It may seem like the tail that wags the dog, but sometimes the key evidence showing high standards being upheld is that some won’t make the cut. The California Leafy Green Products Handler Marketing Agreement has reported two decertification actions:
The following handlers are signatories to the California Leafy Green Products Handler Marketing Agreement who are currently decertified or who will not be certified:
- Farside Farms, Coalinga — decertified February 18, 2008 — March 3, 2008
- Fresh N’ Healthy, Hollister — decertified February 18, 2008 — March 3, 2008
It has also reported four members pending certification, including two who are ineligible for certification until April 1, 2008:
The following handlers are signatories to the California Leafy Green Products Handler Marketing Agreement for whom certification is pending:
The willingness to decertify or not grant certification is essential to the overall credibility of the program. Another mark of credibility is the willingness to submit oneself to regularly reviewing the status of the program and of releasing those reports.
We’ve had the opportunity to review the LGMA Status Report covering July — December 2007. It is hard to overstate what a superb job the staff and board members have done in compiling and releasing this report. They have set a new standard of competency and transparency for the food industry.
Here is the way the board announced the release of this first status report:
CALIFORNIA LEAFY GREEN MARKETING
AGREEMENT RELEASES FIRST REPORT
ON PROGRAM AUDITS AND ACTIONS
Only seven months since government inspectors began conducting mandatory food safety audits for members of the California Leafy Greens Handler Marketing Agreement (LGMA), the organization today issued its first Status Report. The report details all audit findings from July through December 2007 as well as other actions undertaken since this unique and unprecedented food safety program was established.
“This report underscores the huge strides made by California’s leafy greens industry in the last year,” said LGMA CEO Scott Horsfall. “The most important news, of course, is that there were no reported food borne illnesses associated with California leafy greens in 2007.”
The LGMA was formed in the spring of 2007 in response to a food borne illness outbreak in September 2006. Operating with oversight from the California Department of Food and Agriculture, the LGMA is a mechanism for verifying through mandatory government audits that farmers follow accepted food safety practices for lettuce, spinach and other leafy greens.
“The California Leafy Greens Marketing Agreement is an appropriate response to reduce food safety outbreaks associated with leafy greens,” said Dr. Trevor Suslow, extension specialist with the University of California, Davis who was part of a scientific panel which has reviewed the LGMA Status Report. “The LGMA clearly has the right elements in place with a structure which includes a government auditing program, a body to act on infractions and a system of consequences which have financial implications for those found to be out of compliance.”
The Status Report released by the LGMA provides summary information from these mandatory audits and as well as other food safety activities which have taken place since the LGMA’s creation. Among the report’s highlights:
- 368 audits of leafy greens farms by trained and certified government inspectors were conducted from July 23, 2007 to December 31, 2007.
- The audit includes five specific areas of inspection with several “checkpoints” that inspectors must review for compliance. There are a total of 184 checkpoints which government inspectors must verify during an audit. The audits determined that the overall compliance with the LGMA food safety practices is really quite high with LGMA member companies being in compliance with 99.3 percent of the checkpoints audited.
- Those audits resulted in 457 citations for non-conformities. None involved shipping unsafe product. Many of these citations involved incorrect or incomplete record-keeping or minor infractions that could be fixed on site in the presence of government inspectors.
- Members of the LGMA have significantly enhanced internal food safety systems involved in the production of leafy greens and food safety expenditures by LGMA member companies have increased by 201 percent since September 2006.
Included in the report is also an explanation of the LGMA structure and procedures, details about the mandatory government audit program, the audit results and a survey of food safety practices initiated by LGMA members in the past year. An analysis by the panel of food safety scientists who reviewed the LGMA Status Report is also provided.
The LGMA is at the forefront in developing and implementing a comprehensive and effective food safety program, which can be a model for the entire produce industry,” said Tim York, president of Markon Cooperative and co-lead of the Buyer-Led Initiative on Food Safety. “As a buyer of leafy greens, I applaud this organization for moving so quickly to shore-up confidence for both the produce buying trade and consumers.”
“The goal of LGMA members is to protect public health and ensure our consumers enjoy a safe and healthy product,” said Joe Pezzini, chairman of the LGMA Board of Directors. “With the creation of the LGMA we can say that, now more than ever, the California leafy greens industry is producing a safe, delicious and nutritious product that consumers can buy with confidence.”
Scott Horsfall, Chief Executive Officer of the California Leafy Greens Products Handler Marketing Agreement, highlights many of the achievements of the marketing Agreement during its start-up phase:
Report from CEO Scott Horsfall
The LGMA is made up of companies (usually referred to as handlers) that ship and sell lettuce, spinach and other leafy greens products. These companies provide leafy greens products — both raw and processed — to the world’s grocery stores, restaurants and institutions. Working with hundreds of farmers, the 116 signatory member companies of the LGMA ship and sell over 99% of the California leafy greens products that ultimately reach consumers.
The LGMA, operating with oversight from the California Department of Food and Agriculture (CDFA), is a mechanism for verifying that farmers follow food safety practices for lettuce, spinach and other leafy greens. Farmers, shippers and processors have demonstrated their willingness to follow a set of food safety practices by voluntarily signing onto the LGMA. Once a company joins the LGMA, it becomes mandatory for that member company to sell and ship product only from farmers who comply with the LGMA accepted food safety practices.
This report covers the LGMA’s activities for the months of July through December 2007. During this period of time, the LGMA:
- Secured the participation and signature of 116 California companies
- Reviewed and accepted Good Agricultural Practices
- Reviewed and accepted mandatory audit protocols for government inspectors
- Conducted educational seminars for farmers, shippers and processors
- Launched the mandatory audit program of its members
- Released the Service Mark, which buyers use to identify which companies are members of the LGMA
- Reviewed 368 government compliance audits
- Conducted a survey of its members to determine their level of commitment to food safety practices
This report underscores the huge strides made by California’s leafy greens industry in the last year. By putting in place an unprecedented program based on mandatory government audits, the industry continues to make food safety a number one priority.
— Scott Horsfall
Chief Executive Officer
California Leafy Green Products Handler Marketing Agreement
Launching this type of effort, under the pressure of a fast approaching season start, is no small thing. Commendations are due to all involved.
Yet this report is exemplary in ways not fully emphasized in the press release. Long after the specifics of how many people were audited and how many passed and failed have been forgotten, the report will be held up as an example for these reasons:
1) The report publicly details the focus of the audits:
LGMA audits are designed to determine whether or not a member company is in compliance with the food safety practices accepted by the LGMA board. The industry’s goal is to protect public health by minimizing potential sources of contamination into the fields and farms producing leafy greens. Member companies are audited on a regular and random basis at least four times per year.
The California Department of Food and Agriculture (CDFA) employs certified inspectors to conduct LGMA audits. These inspectors operate with oversight from CDFA, but are certified and trained by the United States Department of Agriculture (USDA) under the auspices of the National Good Agricultural Practices Program standards. The National Good Agricultural Practices Program was jointly developed by the USDA and the Federal Food and Drug Administration (FDA).
LGMA inspectors also receive special training regarding the LGMA food safety practices. Members of the LGMA have agreed to tax themselves to collectively pay for the expense of these mandatory government audits.
Each audit is done using a comprehensive, detailed audit checklist, a 23-page inspection document that ties closely to the food safety practices accepted by the LGMA board. The audit covers five main areas:
General Requirements — Member companies are required to have a complete food safety compliance plan, an up-to-date list of growers, and a written traceback program.
Environmental Assessments — Pre-season and pre-harvest assessments are required to make sure conditions that can affect food safety, such as animal intrusions, flooding, proximity to animal feeding operations, etc. are not present, or have been properly mitigated.
Water Use — Extensive testing and record keeping for all sources of water used in the production of leafy greens is required by the program.
Soil Amendments — Extensive testing, certification and record keeping for soil amendments, including compost and fertilizers, are required by the program.
Worker Practices and Field Observations — Field audits verify that farmers are in compliance with the program’s requirements in the areas of worker practices and field sanitation.
2) The report publicly details the kind of questions auditors are asking:
The audit includes the five specific areas of inspection with several “checkpoints” that inspectors must review for compliance. The following is an example of actual questions found on the audit checklist:
Is a written Leafy Greens Compliance Plan, which specifically addresses the best practices of the LGMA, available for review?
Does it specifically address the following subjects consistent with the LGMA:
- Soil Amendments
- Environmental Factors
- Work Practices
- Field Sanitation
These questions verify six distinct audit checkpoints. Each individual audit verifies 184 total checkpoints for full compliance.
The implementation of the LGMA has created a system in which government inspectors verify compliance with accepted food safety practices. If an LGMA member company is found to be out of compliance in any of these areas, that company is issued a citation.
Each citation is recorded at one of four levels, ranging from a Minor Infraction to a Flagrant Violation. The LGMA Compliance Audit Process provides opportunities for member companies to take corrective action on citations that do not pose an immediate threat to food safety and public health.
Flagrant Violations, which could result in a potentially unsafe product reaching the marketplace, result in decertification from the program and discontinued use of the LGMA Service Mark.
The LGMA Service Mark is carried on sales documents, such as bills of lading and shipping manifests, so it is easily recognizable to buyers of leafy green products. Produce buyers help enforce the Service Mark when they only buy from LGMA member companies. For example, Canada and Mexico require that all leafy green products imported from the State of California are from certified member companies of the LGMA. All LGMA member companies in good standing are listed on the LGMA website.
3) The report publicly presents the actual audit results:
The LGMA launched its audit program on July 23, 2007. From that point until December 31, 2007, CDFA inspectors conducted 368 audits. All audit results were reviewed by the LGMA. Audit results showed that 58% of all farms inspected had either no citations or Minor Infractions that were corrected on site while inspectors were present. Forty-two percent of farms inspected required corrective action.
Another way of looking at the audit results is to examine compliance with all checkpoints reviewed by the government inspectors. The table below shows there were 67,712 total audit checkpoints examined during the 368 individual audits conducted in 2007. When looking at total checkpoints examined during these audits, LGMA members were in compliance with 99.32 percent. This means that, while 42 percent of operations audited were found to have citations requiring corrective action, over 99 percent of the total audit checkpoints were found in compliance with the LGMA food safety practices.
LGMA Audit Results
& Field Observations
4) The report publicly details the actual audit citations:
During the 368 audits conducted in 2007 by government inspectors, a total of 457 citations were issued. Most of these were Minor Infractions or Minor Deviations with corrective action taken either immediately or within a few days of the citation being issued.
Below is a table which outlines the 457 citations issued during the July through December inspection period. The table also details the penalties for citations and the corrective actions taken under the LGMA system.
LGMA Audit Citations July — December 2007
|Type||#||%||Description||Penalties||Corrective Actions Taken|
|Flagrant Violation||3||0.7%||A violation where the preponderance of evidence shows that the member company knew, or should have known exercising reasonable diligence, that the practice did not conform to the measurable practices established in the LGMA, and the violation significantly increased the risk of delivering unsafe product into commerce.||Penalties can range from temporary to permanent decertification. Any action resulting in decertification will be publicized on the LGMA website.||The LGMA decertified two companies who were found to have Flagrant Violations through the Compliance Audit Process. One company never received certification and was declared ineligible to apply for re-|
certification until April 2008.
Decertified member names were posted on the LGMA website so as to be easily identified by buyers of leafy green products.
|Major Deviation||39||8.5%||A violation of the LGMA practices that may inhibit the maintenance of food safety, but does not necessarily result in unsafe product.||A third Major Deviation within a 12-month period will result in elevation of the deviation to a Flagrant Violation.||Those cited were required to submit a Corrective Action Plan to the LGMA staff within 5 business days of notification. They were then subject to an on-site inspection within 3 business days.|
All completed corrective action as required.
|Minor Deviation||241||52.7%||A deviation of the LGMA practices which can be addressed within (5) days of the inspection, and the deviation did not necessarily increase the risk of a food borne illness.||Upon multiple violations of the same type within a 12-month period, the violation may move up to a Major Deviation.||Those cited were required to submit a Corrective Action Plan to the LGMA staff within 5 business days of notification.|
All completed corrective action as required.
|Minor Infraction||174||38.1%||An infraction from the LGMA practices which does not necessarily increase risk of a food borne illness, and the infraction can be corrected before the inspector leaves the premise.||Multiple Minor Infractions will lead to a Minor Deviation.||Those cited were able to perform Corrective Action on-site for the inspectors|
Specifics on Major Deviations
Of the 39 Major Deviations assessed in 2007, 31 were due to incorrect or incomplete record keeping. For example, the company was missing records of water testing or the written food safety compliance plan was incomplete.
Of the remaining eight Major Deviations, three resulted from the presence of animals near irrigation sources. The other Major Deviations were as follows: one case of inadequate testing of water used to reduce dust on roadways adjacent to the field; one case of toilet facilities located too far away from work crews; one case of inadequate worker training programs, one case of materials not being properly covered in the field overnight; and, one instance of harvest equipment leaking oil. All companies corrected the problem and are now in compliance with the LGMA.
Specifics on Flagrant Violations
There were three compliance actions taken in the 2007 audit period. One Flagrant Violation was assessed when a company, after repeated minor citations, refused to submit to the required mandatory government audit. The company was decertified from the LGMA for a two-week period and was not eligible for recertification until a successful compliance audit was completed. The company has completed all required corrective actions to become recertified. The second action was taken when one operator failed to correct a series of citations.
This company had never qualified for LGMA certification due to its inability to pass a government audit. The company was declared ineligible for LGMA certification until April 2008. The third case involved a company that failed to take corrective actions to meet all record keeping requirements. After repeated failure to provide the required paperwork, the company was decertified for a two-week period and will not be recertified until the corrective action is completed.
When decertified, a company cannot use the LGMA Service Mark. Buyers of leafy greens products for grocery stores and restaurants help enforce the mark by only buying from LGMA member companies. In addition, decertification results in the loss of markets in both Canada and Mexico which require that all imported product come from LGMA certified member companies. Decertified company names and actions are posted on the LGMA website so they can easily be identified by produce buyers.
5) The LGMA conducted a survey of its membership. In a model of transparency …
A) It was done by a third party
B) LGMA revealed who did the survey, and
C) LGMA posted the complete survey report on its web site, and you can read it here.
LGMA included an overview of findings in its status report:
Member Survey Results
In November 2007, the LGMA conducted a survey of its members to quantify the improvements industry has made in food safety since September 2006.
The survey was conducted and analyzed by Dr. Dennis H. Tootelian of Tootelian & Associates, a Sacramento-based marketing and management consulting firm. Dr. Tootelian is a Professor of Marketing and Director of the Center for Small Business in the College of Business Administration at California State University, Sacramento who has studied and written extensively about all facets of business management and practices.
Below are some highlights of Dr. Tootelian’s findings:
Overview of Key Findings
According to Dr. Tootelian, it is apparent that many changes have occurred in LGMA member companies when comparing pre-September 2006 to the current period. Findings showed LGMA member companies already had a substantial investment in food safety prior to September 2006. On average, LGMA members had at least one staff member dedicated to food safety and a total average dollar investment in food safety related activities of $210,000. On average, companies were conducting approximately 10 water tests per month.
Subsequent to September 2006, LGMA members greatly enhanced their activities. According to study findings, on average LGMA members who responded to the survey more than doubled the number of staff members dedicated to food safety. The average annual financial investment in overall food safety increased from $210,000 to over $604,000 and the number of water tests conducted increased five-fold from 10.68 to 52.23 times per month.
Industry Improvements in Food Safety*
|Before 09/2006||After 09/2006||Increase|
|Number of dedicated|
food safety staff
|Annual investment in|
|Number of water tests|
*Based on projections from survey responses
A 13-question survey was developed and mailed to all 118 LGMA signatory members in November 2007. A total of 49 responses were received, a 41.5% response rate which is considered high for mail surveys.
The survey results were analyzed by Dr. Tootelian. Projections for the entire industry were made using a weighted average based on product volume represented by the survey respondents.
Overall Spending on Food Safety Efforts. The survey of industry members documents the already significant investment in food safety in the leafy greens industry. On average, prior to September 2006, survey respondents were each spending an average of $210,000 annually on food safety programs and activities, with total investment projected at $24 million for all companies.
Since the 2006 outbreak, however, these industry members have tripled spending. Based on survey findings, industry members are spending on average $604,000 annually on food safety activities. The projected annual investment for all LGMA members is $71 million — up 201% percent from the amount being spent prior to September 2006.
Increased Staffing. Staffing specifically dedicated to food safety has also increased significantly. Prior to September 2006, those industry members who responded to the survey employed an average of just over one employee per company with specific responsibility for food safety. Since then, that number has risen to 2.26 persons per company.
Water Testing. Mandatory standards of the LGMA require members to test all sources of water used in the production of leafy greens for safety.
Accordingly, while more than three in four LGMA members indicated they conducted monthly water tests before September 2006, all report doing so now. Prior to September 2006, the approximate average number of water tests was 10.68 per month, compared to 52.23 per month now. Therefore, it appears that the number of water tests conducted by LGMA members may have increased about five-fold since September 2006, at a projected monthly cost of $3,657 per member company.
Impact on Acreage. Many of the requirements of the LGMA program can have an impact on growing and cultural practices — and in some cases, result in the reduction of available acreage to grow leafy greens. For example, the industry food safety practices impose specific buffer zones between leafy greens fields and neighboring operations that could present a risk (such as cattle feeding operations). Other program elements require farmers to conduct pre-harvest assessments and, should signs of animal intrusion be found, to take actions which could include not harvesting the affected fields.
Survey results indicate two in three of the survey respondents had lost at least one acre of production. About half of the respondents said they had lost up to 50 acres since September 2006. However, the vast majority — nine in ten — said the acreage lost amounted to 5 percent or less of their total acreage indicating there is an impact, but it may not be considered excessive.
It is important to note that significant improvements in food safety systems for individual leafy greens industry members are the result of LGMA mandatory standards. The survey findings are a clear sign of the commitment California leafy greens members have and are continuing to make to protect public health. As more information is learned through experience and research, we can expect leafy greens industry members to respond with changes in their practices and the LGMA will continue to monitor these changes and any impacts.
6) The LGMA’s conclusions are stated succinctly:
Status Report Conclusion
It is our hope that this report clearly illustrates the great strides which have been made in the area of food safety since implementation of the LGMA in March 2007. The LGMA Board of Directors has worked diligently in the last several months to implement this important food safety program and move it forward. With over 99% of the volume of California leafy greens now subject to mandatory audits, the completion of 368 audits by trained and certified government inspectors, the issuance of over 400 citations with corrective actions taken and verified and the completion of the first-ever food safety survey by the leafy greens industry, the Board looks forward to continually reviewing, refining and improving its food safety programs in order to advance the public health goals of LGMA member companies.
Through the creation of the LGMA, now more than ever, farmers, shippers and processors can state with assurance that the California leafy greens industry is producing a safe, delicious and nutritious product that consumers can buy with confidence.
7) Most striking and commendable of all, the LGMA arranged for a review from scientists of the report. It made public the names of who did the review, their assessment of the program and suggestions for improvements:
Third Party Review and Analysis
The purpose of the LGMA status report is to communicate actions and accomplishments of this program as well as demonstrate transparency by providing details of audit citations and overall results. As part of this effort, LGMA sought advice and counsel from a panel of scientists with expertise in food safety and food science. Also included on the panel is the public member of the LGMA Board of Directors whose role is to ensure consumer interests are represented through the program.
Assessment of Program
In addition to reviewing the report for content and clarity, the scientific panel was asked to provide their view of what the LGMA has accomplished to date and to offer some insight into how the program could be improved in the future.
In general, the panel agreed the accomplishments of the LGMA are significant and that the program is clearly moving in the right direction. The following are some of their specific comments:
- The LGMA program is an appropriate response to reduce outbreaks.
- The right elements are in place with: a government auditing program; a body to act on citations; and consequences for non-compliance.
- The actions of the LGMA have resulted in establishing a baseline for future food safety programs.
- It is appropriate that LGMA recognizes the human toll of food borne illness outbreaks and understands this is the reason for taking action to improve industry food safety practices.
- A key component of the program is the follow-up audits for those who are found out of compliance for any citation, even minor ones.
- LGMA’s survey of industry practices should be applauded and will be important in measuring the impact of these food safety practices on small farms and/or the environment.
Areas for Improvement
In looking to future improvements or actions which may strengthen the LGMA program, the panel agreed that long-term success of the program will ultimately be judged by reduction of food borne illnesses associated with leafy greens. However, it was noted that setting some short-term measurable goals would be an appropriate indication of the program’s success.
Some of the panel members noted that, in terms of compliance with total audit checkpoints, there was still room for improvement and encouraged LGMA members to strive for an even higher level of compliance. Panel members also suggested the LGMA look for better ways to communicate with buyers and consumers about leafy greens food safety practices and what they mean. The panel encouraged the LGMA to continue to expand membership with a goal of representing 100 percent of the volume of leafy greens produced in the state.
One panel member stated that food safety is a continuum and emphasized the importance of a system that is truly “farm-to-fork” where all parties involved can take steps to ensure food safety. It was acknowledged that food safety does start on the farm. And, finally, while it was acknowledged the LGMA does not determine standards or conduct research, the panel stressed the need for continuous improvement and leadership in the practical integration of science into every day business operations. Toward that end, the panel urged the LGMA to encourage and support future food safety research whenever possible.
The LGMA and its member companies thank this panel for their valuable time and assistance in painstakingly reviewing the report and providing their input on how best to communicate the information in a thorough, yet concise format. We appreciate the panel’s positive comments, as well as their input regarding future improvements. The LGMA recognizes and values the tremendous expertise of these panel members and welcomes their involvement in the industry’s efforts to continually improve its food safety programs.
That the report is filled with interesting information is without doubt:
- A tripling of industry expenditure on food safety.
- More than doubling staff dedicated to food safety
- An almost 400% increase in water testing each month
- Only 0.7% of all violations — 3 violations numerically — were believed to be the kinds of violations that could result in delivering unsafe product into commerce.
- Perhaps 5% of acreage lost to food safety restrictions.
Yet what really makes this an example for use throughout the world is its thoroughness and transparency. It is the kind of report only issued by an organization composed of individuals who are earnestly engaged in trying to do the right thing.
This report should be circulated to every corner of the globe because, from the garlic growers of China to the berry growers of Guatemala, it really sets a standard for the kind of behavior that will really make a difference.
Everyone involved should be very proud of what they have wrought, and I list below the staff and board members as a mark of commendation. The industry owes these people a great deal.
There is, however, one tiny problem that we need to know the answer to, because it threatens all the good work of all these good people:
Who is buying the product of the firms that are not certified?
There was a battle to get buyers to agree to restrict their supply chains to LGMA product. With over 99% of the supply certified, though, there is no issue of paying over market to get certified product. The certified product is the market.
Some of the non-certified California product may be sold at farmer’s markets, local restaurants and other local venues. This poses some question about whether consumers shouldn’t be informed about the safety status of this product.
But the commercial industry is not off the hook. Some of the names not certified sell through commercial channels. Which retailers, which wholesalers, which foodservice distributors, which restaurant chains, are not demanding certified product?
Right now the industry is focused, but in order to sustain this kind of effort at compliance rates near 100%, anyone who is not certified or who loses certification needs to be severely punished by the marketplace.
We need to be hearing stories of vendors crying with unsold inventory because they lost their certification — and their product is unsaleable or saleable only at the deepest of deep discounts to unsavory players.
That is tomorrow’s challenge. But for today, the industry deserves to celebrate. On behalf of the industry our gratitude to those who have made this report possible:
BOARD AND STAFF
Advisory Board Member
Mitch Ardantz — BoniPak
Jan Berk — San Miguel Produce
Larry Cox — Sunridge Farms, Inc.
John D’Arrigo — D’Arrigo Bros. of California
Dave Eldredge — NewStar Fresh Foods
Alec Leach — Taylor Farms
Barbara Matthews — Public Member
Tom Nunes — The Nunes Company
Joe Pezzini, Chair — Ocean Mist Farms
Eric Schwartz, Vice Chair — Dole Fresh Vegetables, Inc.
Jamie Strachan, Treasurer — Growers Express LLC
Ryan Talley — Talley Farms
Jack Vessey — Vessey and Company
Eric Wexler — Tanimura and Antle
Advisory Board Alternates
Phil Adrian — Coastline / Sunridge Farms
Mike Antle — Tanimura and Antle
Bardin Bengard — Bengard Ranch, Inc.
Joe Canciamilla — Public Alternate Member
Steve Church — Church Bros. Produce
Andrew Cumming — Metz Fresh
John Jackson — Beachside Produce
Lorri Koster — Mann Packing
Ron Ratto — Ratto Bros., Inc.
Tom Russell — Pacific International Marketing
Charles Sweat — Natural Selection Foods
Victor Tognazzini — Gold Coast Packing, Inc.
Scott Horsfall — Chief Executive Officer
Jonathan Field — Compliance Officer
April Ward — Communications Coordinator
You can read the press release here, the status report here and the member research report here.
There is a lot of experimentation going on as part of Tesco’s Fresh & Easy effort in America. The goal is to combat shrink being caused by its practice of putting expire dates on fresh foods, including produce. Hopefully, the company will do it in such a way as to encourage business.
We ran a piece entitled, Tesco Tries ‘Automatic Markdown System’, which detailed Tesco’s efforts to reduce price at set times on product due to come off the shelf.
The piece brought some additional feedback on experimentation from a guy in the foodservice business:
My wife and I just returned from a Fresh & Easy store and found a modification on their Automatic Markdown System that you detailed in the Perishable Pundit.
We decided to try their after-4:00 pm mark-down that you referred to just for fun.
Entering the store, we were bombarded with thousands of discounted Valentine’s flowers at what we could tell from the hand written Sharpie marked-down sign were half off roses. “We already did that holiday last week,” my wife commented. “Let’s see if they have those little peppers on sale.”
Looking around the store, there were items marked down at 25% off date coded for the next day. There were some meat and poultry items at 50% off date coded for today.
I was a bit perplexed; I approached a “green” lady with the little hand-held printer and PDA, as she was knocking down the $$$$$ on some slices of cake and cookies.
“Could you explain what you are doing?”
“Oh yes, we changed our policy on discounting items in all our stores just last week. NOW, we take off 25% on all items in specific areas of the store if they are old on tomorrow’s date. Today, at about 3:00 pm, we started slashing prices 50% if they get old on today’s date.”
“What do you mean we have changed?”
“I just told you we change the prices at around 3:00.”
“Actually, I meant, what policy have you changed?”
“Oh yes, we found people waiting for 10:00 am or 4:00 pm with shopping carts loaded with today’s old food, wanting us to mark them down before they went through the check-out. We just had to change the policy.
“If someone puts an item in their cart at one price, we just can’t change it then for them. They had to pay full price; so we changed. People were getting mad…”
In the “Pundit” piece, you said:
The whole idea smacks of desperation… Plus Tesco doesn’t seem to be cognizant of what effect it will have on its shopper mix… many a middle class shopper won’t want to be in the store when the hordes descend looking for about-to-expire bread at a discount. In fact, middle class shoppers may not want to be associated with such a store at all.
OK, you were correct; but I think changing the policy in mid-breath could become even worse. These neighborhood markets Fresh & Easy are operating include PEOPLE/customers who get a drift of something they like.
They have been enticed by the press, courted with coupons in their mail, and welcomed with green smiles in the stores. NOW what actually has Fresh & Easy changed; simply attracting and maintaining regular customers?
We appreciate the letter, and it points to many of the difficulties that one has when one tries to change a concept on the fly.
It doesn’t shock us that consumers would hoard items waiting for a markdown. We remember running a produce store in Puerto Rico 25 years ago and, not knowing about food safety then, we used to take damaged melons, cut away the bad part and offer a discount table where we had half melons overwrapped on trays.
It was a marginal business as we gave good prices, and the cutting and wrapping was labor-intensive. It was a little better than throwing the melons away.
In any case one day, one of our regular customers came up to the Pundit and pointed out that her cantaloupe had a hole in it. She knew about our discount program, and she offered to save us the trouble and labor and materials of cutting and wrapping and offered to buy the melon in exchange for a discount. We agreed, figuring we would have a happy customer and could save a little money. Soon we started getting similar requests from other customers, which we also agreed to.
Then one day, we were watching the shoppers from an upstairs window that looked down on the store from an office we had. We noted customer after customer making a hole in the cantaloupe so they could then ask for a discount. Thus ended our discount program.
Yet our correspondent is correct — changing things is hard. Shoppers who were used to getting bargains at 4:00 pm will be disappointed if they discontinue the program. This is one reason retailers usually build one or two prototypes of new concepts so they can work out these kinks before they roll out.
In our piece, Pundit Analysis Buttressed: Tesco’s Fresh & Easy Sales Only 25% Of Plan, Says Willard Bishop Report, we highlighted a Willard Bishop report entitled Phoenix: The New Battleground for Express Format Food Stores. Although the reports estimate that Fresh & Easy stores were selling around $50,000 a week, in some ways the more dangerous assessment for Tesco was this line:
“… (Tesco/Fresh & Easy) developed a very aggressive expansion plan and as a result must help shoppers appreciate their stores because they don’t have the time or flexibility to modify operations and retain efficiency.”
In other words, for all the talk of modification of Tesco’s plans as it learns from experience, to some extent Fresh & Easy is a train speeding on a track, and changing course is not an easy option.
Our writer asks perhaps the key question: “…what actually has Fresh & Easy changed; simply attracting and maintaining regular customers?”
So far our feedback is that people are shopping Fresh & Easy more like a convenience store than a supermarket. This is one of the major reasons sales are so poor.
It is not obvious that American consumers feel Fresh & Easy has changed anything; that is the root of Tesco’s problem in America.
Many thanks to our correspondent for relaying his experience at Fresh & Easy.
Our piece, Just Say No: The New Dynamic Of Produce/Buyer Relations, brought several letters, including this one from one of the trade’s most esteemed executives, a man with an unusual perspective having had high level roles on both the buy and sell side of the industry:
Your “Just Say No” article is absolutely on the mark!
During my years at SUPERVALU and AWG, I spent many days training young buyers that their key responsibility was securing the “best” source for products rather than the apparently cheapest source. As you well know, it is critical to have consistent supply, superior quality, product safety, innovative items, and numerous other attributes — none of which happen fortuitously (they almost always cost more).
The second leap of faith in this training exercise was to develop their understanding that these premier suppliers deserved adequate return on investment and thus should receive a “fair premium” over general market pricing.
Finally to really make their heads spin, I always told them that a reasonable pricing premium returned dividends at retail because better stuff just simply sells better: more eye appealing, better eating quality/customer satisfaction, less shrink & labor, usually better margin, better repeat sales with positive customer referrals, etc. No one makes money until the product goes through the cash register, so I wanted items to fly off the shelves (and the financial advantages of rapid inventory turns are often overlooked).
At Kerry’s Nursery, I had the luxury of being the largest producer of a limited availability and highly desirable product (orchids). Unfortunately I had to make a few of those decisions to politely say no to some really big buyers, and I was able to concentrate supplies to customers who shared my philosophy.
This built a very co-dependent attitude to grow business profitably for both vendor and retailer. The primary potential danger to the vendor is over-concentration with too few customers if the world should happen to change. But there should be little tolerance for dictatorial buyers at the top of the supply chain.
While at SUPERVALU, I was a strong advocate of dropping even the largest of accounts when it was clear that their business could never be profitable. A wholesaler must provide tremendous infrastructure to supply a large customer — warehouse space, trucks, special products, human resources, etc. — and must earn a reasonable return on that investment.
Sometimes in business, you learn that the best thing to do is pass on unprofitable business. Let your largest competitor get it and they just may wind up sinking with it.
If you are a public company and give up a big account, in the short term stock market analysts who don’t really understand your business may crucify your company for losing so much business. There is often little understanding that economies of scale only work up to a point of diminishing returns. It is one thing to take on some lower margin business to increase utilization of existing facilities, but building facilities and planting acreage to accommodate low margin business can be a path to disaster.
In most cases, even to keep a big client’s business when it was functioning at a break-even was unfair to other customers that compete with that big client. Why would you help an unprofitable or break-even client drive your profitable clients out of business or even just reduce their volume?
It is good to see that some of the better suppliers can discretely differentiate, and I continue to enjoy your great articles.
(Pundit Note: Ted Campbell has served the industry in numerous capacities, including as Chairman of the Board of Directors of the Produce Marketing Association and as President of the Produce for Better Health Foundation.. He has held many positions in the industry, including Corporate Director of Produce for Supervalu and Vice President of Sales and Marketing for Kerry’s Bromeliad Nursery. He currently works on a consulting basis.)
We appreciate Ted’s kind words about the Pundit and, even more, his attitude toward procurement. For so many reasons, though, that attitude seems to be falling out of favor among buyers.
For one thing, it presupposes a long term interest in supplier viability and, increasingly, it seems as if only the current quarter matters.
Second, you also seem to have many buyers that aren’t really part of the produce industry. They don’t know much about it; they may be a whiz at a spreadsheet, but they really don’t have a good sense of how procurement, merchandising and marketing intersect in produce. They think they are buying Pampers, and Ted’s point that better product sells better and thus is worth paying more for is outside of their understanding.
Third, we are caught in between worlds. At one point our data collection was very poor and, as a result, the only alternative was to hire knowledgeable people and have them make trained decisions. So although Ted, when he was running produce at Supervalu, may not have had good data to prove that a particular melon supplier produced product that sold better, pleased customers more, had lower shrink, etc., he still knew that to be true and knew his job was to act on that knowledge.
Now, particularly in consumer packaged goods, there is much data, and expectations at retail have changed. Acting based on hunches or experience is not as acceptable.
Yet the truth is that, even today, relatively few produce operations have the ability to say with any degree of certainty whether that trailer of bell peppers received from vendor A resulted in lower shrink, higher customer satisfaction or greater sales velocity than the trailer they received from vendor B.
One day we may have such excellent sales data and be able to cross-hatch it with consumer research that we may be able to operate the department by spreadsheet.
The problem is at the current level of ignorance, trying to operate the produce department as if it were dry grocery results in many missed opportunities and a disheartened supply base.
In fact, the price-driven approach leads to a race to the bottom where everyone — vendor, retailer and consumer — all lose.
Of course, the piece we ran was not about bemoaning the state of retail today. It was about producers refusing to “buy business” by selling at unprofitable prices.
Market share is overrated as a metric, profitable market share is a more important point of comparison.
We thank Ted for sharing his broad perspective with our readers.