California Grocer Issue 4, 2017 by California Grocers Association

California Good Question! PAGE 42

Fresh ideas on shrink PAGE 48 2 0 1 7, I S S U E 4

CALIFORNIA GROCERS ASSOCIATION

Working in concert

Blue Moon’s Partner Chef Roy Choi

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Not Your Everyday Dishes

* Time Magazine, Time 100 Pioneers, By Anthony Bourdain, April 21, 2016. ** Huffington Post 2014. *** Source: Nielsen US Food 2015

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Concert Working in

FEATURES By Todd Hale, Principal Todd Hale, LLC

30 Working In Concert Companies that are not investing in their future will be short-lived. Now more than ever, organizations need to work “in concert” within and outside of their organizations to drive growth.

CONTENTS | ISSUE 4

COLUMNS

Easier said than done, but companies who are not investing in the future will be short-lived. Now more than ever, organizations need to work “in concert” within and outside of their organizations to drive growth.

President’s Message California’s Gold Mountain.. . . . . . . . . . . . . 5 Chairman’s Message Preparing for What Lies Ahead. . . . . . . . . . 6 Continued on page 40 ▶

Viewpoint Something Went Bump. . . . . . . . . . . . . . . . . 8 Capitol Insider Whatever Happened to Fair Play? . . . . . . . 11 Government Relations Caucasus or Caucuses?. . . . . . . . . . . . . . . . 17 Continued on page 54 ▶

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C A L I FO R N I A G R O C E R | 37

Inside the Beltway One Hundred Days and Counting: Status Update. . . . . . . . . . . . . . . . . . . . . . . . 20

42 Good Question! It could be a “game changer” or a “massive disruption” and even “cataclysmic.” But when industry pundits are asked about the overall impact of Amazon’s acquisition of Whole Foods, the basic answer is “good question!”

Washington Report This is Our Chance to Pass Tax Reform . . . . . . . . . . . . . . . . . . . . . 22 Member Profile Tops Market. . . . . . . . . . . . . . . . . . . . . . . . . 38 Mommy Blogger Shopping to Save. . . . . . . . . . . . . . . . . . . . . 60

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

48 Fresh Ideas on Perishable Shrink There is an acceptable and necessary level of perishable shrink but there are proper limits. In the second of three articles on loss prevention, industry expert Larry Miller focuses on perishable shrink.

Outside the Box New Retail Perspectives.. . . . . . . . . . . . . . . 24 Know the Law The “Wild West” of ADA Website Litigation. . . . . . . . . . . . . . . . . . . . 26 15 Minutes With… David Tamarkin. . . . . . . . . . . . . . . . . . . . . . 56 Index to Advertisers. . . . . . . . . . . . . . . . . . 59

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Conference Registration Includes: ♪ All educational sessions & programs including Sunday’s Opening General Session

♪ Complete access to the conference expo floor ♪ Breakfast & Lunch provided by The Illuminators ♪ Networking events including Opening Reception, After Hours Social, Craft Brew Social and The Illuminators Special Event

CGA members receive 5% discount on conference registration fee. Our education programming blends a variety of learning formats from keynote presentations to breakout groups. We will help you discover how to take advantage of emerging opportunities in technology, new product trends, and the latest approaches to retailing and marketing.

Who Should Attend ♪ Executives in the grocery retail, wholesale and supplier industries ♪ Buyers, purchasing, operations and marketing managers representing

small, medium and large retailers – especially those with responsibilities for dry grocery, frozen, dairy, deli, bakery, snacks and candy, perishables, produce, liquor and soft drinks, operations and marketing

♪ Suppliers doing business in the California grocery market ♪ Trade press

“The CGA Strategic Conference is ‘must’ attend for all California grocery retailers, as there is a great cross section of vendors from all aspects of the industry, as well as regional and national representation from the vendor community.” Kurt Erickson Vallarta Supermarkets

NEW THIS YEAR! Loss Prevention Summit This year’s conference expands its targeted educational content and one-on-one meeting format to include the disciplines of Loss Prevention, Safety and Risk Management. Join your industry peers during six hours of educational programming and LPSRM-specific vendor meetings.

For complete information and to register visit:

cgastrategicconference.com

FEATURED SPEAKERS Sekou Andrews Poetic Voice In this unique Opening Experience, Sekou Andrews will bring his brand of inspirational poetry that will capture the stories of our industry and leave you inspired and energized for the entire conference. Josh Linkner Four-time tech entrepreneur, hyper-growth CEO, New York Times bestselling author and venture capitalist As a five-time successful tech entrepreneur, Josh Linkner blends his improvisational jazz guitarist qualities with cutting-edge business savvy to deliver a fresh perspective on unleashing creativity in organizations. Laurie Rains Andrew Mandzy Neilsen In Tuesday’s Keynote Luncheon Laurie Rains and Andrew Mandzy will share their unique perspective on California consumers and how focusing on health and wellness, transparency and personalization can help set you apart from your competition.

FORE! Golf with The Illuminators Tee it up with your favorite grocery retailer or supplier at The Illuminators Annual Golf Tournament on Sunday, September 24. All proceeds benefit the Illuminators Educational Foundation and Scholarship program. To register, contact Michael Woolery at (510) 875–1523 or Michael@willsfreshfoods.com.

Morning Jam Session

Whiteboard Sessions

Sometimes it’s best to learn from outside grocery retail. That’s the premise for this exciting and thoughtprovoking session delivered in a TED-talk style. Three uncommon voices will challenge your traditional industry thinking and provide new context and novel approaches that will have you re-examining how you do business.

Join your peers and share your insights in these loose, intimate sessions designed to get your strategy collaboration juices flowing. Each session is moderated by an industry veteran who will encourage open and frank discussions on some of the most important issues facing our industry today. Pick two and come prepared to learn, share and contribute!

♪ John Foraker, President, Annie’s Inc. ♪ Tracie Maffei, Head of Industry, Google Inc. ♪ Payman Nejati, Founder & CEO, Handpick

Independent Grocers Forum Founder & CEO of My Cloud Grocer, Dan Dashevsky, will share his unique insights into how independents with modest budgets can achieve e-commerce success and increase store visitations while boosting sales across all channels. In addition, the Forum will include special sessions featuring presentations from national manufacturers.

Health & Wellness Andrew Mandzy, Director, Strategic Insights Health & Wellness, Nielsen Hard Discounters George Faigen, Partner, Oliver Wyman Martin Mumford, Partner, Oliver Wyman The Why Behind the Buy John Clevenger, SVP & Managing Director, Strategic Advisors, Acosta Sales & Marketing Grocery E-Commerce Sarah Mastrorocco, Head of Retail Business Development, Instacart Out of Stocks Larry Miller, President, Smart Retail Solutions

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CGA | BOARD OF DIRECTORS

EXECUTIVE COMMITTEE

CHAIRMAN APPOINTMENTS Independent Operator Committee Chair DIRECTORS

CALIFORNIA GROCERS ASSOCIATION

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Chairman Jim Wallace The Albertsons Companies

Second Vice Chair Kendra Doyel Ralphs Grocery Company

Secretary Hee-Sook Nelson Gelson’s Markets

First Vice Chair Bob Parriott Twain Harte Market

Treasurer Phil Miller C&S Wholesale Grocers

Past Chairman Kevin Konkel Raley’s

Renee Amen Super A Foods

Kevin Arceneaux Mondelēz International Inc.

Dave Jones Kellogg Company

Jon Alden Jelly Belly Candy Co.

Willie Crocker Bimbo Bakeries USA

Mark McLean CROSSMARK

Casey Rodacker Mar-Val Food Stores, Inc.

Teresa Anaya Northgate Gonzalez Markets

Steve Dietz United Natural Foods, Inc.

Casey McQuaid E & J Gallo Winery

Jonathan Samorajski Anheuser-Busch InBev

Joe Angulo El Super (Bodega Latina)

Damon Franzia Classic Wines Of California

Mario Mediati The Clorox Company

Denny Silva Coca-Cola Refreshments

Denny Belcastro Kimberly-Clark Corp.

Jen Fulton PepsiCo Inc.

Lynn Melillo Bristol Farms

Elliott Stone Mollie Stone’s Market

Leon Bergmann SUPERVALU

Michel LeClerc North State Grocery Inc.

Dan Meyer Stater Bros. Markets

Joe Toscano Nestlé Purina PetCare

Jeanne-ette Boshoff MillerCoors

Hillen Lee Procter & Gamble

Doug Minor Numero Uno Market

Jim Van Gorkom NuCal Foods

Bob Bukovec Tyson Foods, Inc.

Eric Lindberg, Jr. Grocery Outlet, Inc.

Nicole Pesco The Save Mart Companies

Michael Walton Unilever

Cindy Chikahisa Sprouts Farmers Market

Jonathan Mayes Albertsons Companies, Inc.

Laura Price Nielsen

Richard Wardwell Superior Grocers

Brent Cotten The Hershey Company

Joe McDonnell Campbell Soup Company

Mike Ridenour The Kraft Heinz Company

Kevin Young Young’s Payless Market IGA

President/CEO Ronald Fong

Senior Director, Events & Sponsorship Beth Wright

Dennis Darling Foods Etc.

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

Senior Director, Government Relations Aaron Moreno

Senior Vice President, Marketing & Business Development Doug Scholz

Director, CGA Educational Foundation Brianne Page

Vice President, Communications Dave Heylen

Director, Administration Lesley Hall

Executive Director, CGA Educational Foundation Shiloh London, CFRE

Controller Gary Brewer

California Grocer is the official publication of the California Grocers Association. 1215 K Street, Suite 700 Sacramento, CA 95814 (916) 448–3545 (916) 448–2793 Fax www.cagrocers.com For association members, subscription is included in membership dues. Subscription rate for non–members is $100 . © 2017 California Grocers Association

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

PRESIDENT’S MESSAGE

California’s Gold Mountain

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

Despite a number of significant challenges facing California’s grocery industry, new players continue to enter the Golden State market. When I was a boy, my grandfather would tell me that his ancestors called California “gold mountain,” the land of opportunity. They literally believed the Sierra Nevada mountains were laden with gold and anybody willing to work hard and mine the mountain could be rich. I think the same could be said about our industry here in the Golden State. About a year ago, the Los Angeles Times featured this headline “California is a magnet – and a graveyard for supermarkets.” Perhaps you read the article. If one Googles “Southern California grocery market” they would find words like “cutthroat,” “war,” and “battle.” Not too encouraging for any grocer thinking of entering this highly competitive market. And yet as we all know, several large retailers are aggressively entering California’s highly competitive, highly regulated marketplace. All of this makes me think of the “New York, New York” the theme song from the movie by the same name and originally sung by Liza Minnelli but made famous by Frank Sinatra.

“If I can make it there, I’ll make it anywhere…” What is it that lures grocery retailers to such a fiercely competitive market? Perhaps it’s the fact that California ranks No. 1 in population (we are nearing 40 million), which translates into an enormous amount of business. In Southern California, the answer is simple – $45 billion in annual sales, making it the largest grocery market in the United States. And not too far behind is the San Francisco Bay Area.

Recent reports reveal that our industry has marginally declined over the past five years for a plethora of reasons. Yet, in today’s world of mergers and acquisitions (of which California certainly is not immune), government over regulation, and accelerated competition from non– traditional retailers, the Golden State remains somewhat of an anomaly. I think in many ways my ancestors were right about California. It is a “gold mountain” where – if you work hard and make it here you can, like Mr. Sinatra crooned, make it anywhere. It’s up to you! ■

Or perhaps it’s our tremendous diversity (it is a minority–majority state), which is drawing attention from more diverse retailers. And what’s surprising is the growth taking place despite the fact that California constantly ranks at the bottom of states considered “business friendly.” Consider the decisions our elected officials have made in just the past few years – minimum wage and grocery worker retention to name just a few. Why would any company want to come here?

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CHAIRMAN’S MESSAGE

Preparing For What Lies Ahead

J I M WA L L AC E T HE ALBE R TS ON S COMPAN IES

Our industry is evolving at a tremendous pace, your Association, with the collaborative support and direction of the entire food industry is as well. Wallace

In July, CGA assembled a team of member retailers, suppliers and wholesalers, along with the Senior Management Team, and spent an entire day charting a course for the Association’s future. It was an extremely productive meeting with a creative facilitator that effectively guided us to a substantial end result. We opened the day by analyzing the industry’s current environment and the many factors impacting it. As you can imagine, there was no shortage of input provided.

We then applied that information to CGA and assessed the Association’s strengths, weaknesses, opportunities and threats (SWOT). Many of you I’m sure in your companies have used this type of analysis. Following lunch, we broke into smaller working groups and by day’s end hammered out a strategy for CGA staff to refine and make recommendations to the board for a strategic plan for the coming years. Beyond what we accomplished in terms of providing direction, I walked away from the session with a couple of observations that I want to share.

First, since being elected to the CGA Board several years ago, I’ve been tremendously impressed with the industry’s comradery and willingness to work together on common issues that impact us all. I have experienced this in board meetings, conferences and other gatherings, including this strategic planning session. Despite being fierce competitors in the marketplace, we were able to openly discuss what’s best for CGA, and ultimately our industry. Second, in performing our SWOT analysis of CGA, I sensed a high level of urgency in responding to the threats facing our industry. The grocery sector is morphing at an accelerated pace and we, along with CGA, must respond rapidly if we are to remain relevant. And finally, I walked away from this exercise confident that CGA is working hard to improve the grocery climate in California. But there is still much it can accomplish. The list of Association strengths was impressive, but the list of opportunities was even more so. In the coming months staff will evaluate our recommendations and formulate its plan to bring it to fruition. It will be a daunting task, but I am confident of their success and look forward to where it will lead the Association. ■

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VIEWPOINT

Something Went Bump

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

I was sitting at the counter in my kitchen, sipping coffee. Nibbling on a bagel. Checking email. It was a Friday morning, and it never occurred to me that an earthquake of sorts was about to hit. That’s when I got the alert. “Amazon To Buy Whole Foods For $13.7 Billion.” Yikes. Didn’t see that one coming. On the other hand, it is the kind of disruptive move that for more than a decade I’ve been suggesting would come. The outlines of the acquisition are, on the face of it, simple. It is an all-cash deal. Both parties hope it will close before the end of the year, though as of this writing it remains to be seen whether there will be a competitive bid for Whole Foods from another retailer. Amazon has pledged to allow Whole Foods to continue to operate as it has, with Jeff Bezos saying, “Whole Foods Market has been satisfying, delighting and nourishing customers for nearly four decades – they’re doing an amazing job and we want that to continue.” Which is the only part I’m really skeptical about. Because I don’t think Bezos has any intention of letting Whole Foods continue the way it has, especially because it has of late been suffering through declining sales… not to mention what I tend to think of as creative stagnation. 8 | CAL I FOR N I A G R OC E R

“So we sat in the house. We did nothing at all.

So all we could do was to Sit! Sit! Sit! Sit! And we did not like it. Not one little bit. And then Something went BUMP!

How that bump made us jump!” The Cat in the Hat by Dr. Seuss I don’t think Bezos is any more likely to let Whole Foods continue in its current ways than he was to let The Washington Post continue operating the way it always had when he bought one of the nation’s premier newspapers.

I think Bezos sees Whole Foods in the same way that he saw the Post – as a business model that had not been able to adapt to an environment in which there is greater competition, and may have been unwilling to adapt to a digital economy that created entirely different expectations on the company. Under his ownership and with his investment, the Post suddenly is a vibrant, profitable company (though that’s in part because of a suddenly news-hungry citizenry…but it has been well positioned to take advantage of this). My friend Tom Furphy, who propelled Amazon into the CPG business and then launched Amazon Fresh during his tenure there, told me that in the long run, “this is a good day for consumers, a good day for Whole Foods shareholders, but a bad day for the big incumbent retailers.” The game is changing fast, he said, and traditional grocers simply seem incapable of keeping up – they take too long to make the kinds of decisions they need to make in order to compete effectively. What will Amazon do to make Whole Foods compete more effectively? I have some thoughts… They’re going to find ways to drive margin out of the business by being more efficient in buying, operations, and infrastructure.

VIEWPOINT

That is going to make Whole Foods a lot more competitive on price – which is going to have an impact on every traditional grocer that has been able to steal market share from Whole Foods by offering lower-priced organics. Can you imagine what would happen if Whole Foods announced the day after its deal with Amazon has been completed that every Amazon Prime member gets a 5 percent discount there? Whole Foods has been slow and clumsy in its ability to take customer data and translate it into meaningful customer communications that can then translate into sales…but one has to imagine this is low-hanging (organic) fruit for Amazon. They’ll fix that fast. Subscribe and Save for Whole Foods products? Ordering via the Echo/Alexa system and Dash buttons? One has to imagine that all this stuff is on the table. And there will be no dithering – just incisive analysis and fast execution… with what at Amazon they call a Bias for Action.

Tom Furphy is absolutely right. Big, traditional, incumbent retailers have to wake up. “Today is Day One,” is the Amazon mantra, and the folks there are moving fast. If you do not have an effective and efficient digital/e-commerce/ automation strategy, you are facing nine miles of bad road. By the way…When I write that traditional retailers have to respond, I’m not just talking about Amazon’s specific competitive operations, but also the broader understanding of competitive and consumer realities that Amazon reflects. Because there actually is something going on here that is a lot bigger than Amazon. (If you doubt me, think about it the next time you go to a Circuit City, RadioShack, Blockbuster or Borders.) It also is critical to keep one thing in mind – Jeff Bezos thinks long-term. In doing this deal, he has crystalized in his mind how Whole Foods fits into the Amazon ecosystem in 2020 and beyond.

“The game is changing fast, he said, and traditional grocers simply seem incapable of keeping up – they take too long to make the kinds of decisions they need to make in order to compete effectively.” The question that traditional retailers in all segments ought to be asking is this: iStock

There may be some Whole Foods customers who will see this acquisition as a negative, but not many, I’d guess…because I’d be willing to bet there is a ton of overlap between Prime members and Whole Foods customers. (Amazon Lockers at Whole Foods stores may be as commonplace as checkout lanes.)

What’s next? You can’t just sit. You can’t wait for something to go bump. But if you do, I can guarantee one thing. You won’t like it. Not one little bit. ■

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CAPITOL INSIDER

Whatever Happened to Fair Play? LO U I E B ROW N IN THE S ACR AMEN TO OFFICE OF K HAN, S OAR E S AN D CON WAY, L L P

With all the public discord and negativity in politics today it makes me think back to the poem by Robert Fulghum, “All I Really Need to Know I Learned in Kindergarten.” Brown

This was written in 1990 and was an instant success for its simplicity and truth. As I reread the words of Mr. Fulghum, they still ring true today.

correcting the situation? This is how I was raised and how I believe many others were but power has a way of changing at people view as wrong or right.

Just imagine if a few lines from this poem were read before each session of the California Legislature or Congress, or if someone read it to our President. Here are the parts, I think would make a difference:

Not too long ago, people didn’t worry much about opposing others in the Capitol because it was a business relationship. People understood there would be differences of opinion and that it was just business. However, that has changed. Today on some issues, if you have a different opinion or position, you are considered wrong, and its personal. Look at the issue of child vaccinations, where the opposition to the measure in the Legislature started personally attacking a lobbyist for representing the interest of her client.

• Play Fair • Clean up your own mess • Say you’re sorry when you hurt somebody • When you go out in the world, watch for traffic, hold hands and stick together. In both Congress and the Legislature, the majority parties have forgotten the notions of fair play. Instead, power dominates and the rules of the game change to favor those in power. These short-term gains for the party lose sight of the long-term problems created for the country and state. Rather than cleaning up our own mess, the new focus is finding someone else to blame. Whatever happened to admitting you were wrong, apologizing for your actions and then

Or, most recently, the death threats made to the Speaker of the Assembly for moving the Single Payer Health Care bill to the Assembly Rules Committee. What has changed in our society that makes it okay to attack someone for his or her opinion on something like health care, or anything else for that matter?

Hold hands and stick together are the most important words in this poem, in my opinion. We are one state of almost 40 million people. We are the world’s eighth largest economy. We are on a world stage and set the example for others to follow. We have shown leadership on any number of major policies, like climate change. However, we have failed at showing the world how to work together. We continue to be more focused on fighting the fight and making political statements than working together to find common ground. Even though one party dominates in California, it doesn’t mean there aren’t people, citizens of the state, with different opinions that need to be considered. Today is certainly more complicated than it was in 1990. However, there are certain truths that should never change. • Live a balanced life – learn some and think some. • And draw and paint and sing and dance. • And play and work every day some. • Take a nap every afternoon. Words to live by! ■

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CGA NEWS

INDUSTRY TEES IT UP Grocery retailers and suppliers teed it up this summer at three golf tournaments sponsored by the California Grocers Association and CGA Educational Foundation.

Independent Grocers Golf Tournament

First off the tee was the Independent Grocers Golf Tournament on June 7 at the Oakmont Golf Course in Santa Rosa, Calif. Independent grocers and their supplier partners from throughout California participated in this annual gathering. Highlighting the annual event was special recognition of long-time tournament organizer Dick Gong, who recently retired form G & G Supermarkets.

Dick Gong, retired from G & G Supermarkets, Inc, Ron Fong, CGA

Shawna Foote, Kevin Young, Shanna Medeiros, Anthony Medeiros, Young’s Payless Market IGA

Jerry Pierson, Jon Alden, Dennis Spiller, Jelly Belly Candy Co.

Jim Van Gorkam and Tracy Lape, NuCal Foods; Scott Weber, Sunrise Farms; Herm Benedetti, retired from Clover Sonoma

Mike Stone, Rich Moresco, Jerry Boitano, Mollie Stone’s Markets; Matt Bloom, Clover Sonoma

Tony Mucci, Robert Mayo, Justin Kargl, Andy Douglas, La Croix Sparkling Waters

The CGA Educational Foundation’s two Golf Classics were huge hits with grocery retailers and suppliers from throughout California. While the Northern California tournament returned to Blackhawk Country Club in Danville, the Southern California tournament moved to a new location – the beautiful Monarch Beach Golf Links in Dana Point. Proceeds from the two CGAEF Golf Classics support the Foundation’s college scholarship and career development programs. “All three of these tournaments could not achieve their levels of success without the tremendous support of our golfers and the many sponsoring companies,” CGA President and CGAEF President Ron Fong said. “Your generous support is greatly appreciated.”

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

CGA NEWS

CGAEF Golf Classic – Northern California

Bill Cote, Brad Clark, Saul Mejia, Scott Powell, Food 4 Less (Stockton)/Rancho San Miguel

Karl Konrad, Co-Sales Northern California; Kathleen Smith, Albertsons Companies, Inc.; Mark Olejnik and Kent Kunsman, C & H Sugar/ ASR Group

Jacob Jennings and Joe Wiborn of Coca-Cola Refreshment, Benny Aguilar and Matt Kurtz, Safeway

Mike Bible, North State Grocery, Inc.; Eric Pearlman and Phil Miller, C & S Wholesale Grocers; Richie Morgan, North State Grocery, Inc.

Mark Ly, Sugar Bowl Bakery; Chad Sokol, Costco Wholesale; Dennis Albrecht, Peet’s Coffee, Pete Thomsen, Sugar Bowl Bakery

Chad Pierotti, The Clorox Company; Jim Lubman, Zenith Insurance Company; Craig Santa Maria, Santa Maria Insurance; Mario Mediati, The Clorox Company

CGAEF Golf Classic – Southern California

Tim Cohen, Hidden Villa Ranch; Jaime Prager, Albertsons, Vons, Pavilions – Southern California; John Cohen, Hidden Villa Ranch; Kevin Jackson, Safeway

Hee-Sook Nelson, Gelson’s Markets

Paul D’Arca, Ben Lengfield, Jeff Novak and Lester Massengale (not pictured), Kirkley Corporation captured first place honors

Steve Howard, Pat Posey, Lynn Melillo, Chuck White, Bristol Farms

George Galanos and Henry Mayhew, Mayhew Associates; Donna Tyndall, Gelson’s Markets; Mike Ketcham, Albertsons, Vons, Pavilions – Southern California

◀ Continued from page 13

Steve Weakley, Gary Vlcek, Steve Campeau, Donna Simpson, Certified Federal Credit Union

Continued on page 15 ▶ CAL I FO RNIA GRO CER | 13

◀ Continued from page 13

NEW MEMBERS CGA welcomes the following members:

Bodegas y Viñedos Chirino SA (ARBW/Antigua Bodegua) Catamarca 1419 N San Juan 5400 Argentina Contact: Facundo Fernandez, Sales Director Email: facundo.fernandez@aarbw.com.ar Tel: +5492614162120 Website: www.arbw.com.ar

California Fresh Market/El Rancho Marketplace 2886 Mission Dr Solvang, CA 93463–9408 Contact: Greg King, President Tel: (805) 688–4300 Website: www.californiafreshmarket.com

Idyllwild Village Market PO Box 755 Idyllwild, CA 92549-0755 Contact: Linda McCormack, Owner Email: 247ivm@gmail.com Tel: (951) 659–3800

Livonia Glatt Market 8922 W Pico Blvd Los Angeles, CA 90035-3334 Contact: Farzad Kohanzadeh, CEO Email: glatt@livoniaglatt.com Tel: (310) 271–4343 Website: www.livoniaglatt.com

REVOLVE ™ 3155 S 5th Ave Oroville, CA 95965-5858 Contact: Erik Johansen, Material Collection Manager/Buyer Email: ejohansen@roplast.com Tel: (800) 767–5278 Website: www.revolverecyclingusa.com

Unified Protective Services 4431 Rosecrans Ave Ste 200 Hawthorne, CA 90250-6941 Contact: Kristina Ruff, Business Development Supervisor Email: bdadmin@unifiedsi.com Tel: (310) 263–2500 Website: www.unifiedprotectiveservices.com

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To us, local means California We’re proud to offer more of what Californians are looking for – from locally grown produce to California-raised USDA choice meat. Long before local was cool, our family of stores made it a priority to buy direct from local growers. In fact, some of our current relationships with farmers started over 60 years ago. We’re working hard to be California’s favorite grocer. In our neighborhoods, we are focused on developing offerings unique to the California lifestyle, we’re dedicated to contributing to the community, and we’re honored to call nearly 70,000 Californians our employees. To us... Local means fresher. Local means better. Local means California.

GOVERNMENT RELATIONS

Caucasus or Caucuses? That Depends 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

While one is a mountain range and the other a legislative body, both share one thing in common, they have long histories of conflict. The Caucasus, as defined by Wikipedia, is a region at the border of Europe and Asia situated between the Black Sea and Caspian Sea. It is home to Europe’s largest mountain range (also named the Caucasus), which serves as a natural barrier between Europe and Southwestern Asia. The region is one with a long history of conflict, most notably between the Armenian and Turkish people, whose nations border one another at the southern foot of the mountain range. Interesting as these Caucasus may be, I want to talk about the other caucuses. Yes, I know they are spelled differently, but they sound the same when said aloud (You just said it out aloud in your head, didn’t you?). These caucuses, are not regions, or even mountain ranges. They are, rather, centers of power that exist within the Legislature. And the only thing that the legislative caucuses have in common with the geographical Caucasus, besides being a homophone (a word that has the same sound as another word, but is spelled differently and has a different meaning) is that they are both regions with long histories of conflict.

For those who may not know, a caucus is a group of members of a legislative body who belong to a particular party, or faction. To illustrate, within the California Legislature each legislator is a member of either the Republican or Democratic Caucus based on their party affiliation – and these caucuses meet regularly to discuss and agree (or disagree) on policy decisions that they will take, for the most part, as a group. The decisions made by the main caucuses set the stage for the more traditional conflicts in the legislature. For instance, when there is a measure pertaining to gun control before either of the houses, the Republican Caucus inevitably takes a position of opposing any measure that could be construed as chipping away at people’s right to bear arms; and the Democratic Caucus inevitably takes a position that leads to more restrictions on gun ownership. The caucus becomes a rallying point from which collective action is taken to further the views of its members.

At first glance, the caucuses seem pretty straight forward: Democrats vs. Republicans, which is an extension of liberal versus conservative, which is the main political dividing line in our nation’s politics. There are, however, smaller caucuses that exist within the larger ones, most notably on the Democratic side. It has come to pass that most of the recent political battles in the Legislature have been intra-caucus. And with Democrats holding supermajorities in both houses, that shows no sign of changing in the near future. But what are some of these caucuses? For political outsiders, it is often hard to fathom that legislators would take positions that would put them at odds with members of their own party’s caucus. Many of the smaller caucuses within the Democratic Caucus center around identity. Some of these include such groups as the Women’s Caucus, the Latino Caucus, the LGBT Caucus, the Legislative Black Caucus, and the Asian/Pacific Islander Caucus, to name a few. These caucuses tend to be less antagonistic towards one another and generally exist to promote better equality and justice for people who share their background. Continued on page 18 ▶

CAL I FO RNIA GRO CER | 17

GOVERNMENT RELATIONS ◀ Continued from page 17

The real Democratic intra-party battles are between the more business-friendly Moderate Caucus, now known as the New Dems and the more progressive wing of the Democratic Caucus that has recently come together as the Progressive Caucus. The battles fought between these two wings of the Democratic Caucus generally center around business regulation and the environment, with the New Dems joining the Republican Caucus to either block or significantly water-down legislation that might be overly burdensome on business. One might wonder how it could be that some Democrats would align themselves with Republicans to impede legislation by their fellow Democrats. There are a number of factors that have led to this new dynamic, but the biggest one has been the

introduction of open primaries in legislative races. This has allowed for a number of Democrat vs. Democrat races where the winner is decided by Republicans and decline-to-state voters. These legislators reflect a general political ideology that is more liberal on social issues, but centrist to conservative on economic issues. As such, they tend to be more hesitant to support measures that would affect their constituents’ pocketbooks or constituent businesses’ bottom lines. This can lead to a lot of conflict with their fellow progressive Democrats who hail from more solidly liberal districts. This dynamic has played itself out on legislation to establish universal health care in California, more stringent emissions

Looking to a

bright future! Congratulations to this year’s scholarship winners!

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standards for the manufacturing and transportation sectors, and higher taxes on certain products such as liquor or alcohol, among other legislation. And these battles have become so contentious that they have resulted in progressive Democrats openly and actively fighting New Dems for legislative seats, and vice-versa. With the nation’s partisan divide ever widening and the rising clout of the extreme left and extreme right in their prospective political parties, look for these intra–party fights to become nastier and more common. So, the next time someone tells you there is fighting in the Caucasus/caucuses, be sure to ask: Which ones? ■

INSIDE THE BELTWAY

O n e H u n d r e d D ay s a n d C o u n t i n g : S tat u s U p d at e J EN N I F ER H ATC H ER S EN IOR V ICE PR ES IDEN T GOV E R N ME N T AN D PUBLIC AFFAIRS FOOD MAR K ET IN G IN S TIT UTE

Republicans may control both the White House and Congress but that hasn’t translated into simple success in moving legislative priorities. Following the first few months of the year, the Trump administration and congressional leadership are realizing that one-party control of the White House and Congress does not necessarily translate into a simple or speedy process for passing their legislative priorities. The Republican priorities remain – to get repeal and replace of the Affordable Care Act so that comprehensive tax reform can become a real possibility; to continue to identify and modify executive branch regulatory actions completed in the previous administration that are having a negative impact on job growth; and to continue to nominate and confirm individuals for key leadership positions throughout government. In spite of the delays and setbacks, the Food Marketing Institute has seen some solid victories and positive developments on the regulatory and legislative fronts on our key issues.

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Common Sense Nutrition Labeling In May, FDA delayed the compliance date for its menu labeling regulation, just days before the May 5, 2017 compliance date. Compliance will now begin on May 7, 2018, and the agency is accepting comments on certain parts of the rule so the administration will decide how it needs to be changed beyond the additional time to comply. Knowing how much work the industry has already done in preparation for the May 2017 date, our legislative efforts continue to stress the need for certain fixes to the rule, not to exempt the industry from menu labeling requirements. Preserve Debit Swipe Fee Reforms May also brought the industry good news when House Financial Services Chairman Jeb Hensarling (R-Texas) announced he would drop his efforts to repeal the debit reforms in his financial reform legislation. These reforms have prevented debit fees from exceeding the Federal Reserve caps and have allowed retailers more than one way to route a transaction – keeping competition alive.

After months of intense lobbying by FMI and many others in the retail sector, the Chairman acknowledged that the debit repeal provision was too contentious to remain in the bill. Retailers of all sectors joined FMI in hosting fly-ins, sending letters and e-mails to lawmakers to tell our story about why the debit reforms were critical to retailers and our customers. Don’t Require Us to Release Store Level Business Data On the legal front, FMI took action in January to prevent the U.S. Department of Agriculture from releasing individual store SNAP redemption data. We filed a motion to intervene in the Argus Leader case based on our discussions with members of FMI’s board in order to protect the sensitive and confidential information of our members’ stores. Following FMI’s motion to intervene, the judge issued a stay to prevent the retailer information from being released. Health Care: Repeal and Replace May Be Easier Said Than Done Despite the initial roadblocks, in May, the House passed the American Health Care Act, legislation designed to repeal and replace the Affordable Care Act (ACA). The bill support came only from Republican lawmakers, while 20 Republican members joined the full Democratic caucus in opposing the bill.

INSIDE THE BELTWAY Among its many provisions, the American Health Care Act would eliminate employer mandate penalties; delay the ACA’s “Cadillac Tax;” restore consumers’ ability to use FSAs to purchase over-the-counter products without a prescription; and phase out the ACA’s Medicaid expansion. FMI has been weighing in on these issues, as well as the protection of the tax treatment and ERISA preemption for employer-sponsored health benefits. The contention surrounding the bill, the process and the underlying ACA leaves the legislative path forward for the bill very much up in the air, but by using the budget reconciliation process, lawmakers would only need a simple majority to pass the bill in the Senate which is why the Senate continues to press to pass their own bill and hopefully a bill the House can also take up and pass. The months ahead will shed light on the future of health care and the broader implications of the legislative schedule, especially within the context of whether Congress will be able to pass a tax reform package. Tax Reform is Critical The House Ways and Means Committee began its series of hearings on tax reform, the most recent of which focused on the border adjustment tax. FMI submitted a statement for the hearing record in opposition to the border adjustment tax (BAT). While lawmakers continue to debate the details of a legislative package, the Trump administration released its latest proposal that may serve as a form of a framework for upcoming legislation. The administration proposal would lower the corporate tax rate to 15 percent; tax pass-through companies’ business income at 15 percent; repeal the estate tax; repeal the alternative minimum tax; and would not include a BAT. The path forward for tax reform is still uncertain for the second half of 2017, but FMI remains hopeful that Congress and the administration are serious about reforming the nation’s tax system in the months ahead. At the beginning of 2017, the prospects for achieving comprehensive tax reform had not been higher in years. As we approach the

halfway point of the year, lawmakers remain cautiously optimistic that Congress can still pass a tax reform package, albeit at a less accelerated pace. Administration officials and House leaders have publicly discussed the possibility of passing tax reform legislation before the August recess, whereas Senate leaders more temperately believe that a timeframe towards the fall or 2018 are not out of the question. As leadership decides on a timetable, there is still widespread disagreement over what a tax reform package would look like. The potential inclusion of a BAT sparked a strong response from FMI and other retailers. FMI joined Americans for Affordable Products, a coalition of businesses and other interests that has focused on opposing any type of BAT. Food Safety: FSMA Compliance Dates Are Here Food safety is a top priority for FMI, and helping our members comply with FDA’s Food Safety Modernization Act (FSMA) remains a significant focus within the organization. The compliance dates have now passed for several key rules of FSMA, and the food retail industry continues to move forward with its food safety planning as additional compliance dates approach in the months ahead. FMI will continue hosting training sessions to help FMI member companies and other stakeholders understand FSMA requirements and ensure compliance with the law. Months without Labor Pains FMI works on a number of employer issues on both the legislative and regulatory sides, including labor and wage policy, and we have seen several developments in this area under the new administration. The changes to overtime pay made under the Obama administration’s Department of Labor (DOL) remain halted after a judge in the Eastern District of Texas issued a preliminary nationwide injunction before the Dec. 1, 2016 compliance date. As of now, last year’s changes to overtime pay remain stayed, and employers are not required to comply with the changes. Recently, DOL submitted a proposed rule for review at the Office of Management

and Budget that would rescind the Obama administration’s persuader rule. The persuader rule greatly narrowed the advice exemption under the Labor Management Reporting and Disclosure Act (LMRDA) and required employers and consultants to report to DOL on communications made to employers with respect to union organization or collective bargaining. For now, the nationwide injunction remains in place until there is further action from the agency. There also continues to be activity at the state and local levels. Georgia, Iowa, and Missouri have prohibited localities from mandating minimum wages or employee benefits of any kind. Indiana has preempted local regulation of employer use of criminal background checks, and 26 states now preempt municipal efforts to increase the minimum wage. National Biotechnology Disclosure Standard? Most people will remember the legislative efforts last summer to pass a federal law that would establish a national uniform standard for biotechnology disclosure. Congress passed S. 764, and President Obama signed the bill into law (P.L. 114-216) on July 29, 2016. Since then, USDA has taken steps to begin the process of completing the retailer study required by the law to identify potential technological challenges that could prevent consumers from accessing certain digital disclosure methods. Deloitte has been retained by USDA to complete the study, and they anticipate that the study will be completed and recommendations presented to USDA Secretary Sonny Purdue by July. Since the passage of the law, FMI has been participating in several working groups with other associations and stakeholders to ensure that the industry’s concerns are addressed throughout the implementation process. Purdue has only been at his post for a little over a month, but we expect to learn greater details in the months ahead about the process the agency may take to complete its rulemaking by the statute’s mandatory twoyear deadline in July 2018. ■

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WASHINGTON REPORT

This Is Our Chance to Pass Tax Reform

PET ER L A R K I N PR E S IDE N T AN D CEO N AT ION AL GR OCER S AS S OCIATIO N

More than 30 years have gone by since our tax code was last reformed as a landmark victory under President Ronald Reagan. With President Donald Trump in the White House and Congress under Republican control, the stars may have aligned once again. On the campaign trail, Trump promised voters his administration would usher in the most significant tax reform since Reagan and provide one the biggest tax cuts in American history. It’s no surprise why this appealed to so many; in 1935, the United States had a one-page tax form consisting of 34 lines and two pages of instructions. Today, the basic 1040 form has 79 lines and 211 pages of instructions. When the administration took office, Treasury Secretary Steven Mnuchin predicted tax reform would be done by the time Congress departed for the August break. That does not appear to be the case and Mnuchin has since backed away from that prediction. So where are we now and when could tax reform get passed? Or, will it get passed at all? In June, Speaker Paul Ryan (R-WI) signaled that Congress was ready to get to work with a major tax reform speech. “President Trump recently introduced a set of principles for tax reform, and right now we – the House and Senate – are working with the administration to turn them into a transformational tax 22 | CAL I FOR N I A G R OC E R

reform plan. Chairman Kevin Brady and our Ways and Means Committee members are holding open hearings and meeting with stakeholders on this right now,” Ryan said. Tax plans that have been released to the public still raise many questions for the independent supermarket industry, such as, how will deductions be eliminated to pay for the proposed decrease in corporate tax rates, how will the proposed border adjustability tax impact food prices, will the LIFO accounting method be preserved and will the House and the Senate be able to agree on a bill? During his speech, Ryan also promised to eliminate the estate tax, which is especially burdensome to family-owned independent grocers and wholesalers. Over half of the average supermarket’s assets – the highest of any other industry sector – are not liquid, creating serious obstacles at the owner’s death. As a result, many independent supermarkets have to consider borrowing, which could lead to slower growth, or shut the doors of the operations.

The National Grocers Association (NGA) and the independent supermarket industry has been urging lawmakers to pass oncein-a-generation tax reform that can create a level playing field for American businesses. NGA has released the following principles to guide the House and Senate as they consider tax reform: lowering the tax rate across the board, maintaining the interest expense deduction, creating parity between pass-through entities and C-Corporations, rejecting a border adjustment tax (BAT), preserving the use of last-in, first-out (LIFO) method of accounting, and permanently repealing the estate tax. As August comes to a close, NGA will continue working with Members of Congress to ensure tax reform remains a priority throughout the rest of the year by continuing to share the stories of independent grocers facing the onerous tax code. NGA has recently launched a monthly e-newsletter, titled NGA’s Tax Return, to keep our members updated with the proposals on tax reform and their impact on the independent supermarket industry. Sign up to receive the newsletter at www.nationalgrocers.org/Tax-Return. ■

Congratulations to Our Extraordinary CGA Educational Foundation Scholarship Recipients

Adela Enriquez

David Masterson

Sherly Gomez

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Stephanie Vargas

OUTSIDE THE BOX N EW RETAIL PERS PECTIV ES

Makeup Markup? You might have to shift merchandising from edamame to eyeliner. For the next generation of shoppers, what they buy may be determined more by looking good than tasting good. Gen Z, those coming of age kids who are as young as 13, is the first generation to use social media in their formative years and they are under pressure to look good. Researchers believe this will drive up spending for beauty products, and beauty and fitness services. Spending soared about 200 percent in each of the last two years and YouTube videos are largely responsible. iStock

Too Much Technology? Clearly, technology can be maddening and unfathomable. That seemed to be the case with 6-year-old Brooke Neitzel from Dallas who was playing with her parentsâ&#x20AC;&#x2122; Amazon Echo. The toddler asked the machine to play dollhouse. The next thing you know, a new dollhouse was delivered to the house along with four pounds of sugar cookies. Her parents have since installed a code to prevent unauthorized purchases. iStock

Mall Malaise Faced with massive store closings, digital competition and shopper fatigue, mall owners around the country are taking the technological bull by the horns and deploying smartphone and social media initiatives to keep people spending. Gone are the paper coupons and reward cards of yesteryear. Landlords are replacing them with phone apps and programs linked to credit cards that identify individual shoppers spending habits and target them with special offers. At the Chicago Ridge Mall, shoppers swipe their credit card at a kiosk to sign up for the Oh So Simple Rewards Program. For every $250 spent in total at the mallâ&#x20AC;&#x2122;s stores the consumer receives a $10 reward. 24 | CAL I FOR N I A G R OC E R

iStock

OUTSIDE THE BOX

Small

Steps

Mirror, Mirror iStock

More companies have developed incubator labs to develop new products. IKEA is taking the idea a step further by inviting others to join them.

alt facts?

The chain’s Innovation Incubator Program invites startup companies to apply for a threemonth stint in one of the retailer’s labs in Sweden. Each company will get $22,400, three months of free housing and access to IKEA’s prototype shop, a test lab and hands-on access to the expertise of scientists working in the lab. IKEA wants to focus the incubator on eight key areas: food; disruptive technologies, customer experience, disruptive design, sustainability, manufacturing, supply chain, and analytics.

≠

iStock

Stop the presses! Chocolate milk comes from brown cows. Hard to believe in this day and age, but recent surveys reveal that 16.4 million grownups in America don’t seem to understand the origin of chocolate milk.

Meanwhile, iconic beauty brand Estee Lauder, is launching its first Augmented Reality beauty app at UK retail outlets. It has been designed to give shoppers the opportunity to try on all 30 Estée Lauder shades in real-time, or on a static photo directly through the app. Beauty advisors are on hand at all locations to show consumers how to download and use the YouCam app. With over 400 million downloads globally, YouCam Makeup is one of the world’s most popular beauty apps.

PRIVACY ISSUES Sometimes it just doesn’t pay to be a public company. That’s what the members of the Nordstrom family are thinking as they mull whether to take the retailer private. “Because of the changing dynamics in the retail environment, the group is evaluating whether the long-term interests of the issuer are better served as a privately held company,” Nordstrom said in a regulatory filing. The family collectively owns about 31 percent of the company’s shares. iStock CAL I FO RNIA GRO CER | 25

KNOW THE LAW

The “Wild West” of ADA Website Litigation BY: DAVID F OX

Accessibility lawsuits filed under Title III of the Americans with Disabilities Act (ADA) have been on the rise, increasing by 37% from 2015 to 2016. Much of this increase has been driven by litigation focused on the accessibility of websites. Meanwhile, grocers have become more dependent on e-commerce and have adopted technology allowing customers to order groceries and other goods online for pick-up, bringing their websites within the sights of ADA plaintiffs. The vast majority of cases are filed by a small group of serial plaintiffs represented by ADA plaintiff attorneys and advocacy organizations. These litigants typically visit numerous places of “public accommodation” in order to “test” their compliance with the ADA, then file lawsuits that usually settle for nuisance amounts. Plaintiffs have incentive to file suit because Title III allows them to recover their attorneys’ fees and costs. Though damages are not available, plaintiffs often receive compensation in settlements. Plaintiffs have increasingly turned their attention to “testing” the accessibility of websites, ensnaring retailers in unpredictable litigation.

No Rules Govern the Accessibility of Websites The ADA was enacted in 1990, several years before the widespread adoption of the internet. Title III requires “public accommodations” to be accessible to the disabled, a class of persons that includes those with vision, hearing, and learning disabilities. Businesses that provide goods or services to the public must provide disabled persons with equal access to those goods and services; any barriers must be removed. While the ADA does not specifically address websites in the statute or the regulations, the Department of Justice (DOJ), which enforces the ADA, has long held that the ADA applies to business websites. The failure of the DOJ to enact rules governing websites has left a void in ADA enforcement, creating a “Wild West” scenario with courts left to their own devices to determine the law and plaintiffs seeking advantage wherever they can. The Ninth Circuit (which includes all federal courts in California) has taken a restrictive view of the ADA’s applicability to websites.

In California, an entity’s website may not impede a qualified disabled person’s full and equal enjoyment of the goods and services offered in that entity’s physical place of “public accommodation.” Applied to grocers, a plaintiff cannot sue based on a website’s inaccessibility alone – the website must frustrate his or her enjoyment of a physical store. For example, a plaintiff cannot sue a grocer where an inaccessible website prevented her from ordering groceries for delivery, but can sue where an inaccessible website prevented her from using an in-store pickup option. In contrast, some courts outside the Ninth Circuit consider the website itself a place of “public accommodation,” allowing plaintiffs to file suit upon visiting an allegedly inaccessible website with no need to visit a physical location – entangling grocery delivery companies like Peapod in ADA litigation. Grocers Should Be Proactive to Avoid Litigation The Ninth Circuit’s high bar for ADA website litigation has not deterred plaintiffs, who continue to sue to extract nuisance settlements. The best defense for grocers is to stay off the “wanted list” of ADA plaintiffs entirely by ensuring their websites and mobile applications are accessible.

Continued on page 28 ▶

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KNOW THE LAW ◀ Continued from page 26

“The failure of the DOJ to enact rules governing websites has left a void in ADA enforcement, creating a “Wild West” scenario with courts left to their own devices…” iStock

The DOJ has not issued any rules on website accessibility apart from a draft rule issued in 2010, which has yet to be published. While commentators project that website regulations will be published in 2018, the current political climate may cause further delays. Given this absence of authority, the DOJ and ADA plaintiffs have adopted the Web Content Accessibility 2.0 (WCAG 2.0) as standards for website accessibility. The WCAG have yet to be blessed as compliance standards by courts in the Ninth Circuit, one of which refused to adopt them in lieu of a published rule. The value of the WCAG lies in preventing litigation in the first place. The WCAG were crafted to accommodate disabled individuals’ use of technology such as screen readers and custom web browsers. These tools transform ordinary websites and applications into usable form for the vision and hearing impaired. The WCAG are geared toward ensuring that websites are compatible with this technology. Recommendations in the WCAG include: • Providing a text equivalent for every image, which allows a screen reader to provide an audio explanation of an image; • Providing captions for video and transcripts for audio contained on the website;

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• Providing documents in an accessible format, as text–based formats like HTML and RTF are more compatible with screen readers than PDFs; • Designing the website or application so that content is easy to see and hear; • Allowing color and font sizes to be changed in users’ web browsers and operating systems to allow users with low vision to better differentiate between text and background colors; • Providing alternatives for time requirements in transactions; and • Permitting a website to be fully functional from a keyboard. Confirming compliance with these can be difficult for a retailer to accomplish alone, especially for smaller grocers. A practical way to ensure compliance is to contact a qualified web design agency to conduct an audit of the website or application to identify any violations or accessibility concerns and develop a plan to bring the website or application into compliance. Retailers can also handle the matter internally by having their IT professionals do a self–audit using the WCAG and the ADA’s online toolkit (which advises state and local governments on compliance with ADA Title II, but is equally applicable to private businesses).

Grocers are advised to ensure that their websites and mobile applications comply with the WCAG. Grocers should be attentive to any changes in the WCAG and the ADA regulations themselves, as both will evolve over time. Compliant websites and mobile applications are the best tools to persuade potential ADA plaintiffs to look elsewhere for their next lawsuit. ■ David Fox is an attorney at Downey Brand LLP practicing in the areas of disability access, complex business litigation, and appellate litigation.

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Concert Working in

By Todd Hale, Principal Todd Hale, LLC

Over the past several years of recession and recovery, economic, demographic, and other influencers created fundamental changes in the way retailers and manufacturers met shopper demand. Rate or pace of change in our industry has been running at incredible speed and it just keeps accelerating. We’ve relied heavily on the past to predict the future, but history is not always a good predictor for the future. It’s okay to look in the rear-view mirror, but what’s more important lies ahead! Easier said than done, but companies who are not investing in the future will be short-lived. Now more than ever, organizations need to work “in concert” within and outside of their organizations to drive growth. Continued on page 32 ▶

Continued on page 54 ▶

◀ Continued from page 31

Current State

“Growth has been most challenging for the largest U.S. fast-movingconsumer-goods manufacturers.”

Economic indicators improving, but headwinds remain: U.S. consumer confidence has been rising and unemployment falling, while lower food and gas prices have provided shoppers with cost savings. But growth challenges continue as headwinds from aging population, low population growth, low birth rate, low working rate, rising health care costs, and other spending challenges remain (See sidebar “From the Press”). Total store sales soft as deflation impedes growth; growth in perimeter continues: Across Nielsen-measured retail channels, departments and categories, total store gains have been less than spectacular. Over the past four (52-week) periods ending April 1, 2017, dollar sales grew, on average, by 1.7 percent and sales were up only 0.3 percent in the latest 52-weeks. Low or no unit sales growth has been more problematic. Food deflation is a major factor in the latest period and had the greatest impact on supermarket growth, but most channels have been impacted. Non-measured retailers (e.g., Costco and e-commerce retailers like Amazon) would elevate growth levels, but likely adding no more than one percentage point to all-outlet growth. The deli and produce departments have been leading department-level growth as demand for fresh and products closer to the point of consumption continues to rise. Shoppers are opting for prepared meals and meal components over ingredients as demand for immediacy grows. The health care department is right up there too as consumers (particularly the older and the younger) appear to be taking charge of their health needs and avoiding trips to the doctor’s office.

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Small manufacturers winning; retail format no guarantee of success: Growth has been most challenging for the largest U.S. fast-moving-consumer-goods manufacturers. Smaller, more nimble or innovative companies, with greater focus on niche-oriented products have been gaining share at the expense of the largest manufacturers and private brands. Ken Harris, Cadent Consulting Group, speaking at a National Frozen & Refrigerated Foods event in April of this year, brought up the idea that companies need to think small to innovate. A path in which some large U.S. companies have taken seriously as they have been investing in smaller companies to help them enhance and speed up their innovation efforts. Value- and convenience-oriented retail channels continue to lead store expansion, but retail format is no guarantee of success. E-commerce is becoming more mainstream and driving significant growth, but it is still a small player in many grocery store departments – particularly edibles. Nevertheless, investments in e-commerce “click & collect” and “direct-to-consumer” by brick and mortar retailers are taking a huge bite out of investments in store expansion and/or remodels. Bifurcation of wants: health & wellness versus indulgence Health and wellness trends continue to grow and evolve, but indulgence is also winning consumer spend and retail investment. Nielsen Wellness Track reports how organic wellness claims have been growing consistently year-over-year with a four-year compounded dollar growth rate (CAGR) of 13.7 percent – considerably faster than the 0.3 percent sales growth (latest 52 weeks) across the store. Wellness claims driving the biggest growth on a long- (CAGR) and shortterm (latest 52 weeks) basis were up between 49 percent & 93 percent and 21 percent & 43 percent, respectively.

From the Press A 2016 CNBC article cited facts from Castlight Health research where it reported “the average national cost for a routine vaginal delivery is $8,775. The national average for c-sections is $11,525, … which defined price as what an employer-sponsored health plan paid for the delivery plus what the covered person paid out-of-pocket.” The report highlighted how the highest charges were in San Francisco and Sacramento. While many factors impact birth rates, one could hypothesize how these costs are coming into play. Are your companies having discussions with your state and national government representatives about how to lower these costs or at least provide tax cuts to young couples trying to figure out how to make ends meet and start or build a family? We need more mouths to feed, noses to blow and butts to wipe to drive retail sales growth! www.cnbc.com/2016/06/30/costs-of-deliveringbabies-vary-widely-in-us-california-cities-mostexpensive.html

However, many of the fastest growing wellness claims (e.g., amaranth, grain free, grass fed, and quinoa) are not big sellers. In aggregate, free-from or clean-label wellness claims are delivering solid growth, but manufacturers and retailers must balance their investment in those claims while continuing to leverage claims that drive big sales and more modest, but significant growth (e.g., natural, organic, non-GMO, and gluten free).

The Battle of Share of Stomach – It’s Complicated Nielsen fielded a survey in March 2017 to illuminate household-level meal buying and preparation habits and practices for both in-home and away-from-home occasions. The survey, completed by 22,312 Nielsen Homescan panelists, inquired about various activities households claim to be doing more often, about as often, or less often during the past six-months as compared to year ago.

A 2/9/2017 FiveThirtyEight article cited a recent Pew Research Center study of 2014 U.S. Census data identifying 1.78 million of the 11 million undocumented immigrants were living in five California metro areas (Los Angeles: 1.0 million, Riverside/San Bernardino: 250,000, San Francisco/Oakland: 240,000, San Diego: 170,000, and San Jose/Sunnyvale: 120,000) and were among the top 20 U.S. metro areas with the most undocumented immigration population. Given potential deportation for many of these individuals, it is not hard to consider how savings has been of greater importance to them than spending, and how we must come to terms with immigration reform to minimize further impact. fivethirtyeight.com/features/mostundocumented-immigrants-live-in-areas-thattrump-lost/

In terms of activities U.S. households claimed to be more engaged in during the past six-months versus year ago, preparing homecooked meals topped the list (44 percent of households claiming to be doing more often) followed by: to save money on food bills, trying to reduce food waste (39 percent doing more often); checking the household food pantry for inventory before shopping (36 percent); checking prices or deals before deciding where to buy food (34 percent); serving leftover meals at home (33 percent); preparing meals at home or taking leftover meals to eat at work or school (32 percent); making healthy food choices when eating at home or away-from-home (31 percent); stocking household food pantry (27 percent); and checking prices or deals before deciding where to purchase a restaurant meal (25 percent).

“Health and wellness trends continue to grow and evolve, but indulgence is also winning consumer spend and retail investment.”

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◀ Continued from page 33

“Competitive threats from existing or unknown sources will continue to cause organizations to evolve” Good news for the grocery retail industry is how more of these activities were related to at-home meal preparation. Households continue to focus on pre-store planning and the importance of good prices and deals in determining where they shop, but nearly four in 10 households are managing food bills by reducing food waste and one-third of households are serving leftover meals in the home, at work or school. Today, recipes are very mainstream on retailer, manufacturer and food publication web sites. It would appear our industry has an opportunity to do more crossmerchandising activities between food and food storage assortment and recipes should also include tips for leftover management.

This year’s California Grocers Association Strategic Conference focuses on “Working in Concert.” Attendees will explore how to create the perfect retail performance through improvisation and experimentation while working in concert with growers, manufacturers, retailers and all aspects of the supply chain in such a way as to please your audience and endear your fans. Discover how to orchestrate this pefect blend at the 2017 CGA Strategic Conference on September 24-26 in Palm Springs, Calif.

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Another interesting finding from this survey is how the percentages of households doing things “less often” is where Nielsen reports higher percentages of household engagements. The top activities in which households claimed to be doing less often include: ordering meals via phone or online for home delivery and consumption (53 percent of households claiming to be doing less often); eating at higher-end restaurants (53 percent doing less often); ordering meals via phone or online for pick-up and consumption at home (49 percent); eating at a fast-food restaurant (i.e., McDonald’s, Burger King, etc.) (47 percent); purchasing meals out during work or school (46 percent); eating at a fast-casual restaurants (i.e., Panera’s, TGIF, Applebee’s, etc.) (43 percent); taking prepared meals purchased at a retailer to eat at work or school (43 percent); serving ready-to-eat prepared meals purchased from a retail (40 percent); visit food-related websites or social networking sites before shopping or eating at restaurant (i.e., looking for recipes, recommendations, etc.) (33 percent); and to save on food bills, reducing food consumption throughout the day (21 percent).

Again, these results highlight greater opportunities for the grocery retail industry as more of the reductions relate to the restaurant industry. However, while ordering meals via phone or online delivered to your home and eaten at home was number one on the list of areas where households claim to be doing less, have you looked at same-storesales growth for Domino’s? They delivered 10 percent + growth in 2015 and 2016 and that level of growth continues into 2017. Domino’s is very digitally connected, mostly about home delivery, and has broadened their offering beyond pizza. Also, expansion of third-party restaurant delivery services like UberEATS and Grubhub, as well as an increase in the number of restaurant chains (e.g., McDonalds and Panera) who have or will be broadening their food pick-up and delivery options, is expanding at a rapid pace and the increased availability of these offerings will likely have a negative impact on food retailing. It is not a good sign to see 40 percent of surveyed households claiming to be serving heat and eat frozen or refrigerated meals purchased from a retailer less often. In line with survey results citing greater consumer demand for home-cooked meals, as well as growth in the number of online meal kit offerings, announcement of supermarket chains launching their own meal kit options has been on the rise. This calls out the need for frozen and refrigerated food manufacturers to continue focusing their innovation efforts around fresh ingredients, clean labels, and on products which include the latest flavor trends. It may also suggest opportunities for new offerings that allow options for consumers to add fresh items to frozen and refrigerated meals or snacks; frozen meal kits; and/or for convenient frozen or refrigerated sauces to enhance prepared meals.

Competitive threats from existing or unknown sources will continue to cause organizations to evolve. Competing against retailers with enhanced scale and lower prices means that most supermarket operators must begin working in concert across the entire store to make the most out of cross-merchandising and customer service engagements that power the entire store and provide a point of differentiation. Pitting department against department regarding performance targets must become a thing of the past. Store employees must be trained to help shoppers across the store and should never, ever utter the phrase – “Sorry, but that is not my department.”

Winning in the Future Means Staying in and Ahead of Trend with: Demand for fresh, now and for me Products need to have the appearance of being less prepared or processed, more convenient and portable, and deliver a meaningful consumer experience. The increase in see-thru packages help shoppers see the “fresh-looking” ingredients. Salty snacks have delivered the largest increase in absolute dollar sales over the past four plus year illustrating the opportunity for products which can be consumed on the go. Demand for health & wellness versus indulgence Transparency and free-from movement are key drivers of the health and wellness product claims, but what’s next and how do you stand out from the competition when everyone else is on trend? Don’t forget about the power of indulgence – just check out how fresh pies and premium desserts have been delivering solid growth.

and shopper satisfaction creates significant challenges. Manufacturers should be looking for opportunities to assist in these efforts to ensure that focus on their categories or brands are not compromised. Managing the negative and positive impacts of e-commerce How e-commerce friendly are your categories or brands? Do you need to alter packaging to make them easier to ship or do your products provide retailers with the ability to drive store trips and minimize potential trip compression resulting from increased digital shopping? As retailers are collaborating with third party organizations (e.g., Instacart, Uber, and Shipt) to build their click-and-collect and direct-to-consumer e-commerce capabilities, manufacturers should invest in their own or collaborative e-commerce offerings. The growth in e-commerce will only accelerate, don’t think you can survive and thrive without meaningful investment. Transition from mass-marketing to niche-marketing among a diverse population and an ever increasing and fast-paced digital age

Nielsen research illustrates how diversity in advertisements leads to enhanced reach and resonance. It has also identified how diverse populations are more engaged in digital tools and communications, yet the grocery retail industry continues to over-spend on traditional paper-based weekly flyers.

Plan Bee – Do You Have One? I came across a fascinating story about work being done to create a bee drone prototype (named “Plan Bee”) to solve a very threatening issue to our planet if the honeybee population continues to shrink. That story is very much aligned with a discussion about winning in the future. Businesses come and go; merger and acquisition activity for both manufacturers and retailers will likely accelerate; and new competitors, which just might have a significant impact on your success, are just around the corner. Organizations need to have a “plan bee” to be prepared for game changing events which threaten their existence. So, what is your “plan bee” and how is your organization working together to adapt to change and work in concert to thrive and grow? ■

As a population, this country has never been more diverse and future population projections illustrate how this trend is likely to continue. Retailers and manufacturers must balance investments in flavor profiles or products with appeal to more nichepopulation segments, while managing the potential long-term decline from their current line of big selling items.

Enhancing the in-store and out-ofstore experience Retailers have been investing heavily in their store formats, and in- and out-of-store marketing communications, to differentiate and create unique consumer experiences. However, with rising employee wages and pressures to invest in e-commerce and digital tools, balancing those investments that will have the biggest impact on sales CAL I FO RNIA GRO CER | 35

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Tops Market – A Northern California Mainstay BY LEN L E WIS

For nearly 50 years Tops Market has been a mainstay in the beautiful northern mountains of California. It’s easy to get caught up and a bit complacent in the midst of the Conifer forests and Alpine splendor of Northern California’s Trinity Alps – to feel isolated from the rest of the world and from the aggressive retail competition that dominates the rest of the state. However, the bucolic beauty of the area shouldn’t overshadow one simple strategy – don’t be afraid to try something new. You might be surprised. “Who knew that sushi and high-end champagne would be big items in a meatand-potatoes logging community up here. But that’s what happened,” said Dean Ryan, owner of Tops Market in Weaverville and Redding, Calif. Ryan, whose brothers and wife Renie are also involved in the business, is certainly no novice to the grocery business and a good example that you never stop learning new things about your customers no matter how long you’ve been in the business. Ryan moved to the Weaverville area in 1969 with his parents from Los Angeles where his father had been a mechanic for one of the freight companies since the 1950s. “To this day I’m still not sure how he got into the supermarket business,” he said.

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Like many independents, he started when he was young sorting bottles and sweeping the parking lot of his father’s store. He grew up in the town and spent most of his adult years around Weaverville. Today, Tops Market at about 39,000 square feet, Tops Fresh Markets at 17,000 sq. ft. and a 3,000-square-foot convenience store under the Tops Minimart banner are fixtures in Weaverville and Redding areas. As a retailer, Tops is far from being isolated, coming up against competition from Winco Foods, Walmart and Trader Joe’s in the Redding area, whose population of 89,000 dwarfs Weaverville’s 3,000 and lends itself to incursions by large chains. “Additionally, online grocery retailing, while a minor factor, is starting to gain some serious traction. We’re in the midst of some very tough competition,” said Ryan. Both areas have their demographic challenges as well. “Weaverville is a small community with only about 3,000 people,” said. “We cater to a lot of retired people up here many of which are year-round residents. Much of the younger population has moved out. There’s not much for them here so they’ve migrated out of the area. This is making it harder to find people to do the work that we need for customer service like our carryout service which a lot of stores don’t do anymore.”

While customer demographics have precipitated some changes in the way stores are merchandised, one constant for Tops is the focus on quality. “My meat cutter wants me to go down to the select meat roll program,” Ryan said. “I told him we can do it but Winco will still kick our butt. So let’s have a good meat program. It makes us a little more expensive. But I’d rather our customers complain about the price than the quality.” He added, “I always tell people who ask that I know the meat is expensive. I have customers telling me they shop at different places but buy all their meats here. That tells me something.” Top quality produce is another area that usually sets Tops apart from competitors. “Some of that’s changed this year,” he said. “With all the rains it’s been tough finding certain high quality produce. But so far we’ve managed to stick with one supplier and we try to do what we can with local product.” Both of Tops full-service supermarkets have also migrated to a lot of natural and organic foods, both of which are increasingly in demand. “So now I consider myself something of a crossover retailer, meeting consumer demand on both ends of the spectrum in produce, HBC, grocery, and refrigerated products,” Ryan said. “It’s all become a very big part of our business. Organic beef is not that big yet but we carry grass-fed beef.” Asked how 2017 is shaping up so far, Ryan noted that it’s looking to be a good year.

MEMBER PROFILE

“We’re way up north and a bit isolated from what happens in many areas of California and the rest of the country. In 2008, when the real estate market went to hell it hit us too, but not for about 18 months. Since we don’t have big subdivisions it didn’t affect us right away. Now with the economy getting better in the Bay Area and in Sacramento it takes us that much time to get onboard. That trend always holds true,” he said.

“While customer demographics have precipitated some changes in the way stores are merchandised, one constant for Tops is the focus on quality.”

Meanwhile, Ryan is continuing to look for new ideas that will appeal to new and existing customers. “We like to see what’s going on out there in the world since it can get a little stale here up on the hill,” he mused. “I see a lot of things I like when I go to stores in the Bay Area or Sacramento but you have to be careful with only 3,000 people.” However, sometimes you never know what people will go for until you try it. That was the case in 2000 when the area lost a big mill and the economy was going downhill. I hired someone to help me and the first thing he said was that I needed to put in sushi. “At first I said no,” he recalled. “This is logging country and people want meat and potatoes. But, I decided to try it in one small case. I couldn’t believe it. My customers loved it.” After that, he said he started doing some other things differently. “I also thought my top shelf champagne was Andre,” he said. “But I started bringing in higher end champagnes and people bought them. I didn’t think I had that kind of clientele. This gives you the incentive to

go a little higher end in other parts of the store as well. But that’s also when you have to pull in the reins. I have the full spectrum of customers – people on welfare and people with money. I don’t want to isolate any group so we often have to go right down the middle, enabling us to satisfy both ends of the spectrum.”

“They are popping up all over and are a big competitive threat to conventional supermarkets,” Ryan said. “I have one a quarter mile from my Weaverville store. You wouldn’t think people would buy their groceries there but they sure do. You know the industry is changing when even Walmart is struggling.” ■

Perhaps Tops’ biggest challenge right now is one familiar to many retailers across the country – the intrusion of dollar stores. CAL I FO RNIA GRO CER | 39

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BY LEN LEWIS

iStock

IT COULD BE A “GAME CHANGER” OR A “MASSIVE DISRUPTION” AND EVEN “CATACLYSMIC”. BUT WHEN INDUSTRY PUNDITS ARE ASKED ABOUT THE OVERALL IMPACT OF AMAZON’S ACQUISITION OF WHOLE FOODS, THE BASIC ANSWER IS “GOOD QUESTION!” The $13.7 billion purchase by the dominator of digital retailing gives Amazon a valuable imprint in the brick and mortar world – a foothold it will use to broaden sales of food and non-food products and to expand its already extensive, but costly, distribution system.

For Whole Foods, generally perceived as the gold standard in healthy eating, Amazon’s distribution efficiencies may be a way to increase sales across more demographics, and beat back competitors who have captured a bigger piece of the organic pie.

The company recently announced the first in a series of steps that would validate the industry’s concerns, including lowering prices on staples like organic bananas, farm-raised salmon, brown eggs and ground beef. “We’re determined to make healthy and organic food affordable for everyone,” Jeff Wilke, CEO of Amazon Worldwide Consumer. More prices will be lowered as Amazon completes the integration of Whole Foods, he added.

Still unclear is what the reaction of the industry at large will be to this new entity and whether marketing, merchandising and expansion plans will remain relevant in what is clearly a new world order for supermarkets.

As expected the company is also making its 365 private label available on its digital network including Amazon.com, Amazon Prime, loyalty programs which includes some 25 percent of U.S. consumers, Amazon Fresh and Prime Now, In order to facilitate the Amazon Prime loyalty program, the company will expand its click and collect model with Amazon lockers in Whole Foods stores.

“I’d like to say I’m seeing amazing reinvention taking place. But the truth is it hasn’t,” said Doug Stephens of Toronto-based Retail Prophet. “Right now innovation in grocery is largely window dressing. Chains are making stores look better, making food fresher and becoming more competitive on price. But all of these things are linear and incremental. That’s not the way Amazon thinks.” By and large retailers are not reinventing the way people buy groceries, he said, noting that it leaves them vulnerable to the kind40of▶ Continued on page disruption that Amazon can generate.

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◀ Continued from page 43

A hint of what the industry might be facing came from Whole Foods Founder and CEO John Mackey who stated in a recent regulatory filing that he expects Whole Foods to maintain its premium standards, but didn’t rule out the possibility that Amazon would launch other brands with different ones. At a town hall meeting for employees in conjunction with the filing Mackey said that over time other formats could evolve that might not be branded Whole Foods Market and might not have the same standards. He also stated that Amazon’s well-known focus on technology, including the cashierless Amazon Go concept, would help transform Whole Foods from “class dunce” into a “valedictorian.” Technology is generally considered the reason for Amazon’s 10-year journey to get into the grocery business.

“The frequency of grocery shopping and the fact that it would bring people into contact with Amazon every day is tantalizing,” said Stephens, calling the acquisition a data play.

Meanwhile, industry observers are split over the deal’s impact on CPG companies, many of which are already feeling the effects of consumer demand for fresh foods.

“Purchasing across a wide spectrum of categories gives retailers tremendous insight into their consumers and families. As adept as it is with data, Amazon can target consumers with offers we’ve never seen before. They could literally sell groceries at a loss long-term in order to sell everything else,” he said.

However, Amazon’s prowess as a dealmaker in other product segments has observers thinking that they will be using their leverage to wring lower prices from suppliers.

“It’s the ultimate Trojan Horse. Once you become a regular part of a family’s lifestyle, you have the opportunity to market other things.” Moreover, Amazon’s distribution costs are tremendous and the 640 Whole Foods stores around the country are a great infrastructure for consolidating orders being shipped to customers and as pickup points for Amazon parcels, he said.

“TECHNOLOGY IS GENERALLY CONSIDERED THE REASON FOR AMAZON’S 10-YEAR JOURNEY TO GET INTO THE GROCERY BUSINESS.”

Although Amazon’s initial strategy is likely to be on reducing Whole Foods operating costs, James Thomson of Buy Box Experts, a brand consultant and a former manager of business development at Amazon, told an interviewer that the company will be “squeezing national brands on pricing.” Stephens, though, has an alternate theory. “Jeff Bezos has always pitched the idea that Amazon is a good thing for CPG companies since he believes the company is a platform or marketplace where CPGs can connect directly with consumers – not a retailer,” he said. But Bezos has had meetings where he told CPG companies that there’s no need to do business with a company like Walmart and succumb to margin pressure, or go through layers of distribution to get to consumers, according to Stephens. “Amazon is the platform that will allow them to do that,” he added. Potential margin pressure on CPGs may indeed be overstated, said Stephens, noting the accepted myth that Amazon is always the cheapest on products. “They’re not compared with Costco, Walmart and Target,” Stephens said. “But CPGs have to be careful if Amazon’s intention is to create its own brands. They are so good with data, that whenever they see sales surging in particular items, those items become fair game for private label.” He added that Amazon knows its brand delivers its own level of trust which is why there are 82 million Amazon Prime members in the U.S. alone. “That level of trust could open the door for a significant amount of private label goods,” he said.

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NORTH STATE GROCERY, INC.

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Stephens said he couldn’t say for sure whether that expansion will be under Whole Foods’ 365 banner or an Amazoncreated brand. “But I don’t think they’re in a hurry to change,” he said. “They first have to study consumer sentiment around brands.” However, he is convinced the merger will result in more strategic or dynamic pricing. “It makes sense because there are so many inequities in standardized pricing,” he said. “Consumers who get product in the morning when it’s fresher, pay the same in the afternoon when it’s not as fresh,” he said. Customers who buy from one store religiously pay the same price as customers who don’t. “I always felt the price sticker that John Wanamaker came up with so many years ago was the most inequitable form of pricing,” he added. “We’ll see if people continue to tolerate it.” At a meeting with employees, Mackey noted that since “frugality” was one of Amazon’s core values, the initial focus of the company would be on cutting operating costs in order to lower prices for shoppers. However, lower prices and potential expansion of the Whole Foods brand online could have a significant impact on branded manufacturers, according to Nicholas Fereday, food analyst for Rabobank, noting that “big food” might be faced with lower market shares. Alexander Pease, Chief Financial Officer of Snyder’s-Lance, said at a recent conference that the merger would result in discussions around price with other retailers. However, the opposite view was expressed by Pablo Zuanic, an analyst with Susquehanna Financial Group, who said that Amazon and Whole Foods combined only have about 4 percent share of U.S. grocery sales, not enough to have an impact on bargaining power with big food companies. Stephens is well aware of the effect Amazon has already had on the way people shop online but noted: “We forget things like this happen incrementally over time.

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“SINCE ‘FRUGALITY’ WAS ONE OF AMAZON’S CORE VALUES, THE INITIAL FOCUS OF THE COMPANY WOULD BE ON CUTTING OPERATING COSTS IN ORDER TO LOWER PRICES FOR SHOPPERS.” Think back to the way online shopping was 20 years ago when it was difficult to locate an item you wanted and difficult to find good descriptions so you could buy with confidence and fast shipping with an assurance that the item would be received in good condition.” “In short, online shopping was problematic,” Stephens said. “Amazon solved those problems and that’s why 60 cents out of every incremental dollar that’s spent online goes to Amazon and not the industry at large.” He and other observers firmly believe that Amazon’s foray into physical stores will be dramatic and even “cataclysmic” for certain retailers. Ultimately, those in the greatest danger are not the super deep discounters like Aldi and Lidl, or high end retailers like Wegmans or Eataly, but the mid-market retailers that compete on price and haven’t carved out a distinct advantage in customer experience.

Even before the deal is done, retailers are asking whether Amazon will continue along the acquisition trail. “Amazon has made it clear that they see furniture and appliances as another major opportunity because these industries are notorious for being difficult to shop and difficult to get great service,” he said. “So what would stop them from going in and buying a Restoration Hardware, Williams Sonoma or even Sears?” Right now, according to Stephens, they’re just “testing their skill” at ingesting another company successfully and make it a working part of the Amazon eco-system. “It’s a difficult thing to do,” he added. “There’s no shortage of acquisitions that failed miserably because of cultural differences or leadership squabbles.” ■

Fresh

Ideas on Perishable Shrink

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By Larry Miller

Let’s start with a simple premise: there is an acceptable and necessary level of perishable shrink, but there are proper limits. Amazon, Walmart and others are coming for our sales. Our best defense will be exciting, well merchandised, well run and excellently branded fresh/perishables departments. Do your stores deliver on your perishables brand promise? If not, take a fresh approach to quality and freshness through shrink anticipation and prevention. If we are to be sales-driven and control oriented, loss prevention professionals must collaborate with perishable supervisors to know each department’s profit objectives and help to implement operational processes to help assure profit realization.

to train your managers to understand them, and you simply cannot and will not achieve best-in-class perishable profit optimization within your company’s plan. Let’s begin by setting expectations. Use the chart (next page) to determine where you are today in your perishable profit structure and where you want to be in the next three to six months. Continued on page 50 ▶

Anyone who has ever been responsible for selling perishables – whether it’s produce, meat, deli, floral, or seafood – knows that there is a direct correlationbetween display merchandising, production and sales. The more you display, the more you sell, but more product you produce can also lead to higher shrink. Therefore, the smartest way to minimize perishable shrink is to sell it. And (of course) to sell it while it’s fresh. So, the science (and the art) of selling perishables and controlling shrink for perishable profit optimization is an important study. Here are some vital impact points that must be implemented to get the most profit out of your perishable departments. There are seven steps, or process effectiveness checkpoints, required to optimize perishable department profit. Miss any of them, or fail

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◀ Continued from page 49

Perishable Shrink

High

Medium

Low

Meat

5.8%

4.9%

3.7%

Produce

6.5%

5.2%

4.0%

Deli

8.0%

5.8%

4.9%

Bakery

10.2%

7.4%

6.5%

Seafood

6.3%

5.4%

4.1%

Floral

12.0%

10.5%

8.9%

*Estimates are format dependent and based on store sales of $15-20M annually.

• Most perishable shrink is caused by poor operational controls, failure to execute effective best practices consistently, and/or department personnel indifference. • Individual perishable merchandising techniques and ”go-to-market” strategies have a direct impact on shrink. • Floral departments that operate as a sub-department to produce tend to experience 30% less sales and/or 18-27% higher shrink. • When a product doesn’t sell as anticipated, the natural reaction is not to reorder it, which then causes sales to suffer. There must be a balance between shrink and sales. Note: When store managers and loss prevention professionals are fully trained to understand, inspect, manage and work together for the proper execution of perishable department best practices, shrink can be reduce as much as 18-22%.

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

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The Smart Store Manager’s Role In perishable department shrink management and profit optimization, the most important initiative is teaching store managers to understand and supervise their perishable departments for optimal profit and customer satisfaction. This training precedes all reports and graphs and charts and technology. Store teams need to see and feel profitable operations and then be additionally enabled by smart technology. A well-trained store manager is your linchpin to delivering a clean, fresh, well stocked, and customerservice ready profitable selling condition. Perishables have the power to give your store a distinguishable personality and will touch the customer’s senses in a way that dry groceries can’t. Start every day with a “purposeful” store walk. Store managers should walk their stores frequently and inspect perishable conditions and readiness every two to three hours.

When walking the store, a manager should generally consider these priorities: • The Morning Store Walk: Ensure detailed rotation for freshness, items on hand, in-stock readiness, advertised item availability to meet the day’s anticipated sales, backroom and cooler organization and cleanliness, proper signage per company plan, store floor safety check, and proper execution of prior evening close-down, clean-up, and next-day prep. • The Mid-Day Store Walk: Coolers clean and organized, code dated for quality and freshness optimization and FIFO rotation following morning deliveries. This is also the time Manager’s should recognize over-stock conditions and make determinations for order adjustments for inventory reduction, backdoor security checks, all racks level and properly merchandised, dumpster check for excess shrink loss, known loss recordkeeping, specific awareness of department sanitation best practices, and store floor safety check.

• The Early Evening Store Walk: Advertised item availability to meet the evening’s anticipated sales, department manager plan for evening coverage, product presentation is neat and ready to meet anticipated sales, and store floor safety check.

The Sanitation of Making Profit with Perishables No study or discussion of perishable department shrink control would be complete without a review of necessary sanitation practices. Remember that, unlike groceries or frozen foods, perishables are living (hence dying) materials, which means that germs and bacteria can easily grow there. Unclean or poorly refrigerated conditions accelerate the cellular breakdown of perishable products. Proper refrigeration, sanitation, and handling slows this deterioration process and reduces your perishable shrink. Continued on page 52 ▶

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

CAL I FO RNIA GRO CER | 51

◀ Continued from page 51

7 Basic Steps to Perishable Shrink Control Start with a Smart (Proper) Order: Write a smart, well-conceived order to meet anticipated sales and display requirements. An improper order is often the #1 source of perishable shrink. • A Quick Formula: IOH + Order – Sales = a full display rack with never more than 3 days of back-up inventory in your coolers. Base your orders on anticipated sales, “truck-to-truck.” • Follow the “Rule of 3.” Order perishables for sell-through in 3-days. Sell what you receive within 3 days and you will minimize shrinkage. Receiving, Refrigeration, Rotation: Improper handling is the second biggest cause of perishable shrink and can stem from an improper order. • A tell-tail sign of a department under control is an organized, product date coded storage cooler. Proper handling starts immediately upon receipt of new product. Get it in the cooler. • Occasionally you will be force delivered short code product. Be sure to position for correct product rotation. Production Planning/Yield/Cycle Cutting: Whether produce, meat, or deli you must plan your production and display the freshest product as close to the point or time of its sale to maximize your potential profit yield. Display Space Allocation: Display space allocation philosophy differs dramatically from companyto-company. • Produce, meat, deli and bakery all degrade faster under florescent lights and/or in the display case than they do in the constant temperature of your storage cooler.

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• Display the full amount you believe you can sell within your company's display and merchandising policy. In very high-volume departments that may be 1-2 hours. In lower volume departments that may be 4-8 hours (depending upon the product.) • We all know that “signs sell”. Often called the “silent salesman” keep your department and focus items properly signed. • Remember that “over stacking” causes product damage and spoilage. If you see it, fix it. Known Loss/Dumpster Diving: • First Loss Rule: In the best of companies, conditions will occur when excess inventory accumulates. Don’t delay. When you recognize an over-stocked or over-displayed condition, take action. Sign-it. Take an initial price reduction to sell the excess before it degrades. • Track all product markdowns and value loss. This is vital. If you can see your loss you can plan to control it in the future. Track it, record it, total it and know your “known loss” as a percentage of sales each week. Known loss can be as little as 30% or as much as 50% perishable shrink. Finally, just because it’s “known loss,” doesn’t make it acceptable loss. Sanitation and Refrigeration: • Poor sanitation contaminates and poor refrigeration accelerates the deterioration process. In the perishable areas, we must manage and execute best practices for sanitation and cleanliness. • Most often, “the nose knows” and you can smell an unsanitary condition. But sometimes conditions can smell clean and even look clean, and still be unsanitary. Be sure it’s clean, fresh, and sanitized regularly.

Store Manager and Loss Prevention Training as a Business Imperative: • The 10 Disciplines: (1) The Clean & Organized Backroom, (2) Disciplined Cooler Management, (3) Formal Known Loss Management, (4) Periodic Rack Inspection, (5) Display Allocation Verification, (6) POS/PLU Scan File and Advertised Item Audit, (7) Cashier Product ID Testing, (8) Proper Signage, (9) Sanitation: Keep it Clean and Fresh, (10) Regularly “Inspect What You Expect.” • Read: National Supermarket Shrink Survey “Perishable Shrink Control; Causes and Cures.” • Read: Cornell University Managers Guide to Retail Loss Prevention – “Perishables Best Practices.” Important Footnote: While trying to minimize shrink you must always be sales driven. Remember, “if you don’t have it when they want it, they won’t want it when you have it.” ■ Editor’s Note: Larry Miller is a 40-year retailer and profit improvement consultant. As a nationally recognized shrink prevention expert he has founded Trax Retail Solutions, creators of the Shrink Trax cashier theft and fraud prevention system, The Total Store Manager Training Programs, Smart Retail Solutions, ProfitTrax for whole store profit improvement and the National Supermarket Shrink Survey. Larry has implemented his BI Analytics technology and Store Manager Best Practices Programs in over 900 retail clients. He can reach at (602) 448-8500, or larry@SmartRetailSolutions.com.

Smart Technology Reveals Perishable Profit Loss According to the 2014 National Supermarket Shrink Survey, perishables account for more than 65 percent of total store shrink. Companies need to ensure that store managers and loss prevention specialists are trained in the best practices of perishable shrink control. Proper use of expert BI technology will reveal profit loss patterns and trends. Here are three examples of perishable shrink: Example #1 Meat Discount Coupons Cause Profit Erosion At one major grocery chain, ProfitTrax revealed that meat discount coupons were contributing to unaccounted for gross margin erosion of up to 1.5% of sales and were the cause of prices being increased to cover the missing gross margin. Misuse of discount stickers also masks over production of fresh meat items. (While not a factor in these cases, discount coupons are also known to be a contributing factor in theft/ discounting at the POS.) CASE VALUE: Loss of 1.4% of Meat Gross Margin Example #2 Inefficient Known Loss Tracking Most companies use a Known Loss tracking programs. Research reveals that Known Loss control is the #1 most inconsistently executed program in most perishable departments with only 65% of actual Known Loss being recorded. When properly tracked and causal conditions mitigated by consistent best practice implementation, true Known Loss can often be reduced by 18-22% in a matter of just a few weeks, resulting in a significant profit improvement and potentially leading to competitive pricing advantage.

Improper Space Allocation “When I started working in stores in 1968, my first perishable lessons involved ’pile it high and watch it fly!’ Space allocation meant little. But today, we know that maximizing sales and freshness control require a more disciplined operational strategy. Today, it’s too easy to project daily sales requirements accurately and display to accommodate those sales. Strategic space allocation is a must!”

Inefficient Ordering Practices “On one of my recent perishable department audits, we determined that a produce manager was consistently ordering 60% more product than required to accommodate anticipated sales. As we installed improved discipline, inventory-onhand was reduced by 35%, and sales increased.”

CASE VALUE: Profit Improvement of 0.88% Example #3 Smart Ordering and Cooler Management For years we have been talking about code dating coolers for proper FIFO rotation. This is one reason but it misses the real value proposition. Consistent implementation of Cooler Management Best Practices leads to a systemic profit optimization culture and training environment. CASE VALUE: 22% Shrink Loss Reduction

Larry Miller will be a featured presenter at the 2017 CGA Strategic Conference. He will address the topic “What Happens When Fresh Isn’t Fresh” and moderate a Whiteboard Session on “Controlling Store Out of Stocks.”

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1 5 MINUTES WITH…

David Tamarkin EDITO R, EPICU RIOU S

BY LEN L E W IS

Food is literally David Tamarkin’s life – cooking it, writing about it, eating it (including a love of cookies for breakfast). As editor of Epicurious, the website which is part of an “Innovation Group” that also includes Gourmet and Bon Appetit magazines, Tamarkin is also a fierce proponent of home cooking. In fact, one of his recent projects was a list of the 100 best home cooks of all time – a list that included actor Stanley Tucci and singer Patti LaBelle. CG: Do people really want to cook or do they just say they do? Tamarkin: “I think if you ask anyone if they want to cook, they’d say yes. It’s generally seen as something desirable. There’s only a small percentage of people who freely admit they don’t like cooking.” But you’ve said that home cooking is dying? “We’re not exactly in the Golden Age of home cooking. What you normally hear from people is that they either don’t have the time or energy or it’s not worth the effort or the money.” Those are pretty strong negatives. “Well, there’s also a lot of messaging out there telling people that cooking is a big deal – a time consuming and energy consuming process.” Where’s that coming from? “I’ll give you one example. I’m on the New York City subways all the time where I see these ads for a home delivery service.

“It’s based on convincing people that cooking is too much of a hassle. So, the signs say things like ’never trek groceries home from store again’ or ’never turn your oven on again’ as if suggesting that both those things are undesirable. Shopping and cooking are being stigmatized.” Are they playing on people’s fears and insecurities about not having cooking skills? “To a degree, yes! Statistically, cooking has fallen off sharply since the 1950s and 1960s. Oddly enough it’s because of wonderful societal advances. We don’t expect the woman’s role to be simply in the kitchen cooking dinner and having it ready for her husband when he gets home from work. “And because there’s less cooking in homes, there’s less opportunity for children to see cooking taking place and absorb it by osmosis the way earlier generations did. There’s no hard evidence, but it’s likely and I get the sense, that people growing up with fewer cooking skills passed on to them by parents.” That being case, will the next generation be culinary illiterates? “Cooking literacy is low. The irony here is that there is increased interest in watching videos about cooking online and cooking shows on television. I can tell you those videos are the most consumed piece of content we put out. So, people must be absorbing some of it.”

But are they using it? “I often wonder whether what they’re absorbing is something they can do on their own. The more we push cooking as something you watch on television or on your computer screens, the more it seems like entertainment and the less they are likely to do it themselves. They’d rather watch professionals do it.” So do cooking shows inspire people or do they just make cooking look more unapproachable? “Interesting point. For years, the conversation about food in the media was largely focused on restaurants and chefs. But there’s no comparing home cooking to restaurant cooking. It’s not one-for-one. One doesn’t translate to the other. “Watching a chef on television doing sous vide or making a sauce with 30 ingredients is complex. People don’t want to spend time and energy doing that. So I’m concerned that some people are being intimidated out of the kitchen.” So talking about restaurant quality meals may not be the best strategy? “When we focus on chefs and restaurants, we risk alienating home cooks. It’s important to differentiate them – but the media hasn’t done that. Frankly, I’m as guilty as every other food writer out there in pushing how to cook like restaurant chefs. We have to make that distinction.”

Continued on page 58 ▶ CAL I FO RNIA GRO CER | 57

15 MINUTES WITH… ◀ Continued from page 57

You’ve mentioned the rise of subscription meal kits. Is this sustainable or a fad? “I don’t know if I’m qualified to say. It’s more of a business question and I don’t know the economics of that model. I feel that meal kit services can be a great thing for people who don’t have time to cook or don’t want to eat out all the time. “On the other hand, if the idea is to get people acquainted with cooking and the kitchen then ideally, after a while, consumers won’t need meal kits anymore. In that regard, it just doesn’t seem like a sustainable business.” But they might make people feel more confident about cooking? “I’m not sure meal kits will make people feel more competent. True cooking competence would be something that helps them learn to cook or exposes them to new ingredients before going out on their own. They want you to cook from these things all the time.” So, not true? “The benefit of home cooking, and one of the things that creates a strong environment for cooking, is having ingredients in your pantry. So you miss out on the benefit of having extra sesame oil or adding things to the dish. Their argument doesn’t play. Perhaps it does equal out ounce-for-ounce, but I think the consumer still loses.” In this respect, it seems takeout is a better alternative than a meal kit? “It depends on what you’re looking for. I don’t judge people for the way they eat. There’s nothing morally wrong with getting takeout. Cooking is not a moral act that makes you a better person. “However, I get concerned that people miss out on the benefits of home cooking. There are clear economic and health benefits to eating at home – as long as you’re not eating fried chicken and pie for dinner every night. In fact eating at home is probably healthier than eating at restaurants. There are also mental health benefits. Cooking can be very relaxing and meditative.”

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David Tamarkin

Maybe so, in a more perfect world? “Clearly, there are a lot of barriers to cooking and not only economic barriers. If I had children I would probably cook less. There are plenty of single parents who simply don’t have time. Also, kids are picky eaters. One won’t eat chicken, the other won’t eat fish or vegetables. It can be discouraging.” Our readers are asking how supermarkets can get people back from restaurants or keeping them. Any advice to get them back in the kitchen? “Work on putting restaurants in grocery stores with some type of meal kit or having them select ingredients that can be put together in one package for a complete meal.” That’s where prepared foods have come in? “I know this has been a big growth area – perhaps the biggest in grocery, but it’s also one of the reasons why cooking is dying.” Should retailers be handling things differently? “Maybe meal kit packaging. Putting chicken cutlets in with a pack of panko bread crumbs and six eggs is a good way to spark ideas among shoppers in stores. A lot of people get into a routine when they go to the grocery store. They go on autopilot and just pick up the same things every time.

“The grocery store can inspire people to try new things by setting up displays with everything you need for dishes like Thai curry or mustard glazed pork chops. Giving people inspiration can go a long way in bringing them back to the store.” So looking at food universe, what’s the next big trend? “I think more Americans will be cooking Indian food. With new spices, chilies and coconut milk. Coconut everything is huge right now. A lot of Indian cookbooks have come out in the last year or two. I think this cuisine is on the brink.” What should we be focusing on in Indian cuisine and ingredients? “You can tell people they don’t have to replicate meals from a restaurant. They can do things in a healthy way. Some recipes we’ve had on Epicurious are lighter takes on dishes like chicken tikka masala using yogurt instead of cream, or a chicken coconut curry with light coconut milk. There’s also a lot of skillet sauces out there now that can help people. It’s been big in Mexican cooking and we’re starting to see Indian skillet sauces that will really inspire people. It’s really going to make this cuisine more approachable.” ■

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CAL I FO RNIA GRO CER | 59

MOMMY BLOGGER

Shopping to Save L A R A F O N G B A L DW I N BLOGGER

The verdict is in: I spend a lot of money on food. Be it as a single girl in my first apartment, a newlywed in an English flat, and now as the Keeper of the Crackers for two tiny humans, my grocery bill seems to expand exponentially with each passing year. The playdates! The barbecues and the birthday parties. The holidays and the hosting. The wine needed to sustain it all. Did I mention one of my baby’s first words was “snacks”? Let’s just say saving money at the store is on my radar. Here’s what I look for: Coupons and Sales While I am nowhere near extreme couponing usage, you can bet I take advantage of the lazy gal discount methods: in-store coupons that are stuck to or very near the applicable product, the eerily personalized coupons that are given at checkout for my next visit, and store apps with quick electronic savings. Bonus: Store apps often have some kind of automatic rewards program, which equals more savings. I am also a sucker for anything on special offer; 2 for $6 gets me every time!

for foods that are non-perishable or can be easily frozen, or if something is just really, really cheap. Bonus: I don’t have to return to the store every hour for milk, bread and eggs. Two birds, one stone. Subscription Service Yep, I’ll subscribe to save money. The key elements of a solid subscription service are the ability to freely edit my order, place it on hold, and cancel at any time. Think “low commitment.” I have experimented with ongoing delivery of everything from milk, to paper towels, to my hippie kombucha drinks. Bonus: I don’t have to leave the house.

Shop Around I know the store that has the cheapest bananas, the one that always has organic milk on sale, and the one that makes a generic version of my kids’ favorite granola bars. Throughout the month, I’m on a grocery store carousel to pick up our favorite products at the best prices. Most of the time, I’m willing to wait it out until I make the next round to my preferred store for any given product. I love it when the cashier tells me how much I saved on my visit. Though I have a sneaking suspicion that I often buy more in an attempt to save more, nothing makes me happier than having a stockpile of our favorite foods that I know I got at the best price possible. ■

Buying in Bulk Most families I know rely on a bulk store for some portion of their groceries. I am most likely to buy bulk groceries if items are individually wrapped (for example, snack packs of chips versus one enormous bag), iStock 60 | CAL I FOR N I A G R OC E R

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