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Perishable Pundit
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Produce Business

Deli Business

American Food & Ag Exporter

Cheese Connoisseur

Tale of Two Tescos

While in Palm Springs for an industry meeting, we had the opportunity to visit the two Fresh & Easy stores in that area. In the differences between those two stores, we may find the core of Tesco’s struggle to make the concept work.

The store in Indio is a brand new building, in a brand new center. It is light and airy feeling and, although at the far edge of residential development in the region, it was a reasonably busy store with a steady flow of traffic during our weekend visit approaching the dinner hour.

In contrast, we visited a store in Palm Desert. This was a remodel of an existing property. It was across the street from a major shopping mall and shared a center with a 99-cent store.

It lacked the pleasing natural light of the other store. This store was dead. At no point during our visit just after we went to the Indio store did the number of customers exceed the number of employees. The primary job of the employees in the store seemed to be doing mark-downs on perishables that were approaching or were at their “best if used by” dates.

In both stores the staff was friendly; in both stores we saw a number of innovative products, especially in the meat and prepared foods areas. We saw continuing disappointments. Out-of-stocks were still unreasonably high for a small chain that could easily do manual ordering to supplement its computer-driven system. The sampling area continues to sample the most mundane dried grocery items and simple deli or produce items rather than any of the innovative products the store carries, since they don’t sample cooked product.

We saw Tesco beginning to abandon some of the policies that have made it uncompetitive — for example, the first two produce items in the store were branded — bags of Peri & Sons onions and Kern Ridge citrus.

The branded bags are obviously attempts to avoid the enormous cost associated with repacking these items and thus either offer consumers a better value proposition or increase Fresh & Easy margins.

Despite the entry of branded product into produce, we saw no evidence that Tesco was looking to offer well known consumer brands, such as Dole, Chiquita, Del Monte or Sunkist.

As we have studied Tesco’s Journey to America, we have often questioned the decision to start out by building a massive distribution center. The problem with this strategy is that it placed tremendous pressure on the real estate personnel to sign a lot of leases quickly so as to amortize the cost of the distribution center. The almost inevitable result of this is that Tesco wound up with a lot of secondary locations.

As the stores have begun to mature and as Tesco has increased its promotions and discounting — with markdowns on perishables and offers of a $5 coupon on a $20 sale — we are finding some stores selling from $100,000 to $120,000 a week, but we are also finding many stores stuck in that $50,000- to $60,000-a-week range.

The prime difference seems to be real estate — as the saying goes, there are three things important in retail: location, location and location.

That overstates it a bit — and profitability can be difficult to judge as sometimes those high traffic locations are pricey. But an unsuccessful high traffic location can be fixed by changing concepts whereas a low traffic location can be a struggle regardless of concept.

One likely outcome of the Fresh & Easy saga: After two or three years of rapid rollouts, Tesco will take the underperforming locations — perhaps a third of, say, 500 stores opened by then — and close them, declaring a massive write-off attributed to “start-up learning” in which it learned what locations work and don’t for the concept.

Of course, location is not a static thing. Right now that Indio location may be a winner. But this may be due as much to the fact that in this developing area, the competition isn’t yet too tough.

We noted that within walking distance of the store, both a Target Supercenter is under construction and a unit of the uber-competitive, super price-focused, employee-owned Winco Foods is being built.

Perhaps these retailers will attract more shoppers to the area and Fresh & Easy, with its small footprint, will be seen as a convenient alternative to the maddening crowds and larger footprints of these other stores. Perhaps. It is also possible, of course, that these new competitors will win over most of the customers and put such price pressure on Fresh & Easy that it can’t make any money even if it gets some customers.

Here is another wild card. There is an empty lot across the street from the Fresh & Easy in Indio, perhaps just the right size for one of the new small footprint concepts from Safeway or Wal-Mart.

We promise to check back after the SuperTarget and Winco open to see how Fresh & Easy in Indio is doing. But if we were investors in Tesco, we would be thinking about a write-down of subprime real estate somewhere down the road.

Another Company Says
No To Wal-Mart’s ASDA

We’ve focused a fair amount of attention on issues related to suppliers assessing their businesses and electing to “fire customers.”

We launched this series with a piece entitled, Just Say No: The New Dynamic Of Producer/Buyer Relations, which quoted the Fresh Produce Journal in London announcing that Del Monte had walked away from ASDA’s banana business:

Del Monte is re-evaluating its position in the UK after “walking away” from ASDA’s banana business.

UK md Peter Miller told FPJ: “We decided that it was no longer the right proposition for us to continue supplying ASDA with bananas.

“We walked away from the ASDA tender because we didn’t like the money, but we still have 80 per cent of their pineapple business, a significant and developing share of their melon business and a massive proportion of their fresh-cut fruit business.”

ASDA has extricated itself from the global supply deal its parent company Wal-Mart had on bananas with Del Monte, and is now sourcing from Fyffes, Chiquita and International Produce.

The same piece focused on Tanimura & Antle’s decision to not sell to processors. We followed up this piece with an article entitled, Tanimura & Antle Changes…A Sign Of The Times.

We also published an important letter from Ted Campbell, former Corporate Director of Produce for Supervalu, under the title Pundit’s Mailbag — ‘Little Tolerance For Dictatorial Buyers.’ In this piece, Ted explained what he saw as a reasonable procurement philosophy:

During my years at SUPERVALU and AWG, I spent many days training young buyers that their key responsibility was securing the “best” source for products rather than the apparently cheapest source. As you well know, it is critical to have consistent supply, superior quality, product safety, innovative items, and numerous other attributes — none of which happen fortuitously (they almost always cost more).

The second leap of faith in this training exercise was to develop their understanding that these premier suppliers deserved adequate return on investment and thus should receive a “fair premium” over general market pricing.

Finally to really make their heads spin, I always told them that a reasonable pricing premium returned dividends at retail because better stuff just simply sells better: more eye appealing, better eating quality/customer satisfaction, less shrink & labor, usually better margin, better repeat sales with positive customer referrals, etc. No one makes money until the product goes through the cash register, so I wanted items to fly off the shelves (and the financial advantages of rapid inventory turns are often overlooked).

Then John S. Cross, General Manager of Newell Potato Cooperative, sent in a letter that we published under the headline, Pundit’s Mailbag — Fear of Losing Market Share. The gist of his letter:

Too many producers in the potato industry have an extreme fear of losing market share, and unless their sales people don’t have product to sell, are afraid to raise prices to a profitable level.

It is interesting that John works in the potato industry because happenings in the potato industry are bringing this discussion right back to the UK, where it started in the controversy over Del Monte dropping Wal-Mart’s ASDA as a banana customer.

Earlier this month, a major potato supplier to ASDA also decided to say “No More” as is detailed in this article in The Scotsman:

Supermarket in firing line as potato bosses pull plug on £32m contract

A FAMILY-RUN potato business has fired the first shot for Scotland’s food growers by choosing to end a multi-million-pound contract supplying one of the UK’s largest supermarket chains.

The announcement by Taypack Potatoes in Perthshire yesterday that it had cut its £32 million-a-year contract with ASDA, Britain’s third-largest supermarket group, was met with surprise by insiders. The company, which started up in 1986, supplies ASDA with 80,000 tonnes of fresh-pack potatoes per year.

Taypack, one of four main potato suppliers in Scotland, is a significant player in the UK fresh potato market, controlling a 9 per cent share of the annual production of 1.5 million tonnes.

It is believed Taypack’s misgivings over the contract began some time ago but came to a head recently when ASDA, which paid the company around £180 per tonne, demanded more potatoes were supplied, forcing the growers to buy in potatoes at £230-300 a tonne.

Growers also pointed to two fuel rise prices over the past 12 months and a threefold increase in fertiliser, which has not been acknowledged by the supermarkets. George Taylor, chief executive of Taypack, which employs 220 full-time staff and a large number of seasonal workers, said: “The current contract expired on 1 May, however Taypack has presented a two-year proposal, based on the true cost of production, which will deliver sustainability and stability to all parties.

”This is with ASDA for consideration and our door remains open. We are in a strong financial position and will take time in the coming months to provide new customers with a competitive offer which safeguards the long-term sustainability of the entire potato supply chain.”

The move was unexpected given Britain’s £1 billion potato market is described as “cutthroat” and there is said to be overcapacity in the processing and packaging plants supplying supermarkets.

Last night the National Farmers Union (NFU) in Scotland said Taypack’s action could be the first indication growers felt more “protected” in speaking out following the Competition Commission’s announcement it was appointing an independent ombudsman with powers to protect farmers and suppliers from exploitation.

Anna Davies, communications and campaigns manager for NFU Scotland, said: “This could well be a sign of increasing confidence brought about by the recent Competition Commission announcement of an independent ombudsman.

”Traditionally the large retailers have been the ones wielding the power but now those further down the supply chain will be able to speak out without fear of reprisal and will be in a position to make the best decision for their business.”

In many ways, the Taypack Potatoes decision is more important than the Del Monte decision. Del Monte as a major international company, and the bananas are grown in distant countries and shipped. So if Del Monte and ASDA can’t make a deal, presumably Del Monte will just ship them to another country and sell them there.

But Taypack Potatoes was more than a vendor to ASDA. It has taken down its website for now but an older version of its website had described its “present” condition on its Company Profile this way:

Taypack is now a fresh potato packing business dedicated to supplying ASDA from its state of the art, purpose built facility situated on the A90 between Perth and Dundee. Supplying 100 stores through 3 of the distribution depots, Taypack supplies 40% of the ASDA fresh potato business.

With a turnover of £26m and an annual throughput of 135,000 tonnes Taypack is a progressive and innovative company which prides itself with being a leader in technological innovation and product development.

Taypack operates a full traceability system which allows coding of individual packs to identify the grower and field where the product was grown through to the finished pack on shelf.

Successful businesses require good people and Taypack has built up an excellent team of managers who are completely dedicated to the company and its future.

In other words, not only are these Scottish potatoes that for the most part have to be sold in the UK or they will not be sold but the packing facility was exclusively designed to serve ASDA. So strong was the tie that the company identified its purpose as being “dedicated to supplying ASDA.”

Americans look to the UK produce industry as having a unique ability to get things done. This ability derives from the close tie between supplier and retailer. This close tie makes vendors willing to invest to serve the retailer’s needs — as Taypack potatoes did in building this facility.

The presumption, though, has been that this loyalty was reciprocal, and so if Taypack invested to serve ASDA, so ASDA, as almost the sole customer, on some level was accepting responsibility for giving Taypack a chance to make a living.

Taypack’s walking away from the business may or may not mean much for the British potato sector. That depends on how many acres of potatoes are planted this coming season. If the land is diverted to biofuels or wheat, it will establish that growers have options, and that will change the dynamic between vendors and retailers.

Whatever happens with potatoes, however, the fact that ASDA seems likely to let Taypack walk away — that is to say that ASDA does not feel an obligation to work with Taypack to ensure they are profitable — might reduce the willingness of vendors to invest in servicing the British multiples, without the benefit of long term contracts.

It is also intriguing that this matter is playing out in the UK, where sustainability discussions have been ongoing for many years. As we have discussed, sustainability is more than environmentalism; it includes conducting oneself in a way that sustains the supply chain.

Companies don’t walk away from a division of Wal-Mart without feeling they have no options. That both Del Monte and Taypack felt the need to do so brings into question whether Wal-Mart CEO Lee Scott’s commitment to sustainability is real or whether it is a greenwash covering only those environmental activities where Wal-Mart thinks it can cut costs.

Unique US/Israel
Conference Set For June 17

There is a group of US-Israeli international foundations, colloquially referred to as the “three sisters,” holding an important seminar in Washington, DC on June 17, 2008.

The “sisters” consist of the following organizations:

United States — Israel Binational Agricultural Research and Development Fund (BARD)

BARD is a competitive funding program for mutually beneficial, mission-oriented, strategic and applied research of agricultural problems, jointly conducted by American and Israeli scientists. Most BARD projects focus on increasing agricultural productivity, particularly in hot and dry climates, and emphasize plant and animal health, food quality and safety, and environmental issues. BARD also supports international workshops and postdoctoral fellowships.

United States — Israel Binational Science Foundation (BSF)

The BSF supports cooperative research projects of mutual interest to the United States and Israel, concerned with science and technology for peaceful purposes. Basic and applied research projects are considered. The focus here, though, is on basic fundamental research in various scientific disciplines.

Israel — U.S. Binational Industrial Research and Development Foundation (BIRD)

The BIRD Foundation’s mission is to stimulate, promote and support industrial R&D of mutual benefit to the U.S. and Israel. Practically, this means the foundation works combine Israeli high-tech startups with large US companies that can help market and sell these products.

The conference in Washington is described this way:

From Science to Industry:
Successes and Challenges
of the U.S. — Israel Bi-national Model

Tuesday, June 17, 2008

8:00 am — 2:00 pm

The National Academy of Sciences Building

2100 C St. NW Washington, D.C. 20037

A unique opportunity to hear leaders in government, science and industry from the United States and Israel discuss the challenges and successes of bringing innovations from the lab to the marketplace.

The seminar will explore the path of new ideas, highlighting the U.S. — Israel binational model and its future impact.

The Program is intriguing and offers some marquee names.

Tuesday, June 17, 2008

8:00- 9:00 AMRegistration and Breakfast
9:00- 9:05 AMWelcome by The National Academies
9:05- 9:25 AMGreetings: The Hon. John D. Negroponte, U.S. Deputy Secretary of State
The Hon. Sallai Meridor, Israeli Ambassador to the U.S.
9:25- 9:55 AM“From Basic Research to Clinical Therapy:
The Promise of the Ribonuclease P Enzyme” Prof. Sidney Altman, Yale University,
Nobel Laureate in Chemistry, 1989
9:55- 10:25 AM“Combating Oil Dependency and Climate Change Through Technology, Leadership and Action”
Dr. Sass Somekh, Founder, Musea Ventures
10:25- 10:35 AM“International Science and Technology Cooperation”
Dr. Eli Opper, Chief Scientist,
Israel Ministry of Industry, Trade and Labor
10:35-10:55 AMCoffee Break
10:55- 11:40 AMPanel: “The U.S. — Israel Binational Foundations: A Proven Model with a View to the Future” Moderator: Mr. Ron Dermer, Minister for Economic Affairs, Embassy of Israel
Dr. Edo Chalutz, Executive Director, BARD
Dr. Yair Rotstein, Executive Director, BSF
Dr. Eitan Yudilevich, Executive Director, BIRD
11:40- 12:10 PM“Discovery with Delivery — Effective Partnerships for Developing and Commercializing Food Systems Technologies”
Prof. Victor Lechtenberg, Vice Provost for Engagement, Purdue University
12:10- 12:40 PM“The Roots of the Israeli Venture Capital Industry”
Dr. Ed Mlavsky, Chairman & Founding Partner, Gemini Israel Funds
12:40- 1:00 PMAudience Q & A
1:00- 2:00 PMAdjournment and Lunch

This bi-national model is worthy of ten seminars itself. What better way to encourage strong relations between nations than to engage collaboratively on research to build a brighter future? These organizations fund important research based on addressing issues of mutual concern and doing so utilizing the respective competencies of both nations.

The conference will address vital issues, such as the transition from basic research to clinical therapies, how technology can combat oil dependency and deal with climate change, and the role of partnerships in discovering and commercializing food systems technologies. The reason a little country such as Israel has been able to foster such a vibrant high tech and venture capital infrastructure also makes this one-day seminar an important one, likely to attract influential and important attendees.

The produce industry has a special reason to be focused on this conference. The Executive Director of BARD is a gentleman by the name of Edo Chalutz, Ph.D., a noted scientist who has done a great deal of work related to ethylene, including co-editing a book entitled, Ethylene: Biochemical, Physiological and Applied Aspects (Advances in Agricultural Biotechnology), with Yoram Fuchs.

Dr. Chalutz was for many years a scientist in the Department of Postharvest Science of Fresh Produce at Israel’s Volcani Center. This gives him deep awareness of Israeli capabilities in agricultural research — especially as they relate to fresh produce.

These insights combine with his position at BARD to make his decision to join the Board of Directors of the Center for Produce Safety quite consequential. It opens up the door to collaborative US/Israeli research on food safety issues related to fresh produce.

Since Israel has a large industry exporting fresh produce, especially to Europe, the US and Israel share a mutuality of concern on these matters.

Israel has a strong reputation for the quality and innovativeness of its agricultural research, especially its research into arid and low-water-use agriculture — an important area if the world is to meet the growing need for food.

If Dr. Chalutz can use his position as both executive director of BARD and a board member of the Center for Produce Safety to serve as a bridge between Israeli agricultural technology and the interests and research needs of the Center for Produce Safety, we can anticipate a highly productive bi-national cooperation, serving the interests of both nations as we work together to advance food safety research.

This seminar, in essence, is about the dilemma of how to successfully bring innovations from the lab to market, or to broad use. In a nutshell, this is one of the most important tasks of the Center for Produce Safety.

Supporting this important and interesting seminar is not a bad way to start some cooperation.

You can RSVP for the program, which is available without charge, here.

Subterfuge To Fight Obesity
Wrong In Many Ways

We started our discussion of the concept of using deception to get children to eat vegetables with a piece entitled, Books About Getting Kids To Eat Veggies Sell Like Hotcakes While Authors Quarrel, which discussed the dispute between Jerry Seinfeld’s wife, Jessica Seinfeld, who is the author of “Deceptively Delicious,” and Missy Chase Levine, who wrote “The Sneaky Chef.

These books and many others, such as Chris Fisk’s “Sneaky Veggies: How to Get Vegetables Under the Radar & Into Your Family,” promote the practice of hiding healthy foods — especially vegetables — in foods children enjoy.

In the context of this discussion, we also ran Teaching Kids About Produce Is Better Than Sneaking Around, which highlighted a critique of the Seinfeld, Levine, Fisk genre by Raymond Sokolov author of A Canon of Vegetables: 101 Classic Recipes, among much else. Sokolov put the matter this way:

…you may wonder how the wee Lapines and Seinfelds are going to acquire their moms’ passion for the life-sustaining value of vegetables, if all bright-colored plant food in their homes is spirited secretly into meals and never discussed in a positive and straightforward way.

These women treat vegetables the way Victorian mothers treated sex, with silence. They also avoid another important lesson through tricky indirection. One of their tactics for infiltrating food with veggies is to mix vegetables into desserts and other sweetened foods. But does concealing zucchini puree in oatmeal raisin cookies (Seinfeld) or “purple purée,” spinach and blueberries, in chocolate cookies do anything to wean sweet-toothed little ones from sugar? Even if allegedly less harmful brown sugar is substituted for white?

In the end, Sokolov rejects the idea of deception and urges transparency:

So what do I recommend? Culinary transparency. No sneaking around. Serve as much real food as your schedule permits, and use each dish as a gentle advertisement for adult taste. With many children, this approach will work right away. Pork and beans is an honest and unfrightening alternative to nursery food that’s been anonymously vaccinated with white-bean purée.

Mashed potatoes mixed with cauliflower or celery-root purée is grown-up food, but it is also childproof white. Children old enough to help out in the kitchen can be taught how it is made and why the different tastes and consistencies make for a pleasingly diverse food life.

Vegetable styling and photograph by Brent Hale.
Photo courtesy of Wondertime.

Now in a piece in Wondertime magazine, Catherine Newman (no relation to the actor Paul Newman), an author well known for chronicling her life raising her two children, Ben and Abigail aka Birdy, in magazine articles, online and in a book: Waiting for Birdy — A Year of Frantic Tedium, Neurotic Angst, and the Wild Magic of Growing a Family, sides with Sokolov in the debate:

…you want to Houdini some chickpeas into your child’s birthday cake? You want to fold a Hubbard squash discreetly into her baked Alaska? Be my guest. I’m just saying — don’t come crying to me when she’s all grown up, sending her asparagus back to the chef to please be turned into a whoopie pie.

…As a person who has offered my children such cheerfully bogus choices as, “The fancy toothpaste or the yummy toothpaste?” I don’t have an ethical problem with guerrilla nutrition. I have a practical one: Sneaking wholesome purées into your children’s food may acquaint their bodies with valuable vitamins, fiber, and phytonutrients, but it does not acquaint their palates with vegetables’, well, vegetableness. How will they ever learn to like vegetables if the vegetables are always — to quote The Godfather — disappeared?

Ms. Newman also questions how much such techniques actually enhance nutrition:

This is to say nothing of the fact that the method often calls for vegetable portions best suited to the nutritional requirements of Thumbelina. A quarter cup of mashed cauliflower lurking in a dish that serves eight — isn’t that, like, a teaspoon per serving? If I’m feeding my kids a mere teaspoon of cauliflower, I’m just going to make them choke it down off the actual spoon like medicine. I don’t really have time to be whisking it into a lemon meringue tartlet.

In the end, she proposes a solution out of step with our “instant gratification” society:

But my real solution? Honestly? You’re going to hate me because this is not a quick fix in a freezer bag or the key buried in a sloppy joe. It’s patience. I put kale on his plate and put kale on his plate and put kale on his plate, and my son tried it and grimaced and we praised him for trying it and pages flew off the calendar and his beard grew down to the floor, and then one day he ate it without comment. And then one day he ate it and said, “This is actually not as bad as I thought!” After which a pair of bluebirds draped around my shoulders the very banner of joy.

The idea is to be more Pollyanna than Baby Jane. We always thank the children graciously for trying, even if their eyes are rolling wildly around like a frightened calf’s. We teach them to say, “This might be a little strong for me,” rather than “Ugh.” We make a big, cheerful fuss about their dislikes (“Wow, you really hate mushrooms!”) with the idea of containing them — like, “Hey, it’s fine, everyone has one kind of vegetable they won’t eat!” We remind them that people change (“Remember how you didn’t like poached eggs and then did?”). And finally, we hoot and clap and release the doves when they venture that they might actually like it after all.

Tedious, right? I mean, here’s your child who’s put everything in her mouth from a dust bunny to a ceramic cat, and now you’re stuck cajoling her over a carrot stick. Fret not! There are lots of ways to make vegetables more appealing. I believe that vegetables can be lavished and adorned — by butter and cheese, by garlic and olive oil, by bacon (what better way to get your kids to eat vegetables than meat?). And maybe you’re thinking cholesterol and you’re worrying fat — but honestly, it will be easier in the end to wean the butter gradually out of the squash than to try to get the squash out of the cupcake, if you know what I mean.

We confess that when this trend hit, we were tempted by the thought that the diets of children could be improved dramatically — and sales of produce boosted — by this idea of sneaking purees of vegetables into every item.

If we drop the subterfuge, it actually seems like a good idea for everyone — not just children. For example, if brownies can be made marginally healthier without any loss of flavor or taste, then why not do so? As long as they are not sold as “health foods,” there is no downside.

But as some sort of strategy to help children, The Seinfeld et al approach strikes us as a double-failure. On the one hand, as a short term nutritional approach the teeny amount of vegetables snuck into the diet through this approach will be insufficient, and if we start encouraging eating three ounces of chocolate and sugar so the child can get a dollop of pureed vegetable in the brownie, the end result is more likely to be obesity than it is a healthy diet.

It is also and more importantly a failure of the parental obligation to teach. That is really what both Sokolov and Newman are saying. We owe it to our children to expose them to many things which they are not fully ready to appreciate.

That is why we discuss the Presidential elections with children; it is why the Jr. Pundits always come with Mom and Dad to see us vote, and it is why we shouldn’t hide the importance of vegetables but insist on making them obvious, making them available and explaining the good they do.

In the course of this discussion, we ran a letter under the title, Pundit’s Mailbag — Tips On Getting Kids To Eat Produce…But Watch Out For The Butter! In this letter, an industry member — and a mom — explained that she had found it was necessary to introduce an item 12 to 15 times before children accepted many new items. She also confessed to sometimes telling the children that what she has cooked is, in fact, all that is available for dinner.

We confess that we are a bit skeptical of the idea that children have changed so much that they must now be fed by subterfuge to avoid obesity. Far more likely is that this whole trend derives from changes in the culture that both makes many parents hysterical at their children “underperforming” in any measure — including diet — while also making parents unwilling — because they lack the intestinal fortitude — or unable — because they are away working — to enforce tough standards.

This seems like a problem far more concerning than a shortage of cauliflower in the diets of children.

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