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Pundit’s Pulse Of The Industry

Jim Prevor’s Perishable Pundit, September 25, 2006

What has it been like on the front lines during this spinach/E. coli crisis? The Pundit asked Mira Slott, ace special projects editor at the Pundit to reach out and capture the pulse of the industry at retail. We thus present the first in a new series in which we collect opinions and insights from different industry sectors on different subjects.

A special thanks to our Pundit Panel of the day:

  • Robert DiPiazza, Senior Vice President and General Merchandising Manager for Fresh, and Jerry Hull, Senior Produce Buyer, Sam’s Club, Bentonville, Arkansas
  • Bob Harding, Produce Buyer, Westborn Markets, Berkley, Michigan
  • Don Harris, Vice President Produce/Floral, Wild Oats, Boulder, Colorado
  • Jeff Lyons, Senior Vice President of Fresh Foods, Costco, Issaquah, Washington
  • Mike O’Brien, Vice President of Produce, Schnuck Markets, St. Louis, Missouri

The Pundit Panel has generously been willing to share their time and expertise to help the whole industry understand the way this has played out at retail: We are proud to present today’s panel of Retail Pundits:

Robert DiPiazza, Senior Vice President and General Merchandising Manager for Fresh, and Jerry Hull, Senior Produce Buyer, Sam’s Club, Bentonville, Arkansas

Q. Could you describe the dynamic on the retail floor?

DiPiazza: We’re patiently… or I should say… un-patiently waiting for the FDA to bring this investigation to a close. Sam’s Club has two items affected, bagged baby leaf spinach, and typically our spring mix has spinach as part of the mix.

Hull: We pulled all spring mix and baby leaf spinach off the shelves — all the spinach we carry — so we’ve lost those sales and have only gotten modest sales back in other SKU’s, not close to what we would have experienced with the spinach products. We picked up a few sales on romaine hearts, but have seen no noticeable decline or increase in tossed salads. Chopped romaine has picked up, so we’ve had two items increase. Everything else is not impacted at present time.

DiPiazza: I don’t think in instances like this that those sales shift over to other products. We are anxious to get back to normal and get spinach back on the shelf. We understand this ban has been devastating to the industry and that we need to make corrections and move forward.

Q. Are you making product adjustments for your customers?

DiPiazza: We’ve re-formulated our spring mix, taking spinach out and are in the process of getting it in all our clubs. It’s back in some clubs right now. We made sure to take spinach off the ingredient label on the package.

Hull: We started reformulating the products without the spinach the second day of the news event. The new spring mix was ready to go out in clubs earlier, but we were just waiting for clearance to be sure everything had been done properly to insure public safety.

Q. What feedback have you received from your customers?

Hull: We’ve had probably the normal consumer questions and calls, but very consistent reaction in line with an incident like this. We haven’t put signs up, but we make clear to the public on the product packaging there is no spinach in it. I hope this whole thing blows over soon, but the way things have been unfolding, it’s hard to know if that will be the case.

DiPiazza: When a food safety concern like this is so broadly covered in the media, retailers get a lot of calls. We field consumer questions like any other issue, in this case telling consumers they should return any fresh spinach they’ve purchased. Do I think this outbreak will have long term affects? Unfortunately, we’ve had food safety outbreaks before in meat and other products. If you look at history, long-term the product will rebound. I expect we’ll have spinach sales back in some time. It’s just difficult to forecast when that will be.

Q. What can be done to jumpstart the recovery process?

DiPiazza: Once the investigation is complete and the market is ready, we’re going to try and work with our grower partners, who have been significantly impacted to reenergize sales of spinach and try to help them revitalize their businesses.

Bob Harding, Produce Buyer, Westborn Markets, Berkley, Michigan

Q. In many ways, produce is at the core of your identity, so as a relatively smaller chain, how does a food safety incident such as this affect your operations?

A: Essentially what we did when we first found out, we went through every product and brand with fresh spinach in it, both conventional and organic, including cooking spinach, and pulled it all. We kept counts and gave product back to the suppliers, and they gave us 100 percent credit. Earthbound went to supplying us herb salad and spring mix without baby spinach and printing no spinach on the label. We do have signs on our counters letting consumers know our spring mix does not contain spinach. Our salad bar spinach was immediately pulled as well.

Q. How did your customers take to the news?

A: Surprisingly, we didn’t hear any concerns from consumers. The funny thing about this is that we just had consumers ask, “When will we get spinach again?” It’s ironic when every time you turn on the news or pick up a newspaper, there are reports of the outbreak giving details of what happens when the E. coli spreads. I really received no negative feedback. A few people brought back their uneaten baby spinach bags, but there was never an overwhelming reaction of people pounding at our door. Since we removed the spinach, we’ve received a small spike in green leaf, romaine, romaine hearts, and head lettuce, but no significantly meaningful numbers.

Q. It sounds like your customers have a serious liking for spinach. Had the category been increasing in sales prior to the outbreak?

A: This incident really hurts a category that has been growing in interest. The category of baby spinach over the past few years has skyrocketed, and sales of spinach have been a huge deal for us. Of course, this will affect spinach sales dramatically. A lot of time local media sensationalizes things and scares the consumer before they have the facts and figures. I think there will be a cooling-off period and people will forget about this incident, but it will be a gradual process and probably a long time before that happens.

Don Harris, Vice President Produce/Floral, Wild Oats, Boulder, Colorado

Q. What are the key strategies you engineered when you learned of the fresh spinach e-coli outbreak?

A: We pulled everything with fresh spinach from the shelves and our produce managers, who are always very involved with our customers, encouraged them to make transitions to other bulk greens and organic salads. Even with Earthbound Farms labels, items like organic leaf lettuces and romaine mixes have done well filling in the holes, despite the fact the company name has been so prominently linked in the media to the spinach E. coli outbreak. We did the same with Fresh Express, and other organic leaf lettuce brands. Bulk leaf lettuces probably doubled in volumes and salads tripled. I had expected an overall sales drop with the spinach ban and all the press, but overall sales were actually up last weekend on salads.

Q. Why?

A: Our customers in general are flexible. If they can’t get spinach, they have arugula or bulk greens; it’s organic, it just won’t be spinach. They talked with managers and associates on the floor to learn about other choices. In some cases, it encouraged consumers to try new items.

Q. With the ordering adjustments to fill displays, have you encountered any problems?

A: We’ve had a hard time keeping shelves filled with the alternative products because in some cases we’ve had a tripling in demand. We always have big displays. Keeping some products in stock has been challenging. We’ve had trouble filling kale orders, some other mustard greens, even dandelion greens, bulk greens as a replacement for baby spinach and the bulk spring mixes.

Q. Has there been any confusion with reformulated spring mixes?

A: I had great grief over last weekend because of an ad that was running on spring mix. We couldn’t take the ad out because it was too late. We had pulled spring mix because it could have had spinach in it. Earthbound reformulated the spring mix for us. It would have been hard to explain that ad after the initial outbreak if those bags included spinach, but we will have spring mix in stores without spinach. All people in the stores are a little paranoid. We did get consumers calling, examining the bags with a fine-tooth comb, calling us, asking, “Is this spinach?” for some of the greens that look similar. Young chard, for example, is often mistaken for spinach.

Q. With your many years in the industry, how does this recall compare to others?

A: I’ve dealt with a lot of recalls over the years. My history has been with conventional, but I’ve found there’s a general consensus of consumers thanking us for taking the product in question off the shelf. They believe we wouldn’t sell them something that wasn’t safe for them to eat. At this stage, organic hasn’t been implicated. On that Saturday when Natural Selection was implicated, this indicated it was a California outbreak. Normally the recall would be confined to California growing areas. So, I initially told the stores to play up local spinach; we bring in spinach from Long Island, for example. But then the FDA banned all spinach, so we pulled it all. We’ve been pushing local spinach, and those guys really get clipped. If you are a medium or small grower, this ban can be tragic. All the different labels created complexity. But it is very unusual to ban all spinach across the board because, normally, there’s a measured run for your orders.

Q. Your experience on the retail floor in terms of sales sounds more encouraging than at other chains I’ve spoken to. Why is that?

A: We’ve been very fortunate. My stores made this thing work by not only getting all spinach products off the shelves, but putting signs up without panic, beautiful displays with additional greens, and moving quickly to execute strategies. Having well-trained, knowledgeable managers and employees made it work. They were calling us asking what they should be doing, and coming up with their own ideas. In my former life, I was dealing with 1,700 stores. Here at Wild Oats, we could follow up with phone calls and by noon double check progress. Merchandisers in each area were calling on product substitution strategy because they didn’t want to see holes in the department.

Q. What additional steps can you and the industry as a whole take moving forward?

A: Our number one priority is to look out for the consumer. I’m on the board of PMA, and we, as an industry, should use them to try and get the FDA to start moving on lifting the ban. When the whole industry is affected, forces everyone to get involved and think about how to make changes.

We’re going to have to spend money to get the word out to consumers that spinach is safe. When FDA comes out saying fresh spinach is safe, the news won’t get front page.

In the organic industry, which is only one or two percent of the industry, while in produce closer to 5 percent, we need to ask ourselves, can we do something better?

Jeff Lyons, Senior Vice President of Fresh Foods, Costco, Issaquah, Washington

Q. What’s your take on the FDA’s handling of the situation?

A: It’s a pretty tough deal when the FDA comes out with a blanket statement, “Don’t eat spinach”. It’s the first time in my experience FDA enacted such a broad rule; it didn’t matter the vendor or where it came from. I’m used to dealing with food safety issues, whether bean sprouts or meat, focused on this plant or that label.

Q. How did you respond to FDA’s broad ruling?

A: We were able to get all spinach off the floor immediately, broadcast the message to all buildings, and track sales to see there was no product on the floor or mishaps with customers purchasing a bag. If that occurred, we have the capability to call directly to the warehouse, and since we operate through membership cards, to contact the customers directly and inform them to please dispose of the product. We’ve done this in the past on recalls. We know who has purchased the product. This is confidential information, but in this instance of safety we are able to alert the customers to please return the item, and let them know there’s been a recall. It gives us confidence that we have this mechanism in place, even though it didn’t happen in this case.

Q. Could you describe interaction with suppliers on product solutions?

A: This is a devastating thing for them. Our original spring mix had some spinach in it, and the vendors asked us if they could reformulate it and get it back on our shelves. We said sure, and we put a label on the front of the bag letting consumers know it contains no spinach. The vendors didn’t have time to change their label yet, so we contacted our attorney, and our food safety person contacted the FDA to be sure. They said it was fine to go ahead with our own labeling in the interim. On the back of our spring mix package, it says it may contain spinach or product ingredients may vary. Costco uses up to 17 lettuce varieties to give us flexibility in offering consumers the highest quality offering. When something starts to break down, we don’t want it in the mix. Our membership is our primary concern; at the same time we want to work with vendors. Otherwise these other crops would be thrown away. If you’re a spinach farmer and it’s your whole crop, and you choose to plow it under, you’re finished.

Q. How have customers reacted with the media blitz?

A: We had some concern with some members after a TV news company in Los Angeles falsely accused Costco of carrying spring mix with spinach and saying this is bad and they have it on the floor. It wasn’t spinach, it was arugula or another rounded shaped leaf variety that is less familiar. The TV company did three retractions over the next day, but the damage had been done. We had members worried, and people on the floor trying to explain. That was the biggest hiccup in the whole thing because there are a lot of leafy varieties out there. By next week, package labels will all be changed around the country, which should eliminate any further confusion. Hopefully customers are trusting of their club store or supermarket.

Q. So, where does that leave Costco in relation to getting back into the spinach market?

A: If the FDA investigation proves water contamination that could lead to a lot of concern, that’s tough. At this point we won’t carry spinach and won’t carry it for some time, even if FDA says New Jersey crop or spinach from other states is OK. We will wait awhile to get back into the category because consumers will still be concerned. We’ll take a cautious approach. Once there are enough reports and media coverage that consumers feel comfortable about eating spinach again, we’ll bring it back.

Q. Costco generates huge dollar volumes from limited product SKUs, so how will this affect the category?

A: At Costco we’re an item business, so that was a tough one to lose. Spinach is a very good item for us, within the top five items in our salad area and big dollars. Spinach has really been growing at double-digit pace for us. We have mixed greens that don’t have spinach, and mixed greens still are our number one selling item in the category.

We saw a pick up in alternative items, but not as much as we saw in loss. I think the scare had an impact on consumers thinking of just avoiding lettuce and other leafy greens in general. We saw a little switching over to romaine hearts but not a major difference in buying patterns.

Q. Where do you go from here?

A: We realize that consumers are wary. We have to manage those inventories, and we think sales of spinach will come back gradually. When you look at the myriads of produce eaten in this country, you can’t say the E. coli outbreak is a pervasive problem, rather isolated instances, but this is a signal to the industry to make improvements in food safety. Ever since the Jack In The Box incident, the meat industry has made improvement after improvement, and our meat supply is safer. The industry needs to work on intervention strategies; we need to get proactive in this business so consumers feel confident. We can’t sell double messages — saying that organic is better will confuse consumers.

Mike O’Brien, Vice President of Produce, Schnuck Markets, St. Louis, Missouri

Q. Since the outbreak, how have your actions affected your customers?

A: We voluntarily pulled all spinach, including bulk when FDA extended the recommendations, even though our bulk product is grown in Colorado, which is not even under investigation. FDA said to pull it, so we did. Feedback from consumers is they’re happy we voluntarily pulled the spinach. I don’t think they’ve lost confidence in eating spinach, at least the customers we’ve talked to. The news hasn’t had a major impact on department sales. We’ve seen a little bit of substitution and consumers are buying more bulk. Our supplier, Fresh Express, pulled its spinach bags and spring mix that had spinach and reformulated product without the spinach. Fresh Express is not associated with Natural Selection, but everyone’s guilty until proven innocence. The industry is working on trying to get the ban lifted in those areas not affected.

Q. What is your assessment of the long-term effect?

A: It’s hard to say the impact until I’m able to analyze sales data over time. It has kind of calmed down at retail. The customer only knows that if they are looking to buy fresh spinach, they have to wait and they seem OK with that.

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