California Grocer Issue 4, 2016

2016, ISSUE 4

C ALIFORNIA GROCERS A SSOCIATION

IN THIS ISSUE A Huge Disconnect Reshaping Retail A (Produce) Buyer’s Market

For the latest industry news visit www.cagrocers.com

CONTENTS

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F E AT U R ES

COLU M NS

The Huge Disconnect

President’s Message The Enemy of Good..............................................5

There is a huge disconnect between the public and private sector? Who’s to blame. That depends on who you talk to.

Reshaping Retail

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The grocery industry is transforming and it’s being driven by technology, marketing and customer experience.

Waste Not, Want Not

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Grocery retailers across the country are spearheading efforts to battle the escalating food waste crisis through donations, recycling and operational efficiencies.

A (Produce) Buyer’s Market

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| Issue 4

California Grocer interviewed a cross section of produce decision makers to gain a greater perspective of the impact of California’s cornucopia of fruits and vegetables.

From The Chair Charting Your Course.............................................7 Viewpoint – Kevin Coupe Bears, Porridge and The Art of Inventory Management.....................................8 Guest Editorial Today’s Diverse Grocery Landscape.................... 18 Capitol Insider The Politics of Initiatives...................................... 26 Inside the Beltway The Regulatory Environment Trumps All Else in 2016...................................... 28 Washington Report Don’t Let Congress Undo Debit Card Swipe Fee Reform............................. 31

DEPA RT M EN TS CGA News......................................................... 12 Government Relations....................................... 22 Know The Law................................................... 63

CALIFORNIA GROCERS ASSOCIATION President/CEO Ronald Fong Senior Vice President, Government Relations and Public Policy Keri Askew Bailey

California Grocer is the official publication of the California Grocers Association.

Publisher Ronald Fong E-mail: rfong@cagrocers.com

Senior Director, Events & Sponsorship Beth Wright

1215 K Street, Suite 700 Sacramento, CA 95814 (916) 448-3545 (916) 448-2793 Fax www.cagrocers.com

Editor Dave Heylen E-mail: dheylen@cagrocers.com

Senior Vice President, Business Development & Marketing Doug Scholz

Director, CGA Educational Foundation Brianne Page

Vice President, Communications Dave Heylen

Director, Administration Lesley Hall

Executive Director, CGA Educational Foundation Shiloh London, CFRE

Controller Gary Brewer

For association members, subscription is included in membership dues.

Subscription rate for non-members is $100 and does not include CGA Buyers’ Guide.

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© 2016 California Grocers Association

For advertising information contact: Bill Kaprelian E-mail: bkaprelian@cagrocers.com

C A L I F OR N IA G R OC ER

Senior Director, Government Relations Aaron Moreno

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September 25-27, 2016 Palm Springs, California

REGISTER NOW Early bird registration discount through September 1, 2016 Conference Registration Includes: • All educational sessions & programs including Sunday’s Opening General Session • Complete access to the conference expo floor • Breakfast & Lunch provided by The Illuminators • Networking events including Opening Reception, After Hours Social, Craft Brew Social, and The Illuminators Special Event CGA members receive 5% discount on conference registration fee.

Tee it Up With The Illuminators Tee it up with your favorite grocery retailer or supplier at The Illuminators Annual Golf Tournament on Sunday, Sept. 25. Take a swing at one of the generous tee prizes and enjoy lunch, refreshments, and on-course contests, hosted by The Illuminators. All proceeds benefit The Illuminators Education Foundation and Scholarship Program.

To register, contact Michael Woolery at (510) 875-1523 or Michael@willsfreshfoods.com.

Who Should Attend • Executives in the grocery retail, wholesale and supplier industries • Buyers, purchasing, operations, and marketing managers presenting small, medium and large retailers – especially those with responsibilities for dry grocery, frozen, dairy, deli, bakery, snacks and candy, perishables, produce, liquor and soft drinks, operations, and marketing • Suppliers doing business in the California grocery market • Trade press Independent Grocers Forum Doug Madenberg, Principal at Retail Feedback Group, will highlight key findings from a recent industry research that can help independents position themselves as choice destinations to shop and work for years to come. The forum also includes special sessions featuring presentations from national manufacturers.

FEATURED SPEAKERS Our education programming blends a variety of learning formats from keynote presentations to breakout groups. We will help you discover how to take advantage of emerging opportunities in technology, new product trends, and the latest approaches to retailing and marketing.

BETTER AND FASTER Jeremy Gutsche Author, CEO

Jeremy Gutsche is “an intellectual can of Red Bull” and the brains behind the No. 1 trend-spotting website in the world.

FUTURE CONSUMERISM Douglas Stephens The Retail Prophet

Douglas Stephens is one of the most influential retail futurists on the planet. He sheds light on key shifts in economics, demographics, technology and that are transforming retailing.

SUPPLIER EXCLUSIVE Dave Hirz

RETAILER & SUPPLIER COLLABORATION COLLABORATION Marc Hubbard

VP Americas, Advantage Group CURATING STORE ASSORTMENT Patty Johnson

Global Food & Drink Analyst, Mintel INDUSTRY FRAGMENTATION Brian Todd

President, The Food Institute MULTICHANNEL STRATEGIES Barry Clogan

Sr. Vice President, Business Consulting Services MyWebGrocer

President/CEO, Smart & Final Stores

PERSONALIZATION & LOYALTY Tammy Brumfield

Dave Hirz, Presid President/CEO, Smart & Final Stores, will share how his company is reshaping itself to meet this next generation of shoppers in this “suppliers only” session.

HEALTH AND WELLNESS Tod Marks

Sr. Vice President, Retail Marketing Group The Mars Agency

Ex. Director, Market Centre National Sales

For complete information and to register visit:

cgastrategicconference.com

CGA

| Board of Directors

EXECUTIVE COMMITTEE

CHAIRMAN APPOINTMENTS INDEPENDENT OPERATOR COMMITTEE CHAIR

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DIRECTORS

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Chairman of the Board Kevin Konkel Raley’s

Second Vice Chair Jim Wallace Albertsons Companies, Inc.

Secretary Kendra Doyel Ralphs Grocery Company

First Vice Chair Diana Godfrey Smart & Final Stores

Treasurer Bob Parriott Twain Harte Market

Immediate Past Chair Joe Falvey Unified Grocers, Inc.

Kevin Arceneaux Mondelez International Inc.

Phil Miller C&S Wholesale Grocers

Dave Jones Kellogg Company

Raul Aguilar Anheuser-Busch InBev

Willie Crocker Bimbo Bakeries USA

Eric Lindberg, Jr. Grocery Outlet, Inc.

Nicole Pesco Save Mart Supermarkets

Jon Alden Jelly Belly Candy Co.

Steve Dietz Tony’s Fine Foods

Dave Madden MillerCoors

Renee Amen Super A Foods

Jen Fulton PepsiCo Inc.

Jonathan Mayes Albertsons Companies, Inc.

Chris Podesto Food 4 Less (Stockton)/ Rancho San Miguel Markets

Teresa Anaya Northgate Gonzalez Markets

Ted Gardner Rio Ranch Markets

Joe McDonnell Campbell Soup Company

Joe Angulo El Super (Bodega Latina)

Jon Giannini Nutricion Fundamental, Inc.

Mark McLean CROSSMARK

Rich Arnold Oberto Brands

Dick Gong G & G Supermarket, Inc.

Casey McQuaid E & J Gallo Winery

Denny Belcastro Kimberly-Clark Corp.

Robin Graf Whole Foods Market

Mario Mediati The Clorox Company

Bob Bukovec Tyson Foods, Inc.

Ryan Jost Procter & Gamble

Lynn Melillo Bristol Farms

Paul Cooke Nestlé Purina PetCare

Arthur D. Jackson, Jr. Costco Wholesale

Dan Meyer Stater Bros. Markets

Brent Cotten The Hershey Company

Michel LeClerc North State Grocery Inc.

Hee-Sook Nelson Gelson’s Markets

Dennis Darling Foods Etc.

Mike Ridenour The Kraft Heinz Company Casey Rodacker Mar-Val Food Stores, Inc. Denny Silva Coca-Cola Refreshments Jim Van Gorkom NuCal Foods Michael Walton Unilever Kevin Young Young’s Payless Market IGA

PRESIDENT’S MESSAGE

The Enemy of Good There is a phrase often bandied about in the realm of politics, attributed to different writers and thinkers over the years: Don’t let perfect be the enemy of the good.

As we enter the heart of the general election season this phrase becomes more apropos, especially when considering candidates for various political offices – particularly the state legislative seats that have the potential to affect our members the most. And especially when those candidates being considered are asking for support, financial and otherwise.

As an industry, we obviously want to support candidates that share our values as they pertain to reducing regulatory burdens, or preventing new laws from being thrust upon us making it more difficult for us to do business and maintain profits in what is already a low-margin industry.

At the same time, we also want to support candidates who can effectively wield enough influence to be champions for our industry. In a state like California, finding such a candidate can sometimes be a challenge.

It is well known that Republicans are generally the party of business and Democrats are generally the party of higher taxes and more regulations.

In states with Republican controlled legislatures, the political calculus in choosing which candidates to support is pretty straight forward.

Give to the highest ranking legislative leaders, and perhaps the party, and call it a day.

The number of moderate Democrats and their degree of moderate can vary from issue to issue.

President/CEO

When these moderates are not, or cannot, be with us it is always worth remembering that phrase: Don’t let perfect be the enemy of the good. So what makes a good moderate Democrat in California?

A well-respected legislative staffer put it best when he explained that being a moderate Democrat isn’t necessarily about voting with business 100 percent of the time, because as he noted, it’s just impossible to do that as a Democrat in California.

What makes a good moderate is always having an open door to business interests, listening to their complaints and suggestions, as well as being willing to try and help. That help may not necessarily come in the form of a vote.

It may come in the form of an amendment that exempts, in our case, grocers from certain provisions of certain bills. Or it may come in the form of delayed implementation dates. Or it may come in the form of a “poison pill” amendment.

However, the help may come – it is help.

Granted it would be easier as an industry to deal with a majority Republican legislature, but in California that is extremely unlikely to happen for a very long time.

In the meantime, we do our best to support candidates that, though not perfect, are as good as we can get. And in politics, good can sometimes be enough to carry the day. n

C A L I F OR N I A G R OC E R

The calculus in California can be a lot more complicated, with Democrats here enjoying near two-thirds supermajorities in both houses of the Legislature. Fortunately, for the business community, there is a bloc of pro-business, moderate Democrats that will sometimes join with legislative Republicans to block anti-business legislation and support pro-business legislation.

That said, even a moderate Democrat is still, at his or her core, a Democrat and will vote with their party a majority of the time. It is unrealistic to expect even the most moderate of Democrats to be with business a majority of the time.

R ONALD FONG

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FROM THE CHAIR

Charting Your Course Life is full of options and we’ve all heard or said that you can do anything you want to do or be anything you want to be. Well, I’m not sure that is necessarily the case.

Tom Rath, author of “Strengths Finder 2.0,” says we must discover our strengths and spend our time and focus developing them if we truly want to be successful and fulfilled in life. That being said, we all should dream big and have that bucket list of items to check off as we go through life, discover and develop our talents and try things we thought were impossible.

I’m just making the point that if you want to have your absolute best success in life, you must discover your strengths, your passions and devote your time, talent and energy to those things.

The California Grocers Association Education Foundation recently awarded 376 scholarships totaling $588,100 to employees in the retail food industry and their families so dreams, aspirations, strengths, and passions could be further discovered.

Individuals are utilizing education and experiences to shape and reshape their thinking in order to discover and exploit that which they aspire to achieve.

Congratulations to all of our scholarship recipients and we look forward to seeing how you will influence and shape our society and our industry!

CGA Chair of the Board, Senior Vice President, Store Operations Raley’s Family of Fine Stores

Retailers, manufacturers and suppliers are working to meet these ever changing needs with both product assortment and how they are delivered to consumers. Tying the strengths and passions of individuals together with organizational capabilities, food industry leaders are working to meet the consumers demands that are reshaping our organizations.

Our annual Strategic Conference titled “Reshaping Retail” will focus on this reality, and allow us the opportunity to think strategically how our industry will meet this new reality and give us time to consider how our organizations will compete and serve in this dynamic environment that is literally being reshaped before our eyes.

I encourage you to finalize your plans to attend the conference. Determine who on your team will benefit most, and then develop a plan so you and your organization will reap a strong return on your investment.

I am confident you will find that it is not time spent AWAY from your business, but rather time invested IN your business. There is know doubt that retail is being reshaped. We have the opportunity to make our industry stronger, better and more agile to serve as we chart our course, and reshape food retailing.

See you at the conference! n C A L I F OR N I A G R OC E R

Without a doubt it’s an exciting time to be in the California grocery industry. Change always seems to come in waves and our industry is riding a pretty significant one right now. I know in my own company we are constantly challenging ourselves to be more agile, more innovative, more efficient, and more personalized in how we approach our customers.

Consumers are demanding more, in less time at the highest quality and at the lowest cost. It’s the ultimate value equation.

KEVIN KONKEL

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VIEWPOINT

Bears, Porridge And The Art Of Inventory Management KEV IN C OU PE Founder MorningNewsBeat.com

The question of inventory management always strikes me as reminiscent of Goldilocks and the Three Bears – sometimes the porridge is too hot, sometimes too cold, and sometimes just right.

I think the Goldilocks and the Three Bears analogy is a good one, except that in reality, some people like their porridge hotter or cooler than other people. There is no “just right” temperature for everybody.

I’ve always believed that if there is a reason that ECR didn’t have the kind of industry staying power that some would have hoped. It was because most companies forgot about the “consumer” part of it.

The Wall Street Journal had a story the other day that got me thinking about this. It concerned how some retailers are taking a new approach to inventory. The radical thinking seems to be that “less is more.”

They were pretty good at efficiency, but they looked for efficiencies in their own supply chains, but often ignored what consumers needed and wanted.

Home Depot was one of the companies cited in the piece, with management saying that rather than having floor-to-ceiling displays of merchandise, the idea is to have less stuff, but all of it within the shopper’s reach.

Walmart and Target also were mentioned in the story, which said that they simply want to have less inventory – just what they need to have, when they need to have it. Walmart even has widened its aisles to make it harder to have more inventory.

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The financial calculation, to put it in terms that even I can understand, is that by having less inventory – but the right inventory – chains will be able to grow sales while keeping their cost of goods flat or even lower.

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I’m not sure, but this sounds to me a lot like this thing called ECR – Efficient Consumer Response – that consultants created and retailers embraced back in the Jurassic era as a way for supermarkets to try to compete with a newly aggressive (and, at the time, almost stealth) Walmart on costs. (It was a time, believe it or not, when Walmart was first taking steps to get into the grocery business.)

Back in the ECR days, I was producing a video program called “Supermarket Insights,” for which we’d shoot stories in stores all over the world. It often would become immediately apparent which stores were putting efficiency before effectiveness when I’d go into a store at 7 a.m. and find chickens already cooking on the rotisserie; it was efficient to put them all on at an early morning hour, but it also guaranteed that the chickens bought for dinner than night would be inedible.

I’ve always believed that if there is a reason that ECR didn’t have the kind of industry staying power that some would have hoped. It was because most companies forgot about the “consumer” part of it.

Figuring out the right inventory levels for a particular store has more to do with effectively understanding who the customer is and what the store’s essential narrative is, and less to do with creating inventory algorithms. (One of the advantages that Amazon has is that

VIEWPOINT

it can do both – being an online store rather than a bricks-and-mortar store means that inventory levels can be essentially endless, and the customer-targeting mechanisms can effectively track what people look at and buy.)

Now, I’m not criticizing anyone for trying to be innovative... But I think one has to be careful about knowing what your story is.

I’ve always had to chuckle at all this stuff because, after all, I’ve spent most of the past three decades doing a large percentage of my shopping at Stew Leonard’s – an independent retailer that generally has stocked something like 2,000 items, and that reportedly does about $2 million a week out of the store that I have patronized almost weekly for 30+ years.

about how these same chains are adopting a moreinventory approach?

Of course not. Because at the end of the day, these companies are looking to solve a wide variety of problems – like the growing market share enjoyed by online competitors – by adopting strategic and tactical approaches that have been crafted out of a desire to be strategic and/or tactical. Not necessarily by an intimate, instinctive understanding of the shopper.

They lurch from strategy to strategy because they’re trying to find an answer, not because they’ve said to themselves, “we know who we are, we know who our shopper is, and we know how our differences can make a difference in their lives.”

Most of the items are fresh, and a large percentage are private label.

The thing is, I think they figured this all out because they started by carrying just a dozen items or so, and grew slowly and organically, carrying what they knew consumers would respond to.

There never was any delusion that they could be all things to all people, or that people wouldn’t have to shop elsewhere for the things they did not have.

But there was utter certainty about what its retail experience was all about, and that certainty has seen the company through good times and bad, and Stew Leonard’s remains a vital retail entity that tells a compelling story from the moment you walk in the front door, and they collect your money for the privilege on the way out.

Tell the truth: having read about the less-inventory approach in the Journal, would you be surprised or shocked if a year from now the Journal has a story

Now, I’m not criticizing anyone for trying to be innovative. I actually started my website – MorningNewsBeat.com – because I wanted to find a way to identify them early and put them into context for a specific kind of readership. But I think one has to be careful about knowing what your story is.

At the recent Food Marketing Institute conference, Nadia Shouraboura, Founder and CEO of Hointer, talked about her company’s efforts to bring a low inventory approach and a retail environment that relies on robotics to a wider number of retail venues. The original Seattle stores focused almost exclusively on men’s jeans.

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Continued on p. 10

C A L I F OR N I A G R OC E R

The key – and this is most assuredly not rocket science – is having that kind of feel for the shopper, and an extremely strong sense of what your retail brand is. I would never argue that everybody should be like Stew Leonard’s ... but I would argue that the way to success is not by simply saying “let’s cut inventory,” because that’s more like a “strategy-of-the-month” approach.

iStock

And that’s the key. At least that’s what I think.

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VIEWPOINT

Continued from p. 9

But unlike most jeans stores, where there are stacks and stacks of various styles in a wide range of sizes, Hointer simply hung one pair of each style from metal rods, with a description and a QR code easily available.

You downloaded the Hointer app to your smartphone, and then used it to identify the jeans you’d like to try on, and in what size.

The app told you which dressing room to go into, and once you were there a magical robotic and computerized system delivered them to you via a slot so you could try them on. Once you were done, you put the ones you didn’t want into another slot, where they were taken away by the system.

But these days, the company seems to be a lot more focused on being a “retail consultancy” than a retailer.

It’s easier, and that was my argument three years ago – that while Hointer was in the business of selling jeans, it really was in the business of selling technology.

By the way, I’m not denigrating Hointer. Not at all. I think it is a really cool idea. But I do think that there will be some retailers that will look at what it offers and think that it is a magic key that will unlock the future for them, as opposed to seeing it simply as a tool with which they can advance their central argument about why they are relevant to the shopper.

You then could use a self-checkout system to pay, and it was all seamless because the computer knew which jeans it delivered, which ones you kept and which ones you sent back. You could then leave ... and never talk to a salesperson. Ever.

If you don’t know that, and if that knowledge has not seeped into every level of your organization – the way it has at retailers that range from Wegmans to WinCo, from Dorothy Lane to HEB, to name just a few – then all The Wall Street Journal pronouncements and consultant-driven strategies in the world can’t help you.

I was a big fan of Hointer, in fact, I was writing about the business on MNB more than three years ago.

Only you can know the right temperature for your retail porridge. n

INSPIRING Con gratulat i on s to o ur 2 0 1 6 - 1 7

CG A Ed ucat i onal Fo un d at i on S c h o lars h i p

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Award Rec i p i ents...

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Brenda ARmenta Holy Names University Scott Campigli California State University - Los Angeles Chelsy Von De La Torre San Joaquin Delta College Alejandra Gallegos University of California - Davis Joseph Garfield California State University - Stanislaus Jessica Gonzalez San Joaquin Delta College Yer Moua San Joaquin Delta College Joshua Perez San Francisco State University Carly Podesto San Diego State University Jake Powell San Joaquin Delta College Martha Valencia University of California - Los Angeles

ranchosanmiguelmarkets.com • myfood4less.com

C GA N EWS

CGAEF Golf Classics Support Education The CGA Educational Foundation welcomed participants to two sold-out golf classics in July supporting its college scholarship and tuition reimbursement programs.

The Newport Beach Country Club, home of the Toshiba Classic, a PGA Champions Tour stop, hosted this year’s Southern California tournament on

July 12, and players were greeted with near perfect Newport Beach weather and a championship course in excellent condition.

In the north, players were greeted with ideal conditions and gorgeous weather on July 21 at the popular Blackhawk Country Club in Danville, Calif. n

Congratulations to this year’s winners!

SOUTH: First Place Score: 52 Harvey Brown Nico Garcia Jayson Timlin Joe Doody

NORTH: First Place Score: 56 Mark Chase Corey Huston Curt Renshaw Bobby Brown

Second Place Score: 59 Larry Lantero Matt Reel Richard Khoury Skid Meinen

Second Place Score: 58 (Card Playoff) Steve Dietz Todd Achondo Jarret Peppard Chris Carpenter

Third Place Score: 62 Jim Schulz Bob Reeves Kevin Jackson Long Drive Women Susan Aguilar

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Long Drive Men Michael Woolery

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Closest to the Pin Women Dorie Amen Closets to the Pin Men Pat Posey

Third Place Score: 58 Jordan Wettstein Brewt Hughes Brandon Cook Jenifer Grant

Donna Tyndall and Jack Polakow, Gelson’s Markets

TravisMathews Golf Apparel Bus

Newport Beach Driving Range Super A Foods (Renee Amen, Joanne Tedmori, Ken Miller, Jeanne Miller, Dorie Amen)

Long Drive Women Sharon Chaney Long Drive Men Grant Norton Closest to the Pin Mens Dave Jones Pat Posey, Bristol Farms, Closest to the Pin Winner (l to r) Denny Belcastro, Kevin Konkel, Brad Askeland, Bob Bukovec

C GA N EWS

Lunch was provided on the course by Raley’s Flavor Face Food Truck

Thank You Sponsors!

The Foundation wishes to thank the many sponsoring companies that made this year’s golf classics a tremendous success.

Mike Bible, Eric Pearlman, Richie Morgan, Phil Miller

MASTERS SPONSOR

PACKAGE SPONSORS

Albertsons Vons Pavilions Anheuser-Busch InBev Bai Brands Bimbo Bakeries USA Coca-Cola Refreshments Chobani. Inc. Jelly Belly Candy Company Kellogg Company Kraft Heinz Company Moss Adams Mondeléz International Post Consumer Brands Sugar Bowl Bakery Unified Grocers, Inc.

(SOUTH) Bristol Farms C&S Wholesale Grocers Del Real Foods Farmer John Foods Flowers Baking Gelson’s Markets JR Abbott Construction Kimberly-Clark Corp.

Mayhew & Associates MillerCoors Snyder’s-Lance Super A Foods Specialty Foods the Performance Group The Hershey Company Whole Foods Market

HOLES SPONSOR

Caleb Stegel, Wayne Kerwin, Dave Jones, Beth Wright

(SOUTH) Downey Brand Mission Foods PepsiCo (NORTH) Albertsons Safeway Key Mechanical Moresco Distributing Co. Oberto Brands Selfycart

The Illuminators LUNCH

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Jared Sokel, Sean Kelly, Dave Madden, Jim Blumling

Raley’s & Farmer Johns (North) Bristol Farms & The Illuminators (South)

C A L I F OR N I A G R OC E R

BREAKFAST

(NORTH) B&G Foods C&H Sugar/ASR Group C&S Wholesale Grocers Cacique USA Crystal Creamery Daisy Brand Dr. Pepper Snapple Group, Inc. Farmer John Foods MillerCoors NuCal Foods Oil Dri Corp PAQ Inc. PepsiCo Procter & Gamble Producers Dairy Snyder’s-Lance UNFI/Tony’s Fine Foods Unilever

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C GA N EWS

CGA Exec Elected to CSU Foundation Board California Grocers Association President and Chief Executive Officer Ronald Fong was recently elected to The California State University Foundation Board of Governors.

“We are honored to welcome Ronald Fong to our foundation team,” said CSU Board of Governors Chair Ronald Barhorst. “He has an exceptional history of leadership and will bring a valuable business perspective to the board. We look forward to his insight as we continue to grow our endowment to serve the CSU and the state of California.”

Ronald Fong CGA President & CEO

The CSU Board of Governors oversees the CSU Foundation: the university’s central foundation that aims to strengthen the financial capacity of the CSU and broaden access to a high quality education.

The Board represents a cross-section of business, community, cultural and educational leaders with a shared commitment to uphold and advance the mission and goals of the university.

“This is a tremendous honor,” said Fong of his election.

“I am a proud alumni of the CSU system and hold a unique perspective on understanding both the food business and the university’s mission. I look forward to contributing to the Board and helping to guide the Foundation. Because of the success of our own very successful Foundation, I can forsee symmetries and partnerships between the two organizations”.

In 2008, Fong was named President and CEO of the California Grocers Association and the CGA Educational Foundation. During his tenure, he has guided the successful merger of the California Independent Grocers Association into CGA; strengthened the Association’s government relations program; directed the purchase of a new office building in downtown Sacramento; and oversaw the development and completion of an Association reserve fund. In 2015, Fong received the Donald H. McManus Award from the Food Marketing Institute, the highest recognition for a state grocery association executive. n

CGA Hires Coordinator, Advertising Manager The California Grocers Association has hired Lynn Ronsse as Coordinator, Events & Sponsorships, a newly created position.

Ronsse is responsible for providing organizational, logistics and sponsorship support for the Lynn Ronsse Coordinator, Events Association’s event programs.

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& Sponsorships

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“We’re excited to bring Lynn onboard,” said Ronald Fong, CGA President and CEO. “With the continued growth of CGA’s events and sponsorship opportunities, it became imperative that support staff be hired. Lynn brings years of experience and expertise to this assignment.”

Prior to CGA, Ronsse provided meeting and event planning management support for multiple companies and associations. She will report to Beth Wright, Senior Director, Events & Sponsorship.

In addition, Bill Kaprelian has been named Advertising Sales Manager.

He assumes the advertising sales responsibilities for California Grocer magazine, Checkout and the association website.

“Bill is a tremendous addition to CGA,” Fong said. “He brings a great deal of industry knowledge and expertise to the association. With CGA’s expansion into producing publications for other state grocery associations, having someone with Bill’s extensive experience is a tremendous plus for us.”

Bill Kaprelian Advertising Sales Manager

Prior to CGA, Kaprelian worked for McClatchy Newspaper Group, Gannett and owned his own publishers’ representative firm. He will report to Dave Heylen, Vice President, Communications. n

CGA WELCOMES THE FOLLOWING MEMBERS. Lone Peak Labeling Systems Inc. 1785 S 4490 W Salt Lake City, UT 84104 - 4707 Contact: Chris Applebaum, President E-mail: chrisa@lonepeaklabeling.com Tel: (801) 975-1818 Website: www.lonepeaklabeling.com

Selfycart 2075 De La Cruz Blvd Ste 205 Santa Clara, CA 95050 -3035 Contact: Bob Staedler, Business Development Consultant E-mail: bob@svsynergy.com Tel: (408) 234 - 4029 Website: www.selfycart.com

George Peterson Insurance Agency 175 W College Ave Santa Rosa, CA 95401- 6503 Contact: Joe Platt, Partner E-mail: platt@gpins.com Tel: (707) 525- 4150 Website: www.gpins.com

Sellers Publishing, Inc. 161 John Roberts Rd Ste 1 South Portland, ME 04106 -3280 Contact: Lisa Reitan, Sales & Marketing Administrative Manager E-mail: lreitan@rsvp.com Tel: (207) 772- 6833 Website: www.rsvp.com

Surplus Asset Management 3401 Etiwanda Ave Bldg 911 Ste A Mira Loma, CA 91752-1128 Contact: Ben Smith, Chief Strategy Officer E-mail: ben@surplusassetmanagement.com Tel: (951) 681-1100 Website: www.surplusassetmanagement.com

C A L I F OR N I A G R OC E R

Retale, Bonial Enterprises North America, Inc. 525 W Monroe St Chicago, IL 60661-3629 Contact: Victor Duarte, Dir., Sales & Service E-mail: victor.duarte@retale.com Tel: (661) 964 -8697 Website: www.retale.com

Best Buy Market IGA 1798 N 10th Ave Hanford, CA 93230 -2207 Contact: Skip Nugent, Owner Tel: (559) 582-8806 Website: www.bestbuymarket.iga.com

C GA N EWS

New Members

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C GA N EWS

Foundation Awards Record Number of College Scholarships CGA EDUCATIONAL FOUNDATION MARKS 24-YEAR LEGACY OF AWARDING CALIFORNIA’S GROCERY EMPLOYEES AND THEIR FAMILIES WITH THE GIFT OF EDUCATION Hundreds of California grocery industry employees with receive life-changing financial assistance this year through college scholarships awarded by the California Grocers Association Educational Foundation.

The largest statewide grocery industry scholarship program in America, the Foundation will offer 376 deserving students a record $588,100 in financial relief from ever-rising costs that prevent many from completing their education, a $38,000 increase over last year’s award total.

financial support they need,” commented Brad Askeland, CGAEF Chairman of the Board of Trustees.

Beginning with a single scholarship in 1992, the Foundation has grown exponentially over the last 24 years to bestow more than 3,600 worthy college students with awards totaling more than $4.6 million – ensuring that California’s grocery employees and their dependents have the resources necessary to start or complete their higher education. The program includes four types of scholarships: CGAEF funded, Legacy, Donor, and Piggyback Partnership Scholarships.

CGA Educational Foundation college scholarships are open to high school seniors, college freshmen, sophomores, juniors, seniors, and graduate students who are dependents of employees, or are themselves employed by a California Grocers Association member company.

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“The significance of this scholarship program and the grocery industry’s generosity cannot be overstated; this program has been indispensable to countless individuals. At a time when students continuously struggle to continue their education while lessening their financial burden, this program ensures that hundreds of students every year will receive the

“The growth of the Foundation’s college scholarship program has been nothing short of phenomenal,” noted CGA President and CEO Ronald Fong. “In these challenging economic times, the mission of the CGAEF is helping individuals achieve their goals by providing the opportunity to enhance job skills and education by assisting with the cost of tuition is all the more important.”

Shiloh London, CGAEF Executive Director, also cited the vision for the college scholarship program. “We hope the results of our program this year will be twofold – that California’s grocery industry will retain skilled, qualified employees, and that this will serve as a catalyst for future philanthropic fundraising in ever larger amounts to support present and future generations of grocery industry employees,” she said. n

GUEST EDITORIAL

Today’s Diverse Grocery Landscape

R ic h ard Vol pe, J. P h . D. Agribusiness Department College of Agriculture, Food & Environmental Sciences Cal Poly, San Luis Obispo

In my Food Retail Management course at Cal Poly, San Luis Obispo I prepare college students for careers in the food supply chain. Each quarter, I spend the first couple of meetings doing my best to illustrate what the state and national food retail landscapes look like today, and how it is significantly different from just one generation ago.

From my perspective, the single biggest change in today’s food retail landscape has been the increase in diversity among retailers and store formats. According to the U.S. Department of Agriculture, the share of consumer grocery dollars spent at traditional supermarkets fell from about 80 percent in 1999 to 61 percent in 2010.

This has tremendous implications – many of which are yet to be fully understood – for retail competitors, consumers and wholesalers.

microcosm of the changing and diverse retail landscape. At the latest tally, we have Albertsons, Vons, Ralphs, Trader Joe’s, Food 4 Less, Smart & Final Extra!, Whole Foods, Grocery Outlet, and Costco Wholesale. A Lassens Natural Foods & Vitamins just opened a couple of months ago, and soon we’ll have a California Fresh Market. These stores differ dramatically in their size, product assortment, prices, promotional strategies, customer services, and more.

When my parents took me grocery shopping as a child in the 1980s, their choices in our Boston suburb were Stop & Shop, Star Market and Market Basket. While these stores had their minor differences in layout and prices, they were all conventional supermarkets offering similar experiences. When I talk to my students in California I hear similar anecdotes.

I could spend my entire career – and much more than the length of this column – discussing what these changes mean, or might amount to in the future. But food prices seems like a good place to start the conversation.

The town I live in today, San Luis Obispo, has about 45,000 residents, and serves as an excellent

Economists have long shown a positive priceconcentration relationship in food retail. That is, as the number of retailers in a market falls, food prices tend to rise. This effect is usually attributed to decreased competition. The U.S. Bureau of Continued on p. 20

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As part of its commitment to recruit the next generation of grocery industry executives, the California Grocers Association Educational Foundation has partnered with California Polytechnic State University’s Agribusiness Department to fund scholarships, internships and professional development opportunities for students interested in pursuing careers in the grocery industry. Students enrolled in Cal Poly’s Food Retail Management program take a set of core classes, including economics, accounting,

(l to r) JT Janowski, Haleigh Fuentes, Cal Poly; Shiloh London, CGAEF; Nathan Long, Cal Poly

finance, marketing, sales, data analysis, as well as elective courses in transportation and logistics, supply chain management and food category management.

GUEST EDITORIAL

Continued from p. 18

Labor Statistics shows that, nationally, the food retail sector grew more concentrated through the 1970s, 1980s, and 1990s, but that concentration flatlined and even reversed a bit in the last 15-20 years.

This roughly coincides with the proliferation of so many of the diverse new formats across the country.

So perhaps these new store introductions have been responsible for less concentrated grocery markets, but have they resulted in lower food prices? Maybe not.

The answer to that depends on the extent to which differing store formats compete with one another. When stores offer completely different shopping experiences, it may be the case that they are catering to different consumer segments, and therefore aren’t competing-in price anyway.

In my town, for example, Trader Joe’s and Food 4 Less are located directly next door to one another. This suggests they probably do not view one another as

Looking to a

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bright future!

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Congratulations to this year’s scholarship winners!

competitors, and in fact may even consider themselves complementary.

While we have seen in recent years nationwide an increase in food retail diversity and falling market concentration, we have not seen falling food prices. In fact, food price inflation between 2008 and today has been quite a bit stronger than in the 2000-2007 period.

For sure, a number of factors have contributed to this: rising commodity and fuel prices, increasing international demand, etc. But has increased diversity in the U.S. grocery industry been a factor as well?

Only time will tell. n Editor’s note: Ricky Volpe teaches courses on food retail and supply chain management, transporation and logistics, and data analysis. He works closely with industry leaders in food retailing, wholesaling, and distribution to facilitate collaboration on public-private partnerships, student internships and scholarships.

GOVERNMEN T R EL AT IO N S

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What Did We Learn From The June Primaries?

ELECTIONS ARE FUNNY THINGS. AT THEIR MOST BASE, THEY ARE MEANT TO REFLECT THE MOOD AND THE WILL OF THE PEOPLE. BUT WHAT DO THE PEOPLE REALLY WANT?

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Aaron Moreno, Senior Director, Government Relations, CGA

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There is a class of political consultants who make a lot of money trying to predict these things, but even they are occasionally confounded. It seems, however, that the electorate has become more and more confounding because electoral results have become increasingly less and less predictable.

Or at the very least, the political pendulum that pundits are so fond of using to explain the occasional sea changes in the mood of the people is taking less time to swing from the left to the right and back and forth.

It was not so long ago that our statehouse seemed immune from the constant swings of the ideological pendulum as both the State Senate and Assembly have been solidly in the hands of Democrats for years. While that has not changed dramatically, there has been more turnover than ever.

For a time, there was a certain level of stability and even detente when it came to seats in the California Legislature. Before open primaries and before the redistricting process was taken out of

It was not so long ago that our statehouse seemed immune from the constant swings of the ideological pendulum as both the State Senate and Assembly have been solidly in the hands of Democrats for years. the Legislature’s hands and placed into the hands of the non-partisan Redistricting Commission, it was an unspoken rule between leaders of the political parties that each party would keep “their”

G O V E R N M E N T R E L AT I O N S

seats (understand that before the Redistricting Committee, the Legislature would create solidly Republican and Democrat seats with a very minor number of “swing� seats that were created from the leftovers of solidly partisan seats) and not strongly challenge the other party’s seats.

The result was a stable and predictable series of elections that provided a certainty in the balance of legislative power.

No one could have anticipated the success that Donald Trump has enjoyed since he entered the race for President more than a year ago.

Alas, this is no longer the case. The 2012 elections brought a wave of change that provided Democrats with supermajorities in both legislative houses, the first time either party had achieved such a feat in nearly 80 years.

Pundits began to write obituaries for California Republicans, citing demographic shifts in the electorate and non-partisan Commission-created

districts as part of the reasons behind the seemingly increasing irrelevance of the party.

The pendulum had swung even further to the left and was expected to stay there for a long time with predictions of Democrats possibly increasing their supermajorities in 2014. Not only did they not win more seats, but Republicans actually captured a number of seats.

The year 2014 saw the defeat of three incumbent Assembly Democrats, as well as the pick-up by Republicans of two open seats in districts carried

by President Obama by over five points in the 2012 election. Had the pundits gotten it wrong? Were the obituaries for the Republican Party in California premature? Was the pendulum swinging back from the left just as quickly as it had swung to the left in the first place?

At first glance, back in November 2014, the answer to all of these questions was an unequivocal yes. That said, looking at races for Assembly seats that will be decided in November 2016, the pendulum might be swinging back yet again.

Continued on p. 24

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C O N TI NU E D

Continued from p. 23

No one could have anticipated the success that Donald Trump has enjoyed since he entered the race for President more than a year ago. Most wrote him off as a political sideshow that would provide entertainment for the press while national Republicans settled on a mainstream, establishment presidential party nominee.

But as the race continued, and Trump’s mainstream Republican primary opponents began to fall by the wayside, his often inflammatory, shoot-from-thehip rhetoric was just as responsible for mobilizing Democrats as it was for securing him the Republican Party nomination.

Nor could anyone have anticipated the race between Hillary Clinton and Bernie Sanders to be so close that California Democrats would still have a voice so late into primary season. These two unlikely events led to many unanticipated results that could see the return of a supermajority for Assembly Democrats.

I don’t think many thought, for instance, that former Democratic Assemblymember Sharon Quirk-Silva would have defeated current Republican Assemblymember Young Kim by basically the same margin Kim beat Quirk-Silva back in 2014 to flip the seat into the Republican column.

Nor was it anticipated that Republican Assemblymember David Hadley would find himself with 44.6 percent of the vote and 48,755 ballots cast in his favor, against 55.4 percent of the combined votes of two Democrats with over 60,000 cast in their favor.

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It is also worth noting in this particular race, that 60,000 number is more than the total number of votes Hadley received when he won his seat in 2014 with 50 percent of the vote and 54,401 votes cast in his favor.

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Lest you think this trend is limited to arguably purple, battleground districts, you need not look any further than the primary results for Assemblymember Travis Allen in the 72nd district where he garnered 50.4 percent of the vote with 48,321 ballots in favor against two Democratic

challengers who combined for 49.6 percent of the vote with 47,624 ballots in favor. Bear in mind that this is a seat that Allen won easily in 2014 with 65.5 percent and 66,150 votes.

If things don’t change and the June primary results are any indication of what November might look like, we could see a Democratic supermajority in the Assembly larger than the one in 2012.

Granted, a lot can change between now and the General Election in November. There are, however, two things that cannot change: the increase in registered Democratic voters since the last election, and perhaps more importantly, the nomination of Donald Trump as the Republican presidential candidate – something that could depress Republican turnout as much as it could increase Democratic turnout.

If things don’t change and the June primary results are any indication of what November might look like, we could see a Democratic supermajority in the Assembly larger than the one in 2012 .

The coming months will certainly be interesting for political observers. I would guess there are many who wish for the days before redistricting and open primaries when a Democratic seat stayed a Democratic seat and a Republican stayed a Republican seat for at least a decade, until the census would bring a new round of redistricting.

Those days are long gone, and will likely never be seen again. n

The “final” tally is in! California voters will face no fewer than 17 statewide propositions on the November General Election ballot. In addition, many voters will be faced with dozens of local ballot measures not to mention federal, state and local candidates. To say this will be a long ballot with many weighty decisions is perhaps the electoral understatement of the year.

While the stakes are high across the board, the outcomes of state Propositions 65 and 67 will have perhaps the most profound impact on California grocers of any of the contests.

In those two measures, voters will decide the fate of our industry’s hard-fought victory to standardize regulation of carryout bags across all California jurisdictions, and determine whether government is authorized to both force the sale of some carryout bags while taking 100 percent of the proceeds (including grocer costs) for yet another government bureaucrat slush fund.

PROPOSITION 67 In 2014, California grocers achieved a significant victory in standardizing carryout bag regulation across the state. With more than 120 local ordinances on the books at the time, lawmakers finally approved Senate Bill 270 that ended the operational and consumer challenges of a local patchwork of rules governing a very fundamental issue – what carryout bags are available in which local jurisdictions.

In 2016, the same out-of-state plastic bag companies that are spending millions to overturn SB 270 opened the spigot once again and began pouring millions more into an effort to qualify a confusing, punitive initiative for the same November ballot. The real purpose of the effort is to punish the grocery industry for seeking a statewide standard and confuse voters.

Proposition 65 seeks to redirect all revenue from carryout bag sales to the Wildlife Conservation Board, an inconspicuous State agency, to be spent on a variety of environmental programs.

The East Bay Times Editorial Board said it best in its recent editorial opposing the measure – “Proposition 65 deserves consideration as one of the most disingenuous ballot measures in state history.”

The non-partisan Legislative Analyst’s Office and staff for the Senate Environmental Quality Committee have identified significant drafting errors with the proposal and call into question the constitutionality of the measure. In addition, they found the initiative would likely generate far less than what the proponents claim and could actually cost the State more to administer than would ever be generated in the fund.

WHAT YOUR VOTE MEANS: A “Yes” vote on Proposition 65 redirects all funds derived from the sale of carryout bags to a state administered fund. A “No” vote on Proposition 65 keeps SB 270 intact as passed by the Legislature and signed by the governor. n

Keri Askew Bailey Senior Vice President Government Relations and Public Policy, CGA

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Needless to say, CGA has taken a position of strong support for upholding the law, fearing a return to the days of a growing patchwork. And with the number of local ordinances having grown to 150, and the given uncertainty on the State level, it is clear our concerns are warranted.

PROPOSITION 65

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Within hours of Governor Brown’s signature on the bill, out-of-state plastic bag manufacturers filed a referendum and began pouring millions of dollars into an effort to overturn the new law. Their efforts were successful and in early 2015, what would become Proposition 67 qualified for the November ballot.

WHAT YOUR VOTE MEANS: A “Yes” vote on Proposition 67 allows the uniform, statewide standard for carryout bag regulation created by SB 270 to be implemented. A “No” vote on Proposition 67 repeals the state law and continues the business as usual patchwork of local ordinances.

GOV ER N M EN T REL ATIONS

Voters to Decide Fate of Statewide Plastic Bag Ban

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CAPITOL INSIDER

The Politics of Initiatives LO UIE B R OW N Partner in the Sacramento office of Kahn, Soares and Conway, LLP.

In November, voters will be faced with determining the fate of 17 ballot measures on a variety of issues from legalizing marijuana, the death penalty, taxes and, our favorite in the grocery industry, plastic bags.

While nearly 20 initiatives made the General Election ballot, another 30 actually failed to qualify, or were withdrawn. Many of those that failed were substantially similar to those that qualified, but were drafted differently to test voters appeal. Some, like the minimum wage initiatives, were withdrawn because legislation was passed.

While the initiative game can be expensive, it is used quite often to force a deal among unwilling parties.

Take for example, minimum wage.

Governor Jerry Brown signed legislation not too many years ago to implement a series of minimum wage increases. During the unveiling of his January budget, he mentioned the cost to the State and how uncontrolled future increases could cost people jobs.

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Also, in this case, the governor negotiated “offramp” language allowing him to stop a planned increase if the economy is stalling. While many question whether such a clause will ever be used, the governor will argue it made the negotiated legislation better for business than either one of the initiatives.

On the political side, the governor has his own initiative on the ballot dealing with sentencing reform. The data is undeniable that voters get fatigued with long ballots and initiatives lower on the list tend to see a higher percentage of No votes.

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Many saw this as an opportunity to use the governor’s own words to campaign against the initiatives in circulation at the time. However, that strategy will not be tested because the governor signed a $15 minimum wage into law and the initiatives were withdrawn.

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when an issue is voted upon as an initiative, the Legislature’s opportunity to amend it later is significantly hampered. Think Prop 65!

The minimum wage initiative qualified early and would have likely been listed before the Governor’s.

A deal which gets it out of the way, moves his higher and increases it likelihood for success and potentially reduces the cost of the campaign.

From the Legislature’s perspective, avoiding a costly initiative campaign allows the unions pushing for the $15 minimum wage to focus their time and resources on legislative races.

So, why the change of heart?

Ballot measures can also drive election turnout.

It was more than likely a mix of policy and politics. On the policy side, most governor’s, and legislators, would prefer to maintain their legislative prerogative to make such decisions, rather than defer to the voters. In many cases,

While much has been written about the personal politics between the Legislature and lieutenant governor over the issue of guns, one cannot discount the Legislature’s interest in keeping a gun measure off the ballot because of what it

CAPITOL INSIDER

democratic leadership want a ballot measure on an issue, like guns, which is sure to increase republican turnout.

Unfortunately for them, they will soon learn if their prediction is correct because Lt. Gov. Gavin Newsom chose not to remove his initiative from the ballot after the Legislature acted. So, even though the initiative may not accomplish any changes in the law, it may have a real impact on turnout which could impact other races and other ballot measures.

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could do for turnout, especially in some areas of the State where democratic leadership is looking to pick up a seat.

In California, the top of the ticket could actually have a negative impact on voter turnout, especially for republicans. If this is the case, then why would

As you can tell, the politics are thick and I have only provided an insight to a couple of the ballot measures.

Add in restrictions on porn actors, legalization of recreational marijuana and an extension on the sales tax increase and you have the makings of a real barn burner that political junkies, like me, can’t wait to watch.

Who needs Trump v. Clinton when you have a ballot like this one! n

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California Grocers Association Congratulates The 2016 -17 CGAEF Scholarship Recipients

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Investing In Our Future

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INSIDE T HE B ELT WAY

The Regulatory Environment Trumps All Else in 2016 BEYOND THE POLITICAL RHETORIC OF THE PRESIDENTIAL ELECTION, 2016 HAS BEEN A VERY ACTIVE YEAR IN WASHINGTON, D.C. SO FAR. The presidential election leads to a condensed legislative calendar in Congress, but our policy agenda and priorities do not take a day off when Congress is out of session.

The regulatory agencies have been their busiest in recent memory, pushing out final rule after rule before the current administration ends. After just after the first half of the year, we have seen new regulations ranging from food safety to overtime pay to nutrition labeling, and this trend is not expected to show signs of stopping anytime soon.

On May 5, the Food and Drug Administration (FDA) published its so-called “final” guidance on its chain restaurant menu labeling regulation, which also sets the regulation’s enforcement date for May 5, 2017.

The December 2014 rule requires menu labeling at chain restaurants and “similar retail food establishments,” which includes grocery stores, according to the FDA. The Food Marketing Institute has long advocated for the agency to address specific concerns with the rule’s prescriptive requirements that were written for a chain restaurant establishment with menus or menu boards and do not account for the realities of a supermarket setting.

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Jennifer Hatcher Senior Vice President Government and Public Affairs, Food Marketing Institute

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As the agency continued to move forward on implementation without addressing our concerns, we have supported federal legislation (H.R. 2017/S. 2217) to modify the regulations to address these subtle but very important clarifications and allowances of flexibility.

We have asked for these modifications, not as a means to exempt the industry, but to allow FMI member companies to provide their customers with the nutrition information they want while continuing to provide a diverse lineup of fresh in-store offerings on which they depend.

FMI strongly supports enactment of the Common Sense Nutrition Disclosure Act (H.R. 2017/S. 2217)

to make this regulation more workable in a grocery store setting.

The House of Representatives passed H.R. 2017 in February with a strong 266 -144 bipartisan vote, and we are actively campaigning for bipartisan momentum in the Senate in order to get the legislation moving there.

You play an important role on behalf of the industry to educate lawmakers and policymakers about the impact of certain policies on the operations of your businesses. Your first-hand examples and relationships with lawmakers are the most critical aspect of these efforts.

For instance, many of you have spent years growing the offerings in your salad bar to offer more low calorie items sourced from your produce department.

If you are required to put up a sign with a calorie count every time you add an item to your salad/hot foods bar, how would that impact your offerings?

To get your lawmakers to make the changes that you need, we need you to contact your lawmakers (visit Foodaction.net), invite them to your stores and tell them your stories and the challenges you face to implement the menu labeling requirements and the host of other new regulations that are making their way into your stores.

Of course, we are glad to help in setting up a visit/ tour or giving you talking points to consider or even a staffer to help guide the process.

In the midst of this eventful and active end-ofAdministration regulatory environment, there is good news. We represent and work for an incredible industry with a far-reaching impact in communities across the country.

Within that context, we will always be on the right side of any debate because we continue to serve our customers with safe, healthy and affordable food every day. n

We are proud to support the California Grocers Association Educational Foundation.

Congratulations to The Albertsons Companies Foundation Scholarship recipients Thomas Nelson Peter Riley

Andrew Nelson Kyle Ruiz

Your accomplishments inspire all of us.

SWYDCORPIV57868_CGA_AdIssues_2016_V4_05/2016

CONGRESS ENACTED DEBIT CARD SWIPE FEE REFORM, ALSO KNOWN AS THE DURBIN AMENDMENT, AS PART OF THE DODD-FRANK LEGISLATION IN 2010, BUT SIX YEARS SINCE THIS LEGISLATION WAS PASSED, U.S. MERCHANTS CONTINUE TO FIGHT FOR TRANSPARENCY AND COMPETITION IN THE CREDIT & DEBIT CARD INDUSTRY. Recently, Congressman Randy Neugebauer (R-TX) introduced a bill to repeal the Durbin Amendment (H.R. 5465). Shortly thereafter, Chairman of the House Financial Services Committee Jeb Hensarling (R-TX) rolled out his Dodd-Frank reform package (the Financial CHOICE Act), which includes a provision to repeal the Durbin Amendment.

The Durbin Amendment, which was supported by NGA and CGA, placed a cap on debit card swipe fees for the largest banks and introduced competition into the debit routing system. For retailers and merchants, swipe fees are the fastest-growing expense they face, despite technological improvements that have made it

Swipe fees typically exceed a grocer’s profit margins – and that’s just not sustainable. much cheaper for banks to process such transactions.

Swipe fees typically exceed a grocer’s profit margins – and that’s just not sustainable.

Even more frustrating is that Visa and MasterCard are exercising their market power to squeeze out any hope for transparency and competition. The fees are centrally fixed, with no input from retailers, by the credit card companies and not adequately disclosed to retailers, or their customers.

Repealing the Durbin Amendment would only serve to increase profits for big banks while hurting businesses and consumers.

As an industry that operates on profit margins between 1 and 2 percent, supermarket operators

Lower debit swipe fees have allowed supermarkets to pass along savings to consumers in the form of extended sales and have allowed grocery stores to maintain consistent prices even during shortages that would otherwise result in price spikes.

Consumers have also seen benefits in ways that directly contradict the predictions of the banks.

Despite the banks continued insistence that the Durbin Amendment would be the end of free checking for consumers, free checking has increased from 53 to 61 percent since Durbin was implemented, according to the American Banking Association’s own numbers.

Economist Robert Shapiro has noted that consumers saved more than $6 billion in the first year after the Durbin Amendment went into effect. H.R. 5465 would send those savings directly back to the largest 1.4 percent of all banks held under the Durbin Amendment (only banks with more than $10 billion in assets are covered under the Durbin Amendment).

The Durbin Amendment has worked for consumers and businesses for the last six years and began to introduce competition into a system dominated by two major companies. We need to ensure more competition within the debit market – not remove it.

The Durbin Amendment was a step in the right direction, now is not the time to take two steps back.

Tell Congress yourself at www.grocerstakeaction.org n

Peter Larkin President/CEO, National Grocers Association

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And the banks issuing cards under the Visa network, for example, all agree to charge the same fees, eliminating any possibility for competition, or negotiation.

have seen the benefits of increased transparency and consumers have seen the benefit of competition that debit card swipe fee reform has brought to the marketplace.

WA SHIN GT O N REPORT

Don’t Let Congress Undo Debit Card Swipe Fee Reform

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HUGE DISCONNECT THE

By Cassandra Pye

THE HUGE DISCONNECT

BY CAS S NDRA PYE

When the California Legislature introduced a bill this year

increasing the age at which consumers can purchase tobacco, they probably did a good thing. After all, tobacco use remains the leading cause of preventable illness and death in the U.S. and it’s been well documented that 90 percent of tobacco users start before the age of 21; 80 percent first try tobacco before the age of 18.

It probably also seemed to the bill’s author to be an easy law for tobacco retailers to comply with. Change the price codes in a couple of registers, alert the store staff and replace a few signs here and there. A piece of cake, right?

Well, not quite.

Typically, California laws go into effect anywhere from 90 days to six months after being signed by the governor, leaving time for regulations to be drafted (if needed) and for compliance mechanisms to be set in place. California’s new tobacco law was debated and approved by the Legislature in the course of what’s called an “extraordinary session” – meaning the measure took effect on June 9, just 35 days after enactment. Politics, procedural tactics and nuance all stood in the way of closure.

At the same time SB 7 X 2 was winding its way towards passage, threats of a referendum which would have overturned the measure surfaced. In order to avoid a costly initiative battle, the bill’s author requested that the bill be held “at the desk” (thus, keeping from the governor’s desk) for 45 days.

Once he received it, Governor Brown waited an additional twelve days to sign the measure into law.

“Being in compliance on Day One was extremely important to our leadership team,” he said. “They were adamant about being in compliance on Day One.” But that was easier said than done. It was weeks before California’s Department of Public Health had much in the way of practical guidance to share.

Illingworth’s colleagues were more than a little concerned.

“When the state agency responsible for the law can’t give retailers information and guidance, we’re at a standstill,” Illingworth said. “CGA can’t advise and we can’t execute.”

So, with tens of thousands of employees to train, age verification systems to update coupled with the need to establish special protocols for members of the military (who are exempted from the law’s provisions), the Albertsons, Vons, Pavilions group

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And, because of the fiercely competitive nature of the retail grocery business, no retailer wanted to be in a position where they were breaking the law and, worse yet, called to task in the press for noncompliance.

The parent company, Albertsons Companies, operates nearly 600 stores in in California, including Safeway stores in the northern half of the state.

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While the bill’s author extolled the virtue of the new law’s provisions, retailers all around the state waited anxiously for guidance around how to implement it.

If found in violation of the new law, tobacco retailers faced potential fines ranging from $400 to $600. The industry needed specifications on signage, employee training guidelines and the like.

“As a major retailer in California, we take our integrity very seriously and anything that could potentially jeopardize that – and the trust that our customers have in our business – that’s important to us,” says Carlos Illingworth, Southern California Director of Communications and Government Affairs for Albertsons, Vons and Pavilions.

Continued on p. 34

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THE HUGE DISCONNECT

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Continued from p. 33

set into action, deploying a dozen managers to manufacture stickers with the new age notification.

“It took four days and a team of a dozen people from our management group to implement what we called ‘Plan B’. It was a lot of work – like trying to sprint a marathon and not knowing when the race was going to end. The military piece, in particular, required special training,” Illingworth recalls.

It was an all-hands-on-deck operation that included marketing and advertising teams who designed the temporary signage and front end managers who trained customer-facing teams. Signs had to be distributed to several hundred stores, doors and cigarette cabinets had to be checked for old signage and decals and date-of-birth prompts were changed in POS systems. A comprehensive internal email to district managers read, “We want to make sure every store is touched and confirmed complete” by opening on June 9.

“We emailed the Department of Health with our plan – here’s what we’ve done, here’s our temporary fix – and were told they appreciated the proactivity of our company,” Illingworth states.

Then, just 48 -hours ahead of Day One, the state gave notice that it had printed new point-of-sale and point-of-purchase signs for tobacco retailers, reflecting the new minimum age for purchase.

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“To hear from the state, at the end of iStock that process, that ‘we’ve got the signs available’ is very telling of a disconnect,” Illingworth says. “Government doesn’t move at the speed of business. They don’t realize the scope of what we do.

They think it’s as easy as flipping the switch.”

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Though costly and frustrating, Illingworth believes the company had no choice but to plan well ahead of the new law’s June 9 start date. “We didn’t want to be out of compliance. If a member of the media had come in one of our stores on the effective date…we didn’t want that to be the story. It was too important to leave to chance.”

There is so much at stake in a competitive industry like retail. And, as Illingworth suggests, there’s nothing more important to a retailer than its reputation with its customers.

Faced daily with the task of bringing literally thousands of varied, fresh, safe products to market, retailers rely on strong systems and are constantly seeking to improve efficiencies in their operation.

But, oftentimes, it is the work of government – wellintended as it may be – that has the potential to wreak havoc on these systems. Case, in point: California’s beverage container recycling law.

A Perfect Storm California’s AB 2020 law, passed 30 years ago, requires certain supermarkets to accept empty beverage containers from consumers if there is no recycling center within a mile radius of a predetermined area, called convenience zones (CZs). Most grocers comply by contracting with a recycling company to set up operations in their parking lots.

But for several years now, commodity prices for aluminum and glass have been dropping globally. That dip, coupled with the remarkable take-back rates of beverage containers in California, has forced the closure of hundreds of recycling centers around the state. There simply isn’t enough money to support the infrastructure, putting numerous supermarkets out of compliance with AB 2020.

With the state recycling fund nearly insolvent, California lawmakers passed a stopgap measure this legislative session that will keep the program fully solvent for just one more year and prevent more closures of recycling centers. Governor Brown made it clear, when he signed the measure, that the system needs to be overhauled to meet current market conditions.

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As that overhaul debate begins, Steve Gaines, Senior Director for Retail Services for The Save Mart Companies, will be watching very closely.

The risk of broken glass, containers still partially filled and especially pest issues – are all factors that give retailers pause.

“The current recycling program is an inefficient business model and isn’t sustainable,” he says.

There’s also the matter of fairness – for both retailers and their customers.

Being in a convenience zone means certain grocers have three ways to comply with the current law: One, secure approval from a landlord for placement of a recycling facility – on the premises. Two, take back empty containers inside stores because some local ordinances prevent stores from setting up centers in parking lots. Or, three, pay a fee of $100 a day, per store, to remain in compliance.

In the 30 years since the original law was approved, hundreds of additional retailers have sprouted up around grocery stores – all selling beverages, but not all required to participate in the container recycling program.

Supermarkets report that they have attempted to find other recyclers to assume operation of their take-back operations but, at this juncture, there are no new state-certified companies that can manage multiple sites.

Gaines estimates that re-establishing recycling centers would require his company to negotiate between 60 and 70

According to CalRecycle’s website, there are 57 CZ zones in San Francisco, for example, but there are just over 900 retailers which are not currently required by law to take back bottles and cans.

“So it’s not a level playing field,” Gaines claims. “The law only affects certain supermarkets.”

The Save Mart Companies have strong sustainability programs.

Gaines says the company composts 21,000 tons of food products, annually and recycles 40,000 tons of cardboard each year in their stores. “We want to be a good corporate citizen. Bottle recycling is part of that but is just not working,” says Gaines.

Behind the Times

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individual agreements with separate recyclers once they’re certified by the State of California, a process that can often take weeks, or even months.

Plus, accepting empty beverage containers isn’t really a workable option.

According to its authors, the law was intended to help Californians make “informed decisions” about protecting themselves from chemicals known to cause cancer, birth defects or other reproductive harm. Now in its 30th year of enactment, the group of chemicals on the official “Prop 65 list” – each having a 1-in-100,000 chance of causing cancer – has grown to approximately 800.

Continued on p. 36

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The other thing that’s increased is the number of so-called ‘bounty hunter’ lawsuits – which can be brought by private interests as a part of the Act’s enforcement provisions. It should come as no surprise, then, that since 2000, attorneys have

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Most retailers believe it poses too much of a risk, from a health and safety perspective, to accept and store empty containers in any part of the store. The industry is held to an extremely high standard for quality and cleanliness and most stores do have secure areas designed for this kind of material.

And, then there’s Proposition 65 – The Safe Drinking Water and Toxic Enforcement Act of 1986.

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Continued from p. 35

collected more than two-thirds of the money paid by California businesses to settle Prop 65 lawsuits.

And while there are no credible studies proving that cancer rates have dropped in California since the law’s enactment, there is still very little retailers can do challenge its provisions due to a carefully crafted clause which only allows amendments to Prop 65, if they are ‘in furtherance of’ the Act’s provisions.

As one industry source concludes, “We’re stuck with it.”

The leaps, bounds and advances in science and technology in the 30 years since the law’s enactment are too numerous to list. “You can do a Google-search on just about anything today and have it qualify as authoritative data,” says Louie Brown, a Capital veteran and food industry legislative advocate.

“Now, you can track parts per trillion. There is an abundance of information and just about anything can find its way onto the Prop 65 list… but, does that mean the law is doing what it intended to do?” he asks.

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“There are signs in bars, signs on jet ways, they’re so abundant and ubiquitous; it’s a never-ending stream of warnings and products being added to the list,” says Brown. And now, according to Brown, California’s Office of Health and Hazard Assessment (OEHHA) is considering changing the method for warning the public about the presence of cancercausing chemicals. “The issue always comes back to who has the duty to warn, the manufacturer or the retailer, do you provide notice on the package or the shelf?”

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“There may be little-to-no flexibility as to how to provide the warning, even with all the technology now available to us.” At the same time, Brown cites a new federal food safety law signed by President Obama last month which authorizes the use of smart labels and will likely lead to the use of QR codes to inform consumers about the presence of genetically modified organisms (GMOs) in food products.

“This time the federal government is way ahead of California,” Brown suggests. “Even Congress acknowledges that times have changed and the way consumers access information has as well.”

Former US Secretary of State Henry Kissinger is oft-quoted, having once said: “High office teaches

decision making, not substance. It consumes intellectual capital; it does not create it. Most high officials leave office with the perceptions and insights with which they entered; they learn how to make decisions but not what decisions to make.”

Does this explain the disconnect?

“Maybe in part,” says Jim Richardson, a Capital veteran and Assembly Chief of Staff.

“Bill Gates takes two weeks off every year, goes into seclusion and reads,” says Richardson. “He recognizes the importance of stepping back to broaden his perspective. But the number and diversity of issues legislators must deal with and the pace at which the legislature operates makes it very difficult to do this. With so much going on, it’s more than a full-time job just to keep up.”

In the 2013 -14 legislative session, there were 4,518 total bills analyzed (9,300 separate versions) and approximately 2,500 Floor votes in a two-year Session.

Not to mention a $171 billion State Budget that involved 40 Budget subcommittee and full committee hearings. Richardson suggests the volume makes it hard to keep up…and to look outside the bubble.

“It might help to change the way the legislature runs.

We still operate on a legislative calendar that dates back to the 1850s and 1960s. Modernizing things could help a lot.”

SaveMart’s Gaines says there is a far more modern approach, for example, to the state’s recycling efforts.

“There is the ability…to recycle efficiently. It’s inefficient to do it every day,” he asserts. “Why not use smartphones and create a network that’s more efficient?”

“I’m not sure you could have predicted what technology would be available when Prop 65 was enacted,” says Louie Brown. “But, let’s at least acknowledge that, today, putting a QR code on a product might make more sense than a shelf tag.”

Policy objectives may be noble, some say, but when it comes to California laws and regulations, there seems to be a total disconnect between policymakers and the real world.

With ever-increasing pace of change, perhaps it’s simply too hard for government to keep up. n

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SUPPLY CHAIN

CONNECTIVIT Y | NEW STRATEGIES | DIGITAL FLUENCY UNCONVENTIONAL FORMATS

THE RETAIL INDUSTRY AS WE KNOW IT IS LIVING ON BORROWED TIME.

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CUSTOM

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BY LEN LEW IS

This isn’t some doom and gloom forecast nor does it portend the extinction of an industry. But retailers must heed THE RETAIL INDUSTRY AS WE KNOW IT the call to arms and recognize that a transformational shift is THIS ISN’T SOME DOOM AND GLOOM FORECAST NOR taking place.

IS LIVING ON BORROWED TIME. DOES IT PORTEND THE EXTINCTION OF AN INDUSTRY.

Going forward, the path to success is paved withMUST new HEED strateBUT RETAILERS THE CALL TO ARMS AND RECOGNIZE THAT A TRANSFORMATIONAL SHIFT IS gies – customer-centricity, digital fluency, operational agility, TAKINGunconventional PLACE. a need for deeper demographic analyses, formats, connectivity at all levels of the supply chain, and new GOING FORWARD, THE PATH TO SUCCESS IS PAVED methods of distribution.

WITH NEW STRATEGIES – CUSTOMER-CENTRICITY, DIGITAL FLUENCY, OPERATIONAL AGILITY, A NEED FOR DEEPER DEMOGRAPHIC ANALYSES, UNCONVENTIONAL FORMATS, CONNECTIVITY AT ALL LEVELS OF THE SUPPLY CHAIN, AND NEW METHODS OF DISTRIBUTION.

ER-CENTRICIT Y | OPERATIONAL AGILIT Y | SUPPLY CHAIN

By Len Lewis DEEPER DEMOGRAPHIC ANALYSES

At its core, this reshaping of retail is not just about selling products but nurturing relationships with customers on multiple platforms and enhancing their shopping experience.

Some recent moves are a good barometer of where retail is headed.

“It’s more about the food experience for us,”

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families,” said Walmart CEO Doug McMillon.

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quintessential box retailer,all sees itself at aof crossroads, At its core, this reshapingWalmart, of retail once is notthe just “We’rebig connecting the parts Walmart about selling products but nurturing into one seamless shopping experience fighting back against alternative retailers like Amazon on fronts other with relationships with customers multiple great stores, easy pickup, fast delivery and than on price. platforms and enhancing their shopping apps and websites that are simple to use.”

“We want to make every day easier for busy families,” said Walmart CEO experience.

The company alsoofgetting more Doug McMillon. “We’re connecting all the is parts Walmart into aggresone Some recent moves are aseamless good barometer sive in grocery delivery through a deal with shopping experience with great stores, easy pickup, fast delivery of where retail is headed.and apps and websites thatUber and Lyft in Denver and Phoenix. are simple to use.”

Walmart, once the quintessential big box Kroger is puttingin$2.5 million in athrough culinarya The company is also getting more aggressive grocery delivery retailer, sees itself at a crossroads, fighting training and education center in Cincinnati, deal with Uber and Lyft in Denver and Phoenix. back against alternative retailers like Amazon Ohio, with chefs from its stores around the Continued p. 42 on fronts other than price. country, to meet the demands of aon growing consumer food culture.

“We want to make every day easier for busy

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IMPROVING THE CUSTOMER SHOPPING EXPERIENCE IN ALL FORMATS AND CHANNELS OF DISTRIBUTION

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Kroger is putting $2.5 million in a culinary training and education center in Cincinnati, Ohio, with chefs from its stores around the country, to meet the demands of a growing consumer food culture.

“It’s more about the food experience for us,” said Mike Donnelley, Executive Vice President of Merchandising for Kroger. “It’s about how to stay more in tune with food trends.”

At the same time, the chain is continuing to decentralize at its manufacturing facilities in order to streamline operations, increase efficiency and lower the cost of manufacturing as well as products in-store.

Overall, industry analysts believe that the transformation of retailing will be build on three main pillars – technology, marketing and the customer experience.

Technology seems to begin and end with what has become one of the most talked about concepts “The Internet of Things” (IoT), an often misunderstood term which basically means connecting every device in the world to every other device through the use of sensors embedded in products and locations throughout the supply chain – from manufacturing to distribution centers, stores and into people’s homes.

A report by Juniper Research forecast that by 2020 retailers worldwide will spend $2.5 billion in IoT– related hardware – including beacons, RFID tags, other types of sensors – a fourfold increase from the $670 million in 2015.

“RFID was the first signpost on this journey but we’re moving on to other sensors,” said Dan Mitchell, Director of Retail and CPG industry practice for SAS, Cary, N.C., a data analytics firm. “The biggest innovation is being able to sense where a consumer is in the store by using their mobile device.”

EXPERIENCE COUNTS To most retail industry observers, technology is the means to an end. Improving the customer shopping experience in all formats and channels of distribution

is the endgame.

Joe Jensen, Vice President of the IoT group and General Manager of the Retail Solutions Division of Intel, emphasized that the real story with IoT is not about the technology or even the ability to gather data, but how to use it to gain insights into consumer behavior and enhance the shopping experience.

One of the ways retailers are moving the needle is through the use of retail laboratories to accelerate innovation and change at a more rapid pace and create a more seamless omni-channel shopping experience.

At the Westfield Center in San Francisco, one of the country’s largest mall operators, the facility’s entire top floor is dedicated to Westfield Labs, whose responsibility is to rethink how customers shop in conjuntion with their mobile devices.

WalmartLabs, based in San Bruno, Calif., employs over 3,000 people. Its goal is to build an “internet technology company,” according to company officials.

It is an incubator for new products and projects that are helping to reshape Walmart’s in-store and e-commerce with search functions for stores and categories, as well as store mapping. It is an integral part of the chain’s plan to revamp e-commerce and catch up with Amazon.

Target opened its innovation lab in San Francisco in 2012. The chain had focused on several areas, including: virtual reality, robotics, and the use of such digital equipment as beacons and other types of location technology activations – including beacons and location technology in order to provide customers with a better shopping experience.

Meanwhile, online shopping will remain one of the most disruptive areas of technology, continuing to transform every segment of retailing.

Online grocery sales – both home delivered and store pickup – run anywhere from $14 billion to $21 billion, according to research.

This would represent approximately two to three percent of the $700 billion grocery industry. But some

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• BECOME FAR MORE INNOVATIVE WITH WEBSITES AND DIGITAL OFFERINGS. • F O C U S O N S AT I S F Y I N G C U S T O M E R S A C R O S S A L L C H A N N E L S I N S T E A D O F V I EW ING DIGITAL AS A C OMPET ING C HANNEL. T HE FACT IS T H AT 74 PERCENT OF RESPONDENTS SHOP MORE THAN ONE CHANNEL AND 25 PERCENT ARE U S I N G F O U R O R F I V E D I F F E R E N T O N E S T O S H O P.

analysts believe that Millennial shoppers could boost that percentage to as much as 15 percent over the next 10 years.

Mike Griswold, a Vice President of Research at advisory firm Gartner, has stated that Amazon forced the industry to look at online sales as more than just a passing fad. Food retailers are now asking how they can offer an Amazon-like experience.

“We’re past the phase where we ask ‘Is this something I should do?’” he said. “We’re at the part where we ask ‘How fast can I roll this out?’”

This was underscored in a new retail analysis from PwC. “The bottom line is that the consumer has spoken,” according to the PwC analysis. “They’ve communicated that multichannel shopping is here to stay and with the ability to shop anywhere, anytime with any device, consumers are demanding excellence and consistency at every turn. And they are challenging retailers and brands to keep up.“

This will require changes in the way retailers track and measure consumer behavior, market their products, operate their stores and manage their supply chains. The successful retail business model of the future will be different.

A number of companies are looking at how to interact with customers on different levels. One of the most prolific is Target which has established the Food + Future coLab, a collaboration between the chain, the MIT Media Lab and IDEO, a U.S. based design firm.

This collaboration is yielding some interesting possibilities for combining technology, personalization, new foods and packaging.

One idea is a new scanner that checks food ingredients. A report at the checkout not only tells consumers how much money they spent, but also the amount of calories purchased and the total nutritional content of their order.

A global PwC study revealed that only 20 percent of online shoppers have made their first purchase within the past year, suggesting tremendous opportunity for retailers to create or enhance their online presence.

The coLab team is also focusing on developing smaller stores with a heavier prepared foods offering and new packaging that clarifies the product’s ingredients. Called Good and Gather it is literally transparent and rather than listing ingredients in a small box on the back of the page, they are listed in large type on the front.

However, in the U.S., 67 percent of consumers shop online and sales are projected to achieve a 10 percent compound annual growth rate, which some observers believe is overly conservative.

Interactions with customers are clearly the next big idea in retailing and a new “disruptor” may be the use of robotics which some pundits are hailing as a new industrial revolution.

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The question retailers have to answer is how multichannel shopping behavior will continue to evolve.

better align their business models with consumer sophistication and expectations,” the PwC study reported. “Closing this gap will require a significant increase in agility and flexibility by retailers, driven by a deeper understanding of their customers.”

Continued on p. 46

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Your Source for Healthy

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While Amazon started the robotics ball rolling with its drone technology, Walmart is now testing drones to handle inventory at its warehouses. By taking approximately 30 images a second, these drones can catalog a distribution center’s inventory in less than a day compared with a month needed by human workers.

Along those lines, a research report entitled “Robot Revolution” by Bank of America Merrill Lynch, found that up to half of retail jobs, including cashiers, could be replaced by robots or computerization in just 20 years.

San Francisco-based Simbe Robotics has developed Tally, a robot that roams through a store scanning the shelves for misplaced or low inventory in about onethird the time needed by human workers, according to company CEO and Founder Brad Bogolea, who said that Tally can inventory an entire supermarket in about an hour.

RF Spot, Los Altos, Calif., has an in-store sensing robot to track and maintain apparel inventory at Tesco stores in the UK. Carnegie Mellon University is developing AndyVision, a robot inventory system that also scans the store’s shelves to tell staffers when inventory of an item is running low, or if merchandise is out of place.

Additionally, the market for robot assistants will hit about $6.5 billion this year, according to the Fung Center.

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ALL SIGNS POINT TO THE CONTINUED P R O L I F E R AT I O N O F S M A L L S T O R E F O R M AT S , A C C O R D I N G T O A N A LY S T S , W I T H S E V E R A L R E C E N T E N T R A N T S S TA N D I N G O U T.

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The Fung Business Intelligence Center, a Hong Kong-based firm that analyzes supply chains and retail said in a new report: “Retail has always been about getting inventory from its place of manufacture to customers. The many steps along the way – from packing, transporting, unpacking, and merchandising the product – are using automation and robotics to their limits, in many cases. Changes and new opportunities for robotics will take place in the coming years, probably before robots become commonplace in the sales floor.”

Amazon has already used robots in its distribution centers to cut costs and speed up deliveries. Walmart is six to nine months away from using drones to check warehouse inventories and has applied to U.S. regulators to use drones for home delivery and curbside pickups.

Intense competition throughout the industry is driving the retail trend toward strategic alternatives like merger and acquisitions in order to optimize capital and increase growth.

In a recent report, Duff & Phelps, a consultant and specialist in M&A activity cited Kroger’s recent acquisition of Roundy’s to expand into Wisconsin and Harris Teeter to increase its presence in the Carolinas and Mid-Atlantic markets.

A year in the making, the merger of Ahold and Delhaize is near completion, a move that will give the combined company more than 6,500 stores. This is the latest in an ongoing market consolidation in the U.S. over the past five years.

Meanwhile, with traditional supermarkets under fire, the format that has gained much attention, and market share, is the limited assortment, or small format grocery store.

For example, since 2006, the average supermarket square footage in the U.S. has fallen, according to Packaged Facts. Trader Joe’s, Aldi, Bfresh in Boston and Green Zebra in Portland are small formats

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offering a curated shopping experience with a heavy focus on private label.

All signs point to the continued proliferation of small store formats, according to analysts, with several recent entrants standing out.

For example, Whole Foods, long known for upmarket prices and products is going after a new wave of lower income but discriminating shoppers with its new 365 small store format. It is expanding more rapidly than previously forecast thanks to a positive reaction from a broad range of consumers, the company said.

recent “Thought Starters” event, that in-aisle advertising must be a collaboration between retailers and manufacturers and should go along with a discussion about where products are placed.

“You have to ask, what’s on the consumer’s mind,” he said. “Most grocery stores approach food from a category manager’s perspective, where they’re measured on sales and profit. So they want this item next to this item. The consumer doesn’t care. They just worry about the needs of the day.”

Those needs include food delivery systems which have become one of the hottest areas in retailing.

But industry observers believe that Aldi’s aggressive expansion in Southern California, with 45 stores slated to open by the end of the year, will have the greatest impact on the West Coast.

“Consumer demand for online food offerings has increased in recent years, providing an incentive for traditional brick-and-mortar retailers to enter the online segment,” Duff & Phelps noted.

This move is part of the German chain’s $3 billion investment in the U.S. which will see some 650 stores open over the next five years, with California an integral part of that plan, according to company officials.

This includes companies like FreshDirect and Peapod, a unit of Ahold USA. Amazon has launched AmazonFresh and recent press statements indicate they are in strategic discussions with the UK online grocery retailer, Ocado.

As Bryan Gildenberg, head of Research for Kantar Retail, has said: “California has an older, low-income population that find the retailer’s simple, midsize stores easy to navigate.” Another is Ahold USA’s BFresh stores, a 10,000-square-foot urban format that focuses on prepared foods made from scratch.

Additionally, when Albertsons acquired Safeway in 2015, Groceryworks.com came with it. Albertsons is expected to grow this business significantly, it was noted.

Formats like this present a significant challenge for center store brands. Research from Mintel indicates that two out of five consumers believe the center store is made up excessively of “junk food.”

Target, which came into the grocery business with a vengeance over the past two years, is in the process of creating a new identity. The goal, according to industry sources, is to look more like a department store and less like a supermarket. The chain is testing the format, dubbed LA25, in about 25 stores in the Los Angeles area. The project involves making 35 changes to the look of each store.

This perception is more prevalent among younger shoppers and those that have a higher level of education. However, in an effort to revitalize brands this could promote the development of technologies that would drive in-aisle advertising.

X T B I G I D E A I N R E TA I L I N G .

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Joel Gregoire, Senior Food and Drink Analyst at Mintel, said during a session at Canadian Grocer‘s

Although technology is clearly driving change, new brick and mortar formats are not to be denied.

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ALDI IS CHANGING ITS STRATEGY HERE AS WELL. The premier no-frills, deep discounter is testing a more upscale format in Germany that could find its way to U.S. operations, thereby changing the game for small store formats.

Cut cardboard boxes and crates are giving way to wood paneling and more organic produce. Aldi’s “Future Store” is the chain’s answer to intensified competition as well as changing consumer tastes.

In terms of demographics, millennials as well as the up-and-coming Gen Z population will have a significant impact on the entire retail business. But a recent report from Coca-Cola cited several strategies for capturing sales from this segment. n Market

in the Moment: In-store POS displays and shelf talkers drive bigger impact with millennials, and point-of-purchase shopper marketing is critical.

n Deliver

Differentiated Experiences: Because millennials look for ready-made or easy-to-make meal solutions, there is a big opportunity to win their meal and snack business and use this as the mechanism to drive loyalty and store preference.

n C ater

to Impulsiveness: The impulsiveness of millennials provides ample opportunity to create better connection points to drive purchase intent, but it takes strong in-store communication and variety to reach them. Beverages, snacks and ready-to-eat café or deli items are big impulse purchases.

On-Trend and On-Budget: Offering budgetfriendly, smaller products that fit their lifestyles and household needs allows them to have rich consumption experiences without the high price tag.

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The issue is not only who will be shopping the stores, but where. Over the past several years, considerable time has been spent discussing urban retailing. The rush to the inner city has been a valid response to a shift in population among younger people as well as older empty nesters.

However, there is some evidence that the pendulum is swinging the other way.

New figures from the U.S. Census Bureau shows that the population surge toward big cities is slowing as people uproot again for jobs in the suburbs. The top 50 cities accounted for 20 percent of the nation’s population last year, down from 21 percent the prior year and the third consecutive annual slide and a significant decline from 2011 when cities, specifically revitalized downtown areas, accounted for 26.7 percent of U.S. population growth.

However, high real estate and rental costs in urban areas are driving more people in their late 20s to “exurbs” and suburban areas where real estate and rents are comparatively less costly and job opportunities are increasing. Not surprisingly most of the cities showing population growth are in the West.

At the top of the list was Irvine, Calif., with a 3.43 percent growth, followed closely by Gilbert, Ariz.; Henderson, Nev.; Scottsdale, Ariz.; Denver, Colo.; and Orlando, Fla. In a 2013 book entitled “Reshaping Retail” from McKinsey & Co., the authors noted: “Individual retailers are going to have to understand how and where they are going to play.” In other words, they must choose one or two (but not several) archetypes and understand how to transform their businesses accordingly.

However, who lives in these locations could also changing the nature of the business. The Pew Research Center reports that for the first time since the late 1800s, younger people, 18-34 years old, are more likely to live with their parents.

Overall, the study found that 32.1 percent of people in this age group are living with their parents, surpassing the 31.6 percent who live with a spouse or partner. Others in the study live alone, with roommates or other family members.

Indicating the implications for retail, a senior Pew researcher noted, “Forming a new family is not nearly as important as it was for young adults.”

“This will mean a dramatic and long term journey, bringing in new staff and skills, embedding new processes and embracing new organizational structures. But those who get ahead now may enjoy a sustained advantage for decades to come.” n

Waste Not, Grocery retailers across the country are spearheading efforts to battle the escalating food waste crisis through donations, recycling and operational efficiencies. But significant reductions will only be achieved by strategic planning, long term commitments and partnerships with manufacturers, producers, government agencies, foodservice, and consumers.

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Want Not Exact figures for waste reduction at retail are not yet available, but more than 40 percent of wasted food from supermarkets is either donated or recycled, according to the Food Waste Reduction Alliance, Washington, a joint effort by the Food Marketing Institute, the Grocery Manufacturers Association and the National Restaurant Association.

This number mirrors figures from the U.S. Department of Agriculture indicating that retailers, along with restaurants, schools and consumers, waste an estimated 30 to 40 percent of the nation’s food supply annually. Moreover, food waste makes up about 21 percent of the municipal solid waste in U.S. landfills.

The rising costs of handling this waste, as well as the environmental impact, is making waste reduction a business imperative over the next decade for companies who see this impacting their bottom line, according to observers.

“All the major players are coming to the table,” said Andrew Shakman, Co-founder and CEO of LeanPath, Beaverton, Ore., developer of waste measurement and analytical systems for retailers and foodservice operators. “There’s a global consciousness about the environment and retailers want to do the right thing.”

In addition, according to Shakman, “There are also a lot of active discussions underway throughout the industry and in Congress about various types of date label reform. Whether hearings

By Len Lewis

yield legislation is questionable, but the industry is working on it independently and retail companies have already done some standardization on labeling.”

Lorenzo Macaluso, Director of Green Business Services at the nonprofit Center for Eco Technology, Pittsfield, Mass. added: “We’ve worked with retailers for a long time and there’s definitely increased interest in food waste driven by some regulatory initiatives. Supermarkets also see the benefits of reducing food waste from the business, customer engagement and environmental sides.”

Some companies have found new purposes for food waste, like Emerson’s Grind2Energy program that efficiently converts food waste to renewable energy.

“We’re doing business in eight states across the country and we’re proud to launch Emerson’s Grind2Energy solution with Northgate Markets as our first California partner,” said Heather Dougherty, Food Waste Specialist for Emerson’s Grind2Energy.

Everyone agrees this represents a Herculean task. The United Nations estimates that more than one-third of food produced worldwide is lost or wasted.

In the U.S. alone, food waste amounts to at $162 billion annually, according to USDA’s Economic Research Service.

Private research groups estimate that food production accounts for about 10 percent of the nation’s energy budget, 50 percent of land and over 80 percent of freshwater consumption.

Continued on p. 52

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Continued from p. 51

As a result, federal agencies, including the USDA and EPA last year announced the first-ever national Food Waste Challenge, calling for a 50 percent reduction in waste by 2030. The program now has more than 4,000 participants, including charitable and faith-based organizations, private sector firms and local and state governments.

Other countries are taking matters into their own hands even more aggressively. France passed a law banning supermarkets from discarding or destroying unsold food. It mandates that all of it be donated to charities for immediate distribution and that unsafe foods be donated to farms for agricultural purposes.

This is said to be one of the first legislative initiatives of its kind. It also specifies that supermarkets above a certain square footage are required to sign contracts with charities or face fines of up to $81,600 or two years in prison.

The U.S. may be able to avoid such harsh regulation since it has tax incentives, as well as the Good Samaritan Food Donation Act, which prevents retailers from being liable for any harm done by food they donate.

Some states though are taking a more proactive stance. In 2014, Massachusetts’ Department of Environmental Protection formally banned solid waste disposal among businesses that dispose of one ton or more of food waste weekly.

The law’s detractors argue that retailers only account for about 11 percent of food waste while restaurants account for 15 percent and consumers 67 percent.

These businesses are required to donate or repurpose usable food with the balance sent to facilities for composting or conversion to animal feed.

Massachusetts’ goal is not only to reduce waste by 30 percent by 2020 but 80 percent by 2050.

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Rethink the way you dispose of something as simple as an orange peel.

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In California, Assembly Bill 1826 requires businesses that generate a specified amount of organic waste per week to arrange for recycling and for jurisdictions to implement a recycling program to divert organic waste, as well as report to CalRecycle (California’s Department of Resources Recycling and Recovery) on their progress in implementing an organic waste recycling program.

To sweeten the pot and make waste reduction more business friendly, in December Congress passed legislation in the 2016 Omnibus budget that provides for comprehensive tax incentives for food donations.

The provision contains four significant changes: n A

permanent extension of the enhanced tax deduction for food donations for all businesses.

The legislation’s expansion of the enhanced deduction applies permanently to all business entities in future tax years, as well as applies retroactively for the 2015 tax year.

n Increases

in the deduction’s cap to 15% of the donor’s net income.

n New

optional formulas for some taxpayers for calculating the enhanced deduction.

n A

formula for determining the fair market value (FMV) of food inventory.

Additionally, a diverse group of more than 30 businesses last year created ReFed, which produced “Roadmap to Reduce U.S. Food Waste,” the first ever national economic study and action plan committed to tackling food waste at scale, while creating jobs, recovering meals for the needy and reducing greenhouse gas emissions.

According to the organization the roadmap is designed to fill the gap between awareness and action by creating transparency in the waste flow and opportunities for a more efficient food system by preventing, recovering and recycling food waste.

Continued on p. 54

And you’re helping recycle food waste into energy.

An alternative to landfills and traditional compost programs, Grind2Energy™ food waste recycling system efficiently converts food waste to renewable energy. Our non-sewer based technology enables you to dispose of all types of food waste — including kitchen fats, oils and grease — faster, cleaner and easier. Reduce odors, pests, emissions and labor costs, all while generating renewable energy and protecting the environment. Learn more at www.Grind2Energy.com

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T E N WAY S T O M A N AG E F O O D WA S T E 1. Foster a positive culture centered around solving food waste and make it a topic the staff can talk about openly, sharing ideas and perspectives.

2. Start tracking food waste with a manual waste tracking sheet or an automated system. You have to know what you’re wasting and why so you can make changes to minimize waste in the future.

3. Create a Stop Waste Action Team (SWAT) responsible for meeting weekly and discussing food waste tracking.

4. Set a weekly waste reduction goal which can be measurable and data driven. And emphasize how everyone plays a role in reducing food waste.

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revenues by marketing discounted imperfect produce and reducing costs by adopting improved inventory management systems and spoilage proof packaging.

n

Collaborating with manufacturers to adopt standardized date labeling.

n

Partnering with others to conduct advocacy campaigns that raise awareness and educate consumers about preventing wasted food.

n

Improving retail inventory management systems

Individual retailers overseas and in the U.S. are already aggressively involved.

6. Watch for “Sneaky Waste” such as past rice and soup side dishes in foodservice. Portions are relatively inexpensive but the total amount wasted adds up quickly.

7. Keep a close eye on overproduction. Make sure team members are working within the production plan to limit the amount of product being thrown out.

The chain’s solution has been to reduce the amount of time that food sits in the supply chain in order to increase the products’ shelf life. It has also introduced a line of produce called Perfectly Imperfect.

8. Monitor trimmings like onion peels and melon rinds as well as meat for edible product.

Denmark has opened the country’s first food surplus supermarket called Wefood in Copenhagen with prices 30 -50 percent less than traditional supermarkets. The new store has a deal with Fotex, one of the biggest supermarket chains in Denmark, for bread and other products and agreements with produce importers, producers and butchers.

Volunteers pick up products from suppliers and bring it to the store.

9. Keep an eye on plate waste by examining what’s coming back on customers plates.

Portion sizes may need to be adjusted.

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n Boosting

In the United Kingdom, Asda, Tesco, Sainsbury and Morrison’s are supporting a voluntary agreement to reduce food and drink waste by 20 percent over the next 10 years, along with a 20 percent reduction in greenhouse gas emissions. Major brands like Coca-Cola, Nestle and Pizza Hut are also committed to the agreement created by the Waste and Resources Action Programme (WRAP). Tesco, estimated that it’s own food waste amounted to 59,400 tons last year or the equivalent of 119 million meals.

5. Use team recognition and rewards to encourage openness about solving food waste. Recognize team members for taking ownership, suggesting ideas or helping to monitor waste.

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The group said retailers have the opportunity to increase profits while empowering customers to reduce waste by following several steps

10. Share your commitment with customers.

Diners place food waste among the top three issues they want restaurants to focus on – and 56% of those surveyed would pay a premium for meals if they knew the restaurant was investing in environmental sustainability.

Source: LeanPath, Inc.

In the U.S., Trader Joe’s has an active food donation program with foods that are safe to eat but not fit to sell. Hannaford Bros. Supermarkets, following EPA guidelines, has implemented waste prevention strategies to reduce the amount of surplus food it generates.

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Strategies include deliveries of fresh products every day instead of forecasting out orders, and computerassisted ordering based on inventory and sales predictions.

Whole Foods’ new 365 store, which is getting considerable attention as an entry in the budget gourmet segment, is sending leftover food to food banks while scraps will be composted. The goal is zero waste.

Kroger is planning to keep 90 percent of store waste out of landfills by 2020 and is reducing the plastic used in its private label products.

Doug Rauch, former President of Trader Joe’s, has taken all this several steps further with the Daily Table – a nonprofit supermarket in the lower income Boston neighborhood of Dorchester that sells product near or past its expiration date and produce donated by growers, manufacturers and wholesalers that is cosmetically imperfect.* Big Y Supermarkets in Massachusetts has been developing a comprehensive prevention strategy for decades, according to Center for Eco Technology’s Macaluso.

This then goes into an oxygen-free tank where microbes break down the food and create methane which is fed to a generator that produces renewable energy used to run a portion of the distribution’s refrigeration, Macaluso said.

On the supply side, San Francisco-based Cerplus was launched last January to reduce the millions of tons of unused fruits and vegetables from both farms and retailers across the country. Buyers sign up for daily emails or text alerts about surplus produce deals.

The company arranges for delivery and takes a fee for each transaction. As of June, Cerplus reportedly had moved approximately 11,000 pounds of produce from 20 farms and distributors in California.

Also in California, Souper Seconds is a new distribution channel for seconds and surplus produce. Meanwhile, a group of graduate students at MIT have created Spoiler Alert, which enables farms and other businesses to donate surplus food to groups via apps, texts or emails.

In 2011, the latest year for which figures are available, the chain’s recycling and composting programs returned an estimated $2.9 million to the bottom line, or an average of $39,300 per store.

Shakman said there’s an awareness in retail that, ultimately, it serves the consumer and if they won’t buy blemished fruit the nation is facing an educational challenge.

Also in Massachusetts, Stop & Shop, part of the Ahold Group, has opened anaerobic digestion facilities at their distribution centers. Stores backhaul waste to the distribution centers where food goes into an anaerobic digester that makes a food slurry.

“We live in a world where resources are finite,” he said. “There’s a cost attached to that and food waste is an expensive check to write.” * Editor’s Note: California Grocer interviewed Doug Rauch in its 2015, Issue 5. n

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“Management is looking at the trash to see how they can make adjustments from an operations perspective,” he said. “They also do a great job with food donations of baked goods and produce and they are partnering with local zoos on animal feed operations.”

“Ugly produce is getting a lot of attention and I suspect there’ll be more,” said LeanPath’s Shakman. “There’s a lot of pressure to sell ugly produce and activist investors are raising the issue. At a recent Whole Foods meeting, a shareholder proposal by Trilliam Asset Management called for the chain to disclose its food waste data. The motion didn’t carry but it got substantial support.”

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Interview:

Brad Askeland

AT THE MARCH 2016 CALIFORNIA GROCERS ASSOCIATION EDUCATIONAL FOUNDATION (CGAEF) BOARD OF TRUSTEES MEETING, BRAD ASKELAND OFFICIALLY BEGAN HIS TERM AS CHAIRMAN. A FEW MONTHS IN TO HIS TERM, CALIFORNIA GROCER HAD THE

OPPORTUNITY TO SIT DOWN WITH ASKELAND, VICE PRESIDENT OF HOLIDAY MARKETS, TO LEARN A FEW THINGS ABOUT HIM AND DISCUSS HIS VISION FOR THE FOUNDATION.

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California Grocer: Let’s start by learning more about you. Where did you grow up?

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Brad Askeland: I’m a native Californian. I was born in Willows and grew up in Orland on a dairy farm

where I helped the family by cleaning stalls. After high school, I went to California State University, Chico and studied psychology. Growing up, I knew I wanted to go to college, but I struggled with what to study.

Psychology appealed to me because it was fairly broad, and I found it interesting, so that’s the path I took.

I never thought majoring in psychology would lead to a career in the grocery industry, but the experience from my degree contributed to my first major advancement. I also wanted to be a professional basketball player, but that wasn’t exactly in the cards for me.

CG: Looking back, what did growing up on a

CG: What has been the most rewarding part of

BA: Dairy farming requires a special kind of work

BA: Oh, without a doubt, it is being able to help

dairy farm teach you about life?

ethic; it’s a 365 days a year job that demands tireless dedication. My dad devoted his life to making the farm, and eventually a cheese plant, successful; his work ethic made it possible. He worked very hard, but he also took time for his family, and that’s something I want my own kids, Drew, Payton, and Noah, to see in me.

serving on the CGAEF Board of Trustees?

people coming up in the industry.

I have also made some lifelong friends through my work on the Board. Not only do we share common goals, we actually have fun together.

I cherish the memories I’ve made at our annual golf classics and Hall of Achievement events.

CG: What led you to a career in the grocery

CG: What do you hope to accomplish during

BA: My first job was a paper route when I was in

BA: In 2011, I was part of the strategic team that

industry?

fifth grade. I also worked at a few ice cream parlors before taking a job as a courtesy clerk in my junior year of high school. Working nights and weekends at that job helped me put myself through college. When I graduated from Chico State, I knew there were opportunities in the industry, so it was a natural evolution. One of the unique things about the industry is that you either love it, or you hate it. If you love it, you can be a “lifer.”

CG: Can you share a favorite memory from early in your career?

BA: I’ve had a lot of memorable experiences in

the last 20+ years, but the one that’s had the biggest impact on my life happened in 1996 when I met my wife, Jeny. She and I were both working at Holiday Market; she was in produce.

We’ve been together ever since.

CG: Did you have a mentor in the industry as you advanced from courtesy clerk to vice president?

worked on the long-term vision for the CGAEF. We re-wrote the mission statement, which is to provide financial assistance to advance the educational goals of CGA member employees and their dependents and offer educational programs for the grocery industry.

We’ve made amazing progress over the past 24 years by providing more than $4 million in scholarships, but I believe our work goes beyond raising money. For example, I’d like to see the CGAEF develop more training programs on topics like leadership development for independent stores. I also think there is potential to create partnerships like the one we have with Cal Poly San Luis Obispo, across the country.

CG: What advice would you give to a new Board member?

BA: I would definitely say that if you’re committing to being on the Board, it’s important to give it 100 percent, and share your thoughts and opinions. We won’t have a productive Board if we just go through the motions.

CG: One final question: what are the hot topics in the industry today?

BA: The farm to table movement and buying

local continue to gain momentum. At Holiday Markets, our customers are always looking for convenient meal solutions, so I’m sure other retailers are seeing the same thing. n

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BA: Yes, absolutely. Richie Morgan, who is the President/CEO of North State Grocery, has been an amazing colleague and friend.

Richie gave me my first store, created a Director of Human Resources position for me, and also nominated me to serve on the CGAEF Board.

your term as Chair?

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A (Produce) Buyer’s Market

By Oscar Katov

California

has always been known as the cornucopia of produce, providing one third of the vegetables and nearly two-thirds of the fruit and tree nuts grown in the United States. As the demand for fresh and locally grown continues to escalate, greater emphasis is being placed on a grocery store’s produce department. To learn how produce buyers are responding, California Grocer interviewed a cross-section of produce decision makers. Included in this roundtable were: Mark Carroll, Sr. Director, Produce & Floral Purchasing & Merchandising, Gelson’s Markets; George Buck, Produce Supervisor, Mar-Val Foods; Miguel Garcia, Produce/Floral, Ralphs Grocery Go., and Carlo Gosdanian, Super King Markets.

iStock

California Grocer: Food Marketing Institute (FMI) notes that “quality produce” is a defining factor in making a decision where to shop. How do you differentiate your offerings from those of competitors?

Mark Carroll: Produce is a critical part of most of our shoppers’ lists

when they come to Gelson’s. We try our best to offer the freshest produce to our customers through our program of buying most of our produce needs only a day or two before we sell it. This means that we buy six days a week, we receive product to our distribution center six days a week, and we deliver to our stores six days a week. We also seek many items that are limited to a few retailers or have unique product attributes that you may not find at larger retailers.

Carlo Gosdanian: Super King uses the quality criteria “at the top” of the buying decision process in order to be consistent on and off promotion with this attribute. We buy direct on many items in order to enhance the freshness delivered to guests and maximize shelf life in the home.

Miguel Garcia: Our stores play a very important role because every

day thousands of customers come through our doors. The impression our fresh departments, like produce, sets the tone for our customers shopping experience. Fresh, quality produce is one of the most important, if not the most important part of our customers’ shopping experience.

George Buck: We differentiate our offerings by looking for the best

quality produce suppliers. We also focus on our departments’ presentation as well as fair prices for our communities’ benefit. We also make sure that our employees are well educated about produce, making shopping in our stores an enjoyable experience.

Continued on p. 61

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CG: If you buy from local producers how do

CG: As buying power shifts from baby boomer

Carroll: Being a truly local Southern California

Carroll: There is a lot of attention given to

you determine the quality of products in advance? How many farmers are in your program?

company has a lot of benefits. Because of our proximity to so many California growers and shippers, we can get produce very soon after harvest. We source from growers and shippers from many different countries, but the majority are from right here in California.

Buck: We determine quality in advance by

maintaining strong communication with our supplier. We also trust our supplier to engage with local farmers and let us know of any unique items that may be available. Often, we will visit local farmers to see their produce first hand and determine quality ourselves. This collaborative approach ensures the best quality produce reaches our customers.

CG: Are you responsible for the store’s food

safety program? Do you work closely with suppliers in checking product deliveries?

Gosdanian: Yes, we have requirements of

suppliers for proper product ID and COO information. We do a lot of quality assurance at the time of receipt including freshness and temperatures.

Buck: Yes, we are very much involved in our

store’s food safety program. We work closely with suppliers and with our staff to ensure the highest safety and quality standards. I also visit our supplier’s warehouse weekly to check product and discuss safety standards with our stores’ staff.

Garcia: We hold ourselves accountable once

younger shoppers as purchasing power shifts towards them. Fresh fruits and vegetables have traditionally seen good sales from the senior shoppers. As the baby boomer demographic moves more and more into this, I feel that we will not see much of a decline in the senior demographic sales. This is a traditional produce shopper that is now on a fixed income, but also one that is concerned more about their health as they get older. Produce represents a healthy alternative to packaged foods.

Buck: Yes, this generation is promoting a

healthier lifestyle and requiring more nutritional information about their produce. This encourages us to stock more organic produce, as well as a larger product variety overall.

CG: “Taste” always has been the true test for the customer. Will the produce clerk become more of a knowledge worker in introducing the customer to a new level of pleasure in tasting the product?

Buck: Our stores’ produce clerks exemplify this

type of interactive experience. When customers enter our departments, we always encourage them to ask questions about our produce variety and quality. We often have customers ask for fruit or vegetable pairings with a food they previously purchased. In this case, one of our clerks will pick a variety of produce and allow the customer to sample the different varieties.

Carroll: Customers seem to want to know more about their food – where it comes from, how it’s grown and of course what does it tastes like especially when selecting what fruits to purchase. We will sample various fruits and encourage the customers to taste to make an informed decision.

Gosdanian: Yes. We are training and

sharing product information for support of a more knowledgeable and confident produce

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the product is received at our facilities, from inspectors inspecting the product to warehouse and truck personnel delivering to our stores. Product is checked throughout the day by warehouse inspectors and produce merchandising teams on a weekly basis. Once the product is received at store level that’s when we get into “Fresh Mode.”

to Generation X to millennials are you aware of another shift as people are living longer, more seniors in the 60-80 age class?

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department team. The end goal are team members who can interact with our guests and ensure that both walk away from these interactions satisfied.

Garcia: We ask ourselves, ‘Does it look fresh,

smell fresh, taste fresh and sound fresh?’ And the most important question we ask is, ‘Would we buy it?’ Our associates are trained to reach out to customers, to engage in product knowledge. Produce sampling helps the customer make a decision on what they will buy.

We encourage hand sampling at all times.

informative article in our stores’ ad discussing the produce item of the week and a variety of uses for that item. This encourages customers to find healthy choices and also engages the community with our staff.

Carroll: Like many supermarkets, Gelson’s has a

registered dietitian on staff that sets up in our stores to meet customers one-on-one and talk about healthy eating and nutrition. She also writes a monthly newsletter, creates recipes in our service deli and for customer use, and has a bi-monthly podcast.

CG: Are you conscious of the impact of displays, CG: Is there an issue that challenges you for how the produce display at the front door is the immediate statement of quality, beckoning the customer to a positive store experience?

Garcia: Produce appearance and eye-catching

produce displays are as important to the customer as price. Strong execution consists of eye catching displays, good signage and ensuring staying in stock. The quality of product will not only help sell more produce, but will increase the basket ring.

Buck: Yes, we consider displays and overall

department presentation a major statement of quality. Our customers value not only highquality produce, but enjoy a pleasant visual experience while shopping. Throughout the year we hold events like sidewalk sales that changes the normal set up of the department and improves the customers’ shopping experience.

Carroll: Stores make a statement at the front

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door with what they select to go there. Placing a produce display at the front door sets the tone for the entire shopping experience that freshness is emphasized.

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CG: Customer demand for organic is growing.

Do you encourage customer interest in providing health and wellness information?

greater customer satisfaction?

Carroll: In produce I believe the shopping

experience is enhanced when our customers can get the freshest, best quality produce possible, and when they are able to experience new and unique produce items. This creates a challenge to constantly not only deliver on quality and freshness, but to also continually search for items that inspire our employees to offer a taste to our customers.

Buck: The issue that most commonly challenges

our customer satisfaction is consistency. From day to day, produce quality can be challenged by natural elements like weather. This type of quality fluctuation can sometimes challenge customer satisfaction from week to week and product to product. However, by maintaining strong communication with our supplier, we do our best to find high quality produce throughout the year.

Gosdanian: In the produce department it is

an everyday challenge to impress with quality, cleanliness, price and service. Guests are ‘smarter’ because of more product and health info at their fingertips. That said, even with the web etc, it is our goal to be a source of reliable produce and product information to them. n

Buck: Yes. We have a significant focus on health

and wellness information. Organic produce is a growing aspect of our departments as customers increase their health consciousness.

Additionally, each week I provide a small iStock

IN LATE JULY, PRESIDENT BARACK OBAMA SIGNED INTO LAW A BILL THAT WILL REQUIRE LABELING OF GENETICALLY MODIFIED INGREDIENTS, CREATING A NATIONWIDE SOLUTION THAT WILL AVOID A STATE-BY-STATE PATCHWORK OF LAWS. Following the rejection of Proposition 37 in California in 2012, the hot-button issue of labels for food containing genetically modified (or engineered) organisms (GMOs) took a back seat to other issues for many California food producers and retailers.

However, for GMO-labeling proponents, the focus merely shifted to other states. Maine, Connecticut and Vermont passed laws that would require GMO labeling, and – as of July 1 – the Vermont law became the first such state law to take effect.

Shortly afterwards, Congress took action and created a nationwide GMO-labeling standard that will preempt the Vermont law and all other state regulation in this area – and that will directly apply to food sold in California.

Background Vermont may be one of the smallest of the 50 states, but the impact of its GMO-labeling law has been felt across the nation. For food producers and retailers with customers in Vermont, this state law created a de facto nationwide obligation, because labeling all goods in compliance with the Vermont law would be less onerous than ensuring non-compliant products don’t end up in Vermont.

This might not be so bad in the short run, but what happens when similar – but not identical – laws take effect in other states? Food producers and retailers faced the prospect of several states imposing different labeling requirements for the same product.

On July 1, 2016, Vermont’s GMO-labeling law went into effect. It required specific labeling for products that are entirely or partially genetically engineered and offered for retail sale in Vermont. This obligation attached to both manufacturers and retailers, depending on how the products are packaged.

The law required the use of specific phrases (e.g., “may be produced with genetic engineering”), and precluded use of the word “natural,” and other derivations, to describe GMO-containing foods.

Violations of the Vermont law would have resulted in potential penalties of up to $1,000 per day, per product.

The Federal GMO Law Previously, Congress had attempted several times to preempt state GMO-labeling laws with federal legislation, but each attempt had stalled. However, with the Vermont law about to take effect, an agreement was reached in the Senate to move forward with S. 764, a bill implementing a national standard.

The Senate passed the bill on July 7 by a vote of 63-30, and the House of Representatives passed it one week later by a vote of 306 -117.

On July 29, 2016, the president signed S. 764 into law. Effective immediately, the new law preempts Vermont law and all other state GMO-labeling laws, and the Secretary of Agriculture will have two years to establish a mandatory national disclosure standard for “bioengineered” foods.

Under that standard, manufacturers will need to provide a GMO label consisting of their choice of text, symbols, or electronic or digital links. However, the secretary will be obligated to study the efficacy of using electronic or digital links on labels. If the study determines that the digital and electronic links do not

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Such a byzantine web of regulation – with massive compliance costs – is clearly bad for the food industry, and could only be avoided by Congress passing a law that creates a nationwide GMO-labeling standard that preempts state requirements. Until recently, efforts at the federal level had not been fruitful. However, the fact that the Vermont law was coming into effect catalyzed Capitol Hill.

The Vermont GMO Law

K N O W T HE L AW

GMO Labeling: Coming Soon To California and the Rest of the Country

Continued on p. 64

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K N O W T H E L AW

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sufficiently inform consumers, the secretary must then provide additional labeling options.

The law specifically exempts foods from non-GMO animals that consume GMO feed from being considered “bioengineered” solely for that reason, but otherwise leaves to the secretary the discretion to determine how much of a bioengineered substance must be present in food for the disclosure requirement to be triggered. The law also exempts “very small food manufacturers” and all restaurants and other retail food establishments from the disclosure requirement.

Other provisions of the law require the secretary to: n

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n

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establish a procedure for requesting a determination regarding other factors and conditions under which a food is considered a bioengineered food; provide alternative reasonable disclosure options for small packages of food; and

n

provide additional disclosure options for “small food manufacturers,” including use of a telephone number or a company website, and provide such manufacturers with a delay of at least one year in implementing the disclosure standard, once it is finalized.

Finally, the law explicitly precludes the secretary from recalling food based on a violation of the disclosure requirement, and it does not require that the secretary impose monetary penalties for a violation.

Conclusion Vermont may have led the way on GMO labeling, but its own law was short-lived: the new national labeling standard entirely supplants the Vermont law and all other state laws addressing GMO labeling.

Authors Donald Sobelman (Partner, San Francisco office) and Joshua Stoops (Associate, Sacramento office) are attorneys at Downey Brand LLP specializing in environmental law, including regulatory compliance and litigation.

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