Pundit Interviews

Pundit Letters





Perishable Pundit
P.O. Box 810425
Boca Raton FL 33481

Ph: 561-994-1118
Fax: 561-994-1610


email:
info@PerishablePundit.com

a

Produce Business

Deli Business

American Food & Ag Exporter

Cheese Connoisseur



Fresh & Easy Reaches Out To Shoppers
As Competitors Work To Block
Its Growth

Our piece, Pundit’s Analysis Buttressed: Tesco’s Fresh & Easy Sales Only 25% Of Plan, Says Willard Bishop Report, dealt with a report from one of the trade’s most prominent consultancies that came to this conclusion about the current state of Tesco’s Fresh & Easy operation:

Current performance doesn’t appear to meet initial sales projections of $200,000/store/week. Our very rough estimate is that a typical store is achieving about $50,000/week, or only 25% of initial projections.

Now we have received a first-person report from another prominent consultant in the trade backing up this assessment:

Last Saturday, as part of my travels, I spent about four hours visiting five Fresh & Easy stores. I was in stores between 10am and 2pm.The customer count was a high of 9 and a low of 4.

The store conditions have improved, but there are still out-of-stocks in produce, meat, meals, and the deli case.

To Tesco’s credit, its store level employees are very friendly and helpful and they say they have not experienced any labor cut backs. However, the employees did say that those who have quit have not been replaced.

Their retail merchandising execution is very consistent, and they have now started to market the store. In the last four weeks, they have produced a mailer as do the other chains in the area.

The piece is in effect for two weeks (52 items). The piece is all private label with the exception of the back page that is all branded and mostly health and beauty aids. They now have an in-store piece that has both private label and branded products at excellent price points. They now do more comparisons at the Point Of Purchase (POP) level comparing their prices with Store 1 and Store 2 where they originally did this against Vons and Ralphs.

They mailed out a four-week $5 off on a $20-or-more purchase (excluding dairy and alcohol) each week and freely hand this out at the check stands. Friends in the area received this Tuesday in the mail a piece that is titled, “Entertaining with ease”. It has 12 items on it for the Super Bowl with six private label and six branded and a $5 coupon off on a $20 purchase, excluding dairy and alcohol. All items are good prices but not great, and the chains have them beat on all of the branded items — this is the problem of being an Every Day Low Price (EDLP) company.

All five stores had consistent merchandising, pricing and the same SKUs in produce. They also all had two specials leading off the produce dry section — 10# bag russet at $1.99 and a 10# bagged navel at $3.99. This is the first time they have allowed the vendor to do the packaging and use their own brand and you could tell it was to cut cost and they were in bins.

A source at a local Fresh & Easy who I knew in a prior position told me that the Fresh & Easy store he works at is doing $50,000 per week and not growing. Bill Bishop and the team at Willard Bishop are right on it with their sales estimate.

We know that management at Tesco and at Fresh & Easy had expected to be doing $200,000 a week per store. So this shortfall is no near miss.

Not surprisingly, Tesco is starting to make changes. Beside the obvious operational improvements to reduce out-of-stocks that are necessary, the company is starting to promote more.

Yet the volume that Tesco needs seems unlikely to be in the cards for a long time. When a new store opens, sales commonly drop, not increase, by 20 or 30% within the first four weeks.

Then, they can start to grow, but rarely by leaps and bounds. If these stores have stabilized at $50,000 a week after being open a month or two, you would expect to see sales at $60,000 a week a year later, $69,000 two years later, $80,000 after three years and, say $90,000 after four years.

Now if the concept really takes off and gains wide acceptance, instead of a gain of 20% and then 15% each year, you could get a gain of, initially, 35% and then 25% after that. Still that would only mean $67,500 per week per store a year from now.

And in this particular case, Tesco is unlikely to achieve these rates of increase because the competition is not sitting back and waiting for Tesco to increase sales.

Vons/Safeway, for example, has been hitting Tesco hard. Vons and Safeway released two mailer pieces each lasting about four weeks with very strong prices on commodity-type items such as milk, Coca-Cola, eggs, etc.

Vons and Safeway are also using loyalty card data to target customers who have reduced their shopping trips to their local Safeway or Vons store by a consistent 20% weekly. They are assuming that these are “customers shared” with Fresh & Easy.

Vons and Safeway are mailing loyalty-card customers specials for produce, Safeway Select private label items, and the mailings heavily promote Safeway’s O brand organics, crusty breads and prepared foods. Safeway believes that these are the strong areas for the Fresh & Easy concept and it wants to take that advantage away from Fresh & Easy.

Though this competitive approach is one that Vons/Safeway is using in all of its stores that compete with Fresh & Easy stores in California, Arizona and Nevada, it is all just a precaution. To date, Safeway sales show no impact from the opening of the Fresh & Easy stores.

And this is just competition from existing stores. While Tesco plans a rollout in San Jose and the Bay Area, Safeway is not sitting still:

Safeway has retained Cornish & Carey Commercial real estate brokerage and is seeking at least five South Bay locations for stores about a third the size of its regular outlets, or approximately 20,000 square feet, real estate brokers say. …

At the same time, Safeway this summer opened a new Redwood City restaurant, Citrine New World Bistro, to test consumer acceptance of prepared entrees that it wants to sell, according to an interview published Oct. 15 with Safeway Chairman, President and Chief Executive Steven A. Burd.

We’ve already mentioned Wal-Mart’s plans to open an Express format store here and, when Tesco and others fight for real estate, Tesco may be in for unpleasant surprise:

Where landlords find themselves confronted with interest in a single site from more than one grocer, say a Safeway and Tesco’s, for instance, Safeway probably has an undeniable edge, adds David Taxin, a principal with South Bay retail brokerage Meacham/ Oppenheimer Inc. Safeway has long been considered a gold-plated tenant with proven ability to pay its rent and to anchor firmly, he says. That’s attractive, particularly in a marketplace that is strong today but could see softening in rents and vacancy rates if the national and regional economies continue to slow. (Safeway also owns a fair percentage of its locations.)

Tesco is relatively unknown and “untested” not only as a retailer but as the key traffic driver, Taxin says. Consequently, it might find itself a less attractive alternative for some landlords compared to other better-known brands.

“There is concern that (Tesco) may stumble,” agrees a developer who has talked to the company’s leasing agents and representatives. “These are expensive little stores they are doing. They are paying a lot in rent, and you have to do a lot greater volume per square foot to make it work. All of us are eating right now, so the only way for them to stick around is to steal market share from others.”

Safeway has a history of fighting back strong and hard when competitors attempt to take bites from its market.

On top of Safeway’s efforts and Wal-Mart’s plans, Kroger is pushing its 100,000-square-foot supercenter-like Marketplace concept, which was tested under Kroger’s Fry’s banner in Arizona.

All this means that it is going to be very, very difficult for Tesco to quadruple sales in each store.

Now, as our letter indicates, Tesco is likely to start looking for ways to reduce costs in light of the weak business the stores are doing.

Our correspondent points out that store employees are reporting that Tesco hasn’t done lay offs of store personnel, but employees who leave are not being replaced.

This is no small matter. Retail is a high turnover industry, and new hires — 100% of Tesco’s employees — are the highest turnover. Add in a completely new concept — which means many employees will leave because they don’t like the business, their schedule, their immediate boss, the store, the drive to the store, the pay, the customers, etc. — and it would not be shocking to see 60% of Tesco’s store level employees leave within the first year of operation.

Obviously, such attrition will start to have an impact on customer service, cleanliness, stressed employees won’t have such pleasant attitudes, lines at check out will form when people don’t know how to use the self-checkouts, etc.

Then our correspondent drops this shocker: “They also all had two specials leading off the produce dry section — 10# bag russet at $1.99 and a 10# bagged navel at $3.99. This is the first time they have allowed the vendor to do the packaging and use their own brand, and you could tell it was to cut cost and they were in bins.”

This observation strikes at the integrity of the whole concept. Build up a private label business? Not if you carry it on and off. Strong vendor relations? Not if they are going to be looking for the cheapest deal.

Still, we are receiving mixed reviews from vendors. Although many tell us sales are way below expectations, some have said that the $50,000 per store number is too low, based on their sales to Fresh & Easy and extrapolated to the whole store.

Well, one thing we noted on our visit to Fresh & Easy was that all the produce had expire dates. So we asked our correspondent to go back and try to get a sense of the kind of shrink the stores might be experiencing.

Here is his report:

I went into a store at 8 at night and back in at 8 in the morning to see what was taken off of the shelf. I counted the produce packages that would go out of code at 385 packages!

Of these 385 packages, only about 15 of these would be dumped in a regular supermarket. Tesco will have to address the code life they are putting on the packages and extend them.

Indeed, code dates may need to be changed. But in the meantime, this explains why some vendors think Tesco is selling at higher rates than the $50,000 per week Willard Bishop estimates. Tesco is buying at a higher rate than its volume justifies, then it is donating or dumping the product.

This means the financials on the stores are even worse than would be expected at such low sales volumes. We’ve written a great deal about Fresh & Easy, but in light of our correspondent’s report, there is little question as to why Tesco isn’t rushing to release any numbers on its Fresh & Easy adventure in America.




Bonnie Fernandez Takes Helm
Of Center For Produce Safety

We acknowledged the founding of the Center for Produce Safety with a piece entitled, Center For Produce Safety Established: An Act Of Faith In The Future, and we noted the appointment of an interim Executive Director with a piece entitled, Devon Zagary Takes Lead Role At Center For Produce Safety. Most recently we proclaimed that Tim York Will Chair Center For Produce Safety.

In the long term, The Center for Produce Safety will come to be seen as the single most important response of the industry to the Spinach Crisis, which occurred in the fall of 2006. While the establishment of the California Leafy Greens Handler Marketing Agreement was an important tactical response to an immediate problem, the long term solution to our food safety concerns must depend on increasing our understanding of the causes of food safety problems related to produce. That is, in a nutshell, the function of the Center for Produce Safety.

The Center is headquartered within the Western Institute for Food Safety and Security at UC Davis and is poised to begin a rapid expansion starting with the appointment of its first non-interim executive director:

Bonnie Fernandez Named to Lead
Produce Safety Center at UC Davis

Wheat industry executive Bonnie Fernandez has been selected as the new executive director of the Center for Produce Safety at the University of California, Davis.

Fernandez, who currently serves as the executive director of the California Wheat Commission, will assume the new position on March 1.

“Bonnie Fernandez brings to this position a wealth of knowledge and practical experience in California agriculture,” said Neal Van Alfen, dean of UC Davis’ College of Agricultural and Environmental Sciences. “She will help establish the critical partnerships that are necessary to provide a safe food supply, from the farm to the consumer’s table.”

Tim York, chair of the center’s board of advisers and president of the Salinas-based Markon Cooperative said: “We look forward to the leadership Bonnie will provide for the Center for Produce Safety as we move forward to develop workable, science-based solutions that will safeguard the food supply and strengthen California’s produce industry.”

Fernandez has served with the California Wheat Commission since 1984, including fifteen years as the commission’s executive director. She holds a master’s degree in business administration and a bachelor’s degree in agricultural business.

“I am anxious to begin working with the center’s advisory board and the produce industry, and am honored to know that I will be a part of the future success of the Center for Produce Safety,” Fernandez said.

She has served on various U.S. Department of Agriculture advisory committees, is currently a member of the Agri-Business President’s Council and chair of the U.S. Wheat Associates Food Aid Working Group. She was the first chair of U.S. Wheat Associates Phytosanitary Committee.

The Center for Produce Safety, established in April 2007, is intended to be a clearinghouse for research related to produce safety. Plant scientist Devon Zagory has served as its interim director since October.

The center also will help fund and coordinate research, training and consumer education activities, with the goal of enhancing the safety of fresh produce. Startup funding for the center has been provided by produce-industry leaders, the California Department of Food and Agriculture and the University of California.

Well they may be calling her a “wheat industry executive” in the press release but, as they say in the movies, “Toto, I’ve a feeling we’re not in Kansas anymore!”

Bonnie is one of those truly admirable people. She started at the California Wheat Commission as an Executive Assistant and, through discipline and hard work, she earned for herself a series of promotions, first to Assistant Director, then Deputy Director, finally, after a decade of diligence, she was appointed as Executive Director of the Commission, a position she has held for 15 years.

While working she had the fortitude to earn an MBA — not easy for someone in a responsible position to find the time to earn an advanced degree.

The California Wheat Commission isn’t precisely like any commission we have in the produce trade; it literally has its own laboratory. So the science side of the Center for Produce Safety will certainly be comprehensible to her. And the administrative function will be a breeze. She has some fund-raising experience, though this may be her biggest challenge. The assumption, however, is that Tim York, the Board of Directors and the produce industry at large will do a lot of the heavy lifting in this area.

We’ve had the pleasure of chatting with Bonnie and can give first-person testimony to her inquisitive mind and pleasant personality. She may not be a produce industry veteran, but she has earned respect in the worlds she has lived in and is excited to take on this new challenge. We have plenty of produce industry veterans involved with the Center for Produce Safety, and we will probably benefit from having someone who can bring new ideas and different perspectives to the industry.

It is fair to say that the consensus of the industry is that the first job of the Center for Produce Safety — the one most urgently needed and the one likely to produce the biggest bang for the buck — is to serve as an amalgamator of research already completed and research currently being conducted.

Once we have all we know about food safety in one place, we can then look for holes in that knowledge and thus define new research priorities.

Perhaps, in time, the Center for Produce Safety will do even more.

In an interview we conducted with Bruce Taylor, Founder, Chairman and CEO of Taylor Farms and, currently, Chairman of the Board of Directors of PMA, when he won our Single Step Award for Food Safety, Bruce expressed his thoughts on the future of the Center for Produce Safety:

Q: You’ve made a substantial investment into the Center for Produce Safety (CPS). Do you see this as a critical component in the industry’s food safety goals?

A: Our support of the CPS is selfishly tied to an agenda. We want to use the Center as the clearing house and promulgator of standards of GAPs and GMPs for produce internationally.

We want the CPS to understand research being conducted, cross pollinate information where appropriate and sometimes fund research that will enhance food safety for consumers of fresh produce.

We want the CPS to become a trusted resource for the press and a credible voice to the consumer.

Q: I think you underestimate your generosity in financial support for CPS. I find it interesting that the Center could be the promulgator of standards for GAPs and GMPs for produce internationally. I haven’t heard it put this way before. Do you anticipate that the Center could publish a new set of metrics?

A: Admittedly, the goals I mentioned for the CPS are my goals… not universally agreed or accepted. Taylor Farms operates 10 salad plants in the United States and one in Mexico. We grow and/or purchase leafy greens from six states and Mexico and Canada. We need a North American solution to leafy green good safety and I believe the CPS can be this vehicle.

The Center for Produce Safety was launched with multi-million dollar grants from both PMA and Taylor Farms, but achieving its goals will require broad industry support over long periods of time. The industry has chosen to entrust a very important institution to the leadership of Bonnie Fernandez. We think she is up to the challenge and we know she is raring to go.

We welcome Bonnie Fernandez to the produce industry and say God Speed as she prepares to assume this important role.




Boskovich Hires Former
Yum! Brands Exec

Well, they say that what goes around comes around. And that must be true in this case. Boskovich Farms has made an announcement:

DAVE MURPHY JOINS BOSKOVICH FARMS
AS DIRECTOR OF FOOD SAFETY
AND QUALITY SYSTEMS

Boskovich Farms, leading grower/shipper/ processor of fresh produce, is pleased to announce that Dave Murphy has joined the company as Director of Food Safety and Quality Systems. Dave’s position will coordinate the continued development of the company’s quality and food safety programs.

Dave enjoyed a successful career at Yum! Brands restaurants, developing their food safety and quality programs through partnerships with produce suppliers, and building long term relationships within the industry. He also worked with fresh-cut processor Ready Pac Produce as Vice President of Quality Assurance and most recently with Danaco Solutions, a produce procurement company, where he provided food safety support for many leading restaurant companies. Dave served as Chairman of PMA’s Food Service Board, and was a member of PMA’s Board of Directors and Executive Committee.

George Boskovich, Chief Executive Officer of Boskovich Farms, Inc., says “Dave is recognized and well respected in our industry. His background on both the supplier and customer sides makes him not only an asset to us, but to our food service and retail customers as well. Dave’s knowledge and experience will be a valuable resource for our company. His expertise offers our customers the assurance and the confidence that Boskovich Farms is committed to producing safe and healthy products.”

“The food safety and quality programs of Boskovich Farms are excellent” adds Dave Murphy. “We want to make sure we remain in the leadership position in the industry and with our customers. I think customers appreciate working with a family-owned business that is able to relate closely with them, and can make things happen without a lot of red tape”.

Dave is a veteran in the industry as the announcement explains. But he won his fame in the produce trade running the quality and food safety program for fresh produce at Yum! Brands for over a decade.

Though Murphy wasn’t working for Yum! Brands when its Taco Bell restaurants experienced an E. coli outbreak in December of 2006, it is ironic that he now works for Boskovich, the company wrongly implicated by Taco Bell as the cause of the outbreak and the company that is suing his former employer.

Not all that long ago we published Boskovich Sues Taco Bell and pointing out the following:

In the midst of the Taco Bell/E.coli 0157:H7 situation we published Taco Bell’s PR Fiasco, which pointed out that Taco Bell had unfairly released preliminary information because of its own interest in seeing the situation resolved. This is part of what we wrote:

The key to the Johnson & Johnson campaign, though, was to first clear the decks by recalling everything and then, having identified and fixed the problem, come back to market with a new triple-sealed Tylenol.

The plan is now standard and Taco Bell was in a sense trying to do the same thing: They closed implicated restaurants, threw out all the food, sanitized them and then were ready to do business again.

In this case, however, the translation from the Tylenol incident to food was difficult. The Tylenol method depends, crucially, on being able to identify and solve the problem.

So what Taco Bell executives wanted was for something… anything… to be identified as the “cause” of the problem so that the problem could be “fixed.”

To publicize two separate presumptive positives would keep doubt alive in the mind of the consumer, so the decision was made to announce the green onion presumptive positive and squash the chili pepper presumptive positive.

The truth is that most food safety experts were aghast at Taco Bell’s decision to release the presumptive results at all. One put it this way:

“Taco Bell made public the results of its presumptive E coli testing. Such tests are known to frequently result in false positives. Taco Bell consciously made this decision without regard for confirmatory testing in the works by FDA. This premature release of misleading data and subsequent premature incrimination of a particular food item, green onions, formed the basis for the Taco Bell statements about the safety of operations that I and others have pointed out.

Until the food item that served as the vehicle for E. coli is identified, Taco Bell cannot rightfully claim the outbreak is over. You know Taco Bell has some pretty sharp food safety people, I have worked with them…. I would have loved to have been a fly on the wall during the discussions leading up to the release of the presumptive positive results.”

After announcing the presumptive positive on green onions, Taco Bell removed them from their restaurants. The obvious implication: Like Tylenol’s triple-seal cap, Taco Bell wanted its customers to believe that the removal of green onions was a corrective action to the problem.

In effect, of course, this indicated that Taco Bell was willing to throw the grower of its green onions to the wind to save its own skin. This is not really surprising since Taco Bell dumped Ready Pac, its actual direct supplier, for no reason at all — just a hope that it could intimate that other people were responsible for the Taco Bell problem.

Now the LA Times is reporting that Boskovich Farms is suing Taco Bell. As Boskovich’s attorney Thomas Girardi explains:

“Taco Bell engaged in an irresponsible and intentional crusade to save its own brand at the expense of an innocent supplier.”

Which is certainly the way it seems. Taco Bell claims it was just releasing all the information it had, but it did not release the presumptive positive on chili pepper.

The most reasonable explanation, as we wrote back in December 2006, is that Taco Bell desperately wanted to get the situation behind it and, to do so, it needed a simple “cause” of the problem.

An easily expendable item — green onions — fit the bill. Boskovich paid a big price, and now Taco Bell should pay up to compensate for the harm caused by its irresponsible and self-serving actions.

Boskovich is famous for green onions, and the FDA has identified these as a higher risk item, but a food safety expert once wrote us and singled out Boskovich:

I have to take my hat off to those like George Boskovich, who hired my company years ago after they were wrongly implicated in the green onion crisis to turn his company upside down and find the problems and weak links again and again, day after day. Today, Boskovich Farms is one of the finest processors in the business because not only are they constantly challenging their systems but they also are not getting rich on it either. (By the way, they were doing a great job of food safety before the green onion crisis — another testament to their programs four years ago.)

Boskovich Farms is good, honest people doing their due diligence, as many others we service are also trying to do.

We are sure Dave Murphy will do fine. The key to being a good food safety director: A supportive management team. He has that at Boskovich and that is more than half the battle.

Best of luck to Dave in his new role.




Pundit’s Mailbag —
Rough Ride For Wal-Mart/ASDA:
Kievet Could Have Been A Big Asset

Our piece, Wal-Mart Loses Another Star: South Africa’s Danie Kievet To Leave, dealt with both the general brain drain of produce expertise from Wal-Mart and the failure of Wal-Mart’s Global Procurement effort to gain traction in South Africa because of the lack of corporate will to coordinate the ASDA business through the South African office of Wal-Mart’s Global Procurement operation.

Now a letter from South Africa echoes our concerns:

The global players never seem to see the signals, nor do they listen to the people who know the Republic of South Africa (RSA) fruit industry.

It has never worked in the past, although several have tried, for a United Kingdom Category Manager to open an office in South Africa, with foreign representatives.

I thought that Danie Kievet would be the solution to the problem, but obviously the intervention of International Produce (IP), also doing procurement, was the reason for Danie leaving the scene.

Danie understands the industry, and would, if only given a chance, have in time become a big asset to ASDA.

IP, for instance, has a few South African employees, mostly very young and sometimes very inexperienced people. They seem to change their personalities when they get involved in big corporate business. They sometimes act as procurement and selling officers at the same time!?

The success recipe is still the most direct relationship with the buyer, in this case the UK Category Manager, and long-term trust with high integrity values are the only factors for any successful business, in the long term.

ASDA, with IP as its procurement arm, does not understand, or sometimes does not see the negative signals, and until that day, it is going to be a rough ride.

— Stoney Steenkamp
Business Development Manager, Stonefruit
Fruits Unlimited
Paarl, South Africa

The problem for large companies is that leveraging that size is very difficult. In the case of Wal-Mart, ASDA is a fiefdom all to itself, but this is common in large companies.

The problem with a position such as Wayne McKnight has held is that it has enormous responsibility but no authority. If he sent a memo to ASDA and said they should buy through Global Procurement and ASDA didn’t want to, Wayne McKnight had no authority to order ASDA’s CEO to write a memo and, certainly, no authority to fire ASDA’s CEO.

Although he could send a memo to Lee Scott, Wal-Mart’s CEO in Bentonville, it seems highly unlikely that Mr. Scott will fire ASDA’s CEO on the grounds that ASDA thinks it best to buy oranges through one company rather than another.

It is also the case that big companies aren’t good at dealing with the likes of Danie. He is an entrepreneur at heart. We are sure they paid his salary even if there wasn’t much to do and, doubtless, if he complained about International Produce, they would have agreed with him and told him to wait a couple years while it was all worked out. Maybe it eventually would be worked out or maybe not.

To a man like Danie Kievet, that is all beside the point. He is not afraid to lose a salary. He has made a living his entire life and he will make one again. What he won’t do, what a man like Danie cannot do, is sit around cooling his heels waiting for someone else to, maybe, make something happen.

This is why although big companies have so many advantages, there is always a place for the little guy as well.

Many thanks to Stoney for his thoughtful letter.

Mail to a Friend

© 2017 Perishable Pundit | Subscribe | Print | Search | Archives | Feedback | Info | Sponsorship | About Jim | Request Speaking Engagement | Contact Us