brad Irwin, president, Mott’s Inc. “Furthermore, the ReaLemon and ReaLime brands complement the Mott’s Clamato brand as staples in Canada’s favorite cocktail, the Bloody Caesar.” KINGFISHER SELLS WOOLWORTH UK FOR $873 MILLION The Woolworth chain was founded in 1879 in the U.S. After years of sales and profits decline, the company closed its 400 Woolworth stores in 1998. Kingfisher PLC bought the Woolworth’s U.K. chain in 1982 for $443 million and now has agreed to sell 152 Woolworths and 30 Superdrug stores for $873 million to London & Regional Properties and the Goldman Sachs Whitehall fund. These moves, plus some earlier deals, are expected to cut Kingfisher’s debt load in half, and signal the company’s desire to separate itself from its general merchandise business. Kingfisher will continue to focus on consumer electronics retailing and may be in the market for future acquisitions. The Woolworth Group PLC will have an expected market capitalization of $571.4 million which is small compared to the $8 billion market cap of Kingfisher PLC or the $10 billion of U.K. retailer Marks & Spencer PLC. Woolworth is the U.K.’s leading confectionery retailer with 4.7 percent of the $14.6 billion market and is the second largest housewares retailer with a 5 percent share of an $12.4 billion market. They also have a 15 percent share of the $6.4 billion CD/DVD market and they are the third largest children’s clothing retailer with a 5 percent share of a $12.4 billion market. Woolworth will take over $286 million of Kingfisher debt. The company’s profitability has been reduced by the cost of store improvements and excessive inventory levels, but they still have 6.5 million customer transactions weekly across Britain. They have the customers so the key is to focus on the business. 7 pany phased out the Nature’s Accent line last year and put Sarah Michaels and Freeman brands on the market in January. PURINA APPROVES LAND O’LAKES PURCHASE Shareholders of Purina Mills Incorporated approved the $230 million acquisition of the No. 3 feed producer by a unit of dairy cooperative Land O’Lakes Inc. announced in June. Shareholders approved the purchase by a vote of about 67 percent of the outstanding shares. Land O’Lakes also will assume about $130 million in Purina Mills’ debt. Purina Mills has 49 plants and about 2,300 employees. The St. Louis-based company will become part of Land O’Lakes Farmland Feed LLC. The acquisition is expected to add more than $800 million in sales annually to Land O’Lakes, which has nearly $6 billion in annual sales. marketing promotion news www.santella.com N E W S & V I E W S Ad Spending Estimated to Drop 3 Percent in 2001 Industry experts estimate that advertising spending will drop 3 percent this year from $243.7 billion in 2000. There are however, some major marketers who have increased spending and it has resulted in increased sales, profit and market share. Coca Cola increased its worldwide marketing budget by over $350 million and their second quarter sales were up 3 percent and net income was up 22 percent. Heinz increased spending by 16 percent increasing market share from 55.9 percent to 59.2 percent. Gillette, whose advertising spending decreased from $666 million in 1995 to $608 million in 2000, however second quarter spending increased 20 percent to $145 million promoting Venus and Duracell batteries. Venus has captured a 45 percent of the women’s razor market. Duracell advertising started in June and has increased market share for the first time since 1999 to 33.5 percent. Advertising is one of the areas that companies can cut quickly to reduce expenses, but in the long run is generally a major mistake. CATALINA’S ALLIANCE RESEARCH DEVELOP BRAND ACCEPTANCE TOOL Catalina Marketing Corporation and its research division, Alliance Research, Inc., have announced that they have established industry norms for new product launches. Using Behavior Activated Research, this new brand acceptance tool was created for consumer packaged goods manufacturers to help assess and improve new brand acceptance early in the launch process. “We implemented the development of these industry norms into our business strategy because we wanted to provide our clients with a diagnostic tool to measure their new product launches,” said David Diamond, President of Emerging Businesses and Chief Vision Officer for Catalina Marketing. “Eight out of 10 new product launches fail, which demonstrates the need for established methods to measure and improve how new products are being viewed by consumers. Our brand acceptance tool will enable our clients to determine how well consumers are reacting to the new product launch and to make appropriate revisions to ensure that the 8 bon nanotube technology, which will allow computers to become even smaller while running faster and consuming less power, Avouris said. Avouris and other scientists believe that Moore’s Law, which states that the number of transistors on a piece of silicon would double roughly every 18 months, will be thwarted by the physical limits of silicon chip technology. Avouris predicts silicon’s physical barrier will be reached in 10 to 15 years, when it won’t be able to shrink any more. Most gains in computer processing power come from the shrinking of transistors and logic circuits, which gives electrons a shorter path to travel, making processors run faster. When that happens, IBM is betting that carbon nanotubes will take over, allowing for smaller processors with more transistors. ACNIELSEN AND SPECTRA LAUNCH CONSUMER MARKETING MIX SERVICE ACNielsen U.S., an operating unit of ACNielsen, and the MediaPlan division of Spectra Inc., each VNU companies, announced the launch of a jointly developed information service to the process of marketing mix modeling. The new service, which combines ACNielsen’s retail and consumer databases with Spectra’s proprietary Lifestyle/ Lifestage grid and consumer-based response measurement, allows marketers to identify the marketing vehicles, advertising levels, event timing and promotional programs that generate the greatest marketing impact. “In today’s environment, nothing is more important than achieving marketing ROI, consistently and measurably,” said Tim Callahan, president of ACNielsen U.S. “To do that, marketers need reliable ways to identify and implement marketing activities that reach targeted consumers and build sales. They need information that can ensure their investment will yield the highest possible return for their brands. vol. I no. 8 december 1, 2001 This joint service gives them that capability.” Traditional marketing mix modeling services analyze overall sales levels to measure advertising and promotional responses in the market at large. The ACNielsen/Spectra consumer marketing mix model goes several steps further by measuring responses of key lifestyle and ethnic consumer segments, as well as specific geographies. The service gives clients clear, action-focused analysis of each element in the marketing mix: advertising, coupons, trade promotions and pricing. “This is a vital link in consumercentric marketing, which represents the future of the consumer products industry,” said John Lawlor, President & CEO of Spectra. “Marketing spending is the next frontier for corporate effectiveness. What has eluded the world’s smartest marketers is a single, powerful system for identifying the highest-prospect consumers for a brand, pursuing them with offers that resonate within the most relevant media, and measuring impact in terms of purchases by this specific group. By creating the next standard in marketing mix modeling, we’re supplying a critical link in the profit chain.” Marketers can track marketplace results on the same consumer basis they use for marketing mix modeling and planning by using the ACNielsen Lifestyle Track(TM) information service that ACNielsen and Spectra launched in the fall of 2000. ACNielsen Lifestyle Track tracks sales and market share by consumer target groups on a national and regional basis. KRAFT LOOKING FOR ACQUISITIONS Kraft Foods Incorporated is looking for acquisitions in healthfoods, snacks and drinks, according to the launch is as successful as possible.” Clients of the new brand acceptance tool will be able to revise advertising content and messages, change the order of product introductions, widen distribution and trade support, and eliminate specific varieties from a product line, based on the attitudes of early triers of a new product. All aspects of the marketing mix can be re-evaluated and revised based on brand acceptance results. The brand acceptance tool was developed based on the results of a six-month study. The study determined, across major product categories, repurchases intent, anticipated purchase frequency, overall rating of the new product, value for the money, and performance vs. expectations, purchase dynamics and uniqueness of the product. “This comprehensive study was a revolutionary way to develop standards within the research industry to ensure the success of our clients’ new product launches,” Diamond said. “The standards that we developed through this study indicate the ability of our clients’ new products to simultaneously deliver exceptional repurchase interest, remarkable value for the money and the highest overall opinion. We are pleased that we can provide this level of insight to our manufacturer clients.” IBM BUILDS A CIRCUIT FROM A SINGLE MOLOCULE IBM announced that its scientists built the smallest-ever computer logic circuit, a two-transistor component made from a single molecule of carbon. The material used to construct the circuit is a carbon nanotube, a hollow strand 100,000 times thinner than a human hair. Because of the exceptional strength and semiconducting capabilities of carbon nanotubes, they have been identified by researchers at IBM and elsewhere as the material that offers the most promise for replacing silicon, the principal ingredient that makes up transistors and microprocessors, or computer chips. “In the future we should be able to make them by the millions,” said Phaedon Avouris, manager of nanoscale science in IBM’s Research Division. The microscopic, but simple logic circuit, brings closer the goal of creating the first microprocessor using carmarketing promotion news www.santella.com Financial Times. Kraft’s joint chief executives, Betsy Holden and Roger Deromedi, said they were looking for acquisitions, and were planning to use recent purchases as platforms for a broader range of products. Holden said: “We are focusing on the snack and beverage areas, U.S. convenient meals, health and wellness, and building in developing markets.” Deromedi said that many of Kraft’s industry peers “have tail businesses that don’t fit in their focus”. Holden said Kraft’s acquisition policy would adhere to strict criteria. “We look for growing categories, strong brands we can build, attractive double-digit financial returns and (acquisitions which are) quickly accretive to our cash,” she said. Deromedi said Kraft was also focusing on co-branding opportunities with Nabisco’s stable of biscuit and snack brands. He cautioned that Kraft would not rush to make larger acquisitions. “We want to make sure we do the Nabisco integration well,” he said: “If you try to do too much too fast you don’t do it well.” 9 N E W S & V I E W S NEW STACKED BAR-CODE The Uniform Code Council (UCC) has begun promoting a new type of bar code that compresses more data into a symbol than was previously possible. The group has been conducting tests with grocery and pharmaceutical companies on the new Reduced Space Symbology (RSS), which was designed to let manufacturers embed information that goes well beyond the traditional product and manufacturer identification into a bar code. The UCC assigns bar-code identifiers to individual products, which allows retailers and grocers to collect information on what products are being sold at store checkout counters. Several years back, the council teamed up with another international standards organization, EAN, to develop the RSS system for applications where space limitations were a concern. “At the moment, there are seven variations of the RSS symbology”, says Stephen Halliday, a vice president of technology at the Pittsburgh-based automatic-identification industry organization AIM, who is familiar with the code. The basic version RSS-14 is a linear symbol that can hold 14 digits of information. The expanded stack version, which has a two-dimensional (2-D) code in the middle of the symbol, can convey 34 digits of information. (Linear bar codes encode data on one axis, while 2-D codes encode information within a field.) Besides the RSS symbologies, the bar-code industry has also developed data-compression languages for two-dimensional codes called composite symbols. The UCC is currently analyzing the results of a test by a Midwestern grocer, which used the smaller-sized RSS codes to mark produce and meat. Dorothy Lane Markets in Dayton, Ohio, has installed special scanners from NCR Corp. in some of its supermarkets to read RSS codes. Craig Maddox, a product line director at Dayton, Ohio-based NCR Corp., says his company modified the underlying software in its Model 7075 scanner so the device could read the RSS symbols. “We did citrus, apples, and grapes as well as all the meat in the test,” says Maddox. “It gives the supermarket the ability to know what’s sold when. It’s great information for [managing] your supply chain.” Maddox says RSS codes will allow grocers to scan fresh food at the checkout counter just the way they scan boxed and canned items now. “From a consumer product safety point of view, it’s fantastic,” he adds. “If you get a bad crate of produce, you can track it down immediately. You will even be able to track meat to the exact cow it came from.” In addition to their use in item identification, the newer compact symbols will also be deployed in logistics applications. UCC’s Sharkey reports that his organization plans to test a composite symbol that will function as an advance shipment notice in the months ahead. Bar-code equipment manufacturers have started marketing scanners capable of reading RSS and composite codes. Symbol Technologies and PSC Inc. both unveiled new scanners for this purpose at a recent trade show. COMPRES ES MORE DATA Levy, said “What differentiates them is they’re really focused on convenience foods,” which have higher turnover than other foods, she said. Aside from combining purchasing of materials like bottles, cans and corrugated products, the company plans to streamline corporate infrastructure and move its Tropicana juice beverages into the Gatorade warehouse distribution system, said Chairman and Chief Executive Steve Reinemund. The company also intends to increase sales of some key products by expanding distribution. The company hopes to give Quaker’s snack products the same visibility that PepsiCo’s FritoLay has and PepsiCo will also use its strong brand names to create new products, like adult snacks based on Life cereal or a children’s snack based bar based on Cap’n Crunch, Reinemund said. NEW CONSUMER ATTITUDES REQUIRE CAMPBELL TO LAUNCH NEW PRODUCTS In 1897, John Dorrance working for the Campbell Soup Company invented the formula for Campbell’s famous soup and marketed it as a quick and tasty alternative to homemade soup. Campbell’s soups quickly became best sellers. Campbell’s continued for years successfully without making any major changes. Over the last ten years, however, consumer attitudes have changed in this fast-paced world and Campbell’s started losing market share to competitors such as Progresso and private-label brands where they once dominated. Campbell’s earnings have declined as fast-paced consumers went for easier-to-prepare items. Campbell recently announced a multimilliondollar investment for new product launches, advertising and technology partly aimed at making soup more convenient to eat. Campbell still controls 72 percent of the nation’s $3.1 billion soup industry, but unit sales have steadily declined last year, 2.6 percent. vol. I no. 8 december 1, 2001 During the same period, the uncondensed Progresso brand, owned by The Pillsbury Company, saw an 18 percent jump in sales, according to Information Resources Incorporated. For the first nine months of fiscal 2001, earnings were down 9 percent to $597 million on revenue of $5.2 billion. “We have been somewhat victims of our own success, said Douglas Conant, who became chief executive in January 2001. We didn’t get to the ready-to-serve segment as aggressively as we could, and we regret that.” “Condensed soup is not that inconvenient,” said Conant, a former CEO of Nabisco Foods Co. credited with reviving the Planters Nuts brand and launching the fatfree SnackWells line. The company plans to phase in easy-open lids on its condensed soup line. It’s also putting “Pop N’ Pour” lids on its Swanson broths and test-marketing a microwavable soup in a singleserving container. Campbell is investing more in its noncondensed Chunky Soup brand, a $436 million business growing at a 20 percent rate this year and will spend more on its snack brands Pepperidge Farm and Godiva and its Prego and Pace ready-made sauces. Campbell still aims to market its soup and they revived their classic “M’m! M’m! Good!” jingle to boost its “icon” soups: chicken noodle, tomato and cream of mushroom. Clearly, growth will be in the readyto-serve market, but by no means is condensed going away. DIAL CORPORATION LOOKS FOR A BUYER Dial Corporation maker of Dial soaps, Purex laundry detergents and Renuzit air fresheners is up for sale. “After almost a year of important progress toward our recovery plan, the board evaluated strategic options for the company,” president Herbert M. Baum said. “The board concluded that, in order to maximize shareholder value and ensure that our products remain competitive in the future, the company should be part of a larger enterprise.” Dial has not started any serious discussions for selling the entire company, but has fielded inquiries for all or part of the business, Baum said. While selling pieces of the company would cause greater tax costs, the board is committed to reviewing all potential opportunities, including a sale to multiple parties, he said. “This is a top priority and will have my utmost attention,” Baum said. “However, we cannot predict if or when any such transaction might occur, particularly in light of current market conditions.” Dial recently issued a strong second quarter earnings report after a prolonged financial slump. Dial reported net income of $14.7 million for the quarter ending June 30, up from $1.1 million a year earlier. Sales were $429.2 million, up 5 percent. Debt was $527 million at the end of the quarter, down $129 million from a year earlier. The results beat analysts’ expectations. CONAGRA REALIGNS FOOD GROUP ConAgra Foods Incorporated announced plans this week to realign all foods manufactured for retail sale under a single umbrella company, to be headed by former Campbell Soup executive F. Martin Thrasher. Mr. Thrasher was named President, ConAgra Retail Food Products Company, overseeing the company’s consumer, shelf-stable grocery products, refrigerated prepared foods, dairy products and frozen prepared foods. Thrasher will report to Bruce Rohde, chairman and chief executive officer. ConAgra explained the change would cut costs and complexity out of its operations, while better aligning itself with the retail customer. To avoid any conflicts of interest with Campbell, ConAgra will create a stand-alone business to manage any products that could be considered competitive for one year. PEPSI EXPECTS TO SEE $400 MILLION IN SYNERGIES PepsiCo Incorporated expects cost savings and revenues gains from the $13 billion acquisition of Quaker Oats Company to reach $400 million. That is up from the $230 million the company had originally projected, with the gain largely coming from savings on purchasing costs. PepsiCo forecasts 2002-2005 annual earnings growth of 13 percent to 14 percent. PepsiCo also said it expects operat10 ing cash flow to rise to $4 billion by 2005, an increase of $1.5 billion. Operating margins are expected to grow by three percentage points by 2005. PepsiCo, number 2 in soft drinks behind leader Coca-Cola Company had already seen about two-thirds of its profits from the Frito-Lay snacks business. The Quaker acquisition further reduces the company’s dependence on slow-growing carbonated beverages. UBS Warburg beverage industry analyst Caroline marketing promotion news www.santella.com 11 L E G A L B R I E F S P&G and Unilever Reach Settlement Procter & Gamble Company and Unilever announced that they reached a settlement of P&G’s admission that it had improperly obtained competitive information about its rival in the hair care business. While terms of the settlement were not formally disclosed, The New York Times reported that a person close to the negotiations said that P&G will pay Unilever about $10 million, plus agree to a third-party audit of new P&G haircare products. Fortune magazine reported that P&G employees hired a company whose operatives went through trash bins and misrepresented themselves as market analysts to gain information about Unilever’s hair care business. P&G Chairman John Pepper said in a statement that the settlement would not impede P&G. “This agreement will have no impact on the effectiveness of our product or marketing plans and will not inhibit fair and vigorous competition in the marketplace. I have been personally involved in ensuring that none of the information has been or will be used in any P&G plans,” Pepper said. P&G acknowledged that employees obtained information in a way that violated company policies, but said the company did nothing illegal. “This agreement draws to a close what has been an unfortunate incident,” said Charles Strauss, president and CEO of Unilever United States, part of the Anglo-Dutch consumer products conglomerate. biggest expenses that stem from trade promotions. Two other executives, Ray Chung, former executive vice president and Dirk Grizzle, former vice president of finance, previously pleaded guilty for their roles in the scheme. BESSINGER SUES RETAILERS FOR $50 MILLION Restaurateur, Maurice Bessinger whose controversial views on race and politics drove large grocery marketing promotion news www.santella.com chains to remove his distinctive mustard-based barbecue sauce from their shelves has filed a $50 million lawsuit. He is suing the stores under the state’s unfair trade practices act, claims his products were dropped because of his political and religious views. He says he lost more than $500,000 when they removed his product. The suit also charges the stores Bi-Lo, Food Lion, Harris Teeter, Kroger, Piggly Wiggly, Publix, Sam’s Club, Wal-Mart and WinnDixie with civil conspiracy. Grocers said they stopped selling Maurice’s Gourmet BBQ Sauce last year because of religious and political tracts inside his restaurants, and not the controversial Confederate flags outside them. The tracts include one that suggests early slaves from Africa were grateful for slavery. “Those views were not consistent with our own and with our principles with respect to the individual,” said Bill Wertz, a WalMart spokesman. PHILIP MORRIS WILL APPEAL BOEKEN DECISION Philip Morris U.S.A. will appeal Los Angeles County Superior Court Judge Charles W. McCoy’s refusal to overturn a jury’s $3 billion punitive damage award to Richard Boeken. Judge McCoy reduced the punitive damages awarded to Richard Boeken from $3 billion to $100 million, an amount company officials consider grossly excessive, and both unprecedented and unconstitutional under California and federal law. Judge McCoy denied the company’s motion for a new trial except with respect to the excessiveness of the punitive damages award. With respect to the issue of excessive punitive damages, Judge McCoy granted the motion unless the plaintiff accepts the reduced award by August 24, 2001. Mr. Boeken accepted the $100 million award. “Our appeal will request a complete reversal and retrial on multiple grounds, not the least of which vol. I no. 8 december 1, 2001 was the passion and prejudice the jury displayed in reaching its verdict,” said William S. Ohlemeyer, Philip Morris vice president and associate general counsel. Ohlemeyer noted that the additional grounds requiring reversal or a new trial include the Court’s improper exclusion of evidence relating to Mr. Boeken’s credibility, improper admission of evidence relating to the adequacy of the health warnings mandated by federal law, and erroneous instruction of the jury on key issues. “The Court has now compounded these legal errors by failing to set the verdict aside, or, at a minimum, reducing the punitive damage award enough to bring it in line with California and federal law,” said Ohlemeyer. He noted that no California appellate court, in a published opinion, has ever upheld a punitive damage award greater than $25 million. In cases where compensatory damages exceed $1 million, no California appellate court, in a published opinion, has ever approved punitive damages greater than three times the amount of the compensatory damages. In addition, the U.S. Supreme Court has indicated that punitive damage awards that are four times greater than compensatory damages awards may be “close to the [constitutional] line” of what is a reasonable relationship between compensatory and punitive damages. The jury on June 6, 2001 awarded Mr. Boeken $5.54 million in compensatory damages. Even with Judge McCoy’s reduction of the award to $100 million, the ratio of punitive damages to compensatory damages would still be an impermissible 18 to 1. CVS PAYS $4 MILLION TO SETTLE INSURANCE CASE CVS Corporation has paid $4 million to the federal government, 20 states and the District of Columbia to settle charges that it submitted false prescription claims to government health insurance programs according to an Associated Press report. According to the U.S. Justice Department, CVS and its Revco Drugstores subsidiary billed the government for full quantities of prescriptions for beneficiaries of federal health insurance programs when they actually dispensed only partial prescriptions. CVS said that the violation was an honest mistake made when pharmacies didn’t have enough of a medicine, gave the customer the quantity on hand and instructed the person to pick up the rest at a later time. The customer never returned, but the government was billed for the entire amount. PHAR-MOR FILES FOR BANKRUPTCY Phar-Mor Incorporated, a retail drug chain operating 139 stores, has filed for voluntary Chapter 11 bankruptcy protection bankruptcy and will begin the process of restructuring the company. The company announced that as part of its restructuring it will close 65 stores over the next several weeks. The company cited liquidity difficulties related to the slowing economy, increased competition and changes in consumer buying habits as the reason for its actions. PharMor has also secured $135 million in debtor-in-possession financing from Fleet Retail Finance in order to fund day-to-day operations during the restructuring effort. The company, which operates in 24 states under the names Phar-Mor, Pharmhouse and The Rx Place, said the stores to be closed are either underperforming or are located outside the chain’s core markets. In a prepared statement, David Schwartz, president of chief operating officer, said he expected the company to “emerge from this process in six to nine months.” The 74 stores that will remain open have average annual sales of more than $10 million, he said. AURORA FOODS FORMER OFFICERS PLEAD GUILTY Two former top officers of Aurora Foods Incorporated plead guilty to their roles in a scheme to hide $43.7 million of trade promotion expenses in order to inflate the company’s 1998 and 1999 earnings. Ian Wilson, former chief executive and M. Laurie Cummings, former chief financial officer and secretary, pleaded guilty to one charge that they conspired to commit securities fraud, to make false statements in 12 Securities and Exchange Commission (SEC) filings, to falsify books and records, to lie to auditors, and to commit bank fraud. They also pleaded guilty to one count of securities fraud in connection with the purchase and sale of Aurora’s common stock and one count of making false statements in connection with loan and credit applications. The two former executives, who resigned last year, were indicted in January for trying to hide one of the company’s 13 F I N A N C I A L U P D A T E S Ralcorp Holdings Reports rd 3 Quarter Results Ralcorp Holdings, Incorporated announced net sales for its third quarter ended June 30, 2001 of $279.4 million compared to $172.1 million a year ago. Net earnings for the third quarter were $14.4 million compared to $12.9 million for the same quarter last year. For the nine-month periods ended June 30, 2001 and 2000, net sales were $831.7 million and $550.2 million, respectively, an increase of $281.5 million, or 51 percent. Net earnings for the current year’s first nine months were $30.8 million compared to prior year nine-month net earnings of $31.1 million. Net sales were significantly increased through the acquisition of The Red Wing Company in July 2000, and to a lesser extent by other business acquisitions. Earnings for the first nine months of fiscal 2001 include $.2 million of pre-tax income from a merger termination fee recorded in the first quarter. dropped 44 percent on a sales increase of 19 percent. Net income for the second quarter ended June 30 was $7.0 million compared with $12.5 million in the second quarter of 2000. Dreyer’s attributed the drop in profit to higher ingredient costs. Sales for the quarter rose 19 percent to $384.8 million from $323.8 million in the second quarter of 2000. Sales of the company’s branded products increased 4 percent in the quarter, while sales of partner brands – products distributed for other manufacturers – increased 56 percent and accounted for 38 percent of sales in the quarter. CONAGRA REPORTS 4TH QUARTER EARNINGS OF $121.4 MILLION ConAgra Foods Inc., the secondlargest U.S. food company, said fiscal fourth-quarter earnings of $121.4 million, compared with a loss of $43.8 million, a year ago. Operating profit fell 12 percent to $405.3 million from $462 million a year earlier. Sales in the period rose 5 percent to $6.4 billion from $6.1 billion one year ago. Combined sales at ConAgra’s packaged and refrigerated foods business rose 5 percent to $5.5 billion. Total food business operating profit declined 10 percent to $372 million, as higher marketing costs and the effect of grocers lowering their inventory levels hurt profitability. Fourth-quarter sales for ConAgra’s agricultural products business rose 4 percent to $899 million. Operating profit fell 30 percent to $33 million, weighed down by declines in profitability at the company’s United Agricultural Products unit, which distributes chemicals to farmers. “We faced a difficult business environment in the last half of fiscal 2001,” Bruce Rohde, ConAgra’s chairman and chief executive, said in a statement. “But even in the midst of a challenging year, we aggressively laid the foundation for vol. I no. 8 december 1, 2001 a stronger future by improving operating efficiency, introducing new products, and investing behind our market positions.” DEL MONTE REPORTED 2ND QUARTER INCREASE IN EARNINGS Del Monte Foods Company reported significant increase in sales and earnings for the fourth quarter of fiscal 2001. Net sales for the quarter, boosted by the acquisitions of Sunfresh and S&W, were $389.6 million, an increase of 21.9 percent from $319.7 million for the fourth fiscal quarter of 2000. Net sales for the year were $1,512.0 million, an increase of 3.4 percent, compared to $1,462.1 million for fiscal 2000. As adjusted results exclude expenses related to the Company’s May 2001 debt refinancing, special charges related to plant consolidations and other nonrecurring items. “Overall, fiscal 2001, although challenging, was a rewarding year for us,” said Richard G. Wolford, chairman and CEO. “Consistent with overall industry trends, our retailers continued to reduce their inventory levels while consumption of Del Monte products in the market remained strong. Despite this retail trend, which we believe has leveled off, our top line improved by over three percent due largely to the strategic acquisitions of S&W and Sunfresh, which are performing well. During the year, we also successfully executed sales initiatives in lower margin, non-retail channels to reduce our inventory levels.” SARA LEE REPORTS $862 MILLION GAIN FROM SALE OF COACH Sara Lee reported that net earnings in the period ended June 30, including one-time items, rose to $973 million from $313 million a year ago. Excluding one-time items, such as a $862 million gain from the divestment of Coach leather goods. Sales fell 5.3 percent for the quarter to $4.23 billion, impacted by the sales of businesses. In the past 13 months, the company has sold or spun off 12 non-core businesses for proceeds of nearly $3 billion, including handbag maker Coach and PYA/Monarch, its food service distribution business. “Sara Lee completed an important transition year in fiscal 2001,” said Chief Executive Steven McMillan in a statement. “We also began a significant reorganization within several of our business units, including U.S. Meats and European Apparel, to improve our ability to compete effectively in the current business environment.” CVS REPORTS 6.2 PERCENT 2ND QUARTER INCREASE CVS Corporation, the secondlargest U.S. drugstore chain reported a 6.2 percent rise in second-quarter earnings. The company, which ranks behind market leader Walgreen Company, reported net income of $198.0 million compared with $186.5 million a year earlier. The company, which had 4,130 stores as of June 30, said operating expenses rose 11.6 percent to $1.12 billion from $1 billion a year earlier. Sales for the quarter rose 11.2 percent to $5.5 billion from $4.9 billion. Sales at stores open at least a year rose 8.3 percent, slightly below the company’s forecast of 8.5 percent. Pharmacy same-store sales increased 13.2 percent, while CVS had expected a 13.5 percent rise. CVS said pharmacy sales accounted for 66 percent of total secondquarter sales. Sales from patient medical care plans, or third-party prescription sales, represented 90 percent of pharmacy sales. WINN-DIXIE REPORTS 4TH QUARTER EARNINGS Winn-Dixie Stores reported fourth quarter net earnings of $13 million compared with a net loss of $242.4 million a year earlier. Excluding pre-tax restructuring charges of $56.5 million, the chain earned $48.3 million compared with $20.5 15 WAL-MART REPORTS 2ND QUARTER RESULTS Second-quarter sales increased 14.5 percent to $52.8 billion, up from $46.1 billion a year earlier. Sales at stores open at least a year rose 5.7 percent. Net income in the second quarter ended July 31 edged up to $1.622 billion from $1.596 billion a year earlier. Most retailers have seen sales and profit growth slump as consumers cut back on spending in the stalled U.S. economy. For weeks Wal-Mart has noted increased sales of lowermargin items like groceries and household cleaners, as well as increased sales of items at the low end of its stores’ price range. “Although we were unable to convert all of our revenue growth to earnings growth, I am confident we will leverage our top-line growth in future periods,” Wal-Mart Chief Executive Lee Scott said in a statement. For the second quarter, the company’s Wal-Mart Stores segment had operating profit of $2.6 billion, up 4.1 percent from $2.5 billion a year ago. The retailer’s Sam’s Club warehouse unit had an operating profit for the 2001 second quarter 14 of $267 million, up 11.3 percent from a year earlier. The company’s international segment had an operating profit of $315 million for the most recent quarter, an increase of 35.8 percent compared with $232 million a year ago. GENERAL MILLS 4TH QUARTER UP 34 PERCENT General Mills Inc., the largest U.S. cereal maker, said earnings in its fiscal fourth quarter rose 34 percent, due to a gain from an insurance settlement, as new products lifted sales. The Minneapolis-based maker of Cheerios and Chex cereals and Betty Crocker baking mixes said it earned 42 cents a share, excluding a $54.9 million gain and other items, in the period ended May 27, compared with 37 cents a share a year ago. General Mills, which has yet to close on its acquisition of Pillsbury from Londonbased conglomerate Diageo Plcw. Sales rose to $1.81 billion from $1.69 billion in 2000. DRYER’S 2ND QUARTER PROFITS DOWN 44 PERCENT Dreyer’s Grand Ice Cream reported that profits for the second quarter marketing promotion news www.santella.com million a year earlier. Sales for the quarter fell 2.3 percent to $3 billion and same-store sales fell 5.2 percent. The chain attributed decreases in sales to reduction in store hours and elimination of unprofitable departments during its recently completed restructuring. THE PANTRY REPORTED 3RD QUARTER REVENUES UP 10 PERCENT The Pantry reported that third quarter 2001 revenues rose to $708.0 million, up 10 percent from the $642.9 million reported for the third quarter of 2000. The increase in third quarter revenues is primarily attributable to the revenues from acquired stores and a three-percent increase in average gasoline retail prices over the third quarter of 2000. SUIZA FOODS REPORTS 2ND QUARTER EARNINGS Suiza Foods Corporation reported that its second-quarter earnings rose slightly, as lower expenses and income taxes offset higher raw material costs. Suiza, which agreed to acquire rival Dean Foods Company in April, said earnings increased to $34.6 million before non-recurring items, up from $34.4 million a year earlier. Revenues rose 6.5 percent to $1.53 billion from $1.43 billion for the same period last year. Operating income fell slightly to $102.9 million from $103.3 million, pressured by increased butterfat costs, which rose 63 percent in the quarter to $2.10 a pound. The sharp cost increase was offset by a 2.7 percent decline in interest expense and a 6 percent decline in income tax. Suiza agreed to buy Dean Foods for about $1.5 billion in cash and stock, in a deal that is subject to antitrust regulatory approval. Dean said its fiscal fourth-quarter earnings dropped about 30 percent, citing lower sales and higher costs in refrigerated foods and other products. CLOROX 4TH QUARTER PROFITS DROP 22 PERCENT Higher promotional costs reduced Clorox Company profits for the fourth quarter by 22 percent. Operational profits were $108 million, down from $138 million a year earlier. Sales fell 2.7 percent to $1.1 billion as consumers switched to private label equivalents of Clorox brands. The company predicted further slippage in fiscal 2002. MARSH SUPERMARKETS ANNOUNCES 1ST QUARTER RESULTS Marsh Supermarkets Inc. reported results of operations for the 12 weeks ended June 23, 2001. Sales and other revenues for the first quarter were $437,674,000 compared to $436,609,000 last year. Revenues in retail businesses increased $33,100,000, or 9.7% above last year’s comparable quarter, but wholesale distribution sales were $32,000,000 below last year. Retail sales in comparable stores increased 2.7%, an improvement from the 1.2% reported last quarter. First quarter operating income was $11,314,000 compared to $10,971,000 last year, a 3.1% increase. “Our comparable store sales growth demonstrates our ability to succeed in a highly competitive retail market,” said Don E. Marsh, Chairman and CEO. “We are aggressively pursuing potential new customers in order to improve our returns in our wholesale business.” Net income for the quarter was $3,911,000 compared to $3,477,000 last year, a 12.5% increase. As a percentage of revenues, net income improved to 0.9%, up from 0.8% in last year’s comparable quarter. WEIS MARKETS 2ND QUARTER SALES DOWN 3.2 PERCENT Weis Markets reported that its second quarter sales totaled $492.4 million, down 3.2 percent compared to $508.9 million for the same period in 2000. Net income for the three month period ending June 30, 2001, which was impacted by several non-recurring items, totaled $8.7 million compared to $21.6 million for the same period a year ago. At the end of the second quarter, after the $434.3 million stock repurchase, the Company had 27.2 million shares of common stock outstanding, a reduction of 14.5 million shares. The impact from the stock repurchase will be partially realized in this year’s third and fourth quarters’ earnings per share calculation and fully realized in 2002. For the six months ended June 30, 2001, Weis Markets’ sales totaled $981.5 million compared to $1.02 billion for the same period in 2000. Total sales through the first half of 2000 included $37.1 million generated from the food service division. Net income for the six months totaled $25.9 million compared to $39.5 million in 2000. DOLE FOODS ANNOUNCES ESTIMATED 2ND QUARTER RESULTS Dole Food Co. Inc. today that its second-quarter net income will be in the range of $34 million to $37 million. Estimated net income for the second quarter of 2001 includes an $8 million pre-tax gain related to the sale of investments and approximately $30 million of pre-tax expense primarily related to asset write-downs resulting from business reconfiguration programs undertaken in the first part of 2001. The $30 million of pre-tax expense is primarily for the shutdown and related asset sales of the company’s California deciduous and Northwest apples businesses. Excluding these items, net income from ongoing operations will be in the range of $49 million to $52 million, compared with net income of $45.1 million for the second quarter of 2000, all from ongoing operations. SUPERVALU REPORTS 1ST QUARTER 2002 RESULTS SuperValu, Incorporated announced results for the first quarter of fiscal 2002 which ended June 16, 2001. The Company reported sales for the first quarter of $6.9 billion, net earnings of $59.4 million. Jeff Noddle, SuperValu’s president, chief operating officer and CEO said, “First quarter results were ahead of Wall Street’s consensus as the aggressive implementation of our business plans is showing good progress in distribution and retail. Our retail business also delivered better than expected and broad-based improvement in comparable sales compared to last year’s fourth quarter. In addition, our restructuring initiatives are on track, including the wind down of the Kmart business. As these concurrent activities continue to unfold, we remain focused on execution during this important transition year, setting the stage for a strong future.” WALGREEN PROFITS UP 10.2 PERCENT Walgreen Company, the No. 1 U.S. drugstore chain, reported its fiscal third-quarter earnings rose 10.2 percent, but missed Wall Street estimates, as results were tempered by heavy store expansion and softer front-end sales. Net income for the quarter ended May 31, was $213 million, down from $194 million a year-ago. Walgreen said total sales rose 16.7 percent to $6.3 billion. Sales at stores open at least a year rose 11.3 percent. Pharmacy sales, which accounted for 59 percent of total sales, rose 21.4 percent, and comparable pharmacy sales increase 18.4 percent. Company President David Bernauer said while prescription sales continued strong, the company’s frontend merchandise segment had seen a softening in the quarter, a reflection of sluggish consumer spending. He said Walgreen expected its investment in store expansion to peak in the current vol. I no. 8 december 1, 2001 year to December. Jorndt said at the end of May, more than 1,300 of the company’s 3,424 stores were less than three years old. “As our store opening rate levels off around 500 a year and these 1,300 new stores mature, we will be in an excellent position for future performance,” he added. Walgreen’s store expansion push comes amid an expected surge in U.S. prescription drug use, as more and more Americans live longer and new blockbuster drugs hit the market.The U.S. prescription drug industry generated sales of about $132 billion in 2000 compared to sales of about $121 billion in 1999, according to the National Association of Chain Drug Stores. Walgreen opened 105 new stores in the third quarter. The company anticipates its year-end new store total will be 475. It said it was on target to operate a total of 6,000 stores by 2010. CHURCH & DWIGHT’S REPORTS 2ND QUARTER NET INCOME OF $13.5 MILLION Church & Dwight said its secondquarter net income rose to $13.5 million from $12.4 million a year earlier. In May, the company purchased USA Detergents, whose Xtra laundry detergent and Nice ‘N Fluffy fabric softener helped drive second-quarter sales up 27 percent to $257.1 million, from $202.4 million a year earlier. Also in May, the company formed ArmKel LLC with private equity group Kelso & Co. to acquire the consumer products business of Carter-Wallace. F I N A N C I A L U P D A T E S 16 marketing promotion news www.santella.com 17 One Number TDLinx • The Universal Language of Stores and Accounts TM Coupon Redemption TM Co-Marketing Trade Promotion Merchandising Pay-for-Performance Sampling Quality Assurance Aggregate Integrate Communicate Evaluate Evaluat Shipments Data Warehouse Micromarketing w ERP FSIs Database Marketing In-Store Demos Scanner B2B Web Commerce Category Management CRM FrontLine Marketing Gateway Systems Gelco Information Network Good Neighbor Information Retrieval Methods Inmark Services Innova Marketing IRI J. 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Spectra SPi The Sunflower Group SuperMarkets Online Synectics Group Targetbase Thinque Systems Time Distribution Services Trade Zone UCCnet Certified U.S. Marketing & Promotions US Concepts Valassis Communications ValuMedia viaLink w Certified Members of the TDLinx Network w One number gets you to the numbers you want With TDLinx unique codes for every supermarket, mass merchandiser, drug store, liquor store, club and convenience store — and for every chain, buying office and grocery supplier — you can: • Aggregate retail sales and activity • Integrate disparate data sources • Communicate with outside promotion, marketing and merchandising suppliers in the TDLinx Network • Synchronize data with partners and suppliers in collaborative business relationships. Efficient, elegant, systematic and repeatable — TDLinx gets you to the numbers that count. ACNielsen ACOSTA Sales & Marketing Beverage Data Network BDS Marketing Bounty SCA Worldwide CAS Americas Casio Soft Catalina Marketing Claritas Coinstar Cox Target Media Cox Sampling Val-Pak Mosaic Retail Solutions TMG LINX TM MTD Group NABCA NCH NuWorld Marketing News America Marketing FSI In-Store Merchandising Services The TDLinx icon certifies a company as a member of the TDLinx Network. CROSSMARK Data Bank USA Distribution Services, Inc. eMarketing ems Experian Field Marketing Inc. FieldFlex FLOORgraphics Optimum Group Off The Shelf PanaVista! Pen-Rite Systems People Plus, Inc. Performance Media Promo Edge QRS Get Linked! Call Scott Taylor 203 563-3050 www.TDLinx.com TM TradeDimensions 45 Danbury Road Wilton, C T 06897 a VNU company T H E I N T E R N E T W O R L D Tesco Is the Most Successful Online Grocer In July, Tesco said it would pay $22 million for a 35 percent stake in GroceryWorks.com, the online unit of Safeway Incorporated to enter the U.S. online grocery market and have a retail partner (Safeway) to supply groceries from its stores. Tesco has predicted its online unit will generate $423 million in sales this year, compared to their overall sales of $32.15 billion. They will face the same challenges that eliminated many U.S. Internet grocers from achieving profitability, but they have a business model that is successful in U.K., Tesco’s experience delivering groceries in heavily populated urban areas and Safeway’s name recognition. Tesco estimates it costs them about $14 to deliver an order and they charge customers about twothirds of that, so they’re subsidizing to some degree but their order sizes and margins are high enough to remain profitable. To be successful, your customer base must be in close proximity and customers must be willing to pay for delivery. In the United Kingdom, there are 8 times as many people per square mile, and only about one fortieth of the land area of the United States. Tesco has 692 stores in the U.K., compared with Safeway’s 1,535 stores in the United States. Tesco’s provides operating experience in urban areas where Safeway already has a strong presence and Tesco’s ability to accelerate turnaround and limit the inventory that they carry in the store. ONLINE SALES DOWN IN 2ND QUARTER Sales through U.S. Internet retailers during the April-June period were down 1.8 percent to $7.458 billion. The Department of Commerce reports that this is the second straight quarter that Web-based retail sales have declined, during the first quarter Internet retail sales dropped 14.5 percent. Only about 0.9 percent of all retail purchases were made over the web during the second quarter. The good news is that despite the drop in sales from the first quarter, online sales during the second quarter were still 24.7 percent higher than they were during the first quarter of 2000. INTERNET FRAUD COSTS $117 MILLION Internet fraud schemes have affected thousands of people who collectively lost approximately $117 million, according to the U.S. government probe that examined acts including online auction fraud, nondelivery of merchandise, bank fraud and pyramid schemes. The FBI and Justice Department brought a variety of federal and state criminal charges against approximately 90 individuals and companies, including fraud by wire, mail fraud, bank fraud, money laundering and intellectual property right violations. CENSUS REPORTS HIGH INTERNET ACCESS America is seeing a dramatic increase in the number of homes wired to the Internet, Census figures show, as the demand grows for quicker communication from shopping to e-mail to instant messaging. About 42 percent of all U.S. households could log on to the Web in 2000, up from 18 percent three years earlier, according to the Census Bureau. It is the desire for fast communication that have made Internet access a “must-have” item for many people, said Susannah Fox, research director for the Pew Internet and American Life Project. marketing promotion news www.santella.com planet U has created a comprehensive promotions solution for U! KRAFT FOODS PARTNERS WITH ALL RECEIPES.COM FOR RECIPE AND MEAL IDEAS Kraft Foods Incorporated announced a joint 10-month web-marketing project with Allrecipes.com, a leading online meal planning resource. The integrated campaign leverages Allrecipes.com’s consumer relationships to generate increased Kraft brand exposure and drive users to the Kraft Interactive Kitchens. Kraft has provided Allrecipes.com with editorial content, including 200 recipes developed and tested in the Kraft Kitchens that feature favorite Kraft brands such as Philadelphia Cream Cheese, Jell-O Gelatin Dessert and Kraft Cheese. Kraft’s quick and easy approach to meal times is woven through customized Kraft-branded homepages, recipes, 20 ingredient sponsorships, newsletters and editorial on the Allrecipes.com site. “Allrecipes.com is a great fit with Kraft because of their established, loyal online community as well as their creative approach for integrating Kraft content in a meaningful way for consumers,” said Kathy Olvany-Riordan, Vice President, Internet and E-Marketing for Kraft. Kraft’s award-winning Web site provides consumers with valuable recipe features and time-saving functionality. Receiving about one million hits each month, kraftfoods.com provides thousands of tempting food ideas, creative seasonal recipes, and family party planning help, as well as tips to help connect the family at mealtime. R E T A I L E R N E W S Wal-Mart to Open 210 Stores In 2002 Wal-Mart Stores, Incorporated plans to open approximately 210 new discount stores and supercenters domestically in 2002. Wal-Mart has already opened 147 new stores of a planned 400 in the US this year alone. Wal-Mart will also open eight new and expanded general merchandizing and food distribution centers across the U.S. to support this growth. Most of the distribution centers range from 400,000 to 1.4 million square feet and distribute every thing from general merchandise to food and perishable related items and represents over $253 million in construction costs. Lee Scott, president and chief executive officer of WalMart Stores, Inc. said, “The planned square footage growth for the coming year represents approximately 40 million square feet of new retail space, which will be the largest square footage increase in the company’s history and an 8 percent increase over the fiscal 2001 yearly total.” Wal-Mart will need the new distribution capabilities to support this growth. Wal-Mart Stores Incorporated had sales in the fiscal year ending January 30, 2001 of $191 billion. • A VCR at a store in Baraboo scanned in at $79.99 instead of $55.99 • A men’s shirt was rung up at West Allis Kmart for $15; the correct price was $10.50 Kmart reportedly has a history of scanning discrepancies in Wisconsin dating back to 1997, and has been fined well over $100,000 since that time. RETAILER NEWS (2 PAGES) TARGET CHARGES KMART WITH FALSE ADVERTISING Target Corporation charged Kmart Corporation with false advertising, claiming in a lawsuit that the prices in Kmart’s “Dare to Compare” campaign are wrong 74% of the time. The Kmart promotion uses in-store signs to compare Kmart’s prices on specific items with those of its competitors. Target said a market research firm it hired found numerous errors, including mistakes in reporting Kmart’s own prices as well as listing comparisons for products Target doesn’t sell. Target said it notified Kmart of its allegations but filed suit when Kmart continued to promote incorrect prices. “Kmart is lying to consumers,” said James T. Hale, Target’s executive vice president and general counsel. Kmart, the nation’s second-largest discount retailer behind Wal-Mart Stores Inc., said in a statement that the company is committed to the campaign. “It is unfortunate when a competitor has to resort to needless, costly litigation when they discover that they are falling behind in pricing in the retail arena,” Kmart said in an unsigned statement. “Increases in transaction count and customer count show customer acceptance of an improved pricing and shopping environment at Kmart.” In an audit of 98 Kmart stores, market research firm Leo Shapiro & Associates found that almost three-quarters of the time, the in-store signs had one or more errors, including listing its own price incorrectly; listing the wrong price for a Target item; or making a comparison with an item Target does not carry. The audit, which took place from July 31 to Aug. 8, sent employees of the research firm to stores in five cities: Los Angeles, Atlanta, Detroit, Miami and Minneapolis-St. Paul. Of 622 signs evaluated, Target said, 553 contained errors. Target’s goal is to receive a permanent court order to remove all comparative advertising signs that mention Target and prohibiting Kmart from making any further references to Target in the campaign. KMART RESTRUCTURES SUPPLY CHAIN OPERATIONS Kmart Corporation announced that it will restructure the supply chain infrastructure, including the reconfiguration of Kmart’s distribution center network and implementation of new operating software across its supply chain. “Reconfiguration of the distribution center network entails the replacement of two aging distribution centers with two state-of-the-art facilities, which will improve productivity and the flow of goods to nearly half of our stores,” said Chuck Conaway, Chairman and CEO of Kmart Corporation. “Implementation of the program will begin this month. In addition, the distribution of slower-moving goods will be centralized to one newly-designated center to improve efficiency across all other centers and facilitate the expansion of our BlueLight Always campaign.” Completion of the implementation is expected by the end of the second quarter of 2002. FOODARAMA ANNOUNCES $3 MILLION STOCK BUYBACK Foodarama Supermarkets announced its intention to repurchase shares of its common stock valued at $3 million in an attempt to enhance shareholder value by providing liquidity to its shareholders. The company also announced second quarter sales of $223.9 million for the period ended April 28, up 5.8% from the previous second quarter. The company announced net income of $963,000, an increase of 187%. For the sixmonth period sales were $462.5 million, an increase of 9.3%; income rose 90% to $2.1 million, and same-store sales increased 2.6%. MCMILLAN DOLITTLE AND TECHNOMIC ANNOUNCE LOYALTY MARKETING STUDY McMillan Doolittle and Technomic Incorporated announced that they would jointly undertake a comprehensive assessment of retailer loyalty programs in the United States and Canada. The study will be completed by March 2002 and is designed to examine consumer attitudes and shopping behaviors, as well as document the retailer best practices and future potential for loyalty programs. BRUNO’S ADDED TO ACNIELSEN’S CATEGORY MANAGEMENT PROGRAM ACNielsen U.S. announced that product sales information from Bruno’s would be available on its newly launched category management intelligence system, Category Business Planner. The Web-based tool provides information structured by each retailer’s product category definitions, which makes it easier for manufacturers and retailers to communicate during the category planning process. “Category Business Planner will greatly enhance our category management process by enabling us and our vendor partners to move past category data disagreements and focus on strategies, tactics and execution,” said Marvin Young, Bruno’s vice president of grocery merchandising. “This tool will fundamentally change the practice of category management for the better.” SUPERMARKET INCREASE RX MARKET SHARE Supermarket pharmacies grew faster than any other segment of the retail pharmacy marketplace in 2000, according to a report issued last week by the Food Marketing Institute. The Report from the 2001 Supermarket Pharmacy Survey revealed that supermarket pharmacies tallied $16.9 billion in sales last year, an increase of 26 percent over 1999 sales. Grocers dis- pensed 389 million prescriptions last year, an increase of 8.7% over the number dispensed in 1999. According to Janice Jones, director of research at FMI, pharmacies increase traffic and provide a marketing tool for the entire store by cross-merchandising products and providing nutrition and diet information. With 8,800 outlets, supermarket pharmacies now account for 17% of the total number of retail prescription drug outlets in the country, the study reported. About 68% of all newly built supermarkets contain a pharmacy. Gross margins in supermarket pharmacies declined one percentage point last year, however, to 19% from 20% in the preceding year. WISCONSIN OFFICIALS WARN ABOUT KMART SCANNING PROBLEMS According to a report in the Milwaukee Journal Sentinel, Wisconsin state officials have issued a consumer alert about consistent scanning problems at Kmart stores throughout the state. They also reportedly are considering filing criminal charges against Kmart. Among the problems identified by state inspectors, according to the Journal Sentinel: • A portable power pack sold at a store in Appleton had a scanned price of $89.99 instead of $50 • A brush-on bed liner kit for pickup trucks rang in at $89.98 at a Kmart in Green Bay instead of $15.99 22 marketing promotion news www.santella.com vol. I no. 8 december 1, 2001 23 B R A N D M A R K E T I N G A N D S T R A T E G Y Census Confirms: Business Survival Will Depend onMulticulturalMarkets By Don Coleman In the 1982 best-selling book Megatrends, social forecaster John Naisbitt discussed America’s evolution from an isolated, self-sufficient, national economic system to a global economy. Naisbitt told readers, “To be really successful, you will have to be trilingual: fluent in English, Spanish and computer.” Naisbitt also stated there was one factor behind the growing acceptance of ethnic diversity and of two minorities in particular: Spanishspeaking Americans and AsianAmericans. “The sheer numbers (of Spanish-speaking people) will increase in proportion to other ethnic groups because there will be more immigration and because the birthrate of Latinos is twice that of white and 60 percent higher than that of black Americans.” Naisbitt was correct. Census 2000 documented the growth of AfricanAmerican, Hispanic and AsianAmerican communities. Corporate America, advertisers, retailers and marketers should have all the evidence needed to understand the value of developing business plans to attract ethnic communities. Although some businesses have been slow to embrace multicultural markets, there have been changes in the advertising field. General market advertising agencies have begun to partner with, affiliate with, and in some cases, purchase agencies that specialize in AfricanAmerican, Hispanic and AsianAmerican markets. Corporations are opening new offices in South 24 the Marketing News “at a rate almost twice that of the nation as a whole.” For those focused on the multicultural market, the Census helps understand the growth potential and habits of the $1 trillion-plus ethnic consumer market. The Census provides marketers a picture of how and where to target advertising. Therefore, Naisbitt’s forecasts were correct. America’s ethnic communities have increased because of immigration and high birthrates among immigrants and a baby boom. And the purchasing power of America’s multicultural market continues to surpass the general market. That’s a fact! The global business community, as well as the United States population, are becoming increasingly diverse. In thriving companies throughout the world, multicultural marketing is essential to successfully compete in today’s marketplace. Companies that effectively communicate and demonstrate their commitment to diversity will improve their bottom line and open the doors for future growth and prosperity; those companies who don’t may not be around for the next census. Don Coleman is Founder and President of Don Coleman Advertising He is also CEO of New America Strategies Group, the first and largest multicultural agency network with the capabilities and resources to reach all three of the nation’s major ethnic populations. Florida to capitalize on Hispanic and Latin American business. New ad shops are opening in states such as Texas, Florida, California and New York, where there are also large Hispanic populations. Many clients are experimenting with multicultural marketing by participating in public relations programs and special events that guarantee product exposure by these segments. But there are only a few companies who are fully committed to investing in all consumers who buy their products. The 2000 Census revealed that America has 281 million people – five to six million more than expected. Sixty-nine percent of the American population is nonHispanic white, a drop from 76 percent in 1990. The count for members of minority groups included: • 12.5 percent of the American population is Hispanic-American, • 12.1 percent of the American population is African-American, • 3.6 percent of the American population is Asian-American, 0.7 percent of the American population is American Indian, and • 0.1 percent of the American population is Native Hawaiian. For the first time, the Census gave citizens the opportunity to choose more than one race to describe racial identity. More than two racial boxes were checked of by 2.4 percent of Americans. The Hispanic population numbered roughly 35.3 million in 2000, or about 12.5 percent of the country’s 281 million people according to the Census 2000 figures. The AfricanAmerican population ranged between 34.7 and 36.4 million; with the exact figure uncertain because the data showing how many African-Americans were specifically “non-Hispanic” is not yet available. While 34.7 African-Americans check off “black only” on their census form, 1.7 million AfricanAmericans classified themselves as black and another race. Now look at the buying power of America’s multicultural consumers. According to the American Marketing Association’s publication Marketing News (March 26, 2001), America’s ethnic minorities account for more than $1 trillion in total U.S. consumer buying power. (Other sources claim the number is between $1.3- $1.7 trillion) This buying power is increasing, said marketing promotion news www.santella.com vol. I no. 8 december 1, 2001 25 B U S I N E S S - T O - B U S I N E S S If your job depends on proactive management of coupon information, we’ve got the tools to make technology work for you. Welcome to a new way of thinking! B2B Exchanges are Starting to Realize Goals Business-to-business exchanges in food distribution remain unfazed by the predictions of mergers or other consolidations among the three major exchanges in the industry. The chief executives of all three big B2Bs (Transora, WorldWide Retail Exchange, and GlobalNetXchange) have publicly acknowledged the possibility of consolidation. The long-term value of business-tobusiness exchanges is to take significant costs out of the distribution system, a goal that’s just starting to be realized. As large companies have built IT infrastructures enabling them to realize the savings from dealing with their trading partners through electronic data interchange, smaller firms that can’t afford the capital investment have been forced to continue using costlier and more time-consuming paper-based processes. Because the exchanges are based on the Internet, they offer industry-wide data-sharing platforms that provide an opportunity to small suppliers and the one-store retailer. Exchanges really have the size and volume to drive standards adoption that individual companies cannot do. “Individual companies don’t want to have to buy all of this technology and then have to maintain it. They want a third party who can provide them these capabilities at a more reasonable cost structure,” said Jeffrey Smith, spokesman for Transora, the exchange formed in June 2000 by 49 food and beverage suppliers with a combined initial investment of $250 million. Transora has introduced a CPFR utility using the Syncra Systems platform. Transora’s CPFR utility wants to be able to connect retailers and brand manufacturers to execute CPFR effectively and that results in improved in-stock positions at the shelf while reducing inventories across the board. You can improve your consumer’s satisvol. I no. 6 october 1, 2001 the way you do business Aligned...Coupon management for Focused...Personalized information when and how you want it faction level because they find the product on the shelf when they want it. The majority of transaction volume that has gone through the three exchanges has involved auction purchases of indirect goods. The goal considered most important is collaborative planning, forecasting, and replenishment (CPFR), an EDIbased cooperation between suppliers and retailers that aims for minimum inventories and maximum instock positions at all times. Albertson’s executive vice president Pat Steele said the prospect of taking costs out of the system was “very inviting” for the nation’s No. 2 grocery chain and the other retailers that formed WWRE. There are direct savings from negotiating collaboratively with suppliers and savings that come from reduced overhead, improved business processes and reduced inventory. WWRE is involved in a number of CPFR pilots, and GNX has offered several CPFR tools to its users. Retailers put a lower priority on CPFR than do suppliers after e-procurement auctions and supply chain visibility. A survey of B2B executives by Jupiter Media Metrix indicated that twenty-six percent of the executives said they planned within 12 months to add features to their private trading networks that would enhance collaboration, while only 20 percent said their focus would be on procurement features. Retailers will more likely focus on supply chain costs when looking to save money in dealing with makers of national brands. Internet-based business-to-business is much easier than using EDI because EDI requires highly specialized knowledge that relies primarily on people from the IT side of a company rather than people from the business side. Transora acknowledged that the exchange’s concept hasn’t yet been proven end-to-end because much of the supplier-to-retailer activity is still in the pilot stage. Transora is an open exchange consisting of manufacturers, retailers, and suppliers. Manufacturers pay a fee of about $150,000 per $1 billion in annual revenue to use the exchange. The exchange currently has 57 investors with an equity stake and is looking to hit breakeven in early 2002 and turn profitable by the end of 2002. Transora’s is working with GNX to facilitate a “mega-hub,” that will enable users of both exchanges to communicate with each other. Private exchanges such as WalMart’s Retail Link, which links only to Wal-Mart, will remain a major part of the picture. All suppliers that deal with Wal-Mart are required to do so over their private exchange. The research firm International Data Corporation recently predicted that today’s 1,500 online marketplaces would dwindle to 200 or 300 by 2004. Business-to-business exchanges will succeed, but it is going to be a much slower process than originally expected. There will likely be some merger activity among the major exchanges to reduce costs and eliminate duplicating processes. 27 Fast...Intuitive, web-based access and reporting CAROLINA MANUFACTURER’S SERVICES ©2001 Inmar Enterprises, Inc. www.inmar-inc.com/IWantAlinea CouponInfoNow.com Sponsored by Carolina Services and Carolina Manufacturer’s Services Your online resource for planning and executing successful coupon promotions When you need fast, accurate answers to your coupon questions, click to CouponInfoNow.com -- the unbiased, comprehensive industry source for coupon and promotional information. • • • • • • Planning Distributing Processing Research Trends News and Resources Visit the Inmar companies at www.inmar-inc.com ©2001 Inmar Enterprises, Inc. International Data Report: www.international-data.com Laborgistics SM SM The hustle and muscle to deliver turnkey solutions for tough jobs. From converting to assembly to packaging to fulfillment, Laborgistics offers you a world of solutions. Have you ever had a great idea to increase sales or rollout a new product, but were unable to find the resources to get it done? Maybe you had trouble finding affordable labor. Or the right equipment. International Data understands your outsourcing challenges, and we’ve created a superior turnkey solution, from labor to distribution — LaborgisticsSM. Top-notch people and facilities make turnaround fast. Laborgistics services are performed by skilled professionals in fully FDA-compliant facilities. Your products receive secure handling, expert management and complete electronic tracking, from the assembly line to the bindery to our multimode distribution hub. Strict adherence to your production and distribution timelines is guaranteed. How promotions get done. For turnkey solutions — converting, assembly, packaging, fulfillment, bindery, product sampling and more — trust your promotions to International Data. Find out more about high-quality, affordable Laborgistics. For more information, visit www.international-data.com. Frank V. Clausen Vice President LaborgisticsSM: Instant labor at affordable costs. Outsourcing with Laborgistics allows you to grow and shrink your labor force instantly to meet the demands of your promotional cycles. We offer an array of integrated services, with complete flexibility to meet the needs of your projects. From point-ofpurchase kits to product sampling programs, International Data has the equipment, affordable labor and international distribution network to get the job done for you. For more information, visit www.international-data.com or call Frank Clausen at 1.800.581.6237 vol. I no. 8 december 1, 2001 29 A R T I C L E Increasing Productivity and Reducing Costs Through Coopers & Lybrand identified the top ten reasons that companies utilize outsourcing: 1. Reduce and control operating expenses. 2. Improve company focus. 3. Gain access to expert capabilities. 4. Free internal resources for other purposes. 5. Resources are not available internally. 6. Accelerate reengineering benefits. 7. Function is difficult to manage. 8. Make capital funds available. 9. Share risks. 10. Cash infusion. Smart Source recently reported that 41 percent of those surveyed use 1-2 outside providers, 27 percent say they use 3-5, 15 percent use more than 5 and 17 percent don’t use any outside providers. The Outsourcing Institute reported that the outsourcing market has grown to $164 billion in the last 15 years and is expected to double by the end of the year. More importantly, the document outsourcing market is expected to grow an additional $59 billion in the next 3 years. Many organizations today are looking to outsource as much of their back-office processes as possible. Many consider outsourcing their work to save money, and seek out outsourcing specialists that provide value-added improved services and matching long-term goals and objectives. The pressure to outsource services today is much greater than it was a few years ago. The markets and industries are changing rapidly. We now talk in terms of delivering products and services in “Web Time” which is measured in minutes, not days. The traditional back office processes are not a core focus of who an organization is, or what they do. Managers are being forced to focus on their core competencies and to look elsewhere for partners to handle some of the more routine and mundane functions. Outsourcing According to research by Coopers & Lybrand, 81 percent of American companies use outside sources to perform some function, up from 50 percent five year ago and this trend is expected to continue. Organizations today are outsourcing business-critical operations and tasks in order to increase productivity and reduces costs. Traditional drivers for outsourcing include 1) managing costs including hardware, software and headcount, and 2) to focus on core business needs and less on specific applications or processes. Companies have come to understand that outsourcing can improve their core business, while reducing expenses, personnel and overhead. Contracting out tasks that are not part of a company’s core business can free up cash and managers can focus on issues that are key to business growth. 30 marketing promotion news www.santella.com There are definite benefits to be realized by the economies of outsourcing labor-based entry-level functions, document management, and even specialized services such as data entry, assembly items, print services, fulfillment services and mail services. While this approach works and provides the desired benefit, increasingly organizations are realizing greater value and efficiencies from outsourcing the entire process from beginning to end. When considering in-house processing versus outsourcing, consideration should be given to all aspects of the environment. There are two areas to focus on: 1. Hard costs/benefits that are measurable; and 2. Soft costs/benefits that are more difficult to measure. When trying to calculate the “real” cost of processing an organization’s back office paper work, many organizations only consider “variable” costs. However, much of the true cost to process back office paperwork is made up of “fixed” costs, such as facilities and general overhead. An aspect that is often overlooked is the “soft dollar” costs. These are costs that are difficult to quantify, but nevertheless exist. One of the biggest benefits to outsourcing is the ability to re-deploy existing resources into core business activities. For example, it is worth more to an organization to have a data entry resource devoted to working on a customer service issue to save a valued customer, or to develop a new product line in a shorter time frame. Outsourcing does not automatically mean “Off Shore.” A specialist in providing outsourcing services works closely with the client to provide affordable labor to fit the outsourcing application. The advantages of outsourcing include: • Reduced overhead expenses and administrative costs due to lower labor costs. However, affordability is not the only reasons clients outsource. • Outsourcing creates a partnership with professionals with common goals. • Outsourcing non-core laborintensive routine processes to a service bureau with a proven record of experienced management of labor intensive operations can provide value-added solutions that will benefit most companies. • The outsourcing provider will focus on high quality, high volume and fast turnarounds with an emphasis on customer service. Within today’s advanced telecommunications systems, a successful outsourcing provider can provide “data entry services” by either receiving the physical paper documents or by converting paper to electronic bit-mapped images and transmitting those images via high speed telecommunication lines to service bureaus for processing. A value-added service bureau can key all applicable data from the paper or electronic image 24 hours a day, seven days a week, providing data turnaround within hours. The outsourcing provider that has management control of workflow and personnel processes understands the value of specialization. By providing labor resources within a controlled environment, a provider can benefit through efficiencies, continuity and productivity. The key to the financial success of an outsourcing provider is processing a quality job utilizing pooled labor from sources less expensive than the client. Utilizing an area where the economy allows a lower labor rate (such as Mexico) or an environment where labor costs are considerably less will prove beneficial as long as the quality, timeliness, and process controls are not compromised. by Jim Santella vol. I no. 8 december 1, 2001 31 Seville, Spain London, England Kyoto, Japan A R O U N D T H E W O R L D Price War Expected In the United Kingdom Britain’s grocery sector is about to implement aggressive price cuts by retailers that will escalate into a fullscale price war. A report by industry consultants Verdict Research said “the last nine months had seen a marked relaxation in the intensity of competition in the UK grocery sector,” and attributed this to the fact that Asda was integrating a new management team. Asda, owned by Wal-Mart Stores, will introduce price cuts to increase market share and profits. The consultants added that price wars between leading grocery retailers such as Asda, Tesco, Safeway and Sainsbury could come as early as the Christmas and New Year holiday period. “A more competitive trading environment should be good news for consumers and the economy at large, both beneficiaries of low inflation,” added the report. Britons will spend 119 billion pounds ($172 billion) by 2006, up from 96 billion pounds this year. Verdict rated Tesco as the best company operating in the UK retailing sector at the moment due to its growing skill as a hypermarket operator. The company has recently expanded in eastern Europe and Asia. The report added that Waitrose and Marks & Spencer remained strong in the UK grocery sector, but Sainsbury and Safeway would be tested in a more competitive pricing environment. quicken the pace of its debt reduction. Not helping matters is a Japanese economy on the verge of recession, rising unemployment and still stagnant consumer spending, which is hampering sales at Daiei’s nationwide. Daiei in April forecast group sales to drop by 10 percent this year after swelling by 2.4 percent in the 12 months to last February to 2.91 trillion yen. COCA COLA AND SAN MIGUEL WILL BUY COSMOS Philippine soft drink maker Cosmos Bottling Corporation valued at 15 billion pesos ($281.4 million) will be sold to a joint venture of San Miguel Corporation and the Coca Cola Company. The transaction will be a cash deal and includes a noncompete clause wherein RFM Corporation, the parent firm of Cosmos, will not operate a carbonated beverage business for the next 10 years. RFM and San Miguel, the country’s top food and beverage firm, signed a non-binding memorandum of understanding for the deal but expect to come up with the definite sale and purchase agreement after a 30-day due diligence process. The acquisition of Cosmos, a firm with 20-25 percent share of the annual $1 billion local soft drink market, would give Coke a virtual monopoly of the Philippines’ soft drink market. Coke already controls some 60-65 percent of the market. San Miguel, through its joint venture with Coke, edged out PepsiCo Inc. in a bidding war for Cosmos. San Miguel owns 65 percent of CCBPI and Coke the remaining 35 percent. vol. I no. 8 december 1, 2001 MYCAL WITH US$14.65 BILLION DEBT BEGINS BANKRUPTCY PROCEEDINGS Debt-burdened supermarket chain operator Mycal Corp, long seen as one of Japan’s most troubled retailers, is set to become one of its biggest corporate failures. The firm has given up on its restructuring efforts and decided to initiate bankruptcy proceedings. That would make Mycal the biggest failure aside from insurance companies and leasing corporations in Japan’s post-war history, credit research firm Tokyo Shoko Research said. Kyodo news agency said Mycal’s main creditor bank, Dai-Ichi Kangyo Bank Ltd (DKB), a member of the world’s biggest banking group, Mizuho Holdings Inc, had decided to halt support for Japan’s fourthlargest retailer. If Mycal goes under, its parent liabilities of 1.74 trillion yen ($14.65 billion) would surpass Sogo’s 689.1 billion yen at the time of its bankruptcy last July. Mycal’s huge debts piled up after its business expansion in the past decade turned sour because of sluggish consumer spending and falling real estate prices following the bursting of the asset bubble in the early 1990s. Like many of its peers, it is 32 also suffering from intense price competition in Japan’s deflationary environment. In late August, Mycal said it would fail to meet a selfimposed deadline for reducing its debt to 910 billion yen, far less than the actual 1.05 trillion yen in interest-bearing debt weighing on the company. DAIEI ANNOUNCES MBO FOR SUBSIDIARY PRINTEMPS GINZA Japan’s biggest supermarket store chain operator, Daiei Incorporated announced a management buy-out deal (MBO) for its Japanese department store subsidiary Printemps Ginza S.A. Under a management buy-out, company managers, usually with help from outside investors, buy their business from the parent company or owner in order to gain full control. The announcement comes a day after a Japanese newspaper reported that Daiei would soon sell all its shares in Ginza Printemps to raise 10-15 billion yen ($81-121 million). DALEI TO REDUCE DEBT BY SELLING C-STORE CHAIN Daiei Incorporated, Japan’s biggest retailer announced that they would reduce debt by selling more shares in a lucrative convenience store chain in Tokyo’s Ginza district. The struggling 44-year old retailer faces up to 2.56 trillion yen ($20.70 billion) in debt lingering from a collapse in prices of Japanese shares. Daiei, whose 290 stores stretch from the northern Hokkaido region to the southern island of Okinawa, has been busy scaling back its investments after announcing in April it was looking to shave 320 billion yen off its interest-bearing debt by February 2002. Daiei said it is considering selling some of its 21 percent equity stake in its profitable convenience store operator Lawson Incorporated, but refused to elaborate on the size or timing of the sale. “We are looking to sell some Lawson shares, but a percentage or a specific figure has not been decided,” the spokesman said. They appears ready to sell Printemps Ginza in revival plan that also calls for 30 of its loss-making stores to be shut this business year. The Yomiuri Shimbun reported that Daiei will soon dump all its shares in Ginza Printemps to raise 10-15 billion yen ($80-120 million). The newspaper said Daiei had originally wanted to wait until Ginza Printemps was listed on the Tokyo Stock Exchange in three to four years before selling its 99 percent shareholding, but moved this up to marketing promotion news www.santella.com San Miguel President Francisco Eizmendi told reporters San Miguel and Coca Cola Co would contribute amounts for the transaction equivalent to their stake in Coke Philippines. Coke Philippines will be acquiring the assets of Cosmos, a $300 million company. Eizmendi said San Miguel and Coca Cola were “still discussing” arrangements for Cosmos’ soft drink brand names but company sources said there are plans for Coca Cola Co to buy the brands. Coke Philippines will be buying Cosmos’ Pop Cola and Sarsi rootbeer, popular low-priced carbonated drinks. It will also buy Jaz Cola, a popular soft drink marketed solely in the central Philippine island of Visayas. “Cosmos’ brands rounds out our soft drinks portfolio, the emphasis of which is being placed on those product and market segments CCBPI has not actively tapped,” SMC Chairman and CEO Eduardo Cojuangco said in a statement. RFM has been in cash trouble in recent months and was unable to meet redemption of convertible bonds, which came due in May. AUCHAN BUYS TWO CARREFOUR HYPERMARKETS IN SPAIN French retailer Auchan announced that it would acquire two hypermarkets in Spain from competitor Carrefour, according to the Financial Times. The agreement follows earlier dealings between the two companies in which Auchan purchased 14 supermarkets and five hypermarkets in France from Carrefour. Carrefour is obligated to sell these and another 12 supermarkets as a condition of its purchase of Promodes. ISRAEL’S SUPER-SOL REPORTS 16.5 PERCENT 2ND QUARTER PROFIT Super-Sol Ltd., Israel’s leading supermarket chain, announced that the Company’s revenues in the second quarter of 2001 reached a record NIS 1.61 billion, compared to NIS 1.50 billion in the second quarter last year, an increase of 7.4%. The increase in revenues resulted mainly from the contribution of new stores. Same-store sales decreased by 5.4% during the quarter, compared to the same period last year, mainly as a result of the opening of new stores by the Company and by its competitors, and the continued slowdown of the Israeli economy. Gross margin was 26.8% for the quarter, compared to 25.8% for the same period last year. The improvement in the gross margin was mainly the result of the increase in the percentage of products distributed by the Company, sales of private label products, and improved category and inventory management. Operating profit for the second quarter reached a record NIS 78 million, an increase of 16.5% compared to NIS 67 million in the same period last year. The operating margin increased to 4.9% compared to 4.5% last year. The Company’s net profit for the second quarter reached a record NIS 50 million, an increase of 14.4% compared to NIS 43 million during the same quarter last year. This trend reinforces Super-Sol’s leadership position in the Israeli food retail sector. During the second quarter of 2001, the Company opened two new stores, bringing the total number of stores to 156. 33 P E O P L E O N T H E M O V E DELHAIZE NAMES CRAIG OWENS CFO Belgian food retailer Delhaize SA named Craig Owens its chief financial officer and vice-president, effective Sept. 15. Current CFO Jean-Claude Coppieters will become General Secretary of Delhaize, the company said in a statement. Owens, a U.S. citizen, was previously with Coca-Cola Co. He was chief executive of Coca-Cola Enterprises SA in France and CFO of Coca-Cola Beverages PLC in the UK. KRAFT FOODS NAMES JAMES FARRELL TO BOARD OF DIRECTORS Kraft Foods Incorporated announced the election of James Farrell, Chairman and Chief Executive Officer of Illinois Tool Works Inc. to its Board of Directors. “Jim’s many talents include his solid business acumen and global management expertise, and we welcome his future contributions as part of Kraft’s Board,” said Geoffrey C. Bible, Chairman of the Board of Directors of Kraft Foods Inc. Farrell serves on the boards of Allstate Insurance Company; Federal Reserve Bank of Chicago; Sears, Roebuck and Company; and United Airlines. In addition, he is a member of The Business Council, Illinois Roundtable, Mid-America Committee and New York Stock Exchange Advisory Committee. He is a Director of the Chicago Club and Vice Chairman and Director of the Economic Club of Chicago. JON FINLEY RESIGNS FROM CHURCH & DWIGHT Church & Dwight Co., maker of Arm & Hammer product said President and Chief Operating Officer Jon Finley resigned after four months on the job. A statement from Church & Dwight did not say whether it planned to replace Finley, who was previously a senior vice president of General Mills Inc. Company officials were not immediately available to provide more detailed information. marketing promotion news www.santella.com Philip Morris Names William Webb Vice Chairman The Board of Directors of Philip Morris Companies announced that William H. Webb was elected to the position of Vice Chairman effective immediately. In this capacity, Webb will become a member of the Board of Directors and will retain his current responsibilities as Chief Operating Officer of the corporation reporting to Geoffrey C. Bible, Chairman and CEO. In addition, Webb will assist Bible and the Board of Directors in the orderly transition of management prior to August 2002, when Bible reaches the mandatory retirement age of 65. At that time, both Bible and Webb will retire. “Bill’s distinguished career at Philip Morris Companies and Philip Morris International, spans 35 years,” said Bible. “He has served with distinction in many roles and in numerous markets of Philip Morris International.” Prior to being named Chief Operating Officer of Philip Morris Companies Inc., where he has had direct responsibility for the management of all of the major business units of Philip Morris Companies Inc. since 1997, Webb was President and CEO of Philip Morris International. WAL-MART NAMES ROBERT CONNOLLY EXECUTIVE VICE PRESIDENT Wal-Mart Stores named Robert Connolly, previously executive vice president, general merchandise, to executive vice president, marketing and consumer education. In this position, he will be responsible for Wal-Mart’s international marketing, advertising and consumer research programs. In other appointments, Wal-Mart said Don S. Harris, executive vice president and chief operating officer, Wal-Mart store opera34 tions in the U.S., will succeed Connolly; Doug Degn, executive vice president, food merchandise, will keep the same title but take on the added responsibility of overseeing consumables; Jim H. Haworth, executive vice president, operations, for Sam’s Clubs in the U.S., will succeed Harris; Gregg Spragg, Western regional vice president, Sam’s Clubs, will succeed Haworth; Greg Johnston, Southeastern regional vice president, will succeed Spragg; Don Nickens, Tampa, Fla., and Atlanta market manager, Sam Clubs, will succeed Johnston, and Michael Heintzman, vice president and general merchandise manager, dry and fresh foods, Sam’s Club, has been promoted to senior vice president with the same responsibilities. KMART NAMES RANDY ALLEN EXECUTIVE VICE PRESIDENT Church & Dwight named James L. Rogula as president of its personal care business. He was previously a group executive vice president of lawn and garden product supplier Scotts Co. and was vice president and general manager at Church & Dwight’s Arm & Hammer Division from 1982 to 1989. ALBERTSON’S APPOINTS PETER LYNCH TO BOARD Albertson’s Incorporated announced that Peter L. Lynch, president & chief operating officer, has been appointed to the company’s board of directors. “Peter’s extensive retail food and drug experience makes him an excellent addition to our board,” said Paul Corrdry, retired senior vice president of H.J. Heinz Company and lead independent director of Albertson’s board of directors. “Albertson’s is at an important stage in its long and illustrious history, as we embark on an aggressive restructuring plan to drive costs out of the business, while improving returns and building a strong growth momentum for the future. As the strong right arm of our chairman and CEO, Larry Johnston, Peter is playing a crucial role in the company’s revitalization.” Lynch served as president of Acme Stores in Philadelphia as well as executive vice president of operations for Albertson’s Inc. following its merger with American Stores. He was appointed to his current role in 2000. Larry Johnston, chairman & CEO of Albertson’s made the following statement: “There is much to be done at Albertson’s, and no one is better qualified than Peter Lynch to lead the implementation of new strategies that will help the company reach its full potential. “ YVONNE LO RESIGNS AS CEO OF VITASOY Vitasoy USA Inc. announced that its founder Yvonne Lo has resigned as president and CEO of the South vol. I no. 8 december 1, 2001 San Francisco-based soyfoods company. Lo’s brother, Winston Lo, who is executive chairman of Vitasoy USA’s parent company, Vitasoy International Holdings, Ltd., began serving as president and CEO on July 1, 2001, until the position is permanently filled. Vitasoy USA is in the process of communicating to its employees, customers and vendors that the move signals only a change in leadership and that Vitasoy is financially stable and will continue its commitment to its product lines and product quality. The company grew 18 percent from 1999 to 2000. “We continue to experience healthy growth, and the company is on solid financial ground,” said Ms. Lo. “The transition is expected to be seamless.” CAMPBELL ELECTS GEORGE SHERMAN CHAIRMAN OF THE BOARD Campbell Soup Company announced that George M. Sherman has been elected Chairman of the Board. Sherman, 59, a Campbell Director since 1995, succeeds Philip E. Lippincott, 65, who became Campbell’s Chairman in August 1999 and agreed at that time to serve for two years. Lippincott has been a Campbell Director since 1984 and will continue to serve on the Campbell Board. Campbell’s President and CEO, Douglas R. Conant, was appointed on January 8, 2001. Sherman was President and CEO of Danaher Corporation from 1990 until May 1, 2001. Commenting on Sherman’s election, Lippincott said, “George Sherman is an outstanding business leader with an exceptional track record of success. His vast experience in meeting customer and consumer needs, his strategic capabilities and commitment to building shareowner wealth will all serve Campbell well. He has been a strong presence on our Board during the past six years and I am confident he will be an excellent Chairman.” Lippincott added, “I have been honored to lead the Campbell Board during these past two years and am pleased that this transition has gone according to plan. With George overseeing the work of the Board, and Doug Conant and his management team focusing on developing and executing the company’s strategic plans, Campbell is ready to aggressively move forward.” Lippincott is former Chairman and CEO of Scott Paper Company and is the longest serving member of the Campbell Board. ALBERTSON’S NAMES FELICIA THORTON EXECUTIVE VP & CFO Albertson’s Incorporated announced that Felicia D. Thornton will join the company as executive vice president and chief financial officer. Thornton, 37, will report directly to Larry Johnston, Albertson’s chairman and CEO, and will serve as a member of the company’s executive committee. Her responsibilities will include oversight of all traditional financial functions, as well as strategic planning, investor relations and process improvement. Thornton most recently served as group vice president-retail operations at The Kroger Company, responsible for identifying and coordinating best practices across Kroger’s vast chain of retail stores and distribution facilities. In this role, she served as a member of Kroger’s executive committee. Previously, Thornton served as group vice president-finance and administration for Ralphs Grocery Company, an $8 billion retailer. During her seven years at Ralphs, she held a series of leadership positions in corporate planning, strategic projects, finance and administration. Thornton was instrumental in the successful $15 billion merger between Ralphs and Fred Meyer in 1998 as well as the $5 billion merger between Ralphs and Food 4 Less in 1995. Kmart Corporation announced the appointment of Randy Allen to executive vice president, strategic initiatives and chief diversity officer. In this position, Allen will report directly to chairman and CEO, Charles C. Conaway. Allen will be responsible for supporting corporate initiatives tied to the company’s key strategic imperatives, including the integration of BlueLight.com into Kmart Corporation, management of the food distribution agreement with Fleming Companies Inc. and the company’s multi-cultural activities. Allen most recently served as Kmart Corporation’s executive vice president, chief planning and information officer. The company currently is searching for a chief information officer to replace Allen. Allen joined Kmart in 2000 from Deloitte Consulting in Parsippany, New Jersey, where she was the company’s first female Partner. 35 I N D U S T R Y C A L E N D A R DECEMBER 4-5, 2001 (TUESDAY-WEDNESDAY) PMA PROMOTION LAW/ MARKETING CONFERENCE Capitol Hilton Washington, DC JANUARY 22-24, 2002 (TUESDAY-THURSDAY) BASICS OF PROMOTION MARKETING SEMINAR Hyatt Regency St. Louis St. Louis, MO FEBRUARY 2-6, 2002 (SATURDAY-WEDNESDAY) 2002 LOSS PREVENTION CONFERENCE DoubleTree Mission Valley San Diego, CA FEBRUARY 26-28, 2002 (TUESDAY-THURSDAY) BASICS OF PROMOTION MARKETING SEMINAR L.A. Hyatt Regency Los Angeles, CA MARCH 13-15, 2002 (WEDNESDAY-FRIDAY) UPDATE 2002 Inter-Continental Dallas Dallas, TX MARCH 23-27, 2002 (SATURDAY-WEDNESDAY) 2002 ACP ANNUAL CONFERENCE Aladdin Hotel Las Vegas, NV www.couponpros.org APRIL 14-16, 2002 (SUNDAY-TUESDAY) 2002 PHARMACY CONFERENCE Caribe Royale Resort Orlando, FL APRIL 16-18, 2002 (TUESDAY-THURSDAY) BASICS OF PROMOTION MARKETING SEMINAR Sheraton Boston Hotel Boston, MA APRIL 23-25, 2002 (TUESDAY-THURSDAY) NEW YORK PREMIUM INCENTIVE SHOW (Including PMA Sponsored Seminars) Jacob Javits Center New York, NY MAY 14-16, 2002 (TUESDAY-THURSDAY) BASICS OF PROMOTION MARKETING SEMINAR Chicago Hyatt Regency Chicago, IL JUNE 18-20, 2002 (TUESDAY-THURSDAY) BASICS OF PROMOTION MARKETING SEMINAR USA Weekend Magazine Offices (Accommodations available at Hotel Elysee) New York, NY SANTELLA & ASSOCIATES 7819 WESTWOOD DR ELMWOOD PARK IL 60707-1811 PRSRT STD US POSTAGE PAID SANTELLA & ASSOCIATES