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Preview Of Foundational Excellence Program: Cornell’s Ed McLaughlin Leads Blockbuster Academic Cast To Elevate Knowledge Base Of New Produce Industry Professionals

The New York Produce Show and Conference provides an incredibly intense 24-hour commercial opportunity for those in the produce trade. Starting Tuesday night, December 1, the event kicks off with an Opening Cocktail Reception, which is an incredibly great opportunity for networking. 

Then, on Wednesday, December 2, we begin with the Perishable Pundit’s “Thought Leaders” Panel at the Opening Keynote Breakfast, and we quickly move into the trade show, with chef demos, student programs, media programs, educational micro-sessions and more. That is 24 hours in which one can learn an incredible amount, meet new and long-time business associations and do business.

The event, though, is much more than 24 hours. There are a variety of co-located conferences that extend the range of The New York Produce Show and Conference. The day before the trade show is the Global Trade Symposium, and the day following the trade show features a range of regional tours and the “Ideation Fresh” Foodservice Forum.

This year, there is a new event held on the Monday before the show (November 30) that extends the event further:

 

We announced the event here. It is a unique program, specifically designed to fill a gap where there were simply no training resources for associates with less than five years’ experience in the produce trade.

Since the launch of The New York Produce Show and Conference, we have engaged with Cornell University and, especially, its Food industry Management Program, to serve a dual purpose. We wanted to help Cornell pursue its land grant mission to disseminate knowledge by giving it a forum in which it could present the results of its research to the trade, while also allowing the trade to be informed with the most cutting edge information.

Here are some of the Cornell moderated presentations given at previous New York events:

A New Hypothesis On Local: To Boost Sales, Sell It Through Supermarkets … Cornell’s Miguel Gómez Previews His Upcoming Talk At The New York Produce Show And Conference

Cornell’s Brad Rickard To Unveil Generic Produce Promotion Research Done By Cornell And Arizona State University At New York Produce Show And Conference

Cornell Professors To Present At The New York Produce Show And Conference: New Ways of Thinking About Local: Can The East Coast Develop A Broccoli Industry?

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 Professor Miguel Gómez To Speak At New York Produce Show And Conference On Fruit & Vegetable Dispute Resolution Corporation

A Cornell Study On New York Wines Raises A Fresh Question: What Do We Mean When We Ask About Local?

Professor Miguel Gómez Returns To The New York Produce Show And Conference To Unveil A New Study That Points Out A Path For Getting More Produce Into Hospitals 

Cornell’s Brad Rickard Returns To The New York Produce Show And Conference: Will ‘GMO Free’ Be The New Organic?

We also opened the event to students from Cornell, giving them an opportunity to engage with the produce industry… up close and personal.

Ed McLaughlin is the dean of those academics engaged with the produce industry. Our first formal engagement with him was when we wrote a column in Pundit sister publication, PRODUCE BUSINESS, attacking some research on the grounds that it didn’t account for the influence of bribery and corruption in the trade. You can see the piece here.

The retail board of PMA liked the column enough to suggest that Ed and this incipient Pundit do a debate at the annual PMA Convention. Ed believed in his research and enjoyed the intellectual engagement; we did a joint presentation and have been doing many a project since.

So we thought it a great honor that Ed was willing to work with us in this program and to bring his whole team into engagement with the program.

We asked Pundit Investigator and Special Projects Editor Mira Slott to speak to Professor McLaughlin to get a sneak preview of his presentation and the larger program:

Ed McLaughlin
Robert G. Tobin Professor of Marketing
Director of the Charles H. Dyson School
of Applied Economics and Management’s Undergraduate Program
Director of the Food Industry Management Program
Cornell University
Ithaca, New York

Q: Could you give us more insight into the landmark Foundational Excellence Program making its debut at this year’s New York Produce Show? You and Jim Prevor brain-trusted this unique concept, in which you’ve brought together a team of Cornell superstars: Rod Hawkes, Brad Rickard, Kristen Park, Miguel Gomez and Bill Drake. And, of course, we are honored you will be giving a presentation as well. How unique is the program, what is its scope and value, who should sign up for it, and what will they gain?

A: I’ve got half my staff coming down to do this Foundational Excellence Program, so I can talk a little bit about each person’s segment in the agenda. Then I can talk about my component of the program, The Retailer-Supplier Relationship, which is primarily based on the latest iteration of research Cornell has been doing over a period of 35 years on produce procurement.

I emphasize that this is not an academic study; this is for industry information, facilitating workshops and seminars, and industry dialogue, but the nature of the methodology and the purposive sampling, really prohibits academic unbiased statistical research. I only point that out because this is not a peer-reviewed journal article but material to inform industry decisions.

How buyers interact with suppliers will form the basis of my part of the Foundational Excellence program. I’ll present lots of data, charts and figures derived from the report, in an easy format for everyone to follow. So, that will form my component, but let’s first talk about the overall program.

There will be five of my colleagues in the Food Industry Management Program at Cornell, and all will play a roll. Between you and me, it’s simply over the top! We wouldn’t normally see six top people from my staff plus Jim Prevor, plus a panel of industry participants, for a one-day program. However, it is a star-studded program, full of people who know a lot about the food and produce industry, so it is a rare opportunity for intense learning.

Q: That’s an understatement!

A: The program will start off with one of our faculty members Rod Hawkes, Senior Extension Associate.

Q: Rod Hawkes did an intense presentation at our London Produce Show.

A: Jim Prevor kept Rod on his toes with that presentation, so he’s still smarting from that! Rod will start off by talking about the consumer perspectives in fresh fruits and vegetables. We like to tell our students studying the market to start with consumers. There are a lot of consumer opinions about health and nutrition, awareness of good eating; the difference it makes in your lifestyle; concerns about organic, local, Fair Trade, genetically modified organisms (GMOs) and all the rest. And produce professionals need to understand those issues because that’s what they’re being asked to respond to. That will be the first segment.

The second segment is also going to be presented by an individual you know, Brad Rickard, Associate Professor.

Q: Brad Rickard has participated in our New York Produce Show since its launch, and he also presented in London this year, drawing standing-room-only crowds for his hot topic sessions.

A: Brad is going to talk about other concerns in the produce system, like consumer attitudes toward GMOs, food waste and produce waste. He’ll talk about the effects of Five A Day-type generic advertising programs, how certain public policies can affect the price and availability of specific products, how various public policies can impact pricing and availability of products, and I think that will be very useful for new entrants into the produce system.

It’s an extension of the first presentation, which looks at things from the consumer’s perspective, because Brad is going to talk about consumer perceptions of GMOs, and he’s quite an expert on that topic, as you know.

Then my colleague Kristen Park, Extension Associate, will talk about the U.S. food system and produce’s central role in that system; what functions supply chain practitioners perform up and down the vertical system, growers, processers, wholesalers, retailers, and so on.

And then Miguel Gomez, Associate Professor, a person you know well…

Q: He’s revealed in-depth research on a wide range of topics at both the New York and London shows, not to mention he’s a sweetheart, another person so willing to give of his time to help the industry advance.

A: That’s right, and he really is a sweetheart. He’s going to talk about the global reach of the produce industry. Basically that means the effects imports are having, as well as opportunities for U.S. producers to avail themselves of exports. As you probably know, over the past 20 years or so, imports of fresh produce have grown by about four-fold, and exports have more than doubled. Over 50 percent of the fresh fruit we consume is imported, and Miguel is going to give some very important insights into the international trade of produce.

We will then have a working lunch with a panel of industry executives and practitioners facilitated by Jim Prevor, and that will be very interactive and animated.

Q: I can definitely confirm that. What’s next on the agenda?

A: After lunch, another Cornell faculty member, who I don’t think you’ve met yet, is Bill Drake, Senior Extension Associate. His presentation is Career Development: Key Success Factors in the Produce Industry. He’ll talk about some of the principle models of leadership and how leadership is not something you inherit or are born with intrinsically, but is something that can be learned, and skills measured, developed and improved.

Then I’m on deck to talk about the retailer/supplier relationship. I will draw heavily from two things: the fairly significant corpus of procurement research we’ve collected from Cornell for 35 years, and particularly the latest findings, the produce procurement study we completed earlier this year in 2015.

Q: Could you give us a preview of key issues you will be discussing?

A: Let me step back a bit to what the study did. We talked to 145 produce buyers; 34 of those were retail produce buyers, the rest were produce wholesalers, people on the terminal market or distributors, those who sell produce to the retail market. They are all produce buyers. This is a wholesale/retail produce study. We didn’t include foodservice operators in this study, though some of the buyers at the wholesale and distribution level do sell into the foodservice market.

Those buyers came from all 50 states, some of the largest companies and also some of the smallest companies that buy produce in the U.S. So we got a very representative sample that accounted for an enormous amount of buying of all produce procured in the U.S.

Q: What were you looking to discover?

A: I would say this… the produce industry’s change requires greater examination in respect to at least two issues. One is that produce over the past 20 years has occupied a larger and larger percent of retail sales. From 1995 to 2013, produce has gone from 10.3 percent of retail sales to 11.6 percent of sales, according to a Progressive Grocer study. So these are not our numbers, but what, in part, motivated our study.

Q: Why? And what were your other motivations?

A: It’s the only department of the retail store that’s grown that much, and at the same time, it has replaced things from grocery, and consumers have shifted shopping patterns to fresh and particularly to produce.

Another thing that’s changed, which also triggered our study, is that retailing and produce retailing, specifically, have become much more competitive in recent years. There’s been continued consolidation of retailers. In the past couple years, we’ve seen companies like Bi-Lo merge with Winn Dixie, Albertson’s combination with Safeway, and Delhaize and Ahold will merge, if it’s approved by the FTC, which it’s likely to be. All this results in a concentration of retailers — where there used to be three buyers, now there are only two.

Yet despite this consolidation, gross margins of produce, according to Progressive Grocer, declined from 36 percent to 33 percent, or by 220 basis points over the past 10 years.

In net margins, they declined even more, from 21.9 percent to 17.4 percent, or by 470 basis points in that timeframe. Those are fairly substantial declines. What that means is retailers are not able to pass on price increases to consumers the way they once could have, because we are actually seeing increasing competition, despite consolidation.

Q: On one hand you’re saying there’s consolidation and on the other you’re saying there’s increased competition. Are you talking about competition traditional supermarkets are facing from other channels?

A: The retailers are competing with each other fiercely, and they’re not able to raise prices because their competitors are not raising prices. Those competitors can be traditional supermarkets or other types of retail operations — supercenters, warehouse club stores, small store discounters, online delivery services, etc.

The consolidation, though, has its impact on their interaction with their suppliers. There are fewer buyers, and suppliers have fewer buyers to sell to, so there has been a shift in the power and control in favor of the retail sector. There are 20,000 commercial vegetable growers in the U.S. and only something like 100 major supermarket produce buyers.

Q: What about all the other places you can buy produce now? How is that dynamic influencing your analysis? Isn’t that phenomenon important to consider?

A: It is, and I’ll be discussing that during the presentation. The numbers I just quoted for gross margin are for supermarket retailers, so that does not include other places where you’re starting to see produce, like convenience stores or dollar stores.

If you take a look at the produce department at retail level over the past 15 years or so, we considered two primary job positions in the produce department at headquarters, not the store level; category managers and produce buyers.  If you add those two job titles together, you get the total number of produce professionals in the produce department, and those numbers for large retailers (we define over $2 billion or more in sales) have gone from 26.6 in 1999 (category managers plus produce buyers) in the average produce department for the large retailer, to today, where we now have 23.4. So it’s down about 10 percent.

At the same time, couple that trend of fewer buyers with this next trend, more and more products. In 1994, there were 370 SKUs in supermarket produce departments. Today, according to Nielsen Perishables Group and Cornell research, that number has climbed to 753. What we see, then, is fewer buyers and category managers per firm and twice as many products, so each buyer is responsible for way more products than they were a decade or two ago, but there are still only 24 hours in a day.

Q: Besides the additional workload, is consolidation leading to buyers who are less familiar with the produce industry?

A: Buyers now in a retail organization are rotating assignments among many more areas of the store than in the past. Last year, I may have been buying lawn mowers; now I’m buying tomatoes. The problem for the suppliers is they have to continually educate probably a very smart professional, who understands analytical measures, but maybe doesn’t understand the highly perishable, fast moving industry of produce because of lack of experience in produce. This is pretty much the same problem for both produce buyers and category managers.

Now, one implication is huge pressure for efficiency. Let me give you one analytical indicator of that. The order transmission in 1997 — how the produce order was transmitted from the retailer to the grower shipper — was made by phone or fax 75 percent of the time. Today, 79 percent of the time the order is transmitted electronically. The telephone use fell from 75 percent to 20 percent. Of course, that reflects better technology, but it also reflects, more importantly, the need buyers have to be superefficient.

On the one hand, that’s a positive change because we’ve introduced increased efficiency into the system. On the other hand, information quality that used to be transmitted by phone may be lost today with the rapidly changing quality and conditions at the grower-shipper level. What information might be lost because it can’t be communicated very well electronically?

Q: You would have the same issue with a fax transmission; in fact, it probably would be less nuanced than what you could do by email, or other sophisticated electronic systems, for example.

A: That’s true. Many retailers will be quick to point out, and I want to be quick to point out, that just because orders are transmitted electronically doesn’t mean the buyer and supplier don’t have phone conversations. Of course they do. But they don’t have the number and the quality they once had.

Let me elaborate on two of the things. One is the criteria buyers use to evaluate suppliers. Here’s what the buyers told us: The most important criteria were the quality and freshness of their department — inventory turns, the shrink level, and delivering on budget, that is to say, hitting the sales and gross margin targets.

When probed how do you measure quality and freshness, they told us some fairly unprecise measurements. A lot had to do with retail executives’ observations in the stores; it may be at the receiving docks, when the product comes into the retail distribution center, shopper feedback on quality and freshness.

The next question: What attributes do buyers look for from suppliers? There are three key things, in this order:

First, they want suppliers who are willing to form a true partnership and alignment with the retail customer’s goals. That means… you have the product when I need it, and you find me the product when the market is short. I don’t want to hear you don’t have the product.

Second is innovation. Buyers want suppliers to come to them with new ideas, and that means varieties with taste and flavor, as well as processing, packaging and branding options. Different produce items, especially during certain times of the year, don’t taste good or good enough. The retail industry is finally starting to say — and this not a new idea, you’ve heard it for decades – that there is a willingness to pay more if the flavor delivers.

Third is communication. Retail buyers want to know when conditions are changing, when the quality is going to be different, how the season is progressing, is it early or late, when shorts are coming so they can prepare, and they want information from suppliers on effective merchandising programs , which the supplier has engaged in in different places.

Incidentally, going back to our methodology, we interviewed buyers all across the country. The 34 retailers we talked to were via personal conversations using phone surveys, while the other 111 interviews involved quantitative surveys.

So we used two different interview techniques and we asked buyers on what criteria are you evaluated by your superiors.

What I didn’t mention in my review of what buyers desire is price, quality, food safety, traceability or integrity.

Q: Is that just because it’s assumed or a given to do business?

A: That’s exactly right. No one says, “Oh, I look for a company that has integrity’ — because those are the stakes to be at the table, and it’s the same for food quality and safety. Once the supplier is certified to be a safe supplier, then you can start the conversation. Those are the table stakes to get you in the door to get you in the poker game. But those don’t make a difference on a weekly basis because integrity doesn’t change week to week.

There was one other key item – call it the fourth attribute buyers are focused on when evaluating suppliers – and it is one that might surprise some people as a key criterion in assessing produce vendors, and that is transportation. A lot of retail buyers told us on average transportation accounts for 25 percent to 30 percent of the total produce cost. And that doesn’t count the transport from the retail distribution center to the store. That’s just on-the-road, long distance transport.

Why is that? Three reasons. One I mentioned earlier. Twenty percent of all vegetables and 50 percent of all fruit we consume in the U.S. is now imported. It costs a lot of money to get that produce here from Chile, Australia and South Africa. Second, we now have 52-week demand for most produce items. It wasn’t too many years ago where the local blueberry crop, strawberry crop or peach crop was over and then you didn’t have them for another 6 to 8 months. Well now you can have items like that 365 days a year because they come from all over the world.

And finally, transportation cost has gone up because of the scarcity of reliable trucks and drivers.

This is an amazing statistic: despite all the new forms of transportation, the truck as a form of total shipments has grown over the past 30 years. In 1982, 87 percent of all produce shipments were carried by refrigerated trailer. In 1992, that went from 87 percent to 91 percent. Today it’s 94 percent.

So if you look at all these other modes of transportation, rail and air shipments and others, they only account for 5 percent of the total.

Q: Why is that?

A: Despite fuel costs going up dramatically over that 30-year period, the truck offers so much more flexibility; it’s usage has actually grown despite there existing what could arguably be more efficient modes of transport.

Q: But those high fuel costs reversed course. Haven’t oil prices dropped significantly in recent times?

A: The most recent data we have is from USDA Agricultural Marketing Service 2013. But in 2014, the price of petroleum plummeted. Last summer, June of 2014, a barrel of oil was $106. Today it’s $46. All this growth in truck transportation took place with high prices of oil. When the next data comes out, I think it’s fair to say, with oil dropping more than 50 percent, it is a plausible guess that truck transportation will increase even more.

Q: Even when so much produce is imported?

A: The produce still has to be trucked once it gets here. The produce arrives into Philadelphia or Los Angeles on a ship, but it still needs to be transported from Los Angeles to Denver in a truck. And the biggest exporter of produce to the U.S. is Mexico, and all that product comes by truck.

Q: Of course, with the huge spike in the number of produce SKUs lining produce departments, the need to navigate reliable trucks and drivers to transport them would be magnified…

A: A real supplier eye-opener is this idea that the number of SKUs of produce has doubled in 20 years, but the number of buyers has declined. So the buyer is now figuring out how to handle twice as many commodities. And the poor supplier is being asked to provide more information, more innovation and more high quality, but is being relegated to electronic communication too often, and there’s a bottleneck where the supplier can’t really get access to the gatekeepers of these produce shelves.

Q: And making matters more challenging, you point out that a lot of these buyers are not savvy in produce…

A: Part of that is related to a question you asked earlier… some of these buyers come from new channels. Now there are produce buyers at Dollar General and Aldi, which didn’t even have produce a decade and a half ago, and a lot of dollar stores still don’t. There are all these people buying party goods and canned foods, and, oh by the way, some produce. They are not the seasoned produce buyer the produce industry got to deal with a generation ago.

Q: How does this connect back to the broader implications of the Foundational Excellence program?

A: The Foundation Excellence program is intended to appeal to a new entrant to the industry. Cornell has had a long history of research in the produce industry. We’re a public university, so we partner democratically. We partner with research and executive education with United, PMA and virtually every other food organization. We work with FMI, NGA, NACS… So this is a program and opportunity where there wasn’t currently an offering; for new people to the industry, who in one single day want to get jumpstarted in how the industry operates and what some key and exciting issues are.

Q: Is there a way for program participants to follow up with you and your colleagues on issues after the day concludes? As they absorb this plethora of information, how can they maximize their learning and continue to build on it?

A: It’s safe to say, you can’t learn everything in the industry in one day. We recognize that, but we will provide the participants with information on how they can follow up to learn more about some of these things once they go back to the job site and have more questions and encounter new issues.

And, of course, Jim Prevor, PRODUCE BUSINESS magazine, the online PerishablePundit.com and PerishableNews.com, they are a big part of this program with many resources that can be accessed year round. In fact, the registration includes free subscriptions. In addition, the registration for the program includes an ALL ACCESS PASS to The New York Produce Show and Conference, including the Global Trade Symposium, the Ideation Fresh Foodservice Forum, educational micro sessions and regional tours.

So there is a lot of learning that can be done after the one-day program.

Q: Who should be signing up for this one-day event?

A: New junior staff from any produce company, buyer or seller, distributor or wholesaler; someone a company wants to jumpstart into a more productive career. We’re going to provide them the context of the industry, operating practices, standard procurement practices, some of the issues they need to be familiar with to operate effectively in this unique, fast-paced and exciting industry.

We hadn’t expected it originally, but we also have begun to see registrations from some more senior people – but people who are new to the produce industry. For example, a senior marketing person who has only worked in Consumer Packaged Goods (CPG) but has just joined a produce firm.

Q: What would you say are key misperceptions about the industry or things that might surprise participants?

A: This is not a new idea, but if you’re new to the industry, it’s hard to imagine how important perishability is. That’s one of the reasons why the rotation of buyers in the supermarket can be problematic. Every company is getting more analytical refinement today, and that’s required, but you can’t manage the ripening melon in Central America and weather-impacted tree fruit from South America, and an elaborate berry program based on some algorithm.  

Yet some buyers are attempting to do that. And unless you’re familiar with how rapidly produce quality changes because of weather conditions or pests or perishability, you don’t realize how fast the industry moves, not just compared to other industries, but to most other departments in the supermarket.

It’s also an industry characterized, as you know, by a great deal of fragmentation. There are many big retail companies and a few big supply companies, but the supply companies have nowhere near the scale their retailers do. Many of the finest suppliers we have in the U.S. are small- to medium-size family companies. They’re innovative; they’re high quality; but you can’t supply 1,000 stores based on a small- or medium-size family farm. You’ve got trouble because of a lot more variables, changing supply conditions, changing geographies, and changing small and medium size groups.

Q: Industry executives often say it’s hard to convince young people to come into the industry, when there are all these other options pulling them away… it takes a serious commitment and passion to join the produce industry. Can you speak to that?

A: I agree whole heartedly, it requires a lot of hours, whether you’re on the buying or selling side. But you know, I work with university students every day, and they’re not afraid of hard work. What they’re looking for is an industry that has a challenge, movement, is a gratifying experience, is exciting, and fast paced and dynamic, and the produce industry has all those things.

Now there are things students are not very excited about. You might have to get up at 3 o’clock in the morning. Saturdays probably aren’t your own to go to local football games, at least not every Saturday. There are always challenges whether you’re a retailer, grower or shipper or wholesaler. But salaries have become more competitive with other sectors of the economy in recent years.

A lot of our students report to us they love the culture and the humanity. Compared to other sectors, even at the supermarket, just contrasted to the dry grocery business, there’s a much greater degree of informality and congeniality between buyers and sellers than there is in the grocery industry, which tends to be a little bit more formal and more rigid than the produce industry.

There’s very little arrogance in produce, and no one is wearing fancy suits and power shoes everywhere they go, because it’s an industry that’s not concerned with what might be regarded as the accoutrements of other industries. There are many characteristics that can attract students into the produce industry.

It is also true that many wash out in the first few years. For some, it probably was just never meant to be, but it is also true that very few produce companies have the kind of training infrastructure that can quickly bring new hires to a point where they are working to their potential. With this program, we hope to fill that gap. This way, employees are happier because they more quickly do more important and productive work and employers are happy because their new hires can start contributing more, sooner.

Happy and productive employees, contributing to profitable and growing companies – that is a win for the industry, and we are proud to play a role in moving the industry in this direction.

***

The program will be terrific. If you would like to attend or if you think you would like to send one of your employees please contact us here so we can make sure the program is the right one for you or your associates.

You can register to attend The New York Produce Show and Conference right here.

Hotel reservations can be made here

And travel discounts are available right here.

We look forward to seeing you in New York!

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