California Grocer Issue 1, 2018

California

Creating cultures of leadership PAGE 56

the devil’s in the details PAGE 62 2018, ISSUE 1

CALIFORNIA GROCERS ASSOCIATION

california’s

shattered recycling program page 22

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winds of change page 40

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CGA | BOARD OF DIRECTORS

EXECUTIVE COMMITTEE

CHAIRMAN APPOINTMENTS Independent Operator Committee Chair DIRECTORS

CALIFORNIA GROCERS ASSOCIATION

Chairman Bob Parriott Twain Harte Market

Second Vice Chair Phil Miller C&S Wholesale Grocers

Secretary Renee Amen Super A Foods

First Vice Chair Kendra Doyel Ralphs Grocery Company

Treasurer Hee-Sook Nelson Gelson’s Markets

Past Chairman Jim Wallace The Albertsons Companies

Kevin Arceneaux Mondelēz International Inc.

Dave Jones Kellogg Company

Lynn Melillo Bristol Farms

Jon Alden Jelly Belly Candy Co.

Steve Dietz United Natural Foods, Inc.

Joe McDonnell Campbell Soup Company

Jeff Sigmen Reyes Coca-Cola

Teresa Anaya Northgate Gonzalez Markets

Jake Fermanian Super King Markets

Mark McLean CROSSMARK

Lee Smith Smart & Final Stores

Joe Angulo El Super (Bodega Latina)

Mark Foley Raley’s

Casey McQuaid E & J Gallo Winery

Rick Stewart Susanville Supermarket IGA

Mark Arrington Post Consumer Brands

Damon Franzia Classic Wines Of California

Mario Mediati The Clorox Company

Elliott Stone Mollie Stone’s Market

Denny Belcastro Kimberly-Clark Corporation

Jen Fulton PepsiCo Inc.

Doug Minor Numero Uno Market

Joe Toscano Nestlé Purina PetCare

Leon Bergmann SUPERVALU

David Higginbotham Stater Bros. Markets

Tim Murphy Costco Wholesale

Rob Twyman Whole Foods Market

Jeanne-ette Boshoff MillerCoors

Michel LeClerc North State Grocery Inc.

Nicole Pesco The Save Mart Companies

Jim Van Gorkom NuCal Foods

Bob Bukovec Tyson Foods, Inc.

Hillen Lee Procter & Gamble

Laura Price Nielsen

Michael Walton Unilever

Cindy Chikahisa Sprouts Farmers Market

Eric Lindberg, Jr. Grocery Outlet, Inc.

Mike Ridenour The Kraft Heinz Company

Richard Wardwell Superior Grocers

Brent Cotten The Hershey Company

John Mastropaolo Chobani

Casey Rodacker Mar-Val Food Stores

Karl Wissmann C & K Market

Willie Crocker Bimbo Bakeries USA

Jonathan Mayes Albertsons Companies, Inc.

Jonathan Samorajski Anheuser-Busch InBev

Kevin Young Young’s Payless Market IGA

President/CEO Ronald Fong

Senior Director Events & Sponsorship Beth Wright

Dennis Darling Foods Etc.

Senior Vice President Government Relations & Public Policy Keri Askew Bailey

Senior Director Government Relations Aaron Moreno

Senior Vice President Marketing & Business Development Doug Scholz

Director CGA Educational Foundation Brianne Page

Vice President Communications Dave Heylen

Controller Gary Brewer

Executive Director CGA Educational Foundation Shiloh London, CFRE

2 | CAL I FOR N I A G R OC E R

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

1215 K Street, Suite 700 Sacramento, CA 95814 (916) 448–3545 (916) 448–2793 Fax www.cagrocers.com For association members, subscription is included in membership dues.

Subscription rate for non-members is $100. © 2018 California Grocers Association

Publisher Ronald Fong rfong@cagrocers.com Editor Dave Heylen dheylen@cagrocers.com For advertising information contact: Corey Gerhard cgerhard@cagrocers.com

CONTENTS | ISSUE 1

FEATURES

62

22 New! “In-Depth Look”

California’s Shattered Recycling Program Once the poster child for beverage recycling, California’s program is now tarnished and in complete disarray. What went wrong? And who’s to blame? California Grocer kicks off its “In-Depth Look” feature examining the state’s broken recycling program.

NEW!

5 DEPARTMENT 44 Column

Grocery by the Numbers Infographic

40 Winds of Change Today’s consumers are shopping channels and categories in ways they’ve never shopped before. Nielsen shares insights and data into the how and why this is changing the retail landscape.

Loss Prevention, Safety & Risk Management

COLUMNS President’s Message A Unique Camaraderie. . . . . . . . . . . . . . . . . 7 Chairman’s Message The Price of Consolidation. . . . . . . . . . . . . . 8 Viewpoint The Retail Apocalypse is B.S. . . . . . . . . . . . 10

50 Redefining the Rules of Engagement, Digitally Digital engagement can be poison if not managed correctly but, for companies willing to embrace the transformation, digital engagement is just what the doctor ordered.

Government Relations #MeToo Fallout Hits Legistlature. . . . . . . . 31 2018 – A Very Good Year?. . . . . . . . . . . . . 33 Capitol Insider An Expensive Game of Chicken . . . . . . . . 34 Inside the Beltway How to be a Winner With The New Tax Law. . . . . . . . . . . . . . . . 36 Washington Report 5 Priorities for Independents in the 2018 Farm Bill. . . . . . . . . . . . . . . . . . 38

56

Mommy Blogger To Meal Kit or Not to Meal Kit. . . . . . . . . . 68

DEPARTMENTS

Creating Cultures of Leadership

CGA News. . . . . . . . . . . . . . . . . . . . . . . . . . 12

What makes for a good leader? How do you foster a culture of leadership in your workplace? Noted expert Drew Dudley shares his insights in finding and how living leadership teaches leadership.

Outside the Box New Retail Perspectives.. . . . . . . . . . . . . . . 20 Index to Advertisers. . . . . . . . . . . . . . . . . . 66 CAL I FO RNIA GRO CER | 3

ÂŽ

Select the Best

C&S would like to congratulate all the new CGA Board Members!

Contact us today to learn how we can help make this your best year ever!

Eric Pearlman, Dir Independent Sales WC

916.823.4586

www.cswg.com

GROCERY BY THE NUMBERS

Economic im pac t of food r e tai l i n g i n d u stry i n C al i f o r n i a The food retail industry contributes to communities across the country with operations in every state and congressional district. It has a significant economic impact to federal, state and local economies, employing millions of workers to provide consumers with safe, healthy and affordable food every day.

Jobs 491,90 0

$153.7 Billion

wag e s $19. 8 b i l l i o n ou t pu t $42. 7 b i l l i o n

taxes

$ 7 1.7 9 billio n Stat e $ 8 1 .8 8 billio n F eder al

su pply cha i n

From farming and manufacturing, to trucking and retailing, the food retail industry has a supplier and induced impact of more than $62.96 billion.

E c on om i c I m pact:

$105,676,234,400 The total impact of the food retailing industry, including supplier and induced economic impact in every district across the country.

Source: 2018 FMI: Grocery Industry Economic Impact

The ONLY Federal Credit Union in the United States chartered to serve grocery industry employees and their families www.trugrocer.com

PRESIDENT’S MESSAGE

A Unique Camaraderie

RO N F O N G PR E S IDE N T AN D CEO CALIFOR N IA GR OCE R S AS S O CIATIO N

Independent operators enjoy a distinctive relationship not often found in the grocery community.

Our Independent Operators Committee recently hosted its annual Independent Operators Symposium on the beautiful garden island of Kauai, Hawaii.

It was a fantastic opportunity for independent grocers and their supplier companies to step back, take some time to “relax, recharge and renew” and gain a new perspective on how their companies operate.

For me it was a tremendous chance to spend time with a number of independent operators and better understand the unique challenges they face. As I’ve shared many times in this column, I have a real affinity

for independents due in large part to my family operating several neighborhood stores in the Sacramento area.

There is a unique camaraderie among independent operators, and for many obvious reasons. As owners, they have a higher stake in the game. Many are second, or third generation owners and feel the weight of continuing a legacy. Often, they are not direct competitors and more willing to share information.

In Hawaii, I found their conversations to be more personal; their willingness to share issues and challenges more open.

Regardless the reason, the close ties they share are very evident. This month, independents from around the country will meet in Las Vegas for the National Grocers Association convention. Their theme hits the nail on the head: “Where Independents Gather.”

Ron Fong with Mark Kidd, Mar-Val Foods, at the Independent Operators Symposium.

Independents have always played a major role with CGA. You may be

surprised to learn that in terms of number of CGA member companies (not stores), independents represent more than 80 percent of our membership. That number was strengthened several years ago when the California Independent Grocers Association merged with CGA. Following the merger, CGA created the Independent Operators Committee to ensure the Association continues to develop programs content targeted specifically to the independent operator. Our highly successful Symposium, the Strategic Conference Independent Forum and our Grocery Compliance Toolkit are just a few examples of programs developed for independent grocers.

Our Educational Foundation is another huge member benefit. For small operators, encouraging company employees to utilize our tuition reimbursement can often cover the cost of Association membership.

To every independent CGA member, I encourage you to increase your engagement with your Association.

Plan to attend our Strategic Conference this fall and our Symposium next January.

But even more important, encourage those independents who have yet to discover CGA’s many benefits to give the Association a try. It is time and money well spent. ■

CAL I FO RNIA GRO CER | 7

CHAIRMAN’S MESSAGE

The Price of Consolidation

B O B PA R R I OT T T WAIN HAR TE MAR K ET

CGA’s newly elected chair shares his view on consolidation and its impact on the grocery industry.

Recently, I was sitting with my wife at dinner hoping for her divine inspiration in regards to my Chairman's Message.

She gave me some suggestions, but in the end reminded me that I would need to inspire myself.

I had many choices but decided on industry consolidation as my theme. Consolidation is a normal part of any industry. It helps to establish economies of scale that drive down the cost of goods and services, and make the marketplace more competitive.

The reality is that: • Centralized control depersonalizes how a business interacts with its customers.

• Service levels can actually diminish.

• The ability to change course in the short term becomes almost insurmountable.

• Keeping a unique product mix is more challenging as we are now fighting the “one size fits all” mentality.

It may appear that lowering the cost of goods for consumers is a good thing but in reality, it decreases choices. In 2017, Amazon made a grand entrance into the bricks and mortar space. The online invasion finally made it to our industry.

Will it be the one acquisition that changes our landscape forever?

Mergers and acquisitions remain the primary option to drive revenue growth for many large corporations. It looks like an easy path, but is it? It all comes back to longterm sustainability.

What will change your lifestyle? A cheaper box of corn flakes, or a new category of breakfast foods? Future growth depends on developing new products and categories, and not pounding down the cost of goods.

These are your chairman's thoughts. May the force be with all of you as we look with hope and anticipation for both our industry and our stores in the coming year. ■

iStock 8 | CAL I FOR N I A G R OC E R

VIEWPOINT

The Retail Apocalypse is B.S.

K EV I N CO U PE FOUN DE R , MOR N IN GN E WS BEAT.CO M

“I love the smell of napalm in the morning.”

– Apocalypse Now “Retail apocalypse” seems be a word pairing that has entered the lexicon. Everybody is writing about it. (I just checked, and Google News offered me more than 53,000 results for the phrase.) Everybody seems to accept it as a current reality.

Well, I’m getting really tired of it. I think it represents an awful lot of hand-wringing, whining and glass-is-half-empty thinking.

I think it is so much B.S.

But…it isn’t going to happen today.

Or tomorrow. Not for everybody, anyway.

That doesn’t mean, however, retailers can rest easy.

In fact, just the opposite. The retailers that rest easy are the ones who are in the most trouble, because complacency is a primary sin for anybody trying to succeed in this marketplace.

I’m not saying it’ll never happen. Never is a long time, and I’ve decided to get out of the never business. It doesn’t pay very well, and experience shows that when you say “never,” there’s a pretty good shot that you’re going to be wrong. Eventually.

The ones that will succeed, and even thrive, are the ones who understand they have to be constantly listening hard to their customers and then going beyond what they hear to innovate in fundamental ways, adapting to changing consumer behavior, impulses and mindsets as quickly as possible.

I’m also not saying that there aren’t retailers in trouble. Big trouble. Like, say, Sears… which has been a dead-company-walking for so long that it qualifies for a guest appearance on “The Walking Dead.”

They are the ones willing to take risks, challenge legacies and traditions, and accept the inevitability that risk means failure, but also not taking risks means irrelevance and obsolescence.

There’s no question even retailers that had decent end-of-year holiday shopping seasons in 2017 are facing some significant challenges in 2018. For some, the bombs are ready to be dropped, and there is little they can do to avoid the competitive napalm used by bigger, better funded and more innovative competitors.

These retailers are far less likely to be devastated by any sort of apocalypse because they understand that they cannot simply be an alternative for shoppers. They have to offer distinct and differential advantages.

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They understand that if 80 percent or more of the products they sell also are sold by the competition, they have to find ways to focus on and draw shoppers’ attention to

the things they offer that are not available in a competitor’s store, or on a competitor’s website.

I also think it’s going to go beyond products.

Bricks-and-mortar stores, I believe, are going to have to evolve past where many of them are now. And fast.

I think that if any retailer is planning or building a store without factoring into the plans: a) where the click-and-collect depot will be, and b) how e-commerce can be run out of the store, they ought to be charged with retail malpractice.

I think that more retailers ought to be looking to companies like Michigan’s Westborn Market for inspiration. Westborn found an old and decommissioned post office in Plymouth, Mich., and converted it into a beautiful and food-driven store that uses things like mail boxes as design cues; it offers great food and a shopping experience that can’t be replicated online.

More companies ought to be looking for unusual venues for stores of varying sizes that compel shoppers to walk in the front door.

One other thing that Westborn does is hire great people and invest in them – because in that way, employees will feel invested in the business, creating connections between shopper and (to use an old-fashioned term that ought to be revived for the current age) shopkeeper.

VIEWPOINT

This isn’t just the purview of up-market stores, by the way. There are value-driven retailers out there that turn their employees into owners, thereby assuring that they’ll feel invested in the business and act that way.

There are lots of reasons to bemoan a coming retail apocalypse, but there are many ways to avoid such a fate. Retailers just have to work at it, and probably get outside their comfort zones. Sometimes way outside.

Another thing that retailers absolutely have to do is figure out the best way not just to collect actionable data about shoppers, but actually use it. There was a retailer last year who did an interview in which he expressed concern that Amazon has more data about its shoppers than he does, which puts him at a disadvantage.

I was talking to a fellow the other day who suggested that one of the ways some retailers will remain relevant is by creating a convenience version of a food truck, and then use data to figure out when and where to position these trucks and assure that the merchandise they carry is targeted and relevant to people who live or work in those locations.

“The ones that will succeed, and even thrive, are the ones who understand they have to be constantly listening hard to their customers.” iStock

I’d agree with that conclusion – it will give Amazon an advantage… one that it will not hesitate to exploit over and over and over.

But in this case, the retailer made a decision not have any sort of card, loyalty or data collection program.

That’s the retailer’s right, and defensible… though I’d disagree with it. But this is a choice, not an inevitable fact of retail life… and I would argue that nobody can afford to this approach in 2018 and beyond.

Now, to be honest, I’m having a little trouble wrapping my head around the logistics of this concept… but I also didn’t see how drones were going to work as delivery vehicles when they were first proposed.

The failure here may be in my lack of imagination, or my ability to figure out how such an idea would be implemented.

I suppose that’s why I’m a writer… I can tell stories about the people who conceive and create these concepts, as opposed to actually doing it myself.

Besides, I’m out of the never business. ■

CAL I FO RNIA GRO CER | 11

CGA NEWS

SYMPOSIUM FEATURES TOP PRESENTERS

(L to R) CGA President & CEO Ron Fong with Mike Stone, Mollie Stone’s Markets.

Presenter Aaron Montgomery.

Independent grocery operators, wholesalers and supplier partners from throughout California recently gathered in Hawaii to relax, recharge and listen to informative international speakers provide new perspectives on building their businesses.

The presentations were part of the 2018 CGA Independent Operators Symposium, CGA’s annual gathering designed specifically for independent grocers, held in January at the spectacular St. Regis Princeville Resort on the garden island of Kauai.

Presenter Drew Dudley.

(L to R) Michael Teel and Mark Foley, Raley’s.

Presenter Galen Emanuele.

CGA NEWS

Teresa and Greg King, California Fresh Market, in a group discussion.

Cathy and Kenny Wiley, Wiley’s Market.

Dennis and Ruth Darling, Foods Etc.

Phil and Carletta Miller, C&S Wholesale Grocers.

(L to R) Kevin Young, Young’s Payless Markets (L to R) Richie Morgan, North State Grocery; Mark Kidd,

IGA; Mark Arrington, Post

Mar-Val Foods; and CGA Chair Bob Parriott,

Consumer Brands; Anthony

Twain Harte Markets.

Medeiros, Young’s Payless Markets IGA.

Headlining this year’s Symposium were three inspiring presenters that explored how to create a positive team culture, understand the entrepreneurial process used by start-ups and define, develop and celebrate leadership every day.

The educational program kicked off on Tuesday with a lively, engaging and entertaining workshop featuring Galen Emanuele, President of Shift Yes, and trained improviser who has toured with the likes of improve legend Ryan Stiles of “Whose Line Is It Anyway?”

On Wednesday, Aaron Montgomery, co-founder & COO of CarLotz, a car consignment company on the East Coast, challenged attendees to tap into their start-up spirit and apply a systematic approach to testing, analyzing and refining new concepts. In sharing his journey as an entrepreneur, Montgomery was able to share the tools and techniques he used to build a successful business.

The educational program culminated on Day 3 with an emotionally inspired presentation by Drew Dudley that centered on defining your value as a leader and communicating and acknowledging those values with your team. Recognized as one of the most dynamic keynote speakers in the world, Dudley captivated attendees with his stories and messages of “everyday leadership.”

“This has become a ‘must attend’ event for our independent operators,” said Ron Fong, CGA President & CEO. “We hope many more will make plans to attend next year.”

For an expanded version of this story, including additional photos, visit www.cagrocers.com.

Continued on page 14 ▶ CAL I FO RNIA GRO CER | 13

CGA NEWS

◀ Continued from page 13

2017 – 2018 CGA BOARD MEMBERS ELECTED Bob Parriott, President and Chief Executive Officer of Twain Harte Market in Twain Harte, Calif., was elected the 2017-2018 California Grocers Association Chairman of the Board of Directors at the Association’s Annual Meeting on Dec. 1, 2017.

Bob Parriott, Twain Harte Market

As Chair, Parriott will lead the Board’s strategy regarding CGA’s numerous legislative, educational, communications and industry-related programs. The Association is comprised of more than 300 retail companies operating more than 6,000 stores in California and Nevada. The chair serves for one year. He succeeds Immediate Past Chair Jim Wallace, Albertsons Companies.

Committee Chair Dennis Darling, Foods Etc., will continue as a non-voting Executive Committee member.

Directors elected to their first full threeyear term include: Mark Arrington, Post Consumer Brands; Jake Fermanian, Super King Markets; Mark Foley, Raley’s; David Higginbotham, Stater Bros. Markets; John Mastropaolo, Chobani; Tim Murphy, Costco Wholesale; Jeff Sigmen, Reyes Coca-Cola; Lee Smith, Smart & Final Stores; Rick Stewart, Susanville Supermarket IGA; Rob Twyman, Whole Foods Market; and Karl Wissmann, C & K Market.

Directors elected to their second three-year term include: Brent Cotten, The Hershey Company; Dennis Darling, Foods Etc.; Lynn Melillo, Bristol Farms; Casey McQuaid, E & J Gallo Winery; Nicole Pesco, The Save Mart Companies; Casey Rodacker, Mar-Val Food Stores; and Kevin Young, Young’s Payless Market IGA. Former CGA Chair Kevin Konkel, Raley’s, was elected an honorary board member.

Learn more about your newest board members: Mark A. Arrington Vice President Sales, Support & Development Post Consumer Brands

In addition to Parriott, the following individuals were elected to the 20172018 CGA Board of Directors Executive Committee: First Vice Chair, Kendra Doyel, Ralphs Grocery Company; Second Vice Chair, Phil Miller, C&S Wholesale; Treasurer, Hee-Sook Nelson, Gelson’s Markets; Secretary, Renee Amen, Super A Foods; and Immediate Past Chair, Jim Wallace, Albertsons Companies.

Mark Arrington joined the Malt-O-Meal Company in June 1996 as a Regional Manager for the Midwest. Throughout his time with the company he has held many roles including: Director Sales Midwest, Team Leader Albertsons, Aldi and Save-A-Lot, Director Sales West and Director Sales Private Brands.

Chairman’s appointments to the Executive Committee include: Dave Jones, Kellogg Company; Kevin Arceneaux, Mondelēz International Inc.; and Lynn Melillo, Bristol Farms. Independent Operator

He was named Director of Sales Support & Customer Development in 2010, and was promoted to his current role in June 2016 with the newly combined company.

He leads Post Consumer Brands Sales

14 | CAL I FOR N I A G R OC E R

Support, Customer Development and Industry Initiative efforts, and also represents the sales team on the internal business leadership teams.

Prior to joining Post Consumer Brands, Mark was the Director of Sales West at the American White Cross Corporation.

Jeanne-ette Boshoff Chain Sales Director, Pacific MillerCoors Jeanne-ette Boshoff, MillerCoors’ Pacific Region Chain Sales Director, has held marketing and sales leadership roles in the CPG industry for more than 10 years.

Her most recent roles include Senior Chain Sales Manager, Senior Brand Manager and Brand Director for MillerCoors and before that, SABMiller in South Africa. She holds an MBA, master’s degree in marketing and an Executive Leadership Diploma from Harvard Business School.

Jake Fermanian Vice President Super King Markets Jake Fermanian is Vice President of Super King Markets. He has been instrumental to Super King’s growth by introducing innovative processes, strategies and systems. Super King, owned by the Fermanian family, operates seven locations in Southern California.

Jake holds a bachelor's in marketing and finance from Chapman University. He is also a graduate of USC’s Food Industry Management Program and is pursuing an MBA at USC.

CGA NEWS Mark Foley Chief People Officer Raley’s Mark Foley is an innovative business leader with more than 30 years of human resources and labor relations experience in large multi-unit, multi-state organizations.

He is deeply committed to aligning human resources strategies with business objectives to drive desired results.

He began his professional career at Lucky stores, working in human resources and labor relations and joined Raley’s in 1995 as Director of Labor Relations. In 2002, he became Director of Human Resources & Labor Relations, responsible for employee relations, labor relations and payroll at Raley’s.

In 2005, Mark joined 24 Hour Fitness as Vice President, Human Resources. In 2013, he returned to Raley’s as Senior Vice President, Human Resources & Labor Relations.

David Higginbotham Regional Vice President, Retail Operations Stater Bros. Markets His supermarket business career started in 1979 as a clerks helper at the company’s Rowland Heights location. David steadily rose through the company’s ranks where he held the positions of Store Manager, Grocery Supervisor, District Manager, and in 2011 he was promoted to his current position of Regional Vice President.

David oversees 4,500 employees and the company’s 171 supermarket locations.

His caring leadership style centers on maintaining an open dialogue with his colleagues and direct reports through an open-door policy where he always makes time to mentor and listen. He has also been known to stir-up a hearty laugh with his sharp wit and good sense of humor.

John Mastropaolo Vice President of Sales Chobani John Mastropaolo started working with Chobani in July 2017 as Vice President of Sales, West Division. Originally from New York, he relocated to Southern California with his family where they currently live today. Prior to joining Chobani, John worked at Dannon for 18 years in a variety of sales leadership roles and has over 28 years of CPG experience.

John has been married for 21 years to his wife Sharyn and they have three children, twin girls, Isabella & Alexandra (19) and a son, Joshua (15). He enjoys surfing, golfing, skiing and spending time with his family.

Tim Murphy VP/GMM Food & Sundries Costco Wholesale – Bay Area Region Tim began his career in 1984 at the Price Club in Santa Ana, Calif. He held various management positions in operations until becoming a General Manager in 1992, just prior to the Price Club/Costco merger.

Tim continued in that role until 1999, when he made a career move to the buying side of the business.

He was a dry grocery and sundries buyer until 2004, when he moved into the position of Assistant General Merchandise Manager of Food & Sundries. Tim has also spent time in Costco’s non-foods side before being promoted to his current position in February 2012.

Jeff Sigmen Chief Customer Officer Reyes Coca-Cola Bottling Jeff Sigmen is Chief Customer Officer for Reyes Coca-Cola Bottling (RCCB) and is responsible for RCCB’s customer service organization in California and Nevada. He leads large store, small store, food service on-premise key account sales and operations.

Jeff formerly served as Vice President and General Manager of the Central Valley Market Unit of Coca-Cola Refreshments (CCR), where he led a $600 million business that operated across California’s Central Valley and Southern Nevada.

During his 23 years with the Coca-Cola system, Jeff has served in varying roles, including Vice President, Retail Sales for the West Region (California, Nevada, Hawaii, Arizona, and New Mexico); Vice President, Food Service on Premise; West Region Director, Mass, Club, Drug and Convenience Channel; and Southern California Director of Sales.

Leland P. Smith Senior Vice President, General Counsel Smart & Final Stores Lee Smith joined Smart & Final in January 2016, as Senior Vice President, General Counsel and is responsible for leading corporate strategic and tactical legal initiatives.

As General Counsel, he provides senior management with advice on company strategies and their implementation, manages the legal function and obtains and oversees the work of outside counsel.

Prior to joining Smart & Final, Lee spent four years as the General Counsel for Douglas Emmett, Inc., an NYSE listed REIT headquartered in Santa Monica, that is the largest owner and operator of commercial real estate in west Los Angeles and downtown Honolulu.

From 2003 to 2011, Lee worked for Guitar Center, Inc., where he was responsible for the company’s legal, human resources, and real estate functions. Prior to joining Guitar Center, Lee worked for Equity Marketing, Inc. and Mattel, Inc. He started his legal career as an associate in the corporate department of Riordan & McKinzie.

Continued on page 16 ▶

CAL I FO RNIA GRO CER | 15

CGA NEWS ◀ Continued from page 15

Rob Twyman Regional President Whole Foods Market

Rick Stewart President Susanville Supermarket IGA Rick Stewart began his grocery career in 1974 working for a regional grocery chain in Northern California while still in high school. In 1976, Rick enlisted in the US Navy where he was qualified in submarines. Upon his discharge from the Navy, he returned to the grocery business and worked full-time while attending Chico State University.

In 1986, Rick went to work for Fleming Cos. advancing to the position of Product Manager. In 1993, he and his wife, Anna, partnered with Dennis and Ruth Darling to open a store in Susanville, Calif.

He is involved in local civic groups and has served on several planning commissions.

Rob began his natural foods career in 1983, working at Bread & Circus in Wellesley, Mass. Several years after graduating from Indiana University, he opened a fast naturalfoods restaurant in San Francisco, which he ran for several years before joining Whole Foods Market as a prepared foods team member in 1993.

Karl Wissmann is President & CEO of C & K Market, an independent chain of 40 retail grocery stores operating in Oregon and Northern California. He has more than 40 years of experience working in both large and small company environments with experience in administration, operations and marketing.

Over the subsequent 22 years, Rob held various leadership positions at Whole Foods Market including Store Team Leader at seven stores – three of which were New York City’s highest-volume stores. He became the Northeast Regional Vice President in 2007, and Regional President for the NorCal & Reno Region in 2012.

Karl was formerly President, CEO and Director of Star Markets in Hawaii, and Senior Vice President and General Manager of Cala Foods and Bell Markets, a Division of Ralphs Grocery Co. Responsibilities included the oversight of all business functions and full P&L and balance sheet accountability.

FORMER CGA CHAIR NAMES STATER BROS. MARKETS PRESIDENT

CGA NAMES NEW ADVERTISING SALES MANAGER The California Grocers Association has hired Corey Gerhard to fill the position of Advertising Sales Manager, with responsibility for both digital and print advertising sales.

Gerhard brings to CGA extensive association magazine advertising sales experience having worked for the California Dental Association and the American Association of Endodontists. She will report to Dave Heylen, Vice President of Communications.

“We’re excited to bring Corey on board and believe she will be a valuable addition to CGA’s sales team,” Heylen said. “We look to grow advertising sales moving forward through providing greater ‘value-added’ opportunities. Corey definitely has the vision to accomplish this goal.”

Karl Wissmann President & CEO C & K Market

Former CGA Chairman of the Board George Frahm was recently promoted to the position of President of Stater Bros.

Markets, and will report directly to Stater Bros. Chief Executive Officer Pete Van Helden.

George Frahm

A seasoned executive with over 45 years of experience in the supermarket industry, Frahm’s extensive grocery career began in 1973 at the Stater Bros. supermarket in Glendora as a clerks helper and janitor.

He steadily progressed through a range of retail store and district supervision roles holding the positions of Store Manager, Retail Grocery Supervisor and Retail District Manager.

In 1995, Frahm was promoted to the position of Director Labor Relations. Frahm continued to advance to increasing levels of responsibility excelling in the roles of Vice President Labor Relations, Senior Vice President Administration, Group Senior Vice President Retail Operations and Administration, Executive Vice President Retail Operations/Administration, and Executive Vice President Administration/Distribution, his most recent role.

“George is a remarkable leader who embodies the spirit of the Stater Bros. ‘Family’,” stated Stater Bros. CEO Pete Van Helden.“George’s extensive contributions to the Company’s success have been invaluable, and his promotion to President reflects his broad knowledge of the food industry, commitment to honoring Stater Bros. unique corporate culture and continued contributions to Stater Bros. success,” Van Helden concluded.

Continued on page 18 ▶ 16 | CAL I FOR N I A G R OC E R

◀ Continued from page 16

NEW MEMBERS CGA welcomes the following members:

CoreMark Insurance Services 2520 Venture Oaks Way Ste 240 Sacramento, CA 95833-4228 Contact: Brennen Cull, Producer Email: bcull@coremarkins.com Tel: (916) 291-1740 Website: www.coremarkins.com

RATIONAL Cooking Systems, Inc. 1701 Golf Rd Ste C-120 Commercium Rolling Meadows, IL 60008-4227 Contact: Don Fullmer, Regional Sales Manager/Executive Chef Email: d.fullmer@rational-online.com Tel: (909) 362-3496 Website: www.rational-online.com

La Familia Market 4600 Broadway Ave Salida, CA 95368-9307 Contact: Walid Ali, President Email: lafamiliamarketsalida@yahoo.com

Correction In the 2017, Issue 6 edition of California Grocer, the article “Family Grocer Values” (Page 33) stated the trade association Raise the Bar no longer exists. That is incorrect. The association is still operating.

18 | CAL I FOR N I A G R OC E R

!

OUTSIDE THE BOX N EW RETAIL PERS PECTIV ES

Strategic Sales

Being a retail icon doesn’t shield you from losing sales to online sources. What’s to do? Sell some real estate. This is what Lord & Taylor, the 114-year-old retailer did. The retailer, which has been operating on Manhattan’s Fifth Avenue since 1914, sold its 12-story flagship building to WeWork, operators of shared work spaces. L&T and its parent Hudson’s Bay Co., is using the proceeds to pay down debt. Not a bad deal since the building appraised for $650 million a year ago was sold for $850 million. iStock

SWEATING

IT OUT iStock

In an effort to attract younger women, UK-based Debenham’s department stores are installing instore gyms called Sweat! In three stores, offering studios for spin classes and aerobics, free weights and other equipment. The move will also enable the chain to take advantage of cross-marketing opportunities.

ROOM

iStock 20 | CAL I FOR N I A G R OC E R

FOR GROWTH

It’s been said that the hardest part of supply chain logistics is the last 100 feet. Amazon.com has come up with a delivery solution that consists of taking over package rooms at large apartment buildings in order to get products to consumers more efficiently. The company has reportedly signed contracts with apartment owners and managers of about 850,000 units to install Amazon lockers, many of which were available before the peak holidays. Apparently, packages, not building maintenance are the landlords’ biggest problem.

iStock

ON-THE-GO When one part of your business is slowing down what do you do? Look for something else to pick up the slack. That’s exactly what WHSmith, the retail chain with locations in airports, railroad stations, hospitals, and even post offices, did as the magazine and newspaper business became more challenging. Their answer is to expand its food-to-go business with its Munch line of healthy snacks and convenience foods and is beefing up a new format with M&S Food-To-Go.

OUTSIDE THE BOX

fava beans &

Furniture

Sainsbury supermarkets in the United Kingdom is growing the one-stop shop concept by expanding mini Habitat stores selling furniture upholstery, lighting, housewares and textiles. The stores include a healthy 600 items, but they are clearly a showcase for the 4,500 items that Habitat sells online through its own website. iStock

GENDER EQUALITY A new study in a recent issue of the Journal of Financial Economics indicates that CEOs who have daughters have a greater tendency toward equitable treatment of women and their company has a higher level of corporate responsibility. iStock

iStock

Housebound Consumers in New York City no longer have to leave their apartments to get prescriptions. CVS Pharmacy has launched a same-day prescription delivery service offered free of charge. Orders placed by 11 a.m. are delivered by 4 p.m. and orders placed by 4 p.m. are delivered by 8 p.m.

dog days Barkbox, the monthly delivery service with 500,000 subscribers that tailors products to individual dogs size and sensibilities, has surveyed subscribers and found that about 44 percent of millennials consider their pets to be “starter children” and that’s the way it’s handled online. “About 85 percent of our content doesn’t even mention Barkbox.

We form relationships with people around dogs in general,” Barkbox told AdWeek.

iStock CAL I FO RNIA GRO CER | 21

NEW! California Grocer unveils “In-Depth Look,� a new regular feature that examines issues facing the grocery industry. This month, we explore the state's broken recycling program.

By Jessica Dumont

22 | CAL I FOR N I A G R OC E R

Since 1986, California has achieved unprecedented success for recycling, thanks in large part to the Beverage Container Recycling program.

The Golden State has been lauded as a leader in the recycling effort nationwide, setting a model for others around the country.

But according to experts in the field, since 2016, beverage container recycling rates have steadily dropped in California – and for the first time since 2008, they are on track to drop below 80 percent.

An outdated payment system for recyclers, lack of infrastructure for grocery stores and mass closures of recycling centers have tarnished California’s once-hailed Beverage Container Recycling program.

Today, frustration abounds in both the recycling and grocery industries, and a call for change is rising up.

How did the successful program reach this tipping point?

Continued on page 24 ▶

CAL I FO RNIA GRO CER | 23

◀ Continued from page 23

A Look Back on a Cycle of Success In 1986, the grocery industry, recyclers and the environmental community came together to support Assembly Bill 2020, the California Beverage Container Recycling and Litter Reduction Act of 1986, which created the Beverage Container Recycling Program as the industry knows it. Today, the program is administered by the California Department of Resources Recycling and Recovery (CalRecycle).

“

The recycling infrastructure lost about $20 million a year in revenue that they were expecting to get from the program.

"

“The genesis of that bottle bill was really a compromise with the environmental community, recyclers and the grocery sector,” says Mark Murray, Executive Director of Californians Against Waste.

Californians Against Waste (CAW) is a 35-year old nonprofit environmental organization, and was the legislative sponsor of AB 2020.

Murray says that when conversations among the California Grocers Association (CGA) and the environmental community began, it became clear that the sole objection of the grocery community was taking containers back inside their stores.

Early conversations among recyclers, grocers and the environmental community established an alternative to in-store take back. The idea of the convenience zone recycling system was born, which would set up recycling zones within a one-half mile radius of every grocery store in the state that grossed $2 million or more in annual sales.

If there wasn’t a recycling center within the 24 | CAL I FOR N I A G R OC E R

convenience zone, a grocery store would have to arrange for a recycling center in that location. (Rural grocery store locations can apply to expand their convenience zones to a three-mile radius.)

According to Murray, the agreement to create an alternative take-back system was the compromise that moved the grocery sector from opposing the policy to taking a neutral stance on the legislation. As a result, AB 2020 passed the Legislature, was signed into law by former Republican Governor George Deukmejian and took effect Jan. 1, 1987.

In the three decades since, 362 billion containers have been recycled and diverted from landfills, according to CAW data. That’s approximately 50 million containers a day, and an 80 to 85 percent recycling rate.

In 2012, California hit a recycling goal of 50 percent for the entire state, with the recycling of beverage containers leading the way.

“There is no other product recycled in the state at as high of a rate as those. It has equaled or exceeded 80 percent for most of the last decade. To me, that is success, and we are very proud of that,” says Murray.

He believes grocers should be equally proud of the program’s success.

What Went Wrong?

In 1987, each beverage container had a onecent refund value. Today, there is a nickel refund value for each beverage container, and until recently, there was a network of 3,000 or more recycling centers in the state, according to Murray.

Then, in 2016, the scrap value for aluminum and plastic plummeted because of a major drop in oil prices. When energy prices go down, recycling is less profitable, and the processing payments failed to cover the net cost of recycling. Payments for beverage

container actually dropped by about 18 percent on plastic containers and 4 to 5 percent on glass containers.

“The recycling infrastructure lost about $20 million a year in revenue that they were expecting to get from the program,” says Murray.

Data from CAW shows that the formula currently used to calculate payments to recyclers is outdated, and payments to recyclers in recent years have not covered their costs.

As a result, more than one-third of the state’s recycling centers have closed within the last three years, says Murray, and neighborhood recyclers have been hit particularly hard.

Increases in the minimum wage, combined with the state’s cut to handling fees for recyclers beginning in 2016, has made it too expensive for recyclers to operate.

Since 2016, California has lost more than 500 recycling locations throughout the state.

Many of those were serving convenience zones around grocery stores. Now, some grocery stores have seen a complete elimination of recycling opportunities.

One such business is North State Grocery, a 100 percent employee-owned company that does business as Holiday Market and SAVMOR Foods. North State Grocery

operates a total of 19 stores north of Sacramento up to the Oregon border – primarily serving rural areas.

iStock

Comply, or Pay According to Michel LeClerc, Chief Financial Officer for North State Grocery, its major recycler, RePlanet, shut down more than 100 of its recycling locations, and many SAVMOR Foods and Holiday Markets stores could no longer meet the recycling zone requirement as there were no recycling centers within a one-half mile radius.

“When that happens, current law says that the grocer must either accept containers in the store during normal business hours for recycling, or if the grocer doesn’t do that, then the grocer must pay the state a $100-a-day fee,” says LeClerc.

North State Grocery will not accept containers inside of its stores, and CalRecycle is now billing three of the stores $100 per day.

“Those containers are dirty, and do not belong in a food store. We wouldn’t do that to our customers and we can’t do that to our customers,” says LeClerc. “For some of our other stores we were able to locate a recycler to move in, but in fairly remote stores, we’ve been unable to find anyone willing to operate a recycling center. No one wants to do it.”

Continued on page 26 ▶ CAL I FO RNIA GRO CER | 25

iStock ◀ Continued from page 25

Murray says that in the early days of the program there were so many recycling centers that the opt-out fee mechanism in AB 2020 was not implemented.

Louie Brown, lobbyist for CGA and a partner in the law firm Kahn, Soares & Conway, LLP, adds on.

“In 2016, when the prices fell out of the bottom of the commodity market and recyclers were closing down, grocers were then the ones being faced with the penalty for a situation they didn’t create. The law was never intended for that. They were part of the unintended consequences of this global market collapse,” says Brown.

LeClerc says the choice they face – to recycle containers in store or pay the fee – is a horrible choice.

“We think it’s stupid, unsafe and unhealthy to redirect a stream of trash through a food store. We aren’t set up to do it, we don’t want these containers in our carts, and we don’t want these containers on our belts, because that’s where food goes. And yet for some reason the law says this is what we’re going to do. It’s insane in my mind.”

The fee isn’t helping business, either.

“That’s money that we would be using to run our business. Paying our employees, creating better pricing for our customers, improving our stores or doing remodels.

That $3,000 a month being siphoned off from any store that doesn’t comply really belongs to our employee-owners, not the state of California,” says LeClerc.

Some retailers have made the choice to accept containers in stores that do not have a recycling center within a one-half mile radius – but not without consequence.

At best, it’s a lose-lose-lose situation. Some grocers have multiple locations listed as “unserved” by the state of California. Their options in that case are either to accept containers in-store, or pay the $100-a-day opt-out fee.

Instead, retailers pay the labor and operations costs to accept the containers back in-store. At recycling centers, containers are weighed and customers are paid a price per pound. But in stores, grocery employees have to count them and give a full nickel value for each can.

Unfortunately, grocery stores do not get handling fees from the state of California like recyclers do, which is what helps offset labor costs for recycling centers.

Then there’s the storage problem. Grocers have to store the containers (of recycled materials), which can be dangerous or pose a health hazard, due to glass and dirty containers. Without the infrastructure to get the containers back in to the recycling stream, many stores end up with back rooms full of cans and bottles, waiting to be recycled.

Grocers expend the labor, deal with all the recycling problems, and have no place to take them afterward. While retailers are doing their best to comply, most admit it’s a struggle.

Don Schmidt is a Workforce Support Partner with Raley’s, which owns and operates 120 grocery stores including Raley’s, Bel Air, Nob Hill Foods and Food Source in Northern California and Northern Nevada.

He says he’s worked over the years to maintain a good relationship with CalRecycle.

“They know our commitment to try to adhere to the law… We need the Legislature to help fix this broken system. CalRecycle is doing their work based on a law written in 1986, and we are too,” he says.

A Stagnant Legislature The confusion and frustration seems to come back to the legislature’s lack of effort to fix issues affecting stewardship of the state’s recycling industry.

“There’s been no movement on that,” says Schmidt. “We’ve passed numerous laws on all kinds of different things, but with recycling, I don’t know what’s going on. It would be great if CGA could make something happen – I know they’re working hard, and it would be wonderful to see this improved.”

In fact, more than 75 additional bills related to the Beverage Container Recycling Program have been enacted since 1987, according to CalRecycle data – but none have addressed the current challenges that grocers face.

According to Brown, who spearheads lobbying for CGA, a grocers-only fix has been the focus of the Association, but stakeholders and others in the recycling and environmental community are more in favor of a comprehensive solution. With eyes on 2018, Brown is hopeful that the timing will be right this time for the law to change.

“Since recycling center closures took place in 2016 and the grocers started to feel the negative impacts of that, we have been pretty aggressive in trying to find a grocers-only fix to the issue,” says Brown.

“We try to argue that grocers are involved in the program in almost every element, probably far more than most other stakeholders, because they sell the containers,” says Brown. “Most CGA members even have their own labels on the containers, so they are processors, manufacturers and retailers. If you take the piece out of the law that deals with grocers taking cans inside, it doesn’t mean they are going to walk away from it. That’s not their only stake in this program.”

“

Since recycling center closures took place in 2016 and the grocers started to feel the negative impacts of that, we have been pretty aggressive in trying to find a grocers-only fix to the issue.

He says that in conversations about the law, lawmakers have indicated they understand the problem, agreeing that the in-store take back provision is outdated. But, when it comes time for action, the grocery industry keeps hitting obstacles because the governor’s office, legislators and stakeholders decide to seek more wide-ranging reform.

The concern, according to Brown, is that some in the Capitol see the penalty clause – or the opt-out fee – as the piece that keeps the grocery industry at the table. Some fear that grocers would otherwise abandon a healthy recycling industry and seek to do away with the program.

"

While frustrating, he says much of this is about timing.

“It’s the legislature. I think the way it goes is we keep at it, and when the timing is right, we’ll be there to push forward,” says Brown.

“We’re going look to push another piece of legislation in 2018, and we are hopeful that we can set aside efforts at ‘comprehensive’ solutions, develop a large enough coalition that comes together and says to the legislature, let’s just do something sensible, and hope we catch that right wave and can make it happen.”

Continued on page 28 ▶

◀ Continued from page 27

CAW also continues to push for changes to the law. In a recent memo to the California State Senate, the organization called out the drastic drop in the number of recycling centers, which ultimately impacts the state’s once-increasing recycling rate.

According to the memo, since January 2016, the state’s recycling infrastructure has lost $1.25 million per month in reduced payments, despite a fund surplus of more than $200 million. CAW believes this is the result of the outdated formula used to calculate processing payments to recyclers.

What Changes do Grocers Want to See? LeClerc says he thinks recycling is a great idea, but the circumstances of the 1980s don’t make sense anymore. He recommends relaxing the one-half mile radius, especially in rural areas.

“I would like to see grocers taken out of the recycling equation, ultimately. Recycling is redirecting trash from a landfill to a recycling center. Why does it have to go to a grocery store first?” says LeClerc.

Schmidt agrees with LeClerc that it would be more effective to expand the convenience zones to be larger than a one-half mile radius.

Finally, he believes that the state needs to fund the program properly.

“Every time a customer purchases a can or bottle, they’re paying your redemption value. The state is getting that money, but the revenue from the fee is not enough to support the recycling program, as it used to,” says Schmidt.

In the current scenario, recyclers, grocers and consumers all suffer from kicking the can down the road. ■

28 | CAL I FOR N I A G R OC E R

Locals Pile on Recycling Problems

BY T I M JAM ES S EN IOR MANAG ER, LO CAL GOVERNMENT REL ATIO NS

Local governments throughout California have also taken notice of California Refund Value (CRV) recycling operations in their neighborhoods and have chosen to make matters worse.

Several communities have associated CRV recycling operations with blight, crime and homelessness and have chosen to restrict operations at CRV recycling centers to the point of putting some out of business. The additional local requirements can include everything from operating distances from the public to required landscaping.

These local mandates put an additional squeeze on recyclers, even forcing some out of business.

The consequences of these ordinances can result in forcing grocers to pay the state, or take back cans in the store, with some local leaders seeing it as necessary consequence.

Most local regulations on CRV recycling centers include a long list of operating standards that only allow a narrow range for a recycler to operate within. Along with location, design and operation standards local governments often require expensive design review or similar planning reviews before being able to operate.

The net effect is many recyclers simply close.

In some cases, this is an effect tool against CRV recycling operators operating sub-standard or unlicensed centers. However, it has also forced many legitimate and necessary CRV recyclers to close leaving grocers in unserved convenience zones.

Unfortunately, the impacts to grocers is considered acceptable collateral damage in these cities own war blight and homelessness.

The most extreme case of local government restrictions has been the City of Fresno. It passed an ordinance recently which disallows all CRV recycling activities in the city except within the four walls of a grocer.

This is a poorly veiled attempt to eliminate all recycling operations since the city has convinced itself that CRV recycling is at the root of many crimes and is a contributor to homelessness.

This ordinance ensures that not a single convenience zone in Fresno can go served – meaning stores will need to receive a state exemption, or be forced to take back instore or paying the daily in lieu fee.

Unfortunately, Fresno councilmembers choose to prioritize “community impacts” over financial damage to grocers. For that choice Fresno is facing several lawsuits which will likely prevent the ordinance from being implemented.

To us, local means

California

We’re proud to offer more of what Californians are looking for – from locally grown produce to California-raised USDA choice meat.

Long before local was cool, our family of stores made it a priority to buy direct from local growers. In fact, some of our current relationships with farmers started over 60 years ago.

We’re working hard to be California’s favorite grocer. In our neighborhoods, we are focused on developing offerings unique to the California lifestyle, we’re dedicated to contributing to the community, and we’re honored to call nearly 70,000 Californians our employees.

To us…

Local means fresher

|

Local means better

|

Local means California

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GOVERNMENT RELATIONS

#MeToo Fallout Hits Legislature

K ER I A S K EW B A I L EY S E N IOR V ICE PR E S IDE N T GOV ER N MEN T R ELATION S & P UBL IC P O L ICY

The level of palace intrigue always seems to rise under California’s Capitol dome in election years.

The 2018 elections feature a U.S. Senate race, a Governor’s race, and several hotly contested Congressional races, including some seats that have opened up for the first time in decades.

One would have to be a fool to expect anything different this time around.

And yet, this year is shaping up to be much more fraught than in past years, in large part due to the #MeToo movement and its fallout in Sacramento.

In late 2017, the burgeoning social media campaign, initiated in Hollywood, swept through the Capitol community.

The Sacramento version began with 140 women signing a public letter submitted to The Los Angeles Times.

They aired a dramatic, collective grievance about what they described as pervasive harassment and discrimination at the hands of male colleagues – issues ranging from insults and innuendo to groping and touching with a healthy dose of personal and professional backlash for those who reported bad behavior or declined advances.

Within weeks, the founders had created a web site and hundreds of additional women signed on to share their stories.

Shortly thereafter pro bono legal help was available for those who felt victimized and wanted to weigh options.

The State Assembly conducted a hearing to publicly discuss current policies and give some of the most vocal participants in the movement an opportunity to share their experiences. Time magazine included one of the California movement’s founders in its “Person of the Year” cover photo.

Now months later, the Legislature has changed few processes and procedures, but the impact has nonetheless been significant.

Two Assemblymembers have resigned.

One Senator took a short leave of absence while an investigation proceeds. Though that represents a mere fraction California’s elected State lawmakers, political reality may make the impact outsized.

The Legislature adjourned in September 2017 with Democratic supermajorities in both houses. They held 55 of 80 seats in the Assembly, enjoying a one-vote cushion for the magic 54. On the Senate side, they held 27 seats, a bare supermajority.

However, the #MeToo resignations, coupled on the Assembly side with a third resignation for undisclosed health reasons, have dropped their numbers to just 52 in that house. On the Senate side, the leave of absence knocks Democrats’ numbers down to 26.

While most expect the three vacant Assembly seats to be filled by Democrats, that will not happen for several months.

Effectively the vacancies bar quick passage of supermajority bills that are not truly bipartisan affairs.

The voluntary leave of absence on the Senate side could have a life span of just one month – the original timeframe of the investigation – but even if that timeline sticks, the Senate must wait for the Assembly’s special elections to conclude this summer before Democrats return to unfettered power.

Granted, in an election year one never knows whether the political will exists to raise taxes. But with the Governor proposing another austere budget, those increases may become the only way for Democrats to fund pet liberal priorities.

Democrats cannot be pleased to lose, even temporarily, their supermajority status. Especially when they have to shoulder some of the blame themselves. ■

CAL I FO RNIA GRO CER | 31

BIMBO BAKERIES USA

Congratulations to the incoming

CGA Board

BimboBakeriesUSA.com

©2017 Bimbo Bakeries USA, Inc. All rights reserved.

GOVERNMENT RELATIONS

2018 – A Very Good Year?

A A RO N M O R EN O S EN IOR DIR ECTOR CGA GOV ER N MEN T R ELATION S

The second year of the Legislature’s two-year session can often be the more unpredictable of the two.

With every member of the California Assembly and half of the Senate up for election, legislators tend to become somewhat more pragmatic in their decisions as they prepare to face the electorate for what is essentially their job review.

This led Democratic leaders of both legislative houses in California to commit to fight against his agenda as it pertained, mostly, to immigration and environment protection. Back then, the view of Washington D.C. as an enemy to be protected against began to take root.

The coming election season adds a number of variables for legislators to consider as they make their decisions on what paths to take in order to get in voters’ good graces.

It was thought to be potentially beneficial to business as it would take legislative attention away from the it (long a boogieman for Democrats to unite against), and instead focus it on how to lessen the impacts of Washington, D.C.’s conservative agenda on Californians. This was the case for the most part, with no major anti-business legislation surviving the Legislature and being signed into law.

From the election of the first new governor in eight years, to a legislature in flux due to a number of recent resignations resulting from inappropriate behavior on the part of some of its members, to new taxes going into effect, to the always unpredictable actions coming out of Washington D.C. – 2018 is shaping up to be a year to remember.

But will this “year to remember” be a good or bad one for the grocery industry? The signs point to a good one.

There was much political uncertainty at this time last year as legislators prepared to embark on the journey of a new two-year session. Much of it could be traced to the election of a new president with a decidedly more conservative agenda than the United States had faced in recent memory.

D.C. which, as we saw last year, ought to bode well for the grocery industry and other businesses.

It is believed by many that they will continue prioritizing legislation meant to lessen the impacts of actions taken in our nation’s capital. This would hopefully distract lawmakers from seeing grocers and other businesses as targets for more regulation.

Another issue that is likely to lessen the Legislature’s focus on business is a new prioritization of legislation to deal with sexual harassment in the State Capitol and other workplace environments in the wake of numerous scandals involving state legislators, lobbyists and staffers.

As with all forecasts, it must be kept in mind that past performance does not guarantee future results. That being said, we will keep our fingers crossed that future results stay in line with past performances in light of the similar political uncertainty we face this year.

“There is cautious optimism in the business lobbying community that this year’s session will take a similar trajectory.”

There is cautious optimism in the business lobbying community that this year’s session will take a similar trajectory. Legislative leaders here in Sacramento have doubleddown on their pledges to resist Washington

Regardless of how this year’s session plays out for the grocery industry, there is sure to be much drama and palace intrigue as legislators do all they can to keep their jobs come November. ■ CAL I FO RNIA GRO CER | 33

CAPITOL INSIDER

An Expensive Game of Chicken LO UI E B ROW N IN T HE S ACR AME N TO OFFICE O F K HAN, S OAR ES AN D CON WAY, L L P

California’s initiative process is the truest form of a participatory government.

Brown

Nearly anyone can submit language in the form of an initiative to create new law, or change existing law to the Attorney General with a $2,000 check and request an official title and summary.

That is all that is needed to start the process.

Of course, it gets more complicated and much more expensive for those who decide to proceed to the next steps of the process.

Once the Attorney General issues a title and summary, the proponent needs to decide if they have the finances to collect the requisite number of signatures needed to get the initiative on the ballot – which can cost on average $2 million dollars if paid signature gatherers are utilized.

The number of valid signatures needed is based on voter turnout in the previous gubernatorial election, but is generally between 300,000 and 500,000 depending on whether the initiative amends statute or the constitution.

This year, more than 40 initiatives have already been cleared for signature gathering, while at least 12 more are waiting for their title and summary. It looks like it’s going to be another good year for signature gatherers!

Of the 40 initiatives gathering signatures, there are two on the same issue that will impact the grocery industry. The initiatives 34 | CAL I FOR N I A G R OC E R

deal with the housing requirements for egg laying hens, veal calves and pork, an issue not new to our industry.

In fact, we first dealt with this issue, as an initiative, in 2008 as Proposition 2. It passed with 64 percent of the vote and created a new standard for egg, veal and pork production in California.

Proposition 2 only impacted California egg producers and did not place any requirements on the eggs actually sold in California. This created quite the reaction from the egg industry and resulted in legislation. Assembly Bill 1437 (Huffman 2010) made it illegal for any one to sell eggs in the State of California that failed to meet the Prop. 2 standards.

The legislation also included a good faith defense for retailers who rely on documents provided to them by the seller. Assembly Bill 1437 was challenged by five states with significant egg production as violating the Federal Commerce Clause, but failed at the courts.

There was no such legislation pursued by the veal or pork industry, which significantly limited the proposition’s impact on retail sales of those products.

Since the passage of Prop. 2, the egg laying industry has invested millions to upgrade facilities to meet these new requirements.

During that same time, a number of large egg buyers in the food industry have signed agreements with the Humane Society of the United States (HSUS) to transition to purchasing only cage free eggs.

By 2026, it is anticipated that 80 percent of the eggs purchased commercially will be cage free. However, in 2018 it is estimated that only 20 percent of the eggs produced can be labeled cage free.

So, HSUS is seeking voter help to force this change in production practices. Its new version of the initiative would require the egg industry to move to cage free by Dec. 31, 2021, and would prohibit the sale of any eggs in California that are not cage free.

The initiative would also create new standards for the veal and pork industries.

However, unlike Prop. 2, this initiative carries the AB 1437 language prohibiting the sale of pork and veal in California that fails to meet these requirements.

Egg producers having already invested millions of dollars to be in line with Prop.

2 are concerned with the HSUS initiative’s timeline. So, rather than work to defeat the measure, which would likely cost millions and fail, it introduced its own initiative which is almost exactly the same except the implementation dates are pushed back to Dec. 31, 2023.

CAPITOL INSIDER

“The initiatives deal with the housing requirements for egg laying hens, veal calves and pork, an issue not new to our industry. ” Both initiatives are on the street gathering signatures and no doubt confusing voters.

So, why two initiatives? Unfortunate as it may seem, an initiative isn’t always proposed to promote good policy. HSUS reached out to the industry and negotiations ensued but the parties could not agree on a reasonable transition timeframe. HSUS chose its own language and schedule and started the process with no expectation the industry would respond with its own initiative.

There is still time for a compromise.

We have seen it before with workers’ compensation and most recently with the minimum wage issue. The strategy includes getting the State Legislature involved to forge a compromise and then place its own initiative on the ballot.

So, in a way, we have an expensive game of chicken being played. The ultimate question is which side will blink first and take the opportunity to find the middle ground.

Refusing to do so would likely result in defeat of both measures simply because voters will be too confused to support either one. ■

Taking this course of action bypasses the need for signatures and increase the likelihood of success because the two sides would be working together to pass the initiative.

CAL I FO RNIA GRO CER | 35

INSIDE THE BELTWAY

How to Be a Winner w i t h t h e N e w Ta x L aw J EN N I F ER H ATC H ER S EN IOR V ICE PR ES IDEN T GOV E R N ME N T AN D PUBLIC AFFAIRS FOOD MAR K ET IN G IN S TIT UTE

In every bill, there are winners and losers.

FMI worked hard to try to secure as many wins for the grocery industry as possible with the new tax law and there are quite a few!

In December, Congress passed the most significant overhaul of the U.S. tax code in 30 years, delivering a landmark legislative victory to President Trump and Republicans.

The bill provides for a number of wins for the grocery industry. Some of the highlights are listed below.

It is important to note you should work with your accountants and tax professionals to make sure you are able to utilize the provisions of the law could apply to your business and associates.

Also, if you run across issues that you think could be addressed in a technical corrections bill, forward them to the Food Marketing Institute. As quickly as this bill moved through the legislative process, there are likely to be errors or mistakes that will need to be corrected this year.

Below are some highlights and wins of particular interest to the supermarket industry:

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• The use of LIFO (last in first out accounting) is preserved with no changes.

• There is no BAT (border adjusted tax).

• The tax rate for “C” corporations is set at a flat 21 percent, down from 35 percent, goes into effect in 2018 and is permanent. The corporate alternative minimum tax (AMT) is permanently repealed.

• A 20 percent deduction for qualified business income is established for pass-through businesses. Passthrough businesses operating through estates or trusts are eligible for the 20 percent deduction – a big win for second and third generation companies, secured with the help of key FMI members. After this deduction is taken, additional income tax is paid at the individual rates. The 20 percent deduction should create the equivalent of a top marginal rate of 29.6 percent. This goes into effect

in 2018 and expires at the end of 2025 unless extended or made permanent prior to that time.

• The bill nearly doubles the standard deduction to $12,000 for a single filer and $24,000 for a joint filer (up from $6,350/$12,700). This will hopefully be a boost to associates and customers.

• The individual AMT remains in place but the exemption is increased to $109,400 for married filers and $70,300 for all other taxpayers. The phase-out threshold is increased to $1 million for married filers and $500,000 for other taxpayers, but expires at the end of 2025 and reverts to current law unless extended.

• The current system of state and local tax deductions is replaced with a new “hybrid” approach. Filers will be able to take up to a combined $10,000 deduction for state and local taxes, sales taxes and/or property taxes.

• Unfortunately, the estate tax was not repealed and remains in place at 40 percent. However, the exemption for estates from the tax was doubled to $11 million for individuals and $22 million for couples. The gift tax exemption is also doubled. However, both provisions expire at the end of 2025.

INSIDE THE BELTWAY

“...you should work with your accountants and tax professionals to make sure you are able to utilize the provisions of the law could apply to your business and associates.”

• Full expensing is allowed for qualified property placed in service between Sept. 27, 2017, and Jan. 1, 2023. The proposal phases-down in 2023 and beyond. Both new and used property can be included in the calculation.

2023 – 80% 2024 – 60% 2025 – 40% 2026 – 20% • Sec. 179 expensing (aka “small business” expensing) is also made more generous with the maximum increased to $1 million and the phase-out threshold set to $2.5 million. This is permanent, but you may want to consider full expensing in the years it is allowed.

• The deduction for interest expenses is limited to 30 percent of a taxpayer’s adjustable taxable income. The formula for how adjusted taxable income is calculated changes in 2022.

It uses a more generous EBITDA formula for the first four years and than a less generous EBIT in later years. An important rulemaking will determine what will be included in the formula!

• The bill does not repeal the individual mandate of the Affordable Care Act, despite some reports along these lines. It does reduce the tax penalty for individuals failing to purchase health insurance to $0, making the

mandate toothless. The repeal of the tax penalty does not begin until 2019 – so individuals are technically able to be fined in 2018. This likely will not have a significant impact on business aspects of the health care law, however, left unresolved it could make health insurance markets more unstable, which will have ripple effects for the whole system.

• The tax code eliminates carry-backs and limits the use of net-operating losses (NOLs) to offset up to 80 percent of a company’s taxable income.

• A temporary tax credit of 12.5-25 percent is created for businesses that provide employees with paid family or medical leave depending on how much of the employees’ wages are paid above 50 percent. Consult your accountants.

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• It removes the ability to deduct the cost of legal settlements if a violation of the law takes place. Also prevents write-off of sexual harassment claims if an NDA is attached.

• The Work Opportunity Tax Credit and New Markets Tax Credit are preserved.

• The deduction for expenses related to employee meals is repealed but employees can continue to exclude the benefit from income. However, the tax act also expands the 50 percent limit to de minimus fringe benefits to onsite eating facilities until Dec. 31, 2025. Afterwards, employer costs for providing food and beverages to employees through an onsite facility are not deductible. ■

• The deduction for state and local lobbying expenses is repealed.

• The use of like-kind exchanges is basically limited to real estate transactions.

• The deduction for domestic manufacturing operations (Sec. 199) is repealed. Some in the industry may currently use this provision to help write-off expenses associated with central kitchens, etc.

CAL I FO RNIA GRO CER | 37

WASHINGTON REPORT

5 Priorities for Independents in the 2018 Farm Bill PET ER L A R K I N PR E S IDE N T AN D CEO N AT ION AL GR OCER S AS S OCIATIO N

Congress has the chance to strengthen the food security safety net, also known as the Supplemental Nutrition Assistance Program, or SNAP, for recipients and retailers in the 2018 Farm Bill.

Every five years, Congress must pass a comprehensive omnibus bill that’s one of the single most important pieces of legislation in the food and agriculture industry: the Farm Bill. The practice dates back to the 1933 when the first Farm Bill was enacted into law as part of President Roosevelt’s New Deal.

Its three original goals – keeping food prices fair for farmers and consumers, ensuring an adequate food supply, and protecting and sustaining the country’s vital natural resources – have largely stayed the same over the past 80 years.

The agricultural and food industries authorized under the 2014 Farm Bill include 12 sections: 1) commodities; 2) conservation; 3) trade; 4) nutrition; 5) credit; 6) rural development; 7) research, extension, and related matters; 8) forestry; 9) energy; 10) specialty crops and horticulture; 11) crop insurance; and 12) miscellaneous.

Lawmakers are aiming to reauthorize the next Farm Bill in the fall of 2018, with congressional hearings already underway in Washington. This includes Jimmy Wright, single-store operator of Opelika, Ala.-based Wright’s Market, testifying before the

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Senate Agriculture Committee on issues retailers face while administering SNAP benefits on behalf of the National Grocers Association (NGA).

Below are five of the most important provisions NGA is working hard to ensure make it into the next Farm Bill:

1

Strengthen the Food Insecurity Nutrition Incentive (FINI) Grant Program. FINI grants are awarded to nonprofit groups and government agencies to conduct programs that provide point-of-sale incentives for the purchase of produce. While the program is popular in the independent supermarket industry, grocers have received a smaller share of funding despite longer operating hours and ability to reach more low-income consumers.

Congress should help increase grocery store participation by allowing supermarkets to apply directly instead of restricting eligibility to nonprofit organizations and government entities, helping stores to overcome technical challenges with program implementation, and maximize federal resources for grocery stores.

2

Preserving Consumer Choice in SNAP. It’s crucial that lawmakers not place burdensome regulations on supermarket operators by restricting what SNAP customers can purchase with SNAP benefits. Today, there’s more than 300,000 food items in the marketplace with over 15,000 new food items being introduced each year. Placing restrictions on SNAP purchases would significantly increase burdens on independent supermarkets by adding new costs and administrative burdens to an already highly regulated, low-margin industry.

3

Fighting Swipe Fees on SNAP Authorized Retailers. A major credit card brand is asking Congress to lift the legislative prohibition on swipe fees for SNAP transactions. If card networks are allowed to charge the average swipe fee of about 48 cents per transaction, retailers could face an additional $1.3 billion – yes that’s billion with a B – a year for accepting SNAP payments. While these fees might prove to be a nice cash windfall for the megabanks and major card brands, they would unfairly and significantly increase retailers’ SNAP costs.

WASHINGTON REPORT

4

Protecting Private SNAP Retailer Sales Data. While Freedom of Information Requests (FOIA) provide a means for citizens to know about the activities of their government, the release of store-level SNAP redemption data would harm competition within the independent supermarket industry. In fact, the annual and monthly nationwide and state level SNAP redemption data has long been available. The availability of site-specific data would simply create a windfall information for big box stores, who will gain a competitive advantage and poach the customers and revenues of smaller independent grocers.

5

Rejecting a SNAP Tax on Retailers.

Last year, the Trump Administration proposed a SNAP retailer application fee. While stores currently do not pay a fee to become authorized, retailers take on large equipment, compliance, and training expenses to participate in the program.

Under the proposal however, fees would range from $250 for the smallest businesses, such as convenience stores, to as much as $20,000 for the largest retailers. Requiring retailers to pay SNAP application fees won’t deter fraud in the program, however it would simply serve as a new tax on Main Street businesses, which is contrary to the Administration’s goal of lowering taxes and costs on small businesses.

It’s an honor for NGA to spend the association’s time fighting on behalf of the independent supermarket industry.

In California alone, independent grocers account for nearly $20 billion in sales and are responsible for creating over 105,300 jobs. With such a large economic impact in both the state and the country, your voice matters! ■

CAL I FO RNIA GRO CER | 39

WINDS OF CHANGE

Understanding Who’s Eating What and Where in a Blurred Channel Marketplace

By: Laurie Rains, Vice President, Retail Commercial Strategy, Nielsen Kate Duffy Client Manager, Growth & Specialty Retail, Nielsen

IT’S NO SECRET THAT CHANGE IS IN THE AIR. Today’s consumers are shopping channels and categories in ways they’ve never shopped before.

Powered by expanded options, enabled by technology and driven by shifting consumer demand, we are currently witnessing the convergence of traditional and alternative food retail channels.

This merging of tables and aisle is redefining our industry’s topography where convenience stores are becoming quick-service restaurants, meal kit delivery services are menacing grocery businesses and grocery stores by way of grocerants and food halls are taking a bite out of traditional sit-down restaurants.

All of these changes are causing the lines between food service, retail, home delivery and restaurants to become increasingly obscured.

However, as lines continue to blur, maintaining the traditional channel parameters that once provided structure and order to our industry, has become less relevant and a non-factor towards future growth.

Instead, today’s grocery retailers and restaurateurs need to recalibrate and gain their bearings around the new consumer demand landscape that is reshaping our

industry. In this brave new retail world, understanding the new ways Americans purchase and consume across the food and beverage landscape, is key to getting ahead – and surviving – in 2018 and beyond.

So, what does this new demand landscape look like?

Here are a few things to know:

Eating at Home vs. Eating Out According to data from the U.S. Department of Agriculture and Economic Research Services, until very recently, consumers allotted about two-thirds of our food and beverage spend for in-store purchases – the bread and butter of the traditional supermarket.

We can trace this trend as far back as the early 1900s.

Back then, U.S. consumers spent less than 10 percent on eating out, and rounded out the remaining portion, about 25 percent, with home production through farming and backyard gardens.

By the 1970s, Americans were still spending the same share at the store, but our eating out and home production trends had flipped: we spent about onethird of our food and beverage allocation on eating out, while home production spend dropped to about 3 percent.

Continued on page 42 ▶

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◀ Continued from page 33 ◀ Continued from page 41

Fast forward to present day and we see “away-from-home” spending now leading and our “at home” share declining to 49 percent. In fact, a recent Harris Poll survey found that 70 percent of 18-34-yearolds commit only about 35 percent of their total food and beverage spending to grocery stores (See Figure 1).

The good news is that the total amount of money consumers spend on food is growing. However, the downside for grocers is that they’re not attracting as much of the overall spend as they used to. Eating out has grown immensely popular, representing a bigger challenge to retailers than even online ordering and discounters.

But, as you know – the disruption is bigger than consumers just opting for a restaurant over a supermarket. Looking deeper into the data we are now able to see the true impact of channel blurring on both a national and regional stage.

On the West Coast: Who’s Eating What and Where?

According to Nielsen Buyer Insights data, consumers on the West coast are spending relatively fewer credit and debit dollars at traditional, mass and grocery retailers. And, when it comes to restaurant spending, 20 percent of credit and debit card dollars are going to casual dining restaurants and 9 percent to fast food.

The West spends significantly more (relatively speaking) at club stores (See Figure 2).

Figure 1 Source: U.S. Department of Agriculture Economic Research Service

Total US 10%

A New Lens for Understanding Shoppers 20%

9% 1% 1%

9%

49%

Fast Food

Mass

Convenience

Casual Dining

Drug

Club Store

1 – If channel rounded to 0% not labeled within pie chart. This consists of Meal Kits, DMOD, Fine Dining, and Pure-play E-grocery

West 8%

Total Grocery

2 – Nielsen Homescan and TDLinx used to establish average ppercentage of dollars spent on food categories across Consumer Packaged Goods Channels.

20%

15%

Source: Nielsen Buyer Insights Food 7 Beverage Study April 2016 – March 2017, Nielsen Homescan 52 weeks Ending 8/19/17, Nielsen TDLinx

Helping to bring further clarity to this blurred landscape, Nielsen has developed four distinct, data-driven consumer segments to better describe the new ways Americans purchase and consume across the food and beverage landscape.

Each segment differs in terms of spending and preferences for channel, occasion and location. These dimensions shed light on each group’s priorities to gain a better understanding on how to best serve them.

Traditionalist Food Shoppers Older and are relatively more likely to be retired, with no kids in the household. They spend two-thirds of their total food dollars at grocery, mass merchandisers and club stores. They’re much less likely than other consumers to use a smartphone or other device at any point along the path to purchase and they value convenience above all else, followed by taste and the ability to have a speedy experience.

46% 9%

Figure 2

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1%

Restaurant Occasion Lovers Younger and more ethnically diverse living in suburban areas. They are more spread out in terms of age, compared to the Traditionalist.

If they have kids, the kids are more likely to be teens. Members of this segment are not heavy users of digital technology to make their food choices or purchases. This group doesn’t spend as much per household on food and beverage as other segments, even though they tend to eat out more. They value taste above all else, followed by convenience and value.

“TODAY’S GROCERY RETAILERS AND RESTAURATEURS NEED TO RECALIBRATE AROUND THE NEW CONSUMER DEMAND LANDSCAPE THAT IS RESHAPING OUR INDUSTRY.” iStock Traditionalist Food Shopper (n=763)

Restaurant Occasion Lover (n=637)

Digital Adopter (N=196)

Multi-Channel Adapter (n=479)

% U.S. Adults Resisting in West

35%

34%

9%

22%

% Total U.S. Adults

37%

31%

9%

23%

% of U.S. Food Spend

28%

31%

17%

24%

Avg . U.S. Monthly Food Spend

$310

$405

$705

$415

Avg. U.S. HH Size

<3

<3

>3

<3

Figure 3

Digital Adopters Most likely to be younger, urban parents, highly educated with high incomes. They are the most willing to experiment with digital tools and will therefore have the strongest influence on how digital technology affects food shopping. These shoppers value taste first and foremost, followed by value and the ability to order online.

Multi-Channel Adapters Multi-Channel Adapters spread their food and beverage spending across different channels more than the other segments do, and are more likely to use each channel for its dominant purpose (i.e., grocery stores for at-home consumption, restaurants to eat out). They use different channels for different meal occasions, and they seek clearly distinct benefits from those channels.

They want convenience and a speedy experience from small formats (i.e., convenience stores, and fast food outlets) and good taste from casual dining establishments. Their general priorities mirror those of a Traditionalist.

From a regional perspective, Restaurant Occasion Lovers are relatively more likely to live in the West. These shoppers value taste above other benefits like being convenient, healthy, or quick.

Traditionalist Food Shoppers and Multi-channel Adapters are slightly underrepresented in the West. Digital Adopters are proportionately represented (See Figure 3).

Standing Out When the Lines are Blurred So, what does all of this mean? We’re in a period of disruption in the U.S. food and beverage industry. Consumer demand is shifting toward the increasing use of digital tools to purchase, while expanding numbers of offline players are competing for a smaller share. As they have expanded the options they offer, the traditional “in-home” and “out-ofhome” channels and occasions have given way to a more complex landscape.

Today’s grocery retailers and restaurateurs need to leverage data to gain a better understanding of the new consumer demand landscape and clearer portrait of the new ways Americans purchase and consume across the food and beverage landscape.

It is important for grocery retailers to understand that there has been a historic transfer of power, from retailers and manufacturers to the consumer. With this shift, knowing your consumer is now more important than ever.

Finally, producing for, distributing to, or retailing in a particular channel is no longer sufficient. Nor can a company simply add channels without changing the way it does things – it's impossible to be all things to all consumers. Instead, retailers and restaurants must develop food and beverage strategies at the intersection of shoppers’ desired occasions, locations and experiences, focusing on the key combinations where they are poised to excel. ■ Download the full report at www.nielsen.com/us/en/insights/ reports/2018/merging-tables-and-aisles.html to learn more about shifts in the demand landscape and how to go-to-market and engage key shopper segments.

CAL I FO RNIA GRO CER | 43

LOSS PREVENTION, SAFET Y & RISK MANAGEMENT

Q & A: Workers’ Comp Fraud BY: LEN L E W IS

Editor’s Note: New this issue! CGA has added a regular Loss Prevention, Safety, Risk Management department to the publication. Utilizing input from CGA’s Loss Prevention, Safety and Risk Management Committee, this department will feature the latest updates on selected LPSRM topics. If your company isn’t participating on CGA’s LPSRM Committee, contact Dave Heylen, CGA, at (916) 448-3545.

Dominic Dugo

Fraud is costing California employers and other taxpayers billions of dollars annually and giving those who skirt the law a competitive advantage over legitimate businesses.

Dominic Dugo, Chief Deputy District Attorney for San Diego County and Shaddi Kamiabipour, Senior Deputy District Attorney for Orange County, discussed the complex fraud issues with California Grocer and how their offices are solving the problem.

Overall how big is insurance fraud?

Dominic Dugo: “Nationwide it’s about $80-$90 billion. We estimate that workers’ comp fraud in California is about $4 billion.”

Is that increasing?

Dugo: “It’s pretty steady. During the recession there were solid increases in fraud.

As the economy improves you tend to see less. However, higher employment means more people entering the market which can potentially increase instances of fraud.”

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How about medical fraud?

Shaddi Kamiabipour: “Over $1 billion is the estimated amount in the workers’ comp system for medical provider fraud in California. But, that’s only what’s being reported. The nature of these crimes is that perpetrators can mask them so well that the victims can’t see it. OCDA is prosecuting about a half billion of that.”

What’s the real number?

Kamiabipour: “Every time we unearth one of these schemes, $10 million has already been lost. Unfortunately, it takes a while for us to figure out how each scheme works.

The perpetrators design these schemes to look like legitimate business operations.

These people study the insurance companies and victims to figure out the best ways to steal from them.”

Is this area of fraud on the rise?

Kamiabipour: “It’s always been there.

At the state level it is too costly to prosecute and the punishments are grossly inadequate.

The feds have a better sentencing range than we do. At the State level, we try to prosecute

Shaddi Kamiabipour

individuals who commit these crimes, put them out of business and get as much restitution as we can for the victims.”

For example?

Kamiabipour: “Last year I had a case involving a $70 million fraud involving medical equipment company. They went to jail and had to pay back about $10 million in restitution. We also shut down four corporations which had to give up $186 million in fraudulent billing. That was a significant win for us. It not only protected victims who were named in the case but also victims that were impacted but not named.”

LPSRM

“We’re combining aggressive prosecution with aggressive crime prevention efforts.”

What’s driving workers’ comp fraud?

Dugo: “We’re combining aggressive prosecution with aggressive crime prevention efforts. You need to look at the people committing the crimes. A lot of them are opportunists rather than hardcore criminals.

They see an opportunity to stay home and get paid through the workers’ comp system.

We can reach some of them with crime prevention techniques like public service announcements, billboards on freeways – scare them into realizing this is a felony.”

How does that breakdown?

Dugo: “About 50 percent of the defendants we prosecute, unfortunately, are hardcore criminals. Another 25 percent may be bad liars or cheaters but reachable. And the other 25 percent are opportunists.”

How effective are prevention efforts?

Dugo: “With employers helping us we could reduce the top group of 50 percent to 25 percent. That would allow us to use prosecution resources for hardcore criminals.

“But it’s not just the workers. There are several aspects to this fraud: applicant fraud involving fake work injuries; employers denying compensation to injured workers; payroll and income tax evasion; and premium fraud which can include underreported payroll or misclassification of type of work.”

In medical who’s responsible for the fraud?

Kamiabipour: “It’s all organized crime.

The fact that I can prosecute 20 defendants at a time should tell you that it’s organized crime. It’s the lawyers who represent the

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applicants, the doctors, and those who recruit patients to sell these providers.

In California, it pays to commit fraud at the State level due to lighter sentences.

The crooks design their schemes in such a way that it is cheaper for insurance companies to pay the fraud than fight it in the short run.”

How does that work?

Kamiabipour: “The people I prosecute make a lot of money. They hire lobbyists to go to Sacramento to advance their causes and because their businesses appear legitimate, they are very successful in their efforts. They are influential and savvy.”

Specifically, which crimes are involved in medical fraud?

Kamiabipour: “It’s all about billing for services not rendered like billing for 3D-MRIs when the provider didn’t do them, or illegal referrals.”

How vulnerable are companies to medical fraud?

Kamiabipour: “Extremely vulnerable.

Premiums don’t go up because of applicant fraud. In those cases, the loss is between $10,000 and $50,000. In premium fraud the average is between $50,000 and $500,000.

By contrast, the smallest medical provider case I have is $17 million and the largest is $300 million.

“The crooks see each patient as an opportunity to bill for many unnecessary diagnostic services driving up the cost of each workers’ comp claim. The providers are the hidden cost in the policies that drive up the premiums.”

What’s the solution?

Kamiabipour: “I tell business owners to look at the prosecutions that are done by various offices and ask their insurance companies whether they are helping the prosecution. Then business owners should see if they are getting a credit on their policy for identified fraudulent billing. Very few insurance companies have a system in place to do this kind of tracing. Insurance companies have to actively fight fraud and assist in prosecution. You’d be surprised how many of them don’t.”

How many do that?

Kamiabipour: “To my knowledge, no one is doing it or has a system to give the credit back to their policyholders. The cases I prosecute involve 2,000 to 6,000 patients.

The insurance companies do not appear to have a system to look at all the policies that were impacted and give a credit to each policy. That’s not acceptable. They need to have a system that traces each claim submitted for each patient by each provider easily so that they can reimburse their policyholders when we uncover fraudulent billing. The law mandates it.”

Continued on page 47 ▶ CAL I FO RNIA GRO CER | 45

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What do you see as a solution?

Dugo: “The goal is crime prevention and that’s why we do things like ads, billboards, posters and radio. The statistics I see for San Diego indicate that things have pretty much stayed flat in referrals from the insurance companies, but our prosecutions have increased sizably. People in the community are calling. For example, in a grocery store, if someone is faking a workers’ comp injury, someone knows it. In the past, they might ignore it without saying anything.

You’ve mentioned one sign of a problem are providers that have businesses outside their expertise.

Kamiabipour: “Yes. One of the radiologists I’m prosecuting has a sleep center. It’s inappropriate. Would you go to an eye doctor to have heart surgery? That’s not the real world. Yet in the workers’ comp system insurance companies allow them to get away with it.”

“The goal is crime prevention and that’s why we do things like ads, billboards, posters and radio.”

“Now we have the antifraud posters which are supplied free of charge to employers in English, Spanish and Chinese. They can have as many as they like to post in the workplace.

In fact, one big grocer got 800 and laminated them. If someone’s thinking of committing workers’ comp fraud and sees the poster they may not do it. If they are, this might encourage a manager or co-worker to report it. The posters are the cheapest kind of insurance you can get and can make a big difference.”

What about fraud by employers?

Dugo: “That’s premium fraud and it’s a big area that ties into the underground economy and cash payouts. Those employers have an unfair advantage because they are getting workers’ comp insurance cheaper than the competition who is putting everyone on the payroll. Payroll tax fraud is running about $5 billion annually by some estimates and I’ve seen numbers higher than that.”

Kamiabipour: “I tell employers if they suspect fraud and the insurance company is not responding, report the fraud to the district attorneys office directly. The form is an FD-1 and anyone can fill one out.

They have to let us know.”

What about kickbacks?

Kamiabipour: “In some cases we’re

prosecuting doctors and lawyers. Doctors are taking money to prescribe medication, urine toxicology or durable medical equipment to patients because they make money on these types of services. The lawyers are getting kickbacks to send their clients to these doctors.”

Do you have enough money and manpower to reach your department’s goals?

Dugo: “In California, there’s a Fraud Assessment Commission appointed by the governor that sets the funding level for law enforcement. I believe it was increased 8 percent last year to about $67 million, which is divided between the Department of Insurance and district attorneys throughout California. When you consider that this is a $4 billion a year problem, it’s not that big of a funding source. We need more increases to fight the problem.”

Are stiffer sentences being handed down by courts?

Dugo: “It depends. Aside from uninsured employers, all other workers’ comp felonies are punishable by up to five years in prison.

But every case is different and workers’ comp is a very complicated law. That’s why we work in teams. For example, premium fraud is very different from medical fraud.”

Kamiabipour: “I see the trend another way. In California the trend has been toward lower sentences for white-collar crimes.

We literally give people a hug and release, and a letter of apology for prosecuting them.”

Why? Kamiabipour: “Some say it’s prison overcrowding. Under white-collar crime enhancement we can send people to prison. But in reality if a person steals $5 or someone’s life savings, the crimes he will be charged with are not considered strikes in state of California. If someone goes to a convenience store and takes money by force, they will be charged with robbery which is a strike and would probably go to prison for a minimum of two to five years.

“But there have been more prosecutions in the past five years as we do more to educate people including the judiciary. Judges are becoming more responsive and are handing down stiffer punishments.”

But it’s all about unearthing fraud in the first place.

Kamiabipour: “That’s why I tell people – don’t assume we know. I’ve unfolded multimillion-dollar crimes on the simplest tips from employers and even insurance companies who just fell into something they didn’t know was significant. If something looks unusual and your spider senses are tingling tell us about it.” ■

CAL I FO RNIA GRO CER | 47

REDEFINING the rules of

ENGAGEMENT:

DIGITALLY

By Craig Rosenblum Manufacturers and retailers of fast-moving consumer goods know all too well that price reigns supreme for attracting and retaining shoppers.

Today’s well-informed shopper has more purchasing options than ever before.

Despite being time-starved, shoppers are willing to forgo convenience for savings, which promotes channel-hopping and threatens brand and banner loyalty.

The brighter side of digital transformation

In response, retailers turn to promotions to gain a slight, albeit temporary, competitive edge. According to a recent benchmark report by Retail Systems Research, one-third of respondents report they are increasing the number of promotions and, at the same time, offering steeper discounts.

Despite the dark introduction, digital transformation does not mean gloom and doom. Digital engagement can be poison if not managed correctly but, for companies willing to embrace the transformation, digital engagement is just what the doctor ordered. It’s the shot-in-the-arm that has eluded the industry for decades.

This approach is something of a doubleedged sword for while it’s driving increased sales, it’s accelerating the race to the bottom as razor-thin margins are being shaved even more. Ironically, in the same report, the No. 1 job for a retailer’s pricing strategy was identified as maximizing gross margin.

Implementing digital engagement strategies can take many paths. Ultimately, the approach must consider the organization’s existing position in the marketplace and its ability to manage disruption. Some of the steps along the path require proper sequencing.

Price as a competitive lever may be further neutralized as digital technologies increase price transparency across banners, formats and channels. Digitally-savvy shoppers – willing to shop across the spectrum of omni-retailing, will cherry-pick products “on deal,” regardless of brand. This further erodes loyalty, which can lead to a death spiral.

For example, merchants must understand shopper behaviors before they can create targeted offers. However, there are no prerequisites for retailers migrating from pricing strategies based on Known Value Items (KVIs) to strategies using Personalized Known Value Items (PKVIs).In fact, implementing PKVIs is among the least disruptive solutions and delivers a rapid time-to-value return in terms of sales gains and competitive positioning. Below is a sample path for leading retailers to effective digital engagement.

Note: Sequenced items are grouped together.

• Implementing Personalized Known Value Items • Understanding Shopper Behaviors and Defining Shopper Demographics • Segmenting and Weighting the Value of Each Shopper or Household • Creating Targeted Offers • Executing Influencer Marketing Continued on page 52 ▶

CAL I FO RNIA GRO CER | 51

◀ Continued from page 51

For decades retailers have driven their price-value image by focusing on KVIs. These KVIs, which may include as many as 600 product lines, are believed to disproportionately improve the shopper's value equation. Retailers assume these items, and their corresponding price points, appeal to the majority of their shopper base.

While this approach does have merit, it is far from optimal.

Thousands of households may not consider a particular subset of products to be relevant, or may fail to notice the retailer's aggressive prices. This dilutes KVIs as a key competitive pillar and further erodes margins by needlessly lowering prices.

Conversely, PKVIs ensure shoppers are getting the best-in-market prices on the products that matter most. Using proprietary analytics and historical transaction data, PKVIs redistribute incentives by household to maximize impact – all while protecting margin.

The path to personalization begins by analyzing product purchases at the household level. These products are then weighted and ranked based on household penetration and PKVI density. 1 Products with high household penetration and high PKVI density become storewide KVIs with lower prices offered to all shoppers. This process typically reduces the number of store-wide KVIs by about 70 percent.

The remaining products become candidates for PKVIs based on specific shopper behaviors.

Figure 1 illustrates product classifications before and after PKVIs. 1

PKVI density reflects the likelihood of a product being in Personal Known-Value

Understanding Shopper Behaviors and Defining Shopper Demographics Using shopper analytics, trading partners can develop strategic initiatives to increase sales and drive category growth while improving bottom-line performance. Critical analytic outcomes include: • Defining core shoppers and understanding their purchase behavior • Understanding category-specific drivers and identify opportunities for growth, differentiation, and loyalty • Increasing ROI on promotion spending by increasing offer relevancy • Quantifying category growth by attracting new shoppers into the aisle 26%

25% PERCENTAGE OF CUSTOMERS

Implementing Personalized Known Value Items

19% 15% 11%

4%

Item baskets.

18–24 BEFORE STORE– WIDE KVIS ■

BANANAS CHIQUITA

■ ■

CAMPBELL V8 JUICE PLST 100%

■

CAPRISUN FRUIT PUNCH 10PK 10%

■

CARROTS PEELED 1 LB.

■

MRS. JONES‘ PKVIS

45–54

MR. ADAMS‘ PKVIS

Figure 2

■

70% FEMALE

■ ■

CELESTE PEPPERONI PIZZA

■

■

■

■

IMPERIAL MARGARINE QUARTERS

■

■

NESTLE COFFEEMATE HAZELNUT 32 OZ.

■

POLAND 24PK 16.9Z SPRING WTR

■

55–64

Mean age: 46 years old

■

DAISY LIGHT SOUR CREAM

30% MALE 88% MARRIED

■

■ 12% SINGLE

■

PREGO SPAG SCE MEAT

■

PRIVATE LABEL BUTTER QUARTERS

■

SABRA HUMMUS GREEK OLIVE

■

■

SIMPLY OJ HIGH PULP 100%

■

■

STROHMAN BRD D'TAL PLAIN

■

■

71% KIDS

■

■ Figure 1

52 | CAL I FOR N I A G R OC E R

35–44

AGE

AFTER

STORE– WIDE KVIS

BISON COTT CHSE PINEAPPLE

25–34

29% NO KIDS

Figure 3

65+

Segmenting and Weighting the Value of Each Shopper or Household

Creating Targeted Offers (Intelligent Offers and Exclusive Offers)

Analyzing purchase dynamics enables manufacturers and retailers to quantify the value of each shopper based on basket size, number of trips, store penetration, and leading lifestyle indicators. Once values have been determined, high-level profiles are developed to classify each shopper by user type, such as:

Targeted offers help manufacturers and retailers capture greater return from every promotion-allocated dollar. Inmar’s most recent Shopper Behavior Study reported that 73 percent of shoppers want coupons loaded onto their store loyalty cards for regularly purchased items.

HEAVY USERS

MEDIUM–HEAVY USERS

MEDIUM–LIGHT USERS

LIGHT USERS

Similarly, 79 percent of shoppers say they would be more interested in receiving promotions from a brand if they felt those promotions were targeted to products they normally buy.

AVERAGE BASKET AMOUNT (ALL TRIPS) $69 $57 $50

Providing highly relevant, targeted promotions can increase redemption rates by 2.5-4.5x, while improving ROI by 10-20 percent.

$41

AVERAGE # OF SHOPPING TRIPS PER YEAR 73 56 41 29

AVERAGE # OF CATEGORIES PURCHASED PER YEAR 108 95 77 58

AVERAGE # OF CATEGORIES PURCHASED PER TRIP 9.8 8.5 7.5 6.4

Figure 4

Using actual shoppers’ purchase behavior, intent data and recent brand engagement metrics, manufacturers can run concurrent offers optimized against multiple, unique shopper segments. For example, within the same campaign, offers can be designed to drive trial among one segment and grow loyalty among others.

Continued on page 54 ▶

◀ Continued from page 53

Intelligent Offers Intelligent Offers are specific offers based on the shopper’s previous brand or category engagement. Digital delivery helps brands take a more strategic approach by aligning offers with shopper behaviors.

This granular approach empowers brands to: • Split national or retailer-specific promotions into multiple offers of varying face values, purchase requirements, and/or promoted UPCs based on actual shopper data • Simultaneously deliver these offers to carefully selected segments of the population • Maximize efficiency and optimize ROI by achieving multiple objectives with the same campaign

Studies have shown that 83 percent of consumers say they “completely or somewhat” trust the recommendations of friends or family. 2 Affinity, relevance and trust drives engagement among today’s advertising-averse shoppers. Social influencers cultivate, and activate, large, loyal audiences through creative and compelling storytelling that resonates with these readers. These influencers become digitally connected with their followers through the sharing of interest and lifestyles.

And, the numbers are showing that influencers – serving as trusted brand advocates – are moving the sales needle. For example: • 74% of shoppers use social media to make purchase decisions • 71% are more likely to make a purchase after a social recommendation

BRAND COMMITTED

MODERATORS

BRAND

BRAND LAPSED

BRAND NON-BUYERS

CATEGORY AFFINITY NON-BUYERS

UNTARGETED

OFFER: $0.75 OFF ANY 2

OFFER: $1.00 OFF ANY 1

OFFER: $1.50 OFF 160Z +

OFFER: $2.00 OFF ANY 1

OFFER: $3.00 OFF ANY 1

DEFAULT VALUE

Figure 5

• 90% trust recommendations from their peers 3

Digital Engagement Drives Loyalty and Loyalty Drives Sales

Exclusive Offers Exclusive Offers are even more granular and are typically developed to address specific objectives such as: • Find high affinity shoppers for new item trial • Re-engage lapsed buyers or retain/reward existing buyers after a product recall • Defend against a competitive launch • Move inventory during a key drive period, clear inventory, or retain shelf space • Grow cross-category engagement across a portfolio of brands

BRAND COMMITTED

BRAND MODERATORS

BRAND LAPSED

BRAND NON-BUYERS

CATEGORY AFFINITY NON-BUYERS

CUSTOM

OFFER: $0.75 OFF ANY 2

OFFER: $1.00 OFF ANY 1

NOT TARGETED

OFFER: $2.00 OFF ANY 1

NOT TARGETED

NOT TARGETED

Note: A similar approach can be deployed for retailers’ digital circulars.

Figure 6

Executing Influencer Marketing Influencer Marketing continues to drive value among digitallyconnected consumers. And with an average return of 2x on advertising spending across all categories, influencers are helping reshape shopper marketing.

Those at the center of this strategy – social influencers – are driving true engagement for retailers and brands by delivering relationshipbuilding content to millions of shoppers. This approach is continually validated through sales gains and improved loyalty.

54 | CAL I FOR N I A G R OC E R

• 61% have made a purchase based on a blog post

We all know that the real change agents are the shoppers. They are embracing all aspects of digital engagement and are willing to share their information to be better served. Other trends are validating the growth of digital engagement.

For example, digital coupons (Load-to-Card) have experienced five consecutive years of double-digit growth in share of redemption.

And, for the first time, shoppers in 2016 reported using Load-toCard offers more than Free-Standing Inserts (FSIs). For that same year share of redemption for FSIs was down 10 percent while share of redemption for Load-to-Card offers grew 20 percent with these offers setting a new record for rate of redemption.

Perhaps the most important trend among digitally-engaged shoppers is their spend rate, which is 33 percent more per trip than non-digitally engaged shoppers. In addition to building bigger baskets, the digitally-engaged are becoming more loyal and loyalty translates into more visits and less channel hopping.

Many manufacturers are willing to invest in retailer digital programs in order to test and learn. And rightly so given that some retailers report 19 percent larger baskets after targeting shoppers with highly-relevant, Load-to-Card offers based on actual purchase history.

This approach has also resulted in retailers seeing the number of shopper trips to their stores increase by as much as 38 percent – further validating the need to redefine the rules and the tools of digital engagement. ■

2

Nielsen, Winning Strategies for an Evolving Media Landscaping, 2015

3

VisionCritical, Nielsen, HubSpot, SproutSocial

Mark Arrington

Jeff Sigmen

Jake Fermanian

Lee Smith

Mark Foley

Rick Stewart

David Higginbotham

Rob Twyman

John Mastropaolo

Karl Wissmann

Post Consumer Brands Super King Markets Raleyâ&#x20AC;&#x2122;s

Stater Bros. Markets Chobani

Tim Murphy Costco Wholesale

Reyes Coca-Cola

Smart & Final Stores Susanville Supermarket IGA Whole Foods Market C & K Market

Creating

Cultures

of Leadership

By Drew Dudley

Imagine you gathered every one of your employees in a room, stood up and asked them, “by show of hands, how many of you in this room are comfortable with calling yourself a leader?”

How many hands do you think would shoot up?

Unfortunately, whatever number you’ve got in your head…it’s probably lower.

Significantly lower.

That’s not intended to belittle your employees or your personal leadership. It’s based on ten years of actually asking that question. I’ve posed it to over 1,000 different audiences around the world. They’ve represented a wide variety of ages, background, and industries. They’ve been comprised of all kinds of different roles and responsibilities: front-line service workers, middle management, and senior executives.

Continued on page 58 ▶

◀ Continued from page 57

How frequently do you think more than half the people in the room have raised their hands?

It’s been less than 1 percent of the time.

That makes me confident in saying that most of the people who work with you and for you are not comfortable calling themselves leaders.

That’s a problem, because decisions made by employees who see themselves as leaders are quicker, more creative, and more beneficial to the organization. You don’t have to create more leadership positions to build a better organization – but you do have to increase the number of people who engage in leadership behaviors.

Unfortunately, we’re fighting a culture that has taught us from a very young age that leadership is not something to which everyone can or should aspire, and so many people don’t. We internalize the idea that leadership is characterized by a level of charisma, power, money and influence present in only a small percentage of the population, and we’re not one of those select few.

The problem is, every time we use the word “just”, we’re telling people that who we are and what we’re doing is unimportant.

Every time we say we’re “just” something we’re giving people permission to expect less from us.

Our lives and workplaces are filled with extraordinary people who regularly diminish themselves in this way, and in the process, many convince themselves that it’s true. As such, I believe that one of the simplest but most powerful things we can do to enhance our personal leadership is to refuse to allow people to diminish themselves in front of us.

A commitment to banishing the word “just” from our vocabulary and our workplaces can have a profound impact. After all, in many organizations, the employees who have the most consistent contact with those outside the organization (and therefore play the biggest role in what people think about your organization) are often those who are paid the least.

And even those who take pride in their job and recognize they make valuable contributions do not miss the fact that their position has been judged less monetarily valuable. Often, no matter how hard we try, or how little sense it makes, we cannot avoid allowing our sense of self-worth to be tied to where we fall on the spectrum of financial compensation.

Each of us can play a small role in helping to counteract that phenomenon, and help ensure that the leadership of those who are too quick to say they’re “just” something is recognized by others, and by themselves.

We can’t assume the people who most regularly interact with our customers understand how profoundly important a leadership role they hold in our companies.

It’s a perspective that turns too many people into what I call “I’m just a…” employees.

Recently I was reminded how some of the most powerful impactful people in an organization see themselves as anything but.

Our organizations are filled with “I’m just a…” employees. “I’m just a cashier”; “I’m just a stockboy”; “I’m just middle management”. It’s likely that each one of us has said something similar about ourselves, or at the very least, what we were attempting to do: “I’m just trying to get through this paperwork”; “we just have to figure out a way to deal with this”.

You see, I’ve been incredibly lucky to be able to travel around the world and share ideas with audiences of all kinds. They’ve included some of the world’s largest and most well-known organizations, representing billions of dollars in sales. Some of those presentations were intimidating. Some were downright scary.

I’ve followed several C-suite executives around for a day simply recording the use of the word “just”. On average they use it 17 times a day. They use it in front of their employees. They used it in front of their kids. By doing it, they teach it.

But none compared to the day I was invited back to speak at my old high school.

I don’t care who you are, or how accomplished you’ve become: as soon as you walk through the doors of your old high school, you revert to the person you were in high school. And let’s just say high school wasn’t the easiest time in the world for me.

However, there was someone who made my difficult time at high school a little bit easier: a man by the name of Mr. Peters. Mr. Peters was the head custodian at our school, had been there for over 20 years, and was one of the most remarkably kind men with whom I have ever crossed paths. He knew every student’s name; he was a friend to those who were bullied; he congratulated people on their athletic achievements and on their acceptance to universities.

“

We have come to believe that our value is measured by how well we become one of the He even anonymously laid gifts and cards few.

"

in front of lockers when people lost family members. He took tremendous pleasure in the growth and happiness of the people after whom he mopped up.

As I waited in the Principal’s office before heading down to the presentation (an odd sensation at the age of 35), I was shocked to see Mr. Peters spot me through the window, beeline into the office and embrace me in a huge hug.

I told him I couldn’t believe he remembered me after so many years, but that I had thought of him often, and was so grateful for what he had added to my life during what had often been a scary time.

“Aw,” he said, “I’m just a janitor lucky enough to know you before you hit the big time.”

“Just a janitor.”

Our lives and workplaces are full of remarkable individuals like Mr. Peters who think like that. Who have convinced themselves that they have no right to think of themselves as leaders because of what job they’ve ended up doing, or where in the

corporate hierarchy they appear to have peaked. What’s more, according to the social rules we’ve accepted, Mr. Peters’ perspective makes total sense.

After all, I’d worked hard to get great grades and earn scholarships to good schools. I’d done the things necessary to win awards, get promotions, and eventually start my own company. I’d made a bunch of money. With every step in my career, there were fewer and fewer people like me.

The rules say that makes me more valuable, and that’s what he was acknowledging.

Those rules convince us it makes more sense to chase money and titles than it does to chase what Mr. Peters has achieved.

But what he has achieved needs to be better recognized. You see, thousands of students have walked the halls of my old high school.

Thousands of them have been touched by the actions of Mr. Peters. They have gone on to be doctors, lawyers, architects, engineers and CEOs – the type of jobs we’re taught deserve our admiration and respect.

And I’ve interviewed dozens of them as part of my work. I’ve sat down and asked them for their insights on leadership, life and business.

At some point in each interview, I ask each one, “hey…do you remember Mr. Peters?”

And every single one of them have smiled at the mere mention of his name. Twenty years after the last time they saw him.

That is a remarkable life. That is a life of leadership.

We have come to believe that our value is measured by how well we become one of the few. Our lives and our organizations are filled with leaders who have adopted that perspective, and as such, are unable to recognize their role as leaders.

What if we all worked to create a culture where it is recognized that the true measure of our life is how many people smile when our name is spoken twenty years down the road? What if we could aim to live a life, and create workplaces, where that objective is advanced as our primary motivation?

Continued on page 60 ▶

iStock

CAL I FO RNIA GRO CER | 59

◀ Continued from page 59

How do we identify and recognize the unsung leaders in our lives and organizations? I do it by asking this question: If I was not permitted to consider, wealth, position, or prestige – if those things were no longer part of the equation – who would I look up to?

Whose life would I truly admire.

For me, it would be Mr. Peters.

I think it’s important that when we identify the people in our lives and organizations who are living their lives and doing their jobs in ways that impress us, we take a moment to let them know they are leaders. We can’t just tell them that we value them, or that what they do matters, or that we care about them—we have to tell them that they are leaders to us.

Walk the halls of your offices or the aisles of your stores. Look for the cashier using a regular customer’s name and asking about their kids. Look for the employee stocking shelves at full speed even though no one’s watching. Notice the employee who stops what they’re doing to ask “can I help you”.

Watch for the employees who create moments of powerful interpersonal impact.

Who make people walk away feeling just a bit better.

Look for the people who think they’re “just” something. Make sure you tell them otherwise. Make clear that in your organization, leaders aren’t defined by titles, they’re defined by actions.

Leadership recognized is leadership created, and creating leadership is living leadership.

Live it and you teach it. ■

About the Author Drew Dudley was a featured presenter at this year’s Independent Operators Symposium in Kauai, Hawaii.

He is recognized as one of the most dynamic speakers on leadership in the world and has addressed more than 250,000 people worldwide.

www.supervalu.com

By Len Lewis

You would be hard pressed today to find a retailer in any sector that is not involved in some form of digital retailing in order to enhance the shopping experience and the customer life cycle.

But as Michael Klein, Director of Industry Strategy and Marketing for Retail, Travel and CPG at Adobe, emphasized, “the devil is in the details.”

Klein is as much a proponent of physical retailing as he is its digital counterpart, noting that 90 percent of retailing in the U.S. is still done through brick and mortar.

The firm’s U.S. Online Grocery Market Update last March found that by 2020, 56 percent of consumers are likely to purchase groceries digitally, accounting for $129 billion in sales.

“This may have shifted in the past year,” Klein said, “but it’s still no less than 85 percent and in grocery, digital is still less than five percent of the business.”

Moreover, 56 percent of store purchases are influenced by digital.

Studies by eMarketer and Forrester Research also reported that digital was, which is also responsible for a 13 percent increase in store spending.

“A category like appliances is still a traditional transaction since a dishwasher or refrigerator is typically not being delivered by UPS. And in the spirit of convenience, most customers can’t always wait for someone to deliver the milk,” he said.

However, brick and mortar stores are still problematic for some consumers on several counts. According to a recent survey by eMarketer, 71 percent are frustrated by their inability to compare prices at physical locations and two-thirds still complain about long lines at the checkout.

However, the industry still has to evolve in order to address the many nuances of the digital business so it can deliver a seamless and frictionless customer experience.

“I believe that all retailers have recognized the true potential of digital retail and I would expect the numbers to change but it depends on how it’s approached,” Klein said, noting that Amazon accounted for 53 percent of e-commerce growth in 2016.

Continued on page 64 ▶

CAL I FO RNIA GRO CER | 63

◀ Continued from page 63

Services like buy online and pick-up in store will certainly proliferate along with the ability to have a virtual shopping list filled by the press of a button, he said.

“At home, we use a site called allrecipes.com which is integrated with Amazon,” Klein said. “With the push of a button, you can have all the groceries for a particular recipe delivered by Amazon. And the future of artificial intelligence will understand what you already have in a cupboard so you’re not buying what you already have.”

As Klein noted in a recent posting on Adobe’s website: “Every retailer should focus on delivering a consistent and cohesive omnichannel experience. But, more and more, it’s becoming clear that sophisticated shoppers want more. They want fluidity between all touchpoints – whether digital or physical – and it’s raising the bar for omnichannel marketing.”

Content that is centrally managed and optimized, alongside the ability to automatically edit and resize images and copy based on the channel, are two technologies that help create fluid experiences at scale, he added.

“Fluid experiences also help retailers maximize the unique capabilities of any platform – without added legwork,” Klein said. “For example, a department store promoting its semiannual runway event may promote a new collection to its customers via email.

The same campaign content could then automatically be positioned for Facebook, web content, or Twitter and provide detailed personal and relevant information about the promotion – including event timing, accessible locations, and specific offers,” he added.

But a digital revolution is not something that will happen overnight since customer behavior doesn’t shift that rapidly.

“Every retailer should focus on delivering a consistent and cohesive omnichannel experience.

But, more and more, it’s becoming clear that sophisticated shoppers want more.”

Designing fluid experiences enables retailers to create and manage omnichannel experiences across all touchpoints – including instore associate apps, social media platforms, physical signage, Internet of Things (IoT) devices, and smart screens, he stated.

“We have to explore ways to make the physical and digital journey more seamless for consumers,” he noted.

“Retailers doing this well are the ones asking the hard question – specifically ‘Are we making the customer’s journey better by solving a problem today, not just the attitude

that they need to do something in digital to be innovative?’ These are two different conversations.”

Meanwhile, companies have launched some interesting projects using technology like image recognition and beacons. But Klein conceded that their performance varies.

“No one has yet turned retailing upside down. But when you see an example like allrecipes.com with Amazon,” he said.

“You’re seeing an interesting way of solving a customer problem in the digital space that could inspire future purchases.”

Klein noted that mobile marketing is and will continue to spearhead digital’s inroads at retail, according to Adobe’s Digital Insights Report, which tracked all e-commerce sales in North America.

In the company’s “2017 Holiday Predictions Report” consumers said they intended to spend 55 percent of their holiday budgets online, compared with 53 percent last year.

Breaking down share of visits by device, the study found that 45 percent of visits will take place on a smartphone, compared with 39 percent a year earlier. Another 45 percent of visits will be on desktops with only 9 percent on tablets.

A more significant comparison, and one which clearly shows the direction consumers are taking, is against 2015 when only about 33 percent of visits were on smartphones and 55 percent were on desktops.

“It’s obvious that any retailer who doesn’t have a good mobile strategy is going to be facing significant challenges.”

Klein said. “Mobile is eclipsing desktop, especially if you combine smartphone and tablet under the mobile umbrella. Everyone has numerous apps on their smartphone and retailers can build one and get people to download it.

But, Klein said, consumers may never open it and eventually disgard it because they’re only dealing with a particular retailer on an event like Black Friday. Or, they may only use an app for a purchase like furniture or home remodeling every few years.

On the other hand, grocery is a regular purchase.

“We eat all the time and that content is used on our phones,” Klein said. “If I want my loyalty points and e-coupons, I’m going to keep the mobile app. This gives you a clear advantage over retailers who only engage with customers only a few times a year.”

The question that remains is how to optimize the mobile shopping experience.

That’s where Adobe enters the picture.

“Retailers need to leverage a unified customer profile that goes across all touch points whether a customer is on a desktop

Ocado in Europe, and in Canada where Loblaws is offering a subscription to their loyalty card members that is similar to Amazon Prime.

But there are common mistakes retailers make when looking at integration of brick and mortar with digital.

There are a lot of mechanisms in managing the supply chain, according to Klein.

“Retailers have to determine how to bring new teams and processes into a legacy business like grocery that relies on perishables.”

One way is to focus on combining the best of both worlds.

“I first heard the term “phygital” in 2015.

It’s about using the best of physical retailing and digital together,” he said, pointing to the relationship between the Casino chain with

“If we haven’t made their day easier or shown them how to make it easier, they won’t adopt the technology and the program is going to die,” he said.

“It always starts at the top,” he said. “So, if you see a good alignment between store operations and the CMO, there’s usually a chief digital officer.”

“The technology is only one piece.

It’s about how to reshape processes and shift organizations.” or mobile phone,” he said. “The technology is only one piece. It’s about how to reshape processes and shift organizations. As operators in a traditional legacy business, grocery is going to see that more and more over next couple of years.”

The flip side is that when systems are not intuitive enough, companies run the risk of having a disconnect at the store associate level – whether it’s a person with a high touch retailer or the clerk in a grocery store.

Additionally, retailers need to focus digital efforts on education at the customer and store associate level, Klein pointed out.

“You have to understand what scalability means in that environment,” he suggested.

“We’ve seen many exciting programs that were aligned at the corporate level and everyone at headquarters thought things were great.

“But when they rolled out the program two things happened – first, the digital tool was not that intuitive and while it may be changing the shopping paradigm, it does nothing to change the experience.”

iStock

That kind of education depends on the type of program retailers have put together.

“If you’re going to hand them device like a phone or iPad, put a program in place that allows associates to understand how to use it properly for their benefit as well as the customers,” he said.

When it comes to redesigning and enhancing the customer experience with promotions, 65 percent of those surveyed by Adobe noted that discounts and promotions were not sufficiently personalized. Which raises the question regarding at what point does customization become overly intrusive and even unnecessary.

Continued on page 66 ▶

CAL I FO RNIA GRO CER | 65

◀ Continued from page 65

“It’s that fine line of being creepy,” he said.

“The information we have is that about 70 percent of consumers say they would like to receive personalized marketing and information.”

Michael Klein was the featured presenter at the December CGA Supplier Executive Council meeting in Napa, Calif.

The challenge Klein believes is in what retailers don’t see – that only about 30 percent are actually getting what they want.

“There’s so much transactional information in grocery that we can infer quite a bit about consumer behaviors,” he said. “You have to respect people’s privacy and not get creepy.

If someone has a mobile app and comes into your store where someone greets them with an iPad and says ‘I notice you were looking at a product online and you have a wife of 25 years.’ That’s too much. You shouldn’t bring that into the conversation.”

Klein says it’s a matter of when to use the information that’s been shared so that a retailer or supplier can have a relevant, personalized conversation with the consumer that’s trying to patronize your brand.

“Millennials and GenZ are willing to be more transparent with information, but if they share that information, they expect you to respect who they are,” he said, noting in the latter group 26 percent spend their own money on food and beverages and 77 percent influence family spending. And personalization, along with speed and service, is the way for retailers to remain relevant.

“I’ll give you one example,” Klein said.

“I patronize a couple of department stores regularly and despite all the transactional information, one of them still doesn’t treat me as a male. They still believe their primary customer is female – even though they have my personal information.

“They simply have not leveraged that data to create personalized experiences for me,” he said, noting that being a one-size-fits all retailer is not the way to go. ■

ADVERTISER INDEX PAGE COMPANY

PHONE

EMAIL

WEBSITE

bdonnelly@agilenceinc.com

agilenceinc.com

46

Agilence

856-366-1200

29, 49

Albertsons Companies

925-467-3000

32

Bimbo

916-456-3863

wcrocker@bbumail.com

bimbobakeriesusa.com

17

C & K Markets

541-469-3113

ckcorporatecomments. survey.marketforce.com

ckmarket.com

4

C&S Wholesale Grocers, Inc.

916-373-4396

pmiller@cswg.com

cswg.com

BC

Certified Federal Credit Union

909-261-4065

ghurd@vonscu.com

vonsefcu.com

48

Front Line Safety

909-593-9990

cathy@flsafety.com

flsafety.com

55

Gelson's Markets

818-906-5709

hnelson@gelsons.com

gelsons.com

30

Natural Product Expo

866-458-4935

expowest@newhope.com

expowest.com

IBC Nestlé Purina Petcare

314-982-1000

joe.toscano@nestle.purina.com

purina.com

IFC Retail Marketing Services

800-252-4613

mdodson@retailms.net

cartretrieval.net

18

Smart & Final Stores

323-869-7500

customer.relations.smartandfinal.com

smartandfinal.com

35

Super King

323-604-1601

superking@superkingmarket.com

superkingmarket.com

61

SUPERVALU

323-264-5200

customercare@unifiedgrocers.com

supervalu.com

6

TruGrocer Federal Credit Union

208-385-5273

cdemaray@trugrocer.com

supervalu.com

66 | CAL I FOR N I A G R OC E R

albertsons.com

MOMMY BLOGGER

Meal Planning Madness: A Week in the Life L A R A F O N G B A L DW I N BLOGGER

Every Sunday I have the virtuous vision of planning and shopping for my family’s meals for the entire week.

The most persistent question in my house at any given time: What’s for dinner? In my fantasies, I answer this question only once a week, through a strategic, efficient system of “meal planning.” My ambitious plan usually goes something like this: 1. I will plan for seven unique, delicious, healthy dinners! Maybe I’ll even try a new recipe!

2. I will make a detailed, complete list of ingredients, go to the store, and buy groceries for the whole week!

3. I will wash, chop, and prepare as much food ahead of time as possible to make dinner prep a breeze! We will eat homemade, healthy food every night!

Then life happens. Here’s the rundown of how dinners came to be this week.

Sunday: I make it to the store with enough time to map out a few dinners for the week ahead. Wild salmon is on sale and it’s one of the few proteins both my kids will eat.

Winner, winner, salmon dinner.

Monday: I make a moderate effort to observe “Meatless Monday,” and often use this as an opportunity to experiment with new recipes. Unfortunately, my quinoa chickpea creation is not a hit with the rest of my family, and the leftovers end up as my lunch for the week.

Tuesday: Discouraged from last night’s flop I make an old standby: spaghetti and salad.

Cheap. Easy. Everyone loves it. Mom win.

Wednesday: Normally I would swing by the store for a mid-week grocery refresh, but swim lessons ran late and my toddler skipped his nap, so I send my husband to get takeout from the local burrito joint.

Thursday: I’ve fallen into the habit of using a meal delivery service for dinner on especially busy days. This little slice of luxury costs about the same as going out to a casual restaurant, and I can order it quickly on my phone the night before. Dinner is delivered and ready to eat by 5pm.

Friday: Our weekly pizza night. My husband and I do our usual flip-flopping between making our own and ordering delivery. I feel guilty from the last two nights of not cooking and my vote is really the only one that counts, so homemade wins.

Saturday: After an afternoon spent at the mall the kids beg to go to their favorite burger place (which is only a couple steps up from having a ball pit). We give in. At least I can order a glass of wine while they color on their placemats.

Finally tally: Four homemade dinners, two nights of takeout, one restaurant meal. Hey, tomorrow is Sunday; it’s time to make my master meal plan! ■

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