During the course of our extensive reporting on Tesco and its roll-out in America under the Fresh & Easy banner, we have often suggested that sending so many British executives to the US was an error.
This is not to reflect poorly on any of the British executives; they were all selected for this high priority project because they are superstars. Tim Mason, the CEO of Fresh & Easy, has been spoken of as the next CEO of Tesco — although he has supposedly ruled himself out of the job.
He won a place in the legion of retail luminaries by spearheading the introduction of Tesco’s famed Clubcard and working with Sir Terry Leahy to come up with Tesco’s “Every little helps” slogan. An avid triathlete, father of five and once named the “most powerful marketer” in the UK, he has certainly earned his spurs. All this is quite laudatory, perhaps especially so because he may not have needed to work so hard. After all, he is quite well connected; his father-in-law is Lord MacLaurin, the well-respected former Chairman of Tesco who named Sir Terry Leahy as his successor.
Yet we have long thought that, as a matter of business practice, it is desirable to hire local executives whenever local expertise is available. In other words, if you are opening in a developing nation and you need skills that aren’t available, you bring in expatriates, but if we were opening a chain in a developed market, such as the UK, we would want to hire British people because they would have more insight into the consumers and better connections with the trade. They would know in their bones when something wouldn’t play right with the locals.
We could understand having a financial officer sent from the home office to watch the money but, in general, the more local expertise, the more likely the chance for success.
Tesco has disagreed that sending a team of Brits was an error, pointed out that it has also hired many Americans and not said much else.
Now, however, we have learned that Tesco is actively recruiting for a new American CEO for its Fresh & Easy division. It is expected that Tim Mason and several other key executives will be returning to Britain. The interesting question is why is this happening? After months of resistance, what is moving this action now? Four possibilities:
1) The “Official” Story
The story being told candidates for the position is that Tesco needs Tim Mason and several other British executives tasked to Fresh & Easy back in the UK.
It is possible this is the whole story. Tesco has been under pressure from a resurgent Morrisons and, to a lesser extent, ASDA, as well as facing tough competition from deep discounters such as Aldi, Lidl, Netto and frozen food specialist Iceland, and, as we have written before, the leverage is enormous. If an executive of Tim Mason’s abilities can increase Fresh & Easy sales by 10%, it is equivalent to a rounding error on Tesco’s financials. If his abilities are such that he can increase sales in the UK by 1%, he can add billions to the stock market capitalization of the company.
2) The “Mission Accomplished” Story
As with President Bush standing on that air carrier announcing “mission accomplished,” we may come to hear that the job of establishing Fresh & Easy is complete and so it can be passed onto a less exceptional team.
People say a lot of things, but this doesn’t seem credible. After all, Tesco just announced that analysts need to increase their expectations for losses this year four-fold — to about $200 million. That is about $150 million in losses above what was anticipated a few months ago.
3) The “Yanks Are Coming” Story
It is also, of course, true that Tesco may have come to the same conclusion we did — that it will be best served by an American team and is moving in this direction.
This seems an unlikely position for Tesco to take as it has been so adamant that it did plenty of consumer research and hired plenty of Americans. But on some level, Tesco top executives may have started to think the main advantage in sending their own people over was the comfort of Tesco executives in London and that success may come from a different path.
4) The “Pull Out Our Team Before The Building Collapses” Story
The most frequently repeated explanation for what is going on is that Tesco’s top executives are looking to protect the reputation of its own people. Despite the “stiff upper lip” attitude that everything is going great, Fresh & Easy lost approximately $125 million in the first year of operation, and Tesco itself is expecting to lose about $200 million in the current year of operation.
This means that despite capitalizing many costs, such as the building of a distribution center, operating losses for the 200 stores Tesco hopes to open by year-end will have exceeded $3 million US dollars per store — despite the fact that the stores will have mostly been open for less than half a year.
As one food industry executive close to the situation put it: “They want to pull the ‘good old boys’ out of the US for fear the concept will collapse and these co-workers, friends and relatives will get hung with the failure.”
So Fresh & Easy is looking for a new CEO. This time they want an American. If you qualify, get your resume ready.
As the industry prepares for the upcoming United Fresh show in Las Vegas, one question has been answered. What is going to happen in 2009 when United’s co-located partner, FMI, is not going to have a show?
The answer: United’s planning on flying solo again:
United Fresh Produce Association Launches
Expanded 2009 Show in Las Vegas
United Fresh Produce Association announced today that it will expand its annual trade show and convention to focus on produce innovations, fresh meals, and technology solutions for the retail and foodservice marketing channels, and the total fresh produce and fresh meals supply chains.
UNITED FRESH 2009 will be centrally located at the Sands Expo Center and The Venetian Hotel in the middle of the Las Vegas Strip, April 22-24, 2009. Both the full expo and all convention education programming will be easily accessible from the magnificent Venetian Hotel, which will serve as the headquarters hotel for the event.
UNITED FRESH 2009 is the umbrella show encompassing two unique expos — United Fresh Marketplace and United FreshTech. New for 2009, each expo will feature its own show floor Learning Center, where attendees will focus on business strategies and education for success. This on-floor education will complement the traditional United Fresh Annual Convention featuring a full array of general sessions, workshops, receptions and networking events bringing the entire industry together to focus on increased sales and profitability.
As part of its expanded focus on fresh foods, UNITED FRESH 2009 will feature a new Meal Solutions Showcase highlighting innovation and product development that combines fresh fruits, vegetables and other fresh foods into prepared meals and healthy snacks. This new focus on fresh prepared foods will serve the growing business of in-store foodservice operations and the wide array of restaurants and other channels traditionally focused on prepared foods.
UNITED FRESH 2009 will once again feature its Food Safety & Research Pavilion, bringing together an expanded number of companies with food safety solutions for each segment of the supply chain, as well as universities and government agencies with tools and research to assist the industry. The show will also include a Featured Product Center with an opportunity for attendees to evaluate new products, an International Visitors Lounge, and a series of private business suites that exhibitors may choose for meetings on the show floor.
Also new for 2009, the association will launch UNITED FRESH 2009 ONLINE! later this summer, creating a virtual trade show marketplace that allows potential buyers across the world to search an interactive exhibitor database for new products and services, contact exhibitors directly for product information, and learn about new business opportunities leading up to the Las Vegas show in April. Exhibitors who sign up for the 2009 show will automatically be included in this online virtual marketplace, offering a year-round marketing platform.
“UNITED FRESH 2009 will build on the successful launch of our show in Las Vegas this year, which will welcome more than 100 companies as new exhibitors, with thousands of qualified buyers and attendees already outpacing last year’s registration,” said United Fresh President Tom Stenzel. “As we look to 2009, it’s clear that there will be a growing commitment to the show from foodservice and other marketing channels in addition to its supermarket base, as well as strong interest from buyers and sellers in the expanding fresh meals sector. Fresh produce is at the center of much of this new product development, and our unique combination of both the FreshTech and Fresh Marketplace expos provides the only event where the total supply chain and business leaders in this growing category come together,” he said.
“We have enjoyed a great relationship with the Food Marketing Institute these past five years, but with FMI’s decision not to hold its traditional supermarket show in 2009, we’ve actually been able to appreciate the underlying strength and potential of our own event as a multi-channel, total supply chain show serving a much broader audience of buyers,” Stenzel said. “We’re excited that UNITED FRESH 2009 will be able to forge its own unique platform in highlighting produce innovations, fresh meals and technology solutions, rather than being viewed only in its connection with one retail channel. Already, a number of foodservice providers are stepping up their attendance at the show, and we see our expanded fresh meals focus in 2009 serving both in-store supermarket needs as well as traditional restaurants and facilities where fresh produce and fresh foods are served.”
Details about UNITED FRESH 2009 will be shared with current exhibitors in Las Vegas, who have first priority to reserve space and begin sign-ups onsite May 3. The priority period will run through June 15, 2008, during which a waiting list for new exhibitors will be established first-come, first served. As a courtesy to current FMI exhibitors interested in the UNITED FRESH 2009 show, United Fresh will also extend early-sign to these companies during the priority period.
Our sense is that many in the industry are excited regarding this year’s United show. We would like to say that this is because people have heard that the Pundit will be moderating a panel on sustainability Tuesday morning, but we would actually say that Vegas is the bigger draw.
United clearly has tapped into this enthusiasm. In announcing its decision to go it alone, United also has broken with the produce industry tradition of rotating shows around the country, deciding to return to Vegas.
It is also trying to spread its wings a bit to do a better job of encompassing prepared foods, a subject we here at the Pundit know a bit about as the publishers of DELI BUSINESS magazine and the founders of the International Prepared Foods Show.
In a sense, after consolidating the old International Fresh-cut Produce Association show with United’s traditional show, United Fresh is now trying to expand.
Astutely, United is looking to expand its audience to incorporate more foodservice and other buyers as a consolidating retail sector makes the job of attracting retail buyers to any show increasingly difficult.
It all sounds very exciting. United sent along a proposed floor plan, which you can see here. It has promised to explain more this year in Las Vegas. We look forward to learning more and wish United Fresh God Speed as it ventures on this new journey.
Also at United Fresh this year:
Steffanie Smith, CEO of River Point Farms, LLC
2008 Reception Honoring Women in Produce
United Fresh, Las Vegas
We are proud to announce that Steffanie Smith, CEO of River Point Farms LLC, in Hermiston, Oregon, will be the featured speaker at the 2008 Reception Honoring Women in Produce, during the United Fresh convention May 4-7 in Las Vegas.
This annual reception honors all women working in the produce industry, and pays special tribute to one outstanding female industry leader — this year being Smith.
Reception Honoring Women in Produce
Monday, May 5, 5:00 pm — 6:00 pm
Mandalay Bay Convention Center, Islander Rooms A-F
Las Vegas, NV
Co-sponsored by Driscoll’s and D’Arrigo Brothers Company of New York, Inc.
It wasn’t long ago that we were discussing the fact that Steffanie had assumed a new position with River Point Farms.
Her appearance at United is timed perfectly… turns out that River Point, which was the product of a merger, has just celebrated its one-year anniversary:
River Point Farms, America’s largest onion producer, today announces the celebration of its one-year anniversary. Formed in April 2007 as the result of the American Onion and Rivergate Farms merger, River Point Farms will produce over 490 million pounds of onions in 2008, a 23 percent increase in production over last year.
You can read the press release here.
Steffanie will be speaking in Las Vegas, but it will be something of a homecoming for her. Although from an ag family, she launched her career into the produce world as a staffer for the old United Fresh Fruit and Vegetable Association.
Break a leg, Steffanie!
Our piece, Low Dollar And Diversion Of Crops To Biofuels Contribute To Food Inflation, brought forth this thoughtful letter:
I am a frequent reader of your reports which are insightful and very good coverage on a variety of produce related topics.
I have to take exception with the piling on of finger pointing at biofuels for food price increases, however. When you really dig into the numbers, that just isn’t the case. Many other factors are driving food price increases far more than biofuels. I’ve attached a couple documents that detail such.
In sum, the US had the largest corn production in history in 2007, 25% larger than the previous year. That increased production more than offset all corn use in ethanol. If you take it out of the picture, food price issues would still be the same because ethanol is not the driving force. Droughts, increased demand, low dollar (exports/competition for product) and more expensive imports (30% of US consumption of produce), consumer choices (organic and rbst-free milk are more expensive), opportunistic price increases in the food chain, increases in labor costs, and $110+/barrel oil all permeate the food system far more than biofuels.
The big picture is that oil production has reached a plateau of about 82 million barrels per day for the past several years. China and India are buying oil (and everything else) to satisfy a growing population. Vehicle production in China jumped from 10 million cars in 2004 to 50 million cars to heading toward 2012, and projected at 150 million cars in 2018. In 2007, China accounted for 38% of the worldwide growth in oil demand. India isn’t far behind.
“With gas prices expected to hit $4 per gallon this year, consumers will be spending nearly a fifth of their household budget on gas,” said Todd Hale, senior vice president, Consumer & Shopper Insights, Nielsen Consumer Panel Services. “That kind of increase has a direct impact on what they can afford to spend and is something retailers will need to address.”
The world is not in a business-as-usual situation with food or fuel; global population is changing both. We have to find new solutions. Biofuels are a transition to the next stage of transportation fuel development. The biorefineries that have been built for today’s biofuels will be the backbone of cellulosic ethanol, algae biodiesel and other biofuels of tomorrow. Every day, biofuels are improving in efficiency, sustainability, and better production and processing practices. The opposite is true for oil — all the cheap and “easy” quantities are gone.
Are biofuels the silver bullet for transportation fuels? Certainly not. They are a piece of the puzzle. It will take monumental leaps in technology for vehicle mileage improvements, changes of driving behaviors and modes of transportation, increased use of barge and rail shipping (and major investments in both) with reduced reliance on trucks (least efficient form of shipping), more mass transit in cities, and new fuels we haven’t even developed yet.
The food price issue is real and has to be addressed, but it is a much broader issue than biofuels. It will take biofuels and many more components to solve the impending oil crisis.
If food is the issue, we should be focusing world attention on potatoes — they produce more nutrients and calorie per acre than almost any other food: http://www.nutraingredients.com/news/ng.asp?n=84493-solanic-avebe-fao-potato-proteins
Additionally, the US is losing 1.5 million acres per year of ag lands due to urbanization and conversion to other uses. Where’s the outcry over that loss and connection to food prices? And, we grow many things in the US and abroad that aren’t food but use ag lands (grasses, trees/nursery products, etc.)… are these taking away from food production?
Farmers respond to market signals and grow what is most profitable. Wheat hasn’t been profitable for many years, hence lower acreage worldwide, coupled with droughts in Australia and production problems elsewhere. It’s been a decade or more coming. The climax hit at an inopportune time, but hardly anything to do with biofuels.
It’s a very complex and “perfect storm” situation with many factors. Biofuels is the easy scapegoat for lots of players looking to blame someone else for their own problems, whether it’s oil companies diverting attention from $100+ oil, or other government’s lack of investment in ag research and production, or whatever.
Hope it’s helpful on the topic.
We thank Brent for sharing his reasoned approach to this issue and providing such copious data. In addition to the letter, Brent sent along two attachments, both of which are worth reading; we provide them for you here.
- What Is Driving Food Price Inflation?
- U.S. Corn Growers: Producing Food and Fuel
Brent’s point about multiple dynamics causing food prices to rise is well-taken. Even in our piece, the first cause we noted in the headline was the “dollar” — we apologize for the editing error that said “high” dollar rather than “low” in the headline — it was correct in the text — which serves to reduce imports and increase exports.
Without a doubt, the numerous factors Brent implicates are important in this situation:
- Increased demand — especially in places such as China and India.
- Low Dollar (more exports/fewer, more expensive imports)
- Opportunistic price increases in the food chain
- High Oil Prices
Yet we focused on the dollar and the issue of biofuels because they are more specifically a product of public policy.
There is, of course, no “correct” or “incorrect” price for a commodity — there is just a market-clearing price.
To the extent that prices are up due to drought, that is in all likelihood a short-term phenomenon, and next year we will have rain again. If the drought is due to global warming or some permanent change in climate, it is no longer correct to call it a drought; it just means that this is the new situation and reduced supply in that area will mean a change in the supply/demand equilibrium.
That areas of the world, such as China and India, are becoming more affluent and looking to eat more animal-based protein is undoubtedly true. Yet the impact of inflation on this dynamic is difficult to assess. People, after all, have brains and hands as well as mouths and stomachs. These newly affluent people are major contributors to the world economy — that is why they are newly affluent. If they pull the cost of food up by increasing demand, they also push down the price of many items by increasing supply. Net/net, it is a complex case to make.
The dollar has certainly impacted the situation, especially in the US in an industry such as produce. Yet if the issue was primarily the dollar, we might see food price inflation in areas linked to the dollar and food price deflation in areas not linked to the dollar. After all, if our prices go up because we no longer import as much food or we export more of our food, the rest of the world would have to experience the opposite effect and retain more of their domestic production and absorb imports of extra food from us. The unusual point about this global price increase is that it is, in fact, global.
Although some companies will be able to grab “opportunistic” price increases — that is to say, price increases in excess of what commodity prices have increased — we know of no evidence that en mass the industry will have higher profits. Anecdotally, for every restaurant or frozen-dinner manufacturer who was able to grab extra margin, it seems as if there are ten that can’t pass along all the increases in the price of inputs.
We could have included the high price of oil in our analysis as the price of oil is to some extent dictated by public policy. If it was easy to drill for oil in Alaska or off the coast of Florida, we might have lower oil prices. If one could build an oil refinery “as of right,” there would be more refinery capacity and probably more competition, thus keeping prices down. For the sake of discussion, we thought of oil prices as a “fact of life” that the ag industry has to deal with.
The reason for the focus on biofuels is that, unlike a failure to produce food due to drought or an increase in demand due to rising prosperity or export/import switches caused indirectly by a low dollar or opportunistic price increases in the food chain and high oil prices, increased demand for biofuels is mostly a matter of the government putting its thumb on the scale by declaring that it will mandate or subsidize such fuels.
Just last Tuesday, April 15, 2008, for example, Britain began a mandate for biofuels:
A new law went into effect in Britain on Tuesday that requires 2.5 percent of all gasoline and diesel sold for any vehicle to come from biofuels. That will rise to 5 percent by 2010, and the European Union has proposed a target of 10 percent across Europe by 2020. While those targets initially were criticized as a timid response to global warming, now there is some relief that the policies haven’t gone further.
Brent correctly points out that lots of things impact food prices and that we should be aware of things such as land lost to development, land used for ornamental horticulture, etc.
However, simply doing anything that will make food cheaper is unlikely to be the public policy goal.
We would argue that the focus of public policy should be on reducing externalities — and then let the private sector determine the best course of action.
If the problem is carbon, then tax it; if you believe that lack of oil independence imposes high defense costs on the country, tax imports of oil and products containing or made from oil.
Then the private sector will respond to those new conditions. Perhaps the answer is corn-based ethanol or maybe cellulosic ethanol or perhaps plug-in hybrid cars or maybe electric cars or hydrogen-fuel-cell powered vehicles — who knows?
Just as the French and British decision to invest government money in the Concorde didn’t put us all on supersonic jets, so in all likelihood government dictates in this area will lead to payoffs to political constituencies and significant diversion of resources from their most productive use.
Put it another way, we don’t see biofuels as a problem; we see government mandates and subsidies for biofuels as a problem.
We will say that we enjoyed the note on potatoes — a fine crop indeed. But excess dependence on any one crop, as our Irish friends can tell us, is a dangerous situation.
Once again, a sincere thanks to Brent Searle and the Oregon Department of Agriculture for such a comprehensive and thoughtful response.
We ran a piece entitled, Little Food Safety Progress Leads Media To Look Closer At Our Industry, which featured an NBC Nightly News video looking at produce industry efforts to enhance food safety and included interviews with Jim Lugg, Food Safety Director of Fresh Express, and Dirk Giannini of Christensen & Giannini, who is a grower in Monterey County.
The news report was motivated by a new CDC report indicating that foodborne illness in the US has not declined since 2004. We pointed out that what this seemed to imply was that despite all the food industry’s efforts to enhance food safety, it seemed to be having little effect.
We received a letter from an extension toxicologist suggesting we need to think of this data in a different manner:
I think you have to be much more analytical about how you “keep score” in the Food Safety area when it comes to food safety and produce. The CDC is reporting food borne illness and the measures the production industry is taking reduces disease pathogens. These are very different issues. Illness is a human condition over which growers have little or virtually no control.
The occurrence of disease pathogens on produce is a biological reality that can be effected by food handling practices. Develop measures that acknowledge the occurrence of disease pathogens as environmental, biological realities and work very hard to MINIMIZE them. This is happening and it is not a new issue (but it is receiving new emphasis). It will be possible to show dramatic progress in that area and to demonstrate vigilance and success. Advocate a responsible amount of produce inspection and measurement as a purity issue, NOT as a means to prevent illness!
In the long term, such actions may impact the incidence of food borne illness, but since illness may result from many factors that are unmeasured and not part of production and shipment of produce, the role of the industry can be clarified and put in proper perspective. When illnesses occur (70 million cases per year and it is under-reported in the U.S.), if there is general recognition that disease pathogens are ever-present at some level and that agriculture minimizes their occurrence in the food supply, I think there will be lesser tendency to seek single causes and paralyze elements of food production.
We thank Bob for his letter and agree we deserve a few lashes with a wet noodle for not pointing out the obvious distinction between pathogens on food and foodborne illness.
In all likelihood, the vast majority of the CDC’s estimated 76 million cases of foodborne illness each year, including 325,000 hospitalizations and 5,000 deaths, can be traced back to food preparation, storage and handling. In many products, such has hamburger and E. coli — proper cooking is 100% effective at avoiding foodborne illness.
Illness, as a human condition, depends on the vulnerability of one’s immune system. And food capable of causing a foodborne illness depends on many things other than pathogens on the raw material. Although it is a little dated, having been done in 2000, even a quick look at the report of the FDA Retail Food Program Database of Foodborne Illness Risk Factors points out how often the problem is not just a matter of a pathogen on the food from the source. Look at this table on produce at retail stores:
Table 10. RETAIL FOOD STORE — PRODUCE DEPARTMENT
% OUT OF COMPLIANCE OBSERVATIONS
|Industry Segment — Retail Food Store Facility Type — Produce Dept.||N||Total Observations||% OUT of COMPLIANCE|
|PHF Held Cold at 41°F (5°C) or Below||75||98||77%|
|RTE, PHF Discarded After 4D/45°F (7°C) or 7D/41°F (5°C)||33||56||59%|
|Proper, Adequate Handwashing||36||87||41%|
PHF stands for “potentially hazardous food,” and you see that temperatures are rarely maintained at retail.
Surfaces are typically not properly sanitized.
RTE — or ready-to-eat — foods and potentially hazardous foods are not discarded in accordance with time and temperature recommendations.
41% of the time the staff is not properly washing their hands.
Deli Departments had even worse problems:
Table 8. RETAIL FOOD STORE — DELI DEPARTMENT
% OUT OF COMPLIANCE OBSERVATIONS
|Industry Segment — Retail Food Store Facility Type — Deli Dept.||N||Total Observations||% OUT of COMPLIANCE|
|PHF Held Cold at 41°F (5°C) or Below||72||100||72%|
|RTE, PHF Date Marked After 24 Hr||54|| 82||66%|
|Commercially Processed RTE, PHF Date Marked|| 60|| 92||65%|
|Proper, Adequate Handwashing||54||101||54%|
|PHF Held Hot at 140°F (60°C) or Above||47|| 90||52%|
|RTE, PHF Discarded After 4D/45°F (7°C) or 7D/41°F (5°C)||34|| 67||51%|
|Poisons/Toxics ID Store/Use Properly||36||102||35%|
Even in hospitals the out of compliance is substantial:
Table 3. INSTITUTIONS — HOSPITALS
% OUT OF COMPLIANCE OBSERVATIONS
|Industry Segment — Institutions Facility Type — Hospitals||N||Total Observations||% OUT of COMPLIANCE|
|PHF Held Cold at 41°F (5°C) or Below||54||88||61%|
|Commercially Processed RTE, PHF Date Marked||32||77||42%|
|RTE, PHF Date Marked After 24 Hr||36||88||41%|
|Proper, Adequate Handwashing||36||92||39%|
|PHF Held Hot at 140°F (60°C) or Above||32||89||36%|
This is important to be aware of and, as Bob Krieger is correct to point out “…if there is general recognition that disease pathogens are ever-present at some level and that agriculture minimizes their occurrence in the food supply, I think there will be lesser tendency to seek single causes and paralyze elements of food production.”
However, as we have just seen in the Honduran Cantaloupe situation, the current state of the law is that the mere presence of a pathogen justifies any measure the FDA feels like taking.
Bob Krieger is clearly right, pathogens on food are not the same as foodborne illness. Still, his suggestion that we seek purity strikes us as complex.
Yes, one can argue that we should pursue pure food. After all, many of the pathogens we are concerned with have their root in animal or human excrement. So as a matter of quality, we should want to rid this from our products.
It all costs money, though, and if it will not reduce the incidence of foodborne illness, one has to wonder if that money shouldn’t be directed in another manner.
It is a quandary and one the industry will eventually have to confront. One reason some oppose irradiation is because they perceive it as a license to sell dirty food which is then irradiated to make it safe, whereas they want to buy clean food that is naturally safe because it is clean.
We thank Bob Krieger and the University of California, Riverside, for helping us think through such an important issue.