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Perishable Pundit
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China Plays Down Food Safety Problems

The China Daily is an English language newspaper that is controlled by China’s communist party. So when it runs an article entitled, Quality of China’s Farm Products Improving, it is fair to say that high authorities in China are concerned with world perception of the safety of Chinese food production:

Chinese farm products are getting safer, the government said on Tuesday, citing tests of fruit, vegetables, meat and fish in major cities that showed more than 95 percent of products were up to standard.

The Ministry of Agriculture, eager to reassure consumers following a series of safety scandals, said on its Web site (www.agri.gov.cn) that all meat and poultry products tested in Beijing, Shanghai, Shenyang, Tianjin and Kunming were up to scratch.

“The proportion of vegetables tested which were up to standard when it came to farm chemical residues in 37 cities was the highest in recent years,” it said in a statement.

“The general quality of agricultural products in our country keeps getting higher,” it added.

The article did note some problems:

Malachite green, a cancer-causing chemical used by fish farmers to kill parasites, was found in some samples, as were nitrofurans, an antibiotic also linked to cancer, the ministry said.

But the world’s attention has fallen to this subject:

“At present, food safety problems have received the world’s attention,” Wei Chuanzhong, deputy head of China’s quality inspection bureau, was quoted as saying on its Web site (www.aqsiq.gov.cn).

“We pay the highest level of attention to food safety,” he said during a visit to inspection facilities in Shanghai.

The scandals keep occurring, however.

State media said that health authorities had seized more than two tons of expired sticky rice dumplings, a special treat for the annual Dragon Boat Festival, which falls on Tuesday.

A company in central Anhui province had repackaged the dumplings, made two years ago, and sold them as new, Xinhua news agency said.

“Some of the rice inside was rotting and giving off a bad smell,” Xinhua said.

Last year, some manufacturers were found to have used copper-based chemicals to preserve the green colour of leaves used to wrap dumplings, with the worst cases containing 34 times more copper than allowed by national safety standards.

public fears about food safety grew in China in 2004 when at least 13 babies died of malnutrition in Anhui after they were fed fake milk powder with no nutritional value.

Clearly China is concerned that its export growth could be slowed by the bad reputation of the Chinese food industry.

China now is trying to certify product as organic ,and when Wal-Mart began its push for organics, one of the fears expressed by U.S. organic producers was that Wal-Mart would look to China for less expensive organics:

The farmers’ concerns go beyond simply pushing down prices. DeWilde and others fear that companies like Wal-Mart could try to lower the standards for what is classified as organic food and begin to import more supplies from China and other overseas markets. “Wal-Mart already sources a majority of its products from China, because it’s so cheap to produce anything there. Why not foods?” asks Ronnie Cummins, director of the Organic Consumers Assn., a nonprofit organization that promotes natural and organic food.

SHIFTING STANDARDS. The worries that the corporatization of organics could lead to more imports aren’t unfounded. Cummins estimates that already 10% of organic foods like meat and citrus are imported into the U.S. Silk soy milk, for instance, is made from organic soybeans that are bought in China and Brazil, where prices tend to be substantially lower than in the U.S. Cascadian Farms buys its organic fruits and vegetables from China and Mexico, among other countries.

What is unclear is how much control the authorities could assert even if they wanted to. China is very much in its “wild west” stage of capitalism. Corruption is common, and counterfeit labels are a big problem. In fact affluent Chinese are turning to organics in pursuit of food safety but the situation is very confusing:

Yet China’s promotion of organic food has run into problems, not least from a confusion of names, including “non-pollution” food and “green food,” which would not be considered truly organic in the West.

“There are different standards and various organizations, which conduct the certification. Some of the standards can only be applied to the domestic market,” Luo said.

perhaps not surprisingly in a country notorious for pirated handbags, movies and many other products, fake labels have proved to be a headache for organic suppliers.

“Distrust of certification labels is a big problem in the domestic market. People just don’t know what to believe. That’s where things have gotten a little better in the last few years, but that was very difficult early on,” Thiers said.

“For consumers in urban China who are really looking for a way to get around this food safety problem, it’s very difficult to know what to believe, and some kind of certification, even if it doesn’t meet a top-notch organic standard for the world, may be attractive to them as an additional effort at food safety.”

The USDA has not certified any domestic Chinese organizations as certifying agents, so any product that is certified organic had to bring in supervision from outside China. But they are required to do an annual inspection, not provide on-site supervision. Is that sufficient?




Loblaw’s Holds Off Wal-Mart
With A Fresh Foods Strategy

The 2006 annual report for Loblaw points out several facts relevant to the fresh foods industry:

  • 27 Million Kilograms of fresh produce delivered every week
  • Four distinct formats: Superstore, Great Food, Hard Discount and Wholesale
  • President’s Choice Blue Menu for consumer-friendly healthy foods
  • Strategic imperative: Fresh First — best fresh food offering
  • Adopted “Fresh walk” to measure and sustain high standards of fresh foods merchandising.
  • Centralize purchasing to gain advantage of scale.
  • Re-establish position as one of the world’s most innovative fresh foods retailers
  • New store at Maple Leaf Garden in Toronto, national flagship store for fresh food

Back in 2004, when Loblaw began all kinds of changes, the speculation was that the goal was to keep Wal-Mart from opening supercenters in Canada.

If that was the goal it didn’t work as now there are seven. And Wal-Mart is promising the “Freshest Produce Your Money Will Buy” and offering an interactive fresh floor plan.

Yet Loblaw is the great colossus of the north. With its clothing lines and varied formats it is in a better position to fight Wal-Mart than most American chains were. And you never want to discount a home field advantage.

You can read the a portion of the annual report here in html or get a PDF of the whole report here.




Pundit’s Pulse Of The Industry:
The Perishables Group’s Bruce Axtman

At the United Fresh show in Chicago, we were intrigued by a panel moderated by Steve Lutz of the Perishables Group that was focused on how consumers perceive organics sold in conventional grocery stores. You can read the piece we wrote about the workshop here.

We thought it would be worthwhile to learn more about the kind of work the Perishables Group is doing. It has long been a leader in category management in the fresh foods arena, benefiting significantly from an alliance with AC Nielsen.

Category management is often thought of as a “big company” exercise, so we were intrigued when we learned that the Perishables Group was working with Lunds and Byerly’s.

We asked Pundit Investigator and Special Projects Editor Mira Slott to learn more:

Bruce Axtman
President and CEO
The Perishables Group
Chicago, Illinois

 

Q: Could you tell us more about your new category management program with Lunds and Byerly’s?

A: Our primary contact is with Rick Steigerwald, director of produce operations at Lund Food Holdings, and former corporate category manager produce/floral at Supervalu.

I’ve known and worked with Rick for awhile. He’s familiar with the work and benefits that can be gained in the perishables departments through the category development process because of projects we did together when he was at Supervalu. Rick was also involved with category development in produce at Super Target, which uses Supervalu as its supplier. This connection with Rick makes it easier to facilitate and implement a strong perishables category management program at Lunds and Byerly’s. Management commitment is key to a successful program.

Q: Lunds operates at quite a different scale than some of the chains you’ve worked with in the past. How does this impact the process?

A: It’s a nice fit for us. Although Lunds is not a large chain, it is very successful. It operates upscale stores that do large volumes in perishables. This is a great place for us to expand the depth and breadth of who we work for.

Q: What are the key benefits you offer through your new information sharing agreement and subsequent perishables category management program?

A: One of the main factors is that Lunds and Byerly’s, like most retailers, haven’t had access to this information. What they do have is access to their own internal data, and they’ve worked directly with their own suppliers to do category management with individual categories. They have been limited to their own data and vendors. It is not that efficient to go category by category on a vendor by vendor basis. Different information is received from each participant, which makes it challenging to do direct comparisons and conduct meaningful analyses.

Q: So you’re able to help Rick Steigerwald and his team get a more accurate picture of how their produce department performs on both its own terms and in comparison to other chains?

A: One critical component of our program is standardizing competitive market data with the store set.We get all the data through Lunds and Byerly’s and AC Nielsen. We do the data production, category management coding work and make it available to Rick and his team on a monthly basis. They decide what companies and categories they want to include in the process. This program is evolutionary. We will start with ten key categories in produce. Lunds provides the major vendors in each category as partners. Some of the major suppliers are stepping up and doing work on their own, analyzing where their current and future products fit.

We will do additional produce categories over time and eventually expand to other perishable categories, providing new insights into category performance across departments, but we are beginning with produce.

The most obvious piece is standardizing the process, and including competitive data. That is the fundamental difference from what the chain is doing currently. We bring experience and expertise to help customize and internalize the process. Here are the core reports and the score cards. How Rick and his team evaluate that information to improve their business is up to them.

We provide the web-based portal for every partner to access in a seamless manner. Data score cards come available through the portal, and can be pulled out for appropriate information. We also share our recommendations.

Q: What does one do with all these score cards to improve performance?

A: It can range from fine tuning assortment, changing price strategies, testing new ideas, re-segmenting categories, bringing in new products. Results vary, but consistently show that the interactive process stimulates increased sales and profits. We’ve seen tremendous category performance results, often in excess of 10- to 15-percent improvements, and in some cases significantly higher than that. We have lots of examples.

The store may be missing some key items, or the promotion is much higher or lower than it should be, or is just not the right product to promote. There are common fundamentals that tend to come out of the process.

Q: When and how will you broaden analysis to the inter dynamics between and across categories and/or departments?

A: Further down the road, more sophisticated analyses can be undertaken that address merchandising space allocation and product segmentation. Information pertinent to consumers is another area that tends to get short-changed.

Here’s our share of produce, our percentage of apple sales. Are we promoting more or less than our competitors? Do we sell more, do they carry more SKUs or less? The process builds over time. First we have to get our arms around individual categories and how they are trending, over-performing or under-performing compared to the market.

After establishing a foundation, we can use more complex category management applications; expand horizons across categories, understanding the impact of promoting one fruit and how that affects another fruit category. This provides the opportunity of doing group or family ads, salad products in conjunction with tomatoes and carrots. Does that get the consumer to buy head lettuce, etc. Frankly it takes time to get to that level. I don’t want to overstate the scope of the program at this point.

price elasticity modeling with data points are used to asses the impact of price on volume sales. We are able to measure the impact of price changes on performance, assortment analysis, and activity-based costing to look at all activities’ costs related to handling products through the retail system, including shipping, stocking and shrink, to understand true profitability. At the end of the day, what’s the real profit? How does this vary with shelf space, five-pound bags versus three-pound bags? Once we get a base of knowledge, this opens opportunity for new levels of more sophisticated work to bring into the process.

We can’t turn the switch and be at full speed over night; the first few months we must focus on getting up and running; validate data, performance bench marking is the first phase.

Q: You mention the possibility of taking a more consumer-centric approach in applying category management techniques. Could you explain what you mean?

A: As we develop the program over time, we want to be more inclusive of data that sheds light on consumer segments and shopping behaviors, maybe through retail kiosk coupons or loyalty cards. Our program can evolve and take shape and be more inclusive, looking at an overall goal of maximizing performance of produce and perishables in general.

We also look for direct input from consumer lifestyle Spectra data. We are able to evaluate categories based on consumer clusters. It is not only how the category compares to competitors in a market, but to understand how it should perform by consumer segment and how it uniquely applies to each of the stores in the chain, and to spot the adjustments that need to be made based on that shopper.

By analyzing Spectra behavior grids, we can identify opportunity gaps based on consumer clustering. The problem could be that we’re doing a lousy job with the bargain consumer or the foodie-type consumer as it applies to these six stores underperforming in tomatoes.

Q: Do you find such variations with a smaller more specialized chain?

A: Lunds and Byerly’s are not homogeneous. You still find a different consumer mix in each of their stores. Consumer product interest is not the same. Categories like tomatoes or mushrooms could vary a lot. We must always strive to get consumer insights, wants and needs. We may be missing opportunity in a market or it’s not taken at all. These are reasonable things we’d shoot for over time.

Q: How many retailers release data to AC Nielsen for your use?

A: Our data comes primarily from supermarkets, but we also have retailers like Fred Myers, Meijer’s, and Biggs, classified as mass merchandisers or hypermarkets. Still we aren’t getting information from Wal-Mart or Costco. It’s not everybody. But our data generally represents a large percentage of the competitive retail environment. We are also able to bring in consumer insights. AC Nielsen operates consumer panels tracking purchases across any place they shop. From that data we can show how different shopping Wal-Mart is versus our client’s market. Another resource to bring in to play, and the advantage of our partnership with AC Nielsen, is household panel data. AC Nielsen’s advanced analytics groups help with some of our more sophisticated models.

Q: I’ve heard that Wal-Mart has agreed to release some data to AC Nielsen. Does this relate to what you’re doing?

A: To some degree, we have greater access of data coming out of Wal-Mart that over time we’ll be able to incorporate into our products. This will play out over time, but I don’t know how much will be available and how much of it will be related to fresh produce and perishables.

Q: How important is category management to gaining a competitive edge?

A: Category management is a sound process, but like anything else, the proof is in pudding; how effectively do we execute the process, what tools, who’s involved, do we have good consumer insights?

Category management becomes more and more important as we get more variations from the consumer side, which is less homogenous than ever, and as competition intensifies, with channel development, and all kinds of alternatives to the typical grocery store.

Consumer insights become more and more important. We can’t look at just what we did and the actions of our direct competitors. We need to go beyond what’s currently being done, expand our view of the world through direct consumer research, through the web and in store, as well as traditional methodologies such as focus groups. We’re always looking at new ways to gain insight into why the consumer is shopping at this time, in this place. Is it price, quality, convenience, what’s the issue? This is very critical information to understand.

We recently did a fairly large organic study of how consumers are shopping in conventional channels versus Whole Foods. Consumers are willing to buy organics at mainstream supermarkets but there are barriers based on how they feel about conventional stores.

Q: Didn’t Rick Steigerwald participate in a United workshop related to this study that Steve Lutz moderated?

A: Rick was part of that panel on organics at the United workshop. Lunds and Byerly’s is an exciting chain for us to work with. It is upscale and innovative; the stores are beautiful and generate a lot of volume. Rick is quick to understand and capitalize on new things, identify opportunity and figure out how to create value. That’s a great environment for us to work in. Some retailers are hard. They may have engrained ways of doing things or cumbersome bureaucracies, and it’s difficult to get approval for implementation of new concepts. We know that by working with Lunds and Byerly’s there won’t be those obstacles. When the feelings are very positive, the program tends to work very well.

Like most things in life, category management can be done well or poorly; the process can be managed by insightful people or by slaves to computer-generated data. So, in and of itself, category management as a process is no panacea.

Yet, consistently, retailers that are serious about category management do better than those that are not. Not because the data is perfect or makes obvious what decisions should be made — it does not.

Chain retailers who are serious about category management do better because there is no alternative. If you don’t do category management, what can you do? Once in a while a single gifted merchandiser can run a department or store based on merchandising flair, personal experience, instinct and knowledge of his customers and, frankly, we don’t have the data and the programs that can beat that gifted impresario of produce.

Once you look to scale anything, though, if you don’t use data, you use superstition and that just won’t maximize success.

Besides, that a company like Lunds and Byerly’s elects to engage in the process is itself a strong harbinger of success. It means they are sitting down every day trying to do better.

An awful lot of retailers want to get better, but they don’t examine their business with the rigor and critical eye necessary to make it happen. Rick Steigerwald and the top executives at Lunds and Byerly’s deserve a lot of credit.

Many thanks to Bruce Axtman of the Perishables Group for letting us in on this intriguing project.




Willard Bishop Consulting Issues Annual Future Of Food Retailing Report

In addition to the interview with Bruce Axtman from the Perishables Group, which we feature here, we have run several pieces on category management, including an interview with Willard Bishop Consulting’s Bill Bishop, Information Resources’ Thom Blischok and a joint interview with FreshLook’s Mark Degner and IRI’s June Fenzel.

Now Willard Bishop has made available a nine-page report entitled, The Future of Food Retailing. This report is an annual event since 1983. Among the highlights:

  1. Though still dropping in shares, traditional supermarkets actually had a sales increase in 2006, indicating some stabilization among survivors in the sector.
  2. Fresh format stores, such as Whole Foods or O’Malia’s, had the highest growth of any sector — up 19.6% from 2005 to 2006. This is very impressive as the growth comes despite major retailers now emphasizing aspects of “fresh” as in the Safeway Lifestyle stores.
  3. Supercenters grew 11.3% and surpassed convenience stores to be the number two retail format in food.
  4. Non-traditional grocery now accounts for over a third of all the grocery and consumable product sales in the U.S.
  5. Both wholesale clubs and limited assortment stores continue to grow in share and dollars.
  6. By 2011, Willard Bishop projects the dollar share of food and consumables sold by conventional grocery stores to drop from 49.8% to 43.5%

You can read The Future of Food Retailing right here.

By the way, jointly with The Food Institute, Willard Bishop is offering a webinar on this subject. You can register for it here.




Pundit’s Mailbag —
A Different Definition Of Organic Health

Our piece Is Organic Produce Healthier? brought this letter from a producer of upscale and natural salad dressings who responded to the piece as a consumer:

With all due respect, Mr. Pundit, whenever you start writing about organics, I feel a slight bit of spin going on. And a bit patronized. “Poor bobble-headed consumers … they’re willing to pay so much more when there is no proof that organics are more nutritious.”

It may be my (and many other consumers’) definition of ”healthier” that might be confusing the issue. While organics may not have more vitamins and minerals than conventionally grown veggies, I shop for certain organics (dairy products, root vegetables and greens) because they won’t have absorbed potentially carcinogenic pesticides. That’s one of my definitions of “healthier.”

Although I am in the business, I really am responding to the report more as a consumer. While our dressings contain some organic ingredients, they aren’t labeled organic. Our niche is that our dressings are flavor-rich because we use fresh ingredients. Which is why we’re refrigerated and sold in the Produce Department. We consider ourselves natural as we use no artificial preservatives, colorings, etc. SASS dressings also have no gluten, white sugar or corn syrup.

As you can tell from my comments, my take on organics isn’t hard-line. I think I’m like most people; I balance cost, quality, ingredients, how something grows, and where it is grown. And I am concerned with the treatment of animals.

— Lauri Raymond
Chief Visionary Officer
Sisters & Brothers, Inc.
Makers of SASS ~ Season All Stuff Sauce

Lauri and her identical twin sister Carol own and run a company that makes a versatile product which can be used as a salad dressing/sauce/marinade. When the Pundit spent some time in Texas because his father was ill, the Pundit got to taste their original dressing, a Sesame-Garlic flavor, that won a prestigious NASFT award at the Fancy Food Show in New York City. We have never found it stocked anywhere near the Pundit household in Florida, but we keep an eye out.




Twin sisters, Lauri & Carol Raymond

It is interesting that she writes us as a consumer because that is the way the sisters built their company. From their website:

"Everyone thinks we must be great cooks because we make these fantastic products" says Carol Raymond, "but we really did it because — who has time to cook? We wanted to make something special without junk in it, that you can splash on anything to make it taste great. Something good, fast and healthy.”

The Sisters began distributing SASS fresh dressings in Austin, Texas through health food stores and a few locally owned upscale markets. With its fresh ingredients, lack of additives and no artificial preservatives, it was ideal for produce departments, delis or dairy cases.

Thinking like a consumer is crucial to success at retail and often a trait more practiced by ancillary vendors than by the growers of fresh produce. And, doubtless, it is a trait that has led to the sisters growing a business from the ground up.

We apologize if Lauri felt patronized. She was responding as a consumer, and we were writing to her as an industry participant. So we are looking at consumer behavior much like looking at laboratory rats in a maze. We would speak directly to consumers in a different tone.

Beyond style to substance the problem remains that the motivations that Lauri expresses — which doubtless are held by millions of consumers — are now really theories more than established facts. I’m sure many consumers think as Laurie writes:

It may be my (and many other consumers’) definition of "healthier" that might be confusing the issue. While organics may not have more vitamins and minerals than conventionally grown veggies, I shop for certain organics (dairy products, root vegetables and greens) because they won’t have absorbed potentially carcinogenic pesticides. That’s one of my definitions of "healthier."

This surely means not that the consumer has a predilection against synthetic pesticides and enjoys natural ones but, rather, that the consumer believes that consuming organic produce will reduce his or her likelihood of getting cancer.

And we simply have no evidence indicating that is true. As we discussed in our piece Pundit’s Mailbag — Pesticides And Cancer, at the launch of the 5 a Day program, the head of the National Cancer Institute was asked about organic:

He answered by saying that not only was there no evidence that pesticide residues on produce resulted in an increase in cancer in human beings, but that the research we had — which had been done on conventionally grown produce, not organic produce — indicated that rates of cancer could be reduced through a diet rich in fruits and vegetables.

Now this doesn’t mean that pesticides cannot contribute to an increased likelihood of getting cancer; it just meant that we have no reason to think so and, even if it does, it is a sufficiently small increase that the benefits of fruit and vegetable consumption can easily overwhelm this negative effect.

We also pointed out that this may not even be the right question to ask:

Besides, the question wouldn’t be, “Does synthetic pesticide residue increase the likelihood of getting a cancer?” Since there is no option to starve ourselves to death, we would have to compare produce grown under one system, in this case conventionally grown produce, to produce grown some other way, presumably organically grown produce.

Yet organically grown produce is not, contrary to popular perception, grown without the use of chemicals. It is grown without the use of synthetic chemicals. In many cases, because the organic compounds are less effective than the synthetic compounds, they are applied at a higher density.

So, for example, both copper and sulfur are organic and used in organic agriculture — is it just obvious to everyone that a lifetime of consumption of copper and sulfur residue is inherently healthier — because they are organic substances — than residue from a synthetic pesticide or fungicide?

Now this doesn’t mean a consumer is “wrong” to prefer organic. There are environmental and other reasons to prefer organic. On items such as milk and meat, as Lauri alludes to, there are issues about animal treatment, although the organic rules are actually pretty lax on these standards.

And besides, we do not have perfect knowledge. It is possible that Lauri is right. It is just that we don’t have a scientific basis to believe so.

This is important from both a public policy and marketing standpoint. We need to be very cautious here because if we encourage consumption of organics for health reasons we are, intrinsically, disparaging conventional produce. It is very possible that this disparagement of a lower cost alternative could result, overall, in a net decrease in produce consumption and an increase in consumption of other, less healthy items.

If this comes to pass our efforts to reduce the incidence of cancer by promoting organic fresh produce could easily wind up increasing the incidence of cancer.

It is called the Law of Unintended Consequences and its sway is very strong.

We thank Lauri for adding a consumer perspective to our discussions on this issue.

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