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Produce Business

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American Food & Ag Exporter

Cheese Connoisseur

Tesco Shifts US Strategy…
Starts Buying Real Estate

We’ve written quite a bit about Tesco and its journey to America as Fresh & Easy. We’ve been quiet lately because Fresh & Easy also has been quiet lately. The company has been doing some fill-in store openings in its initial marketing area and holding off on opening any stores in Northern California, where it had already leased a number of locations.

Now a piece by Jonathan Birchall in the Financial Times has reported that Tesco, though not opening stores in Northern California, is working on its Stockton distribution center, still acquiring store sites and, in fact, is now seeking to buy real estate rather than lease stores:

Tesco is continuing to invest in the future growth of its US Fresh & Easy stores, in spite of the UK supermarket group saying earlier this year that it had put the second stage of its US expansion in northern California “on hold”.…

In April it said it was slowing the pace of store openings in its existing areas and that it would delay its move into northern California, originally planned for this year, because of the economy. It did not give a new date for the expansion.

But the retailer has continued to add to almost 50 store sites already acquired in communities including San Francisco, Sacramento and San Jose as well as Reno, Nevada. This month it reportedly paid $3.75m (£2.3m) for two plots in the East Bay area, while it has also acquired a third site in San Francisco this summer.

Property brokers say Fresh & Easy has been increasingly interested in buying rather than leasing sites, given the current slump in commercial real estate prices in the region.

Fresh & Easy has also completed work on the structure of a distribution depot in an industrial park in Stockton that it will use to service new northern California stores when they open, supplementing a similarly large facility, east of Los Angeles, that serves its existing locations.

While Tesco has cited the state of the economy as the main reason for slowing growth in the US, it has also faced a tough battle to establish itself, with stores that include concepts — such as pre-packing its fresh fruit and vegetables — that US shoppers are not used to.

Tesco said it was “being prudent in our expansion and our plans for northern California remain on hold”.

City officials in San Jose in Silicon Valley say the company has indicated it was now looking at opening stores there next summer.

Before the Financial Times piece, George Avalos at the Contra Costa Times reported that Fresh & Easy Buys East Bay Land:

Fresh & Easy’s start-and-stop expansion in the Bay Area could be getting ready to start again, now that the grocer has bought two key retail sites in the East Bay for an estimated $3.6 million.

The grocer, a unit of England-based supermarket giant Tesco, has gobbled up vacant parcels in Brentwood and Oakley. Fresh & Easy paid an estimated $1.95 million for the Oakley site and $1.65 million for the Brentwood property.

“It’s great to see that retailers remain somewhat active despite the tough times,” said Henry Englehardt, a Colliers International real estate broker.

Fresh & Easy remains cagey about the timing of its expansion in the Bay Area. But at the very least, the grocer is seizing buying opportunities in a California commercial real estate market that has nose-dived.

“Economically, there are certain advantages to buying right now,” said Brendan Wonnacott, a Fresh & Easy spokesman. “Our actions are dictated by the economic conditions on the ground.”

Still, these land purchases might signal a new approach for Fresh & Easy, whose existing 125 stores are in Southern California, Arizona and Nevada. The company’s stores usually range from 10,000 to 15,000 square feet.

Until the recent transactions in the East Bay, Fresh & Easy had chosen to use leases of land or buildings for its fledgling expansion program, a search of property records in several Bay Area counties shows.

A unit of England-based supermarket giant Tesco, Fresh & Easy has been poised to jump into the Bay Area market since 2007. But those efforts have gyrated between heating up and cooling off.

In late 2007, Fresh & Easy confirmed it was eyeing several East Bay sites for an expansion. In early 2008, Fresh & Easy said it was committed to opening stores in Walnut Creek, Antioch, Concord, Danville, Fairfield, Mountain View, Napa, Oakland, Oakley, Sunnyvale, Vallejo, San Jose, Hayward and San Francisco.

Delays ensued. In late 2008, the grocer said it had slowed its expansion to Northern California due to a lousy economy. Yet in the spring of 2009, Fresh & Easy signed a lease for a Pleasanton site. The grocer has yet to open a store in the Bay Area.

In mid-June, Fresh & Easy bought a Brentwood parcel in The Shops at Fairview retail center from Brentwood Balfour Investors. That was followed in mid-July by a Fresh & Easy purchase from Ohara Properties of a chunk of land in Oakley, site of a future shopping center called Laurel Plaza. Colliers arranged the deals.

“The fact that Fresh & Easy bought the land signals a pretty strong commitment by them to the area and the marketplace,” said Matt Beinke, project developer for Laurel Plaza.

That’s because it’s a lot tougher to walk away from a property one owns than from a lease where payments can simply halt….

For now, though, Fresh & Easy won’t disclose any precise expansion plans in the Bay Area. Some industry insiders believe stores will start opening locally in 2010, including at least one of the recently purchased East Bay sites.

“We are committed to the area, absolutely, Wonnacott said. “We just don’t have an announced date at this point. But we will be opening in Northern California.”

Actually if the company is guaranteeing the lease, Tesco can’t walk away from a 30-year lease either, so we don’t think the key issue is commitment to retail.

The decision to invest in real estate is a double edged sword. On the one hand, it will make Fresh & Easy a tougher competitor as it switches the dynamic on the financial statement, so if results are poor, instead of showing a loss or a larger loss due to rent payments, it instead shows an inadequate return on invested capital.

On the other hand when it launched Fresh & Easy Tesco was quick to point out that by leasing stores the division would minimize its requirement for capital.

As we pointed out here, though often lauded as a great operator, Tesco actually makes very low returns if you back out its real estate holdings.

For retailers, real estate is an opportunity to cover a multitude of sins. Well used by retailers, investment in real estate is a short term strategy to acquire key locations that would not otherwise be available. Then they quickly sell the real estate and lease it back.

If Tesco intends to hold this real estate it might one day make money on it, but it could buy real estate and lease it to others and make money on it as well. The key issue here is whether the retail concept is profitable.

If Tesco is going to tie up an average of $1.8 million of its shareholders dollars just to buy the land for a store, by the time it builds and outfits the store, plus pays to inventory the store, it will have close to $5 million tied up, in some locations more. We wish them well but the concept has just shown no track record of being able to make money, much less to earn a return adequate to justify that kind of investment.

We have heard some rumblings from the real estate community that Tesco is inquiring about much smaller stores, perhaps half the size of a typical Fresh & Easy. Whether this is for a convenience store concept or a refinement of the Fresh & Easy concept, or even whether it will actually come to pass, we can’t say.

Many have interpreted our critique of Fresh & Easy as a doubt that Tesco will survive in America. Yet we don’t think the two issues are closely related.

Tesco is a large and wealthy company, and if it has made the strategic decision to stay in America — regardless of cost — it will stay in America, presumably trying new formats and revamping Fresh & Easy until it stops hemorrhaging money.

In that sense, Tesco’s future in America has little to do with the success or failure of the current Fresh & Easy concept and more to do with its ability to pump cash in other operations.

That is why if Wal-Mart really wants to lay down the gauntlet and tell Tesco it better leave Wal-Mart’s American turf alone, the place to send that message is not in Phoenix but in London.

Wal-Mart’s Marketside Deli Concept

Wal-Mart’s test of a small format store, which we profiled both here and here, has been problematic. Marketside never opened its fifth store in Phoenix and its California stores haven’t opened either. There are many explanations, but one thing is for sure… the problem is not that the initial four stores are making too much money.

Of course, this was always just a toe-in-the-water for Wal-Mart; unlike Tesco, Wal-Mart was always clear it was doing a test, not a launch.

Big companies, though, sometimes have a way of benefiting from new concept development other than building retail stores.

The readers of the Pundit represent an unusual group of well traveled and astute observers of the industry; one prominent industry member, who is part of this Pundit Intelligence Network, sent one notice of the way Wal-Mart is leveraging its Marketside brand and experimenting in ready meals:

Perhaps this is more of an item for your Deli Business sister publication. BUT I wanted to pass along this update on Marketside!!!

Spending some time wandering around Dallas on a planned 12-hour layover, I went into the WalMart Neighborhood Market in Coit Road in Richardson, Texas, and there is a flyer by the deli with Marketside’s name on it. They had a small assortment of Take Out & Heat and cold deli items.

I asked the guy, how long have you been doing the Marketside deal?

He asked me, “How do you know about Marketside?”

“I’m from Phoenix and there’s a couple of stores in town, but the whole store is Marketside, not just a section as you have here”. — Ok, I told a fib as I’m not from Phoenix, but it was in the cause of research!

The associate told me this was one of six stores in the DFW area that was doing a test of the items. I told him, “You gotta get one of the pizza ovens” He said that all of the WalMart stores were to have pizza ovens, but it would take a while.

Click here for a larger view of the Marketside flyer

It is an interesting experiment but also somewhat quizzical. One reason Fresh & Easy has not done well is that its core differentiation — ready meals — has basically flopped. Wal-Mart has a better shot because the high volume of traffic gives a chance to sell enough volume to keep a wide assortment fresh, but, still, though some high-end operations do succeed, in mainstream America, there is just no indication Americans want to buy fresh ready meals — other than sandwich programs, pizza and fried and rotisserie chicken — in supermarket-type venues.

The other question is why use a name nobody in Dallas has ever heard of like Marketside? What is the advantage?

Publix uses its Greenwise brand on both a separate store concept — which we discussed here — and on its natural and organic product in its regular stores. But Publix used Greenwise in its regular stores for years before launching the store concept, and Greenwise represents something distinct.

What does Marketside represent?

Giumarra’s New Grape ‘Rival’ To Thompson Seedless Arrives In UK

Andrew Sharp, Business Development Director for Mack Multiples (UK), in Great Britain sent along a release highlighting Mack Multiples engagement with Giumarra:


An extensive programme that’s taken 15 years of careful grape variety selection and breeding by the Giumarra family in California has finally reached its commercial availability stage with the release of a number of exciting new varieties.

One of the best established, largest growers in the San Joaquin Valley with their famous ‘GrapeKing’ brand, Giumarra Vineyards Corporation, has invested heavily in the breeding programme, ensuring that it holds exciting, genuine opportunities for early, mid and late season varieties. Efficiency of production, colour, seedlessness and flavour are all strict selection criteria with the result that the new opportunities are certain rivals to staple varieties such as Flame, Thompson and Crimson.

If growers needed further information to whet their appetites for these new flavours, the news that Shachar Karniel (pictured to the right) — original breeder of the variety Early Sweet — is the breeder behind the research should help convince of the credentials. He collaborated with Salvador Giumarra, who contributes to the program on the agricultural aspect, and John Giumarra, who contributes on the consumer and commercial aspects, to develop and improve the genetic repository of the plant material to result in such a comprehensive new range of grapes. Through Grapa Company’s distributor business, owned by the Karniel family, Rafi Karniel is looking forward to seeing many growers around the world avail themselves of these new varieties.

In the UK, Mack Multiples is the preferred partner of Giumarra as an advisory and marketing link to join growers with retailers. Mack have been involved for many years now, helping advise on supply gaps and on the needs of the UK market. As a result, Mack growers around the world are among the first to plant these varieties. However, unlike most other breeding programmes, growers wishing to plant these new varieties will not find themselves tied into a resulting marketing agreement, merely a standard licensing agreement with Grapa Company as the worldwide distributor and Master-Licensee of the Giumarra ARRA varieties.

Mack has this week taken delivery of the first commercially available white grape volumes grown in California from the Giumarra programme. Assessment of the ‘ARRA15’ crop indicates that indeed, the claims of a new rival to Thompson being within the programme are no exaggeration.

Speaking of their collaboration in this project, Dan Crooks, Commercial Director of Mack Grapes, confirmed the company’s commitment to innovation. “We’ve had a really interesting time working with Shachar over the last five years, bringing our UK market insights and challenges to the Giumarra programme. Our grower partners around the world have benefited from being in prime position not just to plant the newly available varieties but to know that they’re planting quality grapes that fulfill a real market need. This is not just innovation for innovation’s sake — it’s strategic investment from an industry specialist and we’re very proud of our ongoing association with the programme and its partners.”

We sense a bit of a challenge in this release to the model of distribution where certain organizations are the exclusive marketers for varieties.

We suppose there is room in the world for multiple models.

What we like is that breeding and marketing are now being intertwined in many breeding programs. The old vision of a breeder working in isolation is fading, as the importance of meeting consumer demand is being highlighted.

Delivering a product more valued by consumers is always the key to boosting sales and consumption.

The marketing model for the industry, though, is important as even fantastic-tasting varieties can come to be overproduced, and the question for the industry is not just to find a way to delight consumers but, rather, to delight consumers at a price that creates a decent return for the grower.

Many thanks to Andrew Sharp for passing this item along.

International Federation for Produce Standards (IFPS) — Potential Voice Of Global Produce Industry

We received a notice about an international produce organization accepting a new member:

The International Federation for Produce Standards (IFPS)

IFPS is delighted to advise that Frug I Com, the national platform that has been working on standardizing data exchange in the Dutch fruit and vegetable supply chain since 2003, has become an IFPS member with immediate effect.

Frug I Com will be represented at the IFPS table by its Co-ordinator, Ing. Harrij Schmeitz.

The International Federation for Produce Standards (IFPS) is composed of produce associations from around the globe. The group provides an international forum to address issues that require international harmonization or standardization for the produce sectors and creates the first incorporated body constituted of national organizations providing direct representation of their respective countries’ constituents.

The following national produce associations are IFPS members:

Asociacion de Exportadores de Chile
Canadian Horticultural Council
Canadian Produce Marketing Association
Fresh Produce Consortium (UK)
Frug I Com (Netherlands)
• Fruit South Africa
Horticulture Australia Ltd
• Norges Frukt-og Gronnsaksgrossisters Forbund (Norway)
Produce Marketing Association
United Fresh (New Zealand)

IFPS Chairman Dr Hans Maurer (United Fresh New Zealand) in welcoming Frug I Com, expressed his belief that “the ability of IFPS to address the international harmonization and standardization issues facing the global produce industry will be greatly enhanced through the focus, determination and expertise our Dutch colleagues are known to bring to any forum they participate in.”

IFPS membership can be expected to increase further in the coming months.

We have been pleased to exchange a few e-mails with Hans over the years and have been honored by the many links to the Pundit he has provided to the trade in New Zealand. We know Hans as an energetic advocate for the trade and so were pleased to see he had taken on the Chairmanship of The International Federation for Produce Standards, or IFPS.

What, however, exactly is the IFPS? And what standards does it wish to see established? Why do we need such an organization rather than just ad hoc committees? We asked Pundit Investigator and Special Projects Editor Mira Slott to find out more:

Dr. Hans Maurer, Chair
International Federation for Produce Standards (IFPS)
(United Fresh New Zealand)
Managing Director, The AgriChain Centre
Chief Executive, International Management Centres Association, UK
Publisher, Hortsource
Professor in Agribusiness, IMCA

Q: What sparked the formation of the IFPS? How has it evolved?

A: IFPS has been around as a loose association of industry bodies since the early 1990’s when there was a realization that the allocation of PLU numbers was critical in terms of the facilitation of international trade, as a proliferation of proprietary PLU numbers or even national standard PLU numbers would be an impediment to international trade. And in the early 90’s a number of farsighted industry members decided it was necessary to coordinate all that. The IFPS has really come out of this realization that beyond developing international standards for PLU numbers, other issues could be resolved through international standards for the industry.

So at that stage in 2006, a decision was made to formally incorporate.The realization that there were issues bigger than PLU numbers also came about because of the fact that international organizations like PMA, like Canadian PMA, like Horticultural Australia, etc., were all looking at their own standards in areas such as food safety, potentially areas like bio security and others. It was felt there was a need to actually start cooperating very early in the process on standards development.

An additional effect that came into it, obviously from a trade point of view — produce on the retail shelf forms part of a wider offer in the supermarket, and obviously it was beneficial to the industry in a broader sense taking an interest in standardization. It was beginning to work with organizations like GS1 that manages allocation of barcodes globally to develop standards for produce.

Of course, with its accountability for the PLU system in mind, the produce industry suddenly was faced with the interest of retailers with PLU numbers possibly replaced by mini barcodes like the data bar. So we realized as a global industry that instead of sitting and waiting for standards popping up and developing for us and then us reacting to it, the fresh produce industry had to become proactive in the determination of what standards we needed and how those standards needed to look.

Q: How serious was the problem of multiple standards proliferating at this juncture?

A: Standards were developing in a combination of ways. Retailers would set their own standards; European retailers were developing the GAP program. You had in Australia, for example, the very big chain Woolworth’s, which had developed Woolworth’s Quality Assurance Standard (Editor’s note: see interview with Woolworth’s Australia in the Pundit here). In England, you suddenly had the British Retail Consortium (BRC) Standards, which related to pack houses rather than growers. [Editors’ note: See interview with BRC on food safety issues in the Pundit here] And, of course, national associations in produce, like PMA, United Fresh New Zealand and other organizations, really want to make sure that the standards in place in our industry are robust and work but also that they are cost-effective and they don’t get in the way of common sense.

For example, it would be wonderful if a grower or packer who is supplying Tesco in the UK and Kroger’s in the U.S. and Woolworths in Australia would not have to be audited by three or four different people and not have to agree to three or four different standards. That we could achieve a system by which you have either equivalent agreements or a degree of cooperation between various generic standards. That would go a long way toward assisting the global industry to, on one hand, deliver the consumers what they need and on the other hand to make sure compliance is managed at a minimum necessary level of cost and effort.

We would always have retailers wanting to go a little bit extra, which is fine, but the generic application of standards is something IFPS believes in. There’s a need for greater standardization.

So from that point of view, we have defined the objectives. We currently have a 10 member association. Beyond the founding members, we have since been joined by Fruit South Africa, the Canadian Horticultural Council, and the most recent member Frug I Com in the Netherlands. We are in discussions with other countries and will advise any developments in due course. [Editor’s note: read more on membership here.]

What IFPS really is — the global produce industry through its national trade associations being determined to work together to insure that for whatever standards are being measured, the views of the industry are actually taken into consideration.

Q: What progress has been made to this point in meeting those objectives?

A: The first objective is to make ourselves known as being in existence, and we’ve been really successful at that. In this area of globalization, global bodies like GS1 or the World Bank or the World Trade Organization, for example, don’t actually want to engage anymore with national associations or bodies, but are looking for global counterparts. So we spent the first few years really knocking on doors and saying hey, we exist. My trade association peer, Jane Proctor from the CPMA, has made enormous efforts in this regard and we can really see improvement.

Q: Could you further explain how negotiations work at the international level when you are representing such a diverse group of national interests?

A: A global body like GS1 or the World Bank wants to engage in dialog with organizations that are able to represent their members at the global level. So for example, one of the things we’ve been able to achieve is that we have been able to launch an application for observer status with the World Health Organization. In order to do that you need to be a global player. And we’ve specifically achieved that. Now we have not been granted that status yet, however, because we have not been in existence formally for three years, which is the minimum timeframe for that.

Q: You’re almost at that milestone.

A: That will click over in October 2009. But without having IFPS, the produce industry would be talked about rather than being able to observe and contribute.

To that extent, I recently flew to Singapore to an invitation-only conference put together by the World Bank. Now the World Bank came aware of us six months ago by way of one of my Canadian colleagues attending a conference in Europe and making a statement on behalf of IFPS. The World Bank said, Oh, IFPS, what is that? Please explain. So my Canadian colleague explained and the World Bank said fantastic.

Q: How does IFPS participate in the decision-making process?

A: We want to engage on the topic of chemical registration verification of agricultural crops. Can we talk to you? Yes, of course you can talk to us. All of a sudden, we are on the radar screen as a global association, International Federation for Produce Standards, and we are able to contribute to the discussion, and to intercede on whatever recommendation guidelines and standards and rules that come out of the process.

Q: So you’ve just elevated the industry’s power in the shaping of international standards and rules…

A: Correct. I’d say influence, not power. We’ve elevated the influence of the global produce trade on the topic of standards at the global level because we’ve got recognition as a global body.

Q: You are building an important foundation, but it sounds like you are still in the early stages of your mission…

A: Yes, these are the early stages, but Rome wasn’t built in a day. The pure fact is that IFPS is a registered company with a registered office in the UK, and the office there is managed by the British Retail Consortium, the secretary general of the federation is PMA, and the chair and vice chair are elected from the directors every two years. So anybody who is engaging with us from outside the produce industry but has the ability to influence what’s happening to the industry, like standards, immediately gets the message this is a truly international body.

Q: What issue are you focusing on first and why? At the onset, IFPS bulleted a broad range of topics it wanted to tackle:

• Industry Technologies — product identification, application of product identification via Reduced Space Symbology (RSS), RFID, etc.

• Traceability — harmonization of existing guidelines and standards

• Pesticides — information gathering regarding country-specific MRLs (Maximum Residue Limits), legislative changes, implications for global trade, promotion of best practices, etc.

• Good Agricultural Practices (GAP) — harmonization of existing/proposed schemes, organic standards/ certification, etc.

A: We’ve further refined our position on food safety:

• The establishment of a single set of internationally recognized criteria against which food safety programs are benchmarked.

• The outcome must encompass the total fresh produce supply chain.

• One global benchmarking system is preferable for the fresh produce sector.

Q: How do you gain consensus and hone one universal voice when dealing with such a diverse group of national organizations and interests. Are you finding some areas easier to push forward and others more challenging?

A: Of course. Take the PLU standards; we spent the first three years in this area really tidying up the PLU number application process. It is now at the point where we have a robust system we work through. When new PLUs are needed, the global industry understands in order to have a PLU number there is an application process that needs to be gone through. The directors at IFPS meet twice a year, and at those meetings those applications for PLUs are reviewed and either approved or sent for further verification or declined if they feel it is actually not required.

The area which is also of interest to us obviously is this whole traceability area, and that is where we have been working with GS1 to insure the traceability guide, just released, was properly vetted and had our input in it. The area that is really now getting our interest in addition to PLUs and traceability in a technical sense is the area of food safety and the way the expectations of consumers who have product delivered from within our supply chain are being met.

Q: It’s interesting that you’re talking about food safety measures from a consumer perspective…

A: Well, ultimately we’re focused on the consumer eating our product or we’re all out of business. We fully support the need to have robust food safety measures in place in order to insure consumer confidence in our product. But we’re also saying that the process by which regulatory bodies or standards-setting bodies go about connecting with the industry supply chain should deliver that outcome to the consumer in a way that is practical for the type of industry we are and is not counterproductive to the economic viability of the supply chain.

Q: Sounds like a monumental task…

A: Yes. And we don’t see ourselves as owning that task in its entirety. Our role in this is to insure that the fresh produce global trade that is conducted by the members of those trade associations, which make up IFPS, is actually taken into account in the process.

Q: Could you provide some scenarios of how the process works, maybe a food safety measure that’s being regulated and actions IFPS would take to impact the outcome?

A: I don’t want to give specific examples because that wouldn’t be the right way to go about this.

Q: In trying to get our hands around this, food safety problems with fresh produce are top-of-mind in the U.S. The U.S. produce industry is very concerned and trying to take a more proactive role in shaping new government legislation involving more stringent traceability measures and other regulatory actions throughout the supply chain. Could IFPS play a role considering the international trade component?

A: We’re a part of it to an extent. PMA is the U.S. member of our association. In the first instance, PMA is a signatory toward the IFPS system, so PMA on one hand has the support of IFPS to make its voice heard in the U.S., and secondly PMA would insure that the IFPS principles that it has mentored are actually taken into account in the work it does in the U.S. to get its members’ points across.

This is where we see our ability to influence. If you leave issues like safety entirely up to national bodies then there is the potential for a problem as produce crosses borders. So there needs to be a degree of integration, and an understanding of what is important to other national associations or other national standards in other countries. And IFPS at this level is actually a clearinghouse to make sure that individual member countries understand connections and matters of risk.

Q: In certain areas, doesn’t standardization become nearly impossible or undesirable? For example, sustainability is composed of many variables including environmental, social and economic aspects. Placing value and prioritizing those attributes seems extremely subjective. Limiting certain pesticide use, for example, could be better for the environment, but hamper yield production and lead to a reduction in food for starving people in developing countries.

What is your view of international standards in this regard? Does IFPS get involved in these debates and conflict resolution? Do you differentiate between required standards and standardized metrics for measuring and verifying progress with common terminology?

A: Putting it very simply, the minute the term ‘standards’ appears in relation with produce, IFPS has an opinion or will have an opinion. We will switch ourselves into any discussion or debate that covers the topic of standards. Now the depth in which we do may vary from topic to topic. If standards are being discussed, we will have a view and make it known.

Q: What is your view on sustainability? Do you think it is realistic to come up with global standards in this instance?

A: The sustainability issue is still up for discussion within IFPS, so I actually can’t supply you with an official view at the moment. At the end of the day, we consider ourselves to be an international forum to address any issue that requires international harmonization or standardization for the produce sectors.

Q: What are the biggest challenges you face in moving forward with your objectives?

A: From our organization’s perspective, we feel really happy with how we’ve been able to position IFPS. I don’t see any issues that can’t be overcome.

Q: That’s uplifting!

A: That doesn’t mean to say we’re going to decide everything globally in produce. We know we can’t do that. This is not our intention; our intention is to make sure the voice of the global produce industry is heard when it comes to global standards.

Q: Are you finding that most stakeholders can come to a consensus or mutually agreeable compromise on these often complex and sometimes hotly debated issues? With the diverse membership and cultures, combined with different government structures and ever-evolving legislation, it must be an intriguing experience at times…

A: I can’t talk about whether there will be a consensus on global legislation, because honestly I don’t know. I can tell you that IFPS works on a consensus basis. So when IFPS issues statements or participates in events or meetings or whatever it may be, whoever represents IFPS in a dialogue does so because IFPS membership is united in its view that IFPS needs to be there at that point.

Q: How do you coordinate IFPS spokespeople or experts to represent membership’s collective views at these various international forums?

A: The board of IFPS is not necessarily the topic expert in every instance. Out of the board members around the table, maybe one or two, for example, are competent in food safety. One of the determinations we made at our meeting in Spain in May was that we will reactivate our food safety subcommittee so that we are able to specifically engage directly with the global experts on the topic of food safety. This will take the form of each member country nominating a food safety expert from within its own national industry, so then you’ve got food safety experts as a committee of IFPS.

Q: It’s brilliant because you get all these experts coming together to share unique knowledge from different perspectives and brainstorm for a common purpose.

A: From our point of view, purely getting those guys together is the point of the game and a major success. In the early days there was a food safety subcommittee. And it’s now being reactivated in this calendar year.

Q: Are there other subcommittees in the works?

A: This is on the agenda to be discussed at our next meeting at the PMA in Anaheim on October 5. At this time, there are no plans for other subcommittees, but we meet twice a year. The board may determine it wants to engage in other matters at that time.

Q: I hope I can pull you away briefly from your busy schedule at the PMA show to shake your hand…

A: I’ll come looking for you because I’m actually an admirer of the Perishable Pundit and Jim Prevor. We do something similar although not of the same scope here in New Zealand, which I’m the commercial head, so I’ve been familiar for the past few years with PRODUCE BUSINESS and your commitment to the industry.

Q: Tell us a little more about your background and how you’ve become so proactive taking on this great responsibility as chairman of IFPS.

A: Well, you might have picked up on my accent that I’m not a native English speaker and that I’m German by birth but have lived in New Zealand 21 years now. I am by training a nursery man. I’ve worked with corporate retailers and I now run a company that is a service provider to the fresh fruit and vegetable industry. I am a director here in New Zealand for United Fresh, which is our industry body. And I am the United Fresh director on the IFPS.

Q: You bring varied experience and perspective to your position at IFPS… What is your greatest hope for the industry moving forward?

A: At the end of the day, if the industry is healthy then it creates opportunity for everyone in the industry. And a healthy industry requires us to work in an organized fashion to set standards.

Q: Our readership spans the global spectrum. If someone wanted to get involved with IFPS and your mission, what advice could you give them?

A: We invite for membership any national trade association as full members. So, if the Italian or Spanish horticulture association or the one in Cameroon was interested, etc., we would welcome them with open arms. If there is any national association that has a representative at the PMA, we would be very happy to have them attend our meeting on October 5.

We also have a category for associate members, who are companies as opposed to organizations, or individuals not directly involved in the trade of produce but play a part in it. It could be a technology company, or it could be a company making the little stickers for PLU labels or tags for RFID — any organization that is not directly involved in the trade. We have not pushed that very much because we really wanted to get the critical mass in our core membership first.

Q: And you did mention you expect new members…

A: We were joined by South Africa last year, and we were joined by Holland this year and we believe we will be able to make further announcements in the near future.

Q: And as information starts to disseminate and people start to learn who you are, it should facilitate a domino affect …

A: Absolutely. And you play a role as well because you are a respected industry publication.

Q: The way you describe your organization in some ways parallels one aspect of the Perishable Pundit, which acts as a global interactive forum to debate important issues in an effort to move the industry forward. It sounds like that is a goal of yours as well.

A: Right. But we are doing it from the perspective of coming together as formal associations, but we’re bundling our expertise and views to have a global position.

Q: Are you working with national government organizations as well as with global bodies like the World Bank and World Health Organization?

A: No. The national positions we leave to our members. PMA, for example, is very capable of sitting down with the USDA and FDA and making its views known. In this discussion, PMA has the support of IFPS and vice versa. There is no role for IFPS to come in and focus on individual countries. That is the role of our members. We support their achieving their goals with their national governments, and we exist to benefit from and bundle the knowledge we gain at the national level and turn it into an international perspective, but always coming back to the issue of standards.

Q: With food safety for example, do you take the highest or most comprehensive standard and try to get everyone up to that level? Or alternatively, do you shoot for a minimum, knowing that many retailers, foodservice providers and other companies within the supply chain will demand more rigorous standards?

A: We won’t look to the highest standard necessarily. Let me give you an example. You have a body like the global food safety initiative, which recently re-named itself, and on the other hand you’ve got GlobelGAP. GlobelGAP is a body that looks at standards in good agricultural practice. The global food safety initiative is an organization, which amongst other things, is the umbrella organization for standards relating to produce pack houses. But both of those organizations have their own structures, goals and objectives, and there is a gray area between both of them.

When do agriculture practices stop and pack houses start? When does a grower become a packer? Does it mean a grower/packer needs to do both audits? One of the things we do in this situation is we engage in both organizations, letting them know what the position of our membership is, and that we would like a rationalized system.

Q: IFPS has the advantage of analyzing these disparate or overlapping programs and seeing the forest for the trees…

A: Yes. We’re able to look at the whole picture, to develop a comprehensive approach.

Q: Earlier you expressed a heartening confidence that IFPS could overcome any challenges to accomplish its goals. As you’ve taken on this new role at IFPS, is it meeting your expectations?

A: I was just elected chairman. For me the glass is always half full and never half empty. Look, at the end of the day, the fresh produce industry is a rewarding and invigorating industry because what could be more exciting than feeding people? And the range of produce we have in the industry going from the steak-and-potato varieties to the exotic and everything in between provides opportunities for success for any national organizations or individuals that engage with us.

What is exciting for me, and I guess that is what you’re hearing between the lines, is that it is possible to get Chileans, Canadians, British, South Africans, Americans, Norwegians, the Dutch, and other country representatives around the table and get them to agree on what topics we need to globally engage in and to make sure standards are in line to build harmonization and drive industry success.

Most American produce companies don’t put international standards high up on their list of concerns for the simple reason that most firms operate solely domestically.

In countries such as South Africa, Chile and New Zealand, however, these are pressing issues. Producers rack their brains — and empty their wallets — to meet standards of retailers in Tokyo, London, on the European continent, in North America and other areas.

This struggle is reflected in this comment Dr. Maurer made:

For example, it would be wonderful if a grower or packer who is supplying Tesco in the UK and Kroger’s in the U.S. and Woolworths in Australia would not have to be audited by three or four different people and not have to agree to three or four different standards. That we could achieve a system by which you have either equivalent agreements or a degree of cooperation between various generic standards. That would go a long way toward assisting the global industry to, on one hand, deliver the consumers what they need and on the other hand to make sure compliance is managed at a minimum level.

We would always have retailers wanting to go a little bit extra, which is fine, but the generic application of standards is something IFPS believes in. There’s a need for greater standardization.

Yet we confess to some skepticism about the plausibility of this. When the Pundit was in South Africa, we spoke to many producers who, indeed, were stressed and overwhelmed at meeting multiple standards. Very often, however, the multiple standards they were concerned about all belonged to different British retailers!

If Marks & Spencer and Tesco can’t agree on a standard, how in the world will companies operating in different countries come to consensus?

It also seems that we need to draw a distinction between the standards and verification. There have already been a number of studies of various food safety standards that find enormous harmonization between the standards. In other words, well over 90% of most of the different food safety standards are typically identical right now.

However the verification of these standards is not well harmonized at all. Some companies want to verify with their own staff; others will only accept their own third-party auditor.

This is a problem in the United States. It is an even bigger problem as one tries to develop global standards. We once ran a piece under the title, Pundit’s Mailbag — Where Accreditation Is For Sale, We Better Know Our Suppliers, which included a letter from Devon Zagory, PhD. who, at the time, was the Senior Vice President, Food Safety & Quality programs for NSF Davis Fresh. He pointed out the difficulties of accepting certifications of standards:

We in the produce business are all accustomed to the idea of quality control, because quality is what we sell. But we have also grown accustomed to outsourcing our concerns about food safety so that we rely on a certificate or accreditation to assure us of the safety of our products. While this may once have adequately served the purposes of covering our rear ends and facilitating the deal, it is now necessary but insufficient. Anything less than control of our food safety systems won’t do.

Accreditation is well and good. But in many parts of the developing world accreditation and certification are for sale. I have been in food facilities in Eastern Europe that proudly display their ISO Certification documents in the entryway. But when touring the facilities, it became very clear that they could not possibly have completed the stringent ISO requirements of continuous improvement, attention to detail and documentation.

In short, they were filthy and disorganized. They probably purchased their certification. Unfortunately this is all too common in much of the world. Be suspicious of certificates. They are only a piece of paper, and a piece of paper never prevented a food borne illness outbreak. Even when the certificate is legitimate, some certifying organizations, government or private, have little experience with produce food safety and microbiology. Produce really is different, and the microbiological principals that pertain to meat, fish, poultry and other foods often do not hold with produce.

So, even if the international trade could agree on a particular standard, the verification of that standard is problematic and it is in the verification — multiple audits — that the expense really exists.

Where standardization is most capable of saving immense amounts of money is on technical standards — everything from pallet sizes to identification rules. So we are lucky to have an organization working on these issues and thus ensuring the produce industry a voice at the table.

In many ways, organizations such as The International Federation for Produce Standards represent the future. As Dr. Maurer points out:

In this area of globalization, global bodies like GS1 or the World Bank or the World Trade Organization, for example, don’t actually want to engage anymore with national associations or bodies, but are looking for global counterparts.

With produce now just another item sold at Wal-Mart, the industry will increasingly not be able to dictate its own destiny; it will be expected to conform to more generalized standards. Thanks to the IFPS, there is now a voice speaking to standard-makers outside the industry and, saying, in a voice reminiscent of the Who’s down in Whoville: “We’re here! We’re here!”

For that, we owe thanks to Dr. Hans Maurer and all the people and associations that have contributed to making the IFPS a reality.

Pundit’s Mailbag — Deli Private Labels
Also Benefit From Boar’s Head Banner

Our piece Dietz & Watson Takes On Boar’s Head: Is Exclusivity Anti-Consumer? Is It even Good For Retailers? brought many responses, mostly from retailers asking to whisper their own Boar’s Head stories in the ear of the Pundit.

We also received a note from a woman occupying one of the most prestigious and consequential perches in the food industry:

Interesting column today. I have a slightly different take on the following point:

5) Store Brand vs. a Manufacturer’s Brand

Most retailers that look to put any manufacturer’s name on their deli are thinking of the short term advantages that can come from such a tie-in. Long run, however, the promotion of the manufacturer brand diminishes the chance to promote the store brand or a concept that the store actually owns.

The real question is not if the retailer grants the manufacturer an exclusive; it is if the manufacturer grants the retailer an exclusive. After all, to use a store’s precious space and opportunity for consumer interaction to promote a brand that can equally be picked up down the street is very questionable marketing.

Better for a retailer to maintain flexibility to meet consumer needs by being able to sell what it wishes to sell and better to persuade consumers that the value and the quality are incumbent in the retailer, not any given vendor.

I can envision a scenario where the move to a premium brand such as Boar’s Head in the deli section can improve results for the retailer over both the short and longer terms by potentially strengthening the Private Label potential (assuming the Private Label products also stay in the case).

Boar’s Head products carry higher price points, providing a higher pricing umbrella for the private label line. Either the prices of private label products can be increased to maintain the differential — thus improving the private label margin — or private label prices can be maintained — which is likely to result in increased sales as the more price-sensitive shoppers are willing to try (given ease of sampling) and buy the private label equivalent.

Mary Shelman
Director, Agribusiness Program
Harvard Business School
Greenhill House
Boston, Massachusetts

When she is not organizing Harvard’s world-renowned Agribusiness Seminar, Mary is busy writing case studies for the same; she is one smart cookie.

She is, of course, correct that the decision to carry a premium-priced line creates an opportunity to increase sales and profits of a private label line either, as she explains, by increasing margins on the private label product or by increasing private label sales.

Our critique is not so much with the sale of the high-end product but with the question of the branding of the deli operations. If the service deli, as is often the case, is so bannered and branded that consumer loyalties go to Boar’s Head, well what does the retailer have to sell if another area retailer also has a branded Boar’s Head concept or if, one day, Boar’s Head refuses to sell that retailer?

In effect, the retailer is losing a chance to build up its own brand equity by bannering the deli with its own name or the name of a concept it owns the right to.

Mary Shelman’s point is well taken and a good lesson for producers: Profit at retail is complex. In the produce industry, where producers often feel aggrieved at retail margins or the fact that retail prices often don’t track down with FOBs, the fact that Mary brings up — that the decision to handle one line can be dictated but its effect on the profitability of another line — is incisive.

We suppose we ought to stop now. You know the old saying: You can always tell a Harvard man, but you can’t tell him much. That goes double for Harvard women!

Many thanks to Mary Shelman for weighing in with such a thoughtful comment.

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