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Perishable Pundit
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Produce Business

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American Food & Ag Exporter

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Costco’s 2nd Quarter Slideshow Available

Costco has posted a slideshow highlighting its 2nd Quarter Results for Fiscal Year 2007.

All the financial details and some great pictures — look at the crowds in the warehouse at Watford in the United Kingdom.

A few food numbers:

  • FY’06 Seafood Sales $485M
  • $150M sold annually consisting of 30M Chickens in the Costco rotisserie Chicken program.
  • 69M+ Hotdog & Soda combinations in FY’06 sold at the snack bar — and every hot dog is kosher!

And they’ve got a new plan to get you over to Costco, they are rolling out car washes:

Costco Car Wash #01 Seattle. Opened April 27, 2006

Watch the slideshow right here.




The First President Of Perishables

Safeway’s appointment of Des Hague to a high ranking position in the perishables arena might have passed without remark. After all he is certainly highly qualified:

He comes to Safeway from Hot Stuff Foods (formerly Orion Food Systems), an international food franchiser with more than 2,000 locations worldwide, where he spent three years as Chairman, Chief Executive Officer and President. Prior to that, he spent two years as Vice President, Fresh Food Merchandising at 7-Eleven in Dallas, where he was responsible for the chain’s foodservice program across more than 25,000 locations. Mr. Hague spent several years at Maytag’s Commercial Business Unit in Dallas as Vice President of Strategic Marketing. Before that, he held a range of marketing and management positions in the Pepsico and Whitebread organizations in the U.K. and Europe. Mr. Hague holds an MBA from the American College in London, England.

Yet his appointment brings at least two interesting points to mind:

First, Mr. Hague is, to the Pundit’s memory, the first retail executive to have a title as President of Perishables. We have a lot of vice presidents, some senior vice presidents, maybe even an executive vice president or two. But Presidents are few and far between.

It is hard to know exactly what to make of this title. We note that Mr. Hague was a President at his last position at Hot Stuff Foods, so, perhaps, and quite understandably, he didn’t want to go backwards in the title race. Still, Safeway wouldn’t make someone President of an insignificant category, so whatever the initial motivation, it is a sign of the growing importance of perishables to today’s retailers. Mr. Hague will take over the perishable arena duties of Rojon Hasker. She did perishables as a part time job (although she probably worked double time to do it) as she also ran the Lifestyle stores. Now she will focus exclusively on Lifestyle, which of course, is a concept heavily focused on perishables. Ms. Hasker, apparently, is going to be a President as well.

Des Hague’s official title is President, General Manager, Perishables and Rojon Hasker’s title is President, General Manager, Lifestyle.

The second interesting thing about Des Hague’s appointment is how thick management seems to be getting at many top retailers. As best we can discern, here is how it will work for Safeway:

Ron Anderson, Vice President of Produce reports directly to Steve Neibergall

Steve Neibergall, Senior Vice President of Produce and Floral, reports directly to Des Hague

Des Hague, as President and General Manager of Perishables, reports directly to Brian Cornell

Brian Cornell, Executive Vice President, Chief Marketing Officer reports to Steven Burd

Steven A Burd, Chairman and CEO

The Pundit asked his old friend Bob Backovich about it and when he was VP of Produce at Safeway he reported to the senior vice president in charge of all marketing and merchandising who reported to the CEO.

But Safeway isn’t alone in adding positions. When Bruce Peterson started at Wal-Mart the structure looked like this:

Produce Director answered to

Executive Vice President of Supercenters

who answered to CEO.

Now, it looks like this:

VP/DMM Produce /Floral answers to

SR VP/GMM — Fresh Merchandising

who answers to EVP/Grocery,

who answers to Chief Merchandising Officer,

who answers to President of Wal-Mart Stores,

who answers to CEO/Vice Chairman of US Operations,

who answers to President/CEO of Wal-Mart Inc.

Now, of course, Wal-Mart has grown substantially in this period, as has Safeway, so there is doubtless a lot to do.

Yet, there is a danger in every layer because it means important decisions are made further and further away from the business and those decisions start being influenced by extraneous issues that are only marginally related to selling more produce more profitably.

Still, we wish both Des Hague and Rojon Hasker good fortune in their new positions and we hope that Des Hague’s Presidency symbolizes a recognition by top retail executives of the enormous, differentiating, value-adding, importance of perishables.




What Is Wal-Mart’s Role In the New
NRA Food Safety Standards?

Our series drawing attention to the danger looming for the produce industry if someone doesn’t grab the reins of the National Restaurant Association continued yesterday with our piece Calling All Produce Executives Who Work Heavily With Foodservice in which we implored produce executives who work for companies that are members of NRA or have influence with members to please pick up the phone and try and head off this potential problem for the industry.

As we’ve explained, an elite group known as The Food Safety Leadership Council has been drafting new food safety requirements for fresh produce. These standards are being kept secret and are not being shared with the various produce associations. The plan is for NRA to adopt these standards as its own and then unveil them at a conference NRA is hosting in Monterey at the end of March.

The plan could blow up in everyone’s face.

There are three problems;

First, the new FSLC and NRA standards do not seem motivated by any scientific evidence or judgment. They seem motivated by a desire to be “tough” — yet this is no standard at all because someone else can always be tougher.

Second, FSLC and NRA are unwilling to sit down and talk about their concerns. The produce industry has been sharing its information with NRA all along and is open to meeting and reviewing, on a point by point basis, any concerns the FSLC and NRA actually have.

Third, whatever the standards should be if you want to impact growing standards, you need to do it on a schedule which allows time for growers to plant to the new standard. A last day in March unveiling of new standards, guarantees that whatever NRA says is simply irrelevant for this season.

The irrelevancy is key.

It means that first, the simple announcement of new standards will wind up crushing demand when the consumer media hears that the produce industry standards are now “too low” compared to what the NRA says is necessary.

Second, the NRA membership will now have a liability problem created by its own association as restaurants, unable to buy product meeting the NRA standards, instead sell normal product. Now, if someone gets sick, the restaurant will be prima facie guilty as it knowingly sold product that its own association, the NRA, had said was unsafe.

The whole thing makes so little sense one doesn’t know what to do.

Even internally to individual companies the whole thing doesn’t make sense.

For example, Wal-Mart, a founding member of The Food Safety Leadership Council has traditionally held to the position that it is the responsibility of the FDA to establish and enforce food safety standards on produce. Wal-Mart stopped selling spinach because the FDA said it was not safe and Wal-Mart started selling it again when the FDA said it was OK to do so.

This philosophy is why Wal-Mart was so conspicuous by its absence from the Buyer-led Food Safety Initiative. In other words Wal-Mart didn’t believe private groups should set standards and bail the FDA out of its responsibility.

Yet now this group is all hot to impose private standards — and Wal-Mart is a founder. Is it possible that this is the first big industry event where the trade will lose out because we don’t have the benefit of Bruce Peterson’s influence at Wal-Mart?




Traceability Calls For
Enhanced Communications Language

We’ve been focusing on issues related to traceability, not least in a two-column series written by Gary Fleming, Vice President, Industry Technology and Standards, Produce Marketing Association. These pieces, Guest Pundit — Traceability And The Need For A Common Language plus Guest Pundit — Pairing The Global Language With Technology, were part of our effort to find ways to enhance traceback.

Another take on the issue was sent to us by PMA. It seems that PMA is a member of something known as the Perishable Foods Coalition, and this group is working together to combat inefficiencies in the supply chain. Of course, these same efforts have a profound impact on our traceability efforts. Here is what PMA said:

Perishable Foods Coalition Recommends
Solution to Industry Inefficiencies

A coalition of fresh food associations has announced its creation of “Industry Roadmap: Building the Fresh Foods Supply Chain of the Future,” a white paper that suggests a solution to the industry’s current inability to identify, mark, manage, and track fresh food products across the food supply chain and at point-of-sale.

The coalition includes the American Lamb Board, the Food Marketing Institute, the International Dairy-Deli-Bakery Association, the National Turkey Federation, the National Cattlemen’s Beef Association on behalf of The Beef Checkoff, the National Chicken Council, the National Fisheries Institute, the National Pork Board, and the Produce Marketing Association, with support from GS1 US.

The proposed solution to meeting emerging fresh foods supplier and retailer needs calls for using one global communications language for the entire supply chain — from suppliers to retailers to consumers — utilizing existing GS1 standards and technologies including the Global Trade Identification Number (GTIN) and GS1 DataBar (formerly known as Reduced Symbology System or RSS).

Adopting this plan will require each participant in the fresh food supply chain that produces a product or adds value to an existing product to evaluate and potentially upgrade their systems in order to effectively utilize the GS1 product identification standards and technologies. It is expected that, while relatively expensive, adopting this proposal across the entire fresh foods industry will yield significant benefits including increased information capture, faster POS throughput, effective category management, effective traceability, fresher product, and shrink reduction.

The Universal Product Code (UPC) random weight number system currently used is not sufficient to accommodate the information needed at the point-of-sale register. The coalition believes a single, integrated solution that accommodates fixed-measure and variable-measure for packaged and fresh foods can be applied across the food industry.

Basically the coalition is saying that UPC codes are too limited for what we need to accomplish and that we have to move to what we used to call RSS or Reduced Symbology System but has now been renamed GS1 Databar — which can hold more information.

It is all a fine idea. The question is whether buyers will see sufficient profit in it to demand use of this technology from suppliers. If buyers don’t demand it, it seems unlikely suppliers will invest the money needed to make it happen.

PMA has made available a free copy of “Industry Roadmap: Building the Fresh Foods Supply Chain of the Future,” and you can find it, along with other technical documents, right here or by contacting any of the participating associations.




Pundit’s Mailbag —
Another Victim Of Spinach Crisis

We are a small regional Savoy spinach packer in Norfolk, Virginia. We sell to retail under the Krisp-Pak Brand and under various private labels. We also sell to wholesalers. We were hit hard by California growers and packers not standing up and accepting their responsibility the first day they heard E.coli 0157:H7 was on a bag of Spinach. Instead they just waited for the FDA on a Thursday afternoon to advise consumers to not eat ANY spinach.

My sales are 50% of what they were prior to September 14th, because the people who had the problem, “Brand X” would not take their spinach off the market and do a press release.

The point I would like to make:

FDA learns what to do about labeling, washing and distribution from the manufacturers, they take our lead. The FDA’s creditability is only as good as its source.

The FDA’s job would be much easer if manufacturers would do their job with integrity to protect the consumers at any cost.

The label on the bag “wash before using” is a non-issue.

FDA telling consumers not to wash a ready-to-eat product is a non-issue.

I suppose the only answer is to tell the consumer not to eat anything — then the FDA is protected, and the spinach packer is protected.

The answer is the packer must take responsibly to recall the first time they hear anything.

— Paul V.Battaglia
President
Krisp-Pak Co., Inc

Many thanks to Paul for his letter. We need to point out a couple of things: First, that this company has no connection to the Krisp-Pak that is located on the Hunts Point market in New York. Second, that we edited Paul’s letter because he made an accusation about a specific company that we know to be incorrect. So we replaced the use of a specific brand name with Brand X.

Yet Paul is a correct that it is reasonable to say the spinach crisis ensued — if you define the crisis as the FDA’s decision to advise against consumption of spinach — because the FDA was miffed that certain processors refused to issue a voluntary recall.

We covered this issue way back before this past Thanksgiving when we ran Spinach Farmers Won’t Be Thanking Certain Processors This Holiday. In that piece this is what we said:

Probably the best single guide to the FDA’s thinking about the spinach crisis is the testimony of Robert E. Brackett, Director, Center for Food Safety and Applied Nutrition, Food and Drug Administration, before the Committee on Health, Education, Labor and Pensions, United States Senate.

It contains a fascinating revelation:

“…FDA’s San Francisco District Office and California Department of Health Services’ Food and Drug Branch hosted a conference call with three spinach-processing firms to advise them of the outbreak and to suggest that they consider the possible need to recall spinach products.”

Note that the conference call was with THREE spinach-processing firms. We know that Natural Selection Foods was on the conference call and immediately began the voluntary recall of its products.

This paragraph indicates that there were two other processors on the line. We know that they did not announce a recall. It is quite possible that it was the decision of these two firms not to voluntarily recall that led the FDA to issue its blanket advisory.

In other words, the flowery language we have heard about everyone stepping up to the plate was not true. The FDA asked three processors to do a voluntary recall. Two processors declined to act — and, in that decision lay the proximate cause of the advisory to consumers not to eat spinach.

Read the entire testimony here.

Now we know that Natural Selection Foods was on the call and that they did institute a recall. We know that Dole supported Natural Selection Foods in this effort and that Dole product was, in fact, quickly recalled. Although Dole was on the call, it was as part of the Natural Selection Foods team and not one of three processors — since it did not process spinach.

It is reasonable to say had the other two processors simply said “Ok, we are going to recall,” the FDA might have been satisfied and no advisory would have ever been issued.

So, in a sense, the industry can condemn these two “holdouts” for not falling on their swords, doing what the FDA wanted and thus precipitating a crisis. Yet, we now know that the FDA was wrong to ask these two other companies to recall, as they were blameless.

So it seems the real anger should be directed toward a CDC and FDA procedure that is so weak that it can ask totally innocent companies to spend millions and millions of dollars.

Basically, if you are a prominent name with a large market share or have a recognizable character associated with a specific product on your bag, consumers are more likely to mention your brand in connection with a CDC study of victims. This is because of hazy memories and general association with a product. Yet it is CDC’s responsibility to test this “familiarity effect” so that it can adjust survey results to account for it.

We do, of course, regret that Krisp-Pak’s business is down so much. But if food safety is to blame, it may be that Krisp-Pak got hurt especially badly because it happened to have a couple of problems of its own at a time when everyone was focused on food safety.

On both November 1, 2006 and, again, on November 28 2006, the FDA posted recall notices from Krisp-Pak related to fear of Listeria monocytogenes on Krisp-Pak’s fresh-cut fruit line.

Although many are struggling with food safety and fresh-cut fruit, the timing of these recalls was an especially bad break for Krisp-Pak.

One thing that is certainly true, however, is that processors, and others, need to do their jobs with integrity.

One terrible effect of the FDA’s action in the spinach crisis in that if people believe that everyone will be treated the same in a food safety crisis, it blurs the incentive to invest to become a food safety leader. That may wind up being a tragic result of the spinach crisis.

Best wishes to Paul for the speedy recovery of his business and many thanks for sharing his point of view.

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