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Perishable Pundit
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Produce Business

Deli Business

American Food & Ag Exporter

Cheese Connoisseur

Tesco’s Problems With Fresh & Easy Prompt A Question:
Why Is It So Hard For Retailers To Cross The Pond?

With all the problems that Tesco has had in making Fresh & Easy a success, and memories of the failure of Sainsbury’s when it bought Shaws, and Marks and Spencer when it bought Kings, one wonders why British retailers struggle so desperately in America.

Andrea Felsted and Barney Jopson were thinking through this question and wrote a piece in the Financial Times titled, Bridging the pond is a stern test for retailers:

Tesco’s move into the US has been far from smooth. It has racked up losses of £574m and sucked in £800m of capital, and is now embarking on an overhaul of the chain in an effort to break even by the end of the 2012/13 financial year.

While Tesco is still fighting its corner, the history of retail is littered with British store groups that have failed to crack America.

In 1988, Marks and Spencer bought Brooks Brothers, the US clothing retailer, and King’s, a US supermarket chain. Both were later sold for a fraction of their purchase prices. It joined WH Smith and Laura Ashley in retrenching from the US.

Dixons Retail bought US chain Silo in 1987. A recession followed and Silo, which had over expanded, was unable to compete with bigger rivals. Dixons sold the chain and took write-offs of more than £200m.

On the face of it, crossing the Atlantic should be simpler than entering an emerging market. After all, both countries speak the same language.

“We both speak English and that really is the problem,” says Jim Prevor, who runs the Perishable Pundit blog. When a retailer enters an overseas market, whether it is Korea, China, Brazil or Russia, “they listen more. They engage more,” he says. “Whereas when they come to the US, the similarities are so obvious, the ability to function here is so obvious, that there is tremendous temptation to think that Americans are just like Brits or Brits are just like Americans.”

It is not clear what the long term future of Fresh & Easy will be. Tesco claims that new stores in Northern California are doing better. This may be so. We have long stated that the Fresh & Easy concept would work better in more urban venues.

It is not that Fresh & Easy is so terrible a store; it is that people in car-focused places such as suburban Phoenix or Las Vegas have little need for such a concept.

Our point, that Tesco caused itself unnecessary losses by freezing out Americans, both in its executive ranks and in the vendor ranks, reads true as the article goes on to point out Tesco has been expensively learning things that any US CEO or the US vendor community could have told them before the first store opened:

Tesco found that US shoppers like to pick up and touch their fruit and vegetables, and is trialing more loose produce in stores. Mr Mason says this is a “conundrum” as the less produce is handled, the better it is. But he acknowledges that some US consumers found its prepacked fruit and vegetables “a bit plastic and a bit sterile.”

Americans like to stock up their spacious freezers with a large amount of frozen food. Consequently, Tesco has increased the number of frozen lines in stores, with products such as frozen oatmeal.

“Frozen is an area of opportunity for us still,” says Mr Mason.

There are some other differences. Dairy-based desserts such as yoghurt, are less popular in the US than Europe. However, Tesco has introduced a range of Greek yoghurts, which have become bestsellers.

It is also trying to bring quiche — not a popular dish stateside — to US consumers. “Real Americans don’t eat quiche,” quips Mr Mason.

US shoppers like brands, whereas 50 per cent of Fresh & Easy’s products are own-label. However, it is developing the Fresh & Easy brand further, introducing new products, from gluten-free foods to energy bars and tea and coffee.

At this point, as we discussed in our piece that analyzed the ramifications of Tesco’s decision to get out of Japan, it is pretty clear where we stand: Tesco values the opportunity to grow in North America. This is an important strategic goal.

Having sunk a couple of billion dollars into the US, new CEO Philip Clarke is hoping that the division can start making a few pennies. Although this will never justify the investment, that is lost money and if it can keep losses to a de minimis level or make a little, it will keep the division open, buy other operations and hope to build up a real division in North America.

But Mr. Clarke is tired of playing Margaret Mead studying the natives. If the losses aren’t restrained, and fast, he will move to close or sell Fresh & Easy.

By the way, our Vietnamese readers can find the translation of the piece here.

Aggressive Strategy Vindicated
Will the FDA Change Its Approach?

As we were about to push the send button on this Pundit, we received big news from Del Monte Fresh Produce:

Del Monte Fresh Produce N.A., Inc. is pleased to communicate that we were able to reach an amicable resolution with the Food and Drug Administration (the "FDA") resulting in the rescission of the import alert. Del Monte Fresh Produce N.A., Inc. and the FDA have a mutual interest in the creation and enforcement of appropriate food safety measures that protect consumer health. This agreement demonstrates that the FDA and importers, such as Del Monte Fresh Produce N.A., Inc., can work together to achieve this mutual goal.

This is big news, perhaps unprecedented. Though the release is all sugar and light, we can’t help but believe that Del Monte’s legal strategy worked. They brought this issue to a head and got it resolved so they can plant for the winter season. That is not always the way these things turn out 

The imbroglio between Del Monte Fresh and the FDA that we chronicled in our piece, Del Monte Fresh Stands Up To FDA’s Bullying Tactics, and our follow-up, Pundit’s Mailbag — Del Monte Fresh’s Lawsuit Against FDA Draws Attention To Other Mistakes And Policy Flaws, made the big time when William Neuman, who has the food safety beat at The New York Times, decided to highlight the story in a piece titled, Produce Importer in Food Safety Fight:

When health investigators identified imported cantaloupes as the source of a salmonella outbreak early this year, the importer agreed to a recall. But now that company, Del Monte Fresh Produce, is trying to block additional restrictions on melon imports, setting off an unusually public battle between the produce industry and food safety regulators.

The company, which is one of the country’s largest produce marketers, says the restrictions could damage its reputation, and it has sued the Food and Drug Administration to lift them.

The effort is being cheered by many in the produce industry, who often complain about what they call overreaching by regulators and welcome a company with resources pushing back.

But advocates of safe food said that it was extremely rare for a major food company to take such a publicly aggressive stance, and that they suspected Del Monte Fresh Produce was trying to bully regulators into thinking twice before pursuing recalls in the future.

Aside from suing the F.D.A., the company has threatened legal action against a leading state food-borne disease investigator in Oregon, where the Del Monte cantaloupes were identified as the cause of the salmonella outbreak. And it has challenged some of the basic techniques of food safety investigations, like relying on ill people’s memories of what they ate when microbiological testing does not find pathogens on food.

“This clearly looks like an attempt to intimidate state level investigators,” said Caroline Smith DeWaal, food safety director of the Center for Science in the Public Interest, an advocacy group. “The chilling effect is real, and it could have serious implications for consumers who may be exposed to more tainted products because of delays in announcing the results of these epidemiologic investigations.”

An executive of Del Monte Fresh Produce said that its melons did not make anyone sick and that the purpose of the lawsuit, filed in Federal District Court in Maryland last month, was to improve food safety by pointing out flaws in the way some investigations were handled.

“It’s got to be a comprehensive and reliable investigation, and in our opinion this was neither,” said Dennis Christou, vice president of marketing for Del Monte Fresh Produce, which is based in Coral Gables, Fla. “There’s absolutely no basis in the claim that this was done intentionally to intimidate or bully anyone.”

The company said Wednesday that it was in talks with the F.D.A. to resolve the dispute and expected an agreement soon.

Many in the produce industry, which has been buffeted by recalls for items as diverse as spinach, peppers and papayas, are quietly rooting for the company. “In this particular case, the F.D.A. took on an adversary that has some ability to stand up and say, ‘We’re not going to be treated this way,’ ” said Jim Prevor, editor in chief of Produce Business, a trade magazine.

We were; of course, glad to have an opportunity to speak with Mr. Neuman and to state the case as we saw it.

It was, however, very difficult to get this case — as it is in most food safety cases — to be viewed from any perspective other than that of the legal framework that the food safety community has established over the years.

The New York Times piece really focused on two issues:

First, in the lawsuit directed at the FDA — you can read the complaint here — Del Monte Fresh focused its efforts on establishing that there is no proof that its cantaloupes, at least at the farm, ever had pathogens on them.

Del Monte Fresh had no real alternative to take this approach as the law is very strict if the pathogens were there.

Since it is not contested that Del Monte Fresh’s point — that there has been no tangible evidence as to the existence of the pathogen on Del Monte Fresh produce — is true, this argument basically came down to two separate questions:

A)  Now that we have the capability to identify pathogens through testing and to genetically link those pathogens to those in sick people — is a case defined solely by epidemiology sufficient to impose all the various penalties the law holds for the introduction of pathogens in the food supply?

B)  Even if in some cases a pure epidemiologically driven case is acceptable, is the epidemiology correct in this case and strong enough to draw the conclusions the FDA has drawn?

Second, in its press release, Del Monte Fresh indicated it had filed with Oregon a “notice to sue” both Oregon’s Health Authority’s Public Health division and one of its officials. Mr. Neuman identifies this official as the state’s Senior Epidemiologist, Dr. William E Keene.

The issue raised here is that these lawsuits against Oregon, an individual and the FDA may have a chilling effect on the pronouncements of public health authorities:

“This clearly looks like an attempt to intimidate state level investigators,” said Caroline Smith DeWaal, food safety director of the Center for Science in the Public Interest, an advocacy group. “The chilling effect is real, and it could have serious implications for consumers who may be exposed to more tainted products because of delays in announcing the results of these epidemiologic investigations.”

These issues are actually pretty simple.

When it comes to a “chilling effect,” it seems certain that a knowledge that one could be sued for erroneous statements could lead to more caution before speaking.

The question is whether that is bad or not. We allow journalists freedom of speech, but we encourage responsibility by having libel and slander laws. The public policy goal is, after all, not just to encourage public health authorities to speak, but to have them speak accurately.

As our interview with noted legal authority Richard Epstein pointed out, government officials and agencies do not typically have the same liability for erroneous statements that a private sector actor would have.

The world learned in a very public way from the salmonella Saintpaul outbreak that the FDA can be wrong and that the shattered tomato industry had no place to go to get back its reputation — or its financial losses.

So some push-back from industry, if it gets the public health authorities to be more cautious in making pronouncements without solid evidence, may be a very beneficial thing.

Remember the utility of public health authorities depends crucially on their credibility. If their credibility is higher, more people will listen to them and that would help public health.

When it comes to the issue of epidemiology, it is inevitable that now that we have the ability to do genetic testing, people will be looking for that kind of evidence.

We won’t always have it. The issue here is that if a prosecutor in a court case doesn’t have DNA evidence or fingerprints or a murder weapon, the prosecutor has to not only have a theory but has to be able to convince a jury of his theory.

Mr. Neuman quotes Dr. Michael T. Osterholm, who we interviewed during the salmonella Saintpaul crisis in a piece you can see here, as saying that the epidemiology in this case is solid:

“There’s no doubt the data are very tight,” said Dr. Michael T. Osterholm, director of the Center for Infectious Disease Research and Policy at the University of Minnesota. “Del Monte caused that outbreak.”

And he said that many investigations involving sickness from produce did not find contaminated food because by the time officials became aware of the outbreak, the tainted produce had been eaten or discarded.

We have the highest regard for Dr. Osterholm. He is in a tough spot on this one, as in addition to working for government and now being an academic, he has long been a consultant to Fresh Express, which is now owned by Chiquita and is one of Del Monte Fresh’s biggest competitors. Still, we are 100% convinced that Dr. Osterholm would speak his mind frankly, and so we are certain that he is sincere in his belief that the epidemiology is very strong here.

We are certainly not going to try and parse epidemiological studies with Dr. Osterholm. We do think that whatever the strength of the FDA’s case, it should have to bring it to an independent third party for vetting. Otherwise, the risk of an abuse of power is just too great.

Our bigger issue is that whether the epidemiology is correct or not just shouldn’t be that crucial an issue. We now know that food safety is an episodic thing in produce and that even the best firms can get hit.

The bottom line, thinking only of public health, is this:

If you imagine a line of 11 farms, all drawing from the same river for irrigation and all right next to each other. Ten of these farms meet minimal legal standards to produce and ship. The middle farm is a gold standard operator. It has every certification and every audit. It has the most finicky customers and a culture committed to food safety.

Yet, one day, a bird flies over its fields and does its business. The pathogen is found by the FDA and an import alert is imposed. So now imports from this gold standard farm are blocked. So consumers are left to buy from the 10 minimum-standard farms. The judgment of Costco, Wal-Mart, Safeway, Kroger, Darden, McDonald’s, etc., all count for nothing. The fact that they might prefer to continue to buy from this farm they have carefully vetted is irrelevant.

We have tried to deal with issues such as the appropriate legal standard for food safety claims in our piece in The New Atlantis titled, How to Improve Food Safety.

Whatever the ultimate solution, it should be very clear that the use of episodic food safety outbreaks to ban imports may leave consumers with the sole option of buying from “less safe” operations and is thus inimical to public health.

This is the real issue and we have to find a way to get the FDA and the entire legal structure built up around food safety to address this issue. If we are very lucky the decision of Del Monte Fresh to stand up for itself just might lead to some rethinking by the Government regarding how to approach the sporadic food safety outbreak.

Ideation Fresh Foodservice Forum Unveiled:
New Conference Will Tackle MyPlate Challenge At New York Produce Show

Ideation is all about the birth of new ideas. It is a crucial process for individuals, companies, industries, indeed all human advancement.

If you stare long enough at the word, you realize that “eat” is right at the heart of it.

So the concept of ideation was a natural to place at the center of a new conference to be held in conjunction with The New York Produce Show and Conference, the Ideation Fresh Foodservice Forum.

It is widely recognized that the success of the fresh produce industry depends heavily on the ability of the industry to both sell more into foodservice, find a way to get rewarded for providing superior quality and flavor, and for providing a suite of services that add value to a commodity.

It is also widely recognized that public health depends crucially on getting consumers to eat well and in a more healthful manner, which inevitably means eating more produce. Many of the diseases that are threatening the population, such as diabetes and high blood pressure, can be traced to obesity, and the connection between diet and obesity is quite strong.

What is not quite as well recognized is that the future of the restaurant industry and broader foodservice industry depends crucially on its ability to serve more produce. Although theoretically one can say that a restaurant should simply serve its customers what they want, this ignores the political reality in which we live.

With obesity a matter of public health concern and the consequences of obesity weighing on the budget of programs such as Medicaid and Medicare — and with the public becoming sensitized to the role foodservice can play in promoting obesity through the media, including films such as Super Size Me — it is increasingly likely that restaurants will be regulated into serving public health goals.

Today this starts with requirements for calorie counts on menus, but if posting the calorie counts does not change behavior, there is no particular reason to think that politicians will stop there.

The National Restaurant Association is aware of all this, and this fact is behind its joint initiative with the Produce Marketing Association to double fresh produce usage in foodservice by the year 2020. NRA recognizes that it ought to position the restaurant industry on the "side of the angels" when it comes to healthy eating. NRA wants the restaurant industry to be seen as part of the solution, not part of the problem.

The NRA/PMA initiative is certainly a strong PR step in this direction, but it is uncertain how this plan will be actualized operationally. The initiative is somewhat problematic as more than two years into the project — 20% of the way through – no baseline number has yet been defined and no methodology established for how produce usage in foodservice in the year 2020 will be defined.

It is difficult to manage what one can’t measure. Although the current executives of the associations are dedicated to substantive change, without some real metrics, there is a real danger than future leaders of these associations may simply declare victory and go home without achieving much in the way of real change.

The United States Department of Agriculture recently replaced its old Food Pyramid with a new MyPlate recommendation to make half of our plate fruits and vegetables. Based on the 2010 Dietary Guidelines for all Americans, the plan has the advantage of being simple and easy to measure.

Yet it raises issues of its own. For one thing, no distinction is made between fresh and other forms of produce. This is not likely to be acceptable either to the fresh produce industry or to many top chefs. There also is the issue of money. Go to the Old Homestead Steakhouse in Manhattan, where John F. Kennedy Jr. was known to take his pals, and the most expensive salad on the menu costs 14 bucks. In contrast, the 20 oz Kobe Burger is, famously, $41, and steaks for one run up to $52. Is it possible to change the produce/protein ratio and still maintain ticket values for restaurants?

Another issue is health-related. If the Old Homestead responds to the MyPlate initiative by balancing its 32 oz. Gotham Rib steak with 32 oz. of spinach, we may see more spinach sold, but how much will be eaten is another question. Besides, we have doubts that increasing calories served in this way will really serve the cause of public health.

Quick Serve restaurants struggle with how to make produce quick and portable. If we run out of the office for a quick lunch, the decision to eat the nice salad served at the deli across the street is a decision to spend more than twice as much time eating as a burger or sandwich in the car.

Anyone with any sense is looking closely at university foodservice. For better or worse, students are into sustainability, local and organic; they focus on ethics and treatment of animals. These concerns are now echoing across the food supply chain and, although ideas and priorities may change over time, it reasonable to expect that all forms of foodservice will be changed as this University Cohort works its way through the years.

New York is an extraordinary center in foodservice and this conference is focused on drawing on the resources of the city and broader region to engage in some ideation about how we can actually make the plate half fresh produce.

There will be an update on the New York Produce/Restaurant scene, demos of intriguing recipes that are heavy to produce, and a special MyPlate Challenge workshop in which all the participants work together to find ways to overcome the obstacles to making fresh produce half the plate.

There will be networking opportunities, thinking sessions and opportunities to bring solutions back home.

The whole event is focused on fresh.

The Ideation Fresh Foodservice Forum will be held on November 9, 2011, right after The New York Produce Show and Conference trade show, which is held on November 8, 2011.

Join us for this chance to make a difference in the world and the industry and an opportunity to help your own business prepare for the future that is fast approaching.

You can register for both the Ideation Fresh Foodservice Forum and all parts of the New York Produce Show and Conference right here.

Hotel rooms are available here.

And travel discounts here.

What Business Are You In? A Lesson For Farmers From A New York City Real Estate Deal

Sometimes numbers can be very deceptive — especially if one tries to calculate comparative returns on investment on different asset classes over long periods of time. Even with the recent decline in real estate prices in many parts of the country, one still hears about people who bought property for a pittance a long time ago and now can sell for large profits.

In many cases, though, upon close examination these profits turn out to be less impressive than they seem to be, and the lesson is less about real estate than the power of compound interest.

For example The New York Times recently ran a piece by Diane Cardwell, titled Her $16,000 Town House, Now Available for Just $1.879 Million More. It details a real estate buy that has benefited from many advantageous circumstances:

When Mildred Furiya moved to a 19th-century town house on State Street in Brooklyn from a cramped walkup in Greenwich Village in 1967, a boarding house known for prostitution stood across a barren street, groups of unemployed men hung out on the corner and the Brooklyn House of Detention was a defining presence a block away. Standing in the garden — which functioned as a garbage dump for the apartment building next door — her husband, George, was almost hit in the head by a plaster Madonna statue someone had thrown from a window.

The jail, on hiatus from housing inmates, still looms over State Street, but Mrs. Furiya’s block, between Smith and Hoyt Streets, is much changed.

Sunlight filters through the trees, the unemployed men are long gone and the boarding house prostitutes have given way to middle-class and affluent families. The apartment building that once abutted Mrs. Furiya’s Italianate brownstone, which was declared a city landmark in 1973, is now a parking lot slated for nine new town houses, siblings to a row of 14 down the block that were among the first to sell for more than $2 million in Downtown Brooklyn.

And now Mrs. Furiya, 89, says the time has come for her to sell as well. Mr. Furiya died in 1994, her daughters have homes of their own, and she would like to live more simply: an apartment in the neighborhood or on the Upper East Side, perhaps, a place where she could walk around at night. She has also grown accustomed to being near the subway she rides to the classes in Sanskrit that help keep her mind agile and her outlook on life positive.

Given how values have climbed in the area, she said, “I knew I could be provided for by selling the house and how it could benefit the children.”

It is the gentrifier’s holy grail: a fixer-upper in a marginal area with potential. After the renovations, the lobbying for community improvements with like-minded neighbors, the holding on through the ups and downs, the scrappy, savvy buyer trades it in for a bigger, better place — or cashes out and retires in luxury.

It happens all the time in New York, but not usually at as high a level as at 299 State Street, in part because Mrs. Furiya held on so long.

So this is a house in a neighborhood that has dramatically improved. It was also a fixer-upper that they fixed up, and it is in a city, New York, where there are exceptional barriers to building additional housing.

Yet, although the New York Post headlined its story on the matter, Hi-ri$ing real estate, and began it as a tale of extraordinary profitability:

She’s turning brownstone into gold in Brooklyn.

An 89-year-old Brooklyn woman stands to make a startling 11,744-percent profit on a Boerum Hill brownstone she and her family paid $16,000 for in 1967.

The reality doesn’t stand up to the hype. The New York Times article does quantify the return:

She bought the house for $16,000 in 1966 with a cash gift from her father, the economist Alvin H. Hansen; her brokers, Ross Brown and Florence Ng of Citi Habitats, plan to list the house at about $1.895 million. A sale at that price would represent an increase of nearly 12,000 percent over 45 years — or an annual return of about 11 percent.

In other words the 11,744% profit is a consequence of the power of compound interest over a period of 45 years, with the return working out to about 11% per year.

Of course, the property hasn’t actually been sold and, very likely, the sales price will be less than the asking price. Plus, there is no allowance made for any investments made in the house — either through cash expenditure or sweat equity — over the past 45 years. There is also brokerage to pay to the real estate agent and the cost of carrying the property until it is sold. New York city also levies a 2.625% real property transfer tax when the amount of consideration is in excess of $500,000.

Even if we chalk off 45 years of real estate taxes and maintenance as rent — the net return is likely to drop below an annualized return of 10%.

In contrast, if one invested $16,000 into the S&P 500 and held it through the week the article was published — and if one reinvested all dividends — one would have earned an annualized return of 9.36%.

Now this was still an excellent return for Ms. Furiya, because she could enjoy living in the property. A pure investor would have the work of renting the property out and the risk of it sitting empty or being damaged by tenants.

In fact, it could have been a much better investment. She paid cash for the home. Had she put down 20% and taken out a mortgage, the return on her initial investment would have skyrocketed.

The S&P 500 return has many advantages, most notably instant liquidity, but it would have been difficult to actually realize the return of 9.36% because that includes re-invested dividends. In fact, unless the holding was in some tax-sheltered entity, a holder of such an investment would have to pay annual taxes on dividends received.

In contrast, owning a home offers immense tax advantages. Not only is interest on a mortgage generally deductible, so are real estate taxes and, often overlooked, one pays no taxes on the imputed value of the rent one doesn’t pay on living in a home one owns.

The long term value of real estate investments is, in fact, what underlies the business model of many growers. Berkshire Hathaway’s Warren Buffet loves the insurance business because if one can operate at a breakeven — if one can take in premiums equal to what one pays out in claims plus administrative expenses — one can get rich — as Buffet has — on the interest one earns on the “float” — the float being the money one has because the premiums are paid in advance of paying out the claims.

So if farmers can operate in such a way that they can cover their operating costs and real estate taxes, farmers who own land will actually make their profit on long term appreciation of their land.

Sometimes it is important to know what business one is really in.

Grapes In A War Zone

“I’ve traveled to about sixty countries and 48 states, and eaten a ton of grapes along the way.  Not a single grape from Sonoma to France to Italy can match the grapes in this area.  These are, by far, without comparison, the best grapes I’ve had in the world.  The texture of the skins and the fruit of the grape are just right and perfect.  The sweetness is harmonic and no seeds spoil the moment.  These are not just great grapes but fine fruit.”

The author is Michael Yon.  He was a Green Beret and since 2004, has been reporting from Iraq and Afghanistan. His is widely recognized as the top independent journalist working in the battle zone. His work has appeared in virtually all major media outlets.

The grapes he is writing about are in Afghanistan, and he reminds us that not all vineyards are bucolic as in Napa:

“Many Americans have died in these vineyards. Canadian blood has fertilized this ground, and we kill Taliban in these fields daily.  We watch them through UAVs, such as Predators, as they hide their weapons among the rows, or attack us, and often they move undetected. 

When the Russians came through this area, the Afghans said they would hide under the vines until the enemy was very close, and shoot them point blank.  After all, many of the local kids grew up right here, picking grapes and playing in the vineyards.  They know every bump and divot. 

The rows are not made of wire or wood as in the United States or Europe. The rows are mounds of packed mud that can stop 30mm cannon fire.  The enemy plants bombs along the rows and paths, and so our troops often cross perpendicular across the grape rows, which sometimes are over chest high.  Even without the heavy gear, the obstacle course is grueling and sometimes we take fire, or someone gets blown to pieces. 

The out-of-town enemies also don’t know where the bombs are hidden and so they often are killed.  Every day we hear detonations that remain unexplained.  Could have been anything.  Normally we know the causes, but many will never be known to us.  I’ve probably never written a full dispatch in this tent without hearing an explosion. Sometimes it’s a distant rumble and you only hear it.  Other times the shockwave pops the tent walls and your body feels it.  We usually hear many each day.  Fighter jets are roaring overhead as this sentence is formed.”

Michael is a precious national resource. Read his piece, titled Grapes here. It has some terrific pictures as well.

Then support his work here. We just did.

Pundit’s Mailbag – Who Should Pay When Bananas Are The Focus Of A Store’s Promotional Effort?

Our piece, Memo to Supermarket CEOS, Don’t Kill The Goose That Lays The Golden Egg… Overpricing All Produce Items To Support Cheap Banana Prices Is A Distaster Waiting To Happen, brought several replies including this:

Supermarkets have been doing this forever.

Who do you think suffers when the produce department needs to make up for the higher shrink on the organic items?  The supermarkets raise the prices on the conventionally grown.

This has been a never-ending battle. Retailers always tell us growers that grocery works on 1-2% margins so they have to make it up in produce and shampoo.

Never ending story.

— Tom O’Brien
C&D Fruit and Vegetable
Bradenton, Florida

Tom is generous in sharing his views on industry issues, and we’ve been pleased to feature his comments in pieces such as these:

Pundit’s Mailbag — Kudos To Wegmans And An Industry Willing To Work Together

Pundit’s Mailbag — Retailers Should Pay For What They Say They Want

Pundit’s Mailbag — Flavor Consistency

Pundit’s Mailbag — Temperature Monitoring

Pundit’s Mailbag — Green Acres Is The Place To Be?!?

Perishable Thoughts —  Politics And Cynicism

Pundit’s Mailbag — No Matter What Growers, Shippers Or Retailers Do About Food Safety, ‘You Will Be Sued’

In this case, we actually think our point is a subtle one. We don’t have any particular objection to retail CEOs wanting to use particular items as flags to identify a low price image to consumers. In some stores, that flag may be chopped meat; in others, bread; and sometimes it may be bananas.

Our suggestion is related to how this promotional investment should be paid for. If a CEO decided to run a million-dollar TV campaign saying that “our store has the lowest prices,” everyone would think him out of his mind if he tells the senior produce executives to bill the cost of that ad to the produce department.

Yet if the CEO decides that, instead of taking a million dollar TV buy, he wants to take a million-dollar hit on banana margins, then if he doesn’t change departmental margin requirements or subsidize the promotion in some way, he is, in fact, charging the produce department for the cost of that overall store promotion.

Now, in the end, this is a choice the CEO gets to make. We received another letter speaking to that point:

Regardless of the industry, CEO's have a business macro view and department heads a micro view.

Never knew a department head that didn't question a different approach, but it is up to them to support their position and then if they fail to change the CEO's mind do their best to make the requested application work.

It's like the head football coach overriding one of the offensive or defensive coordinators. Some ideas work and some don't, but communications is a key. After all, it's a team effort. 

— David Diver
Formerly Vice President of Produce
Hannaford Brothers

Dave is 100% correct. The CEO has to make the choice. We were making the argument that the choice should not be to arbitrarily burden the department that happens to feature the item being promoted.

There are many ways to handle this. In some stores, the burden of being the big draw rotates, and produce may get the job just in the summer. That may work out fairly.

But if the decision is to take, year round, the biggest volume item in the produce department and make no money on it so as to persuade consumers to shop the overall store, we will stick to our guns and say that this is not a cost that should be borne by increasing margins on other produce items.

It is an overall store marketing expense and should be handled as such. CEOs should want to handle it that way because spreading the marketing cost across the store will result in less distortion of sales than if the whole cost is put on fresh produce items.

Many thanks to Tom and Dave for their thoughtful notes.

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