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Perishable Pundit
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Produce Business

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The Perishable Pundit Visits South Africa
Dispatch VII: Roadblocks To
South Africa’s Future

As I spend more time in South Africa, I confess to starting to feel that the South African government and the broader culture, heavily influenced by European ideas about social welfare, are going to prevent this country from realizing its potential.

Although South Africa is partially an advanced western country that produces world-class products and world-class lifestyles for certain residents and tourists, it also is a country filled with poverty. Shanty towns spring up everywhere as desperate people from rural areas — where there are no jobs — flee to urban areas — where there are few jobs.

Yet, policy and thought-leadership in the government are focused not on economic growth or making jobs available, but on redistributing the pie from white to black and Fabian ideals, long since discredited, for maintaining expensive regulations on employment.

I was horrified at the allFresh conference to hear a top person with the ear of the government propose a quota and require that 30% of the market agents (basically the equivalent of our terminal markets) be black.

The problem with redistribution as a route to prosperity is obvious: Whites account for about 10% of the population. If you took everything they have and redistributed equally to the rest of the population, they would all have very little. Then add in the obvious: The white population contributes to the economy substantially, and that value would disappear if the whites did redistribute everything. Quite obviously, redistribution won’t achieve anything from the economic point of view.

In fact, just talking about these kinds of proposals is harmful. It means the writing is on the wall, and bright young white people who could contribute a lot to the country will look to leave. This is called ‘brain drain’, and it has destroyed much of Africa.

All these smart people worrying about redistribution need to be turned around and focused on growth. There is a limited white population, and it is virtually fully employed. If there is economic growth, the disadvantaged will benefit. If not, it is like rearranging the chairs on the deck of the Titanic; it may occupy you for awhile, but it doesn’t change the end of the story.

UNINTENDED CONSEQUENCES

But it goes beyond issues of redistribution. In China, if you are at one of those hotels where the rooms are in little bungalows spread out across the property and it starts to rain, all the sudden 20 people appear with umbrellas to escort you to your room so you won’t get wet.

In South Africa, I was in just such a hotel — a beautiful hotel, but they had no extra staff hanging around to escort the guests to their bungalows when it rains. Why? Because although unemployment is a very big problem, the minimum wage is set high for local conditions. It is also difficult to terminate people. All this corresponds to a desire on the part of businesses not to take on workers.

In agriculture, it was traditional that many growers provided housing for workers. Laws have been passed that impute tenancy rights to people who lived on a farm for 10 years. So even if they were terminated, they have the right to stay. Surprise, surprise… many growers have stopped offering housing.

The most important thing is that South Africa gets its people into the labor force. People have to get used to going to work. They have to get used to showing up even when they don’t want to. They have to get exposed to greater opportunities. They have to understand that working is part of their lives.

This is the first step in establishing a culture of hard work that will lead to the productivity necessary to compete with India, China and other countries.

There should be no minimum wage in a country like South Africa. Employment must be “at will” so that any employer knows he can hire, and if it doesn’t work out he can fire at any time with no consequences.

This will dramatically increase employment, make the country more competitive internationally and set the stage for the cultural changes necessary to compete in this century.

PROTECTIONISM

The culture at the worker level isn’t the entire problem. The papers today are filled with the news that the South African government has proposed to put quotas on the import of clothes and bedding from China, since the local industry can’t compete.

Most of the arguments in the papers focus on the fact that even if Chinese clothing were banned, the business still won’t come to South Africa, because other nations, such a Bangladesh, Vietnam and the nations of eastern Europe, are all more competitive than South Africa.

This is probably true but the issue raises two more interesting questions:

  1. Why is it that in a country with such unemployment, South Africa is not competitive, and what can be done to make South Africa more competitive?
  2. What kind of government thinks it is helping poor people by raising the price they have to pay for clothing?

Racial redistribution, social welfare schemes, protectionism — all these things cost advanced economies plenty — but these are rich countries that can afford to pay the price. South Africa doesn’t have that luxury.




Sweet Spots For Retail Competition

Here are two stories that intersect in the night. First the Seattle Times reports that Starbucks e-mailed some employees in the Southeast US and urged them to distribute electronic coupons to friends and family for a free iced coffee at Starbucks.

It is unclear why Starbucks did this but, very quickly, and predictably, the coupons spread around the world including showing up on a bunch of web sites for great bargains. Although chat rooms and other forums reported that many stores were rejecting the coupons, enough hit headquarters that Starbucks officially voided the coupon even though it was good through the end of September. It claimed they had been distributed beyond what had been intended in this "friends and family" promotion.

A lot of free coupons must have been turned in to risk this publicity. After all, ice coffee doesn’t cost much and, presumably, some of the people buy a cookie or something while they are there.

I suppose we could write an article about the blindness of some Starbucks employee who didn’t see what obviously would happen.

But, almost simultaneously, I read a piece in the St. Petersburg Times that indicated that Aldi has targeted Orlando and Tampa for its initial foray into Florida. This is the German discount chain whose parent company also owns Trader Joe’s. How does Aldi work? Here is how the article describes it:

The no-frills chain … is all about limited services and low prices that are frequently below those of Wal-Mart.

“We keep it simple,” said Dave Behm, vice president the Florida operation.

Customers will hear no Muzak in its Spartan stores. They have to bag their own groceries. They must pay a quarter for a shopping cart, which they get back when they wheel it back to the cart corral in the parking lot.

Such cost-cutting and the limited assortment of mostly private-label products are the formula for prices as low as 35-cent loaves of bread. With 1,300 items, an ALDI stocks about as many types of groceries as a warehouse club. But there is only one brand and it comes only in the most popularly purchased size rather than those big volume sizes. ALDI, which also stocks fresh produce and meat prepacked by a supplier, boasts that all its products are rated at least Grade A Fancy, Choice or US No. 1.

These stores get little media attention because the media likes to write about glamorous things. So an in-store tortilleria that sells 1% of the tortillas sold by a store may get a 100 articles. The mundane Aldi, which now has 800 stores in 26 states and contributed mightily to Wal-Mart’s defeat in Germany — which caused a $1 billion write-off — is basically ignored.

But not by the Pundit.

The interesting thing about the Starbucks story is that many consultants and trade press articles go around spouting that there now exists this new affluent consumer who doesn’t care about price.

That is not what the Pundit sees. Costco is the classic case; that its parking lot is filled with Jaguars and Land Rovers is legend.

But I see lots of rich people on Jet Blue, and maybe that Starbucks coupon tells us that Starbucks is vulnerable to competition too.

Maybe if someone built a nice place where you could get Starbucks-quality coffee at a discount, people would go for it.

Aldi may be too low quality; note that it promises only Grade A Fancy, Choice or U.S. No. 1. They take aim directly at Wal-Mart’s shoppers.

The Pundit thinks there is a sweet spot in the market for an Aldi-type concept that sells only the best quality. Extra Fancy, Prime, all the best — but at a bargain price.

My brother’s stores, which I wrote about here, are doing this in clothing. His stores physically are as nice as the competitors — much as Jet Blue’s planes are as nice as its competitors. And my brother’s stores don’t sell cheap clothes; they sell good clothes for a lower price. A food store on that model would succeed.




Pundit’s Mailbag:
Where’s The Passion?

The issue of leadership is hot controversy. We started the subject off with a letter to the Pundit, which led to more and more again. Another letter writer weighs in today:

Obviously, any good leader today embraces change and embraces technology. However, not all technology or software is a panacea for an organization, much as no one person is a panacea for an organization. Certainly some people in the industry are a whiz with a computer or at the forefront of RFID; these are operational decisions that any organization will make based upon their view of whether they perceive a value from embracing any technology or not.

I think this discussion of leadership is missing the metaphysical, almost religious nature of leadership. What is often missing in our industry leaders is “passion” in terms of genuine care for this great industry.

All the names you listed are doing great things, and we certainly should not minimize their achievements in any way. Additionally the 40 young people PRODUCE BUSINESS selected last year and 40 more you selected this year have already made significant contributions to the industry. I grant you all that.

However, I haven’t heard from today’s leaders that there is a level of genuine “care” for what makes this industry tick: whether that be the farm worker, the truck driver, the buyer, the store clerk or most certainly the shopper who consumes our products. If I have missed this discussion, then shame on me.

No, I don’t think you’ve missed it. I think there is a long-term trend in which the business is becoming less important to its participants. Part of it is societal.

Businessmen today are likely to have other focuses. I’m rushing back from South Africa to catch the first “Dad’s Club” event at my older son’s school. My wife works, so she can’t be quite the catcher for all problems domestic that my mother and grandmother were. Societal expectations have changed, and that 110% commitment level is much harder to find. It may be bad for the industry but it certainly puts leaders in touch with consumers who are struggling to juggle all the same things.

My grandfather was a member of something called the Scavenger’s Club. I don’t really know much about it but, apparently, in his day in the produce industry in New York, it was common to gather socially with other members of the trade down on the Washington Street Market. Today, there is no demand expressed for Hunts Point to start holding dinner dances. There is more of a divorce between social life and work life.

There also is a tendency to rely on professional staff as the industry became affluent enough to support such a thing. When Bob Carey was asked to be the entire staff of PMA, he was a graduate student at the University of Delaware. If much was going to be done, it was going to be done by volunteer leaders.

Today, between PMA, United and the Produce for Better Health Foundation, the industry has well over 100 people on its payroll to take care of things.

There are fewer people who were born to the trade and, even more important, fewer people who are certain their children will wind up in the business. That reduces commitment levels.

There are a few of us left. Why do you think I am in South Africa? Because the industry needs to be represented, because the future depends on strengthening these relationships, because I can help.

I hope that people with passion will rise to the top and help us lead the industry, but I also hope that the professional staff of these organizations develops the kind of institutional support so that every leader doesn’t have to be a superstar.

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