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Produce Business

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American Food & Ag Exporter

Cheese Connoisseur

Whole Foods & Wild Oats Finally Tie The Knot

Well, it is all done but the shouting:

Whole Foods Finally Swallows Wild Oats

After months of delays amid an antitrust battle, Whole Foods (WFMICramer’s TakeStockpickr) closed its purchase of rival grocer Wild Oats (OATSCramer’s TakeStockpickr).

Whole Foods said Tuesday that it has purchased 84.1% of Wild Oats’ stock through its $18.50-a-share tender offer, and it plans to buy another 12.7% in the next three days. The remainder of the stock will be purchased via a short-form merger.

The $565 million deal, announced in February, was originally slated to close in April. The Federal Trade Commission, however, attempted to block the transaction on the belief that it would form an organic-foods monopoly.

Whole Foods and Wild Oats contended that traditional chains like Safeway (SWYCramer’s TakeStockpickr) and Kroger (KRCramer’s TakeStockpickr) already have a significant presence in the natural-foods space. A district court judge ruled in favor of the companies, and the FTC last week lost its request for an emergency stay of the deal.

“While closing this merger has taken longer than we anticipated, we are very excited to now begin the integration process,” said Whole Foods Chairman and CEO John Mackey.

“We have found it generally takes up to two years to transition to our decentralized operations and implement our incentive programs,” he said. “We expect this acquisition to be similar and that over time we will recognize significant synergies through G&A cost reductions, greater purchasing power, increased utilization of our facilities and new team member talent.”

Shares of Whole Foods recently were down 53 cents, or 1.2%, to $45.22.

We will see soon what happens in terms of store closures and system changes. One of the key questions is how will they treat the Wild Oats employees? The store level folks will probably be fine if they don’t close their stores as Whole Foods will need them.

The future of the Wild Oats headquarters staff is less certain. Since Whole Foods is growing, it needs good people and may find opportunities to use them. Whole Foods certainly has an incentive to do so because with mainstream grocers all going organic and health-oriented, Whole Foods would rather not release the talent that has real experience to the mainstream retailers.

Catch of the day is definitely Pundit contributor (see here and here) and Wild Oats Vice President for Produce and Floral, Don Harris.

After a career at Safeway, Don, almost uniquely for high end executives of major chains, made the transition to an organic/natural/health-oriented concept. With a finger on the pulse of the organic consumer and a head able to organize mass procurement, distribution and sales, a man and a moment have met. He could build the program at any mainstream retailer. We will see how Whole Foods handles the situation.

In fact, a lot of people will be watching. Although one of its “core values” as “supporting Team Member happiness and excellence” and its web site trumpets that Whole Foods is “…creating a respectful workplace where people are treated fairly and are highly motivated to succeed,” everyone will be looking to see if Whole Foods’ CEO John Mackey will be living up to the company’s stated mission.

After all, when word came out of the news that Mackey was posting anonymously on web boards knocking Wild Oats, the nagging concern was that, in the end, he was just another suit. He wasn’t posting on organic boards about the product; he was posting on stock boards.

This type of perception could alienate a Whole Foods customer. So how Whole Foods is seen to be treating the people from the Wild Oats acquisition will play a big role in establishing how consumers perceive this new, larger, Whole Foods.

We wish Whole Foods the best with its new acquisition.

New Sunkist Jarred Fruit Line May Lift Sales Of All Produce Items

Sunkist has a new product line, and it may be a big win for the whole produce industry:


Category Growth Expected From Second Entry

Sunkist Growers and Old World Enterprise Group, LLC are launching a new line of chilled jarred fruit in August. Sunkist Premium Sweet debuts in eight varieties of fruit, including a new and exclusive Valencia Orange. Picked at the peak of freshness, Sunkist Premium Sweet jarred fruit is packed in 100% juice, so the product is fresh tasting and delicious.

Sunkist Premium Sweet jarred fruit is being manufactured by the “Better for You” Food Division of the Old World Enterprise Group under license from Sunkist Growers and will be sold exclusively in chilled cases in the produce section of grocery, convenience and club stores. Sales of the new product line will be managed by the Sunkist fresh produce sales organization. The entire line will be refrigerated all the way to the grocer’s produce section to ensure the highest level of freshness and taste. Sunkist is the leader in fresh citrus, and it is a natural partnership to complement its fresh line with a packaged line of fruit for added convenience.

“We expect to increase category penetration by offering consumer television advertising, along with retail promotions, couponing and cross promotion with other Sunkist products,” noted Richard Sanderson, President of Old World Enterprise Group.

“The new Sunkist line offers consumers a better-for-you product, with more natural taste. Our new Sunkist Premium Sweet is an excellent source of Vitamin C and antioxidants from Vitamin C,” noted Mr. Sanderson. “And the convenience of both 8 ounce cups and 24 ounce jars makes it easy for consumers to feel good about eating healthy.”

Both companies emphasized their desire to introduce a product with superior consumer preference and are pleased that the new line tested so well with consumers. In concept testing, consumers played back attributes and strength of the Sunkist brand as being known for “freshness,” “citrus,” and “health.” In addition there was strong appeal to the “natural, packed in juice” formula and for the clear packaging, which was preferred by consumers who compared it with competition, and reported that the new Sunkist packaging was “higher quality,” “shows more of the real fruit,” and “looks like a premium product.” Product testing was done on a “blind” and “identified” basis, resulting in consumer preference for all the fruit types being offered.

Category research and Usage and Attitude studies reveal that consumers use refrigerated jarred fruit for snacks through the day and at every meal. They are primarily purchased by adult female homemakers, aged 35+. “This is truly an all-day, 24-hour, great tasting snack and complement to any meal, providing families with one of the essentials to everyday nutrition,” said Sanderson. “It’s a perfect fit with consumer life today and the want for fresher, healthy options.”

John McGuigan, vice president of Sunkist sales, noted, “We expect that our entry will have a stimulating effect on the category, with overall sales growing as a result of giving consumers a choice. We plan to deliver category-management leadership to our trade partners by expanding the category with this exciting new product line.”

IRI (Information Resources, Inc.) indicates annual sales of the refrigerated fruit category are approximately $84MM (not including Wal-Mart, club store, convenience stores, or other non-grocery outlets.) Of significance, the 8-ounce cup segment is growing at double-digit levels. “Based on our research, we believe the category will grow in total a minimum of 15%,” said Sanderson.

The big player in this arena, of course, is Del Monte, but it is not Fresh Del Monte Produce… it is Del Monte Foods that sells the Fruit Naturals, Orchard Select and SunFresh brands of jarred fruit.

In most cases, companies that earn most of their income outside of fresh produce are not as supportive of industry institutions as Sunkist would be. So if Sunkist takes some market share, it might mean more support for food safety and other industry initiatives and organizations.

Of course, competition is typically good for a category and Sunkist is promoting that it expects the category to grow as a result of a second entry.

Perhaps the second time will be a charm. Sunkist did enter the business once before. Toward the end of 2005, it was announced that Sunkist signed a multi-year licensing agreement with Freeman Foods LLC to launch a similar line of glass jars and single-serve plastic cups under the Sunkist brand.

Last time the licensee was being headed up by Randall Freeman, who had run the jarred fruit business for Del Monte Foods. Freeman was to handle all sales and marketing logistics for the product, which was supposed to begin national distribution in January 2006.

It is not clear what happened to that venture, but this time there seems to be two very strong reasons to think Sunkist may be successful. First, its licensee this time around is a much more substantial organization. Last time Freeman Foods was a start-up, and it was literally posting on the Internet looking for co-packers. This time the licensee is a subsidiary of Old World Industries, which includes a chemical division, a runway de-icing agent division and a consumer products division, including Bare Fruit organic bake-dried fruit.

Also, this time, the actual selling of the product will be handled by Sunkist’s fresh fruit sales force headed up by John McGuigan, Vice President of Fresh Fruit Sales. Sunkist certainly has the connections to make things happen — although typically the citrus buyer at a chain store doesn’t buy the jarred fruit.

Competition here will probably be good for consumers as well, as many retailers have used jarred fruit as a margin-enhancer and have not worked closely on it. Some competition in the category might lead retailers to compete with the item.

The release mentions television ads, couponing and whatnot. If done a sufficient scale, it might draw consumers to the produce department.

Sunkist and Old World were kind enough to send the Pundit a sample, and we can report that both the “Valencia Oranges” and “Petite Peaches” tasted terrific and that both the 1lb-8oz glass jar and ½ cup plastic cup were attractive.

The peaches came from China and the Valencias from Mexico. It was unclear where the product was packed.

We would like all manufacturers to be more specific on their refrigeration warnings. The product clearly says “MUST BE REFRIGERATED” but, as is typical, it gives no specific temperature range and doesn’t state the consequences of not refrigerating.

Is it just a matter that the product will go rotten? Or, as with the carrot juice last fall, is it a food safety issue? And how long is it OK to not be refrigerated? Can you throw a cup in a kid’s lunch box for the child to eat in three hours?

The industry is selling more and more refrigerated packaged product. Jarred fruit, juices, salad dressing, etc. We really need to make sure consumers know what we are asking them to do.

Sunkist has had a tough year. This product should deliver millions of consumer impressions for the brand and give the salespeople another product to sell, while injecting a healthy dose of competition into a growing category. We wish Sunkist well.

What Is ‘Life Cycle Analysis’?

“Life Cycle Analysis” is all the rage, with British retailers starting to look for this type of analysis to assess the environmental impact of various products.

The particular study we reference below is of canned green beans and seems to particularly focus on an attempt to persuade consumers that canned foods are more environmentally friendly than frozen foods:


Food Alliance-certified Processor Takes Another Step
Toward Sustainability to Deliver a Greener Green Bean

In an ongoing commitment to the establishment of best environmental, economic and social practices, Truitt Bros., Inc.-the nation’s first Food Alliance — certified processor-released the first life cycle analysis of its canning process.

In an attempt to delve deeper into its manufacturing processes, ferret out energy drains and see how canning holds up to other modes of preservation, Truitt Bros., Inc. engaged the services of The Institute for Environmental Research and Education (IERE) in Vashon, Wash. The organization authored the report “Canning Green

Beans: Ecoprofile of Truitt Brothers Canning Process,” which used a calculated and relative clean freezing process for comparison with the actual Truitt Bros. canning process. The analysis found that greenhouse gases from canning were 39 percent less compared to freezing; acidification was 70 percent less for canning and criteria air pollutants stood at 59 percent less for canning when compared with freezing.

“Commissioning this study is one part of our concerted efforts to track and limit energy consumption,” said Peter Truitt, co-owner of Truitt Bros., Inc. “We will continue to challenge ourselves, our processes and our farmers to up the ante when it comes to sustainable practices.”

The analysis, a side-by-side comparison of four-ounce servings of canned and frozen green beans, examined electricity and water demand, can and packaging production, transport, and product preparation, while assessing the impacts on global warming, acidification, human health, ozone depletion, ecotoxicity, water use, smog and fossil fuel depletion, among other factors. Time and again canning came out on top, outpacing freezing, which has high energy demands during its storage phase as compared to cans, which can be simply shipped and stored at any temperature. This report echoes findings from the Steel Recycling Institute, whose study, commissioned by Scientific Certification Systems, found that canning food uses less energy than freezing food.

Report authors suggested opportunities for continued improvement in energy reduction for Truitt Bros., Inc. These steps include using recycled steel in its cans, which would decrease greenhouse gas emissions by 10-15 percent, and transitioning to lighter weight packaging. For long-term energy efficiency improvements, study authors suggest a redesign of the bean processing line to further reduce water and energy consumption.

These studies are always interesting but, also, fundamentally arbitrary. Here are two charts taken from the study:

The summary of the results for the two product systems is shown in Figure 14. In each case, lower figures indicate better environmental performance.

These numbers give a scientific veneer to the study, but the reality is they are based on assumptions that are unlikely to be true. For example, the assumption is made that the hypothetical frozen food plant would be built on the precise location where the canning plant is.

Of course, in reality, we locate facilities where it is advantageous, so if we are going to, say, warehouse frozen foods, the price of electricity might be the dominant consideration on where we locate such a facility.

The entire aluminum industry in the Pacific Northwest is located there to take advantage of inexpensive hydroelectric power.

Even two exactly identical plants might have wildly different environmental effects depending on energy source: One gets electric from the grid, but it is from hydroelectric; another from nuclear; perhaps another from a modern coal plant with anti-pollution technology, and another from an old coal plant without it.

Besides, even if the core data were accurate, the extrapolations are hypothetical. Here is how they describe the health findings:

Human Health Cancer

This indicator is based on emissions of carcinogenetic compounds from industrial and other resources. It is measured in benzene equivalents. The indicator takes into account the partitioning of the substances into the different parts of the ecosphere. The most common source of benzene is gasoline, with up to 5% benzene by volume, and other carcinogenetic materials are formed during combustion processes. The primary source of the carcinogenicity of the canned and frozen beans life cycles is the combustion of natural gas.

Human Health Non-cancer

This indicator is the parallel to the cancer, only for substances that do not cause cancer. It is measured in units of toluene equivalents.

The path from “carcinogenetic compounds” to cancer in human beings is not so clear or simple to calculate and what “substances that do not cause cancer” but that impact human health are included in the calculations?

We could go on but let us end with this: If you want to judge the impact on human health of the two processes, don’t we have to consider what people will actually eat? Presumably people who buy frozen green beans prefer them to canned.

If, due to environmental guilt, people now buy green beans they like less, perhaps they will eat them less and eat more ice cream to compensate for their sadness at not enjoying their vegetables. The ice cream will make them fat and add weight to each vehicle they ride, which will increase carbon emissions. Add in the additional carbon footprint of manufacturing, transporting and storing all that ice cream and we may wind up hurting the environment more than if we didn’t rely on such studies.

Sound far-fetched? No more so than these life-cycle studies.

You can read the study here.

On Other Things Perishable

In case anyone needs a reminder that food is not the only thing perishable… just take a look at the news that Acer will be acquiring Gateway:

Gateway shares peaked at $84 in November 1999 and then began a more than seven-year slide in value. Earlier this month, the stock bottomed out at $1.13 a share. Gateway shares jumped 50% on the takeover news Monday, closing at $1.82.

Fruit must be eaten while ripe.

Pundit’s Mailbag — Report On Peru’s Earthquake Damage

We have run several pieces regarding the humanitarian crisis created by the earthquake in Peru. Most recently our article, Donations To Relieve Peru Are Cause Of Discussion, suggested ways industry members can contribute to help relieve the suffering and explored the kind of produce industry institutional response that might be appropriate.

Here at the Pundit, we have also received many requests asking us to advise as to the impact on the operations of the produce industry in Peru, especially the export sector.

John Shuman of Shuman Produce which, among other things, imports sweet onions from Peru, was kind enough to send along this brief report:

The earthquake’s aftermath will be felt for some time. But even though it was a devastating earthquake, Peru’s residents, growers, and field workers in the south are working quickly and very hard to put their lives back together. We should all take a moment and pray for those who are suffering from this terrible disaster.

Regarding the earthquake’s impact on Peru’s agriculture, specifically sweet onions grown for US import, the biggest agricultural challenge facing the growers today is labor and water. Shuman Produce’s Operation Manager in Peru, Luis Torres, said most of the farmers in the south near Chincha, Pisco, and Ica (Peru’s largest sweet onion growing region) were without electricity for their irrigation pumps for some 3 days after the earthquake.

To make matters worse, some of the deep wells collapsed during the earthquake and have filled with sand. And since the ICA region is mostly desert, irrigation is needed almost daily.

We are getting reports that the majority of growers have restored power and good water supplies, but approximately 10 to 15% of the sweet onion growers are still without water. As for labor, most of the workers live in adobe houses that crumbled during the earthquake, so most have no shelter, limited food and water, and no electricity. And many are being hired by Peru’s government to aid in the rebuilding process. At this time, Luis feels that some 50% to 60% of the laborers have returned to the sweet onion fields, so sweet onions are being loaded this week for US import.

As for Peru’s infrastructure, all three ports — the Port of Callao, Port of Paita, and the Port of Macarani — are all open for business. Inland freight is being met with some problems on the Pan-American Highway, specifically the Puente Huamani Bridge (The Huamani Bridge). This bridge is located approximately 220 km south of Lima and has been almost totally destroyed.

There are deep holes in the road both north and south of the bridge and the traffic is moving very slowly. Southbound traffic can pass in a single-file line along the bridge. Northbound traffic has been detoured under the bridge on a small platform over the river. So while the Pan-American highway is open, it has slowed containers moving north to the Port of Callao.

Also, sweet onion growers in the north, near Huarmey, have been largely unaffected by the earthquake, so moderate supplies of sweet onions are currently being loaded this week from the north.

— John Shuman
President & Director of Sales
Shuman Produce
Reidsville, Georgia

In addition Luis Torres, mentioned in John’s letter, resides in Chincha, Peru, one of the areas hardest hit by the earthquake. He sent along a very explicit photo slideshow of the damage. Please make a point of looking at the slides here.

John is well known. As we reported here, he is especially lauded for the development of the Produce for Kids program, which gives proceeds from produce sales to the Children’s Miracle Network.

We appreciate his taking the time to fill the industry in on the situation in Peru.

We also thank Luis Torres for sending the photos as we know he has plenty to do. We pray that his family and friends are OK and that a sense of normalcy will return soon.

We remind those interested in helping that Nancy Tucker of PMA contacted some of PMA’s members in Peru and they suggested that those interested in helping donate to Caritas, a Catholic Relief Agency that helps people of all faiths.

You can learn about Caritas right here. PMA donated $1,000 and the Pundit matched it to kick off the effort.

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