The Association of Health Care Journalists recently held a conference and the agenda was extensive. Of particular interest to the food industry was a seminar held on March 16, 2013:
Why is food still making us sick in the 21st century?
• Will Daniels, senior vice president, operations and organic integrity, Earthbound Farm
• Bill D. Marler, managing partner, Marler Clark
• Michael R. Taylor, J.D., deputy commissioner for foods, U.S. Food and Drug Administration
• Moderator: Deborah Schoch, senior writer, CHCF Center for Health Reporting
It was an interesting question to pose, along the similar lines that say, “If we can put a man on the moon, why can’t we… ” …fill in “eliminate poverty,” “cure cancer,” or, yes, make food safe.
We weren’t there to hear the discussion. Although Bill Marler posted his slides, which you can read here. It was, however, an illustrious panel — although one notably short of anyone representing conventional agriculture — so we are certain they raised interesting ideas. We would like to weigh in with a few thoughts of our own:
So why do we still have foodborne illness? Such problems exist for one of two reasons… either A) We don’t know how to prevent such illnesses, or B) We do know how but choose not to do so.
Recognizing these two reasons leads to several possible explanations that could answer the question and that point to various policy responses:
1) As a society, we know how to reduce or eliminate foodborne illness but choose not to do so.
We probably do not know how to eliminate foodborne illness, but we certainly know how to reduce it substantially. Yet the public policy response — whether under Democrat or Republican leadership — has never been to do “everything possible” to eliminate the risk of foodborne illness.
Since nobody wants foodborne illness, the obvious question is “Why can’t we do everything possible to eliminate all risks?” The obvious answer is that steps that can reduce foodborne illness all cost money, and although reducing foodborne illness is an important value, it is not the only value. We want inexpensive availability of fresh foods… we want to let farmers earn a living… many consumers want to avoid eating irradiated food… we want a lot of things other than food safety.
As a result we pick a happy public policy medium, impose some regulations that function as a legal minimum standard but do not attempt to prioritize the problem of food safety over all other issues. Consequently, we accept that some people will get sick or even die as a consequence of where we set that minimum.
This is not such an unusual determination. Think about automobiles. We have the technical ability to build cars that would protect the driver and passengers in two vehicles if they crashed into each other head on at 80 miles per hour. Yet the law requires no such safety standard. This is because the same structure that would keep us safe would add cost and weight to cars. They would be more expensive to both buy and fuel, so we create minimum standards and accept that people will be injured and die in car accidents.
Viewed in this perspective, the social role of plaintiff’s lawyers such as Bill Marler in food safety — or any of a roster of “ambulance chasers” when it comes to car accidents — is to handle the “collateral damage” from the societal decision to draw the line on food safety or automobile safety at some point less than zero tolerance.
In other words, people still get sick from food for the same reasons they still die in car crashes: Other societal values trump the idea of obtaining absolute safety. From this perspective, there is not so much a problem as a choice that has been made. Continued debate is simply over whether we should reset the line.
2) Private parties, such as food producers, do know how to avoid foodborne illness, or at least reduce it, but are unwilling to act due to the incentives established in public policy.
Private parties act in response to incentives and, absent a law compelling certain actions, they respond to the incentives that markets provide.
Ironically, government regulation of food safety may actually make food less safe. When the government reassures people it has set, and enforces, standards to ensure all food is safe, it makes it difficult for marketers of food to gain much business or gain profit premiums by promoting their food as safer.
In other words, if the government issued a statement that it was closing down its food safety efforts and, in the future, it was a caveat emptor world, we would expect that marketers would respond with all kinds of efforts because consumers would respond with heightened concern. There would be a rise in private certification efforts, and one could imagine a restaurant chain promoting that it only serves irradiated hamburger, etc.
Of course, the effect of making the marketing of food safety viable would have reverberations up and down the supply chain. On one end, one would expect money to pour into R&D efforts to find ways to make food safer as there would be a ready and competitive market for such technologies. On the other end, one would expect consumers to become far less complacent.
So put simply, government officials going around saying that the government’s regulatory apparatus ensures safe food makes consumers complacent and depresses the return to be garnered from investing in food safety.
3) The private sector knows how to make food safer, but legal standards of liability are retarding progress.
In America, the legal standard is that the “producer” of the food has primary legal liability for any food safety problem. So it is the grower/shipper or processor that gets sued, not the retailer. Retailers can be liable but only contingently — if the producer is unable to pay the judgment. This has led the most universal food safety measure demanded by retailers to be a requirement that vendors carry liability insurance.
Making producers primarily liable seems to make sense. After all, the producer has the ability to most directly impact food safety. It turns out, however, that where food safety is concerned, this is only partially true. Many of the steps we can take to make food safer are not amenable to go/no-go decisions. We know we need to test water, but how frequently? We know we need traps — but at what interval? As a practical matter, producers can only do as much of this as retailers are willing to pay for.
Although, of course, retailers don’t want food safety problems and have various standards in place to make them less likely, retailers have trouble incenting their buyers in a way that encourages them to select vendors that go beyond whatever the retailer may have established as its food safety standard. So if a retailer has decided it will require a USDA GAP audit for a certain product, few buyers have a reason to pay extra because a producer has a more rigorous audit. In fact, to the best of our knowledge, nobody has changed their key performance indicators to focus on food safety — although all retailers claim that it is their very top priority.
Now imagine a world where retailers were primarily liable for food safety problems. Or even a world in which retailers were obligated to exercise due diligence or they could be held liable. Imagine a world in which it was illegal to shift the liability to vendors through requirements for indemnification agreements. All of a sudden, this means the retailer’s stock price could crash when there is a food safety problem as the market judges the impact on the chain. All of a sudden, retailers would ramp up food safety efforts. They just wouldn’t deal with anyone but the top vendors in the game.
Right now, the liability laws incent retailers to require vendors to have liability insurance. Another legal regimen could actually incent retailers to procure to different standards. This may not be desirable because the cost might outweigh the benefit, but is an explanation for why food is not safer.
4) We may not know how to make food safe.
Much about food safety is still a mystery. Food is enormously safe in the United States, so serious food safety outbreaks are really “black swan” events that happen at unpredictable times for unpredictable reasons. Although after the fact we can go back in and hypothesize about what would have prevented a particular outbreak, we are rarely certain. Even if we do identify a particular reason, it is often difficult to articulate a rule that would prevent such a problem from occurring again.
Think about the Jensen cantaloupe situation where it is hypothesized that a used piece of equipment that had been adapted for use with cantaloupes might have been the source of the problem. Even if that is so, which is far from certain, what rule do we devise from that? That nobody can buy used equipment? That nobody can repurpose things from one crop to another? These are big rules to make based on one data point.
The Center for Produce Safety has funded much research but the budget is still very small. In any case, most research raises more questions than answers, and we still don’t know fundamentals such as the migration rate of e. coli.
Possibly the issue is that gaining knowledge about food safety is very difficult, but it is also true that it is really not the top priority for many. If you look at government and charitable expenditures overall, much more money is spent on research to cure cancer or heart disease or practically any disease than it is to make food safer. In the private sector, research continues but, once again, on a relatively small scale.
A big part of this may be, once again, a result of the government’s decision to regulate and thus claim that all food is safe. If this situation didn’t exist, there would be much more marketing around food safety, and the desire to market would create a demand for the latest food safety advances and a willingness to pay premium prices to get exclusives on this technology. Very possibly, this race to success would entice lots more spending on food safety research and thus lead to safer food.
Unfortunately, the country doesn’t get to have a real conversation about food safety. People are petrified to speak up lest they be seen as “against food safety,” but the truth is that food is so safe that it probably makes sense to spend resources elsewhere and make roads safer or swimming pools safer.
On average, the number of people who die each day from foodborne illness related to fresh produce in the US is close to zero.
In contrast, we can confirm that about ten people die each day in the US from non-boating related accidental drowning. The vast majority of these deaths could probably be prevented if people knew how to swim. Society has to make choices about how to allocate scarce resources.
Maybe the real reason why in the 21st century food still sometimes makes us sick is that there are plenty of other tragedies in the 21st century and food safety is thus one item and often not the highest priority on a very long list of problems to be solved.
Much attention is being paid to the new rules for food safety proffered by the FDA. The Washington Post just ran a piece titled, Proposed FDA Food Safety Rules Frustrate Tree Fruit Growers:
The Food and Drug Administration, wrestling to put in place a massive overhaul of the nation’s food safety system, drew a line this year when proposing which fruits and vegetables would be subject to strict new standards: Those usually consumed raw would be included, while those usually cooked or processed would be exempt.
Since then, few groups have expressed more frustration than tree fruit farmers, who grow apples, pears and a variety of other produce. They complain that the FDA’s approach, in some ways, defies common sense.
Those gripes offer a case study in the challenges of implementing the landmark 2010 Food Safety Modernization Act, which directed the FDA to prevent food-borne illnesses rather than simply react to outbreaks. It’s an easy idea to embrace. But when it gets down to apples and oranges, figuring out who should abide by which rules has proven anything but simple.
Growers subject to the new produce rules could face a variety of new responsibilities, including regular testing of irrigation water, sanitizing canvas fruit-picking bags and keeping animals away from crops. Many tree fruit farmers worry about the cost of such measures and say they would offer few safety benefits.
They argue that the FDA should focus more on foods that have caused deadly outbreaks, such as spinach and cantaloupes, and less on fruits that have a virtually flawless safety record, grow above the ground and, in some cases, have protective skins or rinds.
“Our product is quite safe,” said Phil Glaize, a third-generation farmer and owner of Glaize Apples in Winchester, Va. “We’re perfectly willing to look at ways to make it safer. However, what’s being proposed is very onerous and expensive. . . . [The costs] would end up getting passed on to the consumer, if we didn’t go out of business first.”
FDA officials say that the proposals offer a starting point and that they are open to making changes to create a science-based system that is adaptable to different growing conditions, different regions and different crops.
“It’s complicated. It’s a big, transformational thing that we’re doing. . . . We’re creating a whole new food-safety system here, so we accept that it will take some time to get the rules right,” Michael R. Taylor, the FDA’s top food-safety official, said in a recent interview. “The point is, we want to target our standards where they will make a practical difference.”
There is little reason to doubt that Mike Taylor is being honest. Executives at the FDA really do want to target their efforts where they would have an impact. They do not want to burden farmers and businesses with unnecessary regulation to no point.
However, the difficulties of framing regulations and the institutional imperatives of the FDA will doubtless lead to much bother and expense being imposed on farmers and businesses with little, if any, return when it comes to public health.
In this case, you have several issues colliding. The FDA made a distinction between foods that are typically cooked and those that are eaten raw. This seems to make sense as cooking is generally a “kill step” that kills off dangerous bacteria — although the fact that hamburger is typically cooked has not stopped many foodborne illness outbreaks from being linked to hamburger.
In any case, the distinction is just one of many such distinctions that could be made, and the tree fruit folks are suggesting a more empirically useful standard: Distinguish between commodities that have a history of causing food borne illness and those that do not.
Unfortunately their incentive structure is to be overly regulatory. Think about the Salmonella St. Paul outbreak, which was initially thought to be tomatoes and ultimately was believed to be Jalapeño. Now Jalapeños were not a known high-risk item.
The question that is top-of-mind in making these rules is that an FDA executive is sitting there saying, “Do I want to be hauled before a congressional committee and asked why I made an exception for a particular commodity, when someone just got sick or, God forbid, died as a result of consuming that previously thought of as a safe item?”
Nobody at the FDA will ever be fired because they made a judgment to be too restrictive on food safety. There will be few sleepless nights because they ordered too many water tests for some commodity, but their careers could be ruined and they could live their lives in despair because someone gets sick — even once — because they were lax.
This is one reason why the regulatory burden grows incessantly. The regulators don‘t pay the price of their edicts. There are other reasons: The more things are regulated, the bigger their departments, the larger their staffs, the bigger their budgets, the more important and well paid they are.
With such dynamics at work, it is important to understand the law and the proposed regulations. We’ve been fortunate to have our friends at Jones Day weigh in on various legal issues, both here at the Pundit and in Pundit sister publication, PRODUCE BUSINESS. These pieces have included the following:
How To Prepare For An FDA Inspection And Recall
Beware Of Bribery Beyond Our Borders
Among the authors of these pieces is Harold Gordon, who is not only a Partner at Jones Day and a well-respected litigator based in New York, but he happens to also be the son of Myra Gordon, the Executive Administrative Director of the Hunts Point Market in the Bronx.
We asked Harold if he and some his colleagues could weigh in on the Food Safety Modernization Act, and what follows is the first of two pieces related to this subject:
The FDA is moving forward on major new “FSMA” regulations
In January 2011, President Obama signed the Food Safety Modernization Act. This Act, known as FSMA, directs the FDA to make sweeping changes to how America’s food supply is regulated. For the following two years, not much happened. Although inspections and enforcement actions are now more frequent, the most anticipated new regulations remained under wraps.
On January 4, 2013 — the second anniversary of FSMA’s enactment — the FDA published drafts of two of the most important new regulations: the Produce Standards rule and the Preventive Controls rule. These rules are not in their final form and won’t be enforced for several years, but when they are, they will have a big impact on the industry.
For at least another two months, affected businesses can voice their opinions on the proposed rules. One mechanism for doing so is to submit written comments, and our next article will discuss how to take advantage of this important opportunity to shape the proposed regulations. In addition, the FDA has scheduled three public meetings at which members of the public can provide informal, face-to-face feedback. The FDA held the first of these meetings on February 28 and March 1 in Washington, and a report of this meeting can be found below.
The FDA’s Perspective on FSMA and the Two New Rules
The FDA views FSMA as the most important change to food regulation since the Food, Drug, and Cosmetic Act was passed in 1938. These changes will result in compliance costs to industry that the FDA estimates at well over $1 billion each year. Although the FDA is attempting to balance increased safety against the compliance costs, safety is its chief concern.
Accordingly, the FDA intends its new rules to be preventive, risk-based, and science-based. In English, this means, first, that the purpose of the additional regulations is preventing foodborne illnesses, rather than merely reacting to outbreaks.
Second, the nature of a firm’s responsibilities for preventing contamination will depend on the risks posed by that firm’s operations. This is both good and bad. It is helpful that the FDA recognizes that one-size-fits-all solutions are cumbersome and often inappropriate. But the flexibility of this approach also makes it harder to determine exactly what must be done to comply.
Third, the regulations are supposed to reflect real-world risks, as proven by scientific evidence, and mandate efforts that are scientifically proven to be effective in reducing these risks.
The Proposed Produce Standards Rule
At present, the FDA does not directly regulate farming methods. This will change when the FDA finalizes the Produce Standards rule, known formally as the “Standards for the Growing, Harvesting, Packing, and Holding of Produce for Human Consumption.” This proposed rule identifies five vectors that can lead to microbial food contamination on farms:
“biological soil amendments” (essentially manure or wastewater used as fertilizer),
equipment, tools, and facilities, and
animals (both domesticated and wild)
The rule imposes requirements addressed to each of these possible vectors, as well as requiring worker training and the maintenance of specified records. The rule exempts produce that is seldom eaten raw and produce that will be shipped to a processor that employs a “kill step” to eliminate pathogens. Sprouts, which the FDA views as particularly high risk, are subject to additional controls.
Farms with less than $500,000 in annual sales are exempt from most provisions.
The Proposed Preventive Controls Rule
The second major rule announced in January updates current good manufacturing practice (“cGMP”) requirements and establishes new “Hazard Analysis and Risk-Based Preventive Controls” requirements. The latter requirements reflect the biggest change from current regulations. In short, the Preventive Controls regulations require covered firms to create a food safety plan that identifies the hazards reasonably likely to occur in their operations. The firms must then implement, verify, monitor, and document effective control measures to prevent those hazards. Firms must also plan how they will implement corrective action and recalls if the control measures do not work, and must periodically re-evaluate their plans.
The Preventive Controls requirements are less of a sea change than the Produce Standards. Unlike farms, registered facilities such as manufacturers and processors are already subject to cGMP requirements, and should already have compliance programs in place. The new Preventive Controls requirements are modeled after the existing “HACCP” (Hazard Analysis and Critical Control Points) regulations. HACCP regulations are already mandatory for facilities that produce seafood, juices, meats, and poultry products, and voluntary compliance with HACCP standards is increasingly common among dairy firms and many of the largest food manufacturers of all descriptions.
The changes are nonetheless significant. Most growing operations currently do not follow HACCP guidelines, and they will need to retrain their personnel, and often will want to hire outside auditors to monitor compliance.
“Very small businesses” are exempt from many of the new requirements. The scope of this exception remains uncertain; at present the FDA is considering whether this exemption should be restricted to businesses that sell less than $250,000 of food per year, or whether firms with up to $1 million in annual sales can qualify.
The Public Meeting in Washington
The FDA held the first in a series of public meetings to discuss the Produce Standards and Preventive Controls rules on February 28 and March 1. Many senior officials attended. The FDA Commissioner, Margaret Hamburg, gave the opening presentation, and the Deputy Commissioner for Foods and Veterinary Medicine, Michael Taylor, stayed for the entire two-day meeting.
The public comments were consistently supportive of the regulations, albeit with varying levels of enthusiasm. The first four speakers set the tone. These speakers — and no doubt this was not a coincidence — were a girl suffering long-term health issues as a result of eating a contaminated cantaloupe, a young woman who nearly died from tainted spinach, a mother who had fed her daughters a nearly lethal spinach salad, and a man whose father died from eating cantaloupe. While many speakers voiced concern over specific issues, no one attempted a head-on assault on the rules.
The most common concern voiced by industry representatives involved imported foods. The FDA is explicit that imported foods will be required to meet the same requirements as domestic foods. The FDA promises to publish soon a series of proposed rules and initiatives designed to implement this policy. The most important anticipated rule will require importers to verify that their suppliers comply with all FDA requirements.
Despite the FDA’s assurances, there remains an undercurrent of doubt as to whether foreign producers really will be forced to comply. As a result, many speakers complained that they could not meaningfully comment on the Produce Standards and Preventive Controls rules until after the FDA publishes the importer verification rule. An FDA spokeswoman later stated informally that the FDA “will adjust the comment periods to allow the opportunity for the public to comment as a package.”
Other comments addressed the scope of the small business exemptions. The consumer advocates, and some industry representatives, argued for making the exemptions as narrow as possible. All operations, they asserted, pose the same risks of contamination. Some commentators, however, asked the FDA to keep in mind the burden that the new regulations would impose on smaller firms and farms.
Even two years after FSMA became law, its implementation process is just beginning. The second public meeting took place in Chicago, Illinois, on March 11 and 12, and the third public meeting was held in Portland, Oregon, March 27 and 28. The FDA will be accepting comments on the two rules we have been discussing until May 16, and the comment period may be extended.
And more regulations are coming. Many more regulations are coming. Importers will likely be dramatically affected by the importer verification rule mentioned above. New pet food rules, perhaps comparable to the Preventive Controls rules, are also coming soon, along with rules designed to beef up foreign enforcement abilities by establishing a network of third-party inspectors. Other rules in the pipeline will address sanitary transportation of food, intentional adulteration, and increased record-keeping burdens for high-risk foods.
For more information about FSMA or food regulation, please contact the authors:
Harold K. Gordon
New York, New York
June K. Ghezzi
For more information about our law firm, please visit our website at www.JonesDay.com
To us the most telling paragraph in this thoughtful piece by Jonathan Berman, June K. Ghezzi and Harold K. Gordon is the one about who testified:
The public comments were consistently supportive of the regulations, albeit with varying levels of enthusiasm. The first four speakers set the tone. These speakers — and no doubt this was not a coincidence — were a girl suffering long-term health issues as a result of eating a contaminated cantaloupe, a young woman who nearly died from tainted spinach, a mother who had fed her daughters a nearly lethal spinach salad, and a man whose father died from eating cantaloupe. While many speakers voiced concern over specific issues, no one attempted a head-on assault on the rules.
There is a saying among lawyers and judges that “Hard cases make bad law,” and the fact that individuals have suffered from a state of affairs does not prove that the law can or should do anything about it. We always believe that it isthe responsibility of the industry to Look At The Faces and realize that real people are affected by industry decisions. But allowing small numbers of victims to add such emotional weight to a debate that nobody else is prepared to speak lest they be thought indifferent to human suffering simply will not help advance our thinking on these matters.
We have never thought that the Food Safety Modernization Act was likely to improve food safety and laid out our ideas for an alternative approach in a piece in The New Atlantis, titled How to Improve Food Safety.
Still, we are stuck with the law so, like the tree fruit people, we have little choice but to use the comment process to try to make it less harmful. Many thanks to our friends from Jones Day for helping us to better understand the issues at stake.
Oh how the mighty have fallen:
J.C. Penney Co. dumped Ron Johnson, the chief executive it poached from Apple Inc. with great fanfare 17 months ago, replacing him midway through a major overhaul of its stores that has produced a disastrous drop in sales.
Penney's board met Monday and agreed to part ways with Mr. Johnson. Sorting out whether to press onward or roll back Mr. Johnson's changes will fall to his predecessor, Myron Ullman, who is rejoining the company as CEO.
It is rather extraordinary as Johnson’s hiring brought accolades suitable to the second coming as investors thought Ron Johnson, who pioneered the concept for the Apple retail stores and the famed Genius Bar, could bring such magic to J.C. Penney Co.
He was no one hit wonder; when at Target, it was Johnson who signed the famous contract with architect Michael Graves that in some sense created the concept of “Tarjée” combining great design with economical products.
But the J.C. Penney assignment was always going to be tough:
Johnson has spent years in the shadows, hatching two of the most significant retail concepts in a generation. At Target (TGT) he made the deal with Michael Graves that helped the company meld good prices with great design. At Apple (AAPL) he worked with Jobs to create the most profitable retail store in the world.
Now Johnson, 53, is embarking on his toughest challenge. In front of those clouds at Pier 57 a day and a half later, he proclaimed that he would turn J.C. Penney (JCP) — a dowdy brand aimed at the middle class at a time when the middle class itself is in peril — into "America's favorite store" by the end of 2015. Not America's favorite department store, mind you; America's favorite store of any type.
To attract customers, Johnson unveiled a radically simplified pricing strategy, a slimmed-down but improved selection of brands, and a change in the store's layout, which will consist exclusively of mini-boutiques arrayed around a "town square." His goal is to reclaim the department store's long-lost identity as a place shoppers visit not only for the goods but also for the enchantment of discovering something new.
The new pricing strategy is ambitious — and risky. Customers have been trained by Penney's and others to hold out for massive discounts. In the era of online shopping, few have the inclination to visit a store with a faded brand like J.C. Penney's. Johnson knows all of that and seems to relish the challenge. Behind his preppy, earnest exterior beats the heart of someone who is out to change the experience of today's shopper — one $4 towel at a time.
“People want to belong to something deeper," says Johnson. Since childhood he has had a near-messianic ability to lead people and make them feel as if they belong, as if they're part of a great cause.
As we said, the press treated him like the second coming.
In the end, the results were catastrophic. In the most recent quarter, same-store sales fell a shocking 32%. In a sense, the customers went on strike against Johnson’s innovations.
Now in fairness Johnson would say that the transition requires more time. That retraining the consumer — who at Penney’s had been educated to expect clearance sales and promotions — is a long term process. He has pointed out that anyone looking at the numbers for the Genius Bar would have thought it a big failure 18 months in.
This is probably all true, though it was highly predictable that Johnson would not have much more time than he got. This is mostly his own fault. It is notable that his contract with J.C. Penney, though hefty up front to cover all the stock and things he lost by leaving Apple, is not believed to include termination payments. This means he probably never had “the talk” with the board that hired him in which he explained that he needed five years to make this work and that sales would be catastrophic in the interim. Certainly in its communication with shareholders, J.C. Penney never gave an indication it expected such big losses in business while old customers were retrained and new customers attracted.
In all likelihood, Johnson’s protestations notwithstanding, he was just wrong. Apple’s success was built on having preferential access to a line of products that people desperately wanted and were willing to pay premium prices to get. These products were complicated and so a store that specialized in them and could share expertise regarding them was much valued. This simply has very little to do with how consumers buy socks and underwear.
All retailers are often wrong, and Johnson being mistaken is neither surprising nor disqualifying. What is odd is why he and his board of directors allowed a kind of “brilliant or bankrupt” bet with the whole company?
If a national retailer thinks that it should shift to everyday low pricing from a high/low strategy, that is a plausible option, but typically one would choose a couple test markets. Do it in all the stores in a few cities and see how it works. Maybe same store sales do drop substantially and then rebound surpassing prior heights. This kind of data would allow a retailer to plan financially for the needed investment and to reassure creditors, stockholders, etc. Without the data, panic ensues as it did here and one is left never knowing what might have ultimately worked.
It is not clear why Johnson didn’t proceed this way, but it also is not clear why Tesco, in its Fresh & Easy roll-out, didn’t just open five stores, use local wholesalers and distributors and refine the concept until the retail concept worked or Tesco knew it couldn’t work.
It is so eminently logical that one must think that personal considerations warped the decision-making process. Ron Johnson was a famous executive. He had no interest in spending 99% of his time running an old declining department store chain, putting on white sales and whatnot, while spending 1% of his time on a 12-store test of a new pricing strategy.
Equally Tesco’s famed CEO at the time of the Fresh & Easy launch, Sir Terry Leahy, was interested in a great capstone to his career, so he emphasized that Fresh & Easy was a “roll-out not a test”— which meant it rolled out without a test.
Back when he was running produce and then perishables for Wal-Mart, Bruce Peterson used to tell us that he had the greatest job in the world because he had the opportunity to make money for his employer while making dreams come true for lots of vendors. Some guy would come up with some notion — say that they should sell smaller coconuts in three packs — rather than larger ones whole. If the idea made any sense, they would try it out in one division or certain select stores and see how it did. Sometimes it was a hit and got rolled out nationally; Wal-Mart made money, the vendor became rich and consumers got a product they liked. It was win/win/win. Sometimes it didn’t work, and both Wal-Mart and the vendor went onto different projects.
It was a little like roulette, where you spun the wheel and took your chances. But it was not like Russian roulette; nobody was going to die.
Now Fresh & Easy is dead, and precious few retailers — a business where they fight to the death for half a point of market share — have ever rebounded from the kind of sales losses J.C. Penney has endured. It was all a failure to research and a willingness by the boards responsible to give into the vainglorious attitudes of those too certain of themselves for their own good.
Congratulations are due to Lisa McNeece, Vice President, Foodservice and Industrial Sales at Grimmway Farms, as she will be recognized at the 2013 Reception Honoring Women in Produce to be held at United’s upcoming convention in San Diego. She joins a most illustrious crew:
Past honorees include:
· Dan’l Mackey Almy, DMA Solutions, Inc.
· Tonya Antle, Tanimura & Antle
· Frieda Rapoport Caplan, Frieda’s Inc.
· Margaret D’Arrigo, Taylor Farms, Inc.
· Jan DeLyser, California Avocado Commission
· Jan Fleming, Strube Celery & Vegetable Company
· Janice Honigberg, Sun Belle, Inc.
· Lorri Koster, Mann Packing Company
· Kathleen Nave, California Table Grape Commission
· Dr. Martha Rhodes-Roberts, University of Florida, Institute of Food and Agricultural Sciences
· Steffanie Smith, River Point Farms, LLC
· Heather Shavey, Costco Wholesale
· Mayda Sotomayor-Kirk, Seald Sweet International
· Rosemary Talley, Talley Farms
· Jenney Tenney, The Kroger Company
We’ve worked with Lisa on many projects over the years, and just recently we featured Lisa in our Salad Bar Special Edition, which well represented her yearning to move the industry forward.
Of course, we were ahead of the curve on this one, back in 2010 awarding Lisa our own “You’ve Restored Our Faith in Humanity” Award:
When the Pundit was a teenager, he realized one day on a visit to Manhattan that his wallet was missing. Then he received a call from a stranger advising that he had found the wallet — complete with money and all the cards — on the floor in Grand Central Station, where the Pundit had been that very day.
The most logical explanation was that it had been pick-pocketed and, for some reason, the pick-pocket dropped the wallet, possibly fumbling it or running because he saw a policeman approaching or otherwise got scared.
At his suggestion, we had arranged to meet the good Samaritan who found the wallet at The Harvard Club in New York City, and when we received the wallet, which included a not insignificant amount of cash, we proffered a reward but the Harvard man refused.
Told the story, the Pundit Poppa said that the man didn’t need or want money from us and what we should do is write a letter telling the man he had restored our faith in humanity — which we did.
The story comes to mind because, every once in awhile, something happens in this industry that also serves to buttress our faith in humanity.
Such an event happened at the Las Vegas convention of the United Fresh Produce Association, and it prompts us to offer the first ever Perishable Pundit “You’ve Restored Our Faith In Humanity” Award.
This first iteration of the award is granted to Lisa McNeece, Vice President, Foodservice and Industrial Sales at Grimmway Farms.
It has become a tradition at United that the Leadership Classes sell raffle tickets. The prize: 25,000 smackeroos. Last year’s winner, Gina Nucci, Director of Foodservice Marketing at Mann Packing Co., used the $25,000 to contribute toward the cost of her wedding and honeymoon.
This year Lisa McNeece was enjoying the closing banquet that United hosts, and Phil Gruszka, who was then the Vice President of Marketing at Grimmway and a member of 15th Leadership Class, was selling raffle tickets. The revenue from the raffle goes to United’s Research and Education Foundation.
In any case, when Phil approached Lisa to buy tickets, she said she would buy ten tickets from Phil and that if he sold her a lucky ticket, one that won the $25,000 prize, she would split it with him.
Lo and behold, later that night, after the winner was drawn, Lisa started getting texts and calls — telling her she was the winner. She thought her friends had conspired to pull her leg but, in fact, she had really won.
Now there was nothing in writing, there were no witnesses, a lesser person would have been tempted to keep the whole windfall. But not Lisa McNeece.
She immediately reached out to Phil to remind him that he was entitled to half the winnings. She is a woman of her word.
One wonders if there is enough karma in the world to say that Lisa won because she was willing to share and willing to be true to her own word.
In any case, in an industry where Moral Responsibility Ratings are at least as important as credit ratings, it points to why Lisa’s career has been so exemplary. In a world where happiness is determined as much by the caliber of the people one associates with as by any other factor, it is clear why the party is always where Lisa is.
And whenever we are feeling low, all of us can think of Lisa and Phil and how they came to share a small windfall, and we can feel brighter. That is a gift, and so we are honored to bestow our first Perishable Pundit “You’ve Restored Our Faith In Humanity” Award to Lisa McNeece, Vice President of Foodservice and Industrial Sales at Grimmway Farms.
Congratulations to Lisa! You can register for United here and the reception will be held aboard the USS Midway.
A hat tip to Karen Caplan, CEO and President of Frieda’s Inc., who sent along a piece from the Hartman Group that made a point about AmazonFresh. Karen wrote:
I think it would be excellent if you did a commentary on your thoughts about the future of AmazonFresh, especially in light of Hartman’s comments comparing it to Tesco launching Fresh & Easy.
We have written a great deal about Fresh & Easy, so we will rise to the bait. The Hartman piece is titled “AmazonFresh…Grocery Domination Ahead?” — it is, as with most of the Hartman research, thought-provoking. The piece questions the future of AmazonFresh, and, more broadly, online grocers:
Whether AmazonFresh can or will succeed remains fodder for media pundits and market analysts to debate. From our perspective, we question whether AmazonFresh isn’t more akin to Tesco’s foray into the American marketplace with its Fresh & Easy Neighborhood Market small-format stores.
That is, while “fresh” is relevant to contemporary consumers, both retailers face significant challenges in convincing consumers that they can deliver on the fresh proposition. In the case of AmazonFresh, consumers simply don’t equate “online” with “fresh.”
The piece is based on new research that Hartman is selling here for $15,000, although the Executive Summary is free. It goes on to point out some other issues with online shopping. First that online shoppers are not a unique breed:
As Brad Kalil, The Hartman Group senior quantitative analyst, project lead and co-author of The Online Grocery Shopper report, points out, “There are a number of myths about online grocery shopping and shoppers that our research shatters. For one, conventional wisdom says that an online grocery shopper will visit the physical grocery store less often. We found the opposite to be true. Online shopping does not significantly cannibalize the number of visits to the physical store
Second, that the frequency of store visits does not seem to drop with online shopping:
Some believe that difficulty in getting to a store is a primary motivation for online grocery shopping. Again, our research debunks this belief. Results in The Online Grocery Shopper find that two-thirds of online grocery shoppers live within walking distance to a grocery store. To further confound traditional food marketers, Online Shoppers visit physical stores more frequently than At-Store Only Shoppers. Online grocery, food, or beverage shopping does not significantly reduce the number of trips to a store, and, for some (1 out of 10), can actually lead to an increase in store visits.
On average, At-Store Only Shoppers shop for groceries 8 times a month with a quarter of them visiting stores multiple times during a week. Online Shoppers, on the other hand, visit stores 14 times a month (4 times a month online and 10 times a month at a store).
Since starting online grocery shopping, half of the Online Shoppers (56%) have not changed the number of physical trips they make to a store, while a third (32%) make fewer trips, and the remainder (13%) make more trips.
The report also highlights the difficulty of fresh:
…not all retailers can deliver on the cues to quality that food shoppers seek today, namely those linking to freshness. Freshness remains a new frontier in emerging food channels, whether digitally-driven or brick and mortar. Whether or not Amazon will continue to experiment with Fresh is open to conjecture — yet, one thing seems sure: Amazon will almost certainly continue to compete in the area of shipping shelf-stable foods and beverages from its main website as it seeks to gain greater share of wallet in pursuit of global retail domination.
What drives businesses to do things is often difficult to determine and often determined by things unrelated to the project at hand. Tesco’s decision to pull out of the US might well be different if things were booming in the UK or if China closed to foreign retailers.
So whether Amazon will persevere with AmazonFresh is an open question. Clearly it has not been the kind of wild money making success that would lead Amazon to prioritize rolling it out nationally. It did, after all, launch in Mercer Island in 2007 — meaning the “experiment” is now going on six years old and has expanded to only a few Seattle area zip codes.
Yet there is a powerful reason for Amazon to persevere, and it goes beyond the obvious opportunity to make money selling food.
Wal-Mart was interested in the food business, especially the fresh food business, not just to make money selling food but because consumers purchased food more frequently than they did general merchandise. By adding a grocery store to its general merchandise store, the calculation was that it could increase the frequency of shopper visits, even if didn’t make much money selling food. The idea was that it would make plenty of money selling general merchandise to consumers whose visit was motivated by an intent to purchase food.
Similarly, Amazon has long since gone beyond books and music and now sells just about everything. If it gets people to order more frequently, it will likely sell not only food but more non-food items. This is exactly what motivated Wal-Mart and now motivates drug stores and others to find ways to sell fresh food.
Amazon, though, has two extra reasons to want to make this work: First, whereas Wal-Mart or Walgreens are the same experience whether they sell fresh food or not, AmazonFresh is a difference in kind, not degree, from buying from Amazon.com. Why? Simple, AmazonFresh offers same-day delivery. Already it pushes customers to buy non-food through AmazonFresh offering high volume shoppers benefits through its Big Radish Program and touting environmental benefits:
Here are some tips and tricks for getting and keeping Big Radish status:
• Make your Amazon.com purchases on AmazonFresh. We offer many popular items at the same Amazon.com prices. We deliver the Amazon.com items without packaging right with your groceries. Next time you need baby supplies, party supplies, books, movies, electronics, or other item, start your search on AmazonFresh.
If Amazon.com were to develop a national AmazonFresh program, it would acquire an ability to deliver anything same-day or next-day; this would make people much more likely to buy other products from Amazon.
In addition, right now Amazon pays a fortune to courier services such as UPS and Fedex. If it rolled out a national AmazonFresh program, Amazon would, basically, become like Fedex or UPS, but better — because it could offer same-day delivery. Not only could Amazon make the profit that UPS and Fedex make on its business, it could become a competitor to these companies offering to distribute products for other companies at a fee.
The basic notion that Hartman pushes — the idea that consumers don’t perceive on-line product as fresh — is not fully established across all categories.
Yes, originally, the thought was that consumers would not feel comfortable purchasing fresh items on the Internet. How would they know, after all, if the quality was good or the melon was ripe?
Subsequent research and the experience of vendors do not seem to indicate that is true, at least when applied to fresh produce. Indeed there are indications the opposite is true — that consumers don’t trust their own ability to identify a ripe melon or a quality avocado and are inclined to allow the experts at their trusted online service to make the decision for them.
Indeed, most online services make substantial efforts to build up consumer credibility. AmazonFresh, for example, ranks each item with its Daily Produce Ranking, which is built around a Five Radish system:
Freshness does, however, depend a great deal on concept and execution, and we would agree with Hartman’s parallel between Fresh & Easy’s failure to deliver fresh and AmazonFresh’s failure when it comes to the deli/prepared food assortment.
AmazonFresh sells a very limited assortment of fresh-cut meats and cheeses and doesn’t have chefs preparing prepared foods. In other words, the product it sells in the deli/prepared foods arena is not equivalent to the fresh foods sold in nicer supermarkets. As such, consumers whose online food delivery experience is confined to AmazonFresh would be correct in not associating online shopping with freshness.
This is, however, a critique of the AmazonFresh effort, not online shopping. Fresh Direct is a much superior offer to that offered by AmazonFresh. It promotes a large line of freshly sliced meats and cheeses and a beautiful assortment of prepared foods. It promotes that it has Michael Stark, who worked at Drew Nierporent’s Tribeca Grill, as its Executive Chef.
In produce, it promotes Tony Como, who worked on Hunts Point, as did his father. It also offers a five-star Daily Produce Rating System.
In fact, Fresh Direct is so far superior to AmazonFresh and is so much larger — not only selling throughout New York but now has rolled out to Philadelphia — that it has attracted worldwide attention. In 2011 Wm. Morrison Supermarkets in the UK announced that it purchased a 10% interest in FreshDirect for £32 million — about $51.7 million US dollars. Buying an opportunity to learn the business from a master.
In fact, if Amazon is serious about developing expertise in fresh foods that it could scale, it should terminate the AmazonFresh experiment and just buy Fresh Direct. If we assume that the $50 million valuation for 10% has doubled, that would place a value on the whole company of a billion dollars. Amazon.com has a market cap of $120 billion plus — so swapping 1% of the company for the opportunity to accelerate its fresh rollout and gain crucial market share in New York and Philadelphia seems to make a lot of sense.
The always prescient Professor Ed McLaughlin at Cornell has a theory that “Anything that can move to the internet, will move to the internet,” and, realistically, many fresh foods can be delivered in better condition — fresher — because they can be properly temperature-controlled, with delivery direct from a depot, than they can be sold after being displayed in a retail store.
It is also clear that internet ordering is increasingly allowing sale of the product in multiple ways with delivery one option but pickup through dedicated drive through facilities another option.
Consumer attitudes toward Internet shopping will depend crucially on the product sold. Fresh & Easy was not perceived as fresh because on many deli items — say sandwiches — it was not as fresh as those stores with in-store sub programs.
Those stores that use a store-pick method for internet sales don’t have the opportunity to enhance freshness, but those services such as AmazonFresh and Fresh Direct that go straight from a depot to the consumer probably can offer a more perfectly temperature-controlled cold chain, and that will eventually show.
Besides, internet shopping offers a unique way for competitors to enter markets that, conventionally, would take generations. Kroger can’t find enough sites without an acquisition to enter the New York Metro area, but Fresh Direct has entered. If it succeeds in Philadelphia, surely Boston or DC are next. How many cities must Fresh Direct triumph in before it becomes obvious that Internet shopping is a game-changer and conventional retailers ignore it at their peril?
One peril for the produce industry that is being exposed by the internet shopping services is that a lot of produce is not ranking very well. The other day, Amazon Fresh ranked zero produce items as worthy of its Five Radish ranking, and only two fruits and nine vegetables as Four Radishes. Lots of name brand produce was scoring two or three stars. That is sad, and the industry should make a determined effort to find out why that is so and to turn it around.
Many thanks to Karen Caplan for suggesting we deal with such an intriguing topic.
We are always a bit sheepish about promoting awards we win. For one thing, we are well decorated with well over 100 editorial awards now lining our mantle; for another we care more about the esteem in which the industry holds us than what editorial judges have to say.
Still, we also take some pride in representing the industry in these national and international journalism forums. No great work can be done that is not supported by the trade, so when we are selected for producing exceptional work it speaks to the willingness of the trade to take our critiques and analyses seriously. It speaks to a willingness of the trade to strive to build a better industry.
We feel a certain amount of pride in being a part of that.
We also think it is a value to the trade to know it is receiving world class content, and awards can help to validate that.
Each year, American Business Media runs a program of prestigious editorial awards.
It was a highlight of our career when we won the Timothy White Award for Editorial Integrity. Ken Whitacre wrote about that award with a piece titled, Prevor Wins An award But Industry Gets The Prize. This is a special award given under special circumstances “to an editor whose work displays courage, integrity and passion.” It has been called the “most important award in business journalism.”
In addition to such special awards, American Business Media also recognizes excellence annually in a competition often referred to as the “Pulitzer Prize of Business Journalism”, and for 2012, we were recognized for excellence in Commentary with a Jesse H. Neal Award. It is a very competitive process, and merely being nominated is a great honor. To win is a special treat.
That this is the third time we were so recognized is unprecedented. The award was given for our column, The Fruits of Thought, that we have written now for a quarter century in Pundit sister publication PRODUCE BUSINESS. It was presented for a body of work represented by three separate columns:
Two Cheers for Bacon
Florida-Mexico Tomato Battle Distracts From A Focus On Consumers
Pick Your Retail Turf
The award was presented along with these comments:
Judges thought topics covered in these commentaries were provocative. Judges also noted that editor Jim Prevor doesn't "mince words" and used "industry knowledge to puncture myths and spin-doctoring."
Well, the judges got that right; that is exactly what we try to do.
We owe thanks to the judges and the American Business Media for the award and to our industry for supporting us through thick and thin.
We won the award, but we accept it on behalf of the entire trade.
We like to think we control our lives and, to some extent, we surely do, but life is serendipitous at times and sometimes in the most important ways.
We had been reflecting on such thoughts when LinkedIn published an article by Richard Branson, founder at the Virgin Group. The article is part of a series LinkedIn does asking prominent people what “things they carry.” Richard Branson had an unusual take. He responded: Things I Carry: Smart phone? I Prefer a Brilliant Assistant:
I couldn’t get through the workday without my assistant, Helen. While gadgets like smartphones and tablets certainly do have a huge positive impact upon my working life, it is the people around me who really make the difference.
Helen is my memory. She travels the world with me, is delightful to have around, and is extremely adaptable and sociable wherever we find ourselves. With so much going on with my mind, having an extra memory is important. Before I ask her to do something, she can read my mind and know what it is I am thinking before I ask.
There are some people who seem to be able to do everything themselves. I am a great believer in the art of delegation and in sharing the load to make everyone more productive. Having an assistant who is completely in the loop with our activities means we can keep up with everything. People often ask how I am able to keep on top of businesses in dozens of different countries and industries. Well, having an assistant who is on the ball 24/7 is one of the main ways it is possible.
We are a moving office. I don’t believe in sitting in an office all day, so there is no reason for one’s assistant to have to sit in an office either. This makes Helen’s job a lot more fun too. I find dictating emails is an excellent time-saving method, and by dictating she also knows what is going on and can be 100% in touch. We do an awful lot of traveling and my assistant can smooth the journeys through, helping with the nitty-gritty details and logistics that would otherwise be a distraction. This frees up time for me to think about the bigger picture.
We confess that we are definitively on the people side of the “people vs technology” debate. Sure we can’t imagine life without our gadgets, but the value added of an incisive mind and loyal friend is not to be surpassed. We — so far at least! — are not the size of the Virgin Group, so we haven’t had as many personal assistants as Richard Branson. We usually have to give those we have had additional jobs to make the numbers work, but we have been very blessed to always work with people who believed in the mission and who believed in me personally and, in the end, that has made all the difference.
This week, Fran Gruskin, who for the past quarter century has been my Executive Assistant, is retiring. We have been living on borrowed time for years, and we persuaded Fran to stay a half decade longer than she once intended. Now, vibrant and healthy, she turns to devote 100% of her time to the truly important things… to her children and her grandchildren, her broader family and many friends.
She might have stayed longer still, but Fran’s mother had Alzheimer’s and we watched as that horrid disease stole from her the enjoyment of the last years of her life. An experience such as this reminds us, as they reminded Fran, that as the Scottish poet Robert Burns wrote: “The best-laid plans of mice and men/ Often go awry.” So it is wise to seize the moment and accomplish what you hope to accomplish while you know you can.”
We met Fran through a serendipitous moment. She worked for the Magazine Publishers of America (MPA), where Pundit sister publication, PRODUCE BUSINESS, was a member. We were relocating to Boca Raton, Florida, and had sent in a change of address. As Assistant to the Executive VP of MPA, Fran processed that change and, coincidentally, she was moving to Boca Raton as her husband, a NYC police detective, was ready to retire. Fran wasn’t interested in retiring and sent us a resume. Her boss had written a reference letter and he told us that if we hired Fran, not only would her work be excellent but she would fill our lives with a kind of joy, and so she has.
Back in those days, I was still in my twenties, had no family in Florida, and Fran opened her home to me. Thanksgiving or Passover, a hundred other times she would cook “soup to nuts” and always had a chair for me.
In work, it became effortless as she came to know exactly how I would respond to every situation, as Richard Branson said: Before I ask her to do something, she can read my mind and know what it is I am thinking before I ask. She knew my values and my priorities and she knew me.
It takes a certain personality to be a great assistant, as one is always a little bit in the shadow, but Fran sought no personal glory. I think she was proud to work for me and with me, and when she would go to trade shows or conferences or speak on the phone to industry members, she felt that a word of praise for this Pundit was a word of praise for her. What more could one want in an assistant or a friend?
How much do I owe Fran? How about my whole life? It was Fran’s daughter who arranged a blind date on which I met my wife! Without my wife, I wouldn’t have my children, so if I had never met Fran the trajectory of my entire life would have been very different.
Fran won’t be totally gone from the business. She is off right now for a lifetime goal, a trip to the Holy Land, to Israel, and when she returns she will fill her days playing Canasta and Mah-Jong with friends, visiting family, and she will fill the lives of all those she loves with joy. Her grandchildren are so excited they just can’t wait.
Fran has promised, though, to come back to help us with The New York Produce Show and Conference and will do a few special projects for us throughout the year. Her e-mail works so, if you want to send her a note wishing her a happy retirement, you can do so here.
We are going to throw a nice dinner for her, and I am sincerely happy that working with us all these years helped make it possible for her to go enjoy life at its most meaningful.
Fran didn’t go to Harvard and she never became a CEO. She isn’t super-rich and never became famous, but her quarter-century association with me and this company serves as an impressive reminder of the impact all of us can have on the lives of those we care about. Fran has, indeed, filled the lives of many with joy, but she has also taught me, and all who wish to see it, an important lesson about our ability to make all the difference for those we love.
In high school, they teach children a poem by Robert Herrick, titled, To the Virgins, to Make Much of Time:
GATHER ye rosebuds while ye may,
Old time is still a-flying :
And this same flower that smiles to-day
To-morrow will be dying.
The glorious lamp of heaven, the sun,
The higher he's a-getting,
The sooner will his race be run,
And nearer he's to setting.
That age is best which is the first,
When youth and blood are warmer ;
But being spent, the worse, and worst
Times still succeed the former.
Then be not coy, but use your time,
And while ye may go marry :
For having lost but once your prime
You may for ever tarry.
We cannot know what life holds for any of us, but Fran has never tarried. She has always enjoyed living. Some may bemoan the work they have to do, but Fran always enjoyed the work she had. She never lacked for friends or company and she shared what she had generously. She was always on the go and always making things happen.
There is a long tradition in western civilization that we speak nothing but good only of those who have passed, and Fran is very much alive, so I will tell you that she has been on a continuous diet for a quarter century and yet weighs the exact same as when I first met her! It is not surprising, though; she eats up life and that includes enjoying food and friendship and a cocktail or two.
Bon Voyage, Fran. Thanks for the work well done, the love and friendship and the titanic influence you’ve had on my life. May all your voyages be smooth and may all your dreams come true.