National Grocers Association Annual Issue before Custom Publications

www.nationalgrocers.org Diversity and Differentiation: A Community-Focused Formula for Success 6

Outlook for the 110th Congress Erik Lieberman, Director of Government Affairs, National Grocers Association Recently I was up on Capitol Hill, walking through the impact on small businesses. the corridors of the office buildings for members of Antitrust: the House of Representatives. It was striking to see Democrats are not likely to heed the call of the Antitrust the countless offices being cleared out to make way Modernization Commission (AMC) to repeal the for the new members of Congress. Hundreds of desks Robinson-Patman Act and gut other laws important and boxes of office debris lined the halls. I found it for maintaining a level playing field to preserve diversity remarkable to observe a physical manifestation of this in the marketplace for the benefit of consumers. The shift in power. The sight was a testament to the core AMC is the brainchild of outgoing House Judiciary aspect of democracy—the power of citizens to cast Committee Chairman Jim Sensenbrenner (R-WI). votes and in a single day change the course of the public The AMC will report its findings to Congress in policy direction of a nation. Change is healthy for April. Despite the changed political dynamic, it will government. It is natural. In fact, the average tenure be important for consumers and community-focused for a Congressional majority in the House during the businesses to express opposition to the findings of 20 century was approximately 12 years. The previous the AMC. The Democratic Judiciary Committee th Republican majority in the House endured for precisely Chairmen in both chambers may advocate for stricter that period of time. For the Republicans, losing the enforcement of antitrust laws. N.G.A. will call on majority will help them to refocus their agenda on core Congress to preserve and strengthen the Robinson- principles of small government and fiscal restraint. For Patman Act including expanding the Act to include the Democrats, control of both chambers of Congress services. N.G.A. believes that the Robinson-Patman for the first time in over a decade will provide them Act should be enforced to a greater degree to with an opportunity to govern and advance their maintain a vibrant marketplace for consumers and agenda including long-stalled priorities for the labor that it is important to demonstrate to lawmakers community. The advantage for Democrats in the that bigness does not always equate with efficiency. Senate is only one vote, so bipartisan consensus will be required to pass legislation. Taxes: Total repeal of the death tax is improbable in the 110 th How will the new Congress impact issues important to Congress. Democratic taxwriters have indicated that the grocery industry? their first priority will be to reform the Alternative Minimum Wage: Minimum Tax. Scrutiny of the LIFO provisions of the A minimum wage increase will likely pass early in tax code may also intensify. N.G.A. supports reform the 110 Congress. The federal minimum wage is of the death tax that would eliminate its devastating th expected to rise to $7.25 an hour and will be phased- impacts on family-owned businesses. N.G.A. in over a period of two years. Democratic leadership supports retaining the LIFO provisions of the tax has indicated that this issue will be one of the first code which are important to the grocery industry. orders of business in 2007. President Bush has stated Financial Services: that he will support such an increase so long as it is Rep. Barney Frank (D-MA) has become the new accompanied by tax and regulatory relief targeted chairman of the House Financial Services Committee. to small businesses. N.G.A. advocates that any He has been a champion of closing the industrial loan minimum wage increase considered by Congress company loophole in federal banking law which Wal- should include tax and regulatory relief to soften Mart is currently trying to use to establish a bank. It  2007 N.G.A. Buyer’s Guide

is anticipated that Rep. Frank will act quickly on this matter. Rep. Frank is also expected to scrutinize the credit-card industry—which will likely include an examination of credit and debit card interchange fees. N.G.A. supports closing the supercenter banking loophole. N.G.A. supports increased congressional and regulatory scrutiny of debit and credit card interchange fees to correct the lack of a competitive market. N.G.A. supports a transparent cost-based interchange system as a means to reduce fees and eliminate the discriminatory fee structure which enables Visa, MasterCard and banks to charge first, second and third tier supermarkets more than Wal-Mart. N.G.A. continues to work on its multi- pronged approach to reducing interchange fees— including litigation, legislative, regulatory and business solutions and is a founding member of the Merchants Payments Coalition. Health Care: The focus of the health care policy debate will likely shift from market-based proposals supported by the GOP such as association health plans to solutions in which government plays a greater role. Democratic place a priority on giving the food safety divisions priorities include allowing the re-importation of at USDA and FDA adequate resources rather than prescription drugs from Canada, allowing the federal focusing on organizational rearrangement. Placing government to negotiate lower prices for prescription an additional layer of bureaucracy on top of both drugs under the Medicare program and filling the hole agencies could be counterproductive and lead to in the Medicare Part D benefit. The new Congress problems similar to those faced by the Department is also more likely to scrutinize the managed care of Homeland Security. industry. N.G.A. is evaluating proposals beyond the association health plan solution and will support Immigration: measures that will reduce the soaring costs of health With Democrats now in charge, Congress is likely to care which are devastating independent businesses. approve a guest worker proposal favored by President Bush and the business community over legislation Food Safety Legislation: that passed the House earlier this year. H.R. 4437, The recent E. Coli outbreaks involving leafy greens which passed last December, would have required all have renewed attention to the concept of a single U.S. employers to use an electronic verification system federal food safety agency. Rep. Rosa Delauro (D- to confirm the employment eligibility of all newly CT) will become the new chairwoman of the House hired workers and previous hires. N.G.A. supports Agriculture Appropriations Subcommittee in the President Bush’s approach to immigration reform. 110 Congress and has called for a single food agency th responsible for ensuring the safety of the nation’s food N.G.A. will continue to be a strong voice for supply. Rep. Delauro has pledged that a hearing on independent retail and wholesale grocers before the legislation will be her first order of business as Congress, the White House, regulatory agencies and Chairwoman. N.G.A. believes that Congress should the courts in 2007. 0 2007 N.G.A. Buyer’s Guide

N.G.A. Leadership in National Coalition of Merchants Dedicated to Dramatically Reducing Your Credit Card Interchange Fees By Stuart Zlotnikoff Senior Vice President, National Grocers Association “If we do not hang together, we shall what type of business they are in. Retailers of every surely hang separately.” stripe have now come together to pool their collective Quote from Thomas Paine, clout to dramatically reduce these enormous, growing American Revolutionary Writer and virtually uncontrollable interchange fees. An unprecedented national coalition of merchants has been formed to fight these arbitrary, discriminatory, and economically unjustifiable fees which are unfairly In 1776, as a call to action against a common tyranny, set due to the market power and anti-competitive Thomas Paine’s words inspired a revolution, as well system of the credit card companies and their issuing as the world’s most successful, permanent coalition banks. -- which we now proudly call the United States of America. In response, N.G.A. has been pro-active and in the lead to help form, fund and direct the effective Today, there is another kind of “common tyranny” actions of a powerful, national, merchant coalition. confronting all merchants across the nation: the Eighteen months ago, N.G.A. became a Founding excessive, growing, and out of control interchange Member of the Merchant Payment Coalition fees which merchants must pay to the card (MPC). The MPC is a multi-channel organization companies. According to a survey of a cross-section representing the nation’s retailers, supermarkets, of N.G.A. member retailers, grocers must now pay department stores, drug stores, convenience stores, .4% to .8% of their store sales for card acceptance. gas stations, and on-line merchants in payment and Given the historically thin margins for the grocery transaction issues -- all united in finding a solution industry, this is nothing short of a crisis! to the skyrocketing interchange fees. In addition, Of further concern is the grocery industry trend N.G.A. senior staff and counsel are currently toward both higher interchange rates and higher Members of the MPC Executive Committee and all volumes of electronic transactions, with a number of MPC sub-committees. companies reporting more than 50 percent of their In terms of “hanging together”, MPC represents purchases being made with credit and debit cards. In more than 2.7 million locations and approximately fact, in 2003, electronic payments overall in the US 50 million employees! The combined strength of exceeded check payments for the first time with over the MPC represents well over 50% of ALL credit 50 percent of consumer payments being made with and debit card transactions in the US. Along credit or debit cards. with N.G.A., other association members of the But grocers are not alone in this fight. The “credit MPC are: National Association of Convenience card interchange crisis” has become a call to action Stores, Food Marketing Institute, National Retail for all merchants across the country, regardless of Federation, National Association of Chain Drug  2007 N.G.A. Buyer’s Guide

Stores, American Petroleum Institute, Retail produce a regulatory and operational framework to Industry Leaders Association, Petroleum Marketers help U.S. merchants obtain reduced interchange rates Association of America, National Council of Chain through a more economically efficient and equitable Restaurants, National Association of College Stores, cost based interchange fee structure that is transparent National Association of Truck Stop Operators, and non-discriminatory. International Association of Airport Duty Free Stores, National Association of Theatre Owners, American In that direction, on November 14, 2005 N.G.A., Beverage Licensees, Bowling Proprietors Association become a class-action plaintiff in a price-fixing suit of America, National Association of Shell Marketers, against VISA, MasterCard and the leading US bank and Interactive Travel Services Association. issuers. N.G.A., along with retailer, wholesaler and state association members of N.G.A., — Affiliated In short, the mission of the MPC is to achieve a Foods Midwest, Coborn’s, Inc., D’Agostino’s more competitive and transparent credit card fee Supermarkets and the Minnesota Grocers Association system that better serves American consumers and — filed an antitrust, class-action lawsuit contending merchants alike. Importantly, this is consistent with that VISA, U.S.A., Inc., MasterCard Incorporated the strategy that the N.G.A. Executive Committee and a number of major banks are engaging in illegal and Board of Directors approved last year for N.G.A. collusive practices by setting credit card interchange to pursue a comprehensive four-prong action plan fees at supra-competitive levels in violation of federal aimed at eliminating or dramatically reducing grocers’ antitrust laws. Additionally, more than 50 lawsuits, interchange fees – through litigation, legislation, with plaintiffs representing hundreds of thousands of regulation and marketplace options. All parts of the merchants, have been filed in federal court claiming plan are being pursued actively and simultaneously in that interchange-related practices violate federal order to increase public and governmental awareness antitrust laws. of the interchange problem and the need for a permanent, structural solution. In addition, N.G.A. members and staff also met with officials of the Federal Reserve Bank of Kansas City The inescapable fact is that VISA and MasterCard set on June 19 to discuss the adverse effects of debit all the interchange fees and make all the operating and credit card fees on consumers and supermarket rules that merchants, acquiring banks and processors operators. The KC Federal Reserve Bank is one of must follow. This includes not only the published the leaders in economic and public policy analysis interchange fees you pay, but also the other related of payment systems and has spent considerable time dues and assessment fees, access fees, base rate analyzing the effects of interchange fees. settlement fees, surcharge fees, etc. which you ultimately also pay and they get as your costs for Reinforcing each other, N.G.A. and the MPC share accepting their cards in your store. the view that the banks that make up and control Visa and MasterCard have colluded to set these N.G.A. sees a critical need for federal government interchange fees, operating in price-fixing cartels that agencies and legislators to provide oversight of would violate federal antitrust law in other industries. debit and credit card interchange fees and the lack of a competitive market. N.G.A. believes that Fact is that around the world merchants have Congress and the Federal Reserve should examine fought back against VISA and MasterCard and their the components of interchange fees and the costs unfair and costly interchange systems and excessive credit card associations incur in conducting card merchant fees — and won! Merchants have formed transactions. They need to investigate or conduct payment coalitions and unified themselves to fight an inquiry into the negative impact increasing back with comprehensive initiatives. As a result, interchange fees charged by credit card companies are antitrust authorities across Europe, in Great Britain, having on the grocery industry and our customers. and in Australia, have condemned these collectively set fees and Visa and MasterCard rules as anti- In particular, N.G.A. supports both legislative, as competitive and have moved to bring the interchange well as legal injunctive relief through the courts, to fee under control – in some instances reducing them www.nationalgrocers.org Diversity and Differentiation: A Community-Focused Formula for Success

Creative Choice 2007 Creative Choice Awards Contest Recognizes the “Best of the Best” in Grocery Advertising and Merchandising Advertising and Merchandising are valuable tools for building your business and creating a point of differentiation in the marketplace. Used correctly, these tools will increase sales, enhance consumer loyalty, and strengthen customer enthusiasm. The Creative Choice Awards Contest is a way to honor and recognize the best advertising and merchandising in the grocery industry. All entries were judged by a panel of industry experts, and win- ners were selected based on the creativity, clarity and effectiveness of the entry. All winning entries will be on display in the Hall of Fame area during the convention. The following entries were selected by the judges as the “Best of the Best” in advertising and merchandising. The Best of Show Award for Advertising and the Best of Show Award for Merchandising will be selected from these finalists and announced at the Grocers Awards Reception on Tuesday, January 30, 2007 from 5:15 p.m. to 6:45 p.m. Nominated for Best of Show — ADVERTISING 1...Best.Consumer.Connections. the campaign generated 1800 new dicated that there has been a significant through.Emerging.Technology:.. registrations. After just three months, increase in sales. Roche.Bros..Home...Delivery... home delivery activity was at year two 3...Best.Public.Service.Campaign:.. (Roche Bros. Supermarkets – projection. Within six months, 1200 Family.Dinner.–.Bring.the. submitted by Bennett Group). new regular customers were generated. Family.Home...(Associated “This campaign was created to effec- Activity and visits on the Rochebros. Food Store Retailers) tively launch Roche Bros. new online com website have dramatically in- “Recent shopping concept in a competitive mar- creased. studies ket. Our objectives were to con- obtain 500 online registra- 2...Best.Television.Commercial:.. ducted by Farmers.Pride..(K-VA-T Food Stores, Inc) Columbia This 30 second television commercial Univer- supported locally grown produce in the sity show summer of 2006. “We are committed a direct to support local farmers in our market. correlation between fre- quent family dinners and re- duced risk of teens tions within smok- 6 months of the launch, effectively ing, communicate Roche Bros. brand of drinking quality, service and value, effectively or using target the key shopper; busy females illegal with families, and maintain mo- drugs. Associ- ated Food mentum and repeat usage of home Stores felt the study rep- delivery.” Roche Bros. indicated that This commercial was supplemented resented a unique opportunity to help this home delivery launch was incred- with radio, TV, print ads, P.O.P. and its communities and position its stores ibly successful. Within three months, displays.” K-VA-T Food Stores, Inc in- as the family dinner headquarters. The 3 2007 N.G.A. Buyer’s Guide

Creative Choice eight-week promotion was launched 4...Best.Advertising.Campaign:..It’s.So. phases from July 2006 – October 2006 in October and continued through the Fresh...(Price Chopper Supermarkets and that in recent focus group research, Thanksgiving holiday. Associated Food – submitted by Associated Wholesale Price Chopper Stores published a 16-page ‘Family Grocers) has in- Dinner’ magazine which featured local “Price Chopper stores are known creased news celebrity Michelle King and in- for fresh, quality perishables. To scores cluded information about the university reinforce the fresh image in the in the study. Also included in the magazine market, Price Chopper launched fresh- were recipes and tips on making dinner a ‘Freshness’ campaign called ness and at home more rewarding.” Associated ‘It’s So Fresh’. This included quality Food Stores indicated that the success new in-store signage in key cate- of the Family Dinner – Bring Home perishable departments and gories. the Family campaign not only helped at the front of the store, new increase sales, but further positioned aisle marker signs, an updated members of Associated Food Stores as ‘fresh’ look for the weekly important contributors to the com- print ad and a series of image munity. More than 105,000 magazines commercials promoting key perishable were distributed to store guests and departments.” Price Chopper indicated guest impressions via ad distribution the program rolled out in stores in were approximately 107,000. Nominated for Best of Show — MERCHANDISING 1. Best Fresh Foods: Pruett’s Farmers home the point of local, fresh and natu- event that is attended by an estimated Market (Pruett’s Food) ral.” Pruett’s Food indicated a produce 100,000 people.” “Pruett’s buys thousands of pounds of sales increase of 44%, over all store sales 3. Best Charitable Cause Event: Food th th local produce every year. We wanted to up 32% for the week of July 19 – 25 , For The Cure (Coborn’s) emphasize this to customers by creating 2006. “One of the long- a roadside farmers market within our 2. Best Private Label Event: County term strate- store. Local growers were the highlight Market Rib America Festival (County gies of of this event with their photos and pro- Market Stores – submitted by SUPER- Coborn’s VALU, INC Northern Region) is ‘Com- “This four-day music and rib-eating munity extravaganza took place from July 27 – Involve- July 30, 2006. County Market was the ment’. title sponsor of this promotion that was The Co- held on Harriet Island in downtown born fam- ily made a major financial contribu- tion to the local Cen- tracare Health Foundation so that Central MN residents could receive cancer treatment close to home. The ‘Coborn Cancer Center’ opened five years ago. As a St. Paul (MN). This even generated way to continue funding this center, duce great exposure via multi-media for the Coborn’s started a vendor drive with set County Market group and sponsoring the annual ‘Grocer’s on the Green’ golf up in vendors, which included Store Brands. outing, with proceeds going to Pediatric front of the store lending a hometown It was a tremendous opportunity for Cancer Programs. This year we decided atmosphere to the event. Since we’re a County Market to display and adver- to involve the Coborn’s customers with small town, many customers recognized tise its high-quality Store Brands at an a new annual ‘Food For The Cure’ the farmers as their neighbors; driving www.nationalgrocers.org Diversity and Differentiation: A Community-Focused Formula for Success 3