Costco Dumping Coca-Cola

Costco customers looking for “the real thing” now have to look elsewhere: The warehouse retailer said on Monday that it’s no longer buying Coca-Cola (KO) products. Once stores run out of their dwindling supplies, they won’t be restocking.

Costco is playing hardball; negotiations between the two companies to reach a recession-ready wholesale price have apparently broken down. Costco acknowledges this problem on its Web site: “Costco is committed to carrying name brand merchandise at the best possible prices. At this time, Coca-Cola has not provided Costco with competitive pricing so that we may pass along the value our members deserve.”

Narrow Margins

It’s an uncommon move for Costco, but not a surprising one. Consumers are looking for ways to squeeze their budgets, and retailers are trying to increase profits while cutting prices. That’s been a hopeless quest for Costco this year; the 3% pretax profit margin it posted between 2004 and 2007 is now just 2.5% — a net profit margin of somewhere around one cent on the dollar after taxes, overhead, and other incidentals. With such a narrow margin, the slightest uptick translates into a major value shift.

Every 0.01% the company ekes out on its pretax profit margin translates into a one-cent increase in earnings per share, and a likely 0.5% uptick in its stock value. The superthin profit-margin model, and its major influence on stock value, follows Walmart’s (WMT) example; Walmart, with its 3.3% net profit margin, regularly strong-arms its suppliers into deals that guarantee its famously low prices.

Complicit Coke

Coca-Cola may seem like the wronged party here, but it’s complicit in its own undoing. Coke, after all, caves in to Walmart’s demand for a razor-thin profit margin by slashing its products’ prices, in return for Walmart’s massive distribution — and swamping not only Coke’s smaller competitors but Walmart’s smaller, higher-priced, higher-profit rivals.

The result of recession, unemployment, and an increasingly desperate push for profits have left Walmart, Costco, Coke, and thousands of other companies in a cannibal buffet. Having feasted on the easy pickings offered by smaller chains, these companies now find themselves eyeing each other. With unemployment still rising, retail sales won’t be getting fatter anytime soon.

In Other News: Suit Charges Coca-Cola With Profiting From Seizure of Jewish Property in Egypt

Lawyers for the Bigio family, Jewish Egyptians whose property was seized by the Egyptian government in a 1960s program to rid the country of its Jewish population, are demanding summary judgment and a jury trial to establish damages against Coca-Cola for exploiting “for immense profit” property that Coca Cola has been occupying since 1994 with the knowledge that the property was taken unlawfully from the Bigios. In a brief filed today in federal district court, the Bigios – responding to the Court’s request for supplemental briefing – spelled out the extensive web of international laws violated by the Nasser regime’s anti-Jewish campaign which included the nationalization of the Bigios’ property in 1962.

The Egyptian government has acknowledged that the property was seized illegally and rightfully belongs to the Bigios. A federal court of appeals has twice rejected technical jurisdictional contentions made by Coca-Cola. The case has been before the courts for 12 years.

“Coca-Cola is the occupier of stolen property,” said attorneys for the Bigios. “Coca-Cola has been stonewalling for years, hiding behind a veil of artificial and inapplicable legalisms and it will now be able to respond to our latest brief only by denying that Egyptian Jews were persecuted by the Nasser regime. If it makes such an argument, Coca-Cola will be engaging in the same conduct as Holocaust deniers. Such flagrant behavior will not hold up in the court of public opinion. It is time for Coca-Cola to acknowledge that the property belongs to the Bigios, was unlawfully confiscated from them, and compensate them for its occupancy and use.”

Coca-Cola was aware that the Bigios owned the land, buildings, business and machinery involved in this case because the two companies did business together for more than 20 years prior to the seizure of the properties under the ethnic cleansing campaign of Egyptian president Gamal Abdel Nasser. In 1965, the Bigio family, left destitute by the seizure of their property and business, immigrated, as stateless persons, to Montreal where they now reside.

In 1994, after it was informed by the Bigio family of the Egyptian government’s determination that the family owned the property, Coca-Cola took control of the property under various forms of ownership of Egyptian companies bearing the Coca-Cola name.

The Bigios filed a request for summary judgment September 14. Oral arguments were heard November 10. The letter brief responds to the judge’s request for legal authority demonstrating that the Egyptian government’s nationalization of the disputed property in 1962 violated international law.

Related links

IBISWorld Industry Reports
-Soft Drink Production in the U.S.
-Big Box Retail Stores in the U.S.

IBISWorld company profile
- Coca-Cola Company
- Costco Wholesale Corporation

Recession Creates New Holiday Shopping Trends

Survey data from PriceGrabber.com, a part of Experian, reveals that the state of the economy is shaping new trends in holiday shopping. More than ever, comparison shopping is on the forefront of consumers’ minds, with 70 percent of consumers doing more research and comparison shopping online, compared with 38 percent last year.

Consumers are also crossing acquaintances (57 percent) and coworkers (53 percent) off their gift lists. Other findings from the PriceGrabber.com survey of 2,018 online consumers conducted from Sept. 24, 2009 to Oct. 12, 2009, reveal:

Consumers are cutting back — 53 percent plan to spend less

Many consumers have made a concerted effort to cut back over the last year due to the recession. A recent PriceGrabber.com survey revealed that these efforts will continue into the holiday shopping season and set the stage for new trends in holiday shopping. Fifty-three percent of consumers are planning to spend less than they did last year. Of the consumers who are planning to spend less this year, 48 percent reveal that one of the reasons that they are spending less is due to an increase in prices (necessities, gas, etc.), 45 percent cite lack of confidence in the economy, and 38 percent indicate making less money as a reason for spending less.

Shopping starts earlier to ease the impact of holiday spending — 22 percent start their holiday shopping in October

Cutting back on spending is not the only holiday trend being impacted by the recession. In past years, Black Friday (the day after Thanksgiving) has been the unofficial start of the holiday shopping season. This year, consumers are planning to start their holiday shopping long before Black Friday, with 22 percent of consumers starting their holiday shopping in October and 29 percent starting in November.

Gift lists are trimmed down to manage budgets — 57 percent are not purchasing gifts for acquaintances

Consumers are also making some significant cuts to the number of people on their holiday gift lists. When consumers were asked to compare this year’s gift list to last year’s, 57 percent of consumers revealed that they are not purchasing gifts for the acquaintances that they purchased gifts for last year. Fifty-three percent of consumers are not purchasing gifts for the co-workers that they purchased gifts for last year. When it comes to holiday spending this year, 36 percent of consumers expect to spend between $100 and $499, 28 percent plan to spend $500 to $999, and 30 percent anticipate a holiday spend of $1,000 or more.

Consumers are using more money-saving techniques — 50 percent shop at discount or outlet stores

This year, in order to meet holiday spending budgets, more consumers are utilizing money-saving techniques for their holiday shopping when compared with last year’s PriceGrabber.com survey, Holiday Consumer Spending Survey (2,641 respondents, conducted from Oct. 20, 2008, to Nov. 10, 2008). Fifty percent of consumers are planning to shop at discount or outlet stores this year, while only 43 percent did so last year. Twenty-nine percent of consumers are planning to purchase gifts for fewer people this year, while only 10 percent did so last year.

Is the Recession Boosting Alarm Sales?

Photo by CraigPJ

With the economy in trouble, business owners are worried about more than just their bottom lines.  It seems that security is among one of their major concerns.

According to Larson Brewer, the owner of Phoenix-based Suncoast Security, the company’s alarm installations grew from 15 per week in 2008 to 25 per week in 2009.  Suncoast is adding as many as 17 jobs to its staff and has plans to expand to Colorado and Washington to meet the rising demand for security.

“New business is coming from residents and business owners concerned that they will see an increase in break-ins because of the down economy,” explained Brewer.  “Crime is not going down.  In fact, it’s gone up and we expect it to continue to rise.”

What do industry analysts say?

“Security alarm systems are considered a discretionary purchase, therefore revenue is expected to decline 2.3 percent in 2009,” explained George Van Horn, senior analyst with industry research firm IBISWorld.  “Last year, about 65 percent of alarm systems were purchased from businesses, 20 percent from government centers and 15 percent residential.  An increase in demand may be a reflection of recent budget cuts in local police forces.”