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California

Are you a hunter or a farmer? PAGE 40

Why collaboration matters PAGE 46

2016, ISSUE 5

CALIFORNIA GROCERS ASSOCIATION

supermarkets battle for share of stomach PAGE 52

RESHAPING RETAIL CGA STRATEGIC

CONFERENCE 2016

new look, new content


AR YO CONTENTS | ISSUE 5

COLUMNS

FEATURES

HUNo FAR

Editor’s Note New Look, New Content. . . . . . . . . . . . . . . . 3 President’s Message Protecting Our Investment.. . . . . . . . . . . . . 5

40

Chairman’s Message Reshaping the Landscape. . . . . . . . . . . . . . . 8

Are You a Hunter or a Farmer? Are you a hunter or a farmer? In this fast paced world of retailing, it may be the difference between success and failure. A noted author and researcher explains how being better and faster may keep your company doors open.

Viewpoint DIY Earthquakes. . . . . . . . . . . . . . . . . . . . . . 14 Government Relations From Bugs to Windshields. . . . . . . . . . . . . 28

PRESENTING Trust

supermarkets battle for

Listening

46

Growth

The Knowns and Unknowns with Bag Law in California.. . . . . . . . . . . . 31

Alignment

SHARE STOMACH of

Why Collaboration Matters

Working more closely with your trading partners builds the kind of relationships will lead to better sales, better service and better overall results, reports one of the country’s largest research firms. So what’s the problem?

Capitol Insider New Term Limits, New Opportunities. . . . . . . . . . . . . . . . . . . . 32

Do you have the instinc adapting to whatever env a farmer, toiling in the f Washington Report year-after-year and Overtime Rule Significantly

Inside the Beltway National GMO Disclosure: Federal Legislation (Finally) Passed, Now What?. . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

Impacts Grocers. . . . . . . . . . . . . . . . . . . . . . . 38

DEPARTMENTS

CGA News. . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

15 Minutes With… Tom Stenzel United Fresh Produce Assn.. . . . . . . . . . . 24

52 Supermarkets Battle for Share of Stomach Competition has always been a part of the retail food business but the battle for share of stomach has never been more intense, according to the Food Institute.

58 68

COMPETITION

Lessons Learned

Donna Giordano, Ralphs Grocery Co., credits lifelong lessons for her rise to the top of one of California’s premier supermarket chains.

The Truth About Independents A number of benefits that independent grocers have traditionally “owned” are being actively challenged by larger retailers. Why?

Member Profile Vintage Grocers. . . . . . . . . . . . . . . . . . . . . . . 80 Know the Law Practical Advice on Avoiding Prop. 65 Enforcement. . . . . . . . . . . . . . . . . . 84

New Department: OUTSIDE THE BOX

20

New Retail Perspectives

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CAL I FO RNIA GRO CER | 1


CGA | BOARD OF DIRECTORS

EXECUTIVE COMMITTEE

CHAIRMAN APPOINTMENTS Independent Operator Committee Chair DIRECTORS

CALIFORNIA GROCERS ASSOCIATION

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

Chairman of the Board Kevin Konkel Raley’s

Second Vice Chair Jim Wallace Albertsons Companies, Inc.

Secretary Kendra Doyel Ralphs Grocery Company

First Vice Chair Diana Godfrey Smart and Final Stores

Treasurer Bob Parriott Twain Harte Market

Immediate Past Chair Joe Falvey Unified Grocers, Inc.

Kevin Arceneaux Mondelez International Inc.

Phil Miller C&S Wholesale Grocers

Dave Jones Kellogg Company

Raul Aguilar Anheuser-Busch InBev

Willie Crocker Bimbo Bakeries USA

Eric Lindberg, Jr. Grocery Outlet, Inc.

Nicole Pesco Save Mart Supermarkets

Jon Alden Jelly Belly Candy Co.

Steve Dietz Tony’s Fine Foods

Dave Madden MillerCoors

Renee Amen Super A Foods

Jen Fulton PepsiCo Inc.

Jonathan Mayes Albertsons Companies, Inc.

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

Teresa Anaya Northgate Gonzalez Markets

Ted Gardner Rio Ranch Markets

Joe McDonnell Campbell Soup Company

Joe Angulo El Super (Bodega Latina)

Jon Giannini Nutricion Fundamental, Inc.

Mark McLean CROSSMARK

Rich Arnold Oberto Brands

Dick Gong G and G Supermarket, Inc.

Casey McQuaid E and J Gallo Winery

Denny Belcastro Kimberly-Clark Corp.

Robin Graf Whole Foods Market

Mario Mediati The Clorox Company

Bob Bukovec Tyson Foods, Inc.

Ryan Jost Procter and Gamble

Lynn Melillo Bristol Farms

Paul Cooke Nestlé Purina PetCare

Arthur D. Jackson, Jr. Costco Wholesale

Dan Meyer Stater Bros. Markets

Brent Cotten The Hershey Company

Michel LeClerc North State Grocery Inc.

Hee-Sook Nelson Gelson’s Markets

President/CEO Ronald Fong

Senior Director, Government Relations Aaron Moreno

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

Dennis Darling Foods Etc.

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

Senior Director, Events and Sponsorship Beth Wright

Senior Vice President, Business Development and Marketing Doug Scholz

Director, CGA Educational Foundation Brianne Page

Vice President, Communications Dave Heylen

Director, Administration Lesley Hall

Executive Director, CGA Educational Foundation Shiloh London, CFRE

Controller Gary Brewer

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 and does not include CGA Buyers’ Guide. © 2016 California Grocers Association

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

Publisher Ronald Fong rfong@cagrocers.com Editor Dave Heylen dheylen@cagrocers.com For advertising information contact: Bill Kaprelian bkaprelian@cagrocers.com


EDITOR’S NOTE

New look, new content

DAV E H EY L EN V ICE PR ES IDEN T, COMMUN ICATIO NS

California Grocer unveils its new look and feel, with new features and industry commentary. Welcome to the new California Grocer! I’m pleased to launch the brand new California Grocer magazine. My goal in redesigning the publication was to simplify its look, make it easier and more enjoyable to read, all the while striving to maintain the publication’s integrity. To begin with, let me tell you what we won’t be changing. California Grocer will continue to provide grocery industry insights and news you have come to rely on. Features that address timely issues and trends, departments that analyze federal, state and local issues and, of course, essential local and state government relations information you need to operate in the nation’s most heavily regulated state. Along with our new look, we’ve also improved our editorial content. I’ve created a new department – Outside the Box – on Page 20 that shares retailing concepts outside grocery that hopefully spark new ideas for your company.

I’ve expanded our editorial team to include a variety of seasoned industry writers, along with new contributors who will provide greater diversity and bring new perspective to the publication. As always you can also read California Grocer on-line at www.cagrocers.com. CGA members are encouraged to provide the URL for our digital publication to their company associates. It’s a quick and affordable way for your employees to stay current on issues impacting the California grocery industry. Above all, we value our dedicated readers and advertisers and hope you will enjoy our new look publication. I encourage you to read this month’s California Grocer cover to cover and welcome your feedback. Let me know how we’re doing and suggest ways that we can improve. Email me at dheylen@cagrocers.com. We look forward to hearing from you. Enjoy!

CAL I FO RNIA GRO CER | 3


by

DRIVING CATEGORY GROWTH

Trusted iconic brands and expert category management delivering sustainable growth.

hersheys.com


PRESIDENT’S MESSAGE

protecting our investment

RO N F O N G PR ES IDEN T AN D CEO CALIFOR N IA GR OCER S AS SO CIATIO N

The effects of the upcoming November General Election will be felt for years to come, as many see this election as a watershed that could change the direction of the country as a whole. With the two parties in Washington offering starkly different visions of governance, the outcomes of the presidential and congressional elections are certain to be felt well beyond the beltway.

Once our industry decided that a uniform, statewide ban on these bags was best in the long run for all parties, we went allin and invested a significant amount of human resources to see this policy across the legislative finish line.

With all the tumult of the federal races, we cannot forget that Californians and specifically the grocery industry face an epochal election with the presence of Proposition 67 on the ballot.

The commitment to legislative passage was only the first phase of CGA’s investment into the law’s passage. Beyond the halls of the statehouse, we worked with various stakeholders around the state to convince local governments to pass similar plastic bag bans.

For those who may not know, Proposition 67 is a referendum on SB 270, the state ban on single-use plastic bags passed by the California Legislature in 2014. That measure was a hard fought victory for CGA and our allies in the retail and environmental communities. As with any landmark legislation (California was the first state in the nation to pass a statewide ban on these bags), it took several attempts before enough legislators were convinced that this was a policy that made sense to businesses, consumers, and the environment.

At press time, there are over 150 jurisdictions across California that have passed bans modeled after the original SB 270. It is worth noting that more than 40 percent of Californians have been living with a ban on the environmentally harmful single-use plastic bag. Our investment in this policy has continued to grow as we work now to protect our policy investments that resulted in the passage of SB 270 and the many local bans across the state. It is

impossible to overstate how important the passage of Proposition 67 is to California grocers. I urge CGA members to not only vote for the measure, but to invest time educating your employees on the importance this initiative is to you and your business. This will ensure that your frontline associates will provide accurate information regarding this important legislation when responding to customer inquiries. Face-to-face, one-on-one advocacy is more effective than any campaign mailer, or 30-second soundbite on television. Let’s all come together on November 8th to protect our investment in ourselves, our customers, and our environment, and pass Proposition 67. We’ve invested too much not to. ■

iStock CAL I FO RNIA GRO CER | 5


©2011 The Coca-Cola Company. “Coca-Cola,” “open happiness” and the Contour Bottle are registered trademarks of The Coca-Cola Company.


CHAIRMAN’S MESSAGE

reshaping the landscape

K EV I N KO N K EL R ALE Y’ S

The November election is just around the corner. Educating your associates and customers regarding two key propositions is paramount. On a recent retail road trip with members of the Raley’s team, our travels took us to Washington D.C. While there, we took the opportunity to be tourists and soak in the sights and appreciate the significances our nation’s capital. It was my first time in DC and the team was most gracious, putting store visits on hold for an afternoon to appreciate all this area represents. While there I was struck by the history. I was impacted most by Arlington National Cemetery and the Lincoln Memorial – 624 acres and over 400,000 souls of those who changed the landscape of America forever. The service and sacrifice while standing silently at Arlington amidst the hallowed ground is palpable, humbling and deeply appreciated. People called to serve this great nation have made America the greatest nation on earth. It is my sincerest hope (perhaps naïve) that sacrificial service is the ultimate reason American citizens step into the political process in the hope of being elected to these significant and in many cases, thankless jobs. I also believe they enter 8 | CAL I FOR N I A G R OC E R

hoping to shape and reshape our country in ways big and small that will serve their constituents needs and desires. Advocating on behalf of the grocery industry at the state and local level is the mission of the California Grocers Association and we are working hard to represent and protect the interests of the industry by influencing leaders, decision makers and those elected to serve. My time in our nation’s capital reminded me of the importance of being involved in the political process. As industry leaders and business owners, those of us in CGA have the opportunity to be a resource for our team members and to influence legislation affecting our businesses. There are two propositions on the November ballot you probably know about, but not everyone in the general public will be familiar with them. More significantly, the two propositions can be confusing without some context. I encourage you to familiarize yourself with the propositions details by logging on to the CGA website (www.cagrocers. com) and visiting the Government Relations page where you’ll find the local

policy brief titled “Carryout Bags.” We can be good stewards of the political process by sharing information about these issues with our team members and customers.

In a nutshell:

Proposition 67 gives voters the chance to reaffirm the environmentally-friendly state law that eliminates single-use plastic carryout bags at the grocery checkout. Voting yes will empower grocers to distribute reusable bags and recyclable paper bags and recover the associated manufacturing costs with a minimal 10-cent charge per bag. If passed, Proposition 65 will require grocers to give the state the minimal 10-cent charge they collect as a tax for offering reusable bags and recyclable paper bags. A no vote will allow grocers to continue offering those economical bag solutions to customers who may forget to bring their reusable bags to the store. Like us, customers have busy lives and don’t always have the time to fully understand the ballot issues that affect them. This is our industry’s chance to educate them and answer their questions. It’s another way we can demonstrate to our customers that our companies are trusted information sources. Share the details about these two ballot issues with your store team leaders,


CHAIRMAN’S MESSAGE

team members and customers so they understand the finer points. Consider posting it on your company intranet and in employee break rooms as well. While these two proposition are significant, there are many others the CGA is lobbying on behalf of its members. Stay informed, involved and prepared to make your voice heard on the issues that matter to you.

As crazy as this election season has been, your right and duty to exercise your freedoWm to reshape the present landscape is quickly approaching. As you cast your vote, be reminded of the sacrifice paid for our freedom and that you are reshaping the future landscape of our industry and great nation. ■

“Advocating on behalf of the grocery industry at the state and local level is the mission of the California Grocers Association...”

Give your business more than canned solutions. Whether it’s questions about payment card data compliance, cybersecurity, tax incentives, or transaction services, our industry expertise means you spend more time on what matters and less time educating us on your business. Put our knowledge to work for you.

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CAL I FO RNIA GRO CER | 9


VIEWPOINT

D-I-Y EARTHQUAKES

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

I was in San Francisco recently, enjoying a bike ride near the Ferry Building, and couldn’t help but think of my first visit there back in the summer of 1973. A lot was different back then. My hair was longer and thicker and, to be honest, a lot redder. I was thinner. And when I first stood at the end of Market Street, there was an enormous elevated highway that served to, in many ways, block the city from one of its most distinctive and differentiated features. That elevated highway isn’t there anymore. Much of it got knocked down after the earthquake of 1989, which allowed the city to do what it should’ve done years earlier, if only for aesthetic reasons – pull the rest of it down, and integrate the waterfront into the city’s daily life in a way that was not possible when the highway stood. Ironically, they’re doing the same thing in Seattle these days, pulling down a viaduct that stands between the city and the waterfront and replacing it, at enormous expenses, with a tunnel. I’d be willing to bet that they would’ve preferred it if an earthquake had come along and made the decision for them – it is a lot easier to decide to reshape a city’s

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

infrastructure when an act of God gets the ball rolling. But that’s rarely how things work out. Most of the time, if you are going to be relevant to your community and achieve your potential, you have to do it on your own. You have to be ambitious, you have to have a vision, you have to be willing to take chances, and you have to be aggressive in the pursuit of your goals. That’s the way it works with planning the city of the future. And that’s how it works with retailing – especially these days, when competition is coming from all different directions and consumer desires and needs are shifting as new generations begin to occupy the center of the retail target. Let’s face it. Amazon, with its desire to create a kind of ecosystem in which it is the first, best choice for practically everything, has changed the retailing landscape in fundamental ways, affecting both consumers and sellers. And now, with the acquisition of Jet.com by Walmart for $3.3 billion, there is certainly the probability that e-grocery competition

is going to get a lot tougher and a lot louder – even people who have no desire to shop for groceries online are going to be influenced by the inevitable marketing cacophony created by Amazon and Walmart. So how should traditional grocers respond and react? Well, to begin with, I think that companies shouldn’t think of themselves as being “traditional,” and have to do their best not to respond and react to anything. As retailers consider the future, it seems to me that they have to reshape their stores by compiling and analyzing data about their customers, thinking creatively about how their visions need to evolve, and then, taking risks, explore new possibilities. We already can see this happening in the marketplace. Look at Kroger’s Main and Vine store, in Gig Harbor, Wash., just south of Seattle. This is a store that is roughly two-thirds devoted to fresh foods, with an open floor plan that creates a far more integrated feel than many stores. Packaged grocery has been pushed over to one side of the store, and my suspicion is that they could actually close much of that off and simply make all that available online.

Continued on page 14 ▶


VIEWPOINT

◀ Continued from page 12

Meanwhile, Kroger has acquired Roundy’s, which gives it the upmarket, fresh food-driven Mariano’s format to play with. It has made an investment in Colorado-based Lucky’s Market, which has been expanding around the country

of the considerable infrastructure and bureaucracy. I’m sure that this was an enormous and uneasy leap of faith for the company, but I think it was the only way to really innovate. Massachusetts-based Roche

“You have to be ambitious, you have to have a vision, you have to be willing to take chances…” and describes its stores as “organic for the 99 percent.” Kroger already has Harris Teeter in its stable of chains, and reportedly tried to acquire The Fresh Market. And, it has been rolling out its ClickList click-andcollect e-commerce service. It seems clear that Kroger is placing lots of bets, and it is impossible to say that one of these formats or another will be the company’s future. It’s likely to be some combination of all of the above, or maybe something else completely. On the east coast, where I live most of the year, Ahold (now Ahold Delhaize) created a skunkworks to develop a small urban format called bfresh, which has been performing well in Boston – and it has been doing so by being independent

Bros., which traditionally has been as suburban a company as one can imagine, opened a downtown Boston store that has been performing like gangbusters. In both cases, it was a matter of going way outside their comfort zones. I think we’re going to see a lot more of that... and the retailers that do not do this will be the ones who will find themselves flirting with irrelevance and potential obsolescence.

covers facing out, reader reviews posted under each one, and with a fair amount of space devoted to the various tech products – Kindles, Echo’s, Fire TVs – that ultimately have been created to make it easier for people to buy stuff on Amazon.) My friend said that the most interesting thing about this store is that it establishes a kind of template that could also be used to sell toys, office supplies or even groceries. In the latter case, he said, the physical store could be used to sell fresh food, with an easily accessible loading dock where people could pick up packaged groceries that have been ordered online. All this could happen. Or, something else could... because the notion of reshaping retail isn’t a concept with an end point. It is an ongoing effort, that never will end. It can’t. Essentially, companies have to create their own earthquakes. ■

I was talking to a friend of mine about this subject the other day; it is someone who has been in retailing for a long time and has shaped and reshaped his share of companies. He told me that one of the most innovative retail stores he’s seen in a long time is the new Amazon Books store in Seattle…and not just because of how it sells books. (The store sells only bestsellers as rated on Amazon’s website, with book

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


CAL I FO RNIA GRO CER | 15


CGA NEWS SE C T OU RS SMART AND FI NAL STORES EXTRA! On Thursday August 11, Smart & Final Stores President and CEO DaveHirz and his executive team lead CGA Supplier Executive Council (SEC) members on a store tour of Smart & Final Extra! – their new prototype –and shared how purchasing 33 new locations has dramatically impacted company operations. Attendees also heard first-hand about Smart & Final's

new initiatives, efficiencies and differences between them and other retailers. This was the third SEC tour conducted this year. Previous tours included Draeger's Market and Vallarta Supermarkets. To learn more about becoming an SEC member, e-mail Sunny Porter at sporter@cagrocers.com or call (916) 448-3545.

C G A R E LE ASES CALI FORNI A EMPLOYMENT AND LA B OR LAW TOOLKI T More than 90 grocery industry representatives recently participated in two regional CGA Grocery Compliance Toolkit Seminars focused on California’s complex employment and labor law. CGA contracted with the law firm of Rogers Joseph O’Donnell to create the comprehensive, user friendly employment and labor law compliance manual. In addition to the two half day seminars, representatives from the firm also conducted a one-hour webinar. “California grocers face an increasingly complicated landscape of employer requirements,” said CGA President Ron Fong. “Making mistakes can be costly to unwind, even when errors are technical in nature. Our new toolkit will help both retailers and suppliers understand many of the obligations that need to be made as a business owner or operator in California.”

NEW MEMBERS CGA welcomes the following member:

King Williams LLP 520 Capitol Mall Ste 750 Sacramento, CA 95814-4716 Contact person: Audrey Patterson, Attorney E-mail: apatterson@kingwilliamslaw.com Phone: (916) 379-7530 Website: www.kingwilliamslaw.com

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

Topics covered in the toolkit include: wage and hour compliance; exempt vs. non-exempt employees; meal and rest issues; employee seating; wage statements; protected employee leave and other time off work; and how to handle employee complaints. The employment and labor law toolkit is the third in a series that address key grocery industry compliance issues. CGA previously released toolkits on hazardous waste removal and the Americans With Disabilities Act. CGA members can view all three compliance webinars and download the accompanying manuals at www.cagrocers.com.


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OUTSIDE THE BOX N EW RETAIL PERS PECTIV ES

S C DAH ZOE OL

The big prizes are sophomores, juniors and graduating seniors, who may be setting up their first apartments. Retailers like Target and Bed, Bath and Beyond are enabling students to set up graduation wish lists – like a wedding registry – and Best Buy is offering special promotions for all college kids year-round.

BR EA KFA S T B Y T E S 1 1 0 0011 11 1 1 0101 11 0101 10 1 1 0 1 010 0 0 0 0 1 1 1 101 1 0 0 10 0 1

1

1

1

If you’re wondering how to approach Generation Z, it’s time you went back to school. While many retailers are trying to sell college-age kids laptops and mini-fridges for dorm rooms, others want to make them lifelong repeat customers.

0 1 1 11 11 0 0 0 01 1 0

Remember when breakfast was the most important meal of the day – now it’s the most technologically advanced. Researchers at Columbia University have developed a 3D food printer capable of cooking and printing multiple ingredients. Food is considered the “killer app” of 3D printing and researchers started using things like cookie dough, cheese, eggs, flour, chocolate and other materials. The printer uses syringes to extrude food gels or pastes in specific locations depending on the software’s “recipe.” Then, an infrared cooking element cooks different parts at different times. No need to make space in the cereal aisle for a 3D printer just yet.

Target even has "college stylists" that create YouTube videos on dorm design and is using the messaging app Kik for chatbots that suggest products.

BRAND DISLOYALTY Thanks to Millennial shoppers, brand loyalty is no longer the endgame. Department store operator Lord and Taylor decided to take advantage of this group’s disloyalty by working with vendors to create “curated” spaces in stores that are flexible, easily changed and less brand specific.

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

SHOPPING ISN’T WHAT IT USED TO BE– just ask department store operators who are wrestling with how to turn stores into more of a destination. The latest include pampering guests with spas, restaurants and exclusive selections. As Saks Fifth Avenue President Marc Metrick points out: They’ll shop here, eat here, get their hair done here and meet their friends here.” The venerable Macy’s is also reemphasizing the beauty business since Amazon is expected to unseat the chain next year as the largest online clothing seller.


OUTSIDE THE BOX

BOLDLY GOING...

Turns out that problems in the hotel business aren’t that different from retailing. Just ask CitizenM, which operates hotels in New York and Europe and was looking for simple, affordable luxury and to eliminate frustrating problems like long check-in lines, hidden costs, low water pressure in the showers and even finding the right light switch. In short, everything that irritates customers. What the hotelier came up with was: One room type with one price; one-minute self check-in; luxury beds; rain showers and a tablet that controls everything in the room. But don’t expect to find chocolates on the pillow.

B GU E O ES UR T!

FEELING BLUE? Just when you thought there was nothing new, along comes “new blue” the hot new color for food and beverages. The new pigment called YInMn Blue (named after its key elements, Yttrium, Indium and Manganese), was discovered by researchers at Oregon State University and is now commercially available from the Shepherd Colour Company. A Spanish company called Gik has introduced a bright blue wine that sells for about $11 a bottle. Then there’s the “Smurf Latte”, a blue coffee-free drink at the Matcha Mylkbar in Melbourne, Australia. It contains algae, lemon, ginger agave and coconut milk and supposedly tastes like seaweed. All this for a mere $8.

If you want a glimpse of the future of interactive advertising and marketing, consider heading to Comic-Con International, the pop culture, comic book, sci-fi and fantasy event that draws over 130,000 visitors annually to San Diego. Aside from the usual array of costumed characters and rabid fans, this year’s show featured large scale advertising displays called “Activations” to promote shows and movies and a glimpse of the future of marketing featuring virtual reality gear. The idea is to merge the virtual and physical environment.

iStock

If it works for Star Trek why not Deli Trek?

KILLER APP The digital world’s becoming more complex but the key is still to keep things simple. That’s what Walgreens has done by taking advantage of the basics of mobile devices. Now, customers can scan in a photo of the bar codes on prescription drug bottles for refilling. It actually made the process enjoyable for customers, according to Walgreens.

iStock


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1 5 MINUTES WITH...

tom Stenzel P RES IDEN T AN D CEO U N I T ED F RES H PRODU CE AS S OCIATIO N

Tom, can you tell us what’s the most important regulatory or legislative issue today for the produce industry and their retail customers? I would say the biggest impact we’re seeing right now for grocers and their produce suppliers is implementation of the Food Safety Modernization Act (FSMA). In the past year, FDA has finalized several different regulations under FSMA that will affect the growing of fruits and vegetables, their packing and processing, their transport through the supply chain, and even their handling in retail distribution centers and in store. What companies are covered under these rules? On the growing side, these new regulations apply to all foods produced domestically in the United States, and also to all imported foods. And, you can pretty much say that all food processors and food handlers such as wholesalers and retailers will be covered. Can you give us some examples of how these regulations might affect the industry? While most commercial growers are already aware of and following Good Agricultural Practices, the new Produce Safety Rule establishes specific guidelines

for everything from worker hygiene to use of compost to quality of irrigation water. Retailers are going to want to make sure they’re only sourcing produce from growers who comply with these rules. It’s never been more important for retailers to know who they’re buying from.

“WE’RE BEGINNING TO SEE SOME EXCITING NEW PROGRAMS WHERE RETAILERS ARE HELPING SNAP RECIPIENTS EAT HEALTHIER, WHILE ALSO BOOSTING IN-STORE TRAFFIC.AND PRODUCE SALES.” How about impact on retailers? Any food facility that has to register with the FDA, including distribution centers, are covered under the Preventive Controls for Human Foods Rule. That will require companies to have specific food safety plans and qualified individuals either on staff or as consultants to help comply with these standards. Retailers who arrange transportation will also have to ensure that foods are transported in accordance with the Sanitary Transportation Rule. Finally, retailers who are direct importers of foods will be responsible for ensuring that foreign suppliers are complying with all of these rules. FSMA is going to have significant impact on the entire food industry for many years to come. Continued on page 26 ▶

CAL I FO RNIA GRO CER | 25


15 MINUTES WITH...

◀ Continued from page 25

What other issues are important for produce suppliers and retailers? Although most retailers don’t see the direct impact, I’d say the biggest threat to our industry today is the severe labor shortage in harvesting, packing and processing fruits and vegetables. And that problem is compounded by Congress’ refusal to address immigration reform. We need to find a path to legal status for the more than one million undocumented workers who are working in agriculture today, and we need to create a new foreign guest worker program for the future that can properly screen out bad guys, but also help us attract the workers we need.

“TEACHING KIDS TO MAKE HEALTHY CHOICES WHEN THEY’RE YOUNG HELPS THEM MAKE THOSE CHOICES FOR A LIFETIME...” Most of our growers are paying far more than minimum wage, but we still don’t have enough workers. And for retailers, that will mean shortages of some crops and likely higher prices. Let me mention a couple other issues that the produce industry is working on that indirectly affect our retail customers. We’re seeing a rash of proposed new regulations from the EPA on all sorts of issues from restricting crop protection tools to trying to regulate streams and ditches on farms. Without a strong scientific consensus on the need for those steps, these actions simply add costs to production that have to be passed on to retailers and eventually consumers. And, Congress continues to duck the issue of assuring adequate water supplies, especially in California. I don’t have to tell your readers about the drought, or the importance of preserving runoff from the snow pack in the Sierras in reservoirs. 26 | CAL I FOR N I A G R OC E R

We also have to have the political will to do a better job of distributing water from where it’s abundant to where it’s needed. This is another issue where grocers may not be on the front line, but you surely are impacted. Don’t you have any good news on the regulatory and legislative front? Actually I do. One of the most important programs to come out of the last Farm Bill is called the Food Insecurity Nutrition Grants (FINI) program. FINI is providing grants to retailers, community groups and farmers markets to incentivize SNAP recipients to choose more fruits and vegetables with their SNAP dollars. We’re beginning to see some exciting new programs where retailers are helping SNAP recipients eat healthier, while also boosting in-store traffic and produce sales. That’s a win-win. Let me also mention one more nutrition topic that I also believe is important to retailers in a different way. Your readers have probably heard about the food fight in Washington, D.C. over school meals. For the first time, USDA is requiring schools to provide one-half cup of fruits and vegetables in school lunches. Now that doesn’t sound like much, but that simple requirement is exposing kids to a tremendous new variety of fruits and vegetables. Our United Fresh Start Foundation has been leading a campaign for several years donating salad bars to schools, with the help of many retailers and produce suppliers. Teaching kids to make healthy choices when they’re young helps them make those choices for a lifetime, when they are the primary shopper. So you see, even school lunch regulations matter to retailers! We’d love to talk with any of your members about how they can get involved in supporting schools in their communities. ■


GOVERNMENT RELATIONS

from bug s to windshields

A A RO N M O R EN O S E N IOR DIR ECTOR CGA GOV E R N ME N T R E LAT ION S

We may not always be the windshield, but know that because of the work we do behind the scenes, we will continue to be more windshield than bug. Beyond the practical lesson this age-old adage provides on the almost pendulumlike and fleeting nature of success, it serves as a caveat to maintaining humility in the wake of success. No matter how many times you may find yourself as the windshield plowing through bugs, it is a near certainty that at one point you will find yourself a bug on the wrong end of the adage. I have found this wisdom useful as a way of keeping things in perspective when maneuvering in the State Capitol, and it is something we ought to remember as we look back on this legislative session.

As an industry, we found ourselves in the path of many windshields at the start of the year – from legislation to mandate predictive scheduling, to legislation that would ban the sale of Mylar balloons, to legislation that would have required products to be priced based on their perceived gender, along with other measures. However, looking back at the end of the session, CGA’s Government Relations team managed to turn the tables on these precarious situations and become the windshield with persistence, hard work and humility.

In many cases, the approach taken with a legislator is crucial to success. Too often, it seems, legislative advocates take a binary view on legislation. Either the bill is bad, or good. And a bill that is bad is reflexively shuffled to a list of bills to oppose for the purposes of defeating it. It’s not enough to simply say “no”. People sometimes forget that working in the Legislature is a marathon, not a sprint. One year a legislator who is an adversary, can become an ally the next. But that doesn’t happen without garnering good will, even when opposing a member’s bill. While there are some instances where a bill can clearly not be fixed, providing assistance to a legislator on a bill you oppose is always the right move, especially when there is truly a way to fix it. This is extremely important to keep in mind in the new era of term limits where a member can stay in one house for 12 years. Making an enemy for short-term gain is particularly unwise, since they are likely not going anywhere for a long time. Relationships are also a key to CGA’s success. Our team benefits from having spent combined decades working in the Legislature. With that comes a legitimacy and trust when dealing with colleagues in the Capitol. That experience also provides knowledge of the fluid political dynamics Continued on page 30 ▶

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GOVERNMENT RELATIONS

◀ Continued from page 28

within “the building,” which is an asset when working to defeat or fix a piece of legislation we oppose. It’s not enough to make a good case.

“CGA’s Government Relations team managed to turn the tables on these precarious situations and become the windshield with persistence, hard work and humility.”

What really matters is who you make the case to. Sometimes the case is made to an influential personal staffer. Sometimes the case is made to an influential committee consultant. Sometimes the case is made to a legislator who has a little more sway than they let on.

This is not to say that CGA avoided being the bug in the path of the windshield altogether this year.

It is impossible to know these things without having developed those relationships. And even if someone knows where the right pressure point might be, it’s relationships and reputation that get you in the door to see these influential people.

With the decidedly liberal tilt to the California Legislature, it is rare for business groups such as ours to have everything fall in our favor. Government relations is, after all a marathon, not a sprint. When you play the long game, there are bound to be setbacks.

The key to long term success in Sacramento is maintaining the good reputation that our Government Relations team has worked so hard at building and sticking to our core working principles: persistence, hard work, and humility. We may not always be the windshield, but know that because of the work we do behind the scenes, we will continue to be more windshield than bug. ■

discover

what’s

next

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GOVERNMENT RELATIONS

The Knowns and Unknowns with bag law in california T I M JA M ES S EN IOR MAN AGER CGA GOV ER N MEN T R ELATIONS

In 2002, the Secretary of Defense provided a now famous press briefing answer discussing intelligence analysis featuring “known knowns,” “known unknowns” and “unknown unknowns.” How is this relevant to California grocers? We are in a similar situation with the upcoming November election featuring a carryout bag initiative, Propositions 65, and a separate carryout bag referendum, Proposition 67. Proposition 67 is an effort to repeal a state carryout bag law passed in 2014, which CGA supported. Voters must vote “Yes” to retain the state law and have it implemented. Proposition 65 asks voters if funds from bag sales should be redirected to the state instead of remaining with the retailer. While the questions seem clear on the surface the complications begin upon closer inspection. We know Prop. 67 will not impact a vast majority of existing local bag ordinances – specifically local ordinances passed before September 2014. The state law grandfathers ordinances finalized before that date. We also know Prop. 65 does not impact local government ordinances. So for many

grocers currently subject to a local bag ordinance the November election will have little impact, if any. If Prop. 67 passes we we know similar bag law will exist across California. CGA worked diligently to ensure that local ordinances and the state law are essentially the same policy – a ban on single-use plastic bags, with a required minimum charge on paper and reusable bags. An unknown if Prop. 67 passes is the implementation date. Due to the unique nature of this referendum there is some legal ambiguity. Based on previous propositions, there is a theory that as soon as the vote exceeds a simple majority the law is reinstated. This could mean the day after the election stores would need to be in compliance. Others believe it would take some time requiring certifying the election. While a troubling unknown, CGA recommends companies begin to think about implementation. The Association

will provide compliance information once the answer is clear. Unfortunately, we need to also consider the response if Prop. 67 fails. It is very likely we will see cities and counties passing their own ordinances again. It is unknown what jurisdictions may move forward, but we know there are several awaiting election results to determine their fate. With Prop. 65 there are many unknowns. An analysis by the State Legislature’s environmental committees raises several questions regarding applicability and implementation. Given the issues raised and time needed for the State to implement the program it is likely grocers will not see immediate operational changes. With Prop. 65 not impacting local ordinances, grocers under local regulation will not need to implement the law. However, those who would be brought under bag regulation by the passage of Prop. 67 could be subject to the full force to Prop. 65. With the “knowns” and the “unkowns” based entirely on election results, clarity on these issues may not come until after the November election. ■

CAL I FO RNIA GRO CER | 31


CAPITOL INSIDER

new Term limits, new opportunities LO U I E B ROW N PAR T N E R IN THE S ACR AMEN TO OFFICE OF K AHN, S OAR E S AN D CON WAY, LLP

The November election will complete the transition to new term limits. It will be eight years until we see another transition. The change in term limits for California legislators has done more than just allow a member to serve for an extended time in one house. It has created consistency in leadership and a calmer demeanor throughout the Capitol. Members know they have time to learn complex issues. We will soon return to a time where the member, not just the staff, has policy expertise. More important than anything, members will have the time to create relationships in the district with more than those who play a role on the respective Central Committee. In the business of politics, relationships matter and unfortunately under the previous term limit rules there wasn’t time to develop them. While it may be easier for the large companies with a government relations department to create these relationships, it is important for all companies to get engaged. It’s not difficult, but it can take some time. Knowing that time is valuable, here is some advice to get started:

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1.

Check your personal politics at the door. It doesn’t matter the party of your elected representative, they are there to represent the district. When talking about your business, don’t let your personal views on issues get in the way. Remember, you are trying to find areas to work with your representative.

2.

Invite your legislator to tour your business. Many business leaders do this but they often control the entire agenda. When hosting a Legislator to see your business, show them around and talk about the issues you face but then let them meet your employees and hear about the issues they face. Many business leaders talk about how important their employees are but when a member of the Legislature tours, they don’t provide any opportunity to talk directly with them. We should have nothing to hide and our employees can be our best advocates. Set time aside for your team to meet their representatives.

3.

Learn about what is important to your legislator. When we meet with elected officials, we often do too much talking and not enough listening. We want to share with them everything that pains us. While it is important to impart that information and to educate the legislator about our business, it is also important to find out what’s important to him or her. You may find you share a common interest, or that your business provides an avenue for him or her to achieve one of their goals.

4.

Create multiple opportunities for engagement. It doesn’t work to host a tour or have a meeting with your legislator and then not continue the effort. It takes time and effort to create a relationship so you must keep at it. Find other opportunities for your legislator to participate in activities at your business or those sponsored by your business. In other words, find ways for you to remain present before your legislator. We want you to be on a first name basis with your Assembly Member and Senator and for that to happen, it will take multiple meetings.


CAPITOL INSIDER

“In the business of politics, relationships matter.”

5.

Say “thanks.” While not popular, being a politician is also not easy. In a state like California there is no way to make everyone happy. It is also not easy to make big things happen. However, that doesn’t mean your legislator isn’t working hard on a variety of issues he or she believes is important to the district and state. Take time to tell them thanks for their work. A little bit of gratitude will go a long way. It’s a challenge to be in business in California. The regulations impacting your business are daunting. Just when

you think you have seen the worse, Sacramento sends you another rule to add to the already unmanageable list you face. With all that being said, you cannot afford to just sit back and let it happen to you. This November creates a great opportunity for all of us to add a new chapter to our playbook. Let’s take advantage of these new rules and use them to our advantage. Politics is not a spectator sport – so get engaged. ■

CAL I FO RNIA GRO CER | 33


INSIDE THE BELTWAY

National GMO Disclosure: Federal Legislation (Finally ) Passed, Now What? J EN N I F ER H ATC H ER S E N IOR V ICE PR E S IDE N T GOV ER N MEN T AN D PUBLIC AFFAIRS FOOD MAR K E TIN G IN S T ITUTE

After more than a year of legislative effort, the National Bioengineered Food Disclosure Law was signed into law on July 29, 2016, beginning the next phase of the regulatory process – implementation! While passage of the law allowed all of us to finally breathe a sigh of relief, there is now much implementation work to be done and we are already getting started. Here are the next steps:

Planning for the Rulemaking The National Bioengineered Food Disclosure Law charges the U.S. Department of Agriculture (USDA) Agricultural Marketing Service (AMS) with developing a national mandatory system for disclosing the presence of bioengineered material and to carry out the various mandates in the legislation. In developing regulations to carry out the disclosure requirements, USDA will need to go through the rulemaking process, which includes proposed regulations and an opportunity for public comment and input from stakeholders.

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

The first step requires USDA to conduct a study on customer access to the electronic disclosures while shopping. The Food Marketing Institute will undoubtedly need information from food retailers as USDA begins this study. There will likely be an Advance Notice of a Proposed Rulemaking this fall, when we will provide background information to USDA in advance of the proposal, and then a Proposed Rule with public comments and a series of public forums before a final regulation is issued by July 2018. We expect to have additional implementation time after the final rule is issued, but there is no legislative direction on the exact timing. Following publication of a final rule, smaller companies will have an additional year for implementation.

Engaging with USDA FMI has engaged with the USDA staff charged with implementing the law. Doug McKalip, Senior Advisor to Agriculture Secretary Tom Vilsack, who has responsibility within USDA for the GMO disclosure issue, outlined next steps at FMI’s State Issues Retreat in August. During his presentation, McKalip provided an overview of the agency’s prospective framework for implementation of the recently passed bioengineered food disclosure legislation (P.L. 114-216). He also explained that USDA sent a letter to all 50 states and territories, indicating that preemption contained in the law became effective immediately after President Obama signed the legislation on July 29, 2016. As noted, McKalip indicated that USDA’s AMS will have the lead in implementing the law and that USDA’s Food Safety and Inspection Service (FSIS) will assist, particularly as it relates to the ingredient listing. He also mentioned that USDA wants this process to be open and transparent; a website (https://www.ams. usda.gov/rules-regulations/gmo), phone line and email address, GMO labeling@ ams.usda.gov, have already been created.


INSIDE THE BELTWAY

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USDA intends to publish responses to questions it receives on this site. The agency also has plans to have listening sessions and anticipates publishing an Advance Notice of Proposed Rulemaking (ANPR) this fall to raise some of these questions directly to the public.

Understanding the Law The law firm of Hogan Lovells also provided an overview of the law at the same retreat. During the presentation two attorney’s from Hogan Lovells developed a webinar on the content of the legislation and retailer/wholesaler responsibilities under the law as well as implementation dates (visit the FMI website for more information).

Likely Legal/ Legislative Challenges GMA and other trade associations have filed suit against Vermont challenging the Vermont law on the grounds that it is compelled speech without a substantial government interest. As part of the challenge, the plaintiffs filed a motion with the Court seeking a preliminary injunction to stop the law from going into effect while the original complaint was pending.

In April 2015, the U.S. District Court denied the motion. That decision was then appealed to the Court of Appeals for the Second Circuit with oral arguments heard in October 2015. We are still awaiting a decision from the Circuit court. Unlike the federal legislation, the Vermont law included a prohibition on “natural” claims for covered foods. Additionally, while the preemption language in the federal law is strong, and federal agencies will strongly defend it, states can adopt requirements identical to the federal requirements; can also adopt laws to impose a civil penalty for violation of the federal law which some states are already considering.

Thank You for Their Support Many of you reached out to members of your congressional delegation to ask them to vote in favor of this legislation. If you have not already thanked those who voted with us, please do so and if you need a sample letter, you can access one through FMI’s Food Action network. Of course, do not hesitate to reach out if you have questions, concerns or suggestions. ■

Also, in states where a private right of action exists under consumer protection laws, consumers can bring suits against food companies alleging that noncompliance with the federal law also violate state consumer protection laws. We are also anticipating that there will be a federal attempt, perhaps headed by Senator Blumenthal (D-CT) to try to repeal the federal law, at this point, a very uphill climb.

CAL I FO RNIA GRO CER | 35


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WASHINGTON REPORT

Overtime Rule Significantly Impacts Grocers PET ER L A R K I N PR E S IDE N T, CEO N AT ION AL GR OCER S AS S OCIATIO N

Following an executive order issued in 2014, the U.S. Dept. of Labor finalized and released a pending rule on overtime pay for salaried workers. This new rule addresses the “white collar� exemption for executive, professional and outside sales workers under the Fair Labor Standards Act. The finalized rule did not make any changes to the duties test, but it does raise the exempt salary threshold from the previous $23,660 ($455 per week) to $47,476 ($913 per week). The 100 percent increase will also be coupled with an automatic increase which will be tied to changes in the 40th percentile in full-time salaried wages in the lowest-wage region of the United States (currently the southeast). Additionally, automatic increases will take place every three years, not on an annual basis as previously expected. This rule is set to go into effect on Dec. 1, 2016. The National Grocers Association has worked tirelessly to combat the changes made to the overtime rule since it was initially published as a proposal in July of 2015. Along with filing comments that outlined the concerns of the independent supermarket industry, NGA met with the Office of Management and Budget Office of Information and Regulatory Affairs (OMB, OIRA) during the required 38 | CAL I FOR N I A G R OC E R

rule review process to advocate against the rule on the grounds that it would have a significant negative impact on independent grocers, employees, and the communities they serve.

Workplace Opportunity and other allied trade associations to push for a legislative solution that prevents the rule from going into effect. Though NGA maintains that the 100 percent increase of the salary threshold will place a significant burden on the independent supermarket industry, the changes made to the final rule fully reflect the arguments that NGA made in our comments to DOL and OMB. We strongly advocated for: no changes to be made to the duties test, a longer implementation period, no automatic annual updates, and a significantly lower salary threshold based on geographic differences in salaried wages. â–  For more information on this, or any other policy issue, visit NGA online at www. nationalgrocers.org/government-relations.

iStock

While the December 1 implementation date is a substantially longer period than the 60-day implementation period that had been rumored, it is still far short of the desired 12 to 18-month implementation timetable NGA laid out to OMB. In the interim, NGA will continue to work with the Partnership to Protect

We appreciate the strong relationship that we have had with the California Grocers Association and its members over the years.


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ARE YOU? HUNTER or FARMER

Do you have the instincts and keen eye of a hunter, adapting to whatever environment you face? Or, are you a farmer, toiling in the fields, planting the same seeds year-after-year and hoping the crop comes in? By Len Lewis

The answer may be the difference between success and failure in the increasingly cutthroat and demanding world of retailing where consistent innovation in products and services and the ability to turn on a dime, is a business imperative now and in the future, said Jeremy Gutsche, noted author, researcher and CEO of Trendhunter.com. Gutsche, a featured speaker at this year’s CGA Strategic Conference, emphasized that in order to know where retail is headed, it would be wise to visit the recent past.

Continued on page 42 â–ś


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“Let’s rewind to the 1990s when retail was about the big beige stores, sometimes in the mall, where people went to buy their widgets,” Gutsche said. “Frankly, it was pretty uninteresting and that crossed over into the grocery business. Then, in the late ‘90s everyone in the business became obsessed about finding ways to get their e-commerce operations up and running. But at the same time, according to Gutsche, they stopped or reduced investments in stores and put all their money in the race to get online. “When the dotcom bubble burst, everyone got burned, the economy got a little crazy for a few years and some retailers ended up ignoring the store,” he said. By 2005 and 2006, retailers again began putting money into their stores. But when the economy hit the skids again, retailers were faced with chaos and many of them collapsed along with the market. “It was a time when famous retailers were going out of business and those that held on became even more cautious about pumping money into their stores,” he recalls. Meanwhile, it was during this period that marketing changed forever and cultural authenticity became an overriding issue among consumers. “I remember someone asking an executive from Harley-Davidson what the company sells,” Gutsche said. “His answer was: ‘What we sell is to have a 43-year-old accountant ride through small towns and have people be afraid of him.’“

Jeremey Gutsche, CEO of Trendhunter.com is a featured speaker at this year’s CGA Strategic Conference.

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

And while grocers were ignoring investments in stores, social media popped up and suddenly every person walking into any store started advertising their attitudes or complain publicly. It was then that every retailer in every category realized how much catching up there was to do, he said.

“We work with and advise all kinds of retailers at Trendhunter,” Gutsche said. “It’s amazing the rapid game of catch-up everyone is playing. There’s a realization that retail is about connecting with the brand on social media, offering consumers a cultural experience and embedding authenticity into the store.” And now, he said, we’re seeing everything in the store being transformed because of greater investments in retail – including supermarkets. “We are entering an interesting space,” he said. “More consumers are focusing on eating well, whether it’s local foods or organics. They want to feel good about what they eat and not have all those tricky ingredients to pronounce. All of these elements are transforming the shopping experience.” Trendhunter also closely focuses on what he called “Millennial parents” who are among the most competitive of demographic groups. “They have a career, a home life and they are trying to win at parenting,” he said. “As such, they want the most Instagramworthy meals for their children. They want to take pictures of these meals and send them out to friends to show they are the best mom possible and have the best vegan foods, or the best gluten-free cookie. There’s a world of chaos that’s really changing the shopping experience.” Depending on the circumstances, these changes mean adopting the characteristics of both hunter and farmer, according to Gutsche. “When I talk about innovation, it’s akin portfolio management,” he said. “In your portfolio there’s the trust stocks, but also some higher risk ones in order to insure you can get the gains you need. You have to look at innovation the same way. I don’t think you have to leap in and change everything.”


In many ways, according to Gutsche, companies must continue doing what they do, but also need to be dedicated to hunting for new ideas and finding new ways to adapt. Adapting, in part, means becoming obsessed with customers and using every method possible to understand how they are evolving. According to Gutsche, companies must develop and refine those hunter instincts including being curious, insatiable and willing to destroy in order to succeed. “Curiosity alludes to whether you have methods in place to hunt for new ideas and to experiment with new ways to get people and, while they’re in the store, to market to them in new ways,” he said. “Insatiable means always believing in the need to perpetually adapt and not just do the same thing for the next 10 or 20 years.” He noted that the willingness to destroy is a tough one. “It’s about a willingness to move beyond egos and all the legacy of the past to try something new,” he said. “The more you get into small and medium businesses, private companies and those run by families, the more difficult a time people have letting go of the past in order to embrace something new.” While his company focuses mainly on smaller firms, one of his favorite larger companies in terms of being an effective hunter, is Google. “You can see how many times they try things that simply don’t work out,” he pointed out. “They have a portfolio of attempts because they are always trying to innovate in a different way.” One company that Gutsche likes discussing is Zara, the Spanish fastfashion chain, that is one of the most unique companies in their space. The average fashion retailer will design a little

red dress and get it in the store 12 months later. At Zara, the process only takes 14 days. As Gutsche points out in his book, “Better And Faster” Zara doesn’t carry every design and size in stock and styles are rarely consistent. “Designers and patternmakers craft several different concepts for a piece of clothing every day which is then manufactured in local factories,” he said. “They work with ‘Greig’” or nearly colorless textiles which can be dyed at the last minute. Because of the speed to market, outsourcing to China is not an option.” "Additionally, changes can be made on the fly. The company can manufacture a little red dress with a collar and is capable of having five sizes in 2,000 stores in two weeks. But if stores learn that consumers like the dress but not the collar they can redesign it and again, have it in all 2,000 stores within 14 days," he said. “The takeaway here is that they have figured out a way to insure ongoing communication with consumers to look for new ideas,” he said. “They will try any new designs and not perpetually cling to just one.”

“…it was during this period that marketing changed forever and cultural authenticity became an overriding issue among consumers.”

Zara is a great example of extreme adaptation. But Gutsche concedes that successful companies have a tendency to become overly complacent with potentially devastating results. “The average lifespan of a Fortune 500 company in the 1950s was 75 years,” he said. “If you made it on the list that’s how long you would last. That average has fallen to 15 years and is expected to be halved again.” Gutsche believes that in a decade from now, half of the current Fortune 500 won’t exist in a meaningful way. Continued on page 44 ▶

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◀ Continued from page 43

AR YO

HUN FAR

“We are seeing a manufacturing industry that’s become faster, quicker sleeker and allows us to actually create more personalized offerings.” experience to evolve. That’s going to cause those who are complacent to become disruptive.” There’s no doubt that technology will continue to play a major role in this.

“They don’t have the advantages they once did,” he said. “Excessive complacency can happen to any company when it fails to try as hard as it should.” As always the big question is what retailers should be looking for in terms of customer behavior. “There are a couple of drivers out there. extreme diversification of preference or personalization,” Gutsche said. “They want things on-the-go and there’s a big drive toward sustainability and health – all of which impacts the types of items in the store. “A trend I really like is what I call the ‘next best thing,’” he said. “The idea is that people don’t always go for the No. 1 product anymore. They still remember the recession and are more likely to try the next best alternative. This isn’t just about price. It could be an entirely different product.” Clearly, these are among the elements reshaping the retail business. “Retailers are becoming a lot more competitive and there will be something of a shakeout in the business,” said Gutsche. “Retailers that are aggressive about change will enable the buying

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“Big data is helping us understand purchase patterns in the store,” he said “Things liked beacons are allowing people to tailor things like advertised products and recipes as they go through the store.”

“They don’t want the exact same food or offering as everyone else – something tailored to them,” he said. “On one hand you have the world of big data where marketers and other companies can figure out more easily what a person’s preferences are.

Do you have the instin adapting to whatever en a farmer, toiling in the year-after-year an

According to Gutsche, having that social media connection will allow the grocer of the future to suggest combinations of foods that go with the person’s purchasing pattern.

“For example, if you know someone’s on a gluten-free diet then you don’t need to present her with one-third of the offers that you might send to other people,” he said. “This enables you to create a deeper connection with that customer because you understand their preferences, behavior and priorities.” The issue is one of “convergence”, which can be a challenge to find.

“The question is what products or services can be combined with the offering,” he said. “For example, if a retailer has cooking classes in store he’s adding a service and not just selling groceries.” Another factor is “divergence” or customization and personalization. Society is moving rapidly toward a customized world, according to Gutsche. Divergence is the idea that people want to be opposite of the main stream.

“On the other hand we are seeing a manufacturing industry that’s become faster, quicker sleeker and allows us to actually create more personalized offerings,” he added. How far can personalization go?

“Well, look at Amazon Fresh,” said Gutsche. “It’s showing you books and products similar to what you last reviewed. And every time you log in the offerings get a little more customized. They are the masters at figuring that out and it gets faster every time you shop.” Another element is what Gutsche terms “redirection” or channeling and refocusing trends.

For example, if someone goes into a store and cooking lessons are taking place they end up with a very different store experience.

“It’s about reminding people that they shop at a particular grocery store because there’s always something new happening or they are surprised with some special offering or different sampling,” he said. “Basically, you’re trying to reposition what that shopping experience is really like and giving the store the element of surprise.” ■


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Collab


B y ELLI OT ZW I EB A C H

Increased collaboration between trading partners can mean better results on the bottom line for both sides, according to Marc Hubbard, Chicago-based vice president for U.S. client services at Advantage Group International. “No matter how good your business is, it can get better through collaboration,” Hubbard said. “Working more closely with your trading partners builds the kind of relationships that benefit both sides. Collaboration will lead to better sales, better service and better overall results. Without collaboration you are missing opportunities to grow.” Although collaboration has been an industry goal for many years, it’s more significant today, Hubbard said, “because of the economic state of the world we live in – for companies that are seeing improved performance as well as for the majority who aren’t seeing their wealth increasing.”

Nick Bertram, senior vice president, merchandising strategy and support for Ahold USA, Quincy, Mass., said he’s a believer in the benefits of collaboration. “When we launched our ‘reshaping retail’ strategy, one area of concentrated focus was a promise to become a better place to shop,” he explained. Ahold devised a number of programs, “but we soon discovered it wasn’t possible to achieve our ambition without stronger partnerships in the trade. So we created a trade relations team that focused on supplier engagement surveys, like those from Advantage, plus joint business plans for key partners that involved coordinating external events and top-totop communications. “All that has proven to be a big enabler to our category teams and yielded improved relationships with specific suppliers, which in turns has allowed us to delight customers and become a better place to shop,” he said.

Collaboration isn’t difficult, Hubbard added, “but it takes effort and resources. “No company is an island – though if it’s not collaborating, then it will be an island. But opening yourself up to exchanging ideas with trading partners results in better business results for everyone.”

Matters

oration

Continued on page 48 ▶


◀ Continued from page 47

Advantage is a Toronto-based market research firm that collects data from companies in 40 countries and uses that feedback to encourage retailers and suppliers to set benchmarks to improve their industry relationships. “We don’t tell companies what to do because we are not a management consulting company,” Hubbard explained. “What we do is share feedback from our surveys and hope retailers and suppliers respond in a positive way.” To achieve true collaboration, companies on both sides of the table must be open to feedback, Hubbard said. “The key is to put resources into gaining feedback and measuring sales results,” he said. “But with feedback being a soft metric, the effectiveness of feedback on sales is difficult to determine. It’s just something you have to believe in – and you need to build the tools and processes and put the time and effort into gathering feedback and measuring it.

“WITHOUT COLLABORATION YOU ARE MISSING OPPORTUNITIES TO GROW.” “However, some retailers still have an adversarial approach toward suppliers and vice-versa. They tell them ‘this is the way we do things and that’s how we want you to do it.’ That attitude doesn’t foster collaboration,” he added. Hubbard said that opening up to receiving feedback – by listening to each other – allows companies on both sides to expose themselves to new ideas and uncover new opportunities.

“If a company is struggling, we can supply them with possible reasons why and then encourage them to change their approach by giving examples of the kinds of behaviors they should pursue,” he added. When asked for examples of situations where a lack of collaboration hurt partners, Hubbard cited one instance where a supplier was antagonistic to the idea of working with a retailer, with the result that the retailer was unable to drive sales. “That supplier didn’t want to work with that retailer, and as the relationship kept growing more and more sour, sales were suffering,” Hubbard said. “When trading partners are that un-collaborative, that’s when they need to realize how much better things could be if they worked together to maximize sales – and once the supplier in this example changed his attitude, things did get better for both partners.” In another instance Hubbard recalled a retailer who saw sales trending downward over a three-year period as he resisted collaborating with suppliers. “But once he changed his attitude and began working with them, he was able to reverse the negative trend,” he said. To emphasize his point, he cited the change in attitude of Steve Jobs, the late founder of Apple. “In his early days at the company Jobs was terrible at collaboration,” Hubbard said. “He tended to be very dictatorial. But his second time around, he opened up, and when he become more collaborative and shared his vision with others, everyone benefitted.” Issues with collaboration may arise for partners on both sides of the table, Hubbard pointed out. “Traditional retailers are facing a plethora of competition they weren’t seeing 10 or 15 years ago – not simply from a host of

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


alternative-format operators but also from Amazon and ecommerce companies,” he said. “Because consumers can get the same goods at so many different outlets, there’s more complexity in retail, which makes a collaborative focus between retailers and suppliers even more important.” For most retailers, the top three concerns for suppliers to get right are supply chain excellence, proactive communication and a desire for personalization in the programs they are offered, Hubbard said. In terms of supply chain, retailers want to be sure they get what they want when they want it and the way they want it, he pointed out." Supply-chain excellenceretailers build their businessneed to make sure the supplyworking correctly to get the products they need to run their businesses properly,” he explained. Retailers also want to be sure suppliers are adapting to their unique needs, especially given the intensity of competition, Hubbard added. “Each retailer knows he needs to stand out with consumers or else they will go elsewhere, which means suppliers need to personalize and tailor their programs to each retailer’s particular needs,” he said. “Sometimes that can be challenging for a supplier,” Hubbard added. “But a retailer is looking for flexibility in terms of being served by the supplier, which means the supplier must be sure to meet the retailer’s needs, not just his own.” Communication between partners is key, Hubbard noted. “To make sure each partner is getting what he needs, he has to send a clear message about what he expects.” Often though the retailer’s message to the supplier is not clear, he explained, because retail buyers, merchandisers and those dealing with logistics may not

be on the same page with each other or communicating the same message to suppliers. “Without that kind of internal alignment, how can you expect suppliers to do their best work?” Hubbard said. “A retail organization must be clear and consistent in its message in terms of how a supplier can help the retailer meet his goals,” he explained. “To do that, the different teams within an organization must talk among themselves rather than operating in separate groups that don’t communicate internally. Most suppliers are willing to help retailers, if only the retailer is willing to ask for help.” For suppliers, “the message to retailers is to do what they say they are going to do,” Hubbard said. According to Advantage’s most recent survey, the No. 1 priority for suppliers– as it’s been for four years in a row, Hubbard noted – is for retailers to implement agreed-upon business plans. “You’d think we could all live by the philosophy of ‘do what you say you are going to do.’ But sadly, we hear time and time again that suppliers are frustrated with retailers for not doing what they said they would do. They wonder why they should do all this collaboration, joint business planning and top-to-top meetings if the retailers are not going to follow through,” Hubbard explained. Continued on page 50 ▶

CAL I FO RNIA GRO CER | 49


◀ Continued from page 49

He said the other top supplier priorities are for retailers to work productively with them to build a profitable business for both parties; and for stores to execute promotional and retail marketing plans in accordance with previous commitments. While most large suppliers have been developing collaborative relationships for years, even some of the largest CPG’s are averse to collaborating, he pointed out, “simply because they are so large that they can get stuck in their ways, which sometimes means they become somewhat dictatorial.” Smaller suppliers usually need to be more open to collaborating, he added – to make sure they get their foot in the door. But even some smaller suppliers, who make up the vast base for most retailers, have their problems with collaboration because they rarely see the retailer, “so knowledge and understanding of the needs of each customer’s business is often more limited,” Hubbard pointed out. “The future for suppliers of any size can be enhanced and improved through greater collaboration,” he added. What makes the challenge more difficult, Hubbard said, is the growth of digital and

omni-channel offerings, which many retailers separate from their brick-andmortar businesses. “The challenge is getting both sides within a retail organization to work together to develop one holistic point of view,” he said.

“TO ACHIEVE TRUE CO L L A B OR A T I ON , C OM P A N I E S ON BO TH S I D E S OF T H E T A B L E MUST BE OP E N T O F E E D B A C K . . . ” The most recent Advantage study of U.S. retailers produced one major surprise, Hubbard said. Asked to rank 37 strategies in terms of their importance, retailers ranked “digital” as a very low priority, at No. 34, he noted. “Our hypothesis for why digital ranked so low is that the respondent base was comprised mainly of buyers, merchandisers and supply chain/ replenishment personnel – a group that doesn’t see digital as part of its job. It’s the advertising and marketing people who are more focused on ecommerce and digital right now. “But we would expect interest among all groups to increase as digital strategies become more integrated at the retail level.” Editor’s Note: Elliot Zwiebach has been reporting on the food industry for 47 years. He retired from Supermarket News in July when his job was eliminated.

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


PRESENTING supermarkets battle for

SHARE STOMACH of

COMPETITION


By Brian Todd

COMPETITION HAS BEEN PART OF THE RETAIL FOOD BUSINESS SINCE IT BEGAN AND WHILE IT CAN BE A BATTLE FOR GROCERS, IT HAS ALSO HELPED SPUR INNOVATION AND MORE RECENTLY, ECONOMIZING BEHAVIOR.

That battle for “share of stomach” has never been more intense than right now as traditional supermarkets saw growth of less than 2 percent in sales during the first six months of 2016, according to Food Institute analysis of data from the U.S. Bureau of the Census. While the lack of food price inflation this year is definitely a factor in the sluggish results being reported, traditional supermarket operators are also faced with more competition from what The Food Institute calls “alternative retailers.” These competitors include warehouse clubs, supercenters, drug stores, and online sellers.W And while they are fierce warriors in the struggle for a piece of the consumer food dollar, they have also forced many traditional supermarkets to become stronger. These grocers are continually innovating to compete, adding club-sized products and aisles, expanding their pharmacies and health care offerings, to offering their customers the option of buying online and home-delivery in some cases. And in the past few years, supermarkets have been very efficient at cutting costs out of the supply chain, making their operations as lean as possible. They have also been aided in the lack of inflation in food prices at the wholesale level, although that has also meant a lack of inflation at retail – for the overall foodat-home category at least. More recently, grocers find themselves competing with home-delivered meal kits like Blue Apron and Hello Fresh.

Over 100 such companies are now delivering millions of boxes to consumers’ doorsteps each month and with sales topping $1 billion in 2015. Initially, some may have been frustrated at the prospect of losing customers to a higher cost, limited offering competitor that was heavily funded by private equity or venture capital. But again to their credit, they are not standing on the sidelines to see how that market develops. For example, the Fresh Market chain, introduced “Little Big Meals.” For $20, the complete meal kit is available in its stores and puts together several easily compiled ingredients from their shelves to feed a family of four similar to the meal kit. A very convenient alternative and one that it heavily featured, saving customers $10-$15 off the “list” price of the individual parts. And several other chains have responded in a similar fashion. Some 84 percent of consumers now purchase prepared food from retailers monthly, according to data from Technomic, Inc. Interestingly, half say they visit fast food restaurants less often each month as result. And supermarkets continue to devise innovative ways to compete. Roundy’s, part of the Kroger Co., designed a store in Sherwood, Wis., designed a store appealing to Millennials’ desire for more prepared foods. The Metro Market in Madison, Wis, meanwhile, features a sushi bar, an oyster bar and a bar with a dozen beers on tap along with live piano music and a fireplace.

Prepared foods are a driving force at Shubie’s Marketplace in Marblehead, Maine. The 10,000 sq. ft. store features 35 to 40 prepared entrees daily as well as hand-crafted sandwiches and craft beer. The Impact of Alternative Retail

Club and supercenters alone sold more than $90 billion worth of food in the first half of 2016 according to Food Institute estimates. That’s more than one-third of traditional supermarket sales during the same period. But the growth at the formats has slowed considerably in the past two years after posting double digit gains in much of the last decade. Through the first half of 2016, club and supercenter sales rose only 1.6 percent, while supermarket sales rose 2.1 percent to nearly $300 billion. And at drug stores, food sales are estimated to be in the vicinity of about $1 billion monthly. As chain drug stores have expanded their food offerings, customers have found them as a source of groceries well beyond the candy and snacks featured near the checkouts. Their prevalence in urban locations has definitely aided in this effort because of their convenience for shoppers. And while only 19 percent of consumers surveyed by Technomic have ever purchased a prepared meal from a drugstore, 43 percent of those who do so buy them at least weekly. And dollar stores are doing much of the same, particularly in suburban and rural areas.

Continued on page 55 ▶

CAL I FO RNIA GRO CER | 53


ALTERNATIVE RETAILER PERFORMANCE - JAN. 1 - JULY 1

Millions: JAN FEB MAR APR MAY JUNE JULY AUG SEPT OCT NOV DEC JAN - JUNE JAN - DEC

2016 $33,903 $34,060 $36,720 $35,492 $37,244 $36,287

$213,706

(Food Institute analysis of Census Bureau data) WAREHOUSE CLUBS DRUG STORES & SUPERCENTERS & PHARMACIES % Est. 2016 % Est. 2016 2016 2015 Chge. Food Sales* 2015 Chge. Food Sales* $33,835 0.2% $ 13,053 $22,121 $21,782 1.6% $ 929 $32,802 3.8% $ 13,113 $22,346 $20,137 11.0% $ 939 $35,853 2.4% $ 14,137 $23,976 $21,873 9.6% $ 1,007 $34,598 2.6% $ 13,664 $22,980 $21,597 6.4% $ 965 $37,812 -1.5% $ 19,553 $23,555 $21,503 9.5% $ 989 $35,927 1.0% $ 19,051 $23,318 $21,530 8.3% $ 979 $36,631 --$ $21,806 --- $ $37,463 --$ $21,563 --- $ $34,148 --$ $22,025 --- $ $36,768 --$ $22,640 --- $ $39,039 --$ $21,637 --- $ $45,266 --$ $25,180 --- $ 1.4% $92,571 $138,296 $128,422 7.7% $5,808 $210,827 --$263,273 --$440,142

2016 $34,714 $34,821 $38,894 $37,491 $38,847 $38,678

$223,445

E-SHOPPING & MAIL ORDER % 2015 Chge. $31,758 9.3% $29,879 16.5% $34,046 14.2% $33,449 12.1% $33,091 17.4% $33,699 14.8% $34,529 --$34,231 --$34,783 --$35,824 --$41,688 --$55,765 --$195,922 14.0% $432,742 ---

Est. 2016 Food Sales* $ 729 $ 731 $ 817 $ 787 $ 816 $ 812 $ $ $ $ $ $ $4,692

* Estimated by Food Institute as follows: 38.1% of warehouse club/supercenter; 4.2% of drugstore and pharmacy; and 2.1% of e- and mail orders.

◀ Continued from page 53

ARE LOWER FOOD PRICES AT SUPERMARKETS, PARDON THE PUN, EATING INTO RESTAURANT SALES?

Brian Todd, President and CEO, The Food Institute, moderated a Whiteboard Session at the 2016 CGA Strategic Conference entitled “The Shifting Share of Stomach.”

In addition, supermarkets are competing more and more with restaurant chains as both high-end and quick-service are looking for a piece of the at-home market as well. As a result, more prepared or easy to prepare convenience items are being offered to offset this, as well as the placement of sit-down restaurants in some retail locations. In talking about at-home and away-from home food prices recently, McDonald’s USA President Mike Andres recently stated, “If I’m not mistaken, it’s the biggest gap we’ve seen in the last 10 years.” Wendy’s Todd Penegor, the chain’s chief executive, said, “The most notable driver behind the sales slowdown appears to be the continued gap between cost of eating at home and cost of dining out, which is now at its widest point since the recession.” That prompted us at The Food institute to do some research and it turns out that away-from-home food prices advanced 3.3 percentage points more than at-home prices in the first half of this year – the largest positive gap since 1983 when away-from home price increases exceeded at-home by 3.4 percentage points. The 2016 change was also the fifth largest such change since the Bureau of Labor Statistics followed such trends back in 1954.

So what does this mean? Are lower food prices at supermarkets, pardon the pun, eating into restaurant sales? And the answer is…maybe not for all, but apparently for some players, like McDonald’s and Wendy’s who have attributed their lack of sales growth to lower grocery prices. So once again grocers are competing fiercely. You see, overall eating and drinking place sales in the first half of 2016 were up 6.5 percent from a year earlier at $326.7 billion and when deflated by the 2.7 percent increase in prices, sales still increased 3.8 percent from 2015. Meanwhile for supermarkets, sales in the first half increased just 2.1% from a year earlier but prices during the same period were down 0.6%. That puts the deflated grocery store sales gain at 2.7% or 1.1 percentage points less than the increase at eating and drinking places. So eating and drinking place sales growth in the first half, both deflated by the Consumer Price Index for awayfrom-home food, and un-deflated, still exceeded sales growth at the nation’s grocery stores even though the gap in the two price indices was the fifth largest on record. Looking ahead, eating and drinking place price increases will likely accelerate due to rising minimum wages. To counter that, and reducing staff, more automation, particularly in the fast-food sector will likely be on the horizon. That again can be an opportunity for grocers as at-home food prices make their own prepared or easy to prepare offerings even more attractive in price, quality and convenience. Editor’s Note: Brian Todd is President and CEO of The Food Institute, a nonprofit information-based organization founded in 1928. Learn more at www.foodinstitute.com or contact Todd at brian.todd@foodinstitute.com CAL I FO RNIA GRO CER | 55


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Donna Giordano

Lessons Learned In June of this year, Kroger announced Donna Giordano would retire on July 23 after 44 years of service to the company. As this chapter of her life closes, Donna reflects on her rise to President of Ralphs Grocery Co. and shares insights into Southern California’s diverse grocery marketplace. Donna Giordano was never too fond of housework. It was the early 1960s and her mother, a full-time homemaker, ran a tight ship, kept a tight schedule. Laundry on Monday, grocery shopping on Tuesday – every day, there was a household activity scheduled. It wasn’t a lot of fun, she recalls. “I asked my mother ‘isn’t there more to life than this?’ and I remember she laughed,” Giordano says. “I was absolutely sure I wanted to work outside the home.”

She started early, mowing lawns for extra money when she was in seventh and eighth grades, washing hair brushes in a beauty salon, working as a physical therapist’s aid. “I vowed that I would be independent, take care of myself,” she says. “I didn’t know what I wanted to be when I grew up but I knew that education was important.” For a while, she says, Giordano thought she might pursue a career in health management or nursing–

like teaching, an acceptable role for a woman in those days – but realized she didn’t have the stomach for what she called “the gory side” of health care. She enrolled in college as a business major, took her first marketing course and something clicked. “I realized I could be creative and I could do a lot with a business degree,” she says. Continued on page 60 ▶


◀ Continued from page 59

“I had a knack for explaining things to people, was good at coaching, teaching and sharing expectations.”

In 1972, Giordano signed onto Kroger’s King Soopers as a temporary courtesy clerk. She had just graduated from high school and thought it might be the ideal way to put herself through college. She says she knew the hours were relatively flexible. Once on the payroll, something else became apparent. “I saw the store manager and I knew I could do that job,” she recalls. “I also realized that I could get results. I had a knack for explaining things to people, was good at coaching, teaching and sharing expectations. Those skills have served me well throughout my career.” Giordano graduated from college in 1976, during what she cites as a “pretty tough” job market, and decided to stick with Kroger. In the late 1970s, as store technology started to advance, Giordano was tapped for a special project: she was given the opportunity to build out files and company-wide procedures for stores to follow as scanning systems were going online.

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

“First and foremost, having such a supportive husband opened the doors for me,” she says. “He was supportive of my career, of my efforts to advance, he helped me, participated and shared all the responsibilities of raising our girls.” Giordano says when their daughters were young, both she and her husband worked outside the home – and both traveled – but they tag-teamed their parenting efforts. “If I helped them with their homework, he would do the dishes – that’s the way we rolled,” she says. Her daughters were teenagers when the QFC opportunity knocked and Giordano says it was “fantastic” to have her husband home at that time. “They started out as ‘mama’s girls’,” she suggests. “The great thing about it is, during that time, they became so close to him.”

“It was great exposure that got me noticed,” she recollects. She was promoted to store manager in 1982. Very few women were store managers at the time.

Another great thing was an important lesson Giordano says she learned from her girls: She would often arrive home after a long day’s work with a lot on her mind. As she went through the motions of helping with homework and other tasks, it was pretty apparent to her daughters that she wasn’t completely present.

And, up the ranks she went. Giordano was employed in a variety of directorlevel roles at King Soopers for 30 years, inside the advertising, bakery, general merchandise, grocery and pharmacy departments. In 1999, she was promoted to president of sales and marketing. In 2002, Kroger named her president of its QFC banner, where she served for nine years.

“One day, they looked at me and said ‘Mom, you’re not listening to us,’” she recalls. “I realized then that the time I spent with them was very important and I vowed that when I arrived home I would drop all the the experiences of the day there at the door and concentrate on the family. I gave 100 percent when I was home and I gave 100 percent when I was at work.”

By then, the Giordanos were a family of four and Donna’s husband Mario retired voluntarily – to follow his wife and her career to Seattle, Wash. She credits him with giving her the kind of support many women executives crave.

She must have done something right: One daughter is married, and beginning work on her doctorate; the other – a business major – is a buyer for Amazon. College, Giordano says, wasn’t a choice. She says she insisted that they to be able to take Continued on page 63 ▶


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“Managing fresh food waste requires fresh thinking.” Keith McCarron, Manager of Distribution, Northgate Gonzáles Markets

Northgate González Markets prides itself on providing customers with freshly prepared, grab-and-go food items. The grocery chain composted unavoidable food waste, but composting resulted in unpleasant odors, pest nuisance and high transportation costs. Looking for an alternative, the markets discovered the Grind2Energy™ food waste recycling system. Now food waste is ground on-site, converted into a slurry, and transported to an anaerobic digestion facility where methane is extracted for energy production. According to McCarron, “Grind2Energy has proven to be both effective and affordable in helping us comply with regulations and advance our environmental goals.”

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◀ Continued from page 60

“Women add a different dimension [to management] because most shoppers are women.”

care of themselves and their children. The way to do that, she believes, is through education and experience. Even with experience and credentials, Giordano still acknowledges the challenge for women seeking senior leadership roles in companies. And while the number of female grocery store managers may have increased, there are still very few women situated in C-suites. Women are still the ones who typically take leaves-of-absence for maternity or some other kind of caregiving more so than their male counterparts do, she asserts. “If you think about it, women still have the responsibility for raising children and maintaining the home,” Giordano says. “That usually sets them back. If they can manage continuity, chances are better for them to succeed.” The former QFC executive believes the situation will “take care of itself, with time,” adding that it’s changing and that’s what’s important. “Women add a different dimension [to management] because most shoppers are women,” she shares. “Having our input in this industry and the input of people of color on products and culture and consumer behaviors is invaluable. Our industry makes better decisions as a result. I think companies that embrace

women and people of color are stronger companies because they’re getting more collaboration and input into decisions that affect consumers.” “Women who are in leadership roles are doing an outstanding job and getting the results.” Giordano went on to lead 22,000 employees as President of Ralphs Grocery Company, in 2011. As her 44-year career in the food industry comes to an end, she observes the pace-of-change that her successor, Valerie Jabbar, will inherit. “I think the industry is changing at a very fast rate; the pace is quicker than it’s ever been,” she says. “Technology advances every day, altering the way people communicate. Our customers have, at their fingertips, the ability to do research, determine prices, learn what do we stand for – they can learn anything they want to about a company.” And, Giordano adds, Southern California is the most competitive and diverse market in the nation. “There are different types of competitors– ethnic based, high end, independents, limited assortment, the mass merchandisers and traditional retailers like Ralphs and Vons,” she says. “We’ve, literally, got everything under the sun.” Continued on page 64 ▶ CAL I FO RNIA GRO CER | 63


◀ Continued from page 63

Giordano calls Southern California a “difficult” place to operate. What with its real estate costs (“near the highest in the nation”); employee and workers’ compensation costs; warehousing, transportation and utility costs – all higher than the national average.

while the number of female grocery store managers may have increased, there are still very few women situated in C-suites.” “The diversity of retailers, the sheer number of retailers and – now – the challenge of everyone expanding their depth of products. That’s what makes it very difficult to operate here,” she admits. That said, Giordano and her team are, in her words, doing very well. “We understand our customers and we make sure we are providing what they want and anticipating their needs before they know what they want,” she says. “We execute with friendly service, quick check-out (average wait-time is 30 seconds, says Giordano), efficient frontend, great prices, breadth of assortment and – of course – great people.” Like most successful chief executives, Giordano cites her team as her greatest asset. “The way we coach and teach our people– that when we focus on the customer, we compete well – is the key to our success,” she says. Did she learn any important lessons along the way? 64 | CAL I FOR N I A G R OC E R

“Let me tell you this,” she confides, “I wouldn’t change anything but there is something I wish I’d discovered sooner than I did: I discovered how to align an organization.” “First, it’s important to have a clear outcome in mind that everyone in the organization is aware of (sales or customer service goal). Second, develop a strategy that everyone in the organization understands (if you want customers to come back, you have to be friendly, have products in stock and have fresh products). Three, give all of your employees the tools they need to achieve all components of the strategy. Four, hold them accountable; reward and recognize successes. Five, Coach the opportunity.” Giordano calls it “a magic recipe.” “We are all employed for achieving whatever the goal is and having the tools make it easy,” she says. “I wish I would have figured it out sooner and formalized it.” Finally, she adds, when you think you’ve communicated your message enough, start over and communicate again. I think people are afraid of being repetitive,” Giordano says. “Tell people over and over. Keep it consistent.” It will be these lessons plus a few more which she’ll share with her successor. “First, I’ll tell her to spend time on what’s important and meaningful to the customer,” she says. “Then, to treat people with respect and dignity. And, always do the right thing. That’s served me well.” Giordano calls Jabbar an outstanding leader and says she’s “so tickled” for her promotion into the president’s role. Giordano’s mother lived long enough to see her daughter lead Kroger’s QFC operation in Seattle; her father was alive to witness to her taking over the helm at Ralphs. Now, she’ll spend time with her

daughters – both settled in Seattle – travel with her husband and begin work on a book on lessons learned on her journey. “I’m a storyteller,” she submits. “More than anything, it’s a book for my daughters.” Giordano says the last chapter of her book was written, only recently, when her retirement was announced. “You never really understand the footprint you’ve left on an organization until you leave it,” she shares. “Whatever group of people you lead or support – make sure you leave them with all the skill sets they need – so they can be the best they can be. That results in a footprint and a legacy.” ■


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


TruGrocer FCU Congratulates Incoming CGA Chairman Jim Wallace, of Albertsons Companies,

and Thanks Kevin Konkel,

of Raley’s, for his leadership an dedication this past year.

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This summer marked the sixth television run of the decades-old game show, “To Tell the Truth.” While its style has evolved over the years, the central premise remains intact: a panel of questioners must try to distinguish the correct subject character from a few imposters. The show host initiates the big reveal by asking:

“WOULD THE REAL [PERSON’S NAME] PLEASE STAND UP?” By Doug Madenberg

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


Today’s supermarket environment actually feels quite similar. Apart from the sign out front, it is getting tougher to distinguish independent stores and chains from their regional and national competitors, who act more like local players all the time.

In the midst of all of these data-driven relationships, independent grocers can refocus on human relationships. In our experience, smart local chains interact with customers in numerous ways that go beyond the suggestion box of yesteryear.

A number of benefits that independent grocers have traditionally “owned” are now being actively challenged by larger (sometimes much larger) retailers. Here are five competitive mantras that independents often cite; how major retailers are staking their own claim to these advantages; and the competitive response that savvy independent grocers can employ.

These retailers listen and respond to visitspecific shopper feedback, using ratings and comments to tailor their assortment and service level. They ask secondary and non-shoppers in the market why they shop elsewhere, and they survey their employees (often among the most knowledgeable customers) on a regular basis.

1

“We know our customers and understand our markets.”

Being physically rooted in the communities they serve, independent retailers have traditionally had a close relationship with the individual shoppers in their stores. Independents are often family-owned or family-involved, sometimes with second and third generation owners and managers who grew up in the same towns as their customers.

Local grocers could once proudly say that they knew their customers by name, but in today’s information-driven retail environment, that claim is hardly a complete indicator of a strong customer relationship. Grocery chains of all sizes, aided by research and multiple data streams, know a whole lot about the purchase preferences and behavior of their customers, often by demographic and psychographic segment. Many retailers make use of loyalty programs to provide targeted incentives and reward their better customers, perhaps the modern-day equivalent of dealing with folks on a first- name basis.

Independent retailers can also use social media channels to stay in tune with local shoppers. There is a large opportunity gap between shoppers using social media and those connected with their primary supermarket. Retail Feedback Group’s “2015 Supermarket Experience Study” found that while 83 percent of shoppers are using one or more social media platforms, just 31 percent are friended with or connected to their primary supermarket. This is not to imply that independent chains should ignore the increasing loyalty technology

at their disposal. In fact, these grocers can use their local knowledge and brand equity to select and tailor the programs that make the most sense for their own customer base. One independent with a forward-looking loyalty effort is Coborn’s Incorporated, based in St. Cloud, Minn. Its new “more rewards” program offers special pricing and discounts to members, including fuel, grocery, liquor, pet and baby rewards. Customers who download the associated mobile app can also receive special offers while they shop.

2

“We offer a strong variety of unique and locally sourced products.”

Independent grocers have traditionally been a source for local products that serve their shoppers’ tastes and preferences. For a long time major chains did not offer many such items given the added complexity in carrying and distributing local products to their stores. More recently, as larger retailers analyze and better understand consumer demand for local products and improve their supply chain capabilities, carrying these products is less prohibitive. Further, the lack of a clear definition of “local” – state, region, within (x) miles are among the common standards – enable any retailer to use this term liberally to promote its offerings. Other specialty products have also become more commonplace at grocery chains large and small. From pierogi to Pho noodles, a local supermarket has traditionally been the source for foods and ingredients in demand by shoppers in its own community. But once-unique or niche products are in much

wider demand as today’s shoppers have become far more knowledgeable and adventurous than prior generations in their food preparation and consumption. Major retailers have been more than happy to oblige. Retail Feedback Group’s “2016 Supermarket Experience Study” shows that the industry in general is still falling short of consumer demand for local and specialty products. When considering the variety of locally sourced and grown foods, shoppers rated their most recent grocery visit at a relatively low 4.00 on a fivepoint satisfaction scale (compared to 4.43 on variety and selection of products overall). Continued on page 70 ▶ CAL I FO RNIA GRO CER | 69


◀ Continued from page 69

So most supermarkets have an opportunity in this area. But it seems that independent retailers can (or should) have an authenticity advantage in marketing local products because they are local. To counter the foray into local and specialty products by the major chains, independents need to carefully examine the demand for local products in each market, carry relevant items, and promote these products throughout their stores using a clear marketing effort.

“I N D EPE N D E N TS S HO U L D USE ALL AVAI LA B L E RES OU R CE S TO T EL L T H E I R S TO RY TO TH E COMMU N I TY. ”

The Reasor’s chain in Tulsa, Okla., is one of many independent grocers that does an excellent job featuring items from local farms and community-based suppliers, with coordinated in-store signage, print ads, and digital promotion.

3

“We offer a convenient neighborhood shopping destination.”

A message to independents: Simply being smaller in size than a supercenter or massive grocery store does not provide an advantage per se. It’s the associated benefits of a smaller location that can resonate with shoppers: the convenience of being in a downtown area or sharing a shopping center with other trip destinations; the curated assortmentthat enables a busy mom to make quick selections; the ability to purchase a few items for dinner without waiting for an available express late, or self-checkout. These days, major retailers are offering many of these same advantages. Consider, for example, Aldi and Trader Joes that both offer a curated assorted in a small footprint resulting in a quick shopping experience.While these formats may appeal to different shoppers, they both compete with traditional supermarkets.

iStock

Of course, e-commerce has expanded the whole notion of shopping convenience beyond a retailer’s physical store locations. To compete on true convenience, independents need to complement their locational advantage with digital shopping options that meet their customers’ needs. The majority of the major supermarket chains do provide an online ordering and fulfilment service of some sort, as do other dedicated online service providers such as Amazon Fresh and Fresh Direct. It is hard to imagine a grocery retailer, large or small, that will not need an omnichannel approach to compete effectively in the coming years.

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

But focusing back on the physical aspect of convenience, some independents are experimenting with new designs and tailoring their stores to unique attributes of their neighborhood and associated consumer needs. Prime examples would be Longo’s in Toronto and Roche Bros. in the Boston area. Both venerable family-owned grocery chains with a suburban store base have opened downtown locations in recent years that cater to a different trade (likely, many of the same customers but just near their work rather than home environment). Each retailer has extended its trusted brand and used creative store design and a well-planned assortment of fresh food offerings that appeal to shoppers on a lunch break or taking home prepared food for dinner.

4

“Our customers appreciate that we invest in the local community.”

As mentioned above, independent supermarkets have strong roots in the local community. While in the past this meant strong, personal connections between employees and shoppers, and visibility in the community through Little League teams, local events and school programs, today many chains also engage in all of these same activities. Evidence has shown that consumers would prefer to shop at a local store to keep their dollars in the community, but the economic reality is that rational consumers behave in a way that best suits their needs. There are so many more available options for purchasing food and groceries than ever before – from stores and online retailers – that offer compelling ways to spend the dollars traditionally reserved for the local supermarket. Additionally, major supermarket chains also have community involvement initiatives at the store level, enabling them to allocate resources to local groups, events, and causes. This can further erode the home team advantage for independent grocers. To respond to these factors, independents can and should double-down on their community engagement efforts. In our consumer research, we often find that the independent retailer who has been deeply embedded in a local market for decades does indeed receive a great deal of credit among shoppers for all they do in the community. However, we also find independent retailers can be reluctant to promote the good work they do, often out of modesty. While this is respectable,


it can be a disadvantage. Major retailers tend to clearly and consistently communicate in as many channels as possible their charitable donations, large and small, as well as the volunteer efforts they support. So independents should use all available resources to tell their story to the community. An outstanding example of community involvement among independent retailers is Wright’s Market in southeastern Alabama. Recently after hearing concerns from his customers about blight and crime in their Opelika neighborhoods, Jimmy Wright approached the mayor with research from other cities that overcame similar issues, and he now spearheads a wide-scale community redevelopment effort. Wright’s Market also offers rides between the store and its customers’ homes for no charge. For his efforts, Jimmy has won numerous awards already in 2016, including the U.S. Chamber of Commerce’s DREAM BIG Blue Ribbon Small Business Award and the Community Excellence Award.

5

The beacons, approximately 25 per store, allow the company to make in-store, location-specific offers to shoppers via their smartphone. The resulting redemption rate is 10 to 20 times higher than for a traditional coupon. Future plans are to send personalized offers that tie into previous purchase history. Niemann Foods epitomizes the innovative mindset that independent grocers will need to stay competitive. If independent stores and chains intend to survive and thrive in the grocery space, they must take stock of – and capitalize on – their inherent advantages. By staying committed to the areas highlighted above, this vital retail segment can remain strong into the future, likely enduring several more re-makes of “To Tell The Truth.”

Doug Madenberg will be the featured speaker at this year’s Independent Grocers Forum during the 2016 CGA Strategic Conference. Doug is President of Retail Feedback Group. RFG designs customer/ employee feedback systems for retailers.

So, would the real independents please stand up? ■

"We are more nimble and innovative than larger retailers.”

The ability to make quick decisions and execute innovative ideas in short order has long been an advantage for independent retailers. Relative to major chains, decisions are made closer to the customer without the many layers of approvals frequently required at large chains. Given this, new innovations can often be tested more quickly. However, while quick decision making and the ability to innovate indeed exist for independents, new technological innovations, for example, typically come with a steep price tag that many independents can’t afford to take a risk on before the technology is proven. In contrast, major chains can take risks with access to larger pools of financial resources and the ability to recover from ideas that don’t work. To level the playing field and capitalize on their innovative instincts, independents can take advantage of resources like the Center for Advancing Retail Technology (CART) to help them vet technological solutions. Groups like CART help mitigate the risks of adopting new capabilities and place independents back on the forefront of executing on innovative technology. Niemann Foods, an independent retailer based in Quincy, Ill., is embracing new beacon technology in its 44 County Market stores.

CAL I FO RNIA GRO CER | 71


Thank you Kevin for being a great supporter of The Illuminators and your outstanding leadership of the CGA. Congratulations and welcome Jim to your Chairmanship of the CGA, 2016-2017

Check out all upcoming Illuminator Events and register to become a member of the most respected and admired grocery sales trade association in America at: www.illuminators.org


C A G ROWN Mean s Lo cal to Ca l i f o r n i a n s

H o w do Califo r nians feel about t h e f o o d t h e i r f a r me rs grow ? P ret t y good ac c o rd i n g t o co n s u me r res earch th at show s 69 perc ent o f C a l i f o r n i a n s a re w i l l in g to pay a prem ium for pro d u ce g ro wn i n thei r h om e st at e.* That means more and more retailers and marketers are taking advantage of the brand by prominently displaying the logo. “We’ve been meeting with retailers over the past year who want to use the brand because they see it as a good solution to the ‘is this grown local?’ question their customers are asking,” said Nick Matteis, executive director for the Buy California Marketing Agreement, which promotes specialty crops throughout the state through the CA GROWN brand. From packaging, to in-store signage, events and social media, consumers are getting increasingly exposed to the brand that was originally launched in 2001.

with a whopping $100 million annual marketing budget, has breathed new life into the timeless brand through a renewed marketing campaign launched in 2014.

“The program started out with a bang more than a decade ago with a nearly 30 million marketing budget and a lot of support from the agriculture community,” added Matteis. That bang still resonates with consumers as 59 percent say they have seen or heard of the brand.

Two leaders and advocates for the state of California, Caroline Beteta, CEO of Visit California and Karen Ross, California Secretary of Food and Agriculture were big supporters of the relaunch of the brand. Beteta, who travels worldwide promoting California, noted that people all over the globe consistently ask about the food grown in the state.

The timeless nature of the brand has aided in the resurgence of the new marketing program. A partnership between the Buy California Marketing Agreement and Visit California, the state tourism board 74 | CAL I FOR N I A G R OC E R

“Beteta often refers to the state’s bounty as an ‘embarrassment of riches,’” noted Matteis. “And she’s right, we can grow such

*Ba s e d on a 201 3 Fl e i s h m a n H i l l a r d Cons u m e r R e s e a r c h Stu d y


“. . . we can grow suc h an abunda n ce a n d va r i e t y o f f o o d h e re i n t h e sta te tha t it re ally s hould be c elebr at e d . ” an abundance and variety of food here in the state that it really should be celebrated.” The campaign “Always in Season” launched in 2014 as a partnership between BCMA and Visit CA. The campaign highlighted the fact that there is always something in season in California and ran in Sunset and Food and Wine magazines and through digital media. In 2016, the campaign “Farm to Fan” was launched to consumers through digital and social media. “The new campaign shows off the real rock stars in the state, our farmers, who feed people all over the world,” added Matteis. The CA GROWN campaign also incorporates a social media program that includes Facebook, Instagram, Twitter and Pinterest. A CA GROWN blog hosts

content including weekly recipes, farmer profiles, DIY projects and more. A new component to content this year is a social media correspondent who will be traveling to fairs, festivals and agritourism locations throughout the state and sharing stories via video.

Yo u ca n f ind C A GRO W N o n l i n e a t w w w.c a li f or ni a gr ow n. o r g F a c e b ook : fa c e b ook .c o m / c a g r o w n Tw i t t e r a nd Inst a gr a m : @ c a g r o w n o f f i c i a l P i nt e r e st : CA GROW N

“From farmers, to recipes and agritourism, we try to cover all of the amazing aspects of agriculture in the state,” added Matteis. An integral part of the social media program is a hashtag promotion that helps local food banks. For every #CAGROWN that is posted along with the CA GROWN logo or anything grown or produced in the state, CA GROWN donates a pound of food to a food bank. To date, there have been nearly 70,000 hashtags counted on social media. ■

CAL I FO RNIA GRO CER | 75


Congratulations to the new CGA Chairman of the Board

Jim Wallace

VP General Manger, Pavilions Thank you to outgoing Chairman, Kevin Konkel of Raley’s.


Changing of the

Guard The California Grocers Association and staff would like to congratulate Jim Wallace, Albertsons Companies, Inc., on being nominated as the 2016-2017 Chair of the CGA Board of Directors. Jim succeeds Kevin Konkel, Raley’s, whose term ends in December. On behalf of the entire Association, we say "thank you" to Kevin on a job well done. Your guidance and leadership this past year was greatly appreciated. The Association looks forward to working with Jim Wallace this coming year.

Kevin Konkel

Jim Wallace


Welcome

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Jim Wallace Farewell and thank you to the outgoing chairman,

Kevin Konkel


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Hometown, old school market BY CA SSAND R A P Y E

Vintage Grocers’ Market Director, Eric Fuchser, learned to cook from his Grandma. In fact, he recalls, he was the only grandkid allowed in the kitchen to help her cook.

we were open-minded about how to format the store, invoke change, think outside the box.”

“Both sides of the family would have big celebrations on the holidays – lots of food, lots of laughs. Those memories shaped me,” he says. It was those memories that were the motivation for Vintage Grocers and the old school, “classic, hometown” store format.

“We’ve grabbed onto the locals and let them know we’re here to serve them,” he says. “We know where our bread and butter is. We’re strictly a community market. It’s old school, it’s from the heart.”

“My mom shopped at the Ralphs down the hill,” says Fuchser, whose hometown was Glendale, Calif. “I still remember getting my nickel for the toy horse outside and the store manager giving us candy and… he knew us. You don’t forget that.” A former high school athlete, Fuchser’s mom enrolled him in a cooking class after he skipped choir practice one too many times. Now, he says, he’s exactly where he wants to be. “I wake up every morning and pinch myself – it’s kind of cliché but it’s true – to see something like Vintage Grocers come to fruition,” he says. “To have the ownership support me and put resources to do the job the right way – having the freedom to put something out there, is a dream completely come true. A lot of big retailers want to get back to their roots and build a community style market. When we opened this store, it was easy to do.” 80 | CAL I FOR N I A G R OC E R

Construction on the Vintage Market site in Malibu, Calif. started in November 2012; the store opened in March 2013. Fuchser said he and the crew typically worked until 2 a.m. to keep things on schedule. Once the store started to take shape and the walls went up, he positioned his desk near the construction and was buoyed by the neighbors who would drop by and peer inside the site. “I would give them a hard hat and take them on field trips through the store in sthe midst of the dust,” he remembers. “They seemed to pick up on the fact that

When the store opened, he says, those same customers returned and led their own tours.

The kid-friendly store hosts movie nights called “Screen on the Green” and “Endless Summer Music Nights” – a concert series that will run through early October. “We went out and purchased the equipment, a sound system and a blow-up screen,” Fuchser says. “That first night, we prepared a ton of food – we had pizza coming out of our ears.”


MEMBER PROFILE

Vintage Grocers screened “Elf ” in December and 50 customers showed up with their children. More than 200 attended the third show.

from the owner’s grandmother. Fuchser recalled that the company was nearly bankrupt when they made plans for a July 4 in-store demonstration.

“We want people to come into the store; our hourly sales go through the ceiling,” he says. “It’s a nice midweek way to engage our customers.”

“I had all 20 cases sold before the demo,” he claims. “She showed up that night with another 30 cases. We sustained her business and she sustained ours. Now she’s in Gelson’s Markets and Bristol Farms.”

Attendance at the summer music concerts has been as high as 400 and Fuchser says they’re almost all from the local community. “We source local bands,” he proudly boasts. “It’s not pretentious. It’s fun.” Success breeds success and now Vintage Grocers is “feverishly” trying to open a second store in Westlake Village this fall, taking over a former Bristol Farms and doubling its size. Fuchser says they’re already reaching out to the community to “…talk about what we are and what we do.” “We know it’s tough to be competitive,” he admits. “We’re accountable. We’ve got a job to do. We’ve got to perform. We’ve got to make money.” Fuchser says they will continue to use local, artisanal vendors to stock shelves.

Vintage Grocers doesn’t do exclusivity rights. “That’s childish,” Fuchser says. “They won’t forget us; we won’t forget them. We’ve got relationships that are deeply rooted – with vendors, bankers, anybody who passes by…we’ve made a ton of friends that way.”

“We’re strictly a community market. It’s old school, it’s from the heart.” There’s a gritty, old school Johnny Cash ringtone on Fuchser’s cell phone which he likes so much that sometimes he hesitates to pick up calls. These days; however, he can’t wait too long before answering. There’s too much to do.

“We listen to their story, we see where their heart is,” he shares.

A third Vintage Grocers is under lease and slated to open in May 2017. Talks are underway on a fourth.

One such vendor is Chicas – a producer of tortilla chips, its recipe handed down

“We have a very aggressive growth plan,” Fuchser beams. “It’s all good, so far.” ■ CAL I FO RNIA GRO CER | 81


CONGRATULATING

JIM WALLACE as the new

2016-17 CGA CHAIRMAN OF THE BOARD


KNOW THE LAW

Practical Advice on Avoiding Prop. 6 5 Enforcement BY LEIL A BRU D E R E R A N D S O PH I A B EL LO L I D OWNE Y BR A N D LLP

California’s Proposition 65 has long been a thorn in the side of California grocers. It was originally passed as a consumer scenario 1 right-to-know law with the intent that it would result in the public receiving warnings about harmful chemicals in the products they use. In practice, some would argue that consumers are no more informed after the passage of Proposition 65 because Proposition 65 warnings have become so ubiquitous, and are largely ignored. The real effect of Proposition 65 has been to subject grocers and food manufacturers to frivolous lawsuits over the last 25 years. Much of the time, grocers are put in the tenuous position of trying to determine whether to provide a warning for a particular product. But, unlike the manufacturer, grocers do not have access to product information that would enable them to determine whether a warning is actually required. Below, we have outlined some common scenarios that a grocer may face, and provided some practical suggestions for how a grocery company can protect itself from Proposition 65 liability.

A grocer has received a 60-day notice that a particular product allegedly contains a Proposition 65-listed chemical, and the particular product was sold without a warning. The grocer carries other brands of that same or a similar product. 1. Should the grocer assume that the other brands of the product also contain the Proposition 65-listed chemical? And, if so, should the grocer provide a Proposition 65 warning for the other brands to avoid enforcement? Once a grocer receives a 60-day notice that a particular product allegedly contains a Proposition 65-listed chemical, the grocer may be attributed with knowledge that a Proposition 65 warning is required for that particular product. If the grocer sells other brands of the same product, it should contact the manufacturers of the product at issue, and of the other brands, advise them that the grocer has received a 60-day notice for the same types of products, and demand that the manufacturers provide a statement

that their products are in compliance with Proposition 65 or provide a warning if the product is not in compliance. At the same time, the grocer should notify the manufacturers that if they do not respond within 30 days, the grocer will post Prop. 65 warnings for the manufacturers’ products or ask the manufacturer to recall non-compliant products, and specify that the grocer will only accept Prop. 65 compliant products from the manufacturer. 2. If the grocer provides a Prop. 65 warning for the other brands, how should it do so? The grocer can provide the Prop. 65 warning through a shelf tag, at the point of sale or with a label on the product itself, though this last option is likely burdensome for the grocer. Regardless of how the grocer provides the warning, it must be specific to the products and brands at issue. For example, if the grocer received a 60-day Prop. 65 notice for a particular brand of apple cider vinegar, and wants to provide a warning for all other brands of apple cider vinegar, the warning must state, “Warning – [insert brand(s)] of apple cider vinegar may contain chemicals known to the State of California to cause [cancer and/or reproductive harm].” Continued on page 86 ▶

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


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3. Could the grocer face liability for placing a Proposition 65 warning on the other brands? If there is any indication that the product at issue is not Prop. 65 compliant (i.e. other grocers have received 60-day Prop. 65 notices for other brand(s) of the same product), it is prudent for the grocer to provide a Prop. 65 warning for that product until it can determine through communications with the manufacturer the compliance status of the product.

Scenario 2 A manufacturer enters into a courtapproved consent judgment for a product that a grocer sells. The consent judgment requires the manufacturer to label its product sold after the Effective Date with a Proposition 65 warning. The grocer still has old stock of the product that is not labeled on its shelves, and the manufacturer has not provided new labels for those products. Should the grocer provide a warning for the old stock of the product that is still on shelves in its stores? If the consent judgment does not specifically address how a warning is to be provided for the products that will be sold to consumers after the Effective Date of the consent judgment, but were manufactured and sold to grocers prior to the effective date of the consent judgment, and the manufacturer has not provided the grocer with labels for those products, the grocer should post a warning for the product.

The biggest risk a grocer could face from providing a warning for other brands of a product covered by a 60-day Prop. 65 notice is up-stream with the distributor or manufacturer who may not want a warning placed on their product. But, if the grocer notifies the distributor/ manufacturer before providing the warning, and gives the distributor/ manufacturer the opportunity to advise whether their product is Prop. 65 compliant before the warning is posted, any risk of liability to the distributor/manufacturer should be significantly reduced.

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

In addition, the grocer should contact the manufacturer and request that the manufacturer provide labeling for its product or recall the product, and issue the grocer a refund. This assumes that the consent judgment does not include a release in the public interest that covers the grocer. Some Prop. 65 consent judgments include downstream releases covering the sellers of the product at issue. These downstream releases should bar future suits against those sellers based upon the same product and chemical. If there is a downstream release in the consent judgment, the grocer should be protected from future liability for the product and chemical at issue in the consent judgment.

We selected some common dilemmas facing grocers related to Prop. 65, but there are a myriad of issues and concerns that this burdensome statute and regulations create for grocers, and recognize that specific concerns may not have been addressed. For more information, or clarification, contact the authors through Downey Brand. ■ Editor’s Note: Leila Bruderer (Sacramento, California) and Sophia Belloli (San Francisco, California) are Counsel at Downey Brand LLP, and practice in the areas of environmental litigation, environmental compliance and Proposition 65.


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to incoming CGA Chairman Jim Wallace of Albertsons... And Thank You to Kevin Konkel of Raley’s for your dedication and contribution to CGA as Chairman this past year.


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California Grocer Issue 5, 2016