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Perishable Pundit
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Produce Business

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Tesco, Disney and Dunnhumby

It was over a year ago that Tesco signed a deal with the Walt Disney Company to license Disney Characters for use on fresh fruit. Now, without reference to that deal, the headline is that Tesco and Disney Partner on Branded Foods:

Tesco, Britain’s biggest retail supermarket, and Disney are merging to launch and increase production of a range of co-branded food products.

The two are set to start with the production of fresh fruits and later expand to include a variety of products ranging from yogurt to breakfast cereals, milk and bakery goods.

”Production of the first items, the fruits and fruit products, is set to go on sale early next month,” said Tesco’s director of chilled foods, Kari Daniels. He added that Tesco is determined to help its customers make healthier choices for their family and that the company’s relationship with Disney will offer parents an easy way to make healthier eating fun.

”The merger between Tesco and Disney has marked an important milestone for Disney’s growing UK food business, and Disney consumer products is committed to giving parents food choices they can approve of while at the same time exciting their kids,” said Dan Dossa, director of Disney consumer products, food, health and beauty UK.

The use of the word "merger" must be a British usage because this is clearly not a merger in the legal sense. The announcement sounds like a program similar to what Disney has with Kroger in the U.S., an independent Disney tie-in that pre-exists the Imagination Farms project.

All of this is interesting because Dunnhumby, a consumer data consultancy, majority owned by Tesco, works with both Tesco — where it was instrumental in the development of the Tesco’s Clubcard, a loyalty card that many perceive as instrumental in Tesco’s success in the United Kingdom — and with Kroger.

Forty percent of American households have a Kroger banner loyalty card. The percentage is much higher in areas where Kroger has stores. And Kroger CEO Dave Dillon sings Dunnhumby’s praises:

In a conference call with analysts in September 2005, Kroger Chairman and CEO David Dillon said, “dunnhumby has helped me reset my understanding of what the customer is after, and it helps replace intuition with actual data and actual facts. And it’s those facts that are driving our decision-making.”

He added that “our commitment is to make sure that every decision we make positively influences the way our customers feel about Kroger. This emphasis on placing the ’customer first’ generated increased customer traffic and higher average transaction size.”

One suspects that someone at Dunnhumby is partial to a certain mouse named Mickey or, more accurately, the research says that a lot of consumers like the mouse.

Wal-Mart Tightens Quality Specs

Wal-Mart announced a slight reduction in capital expenditure plans for the U.S. while increasing capital expenditures overseas. Earlier it had announced an intention to purchase all the shares of Japanese chain Seiyu Ltd. that it does not already own.

Scaling back on growth in the U.S. may be a good idea — if — and it is a big if — the slowdown is sufficient to allow the chain to focus on execution at store level.

When we returned from PMA, we wrote our piece, High Lettuce Prices Strain Supplier Relations With Wal-Mart, which followed up on our piece, Wal-Mart’s ‘Opportunity Buy’ Policy Reveals Much About The Company, from a few months ago.

Several vendors, though, called to say that the real problem right now at Wal-Mart, at least as far as produce goes, is that they are focused on what is easy to control, rather than what is important.

Apparently Wal-Mart is really emphasizing good quality and freshness, having tightened up on its specs for many items.

The problem with this, of course, is that Wal-Mart has never bought bad stuff. Bruce Peterson’s original design for the department relied heavily on the borrowed equity of well known produce brands, so it always bought decent quality. We would even say that its early reliance on RPCs led it to get quality above what it was entitled to, as nobody wanted a rejection in a container others weren’t using.

Wal-Mart has quality issues but the quality issues have to do with inconsistent store level execution, not with the quality being purchased.

We don’t know who is driving this, but it smacks of a corporate initiative to raise quality. The produce executives in Bentonville have total control over procurement and almost no control over store level hiring, staffing levels and training. So if top executives lean on produce to get better quality, they wind up pushing the procurement button, but it’s the store level execution button that needs a work-out.

Immigration Reform Battle Not Over; Industry Encouraged To Fight On

Maureen Torrey Marshall of Torrey Farms in Elba, New York, is, along with Mark Miller of Fresh From Texas/Energy Sprouts in San Antonio, Texas, the immediate past Chairman of United Fresh.

If you thought she was luxuriating in her leisure now that the burden of being Chairman has been lifted, you would be wrong. In fact, she is hard at work on immigration reform and sent us a little note:

The industry needs your help.

Could you put in the Pundit our new web site for immigration reform that the industry has put together: www.saveUSfarms.org

We need massive letters to go to Congress in the next 2 weeks. This affects everyone in the business.

Maureen Torrey Marshall
Torrey Farms
Elba, New York

Maureen also sent along an editorial from The Wall Street Journal entitled Messed Up Manhunt:

A federal judge in San Francisco has put a crimp in the Bush Administration’s plans to solve the country’s illegal immigration problem on the backs of small business. The White House should rejoice at this defeat, and move on to Plan B.

After immigration reform flamed out earlier this year, the Department of Homeland Security decided that the proper response was to ramp up enforcement of current law that everyone agrees doesn’t work. Some political whiz apparently imagined this would placate anti-immigration conservatives, as well as motivate the business community to lobby Congress harder for “comprehensive” reform. As the British like to say, “brilliant!”

So in August, DHS promulgated a rule requiring employers to fire workers whose names don’t match their Social Security numbers. But the government’s Social Security database, by its own reckoning, is riddled with mismatch errors unrelated to immigration status. The move succeeded mainly in causing dogs and cats to live together — specifically, the Chamber of Commerce and AFL-CIO to join in a lawsuit.

Last week U.S. District Court Judge Charles Breyer agreed with the plaintiffs and overruled the new rule on grounds that it would cause “irreparable harm to innocent workers and employers.” He said the Administration failed to analyze the economic impact on business, which is a violation of the Regulatory Flexibility Act. “There can be no doubt that the effects of the rule’s implementation will be severe,” said the judge. (Political aside: Aren’t Republicans supposed to believe in “flexibility”?)

Because Judge Breyer didn’t find the rule illegal per se, it’s possible DHS could address the implementation concerns and win on appeal. But the better decision would be to use the defeat as an excuse to stop the enforcement overkill. Until the feds fix their own databases, it makes no sense to punish businesses for hiring workers they believe to be legal. Meanwhile, such enforcement will only make it harder for businesses already short of labor in many parts of the country to find and retain good employees.

As for the politics, major immigration reform is dead at least until 2009 and no amount of business pressure on Congress will revive it. What is possible and is also popular with business, however, are smaller reforms that would expand current visa programs.

Congress has been far too stingy with H-1B work visas for skilled foreign nationals, many of whom are educated in the U.S. only to be sent away after graduation to work for our overseas competitors. The H-1B visa cap has been set at 65,000 since 2004, when it took 10 months to exhaust it. This year the cap was reached on the first day applications were accepted. Lawmakers should eliminate the cap, or at least let market forces influence its size.

American agriculture also faces an acute labor shortage, which is driving many growers to Latin America. An AgJobs proposal on Capitol Hill would help keep food production in the U.S. by allowing illegal alien farm workers who pass a background check to remain here and eventually earn legal status. It also would streamline the process for admitting future agriculture workers.

Amid the housing recession, the last thing the U.S. economy needs is immigration enforcement that drives away labor and causes employers to stop expanding payrolls. If the Bush Administration wants an immigration success, it should work on expanding the supply of legal visas.

It is a strong argument, and the new website makes it easy to express support. The coalition has built a substantial support base, but it will still be quite a battle to move Congress to act on agricultural related immigration issues alone.

You can join that battle here.

Many thanks to Maureen for both her note and for fighting the good fight.

Single Step Award Winner — Tim York of Markon

This represents the final piece in our series of interviews with the winners of the Perishable Pundit’s Single Step Award. With this episode, we will have published interviews with all seven honorees. 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, Bruce Taylor of Taylor Farms and Tanios Viviani Of Fresh Express. The complete winners list is as follows:

Dave Corsi
Vice President Produce
Wegmans Food Markets

Mike O’Brien
Vice President Produce & Floral
Schnuck Markets

Joe Pezzini
Vice President of Operations
Ocean Mist Farms

Eric Schwartz
Dole Fresh Vegetables

Bruce Taylor
Founder, Chairman and CEO
Taylor Farms

Tanios Viviani
Fresh Express

Tim York
Markon Group

As we mentioned in our announcement of the winners, 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 recognizes the efforts the winners have made in beginning the trade’s effort to recover from the spinach crisis of 2006 and, more broadly, to establish a new, higher level of food safety for the produce industry.

We asked Mira Slott, Pundit Investigator and Special Projects Editor, to speak with a man who took the weapon of “buyer power” and made it a tool used in service of the trade’s efforts on food safety:

Tim York
President of Markon Group
Salinas, California

Q: Your tenacity in engineering and driving the buyer-led food safety initiative has been commended throughout the industry. Food safety has been a cornerstone of your own business and you have been vigilant and relentless in your efforts to evolve these protocols and ensure they are adopted industry wide. Since you have been at the core of the action, tell us the most important recent news.

A: The Arizona Leafy Greens Marketing Agreement has been approved. There’s also been some progress on a reciprocal agreement with Arizona, based on the California Leafy Greens Marketing Agreement. In any case inspectors should be working in Arizona this winter. This is so very positive for California and Arizona shippers to be coming together under the same program protocol verified through state inspectors.

That’s the leafy greens piece. The California tomato farmers group is working in conjunction with the Florida tomato committee. This summer, the legislature of Florida voted on requiring GAP programs and it is now a matter of law.

Tomato growers in California, where almost 95 percent of tomato volume is generated, have voluntarily agreed to food safety standards that will be audited. And California and Florida are working together to align their standards. These are two very positive developments in the leafy greens and tomatoes categories, major commodities identified in food safety crises.

Q: What further actions have you been taking personally?

A: Directly on food safety, what we as a company are doing currently is really thinking through what kind of testing methodology is appropriate and inappropriate for testing.

The PCR test is not a very good means of identifying food safety problems within a produce system, yet it is used very widely. It wasn’t originally developed for use in produce. It comes up with multiple false positives sending shock through the industry. It has to be a test-and-hold program. We are trying to assess appropriate testing methodology and pushing for standardization on how suppliers handle it and apply it.

What makes sense to us is to do raw product testing in the field as part of a food safety program. We believe that with the science available today, finished product testing requires enrichment tests, which can take four or five days of shelf life off the product. This creates additional challenges.

Q: Looking back through this past year, what were the watershed moments?

A: The number one watershed moment for the industry was responding so quickly through WGA. They said regulations are something we want to do and took steps to make it happen within six weeks of the spinach crisis. It is remarkable to get that kind of consensus in that time period. Buyers had to make a push, and growers lobbied other growers, who united around it. This was a turning point for the industry. As a result of that, Florida tomato growers asked for regulations, and California tomato growers voluntarily agreed to abide by standards.

Q: How influential was the buyer-led initiative?

A: I have to think that Western Growers heard the hoof beats of buyers saying you must do something. I won’t go as far as taking credit for saying that the Marketing Agreement was a direct result of buyers. Buyers needed to recognize the scope of the food safety problem and be proactive in driving solutions. We saw leafy greens as the obvious category to focus on.

Many were looking around asking, “What should we do?” We were a sailboat getting pushed in the wind or a sail boat without a rudder, and we were getting battered by a storm we didn’t have anything to do with. We needed a buyer coalition to create standardized solutions and speak with one voice.

Q: How did the coalition actually get formed?

A: This is a relationship business. Dave (Corsi) and I began talking about what we should be doing to move in that direction. We reached out. Mike O’Brien was a big part of the process. He helped recruit people we didn’t know. Between us and those that signed on, we had $300 billion in retail sales.

Q: You amassed an impressive number and mix of prominent signatories, although not all joined the bandwagon. Most noticeably, the largest retailer refrained. Bruce Peterson, then Senior VP for Perishables at Wal-Mart, explained Wal-Mart’s decision for not signing on to the buyer-led initiative that food safety regulations needed to come down from the government.

A: There were many buyers who for many reasons didn’t sign on. Some worked behind the scenes to help us or give valuable advice. In any case, the coalition provided a big influence. That was the upshot of what happened.

Q: The government’s, and in particular, FDA’s initial reaction to the spinach outbreak spewed much controversy in the industry. Prominent industry executives were quite vocal in condemning FDA’s recommendation to ban all fresh spinach consumption nationwide as incongruent and unnecessary, pummeling the category and spawning devastating repercussions across the fresh produce industry.

A: I stood up at that first town hall meeting and challenged speakers on some of their statements related to this issue. It concerned me that phrases like, ‘this is just one incident’, would diminish the urgency to act on the underlying problems. Yes, it was an overreaction on FDA’s part, but this was one of 22 incidents in Salinas Valley, one of multiple problems. This wasn’t an isolated incident.

Along these lines, the industry follows food safety practices, but we had no means of measuring. Growers care about food safety in principle, but whether all the necessary GAPs were being followed by everyone was questionable. To insure comprehensive compliance begged the need for standardized procedures and audits. Some of the statements in that town hall meeting alarmed me. And that very day retailers were meeting to put out a proposal. It helped us coalesce around our response.

We would have liked more buyers but we approach things differently. Merely the fact buyers came together in the fashion they did was remarkable, in the same way that growers formed an alliance. That moment in time things came together.

Mike (O’Brien) knew some of those smaller retailers, and was instrumental in helping us win the loyalty of the regional chains. Wegmans is recognized as a preeminent retailer. Dave’s leadership within Wegmans and PMA and the way the industry views him was very important to get people on board.

It’s still a people-business. I brought a food safety perspective. Markon has established a strong reputation for food safety within the industry. Markon did not have any products implicated in that spinach crisis, but none the less was affected, as all companies are when a recall or foodborne outbreak hits.

We suppose that a man whose last name begins with a Y has grown used to being listed last. Yet, most assuredly, the position is no reflection on the man, his contributions to food safety or his achievements in life.

In some ways his contribution is the most remarkable. Of our seven honorees, after all, three represent large fresh-cut processors with specific business interests in solving this problem; one held an institutional position at the heart of the crisis, two are retailers that may have never been mentioned had Tim not driven the creation of the Buyer-led Food Safety Initiative and thus created a venue for them to exert influence.

Besides which, Tim had already done his ‘bit’. Tim had been chairman of the board of the Produce Marketing Association, he was at a place in the industry where he was just supposed to be available for consultations. He was to be Yoda, not Luke Skywalker.

Yet there was something about this problem… maybe it was his being in Salinas — but not being a grower — that filled Tim with a fury. And he roused himself to fight once again. He may not have had a lightsaber, but his weapon was more powerful still: An idea whose time had come.

Congratulations to Tim 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.

May the force be with you… and the industry… always.

Pundit’s Mailbag — Selling Versus Learning At PMA

Our continuing series on the PMA convention in Houston kicked off with a piece that asked a question: PMA Analysis — Does Houston Merit A Permanent Place In The PMA Rotation?

We then looked at attendance and pointed out that in Houston, PMA’s Attendance Just Shy Of 16,000. Peter Dessak, Vice President of Six L’s Packing Company, wrote us explaining that his experience out in the Galleria area — or “the boondocks” as he put it — was that it added significantly to the cost of the show and restricted the time available for other activities. We called that piece, Pundit’s Mailbag — PMA Needs To Factor Bus Time And Taxi Costs Into Convention City Choice.

In the course of these articles we’ve mentioned that there is a normal fluctuation of around 2,000 attendees when the PMA convention moves in and out of California. Some readers took umbrage at our characterization of those “swing” attendees.

Here are the two paragraphs that seemed to irk some growers, the highlights were added by Jack Vessey:

“The loss of 2,000 people that typically occurs when we move out of California always offers both bad and good news. Most of those extra 2,000 attendees are day-tripping farmers from California who will never invest the time or money to fly off to other cities to attend the convention. Although it is always good for the industry to have growers gain exposure to marketing, those extra growers tilt the buyer/non-buyer ratio on the show floor in such a way that it dilutes the quality of the show for the exhibitors, the vast bulk of which need to reach produce buyers.”

“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.”

Jack Vessey, Vice President/Marketing Director, Vessey & Company, has often served as a kind of defender of the growing base, including in a letter we published under the title, Pundit’s Mailbag — Trapping Stations And Food Safety Costs, where Jack decried the practice of burdening the growers with additional costs in the service of food safety.

Now he writes again to wryly point out that while growers may gain by exposure to marketing, surely the whole industry can learn from those with, as Jack puts it, “mud on their boots”:

Do you think that it would be good to raise the sophistication level of the sales/marketing on growing/agriculture subjects?

How about sales/marketing gaining exposure to growing?

We have marketers engaging in year round contracts at red ink, because they have no clue as to what are costs are on a year to year basis.

I guess the industry doesn’t need to learn from those with mud on their boots, or dirt on their hands.

Who needs unsophisticated day-tripping California farmers, when we can just get it all offshore!

— Jack Vessey
Vice President/Marketing Director
Vessey & Company

Three swipes with a wet noodle for the Pundit in not pointing out that learning happens on all sides and, of course, having more production-side attendees opens up the possibility of learning for everyone else.

This being said, however, PMA is in a particular situation, which is that it has to provide value for exhibitors who, primarily, are looking to sell things to retail produce buyers.

To Jack’s point, this means those booths are principally staffed with sales and marketing people, and the nature of their jobs and the format of the show is such that whatever doubtless very valuable information growers could impart, the floor of the PMA convention is not a likely venue for this to happen.

We should mention that this issue goes beyond growers and is likely to become even more pronounced as PMA becomes a more international organization.

We publicized the launch of the Australia/New Zealand PMA Country Council here. It has been a stupendous success: There were more people from the Australian and New Zealand produce industry in Houston than gather for any annual meeting in Australia or New Zealand!

Yes, there is a produce trade between Australia/New Zealand and the U.S. The U.S. imports kiwi and apples from New Zealand (see our interview with Dawn Gray of Enza here), and Australian navels are a significant item.

There is a little export business from the United States to Australia and New Zealand. We highlighted the sale of USA pears in New Zealand here.

Still, the vast majority of Australian and New Zealand attendees are not at PMA to buy or sell produce. They are there to learn.

That is true of many international attendees.

One exhibitor at a fresh-cut organization told us a little story: He was manning his booth and a fresh–cut processor on another continent came over to ask questions and take pictures regarding the technology used in production of certain items. As our exhibitor politely tried to disengage himself to look for clients and prospects to help, the visitor kept asking questions.

When he didn’t get the honest and open answers he wanted plus felt exasperated as our exhibitor friend kept trying to pull away, the visiting fresh-cut processor finally announced: “Listen, I’m here at PMA to learn” and our exhibitor friend explained: “That’s fine, but I’m here to sell!”

We’re hearing word of this kind of disconnect more and more frequently, particularly as the non-North American attendance rises.

Some of it could be solved by PMA doing more education about how attendees should approach exhibitors about non-purchasing inquiries.

In this example, the visiting processor should have offered a card, asked who would be in charge and suggested a get-together outside of exhibit hall hours or a phone conversation after the show.

The very fact that this processor was completely non-competitive opened the door to an exchange of information, sort of a long distance share group, and approached in this way, our exhibiting processor would have almost certainly been amenable.

But it is not uncommon for exhibiting companies to spend in the six figures for one convention — and they are under pressure to show tangible returns from that investment. They need to prioritize their time on the trade show floor.

So education about how to approach these things can help. But there is also a disconnect between the staffing and the attendees at many trade shows.

As buying becomes more of an executive function with issues of food safety, sustainability and corporate social responsibility being of increasing concern to buying organizations, the staffing at booths, which very frequently is a bunch of hired models to give out samples combined with salespeople and merchandisers, is increasingly unable to provide truly valuable information. PMA is so important that it manages to keep a fair number of top executives in their booths for at least two days — but it is an exception in the trade show world.

One reason various efforts, dating back to FMI’s old Produce Pavilion, have had difficulty in their efforts to turn a produce trade show into an information source for supermarket CEOs is that produce trade booths are typically not staffed with people able to usefully help a supermarket CEO.

It is hard to imagine someone like Wal-Mart’s CEO Lee Scott or Tesco’s CEO Sir Terry Leahy deciding that the way they want to learn about produce is to attend our industry trade shows. After all, they have produce executives who, presumably, they would turn to if they suddenly got interested in the area.

But if they did come, it is hard to know what the typical booth worker at a produce show would have to say to them that would be helpful.

We may never have to look for Mr. Scott or Sir Terry at our trade shows, but as corporate-level concerns start to have greater influence on procurement, exhibitors may need to think hard about the make-up of their booth staff.

Rarely do buyers need to see the product any more. Half the time, the “product” at these shows isn’t even the real McCoy. We’ve seen plenty of counter-seasonal shippers and marketing boards removing labels so they can have grapes or melons or stone fruit to display.

But if we are not showing the product, what are we exhibiting? And are we staffing to really demonstrate the capabilities we offer?

Many thanks to Jack for helping us think about the role of growers and the broader issue of trade shows in the 21st century.

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