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Perishable Pundit
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Produce Business

Deli Business

American Food & Ag Exporter

Cheese Connoisseur

From The Frying Pan Into The Fire —
Wal-Mart Finds Another Way To
Alienate Suppliers

Ace PACA lawyer Larry Meuers reports in his newsletter what some of his clients are telling him about Wal-Mart:

Wal-Mart Stores, Inc. (Bentonville, Arkansas): We have received calls from clients that an outside auditing firm has been auditing Wal-Mart produce files to determine whether the prices charged and paid by Wal-Mart comport with the contractual price between the supplier and Wal-Mart. The auditing firm has been demanding that the supplier refund any discrepancies found. If Wal-Mart is your customer and you have any questions or information regarding this issue, please contact Larry Meuers by email at lmeuers@meuerslawfirm.com or by telephone at (239) 513-9191.

This is what doing business with Wal-Mart has come to — suppliers who have worked with Wal-Mart every day for years and thought they had a “partnership” relationship with Wal-Mart, do not get a phone call from their produce department contact, they don’t even get a letter from the produce department giving a heads up that an audit process is under way and they may be contacted.

Instead, a total stranger, from an outside company, sends an e-mail with what is basically a bill demanding payment. In other words, the produce contact has been OK all these years, signing off on payments and orders, etc. — but, all the sudden, none of that matters.

Now, when the produce suppliers do what is normal, call their “partner” at Wal-Mart in produce and ask what this is about, they are then told that “corporate” has hired an outside auditing firm. Because so many produce decisions have been made “on the fly” over the years — based on an e-mail or a phone call or a fax — to respond to rapidly changing markets, avoid out-of-stocks and take advantage of opportunities, the vendors are told that a lot of things are showing up as “unjustified payments” and that is why they got the letter/invoice.

The vendors are told that they should go through the process, pull up their paperwork and records and any adjustments will be minimal in the end. They are told not to worry.

Here is a shocker: The vendors are still worried.

These vendors aren’t Wal-Mart. Few have the same big company record retention systems. Did they save their notes on the phone conversation with their contact with Wal-Mart — especially on transactions for which they were already paid years ago? Probably not.

Besides, even if in the end these audit notices all go away and everyone gets a “no change” case, that doesn’t mean that no harm was done.

When a supplier gets a demand to turn over a truckload of money to Wal-Mart, prudent executives don’t just ignore it. They call attorneys such as Larry Meuers and retain them. They contract with certified public accounting firms. They pull their own controllers off other tasks to focus on this task.

Hopefully it all works out and the outside auditor agrees that nothing is owed. If that agreement comes after months of meetings, painstaking review of records, explanatory letters written, that “no change” case can easily cost tens of thousands of dollars in professional fees and maybe more.

Yet as much as the money is an issue — and it is a big issue with vendors who get blindsided by this — there is something about the way this is being handled that is profoundly disrespectful of a collaborative relationship.

It makes sense for Wal-Mart to check its payments — but if there is a suspicion of a problem, the first step should be to go to the Wal-Mart employee involved. Can he explain the discrepancy? Does he think there is a problem?

If so, one would think that the produce employee at Wal-Mart would call up his “partner” in the vending community and discuss the matter.

One assumes that most of the time the situation will be amicably resolved as the selling and supplying partners discuss the matter, remind each other of what transpired and come to a resolution.

In a few cases, there may be a dispute that can’t be resolved and it may go to accounting and legal. That is business. But no partner who values his partner just has an outside auditor send him a bill. That is not partnership, that is not collaboration, that is not mutual respect.

The truth is this seems unlikely to have been a produce department initiative. It smacks of the way department stores treat suppliers. One suspects a general policy instituted at very high levels.

Produce, though, is not the same thing as general merchandise, and there will be consequences to this hostile attitude that non-produce executives at Wal-Mart simply have no clue about.

Watch as out-of-stock numbers creep up, especially for highly valued product in very short supply.

When allocations need to be made, the biggest buyer is not necessarily the favored buyer.

Perhaps in isolation, produce sellers would forget about such a corporate initiative, but following on the changes in Wal-Mart’s produce procurement practices that we have been chronicling, most recently here, they will, legitimately, perceive these audits as one more sign that things have really changed at Wal-Mart.

FTC May Block Whole Foods
From Buying Wild Oats

When the Whole Foods acquisition of Wild Oats was announced, we analyzed the anti-trust implications:

Probably the most common question the Pundit has been asked is whether anti-trust authorities will allow the acquisition.

They should, but much depends on how you define “the competition.” If you believe there is a separate category of, say, “health food supermarkets,” then the FTC would be hesitant to approve. Wild Oats is the best shot at being a true competitor to Whole Foods, and allowing them to merge would be seen as anti-competitive.

A more reasonable view of the market, though, is that Whole Foods is part of a larger food retailing industry and in that industry it has an insignificant market share.

Now, however, providing the not shocking evidence that government antitrust attorneys don’t understand the food business, comes word that the government will try to block the merger:

Federal regulators, looking to thwart a merger that would create a colossus in the U.S. organic supermarket business, will try to block Whole Foods Market Inc.’s (WFMI) planned acquisition of rival Wild Oats Markets Inc. (OATS), the companies said Tuesday.

Whole Foods, of Austin, Texas, which in February agreed to buy Wild Oats in a $565 million deal to create the nation’s largest organic grocery chain, said it expects the Federal Trade Commission to file a federal lawsuit requesting an injunction to stop the merger. In March, Whole Foods said FTC officials had raised concerns about “perceived anticompetitive effects” resulting from the deal.

Shares of Whole Foods fell $1.21, or 2.9%, to $40.48. A thwarted merger would deprive Whole Foods of sales and profits the Wild Oats stores are expected to contribute over the next few years, leaving Whole Foods to rely on a more costly store-building program. Meanwhile, shares of Wild Oats rose amid speculation the chain might find a new suitor.

Whole Foods said it plans to vigorously challenge the government’s opposition in federal court. Legal analysts said the outcome likely will hinge on the court’s interpretation of which market the companies operate in — the natural — foods market or the broader supermarket industry.

“The FTC has failed to recognize the robust competition in the supermarket industry, which has grown more intense as competitors increase their offerings of natural, organic and fresh products,” Whole Foods Chairman and Chief Executive John Mackey said in a written statement.

The FTC confirmed it will seek to block the deal. Lawyers close to the investigation confirmed the companies’ statements and said the agency is preparing to file a complaint in U.S. court as soon as Wednesday.

The agency’s opposition is based on the argument that there is a separate market segment for organic-foods chains and that in many cities the deal would lessen competition in that segment, leading to higher prices.

The flaw in the government’s reasoning is that it thinks there is an “organic supermarket business,” when, in fact, this is better understood as a marketing emphasis.

The products sold at a Whole Foods or a Wild Oats are sold in supermarkets, supercenters, warehouse clubs, via the Internet and many other outlets.

And in any case, the barriers to entry in opening these types of stores are quite low — Publix is going to do it with its Greenwise concept, Supervalu did it with Sunflower, and if the demand is there others will do it as well.

The FTC is either pandering to those instinctively anti “big business” or doesn’t get the realities of today’s marketplace.

Of course, there also is the possibility that Whole Foods should be careful about what it is wishing for. Our sense is that Wild Oats, with its mostly smaller stores, is not the future but the past for Whole Foods.

The Whole Foods prototype store in Austin, as well as new stores such as the one in Los Angeles or, especially, the new 80,000-square-foot store in London, are not so much retail stores as restaurants and spas that sell some products at retail.

The truth is this focus might pay off more than expanding its small store base. If the FTC wins and Whole Foods can’t buy Wild Oats, though we’ve never thought the vibe at Whole Foods was particularly “country” with its Texas headquarters, maybe Whole Foods’ executives might start humming that old Garth Brooks song about giving thanks for Unanswered Prayers.

SuperValu’s Management
Of Albertsons Praised

It is pretty universally expressed that SuperValu has had a highly successful year since its acquisition of the best parts of Albertsons a year ago transformed the company into a predominantly retail company:

The hometown paper in Minneapolis declares that SuperValu’s Big Bet on Albertsons’ is Paying Off:

The gamble that SuperValu Inc. CEO Jeff Noddle made to acquire the larger Albertsons’ supermarket chain looks in hindsight like a deft move at a time made difficult by increasing consolidation and stiffer competition.

Nearly a year later, Eden Prairie-based SuperValu, which operates the Cub grocery stores and more than a dozen other grocery chains across the country, has racked up impressive gains in sales, earnings and its stock price. With $44 billion in estimated revenue, it has become the third-largest food retailer behind Wal-Mart Stores ($317.3 billion) and Kroger Co. ($59.9 billion). Its shares, which stood at $29.75 last June 1, closed at $48.64 on Friday….

SuperValu reported net earnings of $452 million for the year ended Feb. 24, more than double the previous year’s $206 million. Sales at properties the company owned before the acquisition, including Cub stores in Minnesota, were flat. But sales at the properties formerly owned by Albertson’s grew by 1.8 percent for the year.

Even back in Boise, Albertsons’ old corporate headquarters, the local paper declares 1 Year Later, Albertsons Thrives Under SuperValu:

One year after SuperValu bought most of Boise-based Albertsons, the Minneapolis company seems to have accomplished what Albertsons’ former leaders couldn’t accomplish in five.

SuperValu’s stock has more than doubled. Same-store sales have climbed. The fear in the community that this would be the end of Albertsons has subsided. And to hear at least one Boise store director tell it, employees have calmed down.

One has to give the management team at SuperValu kudos for navigating through this year. It is very easy to mess up this kind of merger, and failing to do so is plenty worthy of praise.

At the same time, we suspect that the hard part is just beginning.

SuperValu was smart in that they acquired good operations and didn’t do anything to mess them up.

But companies don’t do this kind of acquisition to just own autonomous operations and there are bound to be efforts over the next several years to leverage scale.

This is where the difficulty can come in.

Fortunately the executives at SuperValu seem haunted by the ghosts of Safeway’s unhappy acquisition history in which it bought up top performers in Chicago, Texas and Philadelphia and proceeded to substantially weaken their brand equity in each of their markets.

What basically happened is that the acquisitions were attempts to gain scale to compete with Wal-Mart. The utilization of that scale meant rolling out things like private label products across all divisions. The only problem, of course, was that consumers who loved, say, Genuardi’s private label, hated Safeway’s products and brand.

Sales fell, consumer loyalty collapsed and the acquisitions were failures.

SuperValu is now attempting to find areas of opportunity in which highly diverse retail concepts, operating under different banners, with different types of clientele, can still leverage SuperValu’s size.

Prior to the acquisition, SuperValu had set up a produce procurement organization called W. Newell & Co. The expectation was that this concept would be expanded and each perishable division would be set up as a similar operating group.

Now it is unclear what the future is for W. Newell & Co. as well as whether it makes sense to expand the concept to other perishable divisions.

Still, we would say most of the SuperValu executives are pretty optimistic. They place a lot of emphasis on the fact that the company’s top management team has extensive experience in supermarkets. Many of the top executives, if not exactly starting as bag boys, came into the system pretty close at that level. They contrast this management profile with Albertsons last CEO, who had been brought in as a “change agent” from General Electric.

We think this optimism is realistic. The key is that in integrating the acquisition, executives have to keep reminding themselves that scale and efficiency are only valuable as tools in serving consumer needs.

Safeway messed up because it was so focused on producing private label goods efficiently it forgot that no price reduction is efficient if one market wants a spicy sauce and the other prefers bland, and the savings come about by losing half the market.

SuperValu’s executives seem determined to not push scale for scale’s sake but to identify the sweet spots where scale can be put to use in the service of meeting the needs of consumers.

If they hold to that philosophy, this merger will go down in business history as one of the most successful of all time.

Congratulations to the SuperValu team on a successful first anniversary for the new SuperValu. Let us hope there are many more successes to come.

Ocean Spray Headache Continues

As the trial is expected to commence shortly, we’ve been asked to provide a round-up of our coverage of the issues raised by the lawsuit between Jim and Theresa Nolan, their company, The Nolan Network and Ocean Spray:

  1. Pundit Sister publication, PRODUCE BUSINESS, published Special Report: Ocean Spray Sued By Longtime Associates, which provided an overview of the complaint filed by the Nolans.
  2. We then ran Ocean Spray Trial Will Shed Light On Business Practices, which reviewed the issues from a business and ethical, rather than a legal, perspective.
  3. Will Retailers Wait For A Trial To Act On Ocean Spray Controversy? pointed out that retailers have not traditionally required legal judgments to seek compensation when retailers felt they had been wronged.
  4. We then raised the possibility that, in addition to the Robinson-Patman Act violations alleged in the complaint, the way cranberry growers at Ocean spray were paid may have caused Ocean Spray to violate the PACA. The piece was called Ocean Spray Case Delves Into Robinson-Patman and PACA Violations.
  5. Pundit’s Mailbag — Robinson-Patman Attorney Weighs In On Ocean Spray was the title we gave to a piece built around a letter we received from a Robinson-Patman attorney who was not impressed with Ocean Spray’s defense, at least in regard to its actions with Costco.
  6. Most recently Ocean Spray’s Special Treatment of HEB reviewed some of the evidence supporting the assertion that Ocean Spray, favoring H.E. Butt over Wal-Mart, Safeway, Kroger and others, gave H.E. Butt the favorable pricing available for full trailerload trucking, even though it only received cranberries in less-than-trailerload shipments.

Legal cases often settle, and it is hard to believe that it is in Ocean Spray’s interests to continue airing its dirty laundry in public.

This is going to be a big headache no matter what. Sam’s Club will have its thoughts, supermarket chains that competed with H.E. Butt will have their thoughts, and the USDA will surely investigate the possibility of PACA violations.

Is Ocean Spray really going to want the additional headache of a public lawsuit? One wonders who at Ocean Spray let the situation get this far?

You can count on the Pundit to keep you informed on this issue involving an iconic produce brand, America’s largest retailers and two well known and respected produce personalities.

Filice Takes Helm On Grower-Shipper
Association Of Central California

The Grower-Shipper Association of Central California is a small but enormously important and influential association in the produce trade. It has just elected its new officers and board:

Salinas, California — FOR IMMEDIATE RELEASE:


The ballots to elect the Board of Directors for the Grower-Shipper Association for the 2007-2008 were counted. The elected Directors met and elected the following officers for the year.

The 2007-2008 Officers of the Grower-Shipper Association of Central California are:

Kay Filice
Filice Farms
Hollister, California
Vice Chair
Dennis Donohue
European Vegetable Specialties
Salinas, California
Bill Moncovich
California Giant, Inc.
Watsonville, California
James W. Bogart

In addition to the Chairwoman, Vice Chair and Treasurer, the Board of Directors for the Grower-Shipper Association for 2007-2008 are:

Nick Azcona
Azcona Harvesting, LLC
Greenfield, California
Rodney Braga
Braga Ranch
Soledad, California
Steve Church
Church Brothers, LLC
Salinas, California
Andrew Cumming
Metz Fresh, LLC
King City, California
Sammy Duda
Duda Farm Fresh Foods, Inc.
Salinas, California
Will Feliz
River Ranch Fresh Foods, LLC
Salinas, California

Ken Higashi
Easton Enterprises, Inc.
Salinas, California

Lorri Koster
Mann Packing Co., Inc.
Salinas, California
David Martella
Martella Farming Company
Salinas, California
Joseph Pezzini
Ocean Mist Farms
Castroville, California

Particularly significant is the choice of Kay Filice as the new Chairwoman of the Board to replace outgoing Chairman, Joe Pezzini who, in addition to his responsibilities at Ocean Mist Farms, is a little busy chairing the California Leafy Greens Handler Marketing Board.

Kay would be a substantial resource for the produce industry at any time. Not coming from a typical ag background, she brings new ideas and new ways of thinking. Kay grew up in the Midwest and worked in marketing with IBM. She got involved in the industry in the best way — through true love — when she married a farmer from Hollister.

When he passed away eight years ago, Kay stepped in and ran the family farm and business. Her intelligence and tenacity, her uplifting spirit in the face of hardship and sadness, won her the respect of her peers in the ag community as evidenced by her election to chair the Grower-Shipper Association.

Although Kay’s qualities would qualify her for leadership at any time, in this moment of media awareness, she is telegenic, calm, level-headed and a builder of consensus.

When Joe Pezzini, preparing to pass the gavel, introduced Kay, he said what many in the room were thinking: “Well, after 77 years we finally got it right.”

Congratulations to Kay and to all the board members and officers.

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