At PMA, we were pulled aside by many Tesco vendors and competitors to exchange intelligence.
There seems to be less optimism on the success of Tesco in the United States than six months ago. Basic issues:
There is a notion that Tesco has just stopped listening.
Tesco is demanding certain product sizes and standards of uniformity that simply cannot be obtained without enormous waste of product. Whether Tesco realizes it or not, insisting on these standards will involve paying for a lot of product its customers won’t get value from.
- Restrictive Contracts
The contract with Wild Rocket Foods seems to restrict Tesco from utilizing its vendors’ capabilities to reduce logistics and distribution costs.
- Margin Evaporation
Efforts to come in below discounters such as Trader Joe’s on price make no sense in the context of the cost structure Tesco has built.
The facilities that have been built are so out of scale to the initial store count that Tesco will bleed red for years.
- Too Many Test Sites
Many of the stores are located in areas where they can’t possibly succeed. Tesco justifies this as a form of “market research,” but vendors doubt the budget has been set up that way.
Ironically, the biggest problem for Tesco may come if they have an instant success. We also saw sketches or heard descriptions from several retailers of their “Tesco Killers” — although “Tesco Blockers” are more accurate.
Many competitors in the areas where Tesco intends to operate have already spiffed up stores near Tesco locations. But retailers across the country are looking at small format stores. If Tesco hits a win, count on a roll-out all across the country of small format stores by retailers with the distribution already set.
When Wal-Mart rolled out its supercenters across America, supermarkets didn’t feel they could roll out comparable concepts. They didn’t have the expertise or distribution in general merchandise. But the Tesco concept is only a sub-set of what supermarkets already sell with perhaps an augmented prepared foods offer.
Kroger, Safeway, Supervalu, Ahold, Delhaize, Publix, H.E. Butt and more are not going to wait for Tesco to decide it is ready to roll into Cincinnati or Boston.
So many vendors are pessimistic about the chance for success, and many competitors are prepared to pounce if it works. It is hard to imagine the concept being worthy of the build up.
In our piece yesterday, PMA Analysis — Does Houston Merit A Permanent Place In The PMA Rotation, we mentioned that it is customary for PMA to experience a drop in attendance of around 2,000 people whenever the show leaves California. If you want to be a positive thinker, you could say the show typically picks up 2,000 people every time it goes to California.
We also pointed out that the 2,000 extra attendees are typically small growers, many not involved in marketing and that, although their presence helps serve an educational purpose for the industry in raising the sophistication level of growers on marketing subjects, they are also a distraction on the trade show floor for most exhibitors who need produce buyers to sell to.
The piece led to numerous letters about the Houston venue, including one from Peter Dessak, Vice President of Six L’s, that we dealt with here.
It also led to a lot of letters claiming that attendance was way down. Letters such as this one here:
As of today (Thursday), PMA shows total Fresh Summit registrants at 10,265. Down more than the 2000 indicated in the Pundit review of yesterday.
We appreciate letters pointing out possible inaccuracies, but it is clear that this person — and a lot of other people with the same information — are dealing with incomplete statistics. Sometimes the advance registration number gets leaked and tossed around the trade, sometimes the number just for certain categories of attendees gets out and is whispered throughout the industry.
Remember that so many attendees are tied into exhibiting companies that it is almost impossible to have such dramatic fluctuations.
In the end, the final count was just shy of 16,000. If you want precision, 15,879. That means it was the 2nd most successful PMA — in terms of attendance — ever held outside of California. Only Orlando in 2003, which had 16,300 attendees, beat the numbers in Houston.
Confirming our explanation about small California growers, the key buyer category was almost exactly the same in Houston as in San Diego last year — with San Diego besting Houston by only 29 buying attendees. This is no difference at all considering that the categories people report themselves in leave a great deal of discretion to the individual. The actual buyer number in Houston was 3,352 and in San Diego it was 3,381.
When a show reaches PMA’s size, it is often the case that attendees won’t have time to visit every booth, so marketing before and at the show makes a major difference. In the old days, exhibitors could show up at a show and expect the show operator to have attracted all the attendees needed. Today, exhibitors are more the partner with show operators in attracting key buyers to the show and, then, exhibitors have to justify to attendees that their booth is worth a stop.
This was a very successful show considering the difficulties the Houston venue created. We shouldn’t underestimate how difficult it is to move a show of that size from New Orleans to Houston without many years of notice. The city of Houston and the PMA staff deserve a lot of kudos.
The long term challenge for PMA is not increasing the size of the show — with the growth of international pavilions and floral, we can easily sketch out a scenario for PMA to grow the exhibit floor by a third. What will be difficult is increasing the number of buyers so as to maintain a constant ratio of buyers per square foot of exhibit space.
In addition, the newly compressed schedule makes it more difficult to schedule meetings and events at times when PMA is not having an event or the floor is not open — this means that, even with expanded show hours, it will be harder to keep buyers on the floor, at workshops and at networking events.
Yet, these difficulties should be kept in perspective. Back in 1949 when PMA was founded, if anyone had the temerity to suggest PMA would one day have a convention that would fill a convention center and attract 16,000 people; that person would have been dragged away to the funny farm.
Now we have the luxury to dispute whether the ratio is quite right between buyers and exhibitors. For the industry this is an achievement that boggles the mind.
The Pundit Parents — Michael and Roslyn Prevor — attended the PMA in Houston, their first visit to a produce industry trade show in 17 years.
It was a joy for the Pundit. About a year and a half ago, we visited Houston because the Pundit Poppa had leukemia and only nine months to live. We went to M.D. Anderson, a specialized cancer hospital in Houston, for treatment and, eventually, we did a stem cell transplant with one of the Pundit Uncles, Sydney Prevor. (Michael and Sydney are identical twins, and Sydney ran the family’s produce operation in Puerto Rico.) We wrote about the experience here.
When we arrived in Houston for treatment, we had a weekend before visiting the doctor. We saw Houston and ate some nice dinners — but how much can you enjoy even the prettiest venue or the nicest dinner if you fear that it might be the last dinner your father ever eats out of a hospital?
The Pundit Poppa is fine today. All the tests show him to be clear of all cancer. He still goes back to Houston for bone marrow biopsies, and so the Pundit Parents coordinated this one to be able to see the Pundit give a workshop on Friday, host the Rising Star Reception on Saturday and to see old friends.
This time Mom and Dad had a clean test on Thursday, saw their son perform on Friday and enjoyed every conversation and every meal for the rest of the weekend.
The Pundit Poppa did many things in the business but was famous as a pioneer in export and import. We thought his take on the changes in the show since he was there were intriguing:
“In international trade the key things used to be contacts. If we decided we wanted to buy or sell from Brazil, we would go visit the steamship company and try to get a list of anyone who had ever imported or exported food. We would write letters to the Chambers of Commerce asking for help, we would go on trips to strange cities and knock on doors. Today, if you want to trade with Brazil, you go to PMA, go to the Brazil booth and they hand you a directory, introduce you to major players and a give you a piece of fruit as a bonus.”
Pretty astute we think.
Iceberg lettuce and Romaine supplies are tight, and prices continue to rise. It seems as if virtually all processors have activated force majeure clauses in their contracts and raised contract prices — in some cases, multiple times.
On processed product, it is a big problem with processors unable to fulfill orders in full, despite increased prices.
On the retail side the latent concerns over dealings with Wal-Mart come out in situations such as this with vendors being told they are obligated to keep “their stores” fully supplied when the market is $30 a head, but the same vendors are aware that when the market drops to $6, they will find out that some broker is dumping cheap lettuce into “their stores.”
To add insult to injury, the incumbent contract vendors don’t even get offered the right of first refusal to supply the cheap lettuce to “their stores”.
Most vendors are anxious to work with Wal-Mart but find that it defines the stores as “their stores” at Wal-Mart’s convenience.
The whole issue raises many of the points that our piece, Wal-Mart’s ‘Opportunity Buy’ Policy Reveals Much About The Company, dealt with some months ago. Though things have been generally quiet at Wal-Mart, with many vendors reporting a sincere effort by the company to amicably resolve disputes, the inherent tension between the desire to contract and the desire to take advantage of market dips remains unresolved.
We have been running a series of interviews with the winners of the Perishable Pundit’s Single Step Award. Interviews have previously been published with Dave Corsi of Wegmans, Mike O’Brien of Schnuck Markets, Joe Pezzini of Ocean Mist Farms, Eric Schwartz of Dole Fresh Vegetables and Bruce Taylor of Taylor Farms. The complete winners list is as follows:
Vice President Produce
Wegmans Food Markets
Vice President Produce & Floral
Vice President of Operations
Ocean Mist Farms
Dole Fresh Vegetables
Founder, Chairman and CEO
We mentioned in our announcement of the winners that the award was inspired by the well-known quote from Lao-Tzu: “A journey of a thousand miles begins with a single step.” The award applauds the efforts the winners have made in beginning the trade’s effort to recover from the spinach crisis of 2006.
We asked Mira Slott, Pundit Investigator and Special Projects Editor, to speak with a man who, though a relative newcomer to the produce trade, held the decisive card in the prospects for a successful roll-out of the California Marketing Agreement:
Q: In many ways, you have had one of the most powerful, courageous and need I say stressful roles as it relates to the California Leafy Greens Marketing Agreement. First, you went against industry pressure, standing your ground and refusing to sign the agreement. You certainly did not need to sign the agreement. As a leader in the bagged salad market, Fresh Express had solidified a strong food safety reputation with standards exceeding those of the LGMA, so retailers would not likely stop buying your product. You argued your case aggressively and helped drive improvements. And then, even though all your concerns weren’t alleviated, you reversed your original decision and signed it, in a show of support for the industry’s overall mission and a desire to enhance food safety across the board.
How did this metamorphosis come about?
A: I’m very new to this industry, coming to Fresh Express only three years ago. My Italian heritage used to be in the grape business many, many years ago. That’s my connection.
I had an epiphany walking into the California produce fields for the first time. We were going to harvest that day, and a worker cut a head of romaine and gave me the hearts of romaine to eat. It was so incredibly juicy and tasty. My gosh, I thought, this is our mission to get consumers to taste this kind of flavor. We can make the Fresh Express experience not only the best taste, but also reassure consumers it is cared for from the way it’s grown to when it gets on the shelf. I was driven by the fact that consumption should be at least double to three times higher than it is today.
Q: What about the food safety aspects?
A: What woke me up to the need that we had to do something more aggressive in food safety happened a year before the spinach crisis. There was a food safety incident with one of our competitors. I realized we needed a more in-depth understanding of how to create a much safer food supply. My real goal is to get Americans to eat like Italians, whose consumption of fruits and vegetables is six to eight times higher on a per capita basis. It’s the diet I grew up with and I know how healthy and tasty produce can be.
Then right off, in my first six to eight months of the job, one of our competitors gets hit with a food safety incident and we sense the urgency to act. It was an experience I shared with Jim Lugg, head of food safety here. He had educated me on his work in food safety over the past 40 years. And he convinced me the Holy Grail is on prevention. There is no better alternative as a business leader than pursuing food safety prevention. I call it cost-prevention versus cost-reduction. That’s true whether you’re staffing, buying technology, investing in R&D or addressing food safety. You always should be thinking about risk prevention. It’s not about avoiding risks or costs. It’s about stopping the problem from occurring rather than fixing it after the fact.
When companies gets into financial trouble they cut costs. But why did they get in that position? This question is the same for food safety. That’s why we have invested in strong food safety prevention measures and trace-back systems way before something happens.
That small food safety incident a year before the spinach crisis woke me up. Fresh Express had never had a food safety incident, but I knew we couldn’t rest on what we were doing that day. We had to prepare for what we want five to ten years down the line.
With that in mind, we asked who can help us identify the next level of food safety programs. As we grow over 25 varieties, we need to learn how they behave.
Jim Lugg (Executive Vice President for Food Safety) and Dr. Michael Osterholm (Director of the University of Minnesota Center for Infectious Disease Research & Policy and Voluntary Chairman of Fresh Express Scientific Advisory Panel), had worked with us for many years to identify the next break-through. Now they worked for about 10 to 11 months to bring in experts — an independent scientific advisory panel with outstanding credentials.
We wanted to allow the panel to truly function independently and without company influence to formulate research strategies and key areas of needed research into the transmission of and contamination by the E. coli 0157:H7 pathogen in lettuce and leafy greens. We would be hands-off and let the advisory panel develop the recommendations. It was about July or August when we were wrapping up the program. As we’re about to announce the program, the spinach outbreak hits.
Q: So this food safety panel of independent experts was not a reaction to the spinach crisis after all, but nearly a year earlier in the planning. Quite progressive on your part…
A: Some foresight, some blessings, but also a philosophy of life. I don’t like reactive measures.
Q: If that smaller food safety incident woke you up, the spinach crisis must have catapulted you out of bed!
A: Everyone was consumed with the crisis. This was probably the hardest, most difficult event I’ve experienced in my professional career. I don’t know how people quantify the size and impact of this situation when you have a category that drops minus 30 percent over night and much broader repercussions for the whole industry. It was huge.
We said we have to get back on track and let’s not be reactive. At that time we had already allocated $1 million to food safety research and we doubled that amount. At that point in time, it became not only about Fresh Express, but the need for the industry to move even faster.
Half of our panel is composed of very prominent leaders in the regulatory world. I’m extremely grateful to all the folks that joined the panel, and to Jim Lugg and Dr. Michael Osterholm for keeping everyone focused on reaching milestones while insuring the independence of the group in conducting the scientific analysis and recommended action steps.
At this point in time, I think I had aged six years in five months. My kids were saying they noticed gray hairs.
Q: I’m sure the California Leafy Greens Agreement didn’t help.
A: I aged another three years on top of those six when I heard about The California Leafy Greens Agreement, which I believed was initially very reactive. I had the opportunity to talk to heads of associations as they decided to evolve the program. I started to expose my concerns; I have a very strong program.
My organization operates food safety almost like a fiduciary duty to hold the program standards as high as we can. I said, I hate to see us compromise to satisfy a much broader range of companies. Let’s create a high standard by which people need to comply and if they can’t they can’t participate.
Q: What were you grappling with more specifically?
A: The scope was too narrow in the idea of let’s fix this particular spinach situation. At the same time, the metrics was too general, and also too narrow on the geography. I’m also encouraging suppliers outside of California to follow the same standards.
To conquer consumer confidence, it’s not just about putting a stamp on it. That drove me nuts. I come from a marketing background, and I know you can’t fool a consumer. That consumer is my mother, my wife. Not only is the certification stamp confusing, what does it say to consumers… that the California product sitting on the shelf is safe but the product from New Jersey and Colorado, and from other places it’s not safe? God forbid something happens tomorrow. What credibility would I ever have with my consumers? This was very difficult, but in my mind an easy answer.
I can’t tell you how many nights we went over this. If the industry does not prosper I can’t prosper. On the other hand, I can’t lower our promise to our consumer. The amount of pressure we received was insane. I learned from my dad years ago to always choose the harder right than the easier wrong. Leadership is about the tough times and standing by what you believe in.
Q: But at some point you reversed your decision and signed the Agreement. What changed your mind?
A: A lot has to do with getting the fundamentals right. I started seeing improvements on the metrics. We must have gone through 14 or 15 revisions. We are not perfect. We are as vulnerable as anyone that deals with produce. We invest heavily in prevention. We do believe there is enough you can do today to have a very healthy supply chain. We also have a strong containment program, if an accident would happen we can do a recall.
When FDA comes to us, we could trace back to the seed, the truck, the plant in hours.
We think we have a very robust program of containment.
As the metrics got better and I saw a true desire to make this more of a national program, and after several meetings with industry leaders, it was another very difficult decision but I thought it was good for the industry. I thought the industry needed that support and they had walked to the point where I was comfortable in signing.
There were a lot of pushbacks from our company. My family has been incredible inspiration. I learned growing up that there is nothing more powerful than servant leadership. What I told folks is that you need to know when it’s time to help take the next step. I took a lot of heat both ways. I felt I had enough commitments from WGA for a stronger metrics, a push to move national, and commitments not to use the consumer seal in ways that would create confusion.
Q: What’s next in food safety measures for Fresh Express?
A: Right now I see two parts going forward. We are very committed to invest in research. We helped create an endowment with UC Davis to advance studies in agriculture and food safety, and another endowment at the local Hartnell College here. In order to build the fundamental structure to help the industry stay on track, we need better expertise. We’ve invested way over $12 million in foods safety improvements, and we’re not recovering this cost yet, which is a real concern. Everyone says they support food safety, but when it comes to paying bills, that’s another story.
Food safety programs are very expensive, not only on the raw side in the fields but throughout production, such as optical scanners to remove foreign materials, not only the pathogens, from salads. This is very advanced technology and installed at significant cost. We’ve also changed a lot of our filtration system. We’ve been testing for six months to improve the freshness and cleanliness of our products and facilities, and we were kosher certified for Romaine, targeting a very important part of the population not served.
I’m way beyond just preventing pathogens. We’re also working on taste, quality, as well as sanitation processes in the plant. We’re always pushing ourselves to the next level we have to achieve. This is what we’re doing internally.
Q: Is the industry headed in the right direction?
A: Externally, I see a very disconcerting situation. Everyone is trying to test their way to safety. To me it’s a huge fallacy. I believe in intelligent testing. It has its place and use; not just testing for the sake of testing, which doesn’t create a safer supply chain. People are jumping to perceived solutions without thinking of the consequences. All you get is false positives and false negatives if you don’t use testing intelligently as part of your prevention program. It’s similar to the problems with food safety certification seals on consumer packaging. It adds a lot of false security. It also adds cost; it’s extremely costly.
We’ve hired statisticians and a scientific panel to analyze testing. We are trying to work on this issue with the mindset of prevention. People love quick fixes. Testing will be the topic of the year. It’s a great diversion from creating a preventive program. Fresh Express tests in fields before harvesting. We’ve tried to come out with a statistically valid testing program. It creates a total sense of false security. Using testing to make sure pathogens are not getting into finished product sounds good. The concern is that not only do you create a false sense of security; you can create a panic with false positives.
Q: Food safety issues can have a toll on consumer perceptions of all fresh produce, which must pain you in your mission to increase produce consumption in line with your Italian upbringing.
A: Our industry can play head to head with the big food companies. Last year in July 2006 before the spinach crisis we launched two bagged sweet butter lettuce products we developed with a company in the Netherlands. The products hit the shelves that summer. The punch line is that these products were selling ahead of Coke, Pepsi and other processed food products, according to IRI data. We were just receiving the IRI information for achieving that spot and then, boom, the spinach crisis hit.
Tanios won this award because he helped the industry when he didn’t have to. The challenge for the trade is to see if we can live up to the faith he expressed by signing on.
When Tanios says, “Let’s create a high standard by which people need to comply and if they can’t they can’t participate,” he is expressing something we haven’t quite gotten to yet in the industry — an acknowledgement of the tyranny of the bell curve. Everyone, in the end, will not be able to execute above-average food safety standards. Yet, the industry has taken such pride in almost unanimous participation in the Leafy Greens Agreements in both California and, now, Arizona. If, in the end, the metrics were truly world class, well, as Tanios acknowledges, some won’t be able to participate.
That is a tough point for associations to acknowledge. It would be nice indeed if we can somehow make sure everyone is above average. But that only happens in Lake Wobegone.
When Tanios tells us “I learned from my dad years ago to always choose the harder right than the easier wrong” he lays out the continuing challenge for all of us concerned about food safety.
Congratulations to Tanios and thank you for taking the “single step” to helping the industry get started on the road to a bright future that includes the safest fresh produce possible.
The Pundit arrived in Houston to find a little treat. FPJ or, as many still call it, Fresh Produce Journal, has been the weekly newspaper of the United Kingdom’s produce trade since 1895.
The well respected journal is edited by Tommy Leighton, who won praise for the cover story he wrote for Pundit sister publication, PRODUCE BUSINESS, on Tesco, which you can read here.
We arrived in Houston to find a profile of the Pundit written by FPJ Deputy Editor Laura Gould. The piece is entitled, “Prevor’s Perspective Not So Perishable,” and you can read it here.
We were flattered by the attention but also thrilled as the interview represented a kind of recognition of how widespread the readership of the Pundit has grown. With over 100 countries logging in regularly, there is not a moment at any time of the day or night when someone somewhere is not reading the Pundit.
What an opportunity to do some good. What a responsibility. May God grant us the wisdom to use the opportunity for the greater good and to be worthy of the responsibility.
Many thanks to the FPJ and its staff for the kind interview.
Our piece, PMA Analysis — Does Houston Merit A Permanent Place In The PMA Rotation? brought this “on the money” commentary:
I totally agree, especially on your ease of networking comment.
This was a two-venue event. If you were in the Galleria area as we were, it was like being relegated to the boondocks.
Another major problem with this that you did not mention is the additional cost (both in time and dollars) incurred by attendees.
Time wise, it took a minimum of 20 minutes by cab. If you took the shuttle, it was probably double that. People that did not want to, or did not have the luxury of time for whatever reason, were forced to take a cab, which cost a minimum of $20 each way (that’s if you were a lousy tipper).
So it could easily cost an additional $40 to $50 daily, just to go back and forth once. Many had to do it more often. That is in addition to having to “cab it” anywhere else you had to go, as nothing was in walking distance.
I would lobby strongly for not returning to Houston.
— Peter Dessak
Six L’s Packing Company, Inc.
The Six L’s name brings back a lot of memories for the Pundit. We worked for awhile in our family’s Puerto Rican operation, and rare was the week that passed without at least a few trailers of Six L’s tomatoes. Later, after we had launched Pundit sister publication PRODUCE BUSINESS, we were doing a lot of work out of a Manhattan condo, possibly in violation of rules and laws prohibiting commercial use of the property.
Some neighbor noted all the activity and, as we used the sturdy tomato cartons — many of which were Six L’s — as our portable filing cabinets shuttling back and forth from Hunts Point, the busy-body neighbor deduced we were secretly running a spaghetti sauce factory out of our condo!
The police were called, a detective sent, an investigation conducted. Fortunately, the detective had no interest in the desks, art tables, salespeople and other business activities we had going on. He was focused on finding a spaghetti sauce factory and, failing that, gladly reported we were doing nothing wrong.
In today’s letter, Peter both amplifies our point — that the venue made entertaining difficult — and adds some specific costs to the point:
A round trip cost in time of, perhaps, an hour and a half a day waiting for shuttles or sitting on a shuttle for those in the Galleria district.
If one is in a rush and took cabs, say twice-a-day two days and once-a-day on two days, it was easy to spend, say, $300 on cabs back and forth from the Galleria. This was easy to do if you wanted to drop off literature in a hotel room after the show or change clothes before a reception. Add in another couple of cab trips to dinners and parties, and it is easy to see the cab bill being more than the airfare.
Beyond these explicit costs, there are implicit costs that are even more expensive:
One issue all shows have is getting the buyers to the floor and to the events. If a buyer is adjacent to the convention center and finishes a business review but has two hours to kill before the next one, that is enough to run see some of the show or attend a workshop. If that same buyer is out in the Galleria, he is probably just going to blow off the show entirely that day. That is a big cost.
We wrote a piece, which you can read here, urging people to participate in the events surrounding the trade show. Some of these started early. If an event was at 7:30 am, and it took people an hour to shower and dress and transport was 45 minutes, we are talking about people having to get up at 5:45 am to attend a morning session. That may be more dedication than we want to require of people.
We have received a number of comments on Houston as a venue, and we’ll run more next week. Most are in line with Peter’s assessment. We need a hotel package more compact than what Houston can offer at this stage.