INDEPENDENT GROCERS CONNECT ON THE GOLF COURSE

The independent grocery community enjoyed a lively day of golf and connection at this year’s Independent Grocers Golf Tournament which took place on June 7 in Rohnert Park, California at Foxtail Golf Club.

The annual tournament allows independent grocers, wholesalers, and suppliers to network with one another outside of the office while practicing their swing for a productive day of golf, sampling product from sponsors, and forming new business relationships. After a day of play, attendees gathered back at the clubhouse for a raffle and silent auction. The grand prize winner took home an eight-day vacation to Mexico.

CGA is appreciative of our sponsors for supporting the event, and thankful to our attendees for spending their day with us! ■

Song and Garibaldi, both dedicated leaders in California’s grocery industry, have long championed industry education and the CGA Educational Foundation. Founder of Superior Grocers, Song established the Superior Foundation which has raised more than $3 million to support local schools and organizations over the last 20 years. Garibaldi has long been a committed advocate for independent grocers, serving as a board member for the California Independent Grocers Association (CIGA) before the organization merged with CGA in 2014.

“I can’t think of two more deserving industry leaders to receive this honor. Both Mimi and Bob embody the Foundation’s mission and have each devoted several decades to bettering the grocery industry and supporting academic opportunity for our industry’s students,” CGAEF President Ron Fong said.

Recipient of CGAEF’s fourth annual $10,000 Legends of the Industry Scholarship, Jennifer Pelayo took the stage during the event to share how the industry’s support will help her complete her educational journey and fulfill her career goals. Pelayo, who serves as director of human resources at Smart & Final, is currently pursuing her master’s degree in human resources management at the University of Southern California.

Thank you to our attendees, honorees, and sponsors for an unforgettable evening! ■

New Members

CGA welcomes the following members:

Allen Lund Company LLC

4529 Angeles Crest Hwy Ste 219

La Cañada Flintridge, CA 91001-3247

Contact: Jeremy McGovern, General Mgr.

E-mail: jeremy.mcgovern@allenlund.com

Phone: (800) 777-5863

Website: allenlund.com

Barsotti Family Juice Company

2239 Hidden Valley Ln

Camino, CA 95709-9722

Contact: Cathy Barsotti, VP, Sales & Marketing

E-mail: cathy@barsottijuice.com

Phone: (415) 867-8852

Website: barsottijuice.com

Divert Inc.

23 Bradford St

Concord, MA 01742-2971

Contact: Lauren Eichelberger, Dir., Business Development

E-mail: leichelberger@divertinc.com

Phone: (585) 738-8289

Website: divertinc.com

E & H Foods, LLC

PO Box 146

Hydesville, CA 95547-0146

Contacts: Clint Victorine, President; Thad Benshoof, Co-Founder

E-mails: cvictorine@eelriverorganicbeef.com; thad@eelriverorganicbeef.com

Phone: (707) 768-2164

Website: eelriverorganicbeef.com

Mercatus Technologies Inc.

200 Wellington St West Ste 310

Toronto, ON M5V 3C7 Canada

Contact: Mark Fairhurst, VP, Marketing

E-mail: mark.fairhurst@mercatus.com

Phone: (416) 576-1146

Website: mercatus.com

Mesa Verde Trading Company

2513 W Shaw Ave Ste 101

Fresno, CA 93711-3322

Contact: Michael Philipps, Organic Recycling Manager

E-mail: mike@mesaverdetrading.com

Phone: (858) 735-0083

Website: mesaverdetrading.com

National Pork Producers Council

122 C St NW Ste 875

Washington, DC 2001-2109

Contact: Michael Formica, Chief Legal Strategist

E-mail: formicam@nppc.org

Phone: (202) 680-3820

Website: nppc.org

New York Style Sausage Company

1228 Reamwood Ave

San Jose, CA 94089

Contact: Mike D’Ambrosio, CEO/Dir., Sales & Marketing

E-mail: mikey@newyorkstylesausage.com

Phone: (408) 745-7676

Website: newyorkstylesausage.com

One World Beef

512 Via de La Valle Ste 310

Solana Beach, CA 92075-2715

Contact: Steve Coley, VP, Marketing

E-mail: scoley@oneworldventures.com

Phone: (855) 551-2333

Website: oneworldbeef.com

S. Martinelli & Company

345 Harvest Dr

Watsonville, CA 95076

Contact: Nicole Juntunen, VP, Sales

E-mail: njuntunen@martinellis.com

Phone: (209) 470-8225

Website: martinellis.com

San Francisco Bay Coffee Co.

1731 Aviation Blvd

Lincoln, CA 95648

Contact: Pete Schmitt, Region Manager

E-mail: pschmitt@sfbcoffee.com

Phone: (800) 829-1300

Website: sfbaycoffee.com

Valley Inventory Service

1180 Horizon Dr Ste B

Fairfield, CA 94533-1693

Contact: Amby Nair, President

E-mail: amby@valleycount.com

Phone: (707) 422-6050

Website: valleycount.com

NAVIGATING THE NEW ERA: How SB 54 Shapes the Future of Plastic Packaging in California’s Grocery Industry

By Tim Townsend

The political environment that produced SB 54

Aparadigm shift is coming for every grocer in California. A new law enacted last year on single-use and plastic food packaging will impact the day-to-day operations of grocery stores and their customers as soon as 2025.

The law, known as Senate Bill (SB) 54, resulted from years of discussions in the State Capitol on reducing plastic waste, culminating in an agreement that won support from businesses and environmental groups.

Environmental advocates have viewed California’s leadership on plastic waste as a high-stakes affair because it could be a model adopted nationwide.

Over the years, the state has banned most single-use plastic carryout bags at stores, restricted single-use plastic straws, and mandated plastic beverage containers to be made of at least 50 percent recycled content by 2030. However, despite these efforts, the state has struggled to meet its decade-old goal of diverting 75 percent of solid waste from landfills by 2020.

In 2017, a significant change in the economics of plastic recycling made meeting the state’s goals even more challenging. That’s when China stopped accepting used waste materials under its “Operation National Sword” policy initiative, closing off the primary market for disposing of plastic waste.

Sb 54 Summary

California’s Senate Bill 54 (SB 54) is set to bring significant changes to the operations of grocery stores, eliminating Styrofoam packaging as soon as 2025.

“This caused a major challenge for our cities, who had been relying on this not only to meet their diversion requirements, but also even as a revenue source. And what went from a good source of revenue went to a major financial burden,” said Senator Ben Allen (D-Santa Monica), the author of SB 54, citing China’s actions as a catalyst for the need to address plastic waste.

A coalition of environmental groups pushed the issue to the forefront in 2019 with a proposed ballot measure that would have set strict standards for recyclable plastic use by 2030, immediately banned polystyrene, also known as Styrofoam, and included a one-cent fee on single-use plastic packaging.

However, the ballot measure was delayed until 2022 after the COVID-19 pandemic impacted signature gathering efforts needed to qualify for the 2020 ballot.

As the 2022 election neared, plastic manufacturers and business groups mobilized to oppose the measure, indicating it would be a heavily contested campaign.

That prompted Senator Allen to seek a compromise between environmental and business interests utilizing a process that allows the Legislature to craft laws that avert pending ballot measures. The negotiations brought together the plastics industry, environmental groups, local governments, and business organizations, ultimately producing an agreement.

“This issue is an environmental problem, it’s a financial problem, it’s a local government problem, it’s a logistical problem, and after a long, long time, we finally got a really strong negotiated deal across the finish line,” said Allen in an interview about the negotiations. “The deal we ultimately struck has not only the sign-off of the business community, but it was strong enough for the ballot measure proponents, who were pretty committed advocates, to feel comfortable pulling their measure back.”

The outcomes of ballot measures are notoriously tricky to predict. And if approved by voters, their provisions are very difficult to change, leaving few legal options to correct issues as they arise. Those factors helped stakeholders coalesce around Senator Allen’s efforts to broker a deal.

Satisfied with SB 54, the environmental groups sponsoring the initiative withdrew their proposal from the ballot. Compared to the ballot measure, SB 54 gives businesses more time to comply with recycling and alternative material mandates. It also creates a producer responsibility organization (PRO) comprised of plastics manufacturers to lead recycling programs and incorporate post-consumer content into packaging, contrasting with the ballot measure’s approach that gave most of the control to CalRecycle.

“The business community was committed to ensuring the Legislature passed responsible legislation that didn’t place the burden on working families but still created a path toward achieving our recycling goals,” said Brooke Armour, executive vice president of the California Business Roundtable, one of the organizations involved in negotiations.

SB 54 aims to address plastic waste by requiring 100 percent recyclable or compostable plastic packaging, a 25 percent reduction in plastic packaging use, and a 65 percent recycling rate for single-use plastic packaging by 2032.

The law was the result of negotiations between environmental groups, businesses, and other stakeholders, offering a compromise that creates one of the most expansive plastic packaging laws in the United States.

Grocery stores and food producers must prepare for the impending changes, including finding alternatives to Styrofoam and adjusting their operations to comply with SB 54’s requirements.

While all stakeholders ultimately had to compromise, many acknowledge the law’s importance nationally.

“[SB 54] is the biggest deal ever passed in the United States to address source reduction, recycling and remediation of plastic pollution,” said Heidi Sanborn, founder and executive director of the National Stewardship Action Council, a few months after the law passed.

WHAT DOES SB 54 Do?

By 2032, SB 54 requires:

100 percent of plastic packaging must be able to be recycled or composted;

■ A 25 percent overall cut in the use of plastic packaging; and

■ 65 percent of all single-use plastic packaging be recycled.

■ Some of these provisions will be phased in as 2032 approaches, giving businesses time to adjust.

Plastic manufacturers will also pay the industry-led PRO $5 billion over ten years as part of the deal. The PRO follows a model used in other sectors and allows the private sector to use its first-hand experience to design programs that accomplish the bill’s goals.

“Circularity ought to be taken into account when these products are designed, developed and marketed,” said Senator Allen on what he hoped to accomplish with the law. “[This is about] helping create a market for more sustainable products in packaging while also helping mitigate against the impacts of more and more plastic waste.”

Under SB 54, the PRO, with oversight from CalRecycle, will develop innovative programs that, among other goals, ensure recycling and make it more convenient, reduce costs to local governments, and reduce overall pollution. One of the most imminent aspects of the law for grocers is a de-facto ban on Styrofoam starting in 2025 unless 25 percent of the material statewide can be recycled.

“I don’t think it’s likely that Styrofoam will meet the goals,” said Senator Allen but added it’s not a foregone conclusion, “[The business community] pushed hard for a fighting chance to meet the goals.”

However, as 2025 looms, finding a replacement for Styrofoam will now need to be top of mind for every retailer, not just in cities with local bans.

From local bans to statewide standards

Similar to how California’s plastic bag fee emerged after a raft of local measures, SB 54 follows local actions on Styrofoam. More than 130 cities already have local ordinances restricting Styrofoam to varying degrees, according to Californians Against Waste, giving businesses some insight on how to utilize alternative materials.

Grocery stores and food producers will likely have less than two years to adjust their operations if Styrofoam producers cannot meet SB 54’s recycling requirements.

A market for alternative materials is emerging but meeting grocery stores’ needs for durability, humidity control, preserving products and other factors will require careful planning.

One benefit of a unified statewide policy is that it eliminates the patchwork of requirements and creates a larger market for alternative products. Additionally, examples are already emerging where local governments are allowing more time for businesses to comply.

The City of San Diego first proposed a comprehensive ban on Styrofoam in 2019. However, the ordinance was challenged in court, and city officials agreed to conduct a comprehensive analysis.

After concluding the study, San Diego’s ban recently took effect on April 1. It also includes a special exception for small businesses with incomes below $500,000 per year who will be given until April 2024 to comply, setting a similar timeline as SB 54, which will kick in several months later on January 1, 2025. The city is also considering a request from CGA for a two-year delay for raw meat packaging.

“This issue is a balancing act between meeting consumer demand for environmentally conscious packaging, while simultaneously ensuring food safety and reaching a realistic solution for grocers of all sizes,” said CGA President Ron Fong. As the experience in San Diego demonstrates, local governments are already factoring in SB 54 when setting their own rules.

The impact on businesses and consumers

Debates on past efforts to phase out singleuse plastic bags or increase composting requirements have centered around the health risks of eliminating these products, such as quality impacts on certain commodities like raw meat, and other practical or logistical concerns.

However, businesses will now need to resolve those issues with SB 54 on the books.

“Over time, we are all moving toward more sustainable food packaging,” said Senator Allen on what companies should expect for the future.

Grocery stores and food producers will need to prepare accordingly. The cost of packaging has traditionally been negligible for food products, but those costs will likely increase as the search continues for alternative materials that meet consumers’ expectations. Some retailers are already testing plant-based fiber packaging that is fully biodegradable and recyclable while aiming to mimic plastic’s cost and performance. In addition, new packaging companies like Arizonabased Foodprint continue to emerge to fill the need for alternative materials. This trend will only increase as SB 54’s mandates create a larger market for those products.

The Wall Street Journal covered a self-imposed effort to eliminate plastic packaging from Iceland Foods, the operator of 1,000 grocery stores in the United Kingdom. The retailer has grappled with challenges but continues experimenting with different product options.

They are optimistic they will ultimately find optimal solutions and expect costs to decline as they scale up their use.

While rising food costs are already an issue for most families, Californians have generally been open to playing a role in reducing their waste footprint.

“There’s not a single day that I don’t marvel at the trash can in my kitchen and think about the ridiculous amount of waste we create as a family each day,” said Kimberly Miller, author of the Mommy Blogger in California Grocer “When I shop, I actively look for materials that are at the least recyclable, but I would definitely be comforted knowing materials were biodegradable.”

“I’m fairly strict about our food budget, so higher food [and] packaging prices will mean making some cuts to extras, but that doesn’t necessarily mean I’m not in favor of them,” added Miller.

What to expect looking ahead

Some environmental groups are concerned that SB 54 contained too many concessions for plastic manufacturers and businesses. They are also worried it opens the door to certain types of chemical and advanced recycling and has provisions to exempt materials that present “unique challenges.”

These issues are likely to be a focus for business and environmental groups as the details of SB 54 are spelled-out through CalRecycle’s regulatory process, which is now getting underway.

“Existing and emerging technologies will play a critical role in addressing pollution and recycling and we look forward to working with policymakers on ensuring all options are on the table as we develop solutions moving forward,” added Armour on the business community’s engagement in the regulatory process and future legislation.

Nick Lapis, director of advocacy for Californians Against Waste, predicted state lawmakers could approve additional restrictions around the most toxic and least recyclable forms of plastic but didn’t foresee other immediate new mandates.

One advantage of SB 54 is it can be changed by the Legislature if specific provisions prove to be unfeasible, unlike the proposed ballot measure, which could be crucial to businesses with unique challenges like grocers.

“The Grocers Association was a really important player in the conversation from the very beginning,” added Allen on his appreciation for CGA’s continued involvement and engagement on the issue.

In the meantime, all parts of the food supply chain must prepare for SB 54’s rules to kick in. However, necessity is the mother of invention, and with a market as large as California requiring new forms of packaging, there will be opportunities for innovative products to fulfill the needs.

From the consumer side, Miller says, “There will always be a contingent of people who resist change, and for them, the change will have to be more gradual. But for many of us, these changes are welcome.” ■

RETAIL MEDIA: Advertising to consumers at or near their point of purchase, or point of choice between competing brands or products.

Opportunity Abounds As Retailers And Suppliers Explore New Frontiers In Advertising

Consumer packaged goods companies have always looked to where the eyeballs are. That was true from the first sign boards at ballparks to newspaper classified ads to Super Bowl commercials, hoping customers would remember a catchy name or slogan when they went to the store.

Today, technology has made it possible to go direct—advertising directly with media networks owned by large retailers and distributors and meeting potential customers right in the channels where they are making purchases. As the media landscape changes and the return on investment from traditional outlets becomes less certain, there is a logic in diverting resources into channels directly controlled by retailers. It has also resulted in a financial boon for many of these retailers, who find themselves sitting on the ingredients of a valuable advertising property.

byMattPressberg

“Any retailer knows how near impossible it is to get the attention of a potential customer, especially in a world dominated by Amazon,” said Gabriel Kahn, director of the Media, Economics and Entrepreneurship program at the University of Southern California’s Annenberg School of Communications and Journalism. “Anything that gets in front of customers at the point of sale is incredibly valuable, particularly in a media landscape that is beyond splintered and fragmented.” That value has resulted in total ad spending on retail media networks projected to surpass $45 billion this year, per data provided for the California Grocers Association by eMarketer, a market research firm that is now part of Insider Intelligence. Amazon accounts for more than three quarters of that spending—nearly $34 billion—but what’s left over still represents a huge opportunity for other retailers, said Max Willens, a senior analyst at eMarketer.

With plummeting linear TV viewing and plateauing streaming, as well as lessregulated digital outlets that can present brand safety issues, retail media groups have increasingly become a safe and valuable space to reach customers, Kahn said. The increased demand is also due to other digital avenues such as Facebook advertising becoming less efficient as a result of Google and Apple stopping their support of thirdparty cookies and mobile tracking. In this context, the rise of online grocery shopping, apps, and loyalty programs have created a situation where retail media groups make a lot of sense both for retailers and consumer packaged goods companies. On one hand, retailers can monetize their new digital traffic, in addition to physical storefront display opportunities and other creative uses of digital and physical real estate. On the other, CPG companies can precisely target a population that is actively shopping and insert their product directly into their purchasing process.

“You have inventory very close to the transaction,” said Willens. “It’s highly efficient.”

A Complex Game For Cpgs

Consumer packaged goods companies get to advertise directly in spaces where customers make purchases. Seeing an extremely compelling TV commercial still requires the viewer to go to a store or online to make the purchase. Seeing the same product advertised directly on a grocery store app or social platform presents fewer hurdles in the way of buying it.

That has been proven out in the results: one marketing executive who works closely with several Fortune 500 companies ran a campaign for a high-profile consumer brand on Instacart that had a 20 percent conversion rate—almost unheard of for a traditional line of media.

“People using these platforms are comfortable transacting at a lot of different price points,” Willens said. “These are also people you know quite a bit about, and repeat purchases paint an even deeper picture of who they are. It’s a very rich environment for a good conversion rate.”

CPG companies can also benefit from pricing that remains below many traditional means. Television commercials are expensive and wide-reaching—but not as relevant as they were before the acceleration of cord-cutting. Meanwhile, retail media networks are growing and constantly reaching more eyeballs, allowing CPGs to put their funds into an ascending platform that may still be undervalued, according to the marketing executive.

Before any brand goes full steam ahead into retail media, there are some important considerations. These networks are great at serving relevant advertisements to people who are already mentally ready to buy, but targeting and personalization has a fine line between useful and creepy.

Customers like to be rewarded for their behavior, but can push back at being tracked in a way that provides value to CPG firms. “Consumer packaged goods companies have the most to gain, and the most complexity to deal with,” said Willens. “Retail media networks are exactly the kind of digital channels they should be spending money on. These retailers are essentially in the sediment of the relationships between their brands and customers. But there are risks.”

One fairly obvious one Willens and the marketing executive pointed out are the management issues that come with expanding a relationship with a retailer, which brings in their agencies and other executives. This can lead to situations where there are too many cooks in the kitchen, and sensitivities when a brand might want to retarget customers through a third party, which may not be in the interest of the retail media network.

From Produce To Producing

Grocery stores have always had a low-margin core business, but retail media networks provide them with the opportunity to diversify into a historically more profitable niche: media and advertising. Walmart has had in-store TVs with advertising since the mid-2000s, while Amazon currently accounts for more than seven percent of the global online ad market, according to eMarketer. Other large retailers, including Kroger and Instacart, have taken notice of the growth and profitability of their peers and started retail media networks of their own.

“Grocery has historically been a tough business with very low margins,” said Willens. “Media, if done well, can have very healthy margins of 25 or 30 percent.

If you are in a single-digit-margin business, it’s hard to say no to.”

While the potential riches are enticing, Willens said retailers have to be pragmatic in how they approach setting up a retail media network or finding other ways to participate.

“This space is already fast-growing and fragmented,” he said. “Retailers have to decide if they have enough digital scale and/or first-party data to make their apps or websites worth seeking out for advertisers.

If both aren’t true, they should go in via aggregators.”

Even some large grocers have decided they were better served by not going it alone. Last month, Sprouts Farmers Market, a national specialty grocery store, announced a partnership with Instacart’s Carrot Ads platform, allowing brands to advertise across both Sprouts and Instacart (which provides grocery delivery for Sprouts).

According to a June 2022 report from Wakefield Research, while consumer packaged goods companies are largely happy with the results from retail media networks, they’d like to see better data and insights. Sixty-six percent of consumer packaged goods companies would be very or completely likely to allocate more of their advertising dollars with a retail media network if it provided point-and-click data insights that allowed them to build their audience. Nearly one-fourth of CPG firms ranked audience segmentation and insights as the top additional service they would want to see from retail media groups. This presents a significant market opportunity for retailers that invest in the technology, security, and capabilities required to deliver trustworthy, actionable intelligence and data. “There’s no real trusted third party to say, ‘the spending on Kroger works, but the spending on this other platform doesn’t,’” Willens said. “It becomes difficult to decide on the incremental value of one network versus another.”

In addition, retail media networks provide a tremendous amount of brand safety that is truly unparalleled in traditional means. As culture wars have intensified in recent years, advertising on the wrong network or adjacent to the wrong celebrity has found certain brands caught up in an unintentional political backlash, as Kahn pointed out.

On the other hand, YouTube and other streaming services offer even less in the way of guardrails, which the marketing executive said is a problem that is increasing in awareness among brands. Redirecting advertising from there to Walmart’s television network or Instacart’s app removes any negative political associations and makes it all about the product.

A Golden Era

With an an uncertain and fragmented media landscape, growing efficiency in data targeting, and technology becoming even more integral to the shopping expereince, the ingredients are in place for a golden era for retail media networks. Consumer packaged goods companies now have access to an advertising medium that can convert upwards of one in five viewers to consumers, which is likely to only grow more efficient as they continue to learn customer behavior. And grocers and other retailers have a sustainable, highmargin, complementary business that could not only provide extra financial resources to reinvest or distribute to shareholders, but a treasure trove of information about customer behavior.

According to data from eMarketer, U.S. retail ecommerce sales per digital buyer are expected to rise more than 40 percent over the next five years, going from about $5,000 in 2023 to more than $7,000 in 2027. This should provide a significant boost to their retail media businesses, as customers will direct more spending to those channels. Willens sees plenty of growth ahead, but offers a warning from another industry that found riches in advertising before losing its way and focus: traditional media.

“Local news publishers learned the hard way that there is an opportunity cost to adding ad space to any product,” Willens said. “If your local grocer’s website looks like a local news website, that is a bad experience. A busy instore environment is also a problem. Adding incremental millions is great, but not if it comes at the cost of your core business.” ■