The Pundit Grandfather, Harry Prevor, mentioned that his father, the Pundit Great Grandfather, Jacob Prevor — working off the Wallabout Produce Market in Brooklyn — on at least some occasions supplied the produce that was sold from a produce pushcart that was rented by Louis Balducci Sr., originally from Bari, Italy.
It is safe to say that both Jacob and Louis would be astonished to see what Baldor has become. But, today, the trials and tribulations of a foodservice distributor in a coronavirus hotspot would shock them. Yet, so would the strategies the firm and its executives are undertaking to reinvent its business, as well as to help the industry at large during this crisis.
Michael Muzyk is focused on reinventing an incredible business, while also serving in a key leadership role in the industry. We thank him for taking time to speak with Pundit Investigator and Special Projects Editor, Mira Slott:
Q: We are grateful for your strong industry leadership and unyielding commitment during these perilous times for your company and the industry, to help keep the food supply chain moving and get fresh foods to consumers, through whatever channels available.
Thank you for finding time in your challenging schedule to share with the industry your valuable insights and what your company has been going through, as you also take on the role as chairman of United Fresh.
I have many questions, but most important, how are you and your family and friends and employees doing? Has anyone become sick with the coronavirus? Is everyone OK?
A: Thank you for asking that. Personally, we’re all safe and well, and the family, and my extended family, the Baldor family, Thank God. When we look back and reflect, we are an SQF (Safe Quality Food Program) Level 2-certification warehouse, so our food safety — just our natural business model — is probably what has helped keep us all safe during this crazy time, reflecting on it now, doing Monday-morning quarterbacking.
Q: As the global coronavirus pandemic exponentially blankets the US, New York City has become an epicenter of the crisis. How are you addressing these challenges?
A: I’ve had no sleep, maybe a few hours in two weeks. Implementation of SQF Level 2, the highest grade, cannot be underestimated. We’re at an SQF Level 2 numeric grade of 97 or 98, and that’s tough. That wasn’t easy to capture outside the box, you know. From how you’re handling product, to sanitation practices, and cross-contamination and the elimination thereof, and your garments… all that was in place because we are a food processor here as well as being a warehouse.
So, we cut, slice and dice fruits and vegetables, and that’s where the SQF certification was really needed. It used to just be HACCP (Hazard Analysis and Critical Control Points), a governing body out of AIB international. We felt HACCP certification wasn’t sufficient. SQF raised the bar. We challenged ourselves to raise that bar and we met it. It was an uphill climb. It wasn’t easy but reflecting now, that has certainly contributed to keeping us safe.
Q: Your company has always persevered through challenging times, from 9/11 to Hurricane Sandy. Are you experiencing issues unique to the coronavirus crisis, unknowns in planning/strategizing, faced with adapting to the rapidly changing circumstances?
A: From a foodservice distributor perspective, which is 80 percent of my business, I haven’t seen any data that’s been presented to me saying if you eat out at a restaurant, you have a bigger chance of catching coronavirus than if you go to a supermarket. It’s about social distancing. You’ve got people crowding into supermarkets… you’ve got those hand baskets everyone’s touching… I don’t know how that’s less dangerous, but by a sweep of a pen from a government official, it took 30 years of my life and what I built, and nearly shut it down in 30 hours.
Q: It’s interesting you point that out, because I was thinking the same thing about the cross-contamination between my fellow grocery shoppers in Manhattan, where aisles and checkout lines are unavoidably tighter, and people are re-touching shopping cart handles, food items, and hard surfaces, conveyor belts, digital checkout screens, etc.
A: I’m not here to challenge our government at this point, but that state-wide order was devastating. All my restaurants were told to close, and hotels now in New York City are closed too.
Q: Currently, my building in Manhattan is pretty much on lockdown… People have been instructed to remain in their apartments, except for emergencies and to retrieve their mail and deliveries of food and essentials with strict social distancing and sanitizing measures in place. No visitors, except for elderly tenant caregivers, are permitted.
You captured the attention of consumer media with your resourceful efforts on the home delivery side. How difficult has it been to shift gears and create new opportunities?
Are you able to build on your other channels? I understand 12 percent of your business came from grocery store sales leading up to the crisis. Will you be sending produce to hospitals and the make-shift hospitals at places like the Jacob Javits Center, since there is an influx of patients that will need to be fed….
A: We do have a small diversified portfolio of hospitals and nursing homes, and they need us, so that kept us slightly alive. But we had to pivot, and it wasn’t easy. We had a strong web presence from our online ordering in foodservice, and we challenged the merchandising marketing team, and asked, ‘How quickly can we turn on a home delivery business?’
You don’t just turn on a business overnight. But we challenged ourselves. We had a fleet of 400 trucks. My goal was to keep everybody working, although I couldn’t, but we really, really tried. How do we take 10,000 restaurants that closed and turn that service to the general public?
We launched Baldorfood.com. The first day we only delivered two boxes, the next day 25, then 50, then a few hundred… Now we have more than 4,000 customers signed up, and that has certainly given me an umbrella to reach. I mean, we were in bad shape, and needed revenue streams, wherever they could come from.
I didn’t want to be competing with those people that already do delivery for a living, so I wanted to complement them — The Fresh Directs of the world that don’t go out to the Hamptons, or if they’re at max capacity. Let me go out to the Hamptons in a complementary way. There’s no rule book on how you do that.
Our first goal out of the gate was opening home delivery service to New York City. We got our first two orders, and it was like Christmas watching those orders go out the door.
We’re well known in the industry. We have over 10,000 restaurants we supply. People have seen our trucks around, so when the press announced Baldor was doing home deliveries — and it’s a strain currently on everybody in home deliveries service — we became a fresh outlet. We didn’t pack it exactly in small foodservice packs. We went to smaller sizes when we could. So, we were really recommending that people share with their neighbors, maybe have three families place an order together and break it up.
Q: I understand you are expanding this service to Boston and Philadelphia.
A: The first boundary line was 50-miles outside Baldor to the Hamptons. Then we added 50 more miles. We do see a request to go into Philadelphia, so we’re probably going to open up there. We’ve had several requests out of our facility in Boston, and I just got off a leadership Skype meeting where we discussed how we can best service the Boston market. We’ll be ready to launch that. And right behind Boston, will be D.C.
We’re working through some of those intricate details of where it gets packed. We will open those markets.
Q: Are you finding opportunities at retail?
A: The second source for survival as a foodservice distributor was retail. The foodservice world is decimated. The faucet is completely shut off. All of sudden, there wasn’t a trickle. The retail world was just about printing money. How do I enter a channel where I don’t have a really strong foothold?
I reached out to some friends I have in the industry. I asked what do you need? I’m long on pineapples… can you take a load off for me? I asked what are you having challenges with? They said, I’ve got tractor trailers in the warehouse. They’re giving us limited space on Fresh, and we’re just trying to figure out this Rubik’s Cube every day. If it’s 300 or 500 SKU allocations on the truck for fresh, what are the best 500 things we can buy…?
Q: How have you helped retailers solve that Rubik’s Cube puzzle? Could you walk us through the logistics, and provide some examples, as retailers realign inventories to adapt to the rapidly changing circumstances?
A: Working with my team and their team, we came up with a list of 25-30 items. I said, why don’t you let me, Baldor, supply those to your stores, DSD (Direct Store Delivery). That way, it’s not part of your 300 SKU allocations. And you know you’re getting it every day and restocking it.
Q: What are those items on the list?
A: It’s what we call hardware — carrots, celery, potatoes, bagged red onions, bagged white onions… things of that nature that would have an extended shelf life in the fresh category and are not as perishable as a berry or a fresh-cut watermelon that only has a few days.
Q: Are you comfortable to say which retailers you’re working with on this arrangement?
A: One retail chain saved my life. Albertson’s Cos. operates stores under 20 retail banners across America. The banner we connected with is Acme. We also do some business with Whole Foods. We agreed on a plan. I could deliver every day, once a week, every other day, depending on how the stores push through the supply.
Q: Are you finding significant fluctuations in push-through?
A: The stores haven’t been consistent. They’ve seen 100 percent increase in sales, and then overnight 50 percent declines. We’re all on a rollercoaster ride. The restaurants closed, and the governor and the mayor were saying they recommend you stay home. It’s a voluntary quarantine — you’re not locked in your house, you can still go to the grocery store, and you can go to a job, but as cases of the coronavirus escalated, people were then told in no uncertain terms to stay home.
It went from eating 50 percent of meals out, to now eating 100 percent of meals in. How do we eat 100 percent of our meals in? The kids are home too, by the way. So, we just have to go to the grocery store and stock up, fill the refrigerator, the freezer and the pantry with everything we can, because we don’t know if we’re going to be allowed out. The stores got wiped out. The pipeline and infrastructure to refill those shelves was just maxed. So, we came in and helped.
But this partnership with Acme wasn’t a one-way street. It was about how can we help them, and how can they help us. It was beneficial to both parties. They had communication from the presidential level, the executive office, that their sales were the highest in the country. And they credited Baldor with having the flexibility to turn things around in a couple of hours versus weeks or months. It’s a great relationship, and it helped us reinvent ourself.
Q: I think this is notable… the idea of reinventing yourself. There are short-term and long-term consequences of crises. Do you think the actions you’ve taken now in reinventing your operations could change your business model or direction after the crisis is finally over?
A: The economy is going into a recession, some say depression, but it’s unique, because it’s due to a health crisis. We’re told to stay home, and people aren’t working. There’s a $2 trillion stimulus package, with $9 billion allotted for the food industry, not just produce. How much of this will get into the hands of the public is not clear, although I’m hopeful it will.
How do we get that funding to our restaurants, how do they pay their employees? I don’t know, but when the light switch comes on, I’m not sure if it’s floodlights or dim. There is so much uncertainty there.
We have tested more people for coronavirus than most countries now, but there are so many people who haven’t been tested. First do you have the symptoms, then you have to pass the check gate of requirements to get tested. You’ve met the criteria to pass through the gate to get the test, and still you probably don’t have it. However, the ones who do are really starting to get sick and putting a strain on the healthcare system. My wife is a nurse.
Q: Wow. I didn’t realize that. How is she holding up?
A: Now she runs the clinical side of a dozen endoscopy centers in Manhattan, but she’s talking to the nursing hospital world every day, and they are challenged with supplies. It’s a straining time for all of us.
To your question about our business in the future when restaurants come back… As long as it’s not distracting us, or creating competing factions, I think we’ll keep some of our new ventures going.
Q: Let’s talk about your role as chairman of United Fresh. Can you expand on industry partnerships that are being formed in a broader sense? For instance, the newly formed alliance between The National Grocers Association (NGA) and United Fresh jointly connecting produce distributors to retailers.
A: I do have two hats. I’m president of Baldor Specialty Foods, but I do at times have to take that hat off, as chairman of the board for United Fresh, representing all aspects of the whole industry — the grower, shipper, and trucker, and foodservice operator and retailer.
While the retail chain portion is thriving, I don’t want to take away from that group, so I have to help that group and support that group. But there’s a whole section that is just not thriving, and that’s foodservice. So, as a leader in United Fresh, we are trying to team up with various organizations that could bring solutions, that could bring a platform, that could bring a future hope.
Our goal is: How do we get out of this crisis? How do we prioritize to keep the food supply chain running? This isn’t necessarily about Baldor making money. Putting my Baldor hat back on, it’s about taking care of my employees, and how can I enlighten other companies to do that.
C&S, which is a large grocery warehouse, has become overwhelmed. It can’t get trucks out fast enough, so is teaming up with US Foods, which is typically a foodservice distributor, to help get food to the grocery store. That’s a great partnership, solving a problem, and it’s keeping people working.
Now financially, what does that picture look like, and that’s a main concern of mine.
Q: Can you elaborate?
A: Sure. On the foodservice side, foodservice distributors have a tremendous amount of money on the street, on the receivables side. Now restaurants are closed. When they reopen, what’s going to happen? I’m hoping that’s addressed in the bailout, giving those restaurateurs some relief.
On the other side of that, I have to pay my farmer in 21 days — that’s the law of PACA. If the farmer willingly extends those terms, he’s forfeiting his legal right. I just called Washington, D.C. and Albany, and said we need to find a way to modify PACA temporarily to extend terms without sacrificing their right. If I go belly up, and the only way out is a fire sale, farmers should get paid. He shouldn’t be denied that because he tried to help me live.
Q: These are very complex issues that sometimes people outside the industry don’t fully understand…
A: Not sometimes, many times.
Q: Do you have any key pieces of advice or important lessons you can pass on from your experiences?
A: Two things: keeping a diversified portfolio of customers. I was always trying to avoid having a single customer or group of customers be more than 10 percent of my business, so if that customer or group walked away from me, I’d still have 90 percent of my business. And we’ve done a very good job of balancing that in our portfolio.
Q: I don’t want you to reveal proprietary information, but can you share percentages of how your portfolio is set up?
A: I won’t get specific, but I can tell you I’m in the hotel business, I’m in corporate feeding, which is under a couple of different umbrellas like Compass Group or Foodbuy. Not much chain restaurant business, but I do supply one of the best chains out there, the Cheesecake Factory, along with a lot of white tablecloth restaurants you read about, and the hospitals and nursing homes.
Retail is still about 10-12 percent of my business and growing. But my home delivery business was starting at 0, so a lot more could become of that with restaurants closed. I have the fleet of trucks and the logistics, but what items I stock, how I pack, how quickly I turn around that product, and the way it’s delivered to the consumer has to be right. How do I diversify more in retail? What can I provide if something like this ever happened again?
Q: That takes agility…
A: I’ve demanded of us to always be nimble. When you run a business, you need a telescope and a microscope. You need a telescope to look to your future, and the horizon — where would you like to be, what does your customer base look like, what’s that product offering look like… The microscope is to look at those DPI’s (Daily Performance Indicators) to know you can pay your bills, do you have enough employees, is your labor balance correct?
If you focus on one of those two more than the other… if you only focus on your DPI and what you’re doing today and never look at where you want to go, you’ll fail. And if you only look at the telescopic dream and never understand what you’re doing today, you’ll fail. It is a combination, and balance of those two things that will help you succeed in challenging times.
Those are lessons I’ve learned through the 2008 economic recession subprime mortgage debacle, the horrors of 9/11 and Hurricane Sandy. These experiences helped me to understand, you’ve got to be nimble with the ability to turn on a dime to respond and triumph in a crisis.
There are a very few people self-confident enough to say the truth when every “expert” is saying something else. Michael Muzyk is one of those people, and here is the line from the interview:
I haven’t seen any data that’s been presented to me saying if you eat out at a restaurant, you have a bigger chance of catching coronavirus than if you go to a supermarket. It’s about social distancing. You’ve got people crowding into supermarkets… you’ve got those hand baskets everyone’s touching… I don’t know how that’s less dangerous, but by a sweep of a pen from a government official, it took 30 years of my life and what I built, and nearly shut it down in 30 hours.
Michael is absolutely right. There is no data, not even any particularly good reason, to think that one way of getting food is “safer” than another.
In fact, many of the governmental responses to the coronavirus are highly questionable. Let us take, for example, the idea that we should cancel college and university and send all these college students home to their families.
The best data we have is that young people are highly unlikely to experience symptoms from coronavirus. In our piece, Understanding Risk, we included this table:
The table indicates that with people 10 to 19 years old — which includes most college freshmen — the fatality ratio of the coronavirus is 0.0006%, and for people 20 to 29, the rest of the college student body, the fatality ratio is 0.03%.
Almost 100% of these fatalities occur in young people with serious pre-existing condition. Many would have died of another disease quite soon.
Now, the low fatality number does not mean that there is a low infection ratio. We’ve all seen crowded scenes of young people socializing, where very possibly the infection ratio is high.
It might make more sense to require students to stay on campus or to require professors over 60 or 65 to deliver their lectures remotely than it does to mix this population in with their parents and grandparents.
Again, the actual evidence that sending college students home from campus reduces fatalities teeters near zero.
But businesses are destroyed, life ambitions crushed, maybe even more people die because of the need by government and private parties to be seen to “do something.”
And here is the truth: Poverty Kills. So demanding the shut-down of the economy, the unemployment of millions, without powerful evidence that this will help, is likely to cause harm.
We thank Michael for his time at this very busy moment and wish that his company, the industry, the country and the world should come out of this wiser and safer.