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Perishable Pundit
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Wal-Mart: The Name On The Door
Is the Same; The Thoughts Inside
Are Very Different

What’s in a name? Will Wal-Mart be as successful if it is a different company?

This is more than an academic question. This past Friday, Wal-Mart announced that Pat Curran, who was the Chief Operating Officer for the Wal-Mart Stores division, has been reassigned to Executive Vice President of People for that division.

Bill Simon was made Chief Operating Officer and is now responsible for Store Operations. Bill was hired two years ago to head up the Professional Divisions, formerly called Special Divisions. Now the Professional Division consists of optical and pharmacy but at one point included a group of what were once all leased departments, including jewelry, shoes, tire and lube centers, etc.

There is no real problem with Bill. He has a good reputation as a very bright guy and fits the mold of most of the folks that Eduardo Castro-Wright, President and Chief Executive Officer of Wal-Mart Stores-U.S.A., has put into positions.

What is interesting is that now there is no one with any historical connection to Wal-Mart’s heritage in any major responsible position in Merchandising, Marketing or Operations. No one hired by Sam Walton, no one steeped in the Wal-Mart culture.

Now, having bright people approaching problems without historical baggage might not be a bad thing, but it is a very different thing.

Change has always been a part of the evolution of Wal-Mart. You don’t grow to be the biggest retailer in the world, operating different formats on different continents without being willing to change.

But, up till very recently, change was built on the cultural foundation that had established the company and seen it through to achieve such great success. So as new ideas were evolving, there were always individuals in these key areas that acted as a “conscience” and provided an “institutional memory” that connected the future to the past.

Of course, one can always argue that radical change was needed, but Wall Street and the vendor community have both failed to fully absorb how dramatic the change has been in the way Wal-Mart has been transformed on a cultural, core value level.

Let us do a quick comparison and contrast of core values that Sam Walton and David Glass would have recognized with what they seem to be evolving into in the regime:

Single Item/Price MerchantsMulti-Item Solution Merchants
“Sell as cheap as you can.”“Get as much for the product as you can
Net/net negotiatingSupplier-funded activity
No short term strategiesAppease Wall Street with knee-jerk tactics
Win-win strategies with suppliersWal-Mart wins first then maybe the supplier wins
“Our people make the difference.”“Our executives make the difference.”
“A big company that acts like a small company.”“A big company that acts like a big company
“Spend money because you NEED to.”“Spend money because you can afford to.”
“The answers to our problems lie within us.”“The answers to our problems lie with outside consultants.”
“We are a merchandise-driven company.”“We are a marketing-driven company”
“We sell for less.”“We sell SOME things for less.”
“We are a company that buys and sells products for a profit.”“We are a geo-political entity with a multitude of interests and responsibilities and we buy and sell things to fund these activities.”

In effect, although the name Wal-Mart may be on the door, this is no longer Sam Walton’s company.

This hasn’t happened by accident. Someone, presumably Lee Scott with the agreement of the Board of Directors, has decided that the cultural foundations that have served Wal-Mart well since it was founded are not the basis for moving forward in the future.

This may be a correct decision, but the “contemporary” Wal-Mart we detail above seems less certain in its response than the old. To say that the future is to be found in doing sales or having vendors pay for things is just to say that Wal-Mart will be less distinctive than it has been. But, of course, if it is less distinctive, how will it maintain a distinctive competitive edge?

There also seems to be an assumption that Wal-Mart is capable of executing many things that, certainly in fresh foods, it has shown no ability to do.

When we contrast the notion of a single item/price merchant with a multi-item solution merchant, we are talking about the difference between selling one type of towel on an end cap at a great price with a multi-item display of four types of towels, a bathroom trash can, a soap dish, a tooth brush holder, etc.

These types of displays are complex to execute, especially when the Achilles heel of Wal-Mart has always been irregular execution. Even if some of these ideas are good ideas, they are worse than useless if they can’t be executed effectively across an enormous scale of stores

This is especially a problem for food in general and perishables in particular. Wal-Mart is a general merchandise company that happens to now sell food, and it has never invested in the manpower and training necessary to oversee operations for food, especially perishable food. This is where Wal-Mart is different from Meijer, which has a supercenter concept similar to Wal-Mart but a very different cultural center built on selling food.

Some of the changes will result in a short-term burst of earnings, like hitting suppliers up for money. But, very quickly, suppliers will get wise to the new game and Wal-Mart will pay for every cent it asks for in higher prices.

For perishables, much depends on who the new Executive Vice President of Food will be. If the Pundit ran Wal-Mart, we would go visit Bruce Peterson and urge him to come back in that position.

Bruce was hired by Sam Walton and built the produce and perishable operations up in a company very different from the Wal-Mart of today.

Any company that doesn’t welcome new ideas is likely to fail, but any company that forgets its roots is likely to flounder, rootless, uncertain where it came from and where it needs to go.

Wal-Mart now has a lot of new ideas and no roots at all. Bruce Peterson sitting at the table would inject a much-needed rootedness to the corporate conversation.

Does Constant Food Safety Talk
Make Situation Worse?

As the industry celebrates its victories on the food safety front, we turn to some thoughts sent by one of the most important voices on the retail side of the business:

My question for the Pundit is this: When it comes to food safety, is the cure worse than the disease? I’m thinking of all the activity that has been stirred up because of the spinach fiasco and the discussions regarding food safety.

I read that Boskovich is now suing Taco Bell over the green onion issue. And now we have the California Tomato Farmers group that will concentrate on food safety.

And we have the California Seal of… I don’t know… whatever it is the seal of!

In any case, here’s my point: The industry focus on food safety is a good thing inherently. In fact, the industry has always focused on food safety. But ever since the spinach problem, the entire food safety issue in produce is constantly in the public discourse. And in many cases, it is turning into a marketing issue.

The fundamental problem that I see with this is that the “food safety battle” is a war that this industry will NEVER win! As long as fruits and vegetables are produced in an open environment, there will always be a risk of another outbreak. And this doesn’t take into account produce grown outside of the United States.

The simple fact is that as long as many fruits and vegetables are consumed raw, the public is always at risk. This is not a new phenomenon, as it doesn’t seem that long ago that we were dealing with the Alar issue. But in every case concerning produce, the public understood that the problem was isolated to a given grower and or geographic location.

While it’s true that the commodity did suffer a short term sales hit, the public generally became comfortable again with the product and sales climbed back.

But all of this media “noise” about what “so and so group” is doing about the food safety issue will keep consumers focused on the issue, and it’s an “Achilles heel” for the produce industry.

The conversation needs to be around “best ag practices,” which help in a number of ways, ONE of which would be food safety. But it also improves quality, flavor, appearance, etc. In my view, all the constant talk about food safety has made a bad situation worse, not better, from the perspective of how the public views our industry. I think two areas of focus should be concentrated on:

  1. How foodborne illnesses are identified, isolated, and resolved.
  2. How foodborne illnesses are addressed from a media standpoint

Our correspondent is both experienced and thoughtful and he raises several important points:

  1. The industry may be setting itself up for a fall.

    We have invested enormous effort into things such as the California Leafy Greens Marketing Agreement as the industry’s solution to the problem. Yet, by the very fact that we have “industry-wide solutions,” we tend to tie the industry together from the viewpoint of the consumer.

    If we do have another outbreak, for example, on spinach, although companies will immediately argue that they have higher standards than whoever had the outbreak, the very existence of these industry-wide standards will make the problem be perceived as an industry-wide problem. In a sense, our efforts to fashion industry-wide solutions transforms an aberration — the FDA’s decision to universalize the spinach problem — into the norm, in which all future outbreaks will be judged to be an industry-wide failure of standards and inspection requirements.
  2. All the talk about food safety depresses sales.

    There is little question that constant news reports in all media focusing on the safety of produce increases the saliency of the issue in the minds of consumers exposed to the news reports. Consumers do not generally focus on these things the way the industry does, so even if the news reports are positive, the background news consumers hear is likely to simply be the association of produce with foodborne illness. This noise out there operates on both the trade and consumer level.

    Foodservice operators designing new items, even today, are likely to use an alternative to spinach — why not? They have no skin in the game of selling more spinach and consumer doubt may depress sales — so if they can put romaine or arugula in that new wrap sandwich, why not do so? Retailers can advertise another item just as well and avoid the issue. Once again, retailers don’t care what spinach sales are — they can promote something else. And on the consumer level, even if there is just a vague sense that there is something still at issue, many consumers will turn to something else.

    This is all one reason why getting Fresh Express to join the California Leafy Greens Marketing Agreement was so crucial. If a company representing almost half of the fresh-cut salad industry wasn’t in the agreement, it would have resulted in months of public hearings, hundreds of newspaper articles, etc. By joining, Fresh Express saved the industry from this negative publicity.
  3. Unfortunately recognizing all this doesn’t really tell us what the real alternative is.

    Our correspondent mentions the Boskovich lawsuit against Taco Bell, which we dealt with here. The Boskovich lawsuit is interesting because what it basically alleges is that Taco Bell, in its quest to “resolve” the situation — read get it off the front pages as our letter-writer urges for the industry at large — seized on one product, without confirmatory evidence and with disregard for the reputation of Boskovich, and simply declared it at fault, removed it from its menu and declared the crisis over.

    Equally, in the Alar crisis that our correspondent mentions, we could stop talking about the issue very quickly because, very quickly, virtually all apple juice and apple sauce processors pledged to refuse apples grown with Alar. Many supermarket chains pledged to refuse product grown with Alar, most grower regions agreed to stop using Alar, and the EPA voted to ban it but before that could take effect, Uniroyal, the manufacturer of Alar, agreed to stop selling it domestically for food destined for human consumption.

    So in the Alar situation, the industry could quickly move on because the allegations about Alar being carcinogenic in humans quickly became moot. Nobody was using Alar anymore, so it became a backbench issue for food scientists and public policy wonks to debate over.

    In the spinach/E. coli 0157:H7 case, however, the industry didn’t have this option. We never discovered a “cause” for the problem that we could “eliminate” as Boskovich is alleged to have done with green onions and as the industry did with Alar.

    Without that golden bullet to kill the problem, we had no choice but to slug through long public investigations and discussions. Indeed, if there should be another outbreak — and we would be foolish to think there won’t ever be — we might find that our problem was not being public enough.

    For example, the metrics adopted by the California Leafy Greens Marketing Agreement Advisory Board were supposed to be vetted by a group of independent scientists. Yet the Western Growers Association has never revealed their names.

    We actually have no proof they were vetted at all. If they were we don’t know what conflicts these experts might have had or what recommendations they made that were not approved.

    None of this may matter. But if there is another outbreak and someone dies, Bill Marler, the noted plaintiff’s attorney on foodborne illness cases, will surely find out who was on that board, what conflicts existed and what recommendations were not accepted. And the reputational harm to the industry from electing to keep secrets will be astounding.
  4. The question of food safety as a marketing issue is an important one, but it is also most problematic.

    Because there are no bright lines between safe and unsafe, many companies will elect for moral or marketing reasons to exceed standard industry practices. In many cases, these practices will cost money or require labeling. How can companies explain those labels — on, say, irradiated product — or explain the higher price on product grown or processed to higher standards if they don’t to some extent “market” the value of what they are doing? One supposes we could urge people to restrict such marketing to the trade but that just shifts the issue to retailers.

    How can they voluntarily pay more than market prices for product grown or processed to a standard higher than industry norm when food safety is concerned if they can’t market that fact? Or if someone else, such as the producer, doesn’t market to consumers to explain the value of these higher priced items?

    Of course part of the dilemma might be resolved if companies could just be less clunky in their marketing. Emily Dickinson said, “Tell all the Truth but tell it slant — Success in Circuit lies”.

    When the old Pan American Airways, popularly known as Pan Am, advertised, it used the slogan, “The World’s Most Experienced Airline.” Not a word about safety in that slogan, yet to a consuming public still nervous about air travel, it was a slogan that said Pan Am was the airline most likely to keep you safe.
  5. There are many virtues to tying food safety with other quality attributes.

    This is why, until recently, people rarely had a title with “food safety” in it. Most titles were usually referred to as quality assurance, with the knowledge that food safety is an integral part of quality. The increased prominence to food safety titles is, in part, a form of marketing in which companies tell trade buyers and the public that they are focused on this area.

    But it also is a way of emphasizing to the employees themselves what the company is focusing on. It also is a recognition that, although food safety is served by following general good ag practices, there are many specific things done in pursuit of any individual goal — be it flavor or sustainability or food safety — that would not be done in pursuit of general good practices.

    Still, from an industry marketing standpoint, it is probably a good idea to tie all these things together as much as possible.

    We are reminded of many programs we’ve given over the years on shrink reduction. We have always found that an excessively single-minded focus on reducing shrink has negative effects. People under-order and increase out-of-stocks, people reduce SKUs and thus decrease variety offered to customers, people order green bananas and thus don’t have product shoppers want for quick consumption.

    So we always recommend a focus on general good operating practices to achieve the optimal level of shrink reduction compatible with maximizing sales and profits.

    Here, we can recommend an emphasis on general good ag and manufacturing practices but intrinsic in those practices we need a far higher emphasis on food safety as a value that is not easily trumped by other values.
  6. Because food safety is not absolute, a focus on the process of identification and communication is crucial. When our correspondent suggests that we should focus on two priorities — How foodborne illnesses are identified, isolated, and resolved, and How foodborne illnesses are addressed from a media standpoint —he is suggesting that because we have no definitive “kill step” to prevent foodborne illness, we need to look carefully at what we can control.

    To some extent, with its call for mandatory regulation, United Fresh is moving in this direction. Because our foodborne illness outbreaks last year occurred among large, reputableorganizations with food safety programs, it is difficult to believe that an FDA regulation would have much effect on food safety. What it might have an effect on, though, is the way regulators react to an outbreak.

    In a highly regulated arena, such as the meat industry, FDA, USDA and others have a strong incentive to minimize the impact of an outbreak so that their stewardship of the meat food safety system is not questioned. In produce, the incentives are the opposite.

    By bringing the industry under a regulatory regimen, the goal is to switch the incentives of regulators as much as to improve food safety.

    And the media feeds off what the FDA and other regulatory authorities do. As long as they are holding press conferences announcing danger, there will be a strong media reaction. If they hold press conferences announcing a limited aberration in an otherwise strong system, the media reaction will be quite different.

Many thanks to our correspondent for his thoughtful letter.

Understanding And Assessing Risk

Being on this ski mountain in Utah really makes one think that the whole food safety issue is somewhat bizarre. People spend thousands of dollars to travel here from all over the world. They wait on lines, look forward to it for years. Some give up promising careers to become so-called “ski bums.”

Yet at every stage, there are reminders of the real dangers of skiing and snowboarding. You go to put the kids in ski school, you have to sign a release. You go to rent equipment, you have to sign a release.

You can’t get on a ski lift or a Gondola without passing a large sign — Warning: The Inherent Risk of Skiing — with a detailed account of many risks and all the things that can go wrong.

Virtually nobody reads any of these warnings so it would be wrong to say that there is some sort of rational exercise going on with people carefully weighing the risks and benefits.

And, of course, there are some people who, out of fear of injury, decline to ski or snowboard.

Yet one can’t help but think that we live in a world in which something has gone seriously awry. There seems to be not a gap but a chasm between public health standards in which regulators demand zero risk and public behavior, in which people regularly elect to engage in dangerous activities.

Could it possibly be true that people ride a machine to take them 11,000 feet above sea level, put life and limb at risk to go down a mountain in the company of others who required no license to be on the mountain and may have been inexperienced, drinking or on drugs? Then, with a couple of thin pieces of wood or composite and, perhaps, a couple of poles to guide them, zoom down the mountain hoping to avoid sides that contain trees or cliffs as well as snowboarders with a blind spot or skiers unable to control their direction.

Yet we are told that the same people who expose themselves voluntarily to this scenario quake in fear if offered a spinach salad?

Something is off-kilter in our understanding of how people assess and accept risk.

Pundit Mailbag —
AgJOBS Bill Needs More Support

Our piece Pundit’s Mailbag — AgJOBS vs. Lou Dobbs — featured an impassioned plea from Jim Allen, President of the New York Apple Association, Inc. for the industry to speak out and encourage the passage of the AgJOBS bill.

The piece brought a quick response from Charles Walker, Managing Director of the National Peach Council, pointing out the possibilities of the existing H-2A program. We published that response under the title, Pundit’s Mailbag — AgJOBS vs. H-2A. This mailbag included a special Guest Pundit from Robert Guenther, Senior Vice President Public Policy for United Fresh Produce Association, explaining the limitations of the H-2A program.

Now Jim Allen writes on the same topic once again but with greater urgency:

Recently at the PMA Produce Solutions Conference held in Charlotte, NC, we were entertained and educated on how to put the WOW into produce marketing, tap into the Trillion Dollar Mom Market, and grab some of the green from Affluent Shoppers.

It was an excellent conference, which provided produce buyers, marketers, suppliers and leaders important consumer knowledge. Other than my persistent comments to attendees away from the conference floor regarding AgJOBS , no mention or attention was given to the looming shortage of farm labor for this season.

I had a great conversation with Jessica Peri and Tim Cummings from Peri and Sons, a Nevada onion grower. Tim stated that they employed close to 700 H2A workers, and he did not share the same concerns that I do regarding a labor shortage.

I can understand his thought process, because his operation is enrolled in the only truly legal labor supply program, and assumes that they will continue to be supplied with legal labor. Many NY apple growers feel the same, but they also realize that H2A has its many problems and faults to overcome.

As Senator Larry Craig from Idaho commented, H2A was designed not to work and was created to win over the union vote in the 1960 presidential election. It created an off shore labor program that would not compete with the unions and domestic labor supply.

Amazingly, the program has survived, but is currently only supplying 47,000 workers out of the estimated 1.9 million farm workers. I believe that if we get Tim all the facts, he will better understood the need for AgJOBS and that includes H2A reform that would simplify his present programs.

I realize that the PMA conference was focused on consumer trends, and I know that PMA has strongly committed its support along with UFPA, FMI US Apple, ACIR, to AgJOBS.

Still, with over 300 attendees that all rely on the produce industry for their livelihood, some mention of the importance of this legislation could have been made. Since it was not, I urge all the readers of the Pundit and the entire industry to take action now.

Contact Congress and voice your support for AgJOBS. I will continue to make these pleas for as long as it takes to pass the bill or until the Pundit shuts me off. I hope the bill passing comes first. Come on produce industry, let’s get this done.

— Jim Allen
New York Apple Association, Inc
Fishers, New York

Jim need not worry about being cut off. This is an important issue and Jim’s letters are timely.

It is hard to get industry focus on an issue like this. First, of course, somehow or other, everyone is in business and we don’t have this law. If the proposal was to ban the H-2A program, you would get intense industry focus because those people who use the program would feel that they have something to lose.

Second, many, even in the industry, have somewhat mixed feelings on the matter. After we ran Jim’s first letter on AgJOBS we got a phone call from a wholesaler who, of course, wanted his producers to have enough labor but, politically, he was anti-immigration and simply didn’t see this issue as solely an ag issue.

And that may well be the thing that ultimately decides the matter. If industry lobbyists can get a straight up-or-down vote on AgJOBS, they may win.

But there is a strong possibility, maybe even a likelihood, that the industry will never get that straight up-or-down vote, that the bill will wind up as part of a larger immigration package and that larger package simply will be too controversial, too disputed and just will never move.

Our own sense is that many of things the industry doesn’t like about the H-2A program — such as the requirement to provide housing and money to get home — are precisely the kinds of things that are necessary to separate the ag labor problem from the broader immigration problem.

In other words, if there was a program where individuals (not families) had to be recruited outside the U.S., were flown here to work, given workforce housing, food, clothing and medical care, then flown back to where they were recruited and paid their season’s pay in their home country, it is possible that the likelihood of these individuals becoming part of the illegal immigration problem or a public charge would be so low that the industry could win the battle to have this ag labor problem solved separately from the immigration program.

This is especially true if the industry would simultaneously commit to invest in mechanical harvesting and agree to a phase-out of guest worker program over, say, 40 years.

Of course, reading political tea leaves is hazardous even for Pundits and our industry advocates may be able to make it happen and pass AgJOBS as it stands right now. If they are to do so, it will require a great deal of grass roots support, as Jim told the Pundit in a separate conversation

I can not stress it enough of how important it is for our collective industries to speak up, from the grass roots level. I am hoping that the Pundit can help this get done. For the life of me, I will never understand why any grower (that needs labor) would not take the 4 minutes it take to call and register your support for this issue.

This is a serious problem. A good friend of the Pundit is not planting certain field crops in certain states because of the real risk that no labor will be available to harvest the crop. For growers of tree crops such as Jim Allen’s New York apple growers, they risk having long-since sunken capital rendered worthless because they can’t harvest their crops.

So Jim’s urgency is well placed and, indeed, those concerned about this issue need to be speaking out now.

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