November 12, 2015 —
Perishable Pundit Overview:
Preparation Meets Opportunity:
A Finely Honed Mariano’s Format
Is Ready For A National Rollout When Teamed With Kroger Capital But, Maybe, They Will Take An Incremental Path
Gaining Focus In Business:
Can McDonald's Work Its Way To Clarity
Or Is The Problem, Possibly, That Mozzarella Sticks Aren't On Its Menu?
The Wall Street Journal Highlights The GMO Dilemma
Will the 'Innate' Potato Change Minds When The Case Is So Clear?
Don’t Bet The Farm On It!
In Great Turmoil Is Hidden Great Opportunity
Is Now The Time To Invest In Puerto Rico’s Agricultural Sector?
Gualberto Rodriguez Of Caribbean Produce Exchange Tells Us Why He’s ‘All In’ At The Global Trade Symposium
Men At Some Time Are Masters Of Their Fates; The Fault, Dear Brutus, Is Not In Our Stars, But In Ourselves
Credit Decisions, Honorable Men And Quaker City Produce
What’s in A Word?
Sell By, Use By, Best By And Fresh By..
Can A Word Alter Food Waste Significantly?
Cornell’s Brad Rickard Speaks Out
The Philadelphia Wholesale Produce Market:
Young Faces Building A Modern Market
A Tour At The New York Produce Show
If you want to understand what bad shape A & P was in, consider this fact: Kroger passed on the opportunity to buy the chain.
Even A&P's Number One marketshare rating in the biggest market in the country, a market in which Kroger has no presence, could not outweigh the functional obsolesce of many of the stores, the deferred maintenance in others, the tarnished brands and difficulties with the union workforce. Local retailers, which can fill in on distribution routes and utilize current advertising campaigns and regional management to cover more stores, have bought or put bids in for about 187 of A&P’s 297 stores – the rest seem likely to not sell at all and just be taken over by landlords
Kroger did buy Harris Teeter, of course and, now, the company has bought Roundy’s. Kroger’s executive team may well feel they can better manage the conventional grocery stores in Wisconsin, perhaps changing the Pick ‘n Save into Kroger’s Food 4 Less Banner, but Kroger really made the acquisition to get Mariano’s.
Here you have a match made in heaven. A brilliant urban concept, field tested and ready to roll out but constrained because its parent company, Roundy’s, did not have the balance sheet strength to finance that roll-out. Now Kroger has a golden concept — Mariano’s is such a special store that we know people who selected one apartment over another because they wanted to be near a Mariano’s — that is right on trend for smaller footprint, urban stores and whatnot. One could look for Mariano’s to roll out across the country.
Of course, it might not. When Kroger bought Fred Meyer, we thought now that Kroger had its own supercenter concept, it would roll them out across the country and give Wal-Mart a run for the money in the supercenter wars — but it never did.
Kroger is an interesting company and being “on trend” doesn’t seem to worry its executives very much. When others would have urged it to go global, it has stayed firmly rooted in the USA. It is certainly innovative, using data better than almost anyone, but it is incremental.
It is a path you can’t really argue with. Kroger recently announced its 47th consecutive quarter of identical supermarket sales growth, an accomplishment no supermarket chain in living memory has accomplished.
Maybe Kroger will take what learnings it can from Mariano’s and quietly integrate into its other concepts, and find itself with 50 consecutive quarters of identical supermarket sales growth.
McDonald’s is a bit lost.
It is fighting back against many trends in society — healthy eating, upscale concepts, etc. — with a random barrage of things.
First it rolled out breakfast items all day, although many franchisees have doubts because breakfast is less expensive than lunch or dinner food.
Now, when it confronts Five Guys, Shake Shack and similar concepts, it rolls out, ta da … Mozzarrella sticks:
McDonald's is rolling out mozzarella sticks at its restaurants nationwide next year.
McDonald's US President Mike Andres announced the menu addition at an investors' meeting in New York City Tuesday.
The fast-food chain started testing the fried cheese sticks in Wisconsin this summer.
McDonald's said at the time that customers wanted more snacking options.
"Our customers told us they are looking for the ability to customize their meals a little more," a franchisee told Fox 6 in July. "People are snacking more often these days and looking for more options to create a right-sized meal for them. Mini meals allow them to do just that at an amazing value."
McDonald's is charging $1 for three mozzarella sticks.
This follows on innovations such as the McCafe line of upscale coffee drinks.
Its Chief Executive Steve Easterbrok is throwing meat to the lions, by trying to calm shareholders with promises of stock buybacks and higher dividends, but also claims the company is fixing its business:
…in the remarks, Mr. Easterbrook said McDonald’s had for too long asked its customers to adapt to it when it should have been adapting to their tastes and preferences. McDonald’s is now toasting buns longer and changing the way it grills meat to increase juiciness, as well as improving order accuracy with new training programs and procedures, he said.
“We have focused too intently on the functional components of value, specifically price,” Mr. Easterbrook said. “This has emphasized the transactional, less emotional aspects of our brand.”
But Mr. Easterbrook may not be too certain of the turnaround program. The hot issue was whether McDonald’s should spin off its real estate into a Real Estate Investment Trust (REIT) — a proposal that is advantageous from a tax standpoint but would leave McDonald’s without a big reliable cash flow if things are not going well with the food business.
We would see the problem of McDonald’s as analogous to the problem of the traditional supermarket. It is trying to serve too many people all at once — service time has extended, and McDonald’s has neither the cheapest nor the best burger.
Just as ALDI is winning because it does one thing — low prices very well — McDonalds needs to decide what it can actually do very well. It’s probably not some hodge-podge of breakfast and burgers and salads and coffees and Mozzarella sticks!
The opposition to GMOs has always been rather surrealistic. One can, of course, imagine that any scientific tool could have adverse consequences. But the “law” of unexpected consequences is not the “law” of bad consequences – and there is no particular reason to think that, on balance and in the long run, GMOs will be a negative for the world or for human civilization.
The particular oddity about blanket opposition to GMOs is that genetic modification is just a tool; it can be used in many different ways. Certainly one can argue that certain products of genetic modification are not desirable, but to argue that the technology is always bad is to argue that test tubes are always bad because they can be used to mix poisons.
Dr. Henry I. Miller was the first director of the FDA’s Office of Biotechnology and now is a Research Fellow at Stanford University’s Hoover Institution. He wrote a piece for The Wall Street Journal titled, Stuck in a Regulatory Mash-Up, and subtitled, “A genetically modified potato could combat blight and cut fungicide use—if the FDA and EPA will let it”:
In the new film “The Martian,” an astronaut stranded on Mars grows potatoes to subsist until help arrives. Nutritious and filling potatoes were a good choice: A 5.3-ounce baked potato has 110 calories, more potassium than a banana and almost half the recommended daily value of vitamin C—with zero fat.
The potato is getting even more remarkable thanks to modern genetic engineering. A variety that resists blight—potentially obviating the need for thousands of pounds of chemical sprays every year—is coming. But standing in the way has been dilatory and superfluous regulation by no fewer than three federal agencies.
Late blight, an infection by the water moldPhytophthora infestans, is what caused the infamous Irish potato famine in the 1840s. Wet weather patterns on the Emerald Isle gave rise to massive outbreaks of the fungal disease, which is spread by wind currents and rain. Potato crops rotted in epic proportions. Left without their staple crop, an estimated one million people starved to death. A million more left the country in search of food.
More than a century and a half later, late blight is still a major problem for farmers. In most places it can be controlled with fungicides, which are commonly sprayed as often as 15 times a season. This summer was particularly bad for late blight in Michigan, Idaho, Pennsylvania and Wisconsin, wiping out crops and sending farmers scurrying for the fungicides.
But a wild variety of potato from the Andes mountains displays natural resistance to certain strains of late blight. Geneticists at Simplot Plant Sciences introduced a gene from this variety into ordinary Russet Burbank potatoes to create the second generation of the company’s “Innate” potato. Simplot says in its petition for regulatory approval from the Agriculture Department that the new potato should provide American farmers relief from the most pervasive strains of late blight. That means it could reduce fungicide use by 495,000 pounds annually, according to Joe Guenthner, a 30-year potato-research veteran and professor emeritus at the University of Idaho.
As a bonus, Innate potatoes—both the new version and the first generation, which is currently on the market—are bruise-resistant. Simplot estimates that widespread adoption could reduce waste by producers, shippers and retailers by 240 million pounds annually. It could also make a dent in the estimated three billion pounds of potatoes discarded each year by consumers. Innate potatoes also contain lower levels of asparagine, an amino acid found in all potatoes that can turn into a probable carcinogen when heated to high temperatures. If ever a potato deserved “out of this world” status, this is it.
After a 17-month review, the USDA in August finally signed off on the second-generation Innate potato, the one with blight resistance. The USDA review ensured that the potato is not a plant pest and will not adversely affect other plants or the environment. Simplot’s 199-page application contained two years of data from field trials around the country to demonstrate that a potato plant that contains only potato genes performs, well, like a potato.
But the blight-resistant potato still needs the blessing of the Environmental Protection Agency and the Food and Drug Administration. The FDA safety review—which is theoretically voluntary, although companies don’t dare go to market without its seal of approval—will ensure that there are no significant differences in nutrition or other health-related factors between the new genetically engineered variety and its conventional counterpart. That review has been pending since April 2014.
The EPA claims authority to review the potato under the aegis of the federal pesticide statute, because the potato contains a “plant-incorporated protectant.” This risible policy lacks any basis in either science or common sense; the pesticide legislation was intended to regulate toxic chemicals. Nonetheless, Simplot expects to submit its application to the EPA later this month.
Interestingly, none of these regulatory reviews, by the USDA, FDA or EPA, would have been required if the genetic modifications had been performed with less precise, less predictable older methods that move large numbers of genes—such as irradiating seeds to mutate them or moving genes from one species or genus to another by hybridization—instead of state-of-the-art molecular techniques. If you think this makes no sense, you’re in agreement with the scientific community.
The length of time required for these regulatory reviews is absurd. What makes me an expert on approval times? I led the FDA team that examined early bioengineered drugs. In 1982 we were able to review and approve genetically engineered human insulin, the very first drug made with recombinant DNA technology (or “gene splicing”), in five months.
Bringing a new biotech crop to market, from inception to product introduction, takes on average 13 years and more than $130 million, according to a 2011 study for CropLife International. A more scientific approach to regulation could shorten that pipeline, putting important new products like the Innate potato into fields (and onto tables) much more quickly, reducing waste, cutting the use of chemical sprays and limiting consumption of a naturally occurring carcinogen.
Congress ought to act—but I’m not betting the farm on it.
This happens to be an almost perfect example of the follies in opposing all biotechnology. There is a lot of controversy over arcane issues, such as if you put a gene from a pig in another animal or plant – is that item no longer kosher? If you put a gene from a peanut in another plant, is it possible an unsuspecting consumer might be allergic to this other plant because the consumer is allergic to peanuts?
In the case of the Innate potato, however, genetic modification is being used solely to move potato genes from one potato to another – to do exactly what hybridization does but quicker and more accurately.
As Dr. Miller memorably puts it: “Simplot’s 199-page application contained two years of data from field trials around the country to demonstrate that a potato plant that contains only potato genes performs, well, like a potato.”
Prejudice against DL GMOs is pervasive, and politicians who know better find it advantageous to pander on this point rather than attempt to educate the populace.
In the end, though, this powerful tool will overcome all opposition, and those countries that choose to isolate their agricultural sector from the technology will become backwaters, unable to compete without the higher yields and specialized products that genetic modification will create.
Some things in life are serendipitous. So it is that The Pundit has had a connection with Puerto Rico since birth.
When the Pundit Poppa, aka Mike Prevor, and his identical twin brother, the Pundit uncle Sydney, went into the family business, it wasn’t very large, so as to avoid eating into anyone’s income, they de facto created their own business within a business.
Sydney had moved to Puerto Rico and quickly became one of the top importers on the Island, while Mike purchased product to ship to Sydney in Puerto Rico.
The Pundit Poppa worked hard, and for years all our family vacations were in Puerto Rico, where the Pundit Poppa could safely ensconce his wife and children at the Caribe Hilton or the El San Juan while he went off to work with his brother.
Over the years, the connection was reinforced as we lived there, worked there and enjoyed the Island. We watched our family open Supermercado Don and Grade A convenience stores; we put signs everywhere when we opened a large fruit store located in a remote port district, telling the Island to “Siga La Flecha a La Cosecha” and we were deeply involved with a growing operation on the Island and marketing that produce around the world.
So when we saw so many news reports, such as here, here and here, advising that Puerto Rico was unable to pay its debts and that people — Puerto Ricans are US citizens — were leaving the Island, we found ourselves thinking of our many good times on the Island and thinking of friends we left behind.
But we also thought of opportunities. Back when President Nixon broke the final connection between the US currency and gold, the dollar collapsed and things looked bleak, but all of the sudden, the Prevor household was filled with Europeans looking for opportunities, saying that with such a collapse of the dollar, there must be opportunities.
So in search of the opportunities today’s tumult in Puerto Rico can present for those in the produce trade — buying, selling and investing — we invited a super smart scion of an old Puerto Rican produce family, whose family are longtime friends, to lay out the situation and the opportunity at hand. We asked Pundit Investigator and Special Projects Editor Mira Slott to find out more:
Caribbean Produce Exchange
San Juan, Puerto Rico
Q: With all the attention being paid to Puerto Rico and its fiscal crisis, interest is piqued for a presentation on Puerto Rico, the Puerto Rican produce trade and new opportunities for interacting with the country’s produce industry at the Global Trade Symposium.
As part of our pre-show coverage, we’d like to introduce you and preview your talk to inspire New York Produce Show attendees.
A: I may need your help with that! I know I’ll be addressing an esteemed and diverse international audience. I want to make sure I do a good job in adding value to the conference, and I’m also looking to learn.
Q: If someone is hesitant about investing in Puerto Rico because of the financial crisis and future uncertainties, what would you tell them? Does it take a real entrepreneurial spirit to jump in?
A: It’s a great question. I’ll be really frank. I believe my message, my testimony, my sharing, will resonate more with people who have an appetite for risk. I don’t think I’m going to change minds there.
If adverse conditions scare you, you won’t be interested in this talk. But if you have the experience or conviction that in adverse conditions, there are unique opportunities that don’t repeat themselves when the situation is already stable, then this is a talk for you. If you already understand and know through your business experience and observations when these things happen, you have a unique opportunity to set up companies for decades later, then this talk will resonate with that profile.
Someone who thinks of all the reasons not to go into a market, all you need is a couple of indicators. Someone who thinks like that will find fault in California, Florida, Texas… there’s always something to be scared about.
The certainty about Puerto Rico is things will be changing. It won’t be the same. When things come undone, assets go down in price, land is available cheaper, talent is obtainable, and it pays off to take some risks, smart risks, but you have to be willing to take them.
Q: There is no doubt you’ll be adding value. We are privileged you will be sharing your firsthand perspective and shining the light on untapped market potential, smart business investments and strategic partnerships in Puerto Rico at this critical juncture for change.
A: As a general framework, first I’ll give an overview of the current economic situation in Puerto Rico. Second, the evolution of the produce business in Puerto Rico, including the current status on growing, retailing, wholesale and foodservice… channels of distribution, key players, etc., as well as shipping, air connections, etc.
Then I’ll talk about the opportunities for exporting to Puerto Rico, and for importing from Puerto Rico. In addition I’ll look at potential investments in the Puerto Rico ag/produce sector. Other issues I’ll discuss are the possible impact of special situations, such as bond default, Cuba opening, etc. And of course, what the future holds.
Q: You’re certainly equipped to cover all the angles. Could you tell our readers the story of your company and your interest and role in capitalizing on these turnaround opportunities?
A: Caribbean Produce Exchange is a 55-year-old, almost 56-year-old family business. I’m the third generation leading the business. We joke at the company that even though family members have been at the helm, our success is really attributed to our expert team and professional structure that can withstand family preference!
We’re proud of our structure, especially in the past couple years, where we’ve innovated the market by bringing in talent from consumer goods, which is a trend also in the States. So we have people here who joined us recently from Mars, Kellogg’s and Sam’s Club and other food companies, with first rate skills and experience to transform the way we market fresh produce on the Island.
Q: Who are your customers? Are they also big food companies?
A: We are a full produce distributor. We serve the needs of national retailers such as Wal-Mart, Sam’s Club, and Costco, but also on the foodservice side, we’re part of the produce supply chain of operators such as Subway, McDonald’s and Burger King. In addition, of course, we supply to local players, but the national names are the names your readers and the Global Trade Symposium audience will recognize.
We source products from around the Hemisphere, a little bit of Europe and a little bit of Asia, but essentially from North America, Central and South America, and the Caribbean.
Q: All this evolved from a small family business?
A: It was started by my grandfather in 1960. He was a graduate of agricultural science locally from the University of Puerto Rico, and got his masters in 1953 from Ohio State in agricultural marketing. His training and his head were very forward-thinking, understanding at that time in the 50’s the emerging needs of supermarkets. He was a leader locally on standardizing produce, as far as weight and selection out of the box so it would meet the needs of supermarkets, which is something Jim Prevor and his family participated in back then, and that development of the retail sector in perishables.
What we carried on from what my grandfather instilled in his start up was the application of science to produce trading and marketing. That was his passion. His master thesis at Ohio State had to do with the ripening and commercialization of tomatoes, so he had a big edge on that. He was innovative for his packaging of tomatoes and sales to consumers.
So application of science is really still something we nourish, and we are developing it from marketing, logistics, operations management, pharmaceuticals, etc. We’ve kept nourishing that professional basis for what we do. We want to create value for our customers, who are multi-national companies on the Island that require U.S. and global standards.
I want to share our purpose statement that defines what we do and show attendees how we go about that — together we create inspiring experiences for consumers. That’s the crux, and at its heart are partnerships. This is our whole reason for being; we’re organizing and striving to create that spark, whether on the shelf in a retail space or on the plate in foodservice. It could be an action of purchasing, making something that wasn’t going to be made, or building appeal for a product.
Q: Your fellow industry mentors recognize that. In 2010, you were selected as a winner of our highly competitive PRODUCE BUSINESS 40 Under 40 top young leaders award.
A: As far as my background, I grew up on the Island until I left for college. I actually went to Fordham University in New York City in the Bronx. I worked at Hunts Point Market one summer as a college student, the night shift, and I finished a degree in economics and political science from Fordham. I worked in economic development in the public sector for three years after that, the Government of Puerto Rico New York, attracting the industry to the Island.
Then, curiously enough, I worked on the fiscal crisis of the District of Columbia, which I didn’t know was going to happen on my Island 20 years later. Here we are now, with the fiscal crisis in Puerto Rico, and Jim Prevor is the first person to ask me to come and talk about it.
Q: Life takes interesting twists and turns…
A: I had a chance in my early 20’s to work on the financial recovery for DC. Then with a scholarship I was awarded when I finished Fordham, called the Harry S. Truman Scholarship, I went to Yale for my MBA. I got the chance to work at Proctor & Gamble when getting my MBA at Yale, which helped me develop the marketing aspect of Caribbean Produce Exchange.
I also worked at a start-up in Miami back in the dot-com world and was a management consultant for the pharmaceutical and food manufacturing industry as well before I joined the family business. I’ve been at the company for 13 1/2 years.
Q: You bring a unique perspective to the table…
A: It comes in very handy, pursuing interests as a young person, and weaving a very big thread, but you’re just not aware of it over the years, and then things come together. It’s wild, because I’m back in New York, where I did my studying. My country is in a fiscal crisis, and my background is with product development and produce.
Q: How do you come at these issues and best utilize your skills and experiences within the produce industry but also outside of it?
A: What’s exciting, and I want to share my excitement… I’m in the process of setting up a private equity fund on the Island to invest in agricultural technology and food. Puerto Rico in its economic development path decided to go after manufacturing of pharmaceuticals and medical equipment and industrial fields. We used to have very important investments in local agriculture. We produced a lot and exported a lot. When Puerto Rico went industrial, we eventually abandoned agriculture, and now the world has turned.
The land and climate on the Island has stayed the same. Now with the need to produce more food in the world, it’s like finding a $20 bill in an old pair of jeans, just lying there. There is opportunity now, and part of the story is in the headlines with the financial crisis. What’s interesting is how people are coming in from outside the Island to take advantage of the downturn.
I found myself involved in this start up, as a second business, to create this fund to invest in agricultural technology and food, to substitute imports in certain categories and become a player in exporting to the mainland.
We also have the experience to be involved in a sophisticated, first rate global supply chain with companies such as Dole, Wal-Mart, and Subway, and agricultural outlets out of North America, to identify the requirements and have an understanding of what it take to sell into a Sam’s Club or Costco.
In terms of food safety, quality and price, how can we contribute to this effort and take advantage of these opportunities to create a food story that builds the economy on the Island?
I want to make this the conclusion of my presentation, to emphasize all the opportunities people are acting on in the produce industry. People need to go beyond just reading the headlines that Puerto Rico in fiscal crisis.
Q: Can you delve deeper into what advantage can be gained by planting a stake in a market mired in economic uncertainty and $73 billion debt? Some people might find it a bit risky and shy away until things are more stable…
A: We could spend half a day talking about all the opportunities that are there, that we see and are acting upon, and that other people are acting upon in the produce industry, and the food industry more broadly. I made a list of them, and I can walk attendees through them.
First I’ll start with the obviously negative. There’s a consolidation wave, and we’re losing population. What that means for retail and foodservice is we have fewer people coming into stores. At the same time, surviving operators are the more effective ones in dealing with that slowdown, able to protect stores from losing traffic. We expect certain stores to close down, resulting in more suppliers continuing to disappear from the marketplace. I stay away from calling that negative or positive.
Once you’re into finding opportunity in a downturn, you’ve just got to look at it like a doctor would; it’s just a fact. That is what happens. It happened to the U.S. in 2008. The opportunity is to focus on those stores that have the traffic because of the consolidation. Actually, at the individual store level, business will pick up.
We’re setting up these retail market programs, what we call the “candy shop concept.” We turn the produce department into a candy shop, filled with beautiful, colorful merchandising, floor signage, banners, shelf stickers, covers on the coolers… all suggesting the produce aisle is a candy shop of indulgent flavors and experiences of sweetness for the consumer.
What it’s done is create a destination shop. Operators are reporting customers spending a longer time in the store and more time in that section because it’s very comfortable, cozy and appealing. Most important, it’s generating a lift in sales for stores.
Q: How does it work exactly? Are these candy shop concepts exclusive/customized to particular retailers or are they more generic and repeated in various chains?
A: It’s both. We have a generic program, then we customize it around the strategy and particular layout of each store. It’s flexible. For instance, Delicias Naturales (Natural Delights) is a corporate campaign that increases the produce sales of supermarket retailers.
Two great examples of retailers participating: Wal-Mart locally adopted the concept strategically merging its campaign on nutrition. Instead of using our Delicias Naturales (Natural Delights) corporate campaign, Wal-Mart changed it to Healthy Delights.
Wal-Mart took its signage around the health of different produce items and created its own campaign for that and connected it to say these delights are healthy for you.
Supermercados Plaza Loiza, a local retailer, took the Delicias Naturales campaign on in August seeing an uptick in sales right away.
Q: Where do the candy shop funds come from? Is the cost split between your company and different suppliers, whose brands are featured? Does the retailer pay into the program?
A: We’re doing this by partnering with some of our important produce suppliers, such as Dole and Litehouse. We present a program, which we can all invest in, to basically promote our own growth by promoting our customers’ growth. Those suppliers help to finance the program and in turn are featured as sponsors of the campaign by having their logos and brands highlighted.
In this candy shop concept we’ve established, we do product placement and insert the Dole brand, for instance, in certain areas and Dole invests some funds to defray the cost of that program, but it’s not just for Dole or just for the Litehouse products. We create this entire candy shop, which gives suppliers a more effective way to promote their brands to consumers, but they don’t have to pay that much to reap the benefits because it’s there all the time, 24/7.
For suppliers in the audience, this is just a sample of how you can take advantage of this consolidation by partnering with the people who are going to be around and grow when others fall down, riding the consolidation wave instead of fighting it; I call it surfing. Essentially, find the growth and invest within the downturn.
For instance, we’ve partnered with Gargiulo, a tomato grower out of Florida and California, and they also have an operation out here on the Island. So instead of buying tomatoes from so many places over the year, as we used to do, we have focused our buying with Gargiulo.
If my sales are down three percent on tomatoes, instead of splitting that 97 percent among multiple providers, I’ve focused 100 percent of that 97 percent with one provider. So as a result, three things happen; one, Gargiulo is experiencing growth in sales through me, I’m buying more from them so their sales are up, and by focusing my buying power with them, I have better pricing, better service and can capture more market share and help my customers sell more.
Number two, we become stronger by partnering up and becoming a team. It pays off nicely in a downturn cycle because we’re bringing something to the table. For them knowing we’ll buy from them every week and for us getting better pricing, they may work harder one week, knowing in a few weeks they’ll be better off, so they can be secure in their approach to the market.
And number three, they’re capitalizing on our marketing strategies at the store level.
Q: Is there a downside to sourcing from a single supplier and losing that flexibility with all the issues that can arise in the produce industry?
A: It’s worked out very well for us. Yes, we’ve faced problems, but then we have an intimate conversation, and we go back and forth and share the responsibility; if there’s a time they can’t supply us with a product, we decide together we’ll look somewhere else, so it’s beneficial for both of us, as opposed to these adversarial trading relationships, this week we buy here, next week we buy there. You can act differently, have transparency, and move forward.
Of course we are talking about engaging with a major player, such as Gargiulo, which has a lot of flexibility to get supplies from different places, etc. Also, because they have an operation in Puerto Rico, we are ideally positioned to help them. It is win-win-win, for them, for us, for our customers. But most of the shippers we partner with don’t have Puerto Rican production -- that is an exception.
I don’t have access to nation-wide best practices, but it comes down to company strategies. If you have a quality brand where you need someone down in Puerto Rico to tell your story, and not just be another producer of another commodity, then it’s an easy solution to partner up because your message can be lost if you just trade.
We start with that angle. You have a superior product, you go the extra mile and put in the extra cost to make the product better, last longer, be more attractive for the retail consumer. Let’s tell your story better and invest together, and have your backing that I’ll use my name, which is in many ways more known than a big national brand name in the States that may not be spending any money marketing here. That approach is easier for a company with a differentiated quality product.
Q: Does your company have a brand that is recognizable.
A: Yes. We have three consumer brand names; one for repacked tomatoes, Cacique Jayuya, which is a local brand consumers recognize; another called VivaFresh in the fresh-cut category because we have a fresh-cut operation; and Natu Fresco for bagged potatoes. The combination of marketing and sales support, combined with the quality of McCain potatoes, becomes a very interesting and appetizing brand for the retailers and the foodservice operators.
Q: How important are the brands?
A: Like any brand owner, we’re responsible for investing in them and using a lot of social media. For example, with VivaFresh, we have about 25,000 likes on our Facebook page, and it’s very active. We’ve hired an agency, and everyday it keeps our content fresh, using the content we provide, and it manages the community to keep the conversation going with the consumers around the brand, and to get their feedback on it. So that’s pretty exciting too.
Q: If a company wants to partner with you, is it advantageous you have your own brands?
A: More than the power of our brands or not, it’s the power of our marketing tools and systems and people we have in place to promote their brands, to take a partner from the States and make their products successful on the Island.
Our business is an art and a science, and probably more of an art than a science. But on the science part, we’ve been hiring not just from the outside, but assessing people from within our company. Our human resource team for the past three to four years has been applying these profile tools, so if you’ve been here 20 years, we’re making sure we support your ability as a produce expert to migrate and evolve to these new concepts.
We know change is not easy, but if we believe you’re a valuable part of our team and aligned with our values, we’ll give you the tools and training so you can adapt. When we’re bringing people in from the outside, we coach them to assimilate into the produce culture, which is not easy to understand.
It takes people who are not stubborn and closed-minded, but they’re curious and they like to learn, and they’re also humble, able to admit they’re wrong about things, make mistakes, and learn from them, and teach us things as well.
It’s been a heck of a process. I happen to love change because of all the different experiences I’ve had. My whole career I’ve implemented change in different environments. I’ve had to learn coaching tools and how to apply them, understand and help people walk through the cultural and emotional aspects of change. We had people who left, who felt too uncomfortable with the change, and wanted to keep things status quo, but most have embraced change, and it’s been really fun.
When I brought in the first two or three hires from the outside, young leaders in their own multinational companies, it sent a signal, and I started getting all this interest from millennials sending in their resumes, saying what it meant to them to be part of this company.
Q: Could you provide more perspective on the historical context behind these new opportunities? For instance, do you believe Puerto Rico’s agriculture and farming industry will truly come back again? What are the ways to turn things around, and revive the produce industry?
A: In rough terms, imagine two trends unfolding from the 1940s: a big agriculture industry, sugar cane in the 30’s and 40’s, and also a very poor Island. In the mid-40’s Puerto Rico became a commonwealth of the U.S. The U.S. started development of Puerto Rico by incentivizing U.S. manufacturing companies to come and bring jobs.
Two things started happening: People started moving to the cities, leaving the countryside and farming and going to work in manufacturing houses, great jobs, progress and modernization. In the 50’s, people were moving out of poverty, but also out of agriculture.
Agriculture came from big landowners in sugarcane and using cheap labor. There was a political backlash. The government regulated against that so it wouldn’t happen again, by limiting the size of land people could own, so no one could control masses of land. The effect of that, as our modernization started increasing as a population, our agriculture started crashing.
Supermarkets are young, but then our transportation systems started improving with the U.S., so it became common to import food. People didn’t want to work the land and farm, but they had money to buy better food, and imports started flowing.
When my grandfather started, he could buy a lot more locally. We started developing our imports stronger and stronger. Today as a country we import 85 percent of our food and beverages. With modernization, we have increased consumption, more consumer-market power, and the commercial system has responded with better transportation, more supermarkets. On the other hand, agriculture has vanished because we abandoned it.
Q: With imports, will you be discussing the impact of transportation costs, and additional burdens with U.S. shipping regulations and restrictions, etc.?
A: In part, the costs of the transportation create opportunities for developing local agriculture because for certain items, the costs are so high from transportation. After the farming price, add in all the transportation costs; for example, bringing lettuce from California, you have to truck it across the U.S. for five days, then put it on a ship in Jacksonville, Florida to San Juan, Puerto Rico, it’s being transported for nine days…
Most of the costs for the product comes from transportation. It opens up possibilities for farming locally because you don’t have to be as efficient in price as the California grower, because you have all these dollars in between to kind of protect you.
Q: So that’s where your private equity company comes in?
A: Exactly. The private equity fund I’m starting up believes there is a great opportunity to develop products here. Some of these products are so expensive because they come from so far away. It’s not because the grower is charging too much; it’s the cost to bring it here. That’s the problem.
I think this is interesting for the audience, people who are in farming, or who want to invest in farming. A good example is Garguilo, the tomato farmer I told you about. In 1993, they opened up a farm in Puerto Rico for that reason to complement their production in Florida and in California.
In the winter, when Florida gets hit with cold fronts and freezes, they actually have a winter operation in Puerto Rico, and they ship tomatoes from here, selling tomatoes across the Eastern seaboard that are not vulnerable to these cold fronts and freezes.
What we’re offering, if they see it beneficial, is to have a local partner willing to invest capital and provide some of the local knowledge to help them set up. We’re here if they want to partner up with a local investment fund to do business on the Island. They can have that tool. They also have the tool of carrying produce for the local market here.
For Garguilo, 30 percent of their production gets sold in Puerto Rico. So you use the local market to give you a step up in volume, and from there you export. It helps commercialize product on the Island, and helps with logistics off the Island. This is why I’m grateful to talk at the Global Trade Symposium.
In a way the opportunity we’re seeing has little to do with the fiscal crisis. The opportunity is there regardless, even if the country is booming because companies like Garguilo have been doing this since 1993.
Q: Isn’t there a substantial mango growing operation on the Island? Why have they succeeded?
A: It’s based on Israeli technology and one of the growers is Israeli as well. They’re on the cutting edge, and globally competitive outside of Puerto Rico. They’re committed to keeping up with science and forward-thinking growing techniques, searching for the best around the world and being progressive, and always experimenting.
I was there three or four weeks ago looking at their methods and products. We’re very inspired by them, and speak about them as examples of what’s possible.
The fact Puerto Rico is in an economic crisis makes it more interesting because prices of land are down. The Government is more intent in supporting innovative ways of approaching this. When your bank account is low and you don’t have the money, you start looking for $20 bills in your pockets, but when you have too much, you become complacent.
When things were difficult for Tesco’s Fresh & Easy, it was common for Tesco to blame slowdowns in store openings on the bad economy. We never bought it. It always seemed to us that if the concept was sound, Tesco would have used the down economy to put the pedal to the metal and speed up its expansion. After all, this was when real estate, labor and supply sources were plentiful, when advertising was cheaper and expansion more feasible.
There is a lot of opportunity in Puerto Rico, but it also is true that to really change things, we need policy changes that may not be in the offering. Imposing the Jones Act Requirement on shipping between the US and Puerto Rico makes Puerto Rico less competitive than neighboring Islands on shipping to the US and raises costs in Puerto Rico.
Imposing high minimum wages and making welfare programs suitable for the US available for the Island also makes work less appealing.
Within the Island, policies are too welfare-state-oriented and the public sector too large for the size of the economy.
Of course, those who focus on the negatives often miss the opportunity. My guess is there is a profit to be realized here and Gualberto may just be the one to show us the way.
Gualberto is speaking at the Global Trade Symposium, and you can register for the symposium as well as The New York Produce Show and Conference right here.
The day before the Global Trade Symposium is the Foundational Excellence program, which Cornell’s Ed McLaughlin described here. You can express your interest in this program here.
Book a hotel room at the headquarters hotel for the best networking right here.
And utilize travel discounts here.
As our little bit to help out the Puerto Rican Economy, we are going to have a special drawing at the Global Trade Symposium, including round trip airfare and a hotel stay in Puerto Rico. But you have to be present to win, so make sure you register today.
Maybe you will be inspired by Gualberto and use the trip to check on your new investment!
When the Pundit’s family sold its produce company to a large publicly traded British-based company, an immediate impact was that the industry tightened up on our credit. This was not because of a change in financial situation; it was because, even though there was a corporate entity, people felt they had been trading with a Prevor and, for generations, the Prevors had paid their bills and kept their word.
With the new owners, they just didn’t know who to trust or not to trust. One is reminded of the famous exchange -- one of the most famous exchanges in the history of finance -- when J.P. Morgan gave testimony before a House committee that was investigating the complex financial structure of the percolating industrial economy that was the United States.
The questions were asked by Samuel Utermyer, an attorney well known for his toughness:
Untermyer: "Is not commercial credit based primarily upon money or property?"
Morgan: "No sir. The first thing is character."
Untermyer: "Before money or property?"
Morgan: "Before money or property or anything else. Money cannot buy it... because a man I do not trust could not get money from me on all the bonds in Christendom."
Jimmy Storey, owner of Quaker City Produce Co., and a man often referred to as one of the most important fathers of the new Philadelphia Wholesale Produce Market passed away on October 13, 2015.
The Prevor family went back a long way with the Storey family, and we have never heard anyone speak poorly of Jimmy Storey. People trusted him, and he was trustworthy; but he had also been sick for many years and, in some ways, his character, so respected, allowed the business to continue, even when it was not doing very well.
Yet the company closed soon after Jimmy’s death. And that was not surprising either. The same people who gave credit out of trust and respect for Jimmy, predictably, would decline to do so when their friend, the gentleman they knew and trusted, was gone.
We received a letter that raises many issues about credit, the PACA Trust, how to manage a business and much more:
I have been in the logistics business for over a decade now and consider myself pretty lucky as I have not had many customers go out on me or stick me on invoices. I have had one or two small ones over the past 12 years, but nothing really over $10k.
In the past year, however, I have found myself in a pretty precarious position with a customer and figured I would write about it. I don't want to see anyone else get caught in the same kind of mess or make the same mistakes that I have made.
I have no issue with admitting that I just got beat for $47k, and I have learned a very valuable lesson from it. I think these types of issues are commonplace in the industry, but there are not many people willing to admit they took a large loss because of credit decisions they had made and so most won’t want to talk about it. I knew when this happened to me that I wanted to write this letter, but was pressured by someone not to.
There were a few threats made that if I speak out it will destroy my business etc., but I don't see how keeping my mouth shut can help anyone.
This story starts years ago, as I had a customer in the Bronx that uses a Western vegetable broker in California to book his west coast loads. The customer had me call his produce broker, for his loads. I did the loads for several years when about five years ago, the broker started to also give us loads to Quaker City Produce as well as the ones going to the Bronx.
I was happy to get the loads as it was more business and who doesn't want that? I had met Jim Storey several times before this so I had no issue with taking the loads. Jimmy was a very nice guy and was very well known in the produce industry. I considered Jim a man of honor, so even if his credit was not great, I knew if he gave me his word he would make good on it.
The broker and my customer in the Bronx had both vouched for him so I saw no reason for concern. I also thought to myself: “Well if this produce broker is selling him, he will make sure that I get paid on these loads as well.”
I was wrong. It turns out that is not the case here at all. Thinking that a produce broker is going to protect the truckers he is speaking with every day and dispatching the loads to is not correct. They have zero interest as to whether or not you get paid or at least this one did not. Maybe other produce brokers are different, but I have learned my lesson that my company’s well-being is of no consequence to him. I will get more into this later in the story.
I say Jimmy was a very nice guy as, unfortunately, Jimmy passed away a few weeks ago. Jimmy had been sick for years and his demise did not come out of the blue. I hold Jimmy in high regard and do not have a bad word to say about him.
To give you an idea of the business I did with this broker, in 2013 we did 40 loads to Philly and 60 to the Bronx. We did 35 percent of the loads in the first half of the year and 65 percent in the second half. This was for both the Bronx and for Philly.
In 2014 we did 41 loads to Philly and 55 to the Bronx with the same breakdown of 35 percent to 65 percent. The western veg was the only business I did for Quaker City, whereas for the Bronx customer, I also did about 40 Nogales loads each year.
Up until this point, I really never had an issue with either customer. In 2015 in the first three months of the year, I did 20 loads to Philly and was only given 3 loads to the Bronx customer. Every day we would ask for loads going to the Bronx customer, but would be told there was nothing. I know there was no issue with the Bronx customer as we did 20 or more Nogales loads during those 3 months but could not get the western veg.
I took a look at the books and by the 2nd week of March none of the invoices for the 2015 Quaker City loads were paid. I called Jimmy and asked him what was going on and he said he was a little behind and would get it paid off.
By the 3rd week of March I told Jimmy I could not extend him any more credit until this was paid way down. I also placed a call to to the produce broker and told them about the unpaid invoices. At this point things started to add up. Was this the reason I was given only Philly loads for the first three months of the year?
At this point, I was not going to carry any more loads to Philly but the produce broker was going to find someone else to do it. A large amount of the trucks that were hired after I stopped taking the loads were paid at delivery with the money that should have gone to me.
Checks started to slowly come in, but in June Quaker City still owed me for invoices from January. Jimmy would call me for the occasional truck and offered me COD, but I held tight and told him I could not do anything as I need to get paid first.
Jimmy made a commitment to send $8k every week until I was paid off. The checks came in and I was getting the total down.
I continued to put calls into the produce broker and I was now surprisingly able to get the Bronx loads that were unavailable to me in the first three months of the year. When on the phone, I would tell the produce broker that these invoices are from Feb and March and it is now almost August and I need to get paid.
Clearly Quaker City was using my money to run their company, and I was not very happy about this and told them as much as well as the produce broker. Basically what was being done was a Ponzi scheme. They were using my money to pay other vendors and telling me they cannot pay me.
What I still did not get was that the produce broker was still shipping them and getting paid. Their new invoices were getting paid while I sat there trying to collect on my very very old invoices.
I wonder, did the produce broker ever call the shippers and let them know in August that there were still unpaid trucking invoices from Feb and March. I would think that would be an obligation of the broker to do. They are having a shipper send produce into a place that was very delinquent on their bills. I can tell you I was never contacted by anyone about these very delinquent bills.
I am not sure if any of those shippers are out money now, but I am sure if they were told when they should have been that invoices were not getting paid, some of them might not have continued to ship to Quaker.
In the month of August, I got an email from Meg, Jim’s wife and partner in the business. She might not have been a partner, legally, but she was there working every day and knew the ins and outs of the business. Meg was the person who had control of the check book.
The email Meg sent me basically said to me that she knew Jimmy made a promise to me to send me 8k per week, but she is not sending it because she has to pay the vendors who are hauling and selling them now. I responded that I did not care about the current vendors and I needed to get paid for these invoices that are still overdue.
I was due about $59k at this point and was getting tired of the excuses. It was not easy to get Jimmy on the phone at this time, as he was not feeling well, and he shared an email with his wife and she would answer his cell phone. On the email I asked to have Jimmy call me and she responded she will not.
Fortunately for me, Jimmy felt my response to his wife, saying I did not give a damn about the current vendors, was insulting, and he gave me a call. I said “Jimmy, I need my money and cannot be told that you are paying current bills and not mine.”
He told me a check would go out this week and I said, ‘Jimmy you need to understand that your health is not great and if you die, I can see it is very obvious to me that I will not get paid by Meg.’
Jimmy's response was, “If I die, you will all be rich. Lance, you will get paid with proceeds from my life insurance.” I said. “Jimmy, I don't think I will see a dime of the money and I will be screwed.”
Jimmy took that as an insult on his wife and said "You have my word there is no way you will not be paid in full. Every one of your invoices will be paid.” What more could I do but say “Ok Jimmy.”
I know that Jimmy believed that, but I knew he could not control things from beyond the grave. I could not say that to him as he was a proud man, and I did not want to say to him that if you die, your family is not going to have the sense of moral obligation to pay everyone that you have.
I called the Bronx customer and told him about my situation, as he and Jimmy are best friends. His response to me was it is terrible about Jimmy’s health and how sick he is. My response was yes it is and it is terrible that my children's college fund is being taken.
He said to me, “Don't worry you will get paid in full.” I said, “Great well I did not agree to loan your friend at Quaker City money. Maybe you want to lend him $50k and have him pay me off and then you can collect if from him if you are so sure that I am going to get paid no matter what.”
The next week a check for $6,300 showed up and brought him down to $53k. I called the next week to find out about my check and was told Jimmy was in the hospital, and they will let me know later in the week what will be going out.
Over the next four weeks I received no checks. Not a single one, and Jimmy was not in any condition to speak and I knew Meg was not going to send any money. I spoke to Jimmy's son Peter via text which I still have. Peter told me a check will go out and to just stick with him.
He said he would get with Meg and a check would go out every week from now on. I kept texting him next week saying what is the check number that is going out, and every day he was either out of the office or he was picking up his daughter and the check was going out but he did not have a check number. Of course no check ever went out.
On October 13th, I read that Jimmy had passed away. I sent my condolences to Meg and to Peter and asked where I can make a donation. I know it is kind of funny, I am asking for info to make a donation from the people who are running me in circles, but I was taught that two wrongs don't make a right.
On October 19th, I received a check for $6,300, bringing them down to $47k. I never got a check again. On the 21st, Peter said he would tell me what check was going out via text and no check came. On Oct 26th, I was told by Peter that he and Meg would have the info by the next day on what check will go out.
On Tuesday he said he was sending a check. On Wednesday I read that they were going to close the doors by week’s end while they were still telling me that morning that the check was being sent. Now that they are closing, I understand they have just $300k in receivables and God knows how much in payables that they owe out.
Here is the best part. The PACA trust will protect all the shippers, so basically all the shippers who shipped to them for the past month or so will get paid, while I get paid zero for my invoices that are 8 months old. Obviously that is not fair.
Aside from losing money, there are several other things that are bothersome about this story. Why was the produce broker only pumping Quaker City loads to me in the first three months of the year? I know they had New York loads and I know they could have given them to me. It seems they wanted to just pump me up with bad debt.
Why were the shippers never notified that the freight bills for loads from 6-8 months ago were not paid. If they were, they absolutely would not have shipped these loads anymore. Clearly the produce broker was more interested in the 25 cents per box they make on the loads going out than making sure that the people they are putting at risk get paid.
As a business owner, I know that if my company makes money I make money, and if my company does not make money I cannot take any. I would love when I would call and see if my check was going out on a Thursday and Meg and Jimmy were gone for the weekend to go down to the shore.
I wanted to scream. I wanted to say. “Meg, the money that paid for your vacations that you took out of Quaker City and paid yourself was not your money. That was my children’s college fund” If you are not making money, it is not right for you to take money. You are moving money from company money to personal money, and it is just not right to do that when there are bills outstanding that your company cannot pay.
I really believe that, had he lived, Jimmy Storey would have found a way to pay his bills in full. It was a matter of honor to him. But I am waiting now, seeing if anyone in his family cares enough to honor his legacy by protecting the values that were important to him, like honoring his word and paying his bills in full. There were a lot of people who stuck their neck out to help this great man. Is there anyone who will honor Jimmy’s desires to have those people repaid? Maybe there is a big insurance policy, but I see few indications that anyone is rushing to help the people who helped Jimmy. That is a terrible shame.
Bronx, New York
Mr. Dichter is angry and feels cheated. We sympathize with his plight, but if we take away the emotions and look at this story in a dispassionate business sense, we have to ask: with 20/20 hindsight, if someone else were to confront this situation, how could they approach it differently?
The gist of his story is that he extended credit based on an individual’s character:
“I had Met Jim Story several times before this so I had no issue with taking the loads. Jimmy was a very nice guy and was very well known in the produce industry. I considered Jim a man of honor so even if his credit was not great I knew if he gave me his word he would make good on it.”
Yet he was not selling to the individual. He was selling to a company. He neither asked for nor received a personal guarantee.
He also relied on third parties:
“The produce broker and my customer in the Bronx had both vouched for him so I saw no reason for concern. I also thought to myself: “Well if this produce broker is selling him, he will make sure that I get paid on these loads as well.”
I was wrong. It turns out that is not the case here at all. Thinking that a produce broker is going to protect the truckers he is speaking with every day and dispatching the loads to is not correct. They have zero interest as to whether or not you get paid or at least this one did not. Maybe other produce brokers are different but I have learned my lesson that my company’s well-being is of no consequence to him.”
We obviously can’t know the state of mind of this broker, but Mr. Dichter gives no reason for us to believe the broker was indifferent to others. After all, isn’t it possible that the broker also believed in Jimmy Storey and that he would ultimately pay?
Mr. Dichter seemed to run his business in a casual way:
“I took a look at the books and by the 2nd week of March none of the invoices for the 2015 Quaker City loads were paid. I called Jimmy and asked him what was going on and he said he was a little behind and would get it paid off.”
What happened when the invoices hit 30 days or exceeded his credit limit? Did he even have a credit limit?
One wonders if Mr. Dichter developed the best strategy for dealing with this situation.
“At this point I was not going to carry any more loads to Philly but the produce broker was going to find someone else to do it. A large amount of the trucks that were hired after I stopped taking the loads were paid at delivery with the money that should have gone to me.”
This strikes us as completely predictable. Wouldn’t it have been a better strategy to accept the difficulty of the present position and negotiate an arrangement whereby one keeps the business while also getting paid down on the old debt?
Once the Pundit’s family business was exporting to a customer in Bermuda, and we let the credit get a bit out of hand. If we had simply demanded payment and said we wouldn’t sell him until we were paid, we would have forced him to give his business elsewhere, probably on a cash basis.
So the Pundit Poppa said that we should keep shipping, that we should be the ones that got paid in advance and, we negotiated to add an extra $.50 on every box to pay down the old debt. It wasn’t very long that our cash flow was better than if we had just given 30 days credit.
Then Mr. Dichter decries the impact on his claim of the PACA Trust:
“Here is the best part. The PACA Trust will protect all the shippers so basically all the shippers who shipped to them for the past month or so will get paid while I get paid zero for my invoices that are 8 months old. Obviously that is not fair.”
Now on the substance of the PACA Trust, Mr. Dichter is exactly correct. It is enormously unfair to non-covered vendors. If a company starts up and buys a load of produce for $20,000 and contracts with a trucker to haul the produce for $20,000, then sells the load for $20,000 and goes out of business, assuming there are no other expenses, the produce vendor will get paid 100% on the dollar and the trucker will get zero.
This certainly denies the common perception of fairness and, in fact, is different from what normal bankruptcy law would require. If the product was a load of chairs instead of produce, and the numbers the same, both the chair manufacturer and the trucker would get 50% on the dollar. So the law has been written specifically to favor produce vendors over others.
This may be unfair, but it is not unexpected. The PACA Trust is a law of long-standing and, presumably, Mr. Dichter considered its impact carefully in deciding to extend credit. When the PACA Trust was first proposed, it was opposed by many wholesalers specifically because it was believed it could make it more difficult for wholesalers to get credit!
Mr. Dichter also makes a strong personal attack on Jimmy Storey’s family and presents his theory about taking salaries, etc., from a company:
“As a business owner, I know that if my company makes money I make money, and if my company does not make money I cannot take any I would love when I would call and see if my check was going out on a Thursday, and Meg and Jimmy were gone for the weekend to go down to the shore.
I wanted to scream. I wanted to say. “Meg, the money that paid for your vacations that you took out of Quaker City and paid yourself was not your money. That was my children’s college fund” If you are not making money, it is not right for you to take money. You are moving money from company money to personal money, and it is just not right to do that when there are bills outstanding that your company cannot pay.”
The problem with this is that, as a matter of law, Mr. Dichter is incorrect. Of course, the owners cannot take excessive salaries or pay themselves dividends that would cause a company to become insolvent, but Mr. Dichter presents no evidence of this at all.
True, as a matter of practicality, a small sole proprietor, say a cobbler or tailor, without access to outside funds or any corporate reserves, cannot pay himself if he doesn’t make money.
It also true that when times are tough, prudent business people, looking to sustain their businesses and their business’s credit rating, often choose to reduce or eliminate their compensation. Bob Strube of Strube Celery & Vegetable Co. in Chicago, often wrote in Pundit sister publication, PRODUCE BUSINESS, of his elaborate program of reducing salaries and then eliminating salaries for family members if the business was not profitable.
And the Pundit, in consulting for various companies, has advised many who owned their buildings personally and rented them to their corporations to reduce the rent they charged their companies so as to maintain corporate profitability, Blue Book ratings and more — all with the long term goal of restoring the business to profitability.
But, although a willingness to work for free and sacrifice personally to support one’s company may be laudable, and certainly is helpful in helping a company during a start-up or turn-around phase, it is not always possible – after all not everyone has the reserves to do this.
It also is not required by law. So in evaluating the credit worthiness of a company, one has to assume that the company will have to pay reasonable salaries to its staff – family or not.
There is something in Mr. Dichter’s complaint that strikes a chord. For at base, it is a call to a different age and a time when people took their names more seriously and had a greater sense of shame. We confess that we were brought up to think that way.
But with society today, corporations and limited liability companies are specifically organized so that failure will not be so catastrophic. There are no debtor prisons. Indeed, one of the things that propels American enterprise is that we accept failure… failure is part of what makes our economy dynamic and entrepreneurial. And, on balance, that probably creates a better society.
What the end of the Quaker City saga will be, we do not know. Maybe there is a big life insurance policy and Mr. Dichter will be paid, maybe not.
We would caution him, or anyone, from hypothesizing about people’s thoughts and morals. What Jimmy’s family will do is still unknown, and what resources they have to work with also are unknown.
The truth is that Mr. Dichter may actually be in worse condition than he thinks. Very often, if a company files for bankruptcy, efforts are made to pull back preferential distributions. Cash-in-advance terms are generally exempt, but if Jimmy was trying to pay off the bills to his old friend, while leaving other bills unpaid, the Court may yet ask for the money back.
Of course, it is also sometimes possible that other parties in the supply chain may be liable for the freight even if the consignee was supposed to pay it. In Excel Transportation Services, Inc. v. CSX Lines, LLC, the court declared: “the bedrock of rule of carriage cases is that, absent malfeasance, the carrier gets paid.”
Throughout the long story that Mr. Dichter tells, we keep thinking he needs a good lawyer to guide him as to how to make credit decisions and, now, how to enforce his rights.
But we also think he needs to pull back. Does he really begrudge a dying man a weekend at the shore with his family? Does he really want to attack a grieving spouse and son? Surely Jimmy would not have wanted that.
There are courts to resolve these issues, so no personal attacks are necessary and it is doubtful that charging about, challenging people’s ethics, especially so soon after Jimmy’s death, will make people think better of Mr. Dichter.
Yet Mr. Dichter is right about one important thing. His story is filled with cautions for how to approach credit and business relations. Many thanks to Mr. Dichter for being brave enough to share his experience and his thoughts with the industry at large.
Brad Rickard has been a long time contributor to both The New York Produce show and Conference and The London Produce Show and Conference, presenting educational sessions we have highlighted in pieces such as these:
Cornell’s Brad Rickard Returns To The New York Produce Show And Conference:
Will 'GMO Free' Be The New Organic?
What’s In A Name? Professor Brad Rickard Of Cornell Produces New Research That Indicates Shakespeare May Have Been In Error… On Apples At Least
Cornell’s Brad Rickard To Unveil Generic Produce Promotion Research Done By Cornell And Arizona State University At New York Produce Show And Conference
Brad has “grown up” with the New York event and we congratulate him as this year he joins our industry gathering as an Associate Professor, an important milestone in academic life.
Sometimes junior faculty give presentations just to burnish their CVs, but Brad has a genuine enthusiasm for his work and a passion to advance the state of knowledge. When he said he wanted to come back and discuss a new issue, we were thrilled.
We asked Keith Loria, Contributing editor at Pundit sister publication, PRODUCE BUSINESS, to find out more:
Brad Rickard, Ph.D.
Associate Professor of Applied Economics and Management
Charles H. Dyson School of Applied Economics and Management
Ithaca, New York
Q: All of us here are thrilled you will be returning to speak at the New York Produce Show and Conference this year. What will your presentation be on this time around?
A: The concept will be along the lines of “Food Waste: The role of package size, product category and date labels.”
Q: Why is food waste such an important topic?
A: It is a compelling issue in food policy. There are lots of people concerned that there is too much food waste. The USDA even has some new language and info/graphics trying to encourage people to waste less food.
There’s a wide range of reports that talk about the quantity of food waste, and in some cases, people think that it’s surprisingly high; somewhere in the order of 30 to 40 percent of all food is wasted. People are also throwing around a lot of ideas about how we can influence food waste, and that served as part of the motivation for my presentation.
Q: You recently co-authored a report examining the problem, and had an interesting take on the proposition of “zero food waste”. Can you touch a bit on this?
A: I’m not convinced that these initiatives advocating zero food waste are necessarily a good idea — from an economics perspective. We found in our experiments that people know they are going to waste some food, even at the point of purchase. I’m not sure it makes economic sense to move toward a world with zero food waste, because I think there are some benefits and costs associated with food waste.
We waste some food, but we do that because it saves us time and there is an economic value to our time; or we do it out of convenience, and there’s an economic value to that as well. If we spend all our time thinking about zero waste, it eats into our time or convenience, and we need to have some tradeoffs.
There is also, potentially, a tradeoff between food waste and overeating, so you don’t want to spend too much effort decreasing food waste if it increases consumption to the point where it could have net negative economic effects (given that there are clearly economic costs associated with overeating habits and obesity).
I don’t think people should feel like they should finish all their food to not have food waste. That’s part of the problem that no one really talks about.
Q: What can those in the produce industry do to combat this problem? For those attending the show, what do you expect to talk about?
A: I want to talk about how you can measure food waste. Whenever we talk about there being way too much, somehow we have to measure food waste, and that’s not an easy task.
Most of the waste — even those people who report waste — say that in developed (or rich) countries, most of the waste is happening on the consumer level. I’m hoping to talk about the tools we might be able to use to get a better handle on how much waste is really happening.
Related to that, is it the quantity of the waste we are concerned about or the value of the waste? Those two things are related but different.
Q: Can you talk about the experiment you did concerning this?
A: We took our best shot at trying to measure food waste in an experimental setting. We didn’t ask people to tell us how much food they were wasting; but in sort of a secret way, we asked how much food they expect their household would consume based on previous experience. We used that as a proxy for food that would be wasted.
We collected this information from about 200 people in our study and in three different categories: packaged salad greens, breakfast cereal and yogurt. We presented these people with both a small and large package size of each of these products and asked some questions to tell us how much they would consume, and backed out how much that meant they would waste.
We also asked them lots of demographic questions about themselves and their families, and we asked about their general shopping habits and their fridge/pantry management style.
We polled about 50 people, who when they were exposed to these products, they saw date labels as “use by.” Another 50 saw language that said, “best by”; another 50 saw “sell by” and the last 50 we used, “fresh by.” Ultimately, we were curious about how the language used affects people’s perception about food quality and engagement with foods and their consumption patterns.
Q: Interesting. What were the findings?
A: We found that with product size, there was significantly more waste with the larger versions of these items. We found there was more waste in the perishable items, so for salad greens, there was more waste than yogurt.
For date labels, those people subjected to the “use by” label had the most waste. The food waste was significantly larger. The lowest was for the language, “sell by.” I would call these non-trivial differences for waste levels across these different treatments.
Q: Where do you go from here? Is the experiment concluded?
A: My co-author and colleague, Norbert Wilson, a professor at Auburn University, and I are moving forward with research in the arena and will continue to think about these points that I’ve been trying to make during this discussion.
We think there might be some sort of label ambiguity. The “use by” may just have more of a connection to food safety, whereas “best by” and “fresh by” are more suggestive of food quality, and “sell by” may seem more like a retailer-directed initiative. All of this is motivated by the haphazard use of date labels in grocery stores. There’s no regulation about what these labels mean. We’re finding there does seem to be consumer confusion associated with the use of different date label language.
Q: I know you’re also concerned with the economics of farm-to-school initiatives. What can you tell us about your research into this area and whether there is a connection between this research and food waste?
A: It’s probably a different discussion, but there is definitely a lot of food waste that happens in school lunches. That work is not focusing exclusively on food waste, but more on procuring local food and using it in the school programs, as well as what that could mean for local economies.
Q: Aside from your seminar, what are you looking forward to at this year’s New York Produce Show and Conference?
A: I’ve been to the show every year since it began in 2010, and I always look forward to seeing familiar faces and meeting new folks involved in the produce industry. I find that I learn so much about the pressing issues in the produce industry from the people that attend my session.
They call these “educational sessions,” and I often feel that I am the one being educated about the up-and-coming economics and marketing concerns from the Show’s participants.
This year, I am also excited to be a part of the new Foundational Excellence program that is happening just prior to the show on Monday, November 30, and organized by the team in the Food Industry Management Program from Cornell University.
Lastly, I always look forward to visiting New York City at this time of year — to see the city lit up, and so many people excited about the holiday season.
The issue of food waste is a peculiar one. In the minds of many, it has a kind of moral significance, but it is not clear that this is the right way to think about it.
Joseph Stiglitz won the Nobel Prize in economics for his research regarding asymmetric information. Up until this important work, economic theory generally held that with specific exceptions, markets were efficient. But Stiglitz explained that, in fact, markets were never perfectly efficient, and they weren’t perfectly efficient because players in the market had imperfect or insufficient information. The reason markets had imperfect or insufficient information is because the gathering of information is expensive.
Thus the insight is that the goal is not perfect efficiency but optimal efficient. That is to say that spending a million dollars to acquire information that will allow one to be more efficient by a half a million dollars is a waste, not a benefit.
We find this research very interesting because it implies that things that cost little or nothing — say more accurately labeling produce as to its proper use by date — might reduce food waste in a way profitable for society.
But, in general, we have a wonderful tool to help us have the optimal amount of waste — food waste or any kind of waste. We call it money.
Incorporated in the price of all goods and services is the waste generated in the production of that product or service. If reducing waste was obviously economically sensible, we can expect that producers would reduce waste to save money!
Consumer waste is mostly a matter of consumer preference and bulk pricing. Perhaps the easiest way to reduce consumer produce waste is to move to frozen and canned product. But many consumers prefer fresh. So we could move closer to zero food waste, but at the price of consumer satisfaction.
The Pundit Poppa had a weakness for sliced jalapeño peppers. For some time, he bought small jars in the supermarket, but one day he realized that he could buy a giant jar in Costco for less than he was paying for his small jar in the supermarket. Note that this big jar was not just cheaper in price per ounce, it was actually less expensive in total dollars expended.
He didn’t know if he could use that giant jar of sliced jalapeño peppers, but it didn’t matter. It was cheaper to buy the giant jar and throw it out half way consumed than to buy the small jar in the supermarket.
Another issue is that food waste is an issue, but not the only issue we care about. What if someone who used to make one big food buying trip every week becomes motivated to reduce food waste by shopping daily and thus buying smaller quantities. This might reduce food waste but only at the cost of more carbon emissions.
As we mentioned in our discussion of the Triple Bottom Line, there really is no way to add up these things — consumer preferences, carbon emissions, food waste — and decide one did the right thing or one path is optimal for society.
All we can say is that millions of consumers use the price mechanism to make decisions that were, based on available information, the most optimal ones for themselves and their families.
We certainly can look for externalities that may be warping these decisions, but to try to bend the outcome, to prioritize eliminating or minimizing food waste over other options that people have willingly chosen based on price signals, is unlikely to maximize human happiness.
Come join the discussion at The New York Produce Show and Conference.
You can register for the event including tours, the Global Trade Symposium and the “Ideation Fresh” Foodservice Forum right here.
Express your interest in the NEW Foundational Excellence program here.
Book a hotel room in our headquarters hotel right here.
And get travel discounts here.
We look forward to discussing important industry issues together in New York.
A highlight of The New York Produce Show and Conference is always a visit to the Philadelphia Wholesale Produce Market. The show has grown up with the new Philly market… the first year we actually did a sneak preview of the new facility before it was open.
Here are some of the pieces that highlighted previous tours:
Tour To New Philadelphia Wholesale Produce Market Offers A Glimpse Into The Future Of Produce Wholesaling In America
Get An Inside Look At The New Philadelphia Produce Wholesale Market By Taking A Tour During The New York Produce Show And Conference
Seeing The Future Of Wholesale Markets:
The Philadelphia Story A Regional Tour Of The New York Produce Show And Conference
We work hard to make the tour easy. For example, we send a shuttle to take people directly to the Philadelphia airport if they want to fly out from there rather than return to New York.
But it is the merchants of the market that make the tour both educational and fun. We asked Contributing Editor Keith Loria of Pundit sister publication, PRODUCE BUSINESS, to find out more:
John Vena, Inc.
Philadelphia Wholesale Produce Market
Q: What’s the latest buzz at the market?
A: Overall, we’re at pretty good occupancy level, and going into the late fall and winter season I think most of us are seeing good opportunities. We’re looking forward to the holidays getting started and that’s what we’re talking about most around here.
Q: One of the treats for attendees at The New York Produce Show and Conference is that they get to choose from a number of great tours; what’s your best selling point as to why they should choose the Philadelphia Wholesale Produce Market?
A: The biggest reason is to visit the facility and see the merchants that are here. There is a lot of opportunity for buyers. The facility speaks for itself: more than 700,000 square feet, fully refrigerated, and what we’re able to do here is unlike what any other terminal market can do.
We have 24 merchants handling product from around the world, and I think there’s a lot of opportunity for any produce buyer and for shippers as well. The building is state-of-the-art.
Q: What can those taking the tour expect to see?
A: We’re just starting to plan the tour now; we are very excited to be hosting visitors from The New York Produce Show and Conference. We are working on showcasing our facility both here and at our booth on the trade show floor. We’ll welcome people into the market, give them an opportunity to walk around and meet all the merchants and see how everything runs in the most modern terminal market facility in the country.
Q: What will someone taking the tour for the first time or visiting the market for the first time learn?
A: The most important thing is our able to protect the cold chain for all the products coming in and the variety of product we have available here. Anyone who’s looking for an up-to-date facility, taking the best care of product that it can, and merchants aggressively looking to serve customers, I think those are the two biggest takeaways visitors will see.
Q: At the end of the tour, you always make yourself available for a Q&A. Why is that an important component of the experience?
A: For those visitors who are buyers for retailers or wholesaler operations, it’s good for us to spend a few minutes with them and answer their questions about the actual logistics: “How do I get my truck in and out of Philadelphia”; “If I’ve never been here to buy, what will my experience be like?”
It’s a lot easier here than any other terminal market you would go to on the East Coast. We’re able to get trucks loaded efficiently, without having to move trucks from one end of the market to the other. People typically ask what brands they can find here as well.
Q: How has your customer base changed over time? What are some market prospects?
A: We have seen more wholesalers from around the region sending trucks in on a more regular basis to fill gaps in their own inventory or to pick up specialty items they don’t necessarily carry.
The market has also participated in helping to facilitate cross docking to some of the Caribbean destinations, because some steamship lines changed their shipping point to Philadelphia. So we’re seeing a regular flow of product in and out of the market on its way to the Caribbean.
Q: Have you seen a noticeable expansion in the range of customers, the number of customers, or the amount of business with established customers?
A: We’re seeing a lot more small customers, particularly those coming from ethnic neighborhoods. We’re getting a better play from the mom-and-pop establishments. We absolutely have seen increased business from the wider industry from both new and long established accounts.
Q: What are you looking forward to about this year’s New York Produce Show and Conference?
A: Because the show is in New York, and the time of year it is, it’s a good jumping-off point for us both as a market and as a vendor in the market, to talk to the customers passing through about things we have, that we’ll be offering for the holidays and the winter season.
We’re talking about a major shift in production areas, so the timing of this show is good, because it allows us to preview for customers what we’ll be doing going into the first quarter of the year.
Q: What is the market’s role with imports?
A: We deal with product from all over the world. We handle a lot of imported product from Central and South America, so as the seasons change, it’s time to switch over sourcing — that’s one of the topics we want to talk to customers about at the show.
Q: What opportunities for growth do you believe still exist for the market?
A: I think we have a terrific foundation here with this market. The facility is top-notch and we have a good mix of vendors. The opportunity is what you want to make of it.
One of the things important to note is that people who tour the market now are going to see a lot of young faces. We have a lot of nieces, nephews, sons and daughters of the owners of our businesses joining the companies, and the young people have a lot of ambition and bring a lot of knowledge to the table. That helps attract the younger buyers. We can build whatever we want to build and reach out to whatever customers we need to.
We think John’s comment about the growing numbers of young people on the market — in Philly, and elsewhere — is a point to be aware of.
These are not your father’s markets anymore, and the young people are making them into a new kind of tool for the industry.
One would be smart to go visit Philly and see what a modern market can be.
You can register for the tour and for the whole New York Produce Show and Conference right here.
The Foundational Excellence program requires an indication of interest here.
Headquarters hotel — one can do a lot of business in the gym, at the bar, in the lobby — book your room in our dedicated room block here.
And don’t forget to check out travel discounts right here.
See you in New York...and in Philadelphia!